McKeen-Chaplin v. Franklin American Mortgage Company

Filing 67

ORDER by Judge ARMSTRONG denying 63 Motion for Settlement (lrc, COURT STAFF) (Filed on 12/19/2012)

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1 2 3 4 UNITED STATES DISTRICT COURT 5 FOR THE NORTHERN DISTRICT OF CALIFORNIA 6 OAKLAND DIVISION 7 8 9 Gina McKeen-Chaplin, individually, on behalf of herself and all others 10 similarly situated, Plaintiff, 11 12 Case No: C 10-5243 SBA ORDER Docket 63 vs. 13 Franklin American Mortgage Company and DOES 1-50, inclusive, 14 Defendant. 15 16 17 18 19 20 21 22 23 24 25 26 27 28 This is a wage-and-hour class action and collective action suit brought by Plaintiff Gina McKeen-Chaplin ("Plaintiff") on behalf of herself and all others similarly situated against Defendant Franklin American Mortgage Company ("Defendant"). Plaintiff alleges that she and the putative class members were denied proper compensation in violation of the Fair Labor Standards Act ("FLSA"), 29 U.S.C. § 201 et seq.; California Labor Code §§ 201-203, 226, 510, 512, 1194; IWC Wage Order No. 4; and California Business & Professions Code § 17200 et seq. ("UCL"). The parties are presently before the Court on their joint motion to approve FLSA settlement and dismiss this action with prejudice. Dkt. 63. Having read and considered the papers filed in connection with this matter and being fully informed, the Court hereby DENIES the motion without prejudice, for the reasons stated below. The Court, in its discretion, finds this matter suitable for resolution without oral argument. See Fed.R.Civ.P. 78(b); N.D. Cal. Civ. L.R. 7-1(b). 1 I. 2 BACKGROUND On November 18, 2010, Plaintiff commenced the instant action. Compl., Dkt. 1. 3 From December 27, 2010 to October 11, 2011, thirteen individuals filed written notice of 4 their consent to join the FLSA aspect of this action. See Dkt. 17-19, 22-23, 25, 42, 44, 51, 5 56-59. 6 On January 12, 2011, Plaintiff filed a first amended complaint ("FAC") alleging 7 federal and state law claims based on Defendant's misclassification of mortgage 8 underwriters as exempt employees. FAC, Dkt. 24. Specifically, the FAC alleges six claims 9 for relief: (1) failure to pay overtime wages in violation of the FLSA; (2) failure to pay 10 overtime wages in violation of Labor Code §§ 510 and 1194, and IWC Wage Order No. 4; 11 (3) failure to pay all wages due within the time specified by law in violation of Labor Code 12 §§ 201-203; (4) failure to provide accurate wage statements in violation of Labor Code § 13 226, and IWC Wage Order No. 4; (5) failure to provide meal breaks in violation of Labor 14 Code § 226 and 512, and IWC Wage Order No. 4; and (6) violation of California Business 15 & Professions Code §17200 et seq. FAC, Dkt. 24. 16 After the Court denied Defendant's motion to dismiss the FAC on September 13, 17 2011, Dkt. 52, the parties engaged in settlement discussions. Schug Decl. ¶ 2, Dkt. 63-2. 18 On June 6, 2012, the parties reached an agreement to settle Plaintiffs' FLSA claims for 19 $165,000. Id. ¶ 3; Joint Mtn. at 2.1 The proposed settlement allocates the $165,000 20 settlement amount as follows: (1) $55,000 in attorneys' fees (which is 33% of the settlement 21 amount); (2) $2,373.94 in costs; and (3) $107,626.06 to be distributed to the fourteen 22 Plaintiffs on a pro rata basis based on their actual payroll data and their individual overtime 23 estimates. Id. ¶ 4; Joint Mtn. at 3. In exchange for their settlement payments, each Plaintiff 24 has agreed to release Defendant and others from "any and all claims, . . . whether known or 25 1 The settlement does not include a FLSA collective action or a Rule 23 state class action. Joint Mtn. at 2. While Plaintiff filed a motion to conditionally certify a collective 27 action under the FLSA on March 11, 2011, Dkt. 34, this case was settled before the Court ruled on the motion. Plaintiff did not file a motion for class certification under Rule 23 28 prior to the settlement of this case. 26 -2- 1 unknown, arising from, relating to, or in any way connected with [their] employment with 2 or termination of employment from [Defendant]. . . ." Schug Decl. ¶ 5, Exh. A.2 On 3 September 4, 2012, the parties filed the instant motion, which seeks approval of the FLSA 4 settlement and dismissal of this action with prejudice. 5 II. DISCUSSION 6 A. 7 The FLSA requires employers to pay their employees time and one-half for work FLSA Settlement 8 exceeding forty hours per week. 29 U.S.C. § 207(a)(1). Section 216(b) of the FLSA 9 allows employees to represent similarly situated co-workers in an action against their 10 employer for failure to pay wages owed. 29 U.S.C. § 216(b) ("An action to recover the 11 liability prescribed in either of the preceding sentences may be maintained against any 12 employer . . . by any one or more employees for and in behalf of himself or themselves and 13 other employees similarly situated."). 14 A settlement of an action under the FLSA differs from the settlement of other 15 claims. The FLSA was enacted for the purpose of protecting workers from substandard 16 wages and oppressive working hours. Barrentine v. Arkansas-Best Freight System, 450 17 U.S. 728, 739 (1981). An employee's right to a minimum wage and to overtime pay under 18 the FLSA is nonwaivable; thus FLSA rights cannot be abridged by contract or otherwise 19 waived because this would "nullify the purposes" of the statute and thwart the legislative 20 policies it was designed to effectuate. Id. at 740. Employees may not negotiate away 21 liquidated damages or back wages in the interest of achieving a settlement. See Brooklyn 22 Savings Bank v. O'Neil, 324 U.S. 697, 707 (1945); D.A. Schulte, Inc. v. Gangi, 328 U.S. 23 108, 114-115 (1946). 24 25 Despite this general rule, the Eleventh Circuit has explained that an FLSA claim can be settled in two ways. Lynn's Food Stores, Inc. v. United States, 679 F.2d 1350, 1353 26 27 2 28 In support of their joint motion, the parties have submitted a "sample" of the settlement agreement that each Plaintiff has signed. Schug Decl., Exh. A. -3- 1 (11th Cir. 1982).3 First, an employee may settle and waive claims under the FLSA if the 2 payment of unpaid wages by the employer to the employee is supervised by the Secretary 3 of Labor. Id. Second, an employee may settle and waive claims under the FLSA if the 4 parties present to a district court a proposed settlement agreement, and the district court 5 enters a judgment approving the settlement. Id. Before approving an FLSA settlement, the 6 court must scrutinize it to determine if it is "a fair and reasonable resolution of a bona fide 7 dispute." Id. at 1354-1355. If the settlement reflects a reasonable compromise over issues 8 that are actually in dispute, the Court may approve the settlement "in order to promote the 9 policy of encouraging settlement of litigation." Id. at 1354. 10 B. 11 12 Analysis 1. Bona Fide Dispute This case involves disputed issues of FLSA coverage and potential liability, which 13 constitutes a bona fide dispute. See Dkt. 48. As illustrated by the arguments set forth in 14 Defendant's opposition to Plaintiff's motion for conditional certification of a collective 15 action under the FLSA, a bona fide dispute exists regarding whether Defendant's mortgage 16 underwriters are non-exempt "production" workers. See id. Further, the parties have 17 represented in the instant motion that disputes exist regarding the proper damages measure 18 in this case,4 whether liquidated damages and the three-year statute of limitations for willful 19 violations of the FLSA are available, and the amount of overtime hours that the Plaintiffs 20 actually worked. Joint Mtn. at 5. 21 3 While the Ninth Circuit has not specifically addressed the question of whether FLSA claims may only be settled and resolved in two ways, district courts in the Ninth 23 Circuit have followed Lynn's Food Stores. See, e.g., Khanna v. Inter-Con Sec. Systems, Inc., 2012 WL 4465558, at *10-11(E.D. Cal. 2012); Campanelli v. Hershey Co., 2011 WL 24 3583597, at *1 (N.D. Cal. 2011); Lee v. The Timberland Co., 2008 WL 2492295, at *2 (N.D. Cal. 2008); Yue Zhou v. Wang's Restaurant, 2007 WL 17230, at *1-3 (N.D. Cal. 25 2007). 22 4 Plaintiffs contend that they are entitled to time-and-one-half of their regular rate of pay for each overtime hour worked. Joint Mtn. at 5. Defendant, relying on Overnight 27 Motor Transp. Co. v. Missel, 316 U.S. 572 (1942), contends that the proper measure of damages in a misclassification case is the half-time methodology referred to as the 28 "fluctuating workweek method." Id. 26 -4- 1 2 2. Fair and Reasonable A district court may approve an FLSA settlement if the proposed settlement reflects 3 "a reasonable compromise over [disputed] issues." Lynn's Food Stores, 679 F.2d at 1354. 4 The parties contend that the settlement is a fair and reasonable resolution of this action 5 "because the payments to Plaintiffs are substantial, and they represent a reasonable 6 compromise of Plaintiffs' FLSA claims." Joint Mtn. at 6. According to the parties, a 7 settlement totaling $165,000 for fourteen Plaintiffs is "certainly a reasonable compromise 8 in light of the risks of litigation." Id. These conclusory assertions are not supported by any 9 evidence or analysis. Instead, the parties offer the following vague and perfunctory 10 statement: "based on the calculations of Plaintiffs' counsel, if the Court were to apply the 11 fluctuating workweek method of calculating back wages, and award overtime for a two- 12 year statutory period, Plaintiffs' liquidated FLSA damages could drop to approximately 13 $116,000. Given all of the factors affecting the damages calculations, the amounts paid in 14 the settlement are eminently reasonable." Schug Decl. ¶ 3. 15 Absent more information and analysis, the Court cannot conclude that the settlement 16 is a fair and reasonable resolution of this action. The parties have not provided the Court 17 with any information that would enable the Court to evaluate whether $165,000 is a 18 reasonable settlement in light of the maximum recovery Plaintiffs could have obtained if 19 the action were concluded on the merits in their favor. The instant motion does not provide 20 estimates regarding the number of overtime hours worked by each Plaintiff and information 21 regarding the potential range of recovery for each Plaintiff. See Khanna, 2012 WL 22 4465558, at *11 (rejecting FLSA settlement in part because counsel provided no 23 information about the potential range of recovery). Indeed, the parties have not provided 24 the Court with any specific information or analysis explaining how and why they arrived at 25 the settlement amount of $165,000. Nor have they identified the settlement payment 26 received by each Plaintiff and explained how they arrived at the specific amount allocated 27 to each Plaintiff. 28 -5- 1 The Court also has concerns with the scope of the general release provision 2 contained in the settlement agreements signed by Plaintiffs, which provides that each 3 Plaintiff "fully" and "completely" releases Defendant and others from "any and all claims . . 4 . whether known or unknown, arising from, relating to, or in any way connected with 5 [Plaintiff's] employment with or termination of employment from [Defendant]. . . ." Schug 6 Decl., Exh. A ¶ 3. Courts have found that overly broad release provisions, which release a 7 Defendant from all claims to settle their wage claims, including claims that are unrelated to 8 the claims asserted in the complaint, are improper in FLSA and class action settlements. 9 See Moreno v. Regions Bank, 729 F.Supp.2d 1346, 1347, 1350-1352 (M.D. Fla. 2010) 10 (FLSA settlement); Hogan v. Allstate Beverage Co., Inc., 821 F.Supp.2d 1274, 1284 (M.D. 11 Ala. 2011) (same); Gambrell v. Weber Carpet, Inc., 2012 WL 5306273, at *2, 5 (D. Kan. 12 2012) (same); see also Bond. v. Ferguson Enterprises, Inc., 2011 WL 284962, at *7 (E.D. 13 Cal. 2011) (finding release overbroad in class action where release did not track the extent 14 and breadth of Plaintiffs' allegations and released unrelated claims of any kind or nature up 15 to the date of the agreement); Kakani v. Oracle Corp., 2007 WL 1793774, at *2-3 (N.D. 16 Cal. 2007) (rejecting a settlement in part because of the "draconian scope" of the proposed 17 release, which, among other things, released and forever discharged the defendant from any 18 and all claims that were asserted or could have been asserted in the complaint whether 19 known or unknown). 20 21 22 23 24 25 Here, the "General Release and Covenants" provision in the "sample" settlement agreement provides: a. In return for the consideration herein, the sufficiency of which is acknowledged, McKeen-Chaplin hereby fully, finally, completely, and generally releases the Releasees5 from any and all claims, actions, demands and/or causes of action, of whatever kind or character, including, but not limited to, any claims under Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e, et seq., and its amendments; Section 1981 of the Civil Rights Act, 42 U.S.C. § 1981, the Older Workers Benefit Protection Act; the Age 26 5 The "Releasees" are defined as "[Defendant] and DOES 1-50, their parents, affiliates, predecessors, successors, subsidiaries, divisions, assigns, officers, directors, shareholders, representatives, employees, former employees, attorneys, insurers and 28 agents." Schug Decl., Exh. A ¶ 1. 27 -6- 1 2 3 4 5 6 7 8 9 10 11 Discrimination in Employment Act of 1967, 29 U.S.C. § 621, et seq.; the Americans With Disabilities Act, 42 U.S.C. § 121 1, et seq.; the Employee Retirement Income Security Act, 29 U.S.C. § 1001, et seq.; the Fair Labor Standards Act, 29 U.S.C. § 301, et seq.; the Sarbanes-Oxley Act of 2002, Pub, L. 107-204, 116 Stat. 745; California Labor and Government Codes; any California Wage Order the California Constitution; the Fair Employment & Housing Act; Private Attorney Generals' Act of 2004; the California Confidentiality of Medical Information Act; any claims for breach of contract, tortious interference with employment, negligent supervision, outrageous conduct, intentional infliction of emotional distress, defamation, libel, slander, assault, battery, false imprisonment, and any other claims, whether known or unknown, arising from, relating to, or in any way connected with McKeen-Chaplin's employment with or termination of employment from Franklin American including, without limitation, any claims for attorneys' fees and costs that she, her heirs, administrators, executors, personal representatives, beneficiaries, and assigns may have against any of the Releasees for compensatory or punitive damages or other legal or equitable relief of any type or description as of the Effective Date of this Agreement as defined below. McKeen-Chaplin does not waive any rights that may arise subsequent to the execution of this Agreement provided, however, that nothing contained in this Paragraph shall be deemed or construed to be a release of any term or condition of this Agreement. 12 13 b. The claims, causes of action, security interests, liabilities, and judgments released in Paragraph 3(a) above shall be referred to collectively herein as the 'Released Claims.' 14 15 16 c. McKeen-Chaplin hereby covenants and agrees that she will forever refrain and forebear from commencing, instituting, or prosecuting any lawsuit, action, or other proceeding against any of the Releasees, individually or collectively, based on, arising out of, or connected with any of the Released Claims. 17 18 19 20 21 22 23 24 25 26 Schug Decl., Exh. A ¶ 3 (footnote added). The settlement agreement further provides that: [T]he release . . . is intended to include in its effect, without limitation, claims that [McKeen-Chaplin] did not know or suspect to exist at the time of execution hereof, regardless of whether the knowledge of such claims, or the facts upon which they might be based, would materially have affected the settlement of this matter, and that the consideration given under this Agreement is also for the release of those claims and contemplates the extinguishment of any such unknown claims. In furtherance of this settlement, McKeen-Chaplin waives any rights she may have under California Civil Code section 1542 (and other similar statutes arid regulations). Section 1542 states: A general release does not extend to Claims which the creditor does not know or suspect to exist in her or her favor at the time of executing the release, which if known by her or her must have materially affected her or her settlement with the debtor. 27 28 Schug Decl., Exh. A ¶ 4(b); see also id. ¶ 5. -7- 1 The Court finds that the parties have failed to demonstrate that it would be fair and 2 reasonable for the Court to enforce the broad general release provision contained in the 3 settlement agreements. The provision does not track the breadth of the allegations in this 4 action and releases unrelated claims, whether known or unknown, that the Plaintiffs may 5 have against Defendant. See Collins v. Cargill Meat Solutions Corp., 274 F.R.D. 294, 303 6 (E.D. Cal. 2011) (finding release proper and not overly broad because the "released claims 7 appropriately track the breadth of Plaintiffs' allegations in the action and the settlement 8 does not release unrelated claims that class members may have against defendants"); 9 Vasquez v. Coast Valley Roofing, Inc., 670 F.Supp.2d 1114, 1126 (E.D. Cal. 2009) 10 (finding release proper because the "released claims appropriately track the breadth of 11 Plaintiffs' allegations in the action and the settlement does not release unrelated claims that 12 class members may have against defendants."). The parties have not explained why the 13 release of "any and all claims . . . whether known or unknown, arising from, relating to, or 14 in any way connected with [Plaintiff's] employment with or termination of employment 15 from [Defendant]" is fair and reasonable. There has been no showing that Plaintiffs have 16 been independently compensated for the broad release of claims unrelated to any dispute 17 regarding FLSA coverage or wages due, including, among others, claims for discrimination 18 under Title VII, intentional infliction of emotional distress, and "outrageous conduct." See 19 Moreno, 729 F.Supp.2d at 1351 ("[A]n employer is not entitled to use an FLSA claim (a 20 matter arising from the employer's failing to comply with the FLSA) to leverage a release 21 from liability unconnected to the FLSA."). Nor has there been a showing that the Plaintiffs 22 have a full understanding of what they are releasing in exchange for a settlement payment. 23 There is no evidence that Plaintiffs have being fully informed of the consequences of the 24 release provision. 25 3. Attorneys' Fees and Costs 26 The FLSA requires that in any action to enforce § 207 of the Act, the Court "shall, in 27 addition to any judgment awarded to the plaintiff or plaintiffs, allow a reasonable attorney's 28 fee to be paid by the defendant, and costs of the action." 29 U.S.C. § 216(b). Here, -8- 1 Plaintiffs' counsel requests attorneys' fees in the amount of $55,000 (i.e., 33% of the 2 settlement amount), plus costs in the amount of $2,373.94. Joint Mtn. at 6. Given the 3 parties' failure to demonstrate that the settlement is a fair and reasonable resolution of this 4 action, the Court finds that a ruling on the propriety of the fee award and costs requested by 5 Plaintiffs' counsel is premature. The Court notes that while Plaintiffs' counsel submitted 6 documentation in support of the costs requested, counsel failed to submit time records 7 justifying the fee award requested. Thus, in the event that the parties file a renewed motion 8 to approve FLSA settlement, the Court directs Plaintiffs' counsel to support its request for 9 attorneys' fees with contemporaneous time records setting forth the time expended on this 10 case and the hourly rates charged. 11 III. CONCLUSION 12 For the reasons stated above, IT IS HEREBY ORDERED THAT: 13 1. The parties' joint motion to approve FLSA settlement and dismiss this action 14 with prejudice is DENIED without prejudice to the filing of a renewed motion that corrects 15 the deficiencies identified above. 16 2. 17 IT IS SO ORDERED. 18 This Order terminates Docket 63. Dated: 12/18/12 ________________________________ SAUNDRA BROWN ARMSTRONG United States District Judge 19 20 21 22 23 24 25 26 27 28 -9-

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