Ruiz et al v. Act Fast Delivery of Colorado, Inc. et al

Filing 132

OPINION AND ORDER Denying Motion to Approve Settlement. The Court DENIES the Motion to Approve Settlement Agreement (# 131 ). Within 45 days of the date of this Order, the parties shall: 1) Request that the case be closed or all claims dismissed wi th prejudice premised upon an express representation that all plaintiffs, both named and those who have opted-in, have resolved their claims against the Defendant. If not all claims are settled, then specify those to be tried. or 2) Request approval of a settlement supplementing the motion as indicated in this Order, by Chief Judge Marcia S. Krieger on 1/9/2017. (agarc, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Chief Judge Marcia S. Krieger
Civil Action No. 14-cv-00870-MSK-NYW
DOMINGO RUIZ, and
MICHAEL BRYANT, individually and on behalf of all others similarly situated,
Plaintiff,
v.
ACT FAST DELIVERY OF COLORADO, INC.;
POWERFORCE OF COLORADO, INC.,
Defendants.
______________________________________________________________________________
OPINION AND ORDER DENYING MOTION TO APPROVE SETTLEMENT
______________________________________________________________________________
THIS MATTER comes before the Court pursuant to the parties’ Unopposed Motion to
Approve Settlement Agreement (# 131).
This action seeks to remedy the Defendants’ alleged failure to pay minimum wages and
overtime compensation as required by both the Fair Labor Standards Act (“FLSA”), 29 U.S.C. §
201 et seq., and the Colorado Wage Claim Act, C.R.S. § 8-4-101 et seq. The Plaintiffs initially
presented the suit as a hybrid action, litigating the FLSA claims as a collective action pursuant to
29 U.S.C. § 216(b), and the Wage Claim Act claims as a putative class action pursuant to Fed. R.
Civ. P. 23. Approximately 73 employees filed timely notices expressing their intention to opt
into this litigation for purposes of pursing their FLSA claims. The Plaintiffs later sought
certification of the Rule 23 class (# 127) for purposes of the state law claim, but settled the action
(# 129) before briefing on certification could be completed. As a result, it appears that the
Plaintiffs have abandoned any claims that are exclusive to the putative Rule 23 class members,

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and are proceeding to seek approval of the settlement only with regard to the 73 employees who
affirmatively opted into the action under the FLSA’s collective action paradigm.
The Plaintiffs now seek the Court’s approval of the terms of their settlement. Those
terms provide that: (i) the Defendants will pay $275,000, in 23 monthly payments of $12,000, to
a designated claims administrator; (ii) the claims administrator will withhold $6,000 from those
funds, to be paid as $3,000 incentive awards to each of the two named plaintiffs; (iii) an
additional $112,947.03 will be withheld from those funds, to be paid over to the Plaintiffs’
counsel in the form of $91,666.67 in attorney fees (that is, 33% of the settlement value) and
$21,280.36 in costs; (iv) the remaining $156,052.97 will be paid1 to the 73 opt-in plaintiffs on a
prorated basis determined by each plaintiff’s work records (Exhibit A to the settlement
agreement lists those plaintiffs and, presumably, the amount each will receive).
A. Court approval of FLSA settlements
The Court begins by observing that nothing in the text of the FLSA expressly requires
court review and approval of settlements. However, parties have followed the routine practice of
seeking such approval following Lynn’s Food Stores, Inc. v. United States, 679 F.2d 1350, 1355
(11th Cir. 1982). In Lynn’s Food, the court held that “there is only one context in which
compromises of FLSA back wage or liquidated damage claims may be allowed: a stipulated
judgment entered by a court which has determined that a settlement . . .is a fair and reasonable
resolution of a bona fide dispute over FLSA provisions.” In Lynn’s Food, the employer was the
subject of an investigation by the U.S. Department of Labor that had concluded that its wage and
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Neither the Motion nor the attached settlement agreement indicates whether payments to
the opt-in plaintiffs will be made in 23 monthly installments as well, whether the plaintiffs will
be required to wait 23 months until the final payment is made by the Defendants before any
proceeds will be disbursed, or whether some other form of periodic payments to the plaintiffs
will occur. Nor does the settlement agreement specify a schedule as to how the incentive
payments and fee awards will be deducted from the monthly payments.
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overtime policies violated the FLSA. In response, the employer approached its employees
directly, offering them a pool of $1000 (approximately a tenth of what the Department of Labor
estimated was owed) to divide amongst themselves in exchange for a waiver of any further claim
for compensation under the FLSA. Fourteen employees signed an agreement accepting the
payment and releasing their claims, and the employer then commenced suit in federal court
seeking a declaration that it had no further liability to the Department of Labor with regard to
those employees. Relying on Brooklyn Savings Bank v. O’Neil, 324 U.S. 697 (1945), and
Barrentine v. Arkansas-Best Freight System, 450 U.S. 728 (1981), the 11th Circuit noted that the
FLSA’s minimum wage and overtime requirements “are not subject to negotiation or bargaining
between employers and employees” and that “FLSA rights cannot be abridged by contract or
otherwise waived.” 679 F.2d at 1352. Based solely on these two conclusions, it then stated that
a release of FLSA claims pursuant to a private settlement would only be effective if the
settlement was reduced to a stipulated judgment2 against the employer that a court had
“scrutinized for fairness.” Id. at 1353.
In the ensuing years, Lynn’s Food acquired the patina of authority, with parties (and trial
courts) across the country assuming that court approval was required for every FLSA settlement
lest the parties’ unapproved private agreement be later held unenforceable. More recently,
however, courts have begun to question whether this practice based on Lynn’s Food remains
valid. Most notable is the thorough and well-reasoned opinion in Martinez v. Bohls Bearing
Equipment Co., 361 F.Supp.2d 608, 618-31 (W.D.Tx. 2005). In Martinez, the plaintiff had
complained of unpaid overtime compensation. The employer offered him $1000 in full
2

Although Lynn’s Foods expressly requires that, in order to be effective, a settlement be
rendered in the form of a “stipulated judgment” entered by the Court, the parties’ proposed order
here instead requests that, upon the Court’s approval of the parties’ settlement, this case be
“dismissed with prejudice.”
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satisfaction of his claim (which amounted to some $3,500), and the employee reluctantly
accepted. Later, the employee decided to re-assert his FLSA claim as part of a federal
discrimination lawsuit and the employer moved for summary judgment on that claim, citing to
the employee’s previous release of the FLSA claims.
This Court will not attempt to recapitulate Martinez’s exhaustive examination of the
legislative history of the FLSA, its amendments, and judicial interpretations addressing the issue
of FLSA settlements. It is enough to observe that Martinez persuasively concludes that the
Lynn’s Food’s requirement for judicial approval of voluntary settlements was driven by its facts
– the employer overreached the employees in inducing them to settle unasserted and
unevaluated claims for a small amount of money. The affected employees were largely unaware
of the fact that they had rights under the FLSA, had not been advised by an attorney before
signing the agreements; indeed, many did not speak English. Id. at 628.
Martinez also describes an evolution moving “away from the rigid interpretation of
statutory rights of the 1940s to a regime which supports settlement as a favored means of
resolving disputes.” Id. at 630, citing, inter alia, U.S. v. Allegheny-Ludlum Indst., 517 F.2d 826,
858-59 (5th Cir. 1975) (“Very frankly, we cannot conceive of how any employment
discrimination dispute could ever be resolved outside, or indeed inside, the courtroom, if
defendants were forbidden to obtain binding, negotiated settlements”). Martinez then
summarized its reasoning and delivered its holding:
Judicial caseloads, as well as the workload of the Wage and Hour
Administration, would likely be swamped with unnecessary
disputes, many dubious and with little evidence, that could not be
finally settled without approval from either a court or the Secretary
of Labor. This surely cannot be what was intended by Congress
when the FLSA was passed. In fact, less than ten years after the
passage of the FLSA, Congress amended the statute to provide for
compromises of then-existing claims involving bona fide disputes.
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Though Congress could have made the express availability of such
compromises prospective, rather than purely retrospective, it did
not prohibit such compromises . . . No court other than the
Eleventh Circuit has expressly held that such a settlement is
prohibited. . . Therefore, the Court holds that, according to the
language of the FLSA, its amendment by the Portal–to–Portal Act
of 1947 and the Fair Labor Standards Amendments of 1949, and its
interpretation in the case law, parties may reach private
compromises as to FLSA claims where there is a bona fide dispute
as to the amount of hours worked or compensation due. A release
of a party's rights under the FLSA is enforceable under such
circumstances.
This Court finds Martinez’s reasoning to be thorough, careful, and persuasive, and adopts
it with a few further observations. In modern jurisprudence, only a narrow range of settlements
require court approval. Among them are settlements in Rule 23 class actions and settlements
involving infants or incompetent persons. In such circumstances, judicial review of
compromises is necessary because the parties affected – the class members or the incompetent
persons – are not directly before the court nor have they necessarily participated in the decision
to settle.
The FLSA action, however, does not necessarily reflect either circumstance. The
peculiar opt-in nature of an FLSA collective action anticipates that all of those parties who settle
are actively participating and are represented by counsel. This Court sees no reason why the
public policies underlying the FLSA are any more important than those underlying Title VII, the
ADA, or other statutes designed to protect employees against discrimination or oppression, all of
which may be effectively compromised by the affected employees in a private settlement without
requiring court review or approval. There may be a small number of employers who will resort
to subterfuge, misdirection, or coercion to improperly induce employees into surrendering their
FLSA rights, but the correct solution to address a narrow problem is not an overbroad rule
requiring all FLSA settlements to receive judicial review and approval. Rather, the appropriate
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remedy to cure such misconduct is the same remedy used in literally every other context where a
settlement is claimed to be coercive, deceptive, or overreaching: upon a proper showing by the
employee, the court may set aside the settlement contract and restore the employee’s right to
seek his or her FLSA remedies directly.
Accordingly, this Court joins with Martinez court and the others that have adopted its
reasoning, holding that an FLSA claim that is genuinely disputed by the employer may be
compromised via a private settlement between the parties, and that such settlement will be
legally effective regardless of whether they are submitted to or approved by the trial court. See
e.g. Martin v. Spring Break ’83 Productions, LLC, 688 F.3d 247, 255 (5th Cir. 2012).
That, then, brings the Court to the question of the parties’ settlement in this case.
Presumably relying upon the long tradition started by Lynn’s Foods, the parties here may have
sought court approval of their settlement because they believed such approval was required for
the agreement to be effective. For the reasons set forth above, such approval is not required. It
may be that the parties no longer desire to have the Court review and approve their settlement. If
that is the case, they need only advise the court that all claims have been resolved, that they
desire to dismiss the case or close it. Then they proceed with enforcement of their settlement
contract.
If, on the other hand, the parties remain determined to seek judicial review and approval
of their settlement for one reason or another, the question then becomes what form that review
should take. In a Lynn’s Food world, where all FLSA settlements must be reviewed and
approved by the courts, the level of scrutiny of most “unopposed” motions seeking approval of
mundane FLSA settlements is understandably slight. The purpose of such review is primarily
administrative, to make sure that the motion is unopposed and to issue the appropriate order.

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However, in a post-Martinez world, where routine FLSA claims are resolved just like
claims in any other multi-party case by private agreement, those settlements that are judicially
reviewed due to some unusual quality in the case. For example, when not all opt-in plaintiffs can
be contacted to obtain consent, the level of review is necessarily greater. Parties should not
expect a rubber stamp approval, but instead a careful study of what has been submitted.

With

that idea in mind, the Court turns to the particular terms of the parties’ settlement here.
B. The instant motion
As submitted, the Court is unable to approve the parties’ settlement for several reasons.
First, although the parties have specified the settlement amount, they have not provided a
calculation of what the total amount of unpaid wages and overtime is arguably owed to all of the
plaintiffs. The motion states only that “[t]he parties also disagreed on the amount of damages
owed,” without ever reciting the particular amounts that were improperly withheld. Without
information as to the total amount of compensation that was claimed, the Court cannot determine
whether the settlement sum of $275,000 (or, perhaps more accurately, $156,052.97) reflects a
reasonable or unreasonable compromise. See e.g. Selk v. Pioneers Memorial Healthcare Dist.,
159 F.Supp.3d 1164, 1174 (S.D.Ca. 2016) (“A district court evaluates the plaintiff's range of
potential recovery to ensure that the settlement amount agreed to bears some reasonable
relationship to the true settlement value of the claims”)
Second, the Court has serious reservations with regard to the request for payment of
incentive awards to the named Plaintiffs. Putting aside the question of whether incentive awards
are ever appropriate in FLSA cases,3 the Court finds that the instant motion does not cite any
3

See e.g. Altnor v. Preferred Freezer Servs., ___ F.Supp.3d ___, 2016 WL 3878161 (E.D.
Pa. Jul. 18, 2016) (noting that “although commonly permitted by courts, no provision of rule or
statute authorizes incentive awards in collective actions” and observing that “Congress selected
particular enforcement mechanisms for the FLSA, which do not include any incentive scheme
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facts that justify any incentive incentives to the named Plaintiffs here, much less in the amounts
claimed. Among that factors that might justify an incentive award are: (i) the risk to the plaintiff
in commencing the action, both financially and otherwise, (ii) the notoriety and/or personal
difficulties encountered by the representative plaintiff, (iii) the extent of the plaintiff’s personal
involvement in the lawsuit in terms of discovery responsibilities and testimony at depositions
and trial, (iv) the duration of the litigation, and (v) the plaintiff’s personal benefit arising from his
or her capacity as an affected member of the settlement class. Altnor v. Preferred Freezer Servs.,
___ F.Supp.3d ___, 2016 WL 3878161 (E.D. Pa. Jul. 18, 2016). The Plaintiffs make no showing
as to most of these factors, offering only the generalized assertions that the named Plaintiffs
“were instrumental in identifying the alleged wage violations and building the case,” that they
“participat[ed] in [unspecified] written discovery [and] attended their depositions,”4 that one
Plaintiff also “attended and assisted at the mediation,” and that they “acted as liaisons to other
class members” in unspecified ways.
Even assuming that the Plaintiffs’ participation in the lawsuit was significant or that other
factors discussed above favored an incentive award, the Court would still be reluctant to approve
awards in the amount of $3,000 to each Plaintiff given the relatively small amount of their own
claimed injuries. According to the attachment to the parties’ settlement agreement, Mr. Ruiz’s
apparent share of the settlement is a mere $249; thus, his proposed incentive award is more than
like those that were historically present in qui tam or bounty hunter suits”). This Court further
notes that many cases that have approved of incentive awards in FLSA cases do so by pointing to
precedent involving class actions under Rule 23, without acknowledging the fundamental
procedural differences that render collective actions distinct from those types of cases. See e.g.
Tuten v. United Airlines, Inc,, 41 F.Supp.3d 1003, 1010 (D.Colo. 2014).
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The motion seems to indicate that the parties agreed to have 20 representative plaintiffs
respond to discovery requests. If this is the case, and the named Plaintiffs were simply two of
the 20 selected, it is difficult to conclude that the named Plaintiffs should receive an incentive
award due to the burden of responding to discovery, yet the other 18 plaintiffs who also did so
should not.
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10 times his own ordinary recovery. Mr. Bryant’s share of the settlement is approximately
$1,388, meaning that his incentive award is also more than double what his recovery would
otherwise be. Indeed, of the 73 individuals who opted in to this action, fewer than 20 will
receive settlement shares in excess of $3,000, making the incentive awards sought by the named
Plaintiffs some of the largest slices of the entire settlement pie. As the court in Altnor explained,
“[i]f class representatives expect routinely to receive special awards in addition to their share of
the recovery, they may be tempted to accept suboptimal settlements at the expense of the class
members whose interests they are appointed to guard.” Id. (rejecting $4,000 incentive awards as
excessive where named plaintiffs stood to receive only $1,400 from the settlement), quoting
Weseley v. Spear, Leeds & Kellogg, 711 F.Supp 713, 720 (E.D.N.Y. 1989). Here, the size of the
requested incentive awards are so disproportionate to the named Plaintiffs’ actual share of the
settlement that this Court would have legitimate concerns that the action was pursued by them
predominantly for the purposes of collecting an incentive, not simply for vindicating their own
minimal FLSA losses.
Third, the Court is not prepared to conclude that the amount of fees and costs sought by
the Plaintiffs’ counsel is reasonable. The parties have not supplied the Court with any
information the describes the services provided by counsel or the rates charged, much less the
type of contemporaneous records and receipts for services that would normally accompany a
request for an award of attorney fees under D.C. Colo. L. Civ. 54.3. Rather, the motion largely
recites the proceedings reflected in the docket, without indicating how much time was spent on
various tasks or by whom. It may be that $100,000 is a fair and reasonable compensation for
counsels’ work, but the Court will not simply assume it to be so because that figure falls within
the contingent fee agreement between the Plaintiffs and counsel. It also may be that 33% or 40%

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contingent fee agreements are common, but that does not mean that such sum reflects a
reasonable fee for services provided. If the touchstone of the Court’s review of a settlement
agreement is to ascertain whether the settlement is reasonable and fair to the affected employees,
the Court must have adequate evidence to evaluate whether the amount of fees and costs sought
is commensurate with the value of the services performed on the Plaintiffs’ behalf. Such a
determination cannot be made merely from conclusory assertions of the litigation’s complexity
or even a recitation of filings shown in the docket.
Finally, and most importantly, there is no indication that all opt-in plaintiffs consented to
the settlement. The motion gives no indication that the Plaintiffs’ counsel has informed each
opt-in plaintiff of the terms of the settlement and secured each plaintiff’s acceptance of it.
Instead, the motion seems to suggest that only the named Plaintiffs have consented to the terms
of the settlement – which is understandable in light of the fact that their incentive payments
greatly exceed their claims.
The consent of all plaintiffs, either named or who have opted-in, is required for approval
of the settlement. This is because every individual opting in to a collective action “has party
status . . the same status in relation to the lawsuit as the named plaintiffs.” Halle v. West Penn
Allegheny Health Sys., Inc., 842 F.3d 215, 225 (3d Cir. 2016), citing Wright, Miller & Kane,
Federal Practice and Procedure, Civil 3d § 1807. Such status highlights a fundamental difference
between collective actions under the FLSA and Rule 23 class actions.
It may be helpful to conceptualize this FSLA lawsuit as a multi-plaintiff action with 73
separate plaintiffs, each of whom asserts an independent FLSA claim. Unlike representative
Plaintiffs in a Rule 23 class action, Mr. Ruiz and Mr. Bryant cannot act on behalf of the other

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opt-in plaintiffs in settling this matter.5 In this action, every plaintiff has an individual right to
decide whether to settle and upon what terms. As a result, only the claims of those plaintiffs who
consent can be compromised. If one or more plaintiffs do not consent to these terms, they cannot
be forced to settle, and such claims proceed to trial.6
Admittedly, there could be circumstances in which the nature or size of the opt-in group
makes it impractical to solicit and obtain universal consent before an action can be settled in its
entirety. This Court need not explore those circumstances at this time, nor consider the
alternative means of demonstrating that might be appropriate in such event, insofar as the Court
is not inclined to assume that a group of 73 plaintiffs is sufficiently numerous to require
specialized handling. Given the technological means for effectively communicating with large
groups of individuals, the Court is confident that the Plaintiffs’ counsel can effectively inform

5

Compare Halle, 842 F.3d at 219-20 (mentioning opt-in consent form that included each
plaintiff’s agreement to “authorize the named plaintiffs to make decisions on my behalf
concerning the litigation . . . including any settlement”). The opt-in forms found in the record
here (# 107) do not reflect similar language, and the motion gives no indication that the opt-in
plaintiffs have otherwise contractually agreed to be bound by the named Plaintiffs’ decisions.
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The Court is cognizant that this injects additional complications into settlement
negotiations. An employer facing claims from 50 opt-in plaintiffs may wish to consummate a
global settlement that resolves all 50 claims for a given amount of money. But if 5 plaintiffs
choose to reject the settlement and proceed to trial, the employer might not wish to proceed with
the settlement of the other 45 claims, or may demand a reduction in the settlement amount to
compensate for the holdout plaintiffs. (And that reduction may result in additional defections
from the original 45 plaintiffs, beginning a cascade that tears the entire settlement apart.)
Moreover, the existence of a group of clients that wish to settle on certain terms and a separate
group of clients who simultaneously refuse to settle on those terms could, conceivably, present
produce a conflict of interest in counsel’s ongoing representation of both groups that could raise
ethical concerns.
The Rule 23 paradigm avoids both difficulties by allowing a sufficient majority of
Plaintiffs to cramdown a settlement on a non-consenting minority of Plaintiffs. But, as noted, a
FLSA collective action is not a Rule 23 class action, and FLSA plaintiffs have rights and
privileges that Rule 23 class members do not.
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each of the opt-in plaintiffs of the nature and terms of the settlement and secure some
manifestation of each plaintiff’s consent to that settlement.7
Accordingly, the Court DENIES the Motion to Approve Settlement Agreement (# 131).
Within 45 days of the date of this Order, the parties shall:
1) Request that the case be closed or all claims dismissed with prejudice premised upon
an express representation that all plaintiffs, both named and those who have opted-in,
have resolved their claims against the Defendant. If not all claims are settled, then
specify those to be tried. or
2) Request approval of a settlement supplementing the motion as indicated in this Order;
Dated this 9th day of January, 2017.
BY THE COURT:

Marcia S. Krieger
Chief United States District Judge

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The Court will not, at this time, dictate any particular form that this notice should take.
No proposed notice has been tendered and the Court declines any invitation to be the primary
author of such notice on its own initiative. Rather, when (and if) the Plaintiffs move again for
court approval of the settlement, that motion must include a copy of any notice that was given to
the plaintiffs, and the Court will evaluate at that time whether the notice provided each plaintiff
with sufficient information that those plaintiffs’ consents can be deemed reliable.
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