Lopez v. Overtime 1st Avenue Corp.
OPINION AND ORDER: For the reasons set forth above, IT IS HEREBY ORDERED that the parties' motions for entry of judgment under Rule 68, or in the alternative, for leave to file an interlocutory appeal, are DENIED. IT IS FURTHER ORDERED that, no later than May 9, 2017, the parties shall file with the Court a joint letter (1) explaining why the Rule 68 Offers are fair, applying the criteria outlined in the Court's order, dated July 1, 2016 (Doc. No. 28), and Wolinsky v. Scholastic Inc., 900 F. Supp. 2d 332, 335-37 (S.D.N.Y. 2012), or (2) requesting that the Court schedule a trial in this matter. (As further set forth in this Opinion & Order.) (Signed by Judge Richard J. Sullivan on 5/2/2017) (mro)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
JOYSEL LOPEZ, et al.,
No. 15-cv-820 (RJS)
OPINION & ORDER
OVERTIME 1ST AVENUE CORP., d/b/a
PRIME ONE 16,
RICHARD J. SULLIVAN, District Judge:
Now before the Court are the parties’ joint motions for: (1) entry of judgment under Rule
68 of the Federal Rules of Civil Procedure in Plaintiffs’ favor, or, in the alternative, (2) leave to
file an interlocutory appeal to the United States Court of Appeals for the Second Circuit pursuant
to 28 U.S.C. § 1292(b). (Doc. Nos. 71, 77, 81.) For the reasons set forth below, the motions are
On February 4, 2015, Plaintiff Joysel Lopez (“Lopez”) commenced suit, alleging that
Defendant failed to pay overtime and minimum wages required under the Fair Labor Standards
Act (“FLSA”) and New York Labor Law (“NYLL”). (Doc. No. 1.) On September 14, 2015, the
Court granted the parties’ joint request for conditional certification of this case as a FLSA
collective action. (Doc. No. 25.) Thereafter, Plaintiffs Giannina Gutierrez, Claudia Molano, and
Panasea Avery opted to join this action. (Doc. Nos. 30, 31, 32.) After discovery closed, the
Court, in an order dated January 6, 2016, scheduled trial for April 25, 2016. (Doc. No. 38.)
On March 31, 2016, the parties submitted a letter informing the Court that they had
reached a settlement. (Doc. No. 47.) On April 4, 2016, the Court adjourned trial and ordered the
parties to submit a copy of the proposed settlement and to attend a fairness hearing on May 2,
2016, which, at the parties’ request, the Court later adjourned to May 23, 2016. (Doc. Nos. 48,
50.) On May 20, 2016, the parties submitted a copy of their proposed settlement (the “Rejected
Settlement”), under which Lopez was to receive $13,416.22 – 64.2% of the $20,916.22
distributed to Plaintiffs – and the other three Plaintiffs were to each receive $2,500, which
constituted approximately 12% of the distribution. (Doc. No. 53 at 2.) In addition, Plaintiffs’
attorneys were to receive $11,550 in fees and $2,533.78 as reimbursement for out-of-pocket
costs, which together totaled over 40% of the $35,000 settlement offer. (Id.) On May 23, 2016,
the Court held a fairness hearing at which it declined to approve the proposed settlement for
several reasons, including: (1) “counsel’s failure to articulate why [Lopez was] entitled to a
settlement award nearly five times greater than the settlement amount proposed for each of his
co-Plaintiffs, despite the fact that all four named Plaintiffs appear to be similarly situated,” and
(2) the failure of three of the four named Plaintiffs to appear personally at the hearing,
notwithstanding the fact that their appearance was ordered by the Court. (Doc. No. 58.) The
Court also ordered the parties to file an update regarding proposed next steps in this action. (Id.;
Doc. No. 60.) On June 10, 2016, the parties wrote a letter to the Court indicating that they had
been “unable to agree on modifications that they believe will satisfy the Court,” though they also
indicated that they would “continue to work towards a consensual resolution” of the case. (Doc.
No. 61.) In an order dated June 14, 2016, the Court scheduled trial for July 18, 2016. (Doc. No.
On June 30, 2016, each Plaintiff filed a notice of acceptance of an offer of judgment
under Rule 68 of the Federal Rules of Civil Procedure (the “Rule 68 Offers”), pursuant to which
Lopez was to receive $22,472.09 and each of the other three Plaintiffs was to receive $4,175.97.
(Doc. Nos. 63–66.) As the parties explained at the pre-motion conference held on August 1,
2016, the amounts contained in the Rule 68 Offers include attorney’s fees and costs. Thus, the
total recovery under the Rule 68 Offers – like the total recovery under the Rejected Settlement –
is $35,000, of which Lopez would once again obtain 64.2% of the judgment after attorney’s fees
and costs. On July 1, 2016, the Court issued an order directing the parties to submit a joint letter
explaining why the Rule 68 Offers were not merely settlements that required a fairness hearing.
(Doc. No. 68.) In its order, the Court acknowledged that “the Second Circuit has not directly
ruled on whether [the] fairness analysis for FLSA settlements,” which is required for voluntary
dismissals with prejudice under Rule 41(a)(1)(A)(ii), extends to Rule 68 offers of judgment.
(Doc. No. 68 at 1 (citing Cheeks v. Freeport Pancake House, Inc., 796 F.3d 199 (2d Cir. 2015).)
The Court also observed, however, that it saw “no reason to distinguish between settlements
effectuated by such accepted offers of judgment and private settlement agreements.” (Doc. No.
68 at 1–2.)
On July 12, 2016, the parties jointly filed a letter requesting a pre-motion conference for
their contemplated motions for entry of judgment based on Plaintiffs’ acceptance of the Rule 68
Offers, or, in the alternative, for certification to the United States Court of Appeals for the
Second Circuit for interlocutory appeal pursuant to 28 U.S.C. § 1292(b). (Doc. No. 71.) On
August 1, 2016, the Court held a pre-motion conference on the motions. On January 23, 2017,
Plaintiffs submitted a letter to the Court with supplementary authority on the issue of whether
judicial or United States Department of Labor (“DOL”) approval was required for entry of
judgment under Rule 68. (Doc. No. 77.) On January 23, 2017, the Court ordered the parties to
submit a joint letter of no more than ten (10) pages addressing: (1) the arguments advanced by
the DOL in Sanchez v. Burgers & Cupcakes LLC, 16-cv-3862 (VEC), Doc. No. 43 (S.D.N.Y.
Jan. 13, 2017), and (2) the recent opinion by Judge Forrest in Rodriguez-Hernandez v. K. Bread
& Co., 15-cv-6848 (KBF), Doc. No. 56 (S.D.N.Y. Jan. 10, 2017). On February 13, 2017, the
parties filed their supplemental submission. (Doc. No. 81.)
A. Rule 68
It is well settled that “parties cannot settle their FLSA claims through a private stipulated
dismissal with prejudice pursuant to Federal Rule of Civil Procedure 41(a)(1)(A)(ii)” without
either court or DOL approval. Cheeks, 796 F.3d at 200. The parties here insist, however, that a
FLSA plaintiff is not required to seek court or DOL approval before accepting an offer of
judgment under Rule 68. (Doc. Nos. 71, 81.) Indeed, the parties’ arguments are consistent with
the reasoning of several district court opinions within this Circuit. See, e.g., Arzeno v. Big B
World, Inc., 317 F.R.D. 440, 440–41 (S.D.N.Y. 2016); Baba v. Beverly Hills Cemetery Corp.
Inc., No. 15-cv-5151 (CM), 2016 WL 2903597, at *1 (S.D.N.Y. May 9, 2016); Barnhill v. Fred
Stark Estate, No. 15-cv-3360 (BMC), 2015 WL 5680145, at *1 (E.D.N.Y. Sept. 24, 2015).
Furthermore, the language of Rule 68 does, on its face, appear to mandate that the Court enter
judgment once a Rule 68 offer, notice of acceptance, and proof of service have been filed. Fed.
R. Civ. P. 68(a) (providing that “[t]he clerk must . . . enter judgment” upon timely filing of “the
offer and notice of acceptance, plus proof of service” (emphasis added)); see also Harris v. City
of New York, No. 03-cv-8767 (RWS), 2004 WL 1555194, at *1 (S.D.N.Y. July 12, 2004)
(opining that “the entry of final judgment pursuant to Rule 68 is a ministerial act that does not
require the action of the judge”).
Even so, as Judge Furman recently concluded in a similar FLSA case, there are “myriad
settings in which a court has an independent duty . . . to review the terms of a settlement offer,”
including class actions and bankruptcy cases, and “Rule 68’s operation does not relieve the court
of that duty.” Yu v. Hasaki Rest., Inc., No. 16-cv-6094 (JMF), 2017 U.S. Dist. LEXIS 54597, at
*6 (S.D.N.Y. Apr. 10, 2017) (quoting Util. Automation 2000, Inc. v. Choctawhatchee Elec. Coop.,
Inc., 298 F.3d 1238, 1250–51 (11th Cir. 2002) (Marcus, J., specially concurring)). Furthermore,
given the numerous federal and state laws requiring court approval of settlements, the Court agrees
with Judge Furman that “it is unimaginable that Congress and the Supreme Court intended to
allow parties to bypass these requirements through the mechanism of a Rule 68 settlement.” Id.
at *7 (citing 31 U.S.C. § 3730(b) and N.Y. C.P.L.R. §§ 1207–08); see also Clinton v. City of
New York., 524 U.S. 417, 429 (1998) (instructing courts to avoid statutory constructions that
“produce an absurd and unjust result which Congress could not have intended” (citation
omitted)). Accordingly, “once one concedes that there are exceptions” to the ordinary rule that
Rule 68 settlements are non-reviewable, “the question is no longer whether a court can scrutinize
a Rule 68 settlement,” but rather “whether FLSA claims fall within the narrow class of claims
that cannot be settled under Rule 68 without approval by the court (or the DOL).” Yu, 2017 U.S.
Dist. LEXIS 54597, at *10.
Like Judge Furman, the Court finds that FLSA claims are part of that “narrow class of
claims,” and thereby “joins the growing number (albeit still minority) of judges in this Circuit to
conclude that Rule 68 does not override the need” for court or DOL approval of settlements of
claims under the FLSA. Id. at *10, *16. First, “a Rule 68 compromise – just like any other
settlement – is a contractual agreement,” and under longstanding Supreme Court and Second
Circuit precedent, “FLSA plaintiffs lack capacity to enter into a binding agreement with the
defendant that is not conditioned on court or [DOL] approval.” Id. at *14–15 (quoting Sanchez
v. Burgers & Cupcakes LLC, 16-cv-3862 (VEC), 2017 U.S. Dist. LEXIS 38292, at *5–6
(S.D.N.Y. Mar. 16, 2017) and citing Barrentine v. Ark.-Best Freight Sys., Inc., 450 U.S. 728, 740
(1981) and Brooklyn Sav. Bank v. O’Neil, 324 U.S. 697, 706–07 (1945)). Therefore, “‘[t]he
Clerk of Court’s mandatory obligation to enter judgment pursuant to Rule 68(a) presupposes a
valid offer and acceptance’ – and an FLSA claimant’s valid acceptance, in turn, presupposes
judicial (or DOL) approval of the parties’ agreement.” Yu, 2017 U.S. Dist. LEXIS 54597, at *15
(quoting Sanchez, 2017 U.S. Dist. LEXIS 38292, at *6).
Second, “holding that Rule 68 settlements do not require judicial approval would result in
the very evil that the Cheeks Court sought to prevent:
[i]t would ‘permit defendants to
circumvent the FLSA’s deterrent effect and eviscerate FLSA protections.’”
Id. at *11–12
(quoting Cheeks, 796 F.3d at 205). In fact, as Judge Broderick astutely observed, “there is likely
even greater potential for abuse when it comes to settlements made within the Rule 68
framework.” Toar v. Sushi Nomado of Manhattan, Inc., 13-cv-1901 (VSB), 2017 U.S. Dist.
LEXIS 55162, at *14 (S.D.N.Y. Mar. 16, 2017).
This is because plaintiffs “face severe
consequences if they refuse a Rule 68 offer,” thereby giving the employer “even more leverage
to strike abusive deals.” Id.; see also Utility Automation 2000, 298 F.3d at 1244 (“[A] Rule 68
offeree is at the mercy of the offeror’s choice of language and willingness to conform it to the
understanding of both parties.”); Webb v. James, 147 F.3d 617, 621 (7th Cir. 1998) (“The Rule is
. . . designed to put significant pressure on the plaintiff to think hard about the likely value of its
claim as compared to the defendant’s offer.”). Accordingly, the Court concludes that it must rule
on the fairness of the Rule 68 Offers before closing this case.
B. Interlocutory Appeal
The Court next turns to the parties’ joint request to certify this Order for interlocutory
appeal. A district court may certify an immediate appeal of an interlocutory order if the court
finds that (1) the order “involves a controlling question of law,” (2) “as to which there is
substantial ground for difference of opinion,” and (3) “an immediate appeal from the order may
materially advance the ultimate termination of the litigation.” 28 U.S.C. § 1292(b); see also
Hengjin Sun v. China 1221, Inc., No. 12-cv-7135 (RJS), 2015 WL 5544257, at *2–3 (S.D.N.Y.
Sept. 17, 2015). As the Second Circuit has instructed, certification of interlocutory appeal under
Section 1292(b) is “entirely a matter of discretion for the District Court,” In re City of New York,
607 F.3d 923, 933 (2d Cir. 2010), and, as a general matter, “[i]nterlocutory appeals are strongly
disfavored in federal practice,” In re Ambac Fin. Grp., Inc. Sec. Litig., 693 F. Supp. 2d 241, 282
(S.D.N.Y. 2010). Therefore, “even where the three legislative criteria of section 1292(b) appear
to be met, district courts have ‘unfettered discretion to deny certification’ if other factors counsel
against it.” Transp. Workers Union of Am. v. N.Y. City Transit Auth., 358 F. Supp. 2d 347, 351
(S.D.N.Y. 2005) (quoting Nat’l Asbestos Workers Med. Fund v. Philip Morris, Inc., 71 F. Supp.
2d 139, 162 (E.D.N.Y. 1999)). “Such unfettered discretion can be for ‘any reason, including
docket congestion’ and ‘the system-wide costs and benefits of allowing the appeal.’” In re
Facebook, Inc., IPO Sec. & Derivative Litig., 986 F. Supp. 2d 524, 530 (S.D.N.Y. 2014)
(quoting Klinghoffer v. S.N.C. Achille Lauro, 921 F.2d 21, 24 (2d Cir. 1990)).
This straightforward wage-and-hour case has dragged on for over two years, during
which time trial has been adjourned twice. The Court is concerned that an interlocutory appeal
will only further delay an eventual recovery by Plaintiffs. And the Court is especially concerned
that, over time, Defendant may lose the ability to pay a judgment, given the risks inherent in the
See Cosgrove v. Bartolotta, 150 F.3d 729, 734–35 (7th Cir. 1998)
(observing that “the restaurant business is highly risky . . .”); cf. Sun v. China 1221, Inc., No. 12cv-7135 (RJS), Doc. No. 275 (S.D.N.Y. Jan. 30, 2017) (notice of restaurant’s bankruptcy filing
only weeks after FLSA plaintiffs obtained judgment). Thus, even assuming the three statutory
factors under Section 1292 are met, the Court finds that interlocutory appeal of this Order would
undermine the FLSA’s “remedial and humanitarian goals.”
Cheeks, 796 F.3d at 206.
Accordingly, the Court exerci ses its "unfettered discretion" to deny certification of interlocutory
appeal. Transp. Workers Union, 358 F. Supp. 2d at 351. 1
For the reasons set forth above, IT IS HEREBY ORDERED that the parties' motions for
entry of judgment under Rule 68, or in the alternative, for leave to file an interlocutory appeal,
are DENIED. IT IS FURTHER ORDERED that, no later than May 9, 2017, the parties shall file
with the Court a joint letter (I) explaining why the Rule 68 Offers are fair, applying the criteria
outlined in the Court's order, dated July 1, 2016 (Doc. No. 28), and Wolinsky v. Scholastic Inc.,
900 F. Supp. 2d 332, 335-37 (S.D.N.Y. 2012), or (2) requesting that the Court schedule a trial in
May 2, 2017
New York, New York
UNITED STATES DISTRICT JUDGE
On the other hand, the Court's concerns on this point might be assuaged if Defendant were to consent to depositing
the $35,000 from the combined Rule 68 Offers into an escrow account during the pendency of an interlocutory
appeal. Therefore, the parties are welcome to renew their request for interlocutory appeal with these or similar
conditions included to provide some degree of security for Plaintiffs.
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