Guzman et al v. Kahala Holdings, LLC et al

Filing 95

MEMORANDUM AND OPINION: Accordingly, within 30 days of the date of this Order, the parties are to provide the information sought and a revised settlement agreement that eliminates the foregoing issues. (Signed by Magistrate Judge Henry B. Pitman on 10/18/2017) (js)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

-----------------------------------x
ANAYELI GUZMAN, et al.,
15 Civ. 9625

(HBP)

Plaintiffs,
ORDER
AND OPINION

-againstKAHALA HOLDINGS, LLC, et al.,
Defendants.

-----------------------------------x
PITMAN, United States Magistrate Judge:

Plaintiffs commenced this action pursuant to the Fair
Labor Standards Act

(the "FLSA"), 29 U.S.C.

§§

201 et

.§.fill.,

and

the New York Labor Law (the "NYLL") to recover alleged unpaid
minimum wage and overtime pay, spread-of-hour pay, equipment
costs and penalties for failure to provide wage statements and
notices under the NYLL.

Plaintiffs brought the action as a

collective action pursuant 29 U.S.C.

§

216(b) with respect to the

FLSA claims.
The parties reached a settlement prior to the matter
being conditionally certified as a collective action and now seek
approval of their proposed settlement (Letter of Gerrald Ellis,
Esq., to the undersigned, dated Jan. 25, 2017
("D. I.")

93)

("Ellis Letter")).

(Docket Item

The parties have consented to my

exercising plenary jurisdiction over this action pursuant to 28

U.S.C.

§

636(c).

I cannot approve the settlement as it currently stands
because the parties have not provided sufficient information to
enable me to determine whether the proposed settlement is fair
and reasonable.

Although the parties have indicated that the

plaintiffs will receive a total net settlement of $50,000.00,
they fail to explain how that amount will be allocated between
the plaintiffs or the basis for that allocation.

This is

particularly significant here because both plaintiffs claim
damages in a different amount and the settlement proceeds must be
allocated in a rational manner.
The settlement agreement also contains a general
release that is impermissible.

In pertinent part, the settlement

agreement provides that plaintiffs release:
Defendants, any insurers of Defendants, and Defendants'
respective parent corporations, stockholders,
subsidiaries, affiliates, divisions, successors and
assigns, their respective current and former officers,
owners, directors, employees, trustees, agents, whether
as individuals or in their official capacity, and each
of their respective successors and assigns of and from
all or any manner of actions, causes and causes of
action, suits .
. specifically including by way of
example but not limitation, the [FLSA], the [NYLL]
., arising out of Plaintiffs' employment by Defendants,
their termination thereof, and/or the negotiation
and/or execution of this Agreement, or all claims
referred to or identified in various correspondence to
and between the parties leading up to this Agreement
(Ellis Letter, Ex. 1

§

7(a)).

Plaintiffs also agree in the
2

release not to file any other claims "against Defendants arising
out of or relating to any allegation or wage and hour claim .
. referred to or identified in the various correspondence,

or .

pleadings, etc.[,] to and between the parties' respective law

" (Ellis Letter, Ex. 1

firms .

§

3).

Defendants also agree to

release plaintiffs "from all or any manner of actions, causes or
causes of actions, suits

. arising out of Plaintiffs' alleged

employment by Defendants, their separation therefrom, and/or
negotiation and/or execution of this Agreement, or all claims
referred to or identified in various correspondence to and
between the parties leading up to this Agreement"
Ex. 1

§

(Ellis Letter,

7 (b)).
The problem with the release,

like the one in Flores v.

Hill Country Chicken NY, LLC, 16 Civ. 2916 (AT) (HBP), 2017 WL
3448018 at *2

(S.D.N.Y. Aug. 11, 2017)

(Pitman, M.J.), is that it

would bar claims by plaintiffs unrelated to wage and hour issues
not only against defendants themselves, but also against a broad
array of persons, including former employees,
officers.

1

shareholders, and

In addition, although the settlement agreement

purports to release all claims against defendants,

1

it oddly goes

Indeed, the fact that plaintiffs release a number of
persons other than defendants, yet it is only defendants that
release plaintiffs, indicates that the release is not truly
mutual.
3

on to release claims referred to or identified in unidentified
correspondence.
the latter.

As a matter of logic, the former should include

Therefore, the parties fail to provide sufficient

information to enable me to determine whether the release is
limited to wage and hour issues.

As written, the release "could

be applied to absurd effect[.]"

Lopez v. Poko-St. Ann L.P., 176

F. Supp. 3d 340, 344

(S.D.N.Y. 2016)

(Moses, M.J)

(rejecting a

general release that released a "long list" of entities and
persons related to defendants from "every imaginable claim")
For example, if the release were given literal effect, plaintiffs
would not be able to sue defendants' former employees for breach
of contract or for an assault.

Such a result is absurd and

contrary to the FLSA's remedial purposes. 2

2

The parties must

The general release here does comply with the primary
remedial purpose of the FLSA in at least one respect; it is
bilateral.
See Cheeks v. Freeport Pancake House, Inc., 796 F.3d
199, 207 (2d Cir. 2015) (concluding that the "primary remedial
purpose" of the FLSA is "to prevent abuses by unscrupulous
employers and remedy the disparate bargaining power between
employers and employees"), cert. denied, 136 S. Ct. 824.
Under
Sections 7(a) and (b) of the proposed agreement, both parties
would release a broad array of claims against each other.
Courts
in this District have found that where, as here, a release clause
was negotiated by competent counsel for both sides, and
plaintiffs no longer work for defendants, "[a] general release of
the kind proposed in this case, with former employees who have no
ongoing relationship with the employer, makes sense in order to
bring complete closure." Souza v. 65 St. Marks Bistro, 15 Civ.
327 (JLC), 2015 WL 7271747 at *5 (S.D.N.Y. Nov. 5, 2015) (Cott,
M.J.); accord Cionca v. Interactive Realty, LLC, 15 Civ. 5123
(continued ... )
4

limit the persons covered by the release and clarify what claims
are being released.

3

I also note that the settlement contains two other
proscribed provisions:

(1)

it prohibits plaintiffs from

assisting in any other wage and hour litigation against
defendants, and (2)

it bars plaintiffs from ever working for,

applying for work with, defendants and the releasees
Letter, Ex. 1 §§ 3,

5).

or

(Ellis

These provisions are in conflict with

the FLSA's "primary remedial purpose:

to prevent abuses by

unscrupulous employers and remedy the disparate bargaining power
between employers and employees."
House,

Cheeks v.

Freeport Pancake

Inc., supra, 796 F.3d at 207; see Fu v. Mee May Corp., 15

Civ. 4549

(HBP), 2017 WL 2172910 at *2

(Pitman, M.J.)

(S.D.N.Y. Mar.

31, 2017)

(striking down provision prohibiting plaintiffs

from assisting in any action against defendants because it

2

( • • • continued)
(BCM), 2016 WL 3440554 at *3-*4 (S.D.N.Y. June 10, 2016) (Moses,
M.J.); Lola v. Skadden, Arps, Meagher, Slate & Flom LLP, 13 Civ.
5008 (RJS), 2016 WL 922223 at *2 (S.D.N.Y. Feb. 3, 2016)
(Sullivan, D.J.).
However, the bilateral nature of the general
release does not save this provision from the other fatal
deficiencies described in the text.
3

The agreement provides that "in the event that the Court
strikes or modifies this Paragraph in any manner, the general
release provided by Defendants to Plaintiffs in Paragraph 7(b) of
this Agreement shall be deemed stricken and null and void .
"
(Ellis Letter, Ex. 1 § 7(d)).
Thus, plaintiffs' general release
cannot be severed from the rest of the agreement.
5

conflicted with the "remedial purpose" of the FLSA); Baikin v.
Leader Sheet Metal, Inc., 16 Civ. 8194
*l

(S.D.N.Y. Mar. 13, 2017)

(ER), 2017 WL 1025991 at

(Ramos, D.J.)

(striking down

provision prohibiting plaintiffs from seeking or obtaining
reemployment with defendants).
Accordingly, within 30 days of the date of this Order,
the parties are to provide the information sought and a revised
settlement agreement that eliminates the foregoing issues.
Dated:

New York, New York
October 18, 2017
SO ORDERED

United States Magistrate Judge
Copies transmitted to:
All Counsel

6