Shim et al v. Z-Live Inc. et al
Filing
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OPINION AND ORDER: For the foregoing reasons, the parties' motion to approve the proposed settlement is DENIED without prejudice to the submission of a revised settlement proposal. On or before November 30, 2018, the parties shall either (1) file a revised settlement agreement for the Court's review, or (2) file a status letter indicating their intent to continue to litigation this action. SO ORDERED. (Signed by Judge J. Paul Oetken on 11/05/2018) (ama)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
KASHEENA SHIM, et al.,
Plaintiffs,
17-CV-6938 (JPO)
-vOPINION AND ORDER
Z-LIVE INC., et al.,
Defendants.
J. PAUL OETKEN, District Judge:
The parties to this federal and state labor-law suit have arrived at an agreement to settle
the litigation. (Dkt. No. 51.) Because the proposed settlement contemplates the dismissal with
prejudice of claims under the Fair Labor Standards Act of 1938 (“FLSA”), 29 U.S.C. §§ 201–
219, however, it can take effect only if this Court or the Department of Labor approves it, see
Cheeks v. Freeport Pancake House, Inc., 796 F.3d 199, 200 (2d Cir. 2015). For the reasons that
follow, the Court declines to approve the parties’ proposed settlement as currently drafted. That
said, the parties are free to revise the terms of their settlement in accordance with this opinion
and submit an updated agreement for the Court’s review.
I.
Background
In September 2017, Plaintiffs—five current and former tipped employees of Stage 48, a
Manhattan nightclub—filed the present lawsuit, seeking redress for federal and state labor-law
violations they allegedly experienced during their employment. (Dkt. No. 1 ¶¶ 1–2.) According
to the operative complaint, Plaintiffs’ employers—Z-Live Inc., Stage 48 Inc., Stage 48 Event
Inc., and Pedro Zamora (collectively, “Defendants”)—paid Plaintiffs less than the federally
mandated minimum wage. (Dkt. No. 40 (“Compl.”) ¶¶ 9–20, 25.) Although employers may
lawfully pay a subminimum wage to tipped employees where, among other things, those
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employees are permitted to retain “all tips [they] receive[],” 29 U.S.C. § 203(m)(2)(A), the
operative complaint alleges that this precondition has not been satisfied here. Instead, Plaintiffs
contend, Defendants habitually withheld tip money to correct supposed shortfalls in Plaintiffs’
end-of-shift reconciliations; to pay taxes attributable to undocumented employees’ “off the
books” work; to compensate for certain supposed credit-card processing fees, even in connection
with cash transactions; and to supplement the wages of untipped employees. (Compl. ¶¶ 28–32.)
The operative complaint asserts four causes of action on the basis of these alleged
practices: (1) failure to pay Plaintiffs the federally mandated minimum wage in violation of
FLSA, see 29 U.S.C. § 206(a)(1)(C); (2) appropriation of Plaintiffs’ tips in violation of New
York law, see N.Y. Lab. Law § 196-d; (3) unauthorized deduction from Plaintiffs’ wages in
violation of New York law, see id. § 193(3)(a); and (4) failure to provide Plaintiffs with accurate
wage statements in violation of New York law, see id. § 195(3). 1 (Compl. ¶¶ 53–69.)
After the parties engaged in initial discovery and attended two mediation sessions, they
reached an agreement to settle this case without further litigation. (Dkt. No. 51 at 2–3.) Under
the terms of the proposed agreement, Defendants will pay $13,050 to Plaintiff Kasheena Shim,
who has taken a primary role in pursuing this litigation; $10,750 each to the four remaining
Plaintiffs; and $28,950 to Plaintiffs’ counsel, $28,333 of which represents attorney’s fees and the
remaining $617 of which represents reimbursement for litigation expenses. (Dkt. No. 51 at 5–7
& n.9; Dkt. No. 51-1 at 1–2.) In exchange, Plaintiffs will relinquish “any and all . . . claims,
complaints, charges and actions of any kind whatsoever, known or unknown, which [they] now
have or may have against [D]efendants” (Dkt. No. 51-1 at 1), aside from one specified Plaintiff’s
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For their part, Defendants deny the factual basis for Plaintiffs’ claims and contend that
Plaintiffs are not entitled to succeed on any of their causes of action. (Dkt. No. 41 ¶¶ 25, 39–55.)
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State Workers’ Compensation benefits claims, for which there is a special carve-out (Dkt. No.
51-1 at 3 n.1). In addition, the agreement provides among other things that Plaintiffs “shall not
issue or participate in any communication, written, verbal or otherwise, that disparages, criticizes
or otherwise reflects adversely upon [D]efendants, . . . provided that [P]laintiffs are permitted to
testify truthfully under oath pursuant to a lawfully issued subpoena.” (Dkt. No. 51-1 at 5.)
By letter dated September 13, 2018, the parties submitted their proposed settlement
agreement for this Court’s approval. (Dkt. No. 51.)
II.
Legal Standard
Pursuant to the Second Circuit’s decision in Cheeks v. Freeport Pancake House, Inc., 796
F.3d 199 (2d Cir. 2015), any private settlement that calls for a worker’s FLSA claims to be
dismissed with prejudice requires approval by the district court or the Department of Labor, see
id. at 200. Owing to FLSA’s role as a “uniquely protective statute,” id. at 207, courts must
remain alert to the risk that the economic vulnerability of low-wage employees could lead them
to “accept[] private settlements that ultimately are cheaper to the employer than compliance with
[FLSA],” thereby eroding FLSA’s deterrent power, id. at 205–06 (quoting Socias v. Vornado
Realty, L.P., 297 F.R.D. 38, 41 (E.D.N.Y. 2014)). Accordingly, before approving the settlement
of FLSA claims, a court must ensure that the settlement is “fair and reasonable,” Lliguichuzhca
v. Cinema 60, LLC, 948 F. Supp. 2d 362, 365 (S.D.N.Y. 2013) (quoting Wolinsky v. Scholastic
Inc., 900 F. Supp. 2d 332, 335 (S.D.N.Y. 2012)), such that it represents a “reasonable
compromise of disputed issues [rather] than a mere waiver of statutory rights brought about by
an employer’s overreaching,” id. (alteration in original) (quoting Le v. SITA Info. Networking
Computing USA, Inc., No. 07 Civ. 86, 2008 WL 724155, at *1 (E.D.N.Y. Mar. 13, 2008)).
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III.
Discussion
The proposed settlement is sound in its fundamentals. The parties have made a serious
and credible effort to quantify the potential value of Plaintiffs’ claims. As for the FLSA claims,
for example, the parties have examined Defendants’ employment records to calculate how much
additional income each Plaintiff would have received had Defendants paid them minimum wage
during their working hours, and they have then doubled this total in accordance with FLSA’s
liquidated-damages provision. See 29 U.S.C. § 216(b). Pursuant to these calculations, the
parties reasonably estimate the maximum value of Plaintiffs’ FLSA claims to be $45,126.10.
(Dkt. No. 51 at 3; Dkt. No. 51-2.) And although the other causes of action are harder to quantify,
the parties have offered reasonable calculations for both the tip-appropriation and unlawfuldeduction state-law claims that value the two of them together at $73,176.48. (Dkt. No. 51 at 3–
4.) Acknowledging that the value of the remaining cause of action—failure to provide accurate
wage statements—is “extraordinarily hard to calculate” and unlikely “to be [a] driving factor[]”
in the value of Plaintiffs’ case overall (Dkt. No. 51 at 4), the parties have thus reasonably valued
the maximum total value of Plaintiffs’ case at $118,302.58. After factoring in the risk that
Plaintiffs might be unsuccessful at trial or would at least rack up additional litigation expenses
should the case proceed that far, the parties have arrived at a fair and reasonable settlement value
of $85,000, which Defendants stand ready to pay. 2 (Dkt. No. 51 at 4–5.)
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While the Court concludes that the $85,000 figure represents a fair and reasonable
valuation of Plaintiffs’ claims, the parties’ explanation of how they arrived at that figure does
contain some worrying imprecision. Despite reasonably valuing Plaintiffs’ various claims at
(1) $45,126.10; (2) $17,199.60; and (3) $55,976.88, the parties then inexplicably place the
maximum total value of the litigation at $188,302.58, rather than $118,302.58, the sum of these
three figures. (Dkt. No. 51 at 3–4.) The parties then purport to reduce $188,302.58 by 65% to
arrive at the case’s total settlement value of $85,000. (Dkt. No. 51 at 5.) But reducing
$188,302.58 by 65% would lead to a figure of $65,905.90. In any event, because both of these
discrepancies redound to Plaintiffs’ benefit, they give the Court no cause to fear that the
settlement contravenes “FLSA’s primary remedial purpose: to prevent abuses by unscrupulous
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Nor does the Court have any concern about the proposed allocation of the settlement
funds. Plaintiffs have agreed that their portion of the settlement funds shall be divided evenly
among them, except that Plaintiff Shim shall receive a slightly larger share in recognition of the
efforts she has made in initiating and directing this litigation. (Dkt. No. 51 at 5.) And the
parties’ proposal that one third of the settlement funds be set aside as attorney’s fees for
Plaintiffs’ counsel is consistent with “the one-third contingency fees that are commonly accepted
in the Second Circuit in FLSA cases.” Najera v. Royal Bedding Co., LLC, No. 13 Civ. 1767,
2015 WL 3540719, at *3 (E.D.N.Y. June 3, 2015). Having independently reviewed the billing
records compiled by Plaintiffs’ counsel, this Court concludes that the proposed $28,333
attorney’s fee award reflects fair and reasonable compensation for Plaintiffs’ counsel’s work on
this case. (Dkt. No. 51-3.) Finally, the parties’ proposal that Plaintiffs’ counsel receive an
additional $617 from the settlement funds as reimbursement for court costs is likewise
reasonable. See Chamoro v. 293 3rd Café Inc., No. 16 Civ. 339, 2016 WL 5719799, at *3–4
(S.D.N.Y. Sept. 30, 2016).
But while the proposed settlement rests on solid foundations, two specific provisions are
currently drafted too broadly to meet with this Court’s approval. First, although the Court has
explained that $85,000 reflects a fair and reasonable settlement value for the claims Plaintiffs
have asserted in the instant lawsuit, the proposed settlement requires Plaintiffs to relinquish not
only these and similar claims but also “all other claims . . . of any kind whatsoever” against
Defendants, including “unknown” claims that are impossible to valuate at present. (Dkt. No. 511 at 1.) In Cheeks, the Second Circuit pointed to “overbroad release[s] that would ‘waive
employers and remedy the disparate bargaining power between employers and employees.”
Cheeks, 796 F.3d at 207.
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practically any possible claim against the defendants, including unknown claims and claims that
have no relationship whatsoever to wage-and-hour issues’” as exemplifying precisely the sort of
“potential for abuse” of the settlement process that “underscores why judicial approval in the
FLSA setting is necessary.” Cheeks, 796 F.3d at 206 (quoting Lopez v. Nights of Cabiria, LLC,
96 F. Supp. 3d 170, 181 (S.D.N.Y. 2015)). Accordingly, courts in this District routinely decline
to approve settlements that contain releases that sweep so broadly. See, e.g., Villanueva v. 179
Third Ave. Rest, Inc., No. 16 Civ. 8782, 2018 WL 3392870, at *2–3 (S.D.N.Y. July 12, 2018);
Mobley v. Five Gems Mgmt. Corp., No. 17 Civ. 9448, 2018 WL 1684343, at *6 (S.D.N.Y. Apr.
6, 2018); Bukhari v. Senior, No. 16 Civ. 9249, 2018 WL 559153, at *1–2 (S.D.N.Y. Jan. 23,
2018); Metwali v. APV Valet Parking Corp., No. 16 Civ. 2440, 2017 WL 4326054, at *1
(S.D.N.Y. Sept. 13, 2017). The Court therefore declines to approve the settlement as currently
written. In doing so, however, the Court notes that the parties could protect their interest in
finality and secure the Court’s approval by narrowing the release such that it is limited to claims
that share a factual or legal nexus with the claims Plaintiffs sought to press in this suit. See, e.g.,
Velandia v. Serendipity 3, Inc., No. 16 Civ. 1799, 2018 WL 3418776, at *3 & n.1 (S.D.N.Y. July
12, 2018).
Second, the proposed settlement purports to bar Plaintiffs from engaging in “any
communication, written, verbal or otherwise, that disparages, criticizes or otherwise reflects
adversely upon [D]efendants,” with the only exception being that Plaintiffs are allowed to testify
truthfully pursuant to a subpoena. (Dkt. No. 51-1 at 5.) While “not every non-disparagement
clause in an FLSA settlement is per se objectionable,” preventing FLSA plaintiffs from making
“truthful statements about [their] experience litigating their case” runs counter to FLSA’s
deterrent purposes. Lopez, 96 F. Supp. 3d at 180 n.65. Accordingly, courts in this District
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regularly reject proposed settlement agreements containing non-disparagement clauses that
“could prevent the settling plaintiffs from making truthful statements to others regarding the
facts underlying their claims or the litigation of [their] case.” Weng v. T&W Rest., Inc., No. 15
Civ. 8167, 2016 WL 3566849, at *4 (S.D.N.Y. June 22, 2016) (Moses, M.J.); accord, e.g.,
Galindo v. E. Cty. Louth Inc., No. 16 Civ. 9149, 2017 WL 5195237, at *5 (S.D.N.Y. Nov. 9,
2017); Lopez v. Ploy Dee, Inc., No. 15 Civ. 647, 2016 WL 1626631, at *3 (S.D.N.Y. Apr. 21,
2016); Felix v. Breakroom Burgers & Tacos, No. 15 Civ. 3531, 2016 WL 3791149, at *2–3
(S.D.N.Y. Mar. 8, 2016). Here, too, the parties could cure the agreement’s defect by narrowing
the scope of the objectionable provision, and specifically by making clear that Plaintiffs remain
free to make truthful statements about this litigation even absent a subpoena. See, e.g., Velandia,
2018 WL 3418776, at *3–4.
Ultimately, the Court is willing to approve the parties’ settlement agreement if the parties
narrow the release-of-claims and non-disparagement provisions in a way that brings them within
the scope of what courts in this District have held to be fair and reasonable in the FLSA context.
For now, however, the Court is constrained to withhold approval of the settlement as it is
currently drafted.
IV.
Conclusion
For the foregoing reasons, the parties’ motion to approve the proposed settlement is
DENIED without prejudice to the submission of a revised settlement proposal. On or before
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November 30, 2018, the parties shall either (1) file a revised settlement agreement for the
Court’s review, or (2) file a status letter indicating their intent to continue to litigation this action.
SO ORDERED.
Dated: November 5, 2018
New York, New York
____________________________________
J. PAUL OETKEN
United States District Judge
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