Alley v. Dreams Colony 2017, KKC

UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF FLORIDA ORLANDO DIVISION MICHAEL ALLEY and TINA ROBBINS, Plaintiffs, v. Case No: 6:20-cv-1886-Orl-22GJK DREAMS COLONY 2017, LLC, TZVI KOHN, and HERBERT RIFKIN, Defendants. REPORT AND RECOMMENDATION This cause came on for consideration without oral argument on the following motion: MOTION: JOINT MOTION FOR JUDICIAL APPROVAL OF THE PARTIES’ SETTLEMENT AGREEMENT AND FOR DISMISSAL WITH PREJUDICE (Doc. No. 17) FILED: December 18, 2020 THEREON it is RECOMMENDED that the motion be GRANTED. I. BACKGROUND. On October 13, 2020, Plaintiffs filed a Complaint against Defendants, alleging violations of the minimum wage and overtime provisions of the Fair Labor Standards Act (the “FLSA”), 29 U.S.C. § 201 , et. seq, and the Florida Minimum Wage Amendment, Article X, § 24 of the Florida Constitution. Doc. No. 1. On November 9, 2020, Defendants Dreams Colony 2017, LLC, and Herbert Rifkin filed an Answer and Affirmative Defenses to the Complaint, denying liability. Doc. No. 8. Defendant Tzvi Kohn did not file an answer to the Complaint, but Plaintiffs also did not file a return of service for any of the Defendants. On December 18, 2020, all parties filed a joint motion (“the Motion”) for approval of their FLSA Settlement Agreement (the “Agreement”) and for dismissal with prejudice. Doc. No. 17. II. LAW. In Lynn’s Food Stores, Inc. v. United States Department of Labor, 679 F.2d 1350, 1352-53 (11th Cir. 1982), the Eleventh Circuit addressed the means by which an FLSA settlement may become final and enforceable: There are only two ways in which back wage claims arising under the FLSA can be settled or compromised by employees. First, under section 216(c), the Secretary of Labor is authorized to supervise payment to employees of unpaid wages owed to them . . . . The only other route for compromise of FLSA claims is provided in the context of suits brought directly by employees against their employer under section 216(b) to recover back wages for FLSA violations. When employees bring a private action for back wages under the FLSA, and present to the district court a proposed settlement, the district court may enter a stipulated judgment after scrutinizing the settlement for fairness. Thus, unless the parties have the Secretary of Labor supervise the payment of unpaid wages owed or obtain the Court’s approval of the settlement agreement, the parties’ agreement is unenforceable. Id.; see also Sammons v. Sonic-North Cadillac, Inc., No. 6:07-cv-277-Orl-19DAB, 2007 WL 2298032 , at *5 (M.D. Fla. Aug. 7, 2007) (noting that settlement of FLSA claim in arbitration proceeding is not enforceable under Lynn’s Food because it lacked Court approval or supervision by the Secretary of Labor). Before approving an FLSA settlement, the Court must scrutinize it to determine if it is a fair and reasonable resolution of a bona fide dispute. Lynn’s Food Store, 679 F.2d at 1354-55 . If the settlement reflects a reasonable compromise over issues that are actually in dispute, the Court may approve the settlement. Id. at 1354 . In determining whether the settlement is fair and reasonable, the Court should consider the following factors: (1) the existence of collusion behind the settlement; (2) the complexity, expense, and likely duration of the litigation; (3) the stage of the proceedings and the amount of discovery completed; (4) the probability of plaintiff’s success on the merits; (5) the range of possible recovery; and (6) the opinions of counsel. Leverso v. SouthTrust Bank of Ala., Nat’l Assoc., 18 F.3d 1527 , 1531 n.6 (11th Cir. 1994); Hamilton v. Frito-Lay, Inc., No. 6:05-cv-592-Orl-22JGG, 2007 WL 328792 , at *2 (M.D. Fla. Jan. 8, 2007), report and recommendation adopted, 2007 WL 219981 (M.D. Fla. Jan. 26, 2007). The Court should be mindful of the strong presumption in favor of finding a settlement fair. See Cotton v. Hinton, 559 F.2d 1326, 1331 (5th Cir. 1977).1 In FLSA cases, the Eleventh Circuit has questioned the validity of contingency fee agreements. Silva v. Miller, 307 F. App’x 349, 351 (11th Cir. 2009) (citing Skidmore v. John J. Casale, Inc., 160 F.2d 527, 531 (2d Cir. 1947) (“We have considerable doubt as to the validity of the contingent fee agreement; for it may well be that Congress intended that an employee’s recovery should be net[.]”)). In Silva, the Eleventh Circuit stated: That Silva and Zidell entered into a contingency contract to establish Zidell’s compensation if Silva prevailed on the FLSA claim is of little moment in the context of FLSA. FLSA requires judicial review of the reasonableness of counsel’s legal fees to assure both that counsel is compensated adequately and that no conflict of interest taints the amount the wronged employee recovers under a settlement agreement. FLSA provides for reasonable attorney’s fees; the parties cannot contract in derogation of FLSA’s provisions. See Lynn’s Food, 679 F.2d at 1352 (“FLSA rights cannot be abridged by contract or otherwise waived.”) (quotation and citation omitted). To turn a blind eye to an agreed upon contingency fee in an amount greater than the amount determined to be reasonable after judicial scrutiny runs counter to FLSA’s provisions for compensating the wronged employee. See United Slate, Tile & Composition Roofers v. G & M Roofing & Sheet Metal Co., 732 F.2d 495, 504 (6th Cir. 1984) (“the determination of a reasonable fee is to be conducted by the district court regardless of any contract between plaintiff and plaintiff’s counsel”); see also Zegers v. Countrywide Mortg. Ventures, LLC, 569 F. Supp. 2d 1259 (M.D. Fla. 2008). 1 In Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc), the Eleventh Circuit adopted as binding precedent all decisions of the former Fifth Circuit handed down prior to the close of business on September 30, 1981. Silva, 307 F. App’x at 351-52 .2 For the Court to determine whether the proposed settlement is reasonable, counsel for the claimant must first disclose the extent to which the FLSA claim has or will be compromised by the deduction of attorney’s fees, costs or expenses pursuant to a contract between the plaintiff and his counsel, or otherwise. Id. When a plaintiff receives less than a full recovery, any payment (whether or not agreed to by a defendant) above a reasonable fee improperly detracts from the plaintiff’s recovery.3 Thus, a potential conflict can arise between counsel and their client regarding how much of the plaintiff’s total recovery should be allocated to attorney’s fees and costs.4 It is the Court’s responsibility to ensure that any such allocation is reasonable. See id. As the Court interprets Lynn’s Food and Silva, where there is a compromise of the amount due to the plaintiff, the Court should decide the reasonableness of the attorney’s fees provision under the parties’ settlement agreement using the lodestar method as a guide. In such a case, any compensation for attorney’s fees beyond that justified by the lodestar method is unreasonable unless exceptional circumstances would justify such an award. 2 In this circuit, “[u]npublished opinions are not considered binding precedent, but they may be cited as persuasive authority.” 11th Cir. R. 36-2. 3 From a purely economic standpoint, defendants are largely indifferent as to how their settlement proceeds are divided as between plaintiffs and their counsel. Where a plaintiff is receiving less than full compensation, payment of fees necessarily reduces the plaintiff’s potential recovery. 4 This potential conflict is exacerbated in cases where the defendant makes a lump sum offer which is less than full compensation, because any allocation between fees and the client’s recovery could become somewhat arbitrary. An alternate means of demonstrating the reasonableness of attorney’s fees and costs was set forth in Bonetti v. Embarq Management Co., 715 F. Supp. 2d 1222 (M.D. Fla. 2009). In Bonetti, the Honorable Gregory A. Presnell held: In sum, if the parties submit a proposed FLSA settlement that, (1) constitutes a compromise of the plaintiff’s claims; (2) makes full and adequate disclosure of the terms of settlement, including the factors and reasons considered in reaching same and justifying the compromise of the plaintiff’s claims; and (3) represents that the plaintiff’s attorneys’ fee was agreed upon separately and without regard to the amount paid to the plaintiff, then, unless the settlement does not appear reasonable on its face or there is reason to believe that the plaintiff’s recovery was adversely affected by the amount of fees paid to his attorney, the Court will approve the settlement without separately considering the reasonableness of the fee to be paid to plaintiff’s counsel. Bonetti, 715 F. Supp. 2d at 1228 (emphasis added). Judge Presnell maintained that if the matter of attorney’s fees is “addressed independently and seriatim, there is no reason to assume that the lawyer’s fee has influenced the reasonableness of the plaintiff’s settlement.” Id. The undersigned finds this reasoning persuasive. III. ANALYSIS. A. Settlement Amount. The parties are represented by independent counsel. Doc. No. 17 at 6. Under the Agreement, Plaintiffs are each receiving $9,975.00 in unpaid wages and $9,975.00 in liquidated damages. Doc. No. 17-1 at 2. Plaintiffs estimate that they are each owed $20,785.92 in unpaid minimum and overtime wages, excluding liquidated damages. Doc. No. 17 at 4. Plaintiffs are also each receiving an additional $2,500 as consideration for the release in the Agreement. Id. Since Plaintiffs are receiving less than the amounts they claim they are owed, they may have compromised their claims under the FLSA. See Caseres v. Texas de Brazil (Orlando) Corp., 6:13-cv-1001-Orl-37KRS, 2014 WL 12617465 , at *2 (M.D. Fla. April. 2, 2014) (“Because [plaintiff] will receive under the settlement agreement less than she averred she was owed under the FLSA, she has compromised her claim within the meaning of Lynn’s Food Stores.”). The case involves disputed issues regarding FLSA liability, which constitutes a bona fide dispute. Doc. Nos. 1, 17. After receiving sufficient information to make informed decisions, the parties decided to settle their dispute. Doc. No. 17 at 3. Considering the foregoing, and the strong presumption favoring settlement, even if Plaintiffs compromised their claims, the settlement amount is fair and reasonable. B. Attorney’s Fees and Costs. Under the Agreement, Plaintiffs’ counsel will receive $5,100 in attorney’s fees and costs. Doc. No. 17 at 3. The parties represent that attorney’s fees and costs were negotiated separately from Plaintiffs’ recovery. Id. The settlement is reasonable on its face, and the parties’ representation adequately establishes that the issue of attorney’s fees and costs was agreed upon separately and without regard to the amount paid to Plaintiffs. See Bonetti, 715 F. Supp. 2d at 1228 . Thus, the Agreement is a fair and reasonable settlement of Plaintiffs’ FLSA claims. C. Release. The Agreement contains a release of claims Plaintiffs may have against Defendants arising out of or under the FLSA and other laws. Doc. No. 17-1 at 1. As noted above, Plaintiffs are each receiving an additional $2,500 as consideration for the release. Id. Courts within this District have questioned the propriety of such provisions when evaluating the fairness and reasonableness of FLSA settlements. With regard to general releases, U.S. District Judge Steven D. Merryday explained: An employee seeking to vindicate his FLSA rights often desperately needs his wages, and both the employee and the employer want promptly to resolve the matter. In a claim for unpaid wages, each party estimates the number of hours worked and the plaintiff’s wage (i.e., establishes a range of recovery), and the court evaluates the relative strength of the parties’ legal argument asserted in the particular case. However, in an FLSA action, neither party typically attempts to value the claims not asserted by the pleadings but within the scope of a pervasive release—that is, those “known and unknown,” or “past, present, and future,” or “statutory or common law,” or other claims included among the boiler plate, but encompassing, terms unfailingly folded into the typical general release. Absent some knowledge of the value of the released claims, the fairness of the compromise remains indeterminate. Moreno v. Regions Bank, 729 F. Supp. 2d 1346 , 1351–52 (M.D. Fla. 2010). Nevertheless, courts approve such provisions when separate consideration is given. See Middleton v. Sonic Brands L.L.C., Case No. 6:13–cv–386–Orl–28KRS, 2013 WL 4854767 , at *3 (M.D. Fla. Sept. 10, 2013) (approving a settlement agreement providing $100 as separate consideration for a general release); Bright v. Mental Health Res. Ctr., No. 3:10–cv–427–J–37TEM, 2012 WL 868804 , at *5 (M.D. Fla. Mar. 14, 2012) (approving the settlement agreement as to one employee who signed a general release in exchange for the employer foregoing its counterclaims against her). The Agreement clearly states that consideration will be given for the release. Doc. No. 17-1 at 1. In exchange for the release, Plaintiffs are to each receive $2,500. Id. As mentioned above, courts within this District approved these conditions when the plaintiff is provided separate consideration. See Middleton, 2013 WL 4854767 , at *3. Accordingly, the release is fair and reasonable. IV. CONCLUSION. Accordingly, it is RECOMMENDED that the Court enter an order as follows: 1. GRANTING the Motion (Doc. No. 17) to the extent that the Court finds the Agreement to be a fair and reasonable compromise of Plaintiffs’ FLSA claims; and 2. DISMISSING this case with prejudice. NOTICE TO PARTIES A party has fourteen days from this date to file written objections to the Report and Recommendation’s factual findings and legal conclusions. Failure to file written objections waives that party’s right to challenge on appeal any unobjected-to factual finding or legal conclusion the district judge adopts from the Report and Recommendation. 11th Cir. R. 3-1. If the parties have no objection to this Report and Recommendation, they may promptly file a joint notice of no objection in order to expedite the final disposition of this case. RECOMMENDED in Orlando, Florida, on December 19, 2020. po Re No GREGORY J. KELLY UNITED STATES MAGISTRATE JUDGE Copies furnished to: Counsel of Record Unrepresented Parties