Douglas v. Allied Universal Sec. Servs.
Douglas v. Allied Universal Sec. Servs.
Opinion of the Court
On October 18, 2017, Plaintiff Kirk Douglas ("Douglas") brought this action, on behalf of himself and others similarly situated, against Allied Universal Security Services, Allied Barton Security Services LLC, and Allied Security Holdings LLC (collectively, "Allied") alleging violations of the Fair Labor Standards Act ("FLSA") and New York Labor Law ("NYLL") for failure to pay minimum and overtime wages. (Compl., Dkt. No. 1). On November 30, 2018, Douglas filed an unopposed motion *81for class and collective certification and preliminary approval of a settlement agreement reached with Allied. (See Mot. to Certify, Dkt. No. 33 ("Mot.") at 1-2).
The proposed settlement is a hybrid class and collective action resolution. A FLSA collective would cover employees who worked for Allied at JFK Airport between October 18, 2014 and the present, while a NYLL class would cover employees who worked there between September 1, 2013 and the present. (Id. ; see also Notice of Proposed Class and Collective Action Lawsuit, attached as Ex. 1 to Letter dated Feb. 18, 2019 ("Suppl. Letter"), Dkt. No. 41 ("Class Notice") at 4). The settlement proceeds along the following sequence. After preliminary approval of the settlement by the Court, notice would be mailed to all potential collective and class members. Class members-i.e. those who have NYLL claims-are automatically included in the class unless they affirmatively opt out within 60 days of the mailing of the class notice. (Proposed Schedule for Settlement Approval, attached as Ex. A to Mot., Dkt. No. 33 ("Proposed Schedule") ). The Court would then hold a final approval hearing. If the settlement is approved, checks would be sent to class members and potential collective members. Those employees who cash their settlement checks would be deemed to have opted into the FLSA collective and to have released their FLSA claims.
The parties have proceeded as if this is a typical class action settlement. It is not. The proposed settlement ignores the special complexities attendant to approval of a settlement of FLSA claims in this Circuit-complexities resulting from the Second Circuit's decision in Cheeks v. Freeport Pancake House, Inc. ,
Rule 23(e) by its terms requires that a class action settlement be "fair, reasonable, and adequate." At the preliminary approval stage of the case, "the district court must determine that a class action settlement is fair, adequate, and reasonable, and not a product of collusion." Joel A. v. Giuliani ,
In determining whether the proposed settlement is fair and reasonable, a court should consider the totality of circumstances, including but not limited to the following factors: (1) the plaintiff's range of possible recovery; (2) the extent to which the settlement will enable the parties to avoid anticipated burdens and expenses in establishing their respective claims and defenses; (3) the seriousness of the litigation risks faced by the parties; (4) whether the settlement agreement is the product of arm's-length bargaining between experienced counsel; and (5) the possibility of fraud or collusion.
Wolinsky v. Scholastic Inc. ,
Cheeks and Wolinsky are integral components of the Rule 23(e) preliminary class approval in this case. For one thing, the proposed settlement results in a dismissal, with prejudice, of FLSA claims. (Settlement Agreement ¶ 3.7(c) ("Any Class Member who endorses and cashes a Settlement Check will ... have any FLSA Claims released and dismissed.") ). That requires Court approval. See Cheeks ,
That the parties have proposed a FLSA collective action settlement and NYLL class action does not mean that Cheeks review can be avoided at this stage. Under the proposed settlement, the NYLL class *83members are employees who worked for Defendants from September 1, 2013 to the present, and the FLSA collective members are those employees who worked from October 18, 2014 to the present. Unless a NYLL class member opts-out, they will receive a single check for their unpaid wages that compensates them for both their NYLL and FLSA claims. For employees who worked from October 18, 2014 to the present, they cannot resolve their NYLL claims without simultaneously resolving their FLSA claims because the check is payment for both. (Settlement Agreement ¶ 5.3 ("Each [NYLL] Claimant forever and fully releases Defendants from all New York State Law claims during the Class Period. Each Claimant that presents their settlement check for payment forever and fully releases the Defendants from all FLSA claims during the Class Period.") ).
The parties have failed to provide the Court sufficient information to conduct a Cheeks review of the proposed settlement. The Court lacks basic information on the potential range of recovery for any employees. The Court has twice asked for information necessary for Cheeks approval-once before and once during the hearing held on February 4, 2019. (See Clarification Order; Feb. 4 Tr. at 10:1-19). All that has ever been provided is a summary statement of the gross settlement amount and a basic breakdown of attorney's fees, costs, service awards, and employer-side taxes. In its most recent submission, Plaintiff indicates that the $ 2,529,000 gross settlement reached in this case reflects "a risk-reduced percentage of the class members' maximum probable underpayment damages of ... approximately $ 3,228,000." (Suppl. Letter at 3). The definitions of "risk-reduced" and "probable underpayment" are never explained.
To indicate the range of recovery, a plaintiff must at least indicate "each party's estimate of the number of hours worked or the applicable wage." Lopez v. Nights of Cabiria, LLC ,
*84See Russell v. Broder & Orland, LLC , No. 17-CV-1237,
What the parties have provided here is inadequate. The Court lacks information on the potential or actual wage rate, the hours worked, or the number of members of the collective. See, e.g., Fishwick v. RMJM, Inc. , No. 14-CV-904,
Using specific employees as exemplars could provide the information to the Court if the collective is too numerous. But such an approach has not been utilized, and the Court therefore cannot conduct even a preliminary Cheeks review. E.g., Xiao Ling Chen ,
Other components of the Cheeks review cannot be completed-namely an evaluation of the litigation risks and the reasonableness of attorney's fees and costs.
As to litigation risks, Plaintiff submits a conclusory statement that "Allied has presented significant, and potentially dispositive arguments, that pose a significant risk to the[ ] chances for class-wide recovery." (Pl.'s Mem. at 17). This is not expanded upon. The only proffer is that Allied disputes whether certain employees were required to work off-the-clock and that Plaintiff would have to prove at trial that Allied had actual or constructive knowledge of such work. (Id. ). This is insufficient information from which the Court can determine that collective members would face serious risks if they proceed to trial.
As to attorney's fees, Plaintiff requests an award of $ 740,000 but provides no information for the basis of this request. While a court can award attorney's *85fees based on either the lodestar calculation-the hourly rate times the number of hours worked-or a percentage of the settlement award, "[c]ounsel must provide a factual basis for a fee award, typically with contemporaneous time records." Guareno v. Vincent Perito, Inc. , No. 14-CV-1635,
A similar problem exists pertaining to the $ 70,000 costs request because Plaintiff provides no explanation, breakdown, or documentation. Again, while no final costs calculation need be submitted, the significantly large quantum of the costs requires some breakdown.
Putting aside the Cheeks issues, there are structural problems with the settlement that make it impossible to approve.
First, FLSA does not allow the cashing of a settlement check to serve as an employee's consent to become a collective member; after consenting in writing, the written consent must be filed on the docket.
Second, there is a more fundamental problem. The structure of the collective action provision of FLSA-including the requirement that the opt-ins be filed-is to ensure the presence of plaintiffs before the court. Unlike in a class action, where the rights of unnamed parties are adjudicated in their absence (or via representative), the opposite is true in a collective action. Their presence takes on particular importance in light of Cheeks which requires the court to evaluate the fairness of the settlement, as this occasionally requires direct questioning of the party or submission of evidence via affidavit or declaration. See, e.g., Hall v. Zoder's Court, Inc. , No. 16-CV-159,
This Settlement Agreement has the process entirely backwards; it has the Court conduct final Cheeks review before any member of the collective has opted in. It is only while simultaneously cashing his check that an employee becomes a member of the collective. (See Settlement Agreement ¶ 2.3). The settlement checks are not even issued until thirty days after the "final effective date" of the settlement agreement, which is after the Court's final approval hearing. (See id. ¶¶ 2.13, 4.4). Yet the agreement provides that the Court's final approval order-issued before that-would release Allied from all potential claims against it. (See id. ¶ 3.9 (providing that the parties will request the Court to, at the final fairness hearing, "order the dismissal with prejudice of ... all FLSA Claims of Class Members who endorse and cash a Settlement Check"); id. ¶ 5.4 (providing that, by operation of the Court's final order, "each Claimant forever and fully releases Defendants" from FLSA claims) ).
The proffered structure has the Court opining on the fairness of a settlement-that is not a class action-of employees who are not before the Court and dismissing their claims with prejudice before they ever appear. If the Court did so, "then recipients of the settlement checks would have no litigation to opt in to.... The procedure set forth in the Agreement-namely that an individual opts in and simultaneously settles his or her FLSA claim by depositing a check-simply makes no sense in the context of Cheeks ." Xiao Ling Chen ,
*87Most importantly, however, this framework releases a claimant's FLSA claims without consent and creates the possibility that, should a claimant decline to join the FLSA settlement by failing to cash the check, he or she would neither have the benefit of the settlement nor the ability to bring an a FLSA action. This would give the employee effectively no alternative "but to accept the ... check,"
None of the cases offered by Plaintiff address or solve this dilemma. (See Suppl. Letter at 1-2). All but one of those cases was decided before Cheeks . The only case decided after Cheeks, Gonqueh v. Leros Point to Point, Inc. , did allow potential claimants to join the FLSA collective by cashing their settlement checks after a final fairness hearing, (see No. 14-CV-5883, Settlement Agreement, attached as Ex. A to Decl. of Brian S. Schaffer, Dkt. No. 55, ¶ 3.6); however, the court there specifically provided that class members who did not endorse their settlement checks would not release defendants of the FLSA claims. Gonqueh v. Leros Point to Point, Inc , No. 14-CV-5883,
The Court, therefore, cannot preliminarily approve the settlement in its current structure. See Xiao Ling Chen ,
SO ORDERED.
The motion also requests the Court to approve the proposed notice to potential class and collective members, appoint class counsel and a settlement administrator, and approve the parties' proposed schedule for final settlement approval. (See Mot. at 2).
At that point, "all Collective members [would also be] Class Members; however, not all Class Members [would be] Collective Members." (Class Notice at 4).
Under the proposed settlement, Allied would pay a gross settlement amount of $ 2,520,000, including $ 740,000 in attorney's fees, $ 70,000 in costs, a $ 20,000 service award for Douglas, and $ 52,000 in employer-side taxes, with a net settlement amount of $ 1,638,000. (Suppl. Letter at 2; see Settlement Agreement ¶¶ 4.1-4.2, 4.5).
Likewise, if such an employee opted out of the NYLL class action, he receives no compensation at all-he receives no NYLL compensation because he opted out of the class, and he cannot opt into the FLSA collective action because to do so he must first receive a check. (Feb. 4 Tr. at 9:2-5 ("The Court: "[T]here's no mechanism ... for someone to opt into the FLSA collective ... but opt out of the labor law class. [Plaintiff's Attorney]: No.") ).
This renders the agreement's provision that a claimant would only release FLSA claims by endorsing the settlement check, (see Settlement Agreement ¶ 5.2), nugatory.
The settlement agreement rejected in Xiao Ling Chen is almost identical to the settlement proffered in this case-it provided that (1) the NYLL class members who cash their checks opt into the FLSA collective and simultaneously release their claims; and (2) the settlement agreement asks the court to dismiss FLSA claims at a fairness hearing before any employees have cashed their checks and become FLSA collective members. See No. 15-CV-1347, Settlement Agreement, attached as Ex. A to Aff. in Supp., Dkt. No. 85 ¶¶ 3.7, 3.9.
In addition, several of the plaintiffs had filed written consent on the docket before the final fairness hearing. See No. 14-CV-5883, Consent to Become Party Plaintiff, Dkt. Nos. 3, 16, 20, 22, 25-27.
Reference
- Full Case Name
- Kirk DOUGLAS, individually and on behalf of all others similarly situated v. ALLIED UNIVERSAL SECURITY SERVICES, Allied Barton Security Services LLC, Allied Security Holdings LLC
- Cited By
- 26 cases
- Status
- Published