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Fails v. Pathway Leasing LLC

United States District Court, D. Colorado

November 19, 2018

LONNIE FAILS, and RICHARD SELL Plaintiff,
v.
PATHWAY LEASING LLC, a Colorado limited liability company, MATTHEW HARRIS, and CARGILL MEAT LOGISTICS SOLUTIONS, INC., a Kansas corporation registered to conduct business in Colorado, Defendants.

          ORDER DENYING JOINT MOTION TO APPROVE SETTLEMENT

          CHRISTINE M. ARGUELLO UNITED STATES DISTRICT JUDGE.

         This matter comes before the Court pursuant to the parties' Joint Motion for Approval of FLSA Settlement and Stipulation of Dismissal of Settled Claims with Prejudice. (Doc. # 37.) For the reasons set forth below, the Court denies the motion.

         I. BACKGROUND

         Lonnie Fails and Richard Sell (“Plaintiffs”) initiated the instant Fair Labor Standards Act (“FLSA”) action on February 7, 2018. (Doc. # 1.) Plaintiffs' wage dispute arises out of contracts into which Plaintiffs entered with Defendants. Specifically, Plaintiffs entered into an agreement with Defendant Cargill Meat Logistics Solutions, Inc. (“Cargill”) to transport freight by motor vehicle to Cargill customers. In order to perform their duties under their contract with Cargill, Plaintiffs used vehicles leased from Defendant Pathway Leasing, LLC (“Pathway”). Accordingly, Plaintiffs executed both an equipment lease with Pathway and Plaintiffs also executed “Payment Authorizations” to Pathway, “pursuant to which Cargill remitted the Plaintiffs' weekly payments, referred to in trucking industry parlance as ‘settlement compensation,' to Pathway which would then take deductions for various line items and remit the remainder of the settlement compensation to the Plaintiff[s].” Plaintiffs allege that they were subjected to improper deductions by Pathway, which “caused the Net Settlement Payment ultimately remitted to them by Pathway to amount to less than the applicable minimum wage, in violation of the [FLSA].” Plaintiffs seek to “represent a putative collective of individuals who entered into an agreement with Cargill to transport freight by motor vehicle with a vehicle leased from Pathway and who executed a Payment Authorization to Pathway.” (Doc. # 37 at 2.)

         Additionally, the parties dispute Cargill's liability for alleged federal wage violations due to Pathway's deductions from Plaintiff's settlement compensation. Plaintiffs allege that they were jointly employed by Cargill and Pathway, yet Cargill argues that Plaintiffs were not its employees but actually independent contractors. Finally, the parties also dispute the proper method to calculate damages. Specifically, the parties dispute the number of hours Plaintiffs actually worked and whether Defendants' alleged violations were willful. (Doc. # 37 at 3.)

         However, the parties have agreed that the “difficulty and cost of completing discovery on the merits of Plaintiffs' claim and the substantial risk of proceeding with such a costly process . . . weigh in favor of resolving the Parties' disputes before additional discovery is necessary.” (Doc. # 37 at 3-4.) As a result, the parties participated in mediation and reached a settlement agreement that “will affect only the claims of those Plaintiffs who elect to file a valid Claim Form in order to receive their share of the Settlement, not those who choose not to participate for whatever reason.” If a plaintiff decides not to accept the parties' settlement, the plaintiff “can simply do nothing and retain all their rights to pursue their own action if they wish.” (Id. at 6.) In the instant motion, the parties request this Court's approval of their settlement agreement.

         II. SETTLEMENT APPROVAL

         The parties correctly observe that “[a]t least one Court in this District has held that FLSA settlements do not require court approval, absent special circumstances.” (Id. at n.1) (citing Ruiz v. Act Fast Delivery of Colo., Inc., No. 14-cv-00870-MSK-NYW, ECF No. 132 (D. Colo. Jan. 9, 2017)). In Ruiz, Chief Judge Krieger, reasoning that “nothing in the text of the FLSA expressly requires court review and approval of settlements, ” joined with other courts which have held “that an FLSA claim that is genuinely disputed by the employer may be compromised via private settlement between the parties, and . . . such settlement will be legally effective regardless of whether [the settlement is] submitted to or approved by the trial court.” Id. at 2, 6 (citing Martin v. Spring Break '83 Prod., LLC, 668 F.3d 247, 255 (upholding district court's validation of a private FLSA settlement where a bona fide dispute as to liability existed)); see, e.g., Oldershaw v. DaVita Healthcare Partners, Inc., 255 F.Supp.3d 1110, 97 Fed. R. Serv. 3d 1547 (D. Colo. 2017) (noting that in light of the “increased autonomy that plaintiffs in a [FLSA] ‘collective action' have, this Court and others have begun to question whether settlements of ‘collective action' claims should require court approval, or whether they should be treated as would a settlement in any other action with multiple plaintiffs.”); Martinez v. Bohls Bearing Equip. Co., 361 F.Supp.2d 608 (W.D. Tx. 2005) (holding that private settlements of FLSA rights are enforceable without judicial review in some circumstances).

         Rather than being statutorily mandated, the practice of seeking court approval for all FLSA settlements is rooted in an 11th Circuit decision, which held that “there is only one context in which compromises of FLSA back wage or liquidated damage claims may be allowed: a stipulated judgment entered by a court which has determined that a settlement . . . is a fair and reasonable resolution of a bona fide dispute over FLSA provisions.” Id. at 2 (quoting Lynn's Food Stores, Inc. v. United States, 679 F.2d 1350, 1355 (11th Cir. 1982)). However, courts have recently observed that “the Lynn's Food's requirement for judicial approval of voluntary settlements was driven by its facts - the employer overreached the employees in inducing them to settle unasserted and unevaluated claims for a small amount of money.” Id. at 4 (citing Martinez, 361 F.Supp.2d at 627). In fact, the employees at issue in Lynn's Food were “largely unaware of the fact that they had rights under the FLSA, and had not been advised by an attorney before signing the agreements; indeed, many did not speak English.” Id. (citing Martinez, 361 F.Supp.2d at 628). Therefore, the 11th Circuit's holding pertains specifically to the settlement of what did not amount to a bona fide dispute.

         The limited prohibition on FLSA settlements that are made in the absence of a bona fide dispute is supported by Supreme Court precedent. However, the same precedent indicates that settlement restrictions ought to remain limited. For instance, in Brooklyn Savings Bank v. O'Neil, 342 U.S. 697 (1945), the Supreme Court distinguished between impermissible waivers of FLSA rights and settlements of bona fide disputes. The Court found that where an

employer and employee attempted by means of release to waive the right to the basic statutory minimum [compensation] as well as the right to liquidated damages . . . [the] attempted release and waiver of rights under the Act was absolutely void . . . [However] [o]ur decision . . . has not necessitated a determination of what limitation, if any, [the FLSA] places on the validity of agreements between an employer and employee to settle claims arising under the Act if the settlement is made as the result of a bona fide dispute between the two parties, in consideration of a bona fide compromise and settlement.

Id. at 713-714 (emphasis added). As such, the Supreme Court left open the question of whether private settlements of bona fide disputes regarding a defendant's liability for an alleged FLSA violation are permissible. Martinez, 361 F.Supp.2d at 621; see also D.A. Schulte, Inc. v. Gangi, 328 U.S. 108, 114 (1946) (leaving open “possibility of compromises in . . . situations . . . such as a dispute over the number of hours worked or the regular rate of employment.”).

         Therefore, the 11th Circuit's Lynn's Food holding is correct to the extent that it followed the Supreme Court's instruction that settlements of non-bona fide disputes are invalid. It is analytically erroneous, however, to rely on Lynn's Food's reasoning to extend settlement restrictions to bona fide settlements which-as the Supreme Court recognized-are qualitatively distinct. See Brooklyn Sav. Bank, 342 U.S. at 714. Moreover, as Chief Judge Krieger noted in Ruiz, although “[t]here may be a small number of employers who will resort to subterfuge, misdirection, or coercion to improperly induce employees into surrendering their FLSA rights, ” which both the 11th Circuit and the Supreme Court agree to be prohibited, “the correct solution to address such a narrow problem is not an overbroad rule requiring all FLSA settlements to receive judicial review and approval” as Lynn's Food suggests. Ruiz, No. 14-cv-00870, ECF No. #132 at 5. This Court agrees with Chief Judge Krieger that, in such instances, the proper remedy is “the same remedy used in literally every other context where a settlement is claimed to be coercive, deceptive, or overreaching: upon a proper showing by the employee, the court may set aside the settlement contract and restore the employee's right to seek his or her FLSA remedies directly.” Id. at 6.

         The logical dissonance of burdening the settlement process of bona fide FLSA disputes with judicial review is further evidenced by the particular nature of FLSA claims. Specifically, the “peculiar opt-in nature of an FLSA collective action anticipates that all of those parties who settle are actively participating and are represented by counsel.” Id. at 5. Therefore, there is little justification to include FLSA settlements in the narrow range of settlements that require court approval. Id. That range includes settlements in class actions under Fed.R.Civ.P. Rule 23 and settlements involving infants or incompetent individuals. Id. In such cases, “judicial review of compromises is necessary because the parties affected - the class members or the incompetent persons - are not directly before the court nor have they necessarily participated in the decision to settle.” Id. ...


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