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Slaughter v. Sykes Enterprises, Inc.

United States District Court, D. Colorado

February 11, 2019

DAVID SLAUGHTER, on behalf of himself and all others similarly situated, Plaintiff,
v.
SYKES ENTERPRISES, INC., doing business as Sykes Home Powered by Alpine Access, Defendant.

          ORDER

          Kristen L. Mix United States Magistrate Judge.

         This matter is before the Court on Plaintiff's Unopposed Motion for Approval of Collective Action Settlement, Service Payments, and Attorneys' Fees and Costs [#109][1] (the “Motion”). Plaintiff requests that the Court approve the executed Settlement Agreement [#110-1], which resolves all of Plaintiff's and Collective Members' claims in this matter pursuant to the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 201 et seq.

         In the context of a private lawsuit brought by an employee against an employer under section § 216(b) of the FLSA, the prevailing opinion prior to January 2017 in the District of Colorado has been that an employee may settle and release FLSA claims against an employer if the parties present the district court with a proposed settlement and the district court enters a stipulated judgment approving the fairness of the settlement, pursuant to Lynn's Food Stores, Inc. v. United States, 679 F.2d 1350, 1353 (11th Cir. 1982). In detailing the circumstances justifying court approval of an FLSA settlement in a litigation context, the Eleventh Circuit stated:

Settlements may be permissible in the context of a suit brought by employees under the FLSA for back wages because initiation of the action by the employees provides some assurance of an adversarial context. The employees are likely to be represented by an attorney who can protect their rights under the statute. Thus, when the parties submit a settlement to the court for approval, the settlement is more likely to reflect a reasonable compromise of disputed issues than a mere waiver of statutory rights brought by an employer's overreaching. If a settlement in an employee FLSA suit does reflect a reasonable compromise over issues, such as FLSA coverage or computation of back wages that are actually in dispute, we allow the district court to approve the settlement in order to promote the policy of encouraging settlement of litigation.

Lynn's Food, 679 F.2d at 1354.

         However, on January 9, 2017, the court issued an order in Ruiz v. Act Fast Delivery of Colorado, Inc., No. 14-cv-00870-MSK-NYW, ECF No. 132 (D. Colo. Jan. 9, 2017) (unpublished), ultimately holding after a thorough discussion that “absent special circumstances, FLSA settlements do not require court approval.” Since that time, courts in this District have approached court approval of FLSA settlements in a variety of ways.

         In Prim v. Ensign United States Drilling, Inc., No. 15-cv-02156-PAB-KMT, 2017 WL 3641844 (D. Colo. Aug. 24, 2017), Davis v. Crilly, 292 F.Supp.3d 1167 (D. Colo. 2018), and Ostrander v. Customer Engineering Services, LLC, No. 15-cv-01476-PAB-MEH, 2018 WL 1152265 (D. Colo. Mar. 5, 2018), the court adjudicated motions to approve FLSA settlements pursuant to Lynn's Food without acknowledging Ruiz or other opinions calling into question the mandatory application of Lynn's Food.

         In Manohar v. Sugar Food LLC, No. 16-cv-02454-NYW, 2017 WL 3173451, at *2 (D. Colo. July 26, 2017), and Teague v. Acxiom Corporation, No. 18-cv-01743-NYW, 2018 WL 3772865, at *1 (D. Colo. Aug. 9, 2018), the court acknowledged Ruiz, stating: “Upon consideration of a motion to approve a settlement in an FLSA matter, the Ruiz court found that, with few exceptions, such settlements do not require court approval. Because the issue is not yet settled by the United States Court of Appeals for the Tenth Circuit . . ., this court proceeds with applying the standard utilized by courts in this District to consider whether it can approve the settlement.” Teague, 2018 WL 3772865, at *1. The court there further stated:

The court notes that the Ruiz court does not stand alone on this issue. Courts outside of this District have similarly questioned whether judicial approval of FLSA settlements is required or even appropriate, observing that parties may, with certain exceptions, manage the resolution of their cases independent of judicial intervention under application of Rule 41 of the Federal Rules of Civil Procedure. See Picerni v. Bilingual Seit & Preschool Inc., 925 F.Supp.2d 368, 375 (E.D.N.Y. 2013); Martinez v. Bohls Bearing Equipment Co., 361 F.Supp.2d 608, 618-31 (W.D. Tex. 2005). Recently, in Cheeks v. Freeport Pancake House, Inc., the Second Circuit addressed the issue in a matter of first impression and held that parties cannot enter into private settlements of FLSA claims without either the approval of the district court or the Department of Labor. 796 F.3d 199 (2d Cir. 2015) (determining that the FLSA is an “applicable federal statute” within the meaning of Rule 41, and thus an exception to the operation of Rule 41). In reaching its decision, the Cheeks court considered the potential for abuse in FLSA settlements against the FLSA's underlying purpose “to extend the frontiers of social progress by insuring to all our able-bodied working men and women a fair day's pay for a fair day's work, ” and the Supreme Court's consistent efforts to “interpret[ ] the Act liberally and afford[ ] its protections exceptionally broad coverage.” Id. at 206 (citations omitted). To this court's knowledge, the Tenth Circuit has not yet entered the debate or otherwise provided guidance as to whether the FLSA falls within the federal statute exception to Rule 41.

Id. at *1 n.1.

         In Thompson v. Qwest Corporation, No. 17-cv-01745-WJM-KMT, 2018 WL 2183988, at *1-2 (D. Colo. May 11, 2018), the court acknowledged that requiring court approval of FLSA settlements under all circumstances had become unsettled law but ultimately decided to assume it must approve the settlement:

The Court understands that certain recent decisions, including from this District, have held that FLSA settlements do not require judicial approval. See Martinez v. Bohls Bearing Equip. Co., 361 F.Supp.2d 608 (W.D. Tex. 2005); see also Ruiz et al. v. Act Fast Delivery of Colorado, Inc., et al., No. 14-cv-870-MSK-NYW, ECF No. 132 (D. Colo., Jan. 9, 2017). These decisions generally question the correctness of the holding in Lynn's Food Stores, Inc. v. United States, 679 F.2d 1350, 1355 (11th Cir. 1982), that the FLSA prohibits private compromise of wage claims. Lynn's Food is the authority on which most courts, including this one, have relied as the basis for exercising authority over FLSA settlements. See, e.g., Stransky et al. v. HealthONE of Denver, Inc., No. 11-cv-2888-WJM-MJW, ECF No. 326 (D. Colo., Nov. 10, 2015).
Under Lynn's Food, courts employ procedures analogous to Rule 23 class action settlements. See Whittington v. Taco Bell of Am., Inc., 2013 WL 6022972, at *4 (D. Colo. Nov. 13, 2013). One might assume that Rule 23 procedures have been imported to the FLSA settlement context because FLSA claims may be brought as collective actions, which are somewhat similar to class actions. However, such an assumption is probably mistaken. The reasoning of Lynn's Food applies equally well to an individual settlement of an FLSA claim as it might to a collective action. Lynn's Food concludes that a settlement for less than the full value of the wages and liquidated damages available under the FLSA is essentially a waiver of FLSA rights, and Congress did not intend FLSA claims to be waivable in any sense. 679 F.2d at 1352.
Having concluded as much, Lynn's Food might have stopped there and concluded that FLSA settlements are prohibited in all circumstances. However, Lynn's Food drew upon a distinction it saw in Supreme Court case law “between a settlement agreement and a stipulated judgment entered in the adversarial context of an employees' suit for FLSA wages.” Id. at 1353 n.8. Based on this distinction, Lynn's Food concluded that “a district court may enter a stipulated judgment after scrutinizing the settlement for fairness.” Id. at 1353; see also Id. at 1355 (“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 proposed by an employer and employees, in a suit brought by the employees under the FLSA, is a fair and reasonable resolution of a bona fide dispute over FLSA provisions”). Since then, Lynn's Food has been both honored as the pronouncement of a court's duty to scrutinize FLSA settlements and yet also partly ignored, since courts do not always enter a stipulated judgment (as opposed to approving the settlement qua settlement).
Whether Lynn's Food was correctly decided is certainly open to question. See, e.g., Manohar v. Sugar Food LLC, 2017 WL 3173451, at *5 n.1 (D. Colo. July 26, 2017). But no party here has raised that question and the Court sees no reason to explore it sua sponte at this time. Accordingly, the Court will go forward under the assumption that it must approve the Proposed Settlement.

         Most recently in the District of Colorado, [2] in Fails v. Pathway Leasing LLC, No. 18-cv-00308-CMA-NYW, 2018 WL 6046428 (D. Colo. Nov. 19, 2018), the court thoroughly reviewed Lynn's Food, Ruiz, and other relevant legal authority to join the holdings of other recent court opinions that, absent exceptional circumstances, the Court need not review and provide approval for FLSA settlements. The Fails court first noted that the Ruiz court reasoned that “nothing in the text of the FLSA expressly requires court review and approval of settlements, ” and thereby joined other courts which had 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.” Fails, 2018 WL 6046428, at *2 (quoting Ruiz, ECF No. 132, at 2, 6) (citations omitted).

         The Ruiz court further noted that “[r]ather 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.'” Fails, 2018 WL 6046428, at *2 (quoting Ruiz, ECF No. 132, at 2 (citing Lynn's Food, 679 F.2d at 1355)). Fails, Ruiz, and other courts have determined that “the 11th Circuit's holding pertains specifically to the settlement of what did not amount to a bona fide dispute, ” Fails, 2018 WL 6046428, at *2, because “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, ”-and because the employees 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.” Ruiz, ECF No. 132, at 4.

         The Fails court next noted that “[t]he limited prohibition on FLSA settlements that are made in the absence of a bona fide dispute is supported by Supreme Court precedent.” 2018 WL 6046428, at *2 (citing Brooklyn Savings Bank v. O'Neil, 342 U.S. 697 (1945) (distinguishing between impermissible waivers of FLSA rights and settlements of bona fide disputes). The Fails court went on to state:

         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. 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. 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.” Fails, 2018 WL 6046428, at *3 (internal citations omitted).

         The Fails court further discussed “[t]he logical dissonance of burdening the settlement process of bona fide FLSA disputes with judicial review” based on “the particular nature of FLSA claims.” Id. Relying heavily on the reasoning of Ruiz, the court stated:

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.” Therefore, there is little justification to include FLSA settlements in the narrow range of settlements that require court approval. That range includes settlements in class actions under Fed.R.Civ.P. Rule 23 and settlements involving infants or incompetent individuals. 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.” FLSA claims, by contrast, are analogous to the ...

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