Gray v. The CJS Solutions Group, LLC

Background

Shana Gray sued The CJS Solutions Group, LLC, doing business as The HCI Group (HCI), claiming that HCI misclassified consultants as independent contractors and therefore failed to pay overtime required by the Fair Labor Standards Act (FLSA). Gray sought to represent a group of similarly situated workers.

Earlier litigation against HCI had been consolidated in a related proceeding. That litigation settled for $3.24 million. More than 58 percent of the federal-claim participants cashed settlement checks and released their federal claims, while the state-law claims were released by class members who did not opt out. Gray had worked for HCI before May 2017 and could have participated in that settlement, but she did not cash her check.

HCI reclassified some consultants in May 2017 and began paying them overtime, but it did not reclassify medically trained consultants. HCI called that group Resident Activate Support Specialists; they were also called “at-the-elbow” consultants. The opinion states that HCI classified 120 people in this group, all of whom worked at the Mayo Clinic.

Proposed settlement

The renewed settlement agreement narrowed the proposed group to people who held the position of Epic Activation Consultant, worked for HCI from August 14, 2015, until the position was eliminated in May 2017, and had not released their claims or participated in the earlier settlement. The proposed group contained 536 potential members and did not include Thomas Borup, who worked for HCI in April and May 2018 and was not an Epic Activation Consultant.

HCI agreed to pay $500,000. From that amount, the parties proposed paying Gray’s attorneys $165,000, slightly more than $18,000 in administrative and other costs, and Gray a $10,000 representative award. Each potential member would initially receive a $25 check. A person who cashed the check would release broad wage-related claims against HCI; a person who did not cash it within 120 days would not waive the claims. Remaining funds would be distributed according to each person’s overtime hours, and HCI would keep any money left afterward.

After the proposed deductions, $306,625 would remain for damages. If all 536 people cashed the initial checks, $293,225 would remain for distribution. Based on counsel’s estimate of approximately 49,000 overtime hours, the additional overtime value would be just under $6 per hour. The court compared this with the earlier settlement and concluded that the average value of the proposed Gray settlement was less than one-third of the average value of the earlier settlement.

Settlement-approval analysis

For an FLSA collective settlement, the court must determine whether the agreement is a fair compromise of a genuine wage dispute and is fair and reasonable for everyone affected. Relevant considerations include the stage of the litigation, discovery, counsel’s experience, the likelihood of success, possible employer overreaching, and whether the negotiations were conducted at arm’s length.

The court recognized that Gray’s claims might reasonably be worth less than the claims in the earlier settlement because Gray asserted no state-law claims and HCI had reclassified most consultants in 2017. But the court found that the proposed recovery did not reflect Gray’s high likelihood of success after HCI’s reclassification of most consultants. The court also objected to the agreement’s broad release of essentially any claims that could have been asserted in the complaint. Gray did not explain why such a broad release was necessary.

Reverse-auction allegations

Discovery showed that, one week before agreeing to settle with Gray, HCI contacted the law firm that had represented plaintiffs in the earlier litigation about a possible further settlement addressing pending claims. HCI had also failed to tell Borup or the court about the Gray litigation until after HCI and Gray had agreed to settle. The court stated that this conduct was potentially indicative of a reverse auction, meaning an attempt to obtain a settlement by choosing among competing plaintiffs or lawyers on favorable terms. The court did not need to decide whether a reverse auction occurred because the settlement’s objective terms independently counseled against approval.

First-filed rule

Borup also asked the court to dismiss Gray under the first-filed rule, a doctrine that can give priority to an earlier-filed lawsuit involving overlapping disputes. The court rejected that request. Borup had not sought certification of his proposed FLSA collective, and Gray had not opted into Borup’s case. Borup was also not part of the newly limited Gray settlement group. People who had opted into Borup’s case could choose not to participate in the Gray group, so the court found no danger of duplicative litigation.

Disposition

Judge Magnuson ordered that the Renewed Motion for Approval of Settlement be denied without prejudice. The order therefore did not approve the settlement, while leaving the parties able to pursue further proceedings. Borup’s request to dismiss Gray under the first-filed rule was denied.