Santi v. Hot In Here, Inc.

Background

Christina Santi brought claims against Hot In Here, Inc., Vlad Lyubovny, and Lataya Edwards under the Fair Labor Standards Act (FLSA), New York Labor Law, 42 U.S.C. § 1981, Title VII, the Americans with Disabilities Act, the New York State Human Rights Law, and the New York City Human Rights Law. Her claims included unpaid overtime, discrimination, and retaliation. The defendants answered and asserted counterclaims against Santi for breach of fiduciary duty, negligent misrepresentation, breach of contract, and misappropriation.

The parties jointly applied for approval of a settlement. The proposed agreement provided for a total payment of $70,000: $42,431.67 for Santi and $27,568.33 for attorneys’ fees and costs. Santi’s counsel estimated her maximum possible recovery on the wage claims at $52,403.50. The application stated that the total settlement exceeded that estimate but did not explain how the settlement amount was determined.

Settlement Approval Standard

The court explained that, in the Second Circuit, parties cannot privately settle FLSA claims with prejudice without approval from the district court or the Department of Labor. The court therefore had to determine whether the agreement was fair and reasonable. Relevant considerations included the possible recovery, the burdens and expenses of continued litigation, litigation risks, whether the agreement resulted from arm’s-length negotiations between experienced counsel, and the possibility of fraud or collusion.

Reasons for Denial

The court found the settlement application deficient because it did not provide a basis for the $70,000 recovery figure. Without that information, the court could not evaluate whether the settlement was fair and reasonable.

The court also reviewed the requested attorneys’ fees under the lodestar method, which calculates a presumptively reasonable fee by multiplying a reasonable hourly rate by the reasonable hours worked. Counsel requested $26,600, or 38 percent of the total settlement. Although counsel’s lodestar calculation was $163,117.50, plus $903.83 in costs, the court said that fees above one-third of the settlement are generally not awarded in the district absent extraordinary circumstances. The court did not find the stated contingency-fee and collection-risk considerations unique to this case. It stated that it would approve a $23,333 fee, or 33 percent of the settlement, if the total settlement were ultimately approved.

The proposed release was also too broad. It released the defendants from virtually all present and future claims, including unknown claims and claims unrelated to wage-and-hour issues. The court said an FLSA release must be limited to claims relating to the existing lawsuit.

The agreement’s non-disparagement provision was unacceptable because it did not include an exception allowing truthful statements about Santi’s experience litigating the case. The agreement also permanently barred Santi from applying for employment with the defendants, either as an employee or independent contractor. The court would not approve an agreement containing that provision.

Disposition

Judge Ramos denied approval of the settlement agreement as written. The parties could file a revised agreement by December 5, 2019 that explained the settlement amount, narrowed or revised the release and non-disparagement provision, and removed the permanent work-application ban. Alternatively, they could notify the court that they intended to abandon settlement and continue to trial, or stipulate to dismissal of the case without prejudice, which the opinion said did not require court approval under then-current Second Circuit law.