Gomes v. Coppola's of New York, Inc.

Background

Michael Gomes sued Coppola’s of New York, Inc., doing business as Coppola’s West; Salvatore’s Corp., doing business as Coppola’s East; and Salvatore Coppola. He brought claims under the Fair Labor Standards Act, the federal wage-and-hour law, and New York Labor Law. He alleged that he worked for the defendants for about five months, received only tips and no wages, and worked more than 40 hours each week without receiving overtime pay. He brought the case for himself and others similarly situated.

The parties jointly asked the court to approve their settlement. The proposed agreement called for a total payment of $10,000, with $5,000 allocated to Gomes.

Why Approval Was Denied

The court explained that, in the Second Circuit, parties cannot privately settle Fair Labor Standards Act 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.

The parties did not provide estimates of the hours Gomes worked or the applicable wage rates. As a result, the court could not determine how they arrived at the proposed settlement amount or evaluate it against Gomes’s possible recovery.

The parties also did not submit documentation supporting the requested attorney’s fees. The submission contained no contemporaneous billing records showing each attorney’s dates, hours, and work performed. The court noted that the fees totaled about 43% of the total recovery amount and that the usual presumption in the district is that fees above one-third of the settlement require unusual circumstances.

The court found that the agreement’s tax provisions also needed revision. Under the court’s cited authority, when a settlement payment is less than the alleged unpaid wages, the portion paid to the plaintiff after attorney’s fees and costs must be treated on a taxable Form W-2 basis, rather than solely through an Internal Revenue Service Form 1099. The agreement’s tax-allocation and tax-indemnity provisions therefore had to be updated.

The proposed releases were too broad. They purported to waive unknown claims, claims unrelated to the wage-and-hour case, and claims arising from Gomes’s employment generally. The court stated that a proper release in a Fair Labor Standards Act case may waive claims related to the existing suit but may not extend beyond the claims at issue.

The agreement’s indemnification and waiver provisions had the same problem. Among other things, they addressed medical-expense claims, administrative proceedings, and future claims for monetary relief, including claims Gomes might pursue as a representative of others. The court found that those provisions were not sufficiently limited to the claims in the case.

Finally, the agreement permanently barred Gomes from being rehired by the defendants. The court found that this highly restrictive provision conflicted with the remedial purposes of the Fair Labor Standards Act.

Disposition

The court denied approval of the agreement as written. It gave the parties three options, each due by December 5, 2019: file a revised settlement agreement addressing the court’s concerns; file a joint letter stating that they intended to abandon settlement and proceed to trial, after which the court would reopen the case and schedule a pretrial conference; or stipulate to dismissal of the case without prejudice. The opinion does not state which option the parties later chose.