Palma Flores v. M Culinary Concepts, Inc.

Background

Luis Enrique Palma Flores brought this Fair Labor Standards Act (FLSA) and New York wage-law action individually and on behalf of other similarly situated persons against M Culinary Concepts, Inc., doing business as Bite; Novel Foods Inc., doing business as Bite; A.M. Catering Solutions, Inc., doing business as Bite; Amichai Melamed, also known as Ami Melamed; and Samar Sajjad. The opinion states that Palma Flores worked as a cook at the Bite restaurant and alleged that he was not paid all minimum and overtime wages owed. The case also sought liquidated damages, interest, attorney’s fees, and costs.

Although the complaint was filed as a proposed class and collective action, the court stated that certification was never granted. The settlement agreement resolved only Palma Flores’s claims and did not bind other potential members of the proposed class.

Settlement and Earlier Deficiency

The parties asked the court to approve a settlement under which Palma Flores would receive $6,365 from a total payment of $9,500, with $3,135 allocated to attorney’s fees and costs. The parties stated that $6,365 represented 6.98% of Palma Flores’s alleged maximum recovery of $91,148. They also described disputes about the hours he worked and the method and rate of his pay. Defendants produced employment and payroll records that, according to the opinion, called parts of Palma Flores’s allegations into question.

The court had previously declined to approve the parties’ first agreement because it contained a general release and a covenant not to sue that extended beyond the wage claims in the case. The parties’ revised agreement removed the covenant but retained broad release language covering all claims and actions of any nature, including discrimination claims.

Court’s Analysis

Under Second Circuit law, parties cannot privately settle FLSA claims with prejudice without approval from the district court or the Department of Labor. The court therefore evaluated whether the settlement was fair and reasonable. Relevant considerations included the possible recovery, the burdens and expenses avoided through settlement, litigation risks, arm’s-length negotiations by experienced counsel, and the possibility of fraud or collusion.

The court held that the settlement amount was fair and reasonable despite being only 6.98% of the alleged maximum recovery. The court relied on the significant factual and legal risks Palma Flores faced, including the possibility that a factfinder would credit Defendants’ payroll records and testimony. The court also considered that the parties negotiated after two mediation sessions and that the settlement reflected a compromise over contested issues.

The court separately held that the release was impermissibly overbroad. In the court’s view, the release purported to waive practically any possible claim against Defendants, including unknown claims and claims unrelated to wage-and-hour issues. The court stated that an FLSA settlement may release only claims relating to the existing lawsuit and that removing the covenant-not-to-sue provision did not cure the release’s defect.

Disposition

The court would not approve the settlement unless the parties corrected the overbroad release. It gave the parties three options by January 6, 2020: submit a revised agreement limited to the claims at issue; jointly state that they were abandoning settlement and continuing to trial, after which the court would reopen the case and schedule a pretrial conference; or stipulate to dismissal of the case without prejudice, which the court stated did not require approval under then-current Second Circuit law. In Palma Flores v. M Culinary Concepts, Inc., Judge Edgardo Ramos therefore found the settlement amount fair and reasonable but did not approve the proposed settlement because of its release provision.