Lee v. New Kang Suh Inc.

Background

Young Min Lee sued New Kang Suh Inc. and Myung Sook Choi under the Fair Labor Standards Act (FLSA), the federal wage law, and the New York Labor Law. She alleged that she worked about 60.5 hours per week as a waitress from 2001 until her termination on June 15, 2017, but did not receive overtime pay or New York “spread of hours” compensation. She also alleged that Defendants did not provide a wage notice when she was hired.

After Lee demanded $30,000 in severance, Defendants offered $17,000. They presented her with a settlement agreement and general release and told her she had to sign it before receiving the payment. Lee alleged that she understood the payment to be severance for her termination, not payment of unpaid wages. She also alleged that the agreement was in English, that she understood only Korean, that no interpreter or attorney was present, and that she had not consulted an attorney about her FLSA rights.

Defendants previously obtained dismissal of Lee’s original complaint, with leave to amend. Lee then filed an amended complaint. Defendants moved to dismiss the amended complaint under Federal Rule of Civil Procedure 12(b)(6), arguing that the settlement agreement was valid and enforceable. Lee argued that the agreement was obtained through fraudulent inducement and should be set aside.

Court’s Analysis

The court explained that a contract release is generally enforceable under New York law when its language is clear and unambiguous and when it was entered knowingly and voluntarily, without fraud, coercion, or improper influence. The settlement agreement expressly released Lee’s FLSA and New York Labor Law wage claims, and neither side argued that the release was unclear or did not cover those claims.

Fraudulent inducement

The court rejected Lee’s fraudulent-inducement theory. Fraudulent inducement is a claim that a person was deceived into entering a contract. The court held that Lee did not plead the alleged fraud with the detail required by Rule 9(b). Her amended complaint did not identify who made the alleged statements or when and where they were made. The court also stated that, even if Lee had adequately pleaded the statements, she could not show reasonable reliance because the written agreement clearly said that the payment was consideration for releasing wage-related claims. The court further stated that Lee’s lack of English fluency, without more, did not provide a sufficient basis to invalidate the agreement on fraud grounds.

New York Labor Law claims

The court held that the settlement agreement was a valid contract under New York law and that Lee’s release of her New York Labor Law claims was enforceable. The court therefore dismissed Lee’s New York Labor Law claims.

FLSA claims

The court treated pre-litigation releases of FLSA claims differently. It held that enforceability must be decided case by case, with attention to factors such as legal representation, knowledge of FLSA rights, whether there was a genuine dispute about unpaid wages, negotiations, time to consider the agreement, and the amount received in exchange for the release. The central question was whether the release resulted from a fair bargaining process.

The court concluded that it could not answer that question in Defendants’ favor at the motion-to-dismiss stage. Lee alleged that she signed the agreement shortly after termination, without a lawyer, without knowing her FLSA rights, without being told the payment related to unpaid wages, and without understanding the English-language agreement because she did not speak English and had no translator. The court was concerned that the agreement may have resulted from exploitation and one-sided bargaining. It therefore allowed Lee’s FLSA claims to survive. The court stated that Defendants could raise the release issue again at summary judgment if they produced evidence supporting enforcement.

Disposition

Judge Nelson S. Roman granted in part and denied in part Defendants’ motion to dismiss. The court dismissed Lee’s New York Labor Law claims, while her FLSA claims survived. Defendants were ordered to answer the amended complaint by October 16, 2020, and the parties were directed to submit a proposed case-management plan and scheduling order by November 20, 2020.