Clemente v. Midtown East NY LLC

Background

This was a wage-and-hour action under the Fair Labor Standards Act (FLSA), a federal law governing minimum wages and overtime pay. Plaintiffs Rogelio Villa Clemente, Jorge Raymundo Rivera, Jose Alberto Astudillo, and Isaul Villa Medel alleged that they worked for various periods from 2016 through 2019 at a restaurant operated by Midtown East LLC, doing business as Bareburger. They primarily alleged that they were not paid time-and-a-half for overtime hours.

The plaintiffs had already settled claims against other defendants, called the Franchisor Defendants, for $45,000. Judge Lorna Schofield approved that earlier settlement on March 4, 2020. The remaining claims against Michael Pitsinos and George Hadjipanayi, called the Franchisee Defendants, had been scheduled for a bench trial. A fifth plaintiff, Osvaldo Villa Clemente, had previously dismissed his claims against the Franchisee Defendants without prejudice. The opinion also states that Midtown East filed for bankruptcy protection and that the plaintiffs dismissed their claims against Midtown East without prejudice.

Proposed settlement

Under the agreement before Judge Moses, Pitsinos would pay $15,000 and Hadjipanayi would pay $15,000, for a total of $30,000. Each defendant would make an initial payment of $5,000 and then ten monthly payments of $1,000. The plaintiffs' law firm would receive $10,000, and $20,000 would be distributed among the four plaintiffs as follows: $5,689 to Clemente, $4,997 to Rivera, and $4,657 each to Astudillo and Medel.

Each defendant signed a confession of judgment for $30,000, reduced by payments made under the agreement. If either defendant defaulted and failed to cure the default within seven days after receiving notice, the plaintiffs could file that defendant's confession of judgment. The agreement contained releases concerning claims alleged in the complaint and employment-related claims. It did not contain a confidentiality clause or a restriction on the parties' ability to speak about the case.

Court's analysis

Under the Second Circuit's decision in Cheeks v. Freeport Pancake House, Inc., FLSA settlements require approval by a federal court or the Department of Labor. Judge Moses therefore reviewed whether the settlement terms, including the proposed attorney fee, were fair and reasonable.

The plaintiffs estimated that they could recover approximately $140,000 in unpaid wages if they succeeded completely, along with liquidated damages and additional penalties. Including the earlier $45,000 settlement, the proposed agreement would bring their total recovery to $75,000 if the installment payments were made. The plaintiffs identified risks involving disputes over the hours they worked, the accuracy of defendants' time records, the period during which the Franchisee Defendants controlled the restaurant, and whether the defendants could pay.

The court agreed that the economic terms were fair and reasonable. It also approved the proposed $10,000 attorney fee, which was one-third of the Franchisee Defendants' $30,000 payment, consistent with the retainer agreement and supported by the time records. Counsel's total fee from both settlements would be $24,707, compared with a reported lodestar—the fee calculated from hours worked multiplied by hourly rates—of $25,197.50.

The court understood that counsel would not retain more than one-third of any individual installment payment. As a result, counsel and the plaintiffs would share the risk that an installment might not be paid. Judge Moses also noted that a provision in the retainer agreement requiring the clients to obtain the firm's written consent before settling was unethical and unenforceable, although the court stated that it had no reason to believe the provision improperly influenced this settlement.

Disposition

The court APPROVED the proposed settlement. Plaintiffs' counsel could retain one-third of each settlement payment made by Pitsinos and Hadjipanayi, up to a total of $10,000.

The action was DISMISSED with prejudice and without costs. The court retained jurisdiction for the limited purpose of enforcing the settlement agreement if necessary, and directed the Clerk to close the case.