Miranda v. Grace Farms, Inc.

Background

Plaintiffs Arturo Daniel Miranda, Alfonso Vera Rodas, Miguel Garcia, and Daniel Grande Netzahuatl filed a collective action against Grace Farms, Inc. doing business as City Café; Unak Grocery Corp. doing business as Liberty Café; Rajni Singhal; and Vivek Singhal. They alleged violations of the Fair Labor Standards Act and New York Labor Law, including failure to pay overtime for hours worked over 40 hours per week and failure to pay spread-of-hours pay.

The court later consolidated that action with a related action involving different plaintiffs and the same or similar defendants. The parties subsequently reported that they had reached settlements. Because the Department of Labor had not approved the settlements, the court was required to determine whether they were fair and reasonable.

Settlement-review standard

The court explained that it must consider the total circumstances, including the plaintiffs’ possible recovery, the burdens and expenses the settlement would avoid, the litigation risks, whether experienced counsel negotiated at arm’s length, and possible fraud or collusion. The court must also evaluate the reasonableness of any attorney-fee request. If a proposed Fair Labor Standards Act settlement is unreasonable in whole or in part, the court may not rewrite it; it must reject the agreement or give the parties an opportunity to revise it.

Amaro Parties’ agreement

The court found that the Amaro Parties’ revised settlement agreement contained an overbroad release. The agreement released claims at issue in the action as of the date it was signed, but its separate promise not to sue barred the plaintiffs from filing any claim under federal or state wage-and-hour laws, including the Fair Labor Standards Act and New York Labor Law. Because that promise was not limited to claims arising by the agreement’s date or to the conduct alleged in the complaint, the court concluded that it could prevent future wage claims against the defendants.

The court also rejected the argument that the release was acceptable because it was mutual. The parties had not explained how the broad release benefited the employee plaintiffs.

Miranda Parties’ agreement

The court did not address the Miranda Parties’ proposed agreement or the settlement amounts and attorney fees because it intended to evaluate the two agreements together. The court nevertheless noted two potential problems: the Miranda Parties had settled for less than the Amaro Parties without an explanation for the difference or why both settlements were fair and reasonable, and a covenant-not-to-sue provision appeared to contain a potentially material reference error. The court directed that the Miranda Parties either correct the error in a revised agreement or explain why it was not an error.

Ruling

Judge Vernon S. Broderick found that the Amaro Parties’ proposed settlement agreement was not fair and reasonable and denied without prejudice the parties’ request to approve the proposed settlement agreement. The parties were directed to appear for a telephonic conference and could either file revised proposed settlement agreements within 21 days or file a joint letter stating that they intended to abandon settlement, after which the court would set a status conference.