Hernandez v. Between the Bread 55th Inc.

Background

The plaintiffs, including Ramon Hernandez and other named and opt-in plaintiffs, brought claims under the Fair Labor Standards Act and the New York Labor Law. They alleged that the defendants, who operated a catering and food-delivery business, failed to pay minimum wages, overtime, spread-of-hours premiums, call-in pay, and tips. They also alleged that the defendants retained an 11% surcharge that customers may have understood to be a gratuity, paid wages below New York’s minimum wage, failed to pay overtime at one-and-a-half times the regular rate, and deducted 30 minutes of overtime pay for meal breaks that lasted no more than 20 minutes.

The plaintiffs moved for conditional certification of a settlement class under Rule 23 and a settlement collective under the Fair Labor Standards Act, preliminary approval of a proposed settlement and allocation plan, permission to send notice, and scheduling of a fairness hearing. The proposed settlement would create a $285,000 gross settlement fund for as many as 519 non-exempt employees who worked for the defendants between December 5, 2011 and May 29, 2020. The fund would pay administration fees, class counsel’s court-approved fees and costs, service awards to six plaintiffs, and individual payments to class members and opt-in plaintiffs.

The proposed agreement provided for an initial payment of $100,000, followed by monthly payments of $30,833.33. It also provided that administration fees, counsel’s fees and costs, and service awards would be paid before individual settlement payments. If the defendants failed to make the required payments, the agreement allowed the plaintiffs to retain $100,000 as legal and administration fees and return the lawsuit to its prior position if the shortfall was not cured within ten days.

Court’s Analysis

The court explained that preliminary approval requires a threshold review of whether the settlement is likely to be fair, reasonable, and adequate and whether the class can be certified for purposes of the settlement. The court also noted that settlements of Fair Labor Standards Act claims require court or Department of Labor approval and must be fair and reasonable.

The court concluded that several factors supported preliminary approval. The case could be costly and lengthy if litigated, the parties had conducted enough discovery for counsel to assess the claims, and the plaintiffs faced risks concerning liability, damages, class certification, and collection. The court also considered the defendants’ asserted financial problems, the effects of the COVID-19 pandemic, the reported closure of the business, and the death of its main owner and operator.

The court nevertheless found that the agreement, as submitted, could not be approved. First, the proposed claims administrator, Advanced Litigation Strategies, operated under the common control of plaintiffs’ counsel and would receive a $35,000 fee from the settlement fund. The court did not decide that using a counsel-controlled administrator was categorically unethical. Instead, it focused on the risk that counsel’s financial interest in the administrator could affect the negotiation of the administrator’s fee and the settlement. The plaintiffs had not shown that the $35,000 fee resulted from arms-length negotiations or that the claimed benefits of using the affiliated administrator justified the additional cost. The court required any revised proposal using that administrator to negotiate a lower fee and show that the arrangement was entirely fair to the class.

Second, the payment structure could exhaust the first $100,000 before absent class members received anything. The court reasoned that paying the administrator, counsel, and six plaintiffs before the class members could leave counsel and the named plaintiffs with little financial incentive to pursue the remaining settlement payments or continue litigating if the defendants defaulted. The court also found that the penalty provision could worsen those problems. It rejected the plaintiffs’ suggestion that the penalty balance instead be given to a charity, reasoning that unpaid settlement funds should generally benefit the underpaid class members and collective members, subject to an appropriate revised allocation plan.

The court stated that the requested service awards could be considered later, after class members received notice and had an opportunity to object. But any revised agreement should preserve an incentive for the plaintiffs receiving service awards to continue pursuing the full settlement, and the notice should explain that class members could object to those awards at the fairness hearing.

Third, the court found that notice by mail to last-known addresses might not adequately reach the likely transient class members. If the settlement were submitted again, the defendants would be required to provide available contact information, including telephone numbers, email addresses, and social-media information. The administrator would be expected to use all available methods, including mail, telephone, text messages, social media, and email.

Disposition

Judge Lewis J. Liman denied the motion to approve the proposed settlement as submitted, without prejudice to submitting a revised settlement consistent with the opinion. The order did not approve the proposed settlement, authorize the proposed notice, or set the requested fairness-hearing schedule. The opinion addressed the fairness and adequacy of the proposed settlement process; it did not decide the underlying wage claims.