King v. Fedcap Rehabilitation Services, Inc.

Background

Harold King, on behalf of himself, Fair Labor Standards Act (FLSA) collective plaintiffs, and the class, filed a notice of voluntary dismissal without prejudice under Federal Rule of Civil Procedure 41(a)(1)(A)(i). The filing followed the parties’ earlier representation that they were very close to reaching a settlement and that settlement was imminent.

The court had directed King to explain why the Second Circuit’s decision in Cheeks v. Freeport Pancake House, Inc. should not apply. Cheeks held that parties may not privately settle FLSA claims with prejudice without approval from the Department of Labor or the district court, but it expressly left open whether court approval is required for a Rule 41 dismissal without prejudice.

Court’s analysis

The court noted that district courts in the Southern District of New York had taken different approaches to whether settlements accompanying dismissals without prejudice require judicial approval. Some courts had required approval to prevent parties from avoiding the worker protections discussed in Cheeks. Other courts had found approval unnecessary because a plaintiff who dismisses without prejudice generally gives up none of the FLSA rights and may refile, subject to the statute of limitations.

Judge Broderick stated that, absent further guidance from the Second Circuit, Cheeks should apply to dismissals without prejudice. He found that approach especially appropriate because the circumstances raised concern that the parties might have covertly settled the FLSA claims to evade judicial review.

The court stated that the parties must satisfy it that their settlement is fair and reasonable. It identified five relevant considerations: the plaintiff’s possible recovery; the extent to which settlement would avoid the expected burdens and costs of proving the claims and defenses; the seriousness of the litigation risks; whether experienced counsel negotiated at arm’s length; and the possibility of fraud or collusion. The court also stated that any attorney’s-fee provision must be separately evaluated and supported by factual evidence, including contemporaneous billing records showing each attorney’s date, hours, and work performed.

Order

The court ordered the parties to provide the settlement terms within 30 days so it could determine whether they were fair and reflected a reasonable compromise of disputed issues. The parties also had to submit a joint letter of no more than five pages addressing that question, including information about the five identified factors. If the settlement included attorney’s fees, the parties had to submit evidence providing a factual basis for the fee award.

The opinion does not state the settlement’s terms or make a final ruling approving or rejecting the settlement.