Tapia v. Huaquechula Restaurant Corp.

Background

The plaintiffs—Andrea Tapia, Melvin-Israel Garcia-Perez, Carlos Palacios, Rafael Pitalua, Jose Rodriguez, and others similarly situated—asserted claims under the Fair Labor Standards Act (FLSA) and New York Labor Law. They alleged failures to pay minimum wages, overtime wages, and spread-of-hours wages, as well as failures to provide wage notices and wage statements.

The plaintiffs reached a partial settlement with Fidel Lira, also known as Jesus Lira; Mary E. Moloney, also known as Mary Lira; and New Killmallock, Inc. Those defendants are referred to in the opinion as the settling defendants. The proposed agreement required a total payment of $30,000. The plaintiffs’ counsel proposed receiving $10,000 in fees and $689.39 in costs, with the remaining $19,310.61 divided equally among the five plaintiffs.

Court’s analysis

The court explained that, in the Second Circuit, a private settlement of FLSA claims requires approval by the district court or the United States Department of Labor. The court must determine whether the proposed settlement is fair and reasonable by considering the overall circumstances, including the plaintiffs’ possible recovery, the burdens and expenses of continued litigation, litigation risks, whether the agreement resulted from arm’s-length bargaining, and the possibility of fraud or collusion.

The court identified several deficiencies that prevented approval:

- The proposed settlement agreement did not itself state the exact amount each plaintiff would receive. It only stated that plaintiffs’ counsel would distribute the money from a trust account. The revised agreement had to specify each plaintiff’s payment. - The agreement contained confusing provisions about attorney fees. Although it referred to court approval, it also stated that the plaintiffs were responsible for paying counsel under the contingency-fee agreement. The court said the agreement could be read to allow counsel to receive fees under that agreement regardless of the court’s determination of a reasonable fee. The revised agreement had to preserve the court’s authority to review the fee and recalculate the allocations using the settlement amount net of costs. - The damages spreadsheets showed that the plaintiffs allegedly suffered different amounts of damages, but the proposed agreement gave each plaintiff the same dollar amount. The parties did not adequately explain that choice or provide enough information about the plaintiffs’ risk of being unable to collect a judgment and other litigation risks. The court specifically found inadequate support for statements that some settling defendants were unable to pay judgments. - The release covered Maya Riviera, Inc., Barkingside Ltd, and “Rancho Grande ___,” even though those entities were not defendants in the case and the application did not explain who they were or how they related to the settling defendants. The court therefore could not assess whether including them in the release was appropriate. - The non-disparagement clause allowed truthful statements when required by a subpoena, under oath, or in a government investigation, but it also needed to allow plaintiffs to speak truthfully about their experience litigating the case.

The court did not find the release’s references to federal and state wage claims and retaliation claims impermissibly broad when read together with the rest of the release. It understood those references as limited to claims related to the wage claims and rights alleged in the amended complaint.

Disposition

The court denied without prejudice the parties’ application for approval of the proposed settlement. The parties could reapply with a revised application and settlement agreement addressing the identified problems. Judge Andrew E. Krause directed them to submit the revised materials by December 3, 2021. The opinion addressed approval of the proposed settlement, not the ultimate merits of the wage claims.