Hernandez v. Ultra Shine Car Wash, Inc.

Background

Romel Hernandez brought this action for himself and other similarly situated people against Ultra Shine Car Wash, Inc. and Adelino Pastilha. He alleged violations of the Fair Labor Standards Act (FLSA) and New York Labor Law. His claims concerned alleged failures to pay minimum and overtime wages, pay spread-of-hours compensation, provide wage notices and weekly wage statements, and unlawful tip retention.

The court had previously allowed Hernandez to pursue an FLSA collective action and authorized notice to potential participants. No one responded to the notice, so Hernandez continued litigating only his own claims.

Settlement-approval standard

The parties submitted a proposed settlement for court approval. In the Second Circuit, an FLSA case generally cannot be privately resolved through a dismissal with prejudice without approval from the court or the United States Department of Labor. The court therefore reviewed whether the settlement was fair and reasonable under the totality of the circumstances.

The court considered the factors identified in Wolinsky v. Scholastic, Inc., including Hernandez’s possible recovery, the expenses and burdens the settlement would avoid, the litigation risks, whether the agreement resulted from arm’s-length negotiations between experienced lawyers, and the possibility of fraud or collusion. The court also considered factors that can weigh against approval, such as other similarly situated employees, the possibility that the alleged circumstances could recur, a history of FLSA noncompliance, and whether further litigation could clarify an important legal or factual issue.

Court’s analysis

The agreement required a total payment of $52,500. Hernandez was to receive $33,963.10, while his counsel was to receive $16,981.55 in attorneys’ fees and $1,555.35 in costs. Hernandez estimated that he could recover approximately $83,200 if he won all claims at trial. The court calculated that the amount payable to Hernandez represented about 41 percent of his claimed total damages and more than 100 percent of his claimed non-liquidated minimum-wage, overtime, and spread-of-hours damages.

The court found that the settlement avoided additional discovery, motion practice, and trial expenses. It also found significant risks for Hernandez, including Defendants’ evidence that his workdays and total weekly hours were shorter than he claimed, weather-related business closures, and his lack of personal records documenting his hours. Hernandez acknowledged that Defendants’ evidence could reduce his recovery to about $20,000. Defendants also faced litigation risks and additional attorneys’ fees if the case continued. The court had presided over the settlement conference and concluded that the agreement resulted from arm’s-length bargaining between experienced counsel. It found no reason to believe the agreement resulted from fraud or collusion.

The court noted that two other former employees had filed a separate wage lawsuit against the same Defendants. The parties had not disclosed that case in their settlement submission, and the court learned of it through counsel’s billing records. The court nevertheless concluded that the other lawsuit did not require rejecting this settlement. No one had joined Hernandez’s collective action, the settlement affected only Hernandez, and the other plaintiffs were represented by counsel and pursuing their own claims. The court also found that the other lawsuit did not establish the kind of prior, repeated noncompliance that would ordinarily weigh strongly against approval.

The agreement’s release was limited to claims involving unpaid or improperly paid wages. It contained no confidentiality provision. Its non-disparagement provision prohibited false derogatory, disparaging, or defamatory statements, while allowing truthful statements, which the court found acceptable.

The court approved the requested attorneys’ fees because $16,981.55 equaled one-third of the settlement fund after subtracting costs. As a cross-check, the court applied the lodestar method, which estimates fees by multiplying reasonable hours by reasonable hourly rates. Counsel had recorded 62.6 hours of work, and the proposed fee represented approximately 75 percent of the resulting lodestar amount. The court also approved the $1,555.35 in costs because counsel supported them with payment confirmations and invoices.

Ruling and effect

Judge Andrew E. Krause held that the settlement agreement was fair and reasonable and approved it. Counsel was to receive $18,536.90 in total, consisting of $16,981.55 in fees and $1,555.35 in costs, and Hernandez was to receive the remaining $33,963.10 under the settlement agreement. The court stated that it would separately sign and enter the parties’ proposed stipulation and order dismissing the case with prejudice, and it directed the clerk to close the case. The order approved the settlement; it did not decide the underlying wage claims after a trial.