Medina v. NYC Harlem Foods Inc

Background

Marisol Medina brought a proposed class action under the Fair Labor Standards Act (FLSA), the New York Labor Law, related New York regulations, and the New York Wage Theft Prevention Act. She alleged that the defendants denied her and other non-exempt hourly workers overtime pay, timely payment, accurate wage statements, a hiring notice, sick-day pay, uniform pay, and reimbursement of certain deductions. The opinion states that the defendants jointly owned and operated fast-food establishments throughout New York State; proposed settlement materials identified those establishments as Dunkin Donuts franchises, although that information was not included in the complaint or briefing.

The parties jointly sought preliminary approval of a settlement. The proposed settlement class would have included every non-exempt employee employed by the defendants between February 15, 2015, and the date of preliminary approval. The parties estimated about 1,100 class members and proposed a $1.3 million gross settlement fund. The fund would have paid class members, the claims administrator, plaintiff’s counsel, a service award for Medina, and other fees and costs.

Reasons for Denying Preliminary Approval

The court first held that the proposed settlement procedures did not comply with the FLSA. Rule 23 generally uses an opt-out process for class actions, while the FLSA requires workers to opt into a collective action by filing written consent with the court. The proposed agreement and notice instead stated that workers who did not opt out would remain in the class and be bound by the settlement. The parties had not proposed separate procedures for the FLSA collective claims and the New York-law class claims, and the materials did not address the FLSA’s opt-in requirements.

The court also found that the parties had not supplied enough information for the required review of whether the FLSA settlement was fair and reasonable. They did not provide a meaningful estimate of the class’s possible recovery, a damages breakdown, information about hours worked and applicable wages, or supporting declarations and exhibits. Their descriptions of litigation risks, anticipated expenses, and possible defenses were largely general and conclusory. The court found that the settlement resulted from arm’s-length negotiations through the court’s mediation program, but the parties had not provided enough information about the other required fairness factors.

The proposed termination provision was another deficiency. It allowed the defendants to terminate the agreement if the value of filed claims reached 20% of the settlement fund, or $260,000, subject to further negotiations. The court viewed this as materially different from a typical provision allowing a defendant to withdraw when too many class members opt out. In the court’s view, the provision could allow the defendants to cancel the settlement when it was too successful, create incentives that worked against the class members’ interests, and leave the settlement amount uncertain.

Finally, the agreement proposed that counsel request one-third of the $1.3 million gross fund, plus litigation expenses, and that Medina receive a $25,000 service award. The court did not decide the ultimate reasonableness of the requested attorneys’ fees because supporting documentation had not yet been submitted. It nevertheless found that the proposed fee arrangement raised concerns because the agreement guaranteed class members no more than $260,000 while counsel planned to seek more than $433,333.33, and no factual support for the proposed fee had been provided.

Disposition

Judge Broderick denied without prejudice Medina’s motion for preliminary settlement approval. He also denied without prejudice her requests for conditional certification of the proposed class, appointment of class counsel, and approval of the proposed class notice. The parties were given 21 days either to file a revised settlement agreement addressing the deficiencies and the five fairness factors or to file a joint letter stating that they intended to abandon settlement. The opinion did not decide whether the defendants violated the wage laws or whether the proposed class would ultimately be certified.