Castillo v. La Tinfora Grocery Corp.

Background

Victor Castillo sued La Tinfora Grocery Corp. and other defendants individually and on behalf of others similarly situated. He alleged violations of the Fair Labor Standards Act (FLSA), the federal wage-and-hour law, and New York Labor Law based on unpaid overtime and failures to provide proper wage notices and wage statements.

The parties submitted a proposed settlement agreement for court approval. The agreement required a total payment of $50,000, of which $33,333.34, or two-thirds, would go to Castillo. The parties stated that Castillo’s total claimed recovery was approximately $260,000. The defendants represented that Castillo did not work the hours or for the wages he claimed and that they could not pay the amount originally sought. The agreement also included a mutual non-disparagement clause.

Court’s Analysis

Because the settlement involved FLSA claims, the court explained that private settlement required approval by the court or the Department of Labor. The court therefore had to determine whether the agreement was fair and reasonable, including whether the proposed attorney-fee award was reasonable.

The court found the $50,000 payment reasonable in light of the parties’ competing accounts, the defendants’ asserted inability to pay the original demand, and the risks of litigation. The court also found no problem with the non-disparagement clause because it allowed truthful statements about the parties’ litigation experience and applied only to comments that could adversely affect business interests and reputations.

The court nevertheless identified two problems. First, the parties’ supporting letter said that Castillo’s counsel would receive $16,987, while the agreement said counsel would receive $16,666.66. The court presumed that the agreement’s figure was intended because it equals one-third of the total settlement, but required the parties to clarify the amount. The agreement also said that Castillo would receive two-thirds of the settlement minus case-related costs. The court directed the parties to clarify the calculation and ensure that, absent extraordinary circumstances, counsel received no more than one-third of the settlement amount after costs.

Second, the court found the release unreasonable as written. The release broadly covered all wage-and-hour, record-keeping, and other claims against the defendants and related persons or entities, and stated that it should be interpreted expansively. The court concluded that the language could extend beyond the claims involved in this lawsuit.

Disposition

The court declined, without prejudice, to approve the settlement agreement in its present form. It directed the parties to submit a revised agreement addressing the attorney-fee calculation and the scope of the release no later than August 15, 2023. The court stated that it would reconsider the agreement after receiving the revisions.