San Martin v. F & M Scarsdale Pizza Corp

Background

Orlando Facundo San Martin sued F & M Scarsdale Pizza Corp and Mentor Krasniqi, described together as the defendants, under the Fair Labor Standards Act of 1938 (FLSA) and the New York Labor Law. San Martin alleged that the defendants failed to pay overtime wages, provide accurate wage notices, and provide accurate wage statements. The parties submitted a proposed settlement and asked the court to approve it.

The proposed agreement required the defendants to pay $8,000. It allocated $3,200 to San Martin’s attorney for fees and $636 for filing and service costs, leaving San Martin with a net recovery of $4,164.

Legal standard

The court explained that FLSA settlements that dismiss claims with prejudice generally require approval by the district court or the Department of Labor. The court therefore had to determine whether the agreement was fair and reasonable. To make that assessment, the parties had to provide enough information about the claims, the negotiation process, the defendants’ potential exposure, San Martin’s maximum possible recovery, the likelihood of success, and the requested attorney fees.

Reasons for denying approval

The parties stated that timecards and payroll records showed that the defendants had paid San Martin time-and-a-half overtime wages and that the settlement instead focused on relief under New York’s Wage Theft Prevention Act. But the submission did not estimate San Martin’s maximum possible recovery or include records supporting the claim that his recovery under the FLSA would be minimal. Without that information, the court concluded that it could not determine whether the settlement amount was fair and reasonable.

The court found that the settlement had been negotiated competently, in good faith, and at arm’s length, with no fraud or collusion. The court also was not aware of other similarly situated employees, and San Martin would be the only employee affected by the settlement and dismissal of the lawsuit. Those points favored approval, but they did not overcome the deficiencies in the submission.

The release provision was another independent problem. It purported to release the defendants and related entities and people from essentially every possible claim, including claims unrelated to wage-and-hour issues. The court held that the release was too broad to be fair and reasonable and stated that any release would have to be limited to the claims at issue in the action.

The court also rejected the proposed attorney-fee allocation. San Martin’s counsel requested $3,200, or 40% of the total settlement, and submitted billing records totaling $3,580 based on an hourly rate of $400. The court stated that, except in extraordinary cases, courts in the district generally do not award more than one-third of an FLSA settlement. Because this case involved one plaintiff, settled before motion practice, and was not extraordinary, the court held that a 40% fee was unreasonable.

Disposition

Judge Kenneth M. Karas denied the parties’ request for approval of the settlement agreement. The clerk was directed to terminate the pending motion at docket entry 12. The opinion did not state that the lawsuit itself was dismissed or add a with-prejudice or without-prejudice designation.