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Sheikh v. Align Communications, Inc.

United States District Court, S.D. New York

January 18, 2017

ASAD PERVAIZ SHEIKH, et al., Plaintiffs,
v.
ALIGN COMMUNICATIONS, INC., Defendant.

          OPINION AND ORDER

          LORNA G. SCHOFIELD, District Judge

         Plaintiffs Asad Pervaiz Sheikh, Zena Dixon and Paul Huxtable, individually and on behalf of all others similarly situated, and Defendant Align Communications, Inc. jointly move for preliminary approval of a class settlement under Rule 23(b)(3) of the Federal Rules of Civil Procedure, and under the Fair Labor Standards Act (“FLSA”), 29 U.S.C. §216(b). For the reasons discussed below, the motion is denied.

         I. BACKGROUND

         A. The Proposed Settlement

         This case arises from Defendant's alleged failure to compensate adequately its IT engineers in its Managed Services Department (the “Employees”) in violation of FLSA and either or both of the New York Labor Law (“NYLL”), N.Y. Lab. Law § 650 et seq., and the New Jersey Wage and Hour Law (“NJWHL”), N.J. Stat. § 34:11-56a et seq. On July 15, 2016, Plaintiffs filed an unopposed motion seeking preliminary approval of a class settlement that would resolve the case.

         Under the terms of their Stipulation of Settlement and Release (the “Agreement”), Defendant would pay up to $600, 000, which the parties define as the Gross Settlement Amount.[1] Putative Class Members are 48 Employees who belong to (1) the NYLL Class, comprising Employees who worked in New York at any time during the six years preceding this lawsuit, (2) the NJWHL Class, comprising Employees who worked in New Jersey at any time during the two years preceding this lawsuit or (3) the FLSA Collective, comprising Employees who worked in New York or New Jersey at any time during the two years preceding this lawsuit.

         Employees in the NYLL Class would automatically be part of the class unless they opt out, while employees in the NJWHL class would not be a part of the class unless they opt in. However, both the NYLL Class and the NJWHL Class purport to be Rule 23(b)(3) classes, which must be opt-out classes, unlike Rule 23(b)(1) and (b)(2) classes. See Fed. R. Civ. P. 23(c)(2), (e); 7B Charles Alan Wright et al., Federal Practice and Procedure § 1807 (3d ed. 2016). The FLSA Collective is opt-in, as contemplated by FLSA. See 29 U.S.C. § 216(b).

         As current or former employees, all possible Class Members are known, as is the amount that each Class Member would be owed if Defendant were found liable in the case. Nevertheless, members of the NJWHL Class and the FLSA Collective would be entitled to participate in the settlement only if they opt into the action and submit a claim form. In other words, the settlement proceeds assigned to the NYLL Class will be paid in full, while the settlement proceeds assigned to the NJWHL Class and the FLSA Collective will be paid only to the extent that their class members take the steps to participate. Plaintiffs estimate that 25% of opt-in class members will participate, and that 95% of opt-out class members will participate.

         The amount payable to Class Members in settlement of their claims is the Net Settlement Fund, which is estimated to be $344, 700. That is the remainder of the $600, 000 Gross Settlement Amount after deducting and paying $255, 300 for attorneys' fees and costs for Class Counsel, service awards to the Named Plaintiffs, fees to the proposed claims administrator and a reserve fund to cover errors and omissions.[2] These deductions must be submitted to the Court for approval with the motion for final approval of the Agreement. Any portion of the $600, 000 in excess of $390, 000 not disbursed would revert back to Defendant. Plaintiffs estimate that approximately $182, 000 to $271, 000 of the $600, 000 Gross Settlement Fund would be paid to Class Members, meaning that after disbursements for attorneys' fees and other costs above, the amount of the Gross Settlement Fund that would revert back to Defendant would be between $73, 700 and $162, 700.

         The Agreement provides that Defendant must pay at least 65% (i.e., $390, 000) of the $600, 000 Gross Settlement Fund, but is unclear what would happen if less than 65% of the Gross Settlement Fund were claimed after payment of attorneys' fees and other expenses. It states only that the amount necessary to reach 65% would be redistributed among Participating Class Members without providing a means of allocating the funds among them.[3]

         B. Relevant Procedural Background

         On October 19, 2016, the Court held a hearing on Plaintiffs' unopposed motion for preliminary approval of the settlement. The Court identified numerous concerns, including the reversionary nature of the Agreement, the creation of a reserve fund that would revert back to the Defendant, the disparate treatment of the New York and New Jersey classes and the lack of information about the fee structure used by the proposed claims administrator.

         On October 21, 2016, the Court ordered the parties to submit additional information to better substantiate the fairness of the settlement, including (1) a breakdown of the projected net settlement amount and the recovery on the dollar for both the projected net settlement amount and the guaranteed $390, 000 settlement amount, (2) a spreadsheet detailing the anticipated distribution of the gross settlement amount, (3) a breakdown of the number of individuals in each class, (4) a summary of the relevant state statutes that govern whether the settlement classes should be opt-in or opt-out, (5) the financial terms agreed to with the proposed claims administrator and (6) detailed information about the participation of the three named plaintiffs in the case.

         On December 2, 2016, the parties submitted a letter providing most of the information requested by the October 21, 2016, Order. The parties did not address the financial terms agreed to with the proposed claims administrator, but did state that ...


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