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Sanchez v. Burgers & Cupcakes LLC

United States District Court, S.D. New York

March 16, 2017

ADRIAN SANCHEZ, MARCOS FERNANDEZ, NICOLAS ARMANDO, BALDOMERO PEREZ, and ALEJANDRA GARCIA, on behalf of themselves, FLSA Collective Plaintiffs, and Class Members, Plaintiffs,


          VALERIE CAPRONI, United States District Judge

         Seeking to end-run judicial oversight of settlements of a wage and hour claims brought pursuant to the Fair Labor Standards Act (the “FLSA”), 29 U.S.C. § 210 et seq., the parties to this case have executed an offer and acceptance of judgment pursuant to Rule 68 of the Federal Rules of Civil Procedure. The parties' Rule 68 compromise is opposed by the Department of Labor (the “Department”), which contends that Second Circuit precedent requires Court or Department approval of all FLSA settlements, regardless of their form. For the reasons given below, the Court concludes that an FLSA plaintiff's “acceptance” of a Rule 68 offer is invalid unless it is approved by either the Department or this Court.


         1. Background

         Plaintiffs brought this action seeking to represent a collective comprised of restaurant workers. Compl. (Dkt. 1) ¶ 14. Plaintiffs allege that during the class period they were employed as bussers, deliverymen, cooks, and waiters at the individual defendants' restaurants, “Burgers & Cupcakes” and “Mitchel London Foods” and their catering business, “Mitchel London Catering” (collectively, “Burgers & Cupcakes”). Compl. ¶¶ 8, 14. The Complaint asserts claims under the FLSA for failure to pay minimum wage and overtime. Compl. ¶ 15. Plaintiffs also bring New York labor law claims for spread-of-hours violations, and failure to provide notice of wages and regular wage statements. Compl. ¶ 20. The Complaint demands back pay, statutory penalties, punitive damages, and costs and fees. Compl. at 25-26.

         On October 19, 2016, Plaintiffs filed a “Notice of Acceptance of Offer of Judgment” pursuant to Rule 68(a). Dkt. 36. The Notice purports to accept an offer of judgment made by Burgers & Cupcakes on October 14, 2016. Burgers & Cupcakes offered the four remaining named plaintiffs an aggregate $19, 200 to settle all claims in the case, inclusive of attorney's fees. Dkt. 36 Ex. 1 ¶ 1. The offer was made on an “all or nothing” basis - Burgers & Cupcakes was only interested in buying global peace - and provided that the settlement consideration would be paid out in installments over a two-year period. Dkt. 36 Ex. 1 ¶¶ 2, 4-5.

         On October 27, 2016, the Court solicited the Department's views on the application of Rule 68 to putative collective claims under the FLSA. Dkt. 39. Ordinarily, FLSA claims may only be settled with the approval of the Department or after a fairness determination by the court. See Cheeks v. Freeport Pancake House, Inc., 796 F.3d 199, 205-06 (2d Cir. 2015). Rule 68(a) is a potential loophole through which FLSA claims could be settled without any judicial oversight. On January 13, 2017, the Department opposed the parties' Rule 68 compromise. Dkt. 43 (Dep't Opp.”). The Department contends that the rule in Cheeks applies equally in this scenario because a Rule 68 compromise is functionally a settlement. Dep't Opp. at 9-11. Plaintiffs filed a response on February 10, 2017. Dkt. 47 (Pls.' Resp.). They take the position that a Rule 68 compromise is unreviewable and that Cheeks does not apply. Pls.' Resp. at 4. The Clerk of the Court has been directed not to enter judgment in favor of Plaintiffs pending the Court's resolution of this issue.

         2. Plaintiffs' “Acceptance” is Invalid

         Courts in this district are divided on whether Cheeks applies to a Rule 68 offer and acceptance. Compare Baba v. Beverly Hills Cemetery Corp., No. 15-CV-5151 (CM), 2016 WL 2903597, at *1 (S.D.N.Y. May 9, 2016) (holding Cheeks inapplicable) and Cantoran v. DDJ Corp., No. 15-CV-10041 (PAE), Dkt. 35 (S.D.N.Y. June 2, 2016) (Cheeks applies to Rule 68 settlements); Segarra v. United Hood Cleaning Corp., No. 15-CV-656 (VSB), Dkt. 18 (S.D.N.Y. Nov. 17, 2015) (same). On its face, Rule 68 requires the Court to enter judgment. In relevant part, the Rule provides: “a party defending against a claim may serve on an opposing party an offer to allow judgment on specified terms . . . . If . . ., the opposing party serves written notice accepting the offer, either party may then file the offer and notice of acceptance . . . . The clerk must then enter judgment.” Fed.R.Civ.P. 68(a) (emphasis supplied). As Chief Judge McMahon colorfully explained in Baba, applying Rule 68(a) to FLSA claims “gives clever defendant-employers an aperture the size of the Grand Canyon through which they can drive coercive settlements in [FLSA] cases without obtaining court approval - as well as a vehicle for seriously compromising the plaintiff's lawyer-client relationship.” Baba, 2016 WL 2903597, at *1.[1]

         An FLSA plaintiff may not validly “accept” a Rule 68 offer without Department or Court approval under Cheeks. This conclusion follows from the Second Circuit's reasoning in Cheeks and the contract law principles applicable to Rule 68. Rule 68 does not define “offer” or “acceptance.” Nonetheless, a Rule 68 compromise - just like any other settlement - is a contractual agreement, and Courts look to “ordinary contract principles” to ascertain Rule 68's meaning. See Arbor Hill Concerned Citizens Neighborhood Ass'n v. Cty. of Albany, 369 F.3d 91, 95 (2d Cir. 2004) (“Offers of judgment pursuant to Fed.R.Civ.P. 68 are construed according to ordinary contract principles.” (quoting Goodheart Clothing Co. v. Laura Goodman Enter., Inc., 962 F.2d 268, 272 (2d Cir. 1992))). And, like any contract, a Rule 68 compromise must have a valid offer and a valid acceptance. See Lang v. Gates, 36 F.3d 73, 75 (9th Cir. 1994) (“In determining whether an offer is proper under Rule 68, courts will apply traditional principles of contract construction.”);, Inc. v. Verio, Inc., 356 F.3d 393, 427 (2d Cir. 2004) (“To form a valid contract under New York law, there must be an offer, acceptance, consideration, mutual assent and intent to be bound.” (quoting Louros v. Cyr, 175 F.Supp.2d 497, 512 n.5 (S.D.N.Y. 2001))). To that end, for example, a Rule 68 settlement is invalid when the defendants' attorney “did not have authority to make a valid offer of judgment.” Marnell v. Carbo, 499 F.Supp.2d 202, 207-08 (N.D.N.Y. 2007).

         FLSA claimants - even those represented by counsel - are no more able validly to “accept” a settlement offer via Rule 68 than they are validly to accept an offer of a private settlement pursuant to Rule 41. The FLSA is a uniquely protective statute, intended to “extend the frontiers of social progress by insuring to all [] able-bodied working men and women a fair day's pay for a fair day's work.” Cheeks, 796 F.3d at 206 (quoting A.H. Phillips, Inc. v. Walling, 324 U.S. 490, 493 (1945)). Recognizing the lopsided relationship between employer and employee and the potential for collusive settlements to render the FLSA's protections a dead letter, the Second Circuit requires judicial oversight of FLSA settlements. See Id. “Low wage employees, even when represented in the context of a pending lawsuit, often face extenuating economic and social circumstances and lack equal bargaining power . . . [.] [They] are more susceptible to coercion or more likely to accept unreasonable, discounted settlement offers quickly.” Id. at 205 (quoting Socias v. Vornado Realty L.P., 297 F.R.D. 38, 40 (E.D.N.Y. 2014)). In other words, under Cheeks, FLSA claimants do not have authority to compromise their claims without judicial or Department oversight.[2] In contractual terms, FLSA plaintiffs lack capacity to enter into a binding agreement with the defendant that is not conditioned on court or Department approval. Cf. Restatement (second) of Contracts § 12(1) (“Capacity to contract may be partial and its existence in respect of a particular transaction may depend upon the nature of the transaction or upon other circumstances.”).[3]

         The Clerk of the Court's mandatory obligation to enter judgment pursuant to Rule 68(a) presupposes a valid offer and acceptance. Cf. Stewart v. Prof'l Comput. Ctrs., Inc., 148 F.3d 937, 940 (8th Cir. 1998) (“Since there was no valid offer and acceptance under Rule 68, exceptional circumstances justify relief from the judgment under Rule 60(b) . . . .”). Because in this case Plaintiffs lacked capacity to accept Burgers & Cupcakes's offer of judgment without Department or court approval there was no valid offer and acceptance and the parties' Rule 68 compromise is ineffective.


         The Clerk of the Court is directed not to enter judgment in this case. The parties may, if they wish, submit their settlement for court approval pursuant to Cheeks. If the settlement is not submitted to the Court for a fairness determination on or before March 24, 2017, the parties are ...

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