United States District Court, S.D. New York
ADRIAN SANCHEZ, MARCOS FERNANDEZ, NICOLAS ARMANDO, BALDOMERO PEREZ, and ALEJANDRA GARCIA, on behalf of themselves, FLSA Collective Plaintiffs, and Class Members, Plaintiffs,
BURGERS & CUPCAKES LLC, d/b/a BURGERS & CUPCAKES, MITCHEL LONDON INC., d/b/a MITCHEL LONDON FOODS, MITCHEL LONDON, and CARMELA LONDON, Defendants.
OPINION AND ORDER
VALERIE CAPRONI, United States District Judge
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
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.
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.
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.
Plaintiffs' “Acceptance” is Invalid
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.
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.”); Register.com, 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).
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. 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
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.
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