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Seck v. Dipna Rx Inc.

United States District Court, S.D. New York

May 8, 2017

ISSA SECK, Plaintiff,
v.
DIPNA RX, INC. and PAATHIV SHAH, Defendants.

          MEMORANDUM AND ORDER

          P. KEVIN CASTEL UNITED STATES DISTRICT JUDGE.

         This case underscores the wisdom of judicial or administrative review of all settlements of claims brought under the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 201, et seq. See Cheeks v. Freeport Pancake House, Inc., 796 F.3d 199 (2d Cir. 2015). For reasons explained, this Court concludes that settlement of a FLSA action accomplished through a unilateral dismissal of the complaint by plaintiff is not exempt from review.

         Rule 41(a)(1)(A), Fed. R. Civ. P., permits a plaintiff to unilaterally dismiss an action without prejudice and without court approval. Plaintiff filed a “Notice of Voluntary Discontinuance Without Prejudice” before an answer or appearance was filed. (Docket # 14.) Plaintiff's “Notice” was prepared and submitted with a signature line for the Court to enter the document as an order, and the Court complied. (Docket # 15.)

         Thereafter, the plaintiff, Issa Seck, who had been represented by an attorney, Abdul K. Hassan, complained that he had not been paid monies that were promised to him in a settlement with defendants. (Docket # 16.) Because the underlying claims included one brought under FLSA, the Court gleaned from Seck's letter that this was not a true dismissal without prejudice, but a settlement with an adverse party that had not been submitted for judicial review pursuant to Cheeks. Within days of Seck's letter, the Court entered the following order: “By March 28, 2017, Mr. Hassan shall disclose to the Court the amount of all fees paid to him for his services with a copy of the retainer agreement. He shall also explain why the settlement agreement was not submitted to the Court for review and approval pursuant to Cheeks . . . . Failure to comply will result in sanctions and disgorgement of all fees received by Mr. Hassan.” (Docket # 18.)

         In response, Hassan revealed that he had negotiated a settlement with the two named defendants that fully and finally extinguished Seck's claims against them. (Docket # 20.) In this settlement, Hassan's payday exceeded that of his client: $12, 000 would be paid to Seck and $13, 000 in attorneys' fees to Hassan. Seck's portion would be paid in installments as would Hassan's. Hassan, who had been counsel to the losing party in Cheeks, asserted that no judicial review of the settlement was required, relying on footnote 2 of Cheeks, which left “for another day” the question of whether a “stipulation without prejudice” requires review. 796 F.3d at 201 n.2.

         DISCUSSION.

         Cheeks requires approval from the Department of Labor or a district court when FLSA claims are settled through a stipulation of dismissal with prejudice. 796 F.3d at 206. The Second Circuit described the FLSA as “a uniquely protective statute, ” and concluded that review of settlements is a safeguard against the “disparate bargaining power between employers and employees.” Id. at 207. Cheeks surveyed reasons that courts in this District had rejected FLSA settlements, and described “the potential for abuse in such settlements” as “underscor[ing] why judicial approval in the FLSA setting is necessary.” Id. at 206. Possible abuses include “highly restrictive confidentiality provisions, ” overbroad releases that “include[] unknown claims and claims that have no relationship whatsoever to wage-and-hour issues, ” attorneys' fees ranging between 40 and 43.6 percent of the total settlement payment that are unsupported by documentation, and pledges by attorneys not to represent parties in future claims against the same defendants. Id.

         A true dismissal without prejudice would permit the plaintiff to reassert his claims. But, here, the dismissal without prejudice coupled with the terms of a settlement agreement foreclose Seck from ever asserting his FLSA claim. The “Settlement Agreement and Release” signed by Seck contains release language that is overbroad and circular. Paragraph 4 reads as follows:

In return for the payments identified in paragraph 2, Plaintiff hereby unconditionally and irrevocably releases and discharges from any and all claims, actions, causes of action, rights, promises, sums of money due or liabilities that he/they asserted in this action, or could have asserted against defendants, consistent with Cheeks v. Freeport Pancake House, Inc., 796 F.3d 199 (2d Cir. 2015), as of the date of this Agreement, and covenants not to sue Defendants with respect to any such released claim.

(Docket # 20 Ex. 1.)

         The public record initially presented to the Court implicitly states that Seck is free to reassert his FLSA claim, i.e. by its express terms the dismissal is without prejudice. But in truth and in fact, under the terms of a hidden settlement agreement, Seck forever forfeited his right to reassert his FLSA claim. Taken as a whole and in the context of Cheeks, this is deceptive conduct. A settlement containing a release that extinguishes the right to bring a claim in the future forecloses the claim as certainly as a stipulation of dismissal with prejudice. The Court concludes that it falls within the category of settlements that require Cheeks review.

         This conclusion is consistent with the holdings of other judges of this Court who have been faced with accepted Rule 68, Fed. R. Civ. P., offers of judgment in the FLSA context. See Sanchez v. Burgers & Cupcakes LLC, 16 cv 3862 (Mar. 16, 2017)(Judge Caproni) (collecting cases); but see Baba v. Beverly Hills Cemetery Corp., 15 cv 5191(CM), 2016 WL 2903597, at *1 (May 9, 2016)(Chief Judge McMahon) (expressing concern over the perceived gap created by Rule 68).

         Turning to this particular settlement agreement, it purports to release claims only to the extent “consistent with Cheeks.” It is circular and begs the question of what Cheeks allows a party to do. As an example of appropriate release language, this Court has previously approved a FLSA settlement conditioned upon modification of the language to release only claims (1) relating to wages and hours, including those under FLSA, N.Y. Labor Law, N.Y. Code of Rules and Regulations or common law; (2) relating to retaliation for protected activity concerning wages or hours; (3) relating to the negotiation and execution of the Agreement and Release; or (4) asserted in the Action. Guzman v. Patsys Pizzeria, 15 Civ. 7220 (PKC) (Docket # 34) (Feb. 21, 2017).

         Apart from the scope of the release, there is the additional issue of the fees to be awarded Hassan. Cheeks cited to undocumented fee awards between 40 and 43.6 percent of the total settlement as an example of “the potential for abuse” in FLSA settlements. 796 F.3d at 206. Here, the settlement agreement provides for three payments of $4, 000 to Seck, totaling $12, 000. Hassan is ...


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