FLSA lawsuits are exploding – on nationwide basis annual FLSA filings have increased more than 400% since 2001. The vast majority of these actions ultimately result in a settlement. The question has now been raised as to whether the FLSA settlements can result in an overpayment of class counsel providing them with “more than a fair day’s pay for a fair day’s work.” Recognizing the unique circumstances under which FLSA settlements are negotiated and structured, Southern District Judge William Pauley has raised this question while significantly slashing the FLSA class counsel fees in one recent settlement. See Fujiwara v Sushi Yasuda Ltd, 12-cv-8742.
The Courts have found that when cases settle, the adversarial process between counsel often melts away. With this in mind, Judge Pauley observed that once an FLSA settlement figure has been established, settling defendants tend to lose interest in how the settlement monies are distributed, and thus a natural tension arises between plaintiffs’ counsel and the class they represent. Indeed, after reviewing the proposed settlement agreement in Fujiwara, Judge Pauley was struck by the “extreme similarities in the wording of several decisions” relied on by Plaintiffs’ counsel to support their fee application. The Judge discovered that many of the authorities cited by Plaintiffs’ counsel were the “proposed orders drafted by the class action plaintiffs’ bar and entered with minimal, if any, edits by judges.” Thus, Judge Pauley concluded that “the vacuum created by proposed FLSA class action settlements has permitted plaintiffs’ attorneys to write much of the law on what constitutes a reasonable attorney’s fee.” Accordingly, the Judge cautioned that “little precedential value” should be given to the proposed orders drafted by counsel, which make findings of fact and conclusions of law that award counsel their own fees.
The Fujiwara case achieved a settlement of $2.4 million, and the initial proposed settlement sought one-third of this amount, $800,000.00, in fees and costs to Plaintiff’s counsel. While Judge Pauley lauded the work performed by class counsel, and noted that they billed fewer than 650 hours on this matter, the Judge was wary of granting such a high amount of fees. Given the unique circumstances of FLSA class settlements, Judge Pauley explained that “it is the judges alone who are left to safeguard the interests of the class.” With that in mind Judge Pauley reduced the award of counsel fees and costs from $800,000.00 to $500,020.18.
Thus, in structuring FLSA settlements counsel need to be aware of the potentially heightened judicial scrutiny to ensure that class counsel do not receive inflated fees at the cost of the class they represent. Ultimately, FLSA settlements will need to trim attorney’s fees to ensure judicial approval.