Cheeks v. Freeport Pancake House

I often settle FLSA actions, as do many other lawyers, defense and plaintiff. It makes sense for both sides, given the costs and uncertainties of litigation and the protracted time it takes for a case to weave its way through the courts. There is now a growing controversy as to the degree that such settlements need to be reviewed by the courts. This dilemma has now found its way to the Second Circuit Court of Appeals in a case that may produce a watershed result. The case is entitled Yu v. Hasaki Restaurant Inc. et al., and was argued before the Court of Appeals for the Second Circuit.

A sushi chef who sued his employer and the employer wanted to settle the lawsuit for $20,000. The district court Judge (Jesse Furman) maintained that the statute required him to review the settlement for appropriateness. The matter has now been appealed to the appellate court where oral argument (and some tough questioning by the appellate panel) took place.

The plaintiff’s lawyer argued that Rule 68 of the Federal Rules of Civil Procedure explicitly provided that any agreement reached under that Rule had to be entered as a judgment. One of the appellate judges seemed to disagree, stating that this Rule was not intended to be used in that manner. The Judge observed “really, what is 68(a) about? … It’s about getting people to accept settlements in torts.” The lawyer responded that “it’s meant to create a settlement where there are disputes about the facts and what’s owed.” The lawyer noted that these kinds of disputes often exist in wage-and-hour cases.

The lawyer for the advocacy group Public Citizen asserted that the district court was right. She stated that the Judge Furman was correct in looking towards the Second Circuit’s recent holding in Cheeks v. Freeport Pancake House for guidance. That case closed the door on settling and dismissing FLSA cases under FRCP 41. The plaintiff’s lawyer countered by stating that there is no similar requirement in Rule 68, as there is in Rule 41, i.e. making sure that no other statute would preclude the proposed settlement.

Judge Debra Ann Livingston’s inquiries allowed the plaintiff’s lawyer to go into a speech about the long amount of time it takes for settlements to be approved by district courts. That Judge was also dubious of the applicability of the Cheeks holding. She observed that Rule 68 settlements were matters of pubic record, while Rule 41 settlements could be (and were) negotiated in a private setting.

The Takeaway

Settlements are such a vital part of the FLSA-litigation process that any obstacle that gets placed in the way of the facilitation of such settlements is bad for both plaintiff and the defendant…

We’re pleased to note that U.S. Magistrate Judge James L. Cott of the U.S. District Court for the Southern District of New York recently cited a New York Law Journal article written by Fox partner Glenn Grindlinger in a memorandum order. In the order signed November 6 in Souza et al. v. 65 St. Marks Bistro, Judge Cott noted the Second Circuit’s decision in Cheeks v. Freeport Pancake House. In Cheeks, the court held that “stipulated dismissals settling FLSA claims with prejudice under…the Federal Rules of Civil Procedure required the approval of the district court (or the U.S. Department of Labor)…in order to take effect.”

In a footnote, Judge Cott wrote:

Given this dicta, one commentator has observed that Cheeks is “a problematic decision for employers as it will make it harder to resolve FLSA claims,” and “[b]ecause courts will scrutinize FLSA settlement agreements before they will dismiss an FLSA case, defendant employers will find it difficult to include confidentiality and other provisions in an agreement that are normally contained in settlement agreements.” Glenn Grindlinger, Second Circuit Requires Court Approval of all FLSA Settlements, New York Law Journal, August 19, 2015, at 3.

To read Glenn’s full piece, please visit the Fox Rothschild website.