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Cunningham v. The Kitchen Collection, LLC

United States District Court, E.D. Texas, Sherman Division

July 3, 2019




         This matter is before the Court on the Parties' Joint Motion for Approval of FLSA Collective Action Settlement (Dkt. #72), which the Magistrate Judge advised the Court to grant in her Report and Recommendation (Dkt. #79). After careful consideration, the Court adopts the Report and Recommendation for the reasons explained herein.

         I. Settlement Approval [1]

         Generally, Fair Labor Standards Act (“FLSA”) claims can be compromised only after a court reviews and approves the settlement. See Bodle v. TXL Mortg. Corp., 788 F.3d 159, 165 (5th Cir. 2015). In the context of individual actions, the Fifth Circuit has “excepted, from this general rule, unsupervised settlements that are reached due to a bona fide FLSA dispute over hours worked or compensation owed.” Id. (citing Martin v. Spring Break '83 Productions, L.L.C., 688 F.3d 247, 255 (5th Cir. 2015)). The Fifth Circuit has yet to decide the extent to which courts are to scrutinize FLSA class actions. But district courts in this circuit, including this one, have approved an FLSA class settlement only after determining whether the proposed settlement (1) resolves a bona dispute (2) in a fair and reasonable way. See, e.g., Halleen v. Belk, No. 4:16-cv-55-ALM, 2018 WL 6701278, at *1-*4 (E.D. Tex. Dec. 20, 2018); Dyson v. Stuart Petroleum Testers, Inc., No. 1-15-cv-282 RP, 2016 WL 815355, at *2 (W.D. Tex. Feb. 29, 2016) (Pittman, J.) (quoting Collins v. Sanderson Farms, Inc., 568 F.Supp.2d 714, 719 (E.D. La. 2008)); Lee v. Metrocare Srvs., No. 3:13-cv-2349, 2015 WL 13729679, at *1 (N.D. Tex. July 1, 2015) (O'Connor, J.).

         The first question is whether a bona fide dispute over hours worked or compensation owed exists. Plaintiff alleges that Defendant misclassified Store Managers (“SMs”) under the FLSA, that SMs often worked over forty hours per week, and that Defendant failed to pay SMs overtime wages (Dkt. #1), allegations which Defendant denies (Dkt. #5). The Parties actively litigated this dispute. This includes contentious depositions and vigorously litigated motion practice, including a motion to conditionally certify class, which was granted in part and denied in part. See Sims v. Housing Auth. City of El Paso, No. EP-10-CV-109-PKC, 2011 WL 3862194, at *6 (W.D. Tex. Sept. 1, 2011) (citing the adversarial posture between the parties as a reason to approve the settlement). A bona fide dispute exists as a result.

         The Court must thus determine whether the class action settlement is fair and reasonable. “Although the class-action provisions of Federal Rule of Civil Procedure 23 technically do not apply to collective actions under the FLSA, Rule 23(e) is similar because it requires court approval to finalize a proposed class action settlement.” Id. As a result, courts often utilize the Rule 23(e) standard to determine whether a FLSA collective action settlement is fair and reasonable. Id.; see also Jones v. JGC Dall. LLC, No. 3:11cv2743-O, 2014 WL 7332551, at *3 (N.D. Tex. Nov. 12, 2014).

There are six focal facets [under Rule 23(e)]: (1) the existence of fraud or collusion behind the settlement; (2) the complexity, expense, and likely duration of the litigation; (3) the stage of the proceedings and the amount of discovery completed; (4) the probability of plaintiffs' success on the merits; (5) the range of possible recovery; and (6) the opinions of the class counsel, class representatives, and absent class members.

Reed v. Gen'l Motors Corp., 703 F.2d 170, 172 (5th Cir. 1983). The Court addresses each of these factors in turn.

         First, “[t]he Court may presume that no fraud or collusion occurred between counsel in the absence of any evidence to the contrary.” Lee v. Metrocare Servs., 3:13-CV-2349-O, 2015 WL 13729679, at *5 (N.D. Tex. July 1, 2015) (citing Collins v. Sanderson Farms, Inc., 568 F.Supp.2d 714, 725 (E.D. La. 2008)). The Court finds no evidence of fraud or collusion between counsel and, therefore, presumes that no fraud or collusion occurred between counsel.

         Second, “[w]hen the prospect of ongoing litigation threatens to impose high costs of time and money on the parties, the reasonableness of approving a mutually-agreeable settlement is strengthened.” Klein v. O'Neal, Inc., 705 F.Supp.2d 632, 651 (N.D. Tex. 2010) (quoting Ayers v. Thompson, 358 F.3d 356, 373 (5th Cir. 2004)). This case has been actively litigated thus far, and there is no reason to expect any different if the settlement is not approved. The Parties anticipate that they would spend the effort and absorb the cost of producing/reviewing thousands of pages of ESI and other documents, preparing witnesses for depositions, and further motion practice. There is also no question that, if the case proceeded to trial, this would impose high costs on all parties. Accordingly, the reasonableness of approving the parties' settlement is strengthened as ongoing litigation threatens to impose high costs of time and money.

         The goal of the third factor is to “evaluate[ ] whether ‘the parties and the district court possess ample information with which to evaluate the merits of the competing positions.'” Klein, 705 F.Supp.2d at 653 (quoting Ayers, 358 F.3d at 369). As stated, the Parties have engaged in discovery, including two depositions, which allowed them to fully brief a motion for class certification in the eighteen months in which this case has been litigated (up to the proposed settlement anyway). Consequently, the Court finds the parties have had the opportunity to evaluate the merits of their respective positions, and this factor favors approval of the settlement.

         The fourth factor, which is the most important factor absent fraud and collusion, considers the probability of the plaintiffs' success on the merits. Parker v. Anderson, 667 F.2d 1204, 1209 (5th Cir. 1982). When analyzing this factor, courts must judge the terms of the proposed settlement against the probability that the class will succeed in obtaining a judgment following a trial on the merits. Reed, 703 F.2d at 172. However, the court “must not try the case in the settlement hearings because the very purpose of the compromise is to avoid the delay and expense of such a trial.” Id. Plaintiffs acknowledge the risks inhibiting their ability to ultimately prevail on the merits, including, defeating decertification motions, succeeding at the liability and damages phases of trial, and on post-trial motions and a potential appeal. After all, the parties dispute whether the SMs were misclassified at all. The Settlement Agreement ensures that every class member will receive a fair and reasonable recovery based on a formula. It specifically provides each class member compensation for roughly three hours of overtime for each week they worked as an SM during the period applicable to settlement-just one hour less than the four hours Plaintiffs contend to have worked on average. Plaintiffs face considerable hurdles in succeeding on the merits, and the Settlement Agreement provides a fair and reasonable recovery. Therefore, the Court finds this factor weighs in favor of approving the Settlement Agreement.

         The fifth factor examines the range of possible recovery by the class. This factor primarily concerns the adequacy of the proposed settlement. See Ayers, 358 F.3d at 370. The Parties disagree over whether a three-year or two-year statute of limitation applies, the application of the fluctuating workweek method of calculation, as well as whether Plaintiffs were entitled to liquidated damages. The Settlement Agreement resolves the uncertainty inherent in these disputes in a way that seems fair and adequate. Class members are to receive monetary compensation representing overtime wages, covering a three-year period, assuming they worked overtime for 80% of the work weeks at issue. The 80% assumes that class members did not work overtime for paid time off and holidays, which is not an unreasonable assumption. Although the maximum possible award at trial could be larger than the settlement amount, there is also a significant chance it could be lower, or non-existent. Overall, the Settlement Agreement is adequate.

         The sixth factor refers to the opinions of counsel and the class representatives.[2] This case has the benefit of experienced attorneys on both sides, who have negotiated settlements in other complex employment litigation, including class and collective action settlements. The parties and their attorneys agree that the settlement is a fair and reasonable resolution of a bona fide dispute. Therefore, this factor supports a finding in favor of approving the Settlement Agreement.

         After considering the Reed factors, the Court finds that the Settlement Agreement should be approved because it is a fair ...

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