Martinez v. The IFA Group, Inc.

          MEMORANDUM

          JOSHUA D. WOLSON, J.

         The parties to this case ask the Court to approve their proposed settlement pursuant to 29 U.S.C. § 216(b). The Court has reviewed the facts and the proposed settlement and concludes that it is fair and reasonable, and that counsel has made a sufficient showing for an award of attorneys' fees. However, the Court concludes that the broad release included in the proposed settlement agreement would frustrate the purpose of the Fair Labor Standards Act and must be narrowed.

         I. BACKGROUND

         A. Factual Allegations and Procedural History

         Christopher Martinez alleges in his Complaint that he worked as a repossessor for The IFA Group (“IFA”) from September 2016 through June 2018. IFA paid Martinez a piece-rate for each item of property he repossessed. When he was not repossessing vehicles, Martinez worked at IFA's lot in Pottstown, Pennsylvania between the hours of noon and 3 p.m. Martinez alleges that IFA's owner and President, Joseph McOwen, agreed to pay him $15/hour for every hour he worked at the lot.

         Martinez claims in his Complaint that he regularly worked 75-80 hours per week, though he now concedes that he worked 65-70 hours per week. He also claims that IFA failed to pay him his agreed-upon wages for the hours he was at the lot. Martinez alleges that, based on a 65-70 hour workweek, he was entitled to unpaid overtime wages between $40, 000 and $45, 000.

         After Martinez filed his Complaint, Defendants took the position that the motor carrier exemption in the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 213(b)(1), bars Martinez's claims. Plaintiff's counsel concluded that the motor carrier exception might preclude Martinez's claims. Given that risk, the parties agreed to settle the case.

         B. The Settlement

         Under the terms of the settlement, Defendants will pay a total of $35, 000: Martinez receives $21, 000; and Plaintiff's counsel receives $14, 000. In the settlement, Martinez agrees to release IFA “from any and all charges, complaints, claims, and liabilities of any kind whatsoever, known or unknown, suspected or unsuspected … which Martinez at any time has, had or claimed to have against IFA regarding events that have occurred as of the date Martinez executes this Agreement.” (ECF No. 10 at Ex. 1.) The settlement also includes a non-disparagement provision and choice of law and forum provisions, among other things.

         Plaintiff's counsel asserts in the Motion that Scott Pollins spent 30 hours of time on this case, with a suggested rate of $495/hour, and Tashell Jenkins spent 35 hours on this case, with a suggested rate of $350/hour. Thus, in total, Plaintiff's counsel has $27, 700 in fees, as well as approximately $600 in expenses. Plaintiff's counsel then suggests that they will lower their fees in order to effectuate the settlement here. The parties have not submitted any time records or other information that the Court can use to assess the claimed fees.

         II. LEGAL STANDARD

         Congress enacted the FLSA to “protect all covered workers from substandard wages and oppressive working hours ….” Barrentine v. Arkansas-Best Freight Sys., Inc., 450 U.S. 728, 739 (1981). There are only two ways that parties can compromise claims under the FLSA: (1) a compromise supervised by the Department of Labor pursuant to 29 U.S.C. § 216(c); or (2) a settlement that a district court approves pursuant to 29 U.S.C. § 216(b). See, e.g., Lynn's Food Stores, Inc. v. U.S. ex rel. U.S. Dep't of Labor, 679 F.2d 1350, 1354 (11th Cir. 1982); see also Kraus v. PA Fit II, LLC, 155 F.Supp.3d 516, 522-23 (E.D. Pa. 2016) (courts in Third Circuit generally look to Lynn's Food decision for guidance). In general, when parties present to the district court a proposed settlement, “the district court may enter a stipulated judgment if it determines that the compromise reached is a fair and reasonable resolution of a bona fide dispute over FLSA provisions, rather than a mere waiver of statutory rights brought about by an employer's overreaching.” See Kraus, 155 F.Supp.3d at 523 (quotations omitted).

         A proposed settlement resolves a bona fide dispute where its terms reflect a reasonable compromise over issues, such as back wages, that are actually in dispute. See Id. “A dispute is ‘bona fide' where it involves factual issues rather than legal issues such as the statute's coverage and applicability.” Flores v. Eagle Diner Corp., No. 2:18-CV-01206-AB, 2019 WL 3943355, at * 9 (E.D. Pa. Aug. 21, 2019) (quote omitted). For a bona fide dispute to exist, there must be evidence of the defendant's intent to reject or actual rejection of that claim when it is presented. See Id. at 530. If a bona fide dispute exists, courts conduct a two-part fairness inquiry to ensure that (1) the settlement is fair and reasonable for the employee and (2) the agreement furthers the FLSA's implementation in the workplace. See, e.g., Kauffman v. U-Haul Int'l, Inc., No. 5:19-cv-0580, 2019 WL 1785453 (E.D. Pa. Apr. 24, 2019).

         The FLSA provides that, in addition to any judgment awarded to the plaintiff, the Court “shall … allow a reasonable attorney's fee to be paid by the defendant, and costs of the action.” 29 U.S.C. § 216(b). The Court is required to “articulate” the basis for a fee award. Kraus, 155 F.Supp.3d ...