E-Alert Case Updates

U.S. District Court Outlines Acceptable FLSA Settlements

Duprey v. Scotts Co. LLC
No. 13-3496 (United States District Court for the District of Maryland, May 23, 2014)
by Richard J. Medoff, Summer Associate
Semmes, Bowen & Semmes (www.semmes.com)

Available at http://www.mdd.uscourts.gov/Opinions/Opinions/Duprey05232014opinion.pdf

In Duprey v. Scotts Co. LLC, a case involving the settlement of an employee’s claims against his employer for violations of the Fair Labor Standards Act (“FLSA”) and two related Maryland statutes, the United States District Court for the District of Maryland held that the settlement agreement reached by the parties was acceptable under the FLSA. Judge Paul Grimm, writing for the Court, granted the parties’ Joint Motion to Approve Settlement.

By way of factual background, starting in February 2008, Robert Duprey worked for Scotts Lawn Care Company, LLC ("Scotts") as a lawn technician and territorial service representative. While employed by Scotts, Duprey earned between $14 and $23 per hour and alleged that he typically and customarily worked more than forty (40) hours per week. In his Complaint, Duprey claimed that he was not paid properly for 440.78 hours of overtime and that Scotts owed him $11,927.69 in back pay as a result. Accordingly, Duprey filed a three-count complaint in the District Court of Maryland for Montgomery County, alleging violations of the FLSA, (29 U.S.C. §§ 201–219); the Maryland Wage and Hour Law, (Md. Code Ann., Lab. & Empl. §§ 3–401 to 3–430); and the Maryland Wage Payment and Collection Law, (§§ 3–501 to 3–509). The case was subsequently removed to the U.S. District Court for the District of Maryland.

After removal, the parties filed a Joint Motion to Approve Settlement. Under the terms of the Settlement Agreement, Duprey released Scotts for all claims related to his employment, except workers' compensation, and agreed that he was not a prevailing party for purposes of attorneys' fees or costs under 29 U.S.C. § 216(b). In exchange, Duprey received $2,250 for back pay and $2,250 for liquidated damages, and Duprey's attorneys received $3,000 for attorneys' fees. Pursuant to Duprey's fee agreement with his attorneys, the attorneys' fee award was calculated by taking forty percent of the settlement Duprey would receive.

In a conference call with Judge Grimm, the parties stipulated that through informal discovery they had discovered that the amount Duprey sought in his Complaint was overstated, and that Duprey's maximum recovery at trial was only $7,200. Duprey and his counsel claimed that their primary motivator to settle was the strength of Scotts' legal argument that most of Duprey's time would be calculated using the fluctuating work week method, which, if accepted by the Court, would limit Duprey’s recovery to approximately one week of partial back pay.

Judge Grimm began his analysis by noting that FLSA's provisions were mandatory and generally not subject to bargaining, waiver, or modification by contract or settlement, with the exception of Court-approved settlements. Although the Fourth Circuit has never addressed the factors to be considered in approving settlements of FLSA claims, Judge Grimm noted that the district courts in the Fourth Circuit typically followed the analysis set forth in Lynn's Food Stores, Inc. v. U.S., 679 F.2d 1350 (11th Cir. 1982). Judge Grimm explained that under Lynn's Food Stores, in order to obtain judicial approval, a settlement must reflect a fair and reasonable resolution of a bona fide dispute over FLSA provisions, which includes a finding with regard to: (1) whether there are FLSA issues actually in dispute, (2) the fairness and reasonableness of the settlement in light of the relevant factors from Rule 23, and (3) the reasonableness of the attorneys' fees, if included in the agreement.

Considering each factor in turn, Judge Grimm first addressed whether there were FLSA issues actually in dispute. Judge Grimm found that it was clear from the pleadings that several FLSA issues were in bona fide dispute, including Duprey's rate of pay, Duprey's hours worked, and whether Scotts was Duprey's "employer" under 29 U.S.C. § 203(s)(1). As a result, Judge Grimm noted the amount of Scotts' exposure was questionable, especially given Scotts’ argument that Duprey worked fluctuating work weeks, and the complexity of 29 C.F.R. § 778.114's provision on fluctuating work weeks.

Second, Judge Grimm addressed whether or not the settlement was fair and reasonable, finding in the affirmative. In making that determination, Judge Grimm noted the factors to be considered were: “‘(1) the extent of discovery that has taken place; (2) the stage of the proceedings, including the complexity, expense and likely duration of the litigation; (3) the absence of fraud or collusion in the settlement; (4) the experience of counsel who have represented the plaintiffs; (5) the opinions of [ ] counsel ...; and (6) the probability of plaintiffs' success on the merits and the amount of the settlement in relation to the potential recovery.’”

Judge Grimm noted that although only informal discovery had taken place, both parties would benefit from the settlement by saving litigation costs and reducing their uncertainty, and that Duprey would be compensated for roughly sixty percent of the amount he sought in his Complaint. Analyzing the second, fourth, fifth, and sixth factors together, Judge Grimm noted that the settlement would not affect other employees; that Scotts would only owe Duprey approximately $2,874.30 under 29 C.F.R. § 778.114's mathematical formula for calculating overtime pay due; that Duprey's experienced attorney believed that the settlement was a favorable outcome for Duprey; and that Duprey was highly satisfied with the settlement. Finally, Judge Grimm noted there was no evidence of fraud, and accordingly, concluded that Duprey was compensated fairly for the general release that he executed.

Third, Judge Grimm addressed whether or not the Settlement Agreement’s provision regarding attorneys' fees was reasonable. Citing two (2) Fourth Circuit cases, Lyle v. Food Lion, Inc., 954 F.2d 984 (1992) and Llora v. H.K. Research Corp., No. 96–1552, 1997 WL 693062, (1997), Judge Grimm noted that in many common fund cases, a district court could abuse its discretion if it grants attorneys' fees pursuant to a contingency fee arrangement in a FLSA case. In the two (2) cases cited, the Fourth Circuit reasoned that a contingency fee is an impermissible infringement on the statutory award to the employee, as the prevailing party is entitled to attorneys' fees as well as damages under 29 U .S.C. § 216(b). Judge Grimm distinguished Lyle and Llora from Duprey's case, however, noting that Lyle and Llora did not preclude Duprey from accepting $2,250 in back pay and $2,250 in liquidated damages, then seeking an additional $3,000 to cover attorneys' fees. Judge Grimm reasoned this was different from an agreement seeking to pay an employee a certain amount in damages that must then be split with the lawyer.

Moreover, Judge Grimm addressed the fact that the Court is traditionally required to determine the lodestar amount when calculating an award of attorneys’ fees, which is defined as a "reasonable hourly rate multiplied by hours reasonably expended." Appendix B of the Court’s local rules had established rates that were presumptively reasonable for lodestar calculations, and the billing rates requested by Duprey's attorneys for their time expended fell within those presumptively reasonable rates. Furthermore, even though the reasonable attorneys’ fees could be as high as $7,655 if Duprey proceeded to trial, in light of the circumstances of Duprey's case, Judge Grimm found that the award of $3,000 was reasonable. Accordingly, Judge Grimm approved the attorneys' fee award and granted the parties’ Joint Motion to Approve Settlement.