As we have noted in previous posts (most recently here and here), courts have been paying closer attention to the terms of FLSA settlements and occasionally refusing to approve agreements where the amount of attorneys’ fees is too high compared to money going to the plaintiffs.
Add Flores v. Mamma Lombardi’s of Holbrook, Inc. to the list. In that case, which involved a class of over 4,000 employees, the parties asked Magistrate Judge Gary Brown of the Eastern District of New York to approve a $1.375 million settlement. The agreement called for an award of one-third of the settlement fund to class counsel, or approximately $445,500. Although he approved the overall settlement amount, Judge Brown rejected the fee application, instead finding the appropriate amount given the nature of the case and work performed to be $92,974.90—a reduction of more than 80%.
In rejecting the “princely sum” sought by Plaintiffs’ counsel, Judge Brown noted that in assessing the reasonableness of fee applications in class actions, courts must “act as a fiduciary who must serve as a guardian of the rights of absent class members.” Although Plaintiffs’ counsel argued that it is typical in FLSA settlements for counsel to receive 33% of the settlement, and cited several similar cases in which their firm was involved where judges approved such a percentage, Judge Brown was not convinced. He said counsel’s request “appears to be driven by plaintiffs’ counsel seeking high payouts at the expense of silent class members” and distinguished the other cases by suggesting that those courts failed to scrutinize the reasonableness of the fee applications.
Judge Brown held that the lodestar method was the more appropriate way to determine fees given the relatively small amount of time expended on the case and certain other questionable litigation tactics pursued by counsel during the litigation. He remarked that awarding fees on a percentage basis would “result in a windfall.”
Once settling on the lodestar method, Judge Brown carefully scrutinized the hours and rates proposed by Plaintiffs’ counsel and decided, based on the totality of factors, to apply an across-the-board 33% reduction in hours and to reduce most of their hourly rates to levels commonly approved by judges within the Eastern District.
This decision exemplifies the trend of courts taking a hard look at FLSA settlements, even when the parties agree on all aspects of the settlement. Parties settling FLSA cases should consider negotiating terms that address what happens if an agreed-upon provision of a settlement is rejected by the court—for example, a provision that attorneys’ fees requested but not approved belong to the defendant and reduce the total settlement amount rather than increase the amount paid to class members. If nothing else, parties who seek to obtain judicial approval of an FLSA settlement must be prepared to vigorously defend their terms to ever-increasing judicial scrutiny.