As we have noted in previous posts, courts have been paying increasingly close attention to the terms of FLSA settlements and, on occasion, refusing to approve agreements where they are concerned by, for example, the amount of attorneys’ fees as compared to money going to the plaintiffs.

In Fujiwara v. Sushi Yasuda, Judge William H. Pauley III of the Southern District of New York jumped into the fray.  The parties reached an early class-wide settlement and made a joint motion for approval of the terms of the agreement.  As part of a $2.4 million settlement amount, plaintiffs’ counsel originally sought $800,000.  After Judge Pauley questioned that amount, counsel lowered their request to $600,000.

Like several other judges of late, Judge Pauley started his decision by highlighting the “explosion in FLSA litigation,” noting that 9% of all filings in the Southern District of New York are FLSA cases and the 400% increase in FLSA filings nationwide since 2001.  Turning to the issue of fees, Judge Pauley remarked:

A law is only effective to the extent it is enforced, and this increase litigation has been a positive development for many low-wage workers.  The same is true for their lawyers.  The danger to workers from underpayment by their employers is clear.  The danger of overpaying their lawyers is more subtle.

With respect to the request for $600,000 in fees, Judge Pauley commented that plaintiffs’ counsel “worked diligently” and that the quality of the representation they provided was “unquestionably high.”  He nonetheless reduced the requested award to $480,000 (20% of the settlement fund), finding that it was reasonable given the facts of the case, the risk of litigation, and previously approved fee awards in the SDNY.

In a not-so-subtle message to the plaintiffs’ bar as well as his judicial brethren, Judge Pauley stated that “there is a reason to be wary of much of the caselaw awarding attorney’s fees in FLSA cases in [the Second] Circuit” because “many of the authorities cited by Plaintiffs’ counsel in support of their fee application are in fact proposed orders drafted by the class action plaintiffs’ bar and entered with minimal, if any, edits by judges.”  Under these circumstances, he said, it is “no wonder that caselaw is so generous to plaintiffs’ attorneys” — since “by submitting proposed orders masquerading as judicial opinions, and then citing to them in fee applications, the class action bar is in fact creating its own caselaw on the fees it is entitled to.”

Judge Pauley held that “approval of class action settlements and fee applications [in FLSA cases] is precisely where judicial scrutiny, not judicial deference, is most needed.”  His words echo those uttered recently by Seventh Circuit Judge Richard Posner in a non-FLSA case.  Rejecting a proposed settlement under the Fair and Accurate Credit Transactions Act, he stated:  “The judge asked to approve the settlement of a class action is not to assume the passive role that is appropriate when there is genuine adverseness between the parties rather than the conflict of interest recognized and discussed in many previous class action cases, and present in this case.”

Judge Pauley also gave particular scrutiny to the “service awards” provided as part of the settlement.  The agreement called for $20,000 to each of the six class representatives, all of whom sat for depositions, executed declarations, produced documents, and otherwise assisted in the prosecution of the case.  Nonetheless, the court rejected the awards and struck them from the settlement, holding that these individuals already received “a backdoor service award” because the settlement fund allocated them more money in light of their greater number of shifts worked.

These decisions again highlight the growing trend of courts taking a hard look at FLSA settlements, even when the parties agree on all aspects of the settlement.  Submission for approval also usually requires the court to make the terms of the settlement publicly available on the docket, which raises a host of additional concerns for employers.  Accordingly, if the parties seek to obtain judicial approval of an FLSA settlement, both sides should be prepared to vigorously defend their terms.