A Review of Orders in Florida Regarding Settlement Agreements and Attorneys Fees under the FLSA

A Review of Orders in Florida Regarding Settlement Agreements and Attorneys Fees under the FLSA American Bar Association Labor and Employment Section Annual Meeting November 3, 2011 Susan N. Eisenberg and Lauren Fernandez Akerman Senterfitt Miami, Florida 305 374-5600 susan.eisenberg@akerman.com In recent years, wage and hour litigation under the Fair Labor Standards Act ( FLSA ) has soared across the United States, with a 77 percent increase in FLSA filings since 2002. No other jurisdiction has seen more FLSA activity than the U.S. District Court for the Southern District of Florida, with 1,609 suits filed in 2008, followed closely by the Middle District of Florida with 1,419 new cases in that same year. 1 In only the first half of 2010, the Southern District recorded the filing of 932 new FLSA related cases and the Middle District of Florida recorded 685. 2 Those two Florida district courts alone account for approximately 30 percent of the FLSA related cases filed nationwide. 3 An abundance of low-wage industries coupled with many immigrant workers as well as a profusion of small to midsize businesses and the lack of a robust union presence has created a ripe environment for the proliferation of wage and hour lawsuits. The plaintiffs bar is also actively pursuing these case which almost guarantees the recovery of attorney s fees. Due to the shear number of filings, can affect the way that federal district judges in Florida deal with settlement agreements and attorneys fees. 1 2 3 Statistics, Administrative Office of the U.S. Courts

Florida federal courts amongst themselves have had differing approaches to FLSA settlement agreements and the awarding of attorneys fees in FLSA actions. What follows is a summary of case law in Florida and the Eleventh Circuit concerning FLSA settlement agreement and how one recent case could upend years of established precedent. The FLSA The Fair Labor Standards Act provides a mechanism through which an employee may collect unpaid overtime or back wages to which they are entitled. The FLSA also provides that a prevailing plaintiff is entitled to his or her attorney s fees. 29 U.S.C. 216(b) states that reasonable attorneys fees are granted in addition to any judgment awarded to the plaintiff or plaintiffs. The fees and costs are paid by the defendant in addition to any damages that are owed, such as back pay for unpaid wages and liquidated damages. Attorneys fees are usually determined one of two ways under the FLSA: (1) using the lodestar method to determine the reasonableness of the fees or (2) using a percentage of the money recovered, much like a contingency fee. Ways to Determine Fees The lodestar method is the generally recognized method used by courts to determine reasonable attorney s fees. 4 Under the lodestar method, the court will multiply the number of hours expended by the attorney times a reasonable hourly rate. The court plays a significant part in how much an attorney will receive and these amounts in FLSA cases have been significantly curtailed in recent years. 4 See Florida Patient's Compensation Fund v. Rowe, 472 So. 2d 1145 (Fla. 1985); Liggett Group, Inc. v. Davis, 975 So. 2d 1281, 1286 (Fla. 4th DCA 2008) (adopting the federal lodestar method to determine the proper amount of attorney's fees)). {M3089503;1} 2

The percentage method resembles a contingency fee agreement. In such arrangements, an attorney agrees to take a case and does not seek hourly fees. If and when the case is resolved, the attorney receives fees equal to a percentage of the total recovery or an hourly rate determined by the parties, whichever is higher. Both methods of calculating fees are subject to court approval if the court deems that the settlement agreement may be a compromise on the part of the Plaintiff. Entitlement to Fees In the seminal case of Lynn Food Stores, Inc. v. United States, 5 it was determined that FLSA wage claim settlement agreements must be approved by the court or the Department of Labor in order to be valid and enforceable. The reason is because the FLSA mandates the full and complete payment of minimum wages and overtime compensation without compromise. 6 A court must then determine whether a proposed FLSA settlement involves a compromise by an employee. If there is no compromise, then the proposed settlement may not be subject to further scrutiny. However, a proposed settlement that involves a compromise by an employee will only be approved if it is a fair and reasonable resolution of a bona fide dispute over FLSA provisions. 7 This ruling, however, has been interpreted in many ways by several courts and recent decisions seem to contradict the ruling entirely. In recent years, the various circuit and district courts have issued conflicting opinions as to the level of scrutiny given to FLSA settlement agreements. In MacKenzie v. Kindred Hospitals East, L.L.C., 8 5 6 7 8 679 F.2d 1350 (11th Cir. 1982) 29 U.S.C. 216 at 1354. 276 F. Supp. 2d 1211 (M.D. Fla. 2003) {M3089503;1} 3

the Middle District of Florida found that judicial scrutiny of an FLSA settlement was not necessary where the plaintiff received full relief. The plaintiff in MacKenzie had actually rejected the settlement agreement when it was offered by the defendant, however, the court declared that the full relief offer rendered the FLSA controversy moot. 9 The court then granted the employer s motion to dismiss and entered an order in plaintiff s favor in the amount of the offer of judgment, plus attorneys fees and costs. However, if attorneys fees are to be deducted from the full relief offered to the Plaintiff, judicial review will be necessary as this is a compromise on the part of the Plaintiff. In Silva v. Miller, 10 the Eleventh Circuit determined that when attorneys fees were to be deducted from plaintiff s recovery, judicial oversight was required to ensure that: (1) counsel was adequately compensated; and (2) no conflict of interest tainted the amount the employee recovered under the agreement. 11 While it was acceptable for the district court to reduce an attorney s contingency fee if it was unreasonable, it declined to say what, if any, judicial oversight applies under Lynn s Food when an FLSA claim is fully satisfied. 12 Different courts have diverged as to when judicial oversight is necessary and when settlement agreements will be accepted by the court. Some judges have not required judicial review of a settlement agreement where the parties specifically asserted in a joint motion or a stipulation for dismissal that the resolution was for full relief or not a compromise. 13 However, other courts have disagreed with this approach 9 10 11 12 13 at 1213. 307 Fed. Appx. 349 (11th Cir. 2009). at 351. See Ramirez v. H&R Block, slip op. No. 10-60288 (S.D. Fla. Oct. 18, 2010); Agresta v. Regions Bank, slip op. No. 8:10-cv-444-T-27TGW (M.D. Fla. Apr. 15, 2010). {M3089503;1} 4

and stated that employers enter into private agreements without judicial approval at their own peril. 14 According to the Middle District in Dees v. Hydradry, Inc., a private employer who does not seek court approval of its FLSA settlement will remain liable for any unpaid wages and liquidated damages not included in the private agreement. 15 Dees similarly addressed when and how an attorney s fees should be determined. The Court was concerned that if fees were determined before or at the same time as the plaintiff s recovery, the settlement would be influenced or tainted by counsel s recovery. 16 [T]he best way to insure that no conflict has tainted the settlement is for the parties to reach agreement as to the plaintiff's recovery before the fees of the plaintiff's counsel are considered. If these matters are addressed independently and seriatim, there is no reason to assume that the lawyer's fee has influenced the reasonableness of the plaintiff's settlement. 17 Moreover, the case lays out what is a succinct description of the concern the Court had over the payment of fees and when the FLSA process requires some kind of judicial oversight: In sum, if the parties submit a proposed FLSA settlement that (1) constitutes a compromise of the plaintiff's claims; (2) makes full and adequate disclosure of the terms of settlement, including the factors and reasons considered in reaching same and justifying the compromise of the plaintiff's claims; and (3) represents that the plaintiff's attorneys' fee was agreed upon separately and without regard to the amount paid to the plaintiff, then, unless the settlement does not appear reasonable on its face or there is reason to believe that the plaintiff's recovery was adversely affected by the amount of fees paid to his attorney, the Court will approve the settlement without separately considering the reasonableness of the fee to be paid to plaintiff's counsel. However, if the parties can only agree as to the amount to be paid to the plaintiff, the Court will continue the practice of determining a reasonable fee using the lodestar approach. 18 14 Dees v. Hydradry, Inc., 706 F. Supp. 2d 1227, 1237 (M.D. Fla. 2010). 15 16 17 18 at 1243. {M3089503;1} 5

As one can see from the Dees opinion, the Middle District is apprehensive concerning the payment of attorneys fees from a plaintiff s settlement. Other courts share in that apprehension and have demonstrated such by reducing the fees awarded to counsel in FLSA cases. District Courts have no qualms about lowering the fees collected by attorneys as excessive. In Goss v. Killian Oaks House of Learning, 19 the plaintiff was seeking $315 in unpaid overtime and that claim was settled several weeks into the litigation. However, the plaintiff s attorney then claimed that he was owed $16,000 in attorneys fees. The Southern District rejected the amount of attorneys fees as shockingly excessive, saying an entitlement to attorney's fees cannot be a carte blanche license for Plaintiffs to outrageously and in bad faith run up attorney fees without any threat of sanction. 20 Plaintiffs attorneys have also had their fees cut dramatically because they failed to separate out the time working on the FLSA claim as opposed to other claims brought in the same lawsuit 21 or because the improperly prolonged the litigation. 22 In fact, courts have no problem pointing out counsel s strategic mistakes in FLSA actions, including damage assessments that are unrealistic and the pursuit of damages theories and calculations that lack evidentiary and legal support. 23 Dionne v. Floormasters Enterprises: A Game-Changer On July 28, 2011, the Eleventh Circuit issued an extremely significant decision that provides employers with an avenue to avoid entirely the mandatory fees provision 19 20 21 22 23 248 F.Supp.2d 1162 (S.D. Fla. 2003) at 1168. VanDiepenv.Brown, 55 So. 3d 612 (Fla. 5th DCA 2011). Powell v. Carey Int l, 547 F. Supp. 2d 1281 (S.D. Fla. 2008). {M3089503;1} 6

of the FLSA. In Dionne v. Floormasters Enterprises, Inc., 24 the plaintiff sought $3,000 in total damages, including liquidated damages and interest. After the plaintiff filed suit, the defendant tendered a payment of $3,000 and then moved to dismiss the case as moot, since even if the employer was found to be liable, the employer would not have to pay any additional amount to the plaintiff. 25 The court granted that motion. 26 The plaintiff then moved for attorneys fees under FLSA. The court denied the awarding of attorneys fees and Dionne appealed. 27 The Eleventh Circuit upheld the District Court s decision, stating that the FLSA only provides for an award of attorney s fees where there is a determination that a defendant actually violated the FLSA and the plaintiff is considered a prevailing party. 28 That did not occur because Floormasters had denied any and all liability and merely tendered payment to resolve the litigation and render the claim moot: Dionne is not a prevailing party in this action because, in granting Floormasters motion to dismiss this lawsuit for lack of subject matter jurisdiction, the District Court did not award a judgment in his favor. We cannot agree that the term prevailing party authorizes federal courts to award attorneys fees to a plaintiff who, by simply filing a nonfrivolous but potentially meritless lawsuit (it will never be determined), has reached the sought-after destination without obtaining any judicial relief. 29 The Court reasoned that entry of judgment in favor of the plaintiff was a predicate to an award of attorneys fees and costs under the FLSA. 30 However, a dismissal for mootness was not equivalent to a judgment or settlement in favor of the plaintiff and, 24 25 26 27 28 29 30 2011 WL 3189770 (11th Cir. July 28, 2011). at *1 at *4. at *6 (internal citations omitted). at *4. {M3089503;1} 7

therefore, a plaintiff whose FLSA action is mooted is not entitled to an award of attorneys fees and costs. 31 The implications of Dionne are numerous. First, the court did not discuss the timing of the tender of full payment. In Dionne, the payment had been made two months into the litigation. Presumably, according to the Dionne decision, a defendant could tender full payment of the amount sought by the plaintiff several years into the case and still not be liable for attorneys fees, as long as he successfully moves to moot the case. More importantly, the parties do not need to seek court approval for the agreement of full tender to a plaintiff, a requirement that has existed in the Eleventh Circuit since Lynn s Food. The Court in Lynn s Food created the settlement-approval process to make sure that employees received full compensation for their wages owed with no compromise. If employees now have to pay their own attorney fees, it would seem that they had to compromise in order to receive due compensation. Conclusion Florida case law regarding the payment of attorney s fees under FLSA settlement agreements has become more complicated and nuanced as the years have progressed, as a result of the massive influx of these types of cases being brought in Florida s federal courts. One should note that Florida rulings on FLSA settlement agreements and specifically attorneys fees resulting from such settlements may differ significantly from other jurisdictions. The practitioner must be aware of his or her local decisions if he or she can hope to get court approval of any FLSA settlement agreement. 31 {M3089503;1} 8