Seyfarth Synopsis: A district court judge within the Second Circuit held that, in light of Cheeks v. Freeport Pancake House, court or DOL approval is required for a valid dismissal of FLSA claims with prejudice pursuant to Federal Rule of Civil Procedure 41(a)(1)(A).
Settling FLSA cases in the Second Circuit is becoming more and more difficult. In Cheeks v. Freeport Pancake House, the Second Circuit held that judicial or DOL approval is required for a valid dismissal of FLSA claims with prejudice. Cheeks is a controversial decision. The majority of courts have held that releases of FLSA rights have to be approved by a court or the DOL in order for the release to be valid, which often means that parties have to file otherwise confidential settlement agreements in publicly-available electronic court filing systems. A number of employer and plaintiffs' counsel in many circuits have managed to settle FLSA cases like they settle other cases—that is, without filing settlement agreements publicly—by agreeing to dismissal with prejudice, which results in later-filed claims being subject to dismissal by claim preclusion principles even if not by a release. Cheeks limited that practice in the Second Circuit.
But the Cheeks court left open two related questions: whether parties may settle without court or DOL approval by dismissing the case without prejudice, and whether approval is needed for a dismissal with prejudice before the opposing party serves either an answer or a motion for summary judgment.
In Martinez v. Ivy League School, Inc., Judge Denis Hurley of the Eastern District of New York answered the second question, holding that under Cheeks, court or DOL approval is required for a valid pre-answer dismissal with prejudice.
As is fairly common, the parties in Martinez reached an early settlement after engaging in limited discovery before the defendant filed an answer. The plaintiff informed the court of the parties' agreement and filed a notice of voluntary dismissal "with prejudice" pursuant to Federal Rule of Civil Procedure 41(a)(1)(A)(i), which states, "the plaintiff may dismiss an action without a court order by filing...a notice of dismissal before the opposing party serves either an answer or a motion for summary judgment." The plaintiff did not submit a copy of the parties' agreement for the court's approval or even describe the terms of the resolution of the case. Judge Hurley thereafter requested a copy of the settlement agreement and, in the alternative, issued an Order to Show Cause why court approval of the settlement is not required in light of Cheeks.
In response, the parties argued that court or DOL approval is not needed because Cheeks "is limited to cases where there has been a stipulated dismissal with prejudice...after the defendant has appeared in the case, thereby subjected itself to the jurisdiction of the court."
Judge Hurley disagreed and held "the reasoning in Cheeks applies with equal force to the dismissal of an FLSA action with prejudice pursuant to Rule 41(a)(1)(A)(i)." Citing Cheeks, he said the FLSA is a "uniquely protective statute," and as such, requiring judicial or DOL approval for a valid dismissal under Rule 41(a)(1)(A)(i) is consistent with its underlying purpose and helps eliminate potential abuse, such as exceedingly disproportionate attorneys' fees payments. Accordingly, Judge Hurley ordered the plaintiff to "provide this Court with the specifics of the settlement to enable the Court to determine whether it is fair and reasonable."
This decision, while not binding on any other court, underscores the need for litigants to give very careful consideration to the challenging issues raised by settlements in even the simplest of FLSA cases. As tempting as it may be for both sides to resolve cases with a handshake, basic settlement agreement, and one-line Stipulation of Dismissal with Prejudice, that practice is limited within the Second Circuit. Other circuits have not been as suspicious of the efforts of parties and their attorneys to amicably resolve cases.
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