Cunningham v. Suds Pizza, Inc.

290 F.Supp.3d 214

Adam CUNNINGHAM, Alex Chefalo and Remo Paglia, et al., Plaintiffs,

v.SUDS PIZZA, INC., Mark's Pizzeria, Inc. and Mark S. Crane, Defendants.

15–CV–6462

United States District Court, W.D. New York.

Signed December 1, 2017

Justin M. Cordello, Cordello Law PLLC, Rochester, NY, Robert L. Mullin, Ferr and Mullin, Fishers, NY, for Plaintiffs.

Kevin Joseph Mulvehill, Linda T. Prestegaard, Phillips Lytle LLP, Rochester, NY, Joanna Jung-Yao Chen, Phillips Lytle LLP, Buffalo, NY, for Defendants.

FINAL ORDER AND JUDGMENT APPROVING RULE 23 CLASS ACTION SETTLEMENT AND SETTLEMENT AGREEMENTS PURSUANT TO THE FLSA, AND AWARD OF ATTORNEYS' FEES, SERVICE AWARDS AND REIMBURSEMENT OF EXPENSES AND COSTS

JONATHAN W. FELDMAN, United States Magistrate Judge

Findings of Fact

Background of the Case

1. On August 6, 2015, Adam Cunningham, Alex Chefalo, and Remo Paglia ("plaintiffs"), former employees of defendant Mark's Pizzeria (hereinafter "Mark's"), Suds Pizza and Mark S. Crane ("Crane") (collectively, "defendants") filed a complaint on behalf of themselves and others similarly situated alleging defendants violated the Fair Labor Standards Act ("FSLA.") and the New York Labor Law ("NYLL"). See Complaint (Docket # 1). Specifically, plaintiffs alleged that defendants:

a. Employed individuals to deliver pizzas who used their own vehicles and paid those individuals minimum wage, or slightly above, without reimbursement for vehicle-related expenses, resulting in the individuals making less than minimum wage, in violation of the [FSLA], and applicable state laws and regulations;

b. Charged customers a mandatory delivery charge for the delivery of food items, and retained said charge without remitting it to the delivery drivers as customers could reasonably expect, in violation of applicable laws and regulations;c. Required employees to work shifts spanning in excess of ten hours without paying them for one additional hour at the basic minimum rate, in violation of applicable state laws and regulations;

d. Required employees to wear uniforms and failed to maintain said uniforms or pay employees an allowance for maintenance, in violation of applicable state laws and regulations; and

e. Failed to provide employees with proper written notices, including wage notices, required under New York State laws and regulations.

Decl. of Robert Mullin, Aug. 2, 2017 (Docket # 58–2), at ¶ 2.

2. Defendants own and operate pizza restaurants in New York State. Crane is the founder and owner of Mark's, a pizza franchisor; the remaining defendants are franchisees of Mark's, See Complaint (Docket # 1), at 7–9. An important issue in the case was whether the franchisees and Mark's, the franchisor, could be considered joint employers for purposes of FLSA liability.

3. Defendants answered on October 15, 2015, denying plaintiffs' claims and asserting various defenses. See Answer (Docket # 15). The Court held a scheduling conference and issued a scheduling order, and the parties engaged in discovery. Pursuant to the scheduling order, the parties agreed on a mediator and began to explore settlement possibilities. Meanwhile, on March 25, 2016, plaintiffs moved to conditionally certify the class and preliminarily approve the settlement pursuant to 29 U.S.C. § 216(b). See Mot. to Certify Class Conditionally (Docket # 28). That motion was unopposed.

4. The parties mediated the case with William Bauer, Esq., on April 21, 2016, and reached a "rough agreement." Docket # 58–2, at ¶ 13. After the mediation, the parties continued to negotiate several key terms of the settlement in principle, and a final settlement agreement was executed on July 8, 2016 (the "Original Settlement Agreement"). Id. at ¶ 15.

The Original Settlement Agreement

5. After reaching settlement, the parties consented to magistrate judge jurisdiction. See Consent (Docket # 33).

6. This Court preliminarily certified the class and preliminarily approved the Original Settlement Agreement on December 2, 2016. See Order (Docket # 37). The Court set a final hearing for March 17, 2017, before which the parties were to move for final settlement approval and attorneys' fees. The Order provided that notices to class members were to be sent in accordance with the Original Settlement Agreement, i.e. within 30 days of the preliminary approval.

7. On or about February 23, 2017, the defendants' attorneys notified the Court that notice had not been sent to approximately 235 current and former employees of Ovid Pizza, Inc. (the "Ovid Class Members"), a franchisee of Mark's Pizzeria. Decl. of Kevin J. Mulvehill, Feb. 24, 2017 (Docket # 43–1), at ¶ 8. According to the parties, the Ovid Class Members were originally not sent settlement notices because the majority shareholder of their employer, Ovid Pizza, Inc., refused to consent to become a defendant. After a telephonic conference, the defendants filed a motion to approve amended notice packets to send to the Ovid Class Members. See Docket # 43.

8. On March 7, 2017, the plaintiffs filed their first motion for final settlement approval (see Docket # 46) and their first motion for attorneys' fees (see Docket # 47).

9. On March 17, 2017, the Court held a hearing on the motion to approve amended notices (see Docket # 43), the motion for final settlement approval (see Docket # 46) and the motion for attorneys' fees (see Docket # 47).

10. As the Court reminded counsel at the hearing, this Court acts as a fiduciary to the proposed class in evaluating the settlement. Therefore, it was incumbent on counsel to make sure that the Court was provided with sufficient information to find that the settlement was both substantively and procedurally fair and in the best interests of the class. See City of. Detroit v. Grinnell Corp., 495 F.2d 448, 463 (2d Cir. 1974).

11. At the hearing, the Court heard from the parties' attorneys and one class member. The class member did not object to the settlement, but noted that he wished he would receive more money under the Original Settlement Agreement.

12. Under the Original Settlement Agreement, defendants agreed to fund the settlement with $1.7 million (the "Settlement Amount"). Original Settlement Agreement (Docket # 58–2, Ex. A, at 18). The Settlement Amount includes any amount the Court approves for attorneys' fees, costs, service awards and enhancement payments (collectively, "Administrative Costs"). Id.

13. The Original Settlement Agreement sought the payment of up to one-third of the Settlement Amount (equivalent to $566,667), costs, and service awards and enhancement payments to named plaintiffs and class members who submitted sworn declarations. The Court questioned counsel on the reasonableness of attorneys' fees set forth in the Original Settlement Agreement. The Court's concern as to the legal fees sought centered on the relationship between the Net Settlement Amount and the attorney fees sought. The Court also expressed concern over the impact of the "reversion clause" in the Original Settlement Agreement.

14. The Net Settlement Amount is the Settlement Amount less the Administrative Costs. Each Settlement Class Member who submits a valid and timely claim form (a "Qualified Claimant") is assigned a proportional share of the Net Settlement Amount. The value of each Qualified Claimant's award is

based upon the weeks worked in a position covered by this settlement from August 6, 2009 through preliminary approval. A Qualified Claimant's workweek count shall be calculated by dividing the days between the employee's first and last dates during the class period by seven and rounding to the nearest integer; provided , however , any workweeks of a Qualified Claimant within Subclass B shall be further divided by two. Each Qualified Claimant will be entitled to his or her individual workweek count, divided by the total workweeks for all Class Members [i.e. including those that opt out and do not submit claim forms], times the amount of the Net Settlement Amount.

Original Settlement Agreement (Docket # 58–2), at 20. In other words, under the Original Settlement Agreement, each class member is assigned a proportion of the Net Settlement Amount based on his or her average hours in a workweek divided by the total number of workweeks for all class members. See Docket # 58–2, at 19–20. By dividing the workweek of an individual Qualified Claimant by the workweeks of all class members, this formula iii effect assigns a proportion of the Net Settlement to all class members even though only those who submit claim forms will receive their respective share.

15. The Original Settlement Agreement included a reverter clause, in which unclaimed settlement funds would revert back to defendants. That clause read in part:

Upon the expiration of 100 days after the distribution of the settlement checks, the amounts representing the Net Settlement Amount that have not been claimed, cashed or were unable to be delivered despite the Settlement Administrator's good faith efforts, will be distributed to and retained by the Mark's Pizzeria Franchises. In addition, upon the expiration of 30 days after the distribution of the settlement checks, the proportional share of the Net Settlement Amount attributed to all Class Members who opt out of the settlement will be distributed to and retained by the Mark's Pizzeria Franchises.

Docket # 58–2, at 23. Under this provision, if a class member submits a claim form, his or her share of the Net Settlement Amount is paid out. However, if a class member does not submit a claim form, his or her share of the Net Settlement Amount would revert back to defendants. See id., at 19–20.

16. It was only after questioning counsel that the Court came to appreciate the true monetary "value" of the settlement and the impact of the reversion clause. While application of the reversion clause would operate to substantially reduce the cost of the settlement to the defendants, it would have absolutely no effect on the calculation of attorney fees paid to plaintiffs'...