{"id":826,"date":"2023-09-19T09:33:00","date_gmt":"2023-09-19T13:33:00","guid":{"rendered":"https:\/\/blogs.duanemorris.com\/classactiondefense\/?p=826"},"modified":"2023-09-19T09:33:00","modified_gmt":"2023-09-19T13:33:00","slug":"new-york-federal-court-approves-unique-wage-case-settlement-structure-providing-plaintiff-employee-a-discounted-purchase-price-for-employers-entire-business","status":"publish","type":"post","link":"https:\/\/blogs.duanemorris.com\/classactiondefense\/2023\/09\/19\/new-york-federal-court-approves-unique-wage-case-settlement-structure-providing-plaintiff-employee-a-discounted-purchase-price-for-employers-entire-business\/","title":{"rendered":"New York Federal Court Approves Unique Wage Case Settlement Structure Providing Plaintiff-Employee A Discounted Purchase Price For Employer\u2019s Entire Business"},"content":{"rendered":"

\"\"<\/a>By Gerald L. Maatman, Jr., Gregory S. Slotnick, and Maria Caceres-Boneau<\/p>\n

Duane Morris Takeaways<\/em>:\u00a0 <\/strong>Pursuant to Cheeks v. Freeport Pancake House, Inc., 796 F.3d 199 (2d Cir. 2015), the practice of settling lawsuits filed in district courts in the Second Circuit alleging unpaid wages under the Fair Labor Standards Act (\u201cFLSA\u201d) requires approval from either the Court or the U.S. Department of Labor to take effect.\u00a0 On September 14, 2023, Magistrate Judge James M. Wicks of the U.S. District Court for the Eastern District of New York approved<\/a>\u00a0a rather unique settlement request by the parties in such an unpaid wage case.\u00a0 Although nearly all wage & hour lawsuit settlements in the Second Circuit ultimately conclude with the business-employer defendant agreeing to pay a monetary amount in exchange for dismissal of the case and a release of the employees\u2019 wage claims against the employer, in Gallagher v. Mountain Mortgage Corp. et al., Case No. 22-CV-0715 (E.D.N.Y. Sept. 14, 2023), the Court evaluated and signed-off on the parties\u2019 proposed settlement structure whereby the plaintiff-employee, who worked as a loan processor and mortgage loan originator for a mortgage lender, agreed to resolve the matter in exchange for her receipt of a heavily-discounted purchase price and her agreement to buy the business itself.<\/em> \u00a0The Court\u2019s decision serves as an interesting thought exercise for resolving unpaid wage lawsuits through unorthodox strategies, though potentially applicable only in particular circumstances under which the Court may find such resolution fair and reasonable. <\/em><\/p>\n

Case Background<\/strong><\/p>\n

According to the Complaint, plaintiff-employee Nicole Gallagher (\u201cGallagher\u201d) has over 25 years of experience in the mortgage banking industry and is licensed to originate mortgage loans in New York, New Jersey, Connecticut, and Florida.\u00a0 Gallagher alleged that she worked for a mortgage lender, Mountain Mortgage Corp. (\u201cMMC\u201d), for a little over a year and claimed that despite working around 85 hours per week, MMC did not pay her at all during certain months, never paid her overtime despite consistently working over 40 hours per week, and failed to provide her with accurate paystubs and weekly earnings statements or with a notice and acknowledgment of her pay rate as required by law.\u00a0 Specifically, Gallagher asserted that MMC paid her a set weekly salary and no overtime during the entire year of 2021, and that MMC did not compensate her at all during November and December 2020 or at any time in 2022.\u00a0 MMC claimed that at all relevant times, it understood that Gallagher was not an hourly employee, but instead \u201cwas an owner and officer\u201d of MMC who was to be paid by commission no differently than other previously employed salespersons of MMC.<\/p>\n

Magistrate Judge Wicks\u2019 opinion noted that, prior to the filing of the lawsuit, Gallagher and MMC had entered into a purchase agreement whereby Gallagher was to purchase MMC for $500,000.\u00a0 The parties informed the Judge that Gallagher was employed at MMC in advance of her anticipated purchase of MMC, but that when no successful application for a change in ownership of MMC was submitted to the New York State Department of Financial Services by the deadline contemplated in the purchase agreement, the parties\u2019 relationship soured, resulting in Gallagher filing the lawsuit.<\/p>\n

As part of the lawsuit, the parties previously submitted a request for the Judge\u2019s approval of a settlement on May 6, 2022, whereby Gallagher would purchase MMC for $100,000 rather than the $500,000 contemplated in the original purchase agreement.\u00a0 Judge Wicks ultimately denied the parties\u2019 first request for settlement approval due to what he deemed to be a lack of essential information required for the Court to evaluate whether the proposed agreement was fair and reasonable as required by Cheeks<\/em>.\u00a0 Such information included the bona fide<\/em> details of the parties\u2019 FLSA dispute, calculations of Gallagher\u2019s potential recovery, and an explanation of what portion of the reduced purchase price of MMC constituted consideration for Gallagher\u2019s FLSA claims.\u00a0 The decision of September 14 addressed the parties\u2019 submission of a renewed settlement approval request.<\/p>\n

The Decision<\/strong><\/p>\n

As noted by Magistrate Judge Wicks, in support of the parties\u2019 renewed settlement agreement approval request, the parties aimed to kill two bird with one stone \u2013 resuscitate the parties\u2019 failed transaction and settle Gallagher\u2019s wage & hour claims against MMC.\u00a0 Id.<\/em> at 6. \u00a0This time around, Gallagher submitted detailed information to the Court concerning her purported unpaid wage damages, which she alleged to be approximately $295,000.\u00a0 This figure included alleged \u201cunderpayments, liquidated damages, pre-judgment interest, and penalties\u201d owed to her by MMC.\u00a0 Id<\/em>. at 4.\u00a0 Gallagher also provided the Court with the specific details of her alleged employment, including time periods, weekly hours worked, regular rate of pay, and periods during which she claims that she did not receive proper compensation.<\/p>\n

Magistrate Judge Wicks noted that under the original settlement approval request, he had been unable to determine which portion of the $400,000 reduction in MMC\u2019s purchase price, if any, was consideration for the release of Gallagher\u2019s FLSA claims, and which portion was attributable to other factors.\u00a0 As part of the renewed approval request, Gallagher informed the Court that no formal valuation was conducted to reach the original $500,000 purchase price, and that her reduced purchase price of $100,000 was similarly not calculated based on a formal valuation.\u00a0 Instead, both figures were the product of advice from her attorneys, her experience in the industry, and her \u201csense of the value\u201d of the mortgage banking licenses (whereby MMC\u2019s New York Mortgage Banker\u2019s license was in the process of being surrendered).\u00a0 Id<\/em>. at 5.\u00a0 Gallagher submitted that she was unable to \u201cbreak down exactly\u201d what portions of the reduced purchase price were attributable to what specific single factor; however, in her view, the value of her FLSA claims and the loss of MMC\u2019s New York license were both factors that were \u201cin the mix\u201d along with her desire to own MMC outright, avoid costly arbitration, avoid the stress and expense of the lawsuit, and generally \u201cjust move on\u201d with her life.\u00a0 Id<\/em>. at 5-6.<\/p>\n

In evaluating and approving the renewed settlement request, Magistrate Judge Wicks noted his satisfaction with the fairness of the proposed settlement, giving due weight to Gallagher\u2019s more than 25 years of experience in the mortgage banking industry and the fact that Gallagher herself worked at MMC with the intention of inevitably owning it (as opposed to a disinterested third-party purchase of a business).\u00a0 As such, although there was no formal valuation of MMC\u2019s value conducted, Judge Wicks acknowledged that Gallagher\u2019s experience and familiarity with the business was relevant to her comfort level with the reduced purchase price.\u00a0 The Court also gave weight to Gallagher\u2019s desire to move on with her life and put these issues behind her.<\/p>\n

Magistrate Judge Wicks further cited the fact that Gallagher now owns 100% of MMC, and that a trial loss should he not approve the settlement could potentially turn her status as 100% owner into a 0% owner with no remaining claims against MMC.\u00a0 The Court noted that no settlement amount was earmarked for payment of attorneys\u2019 fees, as all of Gallagher\u2019s attorneys except for one were paid on an hourly basis (rather than a contingency), that the one exception only represented Gallagher briefly and was replaced within 3 months of filing the case, and the attorney had not expressed any intention of asserting a lien over the reduced purchase price of MMC.<\/p>\n

Based on all of these factors, the Court finally confirmed that the renewed settlement agreement properly revised and limited two troublesome provisions concerning non-disparagement and confidentiality \u2013 both of which are regularly found by courts to be inconsistent with the public policy intent underlying the FLSA.<\/p>\n

Implications for Employers<\/strong><\/p>\n

The decision is an interesting thought experiment for small employers who are subject to unpaid wage lawsuits brought on behalf of a small number of plaintiffs.\u00a0 In this instance, the parties agreed that rather than separate Gallagher\u2019s desire to purchase MMC and her alleged unpaid overtime wages and related penalties, a more logical solution was to combine the two and provide for one global resolution.\u00a0 Creative, innovative thinking along these lines likely saved MMC from incurring additional litigation expenses and the unknown of a jury trial verdict.\u00a0 Moreover, the parties ultimately were able to provide the Court with evidence from which the settlement could be deemed fair and reasonable.<\/p>\n

Although potentially limited to specific factual situations along the lines of an experienced employee initially employed by a small business with the goal of owning the business, this decision illustrates that in evaluating the reasonableness of proposed unpaid wage case settlements, judges may be open to approving agreements when the parties think outside the box (as long as the parties are able to defend and support their actions).<\/p>\n","protected":false},"excerpt":{"rendered":"

By Gerald L. Maatman, Jr., Gregory S. Slotnick, and Maria Caceres-Boneau Duane Morris Takeaways:\u00a0 Pursuant to Cheeks v. Freeport Pancake House, Inc., 796 F.3d 199 (2d Cir. 2015), the practice of settling lawsuits filed in district courts in the Second Circuit alleging unpaid wages under the Fair Labor Standards Act (\u201cFLSA\u201d) requires approval from either … <\/p>\n

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