Settlement Agreement Enforced, Notwithstanding FLSA Provision in Generic Release Provision

In Simons v. Lee Litigation Group, PLLC et al, No. 151692/2020, 2021 WL 3624940 (N.Y. Sup Ct, New York County Aug. 12, 2021), the court granted plaintiff’s motion for summary judgment against the defendants for breach of contract (settlement agreement).

In sum, the parties reached a settlement, the terms of which were memorialized in a settlement agreement that provided for a payment of $75,000 to plaintiff within 21 days after (a) the defendants received a signed original of the settlement agreement and a supplemental nondisclosure agreement (the supplemental NDA) executed by the plaintiff and (b) all legal conditions had been satisfied. The agreement included a general release of all past or present claims against the defendants, including, inter alia, “all claims of employment discrimination, harassment or retaliation,” and “all contract and quasi-contract claims, claims for promissory estoppel or detrimental reliance, claims for wages, gratuities, bonuses, incentive compensation, and severance allowances or entitlements.”

After plaintiff sent the signed settlement agreement and supplemental NDA to defendants, however, defendants’ counsel C.K. Lee stated that defendants would not make payments until the plaintiff applied for and received judicial approval of the settlement agreement. This demand was premised on a section of the agreement which provided that the settlement amount would not be payable unless “all conditions precedent[] required under all applicable laws to make the release…enforceable” and “all outstanding laws and regulations” have been complied with.

Lee asserted that a condition required to make the release enforceable had not been satisfied insofar as, according to him, the Second Circuit has held that Fair Labor Standards Act (FLSA) claims cannot be released unless subject to court approval.

The court rejected this argument, explaining:

By the proof outlined above, the plaintiff has established that she is entitled to judgment as a matter of law on her claim sounding in breach of contract. Specifically, the plaintiff shows that there was a “formation of a contract between the parties, performance by the plaintiff, the defendant’s failure to perform, and resulting damage.” Flomenbaum v New York Univ., 71 AD3d 80, 91 (1st Dept. 2009); see Clearmont Prop., LLC v Eisner, 58 AD3d 1052, 1055 (3rd Dept. 2009). In opposition, the defendants aver that they were not obligated to perform under the settlement agreement because a condition precedent, namely, judicial approval of the agreement, had not been satisfied. The defendants’ contention fails to raise a triable issue.

The defendants take the position that this was a Fair Labor Standards Act (FLSA) settlement for which the plaintiff was required to obtain judicial approval before any payment could be made. See Cheeks v Freeport Pancake House, Inc., 796 F3d 199 (2d Cir. 2015). Putting aside that the settlement agreement refers to the FLSA only in a generic release provision, that the plaintiff’s demand letter did not refer to any FLSA claims, and that the issue of judicial approval was never raised in the course of settlement negotiations, the defendants misstate the law on this issue. The Second Circuit has not ruled on the enforceability of pre-litigation FLSA settlements, and nothing in Cheeks or any other authority cited by the defendants mandates that s pre-litigation settlement of FLSA claims be subject to a “fairness hearing” before it can become effective. Moreover, federal district courts within the Second Circuit have consistently upheld such settlements in the absence of judicial approval where it was sufficiently clear that the agreement was not the product of one-sided bargaining. See Young Min Lee v New Kang Suh Inc., 2020 WL 5504309 (S.D.N.Y. Sept. 11, 2020); Matamoro v Khomari, 2017 WL 6542954 (S.D.N.Y. Dec. 19, 2017); Gorczyca v NVR, Inc., 2017 WL 11435971 (W.D.N.Y. July 13, 2017); Gaughan v Rubenstein, 261 F Supp 3d 390 (S.D.N.Y. 2017).

That the defendants now appear to suggest that the release would be rendered void if subjected to the rubric applied by the federal district courts in the foregoing cases is concerning in light of the defendants’ insistence in its papers that seeking judicial approval would be a straightforward and predictable process. But even if the defendants now aver that they executed a release they believe may not be enforceable, the court’s analysis does not change. The fact remains that the defendants can point to no unequivocal legal requirement that the settlement agreement obtain judicial approval prior to becoming effective. The mere possibility that a federal court could later strike the release of FLSA claims based on a number of considerations about the quality and substance of settlement negotiations cannot excuse the defendants’ performance of its obligations under the settlement agreement.

Based on this, the court held that the plaintiff was entitled to judgment in the amount of $75,000 on her breach of contract cause of action, with interest from the date upon which payment was due to the plaintiff pursuant to the terms of the settlement agreement.

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