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N.D.Cal.: Broad General Release of All Claims in the Context of FLSA Claim Rejected By Another Court
McKeen-Chaplin v. Franklin American Mortg. Co.
While not a groundbreaking decision, this case serves as a reminder of how much the FLSA settlement approval process can vary from court to court and judge to judge. While many courts have broadened the circumstances under which parties may resolve an FLSA claim (e.g. those within the Fifth Circit), others continue to carefully track the remedial purposes of the FLSA, in recognition that the statute seeks to protect the rights of employees, who typically lack any real bargaining power with regard to their employers (or former employers). As highlighted here, the court joined a growing number of courts from around the country to reject a general release contained within a settlement agreement regarding FLSA (and other wage and hour claims), when the employer provides no additional compensation for such release.
Discussing this issue, the court reasoned:
The Court also has concerns with the scope of the general release provision contained in the settlement agreements signed by Plaintiffs, which provides that each Plaintiff “fully” and “completely” releases Defendant and others from “any and all claims … whether known or unknown, arising from, relating to, or in any way connected with [Plaintiff’s] employment with or termination of employment from [Defendant]….” Schug Decl., Exh. A ¶ 3. Courts have found that overly broad release provisions, which release a Defendant from all claims to settle their wage claims, including claims that are unrelated to the claims asserted in the complaint, are improper in FLSA and class action settlements. See Moreno v. Regions Bank, 729 F.Supp.2d 1346, 1347, 1350–1352 (M.D.Fla.2010) (FLSA settlement); Hogan v. Allstate Beverage Co., Inc., 821 F.Supp.2d 1274, 1284 (M.D.Ala.2011) (same); Gambrell v. Weber Carpet, Inc., 2012 WL 5306273, at *2, 5 (D.Kan.2012) (same); see also Bond. v. Ferguson Enterprises, Inc., 2011 WL 284962, at *7 (E.D.Cal.2011) (finding release overbroad in class action where release did not track the extent and breadth of Plaintiffs’ allegations and released unrelated claims of any kind or nature up to the date of the agreement); Kakani v. Oracle Corp., 2007 WL 1793774, at *2–3 (N.D.Cal.2007) (rejecting a settlement in part because of the “draconian scope” of the proposed release, which, among other things, released and forever discharged the defendant from any and all claims that were asserted or could have been asserted in the complaint whether known or unknown).
The Court finds that the parties have failed to demonstrate that it would be fair and reasonable for the Court to enforce the broad general release provision contained in the settlement agreements. The provision does not track the breadth of the allegations in this action and releases unrelated claims, whether known or unknown, that the Plaintiffs may have against Defendant. See Collins v. Cargill Meat Solutions Corp., 274 F.R.D. 294, 303 (E.D.Cal.2011) (finding release proper and not overly broad because the “released claims appropriately track the breadth of Plaintiffs’ allegations in the action and the settlement does not release unrelated claims that class members may have against defendants”); Vasquez v. Coast Valley Roofing, Inc., 670 F.Supp.2d 1114, 1126 (E.D.Cal.2009) (finding release proper because the “released claims appropriately track the breadth of Plaintiffs’ allegations in the action and the settlement does not release unrelated claims that class members may have against defendants.”). The parties have not explained why the release of “any and all claims … whether known or unknown, arising from, relating to, or in any way connected with [Plaintiff’s] employment with or termination of employment from [Defendant]” is fair and reasonable. There has been no showing that Plaintiffs have been independently compensated for the broad release of claims unrelated to any dispute regarding FLSA coverage or wages due, including, among others, claims for discrimination under Title VII, intentional infliction of emotional distress, and “outrageous conduct.” See Moreno, 729 F.Supp.2d at 1351 (“[A]n employer is not entitled to use an FLSA claim (a matter arising from the employer’s failing to comply with the FLSA) to leverage a release from liability unconnected to the FLSA.”). Nor has there been a showing that the Plaintiffs have a full understanding of what they are releasing in exchange for a settlement payment. There is no evidence that Plaintiffs have being fully informed of the consequences of the release provision.
Click McKeen-Chaplin v. Franklin American Mortg. Co. to read the entire Order.
C.D.Cal.: Motion for Corrective Action Granted Where Defendant Provided Insufficient Info to Putative Class Members When Obtaining Releases
Gonzalez v. Preferred Freezer Services LBF, LLC
This case was before the court on the plaintiff’s motion for corrective action, under Federal Rules of Civil Procedure 23, on grounds that the defendant had improperly contacted potential plaintiffs to this putative class action in efforts ‘to obtain releases from its employees concerning the claims pled by [Gonzalez] in this action.’ The plaintiff sought an order requiring the defendant to release the names and contact information of individuals from whom the defendant had attempted to extract releases. The court granted the plaintiff’s motion, applying Rule 23’s protections to an FLSA case.
The court described the relevant facts/procedural history as follows:
Gonzalez brought a collective action on behalf of himself and other of Preferred Freezer’s employees for unpaid overtime pay under California law and the Fair Labor Standards Act, 29 U.S.C. § 216(b). (Mot.2.) In August 2012, Preferred Freezer unilaterally drafted a “Release Agreement” that it provided to its employees, who are potential plaintiffs to this putative class action. (Mot.6–7.) The Agreement explained that in exchange for a settlement payment “in full satisfaction of all claims that Employee has, had or could have had arising out of the lawsuit or in any way related thereto,” the employee waived any and all claims arising out of a “former employee[‘s]” wage-and-hour lawsuit or in any way related to the lawsuit. (Mot.7.) But the Release Agreement did not state when this unnamed lawsuit was filed, the name of the former employee, the names of the employee’s attorneys, the attorneys’ contact information, or the period of time covered by the release. (Id.)
The court explained that the plaintiff learned of the defendant’s actions that were the subject of the motion, when a putative class member who had been approached by the defendant contacted plaintiff’s counsel. After discussing the general concept that settlements are favored, the court explained how the manner in which the defendant obtained the general releases here was misleading:
The waiver Preferred Freezer tendered its employees was misleading in many ways. It did not include any information regarding this class action, except that a former employee had brought a lawsuit against Preferred Freezer. (Sinay Decl. Exs. A, B.) The waiver did not attach the Complaint, any information on when the case was filed, nor any information regarding the essence of the case. (Mot.7.) Preferred Freezer also did not include Gonzalez’s counsel’s contact information. (See Gamez Decl. Ex. 1.) Even when Preferred Freezer’s agents spoke to the potential plaintiffs, the agents never provided them with the name of the case. (Gamez Decl. ¶ 6.) Furthermore, Preferred Freezer’s counsel never contacted Gonzalez’s counsel to confer over possible communication to Preferred Freezer’s employees regarding the potential settlement. (Mot.6.) Thus, the waiver misleadingly failed to provide the potential plaintiffs with adequate notice of this case in order to make an informed decision regarding waiver of their rights.
While the facts surrounding the manner in which the defendant had obtained the releases were uncontested, the defendant argued that corrective action was inappropriate and that: (1) defendant’s first amendment right to communicate with the putative class should not be hindered; (2) putative class members of a 216(b) collective actions are not entitled to the same protections as those in a Rule 23 class action; (3) the DOL supervised the settlements at issue; and (4) they did provide enough information to the settling class members, so as to alleviate concerns that the releases were obtained based on misleading information.
Noting that the plaintiff was not seeking to invalidate the releases at this juncture, and was not seeking to stop the defendant from communicating with putative class members, the court granted the plaintiff’s motion. The court granted the plaintiff’s motion as follows:
In response to Preferred Freezer’s misleading contact with putative class members in this action, Gonzalez asks that the Court orders Preferred Freezer to provide names, addresses, and telephone numbers for each and every person contacted by Preferred Freezer regarding the waiver. (Mot.25.) Gonzalez also requests that any communication to potential plaintiffs should include all the important information relating to Gonzalez’s case. (Mot.24.) For the reasons discussed above, the Court finds this request reasonable and therefore GRANTS Gonzalez’s motion.
Preferred Freezer is therefore ORDERED to provide Gonzalez with the contact information of all of those prospective plaintiffs in this case with whom Preferred Freezer has had contact regarding settlement. Furthermore, any communication that either party has with putative plaintiffs must include the following information: (1) the name of this case; (2) the case number; (3) a summary of the basis of Gonzalez’s claims; (4) the name of Gonzalez’s attorneys and their contact information; and (5) a statement concerning the effect of executing Preferred Freezer’s released documents will have on its employees’ ability to participate in this lawsuit.
Click Gonzalez v. Preferred Freezer Services LBF, LLC to read the entire Order Granting Plaintiff’s Motion for an Order for Corrective Action.
M.D.Fla.: Approval of Settlement Agreement Rejected, Where “Pervasive” General Release Makes Evaluation For Fairness “Elusive”
Moreno v. Regions Bank
As reported here several months ago, Judge Steven Merryday, in the Middle District of Florida rejected FLSA settlement agreements containing confidentiality provisions, as well as those containing non-disparagement agreements, in a set of well-reasoned opinions, discussing their conflict with the remedial purposes behind the Fair Labor Standards Act. Continuing his critique of what, for better or worse had largely become common practice in the resolution of FLSA cases, he has rejected a recent Motion for Approval, because the Settlement Agreement contained a “pervasive” general release of all claims known and unknown, without the exchange of any value for same, thus making an evaluation of the agreement for fairness “elusive” in his words.
The settlement agreement contained the following general release:
“In exchange for the Consideration, as set forth in Paragraph 2 . . ., Plaintiff for himself, attorneys, heirs, executors, administrators, successors and assigns hereby waives and releases, knowingly and willingly, Defendant, its heirs, executors, administrators, legal representatives, parent corporations, predecessor companies, insurers, past, present and future divisions, subsidiaries, affiliates and related companies and their successors and assigns and all past, present and future directors, officers, employees and agents of these entities, personally and as directors, officers, employees and agents, (“Released Parties”) from any and all claims of any nature whatsoever Plaintiff has arising out of his employment with Defendant, known or unknown, including but not limited to, any claims Plaintiff may have under federal, state or local employment, labor, or anti-discrimination laws, statutes and case and law and specifically claims including, but not limited to, any claims or allegations contained in or relating to the Lawsuit, arising under the federal Age Discrimination in Employment Act, The Older Worker Benefit Protections Act, the Civil Rights Acts of 1866 and 1964, as amended, the Americans with Disabilities Act, the Employment Retirement Income Security Act of 1974 (“ERISA”), the Family and Medical Leave Act, the Rehabilitation Act of 1973, the Fair Labor Standards Act, the Labor-Management Relations Act, the Equal Pay Act and the Worker Adjustment Restraining and Notification Act, the Florida Civil Rights Act, the Florida AIDS Act, the Florida Equal Pay Law, the Florida Wage Discrimination Law, the Florida Law Prohibiting Discrimination on the Basis of Sickle Cell Trait, the Florida Constitution, Florida common law and any and all other applicable state, federal, county or local ordinances, statutes or regulations, including claims for attorneys’ fees. Furthermore, if any charge of discrimination is brought on Plaintiff’s behalf, Plaintiff dismisses any claim to any benefits as a result of such charge. Plaintiff agrees that he will not apply for any positions with any of the Released Parties at any rime. Plaintiff has been fully compensated for his claims under the Fair Labor Standards Act. Plaintiff also represents and certifies that he has received full payment for all hours worked while employed by Defendant, including overtime hours, bonuses and vacation pay, and has received all benefits and leaves available or requested under the Family Medical Leave Act. Finally, Plaintiff has not suffered any workplace injuries while working for Defendant.”
Holding that such a “pervasive” general release in an FLSA compromise is, as a matter of law, unfair to the Plaintiff-employee, the Court reasoned:
“In the typical settled case, the parties (especially the defendant) design for a complete disengagement from each other, and a comprehensive settlement coupled with a general release usually accomplishes the intended effect. The district judge often remains unaware of the terms of the compromise, and the post-settlement dismissal of the action implies neither approval nor disapproval of any aspect of the parties’ settlement agreement. In these cases, the reciprocal, general release remains an accepted and common litigation practice. Although this disengagement almost uniformly accompanies the settlement of the typical civil action, settlement of an FLSA action requires judicial approval. A pervasive release in an FLSA settlement introduces a troubling imponderable into the calculus of fairness and full compensation.
In nearly every case, the pervasive release confers no benefit on the employer because the employee has no other claim. In the typical case, the release is valueless—the employer receives nothing of monetary value, and the employee relinquishes nothing of monetary value. The general release is usually an instrument to ensure peace of mind to the employer’s otherwise worried mind. In the occasional case, however, an unknown claim accrues to the employee. For example, suppose an employee of a widget factory sues the employer for unpaid wages, the parties settle for $500.00, and the employee agrees to a pervasive release. Years later, the employee discovers that a chemical used to manufacture widgets has caused serious injury. In this instance, the employee’s release of the unknown claim (if effective) both confers an undeserved and disproportionate benefit on the employer and effects an unanticipated, devastating, and unfair deprivation on the employee. The release absolves the employer of an ominous contingent liability in exchange for $500.00 (which, in any event, the employer unconditionally owed to the employee).
An employee who executes a broad release effectively gambles, exchanging unknown rights for a few hundred or a few thousand dollars to which he is otherwise unconditionally entitled. In effect, the employer requests a pervasive release in order to transfer to the employee the risk of extinguishing an unknown claim. In the language of Hydradry, a pervasive release is a “side deal”4 in which the employer extracts a gratuitous (although usually valueless) release of all claims in exchange for money unconditionally owed to the employee. (If an employee signs a pervasive release as part of a “side deal” and later discovers a valuable but released claim, the employee perhaps looks for compensation from the attorney who advise the employee to grant the release.) Although inconsequential in the typical civil case (for which settlement requires no judicial review), an employer is not entitled to use an FLSA claim (a matter arising from the employer’s failing to comply with the FLSA) to leverage a release from liability unconnected to the FLSA.
Lynn’s Food’s imposition of the duty to scrutinize an FLSA compromise necessarily implies the court’s duty to scrutinize the claims and the defenses presented by the pleadings. An employee seeking to vindicate his FLSA rights often desperately needs his wages, and both the employee and the employer want promptly to resolve the matter. In a claim for unpaid wages, each party estimates the number of hours worked and the plaintiff’s wage (i.e., establishes a range of recovery), and the court evaluates the relative strength of the parties’ legal argument asserted in the particular case. However, in an FLSA action, neither party typically attempts to value the claims not asserted by the pleadings but within the scope of a pervasive release—that is, those “known and unknown,” or “past, present, and future,” or “statutory or common law,” or other claims included among the boiler plate, but encompassing, terms unfailingly folded into the typical general release.6 Absent some knowledge of the value of the released claims, the fairness of the compromise remains indeterminate. See, e.g., Alba Conte & Herbert B. Newberg, Newberg on Class Actions § 12:15, at 313 (4th ed. 2002) (“Of course, in order independently and objectively to evaluate the adequacy of the entire settlement . . ., the court must possess sufficient evidence or information to weigh the strengths and weaknesses of the additional . . . claims.”).
In sum, a pervasive release in an FLSA settlement confers an uncompensated, unevaluated, and unfair benefit on the employer. In the typical case, no unknown claim accrues to the employee and the pervasive release effects no change to the legal relationship of the parties. In other words, in the typical case, the pervasive release is superfluous and can be stricken without objection from either the employee or the employer. In the occasional case, an unknown claim accrues to the employee and the employer receives a release from a contingent liability in exchange for a modest payment of wages unconditionally owed to the employee. The employer who obtains a pervasive release receives either nothing (if no claim accrues) or a windfall at the expense of the unlucky employee. In either instance, the employee bears the risk of loss, and the employer always wins—a result that is inequitable and unfair in the
circumstance. The employer’s attempt to “play with house money” fails judicial scrutiny.
Lynn’s Food requires more than a “rubber stamp” of an FLSA compromise; the district court must assure the “fairness” of the proposed compromise. Although the parties’ desire for complete “disengagement” is understandable, a pervasive release in settlement of an FLSA action is both unfair and incapable of valuation. A compromise of an FLSA claim that contains a pervasive release of unknown claims fails judicial scrutiny.”
Click here to read the entire Moreno v Regions Bank opinion.
S.D.Fla.: FLSA Defendant’s Counterclaims Based On Prior General Release Dismissed Because They Would Substantially Predominate Over FLSA Claims
Dawson v. Office Depot, Inc.
This matter came before the Court sua sponte, after its review of the pleadings. Plaintiffs filed a Complaint which alleged a violation of the FLSA. Defendants filed a Counterclaim, which alleged two state law claims: 1) Rescission of General Release Agreement and 2) Breach of General Release Agreement, presumably both arising out of the fact that Plaintiff had previously signed a general release and then sought damages in the instant case under the FLSA nonetheless.
After reviewing Defendants’ Counterclaim, the Court found that the state law claims asserted in Counts I & II are so related to the federal claim in the instant action that they form part of the same case or controversy. 28 U.S.C. § 1367(a) (2006). Therefore, the Court recognized its authority to exercise supplemental jurisdiction over Defendants’ Counterclaim.
Nevertheless, the Court recognized its supplemental jurisdiction inquiry did not end there.
“In 1990, Congress codified the formerly well-entrenched jurisdictional doctrine denominated as pendent and ancillary jurisdiction set forth in United Mine Workers of Am. v. Gibbs, 383 U.S. 715 (1966). 28 U.S.C. § 1367(c) provides in pertinent part:
The district courts may decline to exercise supplemental jurisdiction over a claim under subsection (a) if-
(1) the claim raises a novel or complex issue of State law, [or]
(2) the claim substantially predominates over the claim or claims over which the district court has original jurisdiction ….”
Applying 28 U.S.C. § 1367(c)(2) to the facts before it, the Court found that supplemental jurisdiction should not be exercised over the state law claims asserted in Defendants’ Counterclaim because those claims present questions of state law which would otherwise predominate over the federal claims present here and obscure their significance. See Winn v. North Am. Philips Corp., 826 F.Supp. 1424, 1426 (S.D.Fla.1993). Therefore, the Court, pursuant to § 1367(c)(2), exercised its discretion and dismissed the state law claims set forth in Counts I & II of Defendants’ Counterclaim.