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Article: Fee Rulings Show When to Litigate Wage Claims for Defense

March 9, 2020 | Posted in : Articles / Books, Defense Fees / Costs, Fee Shifting, Prevailing Party Issues

A recent Law 360 article by Valerie K. Ferrier, “3 Rulings Show When Litigating Wage Claims Is Worth It,” reports on three recent fee rulings defense counsel should consider when deciding to litigate wage claims.  This article was posted with permission.  The article reads:

Wage and hour cases present a particular threat to small businesses. The hospitality industry is especially vulnerable to these claims.

Aside from incurring the legal costs of a defense, with one-way fee-shifting in favor of prevailing plaintiffs under the Fair Labor Standards Act and the New York Labor Law, it is often advisable for businesses to offer an early settlement before the other side incurs substantial attorney fees.

Yet, as some recent cases illustrate, there are situations when defendants may choose to fight it out at trial. Business owners may have multiple reasons they prefer to litigate: deterrence of future lawsuits, lack of concern because they are essentially judgment-proof, and of course moral outrage. Three recent decisions highlight instances in which businesses fought the good fight, and largely prevailed.

Offer of Judgment Under Federal Rule of Civil Procedure 68

A Rule 68 offer of judgment is a litigation tool meant to incentivize early settlement. Under the rule, at least 14 days before trial, a defendant may make an offer to settle on terms they specify.

If a plaintiff rejects the offer, and does not ultimately obtain a more favorable result at trial, the plaintiff must pay the defendant’s post-offer costs for things like transcript fees. In FLSA cases, the plaintiff's attorney may be incentivized to delay settlement discussions, knowing that if they prevail on any claim, in any amount, the FLSA’s fee-shifting provision will be triggered, and the defendant will have to pay the plaintiff's attorney fees, in addition to any judgment obtained by the plaintiff. A Rule 68 offer means that the plaintiff’s attorney, as well as the plaintiff, must think hard about whether to gamble on a more favorable outcome at trial.

A recent decision by a panel of the U.S. Court of Appeals for the Second Circuit in December 2019 made it easier for the parties to resolve cases early, without court approval. Prior to the ruling in Yu v. Hasaki Restaurant Inc., there was a split of authority about whether the parties to an FLSA action could privately settle the matter pursuant to a Rule 68 offer, or whether any FLSA settlement, including those under Rule 68, required court approval, as enunciated in Cheeks v. Freeport Pancake House Inc.

A two-judge majority of the panel held that "[a]ppeals to the broad remedial goals and uniquely protective qualities of the FLSA do not authorize us to write a judicial approval requirement into the FLSA, and thereby into Rule 68(a), when the text of both provisions is silent as to such a requirement." With this decision, parties are now free to more quickly resolve wage and hour cases, even prior to discovery.

Marcelino v. 374 Food

In Marcelino v. 374 Food Inc., following unsuccessful attempts at mediation and settlement, the U.S. District Court for the Southern District of New York held a bench trial, approximately a year and a half after the case was filed. The plaintiff, Domingo Castillo Marcelino, alleged he was underpaid over six months of employment.

His credibility was undermined on cross-examination when, among other things, he contradicted his starting date and was unable to identify one of the individual defendants in the courtroom, even though he testified that the man personally directed his work. The court dismissed the FLSA claims, holding that the plaintiff failed to establish either enterprise or individual coverage under the law.

Despite the defendant’s lack of time and pay records, the court assessed minimal damages under the New York Labor Law only, awarding the plaintiff $8,144, including statutory penalties and liquidated damages. However, noting that the plaintiff seemed to be "making up answers as he went along" during his testimony, the court concluded that the plaintiff perjured himself, and requested briefing from the parties as to whether, in light of that finding, the plaintiff was entitled to recover anything at all.

Thereafter, the plaintiff’s counsel, the subject of possible sanctions himself, withdrew from representation, and the plaintiff was unable to be located. He failed to appear at a hearing on the court’s order to show cause, and as a result, in addition to his "extensive perjury," on Jan. 24 the court forfeited the plaintiff’s award pursuant to its inherent power and closed the case.

Eduoard v. Nikodemo Operating

In Eduoard v. Nikodemo Operating Corp., the plaintiff, a former dishwasher and general helper sued his former employer, a restaurant, about a year after he had received approximately 150% of his total annual pay as a member of a class settlement against the restaurant. In his own lawsuit, he claimed that after the settlement the restaurant had improperly rounded his hours, and thus failed to appropriately pay him overtime.

He further alleged that an hour was improperly deducted from his time each day for a meal break that he claimed he never once took in all the years he worked there, and that he was fired in retaliation for complaining about it. He also brought spread-of-hours claims and claims for violation of the Wage Theft Prevention Act.

The defendants almost immediately made a Rule 68 offer, which was ignored and expired. Thereafter, without ever having conducted any class discovery, the plaintiff moved for class certification under Rule 23.

The court denied the motion, and the parties proceeded to a bench trial because the plaintiff failed to request a jury trial. Shortly before the trial was to commence, the plaintiff’s original counsel was substituted just before he was disbarred.

The plaintiff testified on his own behalf. One of the owners of the business testified on behalf of the defense. After the conclusion of the trial the court issued findings of fact and conclusions of law.

As in Marcelino, the U.S. District Court for the Eastern District of New York dismissed the FLSA claim because the plaintiff failed to prove either individual or enterprise coverage under the law. The court also found the defendant "much more credible than [the] plaintiff on several issues." Specifically incredible was the plaintiff's testimony that he never took a lunch break and never ate anything during his shifts, never got hungry, and never even once sat down while working during the relevant time period.

The court denied the plaintiff’s rounding, meal break deduction, retaliation and overtime claims, but granted the plaintiff’s claims as to spread-of-hours and the Wage Theft Prevention Act. As a result, after one year of litigation, the plaintiff was awarded a total of $3,419.32, including interest.

Because the defendants had previously made a Rule 68 offer before discovery commenced, the defendants moved for sanctions pursuant to the court’s inherent authority and under Title 28 of U.S. Code Section 1927 against the plaintiff’s former counsel. The motion was for unnecessarily multiplying the proceedings in bad faith by making a frivolous and factually unsupported motion for class certification, despite an explicit warning from the court regarding the consequences of doing so. A decision on this motion is pending.

Feuer v. Cornerstone Hotels

More recently, the Eastern District of New York issued a decision in Feuer v. Cornerstone Hotels Corp.[5] following a 2018 bench trial in the case of a married couple who worked and lived at a 12-room motel for six months in 2014. They alleged that they were either working or on-call 24/7, and were thus underpaid minimum wage and overtime. Shortly after the case commenced, the individual defendant chose to proceed pro se and left the corporate defendant unrepresented.

The court held that neither the husband nor wife, even combining their hours, ever worked more than 40 hours in a week. However, because they were underpaid during the first week of their employment the court awarded them $92 in unpaid wages, the same amount as liquidated damages, and statutory damages, for a total of $5,184, plus 2 cents interest per day until the judgment was paid.

Similar to Eduoard, the court credited the employer’s time and pay records, and found the plaintiffs’ testimony was not credible, especially when compared to that of the owner who testified and also lived on the premises.

Lessons for Counsel

As all three cases make clear, plaintiffs counsel must go beyond merely accepting their client’s word for how long they worked, or how much they were paid. Moreover, plaintiffs who take patently exaggerated positions do so at their peril.

Indeed juries are often instructed that if they determine that a witness has lied about anything, they are entitled to conclude that the witness has lied about everything. As the Latin saying goes, "falsus in uno, falsus in omnibus."

Even if a plaintiff is ultimately awarded a few thousand dollars after a year or more of litigation, other sanctions may be attached. In addition, plaintiffs counsel, who generally take wage and hour cases on contingency, may end up wasting an enormous amount of time, money, resources and good will, even if they are not sanctioned.

On the other hand, defendants who are confident that they have complied with the law, or have only minimal liability, may elect to pursue litigation to its conclusion in order to prove a point. Defendants are often loath to pay both their own attorney fees and at the same time accept the risk that they may be ordered to pay plaintiff fees, even if the award is small.

However, as Feuer demonstrated, in some instances, pro se individual defendants can save attorney fees and successfully defend themselves. In addition, strategic deployment of a Rule 68 offer of judgment at an early stage of the litigation may drastically curtail even a prevailing plaintiff’s entitlement to attorney fees.

Valerie K. Ferrier is a partner and head of the labor and employment practice group at Martin Clearwater & Bell LLP in New York, NY.