Gatto v. Petco Animal Supplies, Inc.

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

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CINDY GATTO, et al.,

Plaintiffs,

-against- MEMORANDUM AND ORDER

19-cv-3394(EK)(RML)

PETCO ANIMAL SUPPLIES, INC.,

Defendant.

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ERIC KOMITEE, United States District Judge:

Before the Court is the parties’ joint motion for

reconsideration of this Court’s Order dated September 9, 2020.

For the reasons set forth below, the Court finds it appropriate

to vacate the September 9 Order pending resolution of the

parties’ intended argument that no fairness review is required

under Cheeks v. Freeport Pancake House, Inc., 796 F.3d 199 (2d

Cir. 2015), and its progeny when the settlement of a Fair Labor

Standards Act claim results in dismissal without prejudice.

I. Background

This is an individual, class and collective action

complaint filed in June 2019, following the completion of court-

referred mediation. Plaintiffs, who worked in the grooming

salons at various Petco store locations, allege violations of

the Fair Labor Standards Act (FLSA), 29 U.S.C. §§ 207(a) and

216(b), as well as violations of the New York Labor Law and the

wage and labor laws of other states. They claim, among other

things, that Petco knowingly and intentionally falsified

groomers’ time records at their stores, see ECF No. 22 ¶¶ 35-44,

and that Petco’s management was nonresponsive to complaints that

Plaintiffs were not paid all wages due. Id. ¶¶ 45-48.

In response to the amended complaint, Petco requested

a pre-motion conference on its anticipated motion to dismiss.

See ECF No. 23. After a pre-motion conference was scheduled,

the parties twice requested adjournments based on

representations that they were in the process of negotiating a

settlement. See ECF Nos. 27, 28. In their second such request,

the parties stated that they were “currently finalizing a

settlement” and that they expected to file “the various papers

necessary for the Court to consider the fairness and adequacy of

the Parties’ settlement within the next two weeks if not

sooner.” ECF No. 28 at ¶ 2.

Instead of a settlement, however, three of the named

Plaintiffs – Shay Boyd, Nicole Travis, and Olivia Williams –

filed stipulations of dismissal of their claims without

prejudice on August 31, 2020. See ECF Nos. 29-31. No

information concerning the reason for the dismissals was

provided. On the same day, Plaintiffs also filed a second

amended complaint that dropped Plaintiffs Boyd, Travis, and

Williams, and added two new named plaintiffs. See ECF No. 32.

Plaintiffs stated that they received the written consent of

Defendant to file the second amended complaint pursuant to Rule

15 of the Federal Rules of Civil Procedure. See ECF No. 32 at

n.1; see also Fed. R. Civ. P. 15(a)(2) (except for amendments as

a matter of course under Fed. R. Civ. P. 15(a)(1), all other

pre-trial amendments to the pleadings may be made “only with the

opposing party’s written consent or the court’s leave”).

Taken together, the parties’ representations that they

were finalizing a settlement agreement and would soon file

settlement papers, followed by (1) the filing of stipulations of

dismissal by three of the named Plaintiffs and (2) the addition

and removal of parties from the second amended complaint with

Defendant’s consent, raised questions about whether a settlement

agreement had been reached. Accordingly, the Order dated

September 9, 2020 referred the parties to Magistrate Judge Levy

for review of these developments. Pursuant to Cheeks v.

Freeport Pancake House, Inc., 796 F.3d 199 (2d Cir. 2015), which

requires court approval before FLSA settlements may take effect,

the Order also enjoined the parties from exchanging settlement

proceeds or executing the terms of any settlement they had

entered before receiving the Court’s approval. This motion for

reconsideration followed.

II. Motion for Reconsideration

On September 11, 2020, the parties jointly filed a

motion for reconsideration of the September 9 Order, arguing

that (1) the Order entered an injunction without prior notice

and opportunity to be heard, and (2) the Order did not consider

material facts and law concerning the stipulations of dismissal

filed by the three individual Plaintiffs. See ECF No. 33.

In their memorandum of law in support of the motion,

the parties revealed that the three Plaintiffs who filed

stipulations of dismissal without prejudice did in fact enter

into settlement agreements with Petco (hereinafter the

“Individual Settlements”). See Memorandum of Law in Support of

Motion for Reconsideration (“Joint Memorandum”) (ECF No. 33-1)

at 4-5. The parties now assert that the Individual Settlements

are not subject to Cheeks review because the Plaintiffs’ Rule

41(a) dismissals are without prejudice, based on district court

decisions that have reached this conclusion and the Second

Circuit’s recent decision in Mei Xing Yu v. Hasaki Rest., Inc.,

944 F.3d 395, 411 (2d Cir. 2019). See id. at 5-6. The parties

also revealed that they are in the process of finalizing a

class-action settlement (hereinafter the “Class Settlement”).

Id. at 6. They report that they expect to file those settlement

papers (relating to the class) with the Court for a fairness

review soon. See id. Based on the parties’ reading of the

September 9 Order, which enjoins them from “distribut[ing] the

proceeds from any settlement or execut[ing] the terms of any

settlement until it has been reviewed and approved and the

undersigned district judge,” the parties are unsure whether they

are enjoined from continuing to finalize their forthcoming Class

Settlement. Id. at 8, 9 n.6.

In light of the above, the parties ask the Court to

vacate the prior order and enter a “more limited” order that

would (1) refer to Magistrate Judge Levy the review of the

forthcoming class action settlement, and (2) refer the question

of whether Cheeks review is required to give effect to a

stipulation of dismissal without prejudice in light of the

recent Second Circuit decision in Mei Xing Yu v. Hasaki Rest.,

Inc., 944 F.3d 395, 411 (2d Cir. 2019).

III. Discussion

In an FLSA case, a Rule 41(a)(1)(A) stipulation of

dismissal without prejudice or notice of voluntary dismissal may

“raise a concern that the parties have covertly settled FLSA

claims in an effort to evade judicial review required by Cheeks

. . . .” De Jesus v. Magnetic Contracting Corp., No. 19-CV-

01842, 2019 WL 4737053, at *1 (E.D.N.Y. Sept. 27, 2019). Under

Cheeks, district courts have an obligation to review and approve

FLSA settlement agreements before the settlement takes effect.

Cheeks applied specifically to Rule 41(a)(1)(A) stipulations of

dismissal with prejudice and left open the question of “whether

parties may settle such cases without court approval . . . by

entering into a Rule 41(a)(1)(A) stipulation without prejudice.”

796 F.3d at 201 n.2 (emphasis added). Although the answer to

this question is not settled, many courts in this district have

held that parties cannot avoid judicial review by settling FLSA

claims pursuant to a stipulation of dismissal without prejudice,

at least without first providing the court with further

information about the settlement terms. See, e.g., De Jesus,

2019 WL 4737053, at *2 (“Where . . . there is reason to believe

the parties may have entered into a settlement, a court should

assure itself that dismissal without prejudice is not an

intended evasion of Cheeks.”); Gallardo v. PS Chicken Inc., 285

F. Supp. 3d 549, 552 (E.D.N.Y. 2018) (observing that

stipulations of dismissal that “appear on their face to be

without prejudice may, on closer inspection, prove not to be”)

(internal quotation marks omitted); Carson v. Team Brown

Consulting, Inc., 416 F. Supp. 3d 137, 139 (E.D.N.Y. 2017)

(concluding that judicial review of plaintiff’s dismissal

without prejudice was appropriate because “the district court

must be guided, first and foremost, by the policy considerations

underlying Cheeks”).

The Second Circuit has not yet addressed this

question. In Yu, the Second Circuit declined to extend the

Cheeks requirement of judicial review to offers of judgment

under Rule 68(a). See Yu, 944 F.3d at 411. The parties contend

that the reasoning in Yu suggests that the Second Circuit might

also decline to apply the Cheeks requirement of judicial review

to dismissals without prejudice under Rule 41(a)(1)(A). See

Joint Memorandum at 10. As set forth below, the parties are

directed to fully brief their argument that a Cheeks fairness

review is not required in light of Yu and to appear for oral

argument before this Court.

This Order applies only to the stipulations of

dismissal filed by Plaintiffs Boyd, Travis, and Williams. See

ECF Nos. 29-31. The Individual Settlements may not take effect

until the Court has completed a fairness review or concluded

that no such review is required.

Neither this Order nor the September 9 Order should be

read to apply to the parties’ contemplated Class Settlement.

The Court will review a future motion requesting review of the

Class Settlement and will refer the motion if appropriate.

IV. Conclusion

For the reasons set forth above, it is hereby ORDERED

that this Court’s Order dated September 9, 2020 be vacated

pending resolution of the question of whether a fairness review

of the Individual Settlements is required under recent Second

Circuit precedent. The Plaintiffs and Defendant shall submit

separate memoranda of law not exceeding five pages each in

length, or a joint memorandum not longer than ten pages, on or

before October 1, 2020. Oral argument shall be held on October

7, 2020 at 2:00 p.m. by telephone. The parties are directed to

call 888-808-6929 five minutes before the scheduled start of the

conference and use access code 564-7824.

SO ORDERED.

_/s/ Eric Komitee____________

ERIC KOMITEE

United States District Judge

Dated: Brooklyn, New York

September 15, 2020