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Fontes v. Drywood Plus, Inc.

United States District Court, Ninth Circuit

December 2, 2013

Joaquin Fontes; Arturo Ruiz, Plaintiffs,
Drywood Plus, Inc., an Arizona corporation doing business as Berry Bros. Firewood Co.; John Berry, Defendants.


LAWRENCE O. ANDERSON, Magistrate Judge.

This Fair Labor Standards Act ("FLSA") action arises on the parties' second motion to approve a settlement, filed on November 25, 2013. On November 22, 2013, the undersigned Magistrate Judge conducted a fairness hearing in open court, which was attended by the parties' counsel, Plaintiffs Joaquin Fontes ("Fontes") and Arturo Ruiz ("Ruiz"), and a privately-retained Spanish-speaking interpreter to assist the Plaintiffs.

Having considered the parties' Joint Motion to Approve Settlement and Dismiss All Claims with Prejudice and attached Settlement Agreement and General Release ("Settlement Agreement"), docs. 17, 17-1; the relevant legal authorities; each Plaintiff's opinion that the settlement is fair, and relying on this Magistrate Judge's considerable experience as a former trial lawyer, state and federal judge, this Court finds the settlement is a fair and reasonable resolution of bona fide disputes over overtime wages allegedly owed and unlawful retaliation. Accordingly, the Court will approve the Settlement Agreement, retain jurisdiction to enforce the settlement's terms, and direct the Clerk of Court to enter the Stipulated Judgement and terminate this action.

I. Background

On September 15, 2013, Plaintiffs commenced this action, seeking unpaid compensation and other relief pursuant to the Fair Labor Standards Act, 29 U.S.C. § 201, et seq., and the Arizona Wage Act ("AWA"), Arizona Revised Statutes ("A.R.S.") § 23-350, et seq. (Doc. 1) Plaintiffs further allege they were unlawfully terminated at different times in violation of the FLSA's anti-retaliation provision, 29 U.S.C. § 215(a)(3), and the Arizona Employment Protection Act ("AEPA"), A.R.S. § 23-1501, when they complained about Defendants' failure to pay them the overtime rate when they worked more than 40 hours per week. Plaintiffs seek declaratory relief, backpay for nonpayment and underpayment of wages, liquidated damages, attorney's fees and costs, and other relief available under the FLSA, AWA, AEPA, and any other applicable law. ( Id. at 2)

The Complaint alleges Ruiz and Fontes were employed by Defendants for nearly 23 and 14 years, respectively, at the time their employments were terminated in March and February 2013. ( Id. at 3) As laborers preparing wood products for sale, Ruiz and Fontes were earning $14.00 per hour $12.50 per hour, respectively, when their jobs were involuntarily terminated. ( Id. ) In February 2013, Ruiz and Fontes allege they met with Defendant John Barry ("Barry"), president and owner of Drywood Plus, Inc., an Arizona corporation doing business as Berry Bros. Firewood Co.[1] ("Berry Bros."), and complained to Barry about Defendants' failure to pay them and other employees the overtime rate for their work exceeding 40 hours per week. ( Id. ) Fontes' employment was terminated that day. About four weeks later, when Ruiz met with Barry and again complained about Barry's failure to pay the correct overtime rate for his work and Barry's earlier decision to discharge Fontes, Barry fired Ruiz that same day. ( Id. at 4) The Complaint does not calculate the amount of each Plaintiff's overtime claim or the number of overtime hours each Plaintiff purportedly worked.

Shortly after Defendants were either served with process or received notice of this action, the parties believed they settled the case and submitted their proposed settlement to the Court for approval. (Docs. 9, 10) The parties' first proposed settlement agreement provided Defendants would pay Plaintiffs collectively the gross amount of $12, 000.00, divided evenly between each Plaintiff, for unpaid overtime wages, but the sum of $4, 200.00 for Plaintiffs' attorney's fees would be paid out of the gross amount of $12, 000.00, reducing Plaintiffs' net recovery. (Doc. 10 at 1) The proposed settlement agreement also informed the Court that, in May 2013, each Plaintiff was paid the amount "Defendants believed represented all past wages allegedly due and owing to Plaintiffs." ( Id. ) Fontes and Ruiz were paid the amounts of $2, 146.67, and $2, 342.33, respectively, and both checks were cashed. ( Id. )

On October 24, 2013, and after counsel were directed to do so, the parties' counsel filed a Joint Supplemental Memorandum, providing more factual details of the parties' pre-complaint settlement negotiations and the payments Plaintiffs received by checks, dated May 23, 2013. (Docs. 12-13) The Joint Supplemental Memorandum informed the Court that, on April 27, 2013, Plaintiffs' counsel offered to settle this dispute without litigation in exchange for payment of Plaintiffs' unpaid overtime allegedly due over the last two years "[i]n the amount of $14, 625 (32.5 hours per month × $18.75 per hour overtime rate) for Fontes and $16, 380 (32.5 hours per month × $21.00 per hour overtime rate) for Ruiz." (Doc. 13 at 2) By letter, dated May 15, 2013, "Defendants acknowledged that they had erroneously failed to pay Plaintiffs the half-time premium for overtime hours worked[, ]" even though Defendants claim Plaintiffs were paid at their regular hourly rate for the overtime worked. ( Id. ) Defendants, however, dispute the number of overtime hours Plaintiffs claimed they worked and the allegations of retaliatory discharge. ( Id. ) Nevertheless, Defendants calculated the amount of Plaintiffs' half-time overtime pay over the nine quarters immediately preceding their separation and paid Ruiz the sum of $2, 612.75 (gross) and Fontes the amount of $2, 394.50 (gross) by check on May 23, 2013. ( Id., Exh. A)

Believing they are entitled to more compensation for their overtime hours worked than the amounts Defendants paid them on May 23, 2013, Plaintiff Ruiz filed a charge with the National Labor Relations Board ("NLRB") and Plaintiffs jointly filed this lawsuit on September 15, 2013. (Doc. 1) Defendants deny that Plaintiffs are due any overtime compensation beyond what was paid in May 2013 and the retaliatory discharge allegations, but claim that, "because Defendants determined that their defense costs would likely exceed the settlement demand, and given the uncertainty of litigation and the enormous consumption of time associated with the litigation process, " Defendants made "a calculated business decision" to offer the first proposed settlement terms. (Doc. 13 at 4)

Having serious concerns that the net recovery for each Plaintiff under the first proposed settlement was not fair to each of them and should not be approved, the Court set a fairness hearing for November 22, 2013, ordered Plaintiffs, their counsel, and defense counsel to physically appear at the fairness hearing, and show cause why the Court should not reject the first proposed settlement as unfair and inappropriate. (Doc. 14) The Court's primary concern with the first proposed settlement was approving a settlement in which Plaintiffs had to pay their own attorney's fees pursuant to a "contingency fee of $4, 200 plus a flat fee of $750 [for drafting a complaint] that further dilutes Plaintiffs' already reduced FLSA recovery of 64% of their overtime wages, rather than an agreement that calls for a direct payment by Defendants to Plaintiffs' counsel of Plaintiffs' attorney's fees." ( Id. at 10)

At the fairness hearing, counsel understood the Court's concerns and agreed, in private consultation with their clients, to modify the terms of their settlement, now documented in the current Settlement Agreement. The Settlement Agreement indicates Defendants have agreed to pay Plaintiffs collectively "the gross amount of $12, 000.00 (exclusive of attorneys' fees), payable to each Plaintiff as follows: (i) the sum of $3, 000.00, less applicable tax withholdings, shall be made payable to each Plaintiff as settlement for claimed unpaid wages, for which Defendants shall issue Plaintiffs an IRS Form W-2; (ii) the sum of $3, 000.00 shall be made payable to each Plaintiff for claimed liquidated, compensatory and punitive damages, for which Defendants shall issue Plaintiffs an IRS Form 1099." (Doc. 17-1, ¶ A at 1) "In addition, Defendants shall issue a payment in the amount of $2, 500.00 to the Hernandez Law Firm, PLC for Plaintiffs' claimed attorney fees, for which Defendants shall issue the law firm an IRS Form 1099." ( Id. ) Defendants represent the Settlement Agreement's payments will be made "[w]ithin five (5) business days following the District Court's entry of an order dismissing the Lawsuit and Defendants' receipt of written confirmation that all pending government agency charges and complaints, including the charge filed with the National Labor Relations Board ("NLRB") has been withdrawn[.]" ( Id. )

A. Plaintiffs' Damages

The parties' Joint Supplemental Memorandum informs that Plaintiffs estimate they were paid for an average of 42 to 45 hours a week during the "Busy Season" between August and March each year at their regular hourly rate, although they claim to have worked between 45 and 60 hours per week during that same time period. (Doc. 13 at 4) Plaintiffs do not, however, provide any contemporaneous time records to support the overtime hours they claim they worked or any direct evidence that Defendants' willfully violated the FLSA to claim damages beyond the FLSA's two-year statute of limitations.

Plaintiffs' claim they "conservatively" estimate they are owed the overtime premium (half the regular hourly rate) for 3.5 hours each week during the Busy Season, and the full overtime rate (1.5 times the regular hourly rate) for 7.5 hours per week during the Busy Season. ( Id. ) Plaintiffs' calculations use the last regular hourly rate each Plaintiff was paid ($12.50 for Fontes; $14.00 for Ruiz), and 34.67 weeks to represent the number of weeks in each eight-month Busy Season. Fontes claims he should have been paid $758.41 ($6.25 overtime premium × 3.5 hours × 34.67 weeks) for the unpaid overtime premiums, and $4, 875.47 ($18.75 overtime rate × 7.5 × 34.67 weeks) in unpaid overtime wages for each Busy Season covered under the applicable statutory period, totaling $12, 623.90 for the past two years. ( Id. ) Ruiz claims he is owed $849.42 ($7.00 overtime premium × 3.5 hours x 34.67 weeks) for the unpaid overtime premiums, and $5, 462.53 ($21.00 overtime rate × 7.5 × 34.67 weeks), totaling $11, 267.76 for the past two years. ( Id. ) Plaintiffs total sum allegedly owed is $23, 891.66 ($12, 623.90 plus $11, 267.76 = $23, 891.66), less the amounts Defendants paid in May 2013 of $5, 007.25 ($2, 612.75 (gross) for Ruiz and $2, 394.50 (gross) for Fontes = $5, 007.25) or ...

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