Are Rule 68 offers covered by Cheeks v. Pancake House?

Normally, parties settle lawsuits in private and tell the judge the case is over. The judge then "so orders" a stipulation of discontinuance, someone writes a check and we all move on with our lives. That does not apply to cases brought under the Fair Labor Standards Act. In 2015, the Second Circuit held that courts must approve FLSA settlements "to avoid the “potential for abuse,” including “highly restrictive confidentiality provisions in strong tension with the remedial purposes of the FLSA,” “overbroad release[s],” excessive attorney’s fee awards, and inadequate awards. Does this apply to settlements reached under Rule 68?

The case is Yu v. Hasaki Rest., Inc., No. 16-CV-6094 (JMF), 2017 U.S. Dist. LEXIS 54597 (S.D.N.Y. Apr. 10, 2017), a SDNY case decided on April 10. Under Rule 68, the defendant serves an Offer of Judgment on the plaintiff. That offer would pay the plaintiff a sum of money. The plaintiff has a limited time to accept that offer. If the plaintiff rejects the offer and wins less money at trial, then plaintiff has to pay the defendant's post-offer costs. Plaintiff also forfeits attorneys' fees incurred after the offer was sent. In return, the plaintiff gets money and a judgment against defendant.

In this case, Judge Furman holds that Rule 68 settlements are subject to the requirements set forth by the Second Circuit in Cheeks v. Freeport Pancake House, 796 F.3d 199, 200 (2d Cir. 2015), which says the courts must approve FLSA settlements. The judge writes:

In the wake of Cheeks, litigants have increasingly tried to evade the requirement for judicial or DOL approval by entering into settlements pursuant to Rule 68. These litigants have argued — as the parties do in this case — that approval is not required for such settlements because Rule 68 provides that “[t]he clerk must . . . enter judgment” of an accepted offer of judgment and lacks any language comparable to Rule 41’s “applicable federal statute” exception that figured prominently in Cheeks. Fed. R. Civ. P. 68.

Some courts in the Second Circuit say that Rule 68 settlements are not covered by Cheeks. Judge Furman sees it differently. While the judge notes that the clerk "must" enter judgment for the plaintiff upon accepting a Rule 68 offer, allowing parties to avoid Cheeks oversight makes no sense. He writes:

But that foundation — namely, that Rule 68 is, by its terms, mandatory and leaves no room for judicial scrutiny of an accepted offer — crumbles under closer scrutiny. That is, although it is sometimes said that a court “has no choice about entering” a Rule 68 judgment, “this general statement is too broad to encompass all instances in which Rule 68 offers are made.” 12 Charles Alan Wright, Arthur R. Miller & Richard L. Marcus, Federal Practice and Procedure § 3005 (2d ed. 1996)). Indeed, as one judge on the Eleventh Circuit observed, “[t]here are myriad settings in which a court has an independent duty . . . to review the terms of a settlement offer; Rule 68’s operation does not relieve the court of that duty.” Util. Automation 2000, Inc. v. Choctawhatchee Elec. Co-op., Inc., 298 F.3d 1238, 1250-51 (11th Cir. 2002) (Marcus, C.J., specially concurring). “[I]n the context of class actions,” for example, “Rule 68 offers of judgment are routinely employed despite the fact that all agreements must subsequently be approved by the court after a fairness hearing.” Gordon v. Gouline, 81 F.3d 235, 239 (D.C. Cir. 1996) (citing cases). And as the D.C. Circuit has held, in bankruptcy cases, Rule 68 does not override the requirement that compromises or settlements must be approved by the court. See id. at 239-40. In fact, there are a host of situations in which parties may not, without approval of either or both a government agency and a court, enter into a settlement.

For now, there is a split in the Second Circuit on this issue. The Court of Appeals will no doubt straighten this out some day. Until that happens, each Rule 68 settlement under the FLSA will be handled differently from judge to judge.