2d Circuit agrees to decide if courts must approve FLSA settlements under Rule 68

The Second Circuit Court of Appeals has agreed to decide whether the district court must independently review the fairness of a settlement reached under the Fair Labor Standards Act when the parties have resolved the case under Rule 68.

The case is Yu v. Hasaki Rest., decided on October 23. Under Cheeks v. Pancake House, the Second Circuit determined in 2015 that all FLSA settlements must be approved by the trial court. This holding departs from the usual practice under Title VII and other statutes, where parties settle cases on their own and the trial court is usually unaware of the terms of that settlement and simply discontinues the action. But under the FLSA, the Cheeks court held, we have to make sure the wage and hour plaintiff is properly compensated for his work, and the courts will intervene to ensure the settlement is fair, taking into account, among other things, the strength of the case and the plaintiff's potentially monetary entitlement.

But Cheeks does not resolve all questions under the FLSA. What about Rule 68 offers, where the defendant offers money and a judgment to plaintiff? These are different from the usual settlements, where the plaintiff gets money but no judgment. The catch under Rule 68 is that if plaintiff rejects the settlement but gets less money at trial, the plaintiff is penalized by having to pay defendants' post- Rule 68 costs. That means the plaintiff's lawyer does not recover attorneys' fees for all work expended post-Rule 68.

This case was resolved under Rule 68. District Judge Jesse Furman held that judicial review of an FLSA settlement is required before entry of a Rule 68 judgment. Other courts have held differently. So the trial court certified the case for immediate appeal to the Second Circuit under 28 USC 1292(b), which creates an exception to the rule that you can't appeal anything from the district court until the case is over. Section 1292(b) allows the Court of Appeals to conclusively resolve a disputed or contentious legal issue right away, which can "materially advance the ultimate termination of the litigation."

There was a glitch in this process, though. After the district court certifies the case under Section 1292(b), the plaintiff must ask the Court of Appeals to take up the appeal within 10 days of the district court's Section 1292(b) order. Plaintiff did not really do that. Instead, plaintiff filed a notice of appeal within 10 days. Plaintiff's petition to appeal to the Court of Appeals was filed outside the 10-day deadline. Since appellate deadlines are jurisdictional and do not allow for exceptions, this was a problem for plaintiff. The Second Circuit solves the problem by holding that the notice of appeal qualifies as a petition for Section 1292(b) review even without the actual petition being timely filed. That is because the district court's Section 1292(b) written order timely provided the Second Circuit with all the information in needed to determine whether the accept the appeal.

Having determined to entertain the Section1292(b) request for an interlocutory appeal, the Second Circuit (Newman, Walker and Pooler) grants the petition, noting that the Cheeks/Rule 68 dilemma has been festering in the district courts for a few years now and it's time to deal with that question head-on. This ruling does not answer that question. Rather, the parties will comply with the briefing schedule and argue the appeal sometime in 2018.