In a decision issued on December 6, 2019, a panel of the Second Circuit, in a 2-1 split, held that notwithstanding that Court’s prior decision in Cheeks v. Freeport Pancake House, Inc., 796 F.3d 199 (2d Cir. 2015), judicial approval is not required when an FLSA case is settled pursuant to an offer of judgment under FRCP Rule 68(a).  Yu v. Hasaki, _____ F.3d _____ (2d Cir. 2019).

In Cheeks, a different panel of the same Court, held that FLSA settlements must be subject to judicial approval before the underlying case could be dismissed with prejudice.  That review included not only the fairness of the settlement amount, but also the size of any legal fees awarded, the terms of any releases given, and the existence of any confidentiality provision.  Cheeks has been strictly applied in the Second Circuit since it’s issuance in 2015.

Yu arose when the District Court, sua sponte, required that a settlement reached pursuant to Rule 68(a) be submitted for a fairness hearing before the Clerk could enter judgment.  Both sides sought an interlocutory appeal, which the Second Circuit accepted.

In a four-part decision, the Yu majority reversed the District Court, finding that “nowhere in the text of   . . . § 216 . . . is there a command that FLSA actions cannot be settled or otherwise dismissed without approval from a court.”  It also relied heavily on the language of Rule 68, which provides that the Clerk “must” enter judgment once an offer of judgment is accepted.  The Court saw no evidence of any congressional intent to exempt FLSA claims from Rule 68’s mandatory language.

The Yu majority went on to note that the public filing of Rule 68 offers of judgment eliminates “any secret settlement problem”, and that the “remedial and humanitarian goals” of the FLSA did not justify requiring judicial approval when Congress had not mandated it.

The dissent by Judge Calabrese was spirited, stating the majority opinion lacked any basis in law or common sense, and predicting it would not withstand Supreme Court scrutiny.

Some early conclusions can be drawn from Yu.  Cheeks has now been confined to its facts, where a case is dismissed pursuant to “stipulations of dismissal with prejudice.”  Given the tone and substance of the majority opinion, it is likely that litigants will now seek to narrow Cheeks further by attempting to settle cases without judicial approval outside of Rule 68(a).

Since both sides sought the result in Yu, neither party will seek an en banc review by the entire Circuit Court.  For that same reason, neither party will petition the Supreme Court for cert.  Yu will remain good law unless and until another case, in this or another circuit, reaches a contrary decision on Rule 68(a), and that matter ultimately reaches either en banc or Supreme Court review.

Joe DiBenedetto recently retired from Winston & Strawn LLP, after spending 46 years in its Manhattan office as a capital partner specializing in commercial litigation. He formed JDB Mediation LLC to further develop his mediation and arbitration practice, which is centered in Manhattan and its surrounding counties (including Westchester, Nassau, and Suffolk). Joe DiBenedetto’s experience, training, and other credentials are more fully described at www.JDBMediation.com