SDNY Pancakes Parties' Attempt To Bypass Cheeks: Requires Approval Of Rule 68 Settlement

Seyfarth Synopsis: The Southern District of New York recently held that parties may not settle FLSA claims without court approval through an offer of judgment pursuant to Rule 68 of the Federal Rules of Civil Procedure.

Background: Rule 68

Under Rule 68, a party defending a claim can make an "offer of judgment" to the other party. If the other party accepts the offer, the clerk must enter judgment pursuant to the offer's terms. However, if the offered party rejects the offer and obtains a less favorable judgment at trial, that party must then pay the costs incurred by the offering party after the offer was made. Courts have explained that the purpose of Rule 68 is to prompt parties to evaluate the risks and costs of litigation and to balance those risks against the likelihood of success.

Cheeks Decision

As we have previously discussed, in Cheeks v. Freeport Pancake House, Inc., a landmark decision of the Second Circuit, the court held that absent approval by either the district court or the DOL, parties "cannot" settle FLSA claims with prejudice. The Cheeks decision has made it increasingly difficult for parties to reach a settlement of FLSA claims in the Second Circuit, and accordingly, litigants have increasingly tried to avoid the requirement for judicial or DOL approval by entering into settlements pursuant to Rule 68.

Recent SDNY Decision

In the recent case of Mei Xing Yu v. Hasaki Restaurant, Inc., et al., the parties attempted to do just this bypass judicial scrutiny of an FLSA settlement by settling their claims pursuant to a Rule 68 offer of judgment. The parties in Hasaki argued that the language of Rule 68 provides that the clerk "must" enter judgment of an accepted offer of judgment. The SDNY, however, held "that parties may not circumvent judicial scrutiny of an FLSA settlement via Rule 68." Judge Furman reasoned that FLSA settlements are...