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Does v. Deja Vu Consulting, Inc.

United States Court of Appeals, Sixth Circuit

June 3, 2019

Jane Does 1-2, Plaintiffs-Appellees, Eva Cabrera and Brittney Halverson (17-1801); B.D. (17-1802); C.T. (17-1827), Objectors-Appellants.
Déjà Vu Consulting, Inc., dba Déjà Vu of Saginaw, Inc., nka Déjà Vu Services, Inc., et al., Defendants-Appellees.

          Argued: October 17, 2018

          Appeal from the United States District Court for the Eastern District of Michigan at Detroit. No. 2:16-cv-10877-Stephen J. Murphy, III, District Judge.


          Harold L. Lichten, LICHTEN & LISS-RIORDAN, P.C., Boston, Massachusetts, for all Appellants.

          Jason J. Thompson, SOMERS SCHWARTZ, P.C., Southfield, Michigan, for Jane Doe Appellees.

          Bradley J. Shafer, SHAFER & ASSOCIATES, P.C., Lansing, Michigan, for Déjà Vu Appellees.

         ON BRIEF:

          Harold L. Lichten, Shannon Liss-Riordan, Matthew Thomson, LICHTEN & LISS-RIORDAN, P.C., Boston, Massachusetts, for Appellants in 17-1801.

          Bradley J. Shafer, Matthew J. Hoffer, SHAFER & ASSOCIATES, P.C., Lansing, Michigan, for Déjà Vu Appellees. Charles P. Yezbak, III, Daniel Eduardo Arciniegas, YEZBAK LAW OFFICES, Nashville, Tennessee, for Appellant in 17-1802.

          W. Allen McDonald, LACY, PRICE & WAGNER, P.C., Knoxville, Tennessee, for Appellant in 17-1827. Beth M. Rivers, PITT MCGEHEE PALMER & RIVERS, P.C., Royal Oak, Michigan, for Jane Doe Appellees.

          Before: COLE, Chief Judge; WHITE and NALBANDIAN, Circuit Judges.

          COLE, C.J., delivered the opinion of the court in which NALBANDIAN, J., joined, and WHITE, J., joined in part.


          COLE, CHIEF JUDGE.

         After a class of 28, 177 exotic dancers alleged that Déjà Vu dance clubs violated the Fair Labor Standards Act and state wage-and-hour laws, Déjà Vu and the class of dancers entered into a settlement agreement. The district court approved the settlement over the objections of four class members who now appeal, arguing that the settlement was fundamentally unfair and failed to comport with procedural requirements for class action settlements. Because the district court did not abuse its discretion in approving the settlement, we affirm.


         This class of dancers was not the first to sue Déjà Vu for alleged Fair Labor Standards Act ("FLSA") and state law violations. In 2008, a class of dancers filed a class action lawsuit in the Eastern District of Michigan, alleging that two dance clubs-Cin-Lan, Inc., and Déjà Vu Consulting, Inc.-misclassified them as non-employees or independent contractors in violation of the FLSA and the Michigan Minimum Wage Act. Over the next three years, the parties engaged in extensive discovery and motion practice. After more than six months of negotiations, they entered into a settlement agreement that provided the dancers monetary compensation and injunctive relief. The district court approved the settlement ("Cin-Lan Settlement") and retained jurisdiction to ensure its enforcement. Doe v. Cin-Lan, Inc., No. 08-CV-12719, 2011 WL 13266312 (E.D. Mich. July 15, 2011).

         On March 10, 2016-five years after the approval of the Cin-Lan Settlement-another dancer ("Jane Doe 1") filed a complaint against Déjà Vu Consulting, its affiliate dance clubs, and its owner Harry Mohney (collectively, "Déjà Vu") in the Eastern District of Michigan. Jane Doe 1 filed the complaint as both a class action under Federal Rule of Civil Procedure 23 and a collective action under 29 U.S.C. § 216(b) of the FLSA, seeking to bring the action on behalf of herself and "[a]ll exotic dancers who worked for Defendants and were misclassified by Defendants as independent contractors at any time in the past three years" (collectively, "the Dancers"). (Compl., R. 1, PageID 24-25 (italics in original).) This lawsuit involves the same class counsel, many of the same dancers, one of the same defendants, and similar claims as the initial Cin-Lan dispute. Specifically, the Dancers allege that Déjà Vu's clubs violated the FLSA and state wage-and-hour laws by "intentionally misclassif[ying] class members as independent contractors, refus[ing] to pay minimum wage, unlawfully requir[ing] employees to split gratuities, and unlawfully deduct[ing] employee wages through rents, fines, and penalties." (Op. & Order, R. 77, PageID 4200.)[1]

         Déjà Vu filed a motion to dismiss or stay proceedings in favor of arbitration on September 16, 2016, and it attached a copy of Jane Doe 1's Dancer Performance Lease agreement, which included a clause mandating binding individual arbitration for all claims arising out of her performances.

         Before the district court made any rulings on the merits, the parties began negotiating a settlement agreement. On December 28, 2016, the Dancers' attorneys notified the court that they had "executed a tentative term sheet on a settlement." (Mot. to Transfer Case, R. 22, PageID 445.) Additionally, the Dancers filed a motion requesting an intra-district transfer of the case to the same judge who retained jurisdiction over the Cin-Lan settlement, both because the case invokes his continuing jurisdiction and because he was "intimately familiar with the facts and circumstances of the parties' dispute after presiding over the prior case for approximately four years." (Id. at PageID 446.) On January 4, 2017, the district court granted the motion to transfer.

         After negotiation, the parties reached a settlement agreement ("Settlement Agreement"). In exchange for releasing their claims against Déjà Vu, the Settlement Agreement provides the Dancers with injunctive and monetary relief.

         The injunctive relief is structured around the Settlement Agreement's requirement that every club provide its current dancers with an Entertainer Assessment Form. This assessment determines whether the dancer should be classified as an employee or an Independent Professional Entertainer ("IPE"), the latter of which is akin to an independent contractor. The Settlement Agreement requires dancers to complete the assessment before they can perform at any of Déjà Vu's clubs. The assessment must then be verified by the club's Certified Public Accountant.

         The remaining injunctive relief turns on whether the assessment determines the dancer in question is an employee or an IPE. Under the Settlement Agreement, employees may be required to tip-out or tip-pool with the club's other employees, but they must be paid minimum wage (or, where available, at the tip-credited wage). Employees will also be entitled to commissions of at least 20% of their dance fees that exceed the cost of employment, as well as 20% commissions of their sale of 'conversation beverages,' which are drinks that dancers persuade customers to buy for them. Employees will be reimbursed by the club for all license and permit fees required to perform at the club, and the club will provide them with two logo costumes per month to wear while working. In contrast, the Settlement Agreement prevents Déjà Vu from imposing any work schedule upon IPEs or requiring IPEs to tip-out or tip-pool with any employee. IPEs also cannot be required to wear any costume. Finally, IPEs will have the right to vote in each club's annual IPE meeting to change or modify any club policy that affects IPEs, which ensures that they have sufficient control over the clubs' operations to prevent Déjà Vu from exerting employer-employee control over IPEs.

         With respect to monetary relief, the Settlement Agreement divides a total award of $6.55 million into three primary categories: $1 million toward the Net Cash Payment Settlement Fund ("the cash pool"), $4.5 million toward Secondary Pool Remuneration ("the secondary pool"), and $900, 000 in attorneys' fees.[2]

         The first two categories serve as alternative forms of monetary relief for the class members. The first option is to receive a one-time payment from the cash pool. The $1 million cash pool includes $30, 000 in Enhancement Payments for the named plaintiffs and $50, 000 to pay defendants' Administration Costs. After subtracting these costs, the total cash pool to be split between all of the Dancers who elect to receive a one-time direct payment is $920, 000. Cash pool funds will be allocated on a point-based system that favors dancers who worked for the clubs for a longer period of time, as well as dancers who worked more recently at Déjà Vu's clubs.

         The second option is to collect settlement funds from the secondary pool in the form of credits that can be used at Déjà Vu clubs. This is the default form of relief for Dancers who do not opt into the cash pool: each time a class member performs at one of Déjà Vu's clubs, credits from the secondary pool will either cover 60% of her daily rent at the club or allow her to collect up to $100 in dance fees. Depending on how many months the dancer has performed at the Déjà Vu club where she collects the credits, the total amount of money she can recuperate from the secondary pool is capped at $200, $1, 000, or $2, 000.

         Finally, the Settlement Agreement provides compensation for the Dancers' attorneys. Under the Settlement Agreement, Déjà Vu agrees not to oppose an award of up to $900, 000 in direct attorneys' fees. Déjà Vu also agrees not to oppose an award of up to $300, 000 in indirect attorneys' fees to be paid out of the Dancers' secondary pool. The Settlement Agreement establishes that the indirect fees are to be calculated based on 33.3% of the value of the redeemed portion of the secondary pool. These indirect fees are designed to encourage the Dancers' counsel to try and shore up as much participation as possible in the secondary pool by creating a "direct financial incentive" for their work. (Déjà Vu Br. 64 (italics in original).)

         On June 19, 2017, the district court approved the Settlement Agreement. In finding that the parties satisfied their burden to show that the Settlement Agreement was fair, the district court turned to International Union, UAW, et al. v. General Motors Corp.,497 F.3d 615, 631 (6th Cir. 2007) ("UAW"), which established a set of factors to determine the fairness of class action settlements. In particular, the court stressed the first factor-the comparison between the relief offered in the Settlement Agreement and the Dancers' likelihood of success on the merits against Déjà Vu. The court emphasized the "high risk of continued litigation and the uncertain likelihood of success on the merits" for the Dancers, finding that without the Settlement Agreement, "the vast majority of class members would recover nothing." (Op. & Order, R. 77, PageID 4212, 4221.) The court also found that the Settlement Agreement "offers value to the class in the form of cash, rent-credit or dance-fee payments, and long-term structural changes to Defendants' business practices, all of which directly benefit class members." (Id. at PageID 4212.) After ...

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