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Day v. AMC Corp.

United States District Court, E.D. Kentucky, Central Division, Lexington

July 26, 2019

LETCH G. DAY, et al., Plaintiffs,
AMC CORPORATION, et al., Defendants.



         This matter is before the Court on Plaintiff Letch G. Day's (“Day”), individually and on behalf of those similarly situated, unopposed Motion for Class Certification and Preliminary Approval of Class Action Settlement. [DE 105]. For the reasons stated herein, the Court recommends the District Court certify the class and preliminarily approve the settlement subject to the changes suggested herein.

         I. BACKGROUND

         A. Factual and Procedural Background

         Day filed this action on behalf of both current and former flight paramedics and nurses employed by Defendants to this action (referred to collectively herein as “AMC”). AMC is an air ambulance company. Day alleges AMC had a practice of unlawfully deducting “sleep time” from employees' overtime pay. [DE 1-1 at Page ID # 16 (Complaint ¶¶ 25-30)]. As a result, Day and the putative class members (“Class Members”) were not compensated for all hours, including sleep time, and worked in excess of forty (40) hours per week, in violation of the Kentucky Wage and Hour Act (“KWHA”). KRS 337.285.

         Day filed this lawsuit in Fayette Circuit Court on March 22, 2017, and AMC removed to this Court based on diversity jurisdiction and the Class Action Fairness Act. [DE 1 and 4]; 28 U.S.C. § 1446; 28 U.S.C. § 1332(d). In ruling on Defendants' Motion to Dismiss [DE 4], the District Court held that air ambulance companies are not exempt from the KWHA and that Plaintiffs could proceed in a class action lawsuit under KWHA. [DE 11]. The result of that ruling is that AMC is at a great risk of being found liable for unpaid overtime, including unpaid “sleep time.” Consequently, the parties in this case determined settlement discussions would be mutually beneficial in reaching a resolution of this matter. [DE 105-1 at Page ID # 1162].

         Initially, efforts to settle this case were unsuccessful and both parties engaged in substantial discovery. [Id.]. The discovery included the deposition of the named plaintiffs and the production of payroll records. The payroll records were reviewed by a third-party data processing company and economics expert to validate Plaintiffs' methodology for estimating damages. [DE 105-1 at Page ID # 1163]. The parties renewed their attempt to settle the case, which was again unsuccessful. AMC began making settlement offers directly to employees who were members of the putative class. [Id.]. AMC admitted on the record that, but for this lawsuit, it would not have made settlement offers to these individuals. [DE 110, Recording at 9:45]. The individual, extra-judicial settlement offers resulted in payment to many putative class members, many of whom signed settlement releases. [DE 105-1 at Page ID # 1178]. The process for obtaining these settlement releases was as follows: AMC's human resources personnel reached out to current employees/putative class members and paid them the full amount of unpaid overtime allegedly due to them based on AMC's records.[1] Receipt of these payments did not require the putative class members to sign a release. These employees were then invited to sign a release in exchange for an additional payment for liquidated damages and interest, equal to 50% of the overtime backpay they already received. [DE 110, Recording at 7:56-8:42]. AMC followed a similar process for reaching out through the mail to former employees/putative class members to obtain settlement releases. [DE 110, Recording at 8:43-9:14]. There are 151 putative class members, of which 122 have signed settlement releases, 18 have been paid their overtime backpay but no liquidated damages and have not signed a release, and 11 have not received any amount.[2] [DE 105-2, Page ID # 1205].

         For purposes of settlement, AMC does not oppose class certification. [DE 105]. AMC was clear at the status conference that it strongly preferred that this matter be settled through a class action lawsuit so that it may have assurance that after the settlement is effectuated it will not be subject to further claims against it in Kentucky for unpaid overtime for the relevant time period. Notwithstanding AMC's acquiesce to class certification, the Court will conduct a full analysis of the prerequisites for class certification under Rule 23(a) and (b) as well as the new requirements for preliminary settlement approval under 23(e).

         B. Summary of Proposed Settlement

         The parties ultimately negotiated a “global” settlement (the “Settlement”). [DE 105 at Page ID # 1163-64]. The Settlement provides for a maximum Gross Settlement Fund of $5, 026, 204.31, which includes up to $900, 000 in attorneys' fees and costs and the payments already made to putative class members. [DE 105-2 at Page # 1192]. AMC will be given credit for the payments already made, and no additional payments will be made to the putative class members who already received their overtime backpay plus 50% more for liquidated damages and interest.

         The proposed settlement class (the “Class”) is defined as:

All persons currently or formerly employed by AMC in the Commonwealth of Kentucky as a clinic employees [sic] (i.e., nurse or paramedic) at any time during the Class Period, which is March 22, 2012 through preliminary approval.

[DE 105 at Page ID # 1165]. As noted above, AMC has produced records that Day has analyzed, and the parties agree that the class definition includes 151 current and former employees (“Class Members”). The settlement proposes that AMC pay the Gross Settlement Fund, less applicable credits for payments already made to the Class Members, into a settlement fund that will be distributed by a third-party administrator (the “Administrator”). The Administrator's fee will be paid by AMC in addition to the Gross Settlement Fund.

         The Administrator will be responsible for reaching Class Members. The Settlement Agreement requires the Administrator to finalize and mail the Notice to Class Members (the “Notice”) and Opt-out to each individual who is a member of the Class; maintain a static website where the Notice can be downloaded; and independently respond to the inquiries of class members regarding relevant procedures. [DE 105 at Page ID # 1166]. AMC will provide the list of Class Members from its records. The Administrator will attempt to locate a current address for any Class Member whose mail is returned as undeliverable and will re-send the Notice and Opt-out to such an address where possible. AMC will also provide the last known e-mail address and telephone number for the 29 Class Members who have not already accepted a full settlement payment from AMC. For Class Members who do not timely submit a request to opt-out of the action, their claims will be released and barred once the Settlement is final.

         Plaintiff's Counsel will petition the Court for attorneys' fees and costs of up to $900, 000, which is approximately 18% percent of the Gross Settlement Fund. Individual payments to Class Members not already compensated will be calculated based upon AMC's time and payroll records. Class Members will be (or have been) fully compensated for their unpaid overtime during the relevant time period, plus 50% for liquidated damages and interest. The individually calculated payments are set forth in Exhibit 1 to the proposed Settlement Agreement filed with Day's unopposed motion.[3] [DE 105-2 at Page ID # 1205].


         Fed. R. Civ. P. 23 governs class action lawsuits. Subsection (e) was modified in December 2018 to require parties to submit additional information so that the Court may preliminarily approve a settlement prior to notice being sent to Class Members. Rule 23(e) now employs a two-step approval process that requires the court: (1) to approve the sending of notice to class members under subdivision (e)(1) and (2) to then hold a hearing and approve the proposed settlement under subdivision (e)(2). This two-step process applies even where, as here, the class has not been certified. In such a circumstance, the Advisory Committee noted that the “notice required under Rule 23(e)(1) then should also satisfy the notice requirements of amended Rule 23(c)(2)(B) for a class to be certified under Rule 23(b)(3), and trigger the class members' time to request exclusion. Information about the Opt-out rate could then be available to the court when it considers final approval of the proposed settlement.” Fed.R.Civ.P. 23(e)(2) Advisory Committee's Note (2018 Amendment).

         To effectuate this process, a court must “frontload” its analysis by considering many of the same factors at the initial notice stage that it will consider at the later approval stage. Consistent with the new rule and as part of this first step, the Court will analyze whether the Court “will likely be able to: (i) approve the proposal under Rule 23(e)(2); and (ii) certify the class for purposes of judgment on the proposal.” If both of those questions are answered in the affirmative, the Court will consider whether the proposed method of giving notice satisfies Rule 23(c)(2)(B).

         III. ANALYSIS

         A. Approval of Settlement Pursuant to Rule 23(e)(2)

         The amendments to Rule 23(e) set forth a list of specific factors and issues for courts to consider in deciding whether a settlement is “fair, reasonable, and adequate” such that courts may approve the sending of notice and the proposed settlement. Under this new rubric, the Court must examine four issues: (1) whether the proposed class was adequately represented; (2) whether the proposed settlement was reached through an arm's length negotiation; (3) the proposed relief to the class is adequate; and (4) whether the proposed settlement treats class members equitably. The Court will address each of these factors, in turn, below.

         Moreover, the Advisory Committee made clear that “[t]he goal of this amendment is not to displace any factor [developed by the circuit courts], but rather to focus the court and the lawyers on the core concerns of procedure and substance that should guide the decision whether to approve the proposal.” Fed.R.Civ.P. 23(e)(2) Advisory Committee's Note (2018 Amendment). Accordingly, in addition to analyzing the new factors set forth in Rule 23(e)(2), the Court will analyze the relevant Sixth Circuit factors.

         B. Rule 23(e)(2) Factors

         1. Adequate Representation and Arm's Length Negotiation

         Regarding these first two factors, the Advisory Committee offered the following guidance:

These paragraphs identify matters that might be described as “procedural” concerns, looking to the conduct of the litigation and of the negotiations leading up to the proposed settlement. . . .
The information submitted under Rule 23(e)(1) may provide a useful starting point in assessing these topics. For example, the nature and amount of discovery in this or other cases, or the actual outcomes of other cases, may indicate whether counsel negotiating on behalf of the class had an adequate information base. The pendency of other litigation about the same general subject on behalf of class members may also be pertinent. The conduct of the negotiations may be important as well. For example, the involvement of a neutral or court-affiliated mediator or facilitator in those negotiations may bear on whether they were conducted in a manner that would protect and further the class interests.

         Fed. R. Civ. P. 23(e)(2) Advisory Committee's Note (2018 Amendment). The Court, based upon the record, finds no dispute related to the representation and negotiations in this matter.

         Namely, counsel for Day (and proposed lead class counsel) is an experienced class action litigator. The decision to settle the current dispute was made after significant discovery, an exhaustive review of payroll records and other information by counsel for both sides, and third-party experts hired by Plaintiffs.

         Moreover, there is no evidence or concern about collusion. The settlement was reached after adversarial negotiations spanning many months. The parties, after reviewing the reports of the experts, taking depositions, and attempting mediation, reached a settlement that was based upon an arm's-length negotiation.

         2. Adequate Relief

         Rule 23(e)(2)(C) requires the Court to review “the relief provided for the class is adequate, taking into account: (i) the costs, risks, and delay of trial and appeal; (ii) the effectiveness of any proposed method of distributing relief to the class, including the method of processing class-member claims; (iii) the terms of any proposed award of attorney's fees, including timing of payment; and (iv) any agreement required to be identified under Rule 23(e)(3).”

         First, the proposed settlement provides full and complete payment of the overtime due to each Class Member for the relevant time period. [DE 105 at Page ID # 1167]. While it is possible that the Class Members could recover more if this settlement is not approved, it is possible they could recover less or nothing at all. “[I]t is unnecessary to scrutinize the merits of the parties' positions, but it is fair to say that there would have been an uncertain outcome, and significant risk on both sides, had this case gone to trial.” Davis v. J.P. Morgan Chase & Co., 827 F.Supp.2d 172, 178 (W.D. N.Y. 2011). According to the parties, if this matter does not reach a settlement, AMC intends to litigate the Court's prior holding that the Airline Deregulation Act does not preempt the KWHA, an issue that the Sixth Circuit Court of Appeals has not yet addressed. [DE 105 at Page ID # 1178]. This unsettled legal issue presents significant risk for both parties, as a favorable ruling for AMC at the appeals court would vitiate Plaintiffs' claims. The parties further state that continued litigation will involve substantial discovery on whether AMC's actions were willful (a fact-intensive inquiry), dispositive motion practice, and a trial that could be costly. After the trial, the parties expect there would be a lengthy appeal period. [Id.]

         Second, the parties agree that the Class Members will be notified by the Administrator via first class United States mail at the last known address of the Class Members as provided by AMC. The Administrator will attempt to confirm each Class Member's address through the United States Postal Service's change of address database. For any notices returned as undeliverable, the Administrator will perform a computerized skip trace search and re-send notices for those Class Members for whom a new address is found. Additionally, the parties propose that “after final approval of the Settlement after the final approval hearing, the completion of settlement administration, and within seven (7) days after the Court's final approval order becomes a final un-appealable order, and upon further order of the Court, the Settlement Administrator will mail Individual Settlement Payments to class members who have not opted-out and have not previously signed a settlement agreement and accepted a full settlement payment from AMC.” [DE 105 at Page ID # 1167]. The Court finds that these are reasonable actions that will ensure Class Members are notified, have the opportunity to Opt-out, and receive their funds if they have not already.

         Third, Day's counsel seeks attorneys' fees and costs totaling $900, 000, or approximately 18% of the total settlement funds. Pursuant to KRS 337.385, the employer is liable for attorneys' fees when the employer fails to provide the overtime compensation required by KRS 337.285. “Ultimately, any award of attorney's fees must be evaluated under Rule 23(h), and no rigid limits exist for such awards. Nonetheless, the relief actually delivered to the class can be a significant factor in determining the appropriate fee award.” Fed.R.Civ.P. 23(e)(2) Advisory Committee's Note (2018 Amendment). The proposed settlement in this matter will pay all Class Members his or her entire overtime wages owed; AMC has agreed to pay attorneys' fees in addition to the overtime wages owed. “The ‘majority of common fund fee awards fall between 20% and 30% of the fund.'” Gooch v. Life Investors Ins. Co. of America, 672 F.3d 402, 426 (6th Cir. 2012) (quoting Waters v. Int'l ...

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