Labor – FLSA — Exotic dancers — Class action settlement

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Where four members of a class of 28,177 exotic dancers have challenged a court-approved settlement of claims that Déjà Vu dance clubs violated the Fair Labor Standards Act and state wage-and-hour laws, the district court did not abuse its discretion in approving the settlement, so the challenge must be rejected.

Affirmed.

“… The Objectors’ arguments fall into two broad categories. First, the Objectors argue that the district court abused its discretion by failing to properly apply the factors that ensure the fairness of settlement agreements, especially with respect to the district court’s attempt to calculate the value of the Dancers’ claims. Second, the Objectors argue that the settlement violates the procedural requirements of Federal Rule of Civil Procedure 23, given the breadth of the class release and the notice afforded to the unnamed class members. …

“The Objectors’ primary claim is that the district court abused its discretion by improperly calculating the value of the FLSA and state wage-and-hour claims that the Dancers were relinquishing in the Settlement Agreement. As a result of limited discovery and the absence of a class-wide damages model, the Objectors contend that the Settlement Agreement undercompensates the class. By estimating the number of dancers working at a club per shift, the length of their shifts, and multiplying it by the federal minimum wage, the Objectors estimate that if the class action proceeded to trial, with 64 clubs, the plaintiffs could receive up to $141 million dollars. Alternatively, the Objectors point to other dancer disputes as a basis for comparison, identifying over a dozen jury trials and settlements that provide dancers with higher awards than the Settlement Agreement. Thus, the Objectors argue that the Settlement Agreement’s cash pool pales in comparison to the damages that the Dancers could receive if they went to trial, and the Settlement Agreement is inadequate to justify releasing the Dancers’ claims against Déjà Vu. …

“Here, the district court did not abuse its discretion in determining that the benefits of the Settlement Agreement outweigh the value of the Dancers’ claims. The district court specifically examined what the class members were giving up based upon the available records used to calculate the damages model. The damages model showed the awards that a dancer could receive based on full or reduced minimum wage, as well as with or without offsetting the fees that dancers received during their time at Déjà Vu. By accounting for each of these factors and presenting the district court with an array of awards potentially available to the Dancers, the model offered some insight into the variation in recovery under different states’ laws. Thus, although the court acknowledged that the damages model was imperfect based on the lack of records for many class members, it still found that the model was ‘useful to determine class members’ range of possible recovery.’ … Additionally, in light of the precedent directing courts to look to the risks faced by the parties at hand rather than the general risks of litigation, the district court did not abuse its discretion in finding that the model was more helpful than the Objectors’ comparisons to sums awarded in other class actions—as the court found, ‘[t]he key question is not Plaintiffs’ likelihood of success against the defendants in the cases cited by the objectors[,] but their likelihood of success against Defendants here.’ …

“The district court also did not abuse its discretion in evaluating the benefits provided by the Settlement Agreement’s injunctive and monetary relief. We reject the Objectors’ contention that the credits available through the secondary pool function as coupons that cannot be counted toward the total value of the Settlement Agreement under the Class Action Fairness Act. …

“When compared against the risks involved in litigating or arbitrating the Dancers’ claims, the value of the Settlement Agreement is significant. The injunctive relief mandates extensive changes to Déjà Vu’s business practices, and both the $1 million cash pool and the $4.5 million secondary pool are available to provide financial compensation to the Dancers in the form that best suits each individual dancer’s circumstances. We find that the district court did not abuse its discretion in finding that the tangible benefits afforded to class members as a result of the Settlement Agreement outweigh the value of the volatile claims that the Dancers released.”

Dissenting judge’s comments

“I agree with the majority except with regard to the coupon and attorney fee issues. Because I conclude that the secondary-pool credits are coupons under the Class Action Fairness Act (CAFA), I dissent from the majority’s approval of the attorney fee provision of the settlement agreement, and would remand to the district court for reconsideration of the fee award consistent with CAFA.

“Coupon settlements deserve additional judicial scrutiny because of the myriad problems they present: coupon-redemption rates are often low, so coupon settlements do not provide meaningful compensation to many class members; coupon settlements may not disgorge ill-gotten gains from defendants because a defendant suffers no loss from unredeemed coupons; and coupon settlements may require class members to continue engaging in business with the defendant in order to obtain relief.

“In this case, the district court erred by failing to calculate the redemption value of the coupons prior to approving the attorney fee award.

“For these reasons, I would vacate the approval of the attorneys’ fee award and remand for recalculation of the fee award consistent with CAFA.”

Jane Does 1-2 v. Deja Vu Consulting; MiLW No. 01-100422, 22 pages; U.S. Court of Appeals for the Sixth Circuit published; Cole, J., joined by Nalbandian, J., White, J., joining in part, dissenting in part; on appeal from the U.S. District Court for the Eastern District of Michigan at Detroit; Harold L. Lichten for appellant; Bradley J. Shafer for appellee.