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Case 1:14-cv-01522-EGS Document 26 Filed 04/19/16 Page 1 of 12


On behalf of herself and all others similarly
Case No. 1:14-cv-1522-EGS
HUNAM INN, INC. d/b/a/
Plaintiff Sara Wilson (Plaintiff), and Defendants Hunam Inn, Inc. d/b/a Cobalt/30
Degrees (Cobalt or Company), Eric Little (Mr. Little), and David Perruzza (Mr.
Perruzza) (collectively Defendants) (Defendants and Plaintiff jointly referred to as Parties)
jointly seek approval of their settlement of Plaintiffs claims under the Fair Labor Standards Act
(FLSA), 29 U.S.C. 201, et seq. Their settlement also covers the District of Columbia
Minimum Wage Act Revision Act of 1992, and the settlement contemplates a dismissal with
prejudice, assuming the Court approves settlement. Because Plaintiffs claims were filed under
the FLSA, the general practice in this jurisdiction is to have the settlement approved by the Court
and to have that approval entered as a stipulated judgment.

In her Complaint, filed on September 6, 2014, Ms. Wilson alleged that

Defendants failed to pay her and a class of similarly-situated bartenders: (1) minimum wage; and
(2) overtime pay under the Fair Labor Standards Act of 1938, as amended (FLSA), and the

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D.C. Minimum Wage Act Revision Act of 1992 (DCMWA). More specifically, this case is
principally about whether Cobalt can meet the requirements of Section 3(m) of the FLSA. In
this regard, the FLSA requires that employers covered by the FLSA pay hourly employees at
least the statutory minimum wage for all hours worked up to 40 in a workweek. However,
Section 3(m) of the FLSA permits employers to pay tipped employees, such as a bartender or
server, a reduced hourly wage ($2.13/hour) by allowing employers to credit the tips received by
a tipped employee towards meeting the minimum wage requirements.
With respect to her minimum wage claim, Plaintiff alleges that Defendants violated
Section 3(m) because: (1) they failed to provide her notice of the tip credit; (2) barbacks and
floorbacks were inappropriately included in the tip pool; and (3) Defendants inappropriately
required her to perform cleaning duties. With respect to her overtime wage claim, Plaintiff
alleges that she worked more than 40 hours per week, but was not paid time and half for those
hours. In addition, Plaintiff alleged that Owner and President Little and Vice President Perruza
are statutory employers under both statutes because they were allegedly actively involved in
Cobalts day-to-day operations.
Although Defendants were prepared to aggressively defend themselves, the Parties
reached an amicable settlement that will avoid the uncertainly, expense, and distraction of
continued litigation.
Plaintiff contends that Defendants violated the FLSA and DCMWA. Indeed, Plaintiff
contends that Plaintiff did not receive proper notice pursuant to Section 3(m) of the FLSA of the
requirements for the tipped employee exemption. Moreover, Plaintiff contends that Defendants
terminated Defendants cleaning staff as a cost-saving measure, and then put the bartenders and

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wait staff to work performing all those cleaning duties. Those duties too more than 20% of
Plaintiffs time and therefore, Plaintiff believes she was entitled to compensation for that time
spent in duties unrelated to her duties as a bartender.

Finally, Plaintiff contends that all

Defendants are proper parties in this matter.

Plaintiff contends that no notice regarding the tipped-employee exemption was provided
as required by the FLSA. The FLSA requires employers to pay a minimum wage. 29 U.S.C.
206. However, the statute provides the employer to pay employee who collect tips a wage less
than the minimum wage in certain circumstances. 29 U.S.C. 203(m). This is referred to as the
tip credit. Id. However, to take advantage of this lower labor costs, the employer must ensure
that the employee has been informed by the employer of the provisions of this subsection . . .
Id., see also Nat'l Rest. Ass'n v. Solis, 870 F. Supp. 2d 42, 45 (D.D.C. 2012). If the employer
fails to inform its tipped employees of the provisions of section 3(m), then no tip credit can be
taken, and the employer is liable for the full minimum wage. Id. Plaintiff contends that
Defendants failed to provide the proper notice, and therefore violated section 3(m) of the FLSA.
As a result, Plaintiff believes that Plaintiff was entitled to the full minimum wage, as well as
liquidated damages for the unpaid wages.
Plaintiff also believes she is entitled to wages because she was required to do side work
that took more than 20% of her time each day. In the case of servers and bartenders, the FLSA
permits them to be paid in accordance with the tipped-employee exemption for work side work
related to their normal duties. Chhab v. Darden Rests., Inc., 2013 U.S. Dist. LEXIS 135926, *10
(S.D.N.Y. Sept. 19, 2013).

However, the DOL limited the amount of side work that is

compensable in this manner to 20% or less of the employees work. See U.S. Department of
Labor, Wage and Hour Division Fact Sheet #15: Tipped Employees Under the Fair Labor

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at (last







Courts have concluded that this standard is entitled to deference. See, e.g., Fast v. Applebee's
International, Inc., 638 F.3d 872, 879-81 (8th Cir. 2011); Driver v. AppleIllinois, LLC, 890 F.
Supp. 2d 1008, 1032-33 (N.D. Ill. 2012). Plaintiff contends that Plaintiff, and other employees,
were required to spend more than 20% of their work performing duties unrelated to serving
patrons. Defendants terminated their cleaning staff and required Plaintiff and other staff to take
up those duties at the tipped-employee wage. These duties had nothing to do with Plaintiffs job
duties and included such things as cleaning bathrooms, and toilets after the close of the bar. In
an eight-hour shit, Plaintiff contends she spent three to four hours on these duties, or 38% to 50%
of her time, and there is evidence to support this contention in Defendants social networking
postings. As such, Plaintiff believes she is entitled to the full minimum wage for those hours
spent cleaning.
Finally, Plaintiff believes that each Defendant is the proper party in this matter. There is
no question that the corporate defendant is a proper party. However, Plaintiff also believes the
individual defendants are proper parties. "The overwhelming weight of authority is that a
corporate officer with operational control of a corporation's covered enterprise is an employer
along with the corporation, jointly and severally liable under the FLSA for unpaid wages."
Donovan v. Agnew, 712 F.2d 1509, 1511 (1st Cir. 1983); see also Int'l Bhd. of Painters & Allied
Trades Union v. George A. Kracher, Inc., 856 F.2d 1546, 1548, 272 U.S. App. D.C. 384 (D.C.
Cir. 1988) (recognizing that corporate owner-officers may be held liable for unpaid wages under
the FLSA); Ventura v. Bebo Foods, Inc., 738 F. Supp. 2d 1, 5 & n.2 (D.D.C. 2010) (applying
analysis of individual liability under the FLSA to individual liability under the DCWPCL);

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Ventura v. L. A. Howard Constr. Co., 2015 U.S. Dist. LEXIS 129984 (D.D.C. Sept. 28, 2015).
Plaintiff contends that the individual defendants exerted sufficient control over working
conditions including wages and hours, and exerted enough supervisory control to warrant
individual liability.
Plaintiff believes this claims should prove sufficient to establish liability as well as
damages in this matter. Plaintiff believes that Defendants violated the express requirements of
the FLSA regarding the tipped-employee exemption by failing to provide notice. Moreover,
Plaintiff believes that Defendants violated this same exemption by requiring Plaintiff to take on
after-closing cleaning duties which too 38% to 50% of her time each shift. Finally, Plaintiff
contends that each defendant is a proper party in this matter. Therefore, Plaintiff contends there
is a genuine dispute in this case, making the case ripe for settlement.
Defendants vigorously dispute that that they violated Section 3(m) of the FLSA or
any aspect of the FLSA and DCMWA. First, Plaintiff alleges that Defendants failed to
provide any notice to Plaintiffs that Defendants intended to utilize the tipped-employee
exemption to the FLSA. Cobalt denies this allegation. If this case were to proceed, Cobalts
Manager who hired Plaintiff was prepared to testify that she notified Plaintiff that Cobalt
would be taking a tip credit toward its minimum wage obligations. Moreover, Cobalts
handbook includes a tip credit policy explaining its policy in detail and Plaintiff
acknowledged receipt of Cobalts handbook on March 8, 2013.
Second, Plaintiff alleges that Defendants violated Section 3(m) because they
improperly included barbacks and floorbacks in the tip pool. While the FLSA provides little
guidance on who is and who is not eligible to participate in a tip pooling agreement, the U.S.

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Department of Labor has considered whether barbacks may be included in a tip pool and has
concluded that a restaurant may require bartenders to pay a portion of his or her tips to
barbacks without invaliding the tip pool. DOL Opinion Letter, WH-FLSA2009-12 (January
15, 2009) (barbacks are considered tipped employees are employers may require bartenders to
share a portion of their tips with them). Moreover, the Department of Labor has also
concluded that bussers may be included in a tip tool. DOL Opinion Letter FLSA2008-18
(Dec. 19, 2008) (citing S. Rep. No. 93-690, at 42-3 (1974) (bussers are among those who
may participate in a tip pool as they customarily and regularly receive tips).


floorbacks share barback and busser duties, Cobalt is confident that a court would also hold
that floorbacks are properly tipped employees.
Third, Plaintiff complains that Cobalt violated Section 3(m) by requiring her to
perform cleaning duties. Cobalt denies that Plaintiff performed any cleaning duties. In any
event, employers may require employees to clean, including cleaning bathrooms, without
invalidating the tip credit.

Montijo v. Romulus Inc. (IHOP), 2015 U.S. Dist. LEXIS

41848 (D. Az. Mar. 30, 2015) is instructive because plaintiffs (servers) alleged that they were
engaged in working dual jobs yet IHOP only paid them at the reduced tip credit rate.
Specifically, plaintiffs complained about:
taking out trash, scrubbing walls, deep cleaning the pass bar, deep cleaning the
floors, removing booths and cleaning behind and around them, sweeping carpet
throughout the entire restaurant, organizing and cleaning and deep cleaning
booster seats and high chairs, mopping, rolling out rugs from the hallways and
front lobby to sweep clean the rugs and hard floors, cleaning and deep cleaning
both restrooms, deep cleaning chair bottoms and legs, cleaning vents, cleaning
windows, and dusting.
Id. at *4. (emphasis added). Thus, plaintiffs contended that the amount of the IHOPs
required non-related non-tipped duties took them out of the classification of server and,

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therefore, they argued that they were entitled to minimum wage for their performance of
those duties. The Court rejected plaintiffs argument because a server's occupation involves
side work, including the miscellaneous cleaning duties required for its graveyard servers. The
server's performance of incidental side work does not mean that a server is performing
another job classification. Id. at *37.
Moreover, Cobalt still did not violate the FLSA because Plaintiff was paid far in
excess of the minimum wage during all workweeks. In this regard, no minimum wage
violation occurs so long as the total wage paid to an employee in any given workweek
divided by the total hours worked in the workweek equals or exceeds the applicable
minimum wage. Dove v. Coupe, 759 F.2d 167, 171-172 (D.C. Cir. 1985) (The workweek is
to be taken as the standard in determining the applicability of the Act.). Relying on these
cases, among other authority, Defendants were prepared to vigorously defend against
Plaintiffs minimum wages claim.
With respect to her overtime claim, the Companys records demonstrate that Plaintiff
never worked more than 40 hours per week during the last 3 years prior to her lawsuit.
Accordingly, Plaintiff cannot maintain an overtime claim.
Finally, Plaintiff alleges Owner and President Little and Vice President Perruza are
statutory employers under both statutes because, in large part, they were allegedly actively
involved in Cobalts day-to-day operations.

Defendants Little and Perruzza vigorously

contest her claims, as explained in their Motion for Partial Summary Judgment. (ECF No. 8).

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The principal terms of the proposed Settlement Agreement and General Release of all
Claims (Settlement Agreement) (attached as Exhibit A) are as follows:
In consideration for this Agreement, the Company agrees to pay the total sum
constituting back wages and liquidated damages, less lawful deductions and
withholdings, reportable on an IRS Form W-2, made payable to Ms. Wilson.
Four Thousand of which will be considered alleged back wages and Four
thousand considered alleged liquidated damages to be reported with a W-9.
The final Four thousand shall be payable as claimed attorneys fees to
Plaintiffs counsel.
Plaintiff will release any claims, which may be lawfully released, against
Defendants and this lawsuit will be dismissed with prejudice.
In reaching agreement, Parties have taken into account the uncertainty and risks in
litigation, as well as the costs that each party will incur if the litigation continues. The Parties
have concluded that it is in their mutual interest to resolve the litigation now in the manner set
forth in the Settlement Agreement.
Plaintiffs counsel believe that Plaintiff is unlikely to recover damages (exclusive of
attorneys fees) greater than the amounts provided for in the Settlement Agreement if this matter
were to go to trial. In fact, based on Plaintiffs counsels calculations of the alleged amounts
owed to Plaintiff which are based on information as to actual hours of overtime worked by
Plaintiff and actual time spent, if any, doing cleaning work there is a significant possibility that
any post-trial judgment damages awarded might be less than the amount which will be received
by Plaintiff pursuant to the Settlement Agreement. Moreover, as in any case, there is always the
risk that a judgment might not be collectable. Furthermore, compared to being paid under the
Settlement Agreement, Plaintiff might need to wait months or years to be paid if this matter were
to go to trial, causing her considerable economic hardship.

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On February 10, 2015, the Parties participated in a Court-sponsored mediation in the
mediation rooms located in the U.S. District Court for the District of Columbia. With the
assistance of Mediator Arthur Peabody, the Parties engaged in an arms-length, good-faith
negotiation, discussed the merits and probability of success of Plaintiffs legal arguments and the
strength of Defendants defenses, and have reached a mutually agreeable Settlement Agreement.
This settlement eliminates the uncertainties and risks of further litigation.
An employee may only release claims for wages pursuant to the FLSA under the
supervision of the Secretary of Labor or by court approval, and the Parties must file the
Settlement Agreement with this Court for approval. Brooklyn Savings Bank v. ONeil, 324 U.S.
697 (1945); Lynns Food Stores, Inc. v. United States, 679 F.2d 1350, 1353 (11th Cir. 1982);
Lopez v. NTI, LLC, 748 F. Supp. 2d 471 (D. Md. 2010). A settlement of an employees FLSA
claims should be approved if the settlement does reflect a reasonable compromise over issues,
such as FLSA coverage or computation of back wages that are actually in dispute. Lopez, 758 F.
Supp. 2d at 477 (internal citations omitted). Courts have recognized a role for less-than-fullvalue compromise in the FLSA settlement process. Id. These compromises reflect many
factors, including disagreements over the number of hours worked and the plaintiffs status as an
exempt employee. See id. Further, this court has approved Settlement Agreements and has found
a bona fide dispute where (1) a settlement agreement was executed after the Parties initiated
suit, (2) the plaintiffs were represented by [competent] counsel of their own choosing
throughout the lawsuit, and (3) plaintiffs and their counsel had a sufficient time to investigate
the factual basis of the claims and defenses raised in the suit. Calderon v. King BBQ of Union
Station, Case No. 1:14-cv-01834-BAH, at 5 (D.D.C. Feb. 2, 2015).

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Looking at the totality of circumstances, a court determines whether an FLSA settlement

is fair, reasonable, and adequate, by considering whether (1) a proposed settlement was the
product of overreaching by the employer, (2) the settlement was the product of negotiation
between represented Parties following arms length bargaining, and (3) there exist serious
impediments to the collection of a judgment by the plaintiffs. Id. at 5-6 (citing Lliguichuzhca v.
Cinema 60, LLC, 948 F. Supp. 2d 362, 365-66 (S.D.N.Y. 2013)). Where a plaintiff represents
that he has taken into account the uncertainty and risks in litigation when agreeing to the
settlement amount, and given the presumption in favor of finding a settlement fair, even
where a plaintiff would receive less than his initial claim, this court has been reluctant to
contradict the judgment of the Parties in consultation with their counsel that the amounts agreed
upon reflect a reasonable compromise. Id. at 7 (citing Velez v. Audio Excellence, Inc., 2011 WL
4460110, at *1 (M.D. Fla. Sept. 21, 2011)).
Here, Plaintiff and Defendants, each through their undersigned experienced counsel,
hereby represent to the Court that they each believe that the settlement that they have entered
into provides a fair and just resolution based on the facts of this case, including joint review of
work time and pay records for Plaintiff. Plaintiff and the Defendants also represent that each has
been represented by competent counsel of their own choosing throughout this lawsuit, and each
has consulted with their counsel before agreeing to enter into the settlement. The Parties and
their counsel have had a sufficient time to investigate the factual basis of the claims and defenses
raised in this lawsuit, and neither side believes that any more time is necessary to evaluate the
lawsuit further. The Parties also have had an opportunity to discuss the specific terms of the
written settlement agreement with their counsel, and the Parties understand and agree to all of its
terms. Through the settlement, Plaintiff will fully, finally, forever, and unconditionally release

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Defendants from any and all claims that Plaintiff might otherwise have had a right to pursue
against Defendants. The settlement here is a fair and reasonable resolution of the disputed claims.
The attorneys fees taken in this action are also fair and reasonable. Plaintiffs counsel
bills at $285 per hour. This case involved a complaint, service on Defendants, and an extensive
Motion to Dismiss. The total fees and costs arising in this matter are $12,154.00. Plaintiffs
Counsel has accepted a far lesser sum in order to permit this case to conclude to all Parties
To ensure that the Parties settlement agreement is valid and enforceable, the Parties
jointly present the attached Settlement Agreement for the Courts review and approval.
WHEREFORE, Plaintiff and Defendants jointly request that the Court grant this Joint
Motion to Approve Settlement and dismiss this case, with prejudice.
Respectfully submitted,
By: /s/____________________________
Joseph P. Harkins (D.C. Bar No. 394902)
Steven E. Kaplan (D.C. Bar No. 492408)
815 Connecticut Avenue, NW, Suite 400
Washington, DC 20006-4046
Phone: 202-842-3400

By: /s/_____________________________
Ken C. Gauvey (D.C. Bar No. 982088)
The Law Practice of Ken C. Gauvey
6700 Alexander Bell Drive
Suite 200
Columbia, MD 21046

Counsel for Defendants

Counsel for Plaintiff


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I hereby certify that on this 19th day of April, 2016, a copy of the foregoing Joint Motion
to Approve Settlement and Statement of Points and Authorities and Proposed Order were served
by the CM/ECF system upon:

Joseph P. Harkins
Steven E. Kaplan
815 Connecticut Avenue, NW, Suite 400
Washington, DC 20006-4046
Counsel for Defendants

/s/ Ken C. Gauvey

Ken C. Gauvey

Firmwide:139381120.1 067714.1003