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May 22, 1981

Raymond J. DONOVAN, Secretary of Labor, et al., Plaintiffs,

The opinion of the court was delivered by: ROBINSON, JR.


The lead case in this consolidated group of cases, Donovan v. United States Postal Service, No. 78-602, was filed on April 4, 1978, as a suit by the Department of Labor (DOL), against the United States Postal Service (USPS). DOL alleged that USPS violated the Fair Labor Standards Act (FLSA), 29 U.S.C. § 201 et seq., said violations falling into two distinct categories, to wit: (1) Smith/Kaplan, *fn1" and (2) Elia violations. *fn2" Subsequent to the filing of the original complaint, private litigants Evans, et al., *fn3" sued USPS for further alleged violations of the FLSA. Thereafter, DOL amended its complaint to include all but one of the Evans allegations.

 DOL does not sue employers for alleged FLSA violations in a vacuum. Ordinarily, it conducts a thorough investigation of the employer's actions prior to initiation of litigation. The instant case was brought under unique circumstances, however. The two categories of FLSA violations incorporated in the original complaint had already been resolved in litigation brought by various private parties, and issues had either been resolved adversely to the USPS, *fn4" or submitted to the Secretary of Labor for arbitration. *fn5" Damages in excess of $ 66 million were awarded to Plaintiffs in those cases, and their attorneys were paid in excess of $ 3 million by USPS for attorneys fees and costs. Because of the procedural restrictions in the FLSA, however, *fn6" only party plaintiffs were compensated. This left over 400,000 USPS employees devoid of remedy for the FLSA violations.

 DOL had three motives for initiating this lawsuit prior to a thorough investigation: (1) only it could sue in a class action on behalf of the remaining employees *fn7" (hereinafter referred to as non-plaintiffs), toll the statute of limitations against them, and insure that they were compensated for the FLSA violations, (2) the facts underlying the violations alleged in Smith/Kaplan and Elia were virtually unrefutable, and the alleged violations were indigenous to USPS' payroll and timekeeping system, and thus potentially affected all non-exempt USPS employees *fn8" and (3) Postmaster General Bolger specifically requested that DOL bring suit, and thus preclude further private lawsuits with accompanying attorneys fees. *fn9"

 Subsequent to the filing of the lead case and the Evans litigation, a procedural quagmire developed. On February 12, 1979, the National Association of Letter Carriers (NALC) and certain named letter carriers moved to intervene in Donovan, alleging that USPS had entered into an oral "non-plaintiff agreement" *fn10" when it settled the Smith/Kaplan case. On February 16, 1979, Mozart G. Ratner, the attorney for the Kaplan plaintiffs, *fn11" moved to intervene in Donovan, on behalf of himself and four non-plaintiff letter carriers, also alleging the existence of a "non-plaintiff agreement." On July 10, 1979, Atwood v. USPS, No. 79-1808, was filed on behalf of the attorneys in Smith *fn12" and all non-plaintiffs, seeking specific performance of the alleged non-plaintiff agreement. On July 27, 1979, DOL moved to intervene in Atwood ; on October 18, 1979, Ratner, et al. sought intervention in Atwood.

 Rather than resolve the FLSA legal questions, which undoubtedly would have provided for more expeditious compensation to non-plaintiffs, all parties, with the exception of USPS, sought instead to litigate the existence vel non of the alleged non-plaintiff agreement. This Court initially denied the motions to intervene, *fn13" but was reversed on appeal. *fn14" Thus, on June 4, 1980, the existence vel non of the alleged non-plaintiff agreement was brought to the forefront of the instant case. Immediately thereafter, the parties commenced discovery.

 Because of the unique circumstances presented in this litigation, *fn15" this Court maintained close scrutiny on discovery, *fn16" consolidated all related litigation, *fn17" stayed resolution of the FLSA and related issues, *fn18" and clearly delineated the issue to be presented at trial. *fn19" Trial on the existence vel non of the alleged non-plaintiff agreement commenced on February 23, 1981, and concluded on March 18, 1981. This Court's Findings of Fact and Conclusions of Law in accordance with Rule 52(a) of the Federal Rules of Civil Procedure follow.


 I. Background

 The FLSA was amended and became applicable to the USPS as an employer of covered employees, effective May 1, 1974. 29 U.S.C. § 203(d). At that time, USPS felt that the FLSA would have little impact on its day-to-day operations, and USPS' general counsel offered no objection in Congress to the application of the FLSA to USPS. In fact, however, USPS' personnel practices were subtly but substantially out of compliance with the FLSA. The seriousness of these violations was apparently not realized by USPS until it was faced with defending a series of lawsuits alleging the violations in question.

 These lawsuits fell into two categories, viz., the Smith/Kaplan cases and the Elia cases. Plaintiffs in the Smith/Kaplan litigation contended that USPS violated the FLSA by (a) failing to include as hours worked time "suffered or permitted" by USPS management, and (b) failing to include certain required premiums in regular rate of pay calculations. Plaintiffs in the Elia litigation contended that USPS violated the FLSA by failing to include as hours worked time spent in certain study, travel, and training activities. An understanding of the principal actors in the Smith/Kaplan and Elia litigation, the disposition of Smith/Kaplan and Elia issues by the trial court, and the roles of the Department of Justice (DOJ) and DOL is imperative in order to scrutinize the operative facts presented in the instant case.

 Gerald M. Feder and Jules Bernstein are private attorneys practicing in Washington, D.C. Feder was intimately involved with the enactment of the FLSA amendments mentioned above. Bernstein was at all times herein relevant counsel to the Mail Handlers Division of the Laborers' International Union of North America. Both are partners in a law firm devoted to the practice of labor law, and unions are their primary clientele. Feder and Bernstein were responsible for filing Smith, Elia, and various related cases. *fn20" It is undisputed that, at least until March 27, 1978, they vehemently insisted that all non-exempt USPS employees be accorded equal treatment in any prospective settlement agreement. There were three motives underlying this insistence; namely, (1) as counsel for an employees' union, they viewed all employees as their clients, (2) they understood that significant labor strife might result if similarly situated employees were treated differently, and (3) the amount they could demand from USPS for attorney's fees would increase significantly if they represented all employees. *fn21"

 Mozart G. Ratner is an attorney in private practice in Washington, D.C., and from 1970 through January 12, 1979, was general counsel to the NALC. He, too, is primarily devoted to the practice of labor law, and unions and/or employees are his primary clientele. Ratner was responsible for filing Kaplan and another related case. *fn22" It is undisputed that, at least until March 27, 1978, he vehemently insisted that all non-plaintiff letter carriers be accorded equal treatment in any prospective settlement agreement, and that letter carriers be compensated at a higher rate than other USPS employees. Ratner tenaciously pursued these goals because (1) he was general counsel for the NALC and Joseph Vacca, then president of NALC, insisted that all letter carriers be treated equally, (2) he believed that the FLSA violations impacted harsher on letter carriers than on other USPS employees, and (3) the amount he could demand for attorney's fees was proportionate to the number of individuals he represented. *fn23"

 B. Principal Actors (USPS)

 Four individuals played predominant roles in handling USPS' approach to the Smith/Kaplan and Elia cases: Postmaster General Bolger, Deputy Postmaster General Benson, Harvey Letter, and Joel Trosch. Bolger assumed the duties of PMG on March 15, 1978; at all relevant times prior to that date Bolger served as Deputy PMG. Benson assumed the duties of Deputy PMG on July 1, 1980; at all relevant times prior to that date Benson was Chief Postal Inspector. Harvey Letter served as USPS Associate General Counsel, Office of Labor Law, from 1972 through July of 1978. Joel Trosch has been an Assistant General Counsel in the Office of Labor Law since July, 1977. He was the chief litigation attorney in the Smith/Kaplan and Elia cases, and reported directly to the Associate General Counsel.

 From the outset of the FLSA litigation, USPS was beset with countervaling policy considerations that impacted on its handling of the FLSA issues. These considerations may be summarized as follows: *fn24"

 (a) USPS recognized its responsibility to comply with the FLSA and treat its employees "fairly and equitably;"

 (b) USPS further acknowledged that it had a broad responsibility to the rate-paying public to minimize its costs;

 (c) USPS perceived that all benefits obtained by employees as a result of the FLSA litigation were windfalls, *fn25" and thus desired to keep payments to a minimum;

 (d) Defendant sought to minimize the amount of attorney's fees to be paid to private plaintiffs' attorneys; *fn26" and

 (e) USPS sought to avoid the payment of liquidated damages that could be assessed pursuant to the FLSA. *fn27"

 While many of these considerations were contradictory in nature, and USPS' position regarding liquidated damages lacked a significant legal basis, they were all strongly felt by high ranking officials at USPS. Throughout the course of the Smith/Kaplan and Elia litigation, Trosch and Letter had difficulty establishing USPS' legal position and setting framework for settlement negotiations. This was due in part to the ambivalent nature of the policy considerations, but also resulted because no single USPS official had been authorized by the PMG to prioratize the above factors. They therefore asked PMG Bolger to appoint an FLSA "czar." This request resulted in the appointment, on March 14, 1978, of Benson as chief negotiator for the USPS. Benson retained this position only until the Smith/Kaplan and Elia cases were settled in late March and early April of 1978, and was not involved in the FLSA litigation prior to March 14, 1978.

 C. Judicial Responses to Smith/Kaplan and Elia

 On June 20, 1976, Judge June Green granted two of Plaintiffs' motions for partial summary judgment in the Smith/Kaplan litigation, ruling that USPS had violated the FLSA with respect to the "suffer or permit" and "regular rate" issues. At a hearing on February 20, 1977, Judge Green set April 30, 1977 as a cut-off date for filing written consents *fn28" to join as parties in Kaplan and Smith.

 On March 17, 1977, Judge June Green issued an Order in Kaplan/Smith requiring USPS to perform an accounting of uncompensated hours of work and resulting overtime pay due each plaintiff for suffer or permit and regular rate violations found. On May 11, 1977, Elia was filed. On August 26, 1977, Feder and Bernstein filed an amended complaint in Elia, including class action allegations under Fed.R.Civ.P. 23. *fn29" They also filed a new case, Avery v. USPS, No. 77-1472, on behalf of employees who were not plaintiffs in Smith/Kaplan or Elia. *fn30" Avery alleged the same violations as in Smith/Kaplan and Elia, including the Rule 23 class action allegations. *fn31"

 On October 4, 1977, Judge Green entered a Memorandum Opinion and Order referencing her July 20, 1976, partial summary judgment orders. The October 4, 1977, Order set forth guidelines for implementing the accounting of backwages due plaintiffs "for the period between May 1, 1974, and the date defendant commences implementation of its new payroll system."

 On December 14, 1977, Judge Green issued Orders in Elia and Avery denying plaintiffs' motions for class certification pursuant to Rule 23. On January 12, 1978, Judge Green issued an Order forbidding all plaintiffs' counsel from further notifying potential plaintiffs of the pending FLSA lawsuits. The latter two orders de facto precluded plaintiffs' attorneys from seeking compensation in court for USPS employees who were not plaintiffs in the various FLSA cases. *fn32" On March 10, 1978, the Avery plaintiffs filed a notice of appeal from the denial of their motion for Rule 23 class certification.

 On January 13, 1978, Judge Green issued a Memorandum and Order in Smith/Kaplan finding that, as to all but one of the FLSA violations, USPS had no reasonable grounds for believing that its acts or omissions were not violative of the FLSA. The Court therefore assessed eighty percent (80%) liquidated damages against USPS. On February 7, 1978, Judge Green issued an Order in the Smith/Kaplan cases requiring that the new payroll system designed to remedy certain aspects of USPS' FLSA non-compliance be operational nationwide on or before March 31, 1978. In addition, the Order stated that "if defendant fails to comply with this deadline, the Court will have no choice but to consider awarding additional relief as may appear equitable, just, and proper." On March 14, 1978, USPS filed a notice of appeal from the order awarding liquidated damages; on March 28, 1978, plaintiffs filed a cross-appeal. On March 31, 1978, the Smith/Kaplan litigation was settled.

 D. DOJ Involvement

 DOJ served as counsel to USPS from the onset of the FLSA litigation until February 12, 1979, when then-Attorney General Griffin Bell authorized USPS to represent itself and/or retain outside counsel. *fn33" Unfortunately, DOJ did not impact significantly on this litigation. DOJ's approach to the Smith/Kaplan and Elia litigation may be summarized as follows:

 (a) DOJ was predominantly concerned with the attorney's fee issue. Because of the plethora of litigation against the United States, which in many instances provided for the recovery of attorney's fees against the government, DOJ was extremely sensitive to the precedential value of a significant fee award;

 (b) DOJ vehemently insisted that the integrity of the opt-in class action provision in the FLSA be maintained, and that Feder, Bernstein, and Ratner could not represent non-plaintiffs;

 (c) DOJ opposed the use of "technical" defenses, such as the statute of limitations, by entities of the United States government, and thus objected to any assertion of those defenses by USPS;

 (d) DOJ felt that DOL would have to become involved in order to protect the interests of the non-plaintiffs and bar subsequent private FLSA litigation against USPS; and

 (e) DOJ felt that any settlement with plaintiffs should be followed with a settlement on equal terms for non-plaintiffs. *fn34"

 E. DOL Involvement Prior to the Filing of the Lead Case

 The Department of Labor became involved in Smith/Kaplan and Elia in late 1977 after Feder threatened to sue DOL for failing to monitor USPS' compliance with the FLSA. DOL's position on the Smith/Kaplan litigation may be thus summarized:

 (a) DOL wanted to avoid the litigation threatened by Feder;

 (b) DOL felt the need to protect all covered USPS employees;

 (c) DOL wished to protect the USPS from additional private lawsuits;

 (d) DOL was "outraged" because it perceived Feder, Ratner, and Bernstein as "holding (their) clients hostage" by demanding settlement of the attorney's fees issue contemporaneously with settlement of the FLSA litigation;

 (e) DOL perceived itself as wearing "dual hats," i.e. that it was responsible to both USPS and its employees;

 (f) DOL was concerned about the scope of a prospective settlement in a DOL v. USPS lawsuit; *fn35" and

 (g) DOL wished, in January and February of 1978, to take an active role in settlement discussions between Smith/Kaplan Plaintiffs and USPS. *fn36"

 II. The Negotiations

 As of January, 1978, progress towards settlement of the Smith/Kaplan and Elia litigations was virtually non-existent. USPS had in July of 1976, unilaterally commenced implementation of a retroactive payment system to compensate all employees for the "regular rate" violations alleged in Smith/Kaplan, but this action in no way enhanced the possibility of settlement. Negotiations were severely hampered by the conflicting stances of the parties, *fn37" significant distrust between USPS' attorneys and plaintiffs' attorneys, *fn38" plaintiffs' counsels' insistence on co-mingling the attorney's fees issue with discussions of the merits, *fn39" disputes among Plaintiffs' attorneys *fn40" and less than adequate participation in the FLSA litigation by high ranking officials at DOJ. Judge Green's Orders in January and early February 1978 caused all parties to believe that settlement by March 31, 1978, would be in their best interests. *fn41"

 A. January 1978

 Commencing in January of 1978, representatives of USPS, DOJ and DOL met in an effort to resolve FLSA issues as they impacted on non-plaintiff employees. All of the participants at the meetings understood that Feder, Bernstein, and Ratner (FB&R) claimed to be representing the non-plaintiffs. They also rejected this assertion.

 DOJ's active participation in the meetings was precipitated by a letter to Assistant Attorney General Barbara Babcock from Feder. In the letter, Feder attempted to enlist Babcock's assistance in assuring that "all employees .... who are entitled to back pay as a result of the Postal Service's violations of the FLSA receive such back pay." Feder also expressed displeasure with the positions DOJ had taken as USPS' counsel.

 DOL's participation in the meetings resulted directly from pressure asserted by Feder. On December 2, 1977, Feder wrote Donald Shire, Associate Solicitor for Fair Labor Standards at DOL, after Judge Green had intimated that she would not certify a class under Rule 23. *fn42" Feder outlined several actions he might be forced ...

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