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.
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;
(g) DOL wished, in January and February of 1978, to take an active role in settlement discussions between Smith/Kaplan Plaintiffs and USPS.
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,
significant distrust between USPS' attorneys and plaintiffs' attorneys,
plaintiffs' counsels' insistence on co-mingling the attorney's fees issue with discussions of the merits,
disputes among Plaintiffs' attorneys
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.
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.
Feder outlined several actions he might be forced to take, including implementing DOL and "seeking to order DOL to enforce the FLSA (against USPS)."
On January 23, USPS officials met with Babcock and other DOJ attorneys. Babcock pointed out that the Postal Service was not in a good litigating position, and inquired about a "lump sum payment." This form of settlement appeared favorable to Babcock because it would dispose of the need for a costly accounting.
Later that same day USPS officials, DOJ officials and DOL officials met. DOJ and DOL informed USPS that DOL could not settle a suit with USPS on less favorable terms than were received by Plaintiffs in Smith/Kaplan. DOL also told USPS that (1) a suit by DOL against USPS would pretermit subsequent private actions on the same FLSA violations, (2) that any statute of limitations defense should be waived, and (3) that if formulas were used as a basis for settling Smith/Kaplan, they should also be applied to non-plaintiffs.
On January 26, 1978, FB&R met with Babcock and another DOJ attorney; Babcock informed FB&R that she believed that all employees should be treated equally. She also suggested that the parties settle on a lump sum basis in order to avoid the costly accounting Ordered by Judge Green. On January 27, 1978, Feder informed Carin Clauss, Solicitor of DOL, about the substance of the January 26 meeting.
On January 30, USPS, DOJ and DOL attorneys met. DOL indicated that it might have to file suit against USPS to enforce the rights of non-plaintiffs. USPS expressed concern about paying liquidated damages to non-plaintiffs, and suggested that interest payments would be acceptable. Harvey Letter stated that "USPS intends to pay all employees who are entitled, whether or not they are plaintiffs." USPS' position regarding non-plaintiffs, however, was that they were entitled to less back wages than plaintiffs. This position, which was unsupported by any empirical evidence, resulted from USPS' assumption that those individuals with significant FLSA claims would have opted into Smith/Kaplan.
B. February 1978
On February 7, 1978, the same day that Judge Green established a March 31 cut-off date for implementation of a newly designed payroll system,
DOL, DOJ and USPS attorneys met to review issues that would be discussed at a meeting with FB&R scheduled for the following day. At this meeting, Carin Clauss told USPS officials that if they did not agree to pay non-plaintiffs liquidated damages, a subsequent DOL v. USPS lawsuit would require a full accounting. Clauss also indicated that USPS would have to waive the Statute of Limitations in order to settle with DOL.
On February 8, 1978, USPS, DOL and DOJ officials met with FB&R. This was the only meeting attended by all relevant parties prior to execution of the Smith/Kaplan and Elia settlement agreements. The primary focus of the meeting centered around representation of the non-plaintiffs. USPS and DOJ asserted that FB&R did not represent them; Feder responded that until the Court of Appeals ruled on the Rule 23 class certification issue, he represented all employees. Clauss contended that DOL represented the non-plaintiffs, and attempted to assure FB&R that DOL intended to protect the non-plaintiffs' interest. FB&R were suspicious about DOL's role however, because Clauss stated that DOL wore "dual hats." FB&R therefore insisted that DOL's role be limited to that of "observer status."
On February 9, Feder and Bernstein wrote Babcock that, based on the February 8th meeting, discussions at a February 18th meeting would involve five issues, to wit:
(a) the Government's willingness not to assert the statute of limitations as an affirmative defense with respect to any part of the claim of any person employed by the Postal Service since May 1, 1974, (b) the Postal Service's willingness to apply the summary judgments rendered by Judge Green in Smith and Kaplan, with respect to substantive matters, with respect to liquidated damages, as well as the accounting order, to all persons employed by the Postal Service since May 1, 1974 whether or not individually designated as parties plaintiff in these actions, (c) settlement, as opposed to litigation, of the attorneys' fees questions, (d) exploration of the possibility of limiting the Postal Service's obligation to conduct a full accounting for each plaintiff, for each workweek, of all uncompensated time on-the-clock, or, in the alternative, an agreement to apply an agreed upon standard rate of pay for uncompensated hours on-the-clock for each employee (and) (e) exploration of the Postal Service's willingness to forego the opportunity to challenge any individual employee's time records under the provisions of paragraph 2 of the Court's Order of October 4, 1977.
They also stated that "plaintiffs are prepared to discuss the implications of the Court's Order of February 7, 1978, with respect to the deadline of implementation of the redesigned payroll system," and that "based on the above understanding, counsel for plaintiffs is (sic) prepared to proceed further with these discussions."
On February 9 and February 21, USPS, DOJ and DOL attorneys again met. Clauss wanted USPS to establish a formula for payments to non-plaintiffs based on an accounting for plaintiffs, should USPS and FB&R fail to settle. USPS asked DOL for a statement of its position, and indicated that it would waive the statute of limitations for non-plaintiffs to February 8, 1975. This waiver was reduced to writing in a letter from PMG Bolger to Clauss dated February 23, 1978.
On February 28, Solicitor Clauss wrote a letter to Harvey Letter, explaining DOL's position regarding settlement of the potential DOL v. USPS litigation. Ms. Clauss wrote, inter alia, that DOL would require USPS to (1) waive the statute of limitations back to May 1, 1974 and (2) pay 80% liquidated damages to the non-plaintiffs. In addition, Clauss stated that
(t)he guiding principles of a resolution, as we have repeatedly emphasized, must be that back wages be distributed to underpaid employees as soon as possible, and that in the payment of back wages all employees-plaintiffs and non-plaintiffs alike-must be granted relief according to essentially the same computation formulas. In addition, it goes without saying that where the Postal Service pay practices are not yet in compliance with the FLSA, they must be brought into compliance immediately. (emphasis in original).
Finally, Clauss noted that DOL was prepared to file a complaint against USPS, in order to terminate the right of any employee to file a private lawsuit.
February was an active month for USPS officials. These officials were debating, inter alia, their potential liability to both plaintiffs and non-plaintiffs and the possibility of "equal treatment" for non-plaintiffs. Some high ranking USPS officials recommended proceeding expeditiously with an accounting for plaintiffs, while others encouraged settlement to avoid the costs of the accounting. While there was unanimity regarding "equal treatment" for the non-plaintiffs, there was no consensus regarding the form of equal treatment. Some officials tended to favor application of some formula to both plaintiffs and non-plaintiffs. Others supported an accounting for plaintiffs, with settlement for non-plaintiffs based on the average payment based to the plaintiff class. Others supported a full accounting, believing that application of either of the two other alternatives would result in a windfall for non-plaintiffs, and thus not constitute equal treatment. All of these possibilities were embraced in Clauss' letter to Harvey Letter, so long as the statute of limitations was waived and 80% liquidated damages were provided.
C. March and Early April 1978
As of the beginning of March 1978 the parties' respective positions were unchanged. FB&R still maintained that (1) they represented the non-plaintiffs, (2) non-plaintiffs should be treated as if they were plaintiffs, and (3) computation of attorneys fees should be based on either a percentage of the total amount of damages paid or a fixed amount per employee. USPS still perceived that (a) any recovery would be a windfall for the employees, (b) payment of liquidated damages should be avoided, and (c) FB&R's attorneys' fee demands were outrageous. USPS did support the proposition of equal treatment, but there is no evidence indicating either that some formula for applying this concept had been arrived at, or that the concept represented any change in position. DOL was still ambivalent about suing another Federal agency, and evidenced no intention to participate in the ongoing FLSA litigation. DOJ ostensibly was USPS' counsel, but was put in an increasingly precarious position as advocate because of DOL's extended activity.
On March 1, Feder and Trosch met to discuss the pending litigation. Without conceding any of their respective stances regarding representation of the non-plaintiffs, they discussed the possibility of quick payouts to plaintiffs, with delayed payment to non-plaintiffs. This concept, favorable to USPS, was acceptable to Feder because the verification process (insuring that each plaintiff was in fact an employee) for plaintiffs would be completed far sooner than any verification process for non-plaintiffs.
On March 15 Bolger was appointed PMG, and on or about that date Benson was appointed as Chief Negotiator for USPS. This appointment was made because high USPS officials had difficulty reaching a consensus on many issues, and resolution of those issues would be necessary in order to reach settlement in Smith/Kaplan and Elia. Benson was given broad latitude to settle the FLSA litigation, and the only restriction placed on his authority was that the settlement had to be ratified by PMG Bolger.
Almost immediately thereafter, Benson was fully briefed on the issues by Trosch and Letter. On May 17, two meetings were held at USPS headquarters regarding FLSA matters. The first meeting involved discussions with representatives of the postal unions concerning USPS' proposed revisions to the payroll timekeeping instructions (F-21 and F-22 handbooks). Ratner and Feder and Benson were all at that meeting, and Benson requested that they all meet later that day to discuss Smith/Kaplan. At the afternoon meeting, Benson described his responsibilities, indicated that USPS would like to settle Smith/Kaplan by March 31, and suggested that a statistical sample might be employed to replace the full accounting ordered by Judge Green. Ratner was skeptical about the use of a statistical sample, and Benson offered to let FB& R's statisticians review any proposed sample.
The next subject discussed was attorneys' fees. USPS indicated that it was following DOJ's lead on this subject, and the DOJ representative was unprepared to address the issue. Ratner felt "betrayed" and Bernstein felt that he had been "sandbagged" because they had understood USPS as ready to negotiate all five points addressed in Feder's February 9th letter to Babcock. Ratner stormed out of the meeting; Feder and Bernstein followed shortly thereafter.
Following the meeting, Benson realized that he did not fully comprehend all the ramifications in the FLSA litigation. He asked Trosch to outline the various issues, describing FB&R's desires, USPS' positions, and "the gulf in between." Meanwhile, on March 21, Feder wrote Babcock concerning the aborted March 17 meeting. Feder indicated that FB&R were prepared to "resume discussions at any time the Postal Service is prepared to discuss all of the issues enumerated in our February 9, 1978 letter."
It is imperative at this point to outline the various roles played in the negotiations. Both sides utilized the "good cop-bad cop" approach to negotiating. Feder and Trosch were the "reasonable" negotiators; Ratner, Bernstein, and Letter were rigid. Benson's role was less important in the negotiation process. While only he could make policy decisions and recommend settlement to Bolger, settlement of Smith/Kaplan in fact hinged on the Feder/Trosch relationship. Each understood that the other had to "deliver" the apparently inflexible members of their negotiating team and that they had to bridge the gulf separating the parties.
After the aborted meeting, both Feder and Trosch understood that Trosch had to deliver a sign of good faith to FB&R. This sign was in fact delivered on March 24, the next Smith/Kaplan negotiation session. At the meeting, Benson presented a document known as the "Concepts Paper," which was prepared by Trosch and approved by Bolger. The Concepts Paper stated, inter alia, that
1. The Postal Service will not assert the statute of limitations (against any employee with respect to the Smith/Kaplan issues);
2. The Postal Service will apply the summary judgments on the issues ruled on by the Court in Smith and Kaplan to all ... (employees). Such determinations shall be made applicable pursuant to a stipulation for a consent order to be submitted jointly by the Postal Service and the Department of Labor on behalf of employees who are not consenting plaintiffs in (the pending FLSA litigation).