As background, on September 26, 2014, Eva Agerbrink filed a class and collective action complaint in New York federal court against modeling agency MSA Models and MSA Models owner Susan Levine. The complaint alleged that MSA and Levine misclassified their “fit models” as independent contractors in violation of the Fair Labor Standards Act (“FLSA”) and the New York Labor Law (“NYLL”).
Subsequently, on January 7, 2016, Magistrate Judge Francis granted Plaintiff Eva Agerbrink’s motion to amend her class and collective action complaint. The amended complaint: (1) added a class claim of unjust enrichment arising from MSA’s purported liquidated damages provision in its modeling contract; (2) expanded the scope of the putative class action from only MSA fit models to include all types of MSA models with respect to the class claim for unjust enrichment; and (3) added MSA Models Chief Operating Officer Bill Ivers as an individual defendant.
On February 5, 2016, shortly after Magistrate Judge Francis conditionally certified a FLSA collective of exclusively signed MSA fit models, Ms. Agerbrink filed a motion for partial summary judgment as to liability on her individual claim for unjust enrichment. Yesterday, on July 21, 2016, U.S. District Judge Oetken granted that motion.
In ruling for Ms. Agerbrink, the Court first rejected MSA's argument that Ms. Agerbrink’s unjust enrichment claim was precluded by the existence of a contract, because it was “the contract [that] imposed the allegedly unlawful penalty in the first place.”
The Court then concluded that MSA’s modeling contract contained an illegal penalty provision for several reasons.
The Court first concluded that the penalty provision was unenforceable because:
“The Clause purports to allow Defendants to retain any of Agerbrink’s earnings that it happens to have on hand, plus whatever additional such funds might come in after the breach. This is the essence of a penalty designed ‘not to make a fair estimate of damages to be suffered but to serve only as an added spur to performance’ and is therefore unenforceable.”
The Court next concluded that the penalty clause was also unenforceable because:
“It purports to give Defendants the option either to ‘retain as liquidated damages all funds then held and/or subsequently received by MSA on [Agerbrink]’s behalf’ or, alternatively, to hold those funds as ‘security’ toward an anticipated judgment against Agerbrink, while Defendants pursue other remedies against her.”
In addition, the Court rejected MSA’s argument that its characterization of the penalty provision as a “security” somehow rendered the agreement enforceable:
“Ultimately, it makes little difference whether the withholding is styled as a ‘security deposit’ or a ‘liquidated damages’ provision courts look to the substance of such a provision in interpreting it.”
The Court concluded:
“Because the [provision] is unenforceable, Defendants may not continue to ‘invoke the liquidated damages provision’ as justification for withholding Agerbrink’s earnings. It follows that Agerbrink has satisfied the third and final requirement for a claim of unjust enrichment, as Defendants continue to hold funds to which she is entitled. Accordingly, Agerbrink is entitled to summary judgment as to liability on this claim.”
The Court left for another day the measure of damages for Ms. Agerbrink's unjust enrichment claim. The motion and decision also did not address Plaintiff’s collective and putative class action wage and hour claims.
A copy of the opinion is available here.
The Court had previously: (1) denied the majority of Defendants’ 2015 motion to dismiss (available here); and (2) granted Plaintiff’s 2015 motion for Defendants to issue a corrective notice (available here).
The case is Agerbrink v. Model Service LLC d/b/a MSA Models, No. 14 Civ. 7841 (JPO) JCF) in the United States District Court for the Southern District of New York.
The litigation is currently stayed for mediation.