Sprout Agrees To Settle Lawsuits Over Unpaid Wages For $3.5M
Deal would compensate former employees left unpaid when lender abruptly closed July 6.
Former Sprout Mortgage employees who went unpaid when the lender abruptly closed in July 2022 would each receive $2,500 from a settlement the company agreed to in federal court.
Filed June 1, the agreement, which still requires court approval, is the result of four class-action lawsuits that were filed in the wake of Sprout’s abrupt shutdown last July. The four cases were later consolidated into one.
Sprout abruptly closed July 6, 2022, following a short virtual meeting held via Microsoft Teams at 4:30 p.m. Sprout President Shea Pallante hosted the meeting, telling the company’s over 300 employees, “So, it’s with heavy heart I come to you to announce that Sprout is closing its doors today. So, effective today everyone is laid off.”
The closing and layoff came just one day before payday, and employees said their pay was not deposited the following day. The motion to approve the settlement states that employees still had not received any compensation as of June 1, 2023.
The motion to approve the settlement, which was achieved through a mediation session held March 16, states that all parties agreed that the plaintiffs in the four separate class actions “would consolidate their litigations in the Eastern District of New York for settlement purposes” and accept a settlement of $3.5 million, as well as “agree on a formula for apportioning the settlement fund among the various claims asserted in all four actions.”
Under the agreement, the $3.5 million will compensate former employees for their unpaid wages, salaries, and commissions. It will also be used to pay “attorneys’ fees and expenses, service payments, settlement fund taxes,” and other expenses.
According to court documents, the list of class members provided by Sprout and its affiliate, Recovco Mortgage Management LLC, filed in response to one of the class-action lawsuits cites approximately 466 former employees, including 197 who were terminated on July 6, 2022.
One of the plaintiffs' attorneys stated in the documents that his firm had been contacted by more than 300 former employees.
A definition provided in the court documents defines the “Shutdown Class” as “all employees of Sprout Mortgage who were employed at any time between June 6, 2022, and July 7, 2022, and did not receive wages for work performed during that period.”
In the motion proposing the agreement, attorneys for the former employees say the decision to settle had “little to do with our belief in the strength of some of the claims in this case.” They added that they “do not believe defendants even have a defense to the allegation that the company failed to pay its employees for several weeks of work performed once the corporate entities shut down on July 7, 2022.”
They state that the settlement instead reflects the “primary concern” that Sprout and Recovco have limited assets left in their accounts “and our ability to collect on a judgment against the primary individual defendant, Michael Strauss.”
Strauss is Sprout’s former CEO who, according to a company insider, at the last minute canceled a financing deal that could have kept the company in business.
Under the settlement agreement, Strauss must make an initial deposit of $1.95 million into the settlement fund, followed by another $300,000. “This payment shall be Strauss’ only obligation under the settlement agreement,” the deal states.
Court documents state that Strauss is trying to sell his apartment at 610 Park Ave. in New York City for $1.25 million. The documents state that if the sale is not closed before June 30, Strauss will “promptly and with due speed cooperatively transfer a secured interest in the proceeds of such a sale in the same amount in lieu of such cash payment.”
According to the agreement, settlement payments will be calculated as follows based on an estimated $2.1 million being available from the fund:
- Approximately $306,000 will be distributed to California Labor Class members, with each member “paid for one hour of overtime per week worked based on the employee’s regular rate of pay, up to a cap of $1,000.”
- Approximately $14,000 to Fair Credit Reporting Act (FCRA) class members with claims under California’s FCRA and ICRAA (Investigative Consumer Reporting Agencies Act), distributed at the rate of $30 for each member.
- The remainder, estimated at approximately $1.78 million, would be distributed “on a pro rata basis to each Shutdown Class member based on his or her share of the wages and commissions due to them under the Sprout payrolls of July 7 and 22, 2022.”
Under the deal, the payments will be sent in the form of a check via first-class mail to class members within 30 days after the effective date.
A date for a hearing on the agreement has not been set.