S.D.Fla.: Enterprise Coverage Properly Asserted Where Employer Grossed $500K And 2 Or More Employees Handled Goods Which Had Traveled In Interstate Commerce; “Ultimate Consumer” Not Applicable To This Prong Of Enterprise Coverage

Diaz v. Jaguar Restaurant Group, LLC

This case was before the Court on Defendants’ Motion for Summary Judgment, based on an asserted lack of enterprise coverage under the FLSA. The Court denied Defendants’ Motion, based on the fact that Plaintiff demonstrated that 2 or more employees handled goods which had traveled in interstate commerce. While, this appears to be an unquestionable correct reading of the statute, it is significant, because several courts within the Southern District of Florida, have inexplicably failed to read the statute on its face to allow for coverage under similar circumstances.

After considering the historical perspective (and changes) to the FLSA, the Court stated, “in a case where materials are at issue under the second prong of the definition of an enterprise, the “ultimate consumer” limitation has no application. See also Exime, 591 F.Supp.2d at 1371 (Court should “give effect, if possible, to every word and clause” contained in a statute, citing Lowery v. Ala. Power Co., 483 F.3d 1184, 1204-05 (11th Cir.2007)).

Finally, if we step back to ask what the Congress meant in the original 1938 statute with its “goods” limitation found in section 203(i), as opposed to what a very different Congress meant in 1974 by adding “materials” to the enterprise coverage provision in question, the answer is evident from the quite disparate contexts in which these provisions were adopted. The original definition of goods was adopted in a FLSA statute that was purposefully limited to only those individual employees who were themselves participating in interstate commerce. The context of the 1974 amendments was precisely the opposite. A far more liberal Congress was certainly seeking to expand enterprise coverage even further than it did in 1961 and 1966, for employees who were not directly engaged in interstate commerce.”

Addressing recent 11th Circuit case law related to coverage (and distinguishing same), the Court stated, “Fast forward then to 2006 and beyond. We recognize that the cases relied upon by Defendant (including several recent Southern District cases interpreting language found in two Eleventh Circuit cases) ostensibly support a far different construction of enterprise coverage that takes us back to where we were prior to 1974. See, e.g., Thorne v. All Restoration Servs., Inc., 448 F.3d 1264, 1267 (11th Cir.2006) (citing Dunlop in part for the proposition that “[w]hen goods reach the customer for whom they were intended, the interstate journey ends and employees engaged in any further intra state movement of the goods are not covered under the Act.”) (emphasis in original) (citations omitted); Lamonica, 578 F.Supp.2d at 1367 (“[A] customer who purchases an item from Home Depot is not engaged in commerce even if Home Depot previously purchased it from out-of-state wholesalers.”); Navarro, 533 F.Supp.2d at 1226 (“[T]he out-of-state shippers send the parts to the local dealer, where they are kept until they are purchased in the local market. Therefore, the interstate journey stops when the parts reached [sic] the local dealer.”).

To the extent these district court were applying the second prong of enterprise coverage under section 203(s)(1)(A)(i), which is at issue here, they may be over-relying on distinguishable, but more recent, Eleventh Circuit cases, and overlooking the analysis of the question in Dunlop following the 1974 amendments to the FLSA.

So where did the confusion originate? It seems to have begun with the Eleventh Circuit panel decision’s summary discussion of Dunlop in Thorne v. All Restoration Services, which was a case decided entirely under the individual coverage provisions of the FLSA. A worker, Thorne, who was employed by a small mold restoration company sued for overtime compensation under the FLSA. Thorne claimed that the company was covered by the enterprise coverage as well as the individual coverage provisions of the statute. At trial, however, only Thorne testified in his case in chief. The trial court, Judge Cohn from our district, entered Rule 50 judgment as a matter of law on both the enterprise coverage and individual coverage components of the case. SeeCase No. 04-60095, D.E. 46 (S.D. Fla. Feb 1, 2005).

On appeal to the Eleventh Circuit, Thorne did not challenge Judge Cohn’s finding that enterprise coverage had not been established as a matter of law. Apparently there was no testimony in the record at that point in the trial that even the $500,000 sales threshold had been met. See Brief for Appellant, 2005 WL 4814060, at *3-7 (11th Cir. May 31, 2005). The Court’s opinion expressly acknowledged that enterprise coverage was no longer at issue on appeal. 448 F.3d at 1265 n. 1.

The Court then examined whether Judge Cohn’s determination as to individual coverage should be upheld. The individual coverage issue, as the Court pointed out, turned on whether Thorne was “directly participating in the actual movement of persons or things in interstate commerce by (i) working for an instrumentality of interstate commerce, e.g., transportation or communication industry employees, or (ii) by regularly using the instrumentalities of interstate commerce in his work, e.g., regular and recurrent use of interstate telephone, telegraph, mails, or travel.” Id. at 1266.That is undoubtedly the test for individual coverage under 29 U.S.C. § 207(a)(1) and the regulations thereunder, 29 C.F.R. §§ 776.23(d)(2), 776.24 (2005).

The statutory definition for enterprise coverage, by contrast, does not only apply to employees with “direct participation” in the “actual movement” of things in interstate commerce. That is a far narrower test found in the first prong of the statute, which is precisely why the 1961, 1966 and 1974 amendments created and expanded enterprise coverage under the statute. See29 U.S.C. § 203(s)(1)(A)(i) (“has employees engaged in commerce or in the production of goods for commerce, or that has employees handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce by any person”) (emphasis added).

It is telling, for instance, that many of the primary decisions cited by the Eleventh Circuit’s decision in Thorne were from the 1940’s. 448 F.3d at 1266-68 (citing McLeod v. Threlkeld, 319 U.S. 491, 496-97 (1943) (finding that plaintiff’s activities were purely local, and he was not individually engaged in commerce when he merely cooked and cleaned for railroad workers); Kirschbaum v. Walling, 316 U.S. 517, 518-526 (1942)).

The outcome in Thorne is thus entirely expected and non-controversial. The same cannot be said, as it turns out, of the Court’s citation and reliance on the Fifth Circuit’s decision in Dunlop as follows:

Courts distinguish between merchants who bring commerce across state lines for sale and the ultimate consumer, who merely purchases goods that previously moved in interstate commerce for intrastate use. Therefore, a customer who purchases an item from Home Depot is not engaged in commerce even if Home Depot previously purchased it from out-of-state wholesalers.

In Dunlop v. Industrial America Corporation, 516 F.2d 498, 499 (5th Cir.1975), the court was faced with the question of whether a business which consumes gasoline and oil in the process of providing services to its customers is the “ultimate consumer” of those goods, and therefore not subject to FLSA coverage. The defendant corporation operated a wholly intrastate garbage removal service, and its only tie to interstate commerce was that its employees used gasoline and oil products which had moved in interstate commerce in operating and maintaining the company’s trucks. The court held that the defendant was not covered because it was an “ultimate consumer” of the goods. Id. at 499-502.
448 F.3d at 1267-68.

From this discussion, one is left with two important impressions. One is that Dunlop stands for that proposition today. And, two, is that this proposition applies equally to individual coverage cases like Thorne, as well as enterprise coverage cases like Dunlop.Both impressions are flatly incorrect. First, Dunlop does not stand for the proposition that, even after the 1974 amendments, enterprise coverage under the second prong of subsection s(1)(A)(i) fails when an entity is the ultimate consumer of “materials” as well as goods that have moved in interstate commerce in the past. The Thorne decision never explained that the holding in Dunlop was out-dated by the Court’s own admission after 1974. That omission was not critical, of course, to the outcome in Thorne.Frankly, the entire citation and reference to Dunlop was indeed dicta because the holding in Thorne was expressly not applicable to enterprise coverage.

Second, Dunlop also does not apply to individual coverage analysis.Dunlop was focused on the second prong of the enterprise definition. Unlike the first prong of that definition, individual coverage analysis is entirely distinct from the “goods or materials” prong of the statute. Dunlop thus has no relevance to a case limited to individual coverage. Similarly, Dunlop has no application to an enterprise coverage case that is based on the first prong of the statute. And, for the same reason, Thorne has no relevance to a case governed by the broader second prong of subsection s(1)(A)(i). Yet, Thorne’s reliance on Dunlop seems to suggest quite the opposite.

That is also evident from a later Eleventh Circuit case, Scott v. K.W. Max Invs., Inc., 256 Fed.Appx. 244 (11th Cir.2007). That case, at first blush, appears to have relied on Thorne’s individual coverage analysis and the “ultimate consumer” limitation to decide an enterprise coverage claim. And it has been cited as such by some district court opinions, infra.Yet that opinion did not once mention Dunlop or distinguish its analysis of the expansion of enterprise coverage via the “materials” prong added in 1974. It did not need to do so, in fact, because it was deciding the enterprise coverage issue primarily on the “first prong” of the statute. The court’s holding as to enterprise coverage claim was focused on whether there was any evidence in the record of any “actual movement” of goods in commerce. None was presented except for a single isolated purchase of lumber in interstate commerce that did not qualify as a regular and recurrent practice. With respect to the second prong of enterprise coverage, “goods or materials” that had been moved in commerce in the past, the Court’s discussion was quite limited. “Scott offers no specific argument or any evidence that any of the goods purchased from Home Depot had been moved in or produced for interstate commerce.” Id. at 248.Therefore, we do not read Scott as holding in any way that the ultimate consumer limitation applies to “materials” under the second prong of the statute.

Unlike Judge Seitz’s opinion in Exime, however, several Southern District cases rely on the conclusion that Scott permits the use of individual coverage case definitions to decide enterprise coverage cases as a general matter. This is simply too broad a proposition. With respect to the “goods or materials” prong of the statute, as discussed earlier, the 1974 amendments significantly broadened that definition of enterprise coverage, extinguishing the “ultimate consumer” issue altogether from that prong of the statute. This significant change to the text of the statute did not apply to individual coverage cases governed by 29 U.S.C. § 207(a)(1), nor did it apply to the first prong of the definition of an enterprise under 29 U.S.C. § 203(s)(1)(A)(i).

Like Judge Seitz, we do not choose to follow those cases that read more into the holding in Scott and the dicta in Thorne, and overlook the significance of the holding and analysis found in Dunlop. See, e.g., Lamonica, 578 F.Supp.2d at 1366; Ben-Aime, 572 F.Supp.2d at 1317; Polycarpe, 572 F.Supp.2d at 1321. We certainly do not question the outcome of these decisions to the extent they were based, as several seem to be, on the first prong of the enterprise coverage provision. The ultimate consumer doctrine certainly continues to apply, as it does for individual coverage, to enterprise coverage cases that are so limited. If, on the other hand, the “goods or materials” prong of the statute applies, then there is no longer any need to address the ultimate consumer or “come to rest” doctrine. The dispositive question simply asks whether two or more employees are handling materials, that have traveled in interstate commerce at some point in the past, for an enterprise with at least $500,000 in sales. And while it is true, as Defendants contend, that fulfillment of the statutory business volume requirement is not itself sufficient to create enterprise coverage, “[m] ost, if not every, Circuit Court that has spoken on this issue [including the 11th Circuit, as well as some lower federal courts] ha[ve] … construed the 1974 amendment as expanding enterprise coverage to virtually all employers, so long as that employer satisfies the $500,000 gross sales requirement.”Exime, 372 F.Supp.2d at 1370. “Thus the enterprise commerce test, quite simply, embraces all businesses whose employees regularly handle materials previously moved across inter-state lines.”Id. at 1372.

Having determined, under the current version of the FLSA, Defendants’ employees handled materials that are still “in commerce,” the Court then found that Plaintiff had produced sufficient evidence that they did so on a “regular and recurrent” basis. Therefore, the Court denied Defendants Motion for Summary Judgment.

Although not mentioned by the Court, many of the cases holding contra are up on a consolidated appeal at the 11th Circuit. Therefore, this case, which appears to correctly annunciate the scope of enterprise coverage under the circumstances, will stand if the 11th Circuit similarly reverses the prior contra holdings of several the Florida district courts distinguished by this Court.

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