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S.D.N.Y.: Where Defendant Asserted “Good Faith” Defense, It Waived Attorney Client Privilege, Despite Lack of “Reliance on Counsel” Defense

Scott v. Chipotle Mexican Grill, Inc.

This case was before the court on the defendant’s motion for a protective order under Federal Rule of Civil Procedure 26(c) to prohibit plaintiffs from discovery of defendant’s attorney-client communications regarding the decision to classify certain employees as “executives” and thus exempt from overtime pay. As part of its affirmative defenses, the defendant invoked 29 U.S.C. § 259 to claim that it relied on administrative authority in classifying the plaintiffs and is thus free from liability (the “Eleventh Affirmative Defense”), and 29 U.S.C. § 260 for the proposition that it did not act willfully and thus should not be subjected to FLSA’s liquidated damages provision (the “Twelfth Affirmative Defense”). Specifically, the defendant claimed to have relied on state and federal regulations, “but not upon advice of counsel.” Rejecting the defendant’s contention that it preserved the attorney-client privilege notwithstanding its assertion of “good faith,” the court held that attorney-client communications regarding the exempt nature (or lack thereof) of the position at issue were discoverable. After a discussion of the “at-issue” waiver of the attorney-client privilege, in cases where a party places its knowledge (or lack thereof) and good faith at issue, and a discussion of the general principles behind the FLSA’s good faith defense, the court determined that the defendant in this FLSA case had waived the attorney-client privilege by placing its mental state at issue here by claiming a good faith defense:

Chipotle affirmatively invokes § 259 in its Eleventh Affirmative Defense [stating “Pursuant to 29 U.S.C. § 259 and other applicable law, Chipotle’s alleged failure to pay Plaintiffs or any putative class or collective member any of the wages on which Plaintiffs’ claims are based, if at all, was in conformity with and in reliance on an administrative regulation, order, ruling, approval, interpretation, administrative practice, and/or enforcement policy of the United States Department of Labor and any Department of Labor in any of the states in which Plaintiffs allege claims under state law, but not upon advice of counsel.”]. Though it does not specifically name § 260 in its Twelfth Affirmative Defense, Chipotle claims an affirmative defense to FLSA’s liquidated damages, which is necessarily governed by § 260, and therefore its Twelfth Affirmative Defense falls under that provision. See Northrop v. Hoffman of Simsbury, Inc., 134 F .3d 41, 45–46 (2d Cir.1997) (a party need not cite a specific statute in order to invoke it in a pleading).

Despite defendant’s attempt to plead around an “advice of counsel” defense, the court held that they could not, because it was clear that defendant did have the advice of counsel on the very issues for which it claimed good faith, regardless of whether they claimed reliance on same or not:

Yet despite the good faith requirements of both statutory defenses, Chipotle attempts to plead around them by avoiding mention of the advice of counsel, except to disclaim it in the Eleventh Affirmative Defense. Chipotle claims to have invoked only the portions of §§ 259–60 relating to reliance on administrative guidance, rather than any standard of good faith. See Def’s. Br. at 1–2 (“Chipotle does not assert a generalized ‘good faith’ defense … Chipotle set out its affirmative defense, as it is entitled to, in such a way as to remove its ‘state of mind’ from being at issue….”); Answer to Second Am. Compl. at 23. Such artful pleading cannot negate an element of a statutory defense, especially here, where it is evident that Chipotle did in fact have the advice of counsel on the very topic at issue. A defendant may not succeed on an affirmative defense by pleading only some of the necessary elements. As explained supra, Chipotle has invoked two affirmative defenses that require showings of good faith. Here, plaintiffs have shown that Chipotle did in fact have the advice of counsel regarding the classification of apprentices. And knowing whether Chipotle had been advised not to classify the apprentices as exempt is necessary to evaluate the validity of the Eleventh and Twelfth Affirmative Defenses. Thus, the advice of Chipotle’s counsel regarding that classification is plainly “at issue” within the meaning of Bilzerian. Because at-issue waiver is to be “decided by the courts on a case-by-case basis, and depends primarily on the specific context in which the privilege is asserted,” In re Grand Jury Proceedings, 219 F.3d at 183, the Court will examine the specific factual context of this case. Given the substantial similarities between the good faith defenses in §§ 259–60, this analysis will encompass both the Eleventh and Twelfth Affirmative Defenses. At the deposition of David Gottlieb, Chipotle’s corporate representative and Director of Compliance and Field People Support, the witness testified that Chipotle consulted with attorneys in making the classification decision. When asked about the existence of communications regarding the apprentice classification, Mr. Gottlieb admitted that “there were communications. They were in the context of communications and discussions with our lawyers.” Gottlieb Dep. 65:2–4. In fact, Mr. Gottlieb testified that he had “no recollection” of ever communicating with anyone at Chipotle regarding the apprentice classification other than in the presence of his attorneys. Id. at 65:11–15.F In addition, during Mr. Gottlieb’s deposition, Chipotle repeatedly objected on attorney-client grounds and instructed Mr. Gottlieb not to answer questions related to Chipotle’s decision to classify the apprentice position as exempt. For example, Chipotle asserted the attorney-client privilege and directed Mr. Gottlieb not to answer questions about whether Mr. Gottlieb participated in any evaluations regarding the exempt classification position. There are numerous other such examples from the transcript of Mr. Gottlieb’s deposition. See, e.g., Gottlieb Dep. 42:6–16 (refusing to answer question on the research behind the classification after being advised not to disclose any attorney-client communications); id. at 61:18–62:2 (same); id. at 87:14–88:1 (acknowledging counsel were consulted on decision to reclassify apprentices in California). In addition, Chipotle’s privilege log confirms that it received legal advice concerning the apprentice exemption decision. See Ex. D (Def’s Second Am. Privilege Log), No. 2 (February 18, 2011 email from outside counsel to Mr. Gottlieb on the subject of “Legal advice regarding Chipotle’s Apprentice Position.”) Finally, Chipotle’s discovery responses indicate reliance on advice of counsel. Chipotle asserted attorney-client privilege in response to plaintiffs’ document requests and interrogatories that sought information on the decision to classify apprentices as exempt. See, e.g., Ex. C (Def.’s Resps. Pls.’ Fourth Req. Produc. Docs.), No. 28 (asserting privilege in response to request for documents relied upon by Chipotle as basis for decision to classify apprentices as exempt), No. 31 (same for request for documents relied upon by Chipotle as basis for its good faith defenses), No. 32 (same for documents pertaining to or evidencing Chipotle’s decision to classify apprentices as nonexempt under FLSA, NYLL, and Missouri Labor Law) & No. 33 (same for documents related to Chipotle’s contention that apprentices are exempt under administrative or executive exemption).

In light of the clear record demonstrating defendant received legal advice on the very issue on which they claimed good faith, the court held that they could not shield communications with their attorneys about the issue from disclosure:

This evidence overwhelmingly demonstrates that Chipotle did receive legal advice on the apprentice classification decision. And Chipotle does not dispute that it did. Instead, it argues that it is entitled to define its affirmative defense narrowly and in such a way as to remove its state of mind from being at issue. In this regard, Chipotle contends that this case is distinguishable from Wang v. The Hearst Corp., where the same legal question was presented, and the district court found an at-issue waiver of the attorney-client privilege. 12 Civ. 0793(HB), 2012 WL 6621717 (S.D.N.Y. Dec. 19, 2012). In Wang, a sophisticated corporate defendant asserted a § 260 defense to allegations of FLSA wage and hour violations, but invoked attorney-client privilege to block the plaintiff’s discovery of the defendant’s in-house counsel e-mails, claiming that its defense “would ‘not rely, directly or indirectly, on legal advice for its good-faith defense in this case’ and that it had offered to so stipulate.” Id. at *1 (internal citations omitted). A witness from the defendant’s human resources department, however, had indicated in a deposition that questions regarding the collection of school credit letters for unpaid interns (who were allegedly misclassified as such) would be better posed to the legal department. Id. at *2. The court soundly rejected the defendant’s attempt to plead around the requirements of § 260, which it found “amount[ed] to little more than semantics without any concrete examples provided by Defendants. On the other hand, [it found] it difficult to imagine that a good faith defense regarding the FLSA raised by a corporation as large and as sophisticated as Hearst would not involve the advice of its legal department.” Id. Chipotle attempts to distinguish Wang on two grounds: there, (1) the defendant’s affirmative defense explicitly invoked good faith, and (2) testimony was introduced that the legal department, not the human resources department, had responsibility for making the classification decisions at issue. These are not distinctions. As discussed above, Chipotle’s affirmative defenses carry a good faith component even if none is so stated. And Mr. Gottlieb, himself an attorney and responsible for Chipotle’s wage and hour determinations, testified that he was unaware of any communications regarding the apprentice determination that did not involve attorneys, and otherwise refused to answer relevant questions on attorney-client privilege grounds. All told, there is far more evidence here than in Wang that the defendant had, and perhaps ignored, the advice of counsel in classifying its employees as exempt. Given the circumstances in this particular case, “legal advice that [the defendant] received may well demonstrate the falsity of its claim of good faith belief,” Leviton, 2010 WL 4983183, at *3, putting Chipotle’s state of mind at issue. The plaintiffs are therefore “entitled to know if [the defendant] ignored counsel’s advice.” Arista Records, 2011 WL 1642434, at *3 (internal citations and quotation marks omitted).

The court also rejected defendant’s public policy argument which it urged supported upholding the attorney-client privilege, even where a defendant impermissibly sought to use it simultaneously as a shield and a sword:

Chipotle contends that even if Second Circuit case law favors a waiver in this case, such waiver should be overcome by policy considerations. It claims that, should the Court find a waiver here, “every employer in every FLSA case will have to choose between revealing such communications or forfeiting statutory defenses. This is akin to imposing, as a matter of law, an expanded limitations period and 100% liquidated damages risk on every employer in every FLSA case.” Def’s. Reply at 6. Such concerns are misplaced and overstated. First, as stated by both the Supreme Court and the Court of Appeals, liquidated damages are in fact the norm in FLSA cases. This is not a byproduct of a broad reading of the at-issue waiver doctrine. Rather, this is because, by act of the legislature, “the liquidated damage provision is not penal in its nature but constitutes compensation for the retention of a workman’s pay which might result in damages too obscure and difficult of proof for estimate other than by liquidated damages.” Brooklyn Sav. Bank v. O’Neil, 324 U.S. 697, 707 (1945) (citations omitted); see also Herman, 172 F.3d at 142; Reich, 121 F.3d at 71; Brock v. Wilamowsky, 833 F.2d 11, 19 (2d Cir.1987) ( “ ‘[d]ouble damages are the norm, single damages the exception ….‘ “ (quoting Walton v. United Consumers Club, Inc., 786 F.2d 303, 310 (7th Cir.1986))). It is for this very reason, protection of workers as directed by Congress, that defendants face a high bar to mounting a good faith defense to FLSA wage and hour claims. Second, defendants in such situations are not at all required to waive attorney-client privilege to defend against liability. For instance, defendants may assert defenses on bases other than good faith. See Crawford v. Coram Fire Dist., 12 Civ. 3850(DRH)(WDW), 2014 WL 1686203 (E.D.N.Y. Apr. 29, 2014) (upholding denial of discovery of privileged communications where defendant had separate basis for defense that did not rely on good faith); Leviton, 2010 WL 4983183, at *5 (plaintiff did not waive privilege by filing claim where waiver would be useful but not essential to defendants’ defense). In the case at hand, Chipotle has pled a panoply of defenses aside from the two affirmative defenses at issue. If it does not wish to waive its privilege, it may seek leave to amend its answer under Fed.R.Civ.P. 16(b) so that it can forego its good faith defenses and rely instead on its remaining 30 affirmative defenses. See Bilzerian, 926 F.2d at 1293–94 (defendant need not assert good faith defense, but if he does, he waives attorney-client privilege); Answer to Second Am. Compl. at 21–26 (listing Chipotle’s affirmative defenses). Finally, Chipotle claims that a finding of at-issue waiver will discourage companies from seeking advice from counsel. Chipotle predicts that companies will instead be “incentivized to make important decisions concerning critical issues such as employee pay on their own lest they be forced to reveal their confidential and privileged communications.” Def’s. Br. at 2. The Court sees things differently. To the extent Chipotle is found to be liable for overtime violations (a question that is far from answered), and to the extent Chipotle’s counsel advised it against the classification decision it wrongly made, the decision on this motion will only serve to encourage companies to receive competent legal advice and follow it.

Thus, the court held that the defendant had waived the attorney-client privilege by placing its mental state at issue and pleading a good faith defense. Click Scott v. Chipotle Mexican Grill, Inc. to read the entire Opinion & Order.

2d. Cir.: Individualized Damages Determinations Alone Cannot Preclude Class Certification Under Rule 23’s Predominance Inquiry

Roach v. T.L. Cannon Corp.

This case presented the question of whether the Supreme Court’s decision in Comcast Corp. v. Behrend, ––– U.S. ––––, 133 S.Ct. 1426, 185 L.Ed.2d 515 (2013), overruled the well-established law in the Second Circuit that class certification pursuant to Rule 23(b)(3) of the Federal Rules of Civil Procedure cannot be denied merely because damages have to be ascertained on an individual basis. The court below had held that Comcast permits certification under Rule 23(b)(3) only when damages are measurable on a classwide basis, and denied the plaintiffs’ motion for class certification. The Second Circuit disagreed, and held that Comcast does not mandate that certification pursuant to Rule 23(b)(3) requires a finding that damages are capable of measurement on a classwide basis, in the context of this wage and hour case.

The court began by summarizing Second Circuit case law prior to the Comcast decision, and explaining that Comcast did not overrule the line of cases that had long held that individualized damages will not preclude class certification generally:

Prior to the Supreme Court’s decision in Comcast, it was “well-established” in this Circuit that “the fact that damages may have to be ascertained on an individual basis is not sufficient to defeat class certification” under Rule 23(b)(3). Seijas v. Republic of Argentina, 606 F.3d 53, 58 (2d Cir.2010); see McLaughlin v. Am. Tobacco Co., 522 F.3d 215, 231 (2d Cir.2008), abrogated in part on other grounds by Bridge v. Phx. Bond & Indem. Co., 553 U.S. 639, 128 S.Ct. 2131, 170 L.Ed.2d 1012 (2008); see also Dukes, 131 S.Ct. at 2558 (“[I]ndividualized monetary claims belong in Rule 23(b)(3).”). “[T]he fact that damages may have to be ascertained on an individual basis” was simply one “factor that we [had to] consider in deciding whether issues susceptible to generalized proof ‘outweigh’ individual issues” when certifying the case as a whole. McLaughlin, 522 F.3d at 231.

We do not read Comcast as overruling these decisions.

The court then discussed and distinguished Comcast:

In Comcast, the plaintiffs filed a class-action antitrust suit claiming that Comcast’s acquisition of competitor cable television providers in sixteen counties clustered around Philadelphia violated the Sherman Act. 133 S.Ct. at 1430. Comcast’s clustering strategy had increased its market share in that geographical area from around twenty to seventy percent. Id. The plaintiffs sought to certify the class of Comcast subscribers in that geographical area under Rule 23(b)(3), claiming that questions of law and fact common to the class predominated over any questions affecting individual members. Id. The district court held, and neither the plaintiffs nor defendants contested on appeal, that in order to meet the predominance requirement, the plaintiffs had to show that: (1) the injury suffered by the class was “capable of proof at trial through evidence that [was] common to the class rather than individual to its members”; and (2) “the damages resulting from [the anticompetitive] injury were measurable on a class-wide basis through use of a common methodology.” Id. (first alteration in original) (quoting Behrend v. Comcast Corp., 264 F.R.D. 150, 154 (E.D.Pa.2010)) (internal quotation marks omitted).

The plaintiffs offered four theories of antitrust injury or impact, only one of which the district court concluded was susceptible of classwide proof: Comcast’s clustering around Philadelphia reduced competition from “overbuilders,” competitors who build competing cable networks where there exists an incumbent cable provider.FN4
Id. at 1430–31. To prove that the damages resulting from the anticompetitive injury were measurable on a classwide basis, the plaintiffs offered expert testimony that modeled the class damages based on all four theories of antitrust injury; the model did not isolate damages resulting from the “overbuilder” theory. Id. at 1431. Nevertheless, both the district court and the United States Court of Appeals for the Third Circuit concluded that the expert testimony was sufficient to establish that damages resulting from the “overbuilder” theory of injury were measurable on a classwide basis. Id. Rejecting the notion that the plaintiffs were required to offer a model of classwide damages that attributed damages only to the “overbuilder” theory of injury, the Court of Appeals explained that the plaintiffs were required merely to provide assurance that, “if they can prove antitrust impact, the resulting damages are capable of measurement and will not require labyrinthine individual calculations.” Id. at 1431 (quoting Behrend v. Comcast Corp., 655 F.3d 182, 206 (3d Cir.2011)) (internal quotation mark omitted). A more rigorous analysis, the Court of Appeals concluded, would constitute an “attac[k] on the merits of the methodology [that] [had] no place in the class certification inquiry.” Id. (first and third alterations in original) (quoting Behrend, 655 F.3d at 207) (internal quotation marks omitted).

The Supreme Court granted certiorari. After noting that neither party had contested the district court’s holding that Rule 23(b)(3) predominance required a showing that damages resulting from the anticompetitive injury were measurable on a classwide basis, id. at 1430, the Court identified the question presented as whether the plaintiffs “had … establish[ed] that damages could be measured on a classwide basis,” id. at 1431 n. 4. The Court reversed, holding that the plaintiffs’ expert testimony failed to carry that burden. Id. at 1432–33.

The Court began by noting that it had recently held that establishing the Rule 23(a) prerequisites to class certification required a “rigorous analysis,” which would “frequently entail ‘overlap with the merits of the plaintiff’s underlying claim.’ ” Id. at 1432 (quoting Dukes, 131 S.Ct. at 2551). Those “same analytical principles,” the Court explained, govern the Rule 23(b) inquiry. Id.

The Court then held that the plaintiffs’ expert testimony did not withstand the “rigorous analysis” for the Rule 23(b)(3) predominance test. The Court explained that the plaintiffs would be entitled only to damages resulting from their theory of injury. Id . at 1433. Thus, “a model purporting to serve as evidence of damages …. must measure only those damages attributable to that theory.” Id. “If the model does not even attempt to do that,” the Court explained, “it cannot possibly establish that damages are susceptible of measurement across the entire class for purposes of Rule 23(b)(3).” Id. Because there was “no question” that the damages model was not based solely upon the “overbuilder” theory of injury certified by the district court, but also included calculations accounting for the three other theories of injury, id . at 1433–34, the Court concluded that “Rule 23(b)(3) cannot authorize treating [cable] subscribers within the Philadelphia cluster as members of a single class,” id. at 1435.

The Second Circuit then explained that Comcast did not hold that a class cannot be certified under Rule 23(b)(3) solely because damages cannot be measured on a classwide basis, as many defendants in many contexts have since argued:

Comcast, then, did not hold that a class cannot be certified under Rule 23(b)(3) simply because damages cannot be measured on a classwide basis. See id. at 1430 (noting that the requirement of a classwide damages model “is uncontested here”); id. at 1436 (Ginsburg and Breyer, JJ., dissenting) (“[T]he decision should not be read to require, as a prerequisite to certification, that damages attributable to a classwide injury be measurable ‘on a class-wide basis.’ “). Comcast’s holding was narrower. Comcast held that a model for determining classwide damages relied upon to certify a class under Rule 23(b)(3) must actually measure damages that result from the class’s asserted theory of injury; but the Court did not hold that proponents of class certification must rely upon a classwide damages model to demonstrate predominance. See id . at 1433; see also In re Deepwater Horizon, 739 F.3d 790, 817 (5th Cir.2014) (construing the “principal holding of Comcast [as being] that a ‘model purporting to serve as evidence of damages … must measure only those damages attributable to th[e] theory’ of liability on which the class action is premised” (ellipsis and second alteration in original) (quoting Comcast, 133 S.Ct. at 1433)); Butler v. Sears, Roebuck & Co., 727 F.3d 796, 799 (7th Cir.2013) (construing Comcast as holding only “that a damages suit cannot be certified to proceed as a class action unless the damages sought are the result of the class-wide injury that the suit alleges” (emphasis in original)); Leyva v. Medline Indus. Inc., 716 F.3d 510, 514 (9th Cir.2013) (interpreting Comcast to hold that class-action plaintiffs “must be able to show that their damages stemmed from the defendant’s actions that created the legal liability”); accord Catholic Healthcare W. v. U.S. Foodservice Inc. ( In re U.S. Foodservice Inc. Pricing Litig.), 729 F.3d 108, 123 n. 8 (2d Cir.2013) (“Plaintiffs’ proposed measure for damages is thus directly linked with their underlying theory of classwide liability … and is therefore in accord with the Supreme Court’s recent decision in Comcast … . “). Indeed, as the Court explained, if all four types of anticompetitive injury had been approved for certification by the district court, the plaintiff’s damages methodology “might have been sound, and might have produced commonality of damages.” Comcast, 133 S.Ct. at 1434.

To be sure, Comcast reiterated that damages questions should be considered at the certification stage when weighing predominance issues, but this requirement is entirely consistent with our prior holding that “the fact that damages may have to be ascertained on an individual basis is … a factor that we must consider in deciding whether issues susceptible to generalized proof ‘outweigh’ individual issues.” McLaughlin, 522 F.3d at 231. The Supreme Court did not foreclose the possibility of class certification under Rule 23(b)(3) in cases involving individualized damages calculations.

The court then noted that its reading of Comcast was consistent with all 4 Circuits to have reached the issue previously:

Our reading of Comcast is consistent with the Supreme Court’s statement in Comcast that its decision turned upon “the straightforward application of class-certification principles.” 133 S.Ct. at 1433. Our reading is also consistent with the interpretation of those Circuits that have had the opportunity to apply Comcast. See AstraZeneca AB v. United Food & Commercial Workers Unions & Emp’rs Midwest Health Benefits Fund (In re Nexium Antitrust Litig.), No. 14–1521, 2015 WL 265548, at *8, *10 (1st Cir. Jan.21, 2015) (explaining that Comcast “simply” requires that a damages calculation reflect the associated theory of liability, and discussing the “well-established” principle that individualized damages do not automatically defeat Rule 23(b)(3) certification); Dow Chem. Co. v. Seegott Holdings, Inc. ( In re Urethane Antitrust Litig.), 768 F.3d 1245, 1257–58 (10th Cir.2014) ( “Comcast did not rest on the ability to measure damages on a class-wide basis.”); In re Deepwater Horizon, 739 F.3d at 817 (rejecting, post-Comcast, the argument “that certification under Rule 23(b)(3) requires a reliable, common methodology for measuring classwide damages” (internal quotation marks omitted)); Butler, 727 F.3d at 801 (holding, upon the Supreme Court’s grant of certiorari, vacatur, and remand in light of Comcast, that “the fact that damages are not identical across all class members should not preclude class certification”); Glazer v. Whirlpool Corp. (In re Whirlpool Corp. Front–Loading Washer Prods. Liab. Litig .), 722 F.3d 838, 860–61 (6th Cir.2013) (noting that Comcast was “premised on existing class-action jurisprudence” and that “it remains the ‘black letter rule’ that a class may obtain certification under Rule 23(b)(3) when liability questions common to the class predominate over damages questions unique to class members”); Leyva, 716 F.3d at 513 (reiterating Ninth Circuit precedent, post-Comcast, that “damage calculations alone cannot defeat certification” (quoting Yokoyama v. Midland Nat’l Life Ins. Co., 594 F.3d 1087, 1094 (9th Cir.2010)) (internal quotation mark omitted)).

Because the trial court did not complete its full analysis under Rule 23, inasmuch as it held that individualized damages alone precluded class certification, the Second Circuit reversed and remanded the case for further findings regarding plaintiffs’ motion for class certification.  Of note, on the same day, in an unreported decision, the Second Circuit affirmed a trial court’s order granting class certification, notwithstanding the defendant-appellant’s argument that individualized damages precluded class certification regarding liability issues.

Click Roach v. T.L. Cannon Corp. to read the entire decision and Jason v. Duane Reade, Inc. to read the unreported decision in that case.

W.D.N.Y.: Common Law Claims Not Preempted To the Extent They Provide a Remedy Not Available Under the FLSA

Gordon v. Kaleida Health

In an unusual procedural posture, this case was before the court on plaintiffs’ motion to remand their state common law claims, based on lack of subject matter jurisdiction.  The court held that it had subject matter jurisdiction however, because of FLSA preemption considerations.  As discussed here, the court held that common law claims seeking to recover straight-time compensation otherwise not covered under the FLSA are not preempted by the FLSA.

Discussing the issue the court reasoned:

“In many district court cases where this issue has arisen, the plaintiffs’ common law claims were brought in conjunction with FLSA claims, based on the same facts, and seeking the same relief. In such cases, most courts have had no trouble dismissing the common law claims as preempted to the extent recovery is available under the FLSA, even where the plaintiff also brought wage claims under a parallel state statute. See, e.g., Guensel v. Mount Olive Bd. of Educ., Civ. No. 10–4452, 2011 U.S. Dist. LEXIS 132102, at *19, 2011 WL 5599717 (D.N.J. Nov. 16, 2011) (common law claims that are “directly covered” by FLSA must be brought under the FLSA); DeMarco v. Northwestern Mem. Healthcare, Civ. No. 10–C–397, 2011 U.S. Dist. LEXIS 88541, at *17–18, 2011 WL 3510905 (N.D.Ill. Aug. 10, 2011) (unjust enrichment and other state common law claims seeking relief available under the FLSA are preempted); Bouthner v. Cleveland Constr., Inc., Civ. No. RDB–11–244, 2011 U.S. Dist. LEXIS 79316, at *21–22, 2011 WL 2976868 (D.Md. July 21, 2011) (although common law claim made no reference to FLSA, it was preempted where claim sought wages mandated by FLSA).

Two courts in this Circuit have expressly concluded that common law claims are preempted to the extent they seek recovery available under the FLSA, but are not preempted to the extent that state law provides a remedy not available under federal law. DeSilva v. N. Shore–Long Island Jewish Health Sys., 770 F.Supp.2d 497, 532–33 (E.D.N.Y.2011) (finding common law claims preempted by FLSA to extent they sought overtime wages, but not preempted to extent they sought straight-time pay not available under the FLSA); Barrus v. Dick’s Sporting Goods, Inc., 732 F.Supp.2d 243, 263 (W.D.N.Y.2010)  (dismissing common law claims seeking unpaid overtime as preempted by FLSA, but allowing claim for unpaid straight time wages to go forward). Other district courts have held likewise. See, e .g., Monahan v. Smyth Auto., Inc., No. 10–CV–00048, 2011 Dist. LEXIS 9877, at *9–11, 2011 WL 379129 (S.D. Oh Feb. 2, 2011) (unjust enrichment claim not preempted where it was based on alleged failure to pay the state’s minimum wage, which was higher than FLSA minimum wage rate); Mickle v. Wellman Prods. LLC, No. 08–CV–0297, 2008 U.S. Dist. LEXIS 63697, at *10–11, 2008 WL 3925266 (N.D.Okla.2008) (while state statute created a distinct cause of action for overtime compensation, the plaintiffs’ common law claim seeking such relief was duplicative of remedies provided by the FLSA and was preempted).

The law on this issue is by no means settled—some courts have declined to find common law claims preempted where a state’s statute incorporates the FLSA’s minimum wage and/or overtime provisions, and others have dismissed entirely common law claims for which the FLSA provides only partial relief. However, I find the foregoing cases from within this Circuit persuasive. As the DiSilva court noted, the FLSA’s savings clause expressly provides that wage and hour actions may be brought under state wage statutes, “it says nothing about a party’s ability to pursue general common law claims that have no specific relevance to the labor law context.” 2011 U.S. Dist. LEXIS 27138, at *93 (emphasis in original).

Here, Plaintiffs common law claims are not brought in conjunction with any claim for relief under the FLSA or the NYLL. They refer generally to statutory law only as the basis for calculating damages. This vague reference to “state law” is not enough to draw purely common law claims into the ambit of the FLSA’s savings clause. Accordingly, to the extent Plaintiffs are seeking unpaid overtime wages that are available under the FLSA, their common law claims are preempted, and to the extent they are seeking straight-time wages for which no federal relief is available, they are not.”

Click Gordon v. Kaleida Health to read the entire Decision and Order.

S.D.N.Y.: Delay in Asserting Equitable Tolling Not a Bar to Its Application

Chen v. Grand Harmony Restaurant, Inc.

This case was before the court in an unusual procedural posture on defendants’ proactive motion requesting that the court deny tolling of the statute of limitations on plaintiffs’ FLSA and NYLL claims arguing that (1) it is too late for Plaintiffs to make a request for equitable tolling; (2) the equitable tolling doctrine cannot be applied to the remaining individual defendants, as they were not obligated by federal or state law to post the notices at issue; and (3) there is no justification to toll the statute of limitations.  The Magistrate Judge held that plaintiffs had not waived their right to assert a right to equitable tolling based on the passage of time.  The defendants then objected to the Magistrate’s R&R on this ground.  Adopting the Magistrate’s reasoning the court reasoned:

“In his Report, Magistrate Judge Katz properly concluded that Plaintiffs are not barred from invoking the doctrine of equitable tolling because of a delay in raising the issue. Equitable tolling is a matter within the sound discretion of the Court. Defendants do not cite any relevant statutory or case law authority to support their claim that Plaintiffs have waived their right to request that the Court equitably toll the statute of limitations by waiting until this stage in the litigation. Further, Defendants had prior notice that Plaintiffs intended to seek damages back to the beginning of their employment. Plaintiffs alleged in their complaint that Defendants’ actions occurred throughout Plaintiffs’ employment and Defendants acknowledged that the entire period of Plaintiffs’ employment was at issue both in their answer and throughout discovery. The issue of equitable tolling was therefore present, at least implicitly, from the beginning of the action.”

Click Chen v. Grand Harmony Restaurant, Inc. to read the entire Memorandum Decision and Order.


E.D.N.Y.: Where Agreement to Arbitrate Is Silent As To Class Arbitration, Arbitrator Not Court to Decide Class Arbitrability Issue

Guida v. Home Savings of America, Inc.

Plaintiffs brought this putative class action on behalf of themselves, and on behalf of individuals similarly situated, against Defendants, asserting claims under the Fair Labor Standards Act (“FLSA”), 29 U.S.C. §§ 201 et. seq., and related New York state wage and labor laws.  Defendants moved to dismiss plaintiffs’ complaint, and compel arbitration on an individual basis pursuant to the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1 et. seq.  While Plaintiffs agreed to arbitrate the dispute, they argued that the arbitrator should decide whether the arbitration can proceed on a class basis, because the arbitration agreement was silent on the issue of class arbitration.  The court agreed and held that while the parties were required to arbitrate the dispute, the determination of whether or not the arbitration should proceed on a class basis is for the arbitrator to make in the first instance.

Discussing the relevant provisions of the agreement(s) to arbitrate, the court explained:

“The terms of the Alternative Dispute Resolution Agreement are identical for all of the plaintiffs. The following are relevant portions from the Alternative Dispute Resolution Agreements:

I understand that Home Savings of America makes available arbitration for resolution of employment disputes that are not otherwise resolved by internal policies or procedures.

I agree that if I am unable to resolve any dispute through the internal policies and procedures of Home Savings … I will arbitrate … any legal claim that I might have against Home Savings … or its employees, in connection with my employment or termination of employment … whether arising out of issues or matters occurring before the date of this Agreement or after such date.

I agree to abide by and accept the final decisions of the arbitration panel as ultimate resolution of any disputes or issues for any and all events that arise out of employment or termination of employment.

I agree that the Employee Dispute Resolution Rules of the American Arbitration Association will apply to any resolution of any such matters. In exchange for the benefits of arbitration, I agree that the arbitrator will only have the power to grant those remedies available in court, under applicable law.”

In light of the silence as to class arbitration, the court held that the issue was one for the arbitrator, not the court to decide.  The court reasoned that Supreme Court jurisprudence supported this holding, because the issue was one of substantive interpretation of the contract language and not merely a procedural issue:

“This Court concludes, in light of StoltNielsen and Bazzle, that the ability of a class to arbitrate a dispute where the parties contest whether the agreement to arbitrate is silent or ambiguous on the issue is a procedural question that is for the arbitrator to decide.  Even though Bazzle does not have the full weight of Supreme Court precedent, it is nevertheless instructive. See, e.g., Barbour v. Haley, 471 F.3d 1222, 1229 (11 th Cir.2006) (“Plurality opinions are not binding on this court; however, they are persuasive authority.”); Galli v. N.J. Meadowlands Comm’n, 490 F.3d 265, 274 (3d Cir.2007) (concluding that dicta in Supreme Court opinions has persuasive value). The Second Circuit found Bazzle persuasive, as have other courts prior to Stolt–Nielsen. See Vaughn v. Leeds, Morelli & Brown, P.C., 315 F. App’x 327, 329 (2d Cir.2009) (concluding that the district court “properly compelled arbitration on the question of the arbitrability of class claims under the Settlement Agreement[,]” citing Bazzle and Howsam); JSC Surgutneftegaz v. President & Fellows of Harvard College, 04 Civ. 6069(RMB), 2007 U.S. Dist. LEXIS 79161, at *6 (S.D.N.Y. Oct. 11, 2007) (citing Bazzle for the proposition that “arbitrators are well situated to answer the question whether contracts forbid[ ] class arbitration” (quotation marks omitted)); Scout. com, LLC v. Bucknuts, LLC, No. C07–1444 RSM, 2007 WL 4143229, at *5 (W.D.Wa. Nov.16, 2007) (concluding that, in light of Bazzle, it was for the arbitrator to decide the procedural question of whether the plaintiffs can arbitrate as a class (collecting cases)). Furthermore, many courts since Stolt–Nielsen have continued to follow Bazzle’s conclusion that the ability to arbitrate on a class basis is a procedural question left for the arbitrator to decide. This Court finds the Third Circuit’s opinion in Vilches v. The Travelers Companies, Incorporated, No. 10–2888, 2011 U.S.App. LEXIS 2551 (3d Cir. Feb. 9, 2011), particularly instructive. In Vilches, the Third Circuit reconciled Bazzle and StoltNielsen as follows:

Although contractual silence [on the issue of arbitration on a class basis] has often been treated by arbitrators as authorizing class arbitration, Stolt–Nielsen suggests a return to the pre-Bazzle line of reasoning on contractual silence, albeit decided by an arbitrator, because it focuses on what the parties agreed to—expressly or by implication.

Id. at *12–13 n. 3. The Third Circuit concluded that the ability of the plaintiffs to proceed on a class basis in arbitration was essentially a question of “what kind of arbitration proceeding the parties agreed to [,]” id. at *10 (emphasis in original) (citing Bazzle), and went on to conclude that “[w]here contractual silence is implicated, the arbitrator and not a court should decide whether a contract was indeed silent on the issue of class arbitration, and whether a contract with an arbitration clause forbids class arbitration.” Id. at *11 (quotation marks omitted) (citing StoltNielsen, 130 S.Ct. at 1771–72, describing the plurality opinion in Bazzle). In Vilches, the agreement in question “did not expressly reference class or collective arbitration or any waiver of the same.” Id. at *3. The parties debated whether a revised arbitration policy including a class arbitration waiver applied to plaintiffs but agreed that plaintiffs’ causes of action alleged in the complaint otherwise fell under the purview of the arbitration agreement. Id. at *3–6, *9–10. The court in Vilches referred the “questions of whether class arbitration was agreed upon to the arbitrator.” Id. This Court similarly concludes that Stolt–Nielsen and Bazzle are reconcilable and that arbitrating on a class basis is a procedural question that is for the arbitrators to decide in accordance with the Supreme Court’s analysis in Stolt–Nielsen, which provides a framework for the arbitrator’s analysis of the issue.

Nor is Vilches alone in its conclusion. There are a number of cases in addition to Vilches in which courts have concluded, subsequent to Stolt–Nielsen, that the ability of plaintiffs to arbitrate on a class basis is an issue to be determined by the arbitrator. See, e.g., Aracri v. Dillard’s Inc., No. 1:10cv253, 2011 WL 1388613, at * 4 (S.D.Ohio Mar.29, 2011) (concluding that “it is not for this Court, but for an arbitrator to decide whether class arbitration is forbidden under the Arbitration Agreement and Dillard’s Rules of Arbitration” where the arbitration agreement did not explicitly mention class arbitration but the parties contested whether Dillard’s Rules, to which all arbitration claims were subject, provided for class arbitration); Smith v. The Cheesecake Factory Restaurants, Inc., No. 3:06–00829, 2010 U.S. Dist. LEXIS 121930, at *7 (M.D.Tenn. Nov. 16, 2010) (concluding that “whether the parties agreed to class arbitration is to be resolved by the arbitrator[,]” citing Stolt–Nielsen and Bazzle); Fisher v. General Steel Domestic Sales, LLC, No. 10–cv–1509–WYD–BNB, 2010 U.S. Dist. LEXIS 108223, at *6–7 (D.Col. Sept. 22, 2010) (where parties agreed that plaintiffs’ claims were subject to arbitration but were contesting whether the agreement in question permitted class arbitration, “based on the plain language of Stolt–Nielsen, it is clear that an arbitrator may, as a threshold matter, appropriately determine whether the applicable arbitration clause permits the arbitration to proceed on behalf of or against a class” (quotation marks omitted)). See also Clark v. Goldline Int’l, Inc., No. 6:10–cv–01884 (JMC), 2010 U.S. Dist. LEXIS 126192, at *21–22 (D.S.C. Nov. 30, 2010) (“[T]he court notes that whether a class is appropriately certified in this case or otherwise is yet to be determined. Second, whether the Account Agreement precludes any putative classmember from bringing a claim has no bearing on the validity or enforceability of the arbitration provisions. Such issues raised by Plaintiffs must be determined by an arbitrator, not this court.” (citing Bazzle)). But see Chen–Oster v. Goldman, Sachs & Co., No. 10 Civ. 6950(LBS)(JCF), 2011 U.S. Dist. LEXIS 46994, at *10 (S.D.N.Y. Apr. 28, 2011) (concluding that the ability to arbitrate on a class basis requires a “determination of the scope and enforceability of the arbitration clause, and therefore the issue is appropriately characterized as a dispute over arbitrability[,]” further noting that this question “fits into the narrow circumstances where contracting parties would likely have expected a court to have decided the gateway matter[,]” relying on Stolt–Nielsen’s emphasis that Bazzle was solely a plurality opinion).”

Interestingly, the court also addressed and rejected Defendants’ argument that the Supreme Court’s recent holding in AT & T Mobility LLC v. Concepcion stood for the proposition that the issue of whether or not to arbitrate on a class basis is not a procedural issue, which would have allowed the court to decide the issue.

Click Guida v. Home Savings of America, Inc. to read the entire Memorandum and Order.

S.D.N.Y.: Because FLSA Collective Action Is Not A Class Action, FLSA Collective Action Subject To Arbitration Despite FINRA Rule Prohibiting Class Actions

Velez v. Perrin Holden & Davenport Capital Corp.

Plaintiff brought this action alleging violations of the Fair Labor Standards Act (“FLSA”) and the New York Labor Law (“NYLL”) on behalf of himself and other similarly situated stock brokers employed or formerly employed by defendant Perrin Holden & Davenport Capital Corp. (“PHD Capital”) and its officers and owners. Plaintiff sought designation of the case as as a collective action pursuant to FLSA section 216 for his FLSA claims and as a class action pursuant to Fed.R.Civ.P. 23 for his state law claims.

Defendants moved to dismiss the complaint pursuant to Fed.R.Civ.P. 12(b)(6) or, in the alternative, to compel arbitration pursuant to the Federal Arbitration Act (“FAA”), 9 U.S .C. §§ 3, 4, on the ground that Plaintiff had agreed to arbitrate his FLSA claims at the time he was hired.   In line with other courts that have decided the issue, the court held that a “collective action” is not encompassed within the term “class action” as that term is used in FINRA’s rules, and thus compelled arbitration of Velez’s FLSA claims, allowing for a collective action in FINRA arbitration.

After finding  that the Plaintiff’s claims were subject to arbitration, the court then discussed whether, under FINRA rules banning class actions, Plaintiff could proceed with an FLSA collective action.  Reasoning he could the court explained:

“FINRA Rule 13200 mandates arbitration of disputes between the parties “except as otherwise provided.” (FINRA Rule 13200, Ex. B to Declaration of Matthew D. Kadushin dated Aug. 27, 2010 (“Kadushin Decl.”).) Notably, FINRA Rule 13204 prohibits arbitration of “class action claims.” (FINRA Rule 13204, Ex. A to Kadushin Decl.) It is thus uncontested that Velez’s state law claims-which plaintiff has asserted as a class action pursuant to Fed.R.Civ.P. 23-are ineligible for arbitration. The parties dispute, however, whether that exemption of class action claims from arbitration also applies to plaintiff’s FLSA collective action claims. While defendants contend that collective actions are distinct from class actions and therefore subject to FINRA arbitration, Velez argues that the phrase “class action” in FINRA Rule 13204 encompasses a collective action and therefore collective action claims are not arbitrable. Velez looks to the interpretation by FINRA staff members of FINRA’s rules to support his position.

Every court to address whether an FLSA collective action is arbitrable pursuant to FINRA’s rules has found in favor of arbitrability.  See Gomez v. Brill Securities, Inc., No. 10 Civ. 3503, 2010 WL 4455827 (S.D.N.Y. Nov. 2, 2010); Suschil v. Ameriprise Financial Servs., Inc., No. 07 Civ. 2655, 2008 WL 974045, at *5 (N.D.Ohio Apr. 7, 2008); Chapman v. Lehman Bros., Inc., 279 F.Supp.2d 1286, 1290 (S.D.Fla.2003). This Court agrees with its sister district courts.

FINRA Rule 13204 clearly states that “[c]lass action claims may not be arbitrated” under FINRA’s Code of Arbitration Procedure. However, that rule says nothing about collective action claims. Although collective and class actions have much in common, there is a critically important difference: collective actions are opt-in actions, i.e., each member of the class must take steps to opt in to the action in order to participate in it, whereas class actions are opt-out actions, i.e., class members automatically participate in a class action unless they take affirmative steps to opt out of the class action. Collective actions bind only similarly situated plaintiffs who have affirmatively consented to join the action.

Velez urges the Court to defer to the opinions of FINRA staff who have issued letters construing collective actions to come within the ambit of class actions for the purposes of FINRA arbitration. (See, e.g., Letter from Jean I. Feeney, NASD Assistant General Counsel, dated Sept. 21, 1999, Ex. C. to Kadushin Decl.; Letter from George H. Friedman, NASD Executive Vice President, Dispute Resolution, Director of Arbitration, dated Oct. 10, 2003, Ex. D to Kadushin Decl.) However, those letters do not contain any substantial analysis, and the Feeney letter itself includes the disclaimer that “the opinions expressed herein are staff opinions only and have not been reviewed or endorsed by the Board of Directors of [the] NASD.” Moreover, FINRA’s website specifically states that “[s]taff-issued interpretive letters express staff views and opinions only and are not binding on FINRA and its Board.” (FINRA-Interpretive Letters, Ex. 1 to Affirmation of Emily A. Hayes dated Sept. 9, 2010). Such “staff opinion letters are not the sort of agency interpretation that is entitled to deference by this Court.” Gomez, 2010 WL 4455827 at *1; see also Auer v. Robbins, 519 U.S. 452, 461 (1997); Skidmore v. Swift & Co., 323 U.S. 134 (1944). If FINRA wanted to prohibit arbitration of collective action claims, FINRA is certainly able to amend its rules to do so. See FINRA Rulemaking Process, available at http://www.finra.org/In dustry/Regulation/FINRARules/RulemakingProcess (Feb. 2, 2010); see also Gomez, 2010 WL 4455827 at *2.

As noted above, the parties here have agreed in writing to arbitrate certain disputes as required by FINRA. In light of other district court opinions, this Court’s own interpretation of FINRA rules, and the federal policy favoring arbitration as an alternative forum in which to resolve disputes, this Court finds that FLSA collective actions are within the scope of the parties’ agreement to arbitrate. In addition, no congressional intent precludes arbitration of the federal FLSA claims. See, e.g., Gomez, 2010 WL 4455827 at *2; Coheleach v. Bear, Stearns & Co., 440 F.Supp.2d 338, 240 (S.D.N.Y.2006).”

Accordingly, defendants’ motion was granted to the extent that the court compelled arbitration of Plaintiff’s FLSA claims.

E.D.N.Y.: FLSA Defendants Not Entitled To Discovery Of Plaintiffs’ Full Tax Returns; Motion For Protective Order Granted

Melendez v. Primavera Meats, Inc.

Before the court was plaintiffs’ motion for a protective order barring defendants from obtaining their income tax returns.  Reasoning that the defendants failed to show a compelling need for same to overcome the plaintiffs’ privacy rights, the court granted the plaintiffs’ motion.

Framing the issue, the court explained:

“Defendants have served a discovery demand seeking production of federal and state income tax returns for various time periods for each plaintiff. Plaintiffs seek a protective order arguing that the tax returns are not relevant and that the requests are improper attempts to ascertain the immigration status of each plaintiff. Defendants respond that they are uninterested in the immigration question, but seek the information to determine the identity of plaintiffs’ employers.”

The court reasoned:

“Although income tax returns are not inherently privileged, courts are typically reluctant to compel their disclosure because of both ‘the private nature of the sensitive information contained therein’ and ‘the public interest in encouraging the filing by taxpayers of complete and accurate returns.’ “ Carmody v. Village of Rockville Centre, 2007 WL 2042807, at *2 (E.D.N.Y. July 13, 2007) (quoting Smith v. Bader, 83 F.R.D. 437, 438 (S.D.N.Y.1979)). In determining whether to compel discovery of tax returns, the court applies a two prong test: “(1) the tax returns must be relevant to the subject matter of the action, and (2) a compelling need must exist because the information is not readily obtainable from a less intrusive source.” Sadofsky v. Fiesta Prods., LLC, 252 F.R.D. 143, 149 (E.D.N.Y.2008) (citations omitted). The modern trend places the burden on the party seeking the discovery to establish both prongs of this test. See Uto v. Job Site Servs., Inc., — F.Supp.2d —-, 2010 WL 3700239, at *4 (E.D.N.Y. Sept. 20, 2010); see also Carmody, 2007 WL 2043807, at *2.

As the party seeking discovery in this case, the defendants first bear the burden of showing the relevance of the tax returns to the instant action. Defendants argue that the tax returns are relevant since they will identify other employers of the plaintiffs. As defendants apparently claim that they never employed these plaintiffs, they further argue that the tax returns are “relevant as to how much the plaintiffs were paid by these defendants, if they were paid by these defendants at all.” Defs.’ ltr at 1. Plaintiffs respond that the tax returns are irrelevant because even if they reflect the existence of other employers, the returns would not indicate how many hours plaintiffs worked for a particular employer.

Even assuming, arguendo, that the tax returns are relevant, defendants must also establish the second prong of the test-that they have a compelling need for these items because the information is not readily obtainable from a less intrusive source. Sadofsky, 252 F.R.D. at 150 (citations omitted). Defendants offer only a conclusory statement that “there is no other means by which the defendants in this case can establish that someone other than themselves were the plaintiffs’ employer” and a rhetorical question posed to plaintiff’s counsel as to what less intrusive methods might exist. Defendants have singularly failed to establish that the information sought cannot be obtained from a less intrusive source and thus have not met their burden.

As to defendants’ argument regarding the amounts paid by them to the plaintiffs, their own records should reflect this information. Interrogatories, demands for non-tax return documents, and/or inquiries during depositions are discovery devices that apparently have not yet been utilized by defendants. The same devices can be used to obtain discovery regarding any other entities that may have employed the plaintiffs during the relevant time periods. Defendants could, for example, pose interrogatories to determine plaintiffs’ employment history during the relevant time period or question plaintiffs during depositions concerning the number of hours they worked. Carmody, 2007 WL 2042807, at *3 (citing Sabetelli v. Allied Interstate, Inc., 2006 WL 2620385, at *1 (E.D.N.Y. Sept. 13 2006)). Here, there is no representation from defendants that they have attempted to retrieve the information sought from plaintiff’s through discovery of other documentary evidence such as financial records, or “through the use of any other, less intrusive, discovery device.”   Carmody, 2007 WL 2042807, at *3.

For the foregoing reasons, plaintiffs’ motion for a protective order is granted. This ruling may be re-visited upon motion by the defendants, provided they can demonstrate that they have unsuccessfully attempted to obtain the information by other methods.”

 

2d. Cir.: Advertising Salespeople Are Not Administratively Exempt Under The FLSA; Sales Are Not “Directly Related To Management Policies Or General Business Operations”

Reiseck v. Universal Communications of Miami, Inc.

This case was before the Court on Plaintiff’s appeal an Order at the district court below, granting Defendants summary judgment on all counts of Plaintiff’s claim.  The Court affirmed all parts of the judgment below, except for that pertaining to the FLSA.  Resolving a question of first impression, the Court held that advertising salespeople, who conduct sales with individual customers are not subject to the administrative exemption as a matter of law, because such sales work is production work not administrative.

The Court discussed the following facts as relevant to its decision:

“September 2002, Reiseck began working as a Regional Director of Sales at Universal in New York City. As Regional Director of Sales, Reiseck was responsible for generating advertising sales in the northeastern United States and Canada from the travel and finance sectors for Universal’s magazine publication, Elite Traveler. While an employee of Universal, Reiseck was paid a base salary plus certain commissions. Plaintiff was paid no overtime during her tenure with Universal.

Elite Traveler is distributed on a complimentary basis. Advertising sales therefore constitute the majority of Universal’s revenue from Elite Traveler. The magazine had a sales staff, a marketing staff, and an editorial staff. The sales staff sold advertising space; the marketing staff created promotional material to increase advertising sales; and the editorial staff produced the “content” of the magazine.”

Discussing the inapplicability of the administrative exemption to the case at bar, the Court applied the s0-called pre-2004 “short test.”

“Under the short test as it applies here, an employee falls under the administrative employee exemption if the employee is paid on a salary or fee basis at a rate of not less than $250 per week (i.e., the “salary test”), id. § 541.2(e)(2), and the employee’s “primary duty consists of … the performance of office or nonmanual work directly related to management policies or general business operations of his employer,” id. § 541.2(a), and requires “the exercise of discretion and independent judgment,” id. § 541.2(e)(2), (i.e., the “duties test”). As noted above, there is no dispute that Reiseck’s employment satisfies the salary test prong of the short test.

Because the first prong of the short test is not in dispute, we move to the second prong-the duties test. Here, it is uncontested that Reiseck’s primary duty consisted of “the performance of office or non-manual work”; therefore we must consider whether Reiseck’s primary duty was “directly related to management policies or general business operations” of Universal. Id. § 541.2(a).

The phrase “directly related to management policies or general business operations” is not self-defining, and the Secretary of Labor has promulgated interpretive regulations to aid our application of this test. See, e.g., id. § 541.2. Although the Secretary’s legislative regulations-those promulgated pursuant to an express grant of authority by Congress, like 29 C.F.R. § 541.2-have the power to control courts’ reading of the law, the Secretary’s interpretive regulations have only the power to persuade courts. See Skidmore v. Swift & Co., 323 U.S. 134, 139-40 (1944). See generally United States v. Mead Corp., 533 U .S. 218 (2001). And thus we defer to the Secretary’s interpretative regulations only to the extent that we find them persuasive. See Skidmore, 323 U.S. at 140.

In its interpretive regulations, the Department of Labor describes “directly related to management policies or general business operations” in several ways. First, the interpretive rules state that the phrase at issue “describes those types activities relating to the administrative operations of a business as distinguished from ‘production’ or, in a retail or service establishment, ‘sales’ work.” 29 C.F.R. § 541.205(a). They also state that “the phrase limits the exemption to persons who perform work of substantial importance to the management or operation of the business.” Id. Alternatively, the interpretive rules state that the administrative operations include “advising the management, planning, negotiating, representing the company, purchasing, promoting sales, and business research and control.” Id. § 541.205(b).

At first glance, the two definitions of the phrase “directly related to management policies or general business operations” in the interpretive regulations seem to point to contradictory conclusions in Reiseck’s case. On the one hand, plaintiff was a salesperson responsible for selling specific advertising space, and so seems to fit comfortably on the “sales” side of the administrative/sales divide. See id. § 541.205(a). On the other hand, Reiseck also “promoted sales” in some sense, and thus seems to have performed administrative operations. See id. § 541.205(b). We are required to resolve this apparent contradiction. Whether advertising salespersons are administrative employees for the purposes of the exemptions to the FLSA’s overtime pay provisions is a question of first impression for this Court. In answering this question, we also refine our interpretation of the administrative exemption to the FLSA.

First, we consider the Department’s distinction between “administrative” and “sales.” As a magazine publisher, Universal is not one of the archetypal businesses envisaged by the FLSA; it is neither a manufacturer nor a retailer. Accordingly, placing Reiseck’s work into either the administrative or sales category is difficult initially. Nevertheless, a careful consideration of Universal’s business model provides some clarity. Because Universal does not charge readers for Elite Traveler, advertising sales are a critical source of revenue for Universal. One could thus conclude that advertising space is Universal’s “product.” If advertising space is Universal’s product and Reiseck’s primary duty was the sale of that product, then she may reasonably be considered a sales employee, rather than an administrative employee.

Next, we consider the contradictory conclusion suggested by the second description found in the interpretive regulations-namely, that administrative operations include “promoting sales.” 29 C.F.R. § 541.205(b). Because Reiseck sold advertising space, it seems that she must have “promoted sales.” But under that theory, any sales clerk in a retail store would “promote sales” when assisting potential customers, and there would be no administrative/sales distinction in a retail store despite the clear assertion of the interpretive rule that sales work in a retail store is not administrative work for the purposes of the FLSA. Id. One of our sister circuits has provided some helpful guidance on this matter. In Martin v. Cooper Electric Supply Co., 940 F.2d 896, 905 (3d Cir.1991), the Third Circuit reasoned that sales promotion “consists of marketing activity aimed at promoting (i.e., increasing, developing, facilitating, and/or maintaining) customer sales generally.” According to the logic of the Third Circuit, which we now adopt, an employee making specific sales to individual customers is a salesperson for the purposes of the FLSA, while an employee encouraging an increase in sales generally among all customers is an administrative employee for the purposes of the FLSA. Consider a clothing store. The individual who assists customers in finding their size of clothing or who completes the transaction at the cash register is a salesperson under the FLSA, while the individual who designs advertisements for the store or decides when to reduce prices to attract customers is an administrative employee for the purposes of the FLSA.

Here, Reiseck is plainly a salesperson. Although she did “develop new clients” with the goal of increasing sales generally, this was not her primary duty. Under the interpretive regulations, an employee’s “primary duty” is the duty that consumes a “major part, or over [fifty] percent, of the employee’s time.” 29 C.F.R. § 541.103 (defining “primary duty” for the executive employee); see also 29 C.F.R. § 541.206 (applying the definition of “primary duty” for the executive employee to the administrative employee). The record shows that Reiseck’s primary duty was to sell specific advertising space to clients. Even Gollan, plaintiff’s supervisor, conceded that Reiseck was a member of the “sales staff” and not the “marketing staff.”  Because Reiseck’s primary duty was the sale of advertising space, she is properly considered a “salesperson” for the purposes of the FLSA and therefore does not fall under the administrative exemption to the overtime pay provisions of the FLSA.

Recent amendments to the interpretive regulations provide helpful guidance to support our conclusion above. Although these interpretive regulations do not apply retroactively, see ante note 5, (and even if they did apply retroactively, we need not consider them if we find them unpersuasive, see Skidmore, 323 U.S. at 140), we nevertheless note that the new regulations reach the same conclusion that we reach above. When providing examples of employees who fall under the administrative exemption, the interpretative regulations state that an employee in the financial sector whose primary duty includes “marketing, servicing, or promoting the employer’s financial products” likely falls under the administrative exemption. 29 C.F.R. § 541.203(b) (2004). But, the regulations then specify that “an employee whose primary duty is selling financial products does not qualify for the administrative exemption.” Id. (emphasis added). For example, if a bank employee, acting within the scope of her primary duty, encourages a customer to open a money market account while she opens a checking account for that customer, she would not likely be an administrative employee because she simply was selling a financial product. If, however, an employee’s primary duty included deciding which interest rates to offer to encourage customers to open money market accounts, then that employee would likely be considered an administrative employee, because she was “marketing … or promoting” the financial products. Universal’s sale of advertising space is similar to a financial services company’s sale of financial products. Neither fits neatly within the traditional retail sales model, yet both are standard products sold directly to clients. Additionally, the new interpretative regulations confirm t

Because Reiseck’s primary duty is not administrative, she cannot fall under the administrative exemption to the overtime pay provisions of the FLSA. Our inquiry ends there-we need not inquire whether her work requires “the exercise of discretion and independent judgment,” because the short test requires both that the employee’s primary duty be administrative and that the employee’s work involves the use of discretion. 29 C.F.R. § 541.2(e)(2).”

6 Construction Companies Accused Of Using Race-based Pay Scale: Whites At Top, Latinos Rock Bottom, Daily News Reports

The Daily News is reporting that, “[s]ix construction companies are accused in a new state lawsuit of paying their employees according to their race – with whites at the top and Latinos at the bottom.

The suit filed by [New York] state Attorney General Andrew Cuomo on Thursday says the companies cheated lower-paid minority workers out of $4 million in wages and overtime.

All six firms are controlled by Michael Mahoney, a contractor exposed by the Daily News last year after workers said his companies provided them with black market federal safety certificates.

Mahoney’s companies paid white workers an average hourly rate of $25, while paying African-Americans $18 and Latinos and Brazilians only $15 an hour for the same work, the suit charges.

Since 2002, the companies short-changed dozens of employes at at least 10 construction sites, Cuomo charged.

Some workers were cheated of as much as $600 a month, according to Cuomo.”

S.D.N.Y.: Notwithstanding Defendants’ Disclaimer Of Liability, FLSA Plaintiffs That Accepted OJ Are “Prevailing Party”; Entitled To Reasonable Attorneys’ Fees And Costs

Kahlil v. Original Old Homestead Restaurant, Inc.

Plaintiffs moved for attorneys’ fees and costs following their acceptance of Defendants’ offer of judgment.  The Defendants argued there was no fee entitlement, because their offer contained a disclaimer of liability.  Rejecting this argument, the Court awarded Plaintiffs’ attorneys reasonable attorneys fees and costs.

The Court highlighted the following procedural history:

“Plaintiffs Sayed Kahlil, Wayne Walker, Mohamed Elmahdy and Brian Lahoff were employed as waiters at defendant The Original Old Homestead Restaurant. On January 30, 2007, plaintiffs filed a complaint to resolve wage and hour disputes arising under section 216(b) of the Fair Labor Standards Act of 1938 (“FLSA”) and section 198 of the New York State Labor Law (“NYLL”). 29 U.S.C. § 216(b) (2008); N.Y. Lab. Law § 198 (McKinney 2009). Plaintiffs were represented in this matter by Louis Pechman, a partner at Berke-Weiss & Pechman LLP (“BWP”), and Jaime Duguay, an associate at the same firm. On April 29, 2008, mid-way through the discovery process, defendants submitted an offer of judgment in the amount of $36,000, exclusive of attorneys’ fees, pursuant to Rule 68 of the Federal Rules of Civil Procedure. Plaintiffs accepted the offer of judgment on May 8, 2008, and judgment was entered by the Clerk on May 30, 2008. On June 13, 2008, plaintiffs filed a Motion for Attorneys’ Fees and Costs, pursuant to FLSA § 216(b) and NYLL § 198. Plaintiffs seek $119,737.15 to compensate Pechman and Duguay for labor and costs incurred up to the filing of the motion. Defendants oppose the award of attorneys’ fees and costs on the grounds that plaintiffs did not prevail in the foregoing litigation. In the alternative, defendants contend that the requested fee award should be reduced in light of Pechman’s excessively high hourly rate, the limited nature of plaintiffs’ success, the vagueness of BWP’s time entries, BWP’s small size, excessive hours, billing of clerical tasks at attorney rates, and billing of work completed prior to the filing of the complaint.”

The Court then determined that Plaintiffs were the “prevailing party” as defined by the FLSA:

In an action pursuant to the FLSA, a “prevailing party” must be awarded reasonable attorneys’ fees and costs: “The Court in such action shall … allow a reasonable attorney’s fee to be paid by the defendant, and costs of the action.” 29 U.S.C. § 216(b) (emphasis added). Likewise, the NYLL requires that “[i]n any action … in which the employee prevails, the court shall allow such employee reasonable attorney’s fees ….“ § 198(1-a) (emphasis added).

Plaintiffs are the prevailing party for the purposes of the FLSA and NYLL “if they succeed on any significant issue in litigation which achieves some of the benefit the parties sought in bringing suit.” Hensley v. Eckerhart, 461 U.S. 424, 433 (1983) (quoting Nadeau v. Helgemoe, 581 F.2d 275, 278-79 (1st Cir.1978)). Likewise, to qualify as a prevailing party, a plaintiff must demonstrate a change in the legal relationship between itself and the defendant arising from the resolution of the lawsuit. Texas State Teachers Ass’n v. Garland Indep. Sch. Dist., 489 U.S. 782, 792 (1989).

The judgment in this case suffices to establish plaintiffs as the prevailing party under the FLSA and NYLL. Where, as here, plaintiffs obtained a favorable settlement, they are entitled to an award of attorneys’ fees: “[t]he fact that [plaintiff] prevailed through a settlement rather than through litigation does not weaken [plaintiff’s] claim to fees.” Maher v. Gagne, 448 U.S. 122, 129 (1980). Defendants contend that the settlement is insufficient to render plaintiffs the prevailing party because the complaint sought monetary, declaratory, and equitable relief, while the offer of judgment provided only monetary relief. The Court finds defendants’ argument unpersuasive. Plaintiffs surely obtained some of the relief sought, and no court in this circuit has indicated that relief obtained in settlement must exactly match relief sought in the complaint. See Lyte v. Sara Lee Corp., 950 F.2d. 101, 104 (2d Cir.1991) (holding that a plaintiff may be considered a prevailing party if the relief obtained through settlement is of the “same general type” as relief requested in the complaint); Koster v. Perales, 903 F.2d 131, 134 (2d Cir.1990) (“A plaintiff may be considered a prevailing party even though the relief ultimately obtained is not identical to the relief demanded in the complaint”); Texas State Teachers Ass’n., 489 U.S. at 791-92 (indicating that a plaintiff’s receipt of some of the benefit sought is enough to “cross the threshold to a fee award of some kind”).

The Court also finds unpersuasive defendants’ argument that the disclaimer of liability in the offer of judgment indicates that the settlement did not change the legal relationship between the parties, and therefore that plaintiffs are not the prevailing party. It is not necessary for a defendant to admit liability in order for a plaintiff to be designated as the prevailing party. In Buckhannon, the Supreme Court indicated that a consent judgment without an admission of liability by the defendant “[is] nonetheless … a court-ordered ‘chang[e][in] the legal relationship between [the plaintiff] and the defendant.’ “ 532 U.S. at 604, citing Texas State Teachers Ass’n., 489 U.S. at 792. Further, the Supreme Court in Maher v. Gagne upheld an award of attorneys’ fees based on a settlement agreement containing a disclaimer of liability similar to the one in defendants’ offer of judgment. See 448 U.S. at 126 n. 8. The Court therefore finds that plaintiffs are the prevailing party, and that they are entitled to attorneys’ fees and costs under the FLSA and NYLL.”

Thus, the Court calculated a reasonable attorneys fee and costs and awarded same to Plaintiffs’ counsel.

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