Gomez et al v. Faulkner et al

Filing 63

ORDER denying 57 Motion for Summary Judgment Against Defendant Greg Scrivner. (See document for further details). Signed by Senior Judge Frederick J Martone on 8/19/13. (LAD)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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Daniel Gomez, et al.,

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Plaintiffs,

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vs.

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Gary Faulkner, et al.,
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Defendants.
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No. CV-12-1506-PHX-FJM
ORDER

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The court has before it plaintiffs’ motion for summary judgment against defendant
Greg Scrivner (doc. 57), Scrivner’s response (doc. 60), and plaintiffs’ reply (doc. 62).
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The Florence Community Hospital ceased operations in June 2012, and approximately

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120 employees lost their jobs. Plaintiffs are four former employees of the Hospital who

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allege that they were not paid for the last three weeks of work before the Hospital closed.

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They filed this action under the Fair Labor Standards Act (“FLSA”), 29 U.S.C. §§ 201-219,

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for unpaid wages and liquidated damages, on behalf of themselves and other similarly

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situated employees,1 against four officers of the Hospital and its parent company, Initiatives

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Healthcare, LLC. Defendants McEachern and Cherne were the CEO and CFO, respectively,

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Seventy-one former employees have filed consents to join this lawsuit. PSOF ¶ 2.

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of the parent Initiatives Healthcare, while defendants Faulkner and Scrivner were CEO and

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CFO, respectively, of the Florence Hospital.

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Plaintiffs argue in the present motion that defendant Scrivner was an “employer”

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within the meaning of the FLSA, and therefore he is personally liable for the Hospital’s

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FLSA violations.

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II

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The FLSA requires that “employers” pay covered employees a minimum hourly wage.

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29 U.S.C. § 206(a). Any employer who violates the FLSA is liable to the employee “in the

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amount of their unpaid minimum wages . . . , and in an additional equal amount as liquidated

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damages.” Id. § 216(b). “Employer” is broadly defined in the statute as “any person acting

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directly or indirectly in the interest of an employer in relation to an employee.” Id. § 203(d).

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Courts have further defined “employer” as one who “exercise[s] economic and operational

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control over the employment relationship.” Lambert v. Ackerley, 180 F.3d 997, 1012 (9th

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Cir. 1999). The FLSA’s definition of “employer” “is not limited by the common law concept

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of ‘employer,’ but ‘is to be given an expansive interpretation in order to effectuate the

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FLSA’s broad remedial purposes.’” Id. (quoting Bonnette v. Calif. Health & Welfare

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Agency, 704 F.2d 1465, 1469 (9th Cir. 1983)).

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III

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The undisputed facts in the instant case show that as CFO of the Hospital, Scrivner

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oversaw the Hospital’s day-to-day financial operations; reviewed and approved payroll

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information; co-signed payroll checks; hired, fired and determined hours of work for

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employees within his department; attended board of director meetings; and prepared financial

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reports for the parent company. Scrivner knew that the Hospital was having financial

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difficulty and that lay-offs and bankruptcy were under consideration. He also knew that the

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Hospital relied on “funders,” or third-parties who purchased the Hospital’s accounts

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receivables in exchange for up-front funds to meet the Hospital’s payroll expenses.

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On June 15, 2012, the hospital distributed payroll checks to employees for the

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preceding two-week pay period. Scrivner knew that the Hospital did not have sufficient
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funds in the bank on June 15th to cover the checks. However, defendant McEachern, CEO

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of parent company Initiatives Healthcare, advised Scrivner that the “funder” had agreed to

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fund the June 15th payroll, and directed Scrivner to distribute the checks to employees. On

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Monday, June 18, 2012, Scrivner received an email from McEachern stating that the funder

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had reneged on the agreement and the June 15th payroll checks would not be funded. It was

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at this point that McEachern decided to close the Hospital.

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Contrary to plaintiffs’ assertions, there is no evidence that Scrivner “ma[de] decisions

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to continue operations despite financial adversity during the period of nonpayment.” Reply

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at 5 (citing Donovan v. Agnew, 712 F.2d 1509, 1514 (1st Cir. 1983)). Plaintiffs have

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presented no evidence to show that Scrivner had any decision-making authority with respect

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to whether the Hospital would continue its operations. Scrivner had no ownership interest

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in the Hospital. He had no authority to set employee salaries or benefits. Although Scrivner

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had significant responsibilities as the Hospital’s CFO, there is no evidence that he had

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“operational control of significant aspects of the corporation’s day to day functions.” Id.

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(emphasis added). In fact, there is no evidence submitted that he had much operational

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control at all.

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With respect to the payment of the June 15th payroll, Scrivner testified that he had no

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concern about the Hospital being able to meet payroll “because we had a funder who was

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always willing to help us out.” PSOF, Scrivner Depo., 16: 11-13. Defendant McEachern,

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CEO of the Hospital’s parent company, assured Scrivner that the paychecks issued on Friday

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June 15, 2012 would be funded by Monday June 18th. Id. 18:1-6. McEachern instructed

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Scrivner to issue the paychecks. Id. Scrivner did not learn until after the payroll checks were

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distributed that the “funder” had reneged on its promise to make the payment. Id. 20:1-4.

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Plaintiffs rely on cases where corporate officers personally made decisions to keep a

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business open despite the company’s inability to fulfill its FLSA obligations to its employees.

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See Donovan, 712 F.2d 1509; Dole v. Simpson, 784 F. Supp. 538, 546 (S.D. Ind. 1991). In

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Donovan, the court held that an “employer” under the FLSA is a corporate officer “with a

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significant ownership interest who had operational control of significant aspects of the
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corporation’s day to day functions, including compensation of employees, and who

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personally made decisions to continue operations despite financial adversity during the

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period of nonpayment.” 712 F.2d at 1514.

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Unlike the cases relied upon by plaintiffs, however, there is no evidence

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demonstrating that Scrivner was a corporate officer with a substantial ownership interest in

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the corporation, who had authority to decide, or even to influence, whether to continue

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Hospital operations–and to employ workers–despite the Hospital’s financial condition.

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Moreover, because Scrivner had no ownership interest in the Hospital, it cannot be said that

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he “economic control over the corporation.” See U.S. Dep’t of Labor v. Cole Enter., 62 F.3d

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775, 778 (6th Cir. 1995).

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Nor is there any evidence that Scrivner had knowledge that the Hospital would be

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unable to satisfy its obligations under the FLSA. “At bottom, [the] economic reality analysis

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focuse[s] on the role played by the corporate officers in causing the corporation to

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undercompensate employees and to prefer the payment of other obligations and/or the

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retention of profits.” Baystate Alt. Staffing, Inc. v. Herman, 163 F.3d 668, 678 (1st Cir.

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1998). There is no evidence that Scrivner acted in the role of decision-maker with respect

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to the actions that led the Hospital to undercompensate its employees.

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Although the definition of “employer” under the FLSA is to be construed broadly in

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order to effectuate the FLSA’s broad remedial purposes, it is not likely that Congress

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intended that “any supervisory or managerial employee of a corporation could be held

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personally liable for the unpaid wages of other employees.” Id. at 677.

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Summary judgment is only appropriate where there is no genuine issue of material

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fact and the moving party is entitled to a judgment as a matter of law. Fed. R. Civ. P. 56.

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When we view the facts in the light most favorable to Scrivner, the nonmoving party, we

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cannot conclude as a matter of law that Scrivner was an “employer” for purposes of the

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FLSA, making him personally liable for the Hospital’s wage violations.

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IV
IT IS ORDERED DENYING plaintiffs’ motion for summary judgment against
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defendant Greg Scrivner (doc. 57).
DATED this 19th day of August, 2013.

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