Garcia et al v. Serpe et al
Filing
113
ORDER denying 67 Motion for Summary Judgment; denying 84 Motion for Summary Judgment. See attached memorandum of decision. Signed by Judge Vanessa L. Bryant on 2/6/2012. (Fernandez, Melissa)
UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
GARCIA ET AL,
PLAINTIFFS,
v.
SERPE ET AL,
DEFENDANTS.
:
:
: CIVIL ACTION NO. 3:08cv1662(VLB)
:
: FEBRUARY 6, 2012
:
:
:
MEMORANDUM OF DECISION DENYING DEFENDANTS’ MOTIONS FOR
SUMMARY JUDGMENT [Dkt. ## 67 and 84].
Before the Court is a motion for summary judgment filed by the
Defendants, Franstell & Co. LLC, Professional House & Office Cleaning, LLC,
Franstel of CT, LLC, and The Great British Invention, LLC. The Defendants also
filed a supplemental motion for summary judgment identifying and correcting an
error in connection with a factual assertion in their Local Rule 56(a)(1) statement
and asserting further arguments with respect to the corrected factual assertion.
The Plaintiffs are twelve former employees of Franstell & Co. LLC, Professional
House & Office Cleaning, LLC and The Great British Invention, LLC and have
brought this suit alleging violations of the Fair Labor Standards Act (“FLSA”) 29
U.S.C. §§ 206 & 207 (a) (1) and the Connecticut Minimum Wage Act Conn. Gen.
Stat. §§ 31-58 et. seq. For the reasons stated hereafter, Defendants’ motions for
summary judgment are denied.
Facts
The following facts relevant to Defendants’ motions for summary judgment
are undisputed unless otherwise noted. Franco Serpe is the owner and
1
managing member of Defendants Franstell & Co. LLC, Professional House &
Office Cleaning, LLC, Franstel of CT, LLC, and The Great British Invention, LLC.
[Dkt. #76, Local Rule 56(a)(1) statement at ¶ 1].
Defendant Franstell & Co. LLC (the “Landscaping LLC”) was formed in
2004 and dissolved on February 24, 2010. The primary business of the
Landscaping LLC was exterior landscaping and snow and ice removal services
for commercial business and residential customers in Fairfield County,
Connecticut. Plaintiffs Baryon Garcia, Danilo Audencio Grave, Danilo Flogar, Edy
Hernandez, Ermelindo Farcia, Hugo Mentenegro, and Juan Ruiz were employees
of the Landscaping LLC. These Plaintiffs worked for the Landscaping LLC at
various times during the period from 2005-2008. [Id. at ¶¶15-16].
Defendant Professional House & Officer Cleaning, LLC (the “Cleaning
LLC”) was formed in 1999 and dissolved on March 3, 2010. The primary
business of the Cleaning LLC was an interior cleaning business for residential
homes and commercial businesses in Fairfield County. [Id. at ¶¶-16]. Plaintiffs
Carmen Medina, Rosana Pelaez, Sandra Gabriel and Ivan Lainez were employees
of the Cleaning LLC at various times during the period from 2005-2008.
Defendant The Great British Invention, LLC (the “Restaurant LLC”)
operated a restaurant in Norwalk, Connecticut. [Id. at ¶ 70]. Prior to 2006, Streets
of London Fish & Chips LLC operated the restaurant where Plaintiff Isreal
Vasquez was an employee. [Id. at ¶¶ 7-12]. On April 3, 2006, Streets of London
Fish & Chips LLC was dissolved and The Great British Invention, LLC was formed
2
on February 6, 2006 and took over the ownership and operation of the restaurant
in Norwalk where Mr. Vasquez worked on April 4, 2006. The restaurant closed in
May of 2008. [Id.].
Defendant Franstel of CT, LLC (the “New LLC”) was formed on March 25,
2009. [Dkt. #26, Local Rule 56(a)(1) statement at ¶ 1]. Defendants assert that New
LLC has “developed business activities such as construction, remodeling,
building renovations, painting services and building maintenance.” [Id. at ¶ 27].
Defendants further assert that the New LLC has completely different clients from
the Landscaping LLC, engages in different business activities and that none of
the Plaintiffs are or were employees of the New LLC. [Id.]. Plaintiffs assert that
New LLC’s business is the continuation of both the Landscaping LLC and the
Cleaning LLC businesses. [Dkt. #90, Pl. Local Rule 56(a)(2), statement of
disputed facts at ¶¶ 37-39]. Plaintiffs also assert that the New LLC’s website
advertises cleaning and landscaping services and represents that the New LLC is
a partnership between the Cleaning LLC and the predecessor company of the
Landscaping LLC. [Id. at ¶ 39].
Franco Serpe has submitted an affidavit stating that Cleaning LLC did not
have gross annual sales of $500,000 or more in 2005, 2006, 2007, 2008 or 2009.
[Id. at ¶3]. In their Local Rule 56 (a)(1) statement, Defendants do not rely on tax
returns or other financial documentation to support this assertion. Instead,
Defendants solely rely on Mr. Serpe’s affidavit. Plaintiffs were provided with
Cleaning LLC’s tax returns for fiscal years 2005-2009 only after Defendants filed
their motion for summary judgment.
3
Franco Serpe has submitted an affidavit stating that the Restaurant LLC did
not have gross annual sales of $500,000 or more in 2005, 2006, 2007, or 2008. [Id.
at ¶12]. In their Local Rule 56 (a)(1) statement, Defendants do not rely on tax
returns or other financial documentation to support this assertion. Instead,
Defendants solely rely on Mr. Serpe’s affidavit. Plaintiffs were never provided
with Cleaning LLC’s tax returns or other financial documentation regarding its
gross annual sales.
Franco Serpe has submitted an affidavit stating that the Landscaping LLC
did not have gross annual sales of $500,000 or more in 2005, 2007, or 2008. [Dkt.
#84, Def. Supplemental Motion for Summary Judgment at 2]. Defendants admit
that Landscaping LLC had annual gross sales of $507,028 in 2006. [Id.]. In 2006,
the only Plaintiff working for the Landscaping LLC was Edy Hernandez. In their
Local Rule 56 (a)(1) statement, Defendants do not rely on tax returns or other
financial documentation to support their assertion regarding Landscaping LLC’s
gross annual sales. Instead, Defendants solely rely on Mr. Serpe’s affidavit.
Plaintiffs were provided with the Landscaping LLC’s tax returns for fiscal years
2005-2009 only after Defendants filed their motion for summary judgment.
Defendants assert that Edy Hernandez was a part-owner of the
Landscaping LLC and not an employee on the basis of an operating agreement
conveying Mr. Hernandez a 50% interest in the Landscaping LLC. [Dkt. #76, Local
Rule 56(a)(1) statement at ¶ 20]. Plaintiffs assert that Mr. Hernandez was an
employee and not a part owner on the basis of Serpe’s IRS Form K-1 indicating
that Mr. Serpe had a 90% interest and his wife Luz Serpe had a 10% interest in the
4
Landscaping LLC. [Dkt. #90, Pl. Local Rule 56(a)(2), statement of disputed facts
at ¶¶ 5-6]. Mr. Hernandez also asserts that he was treated like a regular employee
and had no ability to exercise control over the operations of the business or
participate in its profits. [Id.].
Defendants assert that all Plaintiffs were appropriately paid time and a half
for any overtime worked and were paid an appropriate hourly rate. [Dkt. #76,
Local Rule 56(a)(1) statement at ¶¶ 31-33,37-40,43-45,52-54, 57-60,62-65, 67-70]. In
their Local Rule 56 (a)(1) statement, Defendants do not rely on any financial
records or other documentation to support their assertion that Plaintiffs were
appropriately compensated. Instead, Defendants solely rely on Mr. Serpe’s
affidavit. Plaintiffs assert that they regularly worked more than 40 hours in a
week but were not paid appropriate overtime. Plaintiffs also assert that they did
not receive all the wages they were owed and that Franco Serpe frequently paid
Plaintiffs with checks that were returned for insufficient funds. Certain Plaintiffs
assert that Defendants did not pay them the appropriate minimum wage. [Dkt.
#90, Pl. Local Rule 56(a)(2), statement of disputed facts at ¶¶ 17-36]. Plaintiffs
indicate that Defendants’ records of the hours worked and wages paid to
Plaintiffs were incomplete, incoherent at times, inconsistent and inaccurate.
Plaintiffs assert that in 2005 Serpe “joined his landscaping company with
his house and office cleaning company.” [Dkt. #90, Pl. Local Rule 56(a)(2),
statement of disputed facts at ¶14]. Plaintiffs further assert that the Landscaping
LLC and Cleaning LLC performed services for the same clients and that
employees of the Landscaping and Cleaning LLCs would work at the same
5
locations at the same times. [Id. at ¶12]. Plaintiffs also assert that the
Landscaping LLC paid “expenses such as utilities, supplies and other such
necessary expenses on behalf of” the Cleaning LLC. [Id. at ¶15]. Defendants
assert that all of the Defendant LLCs operated independently, were engaged in
different types of businesses, and had different clients. [Dkt. #76, Local Rule
56(a)(1) statement at ¶ 29].
Plaintiffs assert that the Defendant LLCs would receive thousands of
dollars in cash from customers that was not reported as income. [Dkt. #90, Pl.
Local Rule 56(a)(2), statement of disputed facts at ¶15]. Plaintiffs assert that one
project that was to generate more than $100,000 in cash for the Landscaping LLC
was never reported. [Id.]. Franco Serpe in his deposition also testified that in his
business “there is some cash that certain customers pay that we use to pay
subcontractors that want to be paid cash.” [Dkt. # 90, Ex. 8, Serpe Deposition at
p. 68-69].
Plaintiffs also assert that the financial documents Defendants produced to
Plaintiffs are inaccurate. As noted above, Defendants do not rely on any financial
documents in their Local Rule 56(a)(1) statement but rather rely on the
conclusory statements made by Franco Serpe in his affidavit. Plaintiffs point out
that while Serpe maintained fourteen pages of employee time records for the
Landscaping LLC in 2007 and twenty-pages of employee time records for the
Cleaning LLC in 2007, these companies “reported to the Internal Revenue Service
that they paid no money as salaries and wages in that year.” [Dkt. #90, Pl. Local
Rule 56(a)(2), statement of disputed facts at ¶46].
6
Legal Standard
Summary judgment should be granted “if the movant shows that there is
no genuine dispute as to any material fact and the movant is entitled to judgment
as a matter of law.” Fed. R. Civ. P. 56(a). The moving party bears the burden of
proving that no factual issues exist. Vivenzio v. City of Syracuse, 611 F.3d 98,
106 (2d Cir. 2010). “In determining whether that burden has been met, the court is
required to resolve all ambiguities and credit all factual inferences that could be
drawn in favor of the party against whom summary judgment is sought.” Id.,
(citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986); Matsushita
Electric Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)). “If there is any
evidence in the record that could reasonably support a jury's verdict for the nonmoving party, summary judgment must be denied.” Am. Home Assurance Co. v.
Hapag Lloyd Container Linie, GmbH, 446 F.3d 313, 315-16 (2d Cir. 2006) (internal
quotation marks and citation omitted). At the summary judgment stage of the
proceeding, plaintiffs are required to present admissible evidence in support of
their allegations; allegations alone, without evidence to back them up, are not
sufficient.” Welch-Rubin v. Sandals Corp., No.3:03cv481, 2004 WL 2472280, at *1
(D. Conn. Oct. 20, 2004) (internal quotation marks and citations omitted).
Analysis
“In order to make a prima facie showing of a violation under the minimum
wage and overtime provisions of the FLSA, Plaintiffs must adequately allege that
they were covered employees under the FLSA. The FLSA minimum-wage and
7
overtime provisions apply only to employees who are ‘(1) personally engaged in
interstate commerce or in the production of goods for interstate commerce (socalled ‘individual coverage’), or (2) [were] employed in an enterprise engaged in
interstate commerce or in the production of goods for interstate commerce (socalled ‘enterprise coverage’).’” Rodriguez v. Almighty Cleaning, Inc., 784
F.Supp.2d 114, 121 (E.D.N.Y. 2011) (quoting Shim v. Millennium Group, No.08-cv4022, 2009 WL 211367, at *2 (E.D.N.Y. Jan. 28, 2009)); see also 29 U.SC. § 206(a),
207(a). Here individual coverage does not apply since Plaintiffs have not
asserted that they were preforming work involving or related to the movement of
persons or things between states.
Plaintiffs argue that they were covered employees because they were
employed by an enterprise engaged in interstate commerce or in the production
of goods for interstate commerce. An entity is an “enterprise” for purposes of
FLSA liability when “the related activities performed by any person or persons
are for a common business purpose.” 29 U.S.C. §203 (r). “An enterprise is
‘engaged in commerce’ where its employees engage in commerce or handle, sell,
or otherwise work on goods and materials that have been moved in commerce,
and where the enterprise has at least $500,000 in annual gross volume of sales
made or business done.” Solis v. Cindy’s Total Care, Inc., No.10Civ.7242(PAE),
2012 WL 28141, at *15 (S.D.N.Y. Jan. 5, 2012) (citing 29 U.S.C. §203 (s)). Courts in
the Second Circuit have reduced the definition of “enterprise” to a three-part test:
“(1) the entity or entities must engage in related activities, (2) performed through
unified operation or common control, (3) for a common business purpose.”
8
Bowrin v. Catholic Guardian Soc’y, 417 F.Supp.2d 449, 458 (S.D.N.Y. 2006).
“Enterprise coverage has been interpreted broadly” by courts. Boekemeier v.
Fourth Universalist Society in City of New York, 86 F.Supp.2d 280, 285 (S.D.N.Y.
2000).
“Activities of more than one entity are related where the entities provide
mutually supportive services to the substantial advantage of each entity.” Locke
v. St. Augustine’s Episcopal Church, 690 F.Supp.2d 77, 85 (E.D.N.Y. 2010)
(internal quotation marks and citation omitted). “Activities are considered related
when they are auxiliary or service activities such as central office and
warehousing activities, or bookkeeping, auditing, purchasing, advertising, and
other services.” Boekemeier, 86 F.Supp.2d at 286 . “Entities constitute a unified
operation by performing activities as a single business unit or an organized
business system which is an economic unit directed to the accomplishment of a
common business purpose.” Locke v, 690 F.Supp.2d 77 at 86 (internal quotation
marks and citation omitted). Common control exists “where the performance of
the described activities are controlled by one person or by a number of persons,
corporations, or other organizational units acting together.” 29 C.F.R. § 779.221.
However, “[c]ommon ownership standing alone does not bring unrelated
activities within the scope of the same enterprise … However, if it appears that
there is a reasonable relationship of all the activities to a single business purpose
a different conclusion might be warranted.” 29 C.F.R. § 779.211.
“In circumstances where different entities are involved, the critical inquiry
is operational interdependence in fact. The provision of mutually supportive
9
services to the substantial advantage of each entity are operationally
interdependent and may be treated as a single enterprise under the Act.” Bowrin,
417 F.Supp.2d at 458.
Here, it is undisputed that there was common control by Franco Serpe of
the Landscaping LLC, the Cleaning LLC and the Restaurant LLC. It is also
undisputed that the Landscaping LLC, the Cleaning LLC and the Restaurant LLC
engaged in interstate commerce for purposes of enterprise coverage as “local
business activities fall within the reach of the FLSA when an enterprise employs
workers who handle goods or materials that have moved or been produced in
interstate commerce.” Rodriguez, 784 F. Supp. 2d at 121 (internal quotation
marks and citation omitted). Consequently, the Plaintiffs’ handling of supplies or
equipment that originated out-of-state is sufficient to invoke enterprise coverage.
See e.g., Locke, 690 F.Supp. 2d at 88 (“Cleaning products purchased locally have
been moved in or produced for commerce, and custodians are employees who
handle these products.”); Boekemeier, 86 F.Supp.2d at 285 (“Plaintiff's handling
of janitorial goods that have moved in commerce is more ... [is] more than
sufficient to invoke enterprise coverage.”); Archie v. Gran Cent. Partnership, Inc.,
997 F.Supp. 504, 530 (S.D.N.Y. 1998) (concluding that bags, brooms, shovels, and
pails used by sanitation workers “undoubtedly moved in interstate commerce to
New York City.”); Rodriguez, 784 F.Supp. 2d at 121 (“The Court finds it logical to
infer here that the cleaning supplies utilized by the Plaintiffs originated outside of
New York.”).
10
However, as will be discussed below there are genuine disputes of material
fact that preclude a grant of summary judgment as to (i) whether the Defendants
LLCs should constitute a single enterprise under the FLSA; (ii) whether the
Defendants LLC met the FLSA threshold of $500,000 in gross annual sales; (iii)
whether the Plaintiffs were appropriately compensated under the FLSA; (iv)
whether Plaintiff Edy Hernandez was an employee subject to the FLSA; and (v)
whether New LLC is a successor company to the other Defendant LLCs.
i. There is a material fact in dispute as to whether the Landscaping LLC and
the Cleaning LLC should be treated as a single enterprise
Plaintiffs argue that the Landscaping LLC, the Cleaning LLC and the
Restaurant LLC should be treated as a single enterprise under the FLSA.
However, Defendants argue that these three LLCs operated independently, not for
a common business purpose and therefore cannot be treated as a single
enterprise.
Although, Plaintiffs assert that the landscapers and the cleaners would
provide cleaning and landscaping services to the restaurant, the Plaintiffs have
put forth no evidence which suggests that the restaurant was operationally
interdependent with the landscaping or cleaning businesses. Plaintiffs have not
asserted that there was any overlap of employees between the restaurant and the
cleaning or landscaping businesses or that the landscaping or cleaning
businesses paid for the restaurant’s expenses. Plaintiffs have not indicated that
the restaurant provided any services to the landscaping or cleaning businesses
such that “there was the provision of mutually supportive services to the
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substantial advantage of each entity.” Bowrin, 416 F.Supp.2d at 458. Further,
there is no evidence that Franco Serpe promoted or advertised his restaurant in
conjunction with his landscaping and cleaning businesses. Accordingly, the
Court finds there is no basis for a reasonable juror to conclude that the
Restaurant LLC should be treated as a single enterprise with the Landscaping
and Cleaning LLCs. A reasonable juror could not conclude based on the
evidence in the record that the Restaurant LLC was a single enterprise with the
Landscaping and Cleaning LLCs.
However, Plaintiffs have put forth sufficient evidence from which a
reasonable juror could find that the Landscaping and Cleaning LLCs were
operationally interdependent and should be considered a single enterprise under
the FLSA. As Defendants point out, “[c]ommon ownership standing alone does
not bring unrelated activities within the scope of the same enterprise.” 29 C.F.R. §
779.211. Contrary to Defendants’ contention, Plaintiffs have presented evidence
beyond common ownership when viewed in the light most favorable to them
suggests there was operational interdependence in fact between the Landscaping
and Cleaning LLCs. Plaintiffs have asserted that since 2005 Serpe had joined his
Landscaping business to his Cleaning business. Plaintiffs have also indicated
that Serpe has promoted and advertised his landscaping and cleaning
businesses together and that his landscaping and cleaning employees were often
deployed to the same worksites at the same times. Plaintiffs have further
asserted that the Landscaping LLC would pay expenses on behalf of the Cleaning
LLC. When viewing these facts in the light most favorable to the Plaintiffs, a
12
reasonable juror could conclude that the Landscaping and Cleaning LLCs were
providing mutually supportive services to the substantial advantage of each
other. These facts could therefore support a reasonable fact finder’s conclusion
that there was a reasonable relationship between the Cleaning and Landscaping
LLCs activities to a single business purpose.
Contrary to Defendants’ argument, Serpe’s conclusory assertion in his
affidavit that these businesses were operated separately and not for a common
business purpose is not a sufficient ground for the Court to find that no factual
issues exist. When viewing the facts in the light most favorable to the nonmoving party, there are genuine issues of material fact in dispute regarding
whether the Cleaning and Landscaping LLC should be considered one enterprise
under the FLSA. A reasonable jury could easily find that Serpe’s conclusory
assertions in his affidavit did not outweigh the other evidence Plaintiffs have
presented regarding the operational interdependency of the Cleaning and
Landscaping LLCs’ operations. See Gonzalez v. El Acajutla Restaurant, Inc.,
No.CV04-1513(JO), 2007 WL 869583, at *7 (E.D.N.Y. March 20, 2007) (finding that
the owner’s conclusory assertion that his restaurant, deli and laundromat
operated separately and therefore should not be treated as a single enterprise for
purposes of the FLSA was “not sufficient to overcome” Plaintiffs’ allegations that
the owner comingled funds between businesses and treated plaintiffs “in a
fungible and interchangeable manner”). Consequently, there is a material fact in
dispute as to whether the Landscaping LLC and the Cleaning LLC were
13
operationally interdependent and should be treated as a single enterprise under
the FLSA.
ii. There is a material fact in dispute as to whether the Defendant LLCs had
gross annual sales of $500,000 or more in the relevant periods
Defendants argue that enterprise coverage should not apply as the
Landscaping LLC, the Cleaning LLC and the Restaurant LLC did not have annual
gross sales of $500,000 or more during the relevant periods except for the
Landscaping LLC in 2006.
As noted above, the Defendants solely rely on Serpe’s affidavit stating that
none of the Defendant LLCs had annual gross sales of $500,000 or more during
the relevant periods except for the Landscaping LLC in 2006. The Court is not
persuaded that Mr. Serpe’s self-serving and conclusory affidavit is sufficient
evidence to warrant granting summary judgment on the basis that the Defendant
LLCs did not meet the $500,000 threshold under the FLSA. See Gonzalez, 2007
WL 869583, at *7 (disregarding owner’s “self-serving and conclusory” statement
that “I have never grossed $500,000 per year” as a basis for granting summary
judgment “particularly in light of the defendants’ selective reliance on tax
returns”).
As noted above, Defendants only produced tax returns for the Landscaping
and Cleaning LLCs to Plaintiffs after filing their summary judgment motion.
Defendants did not provide any tax returns or other financial documentation for
the Restaurant LLC to Plaintiffs. Although Defendants have not relied on any
underlying financial documentation in support of their motion for summary
14
judgment on this point, Plaintiffs have submitted evidence demonstrating that the
Defendant LLCs significantly understated their income on their tax returns.
Plaintiffs have asserted that the Defendant LLCs would routinely receive large
amounts of cash up to $100,000 from its customers that would not be reported
and that the Defendant LLCs did not report the true amount of wages worked by
the Plaintiffs on their tax forms. In addition, Mr. Serpe admitted in his deposition
that he would often receive cash from some of his customers. When viewing
these facts in the light most favorable to the Plaintiffs, a reasonable jury could
conclude that any of the Defendant LLCs had gross annual sales of $500,000 or
more in any given year during the relevant periods even in light of Mr. Serpe’s
affidavit to the contrary. See Francios v. Friend Green Tomatoes, Inc., 306 Fed.
Appx. 443, 445 (11th Cir. 2008) (finding that the question of whether employer had
gross annual revenues of 500,000 or more was for the jury where the employer
conceded that some sales were unreported and the actual amount of those
undisclosed sales was uncertain. “The jury thus had to determine whether there
was enough evidence to show that the restaurant's cumulative unreported sales
would cover the difference between the reported gross revenues and the
$500,000 FLSA threshold.”).
A reasonable juror would likely not conclude that Mr. Serpe’s conclusory
and self-serving statements in his affidavit as to the gross annual sales of the
Defendant LLCs absent any underlying financial documentation was sufficient to
overcome Plaintiffs’ assertion that the Defendant LLCs underreported their
income and did in fact have gross annual sales of $500,000 or more in any given
15
year during the relevant periods. Consequently, there is a genuine dispute as to
the material fact of whether any of the Defendant LLCs had annual gross sales of
$500,000 or more in any given year during the relevant periods.
The Court notes that at trial if the jury concludes that the Cleaning and
Landscaping LLCs constitute a single enterprise then the jury must determine
whether the annual gross sales of both LLCs together meet the $500,000 FLSA
threshold in any given year during the relevant periods. However, if the jury finds
that the Cleaning and Landscaping LLCs do not constitute a single enterprise
then the jury must determine whether the Cleaning LLC on its own had gross
annual sales of $500,000 or more in any given year during the relevant periods
and separately whether the Landscaping LLC on its own had gross annual sales
of $500,000 or more in any given year during the relevant periods. Since the
Court has found that the Restaurant LLC was not operating as a single enterprise
with the Landscaping and Cleaning businesses, the jury must determine whether
the Restaurant LLC alone had gross annual sales over the $500,000 threshold in
any given year during the relevant periods.
iii. There are material facts in dispute as to whether the Plaintiffs were
appropriately paid overtime and the minimum wage
As noted above, Defendants primarily rely on Mr. Serpe’s conclusory and
self-serving affidavit for evidence that he appropriately compensated Plaintiffs
and did not violate the FLSA’s overtime and minimum wage provisions. In
response, Plaintiffs have indicated that the Defendant LLCs’ records of the hours
worked and wages paid to Plaintiffs were incomplete, incoherent at times,
16
inconsistent and inaccurate. Plaintiffs have attested to the fact that they
routinely worked overtime and were not appropriately compensated and that
some of the Plaintiffs were not paid the required minimum wage.
Under the FLSA, “employers are required to maintain accurate records
establishing the hours worked by their employees.” Angel v. Queens Blvd. Car
Wash, No.06-CV-6667(CBA), 2008 WL 111159, at *8 (E.D.N.Y. Jan. 8, 2008) (citing
29 U.S.C. § 211(c)). When an employer fails to maintain such records, courts
have held that the “employee has carried out his burden if he proves that he has
in fact performed work for which he was improperly compensated and if he
produces sufficient evidence to show the amount and extent of that work as a
matter of just and reasonable inference.”
Id. (internal quotation marks and
citations omitted). In addition, “where the employer has defaulted, the courts
have held that the ‘plaintiff['s] recollection and estimates of hours worked are
presumed to be correct.’” Id. (citing Zeng Liu v. Jen Chu Fashion Corp.,
No.ooCV4221, 2004 WL 33412, at *8 (S.D.N.Y. Jan. 7, 2004)). Where a plaintiff
carries his burden by proving that he has performed work for which he was
improperly compensated, the burden then shifts back to the employer “to come
forward with evidence of the precise amount of work performed or with evidence
to negative the reasonableness of the inference to be drawn from the employee’s
evidence.” Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680, 687-88 (1946).
The Supreme Court in Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680
(1946) concluded a court may “award damages to the employee, even though the
result be only approximate…[because] [t]he employer cannot be heard to
17
complain that the damages lack the exactness and precision of measurement that
would be possible had he kept records in accordance with [record keeping
laws].” 328 U.S. at 687. The Supreme Court also made clear that to penalize an
employee by “denying him any recovery on the ground that he is unable to prove
the precise extent of uncompensated work,” would “place a premium on an
employer’s failure to keep proper records in conformity with his statutory duty; it
would allow the employer to keep the benefits of an employee’s labors without
paying due compensation as contemplated by the Fair Labor Standards Act.” Id.
Here, Plaintiffs dispute the accuracy and completeness of the Defendants’
records of the hours and wages worked. In light of the Supreme Court’s mandate
that an employee not be penalized by his inability to prove the precise extent of
uncompensated work and that an employer should not be rewarded for failure to
keep accurate records, the Court finds that there is a genuine dispute as to the
material fact of whether the Plaintiffs were appropriately compensated under the
FLSA. When viewing the facts in the light most favorable to the Plaintiffs, the
Court must credit the Plaintiffs’ account that Defendants’ proffered evidence of
the hours worked and wages paid is inaccurate and incomplete. See Angel, 2008
WL 111159 at *9 (finding where the parties “dispute the accuracy of the
defendants’ proffered proof of plaintiff’s hours and wages” there “is a legitimate
factual dispute as to the authenticity of the [proffered] timecards that would be
better decided by a finder of fact”). Accordingly, the Court finds that there are a
material factual disputes as to the validity of Defendant’s records and whether the
Plaintiffs were appropriately compensated under the FLSA.
18
The “FLSA generally provides for a two-year statute of limitations on
actions to enforce its provisions, but allows a three-year limitations period for ‘a
cause of action arising out of a willful violation.’” Herman v. RSR Sec. Servs.
Ltd., 172 F.3d 132, 141 (2d Cir. 1999) (quoting 29 U.S.C. § 255(a)). “An employer
willfully violates the FLSA when it ‘either knew or showed reckless disregard for
the matter of whether its conduct was prohibited by’ the Act.” Young v. Cooper
Cameron Corp., 586 F.3d 201, 207 (2d Cir. 2009) (quoting McLaughlin v. Richland
Shoe Co., 486 U.S. 128, 133 (1988)). Plaintiffs contend that the Defendants’
violation of the FLSA was willful and therefore they should be entitled to damages
going back to 2005. Defendants contend that Plaintiffs have not cited any
evidence that the alleged violations were willful. However, Plaintiffs have
asserted that the Defendant LLCs on occasion never compensated Plaintiffs for
any of the hours worked. When viewing these facts in the light most favorable to
the Plaintiffs, a reasonable juror could conclude that the alleged violations were
willful. Therefore there are genuine issues of material fact in dispute regarding
whether Defendants violated the FLSA willfully. Accordingly, if a jury concludes
that the Defendants willfully violated the FLSA, Plaintiffs would be entitled to
damages going back to 2005.
iv. There is a material fact in dispute as to whether Plaintiff Edy Hernandez is
an employee under the FLSA
Defendants contend that Plaintiff Edy Hernandez was not an employee but
a part-owner of the Landscaping LLC and therefore is not subject to the FLSA.
19
Defendants point to an operating agreement conveying Mr. Hernandez a 50%
interest in the Landscaping LLC as evidence that he was not employee. However,
Plaintiffs contend that Mr. Hernandez was an employee and had no ability to
exercise control over the operations of the business or participate in its profits.
Plaintiffs also point to Mr. Serpe’s IRS Form K-1 indicating that Mr. Serpe had a
90% interest and his wife Luz Serpe had a 10% interest in the Landscaping LLC
as evidence that Mr. Hernandez was never a part owner.
The FLSA defines “employee” as “any individual employed by an
employer.” 29 U.S.C. §203(e)(1). An entity “employs” an individual it if “suffer[s]
or permit[s]” that individual to work. 29 U.S.C. § 203(g). Courts have found that
“[t]his definition is necessarily a board one, in accordance with the remedial
purpose of the FLSA.” Zheng v. Liberty Apparel Co. Inc., 355 F.3d 61, 66 (2d Cir.
2003) (citing United States v. Rosenwasser, 323 U.S. 360, 363 & n.3 (1945); Brock
v. Superior Care, Inc., 840 F.2d 1054, 1058 (2d Cir. 1988)). “An entity ‘suffers or
permits’ an individual to work if, as a matter of ‘economic reality,’ the entity
functions as the individual's employer.” Id. The Supreme Court has explained
that “economic reality” rather than “technical concepts” is the test of
employment under the FLSA. See Goldberg v. Whitaker House Coop., Inc., 366
U.S. 28, 33 (1961).
Defendants suggest that Mr. Hernandez as a result of his 50% interest was
therefore an employer and not an employee. When determining whether a given
person is an “employer” for purposes of FLSA, “the overarching concern is
whether the alleged employer possessed the power to control the workers in
20
question, with an eye to the ‘economic reality’ presented by the facts of each
case.” Herman, 172 F.3d at 139 (quoting Goldberg, 366 U.S. at 33). Under the
“economic reality” test, courts consider factors including “whether the alleged
employer (1) had the power to hire and fire the employees, (2) supervised and
controlled employee work schedules or conditions of employment, (3) determined
the rate and method of payment, and (4) maintained employment records.” Carte
v. Dutchess Cmty. Coll., 735 F.2d 8, 12 (2d Cir. 1984) (internal quotation marks
and citations omitted). “No one factor is dispositive. Instead, the economic
reality test encompasses the totality of circumstances, no one of which is
exclusive.” Chan v. Sung Yue Tung Corp., No.03Civ.6048, 2007 WL 313483, at *12
(S.D.N.Y. Feb. 1, 2007) (internal quotation marks and citations omitted).
Here Mr. Hernandez has testified that he had no actual control over the
Landscaping LLC despite his purported 50% interest. Viewing these facts in the
light most favorable to the Plaintiffs, a reasonable juror could conclude that Mr.
Hernandez did not have the power to hire and fire employees, did not determine
the rate and method of payment, and did not maintain employment records. A
reasonable juror could therefore conclude based on the evidence in the record
that the economic reality was that Mr. Hernandez was an employee that Serpe
permitted to work for the Landscaping LLC and not an employer or part-owner
with Serpe. See Chan, 2007 WL313483 at *13 (finding that defendant was not an
employer “because the evidence did not establish that he had operational
control. The [defendant] was a minority shareholder in the restaurant…but the
totality of the circumstances suggest that his investment did not carry with it
21
managerial responsibility. His primary responsibility at the restaurant involve[d]
working at a cart where he tends and prepares shrimp.”). Since Plaintiffs have
put forth evidence that Mr. Hernandez did not have operational control or
managerial responsibility, a reasonable juror could conclude that Mr. Hernandez
was not an employer but really an employee. Accordingly, there is a genuine
issues of material fact in dispute regarding whether Mr. Hernandez was an
employee or employer of the Landscaping LLC.
v. There are material facts in dispute as to whether New LLC is a successor to
the Cleaning and Landscaping LLCs
Plaintiffs argue that New LLC is a successor corporation to the other
Defendant LLCs and therefore is liable for the alleged FLSA violations of the
other Defendant LLCs. Defendants argue that the New LLC is not a successor
corporation because the nature of its business activities is completely different
from the other Defendant LLCs businesses and it is therefore a totally new and
independent business.
In the Second Circuit, the test for successor liability under the FLSA is
unresolved. The question of what test should apply under the FLSA was the
subject of a recent and well-reasoned District of Connecticut decision. See
Medina v. Unlimited Systems, LLC, 760 F.Supp.2d 263 (D. Conn. 2010). The
Medina court outlined that there are three options that could apply: “the
traditional common law successor liability rule and exceptions; the broader
‘substantial continuity’ standard that the Supreme Court has endorsed in some
22
federal labor law cases; and the Connecticut state common law standard.”
Medina, 760 F.Supp.2d at 266.
1. Traditional common law successor rule and exceptions
Under traditional common law rules, “a corporation that purchases the
assets of another corporation is generally not liable for the seller's liabilities.” Id.
(citing New York v. Nat’l Serv. Indus., Inc., 460 F.3d 201, 209 (2d Cir. 2006)). There
are four exceptions to this general rule:
(1) the purchaser expressly or impliedly assumed the seller's tort liability;
(2) there was a consolidation or merger of the seller and purchaser; (3) the
purchasing corporation was a mere continuation of the selling corporation;
or (4) the transaction was entered into fraudulently to escape obligations
related to the seller's liabilities.
Id.
A corporation may be deemed a mere continuation “when only one
corporation exists following the transfer of assets from the selling corporation to
the purchasing corporation, and there is ‘identity of stock, stockholders, and
directors between the successor and predecessor corporations.’”. Id. (quoting
New York v. Nat’l Serv. Indus., Inc., 352 F.3d 682 (2d Cir. 2003)). The Medina court
outlined that a de facto merger could be found where there is “(1) continuity of
ownership; (2) cessation of ordinary business and dissolution of the [seller] as
soon as possible; (3) assumption by the purchaser of the liabilities ordinarily
necessary for the [business's] uninterrupted continuation ...; and (4) continuity of
management, personnel, physical location, assets, and general business
operation.” Id. (internal quotation marks and citation omitted). The Medina court
observed that the “mere continuation and de facto merger theories are
23
substantially similar and are often treated as a single exception” and that “[f]or
both, continuity of ownership is the key factor.” Id.
2. Substantial continuity standard
“In the federal labor law context, the Supreme Court has held that a
purchasing corporation sometimes may qualify as a successor in interest even
when the purchaser would not constitute a mere continuation of the selling
corporation under the traditional common law standard.” Medina, 760 F.Supp.2d
at 267 (citing B.F. Goodrich v. Betkoski, 99 F.3d 505, 519 (2d Cir. 1996)). The
Supreme Court has found that a purchasing corporation may be liable for
violations of the National Labor Relations Act (“NLRA”) or the Labor Management
Relations Act (“LMRA”), “when there is simply ‘substantial continuity’ between
the selling and purchasing business enterprises.” Id. (citing Fall River Dyeing &
Finishing Corp. v. NLRB, 482 U.S. 27, 43-45 (1987); Howard Johnson Co., Inc. v.
Detroit Local Joint Exec. Bd., 417 U.S. 249, 263-4 (1974)). The Medina court
explained that “[i]n contrast to the traditional common law mere continuation
exception, continuity of ownership is not crucial for a finding of ‘substantial
continuity.’… No one factor is determinative, and substantial continuity is
determined by a ‘totality of the circumstances.’” Id. (internal citations omitted).
The Medina court posited that the substantial continuity test in the NLRA
context reflected the “Supreme Court's recognition that allowing a successor
business to avoid liability for violations of its predecessor could defeat ‘the
employees' legitimate expectation ... that the unfair labor practices [would] be
remedied.’” Id. (quoting Golden State Bottling Co., Inc. v. NLRB, 414 U.S. 168, 184
24
(1973)). In addition, the Medina court noted that the Supreme Court’s refusal to
adopt an analysis which distinguished between mergers, consolidations, or
purchases of assets reflected the Supreme Court’s concern that “so long as there
is continuity in the employing industry, the public policies underlying the
doctrine will be served by its broad application.” Id. (internal quotation marks and
citation omitted).
As the Medina court noted, the Second Circuit held that the substantial
continuity test applied in the NLRA context also applied to the Comprehensive
Environmental Response, Compensation, and Liability Act (“CERCLA”) reasoning
that the substantial continuity test was “more consistent with [CERCLA’s] goals
… [than] the older and more inflexible ‘identity’ rule.” B.F. Goodrich v. Betkoski,
99 F.3d at 519. However the Supreme Court has since held that CERCLA has not
“displaced or fundamentally altered common law standards of limited liability.”
United States v. Bestfoods, 524 U.S. 51, 70 (1998). Following the Supreme Court’s
decision in Bestfoods, the Second Circuit concluded that it had incorrectly
adopted a special successor liability rule for use in CERCLA cases. See New
York v. Nat’l Servs. Indus., Inc., 352 F.3d at 685-86.
The Supreme Court in Bestfoods expressly declined to consider whether
state or federal common law under CERCLA should apply and the Second Circuit
“was able to avoid deciding whether state or federal common law applied
because it found that New York's successor liability rule was virtually identical to
the traditional common law rule.” Medina, 760 F. Supp.2d at 268 (citing New York
v. Nat’l Servs. Indus., 460 F.3d at 203).
25
The Medina court observed that the “Second Circuit has not decided
whether the substantial continuity standard used in the NLRA context also
applies in the FLSA context” and that the “FLSA itself does not address the issue
of liability for successor employers.” Id. In addition, the Second Circuit has
noted that “Congress intended [the FLSA] to have the widest possible impact in
the national economy.” Barfield v. N.Y.City Health & Hosp. Corp., 537 F.3d 132,
142 (2d Cir. 2008). The Medina court also observed that outside of the Second
Circuit, several courts have “applied [in the FLSA and other employee-protection
statutes] versions of the substantial continuity test for successor liability
endorsed by the Supreme Court in the NLRA context.” Medina, 760 F. Supp.2d at
268 (collecting cases). The Medina court also noted that courts in the Eastern
District of New York have applied New York’s common law successor liability test
in the FLSA context “as implemented by the Second Circuit in the CERCLA
context post Bestfoods.” Id. at 269 (collecting cases). The Medina court also
observed that some courts in the Southern District of New York, Western District
of New York, and the District of Connecticut have applied a version of the
Supreme Court’s substantial continuity test to evaluate successor liability for
Title VII violations. Id. (collecting cases). The Medina court explained that “[t]he
substantial continuity test that those district courts have applied in the Title VII
context examines not only whether there has been substantial continuity in
operations, but also whether the purchasing corporation had notice of the
charges against the selling corporation, and whether the predecessor corporation
has the ability to provide relief.” Id.
26
3. Connecticut state common law standard
The Connecticut Supreme Court has not addressed the requirements for
successor liability. However, as the Medina court observed, the “Connecticut
Appellate Court has quoted treatises and Second Circuit cases to articulate
Connecticut's successor liability standard.” Id. (citing Chamlink Corp. v. Merrit
Extruder Corp., 96 Conn.App. 183, 187 (2006)).
“In Connecticut, the general rule is the same as the traditional common law
rule: ‘The mere transfer of the assets of one corporation to another corporation or
individual generally does not make the latter liable for the debts or liabilities of
the first corporation.’” Id. at 269-270 (quoting Chamlink, 96 Conn.App. at 187).
The four exceptions to this general rule under Connecticut common law also tract
the four exceptions under the traditional common law rule: “(1) a purchaser
expressly or impliedly agrees to assume the liabilities of the seller; (2) the
purchaser is a mere continuation of the seller; (3) the companies merge; or (4) the
transaction is entered into fraudulently to escape liability.” Id. at 270.
“However, under Connecticut common law, the ‘mere continuation’
exception is broader and more flexible than the traditional common law ‘mere
continuation’ exception. Specifically, Connecticut courts recognize the
‘substantial continuity’ or ‘continuity of enterprise’ theory that the Second Circuit
articulated in Betkoski.” Id. (citing Kendall v. Amster, 108 Conn.App. 319, 332
(2008); Chamlink, 96 Conn.App. at 187-88). The Medina court explained that
“[w]hile the Second Circuit acknowledges that the [continuity of enterprise] rule
27
is generally presented as a variant of the mere continuation exception, it has
construed mere continuation and continuity of enterprise as separate theories…
By contrast, Connecticut courts treat continuity of enterprise as their preferred
version of the mere continuation exception, essentially defining mere
continuation as continuity of enterprise.” Id. (internal quotation marks and
citations omitted).
The Medina court outlined the factors that “Connecticut courts typically
consider to determine whether a business is a ‘mere continuation’ [to] include:
continuity of management, personnel, physical location and general business
operations; continuity of shareholders; cessation of the predecessor business
shortly after the successor entity is formed; and whether the purchaser business
holds itself out as the effective continuation of the seller.” Id. (citations omitted).
For successor liability to be found, not all of the above factors have to be
established. Id. citing (S. Conn. Gas Co. v. Waterview of Bridgeport Ass’n, Inc.,
No.CV054005335, 2005 WL 1681005, at *2-3 (Conn. Super Ct. June 1, 2006)).
Under Connecticut law, “continuity of ownership is not an essential requirement
for a business to be deemed a mere continuation.” Id. at 271 (citations omitted).
As the Medina court concluded, “it is not entirely clear which standard this
Court should apply to determine successor liability under the FLSA.” Id.
However, the Court need decide which standard should apply under the FLSA
because there are genuine issues of material facts in dispute which would be
dispositive to the issue of successor liability under any of the three standards.
28
First it appears that Franco Serpe is the owner and manager of the New
LLC and so there is continuity of ownership between his predecessor companies
and the purported successor company. Defendants argue that since New LLC is
solely owned and managed by Franco Serpe and that the Landscaping LLC was
owned by Franco Serpe, his wife Luz and Edy Hernandez there cannot be
continuity of ownership. However, the Court does not find Defendants’ argument
persuasive. As discussed above, there is material fact in dispute as to whether
Edy Hernandez was an employee or part-owner of the Landscaping LLC.
Moreover, a reasonable juror could conclude that based on the evidence in the
record that Franco Serpe was the real person in charge and in control of all the
Defendant LLCs such that there was continuity of ownership.
One of the major differences between the “substantial continuity standard”
and the traditional common law rule is that under the “substantial continuity
standard” there need not be continuity of ownership to support the application of
successor liability. Likewise, one of the major differences under the Connecticut
state common law standard and the traditional common law rule is that under
Connecticut’s approach continuity of ownership is also not a requirement for
successor liability. In the present case, since there is arguably continuity of
ownership, successor liability can be equally established under all three
standards.
Although the traditional common law rule is arguably stricter than both the
Connecticut common law standard and the “substantial continuity standard”
which is more a fluid standard focused on the totality of the circumstances, in the
29
present case the decisive inquiry under all three approaches is identical. Since
continuity of ownership is present as well as continuity of management, the
dispositive analysis under all three standards is whether there is continuity of
general business operations between New LLC and the Landscaping, and
Cleaning LLCs. Therefore if New LLC’s general business operations are
substantially similar to the business operations of these predecessor companies,
then New LLC will be considered the successor in interest under all three
standards.
In other words, the dispositive inquiry is whether New LLC is the
effective continuation of the Mr. Serpe’s prior landscaping and cleaning
businesses.
Here, Defendants, relying on Mr. Serpe’s affidavit, assert that New LLC is
really a construction business and not a landscaping or cleaning business.
Defendants further assert that New LLC has completely different clients and
engages in totally different business activities. However, Plaintiffs have asserted
that New LLC is really just the continuation of the prior landscaping and cleaning
business. Plaintiffs submit that New LLC’s website advertises cleaning and
landscaping services and represents that it is a partnership between the former
cleaning and landscaping businesses. When viewing these facts in the light most
favorable to the non-moving party, a reasonable juror could conclude that New
LLC is the effective continuation of the Landscaping and Cleaning LLCs
businesses. Accordingly, the Court finds that there is a genuine issue of
material fact in dispute regarding the nature of New LLC’s general business
operations. If New LLC does provide landscaping and cleaning services as
30
Plaintiffs contend, then under all three successor liability standards New LLC
would be the successor in interest to the Landscaping and Cleaning LLCs.
Although Plaintiffs vaguely suggest that New LLC is a successor to all
three predecessor LLCs, the entire substance of Plaintiffs’ argument is focused
on how New LLC is a successor to the Landscaping and Cleaning LLCs.
Plaintiffs put forth no facts or arguments regarding how New LLC is a successor
to the Restaurant LLC beyond continuity of ownership. Since there are no facts
which suggest that New LLC also operates a restaurant, a reasonable juror could
not conclude that New LLC was the effective continuation of Mr. Serpe’s former
restaurant business. Consequently, the Court finds that New LLC is not a
successor in interest to the Restaurant LLC.
In sum, summary judgment is inappropriate since there are genuine
disputes as to the material facts of (i) whether the Cleaning and Landscaping
LLCs were operationally interdependent and therefore constituted a single
enterprise under the FLSA, (ii) whether the Restaurant LLC, Cleaning LLC and
Landscaping LLC alone or together had annual gross sale of $500,000 or more in
any given year during the relevant periods, (iii) whether the Plaintiffs were not
paid overtime or the minimum wage as required under the FLSA; (iv) whether
Plaintiff Edy Hernandez was an employee under the FLSA; and (v) whether New
LLC’s business operation is just a continuation of the Cleaning and Landscaping
LLCs’ businesses.
Conclusion
31
Based upon the above reasoning, the Defendants’ [Dkt. ## 67 and 84]
motions for summary judgment are DENIED.
IT IS SO ORDERED.
_________/s/________
Hon. Vanessa L. Bryant
United States District Judge
Dated at Hartford, Connecticut: February 6, 2012
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