Shehata v. SOBE Miami, LLC et al

Filing 45

ORDER denying 24 Motion for Summary Judgment. Signed by Judge Robert N. Scola, Jr on 6/14/2018. (pes)

United States District Court
for the
Southern District of Florida
Stephane R. Shehata and Michael
A. Olson, Plaintiffs,
v.
Sobe Miami, LLC, dba Palace Bar,
and Thomas J. Donall, Defendants.

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Civil Action No. 17-23175-Civ-Scola
(Consolidated member case: 17-cv23176-Scola)

Order Denying Motion for Summary Judgment
Stephane R. Shehata and Michael A. Olson both worked as servers at
Palace Bar in Miami Beach, Florida. They have sued Defendants Sobe Miami,
LLC, doing business as Palace Bar, and Thomas J. Donall, the owner of the bar
(collectively “Palace Bar”), for minimum-wage and overtime payment violations
under the Fair Labor Standards Act.1 Palace Bar claims entitlement to
summary judgment on the Plaintiffs’ overtime claims because the Plaintiffs are
exempt employees under the FLSA. Defendant Donall also contends he cannot
be held individually liable for any FLSA violations because he was not an
“employer” as defined by the FLSA. The Plaintiffs counter that genuine issues of
material fact preclude summary judgment on either basis. After a thorough
review of the record, the Court agrees with the Plaintiffs and therefore denies
Palace Bar’s motion for summary judgment (ECF No. 24).
1. Factual Background
Olson worked as a server at Palace Bar from December 31, 2015 through
May 20, 2017. (Pls.’ Resp. ¶ 2, ECF No. 28, 1.) Shehata was also a server,
within that same timeframe, from February 16, 2016 through January 24,
2017. (Id. at ¶ 1.) Donall owns the Palace Bar but the parties dispute the level
of his involvement with the operation of the bar. (E.g., id. at ¶¶ 4–5, 9.) The
Palace Bar’s general manager’s responsibilities included managing its servers,
bussers, food runners, and “housemen”: hiring and firing them; determining
their pay; setting their schedules; and generally supervising them. (Id. at ¶ 6.)
All servers at the bar were paid an hourly wage plus three-quarters of a 20%
charge that is added to every customer’s bill. (Id. at ¶ 10.) The parties dispute
whether this charge was mandatory or merely a suggestion. (Id. at ¶ 16–18.) In
addition, servers kept any tips that customers might decide to leave on top of
the 20% charge. (Id. at ¶¶ 11, 19.) The remaining quarter of the 20% charge
1 The Plaintiffs also included in their complaints a third count for issuing fraudulent Internal
Revenue Service W-2 forms. The parties have, however, jointly stipulated to the dismissal of
that count. (Jt. Stip. of Dismissal with Prejudice, ECF No. 23.)

was divided among various other Palace Bar employees: one-fifth each to the
host, the food runner, and the bartender; and the remaining two-fifths to the
manager and the housemen (with the manager getting one-third and the
housemen splitting the other two-thirds). (Id. at ¶¶ 21–23.)
The minimum wage in 2016 was $8.05 an hour. (Id. at ¶ 12.) The
corresponding applicable cash wage for tipped employees in 2016 was $5.03 an
hour. (Id.) In 2017 the minimum wage was $8.10 an hour and the
corresponding applicable cash wage was $5.08 an hour. (Id. at ¶ 13.) Palace Bar
paid both the Plaintiffs the minimum applicable cash wage for tipped employees
for their regular hourly wages, plus their share of the 20% charge as well as any
gratuity on top of that charge. (Id. at ¶¶ 12–13, 23–24.) Both the additional
gratuity as well as the server’s portion of the 20% charge were recorded on each
server’s pay stub as either “Reported Tips” or “Credit Card Tips.” (Id. at ¶ 26.)
Both of the Plaintiffs worked overtime hours from time to time. (Id. at ¶¶ 54,
92.) Their hourly wages combined with their additional pay amounts always
amounted to at least one-and-a-half times the minimum wage for those
overtime hours (anywhere between $15 to $52 an hour). (Id.)
2. Legal Standard
Summary judgment is proper if following discovery, the pleadings,
depositions, answers to interrogatories, affidavits and admissions on file show
that there is no genuine issue as to any material fact and that the moving party
is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S.
317, 322 (1986); Fed. R. Civ. P. 56. “An issue of fact is ‘material’ if, under the
applicable substantive law, it might affect the outcome of the case.” Hickson
Corp. v. N. Crossarm Co., 357 F.3d 1256, 1259–60 (11th Cir.2004). “An issue of
fact is ‘genuine’ if the record taken as a whole could lead a rational trier of fact
to find for the nonmoving party.” Id. at 1260. All the evidence and factual
inferences reasonably drawn from the evidence must be viewed in the light
most favorable to the nonmoving party. Adickes v. S.H. Kress & Co., 398 U.S.
144, 157 (1970); Jackson v. BellSouth Telecomms., 372 F.3d 1250, 1280 (11th
Cir. 2004).
Once a party properly makes a summary judgment motion by
demonstrating the absence of a genuine issue of material fact, whether or not
accompanied by affidavits, the nonmoving party must go beyond the pleadings
through the use of affidavits, depositions, answers to interrogatories,
admissions on file and other documents, and designate specific facts showing
that there is a genuine issue for trial. Celotex, 477 U.S. at 323–24. The
nonmovant’s evidence must be significantly probative to support the claims.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). The Court will not
weigh the evidence or make findings of fact. Anderson, 477 U.S. at 249;

Morrison v. Amway Corp., 323 F.3d 920, 924 (11th Cir. 2003). Rather, the
Court’s role is limited to deciding whether there is sufficient evidence upon
which a reasonable juror could find for the nonmoving party. Id. “If more than
one inference could be construed from the facts by a reasonable fact finder, and
that inference introduces a genuine issue of material fact, then the district
court should not grant summary judgment.” Bannum, Inc. v. City of Fort
Lauderdale, 901 F.2d 989, 996 (11th Cir. 1990).
3. Analysis
Palace Bar argues it is entitled to summary judgment on the Plaintiffs’
overtime claims because the Plaintiffs received commissions as part of their
compensation and are therefore exempt from the FLSA’s overtime requirements.
Palace Bar, in its motion, does not expressly seek summary judgment on the
Plaintiffs’ minimum wage claims, but only obliquely incorporates these claims
in some of their arguments. Donall also seeks summary judgment with respect
to both claims against him, claiming that although he owns the bar, he was not
the Plaintiffs’ “employer” as defined under the FLSA.
A. The Plaintiffs have presented genuine issues of material fact
regarding Palace Bar’s claim that they are exempt employees under
the FLSA.
Palace Bar insists the Plaintiffs were commissioned employees and
therefore it was not required to comply with the FLSA’s overtime wage
provisions. As set forth by Palace Bar, under the FLSA, this exemption is
applied when three requirements are met: (1) the employee’s regular rate of pay
exceeds one and one-half times the minimum applicable hourly rate in a
workweek in which overtime hours are worked; (2) more than half of the
employee’s compensation for a representative period (not less than one month)
must represents commissions on goods or services; and (3) the employee must
work in a “retail or service establishment.” (Def.’s Mot. at 5 (citing 29 U.S.C. §
207(i) (the “§ 7(i) exemption”)).) At the center of the parties’ dispute, with respect
to the exemption, is whether the charge that was added to customers’ bills
constitutes a “commission” for purposes of the § 7(i) exemption.2
Palace Bar maintains that the 20% service charge added to every
customer’s bill qualifies as a commission, and not a gratuity, for the purposes
of applying the § 7(i) exemption. The FLSA does not itself define either “gratuity”

With respect to the application of § 7(i), the Plaintiffs do not dispute that Palace Bar is a “retail
or service establishment” or that they were compensated in excess of one and one-half time the
minimum applicable hourly rate in workweeks in which they worked overtime hours.
Presumably, then, both issues will be stipulated to for the purposes of trial. The parties also do
not dispute that, if the service charge is indeed characterized as compulsory and is therefore a
commission, the § 7(i) exemption applies to servers at Palace Bar.
2

or “commission.” Its implementing rules, however, as Palace Bar points out,
offer some guidance:
A tip is a sum presented by a customer as a gift or gratuity in
recognition of some service performed for him. It is to be
distinguished from payment of a charge, if any, made for the
service. Whether a tip is to be given, and its amount, are matters
determined solely by the customer, who has the right to determine
who shall be the recipient of the gratuity.
29 C.F.R. § 531.52. Conversely, according to another regulatory provision, “[a]
compulsory charge for service, such as 15 percent of the amount of the bill,
imposed on a customer by an employer’s establishment, is not a tip and, even if
distributed by the employer to its employees, cannot be counted as a tip
received.”
Here, the Plaintiffs have presented evidence that the bar’s customers were
not necessarily required to pay the 20% charge. As set forth by the Plaintiffs,
and unrebutted by Palace Bar, both the bar’s corporate representative as well
as Donall, “testified in deposition that the service charges . . . added to
customer bills were not mandatory but were merely suggested tips that were
always subject to the customers’ discretion to pay.” (Pls.’ Resp. at 17.) Palace
Bar also does not dispute that another server, Aynour Soliman, a plaintiff in a
similar case before another court in this district, “testified . . . that customers
were not required to pay the service charges that were added to the bills, and
that a number of customers did, in fact, object to payment of the charges and
had them removed.” (Id.) The Plaintiffs also highlight that, at some point, the
bar’s menus themselves provided a notice informing patrons that, for their
“convenience,” the bar adds a “suggested 20% service charge to all . . . bills” but
that they can “ask [their] server if [they] would like [the charge] to be removed.”
(Id. at 9, 17.)
Palace Bar does not dispute the Plaintiffs’ characterization of any of these
particular facts but instead recites the Plaintiffs’ own testimony describing how
the bar always added the 20% charge to customers’ bills. Palace Bar argues
that since it was not the customer’s decision to have the charge added to the
bill, and because the bar indeed added the charge to every bill, it could not
possibly be a gratuity. The Court disagrees. The facts that the Plaintiffs allege
amount to sufficient evidence upon which a reasonable juror could conclude
that the service charge was discretionary. Indeed, as currently presented, it
appears to the Court that the most likely inference would be that the charge
was not, in fact, mandatory, notwithstanding Palace Bar’s automatically adding
it to every customer’s bill.
Palace Bar’s reliance on Mechmet v. Four Seasons Hotels, Ltd., 825 F.2d
1173, (7th Cir. 1987) (Posner, J.) is misplaced. Palace Bar argues that, in

Mechmet, the Seventh Circuit did not take into account whether customers had
any discretion regarding a hotel’s service charge, applied to all large hotelbanquet bills, when it concluded that the charge should be considered a
commission. But there, the Seventh Circuit had no occasion to evaluate
whether the service charge was a tip or a commission because the plaintiffs in
that case “concede[d] that the service charge [wa]s not a tip, since it [wa]s not
discretionary with the customer.” Id. at 1177. The question before the Mechmet
court, instead, was whether the service charge, which the parties both agreed
was not a gratuity, could be considered a commission under § 7(i). Here, in
stark contrast, the Plaintiffs vigorously dispute Palace Bar’s characterization of
the service charge as a commission.
Contrary to Palace Bar’s insistence, the automatic application of the
charge to all checks, which is undisputed, is not dispositive. Palace Bar has
presented no case law, nor has the Court been able to find any, that supports
its contention that a charge applied like this can never be considered a gratuity.
And, in fact, other courts have indicated that whether the charge should be
considered a commission or gratuity turns not on whether the charge is
automatically applied to every bill, but, rather, on whether the customer
ultimately has any discretion in paying the bill. See, e.g., Nascembeni v.
Quayside Place Partners, LLP, No. 09-23322-CIV, 2010 WL 2351467, at *2 (S.D.
Fla. June 11, 2010) (Cooke, J.) (where the court’s analysis hinged on whether
the service charge at issue “was non-negotiable, in other words, the . . .
customers had no discretion as to whether to pay the service charge or not”);
Virgin v. Escalante-Black Diamond Golf Club, LLC, No. 5:13-CV-359-OC-10PRL,
2014 WL 12591472, at *1 (M.D. Fla. Aug. 4, 2014) (noting issues of fact with
respect to whether a monthly membership fee and an 18% service charge
applied to all food and drink bills were gratuities); Cachola-Bonilla v. Wyndham
El Conquistador Resort & Country Club, 577 F. Supp. 2d 566, 573 (D.P.R. 2008)
(finding an issue of fact where there was a question as to whether an assessed
fee was “a compulsory service charge or whether it [wa]s indeed a ‘disguised’
tip”). Most notably, the other court in this district assessing this same issue has
denied summary judgment on these same grounds. Soliman v. SOBE Miami,
LLC, No. 16-24943-CIV, 2018 WL 2229129, at *5 (S.D. Fla. May 14, 2018)
(Lenard, J.) (denying the same defendants’ motion for summary judgment
because they failed to establish the service charge was in fact mandatory
despite its application to every check).
Finally, although whether the service charge qualifies as a commission
under § 7(i) is, as the parties agree, a question of law, whether the service
charge was mandatory or discretionary hinges on factual determinations. And,
in order to determine these “facts” in Palace Bar’s favor, the Court would have
to weigh the evidence the parties have presented and make impermissible

findings of fact. The evidence presented by the Plaintiffs thus precludes the
entry of summary judgment in Palace Bar’s favor.3
B. The Plaintiffs have presented genuine issues of material fact
regarding whether Donall was an “employer” under the FLSA.
In order for Donall to be individually liable for violations of the overtime
and minimum wage provisions of the FLSA, he must be an “employer” as that
term is defined under the act. 29 U.S.C. § 206(a). The FLSA defines an
“employer” as “any person acting directly or indirectly in the interest of an
employer in relation to an employee.” 29 U.S.C. § 203(d). “[T]o support
individual liability, there must be control over significant aspects of the
company’s day-to-day functions, including compensation of employees or other
matters in relation to an employee.” Lamonica v. Safe Hurricane Shutters, Inc.,
711 F.3d 1299, 1314 (11th Cir. 2013) (quotations and alterations omitted).
“[W]hile control need not be continuous, it must be both substantial and related
to the company’s FLSA obligations.” Id. Donall claims the undisputed facts
demonstrate he was not an employer as defined under the FLSA.
In support of his position, Donall points to a declaration he submitted in
support of his motion for summary judgment as well as the Plaintiffs’ own
testimony. In his declaration, Donall says he does “not assert any real control
over operations even though [he has] the ability to do so.” (Donall Decl. ¶ 4, ECF
No. 25-2, 2.) He also says the only operational decisions he is involved in are
hiring and firing the general manager and determining that manager’s pay. (Id.
at ¶ 5.) Donall also maintains he did not hire or fire the Plaintiffs, did not set
their pay or schedules, and did not direct their work in any way. (Id. at ¶ 10.)
According to Donall, Palace Bar’s general manager, and not Donall, was
responsible for making operational decisions: hiring and firing servers, bussers,
food runners, and housemen; determining employees’ pay; setting their
schedules; and supervising them. (Id. at ¶¶ 6–7.) Shehata’s deposition
testimony was largely consistent with Donall’s declaration in that he said Palace
Bar’s manager hired him and set his pay and schedule. (Shehata Dep., ECF No.
25-3.) Shehata also testified that Donall was not involved in setting employee
schedules or pay and that the manager was responsible for terminating
employees. (Shehata Dep. 32:23 – 33:17.) The only testimony from Olson that
Donall relies on is Olson’s explanation that Palace Bar’s manager fired him for
insubordination. (Olson Dep. 46:22–25, ECF No. 25-4, 11.)
The Plaintiffs submit that, in the event it is determined the service charge actually is
a commission, Palace Bar should nonetheless be prevented from availing themselves of
§ 7(i)’s exemption because, under Florida law, Palace Bar’s application of the automatic
charge was illegal. The Court finds the requested relief improperly presented in the
Plaintiffs’ response and declines to address the issue, especially in light of the Court’s
denial of Palace Bar’s motion for summary judgment on this ground.

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The Plaintiffs, on the other hand, have presented evidence that directly
contradicts Donall’s description of his involvement with running the bar. The
testimony of one of Palace Bar’s managers, Fekrim Haxhaj, is directly at odds
with Donall’s characterization of his role. For example, Haxhaj testified that
Donall was actively involved in the every-day operations of the bar, including its
financial aspects, service, and hiring and firing staff. (Haxhaj Dep. 45:18–24,
ECF No. 28-1, 18.) Haxhaj also maintained that Donall was involved in making
pay decisions. (Id. at 46:19–22.) The Plaintiffs have also submitted Donall’s own
deposition testimony, from the other case pending against him in this district,
that contradicts his declaration. In that testimony, Donall stated that he went to
the bar “at least” once a week. (Donall Dep. 22:3–4.) He also described being
consulted by managers about firing decisions. (Id. at 29:18–20.) Additionally,
Donall said, in that deposition, that his role in the business involved
supervising the work of the bar’s general manager as well as its assistant
managers. (Id. at 22:5–21.) Further, the Plaintiffs have pointed to Donall’s
answer, filed in response to the complaint in the other case, where Donall
affirmatively admits that he was the plaintiff server’s “employer.” (Pls.’ Resp. at
14.) Donall has not objected to the Plaintiffs’ reliance on any of this evidence in
opposing his motion for summary judgment.
Based on the conflicting versions of the depth of Donall’s involvement in
Palace Bar’s operation, summary judgment in Donall’s favor is not warranted.
In viewing the evidence in the light most favorable to the Plaintiffs, the Court
finds a reasonable fact finder could conclude that Donall was in charge of dayto-day operations, exercising supervision of the employees at Palace Bar. See,
e.g., Olivas v. A Little Havana Check Cash, Inc., 324 F. App’x 839, 846 (11th Cir.
2009) (remanding for a jury trial on the issue of whether a defendant company
owner was an “employer” under the FLSA where conflicting testimony could
allow a reasonable person to conclude that the defendant was in fact an
“employer”).
4. Conclusion
Based on the evidence presented by the Plaintiffs, the Defendants are not
entitled to summary judgment regarding the Plaintiffs’ overtime claims or their
claims against Donall individually. Further, to the extent Palace Bar seeks
summary judgment with respect to the Plaintiffs’ minimum-wage claims, that is
also denied. Palace Bar raises this issue only in passing and its argument
appears, in any event, to hinge on a determination that the service charge was a
commission—which has not been established, at least at this point. The Court

thus denies Palace Bar’s motion for summary in its entirety (ECF No. 24).
Done and ordered at Miami, Florida, on June 14, 2018.
________________________________
Robert N. Scola, Jr.
United States District Judge