Kouvelis v. Kouvelis et al

Filing 37

MEMORANDUM Opinion and Order. The third-party defendants' joint motion to dismiss the third-party complaint 13 is granted. Signed by the Honorable Jorge L. Alonso on 9/29/2017. Notice mailed by judge's staff (ntf, )

Case: 1:16-cv-11293 Document #: 37 Filed: 09/29/17 Page 1 of 7 PageID #:134

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
SPIRO KOUVELIS,
Plaintiff,
v.
GEORGE KOUVELIS, SOPHIA KOUVELIS,
SOUTHERN CAFE, INC., and
SB PANCAKE HOUSE, INCORPORATED
d/b/a SOUTHERN CAFE NO. 2, INC.,
Defendants,
v.
OWL NEST INVESTMENTS, LLC,
GENEVA PANCAKE HOUSE, LLC and
BISCUIT CAFE, INC.,
Third-Party Defendants.

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Case No. 16 C 11293

Judge Jorge L. Alonso

MEMORANDUM OPINION AND ORDER
Third-party defendants Owl Nest Investments, LLC (“OWL”), Geneva Pancake
House, LLC (“Geneva”), and Biscuit Cafe, Inc. (“Biscuit”), filed a joint motion to
dismiss the third-party complaint filed by George Kouvelis, Sophia Kouvelis, Southern
Cafe, Incorporated, and SB Pancake House, Inc. (collectively “Southern Cafe”) pursuant
to Federal Rule of Civil Procedure 12(b)(6). For the reasons set forth below, the motion
is granted.
BACKGROUND
This matter arises from a wage dispute. Plaintiff Spiro Kouvelis filed a two-count
complaint against Southern Cafe, alleging violations of the Fair Labor Standards Act
(“FLSA”) and the Illinois Minimum Wage Law (“IMWL”). (Compl. ¶ 1.) Plaintiff

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contends that he worked at Southern Cafe but was not compensated. (Id. ¶¶ 11-14.)
Southern Cafe disputes this contention and claims that it never employed plaintiff; rather,
plaintiff “hung out” at Southern Cafe to observe its business operations and prepare for
the opening of a restaurant called Buttermilk. (Third-Party Pl.’s Compl. ¶¶ 4, 5).
Southern Cafe answered and filed a third-party complaint against OWL1, Geneva,
and Biscuit, seeking indemnification. Southern Cafe names these entities as third-party
defendants because each entity allegedly has an ownership interest in Buttermilk. 2 (Id.
¶¶ 1-3, 7.)

Southern Cafe says that if it is liable to plaintiff, then the third-party

defendants are liable to it because they are the primary beneficiaries of any work
performed by plaintiff. (Id. ¶¶ 6, 8.)
STANDARD
To survive a motion to dismiss pursuant to Rule 12(b)(6), a pleading that purports
to state a claim for relief must “state a claim to relief that is plausible on its face.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S.
544, 570 (2007)). A claim satisfies this standard when its factual allegations “raise a
right to relief above the speculative level.” Twombly, 550 U.S. at 555-56; see also
Swanson v. Citibank, N.A., 614 F.3d 400, 404 (7th Cir. 2010) (“[P]laintiff must give
enough details about the subject-matter of the case to present a story that holds
together.”). For purposes of a motion to dismiss, the court takes all facts alleged by the
plaintiff as true and draws all reasonable inferences from those facts in the plaintiff’s
favor, although conclusory allegations that merely recite the elements of a claim are not
Plaintiff’s wife, Katie Kouvelis, owns and controls OWL. (Id. ¶ 1.)
A state court action challenging the transfer of Buttermilk from Geneva to Biscuit is
currently pending. (Id. ¶ 7.)
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2

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entitled to this presumption of truth. Virnich v. Vorwald, 664 F.3d 206, 212 (7th Cir.
2011). When ruling on a Rule 12(b)(6) motion, the court considers “the complaint itself,
documents attached to the complaint, documents that are critical to the complaint and
referred to in it, and information that is subject to proper judicial notice.” Cohen v. Am.
Sec. Ins. Co., 735 F.3d 601, 604 (7th Cir. 2013) (citing Geinosky v. City of Chicago, 675
F.3d 743, 745-46 n. 1 (7th Cir.2012)).
DISCUSSION
The third-party defendants move to dismiss, arguing that indemnification is
prohibited for FLSA and IMWL claims, that Southern Cafe has failed to allege an
indemnification action, and that this Court should not exercise supplemental jurisdiction
because the same parties are currently litigating in state court.
Indemnity under FLSA and IMWL
Southern Cafe contends that indemnification is appropriate here because, to the
extent plaintiff worked for Southern Cafe, the third-party defendants were the actual and
exclusive employers of plaintiff and, therefore, are the true beneficiaries of any work
performed by plaintiff.
As a preliminary matter, Southern Cafe has failed to sufficiently allege that the
third-party defendants are employers as defined by the FLSA. Under the FLSA, thirdparty defendants may be found liable if they are “employers.” An “employer” is defined
under the FLSA as “any person acting directly or indirectly in the interest of an employer
in relation to an employee.” 29 U.S.C.A 203(d). Courts use the economic realities test to
determine whether an individual “(1) had the power to hire and fire the employees; (2)
supervised and controlled employee work schedules or conditions of employment; (3)

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determined the rate and method of payment; and (4) maintained employment records.”
Perez v. Super Maid, LLC, 55 F.Supp.3d 1065, 1075 (N.D. Ill. 2014) (internal citations
omitted). “The Seventh Circuit has held that an ‘employer must exercise control over the
working conditions of the employee.’” Strauss v. Italian Vill. Rest., Inc., No. 11-CV3202, 2012 WL 5389746, at *2 (N.D. Ill. Nov. 2, 2012) quoting Moldenhauer v.
Tazewell-Pekin Consol. Commc’ns Ctr., 536 F.3d 640, 644 (7th Cir. 2008). When
determining the degree of control, courts will focus on the work an employee actually
performed rather than the work the employee could have performed. See Harper v.
Wilson, 302 F. Supp. 2d 873, 878 (N.D. Ill. 2004).
Southern Cafe alleges that “[i]n theory, Spiro was observing what went on at
[Southern Cafe] in anticipation of the opening of Buttermilk, with the idea that Spiro
might make a meaningful contribution to Buttermilk.” (Third-Party Pl.’s Compl. ¶ 5).
Southern Cafe asserts that indemnity applies because the third-party defendants were the
primary or exclusive beneficiaries of any work performed by plaintiff. (Id. ¶ 6). These
allegations are conclusory and insufficient to show that the third-party defendants were
“employers” within the meaning of the FLSA. Southern Cafe makes no allegation that
plaintiff performed, or is currently performing, any work for the third-party defendants.
Instead, Southern Cafe alleges that, in theory, plaintiff “might make a meaningful
contribution to Buttermilk.” (Id. ¶ 5). Likewise, Southern Cafe makes no allegation that
any of the third-party defendants had any control over plaintiff as required by the
economic realities test. See Strauss v. Italian Vill. Rest., Inc., No. 11-CV-3202, 2012 WL
5389746, at *2 (N.D. Ill. Nov. 2, 2012) (third-party plaintiff unable to show that thirdparty defendants were “employers” under the meaning of the FLSA).

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As pleaded,

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Southern Cafe has failed to sufficiently allege that the third-party defendants are
“employers” as defined by the FLSA.
Even if this were not enough to grant the third-party defendants’ joint motion to
dismiss, indemnification is not appropriate here. The third-party defendants argue that
indemnity claims are prohibited under the FLSA and IMWL.

Southern Cafe

acknowledges that indemnification is not allowed in certain cases (e.g. where an
employer is seeking to indemnify an outside adviser, manager, or co-employer). Yet,
Southern Cafe argues, without support, that it is entitled to indemnification because the
third-party defendants allegedly were plaintiff’s actual or exclusive employers. The
Court disagrees. Although the Seventh Circuit has not specifically addressed the issue of
indemnification in FLSA cases, courts in this district have routinely dismissed these types
of claims. See Simpkins v. DuPage Hous. Auth., 15-CV-9103, 2017 WL 1231718 (N.D.
Ill. March 28, 2017) (dismissing counterclaim for indemnity because it conflicts with the
purpose of the FLSA and is preempted by federal law); Strauss, 2012 WL 5389746, at *4
(dismissing indemnity claims against outside advisors and finding “[t]here is nothing in
the FLSA or the IMWL that allows employers to bring an action against a third party to
avoid its statutory responsibilities under these laws. . . .These statutes only allow actions
against employers as that term has been defined.”); Emanuel v. Rolling in the Dough,
Inc., 10-CV-2270, 2010 WL 4627661 (N.D. Ill. Nov. 2, 2010) (dismissing indemnity
claims as not cognizable and preempted by federal law); Villareal v. El Chile, Inc., 601 F.
Supp. 2d 1011 (N.D. Ill. 2009) (dismissing counterclaim for indemnity against a
supervisor).

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Likewise, courts in other circuits have routinely rejected indemnity claims in
FLSA cases. The Fifth Circuit dismissed an indemnity claim in LeCompte v. Chrysler
Credit Corp., 780 F.2d 1260, 1264 (5th Cir. 1986) (noting that allowing indemnity
actions in FLSA claims would create a conflict with the Supremacy Clause, undermine
employers’ incentive to follow the Act, and create a distinction among employees entitled
to receive overtime pay in a way which otherwise would not exist under the statute).
Other circuits have reached similar conclusions, finding that indemnity actions are
prohibited in FLSA cases. See Herman v. RSR Sec. Servs. Ltd., 172 F.3d 132, 144 (2d
Cir. 1999) (employers found liable under the FLSA have no right of indemnification);
Lyle v. Food Lion, Inc., 954 F.2d 984, 987 (4th Cir. 1992) (indemnity claims against
supervisors not allowed under the FLSA); Martin v. Gingerbread House, Inc., 977 F.2d
1405, 1407-08 (10th Cir. 1992) (third-party complaint by employer seeking indemnity
from employee is against the purpose of the FLSA and is preempted).
The Court sees no reason why this case warrants a different result. As noted by
the court in Strauss, “there is ample authority that holds that the FLSA precludes all such
potential blame-shifting and bars third-party actions for contribution and indemnity using
any tort theories.” Strauss, 2012 WL 5389746, at *3. Moreover, Southern Cafe has
presented the Court with no authority, and this Court has been unable to find any, to
support the position that an actual or exclusive employer, as alleged here, can be
indemnified for potential FLSA violations. Accordingly, Southern Cafe’s third-party
complaint for indemnification under the FLSA is dismissed.

For similar reasons,

Southern Cafe’s IMWL indemnification claim is dismissed as being preempted by federal
law. See Emanuel, 2010 WL 4627661, at *4 (finding that IMWL indemnity claim is

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preempted by federal law); see also Villareal, 601 F.Supp.2d at 1017 (finding that Illinois
law would follow federal law and not permit an employer’s indemnity claim); Strauss,
2012 WL 5389746, at 4 (dismissing IMWL indemnity claim under analysis similar to
FLSA indemnity claim). Because this Court finds that indemnification is not warranted
here, the Court need not address the third-party defendants’ remaining arguments.
CONCLUSION
For the reasons set forth above, the third-party defendants’ joint motion to dismiss
the third-party complaint [13] is granted.

SO ORDERED.
ENTERED: September 29, 2017

______________________
HON. JORGE ALONSO
United States District Judge

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