DAYTON v. FOX RESTAURANT VENTURE, LLC et al

Filing 35

ORDER ON DEFENDANTS' PARTIAL MOTION TO DISMISS - The Court GRANTS Defendants' Partial Motion to Dismiss with respect to Plaintiff's claim under the Indiana Wage Payment Statute and DENIES Defendants' Motion to Dismiss with respe ct to Plaintiff's claims for civil conversion and under the Fair Labor Standards Act. Accordingly, Plaintiff's claim under the Indiana Wage Payment Statute is DISMISSED WITH PREJUDICE. (See Order.) Signed by Judge Larry J. McKinney on 1/23/2017. (LDH)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION

JACOB A. DAYTON individually and on
behalf of all outs similarly situated,

)
)
)
)
)
)
)
)
)
)
)
)
)
)
)

Plaintiff,
vs.
FOX RESTAURANT VENTURE, LLC,
et al.,

Defendants.

No. 1:16-cv-02109-LJM-MJD

ORDER ON DEFENDANTS’ PARTIAL MOTION TO DISMISS
This matter comes before the Court on Defendants’, Fox Restaurant Venture, LLC,
Fox NC Acquisition, LLC, and Fox SC Acquisition, LLC, all doing business as Jimmy
John’s (collectively “Fox”), Partial Motion to Dismiss 1 (Dkt. 24) Plaintiff Jacob A. Dayton’s
Amended Complaint (Dkt. 23) pursuant to Federal Rule of Civil Procedure 12(b)(6) (“Rule
12(b)(6)”) for failure to state a claim. Dayton is pursuing a collective claim against Fox to
recover unpaid minimum wages under the Fair Labor Standards Act (“FLSA”) on behalf
of similarly situated employees in Indiana. Dayton alleges that Fox’s customer refund
policy (“Refund Policy”) violates the FLSA by exerting unauthorized control over delivery

1 Fox admits for the first time in its reply brief – and only after Dayton addressed other potential issues that
Fox might be seeking dismissal on – that its motion is a partial motion to dismiss. Dkt. 28 at 1. With respect
to the FLSA allegations, it only seeks dismissal of the claims regarding cancelled credit card transactions.
Id. at 1-2. Fox does not challenge Dayton’s assertion that he did not receive adequate notice under the
FLSA nor his claim relating to cash tips.

1

drivers’ tips. Dayton also alleges individual claims for conversion under Ind. Code. § 3424-3-1 (conversion) and for illegally deducted tips and wages under the Indiana Wage
Payment Statute (“IWPS”). Ind. Code § 22-2-5.
For the reasons set forth below, the Court GRANTS IN PART AND DENIES IN
PART Fox’s Motion to Dismiss.
I.

BACKGROUND

Fox is a franchise owner and operator of approximately twenty to thirty Jimmy
John’s restaurants. Dkt. 23, ¶ 3. Dayton worked for Fox as a food delivery driver at its
restaurants in Bloomington, Indiana, from February 26, 2014, until May 10, 2016. Id., ¶
4. Fox hires delivery drivers to transport food to its customers at their homes, businesses,
and other locations. Id., ¶ 6. During his employment with Fox, Dayton was paid wages
as a food deliverer on an hourly basis. Id., ¶ 5. Fox paid its delivery drivers at a rate less
than the FLSA minimum wage of $7.25. Id., ¶ 7. Dayton made $5.50 per hour at the end
of his employment in 2016. Id.
Fox received a tip credit against its minimum wage obligations to its drivers, which
enables Fox to pay its drivers, as tipped employees, less than the prevailing minimum
wage. Id., ¶ 8; see also 29 U.S.C. § 203(m). Dayton alleges that Fox unlawfully claimed
the tip credit for two reasons: (1) Fox failed to inform Dayton and other delivery drivers
who were tipped employees of the tip credit provisions of the FLSA; and (2) Fox charged
its delivery drivers, and used their tips, to cover Fox’s own business expenses and costs.
Id., ¶ 9. Fox requires delivery drivers to return a portion of their tips to the employer. Id.,
¶ 11. Specifically, for purposes of this motion, Fox maintains a Refund Policy that
provides for a full refund – including the amount of the tip designated for the driver – to

2

any customer that lodges a complaint. Id., ¶ 12. Upon receipt of a complaint, Fox either
cancelled the whole credit card transaction (including the tip) or required delivery drivers
to return the cash that was received. Id.
II.

STANDARD OF REVIEW

Rule 12(b)(6) permits the dismissal of an action for failure to state a claim upon
which relief can be granted in the pleadings. Under Rule 12(b)(6), the Court must accept
as true all well-pleaded factual allegations and draw all reasonable inferences in favor of
the plaintiff. See Esekiel v. Michel, 66 F.3d 894, 897 (7th Cir. 1995). A pleading must
contain a “short and plain statement of the claim showing that the pleader is entitled to
relief.” Federal Rule of Civil Procedure 8(a)(2). Detailed factual allegations are not
required, but a plaintiff’s complaint may not simply state “an unadorned, the defendantunlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The
“allegations must be enough to raise a right to relief above the speculative level[.]” Bell
Atlantic Corp. v. Twombly, 550, U.S. 544, 555 (2007). “[A] complaint must contain
sufficient factual matter … to ‘state a claim to relief that is plausible on its face.’” Iqbal,
556 U.S. at 678 (quoting Twombly, 550 U.S. at 570). “A claim has facial plausibility when
the plaintiff pleads factual content that allows the court to draw the reasonable inference
that the defendant is liable for the misconduct alleged[,]” not when the plaintiff only raises
a “sheer possibility that the defendant has acted unlawfully.” Id. “[T]he height of the
pleading requirement is relative to the circumstances[,]” Cooney v. Rossiter, 583 F.3d
967, 971 (7th Cir. 2009), and “[d]etermining the plausibility of a claim is a context-specific
task that requires [the Court] to draw on [its] judicial experience and common sense.”
Brown v. JP Morgan Chase Bank, 334 Fed. Appx. 758, 759 (7th Cir. 2009).

3

III.

ANALYSIS

Fox seeks dismissal on three separate grounds. First, Fox contends that Dayton
never actually “received” the credit card tips, which is a prerequisite under the FLSA
before money can be considered as a tip. Second, Fox argues that Dayton’s wage claim
must fail because tips are not considered “wages” under the IWPS. Finally, Fox moves
to dismiss Dayton’s conversion claims because the tips are not “special chattel.”
A. Tip Credit Provisions of the FLSA
Fox’s first argument is predicated on whether or not the tip moneys were cancelled
prior to the delivery drivers “receiving” the tip. Fox believes that its cancellation policy is
consistent with the FLSA, which permits use of the tip credit if “all tips received by such
employee have been retained by the employee.” 29 U.S.C. § 203(m). Fox cites to 29
C.F.R. § 531.52, which sets forth the general characteristics of “tips” and states: “Only
tips actually received by an employee as money belonging to the employee may be
counted in determining whether the person is a ‘tipped employee’ within the meaning of
the Act and in applying the provisions of section 3(m) which govern wage credits for tips.”
Thus, Fox concludes that when a credit card transaction is cancelled pursuant to its refund
policy, drivers never actually “received” money and therefore the Refund Policy does not
preclude Fox’s entitlement to a tip credit.
Fox cites the Sixth Circuit case Myers v. The Copper Cellar Corporation, which
reviewed whether an employer could deduct from credit card charged tips those fees
charged by the credit card company. 192 F.3d 546 (6th Cir. 1999). Myers found that an
employer could in fact deduct the amount it costs to process the credit card fee. Id. at
553-54. It also noted, in dicta, that “[b]efore an employee can be entitled to attain any

4

funds on account of a charged customer gratuity, that debited obligation must be
converted into cash.” Id. at 553.
Myers recognized an exemption that allows for employers to require tipped
employees to contribute to the liquidation of the money received by credit card, and
nothing more. Although this decision has been relied upon by other courts, Fox cites to
no case or statutory authority to allow it to exercise control over tip money for discretionary
business purposes.
One case that Fox does cite, Steele v. Leasing Enterprises, Limited, however, is
instructive. 826 F.3d 237 (5th Cir. 2016). Steele involved restaurant servers that brought
a claim against their restaurant employer, Perry’s, for deducting credit card tips. Perry’s
deducted credit card tips for two reasons: “(1) Perry’s responded to its employees’
demand to be tipped out in cash each night, instead of transferring their tips in their biweekly pay checks, and (2) Perry’s elected to have cash delivered three times a week to
address security concerns.” Id. at 245. The Steele court noted that Myers established
an exemption to address credit card company fees that an employer was required to pay
before receiving money, but held that an employer could not deduct tips to offset
discretionary business decisions.

Id. at 245-46.

To permit an employer “to offset

employees’ tips to cover discretionary costs of cash delivery would conflict with § 203(m)’s
requirement that ‘all tips received by such employee have been retained by the employee’
for employers to maintain a statutory tip credit.” Id. at 246.
Similarly, Fox is alleged to use the delivery drivers’ tip money (regardless of how
it is paid) for its own discretionary business reason – namely, customer satisfaction. Fox’s
Refund Policy seeks to please customers that have lodged a complaint and requires

5

drivers to subsidize a portion of this effort. Fox utilizes the tip money to better its own
business position at the expense of the drivers. As the Myers court noted, “the employer
must prove that its total deductions from employees’ tip incomes did not enrich it, but …
merely restored it to the approximate financial posture it would have occupied if it had not
undertaken to collect credit card tips for its employees.” 192 F.3d at 555 (emphasis
added). Moreover, Fox has failed to put forth any reason under section 3(m) of the FLSA
that would allow it to exercise control over its drivers’ tips. See Steele, 826 F.3d at 243
(“The employer carries the burden to prove its entitlement to the tip credit.”); see also 29
U.S.C. § 203(m); see also 29 C.F.R. § 531.52 (“Tips are the property of the employee
whether or not the employer has taken a tip credit under section 3(m) of the FLSA. The
employer is prohibited from using an employee’s tips, whether or not it has taken a tip
credit, for any reason other than that which is statutorily permitted in section 3(m): as a
credit against its minimum wage obligations to the employee, or in furtherance of a valid
tip pool.”). Accordingly, Fox’s argument fails.
B. Indiana Wage Payment Statute
Fox also seeks dismissal of Dayton’s claim under the IWPS, which provides relief
to employees who have not been paid by an employer. Ind. Code § 22-2-5-1. Dayton
alleges that Fox appropriated illegal deductions from his tip wages in violation of the
IWPS.
The IWPS states that an employer “shall pay each employee … the amount due
the employee.” Ind. Code § 22-2-5-1(a). The IWPS “governs both the frequency and the
amount an employer must pay its employee.” St. Vincent Hosp. and Health Care Ctr.,
Inc. v. Steele, 766 N.E.2d 699, 703 (Ind. 2002).

6

Dayton asks this Court to expand this definition to include tips received by delivery
drivers. Dayton admits that there are no reported cases wherein tips are discussed in the
context of the IWPS and therefore argues that the Court must conduct a statutory analysis
of the IWPS itself. Such an analysis is unnecessary, however, because the IWPS only
deals with wages owed by the employer to the employee. See Ind. Code § 22-2-5-1(a).
Tips paid to drivers are solely conditioned on the generosity of the customer. Cf. 29
C.F.R. § 531.52 (“Whether a tip is to be given, and its amount, are matters determined
solely by the customer.”). Although Fox may pay Dayton a lesser amount because he is
a tipped employee under the FLSA, it nonetheless must pay him all wages owed pursuant
to the IWPS. Dayton, however, has not alleged that Fox deducted any amount from his
hourly wages and therefore his IWPS claim must fail as a matter of law.
C. Conversion
Dayton asserts an alternative claim for conversion. He alleges that, should the
Court should find that the credit card tips were not wages under the IWPS, the tips were
his property that Fox had no right to convert without his permission. “A person who
knowingly or intentionally exerts unauthorized control over property of another person
commits criminal conversion.” Ind. Code 35-43-4-3(a). A person that suffers “a pecuniary
loss as a result of criminal conversion is permitted to bring a civil action to recover the
loss.” Kotsopoulos v. Peters Broad. Eng’g, Inc., 692 N.E.2d 97, 107 (Ind. Ct. App. 2011).
To state a claim for civil conversion, the misappropriated money must be identified as
“special chattel.” Stevens v. Butler, 639 N.E.2d 662, 666 (Ind. Ct. App. 1994). The money
must be “a determinant sum with which the defendant was entrusted to apply to a certain
purpose.” Tobin v. Ruman, 819 N.E.2d 78, 89 (Ind. Ct. App. 2004) (quoting Huff v.

7

Biomet, 654 N.E.2d 830, 836 (Ind. Ct. App. 1995). Id. Failure to pay a debt will generally
not support a claim for conversion. See Newland Res., LLC v. Branham Corp., 918
N.E.2d 763, 776 (Ind. Ct. App. 2009).
Fox first argues that Dayton has failed to allege that it “entrusted” his tips to Fox,
but that is exactly what Dayton did. Dayton alleged that Fox asserted unauthorized
control of tips intended to be his property. Supra, pt. A. As Dayton’s employer, Fox
received Dayton’s tip money and, rather than liquidate the money for his benefit, utilized
the tips to support its own Refund Policy. Customers sought to provide a monetary tip to
Dayton, but the credit card tips were required to pass through Fox before Dayton could
receive any monetary benefit. Thus, both the customers and Dayton entrusted said funds
to his employer so that they may be converted to cash for him.
Fox also argues that Dayton failed to plead that the tips were entrusted for a
“special purpose.” Dkt. 25 at 12. The Court first notes that the actual nomenclature is
“certain purpose.” In support of its argument, Fox cites numerous cases, but fails to
recognize that each involves a failure to pay a debt. Id. at 12-13 (citing Newland Res.,
LLC, 918 N.E.2d at 776; Tobin 819 N.E.2d 78; Huff v. Biomet, Inc., 654 N.E.2d 830 (Ind.
Ct. App. 1995). That is not the case here. The credit card tips had one purpose, to
provide Dayton money for a service he provided; it was not a debt owed to Dayton by
Fox. The only role that Fox had in that transaction, aside from benefitting from a tip credit
due to Dayton’s employment status, was to process the payment. It chose not to do so.
See Roake v. Christensen, 528 N.E.2d 789, 791 (Ind.t Ct. App. 1988) (concluding that an
employer’s continued acceptance of health insurance premiums from its employee, while

8

allowing the employee’s policy to lapse, constituted conversion). Accordingly, the Court
finds that Dayton has sufficiently pleaded a claim for civil conversion.
IV.

CONCLUSION

For the reasons stated herein, the Court GRANTS Defendants’ Partial Motion to
Dismiss with respect to Plaintiff’s claim under the Indiana Wage Payment Statute and
DENIES Defendants’ Motion to Dismiss with respect to Plaintiff’s claims for civil
conversion and under the Fair Labor Standards Act. Accordingly, Plaintiff’s claim under
the Indiana Wage Payment Statute is DISMISSED WITH PREJUDICE.
IT IS SO ORDERED this 23d day of January, 2017

________________________________
LARRY J. McKINNEY, JUDGE
United States District Court
Southern District of Indiana
Distribution:
Brian R. Drummy
BUNGER & ROBERTSON
[e-mail]
Robert Peter Kondras, Jr.
HUNT HASSLER KONDRAS & MILLER LLP
[e-mail]
Melissa K. Taft
JACKSON LEWIS PC (Indianapolis)
[e-mail]
Michael W. Padgett
JACKSON LEWIS PC (Indianapolis)
[e-mail]

9