Ross v. Creative Image Technologies, LLC et al
MEMORANDUM OPINION AND ORDER signed by Senior Judge Charles R. Simpson, III on 5/30/13. For reasons stated in Memorandum Opinion 9 Motion to Stay is DENIED; 12 Motion for Entry of Default is DENIED. Dfts Creative Image Technologies, LLC and Guidance, Inc. shall have 14 days from the date of entry of this memorandum opinion and order within which to file a response to Ross's complaint. cc:counsel (SJS)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
CIVIL ACTION NO. 3:13-CV-3
CREATIVE IMAGE TECHNOLOGIES, LLC
and GUIDANCE, INC.
MEMORANDUM OPINION AND ORDER
Presently before the court are two motions: (1) a motion by Defendants Creative Image
Technologies, LLC (“Creative”) and Guidance, Inc. (“Guidance”) to stay this action (DN 9); and
(2) a motion by Plaintiff Steve Ross for entry of default against Creative and Guidance (DN 12). For
the reasons stated herein, both motions will be denied.
This action was brought by Ross against his former employers, Creative and Guidance,
pursuant to the Fair Labor Standards Act (“FLSA”). According to Ross’s complaint, he was initially
hired by Creative to work as a “Sales Engineer,” but after about 15 months of working at Creative,
he was transferred to work for Guidance. Ross worked for Guidance for approximately 18 months,
until his employment was terminated by Guidance. Ross alleges that he worked between 50 and 60
hours per week during his employment by Creative and Guidance, but he did not receive overtime
compensation for the hours he worked in excess of 40 hours each workweek. Ross seeks $53,130
in unpaid overtime compensation, an equal amount of liquidated damages, interest, costs and
expenses, attorney’s fees, and an injunction preventing Creative and Guidance from continuing to
engage in allegedly unlawful practices.
Ross filed his complaint on January 2, 2013. The court entered an agreed order on January
23, 2013 granting Creative and Guidance an additional 14 days within which to file an answer. On
February 5, Creative and Guidance moved to stay the action on the grounds that a parallel earlierfiled action was pending in Jefferson County, Kentucky, Circuit Court. On February 25, 2013, Ross
filed the motion for entry of default against Creative and Guidance.
To start, the court will deny Ross’s motion for entry of default. Under Rule 55(a), default
must be entered “[w]hen a party against whom a judgment for affirmative relief is sought has failed
to plead or otherwise defend.” Here, while Creative and Guidance have not yet filed a responsive
pleading, they have filed a motion to stay this action in favor of another proceeding. Creative and
Guidance argue that the motion to stay extended the deadline for them to file an answer and that
such a motion falls within the meaning of the words “otherwise defend” in Rule 55(a). Ross
contends that a motion to stay is insufficient to ward off entry of default because a motion to stay
is not a responsive pleading or Rule 12(b) motion.
While Ross may be correct that a motion to stay is not a responsive pleading or a Rule 12(b)
motion, that does not mean that a motion to stay is not an attempt to “otherwise defend” within the
meaning of Rule 55(a). The Advisory Notes to the 2007 Amendments to Rule 55 confirm the view
that Rule 55(a) does not require a responsive pleading or Rule 12(b) motion to ward off entry of
Former Rule 55(a) directed the clerk to enter a default when a party failed to plead
or otherwise defend “as provided by these rules.” The implication from the reference
to defending “as provided by these rules” seemed to be that the clerk should enter a
default even if a party did something showing an intent to defend, but that act was
not specifically described by the rules. Courts in fact have rejected that implication.
Acts that show an intent to defend have frequently prevented a default even though
not connected to any particular rule. “[A]s provided by these rules” is deleted to
reflect Rule 55(a)’s actual meaning.
Simply put, by filing a motion to stay this proceeding, Creative and Guidance showed a desire to
contest the action. Entering a default against them would thus be inapprorpirate. See Higgins v.
Dankiw, 2008 WL 2565110 (D.Neb. June 24, 2008) (reaching the same conclusion that a motion to
stay the proceedings fell within the meaning of “otherwise defend” in Rule 55(a)).
We thus turn to the merits of the motion to stay. On November 7, 2012, Creative and
Guidance filed suit in Jefferson Circuit Court (the “State Court Action”) against Ross and Eric
Wiegel, a former employee of Creative. In the complaint in the State Court Action, Creative and
Guidance state that they are sister companies that were in the business of selling and installing highend audio-visual equipment to corporations and schools. Creative and Guidance allege that both
Wiegel and Ross signed non-compete and non-disclosure agreements while working for Creative
and Guidance. Creative and Guidance claim that after Wiegel and Ross had their employment
terminated in June of 2012 and July of 2012, respectively, they violated their non-compete and nondisclosure agreements and utilized trade secret information they gleaned from Creative and
Guidance. Additionally, Guidance claims that Ross breached a fiduciary duty he owed to it.
According to Creative and Guidance, the abstention doctrine set forth in Colorado River
Water Conservation District v. United States, 424 U.S. 800 (1976) counsels in favor of a stay in this
action in favor of the first-filed State Court Action. “In Colorado River, the Supreme Court noted
that, despite the ‘virtually unflagging obligation of the federal courts to exercise the jurisdiction
given them,’ considerations of judicial economy and federal-state comity may justify abstention in
situations involving the contemporaneous exercise of jurisdiction by state and federal courts.”
Romine v. Compuserve Corp., 160 F.3d 337, 339 (6th Cir. 1998) (internal citation omitted) (quoting
Colorado River, 424 U.S. at 817). To determine whether such abstention is appropriate, a district
court undertakes a two-step test. First, the district court must “determine that the concurrent state
and federal actions are actually parallel.” Id. While the two actions need not be exactly identical to
be deemed parallel, the two actions must be substantially similar. Id. at 340. If the actions are
determined to be parallel, then the district court must apply a multi-factor balancing test to determine
whether to abstain. Id. at 340-341 (setting forth factors).
This action is not parallel to the State Court Action because it involves entirely different
issues predicated on entirely different facts. The most that can be said in favor of the similarity of
the two actions is that they are in some way related to Ross’s employment with Creative and
Guidance. But that superficiality aside, the issues in the two actions have virtually nothing in
common. The issues surrounding Ross’s FLSA claim in this action concern whether or not Creative
and Guidance paid him overtime wages for any hours he worked in excess of 40 hours per week, and
whether or not Creative and Guidance were mandated by the FLSA to pay him overtime wages for
those hours. The issues surrounding Creative and Guidance’s breach of contract, breach of fiduciary
duty, and trade secret claims in the State Court Action concern whether Wiegel and Ross signed
valid non-compete and non-disclosure agreements and what actions those two took after their
employment with Creative or Guidance was terminated. In short, other than the simple fact that Ross
had worked for Creative and Guidance, there is no crossover of relevant facts or issues between this
action and the State Court Action. Certainly, the two actions cannot be called “substantially similar.”
Creative and Guidance suggest that Ross’s FLSA claim is actually part of the State Court
Action because it is a compulsory counterclaim in that action. This court disagrees. Kentucky Rule
of Civil Procedure 13.01 states that a party must raise a counterclaim if the claim “arises out of the
transaction or occurrence that is the subject matter of the opposing party’s claim.” It is clear that
Ross’s FLSA claim does not arise out of the transaction or occurrence that is the subject of Creative
and Guidance’s breach of contract, breach of fiduciary duty, and trade secrets claims. The
transactions underlying the latter claims are Ross’s alleged signing of non-compete and nondisclosure agreements and his actions after he was terminated by Guidance. The transactions or
occurrences underlying his FLSA claims are his alleged work in excess of 40 hours per week for
Creative and Guidance and the company’s alleged failure to pay him overtime wages for that work.
Creative and Guidance cite McConnell v. Applied Performance Technologies, Inc., 98 F.
App’x 397 (6th Cir. 2004) for the proposition that FLSA claims are compulsory counterclaims to
state court actions predicated on an employment contract. But their reading of McConnell is far too
broad. In McConnell, the defendant, APT, had previously sued McConnell, a former employee, for
compensation APT had allegedly overpaid to him. After that action settled, McConnell brought a
FLSA overtime pay claim against APT. The Sixth Circuit affirmed the district court’s grant of
summary judgment to APT in the FLSA action on the basis that the FLSA claim was a compulsory
counterclaim in the already settled state court action. McConnell, 98 F. App’x at 398.
The obvious difference between McConnell and this action is the nature of the claims
brought in the state court actions. In McConnell, the state court action concerned what amount of
compensation a company owed to its former employee. Thus, the former employee’s claim relating
to what compensation he was due from the company was held to have arisen from the same
transaction or occurrence. See McConnell v. Applied Performance Technologies, Inc., 2002 WL
32882707, at *7 (S.D.Ohio Dec. 11, 2002) (“Like APT’s claim to recover for alleged
overcompensation, McConnell’s overtime claims specifically involve the question of how much
money APT should have paid him for his services. . . . More importantly, many of the same factual
determinations would be relevant to both claims.”). Here, in contrast to McConnell, the State Court
Action has nothing to do with Ross’s compensation.
Simply put, there is no substantial similarity between Ross’s FLSA claim in this action and
the breach of contract, breach of fiduciary duty, and trade secrets claims in the State Court Action.
Accordingly, the actions are not parallel and a stay is not warranted. Creative and Guidance will
have 14 days from the date of entry of this memorandum opinion and order within which to file a
response to Ross’s complaint.
For all the reasons stated above and the court being otherwise sufficiently advised, IT IS
HEREBY ORDERED AND ADJUDGED THAT the motion of Plaintiff Steve Ross for entry of
default (DN 12) is DENIED and the motion of Defendants Creative Image Technologies, LLC and
Guidance, Inc. to stay (DN 9) is DENIED. It is FURTHER ORDERED that Defendants Creative
Image Technologies, LLC and Guidance, Inc. shall have fourteen (14) days from the date of entry
of this memorandum opinion and order within which to file a response to Ross’s complaint.
IT IS SO ORDERED.
May 30, 2013
C al R Smpo I , ei J d e
h r s . i sn I Sno u g
U i dSae Ds i C ut
nt tt ir t o r
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