Henderson et al v. Dat Dogs Enterprises, LLC
Filing
44
ORDER granting 28 Motion to Dismiss Counterclaims. Dat Dogs' counterclaims against Plaintiffs are DISMISSED with prejudice. This Court shall retain jurisdiction to adjudicate Plaintiffs' FLSA claims against Dat Dogs. Signed by Judge Carl Barbier on 1/10/2019. (jeg)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
ZACHARY HENDERSON, ET AL.
CIVIL ACTION
VERSUS
NO: 17-17654
DAT DOG ENTERPRISES, LLC
SECTION: “J” (5)
ORDER AND REASONS
Before the Court is a Motion to Dismiss Counterclaims (Rec. Doc. 28) filed by
Plaintiffs/Counter-defendants, Zachary Henderson, Erin Spath, Kaleigh Thomas,
and
Heidi
Taylor
(collectively,
“Plaintiffs”),
an
opposition
filed
by
Defendant/Counterclaimant Dat Dogs Enterprises, LLC (“Dat Dogs”) (Rec. Doc. 35),
Plaintiffs’ reply (Rec. Doc. 38), and Dat Dogs’ sur-reply (Rec. Doc. 41). Having
considered the motion and legal memoranda, the record, and the applicable law, the
Court finds that the motion should be GRANTED.
FACTS AND PROCEDURAL HISTORY
This litigation arises out of Plaintiffs’ allegations that Dat Dogs requires its
serving bartenders to participate in a “tip pool” that does not comply with the Fair
Labor Standards Act (“FLSA”) and its regulations. In December 2017, Plaintiffs filed
a collective action 1 pursuant to 29 U.S.C. § 216(b) on behalf of all other current and
former similarly situated employees who worked for Dat Dogs within three years
Plaintiffs define the proposed FLSA collective as “[a]ll individuals employed by Dat Dogs Enterprises, LLC at any
time within three years of the dates of the filing of the Complaint in this action, who were paid a regular rate of less
than $7.25 per hour, and whose wages were subject to mandatory deductions.” (Rec. Doc. 1, at 4).
1
1
prior to the date the lawsuit was filed. Plaintiffs’ complaint alleges that for the
entirety of Plaintiffs’ employment, Dat Dogs has operated some version of this “forced
wage deduction scheme,” which entails deducting a sum equal to five percent of each
shift’s gross sales (minus alcohol) from the wages of Plaintiffs and other service
bartenders who are paid a subminimum wage of $2.13 per hour for non-overtime
hours and then re-distributing that money to other employees who are paid a regular
rate of over $7.25 per hour, including cooks, dishwashers, and other back of house
employees, as well as managers. Plaintiffs allege that Dat Dogs’ wage deduction
scheme violates the FLSA and does not qualify for the tip credit set forth in 29 U.S.C.
§ 203(m) because it is an unlawfully constituted tip pool.
In July 2018, Dat Dogs filed an amended answer to Plaintiffs’ complaint and
asserted counterclaims. Specifically, Dat Dogs alleges that Plaintiffs willfully and
intentionally failed to report cash tips earned during the course of employment with
Dat Dogs, resulting in Plaintiffs’ receipt of minimum adjustment payments 2 to which
they were not entitled. Dat Dogs concludes that Plaintiffs unjustly enriched
themselves without cause at Dat Dogs’ expense in violation of Louisiana law. Dat
Dogs seeks restoration of tip-minimum payments made to Plaintiffs as a result of
their alleged misrepresentations pursuant to Louisiana Civil Code articles 2298,
2299, and 2300.
Dat Dogs’ alleges that “if [its] system shows that a bartender failed to earn sufficient tips to cover the ‘tip credit,’
Dat Dog[s] pays the bartender the difference by paying a ‘tip-minimum’ amount to ensure that the bartender was
paid an effective hourly rate of at least $7.25 per hour for all hours worked.” (Rec. Doc. 27, at 15).
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PARTIES’ ARGUMENTS
Plaintiffs argue that Dat Dogs’ counterclaims should be dismissed with
prejudice pursuant to Federal Rules of Civil Procedure 9 and 12. First, Plaintiffs
argue that their motion to dismiss should be granted because the Fifth Circuit
prohibits employer counterclaims like the ones at issue in FLSA cases. (Rec. Doc. 282, at 4). Plaintiffs assert that the narrow exception to the rule enumerated in Brennan
v. Heard, 491 F.2d 1 (5th Cir. 1974) is not applicable in this case because Dat Dogs
did not prepay an overtime obligation it expected to occur in a later pay period. (Rec.
Doc. 28-2, at 6).
Alternatively, Plaintiffs argue that this Court should dismiss Dat Dogs’
counterclaims because the allegations against Plaintiffs sound in fraud, and Dat Dogs
failed to satisfy the heightened pleading standard of Rule 9. (Rec. Doc. 28-2, at 7-8).
Specifically, Plaintiffs aver that Dat Dogs fails to identify when Plaintiffs allegedly
under-reported cash tips, the amount of cash tips that were allegedly under-reported,
or the value of the unjust enrichment Dat Dogs allegedly suffered. (Rec. Doc. 28-2, at
8-9).
Dat Dogs argues in opposition that Plaintiffs’ motion to dismiss should be
denied because the Fifth Circuit permits counterclaims in FLSA actions under the
circumstances presented in this case, and the state law claims asserted by Dat Dogs
are not required to adhere to the heightened pleading standard of Rule 9 because
fraud is not alleged. (Rec. Doc. 35). First, Dat Dogs asserts that the Fifth Circuit’s
ban on counterclaims in FLSA cases does not apply where, as here, the employer is
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seeking to retrieve monies paid in wages that the employee did not earn and the setoff does not reduce the overall damages award below the sub-minimum wage. (Rec.
Doc. 35, at 4-8).
Dat Dogs next argues that this Court has supplemental jurisdiction over Dat
Dogs’ compulsory counterclaims that arose out of the same transaction or occurrence
as the main demand asserted by Plaintiffs. (Rec. Doc. 35, at 9). Dat Dogs asserts that
the allegations in the complaint and the counterclaims at issue both revolve around
Dat Dogs’ tip policies and how its employees were paid under those policies. (Rec.
Doc. 35, at 10-11). Dat Dogs alleges that courts within the Fifth Circuit “routinely
allow compulsory counterclaims to proceed in FLSA cases.” (Rec. Doc. 35, at 10).
Finally, Dat Dogs argues that its allegations need not comply with the
heightened pleading standard of Rule 9 because the counterclaims state a claim for
unjust enrichment and recoupment of monies due, not fraud. (Rec. Doc. 35, at 11).
Specifically, Dat Dogs emphasizes that unjust enrichment and reimbursement claims
under Louisiana law are governed only by Rule 8(a), which only requires a short and
plain statement showing that the pleader is entitled to relief. (Rec. Doc. 35, at 12).
However, Dat Dogs argues that even if this Court finds that Rule 9 is applicable, Dat
Dogs’ allegations satisfy the requisite specificity of Rule 9. (Rec. Doc. 35, at 13). Dat
Dogs notes that the counterclaims identify the parties it believes were unjustly
enriched, state that the unjust enrichment took place at Dat Dogs’ Frenchmen and
Magazine Street locations during Plaintiffs’ employment with Dat Dogs, and state
that it occurred through Plaintiffs’ failure to report cash tips they received. (Rec. Doc.
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35, at 14). Dat Dogs goes on to argue that even if this Court strikes the language
sounding in fraud from Dat Dogs’ counterclaims, it still states a valid claim for relief
because the “willfully, knowingly, and intelligently” language is not an element of the
state law claims alleged. (Rec. Doc. 35, at 14).
Plaintiffs raise four arguments in reply. (Rec. Doc. 38). First, Plaintiffs contest
Dat Dogs’ assertion that the counterclaims at issue fall within the exception
enumerated in Singer v. City of Waco, 324 F.3d 813 (5th Cir. 2003) because Dat Dogs’
counterclaims do not represent overtime obligations already fulfilled. (Rec. Doc. 38,
at 2). Thus, Plaintiffs argue that the counterclaims cannot be asserted in this FLSA
action because they do not involve pre-payment of wages. (Rec. Doc. 38, at 3). Second,
Plaintiffs clarify that Dat Dogs is asserting affirmative counterclaims for monetary
relief, not merely raising a defense seeking setoff for damages. (Rec. Doc. 38, at 3).
Next, Plaintiffs argue that Dat Dogs’ counterclaims are legally invalid in this FLSA
action regardless of whether they qualify as compulsory or permissive. (Rec. Doc. 38,
at 4). Finally, Plaintiffs challenge Dat Dogs’ assertion regarding the applicability of
Rule 9. (Rec. Doc. 38, at 6). Specifically, Plaintiffs argue that the heightened pleading
standard applies to Dat Dogs’ counterclaims sounding in fraud and the allegations
“fall woefully short” in that Dat Dogs fails to allege the amount of tips it believes went
unreported, the dates and pay periods on which the alleged misrepresentations
occurred, and the amount of tip-minimum payments which it believes are at issue.
(Rec. Doc. 38, at 7-8). Based on the foregoing, Plaintiffs re-urge this Court to dismiss
Dat Dogs’ counterclaims.
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In its sur-reply, Dat Dogs emphasizes the importance of this Court’s
determination regarding whether Dat Dogs’ counterclaims are compulsory or
permissive. (Rec. Doc. 41). Dat Dogs first argues that this distinction is the
determining factor as to whether the counterclaims should be dismissed. (Rec. Doc.
38, at 1). Additionally, Dat Dogs asserts that if this Court grants Plaintiffs’ motion to
dismiss the counterclaims, Dat Dogs will be precluded from raising the counterclaims
in a separate action unless this Court rules that the counterclaims are permissive.
(Rec. Doc. 38, at 1).
LEGAL STANDARD
Under the Federal Rules of Civil Procedure, “a claim may be dismissed when
a plaintiff fails to allege any set of facts in support of his claim which would entitle
him to relief.” Fed. R. Civ. P. 12(b)(6); Taylor v. Books A Million, Inc., 296 F.3d 376,
378 (5th Cir. 2002) (citing McConathy v. Dr. Pepper/Seven Up Corp., 131 F.3d 558,
561 (5th Cir. 1998)). To survive a Rule 12(b)(6) motion to dismiss, the plaintiff must
plead enough facts to “state a claim to relief that is plausible on its face.” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007)). A claim is facially plausible when the plaintiff pleads facts that allow the
court to “draw the reasonable inference that the defendant is liable for the misconduct
alleged.” Id. A court must accept all well-pleaded facts as true and must draw all
reasonable inferences in favor of the plaintiff. Lormand v. U.S. Unwired, Inc., 565
F.3d 228, 232 (5th Cir. 2009); Baker v. Putnal, 75 F.3d 190, 196 (5th Cir. 1996).
However, the court is not bound to accept as true legal conclusions couched as factual
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allegations. Iqbal, 556 U.S. at 678. “[C]onclusory allegations or legal conclusions
masquerading as factual conclusions will not suffice to prevent a motion to dismiss.”
Taylor, 296 F.3d at 378.
Rule 8 requires that a complaint contain “a short and plain statement of the
claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). The
complaint must “give the defendant fair notice of what the claim is and the grounds
upon which it rests.” Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 346 (2005). The
allegations “must be simple, concise, and direct.” Fed. R. Civ. P. 8(d)(1). However, a
heightened pleading standard applies in cases where fraud is alleged. See Williams
v. WMX Technologies, Inc., 112 F.3d 175, 179 (5th Cir. 1997). Rule 9(b) requires a
party alleging fraud or mistake to “state with particularity the circumstances
constituting fraud or mistake.” Fed. R. Civ. P. 9. In contrast, “[m]alice, intent,
knowledge, and other conditions of a person’s mind may be alleged generally.” Id.
DISCUSSION
Courts have generally been hesitant to permit employers to file counterclaims
in FLSA actions to recover money allegedly owed by an employee or damages an
employer alleges an employee’s conduct occasioned. See Martin v. PepsiAmericas,
Inc., 628 F.3d 738, 740-41 (5th Cir. 2010); Brennan v. Heard, 491 F.2d 1, 4 (5th
Cir.1974), rev’d on other grounds by McLaughlin v. Richland Shoe Co., 486 U.S. 128,
108 S.Ct. 1677, 100 L.Ed.2d 115 (1988); see also Donovan v. Pointon, 717 F.2d 1320,
1323 (10th Cir.1983) (“[T]he purpose of the present action is to bring [the employer]
into compliance with the Act by enforcing a public right. To permit him in such a
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proceeding to try his private claims, real or imagined, against his employees would
delay and even subvert the whole process. [The employer] is free to sue his employees
in state court . . .”).
The Fifth Circuit held in Brennan v. Heard that both setoffs and counterclaims
are inappropriate in cases brought to enforce the minimum wage and overtime
provisions of the FLSA, emphasizing that “[t]he federal courts were not designated
by the FLSA to be either collection agents or arbitrators for an employee’s creditors.”
Heard, 491 F.2d at 4; see also Martin v. PepsiAmericas, Inc., 628 F.3d at 741. “The
only economic feud contemplated by the FLSA involves the employer’s obedience to
minimum wage and overtime standards. To clutter [FLSA] proceedings with the
minutiae of other employer-employee relationships would be antithetical to the
purpose of the Act.” Heard, 491 F.2d at 4.
Despite this clear directive, Dat Dogs argues that its counterclaims against
Plaintiffs are properly before the Court in this FLSA suit because they fall within the
exception the Fifth Circuit carved out in Singer v. City of Waco. This Court disagrees.
In Singer, the court permitted an employer sued under the FLSA to set off certain
wage overpayments against the employees’ overall damages award. 324 F.3d 813 (5th
Cir. 2003). The Fifth Circuit reconciled its holdings in Heard and Singer by noting
that “the offsets permitted by the district court [in Heard] caused the final awards of
many of the defendants’ workers to drop below the statutory minimum.” Id. at 828
n.9 (quoting Heard, 491 F.2d at 3). However, in Singer, “no party contend[ed] that
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the offset might cause the fire fighters’ wages to fall below the statutory minimum
wage.” Id.
Nevertheless, the Fifth Circuit clarified in Gagnon v. United Technisource, Inc.
that it was the unique nature of the setoffs at issue in Singer that warranted a narrow
exception to the rule enumerated in Heard. 607 F.3d 1036, 1042 (5th Cir. 2010).
Specifically, the type of setoffs that trigger the Singer exception are overtime
obligations already fulfilled, or, wages that an employer pre-paid to an employee. Id;
see also Martin v. PepsiAmericas, Inc., 628 F.3d 738, 742 (5th Cir. 2010). Moreover,
the Gagnon Court emphasized in the context of counterclaims that “[Fifth Circuit]
precedent suggests that such claims should not be addressed in a FLSA action.”
Gagnon v. United Technisource, Inc., 607 F.3d 1036, 1042 (5th Cir. 2010); see also
Brennan v. Heard, 491 F.2d 1, 4 (5th Cir.1974), rev'd on other grounds, McLaughlin
v. Richland Shoe Co., 486 U.S. 128, 108 S.Ct. 1677, 100 L.Ed.2d 115 (1988) (noting
that the federal judiciary’s only function under the FLSA “is to assure to the
employees of a covered company a minimum level of wages” and holding that
“[a]rguments and disputations over claims against those wages are foreign to the
genesis, history, interpretation, and philosophy of the Act.”).
Plaintiffs argue that Dat Dogs is asserting affirmative counterclaims for
monetary relief and is not seeking set-off for damages. (Rec. Doc. 38, at 3). Dat Dogs
neither contests this assertion nor convinces the Court that the tip-minimum
adjustments qualify as wages that were pre-paid to Plaintiffs as is required to trigger
the Singer exception. Accordingly, under binding Fifth Circuit precedent, the
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counterclaims asserted against Plaintiffs cannot be heard in the present FLSA action
and must be dismissed.
Dat Dogs argues that if this Court determines that dismissal of its
counterclaims is appropriate, the Court must also rule on whether Dat Dogs’ claims
seeking reimbursement from Plaintiffs qualify as compulsory or permissive
counterclaims. This Court disagrees. Federal Rule of Civil Procedure 1367(a) gives
district courts “supplemental jurisdiction over all other claims that are so related to
claims in the action within [the court’s] original jurisdiction that they form part of
the same case or controversy under Article III of the United States Constitution.”
Fed. R. Civ. P. 13(a). However, a district court has discretion to decline to exercise
supplemental jurisdiction over a claim under subsection (a) if any of the following are
satisfied:
(1) the claim raises a novel or complex issue of State law,
(2) the claim substantially predominates over the claim or claims over
which the district court has original jurisdiction,
(3) the district court has dismissed all claims over which it has original
jurisdiction, or
(4) in exceptional circumstances, there are other compelling reasons for
declining jurisdiction.
Fed. R. Civ. P. 13(c). Here, exceptional circumstances exist for this Court to decline
the exercise of supplemental jurisdiction. Specifically, there exists binding Fifth
Circuit precedent holding that counterclaims of the type asserted in this case may
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not be raised in a FLSA suit. Thus, this Court need not decide whether Dat Dogs’
counterclaims are compulsory or permissive.
CONCLUSION
Accordingly,
IT IS HEREBY ORDERED that Dat Dogs’ counterclaims against Plaintiffs
are DISMISSED with prejudice. This Court shall retain jurisdiction to adjudicate
Plaintiffs’ FLSA claims against Dat Dogs.
New Orleans, Louisiana, this 10th day of January, 2019.
CARL J. BARBIER
UNITED STATES DISTRICT JUDGE
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