Walker et al v. Directory Distributing Associates, Inc. et al

Filing 52

OPINION MEMORANDUM AND ORDER - IT IS HEREBY ORDERED that Plaintiffs Motion to Withdraw Reference [doc. 1 ] is GRANTED. IT IS FURTHER ORDERED the Bankruptcy Court shall transfer this matter to this Court for further proceedings. Signed by District Judge Henry Edward Autrey on 1/25/19. (KJS)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
In re:

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DIRECTORY DISTRIBUTING
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ASSOCIATES, INC.,
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_____________________________ )
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ERVIN WALKER, et al.,
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Plaintiffs,
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v.
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DIRECTORY DISTRIBUTING
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ASSOCIATES, INC., et al.,
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Defendants,
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Case No. 4:17CV1229 HEA

OPINION, MEMORANDUM AND ORDER
This matter is before the Court on Plaintiffs’ Motion to Withdraw Reference,
[Doc. No. 1]. Defendants oppose the Motion. The Court conducted a hearing on
the Motion on January 16, 2019. For the reasons set forth below, the Motion will
be granted.
The relevant procedural background is set forth in the pleadings and
summarized below:
On October 14, 2016, Debtor Directory Distributing Associates, Inc.,
(“DDA”), filed voluntary petitions for relief under Chapter 11 of the Bankruptcy

Code in the Bankruptcy Court for the Eastern District of Missouri. On November
23, 2016, DDA filed a Notice of Removal with the Bankruptcy Court for the
Southern District of Texas seeking the removal of the state court action Walker, et
al. v. Directory Distributing Associates, Inc. et. al., cause number 2011-50578, in
the 269th District Court of Harris County, Texas to the Bankruptcy Court for the
Southern District of Texas. This removed action is one part of a Fair Labor
Standards Act collective action, both parts of which originally were filed with the
Texas state court. The other part of the collective action was proceeding in the
Northern District of California until the proceedings were stayed.
The cases began in 2011, when the original plaintiff, Ervin Walker, filed his
lawsuit in Harris County District Court. Mr. Walker, and other plaintiffs who
joined the action, alleged violations of the Fair Labor Standards Act based on a
refusal by DDA and AT&T—their alleged joint employers—to compensate them
in the manner required by federal wage and hour laws. In 2012, the state court
conditionally certified a nationwide collective action and allowed similarly situated
individuals from across the country to opt into the lawsuit. Thousands of additional
plaintiffs opted in and joined the Texas case.
In 2013, the state court, based on a state multiparty venue statute, granted
defendants’ request to dismiss more than 15,500 opt-in plaintiffs who neither lived
nor worked in Texas. In late 2013, plaintiffs took an accelerated appeal of that
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decision, and the district court stayed enforcement of its order pending resolution
of that appeal. The appellate process lasted until April 1, 2016, when the Texas
Supreme Court denied review of the appellate decision affirming the state district
court’s order. Approximately one month later, a second suit was filed against these
same defendants in the United States District Court for the Northern District of
California, in the case styled James Krawczyk, et al. v. Directory Distributing
Associates, Inc. and AT&T Corp., Cause No. 3:16-cv-02531-vc.
The Krawczyk matter encompasses the non-Texas opt-in plaintiffs dismissed
from this case, as well as certain Texas-based plaintiffs seeking damages for the
later time period encompassed by that case. The AT&T entities and DDA filed
motions to dismiss plaintiffs’ claims pursuant to Fed.R.Civ.P. 12, raising
procedural as well as substantive FLSA issues. Plaintiffs filed their Responses to
these motions. Defendant AT&T Corp. filed a Reply in Support of AT&T Corp.’s
Motion to Dismiss. On December 1, 2017, Judge Chhabria addressed these
motions with the parties and subsequently issued his decision on December 9,
2017, substantially denying the motions.
Discovery in these cases is still ongoing. The unusual procedural history and
the complex web of corporate affiliations among DDA, AT&T, and AT&T’s
subsidiaries have already raised a number of complex factual and legal issues. The
substantive factual and legal issues involve the application and interpretation of the
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FLSA and its regulations, such as whether the delivery workers were improperly
classified by Defendants as independent contractors.
In their Motion, Plaintiffs argue that withdrawal is appropriate under both
the mandatory and discretionary provisions of 28 U.S.C. § 157(d). They argue that
mandatory withdrawal is required for Plaintiffs’ claims arising under the Fair
Labor Standards Act, 29 U.S.C. § 201 et seq. because absent withdrawal, the
Bankruptcy Court would be impermissibly required to resolve federal law
regulating organizations and activities affecting interstate commerce.
In relevant part, 28 U.S.C. § 157(d) states, “[t]he district court shall, on
timely motion of a party, so withdraw a proceeding if the court determines that
resolution of the proceeding requires consideration of both title 11 and other laws
of the United States regulating organizations or activities affecting interstate
commerce.” In support of mandatory withdrawal of the FLSA claims, Plaintiffs
allege:
the factual and legal claims as well as any defenses raised may be
adjudicated only by and through interpreting the FLSA and its various
regulations as well as the administrative and judicial determinations and
rulings of the FLSA. Plaintiffs who were hired as delivery workers to deliver
telephone directories allege that Defendants misclassified them as
“independent contractors” when they were, in fact, “employees” as defined
by the FLSA. Specifically, Plaintiffs seek the remedies afforded them under
the FLSA for such misclassification, that being the recovery of the minimum
wage rate of pay established pursuant to the FLSA for all hours worked
during a work week and the overtime wage rate for all hours worked above
forty hours in a work week. To resolve this litigation, the Court and the jury
must determine whether Plaintiffs were “employees” or “independent
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contractors” as such characterizations are defined by the FLSA and its
interpretations. The fact-finder must evaluate such factors as (1) the degree
of control exercised by the employer over the workers, (2) the workers’
opportunity for profit or loss and their investment in the business, (3) the
degree of skill and independent initiative necessary to perform the work, (4)
the duration of the working relationship, and (5) the extent to which work is
an integral part of the employer’s business. See Brock v. Superior Care, Inc.,
840 F. 2d 1054 (2nds Cir. 1988); See also Mednick v. Albert Enterprises,
Inc., 508 F.2d 297, 303 (1975) (Court considers economic reality of worker
rather than mere label; where economic reality is that worker is not and
never was independently in business for himself, label of independent
contractor will not relieve employer of liability under Fair Labor Standards
Act.)
[T]the issue of whether plaintiffs are “employees” as defined by the
FLSA or “independent contractors” not subject to the FLSA’s protections is
hotly contested. Additionally, defendants contest whether the opt-in
plaintiffs are “similarly situated,” an issue that will require analysis and
interpretation of case law that has evolved in interpreting this statute…
Defendants specifically contest that plaintiffs and the opt-in plaintiffs are
“employees rather than “independent contractors,” that plaintiffs are entitled
to damages, that plaintiffs have any damages, that plaintiffs’ damages are
barred by the statutes of limitations, which would require potentially an
analysis of equitable tolling, whether the defendants’ actions were willful,
whether defendants acted in “good faith” and, of course, whether plaintiffs
and opt-in plaintiffs were similarly situated such that they are entitled to
bring a collective action. The Court will be required to analyze, evaluate,
interpret and apply the FLSA to the claims and defenses… There is no other
substantial and material law that the Court must apply to adjudicate either
Plaintiffs’ claims for unpaid wages, overtime and minimum-wage violations
or Defendants’ defenses to those claims.
Courts in this Circuit have followed “the approach adopted by the Seventh
Circuit, which has held that mandatory withdrawal is required only when those
issues require the interpretation, as opposed to mere application, of the non-title 11
statute, or when the court must undertake analysis of significant open and
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unresolved issues regarding the non-title 11 law.” In re Miller Auto. Grp., 2013
U.S. Dist. LEXIS 32956, at *5 (W.D. Mo. Mar. 11, 2013). See also Fayne v.
Innovations 365, LLC, 2018 WL 3614983, at *1–3 (W.D. Mo. July 27, 2018).
The Court finds that Plaintiffs have met their burden to establish mandatory
withdrawal of the reference is appropriate.
The crux of Plaintiff's FLSA claims are that Plaintiffs were actually
employees of DDA entitled to the protections of the FLSA. DDA classified them
as “independent contractors” to avoid application of the Act. Whether Plaintiffs
should be treated as employees and the procedures taken with regard to Plaintiffs’
work for DDA requires an interpretation of the Act. Further, whether Plaintiffs are
entitled to the remedies of the FLSA and whether or not DDA is entitled to
defenses under the Act all give rise to an interpretation of the provisions of the
FLSA. It will take more than a mere application of FLSA to determine whether
Plaintiffs are entitled to protection.
Accordingly,
IT IS HEREBY ORDERED that Plaintiffs’ Motion to Withdraw Reference
[doc. 1] is GRANTED.
IT IS FURTHER ORDERED the Bankruptcy Court shall transfer this

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matter to this Court for further proceedings.
Dated this 25th day of January, 2019.

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HENRY EDWARD AUTREY
UNITED STATES DISTRICT JUDGE

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