Amsel v. Eliades et al

Filing 132

ORDER Denying Defendant Douglas Gerrard's 89 Motion to Compel. Signed by Magistrate Judge George Foley, Jr. on 04/12/2017. (Copies have been distributed pursuant to the NEF - NEV)

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UNITED STATES DISTRICT COURT

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DISTRICT OF NEVADA

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Plaintiff,
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vs.
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DOUGLAS D. GERRARD, DOLORES
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ELIADES, and ARISTOTELIS ELIADES,
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Defendants.
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__________________________________________)
JONAH AMSEL,

Case No. 2:16-cv-00999-RFB-GWF
ORDER

This matter is before the Court on Defendant Douglas Gerrard’s Motion to Compel (ECF

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No. 89), filed on January 16, 2017. Plaintiffs filed their Response (ECF No. 93) on January 30,

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2017. Defendant filed his Reply (ECF No. 95) on February 3, 2017. The Court conducted a hearing

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in this matter on February 15, 2017. Defendant filed his Supplement in support of his Motion to

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Compel (ECF No. 97) on February 22, 2017. Plaintiffs filed their Supplement in opposition of

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Defendant’s Motion to Compel (ECF No. 102) on March 1, 2017.

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BACKGROUND

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This matter arises from allegations of failure to pay minimum and overtime wages under the

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Fair Labor Standards Act (“FLSA”), 29 U.S.C § 201-208, the Nevada Constitution, and Nevada

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Revised Statute § 608.018. See Amended Complaint (ECF No. 1-1). On February 21, 2017,

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Plaintiffs withdrew their third and fourth claims for relief under Nevada law and the Court granted

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dismissal of those claims. See ECF No. 98. Plaintiffs allege that they were employed as promoters,

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doormen, drivers, and valets. The parties agree that Plaintiffs were independent contractors in the

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promoter positions and that they received compensation in the form of commission for work

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performed as promoters. Plaintiffs allege that Defendants failed to pay them minimum and

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overtime wages for work performed in the doorman and valet positions. Plaintiffs allege that

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Defendants failed to pay them any wages and that they received only tips from patrons for work

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performed as doormen and valets. See Amended Complaint (ECF No. 1-1), pg. 4.
Defendants argue that Plaintiffs worked as independent contractors and, therefore, are not

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entitled to the protections of the FLSA. See Motion to Compel (ECF No. 89), pg. 5. In the

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alternative, Defendants argue that if Plaintiffs are considered employees, Defendants are entitled to

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a tip credit offset pursuant to 29 U.S.C. § 203(m)(2). See Supplement to Motion to Compel (ECF

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No. 97), pg. 2. Due to a lack of formal record keeping and in order to establish their defenses,

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Defendants move to compel responses to their Requests for Production Nos. 4-16. See Motion to

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Compel (ECF No. 89), pg. 4-5. Defendants seek the production of Plaintiffs’ financial records

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including, tax returns, real property deeds, income statements, bankruptcy filings, financial

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statements, and bank account statements. Id. at pg. 5. Plaintiffs argue that their private financial

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documents are not relevant to the determination of whether they are employees or independent

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contractors and that Defendants are not entitled to a tip credit offset. See Opposition (ECF No. 93),

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pg. 15.

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DISCUSSION

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Rule 26 of the Federal Rules of Civil Procedure provides that parties may obtain discovery

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regarding any nonprivileged matter that is relevant to any party’s claim or defense and proportional

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to the needs of the case, including consideration of the importance of the discovery in resolving the

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issues, the parties’ relative access to relevant information, and whether the burden or expense of the

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proposed discovery outweighs its likely benefit. Fed. R. Civ. P. 26(b). Information within the

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scope of discovery need not be admissible in evidence to be discoverable. Id.

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In Roberts v. Clark County School District, 312 F.R.D. 594, 601-4 (D. Nev. 2016), the Court

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discusses the intent of the 2015 amendments to Rule 26(b) and Chief Justice Roberts’ 2015 Year-

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End Report in which he stated:

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The 2015 amendments to Rule 26(b)(1) emphasize the need to impose “reasonable
limits on discovery through increased reliance on the common-sense concept of
proportionality.” The fundamental principle of amended Rule 26(b)(1) is “that
lawyers must size and shape their discovery requests to the requisites of a case.” The
pretrial process must provide parties with efficient access to what is needed to prove
a claim or defense, but eliminate unnecessary and wasteful discovery. This requires
active involvement of federal judges to make decisions regarding the scope of
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discovery.

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Roberts, 312 F.R.D. at 603.

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Rule 26(b)(2)(C)(i) provides that on motion or on its own, the court must limit the frequency

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or extent of discovery otherwise allowed by these rules if it determines that the discovery sought is

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unreasonably cumulative or duplicative, or can be obtained from some other source that is more

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convenient, less burdensome, or less expensive. The starting point with respect to a motion to

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compel discovery remains the relevance of the requested information. Defendants argue that the

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requested documents are relevant for three reasons. First, the documents are relevant to establish

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that Plaintiffs are independent contractors. Second, the documents are relevant to establish that

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Defendants are entitled to the tip credit offset under the FLSA. Third, the documents are relevant to

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show credibility.

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A.

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Tax returns and related documents “do not enjoy an absolute privilege from discovery.” A.

Independent Contractors

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Farber & Partners, Inc. v. Garber, 234 F.R.D. 186, 191 (C.D. Cal. 2006) (quoting Premium Serv.

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Corp. v. Sperry & Hutchinson Co., 511 F.2d 225, 229 (9th Cir.1975). Nevertheless, “a public policy

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against unnecessary public disclosure arises from the need, if the tax laws are to function properly,

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to encourage taxpayers to file complete and accurate returns.” Premium Serv. Corp., 511 F.2d at

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229. Tax returns may be discovered where the party’s income or financial condition is in issue and

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there is a compelling need because the information sought is not otherwise available to the

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requesting party. Fosbre v. Las Vegas Sands Corp., 2016 WL 54202, at *5 (D. Nev. Jan. 5, 2016);

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Aliotti v. Vessel SENORA, 217 F.R.D. 496, 498 (N.D. Cal. 2003). If the requesting party shows the

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relevance of the producing party's tax returns, then the burden shifts to the producing party to show

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that other sources exist from which defendants may readily obtain the information. Fosbre, 2016

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WL 54202, at *5.

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Here, Defendants have not met their burden of showing the information sought is relevant to

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their defense that Plaintiffs are independent contractors. Defendants argue that the requested

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documents are the only way to show that Plaintiffs received payments from third parties, such as

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customers. To determine whether someone is an employee under the FLSA, courts engage in an
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economic realities test, which includes the consideration of factors, such as the degree of the alleged

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employee’s right to control the manner in which the work is to be performed, the alleged

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employee’s opportunity for profit and loss, the alleged employee’s investment in equipment or

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materials, and whether the service rendered requires a special skill. Real v. Driscoll Strawberry

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Assocs., Inc., 603 F.2d 748, 754–55 (9th Cir. 1979). Defendants’ argument that Plaintiffs’ financial

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documents will show payments from third party customers demonstrating their opportunity for

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profit and loss and their investment in equipment or materials is not convincing. Plaintiffs’

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financial condition is not in issue to determine whether they are considered employees under the

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FLSA. Further, there are alternative, less intrusive means by which Defendants can obtain relevant

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information to establish this defense. The Court, therefore, finds that the personal financial

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information sought by Defendants is not proportional to the needs of the case in regard to

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Defendants’ defense that Plaintiffs are independent contractors.

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B.

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Under the FLSA, employers must pay their employees a minimum wage. See 29 U.S.C. §

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206(a). The FLSA’s definition of wage recognizes that under certain circumstances, employers of

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“tipped employees” may include part of such employees’ tips as wage payments. 29 U.S.C. §

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203(m); Cumbie v. Woody Woo, Inc., 596 F.3d 577, 580 (9th Cir. 2010). An employer may use a tip

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credit to determine the wage of a tipped employee if it: (1) pays a cash wage of at least $2.13 per

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hour; (2) informs its employees of the FLSA's tip credit provisions; (3) permits its employees to

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retain all their tips (except for permissible tip pooling); and (4) ensures that the cash wage plus the

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tip credit equal at least the minimum wage each week. Montijo v. Romulus Inc., 2015 WL 1470128,

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at *5 (D. Ariz. Mar. 31, 2015), appeal dismissed (Sept. 10, 2015), appeal dismissed (Sept. 15, 2015)

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(quoting Roberts v. Apple Sauce, Inc., 945 F. Supp. 2d 995, 999 (N.D. Ind. 2013)).

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Tip Credit Offset

Defendants argue that the requested financial documents are critical to establishing that

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Defendants are entitled to a tip credit because they will show the amount of tips Plaintiffs received

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and the hours that they worked. See Defendants’ Supplement (ECF No. 97), pg. 6. Plaintiffs argue

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that Defendants fail to meet the requirements of the tip credit provision because Plaintiffs were not

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paid a wage of at least $2.13 per hour for employment duties performed as doormen or valets and
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because Defendants’ tip credit notice was insufficient. See Plaintiffs’ Supplement (ECF No. 102),

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pg. 6. During the hearing, Plaintiffs argued that Nevada law does not allow for a tip credit and,

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therefore, Defendants are not entitled to that defense pursuant to the savings clause of the FLSA, 29

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U.S.C. § 218(a)1. See Helm v. Alderwoods Grp., Inc., 696 F. Supp. 2d 1057, 1075 (N.D. Cal. 2009);

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Williamson v. Gen. Dynamics Corp., 208 F.3d 1144, 1150 (9th Cir. 2000); Busk v. Integrity Staffing

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Sols., Inc., 713 F.3d 525, 529 (9th Cir. 2013), rev'd, 135 S. Ct. 513, 190 L. Ed. 2d 410 (2014).

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Plaintiffs, however, stated in their supplement that the Court need not decide whether state law2

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regarding tip credits controls because Defendants nonetheless do not meet the threshold

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requirements of the tip credit provision.

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Defendants have not shown that they have fulfilled the requirements of the tip credit

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provision. Although it appears that Plaintiff Maltman received a wage of $8.25 an hour for a period

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of time, Plaintiffs received only commissions based on their duties as promoters and tips for their

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duties as doormen or valets. Because Defendants are unable to show that Plaintiffs received a cash

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wage of at least $2.13 an hour, they failed to fulfill the first requirement of the tip credit provision.

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Further, to be eligible for the tip credit, employers must first notify the employees of the

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requirements of the law regarding minimum wages and the employer’s intention to take the tip

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credit. Kilgore v. Outback Steakhouse of Florida, Inc., 160 F.3d 294, 298 (6th Cir. 1998). An

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employer must inform the employee that it intends to treat tips as satisfying part of the employer’s

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minimum wage obligation. Id. Defendants argue that they provided sufficient notification to

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Plaintiffs by posting on their premises an FLSA informational poster that appears to include an

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explanation of the tip credit provision. See Defendants’ Supplement (ECF No. 97-2). The poster

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states that “[e]mployers of ‘tipped employees’ who meet certain conditions may claim a partial

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wage credit based on tips received by their employees.” Id. The poster, therefore, informs

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employees that an employer may take a tip credit, but did not provide notification to Plaintiffs that

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The “savings clause” enables states and municipalities to enact more favorable wage, hour, and child labor
legislation. 29 U.S.C. § 218(a).
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NRS 608.160(b) states that it is unlawful for any person to “[a]pply as a credit toward the payment of the statutory
minimum hourly wage established by any law of this State any tips or gratuities bestowed upon the employees of that person.

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Defendants would or had the intent to take a credit based on their tips. Defendants do not represent

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that they took any further action, like verbal notification, to inform Plaintiffs of their intent to claim

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a tip credit. The Court finds that Defendants did not provide sufficient notification of their intent to

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use the tip credit to Plaintiffs. Therefore, production of Plaintiffs’ personal financial documents is

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not proportional to the needs of the case in regard to Defendants’ defense under the tip credit

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provision.

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C.

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Defendants argue that Plaintiff’s financial documents are necessary to test their credibility by

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Credibility

comparing their testimony of hours worked to their financial records. See Defendants’ Supplement

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(ECF No. 97), pg. 8-9. Plaintiffs argue that they have provided Plaintiff Maltman’s time records

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and disclosed witnesses that are sufficient to draw a reasonable inference of time worked. See

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Plaintiffs’ Supplement (ECF No. 102), pg. 16. Defendants do not provide a sufficient showing that

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Plaintiffs’ financial records are relevant to Plaintiffs’ credibility regarding their testimony of number

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of hours worked. Defendants’ credibility argument does not overcome Plaintiffs’ privacy interests

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in their financial records. Accordingly,

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IT IS HEREBY ORDERED that Defendant Douglas Gerrard’s Motion to Compel (ECF
No. 89) is denied.
DATED this 12th day of April, 2017.

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______________________________________
GEORGE FOLEY, JR.
United States Magistrate Judge

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