Martinez v. Petrenko et al

Filing 45

///ORDER granting in part and denying in part 33 Motion for Summary Judgment. So Ordered by Judge Joseph A. DiClerico, Jr.(gla)

UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF NEW HAMPSHIRE

Gabriel F. Martinez
v.

Civil No. 12-cv-331-JD
Opinion No. 2014 DNH 004

Victor F. Petrenko and
IceCode, LLC
O R D E R
Gabriel F. Martinez brought suit against his former
employer, IceCode, LLC, and Victor Petrenko, who founded IceCode
and served as chairman of IceCode’s board, seeking payment of
wages, overtime compensation, severance benefits, and damages for
wrongful termination under state law and the Fair Labor Standards
Act (“FLSA”), 29 U.S.C. § 207(a).

Petrenko moves for summary

judgment on Martinez’s FLSA claim, arguing that Martinez cannot
show enterprise coverage, as required by § 207(a), and asking the
court to decline supplemental jurisdiction over the state law
claims.

Martinez objects on the grounds that factual disputes

preclude summary judgment on his FLSA claim and argues that even
if the FLSA claim were dismissed, diversity jurisdiction exists
or, alternatively, the court should not decline supplemental
jurisdiction.

Standard of Review
Summary judgment is appropriate when “the movant shows that
there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.”

Fed. R. Civ.

P. 56(a).

“A genuine issue is one that can be resolved in favor

of either party, and a material fact is one which has the
potential of affecting the outcome of the case.”

Jakobiec v.

Merrill Lynch Life Ins. Co., 711 F.3d 217, 223 (1st Cir. 2013)
(internal quotation marks omitted).

In deciding a motion for

summary judgment, the court draws all reasonable factual
inferences in favor of the nonmovant.

Kenney v. Floyd, 700 F.3d

604, 608 (1st Cir. 2012).

Background
Petrenko founded IceCode, originally Ice Engineering, LLC,
in 2001, in Lebanon, New Hampshire.

In the complaint, Martinez

describes IceCode as being “engaged in research and development
of intellectual property for so long as the entity existed.”
Compl. ¶ 7.

IceCode’s “Limited Liability Company Operating

Agreement” states that the purposes of the company were:
to develop, improve, license, and commercially apply
ice friction modification technology and other
technologies developed and/or acquired that provide
significant cost savings, energy savings, or otherwise
provide better reliability and safety for consumers and
manufacturers; to develop, market, offer, sell, license
and promote products and services related to such
technology and to engage in all ancillary activities
directly or indirectly related to such purposes.
Agreement, § 2.5.
From March 1, 2010, to March 1, 2011, Petrenko was the Chief
Technology Officer at IceCode and chairman of its board of
directors.

In February of 2010, Martinez became Chief Operating

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Officer of IceCode.

During that time, Roman Zhigalov and then

Sam Fairchild were Chief Executive Officer.1
The terms of Martinez’s employment at IceCode were governed
by an agreement which was titled “Executive Agreement.”

The

Executive Agreement was amended after Martinez complained about
his compensation in July of 2010.

Martinez left IceCode in May

of 2011 because he was not being compensated in the amount that
he believed had been promised.
Martinez filed this action in August of 2012.

Petrenko

moved to dismiss Martinez’s FLSA claim for lack of subject matter
jurisdiction or in the alternative for failure to state a claim
and filed a motion for judgment on the pleadings.

Petrenko also

moved for default against Martinez on Petrenko’s counterclaim.
In support of the jurisdictional challenge, Petrenko argued
that diversity jurisdiction under 28 U.S.C. § 1332 was lacking
and that federal question jurisdiction under 28 U.S.C.
§ 1331 was lacking because the FLSA claim was “insubstantial and
frivolous.”2

The court denied the motion to dismiss as untimely,

because it presented a procedural tangle of jurisdictional issues
under Federal Rule of Civil Procedure 12(b)(1) and a challenge on
the merits under Rule 12(b)(6), and because Martinez presented a
colorable claim under the FLSA.

The court concluded that the

1

Zhigalov apparently was Chief Executive Officer of IceCode
beginning in 2008 and then designated Fairchild to serve in that
position. Zhigalov may have again been Chief Executive Officer
in 2011.
2

IceCode had not yet been dismissed from the case.
3

motion for judgment on the pleadings was premature and that the
issues should be addressed by a motion for summary judgment.
Default was entered against Martinez on the counterclaim but
was later cured.

On January 18, 2013, the claims against IceCode

were dismissed without prejudice, due to Martinez’s failure to
file a return of service or a motion to extend time to effect
service.

Therefore, IceCode is no longer a party in this action.

Discussion
Petrenko seeks summary judgment in his favor on Martinez’s
FLSA claim for overtime wages on the ground that Martinez cannot
show that IceCode was a covered employer under the FLSA.

In

addition, Petrenko asks the court to decline supplemental
jurisdiction over Martinez’s state law claims after the FLSA
claim is dismissed.

In response, Martinez argues that factual

disputes exist as to whether IceCode was a covered employer under
the FLSA, that he was a covered employee under the FLSA, and that
even if the FLSA act claim were dismissed, diversity jurisdiction
now exists because IceCode has been dismissed and the court
should not decline supplemental jurisdiction over the state law
claims.

A.

FLSA
Section 207(a) prohibits employers from having employees

work for longer than forty hours per week without overtime pay
when the employees are “engaged in commerce or in the production
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of goods for commerce” or the employer is “an enterprise engaged
in commerce or in the production of goods for commerce.”

As

such, the FLSA applies only to employment with an adequate
connection to commerce.

Alladin v. Paramount Mgmt., LLC, 2013 WL

4526002, at *5 (S.D.N.Y. Aug. 27, 2013); Mathews v. Bronger
Masonry, Inc., 772 F. Supp. 2d 1004, 1010-11 (S.D. Ind. 2011).
The commerce requirements under § 207(a) have been termed
“individual coverage” and “enterprise coverage.”

See Polycarpe

v. E&S Landscaping Serv., Inc., 616 F.3d 1217, 1220 (11th Cir.
2010).

To be eligible for overtime compensation under § 207(a),

therefore, a plaintiff must prove either individual or enterprise
coverage.

Josendis v. Wall to Wall Rsidence Repairs, Inc., 662

F.3d 1292, 1298 (11th Cir. 2011).
Martinez alleged his claim under the FLSA in Count III
against both IceCode and Petrenko.
dismissed as to IceCode.

The FLSA claim has been

For purposes of the motion for summary

judgment, Petrenko does not challenge the allegation that he was
Martinez’s employer.

Both parties cite IceCode’s revenue and

activities for purposes of the analysis of Martinez’s FLSA claim
against Petrenko.

The court will accept the parties’

presentations for purposes of the motion for summary judgment
only without making any findings or rulings as to whether
Petrenko was Martinez’s employer and whether the facts pertinent
to IceCode may be imputed to Petrenko for purposes of the
§ 207(a) analysis.

5

In opposition to summary judgment, Martinez asserts that he
is not required to allege or show facts addressing the coverage
requirements of § 207(a) to maintain his FLSA claim.3
mistaken.

He is

To succeed on a claim under § 207(a), a plaintiff must

prove that he is a covered employee or that his employer is a
covered enterprise.

See, e.g., Falk v. Brennan, 414 U.S. 190,

197-98 (1973); Reagor v. Okmulgee Cnty. Family Res. Ctr., 501
Fed. Appx. 805, 808 (10th Cir. 2012) (holding that plaintiff
bears the burden of showing either individual or employer
coverage under § 207(a)); Josendis, 662 F.3d at 1298 (“In order
to be eligible for FLSA overtime, however, an employee must first
demonstrate that he is ‘covered’ by the FLSA.”); Talton v. I.H.
Caffey Distributing, Co., 124 Fed. Appx. 760, 764 (4th Cir. 2005)
(holding that FLSA overtime compensation applies only to covered
employees); Chao v. A-One Med. Servs., Inc., 346 F.3d 908, 914
(9th Cir. 2003) (holding that for FLSA overtime rules to apply
plaintiff must be employee within coverage required under §
207(a)); Robinson v. CAS 4000 Kansas LLC, --- F. Supp. 2d ---,
2013 WL 6704840, at *3 (D.D.C. Dec. 16, 2013) (describing
coverage requirements under § 207(a)); Boutros v. JTC Painting &

3

Martinez argues in part that because the First Circuit has
not had an opportunity to address the coverage requirements under
§ 207(a), coverage is not an element of a § 207(a) claim in this
circuit. The great weight of authority to the contrary
demonstrates the lack of merit in that theory.
6

Decorating Corp., 2013 WL 5637659, at *3 (S.D.N.Y. Oct. 15, 2013)
(same); Sandles v. Wright, 2013 WL 5497788, at *6 (E.D. Tex. Oct.
3, 2013) (same); Pruell v. Caritas Christi, 2013 WL 2420918, at
*1 (D. Mass. May 31, 2013) (“To state a claim under the FLSA, the
plaintiff must allege that she was employed by the defendants;
that her work involved interstate activity; and that she
performed work for which she was improperly compensated.”).

As

an element of a § 207(a) claim, the coverage requirement must
also be pleaded in the complaint.

See, e.g., Reagor, 501 Fed.

Appx. at 808; Cardenas v. Aragon Towers Condominium Ass’n Inc.,
451 Fed. Appx. 898, 900 (11th Cir. 2012); Rummel v. Hughmark,
Inc., 2013 WL 6055082, at *4 (W.D. Pa. Nov. 15, 2013); Mullins v.
Posh Potties, LLC, 2013 WL 5728105, at *2 (S.D. Fla. Oct. 22,
2013); Malloy v. Assoc. of State & Territorial Solid Waste Mgmt.
Officials, --- F. Supp. 2d ---, 2013 WL 3835775, at *4 (D.D.C.
July 26, 2013); Shomo v. Junior Corp., 2012 WL 2401978, at *3-*4
(W.D. Va. June 1, 2012); Seeman v. Gracie Gardens Owners Corp.,
794 F. Supp. 2d 476, 483-84 (S.D.N.Y. 2011); Morrow v. JW Elec.,
Inc., 2011 WL 5599051, at *3 (N.D. Tex. Nov. 16, 2011); Perez v.
Muab, Inc., 2011 WL 845818, at *3 (S.D. Fla. Mar. 7, 2011).
Therefore, to the extent Martinez opposes summary judgment on the
ground that coverage is not an element of his FLSA claim, that
argument is rejected.

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1.

Enterprise Coverage

Petrenko assumed that Martinez was relying on enterprise
coverage to support his FLSA claim.4

“[A]n enterprise is

‘engaged in commerce’ for purposes of the FLSA if it (1) ‘has
employees engaged in commerce or in the production of goods for
commerce, or . . . handling, selling, or otherwise working on
goods or materials that have been moved in or produced for
commerce by any person’; and (2) has an ‘annual gross volume of
sales made or business done [that] is not less than $500,000.’”
Alladin, 2013 WL 4526002, at *5 (quoting 29 U.S.C. § 203(s)(1)(A)
defining terms used in § 207(a)).
Petrenko asserts, based on a draft of IceCode’s income tax
return for 2010,5 that IceCode had gross receipts of $150,000,
loans from its partners of $134,764, and a liability owed to
“Diversified” in the amount of $500,000.

In response, Martinez

contends that IceCode’s business transactions during 2010 totaled
$719,391.46, based on amounts received by IceCode “from
investments, prize money and other sources.”

Obj. doc. 36 at 6.

Specifically, Martinez lists $250,000 as “Diversified Revenue,”

4

Petrenko previously moved to dismiss Martinez’s FLSA claim
and for judgment on the pleadings, contending that Martinez did
not allege individual coverage and inadequately alleged
enterprise coverage. In response, Martinez argued that he had
adequately pleaded enterprise coverage under the FLSA. Martinez
did not raise an issue as to individual coverage in response to
either motion. Based on Martinez’s prior arguments, Petrenko
assumed that Martinez was not pursuing individual coverage under
the FLSA.
5

Martinez does not challenge the evidentiary sufficiency of
the draft income tax return.
8

$295,600 as “Zhigalov Investment,” $100,000 as “GE Prize,”
$65,000 as “Joyce Investment” and “Topkis Investment,” a
recovered retainer, and an unknown source.
The employer’s corporate income tax returns provide evidence
of the volume of sales or business done for purposes of
enterprise coverage under § 207(a).

See Polycarpe, 616 F.3d at

1229; Hurtado v. Raly Dev., Inc., 2012 WL 3687488, at *7 (S.D.
Fla. Aug. 27, 2013); Lopez v. Pereyra, 2010 WL 335638, at *4
(S.D. Fla. Jan. 29, 2010).

The amounts of loans made to the

employer, the amounts of investments in the company, and internal
business transactions do not constitute gross sales or business
done.

Polycarpe, 616 F.3d at 1229; Lopez, 2010 WL 335638, at *5;

Kaur v. Royal Arcadia Palace, Inc., 643 F. Supp. 2d 276, 291-92
(E.D.N.Y. 2007).
Based on the draft income tax return, IceCode’s revenue in
2010 was $150,000.

The investments by Roman Zhigalov, who was an

officer of IceCode, cannot be considered to augment that amount.
Further, the “Diversified Revenue” of $250,000, claimed by
Martinez, appears to have been a loan.

It is not necessary to

resolve the nature of Diversified’s investment, however, because
without the Zhigalov investment amounts, Martinez has not shown a
triable issue as to whether IceCode had sales and business in an
amount that exceeded $500,000.6

6

Martinez asserts that IceCode’s transactions totaled
$719,391.46 during the relevant period, which included $250,000
from Diversified, not $500,000.
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2.

Individual Coverage

Despite his prior arguments based on enterprise coverage,
Martinez now asserts that individual coverage under the FLSA also
applies.7

A plaintiff, however, is “not entitled to raise new

and unadvertised theories of liability for the first time in
opposition to summary judgment.”

Calvi v. Knox County, 470 F.3d

422, 431 (1st Cir. 2006); Steeves v. City of Rockland, 600 F.
Supp. 2d 143, 179 (D. Me. 2009).

Therefore, unless individual

coverage was alleged in the complaint, Martinez cannot now rely
on that theory to avoid summary judgment.

See Rowe v. Liberty

Mut. Group, Inc., 2013 WL 6384805, at *16 (D.N.H. Dec. 6, 2013).
In Count III of the complaint, the FLSA claim, Martinez
included allegations directed toward enterprise coverage in
paragraph 57.

He did not plead any facts that address an

individual coverage theory.

Therefore, Martinez cannot avoid

summary judgment based on a new and unadvertised theory of
individual coverage.

Further, even if individual coverage had

been pleaded, it is far from clear that Martinez could avoid
summary judgment based on that theory.

7

Petrenko asserts that Martinez is judicially estopped from
raising individual coverage based on his arguments in opposition
to Petrenko’s motion to dismiss and motion for judgment on the
pleadings. Although Martinez did not raise individual coverage
previously, he did not disavow individual coverage or rely on
arguments directly contrary to individual coverage. For that
reason, his position now, invoking individual coverage, is not
directly inconsistent with previous arguments, and judicial
estoppel does not apply. See Boston Gas Co. v. Century Indem.
Co., 708 F.3d 254, 261 (1st Cir. 2013).
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3.

Summary

Because Martinez did not plead individual coverage and has
not shown a triable issue as to enterprise coverage for his FLSA
claim under § 207(a), Petrenko is entitled to summary judgment on
Martinez’s FLSA claim, Count III.

B.

Jurisdiction
With the dismissal of Martinez’s FLSA claim, the

jurisdictional basis for this case under 28 U.S.C. § 1331 no
longer exists.

In this situation, the court may decline to

exercise supplemental jurisdiction over the remaining state law
claims.
here.

28 U.S.C. § 1367(c)(3).

Petrenko urges this result

Martinez asks the court to retain supplemental

jurisdiction and argues that diversity jurisdiction now exists,
following the dismissal of IceCode, making supplemental
jurisdiction unnecessary.

1.

Diversity Jurisdiction

The general rule is that jurisdiction is determined at the
time the complaint is filed.

Garcia Perez v. Santaella, 364 F.3d

348, 350-51 (1st Cir. 2004).

An exception exists for purposes of

diversity jurisdiction, 28 U.S.C. § 1332, when a jurisdictional
defect is cured under Federal Rule of Civil Procedure 21 by
dismissing the party that destroyed complete diversity.

See

Grupo Dataflux v. Atlas Global Group, L.P., 541 U.S. 567, 572-73
(2004).

In that event, the court may proceed under diversity

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jurisdiction after dismissing the nondiverse party, despite the
lack of complete diversity at the time the complaint was filed.
Id.; see also Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S.
826, 832 (1989) (“[I]t is well settled that Rule 21 invests
district courts with authority to allow a dispensable nondiverse
party to be dropped at any time, even after judgment has been
rendered.”).
Martinez relies on two cases, in support of diversity
jurisdiction, in which the courts found diversity existed after
nondiverse parties were dismissed.

See Collins v. Franklin, 142

F. Supp. 2d 749, 751 (W.D. Va. 2000) (nondiverse defendants
dismissed pursuant to settlement); Continental Data Sys., Inc. v.
Exxon Corp., 638 F. Supp. 432, 441 (E.D. Pa. 1986) (holding that
early dismissal of nondiverse defendants cured defects in
diversity jurisdiction).

In addition, the Second Circuit has

held that diversity jurisdiction existed prior to final judgment
because summary judgment previously had been granted in favor of
the nondiverse defendants, which eliminated them from the case.
Brown v. Eli Lilly & Co. 654 F.3d 347, 356-57 (2d Cir. 2011).
IceCode, the nondiverse defendant in this case, has been
dismissed without prejudice because Martinez did not file a
return of service within the time allowed.

Martinez and

Petrenko, the remaining parties, are citizens of different
states.

Therefore, based on the circumstances presented here,

diversity jurisdiction exists in this case.

12

“Federal courts, it was early and famously said, have ‘no
more right to decline the exercise of jurisdiction which is
given, than to usurp that which is not given.’”

Sprint Commc’ns,

Inc. v. Jacobs, 134 S. Ct. 584, 590-91 (2013) (quoting Cohens v.
Virgina, 6 Wheat. 264, 404 (1821)).

Because diversity

jurisdiction exists in this case, the dismissal of the FLSA claim
does not affect jurisdiction.

2.

Supplemental Jurisdiction

The question of supplemental jurisdiction is moot.

Conclusion
For the foregoing reasons, the defendant’s motion for
summary judgment (document no. 33) is granted to the extent that
the plaintiff’s claim under the FLSA, Count III, is dismissed,
and is otherwise denied.
SO ORDERED.
____________________________
Joseph A. DiClerico, Jr.
United States District Judge
January 13, 2014
cc: Benjamin T. King, Esq.
Martha Van Oot, Esq.

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