PONTILENA v. MORGAN STANLEY SMITH BARNEY LLC
Filing
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OPINION. Signed by Judge William J. Martini on 12/14/12. (gh, )
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
Civ. No. 2:11-03121 (WJM)
IN RE MORGAN STANLEY SMITH
BARNEY LLC WAGE AND HOUR
LITIGATION
OPINION
MDL 2280
WILLIAM J. MARTINI, U.S.D.J.:
In this multidistrict litigation (“MDL”) wage and hour case, Plaintiffs Jimmy
Kuhn, Robert Gibson, Nick Pontilena, Gregg Vanasse, Howard Rosenblatt, and
Denise Otten allege that Defendant Morgan Stanley Smith Barney (“Morgan
Stanley”) failed to pay overtime and impermissibly deducted money from their
paychecks. Plaintiffs argue that Morgan Stanley violated state and federal law in
four ways. First, Morgan Stanley failed to provide overtime to financial advisors
who were paid on commission. Second, it made impermissible deductions from
advisors’ pay. Third, it compelled advisors to pay business expenses. And fourth,
it charged advisors for losses that the advisors were allegedly responsible for.
Plaintiffs bring one federal claim for overtime, four state claims for overtime, four
state claims for impermissible wage deductions, and one state claim for failure to
maintain records. Morgan Stanley seeks to dismiss one state overtime claim, all of
the impermissible deduction claims, and the lone claim for failure to maintain
records. There was no oral argument. Fed. R. Civ. P. 78(b). For the reasons set
forth below, the motion to dismiss is GRANTED. The motion to strike the class
and collective allegations is GRANTED in part and DENIED in part.
I.
BACKGROUND
The named Plaintiffs in this case worked as financial advisors for Morgan
Stanley, which paid them on commission.
Am. Consolidated Compl.
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(“Complaint”) ¶¶ 36, 28. Despite regularly working more than 40 hours per week,
Plaintiffs did not receive overtime. Id. ¶¶ 38, 43. Plaintiffs had to pay their own
overheard expenses, and they were not reimbursed for business-related meals. Id.
¶¶ 38, 40, 49.
In 2011, Plaintiffs filed five cases against Morgan Stanley in four different
states: Connecticut, New Jersey, New York, and Rhode Island. After the Judicial
Panel on Multidistrict Litigation transferred the cases to this Court for pre-trial
purposes, Plaintiffs filed a consolidated class and collective action complaint (“the
Complaint”). The Complaint asserts wage and hour claims under state law as well
as the federal Fair Labor Standards Act (“FLSA”).
II.
LEGAL STANDARD
Federal Rule of Civil Procedure 12(b)(6) provides for the dismissal of a
complaint, in whole or in part, if the plaintiff fails to state a claim upon which
relief can be granted. The moving party bears the burden of showing that no claim
has been stated. Hedges v. United States, 404 F.3d 744, 750 (3d Cir. 2005). In
deciding a motion to dismiss under Rule 12(b)(6), a court must take all allegations
in the complaint as true and view them in the light most favorable to the plaintiff.
See Warth v. Seldin, 422 U.S. 490, 501 (1975).
A complaint’s factual allegations must be sufficient to raise a plaintiff’s
entitlement to relief above a speculative level, such that the entitlement is
“plausible on its face.” See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007);
see also Umland v. PLANCO Fin. Serv., Inc., 542 F.3d 59, 64 (3d Cir. 2008).
Claims have “facial plausibility when the plaintiff pleads factual content that
allows a court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly,
550 U.S. at 556). While “[t]he plausibility standard is not akin to a ‘probability
requirement’ . . . it asks for more than a sheer possibility.” Id.
“In evaluating motions to dismiss, courts consider ‘allegations in the
complaint, exhibits attached to the complaint, matters of public record, and
documents that form the basis of a claim.’” Banco Popular v. Ghandi, 184 N.J.
161 (2003) (citing Lum v. Bank of Am., 361 F.3d 217, 222 n.3 (3d Cir.), cert.
denied, 543 U.S. 918, (2004)). This includes legislative history, see Territory of
Alaska v. Am. Can Co., 358 U.S. 224, 226-27 (1959), which both parties ask this
Court to consider. See Def.’s Request for Judicial Notice, Exs. C & D, ECF No.
19-2; Pl.’s Br. 34-35, ECF No. 26. As is made clear below, the Court reaches its
decision without recourse to legislative history. Furthermore, Defendant asks the
Court to take judicial notice of a motion to dismiss and an unpublished order from
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other cases. Request for Judicial Notice 1-3. The Court need not, and does not,
rely on these materials in reaching its decision.
Federal Rule of Civil Procedure 12(f) provides that a court “may strike from
a pleading an insufficient defense or any redundant, immaterial, impertinent, or
scandalous matter.” “The district court’s decision whether to grant a motion to
strike under Rule 12(f) is discretionary.” Coles v. Carlini, No. 10-632, 2012 WL
1079446, at *15 (D.N.J. Mar. 29, 2012). When a Rule 12(f) motion “attack[s] the
sufficiency of the allegations contained in a pleading, it is appropriate to convert
that motion into one pursuant to Rule 12(b)(6).” Giles v. Phelan, Hallinan &
Schmieg, L.L.P., No. 11-6239, 2012 WL 4506294, at *20 (D.N.J. Sept. 28, 2012)
(internal citation and quotation omitted).
III.
DISCUSSION
Plaintiffs filed a ten count Complaint. One count alleges failure to pay
overtime under the FLSA (Count I). Four counts allege failure to pay overtime
under state law: Count II (New York); Count IV (New Jersey); Count VII (Rhode
Island); and Count IX (Connecticut). Four counts allege impermissible deduction
from wages under state law: Count III (New York); Count V (New Jersey); Count
VIII (Rhode Island); and Count X (Connecticut). A final count alleges a failure to
maintain records under New Jersey law (Count VI).
Morgan Stanley does not move to dismiss the FLSA overtime claim (Count
I). Instead, it moves to dismiss a single state law overtime claim, Count VII, which
sounds in Rhode Island law, as well as the impermissible wage deduction claims
(Counts III, V, VIII, and X), and the failure to maintain records claim (Count VI).
The motion to dismiss these six counts is GRANTED. The motion to strike the
collective and class allegations is GRANTED in part and DENIED in part.
A. MOTION TO DISMISS
i. Overtime (Count VII)
Morgan Stanley moves to dismiss Count VII, an overtime claim sounding in
Rhode Island law. Morgan Stanley argues that the Rhode Island Minimum Wage
Act did not contain a private right of action at the time these suits were brought.
The Court agrees. Since the cases encompassed in this MDL were filed in 2011,
Rhode Island has explicitly adopted a private right of action for overtime claims
under the Minimum Wage Act. See R.I. Gen. Laws § 28-14-19.2(a). Morgan
Stanley maintains that the new law is not retroactive; Plaintiffs appear to agree.
Because pre-existing law did not recognize a private right of action, the Court will
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DISMISS Count VII WITH PREJUDICE. See Hauser v. Rhode Island Dept. of
Correction, 640 F. Supp. 2d 143, 145-47 (D.R.I. 2009).
ii. Wage Deductions (Counts III, V, VIII, and X)
In Counts III, V, VIII, and X (“the Wage Deduction Counts”), Plaintiffs
allege that Morgan Stanley impermissibly deducted items such as overhead from
their paychecks. Contrary to Morgan Stanley’s argument, Plaintiffs have standing
to bring these claims because they allege injury-in fact, causation, and
redressability. See Compl. ¶¶ 92, 96-97, 119-120, 140-141, 159-60; see also
Taliaferro v. Darby Tp. Zoning Bd., 458 F.3d 181, 188 (3d Cir. 2006).
Morgan Stanley moves to dismiss the Wage Deduction Counts. It also
moves to strike Complaint paragraphs 40 and 50, which allege a failure to provide
reimbursements. In support of its motion to strike, Morgan Stanley argues that
“Plaintiffs have not and cannot state a claim for failure to reimburse . . . .” Def’s.
Br. 20, ECF No. 19-1. The motion to strike is an independent attack on the merits
of the Wage Deduction Counts. Accordingly, the Court will convert it into a
motion to dismiss. See Giles, 2012 WL 4506294, at *20. As set forth below, the
Wage Deduction Counts are all subject to dismissal, both under an impermissible
deduction theory and a reimbursement theory.
1. New York Law (Count III)
Count III is a claim for impermissible wage deductions under New York
law. This Count is deficient for two reasons: to the extent it alleges impermissible
deductions, it is conclusory, and to the extent it alleges a failure to reimburse, it
does not aver a violation of New York law.
New York Labor Law Section 193 (“Section 193”) provides that, absent
certain exceptions, “no employer shall make any deduction from the wages of an
employee.” Plaintiffs argues that Count III survives a motion to dismiss because
the Complaint alleges “the particular deductions from compensation that violate
[Section] 193” and because it alleges “that [Plaintiffs] never authorized such
deductions.” Pls.’ Br. 18 (emphasis in original). To state a claim under Section
193, a plaintiff must not just plead deductions but “deductions from . . . wages.”
Section 193 (emphasis added). A commission becomes a wage for purposes of
Section 193 when an express or implied contract deems that commission “earned.”
Pachter v. Bernard Hodes Group, Inc., 10 N.Y.3d 609, 612, 617 (N.Y. 2008).
Since Plaintiffs say absolutely nothing about the terms of their employment
contract, they cannot establish when their commissions were earned. Accordingly,
their pleading of the wages element of the cause of action is entirely conclusory.
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Because of that, it is conceivable that Morgan Stanley violated Section 193 by
deducting money from commissions before the commissions were earned. But a
conceivable claim is no claim at all. Iqbal, 556 U.S. at 680.
Plaintiffs allege that Morgan Stanley violated Section 193 when it failed to
reimburse money spent on messenger services, overnight mail delivery, and
lunches with clients. Compl. ¶¶ 40, 50. In support of their argument, Plaintiffs
cite legislative history indicating that Section 193, as it stood at the time these suits
were filed, was designed to prevent employers from making employees reimburse
them for losses that the employees caused. Pls.’ Br. 20. Here, Plaintiffs are not
alleging that messenger services, mail delivery, and business meals were losses
they caused Morgan Stanley.
At bottom, Plaintiffs believe that if employees are paid on commission,
Section 193 prohibits employers from making those employees responsible for
their own expenses. Even if Plaintiffs are correct, they have still failed to state a
claim upon which relief can be granted. For present purposes, Section 193 has two
sections. Section 193(1) refers to “deductions from the wages of an employee.”
Plaintiffs cannot state a reimbursement claim under Section 193(1) because they
have failed to plead the wages element in a non-conclusory fashion. Section
193(2) “prohibits wage deductions by indirect means where direct deduction would
violate Section 193(1).” Angello v. Labor Ready, Inc., 7 N.Y.3d 579, 585 (N.Y.
2006). Plaintiffs maintain that when Morgan Stanley made them pay their own
expenses, Morgan Stanley was effectively deducting the expenses from Plaintiffs’
paychecks—that Morgan Stanley was making “deduction[s] by indirect means.”
Id. But if the Court is to decide whether the indirect deduction is impermissible, it
must decide whether the direct deduction would be impermissible. As explained
above, it cannot decide that because Plaintiffs conveniently omit any description of
their wages from their Complaint. The Court will DISMISS Count III
WITHOUT PREJUDUCE.
2. New Jersey Law (Count V)
Count IV is a claim for impermissible wage deductions under New Jersey
law. The Court will dismiss this claim because it is conclusory.
With exceptions not applicable here, New Jersey State Wage and Hour Law
§ 34:11-4.4(a) provides as follows: “No employer may withhold or divert any
portion of an employee’s wages unless: [t]he employer is required or empowered
to do so by New Jersey or United States law.” “Wages” encompasses commissionbased compensation. N.J.S.A. § 34:11-4.1(c).
Plaintiffs maintain that “the Complaint . . . specifically alleges that the
unauthorized ‘deductions from the commissions were deducted from employees’
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wages.’” Pl.’s Br. 23 (quoting Compl. ¶ 49) (emphasis in original). As with their
New York wage deduction claim, Plaintiffs plead wages in an utterly conclusory
fashion. It is not enough to simply declare that compensation qualifies as a wage
for purposes of § 34:11-4.4(a). See Carita v. Mon Cheri Bridals, LLC, No. 102517, 2012 WL 2401985, at *11 (D.N.J. June 25, 2012) (“[Even if] an employer
and an employee may refer to certain payments as a ‘commission,’ this is not
dispositive.”). Plaintiffs must provide sufficient information so the Court can
determine whether compensation counts as a wage. The Court will DISMISS this
Count WITHOUT PREJUDICE.
Finally, by ignoring Morgan Stanley’s argument that New Jersey law does
not recognize a wage deduction claim based on a failure to reimburse, Plaintiffs
signal that they are not seeking relief under a failure to reimburse theory. The
Court will hold Plaintiffs to this implicit representation.
3. Rhode Island Law (Count VIII)
Count VIII is a claim for impermissible wage deductions under Rhode Island
law. The Court will dismiss this claim based on the absence of a private right of
action.
Plaintiffs do not disagree that at the time this action was filed, R.I. Gen.
Laws Section 28-14 (“Section 28-14”) provided a private right of action in just two
sections. The first section, Section 28-14-3.1, is not applicable here. The second
section, Section 28-14-18, applies only to whistleblower claims. See Hauser, 640
F. Supp. 2d. at 146 (“Section 28-14-18.2 was not intended to apply to wage
payment violations; a private right of action is available ‘only for violations of the
whistleblowing protection set forth in the immediately preceding and following
sections.’”) (quoting Trs. of the Local Union No. 17 Sheet Metal Workers’
Apprenticeship Fund v. May Eng’g Co., 951 F. Supp. 346, 350-51 (D.R.I. 1997)).
Rhode Island adopted a private right of action for wage deduction claims in June of
2012, see R.I. Gen. Laws § 28-14-19.2 (a), but Plaintiffs do not argue that the new
law should be applied retroactively. Accordingly, the Court will DISMISS this
Count WITH PREJUDICE.
4. Connecticut Law (Count X)
Count X is a claim for impermissible wage deductions under Connecticut
law. Like the other wage deduction claims, it does not survive the motion to
dismiss.
“Connecticut’s wage statutes, including Conn. Gen. Stat. § 31–72, do not
create substantive obligations regarding the payment of employees; ‘rather, they
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provide remedial protections for those cases in which the employer-employee
wage agreement is violated.’” Karavish v. Ceridian Corp., No. 9-935, 2011 WL
3924182, at *15 (D. Conn. Sept. 7, 2011) (quoting Mytech v. May Dep’t Stores
Co., 260 Conn. 152, 162 (2002)). “Thus, a claim under Conn. Gen. Stat. § 31–72
requires an employee to show that the employer breached an obligation to pay
wages that arises from an employer-employee agreement.” Id.
Plaintiffs maintain that Morgan Stanley “impermissibly and unlawfully
deducted from employees’ wages compensation for . . . salary and other overhead
associated with the broker’s assistant, trading errors, [etc.] . . . .” Compl. ¶ 49.
Under Connecticut law, deductions are not “impermissible” in the abstract.
Instead, deductions are impermissible relative to a given agreement. See Izzo v.
Moore Wallace North America, Inc., No. 8-163, 2011 WL 1874963, at *4 (D.
Conn. May 17, 2011) (“Thus, an employee may proceed against an employer that
withholds or diverts commission-based compensation due, but only if the
employer’s withholding or diversion also violates an existing agreement with
respect to the employee’s compensation.”). The Complaint does not so much as
quote a single provision of Plaintiffs’ contract. Accordingly, any claim that
Morgan Stanley “impermissibly” deducted money from Plaintiffs’ wages is
entirely conclusory.
The Court will DISMISS this Count WITHOUT
PREJUDICE.
As with the New Jersey claim, Plaintiffs ignore Morgan Stanley’s argument
that Connecticut law does not recognize an impermissible wage deduction claim
based on a failure to reimburse. As with the New Jersey claim, the Court will hold
Plaintiffs to their implicit representation.
iii. Failure to Maintain Records (Count VI)
Count VI is a claim for failure to maintain records under N.J.S.A. § 34:114.6 (“Section 34”), which requires employers to “[m]ake such records as to the
persons employed by him, including wage and hour records . . . .” N.J.S.A. §
34:11-4.6(e). The Court will dismiss this claim because it is duplicative.
Morgan Stanley argues that “because the NJWPL does not provide for any
statutory or punitive damages additional to those remedies under the FLSA and
New Jersey wage and hour law, Plaintiffs claim for failure to maintain records is
entirely redundant . . . .” Def.’s Br. 21. The Court agrees. Plaintiffs do not argue
that Section 34 entitles them to anything more than compensatory damages. Even
if additional damages were available, Plaintiffs have waived them. Compl. ¶
Prayer 9. Ultimately, if Plaintiffs are to recover compensatory damages under
Count VI, they will have to demonstrate that Morgan Stanley shorted them on
compensation.
But demonstrating that Morgan Stanley shorted them on
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compensation is exactly what Plaintiffs attempt to do with their other claims.
Accordingly, the failure to maintain records claim is duplicative. Since Plaintiffs
cannot amend their Complaint to state a claim for failure to maintain records under
New Jersey law, the Court will DISMISS this Count WITH PREJUDICE.
B. MOTION TO STRIKE CLASS AND COLLECTIVE ACTION
ALLEGATIONS
Plaintiffs move to strike the class and collective action allegations. The
Court will GRANT the motion in part and DENY it in part. Plaintiffs seek to
bring (1) a collective action under the FLSA for failure to pay overtime, and (2)
class actions under the laws of Connecticut, New Jersey, New York, and Rhode
Island both for failure to pay overtime and for impermissible deductions. They
seek to represent current and former financial advisors and financial advisor
trainees. Since Plaintiffs have not alleged that trainees were subject to
impermissible deductions, see Compl. ¶ 49, the Court will STRIKE trainees from
the putative impermissible deductions classes. If this defect can be corrected,
Plaintiffs may remedy it in an amended pleading. Furthermore, while the Court
harbors doubts about the certifiability of a class or collective action for overtime
pay that includes both advisors who worked on commission and trainees who did
not, it believes it is premature to strike overtime class allegations at this time. Cf.
Landsman & Funk PC v. Skinder-Strauss Associates, 640 F.3d 72, 93 (3d Cir.
2011) (“[Only in a] rare [case does] the complaint itself demonstrate[] that the
requirements for maintaining a class action have not been met.”).
IV.
CONCLUSION
For the foregoing reasons, the Court will GRANT the motion to dismiss.
Counts VI, VII, and VIII are dismissed WITH PREJUDICE. Counts III, V, X are
dismissed WITHOUT PREJUDICE. The Court will GRANT in part and DENY
in part the motion to strike the class and collective allegations. It will STRIKE
trainees from the class definitions of the putative impermissible deduction classes.
The Court will provide Plaintiffs with 30 days in which to file a second amended
complaint consistent with this opinion. An appropriate order follows.
/s/ William J. Martini
WILLIAM J. MARTINI, U.S.D.J.
Date: December 14, 2012
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