Karic et al v. The Major Automotive Companies, Inc. et al
Filing
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MEMORANDUM AND ORDER: For the foregoing reasons, the Court grants plaintiffs' motion for summary judgment on all issues that were not resolved by the settlement of the FLSA claims. The parties are directed to contact Magistrate Judge Cheryl L. Pollak for her continued pretrial management of this action. Ordered by Judge Eric N. Vitaliano on 4/9/2014. (Fernandez, Erica)
FILED
IN CLERK'S OFFICE
U.S. DISTRICT COURT E.D.N.Y:
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
*APR 162014
--------------------------------------------------------------x
SLOBODAN KARIC, CLARIBEL GARCIA,
STEVEN JONES, GORAN STANIC,
LJUBOMIR ZIVANOVIC, DANIEL COLON
AND WILLIAM CHATMAN, on behalf of
themselves and all others similarly situated,
*
BROOKLYN OFFICE
MEMORANDUM & ORDER
09-cv-5708 (ENV) (CLP)
Plaintiffs,
-againstTHE MAJOR AUTOMOTIVE COMPANIES
INC, HAROLD BENDELL, BRUCE
BENDELL, CHRIS ORSARIS, et. al
Defendants.
--------------------------------------------------------------x
VITALIANO, D.J.,
Plaintiffs, current and former car salesmen employed by The Major
Automotive Company ("Major") and affiliated entities, bring suit on behalf of
themselves and others similarly situated against Major and three individual
defendants, Bruce Bendell, Harold Bendell, and Christopher Orsaris, alleging
various unfair labor practices. In particular, plaintiffs allege that defendants
violated the Fair Labor Standards Act ("FLSA"), 29 U.S.C. §§ 201 et seq., and the
New York Labor Law ("NYLL") by failing to pay sales representatives proper
minimum wage and overtime compensation, and by taking impermissible
deductions from wages and commissions. By Order dated July 20, 2011, the Court
conditionally certified this as a collective action, pursuant to§ 216(b) ofFLSA. The
parties have now completed discovery. On September 11, 2013, plaintiffs moved for
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partial summary judgment. Specifically, plaintiffs sought summary judgment on
liability (but not damages) with respect to Counts One through Three (minimum
wage and overtime) and Counts Five and Six (unpaid commissions and unlawful
deductions from wages). Additionally, plaintiffs moved for summary judgment on
defendants' affirmative defense that their violations of FLSA were made in good
faith, and on the issue of joint and several liability of Bruce Bendell and Harold
Bendell. Finally, plaintiffs sought summary judgment on their entitlement to
liquidated damages under both FLSA and NYLL. However, during the pendency of
this motion, the parties settled all FLSA claims, leaving only the NYLL claims
remaining for the Court's disposition. For the reasons discussed below the Court
grants the balance of plaintiffs' summary judgment motion.
Background
Major is a holding company for a group of automobile dealerships and allied
companies, including Major Chevrolet, Major Chrysler Jeep Dodge, Major Kia,
Major Fleet and Leasing, Major Geo and Major Ford Lincoln Mercury, all located
in Queens. (Defendants' Response to Plaintiffs' Rule 56.1 Statement ("Response"),
~
1.) Individual defendants Bruce Bendell and Harold Bendell were the
Chairman/Chief Executive Officer and the President, respectively, of Major during
the class period, which runs from December 30, 2006 to the date of the filing of this
action, December 30, 2009 (the "class period"). (Id.
at~~
3-10.)
Plaintiffs are individuals who were employed as sales representatives at
various Major car dealerships during the class period. In addition to the named
plaintiffs, there were, during the class period, approximately 80 sales
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representatives working for Major at any given time, and around 150 sales
representatives in total. (Am. Com pl. '1[5, Response, 'If 28.) All of these sales
representatives performed essentially the same job duties and were subject to the
same basic compensation structure. Specifically, they were paid $20 per day plus a
commission on any car that they sold, minus certain deductions that Major took out
of paychecks, purportedly for costs associated with a given sale. (Response, 'lf'lf 3337.) Sales representatives generally worked 45-55 hours per week and were subject
to the $20 per day salary plus commission structure regardless of the number of
cars sold in a given day. In other words, if a sales representative worked a five-day
week and failed to sell a single car, he would receive $100 in salary that week
regardless of the number of hours worked. (Response, '1[ 51.) Plaintiffs claim that
this salary structure violated NYLL because, on days when plaintiffs failed to earn a
penny in commission, plaintiffs received less than minimum wage. 1 Plaintiffs also
allege that defendants improperly deducted monies from their commissions by
disguising the deductions as costs associated with the sales upon which the
commissions were earned, in violation ofNYLL's provisions regulating adjustments
to commissions and permissible deductions from earned wages.
Standard for Summary Judgment
Pursuant to Rule 56, a federal district court must grant summary judgment
upon motion and finding, based on the pleadings, depositions, interrogatory
Minimum wage in New York varied during the class period from $5.15 to $7.25,
which comes out to approximately $41.20 to $58.00 per day, assuming an eighthour workday. Accordingly, minimum wage assuming a 40 hour workweek
ranged from $206 to $290 during the class period.
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answers, admissions, affidavits, and all other admissible evidence that "there is no
genuine issue as to any material fact and that the moving party is entitled to a
judgment as a matter oflaw." Fed. R. Civ. P. 56(c); Anderson v. Libertv Lobby,
Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The initial burden is
on the moving party to demonstrate the absence of a genuine issue of material fact.
Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986);
Feingold v. New York, 366 F.3d 138, 148 (2d Cir. 2004). In determining whether the
moving party has met this burden, a court must construe all evidence in a light most
favorable to the nonmoving party, resolving all ambiguities and inferences in its
favor. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106
S.Ct. 1348, 89 L.Ed.2d 538 (1986); Gibbs-Alfano v. Burton, 281F.3d12, 18 (2d Cir.
2002). However, "the mere existence of some alleged factual dispute between the
parties will not defeat an otherwise properly supported motion for summary
judgment; the requirement is that there be no genuine issue of material fact."
Anderson, 477 U.S. at 247-48 (emphasis in original); Burt Rigid Box, Inc. v.
Travelers Prop. Cas. Corp., 302 F.3d 83, 90 (2d Cir. 2002). Material facts are those
which, given the substantive law, might affect the suit's outcome. Anderson, 477
U.S. at 248.
If the moving party makes aprimafacie showing that there are no genuine
issues of material fact, the nonmoving party must go beyond the pleadings and put
forth "specific facts showing that there is a genuine issue for trial." Fed. R. Civ. P.
56(e); Davis v. New York, 316 F.3d 93, 100 (2d Cir. 2002). In so doing, the
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nonmoving party may not rely on conclusory allegations or speculation. Golden
Pac. Bancorp v. FDIC, 375 F.3d 196, 200 (2d Cir. 2004) (citing D'Amico v. City of
New York, 132 F.3d 145, 149 (2d Cir.1998)); Fed. R. Civ. P. 56(e) ("Supporting and
opposing affidavits shall be made on personal knowledge, shall set forth such facts
as would be admissible in evidence, and shall show affirmatively that the affiant is
competent to testify to the matters stated therein."). Thus, to defeat a motion for
summary judgment, the nonmoving party "must do more than simply show that
there is some metaphysical doubt as to the material facts." Jeffreys v. City of New
York, 426 F.3d 549, 554 (2d Cir. 2005) (quoting Matsushita, 475 U.S. at 586).
Nonetheless, the nonmoving party need not make a compelling showing; it need
merely show that reasonable minds could differ as to the import of the proffered
evidence. R.B. Ventures, Ltd. v. Shane, 112 F.3d 54, 59 (2d Cir. 1997)
Analysis
I. NYLL Minimum Wage and Overtime Claims
New York law requires that employers pay "minimum and overtime wage ...
for each week of work, regardless of the frequency of payment, whether the wage is
on a commission, bonus, etc." 12 NYCRR § 142-2.9 (2014). In addition, NYLL
requires that "an employer shall pay an employee for overtime at a wage rate of one
and one-halftimes" the minimum wage for all hours worked in excess of 40 hours
per week. 12 NYCRR § 142-2.2 (2014). In 2010, the New York Department of
Labor ("NYDOL") clarified that, "commissions earned by an employee during
subsequent weeks within a settlement/pay period may not be used to satisfy the
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employer's minimum wage and overtime payments to the employee." Maria L.
Colavito, Request for Opinion Automotive Salespersons, R0-09-0177, Feb. 25, 2010.
This memorandum further states, in relevant part:
[C]onsider an automotive salesman who is paid on a commission-only basis
with settlement occurring at the end of each month. Should he fail to sell any
cars for the first three weeks of the month despite working 40 hours per week
... but sell five cars earning him $5,000 in commission in the last week, the
commission earned during the last week could not be used to satisfy the
employer's obligation in the first week.
Id.
Powerfully, defendants concede "that the average number of hours worked
per week generally range[d) from 45 to 55 hours, ... [that] there were periods
where sales representatives did not earn commission and received only $20.00 per
day, ... [and, that] there were weeks where plaintiffs did not earn a commission."
(Response,, 48-51.) Indeed, defendants admit that weeks in which plaintiffs
received no commission and, therefore, earned just $100 were a "regular practice."
(Id.) Defendants, nonetheless, do not concede liability. They seek to avoid it by
pointing out that, when viewed annually, plaintiffs earned on average $40,000$50,000, that is, substantially more than a minimum wage employee would earn in a
year. The annual salary pitch is a red herring.
As discussed above, NYLL indisputably requires that employers pay
employees minimum wage and overtime on a weekly basis, regardless of whether
those employees earn commission in subsequent weeks. Any argument then, as
defendants advance, based on salary annualization is wholly unavailing. As a
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sidebar, it is notable that defendants were investigated by NYDOL in 2006 and
2008-in response to a complaint from one of their employees-and were found to
have violated New York's overtime laws. (Def. Ex. AA.) The Court's conclusion
here, consistent with the conclusion reached by NYDOL, that defendants have
violated NYLL's minimum wage and overtime requirements, must come without
surprise. All that remains is the computation of damages.
II. Unpaid Commissions Claim
It is undisputed, as related earlier, that New York law requires that "[a]
commission salesperson shall be paid ... commissions and all other monies earned
or payable in accordance with the agreed terms of employment." NYLL § 191(1)(c).
Plaintiffs assert that defendants violated this provision by adding "additional
packs" or "extra costs" to vehicle sales prices, thereby impermissibly reducing the
paid commission in contravention of plaintiffs' employment agreements.
Defendants deny it, professing that they always paid plaintiffs the full commission
earned on a vehicle sale.
As a fundamental matter, as one might expect, the parties disagree on the
proper interpretation of the governing contractual documents. Plaintiffs contend
that all salespeople operated under the same basic employment agreement, which
provided plaintiffs with a 20°/o commission on each sale, minus a "pack" expense,
which was $275 in connection with the sale of a new vehicle and $950 for a used
vehicle. (Pl. Mem. of Law at 10.) According to plaintiffs, this single pack was the
only permissible deduction from their commission. Yet, at the root of the dispute,
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defendants frequently subtracted, they argue, other extra costs. Defendants admit
that they subtracted expenses in addition to the "pack" from commissions, but,
nevertheless, claim that such deductions were both permitted under the governing
contractual documents and justified by the parties' course of dealing. Specifically,
according to the employers, the contractual documents permitted them to subtract
"auction expenses" from commissions on certain sales. (Response, at IJIJ 57-59.)
The commission adjustments in issue, they say, were limited to such "auction
expenses."
There is a notable gap in the employers' argument. They have cited to no
provision in any controlling contract to support an "auction expense" argument,
and, indeed, the record evidence is entirely to the contrary. Plaintiffs are party to
individual employment agreements and there is also a collective bargaining
agreement. The individual and collective contracts are in accord that plaintiffs were
entitled to 20% of "front end sales commission." (Fitapelli Deel. Exs. T, U.) The
collective bargaining agreement further defines "front end sales commission" to
include only adjustments for "(1) commission pack; (2) transportation; (3) open
repair orders; and (4) adjustments for market conditions (i.e. fluctuations in gas
prices)." Id. There is nothing in any of the agreements that mentions an "auction
expense" or any other similar permissible adjustment to commission.
Seemingly in recognition of the futility of their position, defendants argue that
the Court should, notwithstanding, deny summary judgment because no salesperson
filed a contemporaneous complaint about his or her commissions. According to
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defendants, this failure to complain demonstrates that plaintiffs acceded to
defendants' compensation practices despite the fact that those practices conflicted
with the written contracts. Even if it were true that no salesperson
contemporaneously complained-a point that plaintiffs vigorously dispute and is
refuted by the NYDOL investigation-a failure to complain does not render
defendants' conduct permissible in light of the clear contractual language to the
contrary. See, e.g., Dixon v. NBCUniversal Media, LLC, 947 F.Supp. 2d 390, 399400 (S.D.N.Y. 2013). Indeed, while defendants rely heavily on the Court of Appeals
decision in Patcher v. Bernard Hodes Group, 10 N.Y.3d 609 (2008) to argue that the
parties' history of past dealings should be considered and credited, Patcher made
plain that such considerations are only appropriate in the absence of a written
agreement. Patcher at 285. Given the unambiguous language on point in the
controlling contracts, whether or not plaintiffs accepted the altered compensation
arrangement as evidenced by their failure to complain is irrelevant. No provision of
the contracts permits such silent unwritten alteration. Silent suffering of a
contractual breach certainly does not excuse defendants' failure to live up to their
contractual obligations. Accordingly the Court grants summary judgment in favor
of plaintiffs on their unpaid commissions claim.
III. Unpaid Deductions Claim
Plaintiffs next seek summary judgment on their claim that defendants made
improper deductions from their wages after those wages were "earned." NYLL
restricts an employer's authority to take deductions from an employee's earnings,
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providing that an employer may only deduct an amount from an employee's wages
if "such deductions are either 'made in accordance with the provisions of any law or
any rule or regulation issued by any governmental agency,' or 'expressly authorized
in writing by the employee and are for the benefit of the employee."' Perez v.
Westchester Foreign Autos, Inc., at *10 (S.D.N.Y. 2013) (quoting NYLL § 193(1)).
Furthermore, "if an employee is paid on a commission basis, New York law permits
deductions made before-but not after-the commissions were earned." Id. "The
purpose of§ 193 is to prohibit employers from making unauthorized deductions
from wages [and therefore] to place the risk ofloss for such things as damaged,
spoiled merchandise, or lost profits on the employer." Maldonado v. La Nueva
Rampa, Inc., 2012 WL 1669341, at *8 (S.D.N.Y. 2012).
The Major employees are more pointed in their contentions. They claim that
their employers had a "company policy" to make "charge-backs" on employee
commissions for sundry reasons beyond the contract, including disciplinary
measures, damage done to vehicles and mechanical problems. (PI. Rule 56.1
Statement,~~
72-79.) They have, more importantly, presented substantial evidence
in support of these contentions. Indeed, defendants actually concede that they made
deductions from employee wages for disciplinary reasons (Response, ~ 76) and,
further, Harold Bendell-Major Automotive's CEO during the relevant periodtestified that it was "company policy" to charge-back plaintiffs for damage to
vehicles. (Fitapelli Deel. Ex. C at 114.) Bluntly, such deductions are not
contemplated by the plain language of plaintiffs' employment agreements or NYLL
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§ 193. They are, therefore, wrongful. See Perez at *11. Dispositively, Major offers
no evidence to the contrary; indeed, the lawfulness of these deductions is not even
addressed in its briefing. In sum and substance, Major essentially concedes that
such charge-backs were made to shift the risk of loss to its employees (Response, ~
76), which is precisely what NYLL § 193 was designed to prevent. Summary
judgment, as a result, on plaintiffs' unlawful deductions claim is warranted.
IV. Joint and Several Liability of Bruce and Harold Bendell
In order to find the Bendells jointly and severally liable, the Court must
conclude that they were "employers" within the meaning of NYLL. Rodriguez v.
Almighty Cleaning, Inc., 784 F. Supp. 2d 114, 128 (E.D.N.Y. 2011). NYLL's broad
definition of an employer includes "any person ... employing any individual in any
occupation, industry, trade, business or service or any individual ... acting as
employer." Irizarrv v. Catsimatidis, 722 F.3d 99, 118 (2d Cir. 2013) (citing NYLL §
190(3)). Courts look to a four-factor "economic reality" test to determine whether
this definition has been met-namely whether the alleged employer "(1) had the
power to hire and fire the employees; (2) supervised and controlled employee work
schedules or conditions of employment; (3) determined the rate and method of
payment; (4) and maintained employment records." Lauria v. Heffernan, 607 F.
Supp. 2d 403, 409 (E.D.N.Y. 2009).
Here, it is undisputed that the Bendell brothers possessed hiring and firing
power, set work schedules, determined salaries, issued checks and drafted and
signed employment agreements.
(Response,~~
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6-10.) Indeed, perhaps in
recognition of the futility of their position, defendants do not even address the issue
of joint and several liability in their briefing. Whatever damages are determined on
these claims, it is clear, the Bendell brothers are jointly and severally liable for
them.
V. Plaintiffs' Entitlement to Liquidated Damages
New York law provides that "if a plaintiff proved that an employer's failure
to pay a required wage was willful, the plaintiff could recover an additional amount
as liquidated damages equal to twenty-five percent of the total wages found to be
due him." 2 Gold v. New York Life Ins. Co., 730 F.3d 137, 143 (2d Cir. 2013)
(emphasis added). "A violation of the New York Labor Law is willful where the
employer knowingly, deliberately, or voluntarily disregards its obligation to pay
wages." Padilla v. Manlapaz, 643 F. Supp. 2d 302, 313 (E.D.N.Y. 2013). The burden
to demonstrate willfulness lies on the claiming employees, although they "need not
show malice or bad faith to establish willfulness." Id. Instead, the employees must
2
"Effective November 24, 2009, the statute was amended to impose a presumption
of liquidated damages, but permit an employer to avoid the penalty by
establishing that it had acted in good faith ... [t]he amendment expressly stated
that it would only apply to offenses committed on or after such effective date."
Gold at 143. The alleged offenses in this case spread over a period from 2006 to
2009 with no plaintiff employed past November 2009. (See Ex. M.) The statute
was amended again in 2011 "to raise the amount of recoverable liquidated
damages from 25°/o to lOOo/o of any underpayment" but the Second Circuit held
that this amendment also was not retroactive. Gold at 143. Because the entire
class period occurred prior to November 2009, there is no presumption of
liquidated damages and the Court does not need to make a determination
regarding a potential affirmative defense of good faith because good faith was
not an available affirmative defense during the class period. Id.; Hart v. Rick's
Cabaret Intern., Inc., 2013 WL 4822199, at *29 (E.D.N.Y. 2013).
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demonstrate the employer's "actual knowledge ofa legal requirement, and
deliberate disregard of the risk that [they were] in violation." Hart at *29. "Courts
in this circuit have generally left the question of willfulness to the trier of fact."
Ramirez v. Rikin, 568 F. Supp. 2d 262, 268 (E.D.N.Y. 2008) (citation omitted).
Ultimately, there is no genuine issue of material fact here. The record
evidence of willfulness is overwhelming. In 2006 NYDOL investigated Major's
compensation practices in response to a complaint from one of its salespersons.
(Response,, 84.) That state agency concluded that Major had violated New York's
minimum wage and overtime compensation laws and ordered it to pay the
complaining employee $2,334. (Id., 85.) Further, it is undisputed that, as part of
the 2006 inquiry, NYDOL instructed Major to attend an educational seminar
regarding compliance with NYLL but that Major failed to do so. (Id.) In addition,
NYDOL audited Major again in 2008 and ordered Major to pay $29,565.18 in back
wages based on continued violations of the labor law. (Id.,, 86-87.) NYDOL's
findings do not have estoppel effect, but they speak volumes about Major's "state of
mind".
Defendants acknowledge that these investigations put them on notice that
they were violating NYLL. The acknowledgment is coupled with the assertion that,
in response to the 2006 audit, defendants "engaged outside counsel for guidance
concerning applicable employment laws." (Def. Mem. at 19.) However, defendants
point to no evidence that they ever received advice of counsel that NYDOL's
findings were erroneous and that those policies, which went unaltered, comported
with New York law. To the contrary, Major concedes that it continued to engage in
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the same impermissible employment practices throughout the class period.
Persuasively, the fact that defendants consulted legal counsel regarding the
propriety of their conduct, cite no advice contrary to NYDOL's findings, and still
continued to engage in the same employment practices actually refutes their
willfulness affirmative defense. See Padilla at 313 (granting summary judgment on
willfulness where "it was [clear] from the record that the defendants had knowledge
of the existence of their minimum wage and overtime responsibilities.").
Accordingly, the Court grants summary judgment on the issue of defendants'
willfulness.
Conclusion
For the foregoing reasons, the Court grants plaintiffs' motion for summary
judgment on all issues that were not resolved by the settlement of the FLSA claims.
The parties are directed to contact Magistrate Judge Cheryl L. Pollak for her
continued pretrial management of this action.
SO ORDERED.
Dated:
/
Brooklyn, New York
Aprnr· 2014
s/Eric N. Vitaliano
ERIC N. VIT ALIANO
United States District Judge
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