Gyalpo v. Holbrook Development Corp. et al
MEMORANDUM AND OPINIONFor the reasons set forth herein, the order of the Bankruptcy Court is reversed and the case is remanded for further proceedings consistent with this Memorandum and Order. SO ORDERED. Ordered by Judge Joseph F. Bianco on 8/29/2017. (Hammond, Daniel)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
No 16-CV-3818 (JFB)
HOLBROOK DEVELOPMENT CORP.,
MEMORANDUM AND ORDER
August 29, 2017
JOSEPH F. BIANCO, District Judge:
Sonam Gyalpo (“appellant” or “Gyalpo”)
appeals from the Bankruptcy Court’s ruling
in which it disallowed his claim for unpaid
wages in the amount of $25,161.21 against
debtor Holbrook Development Corp. (“HDC”
or “debtor”). (ECF No. 1.) In particular,
Gyalpo challenges the legal standard applied
by the Bankruptcy Court to determine that he
was not an “employee” of the debtor. The
appellant also contends that a remand is warranted to consider new evidence that appellant has uncovered in a separate litigation
against debtor in which its owner and general
manager purportedly contradict the debtor’s
position before the Bankruptcy Court.
As set forth below, in the absence of any
guidance from the Second Circuit regarding
the applicable standard for analyzing these
legal issues in the context of a bankruptcy
proceeding, it appears that the Bankruptcy
Court applied general, common law agency
principles to determine whether appellant was
an “employee” of the debtor. However, this
Court concludes that the Bankruptcy Court
should apply the applicable standards utilized
under the Fair Labor Standards Act (“FLSA”)
and the New York Labor Law (“NYLL”),
including the rules regarding the burden of
proof under those statutory frameworks, in
deciding appellant’s claim. Thus, the Court
remands to the Bankruptcy Court to apply
that legal standard to the facts and, on remand, the Bankruptcy Court should also consider any new evidence on this issue presented by the appellant.
a worker was absent. (Id. at 73.) Appellant
would periodically receive calls from Kumar
or a man named “Sujay” when work became
available. (Id.) Kumar signed weekly schedules prepared by appellant that showed the
places and hours appellant worked. (Id. at 73,
77–83, 216, 224–25.) Appellant would typically work as a floater from 7:00 p.m. until
7:00 a.m., was paid around $480 per week in
cash off the books, and would normally
communicate with Kumar about work issues.
(Id. at 73–74, 215, 219.) He only met
Keshtgar once. (Id. at 72.) At some point,
Kumar began delaying appellant’s payments
and taking money out of his pay before he
eventually stopped paying appellant entirely.
(Id. at 74.) Appellant worked at debtor’s gas
station for the last few weeks it was open in
January 2015. (Id. at 74.)
The Court assumes the parties’ familiarity
with the full facts and procedural history of
this action and summarizes the facts and history relevant to the instant appeal based on
the Bankruptcy Record on Appeal. (“R.,”
ECF No. 4-2.)
A. Bankruptcy Proceedings
Debtor filed a voluntary petition for relief
under Chapter 11 of the Bankruptcy Code
alongside 14 other associated entities on December 24, 2014. (See In re Holbrook Development Corp., Bankr. Case No. 8-1475671-ast (“In re HDC”), ECF No. 1.) Appellant filed a claim in the case on March 18,
2015, and debtor filed an objection on November 9, 2015. (See R. at 7–16.) The Bankruptcy Court held a hearing on the claim on
March 14, 2016, accepting affidavits of direct
testimony from Gyalpo and Saverio Settani,
the general manager for HDC, beforehand
and permitting cross-examination at the hearing itself. (See id. at 146–263.)
Aside from the schedules signed by Kumar, there are no documents verifying appellant’s employment with debtor. Appellant is
never mentioned in any of debtor’s books and
records for the relevant time period. (Id. at
117.) In particular, debtor has no employment application, completed W-2 forms, time
sheets, or paystubs for appellant, and its employee, payee, and employee withholding
lists do not include him. (Id. at 117, 120–
126, 213–14, 233–34.) The general manager
(Settani) never scheduled appellant to work
or processed payroll for him. (Id. at 118.)
Appellant admitted that he never received any
payment from HDC, only from Kumar. (Id.
Based upon the affidavits and the testimony, the following evidence was adduced at
the hearing. Each of the bankrupt entities
was owned by Steven Keshtgar and operated
as a gas station. (See id. at 174–75.) Appellant worked as a cashier at several of these
gas stations, including debtor’s gas station in
Holbrook, New York. (Id. at 72–73.) He was
initially hired by Sudheer Kumar, a manager
at several different locations, to work the
night shift at a gas station in Centerreach,
New York, for several months while the normal night shift cashier was on leave. (Id. at
72.) When the regular night shift cashier returned, Kumar made appellant a “floater”
who would fill in at various gas stations when
The Bankruptcy Court denied appellant’s
claim in an oral ruling on June 21, 2016 (see
Appendix A to Appellant’s Br., Transcript of
Oral Ruling dated June 21, 2016, ECF No. 51, at 306–325 (“Oral Ruling”) 1), and issued a
Citations to the Oral Ruling transcript will reference
the transcribed page number rather than the ECF page
July 8, 2016. (ECF No. 1.) This Court received the Bankruptcy Record on August 23,
2016. (ECF No. 4.) Appellant filed his brief
in support of the appeal on September 6, 2016
(ECF No. 5), debtor responded on October 6,
2016 (ECF No. 6), and appellant filed a reply
on October 20, 2016 (ECF No. 7). The Court
has fully considered the parties’ submissions.
written order summarily confirming that ruling on June 23, 2016 (R. at 290). It noted
that appellant worked the majority of his employment at the Centerreach location before
working as a floater at other gas stations including HDC’s. (Oral Ruling at 15.) It further found that, though the time sheets produced by appellant and debtor conflicted as to
whether he was paid by Centerreach, appellant “did not produce tangible evidence that
he was owed any money by Holbrook.” (Id.
at 16.) The court rejected appellant’s argument that “Kumar had the authority to deviate
from his corporate protocol and pay him in
cash or to deviate from the Debtor’s other
established corporate employment policies”
because appellant “only . . . testified that Mr.
Kumar had him drive to different gas stations
to cover various shifts and pick up cash deposits, but did not establish that Mr. Kumar
could or did bind Holbrook to pay Mr.
Gyalpo off the books or outside the standard
scanning protocol.” (Id.) From this evidence, the court concluded that debtor “met
its burden of overcoming the presumption of
prima facie validity of Mr. Gyalpo’s claim”
and appellant “did not meet his burden of
proving that he was owed any money by the
Debtor.” (Id. at 17.) In particular, it held
that, although Gyalpo went
II. STANDARD OF REVIEW
This Court has jurisdiction to hear appeals
from bankruptcy courts under 28 U.S.C.
§ 158(a), which provides that “[t]he district
courts of the United States shall have jurisdiction to hear appeals . . . from final judgments,
orders, and decrees; . . . [and] with leave of
the court, from other interlocutory orders and
decrees . . . of bankruptcy judges.” 28 U.S.C.
§ 158(a)(1), (3). Part VIII of the Federal
Rules of Bankruptcy Procedure outlines the
procedure governing such appeals. Fed. R.
Bankr. P. 8001.
The Court will review the Bankruptcy
Court’s legal conclusions de novo and its factual findings for clear error. See Denton v.
Hyman (In re Hyman), 502 F.3d 61, 65 (2d
Cir. 2007); see also Lubow Machine Co., Inc.
and Marksment Manufacturing, Inc. v.
Bayshore Wire Products Corp. (In re
Bayshore Wire Prods. Corp.), 209 F.3d 100,
103 (2d Cir. 2000) (“Like the District Court,
we review the Bankruptcy Court’s findings of
fact for clear error, . . . its conclusions of law
de novo, . . . its decision to award costs, attorney’s fees, and damages for abuse of discretion.” (citations omitted)); accord Shugrue v.
Air Line Pilots Ass’n, Int’l (In re Ionosphere
Clubs Inc.), 922 F.2d 984, 988-89 (2d Cir.
1990). “A finding is ‘clearly erroneous’
when although there is evidence to support it,
the reviewing court on the entire evidence is
left with the definite and firm conviction that
a mistake has been committed.” Dist. Lodge
26, Int’l Ass’n of Machinists & Aerospace
Workers, AFL-CIO v. United Techs. Corp.,
to great lengths in discussing . . . the
FLSA and [NYLL] standards, [he]
simply [has] not demonstrated how
[he] . . . was an employee or individual, as defined under Section
507(a)(4), as to Holbrook . . . and
simply [has] not proven that [he] was
an employee of the entity against
which the claim was asserted.
(Id. at 18.) As such, the Bankruptcy Court
disallowed appellant’s claim. (Id.; R. at 290.)
Appellant filed his notice of appeal on
A. Appellant’s Employment
610 F.3d 44, 51 (2d Cir. 2010) (quoting United States v. U.S. Gypsum Co., 333 U.S. 364,
395 (1948)); see also Collins v. Hi-Qual
Roofing & Siding Materials, Inc., Nos. 02CV-0921E(F), 02-CV-0922E(F), 2003 WL
23350125, at *4, n.16 (W.D.N.Y. Dec. 18,
2003) (“‘[A] finding is only clearly erroneous
when although there is evidence to support it,
the reviewing court on the entire evidence is
left with the definite and firm conviction that
a mistake has been committed. . . . This
standard precludes this Court from reversing
the Bankruptcy Court’s decision if its account
of the evidence is plausible, even if this Court
is convinced that it would have weighed the
evidence differently.’” (quoting In re B.
Cohen & Sons Caterers, Inc., 108 B.R. 482,
484 (E.D. Pa. 1989))).
Appellant argues that the Bankruptcy
Court erred as a matter of law because, in determining whether debtor employed him, it
applied general, common law agency principles, rather than the statutory definitions of
“employer” and “employee” articulated in the
FLSA and NYLL. Under these definitions,
appellant asserts that he qualifies as an employee of the debtor.
Appellant claims entitlement to payment
of unpaid wages from the bankruptcy estate
under the FLSA and NYLL. (See R. at 13.)
He further asserts that his claim is entitled to
priority pursuant to 11 U.S.C. § 507(a)
(“Section 507(a)”). (Id. at 11.) Under that
provision, priority is given to unsecured
creditors seeking unpaid “wages, salaries, or
commissions.” 11 U.S.C. § 507(a)(4)(A).
Its purpose is “to enable employees displaced by bankruptcy to secure, with some
promptness, the money directly due to them
in back wages, and thus to alleviate in some
degree the hardship that unemployment usually brings to workers and their families.” In
re Prickett, No. 00-00353, 2000 WL
33712200, at *1 (Bankr. D. Idaho Aug. 28,
2000) (quoting United States v. Embassy
Restaurant, Inc., 359 U.S. 29, 32 (1959)).
Appellant argues that the Bankruptcy
Court applied the wrong legal standard in determining that he was not employed by the
debtor, and that, under the standards promulgated in the FLSA and NYLL, he qualified as
an employee. (See Appellant’s Opening Br.,
ECF No. 5 (“Appellant’s Br.”), at i.) He further contends that the Bankruptcy Court erroneously applied the burden of proof (id.), and
that remand is warranted in light of newly
discovered evidence (Appellant’s Reply Br.,
ECF No. 7 (“Appellant’s Reply”), at 6–9).
As set forth below, the Court agrees that the
Bankruptcy Court did not apply the correct
legal standard on the issue of appellant’s employment and, therefore, remands to allow the
Bankruptcy Court to apply the standard set
forth in this Memorandum and Order. In particular, on remand, the Bankruptcy Court
should consider the applicable standard in the
FLSA and NYLL context, including the rules
regarding the burden of proof, and should
consider any new evidence presented by appellant.
The statute does not define “wages,” nor
does it specify how courts are to determine
whether a particular individual is owed
“wages, salaries, or commissions” by a
debtor. See Prickett, 2000 WL 33712200, at
*1 (“No decisive test has been developed by
bankruptcy courts in determining employee
status for priority wage claims.”). In the
Second Circuit, it has been held that, under
an earlier version of the Bankruptcy Code,
“the claim must be such as arises from the
relation of master and servant as distinguished from a mere contractual relationship” to be entitled to priority. In re Ageloff,
40 F. Supp. 369, 370 (S.D.N.Y. 1939) (cit4
37, 41 (Bankr. E.D. Pa. 1991).
ing, inter alia, In re Progressive Luggage
Corp., 34 F.2d 138, 138 (2d Cir. 1929)
(holding that corporate officer was not entitled to wage priority)). In Ageloff, for instance, the debtor, a clothing manufacturer,
designed and cut materials that it sent out to
contractors who sewed and finished the
clothing. Id. at 370. The agreement between the manufacturer and the contractors
provided that the manufacturer was responsible for the wages of the contractors’ employees if the contractor failed to pay. Id.
When the manufacturer went bankrupt, employees of the contractors made claims
against the bankrupt estate and sought wage
priority under the Bankruptcy Code. Id.
Despite the contractual provision making the
manufacturer responsible for the employees’
wages in some instances, the court held that
they were not “employees” of the manufacturer but of the contractor, and, therefore,
were not entitled to priority. Id. The court
reasoned that “[t]here was no master and
servant relationship between the parties.”
The court in Saint Joseph’s Hospital
provided the most detailed analysis of this
issue. There, the court examined analogous
federal bankruptcy cases and Pennsylvania
unemployment compensation law to determine whether a dentist was an employee of
the debtor-hospital under Section 507(a).
See 126 B.R. at 40–43. Specifically, the
court relied on In re Estey, 6 F. Supp. 570
(S.D.N.Y. 1934), and In re All Star Feature
Corp., 231 F. 251 (S.D.N.Y. 1916), where
“a business school teacher and an actress, respectively, were found not entitled to priorities for unpaid salaries because they were
not ‘workmen’ or ‘servants’ of the respective debtors” under the Bankruptcy Code.
Saint Joseph’s Hosp., 126 B.R. at 40. The
court also consulted “the common law definition of employee as dictated by the pertinent [Department of] Treasury Regulation,”
which provided that an employer-employee
relationship “exists when the person for
whom services are performed has the right
to control and direct the individual who performs the services, not only as to the result
to be accomplished by the work but also as
to the details and means by which that result
is accomplished.” Id. (quoting 26 C.F.R.
§ 31.3121(d)–1(c)(2)). Under Pennsylvania
law, meanwhile, the test to distinguish between employees and independent contractors was “whether [the purported employee]
is subject to the [purported employer’s] control, not only with regard to the work to be
done but also with regard to the manner of
performing it and whether the individual has
a proprietary interest in some business he
can operate free from the control of any other individual.” Id. (quoting Monroe G. Koggan Associates, Inc. v. Commonwealth Unemployment Compensation Bd. of Review,
472 A.2d 277, 279 (Pa. Commw. Ct. 1984)).
From these sources, the court concluded that
Section 507(a) “require[s] that a substantial
measure of control over the claimant’s con-
No Second Circuit case provides a more
precise test for determining whether an individual qualifies as an “employee” for wage
priority purposes under the Bankruptcy
Code beyond requiring a master/servant relationship. Courts addressing this issue in
other jurisdictions, however, have resorted
to state law to analyze whether an employeeemployer relationship exists between a
claimant and a debtor. See, e.g., In re Owen,
324 B.R. 373, 375 (Bankr. N.D. Fla. 2004);
In re Kasson Inc., U.S.A., 109 B.R. 352, 353
(Bankr. E.D. Wis. 1989); Matter of Dahlman
Truck Lines, Inc., 59 B.R. 218, 220 (Bankr.
W.D. Wis. 1986). In addition to state law,
some courts have also looked to federal law
for guidance. See, e.g., In re W. Wayne
Transportation, Inc., No. 00-10028C-7G,
2001 WL 1699665, at *2 (Bankr. M.D.N.C.
Oct. 5, 2001); Prickett, 2000 WL 33712200,
at *1; In re Saint Joseph’s Hosp., 126 B.R.
nition used by the FLSA.” Sethi v. Narod,
974 F. Supp. 2d 162, 188 (E.D.N.Y. 2013)
(collecting cases); see also Topo v. Dhir, No.
01 CIV. 10881 (PKC), 2004 WL 527051, at
*3 (S.D.N.Y. Mar. 16, 2004) (“There is general support for giving FLSA and the New
York Labor Law consistent interpretations.”).
duct . . . be exercised by the employerdebtor before the claimant may be deemed
an ‘employee’ entitled to a priority claim.”
Id. at 43.
Other courts have relied on the approach
and definition employed in Saint Joseph’s
Hospital. See Prickett, 2000 WL 33712200,
at *2 (comparing Department of Treasury
guidelines with Idaho law to conclude that
“the right to control the employee” is a “critical consideration” while also considering
other factors relevant under state law); W.
Wayne Transportation, Inc., 2001 WL
1699665, at *2 (comparing a state supreme
court case with Saint Joseph’s Hospital and
concluding that, “[i]n both instances, the
most important single factor in determining whether an employer-employee relationship exists is whether the employer retains
the right to control and direct the manner in
which the work is to be performed, as opposed to leaving the worker free to exercise
his own judgment regarding the method for
doing the work”). This Court, however,
could find no case—and appellant cites
none—where a court adopted the FLSA definitions for Section 507(a) wage priority directly.
The Second Circuit has made clear that
“‘[t]he determination of whether an employer-employee relationship exists for purposes
of the FLSA should be grounded in economic reality rather than technical concepts,’ and
depends ‘upon the circumstances of the
whole activity.’” Sethi, 974 F. Supp. 2d at
188 (quoting Irizarry v. Catsimatidis, 722
F.3d 99, 104 (2d Cir. 2013)). It has set forth
“four factors that better determine the ‘economic reality’ of a putative employment relationship, specifically, ‘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, and (4) maintained employment records’” (the “Carter factors”).
Barfield v. N.Y. City Health & Hosps. Corp.,
537 F.3d 132, 142 (2d Cir. 2008) (quoting
Carter v. Dutchess Cmty. Coll., 735 F.2d 8,
12 (2d Cir. 1984)). The factors are not exclusive, however. See Irizarry, 722 F.3d at
105 (“None of the factors used in any of
these cases, however, comprise a rigid rule
for the identification of an FLSA employer.”) (citation omitted).
Still, employing the approach adopted in
Saint Joseph’s Hospital, the Court concludes
that the FLSA definition of “employer” is
relevant to the determination of whether appellant has a valid claim against debtor under Section 507(a) because New York state
law utilizes essentially that same definition
for labor disputes. Specifically, the NYLL
defines an employer as “any person, corporation, limited liability company, or association employing any individual in any occupation, industry, trade, business or service.”
N.Y. Lab. Law § 190(3). Because this definition closely resembles the definition in the
FLSA, “[d]istrict courts in this Circuit have
interpreted the definition of ‘employer’ under the [NYLL] coextensively with the defi-
The NYLL provides that an “employee”
is “any person employed for hire by an employer in any employment.” NYLL
§ 190(2). The standard for determining
whether a person qualifies as an employee
under the NYLL differs slightly from this
determination under the FLSA. See Hart v.
Rick’s Cabaret Int’l, Inc., 967 F. Supp. 2d
901, 922–23 (S.D.N.Y. 2013). Specifically,
the New York Court of Appeals has
articulated a standard for determining whether a worker is an employee
. . . under the NYLL that is phrased
differently than the FLSA inquiry.
New York courts apply the “common law” test—a test used not only
in connection with wage-protection
statutes, but also to determine such
issues as respondeat superior liability in tort suits, eligibility for unemployment benefits, and compliance
with tax laws. Although substantially similar to the FLSA, the common
law focuses more on the degree of
control exercised by the purported
employer, as opposed to the economic reality of the situation.
other words, under the relevant cases, statutes, and regulations, the key factor in determining whether appellant is an employee
of the debtor is the degree of control the
purported employer exerts over the purported employee. Id. at 42.
Thus, like in Saint Joseph’s Hospital,
Prickett, and W. Wayne Transportation, both
federal law and New York state law indicate
that the most important inquiry concerns the
amount of control the debtor exerts over appellant’s activities. See Prickett, 2000 WL
33712200, at *2; W. Wayne Transportation,
Inc., No. 00-10028C-7G, 2001 WL
1699665, at *2; Saint Joseph’s Hosp., 126
B.R. at 43; Irizarry, 722 F.3d at 104–05;
Bynog, 802 N.E.2d at 1092–93. In assessing
the degree of control an entity exerts over an
individual, consultation of both the Carter
and Bynog factors is appropriate.
Id. Under New York’s common law test,
“the critical inquiry in determining whether
an employment relationship exists pertains
to the degree of control exercised by the
purported employer over the results produced or the means used to achieve the results.” Bynog v. Cipriani Grp., Inc., 802
N.E.2d 1090, 1092–93 (N.Y. 2003). In “assessing control,” New York courts ask
“whether the worker (1) worked at his own
convenience, (2) was free to engage in other
employment, (3) received fringe benefits,
(4) was on the employer’s payroll and
(5) was on a fixed schedule” (the “Bynog
factors”). Id. at 1093. 2
Here, the Bankruptcy Court did not specify what test it was utilizing to determine
whether appellant qualifies as an “employee” of the debtor. Instead, it concluded that
appellant was not an employee because
(1) he only provided time sheets to prove his
employment at the Centereach location and
did not provide details about his work for
debtor, and (2) he “did not establish that Mr.
Kumar could or did bind [HDC] to pay Mr.
Gyalpo off the books.” (Oral Ruling at 15–
16; see also R. at 77–88 (all timesheets for
As for federal law, the Court agrees with
the well-reasoned analysis in Saint Joseph’s
Hospital regarding analogous bankruptcy
cases and relevant federal regulations and,
therefore, adopts the interpretation articulated in that case. See 126 B.R. at 40–43. In
With respect to the first rationale, however, the NYLL recognizes the concept of a
“single-integrated” or “joint” enterprise. 3
Appellant erroneously conflates the joint enterprise
doctrine with the “joint employer” doctrine. The latter
doctrine “applies where there is no single integrated
enterprise, but where two employers handle certain
aspects of their employer-employee relationship jointly.” Fowler v. Scores Holding Co., 677 F. Supp. 2d
673, 681 (S.D.N.Y. 2009).
In other words,
“[j]oint employment arises when the employee ‘per-
Though this test is most often used in determining
whether a person is an employee or an independent
contractor, the Court sees no reason why it should not
apply to the more basic issue of whether a person
simply qualifies as an employee.
See Avelar v. Ed Quiros, Inc., No. 13-CV7017 ADS AYS, 2015 WL 1247102, at *4
(E.D.N.Y. Mar. 18, 2015) (“[W]here . . .
plaintiffs seek to impose liability against two
defendant corporations for the same labor,
they must establish that the two entities were
a joint ‘enterprise,’ a requisite element for
imposing liability against two defendant
corporations under the FLSA and under
the NYLL.” (citations omitted); Ayala v.
Your Favorite Auto Repair & Diagnostic
Ctr., Inc., No. 14CV5269ARRJO, 2016 WL
5092588, at *16 (E.D.N.Y. Sept. 19, 2016)
(“The ‘single integrated enterprise’ doctrine
allows for multiple defendants to be jointly
and severally liable for any FLSA
and NYLL violations.”). Under this doctrine, “[a] ‘single employer’ situation exists
where two nominally separate entities are
actually part of a single integrated enterprise.” 4 Bravo v. Established Burger One,
LLC, No. 12 CIV. 9044 CM, 2013 WL
5549495, at *8 (S.D.N.Y. Oct. 8, 2013)
(quoting Perez v. Westchester Foreign Autos, Inc., No. 11 CIV. 6091 ER, 2013 WL
749497, at *7 (S.D.N.Y. Feb. 28, 2013)).
Furthermore, where a joint enterprise exists,
courts may impose liability for an NYLL violation “not only on the nominal employer
but also on another entity comprising part of
the single integrated employer.” Id. (quoting
Arculeo v. On–Site Sales & Mktg., LLC, 425
F.3d 193, 198 (2d Cir. 2005)). Thus, appellant’s failure to provide documentation of
his work for debtor specifically does not
necessarily imply that debtor was not his
employer under a single-integrated enterprise theory, especially given that its owner,
Keshtgar, also owned the other gas stations
where appellant worked.
In regards to the second rationale, the
Bankruptcy Court did not explain why appellant failed to prove that Kumar had the
authority to bind debtor or what standard it
was employing to make this determination.
Under New York agency law, an agent of a
principal “can have actual or apparent authority.” Precedo Capital Grp. Inc. v. Twitter Inc., 33 F. Supp. 3d 245, 253 (S.D.N.Y.
2014); see also Greene v. Hellman, 412
N.E.2d 1301, 1306 (N.Y. 1980). As the
Second Circuit has explained, “an agent has
actual authority if the principal has granted
the agent the power to enter into contracts on
the principal’s behalf, subject to whatever
limitations the principal places on this power, either explicitly or implicitly.” Highland
Capital Mgmt. LP v. Schneider, 607 F.3d
322, 327 (2d Cir. 2010). An agent who
lacks actual authority “may nonetheless bind
his principal to a contract if the principal has
created the appearance of authority, leading
the other contracting party to reasonably believe that actual authority exists.” Id. at 328.
Kumar’s actual or apparent authority to
bind debtor is unquestionably relevant to the
degree of control debtor exerted over appellant under the Carter and Bynog factors, but
the Bankruptcy Court did not specify whether it was analyzing his actual authority, apparent authority, or both. Based on the language of the Oral Ruling, it appears the
Bankruptcy Court only concluded that appellant failed to establish Kumar’s actual authority to “bind Holbrook to pay [appellant]
off the books or outside the standard scanning protocol.” (Oral Ruling at 16 (explaining that appellant did not prove Kumar had
this authority because appellant only “testi-
forms work which simultaneously benefits two or more
employers and one employer is acting directly or indirectly in the interest of the other employer (or employers) in relation to the employee.” Chuchuca v. Creative Customs Cabinets Inc., No. 13-CV-2506 RLM,
2014 WL 6674583, at *8 (E.D.N.Y. Nov. 25, 2014).
To determine whether several entities operated as a
joint enterprise, “courts consider (1) interrelation of
operations, (2) centralized control of labor relations,
(3) common management, and (4) common ownership
or financial control.” Juarez v. 449 Rest., Inc., 29 F.
Supp. 3d 363, 367 (S.D.N.Y. 2014).
fied that Mr. Kumar had him drive to different gas stations to cover various shifts and
pick up cash deposits”).) It did not examine
whether Kumar had the apparent authority to
do so. The extent to which Kumar had this
authority to act on debtor’s behalf, however,
is crucial to an evaluation of debtor’s control, and, therefore, it was error for the
Bankruptcy Court not to clearly address apparent authority. 5
consider whether Kumar had actual or apparent authority to act on behalf of the enterprise in analyzing the enterprise’s control
over appellant. See, e.g., Chelsea v. New
York Hotel and Motel Trades Council, AFLCIO, No. 07 Civ. 2614 (PAC), 2014 WL
4813028, at *8-13 (S.D.N.Y. Sept. 29, 2014)
(analyzing both joint employer and agency
B. Burden of Proof
In short, the two rationales cited by the
Bankruptcy Court are alone insufficient to
establish that appellant was not an “employee” of the debtor under the relevant legal
standards. Therefore, the Court reverses the
decision below on this ground and remands
for reconsideration in a manner consistent
with this opinion. Specifically, on remand,
the Bankruptcy Court should first consider
whether debtor was part of a singleintegrated enterprise with Keshtgar’s other
companies. See, e.g., Juarez, 29 F. Supp. 3d
at 367; Bravo, 2013 WL 5549495, at *8. If
so, it then must assess the degree of control
the enterprise exerted over the appellant, accounting for the Carter and Bynog factors
and treating the entities as a single employer. 6 See Irizarry, 722 F.3d at 104–05;
Bynog, 802 N.E.2d at 1092–93. It may also
Appellant further argues that the Bankruptcy Court erroneously applied the burden
of proof. As set forth below, the Court concludes that consultation of the law governing
burdens of proof in the FLSA and NYLL
context is warranted on remand.
The burden-shifting framework for objections to claims filed under the Bankruptcy
Code is well-settled.
Under 11 U.S.C.
§ 502(a) a proof of claim “is deemed allowed,
unless a party in interest . . . objects.” Federal Rule of Bankruptcy Procedure 3001 states
that “[a] proof of claim executed and filed in
accordance with these rules shall constitute
prima facie evidence of the validity and
amount of the claim.” Fed. R. Bankr. P.
3001(f); see also In re Taranto, No. 10–
76041–ast, 2012 WL 1066300, at *5 (Bankr.
E.D.N.Y. Mar. 27, 2012); In re King, No. 08–
61922, 2010 WL 4290527, at *5 (Bankr.
E.D.N.Y. Oct. 20, 2010)). Rule 3001 also
“requires a claimant to attach supporting documentation to a proof of claim.” In re Aiolova, No. 11-10503 (BRL), 2013 WL 5818893,
at *2 (Bankr. S.D.N.Y. Oct. 29, 2013); see
also Fed. R. Bankr. P. 3001(c)(1) (“[W]hen a
claim, or an interest in property of the debtor
securing the claim, is based on a writing, a
copy of the writing shall be filed with
the proof of claim.”). “If a proof of claim is
not supported by the requisite documentation,
it is not presumed to be prima facie valid.” In
re Aiolova, 2013 WL 5818893, at *3; see also In re Minbatiwalla, 424 B.R. 104, 112
Appellant presented some evidence that Kumar had
the apparent authority to bind debtor. He stated unequivocally that Kumar hired him to work at the Centerreach station, as a floater, and at debtor’s gas station
specifically in January 2015. (R. at 72–74.) He also
testified that he believed Keshtgar was his boss (id. at
227–28), that Kumar “assigned [him] shifts at
Holbrook” (id. at 227), and that Keshtgar acknowledged his employment, at least casually (id. at 72).
Even Settani admitted that Kumar was debtor’s manager prior to the petition date. (Id. at 231.) Nevertheless, having not had the opportunity to evaluate the
credibility of the witnesses, this Court takes no position on whether this evidence was sufficient to establish apparent authority.
The Bankruptcy Court should also consider whether
the debtor was a joint employer and, if so, apply the
As the Supreme Court has held, the
“basic federal rule in bankruptcy is that state
law governs the substance of claims,” and,
therefore, bankruptcy courts [must] consult state law in determining the validity of
most claims.” Travelers Cas. & Sur. Co. of
Am. v. Pac. Gas & Elec. Co., 549 U.S. 443,
450 (2007). In In re Santos, No. BAP CC06-1436-PAAK, 2007 WL 7540980, *5
(B.A.P. 9th Cir. July 11, 2007), for example,
the claimants filed claims for unpaid wages
to which the debtors objected, asserting that,
“according to various oral and implicit
agreements,” the claimants had been fully
compensated. The Bankruptcy Court held
that, under California labor law, the debtors
did not produce admissible evidence to contradict the claimants’ evidence. Id. at *4.
The Ninth Circuit’s bankruptcy panel held
that, “[i]n evaluating the burden of proof, the
bankruptcy court properly looked to the law
of California as the applicable law for wage
disputes in that state.” Id. at *5.
(Bankr. S.D.N.Y. 2010) (“Failure to attach
the documentation required by Rule 3001 will
result in the loss of the prima facie validity of
the claim.”); Green Tree Servicing, LLC v.
Wilson (In re Wilson), 532 B.R. 486, 490
(S.D.N.Y. 2015) (same).
If the claimant makes out a prima facie
case for the validity of a claim, “[t]he objecting party [then] bears the burden of putting
forth sufficient evidence to rebut” the claim.
In re Taranto, at *5 (citing Primavera Familienstiftung v. Askin, 130 F. Supp. 2d 450,
540 (S.D.N.Y. 2001)). The debtor “must
come forth with evidence which, if believed,
would refute at least one of the allegations
essential to the claim.” In re Reilly, 245
B.R. 768, 773 (B.A.P. 2d Cir.), aff’d, 242
F.3d 367 (2d Cir. 2000); see also In re Cross
Island Plaza, Inc., No. 12-42491 (NHL),
2015 WL 4610382, at *13 (Bankr. E.D.N.Y.
July 30, 2015) (“The objector must ‘produce evidence and show facts tending to defeat the claim by probative force equal to
the proofs of claim themselves.’” (quoting
Wright v. Holm (In re Holm), 931 F.2d 620,
623 (9th Cir. 1991))).
If it does so,
“the burden then shifts back to the claimant
to produce additional evidence to prove the
validity of the claim by a preponderance of
the evidence.” In re Residential Capital,
LLC, No. 12-12020 (MG), 2013 WL
5952004, at *4 (Bankr. S.D.N.Y. Nov. 7,
2013). The claimant “bears the burden of
persuasion as to the allowance of their
claim.” In re Feinberg, 442 B.R. 215, 221
(Bankr. S.D.N.Y. 2010).
Here, by contrast, the Bankruptcy Court
did not consult the underlying substantive
law when evaluating the burden of proof.
Given that appellant’s claims for unpaid
wages arise under the FLSA and NYLL and
that the law applicable to those statutes plays
such a significant role in the determination
of whether he was employed under Section
502(a), the Court concludes that, in evaluating the burden of proof under the Bankruptcy Code on remand, the Bankruptcy Court
should consider the rules governing burdens
of proof under the FLSA and NYLL. 7 See
Like the Bankruptcy Code, the FLSA also utilizes a
burden-shifting framework. See Kuebel v. Black &
Decker Inc., 643 F.3d 352, 362 (2d Cir. 2011) (citing
Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680,
687–88 (1946)). A purported employee bears the initial burden of proving entitlement to wages. See id.
If the employer keeps accurate records, the employee
need only obtain and produce those records to satisfy
his burden. Id. On the other hand, “where the employer’s records are inaccurate or inadequate and the
The Bankruptcy Court recited and applied this framework in disallowing appellant’s claim. (See Oral Ruling at 8–9, 17.)
Nevertheless, appellant argues that the
Bankruptcy Court erred in its application of
this framework, claiming that it should have
considered the rules governing the burdens
of proof in the FLSA and NYLL context.
id. at 5.
ever, consider the new evidence in light of the
remand and the need to re-evaluate all the
evidence in context of the applicable legal
C. New Evidence
Appellant also requests that this Court
remand so that the Bankruptcy Court can account for new evidence appellant has uncovered in the course of separate litigation
against debtor. (Appellant’s Reply at 6–9.)
Specifically, appellant argues that, in a separate wage and hour litigation in this Court,
Keshtgar and Settani contradict key representations made by debtor to the Bankruptcy
Court at the evidentiary hearing. For example, appellant asserts that, in response to interrogatories, Keshtgar and Settani contradict
that Kumar acted as a rogue manager in hiring and paying any workers off the books.
Because the Court is remanding on other
grounds, it need not address whether remand
is separately warranted based on the new evidence. The Bankruptcy Court should, how-
For the reasons set forth above, the Court
concludes, under de novo review, that the
Bankruptcy Court did not apply the correct
legal standard in determining that appellant
was not an employee of the debtor. Therefore, its order is reversed and the case is remanded for further proceedings consistent
with this Memorandum and Order.
JOSEPH F. BIANCO
United States District Judge
employee cannot offer convincing substitutes,” the
employee can meet the initial burden “if he proves
that he has in fact performed work for which he was
improperly compensated and if he produces sufficient
evidence to show the amount and extent of that work
as a matter of just and reasonable inference.” Id.
(quoting Anderson, 328 U.S. at 687–88). This burden
“is not high,” and an employee can meet it “through
estimates based on his own recollection.” Id. If he
Dated: August 29, 2017
Central Islip, New York
Appellant is represented by Holly M. Martin,
Kara E. Neaton, and Scott D. Talmadge,
Kaye Scholer LLP, 250 West 55th Street,
New York, NY 10019-9710, as well as Richard E. Blum, The Legal Aid Society, Civil
Appeal & Law Reform Unit, 199 Water
Street, 3rd Floor, New York, NY 10038.
Debtor is represented by Michael J. Macco
and Richard L. Stern, Macco & Stern LLP,
2950 Express Drive South, Suite 109, Islandia, NY 11749.
[t]he burden then shifts to the employer to
come forward with evidence of the precise
amount of work performed or with evidence
to negative the reasonableness of the inference to be drawn from the employee's evidence. If the employer fails to produce such
evidence, the court may then award damages
to the employee, even though the result be
Id. (quoting Anderson, 328 U.S. at 687–88).
Here, appellant makes various, record-based assertions
about the adequacy of the records produced by debtor
under this framework. The Court takes no position on
these assertions, but leaves it to the Bankruptcy Court
to address them on remand.
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