Davis et al v. 2192 Niagara Street, LLC et al

Filing 114

DECISION AND ORDER adopting Magistrate Judge Leslie G. Foschio's 102 Report and Recommendation. Defendants' 95 Motion to Dismiss is hereby denied. This matter is recommitted to Magistrate Judge Foschio for further proceedings. SO ORDERED. Signed by Hon. Richard J. Arcara on 1/26/2023. (LAS)

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UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK
___________________________________
MICHELE DAVIS and VICTORIA BLASZAK,
on behalf of themselves and all other employees
similarly situated,
Plaintiffs,
v.

DECISION AND ORDER
15-CV-429-RJA

2192 NIAGARA STREET, LLC, CLASSIC EVENTS
AT THE LAFAYETTE, LLC, EVENTS AT THE FOUNDRY,
LLC, MOLLY FORD KOESSLER, WILLIAM KOESSLER, and
RIVERFRONT ON THE NIAGARA, LLC, d/b/a ACQUA,
Defendants.
____________________________________
Plaintiffs Michele Davis and Victoria Blaszak (“Plaintiffs”) brought this
asserted class action against 2192 Niagara Street, LLC, Classic Events at the
Lafayette, LLC, Events at the Foundry, LLC, Molly Ford Koessler, William Koessler,
and Riverfront on the Niagara, LLC d/b/a/ Acqua (“Defendants”), alleging violations
of the Fair Labor Standards Act (“FLSA”) and New York Labor Law (“NYLL”). Dkt.
No. 18. Plaintiffs claim that they were employed as hourly banquet servers at
various restaurants owned or operated by Defendants, and that they were
improperly deprived of compensation for the work they performed. See id.
Currently before the Court are Defendants’ objections (Dkt. No. 104) to
Magistrate Judge Leslie G. Foschio’s Report and Recommendation issued June 9,
2021 (Dkt. No. 102), which recommends denying Defendants’ motion to dismiss

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(Dkt. No. 95) Plaintiffs’ first cause of action for lack of subject matter jurisdiction, and
Defendants’ request that the Court decline to exercise supplemental jurisdiction over
three of Plaintiff’s four state law claims.
For the reasons stated below, the Court adopts Judge Foschio’s Report and
Recommendation and denies Defendants’ motion to dismiss.
DISCUSSION
The Court assumes the parties’ familiarity with the case’s factual and
procedural background, which Judge Foschio set out in detail in his Report and
Recommendation. See Dkt. No. 102, pp. 2-6. Pursuant to 28 U.S.C. § 636(b)(1)(C)
and Fed. R. Civ. P. 72(b)(3), this Court must make a de novo determination of those
portions of the Report and Recommendation to which objections have been made.
Defendants object to the Report and Recommendation on the grounds that 1)
under 28 U.S.C. § 1367(a), the Court has no supplemental jurisdiction over Plaintiffs’
first cause of action under NYLL § 196-d (the “Gratuity Claim”) because it is neither
parallel to Plaintiffs’ FLSA claims nor does it arise out of the same compensation
policies as Plaintiffs’ FLSA claims; and 2) under 28 U.S.C. § 1367(c), the Court
should elect not to exercise jurisdiction over Plaintiffs’ Gratuity Claim, Plaintiffs’ fifth
cause of action alleging NYLL spread of hours violations (the “Spread of Hours
Claim”), and Plaintiffs’ sixth cause of action alleging NYLL Wage Theft Prevention
Act violations (the “WTPA Claim”) based on the factors set out in § 1367(c).
Upon a de novo review of the Report and Recommendation, and after
reviewing the record and the submissions from the parties, the Report and
Recommendation is hereby adopted in its entirety.
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I.

Plaintiffs’ Gratuity Claims Arise from the Same Compensation Policy as
their FLSA Claims
The Report and Recommendation found that the Court has supplemental

jurisdiction over Plaintiffs’ Gratuity Claim under 28 U.S.C. § 1367(a) because it
arose from the same common nucleus of operative facts as Plaintiffs’ FLSA claims.
Dkt. No. 102, pp. 11-17. Judge Foschio relied on Salim Shahriar v. Smith &
Wollensky Rest. Grp., Inc, which found that “NYLL and FLSA actions clearly derive
from . . . a common nucleus of operative facts [if] they arise out of the same
compensation policies and practices of [a defendant].” Salim Shahriar v. Smith &
Wollensky Rest. Grp., Inc., 659 F.3d 234, 245 (2d Cir. 2011). Therefore, because
the Magistrate Judge determined the Gratuity Claim involved the same
compensation policies and practices as the FLSA claims, he concluded that the
Court has supplemental jurisdiction. Dkt No. 102, pp. 16-17.
Defendants object on the grounds that Judge Foschio purportedly misapplied
Shahriar. First, they argue that Shahriar also held that “parallel” claims under the
NYLL and FLSA share a common nucleus of operative facts. Dkt. No. 104, pp. 4-5.
However, nowhere in Shahriar does the Second Circuit prescribe this as alternate
grounds for establishing supplemental jurisdiction. See Shahriar, 659 F.3d at 243
(merely observing that “[v]ictims of wage and hour violations . . . often have parallel
claims under both the FLSA and the [NYLL]”). Furthermore, even if it did,
Defendants concede that these grounds for supplemental jurisdiction would be in
addition to the “same compensation policies and practices” grounds. See Dkt. No.
104, p. 4 (“[I]n Shahriar, the Second Circuit concluded that claims under the FLSA
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and [NYLL] can arise under a common nucleus of operative facts either because the
plaintiffs: (a) have parallel claims under the both the FLSA and the [NYLL]; or (b)
they arise out of the same compensation policies.”) (emphasis added) (internal
quotations and Defendants’ alterations omitted). Therefore, Plaintiffs’ purported
failure to allege “parallel” claims would not even require dismissing those claims.
Accordingly, Defendants’ interpretation of Shahriar is both incorrect and irrelevant to
the Report and Recommendation’s analysis.
Second, Defendants argue that the Gratuity Claim is not a part of the “same
compensation policies” as the FLSA claims because gratuities only factor into
Plaintiffs’ overtime wages (the subject of Plaintiffs’ FLSA claims) if Defendants
availed themselves of a “tip credit.” Dkt. No. 104, p. 5. However, nothing in
Shahriar indicates an alleged gratuity must calculate into the specific compensation
disputed under the FLSA claims in order to be considered a part of the “same
compensation policies and practices” as the state claims. See generally, Shahriar,
659 F.3d at 245; Treglia v. Town of Manlius, 313 F.3d 713, 723 (2d Cir. 2002) (the
exercise of supplemental jurisdiction is proper where a plaintiff’s state and federal
claims arise “out of approximately the same set of events”). Accordingly,
determining whether Defendants availed themselves of the tip credit is unnecessary
at this stage to establish supplemental jurisdiction. It is sufficient that the Gratuity
Claim and the FLSA claims involve the Defendants’ compensation practices for work
allegedly performed in connection with the banquet contracts, as Judge Foschio
reasoned. See Dkt. No. 102, pp. 16-17.

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And third, Defendants argue that the Gratuity Claim is not a part of the “same
compensation policies and practices” as the FLSA claims because the alleged
gratuities were set out in customer-facing banquet contracts and depend on
customer interpretations of the terms. Dkt. No. 104, pp. 4-5. However, Defendants
fail to explain how the alleged gratuity’s inclusion in the banquet contracts bars its
involvement in an employer’s broader compensation policies and practices. As
stated above, the Gratuity Claim is based on compensation for the same work
performed, at the same events, by the same employees as the FLSA claims. This
Court agrees with Judge Foschio that these claims therefore arise from the same
compensation policies or practices, even if they involve different specific terms or
contracts. Dkt. No. 102, pp. 16-17.
Accordingly, based on the precedent set out in Shahriar and the allegations
indicating Plaintiffs’ Gratuity Claim and FLSA claims arise from the same
compensation policies and practices, the Court finds that these claims arise from the
same common nucleus of operative facts. Therefore, the Court may exercise
supplemental jurisdiction over the Gratuity Claim under 28 U.S.C. § 1367(a). See
Shahriar, 659 F.3d at 245.
II.

The § 1367(c) Factors Do Not Support Declining to Exercise
Supplemental Jurisdiction
Magistrate Judge Foschio also recommends denying Defendants’ motion to

decline to exercise supplemental jurisdiction under 28 U.S.C. § 1367(c). Dkt. No.
102, pp. 17-22. If the requirements of 28 U.S.C. § 1367(a) are met, § 1367(c) allows

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a court to nonetheless elect, in its discretion, to decline jurisdiction over the state
claim if:
(1) the claim raises a novel or complex issue of State law,
(2) the claim substantially predominates over the claim or claims over
which the district court has original jurisdiction,
(3) the district court has dismissed all claims over which it has original
jurisdiction, or
(4) in exceptional circumstances, there are other compelling reasons for
declining jurisdiction.
28 U.S.C. § 1367(c). The Court should only refuse to exercise jurisdiction based on
one or more of these factors if doing so would promote judicial economy, fairness,
convenience, and comity. Shahriar, 659 F.3d at 245 (citing United Mine Workers v.
Gibbs, 383 U.S. 715, 726 (1966)). This Court agrees with Judge Foschio’s analysis
that these factors do not weigh in favor of declining jurisdiction over Plaintiffs’
Gratuity, Spread of Hours, and WTPA Claims, and finds that Defendants’ objections
fail to raise any grounds for declining jurisdiction.
Preliminarily, Defendants concede that the third factor is inapplicable,
because all claims with original jurisdiction have not been dismissed by the Court.
See Dkt. No. 104, at p. 3 n.1. They assert, however, that the remaining three factors
enumerated in § 1367(c) “strongly” support their argument that the Court should
decline to exercise supplemental jurisdiction over the state law claims.
Regarding the first factor, Defendants argued in their motion papers that the
New York Court of Appeals decision in Samiento v. World Yacht Inc., 10 N.Y.3d 70
(2008) indicates Plaintiffs’ Gratuity Claim raises a novel or complex issue of state

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law. 1 Judge Foschio found to the contrary, however, that Plaintiffs’ Gratuity Claim
did not raise a novel or complex issue of state law and Samiento does not
demonstrate a “conflict between treatment of the mandatory charges under New
York tax laws and the DOL’s regulations issued with respect to NYLL § 106-a.” Dkt.
No. 102, pp. 18-19 (citing Samiento, 10 N.Y.3d at 80). Defendants object to this
conclusion on the grounds that Samiento did not resolve this purported conflict, and
instead found only that the employer’s treatment of a charge for tax purposes is
acceptable evidence of whether that charge should be considered a gratuity. Dkt.
No. 104, pp. 6-7.2
20 NYCRR § 527.8, relating to taxes on the sale of food and drink, states:
(l) Gratuities and service charges. Any charge, made to a customer, is
taxable as a receipt from the sale of food or drink, unless:
(1) the charge is separately stated on the bill or invoice given to
the customer;
(2) the charge is specifically designated as a gratuity; and
(3) all such monies received are paid over in total to employees.
20 NYCRR § 527.8. 12 NYCRR § 146-2.18, relating to charges purported to be a
gratuity, states:
Section 196-d of the New York State Labor Law prohibits employers from
demanding, accepting, or retaining, directly or indirectly, any part of an
employee’s gratuity or any charge purported to be a gratuity.
(a) A charge purported to be a gratuity must be distributed in full
as gratuities to the service employees or food service workers who
provided the service.
Judge Foschio properly noted that Defendants only argued that the Gratuity Claim presented a
novel or complex issue of state law, not the Spread of Hours or WTPA Claims. Dkt. No. 102 at
18. The same is true for Defendants’ objections to the Report and Recommendation. See Dkt.
No. 104, pp. 6-7.

1

The Court did not address this purported conflict in its Decision and Order on Defendants’
motion for judgment on the pleadings (Dkt. No. 33). See Dkt No. 90, p. 4 n.1.
2

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(b) There shall be a rebuttable presumption that any charge in
addition to charges for food, beverage, lodging, and other
specified materials or services, including but not limited to any
charge for “service” or “food service,” is a charge purported to be
a gratuity.
(c) Employers who make charges purported to be gratuities must
establish, maintain and preserve for at least six years records of
such charges and their dispositions.
(d) Such records must be regularly made available for participants
in the tip sharing or tip pooling systems to review.
12 NYCRR § 146-2.18.
Defendants claim that if there is an absence of any disclosures in the banquet
contracts indicating the service charges are not actually gratuities, as alleged by
Plaintiffs, then under the presumption in 12 NYCRR § 146-2.18(b), those charges
are gratuities. Dkt. No. 104, p. 6. However, Defendants argue, the sale would still
be taxable as if it were a non-gratuity under 20 NYCRR § 527.8(I) since the charge
is not specifically designated as a gratuity. Dkt. No. 104, p. 7. This purported
discrepancy, Defendants reason, creates a conflict between these regulations and a
novel issue of New York law, and a plain reading of Samiento does not demonstrate
that the Court of Appeals considered and resolved this purported conflict. See
Samiento, 10 N.Y.3d at 80 (merely finding that “[p]laintiffs should be entitled to show
defendants’ tax treatment of the charges since charges that are treated as gratuities
for tax purposes could also be represented to patrons as being gratuities as well.”).
However, an examination of the supposedly conflicting regulations does not
reveal any “due process issues . . . [which] should be resolved by the New York
courts” in this case. Dkt. No. 102, p. 7. As stated in Judge Foschio’s Report and
Recommendation on Defendants’ motion for judgment on the pleadings, the
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regulations are conflicting in Defendants’ case only because they allegedly retained
the funds that 12 NYCRR § 146-2.18(b) states should have been considered
gratuities (or, alternatively, because they improperly failed to label the charges as
non-gratuities). Dkt. No. 50, p. 24. Assuming, arguendo, that Defendants properly
adhered to 12 NYCRR § 146-2.18 by either giving the charges to Plaintiffs as
gratuities or by indicating in the banquet contract that the charges were not
gratuities, there would be no taxing under 20 NYCRR § 527.8 that is inconsistent
with fund ownership under 12 NYCRR § 146-2.18. Accordingly, there is no conflict
forcing this Court to rule on a novel issue of state law should it retain jurisdiction.
Regarding the second factor, Judge Foschio found that the state claims do
not substantially predominate over the FLSA claims, since any possible damages
disparity is irrelevant and the factual bases of the claims are similar. See Dkt. No.
102, pp. 19-22. Defendants object and argue that the state claims substantially
predominate over the FLSA claims because there are no directly parallel claims
under FLSA. See Dkt. No. 104, pp. 7-8.
However, predominance is not determined by slight differences in the precise
legal requirements of each claim, but by “the factual determinations . . . regard[ing] .
. . [the defendant’s] practices.” Shahriar, 659 F.3d at 247. As set forth above, the
same general factual determinations regarding Defendants’ compensation practices
underly both the state and federal claims in this case. Defendants do not set forth
any factual disputes pertaining to Plaintiffs’ state claims that are not generally
relevant to their FLSA claims as well, much less any factual disputes substantially
predominating over the case. See Dkt. No. 104, pp. 7-8; Dkt. No. 108, pp. 7-8.
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Lastly, as to the fourth factor, Judge Foschio found no exceptional
circumstances indicating the Court should decline jurisdiction here. See Dkt. No.
102, p. 22. Defendants argue that the stresses of the pandemic and the federal
courts’ caseload are sufficient reasons to decline jurisdiction. See Dkt. No. 104, p.
8. The Court disagrees, especially considering the fact that granting Defendants’
motion would not even fully dispose of this case. See Dkt. No. 95 (seeking only
partial dismissal).
Accordingly, none of the 28 U.S.C. § 1367(c) factors establish a compelling
reason for the Court to decline to exercise supplemental jurisdiction over
Defendants’ Gratuity, Spread of Hours, and/or WTPA Claims. 3
CONCLUSION
Upon de novo review of the Report and Recommendation and the underlying
record, it is hereby
ORDERED, pursuant to 28 U.S.C. § 636(b)(1) and for the reasons set forth in
Magistrate Judge Foschio’s Report and Recommendation (Dkt. No. 102) and herein,
Defendants’ motion to dismiss (Dkt. No. 95) is DENIED; and it is further

Defendants request in the alternative that should the Court adopt the Report and
Recommendation, the Court certify the questions raised for an immediate appeal to the Second
Circuit, “because the issue before the Court is a matter of jurisdiction.” Dkt. No. 104, p. 8.
Defendants have failed to meet their burden to justify an interlocutory appeal of this Court’s
Decision and Order. See In re Motors Liquidation Co., No. 17-CV-8712 (AJN), 2018 WL
4284286, *3 (S.D.N.Y. Sept. 7, 2018) (burden is on moving party to establish grounds for
interlocutory appeal). At the very least, an interlocutory appeal of this Decision and Order could
not materially advance the ultimate termination of this litigation, as Defendants do not even seek
a complete dismissal of Plaintiffs’ claims. Id.; see Dkt. No. 95. Accordingly, the request for
certification is also denied.

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ORDERED that this case is recommitted to Magistrate Judge Foschio for further
proceedings. 4

IT IS SO ORDERED.

__s/Richard J. Arcara________
HONORABLE RICHARD J. ARCARA
UNITED STATES DISTRICT COURT
Dated: January 26, 2023
Buffalo, New York

Briefing for Plaintiffs’ motion for class certification (Dkt. No. 27) has been stayed, pending the
resolution of the instant motion to dismiss. See Dkt. No 102, p. 3 n.1. Upon issuance of this
Decision and Order, the parties’ class certification briefing may continue with Judge Foschio.
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