PEREZ v. DAVISON DESIGN & DEVELOPMENT, INC et al
Filing
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MEMORANDUM OPINION indicating that, for the reasons stated within, the parties' cross-motions for summary judgment ([31[ and 44 ) will be denied without prejudice. An appropriate order follows. Signed by Judge Nora Barry Fischer on 8/20/14. (jg)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
THOMAS E. PEREZ, SECRETARY OF
LABOR, UNITED STATES
DEPARTMENT OF LABOR,
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Plaintiff,
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v.
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DAVISON DESIGN & DEVELOPMENT, )
INC., a corporation; and GEORGE M.
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DAVISON, individually and as a Corporate )
Officer of the aforementioned corporation, )
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Defendants.
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Civil Action No. 13-1118
Judge Nora Barry Fischer
MEMORANDUM OPINION
In this civil action, Plaintiff Thomas E. Perez, Secretary of the United States Department
of Labor (hereinafter “Plaintiff” or the “Secretary”), has sued Defendants Davison Design &
Development, Inc. and George M. Davison (collectively, “Davison” or “Defendants”) under the
Fair Labor Standards Act, 29 U.S.C. §201 et seq. (“FLSA”), for overtime premiums that are
allegedly owing to some 257 of Davison’s current or former sale representatives. Davison
contends that it is exempt from the FLSA’s overtime provision because it is a “retail or service
establishment” within the meaning of 29 U.S.C. §207(i). The Secretary disputes the applicability
of this exemption.1
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The Court has subject matter jurisdiction over the parties’ dispute pursuant to 28 U.S.C. §1331.
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Presently pending before the Court are the parties’ cross-motions for summary judgment.
For the reasons that follow, the parties’ respective motions will be denied without prejudice to be
reasserted on a more fully developed record.
I. Factual Background
Davison is a Pittsburgh-based product development company whose business consists
primarily of providing research, development, and design services to aspiring inventors who seek
help in realizing their ideas and presenting them to corporations and other such entities. (Defs.’
Statement of Undisputed Material Fact, hereinafter “DSUMF,” ¶¶1-2, ECF No. 33; Pl.’s
Statement of Undisputed Material Facts, hereinafter “PSUMF,” ¶¶ 1-3, ECF No. 46.) The
company likens its services to those of internal research and development departments located at
many other corporations. (PSUMF ¶5, ECF No. 46.) Davison’s website states that it “help[s]
people prepare and present their ideas to corporations, manufacturers, and retailers for possible
licensing.” (Id. at ¶ 7.)
Davison provides its product development services to aspiring inventors primarily in the
form of two different service packages. (DSUMF ¶3.)2 The first package involves predevelopment and representation services. These may include activities such as reviewing
whether similar products are available for sale, researching patent information related to the
client’s prospective product, and identifying a target corporation that would be willing to receive
information about the product. (DSUMF ¶6, ECF No. 33.) Davison’s second-phase service
package may vary based on the client’s needs but it generally includes more intensive work on
developing and creating presentation materials, a product sample, a packaging sample, and other
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Sales of these packages accounted for 98 percent of Davison’s annual total revenues in 2011, 2012, and 2013.
(DSUMF ¶3.)
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related services with the goal that the client’s product can be presented to corporations and other
entities that might be interested in licensing the finalized product. (DSUMF ¶8, ECF No. 33.)
The specific services performed within each package vary depending on the nature and
sophistication of the invention at issue and the progress that the client has already made with the
underlying idea. (DSUMF ¶5.)
Davison does not guarantee its clients that their ideas will be successful, or that they will
turn a profit on them. (DSUMF ¶ 16, ECF No. 33.) Rather, it simply informs them that it will
make its best efforts to professionally design a sample, packaging, and presentation materials
that will give the potential licensee a clear understanding of the idea.
To sell its service packages to clients, Davison currently employs approximately 150
sales representatives. (DSUMF ¶20, ECF No. 33.) These sales representatives primarily
communicate with clients over the telephone. (Id. ¶21.) Clients and prospective clients also
occasionally visit Davison’s offices for in-person meetings with sales representatives to discuss
Davison’s services. (Id.)
Any individual or entity can contract for Davison’s services, as the company is fully open
to the general public and sells its services directly to such clients. (DSUMF ¶ 4, ECF No. 33.)
In the past five years, Davison has entered into contracts for these packages with 58,865
individual clients. (Id.) Davison draws its clients from across the country, with representatives in
most, if not all of the fifty states, and across the world. (PSUMF ¶19, ECF No. 46.) Its clients
include corporations as well as individuals. (Id. ¶ 20.)
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II. Procedural History
The Secretary commenced this action against Davison on August 1, 2013, alleging that
Davison violated the overtime and record-keeping requirements set forth in §§7, 11(c), 15(a)(2)
and 15(a)(5) of the FLSA. The complaint (ECF No. 1) seeks injunctive relief and back wages.
Defendants answered the complaint (ECF No. 10) and thereafter filed motions for
judgment the pleadings. (ECF Nos. 13 and 16). The first motion sought to dismiss all claims
against Defendant George Davison in his personal capacity on the theory that the alleged facts
failed to show he exercised significant control over the employees at issue. (ECF No. 13.) The
second motion sought to dismiss all claims for alleged violations occurring prior to January 23,
2011 on statute of limitations grounds and all claims arising thereafter for failure to state a viable
claim under Federal Rule of Civil Procedure 12(c). (ECF No. 16.) By Memorandum Opinion
and Order entered on December 23, 2013, the Court granted the Defendants’ motion to dismiss
with respect to those claims arising prior to January 23, 2011 and denied the motions in all other
respects. (ECF No. 29.)
Four days later, Defendants filed their pending motion for summary judgment and
supporting brief (ECF Nos. 31, 32), in which they claim exemption from the FLSA’s overtime
requirement. Plaintiff filed his response and cross-motion on March 3, 2014. (ECF Nos. 41, 44,
45.) Defendants filed their reply brief and opposition to the Plaintiff’s motion on April 7, 2014
(ECF No. 51), and Plaintiff filed his own reply on April 23, 2014 (ECF No. 57). The parties
have also filed their respective appendices and concise statements of material facts and responses
thereto relative to the foregoing motions. (ECF Nos. 33, 34, 42, 43, 46, 47, 52, 53, 54, 55, 58,
59.)
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III. Standard of Review
Pursuant to Rule 56 of the Federal Rules of Civil Procedure, summary judgment is
appropriate “if the movant shows that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). “Where the record taken
as a whole could not lead a rational trier of fact to find for the non-moving party, there is no
genuine issue for trial.” Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574,
587 (1986) (internal quotation marks omitted); Diaz v. City of Philadelphia, --- F. App’x---, 2014
WL 1724440 *2 (3d Cir. May 2, 2014). A district court analyzing a Rule 56 motion must view
the facts of record, and any reasonable inferences arising therefrom, in the light most favorable
to the nonmoving party. Diaz, supra, at *2 (citing Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 255 (1986)); Burns v. Pa. Dep't of Corr., 642 F.3d 163, 170 (3d Cir.2011). However,
unsubstantiated arguments made in briefs are not considered evidence of asserted facts. Versarge
v. Township of Clinton, 984 F.2d 1359, 1370 (3d Cir.1993); Smith v. Samuels, 2013 WL 5176742
*3 (M.D. Pa. Sept. 12, 2013).
IV. Discussion
Under §7(a) of the FLSA, employers must generally pay their employees at least one and
one-half times their regular pay rate for any time they work in excess of forty hours per week.
See 29 U.S.C. §207(a)(1); Parker v. NutriSystem, Inc., 620 F.3d 274, 277 (3d Cir. 2010).
However, the Act contains an exception to the overtime requirements for employees working in
“retail or service establishments.” Section 7(i), the so-called “retail commission exception,”
provides:
No employer shall be deemed to have violated subsection (a) of this section by
employing any employee of a retail or service establishment for a workweek in
excess of the applicable workweek specified therein, if (1) the regular rate of pay
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of such employee is in excess of one and one-half times the minimum hourly rate
applicable to him under section 206 of this title, and (2) more than half his
compensation for a representative period (not less than one month) represents
commissions on goods or services. In determining the proportion of
compensation representing commissions, all earnings resulting from the
application of a bona fide commission rate shall be deemed commissions on
goods or services without regard to whether the computed commissions exceed
the draw or guarantee.
29 U.S.C. § 207(i). In this case, Davison insists that it meets the terms of this exemption, while
the Secretary maintains that it does not.
It is the employer’s burden to demonstrate “that the employee and/or employer come
‘plainly and unmistakably’ within the exemption’s terms.” Rosano v. Township of Teaneck, 754
F.3d 177, 185 (3d Cir. 2014) (quoting Lawrence v. City of Philadephia, 527 F.3d 299, 310 (3d
Cir. 2008)). Further, exemptions to the Act’s requirements should be construed narrowly and
against the employer. See Arnold v. Ben Kanowsky, Inc., 361 U.S. 388, 392 (1960); Lawrence,
527 F.3d at 310). “If the record is unclear as to some exemption requirement, the employer will
be held not to have satisfied its burden.” Haskins v. VIP Wireless LLC, No. Civ. A. 09-754,
2010 WL 3938255 *4 (W.D. Pa. Oct. 5, 2010) (citing Martin v. Cooper Elec. Supply Co., 940
F.2d 896, 900 (3d Cir. 1991)).
The parties are in agreement that, in order for Davison to qualify for the “retail
commission exception,” it must show that: (1) it is “a retail or service establishment”; (2) the
employees’ regular rate of pay is more than one and one-half times the minimum wage; and (3)
more than half of the employees’ compensation “represents commissions on the sale of goods or
services.” 29 U.S.C. §207(i). Davison has focused its argument on the first requirement,
claiming that it is a “retail or service establishment.” Davison maintains that the second and third
requirements have been conceded by the Secretary because they were not specifically put at issue
in the complaint. (Defs.’ Br. Supp. Mot. Summ. Judg. 8, ECF No. 32.)
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The Secretary takes issue with Davison’s assertion that it qualifies as a “retail or service
establishment.” Specifically, the Secretary contends that Davison lacks a “retail concept” as that
term is defined in the administrative regulations and case law. In addition, the Secretary disputes
that the requirements as to regular rate of pay and commission have been conceded. On the
contrary, the Secretary contends that the applicability of the §207(i) exemption is in the nature of
an affirmative defense as to which Davison bears the burden of proof, and Davison failed to offer
proof as to either of these requirements in support of its motion for summary judgment. (See
Pl.’s Resp. in Opp. to Defs.’ Mot. Summ. Judg. 17-19, ECF No. 41.)
In response to the Secretary’s position, Davison has submitted a supplemental appendix
in support of its motion for summary judgment, which consists of a declaration from Frank
Vescio, President of Davison (ECF No. 53-1). Mr. Vescio represents, in relevant part, that
“[t]hroughout the entirety of 2011 to the present, Davison’s Sales Representatives’ regular rate of
pay was in excess of one and one-half times the federal minimum wage” and, throughout that
same time period, the Sales Representatives “earned commissions on the sales of Davison’s
services... which ... accounted for more than half of their total compensation in appropriate
representative periods.” (Vescio Decl. ¶¶ 4-5, ECF No. 53-1.)
The Secretary objects to the Court’s consideration of this evidence, arguing that it is filed
out of time and is too conclusory to support a genuine issue of material fact. (Pl.’s Mem. in
Reply to Defs.’ Opp. to Pl.’s Cross Mot. Summ. Judg. 8-10, ECF No. 57.) In addition, however,
the Secretary has submitted a supplemental counter-declaration from its investigator stating that,
based on a review of Davison’s payroll records and employee interviews, the investigator
determined that “some of Davison’s employees received a regular rate of pay for certain relevant
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time periods that was less than one and one-half times the minimum wage as set forth under
Section 206 of the [FLSA].” (Robinson Decl. ¶ 3, ECF No. 58-1.)
In light of the current state of the record, the Court will defer its ruling on the issue of
whether Davison qualifies as a “retail or service establishment” pending the development of the
record relative to the other two elements of the §207(i) exemption. Although the Secretary did
not specifically put the employees’ regular rate of pay or compensation structure at issue in the
complaint (see Compl. ¶7), the Court is not prepared to conclude that the Secretary conceded
these issues as Davison urges. There is authority to support the proposition that the “retail
commission exception” is an affirmative defense3 and, at any rate, the period for amending the
pleadings is not yet closed in light of the terms of the parties’ Rule 26(f) report (ECF No. 37).
Accordingly, any defects which may exist in the Secretary’s complaint may yet be cured by way
of further amendment.
The Court also notes that issues as to the employees’ regular rate of pay and
compensation structure are inherently fact-specific inquiries. The present state of the record
reveals that the parties disagree at least as to whether the employees’ regular rate of pay
exceeded one and one-half times the federal minimum wage;4 however, the record does not
permit resolution of that issue at the present juncture. Accordingly, Davison’s motion for
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See Corning Glass Works v. Brennan, 417 U.S. 188, 196-97 (1974) (noting “the general rule that the application of
an exemption under the Fair Labor Standards Act is a matter of affirmative defense on which the employer has the
burden of proof”). See also Dejesus v. HF Management Services, LLC, 726 F.3d 85 (2d Cir. 2013)(“A claim of
exemption under the FLSA is an affirmative defense, and the employer bears the burden of proof in making any
such claim.”)(citing Corning Glass Works, 417 U.S. at 196); Orton v. Johnny’s Lunch Franchise, LLC 668 F.3d
843, 846 (6th Cir. 2012)(“An employer may raise a plaintiff’s status as an exempt employee as an affirmative
defense to claims brought under the FLSA.”)(citation omitted). But see Walton v. United Consumers Club, Inc., 786
F.2d 303, 307 (7th Cir. 1986) (stating that §7(i) is not an affirmative defense that needs to be raised in the pleadings).
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The Secretary has suggested that he might ultimately concede satisfaction of the “commission” element, although
he does not concede the point at present.
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summary judgment must be denied for this reason alone. Moreover, resolution of the rate-of-pay
element may ultimately prove to be an independently dispositive issue with respect to some, if
not all, of the employees at issue.
In light of the foregoing considerations, the Court will deny the parties’ respective
motions for summary judgment without prejudice. The Secretary will be permitted to file an
amended pleading to the extent he intends to specifically challenge Davison’s ability to satisfy
the regular rate-of-pay requirement and/or the commission requirement. To the extent the
Secretary intends to challenge Davison on these issues, the parties will be permitted a period of
discovery, after which they may reassert their respective motions on a more developed record.
V. Conclusion
For the foregoing reasons, the parties’ cross-motions for summary judgment will be
denied without prejudice. An appropriate order follows.
/s/ Nora Barry Fischer
Nora Barry Fischer
United States District Judge
Date: August 20, 2014
cc:
All counsel of record
(via CM/ECF)
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