Merritt et al v. Mountain Laurel Chalets, Inc. et al
Filing
67
ORDER that Defendants motions to dismiss 16 and 18 are GRANTED in part and DENIED in part. Defendants motions to dismiss plaintiffs claims brought against PEMCO under the Fair Labor Standards Act and the False Claims Act are DEN IED; the motions are GRANTED as to the state law claims brought against PEMCO for violation of the Tennessee Public Protection Act, the Tennessee Lawful Employment Act, and the Tennessee common law. Accordingly, these state law claims against PEMCO a re DISMISSED, with prejudice. Defendants motions to dismiss all federal and state law claims brought against RSC are GRANTED. Accordingly, all claims against RSC are DISMISSED, with prejudice; and RSC is DISMISSED as a defendant in this action. Defendants motions to dismiss Plaintiffs federal and/or state law claims brought against Mountain Laurel Chalets, Inc., are DENIED. Signed by District Judge Pamela L Reeves on 3/27/15. (ABF)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF TENNESSEE
AT KNOXVILLE
MELINDA MERRITT and
BENJAMIN OLIVAS
)
)
)
Plaintiffs,
)
)
v.
)
)
MOUNTAIN LAUREL CHALETS, INC.,
)
RSC PROPERTIES GENERAL PARTNERSHIP, )
And PROGRESSIVE EMPLOYER
)
MANAGEMENT COMPANY II, INC.,
)
)
Defendants.
)
No.: 3:14-cv-19-PLR-HBG
MEMORANDUM OPINION AND ORDER
Plaintiffs Merritt and Olivas have filed a complaint against Defendants Mountain Laurel
Chalets, Inc. (“Mountain Laurel”), RSC Properties General Partnership (“RSC”), and
Progressive Employer Management Co. II, Inc. (“PEMCO”) alleging improper business
practices and retaliatory firing, in violation of the False Claims Act (“FCA”), the Tennessee
Public Protection Act, the Tennessee Lawful Employment Act, and Tennessee common law.
Plaintiff Olivas has also filed a claim against Defendants alleging violation of the Fair Labor
Standards Act.
Pending before the Court are Defendants’ motions to dismiss for failure to state a claim
filed against each plaintiff. [D. 16; D. 18] Defendants present two theories to support their
motions to dismiss. First, PEMCO and RSC argue that they were not joint employers with
Mountain Laurel. Plaintiffs respond by arguing that PEMCO, via its paychecks and separation
notices to Plaintiffs, exercised an “indicia of control” over them. They also contend that RSC
was a joint employer because part of their pay from the latter derived from their services to RSCowned properties and that discovery should commence so as to determine the degree to which
Mountain Laurel and RSC may be a single entity. Defendants reply, inter alia, that Plaintiffs’
Third Amended Complaint asserts mere threadbare legal conclusions, that under the “economic
reality test” of joint employment, PEMCO and RSC are not joint employers with Mountain
Laurel, and that Plaintiffs have not taken any steps toward a qui tam action under the FCA.
Defendants next argue that Plaintiffs have not sufficiently asserted that they engaged in
activity protected by the FCA. In reply to Plaintiff’s contrary reassertions, Defendants state that
Plaintiffs have failed to satisfy the three-prong Yuhasz 1 test and, accordingly, have not shown
that these actions amount to activity protected under the FCA.
I. Background
Plaintiff Merritt was employed by Mountain Laurel beginning on December 10, 2004,
and at the time of her termination on October 25, 2013, held the title of “Head of
Housekeeping/Assistant Supervisor.” [R. 64 at ¶ 12] Plaintiff Olivas joined Mountain Laurel on
August 15, 2012. [Id. at ¶ 10] When he was terminated on October 24, 2013, he was employed as
“Supervisor of Maintenance, Housekeeping and Laundry.” [Id. at ¶ 11]
At some point in the 2013, Mountain Laurel agreed with PEMCO to “lease back” some
of its employees. [Id. at ¶ 16] As a result, Plaintiffs received pay checks which included both
1
Yuhasz v. Brush Wellman, Inc., 341 F.3d 559 (6th Cir. 2003).
2
Mountain Laurel’s and PEMCO’s names. [Id.] Despite this arrangement, Mountain Laurel alone
undertook the day-to-day supervision of Plaintiffs. [Id. at ¶ 17] As part of their duties with
Mountain Laurel, which manages and rents chalets for Smoky Mountains vacationers, Plaintiffs
were required to service approximately seventeen rental chalets which Mountain Laurel managed
but RSC owned. [Id. at ¶¶ 20–21] Uniquely, while Mountain Laurel charged all other property
owners for their services, RSC was considered “part of” Mountain Laurel and thus was not
charged. [Id. at ¶ 21]
Mountain Laurel also employed a woman named Marina Gomez, who worked in its
laundry. [Id. at ¶ 23] Gomez was an undocumented alien and, in order to pay her without alerting
the IRS or ICE of her employment, [Id. at ¶ 35] Mountain Laurel engaged in a subterfuge in
which Thomas Goodwin, Mountain Laurel General Manager, acquiesced [Id. at ¶ 27] and
Dorothy Vaden, Human Resources Manager for Mountain Laurel, participated. [Id. at ¶ 25]
Mountain Laurel, through checks written by Vaden, paid Gomez by preparing checks instead to
Shadow’s Cleaning, a sole proprietorship which, prior to its 2009 bankruptcy dissolution, was
owned by Gomez’s daughter, Jazmin Prieto Hawks. [Id. at ¶¶ 25–26] Another employee of
Mountain Laurel, Corey Hawks, who is married to Jazmin Prieto Hawks and holds the title of
“General Manager on Property” at Mountain Laurel, collected these Shadow’s Cleaning checks.
[Id. at ¶ 24]
In August 2012, Merritt discovered Gomez’s undocumented status and protested her
employment with Mountain Laurel. [Id. at ¶ 28] She then protested to her supervisor in
September 2013, after which several of Merritt’s coworkers warned her that her job was in
jeopardy. [Id. at ¶ 31] Despite these warnings, Merritt filed anonymous complaints with the IRS
and ICE regarding Gomez’s employment by Defendants. One of these agencies subsequently
3
contacted Mountain Laurel. [Id. at ¶ 36] Shortly after this, in late September 2013, the
management of Mountain Laurel began to treat Merritt poorly, becoming cold and difficult
toward her. [Id. at ¶ 37] Olivas, for his part, learned of Gomez’s employment ineligibility in
March 2013, after which he informed Vaden that he would not accept the risks of falsely paying
such an employee. [Id. at ¶ 30]
Separately from Gomez’s employment, Plaintiffs claim that several of the properties
managed by Mountain Laurel were laden with mold, [Id. at ¶ 38] that some chalets had
mushrooms growing in them, and that one had a bed bug infestation. [Id. at ¶ 44] Despite
Plaintiffs’ repeated complaints that these conditions were injurious to the guests who rented
these chalets, [Id. at ¶ 38] Mountain Laurel instructed Merritt to undertake merely cosmetic
measures to counteract the mold growth so that guests would not suspect the chalet’s toxic
atmosphere. [Id. at ¶ 39] However, Merritt refused to participate in cleaning the moldy properties
because of the health hazard to guests and the fraud. [Id. at ¶ 42] In particular, Merritt
complained to Goodwin that a chalet named “High Point” was a health hazard, and Goodwin in
response, instructed her to superficially clean it to prepare for guests. [Id. at ¶ 40] She also told
the Front Desk Team Leader, Cheryl Ryan, that someone should report Mountain Laurel to the
Health Department; Ryan repeated this to Goodwin or Corey Hawks. [Id. at ¶ 41]
Olivas likewise protested, telling Mountain Laurel management that they were “playing
with Russian roulette” by continuing to rent the affected chalets; and that he believed guests
could become seriously ill from staying in one of them. [Id. at ¶ 46] Moreover, when he, upon
request, identified the chalets with severe toxic mold infestation, he was told to continue renting
one of the chalets because of the significant revenue derived from it. [Id. at ¶ 43] Finally, shortly
before his termination, Olivas refused to sign Tennessee Department of Labor and Workforce
4
Development paperwork regarding the termination of a fellow employee. [Id. at ¶ 47] While this
employee was terminated for a DUI arrest and for substance abuse issues, Mountain Laurel
wanted him to sign paperwork stating that the employee’s termination was due to a lay-off. [Id.]
Around October 24, 2013, Olivas was discharged, the reason provided being that he
engaged in prohibited conduct, was insubordinate, and shared confidential information. [Id. at ¶
53] He refused to sign a release which would provide him with two weeks’ severance pay. [Id.]
Approximately one day later, Merritt’s employment was terminated. [Id. at ¶ 54] She was told it
was due to a “violation of company rules – insubordination,” and she refused to sign a release in
return for three weeks’ severance pay. [Id.] PEMCO provided, and Goodwin signed, Plaintiff’s
“Employee Separation Notices.” [Id. at ¶ 19]
Distinct from the above, Olivas avers that, during the first several months of his
employment, he was paid on an hourly basis and frequently worked more than forty hours per
week but, despite this, he was never paid overtime. [Id. at ¶¶ 49–50] However, after accruing a
considerable amount of unpaid overtime, Defendants switched him to salaried employee status to
avoid paying future overtime. [Id. at ¶ 51]
II. Standard of Review
Defendants have moved for dismissal of Plaintiff’s Third Amended Complaint pursuant
to Federal Rule of Civil Procedure 12(b)(6), alleging that Plaintiff has failed to “state a claim
upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). When determining the sufficiency of
the complaint against a motion to dismiss under this Rule, the court must accept as true all facts
alleged in the complaint. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). However,
5
the court is not required to accept as true any proffered legal conclusions. Id. (quoting Papasan
v. Allain, 478 U.S. 265, 286 (1986)).
A motion to dismiss under Rule 12(b)(6) must be denied where the plaintiff “pleads
factual content that allows the court to draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Conversely, dismissal
under this Rule “is proper when there is no set of facts that would allow the plaintiff to recover.”
Carter v. Cornwell, 983 F.2d 52, 54, rehearing denied (6th Cir. 1993); see also Mezibov v. Allen,
411 F.3d 712, 716 (6th Cir. 2005) (“To survive a motion to dismiss under Rule 12(b)(6), a
complaint must contain either direct or inferential allegations respecting all the material elements
to sustain a recovery under some viable legal theory.”).
III. Discussion
A. Under Plaintiffs’ Federal Claims, PEMCO Was a Joint Employer and RSC Was
Neither a Joint Employer nor Integrated Entity with Mountain Laurel
1. Darden Analysis
a. Darden Applies Only Against PEMCO
Defendants first argue that Plaintiffs have insufficiently alleged that PEMCO and RSC were
their joint employers with Mountain Laurel. At the federal level, “absent a clear statutory
definition, employer status is generally determined based on a variety of factors.” Harris v.
Quinn, 134 S. Ct. 2618, 2638 n.20 (2014). In this Circuit, those factors were pronounced in
Nationwide Mutual Insurance Co. v. Darden, 503 U.S. 318 (1992). The court in Johnson v. City
of Saline, 151 F.3d 564, 568 (6th Cir. 1998) clearly established this, finding that Darden:
stands for the proposition that when a statute has left a term
undefined, has left no hint in the legislative history of its intended
meaning for the term, and the term has ‘accumulated settled
6
meaning’ under the common law, there is a presumption that
Congress meant to incorporate the common-law definition into the
statute.
(citing Darden, 503 U.S. at 322); see also id. (noting that Darden is “a rule of general
applicability”). Nowhere in the FCA or even in Title 31 of the United States Code is “employer”
defined, nor does the legislative history provide any guidance. Accordingly, because “employer”
has an immense history and settled meaning in the common law, Darden applies.
However, in Demski v. United States Department of Labor, 419 F.3d 488 (6th Cir. 2005), the
Sixth Circuit circumscribed Darden’s applicability by pronouncing a preliminary analytical step:
The court must first establish that the alleged employee was in fact a “hired party,” that is, that a
contractual relationship existed between the alleged employee and employer. Id. at 492.
Plaintiffs aver sufficient facts to find that they were hired parties of PEMCO. According to
the Third Amended Complaint, PEMCO’s name appeared on the paychecks, [D. 28 at ¶ 16] the
employee handbooks, [Id. at ¶ 18] and their termination notices. [Id. at ¶ 19] These allegations
are supplemented by the statutory rights which PEMCO had over plaintiffs and the statutory
obligations it owed to Plaintiffs. Under Tennessee law, 2 PEMCO was obligated to pay Plaintiffs’
wages regardless of payments from Mountain Laurel to it, TENN. CODE ANN. § 62-43108(a)(1)(B); and it retained the authority to “hire, terminate, discipline and reassign” Plaintiffs.
Id. at § 62-43-108(a)(1)(C). Moreover, these rights and obligations are mandatory in all contracts
which an employee leasing company executes with a client business. Id. at § 62-43-108(a)(1)
2
“A court that is ruling on a Rule 12(b)(6) motion may consider materials in addition to the complaint if such
materials are public records or are otherwise appropriate for the taking of judicial notice.” New England Health
Care Employees Pension Fund v. Ernst & Young, LLP, 336 F.3d 495, 501 (6th Cir. 2003); see also Jones v. City of
Cincinnati, 521 F.3d 555, 562 (6th Cir. 2008) (“A court may consider public records without converting a Rule
12(b)(6) motion into a Rule 56 motion.”). While PEMCO is a corporation chartered in Florida, [D. 28 at ¶ 8] it is
“duly qualified to transact business in the State of Tennessee.” [Id.] PEMCO’s business in this State is therefore
subject to the laws of Tennessee. TENN. CODE ANN. § 48-25-105(b).
7
(“The contract shall . . . provide that the staff leasing company . . . .”). The Court thus finds for
purposes of the federal claims that Plaintiffs were hired parties of PEMCO.
The same cannot be said, however, for RSC: Plaintiffs’ Third Amended Complaint asserts
merely that Mountain Laurel’s General Manager is married to a partner of RSC, [D. 28 at ¶ 15]
and that, for various reasons, RSC was considered a “part of” Mountain Laurel. [Id. at ¶ 21]
Thus, if RSC is a joint employer of Plaintiffs, it is so only by virtue of being an integrated
enterprise with Mountain Laurel, whose employer status has not been challenged. Plaintiffs,
then, do not sufficiently aver the existence of a distinct contractual relationship between RSC
and Plaintiffs, and accordingly, the Court finds that the latter were not hired parties of RSC as it
concerns the federal claims. Cf. Demski, 419 F.3d at 492 (finding no contractual relationship
between petitioner and company where company had contractual relationship with firm in which
petitioner was the sole shareholder).
b. Under the Darden Factors, PEMCO Jointly Employed Plaintiffs with Mountain
Laurel
Darden delineates twelve nonexclusive factors that inform the overarching measure of
whether one is an employer, namely, “the hiring party’s right to control the manner and means
by which the product is accomplished.” Darden, 503 U.S. at 323 (quoting Community for
Creative Non-Violence v. Reid, 490 U.S. 730, 751 (1989)). These factors are:
the skill required; the source of the instrumentalities and tools; the
location of the work; the duration of the relationship between the
parties; whether the hiring party has the right to assign additional
projects to the hired party; the extent of the hired party’s discretion
over when and how long to work; the method of payment; the
hired party’s role in hiring and paying assistants; whether the work
is part of the regular business of the hiring party; whether the
hiring party is in business; the provision of employee benefits; and
the tax treatment of the hired party.
8
Id. at 323–24 (quoting Reid, 490 U.S. at 751–52). When looking at these factors, the Court looks
at “all of the incidents of the relationship . . . with no one factor being decisive.” Id. at 324
(quoting NLRB v. United Insurance Co. of America, 390 U.S. 254, 258 (1968). Yet at the same
time, Darden “defines . . . the employer’s ability to control job performance and employment
opportunities of the aggrieved individual as the most important of many elements to be evaluated
. . . with no one factor being decisive.” Simpson v. Ernst & Young, 100 F.3d 436, 442 (6th Cir.
1996).
i.
The First Darden Factor Suggests that Plaintiffs Were Employees of PEMCO
Under the first factor, the fact that a hired party performs a job requiring much skill suggests
that she is not an employee of the hiring party. Moore v. Lafayette Life Insurance Co., 458 F.3d
416, 440 (6th Cir. 2006). In their Third Amended Complaint, Merritt avers that, at her
termination, she was employed as “Head of Housekeeping/Assistant Supervisor,” [D. 28 at ¶ 13]
while Olivas asserts that his title at termination was “Supervisor of Maintenance, Housekeeping
and Laundry.” [Id. at ¶ 11]
These occupations do not comport with the first Darden factor. Among the occupations that
courts have found to be “skilled” are sculptors, Community for Creative Non-Violence v. Reid,
490 U.S. 730 (1989); musicians, Bartels v. Birmingham, 332 U.S. 126 (1947), superseded on
other grounds by statute, 26 U.S.C. § 3121(d), as recognized in Donovan v. Agnew, 712 F.2d
1509, 1513 (1st Cir. 1983) (citing S. Rep. No. 80-1255, at 1752 (1948), reprinted in 1948
U.S.C.C.A.N. 1752); accountants and bookkeepers, Janette v. American Fidelity Group, Ltd.,
298 F. App’x 467 (6th Cir. 2008); and video editors, Hi-Tech Video Productions, Inc. v. Capital
Cities/ABC, Inc., 58 F.3d 1093 (6th Cir. 1995). More broadly, the Sixth Circuit generally
considers an occupation to be “skilled” when it is within a “highly specialized field” which
9
requires “considerable training, education, and skill.” Weary v. Cochran, 377 F.3d 522, 527 (6th
Cir. 2004) (internal quotation marks omitted); see also Shelter Mutual Insurance Co. v. Jones,
343 F.3d 925, 926 (8th Cir. 2003) (finding hired party to be an employee in part because “only
basic skills were required for [his] job”). Nothing in the Third Amended Complaint permits the
inference that Plaintiffs held “skilled” positions and, therefore, the first Darden factor suggests
that they were employees of PEMCO.
ii.
The Second Darden Factor Suggests that Plaintiffs Were Not Employees of PEMCO
A hired party is less likely to be considered an employee under Darden analysis where the
hiring party does not provide her with the tools necessary for her job. Ware v. United States, 67
F.3d 574, 577 (6th Cir. 1995). The Third Amended Complaint does not claim that PEMCO
provided Plaintiffs with any tools necessary for their jobs. According to Plaintiffs, PEMCO is an
“employee leasing firm” [D. 28 at ¶ 16] which is based in Florida. [Id. at ¶ 8] Accordingly, the
second Darden factor suggests that Plaintiffs were not employees of PEMCO.
iii.
The Third Darden Factor Suggests that Plaintiffs Were Employees of PEMCO
When evaluating the third Darden factor, “the Court is not concerned with the length of the
relationship, but rather, when hired, whether the relationship was one of a long-term at-will
employee or one to complete a particular task in a specified time frame.” Janette, 298 F. App’x
at 474 (quoting Lantz v. United States Postal Service, No. 2:05-cv-207, 2006 WL 2882347, at *3
(6th Cir. Oct. 5, 2006)); see also Bartels, 322 U.S. at 131. That is, hired parties are more likely to
be deemed employees where they “have a permanent working arrangement with the company
under which they may continue as long as their performance is satisfactory.” United Insurance
Co. of America, 390 U.S. at 259.
10
With these considerations in mind, the third Darden factor suggests that PEMCO employed
Plaintiffs. Plaintiffs’ separation notices came on a form it provided, [D. 28 at ¶ 19] implying that
PEMCO terminated Plaintiffs simultaneously with Mountain Laurel. Moreover, the reasons
given for Plaintiffs’ terminations were “insubordination” [Id. at ¶¶ 53–54] and for engaging in
prohibited conduct and sharing confidential information. [Id. at ¶ 53] The fact of Plaintiffs’
termination, combined with the reasons given therefor, can reasonably lead one to conclude that
Plaintiffs had “a permanent working arrangement under which they may continue as long as their
performance is satisfactory.” United Insurance Co. of America, 390 U.S. at 259. It follows, then
that the third Darden factor suggests that PEMCO employed Plaintiffs.
iv.
The Fourth Darden Factor Suggests Plaintiffs Were Employees of PEMCO
Courts are more likely to find hired parties to be employees where the hiring party has the
right to assign additional projects to the hired parties. Demski v. United States Department of
Labor, 419 F.3d 488, 492 (6th Cir. 2005). Under Tennessee law, PEMCO has a statutory right of
“direction and control over leased employees assigned to the client’s location.” TENN. CODE
ANN. § 62-43-108(a)(1)(A). Moreover, this statutory right is mandatory in all contracts which an
employee leasing company executes with a client business. Id. at § 62-43-108(a)(1) (“The
contract shall . . . provide that the staff leasing company . . . .”). Thus, because the right to assign
additional projects to hired parties plainly falls within the power of “direction and control,” the
fourth Darden factor as applied to PEMCO suggests that it employed Plaintiffs.
v.
The Fifth Darden Factor Suggests that Plaintiffs Were Not Employees of PEMCO
If a hired party has discretion over his own working times and hours, that weighs against
finding that he is an employee. United Insurance Co. of America, 390 U.S. at 258; Johnson, 151
F.3d at 569. Stated differently, a hiring party is less likely to be deemed an employer where it
11
does not dictate the hired party’s working times and hours. Shah v. Deaconess Hospital, 355
F.3d 496, 500 (6th Cir. 2004).
It may appear that PEMCO had this authority over Plaintiffs via its statutory right of
direction and control. However, this same provision contains a clause providing that:
the client may retain sufficient direction and control over covered
employees that is necessary to conduct the client’s business and
without which the client would be unable to conduct its business,
discharge any fiduciary responsibility that it may have or comply
with any applicable licensure, regulatory or statutory requirement
of the client.
TENN. CODE ANN. § 62-43-108(a)(1)(A). Dictating a hired party’s working hours and times
appears to fall well within this clause, and accordingly it is unclear whether PEMCO actually had
any such right over Plaintiffs. Furthermore, Plaintiffs’ Third Amended Complaint does not aver
that PEMCO had the power to dictate Plaintiffs’ working times and hours. The fifth Darden
factor thus weighs against finding that Plaintiffs were employees of PEMCO.
vi.
The Sixth Darden Factor Suggests that Plaintiffs were Employees of PEMCO
“As a general matter, lack of a consistent salary supports a conclusion that one is an
independent contractor”—i.e., not an employee. Janette, 298 F. App’x at 475 (citing in part
Department of Labor v. Lauritzen, 835 F.2d 1529, 1542 (7th Cir. 1987)); see also Weary, 377
F.3d at 527. Here, again, statutory rights are informative as to PEMCO: Under Tennessee law, it
“assumes responsibility for the payment of wages of its covered employees . . . without regard to
payments by the client to the leasing company.” TENN. CODE ANN. § 62-43-108(a)(1)(B). And
this obligation is also mandatory. Id. at § 62-43-108(a)(1). The Third Amended Complaint
asserts facts consistent with this obligation: Olivas began his employment as an hourly employee
who appears to have regularly worked approximately forty hours per week, [D. 28 at ¶ 49–50] at
some point became a salaried employee, [Id. at ¶ 51] and was offered severance pay upon
12
termination. [Id. at ¶ 53] With regard to Merritt, the Third Amended Complaint avers that she too
was offered severance pay upon termination. [Id. at ¶ 54] It therefore appears that Plaintiffs
earned a consistent salary, suggesting that they were indeed employees of PEMCO. 3
vii.
The Seventh Darden Factor Suggests that Plaintiffs Were Employees of PEMCO
A hired party is less likely to be deemed an employee where she has the authority to hire and
terminate her own staff. Bartels, 332 U.S. at 132; Johnson, 151 F.3d at 569. Plaintiffs’ Third
Amended Complaint does not claim that they had any hiring or firing authority. Accordingly, the
seventh Darden factor weighs in favor of finding that PEMCO employed Plaintiffs.
viii.
The Eighth Darden Factor Suggests that Plaintiffs Were Not Employees of PEMCO
Under the eighth Darden factor, the fact that a hired party performs “functions that are an
essential part of the company’s normal operations” counsels in favor of finding him to be an
employee of the hiring company. United Insurance Co. of America, 390 U.S. at 259; see also
Moore, 458 F.3d at 440.
PEMCO is an employee leasing firm, [D. 28 at ¶ 16] which provides payroll, workers’
compensation, employee benefits, and human resources services. [Doc. 17, Ex. 1.] 4 Under this
factor, then, Plaintiffs do not appear to have been employees of PEMCO: They did not perform
any of the functions of employee leasing firms, but rather appear to have come under PEMCO’s
ambit by reason of the services that PEMCO provided to Mountain Laurel.
3
When evaluating the sixth Darden factor, courts have emphasized how the employee is paid rather than the source
of the payment. See, e.g., Weary, 377 F.3d at 527 (looking to “the fact that [appellant] was paid solely upon a
commission basis”); Ware, 67 F.3d at 579 (“The district court found that eleven factors favored [appellant’s]
classification as an independent contractor: . . . that [he] was paid almost entirely on commission . . . .”); Wolcott v.
Nationwide Mutual Insurance Co., 884 F.2d 245, 251 (finding appellant not to be an employee in part because “he
was paid on commission”).
4
While, normally, “[i]n determining whether to grant a Rule 12(b)(6) motion, the court primarily considers the
allegations in the complaint, . . . items appearing in the record of the case . . . also may be taken into account.” Amini
v. Oberlin College, 259 F.3d 493, 502 (6th Cir. 2001); see also Rondigo, L.L.C. v. Township of Richmond, 641 F.3d
673, 680–81 (6th Cir. 2011).
13
ix.
The Ninth Darden Factor Suggests that Plaintiffs Were Employees of PEMCO
A hired party is more likely to be deemed an employee when the hiring party is still in
business, because this “increases the possibility that it would employ people.” Marco v. Accent
Publishing Co., Inc., 969 F.2d 1547, 1551 (6th Cir. 1992). PEMCO is still in business, [D. 28 at
¶ 8] and it is thus more likely under this Darden factor that any alleged employees of these firms
are in in fact employees thereof.
x.
The Tenth Darden Factor Suggests that Plaintiffs Were Employees of PEMCO
An employer-employee relationship is more likely to be found where the hiring party
provides benefits to the hired party. United Insurance Co. of America, 390 U.S. at 259; Demski,
419 F.3d at 492. Here, again, Tennessee law is informative: Under TENN. CODE ANN. § 62-43105(a)(1)(B), PEMCO “assumes responsibility for the payment of . . . its employee benefits
without regard to payments by the client to the professional employer organization.” The tenth
Darden factor thus suggests that PEMCO employed Plaintiffs.
xi.
The Eleventh Darden Factor Suggests that Plaintiffs Were Employees of PEMCO
The fact that a hiring party does not pay taxes on the work of the hired party weighs against
finding that the latter is an employee of the former. United Insurance Co. of America, 390 U.S. at
259; Ware, 67 F.3d at 577. But such is not the case here, as PEMCO must “assume[]
responsibility for the payment of . . . its payroll-related taxes . . . without regard to payments by
the client to the professional employment organization.” TENN. CODE ANN. § 62-43105(a)(1)(B). Accordingly, the eleventh Darden factor counsels in favor of finding Plaintiffs to
have been employees of PEMCO.
xii.
The Twelfth Darden Factor Suggests that Plaintiffs Were Not Employees of
PEMCO
14
Under the twelfth Darden factor, a hired party is less likely to be deemed an employee
where she does not work on the hiring party’s premises. United Ins. Co. of America, 390 U.S. at
258; Ware, 67 F.3d at 579. Plaintiffs do not aver that any of the chalets they serviced were
owned by PEMCO, and therefore the twelfth and final Darden factor suggests that PEMCO did
not employ Plaintiffs.
c. Summary
The following Darden factors weigh in favor of finding, for purposes of the imstant motions
to dismiss, that PEMCO employed Plaintiffs: their work was unskilled, a long-term relationship
existed between the parties, PEMCO had the right to assign additional projects to Plaintiffs,
Plaintiffs earned a consistent salary, Plaintiffs had no role in hiring their assistants or
subordinates, PEMCO remains in business, PEMCO provided benefits to Plaintiffs, and PEMCO
paid taxes on Plaintiffs’ work. And the following factors counsel against finding that PEMCO
employed Plaintiffs: it did not provide Plaintiffs’ tools, Plaintiffs did not set their own working
times and hours, Plaintiffs’ work was not a regular part of PEMCO’s business, and Plaintiffs’
work did not occur on PEMCO’s premises.
The Court finds that, on balance, Plaintiffs have averred sufficient factual allegations to
permit a reasonable inference that PEMCO was a joint employer of Plaintiffs. This result
comports with other jurisdictions which have addressed this question. See Blue Lake Rancheria
v. United States, 653 F.3d 1112 (9th Cir. 2011); McLellan v. E.I. DuPont de Nemours & Co.,
Inc., No. 04-cv-314, 2006 WL 3751583 (W.D.N.Y. Dec. 19, 2006); Kopalaw & Girisgen v.
Payroll Solutions, No. 2:06-cv-487-RCJ-(GWF), 2006 WL 2583226 (D. Nev. Sept. 6, 2006);
Castiglione v. United States Life Insurance Co. in City of New York, 262 F. Supp. 2d 1025 (D.
Ariz. 2003).
15
2. RSC and Mountain Laurel Were Not Integrated Enterprises Under Federal Law 5
While the Court does not find that RSC was a joint employer of Plaintiffs under Darden
analysis, Plaintiffs raise the alternative argument that RSC and Mountain Laurel are a single
employer, or integrated enterprise. [D. 24 at 5–6; D. 25 at 5–6] Integrated enterprise analysis in
the Sixth Circuit follows the four-factor test of York v. Tenessee Crushed Stone Ass’n, 684 F.2d
360 (6th Cir. 1982) (adopting the test from Radio & Television Broadcast Technicians Local
Union 1264 v. Broadcast Service of Mobile, Inc., 380 U.S. 255 (1965)). While no circuit has
adopted the Radio Technicians test in the False Claims Act context, the Sixth Circuit has applied
it to many disparate federal questions. See Demyanovich v. Cadon Plating & Coatings, L.L.C.,
747 F.3d 419 (6th Cir. 2014) (FMLA); NLRB v. Palmer Donavin Manufacturing Co., 369 F.3d
954 (6th Cir. 2004) (NLRA); Swallows v. Barnes & Noble Book Stores, Inc., 128 F.3d 990 (6th
Cir. 1997) (ADEA and ADA); Satterfield v. Tennessee, 295 F.3d 611 (6th Cir. 2002)
(Rehabilitation Act); see also Overland Transportation System, Inc. v. NLRB, 187 F.3d 637 (6th
Cir. 1999) (unpublished) (stating broadly that “[n]ominally separate business entities will be
considered a single employer when they comprise an integrated enterprise”). Moreover, other
jurisdictions have applied integrated enterprise analysis to actions arising under the False Claims
Act. See Riddle v. DynCorp International, Inc., 733 F. Supp. 2d 743 (N.D. Tex. 2010), rev’d on
other grounds, 666 F.3d 940 (5th Cir. 2012); United States ex rel. Hefner v. Hackensack
University Medical Center, No. Civ.A. 01cv4078DMC, 2005 WL 3542471 (D.N.J. Dec. 23,
2005). Finally, the Western District of Kentucky in Thompson v. Quorum Health Resources,
5
Although Plaintiffs couch their integrated-entity argument within their joint-employer argument, the two are
distinct. While joint-employer analysis addresses whether “one employer while contracting in good faith with an
otherwise independent company, has retained for itself sufficient control of the terms and conditions of employment
of the employees who are employed by the other employer,” integrated-entity, or single-employer, analysis concerns
whether “two nominally independent entities are so interrelated that they actually constitute a single integrated
enterprise.” Swallows, 128 F.3d at 993 n.4 (quoting NLRB v. Browning-Ferris Industries of Pennsylvania, Inc., 691
F.2d 1117, 1123 (3d Cir. 1982)).
16
LLC, No. 1:06-cv-168-R, 2007 WL 2815972 (W.D. Ky. Sept. 27, 2007), applied the Radio
Technicians test within the False Claims Act context. We therefore do not hesitate to apply it
here.
Under the Radio Technicians test, two companies may be considered an integrated enterprise
based upon a balancing of the following factors: (1) interrelation of operations; (2) common
management, directors, and boards; (3) centralized control of labor relations and personnel; and
(4) common ownership and financial control. Swallows, 128 F.3d at 993–94. In determining the
balance, “[n]one of these factors is conclusive, and all four need not be met in every case.” Id. at
994.
In their Third Amended Complaint, Plaintiffs proffer two allegations informing our
integrated enterprise analysis: The general manager of Mountain Laurel is married to one of the
partners of RSC [D. 28 at ¶ 15]; and RSC, uniquely, was not charged labor costs for Mountain
Laurel’s services. [Id. at ¶ 21] The first allegation corresponds to none of the four factors. Cf.
Teamsters Local Union No. 89 v. Kroger Co., 921 F. Supp. 2d 733, 743 n.8 (W.D. Ky. 2013)
(refusing to apply toward the first factor the fact that several of defendant’s ex-employees
retained their email IDs and access to defendant’s computers). Meanwhile, the second allegation
correlates with either the first or fourth factor. That is, Plaintiffs aver only one factual allegation
to support their integrated enterprise claim, and that allegation may go to at most two of the
factors.
However, this lone factual allegation is not even that substantial. First, this alleged free labor
carries little weight as to the first factor of the Radio Technicians test: Courts determining
interrelation of operations normally look for the existence of “common offices, common record
keeping, shared bank accounts and equipment.” York, 684 F.2d at 362; see also Swallows, 128
17
F.3d at 994. The alleged agreement between RSC and Mountain Laurel is hardly probative of
any of these considerations.
Second, as the Sixth Circuit pronounced in York, the fourth factor—common ownership and
control—actually concerns whether any of the companies comprising the alleged integrated
enterprise is a sham. 684 F.2d at 363; see also EEOC v. Wooster Brush Co. Employees Relief
Ass’n, 727 F.2d 566, 572 (6th Cir. 1984) (“If neither of the entities is a sham then the fourth test
is not met.”). While it is relevant for analysis of the fourth factor that RSC was not charged for
labor undertaken by Mountain Laurel’s employees, this fact alone cannot support a finding of
common ownership and control, and accordingly Plaintiffs have failed to sufficiently aver the
existence of any of the factors under the Radio Technicians test..
Nor do we find convincing Plaintiffs’ claim that they “will need the discovery process to
explore” the existence of an integrated enterprise. [D. 24 at 6; D. 25 at 6] The Sixth Circuit in
Estate of Barney v. PNC Bank, N.A., 714 F.3d 920 (6th Cir. 2013) said it best: “Discovery would
have allowed [plaintiffs] to determine if this sheer possibility could have been an actuality. But
under Iqbal, a complaint cannot survive a motion to dismiss—and plaintiffs cannot get
discovery—unless the complaint shows that the defendant’s wrongdoing is plausible, not just
possible.” Id. at 929. Plaintiffs have not shown this as to RSC.
Accordingly, the Court finds that RSC is not an integrated entity with Mountain Laurel and,
thus, was never an employer of Plaintiffs. Plaintiffs’ FCA claims and Olivas’s Fair Labor
Standards Act claim against RSC are hereby DISMISSED, with prejudice.
B. Under Plaintiffs’ State Law Claims, Neither PEMCO nor RSC Employed Plaintiffs
18
In addition to their federal claims, Plaintiffs jointly assert violations of the Tennessee Public
Protection Act, the Tennessee Lawful Employment Act, and Tennessee common law. [D. 28 at ¶
1] Defendants again move to dismiss on the basis that PEMCO and RSC are not joint employers
with Mountain Laurel. [D. 17 at 5–9; D. 19 at 5–9] While Plaintiffs’ federal-law claims fall
under Darden analysis, the Erie doctrine dictates that Plaintiffs’ state-law claims follow an
independent line of reasoning. Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938).
I. Neither PEMCO nor RSC Directly Employed Plaintiffs
Tennessee law on multiple employers conforms to the Restatement (Second) of Agency §
226, which states that “[a] person may be the servant of two masters, not joint employers, at one
time as one act, if the service to one does not involve abandonment of the service to the other.”
See also White v. Revco Discount Drug Centers, Inc., 33 S.W.3d 713, 724 (Tenn. 2000).
Moreover, “[t]wo parties ‘may agree to employ a servant together or to share the services of the
servant. If there is one agreement with both of [the parties], the actor is the servant of both
[when] the servant is subject to joint control.’” Johnson v. LeBonheur Children’s Medical
Center, 74 S.W.3d 338, 344 (Tenn. 2002) (quoting Restatement (Second) of Agency § 226 cmt.
b).
Plaintiffs have sufficiently averred that they were able to simultaneously serve all three
Defendants. Plaintiffs worked as maintenance and housekeeping supervisors, [D. 28 at ¶¶ 11, 13]
and in that capacity serviced RSC-owned chalets, [Id. at ¶¶ 20–21] while PEMCO performed
Mountain Laurel’s various employee leasing needs as they applied to Plaintiffs. [Id. at ¶ 16; Doc.
17, Ex. 1] Thus Plaintiffs may have been servants of all three Defendants. To determine whether
they were in fact servants, we must next consider whether Plaintiffs have proffered sufficient
19
factual allegations showing a master-servant relationship between each Plaintiff and each of
PEMCO and RSC.
In order to determine whether an agency—here, master-servant—relationship exists between
two parties, Tennessee courts look to “the right to control the agent’s actions, and, ultimately, the
fact of actual control over the agent.” Gordon v. Greenview Hospital, Inc., 300 S.W.3d 635, 653
(Tenn. 2009) (citation omitted). “The focus of this inquiry . . . is placed upon the actions and
consent of the principal, rather than upon the agent’s actions or the willingness of the agent to
perform those actions.” White, 33 S.W.3d at 723. And what ultimately matters is the principal’s
“control of the means and method” of the agent’s work. McDonald v. Dunn Construction Co.,
185 S.W.2d 517, 520 (Tenn 1945); see also Texas Co. v. Bryant, 152 S.W.2d 627, 631 (Tenn.
1941) (“The right to control the results does not establish the master and servant relationship, but
the right to control the means and methods does.”). Thus, what matters is whether PEMCO and
RSC each retained a right to control the means and methods of Plaintiffs’ work. Accord Bush
Bros. & Co. v. Hickey, 223 F.2d 425, 426 (6th Cir. 1955) (applying Tennessee law); Lindsey v.
Trinity Communications, Inc., 275 S.W.3d 411, 419 (Tenn. 2009); Youngblood v. Wall, 815
S.W.2d 512, 517 (Tenn. 1991) (citing Bush Bros).
Applying the Tennessee standard to the requirements of Federal Rule of Civil Procedure
12(b)(6), the Court is guided by the decisions of other jurisdictions applying the same standard in
the same context. Under California law, “[t]he key factor to consider in analyzing whether an
entity is an employer is the right to control and direct the activities of the person rendering
service, or the manner and method in which the work is performed.” Doe I v. Wal-Mart Stores,
Inc., 572 F.3d 677, 682 (6th Cir. 2009) (internal quotation marks omitted). Applying this test, the
court in Smith v. Worldlink Inc., 2009 WL 2365966 (C.D. Cal. July 30, 2009), denied a
20
defendant’s Rule 12(b)(6) motion on the issue of whether it had employed the plaintiff. Id. at *4.
In reaching this conclusion the court found that, while the defendant had no say in the plaintiff’s
compensation, it employed the plaintiff’s supervisor, who had the authority to dictate the
plaintiff’s deadlines and to discipline him. Id.
Conversely, the court in Orosa v. Therakos, Inc., 2011 WL 3667485 (N.D. Cal. Aug. 22,
2011), found that the plaintiff had failed to sufficiently allege that the defendant had employed
her. Id. at *6. The court based its holding on the grounds that, while the defendant had the power
to hire, transfer, and terminate the plaintiff, paid nearly all of her benefits and business expenses,
and had long treated her as its employee, the plaintiff nevertheless failed to establish that the
defendant had any day-to-day control over the “manner and method” in which she performed her
work. Id. at *5.
As to PEMCO, Plaintiffs aver nothing to suggest that it controlled the “means and method”
of their work. McDonald, 185 S.W.2d at 520. The strongest support for this claim lies in its
statutory right of “direction and control”; however, this authority may be illusory in fact, and
Plaintiffs do not claim that PEMCO actually retained this right of control. See supra pp. 11–12.
Indeed, Plaintiffs state that “[t]he day-to-day supervision of Plaintiffs was done by Mountain
Laurel management.” [D. 28 at ¶ 17] PEMCO, therefore, never employed Plaintiffs under
Tennessee law, and accordingly their state-law claims against it are hereby DISMISSED, with
prejudice.
Plaintiffs allege even less against RSC, solely claiming that they “were required to perform
work for RSC as part of their employment duties.” (Id. at ¶ 21.) While this statement alone may
leave open the possibility that RSC was the party directly requiring such work, Plaintiffs
foreclose this interpretation when they state that Mountain Laurel conducted their day-to-day
21
supervision. (Id. at ¶ 17.). Thus, for purposes of Plaintiffs’ state law claims, RSC did not per se
employ Plaintiffs.
II.
RSC and Mountain Laurel Were Not a Tennessee Partnership
As with their federal claims, Plaintiffs raise the alternative argument that RSC employed
Plaintiffs by virtue of being an integrated entity with Mountain Laurel. [D. 24 at 5–6; D. 25 at 5–
6] However, more precisely, Plaintiffs appear to be raising an argument within the purview of
partnership law—specifically, that Mountain Laurel and RSC are actually a single entity quasipartnership.
“Whether a partnership exists in a given case depends upon applicable state law.” Matter of
Special Grand Jury No. 1, Impanelled December, 1977 Term, 465 F. Supp. 800, 805 (D. Md.
1978) (citing Bellis v. United States, 417 U.S. 85, 96–97 (1974)). In Tennessee, the applicable
law is TENN. CODE ANN. § 61-1-101 et seq., Tennessee’s Revised Uniform Partnership Act.
Under section 101(11), the term “person” as used in the Act includes general partnerships, of
which RSC is one, [D. 28 at ¶ 7] and corporations, such as Mountain Laurel. (Id. at ¶ 6.) This
alleged partnership is thus possible under Tennessee partnership law.
The Act plainly provides that, with some exceptions, “the association of two (2) or more
persons to carry on as co-owners of a business for profit forms a partnership, whether or not the
persons intend to form a partnership.” TENN. CODE ANN. § 61-1-202(a). The court in Bass v.
Bass, 814 S.W.2d 38 (Tenn. 1991) summarized the relevant facts which Tennessee courts use to
determine whether there is the requisite association:
Although a contract of partnership, either express or implied, is
essential to the creation of partnership status, it is not essential that
the parties actually intend to become partners. The existence of a
partnership is not a question of the parties’ undisclosed intention or
even the terminology they use to describe their relationship, nor is
it necessary that the parties have an understanding of the legal
22
effect of their acts. It is the intent to do the things which constitute
a partnership that determines whether individuals are partners,
regardless if it is their purpose to create or avoid the relationship.
Id. at 41 (citations omitted). Or, stated even more succinctly, “the existence of a partnership may
be implied from the circumstances where it appears that the individuals involved have entered
into a business relationship for profit, combining their property, labor, skill, experience, or
money.” Id; see also Derickson v. United States Department of Agriculture, 546 F.3d 335, 341
(6th Cir. 2008) (applying the Act).
The factual bases of Plaintiffs’ partnership argument are that the general manager of
Mountain Laurel and a partner of RSC are married, [D. 28 at ¶ 15] and that Mountain Laurel,
unlike any of its other clients, did not charge RSC for its labor. [Id. at ¶ 21] Plaintiffs have not
alleged any facts permitting a reasonable inference that RSC and Mountain Laurel were engaged
in an enterprise for the purpose of profit. Where plaintiffs have failed to do so, courts applying a
state’s version of the Act have universally granted defendants’ Rule 12(b)(6) motions. See UBI
Telecom, Inc. v. KDDI America, Inc., 2014 WL 2965705 (D.N.J. June 30, 2014); Lyon Financial
Services, Inc. v. Illinois Paper & Copier Co., 2011 WL 1740132 (N.D. Ill. May 4, 2011)
(applying identical Illinois and Minnesota law); Starnes Family Office, LLC v. McCullar, 765 F.
Supp. 2d 1036 (W.D. Tenn. 2011); Slaby v. Fairbridge, 3 F. Supp. 2d 22 (D.D.C. 1998); cf.
Building 11 Investors LLC v. City of Seattle, 912 F. Supp. 2d 972 (W.D. Wash. 2012) (granting
defendant’s Rule 12(c) motion in part because plaintiff insufficiently alleged existence of
partnership); Bradbury Co., Inc. v. Teissier-duCros, 2004 WL 3059542 (D. Kan. Dec. 29, 2004)
(rejecting plaintiff’s motion to join parties on basis that parties were as a matter of law not in a
partnership with defendant).
Conversely, courts in this context have generally denied Rule 12(b)(6) motions where the
plaintiff has proffered factual allegations of a profit motive. See Reilly v. Meffe, 6 F.Supp.3d 760
23
(S.D. Ohio Mar. 19, 2014) (court can properly find a partnership exists from evidence that there
has been a sharing of net profits); Robertson v. Mauro, 2013 WL 3293069 (D. Idaho June 28,
2013); Cressy v. Proctor, 2013 WL 1431052 (D. Vt. Apr. 9, 2013); Kibec v. Balog, 2012 WL
2529202, at *5 (D. Or. May 29, 2012) (denying Rule 12(b)(6) motion because plaintiff alleged
he contributed money to a business intended to generate profits); Khader v. Hadi Enterprises,
2010 WL 5300876 (E.D. Va. Dec. 22, 2010). Accordingly, Plaintiffs have failed to aver that
RSC and Mountain Laurel were engaged in a business relationship for profit, and their state-law
claims against RSC are DISMISSED, with prejudice.
C. Plaintiffs’ Third Amended Complaint States a Plausible FCA Claim
Under the FCA’s retaliatory firing provision, “[a]ny employee . . . shall be entitled to all
relief necessary to make that employee . . . whole, if that employee . . . is discharged . . . because
of lawful acts done by the employee . . . in furtherance of an action under this section or other
efforts to stop one or more violations of this subchapter.” 31 U.S.C. § 3730(h)(1). In order to
prove retaliatory discharge under this section, a plaintiff must show: “(1) he engaged in a
protected activity; (2) his employer knew that he engaged in the protected activity; and (3) his
employer discharged or otherwise discriminated against the employee as a result of the protected
activity.” Yuhasz v. Brush Wellman, Inc., 341 F.3d 559, 566 (6th Cir. 2003) (citing McKenzie v.
BellSouth Telecommunications, Inc., 219 F.3d 508, 513–14 (6th Cir. 2000) (McKenzie II)).
“Protected activity” consists of those “lawful acts done by the employee . . . in furtherance of an
action” under the False Claims Act. United States ex rel. Marlar v. BWXT Y-12, L.L.C., 525 F.3d
439, 449 (6th Cir. 2008). Defendants argue that Plaintiffs have insufficiently alleged the first two
elements. [D. 17 at 9–12; D. 19 at 9–12]
24
I. Plaintiffs Have Sufficiently Alleged They Engaged in Protected Activity
In this Circuit, “in furtherance of,” or “protected,” activity, is that which “relate[s] to
exposing fraud or involvement with a false claims disclosure.” McKenzie II, 219 F.3d at 516
(internal quotation marks omitted). At the same time, however, an employee “need not expressly
know that the FCA allows qui tam actions to be filed against their employer, or have already
filed such an action to be protected from retaliation under § 3730(h).” Id. And neither must an
employee “use formal words of ‘illegality’ or ‘fraud.’” Id. Rather, an employee “must
sufficiently allege activity with a nexus to a qui tam action, or fraud against the United States
government.” Id.
Notably for the instant context, “internal reporting may constitute protected activity,”
although “the internal reports must allege fraud on the government.” Id. This requires that such
reports to be outside the employee’s scope of employment, that they do more than simply urge
compliance with applicable regulations, and that they rise to a level beyond “merely reporting
wrongdoing to supervisors.” Id. at 516–17.
The Sixth Circuit in United States ex rel. Marlar v. BWXT Y-12, L.L.C., 525 F.3d 439 (6th
Cir. 2008), held that the plaintiff’s conduct constituted protected activity where she had objected
to her superiors regarding the defendant-employer’s medical-record inaccuracies and, crucially,
wrote to its president and general manager stating her refusal to participate in illegal activities
and the nature of these illegal activities. Id. at 449. The court found this to constitute protected
activity because “[plaintiff’s] allegations, if true, would mean that BWXT had defrauded the
United States government, and [plaintiff] made it clear that she understood that.”
By this measure, Olivas has alleged protected activity: He informed management of
Mountain Laurel that he “would not take such risks as falsely paying an undocumented worker”
25
and “protested the employment of Gomez as an illegality.” [D. 28 at ¶ 30]. If true, such conduct
would constitute fraud upon the United State government, and Olivas’s mention of “risks” shows
that he was aware of this.
The court likewise finds that Merritt sufficiently averred protected activity by telling her
supervisor that “it was wrong of Mountain Laurel to hire an undocumented worker,” [Id. at ¶ 31],
and—crucially—reporting her concerns to the IRS. [Id. at ¶ 36]. While “wrong” may be
construed in myriad ways in the instant context, the fact that Merritt reported her concerns to the
IRS strongly suggests that she considered it illegal for Mountain Laurel to employ an
undocumented worker. 6 Her allegations thus, if true, would amount to fraud against the United
States government, and her understanding of that is clear. Plaintiffs therefore sufficiently plead
the first element of their FCA retaliation claim. See also United States ex rel. Howard v.
Lockheed Martin Corp., 499 F. Supp. 2d 972, 983 (S.D. Ohio 2007) (rejecting a 12(b)(6) motion
where plaintiffs alleged that they had complained to supervisors about improper billing to the
Government and on Government contracts).
II. Plaintiffs Have Sufficiently Averred that Defendants Were on Notice of a Possible
Qui Tam Action
To satisfy the notice element of a § 3730(h)(1) action, the employee “must supply sufficient
facts from which a reasonable jury could conclude that the employee was discharged because of
activities which gave the employer reason to believe that the employee was contemplating a qui
tam action against it.” United States ex rel. McKenzie v. BellSouth Telecommunications, Inc.,
123 F.3d 935, 944 (6th Cir. 1997) (McKenzie I) (quoting Mikes v. Strauss, 889 F. Supp. 746, 753
(S.D.N.Y. 1995)). However, at the motion to dismiss stage, the burden is significantly lighter:
6
This construction is bolstered by the rule that, when evaluating a complaint in light of a Rule 12(b)(6) motion, it “is
construed in the light most favorable to the plaintiff, and we accept the complaint’s allegations as true, drawing all
reasonable inferences in favor of the plaintiff.” Crugher v.Prelesnik, 761 F.3d 610, 613 (6th Cir. 2014). The same
applies to Olivas’s concern about the “risks” of employing Gomez.
26
The plaintiff must only “allege activities that would have given the defendant reason to believe
that she was contemplating a qui tam action.” Marlar, 525 F.3d at 449 (internal quotation marks
omitted). A complaint alleging retaliatory firing under § 3730(h)(1) will satisfy this burden—
and, indeed, will survive a Rule 12(b)(6) motion—where a plaintiff “alleges that she observed
purportedly fraudulent activity, she confronted her employer about it, and her employer fired her
because of it.” Id. at 449–50 (quoting Mikes, 889 F. Supp. at 752–53). As noted above, Plaintiffs
have sufficiently alleged the first two requirements and the third is not contested here.
Accordingly, Plaintiffs have sufficiently averred retaliatory discharge in violation of the False
Claims Act.
IV. Conclusion
For the reasons state herein, Defendants’ motions to dismiss [R. 16, 18] are GRANTED in
part and DENIED in part as follows:
1. Defendants’ motions to dismiss plaintiffs’ claims brought against PEMCO under the Fair
Labor Standards Act and the False Claims Act are DENIED; the motions are GRANTED as to
the state law claims brought against PEMCO for violation of the Tennessee Public Protection
Act, the Tennessee Lawful Employment Act, and the Tennessee common law. Accordingly,
these state law claims against PEMCO are DISMISSED, with prejudice.
2. Defendants’ motions to dismiss all federal and state law claims brought against RSC are
GRANTED. Accordingly, all claims against RSC are DISMISSED, with prejudice; and RSC
is DISMISSED as a defendant in this action.
3. Defendants’ motions to dismiss Plaintiffs’ federal and/or state law claims brought against
Mountain Laurel Chalets, Inc., are DENIED.
27
IT IS SO ORDERED.
____________________________________
UNITED STATES DISTRICT JUDGE
28
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