Lopez v. Genter's Detailing Inc et al
Filing
128
Memorandum Opinion and Order granting 122 Renewed MOTION for Judgment as a Matter of Law; denying as moot 123 MOTION for Judgment on Jury Verdict. Within ten days of this date, counsel for the plaintiffs shall submit a proposed form of judgment in conformity with this memorandum opinion and order. (Ordered by Senior Judge A. Joe Fish on 11/21/2011) (ykp)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
JOSE LOPEZ, individually and on behalf
of all others similarly situated, ET AL.,
Plaintiffs,
VS.
GENTER’S DETAILING, INC.
d/b/a GENTER’S AUTO DETAILING
INC., ET AL.,
Defendants.
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CIVIL ACTION NO.
3:09-CV-0553-G
MEMORANDUM OPINION AND ORDER
Before the court are the plaintiffs’ motions for judgment as a matter of law and
entry of judgment on the jury verdict (docket entries 122, 123). For the reasons set
forth below, the motion for judgment as a matter of law is granted, and the motion
for entry of judgment on the jury verdict is denied.
I. BACKGROUND
A. Factual Background
This case involves a dispute concerning overtime pay under the Fair Labor
Standards Act, 29 U.S.C. § 201, et seq. (“FLSA”). The plaintiffs, Victor Manuel Ayala
(“Ayala”), Jose Cabrera (“Cabrera”), Angel Estefes (“Estefes”), Miguel Llanas
(“Llanas”), Martin Lona (“Lona”), and Jose Lopez (“Lopez”), were workers who
provided “make ready services at car dealerships.” Plaintiff’s Second Amended
Complaint (“Complaint”) ¶ 19 (docket entry 22). The defendants, Genter’s
Detailing, Inc. (“Genter’s Detailing”) and Roger Genter (“Genter”), employed the
plaintiffs. Id.
While working at Genter’s Detailing, the plaintiffs were paid at a fixed hourly
rate for all hours worked. Id. That is, the plaintiffs were paid at the same rate for
both regular time hours (40 hours per week and fewer) and overtime hours (more
than 40 hours per week). See id. This rate was shown on the plaintiffs’ paycheck
stubs. See Plaintiffs’ Renewed Motion for Judgment as a Matter of Law, and Brief in
Support (“Plaintiffs’ JMOL Motion”) at 4 (docket entry 122). The parties stipulated
before trial the number of overtime hours worked, as well as the rates of pay shown
on the plaintiffs’ paycheck stubs. Supplemental Stipulations of the Parties
(“Stipulations”) at 1-15 (docket entry 116).
In this case, the parties dispute whether the defendants owe the plaintiffs for
unpaid overtime work. The plaintiffs argue that they deserve time and one-half pay
(based on the rates of pay shown on the pay stubs) for every overtime hour they
worked. Complaint ¶ 20. However, the defendants argue that the rate of pay
reflected on the pay stubs was a “blended rate” that incorporated both overtime and
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regular time rates into a single rate. Defendants’ Response to Plaintiffs’ Renewed
Motion for Judgment as a Matter of Law, and Brief in Support (“Defendants’ JMOL
Response”) at 2 (docket entry 125). The defendants maintained that the blended
rate was based on 96 hours for each two-week pay period. Id. For example, if a
plaintiff’s paycheck stub listed an hourly rate of $10.00 per hour, the defendants
claimed that the actual regular rate for the plaintiff was $9.23 per hour, and the
actual overtime rate was $13.85 per hour. The defendants urge that this blended rate
adequately paid overtime to employees working 96 hours or less per pay period. Id.
The defendants have admitted, however, that when employees worked more than 96
hours per pay period, even the blended rate did not adequately provide for overtime
pay. Id.
At trial, the defendants produced evidence that, so they argue, shows that the
hourly rate paid to the plaintiffs was in fact a blended rate. Defendants’ Response to
Plaintiffs’ Motion for Entry of Judgment on Jury Verdict, Subject to Plaintiffs’
Renewed Motion for Judgment as a Matter of Law, and Brief in Support
(“Defendants’ Entry of Judgment Response”) at 3 (docket entry 124). First,
defendants offered evidence that Genter previously owned a company that used the
blended rate, and that this practice was confirmed by two certified public accountants
(“CPA”). Id. Second, the parties stipulated that Genter’s former company paid its
employees time and one-half for overtime. Id. Third, Duane Fangman, a CPA,
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testified at trial that the defendants “retained him as a CPA and in August 2007 he
calculated the blended rates and provided the regular rate and overtime rate” to the
defendants. Id. Fangman also testified that the “blended rates provided by [the
defendants] mathematically include both the regular rate and overtime rate when an
employee works 96 hours.” Id. Finally, Genter stated that “[i]n over [thirty] years of
owning and operating his companies, [Genter] never received any complaints
regarding overtime until this lawsuit.” Id.
B. Procedural Background
The court called this case to trial on October 11, 2011. Plaintiffs’ JMOL
Motion at 1. After the defendants rested, but before the case was submitted to the
jury, the plaintiffs timely moved for judgment as a matter of law under FEDERAL RULE
OF CIVIL PROCEDURE
50(a). Id. This court denied the motion. Id.
On October 14, 2011, this case was submitted to the jury. Id. On the same
day, the jury returned a verdict for the plaintiffs on the issue of liability. Verdict at
32 (docket entry 121). The jury awarded damages to the plaintiffs, but in a lesser
amount than the plaintiffs had requested.* Plaintiffs’ JMOL Motion at 1. In that
verdict, “it appears the jury paid [the plaintiffs] only for hours over 96 hours in a pay
period.” Defendants’ JMOL Response at 2.
*
The jury awarded the following damages to the plaintiffs: Ayala: $182;
Cabrera: $1747; Estefes: $2012; Llanas: $246; Lona: $1484; Lopez: $3066.
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After the verdict, the plaintiffs renewed their motion for judgment as a matter
of law under FEDERAL RULE OF CIVIL PROCEDURE 50(b). Plaintiffs’ JMOL Motion at
1. The plaintiffs also have moved for entry of judgment on the jury verdict, subject
to its renewed motion for judgment as a matter of law. Plaintiffs’ Motion for Entry of
Judgment on Jury Verdict, Subject to Plaintiffs’ Renewed Motion for Judgment as a
Matter of Law, and Brief in Support (“Plaintiffs’ Entry of Judgment Motion”) at 1
(docket entry 123).
II. ANALYSIS
A. Motion for Judgment as a Matter of Law
Judgment as a matter of law is proper where “a reasonable jury would not have
a legally sufficient evidentiary basis to find for [a] party on [the] issue.” FEDERAL
RULE OF CIVIL PROCEDURE 50(a)(1). The court must review all of the evidence in the
record and “draw all reasonable inferences in favor of the nonmoving party.” Reeves v.
Sanderson Plumbing Products, Inc., 530 U.S. 133, 150 (2000). Judgment as a matter of
law should be granted only “if the facts and inferences point so strongly and
overwhelmingly in the movant’s favor that reasonable jurors could not reach a
contrary conclusion.” Coffel v. Stryker Corporation, 284 F.3d 625, 630 (5th Cir. 2002).
Therefore, “a jury verdict must be upheld unless there is no legally sufficient
evidentiary basis for a reasonable jury to find as the jury did.” International Insurance
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Company v. RSR Corporation, 426 F.3d 281, 296 (5th Cir. 2005) (internal quotations
omitted).
B. The “Regular Rate” and the FLSA
1. Legal Standard
Under the FLSA, an employer must pay overtime to non-exempt employees
who work more than 40 hours in a week. 29 U.S.C. § 207(a)(1). Overtime is
calculated by multiplying the hours worked by the employee over 40 with “a rate not
less than one and one-half times the regular rate at which he is employed.” Id. The
“regular rate” is the hourly rate an employee receives “[i]f the employee is employed
solely on the basis of a single hourly rate.” 29 C.F.R. § 778.110(a). The “regular
hourly rate of pay of an employee is determined by dividing his total remuneration
for employment . . . in any workweek by the total number of hours actually worked
by him in that workweek for which such compensation was paid.” 29 C.F.R.
§ 778.109. The maximum hours to be used in this calculation is 40 hours. 29 U.S.C.
§ 207(a)(1); see also Verdict at 29 (“The regular rate for a week is determined by
dividing the first 40 hours worked into the total wages paid for those 40 hours.”).
“Once the parties have decided upon the amount of wages and the mode of
payment the determination of the regular rate becomes a matter of mathematical
computation, the result of which is unaffected by any designation of a contrary
‘regular rate’ in the wage contracts.” 29 C.F.R. § 778.108. Moreover, the “regular
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rate of pay cannot be left to a declaration by the parties as to what is to be treated as
the regular rate for an employee; it must be drawn from what happens under the
employment contract.” Id. And in two cases, the Supreme Court has held that an
hourly rate that blended both regular and overtime rates would not satisfy the
requirements of the FLSA. See Walling v. Helmerich & Payne, 323 U.S. 37 (1944);
149 Madison Avenue Corporation v. Asselta, 331 U.S. 199 (1947).
In 149 Madison, the Supreme Court held that the phrase “regular rate” means
“the hourly rate actually paid for the normal, non-overtime workweek.” 331 U.S. at
204. In that case, the defendants proposed a blended rate theory, which involved one
hourly rate that supposedly included overtime and regular time pay. Id. at 205. The
Court looked to whether the blended rate was applied consistently regardless of the
number of hours actually worked in a week, and how the plan worked in operation.
Id. at 205, 207. The Court noted that part-time workers, who worked less than 40
hours a week, were paid a rate similar to the full-time workers, even though the rate
of the full-time workers supposedly included both regular and overtime pay. Id. at
205. Additionally, the employer paid the blended rate, which supposedly included
overtime payments, even when the employee failed to meet overtime requirements.
Id. The Court found that “the payment of ‘overtime’ compensation for non-overtime
work raises strong doubt as to the integrity of the hourly rate upon the basis of which
the ‘overtime’ compensation is calculated.” Id. As a result, the Court held that the
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blended rate system used by the employer failed to satisfy the requirements of the
FLSA. Id. at 210.
Likewise, in Walling, the Court held that the calculation and use of a “fictitious
regular rate consisting of a figure somewhat lower than the rate actually received” did
not comply with the FLSA. 323 U.S. at 41. This rate was not derived “from the
actual hours and wages but from ingenious mathematical manipulations” designed to
prevent compliance with the FLSA. Id. The Court held the use of fictitious regular
rates “would exalt ingenuity over realty and would open the door to insidious
disregard of the rights protected by the [FLSA].” Id. at 42.
2. Application
In this case, it is clear that the “regular rate” paid to the plaintiffs was the rate
listed on their paycheck stubs. This is because it was the rate that the plaintiffs were
paid for the first 40 hours they worked each week. See 29 C.F.R. § 778.109.
Therefore, the defendants were required by the FLSA to pay at least time and onehalf (based on this regular rate) for all overtime hours worked. Because the
defendants failed to pay time and one-half, they are liable to the plaintiffs for all of
the damages requested.
The defendants claim that the rates listed on the plaintiffs’ paycheck stubs are
in fact a blended rate, and that the “regular rate” is a somewhat lower than the
blended rate amount. However, the plaintiffs never paid any amount to any
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employee using the alleged real regular rate. This is true whether the plaintiff worked
significantly more or significantly less than 40 hours per week. At trial, the parties
disputed whether or not the defendants had ever told the plaintiffs that they were
being paid via a blended rate. However, because the FLSA expressly states how to
calculate the regular rate, this factual dispute is irrelevant to the outcome of the case.
Determining the regular rate is a “matter of mathematical computation,” and “cannot
be left to a declaration by the parties.” See 29 C.F.R. § 778.108. Moreover, when
faced with similar situations, the Supreme Court rejected a blended rate scheme to
preserve the rights protected by the FLSA. See Walling, 323 U.S. at 39; 149 Madison
Avenue, 331 U.S. at 199.
It appears that the jury awarded damages to the plaintiffs only when they
worked more than 16 overtime hours in a two-week pay period. See Verdict at 33; see
also Defendants’ JMOL Response at 2. This is erroneous as a matter of law. The
plaintiffs should have been paid overtime for all overtime hours worked. Therefore,
the plaintiffs are entitled to their requested damages.
C. Liquidated Damages
1. Legal Standard
If an employer has violated the FLSA and owes unpaid overtime wages to
employees, the employer “shall be liable . . . in an additional equal amount as
liquidated damages.” 29 U.S.C. § 216. However, the district court has “sound
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discretion not to award liquidated damages if the employer shows (1) ‘that the act or
omission giving rise to such action was in good faith’ and (2) ‘that he had reasonable
grounds for believing that his act or omission was not a violation of the [FLSA].’”
Dalheim v. KDFW-TV, 712 F. Supp. 533, 536 (N.D. Tex. 1989) (Fitzwater, J.)
(quoting 29 U.S.C. § 260). The burden under Section 260 “is a difficult one to meet;
‘double damages are the norm, single damages the exception.’” Id. at 536 (quoting
Barcellona v. Tiffany English Pub, Inc., 597 F.2d 464, 468-69 (5th Cir. 1979)).
In Dalheim, the district court did not award the plaintiff liquidated damages
when the defendant had been previously investigated by the Department of Labor
and had obtained a finding of “no violations” and a “clean bill of health” in regards to
its policies and practices. Id. at 540. When trying to determine whether their
practices were in compliance three years after the DOL investigation, the defendants
in Dalheim “requested the opinion of labor counsel, who devoted extensive research to
the question” before the labor counsel offered a legal opinion that the defendants did
comply. Id. at 539. Additionally, the Dalheim court noted that the issues presented
to the employer were “of first impression that involved an interpretation of agency
regulations promulgated in the infancy of [the industry involved].” Id. at 540.
In addition, employers have an independent obligation to understand their
responsibilities under federal law. In Barcellona, the court made no exception for a
first-time business owner who was simply unaware of his responsibilities. 597 F.2d at
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468. “Even inexperienced businessmen cannot claim good faith when they blindly
operate a business without making any investigation as to their responsibilities under
the labor laws.” Id. at 469.
Finally, the fact that an employer did not receive complaints regarding
overtime does not support an argument of good faith. Martinez v. Food City, Inc., 658
F.2d 369, 376 (5th Cir. 1981).
2. Application
The defendants argue that they have met their burden to establish good faith
and a reasonable belief that they were complying with the FLSA. Defendants Entry
of Judgment Response at 2. In particular, the defendants argue that their experience
with prior businesses, their conversations with three CPAs (including Duane
Fangman), and the lack of complaints the defendants received show that they acted
in good faith and had reasonable grounds for believing that they were in compliance
with the FLSA. Id. at 3. However, this court concludes that the defendants have not
met the heavy burden imposed by Section 260.
First, defendants cannot credibly argue that they acted in good faith when they
admit that the blended rate system was never designed to adequately pay overtime for
hours worked in excess of 96 per pay period. Moreover, while the defendants claim
working over 96 hours in a pay period was “on limited occasions,” this does not seem
to have been the case. Id. For example, Mr. Lopez worked more than 96 hours
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during 45 of the 46 pay periods at issue in his case. Jury Charge at 21-23 (docket
entry 120). And each plaintiff worked more than 96 hours in at least one pay period.
Id. at 9-23.
Second, the defendants’ consultations with certified public accountants were
not enough for the defendants to develop a reasonable belief that they were in
compliance with the FLSA. An employer can fulfil the reasonable belief requirement
in part by relying on a lawyer’s advice, after that lawyer has done extensive research
and analysis. See Dalheim, 712 F. Supp. at 539. However, Genter admitted at trial
that he never consulted an attorney or the Department of Labor, and he never did
any personal research into his obligations under the law. Of the three CPAs whom
the defendant allegedly did consult, only Duane Fangman testified at trial. Plaintiffs’
Reply to Defendants’ Response to Plaintiffs’ Motion for Entry of Judgment on Jury
Verdict, Subject to Plaintiffs’ Renewed Motion for Judgment as a Matter of Law, and
Brief in Support at 2 (docket entry 126). In his testimony, Fangman stated that he
never expressed any opinion as to whether the blended rate scheme was in compliance
with the FLSA or any other law. See Plaintiffs’ Reply to Defendants’ Response to
Plaintiffs’ Motion for Entry of Judgment on Jury Verdict, Subject to Plaintiffs’
Renewed Motion for Judgment as a Matter of Law, and Brief in Support (“Plaintiff’s
Entry of Judgment Reply”) at 3 (docket entry 126) (“Mr. Fangman . . . testified that
he was asked to perform a mechanical computation only; that he was never asked for
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an opinion on the legality of Defendants’ overtime scheme; and that he was unaware
of the purpose of the calculation he did perform.”).
Finally, the fact that allegedly no employee ever complained to the defendants
about their overtime pay practices, either in the defendants’ former or current
businesses, is irrelevant as to the matter of good faith. See Martinez, 658 F.2d at 376.
III. CONCLUSION
For the reasons stated above, the plaintiffs’ motion for judgment as a matter of
law is GRANTED, and the plaintiffs’ motion for entry of judgment on the jury
verdict is DENIED as moot. Within ten days of this date, counsel for the plaintiffs
shall submit a proposed form of judgment in conformity with this memorandum
opinion and order.
SO ORDERED.
November 21, 2011.
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A. JOE FISH
Senior United States District Judge
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