Valdez et al v. Celerity Logistics, Inc. et al

Filing 48

MEMORANDUM OPINION AND ORDER granting 23 MOTION to Dismiss for Failure to State a Claim filed by Celerity Logistics Inc, Celerity Acquisitions Inc., granting 33 MOTION to Dismiss for Failure to State a Claim filed by Beavex Inc., denying MOTION for a more definite statement, and granting plaintiffs leave to replead. (Ordered by Chief Judge Sidney A Fitzwater on 2/26/2014) (Chief Judge Sidney A Fitzwater)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
JESUS ANDRES VALDEZ, et al.,
Plaintiffs,
VS.
CELERITY LOGISTICS, INC., et al.,
Defendants.

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§ Civil Action No. 3:12-CV-4368-D
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MEMORANDUM OPINION
AND ORDER
In this action alleging overtime pay and minimum wage violations and retaliation
under the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 201 et seq., defendants move to
dismiss under Fed. R. Civ. P. 12(b)(6) for failure to state a claim on which relief can be
granted, and one defendant moves under Rule 12(e) for a more definite statement. Among
the questions presented by the motions to dismiss is whether plaintiffs have pleaded a
plausible claim for successor liability. For the reasons that follow, the court grants the
motions to dismiss, grants plaintiffs leave to replead, and denies the motion for more definite
statement.
I
This is an action under the FLSA by plaintiffs Jesus Andres Valdez, Marta Patricia
Castillo, and all others similarly situated against defendants Segue Distribution, Inc.
(“Segue”), Celerity Logistics, Inc. (“CLI”), Celerity Acquisitions, Inc. d/b/a Celerity
Logistics Company (“CAI”), Insperity, Inc. f/k/a Administaff, Inc., BeavEx, Inc.

(“BeavEx”),1 Mike Medley, and Scott Watts. Plaintiffs assert claims for overtime and
minimum wage violations under the FLSA, as well as for successor liability and for
retaliation under the FLSA’s anti-retaliation provision, 29 U.S.C. § 215(a)(3). Pertinent to
the instant motions, plaintiffs allege that BeavEx acquired the assets of CAI, who had
previously acquired the assets of CLI, who had previously acquired the assets of Segue.
Plaintiffs further allege that each successor (BeavEx, CAI, and CLI) “has or had the same
managers / supervisors, business model, employees, equipment and facilities and provides
or provided the same services to the same clientele as its predecessor.” Am. Compl. ¶¶ 29
(CLI), 30 (CAI), 31 (BeavEx). Under plaintiffs’ successor liability theory, BeavEx, as the
successor corporation to CAI, is liable for the liabilities of CAI, who is in turn liable for the
liabilities of CLI, who is in turn liable for the liabilities of Segue.2
CLI and CAI move to dismiss plaintiffs’ successor liability claim, contending that
successor liability does not apply to FLSA claims, and that, even if it does, plaintiffs have
not pleaded a plausible claim for successor liability. By separate motion,3 BeavEx moves to
1

BeavEx asserts that the amended complaint incorrectly identifies BeavEx
Incorporated as “BeavEx, Inc.”
2

In addition to their successor liability claim against CLI, CAI, and BeavEx, plaintiffs
bring claims for overtime and minimum wage violations against all defendants and for
retaliation against BeavEx.
3

CLI and CAI, and BeavEx, are represented by different counsel and have filed
separate motions and briefs. The court will address both Rule 12(b)(6) motions in this
memorandum opinion and order because they raise common issues of law and fact and
plaintiffs’ responses to both motions are substantially similar. The court refers collectively
to CLI, CAI, and BeavEx as “defendants,” and to the parties separately as “CLI,” “CAI,” and
“BeavEx” where the context requires.
-2-

dismiss plaintiffs’ successor liability claim on similar grounds, and it also moves under Rule
12(e) for a more definite statement regarding plaintiffs’ allegations about their employment
with BeavEx.4 Plaintiffs oppose the motions.
II
“In deciding a Rule 12(b)(6) motion to dismiss, the court evaluates the sufficiency of
plaintiffs’ amended complaint by ‘accepting all well-pleaded facts as true, viewing them in
the light most favorable to the plaintiff.’” Bramlett v. Med. Protective Co. of Fort Wayne,
Ind., 855 F.Supp.2d 615, 618 (N.D. Tex. 2012) (Fitzwater, C.J.) (quoting In re Katrina Canal
Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007) (internal quotation marks and alteration
omitted)). To survive a motion to dismiss under Rule 12(b)(6), plaintiffs must plead “enough
facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550
U.S. 544, 570 (2007). “A claim has facial plausibility when 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). “The plausibility
standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer
possibility that a defendant has acted unlawfully.” Id.; see also Twombly, 550 U.S. at 555
(“Factual allegations must be enough to raise a right to relief above the speculative level[.]”).

4

BeavEx moves in the alternative under Rule 12(e) for a more definite statement
concerning plaintiffs’ successor liability claim. Because the court is dismissing this claim,
it does not reach this ground of BeavEx’s motion for a more definite statement. The court
reaches the balance of the Rule 12(e) motion for a more definite statement, however,
concerning plaintiffs’ allegations about their employment with BeavEx. See infra § IV.
-3-

“[W]here the well-pleaded facts do not permit the court to infer more than the mere
possibility of misconduct, the complaint has alleged—but it has not ‘shown’—‘that the
pleader is entitled to relief.’” Iqbal, 556 U.S. at 679 (quoting Rule 8(a)(2)) (alteration
omitted). “Threadbare recitals of the elements of a cause of action, supported by mere
conclusory statements, do not suffice.” Id. at 678 (citation omitted).
III
The court first considers defendants’ Rule 12(b)(6) motions to dismiss plaintiffs’
successor liability claim.
A
Defendants contend that the successor liability doctrine does not apply to FLSA
claims, and that, even if it does, plaintiffs have failed to state a claim for successor liability
because they have not pleaded facts, with sufficient specificity, that would satisfy the
requirements of such a claim. Plaintiffs respond that successor liability is cognizable under
the FLSA and that the allegations in their amended complaint are sufficient to state a
plausible claim.
B
When a company is sold in an asset sale, the buyer ordinarily acquires the company’s
assets but not its liabilities. See Teed v. Thomas & Betts Power Solutions, L.L.C., 711 F.3d
763, 764 (7th Cir. 2013). Under federal common law, there is an exception to this general
rule known as the doctrine of successor or successor liability. This doctrine is “derived from
labor law principles enunciated in four Supreme Court cases.” Rojas v. TK Commc’ns, Inc.,
-4-

87 F.3d 745, 749 (5th Cir. 1996) (citing John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543
(1964); NLRB v. Burns Int’l Sec. Servs., Inc., 406 U.S. 272 (1972); Howard Johnson Co. v.
Det. Local Joint Exec. Bd., 417 U.S. 249 (1974); Fall River Dyeing & Finishing Corp. v.
NLRB, 482 U.S. 27 (1987)). Although initially developed in the context of labor relations,
the doctrine of successor liability has been extended to statutes governing employment
discrimination, such as Title VII of the Civil Rights Act of 1964 (“Title VII”), 42 U.S.C. §
2000e et seq. Id. at 750. The doctrine’s underlying policy “is that an employee’s statutory
rights should not be vitiated by the mere fact of a sudden change in the employer’s business.”
Musikiwamba v. ESSI, Inc., 760 F.2d 740, 750 (7th Cir. 1985); see also Rojas, 87 F.3d at 750
(“The policy underlying the successor doctrine [is] to protect an employee when the
ownership of his employer suddenly changes[.]”). The doctrine is generally applied in
circumstances where, absent successor liability, an employer could complete a corporate sale
that would extinguish its liability to the workers, and the workers would be powerless to stop
it. See Teed, 711 F.3d at 766.
The Fifth Circuit has not decided whether successor liability is available under the
FLSA. In Powe v. May, 62 Fed. Appx. 557, 2003 WL 1202795 (5th Cir. Mar. 3, 2003) (per
curiam), the panel assumed, without deciding, that the doctrine applies to the FLSA. CLI and
CAI suggest that Powe supports the conclusion that successor liability is never appropriate
under the FLSA, but their assertion lacks force.
In Powe a former deputy sheriff of a Louisiana parish sued the current sheriff for
violations of the FLSA that occurred during the tenure of the defendant-sheriff’s predecessor.
-5-

Id. at 557. The district court concluded that the current sheriff could not be held liable under
the successor doctrine for the acts of his predecessor, and the Fifth Circuit affirmed. Id. The
Fifth Circuit explained:
Because we find that liability under the federal successorship
doctrine is inappropriate in this case, we assume without
deciding that the doctrine applies to the FLSA. There are three
main criteria for imposing successor liability: (1) a substantial
continuity of business operations from the previous entity to its
successor; (2) notice to the successor; and (3) the successor’s
ability to provide relief. There is insufficient continuity between
[the prior sheriff’s] administration and [the defendant’s]
administration to justify the imposition of successor liability.
Id. (citing Rojas, 87 F.3d at 750). The panel reasoned that substantial continuity did not exist
because, under the Louisiana Constitution, each sheriff is elected and every sheriff is a
political subdivision unto himself. Id. It also noted that, under Louisiana law, there is no
continuity of assets between administrations because each sheriff is responsible for raising
and spending his own funds. Id. And the panel concluded that imposing successor liability
would be counterproductive because it would hinder the defendant’s ability to police the
parish but would not deter future FLSA violations, because the successor’s term would
expire on a predetermined basis. Id.
Although in Powe the Fifth Circuit affirmed the district court’s conclusion that there
was no successor liability, the case does not stand for the proposition that successor liability
never applies under the FLSA. The panel assumed, without deciding, that the doctrine did
apply, and nothing in the opinion suggests that the Fifth Circuit would decline to enforce
successor liability in an appropriate FLSA case. The panel relied on factors that are unique
-6-

to the political and economic reality of a sheriff’s office in Louisiana. These factors are
inapposite to a case like this one.
Two other circuits have squarely addressed the question, and both have held that
successor liability is available under the FLSA. In Steinbach v. Hubbard, 51 F.3d 843 (9th
Cir. 1995), the Ninth Circuit borrowed the test for analyzing successor liability claims under
the National Labor Relations Act and held that successor liability can attach under the FLSA
depending on whether (1) the subsequent employer is a bona fide successor, (2) the
subsequent employer had notice of the potential liability, and (3) the predecessor is able to
provide adequate relief directly. Id. at 845-46. The court emphasized that “[w]hether an
employer qualifies as a bona fide successor will hinge principally on the degree of business
continuity between the successor and predecessor.” Id. at 846.
Similarly, in Teed the Seventh Circuit held that the doctrine of successor liability
applies to the FLSA, but it eschewed a multi-factor test in favor of the following standard:
“We suggest that successor liability is appropriate in suits to enforce federal labor or
employments laws—even when the successor disclaimed liability when it acquired the assets
in question—unless there are good reasons to withhold such liability.” Teed, 711 F.3d at
766. The court noted that the lack of notice of potential liability was one such reason (the
second Steinbach factor). See id. Although there is some variation as to the precise
requirements of the doctrine, the trend in the case law is toward recognition of successor
liability under the FLSA. See, e.g., Cuervo v. Airport Servs., Inc., ___ F.Supp.2d ___, 2013
WL 6170661, at *2-3 & n.5 (S.D. Fla. Nov. 22, 2013) (collecting cases).
-7-

Because Powe does not suggest otherwise, because the trend among the courts that
have decided the question is to recognize successor liability in FLSA cases, and because, so
far as the court is aware, no court has expressly held that successor liability is unavailable
under the FLSA, the court holds that successor liability can be imposed under the FLSA.
This conclusion is consistent with the approach of district courts in this circuit. See Cooke
v. Jaspers, 2010 WL 918342, at *6 (S.D. Tex. Mar. 10, 2010) (holding that complaint did not
contain specific allegations to put defendant on notice of successor liability under FLSA, but
recognizing possibility of successor liability); Schutze v. Fin. Computer Software, LP, 2006
WL 2842008, at *10-11 (N.D. Tex. Sept. 29, 2006) (Sanders, J.) (denying summary
judgment in case involving FLSA claim, in part because of fact issues on successor liability).
And as several courts have recognized, this conclusion is supported by the policy that
successor liability promotes the remedial purposes of the FLSA. See, e.g., Teed, 711 F.3d
at 766; Steinbach, 51 F.3d at 845. Without successor liability, a violator of the FLSA “could
escape liability, or at least make relief much more difficult to obtain, by selling its assets
without an assumption of liabilities by the buyer (for such an assumption would reduce the
purchase price by imposing a cost on the buyer) and then dissolving.” Teed, 711 F.3d at 766.
The rationale for recognizing successor liability in the context of labor relations, where
Congress was concerned with protecting workers’ rights and eliminating unfair labor
practices, applies with similar force to the FLSA, by which Congress intended “to protect
workers’ standards of living through the regulation of working conditions.” Steinbach, 51
F.3d at 845 (citing 29 U.S.C. § 202). The court therefore concludes that plaintiffs can
-8-

recover under the FLSA on the basis of successor liability.
C
Having concluded that successor liability is available under the FLSA, the court must
now decide the test or standard that applies when determining whether plaintiffs have
pleaded a plausible claim for successor liability.
1
The court first considers the Fifth Circuit’s analysis of successor liability in Rojas
(Title VII) and Powe (FLSA). The Fifth Circuit initially extended the doctrine of successor
liability from labor relations cases to employment discrimination cases in Rojas. Rojas
incorporated the following nine-factor test developed by other circuits:
(1) whether the successor company had notice of the charge or
pending lawsuit prior to acquiring the business or assets of the
predecessor; (2) the ability of the predecessor to provide relief;
(3) whether there has been a substantial continuity of business
operations; (4) whether the new employer uses the same plant;
(5) whether he uses the same or substantially the same work
force; (6) whether he uses the same or substantially the same
supervisory personnel; (7) whether the same jobs exist under
substantially the same working conditions; (8) whether he uses
the same machinery, equipment, and methods of production; and
(9) whether he produces the same product.
Rojas, 87 F.3d. at 750 (citing Musikiwamba, 760 F.2d at 750; EEOC v. MacMillan Bloedel
Containers, Inc., 503 F.2d 1086, 1094 (6th Cir. 1974)). Under this test, “the first two factors
are critical,”5 and “[t]he remaining seven simply provide a foundation for analyzing the larger

5

The first factor is “notice of the charge or pending lawsuit,” but courts in FLSA cases
have generally construed this phrase to mean “notice of potential liability.” See, e.g., Battino
-9-

question of whether there is a continuity in operations and the work force of the successor
and predecessor.” Id. (citation and internal quotation marks omitted). In Powe the panel
favorably cited Rojas and noted that the “three main criteria” are “(1) a substantial continuity
of business operations from the previous entity to its successor; (2) notice to the successor;
and (3) the successor’s ability to provide relief.”6 Powe, 62 Fed. Appx. at 557.
2
The court next considers the approach taken by a growing number of courts.
Consistent with Powe’s observation that substantial continuity of business operations from

v. Cornelia Fifth Ave., LLC, 861 F.Supp.2d 392, 405-06 (S.D.N.Y. 2012). As such, a
defendant can be on notice of potential FLSA liability even if the asset sale occurs prior to
the filing of any lawsuit against the defendant or the defendant’s predecessor. This
conclusion is consistent with the Fifth Circuit’s analysis in Powe, where the court favorably
cited Rojas and stated that one of the main criteria for determining successor liability is
“notice to the successor,” without specifically requiring “notice of the charge or pending
lawsuit.” Powe, 62 Fed. Appx. at 557.
6

In Powe the panel stated that the third criterion for imposing successor liability is “the
successor’s ability to provide relief.” Powe, 62 Fed. Appx. at 557 (emphasis added). In
support of its conclusion that “[t]here are three main criteria for imposing successor
liability,” one of which is “the successor’s ability to provide relief,” the panel cited Rojas.
But Rojas states that the relevant factor is the predecessor’s ability to provide relief—not the
successor’s. See Rojas, 87 F.3d at 750. Rojas adopted the nine-factor test that the Sixth
Circuit had used in MacMillan. MacMillan also refers to the predecessor’s ability to provide
relief. See MacMillan, 503 F.2d at 1094. Because Rojas is published and Powe is not, and
because the panel in Powe cited Rojas without suggesting that it was modifying the Rojas
test, the court concludes that this critical factor is the predecessor’s ability to provide relief.
See Rojas, 87 F.3d at 750 (“This court agrees . . . that the first two factors are critical.”). The
successor’s ability to provide relief is also potentially relevant, see Teed, 711 F.3d at 766
(noting that whether successor can provide relief is a “‘goes without saying’ condition, not
usually mentioned”), but it is not typically articulated as part of the multi-factor test. See,
e.g., Rojas, 87 F.3d at 750; Musikiwamba, 760 F.2d at 750; MacMillan, 503 F.2d at 1094.
- 10 -

predecessor to successor is a primary criterion, most courts recognizing successor liability
under the FLSA have applied some version of a “substantial continuity test.” See, e.g., De
Ping Song v. 47 Old Country, Inc., ___ F.Supp.2d ___, 2013 WL 5498184, at *6 (E.D.N.Y.
Oct. 3, 2013) (“[C]ourts applying the substantial continuity test rely on the fact that FLSA
cases are driven by the same policy concerns raised in other labor law cases, and have taken
guidance from FLSA cases decided outside of this circuit.”). The test is largely based on the
Ninth Circuit’s discussion in Steinbach. In Steinbach the court concluded that whether
successor liability attaches depends on whether (1) the subsequent employer is a bona fide
successor, (2) the subsequent employer had notice of the potential liability, and (3) the
predecessor is able to provide adequate relief directly. Steinbach, 51 F.3d at 845-46. The
Ninth Circuit did not clarify whether these requirements are necessary or weighted in any
way, but it did emphasize that “[w]hether an employer qualifies as a bona fide successor will
hinge principally on the degree of business continuity between the successor and
predecessor.” Id. at 846. Courts have generally followed this approach, and although there
is some variation in the language used to articulate the test, the basic concept is clear:
successor liability is appropriate when the successor steps into the shoes of the predecessor
after the asset sale and does not meaningfully change the business already in place. See, e.g.,
Cuervo, 2013 WL 6170661, at *4; De Ping Song, 2013 WL 5498184, at *5-8; Thompson v.
Bruister & Assocs., Inc., 2013 WL 1099796, at *5-6 (M.D. Tenn. Mar. 15, 2013); Battino
v. Cornelia Fifth Ave., LLC, 861 F.Supp.2d 392, 401-08 (S.D.N.Y. 2012); Chao v. Concrete
Mgmt. Res., L.L.C., 2009 WL 564381, at *2-3 (D. Kan. Mar. 5, 2009).
- 11 -

3
The court now considers an important qualification to the substantial continuity test.
Many courts that apply this test note that substantial continuity should not of itself be
considered sufficient for successor liability. See, e.g., De Ping Song, 2013 WL 5498184, at
*8 (“Such continuity, standing alone, should not necessarily lead to imposition of successor
liability.”). The reason for this qualification is that it would be improper to impose successor
liability on an innocent purchaser who acquired the assets of the predecessor and continued
the business of the previous entity, but who was never on notice that it was incurring
potential liabilities that, for example, might warrant including an indemnification clause in
the purchase contract or insisting on a lower purchase price. Cf. Musikiwamba, 760 F.2d at
750 (“The successor doctrine is derived from equitable principles, and it would be grossly
unfair, except in the most exceptional circumstances, to impose successor liability on an
innocent purchaser . . . when the successor did not have the opportunity to protect itself by
an indemnification clause in the acquisition agreement or a lower purchase price.”).
Consistent with this rationale, courts have not deemed substantial continuity to be the only
relevant criterion for imposing successor liability. And they have particularly emphasized
the importance of notice to the successor and of an overall view of the equities in the case.
See, e.g., Teed, 711 F.3d at 766-69; Cuervo, 2013 WL 6170661, at *4; Battino, 861
F.Supp.2d at 404-08. This type of flexible, multifaceted approach makes sense given that
successor liability is at bottom an equitable doctrine designed to fill gaps in statutes that do
not address ownership transfers. See Steinbach, 51 F.3d at 846; see also Howard Johnson
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Co., 417 U.S. at 256 (“Particularly in light of the difficulty of the successorship question, the
myriad factual circumstances and legal contexts in which it can arise, and the absence of
congressional guidance as to its resolution, emphasis on the facts of each case as it arises is
especially appropriate.”).
4
Relying on the foregoing, the court concludes that, in order to state a plausible claim
for successor liability against the defendant in question, plaintiffs must plead facts that enable
the court to analyze the following elements: (1) whether there is substantial continuity
between the business operations of the successor and the predecessor; (2) whether the
successor had notice of potential liability when it acquired the relevant assets; (3) whether
the predecessor is able to provide relief directly;7 and (4) whether the overall equities support
the imposition of successor liability. Although the remaining factors identified in Rojas are
relevant and can be addressed when pleading successor liability under the FLSA, they simply
provide a foundation for analyzing the larger question whether there is a continuity of

7

Some courts have noted that whether the predecessor could have provided relief
before the asset sale is also relevant. See, e.g., Teed, 711 F.3d at 765; Musikiwamba, 760
F.2d at 750-51. They have reasoned that “[i]mposing liability on a successor when a
predecessor could have provided no relief whatsoever is likely to severely inhibit the
reorganization or transfer of assets of a failing business” and would essentially provide a
windfall to plaintiffs. Musikiwamba, 760 F.2d at 751; accord Steinbach, 51 F.3d at 847
(noting that “the purpose of successorship liability is not to provide windfalls for
employees”). Notably, the predecessor’s inability to provide relief before the sale cuts
against successor liability, but the predecessor’s inability to provide relief after the sale cuts
in favor of successor liability.
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operations between the successor and predecessor.8
D
Applying the foregoing elements to plaintiffs’ amended complaint, the court now
considers whether plaintiffs have pleaded a plausible claim for successor liability.
1
The factual allegations concerning successor liability are confined to six paragraphs
of the amended complaint. See Am. Compl. ¶¶ 29-34. Plaintiffs assert that CLI acquired the
assets of Segue and “has or had the same managers / supervisors, business model, employees,
equipment and facilities and provides or provided the same services to the same clientele as
[Segue].” Id. at ¶ 29. In virtually identical language, plaintiffs allege that CAI acquired the
assets of CLI, see id. ¶ at 30, and that BeavEx acquired the assets of CAI, see id. at ¶ 31.
Plaintiffs then make conclusory allegations that CLI is liable as a successor for the liabilities
of Segue, CAI is liable as a successor for the liabilities of CLI, and BeavEx is liable as a
successor for the liabilities of CAI. See id. at ¶¶ 32-34.
BeavEx challenges the sufficiency of the amended complaint on three grounds: first,
the allegation that BeavEx “acquired the assets of [CAI]” is insufficient to establish that
BeavEx is a bona fide successor to CAI under Steinbach; second, the amended complaint

8

The remaining factors are whether the successor uses the same facilities; whether the
successor uses the same or substantially the same work force; whether the successor uses the
same or substantially the same supervisory personnel; whether the same jobs exist under
substantially the same working conditions; whether the successor uses the same machinery,
equipment, and methods of production; and whether the successor produces the same
product. See Rojas, 87 F.3d at 750.
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fails to include any allegation establishing that BeavEx had notice of its potential liability
under the FLSA when it acquired the assets of CAI; and third, plaintiffs have failed to plead
any factual allegation concerning whether CAI can provide adequate relief.9 Plaintiffs
respond that their amended complaint properly alleges that BeavEx is a bona fide successor
because it alleges that BeavEx had the same managers and supervisors, business model,
employees, equipment, and facilities as CAI.10 They rely on the same allegation to establish
notice, arguing that this factual allegation demonstrates “constructive if not actual notice of
Plaintiffs’ claims.” P. Resp. Br. to BeavEx Mot. 5. And they maintain that defendants
possess facts concerning the ability of CAI to provide relief in this case and that plaintiffs
should be afforded the opportunity to discover and verify business records regarding CAI’s
financial status.
2
The court holds that plaintiffs’ amended complaint alleges the possibility of successor
liability, but it fails to show that plaintiffs are entitled to relief on their successor liability
claim. See Iqbal, 556 U.S. at 679. Plaintiffs rely on the allegation that BeavEx, as the
successor, “has or had the same managers / supervisors, business model, employees,

9

CLI and CAI raise similar challenges to the sufficiency of these allegations. Because
BeavEx’s arguments are more developed than CLI and CAI’s arguments, and because
BeavEx filed a reply brief and CLI and CAI did not, the court addresses BeavEx’s
contentions individually, recognizing that they are representative of the ones advanced by
CLI and CAI.
10

Plaintiffs respond in substantially similar fashion to the motion of CLI and CAI.
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equipment and facilities and provides or provided the same services to the same clientele as
its predecessor.” Am. Compl. ¶ 31. But this assertion does not sufficiently allege notice
because it does not provide any factual detail about the knowledge of BeavEx’s ownership
group. Even if BeavEx employed the same managers and supervisors as CAI after the asset
purchase, the amended complaint does not allege that those managers and supervisors knew
about potential FLSA liability themselves or that they informed BeavEx’s ownership of the
potential liability before the asset sale.11 And the fact that BeavEx maintained the same
business model, client base, and work facilities likewise fails to support any inference about
the knowledge of BeavEx’s ownership group. Even if plaintiffs’ allegations support the
inference that there was some level of continuity between the business operations of CAI and
BeavEx, this does not alone show that successor liability is appropriate. The alleged
continuity of the business operations is not strong enough to overcome the lack of factual
content concerning notice.12 Moreover, the amended complaint fails to address whether the

11

Of course, the court recognizes the general rule that the knowledge of officers and
employees at a certain level of responsibility within the corporation is imputable to the
corporation itself, see, e.g., U.S. ex rel. Vavra v. Kellogg Brown & Root, Inc., 727 F.3d 343,
354-55 (5th Cir. 2013) (Jolly, J., concurring), but the amended complaint does not allege
sufficient factual content to enable the court to reasonably draw this inference. The amended
complaint is silent about which, if any, employees knew about potential FLSA liability and
what their level of responsibility was. It also does not identify anyone in the ownership
group of BeavEx or provide any further details about the asset sale between CAI and
BeavEx. The amended complaint likewise fails to allege any details concerning the
knowledge of CAI’s or CLI’s ownership group.
12

Plaintiffs rely on the same language in their allegations of successor liability against
CAI and CLI to establish notice.
- 16 -

predecessor is able to provide adequate relief directly or whether the overall equities support
the imposition of successor liability. Accordingly, the court holds that plaintiffs have failed
to state a plausible claim for successor liability.
IV
The court next considers BeavEx’s motion under Rule 12(e) for a more definite
statement concerning plaintiffs’ alleged employment with BeavEx.
A
“A motion for a more definite statement under Rule 12(e) is available where the
pleading ‘is so vague or ambiguous that the party cannot reasonably prepare a response.’”
Conceal City, L.L.C. v. Looper Law Enforcement, LLC, 917 F.Supp.2d 611, 621 (N.D. Tex.
2013) (Fitzwater, C.J.) (quoting Rule 12(e)). “‘Motions for a more definite statement are
generally disfavored.’” Johnson v. BAE Sys. Land & Armaments, L.P., 2012 WL 5903780,
at *4 (N.D. Tex. Nov. 26, 2012) (Fitzwater, C.J.) (quoting Russell v. Grace Presbyterian
Vill., 2005 WL 1489579, at *3 (N.D. Tex. June 22, 2005) (Solis, J.)). “‘When a defendant
is complaining of matters that can be clarified and developed during discovery, not matters
that impede [its] ability to form a responsive pleading, an order directing the plaintiff to
provide a more definite statement is not warranted.’” Id. (quoting Brown v. Whitcraft, 2008
WL 2066929, at *1 (N.D. Tex. May 15, 2008) (Fitzwater, C.J.)).
B
BeavEx moves for a more definite statement concerning plaintiffs’ alleged
employment. It requests that plaintiffs be required to plead when BeavEx allegedly
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employed them, whether plaintiffs were misclassified as independent contractors or as
exempt under the FLSA, and when the alleged FLSA violations occurred. Plaintiffs respond
that the allegations of the amended complaint are not so ambiguous as to prevent BeavEx
from reasonably preparing a response, and that BeavEx is attempting to use Rule 12(e) to
seek information that should be obtained through discovery.
The court concludes that the amended complaint is not so vague or ambiguous that
BeavEx cannot reasonably prepare a responsive pleading. The amended complaint alleges
that BeavEx “was Plaintiffs’ employer and/or joint employer of Plaintiffs for the relevant
time period,” BeavEx “had control over Plaintiffs’ work during the relevant time period,” and
“Plaintiffs were financially dependent on [BeavEx].” Am. Compl. ¶ 7. Although the
amended complaint lacks the specificity that BeavEx requests, it does not impede BeavEx’s
ability to prepare a responsive pleading. See Conceal City, 917 F.Supp.2d at 621. The
allegations are not so vague that BeavEx is left unable to admit or deny them, and the
additional information BeavEx seeks can be developed in discovery. See Johnson, 2012 WL
5903780, at *4. The court therefore denies BeavEx’s motion for a more definite statement.13
V
Although the court is dismissing plaintiffs’ successor liability claim, it will permit
them to replead. See In re Am. Airlines, Inc., Privacy Litig., 370 F.Supp.2d 552, 567-68

13

Because the standard for deciding a Rule 12(e) motion differs from the standard that
governs a Rule 12(b)(6) motion, this ruling does not suggest a view on the merits of a Rule
12(b)(6) motion that pertains to the same issue.
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(N.D. Tex. 2005) (Fitzwater, J.) (“[D]istrict courts often afford plaintiffs at least one
opportunity to cure pleading deficiencies before dismissing a case, unless it is clear that the
defects are incurable or the plaintiffs advise the court that they are unwilling or unable to
amend in a manner that will avoid dismissal.” (internal quotation marks and citation
omitted)). Plaintiffs were unaware until today’s decision of the test that this court would
apply when deciding whether successor liability had been plausibly pleaded. Because
plaintiffs have not stated that they cannot, or are unwilling to, cure the defects that the court
has identified, the court grants them 30 days from the date this memorandum opinion and
order is filed to file a second amended complaint.
Given the nature and elements of the successor liability test, there may be cases in
which a plaintiff cannot state a claim for such liability without conducting some discovery
related to one or more elements. If plaintiffs maintain that they cannot file a second amended
complaint until they have conducted discovery on successor liability, they can move for an
enlargement of this deadline, stating the element or elements on which discovery is needed.14
*

*

*

For the reasons explained, CLI and CAI’s September 10, 2013 partial motion to
dismiss and BeavEx’s October 2, 2013 partial motion to dismiss plaintiffs’ successor liability

14

The court assumes that defendants will agree under such circumstances to a
reasonable extension of the deadline to file a second amended complaint.
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claim are granted, BeavEx’s October 2, 2013 motion for a more definite statement is denied,
and plaintiffs are granted leave to replead.
SO ORDERED.
February 26, 2014.

_________________________________
SIDNEY A. FITZWATER
CHIEF JUDGE

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