Shaffer v. Leasing Enterprises, Ltd.

Filing 102

REPORT AND RECOMMENDATIONS re 82 Motion for Partial Summary Judgment, filed by Perry's Restaurants, Ltd. be GRANTED and the FLSA claims filed by Plaintiff as to Perry's tip-fee policy be DISMISSED WITH PREJUDICE as time barred. IT IS FURTHER ORDERED that Defendants Objection to Plaintiffs SummaryJudgment Evidence (Frasier Declaration) [#99] and Plaintiffs Objections to Defendants Summary Judgment Evidence (contained within their response to Defendants motion) [#92] are DISMISSED AS MOOT. Signed by Judge Elizabeth S. Chestney. (rg)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
MARK SHAFFER, ET AL.,

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Plaintiffs,
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SA-16-CV-01193-FB
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vs.
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PERRY’S RESTAURANTS, LTD., F/K/A
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LEASING ENTERPRISES, LTD.;
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Defendant.
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REPORT AND RECOMMENDATION
OF UNITED STATES MAGISTRATE JUDGE
To the Honorable United States District Judge Fred Biery:
This Report and Recommendation concerns Defendant’s Motion for Partial Summary
Judgment on the Issue of Willfulness [#82]. In issuing this report and recommendation, the
undersigned has also reviewed Plaintiffs’ Response to Defendant’s Partial Motion for Summary
Judgment [#96], Defendant’s Objection to Plaintiff’s Summary Judgment Evidence (Frasier
Declaration) [#99], Defendant’s Reply to Plaintiffs’ Response to Defendant’s Motion for Partial
Summary Judgment on the Issue of Willfulness [#100], and Defendant’s Notice to the Court
Regarding Austin Lawsuit Ruling on Willfulness [#101].
All pretrial matters in this case have been referred to the undersigned for disposition
pursuant to Western District of Texas Local Rule CV-72 and Appendix C [#5]. The undersigned
has authority to enter this recommendation pursuant to 28 U.S.C. § 636(b)(1)(B). For the
reasons set forth below, it is recommended that Defendant’s Motion for Partial Summary
Judgment on the Issue of Willfulness [#82] be GRANTED.

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I. Procedural and Factual Background
This is a collective action arising under the Fair Labor Standards Act (―FLSA‖), 29
U.S.C. § 201, et seq. Plaintiffs Mark Shaffer filed his Original Collective Action Complaint on
November 22, 2016, against Defendant Perry’s Restaurants, Ltd. f/k/a Leasing Enterprises, Ltd.
(hereinafter ―Perry’s‖), alleging that Perry’s failed to pay him and other similarly situated
employees the minimum wage required by law by violating the ―tip credit‖ requirements of
Section 203(m) of the FLSA, 28 U.S.C. § 203(m). (Orig. Compl. [#1].) Plaintiffs are a class of
current and former tipped servers who were employed by Perry’s from November 22, 2013 to the
present and who were subjected to Perry’s tip-fee policy, exclusive of those employed in
Colorado. (Class Cert. Order [#49] at 17.) After Plaintiffs amended their Complaint to add a
new allegation that Perry’s violated the 20% rule,1 the Court certified a sub-class comprised of
all current and former nonexempt employees paid $2.13 an hour for performing dual jobs
between September 8, 2014 and September 8, 2017. (Class Cert. Order [#77] at 7.)
Perry’s tip-fee policy is explained in various affidavits contained in the summary
judgment record. The undisputed record before the Court establishes that Perry’s instituted a
procedure in 2003 in which it converted credit card tips to cash at the end of every shift for its
servers, as opposed to including tips in wages paid to each server every two weeks as a part of
standard payroll. (Collins Aff. [#82-1] at 2; Henderson Aff. [#82-2] at 3.) In doing so, Perry’s
deducted 3.25% from each server’s tips as an offset to account for the fees various credit card
companies impose, the extra cash deliveries required to pay its servers their tips nightly, and the
additional managerial time required at the end of each shift to oversee payment. (Collins Aff.
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Plaintiffs allege that Perry’s tipped employees spend more than 20% of their workweek
on non-tipped tasks and therefore were not paid the required minimum wage. (Third Am.
Compl. [#63] at 14.)
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[#82-1] at 3; Henderson Aff. [#82-2] at 3.) Perry’s also maintains that the 3.25% offset guarded
against the possibility that a given credit card would be rejected and Perry would not receive full
payment on the charge. (Collins Aff. [#82-1] at 3.)
This is not the first legal challenge to Perry’s tip-fee policy filed by the Steele Law
Group, Plaintiffs’ attorneys. A group of Perry’s employees first challenged the tip-fee policy in
a federal lawsuit in the Houston Division of the Southern District of Texas before the Honorable
Judge Lynn Hughes in August 2009, styled Steele v. Leasing Enterprises, Ltd., 4:09-CV-2789
(S.D. Tex. 2009) (―the Houston Suit‖).2 Judge Hughes conditionally certified two different
national classes of employees, and the case ultimately proceeded to bench trial. Judge Hughes
issued his Findings of Fact and Conclusions of Law on August 19, 2014, concluding that Perry’s
tip-fee policy improperly took more money from its servers than its combined expenses to deal
in credit, but that its FLSA violtaions were not willful. (Findings of Fact, Conclusions of Law
[#1-3] at 5.) Perry’s discontinued its tip-fee policy as of October 12, 2014, after the Houston
Court issued its final judgment. (Oct. 1, 2014 Memo to Employees [#82-4] at 2.)
Perry’s appealed, and the Fifth Circuit affirmed. Steele, 826 F.3d at 246–48. In doing so,
the Fifth Circuit rejected plaintiffs’ contention that Perry’s continued implementation of the tipfee policy between the Houston Court’s August 19, 2014 interlocutory order and its final
judgment was evidence of a willful violation of the FLSA. Id.
One day after Judge Hughes issued his Findings of Fact and Conclusions of Law in the
Houston Suit, the Steele Group filed a second collective action against Perry’s in the Austin
Division of the Western District of Texas before the Honorable Lee Yeakel, styled Hoenninger v.
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Plaintiffs attached court documents from the Houston case to their Original Complaint,
and this Court may take judicial notice of court filings to establish the fact of litigation and
related filings. U.S. ex rel. Lam v. Tenet Healthcare Corp., 481 F. Supp. 2d 673, 680 (W.D. Tex.
2006).
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Leasing Enterprises, No. 1:14-cv-798-LY (W.D. Tex. 2014) (―the Austin Suit‖). The Austin
Suit was premised upon the same allegations challenging Perry’s tip-fee policy as the Houston
Suit. Judge Yeakel conditionally certified a nationwide class of tipped servers, and Plaintiffs
filed a motion for partial summary judgment, arguing that Perry’s violation was willful. Judge
Yeakel denied the motion and held a bench trial on October 23, 2018. Judge Yeakel issued his
Findings of Fact and Conclusions of Law on May 30, 2018, joining the Houston Court and the
Fifth Circuit in holding that Perry’s violation of the FLSA by maintaining its tip-fee policy did
not become willful until the Houston court rendered final judgment, reasoning that ―it is not
unresaonable or intentionally reckless for an employer to wait for a final determination about an
unsettled area of law before terminating its policy.‖ (Findings of Fact, Conclusions of Law
[#101-1].)
The Steele Law Group filed the instant lawsuit on November 22, 2016 while the Austin
Suit remained pending. In this lawsuit, Plaintiffs again contend that Perry’s violation of the tipcredit requirements in the FLSA was willful. Perry’s has moved for partial summary judgment,
arguing that the summary-judgment evidence establishes that Perry’s did not willfully violate the
FLSA as to its tip-fee policy and all claims challenging Perry’s tip-fee policy should therefore be
dismissed with prejudice as time barred.

Accordingly, the motion before the Court only

concerns Plaintiffs’ claims with respect to the tip-fee policy, not the 20% rule allegations added
in Plaintiffs’ Third Amended Complaint.
II. Legal Standard
Summary judgment is appropriate under Rule 56 of the Federal Rules of Civil Procedure
only ―if the pleadings, depositions, answers to interrogatories, and admissions on file, together
with the affidavits, if any, show that there is no genuine issue as to any material fact and that the

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moving party is entitled to a judgment as a matter of law.‖ Celotex Corp. v. Catrett, 477 U.S.
317, 322 (1986); see also Fed. R. Civ. P. 56(c). A dispute is genuine only if the evidence is such
that a reasonable jury could return a verdict for the nonmoving party. Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986).
The party moving for summary judgment bears the initial burden of ―informing the
district court of the basis for its motion, and identifying those portions of [the record] which it
believes demonstrate the absence of a genuine issue of material fact.‖ Celotex Corp., 477 U.S. at
323. Once the movant carries its burden, the burden shifts to the nonmoving party to establish
the existence of a genuine issue for trial. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio
Corp., 475 U.S. 574, 587 (1986); Wise v. E.I. Dupont de Nemours & Co., 58 F.3d 193, 195 (5th
Cir. 1995). The non-movant must respond to the motion by setting forth particular facts
indicating that there is a genuine issue for trial. Miss. River Basin Alliance v. Westphal, 230 F.3d
170, 174 (5th Cir. 2000). The parties may satisfy their respective burdens by tendering
depositions, affidavits, and other competent evidence. Topalian v. Ehrman, 954 F.2d 1125, 1131
(5th Cir. 1992). The Court will view the summary judgment evidence in the light most favorable
to the non-movant. Rosado v. Deters, 5 F.3d 119, 123 (5th Cir. 1993).
―After the non-movant has been given the opportunity to raise a genuine factual issue, if
no reasonable juror could find for the non-movant, summary judgment will be granted.‖
Westphal, 230 F.3d at 174. However, if the party moving for summary judgment fails to satisfy
its initial burden of demonstrating the absence of a genuine issue of material fact, the motion
must be denied, regardless of the non-movant’s response. Little v. Liquid Air Corp., 37 F.3d
1069, 1075 (5th Cir. 1994) (en banc).

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III. Analysis
Perry’s is entitled to partial summary judgment on the issue of willfulness as to Plaintiffs’
allegations that Perry’s violated the ―tip credit‖ requirements of Section 203(m) of the FLSA.
The undisputed summary judgment record establishes that Perry’s discontinued its challenged
tip-fee policy in October 2014. (Pls.’ Resp. [#96] at 1 n.1.) The claims challenging Perry’s tipfee policy were not filed until November 22, 2016. (Orig. Compl. [#1].)

The statute of

limitations for a claim arising under the FLSA is two years, unless the employer acted willfully
in violating the statute. 29 U.S.C. § 255(a). In that case, an action may be commenced within
three years after it accrued. Id. Because Plaintiffs’ claims were filed beyond the two-year statute
of limitations but within the three-year window, they only survive dismissal if Perry’s acted
willfully in violating the FLSA’s ―tip credit‖ requirements.
Plaintiffs bear the burden of proof on willfulness. See Mohammadi v. Nwabuisi, 171 F.
Supp. 3d 545, 550 (5th Cir. 2016). An FLSA violation is willful if the employer ―knew or
showed reckless disregard for the matter of whether its conduct was prohibited by statute,‖ such
as when an employer knows her pay structure violates the FLSA or ignores complaints brought
to her attention McLaughlin v. Richland Shoe Co., 486 U.S. 128, 133 (1988); see also IkossiAnastasiou v. Bd. of Supervisors of La. State Univ., 579 F.3d 546, 553 & n.24 (5th Cir. 2009). A
finding of willfulness requires more than facts demonstrating an employer’s negligence. IkossiAnastasiou, 579 F.3d at 553 & n.24.
As previously noted, this is the third collective action filed by the Steele Law Group on
behalf of current and former Perry’s employees challenging Perry’s policy of passing on the
costs of dealing in credit to its tipped employees. Both Judge Hughes and Judge Yeakel held that
Perry’s did not willfully violate the FLSA in implementing its tip-fee policy. (Findings of Fact

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[#1-3], Findings of Fact [#101-1].) The Fifth Circuit affirmed Judge Hughes’s ruling. Steele,
826 F.3d at 246–48. All three of these courts rejected Plaintiffs’ argument that Perry’s decision
to wait until the Houston Court issued its final judgment to discontinue its tip-fee policy was
evidence of a willful violation of the FLSA. The Fifth Circuit explained that ―an interlocutory
order is not a final order‖ and ―the nonfinality of the August 31, 2010 judgment is evident by the
district court’s recognition that . . . the court often changes its position in the final judgment.‖
See id. at 248 (quotation and citations omitted). Accordingly, three previous courts addressing
claims challenging Perry’s tip-fee policy have concluded that Perry’s did not act willfully in
violating the FLSA, and that it was reasonable for Perry’s to await final judgment to make a
policy change.
Moreover, Plaintiffs’ response to Perry’s motion for summary judgment fails to offer
evidence on willfulness that differs substantively from previous arguments made before the
Houston and Austin Courts. Plaintiffs merely rehash the same arguments their Houston and
Austin counterparts made before, while attempting to argue that this lawsuit is distinguishable
because the relevant time period extends to October 2014, and during this later time period
Perry’s had a reason to know its conduct violated the FLSA. (Summ. J. Resp. [#94] at 6.) Yet
almost all of the evidence identified by Plaintiffs concerns actions occuring during the pendency
of the previous lawsuits that was already considered by the Houston and Austin Courts.
First, Plaintiffs direct the Court to the Amended Complaint filed in the Houston Suit on
January 12, 2010, which contained allegations that Perry’s 3.25% offset exceeded the charges it
paid to credit companies to convert tips to cash. This theory of Perry’s liabilty was before both
the Houston and Austin Courts, and the plaintiffs in the Austin Suit attempted to make this same
argument before Judge Yeakel. The undersigned agrees with Judge Yeakel that the contentions

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contained in the complaint filed in the Houston Suit are merely allegations. Allegations
contained in a lawsuit challenging a policy in an unsettled area of the law put an employer on
notice that its actions might violate the law, not that its actions were in fact prohibited by statute
so as to impute the requisite knowledge to the employer. As Judge Yeakel stated, ―[i]f the
argument advanced by Hoenninger were to win the day, an employer litigating an employment
policy would willfully violate the FLSA from the moment a complaint is filed alleging an FLSA
violation if the employer did not immediately suspend the challenged policy.‖ (Findings of Fact
[#101-1] at 8.) The undersigned declines to endorse Plaintiffs’ argument and such a result.
Second, Plaintiffs contend that a Sixth Circuit opinion, Myers v. Copper Cellar Corp.,
192 F.3d 546 (6th Cir. 1999), and a 2006 Department of Labor Opinion Letter, Wage & Hour
Division, U.S. Dep’t of Labor Op. Letter (FLSA 2006-1, January 13, 2006), alerted Perry’s to the
fact that its tip-fee policy was illegal. The undersigned disagrees. Both Myers and the DOL
Opinion Letter merely establish general principles with respect to tip-fee policies; the specific
application of these principles to Perry’s or other individual employers was not settled by these
opinions. As the Fifth Circuit explained in Steele affirming Judge Hughes, ―the Department of
Labor has long interpreted its regulations to permit employers to deduct credit card issuer fees.‖
Steele, 826 F.3d at 243. The Myers Court merely qualified that ―in the aggregate, the amounts
collected from [] employees, over a definable time period,‖ must not exceed the employer’s total
expenditures associated with credit card tip collections. Id. (quoting Myers, 192 F.3d at 554
(emphasis in original)). The Fifth Circuit made clear that it did not view the Sixth Circuit’s
decision in Myers as a ―clear and unambiguous holding that an employer can only offset credit
tips by credit card issuer fees‖ and not other expenditures. Id. at 237 n.15.

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The 2006 Opinion Letter followed Myers and addressed whether an employer ―may take
an average standard composite percentage deduction from its server’s tips to cover the cost of
liquidating charged tips.‖ U.S. Dep’t of Labor Op. Letter (FLSA 2006-1). In keeping with
Myers, the Deparment of Labor explained that a percentage deduction was in fact permissible, so
long as the amount deducted did not exceed the employer’s total expenditures associated with
credit card tip collections, while also holding that the policy of the employer requesting the
opinion did in fact violate the FLSA Id. The undersigned agrees with Judge Yeakel that the
2006 Opinion Letter was not conclusive as to Perry’s, because the tip-fee policy at issue in the
letter concerned different parties, different facts, and a different offset percentage. (Findings of
Fact [#101-1] at 7 n.6.) Accordingly, the fact that Perry’s corporate representative was alerted to
the Opinion Letter and the Myers opinion during his December 2012 deposition, as argued by
Plaintiffs, does not carry the day on the question of Perry’s willfulness.
Finally, the undersigned does not find that a Department of Labor investigation of Perry’s
in 2003 and 2004 with respect to other practices somehow imputed knowledge to Perry’s of the
illegality of its tip-fee policy. The summary-judgment record establishes that this investigation
did not concern Perry’s tip-fee policy but rather addressed Perry’s handling of its tip-pool surplus
and the cost of its name tags, pepper mills, vests, and aprons. (Collins Aff. [#82-1] at 3;
Henderson Aff. [#82-2] at 3; Frazier Decl. [#96-3] at ¶ 3.) The undersigned joins the Houston
Court in reasoning that ―[b]ecause the Department of Labor’s investigations of Perry’s in 2004
and 2006 were not about credit fees, they do not show Perry’s knew or recklessly disregarded the
illegality of its 3.25% fee.‖ (Findings of Fact [#1-3] at 7.)
The only new evidence presented to the Court with respect to the Department of Labor
investigation is the declaration of Charles Frazier, the Department of Labor investigator assigned

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to Perry’s during this time period. (Frazier Decl. [#94-2].) Plaintiffs maintain that Frazier’s
declaration is evidence that Perry’s was alerted during the investigation to the illegality of their
tip-fee policy. Yet, the only statement Frazier makes in his declaration regarding the tip-fee
policy is exceedingly vague and speculative. Frazier states that ―[a]lthough I do not remember
the details of my conversations with Perry’s Steakhouse’s ownership, management, and/or legal
counsel during the 2003-2004 investigation, we probably discussed the credit card liquidation
issue because it was such a rampant problem among Texas restaurants.‖ (Frazier Decl. [#94-2]
at ¶ 3.) Frazier’s lack of memory of any actual conversation regading the tip-fee policy and
speculation that he ―probably‖ had such a conversation is not competent summary judgment
evidence that proves Perry’s had knowledge that its policy violated the FLSA.
In summary, Plaintiffs have not carried their burden to demonstrate Perry’s willfully
violated the FLSA such that the three-year statute of limitations applies to their tip-fee policy
claims.

Because Plaintiffs filed their lawsuit outside of the governing two-year statute of

limitations, all of their claims with respect to the tip-fee policy must be dismissed with prejudice
as time barred.
In light of this recommendation, the undersigned will not address Plaintiffs’ other
arguments with respect to Perry’s good faith defense. These arguments do not concern the sole
issue raised in Perry’s motion for summary judgment—whether it willfully violated the FLSA so
that the three-year statute of limitations applies to save Plaintiffs’ claims. Rather, Plaintiffs’
good-faith arguments concern the question of whether the Court should impose liquidated
damages once liability has been established. Based on the undersigned’s recommendation that
all of Plaintiffs’ claims concerning the tip-fee policy should be dismissed with prejudice,
Plaintiffs’ good-faith arguments regarding these claims are moot. Finally, the undersigned also

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will dismiss as moot the parties’ various evidentiary objections to the summary judgment
evidence, as the undersigned did not rely on any of the challenged portions of the evidence in
issuing this report and recommendation.
IV. Conclusion and Recommendation
Having considered Defendant’s motion, the response and replies thereto, as well as the
evidentiary record submitted to the Court, the undersigned recommends that Defendant’s Motion
for Partial Summary Judgment on the Issue of Willfulness [#82] be GRANTED and the FLSA
claims filed by Plaintiffs as to Perry’s tip-fee policy be DISMISSED WITH PREJUDICE as
time barred.
IT IS FURTHER ORDERED that Defendant’s Objection to Plaintiff’s Summary
Judgment Evidence (Frasier Declaration) [#99] and Plaintiff’s Objections to Defendant’s
Summary Judgment Evidence (contained within their response to Defendant’s motion) [#92] are
DISMISSED AS MOOT.
V. Instructions for Service and Notice of Right to Object/Appeal.
The United States District Clerk shall serve a copy of this report and recommendation on
all parties by either (1) electronic transmittal to all parties represented by attorneys registered as
a ―filing user‖ with the clerk of court, or (2) by mailing a copy to those not registered by certified
mail, return receipt requested. Written objections to this report and recommendation must be
filed within fourteen (14) days after being served with a copy of same, unless this time period is
modified by the district court. 28 U.S.C. § 636(b)(1); Fed. R. Civ. P. 72(b). The party shall file
the objections with the clerk of the court, and serve the objections on all other parties. A party
filing objections must specifically identify those findings, conclusions or recommendations to
which objections are being made and the basis for such objections; the district court need not

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consider frivolous, conclusive or general objections. A party’s failure to file written objections
to the proposed findings, conclusions and recommendations contained in this report shall bar the
party from a de novo determination by the district court. Thomas v. Arn, 474 U.S. 140, 149–52
(1985); Acuña v. Brown & Root, Inc., 200 F.3d 335, 340 (5th Cir. 2000). Additionally, failure to
file timely written objections to the proposed findings, conclusions and recommendations
contained in this report and recommendation shall bar the aggrieved party, except upon grounds
of plain error, from attacking on appeal the unobjected-to proposed factual findings and legal
conclusions accepted by the district court. Douglass v. United Servs. Auto. Ass’n, 79 F.3d 1415,
1428–29 (5th Cir. 1996) (en banc).
SIGNED this 22nd day of August, 2018.

ELIZABETH S. ("BETSY") CHESTNEY
UNITED STATES MAGISTRATE JUDGE

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