Solis v. Lorraine Enterprises, Inc. , 769 F.3d 23 ( 2014 )

United States Court of Appeals
For the First Circuit
No. 13-1685
THOMAS E. PEREZ, SECRETARY,
UNITED STATES DEPARTMENT OF LABOR,
Plaintiff, Appellee,
v.
LORRAINE ENTERPRISES, INC., d/b/a PICCOLO E POSTO, ET AL.,
Defendants, Appellants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Jay A. García-Gregory, U.S. District Judge]
Before
Lynch, Chief Judge,
Ripple* and Selya, Circuit Judges.
Jose A.B. Nolla-Mayoral, Jorge W. Perdomo and Nolla, Palou &
Casellas, LLC on brief for appellants.
M. Patricia Smith, Solicitor of Labor, Jennifer S. Brand,
Associate Solicitor, Paul L. Frieden, Counsel for Appellate
Litigation, Maria Van Buren, Senior Attorney, and Steven W.
Gardiner, Attorney, on brief for appellee.
October 1, 2014
*
Of the Seventh Circuit, sitting by designation.
SELYA, Circuit Judge. Among a host of other beneficial
provisions, the Fair Labor Standards Act (FLSA), 29 U.S.C. §§ 201-
219, establishes a federal minimum wage. See id. § 206(a). But
Congress carved out an exception to the minimum wage for certain
occupations in which tips can reliably be expected to supplement
wages. See id. § 203(m). The prototype for this exception is the
restaurant industry.
To avail itself of the exception, an employer must
satisfy several preconditions. See id. § 203(m). In this case,
the Secretary of Labor (the Secretary) charges that a restaurant
took advantage of the reduced minimum wage without bothering to
comply with the concomitant requirements. The Secretary further
charges that the individual defendants are liable for these
violations. The district court agreed with the Secretary's
contentions and entered summary judgment in the Secretary's favor
against the restaurant and the individual defendants. See Solis v.
Lorraine Enters., 907 F. Supp. 2d 186, 192-93 (D.P.R. 2012). The
court thereafter denied the defendants' motion to alter or amend
the judgment. After careful consideration of a chiaroscuro record,
we affirm.
I. BACKGROUND
We rehearse the facts as they appear in the summary
judgment record, drawing all reasonable inferences in favor of the
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parties opposing summary judgment (here, the defendants). See
Bisbano v. Strine Printing Co., 737 F.3d 104, 106 (1st Cir. 2013).
At the center of this case is a popular restaurant in
Guaynabo, Puerto Rico: Piccolo e Posto. The proprietor is Lorraine
Enterprises, Inc., a closely held corporation owned by defendant
Lorraine Lago and her husband, Joseph Rao (now deceased).
When the couple opened the restaurant in 2004, Rao
directed its operations. He fell ill in 2006 and the restaurant's
general manager, defendant Pedro Gonzalez, assumed more
responsibility for its day-to-day operations. Upon Rao's death two
years later, Lago was left to run the restaurant with Gonzalez's
help.
In 2008, the Wage and Hour Division of the United States
Department of Labor (the Department) commenced an investigation
into the restaurant's payroll practices. This probe began with an
audit of the restaurant's payroll summaries and time records for
the period March 2006 through March 2008. The investigator
concluded that certain deductions taken from waiters' pay violated
the FLSA's minimum wage provisions. Specifically, the restaurant
deducted what it termed a "spillage fee," which the investigator
concluded frequently reduced waiters' weekly pay below the minimum
wage. Although the restaurant maintained that waiters earned much
more in tips than the payroll summaries indicated, it produced no
probative evidence of actual tip income.
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The investigator also determined that certain employees
had been misclassified as exempt from overtime pay requirements and
that proper records of the hours worked by those employees had not
been maintained. This determination grounded a conclusion that the
restaurant was not in compliance with the FLSA's recordkeeping and
overtime pay requirements. See 29 U.S.C. §§ 207, 211(c).
Against this backdrop, the Secretary sued the restaurant,
Lago, and Gonzalez, alleging that each defendant, qua employer, was
liable for violating the FLSA's minimum wage, overtime, and
recordkeeping requirements. Following discovery, the Secretary
moved for partial summary judgment on the minimum wage claims,
arguing that the spillage fee constituted an impermissible
deduction from the employees' wages and that the defendants had
failed to provide sufficient notice to employees to enable the
defendants to offset their minimum wage obligations. The
defendants cross-moved for summary judgment on all of the
Secretary's claims. The motions were referred to a magistrate
judge. See 28 U.S.C. § 636(b)(1)(B); Fed. R. Civ. P. 72(b).
The magistrate judge recommended denying the defendants'
motion, granting the Secretary's motion (except as to prospective
injunctive relief), and awarding damages in the form of payment of
wages owed. On de novo review, the district court agreed. The
court calculated the wages owed to be $129,057.22 and entered
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judgment for the Secretary against all of the defendants in that
amount plus interest.1
The defendants seasonably moved to alter or amend the
judgment. See Fed. R. Civ. P. 59(e). The district court rejected
the motion, and this timely appeal ensued.
II. ANALYSIS
We divide our analysis into four segments. We start with
an overview of the FLSA's provisions vis-à-vis tipped employees.
The remaining segments correspond to the claims of error advanced
on appeal.
A. The Statutory Scheme.
The FLSA requires employers to pay a prevailing minimum
wage and makes failure to do so unlawful. See 29 U.S.C. §§ 206(a),
215(a)(2). The statute, however, allows for certain exceptions to
the minimum wage rate. One such exception, known as the "tip
credit," stipulates that an employer may pay a tipped employee a
cash wage as low as $2.13 per hour and count the tips received to
make up the difference between the hourly wage paid and the
prevailing hourly minimum wage rate. See id. § 203(m); 29 C.F.R.
§ 531.59.
1
This final judgment resolved all of the pending claims.
Because the defendants challenge only that portion relating to the
minimum wage violations, we eschew any description of the other
aspects of the final judgment.
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This exception is available to an employer only if
certain conditions are met. See 29 U.S.C. § 203(m); Martin v.
Tango's Rest., Inc., 969 F.2d 1319, 1322 (1st Cir. 1992). To
begin, the exception is unavailable unless the employee is a
"tipped employee," that is, an employee who is engaged in a job
that customarily and regularly affords him tips of more than $30
per month. See 29 U.S.C. § 203(m), (t). In addition, the employee
must retain the tips received. See id. § 203(m). However, the
latter requirement does not preclude tip-pooling arrangements in
which employees share tips with other employees who themselves
customarily and regularly receive tips. See id.
There are, of course, other conditions for tip-credit
eligibility. Of particular pertinence for present purposes, the
employer must inform the employee in advance that it intends to
count a portion of the employee's tips toward the required minimum
wage. See id.; Martin, 969 F.2d at 1322. This notice provision is
strictly construed and normally requires that an employer take
affirmative steps to inform affected employees of the employer's
intent to claim the tip credit. See Kilgore v. Outback Steakhouse
of Fla., Inc., 160 F.3d 294, 298 (6th Cir. 1998); Reich v. Chez
Robert, Inc., 28 F.3d 401, 404 (3d Cir. 1994); Martin, 969 F.2d at
1322.
It is the employer's burden to show that it has satisfied
all the requirements for tip-credit eligibility. See Barcellona v.
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Tiffany English Pub, Inc., 597 F.2d 464, 467-68 (5th Cir. 1979).
A failure to satisfy any of these requirements exposes the employer
to liability for wages owed as well as liquidated damages. See 29
U.S.C. §§ 215-16.
B. The Due Process Claim.
The first assignment of error implicates the district
court's determination that the defendants failed to provide the
waiters appropriate notice of the tip credit (and, therefore, were
ineligible to claim it). This is an indirect attack: the
defendants argue that their due process rights were violated
because they were "ambushed" when the Secretary moved for summary
judgment and asserted a lack of notice. Their attack presupposes
(incorrectly, we think) that lack of notice is an FLSA violation in
and of itself — a putative violation that was neither raised in the
Department's investigation nor pleaded in the Secretary's
complaint.
The initial barrier that impedes the defendants' path is
procedural. The defendants did not mount any due process argument
until after the district court had adopted the magistrate judge's
recommendation and entered summary judgment against them. A Rule
59(e) motion normally may not be used as a vehicle to raise
arguments that could have been (but were not) raised prior to
judgment. See Aybar v. Crispin-Reyes, 118 F.3d 10, 16 (1st Cir.
1997); Vasapolli v. Rostoff, 39 F.3d 27, 36 (1st Cir. 1994).
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Because the defendants mounted their due process challenge for the
first time in their motion to alter or amend, that challenge is
likely waived. See, e.g., In re Redondo Constr. Co., 678 F.3d 115,
122 (1st Cir. 2012) (noting that "arguments presented for the first
time in a Rule 59(e) motion ordinarily are deemed forfeited"); Sch.
Union No. 37 v. United Nat'l Ins. Co., 617 F.3d 554, 564 (1st Cir.
2010) (explaining that issues not raised in objections to
magistrate judge's report are ordinarily precluded on appeal).
Here, however, we need not rest on waiver. The denial of
a Rule 59(e) motion is reviewed for abuse of discretion. See
Negrón-Almeda v. Santiago, 528 F.3d 15, 25 (1st Cir. 2008).
Because the defendants' due process challenge is without merit,
there was, a fortiori, no abuse of discretion in the district
court's denial of the defendants' Rule 59(e) motion.
To be sure, a defendant has an "inalienable right to know
in advance the nature of the cause of action being asserted against
him." Rodriguez v. Doral Mortg. Corp., 57 F.3d 1168, 1171 (1st
Cir. 1995). But no infringement of that right occurred here. From
the very beginning of the case, the Secretary consistently alleged
that the defendants had violated section 206 of the FLSA, which
requires an employer to pay an employee the minimum wage set by the
statute. See 29 U.S.C. § 206(a). These allegations were
sufficient to put the defendants on notice that if they wished to
assert eligibility for the tip credit as an exemption from the
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minimum wage requirement, they would have to carry the burden of
showing that they met the requirements for such eligibility (one of
which is the provision of notice to employees that the minimum wage
will be paid to them in part by tips). In other words, the
Secretary's charge that the waiters' wages fell below the statutory
minimum rate sufficed to put the defendants on notice that their
tip-credit defense was in issue. See Guan Ming Lin v. Benihana
Nat'l Corp., 275 F.R.D. 165, 171 (S.D.N.Y. 2011). The fact that
the Secretary's complaint did not expressly reference the
definitional section of the FLSA, in which the tip-credit exception
is set forth, was of no moment. See 29 U.S.C. § 203(m).
Even if the Secretary's complaint alone was not
sufficient to alert the defendants that employee notice would be
relevant to the determination of their liability, the course of the
investigation and litigation should have alerted the defendants
that their eligibility for the tip credit was a central issue. The
defendants' right to claim the tip credit was disputed throughout
their negotiations with the Department.
After litigation commenced, the Secretary vigorously
pursued the putative unavailability of the tip credit throughout
discovery, inquiring during the depositions of both Lago and
Gonzalez whether employees had been informed in advance that the
defendants used the tip credit to offset minimum wages. Moreover,
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the Secretary specifically referred to lack of notice in answers to
interrogatories as a basis for disallowing the tip credit.
On this record, it cannot be said that the Secretary
"ambushed" the defendants with respect to the notice issue. Where,
as here, a party is not waylaid by the opposing party but, rather,
turns a blind eye to an issue that is plainly in the case, due
process is not offended.2 Accordingly, the district court did not
err in determining that no infringement of the defendants' due
process rights had occurred.
C. The Minimum Wage Violation.
The Secretary moved for summary judgment on the minimum
wage claim asserting, inter alia, that the defendants were
ineligible for the tip credit. The Secretary posited both that the
waiters had not received proper notice of the restaurant's intent
to credit their tips against the minimum wage and that, in any
event, deductions taken from waiters' pay were invalid for FLSA
purposes. The district court granted the motion. See Lorraine
Enters., 907 F. Supp. 2d at 192.
2
The defendants insinuate that the Department's failure to
follow its own investigative protocol contributed to the alleged
ambush. But the defendants offer no proof of any particular
investigative protocol that the Department ignored, and, in all
events, the fact that the Department notified the defendants during
the investigation that it was alleging minimum wage violations
sufficed to alert them that tip-credit notice was in issue. See
Benihana, 275 F.R.D. at 171.
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Because the district court supportably found the notice
point dispositive, we start and stop there. The Secretary's
assertion of lack of notice was based in part on the deposition
testimony of Gonzalez. Gonzalez testified that when he was first
hired as a waiter at the restaurant, he was not told that any
portion of his tips would count toward the minimum wage. He
further testified that, after he became general manager in 2006,
newly hired waiters were not informed that any portion of their
tips would count toward their wages. Finding this testimony
undisputed, the district court concluded that no notice had been
given and that, therefore, paying the waiters at a rate below the
minimum wage violated the statute. See id. at 191-92.
The defendants maintain that the district court blundered
because a genuine issue of material fact existed with respect to
notice. This claim of error engenders de novo review. See
Tropigas de P.R., Inc. v. Certain Underwriters at Lloyd's of
London, 637 F.3d 53, 56 (1st Cir. 2011).
We begin with bedrock: a court may grant summary judgment
only where there is no genuine issue of material fact and the
moving party is entitled to judgment as a matter of law. See Fed.
R. Civ. P. 56(a). A "genuine" issue is one on which the evidence
would enable a reasonable jury to find the fact in favor of either
party. See Vasapolli, 39 F.3d at 32. A "material" fact is one
that is relevant in the sense that it has the capacity to change
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the outcome of the jury's determination. See Borges ex rel.
S.M.B.W. v. Serrano-Isern, 605 F.3d 1, 5 (1st Cir. 2010). As to
issues on which the party opposing summary judgment would bear the
burden of proof at trial, that party may not simply rely on the
absence of evidence but, rather, must point to definite and
competent evidence showing the existence of a genuine issue of
material fact. See Vineberg v. Bissonnette, 548 F.3d 50, 56 (1st
Cir. 2008); McCarthy v. Nw. Airlines, Inc., 56 F.3d 313, 315 (1st
Cir. 1995). Definite, competent evidence is evidence that is
sufficiently probative of an issue that a factfinder could resolve
that issue in favor of the nonmoving party based on that evidence.
See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50 (1986).
In the case at hand, the defendants fault the court's
reliance on Gonzalez's testimony because the Secretary did not show
that Gonzalez was present for the hiring of each of the waiters
whom the Secretary alleged were underpaid. But this evidentiary
void does not aid the defendants. At the summary judgment stage,
the absence of evidence on an issue redounds to the detriment of
the party who bears the burden of proof on that issue. See
McCarthy, 56 F.3d at 315. On the issue of notice, the defendants
bore the burden of proof. See 29 U.S.C. § 203(m); Barcellona, 597
F.2d at 467. Thus, to defeat summary judgment on this issue, the
defendants had to do more than point to a dearth of evidence. They
had to adduce definite, competent evidence showing that waiters
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were informed of the tip credit, see Vineberg, 548 F.3d at 56;
Mesnick v. Gen. Elec. Co., 950 F.2d 816, 822 (1st Cir. 1991), and
they did not do so.
The defendants resist this conclusion. Their best effort
to identify such evidence involves Lago's testimony that her
husband informed waiters, prior to hiring them, that a portion of
their tips would be counted as wages. Lago added that when the
restaurant first opened, a written notice "went out" to some
(unspecified) employees that dealt (in some unspecified manner)
with tips.3
This testimony is not sufficient to constitute definite,
competent evidence establishing the existence of a genuine issue of
material fact. To block summary judgment, the defendants had to
identify evidence in the record from which a jury could reasonably
resolve the dispute at issue in their favor. See Anderson, 477
U.S. at 252; Davric Me. Corp. v. Rancourt, 216 F.3d 143, 147 (1st
Cir. 2000). Lago, however, never laid a proper basis for these
assertions and, thus, such assertions lack sufficient force to
influence the summary judgment calculus. See Squibb v. Mem'l Med.
Ctr., 497 F.3d 775, 784 (7th Cir. 2007).
3
The record contains no copy of any such written notice, nor
does it contain any description of the contents of such a notice.
Thus, even if we were to credit Lago's testimony that a written
notice was sent to some employees, there is no way to tell whether
the notice comported with the statutory requirements.
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Perhaps most important, the record is devoid of any
evidence that Lago had any personal knowledge of her husband's
actions. She was not involved in management when the restaurant
first opened. She did not say — and there is no evidence to
support a finding — that she was present when her husband either
hired waiters or distributed written notices to them. She did not
say — and there is no evidence to support a finding — that she at
any time participated directly in the hiring process. While it is
true that Lago testified that she was generally familiar with the
restaurant's payroll practices, she offered no testimony suggesting
that she had personal knowledge regarding whether her husband had
informed employees about the tip credit. For aught that appears,
her testimony was based upon out-of-court statements that her late
husband (or others) made to her and, as such, was not admissible
for the truth of the matters asserted. See Fed. R. Evid. 802;
Garside v. Osco Drug, Inc., 895 F.2d 46, 49-50 (1st Cir. 1990). In
short, Lago's testimony was not significantly probative on the
notice issue and, thus, could not thwart summary judgment. See
Anderson, 477 U.S. at 249-50, 252.
The defendants have a fallback position. They say that
the record contains evidence adequate to show that the waiters had
actual or constructive knowledge of the restaurant's intention to
claim the tip credit and that this knowledge sufficed to pave the
way for the minimum wage exception. The waiters' pay stubs, the
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defendants aver, should have served to put the waitstaff on notice
that the restaurant was claiming a tip credit against minimum wage
because those stubs reflected a wage lower than the statutory
minimum and tip amounts sufficient to bring the waiters' wages up
to the minimum. Furthermore, the waiters reported their credit
card tips to the restaurant at the end of every shift and then
"cashed out."4 Consequently, they either knew or should have known
that their tips were meant to serve as part of their wages.
This argument is unconvincing. The FLSA requires that
employees be informed by their employer that the employer intends
to treat tips as satisfying a portion of the minimum wage. See 29
U.S.C. § 203(m); Martin, 969 F.2d at 1322. While information on
pay stubs might have tended to corroborate direct evidence of
notice, the pay stubs themselves are not in evidence and the meager
testimony about them is insufficient to support a finding that the
defendants had complied with the FLSA's notice requirement.
Moreover, the duty to inform is an affirmative duty placed upon the
employer, which cannot be satisfied by the mere hope or assumption
that employees will either divine their employer's intentions or
figure out their statutory entitlements from the way in which the
employer conducts its business. See Kilgore, 160 F.3d at 298; see
also Dorsey v. TGT Consulting, LLC, 888 F. Supp. 2d 670, 682 (D.
4
"Cashed out" is a shorthand for the process by which waiters
receive in cash from the restaurant tips left by customers on
credit card vouchers.
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Md. 2012) (concluding that employee earning statements that did not
contain reference to the federal minimum wage were insufficient to
inform employees of tip credit).
D. Individual Liability.
The last leg of our journey involves the plaint that the
district court erred in entering summary judgment against the
individual defendants, Lago and Gonzalez, and that, to cure this
error, the court should have granted their motion to alter or amend
the judgment. In support, the defendants complain that Lago and
Gonzalez are not persons who, within the purview of the FLSA, may
be held personally liable for the undercompensation of employees.
See 29 U.S.C. § 203(d) (defining "employer"); see also Manning v.
Bos. Med. Ctr. Corp., 725 F.3d 34, 47 (1st Cir. 2013) (describing
"context-dependent 'economic reality' test" used for determining
when personal liability should be imposed).
The defendants are foraging in an empty cupboard. To
begin, Lago and Gonzalez admitted in their answer to the complaint
that each of them had "active control and management of [the]
corporation, regulated the employment of persons employed by [the]
corporation, [and] acted directly and indirectly in the interest of
[the] corporation in relation to the employees." These admissions
were replicated in the statement of undisputed material facts that
accompanied the Secretary's summary judgment motion, see D.P.R.R.
56(b) — admissions that the defendants made only a minimal effort
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to qualify by suggesting that they had not personally "implemented
the employment practices challenged by the [Secretary]."
The facts admitted would have been difficult to overcome,
and Lago and Gonzalez (perhaps recognizing as much) did not seek to
challenge the imposition of individual liability as a matter of
law. Given the state of the record, it is hard either to fault the
Secretary for not offering more detailed proof of the individual
defendants' control over the business or to question the district
court's imposition of individual liability. After all, litigation
adversaries and inquiring courts alike are entitled to take a
party's admissions at face value. See Harrington v. City of
Nashua, 610 F.3d 24, 31 (1st Cir. 2010); Schott Motorcycle Supply,
Inc. v. Am. Honda Motor Co., 976 F.2d 58, 61 (1st Cir. 1992).
To cinch matters, Lago and Gonzalez never questioned the
Secretary's claim that they were personally liable before the
magistrate judge, nor did they spell out such a plaint in their
objections to the magistrate judge's recommended decision. These
kinds of omissions are generally regarded as fatal. See Paterson-
Leitch Co. v. Mass. Mun. Wholesale Elec. Co., 840 F.2d 985, 990-91
(1st Cir. 1988) (holding categorically that party is not entitled
as of right to district judge's de novo review of matter never
raised before magistrate judge); Sch. Union No. 37, 617 F.3d at 564
(explaining that only issues raised in party's objections to
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magistrate judge's report are subject to review — all others are
waived).
There is no need to tarry. Rule 59(e) is an
extraordinary remedy, to be used sparingly. See Palmer v. Champion
Mortg., 465 F.3d 24, 30 (1st Cir. 2006). It does not permit a
party to turn back the clock, erase the record, and try to reinvent
its case after an adverse judgment has entered. See Aybar, 118
F.3d at 16; Vasapolli, 39 F.3d at 36.
In this instance, the defendants admitted a string of
material facts strongly suggestive of individual liability. They
made no effort either to withdraw those admissions or to pursue a
developed argument against individual liability until after both
the magistrate judge and the district judge had ruled against them.
This was too little and too late. See Aybar, 118 F.3d at 16.
Given the chronology of this case, it is transparently clear that
the district court did not abuse its discretion in refusing to
vacate the judgment as to the individual defendants.
III. CONCLUSION
We need go no further. For the reasons elucidated above,
we affirm both the district court's entry of summary judgment in
favor of the Secretary and its denial of the defendants' motion to
alter or amend that judgment.
Affirmed.
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