Hukill v. Auto Care Inc ( 1999 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
MONTE J. HUKILL,
Plaintiff-Appellee,
v.
No. 98-1969
AUTO CARE, INCORPORATED;
MCGILLICUDDY & ASSOCIATES;
WILLIAM MCGILLICUDDY,
Defendants-Appellants.
Appeal from the United States District Court
for the Eastern District of Virginia, at Alexandria.
Leonie M. Brinkema, District Judge.
(CA-97-1567-A)
Argued: April 8, 1999
Decided: September 22, 1999
Before ERVIN,* HAMILTON, and LUTTIG, Circuit Judges.
_________________________________________________________________
Vacated and remanded with instructions by published opinion. Judge
Hamilton wrote the opinion, in which Judge Ervin and Judge Luttig
joined.
_________________________________________________________________
*Judge Ervin participated in the consideration of this case but died
prior to the time the decision was filed. The decision is filed by a quorum
of the panel pursuant to 28 U.S.C. § 46(d).
COUNSEL
ARGUED: John Michael Bredehoft, VENABLE, BAETJER &
HOWARD, L.L.P., McLean, Virginia, for Appellants. Michaele Sny-
der Battles, KIBLAN & BATTLES, McLean, Virginia, for Appellee.
ON BRIEF: Garald M. Bowen, GERALD M. BOWEN LAW
OFFICES, McLean, Virginia, for Appellants.
_________________________________________________________________
OPINION
HAMILTON, Circuit Judge:
Monte Hukill (Hukill) brought this action against the defendants,
William McGillicuddy (McGillicuddy), McGillicuddy Associates,
Inc. (MAI), and Auto Care, Inc. (ACI), alleging that the defendants
violated the Family and Medical Leave Act (FMLA), see 29 U.S.C.
§§ 2601-2654, when the defendants refused to reinstate him in his for-
mer position with MAI upon his return from a leave of absence for
a surgical procedure. Prior to trial, the district court held that, even
though the defendants, individually or collectively, employed less
than fifty employees during the period relevant to Hukill's FMLA
claims, it had subject matter jurisdiction over Hukill's FMLA claims
because the defendants and several corporations constituted an "inte-
grated employer," 29 C.F.R. § 825.104(c)(2), and, therefore, the
defendants were employers under the FMLA. Following a jury trial,
the jury found in Hukill's favor. Judgment was entered in favor of
Hukill in the amount of $17,825 on his FMLA claims, and the district
court also awarded costs and attorney's fees in the amount of
$56,545.97. On appeal, the defendants principally contend that the
district court lacked subject matter jurisdiction over Hukill's FMLA
claims. We agree. Accordingly, we vacate the district court's judg-
ment and remand with instructions to dismiss the case for lack of sub-
ject matter jurisdiction.
I
A
MAI, a Virginia corporation, owns and operates an automotive ser-
vice station in Burke, Virginia. McGillicuddy owns 100% of MAI's
stock.
2
McGillicuddy also owns 50% percent of the stock in seven other
Virginia corporations.1 Three of these corporations, King's Park Auto
Care, Inc. (KPAC), Willston Center Auto Care, Inc. (WCAC), and
Vienna Auto Care, Inc. (VAC), operate automobile service stations.
Three others, Arlington Auto Care, Inc. (AAC), West Springfield
Automotive, Inc. (WSA), and Burke Center Goodyear, Inc. (BCG),
operate Goodyear tire centers. The seventh corporation, ACI, pro-
vides contract administrative services to MAI, KPAC, WCAC, VAC,
AAC, WSA, and BCG. More specifically, ACI provides the following
services to these corporations: (1) payroll services, with each payroll
account being maintained separately; (2) bookkeeping services, with
each set of books being maintained separately; (3) the administration
of a health care plan, with individual accounts for each corporation
being maintained separately; (4) issuance of various policy statements
(e.g., substance abuse policy) applicable to each corporation; and (5)
a secure site for the maintenance of personnel records.
McGillicuddy is president of ACI, MAI, KPAC, WCAC, VAC,
AAC, WSA, and BCG, and functions on a day-to-day basis as the
chief executive officer of these corporations. His office is at ACI,
which is located in Arlington, Virginia. McGillicuddy is also a direc-
tor of these corporations. Edmonds is the other director of these cor-
porations, except MAI. Kathy McGillicuddy, McGillicuddy's wife, is
a director of MAI. Jon Olson (Olson), comptroller for ACI, is the
secretary-treasurer of ACI, MAI, KPAC, WCAC, VAC, AAC, WSA,
and BCG, although he is not a director of or shareholder in any of
these corporations. According to Hukill, during the period relevant to
this appeal, ACI had five employees, MAI had eight, KPAC had ten,
WCAC had six, and VAC, AAC, WSA, and BCG each had twelve.
See Appellee's Brief at 4 n.2.
ACI, MAI, KPAC, WCAC, VAC, AAC, WSA, and BCG each
operates at separate locations in Northern Virginia; files separate tax
returns; holds separate shareholder and Board of Directors' meetings;
conducts separate banking operations; with minor exceptions, pur-
_________________________________________________________________
1 With respect to these corporations, Jimmy Edmonds (Edmonds) owns
the other 50% of the stock.
3
chases goods separately; enters into separate lease agreements; and
does not share office space.2
For each corporation, in his capacity as president and chief execu-
tive officer, McGillicuddy establishes wage and benefit guidelines.
For each automobile service station and tire center, in his capacity as
president and chief executive officer, McGillicuddy hires a manager
who is responsible for managing the automobile service station or tire
center's day-to-day operations.3 Each manager is responsible for hir-
ing employees and negotiating the salary of the new employee using
the guidelines established by McGillicuddy. In general, McGil-
licuddy, as president and chief executive officer of each automobile
service station and tire center, does not get involved in the operational
and employment matters of each station unless requested by an indi-
vidual manager. Olson, as secretary-treasurer of each automobile ser-
vice station and tire center, does not get involved in employment
matters, but does have to approve large expenditures. Finally, ACI
has no role in MAI, KPAC, WCAC, VAC, AAC, WSA, or BCG's
labor relations; no power to hire, fire, or supervise employees at its
clients' companies; and no power to control the work schedules of the
employees of its clients. Furthermore, there is no evidence that MAI
has any control over the labor relations of KPAC, WCAC, VAC,
AAC, WSA, or BCG, or vice versa.
However, there is some evidence in the record suggesting that ACI,
MAI, KPAC, WCAC, VAC, AAC, WSA, and BCG's operations are
interrelated. For example, aside from the obvious commonality of
officers and directors, ACI made some bulk purchases of equipment
on behalf of MAI, KPAC, WCAC, VAC, AAC, WSA, and BCG; on
occasion, some employees were transferred from one automobile ser-
vice station to another; the manager of BCG ran an advertisement in
a newspaper implying an affiliation between BCG, ACI, MAI, AAC,
_________________________________________________________________
2 ACI and AAC have offices in the same building, but they are main-
tained in different office suites on non-contiguous floors.
3 For a short time, Doug Hinken, while employed by ACI, was the gen-
eral manager of all of the automobile service stations. However, in this
capacity, Hinken did not manage the day-to-day operations of each auto-
mobile service station and had no power to hire or fire individual
employees.
4
and WSA; and ACI's letterhead contained the business listings of
MAI, KPAC, WCAC, VAC, AAC, WSA, and BCG.
B
Hukill began working at MAI's automobile service station as an
automotive inspector in early 1994. On October 4, 1996, Hukill left
work for six weeks in order to undergo surgery for a chronic health
condition. After Hukill went on leave, MAI hired a replacement auto-
motive inspector. On November 14, 1996, when Hukill attempted to
return to work at MAI's automobile service station, he was informed
by his manager, Hugh Walser, "There's no work for you." (J.A. 118).
Approximately two weeks later, McGillicuddy offered Hukill a posi-
tion as an automotive inspector at the automobile service station
owned and operated by WCAC, but Hukill declined to accept the
offered position.
Hukill then pursued his administrative remedies with the United
States Department of Labor (DOL). During discussions with the
DOL, in April 1997, McGillicuddy offered Hukill his former position
at MAI's automobile service station. After concluding that ACI, MAI,
KPAC, WCAC, VAC, AAC, WSA, and BCG constituted an"inte-
grated employer," 29 C.F.R. § 825.104 (c)(2), for purposes of the
FMLA, the DOL calculated Hukill's damages to be $3,256. This
amount represented the difference in the salary Hukill would have
earned at MAI's automobile service station and the salary Hukill
would have earned at WCAC's automobile service station for the
period covering the time Hukill was offered the position at WCAC's
automobile service station until the time Hukill was offered reinstate-
ment to his former position at MAI's automobile service station.4
On October 2, 1997, Hukill commenced this action by filing a
complaint in the United States District Court for the Eastern District
of Virginia. The complaint named ACI, MAI, and McGillicuddy as
_________________________________________________________________
4 In April 1997, MAI paid Hukill an amount that represented Hukill's
salary for the period (two weeks in November 1996) covering the time
Hukill was not reinstated in his position at MAI's automobile service sta-
tion and the time he was offered the position at WCAC's automobile ser-
vice station.
5
defendants. The complaint alleged that the defendants violated the
FMLA when they refused to reinstate Hukill in his former position
with MAI upon his return from a leave of absence for a surgical pro-
cedure. Hukill sought unpaid back wages, commissions, employment
benefits, front pay, prejudgment and postjudgment interest, liquidated
damages, attorney's fees, and costs.
Prior to trial, the district court held that, even though the defen-
dants, individually or collectively, employed less than fifty employees
during the period relevant to Hukill's FMLA claims, it had subject
matter jurisdiction over Hukill's FMLA claims because the defen-
dants and KPAC, WCAC, VAC, AAC, WSA, and BCG constituted
an "integrated employer," 29 C.F.R. § 825.104(c)(2), and, therefore,
the defendants were employers under the FMLA.
Following a jury trial, the jury found in Hukill's favor. Judgment
was entered in favor of Hukill in the amount of $17,825 on his FMLA
claims, and the district court also awarded costs and attorney's fees
in the amount of $56,545.97. The defendants noted a timely appeal.
II
The defendants' principal contention on appeal is that the district
court lacked subject matter jurisdiction over Hukill's FMLA claims.
According to the defendants, because ACI and MAI, individually or
collectively, employed less than fifty employees during the period rel-
evant to Hukill's FMLA claims, the district court lacked subject mat-
ter jurisdiction over those claims. The district court held that it had
subject matter jurisdiction over Hukill's FMLA claims because, even
though ACI and MAI, individually or collectively, employed less than
fifty employees during the relevant period, the defendants were "em-
ployers" for purposes of the FMLA because the defendants were part
of a larger "integrated employer," id., that included KPAC, WCAC,
VAC, AAC, WSA, and BCG.5 We review a district court's subject
_________________________________________________________________
5 The district court did not squarely address whether McGillicuddy was
subject to individual liability under the FMLA. We note that this court
has not addressed this issue and need not address it today because
Hukill's claim of individual liability against McGillicuddy necessarily
fails if he (Hukill) cannot establish that MAI or ACI is his employer as
that term is defined in the FMLA. See 29 U.S.C. § 2611(4)(A)(i) and (ii).
6
matter jurisdiction determination de novo. See Evans v. B.F. Perkins
Co., 166 F.3d 642, 647 (4th Cir. 1999).
The purpose of the FMLA is to balance the demands of the work-
place with the needs of employees to take leave for eligible medical
conditions and compelling family reasons. See 29 U.S.C. § 2601(b).
In addition to providing eligible employees with up to twelve weeks
of unpaid leave to handle qualifying medical and family problems,
see 29 U.S.C. § 2612(a)(1), the FMLA ensures that those who take
such leave will be restored to their former position or an equivalent
position upon returning to work, see 29 U.S.C. § 2614(a)(1). Employ-
ers who violate the FMLA are liable to the injured employee for com-
pensatory damages, back pay, and equitable relief. See 29 U.S.C.
§ 2617(a)(1).
The FMLA defines an "employer" as, inter alia,
(i) . . . any person engaged in commerce or in any industry
or activity affecting commerce who employs 50 or more
employees for each working day during each of 20 or more
calendar workweeks in the current or preceding calendar
year;
(ii) includ[ing]-
any person who acts, directly or indirectly, in the interest of
the employer to any of the employees of such employer
....
29 U.S.C. § 2611(4)(A)(i) and (ii). Under the FMLA, the "term `per-
son' has the same meaning given such term in [the Fair Labor Stan-
dards Act (FLSA), 29 U.S.C. §§ 201-219]." 29 U.S.C. § 2611(8). The
FLSA defines "person" as any "individual, partnership, association,
corporation, business trust, legal representative, or any organized
group of persons." 29 U.S.C. § 203(a).
A district court lacks subject matter jurisdiction over an FMLA
claim if the defendant is not an employer as that term is defined in
the FMLA. Cf. Woodward v. Virginia Bd. of Bar Examiners, 598 F.2d
7
1345, 1346 (4th Cir. 1979) (affirming dismissal of Title VII claim for
lack of subject matter jurisdiction because defendant was neither an
"employer," an "employment agency," nor a "labor organization" as
those terms are defined in Title VII); see also Scarfo v. Ginsberg, 175
F.3d 957, 961 (11th Cir. 1999) (holding that whether defendants con-
stituted "an `employer'" within Title VII is a question of subject mat-
ter jurisdiction); Armbruster v. Quinn, 711 F.2d 1332, 1335 (6th Cir.
1983) (same); but see Sharpe v. Jefferson Distrib. Co., 148 F.3d 676,
677-78 (7th Cir. 1998) (holding that question of whether employer
has more than fifteen employees so as to be subject to Title VII is not
jurisdictional, but merits related), abrogated on other grounds by
Papa v. Katy Indus., Inc., 166 F.3d 937, 939-40 (7th Cir. 1999);
EEOC v. St. Francis Xavier Parochial Sch., 117 F.3d 621, 623-24
(D.C. Cir. 1997) (holding that question of whether defendant was a
covered entity under ADA is not jurisdictional, but merits related).
Although a direct employment relationship provides the usual basis
for liability under the civil rights statutes, the ambiguity of the term
employer in the civil rights statutes has driven courts to fashion a
variety of tests by which a defendant that does not directly employ the
plaintiff may still be considered an employer under those statutes. See
Papa, 166 F.3d at 939-43; Frank v. U.S. West, Inc., 3 F.3d 1357, 1362
& n.2 (10th Cir. 1993); Johnson v. Flowers Indus., Inc., 814 F.2d 978,
980-82 (4th Cir. 1987). Hukill advocates the use of one of these tests,
the "integrated employer" test.
Under the "integrated employer" test, several companies may be
considered so interrelated that they constitute a single employer. See
Armbruster, 711 F.2d at 1337-38 (Title VII); York v. Tennessee
Crushed Stone Ass'n, 684 F.2d 360, 362 (6th Cir. 1982) (ADEA). The
"integrated employer" test initially was developed in the labor rela-
tions context, see Radio & Television Broad. Technicians Local 1264
v. Broadcast Serv. of Mobile, Inc., 380 U.S. 255 (1965) (per curiam),
and subsequently was imported into the civil rights context, see
Armbruster, 711 F.2d at 1336-37 (Title VII). Pursuant to its authority
to promulgate regulations "necessary to carry out" the FMLA, see 29
U.S.C. § 2654, the DOL has adopted the "integrated employer" test.
See 29 C.F.R. § 825.104(c)(2).
8
In determining whether to treat corporate entities as an "integrated
employer," according to the DOL regulations, the factors we should
consider include: (1) common management; (2) interrelation between
operations; (3) centralized control of labor relations; and (4) degree
of common ownership/financial control. See id. 6 However, no single
factor is conclusive. Id. Nevertheless, control of labor operations is
the most critical factor. See Schweitzer v. Advanced Telemarketing
Corp., 104 F.3d 761, 764 (5th Cir. 1997) (recognizing that control of
labor relations prong has traditionally been the most important).7
This court need not address whether 29 C.F.R. § 825.104(c)(2) is
entitled to full Chevron deference, see Chevron U.S.A., Inc. v. Natural
Resources Defense Council, Inc., 467 U.S. 837, 842-43 (1984) (not-
ing that an agency's interpretation of a statute with which it has been
charged with administering and which has been reduced to a regula-
tion is to be fully accepted by a court as long as Congress has not
directly spoken as to the precise question at issue and the interpreta-
_________________________________________________________________
6 These factors are identical to those applied in cases involving other
civil rights statutes. See, e.g., Swallows v. Barnes & Noble Book Stores,
Inc., 128 F.3d 990, 993-94 (6th Cir. 1997) (ADEA and ADA).
7 In Johnson, an ADEA case, we recognized that other courts have
applied the "integrated employer" test, but declined to adopt it. See 814
F.2d at n.*. We stated that "[w]e need not adopt such a mechanical test
in every instance; the factors all point to the ultimate inquiry of parent
domination. The four factors simply express relevant evidentiary inqui-
ries whose importance will vary with the individual case." Id. Interest-
ingly, the "integrated employer" test was rejected recently by the Seventh
Circuit in Papa, a case involving the ADEA and the ADA. In that case,
the court criticized
the vagueness of three of the four factors (all but"common own-
ership" and it, as we shall see, is useless); because, being
unweighted, the four factors do not yield a decision when, as in
the two cases before us, they point in opposite directions; and
because the test was not custom-designed for answering exemp-
tion questions under the antidiscrimination laws, but instead was
copied verbatim from the test used by the National Labor Rela-
tions Board to resolve issues of affiliate liability under the laws
administered by the Board.
166 F.3d at 940.
9
tion proffered by the agency is a permissible one), because even
applying the "integrated employer" test in this case does not yield the
conclusion that MAI was part of a larger integrated employer that
included ACI, let alone KPAC, WCAC, VAC, AAC, WSA, and
BCG.
With respect to common management, each automobile service sta-
tion and tire center has its own manager, who controls the day-to-day
operations of the service station or tire center and has the authority
to hire and fire employees. For a short time, Doug Hinken, while
employed by ACI, was the general manager of all of the automobile
service stations. However, in this capacity, Hinken did not manage
the day-to-day operations of each automobile service station and had
no power to hire or fire individual employees. In general, McGil-
licuddy, as president of each automobile service station and tire cen-
ter, does not get involved in operational and employment matters
unless requested by an individual manager. Also, Olson, the
secretary-treasurer of each corporation, does not get involved in
employment matters, but does have to approve large expenditures. In
light of this evidence, this prong favors neither party. Cf. McKenzie
v. Davenport-Harris Funeral Home, 834 F.2d 930, 933-34 (11th Cir.
1987) (common management found where common president con-
trolled personnel management of both corporations); Baker v. Stuart
Broadcast. Co., 560 F.2d 389, 392 (8th Cir. 1977) (common manage-
ment found where the same individual was president of both corpora-
tions and where that individual had day-to-day control of both
operations and had issued strict policy manuals regimenting daily
operations for the managers).
With respect to the interrelation of operations, the operations of
ACI, MAI, KPAC, WCAC, VAC, AAC, WSA, and BCG were inter-
related to some degree. For example, MAI, KPAC, WCAC, VAC,
AAC, WSA, and BCG purchase administrative services from ACI,
and ACI selects the towing companies for MAI, KPAC, WCAC,
VAC, AAC, WSA, and BCG. There is also evidence in the record
demonstrating that ACI made some bulk purchases of equipment on
behalf of MAI, KPAC, WCAC, VAC, AAC, WSA, and BCG; on
occasion, some employees were transferred from one automobile ser-
vice station to another; the manager of BCG ran an advertisement in
a newspaper implying an affiliation between BCG, ACI, MAI, AAC,
10
and WSA; and ACI's letterhead contained the business listings of
MAI, KPAC, WCAC, VAC, AAC, WSA, and BCG. Although this
evidence does demonstrate some interrelationship of operations, on
balance, this evidence is pale in comparison to the evidence indicating
that each company operates separately and distinctly. Each company
operates at separate locations, files separate tax returns, holds separate
shareholder and Board of Directors' meetings, conducts separate
banking operations, is not undercapitalized, in general, purchases
goods separately, enters into separate lease agreements, is not man-
aged day-to-day by the same person, and does not share office space.
Hukill makes much of the fact that MAI, KPAC, WCAC, VAC,
AAC, WSA, and BCG purchase administrative services from ACI.
However, this practice is not unusual in today's business climate and
is of no consequence. As the court in Papa noted:
Firms too tiny to achieve the realizable economies of scale
or scope in their industry will go under unless they can inte-
grate some of their operations with those of other compa-
nies, whether by contract or by ownership. The choice
between the two modes of integration is unrelated to the
exception. Take contractual integration first. A firm too
small to have its own pension plan will join in a multi-
employer pension plan or will in effect pool with other
employers by buying an insurance policy. . . . It will consult
an outside law firm, representing many business firms,
rather than having a staff of in-house lawyers. It will hire an
accounting firm to do its payroll rather than having its own
payroll department. It may ask the Small Business Adminis-
tration for advice on how to maximize its profits by pruning
its least profitable operations. None of these forms of con-
tractual integration would subject tiny employers to the anti-
discrimination laws, because the integration is not of affili-
ated firms. Why should it make a difference if the integra-
tion takes the form of common ownership, so that the tiny
employer gets his pension plan, his legal and financial
advice, and his payroll function from his parent corporation
without contractual formalities, rather than from indepen-
dent contractors?
11
166 F.3d at 942.
With respect to labor operations, there is little evidence, if any, that
the control of labor operations was centralized. ACI had no role in
MAI, KPAC, WCAC, VAC, AAC, WSA, or BCG's labor relations;
no power to hire, fire, or supervise employees at its clients' compa-
nies; and no power to control the work schedules of the employees
of its clients. Furthermore, there is no evidence that MAI had any
control over the labor relations of KPAC, WCAC, VAC, AAC, WSA,
or BCG, or vice versa. In light of this evidence, we conclude this
prong weighs heavily against Hukill. Cf. Frank , 3 F.3d at 1363 ("To
satisfy the control prong, a parent must control day-to-day employ-
ment decisions of subsidiary.").
With respect to common ownership, although Hukill has made a
showing of common, though not identical, ownership (100% of
MAI's stock is owned by McGillicuddy, 50% of ACI, KPAC,
WCAC, VAC, AAC, WSA, and BCG's stock is owned by McGil-
licuddy), such a showing is not enough, even when coupled with the
other factors, to establish that ACI, MAI, KPAC, WCAC, VAC,
AAC, WSA, and BCG are an "integrated employer." Cf. Johnson, 814
F.2d at 982 ("One-hundred percent ownership and identity of direc-
tors and officers are, even together, an insufficient basis for applying
an alter ego theory to pierce the corporate veil." (citation and internal
quotation marks omitted)).
It has been said that the "integrated employer" test instructs a court
to determine "[w]hat entity made the final decisions regarding
employment matters related to the person claiming discrimination."
Trevino v. Celanese Corp., 701 F.2d 397, 404 (5th Cir. 1983) (citation
and internal quotation marks omitted). In this case, the record sug-
gests that no entity other than MAI made the final decision regarding
Hukill's employment status. Accordingly, because MAI employs less
than fifty employees, the district court erred when it concluded that
it had subject matter jurisdiction over Hukill's FMLA claim against
MAI. Because ACI was not Hukill's employer, the district court erred
when it concluded that it had subject matter jurisdiction over Hukill's
FMLA claim against ACI. Because MAI and ACI were not subject
to liability, the district court necessarily lacked jurisdiction over
12
Hukill's FMLA claim against McGillicuddy in his individual capac-
ity. See 29 U.S.C. § 2611(4)(A)(i) and (ii).
III
For the reasons stated herein, we vacate the district court's judg-
ment and remand with instructions to enter an order dismissing the
case for lack of subject matter jurisdiction.
VACATED AND REMANDED WITH INSTRUCTIONS
13