Mohan Kutty v. United States Dep't of Labor , 764 F.3d 540 ( 2014 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 14a0196p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
MOHAN KUTTY, M.D., ┐
Plaintiff-Appellant, │
│
│ No. 11-6120
v. │
>
│
UNITED STATES DEPARTMENT OF LABOR, │
Defendant-Appellee. │
┘
Appeal from the United States District Court
for the Eastern District of Tennessee at Knoxville.
No. 3:05-cv-510—Thomas W. Phillips, District Judge.
Argued: January 29, 2013
Decided and Filed: August 20, 2014
Before: MOORE, WHITE, and LUCERO, Circuit Judges.*
_________________
COUNSEL
ARGUED: Russell Reid Abrutyn, AMERICAN IMMIGRATION LAWYERS
ASSOCIATION, Troy, Michigan, for Amicus Curiae. W. Tyler Chastain, BERNSTEIN, STAIR
& MCADAMS LLP, Knoxville, Tennessee, for Appellant. Geoffrey Forney, UNITED STATES
DEPARTMENT OF LABOR, Washington, D.C., for Appellee. ON BRIEF: W. Tyler
Chastain, BERNSTEIN, STAIR & MCADAMS LLP, Knoxville, Tennessee, for Appellant.
Geoffrey Forney, Paul L. Frieden, Mary E. McDonald, UNITED STATES DEPARTMENT OF
LABOR, Washington, D.C., for Appellee. Russell Reid Abrutyn, AMERICAN
IMMIGRATION LAWYERS ASSOCIATION, Troy, Michigan, for Amicus Curiae.
*
The Honorable Carlos F. Lucero, Circuit Judge for the United States Court of Appeals for the Tenth
Circuit, sitting by designation.
1
No. 11-6120 Kutty v United States Dep’t of Labor Page 2
_________________
OPINION
_________________
HELENE N. WHITE, Circuit Judge. Dr. Mohan Kutty appeals the district court’s
affirmance of the Department of Labor (DOL) Administrative Review Board’s (ARB)
determination that he is personally liable for back wages, including expenses physicians hired by
his clinics incurred in obtaining their J-1 waivers and H-1B visas, and civil penalties. Kutty ran
medical clinics in Tennessee and Florida under several corporate entities. Ten physicians
employed by the clinics filed a complaint with the DOL claiming wage violations under the
Immigration and Nationality Act (INA), 8 U.S.C. § 1101 et seq. The Administrator of the Wage
and Hour Division determined that Kutty and the medical clinics violated numerous INA
provisions. An Administrative Law Judge (ALJ) affirmed, found the clinics liable for back
wages and the costs of obtaining J-1 waivers and H-1B visas, held Kutty personally liable for the
violations, and assessed a civil penalty. The ARB affirmed the ALJ’s decision, and the district
court dismissed Kutty’s petition for review and affirmed the ARB’s decision. Kutty appeals and
we AFFIRM.
I.
A.
Kutty and his wife jointly own and serve as the only officers and directors of the Center
for Internal Medicine, Inc., a Florida corporation. From 1998 to 2000, Kutty opened five
medical clinics in rural areas in Tennessee and hired eighteen physicians to staff the Tennessee
clinics, seventeen of whom are the subject of this litigation. Kutty used at least twelve wholly-
owned corporate identities to employ the Tennessee physicians. Kutty also made all major
decisions about the operation of the Tennessee medical clinics: he hired physicians, determined
how many staff members would be employed, and determined staff and physician compensation.
Either Kutty or his wife signed all paychecks and Kutty handled all billing disputes and
employee questions.
No. 11-6120 Kutty v United States Dep’t of Labor Page 3
The seventeen physicians employed by Kutty originally entered the United States on J-1
nonimmigrant foreign-medical-graduate visas, 8 U.S.C. § 1182(j)(1). These visas allow
physicians to remain in the United States for their graduate and medical training, but require
them to return to their home country for an aggregate of two years following their J-1 visa’s
expiration upon completion of their studies. After this two-year period, physicians become
eligible to apply for H-1B or L-1 visas, Lawful Permanent Resident status, or a change in
nonimmigrant status. See 8 U.S.C. § 1182(e). The INA provides, however, that the two-year
home-return requirement of the J-1 visas may be waived for physicians when an interested state
or federal agency requests J-1 waivers on the physicians’ behalf. A J-1 waiver on this basis
requires the non-resident physician to submit a waiver application to the U.S. Department of
State (with a filing fee) that demonstrates that the physician has a contract to practice medicine
for at least three years in an area designated by the Secretary of Health and Human Services as
having a shortage of health-care professionals. See 8 U.S.C. § 1184(l [letter el])(1); 8 C.F.R.
§ 212.7(c)(9)(i). Physicians with J-1 waivers are immediately eligible to apply for H-1B visas
for nonimmigrants “coming temporarily to the United States to perform services . . . in a
specialty occupation.” 8 U.S.C. § 1101(a)(15)(H)(i)(b); see 8 U.S.C. § 1184(l)(l)(2)(A).
Each of the seventeen physicians Kutty employed obtained a J-1 waiver based on a
contract of employment with Kutty to provide medical services in an underserved area. In order
to employ H-1B nonimmigrants, employers must complete and file with the DOL a Labor
Condition Application (LCA) that provides for wage-level guarantees, and have it certified by
the DOL. 20 C.F.R. § 655.700(a)(3). The LCA certifies that the H-1B worker will be paid the
greater of either the actual wage level the employer paid to other individuals with similar
experience for the type of employment at issue or the prevailing wage level for the occupational
classification in the area of employment. 8 U.S.C. § 1182(n)(1)(A)(i)(I)–(II). Kutty, acting as
the medical director for the employing corporate entities, signed and filed the LCAs for the
physicians, and the DOL certified the applications. The applicable wage rates specified on the
LCAs ranged from $52,291 to $115,357.
Kutty attested in the LCAs that the information provided was “true and correct,” that he
would comply with DOL regulations, and that he would pay the wage rates required by law.
No. 11-6120 Kutty v United States Dep’t of Labor Page 4
Kutty also signed and filed the physicians’ H-1B nonimmigrant-worker petitions, in which he
agreed to the terms of the LCAs “for the duration of the alien’s authorized period of stay for H-
1B employment.” The Immigration and Naturalization Service (INS) approved the petitions and
changed the visa status of the seventeen physicians from J-1 to H-1B.
Kutty also required the physicians to sign individual employment agreements that were
almost identical to one another. Each contract was “contingent upon Employee obtaining a J-1
visa waiver of residency requirement and H-1B visa, Employee’s certification by the State of
Tennessee, and . . . subject to obtaining local hospital privileges and the necessary HMO,
Medicare, and Medicaid approvals;” the physicians were required to devote forty hours per
week to the practice of medicine for the Employer for an annual salary of $80,000; the terms of
employment varied from three to five years, and could be terminated by Kutty without cause at
any time by delivery of a signed and dated written notice of termination sixty days prior to the
intended date of termination, or could be terminated immediately upon the occurrence of one or
more of several events.1
In March 2000, Kutty hired Basvaraj Hooli (Hooli) as the administrator of his Tennessee
operations. By late 2000, Hooli became aware that the Medical Clinics were encountering
financial difficulties. Hooli visited and monitored the Tennessee clinics and reported to Kutty
that the physicians were either absent or arriving late. Kutty and Hooli accused the physicians of
lying about how many hours they were working and did not accept the physicians’ explanations,
for example, that they were visiting patients in the hospital when they were not in the clinic.
In January 2001, Kutty began withholding the physicians’ salaries, which he released
when they began seeing more patients. An attorney representing eight of the physicians sent
1
The events included:
10:02. If Employee fails or refuses to comply with any policy, standard or regulation of
Employer; or
10:07. If Employee fails or refuses to faithfully or diligently perform the provisions of
this Agreement or the usual and customary duties of employment; or
10:12. If Employee exhibits undue absenteeism, fails to participate in continuing medical
education programs to maintain current CME Certificate[.]
Employment Agreement, Appx. at 757–58.
No. 11-6120 Kutty v United States Dep’t of Labor Page 5
Kutty a letter demanding “immediate payment of all amounts due, being the difference between
the amounts previously paid and the rate of $115,000 per year as set forth in [the LCA.]” The
letter warned Kutty that if he did not pay the requested amounts within one week, the physicians
would contact the DOL. The letter also informed Kutty that he was prohibited from
discriminating against the physicians for complaining about violations of the INA. After
receiving the letter, Kutty stopped paying the eight physicians’ salaries, except for one partial
payment. Kutty continued to pay the physicians who did not join in the letter.
B.
On February 28, 2001, eight of the physicians filed a complaint with the DOL. On
March 21, 2001, the Wage and Hour Division of the DOL’s Employment Standards
Administration conducted an on-site record inspection of the Sumeru Health Care Group, one of
Kutty’s medical facilities in Tennessee. That day, two additional physicians faxed Kutty a letter
demanding back wages, and those physicians were added to the DOL complaint the following
day. Kutty fired seven of the ten physicians included in the DOL complaint.
The Administrator of the Wage and Hour Division determined that Kutty and the Medical
Clinics had violated numerous provisions of the INA by willfully failing to pay required wages
to the physicians, failing to make LCAs available for public examination, failing to maintain
payroll records, and retaliating against nine of the physicians for engaging in protected activity
under the INA.2
Kutty appealed the Administrator’s decision and the ALJ assigned to the case conducted
hearings over fourteen days in June 2001. After the fourth day of the proceedings, Kutty was
admitted to the hospital. The hearings continued in Kutty’s absence at the suggestion of his
attorney, and Kutty did not attend any additional hearing sessions. During the hearings, the ALJ
admitted into evidence Kutty’s deposition testimony from a prior related proceeding.
Hearings were scheduled to resume on November 26, 2001. On October 17, 2001,
Kutty’s counsel filed a motion to withdraw because Kutty had not paid his legal bills and there
2
The Administrator determined that nine, not seven, physicians were terminated, as she deemed the failure
to pay salaries to two physicians who resigned to be constructive discharges.
No. 11-6120 Kutty v United States Dep’t of Labor Page 6
had been a breakdown in the attorney-client relationship. The ALJ granted the motion to
withdraw on November 19, and the hearings resumed on December 4, 2001. At the beginning of
the proceedings, the ALJ asked Kutty whether he wished to proceed without an attorney and
Kutty stated that he wished to represent himself. Hooli, a non-attorney, was also present as the
corporate representative.
The ALJ determined that Kutty and the medical clinics violated the INA by failing to pay
required wages to the seventeen physicians, retaliating against nine of the physicians for
engaging in protected activity under the INA, failing to make LCAs available for public
examination, and failing to maintain payroll records.3 The ALJ ordered Kutty and the medical
clinics to pay back wages, including the costs of obtaining J-1 waivers and H-1B visas, totaling
$1,044,294, and assessed $108,800 in civil penalties. In addressing the expenses for obtaining
the J-1 waivers, the ALJ reasoned that the expense of obtaining the waivers is an unauthorized
business deduction, reducing the wages below the required LCA rates. The ALJ also concluded
that Kutty should be held personally liable for the violations because his violation of the INA
was willful and because he acted as the alter ego of the corporations named on the LCAs.
Finally, the ALJ barred Kutty from employing aliens for two years pursuant to 8 U.S.C.
§ 1182(n)(2)(C)(ii).
On May 31, 2005, the ARB affirmed the ALJ’s decision. Kutty petitioned for review of
the ARB’s decision.4 On August 19, 2011, the district court issued an order dismissing Kutty’s
petition and affirming the ARB’s decision. Kutty timely appealed.
II.
This court reviews de novo a district court’s determination regarding final agency
actions. See Cole v. Astrue, 661 F.3d 931, 937 (6th Cir. 2011); Elaine’s Cleaning Serv., Inc. v.
United States Dep’t. of Labor, 106 F.3d 726, 728 (6th Cir. 1997). The ARB acts for the
Secretary of Labor and is responsible for issuing “final agency decisions.” Sasse v. United States
3
No civil penalties were assessed for failure to maintain payroll records.
4
Kutty petitioned for review to the United States Court of Appeals for the District of Columbia, which
transferred the petition to the Eastern District of Tennessee.
No. 11-6120 Kutty v United States Dep’t of Labor Page 7
Dep’t of Labor, 409 F.3d 773, 778 (6th Cir. 2005) (citation omitted). This court will uphold the
ARB’s decision if it “is supported by substantial evidence,” Cole, 661 F.3d at 937 (citation
omitted), and if the decision is not “arbitrary, capricious, an abuse of discretion, or otherwise not
in accordance with law.” 5 U.S.C. § 706(2)(A); see Varnadore v. Sec’y of Labor, 141 F.3d 625,
630 (6th Cir. 1998). To satisfy the substantial evidence standard, the ARB’s decision must be
supported by “such relevant evidence as a reasonable mind might accept as adequate to support a
conclusion.” ITT Auto v. NLRB, 188 F.3d 375, 384 (6th Cir. 1999). A decision is not arbitrary
or capricious “when it is possible to offer a reasoned, evidence-based explanation for a particular
outcome.” R.R. Ventures, Inc. v. Surface Transp. Bd., 299 F.3d 523, 548 (6th Cir. 2002)
(citations omitted).
This court gives “considerable weight and due deference to [the Secretary of Labor’s]
interpretation of the statute it administers unless its statutory construction is plainly
unreasonable.” Id. (citations omitted). An agency’s interpretation of its own regulations
“merit[s] even greater deference than its interpretation of the statute that it administers.” Id.(citing Buffalo Crushed Stone, Inc. v. Surface Transp. Bd., 194 F.3d 125, 128 (D.C. Cir. 1999)).
Thus, where the meaning of regulatory language is not free from doubt, the reviewing court
should give effect to the agency’s interpretation so long as it is reasonable. Martin v.
Occupational Safety & Health Review Comm’n, 499 U.S. 144, 150 (1991).
III.
A.
Under the INA, employer-sponsors of H-1B nonimmigrants must pay a fee to file an H-
1B petition on behalf of a nonimmigrant, and may not be reimbursed by their employees for
“part or all of the cost” of that fee. See 8 U.S.C. § 1182(n)(2)(C)(vi)(II); 8 U.S.C. § 1184(c)(9).
Implementing regulations clarify that employers may not deduct these costs—or other “business
expenses”—from the nonimmigrant employees’ wages, if such a deduction reduces the wage
below the required level specified in the LCA. 20 C.F.R. § 655.731(c)(1). Under 20 C.F.R.
§ 655.731(c)(1), employers of nonimmigrants must pay the required wage to their employees
“cash in hand, free and clear, when due, except that deductions made in accordance with
No. 11-6120 Kutty v United States Dep’t of Labor Page 8
paragraph (c)(9) of this section may reduce the cash wage below the level of the required wage.”
Paragraph (c)(9), in turn, notes that such a deduction may not be:
a recoupment of the employer’s business expenses (e.g., tools and equipment;
transportation costs where such transportation is an incident of, and necessary to,
the employment; living expenses when the employee is traveling on the
employer's business; attorney fees and other costs connected to the performance
of H-1B program functions which are required to be performed by the employer
(e.g., preparation and filing of LCA and H-1B petition)). (For purposes of this
section, initial transportation from, and end-of-employment travel, to the worker’s
home country shall not be considered a business expense.) 20 C.F.R.
§ 655.731(c)(9)(iii)(C) (emphasis added); see also 20 C.F.R. § 655.731(c)(7)
(1995).[5]
When an employer’s imposition of such business expenses on its nonimmigrant employees
results in their receiving less than the required wage, “the Department will consider the amount
to be an unauthorized deduction . . . even if the matter is not shown in . . . payroll records as a
deduction.” 20 C.F.R. § 655.731(c)(12); 20 C.F.R. § 655.731(c)(9) (1995).
Based on these regulations, the ARB affirmed the ALJ’s conclusion that the physicians
were entitled to reimbursement for fees, including attorney’s fees expended in obtaining H-1B
visas. The ARB noted that the regulations and related commentary specifically provide that
attorneys’ fees and costs associated with filing the H-1B petition are considered business
expenses of the employer that may not be deducted.
Kutty argues that the costs of the H-1B visas are not business expenses because the “H-
1B physicians were not required to obtain H-1B visas to work lawfully in the United States,
since they were already in the U.S. and were eligible to have their nonimmigrant status changed
from J-1 to H-1B.” He asserts that, “The physicians would only have needed to obtain H-1B
5
The current version of the regulation was implemented in early 2001, see 65 Fed. Reg. 801101-01, after
most of the H-1B petitions were approved. The prior version of the regulation stated that employers may not deduct
“business expenses” but, unlike the current regulation, did not provide as an example of such expenses the costs
associated with filing H-1B visas. See 20 C.F.R. § 655.731(c)(7)(ii)–(iii) (1995). However, we agree that
application of the current regulation raises no retroactivity concerns because it merely clarifies a pre-existing
requirement and does not “attach[] new legal consequences to events completed before its enactment.” See National
Mining Ass’n v. Dep’t of Labor, 292 F.3d 849, 860 (D.C. Cir. 2002) (citation omitted). In any event, Kutty does not
argue on appeal that the newer regulation is inapplicable.
No. 11-6120 Kutty v United States Dep’t of Labor Page 9
visas if they intended to travel outside of the United States . . . and as such, must not be
considered a business expense.”
This argument is unavailing. First, Kutty misstates the law, contending that the
physicians “were not required to obtain H-1B visas to work lawfully in the United States.” A
nonimmigrant foreign medical graduate on a J-1 visa who seeks a waiver of the two-year home-
return requirement on the ground that he will work in an underserved area for three years “may
only fulfill the requisite 3-year employment contract as an H-1B nonimmigrant.” 8 C.F.R.
§ 212.7(c)(9)(iii). Moreover, the business expense regulation plainly prohibits employers from
passing on the costs of business expenses such as H-1B fees to their employees where those costs
would reduce wages below the required rates. 20 C.F.R. § 655.731(c)(9)(iii)(C). Nothing in the
regulations suggests that employers are exempted from this requirement if they hire
nonimmigrants who are already in the United States on a separate visa. In promulgating the
interim final rule that became the current version of the regulations, the DOL specifically
clarified that the costs of filing LCAs and H-1B petitions “are the responsibility of the employer
regardless of whether the INS filing is to bring an H-1B nonimmigrant into the United States, or
to amend, change, or extend an H-1B nonimmigrant’s status.” Interim Final Rule Implementing
Recent Legislation and Clarifying Existing Department Rules, 65 Fed. Reg. 80,110, 80,199 (Dec.
20, 2000). This court must give the DOL’s interpretation of its own regulation “controlling
weight unless plainly erroneous or inconsistent with the regulation,” Elaine’s Cleaning Serv.,
Inc., 106 F.3d at 729 (citing Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512 (1994))
(internal quotation marks omitted), which it clearly is not. Accordingly, the ARB’s
determination that the costs—including attorneys’ fees—of obtaining H-1B visas are business
expenses within the meaning of 20 C.F.R. § 655.731(c)(9)(iii)(C) is neither arbitrary nor an
abuse of discretion.6 Nor is the regulation inconsistent with the statute. 8 U.S.C.
§ 1182(n)(2)(C)(i)(II).
6
Amici assert that the regulation prohibiting deduction of “business expenses” is invalid because it exceeds
the DOL’s statutory authority. See Amicus Br. at 19–20 (comparing 20 C.F.R. § 655.731(c)(9)(ii) with 8 U.S.C.
§ 1182(n)(2)(C)(vi)). However, as both the Secretary and Amici point out, this issue was not raised by the parties
below or on appeal. Accordingly, we decline to address whether the business expenses regulation goes beyond the
DOL’s statutory authority.
No. 11-6120 Kutty v United States Dep’t of Labor Page 10
B.
The Administrator also treated the costs associated with obtaining J-1 waivers as business
expenses of the clinics improperly passed on to the physicians. Recognizing that the statute and
regulations are silent on whether the employer must bear the expense of obtaining a J-1 waiver,
and that while LCAs and H-1B applications are filed by the employer, the employee files for the
J-1 waiver, the ALJ concluded:
While it could be argued either way whether fees paid for obtaining J-1 waivers
were the employers’ or the employees’ expenses, I cannot say that including J1
waiver costs in the category of employer business expenses is unreasonable, as
the J1 waiver must be obtained before an H-1B visa can be issued. I conclude
that including J1 waiver fees and costs as employer expenses, as the
Administrator has done in this case, is a reasonable interpretation of the law and
the regulations, and within the Secretary’s discretion.
[App’x at 1276.]
In affirming the ALJ, the ARB observed that
only upon receiving a J1 waiver is a nonimmigrant alien J1 visa holder eligible to
obtain an H-1B visa. Moreover, if a State health agency makes a request for a J1
waiver on behalf of a J1 visa holder, as was done for the nonimmigrant doctors
here, the application process requires a “letter from the facility that wishes to hire
physicians” and a “signed contract” with “signatures of [the] physician and head
of the facility.” See Frequently Asked Questions, U.S. State Dep’t,
http://travel.state.gov/visa/temp/info/info_1294.html#types. The record shows
that either Kutty or his representative referred the doctors to a business,
HealthIMPACT America, which would assist them in applying for a J1 waiver.
[citation omitted]. Dr. Manole referred to HealthIMPACT as Kutty’s “business
partner.” HR at 298. Kutty also filed letters and employment agreements with
the Tennessee Department of Health in support of the doctors’ applications for J1
waivers for the doctors he sought to hire.
Again, since the Administrator is vested with enforcement discretion in
assessing appropriate remedies and may impose remedies she deems appropriate,
we hold that the Administrator’s determination that the doctors were entitled to
reimbursement of the J1 waiver costs was neither arbitrary nor an abuse of the
Administrator’s discretion. See 20 C.F.R. § 655.810(e)(2).
[Citations omitted.]
We note that we understand the ARB’s decision on the J1 waiver expenses to be based on
the facts of this case and the propriety of the remedy based on those facts, and not a
No. 11-6120 Kutty v United States Dep’t of Labor Page 11
determination that the Administrator has the discretion to treat J1 waiver expenses as business
expenses of the employer in every case, regardless of the facts. We will not assume that the
ARB would so decide, and leave that question to a case in which it is properly presented.
Under the circumstances presented here, the ARB’s determination that the Administrator
did not abuse its discretion or act arbitrarily in ordering reimbursement of the J1 waiver costs is
supported by substantial evidence and is not contrary to law. Kutty’s business plan contemplated
the employment of nonimmigrant physicians under the H-1B program. It was not coincidence
that all but one of the doctors, who happened to have a green card, were nonimmigrant
physicians hired under contracts that made their employment contingent on their receipt of both
an H-1B visa and a J-1 waiver. In addition, as the ARB observed, the record supports that in
most cases, either Kutty or his in-house attorney pressured the physicians to hire
HealthIMPACT, which apparently had some relationship to Kutty, to process their applications
for the J1 waivers. Under these facts, the ARB’s conclusion that the Administrator did not err in
including the physicians’ J-1 waiver application costs as a business expense is adequately
supported.
IV.
Kutty next challenges the imposition of personal liability on him for the back wages and
penalties. He asserts that the INA does not provide authority to pierce the corporate veil and
impose personal liability and that, even assuming such authority, Tennessee law would not
support piercing the veil under these circumstances. We disagree.
A.
Kutty asserts that the INA does not permit piercing the corporate veil because the statute
addresses only violations by an “employer” and is silent with respect to personal liability.
Although no case directly applies veil-piercing liability under the INA, in United States v.
Bestfoods, 524 U.S. 51 (1998), the Supreme Court held that assuming the corporate veil may be
pierced under applicable common-law principles, a parent corporation may be held responsible
for its subsidiary’s actions under the Comprehensive Environmental Response, Compensation,
No. 11-6120 Kutty v United States Dep’t of Labor Page 12
and Liability Act (CERCLA). Id. at 62–64. CERCLA is silent, as is the INA, on the question of
personal liability for an employer’s violation. The Court noted:
CERCLA is thus like many another congressional enactments in giving no
indication that the entire corpus of state corporation law is to be replaced simply
because a plaintiff’s cause of action is based upon a federal statute, and the failure
of the statute to speak to a matter as fundamental as the liability implications of
corporate ownership demands application of the rule that in order to abrogate a
common-law principle, the statute must speak directly to the question addressed
by the common law.
Id. at 63 (alterations, citations, and internal quotation marks omitted). Thus, where a statute is
silent as to personal liability, Bestfoods permits a court to impose liability on the principal to the
extent common-law principles permit.
We have similarly imposed individual shareholder liability for corporate violations of
federal law where the statute does not explicitly mention personal liability. In Carter Jones
Lumber Co. v. LTV Steel Co., we relied on Bestfoods to find that a shareholder could be
personally liable under CERCLA, despite the statute’s silence on personal liability, because
Bestfoods “makes it clear that courts should continue to look to the common law to determine
whether to hold a corporate shareholder personally liable for the acts of the corporation. . . .”
237 F.3d 745, 750 (6th Cir. 2001). Using this analysis, we applied Ohio common-law to affirm
the defendant shareholder’s liability on the CERCLA claim.7 Id. at 750–51; see also United
States v. WRW Corp., 986 F.2d 138 (6th Cir. 1993) (applying Kentucky law in an enforcement
action under the Federal Mine Safety and Health Act, holding that the corporate veil could be
pierced to hold shareholders liable); Mich. Carpenters Council Health & Welfare Fund v. C.J.
Rogers, Inc., 933 F.2d 376, 384 (6th Cir. 1991) (using veil-piercing analysis in an Employee
Retirement Income Security Act claim).
7
Although Bestfoods left open the question whether state or federal common-law should govern these types
of veil-piercing claims, this court in Carter Jones held that state common law principles should apply. Carter Jones,
237 F.3d at 746 n.1; see also Donahey v. Bogle, 129 F.3d 838, 843 (6th Cir.1997), vacated on other grounds, 524
U.S. 924 (1998), reinstated, 16 F. App’x 283 (6th Cir. 2000) (holding in this CERCLA case that “federal courts
must look to state law” when determining “the requisite standard for piercing the veil.”).
No. 11-6120 Kutty v United States Dep’t of Labor Page 13
Thus, because the INA is silent on individual personal liability, it does not preclude
piercing the corporate veil if supported by the common law. See Carter Jones, 237 F.3d at 750;
Bestfoods, 524 U.S. at 62–63.
B.
Kutty further contends that the district court erred in its application of the Tennessee
standard for piercing the corporate veil. Under Tennessee law, because there is a presumption of
corporate regularity, “[t]he principle of piercing the corporate veil is to be applied with great
caution and not precipitately,” and each case “must rest upon its special facts.” Muroll
Gesellschaft M.B.H. v. Tenn. Tape, Inc., 908 S.W.2d 211, 213 (Tenn. Ct. App. 1995) (citation
omitted). However, corporate identity may be disregarded and the owners of the stock and assets
may be treated as identical to the corporation “upon a showing that it is a sham or a dummy or
where necessary to accomplish justice.” Schlater v. Haynie, 833 S.W.2d 919, 925 (Tenn. Ct.
App. 1991) (citation omitted). The “[c]onditions under which the corporate entity will be
disregarded vary according to the circumstances present in the case, and the matter is particularly
within the province of the [t]rial [c]ourt.” Muroll Gesellschaft, 908 S.W.2d at 213 (citation
omitted).
Although no single factor is conclusive, Schlater, 833 S.W.2d at 925, Tennessee courts
rely on the following factors when determining whether to pierce the corporate veil:
Factors . . . include not only whether the entity has been used to work a fraud or
injustice in contravention of public policy, but also (1) whether there was a failure
to collect paid in capital; (2) whether the corporation was grossly
undercapitalized; (3) the nonissuance of stock certificates; (4) the sole ownership
of stock by one individual; (5) the use of the same office or business location;
(6) the employment of the same employees or attorneys; (7) the use of the
corporation as an instrumentality or business conduit for an individual or another
corporation; (8) the diversion of corporate assets by or to a stockholder or other
entity to the detriment of creditors, or the manipulation of assets and liabilities in
another; (9) the use of the corporation as a subterfuge in illegal transactions;
(10) the formation and use of the corporation to transfer to it the existing liability
of another person or entity; and (11) the failure to maintain arms length
relationships among related entities.
No. 11-6120 Kutty v United States Dep’t of Labor Page 14
Boles v. Nat’l Dev. Co., Inc., 175 S.W.3d 226, 245–46 (Tenn. Ct. App. 2005) (citing Federal
Deposit Ins. Corp. v. Allen, 584 F. Supp. 386, 397 (E.D. Tenn. 1984)); see Oceanics Schools,
Inc. v. Barbour, 112 S.W.3d 135, 140 (Tenn. Ct. App. 2003).
The ALJ, ARB and district court did not err in concluding that a majority of these factors
are present. Kutty set up a web of corporate entities, with the help of his attorney, in order to
hire the nonimmigrant physicians. Kutty was the sole owner and investor in these entities. He
made all the companies’ major decisions regarding salaries and staffing from a single office in
Florida, and he and his wife were the only officers and directors. There is no evidence that any
of the corporations issued stock certificates and Kutty did not know whether they issued financial
statements. Kutty treated the corporations as an extension of himself. The corporations appear
to have been undercapitalized, as Kutty could not state how much money was used to start the
clinics, or whether money was contributed as capital or loans.
In addition, there is support for the conclusion that the corporations were interchangeable
and did not deal at arms length with each other. During the administrative proceedings, the ALJ
found that, on various documents, multiple entities were represented as the employer of the same
physician, and physicians that were employed by one corporation were often paid by another.8
The ALJ noted that the documents signed by Kutty evidenced significant confusion with respect
to “which corporate entities were acting as the H-1B physicians’ employers.”
Kutty cites cases supporting that several of the factors, standing alone, are insufficient to
pierce the corporate veil.9 However, these cases are inapposite because the record here supports
8
The ALJ decision includes a chart depicting the overlapping relationships between the corporate entities
and the physicians. As an example of how the entities were used interchangeably, the Secretary notes that Dr.
Chicos’s LCA lists “Sumeru Health Care Group” as his employer, but his paychecks were issued by “Sumeru Health
Care Group, Inc.” (a separate entity) and by “Center for Internal Medicine and Pediatrics, Inc.,” his W-2 form was
issued by “Center for Internal Medicine and Pediatrics, P.C.,” and he was terminated by “Maya Health Care.”
9
See Kutty Br. at 27–30 (citing Tenn. Racquetball Investors, Ltd. v. Bell, 709 S.W.2d 617, 622 (Tenn. Ct.
App. 1986) (finding that “mere dominance, standing alone,” is insufficient to hold a corporate director responsible
for corporate debts where control was not used to commit a fraud or wrong and the control did not proximately
cause the injury complained of); Capital Mgmt. Partners v. Eggleston, No. W2004-01207-COA-R3-CV, 2005 WL
1606066, at *11 (Tenn. Ct. App. July 7, 2005) (unreported) (concluding that, although “some corporate formalities
were disregarded during the early years of [the company’s] existence,” the company, which had a “cadre of
experienced investors” who had “significant say in how the company was operated,” was “anything but a sham or
alter ego of [the company]”); Schlater, 833 S.W.2d at 925–27 (concluding that mere control or domination of a
No. 11-6120 Kutty v United States Dep’t of Labor Page 15
the finding that nearly all of the factors are present and dispositive weight was not placed on any
single factor.10
Kutty also argues that the corporate veil may not be pierced because the record does not
support a finding of fraud.11 Tennessee law allows piercing of the corporate veil only where
control over a corporation has “been used to commit fraud or wrong, to perpetuate the violation
of a statutory or other positive legal duty, or a dishonest and unjust act in contravention of third
parties’ rights.” Cont’l Bankers Life Ins. Co. of the S. v. Bank of Alamo, 578 S.W.2d 625, 632
(Tenn. 1979). Here, the ALJ made—and the ARB affirmed—several findings that sufficiently
qualify as “wrongs.” Kutty and his medical clinics failed to pay the H-1B physicians the wages
promised to them and required under the INA, 8 U.S.C. § 1182(n)(1)(A), including during
periods in which the physicians were awaiting their credentials, in violation of the INA’s “no-
benching” provision, 8 U.S.C. § 1182(n)(2)(C)(vii)(I)–(IV) (requiring that H-1B employees be
paid during periods of non-productivity due to a decision by the employer or due to the
employees’ lack of a license); and when the physicians complained, Kutty retaliated against them
for engaging in protected conduct, 8 U.S.C. § 1182(n)(2)(C)(iv) (prohibiting employers from
“discharg[ing] or in any other manner discriminat[ing] against an employee . . . because the
employee has disclosed information . . . that the employee reasonably believes evidences a
violation of this subsection”). The ALJ further found that “Kutty admitted that he knew he was
not going to pay the physicians the amounts listed in the LCAs . . . despite having signed a
company was not sufficient to pierce the corporate veil, and further concluding that an inability to collect a debt
owed by a corporation is insufficient to establish liability for the debt against its officers or shareholders)).
10
Kutty argues that he owned all of the shares in the corporate entities in an attempt to comply with various
provisions of the Tennessee Code, and therefore his organizational structure of choice “cannot be considered to
work a fraud or injustice in contravention of public policy.” Kutty’s argument misses the point. The ALJ did not
hold Kutty personally liable merely because he exercised control over the companies. Nothing in the statutory
provisions Kutty cites suggest that the organizational structure of professional corporations precludes holding
shareholders personally liable when otherwise appropriate under Tennessee Law. See, e.g., Tenn. Code. Ann. § 48-
101-606–08.
11
The Secretary argues that Kutty waived the argument that the DOL failed to prove fraud by failing to
raise it before the ARB. However, Kutty argued before the ARB that he acted in good faith and that the fact that his
clinics were unprofitable was not sufficient grounds to pierce the corporate veil. This is essentially the same
argument he makes here; thus there was no waiver.
No. 11-6120 Kutty v United States Dep’t of Labor Page 16
declaration that the information on the LCAs was correct, and despite having signed an
agreement to abide by the terms of the LCAs when he signed the H-1B petitions.”
Kutty contends that the ALJ did not take into account that the physicians violated their
employment contract by not working the requisite number of hours. However, the ALJ rejected
this argument, finding that “there is little evidence of good faith efforts to comply with the law
on the part of Dr. Kutty [and] his explanations provide inadequate justification for his actions.”
Under the INA and implementing regulations, Kutty was required to pay the rates specified in
the LCA. Kutty neither paid the H-1B physicians the LCA rates, nor the (in many cases, lower)
rates specified in the employment contracts and repeatedly promised to them. The INA is clear
that Kutty was not permitted to withhold funds from the physicians except in limited
circumstances, none of which were present here. See 20 C.F.R. § 655.731 (permitting wages to
be withheld if an employee is nonproductive because of voluntary reasons unrelated to
employment, if the employee has been rendered unable to work, or if there has been a bona fide
termination of the employment relationship, in the event of which DHS must be notified and the
employee must be provided reasonable transportation costs home).
Accordingly, because the record supports that nearly all of the Tennessee factors for
piercing the corporate veil were present and the entities were used to commit a “wrong,” we
conclude that the ALJ did not err in deciding to pierce the corporate veil and hold Kutty
personally liable.
V.
Kutty’s final argument is that the ALJ violated his right to due process by (a) allowing
Kutty and Hooli, both non-lawyers, to represent Kutty and the corporate entities; (b) failing to
postpone the hearing after Kutty was hospitalized and required surgery; (c) relying instead on
Kutty’s prior deposition and other testimony; and (d) finding Kutty personally liable in his
absence. Kutty also asserts, generally, that the ALJ failed to adequately consider his arguments
and explain her decision.
Kutty’s due process claims lack merit. His argument that he and Hooli should not have
been permitted to represent Kutty and the medical clinics because they were not licensed to
No. 11-6120 Kutty v United States Dep’t of Labor Page 17
practice law fails because regulations governing ALJ hearings are clear that “[a]ny party shall
have the right to appear at a hearing in person, by counsel, or by other representative . . . .”
29 C.F.R. § 18.34(a). The regulation permits “[p]ersons not attorneys” to appear in a
representative capacity in adjudicative proceedings provided they apply prior to the hearings or
to the ALJ at the commencement of the hearing. Id. at § 18.34(g). Here, after Kutty’s counsel
was granted permission to withdraw, the ALJ postponed the hearing to give Kutty time to find
new counsel and asked Kutty whether he would like to seek legal representation. Kutty opted to
represent himself, as was his prerogative. Thus, Kutty received due process.
Nor did the ALJ violate Kutty’s due process rights by failing to postpone the hearing
when Kutty was hospitalized. Kutty was represented by counsel at the time of his
hospitalization, and the attorney noted that Kutty wished the hearings to proceed in his absence,
a fact that Kutty does not dispute.12 Further, the ALJ did not violate Kutty’s due process rights
by relying on Kutty’s prior deposition testimony. The regulations governing ALJ hearings
permit the depositions of parties or authorized agents of a corporation to be used “by any other
party for any purpose.” 29 C.F.R. § 18.23(a)(3). The depositions of witnesses may also be used
when they are unavailable to testify due to illness. Id. at § 18.23(a)(4)(iii).
Kutty’s claim that liability cannot be assessed against him in his absence also fails. Kutty
did, in fact, appear at the hearings in early June and again when they resumed in December,
when he made a closing statement to the ALJ. Both the substance of that closing statement and
the fact that Kutty was there to make it, undermine the due process claims he now makes.
Finally, Kutty’s suggestion that the ALJ violated his due process rights by failing to
consider Kutty’s argument that the physicians were not living up to their end of the bargain is
unavailing. The ALJ’s 104-page decision demonstrates thoughtful and careful consideration of
the issues, including specific consideration of Kutty’s claims that the physicians were breaching
their employment contracts. (See ALJ Decision, Appx. at 1276–79 (crediting Kutty’s testimony
that he believed the doctors were not working hard enough, but finding that Kutty had
12
The Secretary also provides evidence contradicting Kutty’s claim that he did not attend the hearings
because he was ill all summer; Kutty’s medical records suggest he traveled to India for vacation after his
hospitalization.
No. 11-6120 Kutty v United States Dep’t of Labor Page 18
“unreasonable expectations and exaggerated isolated incidents in an attempt to scapegoat the
doctors for problems with administration of the clinics”).). Accordingly, we find that Kutty’s
due process claims are meritless.
VI.
For the foregoing reasons, we AFFIRM.