Anthony v. State

632 N.W.2d 897

Royce L. ANTHONY, Kenneth J. Arduser, Richard D. Aringdale, Fred O. Burger, Steven R. Conlon, Joseph L. Diaz, Loren E. Dykeman, James K. Ehresman, Robert W. Elliott, Blaine Goff, Terrance Hoil, McKinnely Jontz, Jr., Ronald G. Makin, Larry G. Mathers, George H. Mayer, Timothy P. McDonald, Lee J. Meinert, Larry L. Noble, Bradford J. Thompson, Earl E. Usher, Jon R. Wilson, and Charles R. Wood, Appellants, v. STATE of Iowa and Iowa Department Of Public Safety, Appellees.

No. 99-0515.

Supreme Court of Iowa.

September 6, 2001.

Pamela J. Walker of Sherinian & Walker Law Firm, West Des Moines, and R. Todd Gaffney of Finley, Alt, Smith, Scharnberg, Craig, Hilmes & Gaffney, P.C., Des Moines, for appellants.

Thomas J. Miller, Attorney General, and Jeffrey D. Farrell, Assistant Attorney General, for appellees.

CARTER, Justice.

Plaintiffs appeal from the grant of summary judgment for the State in their class action for overtime wages under the Fair Labor Standards Act (FLSA) and Iowa Code chapter 91A.¹ The State cross-appeals, urging that it is immune from plaintiffs' claims by reason of the decision in Alden v. Maine, 527 U.S. 706, 119 S.Ct. 2240, 144 L.Ed.2d 636 (1999). The district court rejected the State's claim of sovereign immunity but granted the State summary judgment based on a federal regulation purporting to allow correction of wage-basis methodology that would otherwise render an employee subject to the act. On February 14, 2001, this court filed an opinion affirming the district court's decision on the merits and declining to rule on the sovereign-immunity issue. A petition for rehearing filed by plaintiffs was subsequently granted and that opinion, which was never published, was withdrawn. After again reviewing the record and considering the arguments presented in the original briefs and on the petition for rehearing, we reverse the judgment of the district court on plaintiffs' appeal but affirm that court's rejection of the State's sovereign-immunity defense.

Plaintiffs are current and former employees of the Iowa Department of Public Safety in executive and administrative positions. Because of the nature of their duties, the State asserts that they are not subject to the overtime pay requirements of the FLSA. Plaintiffs maintain that they are subject to such requirements because the manner in which they are paid includes deductions for disciplinary suspensions.

Plaintiffs originally filed an action in the United States District Court for the Southern District of Iowa seeking to establish their position. That court initially granted plaintiffs' motion for summary judgment on the merits of their claim and set a hearing on damages for a later date. Before that hearing could be held, the Supreme Court filed the decision of Seminole Tribe v. Florida, 517 U.S. 44, 116 S.Ct. 1114, 134 L.Ed.2d 252 (1996), establishing the immunity of states under the Eleventh Amendment with respect to similar claims. Based on that decision, the district court dismissed plaintiff's action on jurisdictional grounds. Raper v. Iowa, 940 F.Supp. 1421 (S.D.Iowa 1996). That decision was affirmed on appeal. Raper v. Iowa, 115 F.3d 623 (8th Cir.1997).

At the conclusion of the federal litigation, plaintiffs filed the present action in state court. They reasserted the claim made in the federal litigation that they were not exempt from the application of the FLSA overtime requirements because of the State's disciplinary policy calling for suspensions without pay.

Plaintiffs and the State each filed motions for summary judgment. The State's motion relied on 29 C.F.R. § 541.118(a)(6), the "window of correction" regulation, which allows an employer to preserve an employee's exempt status under the FLSA if it corrects past violations of the salary test, which the employer is required to meet. It also claimed sovereign immunity based on the Alden decision. The district court rejected the sovereign-immunity claim. Relying on the window-of-correction regulation, the court granted the State's motion for summary judgment based on the assurance that the State had reimbursed those executive and administrative employees who had suffered deductions from their regular salaries for disciplinary reasons and had amended its personnel policies to preclude similar deductions from the salaries of the plaintiff class members in the future.

I. The Sovereign-Immunity Issue.

Because both parties have requested that we initially resolve the sovereign-immunity issue raised in the State's appeal, we consider that matter first. The critical question on that issue is whether the State has waived the sovereign immunity to which it is otherwise entitled under the Alden decision.

A. The Alden decision. In Alden, probation officers employed by the State of Maine brought a private suit for damages against the state in federal court alleging violation of the overtime provisions of the FLSA. Alden, 527 U.S. at 711-12,119 S.Ct. at 2246,144 L.Ed.2d at 652. As in the present case, the federal district court dismissed the plaintiffs' claim after the Supreme Court decided the Seminole Tribe case. The court of appeals affirmed. Mills v. Maine, 118 F.3d 37, 55 (1st Cir. 1997). The Alden plaintiffs then brought the same suit in state court. Maine's appellate court ultimately found that the state was protected from suit under the doctrine of sovereign immunity. Alden v. State, 715 A.2d 172, 176 (Me.1998). The Supreme Court granted certiorari and held "that the powers delegated to Congress under Article I of the United States Constitution do not include the power to subject nonconsenting States to private suits for damages in state courts." Alden, 527 U.S. at 712,119 S.Ct. at 2246,144 L.Ed.2d at 652.

In its Alden opinion, the Supreme Court discussed at length the preconstitutional history of the doctrine of sovereign immunity as well as application of the doctrine after the Constitution was adopted and later amended. The court emphasized that the states' immunity from private suits for damages was a fundamental component of the states' sovereignty before the Constitution was adopted and was an integral consideration throughout the ratification process. Id. at 713, 119 S.Ct. at 2246-47, 144 L.Ed.2d at 653-54. The Court concluded that the Tenth Amendment removes "[a]ny doubt regarding the constitutional role of the States as sovereign entities ...," as it reserves all powers to the states that are not delegated to the federal government by the Constitution. Alden, 527 U.S. at 713-14, 119 S.Ct. at 2247, 144 L.Ed.2d at 653.

Following Alden, at least three state appellate courts have held that states are protected by the sovereign-immunity doctrine from private suits for damages based on the FLSA unless the state waives its immunity. King v. State, 260 Neb. 14, 614 N.W.2d 341, 347 (2000); Allen v. Fauver, 327 N.J.Super. 14, 742 A.2d 594, 598 (App. Div.1999); Commonwealth v. Luzik, 259 Va. 198, 524 S.E.2d 871, 877 (2000).

B. Whether a waiver of sovereign immunity has been established. One of the legal theories on which plaintiffs' claims are based in the present litigation involves the Iowa Wage Payment Collection Law, Iowa Code chapter 91A (1995). They urge that in combination the applicable statutes and administrative regulations classify the overtime compensation required by the Fair Labor Standards Act as "wages" subject to collection by legal action under Iowa Code sections 91A.8 and 91A.10(3). They urge that this statutory scheme is a waiver of the State's sovereign immunity under Alden.

1. The issue-preclusion problem. In considering the consequences of chapter 91A on the State's sovereign immunity, we first encounter a potential issue-preclusion problem. The federal district court in which the plaintiffs first presented their claims rejected their attempt to establish a waiver of the State's sovereign immunity based on chapter 91A. The federal court's ruling on the sovereign-immunity issue was a final judgment on the merits of that jurisdictional issue. The federal court clearly had jurisdiction to determine its own jurisdiction.

Although the issue concerning waiver of sovereign immunity under the Eleventh Amendment in the federal litigation was similar to the issue of waiver of sovereign immunity under the Tenth Amendment in the present litigation, a close reading of the federal court ruling discloses reasons why it should not be given preclusive effect on the interpretation of chapter 91A. In rejecting plaintiffs' arguments on waiver of sovereign immunity based on chapter 91A, the federal court stated:

As noted by defendants, however, plaintiffs' suit in the present case is brought under the FLSA—not Chapter 91A. Furthermore, there is no indication anywhere in Chapter 91A that a "court of competent jurisdiction" includes a federal court. "[I]n order for a state statute or a constitutional provision to constitute a waiver of Eleventh Amendment immunity, it must specify the State's intention to subject itself to suit in federal court."

Raper, 940 F.Supp. at 1426 (citation omitted). This ruling did not consider whether chapter 91A allows plaintiffs to pursue their FLSA overtime claims in an action brought under that chapter in the Iowa courts.

2. The statutory pay plan. For purposes of wage collections under sections 91A.8 and 91A.10(3):

"Wages" means compensation owed by an employer for:

a. Labor or services rendered by an employee, whether determined on a time, task, piece, commission, or other basis of calculation.

b. Vacation, holiday, sick leave, and severance payments which are due an employee under an agreement with the employer or under a policy of the employer.

c. Any payments to the employee or to a fund for the benefit of the employee, including but not limited to payments for medical, health, hospital, welfare, pension, or profit-sharing, which are due an employee under an agreement with the employer or under a policy of the

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