Evou Fitness LLC v. All in Fitness & Wellness LLC

EVOU FITNESS LLC, et al., Plaintiffs/Counter-Defendants/Appellees, v. ALL IN FITNESS & WELLNESS LLC, et al., Defendants/Counter-Claimants/Appellants.

No. 1 CA-CV 16-0240

ARIZONA COURT OF APPEALS DIVISION ONE

May 30, 2017

NOTICE: NOT FOR OFFICIAL PUBLICATION. UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

Appeal from the Superior Court in Maricopa County

No. CV2014-009146

The Honorable Arthur T. Anderson, Judge

AFFIRMED

COUNSEL

Fennemore Craig, P.C., Phoenix

By Jessica Post, Kristi Lundstrom

Counsel for Plaintiffs/Counter-Defendants/Appellees

The Cavanagh Law Firm, P.A., Phoenix

By David A. Selden, Jennifer L. Sellers

Counsel for Defendants/Counter-Claimants/Appellants

MEMORANDUM DECISION

Judge Jon W. Thompson delivered the decision of the Court, in which Presiding Judge Kent E. Cattani and Judge Paul J. McMurdie joined.

THOMPSON, Judge:

¶1 Appellants All In Fitness & Wellness LLC (All In), Quan Phu, and Anthony DiNobile challenge the trial court's ruling granting summary judgment against them on two of their counterclaims, one arising under the Arizona Wage Act and other under the Fair Labor Standards Act (FLSA). Appellants also challenge the trial court's refusal to award them attorneys' fees and costs, contending that they were the successful parties in the litigation. We affirm the trial court's rulings on all issues raised.

FACTUAL AND PROCEDURAL BACKGROUND

¶2 Appellees Evou Fitness, L.L.C. and Spectrum Fitness, L.L.C. (collectively Evou) operated two Fitness Evolution fitness centers in Mesa and Gilbert. Phu served as a Fitness Evolution manager from January 2013 to January 2014. Phu had previously worked as a manager for Spectrum Fitness, which Evou's owner acquired in 2013. Phu received base compensation of $2500 per month and performance commissions while employed by Fitness Evolution. Fitness Evolution later increased his base compensation to $3000 per month.

¶3 In January 2014, DiNobile and Evou had discussions regarding DiNobile potentially becoming a part-owner of the business. While those discussions were ongoing, DiNobile worked in a managerial capacity for Fitness Evolution for approximately one week. DiNobile and Phu then resigned; they later opened All In approximately three miles from Fitness Evolution's Gilbert location. Fitness Evolution did not pay DiNobile any wages upon his departure, but eventually paid him in September 2014.

¶4 Evou filed suit against All In, Phu, DiNobile, and others alleging that All In had hired away several former Fitness Evolution employees in violation of those employees' non-compete and confidentiality agreements. Evou further alleged that Phu had improperly used an Evou-owned Facebook page to solicit customers to All In.¶5 Evou requested a temporary restraining order and preliminary injunction barring All In, Phu, and DiNobile from further soliciting Fitness Evolution employees or customers. At the temporary restraining order hearing, the parties reached the following agreement on the record pursuant to Arizona Rule of Civil Procedure (Rule) 80(d)¹:

• Appellants would not directly or indirectly solicit Fitness Evolution members or employees,

• Appellants would not disclose any Fitness Evolution confidential information, and

• Appellants would no longer use the Facebook page and would work with Evou to transfer over administrative rights to the page, although All In contended the page had already been deleted.

¶6 Appellants asserted numerous counterclaims following the hearing. Appellants sought a declaratory judgment that Evou's non-compete agreements with its employees were unenforceable. DiNobile alleged individually that Evou (1) had breached their agreement under which DiNobile would have become a part-owner, (2) had misrepresented its financial status, and (3) violated FLSA and the Arizona Wage Act (Arizona Revised Statutes (A.R.S.) section 23-350 (2016), et seq.) by failing to pay him wages for his one week of work. Phu likewise alleged that Evou had breached its promise to make him a part-owner of Spectrum and had violated FLSA and the Wage Act by failing to pay him overtime, commissions earned, and health benefits. DiNobile and Phu each sought treble damages for their Wage Act claims under A.R.S. § 23-355(A) (2012). Appellants also moved for partial summary judgment, presenting affidavits from thirty-six former Fitness Evolution customers and arguing that Evou had suffered no damages because of their conduct. They also contended that Evou's employee handbook was not intended to be a contract.

¶7 Evou moved for and obtained time to conduct discovery on these issues under Rule 56(f). Evou then moved to voluntarily dismiss its claims against appellants, stating that it was "satisfied with the agreement that the parties reached on the record and would agree that both parties should go their separate ways" and that it believed "the cost of provingdamages in this case will far exceed the value of the damages." Evou noted that it had paid DiNobile's claimed wages.

¶8 Appellants also moved to voluntarily dismiss some of their counterclaims, but moved for partial summary judgment on Phu's FLSA claim and DiNobile's treble damages claim. Evou cross-moved for summary judgment on each of these claims and sought summary judgment on Phu's Wage Act claim, which Phu did not oppose. The trial court granted appellants' motion for voluntary dismissal and granted summary judgment for Evou on the three remaining counterclaims. The court found that Phu had "performed exempt duties only under the FLSA," he received a sufficient salary to be deemed exempt under the relevant FLSA regulations, and no deductions were taken from his pay. The court also declined to treble DiNobile's wages even though Evou did not pay them for several months.

¶9 Both sides applied for attorneys' fees and costs. Following contentious briefing, the trial court declined to award attorneys' fees to either side:

[Evou] argues that this litigation should have been over a year ago. It contends that the 10 counterclaims are meritless and some even frivolous. All In is equally accusatory, stressing that [Evou's] lawsuit accomplished nothing. All In argues that the record is replete with Rule 11 issues.

It is unfortunate that this case—with two highly qualified firms—festered as long as it did. Frustration, outrage, and accusations of unsupportable positions emanate from the papers. On this record, the Court is unable to identify a "prevailing party" or otherwise justify an award of fees to any party.

Appellants timely appealed. We stayed the appeal to allow appellants to obtain a final Rule 54(c) judgment, which they did. We have jurisdiction pursuant to A.R.S. § 12-2101(A)(1) (2016).

DISCUSSION

¶10 We review de novo whether summary judgment is warranted, including whether genuine issues of material fact exist and whether the trial court properly applied the law. Dreamland Villa Cmty. Club, Inc. v. Raimey, 224 Ariz. 42, 46, ¶ 16, 226 P.3d 411, 415 (App. 2010). Weconstrue all facts in favor of appellants as the non-moving parties. Melendez v. Hallmark Ins. Co., 232 Ariz. 327, 330, ¶ 9, 305 P.3d 392, 395 (App. 2013).

I. The Trial Court Correctly Granted Summary Judgment on Phu's FLSA Claim

¶11 Phu contends the trial court erred in granting summary judgment on his FLSA claim because he was entitled to overtime compensation. Generally, employees are entitled to overtime compensation for hours worked beyond forty hours per week. 29 U.S.C. § 207(a)(1). An employee may be exempted from overtime compensation, however, under one of several regulatory exemptions. Colson v. Avnet, Inc., 687 F. Supp. 2d 914, 918 (D. Ariz. 2010). We review Phu's duties and salary to see if they met the requirements of any of the regulatory exemptions. Colson, 687 F. Supp. 2d at 918; 29 C.F.R. § 541.200.

¶12 Phu concedes that he performed exempt duties for Fitness Evolution. He contends, however, that Evou did not pay him a salary, but rather "non-employee compensation" as an independent contractor. This argument is circular, as "only employees are entitled to overtime and minimum-wage compensation" under FLSA. Keller v. Miri Microsystems LLC, 781 F.3d 799, 806 (6th Cir. 2015). Nonetheless, "an employer's classification of a worker as an 'independent contractor' is not controlling." Ethelberth v. Choice Sec. Co., 91 F. Supp. 3d 339, 350 (E.D.N.Y. 2015) (citation omitted); see also 29 U.S.C. § 203(e)(1) (defining "employee" under FLSA generally to mean "any individual employed by an employer"). We will assume for purposes of this appeal that Phu would have been considered an employee under FLSA.

¶13 The regulations in effect when Phu worked for Fitness Evolution² required that an exempt executive, administrative, or professional employee³ be paid no less than $1971.66 per month and be paid "each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee's compensation, whichamount is not subject to reduction because of variations in the quality or quantity of the work performed." 29 C.F.R. §§ 541.600(a)-(b), 541.602(a). Phu does not dispute that Evou paid him regularly and paid him more than the minimum required amount. He instead contends his compensation became "subject to reductions" when Evou sought disgorgement in this lawsuit. We reject this contention because Phu offered no evidence to show that Evou took any deductions from his pay for any reason and because Evou voluntarily dismissed its disgorgement claim.

¶14 Phu next cites Auer v. Robbins, 519 U.S. 452 (1997) for the proposition that there is no requirement that he prove that Evou made any actual deductions. In Auer, the Supreme Court held that an employee is not paid on a salary basis for FLSA purposes if (1) there is an actual practice of salary deductions or (2) an employee is compensated under a policy that clearly communicates a significant likelihood of deductions. 519...