Martin v. Lincor Eatery, Inc.

423 F.Supp.3d 432

Crystal MARTIN, Jessica Jones, Suzette Reynolds, and Renee Van Hook, Plaintiffs,

v.LINCOR EATERY, INC., Sagano of Brighton, Inc., Sagano of Clarkston, Inc., Sagano of Fenton, Inc., Sagano of Warren, Inc., and Sagano Properties, LLC, Defendants.

Case No. 17-11634

United States District Court, E.D. Michigan, Southern Division.

Signed September 23, 2019

Bruce A. Miller, Jeremy F. Fisher, Keith D. Flynn, Miller Cohen, P.L.C., Detroit, MI, for Plaintiffs.

Michael W. Edmunds, Gault Davison, PC, Kyle R. Riem, Grand Blanc, MI, for Defendants.

OPINION AND ORDER GRANTING DEFENDANT SAGANO PROPERTIES' MOTION FOR SUMMARY JUDGMENT

MARIANNE O. BATTANI, United States District Judge

I. INTRODUCTION

On May 23, 2017, Plaintiffs Crystal Martin, Jessica Jones, Suzette Reynolds, and Renee Van Hook commenced this action on behalf of themselves and other similarly situated current and former employees of a chain of Japanese restaurants allegedly owned and operated by Defendants Lincor Eatery, Inc., Sagano of Brighton, Inc., Sagano of Clarkston, Inc., and Sagano Properties, LLC, alleging that Defendants have violated the federal Fair Labor Standards Act ("FLSA"), 29 U.S.C. § 201 et seq., and the Michigan Workforce Opportunity Wage Act ("MWOWA"), Mich. Comp. Laws § 408.411 et seq. , by using a tip credit and tip-pooling scheme in a manner that results in Plaintiffs and other servers being paid less than the minimum hourly wage mandated under federal and Michigan law. Plaintiffs further allege that Defendants failed to provide the requisite notice that they employ a tip credit system, and that Defendants' tip-pooling arrangement has unlawfully resulted in tips being shared with employees, such as managers, who are not eligible to receive these payments. In an opinion and order dated September 24, 2018, the Court conditionally certified a collective action under the FLSA, authorizing the named Plaintiffs to represent a class of similarly situated individuals who were employed as servers at one or more of Defendants' restaurants and were deprived of pay through Defendants' allegedly invalid tip credit and tip-pooling scheme.¹

Through the present motion filed on March 25, 2019, one of the business entities named as a defendant, Sagano Properties, LLC, seeks an award of summary judgment in its favor on the ground that it does not qualify as an "employer" under either the FLSA or its Michigan counterpart, the MWOWA. In support of this motion, Sagano Properties asserts that it is not a restaurant operator that employs any member of the Plaintiff class, but instead is a real estate holding company that owns properties which, in turn, are leased to certain of the Defendant restaurants. Indeed, Sagano Properties states that it has no employees whatsoever. Under these circumstances, Sagano Properties argues that it cannot be held liable for any FLSA or MWOWA violations alleged by Plaintiffs, whether as a "joint employer" of the servers employed at the Defendant restaurants or under any other theory of liability Plaintiffs might be pursuing.

Defendant's motion has been fully briefed by the parties, and on June 13, 2019, the Court heard argument on this motion. For the reasons set forth below, the Court GRANTS Defendant Sagano Properties' motion for summary judgment.

II. FACTUAL BACKGROUND

A. The Parties

According to Plaintiffs' first amended complaint, the six named Defendants — Lincor Eatery, Inc., Sagano of Brighton, Inc., Sagano of Clarkston, Inc., Sagano of Fenton, Inc., Sagano of Warren, Inc., and Sagano Properties, LLC — are the owners and operators of a chain of five Japanese bistros with locations in Flint, Brighton, Clarkston, Warren, and Fenton, Michigan.² Plaintiffs allege that these six entities are properly characterized as "joint employers" of the members of the Plaintiff class, due to such factors as the common ownership of these entities and their shared human resources department, employment policies, and management structure. (Dkt. 65, First Amended Complaint at ¶ 11.)

Each of the four named Plaintiffs worked as a server at one or more of the Defendant restaurants during the three-year period before this suit was brought. By virtue of the Court's September 24, 2018 ruling on Plaintiffs' motion for conditional certification of a collective action under the FLSA, as supplemented by the entry of a February 25, 2019 stipulated order, the named Plaintiffs now serve as representatives of a class certified under Fed. R. Civ. P. 23(b)(3) of all individuals who were or are employed as servers at any of Defendants' restaurants between May 23, 2014 and a yet-to-be-determined deadline for responding to a forthcoming class action notice.

B. The Characteristics of and Relationships Between the Defendant Business Entities

Apart from the moving Defendant, Sagano Properties, LLC, each of the five remaining named Defendants owns and operates one location of a chain of Japanese-style restaurants in the Detroit metropolitan area. According to their articles of incorporation and other corporate records, these five Defendant corporations share a single registered office located at 5340 Richfield Road in Flint. (See Dkt. 77, Plaintiffs' Response, Ex. 1, Corporate Records.) One member of the ownership group for the Defendant restaurants, James Teuber, owns a bowling alley that is located at the Richfield Road address. (See Plaintiffs' Response, Ex. 3, Teuber Dep. at 6.)

The moving Defendant, Sagano Properties, differs in important respects from its five co-Defendants. As explained by the company's manager, Mr. Teuber, Sagano Properties is "a real estate holding company" that "has no employees and does not operate" any of the five restaurants at which the named Plaintiffs are or were employed. (Defendant's Motion, Ex. 1, Teuber Aff. at ¶¶ 8-9.) Rather, the company owns two properties, which it leases to the co-Defendants that operate the Brighton and Fenton locations of the Defendant restaurant chain. (See id. at ¶ 10.) Because Sagano Properties has no employees, it has not adopted a tip credit or tip-pooling arrangement of the sort giving rise to Plaintiffs' claims in this case, nor does it have any need for a human resources department or employment policies to govern its relationship with its employees. (See id. at ¶¶ 12, 25.)

Sagano Properties acknowledges that "[t]he same group of owners who own Sagano Properties own the five restaurants," (Dkt. 75, Defendant's Motion, Br. in Support at 3), but the exact ownership group varies from one Defendant business entity to another. For example, "Khalil Saab is an owner of all the restaurants," but James Teuber has an ownership interest in only some of the restaurants while his trust holds an ownership interest in the others. (Id. at 4.) "Similarly, Shiro Inoue and Inja Song each own individual shares of some of the restaurants, and they jointly own shares in the other restaurants." (Id. ) According to Mr. Teuber, the owners of Sagano Properties are his trust, Khalil Saab, Shiro Inoue, and Inja Song. (Teuber Aff. at ¶¶ 17-18.)

Mr. Teuber manages both Sagano Properties and the Brighton location of the Defendant restaurant chain. (See id. at ¶¶ 2-3.) The remaining four restaurants are managed by Mr. Inoue. (See Defendant's Motion, Br. in Support at 4.) Mr. Teuber has testified that he "handle[s] most of the bookkeeping" for the Defendant restaurant chain, that he "tend[s] to be the fix-it guy when something is broke," and that he "do[es] all the other things that an active partner in [a] business would do." (Teuber Dep. at 7.)

According to Mr. Teuber, the five restaurants are governed by uniform policies "[f]or the most part." (Id. at 12.) He explains that "[j]ust like McDonald's, if every McDonald's had a different burger, it wouldn't work as well ..., so we try to do everything the same." (Id. ) As the sole example of a difference in policies among the five locations, Mr. Teuber points to a different arrangement used at the Brighton location for distributing the tips received by servers. (See id. at 15.) He states that the five locations share a website and advertising, and that he, Shiro Inoue, and Inja Song developed the human resources policies that have been adopted at each restaurant. (See id. at 23-24.) In addition, each of the owners has the authority to hire and fire employees at any of the five restaurants, but Mr. Teuber has testified that the hiring and firing typically is handled by the manager at a given location. (See id. at 23-24.)

Sagano Properties and its manager, Mr. Teuber, point to various evidence that, in their view, illustrates the independence and separate corporate existence of each of the six named Defendants. Mr. Teuber notes, for example, that each Defendant maintains "a separate bank account," and that Defendants "have no shared bank accounts." (Teuber Aff. at ¶ 14.) In addition, each of the Defendants files its own separate tax returns. (See id. at ¶ 15.) Moreover, Sagano Properties states that it has executed leases with co-Defendants Sagano of Brighton and Sagano of Fenton reflecting these parties' treatment of each other as "separate, distinct legal entities," and that pursuant to these leases, the two restaurants write monthly checks drawn from their own bank accounts to Sagano Properties to secure their use of the property held by Sagano Properties on which their restaurants are located. (Dkt. 78, Defendant's Reply Br. at 5-6; see also Defendant's Motion, Ex. 2, Property Leases.)

III. STANDARD OF REVIEW

Through the present motion, Defendant Sagano Properties, LLC seeks an award of summary judgment in its favor on the issue of its liability as an "employer" under the FLSA and its Michigan counterpart, the MWOWA. Under the pertinent Federal Rule governing this motion, summary judgment is proper "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). As the Supreme...