Medrano v. Flowers Food, Inc.

PAUL MEDRANO, on his own behalf and on behalf of all others similarly situated^[1], Plaintiff, v. FLOWERS FOODS, INC., and FLOWERS BAKING CO. OF EL PASO, LLC, Defendants.

Civ. No. 16-350 JCH/KK

United States District Court, D. New Mexico

August 11, 2021

MEMORANDUM OPINION AND ORDER

This case is before the Court on Defendants' Motion for Summary Judgment as to Various Defenses to Plaintiffs' Claims [Doc. 159]. Plaintiffs filed their response [Doc 171], and Defendants replied [Doc. 177]. Defendants ask for summary judgment on Paul Medrano's individual claim under the New Mexico Minimum Wage Act and on Charles Carroll's individual Fair Labor Standards Act (“FLSA”) claims. These portions of Defendants' motion are moot because all claims asserted by both Medrano and Carroll have been dismissed. [Doc. 184]. Thus, the only issue before the Court is Defendant's contention that, as a matter of law the Plaintiffs are exempt from overtime pay under the FLSA under the outside sales exemption. Because the Court concludes that there are genuine issues of material fact as to the applicability of the exemption, Defendants' motion will be denied.

FACTS

The Court considers only the material facts needed to decide Defendants' Motion for Summary Judgment. All facts come from the parties' briefings and accompanying exhibits. The Court resolves all disputed issues of material fact in favor of the Plaintiffs as the non-moving parties.

Defendant Flowers Foods, Inc. (“Flowers Foods”) is the parent company of numerous subsidiary bakeries through the country, each of which is organized as a separate legal entity. Each entity is responsible for its own day-to-day operations. Defendant Flowers Baking Co. of El Paso (“FBC-El Paso”) is a subsidiary bakery of Flowers Foods and is headquartered in El Paso, Texas.

I. Distributor Agreements

Like its counterparts around the country, FBC-El Paso enters distributor agreements with the Plaintiff-distributors. Distributors purchase distribution rights to market and sell Defendants' bakery products within a defined geographic territory. The agreements, which are not subject to negotiation [Baldwin Dep. at 92-93], provide that FBC-El Paso will sell its products to the distributor “at such terms and prices as established by [FBC-El Paso.]” [Distributor Agrmt. § 4.1]. The agreement entitles Plaintiffs to turn around and distribute Defendants' branded products to “Outlets, ” retailers and restaurants in Plaintiffs' respective geographic territories. [See Doc. 168-7 at p. 1]. A distributor must use his “best efforts to develop and maximize the sale of Products to Outlets within the Territory and service the Territory in accordance with good industry practice.” [Distr. Agrmt § 5.1]. According to the agreement, a distributor is a “common law independent contractor.” [Id. § 15.1].

In addition to classifying distributors as independent contractors, the distributor agreements require distributors to perform sales, deliveries, and service in compliance with “Good Industry Practice.” The distributor agreement defines that term as

the standards that have developed and are generally accepted and followed in the baking industry, including, but not limited to, maintaining an adequate and fresh supply of Products and Authorized Products in all Outlets requesting service, actively soliciting all Outlets not being serviced properly rotating all Products and Authorized Products, promptly removing all stale Products and Authorized Products, maintaining proper service and delivery to all Outlets requesting service, maintaining all equipment in a sanitary condition and in good safe working order, and operating the Distributorship in compliance with all applicable federal, state and local laws, rules and regulations.

[Distributor Agreement § 2.6]. Notably, only one duty on this list-“actively soliciting all Outlets not being serviced”-seems to relate in any way to sales.

The distributor agreements also include stipulations regarding the working relationship between each distributor and FBC-El Paso. For example, FBC-El Paso may change the “terms and prices” of their sales to distributors [Id. § 4.1]; distributors must use their “best efforts to develop and maximize” sales of “authorized products” in accordance with “good industry practice, ” and “cooperate” with marketing and sales efforts [Id. § 5.1]; deliveries need not be “conducted personally, ” so that distributors are “free to engage” outside assistance [Id. § 15.2]; FBC-El Paso may terminate the agreement if the distributor “fails to perform [the] obligations under this Agreement” [Id. § 16.1]; and FBC-El Paso may issue notices where it finds a distributor to be in breach of the agreement [Id. § 16.3].

Per the distributor agreements, distributors earn money by “purchasing” product at a specified discount and “selling” it at a higher price to customer stores such as chain grocers, independent grocers, restaurants, and cash customers. [Baldwin Depo. at 12-13, 109]. However, distributors are not able to negotiate the discount they receive on product obtained from FBC to deliver to stores. [Baldwin Depo. at 110]. Distributors do not determine which products to sell, nor do they have the option not to carry certain products. [Havens Depo. at 78-79; Baldwin Depo. at 75].

To fulfill their obligations, distributors in the nationwide Flowers system use company-issued hand-held computers to submit orders on behalf of their customers' accounts, pick up the products from designated warehouses shortly after the products arrive, drive the products to customers' locations, deliver products to the shelves in customers' stores, periodically manage the inventory of products at those stores to ensure a steady supply of fresh product, and respond to concerns raised by store managers. See, e.g., Noll v. Flowers Foods, Inc., 442 F.Supp.3d 345, 351 (D. Me. 2020); Ruacho Depo. at 61; Soto Depo. at 25-26; Coronado, Jr. Depo. at 88; Rueda Depo. at 62-63. Because distributors' earnings are determined largely by the difference between what they pay FBC-El Paso and the price paid by customers at Outlets, Plaintiffs' income is primarily a function of the volume of products sold to customers. Distributors can increase their income by selling more products. [Soto Depo. at 21-22; Martinez-Gaytan Depo. at 39-40]. Thus, some testified that they attempt to develop and maximize the sales of products to their Outlets. [Coronado Jr. Depo. at 121-22; Ruacho Depo. at 46; Rueda Depo. at 61-62; Soto Depo. at 21]. A few occasionally attempt to secure new cash accounts at small independent stores in their territories, with limited success. [Soto Depo. at 33; Reyes Depo. at 54; Rueda Depo. at 69; Coronado Jr. Depo. at 63-64].

Distributors can also make money by selling all or a portion of their territory; they can also make the territory more valuable for resale by increasing their product sales within the territory. [Ruacho Depo. at 47-48; Reyes Depo. at 56; Soto Depo. at 32-33]. In addition, the distributors work to make sure the baked goods are displayed in a neat and attractive manner, and that the store shelves are well-stocked. [Rueda Depo. at 62; Ruacho Depo. at 61]. Similarly, they remove stale product from the shelves. [Reyes Depo. at 46].

II. Sales of Baked Goods Are Determined Largely by Agreements Between Defendants and Retailers

The parties dispute the extent to which distributors can impact the total volume of sales in their territories through their own efforts, but it is undisputed that the overwhelming majority of product is sold to the large, chain retailers who are Defendants' primary accounts. Defendants entered into Direct Store Delivery Agreements (“DSDs”) with chain stores, and those agreements, to an extent, define items such as days of service and amount of bread delivered to store locations. [Del Campo Depo. at 80]. Distributors do not have any ability to contribute to or participate in the negotiation of the DSD agreements. [Id. at 71-73]. If a distributor fails to meet the DSD requirements, the company informs the distributor of the failure and FBC-El Paso could terminate the distributor's contract if the failure is not corrected. [Id.at 123-125].

The evidence shows that supply agreements between Defendants and the national chain store retailers control virtually all business aspects of the relationship between the distributor and the chain retailer. For example, with a national account a distributor may not determine the price of a product whether to put it on sale, or what product to sell in the first place. [Baldwin Depo. at 74-75]. Further, a distributor must continue to service a store that is part of a national account, even if it is unprofitable. [Baldwin Depo. at 78-79]. Such national chain accounts comprise the vast majority of distributors' business. [Havens Depo. at 83; Baldwin Depo. at 110]. By contrast, independent stores, where a distributor might have the opportunity to increase sales, comprised approximately two percent of sales. [Havens Depo. at 83]. On the other hand, Defendants put forth evidence that the handheld computing device devices used to submit orders contained a prepopulated suggested order for each Outlet, but some distributors testified they modify or adjust those suggested orders based on their own knowledge of sales trends for specific products, in anticipation of the impact of promotional, holiday, or seasonal changes, and based on other factors, including a consideration of the demographics of the typical shoppers at these customer accounts. [Ruacho Depo. at 63-65; Martinez-Gaytan Depo. at 50-51; Covarrubias Depo. at 53-54; Coronado Sr. Depo. at 101-102; Reyes Depo. at 95-96; Soto Depo. at 28-29]. Others ask store managers for displays or endcaps to...