Perez v. Five M's, an Ind. Ltd., CIVIL NO. 2:15cv176

THOMAS E. PEREZ, Secretary of Labor, United States Department of Labor, Plaintiff, v. FIVE M'S, an Indiana limited liability company d/b/a PREMIER AUTO, PREMIERAUTO SALES, and VALPARAISO CAR CARE AND TRANSMISSION, R-WAY, INC.,an Indiana corporation d/b/a L&W AUTO SALVAGE,and JOHN MORGAVAN, an individual, Defendants.

CIVIL NO. 2:15cv176

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF INDIANA

March 1, 2017

OPINION AND ORDER

This matter is before the court on a motion for summary judgment filed by the plaintiff, Thomas E. Perez, Secretary of Labor, United States Department of Labor ("DOL"), on August 1, 2016. The defendants, Five M's and John Morgavan, filed a response to the motion on September 1, 2016, to which the DOL replied on September 19, 2016.

Also before the court is a motion to strike portions of the declaration of Nancy Alcantara, filed by Five M's on September 1, 2016. The DOL responded to the motion to strike on September 19, 2016. Five M's declined to file a reply.

Also before the court is a motion to strike the affidavit of Neal Guidarelli, filed by the DOL on September 19, 2016. Five M's has not filed a response.

Summary Judgment

Summary judgment must be granted when "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). A genuine issue of material fact exists when "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Not every dispute between the parties precludes summary judgment, however, since "[o]nly disputes over facts that might affect the outcome of the suit under the governing law" warrant a trial. Id. To determine whether a genuine issue of material fact exists, the court must construe all facts in the light most favorable to the non-moving party and draw all reasonable inferences in that party's favor. Heft v. Moore, 351 F.3d 278, 282 (7th Cir. 2003). A party opposing a properly supported summary judgment motion may not rely merely on allegations or denials in its own pleading, but rather must "marshal and present the court with the evidence she contends will prove her case." Goodman v. Nat'l Sec. Agency, Inc., 621 F.3d 651, 654 (7^th Cir. 2010).

Discussion

On May 1, 2015, the DOL filed a complaint against Five M's seeking injunctive relief, restraining minimum wage, overtime, and recordkeeping violations of the FLSA, and recovery of unpaid compensation with an equal amount in liquidated damages under the FLSA. The DOL's lawsuit specifically seeks a total of $28,954.12 for 35 employees in unpaid wages ($1,676.83) and unpaid overtime ($12,800.23) and liquidated damages ($14,477.06).

The DOL alleges that Five M's history of FLSA violations dates back to 2005, when the DOL's Wage and Hour Division ("Wage and Hour") first conducted an investigation of Valparaiso Transmission and owner John Morgavan. Then, like now, Wage and Hour determined that Mr. Morgavan failed to pay an employee his last paycheck (a minimum wage violation), paid hourly employees who worked more than 40 hours per workweek their regular rates for all hours worked (an overtime violation), and failed to keep records of hours worked (a recordkeepingviolation). More than ten years later, Valparaiso Transmission, Premier Auto Sales, and L & W Auto Salvage (hereinafter, the "three businesses") are still operating under Mr. Morgavan's complete direction and control, and the DOL contends that Mr. Morgavan is still disregarding the obligations he and the three businesses have as employers subject to the FLSA.

The three businesses, which are an auto repair shop (Valparaiso Transmission), a salvage yard (L & W Auto Salvage), and a used car lot (Premier Auto Sales), operate as one vertically integrated enterprise with a common business purpose - buying, selling, and servicing used cars. The three businesses are open to the public. Valparaiso Transmission provides a range of car services to customers, while L & W Auto Salvage buys cars, dismantles junk cars for parts, and sells usable car parts on a walk-in basis directly to customers. However, Valparaiso Transmission and L & W Auto Salvage are also each other's "customers," even though no money changes hands. L & W Auto Salvage supplies car parts to Valparaiso Transmission on an as-needed basis, and it is the first stop when Mr. Morgavan needs cheap parts to fix up used cars to sell at his Premier Auto Sales. Likewise, when used cars for sale at Premier Auto Sales need repairs or detailing, Valparaiso Transmission provides those services. In turn, Valparaiso auto technicians work at L & W Auto Salvage, providing services such as pulling parts.

Wage and Hour's findings in the investigation that resulted in this lawsuit mirror its findings in the 2005 investigation. The only thing that seems to have changed since 2005 is the fact that Mr. Morgavan created a parent company (Five M's) to make filing his taxes easier. The DOL now seeks summary judgment to require Mr. Morgavan and his three businesses to comply with the FLSA.

The DOL first argues that the three business are a covered "enterprise" under the FLSA.The FLSA defines an "enterprise" as "the related activities performed (either through unified operation or common control) by any person or persons for a common business purpose, and includes all such activities whether performed in one or more establishments or by one or more corporate or other organizational units . . . ." 29 U.S.C. § 203(r)(1). Thus, there is a three-part test to establish enterprise coverage: (1) related activities; (2) unified operation or common control; and (3) common business purpose. See Brennan v. Arnheim & Neely, Inc., 410 U.S. 512, 518 (1973); 29 C.F.R. § 779.202. Determining whether the three businesses are an "enterprise" is a question of law. Hicks v. Avery Drei, LLC, 654 F.3d 739, 747 (7th Cir. 2011) (citations omitted). The FLSA requires employees of "an enterprise engaged in commerce" to be paid the minimum wage and the overtime premium. See 29 U.S.C. §§ 206(a), 207(a)(1).

In the present case, Five M's does not dispute that the three businesses are a covered "enterprise" under the FLSA. Additionally, Five M's admitted in an interrogatory answer that Mr. Morgavan is a § 3(d) employer under the FLSA. Accordingly, this court finds that the three businesses are an "enterprise" subject to the FLSA and that Mr. Morgavan is an individual employer pursuant to § 3(d) of the Act.

The DOL next argues that Five M's failed to maintain required records. The FLSA requires employers to maintain records of hours worked each workday and total hours worked each workweek. 29 U.S.C. § 211(c); 29 C.F.R. §§ 516.2(a)(7); 516.6(a)(1). FLSA § 11(c) requires employers to "make, keep, and preserve such records of the persons employed by him and of the wages, hours, and other conditions of employment maintained by him," as prescribed by regulation of the DOL. 29 U.S.C. § 211(c). The United States Supreme Court recognized the importance of accurate recordkeeping in the FLSA enforcement scheme and held that anemployer's failure to maintain accurate records of hours actually worked or kept records that are inaccurate or inadequate shifts the burden of proof concerning back wage liability to the employer. Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680 (1945); see also Wirtz v. Turner, 330 F.2d 11 (7th Cir. 1964); U.S. Dep't of Labor v. Cole Enterprises, Inc., 62 F.3d 775, 780-81 (6th Cir. 1995).

Thus, for any period in which the employer has failed to maintain accurate records as required by the Act, the DOL's burden of proof as to the extent of any back wage liability is met by showing that work was performed which was not properly compensated and by producing sufficient evidence to show the nature and extent of that work as a matter of just and reasonable inference. The burden then shifts to the employer either to come forward with precise evidence of the work performed or to rebut the reasonableness of the inference to be drawn from the DOL's evidence. Mt. Clemens, 328 U.S. at 687-88; see also Turner, 330 F.2d at 13. The employer must not be allowed to profit from difficulties of proof created by his own misconduct. Mt. Clemens, 328 U.S. at 688. Evidence that provides a reasonable basis for inference of a "pattern or practice" concerning the actual hours worked is sufficient for approximation of a remedy that includes non-testifying employees. Martin v. Tony & Susan Alamo Foundation, 952 F. 2d 1050, 1052 (8th Cir. 1992).

Five M's admit that they maintained time cards for an unknown time after the hours were reported to the payroll company, "[a]nd then after a while, [Five M's] would probably dispose of them." (Guidarelli Aff. ¶ 34). Mr. Guidarelli, the manager in charge of payroll for all three businesses, told Wage and Hour that he believed time cards could be disposed of after calling hours into the payroll company. (Id. ¶ 35). Five M's retained "book rate" hours of ValparaisoTransmission technicians for no more than six weeks. (Id. ¶ 36). Five M's admit that there was no policy regarding time sheets that Five M's employees used to record their hours worked (Id. ¶ 37), despite being repeatedly told by Wage and Hour that maintaining and preserving records of hours worked for two years are required by the Act.

These basic time records showing hours worked are required to be preserved for two years, and Five M's failed to do so. See 29 C.F.R. § 516.6(a)(1). Five M's payroll records (DOL Ex. J) did not accurately reflect the number of hours worked based on Wage and Hour's interviews of 20 employees. Investigator Alcantara used Five M's year-to-date payroll reports (DOL Ex. J at 1-30) to identify employees' hourly rate and Five M's' weekly payroll journals (Id. at 31-58) to identify employees' gross pay. (Guidarelli Aff. ¶ 54). Because Five M's did not maintain complete or accurate time records...