Vasto v. Credico (Usa) LLC

PHILIP VASTO, ZAO YANG, ALEX TORRES, and XIAOJ ZHENG,individually and on behalf of all others similarly situated, Plaintiffs, v. CREDICO (USA) LLC, CROMEX INC., JESSE YOUNG, AND MEIXI XU, Defendants.

15 Civ. 9298 (PAE)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

August 3, 2016

OPINION & ORDER

PAUL A. ENGELMAYER, District Judge:

Plaintiffs Philip Vasto, Zao Yang, Alex Torres, and Xiaoj Zheng (collectively, "plaintiffs") bring this action on behalf of themselves and similarly situated persons, alleging violations of the Fair Labor Standards Act ("FLSA"), 29 U.S.C. §§ 201 et seq., New York Labor Law ("NYLL"), NY. Lab. Law Article 6 §§ 190 et seq., and Article 19 §§ 650 et seq., the Arizona Wage Act ("AWA"), Ariz. Rev. Stat. §§ 23-350 et seq., and the Arizona Minimum Wage Act ("AMWA"), Ariz. Rev. Stat. §§ 23-362 et seq. Plaintiffs allege that defendants Credico (USA) LLC ("Credico"), CroMex Inc. ("CroMex"), Jesse Young, and Meixi Xu (also known as "Corona") (collectively, "defendants") maintained unlawful employment practices, including misclassifying their employees as independent contractors and thereby failing to pay minimum wage or overtime compensation at the statutorily required rates for employees.

Before the Court is Young's motion to dismiss plaintiffs' claims against him, under Federal Rule of Civil Procedure 12(b)(6), on the ground that the First Amended Complaint ("FAC") does not plausibly plead that he was plaintiffs' "employer" for purposes of the FLSA or the New York and Arizona wage statutes. For the reasons that follow, that motion is granted.

I. Background

A. Factual Allegations¹

Credico is a Delaware corporation headquartered in Chicago, Illinois. FAC ¶ 22. It provides face-to-face sales and marketing services to companies in, among others, the telecommunications, financial services, and energy industries, and to charitable organizations. Id. ¶ 26. Its clients include Fortune 500 companies, such as Verizon Communications Inc. and Sprint Nextel Corp. Id. ¶ 27. Young is Credico's President. Id. ¶ 24.

Credico serves its clients through a nationwide network of more than 100 independent sales offices ("ISOs"). Id. ¶¶ 1, 28. Each ISO employs workers ("agents") to engage in face-to-face marketing for one or more of Credico's clients. See id. ¶¶ 1, 28, 30, 42-43. The agents' primary duty is to gather applications from consumers seeking to enroll in one or more programs offered by Credico's client. See id. ¶¶ 1, 42-43.

The FAC alleges that Credico exercises control over the day-to-day operations of all ISOs in its network. Id. ¶ 1. Most significantly, it alleges, Credico requires each of these ISOs to implement Credico's "Management Training Program." Id. ¶ 11. That program, the FAC alleges, dictates the manner in which ISOs train agents, the manner in which agents can approach potential customers, the number of hours that agents must work each week, and the manner in which agents are to be paid and classified. Id. ¶¶ 8, 11, 31-32.²

CroMex is an ISO headquartered in New York City. Id. ¶¶ 23, 33. CroMex operates its own network of companies which perform marketing services for Credico's clients in New York, Michigan, Maryland, Arizona, and Nevada. Id. ¶ 35. The FAC alleges that Credico's Regional Sales Director, Tommy Smith, works out of CroMex's New York City office and has exercised his authority to terminate CroMex's agents. See id. ¶¶ 1, 14, 38, 41.³ Corona is CroMex's owner and manager. Id. ¶ 25. She supervises the agents who perform marketing services for Credico's clients. Id.

At various points in 2015, the four named plaintiffs worked for CroMex in New York City and Phoenix, Arizona, promoting Credico's clients' cell phone and wireless service plans. Id. ¶¶ 15-18, 58.

The FAC alleges that as a "precondition" of their work with defendants, plaintiffs were required to participate in a training period for which they were not paid. Id. ¶¶ 2, 46-51. Once they completed training, the FAC alleges, plaintiffs were required to work 12 hours per day, Monday through Saturday. Id. ¶ 52. Each day, the FAC alleges, plaintiffs were required to follow a strict schedule, consisting of: (1) morning team meetings and training sessions; (2) "[r]ide-out[s]" in the field, where agents signed up new customers for Credico's clients; and (3) evening meetings and training sessions. Id. ¶¶ 53-56. The FAC alleges that defendants set weekly sales targets for plaintiffs and tracked their sales numbers on a weekly basis. Id. ¶ 56.

Given the "extensive control" defendants exercised over them, the FAC alleges, plaintiffs qualified as employees and were "jointly employed" by each of the defendants. Id. ¶¶ 1, 44-45. Therefore, the FAC claims, plaintiffs were entitled to minimum wage and overtime compensation for hours worked in excess of 40 hours per week. See id. ¶¶ 73-74, 77, 86, 97,106. However, the FAC alleges, plaintiffs were misclassified as independent contractors and thus paid solely on a commission basis: They were paid $10 for each qualified customer they signed up for the services of one of Credico's clients. Id. ¶¶ 2, 8, 57.

As a result of this practice, the FAC alleges, plaintiffs "routinely earn[ed] an hourly rate that [was] less than the federal minimum wage, New York minimum wage, and Arizona minimum wage." Id. ¶ 59. And, it alleges, plaintiffs were never paid overtime compensation, despite typically working more than 72 hours per week. Id. ¶ 60. On this basis, the FAC brings claims on behalf of all plaintiffs for overtime and minimum wage violations under the FLSA, NYLL, AMWA, and AWA. Id. ¶¶ 73-74, 77, 86, 97, 106.

The FAC also brings claims on behalf of Vasto and Yang for retaliation in violation of the FLSA and NYLL. See id. ¶¶ 75-76, 95-96. It alleges that, during his employment, each of those plaintiffs told Corona that he wished to "take a different approach to signing up new customers," because he had not found defendants' required sales methods to be effective. See id. ¶¶ 63-64, 70-71. When Corona denied this request, the FAC alleges, each plaintiff told her that he "did not feel he was properly classified as an independent contractor, because he did not have the ability to choose his own methods for making sales." Id. ¶¶ 64, 71. Subsequently, the FAC claims, each plaintiff was reprimanded for complaining, and terminated by Smith (in Vasto's case) or Corona (in Yang's case) "in retaliation for voicing and acting on his concerns about his misclassification as an independent contractor." Id. ¶¶ 66, 72.

B. Procedural History

On July 27, 2015, plaintiffs filed a complaint in the Northern District of Illinois, bringing claims, on behalf of themselves and other similarly situated employees, against defendants under the FLSA, NYLL, AMWA, and AWA. Dkt. 1. On July 30, 2015, plaintiffs filed the FAC. Dkt. 6. On September 28, 2015, Credico answered. Dkt. 26.

On November 9, 2015, the case was transferred to this District. Dkt. 46. On December 22, 2015, plaintiffs moved for conditional certification. Dkt. 62.

On January 11, 2016, CroMex and Corona answered. Dkts. 77, 78. On February 4, 2016, Credico filed an amended answer. Dkt. 85.

On March 25, 2016, Young moved to dismiss the FAC against him, Dkt. 106, and filed a memorandum of law, Dkt. 107 ("Young Br."), and a declaration by defense counsel, Dkt. 108, in support. On May 4, 2016, the Court directed plaintiffs to file, within 21 days of the Court's resolution of plaintiffs' motion for conditional certification, either an amended complaint or an opposition to Young's motion to dismiss. Dkt. 109.

On May 5, 2016, the Court granted plaintiffs' motion for conditional certification of a collective of all persons who conducted face-to-face marketing work for Credico and its subcontractor companies in the United States, while classified as independent contractors, at any point during the three years preceding the issuance of a court-appointed notice. Dkt. 113.

On May 26, 2016, plaintiffs filed a memorandum of law in opposition to Young's motion to dismiss. Dkt. 119 ("Pl. Br."). On June 2, 2016, Young replied. Dkt. 120 ("Young Reply Br.").

II. Applicable Legal Standards

To survive a motion to dismiss under Rule 12(b)(6), a complaint must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). "Where a complaint pleads facts that are 'merely consistent with' a defendant's liability, it 'stops short of the line between possibility and plausibility of entitlement to relief.'" Id. (quoting Twombly, 550 U.S. at 557).

In considering a motion to dismiss, a district court must "accept[] all factual claims in the complaint as true, and draw[] all reasonable inferences in the plaintiff's favor." Lotes Co. v. Hon Hai Precision Indus. Co., 753 F.3d 395, 403 (2d Cir. 2014) (quoting Famous Horse Inc. v. 5th Ave. Photo Inc., 624 F.3d 106, 108 (2d Cir. 2010) (internal quotation marks omitted)). However, this tenet is "inapplicable to legal conclusions." Iqbal, 556 U.S. at 678. "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id. "[R]ather, the complaint's [f]actual allegations must be enough to raise a right to relief above the speculative level, i.e., enough to make the claim plausible." Arista Records, LLC v. Doe 3, 604 F.3d 110, 120 (2d Cir. 2010) (quoting Twombly, 550 U.S. at 555, 570) (internal quotation marks omitted) (emphasis in Arista Records). A complaint is properly dismissed where, as a matter of law, "the allegations in [the] complaint, however true, could not raise a claim of entitlement to relief." Twombly, 550 U.S. at 558.

III. Discussion

Young's motion to dismiss turns on the question of...