United States District Court, S.D. Texas, Houston Division
SERAH DUNPHY, Individually and on Behalf of All Others Similarly Situated, Plaintiffs,
PROJECT ARISTOCRAT LIFE FOUNDATION; WERUNTEXAS, LLC d/b/a MERCY; WE RUN HOU, LLC d/b/a ENGINE ROOM; JONATHAN REITZELL; STEVEN A. ROGERS; JOHN CARAVELLO; TANNER COX; and MOJEED MARTINS, JR., Defendants.
MEMORANDUM OPINION AND ORDER
LAKE SENIOR UNITED STATES DISTRICT JUDGE.
Serah Dunphy, on behalf of herself and similarly situated
individuals (collectively "Plaintiffs"), filed this
action against defendants Project Aristocrat Life Foundation,
WeRunTexas, LCC d/b/a Mercy, We Run Hou, LLC d/b/a Engine
Room, Jonathan Reitzell, Steven A. Rogers, John Caravello,
Tanner Cox, and Mojeed Martins, Jr. alleging that the
defendants violated the Fair Labor Standards Act
("FLSA") by failing to pay employees wages for
hours worked and withholding tips. Pending before the court are
Defendants' Rule 56 Motion for Partial Summary Judgment
("Defendants' MSJ") (Docket Entry No. 112);
Plaintiffs' Motion for Summary Judgment
("Plaintiffs' MSJ") (Docket Entry No. 114);
Defendants' Motion for Leave to File Amended Pleading
("Defendants' Motion to Amend") (Docket Entry
No. 118); Defendants' Supplemental Motion for Continuance
and Response to Plaintiff's Motion for Summary Judgment
("Defendants' Supplemental Motion for Continuance
and Response") (Docket Entry No. 120); and
Plaintiff's Motion to Strike Defendants' Supplemental
Response to Plaintiffs' Motion for Summary Judgment and
Defendants' Exhibits 3 and 4 to Defendants' Response
to Plaintiff's Motion for Summary Judgment
("Plaintiff's Motion to Strike") (Docket Entry
No. 122). Only Defendants WeRunTexas, LLC d/b/a Mercy
("Mercy"), Mojeed Martins, Jonathan Reitzell, and
Steven Rogers (collectively "Defendants") have
filed motions. For the reasons explained below,
Defendants' motions will be denied, Plaintiff's
Motion to Strike will be denied, and Plaintiff's Motion
for Summary Judgment will be granted in part and denied in
Factual and Procedural Background
Nightclub ("Mercy") is located in Houston, Texas,
and in February of 2 017 was owned and operated by
WeRunTexas, LLC.WeRunTexas is co-owned by individual
defendants Steven Rogers, Jonathan Reitzell, and Mojeed
Martins, Jr. (collectively "the
Co-owners"). The Co-owners hired John Caravello as
general manager to run Mercy. The Co-owners were not passive
shareholders; they had areas of responsibility and played
some role in managing the club. Steven Rogers, for example, was
responsible for building maintenance. The Co-owners oversaw the
club's managers and met regularly with John Caravello to
discuss marketing, operations, and performance. John
Caravello's uncontradicted testimony also states that all
three of the Co-owners were responsible for paying the
waitstaff and exercised control over operations of the
hosted several special events on February 2, 3, 4, and 5 of
2017 for that year's Super Bowl. Mercy's Co-owners hired
music artists and celebrities to appear at the club in order
to attract more customers over the weekend. The events
were advertised online, and table reservations and liquor
packages could be purchased online. To handle the expected
patronage that weekend, Mercy hired cocktail waitresses and
runners ("the waitstaff"), including Plaintiffs,
although a dispute exists as to whether John Caravello or the
Co-owners controlled that hiring.The waitstaff sold and
delivered alcohol to customers. The alcohol served at the
events included foreign-made brands such as Hennessy,
D'usse, and Ciroc. The waitstaff were also told to post
about the Super Bowl Events on social media.
waitstaffs pay was "$2.13 per hour worked plus
tips."The tips included all credit card and
cash tips earned, plus a flat rate for gratuities on party
packages. According to Plaintiffs, they collected
"thousands of dollars in cash tips alone" during
the events. But the waitstaff were required to turn
in tips earned each night so that they could be
pooled. Mercy's Employee Handbook and
deposition testimony state that five percent of waitstaff
tips should have been tipped out to the service bartender and
sweeper staff, and the remainder should have been divided
between the waitstaff who worked that shift and paid back to
them as part of their paychecks. The hired waitstaff
worked seven to eight hours each night of the Super Bowl
Events, and some worked additional hours on February 4,
February 17, 2017, Steven Rogers, a Co-owner of Mercy, paid
the Super Bowl event waitstaff with personal checks in his
own name. According to uncontradicted statements
from Plaintiffs and John Caravello, the amount paid did not
account for the full amount of tips and wages the waitstaff
earned during the Super Bowl weekend events.
filed this action on April 19, 2017, seeking the alleged
unpaid minimum wages and tips for herself and others
similarly situated under the FLSA. Defendants filed their
answer on March 23, 2018. Plaintiffs' most recent
amended complaint was filed on June 4,
2019. Discovery has concluded and on August 9,
2019, the court set the case for trial on September 23, 2019,
and later rescheduled the trial for December 2,
2019. With the leave of the court, Defendants
filed their motion for summary judgment on September 11,
2019, contending that there is no evidence that would
establish that the FLSA applies. Plaintiffs filed their
motion for summary judgment on September 27, 2019, seeking
judgment on all elements of their FLSA claim except
damages. Plaintiffs filed their response on
October 2, 2019. On October 14, 2019, Defendants filed a
motion for leave to amend their answer. On October
18, 2019, Defendants filed a response and a motion asking the
court to continue its consideration of the motions for
summary judgment until it decides the motion to
amend. Defendants filed a supplemental motion
to their response on October 21, 2019. On October
25, 2019, Plaintiffs filed their reply and also a motion to
strike one of Defendant's response briefs and two of
Defendant's exhibits. On November 4, 2019,
Plaintiffs filed a response brief opposing Defendants'
motion for leave to amend.
Motion to Strike and Admissibility of
court must first resolve Plaintiffs' Motion to Strike
Defendants' Supplemental Response and two of
Defendants' exhibits. Defendants filed their response to
Plaintiffs' MSJ on its due date, twenty-one days after
Plaintiff filed her motion. Three days later, Defendants
filed their supplemental response. Plaintiffs argue that the
supplemental response should be stricken because it was filed
late without leave of the court. However, the court has a
strong policy of resolving issues on the merits rather than
on procedural technicalities. Oramulu v. Washington
Mutual Bank, C.A. No. H-08-00277, 2009 WL 7838118, at *2
(S.D. Tex. June 12, 2009). Accordingly, the Motion to Strike
Defendants' Supplemental Response will be denied.
also move to strike Exhibits 3 and 4 to Defendant's
Response. Exhibit 3 appears to be an unsigned
contract drafted by John Caravello that would have granted
him greater scope of authority as manager of Mercy
Nightclub. Exhibit 4 appears to be a text message
conversation dated January 3, 2017, between several women and
the Mercy managers, where John Caravello, called
"boss" in the conversation, informs the women that
they can come pick up their tips. To authenticate these
documents, Defendants provide a declaration by Jonathan
Reitzel that he has personal knowledge of the
exhibit. Testimony by a knowledgeable witness may
suffice to support a finding that an item is what it purports
to be and thus sufficiently authenticated for admission into
evidence. Fed.R.Civ.P. 901(b)(1); Thompson v. Bank of
America National Association, 783 F.3d 1022, 1027 (5th
Cir. 2015). At the summary judgment stage, Reitzel's
statement that the exhibits are what they purport to be
satisfies the low burden for authentication.
also argue that the exhibits should be stricken because the
contract bears no signatures and the text message does not
show John Caravello was in fact Plaintiffs'
boss. These arguments relate to whether the
exhibits show a genuine issue of material fact rather than
whether they are admissible. Accordingly, the court will deny
Plaintiffs' Motion to Strike the exhibits. The court will
consider both Defendants' Supplemental Response and all
of Defendants' exhibits in deciding the pending motions.
their Supplemental Response, Defendants argue that the court
should disregard the Caravello Declaration (Docket Entry No.
114-6) as a sham declaration. A sham declaration is one that
contradicts the declarant's prior deposition testimony to
raise a fact issue. Doe ex rel. Doe v. Dallas Independent
School District, 220 F.3d 380, 386 (5th Cir. 2000) .
Defendants do not point to any-prior deposition testimony
that the declaration contradicts, and the court concludes the
sham affidavit rule does not apply.
Summary Judgment Standard of Review
judgment is appropriate if the movant establishes that there
is no genuine dispute about any material fact and the movant
is entitled to judgment as a matter of law. Fed.R.Civ.P.
56(a). Disputes about material facts are genuine "if the
evidence is such that a reasonable jury could return a
verdict for the nonmoving party." Anderson v.
Liberty Lobby, Inc., 106 S.Ct. 2505, 2510 (1986). The
moving party is entitled to judgment as a matter of law if
"the nonmoving party has failed to make a sufficient
showing on an essential element of her case with respect to
which she has the burden of proof." Celotex Corp. v.
Catrett, 106 S.Ct. 2548, 2552 (1986) .
moving for summary judgment "must 'demonstrate the
absence of a genuine issue of material fact,' but need
not negate the elements of the nonmovant's
case." Little v. Liquid Air Corp., 37 F.3d
1069, 1075 (5th Cir. 1994) (en banc) (per curiam) (quoting
Celotex, 106 S.Ct. at 2553). "If the moving
party fails to meet this initial burden, the motion must be
denied, regardless of the nonmovant's response."
Id. If the moving party meets this burden, Rule
56(c) requires the nonmovant to go beyond the pleadings and
show by affidavits, depositions, answers to interrogatories,
admissions on file, or other admissible evidence that
specific facts exist over which there is a genuine issue for
trial. Id. The nonmovant "must do more than
simply show that there is some metaphysical doubt as to the
material facts." Matsushita Electric Industrial Co.,
Ltd. v. Zenith Radio Corp., 106 S.Ct. 1348, 1356 (1986)
reviewing the evidence "the court must draw all
reasonable inferences in favor of the nonmoving party, and it
may not make credibility determinations or weigh the
evidence." Reeves v. Sanderson Plumbing Products,
Inc., 120 S.Ct. 2097, 2110 (2000). The court resolves
factual controversies in favor of the nonmovant, "but
only when there is an actual controversy, that is, when both
parties have submitted evidence of contradictory facts."
Little, 37 F.3d at 1075.
FLSA Commerce Requirement
assert a claim against defendants for unpaid minimum wages
and tips under the FLSA. See 29 U.S.C. § 216(b).
The FLSA's wage and tip provisions apply only to
employees "engaged in commerce or in the production of
goods for commerce" or "employed in an enterprise
engaged in commerce or in the production of goods for
commerce." Id. § 206(a). Defendants'
MSJ contends that no evidence supports that Plaintiffs were
engaged in commerce or employed by an enterprise engaged in
commerce and so the FLSA does not cover
Plaintiffs. Plaintiffs argue that Defendants are
bound by their pleadings, which admit to being an enterprise
engaged in interstate commerce, and that the evidence
presents a genuine issue of material fact on the
issue. Defendants request leave to amend their
answer to remove the admission that they are an enterprise
engaged in commerce.
Judicial Admission and Motion for Leave to Amend
admitted in the pleadings "are considered to be judicial
admissions conclusively binding on the party who made
them." White v. ARCO/Polymers, Inc., 720 F.2d
1391, 1396 (5th Cir. 1983). Once admitted, the facts are
considered "no longer at issue." Davis v. A.G.
Edwards and Sons, Inc., 823 F.2d 105, 108 (5th Cir.
1987). When Defendants pled an admission that they "were
an enterprise engages [sic] in commerce or in the production
of goods for commerce within the meaning of the FLSA,
" they bound themselves to that statement
and agreed that the FLSA's commerce requirement was not a
contested issue in this case. Defendants may not rely on an
argument at summary judgment that controverts their prior
judicial admission. Bowman v. CitiMortgage, Inc.,
768 Fed.Appx. 220, 224 (5th Cir. 2019) .
do not contest that their pleading admits that the FLSA's
commerce requirement is met. Instead, they move for leave to
amend their pleading to remove that admission. Leave to
amend pleadings "shall be freely given when justice so
requires." Fed.R.Civ.P. 15a (a) . But leave to amend is
not automatic and "the decision to grant or deny leave
to amend lies within the sound discretion of the district
court." Little v. Liquid Air Corp., 952 F.2d
841, 845-46 (5th Cir. 1992). Factors the court may consider
in exercising that discretion include undue delay, bad faith
or dilatory motives, repeated failures to cure deficiencies
when previously allowed, and undue prejudice to the opposing
party. Id. Motions to amend the pleadings made after
the conclusion of discovery and on the eve of trial, as here,
are especially disfavored. Id.; Daves v. Payless
Cashways, Inc., 661 F.2d 1022, 1025 (5th Cir. 1981).
motion was submitted thirty months after Plaintiff filed her
Original Complaint and nineteen months after Defendants'
Answer. Defendants argue that their amended
answer is responsive to Plaintiffs' Second Amended
Complaint, filed on June 4, 2019, but that amendment did not
change or add to the allegation of FLSA commerce in paragraph
5.2. The allegation has been part of
Plaintiffs' claims since the outset of this action.
Because Defendants have had ample opportunity to amend their
answer and retract their judicial admission, denial of their
late motion to amend is appropriate. See id.
(holding that a delay of over a year in requesting leave to
amend justified denial of leave to amend). Accordingly,
Defendants' Motion to Amend will be denied, and
Defendants are bound by their admission that the FLSA
commerce requirement is satisfied. Defendants'
Supplemental Motion for Continuance requesting that the court
delay ruling on Plaintiffs' MSJ until after allowing
Defendants' Motion to Amend will be denied as moot.
FLSA Coverage Merits
Defendants were not bound by their admission, to prevail on
their own summary judgment motion Defendants must establish
that there is no evidence that would create a genuine issue
of material fact as to FLSA coverage. Little, 37
F.3d at 1075. If Plaintiffs meet their summary judgment
burden by showing there is evidence that supports FLSA
coverage as a matter of law, Defendants must cite evidence
that would show a material disputed fact. Id.
unpaid-wages claimant may satisfy the FLSA's commerce
requirement by showing that the employee-Plaintiffs engaged
"in commerce or in the production of goods for
commerce" ("individual coverage"), or that the
employer-defendant is "an enterprise engaged in commerce
or the production of goods for commerce"
("enterprise coverage"). 29 U.S.C. § 206(a);
Martin v. Bedell, 955 F.2d 1029, 1032 (5th Cir.
1992) . The statute defines "commerce" to mean
"trade, commerce, transportation, transmission, or
communication among the several States." 29 U.S.C.
§ 203(b). The statute also defines "enterprise
engaged in commerce or in the production of goods for
commerce" as one that:
(i) has employees engaged in commerce or in the production of
goods for commerce, or that has employees handling, selling,
or otherwise working on goods or materials that have been
moved in or produced for commerce by any person; and
(ii) is an enterprise whose gross volume of sales made or
business done is not less than $500, 000.
Id. § 203 (s) (1) (A) (i) (ii) . Individual
coverage is narrow, and only applies to employees whose work
directly and substantially involves interstate commerce.
Mendoza v. Detail Solutions, LLC, 911 F.Supp.2d 433,
440 (N.D. Tex. 2012). Enterprise coverage, however, is
broadly defined; it applies not only when an enterprise has
employees directly engaged in commerce, but also where
employees handle, sell, or otherwise work on goods that have
been moved in or produced for interstate commerce. 29 U.S.C.
§ 203(b); see Landeros v. Fu King, Inc., 12
F.Supp.3d 1020, 1023-24 (S.D. Tex. 2014) (discussing the
expansive nature of FLSA enterprise coverage).
enterprise coverage has two elements: (1) that the
employer's employees engaged in qualifying activity, and
(2) that the employer's gross sales exceed $500, 000
annually. 29 U.S.C. § 203 (s) (1) (A) . The first
element can be satisfied if goods handled or sold by the
enterprise's employees moved across state lines at some
time in the flow of commerce. Id. § 203 (s) (1)
(A) (i); Brennan v. Greene's Propane Gas Service,
Inc., 479 F.2d 1027, 1030-31 (5th Cir. 1973);
Landeros, 12 F.Supp.3d at 1023-24. It is not
disputed that the record establishes that John Caravello and
the waitstaff, employees of Mercy, ordered, handled, or sold
well-known brands of liquor such as Hennessy, D'usse, and
Ciroc on behalf of the nightclub. Plaintiffs have not,
however, pointed to any evidence that this liquor traveled
across state lines. Instead, Plaintiffs argue that the court
may infer the liquor must have traveled in interstate
commerce because they are not manufactured in
Texas. Plaintiffs therefore appear to argue
that the court take judicial notice that these liquors are
not produced in Texas, which would require that this fact is
"(D generally known within the trial court's
territorial jurisdiction; or (2) can be accurately and
readily determined from sources whose accuracy cannot
reasonably be questioned." Fed.R.Evid. 201(b). The court
concludes it may take judicial notice of the origin of famous
foreign-made liquors such as Hennessy, D'usse, and Ciroc,
and thus any stocked and sold by Mercy must have traveled in
interstate commerce. Accordingly, the first element of §
203 (s) (1) (A) is satisfied as a matter of law because there
is no genuine issue of material fact as to whether
Mercy's employees handled and sold foreign-made liquors
that had traveled in interstate commerce.
second element of § 203 (s) (1) (A) requires that the
enterprise's "gross volume of sales made or business
done is not less than $500, 000." 29 U.S.C. § 203
(s) (1) (A) (i) . Plaintiffs argue that this element is
satisfied by John Caravello's statements that Mercy
grossed approximately $400, 000 over the course of the 2017
Super Bowl weekend events alone, and that the nightly
closeout reports for Super Bowl weekend indicated sales of at
least $125, 161. Defendants' briefing does not
address the gross sales issue at all or raise it as a basis
for their summary judgment motion. It is Plaintiffs'
burden, however, to demonstrate entitlement to summary
judgment on the issue. Little, 3 7 F.3d at 1075.
argue that the $400, 000 figure conclusively shows the
statutory threshold is met because under the "rolling
quarter" method of computation, a quarterly income over
$125, 000 establishes annual income of $500,
000. This, however, is not a fair statement
of the rolling quarter computation method promulgated by the
Secretary of Labor and approved by the Fifth Circuit. See
Donovan v. 1-20 Motels, Inc., 664 F.2d 957, 958 (5th
Cir. 1981). Under that guidance, most businesses should
determine FLSA coverage "at the beginning of each
quarter ... by calculating [the] annual dollar volume based
on the sum of the four preceding quarters."
Donovan, 664 F.2d at 958. Multiplying a single
quarter of sales to estimate an annual figure is only
appropriate for a new business that has only been in
operation for a single quarter. Landeros, 12
F.Supp.3d at 1026 (citing 29 C.F.R. § 779.259). Neither
the parties nor the record suggests Mercy was a new business
in the first quarter of 2017, and there is no
evidence in the record of Mercy's sales in any quarters
before or after the 2017 Super Bowl events.
absence of other evidence, the close-out records and
Caravello's statement might support an inference that
Mercy did $500, 000 in gross sales annually that year, but
the court cannot draw such an inference against Defendants in
considering Plaintiffs' MSJ. See Reeves, 120
S.Ct. 2097, 2110 (2000) ("[T]he court must draw all
reasonable inferences in favor of the nonmoving
party."). Accordingly, Plaintiffs have not met their
burden to show there is no genuine issue of material fact as
to the second element of § 203 (s) (1) (A) . But neither
have Defendants met their burden to show Plaintiffs have no
evidence supporting the two elements of enterprise coverage.
But for Defendants' admission, whether Mercy grossed at
least $500, 000 annually would be an issue for trial.
parties also both argue that there is no genuine issue of
material fact as whether Plaintiffs qualify for FLSA
individual coverage. Plaintiffs contend that Mercy's
waitstaff was "engaged in commerce" because their
duties included serving liquor to out-of-state customers who
were visiting Houston and advertising Mercy's events on
the internet. Defendants argue that these activities
do not satisfy the statutory requirement because they either
do not qualify as engagement with interstate commerce or
because they were not a significant part of Plaintiffs'
duties.An employee is considered personally
engaged in interstate commerce when "the work is so
directly and vitally related to the functioning of an
instrumentality or facility of interstate commerce as to be,
in practical effect, a part of it, rather than isolated local
activity." Sobrinio v. Medical Center Visitor's
Lodge, Inc., 474 F.3d 828, 829 (5th Cir. 2007)."
[A] ny regular contact with commerce, no matter how small,
will result in coverage." Id. (quoting
Marshall v. Victoria Transportation Co., Inc., 603
F.2d 1122, 1124 (5th Cir. 1979)). An employee who regularly
uses an instrumentality of interstate commerce is engaged in
commerce. Thorne v. All Restoration Services, Inc.,
448 F.3d 1264, 1266 (11th Cir. 2006). It is well-settled that
the internet is an instrumentality of interstate commerce.
United States v. Barlow, 568 F.3d 215, 220 (5th Cir.
2009); see also Miller v. Centerfold Entertainment Club,
Inc., No. 6:14-CV-6074, 2017 WL 3425887, at *3 (W.D.
Ark. Aug. 9, 2017) (holding that employees who regularly use
the internet as part of their job have FLSA individual
coverage); Foster v. Gold & Silver Private Club,
Inc., Civil Action No. 7:14CV00698, 2015 WL 8489998, at
*6 (W.D. Va. Dec. 9, 2015) (same).
only evidence that Plaintiffs regularly used the internet
while working for Mercy is a statement in Plaintiffs'
declarations that the waitstaff were "told to put the
2017 Super Bowl events on our social media ... to promote the
events." This does not suffice to establish
Plaintiffs' job duties included a regular use of the
internet. There is no evidence the waitstaff actually used
the internet, much less with any regularity.
cite no authority that would support that merely serving
customers who are visiting from out-of-state qualifies as
FLSA commerce. The Fifth Circuit has held otherwise. In
Sobrinio a driver who provided local transportation
to a motel's customers sued his employer under the FLSA.
474 F.3d at 829. The driver argued that he was engaged in
commerce because he provided transportation to out-of-state
guests, though he did not provide transportation to or from
any interstate transportation points such as an airport.
Id. The Fifth Circuit held that because the
driver's activities occurred after the customers had
completed their interstate travel and before they began their
departure, they were local in character and not part of
interstate commerce. Id. at 830. Like the driver in
Sobrinio, Plaintiffs served out-of-state customers
after they had completed their interstate journey to Texas
and before they began their departure journeys. That some
customers were from out of state does not suffice to satisfy
commerce or the FLSA's individual coverage. It is the
Plaintiffs' burden to prove FLSA coverage. Id.
at 829. Plaintiffs have pointed to no evidence or facts that
would establish individual coverage.
Summary Judgment Conclusions on FLSA Coverage
explained above, the court concludes that the evidence shows
that there would have been at least a genuine issue of
material fact as to the second element of enterprise
coverage, the $500, 000 revenue threshold. Defendants,
however, are bound by their admission that Mercy is an
enterprise engaged in commerce under the definition of the
FLSA and therefore are not permitted to argue otherwise at
summary judgment or at trial. Bowman, 768 Fed.Appx. at 224;
Davis, 823 F.2d at 108. The court therefore
considers enterprise coverage to have been conclusively
established. There is, however, no basis in the record to
support that Plaintiffs are eligible for individual coverage