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Secretary of Labor v. Kazu Construction LLC

United States District Court, D. Hawaii

April 17, 2017

SECRETARY OF LABOR, UNITED STATES DEPARTMENT OF LABOR, EDWARD HUGLER Plaintiff,
v.
KAZU CONSTRUCTION, LLC, a corporation; and VERNON LOWRY, an individual, Defendants.

          ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION FOR PARTIAL SUMMARY JUDGMENT

          ALAN C. KAY SR. UNITED STATES DISTRICT JUDGE.

         For the reasons set forth below, the Court GRANTS IN PART AND DENIES IN PART Defendants' Motion for Partial Summary Judgment, ECF No. 43.

         BACKGROUND

         Defendant Kazu Construction, LLC (“Kazu Construction”) is a limited liability company whose sole member is Defendant Vernon Lowry (“Mr. Lowry”). Defs. Concise Statement of Facts, ECF No. 44, ¶ 1 (“Defs. CSF”). From 2012-2014, Kazu Construction was the contractor for the development of the Makaha Oceanview Estates (“MOE Project”). Id.; ECF No. 78 at 10. At issue in this case are Defendants' employment and recordkeeping practices under the Fair Labor Standards Act, 29 U.S.C. §§ 206, 207, 215(a) (2) and 215(a) (5) (“FLSA”). Compl. ¶ 1, ECF No. 1. The Secretary of Labor (“Secretary”) alleges that Defendants failed to pay certain employees minimum wage and overtime compensation by engaging in a practice of banking hours in excess of 40 hours a week. Id. ¶¶ 10-11. In addition, Defendants failed to make, keep, and preserve accurate records of the hours worked by employees. Id. ¶ 12.

         The Department of Labor learned about this allegedly unlawful scheme after a former Kazu Construction employee, Dennis Tadio, filed a complaint with the state labor agency on July 7, 2014 seeking unpaid wages. Opp. at 12; Lee Decl., Ex. 1, ECF No. 83 (Tadio complaint). The state agency specialist then referred Mr. Tadio to the U.S. Department of Labor, Wage and Hour Division to investigate a possible overtime violation. Opp. at 13; Tadio Decl. ¶ 7, ECF No. 84; Lee Decl. ¶ 3, ECF No. 83.

         The Secretary filed his complaint on February 22, 2016. ECF No. 1. Defendants filed the instant Motion for Partial Summary Judgment on November 16, 2016. ECF No. 43 (“Motion” or “MSJ”). The Secretary filed his Opposition and accompanying Concise Statement of Disputed Facts on February 13, 2017. ECF Nos. 77-78 (ECF No. 78, “Opp.”; ECF No. 77, “Pls. CSF”). Defendants filed their Reply on February 20, 2017. ECF No. 88 (“Reply).

         This Court held a hearing on Defendants' Motion on April 10, 2017.

         STANDARD

         Summary judgment is proper where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). Federal Rule of Civil Procedure (“Rule”) 56(a) mandates summary judgment “against a party who fails to make a showing sufficient to establish the existence of an element essential to the party's case, and on which that party will bear the burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); see also Broussard v. Univ. of Cal., at Berkeley, 192 F.3d 1252, 1258 (9th Cir. 1999).

         “A party seeking summary judgment bears the initial burden of informing the court of the basis for its motion and of identifying those portions of the pleadings and discovery responses that demonstrate the absence of a genuine issue of material fact.” Soremekun v. Thrifty Payless, Inc., 509 F.3d 978, 984 (9th Cir. 2007) (citing Celotex, 477 U.S. at 323); see also Jespersen v. Harrah's Operating Co., 392 F.3d 1076, 1079 (9th Cir. 2004). “When the moving party has carried its burden under Rule 56[(a)] its opponent must do more than simply show that there is some metaphysical doubt as to the material facts [and] come forward with specific facts showing that there is a genuine issue for trial.” Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio, 475 U.S. 574, 586-87 (1986) (citation and internal quotation marks omitted); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986) (stating that a party cannot “rest upon the mere allegations or denials of his pleading” in opposing summary judgment).

         “An issue is ‘genuine' only if there is a sufficient evidentiary basis on which a reasonable fact finder could find for the nonmoving party, and a dispute is ‘material' only if it could affect the outcome of the suit under the governing law.” In re Barboza, 545 F.3d 702, 707 (9th Cir. 2008) (citing Anderson, 477 U.S. at 248). When considering the evidence on a motion for summary judgment, the court must draw all reasonable inferences on behalf of the nonmoving party. Matsushita Elec. Indus. Co., 475 U.S. at 587; see also Posey v. Lake Pend Oreille Sch. Dist. No. 84, 546 F.3d 1121, 1126 (9th Cir. 2008) (stating that “the evidence of [the nonmovant] is to be believed, and all justifiable inferences are to be drawn in his favor”).

         DISCUSSION

         I. Statute of Limitations

         The parties first dispute whether the applicable statute of limitations is two or three years, and regardless, whether the Secretary is entitled to equitable tolling. The ordinary statute of limitations for an FLSA violation is two years; however, “a cause of action arising out of a willful violation may be commenced within three years after the cause of action accrued.” 29 U.S.C. § 255(a).

         A. Willfulness

         “A violation of the FLSA is willful if the employer ‘knew or showed reckless disregard for the matter of whether its conduct was prohibited by the [FLSA].” Chao v. A-One Med. Servs., Inc., 346 F.3d 908, 918 (9th Cir. 2003) (quoting McLaughlin v. Richland Shoe Co., 486 U.S. 128, 133 (1988)) (alteration in original); Flores v. City of San Gabriel, 824 F.3d 890, 906 (9th Cir. 2016) (“A violation is willful if the employer knew or showed reckless disregard for the matter of whether its conduct was prohibited by the [FLSA].”) (internal quotation and citation omitted) (alteration in original).

         The Ninth Circuit has found willfulness where the employer was “on notice of its FLSA requirements, yet took no affirmative action to assure compliance with them.” Alvarez v. IBP, Inc., 339 F.3d 894, 909 (9th Cir. 2003). “[T]he three-year term can apply where an employer disregarded the very possibility that it was violating the statute.” Id. at 908-09 (finding willfulness where the employer “could easily have inquired into the meaning of the relevant FLSA terms and the type of steps necessary to comply therewith” but instead “attempt[ed] to evade compliance, or to minimize the actions necessary to achieve compliance therewith.”) (internal citation and quotation omitted).

         Defendants seem to imply that willfulness only arises “when an employer knows that its current position had previously been invalidated or questioned in a prior legal proceeding.” MSJ at 10. However, while this is one way in which willfulness may be shown, the Court agrees with the Secretary that courts have found willfulness in variety of circumstances. See Opp. at 14 & n.41. A district court in Oregon found willfulness where experienced business people required employees to split their time between two companies in order to evade FLSA overtime requirements, of which they were aware. Perez v. Oak Grove Cinemas, Inc., 68 F.Supp.3d 1234, 1245 (D. Or. 2014). A district court in Nevada also found willfulness where the defendant allegedly paid workers on a per job basis, regardless of the hours worked, and that workers were not paid for training time, among other issues. Cholette v. Installpro, Inc., No. 2:10-CV-02153-KJD, 2012 WL 2190844, at *2 (D. Nev. June 13, 2012). Because the pay structure disregarded the hours worked, the court found that the defendant was reckless in risking a violation of FLSA minimum wage and overtime requirements. Id.

         In addition, several courts have found willfulness where the employers failed to make any real effort to keep records of the employee's hours. See, e.g., Thornton v. Crazy Horse, Inc., No. 3:06-CV-00251-TMB, 2012 WL 2175753, at *11 (D. Alaska June 14, 2012) (“Record keeping was atrocious, management never seemed to make any sincere effort to determine when dancers were coming and going or working or not working.”); Xuan v. Joo Yeon Corp., No. 1:12-CV-00032, 2015 WL 8483300, at *5 (D. N. Mar. I. Dec. 9, 2015) (despite employer's belief he was following the law, his failure to track employee's hours was willful because he “proceed[ed] as if the risk did not exist at all”).

         Here, Mr. Lowry has declared that he “stated in the presence of employees that [he] did not want employees working overtime” and that it “has never been [his] understanding or intent that Kazu employees were working overtime.” Lowry Decl. ¶ 7, ECF No. 44-5. However, this is insufficient to merit summary judgment. In the first place, as a matter of law the regulations dictate that:

[i]n all such cases it is the duty of the management to exercise its control and see that the work is not performed if it does not want it to be performed. It cannot sit back and accept the benefits without compensating for them. The mere promulgation of a rule against such work is not enough. Management has the power to enforce the rule and must make every effort to do so.

29 C.F.R. § 785.13. Thus, merely stating that Mr. Lowry did not want or intend for employees to work overtime is insufficient to relieve Defendants of their burden to pay any overtime worked. If Defendants were or should have been aware that overtime might be accruing, they needed to “make every effort” to prevent it from being performed. See Forrester v. Roth's I.G.A. Foodliner, Inc., 646 F.2d 413, 414 (9th Cir. 1981) (“[A]n employer who knows or should have known that an employee is or was working overtime must comply with the provisions of § 207” and may not “stand idly by...even if the employee does not make a claim for the overtime compensation.”). And while an employee's failure to notify the employer regarding overtime worked or deliberately preventing the employer from having such knowledge may impede an FLSA overtime claim, there does not seem to be any evidence of such issues here. See id. (“[W]here an employer has no knowledge that an employee is engaging in overtime work and that employee fails to notify the employer or deliberately prevents the employer from acquiring knowledge of the overtime work, the employer's failure to pay for the overtime is not a violation of § 207.”).

         In addition, the Secretary has submitted evidence creating a genuine dispute of material fact regarding Defendants' willfulness. There is evidence that Defendants were aware of their obligation to document and pay overtime. See Caparas Decl., Ex. B, ECF No. 80 (investigation statement by Mr. Lowry that “[i]f an employee works overtime then overtime is documented. Employees are then paid overtime.”); Santos Decl., Ex. B, ECF No. 79-2 (Desiree Lowry[1] Dep., 99:3-15, 197:5-198:9) (describing how new employees are told that they will be paid at time-and-a-half for overtime, and that the FLSA requires payment for hours worked on a weekly basis and does not allow averaging of hours over greater periods of time). Defendants also do not appear to dispute their awareness of FLSA requirements.

         More importantly, the Secretary has shown evidence sufficient for a reasonable jury to find that Defendants knew or were reckless with respect to their duties to track and pay overtime to Kazu Construction's employees. The declarations of several employees suggest that Mr. Lowry knew that his employees were or likely would be working overtime and advised them that overtime hours would be banked rather than paid. See, e.g., Cummings Decl. ¶ 5, ECF No. 85 (“Mr. Vernon Lowry told me that we would be working 70 hours per week, we would get paid for 40 hours of work and the extra hours we would bank.”); Napierala Decl. ¶¶ 4, 5, 7, ECF No. 81 (Napierala reported to Mr. Lowry how long everyone worked, which was typically around 70 hours per week, and Mr. Lowry told them hours worked in excess of 40 would be banked); Tadio Decl. ¶ 3, ECF No. 84 (“[Mr. Lowry] told me that the extra hours we worked were being ‘banked' for our later use when needed, and that was the reason our paychecks did not include compensation for them.”).

         The sole source for the time cards that Desiree Lowry created and then submitted for payment was the work logs that Mr. Lowry created. D. Lowry Dep. at 153:6-154:8 (in creating time cards, “I relied on the work log [Mr. Lowry sent]... if the work log is incorrect, then the time card would be incorrect.”). Employees did not enter their own time or keep time cards. Tadio Decl. ¶ 2, ECF No. 84 (“I did not sign-in or enter hours into a timesheet”); K. Hendricksen interview statement, Caparas Decl., Ex. F, ECF No. 80 (Mr. Lowry tracked hours and Hendricksen never signed a time sheet). Rather, Mr. Lowry was aware of and kept records of the hours that his employees were working. Napierala Decl. ¶ 5, ECF No. 81 (stating that he reported to Mr. Lowry each day how long the employees worked, and “Mr. Lowry kept the records of the hours that I worked on his phone.”). The time cards eventually submitted were inaccurate and included time for hours not worked. D. Lowry Dep. at 173:1-4, 175:10-25 (admitting that time cards for Napierala, Tadio, and Cummings show hours not in fact worked; time cards were used to track hours charged to different jobs). Finally, there is evidence that employees worked more hours than were recorded on their pay stubs. See Napierala Decl. ¶¶ 4-5, ECF No. 81 (Mr. Lowry recorded time worked, and paystubs only showed 40 hours per week despite typically working 10 hours per day and around 70 hours per week); Tadio Decl. ¶¶ 3-5, ECF No. 84 (similar); Cummings Decl. ¶¶ 3-6, ECF No. 85 (similar).

         In sum, viewed in the most favorable light, the Secretary's evidence shows that, even though Defendants were aware of the FLSA's overtime requirements, they paid employees according to time records that were inaccurate and undercounted the amount of hours their employees worked. The Court finds that there is a genuine dispute of material fact as to Defendants' willfulness and whether the ...


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