United States District Court, D. Colorado
JOHANA PAOLA BELTRAN, LUSAPHO HLATSHANENI, BEAUDETTE DEETLEFS, DAYANNA PAOLA CARDENAS CAICEDO, and ALEXANDRA IVETTE GONZALEZ, Plaintiffs,
INTEREXCHANGE, INC, USAUPAIR, INC., GREAT AUPAIR, LLC, EXPERT GROUP INTERNATIONAL INC., d/b/a Expert AuPair, EURAUPAIR INTERCULTURAL CHILD CARE PROGRAMS, CULTURAL HOMSTAY INTERNATIONAL, CULTURAL CARE, INC. d/b/a Cultural Care Au Pair, AUPAIRCARE INC., AU PAIR INTERNATIONAL, INC., APF GLOBAL EXCHANGE, NFP, d/b/a AuPair Foundation, AMERICAN INSTITUTE FOR FOREIGN STUDY d/b/a Au Pair in America, AMERICAN CULTURAL EXCHANGE, LLC, d/b/a/ GoAuPair, AGENT AU PAIR, A.P.EX. AMERICAN PROFESSIONAL EXCHANGE, LLC d/b/a/ ProAuPair, and 20/20 CARE EXCHANGE, INC. d/b/a The International Au Pair Exchange, Defendants.
RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE
Kathleen M. Tafoya Magistrate Judge
This case comes before the court on “Defendant Cultural Care, Inc.’s Motion to Dismiss All Claims in First Amended Complaint Pursuant to Federal Rule of Civil Procedure 12(B)(6)” (Doc. No. 127, filed April 17, 2015), “Motion to Dismiss the First Amended Complaint by Defendant Interexchange, Inc.” (Doc. No. 130, filed April 20, 2015), “Defendant American Cultural Exchange, LLC, D/B/A Go Au Pair’s Motion to Dismiss Counts I, III, IV, V, VI, VII, VIII, IX and X of the First Amended Complaint” (Doc. No. 131, filed April 20, 2015), “Joint Motion by Certain Sponsor Defendants to Dismiss the First Amended Complaint and Certification of Compliance with Civil Practice Standard 7.1D.” (Doc. No. 135, filed April 20, 2015), and “Defendant American Institute for Foreign Study’s [“AIFS”] Motion to Dismiss Amended Complaint” (Doc. No. 136, filed April 20, 2015). Plaintiffs filed a “Consolidated Opposition to Defendants’ Motions to Dismiss” (Doc. No. 199 [“Resp.”], filed July 10, 2015) and each Defendant replied. (Doc. Nos. 207, 211, 214, 215, 216).
Also before the court is “Defendant Cultural Care, Inc.’s Motion to Strike Material in Plaintiffs’ Consolidated Opposition to Defendants’ Motions to Dismiss” (Doc. No. 206, filed August 6, 2015), to which Plaintiffs have responded (Doc. No. 220, August 31, 2015) and Defendant replied. (Doc. No. 225, filed September 17, 2015). Finally, Plaintiffs filed a “Cross-Motion to Strike Certain Exhibits Submitted by the Defendants” (Doc. No. 221, filed August 31, 2015), to which certain Defendants responded (Doc. No. 227, filed September 24, 2015) and Plaintiffs replied. (Doc. No. 231, filed October 8, 2015).
STATEMENT OF THE CASE
This case arises out of the au pair program, made possible by the J-1 visa program, and currently overseen by the United States Department of State (“DOS”). (Doc. No. 101 [“Am. Comp.”] at 2). The J-1 visa program was created to facilitate cultural exchange between nations and the applicable visas are carried out under the authority of the Mutual Educational and Cultural Exchange Act of 1961 (“Cultural Exchange Act”). (Am. Comp. at 2, 10; 22 U.S.C. § 2451, et seq.) The J-1 au pair program was created in 1986 and was administered by the United States Information Agency (“USIA”). (Am. Comp. at 12.) Initially, the au pair program was considered solely a “cultural exchange” program and was not subject to any employment or labor law protections. (Id.) However, the au pairs were required to work 45 hours per week providing child care services to their host families. (Id.) Under this program, the au pairs were paid $100.00 per week for their services, plus room and board. (Am. Comp. at 13.) The USIA delegated oversight to entities that it designated to act as sponsors (“Sponsors”) for the J-1 visa au pair program. (Am. Comp. at 11.)
In 1990, in response to a Congressional request, the General Accounting Office (“GAO”) issued a report to Congress entitled, “Inappropriate Uses of Educational and Cultural Exchange Visas” (the “GAO Report”), in which the GAO determined, inter alia, that the au pair program was in reality a work program administered under the auspices of “cultural exchange” that required 45 hours per week of work. 60 Fed. Reg. at 8547-48 (Feb. 15, 1995) (codified at 22 C.F.R. pt. 514). “Authorizing J visas for participants and activities that are not clearly for educational and cultural purposes as specified in the act dilute[s] the integrity of the J visa and obscures the distinction between the J visa and other visas granted for work purposes.” Id. at 8548. Similar objections to the au pair program were raised by the DOS, the Immigration and Naturalization Service and the U.S. Department of Labor (“DOL”), all of whom agreed with the GAO Report that the au pair program possessed all the characteristics of a full-time child care work program. Id.
Following the GAO report and several subsequent tragic events involving au pairs, Congress authorized and directed the USIA to promulgate regulations governing au pair placements. Id. The USIA recognized that the au pair program lacked a bona fide educational component sufficient to meet the requirements of the Cultural Exchange Act. Id. Critics of the program had complained that it amounted to no more than the import of cheap foreign labor in the guise of an educational and cultural exchange program. Id. at 8550. The USIA consulted with the DOL regarding the employment aspect of the program and the DOL advised the USIA that the au pair program created an employment relationship and fell under the purview of the Fair Labor Standards Act (“FLSA”). Id.
In December 1994, the USIA, in direct consultation with the DOL, conducted a formal rulemaking to issue a rule recognizing that au pair participants are full-time employees entitled to the protections afforded all employees under domestic labor laws, including the FLSA. Id. at 8547-48, 8550-51. The final rule required compensation of au pairs “at a rate of not less than $115.00 per week” plus a weekly credit reflecting the actual cost incurred for room and board, not to exceed $76.00 per week. Id. at 8551. (emphasis in original).
In June 1997, the USIA issued an interim rule in order to “ensure that there is no future confusion regarding the payment of minimum wage.” 62 Fed. Reg. at 34633 (June 27, 1997) (codified at 22 C.F.R. pt. 514). Rather than stating the specific minimum amount an au pair had to be compensated, the USIA amended the rule to provide, “Sponsors shall require that au pair participants: (1) Are compensated at a weekly rate based upon 45 hours per week and paid in conformance with the requirements of the [FLSA] as interpreted and implemented by the [DOL].” Id. at 34634. This same rule is now codified at 22 C.F.R. § 62.31(j)(1).
Today, the DOS, rather than the USIA, oversees the au pair program. (Am. Comp. at 19.) Sponsor Defendants are the exclusive entities authorized to recruit and place au pairs with host families in the United States. (Am. Comp. at 11.) DOS regulations mandate that Sponsors ensure various conditions of employment for the au pairs, including but not limited to that host families are capable of and do meet various requirements and that au pairs are compensated in compliance with labor laws and do not work beyond specified limits. (Am. Comp. at 11-12.) The Sponsors’ extensive role throughout the au pair program is discussed in more detail herein.
Plaintiffs named each of the designated Sponsors as Defendants in this action (collectively referred to herein as “Sponsors” or “Defendants”). Plaintiffs allege that in spite of the fact that the applicable regulations require that au pairs receive not less than the applicable minimum wage as compensation, Sponsors have conspired and agreed to set all of the au pairs’ weekly wages at the purported minimum amount, currently $195.75 per week plus room and board. (Am. Comp. at 16-33.) Additionally, Plaintiffs contend the Sponsors falsely inform both au pairs and host families that this minimum wage is the maximum wage au pairs are permitted to receive. (Am. Comp. at 30, 33-34, 40-60, 73-74.) Sponsors universally advertise that the au pairs fees will be $195.75 per week plus room and board. (Am. Comp. at 22-29.) The required fees that each host family must pay to each Sponsor range in amount from $ 7, 000.00 to $8, 700.00. (Id.)
By this action, Plaintiffs assert, on behalf of themselves and all those similarly situated, federal claims under the Sherman Antitrust Act, 15 U.S.C. § 1, et seq., the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1964, et seq., and the FLSA, as well as state law claims based on Breach of Fiduciary Duty, Negligent Misrepresentation, Constructive Fraud or Fraudulent Concealment, Consumer Protection laws, Breach of Contract or Quasi Contract, Unpaid Wages, and claims pursuant to various state wage laws.
Failure to State a Claim Upon Which Relief Can Be Granted
Federal Rule of Civil Procedure 12(b)(6) provides that a defendant may move to dismiss a claim for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). “The court’s function on a Rule 12(b)(6) motion is not to weigh potential evidence that the parties might present at trial, but to assess whether the plaintiff’s complaint alone is legally sufficient to state a claim for which relief may be granted.” Dubbs v. Head Start, Inc., 336 F.3d 1194, 1201 (10th Cir. 2003) (citations and quotation marks omitted).
“A court reviewing the sufficiency of a complaint presumes all of plaintiff’s factual allegations are true and construes them in the light most favorable to the plaintiff.” Hall v. Bellmon, 935 F.2d 1106, 1198 (10th Cir. 1991). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Plausibility, in the context of a motion to dismiss, means that the plaintiff pleaded facts which allow “the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. The Iqbal evaluation requires two prongs of analysis. First, the court identifies “the allegations in the complaint that are not entitled to the assumption of truth, ” that is, those allegations which are legal conclusion, bare assertions, or merely conclusory. Id. at 679-81. Second, the Court considers the factual allegations “to determine if they plausibly suggest an entitlement to relief.” Id. at 681. If the allegations state a plausible claim for relief, such claim survives the motion to dismiss. Id. at 679.
Notwithstanding, the court need not accept conclusory allegations without supporting factual averments. Southern Disposal, Inc., v. Texas Waste, 161 F.3d 1259, 1262 (10th Cir. 1998). “[T]he tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Iqbal, 556 U.S at 678. Moreover, “[a] pleading that offers ‘labels and conclusions’ or ‘a formulaic recitation of the elements of a cause of action will not do.’ Nor does the complaint suffice if it tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement.’” Id. (citation omitted). “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. (citation omitted).
In evaluating a Rule 12(b)(6) motion to dismiss, courts may consider not only the complaint itself, but also attached exhibits and documents incorporated into the complaint by reference. Smith v. United States, 561 F.3d 1090, 1098 (10th Cir. 2009) (citations omitted). “[T]he district court may consider documents referred to in the complaint if the documents are central to the plaintiff’s claim and the parties do not dispute the documents’ authenticity.” Id. (internal quotations omitted).
1. Antitrust claim
Plaintiffs contend that Defendants conspired and agreed to fix the standard au pair wages at the purported minimum wage. They assert that Defendants’ actions in this regard constitute a per se violation of the Sherman Antitrust Act (the “Sherman Act”).
As an initial matter, Defendant Cultural Care, Inc. requests that Plaintiffs’ claim under the Sherman Act be dismissed because the federal government expressly mandated that Sponsors ensure host families paid au pairs a weekly stipend in the amount of $195.75, and therefore, they are immune from antitrust liability under the federal instrumentality and/or implied immunity doctrine. (Doc. No. 127 at 9-10.) This argument misses the point. There is no evidence that the federal government “directs, ” or in any other way mandates, that an au pair’s wages are set at $195.75. Instead, since the au pair program became formally subject to wage and hour laws, the applicable laws and regulations have required that Sponsors ensure an au pair’s wages comply with FLSA requirements, including that employers pay employees the applicable minimum wage. See 60 Fed. Reg. 8547 (February 15, 1995) (codified at 22 C.F.R. pt. 514); 62 Fed. Reg. 34632 (June 27, 1997) (amending 22 C.F.R. pt. 514); 22 C.F.R. § 62.31(j)(1). Defendant Cultural Care’s claim that it is entitled to immunity under a theory of federal instrumentality and/or implied immunity is wholly without merit.
The remaining Defendants, as well as Cultural Care, request the court dismiss this claim because Plaintiffs’ allegations are insufficient to demonstrate a conspiracy of price-fixing between Defendants.
The Sherman Act is a federal statute prohibiting monopolies and combinations in restraint of trade. Section One of the Sherman Act provides, in relevant part, “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.” 15 U.S.C. § 1. “Because § 1 of the Sherman Act does not prohibit all unreasonable restraints of trade but only restraints effected by a contract, combination, or conspiracy, the crucial question is whether the challenged anticompetitive conduct stems from independent decision or from an agreement, tacit or express.” Twombly, 550 U.S. at 553 (internal citations and brackets omitted). Accordingly, at the pleading stage, stating a § 1 claim “requires a complaint with enough factual matter (taken as true) to suggest that an agreement was made ... [and] to raise a reasonable expectation that discovery will reveal evidence of illegal agreement.” Id. at 556. Such an agreement is established by evidence that the conspiring parties “had a conscious commitment to a common scheme designed to achieve an unlawful objective.” Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 764 (1984).
If the complaint does not directly allege an agreement but instead makes only “allegations of parallel conduct . . . in order to make a § 1 claim, they must be placed in a context that raises a suggestion of a preceding agreement, not merely parallel conduct that could just as well be independent action.” Twombly, 550 U.S. at 557. That is, the complaint must contain “allegations plausibly suggesting (not merely consistent with) agreement.” Id.
Defendants rely on Twombly and contend that Plaintiffs have alleged only parallel conduct that does not raise a suggestion of an agreement, that Defendants’ alleged conduct is consistent with unilateral conduct and Defendants’ alleged admissions are too vague. In Twombly, the plaintiffs asserted a claim under the Sherman Act alleging that regional telephone companies were engaged in “parallel behavior.” Id. at 564-65. In other words, they were not competing but instead, maintaining their services within their respective regions in order to refrain from competing against each other and to inhibit the growth of upstart companies. Id. at 550-51, 564-65. However, § 1 of the Sherman Act, under which the suit had been brought, does not require sellers to compete; it just forbids their agreeing or conspiring not to compete. Id. at 553. Thus, as the court pointed out, a complaint that merely alleges parallel behavior alleges facts that are equally consistent with both an inference that the defendants are conspiring and an inference that the conditions of their market have enabled them to avoid competing without having to agree not to compete. Id. at 554. The latter does not constitute a violation of the Sherman Act.
The plaintiffs in Twombly offered no allegations that the defendants had agreed not to compete. They simply relied on the fact that the defendants did not compete to argue that there must be an agreement between them to that effect. Id. The court ruled that the plaintiffs’ allegations, which consisted of nothing more than parallel conduct without any allegations of actual agreement between the defendants, suggested that the lack of competition was “the natural, unilateral reaction of each [defendant] intent on keeping its regional dominance.” Id. at 566. See also In re Musical Instruments and Equip. Antitrust Litig., 798 F.3d 1186, (9th Cir. 2015) (“Recognizing that parallel conduct may arise on account of independent business decisions rather than an illegal agreement, Twombly requires that when allegations of parallel conduct are set out to make a § 1 claim, plaintiffs must plead enough nonconclusory facts to place that parallel conduct in a context that raises a suggestion of a preceding agreement.” (internal quotations omitted)).
Plaintiffs set forth the following relevant evidence in support of their claim under the Sherman Act: (1) At least one Sponsor, Cultural Care, has informed prospective au pairs, in writing, that the weekly stipend arranged by Cultural Care would be “the same regardless of which au pair agency you use.” (Am. Comp. at 20; Resp. at 14); (2) Sponsors informed au pairs and host families that $195.75/week plus room and board is the only permitted compensation for au pairs (Am. Comp. at 73-74, 76-77); (3) As the exclusive entities authorized to recruit, provide training, place and supervise au pairs with host families in the United States, Defendants control au pair opportunities within the United States (Am. Comp. at 10-11, Resp. at 14); (4) The Sponsors’ industry structure facilitates collusion as they are a relatively small group, 15 agencies, with 100% market share (Am. Comp. at 32); (5) In addition to industry structure, many Sponsors are members of the Alliance for International Education and Cultural Exchange and the International Au Pair Association (“IAPA”), individuals from certain Sponsors sit on IAPA’s Board, and the featured speaker at a recent IAPA conference published an article arguing for strict maintenance of the fixed $195.75 weekly wage for standard au pairs, stating that “host families do each other a disservice when they start to compete with each other (or try to stand out as a ‘better family’) by offering more pocket money. We don’t want au pairs shopping for a higher stipend.” (Am. Comp. at 30-31); (6) The Sponsors uniformly advertise au pair wages at an identical amount even though the federal government does not require that au pairs only receive minimum wage (Am. Comp. at 13-15, 20, 22-29; Resp. at 15, see also supra); (7) There are no adjustments to advertised compensation with relation to geographic differences, varying state laws and/or the number of children in the home (Am. Comp. at 29-30; Resp. at 15); (8) By depressing wages for au pair services, the Sponsors reap artificially high profits because if the host family’s direct cost for an au pair does not increase, then any increase, while still costing the family less than a full-time nanny on the open market, goes to the Sponsor in the form of fees, and keeping the cost down will theoretically increase the number of potential host families (Am. Comp. at 32); (9) Representatives of certain Sponsors have specifically admitted that the Sponsors agreed to fix au pair wages at the minimum wage rate (Am. Comp. at 20-22; Resp. at 15.); and, (10) Defendants advertise that their labor costs are set lower than the cost of a comparable child-care worker in the free market. (Am. Comp. at 5, 54, 55; Resp. at 23-24.) Plaintiffs also contend that in a competitive marketplace, at least some Defendants would either offer higher salaries to potential au pairs, thereby attracting more and higher quality au pairs and charging higher fees to families, or the Sponsors might have to compete with agencies that place other domestic workers, such as nannies, or react to market forces, including location or higher salaries based on unique childcare responsibilities, such as the number of children. (Resp. at 23.) None of these natural consequences have occurred.
The court finds Plaintiffs have plead sufficient factual allegations that the Sponsors entered into an agreement to set the au pairs stipend at the purported lowest minimum wage. The court must take these factual allegations as true when considering Defendants’ Motions to Dismiss, and they are sufficiently specific to “raise a reasonable expectation that discovery will reveal evidence of illegal agreement.” Twombly, 550 U.S. at 556. Far from invoking mere antitrust “buzz words, ” Plaintiffs' allegations include facts that suggest “a conscious commitment to a common scheme designed to achieve an unlawful objective.” Monsanto, 465 U.S. at 764.
Defendants’ contention that Plaintiffs have failed to state claim under the Sherman Act seems to be based on an approach of considering each allegation individually and judging its sufficiency. However, the court must consider Plaintiffs’ allegations as a whole. See Evergreen Partnering Group, Inc. v. Pactiv Corp., 720 F.3d 33, 47 (1st Cir. 2013) (“While each of Evergreen's allegations of circumstantial agreement standing alone may not be sufficient to imply agreement, taken together, they provide a sufficient basis to plausibly contextualize the agreement necessary for pleading a § 1 claim.”). For example, Defendants argue that their uniform advertisement of $195.75 as an au pair’s weekly stipend is insufficient to state an antitrust claim because it is “merely parallel conduct that could just as well be independent action.” (Doc. No. 135 at 16, 18.) However, Plaintiffs do not rely on this conduct alone. The Amended Complaint alleges a mixture of “parallel behaviors, details of industry structure, and industry practices, that facilitate collusion.” In re Text Messaging Litig., 630 F.3d 622, 627 (7thCir. 2010).
Defendants also argue that the alleged conduct is not actually parallel because Defendants advertise differing weekly stipends based on the individual au pair. (Doc. No. 84 at 3-4; Doc. No. 135 at 17.) However, this argument is disingenuous. The only instance in which Defendants advertise a higher compensation rate is for non-standard positions. (Am. Comp. at 22-29.) Each of the Defendants advertise standard au pair services at the same minimum rate. (Id.) Plaintiffs, and those they seek to represent in a class action, are standard au pairs. (Am. Comp. at 79-86, see also supra.) The only issues raised by Plaintiffs and therefore, the only issues relevant to the current inquiry, pertain to Defendants’ practices with regard to standard au pairs.
Defendants further contend that because their host families are required to pay their au pairs in conformance with the FLSA, then it “certainly is plausible that the [Defendants] would conclude that they should inform host families that the cost of hosting an au pair includes a weekly stipend of $195.75.” (Doc. No. 135 at 18.) Defendants are over-simplifying Plaintiff’s allegations. Plaintiffs have alleged far more than merely that Defendants inform host families of their minimum legal requirements. Plaintiffs clearly assert that Defendants have unlawfully ‘set’ au pair wages at the bare minimum and also acted deceptively toward au pairs and host families in doing so.
Defendants also assert that Plaintiff’s allegations regarding admissions by certain Sponsor representatives that an agreement exists between the Sponsors to keep standard au pair wages at exactly $195.75 per week should be disregarded as impermissibly vague. (Doc. No. 135 at 20-21.) In support of this argument, Defendants rely primarily on In re Text Messaging Antitrust Litig., 782 F.3d 867 (7th Cir. 2015) to insist that the alleged admissions are insufficient because they do not include a specific time, place or person involved, nor do they include whether the speakers ever communicated with representatives from the other Sponsors. However, as Plaintiffs point out, the In re Text Messaging case upon which Defendants rely was not decided at the dismissal stage but instead, on summary judgment. See In re Text Messaging, 782 F.3d at 869. Earlier in the proceedings, when the case reached the Seventh Circuit via an interlocutory appeal by the defendants after the district court denied their motion to dismiss, the court upheld the trial court ruling, explaining:
What is missing, as the defendants point out, is the smoking gun in a price-fixing case: direct evidence, which would usually take the form of an admission by an employee of one of the conspirators, that officials of the defendants had met and agreed explicitly on the terms of a conspiracy to raise price. The second amended complaint does allege that the defendants “agreed to uniformly charge an unprecedented common per-unit price of ten cents for text messaging services, ” but does not allege direct evidence of such an agreement; the allegation is an inference from circumstantial evidence. Direct evidence of conspiracy is not a sine qua non, however. Circumstantial evidence can establish an antitrust conspiracy. We need not decide whether the circumstantial evidence that we have summarized is sufficient to compel an inference of conspiracy; the case is just at the complaint stage and the test for whether to dismiss a case at that stage turns on the complaint's “plausibility.”
In re Text Messaging Litig., 630 F.3d 622, 628-29 (7th Cir. 2010).
Here, Plaintiffs are not required to have direct evidence of admissions in order to support their claims. Likewise, standing alone, Plaintiffs’ current admissions allegations might not be sufficient to allege an antitrust violation. However, as noted, in looking at Plaintiffs’ Amended Complaint as a whole, they have ...