United States District Court, D. Colorado
PAUL VANPORTFLIET, CARPET DIRECT TRUST, VP PROPERTY & DEVELOPMENT, LLC, MIKE HICKMAN, HICKMAN CORPORATION, ALLAN DAVISSON, GOLDSTAR GROUP, INC., DAVISSON ENTERPRISES, LLC, MICHAEL SHAUVER, RICHARD SHAUVER COMPANY, LLC, ROBERT HANSON, and WALKING R ENTERPRISES, Plaintiffs,
CARPET DIRECT CORPORATION, a Colorado Corporation, GAYLE CROUCH, GREG JENSEN, JAMES RAUSCH, CHARLES OWENS JR., and RONALD L. GOODRICH, C.P.A., Defendants.
A. BRIMMER United States District Judge
matter is before the Court on CDC Defendants' Motion for
Judgment on the Pleadings [Docket No. 39] and Defendant
Ronald L. Goodrich, C.P.A.'s Motion for Judgment on the
Pleadings [Docket No. 45].
case arises from an employment dispute between plaintiffs and
defendant Carpet Direct Corporation (“CDC”). CDC
was founded in 1993 by Earl Crouch to sell a variety of floor
coverings, including carpet, to end-user consumers. Docket
No. 10 at 10, ¶ 35. CDC sells its products through
brokers who operate under the name Carpet Direct.
Id., ¶¶ 36-37.
Paul VanPortfliet, Mike Hickman, Allan Davisson, and Robert
Hanson make nearly identical factual allegations. At some
point in the 1990s or 2000s, Earl Crouch met with each of
them individually and encouraged them to open a business to
operate as a broker for CDC. Id. at 11, ¶ 44;
16, ¶ 65; 20, ¶ 89; 27, ¶ 129. Mr. Crouch
represented to each of them that the broker would own the
business entity that he would create. Id. at 11,
¶¶ 44-45; 16, ¶¶ 66-68; 20, ¶ 89;
27, ¶ 129. Mr. Crouch also made representations about
the manner in which profits would be split between CDC and
the brokers, which he knew to be false. Id. at 12,
¶ 46; 17, ¶ 69; 21, ¶ 90. Plaintiffs
VanPortfliet, Hickman, Davisson, and Hanson all invested
significant time and money into forming and operating their
own businesses. Id. at 12-13, ¶¶ 48-49;
17, ¶¶ 70-71; 21-22, ¶¶ 93, 97; 27,
¶ 130. In 2007, CDC managers presented plaintiffs
VanPortfliet, Hickman, Davisson, and Hanson with a contract
they were required to sign that “made it clear”
that CDC owned their respective businesses. Id. at
15, ¶ 57; 19, ¶ 82; 24, ¶ 104; 27, ¶ 132.
Plaintiffs VanPortfliet and Hickman were terminated and
resigned, respectively, in December of 2013. Id. at
15, ¶ 59; 19, ¶ 80. Plaintiff Davisson continues to
operate his business for defendant CDC. Id. at 23,
¶ 101. It is unclear from the second amended complaint
whether plaintiff Hanson continues to be employed by CDC.
other individual plaintiff, Michael Shauver, was hired in
2011 by defendant Gail Crouch. Id. at 24, ¶
108. Defendants Crouch and James Rausch told him that he
would be building his own business. Id.,
¶¶ 109-10. Plaintiff Shauver formed a business to
operate on behalf of CDC, which he continues to operate to
this day. Id. at 25, ¶¶ 113-14. Plaintiff
Shauver was not told that he could be fired at any time
without cause. Id. at 24-25, ¶ 110.
April 10, 2014, plaintiffs filed suit in the Western District
of Michigan, Southern Division. Docket No. 1-1. That case was
transferred to this district pursuant to 28 U.S.C. §
1404(a) on March 16, 2016. Docket No. 1. Plaintiffs' second
amended complaint presents five claims for relief arising out
of the aforementioned facts. Docket No. 10. First, plaintiffs
VanPortfliet, Hickman, Davisson, Shauver, and Hanson claim
that defendant CDC violated the Fair Labor Standards Act
(“FLSA”) by paying them as independent
contractors, instead of employees. Id. at 28-32,
¶¶ 134-150. Second, all plaintiffs claim that
defendants committed fraud against them. Id. at
32-37, ¶¶ 151-188. Third, all plaintiffs claim that
defendant CDC has been unjustly enriched. Id. at
37-38, ¶¶ 189-199. Fourth, all plaintiffs claim
that defendants CDC, Crouch, Greg Jensen, and Ronald Goodrich
committed civil conspiracy. Id. at 38-40,
¶¶ 200-10. Finally, plaintiffs VanPortfliet, Carpet
Direct Trust, VP Property and Development, LLC, Allan
Davisson, Goldstar Group, Inc., Davisson Enterprises, LLC,
Michael Shauver, and Richard Shauver Company claim that
defendants CDC, Crouch, and Jensen have violated
Michigan's Franchise Investment Law, Mich. Comp. Laws
§ 445.1501 et seq. Id. at 40-43, ¶¶
CDC, Crouch, Jensen, Rausch, and Charles Owens, Jr. (the
“CDC defendants”) have moved for judgment on the
pleadings with respect to plaintiffs' first, second,
third, and fourth claims for relief. Docket No. 39. Defendant
Goodrich has moved for judgment on the pleadings with respect
to plaintiffs' second and fourth claims for relief, the
only two claims brought against him. Docket No. 45.
STANDARD OF REVIEW
Court reviews a motion for judgment on the pleadings pursuant
to Federal Rule of Civil Procedure 12(c) much as it does a
motion to dismiss pursuant to Rule 12(b)(6). See Adams v.
Jones, 577 F. App'x 778, 781-82 (10th Cir. 2014)
(unpublished) (“We review a district court's grant
of a motion for judgment on the pleadings de novo, using the
same standard that applies to a Rule 12(b)(6) motion.”)
(quoting Park Univ. Enters., Inc. v. Am. Cas. Co. of
Reading, PA, 442 F.3d 1239, 1244 (10th Cir. 2006)). The
Court must “accept all facts pleaded by the non-moving
party as true and grant all reasonable inferences from the
pleadings in favor of the same.” Id. at 782.
To prevail, the moving party must show that “no
material issue of fact remains to be resolved and the party
is entitled to judgment as a matter of law.” United
States v. Any & All Radio Station Transmission
Equip., 207 F.3d 458, 462 (8th Cir. 2000).
Fair Labor Standards Act (Count I)
of the second amended complaint seeks damages for unpaid
overtime under the Fair Labor Standards Act
(“FLSA”) against CDC. Docket No. 10 at 28-32,
¶¶ 134-50. Plaintiffs allege that CDC misclassified
them as independent contractors when they were, in fact,
employees. Id. at 28, ¶ 134. CDC argues that
this claim is barred by the statute of limitations. Docket
No. 39 at 2.
under the FLSA for overtime compensation is “forever
barred unless commenced within two years after the cause of
action accrued, except that a cause of action arising out of
a willful violation may be commenced within three
years.” 29 U.S.C. § 255(a). A violation of the
FLSA is willful when “the employer either knew or
showed reckless disregard for the matter of whether its
conduct violated the statute.” Mumby v. Pure Energy
Servs. (USA), Inc., 636 F.3d 1266, 1270 (10th Cir. 2011)
(quoting McLaughlin v. Richland Shoe Co., 486 U.S.
128, 133 (1988)). This lawsuit was filed on April 10, 2014.
Docket No. 1-1.
defendants argue that a two-year statute of limitations
applies in this case because plaintiff makes only conclusory
allegations regarding willful misclassification. Docket No.
39 at 3 n.2. Plaintiffs allege that defendants classified
them as independent contractors as part of “a
deliberate scheme to avoid paying employees hourly
wages” and to shift the “bulk of company expenses
onto these employees.” Docket No. 10 at 31, ¶ 141.
In addition, plaintiffs enumerate eighteen factors suggesting
that they were and are employees, not independent
contractors. Id. at 28-30, ¶ 134.
Plaintiff's factual allegations, taken as true, make it
plausible that the CDC defendants showed reckless disregard
for the proper classification of plaintiffs under the FLSA.
Accordingly, at this stage, plaintiffs have alleged
sufficient evidence to consider potential violations of the
FLSA going back to April 10, 2011.
defendants argue that plaintiffs' claim is time-barred
because “[t]he FLSA violation Plaintiffs allege was a
single act - the misclassification allegedly reflected in the
independent contractor agreements.” Docket No. 39 at
3-4. To support this claim, the CDC defendants rely almost
exclusively on Alldread v. City of Grenada, 988 F.2d
1425 (5th Cir. 1993). Docket No. 39 at 4-5. The Court in
Alldread considered FLSA regulations whereby a
public employer could exclude payments for firefighters'
sleep time “only if there [was] an expressed or implied
agreement between the employer and the employees.”
Alldread, 988 F.2d at 1428. The city obtained
“FLSA Agreements” from the firefighters by which
they agreed that sleep time would be deducted from their
hours. Id. at 1429. More than three years after
signing the agreements, the plaintiffs sued under the FLSA
and argued that the city coerced them into signing the
waivers and that, as a result, the waivers were void.
Id. at 1430. The court held that the statute of
limitations had run because the plaintiffs alleged only a
single violation of the FLSA - the procurement of the waivers
- which had occurred more than three years prior to the suit
being filed. Id. at 1431; see also Anderson v.
City of Bristol, 6 F.3d 1168, 1176 (6th Cir. 1993)
(holding that plaintiff firefighters' overtime claims
were barred by the statute of limitations because wages had
been reduced five years prior and each subsequent issued
paycheck did include proper overtime pay). Similarly, in
Knight v. Columbus, Ga., 19 F.3d 579 (11th Cir.
1994), the Eleventh Circuit noted that, if an employer's
classification decision is irrelevant to a plaintiff's
right to recover for unpaid wages, the statute of limitations
runs from each paycheck. Id. at 582. In
Knight, the city classified certain police officers
as exempt executive or administrative employees. Id.
at 581. The city argued that the officers' claims were
barred by the statute of limitations because its
classification system was adopted more than three years
before the filing of the suit. Id. The Eleventh
Circuit rejected the city's argument, stating that the
city's policy was irrelevant to the question of how to
appropriately classify the plaintiffs' employment status
and, therefore, the statute of limitations ran from each
paycheck. Id. at 582.
Alldread, and similar to the facts in
Knight, the contracts signed by plaintiffs in 2007
do not provide either the basis for, or a defense against,
plaintiffs' FLSA claim. See Phillips v. Carpet Direct
Corp., No. 16-cv-02438-MEH, 2017 WL 121630, at *7 (D.
Colo. Jan. 10, 2017) (applying Knight,
Anderson, and Alldread to support a finding
that the statute of limitations for CDC's alleged FLSA
violations runs from each paycheck). In determining whether
an individual is an independent contractor or an employee for
FLSA purposes, the “inquiry is not limited by any
contractual terminology or by traditional common law concepts
of ‘employee' or ‘independent
contractor.'” Baker v. Flint Eng'g &
Constr. Co., 137 F.3d 1436, 1440 (10th Cir. 1998)
(quoting Henderson v. Inter-Chem Coal Co., Inc., 41
F.3d 567, 570 (10th Cir. 1994)). In Baker, the Tenth
Circuit considered and rejected an employer's
characterization of rig welders as independent contractors
despite the fact that each welder signed a document entitled
“Agreement With Independent Contractor.”
Baker, 137 F.3d at 1439. The CDC defendants are
therefore incorrect when they argue that the contracts signed
by plaintiffs in 2007 “limit [their] rights to certain
compensation under the FLSA.” Docket No. 44 at 2. The
2007 contracts are irrelevant to whether plaintiffs were, in
fact, independent contractors for purposes of plaintiffs'
plaintiffs may proceed on their claims under the FLSA and
recover based on deficient paychecks issued on or after April
10, 2012. If plaintiffs successfully demonstrate that
defendants' conduct was willful, they can recover based
on deficient paychecks issued on or after April 10, 2011.
Choice of Law
turning to the tort claims alleged by plaintiffs, the Court
considers the applicable law. Generally, a federal trial
court exercising supplemental jurisdiction over state law
claims applies the forum state's choice of law.
BancOklahoma Mortg. Corp. v. Capital Title Co., 194
F.3d 1089, 1103 (10th Cir. 1999) (citing Glennon v. Dean
Witter Reynolds, Inc., 83 F.3d 132, 136 (6th Cir.
1996)). However, because this case was transferred from
another forum under 28 U.S.C. § 1404(a), the Court
“must follow the choice of law rules of the transferor
court.” Trierweiler v. Croxton & Trench Holding
Corp., 90 F.3d 1523, 1532 (10th Cir. 1996) (citing
Van Dusen v. Barrack, 376 U.S. 612, 635-37
courts apply Michigan law unless a “rational
reason” to do otherwise exists. Sutherland v.
Kennington Truck Serv., Ltd., 562 N.W.2d 466, 471 (Mich.
1997) (citation omitted). To determine if there is a rational
reason to apply another state's law, Michigan courts
apply a two-part test: first, the court “must determine
if any foreign state has an interest in having its law
applied. If no state has such an interest, the presumption
that Michigan law will apply cannot be overcome. If a foreign
state does have an interest in having its law applied, [the
court] must then determine if Michigan's interests
mandate that Michigan law be applied, despite the foreign
has an interest in its law being applied in this case. In
determining that this case should be transferred to Colorado,
the court in the Western District of Michigan aptly noted
This case is centered on conduct and activities initiated in
Colorado, where Carpet Direct operates. Defendant Carpet
Direct is a Colorado corporation with its principal place of
business in Colorado. As the CDC Defendants point out,
Plaintiffs' claims and allegations arise from the
parties' business relationship, specifically claims about
Carpet Direct's business model and the 2007 Agreements
signed by Plaintiffs in Colorado, which they claim
fundamentally altered their relationship with Carpet Direct.
Plaintiffs all traveled to Colorado to sign Agreements, which
designate Colorado law as the law governing the Agreements
and also establish Colorado as the forum for disputes. Three
of the five individual Defendants are residents of Colorado.
The various Defendants' conduct and activities in
Michigan, if any, appear to be minimal. Moreover, two of the
five individual Plaintiffs are residents ...