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VanPorfliet v. Carpet Direct Corporation

United States District Court, D. Colorado

March 15, 2017

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,
v.
CARPET DIRECT CORPORATION, a Colorado Corporation, GAYLE CROUCH, GREG JENSEN, JAMES RAUSCH, CHARLES OWENS JR., and RONALD L. GOODRICH, C.P.A., Defendants.

          ORDER

          PHILIP A. BRIMMER United States District Judge

         This 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].

         I. BACKGROUND[1]

         This case arises from an employment dispute between plaintiffs and defendant Carpet Direct Corporation (“CDC”). CDC was founded in 1993 by Earl Crouch[2] 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.

         Plaintiffs 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.

         The 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.

         On 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.[3] 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, ¶¶ 211-27.

         Defendants 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.

         II. STANDARD OF REVIEW

         The 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).

         III. DISCUSSION

         A. Fair Labor Standards Act (Count I)

         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.

         A claim 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.

         The CDC 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.

         The CDC 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.

         Unlike 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' FLSA claim.

         Accordingly, 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.

         B. Choice of Law

         Before 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 (1964)).[4]

         Michigan 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 interests.” Id.

         Colorado 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 that:

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 ...

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