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Valverde v. Xclusive Staffing, Inc.

United States District Court, D. Colorado

September 5, 2017

ISABEL VALVERDE; MARIA SONIA MICOL SIMON; and those similarly situated, Plaintiffs,



         Plaintiffs Isabel Valverde and Maria Sonia Nicol Simon (“Plaintiffs”) have filed this class and collective action complaint alleging they have not been properly and fully paid for work they performed. All Defendants, except Defendant HCA-HealthONE LLC d.b.a. Sky Ridge Medical Center, [1] filed a Motion to Dismiss Plaintiffs' Amended Complaint (ECF No. 65).[2] This matter is now before the Court on the Report and Recommendation (“Recommendation”) (ECF No. 163) of Magistrate Judge Michael J. Watanabe to grant in part and deny in part the Motion to Dismiss. Plaintiffs filed an Objection (ECF No. 167) to some of the Recommendation. Defendants filed a Response (ECF No. 171) to Plaintiffs' Objection but no objection of their own. For the reasons stated below, Plaintiffs' Objection is overruled in part and sustained in part. Accordingly, the Recommendation is accepted in part and declined in part, and the Motion to Dismiss is granted in part and denied in part.

         I. BACKGROUND

         A. Allegations in Amended Complaint

         As no party objected to the general background statement in the Recommendation, it is accepted. Nonetheless, a summary of such allegations and additional allegations are provided in order to provide clarity to the matters raised in the Objection.

         Briefly, the named plaintiffs, Mr. Valverde and Ms. Simon, are former employees of Defendant Xclusive Staffing, Inc. (“Xclusive”), a staffing agency owned by Defendant Diane Astley. (Amended Complaint (“AC”) ¶¶20, 36, 37, 41, 43.) Xclusive operates in at least 10 other states using subsidiaries in each state, with Defendant Xclusive Management, LLC (“Xclusive Management”) as managers of such subsidiaries. (AC ¶¶22-24.) Defendant Xclusive Staffing of Colorado, LLC (“Xclusive Staffing”) is Xclusive's subsidiary (Xclusive, Exclusive Management, and Xclusive Staffing, collectively, “Exclusive Entities”). (AC ¶25.) All of these Xclusive Entities are 100% owned and operated by Defendant Astley. (AC ¶26.)

         The Xclusive Entities provide low-wage workers for their clients, mostly hotels like Defendants Omni Interlocken Company, LLC, Omni Hotels Management Corporation, JMIR DTC Operator LLC, and Marriott International, LLC (hereafter, collectively, “Hotel Defendants”). (AC ¶28.) Such clients also rely on and help control the work of workers provided by Xclusive. (AC ¶34.) Client supervisors take part in training, controlling, and inspecting the work of Xclusive's employees. (AC ¶34.) The Plaintiffs in this case, Mr. Valverde and Ms. Simon, worked only for Xclusive's clients in Colorado. (AC ¶¶36-45.)

         Plaintiffs allege that Xclusive advertises that it complies with federal, state, and local laws, including overtime laws, but, in reality, maintains policies that violate state and federal wage and hour laws. (AC ¶¶46-49.) These policies or practices consist of (1) weekly deductions of $3.00 from workers' paychecks as an administrative charge and deductions of other expenses (including clothing, name tags, criminal background checks, and tools/equipment) from wages which are primarily for the benefit of the employer (AC ¶¶50, 52, 58, 59) (collectively, the “$3.00 deduction policy”); (2) automatic deductions of a 30-minute break from workers' work time each day irrespective of whether they actually took a break (AC ¶¶60-74) resulting in paystubs which do not reflect all time worked, i.e., workers were not paid for all time worked (the “30-minute deduction policy”); and (3) the failure to afford workers compensated 10 minute rest breaks each four hours as required under the Colorado Wage Order, resulting in workers not being paid for 10 minutes of time (AC ¶¶75-82).

         According to Plaintiffs, Defendant Astley formed an association-in-fact with Xclusive and all of its associated entities and subsidies or, in the alternative, Xclusive and all of its associated entities and subsidiaries formed an association-in-fact, which Plaintiffs called the “Astley Enterprise.” (AC ¶¶85-91.) The Ashley Enterprise allegedly engaged in the following four interrelated wire fraud schemes: (1) “the USDOL scheme”[3] which implicated the automatic 30-minute lunch break deductions and resulting underpayment of workers (AC ¶¶94-109); (2) “the website scheme” (AC ¶¶ 110-114); (3) “the electronic timekeeping scheme” in underreporting employee work hours, in particular the untaken 30-minute breaks (AC ¶¶115-123); and (4) “the faxed timesheet scheme” which underreported employee work hours and, in particular, the untaken 30-minute breaks (AC ¶¶124-131).

         Plaintiffs' Rule 23 class allegations state there are common questions of law and fact among the preliminarily defined classes, including: “Defendants' pay practices; the Defendants' failure to pay employees all they are legally owed; the nature and extent of Defendant Astley's fraud; [and] the nature and extent of the antitrust agreements.” (AC ¶142.) As for Plaintiffs' collective action allegations under the Fair Labor Standards Act (“FLSA”), they assert that members suffered from “the same policies of Defendants, including” the $3.00 deduction policy and the 30-minute deduction policy. (AC ¶¶153-159.)

         Based on such allegations, the following claims have been asserted by Plaintiffs individually and on behalf of various preliminarily defined subclasses:

Count I: Civil RICO[4]
Count II: FLSA
Count III: Failure to Pay Statutory Required Wages, including Overtime, Under the Laws of the Several States
Count IV: Failure to Provide 10 Minute Breaks under Colorado Law
Count V: Illegal Deduction under Colorado Law
Count VI: Equity under the Laws of the Several States

(See Amended Complaint.)

         B. The Stay and the Recommendation

         After Defendants filed the Motion to Dismiss, they[5] filed a motion to stay all discovery. The Magistrate Judge granted the stay pending resolution of, among other things, the Motion to Dismiss. (ECF No. 124.) That discovery stay remains in place today.

         The Magistrate Judge has now recommended the Defendants' Motion to Dismiss be denied in part and granted in part. Specifically, the Magistrate Judge recommended the following dismissals: (1) Count I: preemption - dismissal with prejudice of the RICO claim as it is preempted by the FLSA; (2) Count II, III, and IV: failure to state a claim - dismissal of Plaintiff Simon only, with prejudice; (3) Count III, IV, and V: standing - dismissal without prejudice of these claims to the extent they are based on conduct occurring outside the state of Colorado; (4) Count V: failure to state a claim - dismissal of Hotel Defendants, with prejudice; and (5) Count VI: preemption and failure to state a claim - dismissal with prejudice. The Recommendation otherwise denied Defendants' Motion to Dismiss. It is, of course, the recommendation of dismissals to which Plaintiffs' object.


         A. Review of a Magistrate Judge's Report and Recommendation

         When a magistrate judge issues a recommendation on a dispositive matter, Federal Rule of Civil Procedure 72(b)(3) requires the district court judge to “determine de novo any part of the magistrate judge's [recommendation] that has been properly objected to.” In conducting its review, “[t]he district judge may accept, reject, or modify the recommended disposition; receive further evidence; or return the matter to the magistrate judge with instructions.” Fed.R.Civ.P. 72(b)(3). An objection is proper if it is filed within fourteen days of the magistrate judge's recommendations and specific enough to enable the “district judge to focus attention on those issues-factual and legal-that are at the heart of the parties' dispute.” United States v. 2121 East 30th Street, 73 F.3d 1057, 1059 (10th Cir. 1996) (quoting Thomas v. Arn, 474 U.S. 140, 147 (1985)). The district judge need not, however, consider arguments not raised before the magistrate judge. United States v. Garfinkle, 261 F.3d 1030, 1031 (10th Cir. 2001) (“In this circuit, theories raised for the first time in objections to the magistrate judge's report are deemed waived.”).

         In the absence of a timely and specific objection, “the district court may review a magistrate's report under any standard it deems appropriate.” Summers v. Utah, 927 F.2d 1165, 1167 (10th Cir. 1991); see also Fed. R. Civ. P. 72 Advisory Committee's Note (“When no timely objection is filed, the court need only satisfy itself that there is no clear error on the face of the record in order to accept the recommendation.”).

         B. Motions to Dismiss 1. Fed.R.Civ.P. 12(b)(1)

         Motions to dismiss under Rule 12(b)(1) are, generally, either a facial attack on the complaint's allegations as to the existence of subject matter jurisdiction or a factual attack which goes beyond the allegations and challenges the facts on which subject matter jurisdiction is based. Stuart v. Colo. Interstate Gas Co., 271 F.3d 1221, 1225 (10th Cir. 2001). A facial attack challenging the sufficiency of the complaint requires the court to accept the allegations of the complaint as true. Stuart, 271 F.3d at 1225; Holt v. United States, 46 F.3d 1000, 1002 (10th Cir.1995) (internal citation omitted).

         2. Fed.R.Civ.P. 12(b)(6)

         In evaluating a motion to dismiss under Rule 12(b)(6), a court must accept as true all well-pleaded factual allegations in the complaint, view those allegations in the light most favorable to the plaintiff, and draw all reasonable inferences in the plaintiff's favor. Brokers' Choice of America, Inc. v. NBC Universal, Inc., 757 F.3d 1125, 1135-36 (10th Cir. 2014); Mink v. Knox, 613 F.3d 995, 1000 (10th Cir. 2010). Conclusory allegations are insufficient. Cory v. Allstate Ins., 583 F.3d 1240, 1244 (10th Cir. 2009). Instead, in the complaint, the plaintiff must allege a “plausible” entitlement to relief. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555-556 (2007). A complaint warrants dismissal if it fails “in toto to render plaintiffs' entitlement to relief plausible.” Twombly, 550 U.S. at 569 n.14 (italics in original). “In determining the plausibility of a claim, we look to the elements of the particular cause of action, keeping in mind that the Rule 12(b)(6) standard does not require a plaintiff to set forth a prima facie case for each element.” Safe Street Alliance v. Hickenlooper, 859 F.3d 865, 878 (10th Cir. 2017) (citation, internal quotation marks, and alteration omitted). The “‘burden[, however, ] is on the moving party to prove that no legally cognizable claim for relief exists.'” Hall v. Oliver, Civil Action No. 15-cv-01949-RBJ-MJW, 2017 WL 1437290, at *4 n.1 (citing 5B Charles Alan Wright & Arthur R. Miller, Federal Practice & Procedure § 1357 (3d ed.)).

         3. This Court's Civil Practice Standards

         As relevant to the parties' arguments, and in keeping with the standards under Rule 12(b)(6), pursuant to Section IV.M.2.c of Judge Raymond P. Moore's Civil Practice Standards (“Standards”), with respect to motions brought pursuant to Rule 12(b)(6): “For each claim for relief that the movant seeks to have dismissed, the movant shall clearly enumerate each element that movant contends must be alleged, but was not.” In response, the respondent must identify those elements which he/she disputes and identify where in the complaint he/she contends contains proper and sufficient factual allegations are contained. Standards at Section IV.M.2.c.

         III. ANALYSIS

         A. Matters to which ...

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