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Fuentes v. Compadres, Inc.

United States District Court, D. Colorado

March 23, 2018

JAIME FUENTES, in his individual capacities and on behalf of others similarly situated, Plaintiff,
COMPADRES, INC., d/b/a Tequila's Golden TEQUILAS THORNTON NUMBER 6, LLC, d/b/a Tequila's Thornton TEQUILAS OF THORNTON, LLC, f/d/b/a Tequila's Thornton EL AGAVE AZUL, INC., d/b/a El Tequileño Arvada, EL NOPAL, INC., d/b/a El Tequileño Lakewood, EL TEQUILENO #1, d/b/a El Tequileño Aurora OSE RAIGOZA DEJESUS GARCIA, and RODRIGO SANCHEZ, Defendants.



         This matter is before the Court on the Recommendation of United States Magistrate Michael E. Hegarty (Doc. # 114), wherein he recommends that this Court grant in part and deny in part Defendants'[1] Motions to Dismiss (Doc. ## 80, 81) Plaintiff Jaime Fuentes's Second Amended Complaint (Doc. # 63). All parties timely filed objections to the Recommendation, essentially challenging it in its entirety.[2] (Doc. ## 119, 120, 121.) The Court must therefore review the issues de novo and, in so doing, “may accept, reject, or modify the recommended disposition[.]” Fed.R.Civ.P. 72(b)(3). Having conducted the required de novo review, the Court adopts in part and rejects in part the Recommendation for the following reasons.

         I. BACKGROUND

         Magistrate Judge Hegarty's Recommendation provides an extensive recitation of the factual and procedural background in this case. The Recommendation is incorporated herein by reference. See 28 U.S.C. § 636(b)(1)(B); Fed.R.Civ.P. 72(b). Thus, the factual background of this dispute will be repeated only to the extent necessary to address the parties' objections.

         The Defendants are comprised of restaurants in Colorado as well as the alleged owners or managers of the restaurants and one real estate holding company associated with the restaurants. Plaintiff worked as a waiter and bartender at two of the restaurants-Compadres, Inc. (Golden) and Tequilas Thornton Number 6, LLC (Thornton)-from October 24, 2016 to February 22, 2017. Plaintiff alleges that, during his employment, Defendants improperly failed to pay him overtime, retained tips for management, failed to provide adequate notice related to the tip credit, and over-reported his tips on his pay stubs.

         Plaintiff accordingly commenced this lawsuit on behalf of himself and others similarly situated, bringing claims against Defendants under the Fair Labor Standards Act (FLSA) and the Colorado Wage Claim Act (CWCA). On September 29, 2017, each set of Defendants filed a Motion to Dismiss Mr. Fuentes's claims under Federal Rules of Civil Procedure 12(b)(1) and (6). (Doc. ## 80, 81.) Combined, Defendants request that Plaintiff's Complaint be dismissed entirely. Plaintiff disputes that his Complaint warrants dismissal under Rule 12(b)(1) or (6), but requests leave to amend should the Court find it insufficient. (Doc. # 89.)



         Dismissal pursuant to Federal Rule of Civil Procedure 12(b)(1) is appropriate if the Court lacks subject matter jurisdiction over claims for relief asserted in the complaint. “The burden of establishing subject matter jurisdiction is on the party asserting jurisdiction.” Port City Props. v. Union Pac. R.R. Co.24, 518 F.3d 1186, 1189 (10th Cir. 2008). Rule 12(b)(1) challenges are generally presented in one of two forms: “[t]he moving party may (1) facially attack the complaint's allegations as to the existence of subject matter jurisdiction, or (2) go beyond allegations contained in the complaint by presenting evidence to challenge the factual basis upon which subject matter jurisdiction rests.” Merrill Lynch Bus. Fin. Servs., Inc. v. Nudell, 363 F.3d 1072, 1074 (10th Cir. 2004) (quoting Maestas v. Lujan, 351 F.3d 1001, 1013 (10th Cir. 2003)); see Ruiz v. McDonnell, 299 F.3d 1173, 1180 (10th Cir. 2002). The instant motions launch a factual attack on this Court's subject matter jurisdiction.


         Rule 12(b)(6) provides that a court may dismiss a complaint for “ failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). To survive a motion to dismiss, the complaint must contain sufficient factual matter, taken as true and viewed in the light most favorable to the plaintiff, to “state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 663 (2009) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Plausibility in this context means that the plaintiff pled sufficient facts to elevate the claims above the level of mere speculation and allow “the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id; Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir. 2008).


         As pertinent here, Defendants argue that the Plaintiff's FLSA Claims should be dismissed because (1) with respect to Tequilas of Thornton, LLC and the Tequileño Defendants, Plaintiff does not adequately demonstrate that he had an employment relationship with them; and (2) with respect to all Defendants, Plaintiff fails to plausibly allege that they are an “enterprise engaged in commerce.” Defendants also request dismissal of Plaintiff's FLSA claims to the extent they are based on non-actionable recordkeeping failures. The Court considers each argument in turn.


         1. Jurisdictional or Merits Element

         Before turning to the allegations in Plaintiff's Complaint, the Court first considers whether the existence of an employer-employee relationship is a jurisdictional element of an FLSA claim, properly assessed under 12(b)(1), as Defendants contend, or a merits element of the claim, better-suited for review under Rule 12(b)(6), as Plaintiff contends and Magistrate Judge Hegarty agreed.[3]

         In Arbaugh v. Y&H Corp., 546 U.S. 500, 516 (2006), the United States Supreme Court prescribed a “readily administrable bright line” to distinguish between merits and jurisdictional challenges. . That is, if Congress “clearly states that a threshold limitation on a statute's scope shall count as jurisdictional, ” that is the end of the matter. Id. at 515-16, 126. But, if Congress “does not rank a statutory limitation on coverage as jurisdictional, ” a court must not treat it as such. Id. at 516. In making this determination, courts examine a provision's “text, context, and relevant historical treatment, ” Reed Elsevier, Inc. v. Muchnick, 559 U.S. 154, 166 (2010), and ask whether “traditional tools of statutory construction ... plainly show that Congress imbued a procedural bar with jurisdictional consequences[, ]” United States v. Kwai Fun Wong, 575 U.S. --- (2015).

         Applying these principles, the Court concludes that the existence of an employee-employer relationship is non-jurisdictional and, thus, properly assessed under Rule 12(b)(6), not Rule 12(b)(1). In so concluding, the Court recognizes that some courts, including one in this district, have treated the existence of an employee-employer relationship as a jurisdictional element. See Murphy v. Allstaff Med. Res., Inc., No. 16-cv-02370-WJM, 2017 WL 2224530, at *3 (D. Colo. May 22, 2017); Doe I v. Four Bros. Pizza, No. 13 CV 1505 VB, 2013 WL 6083414, at *4-5 (S.D.N.Y. Nov. 19, 2013); Li v. Renewable Energy Solutions, Inc., 2012 WL 589567, at *5 (D.N.J. Feb. 22, 2012). This Court, however, respectfully disagrees with these authorities for several reasons.

         First and foremost, unlike the provision at issue in Arbaugh, Congress has not “clearly stated” that the employee-employer relationship is a “threshold limitation” on the FLSA's scope that “shall count as jurisdictional.” 546 U.S. at 516. Several provisions of the FLSA speak to the employee-employer relationship, including § 216(b), which is often referred to as the jurisdiction-conferring provision and provides as follows:

An action to recover the liability prescribed . . . may be maintained against any employer (including a public agency) in any Federal or State court of competent jurisdiction by any one or more employees for and in behalf of himself or themselves and other employees similarly situated.

         This provision of course mentions the Court's jurisdiction but, unlike the examples cited in Arbaugh, it does not contain an express and straightforward jurisdiction-limiting clause, such as “the district courts shall have original jurisdiction over . . . ” or “the district courts are hereby vested with jurisdiction over . . . .” See Id. at 516, n. 11 (highlighting examples of statutes conferring subject-matter jurisdiction).

         Instead, § 216's single reference to jurisdiction states that certain actions may be maintained “in any Federal or State court of competent jurisdiction.” To say that an action may be maintained in a “court of competent jurisdiction”-that is, in a court that has jurisdiction-presupposes that the court to which it refers derives “competent jurisdiction” from some other source. In this case, that other source is 28 U.S.C. § 1331, which assigns the federal district court original jurisdiction over all civil actions “arising under the . . . laws . . . of the United States.”[4] See Breuer v. Jim's Concrete of Brevard, Inc., 538 U.S. 691, 694 (2003) (although the FLSA provides that an action “may be maintained . . . in any Federal or State court of competent jurisdiction, ” 29 U.S.C. § 216(b), “the district courts would in any event have original jurisdiction over FLSA claims under 28 U.S.C. § 1331 . . . and § 1337(a).”). Plaintiff's action arises under the FLSA, plainly a law of the United States. And nothing in § 1331 conditions its jurisdictional grant on compliance with the FLSA's employee/employer relationship requirement. In essence, § 216 is not primarily concerned with granting or defining jurisdiction; it appears intended to create a collective right of action for injured employees. Whether plaintiffs have stated a cause of action under § 216(b) is therefore a question that goes to the merits of the case rather than to the Court's subject-matter jurisdiction. Cf. Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 91-92 (1998) (the failure of a cause of action does not produce a failure of jurisdiction).

         Second, employee/employer coverage under the FLSA (as opposed to the existence of an employee/employer relationship) has historically been treated, including in this Circuit, as non-jurisdictional. In other words, questions of who is an “employer” and who is an “employee” under the FLSA are substantive ingredients of a meritorious FLSA claim rather than elements of subject-matter jurisdiction. See, e.g., Murphy, 2017 WL 2224530, at *4 (FLSA coverage is not a jurisdictional inquiry); Fuqua v. Celebrity Enters., Inc., No. 12-cv-00208-WJM, 2012 WL 4088857, at *2 (D. Colo. Sept. 17, 2012) (same). This Court sees no reason why the existence of an employee/employer relationship under the FLSA would implicate the court's subject-matter jurisdiction when questions of employee/employer coverage under the FLSA do not. Indeed, when analyzing coverage, courts generally turn to the FLSA's definition section, coupled with the “economic reality” test; likewise, a determination of whether there is an employee/employer relationship under the FLSA invokes the same statutory provisions and test. See e.g., Johnson v. Unified Gov't of Wyandotte Cnty., 371 F.3d 723, 729 (10th Cir. 2004) (using the economic reality test to examine whether plaintiff is an employee under the FLSA); see also Doe I, 2013 WL 6083414, at *5 (determining whether an employee-employer relationship existed by examining the “economic realities' of such relationships); Li, 2012 WL 589567, at *4B5 (same).

         For these reasons, as well as those articulated by Magistrate Judge Hegarty, the Court concludes that the existence of an employee/employer relationship under the FLSA is an element of the plaintiff's meritorious FLSA claim and does not implicate this Court's threshold subject matter jurisdiction. The Court therefore declines the Defendants' request to analyze the issue under Rule 12(b)(1) but instead turns to evaluate the plausibility of Plaintiff's Complaint pursuant to Rule 12(b)(6).[5]

         2. Plausibility under Rule 12(b)(6)

         For the following reasons, the Court concludes that Plaintiff has sufficiently pleaded an employment relationship with the Tequila Defendants and Defendant Sanchez, but he has not sufficiently pleaded an employment relationship with the Tequileño Corporate Defendants.[6]

         a. Law

         Under the FLSA, an “employer” is defined as “any person acting directly or indirectly in the interest of an employer in relation to an employee. . . .' 29 U.S.C. § 203(d). An “employee' is defined as “any individual employed by an employer.” 29 U.S.C. § 203(e)(1). The FLSA “defines the verb 'employ' expansively to mean, 'suffer or permit to work.'” Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 326 (1992) (quoting 29 U.S.C. § 203(g)). Consistent with these broad definitions, “[t]he Supreme Court has instructed courts to construe the terms ‘employer' and ‘employee' expansively under the FLSA.” See Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 326 (1992); Rutherford Food Corp. v. McComb, 331 U.S. 722, 730 (1947)).

         Separate persons or entities that share control over an individual worker may be deemed joint employers under the FLSA.[7] According to the Department of Labor regulation:

if the facts establish that the employee is employed jointly by two or more employers, i.e., that employment by one employer is not completely disassociated from employment by the other employer(s), all of the employee's work for all of the joint employers during the workweek is considered as one employment for purposes of the [FLSA].

29 C.F.R. § 791.2(a) (emphasis added); see also Falk v. Brennan, 414 U.S. 190, 195 (1973) (observing in a FLSA case that apartment building maintenance workers were employed by both building management company and building owners). “[A]ll joint employers are responsible, both individually and jointly, for compliance with all of the applicable provisions of the [FLSA], including the overtime provisions.” 29 C.F.R. § 791.2(a). The regulation states that a joint employment relationship generally will be considered to exist in situations such as:

(1) Where there is an arrangement between the employers to share the employee's services, as, for example, to ...

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