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Acosta v. Timberline South LLC

United States District Court, E.D. Michigan, Northern Division

October 6, 2017

R. ALEXANDER ACOSTA Secretary of Labor, United States Department of Labor Plaintiff,
TIMBERLINE SOUTH LLC, a Michigan limited liability company, and JIM PAYNE, an individual, Defendants.

          Hon. Patricia T. Morris



         On April 29, 2016, Plaintiff Secretary of Labor filed a Complaint in this Court against Defendants Timberline South LLC, a timber felling concern, and its manager Jim Payne, alleging violations of the overtime and recordkeeping provisions of the Fair Labor Standards Act of 1938. The Wage and Hour Division of the Department of Labor (“Wage and Hour”) initiated an investigation of Timberline's employee compensation practices in July 2015. Investigators Jeffrey Wrona and Randy Whitemire conducted the investigation, which included the time period from August 25, 2013 through August 20, 2015 (the “Investigation Period”). The investigators concluded that Timberline employees frequently worked in excess of forty hours per week, Timberline did not pay any of its employees a rate of one and one-half times their regular rate for hours worked beyond forty hours per week, and that Timberline did not maintain records of hours worked for most non-hourly employees. Plaintiff seeks recovery of unpaid overtime compensation in amount of $468, 595.08, an equal amount of liquidated damages, and injunctive relief restraining Defendants from further violations of the Act.

         Plaintiff moved for summary judgment on April 19, 2017, asserting that the facts giving rise to liability are not in dispute, as it is apparent from the face of the employer's records that Defendants failed to comply with the overtime and record keeping provisions of the FLSA. Defendants moved for summary judgment on April 20, 2017, asserting that Timberline is not a covered enterprise under the FLSA or is exempt from the FLSA under numerous provisions. The parties agree that Timberline operations are conducted wholly within the state of Michigan, and that Timberline purchases and uses equipment manufactured out of state. The parties dispute whether purchasing and using equipment manufactured out of state subjects Timberline to FLSA coverage, and dispute the applicability of various exemptions under the FLSA. The parties dispute whether the Wage and Hour Investigators used reliable methods to calculate overtime due. Finally, the parties dispute whether Defendants made a good faith and reasonable determination that the wage and hour provisions of the FLSA do not apply to Timberline operations, so as to insulate them from liability for liquidated damages.

         Plaintiff filed a Motion to Strike on May 11, 2017, seeking to strike certain exhibits attached to Defendants' Motion for Summary Judgment, and the portions of Defendants' Motion for Summary Judgment that rely on such evidence. Specifically, Plaintiff seeks to strike the USDOT Company Snapshot of Timberline Logging, Inc., and portions of Jim Payne's affidavit stating that Timberline drivers maintain CDL licenses. These documents were produced for the first time as an attachment to Defendants' Motion for Summary Judgment. Defendants rely on this evidence in their Motion for Summary Judgment to support the argument that Timberline drivers are subject to the Secretary of Transportation's authority to set qualifications and maximum hours and, therefore, that its drivers are exempt from the overtime provisions of the FLSA under the Motor Carrier Exemption.

         Plaintiff filed a Motion to Amend Complaint on April 19, 2017. Plaintiff's Proposed Amended Complaint seeks 1) to add additional employees and former employees of Defendants identified during discovery to whom Plaintiff alleges overtime compensation is due; 2) to allege additional recordkeeping violations of the Act identified during discovery; and (3) to amend the Complaint to conform to facts identified during discovery. Defendants oppose the Motion on grounds of futility, undue delay, and prejudice.

         For the reasons that follow, Plaintiff's Motion for Summary Judgment will be granted in part and denied in part; Defendants' Motion for Summary Judgment will be denied; Plaintiff's Motion to Strike will be denied; Plaintiff's Motion to Amend will be granted; supplemental briefing on damages will be ordered; and Defendants will be enjoined from further violations of the overtime and record keeping provisions of the Act.

         I. A.

         Defendant Timberline South, LLC (“Timberline”) is organized as a Michigan limited liability company and is based in Gaylord, MI. Pl.'s Mot. Summ. J. at 2, ECF No. 18; Defs.' Mot. Summ. J. at 4, ECF No. 19. Timberline engages exclusively in harvesting and felling raw timber and delivering the timber to mills located solely within the state of Michigan. Def. Mot. at 2. Timberline harvests the timber from professionally managed timber stands owned by state and private entities. Id. Timberline is a small business employing less than thirty employees at any given time. Id. Prior to the formation of Defendant Timberline South, LLC, Defendant Payne operated a company known as Timberline Logging, Inc., (“Timberline Logging”), a timber harvesting business based in Tennessee. Pl.'s Mot. at 2, 6. Timberline Logging went out of business in 2010. Timberline South, LLC was founded at or about the same period of time. Id. Timberline's business operations occur solely within the state of Michigan. Id.

         Defendants have no financial or ownership interest in the mills they deliver timber to. Pl.'s Mot. at 3; Defs.' Mot. at 4. The equipment used by Timberline in its logging operations, including harvesters and forwarders, was purchased in Michigan but manufactured outside Michigan. Pl's Mot. at 3-4; Defs.' Mot. at 3. It is undisputed that Timberline qualifies as an “enterprise” under Section 203(r)(1) of the Act. Defs.' Resp. at 2, ECF No. 24. It is undisputed that Timberline is also an “employer” under Section 203(d) of the Act. Id. Timberline has had an annual gross volume of sales of more than $500, 000 for each year relevant to this litigation. Pl.'s Mot. Ex. B (Defs.' Admiss.) at 4, ECF No. 18-3; Ex. E (Defs.' Interrogs.) at 10, ECF No. 18-6.

         Timberline employees work in a variety of roles including equipment operators, loaders, mechanics, truck drivers, and administrative staff. Pl.'s Mot. at 3; Defs.' Mot. at 5, 12, 18. More than eight Timberline employees are engaged in felling operations during each workweek of the Investigation Period. Defs.' Resp. at 16. Timberline's administrative employees are paid on an hourly, not salary basis. Pl.'s Mot. Ex. C (Payne Tr.) at 96, ECF No. 18-4; Ex. G (Empl. Hrs. and Gross) at 1, 26, 51, ECF No. 18-8. Timberline's trucks operate under USDOT registration numbers, and its drivers maintain Commercial Drivers Licenses (“CDLs”). Defs.' Mot. Ex. DX 6 (USDOT Registration Numbers), ECF No. 19-7; Def. Resp. at 12.

         Some Timberline employees are paid hourly rates, some non-hourly rates, and some a combination of hourly rates as well as day, cord, piece, and/or load rates. Pl's Mot. at 4; Ex. I (Payroll Journal), ECF No. 18-10; Defs.' Mot. at 4. Defendants recorded hours worked for hourly employees. Pl's Mot. Ex. P (Wrona Decl.) ¶¶ 10-17; ex. Q (Wage and Hour Form 55). Defendants did not record hours worked for most non-hourly employees, did not compute regular hourly rates for employees, and have never paid an overtime wage of one and one-half times the regular hourly rate for hours worked beyond forty. Payne Tr. at 168-170, 280. Defendants assert they did not compute a “regular [hourly] rate, ” because Timberline's compensation structure included compensation for travel to work time, lunch pay, fuel, daily rates, piece rates, and a company mobile phone. Payne Aff. ¶ 11-12.


         Wage and Hour initiated an investigation of Timberline in July 2015 that covered the time period from August 25, 2013 through August 20, 2015 (the “Investigation period”). Pl's Mot. at 9; Def. Mot. at 2. Investigator Wrona calculated overtime wages due to hourly employees based on payroll records produced by the Defendants as well as interviews with employees. Wrona Decl. ¶¶ 10-17; Wage and Hour Form 55. Wrona calculated overtime wages due to non-hourly employees based upon employee interviews. Wrona Decl. ¶¶ 10-17.

For example, for an employee working 60 hours and earning $1, 500 in a given week, I would determine the regular rate by dividing 1, 500 by 60, to obtain a regular rate of $25 per hour. Then I would multiply half the regular rate that week, $12.50, by the number of overtime hours worked, 20, to determine back wages due that workweek of $250.

         Id. Mr. Wrona knew that employee estimates often included drive time and meal time, which were included in his calculations. Def. Mot. Ex. DX-5 (Wrona Dep.) at 53-54. For some employees paid a combination of hourly, cord, and day rates, when he did not estimate hours worked based on an interview Mr. Wrona divided gross pay for a workweek by the hourly rate to determine hours worked. Id. at 57-58. In one case, Mr. Wrona divided a gross pay of $2, 448 by an hourly rate of $22.00 to determine that the employee worked 111.27 hours that week. Id. He then multiplied the hours in excess of 40, or 71.27, by a 0.5 multiplier to calculate the overtime due. Id.

         The record contains declarations of eight employees and a deposition of one employee containing estimated hours worked. Pl's Mot. Ex. O (Empl. Decl.), ECF No. 18-16; Ex. U (Cheryl Klein Dep.), ECF No. 18-22. “Wage and Hour ultimately determined that Defendants failed to pay $468, 595.08 in back wages to fifty employees through March 17, 2017.” Wrona Decl. ¶¶ 10-17; see Wage and Hour Form 55.


         Plaintiff also seeks liquidated damages on the grounds that Defendants did not make a good faith and reasonable determination that the provisions of the FLSA did not apply to Timberline. Prior to the formation of Timberline South, LLC, office manager Lorrie Grubbe, at the request of Defendant Payne, sent an email to Timberline Logging, Inc.'s accountant, Mr. Rooyakker, asking “do you know if we would be exempt under FLSA in Tennessee.” Pl.'s Mot. at 6, Ex. K (Rooyaker email), ECF No. 18-12; Def. Mot. at 3. Mr. Rooyaker informed Defendant Payne that Timberline Logging, Inc. was exempt from overtime obligations based on an agricultural exemption. Id. Mr. Rooyaker did not offer an opinion about which specific employees of Timberline Logging, Inc. were subject to the exemption, the applicability of the exemption to Timberline South, LLC, or the applicability of any other exemption. Pl.'s Mot. Ex. L (Rooyakker Tr.) at 61-62, ECF No. 18-13.

         Mr. Rooyaaker did not instruct Mr. Payne to not pay time and one-half for his employees. He left the decision to “Jim Payne and his personnel” to determine what employees the agricultural exemption applied to. Id. at 80. Mr. Payne established Timberline's compensation and recordkeeping practices without consulting Mr. Rooyakker. Defs.' Admiss. at 2-3; Payne 173. Mr. Payne did not believe that truck drivers were agricultural employees. Payne Tr. at 306. Mr. Payne read parts of U.S. DOL Fact Sheet #19 on the Motor Carrier Exemption, but does not recall whether he did so prior to initiation of the DOL investigation. Payne Tr. at 351-54.

         II. A.

         A motion for summary judgment should be granted if the “movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). The moving party has the initial burden of identifying where to look in the record for evidence “which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The burden then shifts to the opposing party who must set out specific facts showing “a genuine issue for trial.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986) (citation omitted). The Court must view the evidence and draw all reasonable inferences in favor of the non-movant and determine “whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.” Id. at 251-52.


         The Fair Labor Standards Acts compels covered employers to provide overtime pay to any non-exempt employee who works more than forty hours per workweek for “employment in excess of the hours above specified at a rate not less than one and one-half times the regular rate at which he is employed.” 29 U.S.C. § 207(a)(1); Jewell Ridge Coal Corp. v. Local No. 6167, 325 U.S. 161, 167 (1945). In an action by the employee to recover unpaid wages under the FLSA, the employee “must prove by a preponderance of evidence that he or she performed work for which he was not properly compensated.” Myers v. Copper Cellar Corp., 192 F.3d 546, 551 (6th Cir. 1999) (citing Anderson v. Mt. Clemens Potter Co., 328 U.S. 680, 686-87 (1946)).

         The FLSA overtime provisions do not apply to all employers, but apply only to enterprises “engaged in commerce or in the production of goods for commerce.” Section 29 U.S.C. § 203(s)(1)(A)(i). Such an enterprise includes one that “has employees engaged in commerce or in the production of goods for commerce, or that has employees handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce by any person; is an enterprise whose annual gross volume of sales made or business done is not less than $500, 000.” Id.

         “Since its original enactment in 1938, Congress has amended the FLSA three times, each time enlarging the number of entities subject to coverage under the Act.” Polycarpe v. E&S Landscaping Serv., Inc., 616 F.3d 1217, 1220 (11th Cir. 2010). The Act initially defined coverage solely in terms of covered employees, as opposed to covered employers. Id. Employees were covered if they were engaged in commerce or the production of goods for commerce. Id. Congress amended the act in 1961 to provide for enterprise wide coverage for employers with two or more workers engaged in commerce or the production of goods for commerce. See Fair Labor Standards Amendments of 1961, Pub.L. No. 87-30, 75 Stat. 65 (1961).

         The 1961 amendments also added another alternative avenue for enterprise coverage to attach, which has become known as the “handling clause.” Polycarpe at 1220. The handling clause extends coverage to any enterprise who “has employees handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce by any person.” 29 U.S.C. § 203(s)(1)(A)(i). This amendment has been interpreted to allow the FLSA “potentially to reach retail and service businesses that were otherwise locally focused.” Polycarpe, 616 F.3d at 1220 (citing Dunlop, 516 F.2d at 501).

         Congress amended the Act again in 1974, substituting the word “or” for the word “including” directly before the handling clause. See Fair Labor Standards Amendments of 1974, Pub.L. 93-259, 88 Stat. 55 (1974). This implemented Congress's intent that the handling clause provided a second independent avenue for enterprise coverage to attach. Polycarpe at 1221. Contrary to the first half of section 203(s)(1)(A)(i), which applies only to employees engaged in commerce or production of goods for commerce, the handling clause applies to enterprises whose employees have handled goods and materials that have moved through commerce, even if they cease to so move after coming into possession of the enterprise and its employees. Id.

         The 1974 amendment also added the words “or materials” to the handling clause. Id. Prior to the 1974 amendments the handling clause applied to enterprises with employees handling, selling or working on “goods” that had moved in interstate commerce. Id. After the 1974 amendments, the handling clause extended coverage to enterprises with employees handling, selling, or working on “goods or materials” that had moved in interstate commerce. Id.

         §203(i) provides an exception to the applicability of the handling clause in its definition of goods, excluding “goods after their delivery into the actual physical possession of the ultimate consumer thereof other than a producer, manufacturer or processor thereof.” 29 U.S.C. § 203(i). Thus, an enterprise would not be considered engaged in commerce under the handling clause simply by virtue of handling goods that have moved through commerce if the enterprise is the ultimate consumer thereof. Id. This is often referred to as the “ultimate-consumer” exception. Id.

         Notably, the text only provides an ultimate-consumer exception for goods, and not for materials. Although “materials” is undefined in the Act, the Senate report provides one example: “soap used by a laundry.” S. Rep. No. 93-690, at 17 (1974) (internal citations omitted). Case law has interpreted “materials” under the Act to mean “tools or other articles necessary for doing or making something.” Polycarp at 1224. The context of the article's use must be considered to determine if it is a material. Id. For instance, a china plate used by a catering business to serve customers is a “tool[] or other article[] necessary for doing or making something, ” whereas a decorative china plate hung on a wall is not. Id. Additionally, an article that constitutes a material under the above definition must also bear a significant connection with the enterprise's commercial activity; “the business may not just somehow internally and incidentally consume the item.” Polycarp at 1226.

         The case law and senate report reflect that the statute is not to extend to incidental consumption by an enterprise such as hand soap used in a restroom, which would be subject to the ultimate consumer exception as a good. Rather the intent is to cover articles or equipment used in the enterprise's commercial activity. Such use by an enterprise renders the article a material, rather than a good, and the enterprise is therefore engaged in commerce under the Act.

         Courts have concluded that enterprises are engaged in commerce under the Act where their employees handled and used equipment purchased locally which had previously moved through commerce. E.g., Dole v. Morefield Const. Co., 745 F.Supp. 1231 (E.D. Mich. 1990) (finding construction company engaged in commerce under the Act despite primarily conducting intra-state business where its employees handled and used trenchers, bulldozers, and other machinery manufactured out of state); Donovan v. Pointon, 717 F.2d 1320, 1322 (10th Cir. 1983) (affirming district court's holding that construction company was engaged in commerce where it used locally purchased equipment and replacement parts that were manufactured out of state); Marshall v. Brunner, 668 F.2d 748, 751 (3d Cir. 1982) (affirming district court's holding that garbage collection company was engaged in commerce where it used trucks, truck bodies, tires, batteries and accessories manufactured out of state); Polycarpe v. E&S Landscaping Serv., Inc. 616 F.3d 1217, 1228 (11th Cir. 2010) (directing district court to consider on remand the location where landscaping company's lawn mowers, edgers, and trucks were manufactured in order to determine whether the enterprise was engaged in commerce).

         The “coming to rest” theory is an erroneous legal theory at odds with the amended text of 29 U.S.C. § 203(s)(1)(A)(i). The theory rests on an incorrect belief that goods transported through interstate commerce lose their interstate character once they have “come to rest” locally. Polycarpe at 1221; see Donovan v. Scoles, 652 F.2d 16, 18 (9th Cir.1981) (stating that this doctrine was appropriate when FLSA coverage depended not on enterprise coverage, but only on individual coverage: employees who were “engaged in commerce or the production of goods for commerce”). This doctrine has been rejected in the enterprise coverage context as based on an incorrect reading of the amended FLSA. Polycarpe at 1221. “[T]he legislation was designed to regulate enterprises dealing in articles acquired intrastate after travel in interstate commerce.” Id. (citing Brennan v. Greene's Propane Gas Serv., Inc., 479 F.2d 1027, 1030 (5th Cir. 1973); see also 29 C.F.R. § 779.242 (stating that it is “immaterial ... that the goods may have ‘come to rest' ”).

         Notably, the language of the latter half of the handling clause is in the past tense, providing that an enterprise is engaged in commerce where it “has employees handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce by any person.” 29 U.S.C. § 203(s)(1(A)(i) (emphasis added). The plain language of the statute imposes no continuous movement requirement. The handling clause is still operative where a good or material ceases to move through commerce and “comes to rest” locally where it is then purchased by an enterprise. Where such a good or material had at one point been moved through commerce, and an enterprise's employees handle or use such a good or material in enterprise operations, the enterprise is engaged in commerce under the Act. Polycarpe at 1228.


         The FLSA provides a number of exemptions to its overtime provisions. An employer who falls within the broad scope of enterprise coverage under § 203(s)(1)(A)(i) may nonetheless be exempt from the overtime provisions if it qualifies for an exemption. Particular employees may also be exempt. Defendants believe the following exemptions apply in this case: i) the Forestry Exemption; ii) the Agricultural Exemption; iii) the Administrative Employees Exemption; and iv) the Motor Carrier Exemption.


The forestry exemption applies to
any employee employed in planting or tending trees, cruising, surveying, or felling timber, or in preparing or transporting logs or other forestry products to the mill, processing plant, railroad, or other transportation terminal, if the number of employees employed by his employer in such forestry or lumbering operations does not exceed eight[.]

         29 U.S.C. § 213(b)(28) (emphasis added). Additionally, 29 C.F.R. § 788.13 provides guidance on the methodology for counting employees:

         The determination of the number of employees employed in the named operations is to be made on an occupational and a workweek basis. Thus the exemption will be available in one workweek when eight or less employees are employed in the exempt operations and not in another workweek when more than that number are so employed.

         The C.F.R. further states that all enterprise employees employed each workweek count toward the eight employee total, irrespective of whether any employee is engaged in exempt operations.

Thus if an employer employs four employees in felling timber and preparing logs at one location and five at another location in those operations, the exemption would not be available. Similarly, if he employs six employees in such operations and three other employees in transportation work as discussed in § 788.11, the exemption could not apply. Under such circumstances he would be employing more than eight employees in the named operations. The fact that some of these employees may not be engaged in commerce or the production of goods for commerce or may be engaged in other exempt operations will not affect these conclusions (Woods Lumber Co. v. Tobin, 199 F.2d 455 (C.A. 5))

29 C.F.R. § 788.13 (emphasis added). The same analysis applies where an employee engages in some exempt activities and some non-exempt activities. Camargo v. Trammell Crow Interest Co., 318 F.Supp.2d 443, 447 (E.D. Tex. 2004) (“If an employee in the same work week performs both work which is exempt from overtime requirements and work that is not exempt, he is not exempt that week, and the overtime pay requirements of the FLSA are applicable”)(citing 29 C.F.R. § 780.11).


         The Agricultural Exemption applies in part “to any employee employed in agriculture.” 29 U.S.C. § 213(b)(12). Agriculture is defined as

farming in all its branches and among other things includes the cultivation and tillage of the soil, dairying, the production, cultivation, growing, and harvesting of any agricultural or horticultural commodities (including commodities defined as agricultural commodities in section 1141j(g) of Title 12), the raising of livestock, bees, fur-bearing animals, or poultry, and any practices (including any forestry or lumbering operations) performed by a farmer or on a farm as an incident to or in conjunction with such farming operations, including preparation for market, delivery to storage or to market or to carriers for transportation to market 29 U.S.C. § 203(f) (emphasis added). The definition contains two parts. Part one, also known as the primary meaning, refers to farming in all its branches. Farmers Reservoir & Irrigation Co. v. McComb, 337 U.S. 755, 762 (1949). The secondary meaning includes any other practices performed by a farmer as incident to or in conjunction with farming operations.


         The Administrative Employee Exemption applies, in relevant part, to “any employee employed in a bona fide executive, administrative, or professional capacity . . .” The Code of Federal Regulations provides guidance on the meaning of “bona fide” administrative professional, limiting the application to employees “compensated on a salary or fee basis at a rate of net less than $455 per week . . .” 29 C.F.R. § 541.200.


         29 U.S.C. § 213(b)(1) provides an exemption from the FLSA's overtime provisions for “any employee with respect to whom the Secretary of Transportation has power to establish qualifications and maximum hours of service” (the “Motor Carrier Exemption”). 29 U.S.C. § 213(b)(1). The Secretary has jurisdiction over transportation of passengers or property by motor carrier into interstate commerce. See 49 U.S.C.A. § 13501.

         Transportation into interstate commerce includes crossing state lines, and also includes intrastate transportation that forms a “practical continuity of movement” across state lines from the point of origin to the point of destination. 29 C.F.R. § 782.7. A “practical continuity of movement exists” where intrastate delivery is merely a “convenient intermediate step in the process of getting [the goods] to their final [interstate] destination.” Walling v. Jacksonville Paper Co., 317 U.S. 564, 568 (1943).

         The regulatory authority of the DOT is broad, including, for example, the authority to regulate hazardous materials transportation. Hazardous Materials Transportation Act, 49 U.S.C. § 5101 et seq. This broad authority to regulate transportation is not necessarily co-extensive with the Secretary's authority to establish maximum hour requirements for motor carriers in interstate commerce, as explained by the First Circuit:

The motor carrier exemption applies only when the Secretary “has power to establish qualifications and maximum hours of service” pursuant to 49 U.S.C. § 31502. 29 U.S.C. § 213(b). Whether the Secretary has power to conduct other business and promulgate unrelated regulations within Puerto Rico is irrelevant to this inquiry, and does not create ambiguity from plain meaning.

(Herman v. Hector I. Nieves Transp., Inc., 244 F.3d 32, 36 (1st Cir. 2001).

         Thus, an enterprise whose truck drivers are subject to some degree of regulation by the Department of Transportation does not automatically subject the enterprise to the Secretary of Transportation's power to establish maximum hours of service. The Secretary only has such power over motor carriers transporting passengers or property in interstate commerce, and only those motor ...

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