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Acosta v. Min & Kim Inc.

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

January 22, 2018




         Plaintiff Secretary of Labor R. Alexander Acosta (the “Secretary”) brought this action under Section 7 of the Fair Labor Standards Act of 1938, (“FLSA”), 29 U.S.C. § 207, against the Korean and Japanese restaurant known as Seoul Garden located in Ann Arbor, and its owners Kounwoo Hur and Sung Hee Kim, for unpaid overtime compensation to their employees. Now before the court are the parties' cross-motions for summary judgment. Oral argument was heard on December 19, 2017 and informs the court's decision here. For the reasons set forth below, the Secretary's motion shall be granted in part and denied in part, and Defendants' motion shall be denied.

         I. Factual Background

         The parties agree that Seoul Garden is covered by the FLSA, and Defendants Hur and Kim are deemed employers under the Act. Hur and Kim purchased Seoul Garden in 2008. Hur and Kim claim that at the time of purchase, they saw certain FLSA documents but did not understand them because they were in English. They also allege that they met with their accountant, Amy Lee, when they purchased the restaurant, who explained to them the requirements of the FLSA regarding employee compensation, including minimum wage and overtime provisions. Lee is now deceased and was not deposed prior to her death.

         Seoul Garden employs cooks, sushi chefs, cooks' helpers, servers, dishwashers, and busboys. Employees are generally expected to work six days a week for a total of 52 hours. The restaurant is open from 11:30 a.m. to 10:00 p.m. on weekdays, and from noon until 10:30 p.m. on Saturdays and Sundays. The restaurant is closed from 2:30 p.m. to 4:30 p.m. Employees generally work both the lunch shift and the dinner shift, arriving one hour before the restaurant opens. They usually take a 30-minute lunch break as well as a 30-minute dinner break, a two-hour break from 2:30 to 4:30 p.m., and then work until the restaurant closes.

         In October, 2014, an investigator, Jihong Meng, of the United States Department of Labor, Wage and Hour Division (“Wage and Hour”), reported to the restaurant to conduct an investigation. No. employees had complained about the restaurant's pay practices, but the restaurant was selected for investigation as part of the Wage and Hour's enforcement initiative targeting restaurants in Midwest college towns. Defendants suggest that they were singled out, along with seven other restaurants, because they were owned by minorities, and that Meng, as a Chinese American, was biased against them and accused them of doing things, the “Korean way.” The Secretary disputes that any racial prejudice influenced the investigation, and points out that the investigation was initiated by management; Meng reported to numerous supervisors, and the case was presented for review to a multitude of Wage and Hour personnel, including the Regional Solicitor's Office.

         Prior to and during the investigation, Defendants did not record actual hours worked by their employees but recorded days worked using an “O” and days not worked using an “X.” When an employee worked both the lunch and dinner shift, Defendants recorded two “Os.” Defendants claim they paid employees for one or two shifts regardless of whether they left early, and that if an employee worked only one shift, Defendants divided the total hours worked in half. Defendants' pay records during the investigation set forth only the total amount paid by cash or check, and did not record any regular or overtime pay. Defendants failed to record full names and contact information for each employee.

         During the investigation, Meng, and two Spanish speaking investigators, interviewed employees and Defendants Hur and Kim. The employees reported that they were paid a flat day rate and were paid the same whether they worked 40 hours a week or if they worked more than that. Also, during their initial interviews during the investigation, Hur and Kim stated that employees were paid on a daily basis.

         During Meng's initial conference with Hur and Kim on October 28, 2014, Meng requested time records. Defendants produced only schedules which did not reflect actual hours worked by employees but merely recorded whether an employee was absent, by noting an “X”, worked one shift by noting an “O, ” or worked two shifts by noting an “OO.” (Doc. 54-16, Ex. M at ¶ 7). Defendants also provided payroll records for the time period of October 1, 2012 to October 15, 2014, which show only the amount paid, and do not reflect hours worked, regular rate, straight time pay or overtime pay for each work week. Id. at ¶ 8.

         Beginning in 2016, apparently as a result of the Wage and Hour investigation, Defendants began using a time clock. Also, beginning in January of 2017, Defendants entered into written agreements with their employees setting forth an hourly rate, overtime rate, and “guaranteed wage” based upon the expectation that the employee work six days a week. During discovery, Defendants also produced records showing employees' actual hours worked and pay rates from August 29, 2016 to March 26, 2017. Defendants have not produced corresponding records for the period from October 15, 2014 to August 29, 2016. Defendants claim that despite the lack of contemporaneous documentation, their pay practices have been consistent from 2013 to 2017. For purposes of his motion for summary judgment, the Secretary accepts Defendants' contention that their pay practices have been the same from 2013 to 2017, and accepts Defendants' most recent pay records as probative evidence of Defendants' pay practices for the entire time period. The Secretary does not concede that Defendants actually calculated an amount due based on an hourly wage, but assumes arguendo that Defendants calculated employees' pay as reflected in the records provided.

         Defendants allege that Wage and Hour improperly refused to consider pay records produced by Lee after the initiation of Wage and Hour's investigation. Meng met with Lee who provided a reconstruction of hours worked and hourly rates for a few selected employees to demonstrate that their day rates included overtime. (Doc. 54-16, Ex. M at ¶ 13, 14). In her reconstructions, which Lee entitled “payroll ledgers, ” Lee calculated the hourly and overtime pay according to an algebraic equation. First, Lee took the weekly pay for an employee and then used the following algebraic equation to arrive at an alleged hourly and overtime rate: weekly salary = x*40 (x*1.5) *13 where “x” equals the hourly rate. Using this formula, Lee posits that Defendants paid the following hourly sums to its employees Ramiro, Song, and Luis: $8.882, $11.765, and $10.084. The Secretary points out that these hourly rates do not make sense as employers do not generally use figures to the tenth of a percent for an hourly wage.

         The Secretary also rejected Lee's alleged “payroll ledgers” because they did not match Hur's pay records. For example, Hur's records show that Jose Martin Fausto was paid $22, 371.03 for the period of September 1, 2013 to September 30, 2014, yet Lee's records show he was paid $27, 103.66, which amounts to a $5, 000 discrepancy which cannot be explained by the slight deviation between semi-monthly pay periods Hur used and weekly pay periods Lee used. (Cf. Doc. 54-10 with Doc 55-17) Similarly, Lee's and Hur's records as to Ramiro 2 amounts to a $4, 000 discrepancy. Id. Based on these discrepancies, Wage and Hour declined to credit Lee's “payroll ledgers, ” where these admitted reconstructions were produced after the initiation of Wage and Hour's investigation, and conflicted with Hur's and Kim's prior representations about how pay was calculated.

         The second reconstruction to demonstrate how overtime was included in the day rate was provided by Hur. His reconstruction involved figures regarding four employees which depicted hours worked, hourly rates, and alleged bonuses paid in addition to the hourly rate and overtime pay. (Doc. 54-21, Ex. R). The Secretary also declined to consider the second reconstruction which incorporated deductions and bonuses never mentioned by Hur and Kim in their initial interviews, which conflicted with Lee's reconstruction, and which did not appear on previously produced pay records. According to Meng, “[i]t appeared to me that Defendants were attempting to “back into” the numbers using different schemes to make it appear as though they were paying overtime.” (Doc. 54-16, Ex. M at ¶ 15).

         According to the Defendants, Seoul Garden pays its employees a “guaranteed wage” or a flat rate for each day worked. Defendants allege that they reached the “guaranteed wage” by negotiating with each employee as to the salary he or she desires, assuming working a six day week, regardless of the actual hours worked. Defendants then work backwards, calculating an hourly, and overtime rate for work in excess of 40 hours, with each employee, to arrive at the guaranteed rate. Defendants claim they pay each employee based on hours recorded on the time clock at the set hourly rate and overtime rate at one-and-one-half times the set hourly rate. If the amount based on the hourly rate computation is less than the employee's “guaranteed wage, ” then Defendants promise to pay a bonus to reach the “guaranteed wage.” Each pay period, an employee receives twice his “guaranteed wage” payment as long as he or she works 12 days, regardless of his or her actual hours worked. As a result of this system, the bonus increases when an employee works less hours, and decreases when an employee works more hours. In some cases, a negative bonus was calculated. If an employee works less than 12 days, Defendants subtract a flat day rate, calculated by dividing the guaranteed rate by 12, to arrive at the amount due.

         Based on the investigation's findings and discovery, the Secretary alleges that Defendants owe $112, 212.85 in unpaid overtime for the period of September 11, 2013 through March 26, 2017. (Doc. 54-16, Ex. M at ¶ 20). To arrive at her figure for back wages owing, the Secretary used the total amount paid each pay period, divided by the total hours worked, to determine the regular hourly rate. Defendants argue this method is flawed because it used an inconsistent hourly rate with the rate varying by as much as $4.00 per week for some employees. Defendants also argue the method is flawed because calculating the regular rate this way led to a very high hourly late that far exceeded the prevailing wage rate for restaurant positions in Ann Arbor as set by the Department of Labor. For example, the Secretary calculated a cook's hourly rate as high as $17.00 per hour, yet the prevailing wage rate set by the Department of Labor is $7.25 per hour. (Doc. 55-5, Ex. 4 at 58, PgID 1447). The Secretary then calculated the overtime pay as one-and-a-half times the regular rate multiplied by the overtime hours. The Secretary calculated wages for these dates based on Defendants' agreement to toll the statute of limitations from September 11, 2015 through December 11, 2015. Because the Secretary seeks damages within the two-year statute of limitations period for FLSA violations, the Secretary need not show “willfulness” as required to extend the statute of limitations period to three years.

         In addition, although Defendants claim some employees were paid generously, this is not true of all their employees. For example, cook's helper, Jose Ramiro Garcia Flores, and busboy Jose Neris Garcia-Flores, were paid less than minimum wage for 52 hours of work per week in 2013 to 2014. (Doc. 54-10, Ex. I). In their response brief, Defendants argue that the Secretary's own chart set forth in its response brief (Doc. 71 at PgID 2364) establishes that all of its employees were paid above minimum wage. However, the chart Defendants refer to is a summary based on the January 2017 employment contracts. The Secretary refers to the time period of 2013 to 2014 for the claim that Defendants paid some employees less than minimum wage. (Doc. 75 at PgID 2918).

         The Secretary previously filed a motion to amend to add eleven additional employees. The court granted the motion, reopened discovery, and allowed the parties to file supplemental briefs regarding these employees. Defendants filed a supplemental brief (Doc. 79) but the Secretary did not. In their supplemental brief, Defendants rely on the same methodology to explain their pay practices, namely that they agreed upon an hourly rate, overtime rate, “guaranteed wage, ” and “bonus to match” for those eleven employees. Defendants have attached spread sheets as to the eleven additional employees to this effect. In their supplemental brief, Defendants discuss two employees: Luis Alonso Aguinaga, and Tesus Gonzalo Aguinaga, both of whom were previously discussed in the Secretary's motion for summary judgment. Specifically, the Secretary determined that Tesus Gonzalo Aguinaga is owed $2, 218.80 in back wages, (Doc. 54-25, Ex. V PgID 1237) and that Luis Alonso Aguinaga is owed $1, 583.76 in back wages. Id. Given that these employees were previously discussed in the Secretary's original motion, it appears that the Secretary was in error when he sought to add these employees mistakenly believed to be previously unidentified. In any event, given that the Secretary did not file a supplemental brief, the court does not address those eleven employees to the extent they were not previously discussed in prior filings. The court has considered the pay records submitted by Defendants in connection with the supplemental brief, and finds that they reiterate the same methodology previously presented to the court in support of Defendants' motion for summary judgment and in response to the Secretary's motion. Thus, the court relies on its discussion of Defendants' pay records in connection with the parties' original summary judgment motions below, without specific reference to the supplemental records.

         II. Standard of Law

         Federal Rule of Civil Procedure 56(c) empowers the court to render summary judgment "forthwith if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." See Redding v. St. Eward, 241 F.3d 530, 532 (6th Cir. 2001). The Supreme Court has affirmed the court's use of summary judgment as an integral part of the fair and efficient administration of justice. The procedure is not a disfavored procedural shortcut. Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986); see also Cox v. Kentucky Dep't of Transp., 53 F.3d 146, 149 (6th Cir. 1995).

         The standard for determining whether summary judgment is appropriate is "'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.'" Amway Distributors Benefits Ass'n v. Northfield Ins. Co., 323 F.3d 386, 390 (6th Cir. 2003) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52 (1986)). The evidence and all reasonable inferences must be construed in the light most favorable to the non-moving party. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Redding, 241 F.3d at 532 (6th Cir. 2001). "[T]he mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986) (emphasis in original); see also National Satellite Sports, Inc. v. Eliadis, Inc., 253 F.3d 900, 907 (6th Cir. 2001).

         If the movant establishes by use of the material specified in Rule 56(c) that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law, the opposing party must come forward with "specific facts showing that there is a genuine issue for trial." First Nat'l Bank v. Cities Serv. Co., 391 U.S. 253, 270 (1968); see also McLean v. 988011 Ontario, Ltd., 224 F.3d 797, 800 (6th Cir. 2000). Mere allegations or denials in the non-movant's pleadings will not meet this burden, nor will a mere scintilla of evidence supporting the non-moving party. Anderson, 477 U.S. ...

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