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Klein v. Ryan Beck Holdings

July 20, 2007


The opinion of the court was delivered by: Conner, Senior D.J.


Plaintiff Robert Klein brings this action against defendants Ryan Beck Holdings, Inc. and Ryan Beck & Co., Inc., contending that, while he was in defendants' employ, they: (1) failed to pay plaintiff and other similarly situated employees appropriate overtime pursuant to the Fair Labor Standards Act ("FLSA"), 29 U.S.C. §§ 201, et seq., and N.Y. COMP. CODES R. & REGS. tit. 12, § 142-2.2 (2007); and (2) improperly deducted certain expenses from the wages of plaintiff and his co-workers in violation of N.Y. LAB. LAW § 193 (2007).*fn1 Plaintiff intends to pursue his federal claim as an opt-in collective action pursuant to § 216(b) of the FLSA,*fn2 and his state claims as an opt-out class action pursuant to FED. R. CIV. P. 23.*fn3 Defendants now move to dismiss plaintiff's state law class claims for failure to state a claim upon which relief may be granted, contending that: (1) N.Y. C.P.L.R. § 901(b) prevents the prosecution of class actions pursuant to laws that, like the ones at issue herein, authorize the awarding of liquidated damages; and (2) the use of Rule 23 instead of the FLSA's collective action procedures-even when adjudicating plaintiff's state law claims-would abridge both defendants' and prospective class plaintiffs' substantive rights in violation of the Rules Enabling Act ("REA"), 28 U.S.C. §§ 2072, et seq.*fn4 For the reasons that follow, defendants' motion is denied.


When considering a motion to dismiss for lack of subject matter jurisdiction pursuant to Rule 12(b)(1), a court must "accept as true all [of plaintiff's] material factual allegations. . . ." Shipping Fin. Servs. Corp. v. Drakos, 140 F.3d 129, 131 (2d Cir. 1998) (citing Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), overruled on other grounds, Davis v. Scherer, 468 U.S. 183 (1984)). Accordingly, the following factual background is derived from the allegations of plaintiff's Amended Complaint.

Plaintiff was employed by defendants as a securities broker from April 2002 to March 30, 2004. (Am. Complt. ¶ 8.) Plaintiff's primary duties were selling securities to defendants' clients and "cold calling" potential investors to solicit their use of defendants' financial services. (Id. ¶ 19.) Plaintiff received compensation in the form of commissions on sales, although defendants employed other brokers on a salaried basis, based upon a forty-hour work week. (Id. ¶¶ 20-25.) No brokers were ever paid overtime for hours worked in excess of forty hours per week. (Id. ¶ 25.) Additionally, defendants deducted the cost of certain overheads-such as the cost of support staff and messenger services-from the compensation of commission brokers. (Id. ¶ 28.) Defendants also refused to compensate plaintiff and similarly-situated employees for expenses incurred in the performance of their job duties. (Id. ¶¶ 29-31.)

Plaintiff brought the present action, proposing to pursue his federal claims as a FLSA collective action and his state claims as a traditional class action pursuant to FED. R. CIV. P. 23. N.Y. LAB. LAW § 198 (1-a) provides:

In any action instituted upon a wage claim by an employee or the commissioner in which the employee prevails, the court shall allow such employee reasonable attorney's fees and, upon a finding that the employer's failure to pay the wage required by this article was willful, an additional amount as liquidated damages equal to twenty-five percent of the total amount of the wages found to be due.

Plaintiff does not allege that defendants' violations of state law were willful, and has waived his claim for liquidated damages.*fn5 (Am. Complt., Prayer for Relief, ¶ 9.) Defendants contend that such waiver is ineffective, arguing that the statute imposes mandatory liquidated damages upon a finding of willful misconduct, (Defs. Mem. Supp. Mot. Dismiss at 4) and claim that a class action is therefore improper, as N.Y. C.P.L.R. § 901(b) states that "an action to recover a penalty, or minimum measure of recovery created or imposed by statute may not be maintained as a class action." Defendants also contend that, because FED. R. CIV. P. 23 requires that potential class members opt out, it conflicts with the requirement of FLSA § 216(b) that potential plaintiffs expressly opt into the action and thus abridges the substantive rights of both defendants and potential plaintiffs in violation of the REA. Moreover, defendants argue, adjudication of the New York Labor Law claims in the form of a class action would have preclusive effect on the FLSA claims of any class member who did not opt into the FLSA collective action, which also would deprive that member of his substantive rights in violation of the REA. As detailed infra, we find each of defendants' arguments unpersuasive.


As previously noted, on a motion to dismiss pursuant to Rule 12(b)(6), the court must accept as true all of the well pleaded facts and consider those facts in the light most favorable to the plaintiff. On such a motion, the issue is "whether the claimant is entitled to offer evidence to support the claims." Scheuer, 416 U.S. at 236. A complaint should not be dismissed for failure to state a claim "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Padavan v. United States, 82 F.3d 23, 26 (2d Cir. 1996) (quoting Hughes v. Rowe, 449 U.S. 5, 10 (1980)) (internal quotation marks omitted).

I. Plaintiff Can Avoid Operation of N.Y. C.P.L.R. § 901(b) by Waiving His Right to Liquidated Damages

We first address defendants' argument that plaintiff may not validly waive his right to liquidated damages under New York Labor Law for the purpose of maintaining an otherwise-impermissible class action lawsuit. Of course, "[s]tate law is to be applied in the federal as well as the state courts and it is the duty of the former in every case to ascertain from all the available data what the state law is and apply it rather than to prescribe a different rule, however superior it may appear . . . ." West v. Am. Tel. & Tel. Co., 311 U.S. 223, 237 (1940). Although it has yet to be addressed by the New York Court of Appeals, the few courts to have addressed the issue have generally agreed that a plaintiff can avoid application of § 901(b) by waiving his right to liquidated or punitive damages.

As Judge McMahon stated in a similar case:

Defendants contend that Rule 23 class certification should be denied because New York Labor Law does not permit class actions claiming liquidated damages unless expressly provided for by the statute giving rise to the cause of action. See N.Y. C.P.L.R. § 901(b). This argument has been repeatedly rejected by the courts. See Brzychnalski v. Unesco, Inc., 35 F. Supp. 2d 351, 353 (S.D.N.Y. 1999); Torres v. Gristede's Operating Corp., [No. 04 Civ. 3316,] 2006 U.S. Dist. LEXIS 74039, at *56 (S.D.N.Y. Sept. 28, 2006). New York law allows plaintiffs to waive their liquidated damages claim for overtime wage ...

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