United States District Court, E.D. New York
AFZA ANJUM, JANET TERRANA, VERONICA MONAHAN and CAMILLE FOREST, on behalf of themselves and all others similarly situated, Plaintiffs,
J.C. PENNEY COMPANY, INC., J.C. PENNEY CORPORATION, INC., Defendants.
MEMORANDUM OF DECISION
RAYMOND J. DEARIE, District Judge.
Sometimes surrender is the best option. Consider the convergence of the collective action provisions of the Fair Labor Standards Act of 1938 ("FLSA"), 29 U.S.C. §§ 201-219, with the offer of judgment provision in Federal Rule of Civil Procedure 68 and the "case" or "controversy" requirement of Article III, § 2 of the Constitution. The convergence of these provisions has given rise to an unusual litigation tactic, colorfully known as the "pick-off': a defendant seeking to avoid a lengthy and protracted FLSA collective action extends an offer of judgment to every plaintiff that fully satisfies their claims, thereby rendering the case moot under Article III and divesting the court of subject-matter jurisdiction before the case ripens into a collective action. In other words, by conceding everything to the named plaintiffs, an FLSA defendant may avoid significant legal expenses and greater exposure.
Defendants J.C. Penney Company, Inc. and J.C. Penney Corporation, Inc. (collectively, "J.C. Penney") attempt to do just that. But the named plaintiffs rejected the offer and insist on continuing the fight, now joined by nearly fifty new plaintiffs seeking to opt into the suit pursuant to 28 U.S.C. § 216(b).
J.C. Penney has moved to dismiss under Rule 12(b)(1). (Mot. Dismiss, ECF No. 97). The motion obliges the Court to engage with and answer a key question left open by the Supreme Court's decision in Genesis Healthcare Corp. v. Symczyk, 133 S.Ct. 1523 (2013) and related Second Circuit authority: when does an offer of judgment rejected by the named plaintiffs moot the lawsuit? The Court finds the answer in McCauley v. Trans Union, L.L.C., 402 F.3d 340, 342 (2d Cir. 2005) and Cabala v. Crowley, 736 F.3d 226, 228 (2d Cir. 2013) (per curiam), which direct the district courts to enter judgment despite the named plaintiffs' objections if the offer of judgment affords complete relief. The Court holds that the rejected offer of judgment moots the lawsuit only when the district court has entered that judgment - or, to put it differently, that the judgment moots the lawsuit, not the offer. Consequently, when (as in this case) new collective action plaintiffs join the lawsuit before entry of judgment, the case is not moot. Accordingly, the Court denies the Rule 12(b)(1) motion.
The Court also considers defendant's motion to strike the consent notices filed by the putative opt-in plaintiffs, a motion that, as will be seen, is tangled up with defendants' Rule 12(b)(1) motion. (Mot. Strike, ECF No. 105). I deny that motion as well.
Finally, the Court considers defendant's Rule 12(b)(6) motion to dismiss the complaint for failure to state a claim, which is based primarily on the exacting pleading standard set forth in Lundy v. Catholic Health System of Long Island Inc., 711 F.3d 106, 114-15 (2d Cir. 2013). The Court denies that motion in part and grants the motion in part, dismissing Veronica Monahan's overtime claims with leave to amend.
The four named plaintiffs filed their initial complaint on January 25, 2013, on their own behalf and on behalf of all persons similarly situated. (ECF No. 1). In addition to their FLSA claims, the plaintiffs brought claims under various provisions of the New York Labor Law ("NYLL") and related state and federal regulations. After J.C. Penney proposed a motion to dismiss for failure to state a claim (Letter Req. Pre-Mot. Conf., ECF No. 9), I granted plaintiffs leave to amend their complaint. (Conf. Mins., ECF No. 14). Plaintiffs did so on May 9, 2013. (Am. Compl., ECF No. 15).
The amended complaint alleges that J.C. Penney's employees regularly worked before and after their scheduled shifts and during lunch breaks without receiving full compensation. Instead, according to plaintiffs, J.C. Penney engaged in three time-keeping practices that "systematically" under counted their time. ( Id. at ¶¶ 24-34). The first such practice is one commonly alleged in FLSA cases: that J.C. Penney would require its employees to work while off-the-clock. ( Id. at ¶ 24). The other two practices consist of counting protocols built into J.C. Penney's time-keeping system. The Court will refer to the first of these counting protocols as the "rounding policy." ( Id. at ¶ 25). I will refer to the second as the "lunch deduction." ( Id. at ¶ 27).
The rounding policy cuts an employee's hours in small increments that add up to long stretches of time over days, weeks, and months. When commencing or stopping work, a J.C. Penney employee clocks-in and out by entering a seven-digit code into a machine. ( Id. at ¶ 23). The time-keeping system is capable of counting the intervening time by minutes. ( Id. at ¶ 25). However, for purposes of calculating pay, the system did not record a precise count of minutes. The system instead took the total minutes and then rounded down to some longer increment of time (perhaps down to the nearest tenth of an hour or nearest quarter of an hour - the complaint does not specify). (Id.) By rounding down in this way, the time-keeping system under counted an employee's actual time on-the-clock by "20 or more minutes per day." (Id.)
The lunch deduction further reduced that time by deducting "an hour for lunch even when employees were working in the store and did not clock out." ( Id. at ¶ 27). I am not entirely sure what that terse allegation implies: that J.C. Penney would always deduct a full hour, ignoring whenever the employee actually clocked out for lunch (a rather incendiary claim), or that J.C. Penney would only deduct the full hour when an employee completely forgot to clock out (in effect assuming that the employee took a full hour when she might conceivably have taken less). In either case, the lunch deduction would inevitably under count an employee's total hours unless discovered and corrected.
Citing J.C. Penney's time-keeping practices, Afza Anjum and Veronica Monahan bring claims under the FLSA, New York Labor Law ("NYLL"), and related regulations, including claims for overtime. ( Id. at ¶ ¶ 57-68, 77-82). In contrast, Camille Forest and Janet Terranaboth part-time workers - bring causes of action only under the NYLL and related state regulations, and make no claim for overtime. ( Id. at ¶ ¶ 69-76). The plaintiffs have proceeded in this manner to comply with Lundy, 711 F.3d at 116, in which the Second Circuit held that the FLSA provides no remedy for non-payment of so-called "gap time."
Lundy also set forth a demanding pleading standard for FLSA overtime claims (which the Court will later examine at length). Accordingly, Anjum and Monahan have supported their overtime claims with estimates of how much unpaid time they accrued in a typical workweek. (Am. Compl. ¶ ¶ 7, 9). In its Rule 12(b)(6) motion, J.C. Penney argues that Anjum and Monahan's overtime allegations nevertheless fall short of the Lundy standard, and so I examine them in some detail. (Mem. Supp. Mot. Dismiss 13-17, ECF No. 97-2).
Anjum, as a full-time worker, was typically scheduled to work thirty-five to thirty-eight hours per week. (Am. Compl. at ¶¶ 7, 21). In total, she estimates that, "[d]uring any given week, " she "worked at least 1 hour of uncompensated straight time and 15-30 minutes of uncompensated overtime." ( Id. at ¶ 7). Yet Anjum further supports that estimate with specific examples, alleging that "during any week of her employment, " she "worked for at least 2-4 minutes without compensation prior to and after 2-3 of her shifts" and "worked during at least 2-3 meal breaks per week... for at least 10-15 minutes per meal break." (Id.). Using these examples, Anjum has thus estimated that she worked at most thirty-nine hours and nine minutes in a typical week. That is below (barely) the forty-hour threshold for an FLSA overtime claim, see 29 U.S.C. § 207, and does not comport with her claim to have worked "15-30 minutes uncompensated overtime" in a "given" week. Unfortunately for Anjum, this is no idle discrepancy: the mismatched arithmetic undermines her position under Lundy.
Monahan's allegations exhibit the same problem. As a part-time worker, Monahan was typically scheduled to work twenty to twenty-four hours per week. ( Id. at ¶¶ 19, 21). In total, she estimates that "during any given week, " she "worked at least 10 hours of uncompensated straight time and 1.5 hours of uncompensated overtime." ( Id. at ¶ 9). Like Anjum, Monahan supports this general estimate by breaking it down. Unlike Anjum, Monahan relies on a single week, November 14, 2011 through November 18, 2011. (Id.) During that week, she "worked for at least two hours without compensation after all 5 of her shifts, " "was subject to at least 20 minutes of uncompensated time rounding" and "worked during 3-5 meal breaks... for at least 20 minutes per meal break." (Id.) That totals at most thirty-six hours. Thus, as with Anjum, Monahan's general estimate clashes with her specific example.
And yet, surprisingly, Monahan seems to have made out a perfectly good minimum wage claim. She alleges that she was paid $8.25 per hour. Accordingly, if she was paid for only twenty-four hours of work during the week of November 14, 2011 ($198.00 in total) and paid nothing for the additional twelve hours, her effective wage rate was $5.50 per hour - a minimum wage violation. See 29 U.S.C. § 207; Lundy, 711 F.3d at 116 (citing United States v. Klinghoffer Bros. Realty Corp., 285 F.2d 487, 494 (2d Cir. 1960)). The Court will return to that point in the analysis of the motion to dismiss. I will also address the question of what to make of Monahan's deposition testimony, in which she explained that she actually worked "1.5 hours of uncompensated overtime" during the week of Thanksgiving, which includes the shopping quasiholiday known as "Black Friday" (that is, the week of November 21, 2011, not November 14, 2011). (Monahan Dep. 77-78, Docketed at Wilkinson Deel. Ex H, ECF No. 116-8).
After plaintiffs filed the amended complaint, J.C. Penney initiated the pick-off, extending an offer of judgment to each of the four named plaintiffs on May 21, 2014. (Marcus Deel. Exs. 1-4, ECF No. 97-3). J.C. Penney's offer was quite precise and purported to extend complete relief to all four named plaintiffs, specifically a sum certain "inclusive of all damages, liquidated damages, and interest" and "reasonable attorneys' fees, costs, and expenses" to be determined by the Court. (Marcus Deel. Ex. 1, at 1). J.C. Penney calculated the sum certain by assuming the truth of each plaintiffs estimates of her lost straight time and overtime. J.C. Penney further assumed that its alleged violations were willful. ( Id. at 2).
With those assumptions in place, J.C. Penney then calculated what it called the "damages period" - the length of time that each plaintiff worked for J.C. Penney during the six-year limitations period for NYLL actions. J.C. Penney then combined all of plaintiffs' alleged unpaid straight time and overtime wages accruing within the damages period to calculate each plaintiffs actual damages. J.C. Penney then added liquidated damages under the FLSA, in an amount equal to 100% of actual damages. See 29 U.S.C. §§ 216(b), 260. The offer only included liquidated damages for unpaid straight time and overtime wages that accrued during the FLSA's three-year limitations period for willful violations, not the full six-year limitations period set forth in NYLL (the Court will refer to this as the "FLSA damages period").
This methodology is basically sound and is best illustrated by the offer letters J.C. Penney issued to each named plaintiff. But the Court draws attention to three possible flaws. First, J.C. Penney established the damages period and FLSA damages period by counting backward from February 1, 2013 to February 1, 2010, even though the plaintiffs filed the complaint on January 25, 2013, and even though wage claims accrue on the last day of the pay period in which a violation occurs. See Nakahata v. New York-Presbyterian Healthcare Sys., Inc., 723 F.3d 192, 198 (2d Cir. 2013) ("The cause of action for FLSA and NYLL claims accrues on the next regular payday following the work period when services are rendered."). Thus, under the FLSA, instead of offering liquidated damages for any alleged violations that occurred after February 1, 2010, J.C. Penney should have included liquidated damages for any violations that occurred after January 25, 2010 (the complaint minus three years), and perhaps even offered liquidated damages for violations that occurred before January 25, 2010, if those violations occurred during a pay period ending after that date. The difference is trifling - one week, maybe two, possibly zero. But it nevertheless raises doubts about the adequacy of the offer. And a similar problem arises with the calculation of the damages period under the NYLL-J.C. Penney should have counted back to January 25, 2007, not February 1, 2007.
Second, J.C. Penney included only one award, equaling 100% liquidated damages, for both the FLSA and NYLL claims, not two separate awards of 100% (for the FLSA violations) and 25% (for the NYLL violations). That may well be the correct approach: the district courts in this Circuit have disagreed on whether a plaintiff may recover liquidated damages for NYLL violations in addition to liquidated damages under the FLSA. See generally Gunawan v. Sake Sushi Rest., 897 F.Supp.2d 76, 91 (E.D.N.Y. 2012). The issue centers on whether the NYLL liquidated damages provision is compensatory (in which case plaintiff would reap an impermissible double recovery if she received an award of such damages after already receiving an award of liquidated damages under the FLSA) or punitive (in which case such damages would not constitute a windfall). See id.; Wicaksono v. XYZ 48 Corp., No. 10-CV-3635, 2011 WL 2022644, at* 7-8 (S.D.N.Y. May 2, 2011).
Third, J.C. Penney did not include a separate award of pre-judgment interest. True, the offers purport to be "inclusive of all... interest." (Marcus Deel. Ex. 1, at 1). But, as the Court has just summarized, the sum certain in each offer includes straight time, overtime and liquidated damages. There is no separate calculation of interest. Moreover, the terms of the offer do not make clear that such interest is to be calculated by the Court. On the contrary, the term "inclusive of all... interest" plainly (but mistakenly) indicates that the sum certain is meant to include prejudgment interest. Again, this is not necessarily an error. As with the long-running debate over stacking NYLL and FLSA liquidated damages, the courts have disagreed over whether it is appropriate to award pre-judgment interest after awarding liquidated damages - the question again comes down to whether NYLL liquidated damages are punitive or compensatory. See Gunawan, 897 F.Supp.2d at 92; compare Brock v. Superior Care, Inc., 840 F.2d 1054, 1064 (2d Cir. 1988) ("It is well settled that in an action for violations of the Fair Labor Standards Act prejudgment interest may not be awarded in addition to liquidated damages. Among other purposes, [FLSA] liquidated damages compensate for the delay in receiving wages that should have been paid.") with Reilly v. Natwest Mkts. Grp. Inc., 181 F.3d 253, 265 (2d Cir. 1999) ("[B]ecause liquidated damages under the [NYLL] and pre-judgment interest serve fundamentally different purposes, on remand the district court shall award [plaintiff] prejudgment interest."). But, again, the issue raises doubt over the adequacy of the offer.
After receiving the offers of judgment, plaintiffs interposed a motion for conditional certification of the prospective FLSA collective class. (Mot. Certify Class, ECF No. 18); Cf. Ritz v. Mike Rory Corp., 959 F.Supp.2d 276, 280 (E.D.N.Y. 2013) ("[E]ven if an offer of judgment to a plaintiff is comprehensive and undisputed, courts will not dismiss the case as moot if there is a pending motion for conditional ...