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Gyalpo v. Holbrook Development Corp.

United States District Court, E.D. New York

August 29, 2017

Sonam Gyalpo, Appellant,
v.
Holbrook Development Corp., Appellee.

          MEMORANDUM AND ORDER

          Joseph F. Bianco, District Judge

         Sonam Gyalpo (“appellant” or “Gyalpo”) appeals from the Bankruptcy Court’s ruling in which it disallowed his claim for unpaid wages in the amount of $25,161.21 against debtor Holbrook Development Corp. (“HDC” or “debtor”). (ECF No. 1.) In particular, Gyalpo challenges the legal standard applied by the Bankruptcy Court to determine that he was not an “employee” of the debtor. The appellant also contends that a remand is warranted to consider new evidence that appellant has uncovered in a separate litigation against debtor in which its owner and general manager purportedly contradict the debtor’s position before the Bankruptcy Court.

         As set forth below, in the absence of any guidance from the Second Circuit regarding the applicable standard for analyzing these legal issues in the context of a bankruptcy proceeding, it appears that the Bankruptcy Court applied general, common law agency principles to determine whether appellant was an “employee” of the debtor. However, this Court concludes that the Bankruptcy Court should apply the applicable standards utilized under the Fair Labor Standards Act (“FLSA”) and the New York Labor Law (“NYLL”), including the rules regarding the burden of proof under those statutory frameworks, in deciding appellant’s claim. Thus, the Court remands to the Bankruptcy Court to apply that legal standard to the facts and, on remand, the Bankruptcy Court should also consider any new evidence on this issue presented by the appellant.

         I. Background

         The Court assumes the parties’ familiarity with the full facts and procedural history of this action and summarizes the facts and history relevant to the instant appeal based on the Bankruptcy Record on Appeal. (“R.,” ECF No. 4-2.)

         A. Bankruptcy Proceedings

         Debtor filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code alongside 14 other associated entities on December 24, 2014. (See In re Holbrook Development Corp., Bankr. Case No. 8-14-75671-ast (“In re HDC”), ECF No. 1.) Appellant filed a claim in the case on March 18, 2015, and debtor filed an objection on November 9, 2015. (See R. at 7–16.) The Bankruptcy Court held a hearing on the claim on March 14, 2016, accepting affidavits of direct testimony from Gyalpo and Saverio Settani, the general manager for HDC, beforehand and permitting cross-examination at the hearing itself. (See Id. at 146–263.)

         Based upon the affidavits and the testimony, the following evidence was adduced at the hearing. Each of the bankrupt entities was owned by Steven Keshtgar and operated as a gas station. (See Id. at 174–75.) Appellant worked as a cashier at several of these gas stations, including debtor’s gas station in Holbrook, New York. (Id. at 72–73.) He was initially hired by Sudheer Kumar, a manager at several different locations, to work the night shift at a gas station in Centerreach, New York, for several months while the normal night shift cashier was on leave. (Id. at 72.) When the regular night shift cashier returned, Kumar made appellant a “floater” who would fill in at various gas stations when a worker was absent. (Id. at 73.) Appellant would periodically receive calls from Kumar or a man named “Sujay” when work became available. (Id.) Kumar signed weekly schedules prepared by appellant that showed the places and hours appellant worked. (Id. at 73, 77–83, 216, 224–25.) Appellant would typically work as a floater from 7:00 p.m. until 7:00 a.m., was paid around $480 per week in cash off the books, and would normally communicate with Kumar about work issues. (Id. at 73–74, 215, 219.) He only met Keshtgar once. (Id. at 72.) At some point, Kumar began delaying appellant’s payments and taking money out of his pay before he eventually stopped paying appellant entirely. (Id. at 74.) Appellant worked at debtor’s gas station for the last few weeks it was open in January 2015. (Id. at 74.)

         Aside from the schedules signed by Kumar, there are no documents verifying appellant’s employment with debtor. Appellant is never mentioned in any of debtor’s books and records for the relevant time period. (Id. at 117.) In particular, debtor has no employment application, completed W-2 forms, time sheets, or paystubs for appellant, and its employee, payee, and employee withholding lists do not include him. (Id. at 117, 120– 126, 213–14, 233–34.) The general manager (Settani) never scheduled appellant to work or processed payroll for him. (Id. at 118.) Appellant admitted that he never received any payment from HDC, only from Kumar. (Id. at 214.)

         The Bankruptcy Court denied appellant’s claim in an oral ruling on June 21, 2016 (see Appendix A to Appellant’s Br., Transcript of Oral Ruling dated June 21, 2016, ECF No. 5-1, at 306–325 (“Oral Ruling”)[1]), and issued a written order summarily confirming that ruling on June 23, 2016 (R. at 290). It noted that appellant worked the majority of his employment at the Centerreach location before working as a floater at other gas stations including HDC’s. (Oral Ruling at 15.) It further found that, though the time sheets produced by appellant and debtor conflicted as to whether he was paid by Centerreach, appellant “did not produce tangible evidence that he was owed any money by Holbrook.” (Id. at 16.) The court rejected appellant’s argument that “Kumar had the authority to deviate from his corporate protocol and pay him in cash or to deviate from the Debtor’s other established corporate employment policies” because appellant “only . . . testified that Mr. Kumar had him drive to different gas stations to cover various shifts and pick up cash deposits, but did not establish that Mr. Kumar could or did bind Holbrook to pay Mr. Gyalpo off the books or outside the standard scanning protocol.” (Id.) From this evidence, the court concluded that debtor “met its burden of overcoming the presumption of prima facie validity of Mr. Gyalpo’s claim” and appellant “did not meet his burden of proving that he was owed any money by the Debtor.” (Id. at 17.) In particular, it held that, although Gyalpo went

to great lengths in discussing . . . the FLSA and [NYLL] standards, [he] simply [has] not demonstrated how [he] . . . was an employee or individual, as defined under Section 507(a)(4), as to Holbrook . . . and simply [has] not proven that [he] was an employee of the entity against which the claim was asserted.

(Id. at 18.) As such, the Bankruptcy Court disallowed appellant’s claim. (Id.; R. at 290.)

         B. Appeal

         Appellant filed his notice of appeal on July 8, 2016. (ECF No. 1.) This Court received the Bankruptcy Record on August 23, 2016. (ECF No. 4.) Appellant filed his brief in support of the appeal on September 6, 2016 (ECF No. 5), debtor responded on October 6, 2016 (ECF No. 6), and appellant filed a reply on October 20, 2016 (ECF No. 7). The Court has fully considered the parties’ submissions.

         II. Standard of Review

         This Court has jurisdiction to hear appeals from bankruptcy courts under 28 U.S.C. § 158(a), which provides that “[t]he district courts of the United States shall have jurisdiction to hear appeals . . . from final judgments, orders, and decrees; . . . [and] with leave of the court, from other interlocutory orders and decrees . . . of bankruptcy judges.” 28 U.S.C. § 158(a)(1), (3). Part VIII of the Federal Rules of Bankruptcy Procedure outlines the procedure governing such appeals. Fed. R. Bankr. P. 8001.

         The Court will review the Bankruptcy Court’s legal conclusions de novo and its factual findings for clear error. See Denton v. Hyman (In re Hyman), 502 F.3d 61, 65 (2d Cir. 2007); see also Lubow Machine Co., Inc. and Marksment Manufacturing, Inc. v. Bayshore Wire Products Corp. (In re Bayshore Wire Prods. Corp.), 209 F.3d 100, 103 (2d Cir. 2000) (“Like the District Court, we review the Bankruptcy Court’s findings of fact for clear error, . . . its conclusions of law de novo, . . . its decision to award costs, attorney’s fees, and damages for abuse of discretion.” (citations omitted)); accord Shugrue v. Air Line Pilots Ass’n, Int’l (In re Ionosphere Clubs Inc.), 922 F.2d 984, 988-89 (2d Cir. 1990). “A finding is ‘clearly erroneous’ when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.” Dist. Lodge 26, Int’l Ass’n of Machinists & Aerospace Workers, AFL-CIO v. United Techs. Corp., 610 F.3d 44, 51 (2d Cir. 2010) (quoting United States v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948)); see also Collins v. Hi-Qual Roofing & Siding Materials, Inc., Nos. 02-CV-0921E(F), 02-CV-0922E(F), 2003 WL 23350125, at *4, n.16 (W.D.N.Y. Dec. 18, 2003) (“‘[A] finding is only clearly erroneous when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed. . . . This standard precludes this Court from reversing the Bankruptcy Court’s decision if its account of the evidence is plausible, even if this Court is convinced that it would have weighed the evidence differently.’” (quoting In re B. Cohen & Sons Caterers, Inc., 108 B.R. 482, 484 (E.D. Pa. 1989))).

         III. Discussion

         Appellant argues that the Bankruptcy Court applied the wrong legal standard in determining that he was not employed by the debtor, and that, under the standards promulgated in the FLSA and NYLL, he qualified as an employee. (See Appellant’s Opening Br., ECF No. 5 (“Appellant’s Br.”), at i.) He further contends that the Bankruptcy Court erroneously applied the burden of proof (id.), and that remand is warranted in light of newly discovered evidence (Appellant’s Reply Br., ECF No. 7 (“Appellant’s Reply”), at 6–9). As set forth below, the Court agrees that the Bankruptcy Court did not apply the correct legal standard on the issue of appellant’s employment and, therefore, remands to allow the Bankruptcy Court to apply the standard set forth in this Memorandum and Order. In ...


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