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Perez v. Yama, Inc.

United States District Court, E.D. Virginia, Norfolk Division

December 6, 2016

THOMAS E. PEREZ Secretary of Labor, United States Department of Labor, Plaintiff,
v.
YAMA, INC., d/b/a YAMA SUSHI RESTAURANT and JING LIN, Defendants.

          REPORT AND RECOMMENDATION

          DOUGLAS E. MILLER UNITED STALES MAGISTRATE JUDGE

         In this suit filed by the Department of Labor (Plaintiff or the "Department") alleging violations of the Fair Labor Standards Act ("FLSA"), Defendants, Yama, Inc. d/b/a Yama Sushi Restaurant and Jing Lin (collectively "Yama"), moved for summary judgment (ECF No. 15). Yama argues that it cannot be liable for the alleged violations because the undisputed evidence shows it paid its employees above the federal minimum wage, did not utilize a collective "tip pool, " and otherwise complied with the FLSA. See Defs.' Mem. Supp. Mot. Summ. J. (ECF No. 16). The matter was referred to the undersigned United States Magistrate Judge for a report and recommendation pursuant to 28 U.S.C. § 636(b)(1)(B) and Rule 72(b) of the Federal Rules of Civil Procedure. After reviewing the parties' pleadings and factual record to date, this report concludes that there is a genuine dispute of material fact about whether Yama's payments to workers complied with the FLSA. Accordingly, the undersigned recommends that the district court DENY Defendants' Motion for Summary Judgment (ECF No. 15).

         I. BACKGROUND

         Yama Sushi restaurant is located in Virginia Beach, Virginia. It is owned and operated by Jing Lin (uLin") . On July 29, 2015, the Department initiated an investigation based upon a complaint that Yama failed to pay minimum wage. Mazuera Aff. ¶ 6 (ECF No. 21-1). Wage and Hour Investigator Alvaro Mazuera ("Mazuera") conducted the investigation, which focused on Yama's time and pay practices from August 15, 2013 to August 15, 2015. Id. at ¶ 8. During the investigation, Mazuera interviewed seven employees, analyzed time and pay records, and conducted surveillance at the restaurant. Id. at ¶¶ 9-10.

         Mazuera's interviews with employees revealed that wait staff, "on average, " earned $2.13 per hour. Id. at ¶ ll.[1] He also learned that all tips, whether given to wait staff as cash or added onto a credit card receipt, were collected by management and then distributed at the end of each two week pay period. Id. at ¶ 12. This was confirmed by Lin and Yama's business manager, Nana Jiang ("Jiang"). Id. at ¶ 13. Jiang told Mazuera that they did not record how much each employee collected in tips from customers, and that the amount of tips ultimately distributed to employees was based on the employee's experience, performance, and customer feedback. Id. at ¶¶ 14-15. Lin - the owner - would also serve customers directly and collect tips. Id. at ¶ 16. Jiang told Mazuera that any tips Lin received were included the tips collected from and distributed to the employees. Id.

         As a result of his investigation, Mazuera concluded that Yama had violated Section 203(m) of the FLSA. Payroll time sheets from August 11, 2013 to September 6, 2014 indicated that Yama's wait staff was paid hourly wages ranging from $2.50 to $5.00 per hour before receiving tips. Id. at ¶ 18. During that time period, Mazuera calculated that, to ensure employees were paid at least the minimum wage, Yama took a $67, 546.14 tip credit.[2] Id. at ¶ 24. The records also showed that Lin received a total of $43, 580.87 in income from tips during that time. Id. at ¶ 20. According to Mazuera, Yama was using a "tip pool" to comply with the FLSA, and because Lin - who is the owner - participated in that pool, Yama was barred from taking the tip credit. See Pl.'s Mem. Opp. Mot. Summ. J., 7-8 (ECF No. 21). The investigation concluded that because of the improper tip pool, Yama is liable to its employees for a total of $111, 132.54, [3] plus an equal amount in liquidated damages. Mazuera Aff. ¶¶ 26-27 (ECF No. 21-1).

         Yama claims that it did not use a tip credit, but instead paid its employees a flat hourly wage. Jiang Aff. ¶ 9 (ECF No. 22-3) . According to Yama, it instituted a flat hourly wage in response to complaints by wait staff that their pay was inadequate under the traditional scheme of compensation where they received a low hourly wage ($2.13 per hour) plus tips. See id. Yama consulted with an attorney and prepared a new provision of its Employee Handbook that stated:

Waiter and Waitresses will receive an hourly wage equal to or above minimum wage requirements. These employees will not receive tips for their services. Any amounts received for tips belong to the Company. Failure of a waiter or waitress to turn over tips to the Company shall subject the employee to immediate disciplinary action, up to and including discharge. All other employees will also be compensated at an hourly wage equal to or above minimum wage requirements.

Id. at ¶¶ 10-11. After implementing the new system, according to Yama, servers were paid between $9.00 and $10.00 per hour, well in excess of the minimum wage. Id. at ¶ 13.

         In accounting for the new payroll policy, Jiang would "arbitrarily" assign an employee a portion of the tips collected from all the servers and then supplement that amount with an hourly wage to reach the agreed upon rate of compensation. See id. at ¶ 17; Defs.' Mem. Supp. Mot. Summ. J., 5 (ECF No. 16). So, for example, an employee who was to earn a flat hourly wage of $10.00 might be assigned $234 of tip money for 39 hours of work, equaling an hourly rate of $6.00 per hour. Id. Jiang would then assign a $4.00 hourly wage to bring the employee's effective pay rate to the agreed-upon $10.00 per hour. Id. This assigned hourly wage would fluctuate each week depending on the amount of tips that were assigned to the employee. Two Yama employees submitted affidavits in which they attest to receiving a flat hourly wage between $9.00 and $10.00 rather than keeping the tips they collected. See Correa Aff. ¶¶ 1-4 (ECF No. 16-5); Kotary Aff. ¶¶ 1-4 (ECF No. 16-4) .

         With respect to the tips paid to Yama's owner Lin, Jiang claimed that those monies were tips "specifically designated by customers to be paid to Lin." Jiang Aff. ¶ 21 (ECF No. 22-3). Despite allegedly telling Mazuera that Lin's tips were collected along with the tips given to other servers, Jiang stated in her affidavit that Lin's tips were tracked separately. Id. at ¶ 23.

         Mazuera communicated the results of his investigation, including Yama's total alleged liability, to Lin and Jiang at a final conference held on December 9, 2015. Mazuera Aff. ¶ 27. At the final conference, both Lin and Jiang reaffirmed that tips apportioned to Lin were taken from all the tips collected from the wait staff. Id. at ¶ 28. Yama still denied having violated the FLSA, stating that because it paid employees a flat hourly wage above the federal minimum wage, it did not avail itself of the tip credit. Yama also claimed that Lin only received tip money that came from customers she personally served, and if it violated the FLSA, it nonetheless acted in good faith and should not be liable for liquidated damages. The Department of Labor subsequently filed this suit to recover the money it claims Yama owes to its employees. Based on the foregoing declarations and payroll records, Yama now moves for summary judgment.

         II. STANDARD OF REVIEW

         Federal Rule of Civil Procedure 56 requires the Court to grant a motion for summary judgment 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); Celotex Corp. v. Catrett, 477 U.S. 317, 322-24 (1986). "A material fact is one 'that might affect the outcome of the suit under the governing law.' A disputed fact presents a genuine issue 'if the evidence is such that a reasonable jury-could return a verdict for the non-moving party." Spriggs v. Diamond Auto Glass, 242 F.3d 179, 183 (4th Cir. 2001) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)).

         The party seeking summary judgment has the initial burden of informing the Court of the basis of its motion and identifying materials in the record it believes demonstrates the absence of a genuine dispute of material fact. Fed.R.Civ.P. 56(c); Celotex Corp., 477 U.S. at 322-25. When the moving party has met its burden to show that the evidence is insufficient to support the nonmoving party's case, the burden shifts to the nonmoving party to present specific facts demonstrating that there is a genuine issue for trial. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986).

         In considering a motion for summary judgment, "the court must draw all reasonable inferences in favor of the nonmoving party, and it may not make credibility determinations or weigh the evidence." Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150 (2000); see Anderson, 477 U.S. at 255. " [A] t the summary judgment stage the judge's function is not himself to weigh the evidence and determine the truth of ...


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