United States District Court, E.D. Virginia, Norfolk Division
December 28, 2016
THOMAS E. PEREZ SECRETARY OF LABOR, UNITED STATES DEPARTMENT OF LABOR, Plaintiff,
YAMA, INC., d/b/a YAMA SUSHI RESTAURANT, and JING LIN, Defendants.
REBECCA BEACH SMITH CHIEF JUDGE
matter is before the court on the Defendants' Motion for
Summary Judgment ("Motion"), filed on October 13,
2016. ECF No. 15. On the same day, the Defendants also filed
an accompanying Memorandum in Support ("Defendants'
Memorandum"). ECF No. 16. On November 7, 2016, the
Plaintiff filed an Opposition to Defendants' Motion for
Summary Judgment, ECF No. 20, and a Memorandum in Support
("Plaintiff's Memorandum"), ECF No. 21. On
November 14, 2016, the Defendants filed a Response in Support
of their Motion for Summary Judgment. ECF No. 22.
November 16, 2016, this court referred the Motion to United
States Magistrate Judge Douglas E. Miller, pursuant to the
provisions of 29 U.S.C. § 636(b) (1) (B) and Federal
Rule of Civil Procedure 72(b), to conduct necessary hearings,
and to submit to the undersigned district judge proposed
findings of fact and recommendations of law for the
disposition of the Motion for Summary Judgment. ECF No. 27.
The Magistrate Judge filed a Report and Recommendation
("R&R") on December 6, 2016. ECF No. 28. The
Magistrate Judge recommended denying the Defendants'
Motion for Summary Judgment. Id. at 2. On December
16, 2016, the Defendants filed Objections to the Magistrate
Judge's Report and Recommendation. ECF No. 31. On
December 21, 2016, the Plaintiff filed a Response to the
Defendants' Objections. ECF No. 32.
Motion for Summary Judgment
judgment under Federal Rule of Civil Procedure 56 is
appropriate when the court, viewing the record as a whole and
in the light most favorable to the nonmoving party, finds
that there is no genuine issue of material fact and that the
moving party is entitled to judgment as a matter of law.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
248-50 (1986). "[A]t the summary judgment stage the
judge's function is not himself to weigh the evidence and
determine the truth of the matter but to determine whether
there is a genuine issue for trial." Id. at
249. A court should grant summary judgment if the nonmoving
party, after adequate time for discovery, has failed to
establish the existence of an essential element of that
party's case, on which that party will bear the burden of
proof at trial. Celotex Corp. v. Catrett, 477 U.S.
317, 323 (1986). In essence, the nonmovant must present
"evidence on which the [trier of fact] could reasonably
find" for the nonmoving party. Anderson, 477
U.S. at 252.
defeat a motion for summary judgment, the nonmoving party
must go beyond the facts alleged in the pleadings, and rely
instead on affidavits, depositions, or other evidence to show
a genuine issue for trial. See Celotex, 477 U.S. at
324; see also M & M Med. Supplies & Serv., Inc.
v. Pleasant Valley Hosp., Inc., 981 F.2d 160, 163 (4th
Cir. 1993) ("A motion for summary judgment may not be
defeated by evidence that is 'merely colorable' or
'is not sufficiently probative.'") (quoting
Anderson, 477 U.S. at 249-50). Conclusory
statements, without specific evidentiary support, do not
suffice, Causey v. Balog, 162 F.3d 795, 802 (4th
Cir. 1998), nor does "[t]he mere existence of a
scintilla of evidence in support of the plaintiff's
position." Anderson, 477 U.S. at 252. Rather,
"there must be evidence on which the jury could
reasonably find for the plaintiff." Id.
Review of Magistrate Judge's R&R
to Rule 72(b) of the Federal Rules of Civil Procedure, the
court, having reviewed the record in its entirety, shall make
a de novo determination of those portions of the
R&R to which the Plaintiff has specifically objected.
Fed.R.Civ.P. 72(b). Objections must be "specific and
particularized." United States v. Midqette, 478
F.3d 616, 621 (4th Cir. 2007). The court may accept, reject,
or modify, in whole or in part, the recommendation of the
Magistrate Judge, or recommit the matter to him with
instructions. 28 U.S.C. § 636(b)(1).
Defendants object to the Magistrate Judge's determination
that there is a genuine dispute of material fact as to
whether the restaurant utilized a tip credit. Obj. at 1. The
Defendants state that there is "undisputed evidence .
that the employers did not keep any of the tips and Yama did
not seek a credit." Id.
Fair Labor Standards Act ("FLSA") allows employers
of "tipped employees" to satisfy the federal minimum
wage requirement by paying a base hourly rate of at least
$2.13 and accounting for the difference through tips the
employee receives. 29 U.S.C. § 203 (m) . The use of tips
to account for a portion of the minimum wage is known as a
"tip credit." 29 C.F.R. § 531.51. To utilize
the tip credit, the employer must notify employees that their
tips are being counted toward the minimum wage. 29 U.S.C.
§ 203(m). All such tips must be "retained by the
employee." Id. Participation in a "tip
pool, " in which some or all employees' tips are
collected for redistribution among a group of employees,
provides an exception to this retention requirement.
Id.; 29 C.F.R. § 531.54. Where participation in
a tip pool is mandatory, the pool must only include employees
who customarily and regularly receive tips, and the employer
must notify the employees of any required contribution
amount, only take a tip credit for the amount each employee
ultimately receives, and may not retain any of the tips for
any other purpose. See 29 C.F.R. § 531.54.
Defendants argue that servers were not tipped employees, and
that the restaurant did not utilize the tip credit. Obj. at
1. The Defendants have produced evidence that servers were
paid a flat hourly rate and were not allowed to retain tips.
Jiang Aff. ¶¶ 19-20. According to the Defendants,
this practice was memorialized at some point in its Employee
Handbook, id. at ¶ 25, and accordingly, §
203 (m) does not apply because the restaurant paid its
servers an hourly salary in excess of the federal minimum
wage and did not rely on tips to do so. Obj. at 4.
the Defendants assert that "the undisputed evidence was
that the employees did not keep any of the tips and Yama did
not seek a credit, " id. at 1, its payroll
records are to the contrary. To utilize the Defendants'
example from the Defendants' Memorandum, the
restaurant's Wage Transcription and Computation Sheets
calculate server Christina Correa's earnings as the sum
of "tips" and her "cash wage."
See ECF No. 16-2 at 8. The amount paid as a
"cash wage" is the difference between the hourly
wage the Defendants promised her and the tips she received.
See id.; Correa Aff. ¶ 5. The Wage
Transcription and Computation Sheet provides a "rate of
pay" that varies by week and is below the federal
minimum wage. See ECF No. 16-2 at 8. The "rate
of pay" is multiplied by the number of hours worked to
calculate the amount paid as a "cash wage." See
id. This indicates that the Defendants paid servers less
than minimum wage and used tips to make up the difference.
Based on this record, there is evidence from which a jury
could conclude that the servers were tipped employees and
that the restaurant used the tip credit; the Magistrate Judge
correctly noted that "Yama's records show that the
employees' tips were collected, redistributed, and then
supplemented with an hourly wage to raise the effective
hourly compensation of each employee above minimum
wage." R&R at 14.
Defendants further argue that under the Employee Handbook all
funds paid by customers "for payment of the bill or by
tip" belonged to the restaurant, and that because money
is fungible, no actual tip money was paid to servers. Obj. at
5. According to the Defendants, this means that the
restaurant did not use the tip credit. Id. But the
presence of the Wage Transcription and Computation Sheets is
plainly "evidence on which the jury could reasonably
find for the [P]laintiff, " Anderson, 477 U.S.
at 252, because it indicates that the tip credit was used.
support of their argument, the Defendants cite Guerra v.
Guadalajara, IV. According to the Defendants, in
Guerra a group of employees sued their employer for
taking a percentage of the servers' tips, seeking
"the amount withheld by the employer, " but the
court "dismissed this claim." Obj. at 3. The
Defendants egregiously misrepresent the record. In the
opinion cited, the court considered the employer's motion
for judgment on the pleadings on the servers' "claim
for conversion based on the defendant's retention of
tips." Guerra at *1. The court concluded that
"the defendant's motion . . . will be denied."
Id. at *4.
Defendants' first objection is
Defendants do not object to the Magistrate Judge's
determination that there is a genuine issue of material fact
as to whether Lin participated in the tip pool, and instead
argue that the Department of Labor is only allowed to recover
"unpaid minimum wages, " and cannot recover
"unpaid tips in excess of the minimum wage." Obj.
at 6. The Defendants further argue that even if the servers
could recover the tips in question, the Department of Labor
Defendants' argument that the servers are not entitled to
receive tips if their pre-tip compensation exceeds the
federal minimum wage is based on a misunderstanding of the
statute or the relevant facts. The federal minimum wage is
$7.25 per hour, but restaurants may use the tip credit to
partially satisfy the minimum wage requirement. 29 U.S.C.
§ 203(m). The Wage Transcription and Computation Sheets
indicate that the Defendants did precisely that. See
ECF No. 16-2. However, an employer may only use the tip
credit if, as relevant here, "all tips received by such
employee have been retained by the employee" or the
employees are compensated via a valid tip pool. 29 U.S.C.
§ 203(m). The Defendants have not complied with the
former provision. See Jiang Aff. ¶ 15 (the
restaurant would "randomly assign a portion of tips to
each server"). Therefore, the restaurant has complied
with the law only if servers were paid via a valid tip pool.
See Reich v. Chez Robert, Inc., 28 F.3d 401, 403 (3d
Cir. 1994) (stating that if employer fails to notify
employees that "tips are being credited against their
wages, then no tip credit can be taken and the employer is
liable for the full minimum-wage"). The validity of
Yama's tip pool is in dispute. The Defendants have
produced evidence showing that Lin did not participate in the
servers' tip pool. Jiang Aff. ¶¶ 15, 21-23. The
Plaintiff has produced evidence showing that tips Lin earned
while acting as a server were combined with tips earned by
others and later redistributed to Lin's benefit. Mazuera
Aff. ¶ 16. The R&R correctly found that the
Defendants were not entitled to summary judgment on the
issue. R&R at 17.
Defendants further argue that even if the servers could bring
such an action, the Department of Labor cannot. Obj. at 6.
They would have the court believe that Congress has passed a
statute, and the Department of Labor has enacted regulations,
that the federal government cannot enforce. See id.
In support of this claim, the Defendants do not cite any
statute, regulation, case, or treatise. See id. They
simply assert -without any legal support of any kind - that
the "Department of Labor has no statutory right to
recover" tips that Lin may have taken from the servers.
Id. at 6-7. This defies logic and the law. The
Department of Labor may "bring an action in any court of
competent jurisdiction to recover the amount of unpaid
minimum wages or overtime compensation and an equal amount as
liquidated damages." 29 U.S.C. § 216(c). The record
contains evidence that the Defendants used a tip pool to
satisfy minimum wage requirements, but that the tip pool
included Lin, who should have been excluded, and allotted to
Lin tips earned by servers. See Mazuera Aff. ¶
16. Accordingly, there is a dispute about whether the
Defendants have complied with the federal minimum wage law.
At issue is the $43, 580.87 that Lin claims to have earned
from tips but which may in reality belong to the servers, and
the Defendants have not shown that the Department of Labor
lacks the authority to recover the amount in question.
Defendants' second objection is OVERRULED.
Defendants next object to the Magistrate Judge's
determination that they are not entitled to summary judgment
on the basis that they acted in good faith. Obj. at 7.
action to recover unpaid minimum wages or liquidated damages
under the FLSA, the court has discretion to decline to award
liquidated damages where "the employer shows to the
satisfaction of the court that the act or omission giving
rise to such action was in good faith and that he had
reasonable grounds for believing that his act or omission was
not a violation of the Fair Labor Standards Act." 29
U.S.C. § 260. This language places a "plain and
substantial burden" on the employer. See Mayhew v.
Wells, 125 F.3d 216, 220 (4th Cir. 1997) (quoting
Richard v. Marriott Corp., 549 F.2d 303, 306 (4th
Defendants argue that they had a "reasonable basis"
to believe that paying servers more than $7.25 per hour
ensured compliance with the FLSA. Obj. at 7. But the evidence
in the record suggests that Lin may have established and
participated in a tip pool that allowed her to pocket tips
earned by others. The Defendants further argue that because
they consulted with a lawyer when drafting the Employee
Handbook, "there is no dispute of fact on which a fact
finder can find that Yama did not have a subjective belief
that its practice was in compliance with the law." Obj.
at 8. But the Defendants must establish objective good faith.
See e.g., Mayhew, 125 F.3d at 220. They have not
done so. They merely stated that an attorney "was
consulted" as they prepared the Employee Handbook, not
that the attorney wrote the Handbook or provided advice on
this issue. See Jiang Aff. ¶ 10. While the
Defendants may ultimately prevail on this point at trial,
they have not shown that they are entitled to summary
Defendants' third objection is OVERRULED.
court, having examined the Objections to the Magistrate
Judge's R&R, and having made de novo
findings with respect thereto, OVERRULES the Defendants'
Objections and hereby ADOPTS and APPROVES in full the
findings of fact and recommendations set forth in the R&R
of the United States Magistrate Judge filed on December 6,
2016. ECF No. 28. Accordingly, the court DENIES the
Defendants' Motion for Summary Judgment filed on October
13, 2016. ECF No. 15. The Cleric is DIRECTED to forward a
copy of this Memorandum Order to counsel for all parties.
 A "tipped employee" is
"any employee engaged in an occupation in which he
customarily and regularly receives more than $30 a month in
tips." 29 U.S.C. § 203 (t). "A tip is a sum
presented by a customer as a gift or gratuity in recognition
of some service performed for him." 29 C.F.R. §
 2016 WL 3766444 (W.D. Va. July 7,