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Kuntze v. Josh Enterprises, Inc.

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

February 27, 2019




         This matter is before the Court on a motion to dismiss, for lack of subject matter jurisdiction and for failure to state a claim, filed by defendant Josh Enterprises, Inc. (“Defendant") pursuant to Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure. Def. Mot., ECF No. 9. Plaintiff Suzanne Kuntze ("Plaintiff") claims that Defendant violated the Fair Labor Standards Act ("FLSA") by purposefully misclassifying her as exempt from overtime, failing to pay her overtime, and failing to pay her at her regular rate for mandatory training hours. Defendant contends that (1) it already paid Plaintiff the money to which she is entitled under the "fluctuating workweek" calculation for overtime pay, thus mooting Plaintiff's overtime claim and depriving the Court of jurisdiction; (2) Plaintiff failed to state a claim for unpaid regular time; and (3) even if Plaintiff amends her claim for unpaid regular time, the claim would be moot because Defendant already paid more than full relief. Plaintiff responds that (1) the fluctuating workweek method does not apply to the overtime claim advanced in this case and, therefore, her claim for overtime is not moot; and (2) she adequately alleged a violation of the FLSA for unpaid regular hours. Alternatively, Plaintiff requests that she be granted leave to amend the record, or that the Court permit the parties to conduct discovery, and that Plaintiff be granted leave to amend her complaint after discovery.


         A. Factual Background

         Plaintiff began working for Defendant, a tax service company, in 2015 after Defendant acquired ownership of Plaintiff's previous employer. Plaintiff worked for her previous employer year-round since 2005. Compl. ¶ 9, ECF No. 1. In 2015, after taking over the company, Defendant gave Plaintiff the title of "Manager" and had her sign a new employment agreement. Compl. ¶ 10-11. Under the new agreement, Plaintiff worked as a seasonal employee making a bi-weekly salary of $1, 280.00 during "tax season." Compl. ¶ 13; PL's Ex. B, ECF No. 1-2. During the off season, she worked reduced hours at an hourly wage. Compl. ¶ 14-15. Plaintiff alleges that, notwithstanding her title as "Manager," Defendant took away her managerial job duties such as the ability to hire, fire, schedule, and supervise employees, reducing her responsibilities to that of a "regular customer service tax preparer." Compl. ¶ 12.

         At the end of 2015, Plaintiff was required to sign a new employment agreement to keep her position. Compl. ¶ 16. The agreement kept Plaintiff on a bi-weekly salary of $1, 280.00 during the tax season and changed her title to "Shift Supervisor." Compl. ¶ 16; PL's Ex. C, ECF No. 1-3. At the end of 2016, Defendant required Plaintiff to sign a new employment agreement which set her bi-weekly salary at $1, 330.00 for the tax season. Compl. ¶ 20; PL's Ex. D, ECF No. 1-4. None of the agreements capped Plaintiff's tax season hours, but all three required Plaintiff to clock-in and out. PL's Exs. B, C, D. The agreements also noted that Defendant would schedule Plaintiff's hours "to meet [Defendant's] customer demands because customer demand fluctuates throughout Tax Season." PL's Exs. B, C, D.

         In a letter dated August 11, 2017, Plaintiff requested a $60, 000 payment from Defendant to compensate her for unpaid overtime and regular time. Def.'s Ex. A, ECF No. 10-1. Defendant responded via counsel on November 18, 2017, with a letter stating that, while Defendant maintained that Plaintiff was exempt from overtime, it would nonetheless compensate Plaintiff for overtime based on the fluctuating workweek methodology. Def.'s Ex. C, ECF No. 10-3. With the letter, Defendant issued two checks purportedly "in full satisfaction of [Plaintiff's] claims against [her] employer." Def.'s Ex. C. The letter explained that one check, in the amount of $5, 977.72, was for uncompensated overtime calculated based on half of her regular hourly rate under the fluctuating workweek method, plus an additional, equal amount, for liquidated damages. Def.'s Ex. C. The second check, which was in the amount of $267.78, was intended to compensate Plaintiff at her regular hourly rate for the sixteen and a half regular hours that she spent completing mandatory training. Def.'s Ex. C. Plaintiff did not cash the two checks and instead filed her complaint in this case on January 19, 2018. Mem. in Support of Def.'s Mot. to Dismiss, ECF No. 10; Compl., ECF No. 1.

         The day before Plaintiff filed her complaint, counsel for Defendant sent a letter to Plaintiff's counsel highlighting issues raised during an earlier phone conversation. Def.'s Ex. D, ECF No. 10-4. The letter again emphasized that Defendant believed Plaintiff was exempt from overtime pay, but claimed that even if she was not, Defendant had already given Plaintiff every dollar to which she was entitled under the proper calculation method in this jurisdiction. Def.'s Ex. D. Counsel for Plaintiff replied to Defense counsel's letter on January 19, 2018. Def.'s Ex. E, ECF No. 10-5. The letter from Plaintiff's counsel alleged that Defendant willfully misclassified Plaintiff as "exempt" from overtime payment, argued that the fluctuating workweek method was not applicable in this case, and demanded that Plaintiff be paid based on a time-and-a-half calculation of overtime. Def.'s Ex. E. The letter claimed Plaintiff sought a total of $29, 298.90 as a settlement payment, which covered overtime calculated at the time-and-a-half rate, unpaid training time at her regular rate, liquidated damages, and attorney's fees. Def.'s Ex. E.

         On April 12, 2018, counsel for Defendant sent Plaintiff's counsel two cashier's checks, one for $267.78 as payment for training hours at Plaintiff's regular hourly rate, and one for $5, 980.10 as payment for Plaintiff's overtime hours plus liquidated damages.[1] Def.'s Ex. F, ECF No. 10-6. The facts in the record do not state whether Plaintiff cashed or deposited the cashier's checks.

         B. Procedural Background

         Defendant filed the instant motion to dismiss on April 16, 2018. Def.'s Mot., ECF No. 9. On July 11, 2018, the Court issued an order directing the parties to schedule oral argument on the motion to dismiss and to address controlling case law of the United States Court of Appeals for the Fourth Circuit that applied the half-time calculation of the fluctuating workweek method to misclassification cases. Order, ECF No. 17. The Court also directed Plaintiff to be prepared to address how discovery could alter the amount of damages recoverable, and whether willful misrepresentations of entitlement to overtime have any relevance to civil damages, in light of the FLSA's provision regarding criminal prosecution for willful violations. Order, ECF No. 17. The Court then held a hearing on the motion to dismiss on September 25, 2018.


         A. 12(b)(1) Motion to Dismiss

         1. Facial v. Factual Challenge

         A motion to dismiss pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure for lack of subject matter jurisdiction may attack a complaint on its face, insofar as the complaint fails to allege facts upon which the court can base jurisdiction, or, as is the case here, it may attack the truth of any underlying jurisdictional allegations contained in the complaint. Beck v. McDonald, 848 F.3d 262, 270 (4th Cir. 2017); Adams v. Bain, 697 F.2d 1213, 1219 (4th Cir. 1982). In the former situation, known as a facial challenge, the court is required to accept all of the complaint's factual allegations as true, "and the plaintiff, in effect, is afforded the same procedural protection as he would receive under a 12(b)(6) consideration." Adams, 697 F.2d at 1219.

         In the latter situation, known as a factual challenge, "the district court may regard the pleadings as mere evidence[2] on the issue and may consider evidence outside the pleadings." Velasco v. Gov't of Indonesia, 370 F.3d 392, 398 (4th Cir. 2004) (citing Adams, 697 F.2d at 1219). In explaining how district courts should evaluate evidence presented in a factual challenge, the United States Court of Appeals for the Fourth Circuit has indicated that it depends on whether the jurisdictional facts are intertwined with the merits facts. Kerns v. United States, 585 F.3d 187, 196 (4th Cir. 2009). Both scenarios are discussed below.

         2. Facts Not Intertwined

         When jurisdictional facts are not intertwined with the merits, the trial court may weigh evidence and resolve factual disputes to determine its jurisdiction.[3] See Arbaugh v. Y&H Corp., 546 U.S. 500, 514 (2006); Adams, 697 F.2d at 1219; 2 Milton I. Shador & Mary P. Squiers, Moore's Federal Practice - Civil § 12.30 (2018); 5B Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1350 (3d ed. 2004) . But see Richmond, Fredericksburg & Potomac R.R. Co. v. United States, 945 F.2d 765, 768 (4th Cir. 1991) (applying a summary judgment standard in a case where jurisdictional facts were not intertwined with merits facts, rather than weighing the evidence and resolving factual disputes).[4] When such jurisdictional and merits facts are not intertwined, the plaintiff bears the burden of proving jurisdiction by a preponderance of the evidence and may present "affidavit[s], depositions or live testimony" to meet its burden. Adams, 697 F.2d at 1219; accord United States ex rel. Vuyyuru v. Jadhav, 555 F.3d 337, 437-48 (4th Cir. 2009).

         As footnote 3 notes, there are published Fourth Circuit cases that apply a summary judgment standard in non-intertwined scenarios, and in doing so, make no reference to a district court's authority to weigh evidence, as previously established in Adams. However, in those cases, it does not appear that the issue of a district judge's authority to weigh evidence was squarely presented to the Fourth Circuit.[5] Moreover, in at least two of the cases, there were not material disputes of fact, and thus, there was no need to "weigh" the evidence. Balfour Beatty Infrastructure, Inc., 855 F.3d at 251; Richmond, Fredericksburg & Potomac R.R. Co., 945 F.2d at 769. Accordingly, it appears that the Richmond line of cases should not be interpreted as directly "conflicting" with Adams and its progeny, and this Court, therefore, may follow the well-established standard set forth in Adams.

         Alternatively, to the extent that there is a direct conflict between the cases permitting district courts to weigh evidence and resolve disputed jurisdictional facts (Adams and progeny), and those applying a summary judgment standard (Richmond and progeny), this Court must follow Adams as it is the earlier-in-time decision. See McMellon v. United States, 387 F.3d 329, 333 (4th Cir. 2004). Moreover, the decision in Adams is consistent with more recent Supreme Court precedent and respected Civil Procedure treatises. See, e.g., Bolivarian Republic of Venez. v. Helmerich & Payne Int'l Drilling Co., 137 S.Ct. 1312, 1316 (2017) ("[W]here jurisdictional questions turn upon further factual development, the trial judge may take evidence and resolve relevant factual disputes."); Arbaugh, 546 U.S. at 514 (noting that “in some instances, if subject-matter jurisdiction turns on contested facts, the trial judge may be authorized to review the evidence and resolve the dispute on her own") (citing 2 Moore's Federal Practice § 12.30 (3d ed. 2005); 5B Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1350 (3d ed. 2004)). Though those recent Supreme Court cases have not clearly defined the limitations on a trial court's authority to weigh evidence in the 12(b)(1) context, a review of case law from multiple circuits, including the Fourth Circuit, indicates that district courts may typically resolve factual disputes in 12(b)(1) motions unless the jurisdictional and merits facts are intertwined. See, e.g., Kerns, 585 F.3d at 192-93; Trentacosta, 813 F.2d at 1558; Williamson v. Tucker, 645 F.2d 404, 415 (5th Cir. 1981).

         The propriety of such procedural rule is further bolstered by the fact that "courts . . . have an independent obligation to determine whether subject-matter jurisdiction exists, even in the absence of a challenge from any party." Arbaugh, 546 U.S. at 514. It is necessary for federal courts to have the ability to determine their own jurisdiction as soon as possible because “' federal courts are courts of limited jurisdiction'" and they must be cautious not to overstep the power authorized by the Constitution and federal statute. Gunn v. Mint on, 568 U.S. 251, 256 (2013) (quoting Kokkonen v. Guardian Life Ins. Co. of America, 511 U.S. 375, 377 (1994)) . Accordingly, regardless of whether a "conflict'' exists in the law, the Court concludes that, consistent with Adams, district courts are typically permitted to weigh evidence and resolve factual disputes to determine jurisdiction when such facts are not intertwined with the merits. Adams, 697 F.2d at 1219.

         3. Facts Intertwined

         The analysis in an intertwined case is more nuanced than the approach explained above for non-intertwined cases. When facts are said to be * intertwined," it means that facts necessary to prove jurisdiction overlap with facts necessary to prove the merits of the case such that a 12(b) (1) motion is, essentially, an indirect attack on the plaintiff's alleged factual merits. Kerns, 585 F.3d at 193. In such a scenario, the plaintiff is not only facing a jurisdictional challenge, but “'a challenge to the validity of h[er] claim.'" Id. (quoting Williamson, 645 F.2d at 415) . Thus, when jurisdictional and merits facts are intertwined, *[i]t is the better view that . . . the entire factual dispute is appropriately resolved only by a proceeding on the merits," which entails either denying the 12(b)(1) motion and proceeding with the case, or converting the 12(b)(1) motion into a motion for summary judgment on the merits, as explained in detail below.[6] Adams, 697 F.2d at 1219 (emphasis added); accord Kerns, 585 F.3d at 193, 196.

         Of course, a trial court must first assume jurisdiction before it can deny the 12(b) (1) motion or convert it to a motion for summary judgment on the merits. See Kerns, 585 F.3d at 193. Therefore, to assume jurisdiction, the trial court should engage in a threshold analysis to ensure that the plaintiff's allegations are sufficient to confer jurisdiction. Rich v. United States, 811 F.3d 140, 145 (4th Cir. 2015) . This step is, essentially, a facial analysis where “'a presumption of truthfulness should attach to the plaintiff's allegations'" to determine if they state facts that plausibly confer jurisdiction.[7] Id. (quoting Kerns, 585 F.3d at 193) .

         Assuming the allegations pass the threshold analysis required in such intertwined jurisdictional/merits facts cases, then the trial court may either (1) deny the 12(b)(1) motion and proceed with discovery, with the understanding that a party will file a motion for summary judgment after discovery (if doing so would not be frivolous); or (2) treat the 12(b)(1) motion as one for summary judgment and take it under advisement until the parties have conducted adequate discovery - this is what courts have referred to as simply "proceeding on the merits," which is not to be confused with weighing the evidence and resolving factual disputes. Compare Carter v. United States, 694 Fed.Appx. 918, 924 (4th Cir. 2017) (unpublished) (stating that a court should deny the 12(b)(1) motion before proceeding to the merits) with Lutfi v. United States, 527 Fed.Appx. 236, 241-42 (4th Cir. 2013) (unpublished) (holding that the district court should have assumed jurisdiction and proceeded as if the defendant filed a motion for summary judgment).[8] Either way, the plaintiff must be afforded the same procedural safeguards "that would apply were the plaintiff facing a direct attack on the merits," specifically the ability to conduct discovery. Kerns, 585 F.3d at 193. At a minimum, discovery should be adequate to "resolve the relevant factual disputes." Kerns, 585 F.3d at 193, 196.[9]

         B. Mootness Standard

         Defendant's motion to dismiss for lack of subject matter jurisdiction asserts that the case is moot because Defendant paid Plaintiff all that she is legally entitled to receive, and she has, therefore, received "complete relief." A court loses jurisdiction over a case when it becomes moot. Williams v. Ozmit, 716 F.3d 801, 809 (4th Cir. 2013). The mootness doctrine arises from the "case and controversy" requirement of the United States Constitution. U.S. Const, art. Ill. § 2. "[A] case is moot when the issues presented are no longer “live' or the parties lack a legally cognizable interest in the outcome." Simmons v. United Mortg. And Loan Inv., LLC, 634 F.3d 754, 763 (4th Cir. 2011) (quoting United States v. Hardy, 545 F.3d 280, 283 (4th Cir. 2008)) (internal quotation marks omitted) (alterations in original). In other words, a case is moot when it is impossible for the court to grant relief to the prevailing party, such as when "complete relief" has been secured by a plaintiff. United States v. Springer, 715 F.3d 535, 540 (6th Cir. 2013); Simmons, 634 F.3d at 763.

         1. Supreme Court Standard from Campbell-Ewald

         The United States Supreme Court recently addressed mootness in the context of a defendant's offer of judgment under Federal Rule of Civil Procedure 68. Campbell-Ewald Co. v. Gomez, 136 S.Ct. 663, 672 (2016) . The Supreme Court held that a rejected offer, even when it provides the plaintiff the relief he or she seeks, does not moot a claim as it is considered an unaccepted settlement offer that does not divest the plaintiff of his or her interest in the case. Id. However, the Court expressly reserved decision on the hypothetical question of "whether the result would be different if a defendant deposits the full amount of the plaintiff's individual claim in an account payable to the plaintiff, and the court then enters judgment for the plaintiff in that amount." Id. Comparing the offer of judgment in the case before it to railroad tax cases in which the parties actually received payment that fully satisfied their tax claims, the Supreme Court suggested that an offer of judgment or settlement is legally different than actual payment because, in the former situation, the plaintiff has not received the money. Id. at 671 (citing California v. San Pablo & Tulare R.R. Co., 149 U.S. 308 (1893); Little v. Bowers, 134 U.S. 547 (1890); San Mateo County v. Southern Pacific R.R. Co., 116 U.S. 138 (1885)). Additionally, both the concurring and the dissenting opinions in Campbe11-Ewa1d suggested that actual payment would moot a case because the plaintiff received full relief. See id. at 676 (Thomas, J., concurring) ("Because Campbell-Ewald only offered to pay Gomez's claim but took no further steps, the court was not deprived of jurisdiction."); id. at 679 (Roberts, C. J., dissenting); id. at 683 (Alito, J., dissenting)

         2. Decisions Post-Campbell-Ewald

         After the decision in Campbe11-Ewald, courts have split on whether actual payment of full relief moots an individual's claim, with multiple decisions turning on whether the case was a class action. Compare Leyse v. Lifetime Entm't Servs., LLC, 679 Fed.Appx. 44, 48 (2d Cir. 2017) (affirming the lower court's ruling that class certification was not warranted and that a deposit by the defendant of a full settlement and consent to judgment permits the court to enter judgment and moot the individual claim), S. Orange Chiropractic Ctr., LLC v. Cayan LLC, Civil No. 15-13069-PBS, 2016 U.S. Dist. LEXIS 49067, at *12-13 (D. Mass. Apr. 12, 2016) (holding that, even though the individual plaintiff's claims were moot, the class action may proceed), and Price v. Berman's Auto, Inc., No.14-763-JMC, 2016 U.S. Dist. LEXIS 35807, at *7-10/ *8-9 n.3 (D. Md. Mar. 21, 2016) (holding that an unconditional tender of full relief by cashier's check was sufficient to moot a claim in a case where there were no class action concerns), with Fulton Dental, LLC v. Bisco, Inc., 860 F.3d 541, 545-46 (7th Cir. 2017) (holding a deposit into an account with the court in the plaintiff's name before the plaintiff moved to certify the class was insufficient to moot the individual and potential class claims), Chen v. Allstate Ins. Co., 819 F.3d 1136, 1146-48 (9th Cir. 2016) (deciding, in the class action context, that the individual plaintiff's claims were not moot), and Ung v. Universal Acceptance Corp., 190 F.Supp.3d 855, 860-63 (D. Minn. 2016) (declaring, in the class action context, that "there is no principled difference between a plaintiff rejecting a tender of payment and an offer of payment") .[10] The Supreme Court has not yet resolved the split, and commentators disagree on how the Court will ultimately decide the unresolved hypothetical question. Compare Justiciability-Class Action Moo tness-Campibell-Ewald Co. y. Gomez, 130 Harvard L. Rev. 427, 432 (2016)(wIf at some point, a defendant actually delivers a payment constituting complete relief to a named plaintiff, it would be difficult to avoid the conclusion that the named plaintiff's claim has been mooted"), and Thomas D. Rowe, Jr., 13 Moore's Federal Practice ยง 68.04 (2018) ("In a case comprising only the plaintiff's individual claim, the ...

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