IN THE UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 02-1361
                       

JANE DOE,

vs.

GOLDSTEIN'S DELI; DANIEL DIEFFENBACH; CHARLES WELKI

Jane Doe, Appellant
                                                 

On Appeal from the United States District Court
for the Middle District of Pennsylvania
                                                    

BRIEF OF THE EQUAL EMPLOYMENT OPPORTUNITY COMMISSION
IN SUPPORT OF THE APPELLANT AND REVERSAL
                                                     

        NICHOLAS M. INZEO
        Acting Deputy General Counsel

        PHILIP B. SKLOVER
        Associate General Counsel

        LORRAINE C. DAVIS
        Assistant General Counsel

        ROBERT J. GREGORY
        Senior Attorney

        EQUAL EMPLOYMENT OPPORTUNITY
           COMMISSION
        1801 L Street, N.W.
        Washington, D.C. 20507
        202-663-4059

STATEMENT OF INTEREST

 The Equal Employment Opportunity Commission (Commission) is the agency
 entrusted with the enforcement of Title VII of the Civil Rights Act
 of 1964, 42 U.S.C.  2000e et seq. (Title VII).  In this Title VII
 case, the district court dismissed the plaintiff's case on coverage
 grounds, holding that the plaintiff failed to prove that the defendant,
 Goldstein's Deli (Goldstein's), employed fifteen or more employees for
 each working day in each of twenty or more calendar weeks in the current
 or preceding calendar year, as required to establish coverage under
 Title VII.  See 42 U.S.C. 2000e(b).  The court reached this conclusion
 despite the defendant's failure to produce complete payroll records for
 the period in question.  The district court acknowledged that the record
 was muddled and [that] perhaps there were many records that if kept and
 made available would have - may possibly have supported plaintiff's
 case. Transcript (Dec. 26, 2001) at 7-8.  The court, however, rather
 than drawing an adverse inference against the defendant for its failure
 to produce the very payroll records that could have made the plaintiff's
 case, faulted the plaintiff for a failure of proof on the issue.   This,
 in our view, was legal error.  The court should have applied the adverse
 inference rule and drawn the inference, from the defendant's failure to
 produce the payroll records, that those records would have established
 the requisite number of employees for purposes of Title VII coverage.
 To assist the Court in resolving this important legal question, the
 Commission, pursuant to F.R.A.P. 29(a), offers its views as amicus
 curiae.

STATEMENT OF THE ISSUE

1.  Whether the district court should have applied the adverse inference
rule to hold that Goldstein's is a covered employer under Title VII.

STATEMENT OF THE CASE

Goldstein's defended this Title VII lawsuit by arguing 
that it did not have the requisite number of employees to fall 
within Title VII coverage.  The district court conducted evidentiary
hearings on the issue.  The court took testimony from a number of
witnesses, who offered sometimes conflicting accounts of the individuals
actually employed by Goldstein's during the relevant time-frame.
The evidentiary quagmire resulted from Goldstein's inability to produce
complete payroll records for the period in question.

  In ruling in Goldstein's favor, the district court deducted several
  weeks from the number of qualifying weeks, concluding that of the
  31 weeks at issue here, the maximum number of weeks during which the
  defendant[] had 15 or more employees amounts to 13 which is below the
  required number of 20 weeks.  Memorandum and Order (Jan. 2, 2002)
  at 2.  In several of the weeks disqualified by the court, the number
  of employees added up to 14, just under the 15 required for coverage.
  See Transcript (Dec. 26, 2001) at 2-3.  The court noted that the
  plaintiff did the best that could be done with what was available, but
  found the plaintiff's proof to be entirely too nebulous, entirely too
  vague, and entirely too imprecise for me to make a comfortable finding
  on those matters on which I make findings contrary to the plaintiff's
  position.  Id. at 8.  

 The court admonished the defense not to take any great comfort in the
 court's finding that the requisite number of 15 employees for 20 weeks
 has not been established, stressing that the record is - is muddled
 and perhaps there were many records that if kept and made available would
 have - may possibly have supported the plaintiff's case, but I can't say
 it would have.  There's - it just created a blurred evidentiary fabric.
 Id. at 7-8.  The court further described as reliable testimony that
 Goldstein's sought to pay employees under the table, by cash rather
 than by check.<1>  The court believed this to be an issue for another
 forum, whether there were other violations.  Id. at 7.

ARGUMENT

THE DISTRICT COURT SHOULD HAVE APPLIED THE ADVERSE INFERENCE RULE TO
HOLD THAT GOLDSTEIN'S IS A COVERED EMPLOYER UNDER TITLE VII.

 Under The Adverse Inference Rule, Where A Party Fails To Produce Records That 
The Party Is Required By Law To Maintain, Or Where It Fails To Produce Records Under
Circumstances That Are Otherwise Suggestive Of Fraud Or A Desire To Suppress The Truth,
It Is Proper To Draw The Inference That The Absent Records Would Support The Position Of The
Opposing Party On The Issue In Dispute
 
 Title VII defines the term employer to mean a person engaged in an
 industry affecting commerce who has fifteen or more employees for each
 working day in each of twenty or more calendar weeks in the current
 or preceding calendar year.  42 U.S.C. 2000e(b).  In this case,
 the district court ruled that the plaintiff's proof fell short of
 establishing the 15-employee minimum for a period of 20 calendar weeks.
 Our amicus brief does not address the specifics of the competing proofs
 on that issue.  Instead, our brief makes the legal argument that the
 district court should have applied the adverse inference rule to find
 statutory coverage in this case.

The adverse inference rule is derived from the longstanding
principle that the unexplained failure or refusal of a party to
judicial proceedings to produce evidence that would tend to throw light
on the issues authorizes, under certain circumstances, an inference or
presumption unfavorable to that party.  Gumbs v. Int'l Harvester, 718
F.2d 88 (3d Cir. 1983). The rule plainly applies when a party fails
to produce records that the party is required by law to maintain.
See Zimmerman v. Assocs. First-Capital Corp., 251 F.2d 376, 383 (2d
Cir. 2001).  The rule also applies in circumstances in which the failure
to produce records is otherwise suggestive of fraud or a desire to
suppress the truth. Gumbs, 718 F.3d at 96.

  Of course, the rule does not apply where the missing records are not
  relevant to the claim of the party seeking the inference.  Nor does
  the rule apply where the circumstances indicate that the document or
  article in question has been lost or accidentally destroyed, or where
  the failure to produce it is otherwise properly accounted for.  Gumbs,
  718 F.2d at 96.  Where, however, the circumstances suggest an actual
  suppression or withholding of the evidence, as when the employer is
  required by law to maintain the records and fails to produce them,
  and where the records would cast light on an issue in dispute in a
  case, the law gives the benefit of the doubt to the party in need of
  the missing records, not the party unable or unwilling to produce them.

 The Adverse Inference Rule Applies In This Case

 This is a strong case for application of the adverse inference rule.
 To begin with, employers are required by law to maintain payroll records.
 Under the Fair Labor Standards Act (FLSA), [e]ach employer is required
 to preserve for at least 3 years . . . [f]rom the last date of entry,
 all payroll or other records containing the employee information and
 data required under any of the applicable sections of this part.
 29 C.F.R. 516.5(a).  The employee information and data required
 under any of the applicable sections of this part include [n]ame
 in full, as used for Social Security recordkeeping purposes, [h]ome
 address, including zip code, [d]ate of birth, if under 19, [s]ex and
 occupation in which employed, [t]ime of day and day of week on which
 the employee's workweek begins, [r]egular hourly rate of pay for
 any workweek in which overtime compensation is due, [h]ours worked
 each workday and total hours worked each workweek, [t]otal daily or
 weekly straight-time earnings or wages due for hours worked during the
 workday or workweek, [t]otal additions to or deductions from wages paid
 each pay period, [t]otal wages paid each pay period, and [d]ate of
 payment and the pay period covered by payment.  29 C.F.R.  516.2(a);
 accord 29 C.F.R. 1620.32(a) (Employers having employees subject to
 the [Equal Pay Act] are required to keep records in accordance with
 U.S. Department of Labor regulations found at 29 CFR part 516).

    The hearings on the coverage issue in this case were held in November
    and December of 2001.  The work period being examined for coverage
    purposes was a period dating back to June 1999, well within the 3-year
    regulatory period for preserving payroll records under the FLSA.
    There is no explanation for Goldstein's failure to produce these
    records, which are required to be maintained and preserved for
    a period of 3 years.<2>  This itself supports application of the
    adverse inference rule.

 In this case, moreover, the circumstances are suggestive of fraud or
 a desire to suppress the truth. Gumbs, 718 F.3d at 96.  There was
 reliable testimony that Goldstein's wanted to pay employees under
 the table.  Transcript (Dec. 26, 2001) at 7. Indeed, Goldstein's owner
 admitted that the checkbook register maintained by Goldstein's did not
 fully account for all of Goldstein's employees.  Although the district
 court dismissed this proof as raising an issue for another forum,
 whether there were other violations, id., the evidence supports
 an inference that Goldstein's did not maintain adequate records to
 begin with because it was trying to conceal the irregularities in its
 hiring and payroll practices, which irregularities had the effect of
 deflating the number of individuals actually employed by Goldstein's.
 This does not appear to be a case where records were inadvertently lost
 or innocently destroyed as a matter of routine with no fraudulent
 intent.' Gumbs, 718 F.2d at 96.  Instead, this is a case where
 the employer's own defective records support an inference that a
 proper accounting of employees would yield the statutory minimum.<3>
 See Moore v. Denson, 1996 WL 327990, *4 & ns. 6-7 (N.D. Ill. 1996)
 (faulting the defendant for failing to produce daily time sheets or
 payroll records in support of its no coverage argument, and drawing
 several inferences in the plaintiff's favor on the coverage issue due
 to the incomplete data supplied by the defendant); see also Gaugaix
 v. Laboratoires Esthederm USA, Inc,, 2001 WL 11069, *1 (S.D.N.Y. Jan. 4,
 2001) (defendant not entitled to summary judgment on coverage issue
 until it produced payroll records conclusively showing that it did not
 employ more than fifteen people); Albrecht v. Rich, 2000 WL 1061225, *3
 (D. Ore. 2000) (refusing to dismiss case on coverage grounds where the
 defendant submitted no payroll records or other records establishing
 the identity and/or number of employees employed by [the defendant]
 during the appropriate two year period). 

 Further supporting the view that Goldstein's poor recordkeeping can
 be held against it in this context is the Supreme Court's decision in
 Walters v. Metropolitan Educ. Enterprises, Inc., 519 U.S. 202 (1997).
 In that case, the Court adopted the payroll method for counting
 employees in Title VII cases.  That method focuses on whether the
 employer has an employment relationship with the individual on the
 day in question, a fact that is most readily demonstrated by the
 individual's appearance on the employer's payroll.  Id. at 206.
 Plainly, the employer's maintenance and production of accurate payroll
 records is critical to a determination of coverage under the payroll
 method of counting employees.

     As the Supreme Court observed in Walters, the payroll method
     prevents the coverage determination from turning into an
     incredibly complex and expensive factual inquiry.  Id. at 210.
     This is true, however, only if the employer is able to produce
     written payroll records for the period in question.  Absent such
     records, the proof, based on the personal recollections of managers
     and employees, is likely to be entirely too nebulous, entirely
     too vague, and entirely too imprecise.  Transcript (Dec. 26,
     2001) at 8.  The employer is uniquely in control of the payroll
     records that are vital to a determination of coverage under the
     payroll method of counting employees.  An employer that moves to
     dismiss a case on coverage grounds (too few employees) should bear
     the initial burden of producing the relevant payroll records for
     the time period in question.<4>  See 29 Am. Jur. 2d Evidence  161
     (Where information necessary to prove an issue is peculiarly or
     exclusively within the possession of one party, courts sometimes
     reason that convenience and fairness justify placing the burdens
     of pleading and [producing] those facts upon that party).<5>  

 The district court acknowledged  that there were many records that
 if kept and made available would have - may possibly have supported
 the plaintiff's case.   Transcript (Dec. 26, 2001) at 7-8.  The court,
 however, faulted the plaintiff for a failure of proof.  The court should
 have faulted Goldstein's for its failure to produce the records and
 drawn the adverse inference that the records would have established
 the requisite number of employees for coverage purposes. Under these
 circumstances, the employer is not entitled to the benefit of the doubt;
 the plaintiff is. 

CONCLUSION

 The district court should have applied the adverse inference rule to
 hold that Goldstein's is a covered employer under Title VII.

        Respectfully Submitted,

        NICHOLAS M. INZEO
        Deputy Acting General Counsel
        
        PHILIP B. SKLOVER
        Associate General Counsel

        LORRAINE C. DAVIS
        Assistant General Counsel


                                  
        ROBERT J. GREGORY
        Senior Attorney

        EQUAL EMPLOYMENT OPPORTUNITY
           COMMISSION
        1801 L Street, N.W.
        Washington, D.C. 20507
         202-663-4059


July 16, 2002                   

CERTIFICATE OF SERVICE

 I, Robert J. Gregory, hereby certify that, on this 16th day of July,
 2002, two copies of the attached brief were sent by first-class mail,
 postage prepaid, to each of the following counsel of record:

      Cynthia L. Pollick
      The Employment Law Firm
       Greater Pittston Professional Center
      126 South Main Street
      Suite 201
      Pittston, PA 18640

      Kimberly D. Borland
      Borland & Borland
      69 Public Square
      11th Floor
      Wilkes-Barre, PA 18701



                               
1  Goldstein's owner, Daniel Dieffenbach, testified that the
company did not keep documents to show how much each person --
how many hours each person worked.  Appendix 126.  Instead,
the company maintained checkbook registers, which purported
to show the checks paid to employees on Goldstein's payroll.
Dieffenbach admitted that these registers did not fully account
for all of the company's employees.  Id. at 127-29. 

2  Goldstein's might have an argument that it is not subject to the
FLSA's recordkeeping requirements.  Those requirements, however, extend
to [e]very employer subject to any provision of [the Act] or of an order
issued under [the Act].  29 U.S.C. 211(c).  The term employer, in the
FLSA, reaches quite broadly, see 29 U.S.C.  203(d) (Employer includes
any person acting directly or indirectly in the interest of an employer
in relation to an employee . . .), as do the minimum wage and overtime
provisions of that Act.  See 29 C.F.R.  206 [minimum wage] (requiring
every employer [to pay a minimum wage] to each of his employees who
in any workweek is engaged in commerce or the production of goods for
commerce, or is employed in an enterprise engaged in commerce or in
the production of goods for commerce);  see also Tony and Susan Alamo
Foundation v. Secretary of Labor, 471 U.S. 290 (1985) (stressing that
the Court has consistently construed the FLSA liberally to apply to the
furthest reaches consistent with congressional direction' in recognition
of the fact that broad coverage is essential to accomplish the goal of
outlawing from interstate commerce goods produced under conditions that
fall below minimum standards of decency).    

3  We recognize that, in the typical case applying the adverse inference
rule, an inference is drawn against a party for its failure to produce
records that it had in fact maintained (at one point).  There is no
reason, however, not to apply the rule in a case in which a party does
not maintain the records in the first instance under circumstances that
suggest an intent to suppress the truth.  Certainly, where the records
actually produced by a party are shown to be inaccurate or incomplete,
and these records provide the only real basis for testing the truth of
the issue in dispute, it is fair to infer that, if accurate or complete
records had been kept, they would support the other party's position on
that issue.   

4  This is not to say that Title VII itself requires employers to
maintain payroll records as such.  Where, however, an employer moves
to dismiss a Title VII case on coverage grounds, it should be able to
produce accurate records of some kind, showing the individuals who were
on the employer's payroll during the relevant time-frame.  This is not
an onerous burden for the employer, who has an interest, if not a legal
duty, in keeping close track of the individuals who are in its employ. 

5  This is not inconsistent with the view that the burden of proof
(persuasion) on the coverage issue remains at all times on the plaintiff.
See 2 McCORMICK ON EVIDENCE  337, at 415 (1999) (although the burden
of persuasion is assigned only once, . . . the initial allocation of the
burden of producing evidence may not always be final; the shifting
nature of that burden may cause both parties to have the burden with
regard to the same issue at different points in the trial.)