Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_12-cv-01506/USCOURTS-azd-2_12-cv-01506-1/pdf.json

Nature of Suit Code: 710
Nature of Suit: Fair Labor Standards Act
Cause of Action: 29:201 Fair Labor Standards Act

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Seventy-one former employees have filed consents to join this lawsuit. PSOF ¶ 2.

WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Daniel Gomez, et al., 

Plaintiffs, 

vs.

Gary Faulkner, et al., 

Defendants. 

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No. CV-12-1506-PHX-FJM

ORDER

The court has before it plaintiffs’ motion for summary judgment against defendant

Greg Scrivner (doc. 57), Scrivner’s response (doc. 60), and plaintiffs’ reply (doc. 62).

I

The Florence Community Hospital ceased operations in June 2012, and approximately

120 employees lost their jobs. Plaintiffs are four former employees of the Hospital who

allege that they were not paid for the last three weeks of work before the Hospital closed.

They filed this action under the Fair Labor Standards Act (“FLSA”), 29 U.S.C. §§ 201-219,

for unpaid wages and liquidated damages, on behalf of themselves and other similarly

situated employees,1

 against four officers of the Hospital and its parent company, Initiatives

Healthcare, LLC. Defendants McEachern and Cherne were the CEO and CFO, respectively,

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of the parent Initiatives Healthcare, while defendants Faulkner and Scrivner were CEO and

CFO, respectively, of the Florence Hospital. 

Plaintiffs argue in the present motion that defendant Scrivner was an “employer”

within the meaning of the FLSA, and therefore he is personally liable for the Hospital’s

FLSA violations. 

II

The FLSA requires that “employers” pay covered employees a minimum hourly wage.

29 U.S.C. § 206(a). Any employer who violates the FLSA is liable to the employee “in the

amount of their unpaid minimum wages . . . , and in an additional equal amount as liquidated

damages.” Id. § 216(b). “Employer” is broadly defined in the statute as “any person acting

directly or indirectly in the interest of an employer in relation to an employee.” Id. § 203(d).

Courts have further defined “employer” as one who “exercise[s] economic and operational

control over the employment relationship.” Lambert v. Ackerley, 180 F.3d 997, 1012 (9th

Cir. 1999). The FLSA’s definition of “employer” “is not limited by the common law concept

of ‘employer,’ but ‘is to be given an expansive interpretation in order to effectuate the

FLSA’s broad remedial purposes.’” Id. (quoting Bonnette v. Calif. Health & Welfare

Agency, 704 F.2d 1465, 1469 (9th Cir. 1983)). 

III

The undisputed facts in the instant case show that as CFO of the Hospital, Scrivner

oversaw the Hospital’s day-to-day financial operations; reviewed and approved payroll

information; co-signed payroll checks; hired, fired and determined hours of work for

employees within his department; attended board of director meetings; and prepared financial

reports for the parent company. Scrivner knew that the Hospital was having financial

difficulty and that lay-offs and bankruptcy were under consideration. He also knew that the

Hospital relied on “funders,” or third-parties who purchased the Hospital’s accounts

receivables in exchange for up-front funds to meet the Hospital’s payroll expenses. 

On June 15, 2012, the hospital distributed payroll checks to employees for the

preceding two-week pay period. Scrivner knew that the Hospital did not have sufficient

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funds in the bank on June 15th to cover the checks. However, defendant McEachern, CEO

of parent company Initiatives Healthcare, advised Scrivner that the “funder” had agreed to

fund the June 15th payroll, and directed Scrivner to distribute the checks to employees. On

Monday, June 18, 2012, Scrivner received an email from McEachern stating that the funder

had reneged on the agreement and the June 15th payroll checks would not be funded. It was

at this point that McEachern decided to close the Hospital. 

Contrary to plaintiffs’ assertions, there is no evidence that Scrivner “ma[de] decisions

to continue operations despite financial adversity during the period of nonpayment.” Reply

at 5 (citing Donovan v. Agnew, 712 F.2d 1509, 1514 (1st Cir. 1983)). Plaintiffs have

presented no evidence to show that Scrivner had any decision-making authority with respect

to whether the Hospital would continue its operations. Scrivner had no ownership interest

in the Hospital. He had no authority to set employee salaries or benefits. Although Scrivner

had significant responsibilities as the Hospital’s CFO, there is no evidence that he had

“operational control of significant aspects of the corporation’s day to day functions.” Id.

(emphasis added). In fact, there is no evidence submitted that he had much operational

control at all.

With respect to the payment of the June 15th payroll, Scrivner testified that he had no

concern about the Hospital being able to meet payroll “because we had a funder who was

always willing to help us out.” PSOF, Scrivner Depo., 16: 11-13. Defendant McEachern,

CEO of the Hospital’s parent company, assured Scrivner that the paychecks issued on Friday

June 15, 2012 would be funded by Monday June 18th. Id. 18:1-6. McEachern instructed

Scrivner to issue the paychecks. Id. Scrivner did not learn until after the payroll checks were

distributed that the “funder” had reneged on its promise to make the payment. Id. 20:1-4. 

Plaintiffs rely on cases where corporate officers personally made decisions to keep a

business open despite the company’s inability to fulfill its FLSA obligations to its employees.

See Donovan, 712 F.2d 1509; Dole v. Simpson, 784 F. Supp. 538, 546 (S.D. Ind. 1991). In

Donovan, the court held that an “employer” under the FLSA is a corporate officer “with a

significant ownership interest who had operational control of significant aspects of the

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corporation’s day to day functions, including compensation of employees, and who

personally made decisions to continue operations despite financial adversity during the

period of nonpayment.” 712 F.2d at 1514. 

Unlike the cases relied upon by plaintiffs, however, there is no evidence

demonstrating that Scrivner was a corporate officer with a substantial ownership interest in

the corporation, who had authority to decide, or even to influence, whether to continue

Hospital operations–and to employ workers–despite the Hospital’s financial condition.

Moreover, because Scrivner had no ownership interest in the Hospital, it cannot be said that

he “economic control over the corporation.” See U.S. Dep’t of Labor v. Cole Enter., 62 F.3d

775, 778 (6th Cir. 1995). 

Nor is there any evidence that Scrivner had knowledge that the Hospital would be

unable to satisfy its obligations under the FLSA. “At bottom, [the] economic reality analysis

focuse[s] on the role played by the corporate officers in causing the corporation to

undercompensate employees and to prefer the payment of other obligations and/or the

retention of profits.” Baystate Alt. Staffing, Inc. v. Herman, 163 F.3d 668, 678 (1st Cir.

1998). There is no evidence that Scrivner acted in the role of decision-maker with respect

to the actions that led the Hospital to undercompensate its employees. 

Although the definition of “employer” under the FLSA is to be construed broadly in

order to effectuate the FLSA’s broad remedial purposes, it is not likely that Congress

intended that “any supervisory or managerial employee of a corporation could be held

personally liable for the unpaid wages of other employees.” Id. at 677. 

Summary judgment is only appropriate where there is no genuine issue of material

fact and the moving party is entitled to a judgment as a matter of law. Fed. R. Civ. P. 56.

When we view the facts in the light most favorable to Scrivner, the nonmoving party, we

cannot conclude as a matter of law that Scrivner was an “employer” for purposes of the

FLSA, making him personally liable for the Hospital’s wage violations.

IV

IT IS ORDERED DENYING plaintiffs’ motion for summary judgment against

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defendant Greg Scrivner (doc. 57). 

DATED this 19th day of August, 2013.

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