Court Opinion

ID: 2739045
Source: CourtListenerOpinion
Date Created: 2014-10-01 21:00:53.751108+00
Date Added: 2024-06-11T10:33:57.565286
License: Public Domain

United States Court of Appeals
                      For the First Circuit

No. 13-1685

                    THOMAS E. PEREZ, SECRETARY,
                UNITED STATES DEPARTMENT OF LABOR,

                       Plaintiff, Appellee,

                                v.

   LORRAINE ENTERPRISES, INC., d/b/a PICCOLO E POSTO, ET AL.,

                      Defendants, Appellants.

           APPEAL FROM THE UNITED STATES DISTRICT COURT

                  FOR THE DISTRICT OF PUERTO RICO

         [Hon. Jay A. García-Gregory, U.S. District Judge]

                              Before

                        Lynch, Chief Judge,
                Ripple* and Selya, Circuit Judges.

     Jose A.B. Nolla-Mayoral, Jorge W. Perdomo and Nolla, Palou &
Casellas, LLC on brief for appellants.
     M. Patricia Smith, Solicitor of Labor, Jennifer S. Brand,
Associate Solicitor, Paul L. Frieden, Counsel for Appellate
Litigation, Maria Van Buren, Senior Attorney, and Steven W.
Gardiner, Attorney, on brief for appellee.

                          October 1, 2014

     *
      Of the Seventh Circuit, sitting by designation.
             SELYA, Circuit Judge.     Among a host of other beneficial

provisions, the Fair Labor Standards Act (FLSA), 29 U.S.C. §§ 201-

219, establishes a federal minimum wage.            See id. § 206(a).       But

Congress carved out an exception to the minimum wage for certain

occupations in which tips can reliably be expected to supplement

wages.    See id. § 203(m).    The prototype for this exception is the

restaurant industry.

             To avail itself of the exception, an employer must

satisfy several preconditions.        See id. § 203(m).       In this case,

the Secretary of Labor (the Secretary) charges that a restaurant

took advantage of the reduced minimum wage without bothering to

comply with the concomitant requirements.            The Secretary further

charges   that    the   individual   defendants     are   liable    for   these

violations.       The   district   court   agreed   with   the     Secretary's

contentions and entered summary judgment in the Secretary's favor

against the restaurant and the individual defendants. See Solis v.

Lorraine Enters., 907 F. Supp. 2d 186, 192-93 (D.P.R. 2012).                The

court thereafter denied the defendants' motion to alter or amend

the judgment. After careful consideration of a chiaroscuro record,

we affirm.

I.   BACKGROUND

             We rehearse the facts as they appear in the summary

judgment record, drawing all reasonable inferences in favor of the

                                     -2-
parties opposing summary judgment (here, the defendants).        See

Bisbano v. Strine Printing Co., 737 F.3d 104, 106 (1st Cir. 2013).

           At the center of this case is a popular restaurant in

Guaynabo, Puerto Rico: Piccolo e Posto. The proprietor is Lorraine

Enterprises, Inc., a closely held corporation owned by defendant

Lorraine Lago and her husband, Joseph Rao (now deceased).

           When the couple opened the restaurant in 2004, Rao

directed its operations.   He fell ill in 2006 and the restaurant's

general   manager,   defendant   Pedro     Gonzalez,   assumed   more

responsibility for its day-to-day operations. Upon Rao's death two

years later, Lago was left to run the restaurant with Gonzalez's

help.

           In 2008, the Wage and Hour Division of the United States

Department of Labor (the Department) commenced an investigation

into the restaurant's payroll practices.    This probe began with an

audit of the restaurant's payroll summaries and time records for

the period March 2006 through March 2008.          The investigator

concluded that certain deductions taken from waiters' pay violated

the FLSA's minimum wage provisions.    Specifically, the restaurant

deducted what it termed a "spillage fee," which the investigator

concluded frequently reduced waiters' weekly pay below the minimum

wage.   Although the restaurant maintained that waiters earned much

more in tips than the payroll summaries indicated, it produced no

probative evidence of actual tip income.

                                 -3-
             The investigator also determined that certain employees

had been misclassified as exempt from overtime pay requirements and

that proper records of the hours worked by those employees had not

been maintained. This determination grounded a conclusion that the

restaurant was not in compliance with the FLSA's recordkeeping and

overtime pay requirements.          See 29 U.S.C. §§ 207, 211(c).

             Against this backdrop, the Secretary sued the restaurant,

Lago, and Gonzalez, alleging that each defendant, qua employer, was

liable    for   violating     the   FLSA's   minimum     wage,    overtime,   and

recordkeeping requirements.           Following discovery, the Secretary

moved for partial summary judgment on the minimum wage claims,

arguing    that      the   spillage   fee    constituted    an    impermissible

deduction from the employees' wages and that the defendants had

failed to provide sufficient notice to employees to enable the

defendants      to   offset   their    minimum    wage    obligations.        The

defendants      cross-moved    for    summary    judgment    on    all   of   the

Secretary's claims.         The motions were referred to a magistrate

judge.    See 28 U.S.C. § 636(b)(1)(B); Fed. R. Civ. P. 72(b).

             The magistrate judge recommended denying the defendants'

motion, granting the Secretary's motion (except as to prospective

injunctive relief), and awarding damages in the form of payment of

wages owed.       On de novo review, the district court agreed.               The

court calculated the wages owed to be $129,057.22 and entered

                                       -4-
judgment for the Secretary against all of the defendants in that

amount plus interest.1

             The defendants seasonably moved to alter or amend the

judgment.    See Fed. R. Civ. P. 59(e).   The district court rejected

the motion, and this timely appeal ensued.

II.   ANALYSIS

             We divide our analysis into four segments. We start with

an overview of the FLSA's provisions vis-à-vis tipped employees.

The remaining segments correspond to the claims of error advanced

on appeal.

                       A.   The Statutory Scheme.

             The FLSA requires employers to pay a prevailing minimum

wage and makes failure to do so unlawful.    See 29 U.S.C. §§ 206(a),

215(a)(2).    The statute, however, allows for certain exceptions to

the minimum wage rate.       One such exception, known as the "tip

credit," stipulates that an employer may pay a tipped employee a

cash wage as low as $2.13 per hour and count the tips received to

make up the difference between the hourly wage paid and the

prevailing hourly minimum wage rate.      See id. § 203(m); 29 C.F.R.

§ 531.59.

      1
       This final judgment resolved all of the pending claims.
Because the defendants challenge only that portion relating to the
minimum wage violations, we eschew any description of the other
aspects of the final judgment.

                                   -5-
             This exception is available to an employer only if

certain conditions are met.       See 29 U.S.C. § 203(m); Martin v.

Tango's Rest., Inc., 969 F.2d 1319, 1322 (1st Cir. 1992).          To

begin, the exception is unavailable unless the employee is a

"tipped employee," that is, an employee who is engaged in a job

that customarily and regularly affords him tips of more than $30

per month.    See 29 U.S.C. § 203(m), (t).   In addition, the employee

must retain the tips received.      See id. § 203(m).    However, the

latter requirement does not preclude tip-pooling arrangements in

which employees share tips with other employees who themselves

customarily and regularly receive tips.      See id.

             There are, of course, other conditions for tip-credit

eligibility.     Of particular pertinence for present purposes, the

employer must inform the employee in advance that it intends to

count a portion of the employee's tips toward the required minimum

wage.   See id.; Martin, 969 F.2d at 1322.    This notice provision is

strictly construed and normally requires that an employer take

affirmative steps to inform affected employees of the employer's

intent to claim the tip credit.     See Kilgore v. Outback Steakhouse

of Fla., Inc., 160 F.3d 294, 298 (6th Cir. 1998); Reich v. Chez

Robert, Inc., 28 F.3d 401, 404 (3d Cir. 1994); Martin, 969 F.2d at

1322.

             It is the employer's burden to show that it has satisfied

all the requirements for tip-credit eligibility. See Barcellona v.

                                  -6-
Tiffany English Pub, Inc., 597 F.2d 464, 467-68 (5th Cir. 1979).

A failure to satisfy any of these requirements exposes the employer

to liability for wages owed as well as liquidated damages.           See 29

U.S.C. §§ 215-16.

                        B.    The Due Process Claim.

             The first assignment of error implicates the district

court's determination that the defendants failed to provide the

waiters appropriate notice of the tip credit (and, therefore, were

ineligible    to    claim    it).   This   is   an   indirect   attack:   the

defendants argue that their due process rights were violated

because they were "ambushed" when the Secretary moved for summary

judgment and asserted a lack of notice.          Their attack presupposes

(incorrectly, we think) that lack of notice is an FLSA violation in

and of itself — a putative violation that was neither raised in the

Department's       investigation    nor    pleaded   in   the   Secretary's

complaint.

             The initial barrier that impedes the defendants' path is

procedural.    The defendants did not mount any due process argument

until after the district court had adopted the magistrate judge's

recommendation and entered summary judgment against them.            A Rule

59(e) motion normally may not be used as a vehicle to raise

arguments that could have been (but were not) raised prior to

judgment.     See Aybar v. Crispin-Reyes, 118 F.3d 10, 16 (1st Cir.

1997); Vasapolli v. Rostoff, 39 F.3d 27, 36 (1st Cir. 1994).

                                     -7-
Because the defendants mounted their due process challenge for the

first time in their motion to alter or amend, that challenge is

likely waived. See, e.g., In re Redondo Constr. Co., 678 F.3d 115,

122 (1st Cir. 2012) (noting that "arguments presented for the first

time in a Rule 59(e) motion ordinarily are deemed forfeited"); Sch.

Union No. 37 v. United Nat'l Ins. Co., 617 F.3d 554, 564 (1st Cir.

2010)   (explaining     that   issues   not    raised    in   objections    to

magistrate judge's report are ordinarily precluded on appeal).

           Here, however, we need not rest on waiver. The denial of

a Rule 59(e) motion is reviewed for abuse of discretion.                    See

Negrón-Almeda     v. Santiago, 528 F.3d 15, 25 (1st Cir. 2008).

Because the defendants' due process challenge is without merit,

there was, a fortiori, no abuse of discretion in the district

court's denial of the defendants' Rule 59(e) motion.

           To be sure, a defendant has an "inalienable right to know

in advance the nature of the cause of action being asserted against

him."   Rodriguez v. Doral Mortg. Corp., 57 F.3d 1168, 1171 (1st

Cir. 1995). But no infringement of that right occurred here. From

the very beginning of the case, the Secretary consistently alleged

that the defendants had violated section 206 of the FLSA, which

requires an employer to pay an employee the minimum wage set by the

statute.    See    29   U.S.C.   §   206(a).     These    allegations      were

sufficient to put the defendants on notice that if they wished to

assert eligibility for the tip credit as an exemption from the

                                     -8-
minimum wage requirement, they would have to carry the burden of

showing that they met the requirements for such eligibility (one of

which is the provision of notice to employees that the minimum wage

will be paid to them in part by tips).                  In other words, the

Secretary's charge that the waiters' wages fell below the statutory

minimum rate sufficed to put the defendants on notice that their

tip-credit defense was in issue.             See Guan Ming Lin v. Benihana

Nat'l Corp., 275 F.R.D. 165, 171 (S.D.N.Y. 2011).                The fact that

the   Secretary's        complaint   did    not    expressly    reference    the

definitional section of the FLSA, in which the tip-credit exception

is set forth, was of no moment.            See 29 U.S.C. § 203(m).

          Even      if     the   Secretary's      complaint    alone   was   not

sufficient to alert the defendants that employee notice would be

relevant to the determination of their liability, the course of the

investigation and litigation should have alerted the defendants

that their eligibility for the tip credit was a central issue. The

defendants' right to claim the tip credit was disputed throughout

their negotiations with the Department.

          After litigation commenced, the Secretary vigorously

pursued the putative unavailability of the tip credit throughout

discovery, inquiring during the depositions of both Lago and

Gonzalez whether employees had been informed in advance that the

defendants used the tip credit to offset minimum wages.                Moreover,

                                      -9-
the Secretary specifically referred to lack of notice in answers to

interrogatories as a basis for disallowing the tip credit.

               On this record, it cannot be said that the Secretary

"ambushed" the defendants with respect to the notice issue. Where,

as here, a party is not waylaid by the opposing party but, rather,

turns a blind eye to an issue that is plainly in the case, due

process is not offended.2         Accordingly, the district court did not

err in determining that no infringement of the defendants' due

process rights had occurred.

                        C.   The Minimum Wage Violation.

               The Secretary moved for summary judgment on the minimum

wage       claim    asserting,   inter   alia,   that   the   defendants   were

ineligible for the tip credit. The Secretary posited both that the

waiters had not received proper notice of the restaurant's intent

to credit their tips against the minimum wage and that, in any

event, deductions taken from waiters' pay were invalid for FLSA

purposes.          The district court granted the motion.        See Lorraine

Enters., 907 F. Supp. 2d at 192.

       2
          The defendants insinuate that the Department's failure to
follow its own investigative protocol contributed to the alleged
ambush.   But the defendants offer no proof of any particular
investigative protocol that the Department ignored, and, in all
events, the fact that the Department notified the defendants during
the investigation that it was alleging minimum wage violations
sufficed to alert them that tip-credit notice was in issue. See
Benihana, 275 F.R.D. at 171.

                                         -10-
           Because the district court supportably found the notice

point dispositive, we start and stop there.         The Secretary's

assertion of lack of notice was based in part on the deposition

testimony of Gonzalez.   Gonzalez testified that when he was first

hired as a waiter at the restaurant, he was not told that any

portion of his tips would count toward the minimum wage.         He

further testified that, after he became general manager in 2006,

newly hired waiters were not informed that any portion of their

tips would count toward their wages.        Finding this testimony

undisputed, the district court concluded that no notice had been

given and that, therefore, paying the waiters at a rate below the

minimum wage violated the statute.     See id. at 191-92.

           The defendants maintain that the district court blundered

because a genuine issue of material fact existed with respect to

notice.    This claim of error engenders de novo review.        See

Tropigas de P.R., Inc. v. Certain Underwriters at Lloyd's of

London, 637 F.3d 53, 56 (1st Cir. 2011).

           We begin with bedrock: a court may grant summary judgment

only where there is no genuine issue of material fact and the

moving party is entitled to judgment as a matter of law.    See Fed.

R. Civ. P. 56(a).   A "genuine" issue is one on which the evidence

would enable a reasonable jury to find the fact in favor of either

party.    See Vasapolli, 39 F.3d at 32.    A "material" fact is one

that is relevant in the sense that it has the capacity to change

                                -11-
the outcome of the jury's determination.         See Borges ex rel.

S.M.B.W. v. Serrano-Isern, 605 F.3d 1, 5 (1st Cir. 2010).       As to

issues on which the party opposing summary judgment would bear the

burden of proof at trial, that party may not simply rely on the

absence of evidence but, rather, must point to definite and

competent evidence showing the existence of a genuine issue of

material fact.    See Vineberg v. Bissonnette, 548 F.3d 50, 56 (1st

Cir. 2008); McCarthy v. Nw. Airlines, Inc., 56 F.3d 313, 315 (1st

Cir. 1995).      Definite, competent evidence is evidence that is

sufficiently probative of an issue that a factfinder could resolve

that issue in favor of the nonmoving party based on that evidence.

See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50 (1986).

          In the case at hand, the defendants fault the court's

reliance on Gonzalez's testimony because the Secretary did not show

that Gonzalez was present for the hiring of each of the waiters

whom the Secretary alleged were underpaid.      But this evidentiary

void does not aid the defendants.      At the summary judgment stage,

the absence of evidence on an issue redounds to the detriment of

the party who bears the burden of proof on that issue.            See

McCarthy, 56 F.3d at 315.    On the issue of notice, the defendants

bore the burden of proof.   See 29 U.S.C. § 203(m); Barcellona, 597
F.2d at 467.   Thus, to defeat summary judgment on this issue, the

defendants had to do more than point to a dearth of evidence.    They

had to adduce definite, competent evidence showing that waiters

                                -12-
were informed of the tip credit, see Vineberg, 548 F.3d at 56;

Mesnick v. Gen. Elec. Co., 950 F.2d 816, 822 (1st Cir. 1991), and

they did not do so.

          The defendants resist this conclusion. Their best effort

to identify such evidence involves Lago's testimony that her

husband informed waiters, prior to hiring them, that a portion of

their tips would be counted as wages.      Lago added that when the

restaurant first opened, a written notice "went out" to some

(unspecified) employees that dealt (in some unspecified manner)

with tips.3

          This testimony is not sufficient to constitute definite,

competent evidence establishing the existence of a genuine issue of

material fact.   To block summary judgment, the defendants had to

identify evidence in the record from which a jury could reasonably

resolve the dispute at issue in their favor.      See Anderson, 477
U.S. at 252; Davric Me. Corp. v. Rancourt, 216 F.3d 143, 147 (1st

Cir. 2000).   Lago, however, never laid a proper basis for these

assertions and, thus, such assertions lack sufficient force to

influence the summary judgment calculus.    See Squibb v. Mem'l Med.

Ctr., 497 F.3d 775, 784 (7th Cir. 2007).

     3
       The record contains no copy of any such written notice, nor
does it contain any description of the contents of such a notice.
Thus, even if we were to credit Lago's testimony that a written
notice was sent to some employees, there is no way to tell whether
the notice comported with the statutory requirements.

                               -13-
           Perhaps most important, the record is devoid of any

evidence that Lago had any personal knowledge of her husband's

actions.   She was not involved in management when the restaurant

first opened.    She did not say — and there is no evidence to

support a finding — that she was present when her husband either

hired waiters or distributed written notices to them.   She did not

say — and there is no evidence to support a finding — that she at

any time participated directly in the hiring process.   While it is

true that Lago testified that she was generally familiar with the

restaurant's payroll practices, she offered no testimony suggesting

that she had personal knowledge regarding whether her husband had

informed employees about the tip credit.   For aught that appears,

her testimony was based upon out-of-court statements that her late

husband (or others) made to her and, as such, was not admissible

for the truth of the matters asserted.     See Fed. R. Evid. 802;

Garside v. Osco Drug, Inc., 895 F.2d 46, 49-50 (1st Cir. 1990).    In

short, Lago's testimony was not significantly probative on the

notice issue and, thus, could not thwart summary judgment.        See

Anderson, 477 U.S. at 249-50, 252.

           The defendants have a fallback position.   They say that

the record contains evidence adequate to show that the waiters had

actual or constructive knowledge of the restaurant's intention to

claim the tip credit and that this knowledge sufficed to pave the

way for the minimum wage exception.   The waiters' pay stubs, the

                               -14-
defendants aver, should have served to put the waitstaff on notice

that the restaurant was claiming a tip credit against minimum wage

because those stubs reflected a wage lower than the statutory

minimum and tip amounts sufficient to bring the waiters' wages up

to the minimum.       Furthermore, the waiters reported their credit

card tips to the restaurant at the end of every shift and then

"cashed out."4      Consequently, they either knew or should have known

that their tips were meant to serve as part of their wages.

             This argument is unconvincing.       The FLSA requires that

employees be informed by their employer that the employer intends

to treat tips as satisfying a portion of the minimum wage.           See 29

U.S.C. § 203(m); Martin, 969 F.2d at 1322.            While information on

pay stubs might have tended to corroborate direct evidence of

notice, the pay stubs themselves are not in evidence and the meager

testimony about them is insufficient to support a finding that the

defendants    had    complied   with   the   FLSA's   notice   requirement.

Moreover, the duty to inform is an affirmative duty placed upon the

employer, which cannot be satisfied by the mere hope or assumption

that employees will either divine their employer's intentions or

figure out their statutory entitlements from the way in which the

employer conducts its business.        See Kilgore, 160 F.3d at 298; see

also Dorsey v. TGT Consulting, LLC, 888 F. Supp. 2d 670, 682 (D.

     4
      "Cashed out" is a shorthand for the process by which waiters
receive in cash from the restaurant tips left by customers on
credit card vouchers.

                                   -15-
Md. 2012) (concluding that employee earning statements that did not

contain reference to the federal minimum wage were insufficient to

inform employees of tip credit).

                    D.   Individual Liability.

          The last leg of our journey involves the plaint that the

district court erred in entering summary judgment against the

individual defendants, Lago and Gonzalez, and that, to cure this

error, the court should have granted their motion to alter or amend

the judgment.   In support, the defendants complain that Lago and

Gonzalez are not persons who, within the purview of the FLSA, may

be held personally liable for the undercompensation of employees.

See 29 U.S.C. § 203(d) (defining "employer"); see also Manning v.

Bos. Med. Ctr. Corp., 725 F.3d 34, 47 (1st Cir. 2013) (describing

"context-dependent 'economic reality' test" used for determining

when personal liability should be imposed).

          The defendants are foraging in an empty cupboard.     To

begin, Lago and Gonzalez admitted in their answer to the complaint

that each of them had "active control and management of [the]

corporation, regulated the employment of persons employed by [the]

corporation, [and] acted directly and indirectly in the interest of

[the] corporation in relation to the employees."   These admissions

were replicated in the statement of undisputed material facts that

accompanied the Secretary's summary judgment motion, see D.P.R.R.

56(b) — admissions that the defendants made only a minimal effort

                               -16-
to qualify by suggesting that they had not personally "implemented

the employment practices challenged by the [Secretary]."

           The facts admitted would have been difficult to overcome,

and Lago and Gonzalez (perhaps recognizing as much) did not seek to

challenge the imposition of individual liability as a matter of

law.   Given the state of the record, it is hard either to fault the

Secretary for not offering more detailed proof of the individual

defendants' control over the business or to question the district

court's imposition of individual liability.   After all, litigation

adversaries and inquiring courts alike are entitled to take a

party's admissions at face value.       See Harrington v. City of

Nashua, 610 F.3d 24, 31 (1st Cir. 2010); Schott Motorcycle Supply,

Inc. v. Am. Honda Motor Co., 976 F.2d 58, 61 (1st Cir. 1992).

           To cinch matters, Lago and Gonzalez never questioned the

Secretary's claim that they were personally liable before the

magistrate judge, nor did they spell out such a plaint in their

objections to the magistrate judge's recommended decision.    These

kinds of omissions are generally regarded as fatal.   See Paterson-

Leitch Co. v. Mass. Mun. Wholesale Elec. Co., 840 F.2d 985, 990-91

(1st Cir. 1988) (holding categorically that party is not entitled

as of right to district judge's de novo review of matter never

raised before magistrate judge); Sch. Union No. 37, 617 F.3d at 564

(explaining that only issues raised in party's objections to

                                -17-
magistrate judge's report are subject to review — all others are

waived).

            There   is   no   need   to     tarry.    Rule    59(e)   is     an

extraordinary remedy, to be used sparingly. See Palmer v. Champion

Mortg., 465 F.3d 24, 30 (1st Cir. 2006).             It does not permit a

party to turn back the clock, erase the record, and try to reinvent

its case after an adverse judgment has entered.              See Aybar, 118
F.3d at 16; Vasapolli, 39 F.3d at 36.

            In this instance, the defendants admitted a string of

material facts strongly suggestive of individual liability.                They

made no effort either to withdraw those admissions or to pursue a

developed argument against individual liability until after both

the magistrate judge and the district judge had ruled against them.

This was too little and too late.            See Aybar, 118 F.3d at 16.

Given the chronology of this case, it is transparently clear that

the district court did not abuse its discretion in refusing to

vacate the judgment as to the individual defendants.

III.   CONCLUSION

            We need go no further. For the reasons elucidated above,

we affirm both the district court's entry of summary judgment in

favor of the Secretary and its denial of the defendants' motion to

alter or amend that judgment.

Affirmed.

                                     -18-