Court Opinion

ID: 2645057
Source: CourtListenerOpinion
Date Created: 2013-12-06 06:26:07.551252+00
Date Added: 2024-06-11T12:35:24.294587
License: Public Domain

Case: 13-10347      Document: 00512461704         Page: 1    Date Filed: 12/05/2013

            IN THE UNITED STATES COURT OF APPEALS
                     FOR THE FIFTH CIRCUIT
                                                                         United States Court of Appeals
                                                                                  Fifth Circuit

                                                                                FILED
                                      No. 13-10347                      December 5, 2013
                                                                           Lyle W. Cayce
                                                                                Clerk
SHANNON OWENS; MICAH PACK, individually and on behalf of all
similarly situated,

                                                 Plaintiffs – Appellees

       v.

MARSTEK, L.L.C., doing business as Condom Sense; SKCMK, L.L.C.;
STEVEN KAHN, individually,

                                                  Defendants – Appellants

                   Appeal from the United States District Court
                        for the Northern District of Texas
                             USDC No. 3:11-CV-1435

Before KING, BENAVIDES, and DENNIS, Circuit Judges.
PER CURIAM: *
       In this Fair Labor Standards Act case, Plaintiffs–Appellees Shannon
Owens Ferrell and Micah Pack claim that they were not properly compensated
for the overtime hours they worked at Marstek, L.L.C., and SKCMK, L.L.C.,
both doing business as “Condom Sense.” The district court granted summary

       * Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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judgment to Ferrell and Pack and granted their motion for attorney’s fees and
costs. Defendants–Appellants timely appealed. For the following reasons, we
AFFIRM.
               I.     FACTUAL AND PROCEDURAL BACKGROUND
      Shannon Owens Ferrell 1 and Micah Pack (the “Plaintiffs”) are former
employees of SKCMK, L.L.C. (“SKCMK”) and Marstek, L.L.C. (“Marstek”),
limited liability companies operating as individual stores under the “Condom
Sense” name and owned by Steven Kahn (together, the “Defendants”). Condom
Sense is a chain of five Dallas- and Fort Worth-area adult novelty stores, all
owned by Kahn.
      Ferrell began working for Condom Sense as a store clerk, paid hourly, in
May 2006. She started at the Marstek store and later moved to the SKCMK
store. She was promoted to manager in January 2008 and continued to be paid
on an hourly basis. Ferrell resigned in May 2011. According to her declaration,
she worked 308.7 hours of overtime between June 28, 2008, and May 2011, for
which she was paid at her hourly rate, rather than time-and-a-half her hourly
rate. Her rate of pay during that period was $13.00 per hour. She asserts that
she is owed $2,006.55 in unpaid overtime wages.
      Pack began working for Condom Sense as a store clerk, paid hourly, in
August 2008. He worked at both the SKCMK and Marstek stores. He left his
position in May 2011. According to his declaration, he worked 1,311.75 hours
of overtime between September 2008 and May 2011, for which he was paid at
his hourly rate, rather than time-and-a-half his hourly rate. His rate of pay
during that period ranged from $8.00 to $9.25 per hour. He asserts that he is
owed $5,653.64 in unpaid overtime wages.

      1   Owens married and changed her name after the complaint was filed.
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      Pack submitted a complaint to the Department of Labor (“DOL”) in early
2011 because he believed he “was working lots of overtime hours, and [he]
wasn’t getting appropriately compensated for it.” In February 2011, the DOL
informed Kahn that it was investigating Condom Sense for possible violations
of wage and hour laws. The DOL concluded that Condom Sense’s policies
regarding overtime compensation violated the Fair Labor Standards Act
(“FLSA”) and that certain employees, including Ferrell and Pack, were owed
back wages. The DOL concluded that Ferrell was due $396.12 and Pack was
due $3,551.40.
      Kahn arranged for Ferrell and Pack to receive the DOL-calculated back
wages as part of their regular paychecks, to be spaced over several
installments. 2 In late March 2011, Ferrell and Pack noticed increases in their
paychecks and asked Kahn about them. They “were informed that the money
was payments for back wages from the DOL settlement.” Ferrell testified at
her deposition that Kahn refused to provide her with any documentation about
the DOL-calculated back wages. According to her declaration, she informed
the company’s payroll manager “that [she] did not want the money and asked
that it be taken out of [her] regular paycheck.” Thereafter, Defendants sent
separate checks to Plaintiffs with the DOL-calculated back wages. Ferrell
refused the checks and returned them to the company. She asserted that she
did not accept any money in payment of the back wages. Similarly, Pack
testified at his deposition that the first installment of the DOL-calculated back
wages was direct-deposited into his back account with his regular paycheck,
but he informed Kahn that he did not want the money. According to his
declaration, he did not accept “any money in payment of the DOL settlement
of [his] back wages.”

      2 Kahn’s agreement with the DOL to pay the back wages is referred to in the record
and briefs as the “DOL settlement.”
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       Ferrell and Pack “decided to pursue a private cause of action against
Defendants rather than take the unknown DOL settlement.” They filed suit
in federal district court on June 29, 2011, against SKCMK, Marstek, and Kahn.
The complaint alleged that Defendants violated the FLSA “by paying
employees straight time for overtime hours[,] thereby failing to pay those
workers at time-and-one-half their regular rates of pay for all hours worked
within a workweek in excess of forty hours.”               The complaint included, as
plaintiff class members, 3 “[a]ll current and former hourly paid employees,
regardless of title, who were not paid at time-and-one-half their regular rates
of pay for hours worked over 40 in a work week.” Plaintiffs alleged that
“Defendants knowingly, willfully, or with reckless disregard carried out their
illegal pattern or practice of failing to pay overtime compensation with respect
to Plaintiffs and the Class Members.” Plaintiffs sought unpaid back wages,
liquidated damages, costs, attorney’s fees, and pre- and post-judgment
interest.
       In their answer, Defendants asserted as defenses waiver, good faith
under the Portal-to-Portal Act, and Defendants’ “reasonable grounds [for]
believ[ing] that they complied with the FLSA” given their lack of “actual or
constructive knowledge of any FLSA violation,” among other defenses.
Following unsuccessful attempts at alternative dispute resolution, Plaintiffs
filed their motion for summary judgment on November 19, 2012, contending
that the FLSA applies to Defendants, there were no issues of material fact, and
Plaintiffs established violations of the FLSA. Plaintiffs argued that they were
entitled to liquidated damages, that Defendants’ conduct was in willful
violation of the FLSA and thereby extended the statute of limitations from two

       3Plaintiffs included a collective action claim pursuant to 29 U.S.C. § 216(b), although
it appears from the record as though Plaintiffs never moved for conditional certification.
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years to three years, and that Defendants had no evidence to support their
good faith defense.
      Defendants responded that the DOL determined the amount of money
Ferrell and Pack were owed, and that “[t]he Plaintiffs and their attorneys
cannot turn this case into thousands of dollars to hold Defendants hostage over
what the government has already said is owed and what the defendants have
agreed to pay.” Defendants said they “have offered to tender these amounts,
[but] Plaintiffs will not agree to accept the amount offered.           Therefore,
Defendants contend that the amount should be $0.00, given the need to incur
depositions, costs, and attorneys’ fees on a matter that Defendants believe is
frivolous under the circumstances.” Defendants did not contest Plaintiffs’
factual assertions.
      The district court granted Plaintiffs’ motion for summary judgment.
Though Defendants asserted that they “tendered to Plaintiffs the amounts of
unpaid overtime as determined were owed in accordance with the DOL
investigation,” the district court noted that “Defendants do not otherwise
counter Plaintiffs’ factual allegations or argument.” The court “agree[d] with
Plaintiffs that the settlement reached between the DOL and Defendants has
no bearing on Plaintiffs’ ability to bring this case since Plaintiffs did not accept
the tendered offer because they found it too low.”          The court found that
Plaintiffs established the applicability of the FLSA and that Defendants
violated the FLSA. The court noted that “Defendants fail to sufficiently raise
any dispute of fact that would preclude disposition on summary judgment.
Defendants further fail to take issue with Plaintiffs’ legal arguments or provide
any legal argument or citation in opposition.” As a result, the court held that
Defendants were liable to Plaintiffs for violating the FLSA. Since Plaintiffs
“do not explain how the extra money added to their paychecks offsets the

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amount that they believe is owed,” the court ordered the parties to brief that
issue.
         In their subsequent motion for attorney’s fees, Plaintiffs asserted that
they did not accept any money from the DOL settlement and attached
declarations from Ferrell and Pack to this effect.           They contended that
therefore, any damages award determined by the court should not be offset by
any amount. Plaintiffs claimed that Ferrell is owed $2,006.55 and Pack is owed
$5,653.64 in unpaid overtime wages, and requested attorney’s fees in the
amount of $30,050.84 and costs in the amount of $2,358.20. Plaintiffs detailed
their attorneys’ qualifications, outlined the time and labor involved in
litigating the matter, explained why the requested attorney’s fees were
reasonable, and attached contemporaneous time records to their motion.
Defendants filed a one-sentence response, “incorporating by reference their
response to the Motion for Summary Judgment, where these matters were
fully briefed.”
         The district court concluded that, since Plaintiffs supported their
statements with declarations from Ferrell and Pack, and Defendants did not
dispute those facts, Plaintiffs established that Ferrell and Pack are owed the
amount they claimed. The court held that Plaintiffs were entitled to liquidated
damages because “Defendant [Kahn] does not even attempt to make a showing
of good faith,” nor did he show that he acted reasonably. The court awarded
attorney’s fees and costs in the amounts requested by Plaintiffs, “finding that
Defendants do not dispute any of Plaintiffs’ allegations with respect to the
same” and that the amounts are “warranted and reasonable.”
         Defendants timely appealed both orders.
         II.   STANDARD OF REVIEW AND APPLICABLE LAW
         We review de novo a grant of summary judgment, applying the same
standard as the district court. First Am. Title Ins. Co. v. Cont’l Cas. Co., 709

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F.3d 1170, 1173 (5th Cir. 2013). Summary judgment is appropriate “if the
movant shows that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). The
court “view[s] all evidence in the light most favorable to the nonmoving party
and draw[s] all reasonable inferences in that party’s favor.” In re Katrina
Canal Breaches Litig., 495 F.3d 191, 205–06 (5th Cir. 2007).
      The FLSA “establishes the general rule that all employees must receive
overtime compensation for hours worked in excess of forty hours during a
seven-day workweek.” Vela v. City of Houston, 276 F.3d 659, 666 (5th Cir.
2001). Specifically, § 207(a)(1) of the FLSA states:
      Except as otherwise provided in this section, no employer shall
      employ any of his employees who in any workweek is engaged in
      commerce or in the production of goods for commerce, or is
      employed in an enterprise engaged in commerce or in the
      production of goods for commerce, for a workweek longer than forty
      hours unless such employee receives compensation for his
      employment in excess of the hours above specified at a rate not less
      than one and one-half times the regular rate at which he is
      employed.
29 U.S.C. § 207(a)(1).
      “A district court’s determination of attorneys’ fees is reviewed for abuse
of discretion, and the findings of fact supporting the award are reviewed for
clear error.” McClain v. Lufkin Indus., Inc., 519 F.3d 264, 284 (5th Cir. 2008).
                                 III.   DISCUSSION
      The district court’s findings that Defendants are covered by the FLSA
and that their actions violated the FLSA are not contested. Therefore, we
proceed to Defendants’ arguments. Defendants argue that: (a) they raised
genuine issues of material fact regarding Plaintiffs’ waiver; (b) the district
court’s holding is unconstitutional and against public policy; (c) the waiver
provision of the FLSA is unconstitutional; (d) they raised an issue of material
fact regarding the liquidated damages award; and (e) the liquidated damages
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and attorney’s fees awards are punitive and excessive.            Each of these
arguments is unpersuasive and will be addressed in turn. We conclude that
the district court was correct in all respects, and we affirm its decision.
      A. Waiver
      A valid waiver of an employee’s right to seek unpaid overtime wages
requires “(a) that the employee agree to accept the payment which the [DOL]
determines to be due and (b) that there be ‘payment in full.’” Sneed v. Sneed’s
Shipbuilding, Inc., 545 F.2d 537, 539 (5th Cir. 1977); see also 29 U.S.C. §
216(c). Defendants contend that they raised “a genuine issue of fact as to
amount of payment in full” because “[Defendants] paid monies to [Plaintiffs],
some of which were accepted and some were not.” Plaintiffs respond that there
are no genuine issues of material fact and that they never waived their rights
under the FLSA both because the defendants never tendered the money in full
and because Plaintiffs “refused to accept the extra monies put in their
paychecks.”
      The district court found, based on Ferrell and Pack’s unrebutted
declarations, that Ferrell and Pack “refused the extra money in their
paychecks and refused separate checks from Defendants.” Thus, Plaintiffs did
not agree to accept payment, and there was not payment in full. Defendants
did not dispute these facts before the district court and do not dispute them
now. Accordingly, Defendants fail to create a genuine issue of material fact on
either element of their affirmative defense of waiver.
      B. Defendants’ Constitutionality and Policy Arguments
      Defendants argue that the district court’s ruling is “unconstitutional and
violates the intent of the [FLSA]” because “[t]he waiver provision of the FSLA
[sic], as interpreted by the District Court, is not only incorrect [but] it leaves
employers at risk once again for compliance issues and lawsuits.” Defendants
do not articulate any constitutional argument, nor do they cite any authority

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for the proposition that the district court’s ruling is unconstitutional. Rather,
Defendants’ argument amounts to a challenge to the district court’s application
of the FLSA.      Accordingly, we find Defendants’ “constitutional” argument
without merit and treat it as a challenge to the district court’s application of
the FLSA.
         The district court correctly applied the FLSA to the facts at issue. The
FLSA provides that an employee need not accept back wages from an employer,
as calculated by the DOL. Rather, an employee may choose to pursue an action
in court against an employer who violates the FLSA, and in pursuing such
action, can maintain a claim not only for back wages, but also for liquidated
damages, attorney’s fees, and costs. 29 U.S.C. § 216(b); see Pedigo v. Austin
Rumba, Inc., 722 F. Supp. 2d 714, 720 (W.D. Tex. 2010) (“Plaintiffs are not
required to accept such backwages and deductions as compensation for
Defendant’s violation(s) of the FLSA overtime wage provisions.”). Here, the
district court found a violation of the FLSA and concluded, based on the
unrebutted summary judgment record, that Defendants failed to raise a valid
waiver defense.       The district court’s awards of liquidated damages and
attorney’s fees, as discussed below, were mandatory and not an abuse of
discretion. Accordingly, Defendants’ challenge to the district court’s decision
fails.
         Defendants contend in their statement of the issues that the waiver
provision of the FLSA is unconstitutional as written. They do not make this
argument elsewhere.        Defendants also make two arguments about the
application of the FLSA that rely on legislative history and policy. Defendants
explain that when Congress crafted the FLSA’s waiver provision, it sought to
lower the risk that “threats of lawsuits regarding matters that an employer
has and was willing to address through the government agency of the DOL”
would threaten “free enterprise and creation of jobs.” This argument seems to

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be that the legislative history of the FLSA reflects Congress’s interest in
encouraging potential plaintiffs to accept DOL-calculated back wages.
Defendants also argue that “punish[ing]” them by requiring them to pay back
wages and other damages sends a negative message “to a business who opens
jobs to stimulate the economy.”
      We do not reach any of these arguments because Defendants waived
them by failing to raise them before the district court. See XL Specialty Ins.
Co. v. Kiewit Offshore Servs., Ltd., 513 F.3d 146, 153 (5th Cir. 2008) (“An
argument not raised before the district court cannot be asserted for the first
time on appeal.”).
      C. Liquidated Damages
      Under the FLSA, a court must award liquidated damages when it finds
a violation of § 207: “Any employer who violates the provisions of section 206
or section 207 of this title shall be liable to the employee or employees affected
in the amount of . . . their unpaid overtime compensation . . . and in an
additional equal amount as liquidated damages.” 29 U.S.C. § 216(b) (emphasis
added). Section 260 creates an exception to this requirement, available to the
district court at its discretion:
      [I]f 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 of 1938, as
      amended, the court may, in its sound discretion, award no
      liquidated damages or award any amount thereof not to exceed the
      amount specified in section 216 of this title.
29 U.S.C. § 260 (emphasis added).         Under this court’s precedents, “[a]n
employer found liable under section 206 or section 207 has the ‘substantial
burden’ of proving to the satisfaction of the trial court that its acts giving rise
to the suit are both in good faith and reasonable.” Mireles v. Frio Foods, Inc.,
899 F.2d 1407, 1415 (5th Cir. 1990) (emphasis original).

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         Defendants contend that they “certainly raised a genuine issue of fact”
regarding good faith and reasonableness. Defendants observe that “Kahn
testified that he and [sic] on behalf of the Appellants did not know they had
done anything wrong,” which is “more than adequate evidence to warrant a
trial on the merits regarding good faith and reasonableness.”
         Defendants’ argument fails on both prongs. As examples of good faith,
Defendants point to the fact that they “attempted to pay back uncompensated
overtime [wages]” and told Terrell to contact the DOL investigator with any
questions about the DOL settlement. These actions may suggest good faith
compliance with the DOL’s findings, but they do not show “that the act or
omission giving rise to such action,” i.e., the FLSA violation in the first place,
was made in good faith. Further, Defendants offered no evidence that Kahn
had reasonable grounds for believing that his actions were not a violation of
the FLSA. See Barcellona v. Tiffany English Pub, Inc., 597 F.2d 464, 468–69
(5th Cir. 1979) (“We do not believe an employer may rely on ignorance alone as
reasonable grounds for believing that its actions were not in violation of the
Act.”). Defendants’ bare assertions cannot carry their “substantial burden” of
demonstrating good faith and reasonableness. Accordingly, their argument
fails.
         Defendants also argue that the award of liquidated damages is punitive
and excessive. Defendants waived this argument by failing to contest the issue
of liquidated damages on this basis before the district court. See XL Specialty,
513 F.3d at 153.
         D. Attorney’s Fees
         As with liquidated damages, under the FLSA, a court must award
attorney’s fees when it finds a violation of § 207: “The court in such action shall,
in addition to any judgment awarded to the plaintiff or plaintiffs, allow a
reasonable attorney’s fee to be paid by the defendant, and costs of the action.”

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29 U.S.C. § 216(b) (emphasis added); see Weisel v. Singapore Joint Venture,
Inc., 602 F.2d 1185, 1191 n.18 (5th Cir. 1979) (“Reasonable attorneys’ fees are
mandatory.”).
      Defendants argue that the award of attorney’s fees, like the award of
liquidated damages, is punitive and excessive.        They contend that this
argument is not waived because they made “[a]dequate proof showing that the
award of attorneys’ fees was contested” in their Response to the Motion for
Summary Judgment. In that Response, Defendants stated: “While Defendants
have offered to tender these amounts [the DOL-calculated back wages],
Plaintiffs will not agree to accept the amount offered. Therefore, Defendants
contend that the amount should be $0.00, given the need to incur depositions,
costs, and attorneys’ fees on a matter that Defendants believe is frivolous
under the circumstances.”
      This two-sentence argument does not challenge the issue of attorney’s
fees in any way, including as excessive or punitive. Therefore, we conclude
that Defendants waived this argument by failing to raise the issue of attorney’s
fees before the district court. See XL Specialty, 513 F.3d at 153.
                               IV.    CONCLUSION
      For the foregoing reasons, the judgment of the district court is
AFFIRMED.

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