Court Opinion

ID: 3064954
Source: CourtListenerOpinion
Date Created: 2015-10-14 22:27:54.053441+00
Date Added: 2024-06-11T11:41:24.128237
License: Public Domain

FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

THELMA BOUCHER, ARDITH                    
BALLARD, JOSEPH W. KENNEDY III
                                               Nos. 05-15454 and
and LOCAL 226, AFL-CIO,
                                                   05-15702
             Plaintiffs-Appellants,
               v.                                  D.C. No.
                                               CV-04-01738-PMP
DAN SHAW, MICHAEL VILLAMOR,
                                                   OPINION
JAMES VAN WOERKOM, DOES 1-50,
            Defendants-Appellees.
                                          
         Appeal from the United States District Court
                  for the District of Nevada
           Philip M. Pro, District Judge, Presiding

                   Argued and Submitted
        February 15, 2007—San Francisco, California

                        Filed July 27, 2009

    Before: J. Clifford Wallace, Richard D. Cudahy,* and
          M. Margaret McKeown, Circuit Judges.

                    Opinion by Judge Cudahy

   *The Honorable Richard D. Cudahy, Senior United States Circuit Judge
for the Seventh Circuit, sitting by designation.

                                9731
9734                   BOUCHER v. SHAW

                         COUNSEL

Richard G. McCracken, McCracken, Stemerman, Bowen and
Holsberry, Las Vegas, Nevada, and Kristin L. Martin, Davis,
Cowell & Bowe, LLP, San Francisco, California, for the
plaintiffs-appellants.

Constance L. Akridge and Matthew T. Milone, Jones Vargas,
Las Vegas, Nevada, for the defendants-appellees.

                          OPINION

CUDAHY, Circuit Judge:

   Three former employees of the Castaways Hotel, Casino
and Bowling Center (the Castaways) and their local union
sued the Castaways’ individual managers for unpaid wages
under state and federal law. The district court dismissed the
plaintiffs’ claims. This appeal raises three issues: (1) whether
the Castaways’ individual managers can be held liable for
unpaid wages under Nevada law; (2) whether the union has
standing to raise the state law claim; and (3) whether the man-
agers can be held liable under the Fair Labor Standards Act
(FLSA). We certified the first issue to the Nevada Supreme
Court as a question of first impression under Nevada law. The
state court held that individual managers cannot be held liable
as “employers,” and therefore that claim was properly dis-
missed by the district court, making the issue of the union’s
                           BOUCHER v. SHAW                            9735
standing moot. The only remaining issue is whether a claim
exists under federal law. We hold that it does, and therefore
reverse and remand the FLSA claim to the district court.

                           I.   Background

   The Castaways filed for Chapter 11 bankruptcy protection
on June 26, 2003.1 The individual plaintiffs were discharged
in January 2004, when the Castaways was operating as the
debtor-in-possession. On February 10, 2004, after the plain-
tiffs were discharged, the Chapter 11 petition was converted
to a Chapter 7 liquidation, and the Castaways ceased opera-
tions. The individual plaintiffs, Ardith Ballard, Thelma Bou-
cher and Joseph Kennedy III, filed suit in Nevada state court
seeking to recover unpaid wages for themselves and for a
class of Castaways employees.2 Ballard alleges that she has
not been paid for the last pay period that she worked at the
Castaways. Boucher alleges that she was not paid for the final
pay period until two weeks after her employment was termi-
nated. All three individual plaintiffs allege that they have not
been paid their accrued vacation and holiday pay. Culinary
Workers Union, Local 226 (Local 226 or the union) seeks to
recover wages that were withheld as dues from the paychecks
of Thelma Boucher and other employees. The plaintiffs assert
claims under Chapter 608 of the Nevada Revised Statutes and
the FLSA, 29 U.S.C. § 206(a).

  The defendants are three Castaways’ managers. Dan Shaw
was the Chairman and Chief Executive Officer of the Cast-
aways at the time the plaintiffs were discharged. Michael Vil-
lamor was responsible for handling labor and employment
matters at the Castaways. And James Van Woerkom was the
Castaways’ Chief Financial Officer. Shaw had a 70 percent
  1
    The defendants in their brief refer to the Castaways as VSS Enterprises
LLC dba The Castaways Hotel, Casino and Bowling Center.
  2
    There is no indication from the briefs that any class had been certified
by the time the district court dismissed the case.
9736                   BOUCHER v. SHAW
ownership in the Castaways, and Villamor had a 30 percent
ownership interest. The plaintiffs allege that each defendant
had custody or control over the “plaintiffs, their employment,
or their place of employment at the time that the wages were
due.”

   The plaintiffs filed this lawsuit in Nevada state court on
October 14, 2004. On December 21, 2004, Defendant Shaw
removed the case to the United States District Court for the
District of Nevada and filed a motion to dismiss under Federal
Rule of Civil Procedure 12(b)(6). Villamor and Van Woer-
kom separately filed motions to dismiss, alleging the same
grounds for dismissal as Shaw. The district court granted the
defendants’ motions and dismissed all of the plaintiffs’
claims. Boucher v. Shaw, No. CV-S-04-1738-PMP (PAL) (D.
Nev. Jan. 25, 2005); Boucher v. Shaw, No. CV-S-04-1738-
PMP (PAL) (D. Nev. Feb. 18, 2005); Boucher v. Shaw, No.
CV-S-04-1738-PMP (PAL) (D. Nev. Apr. 11, 2005). The dis-
trict court concluded that the defendants were not “employ-
ers” under Nevada law, Local 226 lacks standing to bring a
claim under Nevada law and the plaintiffs cannot maintain a
cause of action under the Fair Labor Standards Act against the
defendants. Boucher v. Shaw, No. CV-S-04-1738-PMP
(PAL), slip op. at 1-2 (D. Nev. Jan. 25, 2005). The plaintiffs
challenge each of these conclusions on appeal. We certified
the state law question to the Nevada Supreme Court, and
stayed the case pending its resolution. The Nevada Supreme
Court has answered the state law question, and we incorporate
that court’s reasoning into our decision.

                        II.   Discussion

   This court reviews de novo dismissals for failure to state a
claim under Fed. R. Civ. P. 12(b)(6). See Simon v. Hartford
Life, Inc., 546 F.3d 661, 663-64 (9th Cir. 2008) (citation omit-
ted). All allegations of material fact shall be taken as true and
construed in the light most favorable to the nonmoving party.
See id. at 664.
                       BOUCHER v. SHAW                    9737
  A.   Whether Managers Can Be “Employers” Under
       State Law

   Chapter 608 of the Nevada Revised Statutes provides a
statutory scheme for wage protection. “An employer shall pay
to the employee wages for each hour the employee works.”
Nev. Rev. Stat. § 608.016. “Whenever an employer dis-
charges an employee, the wages and compensation earned and
unpaid at the time of such discharge shall become due and
payable immediately.” Nev. Rev. Stat. § 608.020. “If an
employer fails to pay: (a) Within 3 days after the wages or
compensation of a discharged employee becomes due . . . the
wages or compensation of the employee continues at the same
rate from the day he . . . was discharged until paid or for 30
days, whichever is less.” Nev. Rev. Stat. § 608.040(1).

   The application of these statutes to the present case
depends on whether the defendants were “employers” under
Chapter 608. “ ‘Employer’ includes every person having con-
trol or custody of any employment, place of employment or
any employee.” Nev. Rev. Stat. § 608.011. Whether the
defendants as individual managers can be held to be “employ-
ers” under § 608.011 is a question of first impression. Neither
the Nevada Supreme Court nor the Ninth Circuit had pub-
lished an opinion analyzing the definition of employer under
Nevada Revised Statutes § 608.011. Because this question has
significant implications for Nevada’s wage protection law and
because we could not be certain how the Nevada Supreme
Court would resolve the matter, we certified the question to
the Nevada Supreme Court. See Boucher v. Shaw, 483 F.3d
613 (9th Cir. 2007).

   [1] The Nevada Supreme Court held that individual manag-
ers could not be found liable as “employers” under Chapter
608. Boucher v. Shaw, 196 P.3d 959, 960 (Nev. 2008). The
court explained that it would not expand the common law def-
inition of “employer” to include individual managers without
a clear expression of legislative intent. “At common law, an
9738                   BOUCHER v. SHAW
employment relationship was defined by agency principles,
under which, unless otherwise agreed, an agent (e.g., a man-
ager) for a disclosed principal (e.g., the employing company)
does not become party to the employment contract for the
principal’s debts.” Id. at 961. As stated above, the Nevada
legislature has enacted a statutory definition of “employer,”
but that definition does not “unequivocally indicate[ ]” the
legislature’s intent to depart from the common law rule. Id. at
963. In particular, Nevada’s statutory definition of “employ-
er” does not include corporate “managers,” “agents” or “offi-
cers” in an enumerated list of “employers,” as is the case in
the statutes of other states. Instead, the statute ambiguously
provides that “ ‘[e]mployer’ includes every person having
control or custody of any employment, place of employment
or any employee,” Nev. Rev. Stat. § 608.011, without defin-
ing “person,” or offering guidance on what constitutes “con-
trol or custody.” In the absence of clear legislative intent, the
Nevada court refused to presume that the Legislature meant
to equate individual managers with “employers.” Id.

  [2] It follows that the managers in the present case cannot
be held personally liable as “employers” under Chapter 608.
The plaintiffs’ state law claims were properly dismissed.
Because the union is a plaintiff only with respect to the state
law claim, the issue of the union’s standing is moot and we
do not reach it.

  B.    Whether Managers Can Be “Employers” Under
        the FLSA

   [3] The only remaining claim seeks unpaid wages under the
FLSA. Ballard is the only named plaintiff who has sued under
the FLSA. The FLSA provides that “[e]very employer shall
pay to each of his employees who in any workweek is
engaged in commerce or in the production of goods for com-
merce, or is employed in an enterprise engaged in commerce
or in the production of goods for commerce,” a minimum
wage. 29 U.S.C. § 206(a). “Any employer who violates the
                       BOUCHER v. SHAW                     9739
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 minimum wages, or their unpaid overtime com-
pensation, as the case may be, and in an additional equal
amount as liquidated damages.” 29 U.S.C. § 216(b). Ballard
alleges that the Castaways managers are individually liable
for unpaid wages as “employers” under the FLSA. The FLSA
defines “employer” as “any person acting directly or indi-
rectly in the interest of an employer in relation to an employee
. . . .” 29 U.S.C. § 203(d).

   We have held that the definition of “employer” under the
FLSA is not limited by the common law concept of “employ-
er,” but “ ‘is to be given an expansive interpretation in order
to effectuate the FLSA’s broad remedial purposes.’ ” Lambert
v. Ackerley, 180 F.3d 997, 1011-12 (9th Cir. 1999) (en banc)
(quoting Bonnette v. California Health & Welfare Agency,
704 F.2d 1465, 1469 (9th Cir. 1983)). See also Real v. Dris-
coll Strawberry Assocs., 603 F.2d 748, 754 (9th Cir. 1979).
The determination of whether an employer-employee relation-
ship exists does not depend on “isolated factors but rather
upon the circumstances of the whole activity.” Rutherford
Food Corp. v. McComb, 331 U.S. 722, 730 (1947). The
touchstone is the “economic reality” of the relationship. Gold-
berg v. Whitaker House Coop., Inc., 366 U.S. 28, 33 (1961).

   [4] Where an individual exercises “control over the nature
and structure of the employment relationship,” or “economic
control” over the relationship, that individual is an employer
within the meaning of the Act, and is subject to liability. Lam-
bert, 180 F.3d at 1012 (internal quotation marks and citations
omitted). In Lambert, we upheld a finding of liability against
a chief operating officer and a chief executive officer where
the officers had a “ ‘significant ownership interest with opera-
tional control of significant aspects of the corporation’s day-
to-day functions; the power to hire and fire employees; [the
power to] determin[e][ ] salaries; [and the responsibility to]
maintain [ ] employment records.’ ” Lambert, 180 F.3d at
9740                   BOUCHER v. SHAW
1001-02, 1012 (quoting the district court’s jury instruction).
“The evidence, moreover, strongly supports the jury’s deter-
mination that both Ackerleys exercised economic and opera-
tional control over the employment relationship with the sales
agents, and were accordingly employers within the meaning
of the Act.” Id. at 1012. See also Chao v. Hotel Oasis, Inc.,
493 F.3d 26, 34 (1st Cir. 2007) (holding corporation’s presi-
dent personally liable where he had ultimate control over
business’s day-to-day operations and was the corporate offi-
cer principally in charge of directing employment practices);
United States Dep’t of Labor v. Cole Enters., Inc., 62 F.3d
775, 778-79 (6th Cir. 1995) (president and 50 percent owner
of corporation was “employer” within FLSA where he ran
business, issued checks, maintained records, determined
employment practices and was involved in scheduling hours,
payroll and hiring employees).

   [5] In the case at bar, Ballard has alleged that Defendant
Villamor was responsible for handling labor and employment
matters at the Castaways; Defendant Shaw was chairman and
chief executive officer of the Castaways; and Defendant Van
Woerkom was the Castaways’ chief financial officer and had
responsibility for supervision and oversight of the Castaways’
cash management. The plaintiff also alleges that Shaw held a
70 percent ownership interest in the Castaways, Villemor held
a 30 percent ownership interest and all three defendants had
“control and custody of the plaintiff class, their employment,
and their place of employment.” (See Complaint ¶¶ 9-11.)
Accepting these allegations of material fact as true, Ballard’s
claim withstands a motion to dismiss. See Simon, 546 F.3d at
664.

   The defendants do not challenge their status as employers
under the FLSA. Rather, they argue that any duty they had to
pay wages to Castaways’ employees ended with the conver-
sion of the Castaways’ Chapter 11 bankruptcy proceeding into
a Chapter 7 liquidation. The defendants cite no authority for
this proposition, but state merely that “[a]ny action under the
                       BOUCHER v. SHAW                    9741
FLSA is properly directed to the Chapter 7 Trustee and not
Shaw, Villamor or Van Woerkom.” (Appellees’ Br. at 14.)
Ballard responds that the case was not converted to a Chapter
7 proceeding until February 10, 2004, at least eleven days
after she was fired, so that even if the duty to pay wages
ceased upon the conversion of the case, the managers were
liable up until that point. In supplemental briefing ordered by
the court, the defendants do not dispute that the bankruptcy
was converted to a Chapter 7 on February 10. Yet they assert
that the Castaways “had ceased its operations altogether at the
time that Ballard’s wage claim accrued,” which appears to
mean that although Ballard is owed wages for the final pay
period prior to when the Castaways ceased operating on Janu-
ary 29, her paycheck was not due to be issued to her until
afterwards. Ballard argues to the contrary, citing Nev. Rev.
Stat. § 608.020, for the proposition that wages and compensa-
tion earned and unpaid at the time of discharge are to be paid
immediately. We agree. Moreover, the defendants’ subse-
quent argument that Ballard’s FLSA claim should fail because
her wage claim has already been satisfied in the bankruptcy
proceeding raises a question of fact not properly resolved on
a motion to dismiss.

   As a more general matter, we cannot see how it makes a
difference one way or the other whether the Castaways was
in Chapter 11 or Chapter 7. The Castaways is not a defendant,
and the defendants are not debtors. The defendants perhaps
assume that the automatic stay or other injunctive power of
the bankruptcy court has some effect on the plaintiff’s claim,
but they have not shown how that would be.

   [6] Section 362 of the Bankruptcy Code embodies the auto-
matic stay, which immediately applies when a debtor files a
bankruptcy petition and is designed to preclude a variety of
post-petition actions—both judicial and non-judicial—against
the debtor or affecting property of the estate. See 11 U.S.C.
§ 362(a). The automatic stay is fundamental to bankruptcy
law. It ensures that claims against the debtor will be brought
9742                    BOUCHER v. SHAW
in one place, the bankruptcy court. The stay protects the
debtor by giving it room to breathe and, thereby, hopefully to
reorganize. The stay also protects creditors as a group from
any one creditor who might otherwise seek to obtain payment
on its claims to the others’ detriment. See, e.g., Chugach For-
est Prods., Inc. v. Northern Stevedoring & Handling Corp.,
23 F.3d 241, 243 (9th Cir. 1994) (quoting Hillis Motors, Inc.
v. Hawaii Auto. Dealers’ Ass’n, 997 F.2d 581, 585 (9th Cir.
1993)).

   [7] As a general rule, the automatic stay protects only the
debtor, property of the debtor or property of the estate. See 11
U.S.C. §§ 362(a); 541(a) (defining property of the estate);
Advanced Ribbons and Office Prods., Inc. v. U.S. Interstate
Distrib., Inc., 125 B.R. 259, 263 (9th Cir. BAP 1991) (citation
omitted); see also Chugach, 23 F.3d at 246. The stay “does
not protect non-debtor parties or their property. Thus, section
362(a) does not stay actions against guarantors, sureties, cor-
porate affiliates, or other non-debtor parties liable on the debts
of the debtor.” Chugach, 23 F.3d at 246 (citations omitted).
We have refused to extend the automatic stay to enjoin claims
against a contractor-debtor’s surety, even though a surety
bond guarantees the contractor-debtor’s performance. See In
re Lockard, 884 F.2d 1171, 1178-79 (9th Cir. 1989). In Loc-
kard, we reasoned that extending the stay was inappropriate
because the surety, not the contractor-debtor, puts its property
directly at risk of liability to creditors in the event of nonpay-
ment by the contractor-debtor, and therefore a surety bond is
not property of the bankruptcy estate. Id. at 1178. We found
that this was the case even though allowing a claim against
the surety would trigger the surety’s right to recourse against
the debtor. Id. Similarly, the automatic stay does not protect
the property of parties such as officers of the debtor, even if
the property in question is stock in the debtor corporation, and
even if that stock has been pledged as security for the debtor’s
liability. Advanced Ribbons, 125 B.R. at 263.

  [8] We have never addressed the question whether a com-
pany’s bankruptcy affects the liability of its individual manag-
                          BOUCHER v. SHAW                         9743
ers under the FLSA. But our case law regarding guarantors,
sureties and other non-debtor parties who are liable for the
debts of the debtor leaves no doubt about the answer: the
Castaways bankruptcy has no effect on the claims against the
individual managers at issue here.

   [9] This is, in fact, an easier case than our precedent cited
supra. Here, the plaintiff’s claim does not seek to reach prop-
erty of the managers that has been pledged to secure the Cast-
aways’ debt, or that would otherwise impact property of the
estate. The individual managers generally are not liable for
debts of the debtor, and even if they were, the plaintiff’s statu-
tory claim against the individual managers is unrelated to any
of the Castaways’ debts. Nor does the plaintiff seek damages
based on an insurance policy held by the debtor. Cf. A.H.
Robins Co., Inc. v. Piccinin, 788 F.2d 994, 998-1004 (4th Cir.
1986). The plaintiff’s claim is not being used as an alternative
route to recoup property of the estate, and therefore cannot be
said to be “related to” the bankruptcy proceeding, such that it
would be swept into the bankruptcy court’s jurisdiction under
28 U.S.C. § 1334(b). See Celotex v. Edwards, 514 U.S. 300,
307-08 (1995). Neither party has alleged that the estate would
be diminished by any judgment in favor of the plaintiff, nor
is there any indication in the record that the Castaways would
be required to indemnify the individual managers for legal
expenses or any judgment against them in this case. Cf. In re
Minoco Group of Cos., 799 F.2d 517, 518 (9th Cir. 1986)
(affirming bankruptcy court’s finding that insurance policy
cancellation was automatically stayed because of its impact
on debtor’s obligation to indemnify officers and directors).
However, if the liability of the non-debtor party were to affect
the property of the bankruptcy estate, such as by a require-
ment that the debtor indemnify the non-debtor or by payment
of the liability from a director’s and officer’s insurance pol-
icy, it may be necessary for the plaintiff in such a case to pro-
ceed against the non-debtor party through bankruptcy
proceedings. See id.; A.H. Robins Co., 788 F.2d at 1007-08.3
  3
  Even then, the bankruptcy court would first need to extend the auto-
matic stay under its equity jurisdiction. “ ‘[S]uch extensions, although
9744                        BOUCHER v. SHAW
In this case, the parties have not raised any claims that this
suit would affect the bankruptcy estate, so we need not reach
this question.

   [10] To the contrary, the managers are independently liable
under the FLSA, and the automatic stay has no effect on that
liability. The defendants in their supplementary briefing
repeatedly assert that they were unable to find any authority
in support of this proposition. We have found at least two
cases holding that individual managers can be held liable
under the FLSA even after the corporation has filed for bank-
ruptcy. See Donovan v. Agnew, 712 F.2d 1509, 1511, 1514
(1st Cir. 1983) (finding managers of bankrupt corporation
individually liable under FLSA and noting, “The overwhelm-
ing weight of authority is that a corporate officer with opera-
tional control of a corporation’s covered enterprise is an
employer along with the corporation, jointly and severally lia-
ble under the FLSA for unpaid wages.”); Chung v. New Silver
Palace, 246 F. Supp. 2d 220, 226 (S.D.N.Y. 2002) (“The
automatic stay . . . affects only [the debtor]; it does not apply
to plaintiff’s [FLSA] claims against the [debtor]’s non-debtor
co-defendants.”).

referred to as extensions of the automatic stay, [are] in fact injunctions
issued by the bankruptcy court after hearing and the establishment of
unusual need to take this action to protect the administration of the bank-
ruptcy estate.’ ” Chugach, 23 F.3d at 247 n.6 (quoting Patton v. Bearden,
8 F.3d 343, 349 (6th Cir. 1993)). See also 11 U.S.C. § 105 (providing the
bankruptcy court’s power to “issue any order, process, or judgment that
is necessary or appropriate to carry out the provisions of this title”); 28
U.S.C. § 1334(b) (establishing the bankruptcy court’s jurisdiction over
matters that are “related to” the bankruptcy). As in Chugach, the proceed-
ings in the case at bar “are entirely retrospective.” 23 F.3d at 247 n.6.
From all that appears, the defendant-managers never requested that the
bankruptcy court enjoin the plaintiff’s FLSA claim. The managers’ subse-
quent request for dismissal of the plaintiff’s claim in the district court is
not analogous to a prospective request for an injunction from the bank-
ruptcy court. Id.
                        BOUCHER v. SHAW                      9745
                       III.   Conclusion

   The district court correctly held that the plaintiffs could not
state a claim against the managers for unpaid wages under
Nevada law, and therefore correctly dismissed that claim,
making the issue of the union’s standing moot. However, the
plaintiffs have adequately stated a claim under the FLSA.

   AFFIRMED in part, REVERSED in part and REMANDED
for proceedings consistent with this opinion. The parties shall
bear their own costs.