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Henderson v. Dat Dogs Enterprises, LLC

United States District Court, E.D. Louisiana

January 10, 2019


         SECTION: “J” (5)



         Before the Court is a Motion to Dismiss Counterclaims (Rec. Doc. 28) filed by Plaintiffs/Counter-defendants, Zachary Henderson, Erin Spath, Kaleigh Thomas, and Heidi Taylor (collectively, “Plaintiffs”), an opposition filed by Defendant/Counterclaimant Dat Dogs Enterprises, LLC (“Dat Dogs”) (Rec. Doc. 35), Plaintiffs' reply (Rec. Doc. 38), and Dat Dogs' sur-reply (Rec. Doc. 41). Having considered the motion and legal memoranda, the record, and the applicable law, the Court finds that the motion should be GRANTED.


         This litigation arises out of Plaintiffs' allegations that Dat Dogs requires its serving bartenders to participate in a “tip pool” that does not comply with the Fair Labor Standards Act (“FLSA”) and its regulations. In December 2017, Plaintiffs filed a collective action[1] pursuant to 29 U.S.C. § 216(b) on behalf of all other current and former similarly situated employees who worked for Dat Dogs within three years prior to the date the lawsuit was filed. Plaintiffs' complaint alleges that for the entirety of Plaintiffs' employment, Dat Dogs has operated some version of this “forced wage deduction scheme, ” which entails deducting a sum equal to five percent of each shift's gross sales (minus alcohol) from the wages of Plaintiffs and other service bartenders who are paid a subminimum wage of $2.13 per hour for non-overtime hours and then re-distributing that money to other employees who are paid a regular rate of over $7.25 per hour, including cooks, dishwashers, and other back of house employees, as well as managers. Plaintiffs allege that Dat Dogs' wage deduction scheme violates the FLSA and does not qualify for the tip credit set forth in 29 U.S.C. § 203(m) because it is an unlawfully constituted tip pool.

         In July 2018, Dat Dogs filed an amended answer to Plaintiffs' complaint and asserted counterclaims. Specifically, Dat Dogs alleges that Plaintiffs willfully and intentionally failed to report cash tips earned during the course of employment with Dat Dogs, resulting in Plaintiffs' receipt of minimum adjustment payments[2] to which they were not entitled. Dat Dogs concludes that Plaintiffs unjustly enriched themselves without cause at Dat Dogs' expense in violation of Louisiana law. Dat Dogs seeks restoration of tip-minimum payments made to Plaintiffs as a result of their alleged misrepresentations pursuant to Louisiana Civil Code articles 2298, 2299, and 2300.


         Plaintiffs argue that Dat Dogs' counterclaims should be dismissed with prejudice pursuant to Federal Rules of Civil Procedure 9 and 12. First, Plaintiffs argue that their motion to dismiss should be granted because the Fifth Circuit prohibits employer counterclaims like the ones at issue in FLSA cases. (Rec. Doc. 28-2, at 4). Plaintiffs assert that the narrow exception to the rule enumerated in Brennan v. Heard, 491 F.2d 1 (5th Cir. 1974) is not applicable in this case because Dat Dogs did not prepay an overtime obligation it expected to occur in a later pay period. (Rec. Doc. 28-2, at 6).

         Alternatively, Plaintiffs argue that this Court should dismiss Dat Dogs' counterclaims because the allegations against Plaintiffs sound in fraud, and Dat Dogs failed to satisfy the heightened pleading standard of Rule 9. (Rec. Doc. 28-2, at 7-8). Specifically, Plaintiffs aver that Dat Dogs fails to identify when Plaintiffs allegedly under-reported cash tips, the amount of cash tips that were allegedly under-reported, or the value of the unjust enrichment Dat Dogs allegedly suffered. (Rec. Doc. 28-2, at 8-9).

         Dat Dogs argues in opposition that Plaintiffs' motion to dismiss should be denied because the Fifth Circuit permits counterclaims in FLSA actions under the circumstances presented in this case, and the state law claims asserted by Dat Dogs are not required to adhere to the heightened pleading standard of Rule 9 because fraud is not alleged. (Rec. Doc. 35). First, Dat Dogs asserts that the Fifth Circuit's ban on counterclaims in FLSA cases does not apply where, as here, the employer is seeking to retrieve monies paid in wages that the employee did not earn and the set-off does not reduce the overall damages award below the sub-minimum wage. (Rec. Doc. 35, at 4-8).

         Dat Dogs next argues that this Court has supplemental jurisdiction over Dat Dogs' compulsory counterclaims that arose out of the same transaction or occurrence as the main demand asserted by Plaintiffs. (Rec. Doc. 35, at 9). Dat Dogs asserts that the allegations in the complaint and the counterclaims at issue both revolve around Dat Dogs' tip policies and how its employees were paid under those policies. (Rec. Doc. 35, at 10-11). Dat Dogs alleges that courts within the Fifth Circuit “routinely allow compulsory counterclaims to proceed in FLSA cases.” (Rec. Doc. 35, at 10).

         Finally, Dat Dogs argues that its allegations need not comply with the heightened pleading standard of Rule 9 because the counterclaims state a claim for unjust enrichment and recoupment of monies due, not fraud. (Rec. Doc. 35, at 11). Specifically, Dat Dogs emphasizes that unjust enrichment and reimbursement claims under Louisiana law are governed only by Rule 8(a), which only requires a short and plain statement showing that the pleader is entitled to relief. (Rec. Doc. 35, at 12). However, Dat Dogs argues that even if this Court finds that Rule 9 is applicable, Dat Dogs' allegations satisfy the requisite specificity of Rule 9. (Rec. Doc. 35, at 13). Dat Dogs notes that the counterclaims identify the parties it believes were unjustly enriched, state that the unjust enrichment took place at Dat Dogs' Frenchmen and Magazine Street locations during Plaintiffs' employment with Dat Dogs, and state that it occurred through Plaintiffs' failure to report cash tips they received. (Rec. Doc. 35, at 14). Dat Dogs goes on to argue that even if this Court strikes the language sounding in fraud from Dat Dogs' counterclaims, it still states a valid claim for relief because the “willfully, knowingly, and intelligently” language is not an element of the state law claims alleged. (Rec. Doc. 35, at 14).

         Plaintiffs raise four arguments in reply. (Rec. Doc. 38). First, Plaintiffs contest Dat Dogs' assertion that the counterclaims at issue fall within the exception enumerated in Singer v. City of Waco, 324 F.3d 813 (5th Cir. 2003) because Dat Dogs' counterclaims do not represent overtime obligations already fulfilled. (Rec. Doc. 38, at 2). Thus, Plaintiffs argue that the counterclaims cannot be asserted in this FLSA action because they do not involve pre-payment of wages. (Rec. Doc. 38, at 3). Second, Plaintiffs clarify that Dat Dogs is asserting affirmative counterclaims for monetary relief, not merely raising a defense seeking setoff for damages. (Rec. Doc. 38, at 3). Next, Plaintiffs argue that Dat Dogs' counterclaims are legally invalid in this FLSA action regardless of whether they qualify as compulsory or permissive. (Rec. Doc. 38, at 4). Finally, Plaintiffs challenge Dat Dogs' assertion regarding the applicability of Rule 9. (Rec. Doc. 38, at 6). Specifically, Plaintiffs argue that the heightened pleading standard applies to Dat Dogs' counterclaims sounding in fraud and the allegations “fall woefully short” in that Dat Dogs fails to allege the amount of tips it believes went unreported, the dates and pay periods on which the alleged misrepresentations occurred, and the amount of tip-minimum payments which it believes are at issue. (Rec. Doc. 38, at 7-8). Based on the foregoing, Plaintiffs re-urge this Court to dismiss Dat Dogs' counterclaims.

         In its sur-reply, Dat Dogs emphasizes the importance of this Court's determination regarding whether Dat Dogs' counterclaims are compulsory or permissive. (Rec. Doc. 41). Dat Dogs first argues that this distinction is the determining factor as to whether the counterclaims should be dismissed. (Rec. Doc. 38, at 1). Additionally, Dat Dogs asserts that if this Court grants Plaintiffs' motion to dismiss the counterclaims, Dat Dogs will be precluded from ...

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