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Clay v. New Tech Global Ventures LLC

United States District Court, W.D. Louisiana

March 4, 2019

MICHAEL D. CLAY, ET AL.
v.
NEW TECH GLOBAL VENTURES, LLC

          RULING AND ORDER

          JUDGE JOHN W. deGRAVELLES UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF LOUISIANA

         This matter comes before the Court on the following motions filed by Defendant New Tech Global Ventures, LLC (“New Tech”):

(1) Motion to Enforce Stipulated Class Definition by Striking and/or Severing Claims Asserted by Opt-In Plaintiff Holbrook (Doc. 71);
(2) Motion for Partial Summary Judgment (Doc. 89);
(3) Motion for Decertification and to Sever Named Plaintiffs' Claims (Doc. 90); and
(4) Motion for Summary Judgment as to Opt-In Plaintiff Gene Holbrook (Doc. 94).

         Also before the Court is the Motion for Summary Judgment as to Employee Status, Liability/Backwages, and New Tech's Good Faith Defense (Doc. 91) filed by Plaintiffs Michael D. Clay, Larre Butler, Clayton Shamsie, Joshua Warren, Joseph Anderson, John Harvey, and Gene Holbrook (collectively, the “plaintiffs”).

         Many of the motions are interrelated and include overlapping factual and legal issues. Accordingly, the Court consolidates their disposition into this single Ruling and Order after hearing oral argument on February 6, 2019.

         I. FACTUAL AND PROCEDURAL BACKGROUND

         Plaintiffs Michael Clay, Larre Butler, and Clayton Shamsie (collectively, the “original plaintiffs” or “named plaintiffs”) filed this lawsuit on March 3, 2016. (Doc. 1). They allege that New Tech improperly classified them as independent contractors and failed to pay them overtime as required by the Fair Labor Standards Act (“FLSA”). On September 28, 2016, the Magistrate Judge granted the parties' Stipulation and Agreed Motion for Conditional Certification and Court-Authorized Notice (Doc. 17), conditionally certifying a class of “[a]ll current and former workers of [New Tech] retained as ‘Rig Clerks' during the period of March 3, 2013, to March 3, 2016.” (Doc. 19 at 1). Eligible class members were given 60 days to opt in to the litigation. (Id. at 2). By December 20, 2016, six additional plaintiffs had opted in: Joshua William Warren, Joseph LaVelle Anderson, Albert Deckard, Gene Lee Holbrook, Brett Allen Baker, [1] and John Robertson Harvey (collectively, the “opt-in plaintiffs”) (See Docs. 20-25). After New Tech answered the complaint, the case then proceeded to discovery.

         A. Procedural Background

         On August 14, 2018, before the completion of discovery, the first of the case's several pending motions was filed. (See Doc. 68). Thereafter, the parties engaged in an extensive course of motions practice, culminating in the several motions for which the Court heard oral argument on February 6, 2019. On February 20, 2019, the Court granted New Tech's motion to dismiss Deckard's claims with prejudice (Doc. 68) during a telephonic status conference. (See Doc. 153).[2]

         B. Facts

         New Tech is a staffing company which provides project management and consultancy services to independent oil and gas companies operating drilling rigs. (Doc. 90-2 at 2). New Tech provides workers to these independent operators who have experience in the various different drilling practices in which the operators engage.[3] (Id. at 1-2). The workers New Tech provides use their oil rig experience to help independent operators compete with larger competitors in the industry. (Id.). Due to these operators' size, they are unable to directly employ the number of employees with experience in different drilling practices they need to compete with larger producers. (Id. at 1). Thus, they contract with New Tech to acquire these workers. (Id.).

         Clay, Butler, and Shamshie are “rig clerks”--workers who support logistical operations and “cost tracking” for both onshore and offshore drilling rigs. (Doc. 90-2 at 3; see also Doc. 90-11 at 16; Doc. 90-12 at 11-12 & 16; Doc. 90-13 at 6). Rig clerks perform a variety of duties, including: ensuring that a rig's staffing and equipment needs are met, keeping track of daily costs on the rig, coordinating onshore supplies and transportation, handling customs and border issues, creating manifests for supply boats and helicopters, and the preparation of daily reports. (Doc. 90-2 at 3). New Tech states that it classifies its rig clerks as independent contractors based on industry standards, the advice of legal counsel, and the results of an Internal Revenue Service (“IRS”) audit. (Doc. 89-3 at 3-9). It maintains that it has no “role in day-to-day job duties or assignments for rig clerks that it matches with operators.” (Id. at 3).

         According to New Tech CEO Larry Cress, rig clerks work on a “project-to-project basis with no guarantee of future work.” (Doc. 103-14 at 2). He asserts that rig clerks are “not supervised by any New Tech employees nor are they subject to discipline from New Tech employees.” (Id.). He maintains that rig clerks are permitted to turn down job assignments from New Tech and that there is “no penalty to any rig clerk for turning down any job offered.” (Id. at 3). New Tech pays rig clerks “only . . . when they are performing services through New Tech.” (Id.). New Tech “does not pay a salary or any other form of regular compensation to rig clerks” because it considers them to be independent contractors. (Id.). Rig clerks are “free to contract directly with operators . . . pursuant to the terms of their consultant agreements.” (Id.).

         The plaintiffs maintain that they qualify as employees and should have been paid overtime by New Tech under the Fair Labor Standards Act. (See generally Doc. 91-1). They generally assert that New Tech had significant control over their job duties, and that it classified rig clerks as independent contractors to avoid its duty to comply with the requirements of the FLSA. (Id.).

         II. DISCUSSION

         A. New Tech's Motion to Sever (Doc. 71)

         New Tech argues that opt-in Plaintiff Gene Holbrook's claim should be stricken and/or severed because he was not a rig clerk and does not fall within the defined scope of the collective. (See generally Doc. 71-1). The plaintiffs respond that under the FLSA, Holbrook needs only to be “similarly situated” to the members of the collective and that this requirement is more flexible than the requirements for joinder of parties under Federal Rule of Civil Procedure 20. (Doc. 77 at 2). They assert that because New Tech has purportedly misclassified employees as independent contractors, the fact that Holbrook was a gate guard instead of a rig clerk is not dispositive.[4] (Id. at 2-3).

         Section 216(b) of the FLSA permits a collective action against an employer for unpaid overtime compensation “by any one or more employees for and in behalf of himself or themselves and other employees similarly situated.” 29 U.S.C. § 216(b). No. extensive analysis is warranted here, however, because the Magistrate Judge conditionally certified a class of “[a]ll current and former workers of Defendant retained as ‘Rig Clerks' during the period of March 3, 2013, to March 3, 2016.” (Doc. 19 at 1). This, of course, came in an order granting the parties' joint motion for conditional certification in which the parties “agreed and stipulate to conditional certification of” all current and former New Tech rig clerks employed from Mach 3, 2013, to March 3, 2016. (Doc. 17 at 2). The “effect of a conditional certification is that a court-approved written notice may then be sent to similarly situated putative class members.” Nieddu v. Lifetime Fitness, Inc., 977 F.Supp.2d 686, 690 (S.D. Tex. 2013).

         The plaintiffs conceded that Holbrook is a gate guard, not a rig clerk, and it is clear from the record that there are objectively substantial differences between the two positions. Regardless of whether gate guards can be considered “similarly situated” for FLSA conditional certification purposes, the parties are expressly bound by their stipulation and the Court's September 28, 2016 Order (Doc. 19). Accordingly, New Tech's motion to sever Holbrook's claims (Doc. 71) is granted, and Holbrook's claims are dismissed without prejudice.[5]

         B. New Tech's Motion for Partial Summary Judgment (Doc. 89)

         Next, New Tech moves for partial summary judgment on the issues of liquidated damages and the statute-of-limitations period. (See generally Doc. 89-1). The plaintiffs oppose the motion primarily on the grounds that it is premature. (See generally Doc. 106).

         1.Relevant Facts

         New Tech CEO Larry Cress submitted a declaration in which he asserts that other third-party staffing companies in the oil and gas industry employed rig clerks as independent contractors and not full-time employees. (Doc. 89-3 at 3). Realizing the legal significance of the classification of individuals as independent contractors instead of employees, Cress also sought the advice of four attorneys: Roy Keezel, New Tech's in-house counsel from 2005 to 2011; Ken Boiarsky, outside tax counsel; Bruce Williams, personal injury attorney; and Charles Conrad, also a personal injury attorney. (Id. at 4). Cress believed Keezel was specifically knowledgeable about classification issues based on his legal experience counseling employers on classification of their workers. (Id.). Keezel had previously litigated for the IRS, which included investigating employers' classification decisions. (Id.). Keezel also had knowledge of the typical practices of other businesses in the oil industry. (Id.). On several occasions, Keezel advised Cress and New Tech's board that rig clerks were properly classified as independent contractors under federal law, Texas law, and workers' compensation exclusivity provisions, confirming that “this classification was consistent with the predominant and longstanding industry practice with which both Mr. Cress and Mr. Keezel were familiar.” (Id. at 4-5).

         Williams is a personal injury defense attorney. (Doc. 89-3 at 6). In April 2015, he provided New Tech with an analysis explaining his opinion that New Tech's workers were independent contractors and not employees. (Id.). Williams' analysis was based in part on personal injury lawsuits against New Tech which included allegations that its workers were employees and not independent contractors. (Id.). Similarly, Conrad is a personal injury defense attorney who, in March 2015, provided New Tech with an analysis concluding that New Tech properly classified its workers as independent contractors. (Id.). Conrad's analysis was also based on lawsuits he had defended on behalf of New Tech. (Id. at 6-7).

         In reliance on this advice, Cress instructed New Tech employees to treat rig clerks as independent contractors by refraining from: supervising them, expressing opinions regarding their schedules, commenting on their job duties, and offering supplies or equipment or reimbursement if they purchased their own. (Doc. 89-3 at 7). He also instructed New Tech employees to negotiate with rig clerks regarding their rate of pay, and allow them to accept or reject job assignments or work for competitors. (Id.). Finally, he instructed his employees to tell rig clerks that they were free to bring work to New Tech through their own independent business relationships.[6] (Id.).

         In 2015, the IRS conducted an audit into New Tech's classification of its workers. (Doc. 89-3 at 8). New Tech hired Boiarsky to represent it in the audit. (Id.). On April 6, 2015, the IRS concluded its audit by determining that New Tech had properly classified its workers as independent contractors instead of employees. (Id.).

         Cress testified that he has not at any time “received any notice, complaint or allegation that New Tech's classification of rig clerks as independent contractors is, or may potentially be, incorrect or in violation of the FLSA.” (Doc. 89-3 at 9). Cress concluded his declaration by declaring that New Tech's decision to classify its workers as independent contractors is based on his “knowledge of the industry, the IRS determination finding New Tech rig clerks are independent contractors, and consistent advice from both internal counsel and external counsel.” (Id.).

         2.Parties' Arguments

         New Tech maintains that liquidated damages are not proper under FLSA because it has acted reasonably and in good faith. (Doc. 89-1 at 13-17). Specifically, New Tech argues that it has acted in good faith because it relied on industry standards, the advice of counsel, and IRS investigations in its decision to classify rig clerks as independent contractors. (Id.). New Tech additionally urges that the FLSA's statute-of-limitations period extends to three years only in the event of a willful violation, and that the plaintiffs cannot demonstrate a willful violation because New Tech acted in good faith. (Id. at 17-20). Nevertheless, according to New Tech, even if it had not produced evidence of good faith, the plaintiffs cannot establish that it either committed a knowing FLSA violation or acted in reckless disregard. (Id. at 20-28).

         According to the plaintiffs, the issues of good faith and willfulness cannot be decided before liability is determined. (Doc. 106 at 8-12). Specifically, issues of credibility and New Tech's state of mind in classifying rig clerks as independent contractors are to be decided at trial, not at the summary judgment stage. (Id. at 10-12). The plaintiffs then take issue with the substance of New Tech's argument that it acted in good faith, asserting that following industry standards is not evidence of good faith in a FLSA case. (Id. at 12-14). The plaintiffs also claim that because New Tech made the decision to classify rig clerks as independent contractors in 2013, any events it points to that occurred thereafter are irrelevant. (Id. at 14-15). Finally, the plaintiffs argue that New Tech's reliance on the advice of its counsel was unreasonable. (Id. at 15).

         3.Standard of Review

         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). “Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute of material fact is genuine if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Id.

         The moving party “always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, which it believes demonstrate the absence of a genuine [dispute] of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (internal quotation marks omitted). In responding to a properly supported motion for summary judgment, the nonmoving party “must do more than simply show that there is some metaphysical doubt as to the material fact.” Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). The nonmovant must “go beyond the pleadings” and submit competent evidence demonstrating “specific facts showing that there is a genuine [dispute] for trial.” Celotex, 477 U.S. at 324 (internal quotation marks omitted). If the evidence is “merely colorable, or is not significantly probative, summary judgment may be granted.” Anderson, 477 U.S. at 249-50 (citations omitted).

         The Fifth Circuit has further explained:

In resolving the motion, the court may not undertake to evaluate the credibility of the witnesses, weigh the evidence, or resolve factual disputes; so long as the evidence in the record is such that a reasonable jury drawing all inferences in favor of the nonmoving party could arrive at a verdict in that party's favor, the court must deny the motion.

Int'l Shortstop, Inc. v. Rally's, Inc., 939 F.2d 1257, 1263 (5th Cir. 1991).

         4.Liquidated Damages

         Section 260 of the FLSA provides:

[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.

         “The good faith defense is considered a matter for the court to decide.” Lipnicki v. Meritage Homes Corp., No. 3:10-cv-605, 2014 WL 923524, at *12 (S.D. Tex. Feb. 13, 2014). “[A]n employer faces a substantial burden of demonstrating good faith and a reasonable belief that its actions did not violate the FLSA.” Singer v. City of Waco, Tex., 324 F.3d 813, 823 (5th Cir. 2003) (internal quotation marks omitted). Moreover, courts in this and other circuits regularly defer ruling on liquidated damages where liability has not been determined. See, e.g., Randolph v. PowerComm Const., Inc., No. GJH-13-cv-1696, 2014 WL 4981439, at *4 (D. Md. Oct. 1, 2014) (“It would be hasty and unreflective for the Court to take on the liquidated damages inquiry before deciding whether the employer violated the FLSA. Thus, Defendants' motion to limit damages is premature.”); Lipnicki, 2014 WL 923524, at *12 (Because good faith is decided by the court, “courts do not need to make a good faith ruling until after the jury has rendered a verdict finding violations.”); Brubach v. City of Albuquerque, 893 F.Supp.2d 1216, 1237 (D.N.M. 2012) (“[T]he Court notes that a ruling as a matter of law on the question of liquidated damages is premature because there has been no determination of underlying FLSA liability against the [defendant].”); Bass v. City of Jackson, Miss., 878 F.Supp.2d 701, 712 (S.D.Miss. 2011) (“Because of the factual disputes and more importantly because liability has not been established, the Court denies Plaintiffs' motion for summary judgment on [their liquidated damages claim.”); Robertson v. Bd. of Cnty. Comm'rs of Cnty. of Morgan, 78 F.Supp.2d 1142, 1162 (D. Colo. 1999) (deferring ruling on liquidated damages and limitations period until trial).

         The Court here will adopt the approach of other district courts throughout the country and decline New Tech's invitation to determine the issue of damages before a liability finding is made. Moreover, the Court notes that on the record before it, New Tech has very likely not met its heavy burden to demonstrate as a matter of law that it acted in good faith and on a reasonable belief that it was not violating the FLSA. Combining the damages and statute-of-limitations issues, New Tech cites to case law supporting the proposition that a court can rule on willfulness at the summary judgment stage before a liability finding is made. (See Doc. 109 at 2). But New Tech points to no case granting a defendant's motion for summary judgment on liquidated damages before a liability determination was made. In fact, the case law New Tech cites arguably undercuts its position. See, e.g., Mohnacky v. FTS Intern. Servs., LLC, No. SA-13-cv-246-XR, 2014 WL 4967097, at *8 (W.D. Tex. Oct. 2, 2014) (denying a plaintiff's motion for partial summary judgment on ...


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