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Carbone v. Zen 333 Inc.

United States District Court, D. South Carolina, Charleston Division

December 21, 2016

LOGAN CARBONE and LAURA STANGER, individually and on behalf of others similarly situated, Plaintiffs,



         The following matters are before the court on plaintiffs Logan Carbone (“Carbone”) and Laura Stanger's (“Stangler, ” together with Carbone, “plaintiffs”) motion for conditional class certification, ECF No. 23, and defendants Zen 333 Inc., d/b/a Zen Asian Fusion, Chen Zhou, a/k/a Cindy Alfredson, Rong A. Zhou, and Mei Zheng's (“defendants”) motion to dismiss, ECF No. 32. For the reasons set forth below, the court grants in part and denies in part defendants' motion to dismiss, and grants plaintiffs' motion for conditional class certification.

         I. BACKGROUND [1]

         Plaintiffs were employed by defendant Zen 333 Inc., which operates an Asian cuisine restaurant known as Zen Asian Fusion in Charleston, South Carolina (the “Restaurant”). ECF No. 26, Second Am. Compl. ¶ 19. Carbone worked as a server and bartender at the Restaurant from July 2014 to February 2016. Id. ¶¶ 23, 27. Stangler worked primarily as a server at the Restaurant from January 2014 to February 2016. Id. ¶¶ 24, 28. Defendants Chen Zhou a/k/a Cindy Alfredson (“Chen”), Rhon Zhou (“Rhon”), and Mei Zheng (“Mei”) were each owners and managers of the Restaurant, and each had control over finances and operations of the restaurant, including the power to hire, fire, manage, and set compensation for employees. Id. ¶¶ 20-22.

         Plaintiffs and other similarly situated servers and bartenders were compensated pursuant to an employment agreement whereby defendants paid $40.00 plus tips for all shifts worked as bartenders, and $2.25 an hour for all hours worked plus tips for shifts worked as servers. Id. ¶ 25. In order to meet the statutory minimum wage requirement of the Fair Labor Standards Act 29 U.S.C. § 201, et seq. (“FLSA”), defendants applied a “tip credit” equal to the difference in the FLSA's statutory minimum wage of $7.25 per hour and the hourly compensation[2] plaintiffs received directly from defendants. Id. ¶¶ 29-31.

         However, plaintiffs and other similarly situated employees were not entitled to take their tips directly from customers. Instead, bartenders and servers were required to contribute their tips to a mandatory “tip pool, ” pursuant to which: (1) servers were required to contribute an undisclosed amount, which was calculated by defendants, to the busboys; (2) servers were required to contribute 4.5% of their gross food and alcohol sales directly to “the house, ” i.e. defendants; (3) servers were required to contribute 3.5% of their alcohol sales to the bartenders; and (4) bartenders were required to contribute an undisclosed percentage of their alcohol sales to “the house.”[3] Id. ¶ 36. Defendants never informed plaintiffs and other similarly situated employees of the amount of tip pool contributions they would be required to make. Id. ¶ 35. Defendants first deducted each employee's mandatory tip pool contributions from the employee's cash tips. Id. ¶ 37. If an employee's cash tips did not cover the amount they owed to the tip pool, defendants would take the difference from the employee's credit card tips. Id. Employee tip pool contributions were then deposited into a general operating account, which was used to pay hourly wages to non-tipped employees. Id. ¶ 38.

         Defendants enforced this tip pool arrangement by withholding all tips until the end of each week, when defendants issued each employee a handwritten check containing their cash and credit card tips minus the tip pool deductions. Id. ¶ 52. Notably, the amounts plaintiffs and other similarly situated employees actually received in their weekly checks were often less than that amount defendants reported on the employees' bi-weekly pay stubs and W-2 tax forms. Id. ¶¶ 55-57. As a result of this over-reporting, plaintiffs allege that they were required to pay taxes on tips they never received. Id. ¶ 58.

         Carbone filed the instant action on January 12, 2016. ECF No. 1. On July 13, 2016, plaintiffs filed a motion for conditional class certification. ECF No. 23. On July 15, 2016, plaintiffs filed a second amended complaint, bringing individual and class claims for violation of the FLSA's minimum wage and unpaid overtime provisions, unpaid wages under the South Carolina Payment of Wages Act, SC Code § 41-10-10, et. seq. (“SCPWA”), and violations of Internal Revenue Code (“IRC”) 29 U.S.C. § 7434, as well as an individual claim for retaliation under the FLSA. Second Am. Compl. ¶¶ 70-117. On August 1, 2016, defendants filed a motion to dismiss plaintiffs' SCPWA and IRC claims. ECF No. 32. Defendants responded to the motion for conditional certification on August 19, 2016, ECF No. 35, and plaintiffs responded to the motion to dismiss on August 26, 2016. ECF No. 37. Defendants filed a reply in support of the motion to dismiss on September 6, 2016, ECF No. 39, and plaintiffs filed a reply in support of their motion for conditional certification on September 15, 2016. ECF No. 40. The matters are now ripe for the court's review.

         II. STANDARDS

         A. Motion to Dismiss

         Under Federal Rule of Civil Procedure 12(b)(6), a party may move to dismiss for “failure to state a claim upon which relief can be granted.” When considering a Rule 12(b)(6) motion to dismiss, the court must “accept[] all well-pleaded allegations in the plaintiff's complaint as true and draw[] all reasonable factual inferences from those facts in the plaintiff's favor.” Edwards v. City of Goldsboro, 178 F.3d 231, 244 (4th Cir. 1999). But “the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

         On a motion to dismiss, the court's task is limited to determining whether the complaint states a “plausible claim for relief.” Id. at 679. A complaint must contain sufficient factual allegations in addition to legal conclusions. Although Rule 8(a)(2) requires only a “short and plain statement of the claim showing that the pleader is entitled to relief, ” “a formulaic recitation of the elements of a cause of action will not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). The “complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570). “Facts pled that are ‘merely consistent with' liability are not sufficient.” A Soc'y Without a Name v. Virginia, 655 F.3d 342, 346 (4th Cir. 2011) (quoting Iqbal, 556 U.S. at 678).

         B. Motion for Conditional Certification

         Under § 216(b) of the FLSA, plaintiffs may institute a collective action against their employer on behalf of themselves and other similarly situated employees. The collective action procedures of § 216(b) require similarly situated employees to give their consent before joining a collective action. Id. “In order to expedite the manner in which collective actions under the FLSA are assembled, ‘district courts have discretion[, ] in appropriate cases[, ] to implement . . . § 216(b) . . . by facilitating notice to potential plaintiffs.'” Purdham v. Fairfax Cnty. Pub. Sch., 629 F.Supp.2d 544, 547 (E.D. Va. 2009) (quoting Hoffmann-La Roche Inc. v. Sperling, 493 U.S. 165, 169 (1989)). To obtain the benefits of this court-approved notice procedure, plaintiffs must demonstrate that the proposed class members are “similarly situated” and that notice is “appropriate.” Id. at 548. Notice is “appropriate” where the proposed class members' claims “share common underlying facts and do not require substantial individualized determinations for each class member.” Id.; MacGregor v. Farmers Ins. Exch., No. 2:10-cv-03088, 2012 WL 2974679, at *2 (D.S.C. July 20, 2012). Ordinarily, the plaintiff's burden at the conditional certification stage is fairly lenient, requiring only a modest factual showing that members of the proposed class are “victims of a common policy or plan that violated the law.” Purdham, 629 F.Supp.2d at 547-48; Regan v. City of Charleston, S.C., No. 2:13-cv-3046, 2014 WL 3530135, at *2 (D.S.C. July 16, 2014) reconsideration denied, 40 F.Supp.3d 698 (D.S.C. 2014); Essame v. SSC Laurel Operating Co. LLC, 847 F.Supp.2d 821, 824-25 (D. Md. 2012).


         Plaintiffs' motion for conditional certification arises under § 216 of the FLSA and necessarily pertains only to plaintiffs' minimum wage and overtime claims. Meanwhile, defendants' motion to dismiss only relates to plaintiffs' SCPWA and IRC claims. Thus, the two motions do not overlap. The court begins by addressing the motion to dismiss and then turns to the motion for conditional certification.

         A. Motion to Dismiss

          1.SCPWA Claim

         Plaintiffs allege that defendants unlawfully withheld wages owed to plaintiffs and other similarly situated employees by forcing them to contribute to the mandatory tip pool. Second Am. Compl. ¶¶ 78-97. Defendants argue that the SCPWA claim must fail because: (1) tips are not considered “wages” under the SCPWA; (2) the SCPWA claim is dependent on finding a violation of the FLSA and therefore preempted; and (3) plaintiffs failed to plead sufficient facts to meet the “plausibility” standard under Twombly and Iqbal. Defs.' Mot. 8-20.

         Pursuant to S.C. Code § 41-10-40(C),

An employer shall not withhold or divert any portion of an employee's wages unless the employer is required or permitted to do so by state or federal law or the employer has given written notification to the employee ...

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