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Sellers v. Keller Unlimited LLC

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

November 6, 2019

Ryan Sellers, On Behalf of Herself and All Others Similarly Situated, Plaintiff,
v.
Keller Unlimited LLC, DBA Two Keys Tavern; 57 Limited LLC, DBA Two Keys Public House and Mark Keller, individually, Defendants.

          ORDER AND OPINION

          Richard Mark Gergel United States District Court Judge

         Before the Court is Defendants' motion to alter the judgment (Dkt. No. 69) and Plaintiffs' motion for post-judgment interest and attorneys' fees (Dkt. No. 70). For the reasons set forth below, Defendants' motion is granted in part and denied in part and Plaintiffs' motion is denied.

I. Background

         Defendant Mark Keller is the sole member of Defendant Keller Unlimited, LLC, which owns and operates two restaurant-sports bars-Two Keys Public House in Summerville, South Carolina and Two Keys Tavern in Ladson, South Carolina-at which Plaintiffs were employed as bartenders. (Dkt. No. 23-1 at 1.) On June 28, 2019, the Court denied Defendants' motion to decertify the conditionally certified class, and granted Plaintiffs' motion for summary judgment, finding that Defendants clearly violated the Fair Labor Standards Act ("FLSA") by deducting bar shortages from Plaintiff paychecks, thus lowering Plaintiffs' earnings below the statutory minimum wage. (Dkt. Nos. 55, 56.) The Court also found that Defendants willfully violated the FLSA and that Plaintiffs were entitled to liquidated damages. (Dkt. No. 56.) However, while the Court entered Judgement for Plaintiffs, the Parties disagreed over how to calculate damages, as Plaintiffs argued that the unpaid wages included the amount of the tip credit taken by Defendants, and Defendants argued that, at most, they were liable for the amounts deducted for bar shortages. (Dkt. Nos. 64, 65.) The Court held that Defendants were liable for the amount taken as a tip credit, holding that Defendants could not take advantage of the tip credit as they had failed to comply with § 203(m) of the FLSA. (Dkt. No. 66.) The Court calculated Plaintiffs' damages, inclusive of liquidated damages, as $63, 043.66. (Id. at 7.) These damages were later amended to $51, 696.29 based on updated calculations submitted by Plaintiffs. (Dkt. No. 68.) Additionally, the Court awarded $69, 973.46 in attorneys' fees and costs. (Dkt. No. 66 at 5 - 7.)

         Defendants now move for the Court to reconsider its prior Judgment, pursuant to Rule 59 of the Federal Rules of Civil Procedure. (Dkt. No. 69.) Defendants largely focus on the Court's calculation of damages and holding that Defendants forfeited the tip credit by impermissibly deducting bar shortages from Plaintiffs' paychecks, arguing that calculating the damages as equal to the tip credit was clear error. (Dkt. No. 69-1) Defendants also seek to relitigate their liability, arguing that there is a dispute of material fact regarding whether the deductions caused Plaintiffs' wages to fall below minimum wage and whether Defendants' conduct was willful. (Id. at 9 - 12.) Finally, Defendants ask the Court to reconsider the award of attorneys' fees and costs. (Id. at 17.) Plaintiffs oppose the motion, and Defendants filed a reply. (Dkt. Nos. 70, 71.)

         II. Legal Standard

         Federal Rule of Civil Procedure 59 allows a party to move to alter or amend a judgment within twenty-eight days. Fed.R.Civ.P. 59(e). The Court may grant a motion for reconsideration only in limited circumstances: "(1) to accommodate an intervening change in controlling law; (2) to account for new evidence not available at trial; or (3) to correct a clear error of law or prevent manifest injustice." Pac. Ins. Co. v. Am. Nat'l Fire Ins. Co., 148 F.3d 396, 403 (4th Cir. 1998). A Rule 59 motion tests whether the Court's initial Order was "factually supported and legally justified." Hutchinson v. Staton, 994 F.2d 1076, 1081-82 (4th Cir. 1993). Therefore, the Court may decline to reconsider a prior holding that "applied the correct legal standards" and made "factual findings [ ] supported by substantial evidence." Harwley v. Comm 'r of Soc. Sec. Admin., 714 Fed.Appx. 311, 312 (Mem) (4th Cir. 2018). As a result, Rule 59(e) provides an "extraordinary remedy which should be used sparingly." Pac. Ins. Co., 148 F.3d at 403.

         III. Discussion

         First, Defendants have identified no intervening change in law, no new evidence, and no clear error that would require reconsideration of the Court's determination that Defendants violated the FLSA by deducting bar shortages from Plaintiffs' paychecks. The undisputed evidence, as reiterated by the Defendants in their motion for reconsideration, demonstrate that Defendants paid Plaintiffs between $4.13 and $4.75 per hour. (Dkt. Nos. 41-2 at 4; 45-1 ¶ 2; 69-1 at 15.) As explained in 29 U.S.C. § 203(m)(2), [1] this was the "cash wage paid such employees...." To reach the minimum wage, $7.25 per hour, the Defendants were permitted to include as part of the Plaintiffs' wages "an additional amount on account of the tips received by such employee" equal to the difference of the cash wage and the minimum wage. 29 U.S.C. § 203(m)(2)(ii). This is traditionally called the "tip credit." Defendants could count this tip credit towards the minimum wage requirement so long as the amount was at most $5.12 per hour and did not exceed the value of tips actually received by Plaintiffs. 29 U.S.C. § 203(m)(2)(ii). As the tip credits never exceeded $3.12 here, they were permissible under the statute. (Dkt. No. 65 at 3.) These two components of a tipped employee's wages, "cash wage" plus a "tip credit" must equal $7.25.

         However, where an employer takes an impermissible deduction out of an employee's cash wage, the employee's wage cannot equal the statutory minimum wage. Namely, under §203(m)(2)(A), the "amount paid" to an employee is the cash wage plus the tip credit. As it is undisputed that the cash wage here was between $4.13 and $4.75 per hour, any deduction from that cash wage caused the Plaintiffs' wage, supplemented by a no-greater than $3.12 per hour tip credit at the time, to fall below $7.25. Therefore, Defendants did not comply with the requirements of Section 203(m)(2) and violated the FLSA. Defendants' position is based in their attempt to credit as paid-wages other tips not previously included in the tip credit, arguing that if the Court considered all tips, most Plaintiffs' wages would exceed the minimum wage.[2] However, as the Department of Labor's Wage and Hour Division has explained,

When an employer claims an FLSA 3(m) tip credit, the tipped employee is considered to have been paid only the minimum wage for all non-overtime hours worked in a tipped occupation and the employer may not take deductions for walkouts, cash register shortages, breakage, cost of uniforms, etc., because any such deduction would reduce the tipped employee's wages below the minimum wage.

See Wage and Hour Div., U.S. Dep't of Labor, Fact Sheet # 15 Tipped Employees Under the Fair Labor Standards Act (FLSA), https://www.dol.gov/whd/regs/compliance/whdfsl5.pdf. (emphasis added) (Dkt. No. 45-3 at 3.) Therefore, Plaintiffs' cash wage between $4.13 and $4.75 plus the tip credit equaled the minimum wage, and any deduction reduced the Plaintiffs' wages below the minimum wage. Other courts have found that similar deductions from the cash wages of tipped employees violate the FLSA. See, e.g., Mayhue 's Super Liquor Stores, Inc. v. Hodgson, 464 F.2d 1196, 1199 (5th Cir. 1972) ("this agreement tended to shift part of the employer's business expense to the employees and was illegal to the extent that it reduced an employee's wage below the statutory minimum. This amounts to nothing more than an agreement to waive the minimum wage requirements of the Fair Labor Standards Act. Such an agreement is invalid.");[3] Dorsey v. TGT Consulting, LLC, 888 F.Supp.2d 670, n. 7 (D. Md. 2012) ("Businesses are disqualified from taking a tip credit where they deduct[ ] losses due to cash register shortages and unpaid taps from employees' paychecks or nightly tips.") (internal quotation marks omitted); Bernal v. Vankar Enterprises, Inc., 579 F.Supp.2d 804, 810 (W.D. Tex. 2008) ("Additionally and alternatively, summary judgment on the issue is appropriate because the unrebutted evidence establishes that Defendants deducted losses due to cash register shortages and unpaid tabs from Plaintiffs' paycheck[s] or nightly tips."). Therefore, the Court does not disturb its holding on liability.

         Further, the Court will not disturb its ruling on willfulness and a three-year statute of limitations. To show willfulness, Plaintiffs must show that Defendants "either knew or showed reckless disregard for the matter of whether [their] conduct was prohibited by" the FLSA. Desmond v. PNGI Charles Town Gaming, L.L.C, 630 F.3d 351, 358 (4th Cir. 2011) (citations omitted). Defendants have identified no intervening change in law, no new evidence, and no clear error of law that would require reconsideration of the Court's holding on the applicable statute of limitations. Instead, the facts remain that Mr. Keller did not consult with a lawyer on labor law compliance (Dkt. No. 41-1 at 12, 17, 28); did not consult with a lawyer on his practice of bar shortage deductions (Id. at 22); did not himself research labor laws (Id. at 15); and did not take any steps to verify that the payroll company was ensuring employees were properly paid (Id. at 18). Most notably, at the time of the Court's summary judgment Order, even after having been put on notice of the applicable law by Plaintiffs' complaint and after receiving a recommendation to not "charg[e] staff for losses," Mr. Keller continued to deduct bar shortages from paychecks and continued to implement the Terms of Employment at both restaurants. (Dkt. No. 41-1 at 31 - 32, 35.) Defendants' argument, that they were not warned of any violation by non-attorney managers or their payroll company (Dkt. No. 69-1 at 11 - 12), does not affect the Court's determination that the conduct was willful, and therefore the three-year statute of limitations applies.

         However, the Court does find that, based on new argument and case law, the Court's prior calculation of damages was in error and the inflated damages award constituted a manifest injustice. As explained above, under 29 U.S.C. § 203(m)(2)(A), for a "tipped employee," an employer is permitted to meet the minimum wage by paying the employee: (i) a "cash wage" not less than $2.13 per hour, plus; (ii) "an additional amount on account of the tips received by such employee" equal to the difference of the cash wage and the minimum wage, so long as the amount is at most $5.12 per hour and does not exceed the value of tips actually received by the employee. 29 U.S.C. § 203(m)(2)(i) - (ii). An employer may take ...


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