172 F.3d 132 (2nd Cir. 1999), 97-6255, Herman v. RSR Sec. Services Ltd.

Docket Nº:Docket No. 97-6255.
Citation:172 F.3d 132
Party Name:(BNA) 257 Alexis M. HERMAN, Secretary of Labor, United States Department of Labor, Plaintiff-Appellee, v. RSR SECURITY SERVICES LTD., Michael A. Stern, Individually and as President, and Frank Watkins, Individually and as Vice President, Defendants-Appellees, Murray Portnoy, Individually and as Chairman of the Board and former Secretary of RSR Secu
Case Date:March 19, 1999
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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172 F.3d 132 (2nd Cir. 1999)

(BNA) 257

Alexis M. HERMAN, Secretary of Labor, United States

Department of Labor, Plaintiff-Appellee,

v.

RSR SECURITY SERVICES LTD., Michael A. Stern, Individually

and as President, and Frank Watkins, Individually

and as Vice President, Defendants-Appellees,

Murray Portnoy, Individually and as Chairman of the Board

and former Secretary of RSR Security Services,

Ltd., Defendant-Third-Party-Plaintiff-Appellant,

v.

Marilyn J. Stern, Third-Party-Defendant-Appellee.

Docket No. 97-6255.

United States Court of Appeals, Second Circuit

March 19, 1999

Argued Sept. 3, 1998.

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Alan B. Pearl, Syosset, New York (Alan B. Pearl & Associates, P.C., Syosset, New York, of counsel), for Defendant-Third-Party-Plaintiff-Appellant Murray Portnoy.

Paul L. Frieden, Washington, D.C. (U.S. Department of Labor, Washington, D.C., of counsel), for Plaintiff-Appellee Alexis M. Herman.

Bryan C. Skarlatos, New York, New York (Brian C. Wille, William F. Cuozzi, Kostelanetz & Fink, LLP, New York, New York, of counsel), for Defendants-Appellees RSR Security Services Ltd. and Michael A. Stern and Third-Party-Defendant-Appellee Marilyn J. Stern.

Before: NEWMAN, CARDAMONE, and PARKER, Circuit Judges

CARDAMONE, Circuit Judge:

The victor at Waterloo, when asked to undertake a task, reputedly responded: "The Duke of Wellington declines to interfere in circumstances over which he has no control." Appellant here interfered in business affairs where, the record reveals, he had considerable control over employees. Under the Fair Labor Standards Act, such control of employees is central to deciding whether appellant should be deemed an employer and therefore liable to his employees for unpaid wages.

Murray Portnoy (Portnoy or appellant) appeals from a judgment entered on March 31, 1997 in the United States District Court for the Eastern District of New York following a bench trial before Chief Judge Charles P. Sifton. The trial court found appellant, who served as chairman of the Board of RSR Security Services, Ltd. (RSR), was an employer under the Fair Labor Standards Act of 1938 (FLSA), 29 U.S.C. §§ 201-19 (1994), and thus was liable for RSR's violations of the FLSA's minimum wage, overtime, and recordkeeping requirements. Portnoy also appeals from an order dated March 17, 1996 from the same court dismissing his third-party complaint against Marilyn J. Stern and his cross-claims against defendants Michael A. Stern and Frank Watkins seeking contribution and/or indemnity from them. The latter appeal raises the issue--one of first

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impression in this Court--of whether there is a right to contribution or indemnity under the FLSA.

BACKGROUND

  1. Facts

    In late 1987 Michael Stern, Marilyn Stern (Michael's wife), and Murray Portnoy incorporated RSR to provide security guard, pre-employment screening, polygraph, patrol, and undercover services to corporate clients. Portnoy, a principal in the labor relations firm of Portnoy, Messinger & Pearl, became involved in the corporation's formation in late 1987 when Marilyn Stern--the daughter of a deceased friend--asked him for help in locating a job for her husband, Michael. Portnoy responded to this request by providing the financing necessary to start RSR, of which he and Marilyn Stern each owned 50 percent.

    This arrangement seemed suitable since Michael Stern had knowledge of the security business from his previous ownership of two other security guard companies. But, because one of his security companies had been investigated by the IRS, resulting in an outstanding judgment against him, Michael Stern was not made a stockholder in the newly formed corporation. In addition, both of Stern's previous security guard companies had been investigated by the Department of Labor for minimum wage and overtime violations of the FLSA. Subsequent violation claims arising from these investigations were resolved without litigation.

    The record does not clearly indicate whether Portnoy was aware of Michael Stern's alleged FLSA violations prior to organizing RSR and the institution of the present litigation. In any event, Stern was elected president of RSR, and Portnoy served as chairman of the Board and held various other positions from time to time. Prior to 1988 when Frank Watkins was hired as vice president, Portnoy and Stern were the company's only officers. RSR's main office was located in Long Island City, New York, and its branch office was maintained in the Westbury, New York offices of Portnoy, Messinger & Pearl. The majority of RSR's operations, including those involving the security guards, were conducted at the Long Island City office.

    Michael Stern managed the security guard operations. He hired and fired guards, set the rates for their services, assigned them to job locations, monitored their performance, prepared the payroll, and maintained the company's files. In late fall 1988 Stern and Portnoy hired Frank Watkins as a vice president to assist Stern in the daily operation of the business. His duties included overseeing the security guards and the undercover investigators, conducting pre-employment screenings for clients, and maintaining company files. After a year, Watkins also became involved in sales and marketing, preparing the guards' payroll, and assisting Stern in hiring and firing decisions.

    1. Portnoy's Participation in RSR

      Although Portnoy exercised broad authority over RSR operations while working out of the Westbury office, he was not directly involved in the daily supervision of the security guards. Inasmuch as he was the only principal who had bank credit, he exercised financial control over the company. Thus, he had authority over Stern and Watkins; in his testimony, he asserted he could have unilaterally dissolved RSR, had Stern not followed his instructions. Portnoy's financial activities included the signing of RSR loans, approving purchases, and leasing vehicles for RSR employees on his personal credit. Watkins also testified that a raise he received came from Portnoy.

      In addition, Portnoy frequently gave Stern and Watkins instructions on conducting RSR business. On one occasion, for example, he became aware, through RSR's accountant, that security guard employees were being illegally included as

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      independent contractors on IRS 1099 forms. Subsequently, Portnoy instructed Stern and Watkins to cease the practice and later checked with other employees of the company to ensure the practice had been terminated.

      Portnoy kept himself apprised of RSR operations by receiving periodic reports from employees in the Long Island City office. Watkins sent him faxes, work orders, memos, investigation reports, and invoices concerning the business operations, as well as weekly timesheets of his duties. Brian Serotta, an RSR accountant, reported to Portnoy with respect to company finances and, on at least one occasion, informed him about improprieties regarding the compensation of security guards. Appellant also requested that Bonni McGuirk, an RSR salesperson, be his "eyes and ears" in the company. Following this request, McGuirk gave him verbal briefings and sent him copies of letters and work orders. Another former RSR salesperson, Karen Goodman, testified she forwarded client complaints to Portnoy. Further, appellant telephoned the Sterns "reasonably frequently." Portnoy also participated in hiring and recruiting some RSR employees. He hired Bonni McGuirk to market security guard services and assisted in the hiring of Karen Goodman.

      Portnoy took part more directly in the security guard operations. He referred a few individuals to RSR as potential security guard employees. He assigned guards to cover specific clients, sometimes set the rates clients were charged for those services, gave Watkins instructions about guard operations, and forwarded complaints about guards to Watkins. He also directed Watkins to show RSR's employment application forms to Alan Pearl of Portnoy, Messinger & Pearl for revisions.

      Moreover, Portnoy was involved in some aspects of the compensation of the guards. For instance, he signed payroll checks on at least three occasions when, due to illness, Stern was unable to do so. Further, Portnoy established a payment system by which clients who wanted undercover operatives would pay Portnoy, Messinger & Pearl, which then forwarded the payments to RSR. In addition, John Thompson testified that Portnoy resolved a complaint about a work-related problem regarding Thompson's son, whom RSR employed as a security guard.

      Because of his participation in company business, Portnoy was viewed by others as having control over RSR operations. Employees, including Watkins and several security guards, testified they viewed him as the "boss" of RSR. Portnoy did not discourage this view and in fact represented himself to outside parties as having such authority by allowing his name to be used in sales literature, by representing to potential clients that he was a principal with control over company operations--one who demanded nothing less than the highest legal, ethical, and quality services from the company--by using his reputation with Portnoy, Messinger & Pearl clients to obtain and refer clients to RSR, and by giving Watkins instructions with respect to those clients' security needs.

    2. Portnoy's Knowledge of the FLSA

      Describing the FLSA as his "passion," Portnoy testified that he had extensive knowledge of the FLSA and its requirements during the dates in question. He first became familiar with this law in 1939 and has kept up with it ever since, often advising clients of Portnoy, Messinger & Pearl how to comply...

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