346 F.3d 908 (9th Cir. 2003), 02-35158, Chao v. A-One Medical Services, Inc.

Docket Nº:02-35158
Citation:346 F.3d 908
Party Name:Chao v. A-One Medical Services, Inc.
Case Date:October 06, 2003
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

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346 F.3d 908 (9th Cir. 2003)

Elaine L. CHAO, Secretary of Labor, Plaintiff-Appellee,


A-ONE MEDICAL SERVICES, INC.; Alternative Rehabilitation Home Healthcare, Inc.; Lorraine Black and Hanahn Korman, Defendants-Appellants.

No. 02-35158.

United States Court of Appeals, Ninth Circuit

October 6, 2003

Argued and Submitted May 9, 2003.

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[Copyrighted Material Omitted]

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Elizabeth Zink Pearson, Pearson & Bernard PSC, Covington, KN, for the defendants-appellants.

Lois R. Zuckerman, U.S. Department of Labor, Washington, DC, for the plaintiff-appellee.

Appeal from the United States District Court for the Western District of Washington; Barbara J. Rothstein, District Judge, Presiding. D.C. No. CV-01-00371 BJR.

Before: CUDAHY, [*] O'SCANNLAIN and GOULD, Circuit Judges.


CUDAHY, Circuit Judge.

The Secretary of Labor brought this suit on behalf of eight former employees of A-One Medical Services, Inc. (A-One) and Alternative Rehabilitation Home Healthcare, Inc. (Alternative) to recover unpaid overtime wages for work between July 1998 and January 2000. The district court granted summary judgment in favor of the Secretary, who was awarded both the overtime wages and an equal amount in

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liquidated damages. We affirm in part and reverse in part.

Because this case was decided on summary judgment, we are required, as was the district court, to view all facts in the light most favorable to the defendants. Diruzza v. County of Tehama, 323 F.3d 1147, 1152 (9th Cir. 2003). To that end, all of the facts below, unless otherwise noted, come from Lorraine Black's and Hanahn Korman's depositions, interrogatories or briefs.

As of 1996, Black and Korman independently owned and operated, respectively, A-One and Alternative, Washington state corporations engaged in the business of providing health services to patients in their homes. That year, Black entered into negotiations with Korman for A-One to purchase Alternative. Black was interested in the purchase of Alternative because she sought to obtain certain state-issued, county-specific Medicare Certificates of Need that Alternative possessed but A-One did not. These additional Certificates of Need, which were otherwise difficult to obtain, would allow Black to expand her business into Kitsap, Thurston and Pierce counties. Although the parties reached an agreement for the sale, the transaction encountered two complications. First, Alternative was behind in its taxes. As late as the time of oral argument, Alternative's outstanding tax liability still stood in the way of the deal's closing. The other problem was that Alternative, although it had the desired Certificates of Need, was not yet certified as a Medicare provider. In order to retain its Certificates of Need while being acquired, Alternative needed to be Medicare-certified prior to completion of its purchase by A-One. This second complication was remedied when Alternative's Medicare certification became effective on February 22, 1999.

In order for Alternative to successfully pass the state survey required for Medicare certification, however, it received a great deal of help from Black and A-One. According to Black, Alternative alone would have had difficulty passing the survey because Alternative had very few "Medicare-like" patients. Therefore, to facilitate the certification, Black agreed to transfer two "Medicare-like" patients from A-One to Alternative. In order to maintain continuity of care, A-One arranged for nurses to be transferred along with the patients they were serving. A-One also assisted Alternative with staffing and client supervision in preparation for Medicare certification.

The substantial merging of A-One's and Alternative's operations was not limited, however, to the cooperation necessary to secure Alternative's Medicare certification. Both before Alternative's Medicare certification and after, the two companies' operations became very closely coordinated. As Black acknowledged in her deposition, A-One oversaw the patient care of Alternative, supervised Alternative's employees, contracted accounting services for Alternative, contracted vendors for Alternative, answered Alternative's telephone calls at the office A-One shared with Alternative 1 and oversaw Alternative's paperwork to comply with government requirements. The receptionist shared by A-One and Alternative was an A-One employee, the answering service shared by A-One and Alternative was paid for by A-One, the last person to process Alternative's payroll was an A-One employee, the same supervisors oversaw nurses from both companies and,

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perhaps most significantly, A-One and Alternative shared one scheduler for the employees of both companies. In 1998 or 1999--the defendants are inconsistent as to the date 2--Black and Korman entered into mediation due to problems surrounding the sale of Alternative and amended the sale agreement that they had previously reached. Under this amendment, Korman continued to manage the care of only one Alternative patient while Black and A-One assumed responsibility for all other services rendered by Alternative. Black was initially paid a monthly management fee by Alternative, but, as Alternative became less and less profitable, it was agreed that no fee would be paid. Instead, Alternative's losses and profits were simply left in the corporation to be assumed by Black when the sale was finalized. Korman has remained the owner and president of Alternative, but her duties have been primarily limited to representing the company in situations requiring her participation as legal owner. She has had no role in the day-to-day functioning of Alternative and, as of late 2001, knew very little about the status of the company. In essence, the arrangement between Black and Korman provides that Korman will no longer have any financial interest in Alternative.

The transfer of patients and employees between the two companies also went beyond what was necessary for Alternative's Medicare certification. Not only were "Medicare-like" patients transferred from A-One to Alternative, but some patients were transferred from Alternative to A-One as well. The findings of the Department of Labor also support the picture of a relatively fluid movement of employees between the two companies, even after Alternative received its Medicare certification in February 1999. Indeed, most of the overtime wages sought accrued, according to the Department of Labor, after that date.

There was, however, always some degree of separation between A-One and Alternative. There was no formal arrangement between A-One and Alternative to share employees. All employees completed applications for employment and signed employment agreements with both companies. All employees received separate paychecks from the two companies. 3 In many cases, the hourly wage varied between the two companies. Employees were always given the choice to decline an assignment from either company.

In April 1999, the Department of Labor launched an investigation of A-One. Karen Murphy, an investigator with the Wage and Hour Division, conducted an audit of both A-One and Alternative records and determined that eight employees were not

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paid overtime wages, in violation of the Fair Labor Standards Act (FLSA), 29 U.S.C. § 207(a)(1). A-One, as it turns out, was not new to overtime wage violations. In 1991 and in 1994, the Wage and Hour Division had found A-One owing back wages of $9,873 to 46 employees and $8,055 to 45 employees, respectively. Black had signed a settlement agreement in 1994 paying $1200 in civil penalties and agreeing to comply with the FLSA in the future.

The investigation led to this suit against A-One, Alternative, Black and Korman, in which the Secretary of Labor alleged a willful violation of the overtime and recordkeeping requirements of the FLSA. The government sought unpaid overtime wages, an equal amount in liquidated damages on behalf of eight employees and a permanent injunction to stop the defendants from committing future violations of the Act. In November 2001, the district court granted the government's summary judgment motion, denying only the injunction.

We review a grant of summary judgment de novo. Baldwin v. Trailer Inns, Inc., 266 F.3d 1104, 1111 (9th Cir. 2001). Viewing the evidence in the light most favorable to the non-moving party, we determine whether there are any genuine issues of material fact and whether the district court correctly applied the relevant substantive law. Lopez v. Smith, 203 F.3d 1122, 1131 (9th Cir. 2000) (en banc). In this case, the Appellants dispute five different district court holdings. First, the Appellants argue that Alternative was simply not subject to the FLSA. Second, the Appellants argue that it was legally improper to aggregate the employees' work for A-One with their work for Alternative in determining overtime. Third, a finding of willfulness here invoked a three-year statute of limitations under 29 U.S.C. § 255(a). The Appellants argue that any violation was not willful, making appropriate a two-year statute of limitations. Fourth, the Appellants argue that they had a good faith defense, making liquidated damages inappropriate under 29 U.S.C. § 260. Finally, the Appellants argue that any claim two of the employees had is barred by res judicata, since those two employees had earlier pursued, and lost, claims in state small claims court. We review each of these decisions in turn.

A. Coverage by the FLSA

In order to be covered by the FLSA's overtime rules, employees must be "engaged in commerce or in the production of goods for commerce, or . . . employed in an enterprise engaged in commerce." 29 U.S.C. § 207(a)(1). In other...

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