Steelman v. Hirsch, 06-1007.

• Decision Date: 10 January 2007
• Docket Number: No. 06-1007.,06-1007.
• Citation: 473 F.3d 124
• Parties: Tammy STEELMAN, Plaintiff-Appellant, v. Michelle HIRSCH, d/b/a Hair of the Dog, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

473 F.3d 124

Tammy STEELMAN, Plaintiff-Appellant, v. Michelle HIRSCH, d/b/a Hair of the Dog, Defendant-Appellee.

No. 06-1007.

United States Court of Appeals, Fourth Circuit.

Argued October 27, 2006.

Decided January 10, 2007.

ARGUED:

Linda Vespereny, Law Offices of Glen C. Shults, Asheville, North Carolina, for Appellant. Earl Thomison Holman, Adams, Hendon, Carson, Crow & Saenger, P.A., Asheville, North Carolina, for Appellee.

ON BRIEF:

Glen Coile Shults, Jr., Asheville, North Carolina, for Appellant.

Before WILKINSON, GREGORY, and DUNCAN, Circuit Judges.

Affirmed by published opinion. Judge WILKINSON wrote the opinion, in which Judge DUNCAN joined. Judge GREGORY wrote an opinion concurring in the judgment.

OPINION

WILKINSON, Circuit Judge.

The parties in this case were romantic partners who exchanged vows, lived together, and worked side by side in a dog-grooming business known as "Hair of the Dog" in Asheville, North Carolina. The defendant, Michelle Hirsch, and the plaintiff, Tammy Steelman, supported themselves from the business' proceeds. They anticipated spending their lives together, but when the romantic relationship ended, the professional relationship collapsed as well. In this lawsuit, Steelman seeks an ownership share in Hair of the Dog and compensation for work that she alleges was performed in reliance on Hirsch's promises of additional compensation, in addition to or in lieu of damages under the Fair Labor Standards Act (FLSA) and the North Carolina Wage and Hour Act.

The district court granted summary judgment to the defendant on the sole federal cause of action — the FLSA claim — and dismissed the state law claims without prejudice after it declined to exercise supplemental jurisdiction. We affirm, because the FLSA covers only "employees" and cannot be stretched to reach the particular arrangement at issue here. Although the plaintiff may well have a basis for recovery in state law, the FLSA cannot be transformed into a blunt instrument to resolve all manner of financial disputes.

I.

Plaintiff Tammy Steelman and defendant Michelle Hirsch met and became romantically involved in the fall of 1999. The relationship quickly became a serious one and Steelman moved in with Hirsch in December of that year. The couple initially agreed to split rent, utilities, and food costs. The next month, however, the couple revised their arrangement when Steelman left her job at a local residential cleaning company to work at Hair of the Dog, a dog-grooming business that Hirsch had founded as a sole proprietorship in June of 1999.

Steelman saw the job as a way to build on a committed domestic partnership. "We discussed the fact that we planned on being together," Steelman said in her deposition. "My working for her was us working for our future." Steelman also believed she would be better off financially, because her new position "wasn't a job. It was [Hirsch] and I committed to a business, and we did everything we could to make it succeed." She added, "There was never any question that we weren't going to be together forever and that we weren't going to work side by side in that business." At the time Steelman started work, she and Hirsch were the only people working at Hair of the Dog.

Steelman worked full-time at Hair of the Dog for the next four years, performing tasks such as bathing and grooming dogs and ordering, receiving, and selling merchandise. After Hirsch instructed her in dog-grooming technique, Steelman said, "[a]nything she did, I did, and anything I did, she did. We worked side-by-side." Steelman said that when the company hired additional workers, she acted as supervisor and had the authority to hire and fire.

The couple did not sign a compensation agreement, but according to Steelman, they had conversations in which Hirsch communicated that "[w]hat was mine was hers and what was hers was mine." They also agreed that instead of splitting the cost of their lives together as initially planned, they would pay their expenses from Hair of the Dog's revenue. The couple took the company's successes and failures into account when they made spending decisions, but throughout their relationship, they used business proceeds to pay their rent and their bills for electricity, water, cable service, and Internet access. The funds also covered Steelman's cell phone, auto insurance, and doctor's visits, as well as the cost of food, gas, and cigarettes. In addition, the couple took trips to places including Charleston, Las Vegas, New Orleans, Phoenix, California, Florida, and Georgia using company funds. When Steelman needed a car in 2002, she purchased a Jeep from Hirsch's father for $1.

Steelman said she was uncomfortable with the amount of the company's proceeds spent to maintain the couple's lifestyle. She said Hirsch "spent all the money on extravagant gifts," and that the couple was "continuously eating out." As she put it in her deposition, "We were blowing every penny we made as fast as we could make it. Had to have the best of everything. I didn't believe in that. I believed we should be saving money and saving for our future."

Both Steelman and Hirsch were issued American Express cards whose bills were paid from Hair of the Dog proceeds, and both used the cards for personal expenses like gas and cigarettes. The couple also had a joint checking account and ATM cards. Before making large expenditures, however, Steelman would generally have to ask Hirsch to transfer money from Hair of the Dog to the couple's personal account, because the personal account usually contained little cash and Steelman herself could not make withdrawals from the business account. Steelman kept a separate savings account of her own, to which she would make occasional deposits, but not withdrawals for day-to-day expenses. She received health insurance through Hair of the Dog for most of her time at the company, and received sporadic paychecks to substantiate the company's claim that she was on its payroll for insurance eligibility purposes.

Hirsch said in an affidavit that during the couple's relationship, the parties spent "substantially more" than the business earned. Hirsch borrowed from her parents to pay costs such as start-up expenses and taxes, and after this lawsuit was filed Hirsch said in an affidavit that she owed more than $100,000 to her parents for these debts, most of which she said were incurred while Steelman worked at the company.

The parties bitterly dispute whether their private agreements included guarantees of further compensation for Steelman. Steelman alleges that on several occasions, beginning in early 2000, the couple agreed that she would have a 26 percent stake in Hair of the Dog. Hirsch said that she discussed making Steelman a partner in the business, but had serious reservations and never promised her a stake. In denying that she treated Steelman as a partner in the business, Hirsch said that she considered Steelman an employee and operated the business as a sole proprietorship.

Steelman said that Hirsch promised other compensation as well. She said Hirsch agreed to give her money to deposit in a savings account, promised that if she left the business she would be taken care of financially, and offered severance payments, either in lieu of or in addition to the ownership stake. She said that when Hair of the Dog stopped issuing sporadic salary checks, Hirsch told her the business would institute "profit sharing." Finally, Steelman said the couple discussed paying her commissions, but that while she received one or two such checks, they did not become commonplace. Steelman said that she tried to get promises of an ownership stake and of severance payments reduced to writing between 2000 and 2003, but that these efforts were unsuccessful.

Although Steelman said that the parties at one point exchanged vows and considered themselves married, they drifted apart. They went into couples counseling, and considered living together but not working together and working together but not living together. During her last six months at the business, Steelman said that Hirsch began to accuse her of taking more from the business than she was giving.

Their conflict came to a head in January of 2004. Hirsch asked Steelman to return her American Express card. Steelman said she did not know what prompted the action, but acknowledged that Hirsch's mother had been saying month after month that the couple was spending too much money. Steelman quit and moved out of the home the couple shared. She and Hirsch agreed to continue couples counseling, Steelman said, because "we still loved each other and were wanting to try to work things out" and "being together 24/7 was the problem."

Steelman said she asked for severance that month, but that Hirsch told her she was not entitled to severance because she quit without notice. The couple nevertheless remained friendly until late February or early March, when Hirsch became romantically involved with someone else. Steelman said she was "devastated," and felt unwelcome for the first time in the home that the couple had shared. She started a competing dog-grooming business, and filed this lawsuit.

The district court granted summary judgment to the defendant on the FLSA claims. The court wrote that the plaintiff could only recover under the FLSA if she had been an employee. It held that the plaintiff's testimony undercut any claim under the FLSA, because the plaintiff claimed to be a partner in Hair of the Dog and partnership would be inconsistent with employee status. The court declined to exercise supplemental jurisdiction over the remaining claims, which were all based in state law. It therefore dismissed without prejudice the claim under the North Carolina Wage and Hour Act, as well as the claims for fraud and breach of contract or, in the alternative, recovery quantum meruit or unjust enrichment. Plaintiff Steelman now appeals.

We review the grant of...