Austin v. Metro Dev. Grp., LLC

Decision Date01 December 2021
Docket NumberCase No. 8:20-cv-1472-KKM-TGW
Citation571 F.Supp.3d 1279
Parties Jen AUSTIN, individually and Austin Marketing, LLC, Plaintiffs, v. METRO DEVELOPMENT GROUP, LLC, et al., Defendants.
CourtU.S. District Court — Middle District of Florida

Claire Saady, Saady & Saxe, PA, St. Petersburg, FL, for Plaintiffs.

Meghan O. Serrano, Jennifer B. Compton, Shumaker, Loop & Kendrick, LLP, Sarasota, FL, for Defendants.

ORDER

Kathryn Kimball Mizelle United States District Judge Plaintiffs Jen Austin and Austin Marketing, LLC, bring five claims against Defendants Metro Development Group, John Ryan, and a variety of Defendants related to Metro. They claim that they are entitled to unpaid wages under Florida common law and to damages under 26 U.S.C. § 7434, the Florida Deceptive and Unfair Trade Practices Act (FDUTPA), the Florida Whistleblower's Act (FWA), and Florida defamation law. Defendants move for summary judgment on several counts and request that, if the Court grants summary judgment in their favor on the only federal question, it declines to exercise supplemental jurisdiction over the remaining counts arising under state law.1 The Court grants summary judgment on the 26 U.S.C. § 7434 claim (Count I) and dismisses without prejudice Plaintiffs’ state law claims (Counts II–V).

I. BACKGROUND

Jen Austin performed marketing work for Metro Development Group, LLC, and the entities that Metro supports between June 2014 and April 2020. Austin contends that Metro hired her as an employee but then told her that Metro would classify her as an independent contractor. (Doc. 109 at 2.) To be compensated as an independent contractor, Austin formed Austin Marketing, LLC, the entity which received payment from Metro and the entities Metro supports. (Doc. 99-1 at 215.) Austin testified in her deposition that she complained multiple times to Defendant John Ryan about being classified as an independent contractor. (Doc. 99-1 at 118, 121.) Ryan testified in his deposition that he did not remember Austin asking to be an employee. (Doc. 99-2 at 83, 86–88.) During her time at Metro, Austin alleges she would submit expense reports to Metro along with documentation that showed the expenses were business-related per Defendants"accountable plan." (Doc. 21 at ¶ 32.)

Austin stopped working for Defendant in April 2020, after a dispute arose over Austin's request to hire an independent contractor to perform marketing and social media work. (Docs. 99-1 at 152–56, 193; 99-2 at 93–95.) Austin claims that she was fired during a private meeting with Defendant Ryan; Ryan claims he never fired her. (Doc. 99-1 at 193; Doc. 99-2 at 93–95.)

Austin then commenced this suit on June 27, 2020. (Doc. 1.) She brought five claims, naming Metro and its CEO, John Ryan, as Defendants. After the Court dismissed Count I with leave to amend, Plaintiff Austin filed the Amended Complaint, adding Austin Marketing, LLC, as an additional plaintiff and the sixteen entities that Metro supports with management services as additional Defendants. (Doc. 21.) The Court then dismissed Count I of the Amended Complaint in part, concluding that Austin was not individually injured by any fraudulent tax forms and therefore lacked standing.2 (Doc. 75.) But the Court permitted Count I to proceed by Austin Marketing against Defendants. The Court also dismissed the claims in Count I against Defendants Dune FL Land I Sub, LLC, and Dune FB Debt, LLC, for failure to state a claim for relief against them under 26 U.S.C. § 7434. (Id. )

Defendants now move for summary judgment in their favor on Counts I, III, and IV, and partial summary judgment on Count II of the Amended Complaint. Because the Court grants their motion on Count I and concludes that it should not exercise supplemental jurisdiction over Plaintiffs’ state law claims between non-diverse parties, it denies without prejudice the motion for summary judgment as to Counts II, III, and IV. The Court also dismisses without prejudice Counts II, III, IV, and V. The parties may litigate the merits of these claims in state court, if Plaintiffs elect to refile them there.

II. MOTION FOR SUMMARY JUDGMENT
A. Legal Standard

Summary judgment is appropriate if no genuine dispute of material fact exists and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). A fact is material if it might affect the outcome of the suit under governing law. Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

A moving party is entitled to summary judgment when the nonmoving party "fail[s] to make a sufficient showing on an essential element of her case with respect to which she has the burden of proof." Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The nonmoving party must "go beyond the pleadings and her own affidavits" and point to evidence in the record that demonstrates the existence of a genuine issue for trial. Id. at 324, 106 S.Ct. 2548 (quotation omitted). The Court reviews all the record evidence and draws all legitimate inferences in the nonmoving party's favor. Cleveland v. Home Shopping Network, Inc. , 369 F.3d 1189, 1192–93 (11th Cir. 2004).

B. Analysis

"If any person willfully files a fraudulent information return with respect to payments purported to be made to any other person, such other person may bring a civil action for damages against the person so filing such return." 26 U.S.C. § 7434(a). Austin Marketing alleges that Defendants violated § 7434 when they willfully misclassified it as an independent contractor and issued information returns with incorrect amounts "for some of 2017 and all of 2018 and 2019." (Doc. 21 at ¶¶ 91, 104.)

To prove a claim under § 7434, a plaintiff must establish "(1) that the defendant issued information returns; (2) the information returns were fraudulent; and (3) defendant willfully issued the returns." Dorseli v. Gonzalez , No. 2:17-CV-37-FTM-99CM, 2017 WL 4286482, at *3 (M.D. Fla. Sept. 27, 2017) (Steele, J.). A plaintiff must prove the second and third elements by clear and convincing evidence. See Sigurdsson v. Dicarlantonio , No. 6:12-CV-920-ORL-TBS, 2013 WL 12121866, at *6 (M.D. Fla. Dec. 11, 2013) (Smith, Mag. J.); Carlson v. United States , 754 F.3d 1223, 1226 (11th Cir. 2014). An "information return" is "any statement described in section 6724(d)(1)(A)." § 7434(f). Defendants concede that the Forms 1099 fit the definition of "information returns" because they report "nonemployee income." (Doc. 100 at 3.) Defendants further acknowledge that the Court has already decided that the Forms 1099 were issued by Defendants. (Id. at 3–4 (citing Doc. 75 at 5).) At this stage, the Court must only determine whether the information returns were fraudulent by including reimbursed expenses and, if fraudulent, whether a reasonable jury could find that Defendants willfully issued the fraudulent returns.3

Plaintiff Austin Marketing alleges that Defendants, under the direction of Defendants Ryan and Metro, issued 1099s that were fraudulent because they labeled Austin Marketing an independent contractor when it should have been an employee and because they reported reimbursed expenses as gross income. Defendants move for summary judgment on the basis that misclassification does not give rise to a claim under § 7434, that it was not fraudulent or inaccurate to include reimbursements in the 1099s to Austin Marketing, and that Austin Marketing fails to put forward sufficient evidence of willfulness. The Court agrees with Defendants and grants summary judgment against Austin Marketing on its § 7434 claim.

a. Austin Marketing Cannot Obtain Relief Under § 7434 for Misclassification.

Austin Marketing alleges the 1099s were fraudulent because it was considered an independent contractor when it was really an employee. Defendants counter that Austin's individual claim that Defendants violated § 7434 was already dismissed and that Austin Marketing cannot state a claim based on misclassification. The Court agrees. Because the Court earlier ruled that Plaintiff Austin lacked standing for her § 7434 claim, only Plaintiff Austin Marketing's § 7434 claim remains. (Doc. 75 at 5–6.) Austin Marketing cannot obtain relief under § 7434 for any misclassification as an independent contractor because the statute limits relief to information returns that include fraudulent information about the payments made to the recipient.

Section 7434 provides a civil action when any person files a fraudulent information return "with respect to payments purported to be made to any other person." § 7434(a). The text informs the reader that the fraud—i.e., the "knowing misrepresentation or knowing concealment of a material fact made to induce another to act to his or her detriment"4 —concerns the "payments" made to the recipient. Indeed, the Supreme Court has interpreted the phrase "with respect to" to mean exactly that: the object of the prepositional phrase—here, "payments purported to be made"—constrains what comes before the prepositional phrase—here, "fraudulent information return." See Collins v. Yellen , ––– U.S. ––––, 141 S. Ct. 1761, 1780–81, 210 L.Ed.2d 432 (2021) (confining the "rights of ... [a] stockholder" to those rights a stockholder holds "with respect to the regulated entity" (quotation omitted)). So any misclassification of an employee as an independent contractor by issuing a 1099 instead of a W-2 falls outside of the plain text of the civil cause of action created by § 7434. See Butler v. Enter. Integration Corp. , 459 F. Supp. 3d 78, 106 (D.D.C. 2020) (Nichols, J.) ("Plaintiffs cannot state a claim against Defendants under § 7434 merely for mischaracterizing them as independent contractors rather than employees or owners and thereby filing the wrong tax form."). Only claims for fraudulent amounts of payments may proceed.

Although neither party identifies an appellate opinion holding that § 7434 actions can be premised only on fraudulent...

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