Brock v. Ely Group, Inc.
| Decision Date | 23 April 1986 |
| Docket Number | 85-5252,Nos. 85-5249,s. 85-5249 |
| Citation | 788 F.2d 1200 |
| Parties | 27 Wage & Hour Cas. (BN 1033, 54 USLW 2549, 104 Lab.Cas. P 34,763 William E. BROCK, Secretary of Labor, United States Department of Labor, Plaintiff-Appellee, v. ELY GROUP, INC., Rockford Textile Mills, Inc., Ely & Walker, Inc., Defendants, Citicorp Industrial Credit, Inc., Defendant-Appellant. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Francis X. Lilly, Theresa Ball, U.S. Dept. of Labor, Office of the Solicitor, Nashville, Tenn., Linda J. Pack (argued), Anne Fugett, Washington, D.C., for plaintiff-appellee.
John W. Baker, Jr., Poore, Cox, Baker, Ray & Byrne, Knoxville, Tenn., Mark I. Wallach (argued), Thomas A. Cicarella, Mitchell G. Blair, Calfee, Halter & Griswold, Cleveland, Ohio, for defendant-appellant.
Before ENGEL, KENNEDY and RYAN, Circuit Judges.
These consolidated appeals present the question whether section 15(a)(1) of the Fair Labor Standards Act ("FLSA"), as amended, 29 U.S.C. Sec. 215(a)(1), applies to holders of collateral obtained pursuant to perfected security interests. The United States District Courts for the Eastern and Western Districts of Tennessee held that the FLSA applies to secured creditors. For the reasons set forth below, we affirm.
On December 14, 1983, defendant-appellant, Citicorp Industrial Credit, Inc. ("Citicorp"), and Qualitex Corporation, an earlier name for a group of companies consisting of Ely Group, Inc. ("Ely Group") and its subsidiaries, Rockford Textile Mills, Inc. ("Rockford") and Ely & Walker, Inc. ("Ely & Walker"), (collectively "Ely"), signed a financing agreement. Under this "zero balance" 1 financing arrangement, Citicorp agreed, in its discretion, to loan up to $11,000,000 to provide the general working capital for Ely. As security for the loans, Ely granted Citicorp a security interest in inventory, accounts receivable, and various other assets. Citicorp filed financing statements and other appropriate documentation to perfect its security interests so that Citicorp undisputably qualifies as a perfected secured creditor.
In accordance with the financing agreement, Ely submitted various daily, weekly, and monthly reports to Citicorp. In the fall of 1984, Ely started missing sales projections. Accordingly, the loan balance considerably exceeded projections. In January 1985, Ely stopped sending reports to Citicorp. A Citicorp field examination determined that Ely's computerized accounting system was not functioning properly. By early February 1985, Ely's loan balance had increased to approximately $9,500,000. February 8, 1985 was the last day Citicorp advanced any funds to Ely. On February 11, 1985, Citicorp ceased funding Ely's operations. Ely's employees, however, continued working until February 19, 1985, when Citicorp foreclosed, taking possession of the collateral, and Ely ceased operations.
Since Ely defaulted on its payroll, its employees did not receive any wages for various workweeks, dating from January 27, 1985 to February 19, 1985. Consequently, the goods that Ely produced during this period were produced in violation of the FLSA's minimum wage and overtime provisions. 2 Acting on information that Citicorp planned to ship the goods in interstate commerce, the Department of Labor brought these actions to enjoin the shipment of the goods under 29 U.S.C. Sec. 215(a)(1).
On March 15, 1985, Raymond J. Donovan, Secretary of Labor, United States Department of Labor, 3 filed a complaint and a motion for preliminary injunction and application for temporary restraining order in the United States District Court for the Eastern District of Tennessee, to enjoin Rockford, Ely Group, and Citicorp from placing goods allegedly produced in violation of the FLSA's minimum wage and overtime provisions in interstate commerce. The District Court denied the application for a temporary restraining order on March 15, 1985. After hearing arguments, the District Court granted the motion for preliminary injunction on March 22, 1985. Donovan v. Rockford Textile Mills, Inc., 608 F.Supp. 215 (E.D.Tenn.1985). Citicorp filed a notice of appeal from that ruling, which the Clerk of this Court docketed as No. 85-5249. On April 10, 1985, the District Court granted Citicorp's motion for a stay or suspension of injunction pending appeal.
On March 21, 1985, Ford B. Ford, Under Secretary of Labor, United States Department of Labor, 4 filed a related complaint and motion for preliminary injunction and application for temporary restraining order in the United States District Court for the Western District of Tennessee against Ely Group, Rockford, Ely & Walker, and Citicorp. The District Court, following a telephone conference with counsel, granted the temporary restraining order on March 22, 1985. Following a hearing, the District Court granted the motion for a preliminary injunction on March 27, 1985. Citicorp filed a notice of appeal, which the Clerk of this Court docketed as No. 85-5252. On March 28, 1985, the District Court denied Citicorp's motion to stay or suspend the injunction. Citicorp immediately filed a motion for a stay pending appeal in this Court, agreeing to pay the unpaid employees the statutorily required wages in the event that this Court concluded that 29 U.S.C. Sec. 215(a)(1) applies to Citicorp. This Court granted the requested stay on March 29, 1985.
Title 29 U.S.C. Sec. 215(a)(1), 5 the FLSA's "hot goods" provision, prohibits "any person" from shipping, delivering, or selling, in interstate commerce, goods that were produced in violation of FLSA's minimum wage and overtime provisions. Title 29 U.S.C. Sec. 203(a) defines "person" as "an individual, partnership, association, corporation, business trust, legal representative, or any organized group of persons." Citicorp thus falls within the "plain meaning" of the statute. Citicorp, however, cites Church of the Holy Trinity v. United States, 143 U.S. 457, 12 S.Ct. 511, 36 L.Ed. 226 (1892), for the proposition that this Court should look beyond the plain meaning of the statute. In Church of the Holy Trinity, the Supreme Court stated:
It is a familiar rule that a thing may be within the letter of the statute and yet not within the statute, because not within its spirit, nor within the intention of its makers.
Id. at 459, 12 S.Ct. at 512. See also United Steelworkers of America v. Weber, 443 U.S. 193, 201, 99 S.Ct. 2721, 2726, 61 L.Ed.2d 480, reh'g denied, 444 U.S. 889, 100 S.Ct. 193, 62 L.Ed.2d 125 (1979). Although courts may look behind the "plain meaning" of a statute when a literal construction would produce a nonsensical result or " 'bring about an end completely at variance with the purpose of the statute,' " id. at 202, 99 S.Ct. at 2726 (quoting United States v. Public Utilities Commission, 345 U.S. 295, 315, 73 S.Ct. 706, 97 L.Ed. 1020, reh'g denied, 345 U.S. 961, 73 S.Ct. 935, 97 L.Ed. 1380 (1953)), we conclude that applying the "hot goods" provision to secured creditors, in fact, furthers one purpose of the FLSA, which is to keep goods that were produced in violation of the FLSA out of interstate commerce.
In United States v. Darby, 312 U.S. 100, 61 S.Ct. 451, 85 L.Ed. 609 (1941), the Supreme Court, after examining the declaration of policy in Sec. 2(a) of the FLSA, codified at 29 U.S.C. Sec. 202(a), 6 and the FLSA's legislative history, stated that the purpose of the FLSA
is to exclude from interstate commerce goods produced for the commerce and to prevent their production for interstate commerce, under conditions detrimental to the maintenance of the minimum standards of living necessary for health and general well-being; and to prevent the use of interstate commerce as the means of competition in the distribution of goods so produced, and as the means of spreading and perpetuating such substandard labor conditions among the workers of the several states.
Id. at 109-10, 61 S.Ct. at 455 (emphasis added). While discussing Sec. 15(a)(1) of the FLSA, the Court stated:
The motive and purpose of the present regulation are plainly to make effective the Congressional conception of public policy that interstate commerce should not be made the instrument of competition in the distribution of goods produced under substandard labor conditions, which competition is injurious to the commerce and to the states from and to which the commerce flows.
Id. at 115, 61 S.Ct. at 457. See also Roland Electric Co. v. Walling, 326 U.S. 657, 667-69, 66 S.Ct. 413, 417-19, 90 L.Ed. 383 (1946). Consequently, one of the reasons that Congress passed the FLSA was to exclude tainted goods from interstate commerce. Since Congress wanted to exclude goods that were produced in violation of the FLSA's minimum wage and overtime provisions from interstate commerce, prohibiting secured creditors, such as Citicorp, from shipping "hot goods" in interstate commerce furthers that Congressional intent. Accordingly, we follow the "plain language" of the statute and conclude that the phrase "any person" applies to Citicorp, as a secured creditor. 7
In reaching this conclusion, we refuse to follow and reject the reasoning of the Second Circuit in Wirtz v. Powell Knitting Mills Company, Inc., 360 F.2d 730 (2d Cir.1966). In Powell Knitting Mills, the Second Circuit created a "judicial exception" to the FLSA by holding that FLSA Sec. 15 did not prohibit a factor, which had foreclosed its lien on an insolvent manufacturer, from selling the manufacturer's sweaters in interstate commerce on the ground that the manufacturer had produced the sweaters in violation of FLSA's minimum wage provisions. In Shultz v. Factors, Inc., 65 Lab.Cas. (CCH) p 32,487 (4th Cir.1971), the Fourth Circuit followed Powell Knitting Mills with little discussion but added an additional requirement "that there be no collusion between the manufacturer and his financier permitting the introduction into the market of goods produced in...
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Citicorp Industrial Credit, Inc v. Brock
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