Dean v. 1715 Northside Drive, Inc.

• Decision Date: 14 January 2016
• Docket Number: CIVIL ACTION NO. 1:14–CV–3775–CAP
• Citation: 224 F.Supp.3d 1302
• Parties: Delbra L. DEAN, Plaintiff, v. 1715 NORTHSIDE DRIVE, INC., et al., Defendants.
• Court: U.S. District Court — Northern District of Georgia

224 F.Supp.3d 1302

Delbra L. DEAN, Plaintiff,

v.1715 NORTHSIDE DRIVE, INC., et al., Defendants.

CIVIL ACTION NO. 1:14–CV–3775–CAP

United States District Court, N.D. Georgia, Atlanta Division.

Signed January 14, 2016

Charles Ronald Bridgers, Kevin D. Fitzpatrick, Jr., Matthew Wilson Herrington, DeLong Caldwell Bridgers Fitzpatrick & Benjamin, LLC, Atlanta, GA, for Plaintiff.

DeWayne Nathaniel Martin, Martin Walker & Newby LLP, Kenneth A. Newby, Newby Law Group LLC, Herbert P. Schlanger, Office of Herbert P. Schlanger, Atlanta, GA, for Defendants.

ORDER

CHARLES A. PANNELL, JR., United States District Judge

This matter is before the court on the parties' cross motions for partial summary judgment: that is, 1715 Northside Drive, Incorporated, A–1 Entertainment, and Carmen Popovitch's (collectively, the "defendants") motion for summary judgment or alternatively motion for judgment on the pleadings [Doc. No. 77],¹ and the plaintiff's motion for partial summary judgment [Doc. No. 92]. Both sides have also filed motions for leave to file excess pages in their summary judgment briefs. As a preliminary matter, the motions for leave to file excess pages are GRANTED [Doc. Nos. 83, 96].

I. Background²

The plaintiff in this case brings suit against the defendants for alleged violations of the minimum-wage provisions of the Fair Labor Standards Act ("FLSA") (29 U.S.C. § 201 et seq. ). As originally pled, the plaintiff also named C.B. Jones, II, as a defendant in this case. While Jones remains a named defendant in this case, Jones has not joined the defendants' motion for summary judgment and has apparently settled the claims against him with the plaintiff.³

In addition to the employment-related claims, the plaintiff also claims that the defendants filed fraudulent tax returns by submitting returns classifying her as an "independent contractor" in violation of 26 U.S.C. § 7434. The defendants' answer to these employment-related claims includes counterclaims against the plaintiff for breach of contract, promissory estoppel, and unjust enrichment [Doc. No. 21].

The defendants are the owners and operators of Dreams (f/k/a Diamond Club) (hereinafter the "club"), an adult entertainment club in Atlanta, Georgia. From late 2010 (or early 2011) through August 2014, the plaintiff worked almost exclusively as an exotic dancer at the club. The club provided the plaintiff and other dancers with music, a stage, and other fixtures to facilitate their performances. The plaintiff was hired based on her appearance alone and was not required to possess any formal training or special dancing skills prior to dancing for the club.

Each shift, the plaintiff and other dancers would pay the club "stage rental fees."⁴ These fees increased based upon the dancer's time of arrival and were compulsory. In return, the plaintiff and other dancers were compensated by customers based on the club's house set fee schedule: $100 for a fifteen-minute dance in the club's VIP rooms (or a maximum of $400 for an hour); $20 for a dance in one of the club's glass rooms; and $10 for a table dance lasting the duration of one song. The plaintiff was compensated in cash from club customers for all dances other than certain VIP-room dances where the customer paid by credit card (the customer could pay by cash or by credit card for VIP-room dances). The club did not track or record any cash payments made to dancers by customers, nor did it track or record the hours worked by any particular dancer. In the event a customer paid by credit card for a VIP-room performance, the club passed along to the plaintiff the fees collected through the credit-card transaction minus a 10% merchant service fee (the credit-card fee was apparently 5% prior to December 2013).⁵ The club did not pay the plaintiff any wages for her services as an exotic dancer at the club.

In December 2013, Jones sold 1715 Northside Drive to A–1 Entertainment in a transaction consummated by way of a stock purchase agreement [Doc. No. 77–4]. At all times relevant to this action, Popovitch was the sole member of A–1 Entertainment, and A–1 Entertainment was the sole shareholder of 1715 Northside Drive. After the sale, aside from a change in the club's trade name, the club remained essentially unchanged and continued to provide adult entertainment, food, and drinks to patrons.

II. Discussion

A. Standard of Review

Rule 56(a) of the Federal Rules of Civil Procedure authorizes a court to enter summary judgment "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). The party seeking summary judgment bears the burden of demonstrating that no dispute as to any material fact exists. Adickes v. S.H. Kress & Co. , 398 U.S. 144, 156, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970) ; Johnson v. Clifton , 74 F.3d 1087, 1090 (11th Cir. 1996). The moving party's burden is discharged merely by " ‘showing’—that is, pointing out to the district court—that there is an absence of evidence to support [an essential element of] the nonmoving party's case." Celotex Corp. v. Catrett , 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

In determining whether the moving party has met this burden, the district court must view the evidence and all factual inferences in the light most favorable to the party opposing the motion. Johnson , 74 F.3d at 1090. Once the moving party has adequately supported its motion, the nonmovant then has the burden of showing that summary judgment is improper by coming forward with specific facts showing a genuine dispute. Matsushita Electrical Industrial Co. v. Zenith Radio Corp. , 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

In deciding a motion for summary judgment, it is not the court's function to decide issues of material fact but to decide only whether there is such an issue to be tried. Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 251, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The applicable substantive law will identify those facts that are material. Id. at 247, 106 S.Ct. 2505. Facts that in good faith are disputed, but which do not resolve or affect the outcome of the case, will not preclude the entry of summary judgment as those facts are not material. Id. Genuine disputes are those by which the evidence is such that a reasonable jury could return a verdict for the nonmovant. Id. In order for factual issues to be "genuine" they must have a real basis in the record. Matsushita Industrial Co. , 475 U.S. at 586, 106 S.Ct. 1348. When the record as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no "genuine issue for trial." Id.

B. The Defendants' Motion for Partial Summary Judgment

The defendants have moved for summary judgment on five issues: (1) the scienter component of the plaintiff's claim under 26 U.S.C. § 7434 (tax fraud); (2) the successor liability of the defendants; (3) the defendants' good-faith defense; (4) the liability of defendant Popovitch individually; and (5) the defendants' counterclaim for breach of contract.⁶ The court will address each issue in turn.

1. Tax Fraud (26 U.S.C. § 7434 )

Count II of the plaintiff's complaint sets out a claim under 26 U.S.C. § 7434 for filing fraudulent tax information with the Internal Revenue Service. The plaintiff asserts that for each year she was employed at the club, the defendants filed Forms 1099–MISC with the Internal Revenue Service categorizing monies earned by her as "nonemployee compensation." [Doc. No. 1 at 14]. Characterizing herself as an "employee" rather than an "independent contractor," the plaintiff alleges that the defendants "intentionally, willfully, and fraudulently misclassified [her] as an independent contractor and filed fraudulent Forms 1099 with respect to [the plaintiff] for the [d]efendants' own enrichment." [Doc. No. 1 at 14].

Section 7434 provides that "[i]f 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). To establish a claim of tax fraud under 26 U.S.C. § 7434, a plaintiff must prove the following: (1) the defendants issued an information return; (2) the information return was fraudulent; and (3) the defendants willfully issued a fraudulent information return. Leon v. Tapas & Tintos, Inc. , 51 F.Supp.3d 1290, 1297 (S.D. Fla. 2014) (citation omitted). The defendants challenge the third element of the plaintiff's tax fraud claim, arguing that the plaintiff has failed to proffer any evidence showing that the defendants willfully defrauded the government. According to the defendants, the evidence on the record shows the opposite; the defendants point out that Jones, as the owner of 1715 Northside Drive prior to the sale in December 2013, received legal advice from Scott Schulten who advised that club dancers could be classified as independent contractors for tax purposes.

Courts in this circuit have interpreted the term "willfully" as requiring "proof of deceitfulness or bad faith in connection with filing an information return." Seijo v. Casa Salsa, Inc. , No. 12-60892-CIV, 2013 WL 6184969, at *7 (S.D. Fla. Nov. 25, 2013) (internal quotation marks omitted) (citation omitted); Leon , 51 F.Supp.3d at 1298 (stating that willfulness "connotes a voluntary, intentional violation of a legal duty, and that tax fraud typically requires intentional wrongdoing") (internal quotation marks omitted) (citations omitted). The plaintiff in the case at bar submits the following evidence to show that the defendants willfully issued a fraudulent information return: (1) evidence showing that Jones and 1715 Northside Drive received a letter in or around December 1993 from the U.S. Department of Labor's Wage and Hour Division ("WHD") in which the WHD classified the club's dancers as "employees" and not "independent...