Donovan v. Grim Hotel Co.

• Decision Date: 03 December 1984
• Docket Number: No. 83-2629,83-2629
• Citation: 747 F.2d 966
• Parties: 26 Wage & Hour Cas. (BN 1647, 102 Lab.Cas. P 34,626 Raymond J. DONOVAN, Secretary of Labor, United States Department of Labor, and 177 Named Employees, Plaintiffs-Appellees, v. GRIM HOTEL COMPANY, A Corporation, et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 966

747 F.2d 966

26 Wage & Hour Cas. (BN 1647, 102 Lab.Cas. P 34,626

Raymond J. DONOVAN, Secretary of Labor, United States

Department of Labor, and 177 Named Employees, Plaintiffs-Appellees, v. GRIM HOTEL COMPANY, A Corporation, et al., Defendants-Appellants.

No. 83-2629.

United States Court of Appeals, Fifth Circuit.

Dec. 3, 1984.

Jenkens & Gilchrist, Steven R. McCowan, Steve Bradford, Dallas, Tex., for defendants-appellants.

Barbara E. Kahl, Linda Jan S. Pack, Atty., Washington, D.C., for plaintiffs-appellees.

Appeal from the United States District Court for the Eastern District of Texas.

Before BROWN, TATE, and HIGGINBOTHAM, Circuit Judges.

TATE, Circuit Judge:

The Secretary of Labor and 177 named Texas hotel employees brought this suit in 1980 against five hotel corporations and their president for violations of the Fair Labor Standards Act of 1938, 29 U.S.C. Sec. 201 et seq., in the operation of five Texas hotels that have occurred in the period following February 14, 1977. Trial of liability and damage issues was severed. Following trial of the liability issue, the district court in 1983 entered a partial judgment that permanently enjoined the defendants from violation of the minimum wage and overtime requirements of the Act, 29 U.S.C. Secs. 206, 207. ¹ The defendants appeal this judgment granting injunctive relief. 28 U.S.C. Sec. 1292(a).

On their appeal, the defendants do not deny that the hotel workers in question have not received the minimum wage and overtime compensation required by the Act, if the Act applies here. Rather, they challenge the district court's injunction requiring conformance to the requirements of the Act on the grounds: (I) that the corporate-employers do not constitute an "enterprise" within the meaning of the Act; and (II) that the president of those corporations, Charles Alberding, is not an "employer" within the meaning of the Act. They also raise procedural contentions (III) that the district court lacked personal jurisdiction of Alberding and (IV) that res judicata barred the grant of relief in the present case. Finding no merit in any of these positions, for reasons discussed, respectively, in I through IV, infra, we affirm. ²

Facts

The employees whose wages are in issue work in five hotels in five different Texas cities. Each of the five hotels is owned by a corporate defendant, and each of these corporations has the one hotel as its sole asset. The remaining defendant, Charles Alberding, is president of the five hotel-owning corporations.

Alberding incorporated those corporations and has managed their operation. His wife has been the secretary-treasurer of the corporations, and his close business associate, J.E. Scally, has been their vice-president until recently. The board of directors of each corporation has consisted of Alberding, his wife, and Scally. Though the stock of the corporations has been transferred within the Alberding family, virtually all of it has been owned by Alberding, his wife or their daughters.

Alberding and the five defendant corporations controlled and managed by him contend that, by virtue of this corporate fragmentation of his/their hotel operations, they are not a single "enterprise," see I infra, and he himself is not an "employer," see II infra, for purposes of coverage of the Fair Labor Standards Act. The courts have in the past rejected similar efforts through corporate fragmentation by Alberding to avoid obligations and liabilities under the Act. ³ In its thorough and thoughtful memorandum opinion, the district court likewise rejected the similar contentions here advanced.

I. Five Corporations As One Enterprise

The minimum wage and overtime provisions of the Fair Labor Standards Act apply to employees of "an enterprise engaged in commerce or in the production of goods for commerce," 29 U.S.C. Secs. 206, 207, which "enterprise" is statutorily defined, inter alia, as requiring an annual gross volume of business done as not less than $250,000, 29 U.S.C. Sec. 203(s)(1). The parties have stipulated that each of the hotel corporations has not had a sufficient dollar volume of business to come within the Act's definition of an enterprise "engaged in commerce." 29 U.S.C. Sec. 203(s). The parties also stipulated, however, that the hotel corporations, considered as a group, did meet the Act's dollar volume requirement. Accordingly, the obligation of the corporations to conform to the Act's wage and hour requirements depends on whether the hotel corporations, viewed together, constitute an "enterprise."

The Act defines this term as follows:

"Enterprise" means the related activities performed (either through unified operation or common control) by any person or persons for a common business purpose, and includes all such activities whether performed in one or more establishments by one or more corporate or other organizational units....

29 U.S.C. Sec. 203(r). This court has considered this statutory definition, its legislative history, and interpretive administrative regulations, and we have concluded that, despite corporate fragmentation in operation, a single "enterprise" nevertheless exists for the purpose of the Act, where: (A) the corporations perform related activities, (B) through unified operation or common control, (C) for a common business purpose. Donovan v. Janitorial Services, Inc., 672 F.2d 528, 530 (5th Cir.1982); Brennan v. Veterans Cleaning Service, Inc., 482 F.2d 1362, 1366-67 (5th Cir.1973); Shultz v. Mack Farland & Sons Roofing Co., 413 F.2d 1296, 1299 (5th Cir.1969). ⁴ The district court correctly found that these three tests are met in the present case.

A. Related Activities

The defendants contend that the five hotel corporations do not engage in related activities because the ratio of long-term to short-term guests is different at each. To accept this contention would be to recognize distinctions so fine as to be inconsistent with our previous decisions. See Donovan v. Janitorial Services, Inc., 672 F.2d at 529-30 (janitorial service, maid, and garbage collection companies); Brennan v. Veterans Cleaning Service, Inc., 482 F.2d at 1364-67 (janitorial, maid, and sewer and septic tank cleaning services).

The district court found that each hotel corporation owned a hotel that operated in the same or a similar manner. At one time, Alberding and his business associates planned to place all their hotels under the banner "Alsonett"; though this never became a formal hotel group, the hotels loosely operated under the name. Employees at one hotel assisted, from time to time, at others. By whatever analysis, however, businesses, calling themselves hotels and operating as hotels, whether their guests stay a short or long while, are engaged in related activities for the purpose of the Act.

B. Unified Operation or Common Control

By emphasizing the formally distinct nature of the hotel corporations and the day-to-day management of the hotels by different managers, the defendants challenge the district court's conclusion of unified operation and common control.

Nevertheless, "[w]e take the view that these factors are simply the ordinary attributes of separate incorporation and the management of physically separate units." Shultz v. Mack Farland & Sons Roofing Co., supra, 413 F.2d at 1300. We must look beyond formalistic corporate separation to the actual or pragmatic operation and control, whether unified or, instead, separate as to each unit. How centralized is the making of significant corporate decisions? Did a single source create and fund the corporations or businesses in issue or were they created and funded by separate interests? How interdependent are those corporations or businesses in actual operation? Are they held out to the public singly or collectively? See Donovan v. Janitorial Services, Inc., supra, 672 F.2d at 530; Shultz v. Mack Farland & Sons Roofing Co., supra, 413 F.2d at 1300-01.

The district court found facts to establish each of these unified operation and common control indicators. Of utmost significance, Alberding, as the defendants admit, had and exercised the power to hire and fire the manager of each hotel. Much like a commander and his generals, this put one man, Alberding, at the apex of hotel operations. See Shultz v. Mack Farland & Sons Roofing Co., supra, 413 F.2d at 1301.

Beyond his control of the hotel managers, though, the district court found that Alberding incorporated all of the hotel corporations, personally funded them when necessary, and had final and virtually sole authority to approve significant expenditures. He was authorized to sign on the bank account of every hotel. "Money talks." Id. Indeed, Alberding was the only person who could approve across-the-board adherence to federal minimum wage and overtime requirements. That, indeed, is a most significant control indicator in a wage and hours action.

Finally, the hotels loosely operated under the informal Alsonett banner. Employees, albeit infrequently, shifted employment from one hotel to another. Furniture was shifted from one hotel to another. Alberding-related companies provided bookkeeping and financial services to the hotels. Each hotel corporation shared the same officers and directors, and there was what the district court termed a "fluid shifting of debits and credits between the various corporations."

There was abundant evidence that the hotels were centrally directed, connected and interdependent. They were a loose-knit group, owned by the Alberding family, firmly coordinated and controlled by Alberding. Except for the formality of incorporation and the ownership of stock by different members of the Alberding family, the hotels were centrally controlled by and operated as a single group. ⁵

C. Common Business Purpose

The defendants weakly challenge the common business purpose conclusion of the district court. The unified operation of the hotels, their related activities and interdependencies, the...