Donovan v. Weber, 82-1871

• Citation: 723 F.2d 1388
• Decision Date: 03 January 1984
• Docket Number: No. 82-1871,82-1871
• Parties: 26 Wage & Hour Cas. (BN 911, 99 Lab.Cas. P 34,485 Raymond J. DONOVAN, Secretary of Labor, United States Department of Labor, Appellant, v. Kenneth C. WEBER, individually and d/b/a White House Cafeteria, Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

Page 1388

723 F.2d 1388

26 Wage & Hour Cas. (BN 911, 99 Lab.Cas. P 34,485

Raymond J. DONOVAN, Secretary of Labor, United States Department of Labor, Appellant, v. Kenneth C. WEBER, individually and d/b/a White House Cafeteria, Appellee.

No. 82-1871.

United States Court of Appeals Eighth Circuit.

Submitted Oct. 10, 1983.

Decided Jan. 3, 1984.

T. Timothy Ryan, Jr., Sol. of Labor, Beate Bloch, Associate Sol., Ruth E. Peters, Counsel for Appellate Litigation, Lauriston H. Long, Atty., U.S. Dept. of Labor, Washington, D.C., Tedrick A. Housh, Jr., Regional Sol., Kansas City, Mo., for appellant.

Kent A. Higgins, Bismarck, N.D., for appellee.

Before ROSS, McMILLIAN and BOWMAN, Circuit Judges.

BOWMAN, Circuit Judge.

The Secretary of Labor filed suit against Kenneth C. Weber individually and doing business as White House Cafeteria for violations of the Fair Labor Standards Act of 1938, 29 U.S.C. Secs. 201-219 (FLSA). Though the White House Cafeteria's annual gross volume of sales was less than the $250,000 threshold provided by 29 U.S.C. Sec. 203(s) for coverage of a business under the FLSA, the Secretary alleged that the cafeteria was covered under the "enterprise" provisions of 29 U.S.C. Sec. 203(r) as a leased department of the White Drug Store, whose volume of business was sufficient to come under the FLSA. The District Court for the District of North Dakota held that the White House Cafeteria was not a leased department of the White Drug Store, and therefore was not subject to coverage under the FLSA. The Secretary of Labor appealed. For the reasons stated herein, we affirm.

Background

White Drug Enterprises (White Drug) operates a chain of 38 drugstores in five states. One of these drugstores is located in a shopping center in Bismarck, North Dakota, and has a cafeteria within the store which is the subject of this lawsuit. White Drug leased the store in March 1970, and on completing renovation of the structure opened a full-line drugstore on the site. The renovation of the facility included construction in the rear of the drugstore of a cafeteria, which always has been known as the White House Cafeteria. The drugstore, including the cafeteria, was designed according to White Drug specifications. This was not the only cafeteria White Drug operated. At least four other stores in the White Drug chain either have or at some time had cafeterias.

The defendant/appellee, Kenneth Weber, was the manager of the cafeteria in the Bismarck drugstore at its opening. At that time, the cafeteria was operated by the drugstore and Weber was an employee of White Drug. This arrangement continued until August 1971, when Weber leased the cafeteria from White Drug and commenced operating it as an independent business. The transition occurred without any interruption in service to the public or change in employees, menu or decor of the cafeteria. ¹

To a certain extent White Drug controls the hours of operation of the cafeteria. This is true because it is impossible for customers to enter the cafeteria other than through the drugstore. The cafeteria opens at 8:00 a.m., while the only part of the drugstore open at that time is the pharmacy. The rest of the drugstore opens at 9:00 a.m. This pattern has been followed since the drugstore's inception. While Weber has a passkey to the main entrance to the drugstore, he does not have the ability to turn off the main alarm system to the drugstore. The cafeteria closes at 5:00 p.m. and the drugstore closes at 8:00 p.m.

The cafeteria is located at the rear of the drugstore. The public cannot enter the cafeteria without walking through the drugstore. There are two entrances to the drugstore; the main entrance, which is 158 feet from the cafeteria entrance, and the side (mall) entrance, which is 58 feet from the cafeteria entrance. The entrance to the cafeteria itself is immediately adjacent to the pharmacy of the drugstore. The cafeteria is separated from the main area of the drugstore by a low split-rail fence.

Deliveries to the cafeteria and drugstore are made at the rear entrance. There is a doorbell which is used to signal both the cafeteria and drugstore. One ring indicates a delivery for the drugstore and three rings indicate a delivery for the cafeteria. If a delivery comes in for the cafeteria when it is closed, the drugstore personnel will answer the cafeteria's ring and bring in the delivery.

There are two intercom systems in the drugstore and cafeteria. One serves the entire drugstore, with a station in the cafeteria. A second intercom serving only the cafeteria was added by Weber after he leased the cafeteria.

On the front of the building there are three signs, one reading "White Drug," one reading "White House Cafeteria" and one reading "Sickroom Service" (a division of White Drug). At the extreme left appear the initials WD--the logo of White Drug.

There is some evidence that the public has treated the drugstore and cafeteria as one business. For instance, cafeteria customers have at times attempted to make checks payable to White Drug instead of to White House Cafeteria. This resulted in the posting of a sign in the cafeteria directing customers to make checks out to White House Cafeteria. There is also evidence that pharmacy customers were given coupons for free coffee while waiting for their prescriptions to be filled. The drugstore paid for these coupons at the full retail price.

Weber described the cooperation between the cafeteria and the drugstore as a "good neighbor thing." He consistently maintained throughout the trial that he was an independent businessman and, by implication, that areas of cooperation were the result of the physical layout of the building and not of unified operation or common control. ²

Applicable Law

The FLSA establishes uniform national minimum standards for various working conditions, including wages and hours, in businesses covered by its provisions. It is undisputed that, taken separately, the White House Cafeteria is not covered by the FLSA's provisions, since its total annual gross volume of sales is below the $250,000 minimum established by 29 U.S.C. Sec. 203(s). Therefore, in order to bring the defendant under the FLSA, the Secretary argues that the cafeteria constitutes a "leased department" of the White Drug Store and is covered under the enterprise provisions of the statute. ³

The FLSA sets out a three-part test for finding coverage under its enterprise provisions. As stated by this court in Brennan v. Plaza Shoe Store, Inc., 522 F.2d 843 (8th Cir.1975): "The Act describes three elements which must coexist before the corporate defendants herein can be considered a single enterprise; (1) related activities; (2) unified operation or common control; and (3) a common business purpose." Id. at 846.

The determination of "enterprise coverage" under the FLSA is one that must be resolved on the facts of each case, but is nevertheless a question of law. Thus, the ultimate conclusions reached by the district court are not shielded by the clearly erroneous standard of Rule 52(a) of the Federal Rules of Civil Procedure. Brennan, supra at 846; Shultz v. American Can Company-Dixie Products, 424 F.2d 356, 360 (8th Cir.1970).

Analysis

The Secretary seeks to bring Weber's cafeteria under the statute by asserting that the cafeteria is a leased department of White Drug. While the Secretary has made as effective an argument as possible, given the facts of the case, the final control over the major business decisions of each entity rests in different hands. Therefore, we find that there is no unified operation or common control between White House Cafeteria and White Drug. Since this finding precludes application of the FLSA to Weber, we need not decide if the activities of the two entities are related or if they share a common business purpose.

The Secretary relies most heavily on Usery v. Mohs Realty Co., 424 F.Supp. 20 (W.D.Wis.1976). That case involved a restaurant facility which was leased out by an adjoining motel. While the Secretary correctly notes many similarities between the leasing arrangement in Mohs and the case at bar, several crucial elements present in that case are not present here. For instance, in Mohs the lessor/owner of the restaurant facility and adjoining motel retained control over the hiring and firing policies of the restaurant. The restaurant was required to allow hotel guests to charge meals to their hotel bills. Moreover, the restaurant was specifically required to maintain set minimum hours of operation. Id. at 23-24. Weber is not subject to such limitations. Also, in Mohs the restaurant and motel were extensively advertised and represented as one business. Here, except for a listing in the "white pages" of the local telephone directory, occasional newspaper advertising by the drugstore that included references to the cafeteria, and the presence of the White Drug logo on the cafeteria trays, there is no overt pattern of promotion representing the two entities as being part of the same business. The fact that the architectural design of the facility inevitably results in an association of the two businesses together in the public mind is not sufficient to bring about enterprise coverage under the FLSA; physical proximity alone is not enough. Dunlop v. Ashy, 555 F.2d 1228, 1231 (5th Cir.1977). As pointed out by the court below, many of the facts urged by the Secretary as showing a leased department operating under unified operation or common control are also consistent with an ordinary landlord-tenant arrangement. The rental arrangement, based on a percentage of gross sales, is similar to a provision in the drugstore's primary lease from the shopping center, and is not uncommon in commercial settings. Likewise, inclusion of utilities in the rent is consistent with a landlord-tenant relationship. That provision and many of the other facts stressed by the Secretary are a product of the physical setup of the...