Fleming v. American Stores Co.

• Decision Date: 30 December 1941
• Docket Number: No. 1912.,1912.
• Citation: 42 F. Supp. 511
• Parties: FLEMING, Administrator of the Wage and Hour Division, United States Department of Labor, v. AMERICAN STORES CO.
• Court: U.S. District Court — Western District of Pennsylvania

42 F. Supp. 511

FLEMING, Administrator of the Wage and Hour Division, United States Department of Labor, v. AMERICAN STORES CO.

No. 1912.

District Court, E. D. Pennsylvania.

December 30, 1941.

Gerard D. Reilly, Sol., and Irving J. Levy, Asst. Sol., both of Washington, D. C., in Charge of Litigation, J. M. Gallagher, Regional Atty., of Philadelphia, Pa., Abner Brodie, of Washington, D. C., Ernest N. Votaw, of Philadelphia, Pa., and A. A. Cohen, of Cleveland, Ohio, for plaintiff.

Joseph Gilfillan, of Philadelphia, Pa., for defendant.

KALODNER, District Judge.

What is a "retail establishment" within the meaning of section 13(a) (2) of the Fair Labor Standards Act of 1938¹?

Specifically, is a $33,000,000 chain store organization, employing more than 14,000 workers, with gross annual sales of $115,000,000, which directly and through wholly-owned subsidiaries operates 2,300 retail grocery stores and eleven warehouses in seven states and the District of Columbia, along with food-processing and manufacturing plants, etc., a "retail establishment"?

That is the paramount issue involved in this action brought by the Administrator of the Wage and Hour Division, United States Department of Labor, against the American Stores Company, a Delaware corporation.²

Section 13(a) (2) of the Act grants an exemption from the minimum wage provisions of section 6 and the maximum hours provision of section 7, as follows:

"The provisions of sections 6 and 7 sections 206 and 207 shall not apply with respect to * * * any employee engaged in any retail or service establishment the greater part of whose selling or servicing is in intrastate commerce * * *." (Emphasis supplied.)

The contentions of the parties as to the issue stated may be briefly summarized as follows:

Plaintiff's Contentions:

That each unit of defendant's enterprises constitutes a separate establishment within the meaning of section 13(a) (2) and only the employees working in the 2300 retail stores are engaged in a retail establishment within the meaning of the exemption; and that the exemption provided by section 13(a) (2) is inapplicable to defendant's employees at its warehouses, manufacturing or processing plants, main office, or other non-retail selling units.

Defendant's Contentions:

That the entire business of the American Stores Company of Delaware, and its subsidiaries, including the 2300 stores, warehouses, bakeries, manufacturing and processing operations, main offices, printing and multigraphing plant, transportation facilities, and repair and machine shops, constitutes a single "retail establishment" whose primary business is selling at retail in intrastate commerce, and as such is exempt under section 13(a) (2).

The record discloses that the defendant is engaged in the purchase, production, distribution and sale of food and other general grocery items. In addition to the stores and warehouses previously mentioned, it operates seven bakeries in three states, two canneries in Maryland, and a coffee-roasting plant, automobile maintenance shop, bottling works, and a food-processing and manufacturing plant, etc. It maintains purchasing offices in Philadelphia and New York.

The defendant is the sole owner of all the stock of American Stores Company of Pennsylvania; American Stores Company of New Jersey; American Stores Company of Maryland; American Stores Company, Inc., of Virginia; American Stores Company of West Virginia; Acme Markets, Inc. (which became inactive January 1, 1940); American Stores Dairy Company; United States Coffee Corporation; American Stores Produce Company, and the Stores Realty Company.

The defendant's 2,300 retail stores and retail food markets are located in Pennsylvania, New Jersey, Delaware, Virginia, West Virginia, New York, Maryland, and the District of Columbia. The defendant makes virtually all purchases for the requirements of stores of its subsidiaries, as well as its directly-owned stores.

The retail stores are operated under a common general management, but the identity and operations of each is separate and distinct under the defendant's system of accounting. Individual and detailed records are kept with respect to each store, and the profit or loss of each store is computed periodically. The expenses of each store are borne by it alone. The cost of operation of a particular warehouse or bakery is apportioned only among the stores which it serves. Only general overhead expenses, such as cost of operation of the main offices of defendant (including salaries of officers) are apportioned among all the stores, based on their gross sales.

The defendant's main office at Philadelphia, with some 400 employees, is the headquarters for the purchase of merchandise for all the stores; for advertising, accounting, sales promotion, etc.

The defendant employs a total of 3,200 workers in the operation of its offices, warehouses, manufacturing and processing plants, bakeries, transportation facilities, repair and machine shops, printing and multigraphing plant, and other non-retail selling units. The 400 main office employees are included in this total. All of these 3,200 employees perform duties which are an integral part of the operation of these units.

The seven states and the District of Columbia in which the defendant and its subsidiaries operate retail stores are divided into zones, each of which is served by a different warehouse. Each of the defendant's warehouses (excepting warehouse No. 3, which is the coffee-roasting plant) constitute distribution centers through which pass food and grocery products delivered from all parts of the United States by the common forms of interstate transportation. The goods are unloaded at the warehouses, stacked, and then forwarded to the retail stores. Each retail store is debited for the cost of the merchandise, plus freight, in addition to the overall charges of the servicing warehouse and the main office expense previously mentioned.

All of the warehouses, except those at Newark and Orange, New Jersey; Wilkes-Barre, Pennsylvania; and Syracuse, New York, distribute goods to retail stores in other states. Seventy to eighty per cent of the products from independent sources passing through each warehouse come from outside the particular state in which the warehouse is located. Substantially all of the goods received at the warehouses are shipped to stores in the original packages. The defendant's warehouses perform essentially the same functions as those performed by independent wholesale grocers, and their mode of operation is substantially the same.

It may be noted here that during 1939 the defendant supplied groceries, etc., amounting to approximately $31,000,000 to the American Stores Company of Virginia; American Stores Company of West Virginia; and Acme Markets, Inc., of Delaware, its three wholly-owned subsidiaries. These subsidiaries, incidentally, filed separate tax returns and paid separate income and license taxes. Separate books were maintained for each corporation. Separate balance sheets and profit and loss statements were also kept.

The seven bakeries operated by the defendant in three states had an output of approximately $2,250,000 during 1939. The bulk of the raw materials received at the bakeries came through interstate shipments. All of the bakeries, with the exception of those at Wilkes-Barre and Harrisburg, Pennsylvania, and Syracuse, New York, distribute their products through interstate commerce to the retail stores.

Evidencing the tremendous extent of the processing activities of the defendant, warehouse No. 4 in Philadelphia also houses a manufacturing, processing and packing plant in which salad dressings, jams, and delicatessen items, bacon, beef, and meats are prepared and packed for all the stores. These operations alone totaled more than $8,000,000 in 1939.

Operations in the coffee-roasting plant, warehouse No. 3 previously mentioned, totaled almost $2,000,000 in 1939.

Output of the defendant's wholly-owned cannery in Hurlock, Maryland, exceeded $500,000 during 1939. The output of the Havre de Grace, Maryland cannery in 1939, which was operated under a contract system, amounted to $175,000. The bulk of the products of both these canneries was shipped to stores outside of Maryland.

The defendant's assets at the end of 1939 amounted to $32,662,976 and total sales by retail stores for the same year were $114,824,009. Of the latter total, sales by defendant's directly-owned stores were $77,014,652 and sales by stores of wholly-owned subsidiaries were $37,809,357.

As already stated, the suit results from the contention of the Wage and Hour Administrator that all of the employees of the defendant employed in its non-retail selling units, such as warehouses and processing plants, delivery service, main office, etc., are engaged in interstate commerce within the meaning of the Act, and are therefore entitled to the benefits of sections 6 and 7 thereof.

Parenthetically, it may be stated that the defendant admits that the employees in seven³ of its eleven warehouses are engaged in interstate commerce, and raises the question only that the remaining four⁴ are not engaged in interstate commerce.

In addition to contesting the suit on the broad premise that it is a "retail establishment", the defendant denies that many of its employees (in warehouses, offices and maintenance units) are engaged in interstate commerce or in the production of goods for interstate commerce, and specifically asserts that many main office workers are employed in connection with the retail stores only, and further that the employees in its Wilkes-Barre, Pennsylvania; Orange, New Jersey; Newark, New Jersey; and Syracuse, New York, warehouses are engaged in intrastate commerce, because those plants do not serve stores outside the states in which they are located.

The complaint specifically seeks to enjoin the defendant from violating sections 15(a) (1), 15(a) (2) and 15(a) (5) ...