Fleming v. Palmer, 3659.

• Decision Date: 18 November 1941
• Docket Number: No. 3659.,3659.
• Citation: 123 F.2d 749
• Parties: FLEMING, Adm'r of Wage and Hour Division, Dept. of Labor, v. PALMER et al.
• Court: U.S. Court of Appeals — First Circuit

123 F.2d 749 (1941)

FLEMING, Adm'r of Wage and Hour Division, Dept. of Labor, v. PALMER et al.

No. 3659.

Circuit Court of Appeals, First Circuit.

November 18, 1941.

Irving J. Levy, of Washington, D. C. (Gerard D. Reilly, Leo L. Holstein, and Erwin B. Ellmann, all of Washington, D. C., and Philip F. Herrick, of San Juan, P. R., on the brief), for appellant.

James R. Beverley, of San Juan, P. R. (Juan Enrique Soltero and Rafael Soltero Peralta, both of San Juan, P. R., on the brief), for appellees.

Before MAHONEY and WOODBURY, Circuit Judges, and HARTIGAN, District Judge.

MAHONEY, Circuit Judge.

The plaintiff, as Administrator of the Wage and Hour Division, United States Department of Labor, brought this action to enjoin the defendants from violating the provisions of the Fair Labor Standards Act of 1938, 52 Stat. 1060, U.S.C.A. Title 29, § 201 et seq.

The lower court refused to enjoin the defendants, Santiago R. Palmer, Magdalena J. Palmer and the Caribbean Embroidery Cooperative, Inc., with respect to members of the cooperative, but did enjoin the Caribbean Embroidery Cooperative, Inc., and not the defendant Palmers, as to non-members. It found as a fact that the cooperative was voluntarily formed, owned and controlled by the member-workers, who agreed to pool their labor and split the profits; and held that there was no employer-employee relationship as to members within the meaning of the Act.

No appeal was taken by the cooperative from the injunction granted against it. The plaintiff, however, has appealed from the refusal of the district court to enjoin the Palmers and the cooperative with respect to members of the cooperative. It is agreed that the cooperative and its members are engaged in the production of goods for interstate commerce. It is also agreed that the defendants have violated the wage-hour and record provisions of the Act, if it is applicable to them.

The plaintiff contends: (1) That the Act applies because an employer-employee relationship exists between the Palmers and the cooperative on the one hand and the members of the cooperative on the other, since in reality the Palmers control the business and the cooperative; and (2) that even if the workers control the business, still the Act applies to a member-controlled cooperative. The defendants contend: (1) that the cooperative is a "labor organization" within the meaning of Section 3(d) of the Act and thus exempt from its provisions; and (2) that even though the cooperative may not be such an organization, the Act does not apply to them because the defendants are not employers, and the members are not employees within its meaning.

The case involves the applicability of Sections 3(a), 3(e), 3(g), 6, 7, 11(c), 15 (a) (1), 15(a) (2) and 15(a) (5) of the Act. The main issue is one of fact: Is this business controlled by the Palmers or is it controlled by the workers? If the cooperative is controlled by the Palmers then the simple, economic fact is that the members are working for the Palmers and hence are employees of the Palmers and the cooperative within the meaning of the Act. The district judge's finding that the business is controlled by the workers and not by the Palmers must stand unless it is clearly erroneous, due regard being given to the opportunity of the trial court to judge the credibility of witnesses. Rule 52(a), Federal Rules of Civil Procedure, 28 U.S.C.A. following section 723c. A finding of fact is clearly erroneous if it is against the clear weight of the evidence. It does not suffice that it be supported by evidence. Aetna Life Ins. Co. v. Kepler, 8 Cir., 1941, 116 F.2d 1; State Farm Mutual Automobile Ins. Co. v. Bonacci, 8 Cir., 1940, 111 F.2d 412; Manning v. Gagne, 1 Cir., 1939, 108 F.2d 718; Fed. Rules of Civil Procedure and The American Bar Institute Proceedings, p. 316 et seq. (Cleveland, 1938); Clark & Stone, Review of Findings of Fact, 4 U. of Chi.L.Rev. 190 (1937). In determining whether the finding was correct, we shall examine documentary evidence which we are as competent to consider as the trial court, testimony on which there is no conflict, and for the most part only the testimony of Palmer and Soltero, so that the element of credibility will not be seriously involved. This examination reveals the following history:

From 1931 or 1932 up until the day the Fair Labor Standards Act of 1938 went into effect, Santiago R. Palmer and Magdalena Juan Palmer operated and controlled the Caribbean Embroidery Company at 101 Calle Luna, San German, Puerto Rico, and manufactured handmade needlework products, particularly handmade handkerchiefs. Business was solicited from manufacturers and wholesalers through Julio Garcia in New York. The raw materials were sent from the United States to the company's plant in Puerto Rico, where the cloth was cut and stamped with a pattern. It was then distributed to women needleworkers to embroider the handkerchiefs in their homes. The handkerchiefs were returned to the company where they were checked, repaired, laundered, ironed, folded and packed and then shipped back to the United States.

The Fair Labor Standards Act was approved by Congress on June 25, 1938, to become effective on October 24, 1938. Juan Enrique Soltero, a Puerto Rican lawyer, made a study of the Act and concluded that it would apply to the needlework industry as then set up in Puerto Rico, but that it would not apply if the industry were to be conducted by the workers themselves as the members of a cooperative. He discussed cooperativism with some employers in the industry, and the Sabana Grande Workshop of Mr. Jose Antonio Castillo was reorganized into a cooperative under Soltero's direction.

In June, 1938, Soltero discussed with the defendant, Santiago R. Palmer, head of the Caribbean Embroidery Company, the possibilities of establishing a cooperative. Shortly thereafter Palmer informed the workers in his company of his conversations with Soltero and suggested that they hear Soltero "make a full explanation to them." Palmer advised the formation of a laborer's cooperative and told the workers "without menacing them" that they would be without work if they didn't form a cooperative.

On August 15, 1938, Palmer wrote to Julio Garcia, his New York agent, telling him that "we are taking the necessary steps to continue our business after the minimum wage law goes into effect" "but, naturally on the basis of dealing only and exclusively with me".¹ Meanwhile, Palmer also distributed a circular to his workers telling them it was necessary to form the cooperative to avoid the effects of the Act but that the cooperative would be dissolved when it should be no longer necessary for employers to meet the requirements of the Act.²

During this period of the formation of the cooperative, Palmer conferred with his workers "constantly", telling them that he would help them set up the cooperative. At the same time Soltero was also constantly conferring with the workers and with Palmer. Soltero advised the workers to "get the laborers in a public place, all that could be assembled, and invite distinguished citizens, because I was convinced that this had to be done in an honest way, otherwise it could not be sustained".

The public meeting was arranged by a committee of workers composed of Elva Nazario Grant, head of the company's shipping department; Juana Gonzalez Negron, supervisor of the ironing and washing department; Gregoria Quinones Ramirez, supervisor of the cutting department; and Carmen Mujica Guzman. The meeting was held at the Teatro Sol in San German. About two hundred workers attended the meeting as well as distinguished citizens including the mayor, chief of police, a municipal judge, a member of the General Assembly and a representative in Congress. Very few home workers were present. Mr. Herman Alvarez, a druggist of San German, presided at the meeting.

At this meeting Soltero told the workers what a cooperative was and advised them that a cooperative "should be organized in the light of the Fair Labor Standards Act." He told them that in a cooperative "the laborers are owners and do not receive wages" and "the business would be for them". He urged them to "act as persons and not as slaves and not as things" and suggested that a vote be taken "to inquire about the results". Soltero testified:

"* * * A motion was passed whereby the assembly decided that according to the explanation I gave they were in sympathy with the organization of a labor cooperative. Then someone asked me what they should do. I suggested to them that the best way to proceed was the same way as we did in Sabana Grande, that it was impossible for them, so many people, to discuss the details of that problem because mass psychology would interfere and that they should select a delegation of persons in whom they had confidence and trusted with me and that in my opinion that committee should be composed of persons whom they thought most prepared."

Palmer testified that Soltero suggested each step of the way as the workers knew nothing about a cooperative.

Eight incorporators were chosen, one for each process of the business. They included the four persons who composed the committee to arrange the meeting, and also Camila Cardona Vega, supervisor of the stamping department; Rafael Juan Toro, a brother of Mrs. Palmer and supervisor of the office department; Juan Filiberty Velez, representative of the home distributors, and Santa Ramirez Jimenez. These incorporators represented the cutting, stamping, shipping, ironing, washing, office, folding and supervising, and home distributing processes, respectively. When the incorporators were selected, the stamping department had three employees; the office department, three; the cutting department, thirteen or fourteen; and the supervision and shipping departments, sixteen. The total number of workers inside the plant at this time did not exceed one hundred and forty. Filiberty represented...