Giron v. Zeytuna, Inc.
| Decision Date | 23 March 2022 |
| Docket Number | 20-cv-1977 (GMH) |
| Court | U.S. District Court — District of Columbia |
| Parties | LISMAN MISAEL DE LEON GIRON, et al., Plaintiffs, v. ZEYTUNA, INC., et al., Defendants. |
This action has a somewhat complicated procedural history that informs the primary issue before the Court: whether Plaintiffs may pursue wage-and-hour claims against a business they allege is a successor to a restaurant that recently emerged from Chapter 7 bankruptcy proceedings, or whether they are barred from doing so because the bankruptcy estate “owned” the successor liability claim, which therefore could be brought only by the bankruptcy trustee. Plaintiffs, who were employed by Defendant Zeytuna, Inc. sued the restaurant and its owner-Defendant Mohammed Hyali-for violations of the Fair Labor Standards Act, 29 U.S.C. § 201 et seq. (“FLSA”), the D.C. Wage Payment and Collection Act, D.C. Code § 32-1301, et seq. (“Wage Payment Act”) and the D.C. Minimum Wage Revision Act, D.C. Code § 32-1001, et seq. (“Minimum Wage Act”). While the action was pending, both Defendants filed for bankruptcy protection under Chapter 7 of the Bankruptcy Code. Because the bankruptcy trustees found there was no property available for distribution, the bankruptcy estates of both Defendants were administered without a distribution to creditors and the cases were closed. As an individual debtor, Hyali received a discharge pursuant to 11 U.S.C. § 727(a)(1) but Zeytuna, as a business entity, could not. Thereafter, Hyali was dismissed from this case. Plaintiffs then sought leave to file an amended complaint seeking to hold an additional entity-Tazza Café LLC-liable for Zeytuna's alleged violations of the FLSA, the Wage Payment Act, and the Minimum Wage Act as a successor entity to Zeytuna. For its part, Zeytuna opposed the motion to amend and filed a cross-motion to dismiss the operative complaint.[1] For the reasons discussed below, Plaintiffs' motion is granted and Zeytuna's motion is denied.
According to the currently operative complaint from July 2020, Hyali owned Zeytuna Inc., an entity incorporated in the District of Columbia that operated a local restaurant known as Zeytuna. ECF No. 1, ¶¶ 5-6. Plaintiffs worked at Zeytuna in various capacities until March 2020, when they were laid off. Id., ¶¶ 7-8. Plaintiffs allege that they worked dozens of hours of overtime per week but were paid at their regular hourly pay rate rather than the overtime rate required by federal and local law. Id., ¶¶ 10, 16, 23. They further allege that they were not paid at all for some of the hours they worked. Id., ¶¶ 11, 29.
In April 2021, Hyali filed a submission stating that he had filed a Chapter 7 bankruptcy petition in the United States Bankruptcy Court for the District of Maryland. ECF No. 22. In May 2021, Zeytuna filed a similar submission regarding its Chapter 7 bankruptcy petition. ECF No. 28. The bankruptcy cases automatically stayed proceedings in this action against both Hyali and Zeytuna. See ECF No. 23; Minute Order dated June 1, 2021; see also 11 U.S.C. § 362(a); see, e.g., In re McGuirl, 349 B.R. 759, 760 (D.D.C. 2006) (); In re Horton, 595 B.R. 1, 2 (Bankr. D.D.C. 2019) ().
The petitions in both bankruptcy cases listed Plaintiffs as holders of an unsecured nonpriority claim-specifically, a “Fair Labor Standards Act” claim-that was contingent, unliquidated, and disputed. Voluntary Petition for Individuals Filing for Bankruptcy (“Hyali Bankruptcy Petition”) at 22-23, In re Hyali, No. 21-12451 (Bankr. D. Md. Apr. 14, 2021); Voluntary Petition for Non-Individuals Filing for Bankruptcy (“Zeytuna Bankruptcy Petition”) at 15, In re Zeytuna, Inc., No. 21-13607 .[2] Hyali's petition listed as an asset a 100 percent interest in an entity called Tazza Café, LLC, with a value of $0.00. Hyali Bankruptcy Petition at 12, In re Hyali, No. 21-12451 (Bankr. D. Md. Apr. 14, 2021). In June and July 2021, the trustee of the bankruptcy estate in each case reported that there was “no property available for distribution from the estate over and above that exempted by law.” Chapter 7 Trustee's Report of No Distribution, In re Hyali, No. 21-12451 (Bankr. D. Md. June 11, 2021); Chapter 7 Trustee's Report of No Distribution, In re Zeytuna, Inc., No. 21-13607 (Bankr. D. Md. July 12, 2021). The Trustee's Report in Zeytuna's case noted that the company had scheduled claims in the amount of $74, 432.10 and that assets in the amount of $5, 940.00 were “[a]bandoned.” Chapter 7 Trustee's Report of No Distribution, In re Zeytuna, Inc., No. 21-13607 (Bankr. D. Md. July 12, 2021). The final decree of bankruptcy in Zeytuna's Chapter 7 proceedings was entered on July 13, 2021, and the case was closed-without a discharge of pre-petition debts, as mandated by 11 U.S.C. § 727(a)(1), which exempts from discharge any debtor that “is not an individual.”[3]See Final Decree, In re Zeytuna, Inc., No. 21-13607 (Bankr. D. Md. July 13, 2021). Hyali's pre-petition debts were discharged and his case was closed on August 11, 2021.[4] Order Discharging Debtor, In re Hyali, No. 21-12451 (Bankr. D. Md. Aug. 11, 2021); Final Decree, In re Hyali, No. 21-12451 (Bankr. D. Md. Aug. 11, 2021).
Initially there was some confusion on the part of Plaintiffs as to the impact of the bankruptcy actions on this one. Under the mistaken belief that both Defendants had received discharges of their pre-petition debts, Plaintiffs initially asserted that they would dismiss this entire action but then realized their error and sought to dismiss its claims against Hyali, who had received a discharge, and proceed against Zeytuna, which had not. See ECF Nos. 30-32. Thereafter, the Court dismissed the claims against Hyali, set a briefing schedule for the motions now before the Court, and lifted the stay. ECF Nos. 35-36, 39.
The proposed amended complaint omits Hyali as a defendant and adds Tazza Café. ECF No. 37-2 at 3-4. It includes allegations-discussed in more detail below-that Tazza Café is liable for Zeytuna's debts as a successor entity because Tazza Café engages in a similar business in a similar location under similar ownership and management as Zeytuna and does so with equipment transferred and employees hired from Zeytuna. Id. at 3-5. The three counts of the proposed amended complaint are the same as those in the currently operative complaint-violations of the FLSA, the Wage Protection Act, and the Minimum Wage Act. Id. at 7-10. However, the counts include an allegation that Tazza Café, as Zeytuna's successor entity, is also liable to Plaintiffs. Id.
“Rule 15(a)(2) [of the Federal Rules of Civil Procedure] instructs district courts to ‘freely give leave [to amend a pleading] when justice so requires.'” In re Interbank Funding Corp. Sec. Litig., 629 F.3d 213, 218 (D.C. Cir. 2010) () (quoting Fed.R.Civ.P. 15(a)(2)). While “the rule is to be construed liberally, ” determination of whether to grant or deny leave to amend is firmly within the district court's discretion. Belizan v. Hershon, 434 F.3d 579, 582 (D.C. Cir. 2006). More, “[b]ecause amendments are to be liberally granted, the non-movant bears the burden of showing why an amendment should not be allowed.” Abdullah v. Washington, 530 F.Supp.2d 112, 115 (D.D.C. 2008). Leave to amend a complaint may be denied where there is “undue delay, bad faith, undue prejudice to the opposing party, repeated failure to cure deficiencies, or futility.” Richardson v. United States, 193 F.3d 545, 548-49 (D.C. Cir. 1999). Amendment is futile where the allegations in the proposed amended complaint “would not survive a motion to dismiss.” James Madison Ltd. ex rel. Hecht v. Ludwig, 82 F.3d 1085, 1099 (D.C. Cir. 1996). Thus, the “review for futility is functionally ‘identical to review of a Rule 12(b)(6) dismissal based on the allegations in the amended complaint.'” Barry v. Haaland, No. 19-cv-3380, 2021 WL 5992094, at *1 (D.D.C. July 23, 2021) (quoting In re Interbank Funding Corp., 629 F.3d at 215-16).
A motion to dismiss under Rule 12(b)(6) challenges the sufficiency of a complaint on the basis that it fails to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). A court reviewing a 12(b)(6) motion “must accept as true” the well-pleaded factual allegations contained in the complaint, Atherton v. D.C. Office of Mayor, 567 F.3d 672, 681 (D.C. Cir. 2009), and construe those allegations “in the light most favorable to the plaintiff[ ], ” Vick v. Brennan, 172 F.Supp.3d 285, 295 (D.D.C. 2016). While plaintiffs need not make “detailed factual allegations” to avoid dismissal, they must provide “more than labels and conclusions” or “a formulaic recitation of the elements of a cause of action.” Bell Atlantic Corp v. Twombly, 550 U.S. 544, 555 (2007). Rather, the complaint “must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). To meet this standard, the plaintiff must “plead[ ] factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.
As noted, there are dueling motions before the Court. Plaintiffs have filed a motion for leave to file an amended complaint which seeks to excise the claims against Hyali, retain the claims against Zeytuna, and add claims against Tazza Café on a theory of successor...
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