Hughes v. Scarlett's G.P., Inc.

• Decision Date: 05 February 2016
• Docket Number: No. 15-cv-5546,15-cv-5546
• Parties: KATHLEEN HUGHES, IMOGEN OLIVER, and VIRGINIA SHERWOOD, Plaintiffs, v. SCARLETT'S G.P., INC. d/b/a PINK MONKEY, CLINTON ENTERTAINMENT MANAGEMENT, LLC d/b/a PINK MONKEY, NEW YORK STRIP d/b/a PINK MONKEY, SCARLETT'S L.P. and MARK VAJDIK, Defendants.
• Court: U.S. District Court — Northern District of Illinois

KATHLEEN HUGHES, IMOGEN OLIVER,and VIRGINIA SHERWOOD, Plaintiffs, v. SCARLETT'S G.P., INC. d/b/a PINK MONKEY,CLINTON ENTERTAINMENT MANAGEMENT,

LLC d/b/a PINK MONKEY, NEW YORK STRIP d/b/a

PINK MONKEY, SCARLETT'S L.P. and MARK VAJDIK, Defendants.

No. 15-cv-5546

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

February 5, 2016

MEMORANDUM OPINION AND ORDER

AMY J. ST. EVE, District Court Judge:

Plaintiffs Kathleen Hughes, Imogen Oliver, and Virginia Sherwood are former exotic dancers at the Pink Monkey, an adult entertainment business allegedly owned and operated by Defendants. They bring this action alleging violations of the Fair Labor Standards Act, 29 U.S.C. § 201, et seq. ("FLSA") (Count I), the Illinois Minimum Wage Law ("IMWL") (Count II), the Illinois Wage Payment and Collection Act ("IWPCA") (Count III), the Racketeer Influence and Corruption Act, 18 U.S.C. 1964 ("RICO") (Count IV), and, as to Virginia Sherwood, retaliatory discharge under the FLSA, IMWL, and IWPCA (Count V). Plaintiffs claim that Defendants misclassified them as independent contractors instead of employees, failed to pay them minimum wage or overtime pay, and unlawfully confiscated their tips. (See R.1, Compl.).

On September 8, 2015, Defendants Scarlett's G.P., Inc. and Mark Vajdik moved to dismiss the Complaint under Federal Rule of Civil Procedure 12(b)(6) and 9(b) for failure to state a claim upon which relief can be granted and, as to the RICO claim, for failure to allege fraud with particularity. (R.10). On October 19, 2015, the remaining Defendants, Clinton Entertainment Management, LLC and Scarlett's L.P.,¹ also moved to dismiss the Complaint, advancing similar arguments in favor of dismissal (R.18). Both motions are before the Court. For the reasons set forth below, the Court grants the motions, dismissing the Complaint without prejudice.

BACKGROUND²

The Pink Monkey (the "Club") is an adult club offering semi-nude dance entertainment. (R.1, Compl. ¶ 9). Defendants Clinton, Scarlett's G.P., Inc., and Scarlett's L.P. "maintain ownership, recruitment, management, and/or operational interest" in the Pink Monkey. (Id.). Defendant Mark Vajdik ("Vajdik") is the President of Scarlett's G.P., Inc. and a general partner of Scarlett's L.P. (Id. ¶¶ 7-8). Defendants employ 20-40 exotic dancers on any given day. (Id. ¶ 14). Dancers must work a minimum of three shifts each week. (Id. ¶ 35). Defendants "dictate[] the common employment policies applicable in the Club," including policies relating to work status classification and tip splitting among Club employees. (Id. ¶ 10).

Each dancer signs a contract purporting to classify her as an independent contractor. (Id. ¶ 18; see also R.1-1, Form 1099 showing a payment of $17,275.00 in "non-employeecompensation" to Plaintiff Sherwood, attached as Exhibit B to the Compl.). Defendants do not compensate dancers on a set salary or wage basis. (R.1, Compl. ¶ 13). Rather, dancers generate their income through tips received while performing "exotic table, chair, couch, lap, and/or VIP room dances." (Id. ¶ 20). These tip amounts are mandatory and non-discretionary; the Pink Monkey—not the individual dancer—establishes these fixed prices for "Cabana" dances and "VIP Room" dances. (Id. ¶¶ 36-37; R.1-1, Pink Monkey Handbook at 5, attached as Exhibit A to the Compl.). For Cabana dances, for example, the Pink Monkey charges $30 per dance, which the dancer collects from the patron. (Id. ¶ 21; R.1-1, Exhibit A at 5). The Club's floor host continuously tracks each Cabana dance. (R.1, Compl. ¶¶ 38-39). For VIP dances, the patron pays the Club a set fee according to duration and method of payment - for example, $200 in cash for 15 minutes in the VIP room. (Id. ¶ 21; R.1-1, Exhibit A at 5). At the end of her shift, the dancer receives her fixed cut of the VIP dance fees. (R.1, Compl. ¶ 30; R.1-1, Exhibit A at 5-6 ("First you will be paid for any V.I.P. rooms you did that evening")).

Before checking out for the evening, the dancer must pay the mandatory "tip-out" fee, which "is 15% of [her] total earnings for the evening," as well as remit to the Club $5 for each Cabana dance performed. (R.1-1, Exhibit A at 6; R.1, Compl. ¶¶ 21, 30). The "tip-out" goes to Club managers, floor hosts, doormen, disc jockeys, and other employees who do not normally receive tips from patrons. (R.1, Compl. ¶¶ 34, 41, 113). In addition, dancers must pay the "House Mom" a fixed disc jockey/House Mom fee for each shift, as well as a fixed House Fee, as determined by the dancer's start time. (Id. ¶¶ 21, 30; R.1-1, Exhibit A at 1).³ These fees,together with the 15% "tip-out" and the $5 per Cabana dance contribution, will be referred to herein as the "Tip Splitting Policy."

Plaintiffs now allege that Defendants misclassified them and denied them the minimum wage and overtime pay guaranteed to employees under the FLSA, IMWL, and IWPCA. In particular, Plaintiffs allege they are employees—not independent contractors—of the Pink Monkey under the relevant "economic reality test," (id. ¶¶ 25-50), and that Defendants paid them "no wages whatsoever" and forced them to "work eight (8) hours or more without breaks and without overtime pay" in violation of the FLSA, IMWL, and IWPCA. (Id. ¶¶ 59, 30). Plaintiffs further contest the Tip Splitting Policy as unlawful, claiming that they are entitled to retain all patron tips as their sole property. (Id. ¶¶ 52-54). Plaintiffs seek unspecified back wages, overtime compensation, and tip recovery, along with applicable interest and liquidated damages. (E.g., id. ¶ 76).

LEGAL STANDARD

"A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) challenges the viability of a complaint by arguing that it fails to state a claim upon which relief may be granted." Camasta v. Jos. A. Bank Clothiers, Inc., 761 F.3d 732, 736 (7th Cir. 2014). Under federal pleading standards, a "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 Bell Atlantic v. Twombly, 550 U.S. 544, 570 (2007)). "[T]he court must review the complaint to determine whether it contains enough fact to raise a reasonable expectation that discovery will reveal evidence to support liability for the wrongdoing alleged." Adams, 742 F.3d at 729 (citation omitted). A complaint will not survive a motion to dismiss, however, "simply because the defendants managed to figure out the basic factual or legal grounds for the claims."Id. In reviewing a complaint, the Court must accept all "factual allegations as true, and must draw all reasonable inferences in the plaintiff's favor." Virnich v. Vorwald, 664 F.3d 206, 212 (7th Cir. 2011). "[L]egal conclusions and conclusory allegations merely reciting the elements of the claim," however, "are not entitled to this presumption" of truth. Id.

"Beyond the requirements of Rule 12(b)(6), Rule 9(b) requires all allegations of fraud to be 'state[d] with particularity.'" Simonian v. Blistex, Inc., No. 10 CV 01201, 2010 WL 4539450, at *2 (N.D. Ill. Nov. 3, 2010) (quoting Fed.R.Civ.P. 9(b)).

ANALYSIS

I. FLSA Claim (Count I)

A. Applicability of the FLSA

The FLSA requires an employer to pay minimum and overtime wages to each of "his employees who in any workweek is engaged in commerce or in the production of goods for commerce, or is employed in an enterprise engaged in commerce or in the production of goods for commerce[.]" 29 U.S.C. §§ 206(a), 207(a)(1). The FLSA defines an "enterprise engaged in commerce" as an enterprise that "has employees engaged in commerce or in the production of goods for commerce . . . and . . . whose annual gross volumes of sales made or business done is not less than $500,000." 29 U.S.C. § 203(s)(1)(A)(i-ii).

Defendants do not presently challenge the characterization of Plaintiffs as "employees" within the meaning of the FLSA. Contra Reich v. ABC/York-Estes Corp., 64 F.3d 316, 322 (7th Cir. 1995) (noting that a "core issue in this case is whether the dancers are 'employees' . . . If not (that is, if the dancers are independent contractors), the [FLSA] does not apply"). Instead, Defendants challenge Plaintiffs' failure to allege that Plaintiffs, the Club, and/or Defendants are "engaged in commerce," as required on an FLSA claim. See Hicks v. Avery Drei, LLC, 654 F.3d739, 745-46 (7th Cir. 2011) (discussing whether plaintiff was "engaged in commerce" and noting that, "to prevail on her FLSA claim for overtime wages, [plaintiff] must first demonstrate that she or her "Employer" . . . falls within the Act so as to trigger its substantive provisions"); see also Torres v. Pallets 4 Less, Inc., No. 14 CV 4219, 2015 WL 920782, at *2-3 (N.D. Ill. Mar. 2, 2015) (discussing individual-based and enterprise-based coverage under the FLSA).

Plaintiffs, in response, point to their general allegations that the Pink Monkey is a business establishment that is open to the general public, employs many dancers (as well as doormen, managers, and disc jockeys), and processes credit card transactions. The Complaint does not even allege, however, the type of FLSA coverage (individual versus enterprise) under which Plaintiffs claim protection. Plaintiffs offer no specific details of interstate commerce, and make no attempt to address the monetary threshold triggering enterprise coverage. While the Court is mindful that discovery has not yet proceeded, Plaintiffs have made no effort to demonstrate the applicability of the FLSA in the Complaint.

Additionally, Defendants fault Plaintiffs for failing to distinguish among them and failing to identify which Defendant is the "employer" for purposes of FLSA liability. The failure to distinguish between Defendants is impermissible insofar as it "fails to place each [d]efendant on notice as to its alleged wrongful conduct." Specht v. Google, Inc., 660 F. Supp. 2d 858, 865 (N.D. Ill. 2009). Plaintiffs respond by arguing that "the...