Li v. Renewable Energy Solutions, Inc.

Decision Date21 February 2012
Docket NumberCiv. Action No.: 11-3589 (FLW)
PartiesX. CHARLES LI, Plaintiff, v. RENEWABLE ENERGY SOLUTIONS, INC., et al., Defendant.
CourtU.S. District Court — District of New Jersey



WOLFSON, United States District Judge:

X. Charles Li ("Plaintiff") filed this action on June 22, 2011, claiming that his former employer, Renewable Energy Solutions, Inc. ("Renewable"), and Zoltan Kiss ("Kiss"), the principal of Renewable Energy Solutions (collectively "Defendants") owe him unpaid wages under the Fair Labor Standards Act ("FLSA"), 29 U.S.C. § 201 et seq. Defendants move to dismiss the claim for a lack of subject matter jurisdiction, arguing that Plaintiff is not an "employee" under the FLSA. Plaintiff counters with a cross-motion for partial summary judgment on that same issue. For the reasons set forth below, both Defendants' motion to dismiss and Plaintiff's cross-motion for partial summary judgment are denied.


Beginning in August 1, 2005, Plaintiff, a research scientist with a Ph.D. in material engineering, worked as Renewable's Director of Research and Development until October 2009, when he resigned from that position. Compl., ¶ 4; Li Cert., at ¶¶ 1-2. It is undisputed thatPlaintiff was an employee at the beginning of the relationship. At issue is whether Plaintiff remained an employee through the end of his relationship with Renewable, or whether he became an independent contractor in 2007. My ruling on Defendants' motion to dismiss and Plaintiff's cross-motion for partial summary judgment turns on this threshold question.

A. Facts

Plaintiff served as Renewal's Director of Research and Development for materials and devices. Li Cert., ¶ 2. According to Plaintiff's certification, his primary duties included setting up research and development facilities, performing research and related engineering duties in the areas of "inorganic photovoltaics, hydrogen storage in carbon nanotubes and other nanomaterials, and the photoluminescence of inorganic and organic materials," as well as other duties Renewal deemed of importance, from time to time. Id. at ¶ 3. Plaintiff reported to Defendant Kiss, Renewal's former CEO. According to Kiss, Plaintiff's role at the beginning of his employment was to develop products to be marketed by Renewal. Kiss Supp. Cert., ¶ 3

Renewable initially paid Plaintiff as an employee, utilizing W-2 tax forms for withholding purposes. Id. at ¶ 4. As such, Plaintiff had his taxes withheld from his paycheck by Renewable. Id. at 4. In 2007, Renewable's accountant, Mr. Blaise Mazzoni ("Mazzoni"), had a discussion with Plaintiff concerning the form of his compensation. Id. Mazzoni suggested that Plaintiff could be paid on a "1099 basis," which would cause Renewable to stop withholding Plaintiff's taxes. Id. Mazzoni compared this type of payment to being a "consultant." Id., See also Kiss Supp. Cert., at ¶ 6 ("Plaintiff chose to accept the status of an independent consultant when the change from an employee to a consultant was first suggested to him.") (emphasis added). Plaintiff agreed to the change. Li Cert., at ¶ 4.

After the switch, Plaintiff continued to receive the same gross salary. Id. Additionally, Plaintiff continued to receive medical and dental benefits through Renewable's health plans. Id. However, Plaintiff was responsible for his own worker's compensation insurance and self-employment taxes as an independent consultant. Kiss Supp. Cert., at ¶ 5.

The change in payment was never discussed between Plaintiff and Kiss. Id. Furthermore, Plaintiff never discussed any changes in his working conditions or responsibilities with either Mazzoni or Kiss. Li Cert., at ¶ 4. According to Plaintiff, he continued to work on the premises, submit bi-weekly time sheets and report to Kiss as needed. Id., at ¶ 5. While Kiss alleges that Plaintiff was free to come and go as he pleased, Plaintiff continued to work the same forty hour workweek. Id., see also Kiss Supp. Cert. at ¶ 5.

Defendants claim that Plaintiff began performing more discrete services after the change, including applying for grants. Id., at ¶ 3-4. Furthermore, Defendants asserts that, after the change in payment, Plaintiff was given specific tasks to perform, but was not supervised in completing those tasks. Kiss Supp. Cert. at ¶ 2. However, Plaintiff claims that his duties did not change after he became a consultant. Li Cert., ¶ 5. Instead, according to his certification, Plaintiff continued to report directly to Kiss on a weekly or as-needed basis, and was directed and supervised by Kiss. Id. Furthermore, Plaintiff claims that his work as a research and development manager "was an integral part of the business," which was directly related to the development of the products the company wanted to sell. Id. at ¶ 8.

Plaintiff never invested in the company. Li Cert., at ¶ 7. Nor was he offered opportunities to earn bonuses or stock options. Id. Finally, according to Plaintiff, the work that he performed required no special skills, other than his engineering degree. Id.

B. Procedural History

On June 22, 2011, Plaintiff filed in this Court his complaint for unpaid wages under the FLSA and the New Jersey Wage Payment Law, N.J.S.A. 34:11-4.2 and 4.7, along with a breach of contract claim under New Jersey law. As his basis for this Court's jurisdiction, the complaint asserts that there is federal diversity jurisdiction under 28 U.S.C. § 1331 as well as subject matter jurisdiction under the FLSA, 29 U.S.C. § 216. In lieu of an answer to the complaint, Defendants filed a motion to dismiss, pursuant to Federal Rule of Civil Procedure 12(b)(1), for lack of subject matter and diversity jurisdiction.1 As noted, Defendants' central subject matter jurisdiction argument is that Plaintiff is not an "employee" as that term is defined by the FLSA. Following Defendants' filing, Plaintiff filed his cross-motion for partial summary judgment on the employee question. The Court now rules upon both motions.

A. 12(b)(1) Standard

A party may move for dismissal pursuant to Rule 12(b)(1) based on lack of subject matter jurisdiction. "When subject matter jurisdiction is challenged under Rule 12(b)(1), the plaintiff must bear the burden of persuasion." Symczyk v. Genesis HealthCare Corp., 656 F.3d 189, 191 n.4 (3d Cir. 2011) (quoting Kehr Packages, Inc. v. Fidelcor, Inc., 926 F.2d 1406, 1409 (3d Cir.1991)). No presumption of truthfulness is accorded to the plaintiff's allegations. U.S. ex rel. Atkinson v. PA. Shipbuilding Co., 473 F.3d 506, 509 (3d Cir. 2007).

When faced with a Rule 12(b)(1) challenge to jurisdiction, the court "must start by determining whether [it is] dealing with a facial or factual attack to jurisdiction. If [it] is a facial attack, the court looks only at the allegations in the pleadings and does so in the light most favorable to the plaintiff." Id. "If [it] is a factual attack, however, it is permissible for a court to review evidence outside the pleadings." Id. Moreover, the trial court is free to weigh and evaluate the evidence in determining whether its jurisdiction has been demonstrated. Symczyk, 656 F.3d at 191 n.4 (citing Mortensen v. First Federal Sav. & Loan Ass'n, 549 F.2d 884, 891 (3d Cir. 1977)). A jurisdictional challenge is a factual challenge if "it concerns not an alleged pleading deficiency, but rather the actual failure of [plaintiff's] claims to comport with the jurisdictional prerequisites." U.S. ex rel. Atkinson, 473 F.3d at 514. Here, Defendants make a factual challenge to jurisdiction, arguing that there is no federal question jurisdiction under the FLSA because Plaintiff is not an employee under that Act.

Plaintiff argues that Defendants' motion should be construed as a motion for failure to state a claim upon which relief may be granted, pursuant to Rule 12(b)(6) rather than a 12(b)(1) motion for lack of subject matter jurisdiction. So construing Defendants' motion, Plaintiff further argues, the Court should convert the motion into one for summary judgment and consider evidence outside of the pleadings. In support of his argument, Plaintiff cites Oestman v. National Farmers Union Ins. Co., 958 F.2d 303 (10th Cir. 1992), an out-of-district case in which the Tenth Circuit affirmed a lower court's grant of summary judgment to a defendant-employer based on the plaintiff's failure to demonstrate that he was an employee under the Age Discrimination in Employment Act, 29 U.S.C. § 621 et seq. ("ADEA"). Perhaps Plaintiff foundthis case relevant because, in that case, the court notes similarities between the ADEA and FLSA. Whatever similarities there are between the two statutes, I do not find Oestman persuasive here on the question of which federal rule of civil procedure should govern Defendants' motion. Oestman contains no discussion about which procedural framework should apply when ruling on employee status under a given statute; it merely notes that the lower court in that case had granted summary judgment. 958 F.2d at 303.

I am guided, instead, by the Third Circuit's ruling in CNA v. United States, 535 F.3d 132 (3d Cir. 2008). In that case, the Third Circuit addressed the jurisdiction/merits dichotomy that arises when an employee acts within the scope of his employment for purposes of determining whether federal courts have jurisdiction under the Federal Tort Claims Act ("FTCA"), 28 U.S.C. §§ 1346(b), 2671-80. The Circuit explained the import of choosing the proper procedural framework in that case:

Whether a Government employee was acting within the scope of his employment plausibly could be addressed as one of jurisdiction or one of the merits of a claim. That choice corresponds to whether Rule 12(b)(1) or, on the other hand, Rule 12(b)(6) or Rule 56 provided the proper procedure. A great deal turns on this question because Rule 12(b)(6) or Rule 56 would provide more procedural safeguards to the plaintiff Subrogees than does Rule 12(b)(1). For example, a

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