Marshall v. Brunner

• Decision Date: 10 February 1982
• Docket Number: Nos. 80-2700,81-1040,s. 80-2700
• Citation: 668 F.2d 748
• Parties: 25 Wage & Hour Cas. (BN 313, 92 Lab.Cas. P 34,118 Ray MARSHALL, Secretary of Labor United States Department of Labor, Appellee, v. Ruth A. BRUNNER, Executrix of the Estate of Robert Brunner, deceased, and Ruth A. Brunner, individually and as Successor to Robert Brunner, Appellant. Ray MARSHALL, Secretary of Labor United States Department of Labor, Appellant, v. Ruth A. BRUNNER, Executrix of the Estate of Robert Brunner deceased, Ruth A. Brunner individually and Successor to Robert Brunner, Appellee.
• Court: U.S. Court of Appeals — Third Circuit

Page 748

668 F.2d 748

25 Wage & Hour Cas. (BN 313, 92 Lab.Cas. P 34,118

Ray MARSHALL, Secretary of Labor United States Department of

Labor, Appellee, v. Ruth A. BRUNNER, Executrix of the Estate of Robert Brunner,

deceased, and Ruth A. Brunner, individually and as

Successor to Robert Brunner, Appellant.

Ray MARSHALL, Secretary of Labor United States Department of

Labor, Appellant, v. Ruth A. BRUNNER, Executrix of the Estate of Robert Brunner

deceased, Ruth A. Brunner individually and

Successor to Robert Brunner, Appellee.

Nos. 80-2700, 81-1040.

United States Court of Appeals, Third Circuit.

Argued Nov. 13, 1981.

Decided Jan. 14, 1982.

Rehearing and Rehearing In Banc Denied Feb. 10, 1982.

T. Timothy Ryan, Jr., Sol. of Labor, Donald S. Shire, Associate Sol., Washington, D. C., Marshall H. Harris, Regional Sol., Philadelphia, Pa., Mary Ann Bernard (argued), Joseph Woodward, Attys., U. S. Dept. of Labor, Washington, D. C., for appellee in 80-2700, appellant in 81-1040.

Wendell G. Freeland (argued), Richard F. Kronz; Freeland & Kronz, Pittsburgh, Pa., for appellant in 80-2700, appellee in 81-1040.

Before SEITZ, Chief Judge, GARTH, Circuit Judge and CAHN, District judge ^*

OPINION OF THE COURT

GARTH, Circuit Judge:

The Secretary of Labor, in a complaint that charged Brunner ¹ with violations of the Fair Labor Standards Act of 1938, sought an injunction against future violations of the Act, back pay for Brunner's employees, and the imposition of liquidated damages in an amount equal to the back pay. After a trial on the merits, the district court, 500 F.Supp. 116, entered judgment granting the Secretary's request for an injunction against future violations of the Act and for recovery of back wages totalling $112,437.05. The court declined to award any liquidated damages. Both Brunner and the Secretary appeal.

While these appeals present questions involving the coverage of Brunner's enterprise within the ambit of 29 U.S.C. § 203(s), the issue with which we are most concerned is whether the district court committed legal error when it concluded that an award of liquidated damages in favor of the Secretary was not justified.

We affirm all rulings of the district court, except its decision refusing to award liquidated damages.

I.

Brunner was engaged in the business of collecting garbage, trash, and scrap metal from homes and a number of commercial enterprises in thirteen municipalities in Allegheny County. The Wage and Hour Division of the Department of Labor conducted an investigation of Brunner's business through January of 1977. The investigation uncovered evidence of extensive violations of the minimum wage, maximum hours, child labor, and record keeping provisions of the FLSA. During the investigation, officials of the Wage and Hour Division and Brunner's own counsel specifically warned Brunner about the importance of complying with the Act's record keeping requirements and its prohibitions against child labor. Despite this advice, the time cards which Brunner then began keeping were inaccurate and Brunner also employed other measures to conceal the lengthy hours that the employees actually worked. In addition, Brunner continued to employ minors in violation of the Act. (Fdgs. 23-28, A.234-36). On May 27, 1977 the Secretary filed this suit.

At trial, Brunner maintained that the Company was not required to comply with provisions of the FLSA because it was a local enterprise whose employees were not engaged in commerce, did not produce goods for commerce, and did not handle goods that had been moved in, or produced for, commerce. The district court rejected this argument, and concluded that the Company was subject to the FLSA and that it had violated the minimum wage, maximum hours, child labor, and record keeping provisions of the Act. From the evidence, the district court concluded that Brunner's employees worked an average of 56 hours during a five-day workweek and were not paid the applicable minimum wage or time-and-one half for hours worked in excess of forty hours per week.

As a consequence, the district court enjoined Brunner from violating the Act, and awarded $112,437.05 in back pay to the affected employees. The district court, however, refused to assess Brunner with liquidated damages in the same amount. These appeals ² followed.

II.

The coverage of the Fair Labor Standards Act extends to employees employed in "an enterprise engaged in commerce or in the production of goods for commerce." ³ Section 203(s) of the Act provides that such an enterprise is one

which has employees engaged in commerce or in the production of goods for commerce, or employees handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce by any person, ... ⁴ (emphasis added).

The parties' stipulations reveal that Brunner used "trucks, truck bodies, tires, batteries, and accessories, sixty-gallon containers, shovels, brooms, oil and gas" that had been manufactured out of state and had moved in interstate commerce. (App. at 21-22). The district court thus concluded that Brunner is subject to the Act, since its employees "handl(ed) ... goods or materials that have been moved or produced in commerce."

Brunner, however, argues that there is an exception provided in section 203(s) for firms that are the ultimate consumers of goods that have been moved or produced in commerce. Although Brunner concedes that Congress has the power to subject Brunner to FLSA coverage (Brief for Appellant, No. 80-2700, at 7), Brunner argues that Congress did not intend the Act to apply to a firm merely because the business uses motor vehicles, gas, oil and other manufactured goods in its operations.

The "ultimate consumer" exception is found in section 203(i) of the Act, which provides in relevant part "Goods means goods ... commodities, merchandise, or articles or subjects of commerce of any character, ... but does not include goods after their delivery into the actual physical possession of the ultimate consumer thereof...." Thus, section 203(i) excludes from the definition of goods those goods that have been delivered into the physical possession of an ultimate consumer for its own use. Brunner's "ultimate consumer" argument proceeds on the assumption that if Brunner's employees only use products which the Company itself consumes, then Brunner's employees have not handled "goods" that have been moved or produced in commerce within the meaning of section 203(s). Brunner further asserts that the phrase "or materials" added by Congress in the 1974 amendment did not affect the "ultimate consumer" exception.

Just as the district court rejected this argument, so do we. When the 1974 amendment to section 203(s) added the words "or materials" to that statute, it clarified the meaning of the Act with respect to those businesses, which in the course of their own operations, use materials which have been moved in or produced for commerce. Indeed, the Senate report fully explains the purpose of the amendment:

The bill also adds the words "or materials" after the word "goods" to make clear the Congressional intent to include within this additional basis of coverage the handling of goods consumed in the employer's business, as, e.g., the soap used by a laundry * * *.

Although a few district courts have erroneously construed the "handling" clause as being inapplicable to employees who handle goods used in their employer's own commercial operations, the only court of appeals to decide this question and the majority of the district courts have held otherwise and the addition of the words "and materials" will clarify this point. (citations omitted).

S.Rep. No. 93-690, 93d Cong., 2d Sess. 17 (1974). ⁵

We are satisfied that the legislative history demonstrates that Congress intended to extend the coverage of the Act to firms, like Brunner's which use materials that have been moved in or produced in, commerce. Indeed, Brunner has cited to no authority that would justify a different interpretation of the 1974 amendment. Dunlop v. Industrial America Corp., 516 F.2d 498 (5th Cir. 1975) cited by Brunner, while admittedly holding that a business similar to Brunner's is within the ultimate consumer exception, nevertheless does not support Brunner's contention. Dunlop was decided on the basis of the Act as it appeared prior to the 1974 amendments. As the court in Dunlop stated:

But that amendment is prospective only, and Congress' failure to make clear its intentions in 1961 and 1966, if such they were, do not enable us to achieve what Congress itself did not do until 1974. We therefore hold that prior to its amendment in 1974 the Fair Labor Standards Act did not reach enterprises which provided only services to its customers and did not pass on any goods obtained from interstate commerce. (footnote omitted).

516 F.2d at 502.

In explaining the effect of the 1974 amendment, Dunlop referred, as we have, to the Senate Report, stating:

This latest amendment leaves the definition of goods intact but circumvents it by a broader definition of "enterprise engaged in commerce." The new definition includes enterprises with "employees handling, selling, or otherwise working on goods or materials that have been moved in ... commerce ..." See S.Rept. 93-690, 93d Cong., 2d Sess., p. 17 (1974). (emphasis in original).

Id. at 502 n.8.

We thus conclude that Brunner is subject to the provisions of the FLSA. ⁶

III.

Section 216(b) of the Fair Labor Standards Act provides that any employer who violates the minimum wage or maximum hour provisions of the Act, "shall be liable to the employee or employees affected in the amount of their unpaid minimum wages or their unpaid overtime compensation, as the case may be, and in an additional equal amount as liquidated damages." 29 U.S.C. § 216(b) (emphasis added). Under the Act, liquidated damages are compensatory, not punitive in nature. Congress provided for liquidated damages to...