Marshall v. Davis

• Decision Date: 24 April 1981
• Docket Number: No. 77-3433.,77-3433.
• Citation: 526 F. Supp. 325
• Parties: Ray MARSHALL, Secretary of Labor, United States Department of Labor v. J. D. DAVIS, et al.
• Court: U.S. District Court — Middle District of Tennessee

526 F. Supp. 325

Ray MARSHALL, Secretary of Labor, United States Department of Labor v. J. D. DAVIS, et al.

No. 77-3433.

United States District Court, M. D. Tennessee, Nashville Division.

April 24, 1981.

Robert C. Haynes, Nashville, Tenn., for plaintiff.

Malcoln L. McCune, Nashville, Tenn., for defendant.

MEMORANDUM

JOHN T. NIXON, District Judge.

This action was instituted by the Secretary of Labor, under Section 17 of the Fair Labor Standards Act hereinafter referred to as the Act to enjoin defendant from allegedly violating the overtime¹ and record keeping provisions² of the Act, and to restrain defendant from withholding any overtime wages and compensation with accrued interest allegedly due employees.

Defendant is presently before this Court on a motion for summary judgment questioning the constitutionality of the pertinent provisions of the Act under Article 1, Section 8 of the United States Constitution. Plaintiff Secretary has filed a cross motion for partial summary judgment insisting that the Act is constitutional and therefore applicable to the regulation of defendant's business. Upon consideration of argument of counsel and review of the record, plaintiff's motion for partial summary judgment will be granted.

First, the issue of defendant's coverage under the Act is addressed. Second, the constitutionality of that coverage is examined.

I.

Initially, the issue for resolution is whether the defendant's business constitutes an enterprise within the contemplation of the Act.

An enterprise is defined as:

... the related activities performed (either through unified operation or common control) by any person or persons for a common business purpose, and includes all such activities whether performed in one or more establishments or by one or more corporate or other organizational units including departments of an establishment operated through leasing arrangements, but shall not include the related activities performed for such enterprise by an independent contractor ... 29 U.S.C. § 203(r).

A careful examination of the facts in this case indicate that the defendant has through unified operation and common control engaged in the performance of related activities for a common business purpose. Defendant is the owner and operator of Glen Valley Apartments and Duplexes and is part owner and managing partner of the Sycamore Apartments. As owner of these businesses, he employs individuals to manage the buildings and grounds. He has the authority to hire, fire, set wages and hours and other incidents of employment with regard to these employees. Defendant's operation therefore constitutes an "enterprise" within the meaning of the statutory provisions set out above. Marshall v. Whitehead, 463 F.Supp. 1329 (M.D.Fla. 1978); Brennan v. Williams Investment Co., Inc., 390 F.Supp. 981 (W.D.Tenn.1975); Brennan v. Patio Cleaners, Inc., 373 F.Supp. 987 (S.D.Ohio 1974).

A further determination is now required. Specifically, is this enterprise an enterprise with employees engaged in commerce or in the production of goods for commerce within the provisions of the Act? These provisions state in pertinent part:

Commerce is defined as:

... trade, commerce, transportation, transmission, or communication among the several states or between any state and any place outside thereof. 29 U.S.C. § 203(b).

Goods are defined as:

... wares, products, commodities, merchandise, or articles or subjects of commerce of any character, or any part or ingredient thereof, but does not include goods after their delivery into the actual physical possession of the ultimate consumer thereof other than a producer, manufacturer, or processor thereof. 29 U.S.C. § 203(i).

An enterprise engaged in commerce or in the production goods for commerce is defined as:

... an enterprise 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, and which ... is an enterprise ... whose annual gross volume of sales made or business done is not less than $250,000 ... 29 U.S.C. § 203(s).

A clear understanding of the resolution of this issue requires an examination of prior judicial and Congressional interpretation of these specific statutory provisions. Prior to the 1974 amendments to the Act which, inter alia, added the phrase "or materials" to § 203(s), the most controversial issue was whether the defendant employer fell within the "ultimate consumer" exemption found in the § 203(i) definition of "goods". Employers argued that if employees handle only items such as custodial or maintenance supplies that are utilized on the employer's premises, then these materials are in the hands of the "ultimate consumer", the employer. Such an interpretation exempted employers like the defendant in this case from regulation under the Act.

As in all cases requiring statutory interpretation, a conflict arose among the courts. While some courts accepted the argument outlined above³, others rejected that theory stating that the cost of products utilized by maintenance staffs in performing services is passed on to the tenants through rent. Thus, the tenant becomes the true beneficiary and consumer, not the business.⁴ At the time of the passage of the 1974 amendments, the emerging majority of the district courts was in accord with a clear holding in the Tenth Circuit⁵, and dicta in the Fourth⁶, Eighth⁷, and District of Columbia Circuits⁸ in stating that employers were not ultimate consumers of these goods. Player, Enterprise Coverage Under the Fair Labor Standards Act: An Assessment of the First Generation, 28 Vand.L.Rev. 283, 337-341 (1975).

Enactment of the 1974 amendments resolved this conflict. The Senate Report of the Fair Labor Standards Amendments of 1974, Sen.Rep.No.93-690, 93rd. Cong., 2d Sess. at page 17 explains why "or materials" was written into § 203(s) in 1974:

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. The `handling' language was added based on a retrospective view of the effect of substandard wage conditions.

While the original Act recognized the effect of such conditions on subsequent interstate out flow of products, it was not until the 1961 amendments that Congress specifically recognized their effect on the prior interstate in flow, based on the `obvious economic fact that demand for a product causes its interstate movement quite as surely as does production' (107 Cong.Rec. 6236). See H.Rept.No.75, 87th Cong., 1st Sess. (1961), pp. 3, 8; S.Rept. No.145, 1st Sess., pp. 3-4; 107 Cong.Rec. 5841, 6234, 6236, 6240-6241. 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 (See, e. g. Shultz v. Travis-Edwards, Inc., 320 F.Supp. 384, 19 WH Cases 806 (sic) (D.La.), revs'd on other grounds 465 F.2d 1050 (C.A.5, 1972), 20 WH Cases 749, cert. den., 409 U.S. 1076, 93 S.Ct. 685, 34 L.Ed.2d 665, 20 WH Cases 1040; Shultz v. Wilson Building, Inc., 320 F.Supp. 664, 19 WH Cases 679 (S.D.Tex.), aff'd on other grounds, 478 F.2d 1090, 21 WH Cases 13 (C.A.5 1973), cert. den., 414 U.S. 855, 94 S.Ct. 156, 38 L.Ed.2d 105, 21 WH Cases 298; the only court of appeals to decide this question. Brennan v. Dillion, 483 F.2d 1334, 21 WH Cases 272 (C.A. 10 1973), and the majority of the district courts have held otherwise (See e. g. Hodgson v. Rivermont Corp. d/b/a Fox Meadows Apartments, 21 WH Cases 171, 71 CCH Lab.Cas. ¶ 32,898 (M.D.Fla.); Hogson v. David M. Woolin & Son, 20 WH Cases 91, 64 CCH Lab.Cas. ¶ 32,527 (S.D.Fla.); Sharp v. Warner Holding Co., 21 WH Cases 206, 209, 70 CCH Lab.Cas. ¶ 32,821 (D.C.Minn.1972); Mansdorf v. Ernest Tew Associates; 20 WH Cases 956, 69 CCH Lab.Cas. ¶ 32,775, (M.D.Fla. 1972); Hodgson v. Howard d/b/a Howard Cleaners, 69 CCH Lab.Cas. ¶ 32,777 (N.D.Ala.1972); Wirtz v. Washeterias, S.A., 304 F.Supp. 624, 18 WH Cases 671, 59 CCH Lab.Cas. ¶ 32,116 (D.Canal Zone 1968); Hodgson v. Keller d/b/a Plaza Laundromat & Dry Cleaning, 20 WH Cases 1073, 70 CCH Lab.Cas. ¶ 32,848 (D.Ohio 1973); Shultz v. Union Trust Bank of St. Petersburg, 307 F.Supp. 1274, 18 WH Cases 790 (M.D.Fla.1969) and the addition of the words `and materials' will clarify this point.

The term "goods" is no longer the sole frame of reference in addressing the issue of employee handling of items moved in interstate commerce. The seemingly redundant addition of the phrase "or materials" to § 203(s) unequivocally clarified Congressional intent to broaden the scope of enterprise coverage. The term "materials" is neither burdened nor restricted with the "ultimate consumer" exemption found in the "goods" definition. "Consequently, the employee who handles soap, light bulbs, toilet paper and other maintenance and custodial supplies is clearly handling unadorned and unmodified `materials that have been moved in commerce'". Player at 341; Marshall v. Whitehead, supra at 1337.

Application of the facts in this case to the above analysis mandates a finding by this Court that the essential elements of the statutory requirements are satisfied. Annual gross volume of sales made or business done by the defendant exceeds the statutory requirement of $250,000 for each of the years at issue as stated in the stipulations in the pre-trial order. At all times relevant to this inquiry defendant regularly purchased supplies which were manufactured outside the state of Tennessee, shipped into Tennessee and purchased by him within Tennessee from local suppliers. Included in these supplies, according to the pre-trial stipulations, were paint, soap, detergents, caulking, plumbing supplies, plumbing equipment, light...