Martinez v. Petrenko, 14–2112.

CourtUnited States Courts of Appeals. United States Court of Appeals (1st Circuit)
Citation792 F.3d 173
Docket NumberNo. 14–2112.,14–2112.
PartiesGabriel F. MARTINEZ, Plaintiff, Appellant, v. Victor F. PETRENKO, Defendant, Appellee.
Decision Date06 July 2015

792 F.3d 173

Gabriel F. MARTINEZ, Plaintiff, Appellant
Victor F. PETRENKO, Defendant, Appellee.

No. 14–2112.

United States Court of Appeals, First Circuit.

July 6, 2015.

792 F.3d 174

Benjamin T. King, with whom Douglas, Leonard & Garvey, P.C. was on brief, for appellant.

Martha Van Oot, with whom Jackson Lewis, P.C. was on brief, for appellee.

Before HOWARD, Chief Judge, SELYA and KAYATTA, Circuit Judges.


KAYATTA, Circuit Judge.

To maintain a private action under the Fair Labor Standards Act (“FLSA” or “the Act”) for a failure to pay for overtime at the mandated rate, an employee must prove a nexus to interstate commerce sufficient to trigger coverage under the Act. The employee can prove this nexus by showing that the employee engaged in commerce for the employer within the meaning of the Act, or by showing that the employer has other employees who engaged in commerce within the meaning of the Act and that the employer also generated

792 F.3d 175

annual gross sales of not less than $500,000. In filing this lawsuit asserting an FLSA claim for unpaid overtime, Gabriel Martinez alleged that his employer engaged in commerce within the meaning of the Act and generated annual gross sales of not less than $500,000. While this allegation served to fend off a motion to dismiss, Martinez was ultimately unable to ferret out any evidence to prove that his employer's sales were high enough to trigger coverage under the Act.

Eventually confronted with a motion for summary judgment based on the fact that his employer's annual gross sales were less than $500,000, Martinez pointed to evidence that he himself engaged in commerce within the meaning of the Act. Finding that this change in the way Martinez proposed to establish coverage came too late, the district court granted summary judgment against Martinez on his FLSA claim. For other reasons, the court also granted summary judgment on Martinez's state-law claims. We affirm.

I. Background

A. Statutory Background

An employee enjoys the protections of the FLSA's overtime pay requirements only when either the employee individually or the employer's enterprise as a whole is “engaged in commerce or in the production of goods for commerce.” 29 U.S.C. § 207(a)(1). The burden is on the employee to prove a sufficient nexus to interstate commerce as an essential element of the claim. See Chao v. Hotel Oasis, Inc., 493 F.3d 26, 32–33 & n. 6 (1st Cir.2007) (holding that coverage is “an element of the claim,” and that the defendants' stipulation relieved the plaintiff of her burden to prove it).

FLSA coverage triggered by the business activities of the employer (often called “enterprise coverage”) requires a showing that the employer:

(i) has employees engaged in commerce or in the production of goods for commerce, or ... has employees handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce by any person; and (ii) is an enterprise whose annual gross volume [“AGV”] of sales made or business done is not less than $500,000....

29 U.S.C. § 203(s)(1)(A) ; see also 29 C.F.R. § 779.259 (defining “[w]hat is included in annual gross volume”).

How one shows that coverage is triggered by the activities of the individual employee (so-called “individual coverage”) is less clear. Neither the statute nor our circuit precedent offers any road map. Other circuits have held that the employee must “directly participate” in the movement of persons or things in interstate commerce, but this can be satisfied through regular use of an instrument of interstate commerce, such as by using a telephone to call other states for business purposes. See, e.g., Reagor v. Okmulgee Cnty. Family Res. Ctr., 501 Fed.Appx. 805, 809 (10th Cir.2012) (internal quotation marks and alterations omitted). What is clear, in any event, is that the facts capable of establishing individual coverage are different from those supporting a theory of enterprise coverage. To establish individual coverage, the employee must present facts showing his own activities. To establish enterprise coverage, the employee instead must present facts showing the activities of other employees, and the employer's sales.

B. Factual Background

As this is an appeal from a grant of summary judgment, we recite the facts in the light most favorable to Martinez, the non-movant, and we draw all reasonable inferences in his favor. See Ramos–Santiago

792 F.3d 176

v. United Parcel Serv., 524 F.3d 120, 122 (1st Cir.2008).

Victor Petrenko is an emeritus professor of engineering at Dartmouth College who founded Ice Code LLC,1 a start-up that commercialized a de-icing technology Petrenko had developed. Petrenko served variously as a board member, board chair, and chief technology officer. Martinez, one of Petrenko's former graduate students, began working in research and development for Ice Code in 2005, and rose to the title of senior manager in 2007. In February 2010, Martinez became chief operating officer pursuant to a written “executive agreement” that promised a $190,000 salary, to be paid in monthly installments.

Because Ice Code was facing significant cash-flow problems, Martinez was never paid in accordance with this agreement. Instead, he intermittently received partial payment of the sums owed. On November 3, 2010, the four-member board (which included Martinez, Petrenko, and Ice Code CEO Roman Zhigalov) unanimously2 passed a “special resolution” listing the legal, financial, and operational challenges facing the company, and putting Zhigalov on warning that, because he had failed to generate any revenue for the last six months while incurring over $2 million in debt, he faced termination as CEO.

A few weeks later, in mid- to late November 2010, Martinez approached the board and asked to be paid 10,000 additional equity units of Ice Code because he needed “additional incentive” to keep working for the company. Petrenko balked at Martinez's request for 10,000 equity units and, according to Martinez, told him that 10,000 units were worth more than $2 million. (The number seems to have been derived from the per-unit price set for an attempt to raise private capital that had ended in August 2010.) Nevertheless, the board approved the transfer of units to Martinez, and the deal was formalized through an “equity grant agreement” signed on January 13, 2011, by Zhigalov on behalf of the company. It provided that the units would be released on a quarterly basis over two years, and that as partial consideration for the units, Martinez's job duties under the executive agreement would be amended to add a requirement to work to secure “at least one” investment or licensing/development transaction “such that the [company] is able to return to, and continue its full business operations and activities.”

At the time, Ice Code did indeed need more investment or business. According to Martinez, by January 2011, all of the employees except for Martinez had been let go, and the company owed money to suppliers and contractors. Over the next few months, Martinez, Petrenko, and Zhigalov all came to be involved, to varying degrees, in formulating what appear to be at least two competing plans for escaping Ice Code's liabilities while still marketing the de-icing technology (which was owned by Dartmouth and licensed to Ice Code). Martinez's preferred approach entailed the continuation of Ice Code as a viable entity. For purposes of summary judgment, we take as true Martinez's claim that he was unaware that an alternative plan ultimately preferred by Petrenko, “Plan B,” called for the formation of an entirely new entity to license the technology from Dartmouth, rendering worthless any equity in Ice Code.

In late April 2011, Petrenko told Martinez and Zhigalov that he would not support

792 F.3d 177

or participate in Martinez's preferred plan for escaping Ice Code's debts. About two weeks later, on May 13, 2011, Martinez sent a letter to Petrenko and Zhigalov indicating that he considered the failure to pay him pursuant to the executive agreement a constructive termination.3 He calculated that at the time, the company owed him $172,860.99 in unpaid wages. He also sought the immediate vesting of his 10,000 equity units. He received neither, and through a complicated series of events that need not be recited for purposes of this appeal, Ice Code lost the license to the de-icing technology and, as a practical matter, ceased to exist. The technology was licensed to a new entity with which Petrenko was involved but Martinez was not.

In August 2012, Martinez brought suit against Ice Code and Petrenko in district court, alleging violations of the overtime provisions of the FLSA, violations of New Hampshire labor laws, breach of contract, wrongful discharge, and intentional misrepresentation. Ice Code was dismissed without prejudice when Martinez failed to file a timely return of service. Petrenko is now the sole defendant.

In support of the FLSA claim,...

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