Merritt v. Mountain Laurel Chalets, Inc.

• Decision Date: 27 March 2015
• Docket Number: No. 3:14–cv–19–PLR–HBG.,3:14–cv–19–PLR–HBG.
• Citation: 96 F.Supp.3d 801
• Parties: Melinda MERRITT and Benjamin Olivas, Plaintiffs, v. MOUNTAIN LAUREL CHALETS, INC., RSC Properties General Partnership, and Progressive Employer Management Company II, Inc., Defendants.
• Court: U.S. District Court — Eastern District of Tennessee

96 F.Supp.3d 801

Melinda MERRITT and Benjamin Olivas, Plaintiffs

v.MOUNTAIN LAUREL CHALETS, INC., RSC Properties General Partnership, and Progressive Employer Management Company II, Inc., Defendants.

No. 3:14–cv–19–PLR–HBG.

United States District Court, E.D. Tennessee.

Filed March 27, 2015.

Katherine A. Young, Young Law Office, P.C., Knoxville, TN, for Plaintiffs.

Robert L. Bowman, Kramer, Rayson LLP, Knoxville, TN, for Defendants.

MEMORANDUM OPINION AND ORDER

PAMELA L. REEVES, District Judge.

Plaintiffs Merritt and Olivas have filed a complaint against Defendants Mountain Laurel Chalets, Inc. (“Mountain Laurel”), RSC Properties General Partnership (“RSC”), and Progressive Employer Management Co. II, Inc. (“PEMCO”) alleging improper business practices and retaliatory firing, in violation of the False Claims Act (“FCA”), the Tennessee Public Protection Act, the Tennessee Lawful Employment Act, and Tennessee common law. Plaintiff Olivas has also filed a claim against Defendants alleging violation of the Fair Labor Standards Act.

Pending before the Court are Defendants' motions to dismiss for failure to state a claim filed against each plaintiff. [D. 16; D. 18] Defendants present two theories to support their motions to dismiss. First, PEMCO and RSC argue that they were not joint employers with Mountain Laurel. Plaintiffs respond by arguing that PEMCO, via its paychecks and separation notices to Plaintiffs, exercised an “indicia of control” over them. They also contend that RSC was a joint employer because part of their pay from the latter derived from their services to RSC-owned properties and that discovery should commence so as to determine the degree to which Mountain Laurel and RSC may be a single entity. Defendants reply, inter alia, that Plaintiffs' Third Amended Complaint asserts mere threadbare legal conclusions, that under the “economic reality test” of joint employment, PEMCO and RSC are not joint employers with Mountain Laurel, and that Plaintiffs have not taken any steps toward a qui tam action under the FCA.

Defendants next argue that Plaintiffs have not sufficiently asserted that they engaged in activity protected by the FCA. In reply to Plaintiff's contrary reassertions, Defendants state that Plaintiffs have failed to satisfy the three-prong Yuhasz¹ test and, accordingly, have not shown that these actions amount to activity protected under the FCA.

I. Background

Plaintiff Merritt was employed by Mountain Laurel beginning on December 10, 2004, and at the time of her termination on October 25, 2013, held the title of “Head of Housekeeping/Assistant Supervisor.” [R. 64 at ¶ 12] Plaintiff Olivas joined Mountain Laurel on August 15, 2012. [Id. at ¶ 10] When he was terminated on October 24, 2013, he was employed as “Supervisor of Maintenance, Housekeeping and Laundry.” [Id. at ¶ 11]

At some point in the 2013, Mountain Laurel agreed with PEMCO to “lease back” some of its employees. [Id. at ¶ 16] As a result, Plaintiffs received pay checks which included both Mountain Laurel's and PEMCO's names. [Id. ] Despite this arrangement, Mountain Laurel alone undertook the day-to-day supervision of Plaintiffs. [Id. at ¶ 17] As part of their duties with Mountain Laurel, which manages and rents chalets for Smoky Mountains vacationers, Plaintiffs were required to service approximately seventeen rental chalets which Mountain Laurel managed but RSC owned. [Id. at ¶¶ 20–21] Uniquely, while Mountain Laurel charged all other property owners for their services, RSC was considered “part of” Mountain Laurel and thus was not charged. [Id. at ¶ 21]

Mountain Laurel also employed a woman named Marina Gomez, who worked in its laundry. [Id. at ¶ 23] Gomez was an undocumented alien and, in order to pay her without alerting the IRS or ICE of her employment, [Id. at ¶ 35] Mountain Laurel engaged in a subterfuge in which Thomas Goodwin, Mountain Laurel General Manager, acquiesced [Id. at ¶ 27] and Dorothy Vaden, Human Resources Manager for Mountain Laurel, participated. [Id. at ¶ 25] Mountain Laurel, through checks written by Vaden, paid Gomez by preparing checks instead to Shadow's Cleaning, a sole proprietorship which, prior to its 2009 bankruptcy dissolution, was owned by Gomez's daughter, Jazmin Prieto Hawks. [Id. at ¶¶ 25–26] Another employee of Mountain Laurel, Corey Hawks, who is married to Jazmin Prieto Hawks and holds the title of “General Manager on Property” at Mountain Laurel, collected these Shadow's Cleaning checks. [Id. at ¶ 24]

In August 2012, Merritt discovered Gomez's undocumented status and protested her employment with Mountain Laurel. [Id. at ¶ 28] She then protested to her supervisor in September 2013, after which several of Merritt's coworkers warned her that her job was in jeopardy. [Id. at ¶ 31] Despite these warnings, Merritt filed anonymous complaints with the IRS and ICE regarding Gomez's employment by Defendants. One of these agencies subsequently contacted Mountain Laurel. [Id. at ¶ 36] Shortly after this, in late September 2013, the management of Mountain Laurel began to treat Merritt poorly, becoming cold and difficult toward her. [Id. at ¶ 37] Olivas, for his part, learned of Gomez's employment ineligibility in March 2013, after which he informed Vaden that he would not accept the risks of falsely paying such an employee. [Id. at ¶ 30]

Separately from Gomez's employment, Plaintiffs claim that several of the properties managed by Mountain Laurel were laden with mold, [Id. at ¶ 38] that some chalets had mushrooms growing in them, and that one had a bed bug infestation. [Id. at ¶ 44] Despite Plaintiffs' repeated complaints that these conditions were injurious to the guests who rented these chalets, [Id. at ¶ 38] Mountain Laurel instructed Merritt to undertake merely cosmetic measures to counteract the mold growth so that guests would not suspect the chalet's toxic atmosphere. [Id. at ¶ 39] However, Merritt refused to participate in cleaning the moldy properties because of the health hazard to guests and the fraud. [Id. at ¶ 42] In particular, Merritt complained to Goodwin that a chalet named “High Point” was a health hazard, and Goodwin in response, instructed her to superficially clean it to prepare for guests. [Id. at ¶ 40] She also told the Front Desk Team Leader, Cheryl Ryan, that someone should report Mountain Laurel to the Health Department; Ryan repeated this to Goodwin or Corey Hawks. [Id. at ¶ 41]

Olivas likewise protested, telling Mountain Laurel management that they were “playing with Russian roulette” by continuing to rent the affected chalets; and that he believed guests could become seriously ill from staying in one of them. [Id. at ¶ 46] Moreover, when he, upon request, identified the chalets with severe toxic mold infestation, he was told to continue renting one of the chalets because of the significant revenue derived from it. [Id. at ¶ 43] Finally, shortly before his termination, Olivas refused to sign Tennessee Department of Labor and Workforce Development paperwork regarding the termination of a fellow employee. [Id. at ¶ 47] While this employee was terminated for a DUI arrest and for substance abuse issues, Mountain Laurel wanted him to sign paperwork stating that the employee's termination was due to a lay-off. [Id. ]

Around October 24, 2013, Olivas was discharged, the reason provided being that he engaged in prohibited conduct, was insubordinate, and shared confidential information. [Id. at ¶ 53] He refused to sign a release which would provide him with two weeks' severance pay. [Id. ] Approximately one day later, Merritt's employment was terminated. [Id. at ¶ 54] She was told it was due to a “violation of company rules—insubordination,” and she refused to sign a release in return for three weeks' severance pay. [Id. ] PEMCO provided, and Goodwin signed, Plaintiff's “Employee Separation Notices.” [Id. at ¶ 19]

Distinct from the above, Olivas avers that, during the first several months of his employment, he was paid on an hourly basis and frequently worked more than forty hours per week but, despite this, he was never paid overtime. [Id. at ¶¶ 49–50] However, after accruing a considerable amount of unpaid overtime, Defendants switched him to salaried employee status to avoid paying future overtime. [Id. at ¶ 51]

II. Standard of Review

Defendants have moved for dismissal of Plaintiff's Third Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6), alleging that Plaintiff has failed to “state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). When determining the sufficiency of the complaint against a motion to dismiss under this Rule, the court must accept as true all facts alleged in the complaint. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). However, the court is not required to accept as true any proffered legal conclusions. Id. (quoting Papasan v. Allain, 478 U.S. 265, 286, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986) ).

A motion to dismiss under Rule 12(b)(6) must be denied where the plaintiff “pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). Conversely, dismissal under this Rule “is proper when there is no set of facts that would allow the plaintiff to recover.” Carter v. Cornwell, 983 F.2d 52, 54, rehearing denied (6th Cir.1993); see also Mezibov v. Allen, 411 F.3d 712, 716 (6th Cir.2005) (“To survive a motion to dismiss under Rule 12(b)(6), a complaint must contain either direct or inferential allegations respecting all the material elements to sustain a recovery under some viable legal theory.”).

III. Discussion

A. Under Plaintiffs' Federal Claims, PEMCO Was a Joint Employer and RSC Was Neither a Joint Employer nor Integrated Entity with Mountain Laurel

1. Darden Analysis

a. Darden Applies Only Against PEMCO

Defendants first argue that Plaintiffs have insufficiently...