Patel v. Wargo

• Decision Date: 03 November 1986
• Docket Number: No. 85-5998,85-5998
• Citation: 803 F.2d 632
• Parties: 27 Wage & Hour Cas. (BN 1457, 105 Lab.Cas. P 34,828 Sendhabhai PATEL, Plaintiff-Appellant, v. Dr. Alex WARGO, Etc., Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 632

803 F.2d 632

27 Wage & Hour Cas. (BN 1457, 105 Lab.Cas. P 34,828

Sendhabhai PATEL, Plaintiff-Appellant, v. Dr. Alex WARGO, Etc., Defendant-Appellee.

No. 85-5998.

United States Court of Appeals, Eleventh Circuit.

Nov. 3, 1986.

Donald T. Ryce, Jr., Hogg, Allen, Ryce, Norton & Blue, Coral Gables, Fla., for plaintiff-appellant.

John L. Britton, Britton, Cassel Schantz & Schatzman, Miami, Fla., for defendant-appellee.

Appeal from the United States District Court for the Southern District of Florida.

Before VANCE and ANDERSON, Circuit Judges, and PITTMAN ^*, Senior District Judge.

ANDERSON, Circuit Judge:

Plaintiff Sendhabhai Patel ("Patel") appeals the judgment of the district court that defendants Dr. Alex Wargo ("Wargo") and Wargo-Babowicz Investment, Inc. ("Investment, Inc.") were not his employers within the meaning of the Fair Labor Standards Act of 1938, as amended, 29 U.S.C. Sec. 201-219 ("FLSA").

I. BACKGROUND

Patel was employed by Pine Wood Lodge, Inc. ("Pine Wood") from December 1, 1982, to August 24, 1984, as controller of the corporation. Pine Wood operated a drug and alcohol rehabilitation center. The land on which the center was located was leased by Pine Wood from Investment, Inc.. The principal shareholders in both Pine Wood and Investment, Inc. were Wargo and Frank Babowicz ("Babowicz"). Although Wargo was a principal shareholder, he did not own a controlling interest. Wargo was the president and vice president of both Pine Wood and Investment, Inc., and Babowicz was the secretary-treasurer of both companies. The corporations had been set up by Wargo and Babowicz in July 1982 for the purpose of establishing the drug and alcohol facility. Wargo was the medical director of Pine Wood and Babowicz, the executive director.

Babowicz died on May 31, 1984, and in June Wargo was appointed acting executive director, a position he held for only a short time until he could arrange to hire a new executive director. At Wargo's direction Patel was fired in August 1984. Pine Wood filed for bankruptcy in November 1984.

The district court found that Pine Wood was covered by the FLSA as a health care institution under 29 U.S.C. Sec. 203(s)(5), that Patel was not an exempt employee, and that Pine Wood was liable for minimum wage and overtime violations with respect to Patel. However, the district court found that neither Wargo nor Investment, Inc. were employers of Patel within the meaning of 29 U.S.C. Sec. 203(d) and entered judgment for both defendants.

II. DISCUSSION

Whether Wargo and Investment, Inc. were employers within the meaning of the Act is a legal determination, ¹ not subject to the clearly erroneous standard of review. However, the individual findings of fact which led to that legal determination must be examined under the clearly erroneous standard. Donovan v. New Floridian Hotel, Inc., 676 F.2d 468, 471 n. 4; see also Beliz v. W.H. McLeod & Sons Packing Co., 765 F.2d 1317, 1327 (5th Cir.1985).

A. Investment, Inc.

Patel argues that Investment, Inc. is jointly liable for the FLSA violations committed by Pine Wood. Patel offers two alternative bases for a finding of liability: (1) that Investment, Inc. was an employer--a joint employer with Pine Wood--of Patel under Sec. 203(d) of the FLSA; or (2) that Pine Wood and Investment, Inc. constituted an "enterprise" and that, since Investment, Inc. was part of an enterprise with Pine Wood, it should be held jointly liable for Pine Wood's violations of the FLSA.

1. Investment Inc.'s Liability as an Employer

Patel contends that he was one of three people authorized to sign checks drawn on the Investment, Inc. account, in fact signed a number of Investment, Inc. checks, made deposits on behalf of Investment, Inc., and did whatever bookkeeping was necessary for Investment, Inc. The district court found that Patel did a "minimal amount of work" for Investment, Inc. Record, vol. 2 at 158. "[T]he few acts he did for [Investment, Inc.], he did ... as a volunteer, as an accommodation to his own employer, and not truly as an employee." Id.

The foregoing findings of historical fact by the district court are not clearly erroneous. The evidence establishes that Patel's contract was made with Pine Wood, that he worked primarily for Pine Wood, and that only occasionally did he perform tasks for Investment, Inc. In light of its findings, the district court correctly concluded that Patel was not an employee of Investment, Inc. The evidence does not demonstrate that Patel contemplated compensation for his acts, cf., Walling v. Portland Terminal Co., 330 U.S. 148, 152, 67 S.Ct. 639, 641, 91 L.Ed. 809 (1947), nor does it demonstrate as a matter of economic reality that Patel was dependent upon Investment, Inc., cf. Bartels v. Birmingham, 332 U.S. 126, 130, 67 S.Ct. 1547, 1550, 91 L.Ed. 1947 (1947); Usery v. Pilgrim Equipment Co., 527 F.2d 1308, 1311 (5th Cir.), cert. denied, 429 U.S. 826, 97 S.Ct. 82, 50 L.Ed.2d 89 (1976). Therefore, the judgment of this district court with respect to Investment, Inc.'s status as an employer under the FLSA is affirmed.

2. Investment Inc.'s Liability on the Enterprise Theory

Patel suggests that Pine Wood and Investment, Inc. constitute an "enterprise engaged in commerce or in the production of goods for commerce." 29 U.S.C. Sec. 206(a). The FLSA defines enterprise as "related activities performed (either through unified operation or common control) by any person or persons for a common business purpose." 29 U.S.C. Sec. 203(r). A showing that two entities constitute an enterprise can be the first step in establishing coverage under the FLSA, since coverage is determined in part by an annual dollar volume test. 29 U.S.C. Sec. 206(a); Donovan v. Easton Land & Development, Inc., 723 F.2d 1549, 1551 (11th Cir.1984); Brennan v. Veteran's Cleaning Service, Inc., 482 F.2d 1362 (5th Cir.1973); Shultz v. Mack Farland & Sons Roofing Co., 413 F.2d 1296 (5th Cir.1969).

In the instant case we are not concerned with the issue of coverage; the district court determined that Pine Wood was covered under Sec. 203(s)(5) and this issue has not been raised on appeal. Rather Patel contends that the corporations which constitute an enterprise should be jointly and severally liable for underpayments to all employees of the constituent corporations.

There is no case holding that the individual entities which make up an enterprise should be jointly and severally liable for another entity's employees solely because they are members of the enterprise. In other words, there is no case which holds that the analysis of liability under the FLSA is the same as the analysis of the existence of an enterprise under the FLSA. We hold that the two analyses are and should be different.

There are several reasons why the analyses are different. First, the statute premises liability on an employer-employee relationship:

Every employer shall pay to each of his employees who in any workweek is engaged in commerce or in the production of goods for commerce, or is employed in an enterprise engaged in commerce or in the production of goods for commerce, wages at the following rates: ...

29 U.S.C. Sec. 206(a). Thus, the obligation is on each employer ² to pay "each of his employees." " '[T]he purpose of the Fair Labor Standards Act [was not] to create new wage liabilities, but where a wage liability exists, to measure it by the standards fixed by law.' " Walling v. Jacksonville Terminal Co., 148 F.2d 768, 769 (5th Cir.1945). ³ There is no suggestion in the language of the statute that an employer is responsible to other employers' employees, unless of course there is a joint employer relationship. See 29 C.F.R. Sec. 791.2.

The statute defines enterprise as follows:

'Enterprise' means 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 by such enterprise by an independent contractor....

29 U.S.C. Sec. 203(r). Thus, under the plain words of the statute the criteria for establishing an enterprise are much broader than the criteria necessary to establish liability.

Second, the legislative history of the FLSA and the case law demonstrate that the enterprise analysis was included in the FLSA solely for the purpose of expanding the scope of coverage of the statute. The legislative history clearly states the congressional purpose to expand the coverage of the Act, i.e., to lump related activities together so that the annual dollar volume test for coverage would be satisfied. S.Rep. No. 145, 87th Cong., 1st Sess., reprinted in 1961 U.S.Code Cong. & Ad.News 1620, 1660-61. The legislative history contains no hint that Congress intended to make employers liable for the employees of a separate entity in the enterprise. The enterprise provisions of the FLSA became law as part of the Fair Labor Standards Amendments of 1961. "Prior to 1961, coverage under the Act was determined exclusively on an employee-by-employee basis. The Act's coverage extended 'only to those individual employees who [could] be proved to be personally engaged in interstate commerce or in the production of goods for interstate commerce.' " Montalvo v. Tower Life Building, 426 F.2d 1135, 1139 (5th Cir.1970) (citing legislative history). Enterprise coverage was "a new type of coverage," id., pursuant to which all the employees of an employment unit which "falls within the ambit of the Act," id., are covered by the FLSA.

In contrast, liability hinges on "whether or not there is an employment relationship, for that is the frame of reference in which Congress placed its mandates." Mitchell v. Whitaker House Cooperative, Inc., 275 F.2d 362, 364 ...