Phillips v. Carpet Direct Corp.
| Decision Date | 10 January 2017 |
| Docket Number | Civil Action No. 16-cv-02438-MEH |
| Parties | LEX PHILLIPS, and LEX PHILLIPS & ASSOCIATES, INC., Plaintiffs, v. CARPET DIRECT CORPORATION, GAYLE CROUCH, GREG JENSEN, CHARLES OWENS, and TODD KINSEY, Defendants. |
| Court | U.S. District Court — District of Colorado |
ORDER ON MOTION TO DISMISS
Before the Court is Defendants' Motion to Dismiss pursuant to Fed. R. Civ. P. 12(b)(6) [filed November 11, 2016; ECF No. 19]. The motion is fully briefed, and the Court finds that oral argument (not requested by the parties) would not materially assist the Court in its adjudication of the motion. Based on the record before it, the Court grants in part and denies in part the Defendants' motion.1
Plaintiffs initiated this action on September 29, 2016 asserting this Court's federal question jurisdiction based on alleged federal claims and its pendent jurisdiction over the alleged state law claims. ECF No. 1.
The following are pertinent factual allegations (as opposed to legal conclusions, bare assertions or merely conclusory allegations) made by Plaintiffs in the Complaint, which are taken as true for analysis under Fed. R. Civ. P. 12(b)(6) pursuant to Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The Court must limit its review to the four corners of the Complaint, but may also consider documents attached to the pleading as exhibits, Oxendine v. Kaplan, 241 F.3d 1272, 1275 (10th Cir. 2001), as well as any unattached documents which are referred to in the Complaint and central to the plaintiff's claim, so long as the authenticity of such documents is undisputed. Jacobsen v. Deseret Book Co., 287 F.3d 936, 941 (10th Cir. 2002).
Defendant Carpet Direct Corporation ("CDC") sells floor coverings including carpet, hardwood, laminate, tile, and stone to end-user consumers. According to CDC's business model, "Brokers" are individuals who, for proper consideration paid to CDC, are permitted to form their own businesses under the CDC business model and name and are paid commissions by CDC for sales they complete. These Brokers are required to meet certain sales quotas, and failure to meet such quotas may result in reduction of commissions. CDC profits from its employment of Brokers across the country.
Plaintiff Lex Phillips ("Phillips") was employed by CDC in the summer 1996 as a "Broker." At or about that time, Phillips attended a broker meeting with Earl Crouch, owner and founder of CDC. Crouch convinced Phillips to form a business with CDC by telling him and other attendees that they would eventually own and have complete control of their own businesses. Based on Crouch's statements, Phillips decided to invest his time and resources to become a Broker for CDC, and incorporated the Plaintiff business entity, Lex Phillips & Associates, Inc. ("LP&A") solely for such purpose.
According to the contract with CDC, the Plaintiffs had exclusive rights to operate as a Broker in a defined territory in Northern Colorado and Southern Wyoming: the "counties of Larimer, Boulder[,] and Weld" and "[t]he municipalities of Ft. Collins, Loveland, Windsor, Greeley, Wellington, and Cheyenne, WY." Phillips understood from Crouch and other CDC personnel that his rights to operate in this territory would be exclusive and, from 1996 to 2015, it was exclusive.
As a Broker, Phillips worked hard to establish his business by handling all sales, marketing, and expenses for CDC within his territory, and by selling products during the day and removing and disposing of carpet for new customers without compensation at night. He rented a truck large enough to hold the carpet and pad he picked up and delivered, and at the outset even stored carpet and pad in his own garage because he could not afford to lease a warehouse and/or forklift necessary for his jobs. Later, Phillips established a warehouse for CDC in Windsor, Colorado for which CDC paid 1% of Plaintiffs' sales volume; however, if warehouse expenses exceeded 1% for any given period, the difference was deducted from Phillips' commissions. But, if Plaintiffs' volume exceeded warehouse expenses in a given period, it was not credited to later shortfalls.
Defendant Todd Kinsey is a former employee of LP&A and, also, a family friend of Defendant Charles Owens, CDC Director of Sales and Marketing. In or about 2015, Kinsey complained to Owens that he was not making enough money working at LP&A. Owens, although aware that Plaintiffs had exclusive rights to operate there, established a CDC brokerage in Loveland, Colorado and assigned Kinsey as the Broker. In an effort to conceal this apparent "breach" of Plaintiffs' contract, Owens directed Kinsey to transfer sales information onto generic forms listing no city or zip code to disguise where sales were made, so Kinsey could be paid brokerage commissions for product delivered to the LP&A's Windsor warehouse. When Phillips complained, Owens promised to reimburse Plaintiffs for 100% of the commissions improperly paid to Kinsey, but he never did so.
Phillips lodged complaints to Vearl Jones, CDC Assistant Director of Sales and Marketing, on August 19, 2015, directly to Owens in January 2016, and to Defendant Greg Jenson, CDC Director of Operations, in May 2016, but they did nothing to remedy the problems.
In addition, CDC represented to its Brokers, including Phillips, and to its customers that the carpet pad they obtained from CDC was made of "virgin foam," an industry term denoting the high quality of the pad. However, while charging a higher price for such "virgin foam," CDC knew the carpet pads were made from recycled carpet pads.
CDC imposes several requirements on Brokers including: (1) comply with CDC's rules, policies, and procedures or face termination; (2) attend training and meetings upon notice of CDC; (3) provide services as dictated by CDC's business model; (4) refrain from assigning Broker duties; (5) hire employees only with CDC approval; (6) refrain from engaging in any competing employment; (7) work full time and the days and hours specified by CDC, including Saturdays, up to 62 hours per week; (8) work on the CDC's leased premises using equipment owned by CDC; (9) perform their duties on days of the week directed by CDC; (10) submit bi-weekly written reports concerning activities of the brokerage and the Broker's supervision of sales agents; (11) incur business and travel expenses, some of which were reimbursed by CDC; (12) recognize that all samples, materials, training materials, brochures, warehouse equipment, and buildings were owned and/or controlled by CDC; (13) use warehouses and equipment provided by CDC, but not invest in any facilities or materials; and (14) acknowledge that their employment could be terminated at any time and they could quit employment at any time.
Phillips, as a Broker, was paid by CDC as an independent contractor and was not provided any employment benefits including vacation pay, paid overtime, unemployment when terminated, workers compensation, social security benefits, or training required by the Department of Transportation, Occupational Safety & Health Administration and other federal and state agencies.
Based on these allegations, Plaintiffs assert violations of the Fair Labor Standards Act ("FLSA"), unjust enrichment, breach of contract, and tortious interference against the Defendants. Complaint, ECF No. 1-1. Plaintiffs seek injunctive relief under the FLSA and recovery for "compensatory damages," "liquidated damages for violations of the FLSA," and "punitive damages to be determined at trial." Id. at 9.
In response to the Complaint, Defendants filed the present motion to dismiss on November 11, 2016, arguing that Plaintiffs' allegations fail to state plausible claims for relief pursuant to Fed. R. Civ. P. 12(b)(6). Specifically, Defendants contend that LP&A is not a proper plaintiff in this case; the FLSA claim is barred by the applicable statute of limitations; Plaintiffs fail to state FLSA claims against the individuals Defendants; Plaintiffs' unjust enrichment claim is precluded by the existence of a contract and is barred by the statute of limitations; Plaintiffs fail to state an unjust enrichment claim against the individual Defendants; Plaintiffs fail to state breach of contract and tortious interference claims because the subject contract term does not exist; and Plaintiffs' allegations against the individual Defendants are not sufficient to state tortious interference.
Plaintiffs counter that although LP&A was not a party to any contracts, it was the recipient of most at-issue payments in this case; Defendants' case law concerning the FLSA statute of limitations is inapplicable; Plaintiffs' FLSA claims are properly stated against the individual Defendants; factual disputes concerning the existence of a contract preclude dismissal of Plaintiffs' unjust enrichment claim; Plaintiffs' allegations regarding "exclusivity rights" are sufficient to demonstrate a contract term for purposes of the breach of contract and tortious interference claims; and the allegations are sufficient to demonstrate "motivation" for the tortious interference claims.
Defendants reply that Plaintiffs are incorrect in interpreting case law concerning FLSA statute of limitations; their allegations of individual liability do not survive the standard set by the Supreme Court in Twombly; neither the statute nor case law support LP&A as an FLSA plaintiff; Plaintiffs' affirmation of his contracts with CDC foreclose recovery under a theory of unjust enrichment against the entity, and Plaintiffs have abandoned the claim against the individual Defendants; an ongoing injury does not toll limitations for unjust enrichment; and Plaintiffs have failed to adequately plead an "exclusivity" contract term.
"To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to...
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