Prusin v. Canton's Pearls, LLC

• Decision Date: 06 November 2017
• Docket Number: CIVIL NO. JKB-16-0605
• Parties: KRISTOFER L. PRUSIN, Plaintiff, v. CANTON'S PEARLS, LLC, et al., Defendants.
• Court: U.S. District Court — District of Maryland

KRISTOFER L. PRUSIN, Plaintiff, v. CANTON'S PEARLS, LLC, et al., Defendants.

CIVIL NO. JKB-16-0605

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND

November 6, 2017

MEMORANDUM

Kristofer Prusin ("Plaintiff") filed suit against Canton's Pearls, LLC, and Eric K. Hamilton ("Defendants"), alleging violations of the Fair Labor Standards Act ("FLSA"), 29 U.S.C. §201, et seq., the Maryland Wage and Hour Law ("MWHL"), Md. Code Ann. Labor & Emp't § 3-401, et seq., and the Maryland Wage Payments and Collection Law ("MWPCL"), Md. Code Ann. Labor & Emp't § 3-501, et seq. Now pending before the Court is Plaintiff's Motion for Partial Summary Judgment. (ECF No. 71.) The issues have been briefed (ECF Nos. 71, 77, & 84), and no hearing is required, Local Rule 105.6 (D. Md. 2016). For the reasons explained below, Plaintiff's motion will be GRANTED IN PART and DENIED IN PART.

I. Background

Plaintiff previously worked as a server at Canton Dockside, a restaurant and crab house operated by Defendants. He was employed in that position from April 2013 through October 2015. (ECF No. 71, Ex. 1, Prusin Affidavit ¶ 1.) Before working as a server, Plaintiff worked in the kitchen as a cook for approximately two years. (Id.) Defendant Eric Hamilton was the General Manager of Canton Dockside from its opening in 2004 through his resignation in May 2015. (ECF No. 71, Ex. 5 at 10.) He also has a five percent ownership stake in Defendant Canton's Pearls LLC, the corporate entity that controls Canton Dockside. (ECF No. 77, Exs. 17, 18, & 19.) However, Canton Dockside was co-managed by Defendant Hamilton and Timothy Mitchell during most of Plaintiff's tenure.¹ (ECF No. 71, Ex. 5, Hamilton Dep. at 42; id., Ex. 8, Dr. Earl Hamilton Dep. at 10.) Defendant Hamilton and Mitchell, as well as Hamilton's father, Dr. Earl Hamilton, who is the majority owner of Canton's Pearls LLC, each had authority to hire employees. (ECF No. 71, Ex. 5, at 49-50; ECF No. 71, Ex. 4, Mitchell Dep. at 15.) However, Mitchell did not fire employees without approval from Defendant Hamilton or Dr. Hamilton. (ECF No. 71, Ex. 4 at 16.) Additionally, Defendant Hamilton had authority to set and adjust employee compensation, including his own, without approval from Dr. Hamilton. (ECF No. 71. Ex. 8, at 25.)

Plaintiff was paid an hourly wage of $3.63 plus voluntary tips and mandatory gratuities paid by customers.² Plaintiff was not compensated at a different rate for overtime hours. Defendants did not have any written policies addressing server wages, but instead orally informed servers upon hire of their base pay and their obligation to share a percentage of their tips and mandatory gratuities with bussers and bartenders. At the end of each shift, servers were given one-hundred percent of their tips and mandatory gratuities in cash—regardless of whether the customer paid by cash or credit card—less the amount they were required to tip-out tobussers and bartenders.³ (ECF No. 71, Ex. 4, at 11-14.) Canton Dockside also deducted a credit card processing fee (which varied from credit card to credit card) from servers' tips and mandatory gratuities for all payments made by credit card. (Id. at 13-14.)

Defendants maintained records of all tips and mandatory gratuities, regardless of whether they were paid by cash or credit card. These records were logged in a Daily System Sales Detail ("DSSD") report every day, which tracked sales information for the restaurant. (ECF No. 77, Ex. E, Ottey Dep. at 22-23.) In addition to tracking food and beverage sales, each DSSD report included line items labeled "Service Charge" and "Charge Tips," which represented mandatory gratuities and voluntary tips respectively. (ECF No. 77, Ex. F, DSSD Report, ECF No. 71, Ex. 6, Ottey Dep. at 125.) These line items were combined in a category labeled "Total Tips," which represented the total voluntary tips and mandatory gratuities received in a given day. (ECF No. 77, Ex. G, Ottey Dep. at 125.) The DSSD reports also included a line item labeled "Tips Paid," which represented the total tips paid out to servers, who in turn dispersed the appropriate amount to bussers and bartenders. (Id.)

Defendants' accountant used the DSSD reports to produce aggregated Profit & Loss ("P&L") statements for each year. (ECF No. 71, Ex. 6, at 116-121.) The yearly P&L statements included a line item labeled "Total Sales," which matched the amount Defendants reported as their "[g]ross receipts or sales" on their Form 1065 used to report partnership income to the Internal Revenue Service. (Id. at 118.) Included within the total sales on the P&L statements was a category labeled "Tip Clearing." (ECF No. 77, Ex. G, at 123.) The "Tip Clearing" category on the P&L statements represented only the portion of voluntary tips and mandatory gratuities that were retained by the restaurant to cover credit card processing fees. (ECF No. 71,Ex. 6, Ottey Corp. Designee Dep. at 134; ECF No. 77, Ex. G, at 128-30.) Defendants did not otherwise record voluntary tips and mandatory gratuities in either the income or expense side of their P&L statements. (ECF No. 77, Ex. G, at 127-31.)

II. Standard for Summary Judgment

A party seeking summary judgment must show "that there is no genuine dispute as to any material fact" and that he is "entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). The burden is on the moving party to demonstrate the absence of any genuine dispute of material fact. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970). If a party carries this burden, then the court will award summary judgment unless the opposing party can identify specific facts, beyond the allegations or denials in the pleadings, that show a genuine issue for trial. Fed. R. Civ. P. 56(e)(2). If sufficient evidence exists for a reasonable jury to render a verdict in favor of the party opposing the motion, then a genuine dispute of material fact is presented and summary judgment should be denied. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The existence of only a "scintilla of evidence" is not enough to defeat a motion for summary judgment. Id. at 251. To carry these respective burdens, each party must support its assertions by citing specific evidence from the record. Fed. R. Civ. P. 56(c)(1)(A). The court will assess the merits of the motion, and any responses, viewing all facts and reasonable inferences in the light most favorable to the party opposing the motion. Scott v. Harris, 550 U.S. 372, 378 (2007); Iko v. Shreve, 535 F.3d 225, 230 (4th Cir. 2008).

III. Analysis

On March 3, 2016, Plaintiff filed this lawsuit alleging that Defendants violated the FLSA, the MWHL, and the MWPCL by failing to pay him minimum wage and overtime pay. Plaintiff filed a motion for partial summary judgment pursuant to Federal Rule of Civil Procedure 56seeking judgment as a matter of law that Defendants failed to pay Plaintiff minimum and overtime wages as required by the FLSA and MWHL. Specifically, Plaintiff contends that:

1. Defendants are not eligible to claim a "tip credit" under 29 U.S.C. § 203(m) because they failed to provide adequate notice to Plaintiff prior to taking the credit; and

2. Defendants cannot rely on the mandatory gratuities retained by Plaintiff to satisfy their minimum and overtime wage obligations because the mandatory gratuities did not become part of Canton Dockside's gross receipts and therefore do not qualify as service charges under the FLSA.

Plaintiff seeks $19,165.06 in unpaid minimum wage and overtime compensation, plus an equal amount in liquidated damages. Additionally, Plaintiff contends that Eric Hamilton qualifies as an employer under the FLSA as a matter of law and therefore is jointly and severally liable along with Canton's Pearls LLC for any violations of the FLSA and MWHL.

A. Counts I & IV: FLSA and MWHL Minimum Wage Violations

Plaintiff's claim in Counts I and IV is that Defendants failed to pay him the minimum wage required by the FLSA and MWHL. 29 U.S.C. §§ 206(a), 215(a)(2); Md. Code Ann., Labor & Emp't, § 3-413. In response, Defendants contend that they satisfied their minimum wage obligations because they were entitled to take a "tip credit" under the FLSA and MWHL. 29 U.S.C. § 203(m); Md. Code Ann., Labor & Emp't § 3-419(a)(1)(ii); Gionfriddo v. Jason Zink, LLC, 769 F. Supp. 2d 880, 893 (D. Md. 2011). Alternatively, Defendants contend that even if they were not entitled to claim a tip credit, the mandatory gratuities received by Plaintiff may be used to offset their minimum-wage liability.

1. The Tip Credit Provision

"The FLSA requires covered employers to pay 'nonexempt employees' a minimum wage for each hour worked, 29 U.S.C. § 206(a), but allows employers to pay less than the minimum wage to employees who receive tips, 29 U.S.C. § 203(m)." Dorsey v. TGT Consulting, LLC, 888F. Supp. 2d 670, 680 (D. Md. 2012). "Tipped employees . . . are required to receive at least the minimum wage, but their employers are permitted to pay a direct wage of $2.13 per hour and then take a 'tip credit' to meet the $7.25 per hour minimum wage requirement." Gionfriddo, 769 F. Supp. 2d at 893. The tip credit, in essence, allows employers to credit employees' tips against the employer's minimum wage obligations. See id.

In order to obtain the benefit of this credit, however, employers must satisfy two fundamental requirements. Section 203(m) provides that an employer may not take a tip credit with regard to an employee's wages unless (1) "such employee has been informed by the employer of the provisions of this subsection" and (2) "all tips received by such employee have been retained by the employee." 29 U.S.C. § 203(m); accord Dorsey, 888 F. Supp. 2d at 680-81. These two requirements are "'strictly construed,' and 'must be satisfied even if the employee received tips at least equivalent to the minimum wage.'"⁴ Dorsey, 888 F. Supp. 2d at 681 (quoting Copantitla v. Fiskardo Estiatorio, Inc., 788 F. Supp. 2d 253, 287 (S.D.N.Y. 2...