Ransom ex rel. Situated v. M. Patel Enters., Inc.

• Decision Date: 16 August 2013
• Docket Number: No. 12–50534.,12–50534.
• Citation: 734 F.3d 377
• Parties: Abigail F. RANSOM, Individually and on Behalf of Others Similarly Situated; Bonnie Kurz, Individually and on Behalf of Others Similarly Situated; Lori A. Hopmann, Individually and on Behalf of Others Similarly Situated; Vernon K. Henneman, Jr., Individually and on Behalf of Others Similarly Situated; Daniel W. Owings, Individually and on Behalf of Others Similarly Situated, Plaintiffs–Appellees Cross–Appellants v. M. PATEL ENTERPRISES, INCORPORATED, doing business as Party City, doing business as Party Pig Superstore; Mitesh M. Patel; Jaymini Amin, also known as Jaymi Patel, Defendants–Appellants Cross–Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

734 F.3d 377

Abigail F. RANSOM, Individually and on Behalf of Others Similarly Situated; Bonnie Kurz, Individually and on Behalf of Others Similarly Situated; Lori A. Hopmann, Individually and on Behalf of Others Similarly Situated; Vernon K. Henneman, Jr., Individually and on Behalf of Others Similarly Situated; Daniel W. Owings, Individually and on Behalf of Others Similarly Situated, Plaintiffs–Appellees Cross–Appellants

v.M. PATEL ENTERPRISES, INCORPORATED, doing business as Party City, doing business as Party Pig Superstore; Mitesh M. Patel; Jaymini Amin, also known as Jaymi Patel, Defendants–Appellants Cross–Appellees.

No. 12–50534.

United States Court of Appeals, Fifth Circuit.

Aug. 16, 2013.

Edmond S. Moreland, Jr. (argued), Floreani & Moreland, L.L.P., Wimberley, TX, David Weiser, Esq., Kator, Parks & Weiser, P.L.L.C., Austin, TX, for Plaintiffs–Appellees Cross–Appellants.

Justin Michael Welch (argued), Blazier Christensen Bigelow & Virr, P.C., Austin, TX, for Defendants–Appellants Cross–Appellees.

Appeals from the United States District Court for the Western District of Texas.

Before REAVLEY, JOLLY, and SMITH, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

After a jury found Abigail F. Ransom and fifteen other executive managers (collectively hereinafter, plaintiffs) of Party City, a retail chain, to be misclassified by their employer as exempt from the Fair Labor Standards Act (FLSA), 29 U.S.C. § 201, et seq., the plaintiffs became eligible for an award of overtime wages. Because the plaintiffs were paid a weekly salary, the trial court had to compute their hourly rate of pay in order to award overtime damages. Disregarding the so-called “fluctuating workweek” (FWW) method of determining overtime damages—a method established by precedent and relevant federal regulations as applicable in this case—the district court, presided over by a magistrate judge, instead determined overtime damages by using the magistrate judge's unorthodox preferred methodology.¹ The plaintiffs' employer, M. Patel Enterprises, Incorporated ² (“Party City”), contends this method of calculation was error, and we agree. We therefore REVERSE the ruling of the district court, VACATE the amount of actual damages awarded to plaintiffs as overtime and REMAND for recalculation. We further VACATE the award of liquidated damages and the amount of attorneys' fees and REMAND for reconsideration.

I.

In this opinion, we will proceed as follows: First, we discuss the facts at issue and the lower court proceedings leading to this appeal. Second, we consider the standard of review and the specific employment arrangement between the plaintiffs and Party City. Third, finding the district court's factual findings to be clearly erroneous, we sort through relevant FLSA background principles and precedent, apply them to this case, and explain why they compel the use of FWW in calculating the amount of overtime damages the plaintiffs are due. Finally, we consider the plaintiffs' cross appeal, as well as liquidated damages and attorneys' fees.

Because the basic question here can get lost in the weeds of the regulations, the arguments, and the methods of calculation, we state its simplicity: How much overtime pay does Party City owe to its employees under the FLSA? By proceeding along the course outlined above, we will determine the proper method of calculation and remand to the district court for computation of the proper amount.

II.

This suit arose in Austin, Texas, where the plaintiffs were employed as executive managers (EMs) at Party City retail stores. The plaintiffs filed a collective action under the FLSA in 2010. They alleged that Party City had misclassified them as exempt from the overtime provisions of the FLSA. Furthermore, by paying them only a weekly salary that did not vary—even when the plaintiffs had often worked weeks of irregular, consistently long hours—Party City owed them overtime and additional hourly pay for such workweeks. In due course, the case proceeded to jury trial, presided over by a magistrate judge.³ On November 14, 2011, a jury found that Party City had misclassified the plaintiffs as exempt from the FLSA and overtime pay; but the jury also held that this FLSA violation was not willful.

In this appeal, neither party contests Party City's liability as found by the jury. Instead, the appeal centers on the trial court's error in calculating the overtime damages. In motions for summary judgment before the magistrate judge, the plaintiffs argued for the so-called “EZPawn ” method ⁴ for calculating overtimedamages, while Party City argued for the application of the FWW method.⁵ The court denied each party's motion for summary judgment. The court held that “[d]etermining the proper overtime calculation method is a fact-dependent inquiry, and the facts [we]re in dispute....” Ransom v. M. Patel Enters., Inc., 825 F.Supp.2d 799, 810 (W.D.Tex.2011). The district court, however, found that “the parties have stipulated regarding the number of hours worked by the Plaintiffs and the salary each was paid during the relevant period ... [that] there are no issues to send to the jury on damages.” Id. The case then proceeded to trial on liability only.

The jury, as previously noted, found that Party City had misclassified the plaintiffs as exempt from the FLSA. With the jury's determination of FLSA liability in hand, the court then turned to its responsibility: the calculation of damages. The court's analysis of actual damages focused on two related questions: first, determining plaintiffs' “regular rate” of hourly pay and, second, how that regular rate should be used to compute the overall amount due to plaintiffs. With regard to the first question, the magistrate judge divided the plaintiffs' weekly salary by 55, the number of hours the magistrate judge found that the weekly salary was “intended to compensate.” See29 C.F.R. § 778.113(a). As for the second question, he noted that the FLSA in its plain terms required that a non-exempt employee be paid one and one-half times his or her regular rate for all hours worked over 40, see29 U.S.C. § 207(a), and then, proceeding from this premise, the magistrate judge devised his own formula, saying:

Given the finding ... that the weekly salary is properly viewed as payment for 55 hours of work, this means that for the hours from zero to 40, Plaintiffs have been paid all they are entitled to; for hours over 40 and up to 55, they have been paid only the regular rate; and for hours over 55, they have not been paid at all. For the purpose of calculating damages, the Plaintiffs are therefore entitled to one-half the regular rate for each hour worked over 40 up to 55, and for all hours over 55, the Plaintiffs shall receive one and one-half times their regular rate.

Ransom v. M. Patel Enters., Inc., 2012 WL 242788, *2 (W.D.Tex. January 25, 2012). The court then used such formula to calculate the actual damages to which the plaintiffs were entitled.

Finally, the court addressed the issue of liquidated damages and attorneys' fees. Finding that Party City had failed to show a good faith attempt to comply with the overtime laws, the district court awarded liquidated damages in an amount equal to the actual damages. It further ordered Party City to pay legal fees.

In summary, when judgment was entered for 14 of the plaintiffs,⁶ they recovered (1) $66,250.20 in unpaid overtime, (2) $1,267.92 in unpaid minimum wages, and (3) because the court found Party City's violations were not in good faith or reasonable, equal amounts as liquidated damages. The court also awarded $331,880.00 in attorneys' fees and $8,764.03 in costs and expenses. The court entered final judgment on February 15, 2012, and both sides timely appealed.

III.

Before we begin our analysis, we briefly turn to our standard of review. The primary issue on appeal—the trial court's calculation of total unpaid overtime—is a mixed question of law and fact. Here, the number of hours the plaintiffs' fixed salary was intended to compensate, from which an employee's “regular rate” of pay (salary ÷ hours), is a question of fact; once the regular rate of hourly pay been determined, the appropriate methodology to determine the total amount owed, a question of law, is then applied. For non-jury issues in a civil case, like the post-trial damage calculation proceeding here, this court reviews conclusions of law de novo and findings of fact for clear error. See Gabriel v. City of Plano, 202 F.3d 741, 745 (5th Cir.2000); see alsoFed.R.Civ.P. 52(a)(6) (stating that “findings of fact ... must not be set aside unless clearly erroneous”). When reviewing mixed questions of law and fact, this court reverses only if the findings are based on a clearly erroneous view of the facts or a misunderstanding of the law. Tokio Marine & Fire Ins. Co., Ltd. v. FLORA MV, 235 F.3d 963, 966 (5th Cir.2001). A factual finding is clearly erroneous when, although there may be evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed. N.A.A.C.P. v. Fordice, 252 F.3d 361, 365 (5th Cir.2001). As we discuss below, the overwhelming evidence shows that the plaintiffs' salary was intended to compensate all hours worked, and that these hours would fluctuate. Consequently, the magistrate judge's calculation—which rejected the FWW method—was based on a misunderstanding of the law and a clearly erroneous view of the facts. See FLORA MV, 235 F.3d at 966.

IV.

We now broach the most important issue in resolving this appeal—the plaintiffs' employment arrangement between them and their employer.⁷ Here, the understoodarrangement is not a written agreement that clearly lays out the plaintiffs' terms of employment, including the number of hours they were required to work. The magistrate judge in calculating damages, however, interpreted the parties' mutual understanding to mean that the plaintiffs'...