Sapperstein v. Hager

• Decision Date: 17 August 1999
• Docket Number: No. 98-3390,98-3390
• Citation: 188 F.3d 852
• Parties: (7th Cir. 1999) WILLIAM SAPPERSTEIN, Plaintiff-Appellant, v. ROBERT HAGER and PATRICIA HAGER doing business as B & G CYCLERY, Defendants-Appellees
• Court: U.S. Court of Appeals — Seventh Circuit

Page 852

188 F.3d 852 (7th Cir. 1999)

WILLIAM SAPPERSTEIN, Plaintiff-Appellant, v. ROBERT HAGER and PATRICIA HAGER doing business as B & G CYCLERY, Defendants-Appellees.

No. 98-3390

United States Court of Appeals, Seventh Circuit

Argued February 18, 1999

Decided August 17, 1999

Appeal from the United States District Court for the Northern District of Indiana, Eastern Division. No. 98 C 2353--Harry D. Leinenweber, Judge. [Copyrighted Material Omitted]

Before BAUER, MANION and ROVNER, Circuit Judges.

ILANA DIAMOND ROVNER, Circuit Judge.

This case is most centrally about whether an employee who alleges that he has been discharged for reporting violations of the minimum wage and maximum hour provisions of the Fair Labor Standards Act ("FLSA"), 29 U.S.C. sec.sec. 206(a)(1), 207(a)(1), can maintain an action under its retaliatory discharge provisions, id. sec. 215 (a)(3), even if the sub-minimum wage payments or excessive hours do not in fact constitute a violation because the employer is not covered by the FLSA. We hold that the action can be maintained. Another issue presented concerns the credibility that a district court, in deciding a motion to dismiss for lack of subject matter jurisdiction, should accord to the affidavit of an employee of the defendants in making its jurisdictional factual determinations.

William Sapperstein was employed as a mechanic at B & G Cyclery ("B & G"), owned and operated by defendants Robert and Patricia Hager, in Lake County, Illinois. On January 15, 1998, he filed a complaint with the Illinois Department of Labor, alleging that the defendants were employing minors in violation of federal and state child labor and minimum wage laws. On February 15, 1998, he left B & G. On April 16, 1998, Sapperstein filed this lawsuit in federal district court. His initial complaint asserted only that he had not been paid for overtime in violation of federal and state law. See 29 U.S.C. sec. 207(a)(1); 820 ILCS 205¹.

The defendants filed a motion to dismiss the action for lack of subject matter jurisdiction under Fed. R. Civ. P. 12(b)(1), arguing that B & G was not an "employer" covered by the FLSA because its annual gross volume of sales made or business done was less than the jurisdictional amount of $500,000. See 29 U.S.C. sec. 203(s)(1) (A)(ii).¹ The defendants filed an affidavit by Nicole L. Hager-Hogan, manager of B & G, stating that gross annual sales for 1997 were $497,253.00. On August 6, however, Sapperstein filed an amended complaint which alleged, in addition to (1) the overtime claim, claims that: (2) B & G had been illegally employing minors at sub-minimum wages, see 29 U.S.C. sec. 206(a)(1); (3) Sapperstein had been constructively discharged in violation of 29 U.S.C. sec. 215(a)(3) in retaliation for reporting B & G's violations to the state authorities; and (4) B & G satisfied the jurisdictional amount and so was subject to the FLSA. At a hearing on August 19, the district court, ruling from the bench, granted the motion to dismiss. Sapperstein appeals, and we reverse.

We review de novo the district court's grant of the motion to dismiss for lack of subject matter jurisdiction. Long v. Shorebank Development Corp, 182 F.3d 548, 554 (7th Cir. June 25, 1999). We first consider the stated grounds for the dismissal, the failure to satisfy the jurisdictional amount. Sapperstein's initial complaint may have been defective, as he concedes, because it did not allege that the defendants were "employers" engaged in interstate commerce for purposes of the FLSA, see 29 U.S.C. sec. 203(s)(1)(A)(i), or that they satisfied the requirement that B & G was an "employer" doing at least $500,000 in annual gross sales made or business done. Id. sec. 203(s)(1)A)(ii). However, if there was a defect in the pleading, it was cured by a subsequent amended complaint making the appropriate allegations. See Central States, Southeast and Southwest Areas Pension Fund v. Midwest Motor Express, Inc., 181 F.3d 799, 805 (7th Cir. June 9, 1999) (jurisdictional defects can be cured by amending complaint).

Normally, we read a complaint liberally and "'accept as true the well pleaded allegations of the complaint and the inferences that may be reasonably drawn from those allegations.'" Panaras v. Liquid Carbonic Indust. Corp., 74 F.3d 786, 791 (7th Cir. 1996) (internal citations omitted). The issue is not whether a plaintiff will ultimately prevail but whether he is entitled to offer evidence to support the claims. "'[I]t may appear on the face of the pleadings that a recovery is very remote and unlikely[,] but that is not the test.'" Kroll v. United States, 58 F.3d 1087, 1090 (6th Cir. 1995) (internal citations omitted). Where evidence pertinent to subject matter jurisdiction has been submitted, however, "'the district court may properly look beyond the jurisdictional allegations of the complaint . . . to determine whether in fact subject matter jurisdiction exists.'" United Transportation Union v. Gateway Western Railway Co., 78 F.3d 1208, 1210 (7th Cir. 1996) (internal citations omitted). The plaintiff has the obligation to establish jurisdiction by competent proof. Commodity Trend Service, Inc. v. Commodity Futures Trading Comm'n, 149 F.3d 679, 685 (7th Cir. 1998). The presumption of correctness that we accord to a complaint's allegations falls away on the jurisdictional issue once a defendant proffers evidence that calls the court's jurisdiction into question. Id. Under a Rule 12(b)(1) motion we review the district court's resolution of jurisdictional factual issues for abuse of discretion. Anthony v. Security Pacific Financial Servs., Inc., 75 F.3d 311, 315 (7th Cir. 1996).

The district court here credited the affidavit of B & G's manager, Hager-Hogan, which provided the factual basis of the claim that the defendants were not covered by the minimum wage and maximum hour provisions of the FLSA, falling about $2,500 short of the $500,000 requirement to be an "employer" under the FLSA. In the usual case, such a determination is within the district court's sound discretion, and our review of a district court's factual determination as to jurisdiction is very deferential. See Olander v. Bucyrus-Erie Corp., 187 F.3d 599, 607 (7th Cir. July 21, 1999) (abuse of discretion only if determinations "'were not just clearly incorrect but downright unreasonable'"). Here, though, the district court abused its discretion. It was not reasonable, in the context of a motion to dismiss, to credit an affidavit from the defendants' manager as to the amount of gross sales when the plaintiff had no real opportunity to contest the allegation. An employee of the defendants is not a disinterested witness. She is subject to their influence, in a sense in their power; and it is not easy to make a credibility determination from the face of an affidavit. Moreover, the roughly $2,500 by which Hager-Hogan's affidavit states B & G falls short of the required amount is close enough to be within the range of accounting error if not to raise other doubts. Sapperstein had no opportunity to conduct discovery to challenge the credibility of the affidavit. Given its source and content, in the circumstances the affidavit was not by itself credible, and the trial court erred in relying upon it without further inquiry.

Even had the evidence that the defendants failed to satisfy the required amount been more solid, however, Sapperstein introduced an alternative basis for subject matter jurisdiction which evaded that requirement. In his amended complaint, he added a retaliation charge under 29 U.S.C. sec. 215(a)(3), which is drafted to prohibit "any person" from discharging or discriminating against any employee "because such employee has filed any complaint or instituted . . . any proceeding under or related to this chapter." Defendants Robert and Patricia Hager, and B & G Cyclery as a corporation, are "persons" for the purposes of sec. 215, which is broader than sec.sec. 206 and 207. These sections cover "employers," which are defined under sec. 203(s)(1)(A)(ii) as enterprises that, among other things, do $500,000 in gross annual sales. There is no required amount, however, to be a "person" under sec. 215. Even if Sapperstein's minimum wage and maximum hour action were not maintainable because of failure to meet the required amount, his retaliation claim would lie.

Sapperstein...