Schultz v. Kip's Big Boy, Inc.

• Decision Date: 05 August 1970
• Docket Number: No. 28694.,28694.
• Citation: 431 F.2d 530
• Parties: George P. SCHULTZ, Secretary of Labor, United States Department of Labor, Plaintiff-Appellant, v. KIP'S BIG BOY, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

431 F.2d 530 (1970)

George P. SCHULTZ, Secretary of Labor, United States Department of Labor, Plaintiff-Appellant, v. KIP'S BIG BOY, INC., Defendant-Appellee.

No. 28694.

United States Court of Appeals, Fifth Circuit.

July 17, 1970.

As Corrected August 5, 1970.

L. H. Silberman, Sol., U. S. Dept. of Labor, Washington, D. C., M. J. Parmenter, Regional Sol., U. S. Dept. of Labor, Richard L. Collier, Trial Atty., Dallas, Tex., Bessie Margolin, Carin Ann Clauss, Attys., U. S. Dept. of Labor, Washington, D. C., Leon M. Kestenbaum, Atty., United States Dept. of Labor, Washington, D. C., for plaintiff-appellant.

Philip Wilson, Dallas, Tex., for defendant-appellee.

Before TUTTLE, THORNBERRY and INGRAHAM, Circuit Judges.

TUTTLE, Circuit Judge:

This is an appeal from a judgment of the United States District Court for the Northern District of Texas, holding that the commissary of Appellee Kip's Big Boy, Inc. was not covered by the Fair Labor Standards Act because of the lack of the Secretary's proof that Kip met the required test of establishing an "inflow" in interstate commerce. The trial court also found that the Commissary was inseparable from retail outlets and was thus entitled to the "retail establishment" exemption under Section 13(a) (2) of the Fair Labor Standards Act, 29 U.S.C.A. § 213(a) (2). The court also held that the work performed by employees handling incoming (interstate) shipments was "inconsequential and occasional" as a further basis for denying relief.

The Secretary of Labor brought the action against Kip for violating both the minimum wage and overtime provisions of the Fair Labor Standards Act, Sections 6(b) (1), 7(a) (2) and 15(a) (2), 29 U.S.C.A. § 206 et seq. While there are some disagreements as to the exact facts, the trial court did not adequately deal with the factual dispute issue because it concluded that "the first consideration in this case is the definition of `Enterprise,' that Kip was not an `Enterprise'" and was, therefore, not covered by the Act. Prior to the 1967 amendment 29 U.S.C.A. § 203(s) (1) an enterprise as defined by the Act and relevant here had to have (1) one or more retail or service establishments with an annual gross volume of sales not less than $1,000,000 and received or purchased goods for resale that move or have moved across state lines which amount in total amount to $250,000 or more.¹ The case was submitted to the district court stipulating that Kip owned nine restaurants, a warehouse and a commissary and that Kip's gross annual dollar volume of sales was in excess of $1,000,001 in each of the three calendar years in question — July 19, 1964 through July 19, 1966.² The parties did not stipulate as to the $250,000 interstate commerce flow requirements but submitted stipulated records denominated "invoices" representing total direct purchases by Kip's warehouse or commissary in Dallas, Texas, from places located outside of the State of Texas 7-18-64 through 8-17-66. These documents themselves did not establish the $250,000 requirement for any of the three time periods. The three time periods used by the Secretary were July 18, 1964 through February 28, 1965; March 1, 1965 through February 27, 1966 and February 28, 1966 through August 17, 1966. These dates, or rather the February date, was used because it was the "end-date" of the company's fiscal year. For the 64-65 period, the stipulated records themselves, proved a $96,622.36 "inflow;" the 1965-66 period records proved a $174,052.95 "inflow" and the 1966-67 period records proved $106,953.64 of direct purchase from outside the state.

Appellee argues that this should be the extent of permissible proof — the documentary evidence. This limitation is without merit. The statute does not limit the computation of the $250,000 goods to those purchased directly by the employer from a place or places located outside the State of Texas, but takes into consideration also goods which were purchased indirectly from places outside the State of Texas. In Wirtz v. Melos Construction Corp., (2nd Cir., 1969) 408 F.2d 626, where a purely New York construction corporation purchased its material solely from dealers in New York, which the dealers had purchased from out of state dealers, in another form, i.e., raw stage, the court, in construing similar interstate commerce language, held that "the legislation was designed to regulate enterprises dealing in articles acquired intrastate after travel in interstate commerce is indicated by the fact that the Senate report also notes that `the constitutional power of Congress under the commerce clause to exercise authority with respect to articles that have completed an interstate shipment and are being held for future sales in purely local or intrastate commerce is also settled. * * *'"

Therefore, it appears clear that the only test is that "goods amounting to $250,000 a year must be purchased or received for resale and have moved across state lines at some stage in the flow of commerce to the retailer." 2 U. S.Code Cong. and Admin.News 87th Cong., 1st Sess., 1961, p. 1645. The issue, therefore, becomes whether the Secretary's proof on indirect purchases when added to the proven direct sales met the $250,000 "inflow" test.

Based on all the available information which the Secretary had, he developed a formula which involved the theoretical application of percentiles to the gross sales of the appellee Kip's Big Boy. In short, the appellants' expert reconstructed interstate purchases by establishing that during the period from July 18, 1964 to February 28, 1965 direct and indirect inflow represented 7.35 percent of the defendant's gross sales of approximately $4,000,000. However, the trial court held that these figures did not represent the gross sales for these years. The court found that the gross sales for July 1964 to February 1965 were $3,225,590.63 and that the gross sales for 1965 was $3,702,269.71 and that "assuming the validity of the percentile method of determining inflow * * *" the annual interstate purchases for these years would be less than the $250,000 requirement. The difficulty with the court's reasoning is that with a known figure of "inflow" of $317,512 and gross sales of a smaller amount, the percentage would be larger, rather than smaller. Thus, when the percentage was applied to gross sales for subsequent periods to test the proportion of total sales represented by "inflow" it is clear that Secretary's expert witness properly used a percentage figure of 9.14. The trial court's opinion reflects the mistake of the court, for the court adjusted the gross sales figure without reflecting an adjustment in the percentage figure as was done at trial by the Secretary's expert witness. The court does not explain in its opinion why it used 7.35% as opposed to 9.14%. Clearly if the 9.14 figure is accepted and used, the Secretary met his $250,000 inflow test for 1964 and 1965. Moreover, even mathematically the court erred in finding that 7.35% of $3,702,369.79 for 1965 did not exceed $250,000. It is $272,124.17.

For the calendar year 1966, a purchase analysis showed direct interstate purchases in the amount of $106,953.64. This figure represents purchase for only February 28, 1966, through August 17, 1966. The court held that "it cannot be presumed that interstate purchases continued at the same rate subsequent to August 17, 1966." However, Kip's testified that the interstate purchases were generally consistent from year to year. It appears clear from the court's opinion that it really rejected the Secretary's method of proof for in speaking of the 1966 year proof, the court held: "It cannot be presumed that interstate purchases continued at the same rate subsequent to August 17, 1966, and that the total amount of annual `inflow' purchases should have been the subject of documentary evidence and such proof has not been made by the plaintiff for the balance of 1966." We conclude that, on the record, adequate proof was made for the year 1966, both based...