Secretary of Labor, U.S. Dept. of Labor v. 3RE.Com

• Decision Date: 23 January 2003
• Docket Number: No. 01-5912.,No. 01-6497.,01-5912.,01-6497.
• Citation: 317 F.3d 534
• Parties: SECRETARY OF LABOR, UNITED STATES DEPARTMENT OF LABOR, Plaintiff-Appellee, v. 3RE.COM, INC., Defendant, General Electric Capital Corporation, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

317 F.3d 534

SECRETARY OF LABOR, UNITED STATES DEPARTMENT OF LABOR, Plaintiff-Appellee, v. 3RE.COM, INC., Defendant, General Electric Capital Corporation, Defendant-Appellant.

No. 01-5912.

No. 01-6497.

United States Court of Appeals, Sixth Circuit.

Argued: December 10, 2002.

Decided and Filed: January 23, 2003.

Mary T. Ball, Judith E. Kramer, Dep. Sol. Labor, U.S. Department of Labor, Office of Sol., Nashville, TN, William J. Stone (argued and briefed), U.S. Department of Labor, Washington, DC, for Plaintiff-Appellee.

Louis P. Britt, III (argued and briefed), David P. Knox (briefed), Ford & Harrison, Memphis, TN, for Defendant and Defendant-Appellant.

Before MARTIN, Chief Circuit Judge; DAUGHTREY, Circuit Judge; O'MALLEY, District Judge.^*

OPINION

BOYCE F. MARTIN, JR., Chief Circuit Judge.

General Electric Capital Corporation appeals the decision of the district court enjoining the shipment of certain goods and ordering payment to the court for violations of the Fair Labor Standards Act, 29 U.S.C. §§ 201-219. General Electric is the secured creditor of 3Re.com, a computer repairer and telemarketer that went out of business. When 3Re.com went out of business, it failed to make its payroll for a period of time. The Department of Labor instigated an investigation and then successfully sought an injunction against 3Re.com and General Electric. General Electric first alleges that the court erred in treating accounts receivable as "goods" under the Act. The effect of this treatment by the Secretary is to bring a greater number of employees under the scope of the Fair Labor Standards Act. General Electric further alleges that the district court erred in failing to distinguish among employees at 3Re.com and in improperly extending the time period in which the violations were deemed to have occurred, specifically because the district court did not allow briefing before converting the preliminary injunction into a permanent one. For the following reasons, we REVERSE and REMAND to the district court.

While in business, 3Re.com engaged in repair and remarketing of computer equipment. General Electric provided periodic loans to 3Re.com to be used as working capital. Pursuant to the Loan and Security Agreement between the companies, clients paid 3Re.com for work done, and then General Electric swept the money from 3Re.com's accounts in order to provide future loans.

Beginning on April 11, 2001, the Secretary of Labor's office began an investigation into possible violations of the Fair Labor Standards Act at 3Re.com. The investigation covered the period from March 1, 2001, through May 3, 2001, and revealed several compensation violations. These violations included 3Re.com's failure to pay employees for work done, failure to pay employees for overtime work, and deducting sums from employee paychecks for insurance and 401(k) plans that were not forwarded to the insurers and the plan. Specifically, 3Re.com's salaried employees were last paid on March 30, 2001; its hourly employees were last paid on April 13, 2001; and 3Re.com withheld insurance and 401(k) deductions from its hourly and salaried employees in March and April that were never paid to the insurance companies or the 401(k) plan.

Defendant 3Re.com paid its hourly employees every two weeks with one week in arrears and paid its salaried employees every two weeks with nothing in arrears. Therefore, the district court reasoned, the salaried employees are still owed wages for work done during the April 1 through May 3, 2001, pay periods, and the hourly employees are owed one week's wages for the week of April 8-14, 2001. According to the district court, all employees are also still owed money for deductions not paid to their insurers and into the 401(k) plan.

Officials of 3Re.com realized that it was not going to make the April 13, 2001, payroll on April 11, 2001, and began contacting its customers to set up exit strategies for all of the inventory present in the facility. 3Re.com's employees worked to distribute that inventory in spite of not being paid for all or a portion of their work. 3Re.com's salaried employees gathered information in accounts receivable pending from approximately March 10, 2001, totaling approximately $610,000.00. Several of 3Re.com's employees created aged accounts receivable reports to be provided to General Electric under the terms of the Security Agreement.

Based upon these facts, the Secretary of Labor instituted an injunction action pursuant to 29 U.S.C. § 217, seeking to enjoin the interstate shipping of any goods produced by 3Re.com in violation of the provisions of the Fair Labor Standards Act. Following the entry of a temporary restraining order, the district court held an evidentiary hearing on the Secretary's preliminary injunction request. At the conclusion of that hearing, the court granted the injunction but allowed shipment of the goods should the defendants deposit into the registry of the court money equaling the value of the goods to be transported. At this hearing, General Electric made the argument it made at oral argument, that the injunction should not restrain the shipment of "hot goods" where the Secretary had presented no evidence distinguishing which goods were tainted, specifically those documents known as "accounts receivable." General Electric further requested an opportunity to brief the district court on this issue. The district court ruled that the standard for a preliminary injunction had been met, but it said it would allow briefing before ruling on the permanent injunction.

General Electric submitted a letter in support of its position. Because the court soon made the preliminary injunction permanent, post-hearing briefs were never requested or submitted. The district court then ruled that accounts receivable prepared by employees of 3Re.com constituted "goods" under the Act, produced by workers not paid in accordance with the standards set by the Fair Labor Standards Act. The court determined that the amount of money necessary to cure the taint of the "hot goods" was $222,841.12. Of that amount, $195,888.17 was wages due to hourly and salaried employees, and $26,952.95 covered the amount of money not paid by the company to the employees' benefit plans.

General Electric now challenges the classification of accounts receivable as "hot goods" under the Fair Labor Standards Act, the district court's decision not to hear arguments about the exemption of certain employees from the requirements of the sections at issue, and the inclusion in the offense of figures for withholding for 401(k) and health insurance benefit plans, which extended the violation time period.

When reviewing the decision of a district court to grant or to deny a request for issuance of a permanent injunction, we employ several different standards of review. "Factual findings are reviewed under the clearly erroneous standard, legal conclusions are reviewed de novo, and the scope of injunctive relief is reviewed for an abuse of discretion." S. Cent. Power Co. v. Int'l Bhd. of Elec. Workers, Local 2359, 186 F.3d 733, 737 (6th Cir.1999) (citing Walters v. Reno, 145 F.3d 1032, 1047 (9th Cir.1998)). Likewise, in addressing appeals in Fair Labor Standards Act cases specifically, "we will review the district court's underlying findings of fact for clear error but review de novo the district court's application to those facts of the legal standards contained in statutes, regulations, and caselaw." Brock v. City of Cincinnati, 236 F.3d 793, 800 (6th Cir. 2001).

Pursuant to the provisions of 29 U.S.C. § 206(a) and 207(a), covered employers must offer compensation equal to or exceeding the national minimum wage and must compensate employees for overtime labor "at a rate not less than one and one-half times the regular rate." Should an employer fail to comply with these mandates, employees may recover in a court action any unpaid wages or overtime compensation and "an additional equal amount as liquidated damages." 29 U.S.C. § 216(b). Moreover, 29 U.S.C. § 215(a)(1) specifies that it shall be unlawful for that employer, and indeed, for any person "to transport, offer for transportation, ship, deliver, or sell in commerce ... any goods in the production of which any employee was employed in violation of section 206 or section 207...." Pursuant to 29 U.S.C. § 217, the Secretary of Labor is authorized to seek a federal court injunction to restrain any actual or threatened transportation of so-called "hot goods." See Citicorp Indus. Credit, Inc. v. Brock, 483 U.S. 27, 33, 107 S.Ct. 2694, 97 L.Ed.2d 23 (1987).

In 29 U.S.C. § 203(i), Congress described the "goods" that are the subject of the legislative directive as "goods ..., wares, products, commodities, merchandise, or articles or subjects of commerce of any character, or any part or ingredient thereof...." In 29 U.S.C. § 203(j), Congress defined the term "produced" to mean:

produced, manufactured, mined, handled, or in any other manner worked on in any State; and for the purposes of this chapter an employee shall be deemed to have been engaged in the production of goods if such employee was employed in producing, manufacturing, mining, handling, transporting, or in any other manner working on such goods, or in any closely related process or occupation directly essential to the production thereof, in any State.

While this language is expansive, it is in keeping with the protective and remedial goals of the Fair Labor Standards Act.

In order to encompass as many workers at 3Re.com as possible within the class of protected employees, the Secretary alleged that even those employees who prepared accounts receivable reports at 3Re.com were participants in the production of "goods" involved in commerce. General Electric contests that suggestion, arguing that a mere accounting report is only a record of goods but not a "good" itself. Consequently, maintains General Electric, the inclusion of...