Shultz v. Morris

• Decision Date: 22 June 1970
• Docket Number: Civ. A. No. 2924.
• Citation: 315 F. Supp. 558
• Parties: George P. SHULTZ, Secretary of Labor, United States Department of Labor, Plaintiff, v. William P. MORRIS and Warren G. Morris, Individually, and William P. Morris and Warren G. Morris comprising a partnership, Defendants.
• Court: U.S. District Court — Middle District of Alabama

315 F. Supp. 558

George P. SHULTZ, Secretary of Labor, United States Department of Labor, Plaintiff, v. William P. MORRIS and Warren G. Morris, Individually, and William P. Morris and Warren G. Morris comprising a partnership, Defendants.

Civ. A. No. 2924.

United States District Court, M. D. Alabama, N. D.

June 22, 1970.

COPYRIGHT MATERIAL OMITTED

L. H. Silberman, Solicitor of Labor, Washington, D. C., Beverley R. Worrell, Regional Solicitor and Roger J. Martinson, Attorney, U. S. Department of Labor, Atlanta, Ga., for plaintiff.

W. H. Albritton, Albrittons & Rankin, Andalusia, Ala., and James W. Kelly, Geneva, Ala., for defendants.

OPINION AND ORDER

FRANK M. JOHNSON, Jr., Chief Judge.

This action was brought by the Secretary of Labor under the provisions of Section 17 of the Fair Labor Standards Act, 29 U.S.C.A. § 217, to enjoin the defendants (who are employers) from violating the provisions of Sec. 15(a) (2) and 15 (a) (5) of the Fair Labor Standards Act and to restrain them from withholding payment of minimum wages and overtime compensation due certain employees. The case is, by agreement of the parties, submitted upon a written stipulation of facts and their briefs and arguments.

The Secretary is proceeding on an enterprise theory of coverage (Section 3 (r)) since there are three physically separate retail grocery stores involved. Two of the stores are owned and operated by William P. Morris and the third is owned and operated by a partnership composed of William (75%) and Warren G. Morris (25%). Warren manages the partnership store which is located in Brundidge, Alabama. The other two stores are located in Clayton and Hartford, Alabama. No one of the stores had a gross volume of sales equal to $1,000,000 during the time in question. However, since 1968 the three stores combined have grossed over $1,000,000 and since 1967 the two William Morris stores grossed together more than $500,000.

The Secretary contends that the three stores constitute an "enterprise" engaged in commerce or in the production of goods for commerce and was covered by the 1961 amendments to the Fair Labor Standards Act once the combined annual gross sales exceeded one million dollars.

The defendants contend (1) that the stores did not constitute an "enterprise" within the meaning of the Act, (2) that, even if they did, the "enterprise" is not subject to the 1961 amendments because the 1966 amendments provide a transitory period and minimum rates and maximum hours for "newly covered" enterprises, and (3) that in any case the defendants relied on the advice and assistance of a Ben Bruner who was engaged in the business of assisting employers in compliance with the Fair Labor Standards Act, wherefore their good faith should prevent the issuance of an injunction.

There are three basic questions presented in this case.

I

The first question this Court must decide is: Do the three stores constitute an "enterprise" within the meaning of Section 3(r)?

Section 3(r) of the Act provides:

"Enterprise" means the related activities performed (either through unified operation or common control) by any person or persons for a common business purpose, and includes all such activities whether performed in one or more establishments or by one or more corporate or other organizational units including departments of an establishment operated through leasing arrangements, but shall not include the related activities performed for such enterprise by an independent contractor; Provided, That, within the meaning of this subsection, a retail or service establishment which is under independent ownership shall not be deemed to be so operated or controlled as to be other than a separate and distinct enterprise by reason of any arrangement, which includes, but is not necessarily limited to, an agreement (1) that it will sell, or sell only, certain goods specified by a particular manufacturer, distributor, or advertiser, or (2) that it will join with other such establishments in the same industry for the purpose of collective purchasing, or (3) that it will have the exclusive right to sell the goods or use the brand name of a manufacturer, distributor, or advertiser within a specified area, or by reason of the fact that it occupies premises leased to it by a person who also leases premises to other retail or service establishments.

There are three elements to be considered: related activities, common control or unified operation and common business purpose. Wirtz v. Savannah Bank & Trust Co. of Savannah, 362 F.2d 857, 859 (5th Cir. 1966).

There can be no doubt that the activities of these three stores are related because they all are retail grocery stores. The Senate Report on the definition of "enterprise" makes this clear:

Within the meaning of this term, activities are "related" when they are the same or similar, such as those of the individual retail or service stores in a chain, or departments of an establishment operated through leasing arrangements. S.Rep. No. 145, 87 Cong., 1st Sess. 31 (1961), U.S.Code Congressional and Administrative News 1961, p. 1620

In 1966, commenting on the new amendments, the Senate Report reiterated this meaning of "related activities":

Also, the operations through substantial ownership or control of a number of firms engaged in similar types of business activities constitute, in the committee's view, related activities performed through unified operation or common control within the meaning of the definition of enterprise. The fact that the firms are independently incorporated or physically separate or under the immediate direction of local management, as in Wirtz v. Hardin, 16 Wage Hour Cases 722 (N.D.Ala.), is not determinative of this question. S.Rep. No. 1487, U.S.Code Congressional and Administrative News, 1966, p. 3009

It should be emphasized that the defendants in the instant case rely on Wirtz v. Hardin & Co., 253 F.Supp. 579 (N.D.Ala.1964), aff'd per curiam, 359 F.2d 792 (5 Cir., 1966). Ordinarily, the post hoc expression of disapproval in a committee report is not given much weight when the language does not construe any statutory language that is being altered by the reported bill. The 1966 amendments did not change the "related activities" language and the report's disapproval was in effect "dicta". Nevertheless, the Fifth Circuit has indicated its agreement with the Senate Committee's repudiation of Wirtz v. Hardin. Shultz v. Mack Farland & Sons Roofing Co., 413 F.2d 1296 (1969). In Wirtz v. Hardin the district court had found that six Piggly Wiggly stores did not constitute an "enterprise" because there was no centralized management and control, the operation of the stores was not unified and each of the local managers had substantial investments in the stores they operated. For the several reasons hereinafter appearing, this case, even if it had not been repudiated, is not factually applicable.

There is no doubt but that the three stores here are being operated for a common business purpose. The ultimate purpose of the three stores is to make a profit. All of the net profit from the Clayton and Hartford stores goes to William Morris and 75% of the net profit from the Brundidge (partnership) store goes to William Morris. The Fifth Circuit has held that the profit motive is a common business purpose if shared. Wirtz v. Savannah Bank & Trust Co. of Savannah, 362 F.2d 857, 861 (1966):

* * * A common business purpose is found in the bank's operation of the office building to enable the Bank to locate in a desirable downtown area, to provide space for future expansion, to improve the Bank's profit position, both from the standpoint of revenue and taxes, and to strengthen the image of the Bank in the public eye. Emphasis supplied.

Of course, the mere fact that someone shares in the profits from a group of business entities is not enough to make them an enterprise for the purposes of the Act. The Savannah Bank case indicates that there must be other factors in addition to a common profit motive. In the instant case there are other common factors. The stipulation states that the three stores pay license fees to Piggly Wiggly on the combined volume of all three stores; there is one Piggly Wiggly franchise for all three stores — issued in the name of William P. Morris. William Morris owns the buildings in which the Hartford store and the Brundidge (partnership) store are located and rents the building in which the Clayton store operates. The partnership rents the Brundidge building for $650 monthly.

The last and most difficult question is whether the three stores were under either unified operation or common control. This Court now finds that they were under common control. It is conceded that the two stores in Clayton and Hartford constitute an enterprise. The issue is whether the partnership store can be added to them to make an enterprise with total annual gross sales in excess of $1,000,000.

The following incidents of common control are set out in the stipulation:

(1) All invoices were handled in and paid from Hartford by checks drawn by William from the bank accounts (in separate banks) of each store.

(2) The bookkeeper at the Hartford store keeps the books for all three stores, although she keeps a separate set for each store.

(3) The partnership and individually owned stores operate under one Piggly Wiggly franchise and pay franchise fees on a volume discount basis with the combined volume of the three stores considered as the total volume for the single franchise.

(4) William owned the buildings in which the Hartford and partnership stores were located. He rented the building for the Clayton store. The partnership paid a monthly rental of $650 for the Brundidge store.

(5) Both William and Warren used the services of the same man for advice on the Fair Labor Standards Act—a Mr. Ben Bruner. All three stores followed the same wage and hour practices.

(6) William is a 75% partner in the...