Opinion
Civil Action No. 3:02-CV-1310-L
September 30, 2003
ORDER
Before the court are Defendants' Motion for Summary Judgment Upon All Claims or Alternatively for Partial Summary Judgment, filed March 13, 2000; and Plaintiffs Motion for Approval to Mail Notice and to Require Defendants to Provide Names and Addresses of Similarly Situated Current and Former Employees and Supporting Brief, filed January 21, 2003. After careful consideration of the motions, responses, replies, summary judgment evidence and applicable law, the court, for the reasons stated, grants Defendants' Motion for Summary Judgment Upon All Claims; denies as moot Defendants' Alternative Motion for Partial Summary Judgment; and denies as moot Plaintiffs Motion for Approval to Mail Notice and to Require Defendants to Provide Names and Addresses of Similarly Situated Current and Former Employees and Supporting Brief.
I. Factual and Procedural Background
Plaintiff Michael S. Collins ("Collins") was an account executive from November 16, 1999 to October 3, 2001 for New Horizons Training Centers, L.P. d/b/a New Horizons Computer Learning Centers of Dallas/Ft. Worth, Austin, Houston; RBC Partners, Inc., f/k/a Dagny Taggart, Inc. and Guy Christopher Jones (collectively "Horizons" or "Defendants").
Horizons is a franchise which provides customer-focused computer and technical training. As an account executive, Collins' s duties included selling computer and technical training to various businesses and collecting inside sales. Collins contends that Horizons refused to pay persons in his position overtime compensation, even though they perform non-exempt work, choosing instead to pay such employees on a commission-only basis.
On May 29, 2002, Collins filed this lawsuit in the 134th Judicial District Court of Dallas County, Texas, asserting claims against Defendants for violations of the Fair Labor Standards Act of 1938 ("FLSA" or "the Act"), 29 U.S.C. § 201 et seq., for failure to pay overtime pay and for monetary and liquidated damages and attorney's fees pursuant to the Portal-to-Portal Act of 1947, 29 U.S.C. § 251 et seq. Collins purports to bring this action as an "opt-in" collective action on behalf of all persons who have worked for Horizons in the State of Texas and have been, are, or will be, employed as an account executive, or an equivalent or similar position, and all other non-exempt employees of Horizons. On June 21, 2002, Defendants removed the action pursuant to 28 U.S.C. § 1441(a), asserting federal question jurisdiction under 28 U.S.C. § 1331. Collins moved to remand the case, and the court denied the motion.
On January 21, 2003, Collins filed "opt-in" consents on behalf of seven individuals (collectively "Plaintiffs"). Also on this date, Collins filed a motion for approval to mail notice of this lawsuit to potential plaintiffs and to require Horizons to provide the names and addresses of similarly situated current and former employees. Horizons now moves for summary judgment. II. Summary Judgment Standard
Summary judgment shall be rendered when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 323-25 (1986); Ragas v. Tennessee Gas Pipeline Co., 136 F.3d 455, 458 (5th Cir. 1998). A dispute regarding a material fact is "genuine" if the evidence is such that a reasonable jury could return a verdict in favor of the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). When ruling on a motion for summary judgment, the court is required to view all inferences drawn from the factual record in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 587 (1986); Ragas, 136 F.3d at 458. Further, a court "may not make credibility determinations or weigh the evidence" in ruling on motion for summary judgment. Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150 (2000); Anderson, 477 U.S. at 254-55.
Once the moving party has made an initial showing that there is no evidence to support the nonmoving party's case, the party opposing the motion must come forward with competent summary judgment evidence of the existence of a genuine fact issue. Matsushita, 475 U.S. at 586. Mere conclusory allegations are not competent summary judgment evidence, and thus are insufficient to defeat a motion for summary judgment. Eason v. Thaler, 73 F.3d 1322, 1325 (5th Cir. 1996). Unsubstantiated assertions, improbable inferences, and unsupported speculation are not competent summary judgment evidence. See Forsyth v. Barr, 19 F.3d 1527, 1533 (5th Cir.), cert. denied, 513 U.S. 871 (1994). The party opposing summary judgment is required to identify specific evidence in the record and to articulate the precise manner in which that evidence supports his claim. Ragas, 136 F.3d at 458. Rule 56 does not impose a duty on the court to "sift through the record in search of evidence" to support the nonmovant's opposition to the motion for summary judgment. Id.; see also Skotak v. Tenneco Resins, Inc., 953 F.2d 909, 915-16 n. 7 (5th Cir.), cert. denied, 506 U.S. 832 (1992). "Only disputes over facts that might affect the outcome of the suit under the governing laws will properly preclude the entry of summary judgment." Anderson, 477 U.S. at 248. Disputed fact issues which are "irrelevant and unnecessary" will not be considered by a court in ruling on a summary judgment motion. Id. If the nonmoving party fails to make a showing sufficient to establish the existence of an element essential to its case and on which it will bear the burden of proof at trial, summary judgment must be granted. Celotex, 477 U.S. at 322-23.
III. Analysis
A. Defendants' Motion for Summary Judgment Upon All Claims or Alternatively for Partial Summary Judgment
The FLSA requires an employer to pay overtime compensation to an employee who works more than forty hours in a regular workweek. 29 U.S.C. § 207(a). This overtime requirement, however, does not apply to employees who fall within one of the exemptions set forth in the Act. It is well settled that exemptions from the FLSA must be narrowly construed. Arnold v. Ben Kanowsky, Inc., 361 U.S. 388, 392 (1960). An employer who claims an exemption from the FLSA has the burden of showing that the exemption applies. Mitchell v. Kentucky Fin. Co., 359 U.S. 290, 291 (1959). Moreover, the employer seeking to establish an overtime exemption must present evidence that "plainly and unmistakably" brings the employer within the terms of the exemption. Acme Car Truck Rentals, Inc. v. Hooper, 331 F.2d 442, 447 (5th Cir. 1964).
Horizons contends that it falls within the "retail or service establishment" exemption under 29 U.S.C. § 207(i).
Section 207(i) provides, in relevant part:
No employer shall be deemed to have violated subsection (a) of this section by employing any employee of a retail or service establishment for a workweek in excess of the applicable workweek specified therein, if (1) the regular rate of pay of such employee is in excess of one and one-half times the minimum hourly rate applicable to him under section 206 of this title, and (2) more than half his compensation for a representative period (not less than one month) represents commissions on goods or services.29 U.S.C. § 207(i) (emphasis added).
Horizons maintains, and Plaintiffs do not dispute, that Plaintiffs' regular rate of pay was in excess of one and one-half times the minimum hourly rate applicable to them under section 206 and that more than half of their pay was earned on a commissions basis. Accordingly, there is no material fact question regarding these two prongs of the "retail or service establishment" exemption. Plaintiffs do dispute, however, that Horizons qualifies as a "retail or service establishment."
To qualify for the section 207(i) exemption, Horizons must establish that it is a "retail or service establishment." "Retail or service establishment" means "an establishment 75 per centum of whose annual dollar volume of sales of goods or services (or of both) is not for resale and is recognized as retail sales or services in the particular industry." 29 U.S.C. § 213(a)(2); see also 29 C.F.R. § 779.411 (definition of "retail or service establishment" the same in both § 213(a)(2) and § 207(i)).
The definition of "retail or service establishment" is found in 29 U.S.C. § 213(a)(2), which has been repealed. The definition of this term as it existed in § 213(a)(2), however, still remains in effect for purposes of § 207(i). See 29 C.F.R. § 779.411; see also Reich v. Delcorp, Inc., 3 F.3d 1181, 1183 (8th Cir. 1993) ("[A]ny construction of the term as defined in § 213(a)(2) became a part of the definition of the term as found in § 207(i). Nothing in the 1990 amendments changed § 207(i).").
In determining whether goods or services are sold for resale, "sale" means "any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition." 29 C.F.R. § 779.331. "A sale is made for resale where the seller knows or has reasonable cause to believe that the goods or services will be resold, whether in their original form, or in an altered form, or as a part, component or ingredient of another article." 29 C.F.R. § 779.331. Further, a"sale [of goods or services] for distribution by the purchaser for business purposes are sales for resale under the `other disposition' language of the definition of `sale' even though distributed at no cost to the ultimate recipient." Id.
Resale means "selling again." 29 C.F.R. § 779.331.
Plaintiffs contend that a fact issue exists as to whether Horizons satisfies the retail concept of the "retail and service establishment" exemption because (1) it is a school, and schools are identified as non-retail establishments in the applicable interpretive regulations; and (2) its customers are mainly businesses or commercial clients who intended to use their computer training in the workplace, not individuals who intended to use their training for family or personal use. Plaintiffs rely on three United States Supreme Court cases to support their position: Roland Elec. Co. v. Walling, 326 U.S. 657 (1946); Mitchell, supra; and Idaho Sheet Metal Works v. Wirtz, 383 U.S. 190 (1965). The court fails to see how these cases support Plaintiffs' position.
The Secretary of Labor has promulgated regulations interpreting the "retail or service establishment" exemption ("DOL regulations").
In Walling, the Court held that a business "engaged in `commercial and industrial wiring, electrical contracting, and dealing in electrical motors and generators, for private, commercial, and industrial uses'" did not qualify as a "retail or service establishment." It also generally approved the "business use" test that had been set forth in the DOL regulations. 326 U.S. at 673-77. The "business use" test suggested that sales to businesses, as opposed to individual consumers, could not qualify as retail sales. Id. at 675. Congress, however, nullified the "business use" test in 1949 by making it possible to qualify as a "retail or service establishment" even if the consumer was not a personal consumer, provided that the "sales were not for resale and were recognized in the field or industry involved as retail." Mitchell, 359 U.S. at 294. Accordingly, Walling is of no assistance to Plaintiffs insofar as they seek to rely on it for the "business use" test.
In Mitchell, the Court determined that a company engaged in making small personal loans and purchasing conditional sales contracts from dealers in furniture and appliances did not constitute a "retail or service establishment." The company contended that it qualified as a "retail or service establishment" because its transactions were regarded as retail in its particular industry, and thus the "industry usage" test set forth in the 1949 amendments was satisfied. The Court denied the overtime exemption even though the company arguably met the "industry usage" test because it could not establish the "retail concept," that is, that its sales were not for resale. The Court based its decision on legislative history explicitly stating no retail concept exists in businesses in the financial field. Id. at 295-96.
Similarly, in Idaho Sheet Metal Works, the Court expressly rejected the "industry usage" test as the sole test in determining whether a business is a "retail or service establishment." Id. at 201. The "industry usage" test considers whether the activities of the business are recognized as retail in the particular industry. The Court reasoned that the "industry usage" test is not controlling because the legislative history "demonstrates that not everything the consumer purchases can be a retail sale of goods or services." Id. at 203. The "Court clearly indicated a two-step process: (1) ask whether the sale of a particular type of goods or services can ever qualify as retail, whatever the terms of the sale; and (2) if — and only if — the answer is affirmative, is it then necessary to determine the terms or circumstances that make a sale of those goods and services a retail sale." Brennan v. Great Am. Disc, and Credit Co., Inc., 477 F.2d 292, 295 (5th Cir. 1973) (citing Idaho Sheet Metal Works, 383 U.S. at 202-03)). While Plaintiffs correctly recognize that the businesses at issue in Mitchell and Idaho Sheet Meal Works did not qualify as "retail or service establishments," such recognition does not assist in determining whether Horizons lacks the retail concept because it is a school or because its customers are mostly businesses, instead of individuals.
This court must first decide whether the retail concept can apply to Horizons. There is no "bright line" in determining whether the retail concept exists; instead, "a case by case approach is in order with the referents being common sense and common parlance." Shultz v. Crotty Brothers Texas, Inc., 310 F. Supp. 761, 767 (E.D. Tex. 1970). The DOL regulations detail the characteristics of a "retail or service establishment" ( 29 C.F.R. § 779.318) and also provide a partial list of establishments "to which the retail concept does not apply" ( 29 C.F.R. § 779.317). "[A] court may not substitute its own construction of a statutory provision for a reasonable interpretation made by the administrator of the agency." Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 844 (1984) (emphasis added).
Plaintiffs contend that the retail concept can never apply to Horizons because it is a school, and the DOL regulations provide that schools, except schools for mentally or physically handicapped or gifted children, are non-retail establishments. Plaintiff refers the court to the affidavit of Brian T. Farrington ("Farrington"), an individual identified as an expert, in which Farrington summarily concludes that the Department of Labor would find that because Horizons is a school, it lacks the retail concept and thus does not qualify for the "retail or service establishment" exemption.
Defendants submitted evidence that the Department of Labor conducted an investigation of other Horizons franchises in Santa Ana, California and Chicago, Illinois and determined that account executives were exempt under 29 U.S.C. § 207(i). Plaintiffs did not object to this evidence.
As an initial matter, Horizons objects to, inter alia, this portion of Farrington's affidavit on the basis of speculation. Indeed, Farrington's conclusory statement with nothing more does not assist this court in determining the issues at hand. Unsupported speculation is not competent summary judgment evidence and thus is not considered by the court. See Forsyth, 19 F.3d at 1533. Horizons then contends that it is not a school, but, even if it were, it would still qualify as a "retail or service establishment" because it meets the characteristics of such an establishment; namely, it meets everyday needs of the local community, stands at the end of a system of distribution and provides services for the comfort and convenience of the general public's daily routine. Defendants rely on Martin v. Refrigeration Sch., Inc., 968 F.2d 3 (9th Cir. 1992) and Viciedo v. New Horizons Computer Learning Ctr., 246 F. Supp.2d 886 (S.D. Ohio 2003).
In Martin, the court considered whether a trade school specializing in refrigeration repair was a "retail or service establishment." The court determined that the DOL regulations providing that a school does not qualify as a "retail or service establishment" unless it is for mentally or physically handicapped or gifted children is an unreasonable interpretation of the term because there is no discernible basis upon which to include two categories of schools and exclude all others. Martin, 968 F.2d at 7. The court reasoned that some schools qualify as retail because (1) the exception of schools from the retail exemption of section 213(a)(2) suggests that Congress thought that some schools could classify as retail; (2) the DOL regulations ( 29 C.F.R. § 779.317) consider at least two types of schools as retail; and (3) the DOL regulations ( 29 C.F.R. § 779.318) that characterize retail establishments as serving the everyday needs of the community in which they are located describe some schools. Id. at 8.
The Martin court concluded that the trade school did not serve the everyday needs of the community because the training offered was not necessary for the maintenance of a community's daily routine but rather served a specialized function. Id. at 8-9. The court further explained that schools that serve society's direct need for basic education are the "end product" for a system "distributing" essential learning, while schools that are necessary to society because of the services they can provide are "`manufacturing' such services with the end of the system of distribution occurring at the service shops themselves." Id. at 9. In short, the court concluded that "the question of whether an education institution is a retail establishment depends upon the level of education it provides and not upon the characteristics of its students." Id. Accordingly, the court held that the trade school was a non-retail establishment because "[r]efrigeration repair training does not help to integrate individuals fully into the community's social life." Id.
The Viciedo court relied on the holding in Martin in finding that the school at issue served the everyday needs of the community and therefore qualified as a "retail or service establishment." Viciedo, 246 F. Supp.2d at 894. The Viciedo case involved the same business at issue in this case, albeit a differently owned franchise. Id. at 889. The Viciedo court noted that computer training is fundamental to function in today's society: "[R]egardless of the level of complexity of the training, in today's world, any type of computer training serves the everyday needs of the community." Id. at 894.
The defendant in Viciedo was New Horizons Computer Learning Center of Columbus, Ltd., a franchise of New Horizons Computer Learning Centers, Inc. Viciedo, 246 F. Supp.2d at 889.
Although the Martin and Viciedo holdings are not binding on this court, the court finds their reasoning persuasive and adopts it to the extent herein set forth. Accordingly, the court concludes that the retail concept can apply to Horizons. The court now determines whether the terms or circumstances of Horizons' sale of services qualify as a retail sale.
The court looks to the DOL regulations for guidance on the characteristics of retail or service establishments:
(a) Typically a retail or service establishment is one which sells goods or services to the general public. It serves the everyday needs of the community in which it is located. The retail or service establishment performs a function in the business organization of the Nation which is at the very end of the stream of distribution, disposing in small quantities of the products and skills of such organization and does not take part in the manufacturing process.29 C.F.R. § 779.318(a). This court must consider whether Horizons: (1) sells to the general public; (2) serves the everyday needs of the community; and (3) is at the very end of the stream of distribution. See id.
The following facts are undisputed. Horizons provides, at a price, computer and software training to the general public. It offers classes throughout the week, including the weekends, that cover a range of computer training from the most basic, such as word processing, to the complex, such as programming and network systems administration. Customers who are either individuals or businesses, which send their employees, can attend classes at the facilities in North Dallas or Southeast Fort Worth or access the instruction through "live" online classes or "anytime," self-paced, online courses. Horizons' customers include individuals with little to no computer knowledge to those with significant computer experience.
Further, the court notes that more than half of all American households have a computer. It follows then that computer training serves the "everyday needs" of more than half of the American households. See Viciedo, 246 F. Supp.2d at 894-95 (noting that in today's society, computer training serves the everyday needs of the community) (citing Thornton v. McClatchy Newspapers, Inc., 261 F.3d 789, 801 (9th Cir. 2001) (Berzon, J., concurring in part and dissenting in part) (recognizing that "[n]o one can realistically expect to be successful in our world of mega-information without being able to use a computer") (quoting Carl W. Battle, Smart Maneuvers: Taking Control of Your Career and Personal Success in the Information Age, at 106 (1994)); Bryant v. Muth, 994 F.2d 1082, 1088 (4th Cir. 1993) ("Society is becoming increasingly dependent upon computers in virtually every aspect of daily life."); Yeager v. Drug Enforcement Admin., 678 F.2d 315, 320 (D.C. Cir. 1982) ("It cannot be gainsaid that computers have become an integral part of the functioning of our society.")). Accordingly, the court finds that no genuine issues of material fact exist with respect to whether Horizons sells to the general public and serves the everyday needs of the community.
Defendants offered as evidence, and Plaintiffs did not object, the United States Census Bureau's report on home computers and internet use, dated August 2000.
The court next considers whether the sale of Horizons' services is at the very end of the stream of computer training. It appears that Plaintiffs are attempting to argue that the sale of Horizons' services are for resale because (1) its services were marketed "almost exclusively" to businesses; (2) account executives were instructed to focus on soliciting sales from businesses; and (3) most of Horizons' customers intended to use their training in the workplace.
Horizons can qualify as a "retail or service establishment" even if most of its consumers are businesses, if its sales are not for resale and are recognized in the industry as retail. See Mitchell, 359 U.S. at 294. The industry in question is computers or computer software. It is undisputed that Horizons neither manufactures computers nor computer software. There is no competent summary judgment evidence that the computer training that is sold to Horizons' business customers is resold or that the cost of training is passed on to the customers of Horizons' business clients.
It is incumbent upon Plaintiffs to identify specific evidence in the record and articulate the precise manner in which the evidence supports their case. Plaintiffs have not identified any evidence regarding the resale of Horizons' services by its business customers. Although the court had no duty to do so, it sifted through the record to find such evidence. The only "evidence" found was in Collins's own affidavit in which he states that he believes that Horizons' business customers would pass along the costs of Horizons' services to their clients or resell Horizons' services to their own employees. Defendants object to, inter alia, this portion of the affidavit on the basis of speculation. The court agrees. Unsupported speculation is not competent summary judgment evidence and thus was not considered. See Forsyth, 19 F.3d at 1533.
The court next turns to whether the sale of Horizons' services is considered retail in the industry. See Mitchell, 359 U.S. at 294. "Proof of recognition in the industry must include recognition of the retail nature of the transactions by disinterested sources, lest member organizations in various industries be permitted to create their own exemptions." Hodgson v. Crotty Brothers Dallas, Inc., 450 F.2d 1268, 1281 (5th Cir. 1971). The DOL regulations attempt to give guidance with respect to the criteria that should be considered in determining whether the sales are recognized as retail in the particular industry, such as, the well-settled habits of business, traditional understanding, common knowledge, and whether the sales are wholesale sales. 29 C.F.R. § 779.324.
Defendants offer the affidavit of Chris Jones, President of Horizons, to establish that the sale of Horizons' services is considered retail in its industry. Plaintiffs do not dispute Jones's testimony. They appear to contend, however, that the sale of Horizons' services is a wholesale sale because Horizons sells its services to businesses for group training sessions at "discount" rates. Defendants argue that the discounts to which Plaintiffs refer are nothing more than a "common marketing strategy utilized by almost all retailers," but offer no evidence to support this statement. Regardless, even if Plaintiffs' contentions are true, there is no evidence that Horizons "derives more than 25 percent of its annual dollar volume from sales made at wholesale." See 29 C.F.R. § 779.327'. To the contrary, the competent summary judgment evidence establishes that more than 75 percent of Horizons' annual revenue is from retail sales, that is, sales that are not for resale. Accordingly, Defendants have established that the sale of Horizons' services is recognized as retail in its particular industry. Plaintiffs have not established the existence of a genuine issue of material fact in this respect.
The court notes that the Viciedo court held that the Horizons franchise in its case was "recognized in the computer industry as retail in nature." Viciedo, 246 F. Supp.2d at 894.
For these reasons, the court determines Defendants have established that Horizons qualifies as a "retail or service establishment" and that Plaintiffs have failed to raise a genuine issue of material fact as to this issue. Accordingly, the court grants summary judgment in favor of Defendants on Plaintiffs' FLSA claim.
B. Plaintiffs Motion for Approval to Mail Notice and to Require Defendants to Provide Names and Addresses of Similarly Situated Current and Former Employees and Supporting Brief
Having found in favor of Defendants on Plaintiffs' FLSA claim, Plaintiffs Motion for Approval to Mail Notice and to Require Defendants to Provide Names and Addresses of Similarly Situated Current and Former Employees and Supporting Brief is denied as moot.
C. Defendants' Objections
Defendants objected to certain summary judgment evidence produced by Plaintiffs. The court did not consider any evidence that did not meet the summary judgment standard. The court therefore denies as moot Defendants' objections.
IV. Conclusion
For the reasons herein stated, there is no genuine issue of material fact regarding the claims asserted by Plaintiffs. Accordingly, Defendants' Motion for Summary Judgment Upon All Claims is granted. Plaintiffs' claims are dismissed with prejudice. Having granted Defendants' Motion for Summary Judgment Upon All Claims and dismissed all of Plaintiffs' claims, the court need not address Defendants' Alternative Motion for Partial Summary Judgment or Plaintiffs Motion for Approval to Mail Notice and to Require Defendants to Provide Names and Addresses of Similarly Situated Current and Former Employees and Supporting Brief, which are denied as moot. Judgment will issue by separate document as required by Fed.R.Civ.P. 58.