Opinion
01 Civ. 10724 (JGK)
May 28, 2002
OPINION AND ORDER
The Secretary of Labor (the "Secretary") brought this action alleging that multiple defendants violated § 15(a)(1) of the Fair Labor Standards Act of 1938 (the "FLSA"), 29 U.S.C. § 215(a)(1), by shipping "hot goods." The Secretary seeks to restrain such violations pursuant to § 17 of the FLSA, 29 U.S.C. § 217. The Secretary has now moved for a preliminary injunction that would, during the pendency of this action, require defendant Morris Suss to refrain from shipping goods in certain circumstances, and impose obligations on him relating to record-keeping, reporting, and the terms of his relationships with contractors in the garment industry.
Suss is also known as Mark Suss (Suss Aff. ¶ 1), and was referred to by that name in the Complaint (Compl. ¶ 7).
Defendants Ladies Apparel Group, Ltd., Steven Grossman, and Fred Gutterman consented to the entry of a preliminary injunction against them. The Secretary has dismissed the complaint against defendants Ronald Lukoff, Ronald Farina, and Alan Bayer. On February 15, 2002, the Court held an evidentiary hearing on the Secretary's motion for a preliminary injunction against Morris Suss. Having reviewed the record and assessed the credibility of the witnesses, the Court now makes the following findings of fact and reaches the following conclusions of law pursuant to Fed.R.Civ.P. 52(a) and 65.
I
Morris Suss has worked in the garment industry for more than twenty years. (Affidavit of Catherine M. Foti, dated Feb. 8, 2002 ("Foti Aff."), Ex. 1 ¶ 2.) Beginning in November, 2000, or earlier, Suss was employed by the Ladies Apparel Group, Ltd. ("LAG") as its production manager. (Foti Aff., Ex. 1 ¶ 3 Ex. 3 ¶ 5(A); Pl. Ex. 15.) Clothing manufacturers such as LAG design and produce garments which are sold by retailers. (Tr. of Feb. 15, 2002 hearing at 28-29.) Manufacturers typically arrange for the actual cutting of fabric and sewing of garments to be performed by other companies, which are respectively referred to as "cutters" and "contractors." (Tr. at 29.) As LAG's production manager, Suss was responsible for selecting contractors, placing orders with contractors, and giving them instructions about where the finished garments were to be shipped. (Foti Aff., Ex. 1 ¶ 6.) Suss also instructed a shipping company to transport goods and materials between cutters, contractors, LAG's warehouse, and retailers. (Tr. at 5-6, 17, 25.)
Contractors are also known as "contracting shops," "garment shops," and "sewing shops." (Tr. at 29.)
Prior to working at LAG, Suss had been a production manager at Suit Apparel Group. The Department of Labor (the "DOL") met with Suss in his capacity as Suit Apparel Group production manager on five occasions between May, 1999, and November, 2000. (Tr. at 30-31, 35-36, 49; Pl. Ex. 18.) The purpose of each of these meetings was to discuss the DOL's concern that Suit Apparel Group was violating the FLSA's "hot goods" provision, 29 U.S.C. § 215(a)(1), by shipping merchandise which contractors had produced in violation of the FLSA's wage and hour provisions. (Tr. at 36-37, 49.) On some, if not all, of these occasions, Suss and the DOL representatives discussed ways to improve the company's compliance with the FLSA, ensured that the contractor paid money owed to its employees, and agreed that the Suit Apparel Group would comply with the FLSA in the future. (Tr. at 37, 58; Pl. Ex. 18.) Beginning in approximately October, 2000, Suss also provided the DOL with information relevant to its continuing investigations. (Tr. at 67.)
Suss' Suit Apparel Group business card described him as a vice president of that company (Pl. Ex. 19), but Suss claims that he was "merely an employee" of Suit Apparel Group (Foti Aff., Ex. 1 ¶¶ 3-5), and one of its owners confirms that assertion (Supplemental Affidavit of Steven Grossman, dated Feb. 14, 2002 ("Grossman Aff."), ¶ 4). There is no other evidence that indicates that Suss was an officer or principal of Suit Apparel Group or LAG.
Louis Vanegas, of the DOL, testified to personally meeting with Suss in May, 1999; June, 1999; October, 2000; and November, 2000. (Tr. at 30-31, 36, 49.) There is also documentary evidence of a visit by another DOL investigator in January, 2000. (Pl. Ex. 18.)
In April, 2001, DOL investigators had another discussion — their sixth since May, 1999 — with Suss about a contractor's FLSA violations. (Pl. Ex. 17.) By this time, Suss was working for LAG. (Id.) He informed the investigators that LAG was the same company as the Suit Apparel Group, with a changed name. (Id.) Although it does not appear from the record that LAG is technically the same company as the Suit Apparel Group, many of the personnel of LAG previously worked for the Suit Apparel Group or another company, called The Suit Company, and all three companies share at least one common owner. (Foti Aff., Ex. 3 ¶ 1, Ex. 4 ¶ 1, Ex. 6 ¶ 1, Ex. 10 ¶ 1, Ex. 11 ¶ 1; Grossman Aff. ¶ 3.) At the April, 2001 meeting with the DOL, Suss once again agreed to comply with the FLSA in the future. (Pl. Ex. 17.)
In November, 2001, the DOL initiated an investigation of LAG based on a complaint received from a labor union representing garment workers. (Tr. at 82-83.) The investigation revealed that out of the 24 contractors examined that did work for LAG, 19 contractors owed back wages to approximately 560 employees. (Tr. at 83.) Many of the contractors failed to pay their employees because LAG did not pay the contractors for their work beginning in or around July, 2001. (Pl. Exs. 6, 8-10, 12, 14-15.) In September, 2001, Suss signed worthless checks that LAG issued to contractors. (Pl. Ex. 3.) Suss continued to direct shipments of garments from contractors to LAG's warehouses and from LAG's warehouses to retailers through October, 2001, or later. (Pl. Exs. 1-2, 16; Tr. at 25.)
Suss claims that he had no authority regarding which contractors would be paid, when they would be paid, or how much they would be paid; he also claims that he had no knowledge of the balance in the accounts that the checks he signed were drawn on. (Foti Aff., Ex. 1, ¶¶ 6, 8.) There is evidence that on several occasions in 2001, Suss told specific contractors not to ship their goods because he thought that LAG would not pay the contractors for their work, and encouraged or assisted the contractors to visit LAG's showroom as a group to protest nonpayment. (Foti Aff., Ex. 5 ¶¶ 6-7, Ex. 8 ¶¶ 6-7, Ex. 9 ¶¶ 6-7.) Suss also provided contractors with an anonymous letter that they could use to put pressure on LAG to make its payments. (Foti Aff., Ex. 5 ¶ 8; Ex. 10 ¶ 7.) The letter is addressed to retailers and warns that LAG's garments "are considered HOT GOODS in violations [sic] of New York State and Federal Labor Laws. . . ." (Foti Aff., Ex. 1, Ex. A.)
Suss claims that he has been looking for work at another manufacturer since February, 2001, but has been unable to find such work. LAG is currently in bankruptcy proceedings. In Re The Ladies Apparel Group, Ltd., No. 01-16329 (Bankr. S.D.N.Y.). At the hearing of this motion, Suss's counsel indicated that Suss was working for another company that has ties to some or all of the principals of LAG.
II
The standards that generally govern the issuance of a preliminary injunction are well established. "[A] party seeking a preliminary injunction must demonstrate (1) the likelihood of irreparable injury in the absence of such an injunction, and (2) either (a) likelihood of success on the merits or (b) sufficiently serious questions going to the merits to make them a fair ground for litigation plus a balance of hardships tipping decidedly toward the party requesting the preliminary relief." Federal Express Corp. v. Federal Espresso, Inc., 201 F.3d 168, 173 (2d Cir. 2000).
A
The plaintiff has shown a clear likelihood of success on the merits such that the plaintiff would likely obtain an injunction against the defendant following the trial of this action. FLSA § 15(a)(1) makes it "unlawful for any person . . . to transport, offer for transportation, ship, deliver, or sell in commerce, or to ship, deliver, or sell with knowledge that shipment or delivery or sale thereof in commerce is intended, any goods in the production of which any employee was employed in violation of" the FLSA's minimum wage or overtime provisions or associated regulations, with certain exceptions not at issue here. 29 U.S.C. § 215(a). FLSA § 3(a) defines a "person" as "an individual, partnership, association, corporation, business trust, legal representative, or any organized group of persons." 29 U.S.C. § 203(a).
The defendant argues by analogy to SEC v. Unifund SAL, 910 F.2d 1028, 1039 (2d Cir. 1990), that the Secretary should be required to make a "more substantial showing of likelihood of success, both as to violation and risk of recurrence, whenever the relief sought is more than the preservation of the status quo." As the Court of Appeals explained with respect to the Securities and Exchange Commission, "[l]ike any litigant, the Commission should be obliged to make a more persuasive showing of its entitlement to a preliminary injunction the more onerous are the burdens of the injunction it seeks." Id.; see also Herman v. Fashion Headquarters, Inc., 992 F. Supp. 677, 678-79 (S.D.N Y 1998). Because the Secretary has sought a mandatory preliminary injunction, the Court has applied the clear likelihood of success test. In determining the scope of the injunction, the Court has carefully limited the burdens of the injunction given the preliminary nature of the relief sought.
The remedy for a violation of § 15(a)(1) is an injunction. Chao v. Vidtape, Inc., No. CV 98-3359, 2002 WL 482360, at *12 (E.D.N.Y. Apr. 22, 2002); see 29 U.S.C. § 217 (district court has jurisdiction to issue injunction to restrain violations of FLSA § 15). The decision of whether to grant an injunction is within the sound discretion of the district court. Brock v. Wilamowsky, 833 F.2d 11, 20 (2d Cir. 1987). In deciding whether to grant an injunction, the district court may consider the defendant's "previous conduct and the dependability of his promises of future compliance." Brock v. The Wackenhut Corp., 662 F. Supp. 1482, 1488 (S.D.N.Y. 1987); see also Herman v. Fashion Headquarters, Inc., 992 F. Supp. 677, 679 (S.D.N.Y. 1998) (citing Wirtz v. Harper Buffing Mach., 280 F. Supp. 376 (D. Conn. 1968)). Neither present compliance with the FLSA nor a lack of knowledge that goods shipped were produced in violation of the FLSA's minimum wage and overtime provisions shields a defendant from injunctive relief. Fashion Headquarters, 992 F. Supp. at 679.
The defendant argues that the he cannot personally be held accountable for transporting or shipping goods because all that he did was to direct shipments on behalf of LAG. The fact that Suss was acting on LAG's behalf does not exempt him from liability under § 15(a)(1). Individuals may be enjoined from violating FLSA's hot goods provisions, along with the companies they work for. See Vidtape, 2002 WL 482360, at *17;Fashion Headquarters, 992 F. Supp. at 681; see also 29 U.S.C. § 203(a) ("person" includes an individual); Citicorp Indus. Credit, Inc. v. Brock, 483 U.S. 27, 35 (1987) (refusing to exempt creditor from hot goods provision because provision includes specific exemptions that "prelude enlargement by implication" (punctuation and citation omitted)). Suss admits that he had the authority to "call contractors to inform them where and when goods would be shipped." (Foti Aff., Ex. 1 ¶ 6.) A shipping agent testified that Suss gave him direct instructions to ship garments from contractors to LAG's warehouses and to retailers, that he dealt with Suss on a daily basis regarding shipments, and that, although there were other people at LAG who the shipper spoke to about shipments, Suss was the person he dealt with the vast majority of the time. (Tr. at 5, 7, 17, 25.) It is clear that Suss had authority over merchandise shipments from LAG's contractors to LAG's warehouse and to retailers, so that he could properly be the subject of an injunction in this case.
Similarly, the Securities and Exchange Commission routinely secures orders enjoining individuals from violating the securities laws, see, e.g., SEC v. Cavanaugh, 1 F. Supp.2d 337 (S.D.N.Y.), aff'd, 155 F.3d 129 (2d Cir. 1998).
The defendant's previous conduct indicates that an injunction would be warranted. LAG shipped goods multiple times on multiple occasions while its contractors were failing to pay their workers in the latter half of 2001 (Tr. at 83; Pl. Exs. 1-2, 6, 8-10, 12, 14-15). The evidence regarding previous DOL investigations indicates that Suss had also directed shipments of hot goods at LAG and Suit Apparel Group dating back to May, 1999.
The history of Suss's previous promises of future compliance also indicates that an injunction is appropriate in this case. Suss directed the LAG shipments even though he had assured the DOL on several previous occasions that he would not violate the FLSA's hot goods provisions. (Tr. at 37, 58; Pl. Ex. 17-18.) In addition, although the defendant need not know that the goods shipped are "hot" to establish a violation of § 15(a)(1), it is clear that Suss knew that he was directing the shipment of hot goods at LAG in 2001. The anonymous letter that Suss drafted warns buyers, in no uncertain terms, that LAG's garments are hot goods. (Foti Aff., Ex. 1, Ex. A.) Furthermore, Suss acknowledges that he knew that LAG sometimes did not pay its contractors (Foti Aff., Ex. 1 ¶ 9), and Suss signed a number of worthless checks that LAG issued to creditors (Pl. Ex. 3). Suss cannot claim that he inadvertently violated his promises to comply with the statute.
Suss can properly be the subject of an injunction; has violated the statute multiple times in the past; and has knowingly broken several previous assurances that he will comply with the statute in the future. There is a clear likelihood that the plaintiff will succeed at a trial on the merits of this case.
B
Irreparable injury is "an injury that is neither remote nor speculative, but actual and imminent and that cannot be remedied by an award of monetary damages." Rodriguez v. DeBuono, 175 F.3d 227, 234 (2d Cir. 1999) (citing Shapiro v. Cadman Towers, Inc., 51 F.3d 328, 332 (2d Cir. 1995)) (punctuation omitted).
When "hot goods" — that is, goods produced in violation of the FLSA's minimum wage and overtime requirements — are released into the stream of commerce, they "spread and perpetuat[e] . . . [substandard] labor conditions among the workers of the several States." 29 U.S.C. § 202(a)(1); Citicorp, 483 U.S. at 37 n. 8; United States v. Darby, 312 U.S. 100, 110 (1941). In addition, hot goods unfairly compete with goods produced in conformity with the FLSA. Citicorp, 483 U.S. at 37; Fashion Headquarters, 992 F. Supp. at 679. "[O]nce such goods are introduced into the stream of commerce, the harm to both workers and the `free flow' and `fair marketing of goods in commerce' cannot be undone." Fashion Headquarters, 992 F. Supp. at 679 (quoting 29 U.S.C. § 202(a)). Thus, the shipment of hot goods constitutes irreparable injury sufficient to justify the granting of an injunction.
Suss argues that even if the shipment of hot goods constitutes irreparable injury, there is no risk of such shipments occurring in the absence of such an injunction. The defendant insists that he has only directed the shipment of hot goods when working with companies owned by LAG's principals, namely LAG and Suit Apparel Group. LAG and two of its principals are already the subject of injunctions which prohibit hot goods violations by those entities and their "officers, agents, servants, and employees, and all persons acting or claiming to act in their behalf and interest." (Preliminary Injunction dated January 25, 2002 at 1.) Therefore, Suss says, there is no need to enjoin him personally.
As discussed above, the evidence on this motion indicates that Suss personally violated the FLSA's hot goods provision on multiple occasions despite promising not to do so. This is sufficient to establish a likelihood that he would violate the hot goods provision again at another firm in the absence of an injunction. The fact that the evidence here relates to violations at two related firms does not negate that likelihood. Nor could an injunction entered against other entities have the same restrictive effect on the defendant as one entered against the defendant, which would require him personally to answer for any future violations. In addition, at oral argument, it emerged that Suss was working for a company associated with, but not necessarily owned by, LAG's principals. Thus the defendant is currently in a situation similar to the situations where there is evidence that he previously violated the FLSA. The plaintiff has clearly established a likelihood of irreparable injury in the absence of a preliminary injunction.
Because the plaintiff has shown a likelihood of irreparable injury, the Court does not address her argument that the Government need not demonstrate a likelihood of irreparable injury in these circumstances. See Unifund, 910 F.2d at 1037 (SEC not required to show likelihood of irreparable injury to obtain preliminary injunction);Fashion Headquarters, 992 F. Supp. at 677 n. 1 (declining to address applicability of Unifund to hot goods preliminary injunction).
III
The plaintiff has demonstrated that she is entitled to a preliminary injunction in this case. The scope of that injunction is a matter within the Court's discretion given the nature of the violations shown, the need for preliminary relief and the weight of the burdens sought to be imposed pending the trial on the merits. See SEC v. Unifund SAL, 910 F.2d 1028, 1039 (2d Cir. 1990).LAG and two of its principals (the "consenting defendants") have each consented to the entry of a preliminary injunction (the "LAG injunction") against them. The LAG injunction enjoins the consenting defendants from shipping goods produced by a given contractor if the DOL informs the consenting defendants, in writing, that the DOL has a good faith basis to believe that the contractor has violated the FLSA's wage or overtime requirements. Under the LAG injunction, if the consenting defendants find FLSA violations on their own, the consenting defendants are required to report those violations to the DOL and also to refrain from shipping goods affected by such violations until authorized by the DOL. In addition, the LAG injunction requires that the consenting defendants, when entering into a contract with any contractor, review the contractor's statutory obligations with the contractor; obtain the contractor's agreement to allow the consenting defendants to monitor its FLSA compliance through inspection of records and unannounced visits; and obtain written assurances that the contractor understands its statutory obligations, that it will allow monitoring by the consenting defendants, and that the goods it provides the consenting defendants are produced in compliance with the FLSA. The LAG injunction also requires the consenting defendants to keep records regarding each contractor and provide the DOL with access to such records. Finally, the LAG injunction contains specific restrictions on the shipment of particular merchandise already identified as "hot goods."
The LAG injunction contains several provisions that should not be applied to defendant Suss. In particular, the LAG injunction requires that any contractor that the consulting defendants deal with submit to monitoring and make certain assurances as part of its dealings with those defendants. These provisions are appropriately tailored to ensure contractors' compliance with the FLSA. Fashion Headquarters, 992 F. Supp. at 681. However, the defendant is an employee, not a principal, and there is a real danger that attaching such obligations to his work in the garment industry would significantly affect his ability to obtain employment apart from the consenting defendants, who appear to have been more responsible for the FLSA violations and who are already subject to the LAG injunction. Cf. id. at 681-82 (imposing similar injunction on principal).
Therefore, the Court will enter an injunction that, during the pendency of this action: (1) requires that Suss refrain from shipping a contractor's goods if he is notified that the DOL has a good faith basis to believe that the contractor has violated the FLSA, or if he discovers such violations himself; (2) requires Suss to report contractors' FLSA violations to the DOL; and (3) restrains Suss from shipping the particular goods identified in the LAG injunction.
Conclusion
For the reasons explained above, the plaintiff's motion for a preliminary injunction is granted. The Court will issue the preliminary injunction as a separate Order. The plaintiff is directed to submit a proposed order by May 29, 2002 granting the preliminary injunction. The defendant may submit a counter-order by May 30, 2002.
The foregoing constitutes the Court's Findings of Fact and Conclusions of Law pursuant to Fed.R.Civ.P. 52(a) and 65.