Opinion
Case No. 17-11634
2019-09-23
Crystal MARTIN, Jessica Jones, Suzette Reynolds, and Renee Van Hook, Plaintiffs, v. LINCOR EATERY, INC., Sagano of Brighton, Inc., Sagano of Clarkston, Inc., Sagano of Fenton, Inc., Sagano of Warren, Inc., and Sagano Properties, LLC, Defendants.
Bruce A. Miller, Jeremy F. Fisher, Keith D. Flynn, Miller Cohen, P.L.C., Detroit, MI, for Plaintiffs. Michael W. Edmunds, Gault Davison, PC, Kyle R. Riem, Grand Blanc, MI, for Defendants.
Bruce A. Miller, Jeremy F. Fisher, Keith D. Flynn, Miller Cohen, P.L.C., Detroit, MI, for Plaintiffs.
Michael W. Edmunds, Gault Davison, PC, Kyle R. Riem, Grand Blanc, MI, for Defendants.
OPINION AND ORDER GRANTING DEFENDANT SAGANO PROPERTIES' MOTION FOR SUMMARY JUDGMENT
MARIANNE O. BATTANI, United States District Judge
I. INTRODUCTION
On May 23, 2017, Plaintiffs Crystal Martin, Jessica Jones, Suzette Reynolds, and Renee Van Hook commenced this action on behalf of themselves and other similarly situated current and former employees of a chain of Japanese restaurants allegedly owned and operated by Defendants Lincor Eatery, Inc., Sagano of Brighton, Inc., Sagano of Clarkston, Inc., and Sagano Properties, LLC, alleging that Defendants have violated the federal Fair Labor Standards Act ("FLSA"), 29 U.S.C. § 201 et seq., and the Michigan Workforce Opportunity Wage Act ("MWOWA"), Mich. Comp. Laws § 408.411 et seq. , by using a tip credit and tip-pooling scheme in a manner that results in Plaintiffs and other servers being paid less than the minimum hourly wage mandated under federal and Michigan law. Plaintiffs further allege that Defendants failed to provide the requisite notice that they employ a tip credit system, and that Defendants' tip-pooling arrangement has unlawfully resulted in tips being shared with employees, such as managers, who are not eligible to receive these payments. In an opinion and order dated September 24, 2018, the Court conditionally certified a collective action under the FLSA, authorizing the named Plaintiffs to represent a class of similarly situated individuals who were employed as servers at one or more of Defendants' restaurants and were deprived of pay through Defendants' allegedly invalid tip credit and tip-pooling scheme.
Since Plaintiffs commenced this litigation, two additional business entities — Sagano of Fenton, Inc. and Sagano of Warren, Inc. — have been formed to manage individual locations in the Defendant chain of restaurants. In a first amended complaint filed on November 29, 2018, Plaintiffs have named these two newly formed businesses as additional defendants.
Through the present motion filed on March 25, 2019, one of the business entities named as a defendant, Sagano Properties, LLC, seeks an award of summary judgment in its favor on the ground that it does not qualify as an "employer" under either the FLSA or its Michigan counterpart, the MWOWA. In support of this motion, Sagano Properties asserts that it is not a restaurant operator that employs any member of the Plaintiff class, but instead is a real estate holding company that owns properties which, in turn, are leased to certain of the Defendant restaurants. Indeed, Sagano Properties states that it has no employees whatsoever. Under these circumstances, Sagano Properties argues that it cannot be held liable for any FLSA or MWOWA violations alleged by Plaintiffs, whether as a "joint employer" of the servers employed at the Defendant restaurants or under any other theory of liability Plaintiffs might be pursuing.
Defendant's motion has been fully briefed by the parties, and on June 13, 2019, the Court heard argument on this motion. For the reasons set forth below, the Court GRANTS Defendant Sagano Properties' motion for summary judgment.
II. FACTUAL BACKGROUND
A. The Parties
According to Plaintiffs' first amended complaint, the six named Defendants — Lincor Eatery, Inc., Sagano of Brighton, Inc., Sagano of Clarkston, Inc., Sagano of Fenton, Inc., Sagano of Warren, Inc., and Sagano Properties, LLC — are the owners and operators of a chain of five Japanese bistros with locations in Flint, Brighton, Clarkston, Warren, and Fenton, Michigan. Plaintiffs allege that these six entities are properly characterized as "joint employers" of the members of the Plaintiff class, due to such factors as the common ownership of these entities and their shared human resources department, employment policies, and management structure. (Dkt. 65, First Amended Complaint at ¶ 11.)
As noted above, Defendants Sagano of Fenton and Sagano of Warren had not yet been formed when Plaintiffs commenced this suit. Rather, the Fenton and Warren locations of the Defendant restaurant chain were operated by Defendants Sagano of Brighton and Sagano of Clarkston, respectively. Since this suit was filed, the responsibilities for operating the Fenton and Warren locations have been shifted to the newly formed Sagano of Fenton and Sagano of Warren.
Each of the four named Plaintiffs worked as a server at one or more of the Defendant restaurants during the three-year period before this suit was brought. By virtue of the Court's September 24, 2018 ruling on Plaintiffs' motion for conditional certification of a collective action under the FLSA, as supplemented by the entry of a February 25, 2019 stipulated order, the named Plaintiffs now serve as representatives of a class certified under Fed. R. Civ. P. 23(b)(3) of all individuals who were or are employed as servers at any of Defendants' restaurants between May 23, 2014 and a yet-to-be-determined deadline for responding to a forthcoming class action notice.
B. The Characteristics of and Relationships Between the Defendant Business Entities
Apart from the moving Defendant, Sagano Properties, LLC, each of the five remaining named Defendants owns and operates one location of a chain of Japanese-style restaurants in the Detroit metropolitan area. According to their articles of incorporation and other corporate records, these five Defendant corporations share a single registered office located at 5340 Richfield Road in Flint. (See Dkt. 77, Plaintiffs' Response, Ex. 1, Corporate Records.) One member of the ownership group for the Defendant restaurants, James Teuber, owns a bowling alley that is located at the Richfield Road address. (See Plaintiffs' Response, Ex. 3, Teuber Dep. at 6.)
The moving Defendant, Sagano Properties, differs in important respects from its five co-Defendants. As explained by the company's manager, Mr. Teuber, Sagano Properties is "a real estate holding company" that "has no employees and does not operate" any of the five restaurants at which the named Plaintiffs are or were employed. (Defendant's Motion, Ex. 1, Teuber Aff. at ¶¶ 8-9.) Rather, the company owns two properties, which it leases to the co-Defendants that operate the Brighton and Fenton locations of the Defendant restaurant chain. (See id. at ¶ 10.) Because Sagano Properties has no employees, it has not adopted a tip credit or tip-pooling arrangement of the sort giving rise to Plaintiffs' claims in this case, nor does it have any need for a human resources department or employment policies to govern its relationship with its employees. (See id. at ¶¶ 12, 25.)
Sagano Properties acknowledges that "[t]he same group of owners who own Sagano Properties own the five restaurants," (Dkt. 75, Defendant's Motion, Br. in Support at 3), but the exact ownership group varies from one Defendant business entity to another. For example, "Khalil Saab is an owner of all the restaurants," but James Teuber has an ownership interest in only some of the restaurants while his trust holds an ownership interest in the others. (Id. at 4.) "Similarly, Shiro Inoue and Inja Song each own individual shares of some of the restaurants, and they jointly own shares in the other restaurants." (Id. ) According to Mr. Teuber, the owners of Sagano Properties are his trust, Khalil Saab, Shiro Inoue, and Inja Song. (Teuber Aff. at ¶¶ 17-18.)
Mr. Teuber manages both Sagano Properties and the Brighton location of the Defendant restaurant chain. (See id. at ¶¶ 2-3.) The remaining four restaurants are managed by Mr. Inoue. (See Defendant's Motion, Br. in Support at 4.) Mr. Teuber has testified that he "handle[s] most of the bookkeeping" for the Defendant restaurant chain, that he "tend[s] to be the fix-it guy when something is broke," and that he "do[es] all the other things that an active partner in [a] business would do." (Teuber Dep. at 7.)
According to Mr. Teuber, the five restaurants are governed by uniform policies "[f]or the most part." (Id. at 12.) He explains that "[j]ust like McDonald's, if every McDonald's had a different burger, it wouldn't work as well ..., so we try to do everything the same." (Id. ) As the sole example of a difference in policies among the five locations, Mr. Teuber points to a different arrangement used at the Brighton location for distributing the tips received by servers. (See id. at 15.) He states that the five locations share a website and advertising, and that he, Shiro Inoue, and Inja Song developed the human resources policies that have been adopted at each restaurant. (See id. at 23-24.) In addition, each of the owners has the authority to hire and fire employees at any of the five restaurants, but Mr. Teuber has testified that the hiring and firing typically is handled by the manager at a given location. (See id. at 23-24.) Sagano Properties and its manager, Mr. Teuber, point to various evidence that, in their view, illustrates the independence and separate corporate existence of each of the six named Defendants. Mr. Teuber notes, for example, that each Defendant maintains "a separate bank account," and that Defendants "have no shared bank accounts." (Teuber Aff. at ¶ 14.) In addition, each of the Defendants files its own separate tax returns. (See id. at ¶ 15.) Moreover, Sagano Properties states that it has executed leases with co-Defendants Sagano of Brighton and Sagano of Fenton reflecting these parties' treatment of each other as "separate, distinct legal entities," and that pursuant to these leases, the two restaurants write monthly checks drawn from their own bank accounts to Sagano Properties to secure their use of the property held by Sagano Properties on which their restaurants are located. (Dkt. 78, Defendant's Reply Br. at 5-6; see also Defendant's Motion, Ex. 2, Property Leases.)
III. STANDARD OF REVIEW
Through the present motion, Defendant Sagano Properties, LLC seeks an award of summary judgment in its favor on the issue of its liability as an "employer" under the FLSA and its Michigan counterpart, the MWOWA. Under the pertinent Federal Rule governing this motion, summary judgment is proper "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). As the Supreme Court has explained, "the plain language of Rule 56 [ ] mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 2552, 91 L.Ed.2d 265 (1986).
In deciding a motion brought under Rule 56, the Court must view the evidence "in a light most favorable to the party opposing the motion, giving that party the benefit of all reasonable inferences." Smith Wholesale Co. v. R.J. Reynolds Tobacco Co., 477 F.3d 854, 861 (6th Cir. 2007). Yet, the nonmoving party may not rely on bare allegations or denials, but instead must support a claim of disputed facts by "citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations ..., admissions, interrogatory answers, or other materials." Fed. R. Civ. P. 56(c)(1)(A). Moreover, any supporting or opposing affidavits "must be made on personal knowledge, set out facts that would be admissible in evidence, and show that the affiant or declarant is competent to testify on the matters stated." Fed. R. Civ. P. 56(c)(4). Finally, "[a] mere scintilla of evidence is insufficient" to withstand a summary judgment motion; rather, "there must be evidence on which the jury could reasonably find for the non-moving party." Smith Wholesale, 477 F.3d at 861 (internal quotation marks and citation omitted).
IV. ANALYSIS
The sole question presented in the current motion is whether Defendant Sagano Properties qualifies as an "employer" of the named Plaintiffs under any possible formulation of the test that governs this inquiry. Although there is overlapping ownership among Sagano Properties and the other five business entities that run the various locations of the Defendant restaurant chain, Sagano Properties contends that this consideration alone does not suffice to transform it into an "employer," where it plays no role in managing any of these restaurants and is not involved in the employment relationship between any Plaintiff and the particular restaurant at which he or she is employed.
In response, Plaintiffs assert that Sagano Properties and its co-Defendant restaurant owners are properly viewed as a "single employer" for purposes of liability under the FLSA and MWOWA, where these six business entities purportedly are so centralized and interrelated in their ownership, management, and control of their operations and workforce as to be characterized as a single integrated enterprise. Because, in Plaintiffs' view, Defendants have not maintained the arm's length relationship that characterizes separate legal entities, they argue that Sagano Properties should not be able to use its formally separate legal existence as a shield against liability for Defendants' collective violations of Plaintiffs' rights under the FLSA and MWOWA.
A. Applicable Law
The FLSA broadly (and somewhat unhelpfully) defines an "employer" as "includ[ing] any person acting directly or indirectly in the interest of an employer in relation to an employee." 29 U.S.C. § 203(d). The statutory definition of an "employee" sheds little (if any) additional light on the subject, as it provides that this term generally "means any individual employed by an employer." 29 U.S.C. § 203(e)(1). As the Sixth Circuit has explained, "[t]hese are wide-ranging definitions; indeed, the Supreme Court has stated that a broader or more comprehensive coverage of employees would be difficult to frame." Acosta v. Cathedral Buffet, Inc., 887 F.3d 761, 765 (6th Cir. 2018) (internal quotation marks, alterations, and citation omitted); see also Falk v. Brennan, 414 U.S. 190, 195, 94 S. Ct. 427, 431, 38 L.Ed.2d 406 (1973) (noting "the expansiveness of the Act's definition of ‘employer’ "). The FLSA's Michigan counterpart, the MWOWA, similarly defines an "employer" as "a person, firm, or corporation ... who employs 2 or more employees at any 1 time within a calendar year," as well as "a person acting in the interest of the employer." Mich. Comp. Laws § 408.412(d). And the Michigan statute likewise features a rather circular definition of an "employee" as "an individual ... employed by an employer on the premises of the employer or at a fixed site designated by the employer." Mich. Comp. Laws § 408.412(c).
Given the FLSA's sweeping definitional language, the Sixth Circuit has recognized that the statute "contemplates there being several simultaneous employers who may be responsible for compliance with the FLSA." Dole v. Elliott Travel & Tours, Inc., 942 F.2d 962, 965 (6th Cir. 1991). In addition, "[t]he remedial purposes of the FLSA require the courts to define ‘employer’ more broadly than the term would be interpreted in traditional common law applications." Dole, 942 F.2d at 965 (internal quotation marks and citation omitted). More specifically, "[i]n deciding whether a party is an employer, ‘economic reality’ controls rather than common law concepts of agency." 942 F.2d at 965 (citation omitted). Finally, "[w]hether a party is an employer within the meaning of the FLSA is a legal determination." 942 F.2d at 965.
B. Under Either of the Tests Applied by the Courts, Sagano Properties Cannot Be Deemed an Additional "Employer" of the Servers Employed by the Defendant Chain of Restaurants.
As noted above, the present motion is narrowly focused on the question whether one of the named Defendants, Sagano Properties, qualifies as an "employer" under the FLSA and MWOWA. There is no dispute that each member of the Plaintiff class is employed by the Sagano entity that owns and operates the particular restaurant location where this individual works. The issue that must be decided here is whether Sagano Properties also may be characterized as an employer of each such individual.
Beyond emphasizing that this inquiry is controlled by "economic reality" rather than "common law concepts of agency," Dole, 942 F.2d at 965, the Sixth Circuit has not adopted a specific test for determining when it is appropriate under the FLSA to charge multiple business entities with liability as the employers of a single individual. See Sutton v. Community Health Systems, Inc., No. 16-01318, 2017 WL 3611757, at *3 (W.D. Tenn. Aug. 22, 2017) (noting the absence of Sixth Circuit authority on this question). In analyzing claims of employment discrimination, however, the Sixth Circuit has looked to the "single employer" and "joint employer" doctrines developed under labor relations law. See Swallows v. Barnes & Noble Book Stores, Inc., 128 F.3d 990, 993 & n.3 (6th Cir. 1997). The court has explained:
Although a direct employment relationship provides the usual basis for liability under [federal antidiscrimination law], courts have fashioned various doctrines by which a defendant that does not directly employ a plaintiff may still be considered an "employer" under those statutes. In one approach, courts examine whether two entities are so interrelated that they may be considered a "single employer" or an "integrated enterprise." In another approach, courts consider whether one defendant has control over another company's employees sufficient to show that the two companies are acting as a "joint employer" of those employees.
Swallows, 128 F.3d at 993 (citations and footnote omitted). The Sixth Circuit has acknowledged, however, that its rulings "have not been entirely clear on the distinction between the concepts of ‘joint’ and ‘single’ employer." Swallows, 128 F.3d at 993 n.4.
This same blurred distinction is manifest in this case. In their first amended complaint, Plaintiffs allege that the several named Defendants collectively qualify as "joint employers" of the members of the Plaintiff class, where these entities allegedly share "sufficient control over the essential terms and conditions of [Plaintiffs'] employment" thorough their "common ownership, Human Resources Department, employment policies, and management structure." (First Amended Complaint at ¶ 11.) Yet, in their response to the present motion, Plaintiffs rely principally on the "single employer" or "integrated enterprise" theory of joint liability, and appeal to the "joint employer" doctrine only in the alternative. Given this uncertainty, the Court addresses each of these doctrines in turn.
1. The "Single Employer" Doctrine
"Under the ‘single employer’ or ‘integrated enterprise’ doctrine, two companies may be considered so interrelated that they constitute a single employer subject to liability under" federal law. Swallows, 128 F.3d at 993. "In determining whether to treat two entities as a single employer, courts examine the following four factors: (1) interrelation of operations, i.e., common offices, common record keeping, shared bank accounts and equipment; (2) common management, common directors and boards; (3) centralized control of labor relations and personnel; and (4) common ownership and financial control." Swallows, 128 F.3d at 993-94. Although, as noted, the Sixth Circuit has not expressly applied this doctrine to claims brought under the FLSA, a number of district courts in this Circuit have deemed it appropriate to do so. See, e.g., Benion v. LeCom, Inc., 336 F. Supp.3d 829, 846-47 (E.D. Mich. 2018) ; Sutton, 2017 WL 3611757, at *3-*4 ; Lankford v. CWL Investments, LLC, No. 13-14441, 2014 WL 3956184, at *10 (E.D. Mich. Aug. 13, 2014) ; Sierra v. Casa Fiesta, LLC, No. 13-12381, 2014 WL 12586059, at *3 (E.D. Mich. June 13, 2014) ; Takacs v. Hahn Automotive Corp., No. 3-95-404, 1999 WL 33117265, at *4-*5 (S.D. Ohio Jan. 4, 1999).
In Plaintiffs' view, each of these factors supports the conclusion that Sagano Properties and its co-Defendants should be deemed the "single employer" of each member of the Plaintiff class. First, regarding the interrelation of operations among these entities, Plaintiffs observe that Defendants "share a common corporate address" and operate a "joint payroll department" from this address, (Dkt. 77, Plaintiffs' Response Br. at 7) — i.e., a bowling alley owned by a member of the Defendant ownership group, James Teuber. They also point to evidence revealing, in their view, that the Defendant business entities have sometimes failed to observe the formalities typically associated with separate corporate existence — e.g., the purportedly "informal" lease agreements entered into between Sagano Properties and two of the Defendant restaurants, and the apparent absence of "formal loan documents" governing a pair of loans between Sagano Properties and other Sagano entities. (Id. at 8 & n.2.)
As for common management, the record establishes that Mr. Teuber manages both Sagano Properties and one of the restaurant locations, while another member of the ownership group, Shiro Inoue, manages the remaining four restaurants. Regarding the factor of common ownership and financial control, Plaintiffs assert that "[t]here can be no argument" that this consideration supports the application of the single employer doctrine, in light of Sagano Properties' concession in its motion that it and the other Defendants are owned by the same group of individuals and entities. (Id. at 7.)
Turning to the remaining factor in the single employer inquiry — i.e., centralized control of labor relations and personnel — Plaintiffs acknowledge that this element of the analysis is complicated by the fact that Sagano Properties has no employees, and thus does not engage in labor relations or management of personnel. Nonetheless, they contend that this factor weighs in their favor in light of (i) the uniform human resources policies adopted at each of the five Defendant restaurants, and (ii) the evidence that all payroll for the five restaurants "is run through a centralized system housed at the bowling alley" owned by Mr. Teuber. (Id. ) Given this record of shared operations extending to all restaurant employees and common policies governing employee relations at all five restaurants, and given Mr. Teuber's acknowledgment that he and his fellow owners possess the authority to hire and fire employees at any of the five restaurants, Plaintiffs argues that this factor, like the others, supports the conclusion that Sagano Properties and its fellow Defendants are an integrated enterprise that should be deemed the single "employer" of each member of the Plaintiff class. Alternatively, to the extent that Defendants suggest that Sagano Properties cannot possibly share in any centralized control of labor relations and personnel due to its lack of employees, Plaintiffs point to case law opining that this factor should be given less weight where "there are no employees to ‘centrally control.’ " NLRB v. Resisteflame Acquisition Co., No. 11-00046, 2012 WL 3966295, at *5 (S.D. Ohio Sept. 11, 2012). At worst, then, Plaintiffs assert that this factor should weigh neither for nor against a finding of single employer status.
In response, Sagano Properties first questions whether the single employer doctrine should even apply here, where (i) the Sixth Circuit has never invoked this doctrine to impose joint liability for a violation of the FLSA, and (ii) the case in which the Sixth Circuit first adopted this doctrine, York v. Tennessee Crushed Stone Ass'n, 684 F.2d 360, 362 (6th Cir. 1982), involved a purely jurisdictional issue — namely, whether the defendant association and its members should be treated as an "integrated enterprise" for purposes of satisfying the 20-employee threshold for application of the Age Discrimination in Employment Act. Yet, the Sixth Circuit itself has not limited the reach of the single employer doctrine to jurisdictional inquiries, but instead has chosen to apply this doctrine to the merits question whether multiple defendants may be held liable for a violation of federal antidiscrimination law. See Swallows, 128 F.3d at 993-96. As for the application of this doctrine to determine "employer" status under the FLSA, while the Sixth Circuit has not yet seen fit to do so, this Court noted earlier that several district courts in this Circuit have deemed it appropriate to consider this theory of joint liability in FLSA cases. Notably, Sagano Properties has not identified any material differences in the statutory definitions of an "employer" under the FLSA and federal antidiscrimination law that would militate against the application of the single employer doctrine across all of these contexts.
Sagano Properties also appears to suggest that Plaintiffs have forfeited their opportunity to rely on the single employer doctrine by failing to plead this theory of liability in their complaint. However, Plaintiffs expressly allege in their first amended complaint that Sagano Properties and its co-Defendants should be treated as "joint employers," (First Amended Complaint at ¶ 11), and as noted earlier, the Sixth Circuit has acknowledged that its own case law has not always been clear in distinguishing between the "single employer" and "joint employer" theories of liability. Thus, the Court declines Defendant's invitation to bar Plaintiffs' appeal to the single employer doctrine.
Sagano Properties fares better, however, in arguing that the factors involved in the "single employer" inquiry are somewhat ill-suited to the question of joint liability presented in this particular case. In support of this contention, Sagano Properties relies principally on the decision in Papa v. Katy Industries, Inc., 166 F.3d 937, 940-43 (7th Cir. 1999), in which the Seventh Circuit questioned whether the four-factor test called for under the single employer doctrine should govern the issue of affiliate liability under federal antidiscrimination law. The court observed that "[t]he basic principle of affiliate liability is that an affiliate forfeits its limited liability only if it acts to forfeit it — as by failing to comply with statutory conditions of corporate status, or misleading creditors of its affiliate, or configuring the corporate group to defeat statutory jurisdiction, or commanding the affiliate to violate the right of one of the affiliate's employees." Papa, 166 F.3d at 941 (emphasis in original). The court then explained that, in its view, the four-factor integrated enterprise inquiry fails to comport with this principle:
The claim that a group of affiliated corporations is "integrated," the sort of claim that the four-factor test might be thought to support, not only is vague, but is unrelated to the act requirement just explained.... Firms too tiny to achieve the realizable economies of scale or scope in their industry will go under unless they can integrate some of their operations with those of other companies,
whether by contract or by ownership.... Take contractual integration first. A firm too small to have its own pension plan will join in a multiemployer pension plan or will in effect pool with other employers by buying an insurance policy. It will consult an outside law firm, representing many business firms, rather than having a staff of in-house lawyers. It will hire an accounting firm to do its payroll rather than having its own payroll department.... None of these forms of contractual integration would subject tiny employers to the antidiscrimination laws, because the integration is not of affiliated firms. Why should it make a difference if the integration takes the form instead of common ownership, so that the tiny employer gets his pension plan, his legal and financial advice, and his payroll function from his parent corporation without contractual formalities, rather than from independent contractors?
* * * *
Where a focus on integration makes sense is in the original context of the four-factor test: the determination by the National Labor Relations Board of whether it has jurisdiction over an employer or, even more clearly, what the appropriate bargaining unit is. If the work forces of two affiliated corporations are integrated, there is an argument for a single bargaining unit covering both of them, and also an argument that they should be combined for purposes of determining whether the effect on commerce is substantial enough to justify the Board in asserting jurisdiction. But there is no argument for making one affiliate liable for the other's independent decision to discriminate. Courts that have borrowed the four-factor test for use in the discrimination context have, perhaps, been insufficiently sensitive to the bearing of context on the proper formulation of rules of affiliate liability.
Papa, 166 F.3d at 942-43 (citations omitted).
Against this backdrop, Sagano Properties argues that the four factors addressed by the courts under the single employer doctrine are either unhelpful here or militate against its liability for any FLSA violations committed by its co-Defendant restaurant owners. First, regarding common ownership and financial control, Sagano Properties concedes that "[t]he same individuals own each of the corporate defendants," (Dkt. 78, Defendant's Reply Br. at 4), but it points to the Seventh Circuit's reasoning that this factor is "useless" in determining affiliate liability. Papa, 166 F.3d at 940. As explained by the court in that case:
The plaintiffs seem to think that unless a corporate group erects a Chinese wall between affiliates, each affiliate is responsible for the other's debts. That is nonsense.... The corporate veil is pierced, when it is pierced, not because the corporate group is integrated, but (in the most common case) because it has neglected forms intended to protect creditors from being confused about whom they can look to for the payment of their claims.
166 F.3d at 943 (citation omitted). As discussed below, Sagano Properties maintains that there has been no such disregard of corporate formalities here.
Turning to the "common management" factor, Sagano Properties acknowledges that its manager, Mr. Teuber, also manages one of the Defendant restaurants, but it points out that another individual, Mr. Inoue, manages the remaining restaurants. More importantly, Defendant fairly accuses Plaintiffs of improperly conflating the roles of Mr. Teuber and the business entity at issue here, Sagano Properties. Specifically, it observes that "[t]he fact that Teuber is managing a Sagano restaurant does not mean that defendant Sagano Properties is managing the restaurant." (Defendant's Reply Br. at 5.) It further asserts that Mr. Teuber carries out multiple, distinct jobs on behalf of separate business entities by managing (i) one of the Defendant restaurants, (ii) Sagano Properties, and (iii) a bowling alley. Thus, Sagano Properties views this factor as not especially supportive of a finding of an integrated enterprise.
As for common, centralized control of labor relations and personnel, Sagano Properties again points out that it has no employees, no payroll, and no need to engage in labor relations or implement any human resources policies or functions whatsoever. Thus, it cannot be said to share any control of labor relations or personnel with any of its co-Defendants. Indeed, as noted earlier, Plaintiffs concede that this factor, at best, neither supports nor undermines their appeal to the single employer doctrine.
Regarding the final factor, interrelated operations, Sagano Properties correctly observes that any overlap in operations is not possible here, given that it is a real estate holding company and its co-Defendants are engaged in the restaurant business. Essentially all of the operational features that Plaintiffs have identified as shared across all of the Defendant business entities — e.g., payroll, human resources policies, recipes, and logos — are relevant only to the Defendant restaurants and their employees, and not to Sagano Properties. Moreover, to the extent that Plaintiffs point to Mr. Teuber's involvement in or control over many of these restaurant operations as evidence of commonality across all of the Defendants, this again confuses Mr. Teuber as an individual with the business entity, Sagano Properties, that Plaintiffs seek to hold liable for the alleged FLSA violations committed by its co-Defendants. As explained in Papa, a separate entity such as Sagano Properties does not assume responsibility for the obligations of its affiliates merely by virtue of providing services for the benefit of these affiliates — in this case, acquiring and leasing property. Rather, it matters only whether Sagano Properties is involved in the operations of relevance to Plaintiffs' FLSA claims — namely, those associated with running the Defendant restaurants and managing their employees — and there is no evidence of such involvement here. In short, Defendant maintains — and the Court agrees — that the four factors comprising the single employer inquiry either favor Sagano Properties, are inconclusive, or have little relevance to the question of joint liability presented here.
Finally, and most importantly, Plaintiffs have failed to produce evidence of any disregard of corporate formalities that might justify charging Sagano Properties with liability for the FLSA violations allegedly committed by its co-Defendants. Although Plaintiffs suggest that Sagano Properties failed to insist that its co-Defendants execute "formal lease agreement[s]" governing the properties where the Brighton and Fenton restaurants are located, (Plaintiffs' Response Br. at 8), Sagano Properties observes in response that these transactions were, in fact, reflected in written agreements, (see Defendant's Motion, Ex. 2). Similarly, Plaintiffs point to the absence of "formal loan documents" governing loans between Sagano Properties and two of its co-Defendants, (Plaintiffs' Response Br. at 8), but Sagano Properties points out that these transactions are fully documented in its balance sheet and payment ledger, which disclose payments to and from the other Defendant entities in satisfaction of these obligations, (see Defendant's Reply Br., Exs. 29, 30 (Sagano Properties balance sheet and payment ledger)). Sagano Properties further notes that each Defendant entity has its own bank account, and that the tax forms issued to the named Plaintiffs reflect that each was paid by the specific Defendant restaurant that employed this individual. Thus, while payroll for the five Defendant restaurants is handled by a single bookkeeper operating out of a shared "corporate office" — i.e., Mr. Teuber's bowling alley — the funds disbursed through this payroll operation are provided by each restaurant on behalf of its own employees.
Viewing this record in its totality, and in light of the four factors considered as part of the "integrated enterprise" inquiry, the Court finds that Sagano Properties and its co-Defendants cannot be characterized as a "single employer" of the Plaintiff restaurant workers for purposes of assessing liability under the FLSA. Although Sagano Properties and the Defendant restaurants share a common ownership group, and although the manager of Sagano Properties, Mr. Teuber, has some involvement in the management and control of the restaurants and their employees, these considerations are outweighed by the evidence that Sagano Properties was formed for an independent purpose and carries out functions that are wholly separate from the restaurant operations conducted by the remaining Defendants. Under this record, it cannot be said that Sagano Properties, as a separate and distinct business entity, played any role in the employment relationship between the Defendant restaurants and the members of the Plaintiff class, such that it could be held liable for any violations of Plaintiffs' rights under the FLSA. To be sure, Sagano Properties would forfeit its independent status if Defendants failed to observe the formalities that are consistent with this separate existence, but there is no evidence of commingling of funds, shifting of assets, or other indicia of Defendants' neglect of these formalities. Accordingly, Plaintiffs cannot pursue a recovery against Sagano Properties under a theory of "single employer" liability.
2. The "Joint Employer" Doctrine
As recognized in the FLSA's implementing regulations, an individual "may stand in the relation of an employee to two or more employers at the same time under [the statute], since there is nothing in the act which prevents an individual employed by one employer from also entering into an employment relationship with a different employer." 29 C.F.R. § 791.2(a). This same regulation further provides that "[w]here the employee performs work which simultaneously benefits two or more employers ..., a joint employment relationship generally will be considered to exist." 29 C.F.R. § 791.2(b). More specifically, such a joint employment relationship is formed "[w]here the employers are not completely disassociated with respect to the employment of a particular employee and may be deemed to share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or is under common control with the other employer." 29 C.F.R. § 791.2(b)(3).
The joint employer relationship recognized under this Department of Labor regulation is similar to the relationship that satisfies the "joint employer" doctrine, and entails a similar inquiry. Specifically, this doctrine is triggered when "one defendant has control over another company's employees sufficient to show that the two companies are acting as a "joint employer" of those employees." Swallows, 128 F.3d at 993. As noted in Defendant's motion, the case law is unsettled as to the factors relevant to a "joint employer" inquiry. One court in this District, for instance, chose to apply a four-factor test, asking whether a purported joint employer "(i) had the power to hire and fire the employees, (ii) supervised and controlled employee work schedules or conditions of employment, (iii) determined the rate and method of payment, and ( [iv] ) maintained employment records." Dowd v. DirecTV, LLC, No. 14-14018, 2016 WL 28866, at *4 (E.D. Mich. Jan. 4, 2016).
The doctrine and regulation need not be addressed at any length here, both because Plaintiffs rely chiefly on the single employer doctrine, and because the same considerations that undermine Plaintiffs' appeal to this latter doctrine defeat any claim that Sagano Properties and its co-Defendants are "joint employers" of the members of the Plaintiff class. Most importantly, although Plaintiffs have produced evidence that tends to establish (i) the control that Mr. Teuber exercises over the operations of at least some of the Defendant restaurants, and (ii) his authority to hire and fire restaurant employees and to set policies governing their work environment, this record fails to demonstrate that Sagano Properties — as an entity distinct from its manager, Mr. Teuber — possesses any such authority or control over its co-Defendants or the employees of the co-Defendant restaurants. As discussed earlier, the evidence shows that Sagano Properties is operated as a real estate holding company, with no employees, human resources functions, or personnel policies. Nothing in the record suggests that Sagano Properties shares with its co-Defendants any sort of control over the employees of the Defendant restaurants, nor that it — as opposed, again, to its manager, Mr. Teuber — participated in formulating the policies and practices that give rise to Plaintiffs' FLSA claims in this case.
Moreover, the Court again emphasizes that Plaintiffs have produced no evidence of disregard of corporate formalities — e.g., intermingling of funds or payment of employees from accounts held jointly by multiple Defendants — that might warrant the conclusion that the members of the Plaintiff class were jointly employed by a Defendant restaurant and Sagano Properties. Thus, the requisite common control over the Plaintiff restaurant workers cannot be established through proof that Defendants have blurred the lines between their nominally separate business entities, such that it would be appropriate to characterize Sagano Properties and its co-Defendant restaurants as effectively "joint" employers of the Plaintiff class. To the contrary, because the record demonstrates that Sagano Properties acted consistently with its status as a separate business entity involved in real estate rather than restaurant operations, the joint employer doctrine fails to provide a basis for subjecting Sagano Properties to liability for any FLSA violations allegedly committed by the remaining Defendants.
V. CONCLUSION
For these reasons, the Court GRANTS Defendant Sagano Properties' March 25, 2019 motion for summary judgment (Dkt. 75). In light of this ruling, Plaintiffs' claims against Defendant Sagano Properties, LLC are dismissed, but Plaintiffs may go forward with their claims against the remaining Defendants.