Opinion
No. 99 C 6166
August 7, 2000
MEMORANDUM OPINION AND ORDER
Ann Reed ("Reed"), Hector Reyes ("Reyes") and Canan Tari ("Tari") have sued individuals Drew Georgeson ("Georgeson") and James Hunter ("Hunter") and Illinois corporation MycoPharma, Inc. ("MycoPharma") under the Fair Labor Standards Act ("Act," 29 U.S.C. § 201-219), the Illinois Minimum Wage Law ( 820 ILCS 105/1 to 105/15) and the Illinois Wage Payment and Collection Act ( 820 ILCS 115/1 to 115/15). Plaintiffs seek damages under the Act for defendants' alleged failure to pay them for work performed in August 1999. They also invoke the Illinois statutes to seek breach-of-contract type remedies, prejudgment interest pursuant to 815 ILCS 205/2 and attorneys' fees and costs.
Citations to the Act will take the form "Act § ___," using the title 29 numbering rather than the Act's internal numbering.
Georgeson has filed a Fed.R.Civ.P. ("Rule") 56 summary judgment motion, to which plaintiffs have responded in kind. With both sides thus having complied with the procedure prescribed by Rule 56 as implemented by this District Court's related LR 56.1, Georgeson's motion is now fully briefed and ready for decision. For the reasons stated in this memorandum opinion and order, Georgeson's Rule 56 motion as to plaintiffs' claim under the Act is granted under principles that also require dismissal of the federal claim against Hunter and MycoPharma and of plaintiffs' state law claims against Georgeson, while the state law claims against MycoPharma and Hunter are dismissed without prejudice.
LR 56.1 is designed to facilitate the resolution of Rule 56 motions by calling for evidentiary statements and responses to such statements (in each instance with record citations), thus highlighting the existence or nonexistence of factual disputes. This opinion cites to Georgeson's LR 56.1(a)(3) statement as "G. St. ¶ ___" and to plaintiffs' LR 56.1 (b)(3)(B) statement of additional facts as "P. St. ¶ ___." Responses to those statements are respectively cited "G. Resp. ¶ ___" and "P. Resp. ¶ ___." This opinion also employs the same "G." and "P." abbreviations in referring to the parties' memoranda and exhibits.
Summary Judgment Standards
Familiar Rule 56 principles impose on Georgeson the burden of establishing the lack of a genuine issue of material fact ( Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986)). For that purpose this Court must "read[ ] the record in the light most favorable to the non-moving party," although it "is not required to draw unreasonable inferences from the evidence" (St. Louis N. Joint Venture v. P L Enters., Inc., 116 F.3d 262, 265 n. 2 (7th Cir. 1997)). As Pipitone v. United States, 180 F.3d 859, 861 (7th Cir. 1999) has more recently quoted from Roger v. Yellow Freight Sys., Inc., 21 F.3d 146, 149 (7th Cir. 1994):
A genuine issue for trial exists only when a reasonable jury could find for the party opposing the motion based on the record as a whole.
And neither "the mere existence of some alleged factual dispute between the parties" (Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986)) nor the existence of "some metaphysical doubt as to the material facts" (Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986)) will defeat a summary judgment motion.
What follows in the Facts section (and in later factual discussion) is culled from the parties' submissions. And as with every summary judgment motion, this Court accepts the nonmovant plaintiffs' version of any disputed facts where it is arguably supported by the record.
Facts
Georgeson, a doctor of osteopathy, served as President of new corporation MycoPharma from December 1998 to September 1, 1999 (G. St. ¶¶ 1-2). MycoPharma "was formed to perform research and development of a new biotechnology that could eventually be used to treat colon and bladder cancer" (id. ¶ 3). During Georgeson's tenure as its President MycoPharma was engaged in the start-up work and initial research necessary to develop a commercial application (id. ¶ 4).
Georgeson was hired by Hunter, the sole director, shareholder and provider of funds to MycoPharma (G. St. ¶¶ 2, 5-6). Georgeson says that his only duties as President were to make deposits of funds provided by Hunter, pay invoices authorized by Hunter and "serve as a liaison between the lab personnel and . . . Hunter" (G. St. ¶ 7). Georgeson did however have authority to pay the company's expenses and to obtain office equipment (P. Resp. ¶ 7). Georgeson was wholly uncompensated for his MycoPharma time — he spent only 2 to 3 hours a week performing his limited tasks for MycoPharma, all the while maintaining a full-time medical practice (id. ¶¶ 7[sic], 10).
As the only source of income for MycoPharma, Hunter had plenary authority over the company's funding (G. St. ¶ 9).
Georgeson mistakenly labels his eighth paragraph as his seventh.
As stated later, those tasks did not include any substantive supervision over plaintiffs' work, a function that he was not qualified to perform (plaintiffs' record references in purported opposition are totally misleading — see also n. 6).
Though plaintiffs assert that Georgeson "expected compensation" for his work (P. Resp. ¶ 7[sic]), the citation given in purported support of that assertion is Georgeson's statement that "there were no specifics [discussed between Georgeson and Hunter] in regard to future compensations [sic]." As elsewhere (see nn. 5 and 11), plaintiffs' counsel has stretched the evidence impermissibly, defeating the whole purpose of LR 56.1.
In early 1999 Reed, Reyes and Tari were hired by MycoPharma through employment agency EmPower, Inc. ("EmPower") (G. St. ¶¶ 12-13). Plaintiffs' salaries and benefits were paid by EmPower, which was in turn paid a fee by MycoPharma (id. ¶ 12). Plaintiffs signed offers of employment with MycoPharma (P. Resp. ¶ 12) and were considered joint employees of the two corporations. Reyes was responsible for overseeing the research and day-to-day operations of the laboratory (P. St. ¶ 23). As a team, plaintiffs were responsible for conducting research, writing SOP's and setting up and maintaining the lab (G. St. ¶ 17). Understandably a large portion of their actual work was spent on the latter nonscientific activities (P. St. ¶ 17).
As stated in Section 2 of the Client Agreement between EmPower and MycoPharma (P. Ex. B to P. App. Ex. A):
EmPower and Client [MycoPharma] agree to jointly employ certain employees. . . .
After all, plaintiffs were MycoPharma's first employees, and such start-up time is essential before any purely scientific work can flourish.
Although Georgeson was a liaison between plaintiffs and Hunter, he did not have "supervisory authority over Plaintiffs or their work" and "recalls being [at the lab] only four or five times over the course of nine months" (G. St. ¶ 21). Instead, Alex Kanarek ("Kanarek"), an independent consultant hired by MycoPharma, monitored and guided plaintiffs' work (G. St. ¶¶ 17, 25, G. Resp. ¶ 56, P. St. ¶ 78). But Kanarek evidently did most of his work from a distance. Kanarek and Georgeson aside, Reed, Reyes and Tari were the only persons working at the laboratory (G. St. ¶ 15).
In response to plaintiffs' contention that "Kanarek did not come to Chicago as often as needed" and that "[p]rogress at the lab was limited because of . . . Kanarek's absence" (P. St. ¶¶ 63-64), G. Resp. ¶¶ 63-64 says only that "Kanarek was accessible by telephone."
During the spring and summer of 1999 Reed, Reyes and Tari were not paid in a timely fashion for their work (G. St. ¶ 72). About August 1, 1999 Hunter stopped his funding of MycoPharma (G. St. ¶ 27), so that the company could not pay its employees (id. ¶ 28). On August 24 — 24 days later than their agreements with MycoPharma dictated — Reed, Reyes and Tari received their pay for their work in July (P. St. ¶ 73). On that same day Georgeson told plaintiffs that their employment was terminated (id. ¶ 52). Georgeson then presented plaintiffs with a "Severance and Release Agreement" in which MycoPharma offered to pay their August 1999 wages in two installments if they agreed to waive their severance pay and other benefits (id. ¶ 53). Plaintiffs refused to sign, instead demanding their full wages and severance pay (id. ¶ 54).
Plaintiffs' employment agreements directed that they be paid "on the last business day of each month, or more frequently . . ." (P. Ex. "Group A" to G. Dep.).
P. St. ¶ 28 contends that "[a] loan could have been obtained or funding could have been obtained from other investors," but no evidence is advanced in support of that statement (plaintiffs' record references on that score appear to refer to corporate powers under the By-laws, a meaningless provision in terms of evidencing the actualavailability of other financing sources). This Court need not credit such an unsupported statement under Rule 56(e), though that makes no difference to the outcome here.
Georgeson describes the time between August 1 and August 24 in these terms (G. Dep. 56-57):
And I want to be clear that Mr. Hunter never conveyed that funding was completely gone until he decided to terminate. He had thought he could continue the funding, was trying to get funding, and apparently when no further funding was available, Mr. Hunter then made the decision to terminate.
* * *
[I]t was at [Hunter's] insistence that the employees be kept on in anticipation that they be paid. He felt very confident he would be able to pay them.
It is clear that MycoPharma was undercapitalized (P. St. ¶ 37). Not only did it produce no products and generate no revenue (G. St. ¶ 4), but its laboratory was never fully equipped for operation (P. St. ¶ 61).
Plaintiffs' Claim Under the Act
Act § 206 applies to employees in either of two categories:
employees . . . engaged in commerce or in the production of goods for commerce, or employed in an enterprise engaged in commerce or in the production of goods for commerce. . . .
While plaintiffs concede that they do not come under the latter rubric ("enterprise" coverage), P. Mem. 5-6 asserts that they succeed under the former ("individual" coverage) In that respect plaintiffs stress that they ordered supplies for the laboratory from out of state, used the phone, mail and facsimile facilities to communicate out of state and were working toward a commercial product (id.). But the language of the statute clearly conveys that "engaged in commerce" relates to the goods or services offered by a business, not the services or products by a business. After all, the contrary view would render every employer in the country — indeed, every household — "an enterprise engaged in commerce": a commercial operation.
"Enterprise" coverage was added in 1961 to enlarge the scope of the Act (see Radulescu v. Moldowan, 845 F. Supp. 1260, 1262 (N.D. Ill. 1994)).
It is not argued that any of the communications were solicitations of business related to Mycopharma's hoped-for product.
That common sense reading is buttressed by Act § 203(s)(1) (emphasis added), which defines the broader "enterprise" concept as potentially including such activity:
"Enterprise engaged in commerce or in the production of goods for commerce" means an enterprise that —
(A)(i) has employees engaged in commerce or in the production of goods for commerce, or that has employees handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce by any Person: and
(ii) is an enterprise whose annual gross volume of sales made or business done is not less than $500,000 . . .
[Footnote by this Court] of course MycoPharma does not fall under that definition because the company never made a cent. And the early abortion of Mycopharma's activities (to mix metaphors, a termination even before conception rather than in the first trimester) renders wholly inapposite such cases, sought to be relied upon by plaintiffs, asJohnston v. Spacefone Corp., 706 F.2d 1178, 1182 (11th Cir. 1983) andWirtz v. Koch, 301 F. Supp. 957, 958 (D.S.D. 1969).
Congress omission of similar language for "individual" coverage further confirms that under these facts none of the plaintiffs was "engaged in commerce."
That alone calls for the granting of Georgeson's Rule 56 motion as to plaintiffs' claim under the Act, a conclusion that also inevitably calls for MycoPharma's and Hunter's dismissal from that federal claim. But Georgeson has another string to his personal bow, a subject to which this opinion turns in the interest of completeness.
While MycoPharma did not also file a Rule 56 motion, the issue of whether plaintiffs were "engaged in commerce" for Act purposes relates to both MycoPharma and Georgeson. As for Hunter, plaintiffs added him as a defendant by an amended complaint back in mid-April 2000, but they have not yet served him with process even though the 120-day sands of Rule 4 (m) have almost run out. Even so, the same inability of plaintiffs to create even a reasonable inference that they were "engaged in commerce" dooms any Act-based claim against Hunter as well, so that it obviously makes no sense to keep that claim alive against him either. It is therefore entirely appropriate for this Court to dismiss plaintiffs' claim under the Act in its entirety due to the lack of a federal "hook."
Georgeson Is Not an "Employer"
Georgeson also urges that he is not an "employer" under the Act, the Minimum Wage Law or the Wage Payment and Collection Act. Both of those Illinois statutes define an "employer" in part as ( 820 ILCS 105/3 (c), 820 ILCS 115/2):
As the ensuing discussion reveals, even if plaintiffs had prevailed (as they have not) on their "engaged in commerce argument as to MycoPharma, Georgeson would still win because he was not an "employer" as contemplated by the Act.
any individual . . . or any person or groups of persons acting directly or indirectly in the interest of an employer in relation to an employee. . . .
That definition is virtually identical to the Act's definition. And in terms of the Act, Riordan v. Kempiners, 831 F.2d 690, 694 (7th Cir. 1987) teaches:
Act § 203(d) defines an "employer" as including "any person acting directly or indirectly in the interest of an employer in relation to an employee. . . ."
The word "employer" is defined broadly enough in the Fair Labor Standards Act . . . to permit naming another employee rather than the employer as defendant, provided the defendant had supervisory authority over the complaining employee and was responsible in whole or part for the alleged violation.
[Footnote by this Court] See also Reich v. Harmelech, No. 93 C 3458. 1996 WL 308272, at *3 (N.D. Ill. June 5):
[C]ourts have found that the issue of whether a party can be held liable under the FLSA is not whether an individual controlled every aspect of the employees' conduct, but whether the individual had control over the alleged violation of the FLSA.
Here plaintiffs have failed to create even a reasonable inference that Georgeson was "responsible in whole or part for the alleged violation." While Georgeson did have the authority to sign checks, he had nothing at all to do with whether there would be anything available to honor those checks — Hunter alone had control over the spigot that put any funds into the pipeline. It thus makes no difference that under MycoPharma's skimpy organizational minutes Georgeson was "explicitly authorized and directed to pay all organization expenses of the corporation out of the funds of the corporation" (P. Mem. 9, first emphasis in original, second emphasis by this Court). Even if that language were stretched beyond its normal meaning, in all events plaintiffs would certainly not have been better off with bounced checks.
To be sure, as Donovan v. Agnew, 712 F.2d 1509, 1511 (1st Cir. 1983) observes:
The overwhelming weight of authority is that a corporate officer with operational control of a corporation's covered enterprise is an employer along with the corporation, jointly and severally liable under the FLSA for unpaid wages.
But such a corporate officer must have "operational control." And Patel v. Wargo, 803 F.2d 632, 638 (11th Cir. 1986) confirms that even a company president can "lack the operational control necessary for the imposition of liability as an `employer' under the FLSA." That fits Georgeson to a T.
"Organization expenses" of a corporation are only that — not its post-organization operating expenses. Again plaintiffs' counsel clutches at a straw to keep from drowning — but once again it would not help plaintiffs even if the distorted meaning were adopted.
P. Mem. 9 still argues that Georgeson should be responsible because:
he allowed Plaintiffs to work in excess of the resources MycoPharma had on hand to pay them; failed to establish reserves for the severance despite knowing MycoPharma was underfunded and decided to pay other creditors and not the Plaintiff employees.
Though Georgeson would not qualify as any Chamber of Commerce's "Executive of the Year," that is scarcely a fair criticism of someone whose only MycoPharma commitment was to take 2 to 3 hours weekly away from his full-time practice of medicine. Rut in any event, any asserted deficiencies in that regard are not grounds for liability under any statute at issue in this case. And as the undisputed record shows, Georgeson believed that more funding would soon be provided by Hunter.
There is no question that MycoPharma was not only a start-up company but was also operating hand-to-mouth as to its operating costs.
As Georgeson put it (G. Dep. 56-57):
[I]t was at [Hunter's] insistence that the employees be kept on in anticipation that they be paid. He felt very confident he would be able to pay them.
So plaintiffs have also failed to adduce facts that, even with reasonable inferences, would label Georgeson as an "employer" either under the Act or under the Illinois statutes. And that calls for the total dismissal of this action against Georgeson.
While Georgeson has advanced other independent reasons as to why he should avoid liability under both the Act and Illinois law, the result reached here obviates any need to address those arguments. Georgeson has also filed a motion to strike various statements contained in Reyes' affidavit, in plaintiffs' response to Georgeson's LR 56.1(a)(3) statement and in plaintiffs' statement of additional facts. To the extent that this opinion has not already spoken to some of the problems in those filings, they too need not be addressed because the dismissal of all claims against Georgeson renders his motion moot.
Remaining State Law Claims
Plaintiffs' underpinning for their state law claims has been the supplemental jurisdiction provision of 28 U.S.C. § 1367 (a). Because of the essential identity of the "employer" definition in the Act and in the two Illinois statutes invoked by plaintiffs, what has already been said in this opinion has dispatched Georgeson from this entire action.But the parties' briefing has not of course addressed the "employer" question as it might perhaps apply to unserved defendant Hunter, and this Court sees no reason that it do so sua sponte under the circumstances. And plaintiffs' state law claims against MycoPharma also remain unresolved (even though that may prove meaningless if the corporation is an empty shell). With the federal foundation supporting jurisdiction over those claims against Hunter and MycoPharma having been removed, the principle exemplified by the language quoted in Kennedy v. Schoenberg,Fisher Newman, Ltd., 140 F.3d 716, 727 (7th Cir. 1998) is called into play:
[T]he general rule is that, when all federal claims are dismissed before trial, the district court should relinquish jurisdiction over pendent state-law claims rather than resolving them on the merits.
And such without-prejudice dismissals of state law claims are also now specifically authorized under 28 U.S.C. § 1367 (c)(3) — seeKennedy, 140 F.3d at 727. This Court so orders.
Conclusion
There are no genuine issues of material fact as to plaintiffs' claims under the Act or as to their state law claims against Georgeson. Georgeson is thus fully entitled to a judgment as a matter of law, while MycoPharma and Hunter are entitled to a judgment as a matter of law as to plaintiffs' claim under the Act, and this Court so orders. Plaintiffs' claims against Georgeson are dismissed in their entirety with prejudice, while their state law claims against MycoPharma and Hunter are dismissed without prejudice.