United States District Court, N.D. Mississippi, Delta Division
KENDRICK SALES, Individually, WILLIAM E. WHITE, JR., Individually, WAYNE TUBBS, JR., Individually, And on Behalf of Others Similarly Situated, Plaintiffs,
JAMES BAILEY, DELTA PRODUCTS TREE SERVICE, LLC, And MS RIGHT OF WAY PROFESSIONALS, LLC, Defendants.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
SHARION AYCOCK, District Judge.
Plaintiffs filed the present action under the Fair Labor Standards Act ("FLSA"), 29 U.S.C. § 201 et seq., seeking damages in the form of unpaid compensation. This Court subsequently commenced a three day bench trial on January 21, 2014. Following a thorough review of the evidence and applicable law, the Court is prepared to rule.
Findings of Fact
James Bailey has been an entrepreneur and small business owner for approximately thirty years. In 2003 or 2004, he opened Delta Products Tree Service, a residential tree clearing business, as a sole proprietorship. After gaining experience, Bailey set his sights on more lucrative public utilities right of way clearing contracts. He eventually landed separate contracts with both Centerpoint Energy and Entergy Services. Bailey signed a contract with Entergy on March 22, 2010, but did not start providing clearing services to Entergy until January 1, 2011.
Bailey conceded that, according to his understanding, he was the employer under the Fair Labor Standards Act for those working under his charge at least prior to March 25, 2011. Although Bailey was unable to provide start and end dates for any of the Plaintiffs, the evidence established that John Lane, Jr., Adolfo Garcia, Gustavo Hernandez, Luis Hernandez, Gregorio Luna, and Homero Sanchez served under the employ of Delta Products Tree Service prior to that date.
Bailey argued that on March 25, 2011, however, he terminated all of his employees. Bailey contended that the terminations included both field workers and his office staff. Bailey contended that because of the inexperience and inefficiency of his workforce, he had fallen severely behind on Entergy's checkpoints for his progress, that Entergy was going to require him to redo a significant portion of the clearing without pay, and that Entergy had suspended any future disbursements until the work was deemed suitable. Bailey contended that in light of this setback, he decided to essentially shut down Delta Products' operations as a commercial right of way clearing business, and to merely subcontract the work out to another enterprise. According to Bailey, he met with his entire workforce on August 25, 2011 and informed them that their services would no longer be needed.
After that meeting, Bailey contended that Kennedy Harrell, one of his longtime foremen, proposed that he be allowed to form a partnership and pursue the subcontract opportunity. Several witnesses for Defendants testified that such a partnership was indeed consummated, and that it, as a matter of pure coincidence, consisted of all of Bailey's former employees. Bailey testified that the partnership was the brainchild of Harrell, and that he did not inquire into the specifics of with whom Harrell intended to partner. Again coincidentally, however, Bailey's daughters, Jaime Mitchell and Shekia Renea Dillon, who had previously worked in the office for Delta Products Tree Service, were additionally added as partners. Harrell, himself, however, who purportedly founded the partnership, was unable to recall with whom he had decided to partner, citing the fact that it had been three years ago and that not all of the partners were in the courtroom.
On October 10, 2011, Bailey registered Delta Products Tree Service, LLC as a Mississippi limited liability company. According to Bailey's testimony, he was content with operating as a sole proprietorship, but the LLC was something that his youngest daughter "got [him] into." Less than a week later, on October 17, 2011, a number of the alleged Harrell partners registered MS Right of Way Professionals, LLC ("MS Right of Way") as a Mississippi limited liability company. According to Harrell, Bailey's daughter Shekia Dillon decided to form MS Right of Way as an LLC and he himself had nothing to do with the company's formation. According to Jaime Mitchell, however, the idea was conceived by both Harrell and Dillon. Shekia Dillon, Jaime Mitchell, Eddie White, Sr., Christopher Thomas, Adolfo Garcia, Homero Sanchez, Luis Hernandez, Andres Alverado, Janalisha Heard, Kenneth Jones, Kennedy Harrell, Randy Buckingham, David Camarana, Deon Ammons, Gustavo Hernandez, and Kendrick Sales were listed as members of the LLC. At the time of trial, Mitchell served as "manager one" for the LLC, her husband Nathaniel Mitchell served as "manager two, " and Janalisha Heard served as the corporate secretary.
Ironically, despite the alleged amount of separation between the two companies, MS Right of Way Professionals, LLC and Delta Products Tree Service, LLC shared both the same address and phone number. Despite such shared resources, Defendants contended that Bailey had little to nothing to do with MS Right of Way, merely occupying office space down the hall. Mitchell, who at the time of trial served as MS Right of Way's "manager one, " stated that MS Right of Way had only employed two employees during its entire existence. One of those purported employees, Janalisha Heard, was actually listed as a member on the certificate of formation and then took the role as the entity's corporate secretary. Heard, who contended that she was responsible for keeping up with MS Right of Way's inventory, was asked to list examples of assets owned by MS Right of Way. According to Heard, the company owned chains, chaps, vests, gloves, and hats. Curiously, Heard made no mention of the trucks, chippers, and other large-scale implements that Nathaniel Mitchell cited as assets owned by the company.
Witnesses for Defendants further contended that the management structure for MS Right of Way was incredibly inclusive, that there were no bosses, and that the decisions on where to work, when to work, and how to work were reached by group vote. Defendants' witnesses claimed that no one had the power to fire employees because all individuals working for the company were members, and that no one had ever been fired. Defense witnesses contended that if they needed to hire someone, they first had to hold a member meeting to allow everyone to provide input. Essentially, all corporate decisions were purportedly made by the group of members at large. Several witnesses for the defense, including Jaime Mitchell, contended that the members' LLC agreement was embodied in a written operating agreement. That agreement, which Mitchell produced at trial, turned out to be nothing more than a PowerPoint presentation drafted after the commencement of the current lawsuit.
Further casting doubt on Defendants' theory of the case was the odd state of the records produced. The inconsistencies were in abundance, and the Court does not attempt to catalogue them in their entirety here. The most glaring examples, however, involved Defendants' production of Plaintiffs' payroll information. First, a number of checks issued after March 25, 2011, the date of the Delta Products Tree Service en masse lay off and Kennedy Harrell's formation of a partnership, continued to bear Delta Products Tree Service as the payor. Such "mislabeled" checks continued to be issued even after the formation of MS Right of Way as well.
Defendant's Exhibit 4 and Plaintiff's Exhibit 3 both included check 900 issued to Plaintiff Gustavo Hernandez on September 16, 2011. With regard to the Defendant's exhibit, however, the check reflected that it had been issued by MS Right of Way. As to Plaintiff's exhibit, which had been furnished by Hernandez, the check reflected that it had been issued by Delta Products Tree Service. Mitchell, under oath, admitted that she had modified the check after the fact in an attempt to "correct the error." In her words:
As I stated earlier, it was the exact - it was the same software. It was the same program. Once I noticed the errors - it's only an error in name. It's not to be malicious of any type. Once I noticed the error, I did change it. From that point, when you all requested our documents, if I noticed an error prior to receiving any type of litigation towards us, once I changed it, what I print out from my records, it will have the corrected.
Additionally, a number of Plaintiffs' paychecks reflected that federal and state taxes had been withheld even after Defendants claim to have formed a partnership and converted all employees to members and/or independent contractors. According to Defendants, such inconsistencies were also a software glitch and that, as agreed between the parties, the monies purportedly withheld as "taxes" were actually applied as "owner's equity" in the newly formed organization. Eventually, Defendants were able to correct the withholding line and began to uniformly withhold a portion of Plaintiffs' paychecks as a "membership fee."
Plaintiffs had no recollection of any group management meetings, much less a written operating agreement. Kendrick Sales and Thomas Brown, who were hired after Bailey had allegedly fired his workforce, testified that they were hired by Bailey, personally, rather than by group vote. None of the Plaintiffs who were purportedly members of the LLC ever remembered having an organizational meeting to discuss management of the company. Instead, they testified that Bailey had been involved in the management of the company, regardless of its name, throughout their tenure. They testified that he had the power to hire and fire, and that the company ultimately answered to his authority. They did, however, recall a discussion about the "membership fees." According to the majority of Plaintiffs, Bailey had approached them with regard to the new deduction and had informed them that monies would be withheld from each paycheck, but that they would be applied toward an employer-sponsored "savings account."
Plaintiffs additionally testified in near unison that their average work hours were from approximately 6:00 or 6:30 in the morning until 5:00 or 5:30 in the evening. Plaintiffs recalled working overtime regularly, but did not recall ever being paid overtime. Thomas Brown, who was hired as a drag operator, testified that Bailey had told him at his hiring that "he didn't pay overtime, but [Brown] could work all of the hours [he] wanted."
After careful review, the Court determines that the organizational gymnastics of Delta Products Tree Service, MS Right of Way, and the unnamed partnership were nothing more than an elaborate charade, concocted in an attempt to avoid overtime obligations. The Court finds that Brown's testimony that Bailey simply didn't pay overtime is probably close to the truth. Throughout the trial, Bailey adamantly stated that he had never paid overtime and almost as adamantly stated that he had never paid overtime because overtime was never owed. On at least one occasion, however, Bailey equivocated as to that second assertion. The following exchange is illustrative:
Q: But it's your testimony that, at no time, no laborer ever worked more than 40 while they were employed by you?
A: That's correct. I kept an eye on that. I - the only time that I would ever consider - which I was always completing my work prior to this Entergy contract on time, but the only time I would ever consider letting any worker go overtime is because I was behind on my work, which I never was.
When pressed with regard to the records for one particular worker who was not a party to this action, Bailey abandoned his theory that no worker had ever worked overtime:
Q: Now, you didn't pay Randy Buckingham overtime that week did you?
A: I don't know that you can establish that, because Randy Buckingham - obviously, he and I had some sort of agreement. He didn't choose to sue me.
Q: Well, sir, look on the very next page, and you can see his rate is $10 an hour. If you take 455, which is what he made that week, divided by 10, it - guess how much hours it - take 455, divide by $10 an hour. That produces 45.5 hours. Do you see that?
A: I see that.
Q: You don't dispute that math, do you?
A: No, but it don't say what agreement Randy Buckingham and I had over that amount either.
Q: Well, assuming you employed Randy Buckingham in early of March 2011, and if he went over 40 hours in a workweek, he would have been entitled to time and a half, correct?
A: Which was obviously paid.
At another point on direct examination, Bailey inadvertently dropped the façade on the separate corporate identities:
Q: Did you set the individual rates of pay for anyone that worked for Mississippi Right of Way?
A: I set the rates of pay when?
Q: For any individual -
A: For the year - what year are you ...