JOHN E. DOWDELL, District Judge.
The jury was asked to answer a single question: "During the period of October 22, 2009 through October 21, 2010, was Defendants El Tequila, LLC and Carlos Aguirre's failure to comply with the requirements of the Fair Labor Standards Act `willful?'" (Doc. 296). The Court instructed the jury that the defendants' violations of the Fair Labor Standards Act (the "FLSA" or the "Act") were willful if the defendants either knew that their conduct violated the FLSA or showed reckless disregard for the matter of whether it did. (Doc. 294 at 29; see also Mumby v. Pure Energy Servs. (USA), Inc., 636 F.3d 1266, 1270 (10th Cir. 2011) (quoting McLaughlin v. Richland Shoe Co., 486 U.S. 128, 133 (1988)). The Court further instructed the jury that the defendants showed "reckless disregard" for the dictates of the Act if their conduct entailed an unjustifiably high risk of harm that was either known to them or so obvious that it should have been known. (Id.).
Over the course of five days, the United States Secretary of Labor (the "Secretary") put forth a devastating case against the defendants. As noted, one issue—the willfulness of the defendants' violations—had survived summary judgment by the narrowest of margins. (See Doc. 233). The evidence the Secretary presented at trial proved several-fold that the defendants acted willfully when they violated the FLSA. This evidence went largely uncontested by the defendants. Indeed, much of the evidence came from defendant Carlos Aguirre himself.
On the stand and in the presence of the jury, Aguirre admitted that he paid his employees a weekly salary rather than the minimum wage and overtime required by the FLSA. He further admitted that he kept two sets of records—falsified records that indicated he paid his employees minimum wage and overtime, and a parallel set of accurate wage records he kept hidden from his accountant. These admissions alone—that Aguirre violated the FLSA and disguised his violations with counterfeit records—demonstrate, at a minimum, that the defendants showed reckless disregard for the matter of whether their conduct violated the Act.
But Aguirre was far from finished. He admitted that when Wage and Hour Investigator Ybelka Saint-Hilaire investigated one of Aguirre's restaurants he withheld the accurate records from Saint-Hilaire and provided her with the fabricated records. Under oath Aguirre admitted to lying to Saint-Hilaire about these records and about the pay practices he actually employed. Further, Aguirre admitted that he instructed several of his employees to lie to her about those same practices. The Secretary's evidence would have met a far stricter standard than preponderance of the evidence, and sufficed to show not only a reckless disregard for the law but obvious and indisputable knowledge of it.
Most of the evidence the Secretary presented, it must be said, was evidence of the unquestionable willfulness of Aguirre's FLSA violations after October 21, 2010. This evidence supports—indeed, insists on—an inference that Aguirre's violations between October 22, 2009, and October 21, 2010, the "relevant time period," were also willful. However, the Court has before it the Secretary's Renewed Motion for Judgment as a Matter of Law (Doc. 297), and in considering a motion for judgment as a matter of law ("JMOL"), the Court does not make inferences or other factual conclusions. Based on evidence originating outside the relevant period, a reasonable jury could have decided that Aguirre's willful violations after October 21, 2010, were just that, and did not conclusively show that Aguirre's earlier violations were also willful.
But Aguirre admitted more. He admitted that in the relevant period, between October 22, 2009, and October 21, 2010, he was already falsifying records. Indeed, in this period Aguirre systematically sent fake information to his accountant, Victor Kubli, and Kubli, unaware that the information was inaccurate, generated pay records that made it look as if Aguirre paid his employees minimum wage and overtime. These records clearly stated the minimum wage and overtime amounts required by law, and these were the falsified records that Aguirre presented to Saint-Hilaire during her first investigation in December 2010 to conceal his violations. Thanks to these falsified records, it would take a second Department of Labor investigation for Saint-Hilaire to learn the truth: Aguirre, in plain violation of the FLSA, paid his putative hourly employees neither minimum wage nor overtime.
It is difficult to imagine a clearer case of willfulness. Aguirre's testimony, his admissions—this evidence was uncontroverted at trial. In light of this undisputed evidence, no reasonable jury could have decided, as the jury in this case did, that the defendants did not act willfully when they withheld wages owed to their employees between October 2009 and October 2010. The Court is left with no choice but to direct the entry of judgment as a matter of law in the Secretary's favor under Rule 50(b).
Defendant Carlos Aguirre controls the operations of defendant El Tequila, LLC (jointly the "defendants"), and through it operates four Mexican-style restaurants in and around Tulsa, Oklahoma. Aguirre is 40 years old. He immigrated to the United States when he was 16, and has been here 24 years.
On December 21, 2010, as the result of an employee complaint, the United States Department of Labor (the "DOL"), through its Wage and Hour Division, began to investigate the defendants' fourth El Tequila restaurant, located in Tulsa at 5001 S. Harvard Avenue (the "First Harvard Investigation"). Wage and Hour Inspector Ybelka Saint-Hilaire conducted the investigation, which included interviewing Aguirre and his employees regarding the hours they worked and wages they received. As part of the investigation, Aguirre provided Saint-Hilaire with payroll summary sheets that he would later admit did not accurately reflect payments made to his employees. At the time, however, Saint-Hilaire took the records at face value, and when she closed the investigation on March 23, 2011, she made a finding of recordkeeping violations only.
Soon after the First Harvard Investigation, Saint-Hilaire received further employee complaints. These complaints included allegations not only that Aguirre had lied to Saint-Hilaire during the first investigation but also that he had instructed his employees to do the same. As a result, on June 29, 2011, Saint-Hilaire began a second investigation of the Harvard restaurant (the "Second Harvard Investigation"). This time Saint-Hilaire determined that, from December 5, 2009, to August 6, 2011, the defendants paid their Harvard location employees a fixed weekly salary, rather than an hourly wage, in violation of the minimum wage and overtime provisions of the FLSA. The defendants settled the Second Harvard Investigation by agreeing to future compliance with the FLSA and to pay wages owed to their Harvard employees for the December 5, 2009, to August 6, 2011, period (the "Harvard Settlement Agreement"). Although the defendants made installment payments, Aguirre has since admitted that a number of his employees cashed their checks and returned the money to him.
The defendants represent that Aguirre believed the Harvard Settlement Agreement to account for violations at all four restaurants and was surprised when Saint-Hilaire sought time and pay records for the defendants' other three restaurants. According to the defendants, alarmed to learn he might owe still more money, Aguirre retained counsel for the first time on November 11, 2011. The parties were unable to reach a settlement regarding the three remaining restaurants.
Two months later, in January 2012, the defendants took steps to modernize their timekeeping process by installing time clock systems at each of their restaurants. The Casio QT 6600 registers the defendants installed allowed the defendants' employees to clock in and out at the beginning and end of their shifts, and thereby recorded the hours they worked. Ostensibly the Casio registers should have facilitated the defendants' future compliance with the FLSA.
The Secretary brought suit on October 22, 2012, alleging that the defendants violated the FLSA in three ways: first, by failing to pay employees the statutory minimum wage; second, by failing to pay employees for hours worked in excess of 40 hours per week; and third, by failing to maintain sufficient records of their employees' wages and hours. (Doc. 2). As discovery unfolded and the case developed, the Secretary uncovered evidence suggesting that the defendants continued to violate the FLSA during and after 2012 by manually altering the records produced by the Casio registers. Accordingly, the Secretary amended his complaint in February 2015 to add this allegation. (Doc. 165).
Ruling on summary judgment, the Court found that the defendants had violated the FLSA's minimum wage, overtime, and recordkeeping provisions. The Court also granted the Secretary's summary judgment motion with respect to his calculation of damages and the application of liquidated damages, and enjoined the defendants from committing future violations of the FLSA. (Doc. 233). In the end, one issue survived summary judgment, and barely at that: whether the defendants' violations of the FLSA between October 22, 2009, and October 21, 2010, were willful.
The jury heard testimony from a number of witnesses over the course of five days. Most of this testimony covered events occurring after the relevant time period, including the Casio time recorders that the defendants began using in 2012 to record the hours their employees worked. Aguirre's own testimony regarding the FLSA violations he committed during the relevant time period, however, was uncontroverted.
Aguirre admitted that, as the Court had found at the summary judgment stage, he paid employees a set salary regardless of the number of hours they worked.
(Id.). Aguirre went on to clarify that by "not precise" he meant that the records he gave to his accountant neither reflected the hours his employees actually worked nor had any bearing on how much he would ultimately pay them.
A. No, that didn't show up.
(Id. at 252:4-11; 254:2-11; see also id. at 257:9-20). In this example, in other words, although Aguirre's employees had worked in excess of 40 hours a week and thus were entitled to overtime pay, Aguirre avoided paying them what they were owed by reporting in every case 40 hours or fewer to his accountant.
Regardless of the hours Aguirre reported to his accountant, which in any event were a sham, Aguirre paid his employees a set salary in violation of the FLSA. This he hid not only from his accountant but also from the Department of Labor. Specifically, Aguirre admitted that, in December 2010, he took steps to hide from Wage and Hour Investigator Saint-Hilaire the violations he had committed during the relevant period:
(Id. at 258:16-23). Aguirre further admitted that, because he was scared and in order to protect his restaurant and his employees, he instructed his employees to tell Saint-Hilaire the same lies.
Providing his accountant with inaccurate time records allowed Aguirre to continue his practice of paying his employees a set salary while maintaining the appearance of minimum wage and overtime compliance. The records Kubli created, premised on Aguirre's manipulated hours and the rate of pay Aguirre himself set, showed non-tipped employees paid at $7.25 an hour—the minimum wage—and tipped employees paid $3.63 an hour—the state minimum wage for tipped employees.
(Id. at 250:14-16).
Under Federal Rule of Civil Procedure 50(b), a "party is entitled to judgment as a matter of law only if all of the evidence, viewed in the light most favorable to the nonmoving party, reveals no legally sufficient evidentiary basis to find for the nonmoving party." Burrell v. Armijo, 603 F.3d 825, 832 (10th Cir. 2010) (citing Wagner v. Live Nation Motor Sports, Inc., 586 F.3d 1237, 1243 (10th Cir. 2009) and Hurd v. Am. Hoist & Derrick Co., 734 F.2d 495, 499 (10th Cir. 1984)). The Court must "not weigh the evidence, pass on the credibility of the witnesses, or substitute [its] conclusions for those of the jury." Zisumbo v. Ogden Reg'l Med. Ctr., No. 13-4179, 2015 WL 5172860, at *7 (10th Cir. Sept. 4, 2015) (citation omitted). "Judgment as a matter of law is warranted only if the evidence points but one way and is susceptible to no reasonable inferences supporting the party opposing the motion." Id. (citation omitted). In short, a Court may grant a motion for judgment as a matter of law only if no reasonable jury could arrive at a contrary verdict. Id. (quoting Weese v. Schukman, 98 F.3d 542, 547 (10th Cir. 1996)).
In general, the FLSA imposes a two-year statute of limitations on actions for unpaid minimum wages, overtime compensation, or liquidated damages. 29 U.S.C. § 255. Where a defendant's violations are willful, however, a three-year period applies. Id. A violation is willful where "the employer either knew or showed reckless disregard for the matter of whether its conduct violated the statute." Mumby v. Pure Energy Servs. (USA), Inc., 636 F.3d 1266, 1270 (10th Cir. 2011) (quoting McLaughlin v. Richland Shoe Co., 486 U.S. 128, 133 (1988)). A plaintiff can show reckless disregard through "action entailing an unjustifiably high risk of harm that is either known or so obvious that it should be known." Id. (quoting Safeco Ins. Co. of America v. Burr, 551 U.S. 47, 68 (2007)).
The Court is unaware of any Tenth Circuit precedent directly addressing whether the falsification of payroll records as a matter of law meets the definition of "willfulness" under the FLSA. The Secretary points to Donovan v. Pointon, 717 F.2d 1320, 1323 (10th Cir. 1983), in which the Tenth Circuit affirmed a finding of willful violation of the FLSA in part because the employer in question kept business records that made it appear that he paid his employees in compliance with the Act:
Id. Pointon leaves unclear whether the falsified records on their own would have shown the employer's actions to be willful. More important, Pointon employed a willfulness standard that the Supreme Court has since rejected. Compare Pointon, 717 F.2d at 1323 (10th Cir. 1983) ("It is sufficient to show that the employer knew the Act was `in the picture' so that he is aware of the Act's possible application to his employees.") with McLaughlin v. Richland Shoe Co., 486 U.S. 128, 132-33 (1988) ("[A] standard that merely requires that an employer knew that the FLSA `was in the picture' . . . virtually obliterates any distinction between willful and nonwillful violations."). Following the Supreme Court's decision in McLaughlin, Pointon does not conclusively require a finding of willfulness here.
Still, the defendants' actions here without doubt meet the higher standard set out in McLaughlin and applied by the Tenth Circuit in Mumby. Falsifying records demonstrates more than negligence, which does not qualify as willfulness under McLaughlin, and more even than reckless disregard, which does. It demonstrates knowledge. The defendants could have only one reason for creating two sets of business records—one set that ostensibly records compliance with the law and that is handed over in the case of a government investigation, and another set that records the defendants' actual, illegal practice. After more than a decade of owning restaurants in the United States, Aguirre knew the law required him to pay his employees minimum wage and overtime, and he hired an accountant to help make it look like he did. At trial, the evidence before the jury pointed but one way: the defendants knew they were breaking the law and took steps to cover it up. Accordingly, the defendants' violations more than meet the standard for willfulness under the FLSA.
In so holding, the Court joins a number of district courts that have issued similar rulings after McLaughlin. See, e.g., Yu Y. Ho v. Sim Enterprises, Inc., No. 11 CIV. 2855 PKC, 2014 WL 1998237, at *13 (S.D.N.Y. May 14, 2014) (finding FLSA violations willful where employer instructed employees to enter inaccurate hours); Solis v. El Matador, Inc., No. 08-CV-2237, 2011 WL 1671561, at *5 (C.D. Ill. May 3, 2011) (unreported) (finding FLSA violations willful where defendants' "intentional efforts to conceal . . . noncompliance with the FLSA resulted in false payroll records"); Solis v. Best Miracle Corp., 709 F.Supp.2d 843, 858 (C.D. Cal. 2010) ("It is also clear that Defendants' actions were willful because they engaged in a deliberate campaign to falsify records.") aff'd, 464 F. App'x 649 (9th Cir. 2011); Cloutier v. City of Phenix City, 834 F.Supp. 366, 373 (M.D. Ala. 1993) (citing Pointon, 717 F.2d at 1323) ("If indeed the City failed to comply with the FLSA and falsified documents in order to make it appear as though it had complied, then the City would be guilty of a willful violation."). Several circuit courts have made analogous rulings. Murray v. Stuckey's Inc., 939 F.2d 614, 621-22 (8th Cir. 1991) (affirming district court's finding of willfulness where defendant "pressured plaintiffs into falsifying hours of work as it pertained to overtime."); Janik Paving & Const., Inc. v. Brock, 828 F.2d 84, 88, 94 (2d Cir. 1987) (affirming district court's finding of willfulness under a related act where defendants "falsified their certified payrolls" to conceal overtime violations); see also Goldberg v. Kickapoo Prairie Broad. Co., 288 F.2d 778, 781 (8th Cir. 1961) ("False records known to be false and underpayments made knowingly negate any conclusion that only `innocent' violations were involved."). Aguirre's admissions regarding his actions during the relevant time period foreclose all conclusions but one: Aguirre willfully violated the FLSA. No reasonable jury could have found otherwise.
To be clear, the jury also heard evidence of Aguirre's actions outside of the relevant time period. In particular, the jury heard competing accounts of the defendants' use of the Casio time registers, which beginning in 2012 El Tequila employees used to clock in and out. Before trial, the Court was concerned that evidence related to the Casio registers would confuse the jury and that this danger outweighed its minimal relevance. (Doc. 269; see also Doc. 277 at 10-11, 24-31, 43). The evidence was of minimal relevance because the defendants did not start using the Casio registers until 2012—more than a year after the relevant time period ended—and posed a danger of confusion as evidence of the defendants' willful manipulation of Casio time records filled stacks of binders and was fairly complicated to understand. At the behest of both parties, however, the Court allowed the presentation of evidence regarding the Casio registers. (Id.).
This evidence was of conditional relevance. In the absence of evidence of the defendants' willfulness during the relevant period itself, evidence outside of that time period could support an inference that the defendants did or did not act willfully during the relevant period. But because the Secretary demonstrated that the defendants' violations during the relevant time period were willful, the willfulness of later violations became irrelevant. It simply does not matter whether the defendants later downgraded their violations from willful to negligent.
Unfortunately, the way the trial unfolded made the Casio records appear not only relevant but, as the defendants were wont to insist, central. Each side thought they had the better argument with respect to the Casio material, and their advocacy no doubt contributed to a false sense of its centrality. In spite of the time and energy the parties focused on it, however, Aguirre's admissions made this evidence—indeed, most of the evidence heard at trial— superfluous and no more than confusing. One cannot know with any certainty what led to the jury's decision. What is clear, however, is that as deliberations drifted into Friday evening, the jury reached a verdict wholly unsupported by the evidence before it. No reasonable jury could have decided as it did.
The jury was asked to answer a single question: "During the period of October 22, 2009 through October 21, 2010, was Defendants El Tequila, LLC and Carlos Aguirre's failure to comply with the requirements of the Fair Labor Standards Act `willful?'" (Doc. 296). The jury heard little direct evidence regarding the defendants' violations between October 22, 2009, and October 21, 2010—the relevant time period in this case. The evidence they did hear regarding this period, however, points but one way and is susceptible to no reasonable inferences supporting a verdict for the defendants. In the face of defendant Carlos Aguirre's many admissions, no reasonable jury could have found that the defendants did not willfully violate the Fair Labor Standards Act during the relevant time period. Accordingly, the Court grants the Secretary's Renewed Motion for Judgment as a Matter of law.
(Doc. 303 at 252:17-25).
(Doc. 304 at 374:10-23).
Although Aguirre's admissions alone are sufficient basis for the Court's ruling, it bears mentioning that Kubli's testimony confirmed Aguirre's admissions persuasively and at length. For example:
(Doc. 304 at 376:25-377:2).
(Id. at 378:5-9).
(Id. 377:13-378:4). Kubli further testified that he did not learn that Aguirre paid employees partially in cash until Aguirre was deposed in May 2014. (Id. at 379:22-25).
Although not relevant to the Court's decision here (see infra p. 13), Aguirre's use of Kubli as a façade to conceal his actual, illegal pay practices continued both after Aguirre's 2011 settlement agreement with the DOL—"Q. Did the payroll process change in any manner [as a result of the Harvard Settlement]? A. [BY KUBLI] No." (Doc. 304 at 375:19-376:7)—and later after the defendants' 2012 implementation of the Casio registers:
(Id. at 382:4-385:7).
(Doc. 303 at 262:22-263:5). This semantic fixation likely results from the Court's own insistence on precision in its Summary Judgment Order. (See Doc. 233 at 9 ("In other words, Aguirre's [deposition] testimony can be read to indicate, as the defendants argue, imprecise records that round or approximate, as opposed to intentionally fabricated records.") (emphasis added)). Aguirre's trial testimony put to rest any doubts about the inaccuracy—indeed, the intentional manipulation—of his payroll records.
This supposed defense is risible, and the manner of the defendants' use of their accountant is further evidence of Aguirre's guile, rather than his perplexed innocence.
