JOHN S. KAULL, United States Magistrate Judge.
This matter is pending before the Court for decision of Defendant/Third Party Plaintiffs' Motion For Summary Judgment, hereinafter referred to as "Woodward", [DE 82] and Third Party Defendants Samuel Oliverio and Cheryl Jean Oliverio's Motion For Summary Judgment, hereinafter referred to as "Oliverios", [DE 83], these cross motions for summary judgment being filed on the same date: January 8, 2010; G & S Tobacco Dealers, LLC and Cindy Woodward's Motion To Strike Oliverios' Reply To Response To Motion For Summary Judgment [DE 88]
The matters have been submitted for decision on the filings: Defendants/Third Party Plaintiff's Motion For Summary Judgment with exhibits [DE 82]; Response Of Third-Party Defendants Samuel Oliverio and Cheryl Jean Oliverio To G & S Tobbaco [sic] Dealers, LLC and Cindy Woodward's Motion For Summary Judgment [DE 84]; Reply To Response Of Third-Party Defendants Samuel Oliverio And Cheryl Jean Oliverio To G & S Tobacco Dealers, LLC And Cindy Woodward's Motion For Summary Judgement with exhibits [DE 86]; Third-Party Defendants Samuel Oliverio and Cheryl Jean Oliverio's Motion For Summary Judgment with exhibits [DE 83]; Response Of Defendants/Third-Party Plaintiffs In Opposition To Third-Party Defendants Samuel Oliverio and Cheryl Jean Oliverio's Motion For Summary Judgment with exhibits [DE 85]; Third-Party Defendants' Reply To Third-Party Plaintiffs' Response To Third-Party Defendants' Motion For Summary Judgment with exhibits [DE 87]; G & S Tobacco Dealers, LLC and Cindy Woodward's Motion To Strike Oliverios' Reply To Response To Motion For summary Judgment [DE 88]; and Third-Party Defendants Samuel Oliverio and Cheryl Jean Oliverio's Motion To Exceed Page Limit [DE 90]; Third-Party Defendants Samuel Oliverio And Cheryl Jean Oliverio's Response To G & S Tobacco Dealers, LLC And Cindy Woodward's Motion To Strike Oliverio's Reply To Motion For
This matter began as Plaintiff's action against his employer [Woodward] for failure to pay in accord with the Fair Labor Standards Act and, as a consequence, for additional damages under the West Virginia Wage Payment and Collection Act. Once filed, the case expanded into contract claims for indemnification and contribution by the employer [Woodward] against the former owner [Oliverios] of the company that employed Plaintiff.
The following is a statement of the relevant and undisputed facts.
Prior to October 25, 2005, Oliverios owned 100% of G & S Tobacco Dealers, LLC [hereinafter called G & S]. By written agreement dated October 25, 2005 [hereinafter called 2005 Agreement] Oliverios sold 50% of their interest in G & S to Block & Barrel, Inc. [hereinafter called B & B], which was wholly owned by Woodward.
After Block & Barrel's purchase of 50% of G & S, Woodward and Oliverios were each elected managers of G & S [DE 87, Exhibit B]. However, Oliverios continued to manage the day to day operations of G & S including, but not limited to, establishing the wage and hour classifications and compensation policies of all employees.
On September 28, 2006 Jeffrey McDougal, hereinafter called "McDougal", began working as a manager for G & S at one of its business locations.
On July 17, 2007 B & B and Oliverios entered into a written agreement by which B & B [Woodward] purchased all of Oliverios' ownership interests in several companies then involved in the video gaming business
Woodward did not change the wage and hour classifications and compensation policies affecting location managers of G & S hired prior to July 17, 2007 until January 11, 2009.
While Woodward was not involved in the making of business decisions or giving directions to employees of G & S prior to July 17, 2007, Oliverios did not attempt to deprive Woodward of any information concerning the business from October 25, 2005 through July 17, 2007 [DE 83, Exhibit B].
Oliverios were not involved in the operations and management of G & S after the July 17, 2007 agreement was signed and the sale to B & B [Woodward] was closed.
McDougal filed suit against G & S and Woodward on August 26, 2008 claiming wages and damages for allegedly having
McDougal did not initially join Oliverios as defendants in his complaint. However, after Oliverios were brought into the action by Woodward as Third Party Defendants, McDougal filed a cross claim against Oliverios.
By letters dated September 12, 2008 and December 1, 2008 Woodward notified Oliverios of the McDougal suit and demanded that Oliverios provide a defense and indemnification under the agreement [DE 82, Exhibit C and D].
By letter dated July 15, 2009 addressed to Michelle Widmer Eby, former lawyer for Oliverios, Woodward's counsel placed Oliverios on notice that Woodward would be withholding payments on the contract purchase price for use in defending, paying or settling the claims being made by McDougal.
After the McDougal suit was filed, Woodward conducted an investigation. On January 11, 2009 Woodward reclassified all G & S High Life Lounge location managers as non-exempt hourly employees.
Subsequent to the filing of the McDougal suit, 22 similar suits
Of the 22 similar pending suits, 7 were filed by employees who were not employed by G & S prior to July 17, 2007 and while G & S was owned, whole or in part, by Oliverios.
Pursuant to F.R.Civ.P. 68, on October 14, 2009 Woodward made an offer of judgment to McDougal in the sum of $60,000 which was accepted. Pursuant to a request for the entry of judgment, dated October 22, 2009 [DE 72], judgment was entered against G & S and Woodward on October 23, 2009 [DE 73].
November 3, 2009 Oliverios settled all of McDougal's cross-claims for damages arising during the period of his employment with G & S while Oliverios had an ownership interest in the company, to wit: up to July 17, 2007. The settlement amount was $14,500. Oliverios did not admit any liability. [DE 83, Exhibit D].
On November 10, 2009, based on representations made that McDougal's cross-claims against Oliverios had been compromised and settled, those claims were dismissed with prejudice [DE 82, Exhibit J]. This left pending only the contribution and indemnification claims made in the Third-Party Complaint.
In the Third-Party Complaint, Woodward and G & S claim: Count I—contractual indemnification and/or contribution from Oliverios based on alleged misrepresentations made by Oliverios in paragraph 5.5(A) of the 2007 agreement and failure to comply with the obligations to indemnify and defend under paragraph 8.2 of that agreement; Count II—damages for Oliverios failures as the alleged sole manager of G & S through July 20, 2007 to comply with the FLSA in violation of their common law and/or statutory duties of care
A. Woodward generally contends:
B. Oliverios Contend:
Simply stated, the issues pending before the Court are:
Summary judgment is appropriate "if there is no genuine issue of material fact." Charbonnages de France v. Smith, 597 F.2d 406 (4th Cir.1979). An issue is genuine "if the evidence is such that a reasonable jury could return a verdict for the non-moving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The party seeking summary judgment has the initial burden to show absence of evidence to support the nonmoving party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). This burden does not require the moving party to show evidence that proves absence of a genuine issue of material fact, but only to point out its absence. Id.
The burden then shifts to the party opposing the motion. The adverse party may not rest upon mere allegations or denials, Anderson, 477 U.S. at 248, 106 S.Ct. 2505, and summary judgment is appropriate if the adverse party fails to show, under Rule 56, the existence of an element essential to that party's case. Celotex, 477 U.S. at 322, 106 S.Ct. 2548. A mere scintilla of evidence supporting the case is insufficient. Anderson, 477 U.S. at 252, 106 S.Ct. 2505. With regard to the burden on the adverse party, Rule 56(e) provides in part that:
In evaluating a motion for summary judgment, "[t]he evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor." Anderson, supra at 255, 106 S.Ct. 2505. The parties in this case stipulate and insist there are no issues of fact.
With these standards and the parties stipulation in mind, the Court will proceed with an analysis of the issues raised by the pending cross-motions for summary judgment.
Woodward's state common law claims of contractual and implied indemnification
On the same date the parties argued the instant cross-motions for summary judgment before this Court, the Fourth Circuit Court of Appeals published its decision in Equal Rights Center, et al v. Archstone Multifamily Series I Trust, et al, 09-1453.
The following facts and claims of Archstone are analogous to the facts and claims of the instant case: Archstone hired architect Bolton to design multi-family apartment buildings which Archstone then had various contractors build. Of the units constructed, Equal Rights Center, et al alleged 71 failed to be constructed so that they were accessible to persons with disabilities in violation of FHA and ADA. Archstone and the Equal Rights Plaintiffs entered into a Consent Decree which required Archstone to retro-fit the 71 units to make them ADA and FHA compliant and to pay 1.4 million in damages and attorneys fees and expenses. Bolton did not join in the settlement but later entered into a separate consent decree with the Equal Rights Plaintiffs which did not include any admission of liability. Archstone cross-claimed against Bolton seeking damages based on state law causes of action: express indemnity; implied indemnity; breach of contract; and professional negligence.
Obstacle preemption has been extended to state tort claims as well as positive enactments of state law. Id. citing Geier v. Am. Honda Motor Co., 529 U.S. 861, 120 S.Ct. 1913, 146 L.Ed.2d 914 (2000).
Finding Archstone's indemnification claims were preempted, the Court held: Here, Archstone sought to allocate the full risk of loss to Niles Bolton for the apartment buildings at issue. Allowing an owner to completely insulate itself from liability for an ADA or FHA violation through contract diminishes its incentive to ensure compliance with discrimination laws. If a developer of apartment housing, who concededly has a non-delegable duty to comply with the ADA and FHA, can be indemnified under state law for its ADA and FHA violations, then the developer will not be accountable for discriminatory practices in building apartment housing. Such a result is antithetical to the purposes of the FHA and ADA.
The Court further held Archstone's last minute attempt to amend its cross-claim was properly denied as prejudicial to Bolton. Moreover, the Court held: "As presented on appeal, the claim which Archstone presents in its amended complaint is a de facto indemnification claim, and such a claim is preempted under federal law. Therefore, allowing Archstone to amend under these circumstances to include a so-called contribution claim is, in any event, futile."
A number of cases have addressed the issue of whether there is a right to contribution or indemnification for employers held liable under the FLSA and have held there is none. Herman v. R.S.R. Security Servs. Ltd., 172 F.3d 132, 143 (2nd Cir. 1999). Relying on the rationale expressed in Northwest Airlines, Inc. v. Transport Workers Union of America, AFL-CIO, 451 U.S. 77, 101 S.Ct. 1571, 67 L.Ed.2d 750 (1981),
In Herman, Portnoy contended that even if the FLSA did not permit contribution or indemnification, those claims could be prosecuted under New York law in much the same way Woodward contends she should be permitted to prosecute claims for indemnification against Oliverios under West Virginia law. The Herman Court held: "This view of the law is flawed because the FLSA's remedial scheme is sufficiently comprehensive as to preempt state law in this respect." Herman v. R.S.R. Security Servs. Ltd., supra at 144.
The Fourth Circuit held in the 1992 case of Lyle v. Food Lion, Inc. 954 F.2d 984, 987: "In effect, Food Lion sought to indemnify itself against Tew for its own violation of the FLSA, which the district court found, and we agree, is something the FLSA simply will not allow. As the fifth Circuit has noted, `[t]o engraft an indemnity action upon this otherwise comprehensive federal statute would run afoul of the Supremacy Clause of the Constitution' and `would undermine employers' incentives to abide by the Act. LeCompte v. Chrysler Credit Corp., 780 F.2d 1260, 1264 (5th Cir.1986).'"
In the instant suit, Oliverios were the employers of McDougal prior to July 17, 2007 and therefore responsible for any FLSA and WPCA claims arising for work performed by McDougal up to July 17th. However, Woodward uses the warranty and indemnification clauses of the 2007 contract in an attempt to hold Oliverios liable for Woodward's failure to pay McDougal FLSA wages after July 17, 2007. In the alternative to the contract indemnification claim, Woodward attempts to shift ultimate responsibility for payment of post July 17, 2007 FLSA wages to Oliverios using equitable principles. In every event, Woodward seeks to delegate her duty to comply with the FLSA to Oliverio for all wages and damages owed including those starting with the contract closing on July 17, 2007. This she cannot do. The FLSA does not contain language that provides for such indemnification or contribution. Woodward is not a member of the class protected by the FLSA. The FLSA is a comprehensive remedial statute designed to give employees the right to sue their employers for violations of the act. This is precisely what McDougal did in bringing his action against Woodward. Herman, supra at 144. This court cannot and will not engraft an indemnity clause on the FLSA where there is none. LeCompte, supra at 1264.
Accordingly, the Court concludes that Woodward's Third Party Plaintiff claims against Oliverios for indemnification or contribution to McDougal's FLSA claims arising post July 17, 2007 whether the same are based on contractual or equitable contribution, indemnification, breach of contract, breach of warranty, agency, or another state contract or equity claim, are preempted by the provisions of the FLSA; are antithetical to the purpose of the FLSA; undermine the public policy established by the FLSA; and are barred by the doctrines of Conflict and Obstacle Preemption.
Even if Woodward, in light of the absence of the availability of contribution and/or indemnification for the FLSA
Moreover, even if the Woodward claims against Oliverios were not so barred, the very contract on which those claims are made militates against recovery for any FLSA and WPCA damages accruing post July 17, 2007.
Under Paragraph 5.5(A) of the July 17, 2007 agreement in issue Oliverios represented: "Each Company and Sellers
Paragraphs 8.1 and 8.2 of the same agreement provide:
"A valid written instrument which expresses the intent of the parties in plain and unambiguous language is not subject to judicial construction or interpretation but will be applied and enforced according to such intent." McGraw v. American Tobacco Co., 224 W.Va. 211, 681 S.E.2d 96 (2009) citing: Cotiga Development Co. v. United Fuel Gas Co., 147 W.Va. 484, 128 S.E.2d 626 (1962). The mere fact that parties do not agree to the construction of a contract does not render it ambiguous. The question as to whether a contract is ambiguous is a question of law to be determined by the court. Berkeley County Public Service Dist. v. Vitro Corp. of America, 152 W.Va. 252, 162 S.E.2d 189, 200 (1968) citing: Whiting Stoker Co. v. Chicago Stoker Corporation, 171 F.2d 248 (7th Cir.1949).
The language of the July 17, 2007 contract is clear and unambiguous. In the contract, Oliverios warranted they "have complied with all applicable laws, rules, regulations and ordinances of any governmental agency or body with respect to the conduct of their business." By the words "have complied", it is plain the Oliverios were warranting compliance up to and as of the date of the contract. There is no language that they would so comply post closing when they no longer had any ownership interest in or control over the operations of the businesses they sold to Woodward. It is undisputed that Woodward took full ownership and control of the businesses from Oliverios on July 17, 2007. Woodward therefore had the duty to see that the wages accruing to employees from July 17, 2007 forward were properly paid.
The mere fact that Woodward attempts to extend Oliverios' liability to cover wages after July 17, 2007 claiming Oliverios' representation they were in compliance with laws caused Woodward to have a false sense of security and to follow in Oliverios ill fated footsteps with respect to how managers were paid after July 17th does not make the contract ambiguous. Public Service Dist. v. Vitro Corp. of America, Id.
To so hold permits Woodward to make a de facto claim for indemnification or contribution where a direct claim for such relief is not permitted. It also undermines the employers' (Woodward's) incentives to abide by the Act. LeCompte v. Chrysler Credit Corp., supra. It is also a misapplication of the plain and unambiguous language of the contract.
It is undisputed that Oliverios breached the warranty in the 2007 contract that they had complied with all applicable laws with respect to the conduct of the businesses. The Oliverios failed to properly pay wages due employees for work performed prior to July 17, 2007. Under the October 25, 2005 agreement wherein Oliverios sold 50% of their interest to Woodward retaining the remaining 50%, the agreement provided that Oliverios would "remain primarily responsible for the day-to-day operations of the companies for so long as Seller [Oliverios] owns an interest in the Companies." In fact, Oliverios did continue to run the day to day operations of the companies until they sold their remaining interest to Woodward on July 17, 2007. While each contract (2005 and 2007) stands on its own, this language in the 2005 contract clearly shows the intent that Oliverios remain responsible for operation of the businesses and, by extension, responsible for any failure to pay (McDougal) FLSA wages and WPCA damages up to July 17, 2007. Their accountability for this particular failure survives the July 17, 2007 closing. However, Oliverios are not liable for Woodward's failures to properly and timely pay employees for work performed after July 17, 2007. With the execution of the contract on July 17, 2007,
Promissory Estoppel is not pled as a theory of liability or basis of recovery in the Third-Party Complaint. Therefore, it is not considered.
During oral argument of the cross-motions for summary judgment, counsel for Woodward and G & S all but conceded that the success or failure of their indemnification claim rises or falls on the Court's interpretation of the 2007 contract.
In the absence of the contract, promissory estoppel could have been pleaded. However, there is a valid and enforceable contract on which Woodward and G & S rely. Everett v. Brown, 174 W.Va. 35, 321 S.E.2d 685, 686, syl. pt. 3 (1984).
Accordingly, equitable claims of promissory estoppel are unavailing to Woodward.
Paragraph 8.2 of the 2007 contract is not ambiguous with respect to Oliverios' duty to defend Woodward. McGraw v. American Tobacco Co., supra.
Pursuant to paragraph 8.2 (quoted above), Oliverios assumed a contractual obligation to defend Woodward against any claim for liability arising from its breach of warranty or by any "inaccurate or erroneous representation" Oliverios made in the agreement. This obligation included "indemnifying [Woodward] for any and all costs incurred, including attorney's fees, ...." Under the agreement Woodward could require Oliverios to defend with counsel acceptable to Woodward or simply hire their own counsel and thereafter seek reimbursement for the same.
For purposes of these cross-motions for summary judgment, there is no dispute that Oliverios breached paragraph 5.5(A) of the agreement. As previously noted, up to the and including the July 17, 2007 closing, Oliverios had not complied with "all applicable laws, rules, regulations, and ordinances of any governmental agency or body with respect to the conduct of their business" as represented. Oliverios were not in compliance with FLSA wage payments to McDougal and as a result were not in compliance with WPCA obligations.
It is undisputed after McDougal filed his complaint on August 28, 2008, Woodward sought defense and indemnification from Oliverios:
The Court finds and concludes that: 1) McDougal's filing suit against Woodward et als under the FLSA and WPCA for sums due, including sums due
Woodward moved to strike Oliverios' reply to Woodward's response to the motion for summary judgment because the reply was filed outside of the time limits prescribed under L.R.Civ.P. 7.02(b)(2) and exceeded the 15 page limit established under L.R.Civ.P. 7.02(b)(3).
L.R.Civ.P. 7.02(b)(2), as applicable at the time of these filings, provides: "(2) Memoranda in Response: The memoranda in response may not exceed 25 pages and is subject to the restrictions set forth in LR Civ P 7.02(a) regarding paper, font size, and line spacing." L.R.Civ.P. 7.02(b)(3), as applicable at the time of these filings, provides: "The reply memoranda may not exceed 15 pages, subject to the restrictions set forth in LR Civ P 7.02(a) regarding paper and font size and line spacing."
The Third-Party Defendants' Reply To Third-Party Plaintiffs' Response To Third-Party Defendants' Motion For Summary Judgment was filed February 2, 2010 and is 22 pages in length, excluding exhibits. No prior permission to exceed the 15 page limitation or to file out of time was sought by Third-Party Defendants until after the motion to strike was filed.
Notwithstanding the untimeliness and excessiveness of paper, Woodward's arguments are largely rendered moot because of the Court's reliance on the doctrine of obstacle preemption in deciding the issue of the parties ability to contractually allocate risks amongst themselves. By relying on obstacle preemption, the Court found it unnecessary to consider the arguments raised by Oliverios in the challenged reply.
The Court is a strong believer that the rules of the Court exist to create order out of chaos. Therefore, it is imperative that those rules be followed.
For that reason alone, the Court strikes Oliverios' reply in accord with Woodward's motion.
For the reasons stated herein Defendants/Third Party Plaintiffs' Motion For Summary Judgment [DE 82] is
G & S Tobacco Dealers, LLC and Cindy Woodward's Motion To Strike Oliverios' Reply To Response To Motion For Summary Judgment [DE 88] is
The Clerk is directed to remove DE 83 and DE 88 from the docket of motions actively pending before the Court. The Clerk is further directed to leave DE 82 on the docket of motions actively pending before the Court, the same not having been fully decided.
It is so
The implied indemnity claim rests on the principle that Bolton "bears a substantially greater share of responsibility for any failure of the Properties to be designed according to the requirements of the FHA and the ADA, given Bolton's superior knowledge, skill and involvement in the design of the properties."
The breach of contract claim is based on claims that Bolton breached the warranties under its contracts with Archstone by failing to design properties that were ADA and FHA compliant.
The professional liability claim was based on Bolton's failure to exercise that level of professional skill and care required of an architect to design the properties in question to be ADA and FHA compliant.