Opposition Brief — Grim Hotel Co. v. Brock

¢

“Supreme Court, U.S.

~ pases * E D

Y

het? 85

No. 84-1376~ wAY 6

ESAS |. STEVAS,

CLERK

In the Supreme Court of the Hnited-States

OCTOBER TERM, 1984

GRIM HOTEL COMPANY, ET AL., PETITIONERS

Vv.

WILLIAM E. Brock, SECRETARY OF LABOR, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS FOR

THE FIFTH CIRCUIT

BRIEF FOR THE RESPONDENTS IN OPPOSITION

Rex E. LEE

Solicitor General

Department of Justice

Washington, D.C. 20530

(202) 633-2217

FRANCIS X. LILLY

Solicitor of Labor

KAREN I. WARD

Associate Solicitor .

Caro A. De DEo

Counsel for Appellate Litigation

JAMES Y. CALLEAR

Attorney

Department of Labor

Washington, D.C. 20210

QUESTIONS PRESENTED

1. Whether five corporations, all engaged in the hotel

business and controlled by the same individual, are an

“enterprise” within the meaning of Section 3(r) of the Fair

Labor Standards Act, 29 U.S.C. 203(r).

2. Whether a corporate officer who exercises significant

day-to-day control over the affairs of a business, including

decisions over wages, is an “employer” within the meaning

of Section 3(d) of the Fair Labor Standards Act, 29 U.S.C.

203(d).

3. Whether the district court properly exercised jurisdic-

tion, under a state long-arm statute, over a non-resident

corporate officer who was engaged in substantial in-state

activities.

(I)

TABLE OF CONTENTS

Page

EE 505 one noth eee cn 0d5enb enaer secene |

ee oe nd see ous eb eiaedeweds l

Ne ae ee eh kee baaeae 1

cai ce La Rw Ath WN OOA0b O0608 404560008006 4

ee Se eat an ein de eadin's 66a na cies sees &

TABLE OF AUTHORITIES

Cases:

Brennan v. Plaza Shoe Store, Inc.,

ed ol sc ee enesec's 5

Brennan v. Veterans Cleaning Service, Inc.,

Ae US cw eens wees neees's 5

Calder v. Jones, No. 82-1401

eet hehbse Cheek eeensees 8

DeMelo v. Touche Marine, Inc.,

eke beneses 8

Donovan v. Agnew, 712 F.2d 1509 .......... 6,7

Donovan v. Janitorial Services, Inc.,

ewe weeeetsbe 5

Donovan v. Sabine Irrigation Co.,

531 F. Supp. 923, aff'd, 695 F.2d 190,

cert. denied, 463 U.S. 1207 .............. 4, 6,7

Donovan v. Sideris, 688 F.2d 74 ............4.. 6

Falk v. Brennan, 414 U.S. 190 .................. 6

Goldberg v. Whitaker House Cooperative,

Oe Ae Wicd OE hve nce des Sieeowekeesa se vaae 6

IV

Cases—Continued:

Hodgson v. University Club Towers, Inc.,

DP ch baknsrddiekudesehGbiesseness 5

Marshall v. McAlester Corp., No. 78-1303

(10th Cir. Mar. 7, 1980), cert. denied, 449

Ca NE SSbN SARE NDNE EES Rdg dn ese cen seccces 4

Schultz v. Mack Farland & Sons Roofing

Ci See EE Reached Kade cdnadenccces 6

Tony & Susan Alamo Foundation v. Secretary

of Labor, No. 83-1935 (Apr. 23, 1985) ........ 6

Statutes:

Fair Labor Standards Act, 29 U.S.C. 201

et seq. :

Oe Ws ODS ewdne nt ceeweneens 3

es Ee ND een ccdcccccccasde 2,3

SD a Ga MEE ‘uve cagasnccacssecas 3

aM Meds 6 oceans snnnessecees 2

at SR ME. oti cenwancaess caneccecs 2

§ 1Gfe), 2D U.S.C. ZIGf]) oc nscccsccccecesss 2

Ee a netdacbusiccekece vas 2

Tex. Rev. Civ. Stat. Ann. (Vernon 1964):

PR D Swdsclececsusecvccunsteasic tas 2

Bebe BOG oni aang at eden Wer 7-8

Iu the Supreme Court of the Hunited States

OCTOBER TERM, 1984

No. 84-1376

GriIM HOTEL COMPANY, ET AL., PETITIONERS

Vv.

WILLIAM E. Brock, SECRETARY OF LABOR, ET AL.

ON PETITION FORA WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS FOR

THE FIFTH CIRCUIT

BRIEF FOR THE RESPONDENTS IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. E1-E20) is

reported at 747 F.2d 966. The district court’s opinions (Pet.

App. Cl1-C22 and D1-D4) are unreported.

JURISDICTION

The judgment of the court of appeals was entered on

December 3, 1984, and the petition for a writ of certiorari

was filed on March 1, 1985. The jurisdiction of this Court is

invoked under 28 U.S.C. 1254(1).

STATEMENT

The Secretary of Labor brought suit against five hotels

and their president, alleging that the hotels failed to pay the

minimum wage and overtime compensation to their employ-

ees, as required by the Fair Labor Standards Act (FLSA).

The district court rejected petitioners’ arguments that the

hotels are not an “enterprise”covered by the Act, that the

(1)

2

president is not an “employer” under the Act, and that the

court lacked jurisdiction over the president. It held that

petitioners had violated the Act (Pet. App. C1-C22, Di-

D4). The court of appeals affirmed (Pet. App. E1-E20).

Petitioner Charles Alberding, a resident of Chicago, IIli-

nois, is founder and president of the five petitioner corpora-

tions, each of which owns a hotel located in Texas (Pet.

App. E7). The Secretary of Labor brought suit in the United

States District Court for the Eastern District of Texas,

under Sections 16(c) and 17 of the Act, 29 U.S.C. 216(c) and

217, to enjoin the hotels and Alberding from violating the

minimum wage and overtime provisions of the FLSA and

to obtain damages (Pet. App. E5-E6). The hotels admit-

tedly failed to comply with the minimum wage and overtime

provisions of the FLSA.'

Alberding moved to dismiss the complaint for lack of

personal jurisdiction under the Texas long-arm statute,

Tex. Rev. Civ. Stat. Ann. art. 2031b (Vernon 1964). The

court denied the motion in 1981. It found that Alberding

was “clearly ‘doing business’ in Texas” for purposes of

personal jurisdiction under the long-arm statute and that he

had “purposefully availed himself of the benefits and pro-

tections of Texas law.” Therefore, the court held that the

exercise of “personal jurisdiction over him * * * does not

offend the constitutional requirement of due process of

law.” Pet. App. D3-D4.

A trial on the issue of liability followed. The hotels

argued that they are not an “enterprise” under Section 3(r)

of FLSA, 29 U.S.C. 203(r). The Act applies to enterprises

'The hotels paid employees working as desk clerks and maids any-

where from $1.30 to $2.30 per hour, significantly less than the minimum

wage rate in effect. The hotels did not pay a premium for overtime work,

so employees who worked over 40 hours per week did not receive one

and one-half times their normal rate of pay as required by the Act. Pet.

App. C1-C2, E6; 29 U.S.C. 206, 207.

3

with an annual gross volume of business of at least the

amount specified in Section 3(s), 29 U.S.C. 203(s). The

parties stipulated that each of the hotels, individually, had

an annual gross of less than the jurisdictional amount but

that, cumulatively, their annual gross exceeded that amount.

Pet. App. E8. The district court held, in 1983, that the five

hotels constituted an enterprise because they engaged in

related activities (Pet. App. C9-C13), they shared a com-

mon business purpose (id. at C13-C15), and they were

subject to centralized control (id. at C15-C17). The district

court also held that Alberding was an “employer” under

Section 3(d) of the FLSA, 29 U.S.C. 203(d), finding that he

“exercised ultimate control” over the business activities of

the hotels. Pet. App. C17-C20. The court held that petition-

ers had violated the Act willfully and were therefore liable

for three years’ back pay (id. at C20-C21). It enjoined future

violations as well (id. at B1-B2).

The court of appeals affirmed (Pet. App. E1-E20). It

found that the “hotels were centrally directed, connected,

and interdependent” (id. at Ell). The court noted that

separate incorporation of the hotels did not exclude them

from coverage under the FLSA. Because, in fact, they

“operated as a single enterprise performing related activities

through a common control,” the court held that they were

an enterprise under Section 3(r) of the FLSA, 29 U.S.C.

203(r) (Pet. App. E12).

On the issue of whether Alberding was an “employer”

under the FLSA, the court of appeals found that he con-

trolled the hotels and their purse-strings, guided their poli-

cies, personally selected their managers, and traveled to

Texas to inspect them and resolve major problems. The

court concluded that “the hotels, speaking pragmatically,

4

were Alberding’s and functioned for the profit of his fam-

ily.” Pet. App. E13-E14.?

The court of appeals also rejected Alberding’s contention

that the district court erred in denying his motion to dismiss

for lack of personal jurisdiction, noting that Alberding’s

personal presence in Texas and his personal acts in connec-

tion with the hotels “were not insubstantial” (Pet. App.

14-E16), so that exercise of jurisdiction over Alberding

under the Texas long-arm statute comported with due pro-

cess (id. at E17-E18).

ARGUMENT

The court of appeals correctly applied well-settled legal

principles to the facts of this case. Its decision ¢s not

conflict with any decision of this Court or of another court

of appeals. Petitioners’ arguments that the hotels are not an

“enterprise” and that Alberding is not an “employer” are

based largely on their disagreement with the district court's

factual findings, which the court of appeals concluded were

correct, and do not warrant further review. Alberding's

argument that the district court lacked jurisdiction over him

is without merit.

1. Petitioners argue (Pet. 12-13) that the hotels are not an

enterprise because they are not engaged in “related activi-

ties.” Petitioners argue, primarily, that the hotels are not

related because the ratio of long-term guests to short-term

?The court noted (Pet. App. E7-E8 n.3) that it had, in a prior case,

found Alberding to be an employer responsible for minimum wage and

overtime pay violaticas of a Louisiana corporation that he controlled.

Donovan v. Sabine érvigation Co., 695 F.2d 190, 195 (Sth Cir.), cert.

denied, 463 U.S. 1207 (1983). In addition, the Tenth Circuit has found

Alberding responsible for minimum wage and overtime pay violations

at Oklahoma hotels that he controlled. Marshall v. McAlester Corp.,

No. 78-1303 (Mar. 7, 1980) (unpublished), cert. denied, 449 U.S. 828

(1980).

5

guests differs among the hotels. As the court of appeals

concluded (Pet. App. E9), this does not change the essential

nature of the hotels’ business. 7*.2 court properly found that

“businesses, calling themselves hotels and operating as

hotels, whether their guests stay a short or long while, are

engaged in related activities for the purpose of the Act”

(Pet. App. E9). See Donovan v. Janitorial Services, Inc.,

672 F.2d 528, 529-530 {Sth Cir. 1982); Brennan v. Plaza

Shoe Store, Inc., 522 F.2d 843, 847-848 (8th Cir. 1975). See

also Brennan v. Veterans Cleaning Service, Inc., 482 F.2d

1362, 1366-1367 (Sth Cir. 1973).°

Contrary to petitioners’ further contention (Pet. 13-14),

the hotels were clearly “commonly controlled,” since they

“were centrally directed, connected, and interdependent”

(Pet. App. Ell). Petitioners argue with the court's factual

conclusions in this regard by pointing to the separate incor-

poration of each of the hotels and the Albercing family's

hypothetical control over the hotels by virtue of its stock

ownership. But corporate fragmentation of the businesses

that make up an enterprise does not exclude coverage under

the FLSA. As the court of appeals concluded, the separate

incorporation of each of the hotels and their stock owner-

ship were a “formality” and in practice the hotels were

“centrally controlled by and operated as a singie group”

4

‘Contrary to petitioners’ assertion (Pet. 12), there is no conflict

between bus case and Hodgson v. University Club Towers, Inc., 466

F.2d 745 (i0th Cir. Cir. 1972). The court in Hodgson held that the

activities of a corporation engaged exclusively in the operation of a

hotel and those of a corporation engaged exclusively in the operat.on of

apartment houses were not “related” within the meaning of the FLSA

(id. at 746). Here, in contrast, petitioners made no showing that the

units at any of the hotels were under lease to permanent residents for

extended periods. Furthermore, in Hodgson, there was a lack of other

factors that would have led to a finding of enterprise coverage, such as

employee interchange, common bookkeeping, and unified manage-

ment — factors thai are all present in this case.

6

(Pet. App. Ell). See Donovan v. Sideris, 688 F.2d 74,

75-76 (8th Cir. 1982); Donovan v. Sabine Irrigation Co.,

695 F.2d at 194-195; Schultz v. Mack Farland & Sons

Roofing Co., 413 F.2d 1296, 1299-1301 (Sth Cir. 1969). In

any event, this factual issue does not warrant the Court’s

attention.

2. Petitioners also assert (Pet. 6-8) that Alberding was

not an “employer” within the meaning of 29 U.S.C. 203(d).

Once again, petitioners’ argument is based largely on their

disagreement with the factual findings made by the district

court and affirmed by the court of appeals.

In determining whether the evidence established that

Alberding was an employer, the courts properly examined

the “economic realities of employment.” Donovan v.

Agnew, 712 F.2d 1509, 1510 (Ist Cir. 1983); Donovan v.

Sabine Irrigation Co., 695 F.2d at 193. See also Tony &

Susan Alamo Foundation v. Secretary of Labor, No. 83-

1935 (Apr. 23, 1985), slip op. 10; Goldberg v. Whitaker

House Cooperative, Inc., 366 U.S. 28, 33 (1961). An indi-

vidual is deemed to be an “employer” under the FLSA when

he has “substantial control of the terms and conditions of

the work of * * * employees” (Falk v. Brennan, 414 U.S.

190, 195 (1973)). As the district court stated (Pet. App. C19,

quoting Donovan v. Sabine Irrigation Co., 695 F.2d at

194-195), the definition of “employer” in the FLSA is “suf-

ficiently broad to encompass an individual who, though

lacking a possessory interest in the ‘employer’ corporation,

effectively dominates or otherwise acts, or has the power to

act, on behalf of the corporation vis-a-vis its employees.”

Here, Alberding controlled the hotels’ purse-strings, guided

their policies, chose their managers, and traveled to Texas

to inspect them and solve their major problems. Only he

could have authorized compliance with the minimum wage

7

and overtime compensation provisions of the FLSA.‘ The

court of appeals concluded that it could not “imagine firmer

proof of Alberding’s ‘employer’ status” (Pet. App. E13 &

n.7).

Contrary to petitioner’s assertion (Pet. 6), the court did

not apply a “strict liability” test for corporate officers for

FLSA violations, nor is that the effect of the court’s deci-

sion. Rather, the court fully examined Alberding’s relation-

ship to the hotels in accord with settled legal principles

before concluding that he was an employer within the mean-

ing of the FLSA. See Donovan v. Sabine Irrigation Co.,

695 F.2d 190, 194-195 (Sth Cir. 1983), affg 531 F. Supp.

923, 928-929 (W.D. La. 1981), cert. denied, 463 U.S. 1207

(1983).° Further review of these factual issues is clearly

unwarranted.

3. As the court of appeals held (Pet. App. E14), petition-

ers’ argument that the district court had no personal juris-

diction over Alberding “is patently without merit.” There is

no doubt that Alberding was doing business in Texas, as

‘The court of appeals noted (Pet. Apo. E13 n.7) that petitioners

dispute the finding that Alberding controlled employees’ wages, but

concluded that the district court’s finding, based on credited testimony

regarding Alberding’s ultimate control of major expenditures, was “far

from clearly erroneous.” The court of appeals also noted that, even if

the district court e in admitting the hearsay evidence that wage

increases required rding’s approval, the error was harmless (Pet.

App. E7 n.2).

5 onovan v. Agnew, 712 F.2d 1509, 1513 (Ist Cir. 1983), cited by

petitioners to support their argument that the court improperly found

Alberding to be an “employer,” actually supports the decision of the

court of appeals in this case. The court of appeals in Agnew found two

corporate officers to be personally liable for FLSA violations where the

officers “had operational control of significant aspects of the corpora-

tion’s day to day functions, including compensation of employees” (712

F.2d at 1514). The similar factual findings in this case support the

conclusion that Alberding is an “employer.”

8

required by the Texas long-arm statute, Tex. Rev. Civ. Stat.

Ann. art. 2031b $ 4 (Vernon 1964). He hired the hotel

managers, regularly traveled to Texas in connection with

operation of the hotels, and made loans to the hotels (Pet.

App. E15). Nor were these actions taken solely by Alber-

ding in his corporate capacity, since he was an “employer”

under the FLSA, personally had control of the terms and

conditions of employment of Texas employees, and was

personally present in Texas (Pet. App. E16). Contrary to

petitioners’ contention (Pet. 9), there is nothing “fundamen-

tally unfair” about the court’s assertion of jurisdiction over

a corporate officer because of actions outside of the state

that directly affect empioyees in the state where jurisdiction

is asserted. See Calder v. Jones, No. 82-1401 (Mar. 20,

1984). See also DeMelo v. Touche Marine, Inc., 711 F.2d

1260, 1272 (Sth Cir. 1983).

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.

Rex E. Lee

Solicitor General

FRANCIS X. LILLY

Solicitor of Labor

KAREN I. WARD

Associate Solicitor

CaroL A. DE DEo

Counsel for Appellate Litigation

JAMES Y. CALLEAR

Attorney

Department of Labor

May 1985

DO}J-1985-05