Medrano v. Flowers Food, Inc. et al

REPLY to Response to Motion re MOTION to Exclude the Testimony of Plaintiff's Expert Under Federal Rule of Evidence 702

D.N.M.February 22, 2019

UNITED STATES DISTRICT COURT DISTRICT OF NEW MEXICO PAUL MEDRANO, on his own behalf and on behalf of all others similarly situated, Plaintiffs, vs. FLOWERS FOODS, INC., and FLOWERS BAKING CO. OF EL PASO, LLC, Defendants. § § § § § § § § § § § Case No. 1:16-CV-00350-JCH-KK DEFENDANTS’ REPLY IN SUPPORT OF MOTION TO EXCLUDE THE TESTIMONY OF PLAINTIFFS’ EXPERT UNDER FEDERAL RULE OF EVIDENCE 702 Dr. McDonald submitted an expert report in this case that did not seek to answer any question relevant to the Plaintiffs’ claims. As a matter of settled law, damages in FLSA1 cases are calculated based on the compensation a (putative) employee actually earned, not on the compensation paid to other employees. Because Dr. McDonald’s calculations are based on an aggregate average wage paid to all “truck drivers” (whoever they may be employed by) and not based on the compensation actually earned by the Plaintiffs in this case, they do not fit the claim, are irrelevant and inadmissible. So, too, are Dr. McDonald’s calculations supporting the recovery of business expenses. Dr. McDonald admits that he calculated these expenses because “Plaintiffs contend these expenses should not have been born by them, but by the employer.” Doc. 170 at 1. But business expenses are not recoverable under the FLSA. The Court should exclude Dr. McDonald’s testimony. 1 Plaintiff Medrano has also asserted an individual claim under the New Mexico Minimum Wage Act. Case 1:16-cv-00350-JCH-KK Document 176 Filed 02/22/19 Page 1 of 8 2 I. THE COURT MUST EXCLUDE DR. MCDONALD’S BACK WAGE CALCULATIONS We start with an uncontroversial point of settled law. To calculate the amount of overtime due an employee, one must first determine the employee’s actual “regular rate of pay.” See 28 C.F.R. § 778.108. The regular rate is “drawn from . . . the employment contract.” Id. It is determined by dividing the total amount paid by the employer by the hours actually worked by the employee. 28 C.F.R. § 778.109. The regular rate is based on the “actual fact” of what is paid to the employee, not some arbitrary number. Walling v. Youngerman-Reynolds Hardwood Co., 325 U.W. 419, 424-25 (1945). See also Chavez v. City of Albuquerque, 2007 WL 8043104 at *9 (D.N.M Aug 10, 2007). Dr. McDonald did not calculate back pay based on what Plaintiffs actually earned. Instead, he based his calculations on what Plaintiffs deem a “market wage,” which he derived from a national average of “truck driver” pay. See Doc. 170 at 5. Plaintiffs justify Dr. McDonald’s failure to conform his analysis to the law, which has been settled for nearly 75 years, by cryptically suggesting that Dr. McDonald’s testimony is a permissible “estimation,” which, they urge, is permissible because Defendant’s compensation data does not reflect actual compensation. Doc. 170 at 8. Plaintiffs are wrong on the facts and the law. First, Dr. McDonald disagrees with Plaintiffs’ suggestions that they do not have actual compensation data because he admits he received data reflecting the “actual cash amount” paid each distributor each week. See McDonald Report at 6. Second, the cases that Plaintiffs offer as authority for the proposition that they may base overtime calculations on an average wage paid to other individuals engaged by other employers say no such thing. Case 1:16-cv-00350-JCH-KK Document 176 Filed 02/22/19 Page 2 of 8 3 In Donovan v. United Video, Inc., 725 F.2d 577 (10th Cir. 1984), the Department of Labor introduced evidence of hours worked2 based on payroll records and testimony. Id. at 584. It did not calculate back pay based upon average compensation paid to other employees and nothing in Donovan suggests such an approach is proper.3 Nor does Perez v. ZL Rest. Corp., 81 F.Supp.3d 1062 (D.N.M. 2014), help Plaintiffs. To the contrary, Perez actually cites the rule that the regular rate of pay must be determined by looking to the actual compensation paid under the employment agreement. Id. at 1072. In that case, though, because the regular rate the employer paid was less than the Santa Fe “living wage” of $9.85 per hour, the court used this legal standard to calculate overtime. Id. at 1073. It did not reference some arbitrary average wage paid to other employees in a similar industry. In the absence of authority purporting to contradict the plain language of the federal regulations and nearly 75 years of case law, Plaintiffs next suggest that the court should overlook their expert’s failure to fit his opinion to the issues in this case by noting that Defendants’ retained expert, labor economist Dr. Paul White, used a purported “similar” methodology to that employed by Dr. McDonald in his report. But this claim is misleading4 and ignores the reason Defendants offered Dr. White’s testimony. 2 Dr. McDonald did not estimate hours worked. He simply accepted Plaintiffs’ counsel’s statement of how many hours Plaintiff Medrano worked each week. See Deposition of Dr. McDonald, 30:15-31:17, attached as Exhibit A. 3 Similarly, in Villalpando v. Excel Direct Inc., 2016 WL 1598663 (N.D. Cal. April 21, 2016) and McLaughlin v. DialAmerica Marketing Inc., 716 F. Supp. 812 (D.N.J. 1989), the Plaintiffs offered estimates of days and hours worked. They did not seek an award of back overtime based upon an average wage paid to other employees. 4 In Section III of his report, Dr. White provided estimates of overtime pay by analyzing the compensation actually paid to distributors. See Doc. 107-3 at 5-7. Consequently, Dr. White conformed this portion of his analysis to 28 C.F.R. § 778.109. Case 1:16-cv-00350-JCH-KK Document 176 Filed 02/22/19 Page 3 of 8 4 Plaintiff’s theory of the case is that Defendants acted in bad faith by engaging independent contractor distributors rather than hiring employees to directly distribute Flowers products to end customers. They repeatedly characterize distributors as hapless and victimized by the distributorship arrangement. (Indeed, in their Response to Defendant’s Motion to Exclude Dr. McDonald’s testimony, they attempt to justify his report as evidence of “willfulness.” Doc. 170 at 10-11.) Primarily to address this central premise, Defendants engaged Dr. White to compare the compensation that Plaintiffs would have earned as employees versus what they actually earned as distributors. Dr. White concluded that, in the aggregate, Plaintiffs earned more as distributors than they would have earned had they been classified as employees. See Doc. 170-3 at 10-11. Plaintiffs’ claims that the distributorship model visits economic hardship or ruin on distributors is, therefore, objectively false. Finally, and surprisingly, Plaintiffs claim that Dr. McDonald actually did prepare a damage estimate using the legally-required formula, and they direct the Court’s attention to Exhibit 6 to their Reply (Doc. 170-6). But this exhibit is Plaintiffs’ Rule 26(a)(1) disclosures, it is not an expert disclosure under Rule 26(a)(2), and Dr. McDonald’s actual report (to which Plaintiffs are bound) does not reference Plaintiffs’ earlier disclosure or otherwise employ the proper damage calculation.5 Dr. McDonald’s method of calculating overtime pay does not fit this case. His testimony should be excluded. 5 Plaintiffs are, of course, free to proffer a damage calculation methodology at trial, but they may not do so using Dr. McDonald, whose opinions do not fit this case. Case 1:16-cv-00350-JCH-KK Document 176 Filed 02/22/19 Page 4 of 8 5 II. PLAINTIFFS MAY NOT RECOVER THE COST OF EXPENSES THEY INCURRED IN OPERATING THEIR BUSINESSES Plaintiffs engaged Dr. McDonald to calculate the amount of business expenses they incurred in the operation of their business because “[i]t is the plaintiffs’ claims that these costs and expenses incurred should have been bourne [sic] by the employer, Flowers, rather than by the employee plaintiffs.” Doc. 170-2 at 3. In other words, in this FLSA case, Plaintiffs seek compensation for business expenses as an additional element of damages. But the cost a distributor incurred to run his business is not an element of damages under the FLSA. Plaintiffs offer no authority to the contrary. Instead, all of the cases they cite address the fact that a “wage” may not be used to satisfy an employer’s minimum wage obligation if it is required to be repaid to the employer. Donovan v. Crisostomo, 689 F.2d 869 (9th Cir. 1982), involved an employer who deducted one day of wages a week for certain employees. The court found that these deductions violated the FLSA only to the extent that they resulted in the employee’s total wages for the week dropping below the statutory minimum wage. Id. at 872 n. 3. Donovan does not stand for the proposition that business expenses are separately recoverable as a measure of damages under the FLSA. Nor do the remaining cases Plaintiffs invoke. To the contrary, they indicate that the practice of employees paying business expenses is permissible, unless doing so drops the employee below the minimum wage. Solis v. A Touch of Glass Enter. Inc., 2010 WL 11597440 (D.N.M. March 23, 2010), proves the point. In Solis, the employer made deductions from employees’ wages for uniform rental, tool purchases, and vehicle damage. Id. at *6. But the Solis court noted that this practice violated the FLSA only in “certain instances” where making such deductions resulted in total compensation for the week dropping below minimum wage. Id. Plaintiffs also cite Mayhue’s Super Liquor Stores, Inc. v. Hodgson, 464 F.2d 1196 (5th Cir. 1927). But it stands for the same proposition: the payment of business expenses is Case 1:16-cv-00350-JCH-KK Document 176 Filed 02/22/19 Page 5 of 8 6 impermissible only “to the extent that it reduced an employee’s wage below the statutory minimum.” Id. at 1199. Notably, Dr. McDonald did not attempt to identify any instance in which a Plaintiff’s payment of expenses associated with operating his business reduced his wages below the statutory minimum. To the contrary, he simply assumed—because Plaintiffs’ counsel deemed such costs recoverable—that all business expenses6 were recoverable as a measure of damages. And even if Dr. McDonald had identified work weeks in which an employee’s total compensation fell below the FLSA minimum wage that would not justify the award of damages in amount of all business expenses that week. It would simply mean that the Court would order sufficient back pay to ensure payment of minimum wage for every hour worked. III. DR. MCDONALD’S REPORT IS NOT ADMISSIBLE TO SHOW “BAD FAITH” Despite the fact that Dr. White has shown that most distributors make more money as a distributor than they would have under an employment relationship, Plaintiffs continue to vehemently attack this commonly-used7 business model and ascribe nefarious motives to Defendants in its use. Because Plaintiffs incurred substantial costs in running their businesses, they argue, Dr. McDonald’s report calculating the costs of expenses incurred by Plaintiffs’ Medrano and Ruacho evince a lack of good faith and “unreasonable behavior” by Defendants. But quantifying an element of damages that is not recoverable as a matter of law hardly constitutes evidence of bad faith. To the contrary, the “good faith” inquiry focuses on an “employer’s diligence in the face of a statutory obligation,” not on whether a commonly used business model results in distributors paying the expenses of operating their businesses. Mumby v. Pure Energy 6 This includes the cost of equipment like a truck, which many distributors own, characterize as an asset, and are free to use for other purposes. 7 The distributorship model is ubiquitous in the bakery industry. See Doc. 158 at 4 n. 2. Case 1:16-cv-00350-JCH-KK Document 176 Filed 02/22/19 Page 6 of 8 7 Servs., 636 F.3d 1266, 1270 (10th Cir. 2011). If an employer has “reasonable grounds for believing that [its] acts or omission was not a violation of the FLSA,” the court may refuse to award liquidated damages. See Olivas v. C&S Oilfield Servs., LLC, 2018 WL 1997305 (D.N.M April 27, 2018) (citing 29 U.S.C. § 260). Here, Plaintiffs have offered a badly flawed formula for calculating alleged unpaid overtime. But courts may not award liquidated damages based upon an incorrect model of calculating back pay. Rodriguez v. City of Albuquerque, 420 Fed. Appx. 845 (10th Cir. 2011) (reversing district court’s award of liquidated damages based on flawed damage model). The Court should exclude Dr. McDonald’s opinions regarding business expenses. IV. CONCLUSION Dr. McDonald’s calculations do not fit Plaintiffs’ legal claims. The Court should grant Defendants’ Motion. Respectfully submitted, By: /s/ Katherine K. Paulus Patrick F. Hulla, (admitted pro hac vice) Chris R. Pace Katherine K. Paulus Carol A. Krstulic OGLETREE, DEAKINS, NASH, SMOAK & STEWART, P.C. 4520 Main Street, Suite 400 Kansas City, MO 64111 Telephone: 816.471.1301 Facsimile: 816.471.1303 katherine.paulus@ogletree.com patrick.hulla@ogletree.com chris.pace@ogletree.com carol.krstulic@ogletree.com Amelia M. Willis, NM Bar No. 144042 OGLETREE, DEAKINS, NASH, SMOAK & STEWART, P.C. One Ninety One Peachtree Tower 191 Peachtree St. NE, Suite 4800 Atlanta, GA 30303 Telephone: 404.881.1300 Facsimile: 404.870.1732 amie.willis@ogletree.com Case 1:16-cv-00350-JCH-KK Document 176 Filed 02/22/19 Page 7 of 8 8 Margaret Hanrahan Benjamin Holland OGLETREE DEAKINS NASH SMOAK & STEWART, PC 201 South College Street Suite 2300 Charlotte, NC 28244 Telephone: 704.342.2588 Facsimile: 704.342.4379 margaret.hanrahan@ogletree.com benjamin.holland@ogletree.com R. Nelson Franse RODEY, DICKASON, SLOAN, AKIN & ROBB, P.A. 201 Third Street NW, Suite 2200 (87103) P.O. Box 1888 Albuquerque, NM 87103 Telephone: 505.765.5900 Facsimile: 505.768.7395 Nfranse@rodey.com ATTORNEYS FOR DEFENDANTS FLOWERS FOODS, INC., AND FLOWERS BAKING CO. OF EL PASO, LLC CERTIFICATE OF SERVICE I hereby certify that on this 22nd day of February, 2019, the foregoing document was electronically transmitted to the Clerk’s Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the following CM/ECF registrants: Jerry Todd Wertheim Samuel C. Wolf Jenny Faye Kaufman JONES, SNEAD, WERTHEIM & CLIFFORD, P.A. 1800 Old Pecos Trail Santa Fe, NM 87505 Telephone: 505.982.0011 Facsimile: 505.989.6288 todd@thejonesfirm.com sam@thejonesfirm.com jenny@thejonesfirm.com ATTORNEYS FOR PLAINTIFFS /s/ Katherine K. Paulus ATTORNEY FOR DEFENDANTS 37498948.1 Case 1:16-cv-00350-JCH-KK Document 176 Filed 02/22/19 Page 8 of 8