Perez v. Tlc Residential Inc et alMOTION for Summary Judgment CORRECTION OF DOCKET # 60N.D. Cal.August 8, 2016R o p e rs M a je sk i K o h n & B e n tl e y A P ro fe ss io n a l C o rp o ra ti o n R e d w o o d C it y 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4822-6981-9957.1 DEFTS’ NOT & MOT. FOR SUMMARY JUDGMENT; MEMO. OF PTS & AUTHS NO. 15-CV-02776-WHA TODD A. ROBERTS (SBN 129722) NICOLE S. HEALY (SBN 157417) ROPERS, MAJESKI, KOHN & BENTLEY 1001 Marshall Street, Suite 500 Redwood City, CA 94063-2052 Telephone: (650) 364-8200 Facsimile: (650) 780-1701 Email: todd.roberts@rmkb.com nicole.healy@rmkb.com Attorneys for Defendants TLC RESIDENTIAL, INC., a corporation, and FRANCISCO MONTERO, an individual UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA THOMAS E. PEREZ, Secretary of Labor, United States Department of Labor, Plaintiff, v. TLC RESIDENTIAL, INC. a corporation, and FRANCISCO MONTERO, an individual, Defendants. Case No. 15-cv-02776-WHA DEFENDANTS TLC RESIDENTIAL, INC. AND FRANCISCO MONTERO’S NOTICE OF MOTION AND MOTION FOR SUMMARY JUDGMENT; MEMORANDUM OF POINTS AND AUTHORITIES Date: September 22, 2016 Time: 8:00 a.m. Ctrm. 8 – 19th Floor Judge: Hon. William H. Alsup REDACTED Case 3:15-cv-02776-WHA Document 70 Filed 08/08/16 Page 1 of 28 R o p e rs M a je sk i K o h n & B e n tl e y A P ro fe ss io n a l C o rp o ra ti o n R e d w o o d C it y 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF CONTENTS Page 4822-6981-9957.1 - i - DEFTS’ NOT & MOT. FOR SUMMARY JUDGMENT; MEMO. OF PTS & AUTHS NO. 15-CV-02776-WHA STATEMENT OF THE ISSUES TO BE DECIDED .....................................................................2 MEMORANDUM OF POINTS AND AUTHORITIES.................................................................2 I. INTRODUCTION ...............................................................................................................2 II. FACTUAL BACKGROUND..............................................................................................5 A. TLC Operates Sober Living Homes Where Recovering Substance Abusers Learn to Live Without Drugs or Alcohol in a Supportive Environment .................5 B. As Part of their Own Recovery, Certain TLC Residents May Volunteer to Serve as House Parents ............................................................................................6 C. Research Shows that Helping Other Alcoholics to Achieve and Maintain a Sober Lifestyle is a Predictor of Continued Sobriety for the “Helper” ...................8 D. The Secretary’s Investigators Did Not Conduct a Thorough Investigation and There is No Evidence to Support the Conclusion that TLC and Not the House Parents or the Residents Benefitted from the House Parents’ Duties ..........9 E. Although Defendants Dispute that the House Parents are Employees and Not Volunteers, Even if the FLSA Applies, 45 Named Individuals Had Not Served as House Parents for Over Two Years Before the Complaint was Filed .......................................................................................................................10 III. ARGUMENT.....................................................................................................................11 A. Summary Judgment is Appropriate Where the Material Facts are Not in Dispute and Defendants are Entitled to Judgment as a Matter of Law..................11 B. Because the House Parents Are Volunteers and Not Employees, the FLSA Does Not Require TLC to Pay Them for Taking on Additional Responsibilities......................................................................................................12 1. The Evidence Shows that the House Parents Benefitted from Voluntarily Assuming Additional Duties ..................................................12 2. Under Applicable Ninth Circuit Authority, the House Parents Were Volunteers and Not Subject to the FLSA ..................................................12 3. Under the “Benefits Tests,” the House Managers are Not Employees Where They are the Primary Beneficiaries of the “Helping Behaviors” They Engage in on Behalf of the Residents of the Sober Living Homes ............................................................................14 C. Even if They Were Re-Characterized as Employees, the House Parents Have Been Fully Compensated Where they Received Free Housing ...................16 D. Regardless of Whether the FLSA Applies, the Two-Year Statute of Limitations Has Run as to Claims Arising Before June 19, 2013 .........................17 1. Claims for Non-Willful Failures to Pay Minimum Wages Must be Brought Within Two Years of the Pay Period...........................................17 2. Because Defendants’ Actions Were Not Willful, the Two-Year Limitations Period Would Apply to Any Violation ..................................19 3. The Complaint Must be Dismissed as to Time-Barred House Parents........................................................................................................20 Case 3:15-cv-02776-WHA Document 70 Filed 08/08/16 Page 2 of 28 R o p e rs M a je sk i K o h n & B e n tl e y A P ro fe ss io n a l C o rp o ra ti o n R e d w o o d C it y 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF CONTENTS (continued) Page 4822-6981-9957.1 - ii - DEFTS’ NOT & MOT. FOR SUMMARY JUDGMENT; MEMO. OF PTS & AUTHS NO. 15-CV-02776-WHA 4. The Secretary Cannot Seek Wages and Liquidated Damages for any House Parent for Work Periods Before June 19, 2013..............................21 E. If Defendants Were Found Liable for Failing to Pay Minimum Wage, They Would Be Entitled to a Credit for the Housing Provided to the House Parents....................................................................................................................21 IV. CONCLUSION..................................................................................................................22 Case 3:15-cv-02776-WHA Document 70 Filed 08/08/16 Page 3 of 28 R o p e rs M a je sk i K o h n & B e n tl e y A P ro fe ss io n a l C o rp o ra ti o n R e d w o o d C it y 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF AUTHORITIES Page 4822-6981-9957.1 - iii - DEFTS’ NOT & MOT. FOR SUMMARY JUDGMENT; MEMO. OF PTS & AUTHS NO. 15-CV-02776-WHA CASES Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986).................................................................................................................11 Biggs v. Wilson, 1 F.3d 1537 (9th Cir 1985) ......................................................................................................20 Callahan v. City of Sanger, Case No. 14-cv-600-BAM, 2015 WL 2455419 (E.D. Cal. 2015) ...........................................19 Celotex Corp. v. Catrett, 477 U.S. 317 (1986).................................................................................................................11 Chao v. A-One Medical Services, Inc., 346 F.3d 908 (9th Cir. 2003) ...................................................................................................19 Dent v. Cox Communications Las Vegas, Inc., 502 F.3d 1141 (9th Cir. 2007) .................................................................................................18 Gessele v. Jack in the Box, Inc., 6 F. Supp. 3d 1141 (D. Ore. 2014) ..........................................................................................18 Haro v. City of Los Angeles, 745 F.3d 1249 (9th Cir. 2014) .................................................................................................19 Harp v. Starline Tours of Hollywood, Inc., Case No. 2:14-cv-07704-CAS(Ex)..........................................................................................20 Hosking v. New World Mtge., Inc., 602 F. Supp. 2d 441 (E.D.N.Y. 2009) .....................................................................................20 Lee v. ABC Carpet & Home, 236 F.R.D. 193 (S.D.N.Y. 2006) .............................................................................................20 Williams v. Strickland, 87 F.3d 1064 (9th Cir. 1996) ...................................................................................................12 STATUTES Fed. R. Civ. P. 56(a) ......................................................................................................................11 29 U.S.C. § 201..........................................................................................................................3, 10 29 U.S.C. § 203(g) ...................................................................................................................14, 19 29 U.S.C. § 216(c) .........................................................................................................................18 29 U.S.C. § 255(a) ...............................................................................................................2, 12, 18 Case 3:15-cv-02776-WHA Document 70 Filed 08/08/16 Page 4 of 28 R o p e rs M a je sk i K o h n & B e n tl e y A P ro fe ss io n a l C o rp o ra ti o n R e d w o o d C it y 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF AUTHORITIES (continued) Page 4822-6981-9957.1 - iv - DEFTS’ NOT & MOT. FOR SUMMARY JUDGMENT; MEMO. OF PTS & AUTHS NO. 15-CV-02776-WHA OTHER AUTHORITIES 129 C.F.R. § 790.21(b) ..................................................................................................................18 Case 3:15-cv-02776-WHA Document 70 Filed 08/08/16 Page 5 of 28 R o p e rs M a je sk i K o h n & B e n tl e y A P ro fe ss io n a l C o rp o ra ti o n R e d w o o d C it y 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4822-6981-9957.1 DEFTS’ NOT & MOT. FOR SUMMARY JUDGMENT; MEMO. OF PTS & AUTHS NO. 15-CV-02776-WHA TO ALL PARTIES AND THEIR COUNSEL OF RECORD: PLEASE TAKE NOTICE that on September 22, 2016, at 8:00 a.m., or as soon thereafter as the matter may be heard, in Courtroom 8, 19th Floor of the United States District Court for the Northern District of California, located at 450 Golden Gate Avenue, San Francisco, California, the Honorable William H. Alsup presiding, Defendants will and hereby do move for an Order granting Defendants TLC Residential, Inc. (“TLC”) and Francisco Montero’s (“Defendants”) Motion for Summary Judgment (“Motion”). Defendants ask this Court to issue a judgment in their favor and dismiss with prejudice the First Amended Complaint (“FAC,” ECF No. 51), filed by Plaintiff Thomas E. Perez, U.S. Secretary of Labor (“Secretary”) for unpaid minimum wages and liquidated damages, and to deny the Secretary’s request for a permanent injunction. Contrary to the FAC, the house parents and assistant house parents who lived in TLC’s sober living homes, for whom the Secretary seeks back wages and damages, voluntarily took on additional household responsibilities and were not employees, and therefore were not subject to the Fair Labor Standards Act (“FLSA”), 29 U.S.C. §§ 201, et seq., including its minimum wage requirements. If the Court does not grant judgment to Defendants and dismiss the FAC in its entirety, Defendants ask this Court to grant judgment in their favor and dismiss with prejudice the Secretary’s claims on behalf of 45 individuals named in Exhibit A to the FAC whose claims are barred by the FLSA’s two-year statute of limitations because they ceased serving as house parents or assistant house parents prior to June 19, 2013; and as to all persons who served both before and after June 19, 2013, including 33 individuals named in Exhibit A to the FAC. Finally, even if the house parents were found to be employees, Defendants ask the Court to dismiss the Secretary’s claims because he cannot prove that the house parents suffered any damages where they were fully compensated by being provided with free housing. That is, the benefit to the house parents of receiving free housing is significantly greater that the wages to which they arguably would have been entitled if they were employees. Defendants’ Motion for Summary Judgment is based on this Notice of Motion and Motion, the below Memorandum of Points and Authorities, the Declarations and Exhibits filed Case 3:15-cv-02776-WHA Document 70 Filed 08/08/16 Page 6 of 28 R o p e rs M a je sk i K o h n & B e n tl e y A P ro fe ss io n a l C o rp o ra ti o n R e d w o o d C it y 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4822-6981-9957.1 - 2 - DEFTS’ NOT & MOT. FOR SUMMARY JUDGMENT; MEMO. OF PTS & AUTHS NO. 15-CV-02776-WHA concurrently herewith, all matters of which the Court may take judicial notice, and such other arguments and evidence as may be presented before or at the hearing on Defendants’ Motion. STATEMENT OF THE ISSUES TO BE DECIDED 1. Whether the residents of TLC’s sober living homes who assumed additional responsibilities and volunteered to serve as house parents and assistant house parents were not “employees” and therefore were not subject to the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 201, et seq., including its minimum wage provisions. 2. Whether the Secretary’s claims for unpaid minimum wages and liquidated damages as to 45 individuals named in Exhibit A to the First Amended Complaint who ceased serving as house parents or assistant house parents before June 19, 2013 are barred by the FLSA’s two-year statute of limitations, 29 U.S.C. § 255(a). 3. Whether the Secretary’s claims for unpaid minimum wages and liquidated damages for house parents or assistant house parents for any period prior to June 19, 2013, are barred by the FLSA’s two-year statute of limitations, regardless of whether such individuals continued to serve as house parents or assistant house parents after that date. 4. Whether, even if re-characterized as employees, the house parents and assistant house parents have already been fully compensated by being provided with housing without charge or at a substantial discount in amounts well-exceeding the minimum wage. MEMORANDUM OF POINTS AND AUTHORITIES I. INTRODUCTION By bringing this action, Plaintiff Thomas E. Perez, U.S. Secretary of Labor (“Plaintiff” or the “Secretary”) is attempting to impair the function of and interfere with the relationships between the residents of TLC Residential, Inc.’s (“TLC”) sober living homes by characterizing those residents who volunteer to serve as “house parents” as “employees” and requiring that they be paid for the additional duties they have assumed. The TLC model is not unique and is one that Case 3:15-cv-02776-WHA Document 70 Filed 08/08/16 Page 7 of 28 R o p e rs M a je sk i K o h n & B e n tl e y A P ro fe ss io n a l C o rp o ra ti o n R e d w o o d C it y 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4822-6981-9957.1 - 3 - DEFTS’ NOT & MOT. FOR SUMMARY JUDGMENT; MEMO. OF PTS & AUTHS NO. 15-CV-02776-WHA is decades old and prevalent in the sober living community, but for reasons unknown to it the Department of Labor has chosen to single out TLC in pursuing this action. In sober living homes across the country, residents live together as family units, with the goal of assisting its members in recovering from drug and alcohol abuse. As in any family, all of the members have responsibility for running the home, which serves to benefit the household and its individual members. Residents who have exhibited sufficient maturity and sobriety may volunteer to take on certain additional responsibilities and become house parents, which fosters their recovery. Being a house parent is an aspirational goal that yields benefits for both house parents and their peers in recovery from addiction, a conclusion supported in the medical literature. House parents serve as role models and share their experiences and model healthy, sober living for residents with fewer months or years of sobriety. By doing so, they support their own continued sobriety and that of the household. The Secretary’s efforts to impose a cash-based, employment relationship on this family unit would be enormously disruptive to the therapeutic environment of the sober living homes and interfere with the recovery of addicts who live together. Moreover, the Secretary’s interpretation of the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 201, et seq., as applied to individuals who take on unpaid responsibilities to support their own recovery from substance abuse is contrary to Ninth Circuit authority. Such individuals are volunteers, not employees. TLC operates approximately 35 sober living homes in Northern California. At each home, a house parent or “house manager” voluntarily assumes additional duties including running twice- weekly household meetings, emailing house reports to TLC, and shopping for cleaning supplies and paper goods regularly used by the residents. House parents are not paid for taking on those additional responsibilities. Instead, they are not charged the “bed fees” that other residents pay; assistant house parents receive a 50% reduction in fees. The Secretary has refused to recognize that TLC’s sober living homes are family residences, which house parents voluntarily assist in running. Instead, the Secretary alleges that house parents (and the few assistant house parents) are employees of TLC and its owner, Case 3:15-cv-02776-WHA Document 70 Filed 08/08/16 Page 8 of 28 R o p e rs M a je sk i K o h n & B e n tl e y A P ro fe ss io n a l C o rp o ra ti o n R e d w o o d C it y 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4822-6981-9957.1 - 4 - DEFTS’ NOT & MOT. FOR SUMMARY JUDGMENT; MEMO. OF PTS & AUTHS NO. 15-CV-02776-WHA Francisco Montero (“Montero;” collectively, TLC and Montero are referred to as “Defendants”), subject to the FLSA. The Secretary contends that by accepting the house parents’ voluntary services, Defendants have violated the FLSA’s minimum wage provisions. To the contrary, the declarations of current and former house parents and deposition testimony show that they each understood and agreed that they were volunteers. Moreover, as further explained, including in the declaration of Dr. Douglas Polcin, not only is this model consistent across the community of sober living homes, the practice of volunteerism and other helping behaviors is a significant predictor of the resident’s continued sobriety, even after leaving the sober living environment. The evidence further demonstrates that the Secretary has entirely failed to consider whether, if they were re-characterized as employees, the house parents were fully compensated by being provided free housing, or for the few assistant house parents, reduced housing fees. Given Bay Area housing costs, this was a substantial benefit to the house parents. This is not surprising because the testimony of the Department’s lead investigator, Andrew Blanco, suggests that the investigation was conducted to reverse engineer a result without seeking even the most basic information of consequence to the determination. The Secretary’s First Amended Complaint (“FAC”) suffers from an additional deficiency; claims asserted on behalf of over half of the named house parents are wholly or partially time- barred. Despite the FLSA’s two year limitations period, the FAC names 45 house parents who have not served in that capacity for more than two years before the complaint was filed. (There is no evidence that Defendants acted willfully, so the two year statute applies.) Further, a new cause of action accrues with each purported pay period. At least 33 individuals on the Secretary’s list began volunteering as house parents before June 19, 2013. Even if the Secretary were correct that the house parents were employees, claims for back wages and liquidated damages for these individuals are barred by the statute of limitations and the Secretary cannot pursue stale claims for wages allegedly owing for any period more than two years before the original complaint was filed on June 19, 2015. Defendants therefore ask the Court to grant their motion and issue a judgment against the Secretary’s Complaint in its entirety. In the alternative, Defendants ask that the Court grant a Case 3:15-cv-02776-WHA Document 70 Filed 08/08/16 Page 9 of 28 R o p e rs M a je sk i K o h n & B e n tl e y A P ro fe ss io n a l C o rp o ra ti o n R e d w o o d C it y 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4822-6981-9957.1 - 5 - DEFTS’ NOT & MOT. FOR SUMMARY JUDGMENT; MEMO. OF PTS & AUTHS NO. 15-CV-02776-WHA judgment against the Secretary as to all time-barred claims, for wages allegedly owed for any period before June 19, 2013. II. FACTUAL BACKGROUND A. TLC Operates Sober Living Homes Where Recovering Substance Abusers Learn to Live Without Drugs or Alcohol in a Supportive Environment Sober living homes are peer-managed residences that do not offer treatment or therapy but instead provide a supportive drug- and alcohol-free environment for individuals in recovery from substance abuse addiction. See Declaration of Dr. Douglas L. Polcin, Ed.D. (“Polcin Dec.”) ¶ 9, Ex. 2 (Douglas L. Polcin, Ed.D., Rachael Korcha, M.A., Jason Bond, Ph.D., & Gantt Galloway, Pharm.D.: What Did We Learn from Our Study on Sober Living Houses and Where Do We Go from Here?, at 2, available at http://www.ncbi.nlm.nih.gov/pubmed/21305907, published in 42 J. Psychoactive Drugs, vol. 4, 425-433 (Dec. 2010));1 and id., Ex. 3 (Rachael A. Korcha, Douglas L. Polcin, Amy A. Mericle, & Jason Bond: Sober Living Houses: Research in Northern and Southern California, J. Addiction Science & Clinical Practice, 10 (Suppl. 1): A30, at 1 (Feb. 2015)), available at http://www.ncbi.nlm.nih.gov/pmc/articles/PMC4347505/.2 Sober living homes are effective. Research has shown that sober living homes have made substantial and lasting improvements in residents’ lives, continuing after they have moved out.3 TLC is the largest provider of sober living homes in California and operates 35 sober living homes in Northern California. See Declaration of Nicole S. Healy (“Healy Dec.”), Ex. 15, 1 The National Institutes of Health funded a five-year longitudinal study of sober living homes. See Polcin Dec., Ex. 4 (Douglas L. Polcin, Ed.D., MFT & Diane Henderson, B.A., A Clean and Sober Place to Live: Philosophy, Structure, and Purported Therapeutic Factors in Sober Living Houses, 40 J. Psychoactive Drugs, vol. 2,153-159 (2008), at 3, available at http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2556949/). 2 Sober living homes started in California, as an outgrowth of earlier recovery models. See Polcin Dec., Ex. 5 (Friedner D. Wittman, Ph.D. & Douglas Polcin, Ed.D., The Evolution of Peer Run Sober Housing as a Recovery Resource for California Communities, 8 Int. J. Self Help Self Care, vol. 2, 157-187 (2014) doi:10.2190/SH.8.2.c, at 9-10, available at http://www.ncbi.nlm.nih.gov/pmc/articles/PMC4248351/). 3 See Polcin Dec., Ex. 5, at 16 (“Improvements were found on measures of abstinence, peak density of alcohol and drug use (maximum number of days of alcohol or drug use during month of highest use), arrests, psychiatric symptoms, and employment. Importantly, improvements were noted at 6 months and for the most part maintained at 18 months, and residents maintained improvements after they left the SLH facility.”). Case 3:15-cv-02776-WHA Document 70 Filed 08/08/16 Page 10 of 28 R o p e rs M a je sk i K o h n & B e n tl e y A P ro fe ss io n a l C o rp o ra ti o n R e d w o o d C it y 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4822-6981-9957.1 - 6 - DEFTS’ NOT & MOT. FOR SUMMARY JUDGMENT; MEMO. OF PTS & AUTHS NO. 15-CV-02776-WHA Excerpts of Transcript of Deposition of Julie Bento (“Bento Tr.”) at 18:17-20. Consistent with other sober living providers, TLC’s sober living homes are modeled after a traditional family home, which are not subject to the FLSA, at least not yet. The residents live together as a family and encourage, support, and assist one another to maintain their sobriety and learn to live without drugs or alcohol. See Declaration of Julie Bento (“Bento Dec.”) ¶¶ 4-5; see also Polcin Dec. Ex. 3, at 3 (sober living coalitions “require evidence of resident involvement in managing operations because peer support and empowerment are thought to be key factors in the success of SLHs [sober living homes].”). As with other sober living homes, TLC’s residents are required to take responsibility for themselves and to adhere to certain standards including abstaining from addictive drugs and alcohol; participating in a 12 step or other recovery program; attending twice-weekly evening house meetings; working with a sponsor or counselor; fulfilling treatment commitments; accepting direction from the house parent; paying fees on time; and completing assigned household chores. See Bento Dec. ¶ 5. The “essential characteristics” of SLHs include: 1) an alcohol and drug free living environment . . . 2) no formal treatment services but either mandated or strongly encouraged attendance at 12-step self-help groups such as Alcoholics Anonymous (“AA”), 3) required compliance with house rules such as maintaining abstinence, paying rent and other fees, participating in house chores and attending house meetings, 4) resident responsibility for financing rent and other costs, and 5) an invitation for residents to stay in the house as long as they wish provided they comply with house rules. Polcin Dec., Ex. 2, at 2. B. As Part of their Own Recovery, Certain TLC Residents May Volunteer to Serve as House Parents Following the “sober living home” model, one household resident in each of TLC’s homes volunteers to act as the house parent. Where needed, another may volunteer to provide management assistance as the assistant house parent. These volunteers are long-term residents of the household with leadership qualities and demonstrated recovery. See Bento Dec. ¶ 3. Many if not most of the house parents and assistant house parents have jobs outside the TLC sober living home. See Healy Dec., Ex. 13, Transcript of Investigative Deposition of Francisco Montero Case 3:15-cv-02776-WHA Document 70 Filed 08/08/16 Page 11 of 28 R o p e rs M a je sk i K o h n & B e n tl e y A P ro fe ss io n a l C o rp o ra ti o n R e d w o o d C it y 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4822-6981-9957.1 - 7 - DEFTS’ NOT & MOT. FOR SUMMARY JUDGMENT; MEMO. OF PTS & AUTHS NO. 15-CV-02776-WHA (“Montero Investigative Tr.”) at 90:16-21;4 Bento Tr. at 49:22-50:1. House parents are not employees of TLC and not one of them has ever suggested otherwise to TLC. Rather, they are members of a family-model household who voluntarily take on additional responsibilities to support and further their own recovery and commitment to maintaining sobriety and to support the other residents’ continued sobriety. TLC’s house parents spend approximately 20 to 30 minutes twice a week leading one or more house meetings with the residents,5 and spend approximately 10 to 15 minutes five nights per week emailing a house report to TLC’s office.6 See Bento Dec. ¶ 8. House parents also assist with discharges; conduct random drug testing; and shop for household cleaning supplies and paper goods. See Healy Dec., Ex. 16, Excerpts of Transcript of Deposition of Pamela Davis (“Davis Tr.”) at 21:20-22:6; Bento Tr. at 13:14-18. Altogether, house parents spend approximately 12-15 hours per month in connection with these responsibilities. See Declaration of (“ Dec.”) ¶ 8; Declaration of (“ Dec.”) ¶ 8; Declaration of (“ Dec.”) ¶ 8; Tr. at 35:9-36:16, and Declaration of ( Dec.) ¶ 8; Declaration of (“ Dec.”) ¶ 8; Declaration of (“ Dec.”) ¶ 8; Declaration of (“ Dec.”) ¶ 8; Declaration of (“ .”) at 3. In return for assuming these additional responsibilities, TLC wholly discounts the house parents’ bed fees and partially discounts assistant house parents’ fees. See Bento Tr. at 25:8-17; 37:6-8; see also . ¶ 7; . ¶ 7; . ¶ 7; Tr. at 18:16-19:5, and Dec. ¶ 7; Dec. ¶ 7; Dec. ¶ 7; Dec. ¶ 7; Dec. at 2-3. 4 Mr. Montero was first deposed by the Department of Labor during its investigation, before the Complaint was filed. 5 Until approximately 2014, house meetings were held five times per week. Bento Tr. at 12:24- 13:5, 15:16-24. 6 Because these individuals are not employees, neither TLC nor the house parents keep records of the time spent in these activities. See Healy Dec., Ex. 14, Excerpts of Transcript of Deposition of Francisco Montero (“Montero Tr.”), June 30, 2016, at 103:16-21; Bento Tr. at 26:8-11; Davis Tr. at 39:19-22. Accordingly, these numbers are rough estimates. REDACTED Case 3:15-cv-02776-WHA Document 70 Filed 08/08/16 Page 12 of 28 R o p e rs M a je sk i K o h n & B e n tl e y A P ro fe ss io n a l C o rp o ra ti o n R e d w o o d C it y 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4822-6981-9957.1 - 8 - DEFTS’ NOT & MOT. FOR SUMMARY JUDGMENT; MEMO. OF PTS & AUTHS NO. 15-CV-02776-WHA Becoming a house parent is an aspirational goal for many residents in recovery. See Bento Dec. ¶ 7; Montero Investigative Tr. at 72:4-11; Healy Dec., Ex. 14, Excerpts of Transcript of Deposition of Francisco Montero (“Montero Tr.”) at 27:1-16. Becoming a house parent does not transform the individual from a resident to an “employee.” Rather, it demonstrates and enhances the resident’s growth and recovery, providing him or her with additional and different responsibilities within the home —“helping behaviors” that foster recovery. Significantly, as Ms. Bento has testified (see Bento Tr. at 38:5-10), and as is echoed in the declarations of current and former house parents, none of these individuals have claimed to be employees or believed that they were otherwise entitled to payment in connection with the additional responsibilities they have taken on at TLC’s sober living homes. Instead, they took on these responsibilities to support their continued recovery and sobriety. See Dec. ¶¶ 7, 10; Dec. ¶¶ 7, 10; Dec. ¶¶ 7, 10; Dec. ¶¶ 7, 10; Dec. ¶¶ 7, 10; Dec. ¶¶ 7, 10; Dec. ¶¶ 7, 10; Dec. at 3. C. Research Shows that Helping Other Alcoholics to Achieve and Maintain a Sober Lifestyle is a Predictor of Continued Sobriety for the “Helper” As Dr. Polcin explains in his declaration, “helping behaviors” are strongly correlated with positive outcome for the “helper.” At least one study has found “compelling evidence that recovering alcoholics who help other alcoholics maintain long-term sobriety following formal treatment are themselves better able to maintain their own sobriety.” Polcin Dec. ¶ 22 and Ex. 7 (Maria E. Pagano, Ph.D., Karen B. Friend, Ph.D., J. Scott Tonigan, Ph.D., and. Robert L. Stout, Ph.D., Helping Other Alcoholics in Alcoholics Anonymous and Drinking Outcomes: Findings from Project MATCH, 65(6) J. Stud. Alcohol 65(6): 766-73 (November 2004) (“Helping Other Alcoholics”), author manuscript at 1, available at http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3008319/pdf/nihms253314.pdf That “helping behaviors” are critical to the helper’s own recovery has been encoded into the “12 steps” of Alcoholics Anonymous (“AA”). That is, a “continuing theme throughout AA principles is the critical importance of recovering alcoholics shifting their focus from self to others.” Helping Other Alcoholics at 2-3 (citations omitted). The research demonstrates the REDACTED Case 3:15-cv-02776-WHA Document 70 Filed 08/08/16 Page 13 of 28 R o p e rs M a je sk i K o h n & B e n tl e y A P ro fe ss io n a l C o rp o ra ti o n R e d w o o d C it y 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4822-6981-9957.1 - 9 - DEFTS’ NOT & MOT. FOR SUMMARY JUDGMENT; MEMO. OF PTS & AUTHS NO. 15-CV-02776-WHA positive, long-term effect of helping others. “Among those who were helping other alcoholics, 40% of participants avoided taking a drink in the year after treatment, whereas, among those who were not helping other alcoholics, only 22% avoided taking a drink.” Id. at 6. D. The Secretary’s Investigators Did Not Conduct a Thorough Investigation and There is No Evidence to Support the Conclusion that TLC and Not the House Parents or the Residents Benefitted from the House Parents’ Duties The Secretary produced a redacted version of the Wage and Hour Division’s (“WHD”) investigative report (“Report”). The Report was drafted by WHD investigator Andrew Blanco (“Blanco”), who conducted the investigation, and was reviewed and approved by his supervisor, Alberto Raymond (“Raymond”). Blanco set out certain conclusions in the Report. See Healy Dec., Ex. 18 at DOL000006-15. Putting aside the Report’s many factual inaccuracies, Blanco concluded that TLC and not the house parents benefitted from the additional responsibilities assumed by the house parents, including conducting house meetings; performing drug tests of residents to determine whether they were remaining sober; discharging residents who violated the house rules; assigning chores; purchasing cleaning supplies; and maintaining a clean home. See id. at DOL000010-12). Blanco’s Report supplies no support for those conclusions — because that support was absent. Blanco completely ignored the context of the living arrangements, conducted no research into the benefits of Sober Living Homes, was unaware of the beneficial effects of “helping behaviors” of the type voluntarily assumed by house parents, did not ask anyone if they had volunteered to be a house parent or why, or other obvious information that would undercut his desired outcome. Blanco did not investigate whether the house parents’ duties assisted them in maintaining their sobriety. See Healy Dec., Ex. 17, Excerpts of Transcript of Deposition of Andrew Blanco (“Blanco Tr.”) at 54:24-55:3. Nor did he consult with any knowledgeable people in the sober living community regarding whether service as a house parent benefited that individual. Id. at 56:12-16. The only benefit to the house parents that he could identify was receiving free housing. Id. at 55:10-15, 56:17-23, 88:9-18. He never asked the house parents he interviewed whether these additional duties benefitted them, in addition to the receipt of free housing. Id. 121:17-25. As the medical literature fully supports, the additional duties quite clearly supported the Case 3:15-cv-02776-WHA Document 70 Filed 08/08/16 Page 14 of 28 R o p e rs M a je sk i K o h n & B e n tl e y A P ro fe ss io n a l C o rp o ra ti o n R e d w o o d C it y 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4822-6981-9957.1 - 10 - DEFTS’ NOT & MOT. FOR SUMMARY JUDGMENT; MEMO. OF PTS & AUTHS NO. 15-CV-02776-WHA overriding goal of residents — to foster their recovery from addiction. Blanco was unfamiliar with 12-step programs before the investigation and did not research whether or how serving as a house parent would fit in with and advance a 12 step (or any other) recovery program. Id. at 55:18-56:11. Nor did he inquire into whether the households function as a family group (id. at 57:12-19), a finding that if made is supported by Ninth Circuit decisional law. Pacific Shore Properties v. City of Newport Beach, 730 F.3d 1142 (9th Cir. 2013) (sober living home treated as non-traditional family unit). Finally, Blanco never inquired into whether TLC was providing a unique service to underserved populations in recovery. See, e.g., Montero Tr. at 22:1-14 (TLC has been an innovator by offering co-ed homes, and homes for LGBTQ individuals); id. at 25:9-20 (TLC will provide free housing to needy individuals). E. Although Defendants Dispute that the House Parents are Employees and Not Volunteers, Even if the FLSA Applies, 45 Named Individuals Had Not Served as House Parents for Over Two Years Before the Complaint was Filed The Secretary filed his Complaint on June 19, 2015. Attached as Exhibit A was a list of names of 99 house parents and assistant house parents. See Complaint, Ex. A., ECF No. 1. On November 30, 2015, the Secretary moved for leave to amend the Complaint and file the FAC. See ECF No. 26, and Ex. 1 thereto; ECF No. 33. Following motion practice in which Defendants objected to the Secretary’s refusal to redact the names of the house parents from Exhibit A to the FAC, the Court granted Plaintiff’s request to file the FAC and Defendants’ request for a protective order as to the names of house parents. ECF Nos. 34, 35, 50. Plaintiff’s FAC, with a redacted Exhibit A, was filed on April 22, 2016. See ECF No. 51. On June 14, 2016, the Court granted Plaintiff’s unopposed motion to file an unredacted Exhibit A under seal. ECF No. 58. Exhibit A to the FAC identifies 138 purported house parents and assistant house parents.7 The Secretary claims to be seeking unpaid minimum wages and liquidated damages for each of these individuals pursuant to the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 201, et seq. 7 One individual never served as a house parent. See No. 134; House Dec. ¶ 14. Additionally, the redacted and unredacted versions of the house parent lists attached as Exhibit A to the FAC do not match. That is, the initials supplied in the redacted version do not match the names in the unredacted exhibit. To avoid confusion, this Memorandum refers only to the names on the unredacted exhibit, by their corresponding numbers. Case 3:15-cv-02776-WHA Document 70 Filed 08/08/16 Page 15 of 28 R o p e rs M a je sk i K o h n & B e n tl e y A P ro fe ss io n a l C o rp o ra ti o n R e d w o o d C it y 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4822-6981-9957.1 - 11 - DEFTS’ NOT & MOT. FOR SUMMARY JUDGMENT; MEMO. OF PTS & AUTHS NO. 15-CV-02776-WHA See FAC ¶ 2; Prayer for Relief ¶ 2. Yet, of those house parents and assistant house parents, 45 ceased serving in that capacity before June 19, 2013. See Declaration of Tammy House (“House Dec.”) ¶¶ 14-16, and Ex. 11. Moreover, another 33 individuals named in Exhibit A to the FAC served as house parents or assistants both before and after that date. See id. III. ARGUMENT A. Summary Judgment is Appropriate Where the Material Facts are Not in Dispute and Defendants are Entitled to Judgment as a Matter of Law Summary judgment is appropriate where the “movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986). The “mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986) (emphasis in original). “Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment.” Id. at 248. If there are no such factual disputes, and the movant has established her claim or defense, the court should enter judgment for the moving party. Here, the undisputed facts show that the house parents voluntarily agreed to assume additional duties as part of their own recovery. As discussed below, under controlling Ninth Circuit authority, house parents are not employees subject to the FLSA where their services were voluntary and part of their effort to achieve and maintain sobriety. Further, the house parents benefitted from their voluntary service by receiving free or substantially discounted housing. Finally, the statute of limitations has run as to at least 45 individuals and the claims are partially time-barred as to at least 33 others. /// /// /// /// Case 3:15-cv-02776-WHA Document 70 Filed 08/08/16 Page 16 of 28 R o p e rs M a je sk i K o h n & B e n tl e y A P ro fe ss io n a l C o rp o ra ti o n R e d w o o d C it y 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4822-6981-9957.1 - 12 - DEFTS’ NOT & MOT. FOR SUMMARY JUDGMENT; MEMO. OF PTS & AUTHS NO. 15-CV-02776-WHA B. Because the House Parents Are Volunteers and Not Employees, the FLSA Does Not Require TLC to Pay Them for Taking on Additional Responsibilities 1. The Evidence Shows that the House Parents Benefitted from Voluntarily Assuming Additional Duties The evidence shows that the house parents volunteered their services to TLC, without any expectation of payment, and therefore are not employees. Instead, they are volunteers. Moreover, the house parents benefitted from taking on those duties and receiving free or discounted housing. None of the house parents has ever asked to be paid for these duties. See Bento Tr. at 38:5-10. Instead, taking on additional responsibility is part of the house parents’ recovery process, and also contributes to the recovery and continued sobriety of the other residents. See Dec. ¶¶ 7, 10; Dec. ¶¶ 7, 10; Dec. ¶¶ 7, 10; Dec. ¶¶ 7, 10; Dec. ¶¶ 7, 10; Dec. ¶¶ 7, 10; Dec. ¶¶ 7, 10; Dec. at 3. Significantly, before signing on to serve as house parents, the candidates each understood that they were volunteers, not employees, and would not be paid for taking on additional duties. See id. As Dr. Polcin explains, extensive research in this area has shown that helping behaviors and volunteerism are key predictors of a successful, long-term recovery. See Polcin Dec. ¶¶ 22- 25, Exs. 7-10. Where the purpose of entering a sober living environment is to maintain sobriety, such long-term recovery is of substantial benefit to the house parents. 2. Under Applicable Ninth Circuit Authority, the House Parents Were Volunteers and Not Subject to the FLSA In the Ninth Circuit, where individuals perform services for rehabilitative purposes, as is the case here, they are not employees, and thus the FLSA does not apply. See Williams v. Strickland, 87 F.3d 1064, 1068 (9th Cir. 1996) (recovering alcoholic sheltered by rehabilitation center who performed services for therapeutic purposes was not an employee under the FLSA where his “bargain . . . was solely rehabilitative and at no point was there an express or implied agreement for compensation.”). The FLSA does not supply a clear definition of when an individual will be considered an “employee.” Solis v. Laurelbrook Sanitarium and School, Inc., 642 F.3d 518, 522 (6th Cir. 2011) REDACTED Case 3:15-cv-02776-WHA Document 70 Filed 08/08/16 Page 17 of 28 R o p e rs M a je sk i K o h n & B e n tl e y A P ro fe ss io n a l C o rp o ra ti o n R e d w o o d C it y 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4822-6981-9957.1 - 13 - DEFTS’ NOT & MOT. FOR SUMMARY JUDGMENT; MEMO. OF PTS & AUTHS NO. 15-CV-02776-WHA (“While the Act does define the terms “employee,” “employer,” and “employ,” . . . the definitions are exceedingly broad and generally unhelpful.”) (citing Henthorn v. Dep’t of Navy, 29 F.3d 682, 684 (D.C. Cir. 1994)). Thus, whether an employment relationship exists is a fact-specific question. Laurelbrook, 642 F.3d at 522 (“it is the ‘economic reality’ of the relationship between parties that determines whether their relationship is one of employment or something else.”) (citing Tony and Susan Alamo Foundation v. Secretary of Labor, 471 U.S. 290, 301 (1985)) (further citations omitted); see also Hale v. State of Arizona, 993 F.2d 1387, 1393-94 (9th Cir. 1993) (en banc) (“as a general rule, whether there is an employment relationship under the FLSA is tested by “‘economic reality’ rather than ‘technical concepts.’” (citing Goldberg v. Whitaker House Cooperative, Inc., 366 U.S. 28, 33 (1961)). Accordingly, whether an employment relationship exists may only be determined by examining the totality of the circumstances. See Laurelbrook, 642 F.3d at 525 (rejecting Wage & Hour Division test as “overly rigid and inconsistent with a totality-of-the-circumstances approach, where no one factor (or the absence of one factor) controls.”); see also Donovan v. Brandel, 736 F.2d 1114, 1116 (6th Cir. 1984) (“The issue of the employment relationship does not lend itself to a precise test, but is to be determined on a case-by-case basis upon the circumstances of the whole business activity.”) (citing Rutherford Food Corp. v. McComb, 331 U.S. 722, 730 (1947) (“We think, however, that the determination of the relationship does not depend on such isolated factors but rather upon the circumstances of the whole activity.”)). The Secretary likely will argue that because TLC is not a “non-profit” organization, Williams does not govern this case. Instead, the Secretary will point to the Supreme Court’s decision in Alamo. The facts of Alamo are entirely distinguishable from Williams. In Williams, the plaintiff, a man addicted to alcohol, was taken in by the Salvation Army and provided with shelter and an opportunity to perform services at the facility. In finding that he was not an employee, the Ninth Circuit noted that “Williams’s work therapy was not performed in exchange for in-kind benefits, but rather was performed to give him a sense of self-worth, accomplishment, and enabled him to overcome his drinking problems and reenter the economic marketplace.” Williams, 87 F.3d at 1067. Case 3:15-cv-02776-WHA Document 70 Filed 08/08/16 Page 18 of 28 R o p e rs M a je sk i K o h n & B e n tl e y A P ro fe ss io n a l C o rp o ra ti o n R e d w o o d C it y 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4822-6981-9957.1 - 14 - DEFTS’ NOT & MOT. FOR SUMMARY JUDGMENT; MEMO. OF PTS & AUTHS NO. 15-CV-02776-WHA By contrast, in Alamo, although the witnesses claimed that they were volunteers, the Court found that under the “economic reality test,”8 they were employees of the Foundation’s various commercial enterprises, who were not paid in cash but received benefits including room, board, clothing, medical benefits, and were totally dependent on the Foundation for long periods of time. See Alamo, 471 U.S. at 302, 304; see also Reich v. Shiloh True Light Church of Christ, 895 F. Supp. 799 (W.D.N.C. 1995) (11-16 year olds were employees of church-run vocational training program where they performed hazardous construction work; program was de facto commercial enterprise that benefitted from minor’s unpaid labor), aff’d 85 F.3d 616 (4th Cir. 1996). That the purported volunteers in Alamo were laboring full-time, without payment, and with little or no control over their own schedules, all to make money to support the Alamos’ business empire clearly distinguishes that case from Williams, in which the plaintiff’s services were therapeutic and benefitted his own recovery from addiction. The Supreme Court has recognized this distinction for many years. An individual who, “without promise or expectation of compensation, but solely for his personal purpose or pleasure, worked in activities carried on by other persons either for their pleasure or profit,” is outside the sweep of the FLSA. Alamo, 471 U.S. 290, 295 (1985) (quoting Walling v. Portland Terminal Co., 330 U.S. 148, 152 (1947) [trainees were not employees]). Here, as in Williams, and unlike Alamo or Shiloh, the house parents have taken on additional responsibilities for rehabilitative purposes, to advance their own recovery. Most have full-time jobs elsewhere and set their own schedules. Accordingly, they are not employees subject to the FLSA. 3. Under the “Benefits Tests,” the House Managers are Not Employees Where They are the Primary Beneficiaries of the “Helping Behaviors” They Engage in on Behalf of the Residents of the Sober Living Homes As the cases discussed above make plain, whether an individual is engaged in compensable work may be determined by looking at who benefits from the effort – the individual 8 Where the “economic realities” of a situation are such that an individual is not an employee, but instead is a volunteer, no employer-employee relationship will be found to exist even if the individual is suffered or permitted to work. See 29 U.S.C. § 203(g). Case 3:15-cv-02776-WHA Document 70 Filed 08/08/16 Page 19 of 28 R o p e rs M a je sk i K o h n & B e n tl e y A P ro fe ss io n a l C o rp o ra ti o n R e d w o o d C it y 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4822-6981-9957.1 - 15 - DEFTS’ NOT & MOT. FOR SUMMARY JUDGMENT; MEMO. OF PTS & AUTHS NO. 15-CV-02776-WHA or the purported employer. See Tennessee Coal, Iron & R. Co. v. Muscoda Local No. 123, 321 U.S. 590, 598 (1944) (superseded by statute) (“in the absence of a contrary legislative expression, we cannot assume that Congress here was referring to work or employment other than as those words are commonly used — as meaning physical or mental exertion (whether burdensome or not) controlled or required by the employer and pursued necessarily and primarily for the benefit of the employer and his business.”); see also Portland Terminal, 330 U.S. at 152 (stating that the definition of “employee” was “not intended to stamp all persons as employees who, without any express or implied compensation agreement, might work for their own advantage on the premises of another.”). Although few cases (except Williams) address the rehabilitation context, the situation in a sober living home is similar to that found in the school and training environments. That is, like students or trainees, the residents are the primary beneficiaries of the roles they assume in the home. That is, where they engage in “helping behaviors,” they receive substantial and long- lasting benefits. See Polcin. Dec. ¶¶ 22-25. Accordingly, under the benefits test, they are lot employees. See Portland Terminal, 330 U.S. at 152; Laurelbrook, 642 F.3d at 526 (vocational school students were not employees; “identifying the primary beneficiary of a relationship provides the appropriate framework for determining employee status in the educational context.”). While TLC undoubtedly benefitted from the house parents’ assumption of additional obligations, it was not the primary beneficiary. That is, the house parents gained as much or more in self-esteem, personal growth, and continued sobriety from taking on additional obligations than they spent performing these duties. See Polcin. Dec. ¶¶ 21-25; see also Dec. ¶¶ 7, 10; Dec. ¶¶ 7, 10; Dec. ¶¶ 7, 10; Dec. ¶¶ 7, 10; Dec. ¶¶ 7, 10; Dec. ¶¶ 7, 10; Dec. ¶¶ 7, 10; Dec. at 3. By contrast, in both Alamo and Shiloh, the primary benefit was to the employing entity which exploited the employees’ efforts. See Alamo, 471 U.S. at 302, 304; Shiloh, 895 F. Supp. at 817-18 (church’s vocational training program was primary beneficiary of minor’s unpaid labor). /// REDACTED Case 3:15-cv-02776-WHA Document 70 Filed 08/08/16 Page 20 of 28 R o p e rs M a je sk i K o h n & B e n tl e y A P ro fe ss io n a l C o rp o ra ti o n R e d w o o d C it y 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4822-6981-9957.1 - 16 - DEFTS’ NOT & MOT. FOR SUMMARY JUDGMENT; MEMO. OF PTS & AUTHS NO. 15-CV-02776-WHA Unlike Alamo and Shiloh, which were business enterprises designed to and which did operate profitably through exploiting unpaid labor inputs, TLC could forego house parents altogether and operate under an entirely different system. That is, a paid staffer or contractor could conduct urinalysis tests and purchase supplies. The residents could forego periodic house meetings, not submit house reports, and could even ignore the rules regarding continued sobriety. None of those changes would affect TLC or Montero. In fact, TLC’s revenues likely would rise as a result of collecting bed fees from former house parents. They would, however, profoundly negatively affect the [former] house parents and the other residents. As Dr. Polcin explains, sober living homes are structured environments that implement the social model of recovery while at the same time providing consistency and support to their residents. See Polcin Dec. ¶¶ 10, 16-17, 19. Under such circumstances, the house parents cannot properly be classified as employees and the meddling by the Department into the recovery of TLC residents should be rejected by the court. The WHD investigators never inquired into who benefitted. See, e.g., Blanco Tr. at 56:12-16, 57:3-11, 121:17-25 (Q: “. . . at no point in time did you ever ask the question of any of the house managers or assistant house managers that you interviewed whether or not their roles and responsibilities as house managers or assistant house managers benefited them in some way in their recovery of addiction? . . . A: Correct.”). Rather, the investigators concluded that TLC solely benefitted from the house parents’ performance of these additional responsibilities, a conclusion that investigator stunningly admitted was the very one he hoped to reach. See Blanco Tr. 56:24-57:2 (“Q In the course of your investigation you were attempting to establish that the duties of a house parent benefited TLC Residential; correct? A: Correct.”); Healy Dec., Ex. 18, DOL000006-15. C. Even if They Were Re-Characterized as Employees, the House Parents Have Been Fully Compensated Where they Received Free Housing In addition to flatly refusing to recognize or even consider the possibility that the house parents have knowingly volunteered their time and experience to advance their own and their housemates’ recovery and sobriety, the Secretary has overlooked the economic reality that being Case 3:15-cv-02776-WHA Document 70 Filed 08/08/16 Page 21 of 28 R o p e rs M a je sk i K o h n & B e n tl e y A P ro fe ss io n a l C o rp o ra ti o n R e d w o o d C it y 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4822-6981-9957.1 - 17 - DEFTS’ NOT & MOT. FOR SUMMARY JUDGMENT; MEMO. OF PTS & AUTHS NO. 15-CV-02776-WHA a house parent and not paying bed fees is enormously beneficial to the house parents. Because the house parents are volunteers, TLC does not provide housing in lieu of or in addition to wages. However, if the Secretary’s actions resulted in the house parents being characterized as employees, TLC would be required to pay them minimum wage and nothing more. If it were required to do so, TLC would not be able to waive their bed fees. Moreover, while a portion of the house parents’ wages could include housing, that would actually be detrimental to them. According to the U.S. Department of Housing and Urban Development, however, the average Bay Area rent for a one bedroom apartment is between $1,255 in Alameda and Contra Costa Counties, $1,582 in Santa Clara County, and $1,814 in Marin, San Mateo, and San Francisco Counties. See Healy Dec., Ex. 10; Request for Judicial Notice. The average for a four bedroom home in Alameda County is $2,704, which comes to $676 per person for four roommates. TLC charges its residents between $600 and $1,500 in housing fees. See Healy Dec. Ex. 18 at DOL000013; Montero Tr. at 26:3-11. By living in a home with others in recovery, without paying housing fees, house parents are receiving a very valuable benefit. Requiring them to be treated as employees would take that benefit away from them, leaving them little in return. That is, if the house parents were found to have worked even 30 hours per month (which is a very high estimate), at California’s 2016 minimum wage (which is higher than the federal minimum wage) of $10 per hour, under Plaintiff’s theory they would have been entitled to $300 per month in wages. See Cal. Lab. Code §§ 1182.12. The monthly rent for even a one bedroom apartment or a room in a home is substantially greater than that amount for any county in the Bay Area. Thus, whatever it is the Department is trying to establish, its conduct will not benefit anyone monetarily and will constitute an unjustified interference with the recovery of addicts. D. Regardless of Whether the FLSA Applies, the Two-Year Statute of Limitations Has Run as to Claims Arising Before June 19, 2013 1. Claims for Non-Willful Failures to Pay Minimum Wages Must be Brought Within Two Years of the Pay Period As discussed above, Defendants dispute that the house parents and assistant house parents were employees and that the FLSA applied to them in that role. However, if the Court were to find that the FLSA does apply, claims on behalf of 45 individuals named in the Secretary’s FAC Case 3:15-cv-02776-WHA Document 70 Filed 08/08/16 Page 22 of 28 R o p e rs M a je sk i K o h n & B e n tl e y A P ro fe ss io n a l C o rp o ra ti o n R e d w o o d C it y 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4822-6981-9957.1 - 18 - DEFTS’ NOT & MOT. FOR SUMMARY JUDGMENT; MEMO. OF PTS & AUTHS NO. 15-CV-02776-WHA are time barred, and claims for wages and liquidated damages on behalf of 33 other named individuals would be severely narrowed due to the running of the statute of limitations. The FLSA’s statute of limitations for claims for unpaid minimum wages runs two years from the date the claim accrues. If such conduct was willful, the FLSA provides for a three year limitations period. See 29 U.S.C. § 255(a).9 The failure to pay wages is not a continuing violation. Rather, a new cause of action for unpaid wages accrues on each payday immediately following the work period for which compensation is owed. See Dent v. Cox Communications Las Vegas, Inc., 502 F.3d 1141, 1144 (9th Cir. 2007); Gessele v. Jack in the Box, Inc., 6 F. Supp. 3d 1141, 1151 (D. Ore. 2014); 29 C.F.R. § 790.21(b). The Secretary’s Complaint was filed on June 19, 2015.10 See ECF No. 1. The Secretary is seeking to recover allegedly unpaid wages due for all named individuals for work periods prior to June 19, 2013, including as far back as September 1, 2010. See FAC ¶ 10. Defendants neither failed to pay wages that were owed — because the house parents and assistant house parents were volunteers — nor willfully failed to pay wages due. However, even if this Court were to find that the house parents and assistant house parents were “employees” within the meaning of the FLSA, any wages for work periods prior to June 19, 2013, are time- barred. If the nonpayment was willful (which, as discussed below, it was not), the limitations period likewise has run for unpaid wages for periods pre-dating June 19, 2012. 9 Section 255(a) provides that any action “to enforce any cause of action for unpaid minimum wages, unpaid overtime compensation, or liquidated damages,” under the FLSA may be commenced within two years after the cause of action accrued, and every such action shall be forever barred unless commenced within two years after the cause of action accrued, except that a cause of action arising out of a willful violation may be commenced within three years after the cause of action accrued. 29 U.S.C. § 255(a). 10 “In determining when an action is commenced by the Secretary of Labor under this subsection for the purposes of the statutes of limitations provided in section 6(a) of the Portal-to-Portal Act of 1947 [29 U.S.C. 255(a)], it shall be considered to be commenced in the case of any individual claimant on the date when the complaint is filed if he is specifically named as a party plaintiff in the complaint, or if his name did not so appear, on the subsequent date on which his name is added as a party plaintiff in such action.” 29 U.S.C. § 216(c); 29 C.F.R. § 790.21(b). Case 3:15-cv-02776-WHA Document 70 Filed 08/08/16 Page 23 of 28 R o p e rs M a je sk i K o h n & B e n tl e y A P ro fe ss io n a l C o rp o ra ti o n R e d w o o d C it y 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4822-6981-9957.1 - 19 - DEFTS’ NOT & MOT. FOR SUMMARY JUDGMENT; MEMO. OF PTS & AUTHS NO. 15-CV-02776-WHA 2. Because Defendants’ Actions Were Not Willful, the Two-Year Limitations Period Would Apply to Any Violation The Secretary has the burden of proving that an employer’s failure to pay required compensation was willful. McLaughlin v. Richland Shoe Co., 486 U.S. 128, 135 (1988). A willful violation of the FLSA is one in which “the employer knew or showed reckless disregard for the matter of whether its conduct was prohibited by the statute.” Id. at 133. Even if an employer acts unreasonably, but not recklessly, in determining its legal obligations, the violation is not willful. See id.; see also Callahan v. City of Sanger, Case No. 14-cv-600-BAM, 2015 WL 2455419, at *13 (E.D. Cal. 2015) (violation was not willful given ambiguous statutory language regarding whether cash payments made in lieu of health benefits was excludable from regular rate of pay calculation, and absence of published case law). By contrast, where a defendant had previously entered into a settlement agreement and agreed to comply with the FLSA, its later violation was willful. Chao v. A-One Medical Services, Inc., 346 F.3d 908, 914, 919 (9th Cir. 2003); Haro v. City of Los Angeles, 745 F.3d 1249, 1258-59 (9th Cir. 2014). It is, and has been, the practice within the sober living industry for many years, that residents volunteer to serve as unpaid house parents in order to advance and maintain their own recovery from addiction to drugs and alcohol. See Bento Dec. ¶¶ 4, 7-8; see also Polcin Dec. ¶¶ 24-25. When Mr. Montero purchased TLC in 2010, this was the longstanding practice in the sober living community. See Montero Tr. at 106:19-24, 108:8-25; Bento Dec. ¶¶ 8-9. Mr. Montero has been in recovery for approximately 20 years, and has been involved with sober living homes, not just as a provider but also as someone in recovery. See Montero Investigative Tr. at 37:19-24. As Mr. Montero explained to the Labor Department’s staff before the Complaint was filed, sober living homes have historically provided residents with demonstrated sobriety and management capacity the opportunity to assume additional responsibilities within the home, including serving as house parents. See Montero Investigative Tr. at 73:13-74:16. These volunteer house parents and assistant house parents do not receive pay, but are provided with free or reduced bed fees. See Bento Tr. at 25:8-13, 37:6-8; Montero Tr. at 106:19-24. Case 3:15-cv-02776-WHA Document 70 Filed 08/08/16 Page 24 of 28 R o p e rs M a je sk i K o h n & B e n tl e y A P ro fe ss io n a l C o rp o ra ti o n R e d w o o d C it y 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4822-6981-9957.1 - 20 - DEFTS’ NOT & MOT. FOR SUMMARY JUDGMENT; MEMO. OF PTS & AUTHS NO. 15-CV-02776-WHA By contrast, the Secretary has offered no evidence that, until this investigation began, Defendants were aware that the Secretary might take the position that the FLSA applies to house parents. Instead, the evidence is just the opposite. See Montero Tr. at 108:8-109:7. Even if Defendants had been aware that this is now the Secretary’s position, the sober living industry has been operating with the same business model for decades. That the Secretary is only now bringing this claim counsels against any finding that the Defendants’ treatment of the house parents as volunteers was a willful violation of the FLSA. 3. The Complaint Must be Dismissed as to Time-Barred House Parents As the chart attached as Exhibit 11 to the House Declaration shows, of the individuals identified by the Secretary in the FAC, 45 ceased serving as house parents or assistant house parents before June 19, 2013. Because the cause of action accrues with the beginning of each pay period, claims for allegedly unpaid wages for any period before June 19, 2013 are time-barred. See Dent, 502 F.3d at 1144; see also Biggs v. Wilson, 1 F.3d 1537, 1540 (9th Cir 1985) (“Statutes of limitation have to start running from some point, and the most logical point a cause of action for unpaid minimum wages or liquidated damages (which are merely double the amount unpaid) accrues is the day the employee’s paycheck is normally issued, but isn’t.”); Harp v. Starline Tours of Hollywood, Inc., Case No. 2:14-cv-07704-CAS(Ex); 2015 WL 4589736, at *7 (C.D. Cal. July 27, 2015) (“A claim accrues on the date the employer fails to pay the required compensation. . .”). Moreover, nonpayment is not a continuing violation. Rather, each new “pay period” gives rise to a new claim, as to which the statute of limitations begins to run. See Lee v. ABC Carpet & Home, 236 F.R.D. 193, 199 (S.D.N.Y. 2006) (“Courts have held that for the purposes of establishing the statute of limitations under the FLSA, a new cause of action accrues with each payday following an allegedly unlawful pay period”); Hosking v. New World Mtge., Inc., 602 F. Supp. 2d 441, 446 (E.D.N.Y. 2009). Here, although the house parents and assistant house parents did not have “paydays” because they were not employees, TLC regularly paid its employees every two weeks. See Montero Investigative Tr. at 36:8-9; House Dec. ¶ 14. Had the house parents and assistant house Case 3:15-cv-02776-WHA Document 70 Filed 08/08/16 Page 25 of 28 R o p e rs M a je sk i K o h n & B e n tl e y A P ro fe ss io n a l C o rp o ra ti o n R e d w o o d C it y 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4822-6981-9957.1 - 21 - DEFTS’ NOT & MOT. FOR SUMMARY JUDGMENT; MEMO. OF PTS & AUTHS NO. 15-CV-02776-WHA parents been employees, presumably they would have been paid on the same schedule. 4. The Secretary Cannot Seek Wages and Liquidated Damages for any House Parent for Work Periods Before June 19, 2013 Exhibit 11 to the House Declaration show that many of the individuals for whom the Secretary seeks wages and liquidated damages served as house parents or assistant house parents for periods pre-dating June 19, 2013, even if they also continued to volunteer after that date. Because the statute of limitations accrues with each pay period (or, in this case, hypothetical pay period), the Secretary’s claims are barred for work periods prior to June 19, 2013. E. If Defendants Were Found Liable for Failing to Pay Minimum Wage, They Would Be Entitled to a Credit for the Housing Provided to the House Parents Although Defendants dispute that the house parents and assistant house parents were employees and that the Defendants violated the FLSA by not paying them cash wages, if the house parents were found to be employees, and that Defendants were found to have violated the FLSA, Defendants would be entitled to a credit for the lodging provided to the house parents. Section 3(m) of the FLSA provides that “‘[w]ages’ paid to any employee includes the reasonable cost, as determined by the Administrator, to the employer of furnishing such employee with board, lodging, or other facilities, if such board, lodging, or other facilities are customarily furnished by such employer to his employees.” 29 U.S.C. § 203(m). Further, “[d]eductions for board, lodging, or other facilities may be made in nonovertime workweeks even if they reduce the cash wage below the minimum wage, provided the prices charged do not exceed the ‘reasonable cost’ of such facilities.” 29 U.S.C. § 536(a). If the house parents were found to be employees, Defendants may seek a lodging credit. See Archie v. Grand Cent. Partnership, Inc., 86 F. Supp. 2d 262 (S.D.N.Y. 2000). That is, defendants are not “estopped . . . from being able now to treat plaintiffs as employees for purposes of damages because they argued that plaintiffs were not employees in the liability phase of this case.” Id. at 265 (citing Donovan v. Tony and Susan Alamo Foundation, 567 F. Supp. 556, 563, 574 (W.D. Ark. 1982), mod. on other grounds, 722 F.2d 397 (8th Cir. 1983), aff’d, 471 U.S. 290 (1985)). In Alamo Foundation the “’volunteers’ who had worked were found to have been Case 3:15-cv-02776-WHA Document 70 Filed 08/08/16 Page 26 of 28 R o p e rs M a je sk i K o h n & B e n tl e y A P ro fe ss io n a l C o rp o ra ti o n R e d w o o d C it y 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4822-6981-9957.1 - 22 - DEFTS’ NOT & MOT. FOR SUMMARY JUDGMENT; MEMO. OF PTS & AUTHS NO. 15-CV-02776-WHA employees for purposes of minimum wage. The court allowed deduction for those reasonable costs deemed part of their wages even though the defendant, of course, had unsuccessfully argued the plaintiffs had not been employees.” Archie, 86 F. Supp. 2d at 265. Defendants have carried their burden of demonstrating the cost to TLC of furnishing housing to the house parents. See Donovan v. New Floridian Hotel, Inc., 676 F.2d 468, 475 (11th Cir. 1982). Between June 1, 2012 and June 30, 2015, TLC leased between up to 43 houses from private parties which ranged in size from three bedrooms to six bedrooms. From six to fourteen residents lived in each home.. TLC’s monthly expenses ranged from a low of for the Bayview-Concord house to a high of for PLH-Martinez to lease each home and to pay for utilities; phone, cable and internet service; maintenance; repairs; supplies and other expenses to operate each home. See Declaration of Tammy House ¶¶ 17-24, and Ex. 12. TLC’s monthly operating costs averaged per home. The average cost to TLC of per resident of each bed ranged from a low of to a high of . See House Dec., Ex. 12 (column labeled “average cost per resident”). Altogether, the average cost per resident to TLC of providing housing in all 45 residences was . These records are sufficiently detailed to permit the Court to find that Defendants were entitled to lodging credit.11 If the house parents were found to be employees, Defendants would be entitled to credit in the amount of at least each month per house parent for the reasonable cost to TLC of the lodging supplied to each house parent. IV. CONCLUSION Because the house parents were volunteers and not employees, the FLSA does not apply and Defendants ask the Court to grant judgment in their favor and against the Secretary. Further, the house parents were better off as a result of receiving free housing than they would have been 11 Employers must “maintain records to substantiate the cost of furnishing a class of non-cash benefits under § 203(m).” Herman v. Collis Foods, Inc., 176 F.3d 912, 914 (6th Cir.1999) (citing 29 C.F.R. § 516.27(a)) (emphasis in original). “No particular degree of itemization is prescribed.” 29 C.F.R. § 516.27(a)(2). Rather, 29 U.S.C. § 203(m) “permits employers to utilize the average cost to themselves or the average value to their employees as a measure of reasonable cost.” Collis Foods, 176 F.3d at 914. REDACTED Case 3:15-cv-02776-WHA Document 70 Filed 08/08/16 Page 27 of 28 R o p e rs M a je sk i K o h n & B e n tl e y A P ro fe ss io n a l C o rp o ra ti o n R e d w o o d C it y 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4822-6981-9957.1 - 23 - DEFTS’ NOT & MOT. FOR SUMMARY JUDGMENT; MEMO. OF PTS & AUTHS NO. 15-CV-02776-WHA had they been paid minimum wage and also had to pay housing fees. In the alternative, Defendants ask the Court to grant judgment in their favor as to the time- barred claims asserted for periods before June 19, 2013, including with respect to those individuals who ceased serving as house parents or assistant house parents prior to that date. Even if this Court were to find that the violations were willful — for which there is no evidence — the limitations period has run as to all claims for periods before June 19, 2012. Finally, if the house parents were found to be employees, Defendants would be entitled to a credit against any applicable damages for the reasonable cost to TLC of providing free housing to the house parents. Dated: August 5, 2016 ROPERS, MAJESKI, KOHN & BENTLEY By: /s/ Todd A. Roberts TODD A. ROBERTS NICOLE S. HEALY Attorneys for Defendants TLC RESIDENTIAL, INC. and FRANCISCO MONTERO Case 3:15-cv-02776-WHA Document 70 Filed 08/08/16 Page 28 of 28
