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Perez v. Lorraine Enterprises, Inc.

United States Court of Appeals, First Circuit

October 1, 2014

THOMAS E. PEREZ, SECRETARY, UNITED STATES DEPARTMENT OF LABOR, Plaintiff, Appellee,
v.
LORRAINE ENTERPRISES, INC., d/b/a PICCOLO E POSTO, ET AL., Defendants, Appellants

Page 24

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO. Hon. Jay A. García-Gregory, U.S. District Judge.

Affirmed.

Jose A.B. Nolla-Mayoral, Jorge W. Perdomo and Nolla, Palou & Casellas, LLC on brief for appellants.

M. Patricia Smith, Solicitor of Labor, Jennifer S. Brand, Associate Solicitor, Paul L. Frieden, Counsel for Appellate Litigation, Maria Van Buren, Senior Attorney, and Steven W. Gardiner, Attorney, on brief for appellee.

Before Lynch, Chief Judge, Ripple[*] and Selya, Circuit Judges.

OPINION

Page 25

SELYA, Circuit Judge.

Among a host of other beneficial provisions, the Fair Labor Standards Act (FLSA), 29 U.S.C. § § 201-219, establishes a federal minimum wage. See id. § 206(a). But Congress carved out an exception to the minimum wage for certain occupations in which tips can reliably be expected to supplement wages. See id. § 203(m). The prototype for this exception is the restaurant industry.

Page 26

To avail itself of the exception, an employer must satisfy several preconditions. See id. § 203(m). In this case, the Secretary of Labor (the Secretary) charges that a restaurant took advantage of the reduced minimum wage without bothering to comply with the concomitant requirements. The Secretary further charges that the individual defendants are liable for these violations. The district court agreed with the Secretary's contentions and entered summary judgment in the Secretary's favor against the restaurant and the individual defendants. See Solis v. Lorraine Enters., 907 F.Supp.2d 186, 192-93 (D.P.R. 2012). The court thereafter denied the defendants' motion to alter or amend the judgment. After careful consideration of a chiaroscuro record, we affirm.

I. BACKGROUND

We rehearse the facts as they appear in the summary judgment record, drawing all reasonable inferences in favor of the parties opposing summary judgment (here, the defendants). See Bisbano v. Strine Printing Co., 737 F.3d 104, 106 (1st Cir. 2013).

At the center of this case is a popular restaurant in Guaynabo, Puerto Rico: Piccolo e Posto. The proprietor is Lorraine Enterprises, Inc., a closely held corporation owned by defendant Lorraine Lago and her husband, Joseph Rao (now deceased).

When the couple opened the restaurant in 2004, Rao directed its operations. He fell ill in 2006 and the restaurant's general manager, defendant Pedro Gonzalez, assumed more responsibility for its day-to-day operations. Upon Rao's death two years later, Lago was left to run the restaurant with Gonzalez's help.

In 2008, the Wage and Hour Division of the United States Department of Labor (the Department) commenced an investigation into the restaurant's payroll practices. This probe began with an audit of the restaurant's payroll summaries and time records for the period March 2006 through March 2008. The investigator concluded that certain deductions taken from waiters' pay violated the FLSA's minimum wage provisions. Specifically, the restaurant deducted what it termed a " spillage fee," which the investigator concluded frequently reduced waiters' weekly pay below the minimum wage. Although the restaurant maintained that waiters earned much more in tips than the payroll summaries indicated, it produced no probative evidence of actual tip income.

The investigator also determined that certain employees had been misclassified as exempt from overtime pay requirements and that proper records of the hours worked by those employees had not been maintained. This determination grounded a conclusion that the restaurant was not in compliance with the FLSA's recordkeeping and overtime pay requirements. See 29 U.S.C. § § 207, 211(c).

Against this backdrop, the Secretary sued the restaurant, Lago, and Gonzalez, alleging that each defendant, qua employer, was liable for violating the FLSA's minimum wage, overtime, and recordkeeping requirements. Following discovery, the Secretary moved for partial summary judgment on the minimum wage claims, arguing that the spillage fee constituted an impermissible deduction from the employees' wages and that the defendants had failed to provide sufficient notice to employees to enable the defendants to offset their minimum wage obligations. The defendants cross-moved for summary judgment on all of the Secretary's claims. The motions were referred to a magistrate judge. See 28 U.S.C. § 636(b)(1)(B); Fed.R.Civ.P. 72(b).

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The magistrate judge recommended denying the defendants' motion, granting the Secretary's motion (except as to prospective injunctive relief), and awarding damages in the form of payment of wages owed. On de novo review, the district court agreed. The court calculated the wages owed to be $129,057.22 and entered ...


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