D'Arezzo v. Providence Ctr., Inc.

          For Darlene A. D'Arezzo, Individually and on behalf of other similarly situated individuals, Olivia M. Howard, Individually and on behalf of other similarly situated individuals, Joelle A. Depeyrot, Individually and on behalf of other similarly situated individuals, Plaintiffs (1:15-cv-00120-M-LDA): Richard A. Sinapi, Sinapi Law Associates, Ltd., Warwick, RI.

         For Stacey L. Salyers, Individually and on behalf of other similary situated individuals, Joseph K Reardon, Individually and on behalf of other similarly situated individuals, Consol Plaintiffs (1:15-cv-00120-M-LDA): Richard A. Sinapi, LEAD ATTORNEYS, Sinapi Law Associates, Ltd., Warwick, RI.

         For The Providence Center, Inc., Defendant (1:15-cv-00120-M-LDA, 1:15-cv-00121-M-PAS): Joseph D. Whelan, Meghan E. Siket, LEAD ATTORNEYS, Whelan, Corrente, Kinder & Siket LLP, Providence, RI.

         For Family Service of Rhode Island, Inc., Consol Defendant (1:15-cv-00120-M-LDA): Christina L. Lewis, LEAD ATTORNEY, Brendan J. Lowd, Hinckley Allen, Boston, MA.

         For Darlene A. D'Arezzo, Individually and on behalf of other similarly situated individuals, Stacey L. Salyers, Individually and on behalf of other similarly situated individuals, Joseph K. Reardon, Individually and on behalf of other similarly situated individuals, Plaintiffs (1:15-cv-00121-M-PAS): Richard A. Sinapi, Sinapi Law Associates, Ltd., Warwick, RI.

         For Family Service of Rhode Island, Inc., Defendant (1:15-cv-00121-M-PAS): Christina L. Lewis, LEAD ATTORNEY, Brendan J. Lowd, Hinckley Allen, Boston, MA.

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         MEMORANDUM & ORDER

         John J. McConnell, Jr., United States District Judge.

         This case is before the Court on Defendants' Motions to Dismiss the consolidated lawsuits brought by two sets of plaintiffs against their current and former employers, alleging violations of the Federal Labor Standards Act (FLSA) and the Rhode Island Minimum Wage Act (RIMWA). (ECF Nos, 12, 13). After reviewing the pleadings and the relevant substantive and procedural law, Defendants' Motions to Dismiss are GRANTED without prejudice.

         I. PROCEDURAL BACKGROUND

         Plaintiffs Darlene D'Arezzo, Olivia Howard, and belle Depeyrot brought suit individually and on behalf of all persons similarly situated in the State of Rhode Island against their employer, The Providence Center. C.A. 1:15-cv-00120-M-LDA. On the same date, Ms. D'Arezzo and two others, Stacey Salyers and Joseph Reardon,

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brought a nearly identical lawsuit against their former employer, Family Service of Rhode Island, Inc. C.A. 1:15-cv-00121-M-LDA. Both sets of plaintiffs claim violations of the FLSA and the RIMWA. (ECF No. 1 ¶ ¶ 2-3).^[1] Both Defendants moved to dismiss for failure to state a claim upon which relief can be granted pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. (ECF Nos. 12, 13). Plaintiffs filed a single objection to both motions, (ECF No. 15), and Defendants filed separate replies. (ECF Nos. 16, 17).

         II. FACTS ALLEGED IN THE COMPLAINTS

         Plaintiffs are social services professionals who refer to themselves as " Fee-For-Service Therapists." (ECF No. 1 ¶ 19). They allege that they are non-exempt employees under the FLSA and the RIMWA, or in the alternative, exempt employees whose rights were nonetheless violated. Id. ¶ ¶ 51-55. They provide mental health, marriage and family therapy, and other counseling services to needy families and citizens across the state. Id. ¶ ¶ 5-7, 34. Defendants are two institutions that employed Plaintiffs. Id. ¶ 8.

         Plaintiffs allege that they were " paid under a purported 'fee for service' arrangement as described [in the Complaint]." Id. ¶ ¶ 5-7, 19. The Complaint describes the arrangement as " a purported hybrid compensation plan typically consisting of flat rates for certain tasks and hourly rates for certain other services provided or work performed." ^[2] Id. ¶ 36.

         The crux of Plaintiffs' complaint is that they were paid flat fees for recurring, time-specific jobs, but no fees for certain tasks related to those jobs -- tasks that Defendants required them to do, regardless of how long they took to complete. For example, while Plaintiffs typically received $40 for each 45-minute therapy session, they received no compensation for various time-consuming tasks attendant to each session. Id. ¶ 37, Plaintiffs do not specify whether their employment contract with Defendants contemplated and encompassed these attendant tasks, or whether Defendants simply required Plaintiffs to complete these tasks in addition to their bargained-for duties.

         Plaintiffs allege the following typical scenario: Because therapy sessions were sometimes located outside Defendants' facilities, Plaintiffs would have to travel to and from some sessions. Id. ¶ 45. When they arrived at the location of a session, they were required to wait at least 15 minutes for a client to show up. Id ¶ ¶ 41, 46, 48. If the client did not show up, they had to complete certain follow up work pursuant to the Defendants' " no show" policies. Id. ¶ 46-49. This follow up work required Plaintiffs to " 1) conduct a family outreach by phone, 2) complete and submit an encounter form, 3) draft, print, and mail the no-show client a letter, and/or 4) update the no-show client's progress notes and/or discharge paperwork." ^[3] Id. ¶ 42. Plaintiffs were not paid for any of these tasks because Defendants only permitted Plaintiffs to " report hours/time for client

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appointments that were actually kept, and not for other work performed." Id. ¶ 49.

         Relatedly, Plaintiffs were also required to do uncompensated work if a client canceled within 24 hours of a scheduled session. In those situations, Plaintiffs were " typically required" to " 1) provide notice directly or indirectly to the 'canceled client'; 2) complete and submit an encounter form, and 3) update the progress notes." Id. ¶ 43. They were not compensated for these tasks or the time it took to complete them.

         Plaintiffs also allege they were never compensated for " [t]ime spent obtaining insurance authorizations," and for

[t]ime spent attending mandatory follow-up paperwork, and record keeping for clients, including but not limited to calling, emailing and writing letters to clients and others involved in the care or supervision of the clients, such as schools, hospitals, other psychotherapists, physicians, other social agencies, authorized family and clients' associates, [Rhode Island Department of Children, Youth & Families], and law enforcement as well as writing follow-up notes of such actions.

Id. ¶ 50.^[4]

         III. STANDARD OF REVIEW

         At the motion to dismiss stage, the Court accepts as true all well-pleaded factual allegations in the complaint and makes all reasonable inferences therefrom in favor of the Plaintiffs. Bergemann v. Rhode Island Dep't of Envtl. Mgmt., 665 F.3d 336, 339 (1st Cir. 2011) (citing Dominion Energy Brayton Point, LLC v. Johnson, 443 F.3d 12, 16 (1st Cir. 2006)). The Federal Rules of Civil Procedure only require Plaintiffs to provide Defendants with " a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). This requirement is satisfied when Plaintiffs include sufficient factual allegations in their complaint to nudge their claims " across the line from conceivable to plausible." Bell A. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Nonetheless, to stave off a motion to dismiss, Plaintiffs are also " required to set forth factual allegations, either direct or inferential, respecting each material element necessary to sustain recovery under some actionable legal theory." Gooley v. Mobil Oil Corp., 851 F.2d 513, 514 (1st Cir. 1988) (citing Conley v. Gibson, 355 U.S. 41, 45-48, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)).

         IV. LEGAL ANALYSIS

         Plaintiffs allege they were paid below the minimum wage in violation of FLSA provision 29 U.S.C. § 206 (2013).^[5] " To state a valid FLSA claim, [P]laintiffs had to allege (1) that they were employed by [Defendants]; (2) that their work involved interstate activity; and (3) that they performed work for which they were under-compensated." Pruell v. Caritas Christi, 678 F.3d 10, 12 (1st Cir. 2012). Defendants challenge the sufficiency of the third element of Plaintiffs' claim.

         To satisfy the third element, Plaintiffs must plead that they performed compensable work, for which they were compensated at a rate below the federal hourly

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minimum wage. Defendants argue that Plaintiffs failed this requirement, citing the so-called Klinghoffer rule. United States v. Klinghoffer Bros. Realty Corp., 285 F.2d 487, 490 (2d Cir. 1960) (holding that FLSA minimum wage claims are only viable when a covered employee's wages for a single workweek divided by hours worked dip below the federal minimum wage -- hereinafter referred to as the " weekly measuring rod" ). Plaintiffs do not allege in their complaints that the wages they earned in any given workweek divided by hours worked ever dipped below the minimum wage.

         Defendants also challenge whether Plaintiffs pleaded the alleged violations with sufficient factual specificity, and whether Plaintiffs have sufficiently asserted " willful" violations of the FLSA so that the statute of limitations can be extended from two years to three years under 29 U.S.C. § 255(a) (2013).

         Plaintiffs urge the Court to reject the Second Circuit's Klinghoffer rule in favor of the " hourly measuring rod" adopted in 2011 by a First Circuit sister district court in Norceide v. Cambridge Health Alliance, 814 F.Supp.2d 17, 23, 25 (D. Mass. 2011).^[6] Under the Plaintiffs' theory, the employer must pay them at least a minimum wage for each hour worked, regardless of what their contract provides. Relying on Norceide, Plaintiffs claim that Defendants compensated Plaintiffs with a flat fee for time-specific jobs, but did not compensate Plaintiffs for the additional time they were required to spend on tasks attendant to those jobs. Plaintiffs do not state in their complaints whether their employment contracts with Defendants contemplated and included those attendant tasks.

         After reviewing the relevant case law, the controlling statute, and the regulations interpreting that statute, the Court finds that the FLSA does not prescribe a single measuring rod for all covered employees, but rather instructs courts to look to the employment contract between the parties to determine whether the statute has been violated. Therefore, Plaintiffs could state a claim under a " contract measuring rod" theory when their employer requires them to put in additional work, not required by their contract, at a compensation rate below the minimum wage.^[7] Plaintiffs could also state a claim under the " weekly measuring rod" theory when the wages they earn in a given workweek, divided by hours worked, dip below the minimum wage.^[8] Because the current versions of Plaintiffs' complaints do not state a claim under either theory, the Court grants Defendants' motions to dismiss, but allows Plaintiffs leave to amend their complaints within 14 days.

         A. Background on Relevant Case Law

         If Klinghoffer were a United States Supreme Court decision, Plaintiffs' federal minimum wage claims would be dismissed with a one-line order. However, Klinghoffer was a Second Circuit panel's decision, and therefore this Court finds itself

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duty-bound to examine Plaintiffs' claims, and the FLSA provision authorizing it, in a more rigorous fashion.

         The First Circuit has not adopted the Klinghoffer rule, which has led to some disagreement among the First Circuit sister district courts. In a 2010 decision, the District of Massachusetts applied the Klinghoffer rule to grant a defendant's 12(b)(6) motion. Pruell v. Caritas Christi, No. C.A. 09-11466-GAO, 2010 WL 3789318, at *3 (D. Mass, Sept. 27, 2010). On appeal, the First Circuit did not have the opportunity to address the Klinghoffer issue.^[9] Pruell v. Caritas Christi, 678 F.3d 10 (1st Cir. 2012). In 2011, a district judge in the District of Massachusetts forcefully and persuasively rejected the Klinghoffer rule in favor of the hourly measuring rod.^[10] Norceide, 814 F.Supp.2d at 21-26. In 2014, that judge's decision was sustained at the summary judgment stage under the law of the case doctrine by a different district judge who had taken over the case after the original judge's retirement. Norceide v. Cambridge Health Alliance, No. C.A. 10-11729-NMG, 2014 WL 775453, at *4 (D. Mass. Feb. 24, 2014). However, in 2015, the District Court of New Hampshire cited to the Klinghoffer rule, without analysis of the underlying Act or Norceide, to dismiss a minimum wage claim. Chesley v. DIRECTV Inc., No. 14-CV-468-PB, 2015 WL 3549129, at *5 (D.N.H. June 8, 2015).

         Of the thirteen federal circuits, eight have not taken a position on the Klinghoffer rule, while five have adopted it. 285 F.2d 487 (2d Cir. 1960); Blankenship v. Thurston Motor Lines, 415 F.2d 1193, 1198 (4th Cir. 1969); US. Dep't of Labor v. Cole Enter., Inc., 62 F.3d 775, 780 (6th Cir. 1995); Hensley v. MacMillan Bloedel Containers, Inc., 786 F.2d 353, 357 (8th Cir. 1986); Dove v. Coupe, 759 F.2d 167, 171-72, 245 U.S.App.D.C. 147 (D.C. Cir. 1985). Among the Klinghoffer rule Circuits, all but the D.C. Circuit acquiesced to the rule without any independent

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analysis of the FLSA. See Norceide, 814 F.Supp.2d at 22 (examining Circuit decisions adopting Klinghoffer rule). And while the D.C. Circuit conducted its own analysis, its decision was no doubt colored by Klinghoffer, which is quoted at length in the opinion. Dove, 759 F.2d at 171. Because of the large influence that the Klinghoffer decision has had on this area of law, this Court now turns to examining whether that case correctly reached the conclusion that the " weekly measuring rod" is the only permissible method of alleging minimum wage violations under the FLSA.

         B. Klinghoffer Decision

         Upon a close examination of the Klinghoffer decision, this Court is convinced that the Second Circuit panel's holding was correct, but its dictum, which has become known as the Klinghoffer rule, was mistaken. Specifically, this Court finds that the Klinghoffer rule is dependent on principles of lenity unique to the criminal aspects of that case, and compromised by an incomplete, and seemingly results-driven assessment of legislative history.

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