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Chao v. Barbeque Ventures, LLC: LABOR - no good faith shown to get safe harbor from FLSA liqudated damages

United States Court of Appeals
No. 08-1284
Elaine L. Chao, Secretary of Labor, *
United States Department of Labor, *
Plaintiff Appellee, *
* Appeal from the United States
v. * District Court for the
* District of Nebraska.
Barbeque Ventures, LLC; Barbeque *
Ventures of Nebraska, LLC; Old *
Market Ventures, LLC, d/b/a Famous *
Daves, **
Defendants Appellants. *
Submitted: September 25, 2008
Filed: November 28, 2008
Before MURPHY, BOWMAN, and BENTON, Circuit Judges.
BENTON, Circuit Judge.
Barbeque Ventures, LLC, Barbeque Ventures of Nebraska, LLC, and Old
Market Ventures, LLC (the employers) appeal from a summary judgment for the
Secretary of Labor pursuant to the Fair Labor Standards Act, 29 U.S.C. 207,
1 The Honorable Laurie Smith Camp, United States District Judge for the
District of Nebraska.
2 In March 2006, Cutchall purchased Barbeque Ventures interest in Old Market
Ventures, becoming its sole owner. On January 31, 2007, the four Barbeque
Ventures restaurants were sold to Old Market Ventures.
215(a)(2). The district court1 ordered the employers to pay overtime compensation,
liquidated damages and post-judgment interest, while denying injunctive relief. The
sole issue is whether the district court properly granted liquidated damages.
Jurisdiction being proper under 28 U.S.C. 1291, this court affirms.
Between May 16, 2004 and May 14, 2006, the employers operated five Famous
Daves restaurants in the Omaha area. Four were wholly owned by William Theisen
through the company, Barbeque Ventures, LLC. The fifth restaurant was owned by
Old Market Ventures, LLC, a company in which Theisen held a 52% majority interest,
and Gregory Cutchall the 48% minority interest. Theisen was the controlling manager
of the employers.2
Theisen and Cutchall are experienced in the restaurant business. For about ten
years, Theisen owned five or six Godfathers Pizza restaurants. Cutchall is the current
owner of twelve Popeyes Fried Chicken restaurants in the Omaha area. For the past
four or five years, Cutchall has maintained a policy that Popeyes employees may not
work at more than one location without prior approval; those working at multiple
locations had their hours combined to calculate overtime compensation.
During the relevant period, the Famous Daves restaurants had no policy
prohibiting employees from working at more than one location. Each restaurant
manager independently hired and scheduled employees without input from other
restaurants or senior management. At least 11 employees applied to a restaurant other
than the one at which they presently worked. Three applications specifically list
Famous Daves as the applicants present employer; two of the applications include
the name and contact information of the applicants immediate supervisor. Matt
Diamond, the Area Director who oversaw all five restaurants, agreed that for one
application, the hiring manager could tell that an applicant worked at another
Famous Daves. Diamond also testified that he visited each restaurant about twice per
month, and recognized some employees at more than one location.
The employers engaged an independent third-party, Payroll Management
Incorporated, to process payroll. Each restaurant manager reported the hours worked
by employees to Payroll Management. It then generated employee paychecks and W-
2s. There is no dispute that neither the employers nor Payroll Management tracked
whether an employee worked at more than one Famous Daves. As a result, the
employers never combined the hours worked by a dual-restaurant employee for
overtime purposes.
On October 25, 2006, the Secretary filed a complaint alleging the companies
violated the FLSA by not paying 25 persons overtime compensation. On behalf of
those employees, the Secretary sought ,055.67 in unpaid overtime compensation,
liquidated damages, post-judgment interest, and an injunction. The Secretary moved
for summary judgment, which the district court granted on all issues except for the
injunction. The award of liquidated damages is the only issue on appeal. The
employers argue that the district court erred in granting summary judgment with
respect to whether they: 1) established a good faith defense; and 2) proved reasonable
grounds for believing they had not violated the FLSA.
Summary judgment is a question of law to be reviewed de novo. Cross v.
Ark. Forestry Commn, 938 F.2d 912, 916 (8th Cir. 1991), citing Spalding v. Agri-
Risk Servs., 855 F.2d 586, 588 (8th Cir. 1988). Viewing the evidence and drawing
all inferences most favorably to the non-moving party, this court affirms if there is no
genuine issue of material fact and the moving party is entitled to judgment as a matter
of law. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-24 (1986), citing Fed. R. Civ.
P. 56(c). A genuine issue of material fact exists if a reasonable jury could return a
verdict for the party opposing the motion. Cross, 938 F.2d at 916.
The FLSA requires that non-exempt employees be paid time and one-half for
hours worked in excess of forty hours in a single workweek. 29 U.S.C. 207(a)(1).
An employer violating this provision may be liable for unpaid overtime compensation
and an additional equal amount as liquidated damages. See 29 U.S.C. 216(b).
Liquidated damages are not considered punitive, but are intended in part to
compensate employees for the delay in payment of wages owed under the FLSA.
Hultgren v. County of Lancaster, 913 F.2d 498, 509 (8th Cir. 1990), citing Brooklyn
Sav. Bank v. ONeil, 324 U.S. 697, 707 (1945).
As originally enacted, section 216s liquidated damages provision was
mandatory. In 1947, Congress enacted 29 U.S.C. 260. That section states that, if
the employer shows that its actions were taken in good faith and with reasonable
grounds for believing that they complied with the FLSA, the court may, in its sound
discretion, award no liquidated damages or award any amount thereof not to exceed
the amount specified in 216 of this title. 29 U.S.C. 260; see Braswell v. City of
El Dorado, 187 F.3d 954, 957 (8th Cir. 1999) (An award of liquidated damages
under 216(b) is mandatory unless the employer can show good faith and reasonable
grounds for believing that it was not in violation of the FLSA.); Jarrett v. ERC
Props., Inc., 211 F.3d 1078, 1084 (8th Cir. 2000) (same). The employer bears the
burden of proving both good faith and reasonableness, but the burden is a difficult
one, with double damages being the norm and single damages the exception.
Herman v. RSR Sec. Servs. Ltd., 172 F.3d 132, 142 (2d Cir. 1999).
The good faith requirement is a subjective standard where the employer must
establish an honest intention to ascertain and follow the dictates of the FLSA.
Hultgren, 913 F.2d at 509. To carry his burden, a defendant employer must show
that he took affirmative steps to ascertain the Acts requirements, but nonetheless,
violated its provisions. Martin v. Cooper Elec. Supply Co., 940 F.2d 896, 908 (3d
Cir. 1991).
To avoid a liquidated damages award . . . the employer must also prove its
position was objectively reasonable. Hultgren, 913 F.2d at 509; see also Cooper,
940 F.2d at 908, quoting Williams v. Tri-County Growers, 747 F.2d 121, 128 (3d Cir.
1984) (The reasonableness requirement imposes an objective standard by which
to judge the employers conduct. Ignorance alone will not exonerate the employer
. . . .).
The employers argue that they have demonstrated good faith by showing that
Theisen and Cutchall did not have knowledge that employees worked at multiple
locations. Lack of knowledge is not sufficient to establish good faith. See Cooper,
940 F.2d at 909 ([T]he district courts finding . . . that the defendant had not
knowingly and willfully intended to avoid compliance with the Act is not by itself
enough to support the finding of reasonable good faith.); Tri-County Growers, 747
F.2d at 129 ([T]he employee need not establish an intentional violation . . . . Instead,
the employer must affirmatively establish that he acted in good faith by attempting to
ascertain the Acts requirements.). The district court properly found that, given the
sophistication of senior management, they were aware that employees may have been
working at multiple locations. Cutchall testified that, for the past four or five years,
his twelve Popeyes restaurants have maintained a policy that employees working at
multiple locations receive proper overtime compensation. The employers lack-ofspecific-
knowledge argument fails to meet their burden of showing an honest
intention to ascertain and follow the FLSAs requirements.
The employers assert that they have demonstrated good faith by proving that
no employees complained about overtime pay. This alone does not satisfy the good
faith requirement of the FLSA. The fact that an employer has broken the law for a
long time without complaints from employees does not demonstrate the requisite good
faith required by the statute. Tri-County Growers, 747 F.2d at 129; Reich v. S. New
England Telecomm. Corp., 121 F.3d 58, 71 (2d Cir. 1997) (Nor is good faith
demonstrated by the absence of complaints on the part of employees . . . .); Reich v.
Stewart, 121 F.3d 400, 407 (8th Cir. 1997) ([T]he fact that [the employee] did not
seek overtime pay is irrelevant because [he] cannot waive his entitlement to FLSA
The employers argue that the Secretarys failure to allege a willful violation
further undermines the claim for liquidated damages. Well-established case law
rejects the employers argument. See S. New England Telecomm., 121 F.3d at 71
(That [the employer] did not purposefully violate the provisions of the FLSA is not
sufficient to establish that it acted in good faith.); accord Cooper, 940 F.2d at 909;
Tri-County Growers, 747 F.2d at 129.
The employers also contend that they established good faith by engaging
Payroll Management. For purposes of the FLSA, Payroll Management is an
extension of the employers. Copeland v. ABB. Inc., 521 F.3d 1010, 1013 (8th Cir.
2008) (finding a third-party administrator for worker compensation claims an
employer under the FLSA), citing 29 U.S.C. 203(d) (defining the employer to
include any person acting directly or indirectly in the interest of an employer in
relation to an employee). This court has rejected the proposition that delegating the
payroll function to a subordinate satisfies the FLSA:
[T]he mandate of the statute is directed to the employer and he may not
escape it by delegating it to others. The duty rests on the employer to
inquire into the conditions prevailing in his business. He does not rid
himself of that duty because the extent of the business may preclude his
personal supervision, and compel reliance on subordinates. He must then
stand or fall with those whom he selects to act for him . . . . the duty must
be held personal, or we nullify the statute.
Goldberg v. Kickapoo Prairie Broad. Co., 288 F.2d 778, 781 (8th Cir. 1961), citing
People ex rel. Price v. Sheffield Farms-Slawson-Decker Co., 225 N.Y. 25 (N.Y.
1918) (Cardozo, J.).
The employers have failed to establish an honest intention to meet the FLSAs
requirements under section 260. Because the employers cannot demonstrate good
faith, this court need not reach the reasonableness issue.
The judgment of the district court is affirmed.


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