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O'Neal v. Denn-Ohio, LLC

United States District Court, N.D. Ohio, Western Division

January 14, 2020

Christy D. O'Neal, et al., Plaintiff
Denn-Ohio, LLC, Defendant.



         I. Introduction and Background

         Named Plaintiffs Christie D. O'Neal and Dusty M. Shepard brought this action on behalf of themselves and those similarly situated who are or were servers at any of the Denny's franchise locations owned by the Defendants. Named Plaintiffs claim their former employers, Defendant Denn-Ohio, LLC, violated several state and federal statutes and regulations governing employee pay. (Doc. No. 1). Plaintiffs sought leave to amend their complaint to add four additional defendants: PTS Hospitality, LLC; JMAD Hospitality, LLC; Thomas F. Pilbeam; and Jack Thompson. (Doc. No. 21).[1] Defendant Denn-Ohio filed a motion in opposition. (Doc. No. 25).

         Plaintiffs moved for conditional certification of a collective action and for equitable tolling of the statute of limitations for individuals to opt-in to the collective action. (Doc. No. 22). Defendant Denn-Ohio filed a motion to dismiss counts one and two of Plaintiffs' complaint (Doc. No. 7). Denn-Ohio also challenged the Court's personal jurisdiction over any claims against it by employees who work at Denny's restaurants outside the state of Ohio. (Doc. No. 29).

         Plaintiff O'Neal worked as a server at a Denny's restaurant in Toledo, Ohio, from 2013 to 2017. (Doc. No. 22-1 at 9). Plaintiff Shepard worked as a server at a Denny's restaurant in Berkshire, Ohio, from 2016 to 2018. (Id.). Plaintiffs allege Defendants operate these, and other Denny's franchise locations, as a “single enterprise” because Defendants perform related activities through unified operation and common control for a common business purpose: the operation of a chain of Denny's restaurants. (Id. at 13).

         II. Discussion

         A. Plaintiffs' Motion for Leave to Amend the Complaint

         At the April 24, 2019 case management conference, I set May 24, 2019, as the deadline for amending the pleadings and adding parties without leave of court. On August 21, 2019, Plaintiffs filed a motion for leave to file a second amended complaint under Rule 15(a) to add two individual defendants and two corporate defendants. Because Plaintiffs seek to amend their complaint after the deadline established by the scheduling order, they must first show good cause. See Fed. R. Civ. P. 16(b)(4).

         1. Rule 16 Analysis

         “In order to demonstrate good cause, the plaintiff must show that the original deadline could not reasonably have been met despite due diligence and that the opposing party will not suffer prejudice by virtue of the amendment.” Ross v. Am. Red Cross, 567 F. App'x. 296, 306 (6th Cir. 2014) (citing Leary v. Daeschner, 349 F.3d 888, 906 (6th Cir. 2003)).

         Plaintiffs claim they acted with due diligence by seeking leave to amend their complaint as soon as they became aware of the factual basis for their claims against the four additional defendants. Until they received the defendant's management handbook on July 29, 2019, Plaintiffs were not aware the two individual defendants they seek to add, Thomas F. Pilbeam and Jack Thompson, were the owners of Denn-Ohio, LLC. (Doc. No. 21 at 2). Nor were they aware of the two corporate entities they seek to add or the fact that those entities may be involved in operating the restaurants at issue. Id. Once Plaintiffs became aware of these individuals and corporate entities, the Plaintiffs promptly took steps to amend their complaint. See Callaway v. Denone, LLC, No. 18-cv-01981, 2019 WL 1090346, at *4 (N.D. Ohio Mar. 8 2019) (granting leave to amend to add additional defendant where plaintiff was not aware of basis for claims against defendant until receipt of employee handbook).

         Denn-Ohio argues that Plaintiffs should have been aware of the factual basis for their claims because Denn-Ohio's corporate filings are available to the public. (Doc. No. 25 at 3). Denn-Ohio cites Commerce Benefits Group, Inc. for the proposition that leave to amend should be denied when the plaintiff “knew or should have known” of the facts underlying the amendment. (Id. at 2) (citing Commerce Benefits Grp, Inc. v. McKesson Corp., No. 1:107-cv-2036, 2008 WL 239550 (N.D. Ohio Jan. 28, 2008)). While constructive knowledge may have played a role in Commerce Benefits Group, Inc., it was not dispositive. Instead, the court's decision emphasized the plaintiff's failure to explain why it did not bring the claim earlier, as well as the significant prejudice defendants would suffer if the amendment was allowed. Commerce Benefits Grp, Inc., 2008 WL 239550, at *3.

         Here, the Plaintiffs have provided an explanation for their failure to bring the claim earlier. See Century Indem. Co. v. Begley Co., 323 F.R.D. 237, 241 (E.D. Ky. 2018) (finding good cause even though proposed amendments do not stem from new information). Plaintiffs requested discovery on Denn-Ohio's corporate structure and ownership on March 15, 2019. (Doc. No. 27-1). The due diligence requirement does not impose on a plaintiff the burden to exhaust all avenues to discover information that may serve as the basis of a claim. Instead, Plaintiffs were entitled to presume they would discover this kind of information the way many litigants routinely do, through discovery.

         The potential prejudice to the nonmoving party also plays a role in determining good cause. Leary, 349 F.3d at 909. I find the Defendants will not suffer significant unfair prejudice. This is not a case where the Defendants will be confronted with a new substantive claim for which they must prepare a defense. Instead, Plaintiffs are merely bringing the same claims they have already brought against Denn-Ohio. The two individual defendants, as Denn-Ohio's owners, presumably have firsthand knowledge of many of the facts at issue. The two corporate defendants, according to Plaintiffs' allegations, work as part of a single enterprise with Denn-Ohio and these individual defendants. If this is true, they too likely already have knowledge of or access to the information they would need to defend against these claims. Further, unlike the situation in Leary, where the litigation had been going on for years and the court had already ruled on a motion for summary judgment as well as a motion to dismiss the plaintiffs' first amended complaint, the present case is still in the relatively early stages of the litigation.[2]

         2. Rule 15 Analysis

         Because Plaintiffs have shown good cause under Rule 16(b)(4), I now consider whether leave to amend should be permitted under Rule 15. Pursuant to Rule 15(a)(2), “a party may amend its pleading only with the opposing party's written consent or the court's leave. The court should freely give leave when justice so requires.” Fed.R.Civ.P. 15(a)(2). Rule 15 sets forth a liberal policy of permitting amendments. Springs v. U.S. Dept. of Treasury, 567 F. App'x. 438, 443 (6th Cir. 2014). But a motion for leave to amend may be denied when: it is the product of undue delay, bad faith, or dilatory motive; there would be unfair prejudice to the opposing party; or amendment of the complaint would be futile. Id.

         I addressed many of the Rule 15(a)(2) factors in the context of analyzing Rule 16(b)(4)'s good cause requirement under Rule 16(b)(4). There is no evidence of undue delay, bad faith, or dilatory motive attributable to the plaintiffs. I have already found granting leave to amend will not result in significant prejudice. Denn-Ohio's final argument is that amendment would be futile.

         Denn-Ohio first asserts Plaintiffs failed to adequately plead that individuals Thomas and Pilbeam are “employers” under the FLSA. (Doc. No. 25 at 3-4). Relying on Twombly and Iqbal, Denn-Ohio argues Plaintiffs have failed to show “that Pilbeam or Thompson actually engage in the tasks they are asserting.” (Doc. No. 25 at 4). Denn-Ohio contends that Plaintiffs must plead with particularity and identify exactly how Thomas and Pilbeam are “employers” under the FLSA. Denn-Ohio misconstrues both the facts and law here. Twombly and Iqbal require plausibility, not particularity. See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). Further, although threadbare recitals of the elements are not enough, Plaintiffs have done more here. Specifically, Plaintiffs allege each of the parties they seek to add “supervised and controlled work schedules or the conditions of employment, determined the rate and method of payment, and maintained employment records . . .” (Doc. No. 21-1 at 11-13).

         Denn-Ohio's second argument fares no better. This time, they claim Plaintiffs have failed to show how PTS or JMAD are related to the allegations in their complaint. Again, this is not so. In addition to alleging that each of the corporate entities took the actions mentioned above, Plaintiffs allege that all four new defendants acted with Denn-Ohio as a “single enterprise” in the operation of a chain of Denny's restaurants. (Doc. No. 21-1 at 11-13).

         I grant the Plaintiffs' motion for leave to file a second amended complaint.

         B. Denn-Ohio's Motion to Dismiss Counts One and Two

         I turn to Denn-Ohio's motion to dismiss counts one and two of Plaintiffs' complaint.[3]

         In ruling on a motion to dismiss under Rule 12(b)(6), “[c]ourts must construe the complaint in the light most favorable to [the] plaintiff.” Albrecht v. Treon, 617 F.3d 890, 893 (6th Cir. 2010) (citation omitted). To survive a motion to dismiss under Rule 12(b)(6), “even though a complaint need not contain ‘detailed' factual allegations, its ‘factual allegations must be enough to raise a right to relief above the speculative level on the assumption that all the allegations in the complaint are true.'” Ass'n of Cleveland Fire Fighters v. City of Cleveland, Ohio, 502 F.3d 545, 548 (6th Cir. 2007) (quoting Twombly, 550 U.S. at 555 (2007)).

         Conclusory allegations or legal conclusions masquerading as factual allegations will not suffice. Twombly, 550 U.S. at 555 (stating that the complaint must contain something more than “a formulaic recitation of the elements of a cause of action”). A complaint must state sufficient facts which, when accepted as true, state a claim “that is plausible on its face.” Iqbal, 556 U.S. at 678 (2009) (explaining that the plausibility standard “asks for more than a sheer possibility that a defendant has acted unlawfully” and requires the complaint to allow the court to draw the reasonable inference that the defendant is liable for the alleged misconduct).

         The Fair Labor Standards Act requires employers to pay covered employees a minimum wage of at least $7.25 an hour. 29 U.S.C. § 206(a)(1)(C). But there is an exception for a “tipped employee, ” which is “any employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips.” 29 U.S.C. § 203(t). Under this exception, the employee still receives the minimum wage provided by § 206(a)(1), but the employer is permitted to pay the employee as little as $2.13 provided that the employee's tips bring their hourly rate up to at least $7.25. 29 U.S.C. § 203(m).

         Denn-Ohio's motion to dismiss is based on a new Department of Labor (“DOL”) interpretation of the “dual jobs regulation, ” 29 C.F.R. § 531.56(e). The interpretation is found in two guidance documents: (1) U.S. Dep't Labor, Wage & Hour Div., Op. Ltr. FLSA2018-27 (Nov. 8, 2018); and (2) Field Assistance Bulletin No. 2019-2 (Feb. 15, 2019), which explains the changes made to Field Operations Handbook § 30d00(e). I refer to these two guidance documents collectively as “New Guidance.”

         According to Denn-Ohio, the interpretation of the dual jobs regulation advanced in the New Guidance is controlling, and under this interpretation, Plaintiffs' claims in counts one and two must be dismissed. Before I decide whether dismissal is warranted under this new interpretation of the dual jobs regulation, I decide whether deference to the New Guidance is ...

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