United states district court southern district of new york

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McLean et al v. Garage Manage Corp. et al

Doc. 176



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Plaintiffs, :








Defendants. :


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RICHARD M. CHAPMAN, jointly and




Defendants. :



For Plaintiffs in McLean:

Stephen H. Kahn Kahn Opton LLP 228 E 45th St New York, NY 10017

For Plaintiff in Ramirez:

Brandon David Sherr Law Office of Justin A. Zeller, P.C. 277 Broadway, Suite 408 New York, NY 10007

For Defendants:

A. Michael Weber Elias Kahn


10 Civ. 3950 (DLC)


09 Civ. 9325 (DLC)


Naveen Kabir Michael Pappas Littler Mendelson, P.C. 900 Third Avenue New York, NY 10022

DENISE COTE, District Judge: The plaintiffs, current and former Garage Managers employed

by the defendants (collectively "GMC") at New York area parking garages, have brought claims against GMC alleging violations of the Fair Labor Standards Act ("FLSA"), 29 U.S.C. ? 201 et seq., and the New York Labor Law ("NYLL"), N.Y.C.R.R. ? 142-2.2, for failure to pay overtime. In an August 29, 2011 Opinion ("the Summary Judgment Opinion"), the Court granted summary judgment to the plaintiffs on, inter alia, the following two issues: (1) GMC compensated Garage Managers on an hourly, not a salary basis, and therefore Garage Managers are not subject to the FLSA's "bona fide executive exemption", see 29 U.S.C. ? 213(a)(1); and (2) the "EC bonus" payments GMC made to Garage Managers cannot qualify as overtime payments and cannot be excluded from the calculation of Garage Managers' regular pay. See generally McLean v. Garage Management Corp., 819 F.Supp.2d 332 (S.D.N.Y. 2011). Familiarity with the Summary Judgment Opinion will be assumed. This Opinion constitutes the Court's findings of fact and conclusions of law on whether GMC acted in


good faith, whether its violation of the labor laws was willful, and the proper calculation of damages.

PROCEDURAL HISTORY Plaintiffs Henry McLean ("McLean") and Edwin Rivera filed

their complaint in this action ("the McLean Action") on May 12, 2010. On August 11, 2010, the Court authorized notice of a collective FLSA action. Up to 45 current and former Garage Managers consented to join and are part of the FLSA action. The Court denied GMC's motion to dismiss and to compel arbitration on March 29, 2011. Following the August 29 Summary Judgment Opinion, the Court granted the plaintiffs' motion for Rule 23, Fed. R. Civ. P., class certification of their NYLL claims. As set forth in an October 21 Order, the class period runs from May 10, 2004 to April 18, 2010. On March 15, 2012, all opt-out requests postmarked after January 18 were ordered stricken. The NYLL class consists of as many as 93 current and former Garage Managers.1 All Garage Managers in the NYLL class are also members of the FLSA collective action.

Plaintiff Luis Ramirez ("Ramirez"), a former Garage Manager, separately brought suit against GMC ("the Ramirez

1 The parties dispute the presence of one individual in the collective action and one individual in the class action.


Action") on November 9, 2009. After being reassigned to this Court on May 12, 2010, the Ramirez Action was stayed on July 14, 2010. The stay was lifted on October 17, 2011. The McLean Action and the Ramirez Action were consolidated for trial on March 28, 2012.

The parties have consented to try all remaining issues without a jury. Pursuant to this Court's procedures for nonjury trials, and without objection by the parties, the parties submitted the direct testimony of witnesses by affidavit and their documentary evidence with the pretrial order filed on April 2, 2012. GMC submitted direct testimony by affidavit for witness Douglas Kamm ("Kamm"), GMC's Director of Personnel from 1986 to 2000 and currently its human resources and administrative supervisor. The plaintiffs have submitted as exhibits the depositions of Richard Chapman ("Chapman"), an attorney and GMC's President; and Bernard Weinstein ("Weinstein"), a GMC executive. Both parties have also submitted the deposition of Louis Vanegas ("Vanegas"), a former investigator with the United States Department of Labor ("DOL").

The Summary Judgment Opinion established that GMC is liable to the plaintiffs for violations of the FLSA's overtime provisions as a matter of law. The parties dispute, however, whether GMC acted in "good faith" and with "reasonable grounds"


to believe that its failure to pay Garage Managers overtime did not violate the FLSA, in which case the Court would have discretion not to award the plaintiffs liquidated damages. The parties also dispute whether GMC's failure to pay overtime in violation of the FLSA was "willful," in which case the plaintiffs' FLSA claims would be subject to a three-year, as opposed to a two-year, statute of limitations.

It is undisputed that GMC changed its system for paying overtime to Garage Managers on approximately April 18, 2010. Therefore, the plaintiffs' claims are for the period prior to that date. The following constitutes the Court's findings of fact and conclusions of law.

Origination of EC Bonus System Chapman created the compensation system for Garage

Managers, including the use of the EC bonus, prior to 1970. He wanted a simple procedure for the payment of overtime, and therefore created a system that would allow GMC to pay overtime once a month rather than on a weekly basis. In his view, this had the added advantage of creating an "annual package reflecting the importance of the manager." As Chapman regularly explained to Garage Managers, they were getting base pay for forty-hour work weeks and an additional payment once a month for


overtime hours and to compensate the Garage Managers for their role in ensuring the profitability of their garages.

Chapman had studied labor law in law school, and was "cognizant of the need for payment of time and a half for overtime." While Chapman "presumed" that Garage Managers would not be considered hourly employees under the FLSA, he designed a system of Garage Manager compensation that reflected a separate payment for any overtime work as a belt and suspenders system to "cover" himself.

The compensation of Garage Managers was calculated as follows: They were given an amount of weekly pay based on an hourly rate, a monthly payment called Extra Compensation or the EC bonus, and additional compensation for overseeing special events and for unused vacation or benefit days. The weekly base pay was adjusted to reflect hours worked during a pay period, and regularly fluctuated because of that calculation. The EC bonus was a pre-determined amount for an employee that did not vary from month to month or due to the number of hours worked. The amount of an individual's EC bonus was determined from a number of factors including garage assignment, merit increases, garage transfers, promotions and seniority. A Garage Manager's annual earnings always exceeded the agreed upon annual salaries. GMC paid its Garage Managers generously by industry standards.


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