MARK A. KEARNEY, District Judge.
Persons suing their former Pennsylvania employer for misclassifying them as independent contractors or failing to pay lawful wages can, if supported by well plead facts, also sue entities who bought and now manage their former employer to collect a judgment because Pennsylvania Law allows the jury to evaluate liability of the new owner as a continuation of the original employer. This judgment creditor theory of successor entity liability may impose obligations upon new owners of companies for conduct engaged in by their predecessor. As the person can sue her former employer for wages, she can also possibly represent others like her who worked for the same employer, even when it now has a new owner. Today, we address a former worker's attempt to not only represent persons who, like her, worked for the same employer, but also those who only worked for the successor employer. While she has standing to represent persons similar to her to pursue claims for wages arising from conduct by her employer, she lacks standing to represent persons who never worked for her employer. In the accompanying Order, we grant her motion for conditional and class certification against her employer for conduct occurring while her employer owned the business but deny her motion to represent persons who, unlike her, worked only for the new owner.
Jessica Herzfeld worked as an exotic dancer for 1416 Chancellor, Inc. as the owner of the gentleman's exotic dance nightclub known as The Gold Club from 2006 until April 2014. 1416 Chancellor hired dancers as independent contractors. The dancers paid a fee to lease the stage from 1416 Chancellor. 1416 Chancellor did not pay wages to the dancers as employees. Ms. Herzfeld alleges 1416 Chancellor improperly classified her and fellow dancers as independent contractors and by doing so, failed to pay minimum wage, failed to pay overtime, and improperly took a portion of their tips.
A. Facts supporting Ms. Herzfeld's class and collective allegations.
Under uniform regulations, Ms. Herzfeld paid 1416 Chancellor a rental fee to perform during her shifts and paid the required tips to the "house mom" and disc jockey. Ms. Herzfeld also performed private dances for patrons at a price set by 1416 Chancellor and remitted a portion of private dance fee to 1416 Chancellor.
Ms. Herzfeld alleges 1416 Chancellor treated all dancers the same. The club managers would audition new dancers and decide whether they are "going to hire her or not."
Dancers submitted their desired monthly shifts to 1416 Chancellor at the start of each month. A dancer paid 1416 Chancellor a rental fee to perform during her shift based on the time and day of the week they performed.
Dancers could also give private dances to patrons during their shifts. 1416 Chancellor dictated "couch dances" are limited to 4 minutes and the dancer charges $20 if they are performed in the Main Room and $30 if they are performed in the VIP Room.
On August 26, 2014, Ms. Herzfeld originally sued 1416 Chancellor under the Fair Labor Standards Act claiming it improperly classified her and other dancers as independent contractors. We denied 1416 Chancellor's motion to compel arbitration and 1416 Chancellor appealed.
B. Facts regarding the Gold Club's ownership.
While our court of appeals reviewed our denial of arbitration, 1416 Chancellor signed an Agreement of Sale of Liquor License and Assets Only through which APM Club, Inc. purchased 1416 Chancellor's liquor license, furniture, fixtures, and equipment, and goodwill for $110,000.
On remand after our court of appeals affirmed our holding on non-arbitrability, Ms. Herzfeld added APM Club as a Defendant claiming the broadly defined "Gold Club" (whether owned by 1416 Chancellor or APM Club) failed to pay her and other dancers the federal minimum wage for hours work and failed to pay overtime. Ms. Herzfeld also claims the Gold Club (whether owned by 1416 Chancellor or APM Club): (1) violated Pennsylvania's Minimum Wage Act by improperly classifying her as an independent contractor failing to pay minimum wage and overtime; (2) violated Pennsylvania's Wage Payment and Collection Law by taking her tips to cover its business expenses; and, (3) is unjustly enriched by her tips paid to the Gold Club and her working promotional events without being paid.
Ms. Herzfeld seeks to certify a collective under the Fair Labor Standards Act for all dancers employed by either 1416 Chancellor or APM Club from August 26, 2011 until present. Ms. Herzfeld also seeks to certify a class for her Pennsylvania claims for all dancers employed by either 1416 Chancellor or the APM Club from August 26, 2011 until present.
II. Ms. Herzfeld's collective action.
The Fair Labor Standards Act allows Ms. Herzfeld to pursue a representative action for herself and other employees under 29 U.S.C. § 216(b) if (1) the employees are all similarly situated; and, (2) each collective member individually consents with the court to join the action.
Ms. Herzfeld did not rent space to dance at the Gold Club during APM Club's ownership. Ms. Herzfeld, however, seeks to hold APM Club liable for her claims against 1416 Chancellor through successor liability. In her collective, Ms. Herzfeld also seeks to include dancers who were employees of 1416 Chancellor and employees of APM Club. In Section A, we address Ms. Herzfeld's collective action against 1416 Chancellor for dancers employed from August 26, 2011 until the January 24, 2016 takeover by APM Club
A. Ms. Herzfeld may proceed in a collective action for conduct on or before January 24, 2016.
1. Ms. Herzfeld makes a modest factual showing 1416 Chancellor treated dancers as employees.
Ms. Herzfeld seeks conditional certification under the Fair Labor Standards Act of a collective of all dancers who worked at the Gold Club from August 26, 2011 until January 24, 2016 alleging 1416 Chancellor improperly classified the dancers as independent contractors.
Our court of appeals directs a two-tier approach in certifying a collective action.
Ms. Herzfeld alleges 1416 Chancellor applied the same policies to her and fellow dancers and misclassified her and other dancers as independent contractors. Ms. Herzfeld produced evidence 1416 Chancellor operated one location entitled the Gold Club in Philadelphia. Ms. Herzfeld produced evidence 1416 Chancellor classified all dancers as independent contractors and used the same lease agreement, same regulations, and same fee and tip requirements for the dancers. Ms. Herzfeld "presents a modest factual showing" because she and the other dancers "(a) work or worked at the same location; (b) share the same "dancer" job duties and responsibilities; and (c) have been classified as independent contractors."
2. Ms. Herzfeld alleges successor liability against APM Club, Inc.
Ms. Herzfeld alleges APM Club is liable for her and the collective's claims from August 26, 2011 until January 24, 2016 because APM Club is the successor of 1416 Chancellor. Our court of appeals adopts the federal common law standard for Fair Labor Standard Act successor liability which is a "lower bar to relief than most state jurisprudence."
When reviewing APM Club's successor liability, we consider "(1) continuity in operations and work force of the successor and predecessor employers; (2) notice to the successor-employer of its predecessor's legal obligation; and, (3) ability of the predecessor to provide adequate relief directly."
The court considered Yoo/Serendipity Gourmet a bona fide successor because Yoo operated with the previous owner's merchandise and equipment, used the same signage, at the same address doing the same business with many of the same employees.
Ms. Herzfeld's allegations satisfy the federal common law standard for APM Club's successor liability. Ms. Herzfeld adduced evidence 1416 Chancellor sold APM Club the building, the trade name "Gold Club," and all equipment and inventory. Under APM Club's ownership, the Gold Club operates a dance club at the same location, under the same name, and with many of the same managers and dancers. Ms. Herzfeld satisfies the bona fide successor prong because, as in Guarcas, the APM Club kept the same business model, same employees, purchased the merchandise and inventory of the business, and purchased the trade name.
APM Club had notice of 1416 Chancellor's legal obligations because APM Club carved out the assumption of liability for Ms. Herzfeld's claims by this docket number in the sale agreement. The final prong, the inability to obtain adequate relief from 1416 Chancellor, is also satisfied. Counsel for 1416 Chancellor moved to withdraw because the sole shareholder of 1416 Chancellor passed away and 1416 Chancellor is insolvent and has no assets.
At the conditional certification stage, Ms. Herzfeld's allegations satisfy the federal common law standard for successor liability to allow her to pursue a collective action for claims from August 26, 2011 until January 24, 2016 against 1416 Chancellor to also go forward against APM Club.
B. Ms. Herzfeld may not proceed in a collective action for conduct on or after January 25, 2016.
Ms. Herzfeld requests we also conditionally certify a collective action against the APM Club from January 25, 2016 until present for improperly classifying dancers as independent contractors and failing to pay minimum wage and overtime. Ms. Herzfeld never danced at the Gold Club when APM Club owned it. Ms. Herzfeld cannot bring a collective action against APM Club because she cannot demonstrate an alleged policy of APM Club affected her to establish standing. And because APM Club's alleged policies did not affect Ms. Herzfeld, she cannot "demonstrate a factual nexus between the manner in which the employer's alleged policy affected her and the matter in which it affected the proposed collective action members."
Standing is a core requirement for a federal lawsuit. "In order to invoke federal-court jurisdiction, [Ms. Herzfeld] must demonstrate that [she] possesses a legally cognizable interest, or "`personal stake,'" in the outcome of the action."
Ms. Herzfeld cannot allege a "causal connection" between her "injury in fact" of being misclassified as an independent contractor and APM Club's conduct because APM Club never classified Ms. Herzfeld as anything. While Ms. Herzfeld and other dancers may recover from APM Club under successor liability, their recovery is for injuries caused by 1416 Chancellor's conduct.
The Fair Labor Standards Act allows Ms. Herzfeld to bring an action "in behalf of [her]self or themselves and other employees similarly situated."
The Court's Genesis holding is not directly on point because Ms. Herzfeld's claims are not mooted by full financial compensation; however, the Court's holding affirms Ms. Herzfeld must have a live controversy with the employer to maintain a collective action on behalf of other employees. Ms. Herzfeld cannot have a live controversy with an employer she has never worked for, no matter how similar APM Club treats its new employees to how 1416 Chancellor treated Ms. Herzfeld. Wage claims against APM Club which are not based on a successor liability theory require a representative plaintiff who worked for APM Club.
Ms. Herzfeld's arguments to the contrary blur the distinction between Ms. Herzfeld's ability to sue APM Club through successor liability and her ability to sue APM Club directly. Ms. Herzfeld argues "[i]n terms of the Article III standing requirements, there is no conceptual difference between a "direct" claim and one that depends on successor liability. . . . [i]f it were the case that reliance on a successor liability theory deprived a plaintiff of standing, there would never be a circumstance in which a plaintiff could recover against a successor corporation and there would be no need for successor liability law."
Ms. Herzfeld is only able to proceed against APM Club on the theory of successor liability because she has direct claims and standing to sue 1416 Chancellor. Put another way, if 1416 Chancellor never personally injured Ms. Herzfeld, she could not sue APM Club because she reaches APM Club through injuries caused by 1416 Chancellor. Ms. Herzfeld cannot represent dancers in their direct claims against APM Club from the January 25, 2016 until present because she lacks a direct personal injury caused by APM Club. Ms. Herzfeld's injuries caused by 1416 Chancellor do not count once APM Club took over the Gold Club. The dancers for APM Club after January 25, 2016 need a representative who suffered a direct personal injury caused by APM Club's conduct. Article III bars Ms. Herzfeld's collective action claims against APM Club for conduct on or after January 25, 2016 because she lacks standing.
III. Ms. Herzfeld may proceed on class action claims for conduct before January 25, 2016.
Ms. Herzfeld seeks to certify a class for her Pennsylvania state law claims. Ms. Herzfeld alleges 1416 Chancellor violated Pennsylvania's Minimum Wage Act by improperly classifying her as an independent contractor and Pennsylvania's Wage Payment and Collection Law by taking her tips to cover its business expenses. Ms. Herzfeld also alleges 1416 Chancellor was unjustly enriched by taking her tips and forcing her to work promotional events without pay. In Section A, we address Ms. Herzfeld's class action against 1416 Chancellor for dancers employed from August 26, 2011 until January 24, 2016, and we will then address Ms. Herzfeld's assertion of successor liability against APM Club. In Section B, we address Ms. Herzfeld's class action against APM Club directly for dancers who worked for APM Club on or after January 25, 2016 and her alternative request for more time to find a suitable class representative.
When reviewing class certification, we identify the "common interests" of the class members and evaluate Ms. Herzfeld's and her counsels' "ability to fairly and adequately protect class interests" under Fed. R. Civ. P. 23.
A. We certify a class for the Pennsylvania claims occurring on or before January 24, 2016 against both Defendants.
We reviewed the post-discovery detailed record and, based on our findings below, determine Ms. Herzfeld establishes the propriety of certifying a class of dancers with Pennsylvania state law claims for conduct on or before January 24, 2016 by a preponderance of the evidence.
1. Ms. Herzfeld satisfies the Rule 23(a) requirements.
The Class satisfies the numerosity requirement.
Our court of appeals instructs "[n]o minimum number of plaintiffs is required to maintain a suit as a class action, but generally if the named plaintiff demonstrates that the potential number of plaintiffs exceeds 40, the first prong of Rule 23(a) has been met."
The Class satisfies the commonality requirement.
"The commonality requirement [is] satisfied if [Ms. Herzfeld] shares at least one question of fact or law with the grievances of the prospective class."
The commonality requirement is satisfied because 1416 Chancellor used standardized lease agreements, fee policies, and regulations to classify dancers as independent contracts and standardized requirements for dancers' tip-out to other employers evidencing dancers sharing common factual allegations and legal theories for recovery.
The Class satisfies the typicality requirement.
The typicality requirement "focuses on whether the individual claim of the class representative has the essential characteristic common to the claims of the class."
The Class is adequately represented.
Rule 23(a)'s adequacy of representation requires: (1) "`plaintiffs attorney must be qualified, experienced, and generally able to conduct the proposed litigation;' and, (2) `the plaintiff must not have interests antagonistic to those of the class.'"
Attorneys Jamisen A. Etzel and Gary F. Lynch and their firm Carlson Lynch Sweet Kilpela & Carpenter, LLP are qualified, experienced, and able to conduct this litigation. We reviewed Carlson Lynch's firm resume and find counsel and their firm have extensive experience in wage payment actions. Judge Brody recently found counsel and their firm provided adequate representation when certifying a class of misclassified exotic dancers using the same legal theories as Ms. Herzfeld.
Ms. Herzfeld has no interest antagonistic to the Class and is adequate to represent the Class of dancers who worked at the Gold Club under 1416 Chancellor's ownership. We reviewed Ms. Herzfeld's deposition testimony and find Ms. Herzfeld shares the same factual and legal theories of recovery as the class members. We do not find, and 1416 Chancellor does not show, Ms. Herzfeld has an interest antagonistic to class.
Ms. Herzfeld adequately represents the Class and Attorneys Etzel and Lynch and their firm are adequate class counsel.
2. The Class satisfies Rule 23(b)(3) predominance and superiority requirements.
Rule 23(b)(3) requires "(1) common questions of law or fact predominate (predominance); and, (2) the class action is the superior method for adjudication (superiority)."
The Class satisfies the predominance requirement.
The predominance requirement "begins, of course, with the elements of the underlying cause of action."
A class may have individual questions of fact so long as "common questions `predominate over any questions affecting only individual [class] members.'"
The Class satisfies the superiority requirement.
Rule 23(b)(3)'s superiority requirement asks Ms. Herzfeld to "demonstrate that a class action will `achieve economies of time, effort, and expense, and promote . . . uniformity of decision as to persons similarly situated without sacrificing procedural fairness or bringing about other undesirable results.'"
This District is a desirable place to concentrate litigation under Rule 23(b)(3)(C) because 1416 Chancellor owned and operated the Gold Club in Philadelphia, Pennsylvania. We do not find likely difficulties in managing this class action under Rule 23(b)(3)(D).
3. Ms. Herzfeld pleads successor liability against APM Club.
Ms. Herzfeld alleges successor liability against APM Club for her and the class' claims against 1416 Chancellor. Ms. Herzfeld's state law claims are governed by Pennsylvania's successor liability standard, not the federal common law standard for collective actions.
Under Pennsylvania law, a corporation who purchases the assets of another corporation generally "does not assume the debts and liabilities of the selling corporation."
Continuation of enterprise.
Ms. Herzfeld adduced evidence APM Club's ownership of the Gold Club is a continuation of enterprise from 1416 Chancellor's ownership because it remained an exotic dance club with the same trade name, same liquor license, same equipment and inventory, at the same location, and with many of the same managers and dancers. Ms. Herzfeld adequately pleads continuation of enterprise because APM Club kept the same business, same employees, purchased the merchandise and inventory of the business, and purchased the trade name.
Continuation of shareholders.
Ms. Herzfeld did not plead evidence continuity of shareholders. Mr. Carmen Milica, now deceased, was the sole shareholder of 1416 Chancellor. Mr. Anthony P. Milica is the sole shareholder of APM Club. This prong of de facto merger is "subject to the fact-specific nature of the particular underlying corporate realities and will not always be evident from the formalities of the proximal corporate transaction."
Liquidation of 1416 Chancellor.
Ms. Herzfeld pleads, and 1416 Chancellor's counsel represented in court, 1416 Chancellor ceased operations, has no assets, and the sole shareholder, Carmen Milicia, is deceased.
APM Club assumed 1416 Chancellor's business liabilities.
Ms. Herzfeld alleges APM Club took over 1416 Chancellor's operation as an exotic dance club once they completed the sale. APM Club purchased 1416 Chancellor's furniture, fixtures, equipment, and liquor license and once they completed the sale, APM Club began using 1416 Chancellor's equipment, inventory, liquor license, managers, dancers, and other employees to run continuously run the Gold Club as an exotic dance club.
At this stage, we find Ms. Herzfeld pleads facts sufficient to allege 1416 Chancellor's sale of the Gold Club to APM Club is a de facto merger.
B. Ms. Herzfeld does not have standing to bring a class action for conduct on or after January 25, 2016.
Ms. Herzfeld also requests we certify a class of dancers misclassified by APM Club from January 25, 2016 until present under the same Pennsylvania state law theories of recovery. In the alternative, Ms. Herzfeld requests we grant her time to find a suitable representative for the class claims against APM Club. It is undisputed Ms. Herzfeld did not dance at the, Gold Club during APM Club's ownership.
As discussed fully in the collective action section, Ms. Herzfeld does not have standing to sue APM Club directly for her Pennsylvania Minimum Wage Law, Pennsylvania Wage Payment and Collection Law, and unjust enrichment claims. Our court of appeals recently reiterated Article III standing requirements "do not change in the class action context. "`[N]amed plaintiffs who represent a class must allege and show that
Ms. Herzfeld requests, in the alternative, we defer ruling on a subclass of dancers against APM Club until "a suitable class representative is found."
Of course, to the extent another dancer files a case based on these same theories challenging APM Club's conduct on or after January 25, 2016, we may consider the cases related.
We conditionally certify a collective action under the Fair Labor Standards Act of all Dancers of the Gold Club in Philadelphia, Pennsylvania at any time from August 26, 2011 until January 24, 2016 based on Ms. Herzfeld's modest factual showing she and other dancers are similarly situated. We deny certifying a collective action for conduct on or after January 25, 2016 because Ms. Herzfeld did not dance at the Gold Club during APM Club's ownership and lacks Article III standing to bring a claim because she cannot plead a personalized injury caused by APM Club's conduct.
We also certify a Class under Rule 23(b)(3) against 1416 Chancellor and the APM Club based on conduct on or before January 24, 2016, based on our finding Ms. Herzfeld alleges the Defendants: (1) violated Pennsylvania's Minimum Wage Act by improperly classifying her as an independent contractor failing to pay minimum wage and overtime; (2) violated Pennsylvania's Wage Payment and Collection Law by taking her tips to cover its business expenses; and, (3) she unjustly enriched 1416 Chancellor by remitting her tips to the Gold Club and working promotional events without pay. We deny certifying a class action for conduct on or after January 25, 2016 because Ms. Herzfeld did not dance at the Gold Club during APM Club's ownership depriving her of Article III standing to bring a claim because she cannot plead a personalized injury caused by APM Club's conduct.