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MITCHELL v. SORVAS

April 14, 1960

James P. MITCHELL, Secretary of Labor, United States Department of Labor, Plaintiff,
v.
Harry SORVAS, individually and doing business as Merit Protective Service, Defendant



The opinion of the court was delivered by: GOURLEY

This is an action by the United States Department of Labor to permanently enjoin the defendant from violating the minimum wage, overtime and record-keeping provisions of the Fair Labor Standards Act of 1938, as amended. 29 U.S.C.A. §§ 206, 207 and 211(c).

Two questions confront the court:

 1. Is the defendant engaged in commerce or the production of goods for commerce.

 2. In the event defendant is engaged in commerce or in the production of goods for commerce, is defendant relieved from compliance for the reason that defendant's activities fall within the specific exemptions enumerated in the Act. *fn1"

 Defendant conducts a 'shopping service' business, offering retail establishments a service of investigating the honesty and efficiency of sales employees.

 Defendant employs 'shoppers' from the Pittsburgh area who enter divers places of business, pretending to be customers, and make observations concerning the behavior, honesty, and efficiency of the sales people of the subscriber. They then prepare reports which are delivered to the crew supervisor, who, in turn, either personally or by use of the mails forwards the reports to the Pittsburgh office.

 Two or three shoppers are assigned to a supervisor and the shoppers and supervisor constitute a crew. The crews conduct shopping surveys throughout Allegheny County, the Western half of Pennsylvania, and cities in parts of Eastern Ohio, West Virginia and Kentucky.

 1. Is the Defendant Engaged in Commerce?

 I am satisfied that when defendant's employees transported themselves and their services regularly and recurrently across the state lines and in mailing or carrying their reports across state lines for use for further interstate communication between defendant and home offices of subscribers and Merit Protective Service Companies located outside Pennsylvania, together with the mailing, telephoning and telegraphing of messages, reports and surveys to these persons and organizations, defendant was engaged in commerce within the meaning of the Act, Mitchell v. C. W. Vollmer & Co., 349 U.S. 427, 75 S. Ct. 860, 99 L. Ed. 1196; Tobin v. Alstate Construction Co., 345 U.S. 13, 73 S. Ct. 565, 97 L. Ed. 745; Mitchell v. Kroger Co., 8 Cir., 248 F.2d 935.

 2. Is Defendant Exempt from the Provisions of the Fair Labor Standards Act?

 In order for defendant to claim exemption three tests must be met: 29 U.S.C.A. § 213(a)(2).

 1. More than one-half of the annual dollar volume of sales of goods or services must be made within the state where the business is located.

 2. At least 75 per cent of the gross volume of sales of goods or services must not be for resale.

 3. At least 75 per cent of sales of goods or services must be recognized as retail sales or services in the industry.

 These exemptions are to be narrowly construed against the employers seeking to assert them and their application limited to those establishments plainly and unmistakably within their terms and spirit. They are explicit prerequisites to exemption, not merely suggested guidelines for judicial determination of the employers' status, Mitchell v. Kentucky Finance Co., 359 U.S. 290, 79 S. Ct. 756, 3 L. Ed. 2d 815. The burden of proof to these exemptions rests with defendant, Richter v. Barrett, 3 Cir., 173 F.2d 320.

 The facts in the instant proceeding, in my judgment, are so unequivocally clear and unambiguous that reasonable men can render but one conclusion.

 First, It is not disputed that less than 25 per cent of defendant's gross volume of business is earned outside of Pennsylvania, so that the first prerequisite for exemption has been met.

 Second, A question might arise as to whether the customers who are referred to defendant by other Merit organizations result in transactions for resale. In my opinion these transactions are akin to referrals by attorneys. The legal work performed is not sold to the forwarding attorney who then resells it to the client. The services are performed by the referred attorney directly to the client and the fees are divided. No wholesale transaction is contemplated. But even if I were in error in evaluating such transactions as being not in the category for resale, the total gross volume received from such transactions since 1956 has always been less than 10 per cent which is permissible under the exemption provisions of the Act.

 Third, Prior to the 1949 amendments to the Act, the concept of retail sales or services was restricted to sales to the ultimate consumer. Walling v. Roland Electrical Co., 4 Cir., 146 F.2d 745. Unless the sales of goods or services were to a purchaser who intended to use the product or service for his personal or household use, such business did not qualify for the exemption. Under such a provision, sales to an ultimate consumer, who intended to use the goods or services for a commercial use did not qualify for the exemption. Boisseau v. Mitchell, 5 Cir., 218 F.2d 734; Mitchell v. T. F. Taylor Fertilizer Works, D.C., 136 F.Supp. 740.

 These authorities hold to the view that as long as the purchaser is the ultimate consumer, not intending to resell, said sale in the industry is considered to be a retail sale, and the exemption is applicable.

 The word retail is not defined by the Act. Given its common and ordinary acceptation when used in sales parlance, it means a sale in small quantity or direct to the consumer, as distinguished from the word wholesale, meaning a sale in large quantity to one who intends to resell. The character of the sale is not altered by the use to which the consumer may put the purchased commodity. These sales were preponderantly retail although the services sold were used subsequently for commercial purposes, White Motor Co. v. Littleton, 5 Cir., 124 F.2d 92.

 A sale of plaintiff's shopping services as used by the buyer for its commercial benefit is analogous to a restaurateur purchasing a chicken, treating it, and succulently preparing it in order to encourage more consumers and customers. The fact that this activity is extended for a commercial ...


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