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Herzfeld v. 1416 Chancellor, Inc.

United States District Court, E.D. Pennsylvania

June 9, 2017

JESSICA HERZFELD, on behalf of herself and all others similarly situated
v.
1416 CHANCELLOR, INC. d/b/a THE GOLD CLUB, and DOES 1 through 10, inclusive and THE APM CLUB, INC. d/b/a THE GOLD CLUB

          ORDER

          KEARNEY, J.

         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.

         I. Facts

          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."[1] Before 1416 Chancellor allowed the dancer to perform for the first time, she had to sign four agreements, including a lease agreement to use the stage and "Entertainer's Rules, Regulations, and Proper Conduct."[2]

         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.[3] 1416 Chancellor required dancers to perform on stage during their shift and the disc jockey decided and announced when the dancers needed to perform on stage.[4] Under the lease agreement, if a dancer did not show up for her scheduled shift, 1416 Chancellor could charge her a no show fee but did not always enforce this policy.[5]1416 Chancellor also required dancers to tip the disc jockey and house moms during their shift and pay an administrative fee during their shift (reduced for on time arrival).[6]

         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.[7] The dancer must pay a portion of her private dance fees ($5 for Main Room dances and $10 for VIP) to 1416 Chancellor.[8] 1416 Chancellor limits a dancer to performing three private dances in a row and a dancer must inform the floor host or manager before using the Couch or VIP room.[9] A dancer could also perform in champagne courts which cost patrons $150 or $300 and 1416 Chancellor received $50 or $100 from the dancer.[10] 1416 Chancellor kept track of the dancer's private dances during their shifts.[11]

         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.[12] Aware of this lawsuit, APM Club, Inc. agreed not to assume liability for Ms. Herzfeld's filed class action and collective action case against 1416 Chancellor.[13] The Liquor Control Board of the Commonwealth of Pennsylvania approved the transfer of the liquor license on January 25, 2016.[14]

         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.[15]

         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[16], and we will then address Ms. Herzfeld's assertion of successor liability against APM Club for this collective action. In Section B, we address Ms. Herzfeld's collective action against APM Club directly for dancers who worked for APM Club on and after the January 25, 2016.

         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.[17] In the first tier, we require a "modest factual showing, " where Ms. Herzfeld "must product some evidence, 'beyond pure speculation, ' of a factual nexus between the manner in which the employer's alleged policy affected her and the manner in which it affected other employees."[18]We apply a lenient standard because "conditional certification is not really a certification, but is rather [an] exercise of [our] discretionary power to facilitate the sending of notice to potential class members, and is neither necessary nor sufficient for the existence of a representative action under the [Act]."[19]

         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."[20] We conditionally certify a collective of dancers who danced at the Gold Club between August 26, 2011 and the January 24, 2016 for purposes of notice.

         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."[21] The court of appeals endorsed the Court of Appeals for the Seventh Circuit's reasoning a lower bar to relief is necessary for successor liability because "a violator of the Act could escape liability, or at least make relief much more difficult to obtain, by selling its assets without an assumption of liabilities by the buyer (for such an assumption would reduce the purchase price by imposing a cost on the buyer) and then dissolving."[22]

         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."[23] A magistrate judge in Rhode Island denied a subsequent buyer's motion to dismiss because the less strict federal common law standard of successor liability allowed the workers to pursue Fair Labor Standards Act claims against the subsequent buyer for the wrongful conduct of the former owner.[24] In Guarcas, restaurant workers sued their restaurant employer for failure to pay minimum wage in February 2015.[25] The workers worked at Gourmet Heaven's two locations and both locations were owned by Chung Cho.[26] Two months after the workers filed their complaint against Gourmet Heaven and Cho, Cho and his buyer Dae Hyun Yoo began the process of transferring Gourmet Heaven's ownership and on May 20, 2015, Cho sold Yoo the Gourmet Heaven location with all merchandise, equipment, trade name, and telephone number for $500, 000.[27] Yoo closed the sale on September 30, 2015 and renamed the restaurant Serendipity Gourmet but "the store continues to operate at the same address, with many of the same employees, selling the same products, with a sign using the same font and colors..."[28] The court reiterated the workers' litigation against Cho was pending throughout the entire sale process.

         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.[29] The court found Yoo had constructive notice of the worker' claims because the claims were filed on a public docket and also Gourmet Heaven/Cho's business practices were the subject of other litigation and news coverage.[30] The court found Cho/Gourmet Heaven is unlikely to provide adequate relief because Cho filed for personal bankruptcy and his corporations and limited liability companies were now defunct.[31] The workers satisfied the three factors of federal common law successor liability and the court denied Yoo/Serendipity Gourmet's motion to dismiss.

         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.[32] The case for bona fide successor is stronger than in Guarcas because APM Club also kept using the Gold Club name, unlike Guarcas, where the court found successor liability even where the new owner changed the business' 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.[33]

         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."[34]

         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."[35] Ms. Herzfeld must allege an "injury in fact", a "casual connection between the injury and the conduct complained of, and the likelihood her injury "will be redressed by a favorable decision."[36]

         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."[37] The Supreme Court held an employee must have standing, a "personal stake", in the collective action to maintain it under the Act.[38] In Genesis, an employee brought a collective action against her employer for automatically deducting a thirty minute lunch break even if the employee did work during his or her lunch break.[39] The employer made a Rule 68 offer of judgment which fully mooted the employee's individual claim and no other employees had opted-in to the collective.[40] The Supreme Court held the employee's "suit became moot when her individual claim became moot, because she lacked any personal interest in representing others in this action."[41]

         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."[42] Ms. Herzfeld cites no cases to support her alarmist argument because it lacks merit.

         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.[43] Rule 23(a) requires: (1) numerosity: meaning the class "must be so numerous that joinder of all members is impracticable"; (2) commonality: meaning there are "questions of law or fact common to the class"; (3) typicality: meaning the "claims or defenses of the representative parties" must be "typical of the claims or defenses of the class"; and, (4) adequacy of representation: meaning the named plaintiff and counsel will "fairly and adequately protect the interests of the class."[44] We then turn to Rule 23(b)(3) which requires "(1) common questions of law or fact predominate (predominance); and, (2) the class action is the superior method for adjudication (superiority)."[45]

         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.[46]

         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."[47] 1416 Chancellor's corporate designee estimated from June 201 land April 2015 "a couple hundred" dancers signed the 1416 Chancellor's lease agreement and became independent contractors.[48]This rough ...


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