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Acosta v. Osaka Japan Restaurant, Inc.

United States District Court, E.D. Pennsylvania

July 12, 2018

R. ALEXANDER ACOSTA, Secretary of Labor, United States Department of Labor


          Baylson, J.

         I. Introduction

         Plaintiff R. Alexander Acosta, Secretary of Labor, United States Department of Labor moves for partial summary judgment in this action asserting violations of the Fair Labor Standards Act (FLSA), 29 U.S.C. § 201, et seq. against Defendants Osaka Japan Restaurant, Inc. and J.H.S.K, Inc., sushi restaurants in Philadelphia, Pennsylvania and Lansdale, Pennsylvania, respectively; Kwang Bum Kim, the owner of both restaurants; and his son, James Kim, manager of the Lansdale location.

         The Complaint asserted numerous ways in which Defendants violated the FLSA:

1) Violation of the Minimum Wage Requirement for Tipped Employees;
2) Failure to Pay Overtime; and
3) Failure to Keep Records.[1]

         Plaintiff further asserts that Defendants' violations of the FLSA were willful, and seek back wages, liquidated damages, and an injunction against Defendants, as well as to hold both Kwang Bum and James Kim individually liable. (Pl.'s Mot. for Summ. J. ECF 29.)

         For the reasons that follow, Plaintiff's motion for partial summary judgment is GRANTED IN PART AND DENIED IN PART.

         II. Background

         A. The Defendants

         Defendant Osaka Japan Restaurant (“Osaka Chestnut Hill”) is a fusion/sushi restaurant located at 8605 Germantown Avenue in Philadelphia, which has been in operation for approximately thirteen years. (Pl.'s SOF ¶¶ 1-4; Defs.' SOF ¶¶ 1-4). Osaka Chestnut Hill serves dinner seven days a week and lunch Monday-Saturday; on days when both lunch and dinner are served, the restaurant closes between 2:30 and 5:00 PM. (Pl.'s SOF ¶ 4; Defs.' SOF ¶ 4).

         Defendant J.H.S.K Inc. (“Osaka Lansdale”) is a fusion/sushi restaurant located at 1598 Sumneytown Pike in Lansdale, Pennsylvania, which has been in operation for approximately eight years. (Pl.'s SOF ¶¶ 5-8; Defs.' SOF ¶¶ 5-8). Osaka Lansdale serves dinner seven days a week and lunch Monday-Friday; on days when both lunch and dinner are served, the restaurant closes between 2:30 and 5:00 PM. (Pl.'s SOF ¶ 8; Defs.' SOF ¶ 8).

         Defendant Kwang Bum Kim is the president, sole corporate officer, and owner of Defendants Osaka Japan Restaurant and J.H.S.K Inc. (Pl.'s SOF ¶ 9; Defs.' SOF ¶ 9). Kwang Bum Kim previously owned and operated an Osaka restaurant in Wayne, Pennsylvania (“Osaka Wayne”), which he opened approximately 18 years ago and closed approximately 15 years ago. (Pl.'s SOF ¶ 11; Defs.' SOF ¶ 11). He testified at his deposition, through a translator, that he “do[es] not understand English.” (KBK Dep. 137:1, Ex. A to Pl.'s Mot. for Summ. J., ECF 29-5).

         Defendant James Kim, the son of Kwang Bum Kim, was the manager of Osaka Lansdale, a position he held, with an interruption to sell life insurance in approximately 2012, from 2010 to 2016. (Pl.'s SOF ¶ 13-14; Defs.' SOF ¶ 13-14). In 2001 or 2002 to 2003, he worked as a server at Osaka Wayne. (James Kim (JK) Dep. 216:19-24), Ex. B to Mot. for Summ. J., ECF 29-6).

         The parties dispute the scope of James's responsibilities and autonomy as manager of Osaka Lansdale. Whereas Plaintiff asserts that James was responsible for “interviewing employees, firing employees, hiring employees, and recommending prospective employees” to his father and enforcing workplace rules, such as not sitting down during service, Defendants point to deposition testimony from both Kwang and James that Kwang, not James, hired employees and that James only “relay[ed] the messages to fire employees, ” could not set pay rates, and merely passed on his father's rules. (Pl.'s SOF ¶ 15; Defs.' SOF ¶ 15). James testified that Kwang James testified that he “was instructed to put together payroll once a week” at Osaka Lansdale, which involved “doing the balance books or the tip sheets.” (JK Dep. 24:10-11). Kwang testified that his son had “no power.” (JK Dep. 138:14).

         Kwang, to whom James referred to throughout his deposition as “Mr. Kim, ” fired James as manager of Osaka Lansdale in October 2016. (JK Dep. 11:1-9).

         B. Types of employees at Osaka

         Osaka employed servers, hosts, bussers, bartenders, dishwashers, kitchen chefs, sushi chefs, and, at Osaka Lansdale, hibachi chefs.[2] (Pl.'s SOF ¶ 33, 39; Defs.' SOF ¶ 33, 39). Most types of employees were paid an hourly wage, and the kitchen chefs, sushi chefs, and hibachi chefs were paid a daily rate set by Kwang. (Pl.'s SOF ¶ 33, 38-39; Defs.' SOF ¶ 33, 38-39). Bartenders and some servers were paid $2.83 per hour, and bussers were paid $5.00 per hour.[3](Pl.'s SOF ¶ 34-35; Defs.' SOF ¶ 34-35). Daily-rate employees were paid $80-160 per day. (Pl.'s SOF ¶ 40; Defs.' SOF ¶ 40).

         All Osaka employees clock in and out on a point-of-sale computer system known as Micros, which records hours worked, shifts worked, and pay amounts, tracking each shift down to the minute. (Pl.'s SOF ¶ 44-46, 49; Defs.' SOF ¶ 44-46, 49). Micros calculates pay for hourly employees by multiplying hours worked by the pay rates stored in the system. (Pl.'s SOF ¶ 55; Defs.' SOF ¶ 55).

         C. Minimum wage and tipping policies

         1. “Tip credit” against minimum wage

         Osaka “claimed a tip credit[4] against [its] minimum wage obligations to hourly employees.” (Pl.'s SOF ¶ 78; Defs.' Resp. to Requests for Admissions ¶ 14, Ex. C to Pl.'s Mot. for Summ. J. ECF 29-7). Plaintiff presents numerous affidavits from former Osaka employees attesting that they were not informed of the following: “that they were claiming a tip credit as part of their wages”; “that tipped employees had to be paid at least $2.13 per hour, in addition to any tips received”; “that Defendants could not claim more than $5.12 per hour as a tip credit as part of their wages”; “that the tip credit Defendants claimed could not exceed the tips tipped employees actually received”; “that Defendants could not take their tips unless they were part of a valid tip pool”; “that Defendant [sic] cannot claim a tip credit unless they inform tipped employees about the tip credit.” (Pl.'s SOF ¶¶ 81-86). Defendants dispute these assertions by citing to a portion of James' testimony in which he testified that he told new employees being hired at $2.83 per hour that they would be receiving tips. (Defs.' SOF ¶¶ 81-86). At his deposition, James testified that he “still [did]n't know” what the term “tip credit” meant. (JK Dep. 150:21).

         2. Tip pool

         At Osaka Chestnut Hill and Osaka Lansdale, servers and bartenders were required to contribute their tips to a tip pool, which was then distributed among various categories of employees. (KBK Dep. 91:25-93:2; JK Dep. 166:22-168:24). Prior to a federal investigation, the tip pools at the two locations included kitchen chefs, who did typically receive tips directly from customers and did not regularly interact with customers. (Pl.'s SOF ¶ 97; Defs.' SOF ¶ 97). Once the tips were pooled, the tip money received each shift would be distributed according to a points-based system according to which employees were assigned a particular point value based on their position, length of employment, and performance; servers, for example, received 50-100 points in the tip pool, and bartenders received 90-100 points in the tip pool. (Pl.'s SOF ¶ 101-02; Defs.' SOF ¶ 101-02). An employee would calculate tips by aggregating cash and credit card tips, and then distributing the tips based on the number of points each employee was allotted. (Pl.'s SOF ¶ 105; Defs.' SOF ¶ 105).

         Although Kwang testified that he did not develop the points system, he testified that servers, bartenders, and hosts could not keep their own tips and were “required” to share them. (KBK Dep. 91:25-92:20). James testified that although no employee had ever been fired for failing to participate in a tip pool, he “[could]n't envision” a server staying on if he refused to participate in the tip pool.

         Heng Kim, a former hibachi chef, wrote in his declaration that James and Kwang held a meeting with staff and “told the staff that we were required to pool our tips.”[5] (Heng Kim Decl. ¶ 21, Ex. N. to Pl.'s Mot. for Summ. J., ECF 29-18). Former server Helen Prentice wrote in her declaration that she and a co-worker approached James to ask whether the tip pool would be changed, and James made clear that it would not. (Prentice Decl. ¶ 33, Ex. L. to Pl.'s Mot. for Summ. J., ECF 29-16).

         3. Credit card deduction

         It is undisputed that although credit card processing fees were 4%, Defendants deducted 15% from employees' credit card tips until this policy was changed in February 2016. (Pl.'s SOF ¶ 113-14; Defs.' SOF ¶ 113-14). Kwang testified that the extra eleven percentage points “was considered to cover [employees'] meals.” (Defs.' SOF ¶ 113-14). Defendants did not reimburse their employees for the credit card tip deductions, and deposited the deductions into corporate bank accounts. (Pl.'s SOF ¶ 118; Defs.' SOF ¶ 118).

         D. Overtime policies

         Hourly tipped employees were paid by multiplying their hourly rate by the number of hours worked (as logged in Micros); if Micros showed an hourly employee working more than 40 hours, Defendants did not pay overtime, but instead simply multiplied the number of hours worked by the employee's regular hourly rate. (Pl.'s SOF ¶ 55-56; Defs.' SOF ¶ 55-56). Plaintiffs provide Micros printouts for several hourly employees whose Micros printouts show more than 40 hours per week clocked in for the week of October 19-25, 2015, and who were not paid overtime, but Defendants assert that employees frequently forgot to clock out between the lunch and dinner shifts; thus, Micros would show employees as working when the restaurant was closed. (Pl.'s SOF ¶ 57-59; Defs.' SOF ¶ 57-59). Defendants would record the pay for the hourly tipped employees as recorded in the Micros printouts into a spreadsheet. (Pl.'s SOF ¶ 60; Defs.' SOF ¶ 60).

         Daily-rate employees were paid by multiplying the number of days worked by the according to the number of days they had worked. (Pl.'s SOF ¶ 63; Defs.' SOF ¶ 63). Defendants did not pay daily-rate employees overtime, even if Micros had logged them as working more than 40 hours in a single week, and, as with the hourly employees, Defendants argue that daily-rate employees often did not clock out. (Pl.'s SOF ¶ 128-32; Defs.' SOF ¶ 128-32).

         E. Record-keeping practices

         Osaka does not keep or maintain full records of employees' phone numbers and home addresses, or, in some cases, their full names. (Pl.'s SOF ¶ 148-49; Defs.' SOF ¶ 148-49). Kwang testified that he would make Excel spreadsheets showing monthly pay and then discard these after one to two months. (KBK Dep. 78:19-20). James testified that he would discard hard-copy Micros records a few weeks after employees were paid, and time records would be erased from the Micros server if the system crashed. (JK Dep. 115:12-116:15). James also testified that the pieces of paper on which employees calculated nightly tips after those tips were recorded. (Id. 176:1-16). Kwang testified that although Osaka has provided some information regarding tips to Osaka's account to prepare tax returns since 2017, Osaka discards its handwritten records of tips received after one to two months because it “d[id]n't need them.” (KBK Dep. 95:11-96:14).

         F. Understanding of FLSA obligations

          Kwang testified that prior to an investigation by the Department of Labor, he believed that the minimum wage for servers was $2.83 per hour, and only learned that the general minimum wage was $7.25 per hour in the course of this litigation. (KBK Dep. 80:8-82:2). He also testified that he only learned what overtime was after the investigation began, and previously did not know that he had to pay time-and-a-half for time worked over 40 hours in a workweek. (Id. 43:16-44:5).

         James' testimony regarding his understanding of overtime requirements was unclear. While he stated at first that he had not “truly underst[ood]” what overtime meant until the Department of Labor investigator had explained it to him (JK Dep. 96:20-23), he later asserted that he had known that overtime meant time-and-half pay for time worked over forty hours before the investigation. (Id. 97:11-98:12). He did not recall raising any issue of potential overtime violations to his father prior to the investigation. (Id. 127:20-24).

         Defendants did not seek a legal opinion regarding, or consult with state or federal agencies regarding, whether Osaka's tipping, overtime, and recordkeeping practices complied with the FLSA. (Id. 133:3-135:21; JK Dep. 214:15-216:3).

         G. Investigation

         At some point, Osaka was the subject of a federal investigation by the Department of Labor, but the precise chronology is unclear from the record before this Court. This lawsuit followed.

         III. Procedural History

         Plaintiff R. Alexander Acosta, Secretary of Labor, United States Department of Labor filed this action pursuant to the Fair Labor Standards Act on March 8, 2017. (Compl., ECF 1.) Defendants filed their Answer on May 12, 2017. (Answer, ECF 12.)

         After the conclusion of discovery, Plaintiff moved for partial summary judgment on February 28, 2018, reserving the issue of damages for trial. (Pl.'s Mot. for Summ. J. ECF 29.)

         Instead of filing a response in opposition, Defendants filed a “motion for settlement conference” on March 28, 2018. (Mot. for Settlement Conf., ECF 32.) Plaintiff filed a memorandum in opposition to the motion for settlement conference on March 30, 2018. (Mot. for Settlement Conf., ECF 33.) Plaintiff filed a motion to amend the exhibit listing employees of Osaka on May 1, 2018. (Mot., ECF 35.)

         Defendants filed a memorandum in opposition to the motion for partial summary judgment on May 4, 2018. (Defs.' Opp. to Summ. J., ECF 36.) Plaintiff filed his reply on May 29, 2019. (Pl.'s Reply in Support of Summ. J, ECF 38.)

         The Court held a recorded telephone conference regarding the motion for partial summary judgment on July 10, 2018.

         IV. Legal Standard

         Summary judgment is appropriate if the movant can show “that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A dispute is “genuine” if “the evidence is such that a reasonable jury could return a verdict for the non-moving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A factual dispute is “material” if it “might affect the outcome of the suit under the governing law.” Id.

         A party seeking summary judgment bears the initial responsibility for informing the district court of the basis for its motion and identifying those portions of the record that it believes demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Where the non-moving party bears the burden of proof on a particular issue at trial, the moving party's initial burden can be met simply by “pointing out to the district court that there is an absence of evidence to support the non-moving party's case.” Id. at 325. Summary judgment is appropriate if the non-moving party fails to rebut the motion by making a factual showing “that a genuine issue of material fact exists and that a reasonable factfinder could rule in its favor.” Id. Under Rule 56, the Court must view the evidence presented on the motion in the light most favorable to the opposing party. Anderson, 477 U.S. at 255.

         V. Discussion

         The Fair Labor Standards Act (FLSA) was enacted “with the goal of ‘protect[ing] all covered workers from substandard wages and oppressive working hours.'” Christopher v. SmithKline Beecham Corp., 567 U.S. 142, 147 (2012). The FLSA “establishes federal minimum-wage, maximum-hour, and overtime guarantees that cannot be modified by contract.” Genesis Healthcare Corp. v. Symczyk, 569 U.S. 66, 69 (2013).

         It is undisputed that Osaka Chestnut Hill and Osaka Lansdale were covered entities under the FLSA. (Pl.'s Mem. in Support of Mot. for Summ. J (“Pl.'s Br.”) at 6-8, ECF 29-2; Defs.' Mem. in Opposition to Mot. for Summ. J. (“Defs.' Br.”) at 3, ECF 36-1).

         A. Minimum Wage Violations for Hourly Tipped Employees

         Section 6 of the FLSA requires that all covered employees be paid $7.25 per hour. 29 U.S.C. § 206 (a). Section 3(m) ...

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