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Smith v. Abc Training Center of Maryland, Inc.

United States District Court, Fourth Circuit

August 1, 2013

ANGELA J. SMITH, et al.,
v.
ABC TRAINING CENTER OF MARYLAND, INC., et al.

MEMORANDUM

J. FREDERICK MOTZ, District Judge.

On January 29, 2013, twenty-two individuals filed a five-count complaint against defendant ABC Training Center of Maryland, Inc., which operated several vocational schools under the trade name American Career Institute ("ACI"), and several of its former executives (the "Individual Defendants") for alleged violations of the Worker Adjustment and Retraining Notification ("WARN") Act, 29 U.S.C. § 2101 et seq., the Fair Labor Standards Act of 1938 ("FLSA"), 29 U.S.C. § 201 et seq., the Employee Retirement Income Security Act of 1974, as amended by the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), 29 U.S.C. § 1161, the Maryland Wage and Hour Law ("MWHL"), Md. Code Ann., Lab. & Empl. § 3-401 et seq., and the Maryland Wage Payment and Collection Law ("MWPCL"), Md. Code Ann., Lab. & Empl. § 3-501 et seq. Plaintiffs, who are former employees of ACI, allege that they suffered damages when ACI shuttered its schools in January 2013 without prior notice. Plaintiffs further allege that ACI has not fully compensated them for the time they worked before ACI's closure. Defendants have moved to dismiss each count of plaintiffs' complaint or, in the alternative, for summary judgment on each count. The issues have been fully briefed, and the court has reviewed the pleadings and affidavits. No oral argument is necessary. See Local R. 105.6. For the reasons set forth below, the motion will be granted in part and denied in part.

BACKGROUND

ACI provided postsecondary vocational schooling to students on eight campuses in Maryland and Massachusetts. Until 2011 a student could matriculate at ACI even if the student had not received a high school diploma or a General Educational Development ("GED") certificate. Students lacking a diploma or GED certificate could take a general skills assessment, known as an Ability to Benefit ("ATB") test, and could matriculate at ACI upon achievement of a sufficient score. Those students could then obtain student financial assistance from the federal government pursuant to Title IV of the Higher Education Act of 1965, as amended, Pub. L. No. 89-329, 79 Stat. 1219.

In December 2011, however, Congress enacted and the President signed the Consolidated Appropriations Act of 2012, Pub. L. No. 112-74, 125 Stat. 786. Pursuant to this statute, students who first enrolled in postsecondary education after July 1, 2012, and who lacked a high school diploma or GED certificate were no longer eligible for Title IV funds. Thus, students who passed the ATB test and matriculated at ACI after July 1, 2012, could not receive federal assistance to finance their education. Without federal financial aid, these students could no longer enroll at ACI. Because a significant number of ACI students were admitted through the ATB program, this statute had a significant effect on ACI's finances.

ACI had a "financially-difficult third quarter" in 2012, and in November of that year Andree Fontaine, ACI's chief executive officer, asked ACI's bank to increase its borrowing base from 60% to 75%. (Fontaine Aff. ¶ 5, ECF No. 17-2.) Around the same time ACI's management furloughed themselves for five days, required non-management staff to take three furlough days, and planned to shutter the ACI campus in Columbia, Maryland. ACI also began to restructure and to implement various reforms that were intended to alleviate some of the financial pressure.

ACI presented its restructuring plan to its bank on November 8, 2012, and maintained contact with bank officials in subsequent weeks. On December 31, 2012, however, the bank notified ACI's management that it had frozen ACI's operating account and would oversee the approval of all payments to third parties. The bank then asked ACI to prepare two alternative proposals: a thirteen-week "going forward" plan centered on restructuring the organization and a "wind-down" plan in the event that ACI had to board up its campuses.

ACI presented these plans to the bank on the morning of January 8, 2013. The bank then requested that certain ACI executives personally guarantee the company's obligations. When those executives refused, the bank notified ACI managers that it intended to sweep ACI's accounts of all available funds. The next day ACI notified its employees that it would be shuttering each of its campuses effective immediately. ACI informed the employees that their health insurance plan would be discontinued as of January 11, 2013.

Because the bank had swept ACI's accounts of all funds, ACI had trouble making payroll. All ACI employees received bi-weekly paychecks, but the employees were divided into two groups for payroll purposes, and the pay periods for the two groups were staggered during alternating weeks. One group, referred to here as the Adjunct Employees, [1] was paid two weeks in arrears. The Adjunct Employees received a timely paycheck on January 4, 2013, that included all time worked through December 22, 2012. A second group, the Staff Employees, [2] was paid one week in arrears. The Staff Employees received a timely paycheck on January 11, 2013 - three days after ACI's accounts were swept and the company announced its closure - for all time worked through January 5. ACI's payroll contractor covered the January 11 payroll, perhaps without knowledge that ACI had closed, and subsequently sought to cancel those checks. When ACI refused, the Staff Employees were permitted to keep the checks, but the payroll contractor ended its relationship with ACI.

The Adjunct Employees' next bi-weekly paycheck, which would have covered time worked through January 5, should have been paid on January 18, 2013. The Staff Employees should have received their final paychecks (including all time worked through ACI's closure on January 9 as well as any owed vacation time and overtime compensation) one week later, and the Adjunct Employees should have received their final paycheck on February 1.[3] Those checks, however, were not timely sent. Rather, in the days and weeks following ACI's closure, two ACI executives - Chief Executive Officer Andree Fontaine and Executive Vice President Geordie Mosbarger, who together owned 72% of ACI's parent company - each borrowed $130, 000 against their home equity to cover the final payroll. On January 30, 2013, ACI retained a new payroll contractor, Rust Consulting, to process these final paychecks.

The Adjunct Employees' final paychecks included the total number of hours that each employee was scheduled to work between December 23 and January 9, and the Staff Employees were paid for twenty-four hours of work between January 6 and January 9 (regardless of the actual time they worked) and 2.46 hours of accrued vacation.[4] Rust Consulting purportedly printed the final paychecks on February 2, 2013, and mailed the checks to all employees on February 4. Several plaintiffs dispute this assertion, arguing that the checks were dated February 4 and were not received until February 8 at the earliest. A few plaintiffs claim that they received their checks in late February or even March.[5]

Plaintiffs filed this suit on January 29, 2013 - several days before Rust Consulting purportedly mailed the final paychecks. The complaint includes five counts for violations of the WARN Act, FLSA, MWHL, MWPCL, and COBRA. On April 1, 2013, ACI and defendants Andree Fontaine, Geordie Mosbarger, Robert Payne, and Mason Folcarelli moved to dismiss the complaint or, in the alternative, for summary judgment on each count. Defendant George Lepke, who retained separate counsel, filed a substantively identical motion on April 8, 2013. Plaintiffs opposed the motions on May 17, 2013, and defendants filed their reply memoranda on June 3, 2013. Plaintiffs attached affidavits to their May 17 opposition memorandum, but several of those affidavits were not executed. Plaintiffs supplemented their opposition memorandum with executed copies of these affidavits on June 10, 2013. The supplement did not include any legal arguments. Defendants objected to the supplement and filed a motion to strike the supplemental affidavits or, in the alternative, for leave to file a surreply. The court granted leave to file a surreply.

STANDARD

"[T]he purpose of Rule 12(b)(6) is to test the sufficiency of a complaint and not to resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses." Presley v. City of Charlottesville, 464 F.3d 480, 483 (4th Cir. 2006) (internal quotation marks and alterations omitted) (quoting Edwards v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir. 1999)). When ruling on such a motion, the court must "accept the well-pled allegations of the complaint as true" and "construe the facts and reasonable inferences derived therefrom in the light most favorable to the plaintiff." Ibarra v. United States, 120 F.3d 472, 474 (4th Cir. 1997). "Even though the requirements for pleading a proper complaint are substantially aimed at assuring that the defendant be given adequate notice of the nature of a claim being made against him, they also provide criteria for defining issues for trial and for early disposition of inappropriate complaints." Francis v. Giacomelli, 588 F.3d 186, 192 (4th Cir. 2009). "The mere recital of elements of a cause of action, supported only by conclusory statements, is not sufficient to survive a motion made pursuant to Rule 12(b)(6)." Walters v. McMahen, 684 F.3d 435, 439 (4th Cir. 2012) (citing Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)).

To survive a motion to dismiss, the factual allegations of a complaint "must be enough to raise a right to relief above the speculative level... on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal citations and alterations omitted). The plaintiff's obligation is to set forth sufficiently the "grounds of his entitlement to relief, " offering "more than labels and conclusions." Id. (internal quotation marks and alterations omitted). It is not sufficient that the well-pleaded facts create "the mere possibility of misconduct." Iqbal, 556 U.S. at 679. Rather, to withstand a motion to dismiss, "a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face, " meaning the court could draw "the reasonable inference that the defendant is liable for the misconduct alleged." Id. at 678.

Federal Rule of Civil Procedure 56(a) provides that summary judgment should be granted "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." A motion for summary judgment cannot be defeated simply by noting the presence of any factual dispute. "By its very terms, this standard provides that the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986) (emphasis in original). Whether a fact is material depends upon the substantive law. See id.

"A party opposing a properly supported motion for summary judgment may not rest upon the mere allegations or denials of [his] pleadings, ' but rather must set forth specific facts showing that there is a genuine issue for trial.'" Bouchat v. Baltimore Ravens Football Club, Inc., 346 F.3d 514, 522 (4th Cir. 2003) (alteration in original) (quoting Fed.R.Civ.P. 56(e)). The court must "view the facts and draw reasonable inferences in the light most favorable to the party opposing the [summary judgment] motion, '" Scott v. Harris, 550 U.S. 372, 378 (2007) (alteration in original) (quoting United States v. Diebold, 369 U.S. 654, 655 (1962)), but the court also must abide by the "affirmative obligation of the trial judge to prevent factually unsupported claims and defenses from proceeding to trial." Drewitt v. Pratt, 999 F.2d 774, 778-79 (4th Cir. 1993) (internal quotation marks omitted).

ANALYSIS

Five counts comprise the complaint. Defendants have moved to dismiss the complaint in its entirety under Federal Rule of Civil Procedure 12(b)(6) and also advance various arguments supporting dismissal of the individual counts. In the event the court declines to dismiss the action, defendants ask this court to review the record and to grant summary judgment in their favor. Because defendants raise ...


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