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Greenwald v. Regency Management Services, LLC

United States District Court, D. Maryland

March 5, 2019

ROBERTA GREENWALD, et al., Plaintiffs,


          George L. Russell, III United States District Judge

         THIS MATTER is before the Court on Defendants Regency Management Services, LLC[1] (“Regency”) and Abdul Ayyad's Motion to Dismiss (ECF No. 15). The Motion is ripe for disposition, and no hearing is necessary. See Local Rule 105.6 (D.Md. 2018). For the reasons outlined below, the Court will grant in part and deny in part the Motion.

         I. BACKGROUND [2]

         Ayyad is the owner and Chief Executive Officer of Regency, which operates several Ashley Furniture stores in Maryland and Virginia. (Am. Compl. ¶¶ 10, 18-20, 32, ECF No. 7). Defendants employed Plaintiffs Roberta Greenwald, Elizabeth Elliott, Damon Vass, Grant Geist, and Rhonda Kenney as commissioned sales people at their furniture stores for various periods between 2015 and 2017.[3] (Id. ¶¶ 32-37). Plaintiffs were W-2 employees, and not independent contractors. (Id. ¶¶ 11-12). As part of their employment at Defendants' stores, Plaintiffs signed a “Regency Management Services Commission Sales Agreement” (the “Commission Agreement”).[4] (Id. ¶ 51; Defs.' Mot. Dismiss [“Defs.' Mot.”] Ex. 2 [“Comm'n Agmt.”], ECF No. 15-2).[5] The Commission Agreement provided that Defendants would pay Plaintiffs an hourly wage plus commissions and that commissions would be paid “less standard deductions and withholdings, in accordance with [Regency's] standard payroll practices and procedures.” (Am. Compl. ¶ 53; Comm'n Agmt. at 3). While Plaintiffs worked for Regency and Ayyad, they received bi-weekly paychecks with the required state and federal deductions and withholdings. (Am. Compl. ¶ 64). Defendants also issued Plaintiffs W-2s for wages earned. (Id. ¶ 65). When Plaintiffs' employment with Ayyad and Regency ended, Defendants paid Plaintiffs commissions owed via IRS 1099 forms, without taking any deductions or withholdings. (Id. ¶¶ 67-89). As a result, Plaintiffs “were required to pay additional taxes on the commissions, ” thereby reducing their wages earned. (Id. ¶¶ 113, 116).

         Defendants then “willfully misrepresented” the amount of wages Plaintiffs earned on their W-2s in 2016 and 2017 by “underreporting wages and excluding any commission amounts that were paid to them” after they left Defendants' employment. (Id. ¶ 92).[6]Defendants did so “to avoid paying the employer portion of the FICA, FUTA, and other federal and state income taxes on paychecks issued after Plaintiffs left employment.” (Id. at 2). Defendants also “have not paid Plaintiffs all commissions earned during their employment with Defendants.” (Id. ¶ 123).

         Plaintiffs sued Regency and Ayyad on January 24, 2018. (ECF No. 1). On April 11, 2018, Plaintiffs filed an Amended Complaint. (ECF No. 7). In their five-Count Amended Complaint, Plaintiffs allege: willful violations of the Internal Revenue Code, 26 U.S.C. § 7434 (2018) (Count I);[7] improper deductions under the Maryland Wage Payment and Collection Law (the “MWPCL”), Md. Code Ann., Lab. & Empl. [“L & E”] § 3-503 (West 2018) (Count II); owed commissions under the MWPCL, L & E § 3-505 (Count III); negligent issuance of owed wages (Count IV); and breach of contract (Count V). (Am. Compl. ¶¶ 134-97). Plaintiffs seek compensatory damages, treble damages, injunctive relief, and attorney's fees and costs. (Id. ¶¶ 141, 164, 171, 183, 197).

         Regency and Ayyad now move to dismiss all counts against them for failure to state a claim upon which relief may be granted. (ECF No. 15). Plaintiffs filed an Opposition on June 19, 2018. (ECF No. 18). On June 29, 2019, Regency and Ayyad filed a Reply. (ECF No. 19).


         A. Standard of Review

          The purpose of a motion made under Federal Rule of Civil Procedure 12(b)(6) is to “test[ ] the sufficiency of a complaint, ” not to “resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses.” King v. Rubenstein, 825 F.3d 206, 214 (4th Cir. 2016) (quoting Edwards v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir. 1999)). A complaint fails to state a claim if it does not contain “a short and plain statement of the claim showing that the pleader is entitled to relief, ” Fed.R.Civ.P. 8(a)(2), or does not “state a claim to relief that is plausible on its face, ” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556). “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. (citing Twombly, 550 U.S. at 555). Though the plaintiff is not required to forecast evidence to prove the elements of the claim, the complaint must allege sufficient facts to establish each element. Goss v. Bank of America, N.A., 917 F.Supp.2d 445, 449 (D.Md. 2013) (quoting Walters v. McMahen, 684 F.3d 435, 439 (4th Cir. 2012)), aff'd sub nom., Goss v. Bank of America, NA, 546 Fed.Appx. 165 (4th Cir. 2013).

         In considering a Rule 12(b)(6) motion, a court must examine the complaint as a whole, consider the factual allegations in the complaint as true, and construe the factual allegations in the light most favorable to the plaintiff. Albright v. Oliver, 510 U.S. 266, 268 (1994); Lambeth v. Bd. of Comm'rs, 407 F.3d 266, 268 (4th Cir. 2005) (citing Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)). But, the court need not accept unsupported or conclusory factual allegations devoid of any reference to actual events, United Black Firefighters v. Hirst, 604 F.2d 844, 847 (4th Cir. 1979), or legal conclusions couched as factual allegations, Iqbal, 556 U.S. at 678.

         B. Analysis

         Defendants contend that the Court should dismiss all Counts against them for failure to state a claim. The Court addresses each Count in turn.

         1. Internal Revenue Code - 26 U.S.C. § 7434(a) - Count I

          Defendants maintain that 26 U.S.C. § 7434(a) only applies to willful and fraudulent misrepresentations of the amount of wages; it does not apply to the misclassification of W-2 wages as 1099 independent contractor income. Plaintiffs counter that they do not allege that they were misclassified. Rather, they allege that Defendants fraudulently underreported their wages on their W-2s, and therefore they state a claim under § 7434(a). The Court agrees with Plaintiffs.

         Section 7434(a) provides that “[i]f any person willfully files a fraudulent information return with respect to payments purported to be made to any other person, such other person may bring a civil action for damages ...

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