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Acosta v. Vera's White Sands Beach Club, LLC

United States District Court, D. Maryland

April 22, 2019

R. ALEXANDER ACOSTA, Secretary of Labor United States Department of Labor Wage and Hour Division, Plaintiff,



         Pending before the Court are two competing motions-Defendant Steven Stanley's motion to vacate entry of default and Plaintiff R. Alexander Acosta, [1] Secretary of Labor, United States Department of Labor (“Secretary”)'s motion for default judgment against Stanley and Vera's White Sands Beach Club, LLC (“Vera's”). ECF Nos. 69, 72. The issues have been fully briefed, and a recorded call was held on April 11, 2019. For the following reasons, Stanley's motion to vacate order of default is GRANTED and the Secretary's motion for entry of default judgment is GRANTED as to Vera's and DENIED as MOOT as to Stanley.

         I. BACKGROUND

         A. Factual Background [2]

         Steven Stanley is part-owner of Vera's, a full-service restaurant and night club located in the State of Maryland. ECF No. 37 ¶ II. Stanley, together with the restaurant's manager, Casey St. John, have hired and directed the work of employees, and determined their rates of pay. Id. ¶¶ III, IV. Between September 15, 2013 and October 25, 2015, Vera's paid its cooks a single hourly wage and did not pay overtime rates for hours worked in excess of forty hours per week. Id. ¶ VII(1). In addition, Defendants classified Michael Maguire, an employee who primarily cooked and cleaned, as exempt from wage and hour requirements. Id. ¶ VII(2). Defendants paid Maguire a salary of $400 per week with no overtime. Id. The restaurant also paid manager/bartender Dustin Crigger a daily rate of $125.00, which resulted in a weekly salary of $375.00 on weeks when Mr. Crigger worked for three days only. Id. ¶ VIII(4).

         During the same period, the restaurant required tipped employees to tip out ten percent of their food sales to cooks, who were non-tipped employees. Id. ¶ VIII. Defendants also deducted five dollars each day from each bartender, which Defendants used to tip out non-tipped staff such as “expo persons/runners.” Id. ¶ VIII(3). Defendants did not pay the tipped staff the regular minimum wage of $7.25 per hour and did not pay cash wages to bartenders and servers when their credit card tips added up to $8.50 per hour. Id. ¶ VIII(5). Additionally, the restaurant regularly failed to pay out tips earned by servers and bartenders, id. ¶ VIII(2), and failed to make, keep, or preserve adequate records of employee wages, hours, and employment conditions. Id. ¶ IX. Defendants, more particularly, did not make or maintain any records of the hours worked by Maguire and Crigger. Id. ¶ VIII(4).

         B. Procedural Background

         On March 16, 2016, the Secretary of Labor brought this action against Defendants Vera's and Casey St. John, the restaurant manager. ECF No. 1. The Secretary sought to enjoin the restaurant and its manager from violating Sections 6, 7 and 11 of the Fair Labor Standards Act of 1938, as amended, (“Act” or “FLSA”), and for judgment against Defendants for $85, 437.71 in back wage compensation and $85, 437.71 in liquidated damages. 29 U.S.C. § 201, et seq.; ECF No. 1 ¶ XI.

         On May 17, 2017, the Secretary amended the Complaint to add Stanley, the restaurant's partial owner, as a Defendant. ECF No. 37 ¶ III. Vera's and Stanley jointly answered the amended Complaint. ECF No. 48. St. John, who was represented by separate counsel, did not join in the answer. On October 30, 2017, Vera's and Stanley filed a motion to withdraw their answer. ECF No. 54. Counsel for Vera's and Stanley also filed a separate motion to withdraw as counsel. ECF No. 53. Vera's and Stanley instructed their counsel to file both motions because they no longer wished to defend this action due to the cost and “so that Plaintiff can seek a default judgment.” ECF No. 54 ¶ 5. On November 20, 2017, the Court granted the motions to withdraw counsel and the answer. ECF No. 62. On January 4, 2018, the Court entered a Consent Judgment against Casey St. John in the amount of $10, 000.00, and St. John was subsequently terminated as an individual defendant. ECF No. 65.

         Nearly eight months later, Vera's and Stanley having failed to answer, the Secretary moved for Clerk's entry of default pursuant to Rule 55(a) of the Federal Rules of Civil Procedure. ECF No. 66. The Clerk of the Court entered default as to both Defendants on July 25, 2018. ECF No. 68. Two months later, Stanley, having retained new counsel, moved to vacate the Clerk's entry of default. ECF No. 69. The Secretary had not yet moved for default judgment against Vera's and Stanley; it did so about a month after Stanley's motion, which Stanley opposed. ECF Nos. 72, 74. The Court addresses each motion in turn.


         A. Motion to Vacate Clerk's Entry of Default

         Stanley moves to vacate the entry of default, contending that at the time he agreed to withdraw his answer and allow default judgment to be entered, he did not appreciate that he could be held personally liable for the losses in this case. ECF No. 69. Stanley further confirmed, during the Court's recorded teleconference, that he moves to set aside default judgment solely to challenge whether he meets the definition of “employer” under the FLSA, a position consistent with Stanley's assertion that he did not appreciate the implications of default judgment.[3]

         Pursuant to Federal Rule of Civil Procedure 55(c), a court may “set aside an entry of default for good cause.” Fed.R.Civ.P. 55(c). The United States Court of Appeals for the Fourth Circuit has announced a “strong policy that cases be decided on their merits.” United States v. Shaffer Equip. Co., 11 F.3d 450, 453 (4th Cir. 1993). Therefore, a motion to vacate default must be “liberally construed in order to provide relief from the onerous consequences of defaults and default judgments.” Tolson v. Hodge, 411 F.2d 123, 130 (4th Cir. 1969). “Any doubts about whether relief should be granted should be resolved in favor of setting aside the default so that the case may be heard on the merits.” Id. The moving party “should proffer evidence that would permit a finding for the defaulting party.” Russell v. Krowne, DKC-08- 2468, 2013 WL 66620, at *2 (D. Md. Jan. 3, 2013).

         When considering whether to set aside an entry of default, the Court weighs six factors: (1) whether the movant has a meritorious defense, (2) whether the movant acted with reasonable promptness, (3) whether the movant bears personal responsibility for the entry of default, (4) any prejudice to the non-moving party, (5) any history of dilatory action, and (6) the availability of lesser sanctions short of default judgment. See Colleton v. Hoover Universal, Inc., 616 F.3d 413, 417 (4th Cir. 2010); see also Payne ex rel. Estate of Calzada v. Brake, 439 F.3d 198, 203 (4th Cir. 2006). The Court considers each factor as pertinent to Stanley's motion.

         First, Stanley has demonstrated the possibility of a meritorious defense. A defense is meritorious when the defendant makes a factual showing that “would permit a finding for the defaulting party.” Russell, 2013 WL 66620 at *2. A movant's burden for proffering a meritorious defense is not onerous; all that is necessary “‘is to allege sufficient facts that, if true, would constitute a defense.'” Id. (quoting U.S. v. Signed Pers. Check No. 730 of Yubran S. Mesle, 615 F.3d 1085, 1094 (9th Cir. 2010)); see also Augusta Fiberglass Coatings, Inc., v. Fodor Contracting, 843 F.2d 808, 812 (4th Cir. 1988) (considering “‘whether there is some possibility that the outcome . . . after a full trial will be contrary to the result achieved by the default'”) (quoting 10 C. Wright, A. Miller & M. Kane, Fed. Prac. & Proc. § 2697, at 531 (2d ed.1983)).

         Stanley intends to defend this action solely on the grounds that he was not an employer subject to personal liability under the FLSA. In determining whether an individual defendant is an employer, courts look “at the ‘economic reality' of an individual's status in the workplace.” Gionfriddo v. Jason Zink, LLC, 769 F.Supp.2d 880, 890 (D. Md. 2011) (quoting Schultz v. Capital Int'l Sec., 466 F.3d 298, 304 (4th Cir. 2006)). Factors include “the person's job description, his or her financial interest in the enterprise, and whether or not the individual exercises control over the employment relationship.” Gionfriddo, 769 F.Supp.2d at 890.

         Stanley avers, by affidavit, that he “had no role in the management of the restaurant.” ECF Nos. 69 ¶ 2, 69-1. Instead, contends Stanley, Defendant St. John was responsible for “[a]ll restaurant management duties.” ECF Nos. 69 ¶ 3, 69-1. Although stated in general terms, this factual proffer is sufficient to demonstrate Stanley's potential success at trial. See United Sheet Metal, Inc., v. Federal Ins., PWG-13-3791, 2014 WL 1761122, at *2 (D. Md. Apr. 29, 2014) (finding that while the defendant's affidavit was not detailed, it was “more than a ‘bald allegation'; it [was] evidentiary proof”) (quoting Dahl v. Kanawha Inv. Holding Co., 161 F.R.D. 673, 684-85 (N.D. Iowa 1995)); Caseres v. S&R Mgmt., 2012 WL 5250561, at *5 (D. ...

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