United States District Court, W.D. North Carolina, Charlotte Division
JARED MODE, on behalf of himself and all others similarly situated, Plaintiffs,
S-L DISTRIBUTION COMPANY, LLC, S-L DISTRIBUTION COMPANY, INC., and S-L ROUTES, LLC, Defendants.
J. Conrad Jr United States District Judge
MATTER comes before the Court on several pending
motions and the parties' supporting briefs and
exhibits: Defendants' Motion to Dismiss Count III of
Plaintiff's Complaint, (Doc. Nos. 22-23, 83, 94);
Third-Party Defendants' Motions to Dismiss Third-Party
Complaints, (Doc. Nos. 84-85, 100, 102-03, 111); and
Plaintiffs' Motion to Dismiss Defendants'
Counterclaim, (Doc. Nos. 92-93, 99, 101-02). Also before the
Court is a Memorandum and Recommendation
(“M&R”) recommending granting Defendants'
Motion to Dismiss Count III of Plaintiffs' Complaint,
(Doc. No. 97), to which Plaintiffs have objected, (Doc. No.
104), and Defendants have responded in opposition to
Plaintiffs' objections, (Doc. No. 117). Additionally, the
Magistrate Judge issued another M&R addressing
Third-Party Defendants and Plaintiffs' respective Motions
to Dismiss, (Doc. No. 122), which recommended denying both
Motions. Plaintiffs and Third-Party Defendants filed a joint
Objection, (Doc. No. 125), and Defendants filed a Response in
Opposition, (Doc. No. 126). Having been fully briefed, the
motions are now ripe for adjudication.
a class/collective action lawsuit centering on Plaintiff
Jared Mode's (“Plaintiff”) allegation that
Defendants S-L Distribution Company, LLC, S-L Distribution
Company, Inc., and S-L Rouse, LLC (collectively,
“Defendants” or “S-L”) intentionally
misclassified him and a putative class of Defendants'
distributors as independent contractors in violation of
federal and state wage and hour laws.
collectively manufactures and distributes snack foods to
retail stores in North Carolina and other states. (Doc. No.
1: Compl. ¶ 10). Plaintiff Jared Mode is a member of
J&M Mode Distribution, LLC (“J&M”), a
North Carolina limited liability company, and worked as an
“Independent Business Operator”
(“IBOs”). (Id. ¶ 12; Doc. No. 26:
Defs.' Third-Party Compl. Against J&M ¶ 2). S-L
entered into similar Distributor Agreements
(“Agreements”) with various distribution
companies of which the putative class are principals,
officers, and/or employees. (See, e.g., Doc. No.
23-1: Distributor Agreement between S-L and J&M). These
Agreements expressly state that the distribution companies
are independent contractors and further provide that in the
event a court finds the parties did not have an independent
contractor relationship, either party would be entitled to
declare the Agreements null and void. (Id. at 2;
id. at Art. 2A).
to these Agreements, S-L granted the distribution companies
rights for its snack food products. Under the Agreements, the
distribution companies would purchase the products at
wholesale from S-L and then sell the products to various
stores at a higher price. The distribution companies were
responsible for ordering, selling, distributing, and
merchandising S-L's products to customers in their
respective geographic territories. (Id. at Arts.
3-5, 9). The distribution companies also agreed to be
financially responsible for certain aspects of the
distributorship, including the costs associated with stale
products and product delivery. (Id. at Arts. 3-4,
9). The Agreements provide that the distribution companies
control the schedule, hours, and operations of their
businesses, claim tax deductions for the expenses associated
with running their businesses, and are allowed to distribute
other products in addition to S-L's snack foods.
(Id. at Arts. 2, 4-5). The distribution companies
also agreed to comply with all federal, state, and local laws
including wage, overtime and benefit provisions for their
employees. (Id. at Art. 2E). The Agreements also
contain indemnification provisions. (Id. at Art.
March 22, 2018, Named Plaintiff Jared Mode filed this action
alleging that he and a putative class of S-L's
distributors are actually S-L's employees and thus are
entitled to various protections under the Fair Labor
Standards Act, 29 U.S.C. §§ 201, et seq.,
and North Carolina's Wage and Hour Act
(“NCHWA”), N.C. Gen. Stat. §§ 95-25
et seq. (Doc. No. 1). Plaintiffs allege that S-L
violated these wage and hour laws by failing to pay minimum
wage and overtime pay under the FLSA and by making illegal
wage deductions under the NCWHA. (Doc. No. 1 ¶¶
response, S-L (i.e., “Defendants” or
“Third-Party Plaintiffs”) filed an Answer and
Counterclaim of unjust enrichment against Plaintiffs in the
event that the Court determines that (1) Plaintiffs and/or
their distribution companies were misclassified as
independent contractors and (2) the Agreements are voided.
(Doc. No. 25: Defs.' Answer, Separate Defenses, and
Countercl. to Pl.'s Compl. ¶¶ 68-73).
Additionally, S-L filed Third-Party Complaints stating claims
for indemnification and unjust enrichment against the
distribution companies (i.e, “Third-Party
Defendants”). (Doc. Nos. 26-47, 52-56: Third-Party
motions to dismiss under Federal Rule of Civil Procedure
12(b)(6) are now pending before the Court. The Court has
conducted a de novo review of the motions currently pending,
the parties' respective briefs and exhibits, and the
M&Rs issued addressing the pending motions.
STANDARD OF REVIEW
district court may assign dispositive pretrial matters,
including motions to dismiss, to a magistrate judge for
“proposed findings of fact and recommendations.”
28 U.S.C. § 636(b)(1)(A) and (B). The Federal Magistrate
Act provides that “a district court shall make a de
novo determination of those portions of the report or
specific proposed findings or recommendations to which
objection is made.” Id. at §
636(b)(1)(C); Fed.R.Civ.P. 72(b)(3); Camby v. Davis,
718 F.2d 198, 200 (4th Cir. 1983).
motion to dismiss for failure to state a claim, the Court
must accept the factual allegations of the claim as true and
construe them in the light most favorable to the nonmoving
party. Coleman v. Maryland Ct. of Appeals, 626 F.3d
187, 189 (4th Cir. 2010). To survive the motion, the
“complaint [or counterclaim] must contain sufficient
factual matter, accepted as true, ‘to 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)). To be “plausible on its face, ” a
plaintiff (including a third-party plaintiff) must
demonstrate more than “a sheer possibility that a
defendant has acted unlawfully.” Id. A
plaintiff therefore must “articulate facts, when
accepted as true, that ‘show' that the plaintiff
has stated a claim entitling [it] to relief, i.e.,
the ‘plausibility of entitlement to relief.'”
Francis v. Giacomelli, 588 F.3d 186, 193 (4th Cir.
2009) (quoting Iqbal, 556 U.S. at 678).
sake of clarity, and because each M&R implicates
different legal issues, this Order will address the M&Rs
in separate sections.
S-L's Motion to Dismiss Plaintiffs' NCWHA Claim,
(Doc. No. 22), and the M&R Recommending
Dismissal of Plaintiffs' NCWHA Claim, (Doc. No. 97).
Plaintiffs make two specific objections to the M&R's
recommendation that this Court dismiss Plaintiffs' NCWHA
claim: the M&R erred by finding that (1) Plaintiffs'
income does not meet the NCWHA's definition of
“wages” and (2) the deductions made from
Plaintiffs' paychecks were primarily for S-L's
benefit and, thus, were non-wages under 13 N.C. A.C.
12.0301(d). The Court addresses each objection in turn.
M&R correctly determined that Plaintiffs' income does
not meet the NCWHA's definition of wages.
M&R recommended dismissal of Plaintiffs' NCWHA claim
because it determined that Plaintiffs' income does not
meet the NCWHA's definition of “wages.” Under
the NCWHA, the term “wages” is defined as
“compensation for labor or services rendered by an
employee.” N.C. Gen. Stat. § 95-2. Following this
Court's precedent as established in Troche v. Bimbo
Bakeries Distribution, Incorporated, the M&R
recognized that, when a plaintiff purchases goods from a
defendant and earns income by selling those goods to
third-party retailers at a higher price, the profits earned
on that sale fall outside of the NCWHA's definition of
“wages.” 2015 WL 4920280, at *7 (W.D. N.C. Aug.
18, 2015). The contractual relationship between the
plaintiffs and defendant in Troche is identical to
the one at issue here; in Troche, the plaintiff was
an independent operator who had a distribution agreement with
the defendant, Bimbo Foods Bakeries Distribution
(“BFBD”). Id. at *1. This agreement
“contemplate[d] that [the] [p]laintiff would purchase
products from BFBD at a certain price and then re-sell them
to various customers at a higher price, earning a profit on
the difference.” Id. Under the agreement, the
plaintiff “was also responsible for maintaining
adequate supplies in the stores, rotating product, and
removing stale or damaged product.” Id.
the terms of Plaintiffs' Distributor Agreements recognize
the same relationship between Plaintiffs and S-L:
As set forth in this Agreement, S-L agrees to sell Products
to Distributor, which Products may be sold by Distributor to
its customers within the Territory. As permitted by this
Agreement, the Products shall be sold to Distributor by S-L
on the terms and at the prices established, in writing, by
S-L from time to time. . . .
Subject to the needs or requirements of its customers,
Distributor has full authority to determine the Products and
the amount of Products which it may wish to purchase, from
time to time, from S-L.
. . .
Distributor shall pay S-L for all Products purchased each
week, per the prices and terms on the current Price List, by
Friday of the next week. Correspondingly, S-L will settle on
a weekly basis with Distributor for any net amounts owed
Distributor for sales made of Products by Distributor for
which payment is made by Distributor's customers directly
to S-L, from which settlement shall be deducted amounts owed
by Distributor to S-L, including, but not limited to,
purchase costs for the Products, leasing costs, charges,
credits or deductions by Distributor's customers, other
agreed upon or required charges, and other deductions
authorized by Distributor.
(Doc. No. 23-1 at Arts. 4A, 4C, 10A). Additionally, the
Distributor Agreement specifies that “S-L is interested
only in the results obtained under this Agreement. The
manner, means, and methods by which Distributor achieves the
results . . . shall be determined solely by Distributor and
based upon the Distributor's independent discretion and
judgment.” (Id. at Art. 2B). Plaintiffs even
concede in their Complaint that “[S-L] generally paid
Plaintiff and other IBOs based on the volume of food products
distributed.” (Doc. No. 1 ¶ 18). Thus, just like
the plaintiff in Troche, while Plaintiffs performed
basic merchandising services under the Distributor Agreement,
their compensation was solely based on the
volume of goods they purchased from S-L and then resold to
third parties at a higher price. In fact, Plaintiffs admitted
in a filing submitted after the M&R was issued that they
“receive[d] [their] revenue directly from the customers
and [S-L] [has] no involvement in that transaction.”
(Doc. No. 101 at 6).
answer to whether Plaintiffs' income meets the
NCWHA's definition of “wages” in the present
case is perhaps even clearer than the identical question
posed in Troche. In Troche, the defendant
made payments to the individual plaintiff, who was a party to
the operative agreement. Here, on the other hand, the
Distributor Agreements were between Plaintiffs'
employers-the distribution companies, corporate entities-and
S-L. (Doc. No. 23-1 at 2). Plaintiffs were not parties to the
Distributor Agreements in their individual capacity, and
under the Distributor Agreements, S-L made payments to the
corporate distribution entities, not to Plaintiffs directly.
(Id. at Art. 5E (“Distributor agrees to, and
shall, bear all costs and expenses associated with the
employment or retention of [its personnel], including, but
not limited to, wages, overtime, salaries . . . .”)).
Moreover, the Distributor Agreements expressly provide that
“neither [Distributor] nor its employees will receive
from S-L any benefits of the ...