Martinez v. Petrenko 12-CV-331-JD 1/13/14 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Gabriel F. Martinez

v. Civil No. 12-cv-331-JD Opinion No.

Victor F. Petrenko and IceCode, LLC

O R D E R

Gabriel F. Martinez brought suit against his former employer, IceCode, LLC, and Victor Petrenko, who founded IceCode and served as chairman of IceCode's board, seeking payment of wages, overtime compensation, severance benefits, and damages for wrongful termination under state law and the Fair Labor Standards Act ("FLSA"),

(a). Petrenko moves for summary judgment on Martinez's FLSA claim, arguing that Martinez cannot show enterprise coverage, as required by § 207(a), and asking the court to decline supplemental jurisdiction over the state law claims. Martinez objects on the grounds that factual disputes preclude summary judgment on his FLSA claim and argues that even if the FLSA claim were dismissed, diversity jurisdiction exists or, alternatively, the court should not decline supplemental jurisdiction.

Standard of Review

Summary judgment is appropriate when "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." Fed. R. Civ. P. 56(a). "A genuine issue is one that can be resolved in favor of either party, and a material fact is one which has the potential of affecting the outcome of the case." Jakobiec v. Merrill Lynch Life Ins. Co.,

(1st Cir. 2013) (internal quotation marks omitted). In deciding a motion for summary judgment, the court draws all reasonable factual inferences in favor of the nonmovant. Kenney v. Floyd,

(1st Cir. 2012) .

Background

Petrenko founded IceCode, originally Ice Engineering, LLC,

in 2001, in Lebanon, New Hampshire. In the complaint, Martinez

describes IceCode as being "engaged in research and development

of intellectual property for so long as the entity existed."

Compl. 5 7. IceCode's "Limited Liability Company Operating

Agreement" states that the purposes of the company were:

to develop, improve, license, and commercially apply ice friction modification technology and other technologies developed and/or acquired that provide significant cost savings, energy savings, or otherwise provide better reliability and safety for consumers and manufacturers; to develop, market, offer, sell, license and promote products and services related to such technology and to engage in all ancillary activities directly or indirectly related to such purposes.

Agreement, § 2.5.

From March 1, 2010, to March 1, 2011, Petrenko was the Chief

Technology Officer at IceCode and chairman of its board of

directors. In February of 2010, Martinez became Chief Operating

2 Officer of IceCode. During that time, Roman Zhigalov and then

Sam Fairchild were Chief Executive Officer.1

The terms of Martinez's employment at IceCode were governed

by an agreement which was titled "Executive Agreement." The

Executive Agreement was amended after Martinez complained about

his compensation in July of 2010. Martinez left IceCode in May

of 2011 because he was not being compensated in the amount that

he believed had been promised.

Martinez filed this action in August of 2012. Petrenko

moved to dismiss Martinez's FLSA claim for lack of subject matter

jurisdiction or in the alternative for failure to state a claim

and filed a motion for judgment on the pleadings. Petrenko also

moved for default against Martinez on Petrenko's counterclaim.

In support of the jurisdictional challenge, Petrenko argued

that diversity jurisdiction under

was lacking

and that federal question jurisdiction under

was lacking because the FLSA claim was "insubstantial and

frivolous."2 The court denied the motion to dismiss as untimely,

because it presented a procedural tangle of jurisdictional issues

under Federal Rule of Civil Procedure 12(b)(1) and a challenge on

the merits under Rule 12(b)(6), and because Martinez presented a

colorable claim under the FLSA. The court concluded that the

1 Zhigalov apparently was Chief Executive Officer of IceCode beginning in 2008 and then designated Fairchild to serve in that position. Zhigalov may have again been Chief Executive Officer in 2011. 2 IceCode had not yet been dismissed from the case.

3 motion for judgment on the pleadings was premature and that the

issues should be addressed by a motion for summary judgment.

Default was entered against Martinez on the counterclaim but

was later cured. On January 18, 2013, the claims against IceCode

were dismissed without prejudice, due to Martinez's failure to

file a return of service or a motion to extend time to effect

service. Therefore, IceCode is no longer a party in this action.

Discussion Petrenko seeks summary judgment in his favor on Martinez's

FLSA claim for overtime wages on the ground that Martinez cannot

show that IceCode was a covered employer under the FLSA. In

addition, Petrenko asks the court to decline supplemental

jurisdiction over Martinez's state law claims after the FLSA

claim is dismissed. In response, Martinez argues that factual

disputes exist as to whether IceCode was a covered employer under

the FLSA, that he was a covered employee under the FLSA, and that

even if the FLSA act claim were dismissed, diversity jurisdiction

now exists because IceCode has been dismissed and the court

should not decline supplemental jurisdiction over the state law

claims.

A. FLSA

Section 207(a) prohibits employers from having employees

work for longer than forty hours per week without overtime pay

when the employees are "engaged in commerce or in the production

4 of goods for commerce" or the employer is "an enterprise engaged

in commerce or in the production of goods for commerce." As

such, the FLSA applies only to employment with an adequate

connection to commerce. Alladin v. Paramount Mgmt., LLC,

, at *5 (S.D.N.Y. Aug. 27, 2013); Mathews v. Bronger

Masonry, Inc.,

(S.D. Ind. 2011) .

The commerce requirements under § 207(a) have been termed

"individual coverage" and "enterprise coverage." See Polycarpe

v. E&S Landscaping Serv., Inc.,

(11th Cir.

2010). To be eligible for overtime compensation under § 207(a),

therefore, a plaintiff must prove either individual or enterprise

coverage. Josendis v. Wall to Wall Rsidence Repairs, Inc.,

(11th Cir. 2011).

Martinez alleged his claim under the FLSA in Count III

against both IceCode and Petrenko. The FLSA claim has been

dismissed as to IceCode. For purposes of the motion for summary

judgment, Petrenko does not challenge the allegation that he was

Martinez's employer. Both parties cite IceCode's revenue and

activities for purposes of the analysis of Martinez's FLSA claim

against Petrenko. The court will accept the parties'

presentations for purposes of the motion for summary judgment

only without making any findings or rulings as to whether

Petrenko was Martinez's employer and whether the facts pertinent

to IceCode may be imputed to Petrenko for purposes of the

§ 207(a) analysis.

5 In opposition to summary judgment, Martinez asserts that he

is not required to allege or show facts addressing the coverage

requirements of § 207(a) to maintain his FLSA claim.3 He is

mistaken. To succeed on a claim under § 207(a), a plaintiff must

prove that he is a covered employee or that his employer is a

covered enterprise. See, e.g., Falk v. Brennan,

(1973); Reagor v. Okmulgee Cnty. Family Res. Ctr.,

(10th Cir. 2012) (holding that plaintiff

bears the burden of showing either individual or employer

coverage under § 207(a)); Josendis,

("In order

to be eligible for FLSA overtime, however, an employee must first

demonstrate that he is ,covered' by the FLSA."); Talton v. I.H.

Caffey Distributing, Co.,

(4th Cir. 2005)

(holding that FLSA overtime compensation applies only to covered

employees); Chao v. A-One Med. Servs., Inc.,

(9th Cir. 2003) (holding that for FLSA overtime rules to apply

plaintiff must be employee within coverage required under §

207(a)); Robinson v. CAS 4000 Kansas LLC, F. Supp. 2d ,

(D.D.C. Dec. 16, 2013) (describing

coverage requirements under § 207(a)); Boutros v. JTC Painting &

3 Martinez argues in part that because the First Circuit has not had an opportunity to address the coverage requirements under § 207(a), coverage is not an element of a § 207(a) claim in this circuit. The great weight of authority to the contrary demonstrates the lack of merit in that theory.

6 Decorating Corp.,

(S.D.N.Y. Oct. 15, 2013)

(same); Sandles v. Wright,

, at *6 (E.D. Tex. Oct.

3, 2013) (same); Pruell v. Caritas Christi,

, at

*1 (D. Mass. May 31, 2013) ("To state a claim under the FLSA, the

plaintiff must allege that she was employed by the defendants;

that her work involved interstate activity; and that she

performed work for which she was improperly compensated."). As

an element of a § 207(a) claim, the coverage requirement must

also be pleaded in the complaint. See, e.g., Reagor,

; Cardenas v. Aragon Towers Condominium Ass'n Inc.,

(11th Cir. 2012); Rummel v. Hughmark,

Inc.,

, at *4 (W.D. Pa. Nov. 15, 2013); Mullins v.

Posh Potties, LLC,

, at *2 (S.D. Fla. Oct. 22,

2 013); Malloy v. Assoc, of State & Territorial Solid Waste Mgmt.

Officials, F. Supp. 2d ,

(D.D.C.

July 26, 2013); Shomo v. Junior Corp.,

, at *3-*4

(W.D. Va. June 1, 2012); Seeman v. Gracie Gardens Owners Corp.,

(S.D.N.Y. 2011); Morrow v. JW Elec.,

Inc.,

, at *3 (N.D. Tex. Nov. 16, 2011); Perez v.

Muab, Inc.,

, at *3 (S.D. Fla. Mar. 7, 2011) .

Therefore, to the extent Martinez opposes summary judgment on the

ground that coverage is not an element of his FLSA claim, that

argument is rejected.

7 1. Enterprise Coverage

Petrenko assumed that Martinez was relying on enterprise

coverage to support his FLSA claim.4 "[A]n enterprise is

''engaged in commerce' for purposes of the FLSA if it (1) ,has

employees engaged in commerce or in the production of goods for

commerce, or . . . handling, selling, or otherwise working on

goods or materials that have been moved in or produced for

commerce by any person'; and (2) has an ,annual gross volume of

sales made or business done [that] is not less than $500,000.'"

Alladin,

, at *5 (quoting

(s)(1)(A)

defining terms used in § 207 (a)) .

Petrenko asserts, based on a draft of IceCode's income tax

return for 2010,5 that IceCode had gross receipts of $150,000,

loans from its partners of $134,764, and a liability owed to

"Diversified" in the amount of $500,000. In response, Martinez

contends that IceCode's business transactions during 2010 totaled

$719,391.46, based on amounts received by IceCode "from

investments, prize money and other sources." Obj. doc. 36 at 6.

Specifically, Martinez lists $250,000 as "Diversified Revenue,"

4 Petrenko previously moved to dismiss Martinez's FLSA claim and for judgment on the pleadings, contending that Martinez did not allege individual coverage and inadequately alleged enterprise coverage. In response, Martinez argued that he had adequately pleaded enterprise coverage under the FLSA. Martinez did not raise an issue as to individual coverage in response to either motion. Based on Martinez's prior arguments, Petrenko assumed that Martinez was not pursuing individual coverage under the FLSA. 5 Martinez does not challenge the evidentiary sufficiency of the draft income tax return.

8 $295,600 as "Zhigalov Investment," $100,000 as "GE Prize,"

$65,000 as "Joyce Investment" and "Topkis Investment," a

recovered retainer, and an unknown source.

The employer's corporate income tax returns provide evidence

of the volume of sales or business done for purposes of

enterprise coverage under § 207(a). See Polycarpe,

; Hurtado v. Raly Dev., Inc.,

, at *7 (S.D.

Fla. Aug. 27, 2013); Lopez v. Pereyra,

, at *4

(S.D. Fla. Jan. 29, 2010). The amounts of loans made to the employer, the amounts of investments in the company, and internal

business transactions do not constitute gross sales or business

done. Polycarpe,

; Lopez,

, at *5;

Kaur v. Royal Arcadia Palace, Inc.,

(E.D.N.Y. 2007) .

Based on the draft income tax return, IceCode's revenue in

2010 was $150,000. The investments by Roman Zhigalov, who was an

officer of IceCode, cannot be considered to augment that amount.

Further, the "Diversified Revenue" of $250,000, claimed by

Martinez, appears to have been a loan. It is not necessary to

resolve the nature of Diversified's investment, however, because

without the Zhigalov investment amounts, Martinez has not shown a

triable issue as to whether IceCode had sales and business in an

amount that exceeded $500,000.6

6 Martinez asserts that IceCode's transactions totaled $719,391.46 during the relevant period, which included $250,000 from Diversified, not $500,000.

9 2. Individual Coverage

Despite his prior arguments based on enterprise coverage,

Martinez now asserts that individual coverage under the FLSA also

applies.7 A plaintiff, however, is "not entitled to raise new

and unadvertised theories of liability for the first time in

opposition to summary judgment." Calvi v. Knox County,

(1st Cir. 2006); Steeves v. City of Rockland,

(D. Me. 2009). Therefore, unless individual

coverage was alleged in the complaint, Martinez cannot now rely

on that theory to avoid summary judgment. See Rowe v. Liberty

Mut. Group, Inc.,

, at *16 (D.N.H. Dec. 6, 2013) .

In Count III of the complaint, the FLSA claim, Martinez

included allegations directed toward enterprise coverage in

paragraph 57. He did not plead any facts that address an

individual coverage theory. Therefore, Martinez cannot avoid

summary judgment based on a new and unadvertised theory of

individual coverage. Further, even if individual coverage had

been pleaded, it is far from clear that Martinez could avoid

summary judgment based on that theory.

7 Petrenko asserts that Martinez is judicially estopped from raising individual coverage based on his arguments in opposition to Petrenko's motion to dismiss and motion for judgment on the pleadings. Although Martinez did not raise individual coverage previously, he did not disavow individual coverage or rely on arguments directly contrary to individual coverage. For that reason, his position now, invoking individual coverage, is not directly inconsistent with previous arguments, and judicial estoppel does not apply. See Boston Gas Co. v. Century Indem. Co.,

(1st Cir. 2013).

10 3. Summary

Because Martinez did not plead individual coverage and has

not shown a triable issue as to enterprise coverage for his FLSA

claim under § 207(a), Petrenko is entitled to summary judgment on

Martinez's FLSA claim. Count III.

B. Jurisdiction

With the dismissal of Martinez's FLSA claim, the

jurisdictional basis for this case under

no longer exists. In this situation, the court may decline to

exercise supplemental jurisdiction over the remaining state law

claims.

(c)(3). Petrenko urges this result

here. Martinez asks the court to retain supplemental

jurisdiction and argues that diversity jurisdiction now exists,

following the dismissal of IceCode, making supplemental

jurisdiction unnecessary.

1. Diversity Jurisdiction

The general rule is that jurisdiction is determined at the time the complaint is filed. Garcia Perez v. Santaella,

(1st Cir. 2004). An exception exists for purposes of

diversity jurisdiction,

, when a jurisdictional

defect is cured under Federal Rule of Civil Procedure 21 by

dismissing the party that destroyed complete diversity. See

Grupo Dataflux v. Atlas Global Group, L.P.,

(2004). In that event, the court may proceed under diversity

11 jurisdiction after dismissing the nondiverse party, despite the

lack of complete diversity at the time the complaint was filed.

Id.; see also Newman-Green, Inc. v. Alfonzo-Larrain, 4

, 832 (1989) ("[I]t is well settled that Rule 21 invests

district courts with authority to allow a dispensable nondiverse

party to be dropped at any time, even after judgment has been

rendered.") .

Martinez relies on two cases, in support of diversity

jurisdiction, in which the courts found diversity existed after

nondiverse parties were dismissed. See Collins v. Franklin,

(W.D. Va. 2000) (nondiverse defendants

dismissed pursuant to settlement); Continental Data Sys., Inc. v.

Exxon Corp.,

(E.D. Pa. 1986) (holding that

early dismissal of nondiverse defendants cured defects in

diversity jurisdiction). In addition, the Second Circuit has

held that diversity jurisdiction existed prior to final judgment

because summary judgment previously had been granted in favor of

the nondiverse defendants, which eliminated them from the case.

Brown v. Eli Lilly & Co.

(2d Cir. 2011).

IceCode, the nondiverse defendant in this case, has been

dismissed without prejudice because Martinez did not file a

return of service within the time allowed. Martinez and

Petrenko, the remaining parties, are citizens of different

states. Therefore, based on the circumstances presented here,

diversity jurisdiction exists in this case.

12 "Federal courts, it was early and famously said, have ^no

more right to decline the exercise of jurisdiction which is

given, than to usurp that which is not given.'" Sprint Commc'ns,

Inc. v. Jacobs,

(2013) (quoting Cohens v.

Virgina,

(1821)). Because diversity

jurisdiction exists in this case, the dismissal of the FLSA claim

does not affect jurisdiction.

2. Supplemental Jurisdiction

The question of supplemental jurisdiction is moot.

Conclusion

For the foregoing reasons, the defendant's motion for

summary judgment (document no. 33) is granted to the extent that

the plaintiff's claim under the FLSA, Count III, is dismissed,

and is otherwise denied.

SO ORDERED.

January 13, 2014 cc: Benjamin T. King, Esq. Martha Van Oot, Esq.

13