United States District Court, N.D. Illinois, Eastern Division
DEMIAN C. DESCHEPPER, et al., individually and on behalf of all others similarly situated, Plaintiffs,
MIDWEST WINE AND SPIRITS, INC.; HAUS WINE AND SPIRITS, INC.; HAUS WINE & SPIRITS, INC.; DIRECT MAIL RESOURCES, INC.; KIG PROPERTIES, LLC; DAVID GARGANO; ZAIRA KARINA GARGANO; MATTHEW HELMS; and MICHAEL LAIRD, Defendants. 
For Demian C Deschepper, Plaintiff: Adam C Ford, PRO HAC VICE, Harris, O'Brien, St. Laurent & Chaudhry LLP, New York, NY; Claire Cooper Kossmann, Stephen Richard Vedova, Foley & Mansfield, PLLP, Chicago, IL; Christopher Q. Davis, PRO HAC VICE, The Law Office of Christopher Davis, New York, NY.
For Harrison Pious, Michael Olson, Thomas J Herring, Kelsey Burnett, Plaintiffs: Andrew Brian Stoll, LEAD ATTORNEY, PRO HAC VICE, Stoll, Glickman & Bellina Llp, Brooklyn, NY; Claire Cooper Kossmann, Stephen Richard Vedova, Foley & Mansfield, PLLP, Chicago, IL; Christopher Q. Davis, PRO HAC VICE, The Law Office of Christopher Davis, New York, NY.
For Jenna Yeh, Lisa Marie Maize, Adam Camacho, Diane Chamberlin, Frank Scumaci, Jake Leighty, Larry Clinton, Lisa Digangi, Mario Dukovac, Matt Scalzo, Christina Diamond, Shannon Wesseling, individually and on behalf of all others similarly situated, Plaintiffs: Claire Cooper Kossmann, Stephen Richard Vedova, Foley & Mansfield, PLLP, Chicago, IL; Christopher Q. Davis, PRO HAC VICE, The Law Office of Christopher Davis, New York, NY.
For Midwest Wine and Spirits, Inc., David Gargano, in his individual and professional capacities, Direct Mail Resources, Inc., Kig Propertes, LLC, Zaira Karina Gargano, in her individual and professional capacities, Defendants: Jeffrey J. Mayer, LEAD ATTORNEY, Rachel Elisabeth Anne Atterberry, Freeborn & Peters, Chicago, IL.
For Haus Wine and Spirits, Inc., Matthew Helms, in his individual and professional capacities, Defendants: Brian Michael Graham, LEAD ATTORNEY, Frankfort, IL.
For Michael Laird, in his individual and professional capacities, Defendant: Beau T. Greiman, LEAD ATTORNEY, Greiman, Rome & Griesmeyer, LLC, Naperville, IL; James D. Major, Randall S. Miller & Associates, LLC, Chicago, IL.
MEMORANDUM OPINION AND ORDER
Joan B. Gottschall, United States District Judge.
The plaintiffs are current or former employees of Midwest Wine and Spirits, Inc. (" MWW" ), a liquor wholesaler. The defendants in this putative class action lawsuit are MWW, Haus Wine and Spirits, Inc. (MWW's alleged successor), two entities that are allegedly intertwined with MWW and Haus (Direct Mail Resources, Inc. and KIG Properties, LLC) and individuals associated with all of these entities (Matthew Helms, the former general manager of MWW and a partial owner of Haus, Michael Laird, the former Controller of MWW and a partial owner of Haus, David Gargano, the President and CEO of MWW, the owner and CEO of Direct Mail, and the President, CEO, and owner of KIG Properties, and Zaira Karina Gargano, David Gargano's wife and a partial owner of Haus). MWW, Mr. and Mrs. Gargano, Direct Mail, and KIG's motion to dismiss the second amended complaint in its entirety pursuant to Fed.R.Civ.P. 12(b)(6) is before the court. For the reasons discussed below, the motion is granted in part and denied in part.
This case involves two entities engaged in the business of selling alcoholic beverages, a property management company (KIG), and a direct mail company (Direct Mail). The parties dispute whether the entities are related. For purposes of clarity, the court will summarize the plaintiffs' allegations about each entity separately.
A. Midwest Wine and Spirits, Inc.
MWW is a wholesaler primarily engaged in the distribution and marketing of wine, distilled alcoholic beverages, neutral spirits, and ethyl alcohol. The plaintiffs are current or former employees of MWW, which is owned and operated by Mr. Gargano. The plaintiffs did not sell alcoholic beverages directly to consumers. Instead, they promoted MWW's branded product to retailers, who then resold the product to end users. The plaintiffs' other duties included making cold calls to prospective new merchants, visiting existing merchants to take merchandise orders, conducting surveys, pitching brands sponsored by their product suppliers, providing samples to new and existing merchants, and driving as necessary to perform their assigned tasks.
According to the plaintiffs, MWW and Mr. Gargano " micromanaged" the plaintiffs by, among other things, requiring them to call the office several times each day to provide status reports and submit " pre-plans" and " post-plans" detailing their daily work for each sales account. MWW controlled the brands that each worker could promote, set the workers' hours, required the workers to obtain approval for time off, and threatened them with termination " if they did not perform as demanded." (2d Am. Compl. ¶ 44, Dkt. 28.) MWW's workforce gave potential customers MWW-branded business cards that were customized with their individual names. MWW required the workers to wear MWW-branded clothing in the field, complete periodic wine and spirits courses and reading assignments, take tests, and attend weekly meetings.
The workers personally paid, in full or in part, for expenses such as gas, car repairs, parking, tolls, necessary equipment, cell phone service, and clothing bearing MWW's logo. Although MWW created an expense reimbursement system in 2013, it reimbursed the workers for only a portion of their expenses. When merchants placed an order, some sales associates would call the sale into MWW's office, where office staff would input it into MWW's system. Other sales associates were required to use MWW's computer to input orders themselves.
The plaintiffs were compensated through a hybrid salary and commission structure. When this case was filed, the starting salary for sales associates was $30,000 per year, with a 40-hour workweek and an opportunity to earn commissions. Under an earlier salary structure, sales associates received $33,000 per year, with a 40-hour workweek plus commissions. The reduction in salary reflected a " purported opportunity for greater commissions." ( Id. ¶ 56.)
MWW classified the plaintiffs as independent contractors but referred to them internally as " employees." MWW's " New Hire Packet" instructed new hires that they needed to fill out 1099 and W-9 forms before they could receive business cards or get paid. Several sales associates did not realize they were classified as independent contractors until several months after they started working at MWW. Despite the classification of most of the work force as independent contractors, Mr. Gargano allowed a district manager and three sales associates to transition to W-2 employee status without any adjustments to the terms or conditions of their employment. With respect to two of these four individuals, Mr. Gargano characterized the change in classification as an " award" or " promotion" for successful sales. ( Id. ¶ 50.)
MWW and Mr. Gargano classified MWW's workforce as FLSA exempt. From the workers' start dates to the present, MWW did not pay its active workers overtime for hours worked in excess of 40 hours per week and did not pay its terminated workers their earned straight time, commissions, and final wages. Some of MWW's workers complained to their managers and Mr. Gargano about MWW's practice of classifying them as independent contractors rather than employees. Additionally, MWW's retained lawyer advised Mr. Gargano to transition his " independent contractor" workforce to W-2 employees, but Mr. Gargano did not follow this advice. Finally, the Illinois Liquor Control Commission told Mr. Gargano that his sales associates were improperly classified. The order of these events is unclear on the face of the second amended complaint.
B. Haus Wine and Spirits, Inc.
In August 2013, the plaintiffs' counsel sent Mr. Gargano a demand letter that asserted, among other things, FLSA violations. The following month, Mr. Gargano convened a meeting to advise MWW's staff that MWW would be closing. During this meeting, Mr. Helms announced that he was leaving MWW to start Haus, a new alcohol distributor. Mr. Helms stated that the MWW workers might be able to work at Haus after MWW ended its operations.
MWW's management told the workers that Mr. Gargano's involvement with Haus was limited to leasing MWW's office space and delivery equipment to Haus. Mr. Gargano, however, began to transfer MWW's corporate assets to Haus. Haus currently operates out of MWW's offices, employs former MWW workers, and uses MWW cargo vans to make deliveries. Haus's staff includes MWW staff members who were paid as W-2 employees while at MWW. These staff members include Lori Burck, who describes Haus as " formerly operating under the name of [MWW]." ( Id. ¶ 121.)
As of the date that the second amended complaint was filed, Haus was hiring employees. When an individual calls Haus to inquire about a position, a representative of MWW answers the phone and states that Haus is a tenant of MWW. Haus does not pay rent to MWW for use of its facility and delivery systems. The plaintiffs further allege that MWW sold its assets to Haus at " fire sale prices" of less than 70% of their usual wholesale value. ( Id. ¶ 126.)
C. Other Entities
Several other entities play a role in this case. Direct Mail is a direct mail marketing company owned by Mr. Gargano. Mr. Gargano also owns KIG Properties. The plaintiffs allege that there is a unity of ownership and interests between Mr. Gargano, MWW, Haus, Direct Mail, and KIG. Specifically, according to the plaintiffs, KIG guaranteed all assets owned by Mr. Gargano and MWW. Mr. Gargano used profits and assets from Direct Mail to operate MWW and transferred assets from Direct Mail to MWW. Finally, " [u]pon information and belief," Mr. Gargano " disclosed the fact that he moved funds between MWW, Direct Mail Resources and KIG Properties to former MWW General Manager Andy Bikilous." ( Id. ¶ 138.) MWW is currently winding down its operations as its current liabilities exceed its assets.
D. The Second Amended Complaint
The plaintiffs' second amended complaint is styled as a class action. The first five counts are brought against all defendants but appear to be directed at MWW and Mr. Gargano. The plaintiffs allege that MWW and Mr. Gargano: (1) failed to pay overtime compensation under the Fair Labor Standards Act (" FLSA" ) (Count I) and the Illinois Minimum Wage Law (" IMWL" ) (Count II); (2) made unlawful deductions from wages in violation of the Illinois Wage Payment and Collection Act (" IWPCA" ) (Count III); and (4) are liable for the business expenses of the putative class based on a state law unjust enrichment theory (Count V). In addition, the plaintiffs allege that Haus, Mrs. Gargano, Mr. Helms, and Mr. Laird (the " Haus defendants" ) are liable for any judgment entered against MWW in connection with Counts I, II, III, and V under a successor liability theory (Count VI) and ask the court to pierce the corporate veil against Direct Mail and KIG and find that Mr. Gargano is personally liable for their debts (Count VII). Finally, the plaintiffs allege that the Haus defendants engaged in " fraud in fact in ...