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Schneider v. Cornerstone Pints, Inc.

United States District Court, N.D. Illinois, Eastern Division

December 1, 2015

MEGAN SCHNEIDER, et al., Plaintiffs,
v.
CORNERSTONE PINTS, INC., et al., Defendants

          For Megan Schneider, Dawn Phalen, Kelli Glasscock, Samantha Rodarte, Jason Dwyer, Tracy Martinez, Mike Heffley, Cheryl Hanes, Robert Brown, Melissa Gottschalk, Tesa Emmart, on behalf of themselves and other persons similarly situated, known and unknown, Plaintiffs: Maureen Ann Salas, Sarah Jean Arendt, Zachary Cole Flowerree, Werman Salas P.C., Chicago, IL; Douglas M. Werman, Werman Salas P.C., Chicago, IL.

         For Cornerstone Pints, Inc., doing business as Michael Diversey's, Jack Lewis, individually, Defendants: Tom H. Luetkemeyer, LEAD ATTORNEY, Jennifer Michele Ballard, Hinshaw & Culbertson LLP, Chicago, IL; Adam L. Saper, Hinshaw & Culbertson, Chicago, IL.

         For Michael Zdanowicz, individually, Anthony Zdanowicz, individually, Defendants: Jennifer Michele Ballard, Hinshaw & Culbertson LLP, Chicago, IL; Adam L. Saper, Hinshaw & Culbertson, Chicago, IL.

          OPINION

         Manish S. Shah, United States District Judge.

         Findings of Fact and Conclusions of Law

         Plaintiffs Megan Schneider, Dawn Phalen, Kelli Glasscock, Samantha Rodarte, Jason Dwyer, Tracy Martinez, Mike Heffley, Cheryl Hanes, Robert Brown, Melissa Gottschalk, and Tesa Emmart, filed this suit alleging violations of the Fair Labor Standards Act and the Illinois Minimum Wage Law.[1] Defendants Cornerstone Pints, Inc., and Jack Lewis have admitted liability for the alleged minimum wage and overtime violations. Defendants Michael Zdanowicz and Anthony Zdanowicz, by contrast, contest liability on the ground that neither was plaintiffs' " employer" under the FLSA or IMWL. Schneider, Lewis, and the Zdanowiczes testified at a bench trial. At issue was the Zdanowiczes' employer status, as well as whether defendants are entitled to a " tip credit."

         After considering the documents and testimony admitted during the trial, and for the reasons explained below, I find in favor of defendants on the first question and plaintiffs on the second question. This order sets forth my findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52(a).

         I. Findings of Fact

         Defendants Michael Zdanowicz and Anthony Zdanowicz (referred to as Mike and Tony throughout the trial) are brothers. Mike and Tony have owned and operated a metal brokerage company in Crown Point, Indiana--Z-Alloy Inc.--for almost 30 years. Before the events of this case, neither brother had any experience owning or operating a restaurant or bar.

         Mike and Tony are married to two women who are sisters. These two sisters, in turn, have a sister who is married to defendant Jack Lewis. Lewis has worked in the bar and restaurant industry for over 30 years. He started as an assistant manager, worked his way up to assistant general manager, and eventually became a general manager. Along the way Lewis helped open several restaurants. He also spent time working as a general manager in college nightclubs. His final position before the events of this case was as the general manager of a Ruth's Chris Steak House in Columbia, South Carolina.

         In 2007, Lewis proposed to Mike and Tony that the three open a restaurant. Mike and Tony were interested for two reasons. First, Z-Alloy's business was starting to plateau and Mike and Tony were looking for new avenues of investment. They saw opening a restaurant as one way to diversify their holdings and bring in more income. Second, Lewis and his family were the only members of his wife's family not living in the northern Indiana area. Mike and Tony saw the opening of a restaurant--which Lewis would run--as a way to bring the entire family back together. From the beginning, the three men understood that Mike and Tony would fund the venture, and that Lewis--who had no capital but many years of experience--would run the restaurant's day-to-day operations.

         Lewis proposed that they look into a franchise opportunity with the Canadian restaurant chain Firkin & Pheasant. The three went to Toronto to meet with the franchisor's principals. After Mike and Tony submitted applications and disclosed their finances, they were approved to open Firkin & Pheasant franchises in the Midwest. Mike, Tony, and Lewis went forward with opening the first location in Chicago.

         Mike took the lead on setting up the company's framework. He hired lawyers to draft the organizational documents, he obtained insurance, he found a payroll service, and he hired a real estate agent to help them find a location. Tony participated in choosing the company's bank and its accounting firm. Lewis set up payroll after Mike put him in touch with the correct person. Although there was no direct evidence explicitly answering the question, I infer and conclude Lewis was the person who set the employee's rate of pay, because he was the one who set up payroll and only he had access to the point-of-sale system.

         The new company, which was called Cornerstone Pints, Inc., was incorporated in Indiana and used Z-Alloy's street address as its business address. Mike, Tony, and Lewis all participated in finding the location for the restaurant. Lewis led the decision to choose the space on Diversey Avenue in Chicago's Lincoln Park neighborhood, but Mike and Tony agreed with the choice. Mike and Tony signed and personally guaranteed the lease--Lewis did neither.

         Mike, Tony, and Lewis each owned one third of Cornerstone. Tony became the corporation's president because he was the oldest. According to the bylaws, the president's duties included directing the policies and management of the corporation. Tony exercised his option under the bylaws, however, to delegate all presidential duties to Lewis. Mike was Cornerstone's secretary and treasurer. Lewis held no officer position, but he was named general manager for which--the three agreed--he would be paid $96,000 a year.

         Mike and Tony each funded the corporation, allowing it to pay the initial $60,000 franchise fee to Firkin & Pheasant. These initial funds also covered payroll expenses until the restaurant started generating sales. At some point after the facility was in working order, people from Firkin & Pheasant came to Chicago to provide employee training. Of the owners, only Lewis participated.

         Mike set up a repeating bank transfer that directly deposited funds into Lewis's account to pay for his work as general manager. On occasion, Mike would pay Jack through an account with Z-Alloy. Mike would also sometimes withhold amounts from Lewis's payments in order to service personal debts Lewis owed Mike. Lewis was given a credit card to use on behalf of the restaurant. The card was connected to a Z-Alloy account. Lewis occasionally used the card for personal purposes, which Mike would then collect from Lewis.

         Mike and Tony received daily sales reports from the restaurant that showed, among other things, summaries of the total labor cost for the day. Mike had Z-Alloy's administrative assistant enter information from the daily sales reports into the accounting software that Z-Alloy and Cornerstone shared. If a day went by and Mike did not receive a report, he would follow up with Lewis and ask why that was. Most days it was a restaurant employee (other than Lewis) who sent Mike the report. The employee would sometimes include a short narrative about how the day went or why the numbers were what they were.

         Mike monitored certain Cornerstone financials, including the cost of rent, the cost of goods sold, vendor expenses, and the overall bottom line. Although bank statements for the restaurant were sent to Mike's office, he could not say that he ever " perused" them before forwarding them to the outside accountants, McMahon and Associates. Mike generated reports for the restaurant from the accounting software and sent them to the accountants, who then--also relying on reports from Lewis--generated financial statements for the company.

         Mike, Tony, and Lewis had a budget that Lewis prepared before they opened the restaurant. This budget set a target of having labor costs equal 16% of sales. The restaurant never consistently hit that target. On several occasions, Mike communicated to Lewis that labor costs were too high (i.e., too far above 16%). As Mike put it, he and Tony " were always concerned with expenses." For his part, Tony said he was " hyperfocused" on labor expense, because it was the metric Lewis had emphasized when pitching the idea. Mike would also ...


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