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Nicks v. Koch Meat Co., Inc.

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

May 15, 2017

JIMMY R. NICKS and JAMES EARL PATRICK, individually and on behalf of all persons similarly situated, Plaintiffs,
v.
KOCH MEAT CO., INC., d/b/a KOCH FOODS, KOCH FOODS OF MISSISSIPPI, LLC, and JET POULTRY SERVICES, INC., Defendants.

          MEMORANDUM OPINION AND ORDER

          AMY J. ST. EVE, UNITED STATES DISTRICT COURT JUDGE

         On December 22, 2016, Plaintiffs Jimmy R. Nicks (“Nicks”) and James Earl Patrick (“Patrick”), individually and on behalf of all persons similarly situated, filed an Amended Collective Class Action Complaint against Defendants Koch Foods, Inc. (“Koch Foods”), Koch Meat Co., Inc. d/b/a Koch Poultry Co. (“Koch Meat”), Koch Foods of Mississippi (“Koch Foods MS”), JET Poultry Services, Inc. (“JET”), and several other Koch subsidiaries operating in Georgia, Alabama, and Tennessee (“AL-TN-GA Koch Defendants”), collectively “Defendants, ” seeking relief under the Fair Labor Standards Act of 1938, 29 U.S.C. § 201, et seq. (“FLSA”). (R. 99.) Koch Foods, Koch Meat, Koch Foods MS, and AL-TN-GA Koch Defendants (collectively, the “Koch Defendants”) moved to dismiss the Complaint pursuant to Federal Rule of Civil Procedure 12(b)(3) for improper venue, or in the alternative, requested a transfer to the Southern District of Mississippi pursuant to 28 U.S.C. §§ 1404 or 1406. If the Court does not grant dismissal for improper venue and also does not transfer this case, AL-TN-GA Koch Defendants alternatively moved to dismiss the Complaint pursuant to Rule 12(b)(6) for failure to state a claim, and all the Koch Defendants moved to dismiss all claims related to activities in Alabama, Tennessee, and Georgia for lack of standing under Rule 12(b)(1).

         The Court now considers the Koch Defendants' motion. (R. 110.) For the following reasons, the Court denies the Koch Defendants' motion in its entirety.

         PROCEDURAL HISTORY

         Plaintiffs initially filed a collective action against Defendants on June 21, 2016 on behalf of all individuals employed by Defendants as members of live-haul, chicken catching crews in the United States. (R. 1, Compl. ¶ 14.) JET filed a motion to dismiss on August 3, 2016, and Koch Foods MS filed a motion to dismiss on August 4, 2016. Both motions claimed the Court should dismiss this case for lack of personal jurisdiction and alternatively, for improper venue. On October 27, 2016, the Court denied Koch Foods MS's motion to dismiss without prejudice and granted Plaintiffs permission to conduct limited jurisdictional discovery related to the Koch Defendants' corporate structure, operations, and internal governance structure. (R. 82, Mem. Op. and Order 4.) The Court reserved opinion on the Koch Defendants' venue challenge under 28 U.S.C. 1391(b)(1) and granted limited venue discovery relating to (b)(2). (Id. 7.) In compliance with the Court's order, Plaintiffs ordered discovery on the Koch Defendants and conducted relevant depositions.

         On December 19, 2016, Plaintiffs and JET entered into a settlement agreement. (R. 101, Ex. 1, Settlement Agreement with JET.) As part of the settlement, JET agreed that the Court would retain jurisdiction with respect to the enforcement of the settlement terms and that JET would “submit to the jurisdiction of the Court for purposes of interpreting, implementing, and enforcing the settlement.” (Id. ¶ 14.) On January 11, 2017, the Court approved the settlement and dismissed the claims against JET with prejudice. (R. 105.)

         Based on the limited jurisdictional and venue discovery, Plaintiffs filed the First Amended Complaint, in which Plaintiffs added certain Koch Defendants and modified their allegations. (R. 9, Am. Compl.) The Koch Defendants subsequently filed the present motion to dismiss, or alternatively transfer.

         BACKGROUND

         Plaintiffs Nicks and Patrick are Mississippi residents who were “previously employed to catch and cage Koch's chickens as member[s] of a live-haul chicken catching crew[.]” (Am. Compl. ¶¶ 10-11.) Plaintiffs worked for the Koch Defendants, [1] who Plaintiffs allege operate “one of the largest vertically integrated poultry processors in the United States.” (Id. ¶ 12.) According to Plaintiffs, Koch Foods has a policy and practice of failing to pay overtime premiums and minimum wage to the individuals, like Plaintiffs, who catch chickens at Koch's subsidiary farms in Mississippi, Alabama, Georgia, and Tennessee. (Id. ¶ 2.)

         I. Koch Corporate Structure

         Plaintiffs allege that although the Koch Defendants have organized themselves as several separately registered companies, these companies are unified in interest and ownership. (Id. ¶ 14.) Koch Foods is registered as a Delaware corporation, headquartered in Park Ridge, Illinois. (Id. ¶ 27.) Koch Foods is the “fictional parent company” of the Koch LLC subsidiaries, including Koch Meat and the eight separate divisions, each of which is referred to as a “Complex, ” that handle live growing and processing of chickens for Koch in Mississippi, Alabama, Georgia, and Tennessee. (Id. ¶¶ 15, 27.) Koch Meat was the original Koch entity that preceded the creation of Koch Foods, and it was created by current Koch Foods CEO, Joseph Grendys, in 1999. (Id. ¶ 28.) Koch Meat directly pays the officers, directors, and other employees of Koch Foods, as well as the managers of the eight Complexes. (Id.)

         The eight Koch Complexes are each registered as limited liability companies (“LLCs”) in the state in which they are located, with facilities in-state, but with a corporate headquarters in Park Ridge, Illinois. (Id. ¶¶ 29-50.) Koch Foods Mississippi (“Koch Foods MS”) and Koch Farms Mississippi (“Koch Farms MS)”), for example, are registered in Mississippi and have facilities in Morton, Mississippi, but they are headquartered in Park Ridge, Illinois. (Id. ¶ 14.)[2]The Complexes are organized into an Eastern and Western Region, and each Region has a Vice President (“VP”) who reports directly to the President and the Chief Operating Officer of Koch Foods, both of whom are located at Koch's Corporate Headquarters in Illinois. (Id.) Plaintiffs allege that the finances of each Complex are “consolidated with the ultimate goal of increasing the profitability of the entity at a whole.” (Id. ¶ 16.) Plaintiffs note that Koch Foods' website states that it has 13, 000 employees nationwide with 40 employees at its Illinois headquarters. (Id. ¶ 17.) Plaintiffs allege that Koch Foods has created a “fictitious corporate structure” at each Complex with a “Foods” entity that processes the chickens and a “Farms” entity that grows the chickens, although the entities have the same management and reporting structure. (Id. ¶ 18.) The Foods entities pay all employees at a given Complex, regardless of whether the employee works in the grow-out operation or the chicken processing operation. (Id.) The Foods entities also maintain lock box accounts at Harris Bank in Illinois and receive payments from outside vendors to a post office box in Illinois. (Id. ¶¶ 53, 81.)

         Plaintiffs allege that the Koch Defendants fail to observe corporate formalities or maintain an arm's-length-relationship between each other. (Id. ¶ 19.) Plaintiffs claim, for example, that Koch Foods and Koch Meat do not maintain corporate minutes or a corporate records book, all the Koch Defendants share the same logo, and all employees of the Koch Defendant entities share the same email domain. (Id. ¶¶ 19-22.) Additionally, the various Koch corporate entities share products and funds between themselves. (Id. ¶ 23.) These transactions are recorded as “inter-company transfers” on a consolidated Cash Sheet maintained at the Koch corporate headquarters in Illinois, the same Koch Foods officers represent both sides in the transactions, and no money is exchanged. (Id.) Plaintiffs claim that the Koch Defendants comingle their funds, and Koch Foods loans money, with no written agreement, to a subsidiary whenever necessary. (Id. ¶ 25.)

         The Koch Defendants also share common officers and directors. (Id. ¶ 26.) Joseph Grendys (“Grendys”) and Mark Kaminsky (“Kaminsky”), both of whom work out of the Illinois headquarters, are respectively CEO and COO of Koch Foods and they are also listed as officers and directors of each of the separately registered Koch entities that form the eight Complexes. (Id.) Grendys is the ultimate decision maker for each Koch entity. (Id. ¶ 72.) Plaintiffs allege that the Koch corporate entity that is geographically closest to a given employee is responsible for paying that employee, regardless of whether that employee works for that particular entity. (Id. ¶ 24.) The VP of the Eastern Region, for example, who is a Koch Foods employee, works out of Mississippi, so Koch Foods of Mississippi pays him, even though the Mississippi Complex reports to the Western Region and the Eastern Region VP has no job responsibilities relating to the Mississippi Complex. (Id.)

         Each Complex has a Complex Manager, who oversees the live production and processing operations at that Complex. (Id. ¶ 73.) The Complex Managers report to the corresponding Eastern or Western Region VPs, who are responsible for managing the Complexes' operations, including reducing the Complexes' labor costs when possible. (Id. ¶¶ 73-74.) The Region VPs are Koch Foods employees who oversee multiple Koch subsidiaries, but as noted above, they are not necessarily paid out of the budget of the subsidiaries they manage. (Id. ¶ 74.) Plaintiffs allege that the Complex employees must abide by the directives of the Region VPs. (Id. ¶ 75.) For example, Koch Foods holds weekly conference calls, led by Koch Foods Cost Controller, Wayne Brantley, in which each Complex provides operational reports to the COO and the Region VPs. (Id.) Each Complex also has a Controller, who is responsible for maintaining the books and records for the Complex and reporting the financial results to Koch Foods CFO Lance Buckert (“Buckert”) at the end of every month. (Id. ¶ 76.) Buckert has the authority to hire and fire Controllers at each Koch subsidiary. (Id.) The Koch Defendants also share key managerial employees, such as Cost Controller, Director of Purchasing, and Senior Director Quality Assurance. (Id. ¶ 77.) The Director of Purchasing, for example, is a Koch Foods employee who purchases equipment for all the Koch entities. (Id.) The Koch Defendants also share a Safety Director, who instructs all the subsidiaries on running safe operations. (Id. ¶ 80.) Grendys is the sole manager of all the LLC subsidiaries, and Kaminsky approves the budget for each entity. (Id. ¶ 86.) Koch Meet pays both Kaminsky and Grendys. (Id.)

         According to Plaintiffs, Koch Foods does not independently make a profit and only profits from the money made by the subsidiary Koch Complexes. (Id. ¶ 78.) The Complexes' budgets, which Kaminsky must approve, are incorporated into the costs and budget of Koch Foods. (Id. ¶ 79.) To qualify for its line of credit, Koch Foods had to provide information about the financial standing of the Koch Complexes, all of which make profits for and borrow money from Koch Foods. (Id. ¶¶ 82-83.) Koch Foods' Consolidation Manager, who is based in Illinois, manages the daily transfers of funds between the various Koch entities on an accounting platform provided by Harris Bank. (Id. ¶ 84.) This platform contains checking and operating accounts for every Koch entity. (Id.) To effectuate a transfer, the Consolidation Manager determines which entities need additional funds and then the CFO, Buckert, approves the transfer. (Id.) Koch Foods generates a daily “Cash Sheet” that informs each subsidiary what funds Koch Foods has transferred in or out of its accounts. (Id.)

         II. Koch Operations Generally

         Koch Foods produces poultry products for human consumption worldwide and thus requires large quantities of chickens for its processing operations. (Id. ¶ 63.) Koch Foods hatches chicken in Koch-owned hatcheries and ships them to poultry growers. (Id. ¶ 65.) The poultry growers only house Koch-owned chickens, and Koch Foods retains ownership of the chickens and controls the way they are raised. (Id. ¶¶ 65-66.) Koch Foods employs a veterinarian and a nutritionist, each of whom the Koch Foods local subsidiary pays, at each Complex to set the feed profiles for the chickens. (Id. ¶ 67.) Koch chickens are all raised “cage free, ” and Koch Foods only retrieves the chickens for processing once they reach a marketable age and size. (Id. ¶ 69.)

         The Koch Complex Defendants and Koch Meat often buy and sell chicken from and to each other. (Id. ¶ 70.) Koch Meat and Koch Foods MS, for example, buy and sell chicken breasts from each other and ship the chicken breasts from Koch Meat's facilities in Illinois to Koch Foods MS's facilities in Mississippi and vice versa. (Id.) Grendys, the CEO of Koch Foods, determines the sale price of the chickens and both parties are represented in these transactions by Buckert, the Koch Foods CFO based in Illinois. (Id.) These transactions involve no transfer of funds and payment is reflected only through changes in each entity's ledger balances. (Id.) Koch Meat utilizes similar transactions to buy chicken from Complexes in Gadsden, Collinsville, Montgomery, and Ashland. (Id. ¶ 71.)

         III. Koch Chicken Catching Operations

         Plaintiffs allege that Koch Foods, through each of the Koch Complexes, employs crews of chicken catchers like Plaintiffs who operate in substantially the same manner, regardless of the Complex at which they work. (Id. ¶¶ 87, 90.) According to Plaintiffs, the live-haul catching crews are critical to the Koch Defendants' chicken processing business and allow it to produce large-scale poultry products for interstate distribution. (Id. ¶ 88.) Each live-haul crew consists of eight to twelve chicken catchers, one or two forklift operators, and a crew leader. (Id. ¶ 89.) Plaintiffs allege that prior to 2012, the Koch Defendants used a combination of direct employee chicken catching crews and crews provided by third party staffing companies, but the services provided by both types of crews was identical. (Id. ¶¶ 92-93.) In the 2012 to 2013 time period, the Koch Defendants began exclusively using third party contractors to staff its live-haul crews because they were having difficulty maintaining a labor force to serve on the chicken catching crews. (Id. ¶¶ 55, 94.) Koch Foods COO Mark Kaminsky and the Region VPs approved this decision. (Id. ¶ 95.) Plaintiffs claim that Koch Foods, through the subsidiary Complexes, pays the third party contractors, including JET, [3] based on the number of chickens caught, and the third party contractors in turn pay the members of the chicken catching crews. (Id. ¶¶ 56, 100-02.) Plaintiffs further allege that Koch Foods does not pay the third party contractors enough for them to pay their employees minimum wage and overtime pay and still operate profitably. (Id. ¶ 103.)

         In addition, Plaintiffs allege that although the Koch Defendants use third party staffing companies for their live-haul crews, they are in fact joint employers of Plaintiffs and other members of the crews. (Id. ¶ 104.) Plaintiffs claim that the Koch Defendants maintain operational control over the day-to-day functions of Plaintiffs and every aspect of the chicken catching operation. (Id. ¶¶ 105, 108.) Plaintiffs travel to Koch Foods' farms to capture the chickens and they place them in Koch cages for transport to Koch Foods' processing plants at each of the Koch Complexes. (Id. ¶ 106.) Plaintiffs allege that JET and the other third party staffing companies merely provide the “human labor, ” but the equipment and materials they use, as well as the chickens they catch, belong to Koch. (Id. ¶¶ 109-10.) The staffing companies transport the crew members from their homes to the Koch farms, and after the shift is complete, the companies drop off the crew members at their homes. (Id. ¶ 113.) The pick-up and drop-off process can take up to two hours each way, and the Koch Defendants set the work locations and shift durations. (Id.)

         According to Plaintiffs, the Koch Defendants also largely control the rate and method of payment to Plaintiffs by paying the staffing companies on a piece rate basis with such thin margins that it is impossible for the companies to pay overtime and minimum wage. (Id. ¶ 114.) The Koch Defendants maintain the chicken catching records upon which they base their payments to the staffing companies, and the Koch Defendants determine the work schedules and conditions of Plaintiffs' employment. (Id. ¶¶ 115-16.) The Live Haul Operations Manager at each Complex supervises the work of the live-haul crews and dictates their daily schedules and working conditions. (Id. ¶ 117.) Koch employees also set the growing and catching requirements as directed by Koch Foods in Illinois. (Id. ¶ 118.) Specifically, Koch Foods dictates the times at which chickens are put in cages and how many chickens are put in cages based on specific factors related to Koch Foods' processing plants that Koch Foods' employees monitor. (Id. ¶¶ 119-20.) The Koch Complexes also employ an internal auditor and an independent auditor who visit the work site to ensure that the live-haul crews are adhering to Koch's directives and if there are any aberrations, the Quality Control department at Koch Foods or the Koch Complex notifies the staffing companies that the crews must follow Koch's directives. (Id. ¶¶ 122-23.) The Koch Complexes also employ Live Haul Supervisors on-site who oversee the catching practices and ensure that the live-haul crews are following Koch's directives. (Id. ¶ 124.) Both the Koch Defendants and the third party staffing companies retain the right to hire and terminate live-haul crew members. (Id. ¶ 125.)

         Plaintiffs allege that regardless of the Complex or state, the live-haul crews' work is uniform. (Id. ¶ 126.) On a typical work day, vans pick up the crews at their respective homes on a route that Koch Foods and the Koch Complexes determine based on the availability of Koch's processing plans. (Id.) The vans take the crew members several miles away from their homes to farms where they spend the day catching chickens. (Id.) Their work requires no specialized training, is unskilled, repetitive work, and does not involve raising poultry. (Id. ¶¶ 127-28.) Live-haul crews typically work ten to twelve hours per day, five to six days per week, catching tens of thousands of chickens each day. (Id. ¶¶ 129-30.) Once they place the chickens in the cages, the crew forklift operator moves the cages onto trucks owned by the Koch Defendants for transport to the processing plant at a Koch Complex. (Id. ¶ 131.) The Koch Defendants own the forklifts and cages used by the crews and they also own the chickens, the chicken feed, and the trucks used to distribute the chicken feed. (Id. ¶¶ 132-33.)

         IV. Pay-Related Allegations

         Plaintiffs allege that all crew members are non-exempt employees paid on a piece-rate basis per 1, 000 chickens caught. (Id. ¶ 134.) According to Plaintiffs, Defendants require crew members to work hours in excess of 40 hours per week, but do not pay them overtime or compensate them for travel time or time spent waiting for the Koch Defendants' machines to become available. (Id. ¶¶ 136-37.) Plaintiffs contend that Defendants do not properly record the number of hours worked by crew members, and accordingly, do not pay crew members minimum wage or pay them overtime premium for hours worked over 40 hours per work. (Id. ¶¶ 138-40.)

         Plaintiffs allege that Defendants have long been on notice that they must pay live-haul crews overtime due to Supreme Court decisions and Department of Labor inquiries. (Id. ¶¶ 142-44.) According to Plaintiffs, the Department of Labor investigated the payment policies of live-haul crews at the Koch Mississippi Complex prior to this lawsuit, but Defendants did not take any action to ensure that they were properly paying the live-haul crews. (Id. ¶ 144.) The Koch Defendants have not advised the third party staffing companies that they are obligated to pay overtime and minimum wage, and in fact, the Koch Defendants' negotiated prices do not account for minimum wage or overtime costs. (Id. ¶¶ 145-46.) As a result, Plaintiffs allege that Defendants have violated the FLSA provisions relating to minimum wage and overtime pay. (Id. ¶¶ 167, 182.)

         LEGAL STANDARD

         I. 12(b)(1)

         Article III of the Constitution limits federal judicial power to certain “cases” and “controversies, ” and the “irreducible constitutional minimum” of standing contains three elements. Lujan v. Defs. of Wildlife, 504 U.S. 555, 559-60 (1992) (internal citations and quotations marks omitted). “To establish Article III standing, ‘a plaintiff must show (1) it has suffered an ‘injury in fact' that is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical; (2) the injury is fairly traceable to the challenged action of the defendant; and (3) it is likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision.'” Silha v. ACT, Inc., 807 F.3d 169, 173 (7th Cir. 2015) (citations and quotations omitted); see also Berger v. Nat'l Collegiate Athletic Ass'n, 843 F.3d 285, 289 (7th Cir. 2016). The “[p]laintiff bears the burden of establishing the elements of Article III standing.” Id. (citing Lujan, 504 U.S. at 561). A facial challenge to subject matter jurisdiction contends that the plaintiffs' complaint lacks sufficient factual allegations to establish standing. Silha, 807 F.3d at 173. “In reviewing a facial challenge, the court must accept all well-pleaded factual allegations as true and draw all reasonable inferences in favor of the plaintiff.” Id.

         II. 12(b)(3)

         Under Rule 12(b)(3), a party may move for dismissal of an action that is filed in an improper venue. See Fed. R. Civ. P. 12(b)(3). Once a defendant challenges the plaintiff's choice of venue, the plaintiff bears the burden of establishing that it filed its case in the proper district. See Gilman Opco LLC v. Lanman Oil Co., No. 13-CV-7846, 2014 WL 1284499, at *2 (N.D. Ill. Mar. 28, 2014). Under Rule 12(b)(3), “the district court assumes the truth of the allegations in the plaintiff's complaint, unless contradicted by the defendant's affidavits.” Deb v. SIRVA, Inc., No. 14-2484, 2016 WL 4245497, at *5 (7th Cir. Aug. 11, 2016) (emphasis in original); see also Faulkenberg v. CB Tax Franchise Sys., LP, 637 F.3d 801, 809-10 (7th Cir. 2011) (courts may consider matters outside of the pleadings in deciding a venue motion). Against a Rule 12(b)(3) challenge, the court must resolve any factual disputes and draw all reasonable inferences in the plaintiff's favor. See ...


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