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Pfefferkorn v. Primesource Health Group, LLC

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

February 12, 2018

ERIN PFEFFERKORN, et al., Plaintiffs,


          John Robert Blakey United States District Judge.

         This putative collective action arises from alleged violations of the Fair Labor Standards Act (FLSA), 29 U.S.C. § 201 et seq. [59]. Plaintiffs claim that PrimeSource Health Group, PrimeSource Health Care Systems, and PrimeSource of Michigan failed to fully pay Plaintiffs for hours worked, including overtime, and allege various theories of liability against the remaining defendants. Id. Multiple defendants jointly moved to dismiss the claims against them, [74], and to dismiss certain plaintiffs from the suit, [77]. For the reasons explained below, this Court partially grants and partially denies the motion to dismiss Plaintiffs' claims, and denies in full the motion to dismiss certain plaintiffs from this action.

         I. The Complaint's Allegations

         A. PrimeSource

         Plaintiffs all worked for Defendants PrimeSource Health Group, PrimeSource Health Care Systems, and PrimeSource of Michigan (together, PrimeSource) as Clinical Assistants, Clinical Assistant Supervisors, or Patient Assistants at some time during the three years preceding this case. See [59] ¶¶ 77, 234.

         PrimeSource consists of a network of linked companies offering mobile medical services to long-term care facilities. See id. ¶¶ 24-30, 72-75. PrimeSource Group is the parent corporation of PrimeSource Health Care Systems, which is the parent company of PrimeSource Michigan (as well as other subsidiaries not named as defendants here). See id. ¶¶ 27-29. PrimeSource forms a single enterprise engaged in commerce and is thus subject to various requirements under the FLSA. See id. ¶ 30; 29 U.S.C. §§ 203(s)(1), 207(a)(1).

         Plaintiffs allege that in the three years before they sued in February 2017, PrimeSource failed to pay them for all the hours they worked, and/or failed to pay them overtime wages when they worked over 40 hours in a week. [59] ¶ 234; [1]. As Clinical and Patient Assistants, Plaintiffs supported physicians that PrimeSource contracted to provide on-site medical care at nursing facilities throughout Illinois, Indiana, Michigan, and Kentucky. [59] ¶¶ 75, 77-78. They traveled to different sites during the work week, often to more than one facility in a day. Id. ¶ 78. Plaintiffs' responsibilities included: inspecting, maintaining, and repairing medical equipment, often while at home; travelling to care facilities to assist physicians and patients, on journeys that often lasted two to three hours each way; and shipping or transporting medical equipment and supplies to care facilities, often on what was ostensibly their own time. Id. ¶¶ 78-80, 83.

         Plaintiffs claim that PrimeSource misclassified them as exempt from the FLSA's minimum wage and overtime requirements and therefore failed to pay Plaintiffs overtime when they worked more than 40 hours a week; failed to compensate Plaintiffs for travel time, despite the fact that they performed principal job duties while travelling; and failed to compensate Plaintiffs for the equipment maintenance and shipping work they performed from home, despite the fact that this, too, was a “principal job duty” and PrimeSource knew that Plaintiffs did this work. Id. ¶ 83. These alleged FLSA violations form the basis of Plaintiffs' suit. See id. ¶¶ 236-44.

         In addition to suing corporate PrimeSource entities, Plaintiffs also sue individual PrimeSource officers, including Bobbie Richey and Traci Bernthal.[1] See id. at 2. At all relevant times, Richey served as PrimeSource's Senior Vice President of Clinical Services and/or Senior Vice President of Human Resources. Id. ¶ 50. In this role, Plaintiffs allege that she “supervised and/or controlled” their employment, acting in PrimeSource's interest. Id. ¶ 51. Richey contributed to PrimeSource's “budgetary process, ” which determined Plaintiffs' salaries, and she allegedly controlled PrimeSource's “day to day operations, ” including paying employees. Id. ¶ 52, n.15. Human Resources officials also played a role in determining which employees were exempt from FLSA requirements. See [59-33] at 22-25; [52-2] at 8.[2] David Fleming, PrimeSource's owner, president, and CEO, specifically named Richey and Bernthal as two persons involved in PrimeSource's budget who would have “decided the salaries” for PrimeSource employees. [59] ¶ 48; [52-2] at 8.

         Bernthal served as PrimeSource's Senior Vice President of Finance and also participated in the budget process, thus determining, at least in part, Plaintiffs' salaries. Id. ¶¶ 54, 56, n.16. Plaintiffs similarly allege that Bernthal “supervised and/or controlled” Plaintiffs' employment; controlled day-to-day operations (including methods of payment); and acted in PrimeSource's interest with respect to its employees. Id. ¶¶ 55-56. Bernthal's Linked In profile describes her responsibilities in this position, stating that she directed “all financial activities, ” secured “cost-effective financing for daily operations, ” managed a “135-vehicle fleet, payroll, accounts payable and purchasing functions, ” and advised the company owner and president as part of the “executive management team.” [59-14] at 2-3.

         Both Richey and Bernthal worked for PrimeSource until it ceased operating in or around December 2016. [59] ¶¶ 58, 76. Plaintiffs' claims against them are limited to the period before December 2016. Id. n.17.

         Plaintiffs allege that PrimeSource willfully violated the FLSA because it underwent Department of Labor (DOL) investigations in both 2003 and 2016 for FLSA violations. Id. ¶¶ 126, 128; [59-31]. The 2003 investigation did not address the exemption status of Clinical or Patient Assistants. [59] ¶ 127. Despite those investigations, and a lawsuit filed in May 2016 (discussed below), Plaintiffs allege that PrimeSource and its successors continued their unlawful pay practices through the end of 2016. Id. ¶¶ 84, 133. PrimeSource's attorneys during the relevant period have testified that they neither performed nor were asked to perform any research on the FLSA, and gave no advice regarding FLSA compliance. Id. ¶¶ 132.

         Because PrimeSource ceased operating in or around December 2016, id. ¶ 76, the remainder of Plaintiffs' allegations seek to impose liability on PrimeSource's alleged successors or joint employers.

         B. The Asset Sale

         In May 2016, a group of former Clinical and Patient Assistants employed by PrimeSource's Ohio subsidiary sued PrimeSource for the same FLSA violations stated here: namely, that PrimeSource misclassified them; failed to pay them for all hours worked; and failed to pay them overtime. See Id. ¶ 84; see also Wilson v. PrimeSource Health Care of Ohio, Inc., No. 16-cv-1298, 2017 WL 2869341 (N.D. Ohio July 5, 2017).

         Plaintiffs allege that in July 2016, Defendant Advantage Capital Holdings (Advantage) organized and incorporated Defendant PrimeHealth Group LLC (PrimeHealth) “for the purposes of taking over and substantially continuing” PrimeSource's operations, which would officially wind down that fall. See [59] ¶¶ 76, 85, 87. Advantage is the parent company or owner of PrimeHealth, whose subsidiary entities include PrimeHealth of Illinois, PrimeHealth of Indiana, PrimeHealth of Ohio, PrimeHealth of Michigan, and PrimeHealth of Kentucky. Id. ¶¶ 35, 36. Plaintiffs claim that Advantage employees-including Defendants Elliot and King-make all of PrimeHealth's management decisions, including hiring and firing, managing daily operations, and setting policies and procedures. Id. ¶ 38. In support, Plaintiffs allege that none of the PrimeHealth companies has its own CEO or president, and they all share common policies and guidelines created and promulgated by Advantage. Id. ¶¶ 42-43. Additionally, Elliott is a risk control officer for Advantage but also “holds herself out as the Vice President of PrimeHealth, ” though PrimeHealth does not pay her. Id. ¶¶ 60-61. King serves as president and CEO of both Advantage and PrimeHealth. Id. ¶ 62. Advantage employees also negotiated the transfer of leases and contracts from PrimeSource to PrimeHealth in the lead-up to PrimeHealth's purchase of assets from PrimeSource in September 2016. See id. ¶¶ 88-93; [59-18].

         That purchase encompassed many of PrimeSource's assets, set out in an Asset Purchase Agreement (APA). See [59] ¶¶ 86-87; [59-17]. Specifically, PrimeHealth, PrimeSource (including all its affiliates except PrimeSource Healthcare of Ohio), and Fleming (the president, owner, and CEO of PrimeSource) entered the APA in September, with a closing date in October 2016. See [59] ¶¶ 48, 87; [59-17]. The APA provided for PrimeHealth's acquisition of PrimeSource's leased real and personal property, including its corporate headquarters in Buffalo Grove, Illinois, and its intellectual property, including its trademarks, brand names, logos, internet domain names, web addresses, and social media accounts. [59] ¶¶ 24, 94-98; [59-17]. The APA also provided that the parties would devise a Management Oversight Agreement (MOA) to govern the transition period from the APA's closing date in October 2016 to December 2016, when PrimeSource shuttered its operations. [59] ¶¶ 109, 123. Plaintiffs allege that under the MOA, PrimeHealth, Advantage, and PrimeSource jointly employed Plaintiffs. See id. ¶¶ 123-25.

         Plaintiffs allege that when PrimeHealth executed the APA, they and/or Advantage knew of the Ohio FLSA suit, as well as PrimeSource's “identical illegal pay practices as to all Clinical Assistants and Patient Assistants.” See id. ¶ 102. In support, they point out that the APA references the Ohio litigation-even though the purchase did not include PrimeSource's Ohio subsidiary-and notes that the litigation “may affect” other entities. Id. ¶ 103; [59-17] at 5.

         During the October to December 2016 transition period, PrimeHealth notified most of the care facilities previously serviced by PrimeSource of the asset purchase, and stated that PrimeHealth would “continue to provide” the facilities with the same services, using “physicians and clinicians” that the facilities were “familiar with.” Id. ¶ 100. These transition letters also noted that the facilities' “contacts” and “Customer Care line” had not changed. Id. Additionally, PrimeHealth's website ( retained the same format, language, and stock art as PrimeSource's website through approximately February 2017, and displayed a photograph of PrimeHealth's offices-in PrimeSource's former premises, with PrimeSource's name still on the building. [59] ¶ 101.

         In October 2016, PrimeSource sent a Worker Adjustment and Retraining (WARN) notice to the employees at its Indiana, Ohio, and Michigan subsidiaries, informing them that they would be laid off on or by December 31, 2016, when PrimeSource closed. Id. ¶ 104. Soon after, PrimeHealth sent unsolicited offer letters to “a majority of PrimeSource's employees, ” and ultimately rehired “a substantial number” of PrimeSource employees. Id. ¶¶ 105, 108, 110-12. Elliot signed PrimeHealth's offer letters. Id. ¶ 106.

         By the end of 2016, PrimeSource ceased its operations. Id. ¶ 76. PrimeHealth continued to operate, employing many of PrimeSource's former employees. Id. ¶¶ 108, 110-12. Starting January 2, 2017, PrimeHealth stopped paying its Clinical and Patient Assistants a salary, and began paying them hourly. Id. ¶ 119. In February 2017, Plaintiffs filed this suit, containing a single claim for FLSA violations. [1]. They amended their complaint in March and July. [9, 59]. But the action in this case did not stop there, as discussed next.

         C. The DOL Settlement

         At some point in 2016, DOL began investigating PrimeSource's wage and hour practices, resulting in a settlement in May 2017. Id. ¶¶ 113, 114. DOL has authority to supervise settlements for unpaid wages or overtime, and oversee the ensuing payments to employees from whom employers improperly withheld wages. See 29 U.S.C. § 216(c). Under the FLSA, “the agreement of any employee to accept such payment shall upon payment in full constitute a waiver by such employee” to sue in his or her own right. Id.

         Following the DOL settlement, PrimeSource began “issuing checks to Plaintiffs and those similarly-situated” along with a letter describing the check as containing “back pay, ” and the DOL's WH-58 form, which primarily functions as a receipt for FLSA settlement checks. [59] ¶ 115; [46-3] at 2. PrimeSource's letter instructed recipients to sign the enclosed form and return it to the Buffalo Grove office. [59] ¶ 117. The letter did not mention the pending collective action before this Court, or the fact that signing the enclosed form would waive the employee's individual right to sue. See id.; see also [46-3] at 1.[3] The WH-58 form, however, contains a “notice to employee, ” stating:

Your acceptance of this payment of wages and/or other compensation due under the Fair Labor Standards Act (FLSA) or Family Medical Leave Act (FMLA), based on the findings of [DOL's Wage and Hour Division] means that you have given up the right you have to bring suit on your own behalf for the payment of such unpaid minimum wages or unpaid overtime compensation for the period of time indicated above [and other damages].

[46-3] at 2. The “period of time” indicated on the WH-58 forms sent to PrimeSource employees covers November 15, 2014 to November 12, 2016. Id.

         This opinion addresses two motions: (1) a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), brought by Defendants PrimeHealth, Advantage, Richey, Bernthal, Elliott, and King, [74]; and (2) a motion to dismiss certain Plaintiffs under Rule 12(b)(1), brought by the same Defendants together with PrimeSource, [77].

         II. Legal Standard

         To survive a motion to dismiss under Rule 12(b)(6), a complaint must provide a “short and plain statement of the claim” showing that the pleader merits relief, Fed.R.Civ.P. 8(a)(2), so the defendant has “fair notice” of the claim “and the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). A complaint must also contain “sufficient factual matter” to state a facially plausible claim to relief. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570).

         A facially plausible claim “allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556). This plausibility standard “asks for more than a sheer possibility that a defendant has acted unlawfully.” Williamson, 714 F.3d at 436. Thus, “threadbare recitals of the elements of a cause of action, supported by mere ...

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