Mark Fochtman v. Hendren Plastics, Inc.

United States Court of Appeals
For the Eighth Circuit
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No. 20-2061
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Mark Fochtman, individually, and on behalf of all others similarly situated; Corby
Shumate, individually, and on behalf of all others; Michael Spears, individually
and on behalf of all others; Andrew Daniel, individually and on behalf of all
others; Fabian Aguilar, individually and on behalf of all others; Sloan Simms,
individually and on behalf of all others,
lllllllllllllllllllllPlaintiffs - Appellees,
v.
Hendren Plastics, Inc.,
lllllllllllllllllllllDefendant - Appellant,
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Arkansas Prosecuting Attorney Association; Simmons Foods; Simmons Pet Food,
Inc.; Work-Based Rehabilitation Program Graduates; Americans for Prosperity
Foundation; Texas Public Policy Foundation; Cenikor Foundation; CAAIR, Inc.;
R&R Engineering,
lllllllllllllllllllllAmici on Behalf of Appellant(s).
___________________________
No. 20-2068
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Mark Fochtman, individually, and on behalf of all others similarly situated; Corby
Shumate, individually, and on behalf of all others; Michael Spears, individually
and on behalf of all others; Andrew Daniel, individually and on behalf of all
others; Fabian Aguilar, individually and on behalf of all others; Sloan Simms,
individually and on behalf of all others,
lllllllllllllllllllllPlaintiffs - Appellees,
v.
DARP, Inc.,
lllllllllllllllllllllDefendant - Appellant,
------------------------------
Arkansas Prosecuting Attorney Association; Simmons Foods; Simmons Pet Food,
Inc.; Work-Based Rehabilitation Program Graduates; Americans for Prosperity
Foundation; Texas Public Policy Foundation; Cenikor Foundation; CAAIR, Inc.;
R&R Engineering,
lllllllllllllllllllllAmici on Behalf of Appellant(s).
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Appeals from United States District Court
for the Western District of Arkansas - Fayetteville
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Submitted: September 23, 2021
Filed: August 25, 2022
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Before LOKEN, COLLOTON, and BENTON, Circuit Judges.
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COLLOTON, Circuit Judge.
Mark Fochtman and five others brought class action suits against DARP, Inc.
and Hendren Plastics, Inc. The plaintiffs, who were participants in a court-ordered
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drug and alcohol recovery program, alleged that DARP and Hendren failed to pay
class members the minimum wage required by the Arkansas Minimum Wage Act. On
cross-motions for summary judgment, a principal fighting issue was whether the
plaintiffs were “employees” of DARP and Hendren when they performed work for
Hendren as part of the program. The district court concluded that the class members
were employees, and resolved the motions in favor of the class. On appeal by DARP
and Hendren, we reach a contrary conclusion, and therefore reverse the judgment.
I.
DARP is a non-profit drug and alcohol recovery program that caters to parties
who can avoid imprisonment in a criminal case by agreeing to participate with DARP.
As a residential program, DARP provides its participants with room and board,
clothing, and other necessities. DARP does not charge costs or fees to those who
participate in the program.
DARP states that developing a work ethic is central to its recovery program,
and participants work for local for-profit businesses as part of the program. DARP
provides transportation to and from work, but does not compensate the participants
for work performed while in the program. The local businesses also do not pay the
participants, but they send DARP a predetermined amount of money for each hour
worked by a DARP participant. These payments from the local businesses are
DARP’s only revenue.
DARP sent some participants to work at Hendren Plastics, a local for-profit
business. Hendren did not pay the DARP participants, but agreed to pay the DARP
organization based on the number of hours that participants worked at Hendren.
Hendren’s payments equaled $9.00 per regular hour, and $13.50 per overtime hour,
worked by a DARP participant—amounts that exceeded the minimum wage in
Arkansas of $6.25 per regular hour and $9.38 per overtime hour. Hendren increased
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these amounts to $9.20 per hour and $13.80 per hour, respectively, in 2015, again
exceeding the highest minimum wage rates during the time period at issue: $8.50 per
regular hour and $12.75 per overtime hour.
Fochtman and the other named plaintiffs represent a class of people who
worked for Hendren while at DARP. Most class members were referred to DARP
through drug court programs in Arkansas and Oklahoma. These drug offenders were
offered the opportunity to complete DARP’s recovery program in lieu of serving a
term of imprisonment. The typical stay at DARP was six months, although
participation could last up to a year.
In October 2017, Fochtman brought an action in Arkansas state court against
DARP, Hendren, another work-based recovery program called CAAIR, Inc., and
Simmons Foods, Inc., another for-profit business. Fochtman alleged, among other
claims, that the defendants failed to pay adequate wages and overtime as required by
the Arkansas Minimum Wage Act, Ark. Code. Ann. § 11-4-201 et seq.
Simmons removed the matter to federal court under the Class Action Fairness
Act, 28 U.S.C. § 1332(d). The district court granted motions to sever the action under
Federal Rule of Civil Procedure 21, but denied motions by DARP and Hendren to
dismiss the case or to remand the action to state court. The court ordered Fochtman
to file an amended complaint addressing only those claims that pertained to DARP
and Hendren.
After dismissing some of Fochtman’s claims, the court certified a class of all
DARP participants between October 23, 2014, and the present, who worked for
Hendren Plastics in Arkansas during their time at DARP. The parties then filed cross-
motions for summary judgment on the question whether the DARP participants were
“employees” under the Arkansas Minimum Wage Act. The court determined that the
plaintiffs were employees, and that DARP and Hendren were their joint employers.
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The court also concluded that the plaintiffs were entitled to liquidated damages under
the Act.
Hendren and DARP unsuccessfully moved to vacate the judgment based on the
Rooker-Feldman doctrine. See D.C. Ct. of Appeals v. Feldman, 460 U.S. 462 (1983);
Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923). Hendren and DARP appeal the
court’s grant of summary judgment and award of liquidated damages. We review the
judgment de novo.
II.
As the outset, we must assess whether the district court had subject matter
jurisdiction over the action. Auer v. Trans Union, LLC, 902 F.3d 873, 877 (8th Cir.
2018). Hendren challenges the district court’s jurisdiction over the case on two
grounds.
First, while acknowledging that removal to federal court was proper under the
Class Action Fairness Act (“CAFA”), Hendren argues that the district court lost
subject matter jurisdiction when the court severed the claims against DARP and
Hendren from the claims against CAAIR and Simmons. Hendren suggests that after
the cases were severed, the action against DARP and Hendren no longer met the
amount-in-controversy requirement for federal jurisdiction under the CAFA. See 28
U.S.C. § 1332(d)(2).
We reject this contention because “jurisdiction is determined at the time of
removal, even though subsequent events may remove from the case the facts on
which jurisdiction was predicated.” Hargis v. Access Cap. Funding, 674 F.3d 783,
789 (8th Cir. 2012) (internal quotation omitted). While “[s]everance under Rule 21
creates two separate actions or suits where previously there was but one,”
Reinholdson v. Minnesota, 346 F.3d 847, 850 (8th Cir. 2003) (alteration in original)
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(internal quotation omitted), this does not mean that jurisdiction must be reestablished
for each separate action. We see no reason to distinguish severance from other post-
removal events, like the denial of class certification or amendment of a complaint,
that do not eliminate jurisdiction. See Buetow v. A.L.S. Enters., 650 F.3d 1178, 1182
n.2 (8th Cir. 2011) (CAFA jurisdiction maintained after denial of class certification);
Hargis, 674 F.3d at 789-90 (CAFA jurisdiction maintained after complaint amended).
Hendren relies on the Fifth Circuit’s conclusion in Honeywell International,
Inc. v. Phillips Petroleum Co., 415 F.3d 429 (5th Cir. 2005), that severed actions
“must have an independent jurisdictional basis.” Id. at 431. As the Fifth Circuit later
recognized, however, the analysis in Honeywell related “only to a particular species
of severed claims—claims that were never infused with original jurisdiction, but state
claims that were tagging along in the tail wind of the original federal claims.”
Louisiana v. Am. Nat’l Prop. & Cas. Co., 746 F.3d 633, 637 (5th Cir. 2014). Because
the district court here possessed original jurisdiction under the CAFA over the claims
against DARP and Hendren at the time of removal, the rationale of Honeywell does
not apply.
Hendren also argues that the Rooker-Feldman doctrine precludes the exercise
of subject matter jurisdiction over Fochtman’s claims. This doctrine bars a district
court from hearing “cases brought by state-court losers complaining of injuries caused
by state-court judgments rendered before the district court proceedings commenced
and inviting district court review and rejection of those judgments.” Exxon Mobil
Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284 (2005). “The basis for the
Rooker/Feldman doctrine is that, other than in the context of habeas claims, federal
district courts are courts of original jurisdiction, and by statute they are precluded
from serving as appellate courts to review state court judgments, as that appellate
function is reserved to the Supreme Court under 28 U.S.C. § 1257.” Dornheim v.
Sholes, 430 F.3d 919, 923 (8th Cir. 2005).
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Hendren contends that Fochtman’s action invites the district court to reject the
judgments entered against the DARP participants in state court drug cases that
required the offenders to participate in the DARP program. Fochtman, however, does
not complain of injuries caused by the drug-court judgments and did not ask the
district court to review those judgments. Fochtman does not challenge the drug
court’s decision to order him to participate in DARP; he argues that DARP and
Hendren were required to pay certain wages to him after he entered the program.
Hendren points out that the state-court judgments also required participants to follow
the rules of the DARP program. But again, this lawsuit concerns whether DARP and
Hendren conformed to state law when they declined to pay wages, not whether the
DARP participants were required to comply with program requirements. The state
drug court judgments did not address or resolve issues under the Arkansas Minimum
Wage Act, and the Rooker-Feldman doctrine is inapplicable.
The district court had subject matter jurisdiction over the suit under the Class
Action Fairness Act. 28 U.S.C. § 1332(d). We have jurisdiction to review the
judgment under 28 U.S.C. § 1291.
III.
On the merits, DARP and Hendren argue that the district court erred by
concluding that the Fochtman class members were employees of both entities for the
purposes of the Arkansas Minimum Wage Act. The Arkansas statute establishes
penalties for “employers” who pay “employees” less than the minimum wage. Ark.
Code Ann. § 11-4-218.
An employer is defined as one “acting directly or indirectly in the interest of
an employer in relation to an employee.” Ark. Code Ann. § 11-4-203. An employee
is defined as “any individual employed by an employer.” To employ means “to suffer
or to permit to work.” Id. The Act provides that courts construing the statute may
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look for guidance to decisions interpreting the Fair Labor Standards Act of 1938
(“FLSA”). Id. § 11-4-218(f). The definitions for employer, employee, and employ
under the FLSA are comparable to those under the Arkansas Act. See 29 U.S.C.
§ 203.
The ultimate question whether a person is an “employee” under the FLSA or
the Arkansas statute is a legal determination. Karlson v. Action Process Serv. & Priv.
Investigations, LLC, 860 F.3d 1089, 1092-93 (8th Cir. 2017). This legal
determination turns on the “economic reality” of the relationship between the parties
involved. See Tony & Susan Alamo Found. v. Sec’y of Lab., 471 U.S. 290, 301
(1985). An evaluation of economic reality, in turn, depends on the totality of the
circumstances. See Rutherford Food Corp. v. McComb, 331 U.S. 722, 730 (1947);
Wang v. Hearst Corp., 877 F.3d 69, 76 (2d Cir. 2017).
The definition of “employ” as “to suffer or to permit work” is broad, but the
Supreme Court has explained that it has discernable limits. In Walling v. Portland
Terminal Co., 330 U.S. 148 (1947), for example, the Court considered whether
trainees receiving seven or eight days of instruction as prospective yard brakemen
were employees of the railroad that conducted the training. Id. at 149-50. The Court
concluded that the FLSA’s broad definition of “employ” was “obviously not intended
to stamp all persons as employees who, without any express or implied compensation
agreement, might work for their own advantage on the premises of another.” Id. at
152. The Court cited the Act’s purpose to ensure that “every person whose
employment contemplated compensation should not be compelled to sell his services
for less than the prescribed minimum wage.” Id. But the Court ruled that the Act
could not be interpreted “so as to make a person whose work serves only his own
interest an employee of another person who gives him aid and instruction.” Id.Where the trainees did not expect to receive pay, and the railroad did not receive any
“immediate advantage” from the work done by the trainees, the Court held that the
trainees were not employees under the Act. Id. at 153 (internal quotation omitted).
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By contrast, however, even where “associates” of a religious organization in
Alamo Foundation considered themselves volunteers, and disclaimed any right to a
minimum wage, the Court held that the associates nonetheless were employees based
on an implied agreement for compensation. The Court observed that the associates
“were entirely dependent upon the Foundation for long periods, in some cases several
years,” and cited a factual finding that they must have expected to receive in-kind
benefits “in exchange for their services.” 471 U.S. at 300-01 (internal quotation
omitted). The Court expressed concern that allowing an exception to the minimum
wage law for those who express a willingness to work “voluntarily” might allow
employers to use superior bargaining power to coerce employees to waive protections
under the Act, and could “exert a general downward pressure on wages in competing
businesses.” Id. at 302.
In the wake of these decisions, leading authorities in difficult cases have
deemed it appropriate to examine who is the “primary beneficiary” of an arrangement
between parties in a potential employer-employee relationship. See Glatt v. Fox
Searchlight Pictures, Inc., 811 F.3d 528, 536 (2d Cir. 2016); Solis v. Laurelbrook
Sanitarium & Sch., Inc., 642 F.3d 518 (6th Cir. 2011); Isaacson v. Penn Cmty. Servs.,
Inc., 450 F.2d 1306, 1309 (4th Cir. 1971). This court has cited this “primary
beneficiary” test favorably and followed a comparable analysis to determine whether
an employment relationship exists. See Petroski v. H&R Block Enters., 750 F.3d 976,
980-81 (8th Cir. 2014); Blair v. Willis, 420 F.3d 823, 829 (8th Cir. 2005). Other
courts have done the same. See Schumann v. Collier Anesthesia, P.A., 803 F.3d 1199(11th Cir. 2015); see also Nesbitt v. FCNH, Inc., 908 F.3d 643, 647-48 (10th Cir.
2018) (applying a broader test which takes the primary beneficiary of the relationship
into account); Benjamin v. B&H Educ., Inc., 877 F.3d 1139 (9th Cir. 2017) (adopting
the primary beneficiary test to evaluate student-worker claims specifically).
One decision concerning work performed for rehabilitative purposes held that
a homeless man who spent six months living and working at a rehabilitation center
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of the Salvation Army was not an employee. Williams v. Strickland, 87 F.3d 1064,
1065 (9th Cir. 1996). The man engaged in “work therapy” in a furniture restoration
shop on a full-time basis, refinishing goods that were sold through one of the
Salvation Army’s thrift stores, and later sorted donations at the center’s loading dock.
Id. Although the center provided the man with room and board, he was required to
offset the cost of these benefits by applying for public benefits and turning over the
proceeds to the center. Id. at 1065, 1067. Under those circumstances, the court
determined that there was no implied agreement for compensation, and the resident’s
stay was “solely” rehabilitative. Id. at 1068.
In a more recent case involving a court-approved treatment program, the
Second Circuit determined that a resident at a drug and alcohol treatment facility was
not an employee. Vaughn v. Phoenix House N.Y., Inc., 957 F.3d 141, 144-45 (2d Cir.
2020). Although the resident was required to perform full-time work at the facility,
the court concluded that the resident was the primary beneficiary of the relationship.
Id. The facility provided the resident with “significant benefits,” including “food, a
place to live, therapy, vocational training, and jobs that kept him busy and off drugs,”
but these benefits were not the fruits of an implied compensation agreement with the
facility. Id. at 146 (internal quotation omitted). Rather, the resident “was permitted
to receive rehabilitation treatment there in lieu of a jail sentence.” Id. The court thus
ruled that he was not an employee of the treatment facility.
This case is not precisely analogous to any of those that have come before. The
Fochtman class members were typically ordered by a state court to participate in the
DARP recovery program for six months as an alternative to serving a term of
imprisonment for drug offenses. Under the innovative structure in Arkansas,
however, the Fochtman class members did not perform work directly for the recovery
facility as in Vaughn, but rather performed work at Hendren, a for-profit company.
Hendren, in turn, provided funding to the recovery facility in exchange for the work
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performed by DARP participants. This funding enabled the facility, DARP, to
maintain its recovery program.
In this situation, it is not possible to declare that the arrangement benefits
solely one party or another. As we see it, however, the Fochtman class members were
the primary beneficiaries of the arrangement. Unlike in Alamo Foundation, there was
no implied agreement for compensation. Although DARP provided room and board
to its participants, the organization did so because the participants were directed by
court order to engage in a recovery program in lieu of imprisonment. As in Vaughn,
the recovery facility’s provision of sustenance was not in-kind compensation for work
performed. This case thus comes closer to the rule of Walling that the meaning of
“employee” does not extend to a person “who, without promise or expectation of
compensation, but solely for his personal purpose or pleasure, worked in activities
carried on by other persons either for their pleasure or profit.” 330 U.S. at 152.
Walling is not entirely parallel, because we cannot gainsay that Hendren
received an immediate advantage from the work of the DARP participants. But the
overriding consideration is that the DARP participants undertook the recovery
program for their own purposes to avoid imprisonment, and they had no reason to
expect compensation from Hendren. There was no implied compensation agreement
with Hendren, and the company provided no in-kind benefits. As for DARP’s receipt
of payments from Hendren, this indirect financial benefit to DARP is best seen as the
functional equivalent of the full-time work received by the treatment facility in
Vaughn. Here, DARP received the fruits of the participants’ labor indirectly, rather
than directly, but the substance of the arrangement is the same. The participants
resided at DARP for the purpose of recovery or rehabilitation, and their “work
recovery program” was performed to avoid adjudication in the criminal justice
system. That work performed by a participant in a court-ordered recovery program
also benefitted a third-party business did not make the participant an employee of
DARP or Hendren.
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We are strengthened in this conclusion by the fact that the DARP arrangement
does not conflict with the principal purposes of the minimum wage statute. See Ark.
Code Ann. § 11-4-202. There was no risk that DARP participants would be deprived
of a minimum standard of living that safeguards their health, efficiency, and general
well-being. The court-ordered program is residential placement for a typical period
of six months, and participants are guaranteed room, board, and basic necessities as
an element of the program. Nor did the Arkansas arrangement threaten to facilitate
unfair competition among businesses by depressing pay below the minimum wage.
DARP is a non-profit organization with no competitive mission. Hendren is a for-
profit business, but it paid more than the minimum wage rate to DARP for each hour
worked by a DARP participant. While Hendren may have paid less for DARP
participants’ labor than the company paid for the labor of other entry-level
employees, Hendren accepted workers whose checkered histories might well have
justified a market-based pay differential. Even assuming that paying a lower cost for
workers with drug problems gave Hendren a competitive advantage over other
employers who pay the market rate to workers who are not drug offenders, Hendren’s
cost per hour exceeded the minimum wage and did not threaten to depress pay below
the statutory rate.
* * *
For these reasons, we conclude that the summary-judgment record does not
establish that the Fochtman class members were employees of DARP or Hendren.
The judgment of the district court is reversed, and the case is remanded for further
proceedings.
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