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FLSA Class Action Defense Cases–Gortat v. Capala Brothers: New York Federal Court Grants Plaintiffs’ Motion To Dismiss Crossclaims Against Named Plaintiffs In Labor Law Class Actions

In FLSA Class Action, Plaintiffs’ Motion to Dismiss Crossclaims by Defendants Granted because Negligence and Breach of Fiduciary Duty Claims could not Survive New York Federal Court Holds, but Conversion Claim not Challenged and Defendants Granted Leave to Amend Tortious Interference Claim

Six plaintiffs filed a class action against their employer, Capala Brothers, a construction company, alleging violations of the federal Fair Labor Standards Act (FLSA) and the New York Minimum Wage Act; in response to the class action complaint, defendants counterclaimed against the plaintiffs for conversion, negligence, tortious interference with contract, and breach of fiduciary duty. Gortat v. Capala Brothers, Inc., 585 F.Supp.2d 372, 374 (E.D.N.Y. 2008). The counterclaims to the class action were premised on the following: (1) the negligence claims alleged that four plaintiffs were negligent in replacing a roof to a building, resulting in $40,000 in rain damage, that three plaintiffs were negligent in failing to secure electrical motors at the site, which were also damaged by rain, that two plaintiffs were negligent in allowing concrete to harden in a concrete mixer, and that two plaintiffs were negligent in failure to secure two certain equipment resulting in their loss; (2) the tortious interference with contract claim alleged that three plaintiffs interfered with the employment contracts of current Capala employees, “caused lower moral[e], dissent and lower productivity” causing $100,000 in damage to Capala, and that one plaintiff, after quitting, “interfered with the employment contracts of the other four plaintiffs” causing $300,000 in damages to Capala, and (3) the breach of fiduciary duty claim alleged that plaintiffs “fail[ed] to provide ‘adequate and timely notice’ before quitting…as required by their employment contracts” causing Capala to default on certain construction contracts and suffer $400,000 in damages. Id., at 374-75. Plaintiffs answer the conversion counterclaim, but moved to dismiss the remaining counterclaims, id., at 374. The district court granted plaintiffs’ motion.

The district court first addressed the negligence claims, explaining that New York law “prohibits employers from making any deduction from employee wages except as required by law or regulation or as authorized by the employee for his or her benefit,” including claims for negligence or lost profits. Gortat, at 375 (citations omitted). The federal court concluded that while defendants’ crossclaims were not “obvious examples of attempted wage deduction,” they served the same function and so could be “treated as such to prevent employers from circumventing the protection of employee wages” provided for by New York law. Id., at 375-76. Accordingly, it granted the motion to dismiss defendants’ negligence claims against the named plaintiffs, id., at 376. With respect to the tortious interference claims, the district court observed that plaintiffs were terminable at will and that plaintiffs could not be liable unless they engaged in “culpable” conduct. Id. The court found that the allegations failed to allege wrongful conduct adequate to support the interference claim, so those claims, too was dismissed. Id. Turning to the breach of fiduciary duty claim against the plaintiffs, the federal court noted that defendants were required to pleading “both the existence of a duty based on a relationship of trust and confidence and breach of that duty.” Id. (citation omitted). Failing to give advance notice of terminating their employment, standing alone, did not constitute a sufficient basis to support the breach of fiduciary duty claim, id., at 376-77.

Finally, the federal court denied defendants’ leave to amend as to the negligence and breach of fiduciary duty claim because such amendment would be futile, but the court granted defendants leave to amend the tortious interference claim. Gortat, at 377. Accordingly, it granted plaintiffs’ motion to dismiss the crossclaims to the class action complaint. Id.

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