Cristy Nelson v. MLB Hotel Manager, LLC, et al.

[DO NOT PUBLISH]
In the
United States Court of Appeals
For the Eleventh Circuit
____________________
No. 21-10181
Non-Argument Calendar
____________________
CRISTY NELSON,
Plaintiff-Appellant,
versus
MLB HOTEL MANAGER, LLC,
MLB FAIRWINDS, LLC,
Defendants-Appellees.
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2 Opinion of the Court 21-10181
____________________
Appeal from the United States District Court
for the Southern District of Florida
D.C. Docket No. 1:19-cv-23730-RNS
____________________
Before J ORDAN, NEWSOM , and ANDERSON, Circuit Judges.
PER CURIAM:
Cristy Nelson worked as a server at La Sombra, a restaurant
located within the Fairwinds Hotel in Miami Beach. She sued MLB
Hotel Manager, LLC and MLB Fairwinds, LLC—her alleged em-
ployers—under the Fair Labor Standards Act (FLSA), claiming that
she was underpaid. In the district court, Nelson didn’t dispute that
she “was paid an amount that exceeds the applicable minimum
wage and minimum overtime compensation.” Order at 3. But she
argued that those wage and overtime requirements couldn’t be sat-
isfied, in part, “by amounts generated through a service charge.”
Id. The district court granted summary judgment for the defend-
ants. Shortly thereafter, in a case with nearly identical facts, we
held that a mandatory “service charge was not a tip and could law-
fully be used to offset [the employer’s] wage obligations under the
FLSA.”
Compere v. Nusret Miami, LLC, 28 F.4th 1180, 1182 (11th
Cir. 2022). We see no reason to reach a different result in this case.
Accordingly, we affirm.
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21-10181 Opinion of the Court 3
I
A
First, some legal background. The FLSA generally requires
that an employer pay its employees at least $7.25 per hour.
See 29
U.S.C. § 206(a). That figure, moreover, doesn’t excuse noncompli-
ance with state-minimum-wage requirements.
See id. § 218(a).
The parties agree that, at all times relevant to this dispute, the min-
imum wage in Florida was $8.46 per hour.
In addition, § 207(a) of the FLSA generally prohibits employ-
ers from having an employee work more than 40 hours in a week,
“unless such employee receives compensation for [her] employ-
ment in excess of [40 hours] at a rate not less than one and one-half
times the regular rate at which [she] is employed.” An employee’s
“regular rate” is “deemed to include all remuneration for employ-
ment paid to, or on behalf of, the employee.” 29 U.S.C. § 207(e).
There are, however, exceptions to § 207(a)’s overtime re-
quirement. As relevant here, an employee at “a retail or service
establishment” needn’t receive overtime if: “(1) the regular rate of
pay of such employee is in excess of one and one-half times the
minimum hourly rate applicable to [her] under [29 U.S.C. § 206],
and (2) more than half [her] compensation for a representative pe-
riod (not less than one month) represents commissions on goods
or services.”
Id. § 207(i).
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B
Now, the facts. While working at La Sombra from January
through June 2019, Nelson received compensation in the form of
(1) a base wage, (2) a portion of the restaurant’s service charges,
and (3) additional, discretionary tips. Nelson didn’t dispute that
“she was compensated a total gross rate of approximately $21.67
per hour’—assuming that the ‘service charge’ is validly factored
into [her] wages.” Order at 2. But she sued the defendants for fail-
ure to comply with the FLSA, arguing that any wages tied to the
service charge were, in reality, derived from an unlawful “tip pool”
that was shared with her managers.
See 29 U.S.C. § 203(t) (defining
“tipped employee” as any employee “engaged in an occupation in
which [she] customarily and regularly receives more than $30 a
month in tips”);
id. § 203(m)(2)(B) (“An employer may not keep tips
received by its employees for any purposes, including allowing
managers or supervisors to keep any portion of employees’ tips,
regardless of whether or not the employer takes a tip credit.”).
After discovery, the defendants moved for summary judg-
ment. As the district court explained, “[t]he parties d[id] not dis-
pute that an item identified as a 20% ‘service charge’ appeared, at
least after January 2019, on menus, checks, or both.” Order at 2.
Nor did Nelson dispute “that her paystubs included a separate line
item for compensation originating from a ‘service charge.’”
Id.
What she did take issue with was whether the service charge “was,
for FLSA purposes, a bona fide commission that could be factored
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21-10181 Opinion of the Court 5
into wages or, alternatively, whether it was part of [her] tips such
that it could not be factored into [her] wages.”
Id.
As to that service charge, La Sombra’s menus specified that
the restaurant “imposes an automatic, non-discretionary service
charge of 20% on every customer’s bill.” The district court
found—and Nelson doesn’t contest—“that the service charge was
always chargeable to customers” during the relevant timeframe,
“although it was not disclosed on menus when La Sombra first
opened in January 2019 and on some occasions La Sombra manag-
ers allowed the charge to be waived in response to customer com-
plaints.”
Id. Nelson argued that this managerial discretion meant
that the service charge wasn’t really mandatory; it was a tip that
couldn’t be used to satisfy her employer’s wage obligations. She
also complained that if the service charge was a tip, her managers
couldn’t share in the proceeds. Finally, Nelson insisted that the ser-
vice charge had to be a tip because her employers didn’t include
the charge in their gross receipts for tax purposes.
The district court granted summary judgment for the de-
fendants. It reasoned that “the key distinguishing features of a tip,
as opposed to a service charge, are that a tip is voluntarily given (or
not given), its amount is ‘determined solely by the customer,’ and
the customer has the right to determine the recipient of the gratu-
ity.”
Id. at 5 (quoting 29 C.F.R. § 531.52). According to the district
court, the service charge at issue was not that, so Nelson’s claims
failed.
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6 Opinion of the Court 21-10181
Nelson appealed.1
II
Our recent decision in
Compere dictates the outcome of this
appeal. There, we held that a mandatory “service charge was not
a tip under the FLSA or other DOL regulations.” 28 F.4th at 1186.
Like the district court, we explained that “the critical feature of a
‘tip’ is that ‘[w]hether a tip is to be given, and its amount, are mat-
ters
determined solely by the customer.”
Id. (quoting 29 C.F.R.
§ 531.52(a)). And because “whether and how much to pay” for a
mandatory service charge are matters “not ‘determined solely by
the customer,’” we concluded that such a “service charge is not a
tip” and could be used “to meet [the employer’s] wage obligations
under the FLSA.”
Id. at 1182, 1186;
see also 29 C.F.R. § 531.55(a)
(“A compulsory charge for service, such as 15 percent of the
amount of the bill, imposed on a customer by an employer’s estab-
lishment, is not a tip . . . .”).
That is precisely the case here. La Sombra imposed an “au-
tomatic, non-discretionary service charge of 20%” on its custom-
ers’ bills. And Nelson fails to identify any record evidence suggest-
ing that a customer could unilaterally decide not to pay the charge.
Moreover, contrary to Nelson’s suggestion, it is “irrelevant”
whether the service charge was included on the defendants’ tax
1 “This Court reviews the grant or denial of summary judgment de novo, ap-
plying the same legal standards used by the district court.”
Compere, 28 F.4th
at 1185 (quotation marks omitted).
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21-10181 Opinion of the Court 7
forms.2
Compere, 28 F.4th at 1187. And it is “immaterial” whether
the defendants distributed some of the pooled service charges to
non-tipped employees, because those restaurant-imposed charges
weren’t tips.
Id. at 1182 n.4. Thus, they could be credited toward
the defendants’ minimum wage and overtime obligations.
Nelson’s attempts to distinguish
Compere are unavailing.
First, she stresses that her restaurant would often waive the service
charge if a customer complained. But in
Compere, we said that
was “irrelevant.” 28 F.4th at 1188. Even if the restaurant had “dis-
cretion to remove the charges on the bills of dissatisfied custom-
ers,” that didn’t mean that the
customers “had [the] ability to de-
termine on their own whether they would pay the service charge.”
Id. And again, “the relevant question is whether the decision to
pay the given sum is ‘determined solely by the
customer.’”
Id.
(quoting 29 C.F.R. § 531.52(a)).
Nelson’s second argument fails for the same reason. She
notes that the restaurant would remove the service charge for
guests of the Webster Hotel as a matter of practice. But that was a
discretionary policy of the
restaurant. It was not a decision made
by the
customer. Accordingly, the wages distributed as a result of
the service charge—in those cases where it was imposed—could be
2 As in
Compere, “we give no opinion on whether [the defendants] complied
with federal tax law in [their] treatment of the service charge on [their] tax
returns.” 28 F.4th at 1188 n.14. It’s just that those “tax returns are irrelevant
to determining whether the service charge is a tip.”
Id.
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8 Opinion of the Court 21-10181
used to satisfy the restaurant’s wage obligations.
See id. at 1188–
89.
Finally, Nelson argues that the district court improperly in-
voked the “§ 207(i) exemption” which, she claims, is an “affirma-
tive defense” that the defendants failed to preserve by not pleading
it in their answer. Nelson misconstrues the district court’s order.
The district court explained that it “d[id] not reach the question[]
of whether . . . the Defendants preserved an affirmative defense
based on 29 U.S.C. § 207(i).”3 Order at 9. It instead concluded that
there was no need to consider the exception, because after factor-
ing in the service charges, Nelson’s gross wages were “undisputed
and in excess of statutory minimums.”
Id.;
see also id. at 3 (“There
is no dispute in this case as to whether the Plaintiff was paid an
amount that exceeds the applicable minimum wage and minimum
overtime compensation.”). Nelson fails to contest that point—
which the district court found dispositive—in her opening brief.
See Sapuppo v. Allstate Floridian Ins. Co., 739 F.3d 678, 680 (11th
3 To be clear, we express no view on whether § 207(i) is an affirmative defense
that must be pleaded in a defendant’s answer.
Cf. Huff v. Dekalb County, 516
F.3d 1273, 1278 n.5 (11th Cir. 2008) (explaining that Ҥ 207(k) is part of the
general FLSA overtime rule itself” and holding that the defendants had
“properly raised [a] § 207(k) argument at the summary judgment stage and
were not required to do so in their answer”);
Walton v. United Consumers
Club, 786 F.2d 303, 307 (7th Cir. 1986) (concluding that § 207(i) “is not an af-
firmative defense,” but rather, “a method of complying with the [FLSA]”).
But
cf. Flores v. 2K Clevelander, LLC, No. 1:16-CV-24083-UU, 2017 WL 5054565,
at *4 (S.D. Fla. May 4, 2017) (holding that § 207(i) is an affirmative defense that
generally can’t be invoked unless it was raised in the defendant’s answer).
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21-10181 Opinion of the Court 9
Cir. 2014) (“When an appellant fails to challenge properly on ap-
peal one of the grounds on which the district court based its judg-
ment, [she] is deemed to have abandoned any challenge of that
ground, and it follows that the judgment is due to be affirmed.”).
And to the extent she makes such an argument in her reply, it
“come[s] too late.”
Id. at 683;
see Greenberg v. Comm’r, 10 F.4th
1136, 1167 (11th Cir. 2021) (“[T]his Court does not address argu-
ments advanced by an appellant first raised in [her] reply brief.”).
We therefore affirm the district court’s grant of summary
judgment.
III
The merits behind us, there are two related matters to re-
solve. The defendants have moved for sanctions, arguing that Nel-
son filed this appeal in bad faith and without any reasonable basis
in fact or in law. Nelson has also moved for sanctions, arguing that
the defendants’ motion for sanctions is
itself frivolous and deserv-
ing of sanctions.
A
We’ll take the defendants’ motion first. “An award of dam-
ages and costs under Federal Rule of Appellate Procedure 38 is ap-
propriate when an appellant raises clearly frivolous claims in the
face of established law and clear facts.”
McLaurin v. Terminix Int’l
Co., LP, 13 F.4th 1232, 1243 (11th Cir. 2021) (quotation marks omit-
ted). “A claim is clearly frivolous if it is utterly devoid of merit.”
Id. (cleaned up). But that’s not what we have here. At the time
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10 Opinion of the Court 21-10181
Nelson filed this appeal, it presented “an issue of first impression in
the Eleventh Circuit.”
Compere, 28 F.4th at 1181. “And appeals
about issues of first impression are unlikely to be frivolous.”
McLaurin, 13 F.4th at 1243. That’s particularly true in a case like
this one, which turns on the construction of a rather complicated
statute such as the FLSA. Although our intervening decision in
Compere ultimately disagreed with Nelson’s interpretation, she
clearly “raise[d] at least a colorable argument.”
Parker v. Am. Traf-
fic Sols., Inc., 835 F.3d 1363, 1371 (11th Cir. 2016). Thus, we cannot
say that her appeal was utterly devoid of merit. Nor do we see
anything to suggest that Nelson has “acted in bad faith, vexatiously,
wantonly, or for oppressive reasons,” such that sanctions might
otherwise be appropriate.
Chambers v. NASCO, Inc., 501 U.S. 32,
45–46 (1991) (quotation marks omitted).
B
As to Nelson’s cross-motion, things are a little different. We
“may” impose sanctions if a party “files a frivolous motion,” includ-
ing one for sanctions. 11th Cir. R. 27-4. And we think that this case
presents a close call. Despite our affirmance, Nelson’s appeal was
far from frivolous. She presented a good-faith, though unsuccess-
ful, argument as to why the 20% service charge was a tip—that La
Sombra’s managers would frequently remove the charge when
guests complained. At least one district court appears to have ac-
cepted a similar argument as a reason for denying summary judg-
ment.
See Cachola-Bonilla v. Wyndham El Conquistador Resort
& Country Club, 577 F. Supp. 2d 566, 573–74 (D.P.R. 2008).
But
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21-10181 Opinion of the Court 11
see Compere, 28 F.4th at 1188 (rejecting a nearly identical argu-
ment in a decision issued after the defendants moved for sanctions
and briefing was complete). And multiple district courts had ac-
cepted some form of Nelson’s “gross receipts” argument as well.
See, e.g.,
Shaw v. Set Enters., 241 F. Supp. 3d 1318, 1329 (S.D. Fla.
2017) (citing
McFeeley v. Jackson St. Ent., LLC, 825 F.3d 235, 246
(4th Cir. 2016));
Henderson v. 1400 Northside Drive, Inc., 110 F.
Supp. 3d 1318, 1323 (N.D. Ga. 2015);
Hart v. Rick’s Cabaret Int’l,
Inc., 967 F. Supp. 2d 901, 929 (S.D.N.Y. 2013).
But see Compere,
28 F.4th at 1187 (rejecting “gross receipts” argument). Our
caselaw—at least at the time—was silent.
We caution litigants to think twice before moving for sanc-
tions in such circumstances. Doing so wastes judicial resources. It
detracts from the salient issues. And it often transforms a good-
faith legal dispute into an ugly mudslinging battle. To reiterate, an
opposing party’s good-faith disagreement as to the law is not a
proper basis for sanctions. “Reasonable lawyers often disagree, and
this court’s doors are open to consider those disagreements
brought to us in good faith.”
Duff v. Cent. Sleep Diagnostics, LLC,
801 F.3d 833, 844 (7th Cir. 2015) (quotation marks omitted). Mem-
bers of the bar should recognize this. At the same time, we stress
that attorneys practicing before us should not be too quick to seek
sanctions—particularly not under the assumption that it can’t hurt
to ask. It certainly can.
See 11th Cir. R. 27-4. And this case proves
the point. The defendants’ motion, in our view, was itself frivo-
lous. For despite some precedent on Nelson’s side—and nothing
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12 Opinion of the Court 21-10181
from our court foreclosing her position at the time—the defend-
ants insisted that Nelson’s good-faith legal argument “defile[d] the
temple of justice” and was so patently frivolous, “shameless[],” and
“malicious[ly]” motivated that it was deserving of sanctions. The
motion created an unwarranted sideshow that misdirected atten-
tion from the legal issues before us. And it wasted the resources of
both parties and this Court.
With that said, we exercise our discretion to not grant Nel-
son her requested attorney’s fees. The parties clearly have vastly
different views of the law, and we’re willing to give the defendants
the benefit of the doubt as to their motivation for requesting sanc-
tions. Even so, as a “modest” means of deterring gratuitous mo-
tions for sanctions in the future, we think it appropriate that “the
defendant[s] shall bear [their] costs of defending the appeal even
though [they] won.”
Meeks v. Jewel Cos., 845 F.2d 1421, 1422 (7th
Cir. 1988) (per curiam).
* * *
The district court’s judgment is AFFIRMED, and the parties’
respective motions for sanctions are DENIED, except insofar as the
defendants-appellees are ordered to bear their own costs.
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