Mendez v. 976 Madison Restaurant LLC

Background

Ivan Herrera Mendez and Valentin Vivar, former employees of Kappo Masa, brought the underlying action under the Fair Labor Standards Act (FLSA) and New York Labor Law. They alleged that the defendants failed to pay required minimum wages and overtime and failed to provide required wage notices and wage statements. One allegation concerned wage statements that allegedly did not show tip credits taken against their wages.

976 Madison Restaurant LLC, which operated Kappo Masa, brought a third-party action against payroll-service providers Valiant Solutions, Inc., Valiant Payroll Services, Inc., and Paypro Corporation. The amended third-party complaint asserted breach-of-contract, fraudulent-inducement, and negligent-misrepresentation claims against Valiant, and breach-of-contract, contractual-indemnification, and declaratory-judgment claims against Paypro. 976 Madison sought damages it might incur if the employees prevailed in the underlying action.

Motions and legal standard

Valiant and Paypro each moved to dismiss the amended third-party complaint under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not state a legally valid claim. For this motion, the court accepted the complaint’s factual allegations as true but did not accept unsupported conclusions.

Court’s reasoning

The court relied on Second Circuit precedent holding that employers have no right to contribution or indemnification for liability under the FLSA. It also relied on decisions applying that rule to contractual indemnification and liability under the New York Labor Law. The court explained that allowing indemnification would let employers shift away obligations that the wage laws impose on them and would undermine those laws’ purpose.

976 Madison argued that its claims were different because they concerned allegedly improper wage statements rather than unpaid wages. The court acknowledged that the cited cases mainly involved unpaid wages but found that 976 Madison offered no persuasive reason not to apply the same rule to wage-notice claims. The court also cited a decision treating a request for attorneys’ fees related to wage-notice violations as an impermissible indemnity claim.

The court determined that the contractual-indemnification claim and the other claims were attempts to avoid the prohibition on indemnification by using different legal labels. The court noted that 976 Madison’s stated goal was to shift to the payroll companies any damages resulting from a finding that Kappo Masa violated New York Labor Law § 195(3).

Disposition

Judge Andrew L. Carter, Jr. granted Valiant’s and Paypro’s motions to dismiss. The court dismissed the third-party action, directed the Clerk to terminate 976 Madison as the third-party plaintiff and Valiant, Valiant Payroll Services, and Paypro as third-party defendants, and terminated the pending motions. The court ordered the parties in the underlying wage-and-hour action to file a joint status update within fourteen days. The opinion does not state that the dismissal was with or without prejudice.