Ji v. New Aily Foot Relax Station Inc

Background

Yong Biao Ji brought wage-and-hour claims under the Fair Labor Standards Act (FLSA) and New York Labor Law (NYLL) against New Aily Foot Relax Station Inc. and Eileen Foot Relax Station Inc., which the opinion calls the “Successor Companies.” He also brought a state-law fraudulent-transfer claim concerning transfers of business assets.

Ji alleged that he worked for non-party Old Aily Foot Relax Station Inc. and related defendants during two periods between November 1, 2016, and October 23, 2019. He alleged that he worked between 70.50 and 84.50 hours over six days each week, was paid less than the minimum wage, did not receive overtime pay, and did not receive certain wage statements or spread-of-hours compensation required by New York law. He alleged that he was paid a set amount for each massage rather than based on the hours worked and that the former employers failed to keep complete records of his hours and wages.

Ji further alleged that, after he filed an earlier related wage lawsuit, Old Aily transferred all its assets to New Aily for no consideration and to make Old Aily unable to satisfy a judgment. He alleged that New Aily later transferred all its assets to Eileen for the same purpose. According to the complaint, the businesses continued operating with substantially the same owners, employees, management, services, customers, location, equipment, and general operations.

The Motion to Dismiss

The Successor Companies moved to dismiss under Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure. Rule 12(b)(1) concerns the court’s authority to hear a case, while Rule 12(b)(6) tests whether the complaint alleges enough facts to support a legally recognized claim. The court construed defendants’ filing as making those challenges even though the filing was labeled a “Special Appearance” and referred to different rules.

Federal-Question Jurisdiction and Successor Liability

The defendants argued that Ji had not adequately alleged “enterprise coverage” under the FLSA because he did not sufficiently plead that the businesses had more than $500,000 in annual revenue. The court rejected that argument. It noted that Ji expressly alleged each defendant had annual gross revenue above $500,000 and explained that the FLSA’s enterprise-coverage requirement concerns the merits of an FLSA claim, not the court’s subject-matter jurisdiction.

The defendants also argued that they could not be Ji’s FLSA employers because they were formed after Ji stopped working for the prior employers. The court rejected that argument at the pleading stage. It held that Ji plausibly alleged successor liability under both potentially applicable tests.

Under the federal “substantial continuity” test, a successor may be liable when it had notice of the predecessor’s liability and there was substantial continuity in the business. The court found that Ji plausibly alleged notice because New Aily was formed shortly after he filed the earlier wage lawsuit and that the asset transfers made Old Aily and then New Aily less able to provide relief. Ji also alleged continuing business operations, the same or substantially the same workforce and supervisors, the same location and equipment, and substantially the same jobs and services.

Under the traditional New York common-law test, an asset purchaser may be liable when, among other circumstances, it is a mere continuation of the prior business. The court found that Ji plausibly alleged continuity of ownership, the end of Old Aily’s and New Aily’s ordinary business operations, and continuity of management, personnel, location, assets, and general operations. The court therefore concluded that Ji had pleaded a federal claim against the Successor Companies sufficient to establish federal-question jurisdiction at this stage.

State-Law Claims

The court held that it had supplemental jurisdiction over Ji’s NYLL wage claims because they arose from the same compensation practices as his FLSA claims. It also held that the fraudulent-transfer claim arose from substantially the same events as the FLSA claims: the alleged failure to pay Ji adequately and the subsequent transfers of Old Aily’s assets to New Aily and then Eileen. The court therefore allowed the fraudulent-transfer claim to remain in the case.

Statute of Limitations

The defendants argued that Ji’s FLSA claims were time-barred. FLSA claims generally must be filed within two years, but claims involving a willful violation may be filed within three years. A willful violation requires facts supporting an inference that the employer knew, or recklessly disregarded, that its conduct violated the law.

The court found Ji’s allegations sufficient to plausibly support willfulness. It relied on allegations that the former employers controlled when Ji could leave work, knew or should have known the long hours he worked, paid him by the massage rather than by hours, failed to provide wage statements, and failed to maintain accurate records. Because Ji filed this case two years and eleven months after his employment ended, the three-year period could apply to claims plausibly involving willful violations.

However, each paycheck can create a separate FLSA claim, so only claims that accrued during the three years before Ji filed this action could proceed. The court ruled that FLSA claims accruing before September 25, 2019, were time-barred. It did not dismiss the later-accruing FLSA claims or the other claims.

Disposition

The court granted in part and denied in part the motion to dismiss. It dismissed the FLSA claims accruing before September 25, 2019. All other claims were allowed to proceed. The defendants were ordered to file an answer by June 9, 2023.