CEJAS COMMERCIAL INTERIORS, INC., an Oregon corporation, Plaintiff-Respondent,
JORGE TORRES-LIZAMA and FELIX TORRES-LIZAMA, Defendants-Appellants, and VIEWPOINT CONSTRUCTION, LLC, an Oregon limited liability company, Defendant.
Argued and submitted on November 29, 2012.
Multnomah County Circuit Court,
No. 100100532 Janice R. Wilson, Judge.
D. Michael Dale argued the cause for appellants. With him on the briefs was Law Office of D. Michael Dale.
Roger J. Leo argued the cause and filed the brief for respondent.
Kenneth A. Kreuscher, Cathy Highet, and Portland Law Collective, LLP, filed the brief Amici Curiae for Oregon American Federation of Labor and Congress of Industrial Organizations, Oregon State Building and Construction Trade Council, International Union of Painters and Allied Trades District Council No. 5, and National Employment Law Project.
Before Armstrong, Presiding Judge, and Duncan, Judge, and Brewer, Judge pro tempore.
In this declaratory judgment action, defendants Felix and Jorge Torres-Lizama appeal a judgment declaring that they were not employed by plaintiff, Cejas Commercial Interiors, Inc., within the meaning of Oregon's minimum-wage law, ORS 653.025. Defendants contend that plaintiff, a drywall contractor, was their employer while they did drywall work that plaintiff had subcontracted to Viewpoint Construction, LLC (Viewpoint). Consequently, defendants assert, plaintiff was required to compensate them for their work when Viewpoint and its crew foreman, Miguel Muñoz, failed to pay defendants and disappeared. Defendants also argue that the trial court abused its discretion in awarding plaintiff attorney fees of $5, 000 and an enhanced prevailing party fee of $5, 000 on a counterclaim that defendants raised under the federal Fair Labor Standards Act (FLSA), 29 USC §§ 201 to 219. We affirm the trial court's determination that plaintiff did not employ defendants under ORS 653.025, reverse the award of attorney fees, and remand for reconsideration of the enhanced prevailing party fee.
I. FACTS AND PROCEDURAL HISTORY
After a bench trial, we review the trial court's factual findings for any competent evidence. ORCP 62 F; Sutherlin Sch. Dist. # 130 v. Herrera, 120 Or.App. 86, 91, 851 P.2d 1171 (1993). We state the facts consistently with those findings. Sutherlin Sch. Dist. # 130, 120 Or.App. at 91. Plaintiff is a construction contractor licensed by the Construction Contractors Board (CCB) and specializing in drywall, metal framing, and acoustical ceilings. Its Chief Executive Officer is Jose Ignacio Ceja, commonly known as "Nacho." Plaintiff has a regular crew of eight to ten employees, most of whom are Ceja family members. Plaintiff's crew members fill out W-4s, have taxes withheld from their pay, and are paid semi-monthly by check.
In 2008, plaintiff contracted with general contractor Lorentz Bruun Co., Inc., to complete the drywall part of a mixed commercial and residential construction project at the intersection of 20th Avenue and Southeast Hawthorne Boulevard in Portland. The project, the largest that plaintiff had ever undertaken, was too large for plaintiff's crew to complete within Lorentz Bruun's desired timeframe, so Nacho Ceja decided to subcontract the "production" part of the contract to another company. Drywall production work involves hanging and taping full sheets of drywall on unobstructed walls and ceilings. Plaintiff's crew would do the remaining drywall work, which required more time and expertise than the production work. Plaintiff's crew's work included installing "pre-rock" and installing drywall around elevator assemblies and stairwells.
Plaintiff offered to subcontract the production work for $.28 per square foot, with "patches and additional work" extra, and several companies submitted bids. Nacho Ceja testified that that price was generous and provided an opportunity for a subcontractor to make a significant profit. Plaintiff decided to subcontract with Viewpoint, which had worked on smaller projects for plaintiff in the past and with whose work Nacho Ceja had been satisfied. Plaintiff supplied the drywall, tape, and mud for the drywall work that Viewpoint was to perform; Viewpoint's workers provided their own tools.
Before plaintiff awarded Viewpoint the contract, Nacho Ceja used the CCB's website to confirm that Viewpoint had an active license with the CCB and was bonded and insured. Nacho Ceja also required Viewpoint to provide a liability insurance certificate showing plaintiff as an additional insured and to add plaintiff as an insured on its workers' compensation insurance.
Victor Rodriguez, Viewpoint's principal, signed the contract on behalf of Viewpoint. During performance of the contract, Rodriguez came to the site only periodically to pick up checks from plaintiff. Plaintiff paid Viewpoint in full under the contract; the last check was deposited on May 21, 2009.
Defendants Jorge and Felix Torres-Lizama are brothers. At the time relevant to this action they lived together in Vancouver, Washington. Miguel Muñoz, the foreman for Viewpoint's taping crew, called them at home and asked them to work on the drywall for the 20th and Hawthorne project. Both defendants had worked on crews headed by Muñoz before. Neither had ever been on plaintiff's payroll, although Felix believed that he had worked on another job where plaintiff had had the drywall contract. Defendants had not heard of Viewpoint.
Defendants worked at the 20th and Hawthorne project from February 16 to March 26, 2009. Muñoz promised to pay defendants $10 per hour. He paid Jorge $1, 100 and Felix $1, 200, all in cash, and then failed to make any further payments.
Jose Ceja, Jr., who is Nacho Ceja's nephew, was plaintiff's on-site supervisor for the 20th and Hawthorne project. He would learn from Lorentz Bruun's foreman which areas or apartment units were ready for drywall hanging and taping and pass that information on to Muñoz, who would tell the taping crew where to work. Jose Ceja, Jr., was also responsible for the safe performance of all the drywall work at the site. That was true whether the safety risk was to plaintiff's workers, Viewpoint's workers, or any other worker on the site.
The trial court determined that, although Jose Ceja, Jr., may have interacted directly with defendants about their work on occasion, "such direct interaction was minor and incidental." More often, Jose Ceja, Jr., spoke to Muñoz about any problems with the crew's work; defendants and other crew members were often nearby and overheard those conversations. Jose Ceja, Jr., did not set the construction schedule or require defendants to work more hours when the work fell behind schedule, although he did communicate with Muñoz as necessary to ensure that Viewpoint completed the subcontract in a timely manner.
Defendants first complained to Muñoz about his failure to pay them, and he told them to be patient. In March, they stopped working on the project because they had not been paid. In the end of June, defendants told Nacho Ceja that they had not been paid. Soon after, they brought wage claims against plaintiff and Viewpoint before the CCB.
In response, pursuant to former ORS 701.148(4) (2007), repealed by Or Laws 2011, ch 630, § 53,  plaintiff brought this declaratory judgment action against defendants and Viewpoint, seeking, among other things, a declaration that defendants "do not possess any justiciable right over which a legal claim may be brought for wages, penalty wages, penalties or attorneys fees in any form before the [CCB] or any court." Defendants counterclaimed for Oregon minimum-wage and overtime compensation, ORS 653.025, ORS 653.055, ORS 653.261; penalties for failure to promptly pay wages, ORS 653.055, ORS 652.150; federal minimum-wage and overtime compensation under the FLSA; and breach of contract. They sought their unpaid wages, overtime wages, penalty wages, and attorney fees. Neither plaintiff nor defendants could locate Viewpoint or Muñoz, and the trial court entered a default judgment against Viewpoint.
The case went to trial. After the close of the evidence, defendants voluntarily dismissed their breach-of-contract counterclaim. The trial court found that, under Oregon's minimum-wage and overtime laws, Jorge should have been paid an additional $1256.20 and Felix should have been paid an additional $1, 005.00. However, the court determined that plaintiff did not "employ" defendants within the meaning of ORS 653.010(2) and, therefore, plaintiff was not obliged to pay defendants' wages. The court also determined that defendants had failed to prove that the FLSA applied to plaintiff. It entered a judgment declaring that defendants were not employed by plaintiff and, for that reason, rejecting defendants' counterclaims under Oregon minimum-wage and overtime law.
The trial court also concluded that defendants' attempt at trial to prove that the FLSA was applicable, which was based on a series of inferences that the court did not find persuasive, was unreasonable in light of the lack of evidence. Consequently, it awarded plaintiff an enhanced prevailing party fee of $5, 000 under ORS 20.190(3) and $5, 000 in attorney fees under ORS 20.105.
Defendants appeal, contending that the trial court erred in concluding that they were not employees of plaintiff for purposes of Oregon's minimum-wage and overtime statutes and that the court abused its discretion in awarding plaintiff attorney fees and an enhanced prevailing party fee on defendants' FLSA claim. We address those issues in turn, beginning with whether defendants were employed by plaintiff.
II. "EMPLOY" AS USED IN ORS 653.010
ORS 653.025(1) provides that, with exceptions not relevant here, "no employer shall employ * * * any employee" at a wage lower than the "Oregon minimum wage" defined in ORS 653.025(2). "'Employer' means any person who employs another person * * *." ORS 653.010(3). "'Employ' includes to suffer or permit to work * * *." ORS 653.010(2). ORS chapter 653 does not define "employee."
In the trial court, the parties disagreed about how the trial court should interpret the definition of "employ" in ORS 653.010(2). Each party proposed a different test; in general, the test that plaintiff advocated defines the employment relationship more narrowly than the test that defendants advocated. Plaintiff also contended, in the alternative, that even under the test that defendants proposed, it did not employ defendants.
Because the dispute about which test to apply is one of the major issues on appeal, we pause here to provide some background about the two tests. Defendants argued that the trial court should apply the "economic-realities test." Federal courts apply that test to determine whether a worker is employed within the meaning of the FLSA. Like ORS 653.010(2), the FLSA defines "employ" to include "to suffer or permit to work." 29 USC § 203(g). That definition of "employ" originated in child-labor statutes intended to impose liability on individuals and corporations who engaged children to work for them directly or who suffered or permitted children to work for others involved in the enterprise. See, e.g., People ex rel Price v. Sheffield Farms-Slawson-Decker Co., 225 NY 25, 33, 121 NE 474 (1918) (farm "permitted" hiring of children although farm prohibited the practice by rule and occasional inspection); Curtis & Gartside Co. v. Pigg, 39 Okla 31, 134 P 1125, 1129 (1913) (company "suffered" or "permitted" child to work at dangerous task by instructing him to do so although his contract of employment did not cover the dangerous task). After Congress adopted the phrase "to suffer or permit to work" to define "employ" in the FLSA, the United States Supreme Court adopted the economic-realities test to ...