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DONOVAN v. USPS

June 25, 1981

Raymond J. DONOVAN, Secretary of Labor, et al., Plaintiffs,
v.
UNITED STATES POSTAL SERVICE, Defendant



The opinion of the court was delivered by: ROBINSON

MEMORANDUM OPINION

Before the Court are Plaintiff Secretary of Labor's Motion for Partial Summary Judgment and Motion to Compel an Accounting of Backwages in the above captioned case. These motions became ripe in 1980, but were stayed due to extraordinary circumstances presented in this litigation. See Donovan v. U. S. P. S., 530 F. Supp. 872, 875 (D.D.C.1981). On June 15, 1981, the Court vacated all stays in these cases, and permitted the parties to supplement the pleadings relating to the above motions.

 I. BACKGROUND

 The lead case in this set of consolidated cases was filed by the Secretary of Labor upon conclusion of vigorous litigation between private litigants and USPS concerning certain violations of the Fair Labor Standards Act, 29 U.S.C. § 201 et seq. Id. at 873-874. The pending motions relate to the FLSA violations litigated in the Smith/Kaplan cases, id. at 873 n.1, 5, namely USPS' failure to (1) include certain required premiums in the employees' regular rate of pay for the purposes of overtime compensation (regular rate violations), (2) utilize a rounding rule which averages work over a one week period (rounding violations), and (3) compensate employees for overtime that was recorded on the employees' time records, but disallowed by the employees' supervisors as unauthorized, although "suffered or permitted" by the Postal Service (suffer or permit violations). See Smith v. U.S.P.S., No. 1570 (D.D.C. January 13, 1978). USPS admitted the first two violations, and instituted a retroactive payment program to compensate its employees for the violations. The program, implemented in July of 1976, did not entail payment of liquidated damages. Donovan v. U.S.P.S., at 879. In testimony before this Court, Postmaster General Bolger admitted that USPS had also committed the suffer or permit violations. Id. See, inter alia, Tr. pp. 24, 26, 43-44 (March 19, 1981). Employees who opted into the Smith/Kaplan litigation have been compensated for the suffer or permit violations, including 80% liquidated damages; the Donovan employees have received no such compensation.

 The Smith/Kaplan litigation bears directly on the pending motions both because of the history of this action, id. at 872-875, 877-879, and because the FLSA violations resolved there are identical to those being litigated here. In that litigation, Judge June Green (1) found that USPS had committed all of the above violations, (2) ordered a full accounting, and (3) awarded 80% liquidated damages. Id. at 877-878. USPS never complied with the accounting order, and all parties appealed the liquidated damages ruling. Id., at 878. Prior to any appellate litigation, the parties settled the Smith/Kaplan cases. The settlement provided that (1) the retropayments would serve as compensation for all but the "suffer and permit" violations, (2) USPS would pay, on the basis of a formula not herein relevant, $ 53 million compensation for the suffer and permit violations and the 80% liquidated damages relating to those violations, and (3) 80% liquidated damages on the retropayments made to the Smith/Kaplan plaintiffs. Id. at 886. Pursuant to the settlement agreement, the Smith/Kaplan litigation, both in the District Court and the Court of Appeals, was dismissed with prejudice. Id.

 PMG Bolger testified on the last day of trial. He stated, inter alia :

 
I know I have the legal right to (apply the statute of limitations). My counsel have said that. But as a responsible public official, I should not use that as an excuse and I would not do it. (Tr. p. 27).
 
The law (the FLSA) went into effect on May 1, 1974. We should have had compliance with it as soon as possible, as soon as we were able to do it; and from May 1, 1974 out, we have to compensate people when they establish we were in violation with the law. (Tr. p. 44).

 Mr. Bolger thus represented to the Court that the Postal Service would not assert the Statute of Limitations *fn1" as an affirmative defense in this litigation. In fact, the Court rejected Plaintiffs' promissory estoppel contention in part because of Bolger's testimony. Id., at 893.

 Four issues are presented here, to wit: (1) has the Postal Service violated the FLSA, (2) should the Court order an accounting, (3) should the Court award liquidated damages, and (4) has USPS waived the Statute of Limitations defense. For the reasons stated below, the Court answers all of the questions in the affirmative.

 II. COLLATERAL ESTOPPEL

 Collateral estoppel "prohibits parties who have litigated one cause of action from relitigating in a second cause of action matters of fact which were ... determined in the first litigation." (citations omitted) McCord v. Bailey, 204 U.S. App. D.C. 334, 636 F.2d 606, 608 (D.C.Cir.1980). It may be used by a plaintiff who was not a party in the earlier action, at least in Federal question litigation, at the discretion of the trial court. Parklane Hosiery Co. v. Shore, 439 U.S. 322, 331, 99 S. Ct. 645, 651, 58 L. Ed. 2d 552 (1979). Certain criteria must be evaluated for the trial court to properly exercise its discretion. Id. See also Carr v. D.C., 207 U.S. App. D.C. 264, 646 F.2d 599, 605-07 (D.C.Cir.1980). The three issues presented here are (1) are the facts determined by Judge Green amenable to collateral estoppel application, (2) if so, should the Court, in its discretion, apply the doctrine in the instant case; and (3) if so, what is the collateral estoppel effect of Judge Green's ruling.

 A. Amenability

 In the Smith/Kaplan litigation, Judge Green determined that (1) USPS had committed all the violations litigated herein; (2) the violations were not de minimis, and that the amount of damages suffered by the 90,000 plaintiffs could be accurately determined only after a full accounting was performed, see Smith v. U.S.P.S., No. 75-1570 (D.D.C. Oct. 4, 1977); (3) with respect to all but the rounding violations, USPS "knew or should have known that its rules and procedures were in direct conflict with the FLSA and that such procedures would lead to a failure to compensate its employees in compliance with the Act," Smith v. U. S. P. S., No. 75-1570, (D.D.C. Jan. 13, 1978); (4) with respect to the rounding violations, USPS "might have believed, in good faith and upon reasonable grounds" that it did not violate the FLSA, id.; and (5) USPS was therefore liable to the plaintiffs "for an amount equal to 80% of any compensatory damages for which USPS is ultimately liable. " Id. The Secretary asks the Court to preclude relitigation of the facts found by Judge Green, viz. (1) that USPS committed the violations, (2) that the violations were not de minimis, and (3) that USPS knew or should have known that its rules and procedures were in direct conflict with the FLSA and that such procedures would lead to a failure to compensate the employees. He further requests that, on the basis of these facts, the Court award 100% liquidated damages and order an accounting.

 Defendant alleges that the doctrine of collateral estoppel is inapplicable here because (1) there are material differences between the facts in this case and those litigated in Smith/Kaplan, (2) there was no valid judgment in Smith/Kaplan, and (3) the facts did not form the predicate for a final judgment. It is clear that, for collateral estoppel to apply, "the same issue must be at stake in both cases, and the issue must have been litigated and decided in the first suit." McCord v. Bailey, 606 F.2d at 609. The issues at stake are identical. The violations were indigenous to USPS' payroll and timekeeping practices, and thus affected all employees who worked overtime between May 1, 1974 and the date of USPS' FLSA compliance. *fn2" Donovan v. U. S. P. S., 530 F. Supp. at 874. The significance of the violations, as found by Judge Green, has been reaffirmed in evidence presented to the Court in Donovan. Id., at 885, 886. Finally, Judge Green's ruling concerning what USPS "knew or should have known" apply to the violations alleged herein-they are exactly the same claims as those adjudicated in Smith/Kaplan. The issues in question are identical. See Schneider v. Lockheed, 212 U.S. App. D.C. 87, 658 F.2d 835, 851-852 (D.C.Cir.1981).

 It is evident that a valid judgment issued in the Smith/Kaplan cases; they were dismissed with prejudice by stipulation pursuant to Fed.Rule Civ.Proc. 41(a)(1)(ii). Such a dismissal constitutes a valid judgment on the merits, and is entitled to res judicata effect. Lawlor v. Natl. Screen Service Corp., 349 U.S. 322, 327, 75 S. Ct. 865, 868, 99 L. Ed. 1122 (1955); Astron Industrial Assoc. v. Chrysler, 405 F.2d 958, 960 (5th Cir. 1968); Burns v. Fincke, 90 U.S. App. D.C. 381, 197 F.2d 165, 166 (D.C.Cir.1952). For res judicata and collateral estoppel purposes, a judgment does not, as USPS alleges, extinguish review of the underlying claim. Rather, courts must "examine the record of the prior proceedings" in order to ascertain res judicata and collateral estoppel effect. See Ashe v. Swenson, 397 U.S. 436, 444, 90 S. Ct. 1189, 1194, 25 L. Ed. 2d 469 (1970). This Court has had a unique opportunity to examine the record of the prior proceeding. Donovan v. USPS, supra. It is clear to the Court, upon examination of that record, that (1) Judge Green's rulings were thoughtful and well-reasoned, (2) the parties had a full and fair opportunity to litigate before her, and (3) her rulings in Smith/Kaplan were virtually immutable. Furthermore, it is evident that the Smith/Kaplan settlement agreement (which precipitated the dismissal with prejudice) was based upon Judge Green's rulings. The settlement provided compensation to the plaintiffs for all of the alleged violations and included payment of 80% liquidated damages. It obviated the need for an accounting by providing a payout formula agreed to by the parties. The dismissal with prejudice and the settlement agreement addressed all issues decided by Judge Green in a way that did not require her to vacate any Memoranda or Orders. The stipulation of dismissal with prejudice constitutes a valid, final judgment in the Smith/Kaplan litigation. *fn3"

 Finally, USPS alleges that it can be estopped from contending the facts as found by Judge Green only if those facts formed the predicate for a final judgment within the meaning of 28 U.S.C. § 1291. This contention is devoid of merit. "Under collateral estoppel, once an issue is actually and necessarily determined by a court of competent jurisdiction, that determination is conclusive..." Montana v. U. S., 440 U.S. 147, 153, 99 S. Ct. 970, 973, 59 L. Ed. 2d 210 (1979). Judge Green "actually and necessarily determined" that (1) USPS had committed the FLSA violations in question, (2) that the violations were not de minimis, and (3) that for all but one of the claims, USPS knew or should have known that its rules and procedures were in direct conflict with the FLSA. The finality requirement for collateral estoppel is not governed by 28 U.S.C. § 1291. Rather, it is governed by a rule of reason. As Judge Friendly stated for the Second Circuit in Lummus Co. v. Commonwealth Oil Refining Co., 297 F.2d 80, 89 (2d Cir. 1961), cert. denied, 368 U.S. 986, 82 S. Ct. 601, 7 L. Ed. 2d 524 (1962):

 
whether a judgment, not final in the sense of 28 U.S.C. § 1291, ought nevertheless be considered "final" in the sense of precluding litigation on the same issues, turns upon such factors as the nature of the decision (i.e. that it was not avowedly tentative), the adequacy of the hearing, and the opportunity for review. "Finality" in the context here relevant means little more than that the litigation of a particular issue has reached such a stage that a court sees no really good reason for permitting it to be litigated again.

 The Second Circuit has consistently affirmed this approach. See United States ex rel. DiGiangiemo v. Regan, 528 F.2d 1262, 1265 (2d. Cir. 1975), cert. denied 426 U.S. 950, 96 S. Ct. 3172, 49 L. Ed. 2d 1187 (1976), and it has been approved by three other circuits and the Restatement (Second) Judgments. See Dyndul v. Dyndul, 620 F.2d 409, 411-412 (3d. Cir. 1980); Miller Brewing Co. v. Schlitz Brewing Co., 605 F.2d 990, 991, 996 (7th Cir. 1979); Pye v. ...


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