9th Circuit affirms $191,400 penalty vs Dynasty owners

The U.S. Court of Appeals for the Ninth Circuit has affirmed the federal court’s imposition of $191,400 civil penalty against Hong Kong Entertainment (Overseas) Investments Ltd. president Man Kwan and HKE.

In a ruling last week, Ninth Circuit judges said the amount assessed by the U.S. Department of Labor’s Wage and Hour Division was not arbitrary, capricious, or an abuse of discretion.

The Ninth Circuit memorandum was issued by Circuit judges M. Margaret McKeown, Michelle T. Friedland, and designated judge U.S. District Judge for the District of Arizona Raner C. Collins.

Hong Kong Entertainment (Overseas) Investments Ltd. president Man Kwan and HKE were penalized for willful and repeat violations of the overtime provision of the Fair Labor Standards Act during the operation of the now defunct Tinian Dynasty Hotel & Casino. The penalty is to be paid to the U.S. Labor Secretary.

U.S. District Court for the NMI Chief Judge Ramona V. Manglona had affirmed in May 2017 the U.S. DOL’s Administrative Review Board’s final decision issued on Nov. 25, 2014, that fined HKE and HKE president Kwan.

Manglona concluded that, as a matter of law, the compliance agreement entered by HKE and the Labor secretary did not preclude the imposition of civil money penalties for HKE’s violations of the overtime provisions of the FLSA.

Kwan, through counsel Bruce Berline, appealed to the Ninth Circuit.

Kwan brought this action pursuant to the Administrative Procedure Act seeking judicial review of the Administrative Review Board’s final decision and order.

Kwan challenged the monetary penalty.

The violations, which occurred in 2007, led Kwan’s employer, HKE, to enter an agreement with the DOL promising to pay the unpaid overtime.

Kwan argues the agreement precluded assessment of CMPs based on the 2007 violations because paragraph 11 of the agreement reserves the DOL’s right to impose CMPs for future FLSA violations.

In affirming Manglona’s ruling, the Ninth Circuit judges said that neither paragraph 11 nor the rest of the agreement makes any reference to CMPs for past FLSA violations generally or the 2007 violations specifically.

The Ninth Circuit judges said because the agreement is silent on this question, the normal rule that CMPs can be assessed for repeat or willful FLSA violations applies.

The judges said this conclusion is clear even without considering the cover letter that accompanied the agreement, which specifically preserved the possibility of CMPs for the 2007 violations.

“We therefore do not need to decide whether, as Kwan argues, the parol evidence rule precludes consideration of the cover letter,” the judges said.

The parol evidence rule is a rule in the Anglo-American common law regarding contracts, and governs what kinds of evidence parties to a contract dispute can introduce to identify the specific terms of a contract.

However, the judges said, the cover letter is relevant to the extent Kwan argues that the agreement should be interpreted in light of the DOL’s earlier oral promise not to impose CMPs if HKE signed the agreement.

“If an earlier oral representation can be used to interpret the agreement, the cover letter can as well,” the judges said.

As Manglona found, the Ninth Circuit judges said, Kwan and HKE could not reasonably have relied on the earlier promise after reading the cover letter.

Kwan argues the amount of the CMP must be set aside because it was arbitrary, capricious, and an abuse of discretion.

The judges said when determining the amount of a CMP, the DOL is required to consider certain mandatory factors and may also consider seven discretionary factors, including “the interval between violations.”

Kwan contends the DOL misapplied this factor for improperly considering FLSA violations that occurred after the CMP was assessed to find that the interval between violations was not a mitigating factor.

However, the judges said, the DOL did not consider any alleged later violations when it first determined the amount of the CMP for the 2007 violations because the violations had not happened yet.

On Aug. 31, 2007, Terrence Trotter, then-assistant district director for the Hawaii District Labor’s Wage and Hour Division, assessed the civil money penalties against HKE and Raymond Chan, then-financial controller for Tinian Dynasty and signatory to the compliance agreement, for willful and repeated violations of the FLSA from March 16, 2007 to May 26, 2007.

On Feb. 4, 2011, Trotter assessed the civil money penalties for the same FLSA violations against Kwan.

In December 2014, HKE and Kwan filed the lawsuit against then-U.S. Labor secretary Thomas E. Perez and several other Labor officials for allegedly violating their due process right over their assessment of civil penalty of $191,400.

The Labor secretary and co-defendants then asked the court to issue a summary judgment in their favor. The defendants have asserted, among other things, that the CMP assessment was both fair and reasonable, given the plaintiffs’ repeat violations of FLSA.