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Goldberg v. Sorvas

September 1, 1961


Author: Forman

Before Goodrich, McLaughlin and Forman, Circuit Judges.

FOREMAN, C. J.: This is an appeal from an order of the United States District Court for the Western District of Pennsylvania*fn1 refusing a motion (and a judgment dismissing the complaint) of the appellant, James P. Mitchell, Secretary of Labor (the Secretary),*fn2 in which he sought a permanent injunction to enjoin defendant Harry Sorvas, individually and doing business as Merit Protective Service (Sorvas), from violating the minimum wage, overtime and recordkeeping provisions of the Fair Labor Standards Act, 29 U.S.C.A.§ 201 et seq.*fn3 (Act).

The facts are simple and undisputed. The appellee, Harry Sorvas, maintains an office in Pittsburgh where he does business under the trade name of Merit Protective Service, chiefly in the western part of Pennsylvania and on occasion in certain cities in Ohio, West Virginia, Kentucky and other states. He is engaged in what is called a "shopping service" consisting of reporting to retail establishments on the qualities of their clerks and salesmen. The means by which he accomplishes this is through his employees who visit the establishments of his clients in crews of usually two or three. They pretend to be customers and independent of each other observe the general conditions of the establishment, make purchases from the sales people and report on their honesty, efficiency and other attitudes to the crew supervisor on forms provided for the purpose. He in turn transmits the reports by mail or delivers them personally to the Pittsburgh office, where they are checked and mailed to the clients. In the event that merchandise has been purchased during an investigation it is returned to the client and Sorvas is reimbursed therefor.

Sorvas renders other services in the way of business surveys when requested but he is principally concerned in the so-called "shopping service".

There are a number of concerns trading under the same name, Merit Protective Service,*fn4 throughout the country, but they are completely disassociated from each other except that they exchange information and unite in such mutual matters as promulgating report forms and payment for advertising. When other Merit concerns have accounts in his territory Sorvas has serviced them, sending his reports to the forwarder who submits them to his client and pays Sorvas. This type of forwarding business did not amount to more than 10 percent of the annual dollar volume of Sorvas' gross business.

If the investigation is to be conducted locally or nearby the employee reports to the Pittsburgh office and from there goes to the store where the testing is to be done, customarily filing the report immediately after the test has been made. Stores are visited all during the day until their closing time usually at five or six o'clock. Visits are also made to stores that remain open evenings.

When trips are made out of town, sometimes for as long as a week, the crew is transported in the automobile of the supervisor. A schedule of towns and the stores in them which are to be worked is prepared beforehand and trips between the towns are usually made in the evenings after the inspections are completed so as to be ready to work when the stores open in the next town. Sorvas pays for the lodging and food for the crew.

On occasion all inspections might be completed before the close of the day and the employee would have some free time to do as he pleased. Between 20 percent and 25 percent of Sorvas' gross annual receipts came from out of state clients.

Full and part time crew members were employed on a basis of five days to the week, Monday through Friday, receiving wages beginning at $8.00 per day. They received no overtime as provided under Section 7 of the Act (29 U.S.C.A. § 207) except that if they worked the sixth day, Saturday, they were paid at the rate of time and a half.

At the trial Mr. Sorvas testified, among other things, that his business was regarded in the "shopping service industry" as retail. He based this conclusion on the ground that he dealt with retail concerns and that he sold nothing except his service. A witness called on his behalf, George C. Krohe, manager of Isalys Dairy Stores, a client of Sorvas, testified that he had dealt with two other firms rendering the same type of service as Sorvas and he considered the service to be retail in nature since it was not resold and that, in his opinion, the "shopping service industry" considered itself to be retail.

The Secretary called several of Sorvas' employees to establish working conditions, a government investigator and Dr. Robert Entenberg, as an expert in retailing. Dr. Entenberg gave his opinion that the shopping service furnished by Sorvas would not fall within the definition of a "retail sale or service".

The District Court held that Sorvas was engaged in interstate commerce but denied the relief requested in the complaint upon the ground that Sorvas was exempt from the Act's requirements under Section 13(a)(2) as amended in 1949.*fn5 No question is raised as to the correctness of the ruling on commerce.

The District Court found that Sorvas was obliged to meet three tests imposed by Section 13(a)(2) to be entitled to exemption, namely:

"1. More than one-half of the annual dollar volume of sales of goods or services must be made within the state ...

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