WALLING, Administrator of Wage and Hour Division, United States Department of Labor, v. BLOCK, 139 F.2d 268

HEALY, Circuit Judge. The Administrator sued to restrain violations of the Fair Labor Standards Act, 29 U.S.C.A. § 201 et seq. After hearing proof the court dismissed the suit, and the Administrator appeals. It is conceded that the Act, if applicable, was not complied with. Appellee owns and operates a chain of nineteen retail shoe stores, fourteen of which are in Washington, three in Oregon, and two in Idaho.

He maintains at Seattle a central office and warehouse or floor space where the great bulk of the merchandise dealt in is received from out-state suppliers and from which it is distributed to the several stores, a minor part being shipped directly to the stores by the suppliers. After arrival in Seattle the goods are transported by a local transfer company to the warehouse where they are weighed, checked, unpacked, sorted, and repacked for distribution, about 30% being distributed to the stores in Oregon and Idaho, the balance to those in Washington.

Except for a small reserve stock, the goods shipped to the Seattle warehouse are kept there only long enough to be prepared for transmission to the stores. The employees involved are those working in the central office and warehouse, namely, shipping and receiving clerks, and clerical, bookkeeping and maintenance employees. Appellee’s business is controlled from the Seattle office, the local store managers making daily sales reports and weekly stock reports, but having no authority over prices; and they purchase no merchandise.

All financial transactions of the chain, such as the negotiation of advertising, leasing and insurance contracts, and the payment of wages and salaries, are handled from the Seattle office. Appellee sells only at retail, and he neither produces nor processes goods of any sort. The trial court found as a fact that the receipt of the goods and their subsequent distribution through the Seattle warehouse did not involve interstate commerce, that is to say, that the employees there are not engaged in commerce. However, for purposes of decision we assume the contrary. Walling v.

Jacksonville Paper Co., 317 U.S. 564, 63 S.Ct. 332, 87 L.Ed. 460; Kirschbaum Co. v. Walling, 316 U.S. 517, 519, 62 S.Ct. 1116, 86 L.Ed. 1638. Certainly those persons employed in and about the distribution of merchandise to the Oregon and Idaho stores were so engaged.

But the court rested its judgment primarily on the proposition that the employees are excluded from the benefits of the Act by virtue of § 13(a) (2), which exempts “any en> ployee engaged in any retail or service establishment the greater part of whose selling or servicing is in intrastate commerce.” The Administrator concedes, or, to put it more accurately, insists, that each separate store in the chain is a “retail establishment” of the type excluded by this provision.

His point is that the system as a whole is not such an establishment, more particularly that the central office and warehouse constitute a separate unit or establishment where no retailing is done. He likens that unit to a wholesale house in that the functions performed there are comparable, he says, with those performed by the wholesaler. Aside from some District Court decisions, there are but few cases dealing immediately with the point. The Court of Appeals of the Sixth Circuit in Allesandro v. C. F.

Smith Co., 136 F.2d 75, has held that employees engaged in comparable services for a grocery chain are excluded from coverage by § 13(a) (2). The Third Circuit in Walling v. American Stores Co., 133 F.2d 840, reached a contrary conclusion in respect of a somewhat similar chain store activity, but in that case the chain store operator produced or processed goods at its warehouses on an extensive scale. The services performed were thus related to the production of goods for commerce as well as to retailing. The two holdings are not necessarily in conflict. The point was present in Walling v.

Goldblatt Bros., 7 Cir., 128 F.2d. 778, but was not distinctly ruled upon. The_ Administrator attempts to distinguish the holding in Allesandro v. C. F. Smith Co., supra, on the ground that there the distribution center and the stores were all'located in the same state; but for present purposes we see no relevancy in the distinction. Even if the warehouse employees be regarded as in interstate commerce, the court nevertheless thought they were excluded by force of § 13(a) (2). It appears to us that the work of the employees in the present case is plainly incidental to the operation of a retail business.

While in some respects the functions performed at the central warehouse are comparable with those performed by the traditional wholesaler, yet obviously the analogy is superficial and incomplete. Large retail department stores have central business offices and maintain warehouses or stock rooms where goods are received and from which they are distributed to the various departments. These may be in the same building as the selling departments or in a separate building. The mere physical separation of appellee’s warehouse from the stores themselves can hardly be regarded as a controlling factor.

Whether appellee’s stores constitute a' single establishment or whether each, in appropriate circumstances, is to be regarded as a separate establishment, is a question we need not consider. All we decide is that the services involved were a .mere incident to and a.n integral part of the operation of each store in the group. Since the selling of no store was substantially interstate, the employees in question are excluded from coverage by § 13(a) (2) of the Act. Affirmed. Counsel for appellee call this place a “stockroom.” The Administrator refers to it as a “’warehouse,” and we accept his nomenclature.

Decided June 3, 1943.