Free Reply to Response to Motion - District Court of Colorado - Colorado

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Civil Action No. 1:03-cv-2485-MSK-PAC Camille Melonakis-Kurz, individually and on behalf of other similarly situation employees, and other individuals who have consented to join this action, Plaintiff, v. Heartland Home Finance, Inc., Defendant. ______________________________________________________________________________ DEFENDANT'S REPLY IN SUPPORT OF MOTION TO DECERTIFY ______________________________________________________________________________ I. Burden of Proof and Elements The parties agree that Plaintiffs have the burden of proving that this matter should remain certified as a collective action and that the burden on Plaintiffs is much higher than it was at the conditional certification stage. The Court applies a post-discovery standard and makes a factual determination on the similarly situated issue, looking to specific factual similarities or differences and manageability concerns. Thiessen v. General Electric Capital Corp., 267 F.3d 1095, 1102-03 (10th Cir. 2001). Factors include: (1) disparate factual and employment settings of the individual plaintiffs; (2) the various defenses available to defendant which appear available to be individual to each plaintiff; and (3) fairness and procedural considerations. Id. at 1103. II. Plaintiffs Have Failed to Meet Their Burden A. Disparate Factual and Employment Settings

Plaintiffs have filed a motion for partial summary judgment as to liability, which has been fully briefed and is pending before the Court. In their Response to Defendant's Motion to

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Decertify, Plaintiffs largely hang their hopes on the outcome of their summary judgment motion, i.e., they contend that if they are entitled to summary judgment as to liability, then the case should be certified as a collective action. This bootstrapping approach is wrong for each of at least three independent reasons, any one of which precludes use of the collective action vehicle: (1) factual differences among Plaintiffs require an individualized analysis to be made with regard to whether that individual is or is not exempt; (2) Plaintiffs fail to establish the existence of an illicit national policy to violate the FLSA; and (3) even if, arguendo, Plaintiffs all were nonexempt, their theories and evidence vary so widely that continued collective action certification still would be inappropriate. 1. Exempt v. Non-Exempt

Although Plaintiffs would not be entitled to collective action certification even if their partial summary judgment motion were granted,1 Defendant agrees that the arguments and evidence cited in the summary judgment filings provides a helpful supplement for the Court because these filings underscore the basis for not certifying this matter as a collective action. Plaintiffs' testimony varied widely with respect to their exercise of discretion and independent judgment as to matters of significance. Although some said they were little more than waitresses who delivered orders, others testified in detail as to how they structured deals, determined customer needs, analyzed credit information, chose the best product to meet the customer's needs from among hundreds of options, and--perhaps most significantly--negotiated the fees and points that determined both their own income and the income to Heartland. Several Plaintiffs also testified about additional exempt tasks and responsibilities they handled, such as
1

Contrary to Plaintiffs' assertion at page 2 of their Response Memorandum (Doc. 350), Defendant disputes liability as to all time periods as to hours worked and exempt status. Moreover, despite their arguments regarding the exemption issue, Plaintiffs admit that "[f]or purposes of decertification, the Court does not determine whether Plaintiffs should be classified as exempt or non-exempt employees." (Doc. 350, Response Memorandum, p. 4).

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marketing, providing training, and overseeing the office for their managers.2 These factual differences are significant because they go to the issue of whether each Plaintiff is similarly situated in terms of meeting the job duties test for purposes of the administrative exemption. See Smith v. Heartland Automotive Services, Inc., 404 F. Supp.2d 1144 (D. Minn. 2005) (no relation to Heartland). 2. Plaintiffs' Attempted Smokescreen

Instead of recognizing the significance of the above facts, Plaintiffs attempt to divert the Court's attention by focusing on unimportant similarities among the Plaintiffs' job duties and by overstating the evidence as to those similarities. For example, at page 5 of their Response (Doc. 350), Plaintiffs' counsel contends that the loan officer "asks the potential customer standardized questions to complete a 1003 credit application for a mortgage." Although counsel's evidentiary citations demonstrate that a loan officer is responsible for completing a Uniform Residential Loan Application, also known as a Form 1003, the evidence does not establish that the loan officers asked "standardized" questions. Rather, it shows that loan officers asked questions to identify customer needs and attempted to identify products that met those needs, and that different loan officers approached and handled this task in different ways. Moreover, counsel's assertion that loan officers are similarly situated merely because Heartland uses a uniform application that is promulgated by the Federal Reserve for purposes of compliance with Equal Credit Reporting Act3 is absurd. If this were the case, then every human resources director who uses the DOL's prototype Family and Medical Leave Act forms would be similarly situated, as would every accountant who follows "generally accepted accounting principles" (GAAP).

2

See Doc. 339, Defendant's Decertification Brief, pp. 3-4 ; see also Doc. 345, Defendant's Response in Opposition to Plaintiffs' Amended Motion for Summary Judgment, pp. 3-4 & nn. 3-9, pp. 5-6 & n.11, pp. 8-11, 13.
3

See 12 CFR Part 202, especially §§ 202.5, 202.13 and Appendix B (which includes Form 1003).

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Similarly, Plaintiffs state at page 7 of their Response that all loan officers are subject to "strict" sales and production goals. However, the citations provided by Plaintiff provide little factual support for describing these goals as "strict"; the goals themselves could vary from branch to branch and from one individual to another; and the mere existence of such goals simply does not bolster Plaintiffs' case. See, e.g., Reich v. John Alden Life Ins. Co., 126 F.3d 1, 5 (1st Cir. 1997) (plaintiff marketing representatives had quarterly sales goals and risked termination if they failed to meet those goals). 4 3. National Policy

Despite many months of discovery and dozens of depositions, Plaintiffs fail to establish the existence of a nationwide policy to violate the FLSA. Plaintiffs merely contend that a national policy to violate the FLSA existed because Heartland has not paid any of its loan officers overtime, and this is not enough to support their argument.5 See Sheffield v. Orius Corp., 211 F.R.D. 411, 413 (D.Ore. 2002) (court denied conditional certification, stating that putative class members must share more than a common allegation that they were denied
4

These are just some examples of Plaintiffs' overstatements with respect to the facts. Another is Plaintiffs' assertion at page 8 that "Branch managers are required to follow those training materials issued by Defendant and are subject to discipline for not doing so." In fact, Heartland witness Don Flynn actually testified that the training manual "is described to the branch managers, and each branch manager utilizes it as they see fit." (Ex. A: Flynn Dep. I, p. 40, ln. 18-19). Another is Plaintiffs' statement at page 4 that that the branch managers are not allowed to make changes to the loan officers' agreement, when the evidence shows that some branch managers either changed or accepted employees changes to the agreement. (See, e.g., Ex. : A: Melonakis-Kurz Dep., p. 103, ln. 8­p. 104, ln. 13 & Ex. T: Melonakis-Kurz Dep. Ex. 12 (DEF. 00522-DEF00541) at 00526, 00528, 00529; Ex. S: Roddy Dep., pp. 89, ln. 22-p. 91, ln. 11 & Ex. V: Roddy Dep., Ex. 5 (DEF 12892-12903, 12906-12913) at 12896; Ex. S: Legree Dep., pp. 31-32, ln. 21-7 & Ex. W: LeGree Dep., Ex. 2 (DEF 11685 ­ 11703) at 11689. Moreover, the agreement cited by Plaintiffs as their Exhibit 10 is the older version of the loan officer agreement, not the newer version signed by MelonakisKurz or many other Plaintiffs. See, e.g., Ex.: A: Melonakis-Kurz Dep., p. 103, ln. 8­23, p. 105, ln. 18-22; Ex. T: Melonakis Kurz Dep. Ex. 12 (DEF00522-00541); Ex. U: Melonakis-Kurz Dep. Ex. 13 (DEF00300-00304); Ex. V: Roddy Dep., Ex. 5 (DEF 12892-12903); Ex. W: LeGree Dep., Ex. 2 (DEF 11685 ­ 11703). At page 9 of their Response, Plaintiffs assert that they have obtained declarations from 315 Plaintiffs stating that they worked overtime hours for Defendant. More than 100 of those declarations were not prepared for this case, but instead were submitted in an unsuccessful effort to obtain conditional certification in a parallel minimum wage suit filed in the Northern District of Georgia. McClain, et al. v. Heartland Home Finance, Inc. Civil Action No. 1:05CV-0416-TWT. The McClain declarations make no allegations regarding a national policy of violating the FLSA, but instead contain nearly identical, generalized wording in paragraphs 2 through 6. The submission of such generic boilerplate declaration testimony bespeaks the weakness of Plaintiffs' case.
5

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overtime, and that they must put forth a common legal theory upon which each member is entitled to relief). Indeed, this presents exactly the type of argument that Judge Schlatter rejected when he refused to extend discovery in Tracy v. Dean Witter Reynolds, Inc., 185 F.R.D. 303, 311 (D.Colo. 1998) ("even if it is true some individuals failed to receive appropriate compensation for hours which were worked overtime, that fact alone does not lead me to conclude that there must be some unlawful national policy out there.") In addition, key facts demonstrate a national policy of compliance. Undisputedly, in July 2002, Heartland began providing its loan officers with a draw that exceeded the then-existing minimum salary basis for white-collar employees under the FLSA.6 At the same time, Heartland also began requiring loan officers to record their time using timesheets. Although some loan officers testified that they or their managers altered timesheets, the weight of the evidence does not show any nationwide policy to do so. In fact, the weight of the evidence shows that Heartland wanted its loan officers to work up to 40 hours, and not more. Plaintiffs fail to present an illicit nationwide policy, so certification of a nationwide class is improper. In addition, the fact that the timesheet and timekeeping practices varied dramatically from one branch to another and even from one branch manager to another makes collective action certification improper.7

Plaintiffs contend that on July 31, 2002, Heartland "had to change" its compensation scheme and reclassified its loan officers as non-exempt. (See Response, p. 9). However, this is incorrect. Heartland began paying the draw starting with the first paychecks in July 2002 (see Ex. S: Beck Dep., p. 8, ln. 18-23; Ex. A: Flynn Dep. 1, p. 68, ln. 1-9), so the change in compensation became effective prior to July 31, 2002. In addition, Heartland never "reclassified" its loan officers as non-exempt and did not take any action because of compulsion from the DOL. (See testimony cited at Plaintiffs' Response, n. 38). Plaintiffs also overstate their case as to evidence of overtime worked. For example, Plaintiffs state that 10 of Defendant's branch managers have testified that their loan officers either may have or did work overtime. Yet many of the citations in Plaintiffs' Exhibit 19 are from current or former managers who merely said that it was possible that loan officers worked more than 40 hours per week or that loan officers could have worked more than 40 hours. Several of these same individuals also testified that they considered it unlikely that loan officers worked more than 40 hours and/or that they had no knowledge of overtime being worked. (See Ex. 19). Moreover, there is extensive testimony that loan officers did not work overtime and that the evidence the Plaintiffs submitted to the Court at the conditional certification stage is unreliable. (See Doc. 339, Defendant's Memorandum in Support of Motion to Decertify, pp. 5-10). Furthermore, although Plaintiffs contend that they have produced more than 5000 timesheets
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While Plaintiffs' counsel would like to assume that there was no variation, their clients' own testimony and that of other witnesses paints a much different story.8 4. Theories and Evidence

Related to the above, Plaintiffs' theories and evidence with respect to overtime also vary widely. This is not a case, for example, in which everyone worked the same or similar hours, and the only issue is whether they should have been compensated for their meal breaks. It is not a case where the plaintiffs all had an on-call schedule, and the only question is whether they should have been compensated for that time. It is not a case where they all worked at a facility with set hours; clocked out when the facility closed; and claim they should have been compensated for the work they regularly performed after closing. To the contrary, this is a case in which some branch managers had set office hours for their loan officers, and others did not. Even within the same physical location, branch managers operated their offices differently. Plaintiffs themselves testified that they did not all arrive at the same time, nor did they all leave at the same time. An individual loan officer's work hours could vary from day to day and from week to week. Again, this is significant because it means there must be an extremely detailed and highly individualized analysis as to each Plaintiff. Although Plaintiffs contend that this would only relate to damages, they ignore several key points. First, a district court has discretion to deny certification for trial management reasons. See Thiessen, 267

showing overtime, the exhibit referenced by Plaintiffs from their summary judgment filing contains fewer than 650 pages. In most cases, each page covers either a Monday through Thursday time period or a Friday and Saturday time period. In some instances, a Plaintiff did record more than 40 hours in a week, but Plaintiffs have not shown that all of these pages of timesheets reflect alleged overtime. Moreover, the assertion that Don Flynn or any other member of "upper management" authorized working more than 40 hours and recording less than that remains false and repeatedly, explicitly rejected by testimony under oath. (Doc. 339, Defendant's Memorandum in Support of Motion to Decertify, pp. 5-10).
8

Plaintiffs tacitly recognize this in the final sentence of their Summary Judgment Reply (Doc. 359, p. 10). Although they did not drop their claims as to willfulness or liquidated damages, they contend that the Court "could" find in their favor on these issues, not that it "must" find in their favor. Thus, they recognize that this is an open question.

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F.3d at 1105. And second, individual questions as to damages can defeat class certification when that issue creates a conflict that goes to the heart of the lawsuit. See Reab v. Electronic Arts, Inc., 214 F.R.D. 623, 628-29 (D.Colo. 2002); Sheffield, 211 F.R.D. at 413 (rejecting conditional certification when allegations suggested that each claim would require extensive consideration of individualized issues of liability and damages). Here, there are no broad generalizations that can be made regarding the scheduled hours for loan officers. This is not a case where one can make nationwide generalizations about work schedules or hours based upon representative testimony. As such, it is certainly not a case that warrants or justifies nationwide collective action certification. In addition, the amount of evidence that would be needed as to each individual plaintiff would be quite extensive. This would defeat any economies that might allegedly be gained from certifying a nationwide class. Furthermore, the number of hours worked in a week, whether those hours were suffered or permitted by Heartland, and how Plaintiffs are calculating those hours all go to the heart of the lawsuit. B. Individual Defenses Weigh Against Certification

Indeed, the theories of the case vary greatly from one Plaintiff to another, and they even vary among those who worked in the same branch. Some loan officers say they falsified their timesheets. Others say their managers falsified their timesheets. Some say they recorded their time accurately. Some say they recorded their time accurately for time worked in the office, but did not record time worked out of the office. Some say they regularly worked on Saturdays or on Sundays; others say they did not work on weekends. Some say they regularly worked through lunch; others say they regularly left for lunch. Some say that office and timesheet practices changed as their branch managers changed. Again, these differences are significant

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because representative testimony offers no basis to further the case on a nationwide basis, let alone a state-by-state or even branch-by-branch basis. Moreover, these varying theories mean that Heartland's arguments will vary from one Plaintiff to another and will be highly individualized. For example, some Plaintiffs -- including lead Plaintiff Camille Melonakis-Kurz -- may be precluded from pursuing their claims based upon the suffer or permit issue.9 Others may be precluded because they signed Department of Labor releases or because they signed employment agreements containing a choice of forum provision. (See Doc. 252, Judge Coan's Recommendations, p. 9 (choice of forum provision is a factual difference that may be pertinent to the court's final determination on the certification issue); see also Doc. 273, Opinion and Order, p. 5 (referencing Heartland's argument that collective action certification is inappropriate because of the DOL's supervised settlement of claims); Doc. 345: Defendant's Response in Opposition to Plaintiffs' Amended Motion for Summary Judgment, pp. 13 -15 (raising several individualized issues as to the Plaintiffs' ability to prove or even pursue their claims).10

9

Plaintiffs incorrectly contend that "suffer or permit" is an affirmative defense that has been waived by Defendant. The phrase "suffer or permit" derives from the definition of "employ" contained in the FLSA, and it is Plaintiff's burden to prove. Darrikhuma v. the Southland Corp., 975 F.Supp. 778, 783 (D.Md. 1997), aff'd 129 F.3d 1258 (4th Cir. 1997) (plaintiff has burden of proving that employer had actual or constructive knowledge of his overtime hours). Furthermore, any contention by Plaintiffs' counsel that they were unaware of this issue is entirely disingenuous. In addition to having included waiver and estoppel defenses in its Answer, Defendant raised this argument in its Brief in Opposition to Plaintiff's Motion for Conditional Certification (Doc. 67, p. 5), at oral argument on that Motion (Doc. 254, p. 20, ln. 18 ­ p. 27, ln. 8), and in its Objections to the Magistrate's Recommendations (Doc. 257, pp. 9-10), because it showed the individualized nature of Melonakis-Kurz's claims, especially as compared to the allegations of some other individuals in their declarations. In her Recommendation, Judge Coan stated that these factual dissimilarities between the named plaintiff's circumstances and those of some of the putative class members did not necessarily preclude conditional certification, but they "are relevant to the final certification issue." (Doc. 252, p. 6). In its Opinion and Order granting conditional certification for notice and discovery purposes, the Court noted that it was analyzing the conditional certification issue based a question of pleading, not by weighing or by determining the admissibility of the evidence. The Court expressly recognized that a different standard is used when determining whether to certify the case for trial. (Doc. 273, pp. 4-6).
10

Plaintiffs contend that the loan officer agreement does not contain a choice of forum provision, but their citation is to an earlier version of the loan officer agreement. (See Pl. Ex. 10). The more current agreement does contain such a clause at page 12, paragraph 22(e). (See, e.g., Ex. A: Roberts Dep., pp. 50-51, ln. 4-9 & Ex. X: Roberts Dep., Ex. 2

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C.

Fairness and Procedural Considerations

Plaintiffs contend that fairness and procedural considerations favor them, but they have not met their burden on this issue, either. Individualized issues of proof, liability and damages predominate this case, which eliminate any benefits of proceeding collectively. The extensive length of the trial that would be required to address such claims would create a judicial, administrative, procedural and logistical nightmare. Furthermore, Plaintiffs' counsel are not located in Colorado, nor are lead counsel for Defendant. Heartland is not based in Colorado, most of the Plaintiffs have no ties to Colorado, and many of the Plaintiffs signed employment agreements stating that the only forum in which they would pursue any legal claims was the state in which their branch office was located, i.e., a state other than Colorado. Allowing the case to proceed collectively also would be prejudicial to Defendant when only a core sampling of depositions were taken, and when so many of the Plaintiffs failed to appear for their depositions. If Plaintiffs want their day in court, they have an obligation to provide the testimony that is specific to their individual claims. See Smith, 404 F.Supp.2d at 1155 (in case involving same Plaintiffs' counsel, Defendant moved to dismiss the claims of certain opt-in Plaintiffs who failed to participate in discovery). Just as they did in their unsuccessful effort to oppose decertification in Smith, Plaintiffs allege that decertification will result in "chaos " in the federal courts. Id. at 1154-55. The Smith court gave this argument short shrift, noting that in light of its determination that the plaintiffs were not similarly situated, the pursuit of individuals actions was a necessary result. Id. at 1155. The Smith Court also determined "that many plaintiffs likely have benefited from the implementation of class-wide consolidated discovery as to many of the issues relevant to their
(DEF07892-07908) at 07902, 07906 (Pennsylvania); Ex. V: Roddy Dep., Ex. 5 at DEF12903, 12911 (Maryland); Ex. W: LeGree Dep,; Ex. 2 at DEF11696, 11702 (Michigan).

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FLSA claims against [Defendant]." Id.; see also Bayles v. American Medical Response of Colorado, Inc., 950 F.Supp. 1053, 1067. (D.Colo. 1996). Here, Plaintiffs' counsel also has benefited from classwide discovery. Plaintiffs' counsel has obtained documents containing time entries from loan officers in Heartland branches throughout the country. From the core sampling, Plaintiffs' counsel has learned that each branch and branch manager operated differently, and that the claims, theories and defenses will vary from branch to branch and from individual to individual, should counsel decide to continue pursue these claims following decertification. III. Conclusion It is Plaintiffs' burden to demonstrate they are entitled to collective status. Under the strict scrutiny of the second-stage analysis, Plaintiffs cannot satisfy their burden. The collective action should be decertified, and the opt-in Plaintiffs dismissed. Respectfully submitted, s/ David J. Carr David J. Carr, IN Attorney No. 4241-49 Steven F. Pockrass, IN Attorney No. 18836-49 ICE MILLER LLP One American Square, Suite 3100 Indianapolis, IN 46282-0200 Phone: (317) 236-2100 Sean R. Gallagher HOGAN & HARTSON LLP CERTIFICATE OF SERVICE I hereby certify that a copy of the foregoing was sent by electronic service to counsel of record, on the 7th day of March, 2006. s/ David J. Carr Attorney for Defendant ICE MILLER LLP

INDY 1699039v1

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