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

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UNITED STATES DISTRICT COURT DISTRICT OF COLORADO CASE NO. 03-cv-02485 MSK-PAC Camille Melonakis-Kurz, individually and on behalf of other similarly situated employees, Plaintiffs, v. Heartland Home Finance, Inc., Defendant. REPLY IN SUPPORT OF AMENDED MOTION FOR SUMMARY JUDGMENT1 ______________________________________________________________________________ INTRODUCTION There are three timeframes at issue in this case. Prior to July 31, 2002, July 31, 2002 to August 22, 2004, and August 23, 2004 to the present. Defendant has admitted to liability for two of the three timeframes. Defendant does not dispute that its manner of compensating its loan officers prior to July 31, 2002 and after August 22, 2004 does not meet the salary basis test and therefore the administrative exemption cannot apply.2 This means that partial summary

judgment on liability must be granted for the 425 Plaintiffs who have claims that either fall wholly or in part within those two timeframes.3 With respect to the timeframe of July 31, 2002 to August 22, 2004, there appears to be no genuine issue of material fact in dispute as to Plaintiffs' job duties. Defendant cannot as a matter of law, meet its burden of proving the duties requirements of the administrative exemption. As a result, summary judgment on the inapplicability of the administrative exemption must be granted for Plaintiffs.
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This Reply is filed in support of Plaintiffs' Amended Motion for Summary Judgment, 1/27/06. (Dkt. 331.) Def. Response in Opposition to Plaintiffs' Amended Motion for Summary Judgment at p. 2. (Dkt. 345.) 3 Fisher Aff. at ¶ 2.

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Finally, the evidence shows that despite the Department of Labor ("DOL") finding that Defendant's loan officers were non-exempt, and thousands of timesheets reflecting overtime hours worked, Defendant still maintained a policy of never paying any loan officer overtime compensation at any time. As such, the Court may find in Plaintiffs' favor with respect to the issues of "willful" and liquidated damages. ANALYSIS A. The Administrative Exemption Does Not Apply. With respect to the timeframe of July 31, 2002 to August 22, 2004, Plaintiffs agree that since Defendant did not pay loan officers a salary of at least $250 per week, the "short test" for determining whether Plaintiffs are exempt under the administrative exemption, cannot apply. Because Defendant paid loan officers less than that, it must prove that Plaintiffs' are exempt under the more difficult "long test." See 29 C.F.R. § 541.2 (2003). Under the "short test" to the administrative exemption, which applies if an employee receives a salary of at least $250 per week, a defendant must prove: 1) that the plaintiffs' activities are "directly related to management policies or general business of operations;" and 2) that they exercise "discretion and independent judgment." 29 C.F.R. § 541.2 (2003). The "long test," which only applies in situations where employees earn a salary of more than $155 per week but less than $250 per week, has requirements in addition to the requirements of the "short test." See id. As such, Defendant must also prove: 1. That the employee does one of the following: (a) regularly and directly assists a proprietor, or an employee employed in a bona fide executive or administrative capacity; (b) performs under only general supervision work along specialized or technical lines requirement special training, experience or knowledge, or (c) executes under only general supervision special assignments and tasks; and

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2. That Plaintiffs do not devote more than 20 percent of their time to activities which are not directly and closely related to exempt work; and 3. Rather than simply exercising discretion and independent judgment on occasion, they must customarily and regularly exercise discretion and independent judgment. See 29 C.F.R. 541.2 (2003). A failure to prove even one of these elements prevents Defendant from enjoying the exemption. Bratt v. County of Los Angeles, 912 F.2d 1066, 1069 (9th Cir. 1990). 1. Plaintiffs are not performing any work related to the management policies or general business operations of Defendant or its customers.

Plaintiffs were "production," not "administrative," employees because their job was to do what the company exists to do. Job duties are not "directly related to management policies or general business operations" if they primarily involve the "day-to-day carrying out of the business' affairs, rather than running the business itself or determining its overall course or policies." Bratt, 912 F.2d at 1070. When an employee's job duties consist of "producing the commodity or commodities, whether goods or services, that the enterprise exists to produce and market," that employee is a production, not an administrative employee. Reich v. Chicago Title Insurance Company, 853 F. Supp. 1325 (D. Kan. 1994). If selling the product is part of the business, then these sales activities are production, not administrative. Compare Martin v. Cooper Electric Supply Co., 940 F.2d 896 (3rd Cir. 1991)(salespersons are "production" employees) and Reich v. John Alden Life Insurance Company, 126 F.3d 1, 10 (1st Cir. 1997)(marketing representatives who do not sell the product are not "production" employees).

Defendant relies almost exclusively on the First Circuit's decision in John Alden to avoid the clearly "productive" nature of Plaintiffs' work. Defendant's reliance on John Alden is fatal to its argument, because rather than support its argument, John Alden provides the Court with an

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excellent contrast between "administrative" positions and the sales/production work performed by Plaintiffs.4 In John Alden, the First Circuit analyzed the job duties of defendant's "marketing representatives." These marketing representatives did not sell defendant's products to its

customer. John Alden, 126 F.3d at 3. Rather, defendant sold its products through a sales force of independent insurance agents. Id. The marketing representatives' primary duty was "to cultivate defendant's independent sales force, ultimately to increase sales of John Alden products." Id. Each marketing representative had a "deck" of approximately 500-600 sales agents that they were responsible for maintaining. Id. at 4. They were responsible for keeping the agents up to date on all aspects of John Alden's products, discussing how John Alden's products would meet the needs of the agent's customers, advising agents as to which John Alden products to market against competing products, and helping the agents develop proposals for bidding on new business using John Alden products. Id. Finding that John Alden was in the business of "designing, creating and selling" insurance policies, the Court ruled that the marketing representatives were not "production" employees because they did not design, create or sell the policies. Id. at 9-10. With respect to sales, it ruled that the marketing representatives were "more in the nature of `representing the company' and `promoting sales' because their duties were "aimed at promotion (i.e., increasing, developing, facilitation, and/or maintaining) customer sales generally." Id. at 10 (citing Cooper

In addition to distinguishing between administrative and production work, the regulations further narrow the administrative exemption to employees who "perform work of substantial importance to the management or operation of the business." 29 C.F.R. § 541.205(a)(2003). Job duties are of "substantial importance to the management or operation of the business" only if the activities "substantially affect the structure of an employer's business operations and management policies." Cooper Electric, 940 F.2d at 906. Therefore, the duties must involve the "determination, administration or implementation" of the employer's "management or operational policies." Id. There is no evidence in this case that Plaintiffs had any such duties.

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Electric).

This activity was juxtaposed to the "routine selling efforts focused simply on

particular sales transactions" described in Cooper Electric. Id. Unlike these "marketing representatives," Plaintiffs had direct sales responsibility for a company that exists to "sell" loans. They did not market Defendant's products to an independent sales force as did the John Alden marketing representatives ­ they were the sales force. Nor was their aim at increasing the Defendant's sales generally ­ they sold loan directly to individual customers, one loan at a time. Therefore, Plaintiffs activities were "sales" as opposed to the "promoting sales" or "representing the company" duties described in John Alden. Similarly inapposite to John Alden is the fact that Plaintiffs assisted in the creation of the loans they sold. They gathered the information from the customer, and using Defendant's guidelines, created a loan for the customer subject to an underwriter's review, changes and approval. Because

Plaintiffs duties encompassed the exact activities for which Defendant exists, the reasoning of John Alden does not apply. John Alden is not the only opinion that supports Plaintiffs' position that they are nonexempt employees. The DOL, in addition to specifically finding that Defendant's loan officers were non-exempt, explained in two opinion letters that loan officers were non-exempt. 2001 WL 1558764 Wage and Hour Opinion Letter, February 16 2001 (ultimately holding that loan officers were not administratively exempt because they did not have the required discretion and independent judgment);5 1999 WL 1002401 Wage and Hour Opinion Letter, May 17, 1999 (explaining that loan officers are engaged in carrying out the employer's day-to-day activities rather than in determining the overall course and policies of the business, and finding that their activities appear to require the use of skills and experience in applying techniques, procedures, or specific standards rather than the exercising of discretion and independent judgment, within the
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Ex. 30.

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meaning of the regulations).6 Moreover, in the Preamble to the new Federal Regulations on the issue, the DOL cites to the Conseco and John Alden cases to explain when employees in the financial services industry meet the duties requirements of the administrative exemption. Fed. Reg. Vol. 69, No. 79 at 22145-46.7 It compares Conseco, where the loan officers' primary duty was selling financial products, with John Alden where the marketing representatives' job had some selling aspects to it. Id. The DOL's approval of the Conseco decision is made clear when after discussing these two cases it states, "consistent with this case law, the final rule distinguishes between exempt and nonexempt financial services employees based on the primary duty they perform." Id. The DOL goes on to identify the duties of financial services employees who may be exempt, but then consistent with Conseco states "an employee whose primary duty is selling financial products does not qualify for the administrative exemption." Id.8 Because it is undisputed that Plaintiffs' primary job duty was to carry out Defendant's day-to-day activities of selling loans, rather than determine the overall course and policies of the business, summary judgment in their favor on the administrative exemption is appropriate. 2. Plaintiffs do not perform specialized or technical work or special assignments or tasks under only general supervision.

Defendant argues that Plaintiffs perform work along specialized or technical lines requiring special training, experience, or knowledge and/or execute special assignments and tasks under only general supervision as required by 29 C.F.R. § 541.2(c)(2) and (3)(2003). These arguments must be rejected. Defendant's job description makes clear that loan officers are performing work within set guidelines and procedures. Defendant has not pointed to any job

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Ex. 29. These regulations are located at Ex. 21 to Plaintiffs' Memorandum in Support of Amended Motion for Summary Judgment. 8 Defendant's claim that the loan is already sold prior to the loan officer's involvement is false. Even Defendant's owner testified that the loan officers are responsible for selling the loan. Ex. 1 at 38.

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requirements that loan officers have specialized training, experience or knowledge, because no such requirement exists. Any skills they have are learned on the job. Moreover, Plaintiffs were not executing special assignments or tasks. They were all performing the same job, selling loans under strict guidelines and procedures, ultimately subject to approval by underwriting.

3.

Plaintiffs do not devote 80% or more of their time to exempt tasks.

As stated previously, because Plaintiffs' job was to sell loans and not to determine the overall course and policies of the business, their duties were non-exempt duties. As such, Defendant has not established that Plaintiffs spent 80% or more of their time on exempt or related tasks, as "inside sales" are not exempt duties. See Cooper Electric, 940 F.2d at 904-05 (inside sales persons are non-exempt). 4. Plaintiffs did not customarily and regularly exercise discretion and independent judgment as to matters of significance.

Under the "long test", Defendant must show that Plaintiffs customarily and regularly exercised discretion and independent judgment. See 29 C.F.R. § 541.2(b)(2003).9 While arguing that Plaintiffs exercised "discretion and independent judgment," Defendant commits what the DOL has identified as the two most common errors. First, it confuses "discretion and independent judgment" with "the use of skill in applying techniques, procedures, or specific standards." See 29 C.F.R. § 541.207(b)(2003). Second, it applies the standard to "decisions" Plaintiffs made of little ultimate consequence. See id. In addition, Defendant does not establish that Plaintiffs "customarily and regularly" exercise discretion and independent judgment as required under the "long test."

The standard for the "long test" on this factor is stricter that that of the "short test." The "short test," unlike the "long test" does not require that the discretion and independent judgment occur "customarily and regularly." See 29 C.F.R. § 541.2 (2003).

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Defendant argues that Plaintiffs used discretion and independent judgment when they referred loans to different lenders10 and negotiated some of the fees charged on the loans. Defendant ignores that all of these "decisions" by its loan officers were strictly governed by preestablished guidelines and subject to approval from underwriting. Plaintiffs were sales people. Within the constraints of the guidelines and subject to approval, they used their skill and sales abilities to convince customers to borrow money so that Defendant could earn money off the fees charged. This skill included applying the customer's circumstances to specific guidelines and selling the loan as approved by underwriting, not exercising discretion and independent judgment. See 29 C.F.R. § 541.207(c)(2). Therefore, the fact that Plaintiffs were allowed, prior to 2002, to send loans to other lenders does not mean they exercised the discretion and independent judgment required by the regulations. See 1999 WL 1002401 Wage and Hour Opinion Letter (loan officers did not exercise sufficient discretion and independent judgment even though they sent loans to different lenders);11 2001 WL 1558764 Wage and Hour Opinion Letter (loan officers did not exercise discretion and independent judgment).12 In addition, using their sales abilities to negotiate fees within prescribed ranges is not discretion and independent judgment. See Conseco, 2002 WL 507059 at *10 (negotiating pricing is not discretion and independent judgment). The second error in Defendant's analysis is its failure to demonstrate that Plaintiffs had the "authority or power to make an independent choice, free from immediate direction or supervision" with "respect to matters of significance." 29 C.F.R. § 541.207(a)(2003). In order
Prior to October 2001, Defendant permitted loan officers to send loans to lenders other than Defendant. Ex. 27 at 50-51; see generally Ex. 28. From October 2001 to 2002, Defendant only allowed loan officers to send loans to Defendant's bank or Interfirst Wholesale Mortgage Lending. Ex. 27 at 50-51; Ex. 28; see Ex. 10 at ¶ 4. Defendant's owner testified that since at least 2002, Defendant has mandated that its loan officers always send loans through Defendant's bank first and then if rejected by Defendant, they were allowed to send it to another bank and Defendant would still receive a fee. Ex. 1 at 47-53, 61; Ex. 10; see Ex. 27 at 56. 11 Ex. 29. 12 Ex. 30.
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for a decision to be one of "significance," it must be the type of decisions made by persons "who exercise authority within a wide range to commit their employer in substantial respects financially or otherwise." 29 C.F.R. § 541.207(d)(2)(2003)(emphasis added). Plaintiffs were not allowed to "commit their employer" to a loan, rather, that occurred through approval by underwriting. Moreover, the job description specifically states that Plaintiffs must "follow all policies and procedures set forth by the Company, and not make any representations or commitments on behalf of the Company."13 Any "decisions" they made were dictated by guidelines and procedures and subject to underwriting approval. To the extent Plaintiffs made any decisions, they were of little significance because of these guideline constraints and approval requirements. B. Additional Defenses Do Not Create Fact Questions to Preclude Summary Judgment. Defendant claims that certain defenses preclude this Court from ruling on partial summary judgment. However, Defendant fails to explain why these defenses apply, and why they preclude this Court from granting Plaintiffs' motion. In addition, several of the defenses are being asserted for the first time, and are untimely and therefore waived.14 The "suffer or permit," statute of limitations, bankruptcy and DOL waiver defenses would be applied at the damages phase and do not preclude summary judgment on liability. See generally Mendez v. Radec Corp., 232 F.R.D. 78, 92-93 (W.D. N.Y. 2005)(differences in damages do not preclude certification for trial); Moss v. Crawford & Co., 201 F.R.D. 398, 411 (W.D. Pa. 2000)(statute of limitations defense does not preclude certification for trial).15

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Ex. 10. Defendant did not previously assert the "suffer or permit," "forum selection," bankruptcy, or "estoppel" defenses, thereby waiving them. See Fed. R. Civ. P. 8(c). 15 Defendant's request that certain Plaintiffs be dismissed from this case because they did not give a deposition was already denied by the Court. See Minute Order denying Defendant's request for Rule 37(d) sanctions. (Dkt. 327.)

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Defendant's claim that many Plaintiffs signed employment contracts containing a choice of forum provision which requires them to pursue their claims in the state where their branch office was located is false. The employment agreement states that it shall be construed in accordance with and governed by the laws of the state in which the loan officer worked.16 Contrary to Defendant's assertion, it does not require them to pursue their claims in that state. Moreover, this case does not involve any contractual issues and therefore differences in state law relating to contracts will not apply. C. Defendant's Conduct Was "Willful," and Liquidated Damages Apply. Defendant claims it did not recklessly disregard the requirements of FLSA. However, it does not explain why it maintained a national policy of never paying any loan officer overtime pay at any time, despite the fact that its managers testified they were aware that their loan officers were working overtime, and thousands of timesheets showing overtime were submitted to corporate. The fact that Defendant had a written policy that required pre-approval of overtime hours worked, does not shield it from responsibility for making sure its loan officers are paid for their hours worked. Based on the overwhelming evidence, this Court could find in favor of Plaintiffs on the issues of "willful," and "liquidated damages." Dated: 02.27.06 NICHOLS KASTER & ANDERSON, PLLP s/Michele R. Fisher Donald H. Nichols, MN Bar No. 78918 Paul J. Lukas, MN Bar No. 22084X Michele R. Fisher, MN Bar No. 303069 Jill M. Novak, MN Bar No. 343456 4600 IDS Center 80 South 8th Street Minneapolis, MN 55402 ATTORNEYS FOR PLAINTIFFS

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See Ex. 10.

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