Free 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. 03-MK-2485 (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 RESPONSE IN OPPOSITION TO PLAINTIFFS' AMENDED MOTION FOR SUMMARY JUDGMENT ______________________________________________________________________________ Comes now Defendant, Heartland Home Finance, Inc. ("Heartland" or "Defendant"), in opposition to Plaintiffs' Amended Motion for Summary Judgment (Doc. 331-333) pursuant to Fed.R.Civ.P. 56. Triable issues of fact exist with regard to all issues presented by Plaintiffs, and Defendant respectfully requests that the Court deny Plaintiffs' motion in its entirety. CLAIMS AND DEFENSES UPON WHICH JUDGMENT IS SOUGHT A. Administrative Exemption under the Fair Labor Standards Act ("FLSA"): 1. Burden of Proof

Defendant agrees with Plaintiffs' recitation of the burden of proof. 2. Elements

Defendant agrees that Plaintiffs have correctly described the second and third elements of the test to determine whether the administrative exemption applies, but disagrees that Plaintiffs have stated the correct minimum salary requirement for the time period prior to August 23, 2004.

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a.

Element 1 ­ Salary Basis

Contrary to Plaintiffs' assertion, the minimum salary required to qualify for the FLSA's administrative exemption prior to August 23, 2004 was $155 per week, not $250 per week. 29 C.F.R. §§ 541.118, 541.2(e)(1) (pre-8/23/04). Plaintiffs admit that in July 2002, Heartland began paying all of its loan officers a guaranteed draw of $500 twice per month, which equals $230.76 per week. (Doc. 333, p. 4). Therefore, Heartland met the salary basis requirement from July 2002, through August 22, 2004. Plaintiffs also contend that the salary basis was destroyed by alleging that Heartland made improper deductions from a handful of loan officers' salaries, but this is disputed. The FLSA's salary basis test allows for various deductions, see 29 C.F.R. § 541.602(b), and Heartland's policy was to comply with the FLSA's salary requirements. (Pl. Ex. 12: Def. Answer to Int. #13). In addition, several of the checks that Plaintiffs' counsel has identified as being below $500 actually were supplemental checks providing Plaintiffs with additional compensation above and beyond their guaranteed $500 for the pay period. (Ex. A: Ott Aff., ¶ 3, provided as a Supplemental Answer to Int. #13). 1 b. Elements 2 and 3: Primary Duty

Elements 2 and 3 are known as the primary duty test. See §§ 29 C.F.R. 541.200(a)(2), (a)(3). With respect to Element 2, Plaintiffs contend that their primary duty did not consist of the performance of office or nonmanual work directly related to management policies or general business operations of their employer or their employer's customers. With respect to Element 3, they contend that their primary duty did not include the exercise of discretion and independent judgment with respect to matters of significance. These are disputed facts.

Plaintiffs could earn much more than $500 per pay period through commissions and bonuses. This also does not destroy the salary basis and is expressly authorized by the DOL regulations. 29 C.F.R. § 541.604.

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Notably, when considering Elements 2 and 3 in tandem, the most recent U.S. Department of Labor regulations expressly support the conclusion that, based on trends expressed in case law, financial services employees such as Heartland's loan officers meet the job duties test for the administrative exemption.2 See 29 C.F.R. § 541.203(b) (effective 08/23/04); see also Pl. Ex. 21: 69 Fed. Reg. No. 79 (04/23/04), pp. 22145-46 (discussing Reich v. John Alden Life Ins. Co., 126 F.3d 1 (1st Cir. 1997); Hogan v. Allstate Ins. Co., 361 F.3d 621 (11th Cir. 2004); Wilshin v. Allstate Ins. Co., 212 F.Supp. 2d 1360 (M.D. Ga. 2002); and Pl. Ex. 20: Casas v. Conseco Finance Corp., 2002 U.S. Dist. LEXIS 5775 (D. Minn. 2002)). "Administrative exemption examples," the regulations state: Employees in the financial services industry generally meet the duties requirements for the administrative exemption if their duties include work such as collecting and analyzing information regarding the customer's income, assets, investments or debts; determining which financial products best meet the customer's needs and financial circumstances; advising the customer regarding the advantages and disadvantages of different financial products; and marketing, servicing or promoting the employer's financial products. However, an employee whose primary duty is selling financial products does not qualify for the administrative exemption. 29 C.F.R. § 541.203(b) (emphasis added). i. Element 2 ­ Type of Work Performed Under the heading

Heartland is a mortgage banker and broker that provides first and second mortgages to customers in the conforming and non-conforming markets. (Ex. B: Flynn Dep. I, p. 6, ln. 25; p. 9, ln. 10).3 Plaintiffs' job duties as loan officers included contacting and interviewing prescreened individuals who already had expressed a desire to change their mortgage or financial
2

Similarly, where insurance claims adjuster employees meet certain duties, they "generally meet the duties requirements for the administrative exemption." 29 C.F.R. § 541.203(a).
3

A mortgage banker closes loans in its own name and uses its own funds to fund the loan, and a mortgage broker closes loans in other lenders' names and uses other lenders' funds. (Ex. B: Flynn Dep. I, p. 7, ln. 8-24).

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situation;4 analyzing goals and needs;5 selecting one or more mortgage programs to discuss with the customer;6 comparing banking and brokering options;7 determining the interest rate and fees to charge;8 and following through on the loan process to completion.9 Although Plaintiffs worked from offices and did not engage in manual labor, their counsel asserts that they are "production" employees under the so-called "production v. staff" dichotomy. This dichotomy is a general guideline, not a rigid test that must be applied in all administrative exemption cases. It "is useful only to the extent that it helps clarify" the analysis and "is only determinative if the work 'falls squarely on the production side of the line.'" (Pl. Ex. 21: 69 Fed. Reg. No. 79, p. 22141 (quoting Bothell v. Phase Metrics, Inc., 299 F.3d 1120, 1126, 1127 (9th Cir. 2002)). In instances where this dichotomy is applied, courts typically determine the "product" the company makes available to the marketplace and evaluates the role of the plaintiff with respect

4

Ex.B: Johnson Dep., p. 46, ln. 3-25; p. 50, ln. 2-13; Agostini Dep., p. 28, ln. 2-18; p. 81, ln. 19-24; Horton Dep., p. 25, ln. 3-4; p. 19, ln. 9-12; Roberts Dep., p. 30, ln. 24-25; p. 31, ln. 1-5; Berman Dep., p. 15, ln. 9-19, p. 18, ln. 1-8; p. 21, ln. 17-25; p. 22, ln. 1-2; p. 35, ln. 9-25; p. 36, ln. 1-2; Ziemak Dep., p. 26, ln. 18; p. 28, ln. 8; DiBlasi Dep., p. 35, ln. 14-18; p. 34, ln. 19-20; Gunn Dep., p. 59-60, ln. 8-1; Rohrer Dep., pp. 47-48, ln. 10-4.
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Ex. B: Horton Dep., p. 23, ln. 7-8, p. 25, ln. 8-9; Alawan Dep., pp. 11-12, ln. 17-17; Berman Dep., p. 35, ln. 9-25; p. 36, ln. 1; DiBlasi Dep., p. 32-33, ln. 5-7; Johnson Dep., p. 46, ln. 4-25; Rodriguez Dep., p. 62, ln. 1-3 .
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Ex. B: Horton Dep., p. 20, ln. 8-12; Agostini Dep., p. 27, ln. 5-21; p. 28, ln. 14-18; Roberts Dep., p. 30, ln. 24-25; p. 31, ln. 1-5, 22-25; p. 32, ln. 1-9; Berman Dep., p. 17, ln. 6-15; p. 35, ln. 9-25; p. 36, ln. 1-2; p. 37, ln. 1-7; Ziemak Dep., p. 80, ln. 2-9; DiBlasi Dep., p. 11, ln. 1-10; Rodriguez Dep., p. 54, ln. 14-18; p. 55, ln. 16; p. 56, ln. 7-18; p. 57, ln. 3-7.
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Ex. B: Kopronica Dep., p. 35-36, ln. 21-13; p. 46, ln. 4-7; p. 56, ln. 2-11; Roberts Dep., p. 96, ln. 10-17; Berman Dep., p. 48, ln. 12-13; Horton Dep., p. 26, ln. 18-24; Agostini Dep., p. 109, ln. 1-6; DiBlasi Dep., p. 17, ln. 11-25; Sweet Dep., p. 42, ln. 18-25; p. 43, ln. 1-15; Reynolds Dep., p. 87, ln. 21-23; p. 91, ln. 17-25; p. 92, ln. 1-4; Sanford Dep., p. 31-32, ln. 25-7; LeGree Dep., pp. 57-59; ln. 9-25.
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Ex. B: Agostini Dep., p. 32, ln. 6-18; p. 73, ln. 6-14; Horton Dep., p. 24, ln. 9-15; p. 32, ln. 20-23; p. 33, ln. 2-4; p. 34, ln. 17-24; Roberts Dep., p. 108, ln. 13-25; p. 110, ln. 4-23; p. 111, ln. 16-25; Berman Dep., p. 42, ln. 6-9; p. 46, ln. 2-16; p. 52, ln. 13-25; p. 53, ln. 1-16; p. 90, ln. 21-25; p. 91, ln. 1-17; DiBlasi Dep., p. 18, ln. 11-20; p. 54, ln. 520; Johnson Dep., p. 50, ln. 14-20; Roberts Dep., p. 111, ln. 25; p. 112, ln. 1-2; Berman Dep., p. 42, ln. 6-9; p. 43, ln. 4-5; Gunn Dep., p. 60, ln. 17-25; Sweet Dep., p. 96, ln. 4-10; p. 99, ln. 12-15.
9

See, e.g., Ex. B: Horton Dep., p. 23, ln. 12-16; Accetta Dep., p. 32, ln. 13­p. 34.

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to the creation of that product. John Alden, 126 F.3d at 9-10; Haywood v. North American Van Lines, Inc., 121 F.3d 1066, 1072 n.6 (7th Cir. 1997). Here, Plaintiffs do not contend that they were involved in creating Heartland's loan products or the loan products that they brokered. This alone creates a genuine issue as to Element 2. Although Plaintiffs contend that it is significant that loan officers are part of the "sales" side of the Heartland hierarchy, this is far from dispositive. Indeed, in John Alden, the First Circuit affirmed summary judgment in favor of the employer, holding that the marketing representatives were administrative employees despite the fact they were the lowest-level employees in the insurance sales department. John Alden, 126 F.3d at 3-4. Heartland's loan officers are hardly low-level employees, and their duties are similar to those of the marketing representatives in John Alden.10 Moreover, the DOL has expressly stated that when "the primary duty of a loan officer is to advise a borrower in the selection of a loan package, we agree that the primary duty of the loan officer consists of office or non-manual work directly related to the management policies or general business operations of the employer or the employer's customers." (Ex. C: DOL Opinion Letter (Feb. 16, 2001)). Here, several loan officers testified that their job was to advise

borrowers in the selection of a loan package that would meet their needs. For example, Michael Clark testified that an important part of his job as a Heartland loan officer was to help customers get the best products for their needs. (Ex. B: Clark Dep., p. 7, ln.12-21; pp. 81-82, ln. 13-9; p. 89, ln. 9-23). If the application or credit report showed that a customer had a small bill that could be paid, Clark would consider paying it off, or finding
Like the John Alden marketing representatives, Plaintiffs represented Heartland and promoted sales, served as advisers, put together proposals, acted as "conduits" between the prospective purchaser and Heartland's underwriting department, and served as "the principle source for information about [Heartland] and its products," and to suggest products that the customers might find attractive. See John Alden, 126 F.3d at 34-35.
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"something that would get the biggest benefit for them." (Id., pp. 88-89, ln. 7-8). Clark would explain the benefits of a particular product and answer questions. (Id., pp. 106-107, ln. 21-1). If customers did not like what he offered, Clark would gather more information, determine what they did not like, and suggest alternatives. (Id., pp. 107-08, ln. 7-14, p. 109, ln 7-10; see also Kopronica Dep., p. 37, ln. 19; p. 39, ln. 13-17 ("I walked [customers] through the entire process" and added value by "giving [the client] the absolute best scenarios and letting them choose. I would coach them along and tell them what I thought was best for them, making their own decisions."); (Ex. B: Sanford Dep., pp. 45-46, ln. 16-1). Many of Heartland's loan officers, particularly those with more experience and those who had advanced to senior loan officer status, also provided training, guidance and office leadership. (Ex. B: Rodriguez Dep., p. 50, ln. 1-4 (as a senior loan officer, Rodriguez advised fellow team members on "how to do what and when" as a loan officer); Accetta Dep., p. 34, ln. 11-18 (the expectation for senior loan officers was that "you were to be a leader, that when the manager wasn't there, you were the next person in charge")).11 Some engaged in their own marketing. (Ex. B: Howard Dep., p.16-19, ln. 22-8) (two loan officers designed their own personal advertisements and had them placed on shopping carts in grocery stores). These are exempt activities and further support the conclusion that a genuine issue exists as to Element 2. ii. Element 3: Discretion and Independent Judgment as to Matters of Significance

Discretion and independent judgment "involves the comparison and the evaluation of possible courses of conduct," while "matters of significance" "refers to the level of importance or consequence of the work performed." 29 C.F.R. § 541.201(a), 202(a). Factors to consider
11

As a senior loan officer, Accetta assisted his manager in training loan officers, which, in some areas, included training them on what to do next in, or on how to do the next part of, the loan process, and which also included "helping them look at scenarios." (Ex. B: Accetta Dep., p. 34, ln. 19-21; p. 35, ln. 9-20). While Accetta was a senior loan officer, his supervisor sometimes left him in charge of overseeing the branch office, with these periods averaging from a day to a week or so. (Id., pp. 117-18, ln. 25-21; Ex. B: Tuomala Dep., p. 40, ln. 2-7).

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include, but are not limited to: "authority to formulate, affect, interpret, or implement management policies or operating practices;" "authority to waive or deviate from established policies and procedures without prior approval;" "authority to negotiate and bind the company on significant matters;" and "whether the employee provides consultation or expert advice to management." 29 C.F.R. § 541.202(b). The regulations expressly state that "employees can exercise discretion and independent judgment even if their decisions or recommendations are reviewed at a higher level. Thus, the term 'discretion and independent judgment' does not require that the decision made by an employee have a finality that goes with unlimited authority and a complete absence of review." 29 C.F.R. § 541.202(c). The DOL emphasized this very point in a recent opinion letter involving insurance adjusters. (Ex. D: DOL Opinion Letter, 8/26/05). Particularly where there is only spot-checking and the employee is the one determining when to seek out the supervisor, exempt status may exist. Id. at 9. In John Alden, the employees exercised independent discretion and judgment, as they relied "on their own knowledge of an agent's business to help tailor proposals for the agent's customers," as they anticipated competing products, and as they distinguished those products from the employer's products. 126 F.3d at 38-39. These matters, which included "which agent would be in the best position to sell a given product, and which products would be most attractive to a given customer," were of consequence to the employer's business. Id. at 39; see also Hippen v. First Nat'l Bank, 1992 U.S. Dist. LEXIS 6029 (D. Kan. 1992)(attached as Ex. E)(authority to approve large loans without prior approval was evidence of independent discretion and judgment); Palacio v. Progressive Ins. Co., 244 F. Supp. 2d 1040 (C.D. Ca.

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2002)(obtaining supervisor approval did not alter fact that employee had control and authority to negotiate on behalf of the employer in managing claims and in dealing with claimants). In the instant case, Plaintiffs contend that they all are entitled to summary judgment because none of them exercised the necessary discretion and independent judgment to qualify for the administrative exemption. Although some Plaintiffs testified in their depositions that they ran everything past their managers, most demonstrated (as is reflected in Section A.2.b.i of this Brief and the citations in the footnotes therein) that they exercised discretion and independent judgment through interacting with customers who had already been "sold" on a mortgage change by telemarketers; assessing customer goals; offering multiple options; brokering loans to lenders other than Heartland; and acting without veto from branch managers. Notably, Plaintiffs repeatedly testified that they were the ones who decided the total fees to charge the customer and how to distribute those fees among various categories. The fees they charged varied

dramatically from customer to customer and from loan to loan. (Ex. B: Clark Dep., p. 164, ln. 17-25 (each loan is different, each loan officers handles things differently and works at a different pace); Horton Dep., p. 25, ln. 8-9 ("there were literally hundreds of different possible scenarios..."); Roberts Dep., p. 110, ln. 12-p. 112, ln. 2 (each loan is different, and each person is different, and it is at the discretion of the loan officer to decide the fees); Agostini Dep., p. 32, ln. 14-18). Plaintiffs could negotiate with the customers and bind Heartland through those negotiations. (See, e.g., Ex. B: Horton Dep. p. 23, ln. 1-24). Alexandra Cummings always tried to put together the best deal for her customers, which required a great deal of thoughtful analysis. Moreover, she decided when to go to her branch manager for approval of a deal she had put together. (Ex. F: Cummings Affirmation, ¶ 6). After about two months, Accetta was able to develop scenarios and analyze credit reports "a hundred

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percent" on his own. (Ex. B: Accetta Dep., pp. 9-10, ln. 25-8, p. 13, ln. 23-25; p. 14, ln. 1-4). LeGree would avoid going to her branch manager with questions as much as possible because she thought he was a very poor manager; instead, she focused on deals she could do on her own. (Ex. B: LeGree Dep., p.73, ln. 8-9; pp. 89-90 , ln. 24-9).12 Ignoring such testimony, Plaintiffs' counsel relies primarily upon Casas v. Conseco Finance Corp., 2002 U.S. Dist. LEXIS 5775 (D. Minn. 2002)(See Pl. Ex. 20), an unpublished decision that has been discredited in the most recent DOL regulations, 13 to contend that Heartland's loan officers did not exercise discretion and independent judgment. In Casas, the plaintiffs (who were represented by the same counsel as in the present case), were loan originators who sold Conseco products. The court found that since the loan originators used the employer's "pre-existing established standing operating procedures and guidelines," they simply used skill in applying techniques rather than independent discretion and judgment. Id. at **3031; compare McAllister v. Transamerica Occidental Life Ins. Co., 325 F.3d 997 (8th Cir. 2003)(that employees followed a manual did not prevent finding employees exercised independent discretion and judgment). Plaintiffs' counsel alleges that Plaintiffs did not exercise discretion or independent judgment because they were required to follow "strict guidelines and procedures," were required to "maintain files" in a certain manner, read from scripts, and follow all policies and procedures of Heartland. In support of the above, counsel relies upon language in the Employment

Agreement, the Employee Handbook, and other documents, rather than on their own clients'
12

Like the employees in John Alden, Plaintiffs here exercised independent discretion and judgment as they relied "on their own knowledge" of the customer's needs "to help tailor proposals" for the customers, "as they anticipated competing products, and as they distinguished" various products. Plaintiffs testified that they decided when to seek input from their manager. Some Plaintiffs did not rely upon or trust their managers judgment at all. Section 541.203(b) of the new regulations represents the Secretary's approval and codification of the courts' holdings in John Alden, Hogan, and Wilshin, and represents the Secretary's dissatisfaction with the court's reasoning (and, arguably, holding) in Casas. See Pl.Ex. 21: 69 Fed. Reg. No. 79, pp. 22145-46.
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often wide-ranging testimony as to what actually happened in the workplace. The mere fact that Defendant has policies and procedures does not end the inquiry of whether Plaintiffs exercised discretion or independent judgment. See Murray v. Stuckey's, Inc., 50 F.3d 564, 570 (8th

Cir.1995) ("most if not all nationwide companies with multiple outlets establish standardized procedures and policies"). In practice, the loan officers and branch managers did not always follow the policies and procedures. The testimony of the loan officers themselves demonstrates that each branch, each manager, each loan officer, and each mortgage transaction was unique. The testimony of the loan officers shows that they used discretion and independent judgment in assessing how to approach each customer, the various products to offer, the fees to charge, and how to meet the individual needs of each customer. The evidence shows that Heartland's policies and procedures had no effect on Plaintiffs' discretion in identifying which products they would target, the techniques they would use to convince customers to accept the products and fees, or the advice they provided to customers. As Heartland Vice President Don Flynn testified, "The loan officer really is in total control of their day." (Ex. B: Flynn Dep. I, p. 40, ln. 3-4). Although there are preferred methods for preparing leads, loan officers do not always follow those methods. (Id., p. 41, ln. 10-13; Ex. B: Cousino Dep., p. 42, ln. 7-13) (Cousino prepared his own "printed sheet" to use with potential borrowers). Moreover, to the extent it even remains good law, the non-binding and unpublished Casas decision is easily distinguished. Most notably, the Casas decision makes no reference to the loan officers' ability to determine the fees they charged, yet numerous Heartland plaintiffs testified that they decided the total fees they charged. Moreover, because of the brokering relationship, Heartland loan officers could choose from hundreds of options not available to the loan officers in Casas. ( Ex. B: Clark Dep., p. 110, ln. 5-20 (to determine which product would

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best meet a customer's needs, the loan officer would need to consider the pros and cons and variations between hundreds of products); Howard Dep., p. 20, ln 8-10; p. 25, ln. 21-22; p. 59, ln. 6-21 (when brokering, a loan officer needs some working knowledge of the various lenders, such as which are conforming and non conforming; to gain such knowledge, Howard would read, call account executives, and ask questions about their programs)).14 c. Additional Elements Under the Long Test

Prior to the new FLSA regulations, which became effective August 23, 2004, a "long test" was applied to administrative exemption cases if the guaranteed salary was between $155 and $250 per week. The new regulations eliminate the long test and the short test, and instead create a single duties test that is substantially the same as under prior law. (See Doc. 333: Plaintiffs' Brief, p. 3, n.3; Pl. Ex. 22: DOL Opinion Letter FLSA 2005-21, p. 1). Plaintiffs made no reference to the long test in their brief. However, if they attempt to contend on Reply that the former long test is applicable to the July 2002, through August 22, 2004, time period, and if the Court does not deem that argument waived, two additional elements would be considered. i. Element 4: The Plaintiffs' work must fall into one of three categories

Defendant can demonstrate a triable issue of fact as to whether Plaintiffs' work falls into one of the three categories: (1) Who regularly and directly assists a proprietor, or an employee employed in a bona fide executive or administrative capacity; or (2) Who performs under only general supervision work along specialized or technical lines requiring special training, experience, or knowledge; or (3) Who executes special assignments and tasks under only general supervision.

These factors also distinguish the instant situation from the facts presented in the DOL Opinion Letter dated Feb. 16, 2001 (Ex. C), in which the DOL opined that those loan officers did not meet the discretion and independent judgment prong of the primary duty test.

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As already has been discussed, several Plaintiffs testified that they performed work under only general supervision. As has also been discussed, a loan officer must be able to understand and interpret credit reports and financial information, distinguish between a variety of products, match the appropriate product to the customer's needs, and structure the deal. Moreover, in some states, such as Ohio, special training and licensing requirements exist for persons who broker loans. (Ex. G: Flynn Aff., ¶¶ 3-5). See Munizza v. State Farm Mutual, 1995 WL 17170492 (W.D.Wash. 1995)(Attached as Ex. H)(claims specialist satisfied this element of long test because job required special training, experience and knowledge, and was performed under only general supervision). In Hogan, the court found that the plaintiffs' work as insurance agents satisfied this element of the long test in that plaintiffs executed special assignments and tasks under only general supervision. 361 F.3d 621, 628 (11th Cir. 2004). The court noted that examples of exempt administrative jobs discussed in the regulations include brokers, advertising account executives and promotion men. Id. Like brokers, advertising account executives, and promotion men, Plaintiffs promoted sales of Heartland's mortgage products, assessed which products to promote, advised customers, and served as conduits or liaisons between the Company and the customers. As demonstrated by Plaintiffs' own testimony, they performed these special

assignments and tasks under only general supervision of their branch mangers. ii. Element 5: Time spent on exempt or related tasks

Defendant can demonstrate a triable issue of fact as to whether Plaintiffs devoted at least 80 percent of their hours in a workweek to activities which are exempt administrative tasks or are closely related to the performance of such administrative tasks. See id.. Plaintiffs' testimony makes it clear that they spent nearly all of their time on exempt administrative tasks, such as

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planning, promoting sales, representing Heartland, assessing which products would meet the customers' needs, advising customers, and negotiating; or on work that is "directly and closely related" to exempt activities, such as completing an application. (See, e.g., Ex. B: Clark Dep., p. 26, ln. 24-25; p. 27, ln. 1-8, Horton Dep., p. 23, ln. 12-16). Accordingly, because virtually all of their work consisted of exempt administrative duties, Plaintiffs satisfied this element of the long test. Defendant has come forward with sufficient evidence, taken in the light most favorable to it, to demonstrate that a genuine issue of material fact exists as to this element of the administrative exemption. 3. Additional Defenses

Plaintiffs make no mention of numerous defenses available to Heartland and which additionally raise triable issues concerning liability as to each of one or more Plaintiffs. For example, lead Plaintiff Melonakis-Kurz testified that her timesheets accurately reflected the hours that she worked in the office, that the only overtime hours she claims to have worked were at home, that she was told by her branch manager that she was not to work at home, and that she never asked whether she should record the hours she worked at home, but merely decided on her own not to record those hours. (Ex. B: Melonakis-Kurz Dep., p. 34, ln. 6-9, p. 63, ln. 1-7, p. 70, ln. 6-15, p. 84, ln. 11-22). Thus, even if Melonakis-Kurz could prove that she were a nonexempt employee, Heartland will be able to defend itself on the basis that it did not suffer or permit her to work more than 40 hours per week. See Davis v. Food Lion, 792 F.2d 1274, 1276 (4th Cir. 1986); 29 U.S.C. § 207(a)(1). Similarly, some Plaintiffs participated in DOL settlements and have released any alleged wage claims against Heartland (See, e.g., Ex. I: Releases for Colorado Opt-Ins). Many of the Plaintiffs signed employment agreements containing a choice of forum provision which requires

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them to pursue their claims in the state where their branch office was located, i.e., a state other than Colorado.15 Some Plaintiffs have filed for bankruptcy during their employment with Heartland or after it ended (see, e.g., Ex. B: Williams Dep., p. 81, ln. 8-14), thus raising issues as to whether they are proper parties to this lawsuit and whether they abandoned their claims by not including them in their bankruptcy schedules. See 11 U.S.C. § 541; Cable v. Ivy Tech State College (In re Cable), 200 F.3d 467, 472-73 (7th Cir. 1999) (property of the estate includes choses in action and other legal claims that could be prosecuted for the benefit of the estate; only the bankruptcy trustee would have had standing to prosecute such a claim); Payless Wholesale Distrib., Inc. v. Alberto Culver (P.R.) Inc., 989 F.2d 570, 571 (1st Cir. 1993) (party's attempt to bring claim after failure to schedule a cause of action to be an "unacceptable abuse of judicial proceedings"); Louden v. Fed. Land Bank of Louisville, 106 B.R. 109, 112 (Bankr. E.D. Ky. 1989) (plaintiffs were judicially estopped from asserting a cause of action after failing to schedule it in bankruptcy case). Some Plaintiffs were not employed by Heartland as loan officers within two years or three years from the dates that they opted into this lawsuit (see, e.g., Ex. O: Schuster Aff., ¶ 3 (regarding Jason Nahlik)), thus creating statute of limitations defenses. Some Plaintiffs failed to appear for their depositions without justification (see, e.g., Ex. P: Statement of Counsel, 12/1/05, re: Walker and Bottoms, p. 1, ln. 4-19; Ex. Q: Certificate of NonAppearance for Trimble (12/14/05); Ex. R: Certificate of Non-Appearance for McElroy, p. 1, ln. 3-p.6, ln. 18; Statements on the Record, 1/18 and 1/23/06 with exhibits) and ought to be dismissed from this lawsuit. Some are convicted felons who falsified their employment

15

Ex. B: Roddy Dep., pp. 89-91, ln. 22-7 & Ex. J: Roddy Dep., Ex. 5 (DEF 12892-12903, 12906-12913); Ex. B: Legree Dep., pp. 31-32, ln. 21-7 & Ex. K: LeGree Dep., Ex. 2 (DEF 11685 ­ 11703); Ex. B: Roberts Dep., pp. 5051, ln. 4-9 & Ex. L: Roberts Dep., Ex. 2 (DEF 07892 ­ 7908); Ex. B: Provost Dep., p. 77, ln. 1-13 & Ex. M: Provost Dep., Ex. 3 (DMC 00077-00096); Ex. B: Liphard Dep., pp. 56-57, ln. 9-12 & Ex. N: Liphard Dep., Ex. 3 (DEF 14287-14306).

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applications (Ex. B: Luttke Dep., p. 28, ln. 13-22, p. 64, ln. 14-23; Dinkel Dep., p. 55 ln. 7-25 (Dinkel unaware whether he listed conviction)), thus raising an estoppel defense. B. 1. Willful Violation: Burden of Proof and Elements

Defendant agrees with Plaintiffs' recitation of the burden of proof and elements. However, Defendant also would point out that because a genuine issue exists as to whether Defendant violated the FLSA, there can be no finding as a matter of law that Defendant willfully violated the FLSA. 2. Elements that cannot be established by the Plaintiffs

Plaintiffs have failed to present sufficient evidence to meet their burden of proving that Defendant knew or showed reckless disregard for whether its conduct violated the FLSA. a. Relevant Historical Facts

Prior to July 2002, Heartland paid its loan officers on a strictly commission basis. (Ex. B: Flynn Dep. II, p. 14, ln. 8-14). In approximately June 2002, the DOL concluded an

investigation of Heartland's Dayton, Ohio branch office, which covered the time period from January 1, 2000, to December 31, 2001. (Ex. B: Beck Dep., p. 5, ln. 18-23; p. 7, ln. 2-9). The DOL concluded that some Dayton loan officers were not paid the minimum wage during the investigation period. (Id., p. 7, ln. 2-9). To resolve the issue, Heartland agreed to pay the Dayton loan officers so that they received the minimum wage for that time period. (Id., p. 7, ln. 21-25). Following the Dayton investigation, Heartland, while still believing its loan officers qualified as exempt, deemed it prudent to adopt a $500 draw, effective July 2002. (Id., p. 8, ln. 8-16). Pursuant to the policy, all Heartland loan officers are paid a guaranteed $500 draw against commissions each pay period. (Ex. B: Flynn Dep. II, p. 16-18, ln. 16-18). Heartland employees

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are paid twice per month, on either the 5th and 20th of each month, or on the 15th and last day of each month, depending on the branch at which they work. (Id., pp. 22-23, ln. 1-25). In July, 2002, Heartland also instituted a time sheet policy in which the individual loan officers would record their hours on their own and then initial it for the day, including time that they left the office on non-company business. (Ex. B: Beck Dep., pp. 8-9, ln. 24-4). Heartland communicated the policy initially through a conference call with regional managers, then by individual contact with branch managers, and finally to the loan officers. (Id. p. 9 , ln. 7-9). Heartland told the loan officers that in exchange for the $500 per pay period, it "wanted an honest 40-hour workweek." (Id., p. 9, ln. 11-13). Heartland made it clear to the loan officers that it did not want them working beyond 40 hours per week. (Id., p. 9, ln. 16-20). Heartland explicitly told loan officers that they could not work over 40 hours per week without specific approval from a regional manager or higher. (Id; p. 9, ln. 21-24; Ex T: Heartland post-2002 Employment Contract, p. 4, ¶ 6(e)). Heartland assessed whether the $500 draw policy would comply with the minimum wage laws. (Ex. B: Beck Dep., p. 16-17, ln. 4-25). Heartland considered the fact that the DOL was treating the loan officer position as non-exempt, despite the fact that the industry was not. (Id., p. 17, ln. 5-18). While believing its loan officers, who exercise discretion and independent judgment, are administratively exempt under the FLSA, Heartland decided to institute a $500 bimonthly salary, or draw. (Ex. B: Flynn Dep. II, p. 16, ln. 1-25). Heartland instituted the $500 draw and the 40-hour workweek as a means to ensure that Heartland was in compliance with the minimum wage laws. (Ex. B: Beck Dep., p. 17, ln. 5-18). Heartland was conscious of the fact that if a loan officer was working, for example, 45 hours a week and only making the $500 draw, that theoretically risked a violation of minimum wage laws if loan officers were deemed non-

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exempt, and that is why Heartland restricted loan officers to 40 hours per week. (Id., p. 17, ln. 18-25). Heartland was conscious of the fact that $500 would more than cover the $5.15

requirement, given the normal working hours. (Id., p. 17, ln. 18-25). By instituting a 40-hour workweek, Heartland calculated that there was a sufficient cushion to allow for another four hours and still fully comply with minimum wage provisions. (Id., p. 18, ln. 1-10).16 Heartland's published policy, which is in the Employee Handbook, calls for full compliance with the FLSA. (Ex. W: Excerpts from Employee Handbook). Likewise, the post2002, loan officer employment contracts, call for compliance with all policies and procedures of Heartland "which relate to verification of hours worked and pre-approved overtime hours." (emphasis in original)(Ex. T: Heartland post-2002 Employment Contract, p.4, ¶ 6(e)). b. Heartland's Documentation and Practices

Flynn testified that Heartland branch managers were expected to keep time sheets for all loan officers "to make sure that the loan officers get up to 40 working hours in a week," and that it was also used "as a tool to make sure they don't work over 40 hours in a week." (Ex. B: Flynn Dep. I, pp. 10-11, ln. 23-6; pp. 79-80, ln. 8-25). This testimony was confirmed by former branch manager Eric Jarold, who testified that Flynn would just say "full-time, 40 hours per week." Jarold (correctly) understood that "to mean that they were not to work over 40 hours in a week." (Ex. B: Jarold Dep., p. 12, ln. 20-21). This is also reflected in memoranda that went out to
Subsequent to the changes Heartland made in July 2002, the DOL concluded two other investigations. An investigation in Aurora, Colorado concluded in September, 2003. (Ex. B: Beck Dep., p. 11, ln. 23-25). The Aurora, Colorado investigation covered the time period from July 14, 2001, to July 19, 2003. Again, the DOL found some limited minimum wage issues in Aurora, but raised no issue of overtime (Id., p. 12, ln.6-24). Rather than dispute those claims Heartland paid the loan officers the amounts worked out with the DOL. (Ex. U: Beck Letter to DOL). The DOL also conducted an investigation in St. Louis, Missouri, which concluded in mid-September, 2003. (Ex. B: Beck Dep., p. 13, ln. 4-9). The St. Louis investigation covered the time period from June 1, 2001, to June 1, 2003, (Ex. V: DOL St. Louis Report) which again straddled in time the policy change to the $500 draw. (Ex. A: Beck, p. 14, ln. 2-11). Although the DOL and Heartland resolved the minimum wage and overtime issues arising prior to July 2002, the DOL also advised Heartland that the new $500 draw policy satisfied and complied with the FLSA. (Ex. B: Beck Dep., p. 14-16, ln. 16-11).
16

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regional managers and branch managers from headquarters. (Ex. X: DEF 15167--loan officers are to work 40 hours; Ex. Y: DEF 0001-Agenda with reference to 40 hours). Multiple witnesses confirmed the 40 hour limitation.17 Defendant has presented sufficient evidence to demonstrate that it did not show reckless disregard for whether its conduct violated the FLSA. Defendant took reasonable measures in response to the DOL investigations, instituted new pay and documentation practices, and reasonably relied upon the DOL opinion that the new policy complied with the FLSA. C. 1. Good Faith: Burden of Proof and Elements

Defendant agrees with Plaintiffs' recitation of the burden of proof and elements. Again, however, Defendant would note that because genuine issues exist as to whether Defendant violated the FLSA and whether any such alleged violation was willful, Plaintiffs' motion for summary judgment as to good faith must be denied. 2. Elements challenged by the Plaintiffs

"If the employer shows to the satisfaction of the court that the act or omission giving rise to such action was in good faith and that he had reasonable grounds for believing that his act or omission was not a violation of the [FLSA], the court may, in its sound discretion, award no liquidated damages or award any amount thereof not to exceed the amount specified in section 216 of this title." 29 U.S.C. § 260; Doty v. Elias, 733 F.2d 720 (10th Cir. 1984). The inquiry into "good faith" is different from the inquiry into "willfulness," although the same facts may be relevant to both inquiries. Bull v. United States, 68 Fed.Cl. 212, 275, n.69,
17

Ex. B: Modell Dep., p. 16, ln. 5-22, p. 17, ln. 11-23; p. 24-9-11; p. 37, ln. 14-18; Roberts Dep., p. 35, ln. 17-21; Drew Dep. p. 48, ln. 22-25; Sanford Dep. p. 7, ln. 3-4; p. 9, ln.10-13; p. 49, ln.16-18; p. 12, ln. 24 to p. 13, ln. 7; p. 47, ln.17-24; p. 70, ln. 2-5 ("make sure you fill in your time that you were here and don't work over 40 hours."); p. 56, ln. 14-21; p. 56, ln. 24 to p. 57, ln. 7; Block Dep., p. 60, ln. 1-20; Alawan Dep., p. 33, ln. 19-20.

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(2005) (citing, Adams v. United States, 46 Fed.Cl. 616, 620 (Fed. Cl. 2000), aff'd, 350 F.3d at 1229 (affirming the trial court's determination that employers' FLSA violation was in good faith and not willful based on the same facts). In this context, "good faith" means an honest intention to ascertain what the FLSA requires and to act in accordance with it." Id. at 275. Thus, it involves a subjective inquiry by the court. Id. The "reasonable grounds" requirement calls for a determination as to whether the employer had objectively reasonable grounds for believing an act or omission was in compliance with the FLSA. Id. "Proof that the law is uncertain, ambiguous or complex may provide reasonable grounds for an employer's belief that he is in conformity with the Act, even though his belief is erroneous." Id. Defendant has presented sufficient evidence of both its subjective, honest intention to comply with the FLSA, and its objective, reasonable grounds for believing it was in compliance. The administrative exemption is recognized as ambiguous and complex.18 The regulations support a finding of exempt status, and Defendant instituted policies and procedures which it reasonably and in good faith believed complied with the FLSA. A triable issue of material fact exists as to the good faith defense, both in the aggregate and with respect to individual Plaintiffs.19 CONCLUSION Defendant has come forward with sufficient evidence, taken in the light most favorable to it, to establish all challenged elements of its defenses. Plaintiffs' request for summary judgment
18

Indeed, several Plaintiffs testified that they continue to perform loan officer duties for employers who do not pay a draw or overtime. (Ex. B: Agostini Dep., p. 121, ln. 23-125, ln. 10; LeGree Dep., pp. 73-75, ln. 18-6).
19

Again, the situation of Melonakis-Kurz underscores this point. Melonakis-Kurz alleges that she performed work at home, she did not seek pre-approval to work extra hours, and she decided on her own not to record this time. This provides Heartland with a defense not only to her underlying claim, but also to her claim for liquidated damages. As the Second Circuit has stated: "The FLSA is properly considered a shield to protect unwary workers; it is not a sword by which employees may obtain a benefit from their employer for which they did not bargain...." Freeman v. National Broadcasting Co., Inc., 80 F.3d 78, 86 (2d Cir. 1996).

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on those defenses should be denied. A genuine issue of fact exists as to the sufficiency of the Plaintiffs' claim that the Defendant committed a willful violation, and thus Plaintiffs' request for summary judgment on that claim should be denied. Respectfully submitted, s/ David J. Carr David J. Carr, IN Attorney No. 4241-49 Steven F. Pockrass, IN Attorney No. 18836-49 Margaret Wielenberg, IN Attorney No. 23858-49A 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 16th day of February, 2006. s/ David J. Carr Attorney for Defendant ICE MILLER LLP

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