Free Response in Opposition to Motion - District Court of Arizona - Arizona

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RYLEY, CARLOCK & APPLEWHITE One North Central Avenue, Suite 1200 Phoenix, Arizona 85004-4417 Telephone: 602/258-7701 Telecopier: 602/257-9582 Charles L. Chester ­ 002571 [email protected] John Fry - 020455 [email protected] Attorneys for Defendants UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA KAYE K. HUTTON, as an individual and as representative of a class consisting of others similarly situated, Plaintiff, v. BANK OF AMERICA, N.A., Defendant. No. CV2003-2262-PHX-ROS RESPONSE TO PLAINTIFF'S MOTION FOR A FINAL FINDING OF WILLFULNESS UNDER THE FAIR LABOR STANDARDS ACT

For the reasons stated herein and in Defendant's Motion for Summary Judgment, Part IV, and based on Defendant's Controverting Statement of Facts1 filed with this Response, Defendant requests that this Court deny Plaintiff's Motion. I. UNDERLYING LIABILITY. Ms. Hutton's motion is, de facto, one for summary judgment. No determination has been made that Defendant violated the Fair Labor Standards Act in any manner whatsoever. Defendant's Motion for Summary Judgment and supporting Statement of

In this Response, the following abbreviations are used: "DSOF __" refers to Defendant's Statement of Facts in Support of Decertification and Summary Judgment, filed June 26, 2006; "PSOF __" refers to Plaintiff's Statement of Facts in Support of Plaintiff's Motion For a Final Finding of willfulness, filed June 26, 2006; "DCSOF __" refers to Defendant's Controverting Statement of Facts and Objections to PSOF, filed concurrently with this Response.
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Facts [DSOF] confirm that summary judgment in favor of Defendant on Ms. Hutton's misclassification and off the clock claims is proper. Therefore, at minimum an issue of fact exists as to a key element of the willfulness claim: Did Defendant act unlawfully? As a result, Ms. Hutton's Motion should be denied. II. ANALYSIS OF LEGAL PRECEDENT. A. Ms. Hutton's Legal Precedent.

Ms. Hutton briefly touches McLaughlin v. Richland Shoe Co., 486 U.S. 128 (1988), which established the meaning of the word "willful" as used in the statute of limitations applicable to civil actions to enforce the Fair Labor Standards Act ("FLSA"). There is more. Noting that it is "obvious that Congress intended to draw a significant distinction between ordinary violations and willful violations," (Id., at 132), the Supreme Court held: The word `willful' is widely used in law, and, although it has not by any means been given a perfectly consistent interpretation, it is generally understood to refer to conduct that is not merely negligent. The standard of willfulness that was adopted in Thurston ­ that the employer either knew or showed reckless disregard for the matter of whether its conduct was prohibited by the statute ­ is surely a fair reading of the plain language of the Act. Id. at 133. In doing so, the Court rejected the definition proposed by the Department of Labor,2 noting the DOL's proposed statement apparently would in most cases make the issue turn on whether the employer sought legal advice concerning its pay practices. Since the proposed standard would "permit a finding of willfulness to be based on nothing more than negligence, or, perhaps, on a completely good faith but incorrect assumption that a pay plan complied with the FLSA in all respects," the Supreme Court determined that the proposal did not give effect to the plain language of the statute of limitations. Id. at 135.

The D.O.L. argued for a standard under which an employer acts willfully "if the employer, recognizing it might be covered by the FLSA, acted without a reasonable basis for believing that it was complying with the statute." Id. at 134.
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The Court clarified its test by example: If an employer acts reasonably in determining its legal obligation, its action cannot be deemed willful . . . under the standard we set forth. If an employer acts unreasonably, but not recklessly, in determining its legal obligation, then, although its action would be considered willful under petitioner's test, it should not be so considered under Thurston or the identical standard we approve today. Id., at 135, note 13. With this test in mind, Ms. Hutton's post-McLaughlin statute of limitation3 cases should be analyzed.4 Read consistent with their facts, none supports entry of summary judgment on willfulness against Defendant. First, Ms. Hutton references Alvarez v. IBP, Inc., 339 F.3d 894 (9th Cir. 2003). The facts in Alvarez key to its affirmation of the lower court's willfulness finding were clearly egregious. IBP had lost essentially the same issue, compensation of employees at a non-union plant for time spent changing into specialized protective clothing, in earlier litigation affirmed by the Tenth Circuit five years before. Id. at 897, 899. IBP nevertheless refused to pay for dressing and doffing time at its union-organized Pasco plant. Analyzing applicable law, the Court started by noting "... the three-year term can

Cases awarding liquidated damages are not applicable. Liquidated damages are the norm in FLSA actions. 29 U.S.C. § 216(b). However, the court may reduce liquidated 19 damages if the employer proves an affirmative defense: 1. Its act or failure to act was in good faith. 20 2. It had reasonable grounds for believing that its act or omission did not violate the FLSA. 21 it is clear of a 22 29 U.S.C. § 260. Comparing this test to the McLaughlin test, extension. that proofother Section 260 defense would also defeat a statute of limitation On the to prove this test would automatically lead 23 hand, failure 2 of the defense imposes notnegligence standard to proof of willfulness, because part a specifically rejected by McLaughlin. 24 4 Pre-McLaughlin cases are irrelevant. For instance, Donovan v. Sabine Ins. Co., 25 Inc., 531 F. Supp. 923 (W.D. La. 1981), applying the test rejected by the Supreme Court, held that due to prior litigation and investigations by the Department of Labor, 26 the company has knowledge of the existence of the FLSA and extension of the statute of limitations was therefore proper. See Plaintiff's Motion, p. 2, lns. 13-15. Laffey v. 27 Northwest Airlines, Inc., 567 F.2d 42 (D.C. Cir. 1976) was specifically rejected by the Supreme Court. McLaughlin v. Richland Shoe Co., 486 U.S. at 134. Thus, contrary to 28 Plaintiff's contention, willfulness does not exist simply because the Bank should have known there was an "appreciable possibility" it violated the FLSA and failed to take reasonable steps calculated to resolve doubt. See Motion, p. 4, lns. 9-12. Case 2:03-cv-02262-ROS Document 287 Filed 07/17/2006 Page 3 of 14 -318

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apply where an employer disregarded the very "possibility" that it was violating the statute..., although we will not presume that conduct was willful in the absence of evidence." (emphasis added). Id., at 908-909. The Court then stated, "the Supreme Court has, in general, required evidence of an employer's `knowing or reckless disregard for the matter of whether its conduct was prohibited by the statute.'" (emphasis added). Id., at 909. The test then applied by the Court was, "We agree with the District Court and conclude that the proof demonstrates that [the employer] recklessly disregarded the possibility that it was violating the FLSA," (emphasis added) Id., at 909. It is disingenuous for Ms. Hutton to omit the element of "reckless

disregard," and to substitute mere "notice of possible FLSA overtime violations" and failure to comply with the FLSA, (Motion p. 3, lns. 8-11). This is further made clear by the Ninth Circuit's observation that "IBP's actions may more properly be characterized as attempts to evade compliance or to minimize the actions necessary to achieve compliance." Id., at 909. Next, Ms. Hutton references Chao v. A-One Medical Services, Inc., 346 F.3d 908 (9th Cir. 2003). Motion, pp. 3-4, lns. 10-3, and note 14. Much like Alvarez, the facts key to affirming the lower court's willfulness finding were egregious. The two small companies at issue were clearly joint employers. The court noted that the

question was not a close one and that the key manager, Black's, efforts to keep the two separate appear to have been made to evade the FLSA, not comply with it. Id., at 919, note 7. Also, Black never denied saying, when confronted with overtime pay requests, that the employees technically worked for two companies and should think of all the blessings they were getting, and never denied threatening bankruptcy if overtime ever became a problem. Further, the Department of Labor found that Black's company, the dominant company, had violated the wage and hour laws in 1991 and 1994, resulting in civil penalties. The investigation resulting in the suit by the DOL occurred in 1999. Id., at 913-914. It was in this context that the Ninth Circuit found it probative that the dominant company's prior violations, combined with the employees' undisputed
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testimony, proved the defendants' necessary reckless disregard by the treating of the two companies as separate. Id. at 919.5 It is fair to say that in both Alvarez and Chao it was the employers' obvious effort to evade the FLSA that gave rise to a willfulness finding. Compare Tumulty v. FedEx Ground Package Systems, Inc., 2005 WL 1979104, Part D (W.D. Wash. 2005). In this regard, Ms. Hutton overemphasizes the importance of the use of the word "possibility." Its use in Alvarez and Chao was in the context of clearly reckless, if not knowing, disregard of the FLSA duties at issue. Far more than mere "disregard of a possibility" is required by McLaughlin, and Alvarez and Chao should not be read to the contrary. In Re Farmers Ins. Exch. Claims Rep. Overtime Pay, 336, F. Supp. 2d 1077, 1105-1106 (D. Or. 2004). Ms. Hutton's next assertion of law is based on Wertheim v. Arizona Department of Public Safety, 1993 U.S. Dist. LEXIS 21292 (D. Ariz. 1993). Motion, p. 4, lns. 7-9. Before the court was plaintiff's motion to approve notice to potential opt-ins. Id. at p. 3.6 The court concluded that for purposes of authorizing notice, plaintiff had put forth sufficient evidence of willfulness. Id., at p. 7. The court reached this conclusion after listing uncontradicted evidence that (a) the State was aware of its obligations to comply with the FLSA, (b) an employee was told he would lose his job if he pursued overtime, (c) the DOL alerted the State to the overtime issue and informed the State that it was in non-compliance, (d) a DPS committee report found non-compliance and recommended changes, and (e) DPS expended little effort to ensure compliance before the report.

Dole v. Elliott Travel & Tours, Inc., 942 F.2d 962 (6th Cir. 1991) adds nothing for Ms. Hutton. It does not adopt the proffered "possibility" emphasis. Further, it again involves a small company dominated by one individual who clearly knew of FLSA duties at issue and equally clearly violated them by knowingly declining to pay for hours admittedly worked over 40 per week, not including commissions in the regular rate of pay, and forcing employees to "bank" hours rather than be paid overtime for them. 6 For reasons escaping counsel undersigned, the pagination noted by Ms. Hutton is inconsistent with that located by computer research. Certainly neither party intends to confuse the Court.
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Ms. Hutton obviously misreads Wertheim when contending that Judge Broomfield held that the willfulness standard is met when the employer disregards DOL warnings or disregards advice from an internal report. Judge Broomfield seized on no single factor. Ms. Hutton concludes her case law analysis with the proposition that recklessness exists "when the employer waits two years, after being on notice of possible FLSA overtime violations, to implement a corrective plan." Motion, p. 4, lns. 12-16, note 18. In a footnote, she cites two cases for the proposition. The first, Huss v. City of Huntington Beach, 317 F. Supp. 1151, (C.D. Ca. 2000) holds no such thing. There the court noted the City knew it had a duty to pay the overtime sought, believing a 1993-4 agreement would govern the compensation. However, the agreement was not formally adopted until 1995 and the City declined to pay overtime which had accrued during the 1993-4 period. Id. at 1161. The employer knew it was in violation, adopted a corrective plan, then failed to follow it for two years. The second case is Simpson v. Merchants & Planters Bank, 441 F.3d 572 (8th Cir. 2006). In this Equal Pay Act case, the court observed the jury could reasonably have found the company's Co-Chairman of the Board and legal counsel, Mr. Sharp, knew of the Equal Pay Act, but the court noted that this alone would not support a willfulness finding. Id. at 580. In addition, Mr. Sharp was responsible for personnel policies which treated male and female employees differently. Also, the company's Executive Vice President, yet another Board member said more men were needed and needed to be paid more than women. The court understandably concluded a reasonable jury could find a willful violation. Id. at 575, 580. Ms. Hutton's parenthetical treatment of this case, Motion p. 4, note 18, chooses only some of the foregoing facts and therefore mischaracterizes the case's reasoning. Of equal interest, the court specifically noted the issue of the correct statute of limitations was not before the court. Id. at 580, note 2. Therefore, the case should be read as a liquidated damages case, and

disregarded. See footnote 3, supra.
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The final source of legal precedent Ms. Hutton references is administrative in nature and is of little value. First, Ms. Hutton repeatedly makes reference to 29 C.F.R. § 578.3. See Motion pp. 2-3, notes 5, 6, 8 and 9. While it is true that the word "willful" is used in that subsection, the subsection is in Part 578, which deals with imposition of money penalties pursuant to Section 16(e) of the FLSA (29 U.S.C. § 216(6)). The subsection Ms. Hutton cites has nothing to do with extension of the statute of limitations pursuant to 29 U.S.C. § 255(a), which is at issue here. To the extent it interprets the word "willful" inconsistent with McLaughlin it is not the law applicable to the statute of limitations inquiry. Second, Ms. Hutton refers to one page apparently from the December 15, 1960 DOL Field Operations Handbook. The Handbook's provisions reflect the "Jiffy June" standard rejected by the Supreme Court in McLaughlin (and even by the DOL). McLaughlin v. Richland Shoe Co., 486 U.S. at 131. As such, the provisions, which may well relate to Section 16(e) civil penalties in any event, are irrelevant. B. Applicable Legal Precedent

The analysis in Part II(A) demonstrates Ms. Hutton's precedent in fact reflects findings of willfulness only in an evidentiary environment where the employer was aware of the specific FLSA duty at issue, acted to evade the duty, and, often, threatened employees who sought overtime clearly due. Ms. Hutton's piecemeal selection of isolated words or phrases, often further twisted, does not reflect the applicable law. Therefore, it is respectfully submitted that this Court should be guided by a correct reading of the cases, as presented in Part II (A). Correctly presented, this case law reinforces the conclusion in Defendant's Motion for Summary Judgment, Part IV, that summary judgment on the willfulness issue is proper only in favor of Defendant. III. THE EVIDENCE. A. The Evidence Against Willfulness.

The evidence reflected in Defendant's Statement of Facts (DSOF) filed in support of its dispositive motions defeats Ms. Hutton's motion. [DCSOF 34]
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The Client Manager job has always qualified for the administrative exemption. 7 [See DSOF 13-43, 67] No court has found otherwise. [DCSOF 2] The DOL has not found otherwise. [DCSOF 3, 4] No lawyer has opined otherwise. [DSOF 52; DCSOF 8, 10] Defendant's management has always understood the job to be exempt. [DSOF

The management objectives to avoid litigation with associates and to avoid the unpredictability of litigation expense combined with their understanding of the California legal environment to cause Mr. Reale and Ms. Ferrer to agree to abandon the exemption in September-October 2001, in California. [DSOF 56-60] The goal of system wide consistency caused the decision to be applied in Arizona and elsewhere. [Id.] B. Plaintiff's "Evidence" 1. Prior Department of Labor "Findings of Overtime Violations".

First, there has been no DOL investigation, recommendation or finding that any Client Manager employed by Defendant is or ever has been misclassified or uncompensated for all hours worked. [DCSOF 4, 5] There is no evidence to the contrary vis a vis any competitor. Second, there has been no DOL investigation, recommendation or finding that any employee in Premier Banking or Small Business Banking has been misclassified or uncompensated for all hours worked.8 [Id.]

A fact intensive inquiry would be necessary to determine if any given Client Manager was misperforming the job to the point of eviscerating the exemption. 8 At Motion pp. 6, 7, lns. 19-1 and note 23, Ms. Hutton goes beyond the bounds of 26 advocacy contending the Bank has not honored agreements with DOL. Her discovery 27 requests she relies upon sought evidence of all submissions in DOL investigations, and all evidence of compliance with agreements with DOL. [Plaintiff's Exhibits E, F] 28 Defendant objected to the scope of the inquiries, and agreed to respond as to the Premier and Small Banking divisions for a reasonable period. [DCSOF 5] The response was "none," because there were no DOL investigations or agreements related to those Case 2:03-cv-02262-ROS Document 287 Filed 07/17/2006 Page 8 of 14 -825

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Third, even under Ms. Hutton's twisted "law," only prior violations are relevant to a willfulness issue. Amongst the inadmissible evidence Ms. Hutton offers, there are only five arguable findings of a prior violation.9 Of these five, the largest sum paid in settlement for compensation was $36,930.8010; and for a civil penalty was $3,700.00, according to Plaintiff's Exhibit D, row 5. Looking only at the cost of litigation, these sums were many, many thousands of dollars below the likely costs of defending the claims. The Bank made clear, if it accepted the foregoing back wages and civil penalty, it was doing so "solely to save all parties the time and expense involved in protracted administrative and/or legal proceedings." [See Plaintiff's Exhibit D, Letter for Daniel Dupre, Bank of America, to Barry Lenz, U.S. Department of Labor, dated April 13, 2001, at pg. 2.] There is no evidence that Defendant settled for any other reason. Like this action, there is no evidence that Defendant previously had been advised it may be violating the FLSA or was knowingly or recklessly disregarding any associate's FLSA rights. In stark reality, it was far cheaper to settle than fight these DOL findings, even the penalty assessments. This, among others, explains why the DOL may assess

penalties for repeat violations, yet the courts universally disregard settlement as evidence of a violation. Of interest, there is no evidence of any proceeding to sanction breach of any agreement. Fourth, and finally, on this body of inadmissible evidence, if Defendant is automatically found to act willfully because in the course of eight years (1993-2001), in all of the various DOL offices in the country, five violations were found to have been committed, some involving as few as two employees, (though DOL filed no suit on any), virtually every publicly traded company and every public entity will be found to act willfully on all future violations. Make no mistake, every associate employed by

divisions. Ms. Hutton chose not to challenge Defendant's objections and cannot credibly apply Defendant's response of "none" to the entire Bank for all time. 9 28 See DCSOF 4. 10 Not $37,784.61 as stated in row 5, column 6 of Plaintiff's Exhibit D. Case 2:03-cv-02262-ROS Document 287 Filed 07/17/2006 Page 9 of 14 -927

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Defendant is treated and is entitled to be treated lawfully, but this Court should not conclude that Defendant knowingly or recklessly disregarded the law solely based on this administrative history. 2. Prior Lawsuits.

Settlement of a lawsuit is inadmissible. Rule 408. Fed.R.Evid. From September, 1999 to February, 2000, three suits were filed. They claimed Personal Bankers (associates employed in consumer banking centers) and Client Managers were misclassified under California law. These suits were defended and eventually settled (since Personal Bankers outnumber Client Managers many-fold, it is probable, but irrelevant, that the vast majority of the settlement pool was contemplated for Personal Bankers). The mere filing of the California lawsuits is irrelevant and confusing. Rules 402 and 403, Fed.R.Evid. It means only that a plaintiff's lawyer in California avowed by filing a complaint that based on the facts as he or she understood them, and the law or a reasonable extension of the law as he or she understood it, he or she believed in good faith that Client Managers are non-exempt under California law. The Washington lawsuit was filed after the conversion decision and is irrelevant for that additional reason. [DSOF 59, 60] 3. Lloyd Aubrey's Washington Impressions.

This Court was told in February, 2004, by counsel undersigned that one factor in the Bank's decision to convert was a report by Lloyd Aubrey that although Client Managers were exempt if they did their job right, some emphasized selling too much. Further, the Bank was told, given that wage and hour litigation was the suit de jour, the Bank (among others) may want to consider reclassifying them. [DSOF 52] Ms. Hutton has expanded these references to a "study" by Mr. Aubrey. On the contrary, the "report" proved to be a telephone call after one day of interviews, [DCSOF 8]. Mr. Aubrey's declaration and testimony are presented to this Court. Since he agreed the job as designed and intended was exempt, it is
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understandable that the matter was considered one of improving training and recruiting, which was ongoing. [DSOF 51-53; DCSOF 8, 10] There was nothing more to be done. It seems axiomatic that continuing the exempt classification of Client Managers in California, and especially in other states such as Arizona, following the telephone report of Mr. Aubrey that the job as designed and intended was exempt, is reasonable.11 Finally, while Mr. Aubrey was not mentioned by name, the key points of his observations were made known to management, and were born true. Manager job is exempt, but that won't stop litigation. [DCSOF 8] 4. The Bank's "Inaction" Following the May 2000 Call. The Client

There was nothing to be done. The Client Manager's job was an exempt job. Improved recruiting and training would assure correct emphasis, an emphasis necessary to Defendant's competitive strategy. [DSOF 53] The decision was not based solely on Mr. Aubrey's telephonic report, alone, as Ms. Hutton contends. Motion p. 10, lns. 3-9, note 35. No records other than his notes refer or relate to the basis for the decision. [DCSOF 35] In fact, the notes of Mr. Aubrey were not delivered to Defendant until discovery by Plaintiff in this action against Mr. Aubrey, years after the decision to convert. To claim this rendered Mr. Aubrey's communication in May, 2000 the sole basis for the decision is contrary to all other testimony and at best disingenuous. Finally, there is no evidence that Mr. Price kept Mr. Aubrey's input, as opposed to his identity, to himself, as Ms. Hutton contends. Motion, p. 10, lns. 10-18. Again, while Mr. Reale did not know of Mr. Aubrey, he knew of the gist of his input through Mr. Price's painting of the legal environment. [DCSOF 8] 5. The Bank's Conduct Following March, 2002.

Before 2004, there is no evidence Defendant knew or had reason to know Client Managers were not recording all their time. In a July 2002 overview of conversion

Ms. Davis' impressions, good or bad, formed presumably with respect to California law, apparently were not expressed in the phone call [DCSOF 8] Therefore, they are irrelevant to the inquiry, besides being privileged. Case 2:03-cv-02262-ROS Document 287 Filed 07/17/2006 Page 11 of 14 -11-

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issues, note was made as a concern, that Client Managers were reluctant to record all overtime. [Plaintiff's Exhibit L] The overview also reflects action to be taken to overcome the reluctance. That is not evidence of institutional disregard for the FLSA; it is evidence of an effort to assure compliance. [Id.] Further, reluctance to record is not the same as not recording. In December, 2003, and January, 2004, representatives of Ryley Carlock & Applewhite interviewed as many incumbent Client Managers as they could find, who were willing to talk to the representative. Eleven of 58 Client Managers interviewed reported that they worked some hours they did not record. [DCSOF 21] Only one, Ms. Clark, said she was told to do so. [DCSOF 25] All others, including those working for the same Market Manager as Ms. Clark, said either they recorded all time, or said they knew they were required to record all hours worked, but chose not to on their own accord or because they believed their Market Manager did not want them to record all hours worked. [DCSOF 21-25 and Exhibit F] Every Market Manager has sworn (a) that Client Managers were told to record all hours worked and no contrary implicit message was sent, (b) they were not aware of any Client Managers failing to do so, and (c) the job could be done in 40 hours per week, generally. [DSOF 79, 80, 84, 85, 98] The question of whether the Market Managers should have known of off the clock activity is further evidenced in the negative by the fact that substantial overtime was being recorded. [DSOF 105] Defendant has not compensated Client Managers for hours they claimed to have failed to record because it did not know and should not have known that some claimed to have failed to record time. Further, it is pure speculation and a misstatement of fact that Defendant did not make further inquiry into the claimed unrecorded time. Motion p. 13, lns. 15-19. For instance, see DSOF 68-106.12

Motion pp. 12-13, lns. 8-14 attribute testimony to Opt-ins which was at minimum contradicted by other sworn testimony from the same Opt-in. This sworn contradictory evidence is not evidence of an undisputed fact.
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IV.

MS. HUTTON'S CONCLUDING ARGUMENT. Motion pp. 14-16 presents argument based on a misstatement of applicable law

and on inadmissible, contradicted evidence, as noted above. No response is of benefit, beyond the above and Part IV of Defendant's Motion for Summary Judgment. V. MS. HUTTON'S CONCLUSIONS. Motion p. 17 states factual and legal conclusions drawn by Ms. Hutton. None is undisputed as explained in Parts I-IV of this Response and the supporting evidence presented to this Court. VI. CONCLUSION. This Motion should be denied without any question whatsoever. DATED this 17th day of July, 2006. RYLEY CARLOCK & APPLEWHITE

By ___s/Charles Chester______________ Charles L. Chester John M. Fry One North Central Avenue, Suite 1200 Phoenix, Arizona 85004-4417 Attorneys for Bank of America, N.A.

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CERTIFICATE OF MAILING I hereby certify that on July 17, 2006, I electronically transmitted Defendant's Response to Plaintiff's Motion for a Final Finding of Willfulness Under the Fair Labor Standards Act to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the following CM/ECF registrants: Ms. Lydia A. Jones ROGERS & THEOBALD, LLP 2425 East Camelback Road Phoenix, Arizona 85016 Attorneys for Plaintiff Michael O'Connor Jennings, Strouss & Salmon, P.L.C. The Collier Center, 11th Floor 201 E. Washington Street Phoenix, AZ 85004 By: /s/Bree Bellefeuille

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