McKeen-Chaplin v. Provident Savings Bank, F.S.B.

Filing 85

ORDER signed by Judge Garland E. Burrell, Jr. on 4/17/2015 DENYING plaintiffs' #72 Motion for Partial Summary Judgment and Provident's #73 Motion for Summary Judgment. (Marciel, M)

1
2
3

UNITED STATES DISTRICT COURT

4

EASTERN DISTRICT OF CALIFORNIA

5
6
7
8

GINA MCKEEN-CHAPLIN,
individually, on behalf of
others similarly situated,
and on behalf of the general
public,

9

ORDER DENYING CROSS MOTIONS FOR
SUMMARY JUDGMENT

Plaintiffs,

10
11

No. 2:12-CV-03035-GEB-AC

v.
PROVIDENT SAVINGS BANK, FSB,

12

Defendant.

13
Pending

14

are

cross

motions

for

summary

judgment

15

concerning Defendant Provident Savings Bank, FSB‟s (“Provident”)

16

affirmative defense, in which Provident asserts it was justified

17

in not paying Plaintiffs overtime wages prescribed in the federal

18

Fair

19

summary judgment on its affirmative defense in which it asserts

20

it was justified in not paying Plaintiff McKeen-Chaplin overtime

21

wages prescribed in the California Labor Code. Provident argues

22

that Plaintiffs, who are current and former Provident mortgage

23

underwriters, are, or were, “administratively exempt” from the

24

overtime

requirement

25

Chaplin

was

26

requirement in the California Labor Code.

27
28

Labor

Standards

Both

Act

in

(“FLSA”).

the

FLSA,

“administratively

federal

and

Provident

and

that

exempt”

California

also

Plaintiff

from

law

moves

for

McKeen-

the

overtime

provide

overtime

protection for employees who work in excess of forty hours per
1

1

week. 29 U.S.C. § 207(a)(1); Cal. Labor Code § 510(a). However,

2

neither

3

protections apply to “any employee employed in a bona fide . . .

4

administrative . . . capacity.” 29 U.S.C. § 213(a)(1); 8 Cal.

5

Code

6

requirements do “not apply to persons employed in administrative

7

. . . capacities.”). Under both federal and California law, the

8

employer

9

exemption applies to its employees. Bothell v. Phase Metrics,

10

Inc., 299 F.3d 1120, 1124 (9th Cir. 2002) (“An „employer who

11

claims an exemption from the FLSA has the burden of showing that

12

the exemption applies.‟”) (quoting Donovan v Nekton, Inc., 703

13

F.2d 1148, 1151 (9th Cir. 1983)); Ramirez v. Yosemite Water Co.,

14

Inc.,

15

exemption from [California‟s] overtime laws is considered to be

16

an

17

burden of proving the employee‟s exemption.”). This exemption is

18

“to be narrowly construed against [an] employer[]” asserting it.

19

Arnold

20

(1960)(referencing

21

Integrators, Inc., 151 Cal. App. 4th 1363, 1370 (2007) (“[U]nder

22

California

23

provisions are narrowly construed.”).

24

the

Regs.

FLSA

§

11040(1)

bears

20

the

Cal.4th

affirmative

v.

nor

defense,

law,

of

794-95

and

the

(1999)

therefore

Inc.,

FLSA);

exemptions

from

Labor

that

proving

Kanowsky,

II.

25

California

(stating

burden

785,

Ben

the

Code

overtime

California‟s

that

the

(“[T]he

the

Eicher

administrative

assertion

employer

361

U.S.
v.

statutory

overtime

of

bears

388,

Advanced

mandatory

an

the

392
Bus.

overtime

UNCONTROVERTED FACTS1

The following facts concerning the motions are either

26
1

27
28

Provident requests judicial notice be taken of documents Plaintiffs
filed in state court. The request is denied since Provident does not explain
in the request for judicial notice what relevance these documents have to its
summary judgment motion.

2

1

admitted

2

controverted

3

260(b).2

4

or

“deemed”
with

Provident

uncontroverted

specific

“is

in

facts

the

since

as

they

required

business

of

have
by

not

been

Local

Rule

selling

mortgage

5

loans” and “employs . . . mortgage underwriters . . . whose

6

primary duty is to underwrite home mortgage loan[] applications

7

for one- to four-family residential units.” (Def. SUF ¶ 1, ECF

8

No. 76-1; Pl. SUF ¶ 1, ECF No. 77-1.)

9

To

initiate

a

mortgage,

Provident

“loan

officers[,]

10

[who are not underwriters,] . . . discuss the loan products with

11

[the] borrower.” (Pl. SUF ¶ 51.) “A loan processor then runs a

12

credit check, gathers further documentation, assembles the file

13

for

14

underwriting system [(“AUS”)].” (Pl. SUF ¶ 4.) The AUS “applies

15

certain guidelines to a loan and returns a preliminary decision

16

(approval, refer, or ineligible.)” (Pl. SUF ¶ 5.) “The loan . . .

17

goes to the underwriter after this processing is finished.” (Pl.

18

SUF ¶ 4.)

the

19

underwriter,

An

and

“underwriter

runs

has

the

to

loan

make

through

sure

that

an

automated

the

[loan]

20

processor put the correct information into the AUS and . . . that

21

the

AUS

is

applying

the

correct

rules

to

the

facts

of

a

22
2

23
24
25
26
27
28

LR 260(b) prescribes:
Any party opposing a motion for summary judgment . . .
[must] reproduce the itemized facts in the [moving
party‟s] Statement of Undisputed Facts and admit those
facts that are undisputed and deny those that are
disputed, including with each denial a citation to the
particular portions of any . . . document relied upon
in support of that denial.
If the non-movant does not “specifically . . . [controvert duly
supported] facts identified in the [movant‟s] statement of undisputed facts,”
the nonmovant “is deemed to have admitted the validity of the facts contained
in the [movant‟s] statement.” Beard v. Banks, 548 U.S. 521, 527 (2006).

3

1

particular loan.” (Pl. SUF ¶ 6.) He or she does this by applying

2

“Provident‟s guidelines or lending criteria as well as agency

3

guidelines that are specific to each loan product to determine

4

whether

5

Provident is willing to accept.” (Def. SUF ¶ 11.) A Provident

6

underwriter‟s

7

income, assets, debts and investments . . . . This comprises most

8

of the Plaintiffs‟ job duties.” (Def. SUF ¶ 10)(emphasis added.)

the

9

particular

In

job

loan

involves

reviewing

a

falls

within

consideration

loan

the

of

application,

level

“the

of

risk

borrower‟s

underwriters

may

10

impose “conditions” on a loan application and refuse to approve

11

the loan until the borrower satisfies those conditions. (Def. SUF

12

¶¶ 14, 16, 19.) Conditions include “items and/or documentation

13

that an underwriter requires” before he or she will approve a

14

loan. (Def. SUF ¶ 13.) While some “conditions” are required by

15

the guidelines, underwriters can include additional conditions

16

beyond those the guidelines require. (Def. SUF ¶ 16.) Further,

17

“[i]n certain circumstances, [Provident underwriters] can request

18

that Provident make an exception to the guidelines” and approve a

19

loan that does not satisfy the guidelines. (Def. SUF ¶ 24.)

20

When a Provident underwriter approves a loan, the loan

21

is “transferred to other [Provident] employees . . . to finalize

22

loan funding.” (Pl. SUF ¶ 55.) Provident sells approved mortgage

23

loans to third-party investors. (Pl. SUF ¶ 12.)

24
25

III. DISCUSSION
A.

26

FLSA Claim
“The FLSA delegates to the Secretary of Labor broad

27

authority

to

„define

[

28

administrative exemption.

]

and

delimit[

]‟

the

scope

of

the

In accordance with that authority, the
4

1

Secretary

2

test,‟ to determine whether employees . . . qualify for the

3

administrative exemption.” In re Farmers Ins. Exch., 481 F.3d

4

1119, 1127 (9th Cir. 2006). Federal courts “must give deference

5

to [Department of Labor‟s] regulations interpreting the FLSA.”

6

Webster v. Public Sch. Emp. of Wash, Inc., 247 F.3d 910, 914 (9th

7

Cir. 2001). The “short duties test” states:

8

formulated

a

test,

known

as

the

„short

duties

The term “employee employed in a bona fide
administrative capacity” . . . shall mean any
employee:

9
10

(1) Compensated on a salary or fee basis at a
rate of not less than $455 per week . . .
exclusive
of
board,
lodging
or
other
facilities;

11
12

(2) Whose primary duty is the performance of
office or non-manual work directly related to
the management or general business operations
of the employer or the employer‟s customers;
and

13
14
15

(3) Whose primary duty includes the exercise
of discretion and independent judgment with
respect to matters of significance.

16
17
18

has

29 C.F.R. § 541.200(a) (emphasis added).

19

It

is

undisputed

that

the

salary

requirement

is

20

satisfied. Provident seeks summary judgment on the second and

21

third

22

requirement.

23

1.

requirements

24

and

Plaintiffs

cross

move

on

the

second

Work Directly Related to Provident’s General
Operations

25

Plaintiffs argue Provident cannot satisfy the second

26

requirement

27

determination

28

was,]

the

of
of

the

administrative

whether

performance

of

exemption,

Plaintiffs‟
office
5

or

“primary
non-manual

which
duty

involves
is[,]

work

[or

directly

1

related

2

[Provident]

3

541.200(a)(2).

to

the

management

or

or

general

[Provident‟s]

business

customers.”

operations
29

C.F.R.

of
§

4

It is uncontroverted that each Plaintiff‟s primary duty

5

is, or was, “to underwrite home mortgage loan applications for

6

one-

7

constitutes “office work” as the phrase is used in 29 C.F.R. §

8

541.200(a)(2). (Pl. SUF ¶ 1; see also Def. SUF ¶ 10.) However,

9

Plaintiffs argue this duty does not, or did not, constitute work

10

to

four-family

residential

units,”

and

that

this

duty

directly related to Provident‟s general business operations.

11

29 C.F.R. § 541.201(a) defines the phrase “directly

12

related to management or general business operations” as it is

13

used in the administrative exemption in relevant part as follows:

14

The phrase “directly related to . . . general
business operations” refers to the type of
work performed by the employee. To meet this
requirement, an employee must perform work
directly related to assisting with the
running or servicing of the business, as
distinguished, for example, from working on a
manufacturing production line or selling a
product in a retail or service establishment.

15
16
17
18
19
20
21
22
23
24
25
26
27
28

(emphasis added).
The distinction between “running or servicing
of
the
business”
and
“working
on
a
manufacturing production line or selling a
product
in
a
retail
or
service
establishment,” has given rise to what many
courts
refer
to
as
the
“administrative/production dichotomy.” Under
the dichotomy, “production employees (whose
job it is to generate the product or service
the business offers to the public) will not
qualify
for
the
exemption.”
Stated
differently, if a court determines that an
employee
generates,
or
“produces”
the
product/service that the employer offers to
the
public,
then
that
employee
is
a
“production” employee who cannot qualify for
the administrative exemption. If, on the
6

1

other hand, the employee does not “produce”
the employer's product or service, the court
must undertake an additional analysis to
determine whether the employee performs an
“administrative” function within the meaning
of 29 C.F.R. § 541.201.

2
3
4
5

Lutz

v.

Huntington

Bankcshares,

No.

2:12-cv-01091,

2014

WL

2890170, at *8 (S.D. Ohio June 25, 2014).

6

[T]he
administration/production
dichotomy
[is] . . . one piece of the larger inquiry,
recognizing that a court must “constru[e] the
statutes and applicable regulations as a
whole.”
Indeed, some cases analyze the
primary duty test without referencing the ...
dichotomy at all. This approach is sometimes
appropriate because . . . the dichotomy is
but one analytical tool, to be used only to
the extent it clarifies the analysis. Only
when work falls “squarely on the „production‟
side
of
the
line,”
has
the
administration/production
dichotomy
been
determinative.

7
8
9
10
11
12
13
14

Bothell,

299

F.3d

at

15

quotations omitted).

16

Plaintiffs

1127

argue

(third

they

alteration

are

part

in

of

original,

Provident‟s

17

production line since they produce loans that Provident sells to

18

third-party investors, and rely on the Second Circuit‟s opinion

19

in Davis v. J.P. Morgan Chase & Co., 587 F.3d 529 (2d Cir. 2009)

20

as support for this argument. Provident counters its underwriters

21

“do not „sell‟ mortgage loans” and instead “service Provident‟s

22

mortgage . . . business by assessing the risk associated with

23

loan applications and deciding whether to approve them.” (Def.

24

Mot. 1:21-25.)
However,

25

“Davis

Plaintiffs‟

relied

pre–2004

Davis

misplaced

27

„production,‟ which had no qualifications. The current example

28

equates

physical
7

[CFR]

is

since

with

the

on

26

production

on

reliance

example

manufacturing,

and

of

its

1

usefulness is limited [in light of the nature of each Plaintiff‟s

2

duties].” Bollinger v. Residential Capital, LLC, 863 F. Supp. 2d

3

1041, 1047 (W.D. Wash. 2012). Plaintiffs‟ work is not similar to

4

“work on a manufacturing production line or selling a product in

5

the retail or service establishment,” 29 C.F.R. § 541.201(a),

6

since

7

sense.” Bollinger at 1047. “To place them [on the production side

8

because

9

investors]

Plaintiffs‟

they

not

„produce‟

would

Ins.

do

“produc[e]

loans

elevate

481

that
.

.

are
.

over

to

literal

third-party

substance.”

1132.

In

administrative/production dichotomy does not resolve the question

12

of

13

administrative exemption.

the

Therefore,

re

11

satisfies

at

the

Farmers

Provident

F.3d

sold

in

10

whether

Exch.,

form

anything

second

prong

the

of

the

14

Provident argues Plaintiff‟s primary duty is, or was,

15

related to Provident‟s general business operations since their

16

role is analogous to work in quality control, as prescribed in 29

17

C.F.R.

18

directly related to . . . general business operations includes...

19

quality control. . . and similar activities.”

20

they do not perform quality control work since “Provident has at

21

least three quality control programs . . . . [that are] distinct

22

from Plaintiffs‟ underwriting work.” (Pl. Opp‟n 6:27-7:6.)

§541.201(b),

which

states

in

relevant

part:

“[w]ork

Plaintiffs counter

23

It is uncontroverted that “Provident uses an outside

24

company to perform quality control functions” and that Provident

25

has

26

underwrite 10% of loans.” (Pl. SUF ¶¶ 47, 49.) However, it is

27

also

28

Provident‟s

internal

quality

uncontroverted

control

that

guidelines

or

employees

Provident
lending
8

that

“completely

underwriters

criteria

as

“must

well

as

re-

apply
agency

1

guidelines . . . to determine whether the particular loan falls

2

within the level of risk Provident is willing to accept,” and

3

this review comprises most of Plaintiffs‟ job duties. (Def. SUF

4

¶¶ 10-11.) The task of determining whether a particular loan

5

falls within the level of risk Provident is willing to accept

6

“makes [an underwriter‟s] duties analogous to a quality control

7

employee

8

notwithstanding Provident‟s use of additional quality controls.

9

Lutz, No. 2:12-cv-01091, 2014 WL 2890170, at *13.

10

who

prevents

Since

the

a

defective

primary

duty

product

of

a

from

being

Provident

sold,”

underwriter

11

includes “quality control . . . [or] other similar activities,”

12

prescribed in 29 C.F.R. §541.201(b), Plaintiffs have not shown

13

that their work is not or was not directly related to Provident‟s

14

general

15

judgment motion is denied.

16

business

2.

operations.

Therefore,

Plaintiffs‟

summary

Primary Duty Includes the Exercise of Discretion

17

and Independent Judgment With Respect to Matters

18

of Significance

19

Provident

argues

it

should

prevail

on

its

motion

20

because each Plaintiff‟s “primary duty [includes, or] include[d,]

21

the exercise of discretion and independent judgment with respect

22

to

23

specifically,

Provident

argues

24

“„waiv[e]

or

deviat[e]

from

25

approval‟

by

26

criteria and/or request[] exceptions in order to approve a loan

27

that does not [meet lending criteria].” (Def. Mot. 21:5-10.)

28

matters

29

of

significance,”

declining

C.F.R.

§

to

29

solely
[the

approve

541.700

C.F.R.
that

a

loan

541.200(a)(3);

underwriters

guidelines]

prescribes:
9

§

that

“The

without
meets

term

can
prior

lending

„primary

1

duty‟ means the principal, main, major or most important duty

2

that

3

primary duty must be based on all the facts in a particular case,

4

with the major emphasis on the character of the employee‟s job as

5

a whole.”

the

6

employee

It

is

performs.

Determination

uncontroverted

that

of

any

employee‟s

underwriters

may

place

7

“conditions” on a loan application that satisfies

8

guidelines, and may decline to approve a loan unless or until the

9

borrower satisfies those conditions. (Def. SUF ¶¶ 16, 19.) It is

10

also uncontroverted that Plaintiffs may “request that Provident

11

make an exception to the guidelines” to “make a loan that does

12

not . . . [satisfy the] guidelines.” (Def. SUF ¶ 24.) However,

13

Provident

14

standard of establishing that imposing conditions or requesting

15

exceptions to the guidelines is, or was, part of Plaintiffs‟

16

primary duty. Therefore, Provident‟s motion is denied.

17

B.

has

not

met

its

burden

under

the

Provident‟s

summary

judgment

State Law Claims

18

Provident‟s summary judgment motion on its defense to

19

McKeen-Chaplin‟s state law claim is premised on the argument that

20

it would be granted summary judgment on its FLSA affirmative

21

defense.

22

denied, the state law portion of its motion is also denied.

However,

since

23

its

IV.

24

motion

concerning

the

FLSA

was

CONCLUSION

For the stated reasons, Plaintiffs‟ summary judgment is

25

DENIED and Provident‟s motion is DENIED.

26

Dated:

April 17, 2015

27
28
10