Kramer et al v. American Bank and Trust Company et al
Filing
581
MEMORANDUM Opinion and Order Signed by the Honorable John Z. Lee on 3/31/17. Mailed notice(ca, ).
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
MARC KRAMER, KIRIL TRAJCEVSKI, and )
MATT NYMAN, on behalf of themselves and
)
others similarly situated,
)
)
Plaintiffs,
)
)
v.
)
)
AMERICAN BANK AND TRUST
)
COMPANY, N.A., SHARON WHEELER,
)
JULIE KLAUS, HARRY S. COIN, and
)
DALE DOLLENBACHER,
)
)
Defendants.
)
11 C 8758
Judge John Z. Lee
MEMORANDUM OPINION AND ORDER
Plaintiffs are loan officers who have sued American Bank and Trust Co., N.A., and
several of its managing officers, Sharon Wheeler, Julie Klaus, Harry S. Coin, and Dale
Dollenbacher. According to Plaintiffs, Defendants have failed to pay them the legally mandated
minimum wage and appropriate overtime wages, as well as commissions owed under their
employment contracts. Plaintiffs have brought suit for violations of the Fair Labor Standards
Act (FLSA), 29 U.S.C. § 201 et seq., the Illinois Minimum Wage Law (IMWL), 820 Ill. Comp.
Stat. 105/1 et seq., and the Illinois Wage Payment and Collection Act (IWPCA), 820 Ill. Comp.
Stat. 115/1 et seq., as well as for common law breach of contract, fraud by misrepresentation,
and fraud by omission. Before the Court are Plaintiffs’ motion for class certification pursuant to
Federal Rule of Civil Procedure (“Rule”) 23(b)(3) as to the state law claims and Defendants’
motion to decertify the FLSA collective action. For the reasons provided herein, the Court
grants Plaintiffs’ motion and denies Defendants’ motion.
Background
American Bank and Trust Co., N.A. (“the Bank”), is a national bank with its principal
place of business in Davenport, Iowa. Defendant Harry Coin was the Bank’s President and
Chief Executive Officer until February 2009.
Defendant Sharon Wheeler was the Bank’s
Executive Vice President from October 2010 through October 2012.
Defendant Dale
Dollenbacher was the Bank’s Executive Vice President and Corporate Financial Officer from
July 2003 to March 2012. Defendant Julie Klaus was the Bank’s Senior Vice President of
Human Resources from November 2009 until May 2012.
Plaintiffs were employed by the Bank as loan officers and were tasked with obtaining
mortgage loans for the Bank’s customers. Pls.’ Ex. 8, Pls.’ Employment Contracts (showing that
individual plaintiffs were expected to perform substantially the same tasks). Loan officers
worked either from home or in office spaces provided by the Bank. Pls.’ Ex. 2, Allen Dep. at
25–26; Pls.’ Ex. 6, Wheeler Dep. at 110. As of 2009, the Bank employed forty-seven loan
officers in Illinois and eleven loan officers in Iowa. See Pls.’ Reply Ex. 2, Monthly Commission
Summaries, January–December 2009.
Prior to January 2011, the Bank classified loan officers as “sales employees.” Pls.’ Ex. 7,
3/23/15 Dollenbacher Dep. at 98. Based on this classification, the Bank did not pay loan officers
a minimum wage or overtime wages and, instead, paid them only on a commission basis. Pls.’
Ex. 2, Allen Dep. at 24–25; Pls.’ Ex. 3, 2/7/12 Dollenbacher Dep. at 243–45; Pls.’ Ex. 5, Klaus
Dep. at 76. According to James Allen, a former bank President, the Bank did not track hours or
overtime worked by its loan officers before 2011. Pls.’ Ex. 2, Allen Dep. at 32. Beginning in
January 2011, however, the Bank began tracking hours worked and started paying loan officers
hourly wages as well as overtime wages. Pls.’ Ex. 7, 3/23/15 Dollenbacher Dep. at 97. But even
2
then the Bank, through Defendants Wheeler and Klaus and others, directed loan officers to report
only forty hours per week, regardless of whether loan officers worked additional hours. Pls.’
Mem. Law Opp’n Defs.’ Mot. Decertify Collective Action 8–10 (citing testimony of eleven
Plaintiffs). Plaintiffs allege that the Bank’s failure to pay them a minimum wage and overtime
wages prior to January 2011 and failure to pay them overtime during January 2011 1 were
violations of the FLSA and IMWL.
Plaintiffs also assert that Defendants violated state law when they perpetrated a
“skimming scheme” in which Defendants artificially deflated loan officers’ commissions in
contravention of their employment contracts. Defendants had represented to all loan officers that
they would be paid monthly commissions as a percent of “revenue generated” from the loans that
the loan officers had originated. See Pls.’ Ex. 18, Employment Agreements. But according to
Theresa Mann, the Bank’s former Manager of Secondary Marketing, the Bank had a companywide policy of setting aside for itself a percentage of the revenue that was generated when a
mortgage loan was sold in the secondary mortgage market (what the parties call “secondary
gain”). See Pls.’ Ex. 10, Mann Dep. at 33, 71–72; see also Pls.’ Ex. 9, Kaye Dep. at 54, 58.. The
Bank considered secondary gain to be the Bank’s profit margin. See Pls.’ Ex. 9, Kaye Dep. at
54, 58. Thus, a loan officer’s commissions were, in fact, a percentage of the total revenue
generated from his or her mortgage loans less the secondary gain. See id. According to
Plaintiffs, this practice violated the IWPCA, breached their employment contracts, and
constituted fraud.
1
The class period for each proposed class ends on January 31, 2011. See infra, at 4.
3
Analysis
As an initial matter, a brief overview of the elements of Plaintiffs’ causes of action is
necessary. Plaintiffs’ IMWL claims require them to prove that Defendants failed to pay them the
applicable minimum hourly wage or overtime pay for work in excess of forty hours per week.
See 820 Ill. Comp. Stat. 105/4. To prevail on their IWPCA claims, Plaintiffs must establish that
Defendants failed to timely and completely pay their earned wages, defined here as any
compensation owed to an employee pursuant to an employment contract or agreement. See 820
Ill. Comp. Stat. 115/2.
To prove a breach of contract claim under Iowa law, which governs the contracts at issue,
the claimant must establish: “(1) the existence of a contract, (2) the terms and conditions of the
contract, (3) that [the claimant] has performed all of the terms and conditions required under the
contract, (4) the [opposing party’s] breach of the contract in some particular way, and (5) that
[the claimant has suffered damages as a result of [the opposing party’s] breach.” See Royal
Indem. Co. v. Factory Mut. Ins. Co., 786 N.W.2d 839, 846 (Iowa 2010); see also Pls.’ Ex. 8,
Pls.’ Employment Contracts (stating that Iowa law governs).
Plaintiffs also claim that Defendants committed fraud by representing to them in their
employment agreements that they would receive a certain percentage of the total revenue
generated from the loans that they originate, when in fact this was not the case. Plaintiffs assert
two types of fraud claims. To establish a fraudulent misrepresentation claim, Plaintiffs must
show: “(1) a false statement of material fact; (2) known or believed to be false by the person
making it; (3) an intent to induce the plaintiff to act; (4) action by the plaintiff in justifiable
reliance on the truth of the statement; and (5) damage to the plaintiff resulting from such
reliance.” Thompson v. Am. Airlines Grp., Inc., 128 F. Supp. 3d 1047, 1050 (N.D. Ill. 2015)
4
(Illinois law). 2 The elements of fraud by omission are: “(1) concealment of a material fact, (2)
with the intent to deceive, and (3) that the plaintiff was unaware of the concealed fact and would
have acted differently had the plaintiff known of it.” Bors v. Duberstein, No. 03 C 4636, 2004
WL 1588271, at *4 (N.D. Ill. July 15, 2004) (Illinois law).
Plaintiffs have also asserted a claim under the FLSA. “[E]mployees who institute a
collective action against their employer under the terms of the [FLSA] may at the same time
litigate supplemental state-law claims as a class action certified according to Federal Rule of
Civil Procedure 23(b)(3).” Ervin v. OS Rest. Servs., 632 F.3d 971, 973–74 (7th Cir. 2011).
“Collective actions under the FLSA are different than class actions authorized by Federal Rule of
Civil Procedure 23, because in FLSA cases the plaintiff is given notice and an opportunity to opt
in, rather than notice and an opportunity to opt out.” Jirak v. Abbott Labs., Inc., 566 F. Supp. 2d
845, 847 (N.D. Ill. 2008) (emphasis in original). This distinction aside, the Seventh Circuit has
recognized the similarity between class actions certified under Rule 23 and FLSA collective
actions certified under 29 U.S.C. § 216(b) (“Section 216(b)”). See Espenscheid v. DirectSat
USA, LLC, 705 F.3d 770, 772 (7th Cir. 2013); Smith v. Family Video Movie Club, Inc., No. 11 C
1773, 2015 WL 1542649, at *3 (N.D. Ill. Mar. 31, 2015). Here, the Court will evaluate the
appropriateness of class certification under Rule 23 and then turn to Section 216(b).
I.
Class Certification Under Rule 23
Plaintiffs seek to certify two classes under Rule 23(b)(3). The first is an IMWL class
alleging failure to pay minimum wage and overtime. It is defined as: “All loan officers
employed by American Bank & Trust Company (‘AB&T’) in Illinois at any point in time from
December 9, 2008, through January 2011.” The second class is based on the alleged skimming
2
Because neither side has presented a conflict between the applicable substantive tort law of
Illinois and Iowa, the Court applies the laws of the forum state. See Crichton v. Golden Rule Ins. Co.,
576 F.3d 392, 397 n.1 (7th Cir. 2009).
5
scheme and is divided into two subclasses. Subclass I asserts IWPCA violations and is defined
as: “All loan officers employed by AB&T in Illinois at any point in time from December 9,
2001, through January 2011.” Subclass II asserts breach of contract and fraud claims and is
defined as: “All loan officers employed by AB&T at any point in time from December 9, 2006,
through January 2011.” 3
“The class action [under Rule 23] is an exception to the usual rule that litigation is
conducted by and on behalf of the individual named parties only.” Wal–Mart Stores Inc. v.
Dukes, 564 U.S. 338, 350 (2011) (internal citations and quotation marks omitted). In order to
justify a departure from that rule, “a class representative must be part of the class and possess the
same interest and suffer the same injury as the class members.” Id. (internal quotation marks
omitted). “Rule 23(a) ensures that the named plaintiffs are appropriate representatives of the
class whose claims they wish to litigate.” Id.
To be certified under Rule 23, a proposed class must satisfy each of Rule 23(a)’s four
requirements: “(1) the class is so numerous that joinder of all members is impracticable; (2) there
are questions of law or fact common to the class; (3) the claims or defenses of the representative
parties are typical of the claims and defenses of the class; and (4) the representative parties will
fairly and adequately protect the interests of the class.” Fed. R. Civ. P. 23(a).
If Rule 23(a) is satisfied, the proposed class must fall within one of the three categories
in Rule 23(b), which the Seventh Circuit has described as: “(1) a mandatory class action (either
because of the risk of incompatible standards for the party opposing the class or because the risk
3
It is not at all clear why Plaintiffs have categorized the breach of contract class and fraud class as
subclasses under the IWPCA, when they have asserted a separate IWPCA class (which they call Subclass
I). Because Plaintiffs have asserted separate claims for breach of contract and fraud, it seems more
appropriate to construe the breach of contract “subclass” and fraud “subclass” as two separate classes,
independent from the IWPCA “subclass,” and the Court will do so. See Streeter v. Sheriff of Cook Cty.,
256 F.R.D. 609, 611 (N.D. Ill. 2009) (stating that a district court has broad discretion to modify a class).
6
that the class action adjudication would, as a practical matter, either dispose of the claims of
nonparties or substantially impair their interests), (2) an action seeking final injunctive or
declaratory relief, or (3) a case in which the common questions predominate and class treatment
is superior.” Spano v. The Boeing Co., 633 F.3d 574, 583 (7th Cir. 2011).
“Rule 23 does not set forth a mere pleading standard.” Dukes, 564 U.S. at 350. “On
issues affecting class certification . . . a court may not simply assume the truth of the matters as
asserted by the plaintiff.” Messner v. Northshore Univ. HealthSys., 669 F.3d 802, 811 (7th Cir.
2012). Rather, the named plaintiff bears the burden of showing that a proposed class satisfies
each requirement of Rule 23 by a preponderance of the evidence. Id. “Failure to meet any one
of the requirements of Rule 23 precludes certification of a class.” Harriston v. Chi. Tribune Co.,
992 F.2d 697, 703 (7th Cir. 1993). Certification is proper only if “the trial court is satisfied, after
a rigorous analysis, that the prerequisites of Rule 23(a) have been satisfied.” Dukes, 564 U.S. at
350–51.
The Seventh Circuit has directed district courts to exercise “caution in class
certification generally.” Thorogood v. Sears, Roebuck & Co., 547 F.3d 742, 746 (7th Cir. 2008).
That said, the Court should not “turn the class certification proceedings into a dress rehearsal for
the trial on the merits.” Messner, 669 F.3d at 811.
A.
Rule 23(a)’s Requirements
1.
Rule 23(a)(1): Numerosity
Rule 23(a)(1) is satisfied where “the class is so numerous that joinder of all members is
impracticable.” Fed. R. Civ. P. 23(a)(1). “[C]ommon sense assumptions can be made in order to
support a finding of numerosity.” Barragan v. Evanger’s Dog & Cat Food Co., Inc., 259 F.R.D.
330, 333 (N.D. Ill. 2009). A class with as few as forty members has been held to satisfy the
numerosity requirement. See Swanson v. Am. Consumer Indus., Inc., 415 F.2d 1326, 1333 n.9
7
(7th Cir. 1969); see also Pruitt v. City of Chi., 472 F.3d 925, 926–27 (7th Cir. 2006)
(“Sometimes even 40 plaintiffs would be unmanageable.”).
Plaintiffs have submitted evidence that, in 2009 alone, the Bank employed forty-seven
loan officers in Illinois. See Pls.’ Reply Ex. 2, Monthly Commission Summaries, January–
December 2009. This is sufficient to establish numerosity for both the IMWL and IWPCA
classes. For the breach of contract and fraud classes, the number of loan officers increases
because those classes also include the Bank’s loan officers located in Iowa as well as Illinois.
See id. (listing an additional eleven loan officers in Iowa in 2009).
For their part, Defendants assert that there will be an insufficient number of class
members who have claims against all five Defendants because the individual Defendants worked
for the Bank at different times. See Defs.’ Decert. Mot., Ex. LL, Chart (listing one plaintiff who
did not work with Defendants Dollenbacher or Klaus, five plaintiffs who did not work with
Defendant Wheeler, and eighteen plaintiffs who did not work with Defendant Coin). But given
the sheer number of loan officers working at the Bank during the relevant class periods,
Defendants’ isolated examples are insufficient to destroy numerosity. 4 Accordingly, the Court
finds that numerosity is satisfied.
2.
Rule 23(a)(2): Commonality
The second Rule 23 element, commonality, requires a plaintiff to demonstrate that “there
are questions of law or fact common to the class.” Fed. R. Civ. P. 23(a)(2). “Commonality
requires the plaintiff to demonstrate that the class members ‘have suffered the same injury,’” and
not “merely that they have all suffered a violation of the same provision of law.” Dukes, 564
4
Defendants also argue that the Plaintiffs’ varied understanding of what “revenue generated”
means destroys numerosity. Because this argument seems to attack commonality, rather than numerosity,
the Court addresses the argument below.
8
U.S. at 349–50 (quoting Gen. Tel. Co. of S.W. v. Falcon, 457 U.S. 147, 157 (1982)). “The class
‘claims must depend upon a common contention,’ and ‘[t]hat common contention, moreover,
must be of such a nature that it is capable of classwide resolution—which means that
determination of its truth or falsity will resolve an issue that is central to the validity of each one
of the claims in one stroke.’” Jamie S. v. Milwaukee Pub. Sch., 668 F.3d 481, 497 (7th Cir.
2012) (quoting Dukes, 564 U.S. at 350).
With regard to the IMWL claim, the class members have clearly suffered the alleged
same injury because Defendants classified every loan officer as employees who are exempt from
minimum wage and overtime laws. Pls.’ Ex. 2, Allen Dep. at 24–25; Pls.’ Ex. 3, 2/7/12
Dollenbacher Dep. at 243–45; Pls.’ Ex. 5, Klaus Dep. at 76. A question of law common to the
IMWL class claims is thus whether Defendants’ classification was proper. That determination
will be based on common proof regarding the nature of the work loan officers performed for the
Bank. Defendants’ arguments that each class member will have different damages does not
defeat commonality. See De La Fuente v. Stokely-Van Camp, Inc., 713 F.2d 225, 233 (7th Cir.
1983) (“It is very common for Rule 23(b)(3) class actions to involve differing damage awards for
different class members.”).
Another common question of law is whether the individual Defendants are “employers”
under the IMWL. See Cho v. Maru Rest., Inc., 194 F. Supp. 3d 700, 704–705 (N.D. Ill. 2016);
Zampos v. W&E Commc’ns, Inc., 970 F. Supp. 2d 794, 806 (N.D. Ill. 2013). Other common
questions of fact involve the nature of the work that loan officers performed and whether
putative class members were universally told to omit overtime from their timesheets after
Defendants started to track their hours.
9
Common questions also abound with regard to Plaintiffs’ IWPCA and skimming claims,
including: (1) whether individual Defendants are “employers” under the IWPCA, (2) whether
Defendants represented to loan officers as part of their employment agreements that their
commissions would be a percentage of revenue generated 5, (3) whether the portion withheld
from commissions known as “secondary gain” included revenue generated from loans, and (4)
whether any Defendant failed to pay commissions owed to Plaintiffs. These common questions,
to which there will be common answers, are sufficient to satisfy the commonality requirement.
For their part, Defendants argue that there will be certain individual questions, including
the amount of damages each individual class member suffered and how each class member
interpreted certain provisions in their contracts. But Rule 23(a)(2) does not require commonality
of all questions. See Bell v. PNC Bank, Nat’l Ass’n, 800 F.3d 360, 379 (7th Cir. 2015).
Moreover, “the need for individual damages determinations does not, in and of itself, require
denial of [a] motion for certification.” Arreola v. Godinez, 546 F.3d 788, 801 (7th Cir. 2008). In
addition, “claims arising from interpretations of a form contract appear to present the classic case
for treatment as a class action . . . .” Keele v. Wexler, 149 F.3d 589, 594 (7th Cir. 1998); see Pls.’
Ex. 8, Pls.’ Employment Contracts ¶ 3a. Lastly, where, as here, the purported fraud is based on
alleged conduct that was uniform as to all class members, “it is well established that individual
issues of reliance do not thwart class actions of common law fraud claims.”
Sparano v.
Southland Corp., No. 94 C 2098, 1996 WL 681273, at *3 (N.D. Ill. Nov. 21, 1996) (certifying
common law fraud class of franchise owners); see Arenson v. Whitehall Convalescent and
Nursing Home. Inc., 164 F.R.D. 659, 666 (N.D. Ill.1996) (certifying class despite individualized
5
Although Defendants provide 2005 and 2007 employment agreements omitting the term “revenue
generated” for Janet Norris, who is not a class representative, see Defs.’ Decert. Mot., Ex. T, Norris 2005
Employment Contract at 1, Defs.’ Resp. Opp’n Class Cert., Ex. U, Norris Dep. Ex. 7, Norris 2007
Employment Contract at 2, it is unclear whether Norris received the same form contract as other loan
officers in other years.
10
issues of reliance in common law fraud claims); Alexander v. Centrafarm Group, N.V., 124
F.R.D. 178, 186 (N.D. Ill. 1988) (same). Proceeding on a class-wide basis is also appropriate
because, except for a few outliers, most class members do not have a sufficient stake in their
fraud claims to go it alone. See Def. Bank’s Ex. JJ, ECF No. 498 (showing that, with a few
exceptions, most Plaintiffs assert fraud damages ranging from $1,000 to $25,000).
Defendants also contend that Plaintiffs are barred from proceeding as a class on their
IWPCA claim because the January 1, 2011, IWPCA amendment adding a class action right is a
substantive change in the law, which cannot be applied retroactively. In support, Defendants cite
Thomas v. Weatherguard Construction Co., Inc., 42 N.E.3d 21, 39–40 (Ill. App. Ct. 2015). But
this is incorrect. The ability to bring a class action is a procedural, not a substantive, right, see
Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Co., 559 U.S. 393, 408–09
(2010), and numerous courts had certified IWPCA class actions even before the enactment of the
2011 IWPCA amendments, see Kernats v. Comcast Corp., Nos. 09 C 3368, 09 C 4305, 2010 WL
4193219, at *9 (N.D. Ill. Oct. 20, 2010). 6 Thus, Plaintiffs have established commonality.
3.
Rule 23(a)(3): Typicality
“The question of typicality in Rule 23(a)(3) is closely related to the preceding question of
commonality.” Rosario v. Livaditis, 963 F.2d 1013, 1018 (7th Cir. 1992). A “plaintiff’s claim is
typical if it arises from the same event or practice or course of conduct that gives rise to the
claims of other class members and his or her claims are based on the same legal theory.” De La
Fuente, 713 F.2d at 232. Although “[t]he typicality requirement may be satisfied even if there
are factual distinctions between the claims of the named plaintiffs and those of other class
members,” the requirement “primarily directs the district court to focus on whether the named
6
Defendants, however, correctly assert that the Court may not retroactively apply the January 1, 2011
IWPCA amendment authorizing recovery of 2% monthly interest on unpaid wages, any calculation of damages
regarding such interest can easily be limited to post–January 1, 2011 unpaid wages.
11
representatives’ claims have the same essential characteristics as the claims of the class at large.”
Id.
Defendants first argue that the claims of named plaintiffs Matt Nyman and Kiril
Trajcevski are not typical of the class, because they were not employed by the Bank as loan
officers during the entirety of any class period. This argument misses the point. Where a class
representative’s claims arise from the same course of conduct and the same legal theory that is
alleged by the class throughout the class period, typicality is satisfied. See id. Because Nyman’s
and Trajcevski’s claims arise from the same course of conduct, i.e., Defendants’ categorical
treatment of loan officers as exempt employees and alleged commission-skimming scheme, their
claims are typical of the class, and they have sufficient incentive to fully develop the facts.
Defendants also argue that Nyman’s and Trajcevski’s claims are not typical, because
their deposition testimony reveals their lack of basic information about the case, rendering their
claims weaker than most. For example, according to Defendants, neither Nyman nor Trajcevski
knew precisely what evidence has been gathered to support the class’s theory that the individual
Defendants should be deemed “employers” under the IMWL or the IWPCA. Defs.’ Resp. Opp’n
Class Cert. at 4–5. In addition, neither understood the legal theory or evidence on which their
fraud claims are based. Id. However, as the Supreme Court has explained, a named plaintiff’s
lack of understanding of the issues in a case is insufficient to prevent certification. See Surowitz
v. Hilton Hotels Corp., 383 U.S. 363, 365–66 (1966); see also Eggleston v. Chi. Journeymen
Plumbers' Local Union No. 130, 657 F.2d 890, 896 (7th Cir. 1981). It is enough that the class
representatives’ claims are based on the same legal theories as those of other class members. See
Surowitz, 383 U.S. at 365–66; Eggleston, 657 F.2d at 896.
12
In addition, Defendants contend that by offering conflicting calculations of his damages,
Nyman’s claims are atypical and subject to defenses inapplicable to other class members. But,
as stated above, questions about individual damages pose little barrier to class certification. See
Mullins v. Direct Digital, LLC, 795 F.3d 654, 671 (7th Cir. 2015) (“It has long been recognized
that the need for individual damages determinations at [a] later stage of the litigation does not
itself justify the denial of certification.”). Accordingly, the typicality requirement is satisfied.
4.
Rule 23(a)(4): Adequacy of Representation
“The final subdivision of Rule 23 requires that the representative parties fairly and
adequately represent the class.” Rosario, 963 F.2d at 1018. “This adequate representation
inquiry consists of two parts: (1) the adequacy of the named plaintiffs as representatives of the
proposed class’s myriad members, with their differing and separate interests, and (2) the
adequacy of the proposed class counsel.” Gomez v. St. Vincent Health, Inc., 649 F.3d 583, 592
(7th Cir. 2011). “[T]he judge [must] . . . assess the class lawyer’s competence before certifying a
suit to proceed as a class action.” Greisz v. Household Bank (Ill.), N.A., 176 F.3d 1012, 1013
(7th Cir. 1999).
As an initial matter, Defendants challenge the adequacy of Nyman and Trajcevski’s
representation on the same grounds that they challenge typicality, and for the same reasons
discussed above, the Court rejects them here.
In addition, Defendants argue that class counsel cannot adequately represent the putative
class, because counsel has not diligently prosecuted the class claims. It is true that this case has
been pending for many years. There has been a great deal of motion practice at every turn,
including meritorious motions to compel discovery filed by both sides. The fact that this case
has become long in the tooth is less a reflection of the inadequacy of class counsel, and more an
13
indication of fierce, scorched-earth litigation techniques by both sets of counsel. The Court does
not find class counsel inadequate on this ground. 7
Next, Defendants argue that class counsel is inadequate, because Defendants intend to
call Ari Karen, one of Plaintiffs’ attorneys, as a fact witness to testify about certain legal advice
pertaining to employment law that he purportedly gave to Defendant Wheeler at a seminar in
2010. The facts surrounding this seminar were fully explored before Magistrate Judge Cole, who
found, after considering the evidence, that Karen, in fact, had not provided legal advice to
Wheeler and had not acted as Wheeler’s counsel at the time. See Kramer v. Am. Bank & Trust
Co., N.A., 989 F. Supp. 2d 709, 721–22 (N.D. Ill. 2013) (denying motion to disqualify Karen and
finding Wheeler’s testimony that she, on the Bank’s behalf, sought and obtained legal advice
from Karen “strains common experience, common sense and credulity”). Defendants did not
object to Judge Cole’s ruling and are bound by that determination.
Defendants also state that they intend to call as a trial witness Darren Weiss, who is an
associate at class counsel’s law firm. Weiss, it appears, created a spreadsheet to provide to
Defendants as part of Plaintiffs’ disclosures of damages under Rule 26(a)(1)(A)(iii).
But
Plaintiffs will presumably offer an expert witness to testify about the damages incurred by the
class at trial. And, at any rate, the mere fact that Weiss prepared a damages chart as part of
Plaintiffs’ initial disclosures does not demonstrate inadequacy of counsel.
B.
Rule 23(b)(3)’s Requirements
Once the requirements of Rule 23(a) are satisfied, certification of a class under Rule
23(b)(3) is proper if “the questions of law or fact common to class members predominate over
7
Defendants also assert that class counsel has inadequately represented Plaintiffs in the instant
FLSA collective action by not filing the named Plaintiffs’ consent-to-join forms until six months after the
litigation commenced, rather than attaching them as exhibits to the complaint when originally filed.
Defendants do not provide, and the Court has not found, a single case in which a court has held that such
conduct supports a finding of inadequacy of counsel.
14
any questions affecting only individual members, and [when] a class action is superior to other
available methods for fairly and efficiently adjudicating the controversy.” Fed. R. Civ. P.
23(b)(3). Defendants limit their discussion to the issue of predominance, and so shall the Court.
“Predominance of issues common to all class members, like the other requirements for
certification of a suit as a class action, goes to the efficiency of a class action as an alternative to
individual suits.” Parko v. Shell Oil Co., 739 F.3d 1083, 1085 (7th Cir. 2014). Thus, the
“predominance inquiry tests whether proposed classes are sufficiently cohesive to warrant
adjudication by representation.” Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 623 (1997).
“Rule 23(b)(3)’s predominance requirement is satisfied when ‘common questions represent a
significant aspect of [a] case and . . . can be resolved for all members of [a] class in a single
adjudication.’” Messner, 669 F.3d at 815 (quoting 7AA Wright & Miller, Federal Practice &
Procedure § 1778 (3d ed. 2011)). “Analysis of predominance under Rule 23(b)(3) ‘begins . . .
with the elements of the underlying cause of action.’” Id. (quoting Erica P. John Fund, Inc. v.
Halliburton Co., 563 U.S. 804, 809 (2011)).
With regard to the IMWL claims, Defendants primarily argue that individual damages
issues will predominate over common questions, relying on the Supreme Court’s holding in
Comcast Corp. v. Behrend, 133 S. Ct. 1426, 1433 (2013). In Comcast, an antitrust case, the
Supreme Court concluded that “[q]uestions of individual damage calculations will inevitably
overwhelm questions common to the class.” Id. However, the concern in Comcast was not that
class members would need to provide individualized proof of their damages; the concern was
that no calculation method had been identified that would measure only those damages
attributable to the alleged antitrust violation. Id. In other words, the proposed calculation
15
method in Comcast would not have measured any class member’s “damages resulting from the
particular antitrust injury.” Id.
In this case, unlike in Comcast, Plaintiffs propose a class-wide method of calculating
damages, based on the hours that an individual class member worked, that would measure only
those damages attributable to the claimed violations of federal and state minimum wage and
overtime laws. In response, Defendants contend that it still will be impossible to determine
damages using a class-wide methodology, because the class members did not work the same
schedule, hours, or days. But if this were a requirement for finding predominance, no FLSA
collective action or IMWL class would ever be certified, for it would be a rare case indeed in
which each class member worked identical hours each day or week. See, e.g., Alvarez v. Chi.,
605 F.3d 445, 449 n.1 (7th Cir. 2010) (“[R]ecovery will be determined by the application of
mathematical formulae common to all class members, although the specific variables (number of
hours worked, hourly wage, etc.) will vary from individual to individual. . . . [I]f necessary,
Fed. R. Civ. P. 53(a)(1)(B)(ii) authorizes the district court to appoint a special master to ‘resolve
a difficult computation of damages.’”). What is more, even after Comcast, the Seventh Circuit
has reiterated that the need to calculate damages on an individual basis alone will not preclude
class certification under Rule 23(b)(3). See Butler v. Sears, Roebuck and Co., 727 F.3d 796, 801
(7th Cir. 2013) (“If the issues of liability are genuinely common issues, and the damages of
individual class members can be readily determined in individual hearings, in settlement
negotiations, or by creation of subclasses, the fact that damages are not identical across all class
members should not preclude class certification.”).
Defendants further contend that Plaintiffs have no way to establish that they worked in
excess of forty hours per week on a class-wide basis and have no viable plan to permit them to
16
do so. Plaintiffs respond that Defendants cannot use their own failure to maintain time records
as a shield against certification. The Supreme Court addressed this issue in Tyson Foods, Inc. v.
Bouraphakeo, 136 S. Ct. 1036, 1047 (2016). As here, the plaintiffs in Tyson sought certification
of state-law wage-payment claims under Rule 23.
The Supreme Court explained: “when
employers violate their statutory duty to keep proper records, and employees thereby have no
way to establish the time spent doing uncompensated work, the ‘remedial nature of [the FLSA]
and the great public policy which it embodies . . . militate against making’ the burden of proving
uncompensated work ‘an impossible hurdle for the employee.’” Id. at 1047 (quoting Anderson v.
Mt. Clemens Pottery Co., 328 U.S. 680, 687 (1946)). Then, applying Mt. Clemens in the context
of Rule 23(b)(3), the Tyson Court stated:
Instead of punishing “the employee by denying him any recovery
on the ground that he is unable to prove the precise extent of
uncompensated work,” the Court held “an employee has carried
out his burden if he proves that he has in fact performed work for
which he was improperly compensated and if he produces
sufficient evidence to show the amount and extent of that work as a
matter of just and reasonable inference.” 328 U.S., at 687, 66 S.Ct.
1187. Under these circumstances, “[t]he burden then shifts to the
employer to come forward with evidence of the precise amount of
work performed or with evidence to negative the reasonableness of
the inference to be drawn from the employee’s evidence.” Id., at
687–688, 66 S.Ct. 1187.
Id.
Here, Plaintiffs have produced sufficient evidence to create a reasonable inference that
they all worked in excess of forty hours per week such that common issues predominate. They
have presented the testimony of loan officers from various Bank locations, who state that loan
officers regularly put in overtime each week. See, e.g., Pls.’ Decert. Ex. 8, J. Sanchez Dep. at
63–65 (Chicago); Pls.’ Decert. Ex. 9, Sommese Dep. at 114 (Chicago); Pls.’ Decert. Ex. 4,
Norris Dep. at 58–59, 65, 67, 71 (Coralville); Pls.’ Cert. Ex. 10, Nyman Dep. at 86, 95 (Elburn);
17
Pls.’ Decert. Ex. 14, Benhart Dep. at 145–46 (Elburn); Pls.’ Decert. Ex. 20, Gerrity Dep. at 37–
38 (Geneva); Pls.’ Decert. Ex. 21, Hanson Dep. at 80–82 (Lisle); Pls.’ Decert. Ex. 22, Houdek
Dep. at 38–40 (Lisle); Pls.’ Decert. Ex. 3, Marguerite Dep. at 120, 128–29 (Oakbrook); Pls.’
Cert. Ex. 11, Trajcevski Dep. at 49 (Oakbrook). In addition, Plaintiffs rely on an admission by
Jeff Gennarelli, the Bank’s Regional Vice President, on May 7, 2010, that in order for the Bank
to avoid overtime lawsuits, it should institute a policy of paying its loan officers $425.00 per
week in salary. Pls.’ Ex. 11, at 1. Given that the Illinois minimum wage was $8.00 per hour at
the time, 8 Gennarelli’s proposed company-wide salary for loan officers is based on the factual
proposition that loan officers, as a category, worked approximately 8.75 hours in overtime each
week.
By contrast, the Bank has not pointed to any evidence to rebut the reasonableness of the
inference that Plaintiffs have created. For example, the Bank could have presented certain loan
officers who did not regularly put in overtime. See Kohen v. Pacific Inv. Mgmt. Co. LLC, 571
F.3d 672, (7th Cir. 2009) (stating that defendant could have deposed a sample of the putative
class). Or the Bank could have attempted to discredit the testimony of any of the loan officers
regarding his or her estimated overtime hours. The Bank did not do so.
Defendants also argue that individual issues predominate as to the IMWL claim because
the trier of fact will have to determine whether each individual loan officer was either salaried or
paid on a commission basis. To the contrary, except for two outliers, Michelle Gorsuch and
Janet Norris, it appears that all loan officers were paid strictly on a commission basis prior to
2011. Pls.’ Ex. 2, Allen Dep. at 24–25; Pls.’ Ex. 3, 2/7/12 Dollenbacher Dep. at 243–45; Pls.’
Ex. 5, Klaus Dep. at 76. Compare Defs.’ Decert. Mot., Ex. H, Gorsuch Dep. at 122 (stating that
8
The Court takes judicial notice of the $8.00 per hour Illinois minimum wage as of May 7, 2010.
See, e.g., Iraheta v. Lam Yuen, LLC, No. CBD-12-1426, 2013 WL 6713219, at * 9 (D. Md. Dec. 18,
2013) (taking judicial notice of minimum wage under state law).
18
Gorsuch received a base salary, though it is unclear when), and Defs.’ Resp. Opp’n Class Cert.,
Ex. U, Norris Dep. at 52 (stating that Norris received an annual salary with regard to certificates
of deposit but received commissions on loans), with Pls.’ Ex. 8, Pls.’ Employment Contracts ¶ 3
(showing that compensation was purely commission-based). These outliers will, of course, be
required to substantiate the amount of their loss in subsequent damages proceedings.
Furthermore, a common issue will predominate regarding whether the form employment
contracts governing the vast majority of loan officers’ compensation guaranteed them a salary.
See 29 C.F.R. § 541.602(a) (stating that an employee will be considered to paid on a salary basis
“if the employee regularly receives each pay period . . . a predetermined amount” that “is not
subject to reduction because of variations in the quality or quantity of the work performed”).
Turning to Plaintiffs’ IWPCA, contract, and fraud claims, Defendants argue that proof of
these claims will depend on each loan officer’s individual interpretation of what the term
“revenue generated” means as it appears in the contracts. As an initial matter, Defendants have
not sought a determination as to whether the term “revenue generated” is ambiguous as a matter
of law. See generally Defs.’ Resp. Opp’n Class Cert. Furthermore, even if they had, Defendants
could not rely on subjective evidence to create ambiguity. See Home Ins. Co. v. Chi. & Nw.
Transp. Co., 56 F.3d 763, 768 (7th Cir. 1995) (“‘Subjective’ evidence of ambiguity is ‘the
testimony of the parties themselves as to what they believe the contract means,’ which is
invariably self-serving, inherently difficult to verify and thus, inadmissible.”). Defendants also
rely on two contradictory jury verdicts in cases involving the same breach of contract claim
against American Bank to show that contract interpretation may differ. See Defs.’ Ex. F,
Gennarelli Verdict (finding American Bank not liable for breach of contract); id., Ex. F,
Sommese Verdict (finding American Bank liable for breach of contract and awarding
19
$997,274.16 in contract damages). There are myriad reasons why certain claimants succeed at
trial and others do not. The verdict forms, standing alone, provide scant insight into the reasons
behind the different verdicts. Accordingly, such arguments are insufficient to defeat a finding of
predominance in light of the other common issues discussed above.
Based on the record, the Court finds that there are a number of common issues that apply
to all putative class members and are sufficiently central to the resolution of this action that they
predominate. For example, the issue whether the Bank improperly classified its loan officers as
exempt from minimum wage and overtime laws will be a significant aspect of this case that will
resolve the issue for all class members in one fell swoop. Similarly, another key issue is whether
the Bank precluded its loan officers from recording their overtime hours worked in January
2011. Additional issues central to this case include whether Defendants represented to loan
officers in their employment agreements that they would be paid commissions based on the
revenue generated from their loans, and whether the Bank had a policy of deducting an amount
from the revenue generated from the secondary sales of loans prior to calculating loan officer
commissions without informing them of this fact. All of these issues apply to the class as a
whole and are the driving forces of this litigation.
For these reasons, the Court concludes that the requirements of numerosity, commonality,
typicality, adequacy of representation, and predominance have been satisfied. Additionally, for
the same reasons, the Court finds that proceeding as a class action is a superior method for fairly
and efficiently adjudicating the disputed claims in this case. The Court, exercising its discretion
to promote the efficient litigation of this action, hereby certifies the following classes under Rule
23(b)(3):
(1) The “Illinois Minimum Wage Law Class” is defined as “All loan
officers employed by American Bank & Trust Company (‘AB&T’) in
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Illinois at any point in time from December 9, 2008, through January
2011.”
(2) The “Illinois Wage Payment and Collection Act Class” is defined as
“All loan officers employed by AB&T in Illinois at any point in time from
December 9, 2001, through January 2011.”
(3) The “Breach of Contract Class” is defined as “All loan officers
employed by AB&T at any point in time from December 9, 2006, through
January 2011.”
(4) The “Fraud Class” is defined as “All loan officers employed by AB&T
at any point in time from December 9, 2006, through January 2011.”
II.
Collective Action Under the FLSA
Defendants seek to decertify the FLSA collective action, which the Court conditionally
certified for the purpose of notice on March 12, 2014. The collective action is defined as: “All
loan officers employed by AB&T’s Mortgage Division from June 12, 2009, to the present, who
were paid on a commission basis and who were not paid minimum wage or overtime
compensation.” See Notice to FLSA Class, ECF No. 260.
“Under Section 216(b) of the FLSA, employees may bring a collective action on behalf
of themselves and other ‘similarly situated’ employees against employers who violate the Act’s
minimum wage or overtime provisions.” Smallwood v. Ill. Bell Tel. Co., 710 F. Supp. 2d 746,
750 (N.D. Ill. 2010) (quoting 29 U.S.C. § 216(b)). “District courts have considerable discretion
in implementing Section 216(b).” Allen v. City of Chi., No. 10 C 3183, 2013 WL 146389, at *2
(N.D. Ill. Jan. 14, 2013).
Importantly, “[t]he FLSA does not define the term ‘similarly
situated,’” Russell v. Ill. Bell Tel. Co., Inc., 721 F. Supp. 2d 804, 811 (N.D. Ill. 2010), and
“[n]either the Supreme Court nor the Seventh Circuit has specified a procedure courts must
employ to decide certification and notice issues under the FLSA.” Allen, 2013 WL 146389, at
*2. Notwithstanding this lack of explicit direction, “the majority of courts . . . have adopted a
21
two-step process for determining whether an FLSA lawsuit should proceed as a collective
action.” Jirak, 566 F. Supp. 2d at 847. Courts in this district routinely employ this two-step
process to determine whether FLSA claims should proceed as a collective action. See, e.g.,
Rottman v. Old Second Bancorp, Inc., 735 F. Supp. 2d 988, 990 (N.D. Ill. 2010) (“[C]ourts in
this district and around the country have settled on a two-step procedure for dealing with
collective actions under the FLSA.”) (internal citations omitted).
As part of the first step, a court decides whether to conditionally certify a collective
action. In so doing, a court evaluates whether the plaintiff can demonstrate that there are
similarly situated employees who may also be claimants. If a plaintiff can show that similarly
situated individuals exist, a court will grant conditional approval of the collective action and will
allow notice of the case to be sent to the similarly situated employees, who have the opportunity
to opt in as plaintiffs. See Heckler v. DK Funding, LLC, 502 F. Supp. 2d 777, 779 (N.D. Ill.
2007). The standards for conditional approval are “lenient,” Jirak, 566 F. Supp. 2d at 848, and
require only “‘a modest factual showing sufficient to demonstrate that [the named plaintiff] and
potential plaintiffs were victims of a common policy or plan that violated the law.’” Russell, 575
F. Supp. 2d at 933 (quoting Flores v. Lifeway Foods, Inc., 289 F. Supp. 2d 1042, 1045 (N.D. Ill.
2003)). “Since the ‘similarly situated’ standard is a liberal one, it ‘typically results in conditional
certification of a representative class.’” Rottman, 735 F. Supp. 2d at 990 (quoting Cameron–
Grant v. Maxim Healthcare Serv., Inc., 347 F.3d 1240, 1243 n.2 (11th Cir. 2003)).
As part of the second step, a court reevaluates the appropriateness of certification after
members of the collective action have opted in and the parties have conducted discovery. “Once
it is known which employees will be part of the class, the Court must reevaluate the conditional
certification to determine whether there is sufficient similarity between the named and opt-in
22
plaintiffs to allow the matter to proceed to trial on a collective basis.”
Id.
During this
reevaluation, a “[d]efendant may then move to decertify the class or divide the class into
subclasses.” Smallwood, 710 F. Supp. 2d at 753. “The Court must consider: (1) whether the
plaintiffs share similar or disparate factual and employment settings; (2) whether the various
affirmative defenses available to the defendant would have to be individually applied to each
plaintiff; and (3) fairness and procedural concerns.” Franks v. MKM Oil, Inc., No. 10 C 13, 2012
WL 3903782, at *10 (N.D. Ill. Sept. 7, 2012). “These factors help a court determine whether it
can manage the case and bring about a fair and reasonably expeditious resolution of the
collective action.” Russell, 721 F. Supp. 2d at 811.
As noted previously, the analysis to proceed as a collective action under Section 216(b)
addresses many of the same issues that are considered when determining whether class
certification under Rule 23 is appropriate. In fact, Defendants’ arguments to decertify the FLSA
collective action mirror their objections to commonality, typicality, and predominance under
Rule 23.
For the same reasons that the Court finds that Plaintiffs have satisfied the commonality,
typicality, and predominance requirements in Rule 23, the Court find that Plaintiffs have met
their burden to show that the opt-in plaintiffs are “similarly situated” under Section 216(b). See
Dekeyser v. Thyssenkrupp Waupaca, Inc., 314 F.R.D. 449, 456 (E.D. Wis. 2016) (“[A] minimum
logic would seem to dictate that a class satisfying Rule 23(a) and Rule 23(b)(3), including the
requirements of commonality, typicality,
adequacy of representation, predominance,
manageability, etc., also satisfies the FLSA’s less onerous ‘similarly situated’ requirement (even
if it is conceivable that the converse may not always be true).”). Defendants, however, have
23
raised some arguments in support of their motion to decertify the FLSA class that are not
included in their opposition to Plaintiffs’ motion to certify the state law classes.
First, Defendants contend that Plaintiffs are not similarly situated because some putative
class members had different job titles and perform other functions in addition to those of a loan
officer. Notably, however, Defendants do not point to any Plaintiff who did not spend most of
his or her time generating loan sales, regardless of title. More importantly, Plaintiffs provide
scads of examples of loan officers uniformly describing their functions as loan officers. See Pls.’
Mem. Law Opp’n Defs.’ Mot. Decertify Collective Action at 2 nn. 1–8.
Defendants also argue that certain Plaintiffs were not loan officers during their entire
tenure with the Bank. But this argument, and others like it, merely suggests that some Plaintiffs
may not recover as much in damages as others. It does not mean that Plaintiffs are not similarly
situated by being subjected to the Bank’s purportedly illegal policies that denied them a
minimum wage and overtime pay as loan officers.
Finally, Defendants assert that “highly individualized inquiries are needed to determine
the applicability of various affirmative defenses to each member’s claim.” Defs.’ Mem. Supp.
Mot. Decertify Collective Action 12. In support, Defendants point to the lack of records to
substantiate the hours that Plaintiffs worked. As discussed above, the Supreme Court has
lowered the bar for plaintiffs trying to prove uncompensated hours of work where their employer
has violated the FLSA’s recording requirements. See Mt. Clemens, 328 U.S. at 686–88 (holding
that FLSA employee has the burden to prove by evidence sufficient to raise a reasonable
inference that he performed work for which he was improperly compensated, and employer has
the burden of production to negate that the reasonableness of the inference), superseded on other
grounds by Portal-to-Portal Act of 1947, 29 U.S.C. §§ 251–62. That Defendants are required to
24
produce evidence to negate a reasonable inference of overtime hours worked by the class does
not preclude Plaintiffs from proceeding as a collective action.
In addition, Defendants contend that a few opt-in Plaintiffs’ claims are entirely outside
the FLSA’s statute of limitations. As explained in Russell v. Illinois Bell Telephone Co., Inc.,
however, where FLSA plaintiffs are subjected to common practices and policies, statute of
limitations issues do not preclude proceeding on a collective basis. 721 F. Supp. 2d at 821.
Moreover, such issues are easily addressed on summary judgment.
Accordingly, the Court declines to decertify the previously conditionally certified FLSA
collective action. The FLSA collective action class remains defined as: “All loan officers
employed by AB&T’s Mortgage Division from June 12, 2009, to the present, who were paid on
a commission basis and who were not paid minimum wage or overtime compensation.” See
Notice to FLSA Class, ECF No. 260.
Conclusion
For the reasons provided herein, the Court grants Plaintiffs’ motion for class certification
pursuant to Federal Rule of Civil Procedure 23(b)(3) regarding the state law claims [435] and
denies Defendants’ motion to decertify the conditionally certified FLSA collective action [445].
SO ORDERED
ENTER: 3/31/17
__________________________________________
JOHN Z. LEE
United States District Judge
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