McKeen-Chaplin v. Provident Savings Bank: 9th Cir. Finds Mortgage Underwriters Not Exempt from FLSA OT

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On July 5, 2017, in a decision which deepens a split among the Circuits, McKeen-Chaplin v. Provident Savings Bank, FSB, the Ninth Circuit Court of Appeals held that mortgage underwriters are not exempt from FLSA overtime requirements. No. 15-16758 (9th Cir. July 5, 2017) (slip op. available here). The panel found that Provident Savings Bank’s mortgage underwriters qualify for neither the “administrative exemption” nor the “white-collar exemption” from the FLSA overtime requirements, reversing the district court’s grant of summary judgment in favor of the bank.

Provident sells mortgage loans to consumers purchasing or refinancing homes and then resells those funded loans on the secondary market. Underwriters at Provident apply guidelines established by the bank in analyzing loan applications to determine prospective borrowers’ creditworthiness and could impose conditions on loan applications based on the underwriter’s analysis or request that Provident make exceptions to its guidelines in certain cases. However, Provident’s underwriters were not responsible for finalizing loan funding or the sale of approved loans, or for selling approved loans on the secondary market. Provident’s underwriters often worked more than 40 hours in a workweek but were never provided overtime compensation, as they were classified as exempt.

In 2012, McKeen-Chaplin filed suit against Provident on behalf of herself and other mortgage underwriters, alleging overtime violations. Provident moved for summary judgment, arguing that the underwriters are exempt from FLSA overtime pay requirements under the administrative exemption, which is reserved for employees whose primary duties involve the exercise of discretion and independent judgment on matters of significance to the business. The plaintiff asserted that an employee’s work must relate to a company’s management or general business operations for the “administrative exemption” to apply, and that here, the employees’ work did not relate to Provident’s management or general business operations because underwriting home mortgage applications was more akin to being a part of a production line, generating a product or service offered by the business, rather than running or servicing the business.  However, the district court ruled that the underwriters’ primary duties qualified them as exempt under the “administrative exemption” because Provident’s underwriters were primarily providing “quality control” assurances to their employer that directly related to the employer’s business operations. Slip op. at 5.

The Ninth Circuit reversed the district court, focusing its analysis on the fact that Prudential’s mortgage underwriters had no authority to decide whether to “take on risk, but instead assessed whether . . . the particular loans at issue fall within the range of risk Provident has determined it is willing to take.” Slip op. at 10. Analyzing the issue under the Department of Labor’s “short duties” test set forth in 29 C.F.R. section 541.700(a), the Court of Appeals reasoned that Provident’s underwriters fell on the “production” side of the “administrative-production dichotomy” because their duties relate more to the creation and sale of the bank’s products than to the actual, general operation of the bank itself. In so ruling, the Ninth Circuit avoided finding that, as a matter of law, mortgage underwriters could never qualify for the administrative exemption because an underwriter who has more authority to set policy for its employer could arguably meet the “administrative exemption.” The Court of Appeals’ ruling also affirmed a long-standing Ninth Circuit precedent that an employee’s work must relate to company management or general business operations for this exemption to apply.

In McKeen-Chaplin, the Ninth Circuit sided with the Second Circuit, which, in 2009, held that the administrative exemption did not apply to underwriters at J.P. Morgan Chase. Davis v. J.P. Morgan Chase & Co., 587 F.3d 529 (2d Cir. 2009). More recently, the Sixth Circuit rejected the Second Circuit’s analysis in reaching the opposite conclusion in a case involving underwriters with Huntington Bancshares. See Lutz v. Huntington Bancshares, Inc., 815 F.3d 988, 995 (6th Cir. 2016). Until this circuit split is taken up and resolved by the U.S. Supreme Court, employers of mortgage underwriters will need to carefully review underwriters’ duties to determine whether they are properly classified as exempt under the FLSA.

Authored by:
Jordan Carlson, Associate

McKnight v. Uber “Safe Rides” Settlement for Consumers

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After the district court rejected their first deal in McKnight, et al. v. Uber Technologies, Inc., et al., No. 3:14-cv-05615-JST (N.D. Cal.), the plaintiffs and Uber have submitted an amended settlement for approval. See Plaintiffs’ Notice of Motion and Motion for Preliminary Approval of Class Action Settlement, available here. The $32.5 million settlement would resolve the plaintiffs’ claims that Uber misled consumers about the quality of the background checks on the drivers and whether all of the “safe rides” fees charged by Uber go toward safety measures. The revised deal adds $4 million to the fund. More importantly, the amended settlement now excludes consumers who did not pay the “safe rides” fee, reducing the class size by over 2 million, according to the plaintiffs in their motion for preliminary approval.

The restructured deal is aimed at fixing problems identified by District Judge Jon S. Tigar in denying preliminary approval of the parties’ initial settlement. See Order Denying Motion for Preliminary Approval, Philliben, et al. v. Uber Technologies, Inc., et al., No. 3:14-cv-05615-JST (N.D. Cal. Aug. 30, 2016) (slip op. available here). According to Judge Tigar, the initial settlement fell short of the standard for preliminary approval because it failed to distinguish between consumers who paid the “safe rides” fee from those who had not—all were paid under the same payment formula. For Judge Tigar, the settlement structure unfairly diluted the payments to consumers who were more deserving of payment. By excluding consumers who did not pay the “safe rides” fee from the class definition, the amended settlement eliminates the dilution problem. Those excluded consumers also would not be releasing any claims, so they retain the right to pursue claims on their own. Judge Tigar also asked for more extensive analysis of the value of the claims had the class prevailed at trial, which the plaintiffs provide in the renewed motion for preliminary approval.

Consumer and plaintiffs’ advocates should continue to monitor this settlement to get a further read on how courts are evaluating settlements involving the controversial ride-sharing company. To be sure, the prior version of the settlement illustrates the danger of a settlement that sweeps too broadly and fails to tailor the settlement structure to the allegations in the complaint. While the amended settlement appears to represent a strong victory for consumers, the court will surely scrutinize the settlement closely. The closely-watched preliminary approval hearing scheduled for July 6 was vacated on June 27, 2017; the court is expected to issue its order shortly.

Authored By:
Ryan Wu, Senior Counsel

Third Time’s the Charm for Karapetyan v. ABM Wage-and-Hour Settlement

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Following three rounds of briefing in support of Plaintiff Vardan Karapetyan’s motion for preliminary approval of his class action settlement, on June 12, 2017, U.S. District Judge George H. Wu granted preliminary approval of a $5 million wage-and-hour settlement on behalf of current and former employees of Defendants ABM Industries Incorporated and ABM Security Services, Inc. in Karapetyan v. ABM Industries Inc., et al., No. CV15-08313GW, Order Granting Preliminary Approval of Class Action Settlement (C.D. Cal. June 12, 2017) (slip op. available here).

The plaintiff alleged that ABM violated the California Labor Code by not providing class members with meal and rest breaks; failing to pay premium wages for missed meal and rest breaks, overtime wages, other unspecified unpaid wages, and wages upon termination; and by failing to provide accurate wage statements. Following the California Supreme Court’s decision in Augustus v. ABM Security Services, Inc. (2016) 2 Cal. 5th 257, which clarified that employers may not require employees to take on-duty and/or on-call rest periods (previously covered on ILJ here), the parties agreed to participate in mediation. With the mediator’s guidance, the parties settled the claims for a $5 million non-reversionary common fund, inclusive of class member payments (proportional to the number of weeks each class member worked during the class period), administrative costs, an incentive award, attorneys’ fees and costs, a payment to the Labor and Workforce Development Agency, and payroll taxes. The plaintiff moved for preliminary approval of the class action settlement on April 19, 2017.

On May 1, 2017, Judge Wu denied the motion on class certification grounds; namely, that Karapetyan had failed to demonstrate through sufficient evidence that the typicality and predominance elements of conditional class certification had been met. Karapetyan v. ABM Industries Inc., et al., No. CV15-08313GW, Order Denying Preliminary Approval of Class Action Settlement (C.D. Cal. May 1, 2017), at 2 (slip op. available here). Within a few weeks of the denial, the plaintiff renewed his motion for preliminary approval with an expanded typicality and predominance analysis. The renewed motion persuaded Judge Wu that conditional certification of the proposed settlement class was appropriate, but fell short of demonstrating to his satisfaction that the settlement was within the range of possible approval: “ . . . Plaintiff does not appear to provide the Court with any information of what amount he believes may have been recoverable if this case were litigated to completion. While the Court recognizes that settlement of complex actions such as the instant one are seen as favorable, . . . it may be difficult for the Court to determine whether the settlement figure is “within the range of possible approval” absent some information on the potential recovery. Plaintiff also does not indicate what the average recovery might be as a result of the settlement.” Karapetyan v. ABM Industries Inc., et al., No. CV15-08313GW, Order on Amended Motion for Preliminary Approval (C.D. Cal. June 5, 2017), at 4-5 (slip op. available here).

In the third and final round of briefing, the plaintiff argued that that the maximum possible award at trial would be between $12 and $16 million dollars, given which, the settlement was within the range of possible approval:

Augustus provides a benchmark [for evaluating the claims in this case], as it was litigated to completion under similar facts. Augustus was a $90 million judgment covering 10 years, almost 15,000 employees and certain undisputed evidence which led to a finding of liability, damages, interest and penalties. The case before this Court has about 4 years of exposure, 7,000 employees, the possibility of arbitration agreements impacting or limiting the litigation, less pre-judgment interest, and different testimony and documentation on liability. I believe the recovery in this case, had it proceeded, would reasonably be in the range of $12 million to $16 million.

Karapetyan v. ABM Industries Inc., et al., No. CV15-08313GW, Declaration of Michael B. Adreani in Support of Amended Motion for Preliminary Approval, at 6 (available here).

On the strength of these recitals, Judge Wu found that the settlement was within the range of possible approval, and, after having reviewed and approved the parties’ amendments to the settlement (the parties were asked to amend the settlement to address certain “nits”), granted preliminary approval of the $5 million settlement. Note that despite having to submit three rounds of briefing in support of the motion for preliminary approval, the concise analysis above was all that was needed to establish that the settlement was within the range of reasonableness. This is because at the preliminary approval stage, the moving party need only establish that the settlement is “’within the range of possible approval’ and whether or not notice should be sent to class members” rather than whether the settlement is in fact “fair, reasonable, and adequate,” pursuant to Fed. R. Civ. P. 23(e)(2), a determination which is made at the final approval stage. Karapetyan v. ABM Industries Inc., et al., No. CV15-08313GW, Order on Amended Motion for Preliminary Approval (C.D. Cal. June 5, 2017), at 2-3.

The final fairness hearing is set for September 7, 2017, at 8:30 a.m.

Authored by:
Eduardo Santos, Associate

Bruton v. Gerber Products: 9th Cir. Reverses Class Cert. Denial, Finds Label Claims Can Be “Technically True” Yet “Misleading”

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In April, the Ninth Circuit issued a decision that bodes well for consumer-plaintiffs suing for deceptive advertising based on foods with label claims that may technically be true, but are nonetheless misleading. See Bruton v. Gerber Products Company, No. 15-15173 (9th Cir., April 19, 2017) (slip op. available here). The three-judge panel reversed and remanded the Northern District of California’s denial of certification, among other orders. The court of appeals’ order provides a roadmap to consumers seeking relief after purchasing foods with labels that may be literally true, but still are deceptive.

In 2012, Plaintiff Natalia Bruton sued Gerber and its parent company, Nestle, in the Northern District of California after purchasing baby food labeled with health claims that violated Food and Drug Administration (FDA) regulations. She sought class certification in 2013, arguing the “No Added Sugar,” “As Healthy As Fresh,” and similar health claims were misleading and violated California’s Unfair Competition Law (UCL), False Advertising Law (FAL), and Consumers Legal Remedies Act (CLRA). Bruton argued that even if the health claims were technically true, they were nevertheless misleading in context, as the offending products appeared on supermarket shelves alongside other foodmakers’ offerings whose labels lacked such claims.

The district court granted summary judgment to Gerber, finding that, because the label claims were literally true, there was no likelihood that a reasonable consumer would be deceived by the representations, as required to make out a claim under the CLRA, UCL, or FAL. The district court also denied the plaintiff’s motion for class certification for lack of “ascertainability,” finding that plaintiff’s suggested method of utilizing self-identifying affidavits from class members “administratively unfeasible,” due to the number of products at issue, the variations in product labeling during the class period, the uncertain length of time it takes for newly-labeled products to appear in stores, among other reasons. Bruton v. Gerber Products Company, No. 12-CV-02412-LHK (N.D. Cal. June 23, 2014), Order Denying Plaintiff’s Motion for Class Certification, at 15. Thus, the court concluded that the plaintiff did not put forth a class definition that was “sufficiently definite so that it is administratively feasible to determine whether a particular person is a class member.” Id. at 15 (citing Sethavanish v. ZonePerfect Nutrition Co., 2014 WL 580696 at *4) (internal citations omitted).

In reversing and remanding the district court’s summary judgment decision, the Ninth Circuit panel found that “Bruton’s theory of deception does not rely on proving that any of Gerber’s labels were false.” Slip op. at 3. The court of appeals accepted the plaintiff’s argument that the labels, while “technically true,” were misleading in context: “[W]hen the maker of one product complies with a ban on attractive label claims, and its competitor does not do so, the normal assumptions no longer hold, and consumers will possibly be left deceived.” Id. at 5. The panel also reversed the denial of certification, finding the decision was inconsistent with a Ninth Circuit decision, Briseno v. ConAgra Foods, Inc., 844 F.3d 1121 (9th Cir. 2017), which was decided after the district court issued its ruling. In Briseno, the Ninth Circuit held there was no separate “administrative feasibility” requirement for class certification. “Administrative feasibility,” the panel said here, was different terminology for the same concept—the notion that a class is not manageable because its members cannot be easily identified. Slip op. at 3. This portion of the ruling was remanded for the lower court to further consider whether class certification is appropriate.

The Bruton case shows that label claims can be literally true, yet still deceptive to consumers, such as food products that do not normally contain added sugars that claim they have “No Sugar Added.” Plaintiffs seeking relief after being misled by labels have yet another Ninth Circuit ruling to rely upon to bolster their consumer claims.

Authored by:
Cody Padgett, Associate