Gina MCKEEN-CHAPLIN, individually, on behalf of others similarly situated, and on behalf of the general public, Plaintiff-Appellant, v. PROVIDENT SAVINGS BANK, FSB, Defendant-Appellee.
No. 15-16758
United States Court of Appeals, Ninth Circuit.
July 5, 2017
862 F.3d 847
Argued and Submitted April 21, 2017 San Francisco, California
V.
“To determine whether a [Colorado River] stay is warranted, the relevant factors must be balanced, with the balance heavily weighted in favor of the exercise of jurisdiction.” Madonna, 914 F.2d at 1372 (internal quotation marks omitted). Most of the Colorado River factors in this case are neutral or favor the exercise of jurisdiction by the district court. The reasons that the district court offered to justify abstention—that the parallel proceedings will involve piecemeal disposition of the issues, that state law provides the rule of decision, and that the state proceeding is better suited to promote resolution of all the issues among the partiеs—are likely to be present in nearly every instance of concurrent state and federal suits where state law provides the rule of decision. These concerns “do not create the ‘exceptional circumstances’ required for Colorado River deference because they are present to this degree in many instances of parallel federal-state litigation.” Id.; see also Neuchatel Swiss Gen. Ins. Co., 925 F.2d at 1195. The Federal and State Actions are parallel disputes occurring in multiple fora and cоncerning substantially the same issues. Nothing about this case is “exceptional” so as to warrant disregarding the “virtually unflagging obligation” of a federal court to exercise its jurisdiction. The district court‘s application of Colorado River was an abuse of its narrow discretion, essentially transforming the strong presumption against abstention into a presumption in favor of abstention where state law issues predominate. We therefore VACATE the stay order and REMAND to the district court for further proceedings.
VACATED; REMANDED.
Michael L. Ludwig (argued), Howard M. Knee (argued), and Caitlin Sanders, Blank Rome LLP, Los Angeles, California, for Defendant-Appellee.
OPINION
THOMAS, Chief Judge:
This appeal presents the question of whether a class of mortgage underwriters are entitled to overtime compensation under the Fair Labor Standards Act (“FLSA” or “the Act“),
I
Provident Savings Bank (“Provident” or “the Bank“) sells mortgage loans to consumers purchasing or refinancing homes and then resells those funded loans on the secondary market. Mortgage underwriters at Provident review mortgage loan applications using guidelines establishеd by Provident and investors in the secondary market, including Fannie Mae, Freddie Mac, and the Fair Housing Administration.
Loan transactions begin with a loan officer or broker who works with a borrower to select a particular loan product. A loan processor then runs a credit check, gathers further documentation, assembles the file for the underwriter, and runs the loan through an automated underwriting system. The automated system applies certain guidelines based on the information input and then returns a preliminary decision. From there, the file goes to a mortgage underwriter, who verifies the information put into the automated system and compares the borrower‘s information against the applicable guidelines, which are specific to each loan product.
Mortgage underwriters are responsible for thoroughly analyzing complex customer loan applications and determining borrower creditworthiness in order to ultimately decide whеther Provident will accept the requested loan. They may impose conditions on a loan application and refuse to approve the loan until the borrower satisfies those conditions. The decision as to whether to impose conditions is ordinarily controlled by the applicable guidelines, but the underwriters can include additional conditions. They can also suggest a “counteroffer“—which would be communicated through the loan officer—in cases where a borrower does not qualify for the loan product selected, but might qualify for a different loan. Underwriters may also request that Provident make exceptions in certain cases by approving a loan that does not satisfy the guidelines.
After a mortgage underwriter approves a loan, it is sent to other Provident employees who finalize the loan funding. Underwriters say that whether a loan is funded ultimately depends on factors beyond the underwriter‘s control. Another group
On behalf of herself and a class of mortgage underwriters, Gina McKeen-Chaplin brought this action seeking overtime compensation under FLSA. The district court conditionally certified an opt-in class of current and former mortgage underwriters at Provident. Initially, the district court denied cross motions for summary judgment and set the case for trial. But later, on the parties’ joint motion for reconsideration, the court concluded that the underwriters qualify for the administrative exemption, based on finding that their primary duty included “quality control” or similar activities directly related to Provident‘s general business operations, and thus the district court granted summary judgment in favor of Provident. This timely appeal followed.
Whether an employee‘s primary duties exclude her from FLSA overtime benefits is a question of law to be reviewed de novo. Bothell v. Phase Metrics, Inc., 299 F.3d 1120, 1124 (9th Cir. 2002); Bratt v. Cty. of L.A., 912 F.2d 1066, 1068 (9th Cir. 1990). And we “must give deference to DOL‘s [the Department of Labor‘s] regulations interрreting the FLSA.” Webster v. Pub. Sch. Emps. of Wash., Inc., 247 F.3d 910, 914 (9th Cir. 2001) (citing Auer v. Robbins, 519 U.S. 452, 457 (1997)).
We review a district court‘s grant of summary judgment de novo. Swoger v. Rare Coin Wholesalers, 803 F.3d 1045, 1047 (9th Cir. 2015). Summary judgment is appropriate where “no genuine dispute as to any material fact” exists such that “the movant is entitled to judgment as a matter of law.”
II
Ordinarily, FLSA provisions require employers to pay emplоyees time and a half for overtime work—that is, work in excess of forty hours per week.
A
To determine whether employees qualify for the administrative exemption,
Accordingly, Provident must prove that the mortgage underwriters meet all three duty requirements. See Bothell, 299 F.3d at 1125 (citing Mitchell v. Williams, 420 F.2d 67, 69 (8th Cir. 1969) (“The criteria provided by regulations are absolute and the employer must prove that any particular employee meets every requirement before the employee will be deprived of the protection of [FLSA].“)); Bratt, 912 F.2d at 1069. It is undisputed that the salary requirement is satisfied. But because the underwriters’ duties go to the heart of Provident‘s marketplace offerings, not to the internal administration of Provident‘s business, see Bothell, 299 F.3d at 1126, Provident cannot prove that the mortgage underwriters qualify for the administrative exemption.
B
To satisfy the second requirement, an employee‘s primаry duty must involve office or “non-manual work directly related to the management policies or general business operations” of Provident or Provident‘s customers. Bothell, 299 F.3d at 1125 (emphasis in original) (quoting
But the dichotomy “is only determinative if the work ‘falls squarely on the production side of the line.‘” 69 Fed. Reg. 22122, 22141 (Apr. 23, 2004) (quoting Bothell, 299 F.3d at 1127).3 And this means the analysis can be complicated. In fact, in the last decade, two of our sister Circuits have assessed whether mortgage underwriters qualify for FLSA‘s administrative exemption and have come to opposite conclusions. The Second Circuit held in Davis v. J.P. Morgan Chase & Co., 587 F.3d 529 (2d Cir. 2009), that “the job of underwriter... falls under the category of production rather than of administrative work.” Id. at 535.
In contrast, the Sixth Circuit held recently that mortgage underwriters are exempt administrators, explaining that they “perform work that services the Bank‘s business, something ancillary to [the Bank‘s] principal production activity.” Lutz v. Huntington Bancshares, Inc., 815 F.3d 988, 995 (6th Cir. 2016). In disagreeing with the Second Circuit, the Sixth Circuit understoоd mortgage underwriters to perform “administrative work because they assist in the running and servicing of the Bank‘s business by making decisions about when [the Bank] should take on certain kinds of credit risk, something that is ancillary to the Bank‘s principal production activity of selling loans.” Id. at 993; see also id. at 995 (explaining that Sixth Circuit precedent focuses “on whether an employee helps run or service a business—not whether that employee‘s duties merely touch on a production activity“).4
Given the undisputed facts prеsented in this case, we conclude that the Second Circuit‘s analysis in Davis should apply. Provident‘s mortgage underwriters do not decide if Provident should take on risk, but instead assess whether, given the guidelines provided to them from above, the particular loan at issue falls within the range of risk Provident has determined it is willing to take. Assessing the loan‘s riskiness according to relevant guidelines is quite distinct from assessing or determining Provident‘s business interests. Mortgage underwriters are told what is in Provident‘s best interest, and then asked to ensure that the product being sold fits within criteria set by others. In Davis, the Second Circuit came to a similar conclusion:
Underwriters... performed work that was primarily functional rather than conceptual. They were not at the heart of the company‘s business operations. They had no involvement in determining
C
DOL‘s codified examples of exempt administrative employees, including especially the descriptions of insurance claims adjusters and employees in the financial services industry, buttress our conclusion.
Specifically, the example describes duties such as “interviewing,” “inspecting property damage,” “reviewing factual information,” “evaluating and making recommendations regarding coverage of claims,” “dеtermining liability,” “negotiating settlements,” and “making recommendations regarding litigation.”5
The financial-services industry example also includes descriptors that do not correspond with the underwriters’ primary duty, which aims more at producing a reliable loan than at “advising” customers or “promoting” Provident‘s financial products. See
Moreover, the financial-services-industry example does not “create[] an alternative standard for the administrative exemption for employees in the financial services industry” and it “is not an alternative test, and its guidance cannot result in the ‘swallowing’ of the requirements of
DOL has also specifically analyzed mortgage loan officers and made clear that they “do not qualify as bona fide administrative employees” because they “have a primary duty of making sales for their employers.” DOL Wage & Hour Div. Op. Ltr., at *9 (Mar. 24, 2010). Mortgage underwriters are distinct from mortgage loan officers in the mortgage production process—most significantly because their primary duty is not making sales on Provident‘s behalf. But they are not so distinct as to be lifted from the production side into the ranks of administrators.
Thus, we conclude that where a bank sells mortgage loans and resells the funded loans on the secondary market as a primary font of business, mortgage underwriters who implement guidelines designed by corporate management, and who must ask permission when deviating from protocol, are most accurately considеred employees responsible for production, not administrators who manage, guide, and administer the business. See Davis, 587 F.3d at 535 (“[W]e have drawn an important distinction between employees directly producing the good or service that is the primary output of a business and employees performing general administrative work applicable to the running of any business.“); DOL Wage & Hour Div. Op. Ltr., at *3 (Mar. 24, 2010) (quoting Davis, 587 F.3d at 535); see also In re Farmers Ins., 481 F.3d at 1129 (“We must give deference to the DOL‘s interpretation of its own regulations.“).
D
The district court concluded that Provident underwriters performed work that related to “quality control,” such that it constituted “[w]ork directly related to management or general business operations,” within the meaning of
The underwriters’ statement of undisputed facts outlined several significant aspects of Provident‘s quality control process. First, prior to closing, Provident used an outside company to perform quality control functions, primarily assessing for material deficiencies that affect salability.
In recounting the undisputed facts, the district court‘s opinion does not mention quality control, yet it made the legal conclusion that Provident‘s underwriters qualify for the administrative exemption primarily because of their quality control duties. The district court mentioned that “Provident uses аn outside company to perform quality control functions,” and “has an internal Corporate Loan Committee that completely re-underwrites 10% of the loans.” Without discussing the significance of those facts, however, the district court then stated that because the “underwriters ‘must apply Provident‘s guidelines or lending criteria as well as agency guidelines... to determine whether [a] particular loan falls within the level of risk Provident is willing to accept... Provident has shown Plaintiffs’ primary duty included ‘quality control,‘” such that they are entitled to the administrative exemption.
The record does not support this conclusion. And the district court made no finding as to the legal significance of the quality control functions that the record establishes are in place at Provident.
Provident contends that because the underwriters do not work on a manufacturing production line and do not sell, they cannot fall on the production side of the administrative-production dichotоmy. This assertion fails to take into account the mortgage underwriters’ role within Provident. Indeed, to permit the administrative exemption of an assembly line worker who checks whether a particular part was assembled properly—simply because that role bears a resemblance to quality control—would run counter to the essence of FLSA. But even if mortgage underwriters could not be cast by analogy as workers in an assembly line, the administrative-production dichotomy is not a perfectly determinative one, and the law requires that we construe the administrative exemption narrowly against the employer.
Mortgage underwriters are essential to Provident‘s business, as are loan officers and many others who do not qualify for FLSA‘s administrative exemption. See Martin v. Cooper Elec. Supply Co., 940 F.2d 896, 903 (3d Cir. 1991) (“[I]t is important to consider the nature of the employer‘s business when deciding whether an employee is an administrative or production worker.“). However, the question is not whether an employee is essential to the business, but rather whether her primary duty goes to the heart of internal administration—rather than marketplace offerings. See Bothell, 299 F.3d at 1126. Mortgage underwriters at Provident are not administrators or corporate executives; their tasks are related to the production side of the enterprise.
E
For these reasons, we must reverse the district court‘s grant of summary judgment in favor of Provident and remand with instructions to enter summary judgment in favor of Gina McKeen-Chaрlin and the mortgage underwriters.
REVERSED.