Dave Miller, on behalf of himself and the class members in MDL Case No. 1439 v. Farmers Insurance Exchange; Farmers Group, Inc.; Plan Administrator of the Farmers Group, Inc. Profit Sharing Savings Plan Trust; Plan Administrator of the Farmers Group, Inc. Employees’ Pension Plan
Nos. 05-35080, 05-35145, 05-35082, 05-35146, 05-35509, 05-35501
United States Court of Appeals, Ninth Circuit
October 26, 2006
467 F.3d 820
I vigorously disagree with the majority. I think that the majority finds a prima facie case of prosecutorial misconduct where there was none; I think that the majority should have addressed the prima facie case it concocted by remanding to the district court for an evidentiary hearing; and I think that the majority should not have deviated from our Westerdahl precedent by presuming Edmonds’s internally and mutually conflicting affidavits to be true instead of remanding for an evidentiary hearing with a grant of immunity. But I need not be right on every single one of these points to render my position correct and the majority’s erroneous. If I am correct on any single one of these issues, the majority has erred in its disposition of this case.
But most egregiously, even if we indulge in all of the majority’s legal innovations, the majority cannot escape the facts of this case. Smith is guilty of felony murder. He has no affirmative defense. The Schlup gateway is closed to him, and no amount of prying and tugging—not even with a crowbar and a rope—can get it open.
I respectfully dissent.
Dave Miller, on behalf of himself and the class members in MDL Case No. 1439, Plaintiffs-Appellants, v. Farmers Insurance Exchange, Defendant-Appellee, and Farmers Group, Inc.; Plan Administrator of the Farmers Group, Inc. Profit Sharing Savings Plan Trust; Plan Administrator of the Farmers Group, Inc. Employees’ Pension Plan, Defendants. In re Farmers Insurance Exchange, Claims Representatives’ Overtime Pay Litigation, Dave Miller, on behalf of himself and the class members in MDL Case No. 1439, Plaintiffs-Appellees, v. FARMERS INSURANCE EXCHANGE, Defendant-Appellant, and Farmers Group, Inc.; Plan Administrator of the Farmers Group, Inc. Profit Sharing Savings Plan Trust; Plan Administrator of the Farmers Group, Inc. Employees’ Pension Plan, Defendants. In re Farmers Insurance Exchange, Claims Representatives’ Overtime Pay Litigation, Jesse Corralez, on behalf of himself and the class members in MDL Case No. 1439, Plaintiffs-Appellants, v. Farmers Insurance Exchange, Defendant-Appellee, and Farmers Group, Inc.; Plan Administrator of the Farmers Group, Inc. Profit Sharing Savings Plan Trust; Plan Administrator of the Farmers Group, Inc. Employees’ Pension Plan, Defendants. In re Farmers Insurance Exchange, Claims Representatives’ Overtime Pay Litigation, Jesse Corralez, on behalf of himself and the class members in MDL Case No. 1439, Plaintiffs-Appellees, v. Farmers Insurance Exchange, Defendant-Appellant, and Farmers Group, Inc.; Plan Administrator of the Farmers Group, Inc. Profit Sharing Savings Plan Trust; Plan Administrator of the Farmers Group, Inc. Employees’ Pension Plan, Defendants.
Nos. 05-35080, 05-35145, 05-35082, 05-35146, 05-35509, 05-35501
United States Court of Appeals, Ninth Circuit
Argued and Submitted Sept. 14, 2006. Filed Oct. 26, 2006.
467 F.3d 820
Theodore J. Boutrous, Jr., Deborah J. Clarke, Elisabeth C. Watson, Gibson, Dunn & Crutcher LLP, Los Angeles, CA, and Barnes H. Ellis, James N. Westwood, Stoel Rives LLP, Portland, OR, for defendants Farmers Insurance Exchange, et al.
Before SILVERMAN and GOULD, Circuit Judges, and JOHN S. RHOADES, SR.,* District Judge.
SILVERMAN, Circuit Judge.
For more than 50 years, the Department of Labor has considered claims adjusters exempt from the Fair Labor Standard Act’s overtime requirement. In 2004, the DOL promulgated
In this case, the plaintiffs are nearly 2,000 former and current claims adjusters who handle, respectively, automobile damage claims, non-automobile property damage claims, personal injury claims and various combinations of these. They assert that their employer improperly classified them as exempt from the FLSA. The district court ruled that some of them are exempt, and some of them are not. In doing so, the district court promulgated a “$3,000 in claims paid per month” rule, a rule that all parties to this appeal agree is neither workable nor supported by the evidence.
We hold today that all of the adjusters in this case are exempt. The district court’s factual findings establish that, regardless of the type (personal injury v. property) or size (large v. small) of the claims they handle, the adjusters are required to do virtually all of the very things that
Background
A. Farmers’ business and the role of adjusters
Farmers Insurance Exchange (“FIE”) is a reciprocal or inter-insurance exchange providing insurance throughout the country.1 As a reciprocal exchange company, FIE is owned by its policyholders, or “subscribers,” who exchange contracts with one another and, by pooling their resources, insure one another against certain losses. FIE, whether on its own or through its related companies, performs all the functions of a typical insurance company, including selling policies, contracting with individual agents who sell and service policies, procuring reinsurance and adjusting claims made on its policies.2
Around 50 percent of FIE’s 10,000 employees are claims adjusters. Most claims adjusters work out of their homes, and FIE provides them with company cars, phone lines, computer support, printers and fax machines. Claims adjusters spend significant time on the road, driving to locations where a loss or accident occurred. Branch managers in FIE’s 120 to 160 branch offices nationwide supervise the claims adjusters. Claims adjusters do not supervise other employees.
FIE employs five types of claims adjusters in its personal lines business: those who handle automobile property damage
FIE puts significant emphasis on paying exactly what it owes under the policy, “nothing more, nothing less.” To that end, FIE provides each adjuster with written guidelines and training materials to aid them in the claims handling process. Some procedures are mandatory, while others are merely recommendations. Adjusters are subject to quality assurance audits at any time, but most are performed after the claim is closed. The primary goal of the audits is to determine “lost economic opportunity,” a subjective assessment of the difference between what was paid and what could have been paid if the adjuster had correctly handled the claim. The audits ensure that adjusters are following FIE’s “best practices,” which are any actions that can be implemented to prevent lost economic opportunity. FIE’s goal is to limit overpayment to two percent for automobile damage and liability claims, and slightly more than two percent for other property losses.
Claims adjusters use computer software to help them estimate the damage or loss; indeed, FIE expects its adjusters to use estimating software “whenever possible or appropriate.” Estimating software “acts as a price database,” much like parts catalogs, vendor quotes, and jury verdicts, and its usefulness largely is dependent, in many cases, on the quality of the information the adjuster develops before turning to the estimating software.
FIE’s claims adjusters are classified at one of three levels, depending on experience and performance: claims adjuster, senior claims adjuster and special claims adjuster. Within any particular line of insurance, the duties of all three are mostly the same. One difference, however, is their settlement authority. The branch manager has discretion to set each adjuster’s settlement authority, and generally, less experienced adjusters have lower authority levels. On any given claim, an adjuster’s settlement authority can be raised with supervisor approval. On average, each adjuster pays approximately $1 million in claims per year, ranging from $2,800 to $8,000 per claim.
During all times relevant to this appeal, FIE paid its claims adjusters on a salary basis, not an hourly basis.3 Many adjusters worked more than 40 hours per week during the class period, but FIE did not pay them overtime.
B. The lawsuits
In late 2001 and early 2002, a group of current and former claims adjusters filed a series of FLSA actions against FIE on behalf of themselves and similarly-situated adjusters, seeking overtime pay for the weeks in which they worked more than 40 hours. In March 2002, the Panel on Multidistrict Litigation transferred the various actions to the district court below for consolidated pretrial proceedings. The district court certified a FLSA collective action, which, under the Act, required any unnamed former or current claims adjusters to formally “opt-in” if they wanted to
The parties later stipulated to certification of seven state law classes, comprised of individuals from Colorado, Illinois, Michigan, Minnesota, New Mexico, Oregon and Washington. In addressing whether “common questions predominate,” as required by
Each of the state law classes was an “opt-out” class, that is, individuals were automatically included in the state law action unless they filed the appropriate notice with the district court. Some adjusters sought relief under state law only; they did not opt-in to the FLSA collective action, nor did they opt-out of their respective state law class.
On the parties’ stipulation, the district court retained jurisdiction after class certification. The parties waived their right to a jury trial, and agreed to bifurcate the bench trial into a liability phase and, if necessary, a damages phase. The sole issue at the liability phase was whether FIE properly classified its adjusters as exempt from federal and state overtime laws, and if not, whether FIE could assert any defenses to liability or damages.
The district court conducted a three-week bench trial, and then issued its Findings of Fact and Conclusions of Law. In its order, the district court concluded that: (i) automobile damage adjusters are non-exempt; (ii) property adjusters are non-exempt if more than 50 percent of their payouts in any one month are less than $3,000;4 (iii) Foremost adjusters are non-exempt if they spend more than 38-3/4 hours per week handling residential property claims on which the pay-out averages, on a monthly basis, less than $3,000; (iv) multi-line adjusters are non-exempt if they spend more than 38-3/4 hours per week handling automobile damage claims in any amount and/or residential property claims on which the pay-out averages, on a monthly basis, less than $3,000; (v) all other adjusters, including liability adjusters, are exempt and (vi) Michigan’s overtime law applied to FIE. The district court awarded nearly $52.5 million to the 1,039 former and current adjusters who filed the necessary claims paperwork. These appeals followed.
The district court also concluded that FIE‘s violations of the FLSA were “willful” after September 12, 2001, entitling plaintiffs to a three-year (instead of a two-year) statute of limitations as to those violations. The district court went on to conclude that FIE failed to prove it acted in good faith after September 12, 2001, precluding any defense to FLSA liability and permitting liquidated damages for violations after that date. Because we conclude that all of the claims adjusters in this case are exempt, we do not reach the issues of willfulness or FIE‘s good faith defenses to liability and liquidated damages.
Analysis
I. FLSA Claim
Under the FLSA, certain employers must pay their employees time and a half for work in excess of 40 hours per week:
Except as otherwise provided in this section, no employer shall employ any of his employees who in any workweek is
engaged in commerce or in the production of goods for commerce ... for a workweek longer than forty hours unless such employee receives compensation for his employment in excess of the hours above specified at a rate not less than one and one-half times the regular rate at which he is employed.
The FLSA delegates to the Secretary of Labor broad authority to “define[] and delimit[]” the scope of the administrative exemption.
There is no dispute that the claims adjusters in this case performed “office or nonmanual work.” The dispute centers around the remaining requirements of the duties test.
A. The DOL regulation
Insurance claims adjusters generally meet the duties requirements for the administrative exemption, whether they work for an insurance company or other type of company, if their duties include activities such as interviewing insureds, witnesses and physicians; inspecting property damage; reviewing factual information to prepare damage estimates; evaluating and making recommendations regarding coverage of claims; determining liability and total value of a claim; negotiating settlements; and making recommendations regarding litigation.
For starters,
That same Opinion Letter concluded that, within their established authority, claims adjusters exercise the requisite discretion and independent judgment if they: (i) make all decisions regarding coverage and liability, (ii) negotiate with full authority to attempt to achieve a settlement, (iii) make recommendations to their supervisors on the appropriate value of “much larger” claims, which are “frequently accepted” and (iv) work with counsel to represent the company in any litigation that ensues.
Plaintiffs dispute the relevancy of the 2002 Opinion Letter, arguing that it represents an “about-face” on the issue of whether claims adjusters are exempt. But earlier guidance from the DOL is consistent with the 2002 Opinion Letter. In 1985, for example, the DOL concluded that an insurer’s “field service representative” is exempt to the extent he “investigates the claims, determines the extent of the damages, negotiates the settlements within the parameters of the established monetary limits, and makes recommendations with respect to larger case settlements.” DOL Wage & Hour Div. Op. Ltr., at 2 (Oct. 29, 1985). In a 1963 Opinion Letter, the DOL distinguished appraisers from adjusters:
Appraisers who merely inspect damaged vehicles to estimate the cost of labor and materials and to reach an agreed price for repairs with the repair shop have not been considered as the type of employees who customarily and regularly exercise discretion and independent judgment .... In making their estimates, they are guided primarily by their skill and experience and by written manuals of established labor and material costs....
DOL Wage & Hour Div. Op. Ltr., at 1-2 (Feb. 18, 1963). In contrast, an adjuster “investigates the validity and the extent of liability of a claim and negotiates settlement ... irrespective of whether the claim is one for property damage or for personal injury.”
We must give deference to the DOL’s interpretation of its own regulations through, for example, Opinion Letters. Webster v. Pub. Sch. Employees of Washington, 247 F.3d 910, 914 n. 2 (9th Cir.2001)
B. The district court’s findings
The district court found that all claims adjusters in this case: (i) determine whether the policy covers the loss, (ii) recommend a reserve upon estimating FIE’s exposure on the claim, in accordance with state law requirements, (iii) interview the insured and assess his (or others’) credibility, (iv) advise FIE regarding any fraud indicators or the potential for subrogation and underwriting risk, (v) negotiate settlements, (vi) seek additional authority from their supervisors, which is granted “75-100 percent of the time,”6 when the recommended settlement exceeds their established authority and (vii) communicate with opposing counsel and FIE’s counsel.
As far as we are concerned, that says it all. The district court’s findings almost track word for word the language in
Unlike the district court, we make no exceptions for those adjusters who handle “smaller” claims. Even for claims on the lower end of his established settlement authority, the adjuster must first determine whether the claim is covered. Once he determines that the loss is covered, the adjuster can settle it without supervisor approval. And while supervisor approval is necessary before FIE denies a claim, in such cases the adjuster often prepares a draft denial letter with the recommendation to deny coverage. Discretion and independent judgment do not necessarily imply that the decisions made by the employee have a “finality that goes with un-
Moreover, an adjuster must estimate FIE’s exposure on a claim before his investigation into the loss—and thus his initial settlement offer—is completed. Generally, reserves are set without supervisor approval; while automobile damage adjusters do not set the reserves, they do recommend an amount. See
In separating out certain property adjusters, the district court went on to say that, in major losses (i.e., those resulting in settlements of over $3,000), erroneous coverage decisions can impact FIE’s bottom line or result in bad faith claims. But the same is true of claims that cost FIE less than $3,000: the district court found that “an erroneous denial of coverage, even on claims of relatively low value, may expose FIE to legal action and extra-contractual damages in many jurisdictions.” (Emphasis added.) Also, that coverage decisions can be more “complicated” because some residential losses are “major” is no basis to differentiate among FIE’s property adjusters. Again, the adjuster must decide if the loss is covered, which, according to the district court, requires him to make credibility determinations, evaluate the insured’s life-style and possibly use outside experts. That FIE ultimately denies the bulk of the coverage and pays only $500, based in no small part on the adjuster’s recommendations, should not render his work—which otherwise qualifies for the exemption—non-exempt. In any event, we see no reason (nor did the district court provide one) why the insured’s lifestyle could not be just as relevant for losses less than $3,000; indeed, even small claims require scrutiny: FIE’s stated philosophy is “we pay what we owe, nothing more, nothing less.”
Finally, the use of computer software to estimate claims does not eliminate the need for discretion and judgment any more than does resort to other reference works or to the opinions of appraisers and other experts. For instance, with respect to antique or speciality automobiles, an automobile damage adjuster cannot use computer software; instead, he must generate an estimate manually. Also, while software exists for estimating the value of totaled vehicles, an automobile damage adjuster “must use good judgment” in deciding whether it is the “best tool” for a total loss, which accounts for 30 to 50 percent of his file. Total loss claims that reach or exceed policy limits are “often difficult to negotiate and settle, and require a very detailed evaluation.” For those reasons, we disagree with the district court’s conclusion that automobile damage adjusters do not exercise sufficient discretion because the software limits their choices in adjusting a claim. See Cheatham, 465 F.3d 578, 2006 U.S.App. LEXIS 21680, at *17 (rejecting argument that adjusters “are limited in their ability to negotiate by having to adhere to computer software”; that they must consult with manuals or guidelines “does not preclude their exercise of discretion and independent judgment.”).
In addition to finding that FIE could be subject to state fines if reserves are set too low, the district court found that an adjuster’s coverage decisions “are important to FIE’s reputation with the insurance-buying public,” and that an adjuster “represent[s] FIE to policyholders, claimants, and others involved in the claim’s resolution (e.g., witnesses, vendors, body shops, outside experts, police, fire personnel, attorneys, claims representatives from other companies, judges, arbitrators).” See
On a related point, the district court found that FIE’s business is not limited to claims adjusting; it also sells insurance products. Thus, the decisions made by claims adjusters affect FIE’s customer base (e.g., the policyholders) in that, according to the district court, “their eligibility for continued coverage may be affected and their premium level may be affected.” This point was somehow overlooked in Bell v. Farmers Ins. Exch., 87 Cal.App.4th 805, 105 Cal.Rptr.2d 59 (2001) (decided under California law), in which the state court characterized FIE’s business as “perform[ing] a specialized function ... having delegated activities normally associated with an insurance business to other related companies.”
C. The $3,000 rule
We make one additional point. In addition to lacking support in the record, the district court’s “$3,000 rule” is, as both parties agree, simply unworkable in practice. As FIE points out, many states require employers to pay wages, including overtime, to nonexempt employees more frequently than once a month. Under the $3,000 rule, FIE would not know whether a particular employee is due overtime until months or years down the road when the claim is finally resolved, because only then would FIE be able to calculate the average value of the claims on the adjuster’s desk during any given pay period. And from pay period to pay period, an adjuster’s status could change from exempt to nonexempt, even though his core duties stayed the same. Thus, to ensure it complied with payroll laws, FIE would have to track the daily activities of each adjuster, creating a significant administrative burden while denying it the flexibility the short test promises. See Counts v. S.C. Elec. & Gas Co., 317 F.3d 453, 457 (4th Cir.2003) (proposal requiring regular periodic re-evaluation of an employee’s exemption status is “untenable”). Even more problematic is the fact that the $3,000 rule runs afoul of public policy: an adjuster’s right to overtime is tied to his ability to keep low his settlements with insured parties.
Nor is there any indication that the DOL intended to carve out exceptions for certain types of adjusters because, in its view, they exercise less discretion and independent judgment compared to other types of adjusters. Indeed, the opposite is true:
II. State Law Claims
A. Michigan law
FIE argues that it is not subject to Michigan’s overtime law, and that as a result, the district court’s award of damages under that law was error. We agree.
Under
Plaintiffs do not dispute that Michigan’s minimum wage rate is equal to the
In Alexander v. Perfection Bakeries, Inc., 267 Mich.App. 161, 705 N.W.2d 31 (2005), the Michigan Court of Appeals held that the term “minimum wage” in
Alexander is indistinguishable from this case, and plaintiffs cite no authority that undermines its rationale. Accordingly, the district court erred by not dismissing plaintiffs’ claims under Michigan law.
B. The remaining states
The district court said that its conclusions regarding whether FIE’s adjusters are exempt under the FLSA apply with equal force to their state law overtime claims. If that were true, we would have to vacate the judgment below to the extent it awarded relief under state law, since we have already determined that all adjusters are exempt under the FLSA. Surprisingly, the parties dedicated little more than a few lines to this issue in the six briefs between them.
Plaintiffs do not even mention the overtime laws in Illinois, New Mexico or Washington, so the issue of whether claims adjusters from those states could still recover under state law is waived. See Fields v. Palmdale Sch. Dist., 427 F.3d 1197, 1203 n. 6 (9th Cir.2005) (panel will not consider issue raised before district court but not raised on appeal). As to Colorado, Minnesota and Oregon law,
If the administrative exemption in Colorado, Minnesota and Oregon is truly narrower than the FLSA’s administrative exemption, our decision today would not necessarily bar claims adjusters in those states from obtaining relief. See Pac. Merch. Shipping Assoc. v. Aubry, 912 F.2d 1409, 1425 (9th Cir.1990) (“There is no indication that Congress, in enacting the FLSA[], intended to preempt states from according more generous protection to [its] employees. [T]he purpose behind the FLSA is to establish a national floor under which wage protections cannot drop, not to establish absolute uniformity in minimum wage and overtime standards nationwide at levels established in the FLSA.” (emphasis omitted)). The record, however, is not sufficiently developed for us to tackle—in the first instance—the nuances of state law. Most importantly, it is unclear whether a requirement that the employee “regularly” exercise discretion and independent judgment entails something more than what the district court found in this case, or is simply another way of articulating the FLSA exemption. Cf. Becker v. F & H Restaurant Group, Inc., 413 N.W.2d 202, 205 (Minn.Ct.App.1987) (describing state’s administrative exemption as containing “similar provisions of analogous federal law”). And the answer to that question may very well necessitate an in-depth look at opinion letters and other guidance released by the respective state agencies. Before we tell the parties what state law requires in this area, we believe it is prudent to have the district court take another swipe at this, after the parties fully brief the scope of the administrative exemption under Colorado, Minnesota and Oregon law.
Conclusion
As to plaintiffs’ FLSA claim, as well as their claims under Michigan, Illinois, New Mexico and Washington law, we AFFIRM the district court’s judgment as to the adjusters whom it ruled are exempt. We REVERSE the district court’s judgment as to the remaining adjusters, with instructions to enter judgment in FIE’s favor consistent with this opinion.
We REVERSE the judgment as to all claims under Colorado, Minnesota and Oregon law, and REMAND them to the district court for further proceedings consistent with this opinion.
AFFIRMED IN PART, REVERSED IN PART AND REMANDED. EACH PARTY TO BEAR THEIR OWN COSTS ON APPEAL.