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6th Cir.: Where Plaintiff Presented No Other Evidence, Plaintiff’s Testimony Alone Sufficient to Defeat Defendant’s Motion for Summary Judgment
This case was before the Sixth Circuit on the plaintiff’s appeal of the trial court’s order awarding defendants summary judgment on liability. As explained in more detail in the court’s decision, the defendants relied on their own time and pay records, and testimony from plaintiff’s former supervisor, in which they denied that plaintiff ever worked more than 40 hours in a workweek. Although the plaintiff testified that the records were not accurate and that he typically worked approximately 58 hours per week, the court below adopted the testimony of the defendants that plaintiff never worked in excess of 30 hours per week, and thus was properly paid $10 per hour (or $300 per week). The Sixth Circuit reversed and remanded, and applied well-settled law regarding the parties’ respective burdens at the summary judgment stage.
The court framed the issue before it as follows:
This appeal raises one simple question: Where Plaintiff has presented no other evidence, is Plaintiff’s testimony sufficient to defeat Defendant’s motion for summary judgment?
The Sixth Circuit held that an FLSA plaintiff’s testimony alone is sufficient to defeat a defendant’s motion for summary judgment:
We hold that it is. Plaintiff’s testimony coherently describes his weekly work schedule, including typical daily start and end times which he used to estimate a standard work week of sixty-five to sixty-eight hours. The district court characterized this testimony as “somewhat vague .” (R. 26, Opinion and Order, Page ID # 475.) However, while Plaintiff’s testimony may lack precision, we do not require employees to recall their schedules with perfect accuracy in order to survive a motion for summary judgment. It is unsurprising, and in fact expected, that an employee would have difficulty recalling the exact hour he left work on a specific day months or years ago. It is, after all, “the employer who has the duty under § 11(c) of the [FLSA] to keep proper records of wages [and] hours,” and “[e]mployees seldom keep such records themselves.”Anderson, 328 U.S. at 687. Defendants emphasize the fact that Plaintiff’s testimony is inconsistent with the allegedly contemporaneous timesheets Defendants provided to the court. But these timesheets do not amount to objective incontrovertible evidence of Plaintiff’s hours worked. Plaintiff denies the validity of these timesheets, which were handwritten by Defendants, and contends that Defendants sanctioned his overtime work. Whether his testimony is credible is a separate consideration that is inappropriate to resolve at the summary judgment stage.
Putting this case in perspective, the Sixth Circuit discussed its prior jurisprudence regarding the same issue:
We have previously found that a Plaintiff’s testimony can create a genuine issue of material fact foreclosing summary judgment in a lawsuit brought under the FLSA. In O’Brien v. Ed Donnelly Enters., Inc., 575 F.3d 567 (6th Cir.2009), we considered a collective action brought against an employer for underpayment of wages in violation of the FLSA. Although we affirmed the district court’s decertification of the collective action in O’Brien, we considered the district court’s grant of summary judgment as to the lead plaintiffs. Plaintiff O’Brien alleged both that the defendants altered her time records and that she was required to work off-the-clock. With respect to O’Brien’s “off-the-clock” claim, the defendants argued that they were “not liable under the FLSA because there is no evidence that defendants knew that O’Brien was working without compensation.”Id. at 595–96. Nonetheless, despite the lack of corroborating evidence, we held that the district court “erred when it granted defendants’ motion for summary judgment as to O’Brien’s ‘off the clock’ claim,'” since the plaintiff’s own “deposition testimony clearly creates a genuine factual issue, because she asserts that [the defendants] knew that she was working off the clock.”Id. at 596. The O’Brien court reached this conclusion despite the plaintiff’s at times contradictory testimony. Id. at 595.
This holding is consistent with our decision in Harris v. J.B. Robinson Jewelers, where we explicitly found that a plaintiff’s testimony is itself sufficient to create a genuine issue of material fact. 627 F.3d 235 (6th Cir.2010). In Harris, we considered the appropriateness of summary judgment where a plaintiff testified that her jeweler had replaced a diamond in her ring with a smaller, less-valuable diamond. In that case, we reviewed the district court’s decision to exclude the plaintiff’s testimony as well as its decision to exclude the affidavits of three corroborating witnesses. Notably, we determined that “[the plaintiff’s] testimony alone is sufficient to create a jury question regarding the alleged replacement [of her diamond].”Id. at 239 (emphasis added). The district court in this case disregarded the applicability of that determination to the case at hand, focusing instead on the fact that the Harris court also deemed admissible the sworn affidavits of the three corroborating witnesses. Such disregard was mistaken. Our opinion in Harris clearly states that, regardless of the three additional affidavits, the plaintiff’s testimony was itself sufficient to create a genuine issue of material fact.
The same principles at work in Harris and O’Brien apply here. Despite the lack of corroborating evidence, Plaintiff’s testimony is sufficient to create a genuine dispute of material fact that forecloses summary judgment at this juncture. Defendants cite to no Sixth Circuit precedent for the opposite conclusion; rather, they rely on three district court opinions and a handful of opinions from other circuits. None of these cases counsel in favor of ignoring clearly applicable Sixth Circuit caselaw. The district court cases cited by Defendants are neither precedential nor instructive in the present case, and we note that this Court did not have an opportunity to review their reasonableness on appeal. Nor do the out-of-circuit cases cited by Defendants belie the applicability of our own Circuit’s on-point precedent and the basic tenets of summary judgment law to the case at hand.
As such the court concluded:
On summary judgment, all reasonable inferences must be made in favor of the non-moving party and, as we have held in the past, a plaintiff’s testimony alone may be sufficient to create a genuine issue of material fact thereby defeating a defendant’s motion for summary judgment. This is such a case. Here, Plaintiff put forward testimony that contradicted that of Defendants, describing his typical work schedule with some specificity and estimating that he worked sixty-five to sixty-eight hours a week on average. This contradictory testimony creates a genuine issue of material fact.
We therefore REVERSE the ruling of the district court granting summary judgment in favor of Defendants and REMAND the case for further proceedings consistent with this opinion.
Click Moran v. Al Basit LLC to read the entire Sixth Circuit decision.
5th Cir.: General Release Obtained By Defendant in Non-FLSA State Court Case Did Not Waive FLSA Claims
In this appeal, the Fifth Circuit was asked (by the defendant-appellee) to extend its holding in Martin v. Spring Break ′83 Productions, L.L.C., 688 F.3d 247 (5th Cir.2012). In Martin, the Fifth Circuit held that a private settlement reached over a bona fide dispute regarding Fair Labor Standards Act (“FLSA”) claims was enforceable despite the general prohibition against the waiver of FLSA claims via private settlement. Applying Martin, the district court in the instant action enforced a generic, broad release against the plaintiffs’ subsequent FLSA claims, even though the release was obtained through the private settlement of a prior state court action that did not involve the FLSA or any claim of unpaid wages. Because it reasoned that it could not be assured under the facts at bar that the release at issue resulted from a bona fide dispute regarding overtime wages, the Fifth Circuit declined to extend Martin and reversed.
Laying out the relevant facts and procedural history, the court explained:
Plaintiffs–Appellants Ambre Bodle and Leslie Meech (collectively referred to as “the plaintiffs”) filed the instant FLSA action against their former employer TXL Mortgage Corporation (“TXL”) and its president William Dale Couch (collectively referred to as “the defendants”) on May 16, 2012. The plaintiffs alleged that the defendants failed to compensate them for their overtime work as required by Section 207 of the FLSA. The defendants moved for summary judgment asserting res judicata as a basis for dismissal. The defendants also argued that the plaintiffs executed a valid and enforceable waiver in a prior state court action, which released all claims against the defendants arising from the parties’ employment relationship. The district court found the latter contention dispositive.
The defendants in the instant case filed the prior state court action against the plaintiffs on February 3, 2012. The defendants claimed that the plaintiffs, who had resigned from the company about a year prior, had begun to work for a direct competitor and had violated their noncompetition covenants with TXL by soliciting business and employees to leave TXL for the competitor. In connection with these allegations, the defendants asserted nine state law causes of action against the plaintiffs.3In response, the plaintiffs sought a declaration that the non-compete and non-solicitation of client provisions in the employment agreements were unenforceable.
On May 16, 2012, the parties filed with the state court a joint motion for entry of agreed final judgment pursuant to a settlement agreement. The state court granted the parties’ motion and entered an agreed final judgment on May 23, 2012. The private settlement agreement between the parties contained a release by the plaintiffs which stated the following:
In exchange for the consideration identified above, DEFENDANTS hereby fully and completely release and discharge TXL and its agents, representatives, attorneys, successors, and assigns from any and all actual or potential claims, demands, actions, causes of action, and liabilities of any kind or nature, whether known or unknown, including but not limited to all claims and causes of action that were or could have been asserted in the Lawsuit and all claims and causes of action related to or in any way arising from DEFENDANTS’ employment with TXL, whether based in tort, contract (express or implied), warranty, deceptive trade practices, or any federal, state or local law, statute, or regulation. This is meant to be, and shall be construed as, a broad release.
The district court in the instant action granted summary judgment to the defendants on the basis that the plain language of the release from the state court settlement was binding on the plaintiffs and therefore banned their subsequent FLSA claims. The plaintiffs now appeal the dismissal. The defendants contend that the dismissal was proper under the state court settlement release, and in the alternative, that res judicata bars the plaintiffs’ FLSA claims.
After discussing the well-settled authority which holds that generally—absent approval from the DOL or a court of adequate jurisdiction—private settlements of FLSA claims are not binding on employees, the court then examined its prior holding in the Martin case:
We considered this question in Martin v. Spring Break ′83 Productions, L.L.C., 688 F.3d 247 (5th Cir.2012). In Martin, we enforced a private settlement agreement that constituted a compromise over FLSA claims because the settlement resolved a bona fide dispute about the number of hours worked.Id. at 255. In reaching this conclusion, we adopted reasoning from Martinez v. Bohls Bearing Equipment Co., 361 F.Supp.2d 608 (W.D.Tex.2005).Martinez held that “parties may reach private compromises as to FLSA claims where there is a bona fide dispute as to the amount of hours worked or compensation due. A release of a party’s rights under the FLSA is enforceable under such circumstances.”Id. at 631…
In Martin, we approved, as an enforceable compromise of a bona fide dispute, a settlement between a union representative and a movie production company. 688 F.3d at 249. After an investigation, the union representative concluded it would be impossible to validate the number of hours claimed by the workers for unpaid wages. Id. The parties’ settlement of the union members’ complaints read as follows:
The Union on its own behalf and on behalf of the IATSE Employees agrees and acknowledges that the Union has not and will not file any complaints, charges, or other proceedings against Producer, its successors, licenses and/or assignees, with any agency, court, administrative body, or in any forum, on condition that payment in full is made pursuant to the terms of this Settlement Agreement.
Id. at 254. In reaching the conclusion that a bona fide dispute existed, we emphasized the union representative’s inability to “determine whether or not Appellants worked on the days they claimed they had worked[.]”Id. at 255.
However, the Fifth Circuit held that meaningful facts distinguished this case from Martin and declined to extend Martin’s holding to these facts:
In the instant action, the settlement containing the release of future claims derived from a state court action centered upon a disputed non-compete agreement. Nevertheless, the district court concluded that the release validly barred the plaintiffs’ subsequent FLSA claims because the topic of unpaid wages for commissions and salary arose in the settlement negotiations. The district court found that at the time of the settlement discussions regarding the unpaid wages, the plaintiffs were aware of their claims for unpaid overtime because they had signed consent forms to join the instant lawsuit. However, the plaintiffs chose, at that time, to remain silent about their overtime claims. The district court concluded that the overall “bona fide dispute” as to wages (which focused on wages for commissions and salary), could have included the claims for overtime wages, but for the plaintiffs’ silence. And for that reason, the district court held that the plaintiffs are now barred from claiming that the compromise resulting from their bona fide dispute over wages did not encompass their claim for unpaid overtime.
The plaintiffs contend on appeal that the district court erred in extending Martin’s limited holding to the circumstances of this case. The plaintiffs point out that in Martin the settlement was reached in response to the filing of a FLSA lawsuit, as opposed to the state court action concerning a non-compete agreement that is present in this case. The plaintiffs further emphasize that in Martin, the parties specifically disputed the amounts due and the number of overtime hours claimed under the FLSA. The plaintiffs maintain that because they did not receive any FLSA compensation for unpaid overtime in the state court settlement, the rationale set out in Martin, does not apply to this case. The defendants argue that since the state court settlement resolved a bona fide dispute about hours worked and compensation due in a general sense, the release of a claim for unpaid overtime is valid, even if brought under the FLSA. The defendants state that if the plaintiffs wished to bring a subsequent FLSA claim, they should have carved that claim out of the settlement agreement.
The plaintiffs have the stronger argument on this issue. The general rule establishes that FLSA claims (for unpaid overtime, in this case) cannot be waived. See Brooklyn Sav. Bank, 324 U.S. at 706–08. Accordingly, many courts have held that, in the absence of supervision by the Department of Labor or scrutiny from a court, a settlement of an FLSA claim is prohibited. See, e.g., Lynn’s Food Stores, Inc. v. U.S., 679 F.2d 1350, 1355 (11th Cir.1982) ( “Other than a section 216(c) payment supervised by the Department of Labor, there is only one context in which compromises of FLSA back wage or liquidated damage claims may be allowed: a stipulated judgment entered by a court which has determined that a settlement proposed by an employer and employees, in a suit brought by the employees under the FLSA, is a fair and reasonable resolution of a bona fide dispute over FLSA provisions.”) (emphasis added); Taylor v. Progress Energy, Inc., 493 F.3d 454, 460 (4th Cir.2007), superseded by regulation on other grounds as stated in Whiting v. Johns Hopkins Hosp., 416 F. App’x 312 (4th Cir.2011) (“[U]nder the FLSA, a labor standards law, there is a judicial prohibition against the unsupervised waiver or settlement of claims.”).
Nevertheless, we have excepted, from this general rule, unsupervised settlements that are reached due to a bona fide FLSA dispute over hours worked or compensation owed. See Martin, 688 F.3d at 255. In doing so, we reasoned that such an exception would not undermine the purpose of the FLSA because the plaintiffs did not waive their claims through some sort of bargain but instead received compensation for the disputed hours. Id. at 257. The Martin exception does not apply to the instant case because not only did the prior state court action not involve the FLSA, the parties never discussed overtime compensation or the FLSA in their settlement negotiations. Therefore, there was no factual development of the number of unpaid overtime hours nor of compensation due for unpaid overtime. To deem the plaintiffs as having fairly bargained away unmentioned overtime pay based on a settlement that involves a compromise over wages due for commissions and salary would subvert the purpose of the FLSA: namely, in this case, the protection of the right to overtime pay. Under these circumstances where overtime pay was never specifically negotiated, there is no guarantee that the plaintiffs have been or will be compensated for the overtime wages they are allegedly due under the Act.
Thus, the court held as follows:
Accordingly, we hold that the absence of any mention or factual development of any claim of unpaid overtime compensation in the state court settlement negotiations precludes a finding that the release resulted from a bona fide dispute under Martin.The general prohibition against FLSA waivers applies in this case, and the state court settlement release cannot be enforced against the plaintiffs’ FLSA claims.
The court also rejected the Appellee’s alternative argument that the FLSA claims were barred by res judicata due to the plaintiff’s failure to raise them in the unrelated underlying state-law case.
Click Bodle v. TXL Mortg Corp. to read the entire Fifth Circuit Opinion.
3d Cir.: Armored Car Drivers Who Drove Vehicles Weighing Less Than 10,000 Lbs as Well as CMVs Non-Exempt and Entitled to Overtime
In the first such case to reach an appellate court, the Third Circuit has held that an armored car driver who split her time between driving “covered” commercial motor vehicles (those over 10,000 lbs) and non-covered (those under 10,000 lbs) is non-exempt pursuant to the Technical Corrections Act (TCA), which modified the Motor Carrier Act exemption applicable to some interstate truck drivers.
The brief pertinent facts were as follows:
Ashley McMaster worked for Eastern Armored Services, Inc. (“Eastern”) from approximately March 2010 until June 2011. As its name suggests, Eastern is an armored courier company, and its fleet of armored vehicles operates across several states in the mid-Atlantic region. McMaster was a driver and/or guard for Eastern, which meant that some days she was assigned to drive an armored vehicle, while other days she rode as a passenger to ensure safety and security. McMaster was not assigned to one specific vehicle. Rather, her vehicle assignment changed according to the particular needs of a given day’s transport. As it happened, McMaster spent 51% of her total days working on vehicles rated heavier than 10,000 pounds, and 49% of her total days working on vehicles rated lighter than 10,000 pounds. She was paid by the hour, and she frequently worked more than 40 hours in a given week. For all hours worked, she was paid at her regular rate. In other words, she was not paid overtime.
Discussing the MCA exemption generally the court explained:
One exemption to this general rule is Section 13(b)(1) of the Act. Known as the Motor Carrier Act Exemption, the provision provides that overtime pay is not required for “any employee with respect to whom the Secretary of Transportation has power to establish qualifications and maximum hours of service.” See 29 U.S.C. § 213(b)(1); see also 49 U.S.C. §§ 31502(b), 13102 (defining scope of Secretary of Transportation’s regulatory authority).
Congress elaborated upon the Motor Carrier Act Exemption with the enactment of the Corrections Act of 2008. Section 306(a) of the Corrections Act provides that “Section 7 of the Fair Labor Standards Act . . . shall apply to a covered employee notwithstanding section 13(b)(1) of that Act.” See Corrections Act, § 306(a). Section 306(c) of the Corrections Act defines the term “covered employee.” In short, a “covered employee” is an employee of a motor carrier whose job, “in whole or in part,” affects the safe operation of vehicles lighter than 10,000 pounds, except vehicles designed to transport hazardous materials or large numbers of passengers. Corrections Act § 306(c).
Concluding that the plaintiff was non-exempt because she fit within the definition of a “covered employee” under the TCA’s definition, the court stated:
McMaster’s job placed her squarely within the Corrections Act’s definition of a “covered employee.” McMaster was a driver and guard of commercial armored vehicles, and approximately half of her trips were on vehicles undisputedly lighter than 10,000 pounds. Her daily routes included interstate trips on public roadways, and none of the vehicles were designed to transport eight or more passengers or used to transport hazardous materials. And her employer, Eastern, is by its own admission a motor carrier. The critical issue, then, is the significance of being a “covered employee” when determining a motor carrier employee’s entitlement to overtime.
The Third Circuit reasoned that the TCA’s language was clear and unambiguous and therefore there was no reason to depart from its literal meaning:
It is well-established that, “[w]here the text of a statute is unambiguous, the statute should be enforced as written and only the most extraordinary showing of contrary intentions in the legislative history will justify a departure from that language.” Murphy v. Millennium Radio Grp. LLC, 650 F.3d 295, 302 (3d Cir. 2011). As stated above, the relevant language of the Corrections Act is that, as of June 6, 2008, “Section 7 of the Fair Labor Standards Act of 1938 . . . shall apply to a covered employee notwithstanding section 13(b)(1) of that Act.” Corrections Act § 306(a). This is a plain statement that a “covered employee” is to receive overtime even where section 13(b)(1)—the Motor Carrier Act Exemption—would ordinarily create an exemption. We see no plausible alternative construction, and neither Eastern nor any of the authorities it cites attempt to offer one. Nor does Eastern point to legislative history probative of a drafting error. Cf. Murphy, 650 F.3d at 302. Statutory construction points to one conclusion: “covered employees” are entitled to overtime.
The court also found support for its holding in many of the district court level cases decided to date on the same issue, as well as the DOL’s own Field Bulletin regarding the TCA:
District courts considering the plain language of the Corrections Act have reached the same conclusion. See, e.g., McMaster v. E. Armored Servs., Inc., 2013 WL 1288613, at *1 (D.N.J. 2013); Garcia v. W. Waste Servs., Inc., 969 F. Supp. 2d 1252, 1260 (D. Idaho 2013); Bedoya v. Aventura Limousine & Transp. Serv., Inc., 2012 WL 3962935, at *4 (S.D. Fla. 2012); Mayan v. Rydbom Exp., Inc., 2009 WL 3152136, at *9 (E.D. Pa. 2009); Botero v. Commonwealth Limousine Serv. Inc., 2013 WL 3929785, at *13 (D. Mass. 2013); O’Brien v. Lifestyle Transp., Inc., 956 F. Supp. 2d 300, 307 (D. Mass. 2013). So, too, the Department of Labor, in a post-Corrections Act Field Bulletin entitled “Change in Application of the FLSA § 13(b)(1) ‘Motor Carrier Exemption.'” See Department of Labor Field Bulletin, available at http://www.dol.gov/whd/fieldbulletins/fab2010_2.htm. (“Section 306(a) extends FLSA Section 7 overtime requirements to employees covered by [Corrections Act] Section 306(c), notwithstanding FLSA Section 13(b)(1).”).
Our sister courts of appeals have yet to weigh in squarely on whether a Corrections Act “covered employee” is entitled to overtime, but the Fifth and Eighth Circuits have noted the plain language of the Corrections Act, too.
Distinguishing “mixed fleet” decisions that have departed from the statute’s clear language the Third Circuit explained:
Rather than contest Congress’s express carveout from the Motor Carrier Act Exemption for “covered employees,” Eastern relies on a series of district court cases holding that the Motor Carrier Act Exemption remains absolute after the Corrections Act. See Avery v. Chariots For Hire, 748 F. Supp. 2d 492, 500 (D. Md. 2010); Dalton v. Sabo, Inc., 2010 WL 1325613, at *4 (D. Or. 2010); Jaramillo v. Garda, Inc., 2012 WL 4955932, at *4 (N.D. Ill. 2012). Each of these cases relies on a policy statement of the Seventh Circuit in 2009 that “[d]ividing jurisdiction over the same drivers, with the result that their employer would be regulated under the Motor Carrier Act when they were driving the big trucks and under the Fair Labor Standards Act when they were driving trucks that might weigh only a pound less, would require burdensome record-keeping, create confusion, and give rise to mistakes and disputes.” See Collins v. Heritage Wine Cellars, Ltd., 589 F.3d 895, 901 (7th Cir. 2009). Indeed, our own jurisprudence has historically seen the Motor Carrier Act Exemption as establishing a strict separation between the Secretary of Transportation’s jurisdiction and the ambit of the Fair Labor Standards Act overtime guarantee. See Packard, 418 F.3d at 254 (rejecting argument that Motor Carrier Act Exemption applied only to drivers actually regulated by the Secretary of Transportation); Friedrich v. U.S. Computer Servs., 974 F.2d 409, 412 (3d Cir. 1992). Neither history nor policy, however, can overcome an express change to the statutory scheme.
Thus the could concluded:
The Corrections Act says it plainly: “Section 7 of the Fair Labor Standards Act of 1938 . . . appl[ies] to a covered employee notwithstanding section 13(b)(1) of that Act.” Corrections Act § 306(a). As McMaster meets the criteria of a “covered employee,” she is entitled to overtime. We will therefore affirm the order of the District Court and remand for assessment of wages owed to McMaster and for additional proceedings relating to the other members of the conditional class.
Click McMaster v. Eastern Armored Services Inc. to read the Third Circuit’s entire decision.
U.S.S.C.: DOL Acted Within Its Rulemaking Authority When It Withdrew Its Administrative Interpretation re Exempt Status of Mortgage Loan Officers
In a widely anticipated decision, a unanimous Supreme Court today held that the DOL acted properly within its authority in 2010 when it withdrew its prior administrative interpretation letter regarding the exempt status of mortgage loan officers and replaced it with an Administrator’s Interpretation concluding that mortgage-loan officers do not qualify for the administrative exemption. Reversing the D.C. Circuit’s decision below, it held that the DOL was not required to adhere to the Administrative Procedure Act’s (APA) notice-and-comment procedures when it wishes to issue a new interpretation of a regulation that deviates significantly from a previously adopted interpretation.
A copy of the Court’s syllabus preceding the official opinion is copied and pasted below:
The Administrative Procedure Act (APA) establishes the procedures federal administrative agencies use for “rule making,” defined as the process of “formulating, amending, or repealing a rule.” 5 U. S. C. §551(5). The APA distinguishes between two types of rules: So-called “legislative rules” are issued through notice-and-comment rulemaking, see §§553(b), (c), and have the “force and effect of law,” Chrysler Corp. v. Brown, 441 U. S. 281, 302–303. “Interpretive rules,” by contrast, are “issued . . . to advise the public of the agency’s construction of the statutes and rules which it administers,” Shalala v. Guernsey Memorial Hospital, 514 U. S. 87, 99, do not require notice-and-comment rulemaking, and “do not have the force and effect of law,” ibid.
In 1999 and 2001, the Department of Labor’s Wage and Hour Division issued letters opining that mortgage-loan officers do not qualify for the administrative exemption to overtime pay requirements under the Fair Labor Standards Act of 1938. In 2004, the Department issued new regulations regarding the exemption. Respondent Mortgage Bankers Association (MBA) requested a new interpretation of the revised regulations as they applied to mortgage-loan officers, and in 2006, the Wage and Hour Division issued an opinion letter finding that mortgage-loan officers fell within the administrative exemption under the 2004 regulations. In 2010, the Department again altered its interpretation of the administrative exemption. Without notice or an opportunity for comment, the Department withdrew the 2006 opinion letter and issued an Administrator’s Interpretation concluding that mortgage-loan officers do not qualify for the administrative exemption.
MBA filed suit contending, as relevant here, that the Administrator’s Interpretation was procedurally invalid under the D. C. Circuit’s decision in Paralyzed Veterans of Am. v. D. C. Arena L. P., 117 F. 3d 579. The Paralyzed Veterans doctrine holds that an agency must use the APA’s notice-and-comment procedures when it wishes to issue a new interpretation of a regulation that deviates significantly from a previously adopted interpretation. The District Court granted summary judgment to the Department, but the D. C. Circuit applied Paralyzed Veterans and reversed.
Held: The Paralyzed Veterans doctrine is contrary to the clear text of the APA’s rulemaking provisions and improperly imposes on agencies an obligation beyond the APA’s maximum procedural requirements. Pp. 6–14.
(a) The APA’s categorical exemption of interpretive rules from the notice-and-comment process is fatal to the Paralyzed Veterans doctrine. The D. C. Circuit’s reading of the APA conflates the differing purposes of §§1 and 4 of the Act. Section 1 requires agencies to use the same procedures when they amend or repeal a rule as they used to issue the rule, see 5 U. S. C. §551(5), but it does not say what procedures an agency must use when it engages in rulemaking. That is the purpose of §4. And §4 specifically exempts interpretive rules from notice-and-comment requirements. Because an agency is not required to use notice-and-comment procedures to issue an initial interpretive rule, it is also not required to use those procedures to amend or repeal that rule. Pp. 7–8.
(b) This straightforward reading of the APA harmonizes with longstanding principles of this Court’s administrative law jurisprudence, which has consistently held that the APA “sets forth the full extent of judicial authority to review executive agency action for procedural correctness,” FCC v. Fox Television Stations, Inc., 556 U. S. 502, 513. The APA’s rulemaking provisions are no exception: §4 establishes “the maximum procedural requirements” that courts may impose upon agencies engaged in rulemaking. Vermont Yankee Nuclear Power Corp. v. Natural Resources Defense Council, Inc., 435 U. S. 519, 524. By mandating notice-and-comment procedures when an agency changes its interpretation of one of the regulations it enforces, Paralyzed Veterans creates a judge-made procedural right that is inconsistent with Congress’ standards. Pp. 8–9.
(c) MBA’s reasons for upholding the Paralyzed Veterans doctrine are unpersuasive. Pp. 9–14. (1) MBA asserts that an agency interpretation of a regulation that significantly alters the agency’s prior interpretation effectively amends the underlying regulation. That assertion conflicts with the ordinary meaning of the words “amend” and “interpret,” and it is impossible to reconcile with the longstanding recognition that interpretive rules do not have the force and effect of law. MBA’s theory is particularly odd in light of the limitations of the Paralyzed Veterans doctrine, which applies only when an agency has previously adopted an interpretation of its regulation. MBA fails to explain why its argument regarding revised interpretations should not also extend to the agency’s first interpretation. Christensen v. Harris County, 529 U. S. 576, and Shalala v. Guernsey Memorial Hospital, 514 U. S. 87, distinguished. Pp. 9–12. (2) MBA also contends that the Paralyzed Veterans doctrine reinforces the APA’s goal of procedural fairness. But the APA already provides recourse to regulated entities from agency decisions that skirt notice-and-comment provisions by placing a variety of constraints on agency decisionmaking, e.g., the arbitrary and capricious standard. In addition, Congress may include safe-harbor provisions in legislation to shelter regulated entities from liability when they rely on previous agency interpretations. See, e.g., 29 U. S. C. §§259(a), (b)(1). Pp. 12–13. (3) MBA has waived its argument that the 2010 Administrator’s Interpretation should be classified as a legislative rule. From the beginning, this suit has been litigated on the understanding that the Administrator’s Interpretation is an interpretive rule. Neither the District Court nor the Court of Appeals addressed this argument below, and MBA did not raise it here in opposing certiorari. P. 14. 720 F. 3d 966, reversed.
Click Perez v. Mortgage Bankers Assn. to read the entire unanimous decision, delivered by SOTOMAYOR, J., in which ROBERTS, C. J., and KENNEDY, GINSBURG, BREYER, and KAGAN, JJ., joined, and in which ALITO, J., joined except for Part III–B.
While it is too soon to tell, many observers believe this unanimous decision bodes well for the other big “exemption” case currently pending at the Supreme Court, regarding the DOL’s power to utilize its formal rulemaking authority to alter the companionship exemption, which was recently struck down by a Judge in the same Circuit where this case originated.
11th Cir.: Employer That Knew or Had Reason to Know Employee Underreported Hours Could Not Assert Equitable Defenses Based on Employee’s Conduct in Underreporting Hours
This case was before the Eleventh Circuit on the plaintiff’s appeal of an order from the trial court granting the defendant-employer summary judgment. Specifically, the court below held that the plaintiff-employee was barred by equitable doctrines from maintaining his claims under the FLSA, because he had underreported his hours, notwithstanding the defendant’s knowledge of the actual hours worked. Reversing the trial court’s order, the Eleventh Circuit held that “[w]here, as here, an employer knew or had reason to know that its employee underreported his hours, it cannot invoke equitable defenses based on that underreporting to bar the employee’s FLSA claim.”
The court described the relevant facts and procedural history below as follows:
Santonias Bailey was an employee of TitleMax of Georgia who worked overtime hours for which he was not paid. At the direction of his supervisor, who told him that TitleMax did not pay overtime, he regularly worked off the clock. The same supervisor also repeatedly edited Mr. Bailey’s time records to report fewer hours than he worked. Mr. Bailey eventually brought suit under the Fair Labor Standards Act, which requires employers to pay their employees for overtime.
This appeal presents the question of whether TitleMax may defeat Mr. Bailey’s FLSA claim by deflecting the blame for the unpaid overtime onto him. TitleMax insists that Mr. Bailey is responsible for any unpaid overtime, because he could have complained about his supervisor, but did not. Neither did he follow TitleMax’s policies for ensuring accurate time records. In legal terms, the question is this: if an employer knew its employee underreported his hours, can it still assert equitable defenses based on the employee’s own conduct in underreporting as a total bar to the employee’s FLSA claim? We have heard oral argument, read the parties’ briefs, and examined the record in considering the question. Our answer is no. Because the District Court answered yes, we reverse its grant of summary judgment for TitleMax.
Mr. Bailey worked at a TitleMax store in Jonesboro, Georgia for about a year. We assume, as the District Court did, that Mr. Bailey worked overtime hours for which he was not paid. He was not paid because his time records were not accurate. They reflected an artificially low number of hours worked. This inaccuracy came from two sources: first, Mr. Bailey underreported his own hours by working off the clock. Second, Mr. Bailey’s supervisor changed his time records to decrease the number of hours he reported.
Mr. Bailey’s supervisor told him that TitleMax “does not allow overtime pay,” and that “[t]here [would] be days that [they] [would] be working off the clock.” To that end, Mr. Bailey would, “for the most part,” clock in and out when his supervisor told him to, even though that sometimes did not match up with the hours he actually worked. For example, on some Saturdays, he would work from 8:30 A.M. to 5:30 P.M. But his supervisor would tell him: “your hours are … high, so make sure that you clock in at 9:00 and clock out at 4:00.” And so he would, logging only seven hours despite working nine.
Second, Mr. Bailey’s supervisor herself edited Mr. Bailey’s time records. To take two examples: on September 9, 2011, Mr. Bailey clocked in at 10:57 A.M. and clocked out at 7:17 P.M., without recording any lunch break. His supervisor later changed his clock-out time to 7:00 P.M. and added a lunch break from 1:00 P.M. to 2:00 P.M. And on September 12, his supervisor edited Mr. Bailey’s clock-out time, changing it from 8:03 P.M. to 7:03 P.M. After he resigned from TitleMax, Mr. Bailey filed suit. He claims that TitleMax violated the FLSA by failing to pay overtime as the statute requires.
For its part, TitleMax emphasizes that Mr. Bailey’s conduct violated its policies. When he worked off the clock, he violated a policy requiring accurate reporting of hours. Also, by neither objecting to his supervisor changing his time records nor reporting inaccuracies in his records, Mr. Bailey violated a policy requiring regular verification of time. Finally, by not reporting any of this, he violated a policy instructing employees who had a problem at work to notify a supervisor, or if the supervisor was part of the problem, to inform a higher-level manager or call an anonymous employee hotline. Mr. Bailey was aware of each of these company policies.
In the face of Mr. Bailey’s law suit, TitleMax moved for summary judgment. It pointed to Mr. Bailey’s violation of its policies and argued that he was responsible for any unpaid overtime. It said that because Mr. Bailey bore responsibility, two equitable defenses—unclean hands and in pari delicto—barred his claim. The District Court agreed, and granted summary judgment. This appeal followed.
Discussing the FLSA’s remedial purpose and prior case law from the Eleventh Circuit, the court explained:
This Court has, in the decades since O’Neil, echoed the same principle: the goal of the FLSA is to counteract the inequality of bargaining power between employees and employers. See, e.g., Walthour v. Chipio Windshield Repair, LLC, 745 F.3d 1326, 1332 (11th Cir.2014) (quoting O’Neil ); Hogan v. Allstate Ins. Co., 361 F.3d 621, 625 (11th Cir.2004) (same); Lynn’s Food Stores, Inc. v. United States, 679 F.2d 1350, 1352 (11th Cir.1982) (“Recognizing that there are often great inequalities in bargaining power between employers and employees, Congress made the FLSA’s provisions mandatory.”); Mayhue’s Super Liquor Stores, Inc. v. Hodgson, 464 F.2d 1196, 1197 n. 1 (5th Cir.1972) (quoting O’Neil ).
In the broadest sense, this principle has guided the rulings of this Circuit, and it compels our holding here. If an employer knew or had reason to know that its employee underreported his hours, it cannot escape FLSA liability by asserting equitable defenses based on that underreporting. To hold otherwise would allow an employer to wield its superior bargaining power to pressure or even compel its employees to underreport their work hours, thus neutering the FLSA’s purposeful reallocation of that power.
After noting that the plaintiff had proffered evidence to meet his prima facie burden in this FLSA case, it then evaluated the defendant’s equitable defenses at issue: It insists that, while Mr. Bailey may have established the elements of his claim, TitleMax is nevertheless entitled to summary judgment unclean hands and in pari delicto:
These two defenses are similar. See Greene v. Gen. Foods Corp., 517 F.2d 635, 646–47 (5th Cir.1975) (discussing in pari delicto and other “closely related equitable defenses such as … unclean hands”). Broadly speaking, proof of either of these defenses may operate to bar a plaintiff’s claim in an appropriate case if he bears responsibility for his own injury. Each gives force to the well-worn maxim: “[h]e who comes into equity must come with clean hands.” See Keystone Driller Co. v. Gen. Excavator Co., 290 U.S. 240, 241, 54 S.Ct. 146, 146, 78 L.Ed. 293 (1933).
To assert an unclean hands defense, a defendant must show that (1) the plaintiff’s wrongdoing is directly related to the claim, and (2) the defendant was personally injured by the wrongdoing. See Calloway v. Partners Nat’l Health Plans, 986 F.2d 446, 450–51 (11th Cir.1993). Similarly, to assert an in pari delicto defense, a defendant must show that “the plaintiff bears at least substantially equal responsibility for the violations he seeks to redress.” Lamonica v. Safe Hurricane Shutters, Inc., 711 F.3d 1299, 1308 (11th Cir.2013). To invoke in pari delicto to bar a claim brought under a federal statute, the defendant must also show a second element: that barring the suit would not “substantially interfere” with the policy goals of the statute. Id.
The District Court accepted TitleMax’s argument that one or both of these defenses may bar an employee’s FLSA claim, even when the employer knew that the employee was underreporting his hours. In doing so, the District Court did not correctly apply the statute.
Our conclusion in this regard is consistent with two cases previously decided in this Circuit. In Allen and Brennan, we faced similar facts and rejected arguments similar to those made by TitleMax. In both of those cases, employers nominally required employees to accurately report their hours. See Allen, 495 F.3d at 1314; Brennan, 482 F.2d at 827. Despite those requirements, supervisors encouraged employees to underreport, and they did. See Allen, 495 F.3d at 1318 (supervisor told employee “that she could not continue to be paid overtime”); Brennan, 482 F.2d at 827 (supervisors exerted “pressure” and “insisted that reported overtime hours be kept to a stated minimum level”).
Facing FLSA claims, the employers argued they could not be responsible for unpaid overtime because they had neither actual nor constructive knowledge that the employees had worked unpaid overtime. Allen, 495 F.3d at 1318; Brennan, 482 F.2d at 827. This court rejected the argument in both cases, and imputed knowledge to the employers. Allen, 495 F.3d at 1318–19; Brennan, 482 F.2d at 827. The Brennan panel concluded that the supervisors had at least constructive knowledge of unpaid overtime because “they had the opportunity to get truthful overtime reports but opted to encourage artificially low reporting instead.” 482 F.2d at 828. And the Allen panel decided that a supervisor had knowledge based on even more tenuous facts: she “was aware that [the employee] was working overtime hours” and was also “aware that [the employee] had been told that she could not be paid overtime.” 495 F.3d at 1318. Both panels ruled that knowledge on the part of supervisors could be imputed to the employers. See id. at 1319 (“[O]ur predecessor court stated that when an employer’s actions squelch truthful reports of overtime worked, or where the employer encourages artificially low reporting, it cannot disclaim knowledge.” (quoting Brennan, 482 F.2d at 828)).
Ultimately, the court held that the facts here were vitually identical to the prior cases in which it had held that equitable defenses similar to those advanced by the defendant here could not nullify an employee’s claim under the FLSA:
The facts of Mr. Bailey’s case are substantially the same. TitleMax instructed its employees to accurately record their hours and to report problems with their records. Mr. Bailey worked off the clock at the behest (demand) of his supervisor, in violation of those policies. No one disputes that his supervisor knew he was working off the clock. The supervisor’s knowledge may be imputed to TitleMax, making it liable for the FLSA violation. This is the holding of Allen and Brennan. It is true that TitleMax presents its argument in different terms than the employers in Allen and Brennan. TitleMax does not claim that the supervisor did not know that Mr. Bailey was underreporting his hours. See Allen, 495 F.3d at 1318 (“The [employer] claims that even if unpaid hours can be shown, Plaintiffs cannot demonstrate that their supervisors knew that they were working overtime without pay.”); Brennan, 482 F.2d at 827 (“[The employer]’ s principal argument is that it cannot have violated the FLSA because it had no knowledge of the unreported overtime.”). Nor could it. Instead, TitleMax says that Mr. Bailey’s misconduct allows it to assert an equitable defense. Specifically, TitleMax argues that Mr. Bailey’s own misconduct makes Allen and Brennan inapposite. But we see this distinction as one without a difference. TitleMax seeks to skirt the clear holdings of Allen and Brennan by making the same argument under a different name. Whether we consider the employee’s actions in analyzing the knowledge prong of the FLSA or as an equitable defense, the question is the same: is an employee deprived of his FLSA claim because he underreported his time, even if knowledge of the underreporting is imputed to the employer? Allen and Brennan say no. TitleMax asks us to contravene those holdings under a different theory. We cannot oblige.
TitleMax has identified no case in which this Court approved the use of equitable defenses as a total bar to an employee’s FLSA claim when the employer knew the employee underreported his hours. Neither has TitleMax identified any such case from the United States Supreme Court or any of our sister Circuits. We are aware, of course, that the absence of evidence is not necessarily evidence of absence. But the FLSA has been on the books a long time.
Finally, the court discussed the deterrent effect of the FLSA, in the context of a Supreme Court case under the ADEA, and explained that to permit the equitable defenses at bar would negate the FLSA’s deterrent effect:
Like the ADEA, the FLSA has a deterrent purpose. See O’Neil, 324 U.S. at 709–10, 65 S.Ct. at 903 (“To permit an employer to secure a release from the worker … will tend to nullify the deterrent effect which Congress plainly intended that [the FLSA] should have.”); Nall v. Mal–Motels, Inc., 723 F.3d 1304, 1307 (11th Cir.2013) (“Allowing the employer to escape liquidated damages by simply giving an employee the wages she was entitled to earn in the first place—or in some cases, less than that—would undermine the deterrent effect of the [FLSA’s] statutory provisions.”). Cf. McKennon, 513 U.S. at 357, 115 S.Ct. at 884 (“The ADEA … contains a vital element found in both Title VII and the Fair Labor Standards Act: It grants an injured employee a right of action to obtain the authorized relief. The private litigant who seeks redress for his or her injuries vindicates both the deterrence and the compensation objectives of the ADEA.” (citation omitted)).
Barring FLSA actions for wage and overtime violations where the employer is aware that an employee is underreporting hours would undermine the Act’s deterrent purpose. In this case, the District Court applied equitable defenses based on Mr. Bailey’s misconduct to totally and entirely bar his FLSA claim. When it did that, it went beyond what the Supreme Court approved in McKennon, thereby interfering with the FLSA’s statutory scheme.
Click Bailey v. TitleMax of Georgia, Inc. to read the entire Decision.
N.D.Ga.: Defendant Barred from Unilateral Meetings With Putative Class Members Outside of Formal Discovery Process, Absent Detailed Disclosures to Alleviate Concerns re Chilled Participation and/or Retaliation
This case was before the court for consideration of the parties’ Joint Statement regarding restrictions on communications with putative class members, as required by L.R. 23.1(C)(2) of the Northern District of Georgia.
The specific issue raised by the parties’ Joint Submission was explained as follows:
In the Joint Statement, Plaintiffs raise a concern that Defendants will question putative class members about a policy requiring employees to lodge contemporaneous internal complaints about incorrect pay (“Complaint Policy”). Plaintiffs fear that if representatives of Defendants raise the Complaint Policy in communications with putative plaintiffs, the putative plaintiffs will believe that their failure to have lodged a contemporaneous complaint about incorrect pay may have been a violation of company policy that could result in their termination from employment. In its portion of the Joint Statement, Defendants do not deny an intention to make such inquiries of employees.
Initially the court discussed the basic applicable law:
[A]n order limiting communication between parties and potential class members should be based on a clear record and specific findings that reflect a weighing of a need for limitation and the potential interference with the rights of the parties. Only such a determination can insure that the court is furthering, rather than hindering, the policies embodied in the Federal Rules of Civil Procedure, especially Rule 23.
Gulf Oil Co. v. Bernard, 452 U.S. 89, 101–102, 101 S.Ct. 2193, 68 L.Ed.2d 693 (1981). “Unsupervised, unilateral communications with the plaintiff class sabotage the goal of informed consent by urging exclusion on the basis of a one-sided presentation of the facts, without opportunity for rebuttal. The damages from misstatements could well be irreparable.” Kleiner v. First Nat’l Bank of Atlanta, 751 F.2d 1193, 1203 (11th Cir.1985).
Based on its conclusion that there were inherent risks in the anticipated questioning by the defendants, the court held that the defendants were barred from communicating with former employee putative class members regarding the subject matter of the case, outside of the regular discovery process in the case and without the consent of plaintiff’s counsel. While the court permitted defendants’ counsel to speak with current employees who were putative class members, it set forth detailed prerequisites prior to any such communications, in order to safeguard against defenadnts’ improperly influencing putative class members from exercising their rights under the FLSA:
The Court finds that the risks inherent in the anticipated questioning by Defendants warrant the following limitations on Defendants’ communications with potential class members.
There shall be no communications with any named Plaintiff or with any current or future opt-in Plaintiffs outside the formal discovery process or without the consent of the named Plaintiff’s counsel of record, except-as to any currently employed present or future opt-in Plaintiff-for routine business matters unrelated to this action.
With respect to any presentation of information, including any views or opinions, to any “putative class members” by the Defendants—whether acting through management, counsel, other employees, or any other agent of any kind—that relates to the allegations and claims in this action, whether for the purpose of gathering information in a one-on-one or group basis to defend this action or to address any employee complaints regarding past, current or future compensation practices, such communication shall commence with the following statements:
(a) The person(s) present on the Defendants’ behalf is a Defendant employee or agent acting at the direction of Defendants’ management;
(b) The person(s) present on the Defendants’ behalf is there to address a lawsuit filed against the Defendants, as well as employee complaints, involving allegations that the Defendants failed to pay employees all the wages and overtime they had earned and were entitled to receive;
(c) The lawsuit is a class-action—which means the individual may receive money as a result of the lawsuit;
(d) The allegations of wrongdoing (accurately stated), accompanied by a copy of the Third Amended Complaint;
(e) The “putative class member” is under no obligation to stay, or listen, or speak, or respond;
(f) No record of anyone who does not stay, speak, or respond is being made and no record of who does not stay, speak, or respond will be made at any future time;
(g) No adverse action will be taken if the “putative class member” chooses not to stay, speak, or respond;
(h) No adverse action will be taken if the “putative class member” says, in substance, they believe they not were not properly compensated or did not receive all compensation owed to them, whether or not they complained to anyone about any compensation issues; and
(i) The “putative class member” is free to leave at any time, including at this point.
Click Wilson v. Regions Financial Corporation to read the entire Order Regarding Communications With Putative Class Members.
While the procedural posture of this case was somewhat unique, in that the Northern District of Georgia has a detailed/explicit rule regarding pre-certification communications (and there was a Rule 23 class claim in addition to the FLSA collective action claim), this decision will likely serve as a blueprint for many courts going forward, given the chilling effect unilateral meetings with current and former employees can have, as many courts have previously noted.
S.D.N.Y.: Where Defendant Asserted “Good Faith” Defense, It Waived Attorney Client Privilege, Despite Lack of “Reliance on Counsel” Defense
This case was before the court on the defendant’s motion for a protective order under Federal Rule of Civil Procedure 26(c) to prohibit plaintiffs from discovery of defendant’s attorney-client communications regarding the decision to classify certain employees as “executives” and thus exempt from overtime pay. As part of its affirmative defenses, the defendant invoked 29 U.S.C. § 259 to claim that it relied on administrative authority in classifying the plaintiffs and is thus free from liability (the “Eleventh Affirmative Defense”), and 29 U.S.C. § 260 for the proposition that it did not act willfully and thus should not be subjected to FLSA’s liquidated damages provision (the “Twelfth Affirmative Defense”). Specifically, the defendant claimed to have relied on state and federal regulations, “but not upon advice of counsel.” Rejecting the defendant’s contention that it preserved the attorney-client privilege notwithstanding its assertion of “good faith,” the court held that attorney-client communications regarding the exempt nature (or lack thereof) of the position at issue were discoverable. After a discussion of the “at-issue” waiver of the attorney-client privilege, in cases where a party places its knowledge (or lack thereof) and good faith at issue, and a discussion of the general principles behind the FLSA’s good faith defense, the court determined that the defendant in this FLSA case had waived the attorney-client privilege by placing its mental state at issue here by claiming a good faith defense:
Chipotle affirmatively invokes § 259 in its Eleventh Affirmative Defense [stating “Pursuant to 29 U.S.C. § 259 and other applicable law, Chipotle’s alleged failure to pay Plaintiffs or any putative class or collective member any of the wages on which Plaintiffs’ claims are based, if at all, was in conformity with and in reliance on an administrative regulation, order, ruling, approval, interpretation, administrative practice, and/or enforcement policy of the United States Department of Labor and any Department of Labor in any of the states in which Plaintiffs allege claims under state law, but not upon advice of counsel.”]. Though it does not specifically name § 260 in its Twelfth Affirmative Defense, Chipotle claims an affirmative defense to FLSA’s liquidated damages, which is necessarily governed by § 260, and therefore its Twelfth Affirmative Defense falls under that provision. See Northrop v. Hoffman of Simsbury, Inc., 134 F .3d 41, 45–46 (2d Cir.1997) (a party need not cite a specific statute in order to invoke it in a pleading).
Despite defendant’s attempt to plead around an “advice of counsel” defense, the court held that they could not, because it was clear that defendant did have the advice of counsel on the very issues for which it claimed good faith, regardless of whether they claimed reliance on same or not:
Yet despite the good faith requirements of both statutory defenses, Chipotle attempts to plead around them by avoiding mention of the advice of counsel, except to disclaim it in the Eleventh Affirmative Defense. Chipotle claims to have invoked only the portions of §§ 259–60 relating to reliance on administrative guidance, rather than any standard of good faith. See Def’s. Br. at 1–2 (“Chipotle does not assert a generalized ‘good faith’ defense … Chipotle set out its affirmative defense, as it is entitled to, in such a way as to remove its ‘state of mind’ from being at issue….”); Answer to Second Am. Compl. at 23. Such artful pleading cannot negate an element of a statutory defense, especially here, where it is evident that Chipotle did in fact have the advice of counsel on the very topic at issue. A defendant may not succeed on an affirmative defense by pleading only some of the necessary elements. As explained supra, Chipotle has invoked two affirmative defenses that require showings of good faith. Here, plaintiffs have shown that Chipotle did in fact have the advice of counsel regarding the classification of apprentices. And knowing whether Chipotle had been advised not to classify the apprentices as exempt is necessary to evaluate the validity of the Eleventh and Twelfth Affirmative Defenses. Thus, the advice of Chipotle’s counsel regarding that classification is plainly “at issue” within the meaning of Bilzerian. Because at-issue waiver is to be “decided by the courts on a case-by-case basis, and depends primarily on the specific context in which the privilege is asserted,” In re Grand Jury Proceedings, 219 F.3d at 183, the Court will examine the specific factual context of this case. Given the substantial similarities between the good faith defenses in §§ 259–60, this analysis will encompass both the Eleventh and Twelfth Affirmative Defenses. At the deposition of David Gottlieb, Chipotle’s corporate representative and Director of Compliance and Field People Support, the witness testified that Chipotle consulted with attorneys in making the classification decision. When asked about the existence of communications regarding the apprentice classification, Mr. Gottlieb admitted that “there were communications. They were in the context of communications and discussions with our lawyers.” Gottlieb Dep. 65:2–4. In fact, Mr. Gottlieb testified that he had “no recollection” of ever communicating with anyone at Chipotle regarding the apprentice classification other than in the presence of his attorneys. Id. at 65:11–15.F In addition, during Mr. Gottlieb’s deposition, Chipotle repeatedly objected on attorney-client grounds and instructed Mr. Gottlieb not to answer questions related to Chipotle’s decision to classify the apprentice position as exempt. For example, Chipotle asserted the attorney-client privilege and directed Mr. Gottlieb not to answer questions about whether Mr. Gottlieb participated in any evaluations regarding the exempt classification position. There are numerous other such examples from the transcript of Mr. Gottlieb’s deposition. See, e.g., Gottlieb Dep. 42:6–16 (refusing to answer question on the research behind the classification after being advised not to disclose any attorney-client communications); id. at 61:18–62:2 (same); id. at 87:14–88:1 (acknowledging counsel were consulted on decision to reclassify apprentices in California). In addition, Chipotle’s privilege log confirms that it received legal advice concerning the apprentice exemption decision. See Ex. D (Def’s Second Am. Privilege Log), No. 2 (February 18, 2011 email from outside counsel to Mr. Gottlieb on the subject of “Legal advice regarding Chipotle’s Apprentice Position.”) Finally, Chipotle’s discovery responses indicate reliance on advice of counsel. Chipotle asserted attorney-client privilege in response to plaintiffs’ document requests and interrogatories that sought information on the decision to classify apprentices as exempt. See, e.g., Ex. C (Def.’s Resps. Pls.’ Fourth Req. Produc. Docs.), No. 28 (asserting privilege in response to request for documents relied upon by Chipotle as basis for decision to classify apprentices as exempt), No. 31 (same for request for documents relied upon by Chipotle as basis for its good faith defenses), No. 32 (same for documents pertaining to or evidencing Chipotle’s decision to classify apprentices as nonexempt under FLSA, NYLL, and Missouri Labor Law) & No. 33 (same for documents related to Chipotle’s contention that apprentices are exempt under administrative or executive exemption).
In light of the clear record demonstrating defendant received legal advice on the very issue on which they claimed good faith, the court held that they could not shield communications with their attorneys about the issue from disclosure:
This evidence overwhelmingly demonstrates that Chipotle did receive legal advice on the apprentice classification decision. And Chipotle does not dispute that it did. Instead, it argues that it is entitled to define its affirmative defense narrowly and in such a way as to remove its state of mind from being at issue. In this regard, Chipotle contends that this case is distinguishable from Wang v. The Hearst Corp., where the same legal question was presented, and the district court found an at-issue waiver of the attorney-client privilege. 12 Civ. 0793(HB), 2012 WL 6621717 (S.D.N.Y. Dec. 19, 2012). In Wang, a sophisticated corporate defendant asserted a § 260 defense to allegations of FLSA wage and hour violations, but invoked attorney-client privilege to block the plaintiff’s discovery of the defendant’s in-house counsel e-mails, claiming that its defense “would ‘not rely, directly or indirectly, on legal advice for its good-faith defense in this case’ and that it had offered to so stipulate.” Id. at *1 (internal citations omitted). A witness from the defendant’s human resources department, however, had indicated in a deposition that questions regarding the collection of school credit letters for unpaid interns (who were allegedly misclassified as such) would be better posed to the legal department. Id. at *2. The court soundly rejected the defendant’s attempt to plead around the requirements of § 260, which it found “amount[ed] to little more than semantics without any concrete examples provided by Defendants. On the other hand, [it found] it difficult to imagine that a good faith defense regarding the FLSA raised by a corporation as large and as sophisticated as Hearst would not involve the advice of its legal department.” Id. Chipotle attempts to distinguish Wang on two grounds: there, (1) the defendant’s affirmative defense explicitly invoked good faith, and (2) testimony was introduced that the legal department, not the human resources department, had responsibility for making the classification decisions at issue. These are not distinctions. As discussed above, Chipotle’s affirmative defenses carry a good faith component even if none is so stated. And Mr. Gottlieb, himself an attorney and responsible for Chipotle’s wage and hour determinations, testified that he was unaware of any communications regarding the apprentice determination that did not involve attorneys, and otherwise refused to answer relevant questions on attorney-client privilege grounds. All told, there is far more evidence here than in Wang that the defendant had, and perhaps ignored, the advice of counsel in classifying its employees as exempt. Given the circumstances in this particular case, “legal advice that [the defendant] received may well demonstrate the falsity of its claim of good faith belief,” Leviton, 2010 WL 4983183, at *3, putting Chipotle’s state of mind at issue. The plaintiffs are therefore “entitled to know if [the defendant] ignored counsel’s advice.” Arista Records, 2011 WL 1642434, at *3 (internal citations and quotation marks omitted).
The court also rejected defendant’s public policy argument which it urged supported upholding the attorney-client privilege, even where a defendant impermissibly sought to use it simultaneously as a shield and a sword:
Chipotle contends that even if Second Circuit case law favors a waiver in this case, such waiver should be overcome by policy considerations. It claims that, should the Court find a waiver here, “every employer in every FLSA case will have to choose between revealing such communications or forfeiting statutory defenses. This is akin to imposing, as a matter of law, an expanded limitations period and 100% liquidated damages risk on every employer in every FLSA case.” Def’s. Reply at 6. Such concerns are misplaced and overstated. First, as stated by both the Supreme Court and the Court of Appeals, liquidated damages are in fact the norm in FLSA cases. This is not a byproduct of a broad reading of the at-issue waiver doctrine. Rather, this is because, by act of the legislature, “the liquidated damage provision is not penal in its nature but constitutes compensation for the retention of a workman’s pay which might result in damages too obscure and difficult of proof for estimate other than by liquidated damages.” Brooklyn Sav. Bank v. O’Neil, 324 U.S. 697, 707 (1945) (citations omitted); see also Herman, 172 F.3d at 142; Reich, 121 F.3d at 71; Brock v. Wilamowsky, 833 F.2d 11, 19 (2d Cir.1987) ( “ ‘[d]ouble damages are the norm, single damages the exception ….‘ “ (quoting Walton v. United Consumers Club, Inc., 786 F.2d 303, 310 (7th Cir.1986))). It is for this very reason, protection of workers as directed by Congress, that defendants face a high bar to mounting a good faith defense to FLSA wage and hour claims. Second, defendants in such situations are not at all required to waive attorney-client privilege to defend against liability. For instance, defendants may assert defenses on bases other than good faith. See Crawford v. Coram Fire Dist., 12 Civ. 3850(DRH)(WDW), 2014 WL 1686203 (E.D.N.Y. Apr. 29, 2014) (upholding denial of discovery of privileged communications where defendant had separate basis for defense that did not rely on good faith); Leviton, 2010 WL 4983183, at *5 (plaintiff did not waive privilege by filing claim where waiver would be useful but not essential to defendants’ defense). In the case at hand, Chipotle has pled a panoply of defenses aside from the two affirmative defenses at issue. If it does not wish to waive its privilege, it may seek leave to amend its answer under Fed.R.Civ.P. 16(b) so that it can forego its good faith defenses and rely instead on its remaining 30 affirmative defenses. See Bilzerian, 926 F.2d at 1293–94 (defendant need not assert good faith defense, but if he does, he waives attorney-client privilege); Answer to Second Am. Compl. at 21–26 (listing Chipotle’s affirmative defenses). Finally, Chipotle claims that a finding of at-issue waiver will discourage companies from seeking advice from counsel. Chipotle predicts that companies will instead be “incentivized to make important decisions concerning critical issues such as employee pay on their own lest they be forced to reveal their confidential and privileged communications.” Def’s. Br. at 2. The Court sees things differently. To the extent Chipotle is found to be liable for overtime violations (a question that is far from answered), and to the extent Chipotle’s counsel advised it against the classification decision it wrongly made, the decision on this motion will only serve to encourage companies to receive competent legal advice and follow it.
Thus, the court held that the defendant had waived the attorney-client privilege by placing its mental state at issue and pleading a good faith defense. Click Scott v. Chipotle Mexican Grill, Inc. to read the entire Opinion & Order.
2d. Cir.: Individualized Damages Determinations Alone Cannot Preclude Class Certification Under Rule 23’s Predominance Inquiry
This case presented the question of whether the Supreme Court’s decision in Comcast Corp. v. Behrend, ––– U.S. ––––, 133 S.Ct. 1426, 185 L.Ed.2d 515 (2013), overruled the well-established law in the Second Circuit that class certification pursuant to Rule 23(b)(3) of the Federal Rules of Civil Procedure cannot be denied merely because damages have to be ascertained on an individual basis. The court below had held that Comcast permits certification under Rule 23(b)(3) only when damages are measurable on a classwide basis, and denied the plaintiffs’ motion for class certification. The Second Circuit disagreed, and held that Comcast does not mandate that certification pursuant to Rule 23(b)(3) requires a finding that damages are capable of measurement on a classwide basis, in the context of this wage and hour case.
The court began by summarizing Second Circuit case law prior to the Comcast decision, and explaining that Comcast did not overrule the line of cases that had long held that individualized damages will not preclude class certification generally:
Prior to the Supreme Court’s decision in Comcast, it was “well-established” in this Circuit that “the fact that damages may have to be ascertained on an individual basis is not sufficient to defeat class certification” under Rule 23(b)(3). Seijas v. Republic of Argentina, 606 F.3d 53, 58 (2d Cir.2010); see McLaughlin v. Am. Tobacco Co., 522 F.3d 215, 231 (2d Cir.2008), abrogated in part on other grounds by Bridge v. Phx. Bond & Indem. Co., 553 U.S. 639, 128 S.Ct. 2131, 170 L.Ed.2d 1012 (2008); see also Dukes, 131 S.Ct. at 2558 (“[I]ndividualized monetary claims belong in Rule 23(b)(3).”). “[T]he fact that damages may have to be ascertained on an individual basis” was simply one “factor that we [had to] consider in deciding whether issues susceptible to generalized proof ‘outweigh’ individual issues” when certifying the case as a whole. McLaughlin, 522 F.3d at 231.
We do not read Comcast as overruling these decisions.
The court then discussed and distinguished Comcast:
In Comcast, the plaintiffs filed a class-action antitrust suit claiming that Comcast’s acquisition of competitor cable television providers in sixteen counties clustered around Philadelphia violated the Sherman Act. 133 S.Ct. at 1430. Comcast’s clustering strategy had increased its market share in that geographical area from around twenty to seventy percent. Id. The plaintiffs sought to certify the class of Comcast subscribers in that geographical area under Rule 23(b)(3), claiming that questions of law and fact common to the class predominated over any questions affecting individual members. Id. The district court held, and neither the plaintiffs nor defendants contested on appeal, that in order to meet the predominance requirement, the plaintiffs had to show that: (1) the injury suffered by the class was “capable of proof at trial through evidence that [was] common to the class rather than individual to its members”; and (2) “the damages resulting from [the anticompetitive] injury were measurable on a class-wide basis through use of a common methodology.” Id. (first alteration in original) (quoting Behrend v. Comcast Corp., 264 F.R.D. 150, 154 (E.D.Pa.2010)) (internal quotation marks omitted).
The plaintiffs offered four theories of antitrust injury or impact, only one of which the district court concluded was susceptible of classwide proof: Comcast’s clustering around Philadelphia reduced competition from “overbuilders,” competitors who build competing cable networks where there exists an incumbent cable provider.FN4
Id. at 1430–31. To prove that the damages resulting from the anticompetitive injury were measurable on a classwide basis, the plaintiffs offered expert testimony that modeled the class damages based on all four theories of antitrust injury; the model did not isolate damages resulting from the “overbuilder” theory. Id. at 1431. Nevertheless, both the district court and the United States Court of Appeals for the Third Circuit concluded that the expert testimony was sufficient to establish that damages resulting from the “overbuilder” theory of injury were measurable on a classwide basis. Id. Rejecting the notion that the plaintiffs were required to offer a model of classwide damages that attributed damages only to the “overbuilder” theory of injury, the Court of Appeals explained that the plaintiffs were required merely to provide assurance that, “if they can prove antitrust impact, the resulting damages are capable of measurement and will not require labyrinthine individual calculations.” Id. at 1431 (quoting Behrend v. Comcast Corp., 655 F.3d 182, 206 (3d Cir.2011)) (internal quotation mark omitted). A more rigorous analysis, the Court of Appeals concluded, would constitute an “attac[k] on the merits of the methodology [that] [had] no place in the class certification inquiry.” Id. (first and third alterations in original) (quoting Behrend, 655 F.3d at 207) (internal quotation marks omitted).
The Supreme Court granted certiorari. After noting that neither party had contested the district court’s holding that Rule 23(b)(3) predominance required a showing that damages resulting from the anticompetitive injury were measurable on a classwide basis, id. at 1430, the Court identified the question presented as whether the plaintiffs “had … establish[ed] that damages could be measured on a classwide basis,” id. at 1431 n. 4. The Court reversed, holding that the plaintiffs’ expert testimony failed to carry that burden. Id. at 1432–33.
The Court began by noting that it had recently held that establishing the Rule 23(a) prerequisites to class certification required a “rigorous analysis,” which would “frequently entail ‘overlap with the merits of the plaintiff’s underlying claim.’ ” Id. at 1432 (quoting Dukes, 131 S.Ct. at 2551). Those “same analytical principles,” the Court explained, govern the Rule 23(b) inquiry. Id.
The Court then held that the plaintiffs’ expert testimony did not withstand the “rigorous analysis” for the Rule 23(b)(3) predominance test. The Court explained that the plaintiffs would be entitled only to damages resulting from their theory of injury. Id . at 1433. Thus, “a model purporting to serve as evidence of damages …. must measure only those damages attributable to that theory.” Id. “If the model does not even attempt to do that,” the Court explained, “it cannot possibly establish that damages are susceptible of measurement across the entire class for purposes of Rule 23(b)(3).” Id. Because there was “no question” that the damages model was not based solely upon the “overbuilder” theory of injury certified by the district court, but also included calculations accounting for the three other theories of injury, id . at 1433–34, the Court concluded that “Rule 23(b)(3) cannot authorize treating [cable] subscribers within the Philadelphia cluster as members of a single class,” id. at 1435.
The Second Circuit then explained that Comcast did not hold that a class cannot be certified under Rule 23(b)(3) solely because damages cannot be measured on a classwide basis, as many defendants in many contexts have since argued:
Comcast, then, did not hold that a class cannot be certified under Rule 23(b)(3) simply because damages cannot be measured on a classwide basis. See id. at 1430 (noting that the requirement of a classwide damages model “is uncontested here”); id. at 1436 (Ginsburg and Breyer, JJ., dissenting) (“[T]he decision should not be read to require, as a prerequisite to certification, that damages attributable to a classwide injury be measurable ‘on a class-wide basis.’ “). Comcast’s holding was narrower. Comcast held that a model for determining classwide damages relied upon to certify a class under Rule 23(b)(3) must actually measure damages that result from the class’s asserted theory of injury; but the Court did not hold that proponents of class certification must rely upon a classwide damages model to demonstrate predominance. See id . at 1433; see also In re Deepwater Horizon, 739 F.3d 790, 817 (5th Cir.2014) (construing the “principal holding of Comcast [as being] that a ‘model purporting to serve as evidence of damages … must measure only those damages attributable to th[e] theory’ of liability on which the class action is premised” (ellipsis and second alteration in original) (quoting Comcast, 133 S.Ct. at 1433)); Butler v. Sears, Roebuck & Co., 727 F.3d 796, 799 (7th Cir.2013) (construing Comcast as holding only “that a damages suit cannot be certified to proceed as a class action unless the damages sought are the result of the class-wide injury that the suit alleges” (emphasis in original)); Leyva v. Medline Indus. Inc., 716 F.3d 510, 514 (9th Cir.2013) (interpreting Comcast to hold that class-action plaintiffs “must be able to show that their damages stemmed from the defendant’s actions that created the legal liability”); accord Catholic Healthcare W. v. U.S. Foodservice Inc. ( In re U.S. Foodservice Inc. Pricing Litig.), 729 F.3d 108, 123 n. 8 (2d Cir.2013) (“Plaintiffs’ proposed measure for damages is thus directly linked with their underlying theory of classwide liability … and is therefore in accord with the Supreme Court’s recent decision in Comcast … . “). Indeed, as the Court explained, if all four types of anticompetitive injury had been approved for certification by the district court, the plaintiff’s damages methodology “might have been sound, and might have produced commonality of damages.” Comcast, 133 S.Ct. at 1434.
To be sure, Comcast reiterated that damages questions should be considered at the certification stage when weighing predominance issues, but this requirement is entirely consistent with our prior holding that “the fact that damages may have to be ascertained on an individual basis is … a factor that we must consider in deciding whether issues susceptible to generalized proof ‘outweigh’ individual issues.” McLaughlin, 522 F.3d at 231. The Supreme Court did not foreclose the possibility of class certification under Rule 23(b)(3) in cases involving individualized damages calculations.
The court then noted that its reading of Comcast was consistent with all 4 Circuits to have reached the issue previously:
Our reading of Comcast is consistent with the Supreme Court’s statement in Comcast that its decision turned upon “the straightforward application of class-certification principles.” 133 S.Ct. at 1433. Our reading is also consistent with the interpretation of those Circuits that have had the opportunity to apply Comcast. See AstraZeneca AB v. United Food & Commercial Workers Unions & Emp’rs Midwest Health Benefits Fund (In re Nexium Antitrust Litig.), No. 14–1521, 2015 WL 265548, at *8, *10 (1st Cir. Jan.21, 2015) (explaining that Comcast “simply” requires that a damages calculation reflect the associated theory of liability, and discussing the “well-established” principle that individualized damages do not automatically defeat Rule 23(b)(3) certification); Dow Chem. Co. v. Seegott Holdings, Inc. ( In re Urethane Antitrust Litig.), 768 F.3d 1245, 1257–58 (10th Cir.2014) ( “Comcast did not rest on the ability to measure damages on a class-wide basis.”); In re Deepwater Horizon, 739 F.3d at 817 (rejecting, post-Comcast, the argument “that certification under Rule 23(b)(3) requires a reliable, common methodology for measuring classwide damages” (internal quotation marks omitted)); Butler, 727 F.3d at 801 (holding, upon the Supreme Court’s grant of certiorari, vacatur, and remand in light of Comcast, that “the fact that damages are not identical across all class members should not preclude class certification”); Glazer v. Whirlpool Corp. (In re Whirlpool Corp. Front–Loading Washer Prods. Liab. Litig .), 722 F.3d 838, 860–61 (6th Cir.2013) (noting that Comcast was “premised on existing class-action jurisprudence” and that “it remains the ‘black letter rule’ that a class may obtain certification under Rule 23(b)(3) when liability questions common to the class predominate over damages questions unique to class members”); Leyva, 716 F.3d at 513 (reiterating Ninth Circuit precedent, post-Comcast, that “damage calculations alone cannot defeat certification” (quoting Yokoyama v. Midland Nat’l Life Ins. Co., 594 F.3d 1087, 1094 (9th Cir.2010)) (internal quotation mark omitted)).
Because the trial court did not complete its full analysis under Rule 23, inasmuch as it held that individualized damages alone precluded class certification, the Second Circuit reversed and remanded the case for further findings regarding plaintiffs’ motion for class certification. Of note, on the same day, in an unreported decision, the Second Circuit affirmed a trial court’s order granting class certification, notwithstanding the defendant-appellant’s argument that individualized damages precluded class certification regarding liability issues.