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Saunders v. Ace Mortg. Funding, Inc.: US District Court : FLSA - two individuals were FLSA employers; partial summary judgment

Keven Saunders, Tony Moy, Civil No. 05-1437 (DWF/SRN)
Eric Orman, Michael Barylski,
Grant Moellering, Kenneth
Cooper, Christopher Hancock,
Martin Cocita, Mick Verdeck,
Zachary Gray, and Greg
Gimelstein, individually and on
behalf of others similarly situated,
Ace Mortgage Funding, Inc.,
Richard M. Hall, and Robert Gregory,
Donald H. Nichols, Esq., Michele R. Fisher, Esq., Paul J. Lukas, Esq., Rachhana T. Srey, Esq., Sarah M. Fleegel, Esq., Charles G. Frohman, Esq., and Timothy C. Selander, Esq., Nichols, Kaster & Anderson, PLLP; and Marguerite M. Longoria, Esq., and Sam J. Smith, Esq., Burr & Smith, LLP, counsel for Plaintiffs.
Kevin A. Finnerty, Esq., Peder Nestingen, Esq., and Robert R. Reinhart, Esq., Dorsey & Whitney, LLP, counsel for Defendants.
In this collective action, Plaintiffs allege violations of the Fair Labor Standards Act (FLSA), 29 U.S.C. 201, et seq., and seek overtime compensation and minimum wage payments from Defendants Ace Mortgage Funding, Inc. (Ace), Aces president,
Richard M. Hall, and its former vice president, Robert Gregory.1 This matter is before the Court pursuant to Plaintiffs motion for partial summary judgment on the issue of Halls and Gregorys individual liability. For the reasons set forth below, the Court grants the motion.
General Background and the Broker Pay Plan
The background of this case was initially discussed in the Courts November 14, 2005, and April 16, 2007 Orders and is incorporated herein. The following facts are pertinent to the current motion.
Hall and Gregory founded Ace, a mortgage brokerage company, in February 1998. Today, Ace has branch offices in at least twenty-six states. It is licensed to broker loans in forty-five states and to lend mortgage funds in thirteen states. Plaintiffs are current or former Ace loan officers.
Ace opened its first office in 1998. Ace staffed that office and its subsequent branch offices with loan officers, loan processors, administrative personnel, and an Assistant Vice President (AVP). The AVP is tasked with managing the individual branches. As Ace grew and acquired new branches, it created a new position of Senior AVP to oversee the retail branches.
From its inception, Ace paid its loan officers on a 100% commission basis. Under
1 In their First Amended Complaint, Plaintiffs also added six putative state class
this compensation structure, loan officers received no compensation during pay periods when they received no commission payments. The commission percentages increased as sales volume increased. Each loan officer that Ace hired signed an employment contract agreeing to this method of payment.
In March 2004, Hall and Gregory sold Ace2 to Platinum Holdings, Inc. (Platinum), which was equally owned by Hall and Gregory. In late 2004 and in response to an inquiry from the Department of Labor (DOL), Ace sought advice from a law firm and from the DOL on how to alter its method of paying loan officers so as to comply with the FLSA. After doing so, Ace re-classified loan officers as non-exempt and instituted a new pay plan. Ace sought to ensure that loan officers were earning at least a minimum wage or salary, while continuing to provide the incentive for loan officers to earn high wages. Ace developed a new compensation scheme called the Broker Pay Plan (also referred to as the Plan).
The Broker Pay Plan called for a guaranteed weekly pay equivalent to the minimum wage for forty hours per week, plus a guarantee of time-and-a-half for twenty more hours per week. In addition to this compensation, loan officers were eligible to receive a commission. Although the Broker Pay Plan required Ace to compensate loan
actions seeking minimum wage and overtime compensation pursuant to state laws.
2 For the purposes of this motion, the Court need not distinguish between Ace Mortgage Holding Company and its subsidiaries that include Ace Mortgage Funding, Inc., Archer Land Title, and Ace Imagining.
officers for a total of sixty hours of work, Ace believed that the loan officer position only required about forty hours of work per week. Additionally, under the Plan, loan officers were not allowed to work in excess of sixty hours without obtaining written permission in advance. On June 1, 2005, Ace implemented the Broker Pay Plan. Ace provided each loan officer with a new contract that explained the new compensation plan and asked each officer to accept the Plan in writing.
In the fall of 2005, Platinum sold 60% of Ace to Roark Capital Group (Roark), a private investment firm, leaving Hall and Gregory each with a 20% interest in Ace. Since that time, they have continued to personally guarantee Aces line-of-credit. Roark did not assume a role in the daily operations of Ace, and Hall and Gregory continued to perform their duties for Ace. Hall and Gregory also took on additional responsibilities, such as evaluating corporate acquisitions. In late 2006, after an unprofitable acquisition, Hall and Gregory made a capital contribution to Ace. Effective October 1, 2007, Ace ceased using the Broker Pay Plan to compensate loan officers.
Halls and Gregorys Involvement in Ace
The focus of the present motion is on Halls and Gregorys individual liability based on their involvement with decisions related to the salaries loan officers received during the relevant time period. For the purposes of this motion, the parties agree that the
relevant time period commenced on July 18, 2003,3 which is two years prior to the filing of this lawsuit, and ended on October 1, 2007, when Ace ceased using the Broker Pay Plan.
When Ace was founded, Gregory was the president, and Hall was the vice-president, although they considered themselves to be equal partners. Later, they switched their titles, and Hall became the president and Gregory became the vice-president. In the beginning, they jointly decided to pay loan officers on a 100% commission basis because they had been paid on a straight commission basis when they worked as loan officers at a different company. Hall and Gregory were aware that a loan officer would be paid nothing for a months work if that loan officer closed no loans during a particular month. According to Hall, this compensation plan was successful because Ace was able to attract good loan officers by offering a more competitive compensation plan.
Later, when Ace instituted the Broker Pay Play, both Hall and Gregory helped develop and implement the Plan, after consulting with Aces counsel and with the DOL. Based on the record before the Court, Hall appears to have taken a more active role than Gregory in developing the Broker Pay Plan; even still, Gregory participated in several meetings and worked together with Hall to develop the Plan. According to Hall, he and Gregory gave their final approval to implement the Broker Pay Plan with the hopes that it
3 If Plaintiffs sustain their burden of proving willfulness, the parties agree that the
would ensure that Ace was in compliance with FLSA regulations. Later, Hall and Gregory introduced the Plan to the AVPs.
Halls and Gregorys roles at Ace have evolved over time. In the beginning, Hall handled almost all of the work associated with loan origination, including drafting or approving provisions of the Employee Handbook that described the loan officers responsibilities. Later, he concentrated his efforts on electing the products Ace offered and managing AVPs. Until Ace hired Senior AVPs, Hall hired and trained each new branchs AVP and loan officers. Although he is no longer involved with the direct hiring of AVPs or loan officers, Hall either decides to or approves of decisions to promote loan officers to AVPs. Hall is also directly involved with Aces decisions to open and close offices. But he is not involved with the hiring at each individual branch office, and he does not review the time records or payroll documents for individual loan officers.
Hall (together with Gregory until August 2007) holds monthly conference calls and quarterly in-person meetings with Aces corporate employees and AVPs. In addition, he sends a monthly company-wide e-mail either to all employees and/or some the AVPs regarding production, the companys marketing efforts, and upcoming monthly goals. Some of these e-mails involve communications about working evenings and/or weekends in excess of forty hours to obtain sales goals. Some e-mails also state that if sales goals are not obtained or loan officers are not working on weekends and/or evenings, loan leads
relevant time period will commence on July 18, 2002.
should be withheld. Both Hall and Gregory (who also received Halls e-mails) describe these messages as suggestions, as opposed to mandatory requirements imposed by them on the loan officers. They assert that the AVPs and the individual loan officers control the loan officers working hours.
Aces AVPs consider Hall to be very accessible, and they testified that they are able to contact him if needed. For example, the record shows that in December 2004, Hall responded to e-mails from a former Ace employee Keven Saunders, who is a named Plaintiff, inquiring about the requirements to work evenings and weekends. In those e-mails, Hall explained how he also worked two nights a week and on Saturdays, how Saunders should set an example for other loan officers, and that Saunders could follow the suggested work schedule or leave the company peacefully.
In the beginning, Gregory concentrated his efforts on handling information technology, reviewing contracts, marketing, human resources, and other non-sales functions. As Ace grew, Gregorys responsibilities changed from performing those duties to overseeing and managing them. Aces AVPs routinely contacted Gregory if they needed to discuss non-sales issues. And, as described above, Gregory, together with Hall, made the final decisions regarding how loan officers were compensated both on the commission basis and under the Broker Pay Plan. In August 2007, Gregory submitted his resignation to Ace.
I. Standard of Review
Summary judgment is proper if there are no disputed issues of material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). The Court must view the evidence and the inferences, which may be reasonably drawn from the evidence, in the light most favorable to the nonmoving party. Enter. Bank v. Magna Bank of Mo., 92 F.3d 743, 747 (8th Cir. 1996). However, as the Supreme Court has stated, [s]ummary judgment procedure is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed to secure the just, speedy, and inexpensive determination of every action. Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986) (quoting Fed. R. Civ. P. 1).
The moving party bears the burden of showing that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. Enter. Bank, 92 F.3d at 747. The nonmoving party must demonstrate the existence of specific facts in the record that create a genuine issue for trial. Krenik v. County of Le Sueur, 47 F.3d 953, 957 (8th Cir. 1995). A party opposing a properly supported motion for summary judgment may not rest upon mere allegations or denials of his pleading, but must set forth specific facts showing that there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986).
II. Individual Liability Under the FLSA
Plaintiffs assert that they are entitled to summary judgment on the issue of whether Hall and Gregory can be held individually liable as employers under the FSLA. Hall and Gregory oppose the motion, arguing that they did not maintain sufficient control over the loan officers to qualify as employers under the FSLA.4
The Eighth Circuit Court of Appeals has not directly announced the standard to be applied in determining whether a defendant is an employer under the FLSA. 5 Nonetheless, the parties generally agree on the standard to be applied to determine that issue. (See Plfs Mem. at 12-13; Hall and Gregorys Oppn Mem. at 22-23.) They do not, however, agree on the result when that standard is applied to the facts of this case.
The FLSA imposes a minimum hourly wage requirement upon employers, specifically certain types of employees who work more than forty hours per week must be compensated at one and one-half times the regular rate at which they are employed. 29 U.S.C. 206, 207(a)(1). The FLSA defines employer broadly to include any
4 Hall and Gregory also initially opposed Plaintiffs motion on the grounds that it was untimely under the Scheduling Order. The parties have since resolved the untimeliness issue, and the Court has entered a revised Schedule Order based on the parties stipulation. (See Doc. No. 397.)
5 Hall and Gregory do heavily rely on one Eighth Circuit case, Wirtz v. Pure Ice Co., 322 F.2d 259 (8th Cir. 1963), in support of their denial of employer status. That case is easily distinguishable, however, because there the controlling shareholder had not supervised the relationship between the corporation and its employees and had nothing to do with the hiring of the employees or fixing their wages and hours. Pure Ice, 322 F.2d at 263.
person acting directly or indirectly in the interest of an employer in relation to an employee. . . . Id. 203(d). The Supreme Court has emphasized the expansiveness of the FLSAs definition of employer. Falk v. Brennan, 414 U.S. 190, 195 (1973). There may be multiple employers who are simultaneously liable for compliance with the FLSA. Dole v. Elliott Travel & Tours, Inc., 942 F.2d 962, 965 (6th Cir. 1991).
Because the FLSA defines employer in such broad terms, it offers little guidance on whether a given individual is or is not an employer. In answering that question, the overarching concern is whether the alleged employer possessed the power to control the workers in question, with an eye to the economic reality presented by the facts of each case. Goldberg v. Whitaker House Coop., 366 U.S. 28, 33 (1961). The economic realities test takes into account the real economic relationship between the employer who uses and benefits from services of workers and the party that hires or assigns the workers to that employer. Ansoumana v. Gristedes Operating Corp., 255 F. Supp. 2d 184, (S.D.N.Y. 2003); see also Catani v. Chiodi, Civ. No. 00-1559 (DWF/RLE), 2001 WL 920025, at * 6 (D. Minn. Aug. 13, 2001) (listing factors to be considered for economic realities test). No single economic factor is dispositive. See Elliott Travel, 942 F.2d at 965. Instead, the economic reality test encompasses the totality of the circumstances. Since economic reality is determined based upon all of the circumstances, any relevant evidence may be examined so as to avoid having the test confined to a
narrow legalistic definition. See Rutherford Food Corp. v. McComb, 331 U.S. 722, 730 (1947) (whether an employer-employee relationship exists does not depend on isolated factors but rather upon the circumstances of the whole activity).
Whether a party is an employer is a legal determination, id., and courts routinely recognize that a corporate officer with operational control of a company can be liable as an employer under the FSLA. See, e.g., Chao v. Bauerly, Civ. No. 03-6200 (PAM/RLE), 2005 WL 1923716, at * 5 (D. Minn. Aug. 11, 2005) (collecting cases). For instance, the First Circuit Court of Appeals has identified several economic factors that are important to the personal liability analysis, including the individuals ownership interest, degree of control over the corporations financial affairs and compensation practices, and the role in causing the corporation to compensate or not compensate employees in compliance with the FLSA. Baystate Alternative Staffing, Inc. v. Herman, 163 F.3d 668, 677-78 (1st Cir. 1998).
With the above-listed considerations in mind and viewing the evidence in the light most favorable to Hall and Gregory, the Court concludes that there are no genuine issues of material fact with respect to whether they are employers under the FSLA. They are employers. With respect to both Hall and Gregory, it is undisputed that as the founders of Ace, they jointly decided to first implement the 100% commission payment plan and later the Broker Payment Plan. Given this, it is undisputed that they had control over the alleged violations of the FSLA. See Chao v. Hotel Oasis, 493 F.3d 26, (1st Cir. 2007) (concluding president was an employer because, in part, he was in charge of directing
employment practices and instrumental in causing the FLSA violation). Moreover, they also were responsible either directly or indirectly for the hiring and firing of Aces employees, including in later years the AVPs and Senior AVPs, who were directly in charge of the loan officers. See Ansoumana, 255 F. Supp. 2d at 193 (concluding defendants were employers because they exercised operational management over the workers). And, they had a significant financial stake in Ace, as evidenced by their 20% ownership interest in the company as well as their 2006 capital contribution and personal guarantees on the companys line-of-credit. See Elliot Travel, 942 F. 2d at 966 (citing corporate officers ownership stake as a significant factor in finding him to be an employer under the FSLA).
Specifically with respect to Hall, he personally instructed, or at a minimum actively encouraged, AVPs to have loan officers work nights and weekends to obtain sales goals. As Ace grew, he maintained significant control over the companys daily operations, including conducting monthly telephone contact with the AVPs and corporate leadership and responding to questions from individual AVPs and loan officers. This involvement did not change after selling part of his interest to Roarke. With respect to Gregory, he first handled the non-sales aspects of Ace and later managed those aspects, including human resources. Gregorys August 2007 resignation does not change his potential liability, given that the decisions related to the alleged violations were made well before Gregory submitted his resignation to Ace.
Finally, Aces size does not change the economic reality that both Hall and Gregory exerted sufficient control over in the company to be considered employers under the FSLA. Individuals may be employers without the continuous monitoring of employees, looking over their shoulders at all times, or any sort of absolute control; rather, control may be restricted or exercised occasionally without removing the employment relationship from FLSA protections. Herman v. RSR Sec. Servs. Ltd., 172 F.3d 132, 139 (2d Cir. 1999).
Accordingly, IT IS HEREBY ORDERED that:
1. Plaintiffs Motion for Partial Summary Judgment (Doc. No. 343)
Dated: November 16, 2007 s/Donovan W. Frank
Judge of United States District Court


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