Davis v. J.P. Morgan Chase & Co.

• Decision Date: 20 November 2009
• Docket Number: Docket No. 08-4092-cv.
• Parties: Michael J. DAVIS, and all others similarly situated, Elena Lombardo, Carol Smith, Daniel J. McGraw, Plaintiffs, Andrew Whalen, Plaintiff-Appellant, v. J.P. MORGAN CHASE & CO., Defendant-Appellee.
• Court: U.S. Court of Appeals — Second Circuit

587 F.3d 529

Michael J. DAVIS, and all others similarly situated, Elena Lombardo, Carol Smith, Daniel J. McGraw, Plaintiffs, Andrew Whalen, Plaintiff-Appellant, v. J.P. MORGAN CHASE & CO., Defendant-Appellee.

Docket No. 08-4092-cv.

United States Court of Appeals, Second Circuit.

Argued: August 3, 2009.

Decided: November 20, 2009.

J. Nelson Thomas, Dolin, Thomas & Solomon LLP, Rochester, NY, for Plaintiff-Appellant.

Samuel Shaulson, Morgan, Lewis & Bockius LLP, New York, N.Y. (Carrie A. Gonnell, Irvine, CA, on the brief), for Defendant-Appellee.

Before: POOLER, LIVINGSTON, and LYNCH, Circuit Judges.^*

GERARD E. LYNCH, Circuit Judge:

This appeal requires us to decide whether underwriters tasked with approving loans, in accordance with detailed guidelines provided by their employer, are administrative employees exempt from the overtime requirements of the Fair Labor Standards Act. Andrew Whalen was employed by J.P. Morgan Chase ("Chase") for four years as an underwriter. As an underwriter, Whalen evaluated whether to issue loans to individual loan applicants by referring to a detailed set of guidelines, known as the Credit Guide, provided to him by Chase. The Credit Guide specified how underwriters should determine loan applicant characteristics such as qualifying income and credit history, and instructed underwriters to compare such data with criteria, also set out in the Credit Guide, prescribing what qualified a loan applicant for a particular loan product. Chase also provided supplemental guidelines and product guidelines with information specific to individual loan products. An underwriter was expected to evaluate each loan application under the Credit Guide and approve the loan if it met the Guide's standards. If a loan did not meet the Guide's standards, certain underwriters had some ability to make exceptions or variances to implement appropriate compensating factors. Whalen and Chase provide different accounts of how often underwriters made such exceptions.

Under the Fair Labor Standards Act (FLSA), employers must pay employees overtime compensation for time worked in excess of forty hours per week. See 29 U.S.C. § 207(a). Whalen claims that he frequently worked over forty hours per week. A number of categories of employees are exempted from the overtime pay requirement. The exemptions are drawn along a number of lines demarcating the type of profession, job function, and other characteristics. One categorical exemption is for employees who work in a "bona fide executive, administrative, or professional capacity." 29 U.S.C. § 213(a)(1).¹

At the time of Whalen's employment by Chase, Chase treated underwriters as exempt from the FLSA's overtime requirements. Whalen sought a declaratory judgment that Chase violated the FLSA by treating him as exempt and failing to pay him overtime compensation. Both Whalen and Chase filed motions for summary judgment. The district court denied Whalen's motions and granted Chase's motion, dismissing Whalen's complaint. This appeal followed.

We review the district court's ruling on a motion for summary judgment de novo, construing the evidence in favor of the non-moving party. See Krauss v. Oxford Health Plans, Inc., 517 F.3d 614, 621-22 (2d Cir.2008); Petrosino v. Bell Atl, 385 F.3d 210, 219 (2d Cir.2004). We may affirm the district court's grant of summary judgment on any ground upon which the district court could have relied. See Santos v. Murdock, 243 F.3d 681, 683 (2d Cir.2001). Exemptions from the FLSA's requirements "are to be narrowly construed against the employers seeking to assert them and their application limited to those establishments plainly and unmistakably within their terms and spirit." Arnold v. Ben Kanowsky, Inc., 361 U.S. 388, 392, 80 S.Ct. 453, 4 L.Ed.2d 393 (1960).

The statute specifying that employees who work in "bona fide executive, administrative, or professional capacit[ies]" are exempt from the FLSA overtime pay requirements does not define "administrative." 29 U.S.C. § 213(a)(1). Federal regulations specify, however, that a worker is employed in a bona fide administrative capacity if she performs work "directly related to management policies or general business operations" and "customarily and regularly exercises discretion and independent judgment." 29 C.F.R. § 541.2(a).² Regulations further explain that work directly related to management policies or general business operations consists of "those types of activities relating to the administrative operations of a business as distinguished from `production' or, in a retail or service establishment, `sales' work." 29 C.F.R. § 541.205(a).³ Employment may thus be classified as belonging in the administrative category, which falls squarely within the administrative exception, or as production/sales work, which does not.

Precedent in this circuit is light but provides the framework of our analysis to identify Whalen's job as either administrative or production. In Reich v. State of New York, 3 F.3d 581 (2d Cir.1993), overruled by implication on other grounds by Seminole Tribe v. Florida, 517 U.S. 44, 116 S.Ct. 1114, 134 L.Ed.2d 252 (1996), we held that members of the state police assigned to the Bureau of Criminal Investigation (BCI), known as BCI Investigators, were not exempt as administrative employees. See id. at 585, 588. BCI Investigators are responsible for supervising investigations performed by state troopers and conducting their own investigations of felonies and major misdemeanors. Applying the administrative versus production analysis, we then reasoned that because "the primary function of the Investigators ... is to conduct—or `produce'—its criminal investigations," the BCI Investigators fell "squarely on the `production' side of the line" and were not exempt from the FLSA's overtime requirements. Id. at 587-88.

The administrative/production dichotomy was similarly employed in a Vermont case we affirmed last year, but the circumstances of our affirmance limit its precedential value. The facts of that case were similar to those presented here: the plaintiffs were employed as underwriters for a company in the business of underwriting mortgage loans that were then sold to the secondary lending market. See Havey v. Homebound Mortgage, Inc., No. 2:03-CV-313, 2005 WL 1719061, at *1 (D.Vt. July 21, 2005), aff'd, 547 F.3d 158 (2d Cir.2008). The district court concluded with very little analysis that the underwriters were not employed in production because they performed "nonmanual work related to Homebound's business." Id. at *5 Significantly, the court appeared to assume that "production" must relate to tangible goods, citing a Connecticut case in which the court refused to grant summary judgment finding that material planning specialists, senior financial analysts, project financial analysts, and logistics specialists employed by a company that built submarines were exempt from FLSA's overtime requirements. See id. at *5 n. 6, citing Cooke v. Gen. Dynamics Corp., 993 F.Supp. 56 (D.Conn.1997). The Havey court noted that "[i]n that case ... the corporation was in the business of producing submarines. Homebound was in the business of underwriting mortgage loans. No production was taking place." Id. (citations omitted).

As Reich illustrates, this literal reading of "production" to require tangible goods has no basis in law or regulation. We affirmed the district court in Havey, but the only issue presented on appeal was whether plaintiffs were paid on a salary basis under the payment structure adopted by Homebound. Accordingly, our opinion offered no analysis as to whether the underwriters performed work directly related to the management policies or general business operations of their employers under the FLSA. We therefore do not read our Havey opinion as adopting the flawed analysis of the Vermont court as to administrative and production job functions.

The line between administrative and production jobs is not a clear one, particularly given that the item being produced— such as "criminal investigations"—is often an intangible service rather than a material good. Notably, the border between administrative and production work does not track the level of responsibility, importance or skill needed to perform a particular job.⁴ The monetary value of the loans approved by Whalen as an underwriter, for example, is irrelevant to this classification: a bank teller might deal with hundreds of thousands of dollars each month whereas a staffer in human resources never touches a dime of the bank's money, yet the bank teller is in production and the human resources staffer performs an administrative position. Similarly, it is irrelevant that Whalen's salary was relatively low or that he worked in a cubicle. What determines whether an underwriter performed production or administrative functions is the nature of her duties, not the physical conditions of her employment.

The Department of Labor has attempted to clarify the classification of jobs within the financial industry through regulations and opinion letters. In 2004, the Department of Labor promulgated new regulations discussing, among other things, employees in the financial services industry. Although these regulations were instituted after Whalen's employment with Chase ended, the Department of Labor noted that the new regulations were "[c]onsistent with existing case law." 69 Fed.Reg. 22,122, 22,145 (Apr. 23, 2004). The regulation states:

Employees in the financial services industry generally meet the duties requirements for the administrative exemption if their duties include work such as collecting and analyzing information regarding the customer's income, assets, investments or debts; determining which financial products best meet the customer's needs and financial circumstances; advising the customer regarding the advantages and disadvantages of different financial products; and marketing, servicing or promoting the...