Davis v. Novastar Mortg., Inc.

Decision Date08 November 2005
Docket NumberNo. 04-0956-CV-W-FJG.,04-0956-CV-W-FJG.
Citation408 F.Supp.2d 811
PartiesCharles DAVIS, et al., individually and on behalf of other similarly situated persons, Plaintiffs, v. NOVASTAR MORTGAGE, INC., et al., Defendants.
CourtU.S. District Court — Western District of Missouri

George A. Hanson, Virginia Irene Stevens Crimmins, Norman Eli Siegel, Stueve, Siegel, Hanson, Woody, LLP, Kansas City, MO, for Plaintiffs.

Jeannie M. Deveney, Katherine M. Scorza, Spencer Fane Britt & Browne LLP, Overland Park, KS, Christopher M Bissonnette, Maria A. Audero, Paul Grossman, Stephen P. Sonnenberg, Paul, Hastings, Janofsky & Walker, LLC, Los Angeles, CA, Denise K. Drake, Nathan A. Orr, Spencer Fane Britt & Browne LLP, Kansas City, MO, for Defendants.


GAITAN, District Judge.

Pending before the Court is plaintiffs' Motion for Conditional Certification of Case as Collective Action and for Expedited Court-Supervised Notice to Similarly Situated Employees (Doc. No. 78). Plaintiffs request authorization to send notice of this pending collective action under the Fair Labor Standards Act to all current and former employees of NovaStar Mortgage, Inc., NovaStar Home Mortgage, Inc. and NovaStar Financial, Inc. (collectively "NovaStar" or "Defendants") who worked as a loan originator2 at any time from June 2001 to June 2004. In addition, Plaintiffs request that this Court order Defendants to provide Plaintiffs the names and current or last known addresses and telephone numbers for each such current or former employee in order to facilitate notice.


This is a Section 16(b) collective action brought on behalf of current and former loan originators employed by NovaStar Mortgage, Inc. ("NMI"), NovaStar Home Mortgage, Inc. ("NHMI"), and NovaStar Financial, Inc. ("NFI").3 Plaintiffs allege that the NovaStar defendants failed to properly pay loan originators minimum wage and overtime compensation, and failed to keep accurate records reflecting the number of hours loan originators worked.


The NovaStar family of companies are NovaStar Financial, Inc. ("NFI"), NovaStar Mortgage, Inc. ("NMI"), and NovaStar Home Mortgage, Inc. ("NHMI"). NFI, a Maryland corporation, is the publicly traded parent company of NMI and NHMI. NMI, a Virginia corporation, is a wholesale lender that focuses on providing a wide array of non-conforming loan products. NHMI, a Delaware corporation, is a retail branch organization of affiliated mortgage brokers with a network of locations nationwide. All three entities share the same corporate headquarters at 8140 Ward Parkway, Kansas City, Missouri 64114. The NovaStar family of companies also share common ownership, common officers and directors, and a common human resources department. (See Exs. F and G to Doc. No. 79; Depo. of Rodney Schwatken, NovaStar's Vice President and Controller, 11:1-12:13, 15:12-15:22, 22:4-23:12, 26:7-31:21). However, NMI and NHMI maintain separate locations throughout the United States.

NMI employs approximately 120 loan originators. Plaintiffs allege that all loan originators employed by NovaStar over the last three years had essentially the same, job duties: to originate or procure loans and sell the financial products of NovaStar. If a customer was interested in obtaining a loan, a loan originator would collect information to complete a loan application and then forward the application to an underwriting department for an approval decision. NovaStar loan originators did not have final authority or discretion to approve or disapprove a loan. (See employee declarations, attached to Doc. No. 79; Depo. of Paul Bradley, NovaStar's Vice President of Retail Sales, 26:10-28:20, 32:22-33:4, 50:10-53:2).

NovaStar loan originators commonly worked overtime hours on a weekly basis and were not paid for this overtime prior to July 2004. (See employee declarations, attached to Doc. No. 79; see also Depo. of Lance Anderson, NFI's President and Chief Operating Officer and NMI's President and Chief Executive Officer, at 30:14-17, Ex. 4 to Doc. No. 119; defendants' opposition, Doc. No. 112, at p. 12 (admitting that their own evidence reveals that loan originators worked an average of 2.5 hours of overtime per week).) Until approximately July 2004, loan originators were not required to accurately record the time they worked, and NovaStar failed to maintain accurate time records as required by the FLSA. (See Doc. No. 79, Julian Decl., ¶ 4; Depo. of Scott A. Stone, Director of Employee Relations for NovaStar, 145:10-145:12, 147:6-147:14). Prior to July 2004, all loan originators in the NMI division were classified as exempt under the FLSA. (See Anderson Depo. at 30:10-13; Stone Depo. at 7:13-15.)

In or around June of 2004, NovaStar reclassified all individuals employed as loan originators as non-exempt. Plaintiffs state that NovaStar represented to its work force that the Department of Labor revised the FLSA to make loan originators non-exempt. Plaintiffs' position, however, is that the DOL's new regulations only codified existing law, and NovaStar deliberately misinformed its loan originators regarding their entitlement to overtime compensation and backpay. NovaStar's Director of Employee Relations and corporate representative admits that the company took "license" in its communications to employees regarding the reclassification of loan originators from exempt to nonexempt. (See Doc. No. 79, Depo. of Scott A. Stone, 201:1-201:10.)

NovaStar senior executives specifically considered, but ultimately rejected, the idea of paying NovaStar loan originators backpay for the substantial overtime hours they had worked prior to the reclassification in June 2004. (See Doc. No. 79, Stone Depo. 7:13-7:15, 134:25-135:10, 136:20-136:25, 140:11-141:14, 142:5-142:17, 144:23-145-12, 147:6-147:14, 159:20-160:5, 185:22-186:1, 198:10-202:18; Exs. H, I, J and K).

Plaintiffs state that they and the other loan originators in the NMI division are similarly situated because they perform the same essential job duties and are common victims of Defendants' company-wide policy and practice to mis-classify these employees as exempt in order to deny them overtime compensation.


Section 216(b) provides that a FLSA action may be brought by an employee for himself and on behalf of "other employees similarly situated." A collective action under the FLSA differs significantly from a Fed.R.Civ.P. 23 class action in that a similarly situated employee does not become a plaintiff (and is not bound by a subsequent judgement) in a case proceeding under § 216(b) "unless he gives his consent in writing to become such a party" and files a consent in the court where the action is pending. 29 U.S.C. § 216(b). In other wards, a party needs to "opt-in" to a collective action under the FLSA, whereas a party would need to "opt-out" of a class action proceeding under Rule 23.

In order to determine whether potential opt-in plaintiffs are "similarly situated" for purposes of § 216(b) analysis, federal district courts have used varying standards. Notably, the Eighth Circuit Court of Appeals has not spoken regarding the standard that should be used by district courts therein, and no reported cases from the Western District of Missouri examine the appropriate standard for determining whether plaintiffs are "similarly situated." However, this Court has utilized the two-step approach advocated by plaintiffs in a previous case. See Boyle v. Barber & Sons, Co. Case No. 03-0574-CV-W-FJG (W.D.Mo., May 21, 2004) (Order granting plaintiffs' motion for conditional certification of collective action). See also Gamer v. Regis Corp., Case No. 03-5037-CV-SW-SWH (W.D.Mo., Aug. 5, 2004) (Order granting plaintiffs' motion for conditional certification of collective action). This approach is utilized in the majority of reported district court cases. See Lusardi v. Xerox Corp., 118 F.R.D. 351 (D.N.J. 1987); Brooks v. BellSouth Telecommunications, Inc., 164 F.R.D. 561, 568 (N.D.Ala.1995); Thiessen v. General Electric Capital Corp., 996 F.Supp. 1071, 1080 (D.Kan.1998). See also Bartleson v. Winnebago Indus., Inc., 2003 WL 22427817, *4 (N.D.Iowa October 24, 2003) (stating that "[c]ourts uniformly have found the Rule 23 factors for `opt-out' class actions to be inapplicable to the FLSA's `opt-in' requirement," and citing numerous cases from outside the Eighth Circuit).

This approach provides for a two-step determination as to whether class certification is proper. First, plaintiff moves for conditional certification at an early stage in the litigation, wherein a class is certified for notice purposes. Then, at the second step, defendants are allowed the opportunity to move for de-certification at the close of discovery. See Vaszlavik v. Storage Tech. Corp., 175 F.R.D. 672, 678 (D.Colo.1997) (quoting Sperling v. Hoffmann-La Roche, Inc., 118 F.R.D. 392, 407 (D.N.J.1998)).

According to this line of cases, conditional certification at the notice stage requires "nothing more than substantial allegations that the putative class members were together the victims of a single decision, policy or plan." Id. See also Schwed v. General Electric Co., 159 F.R.D. 373, 375 (N.D.N.Y.1995) (providing that plaintiff only needs to provide some factual basis from which the court can determine if similarly situated plaintiffs exist); Heagney v. European American Bank, 122 F.R.D. 125, 127 (E.D.N.Y.1988) (stating that a plaintiff only needs to describe the potential class within reasonable limits and provide some identifiable factual basis from which the court can determine if similarly situated plaintiffs exist). After completion of discovery, the court makes a factual determination as to whether the members of the conditionally certified class are similarly situated. See Lusardi, 118 F.R.D. at 359.


Plaintiffs state that the record before this Court unquestionably establishes the following facts demonstrating that the proposed class...

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