Pippins v. KPMG LLP

• Decision Date: 30 November 2012
• Docket Number: No. 11 Civ. 0377(CM)(JLC).,11 Civ. 0377(CM)(JLC).
• Parties: Kyle PIPPINS, Jamie Schindler, and Edward Lambert, Individually and on Behalf of all Others Similarly Situated, Plaintiffs, v. KPMG LLP, Defendant.
• Court: U.S. District Court — Southern District of New York

921 F.Supp.2d 26

Kyle PIPPINS, Jamie Schindler, and Edward Lambert, Individually and on Behalf of all Others Similarly Situated, Plaintiffs,

v.KPMG LLP, Defendant.

No. 11 Civ. 0377(CM)(JLC).

United States District Court, S.D. New York.

Nov. 30, 2012.

Justin Mitchell Swartz, Adam T. Klein, Dana Gale Sussman, Elizabeth Hartley Wagoner, Rachel Megan Bien, Seth M. Marnin, Outten & Golden, LLP, New York, NY, Gregg I. Shavitz, Keith M. Stern, Susan Hilary Stern, Shavitz Law Group, P.A, Boca Raton, FL, for Plaintiffs.

Andrew W. Stern, Gary Frederick Bendinger, Gregory Gil Ballard, Alex Jason Kaplan, Sidley Austin LLP, New York, NY, Colleen M. Kenney, Sidley Austin LLP, Chicago, IL, Douglas R. Hart, Jennifer Altfeld Landau, Michael C. Kelley, Sidley, Austin, Brown and Wood, LLP, Los Angeles, CA, Michael Dana Warden, Sidley Austin LLP, Washington, DC, for Defendant.

DECISION GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT, DISMISSING PLAINTIFFS' FLSA CLAIMS WITH PREJUDICE, DISMISSING PLAINTIFFS' STATE LAW CLAIMS WITHOUT PREJUDICE

McMAHON, District Judge.

Plaintiffs Edward Lambert, Kyle Pippins, Jamie Schindler, Opt–In Plaintiffs Samuel Bradley and Keeley Young, other declarant Mark Litchfield, and various other Opt–In Plaintiffs who have elected to become part of this action (collectively, “Plaintiffs”) brought this action under the Fair Labor Standards Act (the “FLSA”), 29 U.S.C. §§ 201 et seq., and under the New York Labor Law, Article 19, §§ et seq., against Defendant KPMG LLP (“KPMG”). Plaintiffs, all of whom are or were employed as Audit Associates by KPMG, allege that Defendant violated the overtime pay requirements of the FLSA and the NYLL by failing to compensate them for hours worked in excess of forty per week. It is stipulated that KPMG did not pay overtime pay to Audit Associates and Senior Associates.

On January 3, 2012, this Court granted Plaintiffs' motion for conditional certification of a collective action under section 16(b) of the FLSA, which permits employees to bring actions seeking recovery of unpaid overtime wages on behalf of “themselves and other employees similarly situated.” Pippins v. KPMG LLP, 11 CIV. 0377(CM), 2012 WL 19379, at *1 (S.D.N.Y. Jan. 3, 2012) (citing 29 U.S.C. § 216(b)). I also directed that the parties conduct expedited discovery limited to “the issue of why all Audit Associates are classified as exempt, without regard to their personal situations,” with an eye to having one side or the other move for summary judgment on the issue. Id. at *15. In particular, the issue is “whether all Audit Associates are, by virtue of either their educational attainments or job expectations,” exempt from the FLSA, either because they qualify as learned professionals or as administrators. Id.

The parties have filed cross-motions for summary judgment, limited to the claims asserted under federal law. KPMG argues that it is entitled to summary judgment on its affirmative defense that all Audit Associates are exempt because they qualify as “professionals” under the FLSA. Plaintiffs assert that they are entitled to summary judgment on their claims that (1) all Audit Associates are non-exempt under the administrative exemption, (2) at the very least, first-year Audit Associates are not exempt under the professional exemption, and (3) KPMG did not act in “good faith” when it classified all Audit Associates as exempt. Neither party has moved for summary judgment on the NYLL claims.

For the reasons discussed below, I conclude that Audit Associates are exempt as “learned professionals,” and so need not be paid overtime. It is not necessary to discuss the applicability of the administrative exemption, since the professional exemption disposes of Plaintiffs' federal claims. The state law claims are dismissed without prejudice; if Plaintiffs choose to pursue them, they should do so in the New York State Supreme Court.

FACTUAL BACKGROUND

I. Plaintiffs

Plaintiffs in this suit were employed by KPMG as Audit Associates. Plaintiffs worked at KPMG offices in various states, including (among others) Florida, Nebraska, New Jersey, New York, Texas, and Washington.

II. Defendant KPMG

KPMG provides audit, tax, and advisory services to public and private clients in the U.S. (Def.'s Rule 56.1 Stm't in Supp. of Def.'s Mot. for Summ. J., June 8, 2012 (“Def.'s 56.1 Stm't”) ¶ 1.) The most common services KPMG provides in its audit practice are financial statement audits and integrated audits. ( Id. ¶ 2.) In the former, KPMG conducts audits of its clients' financial statements and expresses an opinion on whether those statements conform in all material respects with Generally Accepted Accounting Principles (“GAAP”), the authoritative accounting principles on financial statements for public and private companies. ( Id. ¶ 2a.) KPMG is also engaged by public companies for integrated audits, which include both a financial statement audit and a report on the client's internal control over financial reporting. ( Id. ¶ 2b.)

Both financial statement audits and integrated audits are conducted in conformity with certain professional standards. ( Id. ¶¶ 2a–b.) For private companies, the applicable auditing standards are the Generally Accepted Auditing Standards (“GAAS”), and for public companies, the applicable auditing standards are the standards of the Public Company Accounting Oversight Board (the “PCAOB”) (together, the “professional audit standards” or the “professional standards”). ( Id. ¶ 7.) The GAAS standards, cited as “AU” sections, are promulgated and codified by the Auditing Standards Board (the “ASB”), the senior technical body of the American Institute of Certified Public Accountants (the “AICPA”). ( Id.) The PCAOB promulgates its own auditing standards, cited as “AS” sections, and has also adopted the GAAS (with various additions and modifications). ( Id.) Both the ASB and the PCAOB have also adopted Quality Control Standards for quality control systems at audit firms, such as training for audit employees, which provide reasonable assurance to clients that audits are performed in accordance with auditing standards applicable to particular audits. ( Id.)

KPMG audits are conducted by “engagement teams,” which typically include (in order of seniority) one or more Partners, Senior Managers, Senior Associates, and Audit Associates. ( Id. ¶ 4.) As of June 5, 2012, KPMG employed approximately 6,700 auditing employees, who provided client services in the firm's 87 U.S. offices, approximately 2,500 of whom held the position of Audit Associate. ( Id. ¶ 1.) Audit Associates are the most junior members of the team, other than interns. ( Id. ¶ 5; Pls.' Rule 56.1 Stm't in Supp. of Pls.' Mot. for Partial Summ. J., June 8, 2012 (“Pls.' 56.1 Stm't”) ¶ 40.) Each engagement team generally has an individual, often referred to as the “in-charge,” who is responsible for running the day-to-day management of the audit. (Pls.' 56.1 Stm't ¶¶ 120–21.) Senior Associates serve as the in-charge approximately 80% of the time, but Audit Associates occasionally fill that role. ( See id. ¶¶ 122–23.)

Audit Associates are typically considered for promotion to Senior Associate after two years in that role. ( Id. ¶ 36.) Senior Associates are typically considered for promotion to Manager after three years. ( Id. ¶ 37.)

III. Audit Associates: Educational Requirements and Training

Audit Associates (and Senior Associates, for that matter) are not required to be licensed Certified Public Accountants (“CPAs”). ( Id. ¶¶ 338–39.) However, KPMG does not hire Audit Associates who lack an educational background in accounting or related fields. In fact, KPMG's general policy is to hire as Audit Associates only individuals who are “CPA-eligible” in the state in which they will work. (Def.'s 56.1 Counterst. ¶ 318; Dep. of David J. Butler, Apr. 25, May 11, and June 1, 2012 (“Butler Dep.”) 481:14–482:21.¹) The “Audit Associate Role Description,” an internal human resources document describing the position, lists as a “typical” qualification “Must be CPA eligible in home-state. If individual has not passed CPA exam, there should be a short-term plan in place to pass the CPA exam.” (Decl. of David Butler in Supp. of Def.'s Mot. for Summ. J., June 7, 2012 (“Butler Decl.”) Exs. C and D.)

The education requirements for CPA-eligibility vary from state to state, but nearly all states require a Bachelor's degree in some field and a significant number of courses in accounting, within a course of study totaling at least 150 semester hours of college-level education. (Def.'s 56.1 Stm't ¶ 29.) Many states require at least 24 semester hours in accounting courses and at least 24 additional semester hours in business courses, as required by the Uniform Accountancy Act Model Rules, issued by the National Association of State Boards of Accountancy. ( Id.) States may require more than this: New York requires 33 semester hours of accounting courses and 36 semester hours of general business courses; Texas requires 30 semester hours of upper-level accounting courses and 24 semester hours of upper-level general business courses; and Florida requires 36 semester hours in upper-division accounting courses and 39 semester hours in general business courses. ( Id. ¶ 30.) Plaintiffs point out that several states, including New Hampshire, Maine and Delaware, require very few credit hours in accounting for CPA-eligibility, but KPMG does not have offices in those states. ( See Pls.' Rule 56.1 Counterst. and Corrected Stm't of Add'l Facts in Opp. to Def.'s Rule 56.1 Stm't, July 10, 2012 (“Pls.' 56.1 Counterst”) ¶ 28.)

In addition to requiring a Bachelor's degree and CPA or near CPA-eligibility, KPMG's Audit Associate Role Description also lists the following “typical” qualifications: “Bachelor of Accountancy or Masters of Accountancy”; “Strong understanding of U.S. GAAP, U.S. GAAS, and preferably, PCAOB auditing standards”; “Strong writing and communication skills”; “Understanding and...