Opinion
CASE No. 1:12-cv-01430-MJS
05-19-2014
COREY LOCKE, et al., Plaintiffs, v. AMERICAN BANKERS INSURANCE COMPANY OF FLORIDA, Defendant.
ORDER GRANTING DEFENDANT'S
MOTION FOR PARTIAL SUMMARY
JUDGMENT
(ECF No. 39)
I. INTRODUCTION AND PROCEDURAL HISTORY
Plaintiff Corey Locke initiated this action against Defendant Assurant, Inc., a Delaware Corporation on August 30, 2012. (ECF No. 1.) On October 10, 2012, Phillip C. Aschinger and Gregory A. Wright both consented to join the collective action against Defendant. (ECF No. 6.)
Defendant timely filed an answer to the Complaint on October 23, 2012. (ECF No. 7.) By stipulation of the parties and order of the Court, Assurant, Inc., was dismissed from the action and replaced by American Bankers Insurance Company of Florida, hereinafter "ABIC," or "Defendant." (ECF No. 26.) Plaintiffs filed the First Amended Complaint on January 29, 2013. (ECF No. 28.)
The First Amended Complaint is brought by Plaintiff in his individual capacity and on behalf of other members of the public similarly situated and as aggrieved employees under the Private Attorneys General Act ("PAGA"). This action seeks to recover damages, penalties, injunctive relief, and attorneys' fees under six causes of action, alleging violations of: (1) The federal Fair Labor Standards Act ("FLSA"), 29 U.S.C. § 207; (2) California Labor Code §§ 510 and 1198; (3) California Labor Code §§ 1194, 1197, and 1197.1; (4) California Labor Code § 226(a); (5) California Labor Code § 2698, et seq.; and (6) California Business and Professions Code § 17200, et seq. All causes of action derive from Defendant's allegedly improper classification of Plaintiffs as "exempt" employees not entitled to overtime pay and the resulting failure to pay Plaintiffs overtime wages. (ECF No. 28.) ABIC filed its answer to the First Amended Complaint on February 15, 2013 generally denying the material allegations and asserting multiple affirmative defenses. (ECF No. 31.)
The Court has jurisdiction over the matter pursuant to 29 U.S.C. § 216(b). Venue is proper because Defendant transacts business within this judicial district. The parties have consented to Magistrate Judge jurisdiction. (ECF Nos. 10, 15.)
On August 30, 2013, Defendant ABIC filed a Motion for Partial Summary Judgment as to Plaintiff's first claim for FLSA violations. (ECF No. 39.) Plaintiffs filed an opposition (ECF No. 52) and Defendant replied (ECF No. 58). The matter is deemed submitted pursuant to Local Rule 230(g).
In addition to the instant motion for partial summary judgment, two other motions are currently outstanding. On October 11, 2013, Defendant filed a motion to deny certification with regard to Plaintiffs' California state law claims due to lack of numerosity, and on October 21, 2013, Plaintiffs filed a motion to conditionally certify the FLSA claim as a collective action. (ECF Nos. 51 and 59.) The resolution of the other motions in light of the instant decision is discussed below.
II. LEGAL STANDARD
Any party may move for summary judgment, and the Court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a) (quotation marks omitted); Washington Mutual Inc. v. U.S., 636 F.3d 1207, 1216 (9th Cir. 2011). A fact is deemed "material" if proof of its existence or nonexistence would affect the disposition of the case under the applicable law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). An issue of material fact is "genuine" if the evidence offered is such that a reasonable jury might return a verdict for the nonmoving party. Id. In determining whether a genuine issue has been raised, the court must construe all inferences and ambiguities against the movant and in favor of the non-moving party. United States v. Diebold, Inc., 369 U.S. 654, 655 (1962).
The party seeking summary judgment shoulders the initial burden of demonstrating to the court that there is no genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the movant has made this threshold demonstration, the non-moving party, to survive the motion for summary judgment, may not rest on the allegations averred in his pleadings. Rather, the non-moving party must demonstrate that specific, material facts give rise to a genuine issue. Id. at 324. Under this standard, the existence of a mere scintilla of evidence in support of the opposition's position is insufficient to withstand the summary judgment motion. Anderson, 477 U.S. at 252. Likewise, conclusory allegations or denials, without more, are insufficient to preclude the granting of the summary judgment motion. Lujan v. National Wildlife Fed'n, 497 U.S. 871, 888 (1990).
III. THE SUBSTANTIVE ISSUE
The ultimate issue to be resolved in this order, if it can be resolved at summary judgment, is whether, under the facts and law discussed below, the primary duties of Locke and the two consent plaintiffs require them to exercise discretion and independent judgment on matters of significance such that they come within the administrative exemption from entitlement to overtime pay.
IV. FACTS
ABIC has proffered seventy-nine purported material facts which it characterizes as undisputed. (ECF No. 39-2.) Plaintiffs dispute fifty-seven of them. (ECF No. 52-1.) However, the alleged disputes only rarely, truly, challenge the fact itself; instead, they usually do little more than argue against the conclusion which Plaintiffs believe ABIC is asking the Court to draw or infer from the fact stated. Plaintiffs then argue in support of the conclusion he thinks the Court should reach with regard to the fact. Most of the competing interpretations reflect, and require resolution of, the ultimate issue at hand - whether or not Plaintiffs' work and the manner in which they perform it renders them exempt from overtime laws applicable to hourly wage employees.
Plaintiffs engage in the pervasive use of the phrase "Disputed to the extent that ABIC means to imply . . ." and the sentence: "The cited evidence does not support the proposition stated."
Plaintiffs submitted eighty-four facts which he claims are undisputed. (ECF No. 52-2.) ABIC identifies only nine it concedes are unqualifiedly without dispute. (ECF No. 58-1.) As to the rest, it admits the facts stated, but, like Plaintiffs, cannot resist the temptation to tell the Court what it thinks the evidence says. Defendant often responds that the facts, disputed or not, are immaterial, irrelevant, or both and then offers an explanation why.
The Court will not go through each of the proposed facts and discuss the evidence in support and opposition (as noted, usually it is the same evidence with competing interpretations offered) and rule on the various interpretations. Instead, the Court will summarize the facts which it concludes are material and not genuinely in dispute; the Court will, however, note both sides of an argument on that rare occasion where a purported fact is indeed material and genuinely disputed.
Similarly, while the Court has carefully reviewed and considered the parties' objections to evidence (ECF Nos. 52-17 and 58-10), it finds that most objections go to the weight of, and meaning to be attached to, the proffered evidence and overrules them on that ground. In ruling on this motion, the Court considers only admissible, relevant evidence.
The following is the Court's summary of relevant facts:
A. ABIC's Business
ABIC is a property insurance underwriting company. It provides its services directly to property owners and to lending institutions who buy insurance for properties in which those lenders have a financial interest. When a property suffers a loss, ABIC undertakes, in accordance with applicable state law, to have its adjusters determine if any part of that loss is covered by its insurance and if so, what ABIC should pay on that loss under the policy. On any one loss, various ABIC representatives may be involved in the process. ABIC notes, however, that its primary business is underwriting and selling insurance policies and its adjusters, not ABIC, adjust claims for ABIC's customers.
B. ABIC's Adjusters
ABIC uses Inside Staff Adjusters ("ISAs") and Field Staff Adjusters ("FSAs"), both groups ABIC employees, and also retains outside Independent Adjusters ("IAs") to examine and process claims. Plaintiffs are FSAs. The duties of all three are quite similar.
Some claims are handled by both types of ABIC employee adjusters. For example, in "split assignment" cases, an FSA investigates the loss and then turns the file over to an ISA who makes the ultimate coverage decision. Such split assignment cases account for 55 to 60 percent of Plaintiff Locke's work. Conversely, on "desk file assignments," a negligible portion of Locke's work, the IA conducts the field investigation but the FSA completes the file.
Some claims assigned to FSAs involve large losses requiring manager review and approval. These account for 5 to 10 percent of Locke's assignments.
Some claims require special investigation (e.g., possible fraud) or subrogation work; the FSA does not make the coverage decision on those cases or in cases requiring re-inspection. These total about 6 percent of Locke's assignments.
Finally, "full assignment" claims generally refer to claims where the adjuster handles the full assignment but, if the size of the claim exceeds the FSA's authority, manager review and approval are required.
Thus it appears Plaintiffs effectively have full authority to determine and close roughly 24 and 34 percent of the claims assigned to them. However, on virtually all matters assigned, they investigate in the manner described below, even though the ultimate coverage decision may be made by someone else after review.
C. Who Are the Plaintiffs?
Locke, Aschinger, and Wright are Level III FSA adjuster employees of ABIC. Only Level IV FSAs rank higher. All three have college degrees and each had insurance company adjusting experience before coming to ABIC. Locke has worked as an adjuster for twenty-five years, Aschinger for thirty years, and Wright for seventeen. Each has state licensure authorizing him to adjust claims.
Plaintiffs work out of their own homes using company cars. Their manager, John Hume, is based in Colorado. They are provided technical equipment and support.
D. How Plaintiffs Do Their Work
1. According to ABIC
ABIC describes Plaintiffs' duties as investigating, evaluating, and resolving claims according to their own schedules. This includes investigating generally and to identify additional losses, evaluating coverage, estimating damages, negotiating settlements, and managing and communicating as necessary to effect payment or denial of claims. Such work may require Plaintiffs to identify and interview witnesses and assess their credibility, analyze information on site and in records, prepare damage estimates, negotiate settlements, assess and establish reserves, determine the need for, and work with, third parties, evaluate for potential subrogation claims and possible fraud, and negotiate with contractors regarding repairs.
ABIC essentially acknowledges it publishes and provides to the FSAs "best practices" guides, instructions, etc., covering, it appears, most every aspect of the FSAs' work (gathering facts, determining cause of loss and potential subrogation issues, coverage, depreciation, communications with claimants, etc.). However, it maintains these are just guidelines, information to help the FSAs do their job properly and in accordance with ABIC policy. Each FSA must nevertheless use individual discretion and judgment in following and applying the guidelines in any given case.
Locke and Wright currently have $25,000 authority per claim and Aschinger has $20,000. On most full assignment claims within a Plaintiff's authority, he may resolve claims without seeking manager approval. On other types of claims the FSAs may investigate and make recommendations, but the manager or ISA makes the final payment decision. It is ABIC's position that even in those cases where the FSA does not make the final coverage decision himself, he makes recommendations to management based on his independent investigation and judgment.
According to ABIC, FSAs' recommendations are generally followed. Locke has made recommendations on cases beyond his authority more than eighty times since August 2009 and since January 1, 2010, 64 percent of those recommendations were approved. Similarly, since January 1, 2010, 71 percent of Wright's ninety-six claims were approved and 76 percent of Aschinger's ninety-seven claims were approved.
ABIC also notes that since August 2009, ABIC has paid out $1.7 million (an average of $7,800 per claim) on claims handled by Locke, $10 million ($5,400 per claim) on Wright's cases and $11.8 million ($5,600 per claim) on Aschinger's cases. Since late 2009, fifty of Locke's claims, forty of Wright's, and forty-nine of Aschinger's have been closed without any payment being made to the insured based on the recommendation or authority of the FSA. ABIC does not state what percentage within each category was handled exclusively by the FSA and what percentage required a final decision by someone else. ABIC adds that the FSAs also make recommendations about whether to retain experts or third parties for assistance in connections with claims being adjusted.
2. According to Plaintiffs
Although unstated, it appears that the Plaintiffs do not dispute the accuracy of the hard facts asserted by ABIC; instead they object to the manner in which ABIC presented the facts. According to Plaintiffs, to the extent they perform as outlined above, they do so in such a regimented, tightly controlled manner dictated by ABIC procedures and software programs that they exercise little judgment and have virtually no discretion and, indeed, are little more than "claims robots." Plaintiffs argue that ABIC's training manuals, Best Practices guides, workflow sheets, claims standards, estimating software, form letters, guidelines, instructions, etc., so standardize FSAs' inspection, investigation, and adjusting processes that the claims effectively resolve themselves.
Thus, while ABIC notes that Plaintiffs schedule their own work days, Plaintiffs respond that that various ABIC written guidelines and policies reflect the expectation that FSAs are on a rigid schedule not of their own making. They are expected to contact the claimant within twenty four hours of a reported loss, to inspect the property within five business days, and to resolve the claim or issue a report on it within three business days thereafter. They are expected to close eleven claims per week. According to Plaintiffs, they regularly work more than fifty-five hours per week and even then do not meet those performance expectations.
The FSAs are given step-by-step directives or instructions on: what photographs to take and in what order to take them, neighborhood canvasing, determining date of loss, when and how witness statements are to be taken, spotting signs of fraud, researching claims history, and investigating property damage. They are given standards to be followed in communicating with claimants on opening, while investigating, and in resolving and closing claims. Their request for claims payment checks are held for twenty-four hours to permit review and approval by others.
Commonly referred to by ABIC as "guidelines" or "how to" information.
Plaintiffs attach great significance to the fact that ABIC mandates that FSAs use the SIMSOL Estimating Program to determine how much to pay on claims. According to Plaintiffs, all FSAs do is gather facts, verify local prices, and input them into SIMSOL, a system its promoter describes as "'a complete end-to-end solution for the electronic . . . estimating, claim documentation and data management for property claims.'" (ECF No. 58-1 at 31.) The FSAs input facts gathered and select items to be repaired or replaced and SIMSOL generates an estimate. FSAs have discretion to change an entry and pricing as necessary to ensure local variations are taken into account, but only rarely have to exercise that discretion. SIMSOL itself audits its own estimates for consistency and conformity. FSAs are to delay issuing explanations of benefits until SIMSOL has completed its audit.
Plaintiffs do not participate in litigation decisions or strategy. FSAs do not truly set reserves. ABIC sets reserves in all cases at $10,000 subject to mandatory increase by the adjuster if, and is such amount as, SIMSOL estimates. Thus, Plaintiffs claim, the are not permitted to make independent choices free from supervision because ABIC's policies and particularly SIMSOL make those choices for them. Based on the above Plaintiffs argue that their primary duties do not include the exercise of discretion and independent judgment on significant matters and do not meet the qualifications of the administrative exemption. See 29 C.F.R. § 541.200.
V. LAW AND ANALYSIS REGARDING EXEMPT STATUS
A. The Regulations
The FLSA obligates employers to pay employees at a rate of one and one half times their normal pay rate for work over forty hours per week. 29 U.S.C. § 207(a)(1). However, those employed in a bona fide administrative capacity may be exempted from the overtime pay requirement. 29 U.S.C. § 213(a)(1). The burden is on the employer who claims an exemption to justify the exemption; it is to be narrowly construed against the employer claiming it. Solis v Washington, 656 F.3d 1079, 1083 (9th Cir. 2011).
United States Department of Labor regulations effective as of 2004 define an exempt administrative employee as one who (1) is compensated at a rate of not less than $455 per week, (2) "[w]hose primary duty is performing office or non-manual work directly related to the management or general business of the employer or the employer's customers; and (3) [w]hose primary duty includes the exercise of discretion and independent judgment with respect to matters of significance." 29 C.F.R. § 541.200(a).
Only the third regulatory requirement is in dispute here; Plaintiffs concedes the first two. Thus, the issue is whether Plaintiff FSAs' primary duties include the exercise of discretion and independent judgment with respect to matters of significance.
This is far from the first time the issue has been addressed with regard to insurance adjusters. Indeed, the 2004 regulations provide: "Insurance claims adjusters generally meet the duties requirement for the administrative exemption . . . if their duties include such activities as interviewing insureds, witnesses and physicians; inspecting property damage; reviewing factual information to prepare damage estimates; evaluating and making recommendations regarding coverage of claims; determining liability and total value of a claim; negotiating settlements; and making recommendations regarding litigation." 29 C.F.R. § 541.203(a). The title given to the work is not determinative; the applicability of the exemption turns on whether the duties of the employee fall within the regulatory requirement. 29 C.F.R. § 541.2. Not all claims adjusters qualify for the exemption; the duties of each must be assessed on a case-by-case basis. (U.S. Department of Labor Wage & Hour Div. Op. Ltr. (Aug. 26, 2005) (ECF No. 52-16, Ex. C) and Fact Sheet # 17R (ECF No. 52-16, Ex. B), both judicially noticed at ECF No. 66.)
B. Relevant Caselaw
The parties refer the Court to competing cases addressing this exemption criterion with regard to arguably similarly situated semi-autonomous workers.
ABIC likens its FSAs to the adjusters in In Re Farmers Ins. Exch., 481 F.3d 1119 (9th Cir. 2007). There, as here, claims adjusters employed by Farmers sought a determination that they were not subject to the administrative exemption and were thus entitled to overtime pay. The adjusters work circumstances were broadly similar to those here.
Specifically, most of Farmers' adjusters worked out of their homes, were provided company cars, phone lines, computer support, printers, and fax machines. Id. at 1125. Farmers provided written guidelines and training materials and identified procedures which were mandatory and others that were recommendations. Adjusters were audited to ensure they followed the company's "best practices." They were expected to use a computer software "price database" to help them estimate losses. The average adjuster paid approximately $1,000,000 in claims per year; claims ranged between $2,800 and $8,000. Their average salary was between $36,000 and $43,000 in the period 1998 to 2002. They worked more than 40 hours per week but were not paid overtime. Id. at 1126.
Farmers' adjusters made coverage determinations, recommended reserves, interviewed the insured and others, and evaluated credibility. They advised if fraud was suspected. They negotiated settlements. If a claim exceeded the amounts they were authorized to pay, they had to seek additional authority from others, but that authority was given 75 to 100 percent of the time. Id. at 1129.
The district court determined that those who paid in excess of $3,000 in claims per month were exempt, but others were not. The Ninth Circuit reversed the lower court's distinction based on value of claims paid and found that all of the adjusters were exempt. The appellate court noted that regardless of the type or size of claims handled, the adjusters were "required to do virtually all of the very things that [29 C.F.R. § 541.203] contemplates" to include using discretion to determine whether the loss is covered, recommending reserves, interviewing the insured and assessing credibility, advising of suspected fraud and possible subrogation claims, determining blame for the loss and negotiating with the insured or his lawyer. Id. at 1124 and 1129. "As far as we are concerned, that says it all. The district court's findings almost track word for word the language in 541.203." Id. at 1129. Noting that only some of the adjusters made recommendations regarding litigation, the court recited the regulation's reference to "typical duties" and stated: "[t]he regulation, however, does not require the adjuster to perform each and every activity listed." Id. It found that the adjusters "use of computer software to estimate claims did not eliminate the need for discretion and judgment any more than does resort to other reference works or to the opinions of appraisers and other experts." Id. at 1130-31 (citing Cheatham vs. Allstate, 465 F. 3d 578, 585 (5th Cir. 2006)).
The court did note, however, that the Farmers' adjusters were distinguishable from those who frequently had to seek approval before settling claims, had to get supervisor authority before conducting additional investigation, and were so closely supervised that they had no authority to make independent choices, characteristics which, according to Dept. of Labor Wage & Hour Div. Op. Ltr., at 2, 6 (Aug. 26, 2005), lent themselves to non-exempt status. Id. at 1130.
The Farmers court found support in comparable facts and conclusions in the Fifth Circuit's decision Cheatham vs. Allstate, 465 F. 3d 578 (5th Cir. 2006). Cheatham rejected Allstate adjusters' claims that they had been improperly classified as "exempt" employees not entitled to overtime. With regard to their duties and responsibilities, the adjusters set reserves, planned and effectuated investigation, determined coverage, investigated and determined liability in accordance with governing law, looked for possible subrogation, identified underwriting risks and possible fraud, valued claims and negotiated settlements. Id. at 585, n.7 and 586. They were required to document their claims activities including communications with the insured, claimants and witnesses, and their claims negotiation processes.
Moreover, in carrying out their responsibilities, they were required to follow Allstate's formal practices and procedures including adhering to a liability matrix and computer software which determined reserves, and they had to seek approval before settling claims. Id. Based thereon, the adjusters argued that their obligation to follow Allstate's practices and procedures and use the computer program had "relegated them to nothing more than data input clerks" who no longer exercised independent judgment. Id. The Fifth Circuit was "unpersuaded" by the adjusters' arguments. Id. The court noted that the regulation, 29 C.F.R. § 541.207(e)(1), provides that using discretion and judgment to make a recommendation, even though not authorized to take the action recommended, is sufficient to meet the regulatory criteria. The court concluded that the adjusters were responsible for making recommendations and explaining the rationale for those recommendations based on their experience and knowledge of the case. The Fifth Circuit concluded that the district court had correctly determined that the adjusters exercised independent judgment, therefore qualified for the administrative exemption, and, thus, were not entitled to overtime. Id. at 586.
The cited text is currently codified at 29 C.F.R. § 541.202(c).
ABIC also notes, correctly, that other courts, both before and after the current language of § 541.203 was adopted in 2004, have found insurance claims adjusters to be exempt. See, e.g., Bucklin v. Am. Zurich Ins. Co., 2013 WL 3147019, (C.D. Cal. June 19, 2013) (applying California law, but relying heavily on § 541.203); Robinson-Smith v. Gov't Empls. Ins. Co., 590 F.3d 886, 896-97 (D.C. Cir. 2010); Jastremski v. Safeco Ins. Co., 243 F.Supp.2d 743, 745 (N.D. Ohio 2003); Palacio v. Progressive Ins. Co., 244 F.Supp.2d 1040, 1046 (C.D. Cal. 2002).
Without substantive difference from previous language.
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Plaintiffs acknowledge the above cases and their holdings. However, they stress, appropriately, what the regulation, the cases, and common sense make clear: job title alone is not determinative; each case requires an analysis of its inherently unique facts and of the actual job duties required of the adjusters.
"'Discretion and independent judgment,' for the purposes of the administrative exemption, generally 'involves the comparison and the evaluation of possible courses of conduct, and acting or making a decision after the various possibilities have been considered.'" Calderon v GEICO General Ins. Co., 917 F.Supp.2d. 428, 441 (D. Md. 2012) (quoting 29 C.F.R. § 541.202(a). Section 541.202(c) adds that the exempt employee is one who "has authority to make an independent choice, free from immediate direction or supervision." This then would exclude the employee who does nothing more than use skill "'in applying well-established techniques, procedures or specific standards described in manuals or other sources.'" Calderon, 917 F.Supp.2d. at 441 (quoting § 541.202(e)).
Calderon dealt with GEICO security investigators who worked at the "lowest level" of GEICO's special investigative unit, part of its claims department. The security investigators reported to a supervisor who reported to a manager who reported to an assistant vice president of claims. Id. at 431. Claims identified by computer software and an intake associate as bearing indicia of fraud were referred to investigators. The investigators, who worked out of their own homes, were required to follow written investigative procedures to include receiving the assignment, creating a plan of action, gathering evidence, identifying and interviewing potential witnesses, conducting background and other investigations using industry-recognized databases and police information, on occasion taking the claimant's statement under oath, preserving documents and other evidence, and writing a concise and complete summary of their findings and the bases for them. Id. at 432-33. Only about 20 percent of the 250 investigators had authority to settle. Those that did not submitted their findings to an adjustor. If the adjustor agreed, the investigator's final report was forwarded to a supervisor for action. Investigators had authority to refer a claim to the National Insurance Crime Bureau or other state agencies if fraud was suspected. Id. at 433-434. GEICO reportedly maintained strict control and oversight over the investigators' reports which had to be written according to specific templates and which were carefully examined to ensure they complied with GEICO expectations both in form and substance. Id. at 434.
The district court concluded, in effect, that GEICO's investigators were one step removed from exercising discretion and independent judgment as to matters of significance. "But an exercise of discretion that impacts or affects a matter of significance is not exercising discretion with respect to a matter of significance." Id. at 442 (quoting Ahle v. Veracity Research Co., 738 F.Supp.2d 896, 908 (D. Minn. 2010)). The Court determined that these investigators gathered facts to present to others for analysis. Id. at 443. It concluded they were not exempt employees and so were entitled to overtime pay.
Thus Plaintiffs would have this court conclude that the duties of ABIC's FSAs are much more akin to those of GEICO's Investigators than Farmers' and Allstate's adjustors or those described in § 541.202(a). Plaintiffs proffer "five overarching reasons" for this conclusion: (1) the FSAs discretion and judgment is so strictly controlled and limited by ABIC's standardized claims, processing instructions, directives, guidelines, manuals, standards, review procedures, etc., that every step in investigating, inspecting, and adjusting is dictated and leads to the actual coverage decision on each claim; (2) FSAs must use ABIC's computer software on all claims, reducing FSAs to the role of fact finders who merely confirm that the software information is consistent with the claimed damages and local prices; (3) FSAs use discretion and judgment only in organizing and prioritizing their investigation, not matters of significance; (4) they lack authority to adjust, settle and close claims on many assignments; and, (5) they do not negotiate settlements, make litigation recommendations or communicate with counsel regarding litigation.
C. Analysis
The Court observes that the parties basically agree on what Plaintiffs do as FSAs although they sharply disagree as to how much judgment and discretion is exercised in carrying out their job responsibilities. Both sides agree on what regulations control and what they say and mean. The parties have identified the major cases addressing this issue with regard to other companies and employees. All agree that each case must turn on its own facts. Thus, this court is left to decide where the facts in this case fit along the "exercise of discretion and independent judgment" spectrum.
Some broad observations introduce the Court's analysis. First, Plaintiff FSAs are the eyes and ears of ABIC. When it comes to investigating and analyzing claims; the end result of that investigative process necessarily is first filtered through the FSAs. Second, ABIC appears to exercise tight control and goes to great lengths to ensure its FSAs know what is expected of them when adjusting claims. Third, there is likely a point in any business where such control becomes so extensive and detailed that it deprives the employee of independent judgment and discretion. In such a situation, the employee may do nothing more than record relevant and relay information to supervisors, or even an automated computer program, that in turn analyzes the information to determine the "correct" action or produce the "correct" result.
The Court finds the relationship between ABIC and its FSAs is not so mechanized. The FSAs exercise of independent judgment and discretion, albeit in accordance with pervasive ABIC directives, plays a major role in resolution of claims referred to them.
ABIC's claims service standards detail "required claim activities" including what to tell the insured/claimant and how to communicate with him at various stages of the claim's process. (Pls.' Disp. Facts ("PDF") 39, ECF No. 52-2.) ABIC provides "templates" for use in writing letters in various circumstances; Plaintiffs say there is one for every circumstance. (PDF 13, 37.) What ABIC calls "Excellent Customer Service" instruction is simply a customer service training document; "Business Etiquette" simply outlines non-claims handling policies; and statement guides provide a general overview or outline of questions that might be asked in in various circumstances. (PDF 40.) According to Plaintiffs all three of the preceding are "customer interactions techniques and scripts that must be followed". (Id.)
ABIC has a work matrix setting forth timelines for processing claims. ABIC calls it a guideline; Plaintiffs call it a requirement. (PDF 20.) ABIC outlines tasks to be completed in order during the adjusting process and dictates the types of information to be included in the claims file. (PDF 32.) A "Claims Investigation Techniques" PowerPoint presentation explains in detail the steps FSAs are to take in investigating claims. (PDF 44.) A game, "Darts: Aim for Perfection" seems to do likewise. (PDF 45.) ABIC's workflow sheet outlines the order in which property is to be inspected and photographed. (PDF 47.) ABIC provides "guidelines" for taking appropriate photographs; according to Plaintiffs it contains step-by-step instructions of what photographs to take and in what order they should be taken. (PDF 21). Similar "guidelines", or "step-by-step" instructions, as Plaintiffs characterizes them, exist for determining dates of loss and dates of discovery (PDF 23), identifying possible fraud (PDF 27), researching claims histories (PDF 28), inspecting damages (PDF 29), and considering possible subrogation (PDF 30). ABIC either "issues a directive" or "provides information," depending on whether you ask Plaintiffs or ABIC, as to how and when witness statements should be taken. (PDF 24 and 25). ABIC has detailed depreciation guides it describes as tools to ensure consistency in estimates, leaving to FSAs to determine how much or what percentage of depreciation is to be applied to each item claimed. (PDF 34.)
Plaintiffs contend, in essence, that the foregoing directives and guidelines and the requirement they use SIMSOL software in each case renders them little more than automatons who move through rigidly scripted steps to gather information and then feed it into SIMSOL which produces the desired result, that is, the value of the claim. The FSAs then follow regimented steps to pay and close the claim. All they have to do is "point and click" on SIMSOL to enter the gathered information and ensure the right items for repair or replacement are selected. They may change a SIMSOL entry only as necessary to ensure consistency with local pricing. Still, they acknowledge they are ultimately responsible for what goes into SIMSOL and for adjusting the output if necessary to ensure accuracy. (PDF 14, 15, 51, 52 & 53.) SIMSOL itself advises that it cannot be relied on blindly and may not apply at all in non-standard situations; it is designed to give the claims adjuster "a solid reference to base his judgment on . . . ." (ECF No. 58-9 at 4.) But SIMSOL is programed to self-audit nightly. (PDF 60-62.)
ABIC has numerous "best practice" documents which it characterizes as rarely reviewed guidelines. (PDF 26.) FSAs are to settle and pay different types of claims and insureds according to ABIC instructions. Indeed checks in payment of claims are "held" for twenty four hours to ensure final review and approval of the FSAs' work. (PDF 41 & 42.) FSAs must follow ABIC instructions and procedures for requesting a payout on a claim. (PDF 17.) FSAs undergo audits and reviews to ensure compliance with company practices. (PDF 18, 38.)
Regardless of the title, "guideline" or "requirement", attached, it is clear that ABIC has published a wealth of material instructing its adjusters what to do and how to do it. Indeed, it would be the rare company that did not, particularly in a field so highly regulated as insurance, in which disregard of the regulations, rules, and appropriate procedures could expose the company to significant liability. Similarly, it would be the rare employee who did not realize that to remain and succeed with such a company required observance of the rules and procedures even if not absolutely mandatory and rigidly enforced in every respect. Such adherence to policy the company believes is prudent cannot mean that no employee who follows the policy can be said to exercise discretion and independent judgment on matters of significance. No, the test is whether they do in fact exercise such discretion and judgment regardless of how detailed and regimented the path may be for getting to the point where they can and do exercise that discretion and judgment. See Cheatham, 465 F.3d at 587 ("[T]he requirement that . . . adjusters must consult with manuals or guidelines does not preclude their exercise of discretion and independent judgment.").
Here, the Court agrees that the "guidelines" and "requirements" at issue provide direction to a conclusion and require use of a software program to produce the final number. However, these aids do not remove Plaintiffs' independent judgment in the initial investigative stages. Plaintiffs are called upon by ABIC to make decisions based on experience and training. Rather than automate the process and rely solely on SIMSOL algorithms, Defendant has elected to employ, pay and rely on Plaintiffs, apparently based on their years of experience and judgment in resolving claims.
FSAs provide the answers to the key questions which must be asked along the adjusting path. The directives, as ABIC argues, tell FSAs what path to follow but not precisely how to evaluate coverage and damage claims, negotiate settlements and communicate with individual insureds in the states of mind and circumstances unique to each claim. FSAs offer lists of things which should be covered and provide considerations as to how to deal and communicate with different types of people in different types of situations. During their stage of the proceeding it is the FSA's judgment, wisdom, and training that governs the response to a claimant and their claim as well as how best to classify an article on SIMSOL and determine whether the information reflected in the software actually matches the true facts. Plaintiffs are engaged in the exact kind of activities § 541.203(a) indicate are indicative of an adjuster who qualifies for the administrative exemption.
The FSA has the ultimate responsibility to gather the facts and put them all together and either determine or make a recommendation as to most every aspect of the claims process. The Court finds this to the defining characteristic that separates Plaintiff FSAs from employees, such as the non-exempt investigators in Calderon, 917 F.Supp.2d. 428, who skillfully follow instruction but do not offer substantive analysis or judgment.
What Plaintiffs have done as FSAs for ABIC over the years reflects the exercise of judgment and discretion in matters of significance. Each has authority to pay at least $20,000 on his own determination. See Farmers, 481 F.3d 1129 (exempt adjusters had the authority to negotiate final settlement); Cheatham, 465 F.3d at 586 (same). Granted they do that in only about 25% of their cases, but they also make recommendations in their other cases which are adopted at least two thirds of the time. "The decisions made as a result of the exercise of discretion and independent judgment may consist of recommendations for action rather than the actual taking of action." 29 C.F.R. § 541.202(c). Here, the actions of Plaintiffs, even when making recommendations, are found to constitute exercises of discretion with respect to matters of significance; they have more than a mere indirect impact on a matter of significance as did the claim investigators in Calderon, 917 F.Supp.2d. at 442, and Ahle, 738 F.Supp.2d at 908.
As noted, ABIC has paid out at least several hundred thousand dollars each year since 2009 on claims handled by each of the three Plaintiffs and closed out with no payment tens of claims each year on the determination or recommendation of each of them. Whether these payment determinations were made exclusively by the Plaintiffs or on their recommendation, they were the eyes, ears, and brains of ABIC whose judgment as to how and why to process claims led to their being paid or rejected by ABIC. See Cheatham, 465 F.3d at 586 (Adjusters exercised independent judgment in preparing recommendations and therefore qualified for the administrative exemption.).
In viewing all material facts in the light most favorable to Plaintiffs, the Court finds that there is no genuine dispute that Plaintiffs' primary duty includes the exercise of discretion and independent judgment with respect to matters of significance and therefore are covered by the administrative exception to the FLSA. See 29 C.F.R. § 541.200(a); In Re Farmers Ins. Exch., 481 F.3d 1119 (9th Cir. 2007). Accordingly, Defendant's Motion for Partial Summary Judgment as to Plaintiffs' first claim is granted.
VI. REMAINING STATE LAW CLAIMS AND OUTSTANDING MOTIONS
In addition to Defendant's motion for partial summary judgment with respect to Plaintiffs first claim for overtime wages under the FLSA, two other motions remain outstanding. On October 21, 2013, Plaintiffs filed a motion to conditionally certify the FLSA claim as a collective action. (ECF No. 59.) As Plaintiffs' FLSA claim has here been adjudicated, and is no longer pending, the conditional certification motion is denied as moot.
Further, on October 11, 2013, Defendant filed a motion to deny certification with regard to Plaintiffs' California state law claims due to lack of numerosity. (ECF No. 51.) Before addressing Defendant's motion, the Court notes that Plaintiffs, in their complaint, allege only that jurisdiction is based on a federal question under 28 U.S.C. § 1331. (Am. Compl. at ¶ 1.)
To the extent the Court has jurisdiction over the remaining state law claims, such jurisdiction is supplemental in nature. See 28 U.S.C. § 1367(a). A district court may decline to exercise supplemental jurisdiction where "the district court has dismissed all claims over which it has original jurisdiction." See 28 U.S.C. § 1367(c)(3); see also Acri v. Varian Assocs., Inc., 114 F.3d 999, 1000 (9th Cir. 1997) ("[A] federal district court with power to hear state law claims has discretion to keep, or decline to keep, them under the conditions set out in § 1367(c)."). Factors courts consider in deciding whether to dismiss supplemental state claims include judicial economy, convenience, fairness, and comity. Imagineering, Inc. v. Kiewit Pac. Co., 976 F.2d 1303, 1309 (9th Cir. 1992), abrogated by Diaz v. Gates, 420 F.3d 897, 900 (9th Cir. 2005). "[I]n the usual case in which federal law claims are eliminated before trial, the balance of factors . . . will point toward declining to exercise jurisdiction over the remaining state law claims." Reynolds v. County of San Diego, 84 F.3d 1162, 1171 (9th Cir. 1996), overruled on other grounds by Acri, 114 F.3d at 1000.
Here, no unusual circumstances suggest that the Court should retain jurisdiction over Plaintiffs' state law claims. While it appears that the parties are diverse, Plaintiffs have not alleged a significant amount in controversy to establish diversity jurisdiction under 28 U.S.C. § 1332(a) to allow Plaintiffs to proceed individually in federal court. Plaintiffs only allege damages in excess of $25,000, well below the jurisdictional minimum of $75,000. 28 U.S.C. § 1332(a); Rea v. Michaels Stores Inc., 742 F.3d 1234, 1237 (9th Cir. 2014) ([T]he general rule is that "the amount in controversy is determined from the pleadings as they exist at the time a petition for removal is filed."). As the amount in controversy is not met, diversity jurisdiction does not exist for Plaintiffs to maintain an individual action in federal court.
Likewise, Plaintiffs do not meet the minimum requirements to maintain federal jurisdiction pursuant to the Class Action Fairness Act of 2005, 28 U.S.C. § 1332(d) ("CAFA"). "CAFA provides federal jurisdiction to class action where, 'the number of members of all proposed plaintiff classes' must be 100 or greater, § 1332(d)(5)(B), and it defines 'class members' to mean 'the persons (named or unnamed) who fall within the definition of the proposed or certified class,' § 1332(d)(1)(D)." Miss. ex rel. Hood v. AU Optronics Corp., 134 S. Ct. 736, 742, 187 L. Ed. 2d 654 (2014). District courts have applied the preponderance of the evidence standard to CAFA's 100-person numerosity requirement. See, e.g., Fergerstrom v. PNC Bank, N.A., 2014 U.S. Dist. LEXIS 58676 (D. Haw. Feb. 27, 2014). Defendant moved to deny certification of class action based on California state claims asserting that there were only seventeen potential class members in the state of California. (See ECF No. 51.) In opposition, Plaintiffs contend that Defendant understated the number of class members in California and that there are at least twenty-one class members. (ECF No. 97 at 3-4.) Regardless, either estimate of the number of class members falls well short of the 100 member minimum under § 1332(d)(5)(B), and it is not possible for Plaintiffs to establish a basis for jurisdiction under CAFA.
Having considered the matter, and in light of the resolution of the federal claim, and finding no alternative basis for jurisdiction, the Court declines to exercise jurisdiction over Plaintiffs' state law claims, pursuant to Section 1367(c)(3), and dismisses them without prejudice. Plaintiffs may pursue their state law claims in state court. See Reynolds v. County of San Diego, 84 F.3d 1162, 1171 (9th Cir. 1996) (dismissal of pendent state claims following dismissal of federal claims must be without prejudice), rev'd on other grounds by Acri v. Varian Assocs., 114 F.3d 999 (9th Cir. 1997). Accordingly, Defendant's motion to deny certification to the state law claims is denied as moot.
VII. ORDER
For the reasons discussed above, IT IS HEREBY ORDERED that
1. Defendant's Motion for Partial Summary Judgment as to Plaintiffs' first claim (ECF No. 39) is GRANTED;IT IS SO ORDERED.
2. Plaintiffs' remaining state law claims are DISMISSED without prejudice;
3. All pending motions are DENIED as MOOT (ECF Nos. 51, 59.); and
4. The Clerk of the Court is directed to enter a judgment of dismissal in accordance with this Order and close the file.
Michael J. Seng
UNITED STATES MAGISTRATE JUDGE