Avraham Gold, et al., Respondents,v.New York Life Insurance Co., et al., Appellants.BriefN.Y.October 10, 2018To be Argued by: RICHARD G. ROSENBLATT New York County Clerk’s Index No. 653923/12 New York Supreme Court Appellate Division—First Department AVRAHAM GOLD, BRIAN CHENENSKY, SHEREE N. JOHNSON and MELEK KARTAL, individually and on behalf of all others similarly situated, Plaintiffs-Appellants, – against – NEW YORK LIFE INSURANCE CO., NEW YORK LIFE INSURANCE AND ANNUITY CORP., NYLIFE INSURANCE CO. OF ARIZONA, NYLIFE SECURITIES LLC (f/k/a NYLIFE Securities Inc.), JOHN DOES 1-50 (said names being fictitious individuals) and ABC CORPORATIONS 1-50 (said names being fictitious companies, partnerships, joint ventures and/or corporations), Defendants-Respondents. BRIEF FOR DEFENDANTS-RESPONDENTS MORGAN, LEWIS & BOCKIUS LLP 101 Park Avenue New York, New York 10178 (212) 309-6000 MORGAN, LEWIS & BOCKIUS LLP 502 Carnegie Center Princeton, New Jersey 08540 (609) 919-6600 sean.lynch@morganlewis.com richard.rosenblatt@morganlewis.com MORGAN, LEWIS & BOCKIUS LLP 1701 Market Street Philidelphia, Pennsylvania 19103 (215) 963-5000 michael.banks@morganlewis.com Attorneys for Defendants-Respondents PRINTED ON RECYCLED PAPER TABLE OF CONTENTS Page -i- PRELIMINARY STATEMENT .............................................................................. 1 COUNTERSTATEMENT OF THE QUESTIONS PRESENTED .......................... 3 COUNTERSTATEMENT OF FACTS .................................................................... 4 A. Plaintiffs’ Claims .................................................................................. 4 B. Plaintiffs’ Affiliations and Contracts With New York Life ................. 4 C. Commission Reversals Were An Express Part of Plaintiffs’ Contracts With New York Life ............................................................ 7 1. Advanced and Annualized Commission Reversals ................... 7 2. Rescission-Based Commission Reversals ................................. 8 3. Chargeback Commission Reversals ........................................... 9 D. Johnson Was An Insurance Agent Whose Job Was to Sell Insurance............................................................................................. 10 1. Johnson Followed The New York Life “Sales Cycle.” ........... 10 2. Johnson Completed Extensive New York Life Sales Training .................................................................................... 12 3. Consistent With The Sales Cycle and Her Contracts, Johnson Solicited New Business and Made Sales ................... 13 4. There Was Only One Way For Johnson To Make Money As A New York Life Sales Agent – Sell, Sell, Sell ................. 13 5. Johnson Typically Worked Outside New York Life’s Offices ...................................................................................... 14 E. The Second Circuit’s Decision in Gold v. New York Life ................ 14 F. Kartal Agreed to Arbitrate Her Claims On An Individual Basis ....... 15 PROCEDURAL BACKGROUND ......................................................................... 16 ARGUMENT .......................................................................................................... 20 TABLE OF CONTENTS Page -ii- POINT 1 THE TRIAL COURT PROPERLY DISMISSED PLAINTIFFS’ COMMISSION REVERSAL CLAIMS BASED ON THE EXPRESS LANGUAGE OF THEIR CONTRACTS AND CONTROLLING PRECEDENT .............................................. 20 A. Plaintiffs’ Commission Reversal Wage Deduction Claims Fail Because Commission Reversals That Are An Agreed-Upon Part of Compensation Are Not Wage Deductions ..................................... 20 1. The Trial Court Correctly Held That Plaintiffs’ Advanced/ Annualized Commission Reversal Claim Fails As Plaintiffs Expressly Agreed Such Reversals Were Part of Their Periodic Compensation And Pachter Endorsed Identical Reversals ................................................................... 21 2. The Trial Court Correctly Dismissed Plaintiffs’ Rescission-Based Commission Reversal Wage Deduction Claim Because Such Reversals Are Part Of The Parties’ Compensation Agreement, As Reflected In Plaintiffs’ Contracts .................................................................................. 25 3. The Trial Court Properly Dismissed Plaintiffs’ Chargeback Reversal Claim As Chenensky and Gold Never Experienced Chargebacks And They Are An Express Part of Johnson’s Contract ......................................... 26 B. None of Plaintiffs’ Arguments Provides A Valid Basis for Reversing The Trial Court’s Grant of Summary Judgment As to Count 2 of Plaintiffs’ Complaint ........................................................ 27 1. The Federal Courts Never Considered Plaintiffs’ Commission Reversal Claims, Let Alone Found Disputed Issues of Fact As to Those Claims ........................................... 27 2. The Trial Court Did Not Deny Plaintiffs Any Discovery Essential To Their Commission Reversal Claims ................... 30 TABLE OF CONTENTS Page -iii- POINT 2 THE TRIAL COURT CORRECTLY HELD THAT JOHNSON’S OVERTIME AND MINIMUM WAGE CLAIMS FAIL BECAUSE SHE, LIKE CHENENSKY AND GOLD, WAS OUTSIDE SALES EXEMPT .................................................. 32 A. The Purpose And Elements Of The Outside Sales Exemption .......... 33 B. The Second Circuit’s Gold Decision, Based On the Same Factual Record, Bars Johnson’s Overtime And Minimum Wage Claims ................................................................................................. 35 C. The Undisputed Record Facts Confirm That Johnson’s Primary Duty Was Selling................................................................................ 37 D. Johnson’s Sales Techniques Did Not Alter Her Primary Duty .......... 40 E. None of Johnson’s Arguments Provides A Valid Basis for Reversing the Trial Court’s Grant of Summary Judgment As To Her Overtime and Minimum Wage Claims ....................................... 42 1. Johnson’s Overtime and Minimum Wage Claims Were Ripe For Summary Judgment As There Are No Disputed Facts Concerning Her Job Duties Or Whether Her Duties Were Directly Related Or Incidental To Her Sales ................. 42 2. The Trial Court – As Did The Second Circuit Before It – Correctly Held That The DOL’s Insurance Agent Opinion Letter Supports The Conclusion That Johnson Was An Outside Salesperson. .................................................. 44 3. The Trial Court Did Not Opine That Only Registered Representatives Could Perform Advisory Work Or That Commission-Based Compensation Is Dispositive of Outside Sales Status ................................................................. 46 4. The Trial Court Did Not Err in Analyzing Johnson’s Exempt Status Under The Outside Sales Exemption And Johnson’s Reliance on Inapposite Authority Concerning The Administrative Exemption Is Unavailing ......................... 47 TABLE OF CONTENTS Page -iv- 5. Johnson Was Not Denied Any Discovery Essential To Her Overtime And Minimum Wage Claims ............................ 50 POINT 3 THE TRIAL COURT PROPERLY COMPELLED KARTAL’S CLAIMS TO INDIVIDUAL ARBITRATION ................................. 51 A. Kartal’s Contract Requires Arbitration of Her Claims ...................... 51 B. Kartal Waived Any Argument That Her Agreement Violated the NLRA As It Was Not Raised Before The Trial Court ................. 51 C. Kartal’s Argument Against Enforcing Her Arbitration Agreement Ignores New York State and Federal Precedent Enforcing Arbitration Agreements With Class Action Waivers ........ 52 D. Kartal’s Arbitration Agreement Should Be Enforced Because The Use of Class Action Procedures Is Not a Substantive Right ...... 54 CONCLUSION ....................................................................................................... 57 TABLE OF AUTHORITIES Page(s) -v- CASES Am. Exp. Co. v. Italian Colors Rest., 133 S. Ct. 2304 (2013) ........................................................................................ 55 Andrus v. D.R. Horton, Inc., No. 2:12-cv-00098, 2012 WL 5989646 (D. Nev. Nov. 5, 2012) ....................... 55 Baum v. AstraZeneca LP, 605 F. Supp. 2d 669 (W.D. Pa. 2009), aff’d on other grounds, 372 F. App’x 246 (3d Cir. 2010), cert. denied, 131 S. Ct. 332 (2010) ..................... 35 Bouder v. Prudential Fin. Inc., No. 06-4359, 2010 WL 3515567 (D.N.J. Aug. 31, 2010) ............................ 36, 40 Brady v. Williams Capital Grp., LP, 64 A.D.3d 127, 878 N.Y.S.2d 693 (1st Dep’t 2009) .......................................... 25 Brown v. Citicorp Credit Sen’s., Inc., No. 1:12-cv-00062, 2015 WL 1401604 (D. Idaho Mar. 25, 2015) .................... 54 Brown v. Trueblue, Inc., No. 10-cv-0514, 2012 WL 1268644 (M.D. Pa. Apr. 16, 2012) ......................... 55 Casas v. Conseco Fin. Corp., No. 00-1512, 2002 WL 507059 (D. Minn. Mar. 31, 2002) ................................ 46 Cellular Sales of Mo., LLC v. Nat’l Labor Relations Bd., --- F.3d ---, 2016 WL 3093363 (8th Cir. June 2, 2016).................... 53, 54, 55, 56 Chem. Bank v. PIC Motors Corp., 58 N.Y.2d 1023 (1983) ....................................................................................... 31 Chenensky v. N.Y. Life Ins. Co., 942 F. Supp. 2d 388 (S.D.N.Y. 2013) ................................................................ 18 Chenensky v. N.Y. Life Ins. Co., No. 07-11504, 2009 WL 4975237 (S.D.N.Y. Dec. 22, 2009), recons. den., No. 07-11504, 2010 WL 2710586 (June 24, 2010) ...............passim TABLE OF AUTHORITIES Page(s) -vi- Chenensky v. N.Y. Life Ins. Co., No. 07-11504, 2012 WL 234374 (S.D.N.Y Jan. 10, 2012) .........................passim Christopher v. SmithKline Beecham Corp., 635 F.3d 383 (9th Cir. 2011), aff’d, 132 S. Ct. 2156 (2012) ........................ 38, 48 D.R. Horton v. NLRB, 737 F.3d 344 (5th Cir. 2013) ........................................................................ 54, 55 Davis v. J.P. Morgan Chase & Co., 587 F.3d 529 (2d Cir. 2009) ............................................................................... 49 Dixon v. NBC Universal Media LLC, 947 F. Supp. 2d 390 (S.D.N.Y. 2013) ................................................................ 53 Fields v. AOL Time Warner, 261 F. Supp. 2d 971 (W.D. Tenn. 2003) ............................................................ 38 Gennes v. Yellow Book of N.Y., Inc., 23 A.D.3d 520, 806 N.Y.S.2d 646 (2d Dep’t 2005) ........................................... 20 Gold v. N.Y. Life Ins. Co., 730 F.3d 137 (2d Cir. 2013) ........................................................................passim Gold v. N.Y. Life Ins. Co, No. 09-3210, 2011 WL 2421281 (S.D.N.Y. May 19, 2011) .................. 14, 16, 17 Gold v. N.Y. Life Ins. Co., No. 09-3210, 2012 WL 1674300 (S.D.N.Y. May 14, 2012) .............................. 17 Gregory v. First Title of Am., Inc., 555 F.3d 1300 (11th Cir. 2009) .......................................................................... 39 Hein v. PNC Fin. Services Grp., Inc., 511 F. Supp. 2d 563 (E.D. Pa. 2007) .................................................................. 49 Icicle Seafoods v. Worthington, 475 U.S. 709 (1986) ...................................................................................... 34, 42 In re Food Lion, 151 F.3d 1029 (4th Cir. 1998) ............................................................................ 43 TABLE OF AUTHORITIES Page(s) -vii- In re RBC Dain Rauscher Overtime Litig., 703 F. Supp. 2d 910 (D. Minn. 2010) ........................................................... 43, 49 Jewel Tea Co. v. Williams, 118 F.2d 202 (10th Cir. 1941) ............................................................................ 33 Kellman v. State, 36 A.D.3d 668 (2nd Dep’t 2007) ........................................................................ 52 Lane v. Humana Marketpoint, Inc., No. 09-380, 2011 WL 2181736 (D. Idaho Jan. 3, 2011) .................................... 38 Lewis v. Epic Sys. Corp., 823 F.3d 1147 (7th Cir. 2016) ...................................................................... 52, 53 Long v. BDP Int’l, Inc., No. 12-1446, 2013 WL 245002 (S.D. Tex. Jan. 22, 2013) ................................ 55 McGrath v. City of Phila., 864 F. Supp. 466 (E.D. Pa. 1994) ....................................................................... 43 Mendelsohn v. City of New York, 89 A.D.3d 569 (1st Dep’t 2011) ......................................................................... 52 Miguel v. JPMorgan Chase Bank, No. 12-cv-3308, 2013 WL 452418 (C.D. Cal. Feb. 5, 2013) ............................. 54 Murphy Oil USA, Inc. v. NLRB, 808 F.3d 1013 (5th Cir. 2015) ............................................................................ 54 Nanavati v. Adecco USA, Inc., No. 14-cv-4145, 2015 WL 1738152 (N.D. Cal. Apr. 13, 2015) ........................ 54 Noffsinger-Harrison v. LP Spring City, LLC, No. 12-cv-161, 2013 WL 499210 (E.D. Tenn. Feb. 7, 2013) ............................ 54 Owen v. Bristol Care, Inc., 702 F.2d 1050 (8th Cir. 2013) ...................................................................... 55, 56 Pachter v. Bernard Hodes Group, 10 N.Y.3d 609 (N.Y. 2008) .........................................................................passim TABLE OF AUTHORITIES Page(s) -viii- Palmer v. Convergys Corp., No. 7:10-cv-145, 2012 WL 425256 (M.D. Ga. Feb. 9, 2012) ............................ 55 Patterson v. Raymours Furniture Co., Inc., No. 14-5882, 2015 WL 1433219 (S.D.N.Y. Mar. 27, 2015) ............................. 54 Pontius v. Delta Fin. Corp., No. 04-1737, 2007 WL 1496692 (W.D. Pa. Mar. 20, 2007) .............................. 38 Ramos v. Baldor Specialty Foods, Inc., 687 F.3d 554 (2d Cir. 2012) ............................................................................... 34 Raniere v. Citigroup Inc., 533 F. App’x 11 (2d Cir. 2013) .......................................................................... 53 Ranieri v. Bell Atl. Mobile, 304 A.D.2d 353 (1st Dep’t 2003) ....................................................................... 53 Reiseck v. Universal Commc’ns of Miami, Inc., 591 F.3d 101 (2d Cir. 2010) ......................................................................... 34, 48 Reiseck v. Universal Communications of Miami, No. 06-cv-0777, 2009 WL 812258 (S.D.N.Y.), aff’d, 367 F. App’x 167 (2d Cir. 2010) ............................................................................................... 29 Rivkin v. Heraeus Kulzer GmbH, 289 A.D.2d 27, 734 N.Y.S.2d 31 (1st Dep’t 2001) ...................................... 27, 28 Ruttura & Sons Constr. Co. v. Petrocelli Constr., Inc., 257 A.D.2d 614 (2d Dep’t 1999) .................................................................. 31, 51 Ryan v. JPMorgan Chase & Co., 924 F. Supp. 2d 559 (S.D.N.Y. 2013) ................................................................ 53 Schmidt v. Eagle Waste & Recycling, Inc., 599 F.3d 626 (7th Cir. 2010) .............................................................................. 39 Spears v. Mid-Am. Waffles, Inc., No. 11-2273, 2012 WL 2568157 (D. Kan. July 2, 2012) ................................... 55 TABLE OF AUTHORITIES Page(s) -ix- Spinden v. GS Roofing Prods., 94 F.3d 421 (8th Cir. 1996) ................................................................................ 43 Steinberg v. Abdul, 230 A.D.2d 633 (1st Dep’t 1996) ....................................................................... 32 Stevens v. SimplexGrinnell, LLP, 190 F. App’x 768 (11th Cir. 2006) ..................................................................... 39 Sutherland v. Ernst & Young LLP, 726 F.3d 290 (2d Cir. 2013) ............................................................................... 53 Taylor v. Waddell & Reed, Inc., No. 09-2909, 2012 WL 10669 (S.D. Cal. Jan. 3, 2012) ..................................... 41 Torres v. United Healthcare Services, Inc., No. 12-cv-923, 2013 WL 387922 (E.D.N.Y. Feb. 1, 2013) ............................... 55 Tsadilas v. Providian Nat’l Bank, 786 N.Y.S. 2d 478 (1st Dep’t 2004) ................................................................... 53 Weinstein v. Jenny Craig Operations, 132 A.D.3d 446 (1st Dep’t 2015) ................................................................. 52, 53 Williams v. Citigroup, Inc., 104 A.D.3d 521 (1st Dep’t 2013) ....................................................................... 51 Zutrau v. Ice Sys, Inc., No. 37576-09, 2013 WL 1189213 (N.Y. Sup. Suff. Cty. Mar. 2013) ................................................................................................................... 33 STATUTES 29 U.S.C. § 213(a)(1) ......................................................................................... 33, 34 Federal Arbitration Act ...................................................................................... 54, 55 N.Y. Ins. Law §4228(d) ........................................................................................... 29 N.Y. Labor Law § 193 ......................................................................................passim N.Y. Labor Law § 652 ............................................................................................... 4 TABLE OF AUTHORITIES Page(s) -x- National Labor Relations Act ...........................................................................passim OTHER AUTHORITIES 29 C.F.R. § 541.203(b) ............................................................................................ 50 29 C.F.R. § 541.500(a) ............................................................................................. 34 29 C.F.R. § 541.500(b) ................................................................................ 34, 39, 43 29 C.F.R. § 541.700 ........................................................................................... 34, 43 69 Fed. Reg. 22, 145-46 ........................................................................................... 46 12 NYCRR § 142-2.2..................................................................................... 4, 33, 34 CPLR § 3024 ........................................................................................................ 3, 18 CPLR § 3212(f) ............................................................................................ 31, 50, 51 CPLR § 7503 ............................................................................................................ 51 DOL Op. Letter FLSA 2009-28 (Jan. 16, 2009), A595 ..................................... 40, 44 N.Y. General Counsel Op. Letter 11-29-88 ............................................................. 29 -1- PRELIMINARY STATEMENT The Trial Court thoroughly and correctly evaluated the fully-developed and undisputed record evidence establishing that: (1) Plaintiffs agreed that commission reversals were part of the formula used to determine their periodic compensation at New York Life, consistent with Pachter v. Bernard Hodes Group, 10 N.Y.3d 609 (N.Y. 2008); (2) Plaintiff Sheree Johnson was an exempt outside salesperson consistent with Gold v. N.Y. Life Ins. Co., 730 F.3d 137 (2d Cir. 2013); and (3) Plaintiff Melek Kartal expressly agreed to arbitrate her claims against New York Life. This Honorable Court should affirm each of those aspects of the Trial Court’s September 4, 2015 Order. The Trial Court granted summary judgment as to Plaintiffs’ commission reversal wage deduction claims based on the simple and undisputed fact that Plaintiffs’ contracts expressly provide that commission reversals were part of the formula to determine their periodic compensation. As the Court of Appeals held in Pachter, where such an agreement exists, commission reversals are not wage deductions within the meaning of N.Y. Labor Law § 193. The reversals at issue here are materially indistinguishable from those approved in Pachter. The Trial Court granted summary judgment as to Plaintiff Sheree Johnson’s overtime and minimum wage claims (Counts 3 and 4) because the undisputed facts confirm that her primary duty was selling insurance. Johnson was an insurance -2- agent whom New York Life hired and trained to sell insurance. Her compensation and continued affiliation with New York Life were tied to her sales and she was regularly outside New York Life’s offices engaged in sales activities. Johnson concedes that her duties mirrored New York Life’s Sales Cycle and that they were the same duties that the U.S. Court of Appeals for the Second Circuit held rendered her co-plaintiff Avraham Gold an exempt outside salesperson in a related prior case. Johnson conceded that the record from the prior Gold case applies equally to her circumstances and she provides no valid reason why her claims should meet a different fate than Gold’s did before the Second Circuit. In the end, Johnson advances the same argument that Gold unsuccessfully advanced – that taking the time to sell ethically to meet customers’ needs (as opposed to mere peddling of products to bank a commission) is not selling, it is advisory work akin to that performed by a financial advisor. Judge Pauley of the U.S. District Court for the Southern District of New York and a unanimous panel of the Second Circuit both rejected this argument in Gold – as the Trial Court did at summary judgment and this Court should on this appeal. Finally, the Trial Court compelled Plaintiff Kartal’s claims to individual arbitration because she agreed, in writing, to present her claims in that forum. Kartal tries to escape that holding by raising an argument under the National Labor Relations Act that was never presented to the Trial Court. That argument cannot -3- be considered on this appeal and, regardless, it flatly contradicts decisions of this Court, the Second Circuit and more recent decisions from other federal circuits enforcing arbitration agreements with class waivers in the employment context. For all of these reasons, the Court should affirm the Trial Court’s Order granting New York Life summary judgment as to Counts 2, 3 and 4 of Plaintiffs’ Complaint and compelling Kartal’s claims to individual arbitration.1 COUNTERSTATEMENT OF THE QUESTIONS PRESENTED 1. Did the Trial Court correctly grant summary judgment to New York Life on Plaintiffs’ N.Y. Labor Law § 193 commission reversal wage deduction claims consistent with Pachter v. Bernard Hodes Group, Inc., 10 N.Y.3d 609 (N.Y. 2008), where Plaintiffs’ contracts provide that commission reversals were part of the formula for determining their periodic compensation? 2. Did the Trial Court correctly grant summary judgment to New York Life on Plaintiff Sheree Johnson’s overtime and minimum wage claims (Counts 3 and 4) based on the “outside sales exemption,” where Johnson: (1) regularly worked outside the office; (2) sold insurance products; (3) was paid exclusively on a commission basis; (4) was paid only for making sales; and (5) admitted that her job duties were the same as those the Second Circuit held met the outside sales 1 Plaintiffs also had appealed the Trial Court’s Order striking paragraphs 69-86 of their Complaint pursuant to CPLR § 3024, but they have abandoned that aspect of their appeal. -4- exemption in Gold v. N.Y. Life Ins. Co., 730 F.3d 137 (2d Cir. 2013)? 3. Did the Trial Court properly grant New York Life’s motion to compel arbitration of Plaintiff Melek Kartal’s claims, where she signed an unambiguous arbitration agreement with a class action waiver? COUNTERSTATEMENT OF FACTS A. Plaintiffs’ Claims All four Plaintiffs – Avraham Gold, Brian Chenensky, Sheree Johnson and Melek Kartal – assert N.Y. Labor Law § 193 wage deduction claims in Counts 1 and 2 of the Complaint. R.164-71. In Counts 3 and 4 of the Complaint, Johnson and Kartal allege overtime and minimum wage claims under 12 NYCRR § 142-2.2 and N.Y. Labor Law § 652. Gold and Chenensky do not – and cannot – join those claims because the federal district court and the Second Circuit already adjudicated their overtime and minimum wage claims and held that they failed as a matter of law. R.142 (¶29); Gold, 730 F.3d 137; Chenensky v. N.Y. Life Ins. Co., No. 07- 11504, 2009 WL 4975237 (S.D.N.Y. Dec. 22, 2009), recons. den., No. 07-11504, 2010 WL 2710586 (June 24, 2010). Though this case is styled as a class action, the Trial Court has not certified any class. B. Plaintiffs’ Affiliations and Contracts With New York Life New York Life Insurance Company is a mutual insurance company that sells life insurance, annuities, and other financial products through its agent sales force. Gold, Chenensky, Johnson and Kartal are former New York Life insurance agents. -5- Each was what is known as a Training Allowance Subsidy (“TAS”) agent – a new agent with little prior insurance experience who must attend regular meetings and training for the first three years of their affiliation, after which they may become independent contractor agents. R.135 (¶ 6). Upon joining New York Life, each Plaintiff signed an Agent’s Contract and TAS Agreement addendum memorializing the terms of their engagement. R.143 (¶¶31-32). Via those agreements, Plaintiffs agreed to participate in New York Life’s sales and product training for three years while actively selling New York Life products. R.178 (¶2); R.197 (¶2); R.216 (¶5). They also agreed that their New York Life compensation would be based on sales production, not hours worked. R.256 (¶5(c)); R.265 (¶7(c)); R.198-99 (¶¶ 6-7); R.217 (¶¶ 6-7). New York Life paid Plaintiffs via a ledger-based compensation system. Plaintiffs’ TAS Agreements expressly referenced the ledger-based pay system: A ledger account, herein referred to as the Agent’s ledger, will be established for the Agent. Appropriate credits and debits will be entered on the Agent’s ledger in accordance with this Agreement and the Company’s rules and procedures concerning the administration of the Agent’s ledger. R.181 (¶ 9(b)); R.200 (¶ 9(b)); R.219 (¶ 9(b)); R.144 (¶ 33). Consistent with that contractual provision, New York Life established ledgers for Plaintiffs upon which it entered credits and debits, the reconciliation of which determined Plaintiffs’ periodic compensation. R.144 (¶ 33). New York Life entered credits on their ledgers for commissions and incentive payments derived -6- from sales. Id. Typically, New York Life determined Plaintiffs’ commissions on an annualized basis, even though customers often paid their premiums on a monthly basis. R.143 (¶32(b)). In other words, when a customer paid the first month’s premium, the Company advanced to Plaintiffs’ ledgers the full first year commission amount (even though the Company had not received the full corresponding premium from the customer).2 Id. Plaintiffs’ periodic compensation was the positive balance shown on their ledger (the net of credits and debits) as of the date they were paid. R.146 (¶42). New York Life reconciled the credits and debits on a rolling basis as they were posted to the ledger. This ledger compensation system, which Plaintiffs acknowledge applied to all of them, is most concisely summarized in Kartal’s contract, which states: You will receive payments no less frequently than twice per month, on or about the 1st and 15th of each month, in the amount, if any, that the credits exceed the debits applied to the Agent’s ledger. Such credits and debits will be reconciled on a rolling basis as they are posted to the ledger. All payments from the ledger account are subject to the applicable rules and procedures concerning advancing, annualization and reversal of commissions and similar adjustments for offsetting expenses. R.277 (¶ 9); R.235 ¶ 9(b). C. Commission Reversals Were An Express Part of Plaintiffs’ Contracts With New York Life. Plaintiffs separate their Commission Reversal wage deduction claim (Count 2 New York Life credits both TAS and Established Agents with annualized and advanced commissions, not just TAS Agents as Plaintiffs misstate at page 8 of their brief. R.869. -7- 2) into three types of commission reversals – (1) Advanced/Annualized Commission Reversals, (2) Rescission-Based Commission Reversals, and (3) Chargeback Reversals. The Trial Court correctly granted summary judgment as to the entirety of Plaintiffs’ Commission Reversal wage deduction claim because they cannot sustain such a claim with regard to any of those types of reversals. 1. Advanced and Annualized Commission Reversals “Advanced” commissions are where a customer submits a check with his or her application and New York Life credits the selling agent with commissions from the sale even before the underlying insurance policy has been formally issued or delivered. R.506-07 (¶¶ 30-31). If the customer elects not to accept the policy or to cancel it within ten days after acceptance, the Company refunds the premium and reverses the advanced commissions. Id. “Annualized” commissions refer to New York Life crediting an agent with a full-year’s commissions after a policy has been issued and after the customer pays the first month’s premium. Id. If the customer later cancels the policy during its first year or allows it to lapse before paying all of the first-year premiums, New York Life reverses the portion of the commission credit corresponding to the unpaid premiums and notes the reversal as a debit on the agent’s ledger. Id. Plaintiffs’ contracts specify that advanced and annualized commission credits will be reversed and debited from their compensation ledgers if New York Life -8- does not receive the corresponding premiums. Their contracts state: When any policy referred to above terminates prior to its first anniversary, the commissions previously allowed with respect to such policy will be debited to the Agent’s ledger and the amount of the commissions applicable with respect to the premium actually received by the Company will be credited to the Agent’s ledger… R. 179-80 (¶7); R.198-99 (¶7); R.217-18 (¶7). In other words, where the Company did not receive the premiums from a sale, Plaintiffs did not get to retain the advanced or annualized commissions attributed to the anticipated revenue that never materialized. 2. Rescission-Based Commission Reversals The second type of reversal is a Rescission-Based Reversal, which occurs when a policy sold by an agent is rescinded or cancelled and the premiums from the policy are refunded to the customer. In that instance, the corresponding commissions from the sale are reversed off of the agent’s ledger. Again, where New York Life does not retain the revenue upon which a commission credit is based, the commission is reversed. These reversals are memorialized in Plaintiffs’ contracts, which state: When the Company, for any reason, rejects, declines, rescinds, reforms, modifies, or cancels a policy and refunds or tenders a refund of a premium, in whole or in part, the Company will debit the Agent’s ledger by the amount of any commission refund applicable because of the premiums so refunded or tendered for refund. R.179-80 (¶ 7); R.198-99 (¶ 7); R.217-18(¶ 7). -9- 3. Chargeback Commission Reversals The third type of reversal is a “Chargeback.” In contrast to Advanced/ Annualized Commission Reversals, a Chargeback involves debiting commission credits where a customer initially purchases the product by investing a sum of money and elects to withdraw money from (or surrender) the product a short time later. R.1651-1653. Only a handful of products are subject to potential Chargebacks and the chargeback schedules are part of the commission rules for those products. Id. The percentage “charged back” depends upon the product type, the commission formula and length of time that the product is in force.3 Id. Chenensky and Gold never experienced a single Chargeback. R.1651-1653. For her part, Johnson admits that Chargebacks were an agreed-upon aspect of her compensation formula as expressed in her Agent’s Contract. R.18 (NYSCEF Doc. 111, p. 5, fn.5; R.272 (¶ 30). Johnson’s contract provided: Chargebacks. Should New York Life, in its sole discretion, deem it appropriate at any time to reject, rescind or cancel a policy and refund any premium on which You received any payment or if any reduction in premium occurs, or if any overpayment in compensation occurs, such payment shall be charged back to You. The chargeback shall constitute an indebtedness of You to New York Life and may be debited against your Agent’s ledger. R.272 (¶ 30). 3 In a true chargeback, the Company may retain a portion of the underlying premiums even though it reverses the corresponding commissions from the agent’s ledger. -10- D. Johnson Was An Insurance Agent Whose Job Was to Sell Insurance. 1. Johnson Followed The New York Life “Sales Cycle.” Johnson was an insurance agent who held an insurance license that only authorized her to sell insurance. R.76 (51:4-13); R.104 (79:18-20). New York Life recruited, hired and trained her to sell insurance. R.133-49 (¶¶ 3, 48, 49, 53); R.263 (Intro ¶). Johnson’s compensation and continued affiliation with New York Life depended upon her success in making sales. R.264 ¶7(b)-(c)); R217-29 (¶¶ 6- 13). She maintained her own customer list, worked outside the office and worked hours of her choosing. R.265 (¶7(d)-(e)) (agents can work hours that they choose, from where they choose); R.1516 (video where Johnson recounts how she worked outside the office and set her hours). Johnson’s duties revolved around New York Life’s “Sales Cycle,” just as Gold’s and Chenensky’s did. R.148 (¶49). As New York Life explains in the Career Orientation program for new agents: Your career will consist of a pattern of activities that make up a selling cycle that we will call the life insurance sales cycle. The sales cycle consists of different phases of the life insurance selling process: Prospecting delivery and continuing service approaching prospective clients closing and follow through fact finding presenting solutions We will be focusing primarily on prospecting in this lesson – the most -11- important part of the whole sales cycle. You may get the impressing that all of the phases of the sales cycle are completely independent, but they are not. It is true that you will be in different phases with different people, but you will be involved in every phase every day. In order to build a solid base of prospects to work with successfully, you must continuously work at it. Prospecting is the process of continually looking for people who are interested in and have the buying power to utilize your insurance services. R.722. As depicted above, the Sales Cycle consists of the various phases of the insurance selling process: – Phase one: “Prospecting” involves seeking new customers who might be interested in the products the agent has to offer Id. – Phase two: “The Approach” involves contacting prospective customers, breaking the ice and arranging in-person meetings to explore their needs for products the agent sells. R.740. – Phase three: “Fact-finding” involves learning the customer’s financial situation and goals to determine what New York Life product fits the customer’s price range and needs. R.740-743. – Phase four: “Presenting a solution”4 involves meeting with the customer to help the customer “make a decision to buy” by presenting available product 4 “Solutions” include the purchase of life insurance, health insurance, long term care insurance or annuities. R.740-43. -12- alternatives, explaining their costs, and showing how they fit the customer’s budget and interests. R.741; R.724-36; R.722. – Phase five: “Closing” involves “asking the customer to buy.” R.762. – Phase six: “Delivery and Continuing Service” involves physically delivering the policy, reviewing it with the customer and asking for leads – names of people to whom Johnson could try to sell more products. R.741. Agents typically close a sale in one or two meetings with a customer. R.971. 2. Johnson Completed Extensive New York Life Sales Training. During her time at New York Life, Johnson received training through New York Life’s NYLIC University training program.5 R.791-92; R.796. During NYLIC University “Career Orientation,” Johnson attended the “Introduction to a Sales Career with New York Life” program and a presentation providing an overview of the “Sales Career” she was embarking on at New York Life. R.797. Johnson also completed the Fundamental Career School, Basic Career Course and Intermediate Career Course portions of NYLIC University, where she was taught the Sales Cycle and completed training modules on such topics as: (i) how to use the telephone to schedule appointments; (ii) how to approach prospective customers; (iii) how to handle rejection; (iv) how to answer customer objections in a closing interview; (v) how to close sales; (vi) mastering the sales 5 NYLIC is short for New York Life Insurance Company. -13- interview process; (vii) developing closing skills; (viii) implementing sales; and (ix) seminar selling. R.799-809. Throughout the training courses, New York Life taught Johnson to use the Company’s sales systems, including the “Financial Needs Analysis” sales system and the “Counselor Salesperson” sales system. R.1060-67. The core of each is the Sales Cycle. 3. Consistent With The Sales Cycle and Her Contracts, Johnson Solicited New Business and Made Sales. Johnson’s Agent’s Contract states that it was her responsibility “to solicit applications” for life insurance, health insurance and annuity policies. R.263 (Intro. ¶). Consistent with that, Johnson originated her own sales, maintained her own customer list and was required to meet minimum sales production standards both to avoid termination of her New York Life contracts and to qualify for incentive compensation. R.229 (¶¶ 12, 13); R.509 (¶40). 4. There Was Only One Way For Johnson To Make Money As A New York Life Sales Agent – Sell, Sell, Sell. Johnson’s New York Life pay was commission-based. R.143 (¶31). Her Agent’s Contract provided that she would be credited with commissions based on her sales and that she would not be paid based upon the number of hours worked. R.264-65 (¶¶ 7(b)(c)); R.143 (¶31). All of Johnson’s income was predicated upon her sales – sales commissions and incentive compensation tied to achieving sales -14- benchmarks. R.217-28 (¶¶6-10); R.271-72 (¶¶27-29); R.834. At no point during her affiliation with New York Life was Johnson licensed to sell registered financial products or engage in financial planning. R.75 (50:9- 17). She never received fee-based compensation for managing client assets. Id. 5. Johnson Typically Worked Outside New York Life’s Offices. Johnson conducted most of her sales activities outside of New York Life’s offices. R.509 (¶40). She regularly met with customers in coffee shops and restaurants and conducted prospecting activities outside of the office. Id.; R.1516. E. The Second Circuit’s Decision in Gold v. New York Life Plaintiffs incorporate by reference in their Complaint the Second Circuit’s decision in Gold. R.133 (¶26) (citing Gold v. N.Y. Life Ins. Co., 730 F.3d 137 (2d Cir. 2013), rehearing den. (Dec. 6, 2013)). In that decision, the Second Circuit unanimously held that a New York Life insurance agent (one of the named Plaintiffs here, Avraham Gold) with the same job duties as Johnson was an exempt outside salesperson as a matter of law. Gold, 730 F.3d at 145-46.6 Johnson’s factual allegations in support of her overtime and minimum wage claims mirror those advanced by Gold and rely upon the very documents, information and testimony upon which Gold relied at summary judgment and on 6 That decision comports with Judge Pauley’s grants of summary judgment in Gold and Chenensky (also referenced in the Complaint). See Gold v. N.Y. Life Ins. Co, No. 09-3210, 2011 WL 2421281 (S.D.N.Y. May 19, 2011); Chenensky, 2009 WL 4975237; R.140 (¶23). -15- appeal in his federal case, which materials were deemed produced as part of discovery in this action by way of stipulation. R.511-13 (illustrating how Johnson’s allegations mirror those advanced by Gold); R.65-68 (acknowledging that Plaintiffs’ roles at New York Life were exactly the same); Plaintiffs’ Br., NYSCEF Doc. 86 at 16 (noting Johnson’s allegations are “based substantially on prior federal discovery.”); NYSCEF Doc. 179 (discovery stipulation). F. Kartal Agreed to Arbitrate Her Claims On An Individual Basis. In her Agent’s Contract, Kartal agreed to arbitrate all disputes that she has with New York Life and to waive her right to pursue any such claims on a class basis. Her contract states, in pertinent part: Arbitration. a. You and New York Life…agree that any dispute, claim, request for equitable relief, or controversy arising between them…as well as any dispute as to whether such Claim is arbitrable, shall be resolved by a final and binding arbitration… d. You and New York Life both agree to waive any right to a jury trial with respect to any Claim covered by this agreement. e. You and New York Life agree that no claim may be initiated or maintained on a class action, collective action or representative action basis either in court or arbitration. All Claims must be brought in a party’s individual capacity, and not as a plaintiff or class representative or member or otherwise on behalf of others in any purported class, collective, or representative proceeding. …Any issue concerning the enforceability or validity of the waiver must be decided by a court, as provided under Section 37 of this Agreement and not by an arbitrator. R.282-83 (¶ 24). Before the Trial Court, Kartal argued against enforcement of her arbitration agreement on the grounds that New York Life had somehow “waived” its right to -16- arbitrate her claims by litigating Gold and Chenensky’s claims in the prior federal suits, despite that: (1) Chenensky and Gold signed different contracts that did not include class action waivers; and (2) Kartal was not party to those actions. R. 116- 19. The Trial Court correctly rejected that argument. Id. Kartal did not challenge the enforceability of her arbitration agreement on NLRA grounds before the Trial Court. Id. PROCEDURAL BACKGROUND The protracted procedural history in this action dates back to 2007. In December 2007, Chenensky filed a putative class and collective action in the Southern District of New York alleging overtime and minimum wage claims and a Business Expense Debit wage deduction claim. R.3. In April 2009, Gold filed a copycat class action asserting overtime and minimum wage claims, a Business Expense Debit wage deduction claim and a Commission Reversal wage deduction claim. R.3; R.585-603. In Chenensky and Gold, U.S. District Court Judge William H. Pauley III granted summary judgment to New York Life on the plaintiffs’ overtime and minimum wage claims, holding that Chenensky and Gold were exempt outside salespersons as a matter of law. Chenensky, 2009 WL 4975237; Gold, No. 09- 3210, 2011 WL 2421281. He denied summary judgment as to Chenensky and Gold’s Business Expense Debit wage deduction claims based on a finding that the -17- business expense debit agreements were part of a “patchwork” of agreements forming their compensation arrangements and his inability to discern the precise interaction of those agreements.7 Id. Judge Pauley did not opine as to any Commission Reversal wage deduction claim in Chenensky as Chenensky pleaded no such claim. Likewise, he did not opine concerning Advanced/Annualized commission reversals in Gold because Gold conceded in opposition to summary judgment that he was not challenging such reversals and that he was only challenging “Chargebacks.” R.474-76 (“Plaintiff does not challenge New York Life’s right to reverse advanced commissions if the underlying premiums are not actually paid to New York Life by the policyholders.”). Gold then stipulated to the dismissal of his Advanced/ Annualized commission reversal claim. R.477. Judge Pauley allowed Gold’s Chargeback Commission Reversal wage deduction claim to proceed since Chargebacks were only incorporated by reference in Gold’s form of the Agent’s Contract, and not expressly addressed therein. Gold, 2011 WL 2421281. Judge Pauley later dismissed Gold and Chenensky’s federal cases on jurisdictional grounds. Gold v. N.Y. Life Ins. Co., No. 09-3210, 2012 WL 1674300 7 Though not the subject of this appeal, Judge Pauley’s later clarification of how Pachter applies to Plaintiffs’ claims wholly justifies summary judgment to New York Life on Plaintiffs’ Business Expense debit wage deduction claim as well. See Chenensky v. N.Y. Life Ins. Co., No. 07-Civ.11504, 2012 WL 234374, at *5, (S.D.N.Y Jan. 10, 2012). That claim has not yet been addressed by the Trial Court. -18- (S.D.N.Y. May 14, 2012); Chenensky v. N.Y. Life Ins. Co., 942 F. Supp. 2d 388 (S.D.N.Y. 2013). They both appealed, but Chenensky withdrew his appeal before briefing. In September 2013, the Second Circuit unanimously affirmed the district court’s decision in Gold in all respects. Gold, 730 F.3d 137. While Gold’s appeal was pending, he and Chenensky separately filed state actions in the Supreme Court, New York County. In June 2013, Johnson filed a related class action in the Bronx, which was later transferred to New York County and consolidated with Gold and Chenensky’s suits. In October 2014, Plaintiffs filed a Consolidated and Amended Class Action Complaint (the “Complaint”), adding Plaintiff Melek Kartal and asserting a Business Expense Debit wage deduction claim (Count 1) and a Commission Reversal wage deduction claim (Count 2). R.133-77. Johnson and Kartal also alleged overtime (Count 3) and minimum wage (Count 4) claims. Id. New York Life moved to dismiss Counts 2, 3 and 4, to strike certain allegations pursuant to CPLR §3024 and to compel arbitration of Kartal’s claims. R.128. At the March 16, 2015 oral argument, the Trial Court granted New York Life’s motions to strike and to compel arbitration and converted the remaining motion to dismiss to one for summary judgment. R.57; R.119; R.122-23. On April 27, 2015, the parties filed supplemental papers on the converted motion for summary judgment. New York Life filed a Statement of Undisputed Material -19- Facts pursuant to Commercial Division Rule 19-a. R.501-13. On May 20, 2015, Plaintiffs submitted a second supplemental memorandum in opposition to New York Life’s motion. Plaintiffs did not respond to New York Life’s Statement of Undisputed Material Facts. On August 10, 2015, the Trial Court heard further argument on New York Life’s summary judgment motion. R. 127.1-127.59. On September 4, 2015, Justice O. Peter Sherwood granted New York Life’s Motion for Summary Judgment in its entirety, dismissing Counts 2, 3 and 4 of Plaintiffs’ Complaint. R.9-24. Justice Sherwood specifically held with regard to Counts 2, 3 and 4 of the Complaint: Annualized/Advanced Commission Reversals are addressed in the TAS Agreements. There is no need to examine any other documents to decipher the meaning of that provision. The TAS Agreements provide that Annualized/Advanced Commission Reversals would be part of the compensation formula. The Court of Appeals in Pachter recognized the right of the parties to so agree. Pachter also stands for the proposition that if the parties so agree, the point at which commissions are earned is at the end of the final computation of the formula. As a result, plaintiffs’ commissions were not earned until after accounting for the Advanced/Annualized Commissions Reversals. Thus the Annualized/Advanced Commissions Reversals were not unlawful wage deductions as a matter of law. * * * Because the evidentiary record conclusively establishes that the “principal, main, major or most important duty that” Johnson performed was that of sales, counts 3 and 4 must be dismissed as barred by the outside sales exemption. R.8; R.12. This appeal followed. -20- ARGUMENT POINT 1 THE TRIAL COURT PROPERLY DISMISSED PLAINTIFFS’ COMMISSION REVERSAL CLAIMS BASED ON THE EXPRESS LANGUAGE OF THEIR CONTRACTS AND CONTROLLING PRECEDENT. A. Plaintiffs’ Commission Reversal Wage Deduction Claims Fail Because Commission Reversals That Are An Agreed-Upon Part of Compensation Are Not Wage Deductions. The dispositive legal issue concerning Plaintiffs’ N.Y. Labor Law § 193 Commission Reversal wage deduction claim is whether the parties agreed that commission reversals were part of the calculation for determining Plaintiffs’ periodic compensation. Pachter, 10 N.Y.3d at 617; 8 see also, e.g., Gennes v. Yellow Book of N.Y., Inc., 23 A.D.3d 520, 806 N.Y.S.2d 646, 647 (2d Dep’t 2005) (no Section 193 violation where written compensation policy provided that commission reversals would be applied for unrenewed subscriptions). If so, such reversals are not wage deductions within the meaning of Section 193. As the Trial Court held, Plaintiffs’ New York Life contracts confirm just such an agreement. In Pachter, Pachter’s employer credited her with commissions based on her sales and debited from her total monthly gross commissions commission reversals associated with uncollectible debts and “charges” for various expenses, including 8 Pachter used the term “commissions” in this context to refer to the net amount paid after expenses were debited – i.e., plaintiff’s compensation. Pachter, 10 N.Y.3d at 611 (noting that “commission earnings” were calculated after factoring in gross commissions, commission reversals and agreed-upon business expenses). -21- late payments, losses attributable to errors, a portion of her assistant’s salary, travel and entertainment expenses, marketing expenses, and “miscellaneous expenses related to her work.” Pachter, 10 N.Y.3d at 613, n.1; R.440-63. The Court of Appeals found no Section 193 violation because Pachter had agreed that the debits on her ledger would be applied as part of determining her monthly pay. Id. at 617- 18 (employer and commissioned sales employee “are free to add whatever conditions they may wish to their agreement,” including agreeing that the computation of earnings will include downward adjustments from gross commissions for commission reversals and business expenses). 1. The Trial Court Correctly Held That Plaintiffs’ Advanced/ Annualized Commission Reversal Claim Fails As Plaintiffs Expressly Agreed Such Reversals Were Part of Their Periodic Compensation And Pachter Endorsed Identical Reversals. The compensation arrangement between Plaintiffs and New York Life is materially identical to the one Pachter had with her employer. Though they try, Plaintiffs cannot meaningfully distinguish the commission reversals they experienced from those that Pachter experienced. The following depiction of the Elaine Pachter’s March 1999 ledger statement (R.442) illustrates that, like Plaintiffs, Pachter’s periodic compensation was determined by reconciling commission credits from her sales, commission reversals and miscellaneous business expense charges. -22- Month – March 1999 OPENING BALANCE 39,374.32 Current Month Billings 152,740 @ 6% 9,164.40 Career Mosaic 300 @ 20% 60.00 Production 19,275 - 4,157 @ 50% 7,559.00 Job Jkt Production - - - @ 50% - TOTAL INCOME 16,783.40 DRAWS (13,573.15) CHARGES Errors 318 @ 50% 159.00 Unbillables 42 @ 50% 21.00 Bad Debts - @ 50% - Financing, A/R 60-Days 12,893 @ 1% 129.83 A/R 90-Days 68,643 @ 1.5% 1,029.65 Assistant 2,916.67 @ 50% 1,458.34 Taxi 142.10 @ 100% 142.10 New Business Presentations - @ 50% - Harrah’s Error Chargeback 511 @ 100% 511.00 Florist 48 @ 100% 48.00 Total Charges (3,498.92) Commissions Payable (Overdrawn) 39,085.65 Holdback for Receivables Total A/R 282,913 @ 6% (16,974.78) DRAWABLE (OVERDRAWN) COMMISSIONS 22,110.87 The “Bad Debts” item on Pachter’s statements (which Plaintiffs ignore) is indistinguishable from Plaintiffs’ Advanced/Annualized Commission Reversals. “Bad Debt” reversals involved Pachter’s employer debiting from her compensation ledger commissions that had been credited (and paid) to her in prior months and applying the reversal debits against the balance appearing on her ledger for the current month to account for the fact that the company did not actually receive the anticipated revenue supporting the commissions. Pachter, 10 N.Y.3d at 613 n.1 (noting that Bad Debts refers to 50% of losses caused by a client’s unwillingness to -23- pay for part or all of its bill for reasons other than errors).9 The Court of Appeals endorsed such commission reversals because, in actuality, they were not “deductions” within the meaning of N.Y. Labor Law § 193. Rather, precisely as Plaintiffs did here, Pachter agreed to a system where the company would apply such debits against future commission credits to arrive at her periodic compensation. Pachter, 10 N.Y.3d at 613, 618. In short, Pachter expressly endorsed Advanced/Annualized commission reversals mirroring those that Plaintiffs challenge. On this point, Plaintiffs resort to misdirection by pointing the Court to the “Holdback for Receivables” entry on Pachter’s commission statements rather than the “Bad Debt” entry. Plaintiffs argue that by her employer holding back a flat percentage of receivables each month, Pachter’s commission reversals were distinct from theirs. As noted above, however, the relevant entry on Pachter’s statements is not the “Holdback for Receivables” entry, it is the “Bad Debt” entry10 – the entry that involves her employer reversing in later months previously credited and paid commissions when the customer failed to pay the gross billings 9 Pachter’s statement also shows other similar reversals of amounts that had been credited and paid to Pachter in prior months, including the reversals associated with “Unbillables,” “Errors” and “Chargebacks.” R.442; Pachter, 10 N.Y.3d at 613 n.1. 10 While Pachter’s commission statements from 1999-2001, which are in the appellate record here, may not contain amounts in the Bad Debt column, Pachter did experience Bad Debt commission reversals. Several of her earlier statements – which are part of the appellate record in her case – show amounts in the Bad Debt column. -24- corresponding to those commissions. The “Bad Debt” entries are the same as the Advanced/ Annualized Commission Reversals Plaintiffs challenge and that were held to be lawful. Plaintiffs cannot escape that fact. The “holdbacks” in Pachter were additional debits on her compensation ledger above and beyond “Bad Debt” debits. As the Trial Court astutely observed, the most notable distinction between Plaintiffs and Pachter on the Advanced/Annualized Commission Reversals issue is that Plaintiffs agreed in writing that such reversals were part of their compensation, whereas Pachter had no written contract. Pachter’s employer relied exclusively on Pachter’s monthly compensation statements and her history of acquiescence to establish the parties’ agreement. Still, based upon that record, the Court of Appeals ordered summary judgment in favor of Pachter’s employer. Here, as the Trial Court held, the Court need only look at Plaintiffs’ contracts to confirm that the parties agreed that commission reversals were part of Plaintiff’s periodic compensation. R.12. Those contracts expressly provide for reversal of commissions when premiums are not received or retained. They state: When any policy referred to above terminates prior to its first anniversary, the commissions previously allowed with respect to such policy will be debited to the Agent’s ledger and the amount of the commissions applicable with respect to the premium actually received by the Company will be credited to the Agent’s ledger…. R. 179-80 (¶7); R.198-99 (¶7); R.217-18 (¶7). That alone is enough to confirm the parties’ agreement as to how Plaintiffs’ compensation was structured. When that -25- evidence is coupled with Plaintiffs’ years of acquiescence in New York Life’s ledger-based compensation system, the evidence supporting the Trial Court’s grant of summary judgment as to Plaintiffs’ Advanced/Annualized Commission Reversal wage deduction claim is significantly more compelling than the evidence presented in Pachter.11 Accordingly, that aspect of the Trial Court’s September 4, 1015 Order should be affirmed. 2. The Trial Court Correctly Dismissed Plaintiffs’ Rescission- Based Commission Reversal Wage Deduction Claim Because Such Reversals Are Part Of The Parties’ Compensation Agreement, As Reflected In Plaintiffs’ Contracts. The same reasoning that compelled summary judgment as to Plaintiffs’ Advanced/Annualized Commission Reversal wage deduction claim supports summary judgment as to their Rescission-Based Reversal wage deduction claim. Plaintiffs’ contracts expressly address such reversals, stating: When the Company, for any reason, rejects, declines, rescinds, reforms, modifies, or cancels a policy and refunds or tenders a refund of a premium, in whole or in part, the Company will debit the Agent’s ledger by the amount of any commission refund applicable because of the premiums so refunded or tendered for refund. R.179-80 (¶ 7); R.198-99 (¶ 7); R.217-18(¶ 7). 11 Plaintiffs’ argument that the Court should ignore the specific commission reversal language in Paragraph 7 of the TAS Agreement based upon their counsel’s interpretation of a general provision in Paragraph 17 concerning the company having a paramount “lien” on amounts due in the event of agent indebtedness is misplaced. As the Trial Court held, the language of Paragraph 7 is unambiguous. And, if it were not, “under well-settled principles of contract interpretation, ‘even if there is an inconsistency between a specific provision and a general provision of a contract . . . , the specific provision controls.’” R.17; see also Brady v. Williams Capital Grp., LP, 64 A.D.3d 127, 141, 878 N.Y.S.2d 693 (1st Dep’t 2009). -26- That provision confirms that Rescission-Based Reversals were an express part of Plaintiffs’ compensation arrangements such that they are not wage deductions under N.Y. Labor Law § 193. See Pachter, 10 N.Y.3d at 613. 3. The Trial Court Properly Dismissed Plaintiffs’ Chargeback Reversal Claim As Chenensky and Gold Never Experienced Chargebacks And They Are An Express Part of Johnson’s Contract. In an effort to salvage the “Chargeback” piece of their Commission Reversal wage deduction claim, Plaintiffs harp on the lower court’s reference to Chargebacks not being the subject of New York Life’s summary judgment motion. That is somewhat disingenuous, as borne out by other passages of the Court’s decision12 and the parties’ summary judgment submissions. While New York Life’s initial brief in support of the motion below did not expressly address Chargebacks, Plaintiffs brought them into play in their Opposition – where they contended that Chargebacks were distinct from Advanced/Annualized Commission Reversals and conceded that Chargebacks were an express part of Johnson’s 2009 New York Life contract. R.18. In reply, New York Life pointed out that – based on Johnson’s concession and the record evidence showing that Chenensky and Gold never experienced a chargeback – summary judgment was appropriate as to that aspect of Count 2 of the Complaint 12 R.18 (noting that Johnson “expressly admits that chargebacks were an agreed upon aspect of her computation formula as expressed in her Agent’s Contract”). -27- as well. See Rivkin v. Heraeus Kulzer GmbH, 289 A.D.2d 27, 28, 734 N.Y.S.2d 31 (1st Dep’t 2001) (to allow two plaintiffs to maintain a class action “in spite of their total lack of damages violates the requirement that class actions be brought in the name of a particular plaintiff who has a cause of action and is representative of the interests of the class”). Those undisputed facts support affirming the Trial Court’s dismissal of Plaintiffs’ Chargeback claim. B. None of Plaintiffs’ Arguments Provides A Valid Basis for Reversing The Trial Court’s Grant of Summary Judgment As to Count 2 of Plaintiffs’ Complaint. 1. The Federal Courts Never Considered Plaintiffs’ Commission Reversal Claims, Let Alone Found Disputed Issues of Fact As to Those Claims. Plaintiffs blatantly misrepresent that the federal district court “thrice” considered their Commission Reversal wage deduction claims and denied summary judgment as to those claims. Appellant’s Br. at 3. The truth is that the district court never considered Plaintiffs’ Advanced/Annualized Commission Reversal or Rescission-Based Commission Reversal claims and never opined as to their viability. Reflective of the fact that he understood that commission reversals were part of the formula for determining his periodic compensation, Chenensky did not plead a Commission Reversal wage deduction claim in his original federal suit. While Gold later pleaded such a claim, he conceded at summary judgment that he was not -28- challenging Advanced/Annualized Commission Reversals (after testifying that he fully understood such reversals were part of his compensation arrangement). R.474-476. Gold later stipulated to the dismissal of his Advanced/ Annualized Commission Reversal claim – an act that he now remarkably – and for the first time – characterizes as a “mistake.” R.477; Appellant’s Br. at 8, n.7. Consequently, the only commission reversal wage deduction claim that Judge Pauley ever considered in the federal suits pertained to Chargebacks. At summary judgment in Gold, Judge Pauley considered the Chargeback claim without the benefit of the uncontroverted record proof that Chenensky and Gold never experienced a Chargeback – a fact that precludes their pursuit of such a claim. See Rivkin, 289 A.D.2d at 28. In addition, because Johnson was not a party to the Gold federal litigation, Judge Pauley considered the issue without the benefit of Johnson’s 2009 contract or her admission that Chargebacks were an express part of her compensation arrangement. R.18 (noting Johnson’s admission). The Trial Court was the first to adjudicate Plaintiffs’ Advanced/Annualized Commission Reversal and Rescission-Based Reversal wage deduction claims and the first to consider Plaintiffs’ Chargeback claim on a complete record. Accordingly, nothing from the federal courts’ opinions in Gold or Chenensky provides a basis for reversing the Trial Court’s grant of summary judgment as to Count 2. -29- Plaintiffs also rely upon Judge Pauley’s 2009 opinion in Chenensky to suggest that the “timing of debits relative to credits” somehow matters for purposes of the Pachter analysis. In doing so, they conveniently ignore Judge Pauley’s later decision pointing out the flaw in that argument. He held in his subsequent opinion: But Plaintiffs misread Pachter. That decision does not require an employer to identify a specific time when a commission is earned. Pachter merely recognizes that if the parties agree that “computation of commissions13 will include certain downward adjustments…the commission will not be deemed ‘earned’ or vested until computation of the agreed-upon formula.” Pachter, 10 N.Y.3d at 617. Thus, the issue is whether the parties had such an agreement. Chenensky, 2012 WL 234374, at *5. Plaintiffs’ renewed focus on when individual commissions may have been “earned” reflects precisely the same misreading of Pachter that Judge Pauley identified in his 2012 opinion.14 The pivotal question is: Did the parties agree that the computation of Plaintiffs’ periodic compensation would include debits for commission reversals as was the case in Pachter? The Trial Court properly 13 As noted above at footnote 8, the Pachter court used the term “commissions” in the quoted passage to refer to the net amount paid after expenses were debited – i.e., Pachter’s compensation. Pachter, 10 N.Y.3d at 611. 14 Plaintiffs’ argument also ignores those cases holding that advanced commissions are not “earned” wages (see, e.g., Reiseck v. Universal Communications of Miami, No. 06-cv-0777, 2009 WL 812258, at *5-6 (S.D.N.Y.), aff’d, 367 F. App’x 167 (2d Cir. 2010)) and the fact that insurance agents have a legal obligation to return (and insurers have an obligation to attempt to recoup) advanced commissions paid to agents in excess of Insurance Law §4228’s limits – such as occurs when the company does not receive or retain the underlying premiums from a sale. N.Y. Ins. Law §4228(d); N.Y. General Counsel Op. Letter 11-29-88 (R.310-11), (insurer has obligation to make efforts to recoup and an insurance agent has legal obligation to return commissions exceeding Section 4228’s limits). -30- considered that question and correctly answered it with a resounding “Yes.” On this point, Plaintiffs’ invocation of the real estate rule for when a broker “earns” a commission is also misplaced. The Pachter court mentioned in dicta the common-law rule applicable to real estate transactions that a broker who produces a ready and willing buyer has “earned” his commissions. Despite Plaintiffs’ spin, however, the Pachter court did not hold that that real estate rule extends outside of the real estate context. Pachter, 10 N.Y.3d at 617. The court held that it did not need to reach that issue because even if that rule extended beyond the real estate industry, the parties were free to depart from the common law by entering into a different arrangement – as occurred in Pachter. Id. The Court explained that employers and employees “are free to add whatever conditions they may wish to their agreement,” including agreeing that the computation of earned compensation will include certain downward adjustments from gross commissions. Id. As a result, Section 193 did not prevent the parties “from structuring the compensation formula so that Pachter’s commission would be deemed earned only after specific deductions were taken from her percentage of gross billings.” Id. at 618. That is exactly what happened here. 2. The Trial Court Did Not Deny Plaintiffs Any Discovery Essential To Their Commission Reversal Claims. Plaintiffs were not deprived of essential discovery concerning their commission reversal claim. As the Trial Court noted, Plaintiffs’ commission -31- reversal claim hinges on their New York Life contracts and controlling precedent. R.8. Plaintiffs’ signed contracts are part of the record. The record also reflects that Chenensky and Gold never experienced any Chargebacks – a fact they do not dispute. R.1651-1653. Nothing else is required to evaluate Plaintiffs’ Commission Reversal wage deduction claims. Indicative of that fact, Plaintiffs failed to present in opposition to summary judgment any “affidavits averring the existence, in admissible form, of proof which would present a triable issue of fact or, if hearsay, an acceptable excuse for the failure of first-hand knowledge” as is required under CPLR § 3212(f). Ruttura & Sons Constr. Co. v. Petrocelli Constr., Inc., 257 A.D.2d 614 (2d Dep’t 1999); Chem. Bank v. PIC Motors Corp., 58 N.Y.2d 1023 (1983). Rather, they argued generally that they were deprived of two depositions that were contemplated in the federal suits – one concerning the mechanics of “Chargebacks” and one to clarify the types of reversals shown on their ledgers. As the Trial Court held, such discovery is not “essential” to the merits of Plaintiffs’ claims or their opposition to New York Life’s summary judgment motion. R.18. The only question at issue vis-à-vis Plaintiffs’ N.Y. Labor law § 193 claim is whether the commission reversals at issue are lawful – i.e., whether they were part of Plaintiffs’ compensation arrangements with New York Life. Testimony concerning the mechanics of “Chargebacks” does not bear on this question – -32- particularly where Chenensky and Gold never had Chargebacks and Johnson admits they were part of her compensation formula. Further, Plaintiffs have never been able to articulate why a deposition to clarify the types of reversals appearing on their ledgers is essential to determining the parties’ agreement. There is no dispute regarding what such reversals are, how they work, or the fact that they are an express part of Plaintiffs’ contracts. See R.179-80; R.198-99 (¶ 7); R.217-18; R.272. Put simply, all of the evidence necessary to evaluate whether the parties agreed that commission reversals were part of the formula for calculating Plaintiffs’ periodic compensation is in the record. There is, therefore, no basis for reversing the lower court’s decision on those grounds. See Steinberg v. Abdul, 230 A.D.2d 633 (1st Dep’t 1996) (“mere hope” that discovery will unearth something cannot overcome summary judgment). POINT 2 THE TRIAL COURT CORRECTLY HELD THAT JOHNSON’S OVERTIME AND MINIMUM WAGE CLAIMS FAIL BECAUSE SHE, LIKE CHENENSKY AND GOLD, WAS OUTSIDE SALES EXEMPT. An employee is exempt from overtime and minimum wage requirements under the outside sales exemption if her primary duty is selling and she regularly engages in that activity away from the employer’s office. That describes Johnson’s time as a New York Life insurance agent to a “T” – just like the federal courts held with regard to Gold and Chenensky. Consequently, as detailed below, the Trial -33- Court’s grant of summary judgment as to Johnson’s overtime and minimum wage claims should be affirmed. A. The Purpose And Elements Of The Outside Sales Exemption New York adopted and follows the federal Fair Labor Standards Act’s overtime and minimum wage requirements. See 12 NYCRR § 142-2.2 (incorporating the FLSA’s overtime requirements and exemptions into New York law); Zutrau v. Ice Sys, Inc., No. 37576-09, 2013 WL 1189213, at *4 (N.Y. Sup. Suff. Cty. Mar. 2013). Congress exempted outside salespersons from the FLSA because hourly standards “primarily devised for an employee on a fixed hourly wage” are incompatible with the “individual character of the work of an outside salesman” who “works away from his employer’s place of business, is not subject to the personal supervision of his employer, and [whose] employer has no way of knowing the number of hours he works per day.” Jewel Tea Co. v. Williams, 118 F.2d 202, 208 (10th Cir. 1941); Zutrau, 2013 WL 1189213, at *4; 29 U.S.C. § 213(a)(1). As the Tenth Circuit noted: “Such salesmen, to a great extent, work individually. There are no restrictions respecting the time he shall work and he can earn as much or as little, within the range of his ability, as his ambition dictates. In lieu of overtime, he ordinarily receives commissions as extra compensation.” Jewel Tea, 118 F.2d at 207-08. -34- An outside salesperson is an employee: (1) Whose primary duty is: (i) making sales within the meaning of Section 3(k) of the [FLSA]; or (ii) obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and (2) Who is customarily and regularly engaged away from the employer’s place or places of business in performing such primary duty. 29 U.S.C. § 213(a)(1); 29 C.F.R. § 541.500(a) (defining “outside salesmen”); 12 NYCRR § 142-2.2 (incorporating the FLSA’s outside sales exemption). Determining “primary duty” under the first prong requires identifying “the principal, main, major, or most important duty” that the employee performed, with the major emphasis on the “character of the employee’s job as a whole.” 29 C.F.R. § 541.700. Work performed “incidental to and in conjunction with” the employee’s own sales or solicitations and “work that furthers [her] sales efforts” is exempt work. 29 C.F.R. § 541.500(b). Whether an employees’ duties render the employee exempt is a legal determination for the court to make, as the Trial Court did here. Icicle Seafoods v. Worthington, 475 U.S. 709, 714 (1986) (the question of how an employee actually spent his workday is one of fact, but the question of whether those activities render him exempt is one of law); Ramos v. Baldor Specialty Foods, Inc., 687 F.3d 554, 558 (2d Cir. 2012) (resolving primary duty issue as a matter of law); Reiseck v. Universal Commc’ns of Miami, Inc., 591 F.3d 101 (2d Cir. 2010) (same). -35- Courts do not dispense with common sense in determining whether an employee is “selling.” As courts have noted regarding employees found to be outside salespersons, “wisdom and common sense” dictate that “sometimes, society is better off when a duck, walking and talking so, can simply be treated as one.” Baum v. AstraZeneca LP, 605 F. Supp. 2d 669, 687 (W.D. Pa. 2009) (pharmaceutical sales representatives are engaged in sales even where they are not selling products directly to consumers), aff’d on other grounds, 372 F. App’x 246 (3d Cir. 2010), cert. denied, 131 S. Ct. 332 (2010). As the Trial Court held, that analogy is apt here. R. 22-23. Wisdom, common sense, the record facts and the Second Circuit’s holding in Gold confirm that Johnson was an exempt outside salesperson. B. The Second Circuit’s Gold Decision, Based On the Same Factual Record, Bars Johnson’s Overtime And Minimum Wage Claims. The context of Johnson’s pursuit of her overtime and minimum wage claims is somewhat unique. Her co-plaintiffs, Gold and Chenensky, previously advanced identical claims and lost on the merits at summary judgment and on appeal. Johnson nonetheless marches forward with her claims while admitting that her duties as a New York Life agent mirrored Gold and Chenensky’s duties. R.65-68 (40:21-43:21); R.511-13. Johnson did not try to plead around the Gold decision15 15 See R. 34 (9:17-21): The Court: [Y]ou’re not trying to plead around the Second Circuit’s decision? -36- or to distinguish her job duties in any way from her co-Plaintiffs, by affidavit or otherwise. R.2009-23 (affidavits of Johnson, Gold and Chenensky stating that they had precisely the same job duties). She simply contends that the District Court and the Second Circuit got it wrong in the prior federal cases because, in her myopic view, her obligation to act ethically in the course of making sales somehow transformed her primary duty into something other than selling. R.70 (45:16-23); R.94 (69:15-21). Johnson’s argument has been repeatedly rejected – and for good reasons that this Honorable Court should follow. See Gold, 730 F.3d 137; Chenensky, 2009 WL 4975237; Bouder v. Prudential Fin. Inc., No. 06-4359, 2010 WL 3515567 (D.N.J. Aug. 31, 2010) (rejecting same argument advanced by the same counsel as to Prudential insurance agents). As the Second Circuit noted in Gold: Our review of the record before the district court confirms that Gold’s primary duty was selling insurance. He was hired and trained by New York Life to sell insurance. His compensation as well as his continued affiliation with the company was tied exclusively to his sales. He was responsible for maintaining his own client lists, and he conceded that he was regularly engaged away from his employer’s place of business as his responsibilities were to “go out, meet people” and “close deals.” Although Gold argues that research and making investment recommendations were his primary duties, even in the light most favorable to Gold, these duties were merely components of New York Life’s six-step process for selling insurance. Gold also argues that because he was a registered representative and thereby subject to FINRA’s requirements that he provide sound investment advice, he was a financial advisor, not a Mr. Halebian: Correct. The Court: I’ll hold you to that. -37- salesperson. Gold is correct that FINRA required him to only recommend suitable products to his clients, but this does not change the fact that he was paid only for selling insurance, not for offering financial advice. Moreover, even after becoming a registered representative, ninety percent of Gold’s sales were of traditional life insurance products which did not require the title of “registered representative” and did not require that he comply with FINRA regulations. * * * The Department of Labor (“DOL”) advisory letters put forth by Gold also do not raise a genuine factual dispute. One letter concerns individuals who– unlike Gold–have Series 7 licenses and are compensated for investment advice. In the other letter, the DOL addresses insurance agents and describes two types: (1) outside salesmen–agents whose primary duty is sales; and (2) administrative employees–agents who service insurance products already purchased, and perhaps occasionally make sales in the process. DOL Letter 1/16/09. Although Gold argues that he belongs in the second group, his duties place him squarely in the first group. He was not compensated on a salary; he sold insurance directly to clients; he regularly met with clients outside of work; and he was responsible for establishing his own client lists–all duties of the first, outside salesmen group. Gold, 730 F.3d at 145-46 (record citations omitted). That passage applies with even more force to Johnson (who was not even a registered representative subject to FINRA rules). R.62 (37:19-25). It also confirms that the Second Circuit thoroughly considered the same factual record and legal arguments that Johnson advances in unanimously holding that a New York Life insurance agent with Johnson’s job duties is outside sales exempt. That underscores the correctness of the Trial Court’s holding on that point. -38- C. The Undisputed Record Facts Confirm That Johnson’s Primary Duty Was Selling. The record facts fully support the Trial Court’s holding – consistent with that of the Second Circuit – that agents like Gold and Johnson are exempt outside salespeople. Step one in analyzing whether Johnson’s “primary duty” was selling is examining whether she had the hallmarks of a salesperson, including whether she (1) generated commissions for herself through her work, (2) was hired and denominated as a salesperson, (3) received sales training, (4) devoted a significant amount of her time to exempt work, (5) enjoyed loose supervision (6) independently solicited new business, and (7) performed work unsuitable to an hourly wage. See, e.g., Christopher v. SmithKline Beecham Corp., 635 F.3d 383, 398 (9th Cir. 2011), aff’d, 132 S. Ct. 2156 (2012) (citing Jewel Tea, 118 F.2d at 208); Lane v. Humana Marketpoint, Inc., No. 09-380, 2011 WL 2181736 (D. Idaho Jan. 3, 2011) (evaluating factors to conclude sales representatives were outside sales exempt). Johnson had all the hallmarks of a salesperson. She was an insurance agent whose job was to sell insurance products and she directed all of her work activities toward closing sales. R.509-13. Her workday followed the Sales Cycle. Id. The objective of each step of the Sales Cycle – making a sale – defined her primary duty. R.1466 (¶50); R.741; R724-36; R.762; R.722; see, e.g., Christopher, 132 S. Ct. at 2163 (noting that the objective of employees’ duties was to obtain -39- commitments); Fields v. AOL Time Warner, 261 F. Supp. 2d 971, 975 (W.D. Tenn. 2003) (the purpose of the tasks is dispositive); Pontius v. Delta Fin. Corp., No. 04- 1737, 2007 WL 1496692, at *9 (W.D. Pa. Mar. 20, 2007) (examining purpose of the employee’s tasks, noting “[a] distinction between the tail and the dog is fundamental to application of a regulation that bases exemption from overtime compensation on the nature of the employee’s ‘primary duty’”). Johnson prospected to find potential customers, gathered and analyzed information to build trust and determine which New York Life products to tell customers to buy, presented solutions to help customers decide to buy from her, closed sales to make money and provided continuing service to get referrals. R.1464-67. The Sales Cycle was not a process for doling out advice.16 The end goal was making sales. Even when Johnson’s customer interactions did not prompt an immediate sale, they were, at the very least, “incidental to or in conjunction with” making sales and constitute exempt work. 29 C.F.R. § 541.500(b); A898(¶50); Gold, 730 F.3d at 145-46; Chenensky, 2009 WL 4975237, at *5-6; see, e.g., Gregory, 555 F.3d at 1308-09 (performing duties designed to yield sales does not alter primary sales duty); Schmidt v. Eagle Waste & 16 Those undisputed facts align Johnson with others whom courts have deemed outside sales- exempt as a matter of law. See, e.g., Gregory v. First Title of Am., Inc., 555 F.3d 1300, 1302- 03 (11th Cir. 2009) (marketing executive who persuaded clients to place orders and was paid based on orders she obtained); Stevens v. SimplexGrinnell, LLP, 190 F. App’x 768, 772 (11th Cir. 2006) (sprinkler company employee whose pay and performance depended on selling). -40- Recycling, Inc., 599 F.3d 626, 631 (7th Cir. 2010) (same). Johnson cannot rationally contest the fact that her most important duty was making sales. The undeniable facts are that if Johnson did not make a sale, her customer would have no protection against the risk associated with loss of life, the company would receive no revenue, and Johnson would have no paycheck. That confirms that she, like Gold and Chenensky before her, had but one primary duty – to sell New York Life products. As the Trial Court succinctly concluded: Even in a light most favorable to [Johnson], these duties were merely components of New York Life’s six-step process for selling insurance” (Gold, 730 F.3d at 145). Ethical selling is selling nonetheless. To conclude otherwise would defy the language and purpose of the outside sales exemption, the Second Circuit Opinion in the Gold Action, and common sense. R.22. In short, the Trial Court correctly held that Johnson was an exempt outside salesperson. D. Johnson’s Sales Techniques Did Not Alter Her Primary Duty. Nothing in the outside sales exemption suggests that the method of sale – how one persuades customers to buy – bears upon whether the primary duty is selling. The law draws no distinction between hard-selling peddlers and, as here, an agent who sells by asking questions to determine a customer’s needs, gain trust and sell suitable products. DOL Op. Letter FLSA 2009-28 (Jan. 16, 2009) (“DOL Agent Letter”), A595 (agents conducting research “to select the specific types and amounts of insurance products to recommend and sell to clients to best meet the -41- client’s needs” are outside sales-exempt); DOL March 2010 Interpretation, A356- 63 (mortgage loan officers who were required to collect financial information from customers to assess suitability of loan products for customers were primarily engaged in sales); Bouder, 2010 WL 3515567 (insurance agents subject to ethical requirements similar to Johnson were outside sales-exempt); Taylor v. Waddell & Reed, Inc., No. 09-2909, 2012 WL 10669, at *3 (S.D. Cal. Jan. 3, 2012) (FINRA- regulated financial advisors subject to suitable sales requirements were outside salespersons). There is zero authority for the proposition that selling products ethically, in compliance with governing regulations or company guidelines, renders an employee’s primary duty something other than selling. As the Trial Court put it, “ethical selling is selling nonetheless.” R.22. Providing advice to customers as part of the selling process – which has the incidental benefit of promoting goodwill and furthering future sales – does not alter a salesperson’s primary duty. As Judge Pauley observed with regard to Chenensky, “advice did not alone earn commissions for him – it was simply one mark of a good salesman.” Chenensky, 2009 WL 4975237, at *6. Consequently, there is no merit to Johnson’s argument that the requirement that she sell appropriate products in accordance with insurance regulations or company guidelines altered her primary duty. -42- E. None of Johnson’s Arguments Provides A Valid Basis for Reversing the Trial Court’s Grant of Summary Judgment As To Her Overtime and Minimum Wage Claims. 1. Johnson’s Overtime and Minimum Wage Claims Were Ripe For Summary Judgment As There Are No Disputed Facts Concerning Her Job Duties Or Whether Her Duties Were Directly Related Or Incidental To Her Sales. Contrary to Johnson’s suggestion, there is no dispute as to what her job duties as a New York Life agent entailed and the Trial Court did not forget to weigh the relative importance of her job duties. Johnson admits that her job duties mirrored Gold’s duties and the Sales Cycle. R.148 (¶49). She does not contend that New York Life’s factual recitation concerning her sales activities is untrue; she merely points out that she had an obligation to sell only suitable products – a fact that New York Life admits. The only dispute rests with Johnson’s characterization of her obligation to gather information and make suitable buying recommendations – part of the third stage of the Sales Cycle – as her primary duty. She is arguing that her primary duty was “advising” (based on one phase of the Sales Cycle). That is a legal argument, not a factual dispute, and it does not provide a valid basis for reversing the Trial Court’s grant of summary judgment. See, e.g., Icicle Seafoods, 475 U.S. at 714; Gold, 730 F.3d 137. Likewise, Johnson’s contention that the Trial Court should have weighed the relative importance of her job duties and concluded that there were disputed issues -43- of fact ignores the nature of Johnson’s job duties. The “relative importance” language Johnson cites comes from 29 C.F.R. § 541.700(a), which states: Factors to consider when determining the primary duty of an employee include, but are not limited to, the relative importance of the exempt duties as compared with other types of duties… Here, Johnson had only one set of work activities. She did not split her role between making sales at some times and performing office management responsibilities at other times. She had but one role and everything that she did in that role – from prospecting, to arranging sales meetings, to discussing and recommending suitable products, to closing sales – was part of or incidental to her one, primary duty – selling. See 29 C.F.R. § 541.500(b) (work “incidental to and in conjunction with the employee’s own outside sales or solicitations” and “work that furthers the employee’s sales efforts” is exempt sales work). Thus, Johnson’s reliance on cases where courts had to balance the relative importance of distinct exempt and non-exempt duties is misplaced17 and her argument that the Trial Court failed to properly weigh her duties is without merit. 17 In re RBC Dain Rauscher Overtime Litig., 703 F. Supp. 2d 910 (D. Minn. 2010), was an administrative exemption case where the court compared the plaintiff’s non-administrative duties as order-taker – taking incoming client calls and selling requested products – versus his administrative duties as an investment planner – providing advice as to what investment strategies clients should pursue. Similarly, in McGrath v. City of Phila., 864 F. Supp. 466 (E.D. Pa. 1994), an executive exemption case, plaintiffs had distinct managerial (exempt) and non-managerial (non-exempt) duties. Further, two of the cases that Johnson cites to suggest that summary judgment is improper because her “primary duty” presents a fact question actually held that no fact questions existed as to the plaintiffs’ exempt status and granted summary judgment. See Spinden v. GS Roofing Prods., 94 F.3d 421, 426 (8th Cir. 1996); In re Food Lion, 151 F.3d 1029 (4th Cir. 1998). -44- 2. The Trial Court – As Did The Second Circuit Before It – Correctly Held That The DOL’s Insurance Agent Opinion Letter Supports The Conclusion That Johnson Was An Outside Salesperson. Johnson’s contention that the Trial Court disregarded the import of the January 16, 2009 Department of Labor Opinion Letter (R.1980-87) (the “DOL Agent Letter”) is untrue. The Trial Court, like the Second Circuit, thoroughly considered the DOL Agent Letter and correctly held that it confirms that Johnson was an exempt outside salesperson. R19-20. The DOL Agent Letter drew a distinction between what it characterized as Group 1 and Group 2 insurance agents, as follows: Group 1: “… the primary duty of insurance agents in group (1) is to make sales and obtain orders for life insurance and other insurance and financial products and services. These sales are made directly to clients, primarily through face- to-face meetings at the clients’ homes or places of business.” Group 2: “… although the agents in group (2) make some sales, their primary duty is to service the insurance company’s business and advise clients on various insurance and financial products, taking into account the agent’s knowledge of the needs, goals, and risk tolerance of each client, as well as the agent’s knowledge and experience with the insurance industry and market.” R.1206 (emphasis added). The DOL then held that Group 1 agents doing exactly what Johnson did are exempt outside salespersons. R1204-1207. “Group 1 agents’ duties track the New York Life’s Sales Cycle,” including: – Originating her own sales by contacting prospects, developing relationships with referral sources and creating promotional activities. R.1205; R.501-13; R.1455-56 (¶¶34-38); R.1479-80 (¶¶76-78). -45- – Communicating with customers as an adjunct to in-person sales calls. R.1205-06; R.1456-57 (¶¶39-40). – Regularly meeting customers face-to-face to sell insurance. R.1204; R.1485 (¶¶89-91). – Conducting research to select types and amounts of insurance products to recommend and sell to meet customers’ needs (i.e., “fact-finding”). R1205; 1457-66 (¶¶42-50). – Receiving sales, product and regulatory training. R.1205; R.1470-77 (¶¶59- 72). – Spending the majority of her time performing tasks directly related to her own sales activities. R.1204; R.961-63 (¶¶29-33); R.1447-55 (¶¶29-33). – Setting her own schedule, operating her day-to-day business without daily supervision, and getting paid on commissions. R.1205. Johnson was, by no means, a Group 2 “administrative” agent. Group 2 agents are marketing agents, focused on generally promoting the company’s brand and maintaining the company’s business relationships. R.1208. They may “make some sales” secondarily but they are engaged primarily in servicing the company’s business, promoting the company and its products and providing advice to existing company clients. R.1204. Reflective of their non-sales role, such agents receive a salary for their services – not pay exclusively based on their own sales. R.1208. Johnson, by contrast, independently sought new customers, promoted herself (not others) and sold insurance on her own account. R.1441(¶20), R.1455 (¶34- 35), R.1497 (¶76). She received credit only for policies that she sold. R.1497 (¶75). Unlike Group 2 agents who get paid regardless of their sales, Johnson had to sell. Her income and continued affiliation depended on her sales. R.1480 (¶77). -46- Johnson received no pay simply for touting New York Life’s good name. See Casas v. Conseco Fin. Corp., No. 00-1512, 2002 WL 507059, at *9 (D. Minn. Mar. 31, 2002) (employees primarily engaged in sales where efforts were directed at selling loans to customers, not promotion); 69 Fed. Reg. 22, 145-46 (emphasizing difference between employees who have a primary duty of sales and employees who promote an employer’s financial products generally, decide advertising budgets, run an office, service and advise existing customers). Accordingly, the Trial Court correctly held that the DOL Agent Letter does not preclude summary judgment to as to Johnson’s overtime and minimum wage claims. 3. The Trial Court Did Not Opine That Only Registered Representatives Could Perform Advisory Work Or That Commission-Based Compensation Is Dispositive of Outside Sales Status. Johnson isolates parts of the Trial Court’s decision to suggest that the Court failed to evaluate the character of her job as a whole based on all of the evidence presented. The Trial Court’s thorough examination of the record confirms the contrary. The Trial Court went through Johnson’s job duties in detail before concluding that she was outside sales exempt. R.10-11; R.18-23. The Trial Court referenced the fact that Johnson was not a registered representative merely to point out that her “ethical selling is not selling” argument was even weaker than the one that Gold presented to the Second Circuit and to rebut the assertion that Johnson -47- performed duties akin to a financial advisor – a point Plaintiffs’ counsel acknowledged at oral argument. R.23; R.96-103. The Trial Court correctly and factually pointed out that Johnson was not licensed to perform investment advisory services (she only held insurance licenses) and was not licensed to sell registered financial products (as Gold was). Id. Nothing in the Trial Court’s Opinion, however, suggests that only registered representatives could advise customers as to what insurance products to buy to suit their needs and there is no dispute that Johnson provided that type of insurance buying advice as part of the Sales Cycle. Still, her primary duty was selling. Likewise, the Trial Court did not hold that commission-based compensation is dispositive of her outside sales status. The Trial Court’s opinion confirms that the Court took into account all of the relevant facts – Johnson’s day-to-day job duties, her ethical obligations and her commission-based compensation – in determining she was outside sales exempt. R.10-11; R18-23. 4. The Trial Court Did Not Err in Analyzing Johnson’s Exempt Status Under The Outside Sales Exemption And Johnson’s Reliance on Inapposite Authority Concerning The Administrative Exemption Is Unavailing. Johnson’s argument that the Trial Court discounted her efforts to squeeze her job duties under the administrative exemption, while creative, is unavailing. Johnson is trying to create a straw man argument. She is trying to convince the Court that her duties should be analyzed under the administrative exemption -48- (which New York Life has not invoked), which requires that the employee be primarily engaged in administrative work and be paid a salary, so that she can knock down that exemption by showing she was not paid a salary. R.74 (49:8-20) (confirming that strategy). The administrative exemption and the authorities Johnson cites concerning that exemption have no part in this case. An employee does not get to choose what exemption the Court should apply to evaluate her status to the exclusion of others. For example, a door-to-door salesman could not defeat summary judgment by invoking the FLSA’s “computer professional” exemption and showing that his job duties did not meet that exemption. So, too, Johnson cannot escape her outside sales exempt status by invoking the administrative exemption. The Trial Court properly considered Johnson’s job in the context of the outside sales exemption “as a whole” taking into account all of the record evidence, including the “capacity” in which she was employed rather than the nature of the industry in general. See Christopher, 132 S. Ct. at 2160 (pharmaceutical sales representatives bearing all the external indicia of salespeople were outside salespersons); see also Reiseck, 591 F.3d at 106 (applying functional analysis to conclude that employee whose primary duty was selling advertisement space was an outside salesperson). It was based on that record that the Trial Court held that Johnson’s primary duty was making sales. R.19-23. -49- In performing that analysis, the Trial Court correctly observed that the Second Circuit’s decision in Gold is directly on point with this case – it involves New York Life, precisely the same legal question, one of the named Plaintiffs in this case, and the application of the same facts to the elements of the outside sales exemption. It is hard to imagine how there could be authority more persuasive than that. Yet, Johnson incredibly suggests that this Court should ignore Gold and focus instead on a 2009 Second Circuit case – Davis v. J.P. Morgan Chase & Co., 587 F.3d 529 (2d Cir. 2009) – involving J.P. Morgan mortgage brokers and the application of the administrative exemption to a different set of facts. Johnson’s argument that Davis provides the paradigm for analyzing her exempt status is frivolous. R.23. As the Trial Court noted, and Johnson’s counsel conceded at argument, the administrative exemption (and corresponding regulation) analyzed in Davis “simply does not apply here.” R.23; R.72-75 (47:23- 49:3) (admitting that administrative exemption regulation addressed in Davis “does not apply” here). As the Trial Court explained, “Davis addresses entirely different facts and a different governing regulation. Gold addresses identical facts and the same regulation.” R.23. In short, Davis is entirely irrelevant. 18 18 So, too, are the inapposite financial advisor and stockbroker administrative exemption cases Johnson cites. For example, she relies upon Hein v. PNC Fin. Services Grp., Inc., 511 F. Supp. 2d 563 (E.D. Pa. 2007), and In re RBC Dain Rauscher, 703 F. Supp. 2d 910. The Trial Court correctly rejected that line of authority because it does not address the outside sales exemption or insurance agents tasked with selling insurance products – as opposed to individuals engaged in investment advising. R.23. -50- Further, the administrative exemption regulation upon which Johnson relies – 29 C.F.R. §541.203(b) (set forth at footnote 20 of Appellant’s brief) – does not support her cause. The regulation confirms that some “financial services” employees are primarily engaged in sales. The last sentence states: “However, an employee whose primary duty is selling financial products does not qualify for the administrative exemption.” 29 C.F.R. § 541.203(b) (emphasis added). Johnson was just such a person. 5. Johnson Was Not Denied Any Discovery Essential To Her Overtime And Minimum Wage Claims. No additional discovery would salvage Johnson’s overtime and minimum wage claims. She alleges precisely the same job duties as Gold alleged in his submission to the Second Circuit and concedes that her claims are founded on the same evidence that was advanced in Gold and Chenensky. R.501-13; R.32-35. The Trial Court viewed Johnson’s allegations in the light most favorable to her and considered the undisputed facts and the voluminous record from the prior federal actions in holding that she was an exempt outside salesperson. R. 20-23. No amount of discovery will change that fact. On this point, Johnson again invokes CPLR § 3212(f) but ignores that she utterly failed to demonstrate that she needed further discovery regarding “essential facts” by submitting “affidavits averring the existence, in admissible form, of proof which would present a triable issue of fact or, if hearsay, an acceptable excuse for -51- the failure of first-hand knowledge.” Ruttura & Sons, 257 A.D.2d 614 (2d Dep’t 1999); CPLR 3212(f). The fact is that Johnson does not need discovery to learn what her job duties entailed since she performed them. Still, she has never suggested that her job was different than her co-plaintiffs’ jobs. POINT 3 THE TRIAL COURT PROPERLY COMPELLED KARTAL’S CLAIMS TO INDIVIDUAL ARBITRATION A. Kartal’s Contract Requires Arbitration of Her Claims. Plaintiff Kartal agreed to arbitrate any employment disputes she has with New York Life on an individual basis. Pursuant to that agreement, excerpted at page 15 above, Kartal waived her right to participate in a class action. The Trial Court’s decision enforcing that arbitration provision and staying Kartal’s claims comports with CPLR § 7503, which provides, “where there is no substantial question whether a valid agreement was made or complied with, and the claim sought to be arbitrated is not barred by limitation under subdivision (b) of section 7502, the court shall direct the parties to arbitrate.” B. Kartal Waived Any Argument That Her Agreement Violated the NLRA As It Was Not Raised Before The Trial Court. Kartal never argued below that her arbitration agreement violates the National Labor Relations Act (“NLRA”) and has thereby waived the ability to raise that issue on appeal. Williams v. Citigroup, Inc., 104 A.D.3d 521, 522 (1st -52- Dep’t 2013) (issue not raised below was not preserved for appellate review); Mendelsohn v. City of New York, 89 A.D.3d 569 (1st Dep’t 2011) (same); Kellman v. State, 36 A.D.3d 668, 669 (2nd Dep’t 2007) (argument not raised in opposition to summary judgment was not properly before the appellate court). The only argument Kartal made to the Trial Court in opposition to New Life’s motion to compel arbitration was that New York Life somehow waived its right to enforce her agreement because it did not seek to compel arbitration of Gold or Chenensky’s claims, despite that they signed different forms of contract without class action waivers. See R.116 at 91:23-94:9. Thus, her newly-minted argument that her agreement contravenes the NLRA is not properly before, and cannot be considered by, this Court. C. Kartal’s Argument Against Enforcing Her Arbitration Agreement Ignores New York State and Federal Precedent Enforcing Arbitration Agreements With Class Action Waivers. Even if Kartal had preserved her NLRA argument, the Trial Court’s order compelling her to individual arbitration should still be affirmed. Kartal’s argument relies exclusively on Lewis v. Epic Sys. Corp., 823 F.3d 1147 (7th Cir. 2016), and ignores the fact that appellate courts in this very state have repeatedly enforced arbitration clauses that require individualized arbitration of claims – including in the employment context. See, e.g., Weinstein v. Jenny Craig Operations, 132 A.D.3d 446, 447 (1st Dep’t 2015) (enforcing arbitration agreements with class -53- action waivers as to employees who signed agreements prior to commencement of litigation or were hired after commencement of litigation);19 Tsadilas v. Providian Nat’l Bank, 786 N.Y.S. 2d 478, 480 (1st Dep’t 2004) (enforcing arbitration agreement with class action waiver); Ranieri v. Bell Atl. Mobile, 304 A.D.2d 353, 354 (1st Dep’t 2003) (same). Moreover, Kartal’s argument ignores that the Second Circuit and district courts within the Second Circuit have similarly enforced arbitration clauses with class and collective action waivers. See, e.g., Sutherland v. Ernst & Young LLP, 726 F.3d 290 (2d Cir. 2013) (compelling individual arbitration finding that employee had contractually waived her ability to proceed collectively); Raniere v. Citigroup Inc., 533 F. App’x 11 (2d Cir. 2013) (same); Ryan v. JPMorgan Chase & Co., 924 F. Supp. 2d 559 (S.D.N.Y. 2013) (same); Dixon v. NBC Universal Media LLC, 947 F. Supp. 2d 390 (S.D.N.Y. 2013) (same). Further undercutting Kartal’s reliance on Lewis, which is the minority position in the face of overwhelming contrary authority, is the recent decision in Cellular Sales of Mo., LLC v. Nat’l Labor Relations Bd., --- F.3d ---, 2016 WL 3093363 (8th Cir. June 2, 2016), which was decided after Lewis. There, the Eighth Circuit engaged in an exhaustive analysis of the validity of an employment 19 In Weinstein, this Court enforced arbitration agreements with class-action waivers signed by employees who, like Kartal, were hired during the pendency of a class action involving the company’s employees. Like Weinstein, Kartal had no rights in the pending Chenensky and Gold litigations at the time she joined New York Life and signed her contract. -54- arbitration agreement containing a class waiver in light of the competing interests of the Federal Arbitration Act (“FAA”) and the NLRA. Id. at *2. The Court ultimately enforced the arbitration agreements, holding that they did not violate the NLRA. Id.; see also D.R. Horton v. NLRB, 737 F.3d 344, 362 (5th Cir. 2013) (enforcing arbitration agreement with class waiver, holding that class-action procedure is not a “substantive right” under Section 7 of the NLRA and the NLRA does not contain a congressional command exempting the statute from application of the FAA); Murphy Oil USA, Inc. v. NLRB, 808 F.3d 1013, 1018 (5th Cir. 2015) (requiring employees to relinquish class action rights via arbitration agreements is not an unfair labor practice). D. Kartal’s Arbitration Agreement Should Be Enforced Because The Use of Class Action Procedures Is Not a Substantive Right. Kartal’s NLRA argument also fails on the merits. As recognized by the Fifth and Eighth Circuits – and a host of district court decisions from around the country – the use of class action procedures is a procedural right, not a substantive right, such that an arbitration provision with a class waiver does not violate the NLRA. D.R. Horton, 737 F.3d at 357.20 Additionally, there is no overriding 20 Arguments to the contrary have been overwhelmingly rejected by federal district and state courts that have considered the position. See, e.g., Nanavati v. Adecco USA, Inc., No. 14-cv- 4145, 2015 WL 1738152, at *5 (N.D. Cal. Apr. 13, 2015); Patterson v. Raymours Furniture Co., Inc., No. 14-5882, 2015 WL 1433219, at *7 (S.D.N.Y. Mar. 27, 2015); Brown v. Citicorp Credit Sen’s., Inc., No. 1:12-cv-00062, 2015 WL 1401604 (D. Idaho Mar. 25, 2015); Noffsinger-Harrison v. LP Spring City, LLC, No. 12-cv-161, 2013 WL 499210, at *5-6 (E.D. Tenn. Feb. 7, 2013); Miguel v. JPMorgan Chase Bank, No. 12-cv-3308, 2013 WL 452418, at -55- congressional command (including under the NLRA) that precludes enforcing class action waivers contained in arbitration agreements pursuant to the FAA. Id. at 362 (NLRA should not be understood to contain a congressional command overriding application of the FAA); see also Am. Exp. Co. v. Italian Colors Rest., 133 S. Ct. 2304, 2309 (2013) (as with the NLRA, the Sherman and Clayton Acts do not mention class actions and “do not guarantee an affordable procedural path to the vindication of every claim.”). Moreover, there is no conflict between Kartal’s arbitration provision and the NLRA because, as in Owen v. Bristol Care, Inc., 702 F.2d 1050, 1053-55 (8th Cir. 2013), and Cellular Sales, the arbitration provision at issue here does not bar all protected concerted action. It simply bars employees who signed the provision from proceeding with civil claims arising from their employment with New York Life on a class basis. It does not preclude an aggrieved employee from filing a complaint with an administrative agency such as the Department of Labor, the Equal Employment Opportunity Commission or the National Labor Relations Board – protections that the Eighth Circuit deemed sufficient to overcome any *8-9 (C.D. Cal. Feb. 5, 2013); Torres v. United Healthcare Services, Inc., No. 12-cv-923, 2013 WL 387922, at *9 (E.D.N.Y. Feb. 1, 2013); Long v. BDP Int’l, Inc., No. 12-1446, 2013 WL 245002, at *14 (S.D. Tex. Jan. 22, 2013); Andrus v. D.R. Horton, Inc., No. 2:12-cv- 00098, 2012 WL 5989646, at *8-9 (D. Nev. Nov. 5, 2012); Spears v. Mid-Am. Waffles, Inc., No. 11-2273, 2012 WL 2568157, at *2 (D. Kan. July 2, 2012); Brown v. Trueblue, Inc., No. 10-cv-0514, 2012 WL 1268644 (M.D. Pa. Apr. 16, 2012); Palmer v. Convergys Corp., No. 7:10-cv-145, 2012 WL 425256, at *3 n.2 (M.D. Ga. Feb. 9, 2012). -56- apprehension about violating the NLRA.21 See, e.g., Owen, 702 F. 3d at 1053; Cellular Sales, 2016 WL 3093363, at *2. Nor does the arbitration provision preclude any of those agencies from investigating and, if necessary, filing suit on behalf of a class of employees. Id. Accordingly, the arbitration provision is valid, does not violate the NLRA, and should be enforced. 21 The arbitration provision that Appellant Kartal signed specifically states: “Nothing in this Agreement shall be interpreted as restricting or prohibiting the Agent from filing a charge or complaint with the U.S. Equal Employment Opportunity Commission, the National Labor Relations Board, the Department of Labor, the Occupational Safety and Health Commission, or any other federal, state, or local administrative agency charged with investigating and/or prosecuting complaints under any applicable federal, state or municipal law or regulation.” R.246-47; R.282-83. CONCLUSION For the foregoing reasons, the Trial Court’s September 4, 2015 Decision and Order should be affirmed in its entirety. Dated: August 10, 2016 MORGAN, LEWIS & BOCKIUS LLP By: Sean P. Lynch MORGAN, LEWIS & BOCKIUS LLP Richard G. Rosenblatt Sean P. Lynch 502 Carnegie Center Princeton, New Jersey 08540 609.919.6609 richard.rosenblatt@morganlewis.com sean.lynch@morganlewis.com MORGAN, LEWIS & BOCKIUS LLP Michael L. Banks 1701 Market Street Philadelphia, Pennsylvania 19103 215.963.5000 michael.banks@morganlewis.com Attorneys for Defendants-Respondents, New York Life Insurance Co., New York Life Insurance and Annuity Corp., NYLIFE Insurance Co. of Arizona and NYLIFE Securities LLC -57- -58- Printing Specifications Statement I, Sean P. Lynch, appellate counsel for the Defendants-Respondents, hereby certify that this brief is in compliance with § 600.10(d)(1)(v). The brief was prepared using Microsoft Word. The typeface is Times New Roman. The main body of the brief is in 14 point font. Footnotes and Point Headings are in compliance with § 600.10(d)(1)(i). The brief contains 13,882 words counted by the word-processing program. Dated: August 10, 2016
