Avraham Gold, et al., Respondents,v.New York Life Insurance Co., et al., Appellants.BriefN.Y.October 10, 2018To be Argued by: JOHN HALEBIAN 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. REPLY BRIEF FOR PLAINTIFFS-APPELLANTS LAW OFFICES OF SANFORD F. YOUNG, P.C. Appellate Counsel 225 Broadway, Suite 2008 New York, New York 10007 (212) 227-9755 syoung@sfylaw.com – and – LOVELL STEWART HALEBIAN JACOBSON, LLP 420 Lexington Avenue, Suite 2440 New York, New York 10170 (212) 500-5010 jhalebian@lshllp.com amayes@lshllp.com Attorneys for Plaintiffs-Appellants Printed on Recycled Paper i TABLE OF CONTENTS PRELIMINARY STATEMENT 1 POINTS AND AUTHORITIES 3 POINT I NEITHER PACHTER, NOR THE AGENT AGREEMENTS SANCTION OR CHANGE THE FACT THAT NY LIFE’S “ROLLING BASIS” OF LIMITLESS, UNRELATED CHARGEBACKS VIOLATES NEW YORK LABOR LAW §193 3 A. NY Life’s Agreements Do Not Support Its Arguments 3 B. Pachter Illustrates the Failings of NY Life’s Practice 7 C. NY Life’s Rolling Ledger-Based Practice Is a Fiction, and in Any Event Violates §193 10 POINT II NY LIFE’S EVIDENCE OF PLAINTIFF’S SALES DUTIES, WHEN COMPARED TO THEIR UNDISPUTED ADVISORY AND SERVICE DUTIES, DOES NOT DISPEL THE TRIABLE ISSUES OF FACT CONCERNING THEIR “PRIMARY” DUTY 12 A. NY Life’s Assertion that Plaintiffs’ Arguments Relate Only to the Administrative Exemption, and Not to the Outside Sales Exemption, is a Red Herring; the Facts Shown by Plaintiffs Directly Contradict the Sales Primary Duty that is Required to Qualify for the Outside Sales Exemption 12 B. NY Life’s Argument that the Advisory Duties Described by Plaintiffs Merely Amounted to “Ethical Selling” Impermissibly Weighs the Competing Fact Evidence about the Relative Importance of the Sales and Non-Sales Duties Respectively Described by the Opposing Parties 14 ii C. NY Life Distorts and Mischaracterizes the Department of Labor’s Opinion Letter Concerning Insurance Agents, which was Exactly on Point and Clearly Illustrated Why the Parties’ Competing Accounts of Agents’ Duties Should Have Precluded Summary Judgment 18 POINT III SINCE PLAINTIFF’S ARGUMENT THAT KARTAL’S ARBITRATION PROVISION IS VIOLATIVE OF THE NLRA RAISES A PURE ISSUE OF LAW, AND MOREOVER, IS BASED ON THE SOUND REASONING OF THE RECENT LEWIS DECISION, THE ARGUMENT SHOULD BE CONSIDERED AND ACCEPTED 20 A. The Legal Authorities and Arguments Upon Which Kartal Presently Relies Did Not Exist at the Time of the Briefing in the Lower Court and Accordingly, Could Not Have Been Waived 21 B. New York State and Federal Precedent Cited by NY Life that Enforced Arbitration Waivers Failed to Conduct the Detailed Analysis Found in the Seventh Circuit Lewis Decision and Last Month’s Ninth Circuit Morris Decision and Accordingly Have Become Discredited 25 C. Contrary to NY Life’s Argument, the Use of Class Action Procedures is a Substantive Right 26 CONCLUSION 27 iii TABLE OF AUTHORITIES Cases Allen-Bradley Local No. 1111, United Elec., Radio & Mach. Workers of Am. v. Wis. Employ't Relations Bd., 315 U.S. 740 (1942) 26 Augustin v. Augustin, 79 A.D.3d 651 (1st Dept. 2010) 24 Cellular Sales of Mo., LLC v. Nat’l Labor Relations Bd., --- F.3d ---, 2016 WL 3093363 (8th Cir. June 2, 2016) 25 Colonial Sur. Co. v. Eastland Const., Inc., 77 A.D.3d 581 (1st Dept. 2010) 24 D.R. Horton v. NLRB, 737 F.3d 344 (5th Cir. 2013) 21, 26 Eastex, Inc. v. NLRB, 437 U.S. 556 (1978) 22, 26 Gary v. Flair Beverage Corp., 60 A.D.3d 413 (1st Dept. 2009) 24 Gold v. N.Y. Life Ins. Co., 730 F.3d 137 (2d Cir. 2013) 18 Icicle Seafoods v. Worthington, 475 U.S. 709 (1986) 16 In re Food Lion, Inc., 151 F.3d 1029 (4th Cir. 1998) 16 In re RBC Dain Rauscher Overtime Litig., 2010 WL 1324938 (D.Minn.) 16 Lewis v. Epic Sys. Corp., 2016 WL 3029464 (May 26, 2016) 2, 21 McGrath v. City of Philadelphia, 864 F.Supp. 466 (E.D.Pa. 1996) 16 Morris v. Ernst & Young, LLP, 2016 WL 4433080 (Aug. 22, 2016) 2, 22 Mount Sinai Hosp. v. Country Wide Ins. Co., 81 A.D.3d 700 (2nd Dept. 2011) 24 iv Nuevo El Barrio Rehabilitacion De Vivienda y Economia, Inc. v. Moreight Realty Corp., 87 A.D.3d 465 (1st Dept. 2011) 24 Pachter v. Bernard Hodes Group, Inc., 10 N.Y.3d 609 (2008) 2 Patterson v. Raymours Furniture Co., 2016 WL 4598542 (2d Cir. Sept. 2, 2016) 22 Rajkumar v. Budd Contr. Corp., 77 A.D.3d 595 (1st Dept. 2010) 24 Spinden v. GS Roofing Products Co., Inc., 94 F.3d 421 (8th Cir. 1996) 16 Stephan B. Gleich & Assoc. v. Gritsipis, 87 A.D.3d 216 (2nd Dept. 2011) 23 Sutherland v. Ernst & Young LLP, 726 F.3d 290 (2d Cir. 2013) 23 United Elec., Radio & Mach. Workers of Am. v. Wis. Employ't Relations Bd., 315 U.S. 740 (1942) 26 United States v. Wilkerson, 361 F.3d 717 (2d Cir. 2004) 23 Statutes New York Labor Law §193 Passim 29 C.F.R. §541.203(b) 13 29 C.F.R. §541.500(a) 12 29 C.F.R. §541.700 15, 17 29 U.S.C. § 157 22, 26 -1- N.Y. County Index No. 653923/2012 SUPREME COURT OF THE STATE OF NEW YORK 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. -------------------------------------------------------------------- PLAINTIFFS-APPELLANTS’ REPLY BRIEF PRELIMINARY STATEMENT Plaintiffs-Appellants submit this brief in Reply to the Defendants- Respondents [“NY Life”]’s Brief. As such, this Reply Brief is in further support of the appeal from the Supreme Court, New York County Order dated and entered on -2- September 14, 2015 (Honorable O. Peter Sherwood, presiding) (R.5).1 In an attempt to refute Plaintiffs’ arguments to reinstate their Labor Law §193 commission reversal claim, NY Life presents a misleading and illogical rendition of its Agent Agreements, the facts and holding of Pachter v. Bernard Hodes Group, Inc., 10 N.Y.3d 609 (2008) and the use of its rolling ledger-based system. On this issue, Plaintiffs submit that they are entitled to summary judgment; or at that at the very least, the issue presents triable issues. See Point I below. NY Life’s defense against the minimum wage and overtime claim improperly disregards the overwhelming evidence that its agents were charged with a primary duty of advice and service. See Point II below. Plaintiffs submit that the Court should follow the well reasoned decision in Lewis v. Epic Sys. Corp., 2016 WL 3029464 (May 26, 2016) and Morris v. Ernst & Young, LLP, 2016 WL 4433080 (Aug. 22, 2016), finding that arbitration provisions, such as imposed on Plaintiff Melek Kartal, are violative of the National Labor Relations Act [NLRA] and therefore should not be enforced. Since the issue is purely a question of law, and moreover, is based on this very recent decision, it should be considered by the Court. 1 Page references preceded by “R.” are to the four volume Record. -3- POINTS AND AUTHORITIES POINT I NEITHER PACHTER, NOR THE AGENT AGREEMENTS SANCTION OR CHANGE THE FACT THAT NY LIFE’S “ROLLING BASIS” OF LIMITLESS, UNRELATED CHARGEBACKS VIOLATES NEW YORK LABOR LAW §193 NY Life cannot escape the fact that its practice of deducting the amount of previously paid commissions that are subsequently reversed if and when a given insurance policy is terminated or rescinded, by taking offsets against future, unrelated commissions, violates Labor Law §193. In that regard, NY Life’s suggestion that Plaintiffs “agreed that commission reversals were a part of the formula used to determine their periodic compensation” (Resp.Br. at 1) is absolutely untrue. NY Life’s claim, which is based on a fictional and circular argument, is not supported by the TAS Agreements or Agent Contracts [collectively referred to as “the Agent Agreements”]. Likewise, it is not supported by Pachter, and moreover, not consistent with NY Life’s purported rolling ledger- based system. A. NY Life’s Agreements Do Not Support Its Arguments In its discussion of the Agent Agreements, NY Life confuses the critical issue enunciated in Pachter regarding the relative timing of credits (commissions) -4- to debits (deductions) with the straw man proposition that the employer does not have to “identify a specific time when a commission is earned” (Resp.Br.at 29). Pachter clearly explains that the “legality” of the deductions – depends on when Pachter's commission was “earned” and became a “wage” that was subject to the restrictions of section 193. If the adjustments were made before the commissions were earned, section 193 did not prohibit them; but if the charges were subtracted after her commissions were earned, Hodes engaged in impermissible practices under the statute [emphasis added]. 10 N.Y.3d at 617. In the instant case, no matter how hard NY Life searches for or spins its actual contractual language, or how it handles its so-called rolling ledger-based system, there is no question that “charges [commission reversals] were subtracted after the commissions were earned” [emphasis added] and therefore prohibited by §193 and Pachter. A reading of the pertinent provisions of the Agent Agreements, which are quoted and relied upon in NY Life’s Brief, make clear that if and when an insurance policy is terminated or rescinded, NY Life deducts the amount of the reversed commission long after the commission was paid: When any policy referred to above terminates prior to its first anniversary, the commissions previously allowed -5- with respect to such policy will be debited to the Agent’s ledger... [emphasis added]. (Resp.Br. at 24; R.179-80 at ¶7; R.198-99 at ¶7; R.217-18 ¶7); and: 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... [emphasis added]. (id.). The key terms, “when,” “commissions previously allowed” and “will,” clearly and logically denote that the debit only occurs sometime after the commission was paid. Notably, due to the lack of clear, supporting language in the various Agent Agreements, NY Life takes its best shot and resorts to quoting from the least relevant agreement, that of Plaintiff Melek Kartal, even though her complaint was dismissed based on an agreement and arbitration provision that differs from those of the other named Plaintiffs. 2 NY Life thus describes its system as follows: 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 2 The enforceability of the arbitration/jury waiver is discussed in Point III below. -6- 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... [emphasis added]. (Resp.Br. at 6; see R.277 at ¶9; R.235 at ¶9(b)). Neither the foregoing language, nor any other provision in Kartal’s or the other Agent Agreements support NY Life’s fictional argument as to when the final computation occurs. Indeed, the only reference to a “rolling basis” for postings to the ledger is found in Kartal’s above-quoted agreement. It is not part of the other agreements. Moreover, even if the final computation can be said to occur if and when a given policy is terminated or rescinded, the inescapable fact remains that the amount of the reversed commission is being deducted long after the commission payment, and moreover, that the deduction is being taken from new, unrelated sales of different policies.3 3 NY Life’s suggestion that paragraphs 7 and 17 (the latter of which provides for a “paramount and prior lien” for any “indebtedness or reimbursement” the agent owes to NY Life; see, e.g., R.214) (Resp. Br. at 25 and 25, fn.11) are inconsistent, and therefore that paragraph 7 takes precedence, is disingenuous. There is no inconsistency under Plaintiff’s interpretation; but there is under NY Life’s. -7- B. Pachter Illustrates the Failings of NY Life’s Practice Pachter not only fails to support NY Life’s arguments, it highlights everything that is violative of NY Life’s “rolling basis” of wage deductions and recalculations. The differences between the practices of Elaine Pachter [nee Litman]’s employer, Bernard Hodes Group, Inc. [“Hodes”] and NY Life’s practices are striking and compelling. First, the most critical difference is that in Pachter the computation that determined the amount earned was made contemporaneously with the payment to the employee. Unlike NY Life, there was no subsequent computation or retroactive re-computation or clawback of payment. In Pachter, all of the factors that Hodes utilized to calculate any given pay-period’s payment, including “downward adjustments” (see Resp.Br. at 21), were part-and-parcel of the one and only calculation that was made – at the end of each respective month’s pay-period – when the payment was made. That calculation and the resulting monthly payment was final and not subject to change, whether for clawbacks, future deductions or otherwise. Second, essentially all of the factors that were used in Pachter to calculate a given month’s payment (e.g., commissions earned and deductions taken) related to the sales made in each respective month. That fact, as pointed out in our Main -8- Brief, is exemplified by the contemporaneous deduction in Pachter for “Holdback for Receivables,” which was calculated as a percentage of sales (see, e.g., Resp.Br. at 22 & R.312-313; 440-63).4 By contrast, the commission reversals taken by NY Life, which reversed commissions that were paid for previously sold insurance policies, were charged against entirely different, subsequently sold policies. For example, if an agent was paid an advance commission in January 2015 for selling a policy to Mr. X, who later decides not to continue the policy, the deduction for the reversed advanced commission would necessarily be taken against a later commission – months or even a year or two later – earned from a subsequent sale of a different policy to somebody else.5 Clearly, the later deduction from the subsequent, unrelated sale is prohibited by §193.6 For NY Life to be compliant 4 The practice of discounting sales for projected non-collectibles is consistent with accepted accounting practices. 5 NY Life does not refute the fact that since commission reversals occur up to two years (or more) after the full advanced commission is paid, in many or most instances, the payment and deduction occur in different tax years, in which case the full amount of the commission is reported to the IRS as earnings in the tax year when paid. 6 NY Life’s references to the blank Pachter ledger-lines for “Bad Debts” (Resp.Br.at 20 & 22-23) are pointless given the fact that Hodes took a write-down or discount for projected uncollectibles, which it labeled “Holdback for Receivables." Accordingly, Hodes did not take deductions for “bad debts,” which can be seen in the sample month’s ledger set forth in NY Life’s Brief (id., at 22) and, as NY Life concedes, not taken in any of the other Pachter ledgers that are in the Record (for 1999-2001) (id., at 23, fn.10; see R.312-313; 440-63). NY Life’s -9- with §193, it could have discounted the commissions paid for projected future reversals, just as Hodes did with its Holdback for Receivables. Third, under NY Life’s “rolling basis” ledger system. the computed amount of income (i.e., credits less debits), is subject to continuous, daily, never-ending changes beginning with the calculation on which a given pay-period’s payment was made to the agent. In contrast, in Pachter, there is only one, contemporaneous, “final computation of the commissions earned” (10 N.Y.3d at 618), which is made at the end of each pay-period and upon which the payment – which Hodes calls the “Drawable Commissions” (R.312-313; 440-63) 7 – is made. In the instant case, the equivalent computation and payment, which is contemporaneously made at the end of each pay period, determines the amount that is paid to the agent. NY Life describes that process as follows: Plaintiffs’ periodic compensation was the positive balance shown on their ledger (the net of credits and debits) as of the date they were paid. New York Life reconciled the credits and debits on a rolling basis as they were posted to the ledger. reference to any non-reproduced Pachter ledgers (Resp.Br. at 23, fn.10) should be ignored since they are dehors the record. NY Life’s reference to several other nominal line items in the Pachter ledger (Resp.Br. at 23, fn.9) is equally insignificant. 7 The analogous terms used by NY Life are "advances" and “allowances” (see, e.g., R.179-82 at ¶¶6,7,9); R.198-201 at ¶¶6,7,9); R.217-220 at ¶¶6,7,9; R.6,7,9). -10- (Resp.Br.at 6; see R.146 at¶42). Indeed, NY Life admits that its ledger-based system creates “the reconciliation [] which determined Plaintiffs’ periodic compensation” (Resp.Br. at 5).8 C. NY Life’s Rolling Ledger-Based Practice Is a Fiction, and in Any Event Violates §193 The center-piece of NY Life’s compensation system is its agent’s ledger and purported rolling basis of postings (Resp.Br. at 5-6). However, there should be little surprise that NY Life’s ledgers do not conform to NY Life’s fictional claim regarding its final computation of commissions. Other than the computation that gives rise to the actual periodic payment to the agent, NY Life’s rolling system does not provide for any other identifiable or final computation. As can be seen from the pages of the ledger submitted by NY Life to the court below (R.2077-2104), within the hundreds of lines of cryptic entries, there is no demarcation of any point at which a determinative or “final” computation is made. In other words, using NY Life’s made-for-litigation lingo, the only time at which “the reconciliation [] which determined Plaintiffs’ periodic compensation” (Resp.Br. at 5) occurs is at the time of payment to the agent. The 8 In the absence of a written contract, the so-called agreement in Pachter was determined solely by the parties’ practice. For NY Life to suggest that Pachter could be used to fill in the gaps and ambiguities in NY Life’s written Agent Agreements is illogical. -11- ledger shows no other point for the so-called reconciliation. In fact, the use of a demarcation point would be impossible given the fact that NY Life purports to retain a long term, if not indefinite ability to rescind policies and reverse commissions. Compounding the inscrutability of the ledger, in which the credit entries (in black) are interwoven with debit entries (in red), there is no indication of what transaction or policy any of the entries relate to, nor any cross-referencing, such as to indicate what credits are being reversed, and if so, by which debits. NY Life’s claim that its contemporaneous calculations, which give rise to a given pay- period’s payment, do not reflect that pay period’s compensation, is pure fiction, especially since the purported subsequent commission reversals are not identifiable. Hence, even if the parties had a clear agreement for the after-the-fact, unrelated reversals, NY Life would be hard pressed to show that it followed the agreement. Based upon the foregoing, Plaintiffs submit that they are entitled to summary judgment on the Second Cause of Action as a matter of law; or at the very least, there is a triable issue. -12- POINT II NY LIFE’S EVIDENCE OF PLAINTIFFS’ SALES DUTIES, WHEN COMPARED TO THEIR UNDISPUTED ADVISORY AND SERVICE DUTIES, DOES NOT DISPEL THE TRIABLE ISSUES OF FACT CONCERNING THEIR “PRIMARY” DUTY NY Life cannot wave away Plaintiffs’ evidence that NY Life agents performed advisory duties which strongly support a distinct primary duty that is inconsistent with the requirements of the outside sales exemption. Set alongside Plaintiffs’ competing evidence, NY Life’s evidence showing sales duties merely raised triable issues of fact concerning which duties were an agent’s most important duties. A. NY Life’s Assertion that Plaintiffs’ Arguments Relate Only to the Administrative Exemption, and Not to the Outside Sales Exemption, is a Red Herring; the Facts Shown by Plaintiffs Directly Contradict the Sales Primary Duty that is Required to Qualify for the Outside Sales Exemption. NY Life’s arguments (Resp. Br. at. 48) that it is the employer, and not the employee, who gets to choose which exemption to rely on as an affirmative defense, is a red herring. All parties accept that it is the outside sales exemption, invoked by NY Life, that is at issue, and all parties consequently present evidence directed to the central question of whether agents had selling as their “primary duty”, as required to qualify an employee for that exemption. See 29 C.F.R. §541.500(a) (primary duty requirement for outside sales exemption). -13- Section 203(b) of the United States Department of Labor [DOL]’s regulations, on which Plaintiffs rely, explicitly discusses both a primary duty of selling to customers, and an administrative primary duty of making individualized recommendations to customers. 29 C.F.R. §541.203(b) (noting that “an employee whose primary duty is selling financial products does not qualify for the administrative exemption”). The DOL’s position—based on its industry expertise, and expressed both in §203(b) and in multiple subsequent opinion letters—is that those employees in the financial services industry who deal with their employer’s customers often have one of two possible primary duties, which are mutually exclusive: either their primary duty is selling financial products (which may support the outside sales exemption, provided other requirements are met), or their primary duty is making individualized recommendations to customers (which may support the administrative exemption, if other requirements are met)—but it cannot be both, as explicitly stated in §203(b). Compare 29 C.F.R. §541.203(b); R. 1980- 87 (DOL Op. Ltr. FLSA2009-28, Jan. 16, 2009 (applying §203(b) to insurance agents)); R. 951-53 (DOL Op. Ltr. FLSA2006-43, Nov. 27, 2006 (applying §203(b) to registered representatives)). Thus, Plaintiffs are not “trying to convince the Court that [Johnson’s] duties should be analyzed under the administrative exemption[,]” as NY Life -14- misleadingly argues. Resp. br. 47. Plaintiffs’ facts concerning non-sales, advisory and service duties are pertinent here because they show a different and mutually exclusive primary duty that contradicts the sales primary duty that NY Life must demonstrate to apply the outside sales exemption. B. NY Life’s Argument that the Advisory Duties Described by Plaintiffs Merely Amounted to “Ethical Selling” Impermissibly Weighs the Competing Fact Evidence about the Relative Importance of the Sales and Non-Sales Duties Respectively Described by the Opposing Parties. NY Life does not controvert Plaintiffs’ evidence that it required its agents to follow an in-depth fact-finding and recommendation process with each client that exactly matched the DOL’s description of a type of non-sales, administrative primary duty that is often encountered in the financial services industry. All but admitting the existence of a fact dispute, NY Life observes that the parties’ largely concede each other’s evidence,9 and disagree only about which evidence represents the agent’s primary duty: 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”…. That is a legal argument, not a factual dispute… 9 “[Johnson] 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.” Resp. br. 42. -15- Resp. Br. 42 (emphasis added). The dispute that NY Life thus openly acknowledges was plainly factual rather than legal in nature, however, and should have precluded summary judgment. The identification of an employee’s “principal, main, major or most important duty” provides the factual basis for the primary duty determination. 29 C.F.R. §541.700 (defining “primary duty”). Thus, depending on which set of duties NY Life treated as more important, the parties’ evidence may describe either of two alternative factual scenarios: (A) NY Life mainly focused agents on maximizing sales to customers, but with the understanding that all sales must be ethically defensible; or (B) NY Life mainly focused agents on evaluating customer information and making the best possible recommendations to customers, with the understanding that diligent activity would generate an acceptable revenue stream. Both of the above scenarios represent plausible business models for a financial services company, and with respect to NY Life in particular, the parties presented competing evidence in support of both descriptions. The ultimate choice between these two alternatives properly belonged to the trier of fact, not to either NY Life or to the lower court on a motion for summary judgment: it is well -16- established that the relative importance of different duties poses a triable fact question.10 Nevertheless, by adopting a nutshell characterization of Plaintiffs’ duties as “ethical selling”, NY Life and the lower court improperly pre-judged one of these two, competing factual descriptions as the true one—an error that this Court should now reverse. NY Life (Resp. br. 42) mistakenly cites a leading United States Supreme Court case as if it were to the contrary, Icicle Seafoods v. Worthington, 475 U.S. 709 (1986), but that case actually supports Plaintiffs—the Supreme Court reversed the Ninth Circuit for too hastily treating primary duty as a legal question. 475 U.S. at 713-14 (holding that Ninth Circuit mistakenly decided de novo how important different duties were, when it should have remanded the issue to the trial court for a factual determination). 10 E.g., In re RBC Dain Rauscher Overtime Litig., 2010 WL 1324938, *29 (D.Minn.) (genuine issues of fact precluded summary judgment on registered representative’s primary duty where “the parties dispute the relative importance of [his] role as an advisor and counselor to clients, as opposed to his role as a seller of financial products in response to client requests”; emphasis added); McGrath v. City of Philadelphia, 864 F.Supp. 466, 489 (E.D.Pa. 1996) (denying summary judgment on exemption because determination of “relative importance of managerial duties as compared with other activities… must await a fuller airing of the evidence”; emphasis added); Spinden v. GS Roofing Products Co., Inc., 94 F.3d 421, 426 (8th Cir. 1996) (both significance of administrative duties, and amount of time devoted to them, present fact questions); In re Food Lion, Inc., 151 F.3d 1029 (4th Cir. 1998) (same). -17- NY Life also mistakenly argues that the “relative importance” of duties is the wrong standard here, because Johnson “did not split her role” but “had only one set of work activities.” Resp. br. 43. To the contrary, such a situation leaves no other line of factual inquiry available than an evaluation of the relative importance of her duties. Where an employee has two or more distinct work activities, the relative time spent on each activity is often crucial to determine which activity was primary. See 29 C.F.R. §541.700 (listing both “relative importance” of duties, and “relative time” spent on them as factors pertinent to determining primary duty). But the time spent on different duties cannot be compared where—as here—the competing duties described by the parties all relate to the agent’s work as a whole. In such circumstances, relative time cannot be assessed and the court’s focus necessarily falls instead on evaluating the duties’ relative importance. Most importantly, just like an inquiry into the relative time spent on different duties, an inquiry into their relative importance remains factual and not legal in nature, and here consequently raised triable questions that should have precluded summary judgment. -18- C. NY Life Distorts and Mischaracterizes the Department of Labor’s Opinion Letter Concerning Insurance Agents, which was Exactly on Point and Clearly Illustrated Why the Parties’ Competing Accounts of Agents’ Duties Should Have Precluded Summary Judgment. NY Life also grossly mischaracterizes the content of the DOL opinion letter concerning insurance agents, which is directly on point here. The letter listed the “typical duties” of Group (1) agents who had sales as their primary duty (and could be subject to the outside sales exemption), and of Group (2) agents who had a primary duty of providing individualized financial recommendations (who could be subject to the administrative exemption). See R. 1980-87 (Op. Ltr. FLSA2009- 28). Defendants wrongly argue that the Group (2) description does not fit the facts in this case, because the letter describes either “agents who service insurance products already purchased, and perhaps occasionally make sales in the process” (as the Second Circuit mistakenly stated), or “marketing agents, focused on generally promoting the company’s brand and maintaining the company’s business relationships.” Resp. br. 36 (quoting Gold v. N.Y. Life Ins. Co., 730 F.3d 137, 146 (2d Cir. 2013)), 46. Both of these descriptions facially contradict the DOL’s actual description of Group (2) agents in the opinion letter: four of the six “typical duties” listed for Group (2) agents cannot possibly relate either to “servic[ing] products already -19- purchased”, or to “generally promoting the company’s brand”. Rather, the initial four duties listed by the DOL all relate explicitly and unequivocally to meeting an individual customer, and figuring out what products (if any) that individual needs (and should purchase)—the essence of New York Life’s so-called “sales cycle”. The initial four duties listed by the DOL are: — The agents meet with current or prospective clients, typically in person, to collect and discuss each client’s life insurance and financial information (e.g., assets, income, debts, cash flow, tax status, retirement savings, and financial objectives) and needs. — The agents analyze the information collected from current and prospective clients and compare and evaluate possible life insurance and financial products to develop individualized advice and strategies for each client based upon each client’s insurance and financial status, risk tolerance, needs, and objectives. — The agents provide individualized advice and recommendations to current and prospective clients on the purchase of life insurance and other financial products. This includes explaining and discussing with clients the advantages and disadvantages of various life insurance and financial products, including the costs, monetary values or returns, death benefits, and risks of each. — The agents structure transactions to ensure that they result in the maximum benefit for clients, while also conforming with the laws, regulations, and requirements governing the insurance industry (and, where applicable, the securities industry). -20- R. 1983 (Op. Ltr. p. 4). Erroneously arguing that the DOL’s description of Group (1) agents is more compatible with the facts in this case, NY Life falsely asserts that the lower court “thoroughly considered” the DOL opinion letter and “held that it confirmed that Johnson was an exempt outside salesperson.” Resp. br. 44. In fact, the lower court’s opinion contains no reference to the letter at all, and no such holding (despite NY Life’s misleading record citation to the opinion). To the contrary, because the DOL’s descriptions on the one hand of insurance agents with a sales primary duty, and on the other hand of agents who provided individualized recommendations as their primary duty, both arguably fit the facts in this case, the opinion letter illustrated exactly the triable question of fact that should have precluded the lower court from granting summary judgment. POINT III SINCE PLAINTIFF’S ARGUMENT THAT KARTAL’S ARBITRATION PROVISION IS VIOLATIVE OF THE NLRA RAISES A PURE ISSUE OF LAW, AND MOREOVER, IS BASED ON THE SOUND REASONING OF THE RECENT LEWIS DECISION, THE ARGUMENT SHOULD BE CONSIDERED AND ACCEPTED. Contrary to NY Life’s argument, whether Kartal voluntarily signed her employment agreement or otherwise acquiesced in its terms is irrelevant. If the arbitration/class action waiver clause is inherently illegal, as has been held by -21- recent United States Circuit Court of Appeals’ decisions, then the lower court’s agreement to enforce it is clearly wrong. Just as is the case with the deductions and overtime issues in this appeal, merely signing an agreement, or acquiescing in the terms of the agreement, does not otherwise convert or launder a contract that violates the labor law, into a contract that is permitted by the labor law. A. The Legal Authorities and Arguments Upon Which Kartal Presently Relies Did Not Exist at the Time of the Briefing in the Lower Court and Accordingly, Could Not Have Been Waived At the time when the lower court enforced Kartal’s arbitration/jury waiver clause, the highest authority available on the issue of enforceability of an arbitration and class action waiver provision was D.R. Horton v. NLRB, 737 F.3d 344 (5th Cir. 2013). Our argument is based on the authority of the recent decision in Lewis v. Epic Sys. Corp., 823 F.3d 1147 (7th Cir. 2016), which specifically addressed the contention between the waiver and the provisions of the National Labor Relations Act (“NLRA”). The particularly unique and persuasive reasoning of the Lewis court, and the manner in which it effectively deconstructed and dismantled the D.R. Horton case, was not available at the time of Kartal’s opposition to NY Life’s application to enforce the arbitration clause. Accordingly, Kartal could not have made that argument and, therefore, she could not have waived it. Moreover, since filing our Main Brief, as well as NY Life’s -22- Respondent’s Brief, the United States Court of Appeals for the Ninth Circuit, in Morris v. Ernst & Young, LLP, 2016 WL 4433080 (Aug. 22, 2016) issued a persuasive decision, which, like Lewis, holds a mandatory arbitration and class action waiver clause to be illegal and unenforceable, reasoning as follows: This case turns on a well-established principle: employees have the right to pursue work-related legal claims together. 29 U.S.C. §157; Eastex, Inc. v. NLRB, 437 U.S. 556, 566 (1978). Concerted activity—the right of employees to act together—is the essential, substantive right established by the NLRA. 29 U.S.C. § 157. Ernst & Young interfered with that right by requiring its employees to resolve all of their legal claims in “separate proceedings.” Accordingly, the concerted action waiver violates the NLRA and cannot be enforced. 2016 WL 4433080, at *2. As recently as September 2, 2016, in Patterson v. Raymours Furniture Co., 2016 WL 4598542 (2d Cir. Sept. 2, 2016), the United States Court of Appeals for the Second Circuit issued a summary order that suggests that if not for constraints to adhere to a prior decision of that Circuit, the Court would reconsider the issue in view of the Lewis and Morris decisions: If we were writing on a clean slate, we might well be persuaded, for the reasons forcefully stated in Chief Judge Wood's and Chief Judge Thomas's opinions in Lewis and Morris, to join the Seventh and Ninth Circuits and hold that the EAP's waiver of collective action is unenforceable. But we are bound by our Court's decision -23- in Sutherland v. Ernst & Young LLP, 726 F.3d 290 (2d Cir. 2013), which aligns our Circuit on the other side of the split. In considering an alternative argument made by the plaintiff in that case, Sutherland “decline[d] to follow the [NLRB's] decision” in Horton I “that a waiver of the right to pursue a FLSA claim collectively in any forum violates the [NLRA].” Id. at 297 n.8. We are bound by that holding “until such time as [it is] overruled either by an en banc panel of our Court or by the Supreme Court.” United States v. Wilkerson, 361 F.3d 717, 732 (2d Cir. 2004). 2016 WL 4598542, at *2. As the language in the summary order makes perfectly clear, the panel was explicitly inviting an en banc panel of the Second Circuit or the United States Supreme Court to overrule Second Circuit precedent which supported arbitration and class action waiver provisions. In addition, contrary to NY Life’s waiver argument, when an appellate issue involves a pure legal question raised for the first time on appeal, it is well established that “where, as here, an argument presents an issue of law appearing on the face of the record which could not have been avoided if raised at the proper juncture, it may be considered by an appellate court.” Stephan B. Gleich & Assoc. v. Gritsipis, 87 A.D.3d 216 (2nd Dept. 2011). There are literally scores of holdings where the Appellate Courts have thus considered arguments not made in the lower court. See. e.g., Nuevo El Barrio Rehabilitacion De Vivienda y Economia, Inc. v. -24- Moreight Realty Corp., 87 A.D.3d 465, 466 (1st Dept. 2011) (“a purely legal argument may be considered for the first time on appeal”); Mount Sinai Hosp. v. Country Wide Ins. Co., 81 A.D.3d 700, 701 (2nd Dept. 2011) (“Although the hospital raises this issue for the first time on appeal, we may review the issue because it presents a question of law which could not have been avoided if brought to the Supreme Court's attention at the proper juncture”); Augustin v. Augustin, 79 A.D.3d 651, 652 (1st Dept. 2010) (“Court may review the argument since it is a legal argument which appears upon the face of the record and could not have been avoided if brought to the husband's attention at the proper juncture”); Rajkumar v. Budd Contr. Corp., 77 A.D.3d 595 (1st Dept. 2010) (“we exercise our discretion to reach the unpreserved issue as it could have been decided, as a matter of law, below”); Colonial Sur. Co. v. Eastland Const., Inc., 77 A.D.3d 581, 582 (1st Dept. 2010) (“Defendants' contention... is also raised for the first time on appeal but may be considered, because it is a proposition of law that appears on the face of the record and could not have been avoided if brought to plaintiff's attention at the proper time”); Gary v. Flair Beverage Corp., 60 A.D.3d 413, 414 (1st Dept. 2009) (“Although defendants failed to preserve their arguments with respect to 3835's contractual indemnification claim... this Court can review them nonetheless because they are legal in nature and apparent on the face of the record”). -25- B. New York State and Federal Precedent Cited by NY Life that Enforced Arbitration Waivers Failed to Conduct the Detailed Analysis Found in the Seventh Circuit Lewis Decision and Last Month’s Ninth Circuit Morris Decision and Accordingly Have Become Discredited All of the authorities cited by NY Life in either State or federal court are entirely irrelevant because none of these decisions squarely confronted or analyzed whether class action waiver clauses in arbitration agreements violated the NLRA in the manner in which it was done in Lewis and Morris. Even the Second Circuit Patterson case, which officially upheld such arbitration clauses, did so solely on stare decisis grounds, and, in effect, repudiated the reasoning of the prior case law. Furthermore, the federal circuit court of appeals decision cited by NY Life, Cellular Sales of Mo., LLC v. Nat’l Labor Relations Bd., --- F.3d ---, 2016 WL 3093363 (8th Cir. June 2, 2016), was issued just days after the Lewis decision, and the Eighth Circuit panel that issued that decision must have known of Lewis, since the Lewis case garnered significant publicity in the national media. Inexplicably, Cellular Sales failed to even recognize the existence of the Lewis case, much less attempt to address or distinguish the case. Accordingly, it is of little or no value in a discussion of the Lewis reasoning. -26- C. Contrary to NY Life’s Argument, the Use of Class Action Procedures is a Substantive Right Here again, NY Life relies entirely on discredited and poorly reasoned decisions directly contrary to Lewis. As stated in Lewis: Last, Epic contends that even if the NLRA does protect a right to class or collective action, any such right is procedural only, not substantive, and thus the FAA demands enforcement. The right to collective action in section 7 of the NLRA is not, however, merely a procedural one. It instead lies at the heart of the restructuring of employer/employee relationships that Congress meant to achieve in the statute. See Allen- Bradley Local No. 1111, United Elec., Radio & Mach. Workers of Am. v. Wis. Employ't Relations Bd., 315 U.S. 740, 750 (1942) (“[Section 7] guarantees labor its ‘fundamental right’ to self-organization and collective bargaining.” (quoting Jones & Laughlin Steel, 301 U.S. 1, 33)); D.R. Horton, 357 N.L.R.B. No. 184, at *12 (noting that the Section 7 right to concerted action “is the core substantive right protected by the NLRA and is the foundation on which the Act and Federal labor policy rest”). That Section 7's rights are “substantive” is plain from the structure of the NLRA: Section 7 is the NLRA's only substantive provision. Every other provision of the statute serves to enforce the rights Section 7 protects. Compare 29 U.S.C. § 157 with id. §§ 151–169. One of those rights is “to engage in ... concerted activities for the purpose of collective bargaining or other mutual aid or protection,” id. § 157; “concerted activities” include collective, representative, and class legal proceedings. See Eastex, 437 U.S. at 566; Brady, 644 F.3d at 673; D.R. Horton, 357 N.L.R.B. No. 184, at *2–3. 823 F.3d at 1160. Accordingly, NY Life is clearly wrong that the right to bring a class or collective action is solely a procedural right that does not implicate substantive claims on their merits. CONCLUSION For the reasons set forth in our Main Brief and herein, it is respectfully submitted that the Order appealed from be reversed and the Second, Third and Fourth Counts be reinstated, the stay of Kartal’s claims be vacated and her claims reinstated, and Plaintiffs be awarded costs and disbursements and reasonable attorney’s fees and such other and additional relief as the Court deems just and proper. Respectfully submitted, >F SANFORD F. YOUNG, P.C.LAW OFFICES Appellate coumflfi / iBy: Sanfbrd F. uoung 225 Broadway— Suite 2008 New York, New York 10007 (212) 227-9755 LOVELL STEWART HALEBIAN JACOBSON LLP 420 Lexington Avenue, Suite 2440 New York, New York 10170 Tel: (212) 500-5010 Attorneys for Plaintiffs-Appellants -27- -28- On the brief: Sanford F. Young John Halebian Adam Mayes Printing Specifications Statement I, Sanford F. Young, appellate counsel for the Plaintiffs-Appellants, 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. Footnotes and Point Headings are in compliance with § 600.10(d)(1)(i). The brief contains 5,939 words counted by the word- processing program. Dated: September 16, 2016