Waterstone Mortgage Corporation v. Downey, Deanna et al

Brief in Support of 24 Motion to Approve Settlement Agreement and Dismissal of Claims

W.D. Wis.July 8, 2019

1 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WISCONSIN WATERSTONE MORTGAGE CORPORATION, Plaintiff, v. DEANNA DOWNEY, ELAINE WISE, and DAVID SWANN Defendants. Case No: 3:18-cv-00859 JDP BRIEF IN SUPPORT OF MOTION FOR APPROVAL OF SETTLEMENT AND DISMISSAL OF CLAIMS Plaintiff Waterstone Mortgage Corporation (“Waterstone”) and Defendants Deanna Downey, Elaine Wise, and David Swann (“Loan Officers”) (collectively the “Parties”) have reached a settlement to resolve this case, including Loan Officers’ claims under the Fair Labor Standards Act (“FLSA”) (the “Settlement”). Waterstone hereby submits this brief in support of its Motion for Approval of Settlement and Dismissal of Claims. Loan Officers and their counsel agree the settlement is fair and reasonable, and do not oppose this Motion. (Ferrantella Decl. ¶ 14.) I. RELEVANT BACKGROUND A. Nature of the Action and Procedural History This case pertains to three arbitrations filed by three former Waterstone Loan Officers, Deanna Downey, David Swann, and Elaine Wise. In 2017 and 2018, all three previously submitted consent to join forms in a case before this Court called Werner et al. v. Waterstone Mort. Corp., No. 3:17-cv-00608 JDP (W.D. Wisc.). (Werner, Dkt. Nos. 8, 35, 79.) After the court denied Case: 3:18-cv-00859-jdp Document #: 25 Filed: 07/08/19 Page 1 of 9 2 conditional certification, in August 2018, Waterstone moved to dismiss them form the Werner case (Dkt. No. 83) and the Loan Officers withdrew their consents to join. (Werner, Dkt. Nos. 87, 91.) On or about July 20, 2018, Downey filed her claims in arbitration asserting claims for wages due under the Fair Labor Standards Act (“FLSA”) and applicable state laws. (Ferrantella Decl. ¶ 2, Ex. 1.) On or about August 3, 2018, Wise filed her claims in arbitration asserting claims for wages due under the FLSA and applicable state laws. (Ferrantella Decl. ¶ 3, Ex. 2.) On or about October 19, 2018. Swann filed his claims in arbitration asserting claims for wages due under the FLSA and applicable state laws (arbitrations by Downey, Swann, and Wise collectively referred to as “the Arbitrations”). (Ferrantella Decl. ¶ 4, Ex. 3.)1 Waterstone filed a response to the Arbitrations, denying the claims and asserting defenses to them. (Ferrantella Decl. ¶ 5) On or about October 8, 2018, Waterstone filed this action for relief seeking a declaratory judgment against the Loan Officers (the “Lawsuit”). (Dkt. No. 1.) Waterstone contends that Loan Officers waived their right to pursue claims in arbitration due to their prior litigation conduct. Loan Officers dispute this fact, and contend that the claims were properly brought in arbitration. (Id.; Ferrantella Decl. ¶ 6.) B. The Proposed Settlement Beginning in April 2019, the Parties, with the assistance of Magistrate Judge Oppeneer, held settlement negotiations. (Ferrantella Decl. ¶ 7.) The Parties continued settlement negotiations with the assistance of Magistrate Judge Oppeneer, and on or about May 16, 2019, reached an agreement in principle to resolve the Arbitrations (“Settlement”). (Id.; Dkt. No. 23.) 1 The exhibits to the demands of Wise and Swann are omitted from the motion, but are the same as the exhibits attached to the demand of Downey. Case: 3:18-cv-00859-jdp Document #: 25 Filed: 07/08/19 Page 2 of 9 3 On June 25, 2019, the Parties executed a Settlement and Release of Claims memorializing the terms of the settlement (“Settlement”).2 (Ferrantella Decl. ¶ 8, Ex. 4.) Under the Settlement, Waterstone agrees to pay a total of $85,000.00 to resolve Loan Officers’ claims, inclusive of attorneys’ fees and costs. (Ex. 4, § III.A.) The settlement is allocated as follows: $40,000 to Loan Officer Swann, $3,500 to Loan Officer Downey, $3,100 to Loan Officer Wise, and $38,400 to Plaintiffs’ counsel. (Id.) II. THE COURT SHOULD APPROVE THE SETTLEMENT OF FLSA CLAIMS A FLSA settlement requires court approval in order to be valid and enforceable. See Walton v. United Consumers Club, Inc., 786 F.2d 303, 306 (7th Cir. 1986). Courts must review the settlement agreement to determine whether it “represents a fair and reasonable resolution of a bona fide dispute.” Butz v. Automation Solns. of Am., No. 16-cv-00696-jdp, 2017 WL 5713986, at *1 (W.D. Wis. Nov. 7, 2017) (Peterson, J.) (citing Salcedo v. D’Arcy Buick GMC, Inc., 227 F. Supp. 3d 961 (N.D. Ill. 2016)). “Factors considered when reviewing settlement agreements for FLSA collective actions include the range of reasonableness of the settlement fund in light of the best possible recovery and all the risks of litigation, such as the risks of establishing liability and damages.” Butz, 2017 WL 5723986, at *1 (citing Burkholder v. City of Ft. Wayne, 750 F. Supp. 2d 990, 995 (N.D. Ind. 2010)) (internal citations omitted). The Court must ultimately be satisfied that the settlement’s overall effect is to vindicate, rather than frustrate, the purposes of the FLSA. Here, the Settlement represents a reasonable compromise of highly contested and disputed claims. (Ferrantella Decl. ¶ 13.) It was the result of informed, non-collusive, arms-length negotiations with the assistance of Magistrate Judge Oppeneer. (Id. ¶ 9.) Loan Officers and their 2 The settlement agreement is attached to the Declaration of Jesse Ferrantella as Exhibit 4. Case: 3:18-cv-00859-jdp Document #: 25 Filed: 07/08/19 Page 3 of 9 4 counsel agree the settlement is fair and reasonable and do not oppose this motion. (Id. ¶ 14.) Waterstone requests it be approved by the Court. A. The Settlement is Fair, Reasonable, and Adequate. The Parties’ $85,000 settlement represents a fair and reasonable resolution of a bona fide dispute. Loan Officers’ FLSA overtime claim is premised on a theory of off-the-clock work. “The employee bears the burden of proving that she performed overtime work for which she was not properly compensated.” Kellar v. Summit Seating Inc., 664 F.3d 169, 173 (7th Cir.2011). To recover for uncompensated overtime under the FLSA, the plaintiff must show not only that he or she incurred off-the-clock work, but that the employer had knowledge, either actual or constructive, of the plaintiff's overtime work. Id. at 177 (“the FLSA stops short of requiring the employer to pay for work it did not know about, and had no reason to know about”); Gaines v. K- Five Const. Corp., 742 F.3d 256, 270 (7th Cir.2014) (because “an employer cannot slyly sit back in order to reap extra work without pay, it has no obligation to pay for work it did not know about and had no reason to know about”); Butler v. HomeServices Lending LLC, No. 11-CV-2313-L MDD, 2014 WL 2434594, at *2 (S.D. Cal. May 29, 2014) (“In order to recover for uncompensated overtime work under the FLSA, the plaintiff must further prove that the employer had knowledge, either actual or constructive, of the plaintiff's overtime work.”) Given that the claim is based in large part on off-the-clock work, their potential recovery will hinge in part on whether Waterstone knew or should have known of any off-the-clock work. Here, Loan Officers claim they were classified as non-exempt employees by Waterstone and promised pay for all hours worked including overtime, but were pressured to underreport their work hours and thus underpaid. (Ferrantella Decl. ¶¶ 2-4, Exs. 1-3, pp. 3 [citing Werner Complaint, ¶¶ 4-5, 8, 51, 53, 57-58].) Plaintiffs further contend Waterstone knew or should have known that Case: 3:18-cv-00859-jdp Document #: 25 Filed: 07/08/19 Page 4 of 9 5 Plaintiffs were not recording all hours they worked. (Id.) In support of their claims, Plaintiffs further rely on a prior ruling made before the American Arbitration Association, Herrington v. Waterstone, AAA NO. 01 14 0000 4860. That arbitration involved other Loan Originators and similar claims before the FLSA. The arbitrator issued an award against Waterstone on a similar theory of off-the-clock work, which Plaintiffs contend supports their claim here. (Id., Exs. 1-3, p. 3.)3 Waterstone disputes that Loan Officers, in fact, worked hours in excess of what they recorded. As noted in its Opposition to Conditional Certification in Werner, in which Loan Officers had initially consented to join, Waterstone has policies prohibiting off-the-clock work. Their agreements stated that they were to accurately record all hours worked, that failure to accurately record all hours worked could result in discipline. (See, e.g., Werner, Dkt. No. 45 [“Paske Decl.”] ¶¶ 41, 45, Ex. 14, p. 14, Ex. 16, p. 14.)The agreements further stated that by submitting their timesheets, the employee is certifying their time records accurately reflect all hours worked. (Paske Decl. ¶¶ 41, 45, Ex. 1, p. 14 [Wise], Ex. 16, p. 11 [Swann].) Furthermore, Waterstone contends Loan Officers were exempt from the FLSA’s minimum wage and overtime requirements under the FLSA’s outside sales exemption. The exemption applies to “an employee (1) whose ‘primary duty’ consists of ‘making sales’ or ‘obtaining orders or contracts for services’ and (2) who is ‘customarily and regularly engaged away from the employer's place or places of business in performing such primary duty.’” Schmidt v. Eagle Waste & Recycling, Inc., 599 F.3d 626, 631 (7th Cir. 2010) (quoting 29 C.F.R. § 541.500). Previously, in Herrington v. Waterstone, 3 The award was vacated on appeal. Herrington v. Waterstone Morg. Corp., 907 F.3d 502 (7th Cir. 2018). On remand, the District Court vacated the award and remanded the case for a new proceeding in which Herrington would have to pursue her claims on an individual basis. Herrington v. Waterstone Mort. Corp., 2019 WL 1866314, at *6 (W.D. Wisc. Apr. 25, 2019). Case: 3:18-cv-00859-jdp Document #: 25 Filed: 07/08/19 Page 5 of 9 6 the Arbitrator found that other Waterstone Loan Originators were exempt under the outside sales exemption based on their job duties, but found that Waterstone had waived this defense. (Ferrantella Decl. ¶ 2, Ex. 1, pp. 86-90 [Herrington Partial Final Award on Liability] [“the OSE would apply in this case unless Waterstone is precluded from relying on that exempt under principles of waiver and estoppel….”].) While Loan Officers were not a party to the Herrington arbitration, Waterstone contends that Loan Officers’ job duties as Loan Originators also render them exempt under the outside sales exemption. Furthermore, Waterstone disputes that it waived the outside sales exemption defense. See, e.g., Molina v. First Line Solutions, LLC, 566 F. Supp. 3d 770, 782 (N.D. Ill. 2007). Additionally, Waterstone contends that Loan Officers Downey and Wise are pursuing time-barred FLSA claims. Both withdrew their consents to join in Werner in August 2018 and Waterstone contends that more than three years had passed since the date Downey and Wise’s employment ended with Waterstone. (Werner, Dkt. No. 45.) As a result, there is a bona fide dispute over Loan Officers’ claims. Waterstone believes Loan Officers potential recovery for off-the-clock work will hinge in large part on whether Waterstone knew or should have known of any off-the-clock work. It will also hinge a credibility determination to be made by the finder of fact, and are further susceptible to Loan Officers’ ability to recall when and how much off the clock time they allege they worked, particularly since Defendant’s liability for Plaintiffs’ FLSA overtime claim is for unpaid hours worked in excess of forty during a given workweek. See 29 U.S. Code § 207(a)(1). Given these issues, the $85,000 Settlement represents a reasonable compromise of disputed claims. Loan Officers worked an approximate total of 200 workweeks during the three-year limitations period dating back from when they filed consents to join in the Werner matter. (Ferrantella Decl. ¶ 12; Werner Dkt Nos. 8 [Wise Consent to Join dated August 23, 2017], 35 Case: 3:18-cv-00859-jdp Document #: 25 Filed: 07/08/19 Page 6 of 9 7 [Swann Consent to Join dated December 12, 2017], 79 [Downey Consent to Join dated April 9, 2018].) Under the terms of the Agreement, Loan Officer Swann will recover $40,000, Loan Officer Downey will recover $3,100, and Loan Officer Wise will recover $3,500. (Ferrantella Decl. ¶ 8, Ex. 4.) This recovery considers the total number of weeks Loan Officers worked as Loan Originators for Waterstone, the pay received, the overtime hours Plaintiffs allege were worked, the unreimbursed business expenses Plaintiffs allege were incurred, Waterstone’s defenses, and the litigation risks associated with prevailing on their minimum wage and overtime claims. The breakdown is roughly proportional to workweeks worked during the limitations period. As a result, it is consistent with the fact that Loan Officer Swann worked by far the longest time period, and given that the risk that Loan Officers Downey and Wise are pursuing potentially-time barred claims. (Ferrantella Decl. ¶ 12.) Together the Plaintiffs will recover approximately 40% of the total damages alleged within the FLSA three-year statute of limitations. (Ferrantella Decl. ¶ 13.) This is a material recovery for each of the Plaintiffs. The recovery falls within the “range of reasonableness” given the risks of further litigation. Butz, 2017 WL 5723986, at *1. This Court recently approved a similar settlement agreement of FLSA claims for 2 former Waterstone loan officers, Werner and Wiesneski, providing a similar recovery. (Werner, Dkt. No. 117.) At bottom, all of the relevant factors weigh in favor of a finding that the FLSA settlement is the result of a bona fide dispute of claims. The Settlement also represents a fair and reasonable settlement of highly disputed claims. B. The Agreement Was the Product of Arms’ Length Negotiations Facilitated by a Magistrate Judge The settlement process also favors approval of the Settlement. Settlement agreements negotiated by experienced counsel that result from arms-length negotiations are entitled to deference from the Court. See, e.g., In re Linerboard Antitrust Litig., 292 F. Supp. 2d 631, 640 Case: 3:18-cv-00859-jdp Document #: 25 Filed: 07/08/19 Page 7 of 9 8 (E.D. Pa. 2003) (“A presumption of corrections is said to attach to a ... settlement reached in arms’- length negotiations between experienced, capable counsel after meaningful discovery.”); In re Rent-Way Sec. Litig., 305 F. Supp. 2d 491, 509 (W.D. Pa. 2003) (“... settlement negotiations took place at arm’s length between highly experience[d] and competent counsel. Their assessment of the settlement as fair and reasonable is entitled to considerable weight.”). Here, the Settlement was reached after the Parties exchanged relevant information. Waterstone provided Loan Officers with informal document production, including but not limited Loan Officers’ personnel file, Loan Originator agreements, and time and pay records. (Ferrantella Decl. ¶ 10.) This information allowed Loan Officers to meaningfully evaluate the claims at issue and assess potential exposure. (Id.) Furthermore, counsel for Loan Officers is very familiar with Waterstone’s policies and practices, having arbitrated the Herrington matter for years and having had the benefit of significant document production throughout the arbitration. (Id. ¶ 11.) This allowed the Parties to learn of the strengths and weaknesses of their respective positions. (See id.) After exchanging information, the Parties opted to engage in a Settlement Conference with Magistrate Judge Oppeneer in an attempt to resolve the case. (Ferrantella Decl. ¶ 7) After several conversations with Judge Openeer, the parties were able to reach a settlement in principle of the claims. (Id.) The issues discussed included the merits and value of Loan Officers’ claims, Waterstone’s defenses thereto, liquidated damages, attorneys’ fees, the settlement terms, and the logistics of settlement. (Id.) Despite the Parties having differing positions on the issues, they were able to work with Magistrate Judge Oppeneer towards a compromise in this matter. (Ferrantella Decl. ¶¶ 7-8.) The Parties’ respective counsel are experienced in FLSA wage and hour litigation, evaluated Loan Officers’ claims, and agree that the FLSA settlement is fair and reasonable. Case: 3:18-cv-00859-jdp Document #: 25 Filed: 07/08/19 Page 8 of 9 9 (Ferrantella Decl. ¶ 14; see Werner Dkt. No. 116 [Declaration of Matt Dunn].) This further supports approval of the Settlement. III. CONCLUSION For the foregoing reasons, Waterstone respectfully submits that the Settlement is a fair and reasonable resolution of disputed issues of fact and law and should be approved by the Court. Such approval will “secure the just, speedy and inexpensive determination” of this action. See Fed. R. Civ. P. 1. Therefore, Waterstone respectfully requests the Court enter an order (1) approving this Settlement Agreement & Release; (2) ordering Waterstone to distribute the settlement payment as set forth in the Settlement Agreement & Release; and (3) dismissing this Lawsuit with prejudice. Date: July 8, 2019 By: s/ Spencer C. Skeen Spencer S. Skeen (Pro Hac Vice) Tim L. Johnson (Pro Hac Vice) Jesse C. Ferrantella (Pro Hac Vice) Ogletree, Deakins, Nash, Smoak & Stewart, P.C. 4370 La Jolla Village Drive, Suite 990 San Diego, CA 92122 Telephone: 858.652.3100 Facsimile: 858.652.3101 spencer.skeen@ogletree.com tim.johnson@ogletree.com jesse.ferrantella@ogletree.com ATTORNEYS FOR PLAINTIFF Case: 3:18-cv-00859-jdp Document #: 25 Filed: 07/08/19 Page 9 of 9