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Unpaid OT Cases Continue

Update on lawsuits and government actions

May 15, 2007

WASHINGTON correspondent for MortgageDaily.com

Mortgage bankers and mortgage brokers continue to be plagued by litigation and government actions over originator overtime and minimum wages. But several large lenders have opted to settle and move on.

A case filed by several former Washington Mutual loan originators is still winding its way through federal court in New York.

The loan officers claim WaMu violated the federal Fair Labor Standards Act and state labor law in several states including New York, California and Illinois. They claim to have worked more than 40 hours a week with no overtime pay and, when loans did not close, did not receive the legally required minimum wage.

Jack Raisner, an attorney with Outten & Golden LLP representing the originators, said the court recently awarded the plaintiffs the right to send out notices of the federal overtime claim to about 5,000 workers deemed to have the right to participate in the case.

WaMu has moved to dismiss the loan originators' state claims, arguing that the claims can not be heard in federal court. Raisner dismissed the legal maneuver as a typical employer ploy in such cases and said he expects to prevail in his opposition to the WaMu's request.

Westerfield v. Washington Mutual Inc. is in the United States District Court for the Eastern District of New York.

Kansas-based plaintiff's attorney, George Hanson, has handled many wage and overtime violation cases.

He's already settled two such cases within the last year against NovaStar Mortgage Inc. The first was settled in July 2006 when the court issued an order approving a settlement that involved more than 600 loan officers. Hanson declined to provide further details, citing the confidential nature of the settlement agreement. He said he settled another overtime violation lawsuit against NovaStar in January 2007.

Another Hanson-helmed case, Linda Gieseke, et al. v. First Horizon started with seven loan officers and has swelled to 700. The case was filed in the U.S. District Court for the District of Kansas.

The loan originators claim First Horizon violated state law by failing to pay earned commissions and violated federal law by failing to pay overtime wages to loan originators who worked more than 40 hours a week.

Hansen said the case is still in the "opt-in" phase.

Fair Labor Standards Act lawsuits are opt-in while most other class action lawsuits are opt-out. The distinction means that under the FLSA, potential litigants have to be identified and then have to notify the court they want to participate in a case in order to share in any legal recovery. By contrast, under other types of class action lawsuits, members of the class have to opt-out of the case if they do not want to participate in the lawsuit. In those cases, a fund is established after a favorable legal verdict to pay class members who later come forward.

First Horizon has contended in court documents that it doesn't have to pay the originators overtime because they are exempt from federal overtime pay provisions under the administrative and outside sales exemptions. When asked whether two letter rulings issued last year by the Labor Department explaining those exemptions affected the lawsuit, Hansen indicated that neither ruling is applicable to the case.

Hanson is also handling class action overtime violation cases brought by another loan originator, Derrick Perry. Perry worked for Wells Fargo Home Mortgage and National City Mortgage and then filed lawsuits against both, claiming they denied him proper pay under state and federal law.

Perry, et al. v. National City Mortgage, is in the U.S. District Court for the District of Illinois, Southern District. Hanson said the court has not yet ruled on his request to have the case certified as a collection action lawsuit and that a motion for summary judgment has been briefed and filed.

In cases under the Fair Labor Standards Act, class action lawsuits are called collective actions.

On the West Coast, Perry's case against Wells has been consolidated with four other cases against Wells also claiming wage violations. Wells Fargo could be looking at claims from as many as 20,000 loan officers in that lawsuit. Hanson has been named the lead counsel in those cases. The case is In Re Wells Fargo: Loan Originator Case. It's in federal trial court in San Francisco.

Midwestern-based mortgage firms have certainly seen their share of wage and overtime claims. Lawyers who practice employment and labor law have said the Labor Department is focused on wage and overtime violations in Ohio, Indiana, Pennsylvania and California.

Heartland Home Finance, the subject of two lawsuits, one for overtime and the other for alleged minimum wage violations, has wrapped up both lawsuits.

McClain v. Heartland Home Finance was dismissed in January 2007 on a legal procedural grounds after some of the plaintiffs refused to show up for depositions and to participate in discovery -- the process of sharing information about a case. The claim in that case was for unpaid minimum wages.

The overtime pay violation case, Melonakis-Kurz v. Heartland Home Finance, was settled in July 2006. David Carr, Heartland's Indianapolis, In.-based attorney, declined to provide details of the settlement agreement except to say that the case was settled to the "mutual satisfaction of all concerned."

Chao v. First National Lending Corporation is in federal appellate court. The U.S. District for the Northern District of Ohio ordered First National to pay 70 of its loan officers $186,100. Although Cleveland,Oh.-based First National is out of business, owner Lisa Scherzer is making good on a promise to fight the decision.

Scherzer has argued in trial and appellate court that state and federal minimum wage and overtime pay requirements don't apply because her loan originators are independent contractors, not employees.

Jericho Mortgage, ordered to pay $220,000 in back wages to 54 employees, is still fighting that decision. The United States District Court for the Southern District of Ohio ordered the payment.

Owner Rodney K. Cotner, who has often professed bafflement over a government stance on commission pay at odds with what he says is industry-wide practice, indicated the Labor Department is intent on making the legal judgment stick. He said that after he started a new brokerage firm, the Labor Department re-filed the case to add his new company.

Some of the industry's largest players have faced such lawsuits in the past several months. Countrywide Financial, Ameriquest Mortgage and Bank of America Mortgage have settled similar allegations. In one of the largest settlements, Countrywide Home Loans settled a wage violation lawsuit for a reported $30 million.

Lisa D. Burden is a legal analyst for MortgageDaily.com and holds a law degree from the University of Maryland. She is currently a freelance journalist who previously wrote for Institutional Investor publications and the Baltimore Daily Record.

e-mail Lisa at: [email protected]

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