Mortgage Daily

Published On: August 20, 2012

As mortgage employers continue to battle lawsuits filed by loan originators who allege unpaid overtime, a court decision to keep a related regulation in place is being appealed. But even if the appeal is successful, lenders still face similar lawsuit being filed by underwriters. Other recent court decisions in mortgage employment lawsuits involve mortgage branching, commissions on originations and losses in 401(k) plans.

On June 6, a federal judge granted a motion to dismiss the Mortgage Bankers Association’s January 2011 lawsuit against the U.S. Department of Labor. The trade group sought to set aside the department’s Wage and Hour Division Administrator’s Interpretation No. 2010-1 withdrawing a 2006 opinion letter to MBA interpreting the department’s own regulations and concluding that typical loan officers were exempt from Fair Labor Standards Act requirements for overtime payments under the “administrative exemption.”

On Aug. 2, MBA notified the court that it is appealing the decision with the U.S. Court of Appeals for the District of Columbia.

A federal judge in Ohio denied Fifth Third Bank’s motion for a partial summary judgment on May 7 in a class action filed by 358 mortgage loan officers who have worked at the Cincinnati-based bank since Feb. 11, 2008. The plaintiffs allege that they were improperly classified as exempt from the overtime requirements of the FLSA. Fifth Third moved for the partial summary judgment based on a good faith defense.

A federal class action was filed on July 20 in California against U.S. Bank, N.A., on behalf of mortgage loan underwriters, Nichols Kaster LLP announced. The Minneapolis-based financial institution is accused of misclassifying the underwriters as exempt from overtime pay in violation of the Fair Labor Standards Act.

“My client simply seeks to recover the pay that she and other mortgage underwriters were denied as a result of their improper classification,” Nichols Kaster Associate Robert L. Schug stated in the press release.

A U.S. District Court judge for the Western District of Washington granted a motion for partial summary judgment against Residential Capital LLC, GMAC Mortgage LLC and Ally Financial Inc. on May 30 in a class action filed by 90 mortgage underwriters, Nichols Kaster reported. The underwriters allege FLSA violations over unpaid overtime because they were improperly classified as exempt.

The court reportedly disagreed with the defendants’ claim that the underwriters were exempt under the FLSA’s administrative exemption and that the defendants were entitled to a good faith defense under the FLSA. The court ruled that the underwriters weren’t exempt from overtime because, among other things, they “did not perform the sort of high-level analysis and counseling that constitutes exempt administrative work in the financial industry.” The good faith defense didn’t stick because ResCap didn’t act in conformity with any relevant guidance from the Department of Labor.

On May 14, a federal judge approved a $2.4 million settlement between SunTrust Mortgage Inc. and 122 mortgage underwriters who alleged they were improperly classified as exempt from overtime in violation of the FLSA.

After Larry Shannon and his Moses Lake, Wash., mortgage branch abandoned Evergreen Moneysource Mortgage Co. in April 2009 after two years of affiliation and joined Guild Mortgage, Evergreen filed a lawsuit. Shannon, who operated under a branch manager agreement with Evergreen, claims that Evergreen was sometimes unable to fund his loans when they were ready to close beginning in November 2008. Despite promises to branch employees from Evergreen President Keith Franchiseur during an April 10, 2009, visit that loans would be funded in the future that they would be paid retention bonuses for staying on board — the entire branch jumped ship and joined Guild on May 1, 2009.

Evergreen claims that the branch shared trade secrets confidential company information with Guild. Pro forma branch profit-and-loss statements provided to Guild indicated that the branch would earn more than $3 million a month in income — though Evergreen alleges that revenue could have only been earned by taking Evergreen’s existing customer base. The court granted Guild a summary judgment on Feb. 8, 2011, and Evergreen appealed the decision with the Court of Appeals of Washington — which affirmed the decision on two claims but reversed the dismissal of the breach of duty of loyalty claim related to employee solicitation. The case was remanded to the trial court.

Wells Fargo Home Mortgage Inc. was awarded a summary judgment on April in a lawsuit pending in a Manhattan federal court by Neil Bader. The former area manager, who was terminated in July 2009, claims that he never received bonuses that were owed to him. Originations from Bader’s territory earned him the distinction be being designated as the top-ranked area manager in the country. He claimed to have earned $129,711 for a volume override bonus on $649 million in volume during June and July 2009, but he was only paid $64,855.

Just three days before Bader was terminated, Wells Fargo amended his incentive plan and reduced volume overrides. He sued the lender in New York Supreme Court, New York County, asserting claims for breach of contract, breach of implied contract, quantum meruit, promissory estoppel and violation of New York State Labor Law § 193. Wells Fargo removed the case to federal court in November 2009. The lender successfully moved to dismiss all but a breach of contract claim in March 2011, and it won the remaining claim this past April.

Debra Griffin and Joy Gardner claimed in a consolidated putative class action that Flagstar Bancorp Inc. violated its fiduciary duties in violation of the Employee Retirement Income Securities Act of 1974 when it offered participants in the Flagstar Bank 401(k) Plan the option to invest in the company’s stock. In January 2007, shares of the Troy, Mich.-based company were trading at $14.95. By April 2010, shares were trading at just 68 cents each.

Flagstar successfully moved to have the case dismissed. But the dismissal was reversed on appeal by the U.S. Court of Appeals for the Sixth Circuit.

“The district court erred by dismissing this action for failure to state a claim upon which relief can be granted,” the decision stated. “Accordingly, we reverse its judgment and remand for further proceedings.”

A similar lawsuit was filed on May 21 in a Manhattan federal court against JPMorgan Chase & Co. Participants in the company’s 401(k) plan alleged ERISA violations. A stipulation and order approved by the judge on Aug. 9 indicated that the defendants don’t need to respond to the complaint because an amended complaint is being filed.

A complaint was filed in a Utah federal court on Dec. 12, 2011, against Provident Funding Associates L.P. by Kashif Bhatti, who worked as an underwriter for the lender from April 2007 until May 2008. The Pakistani immigrant alleges violations of Title VII of the Civil Rights Act of 1964. Bhatti said he was reprimanded just before his firing because he continued working during a conference call, even though other non-Pakistani employees who worked through conference calls weren’t reprimanded. His performance was allegedly satisfactory. Bhatti was allegedly subjected to disparaging remarks about the Pakistani culture and his darker skin color. He claims that two other Pakistani employees who were previously terminated faced similar hostility.

He filed a complaint with the Utah Anti-Discrimination and Labor Division and the Equal Employment Opportunity Commission. He claims that he was unprepared to discuss the claim when the company’s chief operating officer and another executive interviewed him about the complaint. He was terminated because he “filed a false and baseless claim,” according to the complaint.

Provident filed an answer to the complaint on Feb. 7, while the judge in the case approved on March 22 a request for attorney Gil A. Abramson to participate in the case on behalf of Provident.

A federal judge in Washington, D.C., determined on April 30 that Fannie Mae is a private company in Caroline Herron’s lawsuit against the secondary lender. The decision leaves intact Herron’s claims of wrongful discharge, tortious interference and civil conspiracy under Washington, D.C., law.

Herron, who was employed by Fannie from 2000 until 2007, left as a vice president. She subsequently returned as a contractor and was terminated in 2010. She claims that her wrongful termination and subsequent blackballing in the industry was the result of her complaints that the secondary lender bungled loan modifications, wasted public funds and violated a contract with the Department of the Treasury. Fannie claims a scathing report from Herron was written in retaliation for not bringing her on again as a permanent employee.

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