Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_12-cv-03035/USCOURTS-caed-2_12-cv-03035-8/pdf.json

Parties Involved:
Gina McKeen-Chaplin
Plaintiff
Provident Savings Bank, F.S.B.
Defendant

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

GINA MCKEEN-CHAPLIN, 

individually, on behalf of 

others similarly situated, 

and on behalf of the general 

public,

Plaintiffs,

v.

PROVIDENT SAVINGS BANK, FSB,

Defendant.

No. 2:12-CV-03035-GEB-AC 

ORDER DENYING CROSS MOTIONS FOR 

SUMMARY JUDGMENT 

Pending are cross motions for summary judgment 

concerning Defendant Provident Savings Bank, FSB‟s (“Provident”) 

affirmative defense, in which Provident asserts it was justified 

in not paying Plaintiffs overtime wages prescribed in the federal 

Fair Labor Standards Act (“FLSA”). Provident also moves for 

summary judgment on its affirmative defense in which it asserts 

it was justified in not paying Plaintiff McKeen-Chaplin overtime 

wages prescribed in the California Labor Code. Provident argues 

that Plaintiffs, who are current and former Provident mortgage 

underwriters, are, or were, “administratively exempt” from the 

overtime requirement in the FLSA, and that Plaintiff McKeenChaplin was “administratively exempt” from the overtime 

requirement in the California Labor Code.

Both federal and California law provide overtime 

protection for employees who work in excess of forty hours per 

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week. 29 U.S.C. § 207(a)(1); Cal. Labor Code § 510(a). However, 

neither the FLSA nor the California Labor Code overtime 

protections apply to “any employee employed in a bona fide . . . 

administrative . . . capacity.” 29 U.S.C. § 213(a)(1); 8 Cal. 

Code Regs. § 11040(1) (stating that California‟s overtime 

requirements do “not apply to persons employed in administrative 

. . . capacities.”). Under both federal and California law, the 

employer bears the burden of proving that the administrative 

exemption applies to its employees. Bothell v. Phase Metrics, 

Inc., 299 F.3d 1120, 1124 (9th Cir. 2002) (“An „employer who 

claims an exemption from the FLSA has the burden of showing that 

the exemption applies.‟”) (quoting Donovan v Nekton, Inc., 703 

F.2d 1148, 1151 (9th Cir. 1983)); Ramirez v. Yosemite Water Co., 

Inc., 20 Cal.4th 785, 794-95 (1999) (“[T]he assertion of an 

exemption from [California‟s] overtime laws is considered to be 

an affirmative defense, and therefore the employer bears the 

burden of proving the employee‟s exemption.”). This exemption is 

“to be narrowly construed against [an] employer[]” asserting it. 

Arnold v. Ben Kanowsky, Inc., 361 U.S. 388, 392 

(1960)(referencing the FLSA); Eicher v. Advanced Bus. 

Integrators, Inc., 151 Cal. App. 4th 1363, 1370 (2007) (“[U]nder 

California law, exemptions from statutory mandatory overtime 

provisions are narrowly construed.”). 

II. UNCONTROVERTED FACTS1

The following facts concerning the motions are either

 

1 Provident requests judicial notice be taken of documents Plaintiffs 

filed in state court. The request is denied since Provident does not explain 

in the request for judicial notice what relevance these documents have to its 

summary judgment motion. 

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admitted or “deemed” uncontroverted since they have not been 

controverted with specific facts as required by Local Rule 

260(b).2

Provident “is in the business of selling mortgage 

loans” and “employs . . . mortgage underwriters . . . whose 

primary duty is to underwrite home mortgage loan[] applications 

for one- to four-family residential units.” (Def. SUF ¶ 1, ECF 

No. 76-1; Pl. SUF ¶ 1, ECF No. 77-1.) 

To initiate a mortgage, Provident “loan officers[,]

[who are not underwriters,] . . . discuss the loan products with 

[the] borrower.” (Pl. SUF ¶ 51.) “A loan processor then runs a 

credit check, gathers further documentation, assembles the file 

for the underwriter, and runs the loan through an automated 

underwriting system [(“AUS”)].” (Pl. SUF ¶ 4.) The AUS “applies 

certain guidelines to a loan and returns a preliminary decision 

(approval, refer, or ineligible.)” (Pl. SUF ¶ 5.) “The loan . . . 

goes to the underwriter after this processing is finished.” (Pl. 

SUF ¶ 4.) 

An “underwriter has to make sure that the [loan] 

processor put the correct information into the AUS and . . . that 

the AUS is applying the correct rules to the facts of a 

 

2 LR 260(b) prescribes: 

Any party opposing a motion for summary judgment . . . 

[must] reproduce the itemized facts in the [moving 

party‟s] Statement of Undisputed Facts and admit those 

facts that are undisputed and deny those that are 

disputed, including with each denial a citation to the 

particular portions of any . . . document relied upon 

in support of that denial.

If the non-movant does not “specifically . . . [controvert duly 

supported] facts identified in the [movant‟s] statement of undisputed facts,” 

the nonmovant “is deemed to have admitted the validity of the facts contained 

in the [movant‟s] statement.” Beard v. Banks, 548 U.S. 521, 527 (2006). 

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particular loan.” (Pl. SUF ¶ 6.) He or she does this by applying 

“Provident‟s guidelines or lending criteria as well as agency 

guidelines that are specific to each loan product to determine 

whether the particular loan falls within the level of risk 

Provident is willing to accept.” (Def. SUF ¶ 11.) A Provident 

underwriter‟s job involves consideration of “the borrower‟s 

income, assets, debts and investments . . . . This comprises most 

of the Plaintiffs‟ job duties.” (Def. SUF ¶ 10)(emphasis added.) 

In reviewing a loan application, underwriters may 

impose “conditions” on a loan application and refuse to approve 

the loan until the borrower satisfies those conditions. (Def. SUF 

¶¶ 14, 16, 19.) Conditions include “items and/or documentation 

that an underwriter requires” before he or she will approve a 

loan. (Def. SUF ¶ 13.) While some “conditions” are required by 

the guidelines, underwriters can include additional conditions 

beyond those the guidelines require. (Def. SUF ¶ 16.) Further,

“[i]n certain circumstances, [Provident underwriters] can request 

that Provident make an exception to the guidelines” and approve a 

loan that does not satisfy the guidelines. (Def. SUF ¶ 24.)

When a Provident underwriter approves a loan, the loan

is “transferred to other [Provident] employees . . . to finalize 

loan funding.” (Pl. SUF ¶ 55.) Provident sells approved mortgage 

loans to third-party investors. (Pl. SUF ¶ 12.)

III. DISCUSSION

A. FLSA Claim

“The FLSA delegates to the Secretary of Labor broad 

authority to „define [ ] and delimit[ ]‟ the scope of the 

administrative exemption. In accordance with that authority, the 

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Secretary has formulated a test, known as the „short duties 

test,‟ to determine whether employees . . . qualify for the 

administrative exemption.” In re Farmers Ins. Exch., 481 F.3d 

1119, 1127 (9th Cir. 2006). Federal courts “must give deference 

to [Department of Labor‟s] regulations interpreting the FLSA.” 

Webster v. Public Sch. Emp. of Wash, Inc., 247 F.3d 910, 914 (9th 

Cir. 2001). The “short duties test” states:

The term “employee employed in a bona fide 

administrative capacity” . . . shall mean any 

employee: 

(1) Compensated on a salary or fee basis at a 

rate of not less than $455 per week . . . 

exclusive of board, lodging or other 

facilities; 

(2) Whose primary duty is the performance of 

office or non-manual work directly related to

the management or general business operations

of the employer or the employer‟s customers; 

and 

(3) Whose primary duty includes the exercise 

of discretion and independent judgment with 

respect to matters of significance. 

29 C.F.R. § 541.200(a) (emphasis added). 

It is undisputed that the salary requirement is 

satisfied. Provident seeks summary judgment on the second and 

third requirements and Plaintiffs cross move on the second 

requirement. 

1. Work Directly Related to Provident’s General 

Operations 

Plaintiffs argue Provident cannot satisfy the second 

requirement of the administrative exemption, which involves 

determination of whether Plaintiffs‟ “primary duty is[,] [or 

was,] the performance of office or non-manual work directly 

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related to the management or general business operations of 

[Provident] or [Provident‟s] customers.” 29 C.F.R. § 

541.200(a)(2). 

It is uncontroverted that each Plaintiff‟s primary duty 

is, or was, “to underwrite home mortgage loan applications for 

one- to four-family residential units,” and that this duty 

constitutes “office work” as the phrase is used in 29 C.F.R. § 

541.200(a)(2). (Pl. SUF ¶ 1; see also Def. SUF ¶ 10.) However, 

Plaintiffs argue this duty does not, or did not, constitute work 

directly related to Provident‟s general business operations. 

29 C.F.R. § 541.201(a) defines the phrase “directly 

related to management or general business operations” as it is 

used in the administrative exemption in relevant part as follows:

The phrase “directly related to . . . general 

business operations” refers to the type of 

work performed by the employee. To meet this 

requirement, an employee must perform work 

directly related to assisting with the 

running or servicing of the business, as 

distinguished, for example, from working on a 

manufacturing production line or selling a 

product in a retail or service establishment. 

(emphasis added). 

The distinction between “running or servicing 

of the business” and “working on a 

manufacturing production line or selling a 

product in a retail or service 

establishment,” has given rise to what many 

courts refer to as the 

“administrative/production dichotomy.” Under 

the dichotomy, “production employees (whose 

job it is to generate the product or service 

the business offers to the public) will not 

qualify for the exemption.” Stated 

differently, if a court determines that an 

employee generates, or “produces” the 

product/service that the employer offers to 

the public, then that employee is a 

“production” employee who cannot qualify for 

the administrative exemption. If, on the 

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other hand, the employee does not “produce”

the employer's product or service, the court 

must undertake an additional analysis to 

determine whether the employee performs an 

“administrative” function within the meaning 

of 29 C.F.R. § 541.201.

Lutz v. Huntington Bankcshares, No. 2:12-cv-01091, 2014 WL 

2890170, at *8 (S.D. Ohio June 25, 2014).

[T]he administration/production dichotomy 

[is] . . . one piece of the larger inquiry, 

recognizing that a court must “constru[e] the 

statutes and applicable regulations as a 

whole.” Indeed, some cases analyze the 

primary duty test without referencing the ... 

dichotomy at all. This approach is sometimes 

appropriate because . . . the dichotomy is 

but one analytical tool, to be used only to 

the extent it clarifies the analysis. Only 

when work falls “squarely on the „production‟ 

side of the line,” has the 

administration/production dichotomy been 

determinative.

Bothell, 299 F.3d at 1127 (third alteration in original, 

quotations omitted). 

Plaintiffs argue they are part of Provident‟s 

production line since they produce loans that Provident sells to 

third-party investors, and rely on the Second Circuit‟s opinion 

in Davis v. J.P. Morgan Chase & Co., 587 F.3d 529 (2d Cir. 2009) 

as support for this argument. Provident counters its underwriters 

“do not „sell‟ mortgage loans” and instead “service Provident‟s 

mortgage . . . business by assessing the risk associated with 

loan applications and deciding whether to approve them.” (Def. 

Mot. 1:21-25.)

However, Plaintiffs‟ reliance on Davis is misplaced 

since “Davis relied on the pre–2004 [CFR] example of 

„production,‟ which had no qualifications. The current example 

equates production with physical manufacturing, and its 

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usefulness is limited [in light of the nature of each Plaintiff‟s 

duties].” Bollinger v. Residential Capital, LLC, 863 F. Supp. 2d 

1041, 1047 (W.D. Wash. 2012). Plaintiffs‟ work is not similar to 

“work on a manufacturing production line or selling a product in 

the retail or service establishment,” 29 C.F.R. § 541.201(a), 

since Plaintiffs‟ do not “produc[e] anything in the literal 

sense.” Bollinger at 1047. “To place them [on the production side 

because they „produce‟ loans that are sold to third-party 

investors] would elevate form . . . over substance.” In re 

Farmers Ins. Exch., 481 F.3d at 1132. Therefore, the 

administrative/production dichotomy does not resolve the question 

of whether Provident satisfies the second prong of the 

administrative exemption. 

Provident argues Plaintiff‟s primary duty is, or was,

related to Provident‟s general business operations since their 

role is analogous to work in quality control, as prescribed in 29 

C.F.R. §541.201(b), which states in relevant part: “[w]ork 

directly related to . . . general business operations includes... 

quality control. . . and similar activities.” Plaintiffs counter 

they do not perform quality control work since “Provident has at 

least three quality control programs . . . . [that are] distinct 

from Plaintiffs‟ underwriting work.” (Pl. Opp‟n 6:27-7:6.)

It is uncontroverted that “Provident uses an outside 

company to perform quality control functions” and that Provident 

has internal quality control employees that “completely reunderwrite 10% of loans.” (Pl. SUF ¶¶ 47, 49.) However, it is 

also uncontroverted that Provident underwriters “must apply 

Provident‟s guidelines or lending criteria as well as agency 

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guidelines . . . to determine whether the particular loan falls 

within the level of risk Provident is willing to accept,” and 

this review comprises most of Plaintiffs‟ job duties. (Def. SUF 

¶¶ 10-11.) The task of determining whether a particular loan 

falls within the level of risk Provident is willing to accept 

“makes [an underwriter‟s] duties analogous to a quality control 

employee who prevents a defective product from being sold,”

notwithstanding Provident‟s use of additional quality controls.

Lutz, No. 2:12-cv-01091, 2014 WL 2890170, at *13. 

Since the primary duty of a Provident underwriter 

includes “quality control . . . [or] other similar activities,”

prescribed in 29 C.F.R. §541.201(b), Plaintiffs have not shown 

that their work is not or was not directly related to Provident‟s 

general business operations. Therefore, Plaintiffs‟ summary 

judgment motion is denied. 

2. Primary Duty Includes the Exercise of Discretion 

and Independent Judgment With Respect to Matters 

of Significance

Provident argues it should prevail on its motion

because each Plaintiff‟s “primary duty [includes, or] include[d,] 

the exercise of discretion and independent judgment with respect 

to matters of significance,” 29 C.F.R. § 541.200(a)(3); 

specifically, Provident argues solely that underwriters can 

“„waiv[e] or deviat[e] from [the guidelines] without prior 

approval‟ by declining to approve a loan that meets lending 

criteria and/or request[] exceptions in order to approve a loan 

that does not [meet lending criteria].” (Def. Mot. 21:5-10.) 

29 C.F.R. § 541.700 prescribes: “The term „primary 

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duty‟ means the principal, main, major or most important duty 

that the employee performs. Determination of any employee‟s 

primary duty must be based on all the facts in a particular case, 

with the major emphasis on the character of the employee‟s job as 

a whole.” 

It is uncontroverted that underwriters may place 

“conditions” on a loan application that satisfies Provident‟s

guidelines, and may decline to approve a loan unless or until the 

borrower satisfies those conditions. (Def. SUF ¶¶ 16, 19.) It is 

also uncontroverted that Plaintiffs may “request that Provident 

make an exception to the guidelines” to “make a loan that does 

not . . . [satisfy the] guidelines.” (Def. SUF ¶ 24.) However, 

Provident has not met its burden under the summary judgment 

standard of establishing that imposing conditions or requesting 

exceptions to the guidelines is, or was, part of Plaintiffs‟ 

primary duty. Therefore, Provident‟s motion is denied.

B. State Law Claims

Provident‟s summary judgment motion on its defense to 

McKeen-Chaplin‟s state law claim is premised on the argument that 

it would be granted summary judgment on its FLSA affirmative 

defense. However, since its motion concerning the FLSA was 

denied, the state law portion of its motion is also denied. 

IV. CONCLUSION

For the stated reasons, Plaintiffs‟ summary judgment is 

DENIED and Provident‟s motion is DENIED.

Dated: April 17, 2015

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