FYI: Ill App Ct Holds Filing Suit on Behalf of Unlicensed Debt Collector Does Not Violate FDCPA

The Illinois Court of Appeals, First District, recently affirmed the dismissal of a complaint alleging violations of the federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. (“FDCPA”) against a law firm that had filed a complaint on behalf of a debt collector which was not properly licensed in Illinois.

 

A copy of the opinion can be found at: http://www.state.il.us/court/Opinions/AppellateCourt/2014/1stDistrict/1123681.pdf

 

A debt collector retained the defendant law firm to file suit in Illinois on its behalf to collect against the debtor plaintiff.  At the time the collection action was filed, the debt collector was not licensed as required by Illinois Collection Agency Act, 225 ILCS 425/1, et seq. (“ICAA”).  The debtor filed a motion to dismiss in the debt collection action, and subsequently, the debtor and debt collector entered into a settlement agreement dismissing the debt collection action with prejudice. 

 

Following the dismissal of the debt collection action, the debtor filed a putative class action against the law firm alleging that the filing of the collection suit on behalf of the unlicensed debt collection agency violated the FDCPA.  Specifically, the debtor alleged that the law firm violated section 1692e, which provides in part that “ [a] debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt.”  15 U.S.C. § 1692e. 

 

The lower court granted the law firm’s motion to dismiss, ruling that the debtor’s FDCPA claims were premised solely upon the law firm’s alleged violation of the ICAA, but that the law firm was explicitly exempt from the ICAA.  The debtor appealed the dismissal, arguing that a law firm may be held liable under the FDCPA even though they are excluded under the ICAA.

 

In affirming the lower court’s dismissal, the Appellate Court rejected the debtor’s reliance upon LVNV Funding, LLC v. Trice, 2011 IL App (1st) 092773, in support of her claims that the law firm engaged in false or unfair debt collection practices.  In Trice, the Illinois First District Court of Appeals, found that “a complaint filed by an unregistered collection agency is … a nullity, and any judgment entered on such a complaint is void.  The subsequent registration of the collection agency does not absolve the agency of the crime of debt collection by an unregistered collection agency, and it does not validate judgment entered on the void complaint.”  Trice, at ¶ 19.  The decision in Trice is currently on appeal with the Illinois Supreme Court. 

 

The Appellate Court further held that the law firm did not violate the ICAA by filing the complaint on behalf of the unlicensed debt collector.  The Court explained that the ICAA defines “collection agency” or a “debt collector” as “any person who, in the ordinary course of business, regularly, on behalf of himself or herself or others, engages in debt collection.”  225 ILCS 425/2.  However, as noted by the Court, the ICAA specifically excludes from its definition “licensed attorneys at law”.  225 ILCS 425/2.03.  Because the law firm was exempt, the Court found that it committed no violation of the ICAA. 

 

The issue of whether the filing of a complaint could constitute a violation of the FDCPA was a matter of first impression for Illinois courts, and the Appellate Court looked for guidance on that issue from the federal courts. 

 

In doing so, the Appellate Court noted that the “FDCPA was designed to provide basic, overarching rules for debt collection activities; it was not meant to convert every violation of a state debt collection law into a federal violation.”  Carlson v. First Revenue Assurance, 359 F.3d 1015, 1018 (8th Cir. 2004). 

 

The Appellate Court found the U.S. District Court for the Northern District of Indiana’s decision in Fick v. American Acceptance Co., No. 3illCV299 2012 WL 1074288 (N.D. Inc. Mar. 28, 2012) to be particularly instructive.  In Fick, a debtor sued both the unlicensed debt collector and the law firm representing the debt collector, alleging that in filing the underlying collection suit the law firm was also a debt collector whose actions violated the FDCPA.  Id. at *1.  As the Appellate Court noted, the Fick court dismissed the debtor’s section 1692e claim against the law firm, holding that the section applies “to threats to take action that cannot legally be taken, but not illegal actions actually taken.”  Id. at *4.  Applying these same principals to the case at hand, the Appellate Court determined that the debtor’s FDCPA claims against the law firm cannot stand. 

 

The Appellate Court also noted with approval that federal cases have held that the act of filing a debt collection suit under various circumstances, without more, is not sufficient to state a claim under the FDCPA. 

 

Accordingly, the Appellate Court affirmed the lower court’s order dismissing the debtor’s complaint. 

 

 

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mwbllp.com

 

Admitted to practice law in Illinois

 

 

          McGinnis Wutscher Beiramee LLP

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FYI: NW Sup Ct Holds HLPA Not Preempted by National Bank Act, HLPA Requires "Ability to Repay" Analysis, Loan Owner Lacked Standing to Foreclose

The Supreme Court of New Mexico recently reversed and remanded a foreclosure action, with instructions to vacate the judgment of foreclosure and dismiss the action for lack of standing. 

 

In so ruling, the Court held that: (1) the foreclosing loan owner did not have standing to foreclose under a twice-indorsed note; (2) under the “reasonable, tangible net benefit” requirement of the New Mexico Home Loan Protection Act (“HLPA”), the lender must determine the borrower’s ability to repay the home mortgage loan; and  (3) the HLPA is not preempted by the National Bank Act.

 

A copy of the opinion is available at:  Link to Opinion

 

The borrowers (“Borrowers”) alleged that their originating lender urged them to refinance their home and access their equity to pay off other debts.  The loan was a No-Income-No-Asset loan extended in 2006, and the terms of the new loan were not an improvement over the Borrowers’ existing loan terms.  The Borrowers eventually defaulted under the new loan.  In April of 2008,  the asset securitization trust loan owner (hereinafter, the “Lender”) filed suit seeking to foreclose as the holder of the note and mortgage.

 

The Borrowers argued, among other things, that the Lender lacked standing to foreclose because nothing in the complaint established the Lender as the holder of the note and mortgage.  According to the Borrowers, Securities and Exchange Commission filings showed that their loan certificate series was once owned by another entity and not the Lender (the “Third Party”).  The Borrowers also raised several counterclaims, only one of which is relevant to this appeal:  that the loan supposedly violated the anti-flipping provisions of the New Mexico HLPA, Section 58-21A-4(B) (2003).

 

The Lender responded by providing:  (1) a document showing that MERS assigned the Borrowers' mortgage loan to Lender three months after the Lender filed the foreclosure complaint; and (2) the affidavit of a senior vice president for the servicer, stating that the original lender intended to transfer the note and assign the mortgage to the Lender prior to Lender’s filing of the foreclosure complaint.  However, the Lender admitted that the servicer did not begin servicing the Borrowers’ loan until seven months after the foreclosure complaint was filed.

 

At a bench trial, the servicer testified on behalf of the Lender and asserted that the Lender had physical possession of both the note and mortgage at the time it filed the foreclosure complaint.  The Borrowers objected and argued that the servicer lacked personal knowledge to make these claims given that servicer did not begin servicing for the Lender until after the foreclosure complaint was filed and the MERS assignment occurred. 

 

The Borrowers also pointed out that the copy of the "original" note purportedly authenticated by the servicer was different from the "original" note attached to the Lender's foreclosure complaint.  Although the note attached to the complaint as a true copy was not indorsed, the "original" admitted at trial was indorsed twice:  first, with a blank indorsement by the originating lender, and second, with a special indorsement made payable to the Third Party. 

 

The trial court determined that the servicer’s testimony and the assignment of the mortgage established the Lender as the proper holder of the Borrowers' note, and concluded that the loan did not violate the HLPA because the cash payment to the Borrowers provided a reasonable, tangible net benefit.  The trial court also determined that because the Lender was a national bank, the National Bank Act preempted the protections of the HLPA.

 

On appeal, the Court of Appeals affirmed the district court's rulings but did not address whether the National Bank Act preempted the HLPA.  The Supreme Court of New Mexico granted Borrowers’ petition for writ of certiorari.

 

First, the New Mexico Supreme Court considered the Lender’s argument that Borrowers waived their challenge of the Lender's standing by failing to provide the evidentiary support required by Rule 12-213(A)(3) NMRA.  The Court noted that, under New Mexico law, lack of standing is a potential jurisdictional defect which may not be waived and may be raised at any stage of the proceedings, even sua sponte by the appellate court.  Thus, the Court addressed the standing issue based on prudential concerns.

 

Under the New Mexico's Uniform Commercial Code (UCC), a lender must demonstrate that it had standing to foreclose at the time it filed suit.  Section 55-3-301 of the UCC provides three ways in which a third party can enforce a negotiable instrument such as a note: (i) the holder of the instrument, (ii) a nonholder in possession of the instrument who has the rights of a holder, or (iii) a person not in possession of the instrument who is entitled to enforce the lost, destroyed, stolen, or mistakenly transferred instrument.

 

The UCC recognizes two types of indorsements for the purposes of negotiating an instrument.  A blank indorsement, as its name suggests, does not identify a person to whom the instrument is payable but instead makes it payable to anyone who holds it as bearer paper.  See NMSA 1978, § 55-3-205(b) (1992).  By contrast, a special indorsement "identifies a person to whom it makes the instrument payable." Section 55-3-205(a).

 

Although the New Mexico Supreme Court agreed that if the Borrowers' note contained only a blank indorsement from the original lender, that blank indorsement would have established Lender as a holder because the Lender would have been in possession of bearer paper.  However, the Borrowers' note contained two indorsements – the indorsement in blank, and a special indorsement to the Third Party. 

 

The Court held that the restrictive, special indorsement to the Third Party established the Third Party as the proper holder of the Borrowers' note absent some evidence by Third Party to the contrary.  Because the Third Party did not subsequently indorse the note, either in blank or to the Lender, the Court held that the Lender could not establish itself as the holder of the Borrowers' note simply by possession.

 

Likewise, the Court also rejected the Lender’s argument that it was entitled to enforce the Borrowers’ note as a non-holder in possession of the instrument.  The servicer did not begin servicing for the Lender until seven months after the foreclosure was initiated.  Therefore, the New Mexico Supreme Court held that the servicer had no personal knowledge to support its testimony regarding the transfer of the note and such evidence in inadmissible for lack of personal knowledge.  Furthermore, the Court noted that the assignment by MERS did not explain the conflicting special endorsement to the Third Party.  The assignment was also executed three months after the filing of the foreclosure suit, and the Court held that nothing in the record substantiated the Lender’s claim that the MERS assignment memorialized an earlier transfer to Lender.

 

Accordingly, because the Court held that the Lender did not introduce evidence demonstrating that it was a party with the right to enforce the Borrowers' note either by an indorsement or proper transfer, the Court concluded that the Lender did not have standing to initiate foreclosure at the time it the complaint was filed.

 

Second, the New Mexico Supreme Court turned to the issue of the alleged violation of the HLPA, under which lenders are required to consider a borrower’s ability to repay under the “antiflipping” provisions:

 

“No creditor shall knowingly and intentionally engage in the unfair act or practice of flipping a home loan. As used in this subsection, ‘flipping a home loan’ means the making of a home loan to a borrower that refinances an existing home loan when the new loan does not have reasonable, tangible net benefit to the borrower considering all of the circumstances, including the terms of both the new and refinanced loans, the cost of the new loan and the borrower's circumstances.” 

 

Section 58-21A-4(B) (2003).

 

In 2004, regulations were adopted to clarify that "[t]he reasonable, tangible net benefit standard in Section 58-21A-4 B NMSA 1978, is inherently dependent upon the totality of facts and circumstances relating to a specific transaction," 12.15.5.9(A) NMAC, and that "each lender should develop and maintain policies and procedures for evaluating loans in circumstances where an economic test, standing alone, may not be sufficient to determine that the transaction provides the requisite benefit," 12.15.5.9(B) NMAC. 

 

The Lender argued that it was not required to ask the borrowers for proof of their income, but rather that the Borrowers were required to provide it.  In rejecting this argument, the Court stated that “[a] lender's willful blindness to its responsibility to consider the true circumstances of its borrowers is unacceptable. A full and fair consideration of those circumstances might well show that a new mortgage loan would put a borrower into a materially worse situation with respect to the ability to make home loan payments and avoid foreclosure, consequences of a borrower's circumstances that cannot be disregarded.”

 

The Court further explained that the HLPA was enacted to prevent the kinds of practices the Borrowers alleged:  actively soliciting vulnerable homeowners and offering tempting incentives such as up-front cash to induce them to refinance their mortgages with unfavorable terms or without regard for the borrowers' ability to repay the loans and avoid loss of their homes. Whether the Borrowers' allegations were true and accurate was not before the New Mexico Supreme Court, but the Court held that “a court must consider the allegations in order to determine whether the lender violated the HLPA.”

 

Third, the Court considered whether the National Bank Act preempted the protections of the HLPA.

 

The Lender argued that the National Bank Act preempts the HLPA.  In fact, the Lender noted that the regulatory provisions of the New Mexico Regulation and Licensing Department's Financial Institutions Division recognize that "[e]ffective February 12, 2004, the [federal Office of the Comptroller of Currency] published a final rule that states, in pertinent part: `state laws that obstruct, impair, or condition a national bank's ability to fully exercise its federally authorized real estate lending powers do not apply to national banks' (the `OCC preemption')" and concluding that "[b]ased on the OCC preemption, since January 1, 2004, national banks in New Mexico have been authorized to engage in certain banking activities otherwise prohibited by the [HLPA]." 12.16.76.8(G)-(H) NMAC.

 

The Court again disagreed, finding that neither the Lender nor the New Mexico administrative code addressed the actions taken by Congress since 2004 to in the Court’s words “disavow the OCC's broad preemption statement.”

 

The New Mexico Supreme Court noted that, in 2010, Congress explicitly clarified state law preemption standards for national banks in Pub. L. No. 111-203, § 1044, 124 Stat. 1376 (2010) of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The Court held that preemption of state consumer financial laws under the Dodd-Frank Act occurs in only three circumstances: (1) if application of the state law "would have a discriminatory effect on national banks, in comparison with the effect of the law on a bank chartered by that State," (2) in accordance with the legal standard set forth in Barnett Bank of Marion Cnty., N.A. v. Nelson, 517 U.S. 25 (1996), when the state law "prevents or significantly interferes with the exercise by the national bank of its powers," or (3) by explicit federal preemption.  See id.; 12 U.S.C.A. § 25b(b)(1)(A)-(C) (2010).

 

Even though the loan was extended in 2006, and the foreclosure filed in 2008, the Court held that “[n]either Dodd-Frank nor the corrected OCC regulations [from July of 2011] created new law concerning the scope of national bank preemption but instead clarified preexisting requirements of the NBA and the 1996 opinion of the United States Supreme Court in Barnett.” 

 

Applying the Dodd-Frank standard to the HLPA, the Court concluded that the National Bank Act does not preempt the HLPA. 

 

First, the Court held that the National Bank Act reveals no express preemption of state consumer protection laws such as the HLPA.  Second, the Court held that the Lender provided no evidence that conforming to the dictates of the HLPA prevents or significantly interferes with a national bank's operations.  Third, the Court held that the HLPA does not create a discriminatory effect; rather, the HLPA applies to any "creditor," which the 2003 statute defines as "a person who regularly [offers or] makes a home loan." Section 58-21A-3(G) (2003). 

 

Thus, the Court concluded that “[a]ny entity that makes home loans in New Mexico must follow the HLPA, regardless of whether the lender is a state or nationally chartered bank.”  See § 58-21A-2 (providing legislative findings on abusive mortgage lending practices that the HLPA is meant to discourage).

 

Accordingly, the Court held that the HLPA is a state law of general applicability that is not preempted by the National Bank Act.  The Court further recommended that New Mexico's Administrative Code be updated to reflect clarifications of preemption standards since 2004.

 

The Court reversed the decisions below and remanded the matter to the trial court with instructions to vacate its judgment of foreclosure and dismiss the foreclosure.

 

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mwbllp.com

 

Admitted to practice law in Illinois

 

 

          McGinnis Wutscher Beiramee LLP

CALIFORNIA    |  FLORIDA   |   ILLINOIS   |   INDIANA   |   WASHINGTON, D. C.

                                www.mwbllp.com

 

 

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FYI: 11th Cir Holds Superseding Deposit Accnt Agreement Rendered Arbitration Clause in Prior Agreement Ineffective, Despite Silence as to Arbitration

In one of the Checking Account Overdraft MDL proceedings, the U.S. Court of Appeals for the Eleventh Circuit recently held that a superseding deposit account agreement rendered a prior deposit account agreement's arbitration provision ineffective, despite the fact that the superseding agreement was silent as to arbitration provisions. 

 

A copy of the opinion is available at:  http://www.ca11.uscourts.gov/opinions/ops/201310257.pdf.

 

A consumer sued a bank for allegedly charging excessive overdraft fees in breach of the relevant account agreement.  That agreement included an arbitration clause, and further provided that if the agreement was amended -- by the bank or its successor -- the most current version "supersedes all prior versions and will at all times govern." 

 

While the action was pending, the bank ("bank") was acquired by another entity (the "successor bank").  The successor bank issued a new agreement to govern the consumer's account, which the consumer accepted.  The new agreement was silent as to arbitration. 

 

The bank filed a motion to compel arbitration.  The lower court denied the motion, holding that the new agreement superseded the previous agreement, such that the arbitration provision in the previous agreement was of no consequence.  The bank appealed. 

 

On appeal, the bank argued among other things that (1) that the Federal Arbitration Act, 9 U.S.C. Sec. 1 et seq. ("FAA") creates a presumption in favor of arbitrability that the lower court failed to apply; and (2) that the new agreement's silence as to arbitration could not invalidate the previous agreement's arbitration provision. 

 

The Eleventh Circuit considered each argument in turn, and began by reciting that the FAA provides that doubts as to the scope of arbitrable issues should be resolved in favor of arbitration. 

 

However, the Court found that principle to be unhelpful in resolving the instant matter, in that here the parties did not dispute the scope of arbitrable issues, but rather whether an agreement to arbitrate exists at all.  According, the Eleventh Circuit determined that the "district court properly refused to apply the FAA's presumption in favor of arbitrability." 

 

The Eleventh Circuit next considered whether the new agreement's silence as to arbitration invalided the previous agreement's arbitration provision.  It answered in the affirmative, relying on the fact that the previous agreement's amendment clause provided that the "most current version of the Agreement supersedes all prior versions and will at all times govern."  Accordingly, the Eleventh Circuit held that by issuing a new agreement, the parties entirely superseded all prior agreements per the terms of the previous agreement. 

 

The bank argued that even if the previous agreement might have been superseded, arbitration clauses can only be waived by clear and explicit language, and cannot be waived by silence. 

 

The Eleventh Circuit again disagreed, finding that the instant matter did not involve a waiver of an arbitration clause, but rather involved "superseding the entire agreement containing an arbitration provision and replacing that provision with silence."  The Eleventh Circuit also observed that the bank's contention would lead to the "implausible conclusion" that where parties agree to supersede a prior agreement, the superseding language applies to all terms of the prior agreement save for those regarding arbitration provisions. 

 

The bank further argued that a significant body of case law provides that arbitration provisions cannot be waived by silence.  However, the Eleventh Circuit distinguished all of the cases cited by the bank, finding that in each case, "the prior agreement remained effective to some extent...whereas here, the prior agreement is entirely superseded." 

 

Accordingly, the Eleventh Circuit held that "an entirely superseding agreement renders a prior agreement's arbitration clause ineffective, even if the superseding agreement is silent on arbitration."

 

 

 

 

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mwbllp.com

 

Admitted to practice law in Illinois

 

 

          McGinnis Wutscher Beiramee LLP

CALIFORNIA    |  FLORIDA   |   ILLINOIS   |   INDIANA   |   WASHINGTON, D. C.

                                www.mwbllp.com

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.

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FYI: ED Va Rules in Favor of Mortgage Lender in FLSA Overtime Case

The U.S. District Court for the Eastern District of Virginia recently granted a mortgage lender’s motion for summary judgment as to a former employee’s overtime allegations under the federal Fair Labor and Standard Act (“FLSA”), ruling that the mortgage loan officer plaintiff was exempt from the FLSA’s minimum wage and overtime requirements.

 

The Court also ruled that misclassifying an employee for FLSA purposes is not a willful violation that triggers the FLSA’s three-year statute of limitations.

 

A copy of the opinion is available at:  Link to Opinion

 

A former mortgage loan officer employee (“Plaintiff”) filed a complaint against his former mortgage lender employer (“Defendant”) for alleged violations of FLSA.  Specifically, Plaintiff alleged that Defendant misclassified him as an “exempt” employee under FLSA, and therefore improperly failed to pay him minimum wage and overtime compensation. 

 

Defendant moved for summary judgment arguing that under the “outside sales exemption,” Plaintiff was exempt from FLSA’s overtime and minimum wage requirements. Defendant also argued that all of Plaintiff’s claims were time barred under the FLSA’s two-year statute of limitations for “ordinary violations.”

 

The Court first examined Defendant’s statute of limitations argument.  Under FLSA, there is a two-year statute of limitations for ordinary violations, and a three-year statute of limitations for willful violations.  If Plaintiff’s claim was found to be an ordinary violation, it would be barred under the two-year statute of limitations as he ceased working on October 16, 2009 and did not file suit until January 6, 2012.  Thus, Plaintiff argued that Defendant’s violations were willful and were done with a reckless disregard for his rights. 

 

Specifically, Plaintiff claimed that Defendant knew or had reason to know that he was not a non-exempt employee. The Court noted that other courts have found that employers willfully violate FLSA when “they ignore specific warnings that they were out of compliance, destroyed or withheld records to block investigations into their employment practices, or split employees’ hours between two companies’ books to conceal their overtime work.” Herman v. Palo Grp. Foster Home, Inc. 183 F.3d 468, 474 (6th Cir. 1999).

 

However, the Court also noted that “an incorrect assumption that a pay plan complies with FLSA does not meet the criteria for a willful violation.” Terwilliger v. Home of Hope Inc., 21 F. Supp. 2d 1305, 1308 (N.D. Okla. 1998)

 

Based on the above-cited law, the Court determined that Defendant’s violations were not willful.   As a result, Plaintiff’s claims were time barred under the two-year statute.  The Court based its decision on the fact Plaintiff failed to show that Defendant’s other loan officers claimed they were entitled to overtime compensation, or that Defendant was on notice that its loan officers might be entitled to overtime pay. 

 

Moreover, the court noted that the Department of Labor recently concluded that loan officers generally fall under the outside sales exemption. 

 

Plaintiff attempted to argue that Defendant acted with reckless disregard by alleging Defendant did not track his working hours.  The Court rejected this argument stating Defendant’s failure to keep contemporaneous record of Plaintiff’s work activities does not suggest Defendant acted with an awareness or reckless disregard of Plaintiff’s non-exempt status.

 

Plaintiff next argued that Defendant’s violations were willful because Defendant did not individually assess the exempt status of each loan officer.  The Court rejected this argument, ruling that it is “unrealistic to suggest that an employer is obligated to conduct a review of the activities of each individual employee in order to rely on an exemption in cases such as this.”  The Court also held that Plaintiff failed to show that Defendant’s failure to make an individual assessment did not rise to the level of recklessness needed to show a willful violation.

 

In addition to finding that Plaintiff’s claims were time barred, the Court still examined whether Plaintiff was exempt under the “outside sales exemption.”  The FLSA exempts employees from minimum wage and overtime requirements if an employee is categorized as an outside sales person.

 

As you may recall, an outside sales person is defined as an employee:

 

(1)Whose primary duty is:

 

      (i)   making sales . . ., or

 

(ii) obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and

 

(2) Who is customarily and regularly engaged away from the employer's place or places of business in performing such primary duty.

 

As to the primary duty prong of “making sales,” the FLSA defines sale or sell “as any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition.” The term “primary duty” is defined to mean “the principal, main, major or most important duty that the employee performs.”  29 C.F.R. section 541.700(a). 

 

As to the second prong, “the phrase customarily and regularly means a frequency that must be greater than occasional but which, of course, may be less than constant.” An outside sales employee must be customarily and regularly engaged “away from the employer’s place of business.”  This means an outside sales employee “is an employee who makes sales at the customer’s place of business or, if selling door to door, at the customer’s home.”  Sales made by mail, telephone or the Internet are not included in the definition of “outside sales.”

 

It was undisputed that Plaintiff’s main duty was to make sales within the meaning of the outside sales exemption.  Thus, the Court only examined whether Plaintiff “customarily and regularly” engaged in exempt sales activities away from Defendant’s offices.

 

In determining whether Plaintiff customarily and regularly engaged in exempt sales activities, the Court examined Plaintiff’s deposition testimony. Plaintiff’s testimony revealed he spent a significant amount of time each week away from the office engaging in sales related activities including meeting with realtors, networking with potential customers, and preforming seminars. The Court held these activities were sufficient to trigger the exemption “as it is the nature of the time spent outside the office, rather than the amount of time” spent outside the office.

 

Plaintiff argued that loan officers qualify for the outside sales exemption only if they customarily and regularly make sales to borrowers’ home or places of businesses. The Court rejected Plaintiff’s argument, holding that this was too narrow of an interpretation of the exemption and noting that other courts have rejected similar interpretations in the past.

 

Therefore, because the Court held that Defendant met both prongs of the “outside sales exemption,” the Court granted Defendant’s summary judgment motion and dismissed Plaintiff’s complaint.

 

 

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mwbllp.com

 

Admitted to practice law in Illinois

 

 

          McGinnis Wutscher Beiramee LLP

CALIFORNIA    |  FLORIDA   |   ILLINOIS   |   INDIANA   |   WASHINGTON, D. C.

                                www.mwbllp.com

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.

Our updates are available on the internet, in searchable format, at:
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