Frank Foster v. Nationwide Mutual Insurance Co.

RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit I.O.P. 32.1(b)

File Name: 13a0073p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

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X

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FRANK FOSTER, on behalf of himself and all

Plaintiffs-Appellants, --

others similarly situated, et al.,

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No. 12-3107

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>

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v.

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NATIONWIDE MUTUAL INSURANCE

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COMPANY,

Defendant-Appellee. N

Appeal from the United States District Court

for the Southern District of Ohio at Columbus.

No. 2:08-cv-20—Edmund A. Sargus, Jr., District Judge.

Argued: January 23, 2013

Decided and Filed: March 21, 2013

Before: GUY, SUTTON, and COOK, Circuit Judges.

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COUNSEL

ARGUED: Matthew H. Morgan, NICHOLS KASTER, PLLP, Minneapolis, Minnesota,

for Appellant. James J. Oh, LITTLER MENDELSON, P.C., Chicago, Illinois, for

Appellee. ON BRIEF: Matthew H. Morgan, Paul J. Lukas, Reena I. Desai, Rebekah L.

Bailey, Adam W. Hansen, NICHOLS KASTER, PLLP, Minneapolis, Minnesota, for

Appellant. James J. Oh, LITTLER MENDELSON, P.C., Chicago, Illinois, Andrew J.

Voss, LITTLER MENDELSON, P.C., Minneapolis, Minnesota, Tracy Stott Pyles,

LITTLER MENDELSON, P.C., Columbus, Ohio, for Appellee.

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OPINION

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RALPH B. GUY, JR., Circuit Judge. Plaintiffs, ninety-one current and former

special investigators (SIs) employed by Nationwide Mutual Insurance Company, appeal

from the judgment entered against them with respect to their collective claims that

1

No. 12-3107 Foster, et al. v. Nationwide Mutual Ins. Co. Page 2

Nationwide improperly classified SIs as administrative employees exempt from the

overtime requirements of the Fair Labor Standards Act (FLSA) (29 U.S.C. §§ 207 and

213(a)(1)) and analogous provisions of New York and California law. Plaintiffs

challenge the partial summary judgment entered in favor of Nationwide, Foster v.

Nationwide Mut. Ins. Co., 695 F. Supp. 2d 748 (S.D. Ohio 2010), as well as resolution

of the remaining issues in favor of Nationwide following a seven-day bench trial, Foster

v. Nationwide Mut. Ins. Co., No. 08-CV-020, 2012 WL 407442 (S.D. Ohio Jan. 5, 2012)

(unpublished). Finding no error in the district court’s careful and thorough analysis, we

affirm.

I.

Nationwide is an insurance company in the business of providing a wide range

of insurance coverage, including vehicle, property, commercial, and life insurance

products. Its corporate structure includes a Special Investigation Unit (SIU) that is

divided into geographical regions, each of which is led by an SIU Director who

supervises a group of SIU managers who, in turn, supervise the SIs. The SIU operates

alongside the claims-adjusting units, which are likewise led by a director who oversees

claims managers and claims adjusters. As Nationwide’s internal document described it,

the SIU “‘exists to service its corporate partners by providing the highest quality and

expedient investigative, informational and consulting services to detect and deter fraud

and to support other objectives of Nationwide.’” Foster, 2012 WL 407442, at *2

(quoting Joint Ex. 2 at 1). The SIU’s work is aimed at reducing the number of non-

meritorious claims that are paid in order to keep Nationwide’s insurance products

competitively priced.

About one percent of the roughly one million claims filed on Nationwide policies

each year are identified by claims adjusters as presenting certain “indicators of fraud.”

Those claims are referred to the SIU and, if accepted, are assigned to an SI for

investigation. SIs are well compensated with an average annual salary of $75,000; are

generally experienced investigators with prior background in law enforcement or

insurance claims; and, as the evidence established at trial, “spend the majority, if not an

No. 12-3107 Foster, et al. v. Nationwide Mutual Ins. Co. Page 3

overwhelming majority, of their time carrying out investigations of suspicious claims.”

Id. at *19. Due to various state law licensing requirements for claims adjusters (CAs)

and concerns about possible litigation, Nationwide precludes its SIs from actually

adjusting such claims or making decisions whether to pay or deny the claims. Together

the SI and CA develop a plan of action for the investigation, which the SI then conducts

relatively free from direct supervision but subject to guidelines and strict auditing

standards. The SIs’ primary duty is conducting the investigations, but the parties

disputed “the degree of autonomy, discretion, and judgment exercised by the SIs in

carrying out the various tasks that comprise a given investigation and the level of

significance that should be attributed to the various tasks.” Id. at *3.

The FLSA requires overtime pay for each hour worked in excess of forty hours

per week, but exempts “any employee employed in a bona fide executive, administrative,

or professional capacity.” 29 U.S.C. § 213(a)(1). Congress did not define these

exemptions, but delegated authority to the Department of Labor (DOL) to issue

regulations to define and delimit these terms. Id.; see Christopher v. SmithKline

Beecham Corp., 132 S. Ct. 2156, 2162 (2012). The current regulations, reissued and

streamlined with minor amendments in 2004, provide that the administrative exemption

covers employees:

(1) Compensated . . . at a rate of not less than $455 per week . . . ;

(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). The exemption is to be narrowly construed against the

employer, and the employer bears the burden of proving each element by a

preponderance of the evidence. Renfro v. Indiana Mich. Power Co. (Renfro II), 497 F.3d

573, 575-7 (6th Cir. 2007).

No. 12-3107 Foster, et al. v. Nationwide Mutual Ins. Co. Page 4

In deciding the motions for summary judgment, the district court addressed all

three elements of the administrative exemption. The first element is unquestionably met

in this case, and plaintiffs do not argue otherwise. The district court further found that

whatever the precise scope of the SIs’ primary duty, the second element was also met

because the SIs’ primary duty is the performance of work “directly related” to the

“general business operations” of Nationwide. Foster, 695 F. Supp. 2d at 755-58. The

district court denied summary judgment with respect to the third element, finding that

the evidence in the record presented a genuine issue of material fact whether the SIs’

“primary duty includes the exercise of discretion and independent judgment with respect

to matters of significance.” 29 C.F.R. § 541.200(a)(3); see Foster, 695 F. Supp. 2d at

758-63. Finally, the district court found that these conclusions applied equally to those

claims brought under New York and California law.1

After further discovery, plaintiffs waived their right to jury trial and the district

court presided over a bench trial that included considerable focus on the work performed

by Nationwide’s SIs. Since the evidence admitted at trial—which included the

testimony of more than fifteen witnesses and voluminous exhibits—is fully summarized

by the district court, we do not repeat it here. Foster, 2012 WL 407442, at *4-18. Based

on that evidence, the district court made the factual determination that “the primary duty

of Nationwide’s SIs is to conduct investigations into suspicious claims with the purpose

or goal of resolving indicators of fraud present in those claims.” Id. at *19. The SIs

uniformly described the tasks of their investigations as including: “resolving the

indicators of fraud, gathering information, taking statements, interviewing witnesses,

making referrals to law enforcement and the [National Insurance Crime Bureau (NICB)],

recommending the retention of outside vendors [such as accident reconstruction or fire

origin experts], supervising outside vendors, and recommending and [sometimes]

conducting [Examinations Under Oath (EUOs)].” Id. at *20.

1

Plaintiffs conceded that the dozen or so claims arising under New York law are

analyzed the same as those under the FLSA, but separately argued the fifteen or so claims

brought under similar but not identical provisions of California law.

No. 12-3107 Foster, et al. v. Nationwide Mutual Ins. Co. Page 5

Significantly, in determining the parameters of the SIs’ primary duty, the district

court expressly rejected plaintiffs’ contention that the investigations involve merely

gathering and reporting facts because that “formulation is too narrow as it leaves out the

resolution of fraud indicators, which the Court concludes is supported by the evidence

as being a component of the primary duty.” Id. at *20. After analyzing the available

authority addressing the third element, the district court found that “the SIs’ primary

duty includes the exercise of discretion and independent judgment with respect to

matters of significance in at least two distinct ways.” Id. at *25. The two ways are, first

and most importantly, resolving the indicators of fraud and, second, deciding when to

refer claims to law enforcement and the NICB. Id. at *25-28. Finally, the district court

separately considered the claims brought under California law, set forth the relevant

regulations, and concluded that Nationwide also met its burden of establishing the

requirements of California’s similar but not identical administrative employee

exemption. Id. at *28-30. Judgment was entered in favor of Nationwide, and this appeal

followed.

II.

We review the district court’s decision granting partial summary judgment de

novo. Renfro II, 497 F.3d at 575; Schaefer v. Indiana Mich. Power Co., 358 F.3d 394,

399 (6th Cir. 2004). After a bench trial, we review the district court’s factual findings

for clear error and its conclusions of law de novo. FED. R. CIV. P. 52(a)(6); Anderson

v. City of Bessemer City, 470 U.S. 564, 573-74 (1985).

A. FLSA’s Administrative Employee Exemption

At the outset, plaintiffs argue that the DOL’s general regulations broadly provide

that “investigators” do not qualify for the administrative employee exemption. In fact,

the general regulations caution that a job title alone is not determinative of an

employee’s exempt or non-exempt status. See 29 C.F.R. § 541.2. Further, plaintiffs’

reliance on the highlighted language from the following general regulation is misplaced:

No. 12-3107 Foster, et al. v. Nationwide Mutual Ins. Co. Page 6

The section 13(a)(1) exemptions and the regulations in this part also do

not apply to police officers, detectives, deputy sheriffs, state troopers,

highway patrol officers, investigators, inspectors, correctional officers,

parole or probation officers, park rangers, fire fighters, paramedics,

emergency medical technicians, ambulance personnel, rescue workers,

hazardous materials workers and similar employees, . . . who perform

work such as preventing, controlling or extinguishing fires of any type;

rescuing fire, crime or accident victims; preventing or detecting crimes;

conducting investigations or inspections for violations of law;

performing surveillance; pursuing, restraining and apprehending

suspects; detaining or supervising suspected and convicted criminals,

including those on probation or parole; interviewing witnesses;

interrogating and fingerprinting suspects; preparing investigative

reports; or other similar work.

29 C.F.R. § 541.3(b)(1) (emphasis added). We agree with the district court that, read in

context, this limitation on the application of all three of the exemptions must be

understood to pertain to law enforcement and public safety personnel and not to the SIs

employed by Nationwide. As the district court explained, this conclusion is confirmed

by the fact that the DOL’s stated purpose for adopting this provision was to clarify that

“police officers, fire fighters, paramedics, EMTs and other first responders are entitled

to overtime pay.” Foster, 695 F. Supp. 2d at 757-58 (quoting 69 Fed. Reg. 22122-01,

at 22129 (Apr. 23, 2004) (emphasis added)). With that, we turn to the regulations

defining the second and third elements of the administrative exemption.

1. General Business Operations

Plaintiffs contend that the district court erred as a matter of law in finding that

the SIs’ primary duty includes the performance of work “directly related” to

Nationwide’s “general business operations.” 29 C.F.R. § 541.200(a)(2). The DOL

regulations explain that this “refers to the type of work performed by the employee.” 29

C.F.R. § 541.201(a). “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.” Id. This is often referred to as the

administrative-production dichotomy, under which production employees (whose job it

No. 12-3107 Foster, et al. v. Nationwide Mutual Ins. Co. Page 7

is to generate the product or service the business offers to the public) will not qualify for

the exemption. See Schaefer, 358 F.3d at 402. Not all work is classified as either

production or administrative, as this dichotomy does not fit all cases. Id. at 402-03; see

also Renfro v. Indiana Mich. Power Co. (Renfro I), 370 F.3d 512, 517 (6th Cir. 2004)

(“When employees engage in work that is ‘ancillary to an employer’s [or the employer’s

customer’s] principal production activity,’ those employees are administrative.”)

(citation omitted)).

Plaintiffs renew the argument that SIs are engaged in day-to-day production work

because Nationwide’s “business” is actually selling the promise of asset protection.

However, the record supports the district court’s rejection of that characterization and

its determination that Nationwide is in the business of creating and marketing insurance

policies to the public. See Cheatham v. Allstate Ins. Co., 465 F.3d 578, 585 (5th Cir.

2006) (holding insurance company’s business is to produce policies); Jastremski v.

Safeco Ins. Cos., 243 F. Supp. 2d 743, 753 (N.D. Ohio 2003) (same). Since the SIs do

not write or sell insurance policies, the district court did not err in concluding that the

SIs “cannot be fairly characterized as ‘production’ employees.” Foster, 695 F. Supp. 2d

at 756.2

The question remains whether the SIs’ primary duty to conduct investigations

into suspicious claims is “directly related to assisting with the running or servicing of

the business.” 29 C.F.R. § 541.201(a); see Foster, 695 F. Supp. 2d at 756. The

regulations describe work directly related to management or business operations as

including, but not limited to, “work in functional areas such as tax; finance; accounting;

budgeting; auditing; insurance; quality control; purchasing; procurement; advertising;

2

Although plaintiffs rely on Gusdonovich to argue that insurance investigators are

production employees, that court’s reasoning rests squarely on the fact that the employer was

in the business of conducting investigations for insurance companies and other clients.

Gusdonovich v. Bus. Info. Co., 705 F. Supp. 262, 265 (W.D. Pa. 1985); see also Reich v. New

York, 3 F.3d 581, 587 (2d Cir. 1993) (finding police investigator nonexempt because employer

in law enforcement business and primary function is to conduct criminal investigations).

Similarly, the string of DOL Opinion Letters plaintiffs relied upon for the proposition that

investigators are production employees each involved investigations that “comprised the core

business function of the employer.” Foster, 695 F. Supp. 2d at 757.

No. 12-3107 Foster, et al. v. Nationwide Mutual Ins. Co. Page 8

marketing; research; safety and health; personnel management; human resources;

employee benefits; labor relations; public relations, government relations; computer

network, internet and database administration; legal and regulatory compliance; and

similar activities.” 29 C.F.R. § 541.201(b). Although not specifically mentioned, an

insurance company’s investigation of suspicious claims is similar to some of these

functional areas.

In fact, Nationwide argues that the SIs’ work overlaps that of insurance claims

adjusters, which are identified, by way of example, as satisfying both the second and

third elements of the administrative exemption. Specifically:

Insurance claims adjusters generally meet the duties requirements

[elements two and three] for the administrative exemption, whether they

work for an insurance company or other type of company, if their duties

include activities such as interviewing insureds, witnesses, and

physicians; inspecting property damage; reviewing factual information

to prepare damage estimates; evaluating and making recommendations

regarding coverage of claims; determining liability and total value of a

claim; negotiating settlements; and making recommendations regarding

litigation.

29 C.F.R. § 541.203(a). This supports the conclusion that claims adjusting work

performed for an insurance company is ancillary to an insurance company’s primary

production activity. See, e.g., Roe-Midgett v. CC Servs., Inc., 512 F.3d 865, 872 (7th

Cir. 2008) (holding claims adjusting work performed for client insurance companies was

ancillary to the production of insurance by the employer’s clients). Although

Nationwide severed some of these activities from the investigative work of the SIs, the

SIs’ work remains integral to the claims adjusting function, is performed in partnership

with the CAs, and involves making findings that bear directly on the CAs decisions to

pay or deny a claim.

We agree with the district court’s conclusion that just as claims adjusting is

ancillary to Nationwide’s general business operations, the SIs’ investigative work that

drives the claims adjusting decisions with respect to suspicious claims is also directly

related to assisting with the servicing of Nationwide’s business. See, e.g., Mullins v.

No. 12-3107 Foster, et al. v. Nationwide Mutual Ins. Co. Page 9

Target Corp., No. 09-c-7573, 2011 WL 1399262, at *5 (N.D. Ill. April 13, 2011)

(finding employee who investigates fraud and theft was assisting in servicing the

employer’s primary business). Despite plaintiffs’ argument that this interpretation will

cause the exemption to swallow the rule, the significance of the SIs’ work to this

servicing function belies that claim. The district court did not err in concluding that

“investigative services performed in direct furtherance of claims adjusting efforts”

satisfies the second element of the administrative exemption. Foster, 695 F. Supp. 2d

at 758.

2. Discretion and Independent Judgment on Matters of Significance

Plaintiffs contend that the district court articulated the proper inquiry in denying

summary judgment on this element, but then erred after trial by departing from its own

rubric in determining that Nationwide had established that the SIs’ “primary duty

includes the exercise of discretion and independent judgment with respect to matters of

significance.” 29 C.F.R. § 541.200(a)(3). The regulations explain that “discretion and

independent judgment involves the comparison and evaluation of possible courses of

conduct, and acting or making a decision after the various possibilities have been

considered,” 29 C.F.R. § 541.202(a), and requires “more than the use of skill in applying

well-established techniques, procedures or specific standards in manuals or other

sources,” 29 C.F.R. § 541.202(e). The term “‘matters of significance’ refers to the level

of importance or consequence of the work performed.” 29 C.F.R. § 541.202(a).

Nationwide argues that the SIs’ investigative work is akin to that of claims

adjuster duties that the DOL describes as generally meeting the duties requirements in

29 C.F.R. § 541.203(a). See Roe-Midgett, 512 F.3d at 874 (finding material damage

appraisers administratively exempt). Plaintiffs, on the other hand, argue that the SIs’

work is more like public inspectors and investigators who are not exempt “because their

work involves the use of skills and technical abilities in gathering factual information,

applying known standards or prescribed procedures, determining which procedure to

follow, or determining whether prescribed standards or criteria are met.” 29 C.F.R.

§ 541.203(j); see Opinion Letter from Dept. of Labor, Wage & Hour Div. (Aug. 19,

No. 12-3107 Foster, et al. v. Nationwide Mutual Ins. Co. Page 10

2005) 2005 WL 3308592 (employee conducting background investigations for security

clearance purposes for employer’s customer did not satisfy either of the duties

requirements). Resolution of this question turns on the district court’s factual findings

concerning the work that comprises the SIs’ primary duty to conduct investigations into

those claims that present “indicators of fraud.”

Plaintiffs continue to argue that by separating the claims adjusting decisions from

the investigative duties and subjecting the SIs’ work to guidelines and extensive quality

control and auditing standards (i.e., Accelerated Claims Excellence (ACE), Quality

Assurance (QA), and File Review Questions (FRQ)), Nationwide stripped the SIs of

tasks that involved any exercise of discretion and independent judgment with respect to

matters of significance. In determining “whether an employee, constrained by guidelines

and procedures, actually exercises any discretion or independent judgment, we consider

whether those guidelines and procedures contemplate independent judgment calls or

allow for deviations.” Renfro II, 497 F.3d at 577 (citations omitted). The district court

summarized the constraints on the SIs as follows:

While ACE contemplates the application of a certain measure of

knowledge and skill, at the same time, it contemplates independent

judgment calls and allows for deviations. ACE does not appear to

transform a fraud investigation into a formulaic or purely mechanical

endeavor. In fact, many of the FRQs that comprise ACE are geared

towards promoting efficiency, proper documentation, and effective

communication. The FRQs that do speak to specific investigative tasks

are primarily concerned with whether the information elicited is

“relevant” and “appropriate.” It is left to the Special Investigator to

decide things such as who to interview, what documents to review, what

leads to pursue, and similar tactical matters. Though some direction is

provided by the Special Investigator’s action plan—which defines the

scope of the investigation and to which ACE requires

adherence—Special Investigators are integrally involved in developing

such action plans for their respective investigations. Moreover, ACE

permits Special Investigators to deviate from their action plans so long

as they document the changes in Nationwide’s electronic claims system.

Foster, 695 F. Supp. 2d at 761. Despite plaintiffs’ assertion to the contrary, the district

court expressly recognized that, as explained in the 2005 DOL Opinion Letter, the SIs’

No. 12-3107 Foster, et al. v. Nationwide Mutual Ins. Co. Page 11

discretion with respect to the logistics of the investigation does not involve the level of

discretion and judgment required to satisfy this requirement because it does not relate

to “matters of significance.” Id. However, the district court also found that there were

genuine issues of material fact “whether Nationwide’s Special Investigators make far

weightier determinations—determinations that do relate to matters of significance and

that cannot be arrived at by simply applying knowledge and skills to ACE guidelines.”

Id.3

As discussed earlier, the district court made the factual determination that an SI’s

primary duty is not simply to gather and report facts but “to conduct investigations into

suspicious claims with the purpose or goal of resolving indicators of fraud present in

those claims.” Foster, 2012 WL 407442, at *19. The district court also found that the

task of resolving the indicators of fraud involves the exercise of discretion and

independent judgment with respect to matters of significance. Id. at *25. The district

court explained, in part, as follows:

Turning to the resolution of fraud indicators in the claims

investigated by SIs, Plaintiffs argue that Nationwide is attempting to

have its cake and eat it too by complying with state laws that prevent

unlicensed individuals from adjusting insurance claims and avoiding bad

faith litigation, while at the same time asserting that the SIs jobs involve

providing recommendations and opinions to management, an activity

conceivable encroaching upon that which may only be done by licensed

adjusters. Plaintiffs point to the requirements in Nationwide’s policy

documents that SIs provide only factual information and not opinions in

claims logs and in oral discussions to refute Nationwide’s position

regarding discretion and judgment in the fact-finding process. Plaintiffs

emphasize words and phrases in these documents such as “factual and

not opinionated” and “objective” as evidence that the SIs exercise no

discretion or judgment. However, other language in the documents, and

the testimony of the SIs, suggest just the opposite. In the Court’s view,

3

The 2005 DOL Opinion Letter explained that: “planning one’s own workload, such

as prioritizing the pursuit of particular leads, assessing whether the leads provided are in the

Investigator’s area of responsibility, or have provided information that requires further

investigation, determining which potential witnesses to see and which documents to review, and

making similar decisions that promote effective and efficient use of that individual’s own work

time in performing assigned investigative activities, do not constitute exercising discretion and

independent judgment with respect to matters of significance.” 2005 WL 3308592 (emphasis

in original).

No. 12-3107 Foster, et al. v. Nationwide Mutual Ins. Co. Page 12

terms such as “factual findings,” “relevant,” “pertinent,” and “resolve”

connote a degree of discretion and judgment inherent in the investigatory

process undertaken by the SIs. In other words, as per Renfro, these terms

all “contemplate independent judgment calls.” Renfro, 497 F.3d at 577.

Further, nearly all of the testifying SIs characterized their

investigations as searches for truth or attempts to determine that the

subject claims are either legitimate or not legitimate. For instance,

Jacobs testified that it was his job to resolve the facts on suspicious

claims. According to Foster, all of his investigations involved finding

the truth. Edwards testified that claims are referred to the SIU to resolve

suspicions. Cobb testified that the job involves validating legitimate

claims. Marakovits testified that finding out the truth is the most

important part of the job. Schmidt shared a similar sentiment and further

testified that he used his judgment to determine the origin and cause of

the fires he investigated. Finally, according to Womack, the goal of his

investigations was to find out the truth.

A doctorate in philosophy is not required to realize that “truth”

is not an entirely objective concept. Determining truth requires “factual

findings,” a process that necessarily requires judgment and discretion.

Nationwide’s SIs use their experience and knowledge of fraud to

distinguish the relevant from the irrelevant, fact from untruth, to resolve

competing versions of events. Accordingly, the Court concludes that

through the resolution of indicators of fraud, the SIs exercise discretion

and independent judgment. The Court further concludes that the

discretion exercised by the SIs impacts matters of significance. The facts

developed by the SIs during their investigations have an undisputed

influence on Nationwide’s decisions to pay or deny insurance claims.

Paying insurance claims is central to Nationwide’s business, and

payment of fraudulent claims would threaten to make the company less

competitive in its industry.

....

Some of the testifying Plaintiffs noted that, in certain instances,

the facts of [a] particular situation “speak for themselves.” The Court

credits this testimony and agrees that, in the variety of claims

investigated by the SIs, some are undoubtedly more simplistic than

others. However, this fact does not undermine the Court’s conclusion

that discretion and independent judgment is inherent in the fact finding

element of the SIs’ investigations. In this regard, the DOLs’ regulations

only require that the primary duty of [an] administrative employee

“include” the exercise of discretion and independent judgment. See id.

§ 541.200(a)(3); Robinson-Smith [v. Gov’t Emps. Ins. Co., 590 F.3d 886,

894 (D.C. Cir. 2010)] (“In any event, engaging in total loss negotiations

No. 12-3107 Foster, et al. v. Nationwide Mutual Ins. Co. Page 13

even 20 times per year satisfies the short test requirement that the

adjuster’s primary duty ‘include[]’ the exercise of discretion and

independent judgment.”). Accordingly, the fact that the determination

of the truth in some cases may require less judgment and discretion than

in others is not fatal to Nationwide’s establishment of the administrative

exemption.

Id. at *25-26. Plaintiffs do not contend that these factual findings are clearly erroneous,

but instead argue that the SIs’ primary duty does not include the exercise of discretion

or independent judgment on matters of significance as a matter of law. However, as this

court recently explained, courts cannot make that determination as a matter of law when

there are material questions of fact concerning the work performed and whether it

involved discretion and independent judgment. See Henry v. Quicken Loans, 698 F.3d

897, 901 (6th Cir. 2012) (affirming jury verdict finding mortgage bankers

administratively exempt).

Nor are we persuaded that the district court erred in distinguishing the SIs’ duties

from those of the background investigators that were the subject of the 2005 DOL

Opinion Letter. Ordinarily, an agency interpretation of its own ambiguous regulations

is entitled to Auer deference. See SmithKline, 132 S. Ct. at 2166 (discussing Auer v.

Robbins, 519 U.S. 452, 461-62 (1997)). The investigators, employed by a company that

contracted with an agency of the Department of Defense to conduct background

investigations of individuals for purposes of government security clearance, were

expected to interview witnesses and obtain record information regarding citizenship,

education, employment, criminal convictions, medical history, financial history, and

foreign travel and connections. Although any discrepancies or inconsistencies were to

be “resolved,” the DOL described the investigators’ primary duty as gathering factual

information and preparing a report that would allow the government agency to determine

whether to employ the individual under investigation. The DOL opined that the

investigators were “merely applying their knowledge in following prescribed procedures

or determining which procedure to follow, or determining whether standards are met.”

2005 WL 3308592. The district court did not err in finding that the SIs’ investigations

with the purpose of resolving the indicators of fraud and the legitimacy of the suspicious

No. 12-3107 Foster, et al. v. Nationwide Mutual Ins. Co. Page 14

claims are unlike the narrower more formulaic background investigations into the facts

and records that the DOL found did not involve the exercise of discretion and

independent judgment with respect to matters of significance.

Finally, plaintiffs argue that the district court erred by not following two other

district court decisions that found special investigators at other insurance companies did

not meet the third element of the administrative exemption. See Fenton v. Farmers Ins.

Exch., 663 F. Supp. 2d 718, 725-27 (D. Minn. 2009); Ahle v. Veracity Research Co.,

738 F. Supp. 2d 896, 905-08 (D. Minn. 2010). Although neither decision is controlling,

and both cases were decided on motions for summary judgment, the similarities to this

case merit some discussion.

In Fenton, Farmers Insurance Exchange (FIE) employed special investigators to

investigate claims “flagged” as exhibiting potential signs of fraud. Those investigations

were conducted under the direction of a claims representative; were concluded with the

submission of an exhaustive file and report; and were subjected to strict quality

assurance review guidelines. Unlike this case, however, the evidence showed that FIE’s

special investigators were to provide all evidence, inculpatory and exculpatory, so it

could be evaluated by the claims representative. This led the court to find that the

investigator’s “primary role is simply to gather facts and present them for someone else

to analyze.” Fenton, 663 F. Supp. 2d at 727. Restricted to the application of well-

established techniques in developing an evidentiary record, the investigators did not

exercise sufficient discretion and independent judgment to satisfy this element. Id.

(comparing Gusdonovich, 705 F. Supp. at 263, where the investigator’s primary

responsibilities were “the search of public records, the serving of subpoenas and orders,

surveillance, [and] the interrogation of witnesses”).

In Ahle, the employer, Veracity Research, was an investigative firm that

employed investigators to conduct insurance claim investigations for its clients. The

evidence established that the investigators had no control over the investigation itself,

were expected to obtain all of the facts regardless of their impact, and expressed no

subjective opinions or conclusions about their investigative observations. From this, the

No. 12-3107 Foster, et al. v. Nationwide Mutual Ins. Co. Page 15

court concluded that, as in Fenton and Gusdonovich, the duties of the claims

investigators did not involve a sufficient degree of discretion and independent judgment

with respect to matters of significance. Ahle, 738 F. Supp. 2d at 906. Indeed, the court

in Ahle specifically distinguished Veracity’s investigators from Nationwide’s SIs

precisely because there was a question of fact in this case whether the investigator’s

“‘primary duty encompasses providing their opinions and conclusions regarding their

investigative findings.’” Ahle, 738 F. Supp. 2d at 907 (quoting Foster, 695 F. Supp. 2d

at 761).

Notwithstanding the superficial similarities to the investigators in Fenton and

Ahle, the district court did not err in concluding based on its factual findings that the SIs’

primary duty to conduct investigations with the goal of resolving the indicators of fraud

includes the exercise of discretion and independent judgment with respect to matters of

significance. The discretion and independent judgment exercised in determining and

communicating (albeit informally) the legitimacy or illegitimacy of suspicious claims

referred for investigation is a matter of significance to Nationwide. Foster, 2012 WL

407442, at *26. That being the case, we need not address the novel question of whether

the discretion and independent judgment exercised in deciding whether to refer claims

to law enforcement or the NICB would also be related to “matters of significance.”

B. California’s Administrative Exemption

The district court’s decisions discussed California’s somewhat different

requirements before concluding that Nationwide met its burden of proving the exemption

under California law. See Foster, 695 F. Supp. 2d at 763-64; Foster, 2012 WL 407442,

at *28-30. Plaintiffs assert that California’s administrative exemption to its overtime

laws is more restrictive than the exemption under the FLSA, but do not explain how it

is different, cite to any authority interpreting the differences, or develop the argument

that a different result is required under California law. This argument is at best

perfunctorily raised. See Renfro II, 497 F.3d at 576 (“‘It is not sufficient for a party to

mention a possible argument in the most skeletal way, leaving the court to put flesh on

its bones.’”) (citation omitted). Indeed, when charged with waiving the argument,

No. 12-3107 Foster, et al. v. Nationwide Mutual Ins. Co. Page 16

plaintiffs’ reply was that the facts and legal analysis argued in the context of the FLSA

claims applied equally to the analysis of the exemption under California law. Any

distinct argument regarding California law is waived.

AFFIRMED.