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
_________________
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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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.
_________________
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(unpublished).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.