Underwood v. NMC Mortg. Corp.
This case was before the Court on Defendant’s Motion for Summary Judgment. Defendant, a mortgage broker, moved for summary judgment asserting that it was a “retail establishment” and that, therefore, Plaintiffs, who were “financial specialists” facilitating their loans, were exempt for the overtime provisions of the FLSA, under the so-called retail exemption. The Court found that Defendant is not a retail establishment, and therefore Plaintiffs are not retail exempt.
“Plaintiffs assert that the facts are analogous to the facts in Saunders v. Ace Mortgage Funding, Inc, in which that court distinguished Gatto and found that the retail or service establishment exemption did not apply. In Saunders, plaintiffs brought a collective action under the FLSA seeking overtime and minimum wage compensation from their employer. The employer, Ace Mortgage (”Ace”), matched mortgage borrowers with lenders for a fee. Ace primarily brokered loans, but it also engaged in a small amount of direct lending called “table funding” where the bank provided the funding for the loan but the loan closed in Ace’s name. Ace also closed a small number of loans in its own name using its warehouse line of credit.
In Saunders, the District of Minnesota examined whether Ace was part of the “financial industry” because the businesses listed in 29 C.F.R. § 779.317 that lacked a retail concept included “credit companies,” “small loan and personal loan companies,” and “finance companies.”
29 C.F.R. § 779.317 specifically cites to Mitchell for the proposition that these type of financial businesses lack a retail concept. The Saunders court found that the facts in Gatto were factually distinguishable because Ace engaged in a small amount of direct lending and declined to use the reasoning in Gatto. It concluded that Ace was part of the financial industry and therefore could not qualify as a retail or service establishment as a matter of law and that the Gatto court ultimately “strained to bring a financial business within the definition of a retail or service establishment on the basis that its activities were limited to brokering, not lending.”
The facts in this case are similar to the facts in both Gatto and Saunders. NMC matched customers with lenders in finding residential loans but did not represent the consumer or the lender. Unlike the defendant in Gatto but similar to the defendant in Saunders, NMC engaged in table funding in which the loan closed in NMC’s name. Although NMC did not use its own line of credit for closing loans like the defendant in Saunders, the Court finds the facts more analogous to the facts in Saunders.
Everything about NMC’s business is related to the financial industry. NMC matched consumers with loans. NMC processed the loan applications. NMC engaged in table-funding so the loan closed in the name of NMC. In contrast to Illinois law where mortgage brokers are defined as “nonfinancial intermediaries,” in Kansas, NMC’s name appeared on the closing loan documents as a “lender” because NMC engaged in table-funding. In its annual report to Kansas, NMC had to report that it was a “lender” from 2004 through 2006 on 422 loans totaling $57,653,391. Finally, NMC underwrote these table-funded loans which indicates more than peripheral involvement in the financial aspects of providing the loan to the consumer. Accordingly, this Court concludes that NMC is within the financial industry and therefore should not be considered a “retail or service establishment.”
Even if this Court were to conclude that NMC was not within the financial field, NMC still lacks the characteristics that would qualify it as a “retail or service establishment.” As the Department of Labor’s regulations make clear, the three characteristics of a retail or service establishment include (1) selling to the general public; (2) serving the everyday needs of the public; and (3) being at the very end of the stream of distribution. Examples of such establishments include grocery stores, furniture stores, and restaurants. NMC is not similar to these retail establishments as it does not appear to the Court that matching individuals with residential mortgage lenders would qualify as selling to the “general public” or serving the “everyday needs” of the public. In any event, NMC is not at the very end of the stream of distribution. In Partida v. American Student Loan Corporation, the District of Arizona addressed this third element when determining whether a company in the business of matching individuals with third-party lenders to consolidate student loans was a retail or service establishment. The court stated that the defendant’s business was “an integral and upstream part of the loan origination business and therefore is on the non-retail end of the establishment spectrum.” As the Partida court noted, “[a] loan referral provides the basis for a subsequent transaction in which an individual obtains what he or she ultimately seeks-a [residential] loan.” The court in Partida concluded that because the business was not at the end of the stream of distribution, the business could not be considered a “retail or service establishment.”
NMC’s business was similar to the business in Partida in that it matched individuals with residential loans. NMC was not providing the end product but was directing the individual to the residential loan. The Tenth Circuit has noted that “[b]usinesses that serve only other commercial establishments are generally not within the ‘retail concept’ of the exemption.” This Court cannot conclude that NMC was at the very end of the stream of distribution. As such, it lacks the characteristics of a retail or service establishment.
Finally, this Court finds 29 C.F.R. § 779.317 instructive. This regulation provides a list of establishments that lack a retail concept and includes freight brokers, insurance brokers, and stock or commodity brokers. Although “mortgage brokers” were not included, the regulation specifically states that it is a “partial list” of businesses. A “mortgage broker” is similar to an “insurance broker” or “stock or commodity broker” because the broker assists the customer in obtaining the mortgage, insurance, or stock. The majority, if not all, of Defendant’s business was done as a “broker.” Because a mortgage broker is similar to the brokers listed in section 779.317, the Court finds that NMC lacks the “retail concept” to be qualified as a “retail or service establishment.” Exemptions are to be narrowly construed under the FLSA, and NMC is not a retail or service establishment under 29 U.S.C. § 207(i) and therefore is not entitled to this exemption.”
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