Chao v. Rocky's Auto, Inc.

• Court: Court of Appeals for the Tenth Circuit
• Decided: April 25, 2003
• Docket: 01-1318
• Status: Unpublished

Opinion

F I L E D United States Court of Appeals Tenth Circuit UNITED STATES COURT OF APPEALS APR 25 2003 TENTH CIRCUIT PATRICK FISHER Clerk

ELAINE CHAO, Secretary of Labor, United States Department of Labor,

Plaintiff - Appellee,

v.

ROCKY'S AUTO, INC., a corporation, No. 01-1318 Defendant - Appellant, (D.C. No. 99-M-1130 ) (District of Colorado) and

DAVID J. ROTHROCK, individually; MARK SALAK, individually; DONALD BOWERS, individually,

Defendants.

ORDER AND JUDGMENT*

Before EBEL, PORFILIO, and O’BRIEN, Circuit Judges.

* This order and judgment is not binding precedent, except under the doctrines of law of the case, res judicata, and collateral estoppel. This court generally disfavors the citation of orders and judgments; nevertheless, an order and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3. The only question presented in this appeal is whether certain employees of

Defendant-Appellant Rocky’s Autos Inc. qualify for exemption from overtime pay as

“salesmen” as that term is employed in the Fair Labor Standards Act, 29 U.S.C. § 201 -

219. After a bench trial, the district court entered oral findings of record concluding the

employees were not salesmen. Judgment was entered against Rocky’s in the amount of

$85,392.66 for overtime pay plus interest for 19 employees. After review, we hold the

findings of the district court are not clearly erroneous, and its conclusions of law are

correct. We affirm.

The statutory premise of this case is 29 U.S.C. § 213(b)(10)(A), which exempts

from payment of overtime:

[A]ny salesman . . . primarily engaged in selling . . . automobiles, trucks, or farm implements, if he is employed by a nonmanufacturing establishment primarily engaged in the business of selling such vehicles or implements to ultimate purchasers.

(emphasis added). Also pertinent is 29 C.F.R. § 779.372(c)(1):

As used in section 13(b)(10), a salesman is an employee who is employed for the purpose of and is primarily engaged in making sales or obtaining orders or contracts for sale of the vehicles or farm implements which the establishment is primarily engaged in selling. Work performed incidental to and in conjunction with the employee’s own sales or solicitations, including incidental deliveries and collections, is regarded as within the exemption.

(emphasis added). Under the regulation, the definition of “primarily engaged” is: the

major part or over 50 percent of the salesman’s . . . time must be spent in selling . . . the

enumerated vehicles. 29 C.F.R. § 779.372(d).

-2- On appeal, Rocky’s contends the district court improperly found employees,

variously called “finance managers” or “finance contractors” (finance employees), are not

primarily engaged in selling automobiles. Rocky’s argues these employees are an integral

part of the sales process because they obtain contracts for the sale of vehicles.

There are unquestioned distinctions in the jobs performed by Rocky’s salesmen

and finance employees. Salesmen meet the customers, determine what they are interested

in, take the customer for a test drive, and negotiate the price of the car, including trade-in,

payment amount, and financing options.

After the salesperson and sales manager conclude their negotiations with the

customer, a “sales packet” is created. The packet includes the amount of the down

payment, the trade in allowance, the interest rate, the length of the loan, and the payment

amount of each contract. After full determination of all these factors, the packet is then

sent to a finance employee, who inputs the data in the packet into a computer which prints

out necessary documents containing the terms agreed upon between the salesman and the

customer.

The finance employee will then attempt to sell the customer an extended warranty

option. These extended warranty options are sold separately by the finance employee and

provide the finance employee with additional income. The finance employee is also

required to make sure the customer carries insurance, answer questions about the

documents, and have the customer sign them when completed. This entire process

-3- ordinarily takes between 20-30 minutes, although one former finance employee, Brandon

Markgraf, testified management wanted it limited to fifteen minutes.

Although the witnesses generally agreed with the scope of the finance employees’

responsibility, testimony concerning their specific duties and functions conflicted. The

disagreement centered over the amount and extent to which finance employees have and

exercise authority to alter the terms and conditions of the sales contract.

Current management-level employees testified the finance employees have

discretion to alter the contents of the packet received from the sales staff to change

interest rates, length of the contract, amount of payments, and the date upon which the

first payment is due. They were vague, however, about how often this authority was

exercised. In contrast, former finance employees testified they rarely, if ever, made

alterations in the contract or its terms. For example, Mr. Markgraf testified he never

determined interest rate, number of payments, length of the loan, and the amount of the

down payment. Jorge Armstrong also testified to the same experience.

More importantly, all of the testifying former finance employees stated the

information contained in the sales packet was exactly what they use to perform their

function. They input that information into a computer when prompted by the “pretty

basic” software program.

In contrast, Rocky’s relies upon the testimony of Roger Maxson, the current used

car manager, and Georgia Ann Griest, the finance manager. Both testified finance

-4- employees have the authority to change terms and conditions of the sales contract.

However, it is clear from their testimony the only reason why those changes can be made

is to accommodate the sale of the extended warranty options.

For example, Ms. Griest testified there are many variables in the options contracts

dependent upon the extent of coverage and the term of the warranty, each sold at a

different price. In each instance, the additional cost of the warranty purchased by a

customer increases the overall cost of the agreement. Therefore, if a customer is adamant

about the maximum monthly payment he or she wanted to make, concessions must be

made in some part of the contract to keep the monthly payment within that range.

Ms. Griest clarified that when a warranty option is sold, “it changes the payment

amount, . . . the buyer’s order, . . . the contract, bank contract, and . . . Rocky’s disclosure

because it will change the payment amount.” Thus, the finance employee must make

alterations in the papers. She added, “[i]f we are offering a warranty and the price

becomes too high” she could “extend[] the term an additional six months.” She also

noted she could change the interest rate to secure the sale of the warranty after talking to

Don Bowers, the finance director. However, she could only extend the repayment period

to accommodate the sale of a warranty agreement. On cross examination, she agreed,

when she receives the sales packet, the price of the vehicle, the term of the loan (if any),

and the interest already had been determined.

-5- Mr. Maxon concurred. He stated, for example, the finance employees have “the

latitude to be able to change the interest rate to a lower one to be able to sell extended

service contracts.” He added they could “possibly increase the term” to achieve the same

objective. Both Mr. Maxon and Ms. Griest agreed with the government’s witnesses,

however, the finance employees could never change the sales price of a vehicle.

Rocky’s witnesses also asserted the finance employees were integral to the sale

because they were called upon to calm any fears of the customer over the pending sale

and, in the process, had to exercise “sales skills.” Again, the testimony conflicts.

Both Mr. Maxson and Ms. Griest elaborated that customer concerns could ruin a

sale; consequently, the finance employee who quelled those fears could “save the sale.”

Thus, they said, the finance employees review the terms of the papers they prepared and

answer any questions.

Ms. Griest disagreed somewhat with Mr. Maxson about the finance employees’

role in saving sales, for she stated if a problem arose over the sale that presented a

question she could not answer, she always called upon the salesperson or the sales

manager to resolve the difficulty. Moreover, she thought her primary duty as a finance

employee was “to disclose the deal to the customer.” That meant meeting face to face

and going over all the documents. Although assuring the finance employees had to have

“sales skills,” neither she nor Mr. Maxson made any attempt to describe how often those

skills are called upon.

-6- Former employees, however, indicated this task of reviewing the documents with

the customer involved making only a brief description of terms in the language of the

papers. They added the documents also cautioned the customers they should read the

papers themselves, although few did. In contrast to the testimony of Rocky’s witnesses,

Mr. Armstrong stated he “rarely” had a customer who “got hesitant about the deal.”

When pressed, he stated he could remember such a problem occurring about four times

during his whole career as a finance employee. On those occasions, he relied upon the

salesperson or the sales manager. Stephanie Matheison testified that if a customer began

to express doubt about a sale, “[t]he deal would come to a stop and I would page the sales

person or the sales manager involved in that particular negotiation, and let them know.

And at that point they would address the issue with the customer.” When asked by

Rocky’s counsel whether she nevertheless had to rely upon her “sales skills in completing

that sale,” she responded, “I think that’s again subjective. I mean again we had some

people who worked in finance that didn’t have any personality.”

After hearing this testimony and judging the credibility of the witnesses, the

district court made several findings. First, the court determined Rocky’s suggestion that

the finance employees are engaged in “obtaining” the sales contract was “not a reasonable

interpretation of [the] regulation or indeed of the statute to say that these people are

obtaining a contract or that they are primarily engaged in selling automobiles.” (emphasis

added). Agreeing finance employees are an “integral part of the sale of an automobile,”

-7- the court observed the “test is whether they were selling the car.” In this case, the court

found, the Rocky’s finance employees were not. “[T]o transfer the person who appears at

the lot interested in buying a car from an interested potential customer into a customer,

that’s done by the salesman. And it’s that in my view that is critical to any definition of

selling. It’s what’s necessary to get a customer to sign a deal.”

The court further found the task of the finance employees is to:

take the sales packet that gets delivered to them and input it into the computer so that the computer prints out the necessary forms, which vary according to the terms of the deal . . . . Then it’s the obligation of these people, these employees, to go over all of that paper with the customer . . . to make sure the customer is fully informed and satisfied.

The court also found that “at times” customers had questions abut the transaction which

required reassurance by the finance employee who used “interpersonal skills that are

involved in good selling.” But, the court concluded “that’s not selling in the sense that

the statute and the regulation mean.” The court added, “I don’t think that obtaining the

contract means obtaining it from the computer. Obtaining the contract means obtaining a

customer willing to sign a contract, and that’s what sales people do. That’s not this job.”

(emphasis added).

In determining whether an exemption to the Fair Labor Standards Act applies, we

review the district court’s factual determinations for clear error, and its legal conclusions

de novo. Sanders v. Elephant Butte Irr. Dist. of N.M., 112 F.3d 468, 470 (10th Cir.

1997). The employer carries the burden of establishing that its employees qualify for the

-8- exemption. Id. Further, exemptions are “narrowly construed against the employers

seeking to assert them and their application limited to those establishments plainly and

unmistakably within their terms and spirit.” Arnold v. Ben Kanowsky, Inc., 361 U.S.

388, 392 (1960).

Rocky’s first argument that the contractors “obtain” contracts ignores the facts

found by the district court. Although its witnesses supported that theory with vague

generalities, their testimony was specifically rebutted by the government’s witnesses.

Obviously finding the government’s witnesses more credible, the district court chose their

version and made findings supported by that evidence. Where there are two permissible

views of the evidence, the fact finder’s choice of which to apply cannot be clearly

erroneous. Anderson v. City of Bessimer City, N.C., 470 U.S. 564, 574 (1985).

We believe the district court’s holding was confined to the facts of this case and

the evidence presented describing the tasks performed by Rocky’s finance employees.

The district court found in this case those facts support the conclusion the finance

employees’ tasks are essentially ministerial in nature. We agree. Compare Gieg v.

Howarth, 244 F.3d 775, 776-77 (9th Cir. 2001).

Moreover, we believe the evidence relating to the discretionary authority of

contract employees disclosed that authority was restricted to accommodating the sale of

extended warranties. There is no testimony that the sale of those warranties was

necessary to effect the sale of any vehicle. Indeed, the evidence supports the opposite

-9- inference. It is evident the extended warranties were marketed to customers as a

collateral benefit to them but resulted in additional revenue for Rocky’s. More

importantly, its own witnesses made clear that unless the customer purchased an extended

warranty, the contract was not changed by the finance employee and, when completed,

contained the terms of agreement relayed by the sales staff.

Thus, we conclude Rocky’s failed to carry its burden of proof. Although Rocky’s

finance employees play a role that is integral to the business of selling cars, they are not

primarily engaged in obtaining contracts for the sale of vehicles. Therefore, as a matter

of law, they are not exempt from overtime pay.

AFFIRMED.

ENTERED FOR THE COURT

John C. Porfilio Senior Circuit Judge

- 10 - 01-1318, Chao v. Rocky’s Autos, Inc. EBEL, Circuit Judge, dissenting.

In my view, the majority’s interpretation of 29 C.F.R. § 779.372(c)(1) renders

superfluous its language covering employees who “obtain[]... contracts for sale of

vehicles.” I therefore respectfully dissent.

The majority rightly notes that because the district court rendered its decision after

a trial, we owe great deference to its factual findings, reviewing those findings only for

clear error. However, as the majority also recognizes, we review the district court’s legal

conclusions de novo. It is a legal error, not a factual error, that the district court made

here. The court erred by asking the wrong legal question, framing that question as “who

does the selling.” While that approach tracks the language of the applicable statute, see

29 U.S.C. § 213(b)(10)(A) (granting the overtime exemption to “any salesman... primarily

engaged in selling or servicing automobiles”), it ignores the plain language of the Labor

Department regulation that has interpreted that statute to define what “salesman” means.1

That regulation defines “salesman” as both an employee who is “primarily

engaged in making sales” and as one who is “primarily engaged in... obtaining contracts.”

1 The Ninth Circuit case cited by the majority, Gieg v. Howarth, 244 F.3d 775 (9th Cir. 2001), contains a similar error, focusing solely on the statute and ignoring the regulation altogether. In fact, I am aware of no reported case that has interpreted the regulation at issue here. We are thus left with common sense and canons of construction to guide us in interpreting the text of the regulation. 29 C.F.R. § 779.372(c)(1) (emphasis added).2 “It is a cardinal principle of statutory

construction that a statute ought, upon the whole, to be so construed that, if it can be

prevented, no clause, sentence, or word shall be superfluous, void, or insignificant.”

TRW Inc. v. Andrews, 534 U.S. 19, 31 (2001) (internal quotation marks and citations

omitted). The district court violated this principle by conflating the two meanings of

“salesman” as defined in the regulation. It stated that “[o]btaining a contract means

obtaining a customer willing to sign a contract, and that’s what sales people do. That’s

not this job.” On its face, that interpretation equates “making sales” with “obtaining...

contracts,” thus rendering the latter language superfluous.3

The “obtaining... contracts” language in the regulation “cannot be regarded as

mere surplusage; it means something.” Potter v. United States, 155 U.S. 438, 446 (1894).

In this case, it means the process by which Rocky’s Autos acquires a legally binding

agreement that obligates a customer to purchase one of its cars.4 The testimony at trial

made clear that the finance contractors are an integral part of that process. For example,

2 The relevant section of the regulation states: “a salesman is an employee who is employed for the purpose of and is primarily engaged in making sales or obtaining orders or contracts for sale of the vehicles or farm implements which the establishment is primarily engaged in selling.” 29 C.F.R. § 779.372(c)(1).

The majority attempts to explain away this error by treating the district court’s 3

determination as an evidentiary one about witness credibility, when it is not.

Black’s Law Dictionary defines “obtain” as “[t]o get hold of by effort; to get 4

possession of; to procure; to acquire, in any way.” Black’s Law Dictionary 972 (5th ed. 1979). Nothing in that definition, or in any other definition of which I am aware, suggests that “obtaining” is a single event as opposed to a process.

-2- they are authorized to 1) exercise some discretion as to whether a customer is eligible to

buy an extended service contract; 2) sell extended service contracts; 3) change the interest

rate by a point or two; 4) alter the customer’s monthly payment (as a result of any change

in the interest rate); 5) raise the down payment (if the customer buys an extended service

contract and wants to keep her monthly payment the same); and 6) change the payment

term (e.g., from 48 to 54 months, which typically happens when an extended service

contract is sold; changes of more than six months must be approved by the finance

director). Like the salesmen, the finance contractors lack the authority to change the price

of the car without first obtaining the approval of a sales manager.

While it is true that the finance contractors do not initiate the contract-obtaining

process, they do complete it. When a customer enters the finance contractor’s office,

there is no contract; there is simply the outline of an agreement that the customer may

walk away from at any time. By the time the finance contractor has finished his job, the

customer has signed a binding contract. The finance contractor has guided the customer

though the final stages of the sales process, explaining the contract to him, answering his

questions and using his salesmanship skills to resolve any doubts the customer might

have. The finance contractor’s job is a quintessential one of contract-obtaining. I would

thus conclude that, as a matter of law, the finance contractors “obtain[]... contracts”

within the meaning of the regulation.

-3- That does not end the inquiry, however. The regulation also requires that, to fall

within the overtime exemption, an employee must be “primarily engaged in making sales

or obtaining orders or contracts for sale of the vehicles.” 29 C.F.R. § 779.372(c)(1)

(emphasis added). “Primarily engaged” means that “the major part or over 50 percent of

the salesman’s... time must be spent in selling or servicing the enumerated vehicles.” 29

C.F.R. § 779.372(d). Having reviewed the record, I am doubtful that the Rocky’s

contractors spend more than 50 percent of their time obtaining contracts. But that is a

factual issue not to be resolved in the first instance at the appellate level.5

In sum, I would reverse the district court’s determination that the finance

contractors do not “obtain[]... contracts” and remand with instructions for the court to

determine, as a factual matter, whether the finance contractors are “primarily engaged” in

“obtaining... contracts” as I have here interpreted the latter term.

For the foregoing reasons, I must respectfully dissent.

5 The district court found that “the evidence has not established that these people [finance contractors] are salesmen or that they are primarily engaged in selling automobiles.” It also found that “there aren’t very many questions” asked of finance contractors during their portion of the sales process. Those are not, however, determinations that the finance contractors were not “primarily engaged” in “obtaining... contracts.” Because the district court made its findings while laboring under what I believe to be an erroneous legal interpretation of the regulation, I would accord no deference to its findings on the “primarily engaged” question.

-4-