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Kitagawa v. Drilformance, LLC

United States District Court, S.D. Texas, Houston Division

April 27, 2018

CASEY KITAGAWA and BRANDON SHELDON, individually and on behalf of all others similarly situated,


          Lee H. Rosenthal Chief United States District Judge

         I. Background

         Casey Kitagawa and Brandon Sheldon, the named plaintiffs in this putative class action, work for Drilformance, LLC as applications engineers. Drilformance designs, manufactures, and rents drill bits to companies in the oil and gas industry. The plaintiffs, salaried employees, allege violations of the Fair Labor Standards Act, 29 U.S.C. § 201 et seq., based on a 10 percent across-the-board salary reduction.

         Oil prices dropped in 2015, and so did drilling operations throughout the industry. The demand for drill bits also dropped. Drilformance's revenue followed suit, dropping 80 percent between December 2014 and June 2016.

         In June 2015, Haley Kitagawa, Drilformance's global-operations director, sent an email to all Drilforma nce employees announcing changes to Drilformance's human-resources policies based on the market downturn. The email stated:

We are in a dynamic market with the U.S. land rig count dropping 58% from November 2014. Drilformance is in a strong financial position and has fared better than most service companies in our industry the first quarter of 2015. However, every oilfield service company will feel the effect of the downturn. There are indications we are reaching a bottom with activity beginning to improve the later part of this year. Our entire team is working hard to grow our customer base and offset the rigs lost due to reduced customer activity. There are still over 800 rigs operating in the U.S. providing plenty of opportunity for us to make up for lost activity and continue our growth.
We are a strong team and have a knack of always doing more with less when it comes to our people. The company recognizes and thanks each and every one of you for this. Our goal of keeping our strength intact, which is our people, and maintain a strong balance sheet has forced us to come up with ways of reducing cash outflows without altering the core of our organization.
One of the ways of accomplishing this is through Furloughs whereby each employee takes a day off, typically a Friday, every other week. Many of our competitors and suppliers, such as Smith Bits and U.S. Synthetic, implemented this system earlier in the year.
We have also decided to take this approach for personnel to take off one day every other week beginning with the payroll period beginning June 13, 2015 until further notice. Your supervisor will discuss with you an optimal schedule to ensure we can maximize the growth of our operations to reach activity levels enabling the suspension of a reduced work schedule.
Traditionally the company has enabled personnel to carry forward as mush as a years worth of unused vacation. This year no more than 3 days or 24 hours of unused vacation may be carried forward at the end of 2015. Please arrange with your supervisor to utilize your vacation balances if at all possible during this slower period. If you choose to voluntarily surrender your vacation balance, please let me know.
. . . We appreciate your hard work, dedication, and understanding through this down cycle. We are all doing everything possible to increase revenue and reach profitability that enables a suspension of the reduction in work schedule.

(Docket Entries No. 32, Ex. D; No. 34, Ex. A).

         This policy reduced the plaintiffs' salaries by 10 percent. Although the email stated that all employees would receive a furlough day every other week, the plaintiffs allege that they were not able to take the furlough days, and instead continued to work their regular schedules. The plaintiffs also allege that Drilformance did not ensure that employees refrained from working on the furlough day.

         The parties agree on the material facts and cross-moved for summary judgment on the effect of the salary reduction. The plaintiffs argue that the salary reduction removed them from the status of salaried professional employees, exempt from the Fair Labor Standards Act's overtime requirements. They base this on the argument that their compensation declined based on “variations in the quality or quantity of the work performed” and on “absences occasioned by the employer or by the operating requirements of the business, ” 29 C.F.R. § 541.602(a), making their salaries the “functional equivalent of an hourly wage.” (Docket Entry No. 34). Drilformance seeks summary judgment that the plaintiffs remained exempt because the prospective salary reduction based on the economic downturn did not violate the Department of Labor's salary-basis regulation, § 541.602, and did not change the plaintiffs' exempt status. (Docket Entry No. 32).

         Based on the pleadings, motions, responses, replies, the record, and the applicable law, Drilformance's motion for summary judgment, (Docket Entry No. 32), is granted, and the plaintiffs' motion for summary judgment, (Docket Entry No. 34), is denied. The reasons for these rulings are explained below.

         II. The Summary Judgment Legal Standard

         “Summary judgment is appropriate only if ‘there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.'” Vann v. City of Southaven, Miss., 884 F.3d 307, 309 (5th Cir. 2018) (citations omitted); see also F ed. R. Civ. P. 56(a). “A genuine dispute of material fact exists when the ‘evidence is such that a reasonable jury could return a verdict for the nonmoving party.'” Burrell v. Prudential Ins. Co. of Am., 820 F.3d 132, 136 (5th Cir. 2016) (quoting Anderson v. Liberty Lobby, 477 U.S. 242, 248 (1986)). “The moving party ‘bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact.'” Brandon v. Sage Corp., 808 F.3d 266, 269-70 (5th Cir. 2015) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)).

         “Where the non-movant bears the burden of proof at trial, ‘the movant may merely point to the absence of evidence and thereby shift to the non-movant the burden of demonstrating . . . that there is an issue of material fact warranting trial.'” Kim v. Hospira, Inc., 709 Fed.Appx. 287, 288 (5th Cir. 2018) (quoting Nola Spice Designs, L.L.C. v. Haydel Enters., Inc., 783 F.3d 527, 536 (5th Cir. 2015)). While the party moving for summary judgment must demonstrate the absence of a genuine issue of material fact, it does not need to negate the elements of the nonmovant's case. Austin v. Kroger Tex., L.P., 864 F.3d 326, 335 (5th Cir. 2017) (quoting Little v. Liquid Air Corp., 37 F.3d 1069, 1076 n.16 (5th Cir. 1994)). A fact is material if “its resolution could affect the outcome of the actions.” Aly v. City of Lake Jackson, 605 Fed.Appx. 260, 262 (5th Cir. 2015) (citing Burrell v. Dr. Pepper/Seven UP Bottling Grp., Inc., 482 F.3d 408, 411 (5th Cir. 2007)). “If the moving party fails to meet [its] initial burden, the motion [for summary judgment] must be denied, regardless of the nonmovant's response.” Pioneer Exploration, LLC v. Steadfast Ins. Co., 767 F.3d 503 (5th Cir. 2014).

         “When the moving party has met its Rule 56(c) burden, the nonmoving party cannot survive a summary judgment motion by resting on the mere allegations of its pleadings.” Bailey v. E. Baton Rouge Par. Prison, 663 Fed.Appx. 328, 331 (5th Cir. 2016) (quoting Duffie v. United States, 600 F.3d 362, 371 (5th Cir. 2010)). The nonmovant must identify specific evidence in the record and articulate how that evidence supports that party's claim. Willis v. Cleco Corp., 749 F.3d 314, 317 (5th Cir. 2014). “This burden will not be satisfied by ‘some metaphysical doubt as to the material facts, by conclusory allegations, by unsubstantiated assertions, or by only a scintilla of evidence.'” Jurach v. Safety Vision, LLC, 642 Fed.Appx. 313, 317 (5th Cir. 2016) (quoting Boudreaux v. Swift Transp. Co., 402 F.3d 536, 540 (5th Cir. 2005)). In deciding a summary judgment motion, the court draws all reasonable inferences in the light most favorable to the nonmoving party. Darden v. City of Fort Worth, 866 F.3d 698, 702 (5th Cir. 2017).

         III. Analysis

         A. The Summary Judgment Record

         The record includes:

• an affidavit of Rusty Petree, Drilformance's corporate representative, (Docket Entry No. 32, Ex. A; Docket Entry No. 34, Ex. 4);
• deposition testimony of Brandon Sheldon, (Docket Entry No. 32, Ex. B; Docket Entry No. 34, Ex. 3);
• deposition testimony of Casey Kitagawa, (Docket Entry No. 32, Ex. C; Docket Entry No. 34, Ex. 2);
• an email, dated June 11, 2015, from Haley Kitagawa to all Drilformance employees, (Docket Entry No. 32, Ex. D; Docket Entry No. 34, Ex. 1);
• the plaintiffs' pay records, (Docket Entry No. 32, Exs. E-J); and • Drilformance's responses to the plaintiffs' interrogatories, (Docket Entry No. 34, Ex. 5).

         B. Whether the Salary Reduction Violated the Salary-Basis Regulation

         The Fair Labor Standards Act requires employers to pay overtime to nonexempt employees who work more than 40 hours in a workweek. 29 U.S.C. § 207(a)(1). Employees who perform executive, administrative, sales, or professional duties, and who are paid at least $455 per week on a salary basis, are exempt. 29 U.S.C. § 213(a)(1). The parties do not dispute that the plaintiffs performed exempt duties and were paid more than $455 per week. The disputed ...

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