Tuesday, February 7, 2012

First District Holds That Trial Court Erred In Using Sampling Evidence To Establish Class-Wide Liability: Duran v. United States Bank National Association

On February 6, 2012, the First District Court of Appeal (Division 1) reversed a $15 million wage judgment in Duran v. United States Bank Nat’l Ass’n, __ Cal. App. 4th __ (2012), based on the Court’s finding that trial court erred in relying upon representative sampling evidence to find class-wide liability:
The plaintiffs in the class action are 260 current and former business banking officers (BBO's) who claimed they were misclassified by USB as outside sales personnel exempt from California's overtime laws, and were thus unlawfully denied overtime pay. In addition to arguing the case should not have been certified as a class action, USB contends the trial court's trial management plan deprived it of its constitutional due process rights in that the plan prevented it from defending against the individual claims for over 90 percent of the class. We agree the trial management plan was fatally flawed and reverse the judgment.
See Slip Opinion, at 1.

Boiled to its essence, the thrust of the Court’s 75 page opinion takes issue with the use of extrapolation/sampling evidence to establish class-wide “liability”, claiming that doing in this case violated the defendant’s due process right to present an individualized defense to each class member’s claims. The Court’s opinion serves to underscore the inherent problems with using extrapolation evidence as an alternative to standardized policy/practice evidence to establish the class element of predominance, and to adjudicate liability as to the class as a whole.

Specifically, the Court of Appeal explained that “the trial court appears to have relied on the lack of a uniform policy requiring BBO's to spend the majority of their time outside the office” [id., at 57], which the Court concluded was a fact that, without more, would necessitate individualized inquiry into the claims of each class member. Id., at 58. To overcome this issue at the certification stage, the trial court certified the class based on the premise that the issue of the defendant’s liability (i.e. whether employees spent more than 50% in-office) could be determined by a limited sampling of testimony from 21 employees – a proposition which was deemed in this case to be an error:
Plaintiffs refer us to Dilts v. Penske Logistics, LLC (S.D.Cal. 2010) 267 F.R.D. 625, 638 (Dilts), in which the district court found the use of statistical sampling would be an "acceptable method" to prove liability in a class action. The court in Dilts first noted that "California and Federal courts have not discouraged the use of statistical sampling in determining class member damages." (Ibid.) As to liability, the court stated "the use of statistical sampling, at least when paired with persuasive direct evidence, is an acceptable method of proof in a class action. [Citation.] Thus, certification will not be denied simply because Plaintiffs anticipate using representative evidence at trial." (Ibid., italics added.) While we do not disagree with the proposition that statistical sampling is a tool that may be utilized in appropriate cases, it does not follow that it was proper for the trial court in this case to limit presentation of USB's affirmative defense solely to the 21 members of the representative group.
See Slip Opinion, at 60-61.

The problem with this approach, according to the Court, was that it did not eliminate the “individualized” nature of the case, but rather, imposed an artificial trial structure which simply disregarded relevant individualized testimony in violation of the defendant’s due process rights.  Id., at 60 (“In sum, the court erred when, in the interest of expediency, it constructed a set of ground rules that unfairly prevented USB from defending itself. These ground rules were the product of the trial court.”). According to the Court, “[t]he trial court's error was prejudicial as there was evidence in the form of deposition testimony, as well as the pretrial declarations obtained by USB, that a substantial portion of the class was properly classified as exempt.” See id., at 66.

Importantly, the Court’s decision does not stand for the sweeping proposition that a defendant is now legally entitled in all cases to conduct an individualized defense, or that certification is to be denied if the defendant submits declarations from individual class members that dispute the plaintiff’s theory of liability. The Court was very clear that “[f]undamentally, the issue here is not just that USB was prevented from defending each individual claim but also that USB was unfairly restricted in presenting its defense to class-wide liability.” See id., at 58.

Indeed, it is well established that a defendant may not defeat certification by class member declarations claiming that the employer’s standardized company policies were not enforced [see e.g. Kurihara v. Best Buy Co., 2007 U.S. Dist. LEXIS 64224, 29-30 (N.D. Cal. Aug. 29, 2007) (“defendant's ‘litigation-driven,’ selective sampling of employees … [is] insufficient to inject fatal uncertainty into the question of liability…. Where a plaintiff challenges a well-established company policy, a defendant cannot cite poor management to defend against class certification.”)], or by class member declarations claiming that the company‘s written policies do not impact all employees. See Ghazaryan v. Diva Limousine, Ltd., 169 Cal. App. 4th 1524, 1529-1530, 1536 (2008).

In fact, contrary to the Court's finding in the present case, in Ghazaryan, the Second District deemed the trial court abused its discretion by denying certification based on employee declarations claiming that the company’s policies did not impact them personally. See id., at 1536 (“Although individual testimony may be relevant to determine whether these policies unduly restrict the ability of drivers as a whole to utilize their on-call time for personal purposes, the legal question to be resolved is not an individual one. To the contrary, the common legal question remains the overall impact of Diva's policies on its drivers, not whether any one driver, through the incidental convenience of having a home or gym nearby to spend his or her gap time, successfully finds a way to utilize that time for his or her own purposes.”).