Friday, May 30, 2014

California Supreme Court Concludes That Statistical Sampling May Be Permitted To Establish Class Liability If Certain Conditions Are Met: Duran v. United States Bank Nat'l Ass'n.

On May 29, 2014, the California Supreme Court issued its opinion in Duran v. United States Bank Nat'l Ass'n., __ Cal.4th ___  (2014) [2014 Cal. LEXIS 3758], concluding that the statistical sampling methodology used by the court to adjudicate employer “liability” was error, and as such, required reversal of the judgment entered in favor of the class.  Importantly, the Court did not find that the use of statistical sampling to establish issues of liability was itself improper (it actually held that it may be permitted), but rather, merely held that the sampling model adopted by the trial court in this particular case employed a flawed methodology:
After certifying a class of 260 plaintiffs, the trial court devised a plan to determine the extent of USB's liability to all class members by extrapolating from a random sample. In the first phase of trial, the court heard testimony about the work habits of 21 plaintiffs. USB was not permitted to introduce evidence about the work habits of any plaintiff outside this sample. Nevertheless, based on testimony from the small sample group, the trial court found that the entire class had been misclassified. After the second phase of trial, which focused on testimony from statisticians, the court extrapolated the average amount of overtime reported by the sample group to the class as a whole, resulting in a verdict of approximately $15 million and an average recovery of over $ 57,000 per person.
As even the plaintiffs recognize, this result cannot stand. The judgment must be reversed because the trial court's flawed implementation of sampling prevented USB from showing that some class members were exempt and entitled to no recovery. A trial plan that relies on statistical sampling must be developed with expert input and must afford the defendant an opportunity to impeach the model or otherwise show its liability is reduced. Statistical sampling may provide an appropriate means of proving liability and damages in some wage and hour class actions. However, as outlined below, the trial court's particular approach to sampling here was profoundly flawed.
Slip Opinion, at 1-2.

As summarized by the Court, the overarching issue concerned the “management” of individualized issues in a certified class action.  Specifically, the trial court’s inflexible administration of the flawed sampling methodology was deemed to have “ignored” – rather than “managed” – the individualized issues presented by a core element of the employer’s outside sales exemption defense:
This appeal highlights difficult questions about how individual issues can be successfully managed in a complex class action. After reviewing the requirements of the outside salesperson exemption, we discuss the trial court's obligation to consider the manageability of individual issues in certifying a class action. In particular, we hold that a class action trial management plan must permit the litigation of relevant affirmative defenses, even when these defenses turn on individual questions.  Next, we explain how the trial court ignored individual issues here, hamstringing USB's ability to defend itself.  Finally, we describe the flaws in the trial plan's implementation of statistical sampling as proof of USB's  liability to the class.
Slip Opinion, at 18-19.

As explained by the Court, a proposal to establish liability using statistical evidence must be assessed at the certification stage to ensure that individualized issues are “manageable” – an assessment the trial court failed to undertake in this case:
In general, when a trial plan incorporates representative testimony and random sampling, a preliminary assessment should be done to determine the level of variability in the class. (See post, at p. 40.)  If the variability is too great, individual issues are more likely to swamp common ones and render the class action unmanageable.  No such assessment was done here. With no sensitivity to variability in the class, the court forced the case through trial with a flawed statistical plan that did not manage but instead ignored individual issues.
Slip Opinion, at 28-29.

Rather than assessing the manageability of the individualized issues presented by the outside sales exemption, the trial court used the statistical model to overcome the problematic “individualized” element of the exemption defense, and in so doing, substantively altered the law to permit class-adjudication:
Although the trial court‘s certification decision was apparently influenced by Sav-On, supra, 34 Cal.4th 319, the court overlooked our advisements about the need to manage individual issues in a class action. Although we found substantial evidence of common issues supporting certification in that misclassification case, we also articulated an important caveat: “Unquestionably, . . . defendant is entitled to defend against plaintiffs’ complaint by attempting to demonstrate wide variations in the types of stores and, consequently, in the types of activities and amounts of time per workweek the [class members] in those stores spent on different types of activities.” (Id. at pp. 329-330.)  In rigidly adhering to its flawed trial plan and excluding relevant evidence central to the defense, the court here did not manage individual issues. It ignored them.
We have long observed that the class action procedural device may not be used to abridge a party’s substantive rights. “Class actions are provided only as a means to enforce substantive law. Altering the substantive law to accommodate procedure would be to confuse the means with the ends—to sacrifice the goal for the going.” (City of San Jose v. Superior Court, supra, 12 Cal.3d at p. 462.) 
Slip Opinion, at 29-30.

As aptly stated by the Court, “Class actions do not create a ‘requirement of common evidence.’ Instead, class litigation may be appropriate if the circumstances of a particular case demonstrate that there is common evidence.”  See Slip Opinion, at 33.  Thus, for example, a theory which seeks to establish class-wide liability using an employer’s standardized employment policies is an appropriate candidate for certification because “[i]n such a case, the evidence for uniformity among class members would be strong, and common proof would be sufficient to call for the employer to defend its claimed exemption.”  See id., at 34-35.  In stark contrast, however, the Court makes clear that it would be inappropriate to use statistical sampling to artificially “manufacture predominate common issues where the factual record indicates none exist.”  See id., at 26-27.  Statistical sampling cannot be used to end-run such defects.  As held by the Court, “[s]tatistical methods cannot entirely substitute for common proof” as “[t]here must be some glue that binds class members together apart from statistical evidence.”  See id., at 26.

Importantly, the Court rejected the argument that an employer has a due process right to litigate a defense individually as to each and every class member [Slip Opinion, at 35 (“No case, to our knowledge, holds that a defendant has a due process right to litigate an affirmative defense as to each individual class member”)], but it also held that a trial court may not use this fact as a basis to eliminate individualized challenges when statistical methods are used to establish liability.  As explained by Justice Liu, “because [statistical] methods are inherently designed to reveal generalized characteristics of a population, they pose the risk that a defendant’s affirmative defenses as to individual employees will not be properly adjudicated.” See Slip Opinion, at 8 (Liu Concurring).  As such, “[i]f trial proceeds with a statistical model of proof, a defendant accused of misclassification must be given a chance to impeach that model or otherwise show that its liability is reduced because some plaintiffs were properly classified as exempt.”  See id., at 35.  Moreover, “[i]f a defense depends upon questions individual to each class member, the statistical model must be designed to accommodate these case-specific deviations.” See id., at 38.   However, “[i]f statistical methods are ultimately incompatible with the nature of the plaintiffs’ claims or the defendant‘s defenses, resort to statistical proof may not be appropriate.”  See id.

In closing, it is important to highlight that while reversal in this case may be perceived as a defense victory, when viewed at the macro level it actually is not.  As the focus of the opinion (and especially Justice Liu’s concurring opinion) was to lay the framework for successfully using statistical modeling to adjudicate liability issues in future cases, the net result of the Court’s opinion actually lays the framework for expanding (as opposed to reducing) the grounds on which future cases may be certified.

Sunday, May 18, 2014

Fourth District Concludes Decertification of Suitable Seating Class Was Error, As Trial Court Was Not Permitted To Rule On The Viability of the Plaintiff’s Legal Theory Under the Wage Order: Hall v. Rite Aid Corp.

On May 16, 2014, 2014, the Fourth District (Division 1) ordered publication of its opinion in Hall v. Rite Aid Corp., __ Cal. App. 4th __ (2014) [2014 Cal. App. LEXIS 426], which concluded the trial court erred by decertifying the plaintiff’s suitable seating claim “based on an assessment of the merits of [the plaintiff’s] theory rather than on whether the theory was amenable to class treatment.”  See Slip Opinion, at 2-3.  At issue was whether the trial court acted properly by rendering a legal ruling on the plaintiff’s theory of liability – which involved a disputed interpretation of section 14 of the Wage Order – within the confines of a motion for certification.

Specifically, the plaintiff’s theory of liability – which had previously been certified by the trial court – “was that the work performed by Cashier/Clerks when stationed at the check-out registers reasonably permits the use of seats and therefore the failure to provide seats violated section 14 ….” See Slip Opinion, at 4.  Rite Aid sought decertification by proffering a completely different interpretation of the Wage Order, which it claimed rendered the liability question individualized.  Id., at 6-7 (asserting (1) that “under section 14 [of the Wage Order], the ‘nature of the work’ inquiry requires examination of the job ‘as a whole,’ rather than whether some discrete subpart of the employee's duties was amenable to being performed while seated” [cite], and (2) that “the variations among class members as to their job as a whole, including the amount of time they spend at the check-out counter compared with other duties, … made class treatment improper because … [it] required individualized inquiries for each class member….”).  Yet, despite the plaintiff’s assertion that such grounds were immaterial to the theory of liability she put forward [id., at 7-8], the trial court adopted Rite Aid’s interpretation of the Wage Order and decertified the class.  Id., at 8.

Importantly, the Court of Appeal held that this was error because, by basing decertification on a substantive interpretation of the Wage Order, the trial court’s order impermissibly rested upon the “merits” of the plaintiff’s proffered theory rather than on whether the theory itself would be amenable to common proof:
It does not appear that any aspect central to Hall's theory of recovery (i.e. what is Rite Aid's policy, and whether the nature of the work involved in performing check-out functions would reasonably permit the use of seats) would not be amenable to common proof. Indeed, the trial court's decertification order did not make a contrary determination (i.e., those inquiries would not be amenable to common proof), but was instead based on its conclusion that Hall's theory of liability was unmeritorious. Specifically, it concluded, contrary to Hall's postulated theory, that section 14 does not mandate the provision of suitable seats when the nature of a substantial task within an employee's range of duties would reasonably permit the use of seats, but instead mandates the provision of suitable seats only when the nature of an employee's work as a whole would reasonably permit the use of seats. Based on that construction of section 14, the trial court concluded decertification was proper because individual issues as to each class member's "job as a whole" would predominate over common questions. However, under Brinker as construed by Bradley, Benton and Faulkinbury, the trial court's decertification order was based on improper criteria and/or erroneous legal assumptions and must be reversed because it based its ruling on the merits of Hall's theory rather than on whether the theory itself would be amenable to common evidentiary proof.
See Slip Opinion, at 19.

Significantly, the Court rejected Rite Aid's contention that it is appropriate to resolve statutory interpretation issues at the certification stage to prevent a plaintiff from “inventing a class action by proposing an incorrect rule of law”, asserting this process conflicts with Brinker.  Id., 20 (“We read Brinker to hold that, at the class certification stage, as long as the plaintiff's posited theory of liability is amenable to resolution on a class-wide basis, the court should certify the action for class treatment even if the plaintiff's theory is ultimately incorrect at its substantive level, because such an approach relieves the defendant of the jeopardy of serial class actions …”).  As explained by the Court, Brinker makes clear that the ultimate legal question posed by a theory of liability cannot be resolved in the context of certification, as the propriety of certification does not depend on the court determining such legal matters:
Rite Aid, seizing on Brinker's observation that "[t]o the extent the propriety of certification depends upon disputed threshold legal or factual questions, a court may, and indeed must, resolve them" (Brinker, supra, 53 Cal.4th at p. 1025, italics added), argues the court properly evaluated the merits of Hall's legal theory as a predicate to ruling on the decertification motion. However, Brinker repeatedly cautioned that "[s]uch inquiries are closely circumscribed" (id. at p. 1024) and ordinarily should not be addressed as part of the certification evaluation. (Id. at p. 1023 ["resolution of disputes over the merits of a case generally must be postponed until after class certification has been decided [citation] with the court assuming for purposes of the certification motion that any claims have merit"].) We interpret the highlighted language in the passage from Brinker cited by Rite Aid to mean, by negative implication, that to the extent the propriety of certification does not depend on determining threshold legal matters, such determinations should be deferred.n7 Here, the propriety of certification does not depend on whether Hall's interpretation of section 14 is correct because, "assuming for purposes of the certification motion [Hall's] claims have merit," the certification question must focus on whether common questions relevant to proving Hall's theory would predominate over individual issues. Certainly, whether Rite Aid had a policy requiring Cashier/Clerks to stand while working at the register is subject to common proof. Moreover, the other factual question central to Hall's theory of recovery--whether the nature of the work involved in performing check-out functions would reasonably permit the use of seats--appears equally amenable to common proof. Thus, regardless of whether Hall's or Rite Aid's interpretation of section 14's mandate is correct, class certification for Hall's claim would be proper,n8 and resolution of disputes over the merits of Hall's theory of recovery must be deferred until after the class certification has been decided.
See Slip Opinion, at 21-22.