At the end of May, the California Supreme Court issued its decision in Duran v. U.S. Bank National Association. Case No. S 200923 (May 29, 2014) (available here). In December 2001, the plaintiff filed a class action lawsuit alleging that U.S. Bank had misclassified its loan officers as exempt employees under the outside salesperson exemption. The outside sales exemption applies to employees who spend more than 50 percent of their workday engaged in sales activities outside the office.
In Duran, the trial court certified a class of 260 officers and then began a two-stage approach to determine liability and damages. During the first phase, the court created a trial plan to determine the extent of U.S. Bank’s liability by extrapolating from a random sample of 20 officers and heard testimony about the work habits from these loan officers. The court did not allow U. S. Bank to introduce evidence about the work habits of officers outside of this sample. The trial court held that the class members were misclassified and owed overtime; damages for the overtime wages were to be determined in phase two of the trial. The second phase focused on the statistics experts’ testimony. The trial court then extrapolated the average amount of overtime reported by the sample group to the whole class, and issued a verdict of approximately $15 million.
The Court of Appeal reversed the trial court’s decision, and the plaintiff petitioned the California Supreme Court for review. The Supreme Court affirmed the Court of Appeal’s judgment in its entirety, finding that although “[s]tatistical sampling may provide an appropriate means of proving liability and damages” in class actions, “the trial court’s particular approach to sampling here was profoundly flawed.” Slip op. at 2. Notably, however, the opinion held that certification is still viable even where there are individualized issues, indicating that the important question is the manageability of the action. Id. at 24. A trial court may allow parties to use surveys and statistical sampling as management tools; and an employee may use sampling to show an employer’s uniform policy, but the plan must be conducted with “sufficient rigor.” Id. at 25-26.
Additionally, the Court rejected U.S. Bank’s argument that it had a due process right to adjudicate its exemption defense by calling each class member to testify. The Court held that the defendant must be allowed to present affirmative defenses according to the trial management plan (finding that the lower court’s plan failed to do so) and that those defenses should be considered, but the defendant’s presentation of proof of such defenses must be within the method the court and parties fashioned to try the issues. Id. at 29-35. In its opinion, the Court provided guidance on how to develop and use sampling evidence, distinguishing sampling used to provide liability versus sampling used to prove damages. See id. at 40-49. The Court further held that when sampling is used, it must be utilized carefully, e.g. the sample size needs to be large enough and the sample must be randomly selected, representative, and may not include named plaintiffs. Id. at 40-44. Also, the margin of error in the sampling method must not be too high. Id. at 46.
Duran was remanded for a new trial on both liability and restitution, and the opinion indicated that the trial court may also entertain a renewed class certification motion. It remains to be seen whether the case will ultimately turn out to be a win for the plaintiffs’ bar, but even the Court noted that this case was “an exceedingly rare beast,” meaning that the problems in Duran are not likely to occur again. Slip op. at 1.