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Duran v. U.S. Bank: the California Court of Appeals Decision Is Not the Death Knell of Overtime Class Actions
Steven G. Zieff is a partner with Rudy, Exelrod, Zieff & Lowe, LLP, serves on the Board of Directors of Legal Aid Society–Employment Law Center, and was lead counsel in Bell v. Farmers Insurance Exchange, (2004) 115 Cal. App. 4th 715.
Background and Opinion of the Court of Appeal
Class actions are one of the most important tools that workers, particularly low income workers, have to protect their statutory rights. As a practical matter, workers can’t get legal counsel or spend the hundreds of thousands of dollars it may take to properly prosecute a wage claim unless they can band together and get attorneys to handle class actions. Many employers know that by knocking out class actions, they can effectively immunize themselves from liability for wage theft or failure to pay groups of workers overtime. This is why some of the language in the recent Duran decision, as well as the way it has been construed by some employer commentators, is disturbing for those concerned about the rights of employees and especially low income workers. Even though the Duran opinion pertained to bank employees, its language has ramifications for all California employees. See Duran v. U.S. Bank National Association, 2012 WL 366590 (Feb. 6, 2012, Petition fro Rehearing filed Feb. 21, 2012.)
Over the past year or so, a number of decisions, particularly from federal courts, made it increasingly difficult for workers and consumers to pursue class actions to protect their statutory rights. See ATT v. Concepcion, Wal-Mart Stores v. Dukes, 564 U.S__ ,131 S. Ct. 2541 (2011). But, California Courts have traditionally put greater emphasis on the importance of the class action as fundamental and necessary procedures available to workers to protect their statutorily guaranteed rights to overtime pay and other protections under California labor law. Sav-On Drug Stores, Inc. v. Superior Court, (2004), 34 Cal. 4th 319; Bell v. Farmers Insurance Exchange, (2004) 115 Cal. App. 4th 715.
Earlier this month, the California Court for the First Appellate District reversed a $15 million class action judgment for unpaid overtime in Duran v. U.S. Bank Nat’l Ass’n, 2012 WL366590 (February 6, 2012). The gist of the Court of Appeal’s decision was that the $15 million dollar judgment should be reversed because the judgment was based on a flawed trial plan. The trial court had found that U.S. Bank’s business banking officers (BBOs) were not truly exempt outside sales persons and were, thus, entitled to overtime. In Duran, the Court of Appeals does not dispute that the trial record shows most of the BBOs would be entitled to overtime pay as it is clear from the record that the majority of the BBOs worked most of their time in the office and, thus, were not, in fact, exempt outside salespersons. The Alameda County trial court certified the class of BBOs and adopted a trial plan allowing class-wide liability and damages to be determined on the basis of a sample of 20 randomly selected BBOs out of the entire class of 260 BBOs. In arguing for class certification and the classwide determination of liability and damages, the employees relied on Bell v. Farmers Insurance Exchange, (2004) 115 Cal. App. 4th 715, in which statistically reliable evidence drawn for a random sample supported a class action judgment against Farmers of over $90 million. (Farmers eventually paid out over $200 million in the Bell class action.).
In Duran, the Court of Appeal found that trial court’s trial plan and the record on which the Judgment was based differed from the trial plan in Bell in a number of key respects. In Bell, the size of the representative sample used as the basis for calculating straight overtime damages was determined after extensive calculations had been made by expert statisticians based on results of depositions of class members and pilot studies; whereas, in Duran that was not the case. The Court of Appeal found that, in the Duran case (as distinguished from the Bell case), the trial court chose the size of the representative group without any consideration as to probable margin of error and without the benefit of any surveys or pilot studies. The Court of Appeal wrote that “the sampling done in the Bell III case was at all times random, unlike here [in the Duran case] where a comparatively high number of RWG members [class members selected to be in the sample group] opted out before trial, and the trial court allowed evidence from the two named plaintiffs not randomly chosen to be extrapolated to the entire class.” Next, the Court of Appeal in Duran pointed out that the Judgment in the Duran case was affected by a 43.3 percent margin of error; where as, in Bell, the margin of error was an acceptable and much lower amount of less just over nine percent (9%). The Court of Appeal in Duran also reasoned that another factor present in the Duran case that was not present in Bell involves the repeated restrictions the trial court placed on U.S. Bank’s ability to present arguably relevant evidence in its defense.Given the perceived problems with trial plan and even though the majority of the BBOs were apparently entitled to overtime pay, the Court of Appeal in Duran went on to reverse the Judgment of $15 million. The Court of Appeal found that the Judgment violated due process and was unfair to U.S. Bank because [the Court of Appeal opined] it was not based on a statistically valid and reliable record and because U.S. Bank was precluded from presenting evidence that the trial court should have allowed U.S. Bank to present. In short, the Court of Appeal found that the trial court in Duran failed to adhere for the standards for statistical proof in class actions that had been endorsed by the Court of Appeal in the Bell case.
However, the Court of Appeal did not stop there. The Duran opinion contains some broad brush language that has since been construed by some employers’ lawyers as categorically holding that it is improper to use representative sampling to determine liability in wage and hour class action lawsuits. But, the wishful suggestions by those employer advocates that the Duran case spells the end of wage and hour class actions are premature. California law does not prevent trial courts from allowing the use evidence drawn from a statistically reliable sampling to establish liability in an overtime misclassification case. If that were indeed the ruling of the Court of Appeal in Duran, it would be erroneous and inconsistent with the holdings of the California Supreme Court and other appellate decisions long recognizing the importance of the class action device in vindicating the rights of California workers.
Moreover, the Duran opinion does not clearly indicate whether the trial court is free to reconsider on remand whether it can entertain a new motion for class certification and, if class certification is granted by the trial court on remand, whether it is possible to come up with a trial plan that satisfies the due process concerns expressed by the Court of Appeal. Even if the Court of Appeal had properly assumed that the Judgment was improper and the trial court abused its discretion in fashioning a trial plan, it would be highly and unusual and improper to preclude the trial court from determining on remand whether the class should be certified and whether the trial court could come up with an acceptable trial plan. The Plaintiffs in Duran have filed a Petition for Rehearing seeking, among other things, the Court’s clarification of its decision as whether, on remand, the trial court is precluded from even considering whether it could come up with a class certification and trial plan that is manageable and would allow the defendant a fair chance to present a defense.
The Court of Appeals Decision in Duran is not the Death Knell of California Overtime Class Actions
Duran does highlight the importance of being disciplined and rigorous when relying on statistical proof in class actions. When relying on statistical evidence, it is important to have a truly random sample and to make sure that the evidence is reliable and valid, such as the representative evidence approved in the Bell case. The Court of Appeal reversed the judgment in Duran because it found that the trial court “resort[ed] to an unproven statistical methodology” and adopted a flawed trial plan.
Several employer advocate commentators have argued that the Duran opinion stands for the proposition that it is categorically improper to use representative sampling to determine liability, even in cases where the majority of the class members are non-exempt employees entitled to overtime pay. They point to language in that opinion that they argue suggests that the use of statistical evidence and representative testimony is improper to establish liability where even a small number of class members may be arguably exempt, reasoning that the employer should have a right to present individualized proof for each and every employee in the class. If that is truly what the Court of Appeals opined, its decision would be at odds with the California Supreme Court’s decision in Sav-On, as well as the Court of Appeal’s rulings in Bell. In Sav-On, the Supreme Court held that surveys, statistical evidence, and other representative evidence are allowable forms of proof in wage and hour class actions where the evidence is reliable and presented under a trial plan that is fair to the defendant employer. In Bell, statistical evidence was used to both prove classwide damages and to show that 91% of the class worked overtime.
In Sav-on Drugstores, Inc. v. Superior Court, the California Supreme Court reaffirmed both the fundamental and non-waivable right to overtime pay and the vital importance of class actions as the most viable means of protecting worker’s statutory rights. The Supreme Court ruled that the Courts are to favor class actions and be flexible and innovative in adapting class action procedures in a way that will maximize workers’ capabilities of vindicating those rights, including cases where the defendants’ pay practices result in “widespread [that is., not universal] de facto misclassification” of workers. In Sav-On, the Supreme Court recognized that: “a reasonable court, even allowing for individualized damage determinations, could conclude that, to the extent plaintiffs are able to demonstrate pursuant to either scenario that misclassification was the rule rather than the exception, a class action would be the most efficient means of resolving class members’ overtime claims.” The Supreme Court’s Sav-On decision repeatedly recognizes that even if some individual facts may be “required to parse class members' claims’ that would not prevent the maintenance of a class action. “Predominance is a comparative concept, and “the necessity for class members to individually establish eligibility and damages does not mean individual fact questions predominate.” (Reyes v. Board of Supervisors, supra, 196 Cal.App.3d at p. 1278, 242 Cal.Rptr. 339; see Lockheed, supra, 29 Cal.4th at p. 1105, 131 Cal. Rptr.2d 1, 63 P.3d 913; Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 707-710, 63 Cal.Rptr. 724, 433 P.2d 732.) Individual issues do not render class certification inappropriate so long as such issues may effectively be managed.”
The Sav-On court specifically held that:
“It may be, of course, that the trial court will determine in subsequent proceedings that some of the matters bearing on the right to recovery require separate proof by each class member. If this should occur, the applicable rule… is that the maintenance of the suit as a class action is not precluded so long as the issues which may be jointly tried, when compared to those requiring separate adjudication, justify the maintenance of the suit as a class action.” (Vasquez, supra, 4 Cal.3d at p. 815, 94 Cal.Rptr. 796, 484 P.2d 964; see Lockheed, supra, 29 Cal.4th at p. 1105, 131 Cal.Rptr.2d 1, 63 P.3d 913.) ”Some employer advocates point to the Duran decision as gift for employers and a roadblock to class actions seeking overtime pay for workers. Certainly, if Duran were to be interpreted by California Courts in that manner, that would not be a good thing for California workers. But, fortunately for California workers, all California Courts are bound by the foregoing principles carefully laid out by the California Supreme Court in Sav-on.
The record in Duran is distinguishable from that in Bell and many other overtime class misclassification cases. Bell and Sav-On make it clear that statistical and other representative evidence are to be permissible forms of proof to establish both liability and damages in wage and hour class actions. The language in both of those cases support the use of statistical evidence to prove both liability and damages in overtime class actions where that proof is reliable, valid, and supported by sufficient expert testimony. Further, the Duran opinion does not address other class actions in which liability can be decided on summary judgment or where the liability dispute does not turn on the amount of time spent by class members on exempt duties. At the end of the day, while the Duran opinion contains some troubling language and is imprecise in a number of respects, it does not signal an end to overtime class actions in California. As much as some employer commentators would like Duran to over-rule the Supreme Court’s rulings, Sav-On still remains good law. Overtime class actions are here to stay.