The California Supreme Court has issued its long-awaited decision in Duran v. U.S. Bank. In a significant victory for employers, the Court unanimously agreed to overturn a $15 million judgment in a wage and hour class action based on the trial court’s improper use of statistical sampling. The opinion is likely to guide how wage and hour class actions and representative actions are tried in state court for the foreseeable future.
In Duran, loan officers sued the U.S. Bank National Association (USB), claiming they had been misclassified as exempt employees under the California Labor Code and thus were owed overtime wages. 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. The trial proceeded in two phases: in the first phase (liability), 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 the sample. Nevertheless, based on testimony from the sample group of 21, the trial court found that the entire class of 260 individuals had been misclassified. In the second phase (damages), the court heard testimony from statisticians and extrapolated the average amount of overtime reported by the sample group of 21 to the entire class, resulting in a verdict of approximately $15 million against USB.
The Supreme Court rejected the statistical model used by the trial court, finding it “profoundly flawed.” Here are highlights from the opinion:
1. A workable trial plan needs to be developed prior to class certification and should be considered by the court in assessing whether certification is appropriate. “If statistical evidence will compromise part of the proof on class action claims, the court should consider at the certification phase whether a trial plan has been developed to address its use.” While predominance of common questions is an important factor, a trial court also has to determine that individual issues can be effectively managed in the ensuing litigation.
2. Employers have a constitutional due process right to litigate their affirmative defenses. The class action is a procedural device that may not be used to abridge a party’s substantive rights. “If a defense depends upon questions individual to each class member, the statistical model must be designed to accommodate these case-specific deviations. If statistical methods are ultimately incompatible with the nature of plaintiffs’ claims or defendant’s defenses, resort to statistical proof may not be appropriate.” Defendant must have an opportunity to present proof of affirmative defenses.
3. Statistical sampling may be an appropriate means of proving liability or damages in a wage and hour class action, but in Duran, the statistical model was intolerably flawed for the following reasons: (a) the sample size was too small. The court chose a sample size that was not “sufficiently large to provide reliable information about the larger group,” and instead chose a size that would be convenient and manageable at the expense of the parties’ ability to litigate their case; (b) the sample size was not random. A sample must be randomly selected for its results to be fairly extrapolated to the entire case. In Duran, numerous rulings undermined randomness and gave class counsel the ability to influence the cases selected to be tried in the sample group; (c) there was an intolerably large margin of error; plaintiff’s statistician expert calculated a margin of error of 43.3 percent.
4. If a trial proceeds with a statistical model of proof, a defendant must be given a chance to impeach that model or otherwise show that its liability is reduced.
The Supreme Court’s decision in Duran provides an important affirmation of defendants’ due process rights in class litigation, and provides employers with helpful guidance on the limitations of statistical sampling in such matters.