Due Process Rights of Employers and Class Action Defendants Upheld

The highly anticipated decision of the California Supreme Court in Duran v. U.S. Bank is a big win for employers and class action defendants. On Thursday, the Supreme Court in Duran affirmed the appellate court's decision in its entirety. Duran is the first case that squarely addresses the use of statistical sampling for establishing liability in class actions. The use of this statistical evidence—by which the results of a sample of putative class members are extrapolated and applied as true to all putative class members—was previously accepted only in the context of establishing damages. (See, e.g., Bell v. Farmers Ins. Exchange (2004) 115 Cal. App.4th 715.)

Background

Duran was a wage-and-hour class action lawsuit involving claims of misclassification and nonpayment of overtime, brought by employee loan officers. After certifying a class of 260 plaintiffs, the trial court devised a trial plan to determine the extent of the defendant's liability, by extrapolating from a random sample of approximately 20 class members (plus the two named plaintiffs). The court ultimately heard testimony from 21 plaintiffs about their work habits. The defendant was not permitted to introduce evidence about the work habits of any plaintiff outside this sample. Based on testimony from this small sample group, the trial court found that the entire class had been misclassified. The court again used statistical sampling to assess damages, and assessed damages at a total of $15 million, averaging over $57,000 per class member.

Statistical Sampling to Establish Liability is Improper

The Supreme Court affirmed the appellate court's decision, finding that the trial court's use of statistical sampling to establish liability was improper, as it precluded the defendant employer from presenting relevant evidence and violated its due process rights. The Supreme Court also found that the trial court's chosen statistical methodology was flawed because it arbitrarily sampled a small group of employees without regard to whether the sample was statistically significant or representative of the class as a whole. The Supreme Court further noted that even the statistical sampling used to calculate damages was improper, as the methodology had an unacceptably high margin of error at 43 percent. The Supreme Court not only reversed the trial court's findings on liability and damages, but also decertified the class.

Still No Case Law to Support This Trial Plan

There are several important takeaways from the Duran opinion.

1. Most importantly, the court found that the statistical evidence used to establish liability was improper, meaning there is still no case law or other legal authority affirming the use of this evidence at the liability stage of a case.
2. The Supreme Court also noted that if an appropriate statistical sampling method were ever developed, defendants must still be permitted to introduce evidence in their defense, even if such evidence involves individual issues or defenses. Refusal to allow this evidence, as the trial court in Duran did, would constitute a violation of due process rights.
3. The Duran decision also means that no class action plaintiffs to date have been able to devise a trial plan that is both workable and preserves a defendant's due process rights. The class action process is a procedural mechanism that was devised to make lawsuits with numerous plaintiffs (class members) more manageable. As the Supreme Court suggested, however, what makes a case more manageable in the beginning of a case does not necessarily translate well at trial.

As this problem for class action plaintiffs becomes more noticeable and well-known, we hope that more victories will be had by class action defendants. Although the court left open the possibility that statistical evidence could be used in the future to establish liability, the court also expressed skepticism on how that could be accomplished.

Next Steps for Employers

Employers should be aware that the Duran decision confirms prior cases which indicate that unless an employer has a uniform policy or consistent practice that violates wage/hour laws, class certification will not be granted. Employers are advised to work with counsel to ensure that their policies and practices are current and do not inadvertently violate any employment laws.

Lastly, employers can expect that expert opinions will become more important earlier in a case. Although this could increase the burden on employers in gathering data and conducting discovery, it will likely also increase the burden for plaintiffs' counsel. This too may help employers gain leverage earlier in the case, leading to more victories for employers.