Kim Kralowec, Kralowec Law Group (Jason Doiy / The Recorder)
SAN FRANCISCO — Business interests looking to rein in wage-and-hour litigation in California may have found an ideal vehicle.
Next month the California Supreme Court will hear arguments in Duran v. U.S. Bank, in which a class of 260 bank officers won $15 million for unpaid overtime. The judgment was based largely on testimony from a random sample of 20 plaintiffs, along with supporting statistical analysis from an expert witness.
U.S. Bank and a host of amici curiae say the trial judge relied on the same kind of “trial by formula” that the U.S. Supreme Court criticized in its 2011 class-action ruling Wal-Mart v. Dukes. They’re urging the California justices to import Wal-Mart’s principles to California law and even extend them.
The plaintiffs employment bar acknowledges that the use of sampling and statistics “stands at the crossroads of this case.” But these are reasonable, time-tested tools for managing sprawling class litigation, argues Kimberly Kralowec for the California Employment Lawyers Association. “The alternative is individual joinder, or calling hundreds of class members to the stand,” she writes in an amicus brief. “No principle of ‘due process’ compels California to operate its court system that way.”
The Duran case dates to 2001, when Edward Wynne of the Wynne Law Firm in Greenbrae filed a complaint challenging U.S. Bank’s “lucrative, repressive and unlawful business practices.” Wynne alleged that the bank was misclassifying its business banking officers—agents who sell loans to small businesses—as outside sales personnel exempt from overtime. He moved for class certification in 2005, submitting declarations from 34 current and former officers who said they worked mostly inside branch offices.
U.S. Bank’s counsel at San Francisco’s Carothers DiSante & Freudenberger responded with declarations from 75 other officers who said they worked mostly from the outside. Even the four named plaintiffs, the bank argued, had admitted they qualified for the exemption.
Wynne substituted in two new name plaintiffs, and Judge Robert Freedman of Alameda County Superior Court certified the class, finding that common questions of law and fact predominated over individual legal or factual disputes.
U.S. Bank continued to press its argument for individualized treatment, proposing to divide class members into groups of 20 to 30 for evidentiary hearings. Wynne argued the bank had no due process right to litigate affirmative defenses against every single class member.
Freedman agreed and instead chose to take live testimony from 20 representative class members.
But even scaled down, the trial consumed 41 days. Ultimately, Freedman found U.S. Bank liable. Based on the limited trial testimony, plaintiffs’ expert estimated all class members’ average weekly overtime at 11.87 hours, with a margin of error of 5.14 hours. Freedman accepted that calculation and awarded $9 million, plus $6 million in interest.
The court of appeal reversed, saying the 43 percent margin of error on damages was unacceptable, and that Freedman should have considered the 75 declarations when determining liability. “We have never advocated that the expediency afforded by class action litigation should take precedence over a defendant’s right to substantive and procedural due process,” Justice Robert Dondero wrote.
Duran is one of the few misclassification cases actually tried to judgment in California, and it has exposed shortcomings in the sampling approach, Carothers DiSante partner Alison Tsao argues in her brief to the Supreme Court.
“Although plaintiffs never proved misclassification nor overtime hours for every class member, the court awarded recovery to all class members, averaging over $57,000 per person,” she writes. That includes a total of almost $6 million awarded to the 75 declarants who indicated they were properly classified.
Horvitz & Levy partners Robert Wright and Felix Shafir, who are representing the U.S. Chamber of Commerce as amicus curiae, say the case gives the Supreme Court the opportunity to adopt limits on class actions set out in Wal-Mart. That decision held that plaintiffs could not use statistical evidence of pay and promotions to certify a gender-discrimination class of 1.5 million female employees.
“The Walmart case really signaled that you can’t use this trial by formula” when it cuts into a defendant’s due process right to present a defense, Shafir said.
California courts seem to be skirting the issue. Two years ago, state Supreme Court Justice Kathryn Mickle Werdegar wrote a concurring opinion in Brinker Restaurant v. Superior Court that said representative testimony, surveys and statistical analysis remain “available as tools to render manageable determinations of the extent of liability.” But only Justice Goodwin Liu signed her concurrence, leaving open the question of whether a majority of the court agrees.
In the Ninth Circuit, Judge William Fletcher wrote last year in Wang v. Chinese Daily News that in light of Wal-Mart, “employers are also entitled to litigate any individual affirmative defenses they may have to class members’ claims.” Following a petition for rehearing, that language was removed from the opinion. Plaintiffs, meanwhile, argue that a decision siding with U.S. Bank would “eviscerate” most class actions. “Nearly every defendant in every class action claims that liability depends on the ‘individual circumstances’ of the class members,” Oakland appellate specialist Ellen Lake writes in her brief for the plaintiffs. Lake and Impact Fund founder Brad Seligman, who litigated Wal-Mart, joined Wynne for the Supreme Court appeal, though Seligman has since been appointed to Alameda County Superior Court. Amicus attorney Kralowec, of San Francisco’s Kralowec Law Group, dismisses the “trial by formula” objection as a “catchphrase found in Dukes.”
Wal-Mart v. Dukes was a Title VII case, not a misclassification case, Kralowec writes in her amicus brief. The California Supreme Court should stick with its own 2004 ruling in Sav-on Drug Stores v. Superior Court, which endorsed the use of statistical and sampling evidence.
“As Sav-on and many other decisions make clear, the trial court has broad discretion in selecting appropriate management tools and deciding which of the available tools is best-suited to the particular class proceeding,” Kralowec writes. “Once selected by the trial court, these management tools are not optional for the litigants.”
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