Duran v. U.S. Bank National: California Supreme Court Finds Class Certification Violated Due Process

The Supreme Court of California released its decision in Duran v. U.S. Bank National Association on May 29, 2014.  The decision will likely reshape the landscape of class-action practice in California. Finding that the trial court had improperly certified a class of employees, the supreme court held that: 

  • Class certification is only appropriate when the trial plan permits litigation of individual defenses, and defendants have a due process right to present individual defenses. 
  • Merely showing a predominance of common issues is not enough to certify a class; plaintiffs must also show that the individual claims can be litigated “fairly and efficiently.”
  • Even when statistical methods are appropriate, they cannot be a substitute for common proof, and concern for parties’ rights requires that courts use them with caution. 
  • Courts should ordinarily develop a statistical plan before certifying a class, and must decertify the class when it becomes clear that the plan is unworkable. 
  • The trial court’s approach to statistical methodology was “profoundly flawed.”  

This decision clarifies some of the confusion in California courts following the United States Supreme Court’s decision in Wal-Mart-Stores, Inc. v. Dukes, 546 U.S. __ (2011), and should significantly aid lower courts in determining the viability of potential class treatment.  Consistent with the Dukes decision, the California Supreme Court stressed the importance of defendants’ due process rights in the context of class actions.

Summary of Duran v. U.S. Bank National Association  

The two named plaintiffs worked as bank officers for United States Bank National Association. They sued, on behalf of a purported class of 260 employees alleging that they had been misclassified as “exempt” employees under the California Labor Code, and were thus owed overtime wages. The trial court granted class certification.  The parties were unable to agree on a trial management plan.  The trial court suggested an option: it could take a random sample of twenty plaintiffs to testify during the liability phase of the trial.  The bank repeatedly objected to this proposed method, claiming that it violated its due process rights.  The court ultimately conducted phase one of the trial and permitted testimony from the nineteen remaining members of the representative sample group and two of the named plaintiffs.

After the first phase of the trial, the court found that all of the class members had been misclassified, and turned its attention to damages.  For the second phase, both sides presented evidence from experts in statistical methodology and the court determined that “the best estimate . . . is that the class worked 11.86 overtime hours per week with an absolute margin of error of approximately plus or minus 5.14 hours . . . .”  It went on to grant plaintiffs a total award of $14,959,565. On appeal, the bank argued that the trial plan violated its due process rights.  

The Decision on Appeal

The California First District Court of Appeal held that the trial court erred in its use of a representative sampling method and found that the method used by the trial court violated due process because it prevented the bank from raising defenses unique to class members who were not part of the sample group. Citing both California and federal cases, including the United States Supreme Court’s decision in Wal-Mart Stores, Inc. v. Dukes, 564 U.S. ___ (2011), the court of appeal found that when the question of an employee’s exempt-status depends on facts specific to that employee, due process requires individual inquiries. Finally, the court criticized the trial court for not permitting the bank to introduce evidence about the class members who had not been selected as part of the random sample, which could have established that a significant group of class members had been properly classified.  

The CA Supreme Court’s Decision

The Supreme Court of California affirmed the appellate court’s decision. The supreme court held that defendants are entitled to present individual defenses, and courts may only certify a class when the trial plan adopted preserves that right.  It went on to find that while statistical sampling may sometimes be appropriate, the trial court’s use of it was “profoundly flawed.” This decision confirms that California law is consistent with Wal-Mart-Stores, Inc. v. Dukes, 546 U.S. __ (2011). 

The supreme court held that “a class action trial management plan must permit the litigation of relevant affirmative defenses, even when these defenses turn on individual defenses.” Class certification is therefore inappropriate when the trial management plan cannot “fairly and efficiently” allow defendants to present those defenses. Although the court reiterated its encouragement to lower courts to be innovative in their trial management plans, it urged them to consider manageability closely, and to decertify classes when it becomes clear that they are not manageable in such a way as to permit individual defenses to be presented.  The court went on to state that the class action procedure is just that: a procedure.  It “may not be used to abridge a party’s substantive rights,” and when it is likely to do so, it must be abandoned.  The court found that the trial court in Duran “did not manage individual issues.  It ignored them.” 

The court did not foreclose the use of statistical methodologies such as sampling and surveys in the class-action context, but stated that the trial court “would be well advised” to develop any plans for statistical proof and methods before certifying a class, and should be prepared to order decertification if they prove unworkable.

Impact of the Decision

The decision in Duran confirms that California courts must be mindful of defendants’ due process rights; the mere presence of common questions does not permit a court to bar the presentation of individual defenses.  While statistical methodologies may be used to find liability, courts cannot create trial management plans that prevent defendants from either attacking the methodology itself or presenting evidence of individual defenses.  The decision thus brings California law into conformity with the United States Supreme Court’s decision in Dukes.

 

Topics:  Banks, Class Action, Class Certification, Due Process, Dukes v Wal-Mart, SCOTUS, Wal-Mart

Published In: Civil Procedure Updates, Constitutional Law Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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