California Supreme Court Preserves Employer’s Right to Litigate Defenses in Class Action Trial

by Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

Duran v. U.S. Bank National Association, No. S200923, California Supreme Court (May 29, 2014): On May 29, 2014, the California Supreme Court issued a decision holding that employers that are defending class action claims of misclassification must be permitted to present relevant defenses, even if the defenses require addressing individual issues. In what it called an “exceedingly rare beast,” namely “a wage and hour class action that proceeded through trial to verdict,” the high court scrutinized the lower court’s trial plan, which relied on a statistical sampling of class members to determine if the employer had misclassified all class members as exempt. In so doing, the California Supreme Court preserved the employer’s due process right to litigate affirmative defenses.

Sam Duran and 260 current and former business banking officers (BBOs) employed by U.S. Bank National Association (USB) filed a lawsuit claiming that the bank had misclassified them as exempt employees under the outside salesperson exemption and had denied them overtime pay. The outside salesperson exemption applies to employees who spend more than 50 percent of their workday engaged in sales activities outside the office.

After certifying the class, the court implemented a trial management plan that allowed the plaintiffs to use a sampling of 20 employees to testify at trial (in addition to testimony from one of the named plaintiffs). Over the bank’s repeated objections, the trial court refused to admit into evidence the declarations of 75 absent class members who claimed that they spend more than 50 percent of their workday engaged in outside sales. Instead, the court only allowed the employer to present evidence or arguments related to the 21 class members who were included in the sample. Following a bench trial, the trial court awarded $15 million in restitution and $18 million in attorneys’ fees to the class members.

USB appealed the decision. In a case of first impression, the California Court of Appeal found that the lower court’s trial plan was “fatally flawed” because it deprived the employer of its constitutional right of due process by preventing the employer from defending against the individual claims of 90 percent of the class members. The appellate court reversed the judgment and decertified the class. The employees appealed the decision to the California Supreme Court.

On appeal, the California Supreme Court agreed with the Court of Appeal that the trial court’s implementation of a representative sampling was flawed. Moreover, the state’s highest court agreed that such use of the sampling prevented USB from presenting evidence to show that some of the class members were properly classified as exempt and were not entitled to a recovery. The court emphasized the importance of managing individual issues in a class action, stating, “In certifying a class action, the court must also conclude that litigation of individual issues, including those arising from affirmative defenses, can be managed fairly and efficiently.” And, while the court did not entirely reject the utility of sampling and representative testimony as a method of managing individual issues in class actions, it noted that “these statistical methods cannot so completely undermine a defendant’s right to present relevant evidence.” The California Supreme Court returned the case to the lower court for a new trial on liability and restitution and held that the trial court may hear a new motion for class certification.

According to Robert R. Roginson, a shareholder in the Los Angeles office of Ogletree Deakins: “Duran should be a helpful case for California employers defending against wage and hour class actions. In Duran, the California Supreme Court recognized the very real and significant role that the manageability at trial of individual issues plays in determining whether a class action is a superior device for resolving wage and hour controversies. A class action trial management plan must permit the litigation of an employer’s relevant affirmative defenses, even when these defenses turn on individual issues. Trial courts should now be expected to scrutinize closely plaintiffs’ class certification motions to determine if the plaintiffs have shown that they can actually litigate a class action case that affords an employer these due process protections.”

Note: This article was published in the May 2014 issue of the California eAuthority.


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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