PLAINTIFFS CANNOT DEPEND UPON A STATISTICAL SAMPLING OF EMPLOYEES WHERE INDIVIDUAL QUESTIONS ARE AT ISSUE
In anticipation of Plaintiffs attempting to submit to the court a small number of employees who will claim to have suffered violations of wage and hour law, the defense should rely to a great extent upon the case of Duran v. U.S. Bank, decided in 2014 by the California Supreme Court, 59 Cal.4th 1 (2014), as well as other supporting case law which prohibits “biased” sampling to prove liability. The case of Duran v. U.S. Bank is summarized below.
In 2014, the California Supreme Court unanimously upheld an intermediate appeals ruling that struck down a $15 million judgment in a class action case against U.S. Bank. The court reversed an employee class action win, finding that the Alameda County trial judge mismanaged a wage and hour class action where the court relied on flawed statistical sampling by relying on testimony of just 20 employees in extrapolating damages that had a 43 percent margin of error. The class involved 260 current and former business banking officers who claimed they were misclassified as exempt.
Writing for a unanimous court, Justice Carol Corrigan criticized the trial court’s flawed reliance on statistics:
As even the plaintiffs recognize, this result cannot stand. The judgment must be reversed because the trial court’s flawed implementation of sampling prevented USB from showing that some class members were exempt and entitled to no recovery. A trial plan that relies on statistical sampling must be developed with expert input and must afford the defendant an opportunity to impeach the model or otherwise show its liability is reduced. Statistical sampling may provide an appropriate means of proving liability and damages in some wage and hour class actions. However, as outlined below, the trial court‘s particular approach to sampling here was profoundly flawed.
The court further noted, “[s]tatistical sampling may provide an appropriate means of proving liability and damages in some wage and hour class actions,” but “after a class has been certified, the court’s obligation to manage individual issues does not disappear.” 59 Cal.4th 1 (2014)
The decision is critically important in highlighting the challenge by the trial court certifying class actions, particularly in the misclassification context, and the obligation of the court in determining not just whether common questions exist, but also whether it will be feasible to try the case as a class action. Duran makes clear that class certification is not appropriate, unless these individual questions can be managed with an appropriate trial plan. Thus, depending on the nature of the claimed exemption and the facts of a particular case, a misclassification claim has the potential to raise numerous individual questions that may be difficult, or even impossible, to litigate on a classwide basis.
Detailed Discussion of Duran
The California Supreme Court in Duran highlighted the challenges in certifying class actions, particularly as related to calculation of damages at trial. The well-reasoned decision makes it more challenging to certify a class, as the court called on trial judges to consider whether a class action is manageable and can withstand a trial – at the class certification stage. The court criticized the trial court’s reliance on flawed statistical sampling, as a substitute in determining damages at trial, and noted:
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. In the first phase of trial, 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 this sample. Nevertheless, based on testimony from the small sample group, the trial court found that the entire class had been misclassified. After the second phase of trial, which focused on testimony from statisticians, the court extrapolated the average amount of overtime reported by the sample group to the class as a whole, resulting in a verdict of approximately $15 million and an average recovery of over $57,000 per person.
The court explained that in marshaling through these types of cases, the trial court must consider the issue of “manageability,” separate and apart from whether common questions predominate, to determine whether it is possible to litigate on a classwide basis:
Although predominance of common issues is often a major factor in a certification analysis, it is not the only consideration. 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. In wage and hour cases where a party seeks class certification based on allegations that the employer consistently imposed a uniform policy or de facto practice on class members, the party must still demonstrate that the illegal effects of this conduct can be proven efficiently and manageably within a class setting. (Brinker, at p. 1033; Dailey v. Sears, Roebuck & Co. (2013) 214 Cal.App.4th 974, 989.)
Trial courts must pay careful attention to manageability when deciding whether to certify a class action. In considering whether a class action is a superior device for resolving a controversy, the manageability of individual issues is just as important as the existence of common questions uniting the proposed class.
The court also cautioned that reliance on a single policy cannot circumvent the aforementioned requirements, to justify certification. It took note of U.S. Bank’s well-written policies and noted that class certification is more likely to be appropriate in cases where the job is highly standardized, and if the corporate policy uniformly requires overtime work, noting that “[w]here standardized job duties or other policies result in employees uniformly spending most of their time on nonexempt work, class treatment may be appropriate even if the case involves an exemption that typically entails fact-specific individual inquiries.” However, the court explained that the employer’s “blanket” classification of a group of employees as exempt is not sufficient to justify certification of a class based on common questions.
The court acknowledged that the way to defeat certification remains by demonstrating that individual issues will swamp the common ones: USB’s exemption defense raised a host of individual issues. While common issues among class members may have been sufficient to satisfy the predominance prong for certification, the trial court also had to determine that these individual issues could be effectively managed in the ensuing litigation. (See Brinker, supra, 53 Cal.4th at p. 1054 (conc. opn. of Werdegar, J.); Sav-On, supra, 34 Cal.4th at p. 334.) Here, the certification order was necessarily provisional in that it was subject to development of a trial plan that would manage the individual issues surrounding the outside salesperson exemption.
In general, when a trial plan incorporates representative testimony and random sampling, a preliminary assessment should be done to determine the level of variability in the class. If the variability is too great, individual issues are more likely to swamp common ones and render the class action unmanageable. No such assessment was done here. With no sensitivity to variability in the class, the court forced the case through trial with a flawed statistical plan that did not manage but instead ignored individual issues.
Notably, the court stated that if a court does not find that the class is manageable through a uniform trial plan at the certification stage, then the certification is reversed:
Although courts enjoy great latitude in structuring trials, and we have encouraged the use of innovative procedures, any trial must allow for the litigation of affirmative defenses, even in a class action case where the defense touches upon individual issues. As we will explain, the trial plan here unreasonably prevented USB from supporting its affirmative defense. Accordingly, the class judgment must be reversed. The trial court is of course free to entertain a new certification motion on remand, but if it decides to proceed with a class action it must apply the guidelines set out here.
The trial court could not abridge USB’s presentation of an exemption defense simply because that defense was cumbersome to litigate in a class action. Under Code of Civil Procedure section 382, just as under the federal rules, “a class cannot be certified on the premise that [the defendant] will not be entitled to litigate its statutory defenses to individual claims.” (Wal-Mart Stores, Inc. v. Dukes (2011) 564 U.S. __, __ [131 S.Ct. 2541, 2561].) These principles derive from both class action rules and principles of due process. (See Lindsey v. Normet (1972) 405 U.S. 56, 66; Philip Morris USA v. Williams (2007) 549 U.S. 346, 353.
- Duran prohibits “cherry picking” or biased selection of a “sample”
A sample must be randomly selected for its results to be fairly extrapolated to the entire class. A random sample is one in which each member of the population has an equal probability of being selected for inclusion in the sample. Even when selection procedures appear to be random, errors may arise that undermine randomness. Nonresponse bias can occur if a sample is chosen randomly from a group containing only survey respondents. The potential for bias arises because those who do not respond have no probability of inclusion in the sample. Thus, although the participants are randomly selected from among respondents, the sample will not reflect the characteristics of members of the population who chose not to respond to the survey. Duran, 59 Cal.4th 1 (2014)
Selection bias occurs when members of the population are chosen based on a nonrandom criterion or are selectively included or excluded from the sample group. In litigation, selection bias can occur when members of the population are allowed to opt out of the class. If plaintiffs with high-value claims opt out, the sample will be skewed toward low value claims and may result in an unfairly low estimate of damages. Conversely, if the opt-outs represent mainly low-value claims or plaintiffs with no valid claim, the sample results will be unfairly inflated. Self-interest may motivate class members to act in ways that will maximize the class award. Thus, one must always suspect that any nonrandom method of picking sample cases will be skewed and therefore will be an inaccurate estimate of the population average. Selection bias can also occur if named plaintiffs are included in the sample based not on random selection but on their status in the litigation. Class counsel are entitled to select named plaintiffs in a manner that enhances their position. However, that tactical choice should not compromise the statistical approach required for random sampling. Duran, 59 Cal.4th 1 (2014)
A sample that includes even a small number of interested parties can produce biased results. The impact of this error is magnified when the biased results are extrapolated to the entire population. Selection bias cannot be cured simply by increasing the size of the sample. When a selection procedure is biased, taking a large sample does not help. This just repeats the basic mistake on a larger scale. A sample that is representative of a population when first drawn may become less so over time. In class action litigation, such changes can occur with opt-outs or other events that change the class composition. Attention must be paid to possible changes that could render a previously representative sample unrepresentative. When that occurs, sampling will not accurately reflect what needs to be known about a population. Duran, 59 Cal.4th 1 (2014).
AL MOHAJERIAN – MOHAJERIAN APLC
Filed Under: Class Action (Employment), Labor & Employment, Litigation