Duran v. U.S. Bank Nat'l Ass'n

• Decision Date: 29 May 2014
• Docket Number: No. S200923.,S200923.
• Citation: 172 Cal.Rptr.3d 371,59 Cal.4th 1,325 P.3d 916
• Court: California Supreme Court
• Parties: Samuel DURAN et al., Plaintiffs and Respondents, v. U.S. BANK NATIONAL ASSOCIATION, Defendant and Appellant.

59 Cal.4th 1

325 P.3d 916

172 Cal.Rptr.3d 371

Samuel DURAN et al., Plaintiffs and Respondents,

v.U.S. BANK NATIONAL ASSOCIATION, Defendant and Appellant.

No. S200923.

Supreme Court of California

May 29, 2014.

Carlton DiSante & Freudenberger, Carothers DiSante & Freudenberger, Timothy M. Freudenberger, Irvine, Alison L. Tsao and Kent J. Sprinkle, San Francisco, for Defendant and Appellant.

Horvitz & Levy, Encino, Jeremy B. Rosen and Robert H. Wright, for Chamber of Commerce of the United States of America and Retail Litigation Center, Inc., as Amici Curiae on behalf of Defendant and Appellant.

Fred J. Hiestand, Sacramento; Morrison & Foerster, Miriam A. Vogel, Janie F. Schulman, Los Angeles, and M. Natalie Naugle, for California Business Roundtable, Civil Justice Association of California and California Bankers Association as Amici Curiae on behalf of Defendant and Appellant.

Deborah J. La Fetra, Sacramento, and Christina M. Martin, for Pacific Legal Foundation as Amicus Curiae on behalf of Defendant and Appellant.

Altshuler Berzon, Michael Rubin, San Francisco; Jocelyn Larkin, Della Barnett and Michael Caesar, for Impact Fund, AARP, Asian Law Caucus, Asian Pacific American Legal Center, Disability Rights Education & Defense Fund, Disability Rights Legal Center, National Consumer Law Center, Public Citizen, Inc., and Public Justice, P.C., as Amici Curiae on behalf of Defendant and Appellant.

Gibson, Dunn & Crutcher, Los Angeles, Theodore J. Boutrous, Jr., Theane Evangelis Kapur and Bradley J. Hamburger, for National Association of Security Companies, California Association of Licensed Security Agencies, ABM Security Services Inc., AlliedBarton Security Services, G4S Secure Solutions (USA) Inc., and Securitas Security Services USA, Inc., as Amici Curiae on behalf of Defendant and Appellant.

Littler Mendelson, Allan G. King, Julie A. Dunne, San Diego, and Margaret Hart Edwards, San Francisco, for The Gallup Organization as Amicus Curiae on behalf of Defendant and Appellant.

Paul Hastings, Paul Grossman, Los Angeles, Paul W. Cane, Jr., Sean D. Unger and Rishi N. Sharma, San Francisco, for California Employment Law Council and Employers Group as Amici Curiae on behalf of Defendant and Appellant.

Shaw Valenza and D. Gregory Valenza, San Francisco, for California Chamber of Commerce as Amici Curiae on behalf of Defendant and Appellant.

Law Offices of Ellen Lake, Ellen Lake, Oakland; Lewis, Feinberg, Lee, Renaker & Jackson, Oakland, Brad Seligman; Wynne Law Firm, Greenbrae, Edward J. Wynne and J.E.B. Pickett, for Plaintiffs and Respondents.

Robbins Geller Rudman & Dowd and Kevin K. Green, San Diego, for Consumer Attorneys of California as Amici Curiae on behalf of Plaintiffs and Respondents.

The Kralowec Law Group, Kimberly A. Kralowec, San Francisco; Bryan Schwartz Law, Bryan J. Schwartz; Cohelan Khoury & Singer, Michael D. Singer, San Diego; Rudy, Exelrod, Zieff & Lowe and Steven G. Zieff, San Francisco, for California Employment Lawyers Association as Amicus Curiae on behalf of Plaintiffs and Respondents.

CORRIGAN, J.

We encounter here an exceedingly rare beast: a wage and hour class action that proceeded through trial to verdict. Loan officers for U.S. Bank National Association (USB) sued for unpaid overtime, claiming they had been misclassified as exempt employees under the outside salesperson exemption. ( Lab.Code, § 1171.) This exemption applies to employees who spend more than 50 percent of the workday engaged in sales activities outside the office. ( Ramirez v. Yosemite Water Co. (1999) 20 Cal.4th 785, 85 Cal.Rptr.2d 844, 978 P.2d 2 (Ramirez ).)

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.

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.

I. BACKGROUND

USB is a nationwide financial services provider. During the relevant period, it operated over 130 branches in California. This class action was brought by USB employees who worked as business banking officers (BBOs).¹ BBOs sell bank products, including loans and lines of credit, to small business customers. Their primary job is to cultivate new business. After a BBO acquires a new client, a client manager handles the portfolio and maintains the relationship. A BBO can be assigned to work with up to four bank branches. Although they typically use one branch office as a home base, some BBOs work from multiple branches or their homes.

A May 1997 job description states that BBOs were expected to develop and manage customer relationships and to "grow[ ] [USB's] business through prospecting, networking, cross-selling and relationship management." Among several other "essential functions," BBOs were required to "call[ ] on customers and/or prospects." They were expected to use a "high degree of creativity and independence in managing account relationships and developing new business." This job description was essentially unchanged until May 2002, shortly after the complaint here was filed. The new job description splits the list of a BBO's essential functions into separate categories for "Outside Sales Activity," "Incidental Activity to Outside Sales," and "Other Activity," and specifies that more than 80 percent of a BBO's time should be spent on "Outside Sales Activity." During all relevant times, USB has classified the BBO position as exempt from overtime compensation, primarily based on the outside salesperson exemption in Labor Code section 1171.²

A. Pretrial Proceedings

On December 26, 2001, a putative class action complaint was filed alleging USB had improperly classified BBOs as exempt, denying them overtime pay in violation of Labor Code section 1194.³ Class counsel later replaced the original named plaintiff with three new class representatives. In March 2005, when dueling certification motions were pending, counsel replaced these representatives with the two currently named plaintiffs, Samuel (Sam) Duran and Matt Fitzsimmons. All replaced representatives had testified in deposition that they spent more than 50 percent of their workday engaged in sales activities outside USB offices, which would have brought them within the exemption.⁴

1. Initial Class Certification Proceedings

On January 6, 2005, plaintiffs moved to certify the case as a class action. At that time, USB employed approximately 40 BBOs in California. There were over 200 current and former BBOs in the putative class. Plaintiffs provided declarations from 34 current and former BBOs, all averring that they worked overtime hours and spent less than half of their workday engaged in sales-related activities outside their branch office. USB opposed certification. It argued that plaintiffs could not establish a predominance of common issues or that the class action device was superior to other methods of adjudication. USB filed declarations from 83 putative class members, 75 of whom⁵ said they typically spent more than 50 percent of their workday engaged in outside sales.⁶ USB also submitted deposition testimony from the four former class representatives stating that they regularly worked more than half the day outside the office.

The trial court certified the class. Relying on Sav–On Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 17 Cal.Rptr.3d 906, 96 P.3d 194 (Sav–On ), it found common questions of law and fact predominated over individual issues based on evidence that: (1) the BBO position was "standardized"; (2) USB classified all BBOs as exempt without examining each employee's duties or work habits; and (3) USB failed to train or monitor BBOs to ensure that exemption requirements were satisfied. The class was ultimately defined as all California-based BBOs who worked overtime for USB at any time during the period from December 26, 1997 until September 26, 2005.⁷

2. Trial Management Plan

About a year after certification, the parties presented competing trial management plans. USB proposed to divide the class into 20 or 30 groups and have special masters conduct individualized evidentiary hearings on liability and damages. Plaintiffs opposed this idea, arguing that USB had no due process right to assert its affirmative defenses against each individual class member.

As an alternative, plaintiffs proposed the use of surveys and random sampling, as described in a declaration from statistics expert Richard Drogin. First, the parties would identify all tasks performed by BBOs and classify which were sales-related. Next, the amount of time class members typically spent on outside activities would be assessed using a classwide survey. The parties' experts would then jointly design a random sample of surveyed class members to proceed through focused discovery...