May 29, 2014

Due process does not end with class action certification

By Christina M. Martin Attorney

Today, in Duran v. U.S. National Bank, the California Supreme Court issued a ringing endorsement of the due process right to mount a defense in a class action lawsuit.  The case involved a wage and hour class action under California’s Unfair Competition Law on behalf of 260 “business banking officers” (BBOs) who claimed U.S. Bank misclassified them and denied them overtime pay in violation of the Labor Code.  The trial court, disregarding all protocols for statistical analysis, selected 18 BBOs, plus the 2 named plaintiffs, from whose evidence the court extrapolated the amount of time spent outside the office and the amount of overtime allegedly improperly withheld.  The court adamantly followed its own made-up procedure, refusing to allow U.S. Bank to submit 78 declarations of BBOs swearing that they had not been misclassified.  Based solely on the non-random sample, and despite the plaintiff’s estimated 43% margin of error, the judge decided that the bank owed the entire class overtime and awarded it $15 million (averaging $57,000 each) and $18 million in attorneys’ fees.  The appellate court reversed, finding that this trial process denied U.S. Bank its Due Process right to mount a defense.

PLF submitted an amicus brief in the California Supreme Court, arguing that the trial court violated U.S. Bank’s rights to Due Process by denying it the opportunity to make a defense. We urged the court to consider how an overly permissive approach to class actions could damage businesses, the economy, and employees.  Meanwhile, plaintiffs’ attorneys and their amici urged the court to allow procedural innovations like statistical sampling, because it would allow injured plaintiffs a greater (and more economical) opportunity to recover.

In a strongly worded opinion, the California Supreme Court unanimously rejected the application of these innovations, calling the trial court’s methods “profoundly flawed” in violation of the defendant’s right to Due Process.

The court’s decision to extrapolate classwide liability from a small sample, and its refusal to permit any inquiries or evidence about the work habits of BBOs outside the sample group, deprived USB of the ability to litigate its exemption defense. . . . The injustice of this result is manifest. While representative testimony and sampling may sometimes be appropriate tools for managing individual issues in a class action, these statistical methods cannot so completely undermine a defendant’s right to present relevant evidence.
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Procedural innovation must conform to the substantive rights of the parties.

Today’s decision does not completely foreclose class certification in employment law cases, but it clearly distinguishes those cases that permit certification of varying claims for the purpose of calculating damages with the much more stringent constraints on certification for determining liability.  The limits on certification are critical because, as the court noted, once certified, 89% of cases end in settlement, compared with 15% of cases in which certification is denied.  Courts may not, however, use the likelihood of settlement to deny defendants the right to assert defenses, even on an individual basis.  Courts must assume that the case will proceed to trial, with all the due process protections intact.  As the court concluded,

reliance on statistical proof cannot be used to bar the presentation of valid defenses to either liability or damages, even if the alternative would require adjudication of a defense on an individual level. When liability is to be established on a classwide basis, the defendant must have an opportunity to present proof of affirmative defenses within whatever method the court and parties fashion to try these issues.

This is a big win for the civil justice system, which depends on adversarial presentation of proof, not a court-ordered thumb on the scale.

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