Last Tuesday, March 4, 2014, the Supreme Court heard oral argument in Duran v. U.S. Bank National Association, no. S200923. Edward Wynne of the Wynne Law Firm argued for the plaintiffs, sharing his argument time with Michael Rubin of Altshuler Berzon, counsel for The Impact Fund and several other amici. Timothy Freudenberger argued for the defendant.
This is not a verbatim transcript, nor does it include all the exchanges between counsel and the justices. It is a summary based on my notes and recollections of the argument.
By way of background, the theory of liability in this case is that the bank failed to pay overtime (or provide meal or rest periods) to its Business Banking Officers (or “BBOs”). The bank’s defense is that the BBOs fall within the outside sales exemption. This exemption applies to any “outside salesperson,” defined as “any person … who customarily and regularly works more than half the working time away from the employer’s place of business selling tangible or intangible items or obtaining orders or contracts for products, services or use of facilities.” E.g., Wage Order 4, 8 Cal. Code Regs. §11040, ¶¶1(D), 2(M).
Argument for Plaintiffs: Ed Wynne
Ed Wynne began by explaining that he would address liability and trial management issues, and Michael Rubin would cover class certification.
He went on: The trial court’s finding of classwide liability was not based just on the testimony of the 21-witness sample, but also on other evidence. The bank had a classwide, categorical exemption for all BBOs yet made no inquiry to support the practice, kept no records of how much time the BBOs spent outside the bank, and had no expectation that the BBOs would spend more than half their time outside the bank.
Justice Baxter: Your opponent says that $6 million was awarded to 75 BBOs who signed declarations saying that they were properly classified. Is this true, and if so, how do you justify it? Wynne: This is not true. It assumes that the declarations were credible. The trial court found their weight had to be adjusted. Justice Corrigan: There is evidence in the record but we shouldn’t believe it? Wynne: That’s up to the trial court. Justice Baxter: Even when they don’t testify? Credibility presupposes that the trial court had the opportunity to look the witnesses in the eye and judge their credibility. Wynne: Five class members testified about the circumstances of their declarations. Defendants cherry-picked nine witnesses who testified they were exempt.
Justice Werdegar: Weren’t plaintiffs cherry picking the witnesses to substitute in? [She is referring to the fact that two members of the randomly-selected sample group of witnesses did not wish to participate.] Wynne: They were amended because one didn’t want to testify; the others’ testimony was ambiguous. Justice Werdegar: That’s what I mean. Wynne: All of them were chosen through a random selection process.
Justice Corrigan: Wasn’t there a group of named plaintiffs who testified that they worked 60-90% of the time outside the office? Wynne: These are the witnesses whose testimony was ambiguous. Their testimony was that they worked outside their branch, which does not mean outside the bank.
Chief Justice Cantil-Sakauye: The process led to an award to all plaintiffs when we know for some of them it would be windfall to the tune of $6 million. But I have questions about the sampling of 20 to represent the group, including two of the named plaintiffs. How did you get to 20? Wynne: The trial court had expert testimony of defendant’s expert Dr. Gorman, a table with all the various sample sizes, including 20 and also 50. The margin of error for 20 was 4-6%. This was before the court decided to go with 20. After that, Dr. Drogin affirmed that 20 is an appropriate number, representative, not biased. He affirmed that opinion at trial. The Court of Appeal was wrong to conclude that the number was picked out of thin air.
Justice Baxter: My concern is – there’s no contention here that defendants violated California law in any respect merely by classifying them as they did or that this as a violation of law. In contrast to Brinker, there is no evidence of a policy or practice that required employees to work more than 50% of their time at the bank, correct? Wynne. No. Two points. The bank had a categorical classification as exempt— Justice Baxter: But there’s nothing illegal about that. These are sales jobs and they understand 50%— Wynne: It is illegal if there is no basis for that classification. Baxter: But it’s a sales job and employees understand 50% of the time outside. How do you have common proof? Here you have 75 declarations.
Wynne: The RWGs [Representative Witness Group] were counseled to spend more than 50% of the time inside. They were encouraged and rewarded for doing so. So it is consistent with cases like Brinker, Faulkinbury. The job was set up to be more than 50% inside. Justice Werdegar: In this case clearly, different employees worked the job in different ways. How can the trial court certify – and I suppose your answer will get to the issue of sampled evidence. Wynne: Both side’s declarations and the PMK testimony showed that the job was standardized.
Justice Chin: What was standardized? [I believe this question was posed by Justice Chin. However, I have read other reports saying that Justice Chin asked no questions during the argument. If that’s true, then this question must have been by Justice Baxter.] Wynne: The tasks, how they were to go about doing their job. Top sales person Chad Penza said that the best way to make sales was to stay in the office and make calls. He was held up as an example. They were encouraged, trained and rewarded for staying inside the office.
Argument for Plaintiffs’ Amici: Michael Rubin
Michael Rubin: Substantial evidence supports the trial court’s finding of liability under the correct legal standard, but even if the judgment is reversed on liability, it should be remanded on a class basis. There was a common policy. When the trial court found that the defendant actively encouraged, trained and rewarded BBOs for working inside the office, that is a policy contrary to the way they were classified. The bank did nothing to encourage people to do the job in a way that would be exempt.
Justice Liu: So you have class treatment. That doesn’t necessarily presage fairness in the liability determination. Rubin: Through the prism of great deference to the trial court’s ruling, you look at two things: The nature of the job itself. As a general matter do they perform the job in basically the same way. That’s the predominance concept. Comparative predominance. And whether there’s a trial plan that can be developed.
Justice Liu: Let’s focus on sampling. In any sampling there will be some margin of error. Rubin: The experts agree it’s 13%. Justice Liu: Is that an acceptable number? Does it mean 13% aren’t misclassified? Rubin: That’s the starting point. They you look at the experts’ testimony on the point estimate. And then you look at the rest of the evidence. The range is 113% to 87%. For example, Chad Penza, and Bradley, who kept expense records that showed he spent less than 50% of his time outside the bank. You use this evidence to determine where on the margin the case falls. Justice Liu: For each individual you don’t know who falls within the 13%, or the 87%? Rubin: When the judge looked at Penza and Bradley, along with the adverse inference drawn from the defendant’s failure to keep records—
Justice Werdegar: Dr. Drogin calculated it at 43%. Rubin: That is for the damages phase. And plaintiffs conceded this was too high. Justice Liu: At least with respect to the 13%, how are we to reconcile that general figure with the notion of due process of law, which is you can put forward any number of practices, patterns, you can even allege defendant stymied plaintiffs’ efforts by not keeping good records, but defendant will want to say we want to call everyone to the stand.
Rubin: In Sav-on this Court said you can have classwide determinations where there is widespread, but not necessarily uniform, misclassification. How is it actually done? The trial court has discretion to determine, based on all the evidence, what point on the margin of error the case falls. Suppose it’s 90%. What do you do about the 10%? A couple of things: One: if there’s a common factor that segregates those, there could be further inquiry. [He gave a couple of examples.] Recognizing that there will be uncertainty apart from certification. Even in an individual case there will always be some extrapolation. Two: at the damages phase, you can conduct further inquiry. In Bell, 9% of the individuals were found that there was no liability to them. You can do claim forms, surveys. The way the defendant is protected is the total damages are reduced and the trial court conducts further proceedings on allocation.
Argument for Defendant: Tim Freudenberger
Before Tim Freudenberger could say a word, Justice Corrigan jumped in with a question: You aren’t taking the position that statistical analysis are never admissible, are you? Freudenberger: No. Justice Corrigan: So what was wrong with this one? Freudenberger: Just about everything … [and he explained. The Chief Justice interjected a question here that I did not catch.] Dr. Gorman never said that representative testimony was proper in this case to determine the amount of time spent outside. The issue of liability in this case is an individualized issue.
Justice Liu: Is this a blanket statement of law? That liability for these purposes can never be determined on a classwide basis? Are you saying that Sav-on was incorrectly decided? Freudenberger: Sav-on was not incorrectly decided. It supports our position. Justice Liu: Isn’t it your position that this is always individualized, so statistics can never be used? Freudenberger: It can’t when the liability issue depends on an individualized analysis. There may be other cases where it’s appropriate, but it can’t be here. Justice Liu: So never in a misclassification case? Freudenberger: No. Justice Liu: Never? So in Sav-on …? Freudenberger: Sav-on is an example where it might work because it was a task-based system. Task classification, where work performed was managerial work or non-managerial work. Here everyone agreed that the work was sales work. The disputed question was how much time they spent outside.
Justice Chin: [Again this may actually have been Justice Baxter.] How did the trial court decide on 20? Freudenberger: It was completely arbitrary. It was a matter of case management and convenience.
Justice Werdegar: Could not an agreement among statistical experts and a wider sample make it possible to have a class action? Freudenberger: Not in this case. Because it was actually tried and because we know the central issue is how much time they spent. Justice Werdegar: Exempt or non-exempt. Freudenberger: That’s what determines the exemption. Justice Werdegar: Could you not with a different sampling, statistically show that a majority of the employees spent more time outside than inside? Freudenberger: No. The problem is it’s a due process problem, it violates Dukes v. Wal-Mart.
Chief Justice Cantil-Sakauye: Do we need to answer the abstract question of whether statistical evidence could ever be used? Freudenberger: Absolutely not. The Chief: Why? Freudenberger: This case is unusual and there’s no need to speculate about what might happen in other cases. There was no task-based compensation system. The case went to trial only on the UCL claim. This is not a typical, garden-variety class action. We went to trial so we know liability cannot be determined on common proof. Every individual who testified spoke of their individual experience; they only spoke for themselves. None said their experiences are representative of the others.
Justice Liu: What probative value does your opponent’s references to incentives, company policies, the star performer, what probative value should be assigned to those pieces of evidence? Surely they are probative of something. Your position seems to me very categorical. You’re saying in this type of case statistical evidence can never, never be used. Unless every individual can be shown to have worked outside, there will always be uncertainties that can never be dispelled by inferences, unless you hear it straight from the person’s mouth. Do the employees keep their own records? Can the trial court accept that what the employees are saying are themselves estimates? Those things are necessarily imperfect. So what would satisfy due process?
Freudenberger: Standardized practices have no effect on the liability question at stake. It could be different in a task-based class case, but that’s not this case. The other evidence doesn’t get to the issue of where they spent their time. Justice Liu: Short of declarations or live testimony by each individual, is there anything that would satisfy due process? Freudenberger: In this case, no. Justice Liu: Even that information [the live testimony or declarations] is imperfect unless you assign them 100% credibility, unless they do keep records. We are relying on inference, gap-filling, credibility. Why do you privilege that evidence above other kinds of evidence?
Freudenberger: It’s the best evidence available. You’re right it’s not perfect. Even Penza signed two declarations saying he spent the majority of his time outside. The court was in its power to determine that his testimony at trial could be credited over his prior inconsistent statements. But that can’t be done with absent class members who don’t testify.
Justice Baxter: I’m confused by the class definition: All employees who worked during the class period. It says nothing about people who worked more than 50% outside. Why wasn’t it so limited? Freudenberger: Because certification would not have been appropriate on that basis. You can’t have a class where to determine membership you have to determine liability. Over 90% of the class members never testified despite repeated efforts to call them. They never had their cases tried yet they stand to recover money.
Justice Baxter: But you don’t necessarily have to define a class as “all employees,” do you? You can define it more narrowly to include the theory of liability. You could have a narrower class. Freudenberger: Two responses: For example, if there are multiple job positions within the same class, where you can subclass. This class all had the same position. It’s not appropriate to cut out the people who signed declarations. The bank’s position was that none of the rest were non-exempt either. [Justice Baxter interposed a further question here that I didn’t catch.] We’re focused on an improper denial of a decertification motion after trial. Plaintiffs said they will present common evidence at trial. We now know for certain there is no common evidence.
Justice Corrigan: Even if it may have appeared to counsel that certification was proper, at some point in trial it became evident that non-common issues were swamping. At that point the trial court had an obligation to reassess. Now that it’s all over we know the case wasn’t fairly tried. [Freudenberger agreed.] Justice Corrigan: For you to win, we don’t have to resolve the question of whether every case like this could be resolved as a class action, and we don’t have to make a sweeping statement regarding use of statistics. Freudenberger: Correct.
Justice Liu: For this kind of case, why wasn’t this immediately apparent to the trial court from the outset? Your theory is a broad one; it would have forestalled certification to begin with. So your position is that certification is not appropriate ever for this type of case. I don’t see a narrower position that you can offer. Freudenberger: My position is based on the evidence in this case. The trial court should not have missed it to begin with, because we submitted 75 declarations. There is no ambiguity, they were exempt. So the bank’s position is it was clear at the time of initial certification that a significant number of class members were properly classified as exempt and the issue would be the amount of time spent outside the bank. The supposed common evidence never materialized.
Chief Justice Cantil-Sakauye: What was the trial court’s response when you moved for decertification? Freudenberger: The trial court misinterpreted the exemption and placed the bank’s expectations above all else instead of actual time spent per Ramirez. See footnote 38 of the Court of Appeal’s opinion. The bank’s expectations don’t matter. If they in fact spend 50% outside they are exempt. Expectation was a secondary consideration. If they weren’t spending 50% of their time outside then they weren’t performing the job correctly. These people weren’t meeting the bank’s expectations. But the trial court elevated this above evidence of actual time spent and this colored the class certification and liability determinations.
Justice Kennard: I have some concerns about how the motions unfolded in the trial court. One was the trial court allowing plaintiffs to try liability by presenting evidence of a random sample of 22 persons. Is it correct to say that the bank was precluded from presenting evidence of work habits outside the 22-person group? Freudenberger: Yes. Justice Kennard: Is there any case on point that says this is a perfectly acceptable way of doing this? Freudenberger: No, no California case says that an exemption can be determined by statistical sampling or representative sampling. The Bell case is different because it involved only damages. We cited 7 cases holding it’s not appropriate, Walsh, Dunbar [and he named several others]. The cases cited by plaintiffs have been rejected. For example, Morgan was a FLSA case with an entirely different standard, “primary duty performed.” Very different, qualitative analysis. Justice Kennard: So what the trial court did was a serious problem.
Rebuttal Argument for Plaintiffs: Ed Wynne
Justice Corrigan cut in before Ed Wynne could speak: I have a threshold question. There’s a class of 260 people, with liability based on a 20-person sample. Wynne: 19 randomly selected plus two class representatives. Justice Corrigan: So you want the trial court to draw an inferential conclusion based on the sample. Why should the defendant be prevented from challenging the inference you urge by putting on other people, to show that the inference is not valid? Wynne: This would challenge random evidence with non-random evidence. There was no evidentiary basis to put in the declarations that the defendant offered.
Justice Werdegar: The trial court didn’t accept them. Wynne: For two reasons, they were not random, and even if they were random they were not credible. The trial court was within its discretion not to go outside the sample. Justice Werdegar: Is this consistent with due process? Wynne: The defendant is entitled to due process, not unlimited process. Justice Werdegar: At trial, how did the defendant refute your case? Wynne: By cross-examining all 21 people, bringing in the supervisors of those people, and corporate representative testimony. Defendant was not precluded from attempting to rebut the inference. In this case the question was even simpler than in Sav-on. In this case, it is yes or no, binary. In Sav-on it wasn’t.
Justice Liu: What is wrong with the non-random nature of the evidence defendants want to put on? Wynne: The problem with non-random evidence is that you can’t extrapolate from it. [The second part of his answer related to the claims-processing stage, aggregate liability and Sav-on.] Justice Liu: Due process speaks only to aggregate liability? Wynne: Yes. Justice Liu: What’s the best authority for it? Wynne: Bell, and the logic of Sav-on and Brinker: If it can be certified it can be tried. Justice Corrigan: If it can be certified it can be tried? Wynne: Yes. Manageability is an element of certification. Justice Corrigan: Do you agree that the trial court has an obligation to decertify in some cases? Wynne: Yes, the trial court retains that discretion.
The argument concluded there. The opinion is expected in 90 days (by June 2, 2014).