Following a bifurcated bench trial, defendant U.S. Bank National Association (USB) has appealed the resulting $15 million judgment in this wage and hour class action brought under Business and Professions Code section 17200 (section 17200). The plaintiffs in the class action are 260 current and former business banking officers (BBO's) who claimed they were misclassified by USB as outside sales personnel exempt from California's overtime laws, and were thus unlawfully denied overtime pay. In addition to arguing the case should not have been certified as a class action, USB contends the trial court's trial management plan deprived it of its constitutional due process rights in that the plan prevented it from defending against the individual claims for over 90 percent of the class. We agree the trial management plan was fatally flawed and reverse the judgment. We also conclude the case must be decertified, and reverse an order awarding certain expert witness fees to plaintiffs.
In January 2005, when plaintiffs moved to certify this case as a class action, USB reportedly operated over 130 traditional bank branches in California with approximately 40 persons then currently employed as BBO's. Each BBO was typically assigned to work with one to four bank branches. BBO's report to sales managers who in turn report to regional managers. Regional managers report to a division manager who then reports to the executive vice-president.
The BBO classification was created after USB merged with another bank in 2001, when an existing small business banker (SBB) position was redesignated with the BBO title. A May 1997 job description states that SBB's were responsible for "developing and managing small business banking customer relationships by advising on and selling a wide range of financial services to include: credit, deposit, cash management and other applicable bank products and services." Persons in this classification were also responsible for "growing the business through prospecting, networking, cross-selling and relationship management in order to develop and expand the relations with [USB]." SBB's were encouraged to "build strong customer relationships and analyze data to determine the customer's business needs and financial condition." This job description was essentially retained when the BBO position was created in 2001.
On December 26, 2001, Amina Rafiqzada, acting on behalf of herself and other similarly situated current and former USB employees, filed a class action complaint against USB. The complaint alleges Rafiqzada had been employed as an SBB, and that USB improperly classified her and other SBB's as "exempt" thereby denying them compensation for overtime hours in violation of Labor Code section 1194. The complaint contains three causes of action: (1) violation of the Labor Code for misclassification and failure to pay overtime, (2) violation of Business and Professions Code section 17200, and (3) conversion.
On February 26, 2003, a first amended complaint (FAC) was filed, removing Rafiqzada as the named plaintiff, and substituting Vanessa Haven, Abby Karavani, and Parham Shekarlab as the named plaintiffs. The amended complaint alleges the same causes of action as the prior complaint.
On March 28, 2003, USB filed its answer to the FAC. USB generally denied the allegations of the complaint and asserted 31 affirmative defenses. As its seventh affirmative defense, USB claimed the proposed class members were, at all relevant times, properly classified as exempt employees for overtime purposes under California law.
On January 6, 2005, plaintiffs filed a motion to certify the case as a class action.
On March 14, 2005, plaintiffs' counsel filed a second amended complaint (SAC), substituting two new class representatives, Sam Duran and Matt Fitzsimmons, in place of the previously named plaintiffs. The SAC contains the same causes of action as the prior complaints, and adds new allegations asserting Labor Code violations for failure to provide meal and rest break periods. (See Lab. Code, § 226.7.)
On March 16, 2005, the trial court granted plaintiffs' motion for class certification and denied USB's motion to deny class certification.
On April 29, 2005, the trial court filed an amended and corrected order after hearing regarding its certification rulings. The order defines the class as "`all current and former California-based salaried employees with the title "small-business banker" (SBB's) and/or "business banking officers" (BBO's) employed by defendant any time between December 26, 1997 and April 28, 2005.'"
On September 30, 2005, plaintiffs filed a motion for summary adjudication on USB's affirmative defenses that the BBO's were exempt from overtime laws under the administrative and the commissioned salesperson exemptions.
On May 23, 2006, the trial court granted plaintiffs' motion for summary adjudication as to the administrative exemption, finding the evidence showed the performance of administratively exempt duties was atypical for BBO's.
On June 22, 2006, plaintiffs submitted a trial setting conference brief. In response to USB's pretrial proposal to assign all class members to groups of 20 to 30 in order to conduct individualized evidentiary hearings before special masters, plaintiffs, citing to Sav-On Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 337 [17 Cal.Rptr.3d 906, 96 P.3d 194] (Sav-On), asserted that USB "has no due process right to assert its affirmative defense against every class member in a class action."
Under plaintiffs' plan, the trial would have proceeded in three phases: (1) Task identification and classification, (2) use of a classwide survey followed by the selection of a random sample of plaintiffs who would be made the subjects of the trial, and (3) damages. The survey instrument would "question the class members about the amount of time class members spent out of the branch and the amount of time spent on sales or sales related activities out of
On September 7, 2006, the parties filed a joint case management and trial management statement in which USB noted its objections to plaintiffs' proposed use of a survey to gather data from which a representative sample of class members would then be selected to determine liability and potential damages for the entire class. USB claimed plaintiffs' proposed methodology was statistically unreliable, and was infeasible given the amount of time remaining before trial. USB also argued the proposed procedure would violate its due process right to assert its affirmative defense against each individual class member who sought to recover damages.
On September 13, 2006, a case management conference was held in which the trial court, on its own initiative, proposed the idea of taking a sample of 20 plaintiffs selected on a random basis to testify at trial. The court suggested this method would be preferable to conducting a survey, due to the possibility that bias might infuse the survey process.
On October 6, 2006, USB submitted a brief in which it again argued that representative testimony could not be fairly utilized in this case because it would violate USB's due process rights. USB further noted that the only California case relied on by plaintiffs in support of the use of representative testimony in an overtime case (our opinion in Bell v. Farmers Ins. Exchange (2004) 115 Cal.App.4th 715 [9 Cal.Rptr.3d 544] (Bell III)), involved the issue of class action damages only, and not liability. USB stated that if a representative sample were to be used, USB must be permitted to call witnesses of its own choosing in order to meet its burden of proof. USB submitted another declaration from their statistical expert, Phillip Gorman, who pointed out the possibility of "sampling error" if a small number of randomly selected class members were to be used to determine whether the entire class had been misclassified as exempt. Gorman further noted that even after the liability phase it would still not be possible to determine which nonsampled class members would be entitled to compensation.
At a hearing held on October 11, 2006, the trial court confirmed its intent to use a random sample of 20 class members to testify as representatives for
After a hearing in which the trial court granted plaintiffs leave to dismiss the legal claims, the court required a second opt-out notice be sent to the class notifying it of the dismissal.
On November 9, 2006, plaintiffs filed a motion to amend the SAC to include allegations that USB failed to provide meal and rest break periods to class members, and to conform the complaint in light of the dismissal of its legal claims.
On November 28, 2006, the parties submitted a joint case management and trial management statement.
On November 30, 2006, plaintiffs filed their third amended complaint (TAC). The TAC asserts a single cause of action for violations under section 17200.
On January 9, 2007, USB filed a trial management conference statement. USB reported that Steven Dias, one of the 20 randomly selected class members, had since opted out of the lawsuit. USB asserted that any member of the 20-person group who chose to opt out after receiving the second opt-out notice should be required to provide deposition and trial testimony in order to preserve the representative nature of his or her testimony and to ensure statistical reliability of the extrapolation process.
On January 29, 2007, USB filed its answer to the TAC.
On February 6, 2007, USB filed a motion regarding the status of the 20-person random witness group (RWG) members. USB asked the trial court to allow four RWG members, who had by now opted out of the action, the opportunity to opt back in. USB claimed the witnesses had decided to opt out because they felt they were properly classified as exempt employees, and because plaintiffs' counsel allegedly encouraged them to avoid involvement in the lawsuit.
In opposition to USB's motion, plaintiffs submitted a declaration from Drogin, who opined that substituting the alternate RWG members for the four opt-out plaintiffs would be statistically acceptable as there was "no reason to infer that the sample is not representative, or that there is any bias in the sample." He remarkably concluded that "as long as the set of persons selected
On February 16, 2007, the trial court denied, without prejudice, USB's motion to allow Michael Lewis and Sean MacClelland to opt back into the lawsuit, noting that the issue of whether these witnesses would be allowed to testify should be addressed at trial.
On March 1, 2007, plaintiffs filed a motion for class certification of the meal and rest break claims. They also filed a motion to compel further responses to special interrogatories, requests for production of documents, and requests for admissions.
On March 22, 2007, USB filed its opposition to plaintiffs' motion for class certification of the meal/rest break claims. USB also filed a motion to decertify the class action. In its motion to decertify, USB contended Proposition 64 requires each class member to prove "injury in fact."
On May 16, 2007, the trial court filed its order denying USB's motion for decertification and denying plaintiffs' motion to certify the meal/rest break
On May 18, 2007, the parties filed their motions in limine.
In their motion in limine No. 11, plaintiffs sought to exclude the introduction of testimony or declarations from, or evidence or argument related to, any non-RWG BBO. Plaintiffs claimed the introduction of such evidence "would debase the trial and destroy the court's representative witness trial plan." Motion No. 11 was granted over USB's objections. In granting the motion, the trial court indicated it would allow USB to call any percipient witnesses for impeachment purposes, but would not allow non-RWG class members to increase the "bank of data" from which expert witnesses would ultimately draw their conclusions. In arriving at this decision, the court appears to have relied on Bell III, noting it had reread that case with interest "because of its detailed discussion and approval of the trial management plan."
In its motion in limine No. 3, USB sought to require plaintiffs to rely on the testimony of all the witnesses originally selected for the RWG, to the extent they were willing to testify. The motion essentially claims the composition of the RWG members had been altered so much since the time of its original selection that it now lacked representative integrity. The court denied this motion.
In its motion in limine No. 4, USB sought to exclude testimony regarding the trial court's methodology of sampling. The motion reiterated USB's claims that the trial plan, particularly with respect to the issue of classwide liability, failed to comport with the standards set by our opinion in Bell III because it was unreliable, was not generally accepted in the scientific field, and was not supported by a report from any expert witness. The trial court denied this motion and declined to revisit its trial management plan. The court also ruled the two named plaintiffs would be allowed to testify and to be present during the entire trial.
The liability phase (Phase I) of the trial began on May 24, 2007. All but one of the RWG members appeared at trial. They testified that they had spent
Matt Fitzsimmons, one of the two named plaintiffs, was a BBO from April 2003 to March 2004.
Fitzsimmons typically arrived at the bank at 8:30 a.m. Two days a week he would leave by 5:30 p.m. to pick up his daughter from daycare, and the other three days he would leave between 6:00 and 6:30 p.m. On most weekends he would spend two or three hours folding flyers to send to prospective customers. He estimated he generally worked about 45 to 50 hours a week. He was never told to spend most of his time outside the bank. He estimated he worked inside branch offices 75 to 80 percent of the time, with the balance spent outside. There was never a week when he spent more of his time outside as opposed to inside. He also never received a 30-minute meal period in which he was relieved of all duties.
On cross-examination, Fitzsimmons testified that everything he did as a BBO was aimed towards selling USB's products and meeting his quarterly sales goals. He believed he was expected to work inside bank locations because the managers at two of the branches he was assigned to would ask him to come and work at their offices. His supervisor stated in a performance evaluation that he met his "ramp-up" sales goals in his first two quarters but met only 73 percent of his goals in the third, and final, quarter that he worked for USB. Fitzsimmons acknowledged he was one of the poorer performing BBO's in his supervisor's group during his third quarter. His supervisor advised him to make 15 client appointments per week, a strategy that normally results in three loan applications and one loan approval, thereby securing one loan funded per week. Two weeks after his evaluation he applied for a job at Citibank. One of the reasons he left USB was because he could not work the number of hours he believed the bank expected him to.
Chad Penza was a BBO from October 2001 through March 2005. He testified that initially he worked from 7:00 a.m. to around 5:30 p.m. After a few months, he began working from 6:00 a.m. to 6:30 p.m. or 7:00 p.m. He also worked at least three weekends a month, on both Saturday and Sunday, from around 7:00 a.m. to about 12:00 noon. Most of his time was spent calling potential clients on the telephone. From January 2002 to the end of his employment, he estimated he was in the office at least 80 percent of the time. He was never told to spend most of his time outside bank property. After his initial ramp-up period, his quarterly sales figures ranged from $5 million to $10 million. At one point, he was the most successful BBO in the entire company.
On cross-examination, Penza acknowledged he had signed a declaration for USB shortly after he started working as a BBO. In the declaration, he stated he was outside of the office 75 percent of the time. He testified he felt compelled to sign the declaration because he was a relatively new employee at the time. He admitted he provided all the information in the declaration to the attorney who interviewed him. He also signed another declaration in May 2004 in which he reaffirmed his prior declaration. When he signed the second declaration he had several commissions at stake. He chose to work longer hours because he wanted to be the top producer in the country and achieve the numbers that his supervisors wanted.
Troy Petty worked for USB from 1997 to 2001. He became a USB employee after the bank he worked for merged with USB. At his former bank, his job title was "commercial loan officer." His job duties did not change when he became a USB employee. His employment with USB ended
Petty would make about five to 20 sales calls per week at customers' and potential customers' places of business. He estimated on average he spent 75 percent of his time inside the office. He spent no more than 35 percent of his time outside the office in any given week, or about two or three hours per day. At trial, he testified that he worked 50 to 60 hours per week. In his deposition, he had stated he worked 50 hours in a typical week.
On cross-examination Petty conceded he was expected to work eight hours a day only, and his manager never required him to keep certain hours and never told him what to do with his worktime. USB's counsel introduced the job description for the "commercial banking relationship manager" and attempted to show Petty actually held this position, and was not an SBB. Petty admitted he had never been classified as an SBB.
Matthew Gediman was a BBO from April 2005 until December 2006. At the time of trial, he was still employed by USB as a district sales manager. As a BBO, he was never told that he was required to spend most of his time outside the bank, and he spent the majority of his time inside his office. His hours ranged between 30 to 50 hours per week. He rarely worked more than 40 hours per week or more than eight hours per day.
Sam Duran, the other named plaintiff, was a BBO from April 2003 to March 2004. He was not told he was required to spend most of his time outside of the branch office. In a typical day, he would go to the office, check his e-mail and voice messages, return phone calls, review loan packages, follow up with customers to get documents, and work on loan or line renewals for existing customers. He estimated that he worked 45 hours a week. He was never told that he was expected to arrive at a particular time and he was given flexibility to leave the office to meet with a client, go to doctor's appointments, or pick up his children from school.
On cross-examination, Duran stated he generally tried to have one meeting with a client outside the branch per day, and sometimes he had two or three such meetings. The meetings would last anywhere from five minutes to three hours, although three hours was very unusual. It would generally take between 15 and 30 minutes to travel from his branch to a customer's or a prospect's place of business. He did not recall telling USB's attorney in July 2003 that he spent, on average, 60 percent of his time outside the office.
Duran received a signing bonus when he accepted the position with USB. The bonus was conditioned on his remaining employed with USB for 12 months. He left before the 12-month period was up and did not return the bonus. In early 2004, his supervisor counseled him about the deficit in his loan production. She told him that he was expected to conduct 15 quality in-person sales calls on a weekly basis. He did not recall if she told him that these calls should take place at prospects' places of business. He failed to meet this requirement and resigned shortly after a focused counseling session with his supervisor.
Duran also admitted he falsified his USB salary figure when he applied for his next job. He claimed his headhunter told him to lie. The headhunter, David Vallecillo, testified that he contacted Duran about an employment opportunity with another bank. He denied telling Duran to falsify his salary information on the job application.
Brett Lindeman began working for USB in May 2005 as a BBO and was still employed at the time of trial. When he was hired he was told the job was a sales position involving new loans. He was never told that he would be expected to spend the majority of his time outside USB properties. He testified he typically works about 40 hours a week. There are times when he works more than 40 hours a week, but he was not able to give an accurate
Lindeman stated he does hit his sales goals, but not in every quarter. He has never been told that he is expected to work more than 40 hours per week. At his deposition, he said it was "completely plausible" that there were weeks when he spent more than half his time outside of the office. At trial, after viewing his mileage claim records, he stated that he believed he regularly spent more time inside USB properties than outside.
At the time of trial, Adney Koga was employed by USB as a BBO. He was a BBO in California from July 2004 to April 2006. He left USB for a time and came back as a personal banker in October 2006. He became a BBO again in February 2007 in the state of Arizona. He was never informed that he was expected to spend most of his time outside the bank as a BBO.
After he was hired, Koga underwent a three-month training period. He spent about one month shadowing a BBO. During this period he would work from about 9:00 a.m. to about 6:30 or 7:00 p.m. As a BBO in California, he estimated he worked on average about nine hours a day and about 45 hours a week. He estimated that he spent most of his time inside the branch, as opposed to at a customer's place of business. He was never counseled by any of his supervisors that he should spend more of his time outside of the bank location.
Koga had signed a declaration for USB prior to trial. At trial he denied ever having told USB's attorney that he spent 55 percent of his time outside of the office. On cross-examination, Koga admitted he did not make any changes to his declaration even though a cover letter instructed him to correct any inaccuracies. He was not promised any benefit in exchange for signing the declaration and his job was not threatened in any way by anyone at USB if he refused to sign it. Deposition testimony was introduced in which he stated he told USB's attorney that he spent 55 percent of his time outside of the office making sales calls.
Koga testified he had discretion and control over his daily work schedule. He had no set time to arrive at or leave work and no one ever told him the number of hours that he needed to work in a given day or week. He did not report his daily working hours to his manager.
Steven Bradley worked for USB as a BBO from March 2003 to July 2004, and again from May to August in 2006. When he was hired, he was told the job involved sales and that he would be paid partly on a base salary, but the most important part of his compensation would be derived from the commissions he would get for booking products and services. He was never told he had to spend more than half of his time outside bank locations. His normal work schedule was from around 9:00 a.m. to around 5:30 p.m. Sometimes he worked at home after he left the branch. He estimated he worked between 40 to 45 hours during the week. He also worked once or twice a month on weekends, spending two to four hours folding flyers.
On cross-examination, Bradley acknowledged he had voluntarily signed a declaration for USB. He admitted the statements contained in the declaration were based on information that he provided to the attorney who interviewed him, and that the information was true and correct at the time he signed the document in June 2004.
Ted Biggs was the western regional manager for USB's small business group at the time of trial. The small business group focuses on borrowers who need loans of between $100,000 to $2.5 million. The primary role of the BBO position is to contact prospects and customers at their places of business to develop new relationships or to expand the existing relationships, with the focus on securing deposits and loans.
Biggs developed a tool to communicate his performance expectations to BBO's. He used a stylized eye chart called "15-3-1-1." The chart was used to explain that if a BBO makes an average of 15 customer contacts a week he or she should come away with three applications. Normally, one loan approval and one funded loan would result from the three applications. By following this model, a BBO would make or exceed his or her sales goals. This sales strategy was communicated to all of his regional managers, sales managers, and BBO's. In Biggs's experience, in-person sales calls take from one and a half to two hours. This means that up to 30 hours per week should be spent with prospective customers at their places of business under the 15-3-1-1 model. A site visit could count as one of the 15 meetings, provided the BBO actually met with the customer during the visit.
Because USB has a small share of the market in California, BBO's need to obtain most of their business from new customers. In Biggs's experience, BBO's need to spend a majority of their time outside bank property engaged in sales activities in order to achieve their loan production goals. BBO's are also expected to engage in networking activities outside the bank. They are also required to do site inspections to make sure the customer's business is operational and to verify that any collateral is in good condition. BBO's were not required to work a specific number of hours per week or per day.
When Biggs was asked if he had ever concluded a particular BBO was not spending sufficient time outside the bank, the trial court barred this testimony because the incident did not involve an RWG member.
Biggs testified that mileage reimbursement records do not reveal the actual amount of time a BBO spent outside of bank property during any given day or week. The records only state how many miles a BBO traveled and possibly the destination. In his opinion, the 2002 BBO job description reflected that BBO's would be spending the majority of their time outside.
At the time of trial, Michael Lewis was a district manager for USB. He started out as a BBO in June 2004, and became a sales manager in June 2005. As we noted earlier, he was initially selected for the RWG, but opted out by the time of trial. He testified he never wanted to be a part of the case, and had opted out after plaintiffs' counsel telephoned and told him he had already been chosen as a witness but could opt out if he did not want to participate. When he opted out he did not know his testimony would have been extrapolated to the whole class, and he was upset when he learned he could not give his testimony.
As a sales manager, Lewis's duties were to support, train, and educate the BBO's under his supervision, and to assist them if they had questions about analyzing financial statements and submitting loan applications. He also instructed them on how to "drum up" more business. He went out on joint sales calls with his BBO's two to four times a week. These calls would last an hour and a half to two hours, excluding travel time. He specifically told his BBO's that it is more effective to go to a customer's place of business, rather than to make appointments at the branch.
Consistent with the trial court's ruling on plaintiffs' motion in limine No. 11, the court prevented Lewis from testifying as to the percentage of time he spent outside bank property when he was a BBO. Further, the court essentially prohibited him from testifying as to whether the non-RWG BBO's under his supervision spent most of their time engaged in sales activities outside the bank. The court also barred him from testifying as to whether he had ever disciplined a non-RWG BBO for failing to spend sufficient time outside of bank property: "The only evidence that is meaningful to the court on that subject [(discipline for something other than failing to meet sales goals)] because of the structure of the trial are members of the [RWG]. If this witness has percipient knowledge of disciplining members of the RWG, then I am interested in hearing. . . . [I]f not, no."
Lewis supervised Gediman for a little over a year. Lewis instructed Gediman to spend more time out of the office in order to be more successful, but he did not specifically say that he was expected to spend more than half of his time outside. During the first quarter he supervised Gediman, Lewis estimated Gediman spent 60 to 70 percent of his time outside the office. During the second quarter it was 55 to 60 percent. During the third quarter, as Gediman's production was starting to slip, Lewis encouraged him to engage in more sales-related activities outside of the office. Gediman told him that he never worked more than 40 hours a week.
Lewis met Chad Penza in July 2004 at a BBO conference. At that time, Penza was the number one BBO in the nation. Penza told Lewis that his strategy was to meet with prospects at their place of business, and that BBO's should also meet with real estate brokers to get leads. Penza never said that the secret to success in the BBO position was to spend most of one's time cold-calling from the office.
On cross-examination, Lewis testified that when he was a sales manager he did not keep track of how many hours BBO's worked in a week. Nor did he track how much time any of his BBO's spent inside or outside USB property. BBO's are not evaluated based on the number of hours they work.
Pat Collins was a sales manager from February 2003 to September 2005. During that time she supervised Duran.
At the time of trial, Sean MacClelland was a regional sales manager for USB's Northern California business banking section. He started with USB as a BBO and worked at that position for about a year. He then became a sales manager and supervised about seven or eight BBO's. About once or twice a week he would join one of his BBO's on an outside sales call. Sales calls with prospective customers would last from one to three hours on average. He encouraged his BBO's to conduct calls at a prospect's place of business. He told them their primary responsibility was to be out in the field generating loan sales. Like Lewis, MacClelland was prevented by the trial court from testifying as to whether he spent most of his time outside the office when he was a BBO.
MacClelland told his BBO's that they were expected to spend the majority of their time outside of bank property engaged in sales activities. This expectation was given to him by Biggs, and he reinforced this expectation in periodic contacts with BBO's under his supervision. Getting outside the bank builds a rapport with the customer, is a fraud prevention technique, and creates an opportunity to cross-sell products and generate more referrals from prospective customers.
MacClelland testified that Koga had some successful quarters, but had others where he did not meet his goals. MacClelland counseled him to be more focused on getting appointments, generating leads, and going to networking events during slow periods. Koga never told him he was uncomfortable interviewing with USB attorneys about the lawsuit or filling out a declaration.
Hector Zatarain began working as a sales manager at USB in March 2001. He supervised Chad Penza. For at least the first year and a half of Penza's employment, he spent the majority of his time outside the office. After that time, he began spending the majority of his time inside the office. Zatarain did not know of other BBO's who spent the majority of their time inside their office and still made their production goals. He did not discipline Penza for being inside the office, but he did tell him that he was working too hard.
On July 25, 2007, after plaintiffs had completed the presentation of their case, USB filed a motion for judgment under Code of Civil Procedure section 631.8. In the motion, USB claimed plaintiffs were required to have proved
On September 20, 2007, the trial court denied the motion for judgment. In its tentative ruling, the court stated its use of the RWG as the basis for trying the lawsuit had been "authorized" by our decision in Bell III.
On October 25, 2007, the trial court issued an order regarding closing briefs that, in part, prohibited USB from referencing the four former named plaintiffs' depositions as well as the declarations USB had sought to admit.
On November 5, 2007, USB filed a "due process motion for briefing and additional argument re phase one evidence," asking the trial court to issue a new ruling regarding the evidence excluded by the October 25, 2007 order.
On December 4, 2007, the trial court filed its order rejecting USB's due process motion.
The trial court remained steadfast in its position not to hear proffered BBO's from the defense to challenge plaintiffs' version of the facts. As to
On April 8, 2008, USB filed its objections to the proposed Phase I statement of decision that the trial court had ordered plaintiffs to prepare. USB's papers include a declaration prepared by Hildreth, who raised several concerns regarding the proposed statement's computation of the average number of overtime hours worked per week by each of the testifying witnesses.
On May 7, 2008, plaintiffs filed an ex parte motion to amend its expert declarations to include, in part, testimony regarding a telephonic survey of class members that their survey expert Jon Krosnick had conducted after the close of Phase I. The trial court granted the motion, noting it was not making an advance determination as to whether the results of the survey would be admitted in evidence.
On July 10, 2008, USB filed a motion to exclude Krosnick's survey evidence.
On August 4, 2008, plaintiffs submitted their opposition to USB's motion to exclude the new survey evidence. The opposition includes a declaration of Drogin, stating the trial court's finding that the RWG members were improperly classified as exempt could be "reliably projected to the whole class" since the ruling was based on a "random" sample. He quantified the average weekly unpaid overtime hours at 11.87 hours, with a margin of error of plus or minus 5.14 hours under a 95 percent confidence interval.
On August 8, 2008, the trial court ruled the survey would not be admissible as affirmative evidence in phase II (Phase II) of the trial, but left open the possibility that the survey could come in for rebuttal purposes to impeach evidence that might be offered by USB.
On August 22, 2008, USB filed its second motion to decertify the class. USB argued decertification was mandated because the evidence adduced at trial demonstrated individualized issues predominated as to liability and restitution. USB also claimed the evidence showed class treatment was unmanageable and not superior to individualized proceedings. USB reiterated its reliance on the 70-plus sworn declarations from non-RWG BBO's attesting that they spent the majority of their worktime outside bank property. The motion was denied.
After considering extensive briefing and argument regarding disputed issues, the trial court filed its statement of decision on September 22, 2008, a year after the conclusion of Phase I of the trial.
The trial court concluded the two named plaintiffs and the 19 RWG members who testified at trial had been misclassified and had all worked overtime hours, finding their testimony on these issues "credible and persuasive." The statement of decision sets forth the amount of overtime each testifying BBO claimed to have worked, the dates of their employment, and
For Phase II of the trial, plaintiffs filed their motion in limine No. 17, seeking to prevent USB from referencing any evidence regarding liability other than the trial court's Phase I statement of decision. The motion was based on the premise that the court had already determined the entire class was improperly classified as exempt, and therefore any contrary evidence would be irrelevant and would necessitate undue consumption of time. The trial court granted plaintiffs' motion.
USB filed its motion in limine No. 11, again seeking to exclude Krosnick's survey evidence from Phase II. The trial court granted this motion, subject to the qualifications in its prior orders regarding the potential use of this evidence for impeachment purposes.
USB's motion in limine No. 12 sought to exclude evidence of time BBO's spent in nonclass positions. This motion was based on USB's contention that two RWG witnesses had occupied nonexempt positions of banker trainee and BBO trainee during a portion of their employment with USB. Plaintiffs filed their corresponding motion in limine No. 20 to exclude evidence of any training time allegedly worked by the class members. In opposition, USB
USB also filed motion in limine No. 13, again seeking to admit the depositions of the former named plaintiffs and the declarations of the approximately 70 non-RWG class members. The motion was denied.
Drogin was called as plaintiffs' expert witness in the area of statistics. As the basis of his opinions, he indicated he had relied on the trial court's Phase I statement of decision and the survey report prepared by Krosnick. USB's counsel made multiple objections to the references to Krosnick's report, based on the trial court having granted its motion in limine to exclude evidence of the survey. The trial court overruled the objections, without prejudice.
Drogin explained that random sampling is a process whereby a subset of a population is selected because "each person in the class had the same chance of being selected." He noted that the "random nature" of such a selection results in a representative subset that should reflect the traits and characteristics of the population as a whole.
Drogin defined various statistical terms. The "point estimate" is the number desired to be obtained from a sample, which is then used to predict what the number will be for the rest of the population. In the present case, the average number of overtime hours per week is the point estimate. The "ratio estimate" is a standard statistical estimator that uses two numbers, here the average number of overtime hours worked and the number of weeks worked by the BBO's. Another way to think of the ratio estimate is that it is a weighted average where the weights are the total weeks worked by each person.
Drogin testified the "confidence interval" reflects variations in data and random fluctuation due to sampling. The confidence interval is based on three components, the point estimate, the margin of error, and the level of confidence. Most statisticians use a 95 percent confidence level. Margin of
Drogin explained "standard deviation" is a quantity used to measure dispersion in data. Standard deviation is used to calculate the margin of error. "Response rate" is the proportion of a sample from which results have been obtained. In this case, he calculated the response rate at 95 percent because only one RWG member (Borsay Bryant) failed to testify. "Measurement error" is the error that can occur in samplings if something is mismeasured in a systematic way. Drogin deemed there was no measurement error in the present case because the data he used was derived from the court's statement of decision.
Drogin testified his understanding was that the trial court selected the RWG by pulling their names from a container that held cards with the names of all the putative class members written on them. This procedure is consistent with a random sample.
Drogin said that when he was retained as the plaintiffs' expert in Bell III, his goal was to work with the experts on the opposing side to jointly develop a sampling plan that could be used to get an accurate estimate of overall damages, as liability had already been determined. He acknowledged that no such joint plan was developed in this case. The only people who testified in the damages phase in Bell III were the parties' three experts. No auxiliary report, such as the one prepared by Krosnick, was used. Also, there was no disagreement on the average number of overtime hours worked per week, and no dispute on how to compute damages using that number. The only disagreement was whether the mean or the median should be used for the purpose of calculating damages.
After reviewing the trial court's Phase I statement of decision, Drogin initially calculated the average overtime as 11.299 hours per week. He later increased the figure to 11.87 hours due to adjustments made for vacation time, and the exclusion of a period of time when one of the RWG BBO's was
Drogin considered his calculations to be reliable based on his assumption that the sample was random, while noting "In some situations you may have a sample, but there are certain factors that could destroy it from being a perfect textbook random sample—for example, if there's any self-selection, if there's something that wasn't random of how the sample is selected." He concluded the 11.87 figure could be reliably projected to the absent class members for purposes of calculating the restitution owed. He noted that whether the confidence interval was too wide was a matter for the court to decide, but that his was the best estimate based on the available data.
On cross-examination, Drogin admitted he was aware that 20 percent of the originally drawn sample had opted out after they were selected for the RWG, whereas only 2 percent of the remaining class members had opted out. He indicated he had no way of knowing why anyone had opted out. When asked if, at a 95 percent confidence interval, there was a statistical probability that up to 13 percent of the class could be properly classified even if 21 out of 21 sample members were found to be misclassified, Drogin replied that the 13-percent figure would be "part of the range—the lower range of the confidence interval." He testified that "the 95 percent confidence interval ranges from 87 percent to 100 percent for the percentage of class members who are misclassified." When asked if, "statistically speaking," would not this mean that up to 13 percent of the class could possibly be properly classified, Drogin responded: "That's true." Drogin clarified that, at any given confidence level, he can make a projection based on variables but that he would not know "as a matter of fact or personal knowledge" whether 100 percent of the class was misclassified or not.
Drogin acknowledged that the sampling procedure he had proposed at the outset of this case was not used by the trial court. One element of his proposal would have included a survey of the amount of time each class member spent outside the office engaged in sales activities.
On the subject of witnesses who testified they worked an uncertain range of hours per week, Drogin admitted there is no formula or rule in statistics that says the midpoint should be used if a subject responds with an interval instead of a specific number. In arriving at his overtime hour calculation, Drogin calculated weekly overtime only, not daily overtime. If a witness testified using an open interval rather than a range of hours, Drogin used 7.5 hours as his or her weekly overtime figure. Drogin explained that the absolute margin of error is expressed in the units of the estimate, and the relative margin of error is the ratio between the absolute margin of error and the estimate expressed as a percentage. Here, the absolute margin of error for the overtime worked by the sample plaintiffs is 5.14 hours per week, and the relative margin of error is 43.3 percent. On redirect, he stated that there is nothing wrong, statistically speaking, with choosing a sample without first determining the desired margin of error.
Drogin agreed with USB's counsel that, in general, the larger the sample size, the lower the margin of error.
Paul Regan testified for plaintiffs as an expert in accounting. His task was to calculate the restitution due to plaintiffs based on Drogin's figures. He testified that if Duran and Fitzsimmons were removed from the sample group, the total restitution owed to the class would have increased by about $411,000. On cross-examination, he testified he did not perform any calculations with respect to the margin of error. He also did not extrapolate to the class the two weeks in which Penza was properly classified. He did take off two weeks from Penza's recoverable time period. Regan did not exclude time during which USB claimed certain class members were working in nonexempt training positions. Nor did he make any deductions for holidays taken by class members in calculating their recovery.
The trial court prohibited USB from presenting evidence showing that some class members had been classified in nonexempt positions during their tenure with USB. For example, USB offered to show that a class member, while working in a training position, signed a weekly timesheet verifying his hours and stating he did not work overtime. USB argued that he should not have been allocated overtime pay for the weeks in which he verified he did not work overtime. The court sustained plaintiffs' objections to these timesheets on the basis that it violated the trial plan. The court barred USB from introducing any evidence as to class members who may have held a BBO training position, or evidence that this position represented a distinct, nonexempt classification. The court also prohibited two non-RWG BBO's from testifying.
Joe Anastasi testified as USB's expert in forensic accounting He was asked by USB to prepare a rebuttal analysis to Regan's projection of overtime recovery to the class. Anastasi reviewed USB's records with respect to holidays, vacation, sick leave, and leaves of absence taken by class members during the relevant time period. In preparing his analysis, he disagreed with Regan's calculations because Regan did not deduct holiday time for any
Anastasi prepared a damages calculation using the low end of the margin of error, which is 6.73 overtime hours per week. Using the lowest end of the ranges of hours given by RWG members, and using a simple average as opposed to a weighted average, the total overtime award would be $6,141,000. The amount would be reduced to $5,125,000 using the 6.73-hours-per-week figure. Using a 7 percent rate of interest, Anastasi calculated total class recovery using the 6.73-hour figure to be $7,226,624, or about half of the total Regan had calculated.
In Anastasi's opinion, undue weight was accorded to Penza in the calculation of a weighted average for the RWG group. Anastasi opined that the data in the trial court's statement of decision is so imprecise that it results in arbitrary projections. He testified that one could derive a total of 29 different "bottom lines" based on different assumptions and calculations of the data as provided in the court's statement of decision. The choice of which "bottom line" to pick is totally arbitrary due to the variability and lack of specificity in the data.
Hildreth testified as an expert witness in statistics for USB. In his opinion, the sampling plan chosen by the court was statistically unacceptable, in part because the size of the sample was insufficient for extrapolation purposes. He stated that simply drawing a random sample is not necessarily sufficient to provide an unbiased and accurate estimate regarding an underlying population. A sample has to be sufficiently large, and has to be free from bias caused by potential sampling or nonsampling errors. It also must be undertaken with a focus on the questions of interest.
Hildreth stressed the importance of defining a population before collecting a sample in order to gauge whether any subsequent changes to the sample are reflective of the underlying population. Hildreth believed selection bias occurred in this case with the second opt-out notice because the RWG members were told they could opt out or stay and testify at trial, whereas the remainder of the population was simply given the choice to opt out. This lead to a different behavioral response in that only 2 percent of the nonsample
Hildreth found the inclusion of the two named plaintiffs in the sample group was another example of selection bias. The two were placed into the sample on a nonrandom basis. Because they were not randomly selected, there is no statistical basis for considering their testimony as representative of the entire class. When he excluded the two named plaintiffs from the sample group, Hildreth calculated that the margin of error increased from 43.3 to 47 percent. He concluded selection bias and measurement errors rendered the sample unrepresentative.
Consistent with Drogin, Hildreth testified that even assuming there were no sampling errors and that every member of a 20-person random sample was found to be misclassified, from a statistical standpoint 13 percent of the class might nonetheless be properly classified under a 95 percent confidence interval. With a sample of 21, up to 12 percent of the class may be properly classified. With a sample of 19 (here, if the two named plaintiffs are excluded), up to 14 percent of the class could be properly classified at a 95 percent confidence interval, which would amount to approximately 36 class members. At a 99 percent confidence interval this number could increase to 20 percent of the class, or 52 class members. Thus, he opined there is no statistical basis to conclude that 100 percent of the class was misclassified.
The trial court prohibited Hildreth from testifying as to his review of the 70-plus BBO declarations USB had obtained, notwithstanding USB's complaint that Drogin had been permitted to testify concerning the non-RWG survey responses contained in Krosnick's report. The court indicated it considered USB's declarations to be unreliable.
After the close of Phase II evidence, the trial court permitted each side to file briefs and objections. A hearing before the court followed. The court issued its decision on May 20, 2009.
The trial court stated its initial finding as follows: "The court finds, with a 95% level of confidence, the best estimate based on all admissible evidence is that the class worked 11.86 overtime hours per week with an absolute margin of error of approximately plus or minus 5.14 hours and a relative margin of error of approximately 43%." The court found the total amount of overtime restitution owed to the class as of October 1, 2008, to be $8,953,832. The amount owed to named plaintiffs Duran and Fitzsimmons for meal and rest break violations was calculated at $25,373. The court included interest at a rate of 10 percent per annum at $5,980,360, for a total award of $14,959,565 owed as of May 15, 2009.
Additionally, the trial court stated that even though the margin of error as to the number of overtime hours is 43.3 percent, ancillary factors identified in our Bell III opinion were present and "serve to bolster the reliability of the estimate." The court found those factors to be "(1) random selection of the sample; (2) high response rate; (3) absence of measurement error; (4) probable distribution within the margin of error based on auxiliary and anecdotal evidence; (5) data that is not skewed; (6) the calculation of the average overtime was not an afterthought; and, (7) other procedures were considered."
In its motion for new trial, USB argued the trial court's refusal to admit non-RWG class member declarations and deposition testimony, and its preclusion of all non-RWG witnesses in USB's defense case, deprived USB of its constitutional due process right to a fair trial. On July 17, 2009, the trial court denied USB's motion for new trial.
USB raises several challenges to the trial court's rulings on class certification as well as to the conduct of the trial. We turn first to the claim that the
The general standard of review of a trial plan in a class action case is abuse of discretion. (Bell III, supra, 115 Cal.App.4th 715, 751.) Both parties agree we review de novo the legal issue of whether a trial plan violated a party's right to due process. (Hypertouch, Inc. v. Superior Court (2005) 128 Cal.App.4th 1527, 1537 [27 Cal.Rptr.3d 839].)
Due process principles are designed to ensure a party is afforded his or her right to be heard during adversarial proceedings: "`As the rubric itself implies, "procedural due process" is simply "a guarantee of fair procedure."' [Citations.] Hence, we review cases involving adversarial hearings to determine whether, under the specific facts and circumstances of a given situation, the affected individual has had a fundamentally fair chance to present his or her side of the story." (In re Nineteen Appeals (1st Cir. 1992) 982 F.2d 603, 611.)
Plaintiffs here contended they were entitled to overtime pay under Labor Code section 510 and that USB misclassified them as exempt from this overtime requirement. As an affirmative defense, USB claimed the class members were exempt from overtime laws, relying primarily on the outside salesperson exemption as set forth in Wage Order No. 4 and Ramirez v. Yosemite Water Co., supra, 20 Cal.4th 785 (Ramirez).
Arguably, the present case is distinguishable from Ramirez in that there is little dispute as to the sales-driven nature of the BBO's job duties. In other words, the issue at trial was not whether BBO's spent the majority of their time engaged in sales-related activities. Rather, the focus was on whether BBO's spent the majority of their time physically outside USB property. Nevertheless, this distinction does not detract from the central issue on appeal, which is whether the trial court erred in prohibiting USB from inquiring into the exempt status of the absent class members.
Plaintiffs cite our opinion in Bell III for the proposition that ample authority exists to support the use of statistical sampling and representative testimony to determine classwide liability. They claim our endorsement in Bell III of the use of statistical methods to determine damages in wage and hour class actions "would apply equally to determining liability." While the trial court also appeared at various times to rely on our prior opinion as a justification for using the RWG as the basis for determining USB's liability to the entire class, Bell III is manifestly inapposite.
In Bell III, a class of approximately 2,500 claims representatives sued their insurance company employer for unpaid overtime compensation. The employer asserted the representatives were exempt from overtime under the administrative exemption. (Bell III, supra, 115 Cal.App.4th 715, 720.) This defense was rejected by the trial court in an order granting the employees' motion for summary judgment. (Ibid.) On appeal, we upheld the court's finding that the plaintiff employees were nonexempt. (Bell v. Farmers Ins. Exchange (2001) 87 Cal.App.4th 805 [105 Cal.Rptr.2d 59].) Thereafter, the employer filed two unsuccessful motions to decertify the class. (See Bell III, supra, at p. 721.)
Each side then retained expert statisticians to address the damages phase of the trial. As noted previously, the plaintiffs retained Drogin, the same expert
A brief jury trial followed in which Drogin and Paul Regan (also retained by plaintiffs in the present case) testified for the plaintiffs and the employer's statistician testified for the employer. (Bell III, supra, 115 Cal.App.4th 715, 724.) The employers' expert presented a case for using a median
In Bell III, we noted our task had been made easier by the fact that the employer did not challenge Drogin's scientific methodology or his qualifications. (Bell III, supra, 115 Cal.App.4th 715, 747.) Instead, the employer argued that the use of "statistical inference" violated its due process rights by relieving class members of the burden of proving they had worked overtime. (Id. at p. 749.) We rejected this argument: "[S]tatistical sampling does not dispense with proof of damages but rather offers a different method of proof, substituting inference from membership in a class for an individual employee's testimony of hours worked for inadequate compensation. It calls for a particular form of expert testimony to carry the initial burden of proof, not a change in substantive law." (Id. at p. 750.)
We performed a balancing analysis under Doehr and found the defendant's interest was in the proper determination of its overall liability only, and not the amount of damages awarded to any particular class member. (Bell III,
We came to the opposite conclusion with respect to the inclusion of double-time hours within the 9.4 average weekly hours of unpaid overtime work. (Bell III, supra, 115 Cal.App.4th 715, 756-757.) The sample group's average of 0.37 hours of unpaid double time was extrapolated to the entire class, resulting in an absolute margin of error of 0.12 hours, or about 32 percent. The distribution was highly skewed, as only 16 employees in the sample group accounted for half of the double-time hours. (Id. at p. 756.) While margin of error alone does not afford a "bright-line constitutional distinction,"
The procedures we approved in Bell III are only superficially similar to the procedures utilized in the present case.
Second, we agree with USB that the trial court here did not follow established statistical procedures in adopting its RWG-based trial methodology. In Bell III, the size of the representative sample used as the basis for calculating straight overtime damages was determined after extensive calculations had been made by expert statisticians based on surveys of class
Third, the expert witnesses in Bell III cooperated in many aspects relating to the methodology for calculating damages, including agreeing to use the data from the employees' work schedules and collaborating to arrive at the appropriate sample size necessary to achieve the one-hour-per-week margin of error. No such cooperation occurred in this case as the expert witnesses never worked together.
Fourth, it appears that the sampling done in the Bell III case was at all times random, unlike here where a comparatively high number of RWG members opted out before trial, and the trial court allowed evidence from the two named plaintiffs not randomly chosen to be extrapolated to the entire class.
Fifth, the restitution award here was affected by a 43.3 percent margin of error, more than 10 percentage points above the margin of error for the double-overtime award we invalidated in Bell III. In absolute terms, the average weekly overtime hour figure could conceivably be as low as 6.72 hours per week, as opposed to the 11.86 hour figure arrived at here. While we again will not set a bright line for when a margin of error becomes so excessive as to be deemed unconstitutional, we are troubled by this result.
Finally, another factor present in this case that was not present in Bell III involves the repeated restrictions the trial court placed on USB's ability to present arguably relevant evidence in its defense. In Bell III, we found only a single pretrial ruling that had significantly restricted the employer's right to contest the plaintiffs' proof of damages, a ruling the employer did not challenge on appeal. (Bell III, supra, 115 Cal.App.4th 715, 759.) We also concluded the employer was not prejudiced by the procedures followed in that case. (Ibid.) Unlike Bell III, in which the employer had acquiesced to statistical proof of damages and had waived the right to impeach the employees' testimony at trial (id. at pp. 757-759), USB steadfastly and repeatedly objected to all phases of the trial management plan. Contrary to plaintiffs' contention, we do not agree USB waived its objection to specific
Here, as we explain further below, the trial court exceeded acceptable due process parameters by limiting the presentation of evidence of liability to the testifying BBO's only. Fundamental due process issues are implicated not only by the unprecedented and inconsistent use of statistical procedures in the liability and damages phases, but also by the manner in which USB was hobbled in its ability to prove its affirmative defense. Under the court's plan, as reinforced by its rulings on motions in limine and related evidentiary matters, USB was barred from introducing manifestly relevant evidence.
USB claims California law precludes classwide liability determinations based on evidence obtained from a representative sample in employment cases alleging misclassification. USB relies on several state and federal wage and hour class action cases for the proposition that surveying, sampling, and statistics are not valid methods of determining liability because representative findings can never be reasonably extrapolated to absent class members in misclassification claims given that time spent performing exempt tasks may differ between employees.
In Walsh two account managers filed a class action lawsuit against their former employer. Similar to the present case, the defendant in Walsh had allegedly wrongly classified these employees as exempt from overtime wage laws under the outside salesperson exemption. (Walsh, supra, 148 Cal.App.4th 1440, 1445-1446.) After the trial court certified a class action, the employer moved to decertify an account manager subclass, contending common questions of law and fact did not predominate over individual issues. The employer presented evidence that performance of the managers' primary functions varied significantly, depending upon territory, number of customers and job orders, support from customer service representatives, and the personal approach of each manager. (Id. at p. 1455.) The trial court granted the motion to decertify. (Id. at p. 1452.)
The Court of Appeal concluded that the Supreme Court's decision in Sav-On, supra, 34 Cal.4th 319 [(reversing a Court of Appeal decision that had overturned a trial court's class certification order)] did not strip the trial court of its discretion to consider whether factual variations among individual employees rendered the class action device an inferior method of adjudicating the claims. (Walsh, supra, 148 Cal.App.4th 1440, 1458.) Again, this case clearly supports the premise that due process principles require individualized inquiries where the applicability of an exemption turns on the specific circumstances of each employee, even in cases where the employer's misclassification may be willful.
In Dunbar this court affirmed a trial court's order denying a motion for certification in an overtime wage and hour case involving the executive exemption. The trial court in Dunbar had acknowledged there were issues
In In re Wells Fargo Home Mortgage Overtime Pay Litigation (9th Cir. 2009) 571 F.3d 953 (Wells Fargo I), the Ninth Circuit reversed a class certification order, finding the district court had placed undue weight on the defendant's uniform policy of classifying mortgage consultants as exempt. (Id. at p. 959.) The lower court had found numerous individualized inquiries would be necessary to resolve the matter but ultimately granted certification based on the defendant's uniform exemption policies. (Id. at p. 956.) On appeal, the Ninth Circuit held the lower court had erred in relying so heavily on the internal exemption policy in the face of admittedly serious issues regarding individual variations among the plaintiffs' job duties and experiences. (Id. at p. 959.) The reviewing court emphasized that regardless of whether such a policy is in place, "courts must still ask where the individual employees actually spent their time" (ibid.) in determining whether overtime laws have been violated.
On remand after the decision in Wells Fargo I, Judge Patel determined class certification was not warranted. (In re Wells Fargo Home Mortgage Overtime Pay Litigation (N.D.Cal. 2010) 268 F.R.D. 604 (Wells Fargo II). Significantly, for our purposes, the court rejected the plaintiff's suggestion that time-consuming individualized inquiries could be avoided by using random sampling of class members to determine whether the class, as a whole, qualified for any of the asserted exemptions, including the outside salesperson exemption. (Id. at p. 612.) The court observed: "In order to adjudicate Wells Fargo's exemption defenses, especially the outside sales person exemption, a substantial quantity of individual inquiries will be necessary. Although there are some issues in this case amenable to common
We find the opinion in Wells Fargo II to be particularly instructive. In Wells Fargo II, the plaintiff had hypothesized a trial scenario in which, out of 30 testifying employees, 27 were found to be nonexempt with an average of eight hours of overtime per week. Citing this hypothetical, the court concluded the proposed plan was inadequate: "Assume that the court permitted proof through random sampling of class members, and that the data, in fact, indicated that one out of every ten [class members] is exempt. How would the finder of fact accurately separate the one exempt [class member] from the nine nonexempt [class members] without resorting to individual mini-trials? Plaintiff has not identified a single case in which a court certified an overbroad class that included both injured and uninjured parties.... In fact, the court has been unable to locate any case in which a court permitted a plaintiff to establish the nonexempt status of class members, especially with respect to the outside sales exemption, through statistical evidence or representative testimony.... Although `the decision to use [statistical sampling] tools is within the discretion of the district court,' in this case, they would be of extremely limited help to resolving the key issues. [Citation.]" (Wells Fargo II, supra, 268 F.R.D. 604, 612, italics added.)
The procedural flaws anticipated by the state and federal courts in the opinions summarized above appear to have been fully realized in the present case. In the first place, there was no statistical foundation for the trial court's initial assumption that 20 out of 260 is a sufficient size for a representative sample by which to extrapolate either liability or damages. Neither party proposed a trial plan based solely on the selection of a representative group of plaintiffs, let alone a group of 20. The court appears to have arrived at this procedure on its own, without reliance on legal precedent or the advice of expert witnesses. In their brief on appeal, plaintiffs state that the trial court "ultimately adopted a trial management plan modeled on Dr. Drogin's proposal." While Drogin did propose the use of representative testimony from a randomly selected group of plaintiffs, Drogin did not offer any advice as to the size of the group. Further, Drogin indicated that the group was to be selected only after a survey of the BBO's duties and hours had been
We note while this appeal was pending, the United States Supreme Court issued its opinion in Wal-Mart Stores, Inc. v. Dukes (2011) 564 U.S. ___, ___ [180 L.Ed.2d 374, 131 S.Ct. 2541] (Wal-Mart). The court reversed a Ninth Circuit order that had affirmed the certification of a class consisting of some 1.5 million female employees who claimed they had suffered discriminatory treatment.
After discussing the trial procedures that apply to pattern-or-practice cases, including the right of a defendant to raise any individual affirmative defenses (Wal-Mart, supra, 564 U.S. ___, ___ [180 L.Ed.2d 374, 399-400]), the
USB claims the trial court's refusal to allow USB to introduce evidence to challenge the claims of the other 239 class members violated its due process rights. We agree.
As outlined above, USB repeatedly attempted to introduce evidence pertaining to non-RWG class members, including those for whom USB had offered specific evidence refuting their potential claims for recovery, such as sworn declarations and/or deposition testimony in which they averred to having spent the majority of their time outside the office. USB notes the judgment awards an average of over $50,000 to each absent class member, notwithstanding that USB offered evidence that potentially could have prevented, at a minimum, approximately one-third of these individuals from receiving any recovery. The four former named plaintiffs who testified at their depositions that they spent more than half their time outside the office (strongly suggesting they were properly classified as exempt), were together awarded over $160,000 in overtime compensation.
We agree with USB that the evidence it sought to introduce is highly relevant in this misclassification case. Under Evidence Code section 351 "Except as otherwise provided by statute, all relevant evidence is admissible." " `Relevant evidence' means evidence, including evidence relevant to the credibility of a witness or hearsay declarant, having any tendency in reason to prove or disprove any disputed fact that is of consequence to the determination of the action." (Evid. Code, § 210.) "Although proffered evidence may have some relevance, `[t]he [trial] court in its discretion may exclude evidence if its probative value is substantially outweighed by the probability that its admission will (a) necessitate undue consumption of time or (b) create substantial danger of undue prejudice, of confusing the issues, or of misleading the jury.' (§ 352.) We review a trial court's evidentiary rulings for an abuse of discretion." (Winfred D. v. Michelin North America, Inc. (2008) 165 Cal.App.4th 1011, 1026 [81 Cal.Rptr.3d 756].)
Plaintiffs claim the trial court properly refused to admit the declarations because they lacked credibility in light of " `their actual authorship, the circumstances of preparation and internal inconsistencies and ambiguities.' " They also claim USB offered the declarations after the close of evidence, and that they had already been excluded in motions in limine "because of incompatibility with the trial plan." USB cannot be faulted for offering the declarations after the close of evidence, since they were excluded by the pretrial rulings. Further, the weight accorded to the declarations could have
"Trial court rulings on the admissibility of evidence, whether in limine or during trial, are generally reviewed for abuse of discretion. [Citations.] `The trial court's error in excluding evidence is grounds for reversing a judgment only if the party appealing demonstrates a "miscarriage of justice"—that is, that a different result would have been probable if the error had not occurred.' [Citations.]" (Pannu v. Land Rover North America, Inc. (2011) 191 Cal.App.4th 1298, 1317 [120 Cal.Rptr.3d 605].)
In granting plaintiffs' motions in limine restricting the evidence USB would be allowed to present, the trial court effectively prevented USB from establishing its affirmative defense as to classwide liability. The record on appeal supports the inference that a large percentage of the absent class member plaintiffs were properly classified and that USB did not owe them
In large part, the trial court appears to have relied on the lack of a uniform policy requiring BBO's to spend the majority of their time outside the office. In Vinole v. Countrywide Home Loans, Inc. (9th Cir. 2009) 571 F.3d 935, issued on the same day as its opinion in Wells Fargo I, the Ninth Circuit discussed the types of common proof that could suffice to establish the predominance of common issues. While an employer's "uniform application of an exemption to employees" is one factor, district courts should also consider "whether the employer exercised some level of centralized control in the form of standardized hierarchy, standardized corporate policies and procedures governing employees, uniform training programs, and other factors susceptible to common proof." (Vinole, supra, at p. 946.) In discounting USB's claims that BBO's were directed to spend the majority of their time outside their branch offices, the trial court emphasized "the amount of work time BBO's are in or out of bank locations is not monitored or tracked in any way."
Fundamentally, the issue here is not just that USB was prevented from defending each individual claim but also that USB was unfairly restricted in presenting its defense to classwide liability. With that in mind, the cases relied on by plaintiffs are inapposite. Both Long v. Trans World Airlines, Inc. (N.D.Ill. 1991) 761 F.Supp. 1320 [protective order limited discovery of information from plaintiff flight attendants to a representative sample of class members], and In re Antibiotic Antitrust Actions (S.D.N.Y. 1971) 333 F.Supp. 278 [states sought recovery for alleged overcharges in the sale of certain antibiotics], concerned the damages phase of a trial, not the liability phase.
Plaintiffs declare: "At bottom, this appeal is about whether the class action will survive as an effective method to try wage and hour misclassification cases." We doubt the situation is quite this dire. Bell III itself was a class action involving wage and hour misclassification, suggesting that not all such cases are doomed to failure under current law. Plaintiffs also claim it would take 520 days to complete a trial of all 260 class members' claims, and argue the trial court here "did exactly what this court and the California Supreme Court have been urging for years" in attempting to efficiently dispose of these claims. To the contrary, we have never advocated that the expediency afforded by class action litigation should take precedence over a defendant's right to substantive and procedural due process.
The denial of due process that occurred here is sufficient to satisfy the three-part Doehr test. The private interest at issue here is approximately $15 million in back wages and prejudgment interest that USB is compelled to pay under the judgment. This is clearly a significant interest and thus this factor weighs in favor of USB.
With respect to the risk of erroneous deprivation through the procedures under attack and the probable value of additional or alternative safeguards, we conclude the trial court's management of this case created a high risk that USB will be compelled to pay money to absent plaintiffs who may not be entitled to recovery, either because they generally came within the outside salesperson exemption during their tenure with USB, or because they never worked overtime. The trial court forbade USB from introducing evidence as to any non-RWG class member's right to recover, notwithstanding the 70-plus declarations that had been signed, under penalty of perjury, by BBO's attesting they were properly classified. A fair procedure would have allowed USB the opportunity to inquire into the specific circumstances of these absent class members. Further, even assuming the entire class is entitled to recover unpaid overtime, the method of determining the restitution owed failed to
With respect to the probable value of additional or alternative safeguards, we can envision procedures that would have lessened the danger of an erroneous result. In striking the double-overtime award in Bell III, we noted that under Doehr "the absence of evidence regarding possible alternatives is relevant not only to the risk of error but also to the ancillary government interest in the procedure. The government cannot have an interest in a procedure if superior alternative procedures are available." (Bell III, supra, 115 Cal.App.4th 715, 756-757.)
As to the final prong of the Doehr test, plaintiffs in this case have a strong interest in obtaining redress from USB. We also do not gainsay the substantial governmental interest in conserving scarce judicial resources. Class action lawsuits are intended to conserve judicial resources and to avoid unnecessarily repetitive litigation. Efficiencies must be maintained, sometimes resulting in imperfect results. A certain amount of variability can be tolerated. However, the trial management plan followed here prevented USB from submitting any relevant evidence in its defense as to 239 class members out of a total class of 260 plaintiffs. Whether the trial court would have given credence to such evidence is beside the point. A trial in which one side is almost completely prevented from making its case does not comport with standards of due process.
Plaintiffs refer us to Dilts v. Penske Logistics, LLC (S.D.Cal. 2010) 267 F.R.D. 625, 638 (Dilts), in which the district court found the use of statistical sampling would be an "acceptable method" to prove liability in a class action. The court in Dilts first noted that "California and Federal courts have not discouraged the use of statistical sampling in determining class member damages." (Ibid.) As to liability, the court stated "the use of statistical sampling, at least when paired with persuasive direct evidence, is an acceptable method of proof in a class action. [Citation.] Thus, certification
Dilts also concerned a case at the certification stage. The district court in that case had not yet developed or approved of a particular trial plan, observing that at this stage of the proceedings, "the exact details of [the employees'] plan are unnecessary to determine whether common issues predominate in this matter." (Dilts, supra, 267 F.R.D. 625, 638.) The court merely allowed for the possibility that the plaintiffs, with help from their expert witness, would be able to come up with an acceptable trial plan based on representative testimony, and found that the use of representative testimony was not per se a violation of the defendant's due process rights. (Id. at p. 639.)
Plaintiffs also point to several federal cases that we cited to with approval in Bell III: In re Chevron U.S.A., Inc. (5th Cir. 1997) 109 F.3d 1016 (Chevron), In re Simon II Litigation (E.D.N.Y. 2002) 211 F.R.D. 86 (Simon II), and Hilao, supra, 103 F.3d 767. Those cases also fail to validate the procedures followed by the trial court in this case.
Unlike Hilao, here the trial court used a random sample group to determine liability as well as to determine the foundational figures to be used in extrapolating restitution to the entire class. The number of sample members was chosen without the input of any statistical expert. Moreover, USB did not waive any challenge to the computation of restitution. The trial court's use of this sampling procedure to determine both liability and monetary recovery appears to be entirely unprecedented.
Chevron is also not favorable to plaintiffs. That case concerned a tort claim for industrial pollution of a residential subdivision. The trial plan "provided for a unitary trial on the issues of `general liability or causation' on behalf of the remaining plaintiffs, as well as the individual causation and damage issues of the selected plaintiffs, and ordered the selection of a bellwether group of thirty (30) claimants, fifteen (15) to be chosen by the plaintiffs and fifteen (15) to be chosen by Chevron." (Chevron, supra, 109 F.3d 1016, 1017.) The goal of this trial "was to determine its liability, or lack thereof, in a single trial and to establish bellwether verdicts to which the remaining claims could be matched for settlement purposes." (Ibid.)
While the trial court here did not follow the trial plan faulted in Chevron, it still failed to comport with the reliability standards annunciated in that decision. Here, the sample used as the basis for the RWG was not a true random sample because it included the two named plaintiffs, who were not selected as part of the initial sample. Nor can we say with confidence that the sample was a "statistically significant" one, in that the 20-person figure was selected by the trial court with no input from any expert witness as to its representativeness for extrapolation purposes.
Simon II is also distinguishable, in part because it involved hundreds of thousands of potential plaintiffs. (Simon II, supra, 211 F.R.D. 86, 153.) Further the defendant in that case was not restricted to the sample group members in presenting its defense: "In addition to statistical evidence, parties will be permitted to present to the jury relevant lay testimony, expert testimony, and documentary evidence—subject to the constraints of the Federal Rules of Evidence and the practical considerations of trial management." (Id. at p. 154.) The district court recognized that "Experts have developed appropriate modeling techniques for reaching statistically significant and reliable conclusions." (Id. at p. 153.) In Bell III, we recited this passage in support of the general proposition that there is "little basis in the decisional law for a skepticism regarding the appropriateness of the scientific methodology of inferential statistics as a technique for determining damages in an appropriate case." (Bell III, supra, 115 Cal.App.4th 715, 755, italics added.) We did not cite to Simon II in support of the proposition that liability
USB claims the trial court's reliance on the factors we mentioned in dicta in Bell III, when we declined to create a bright-line rule for when a margin of error becomes unconstitutional, are not present here and could not salvage the result obtained here even if they were. As noted above, in Bell III we stated: "The reliability of an estimate subject to a large margin of error might conceivably be bolstered by evidence of a high response rate, probable distribution within the margin of error, absence of measurement error, or other matters." (Bell III, supra, 115 Cal.App.4th 715, 756.) The trial court found a high response rate in that 19 out of the 20 RWG members testified, there was no measurement error because the court's findings were "facts" that Drogin extrapolated from, and because the inadmissible Krosnick survey served as the basis for determining probable distribution.
First, USB correctly notes that the passage in Bell III quoted above is dicta. Second, the passage presupposes the use of accepted statistical principles in arriving at the initial result. Here, acceptable statistical principles were not followed in Phase I of this trial and it is undisputed that the findings obtained therein were used as the basis for the restitution calculations in Phase II. Regardless of whether Drogin accurately extrapolated his results from the
Additionally, USB claims the response rate was not "extremely high" because six of the original randomly selected RWG members did not respond, namely, the four members who opted out after the second opt-out notice was sent, Smith (who was removed by the court), and Borsay Bryant (who did not testify). USB also claims there was measurement error because several RWG witnesses testified to having worked a range of hours without specifying how often they worked at either the high or the low end of that range, and there was no admissible evidence as to probable distribution of hours worked by non-RWG members. We find these arguments compelling.
"Underlying the contemporary reliance on the methodology of inferential statistics is a recognition that `[e]xperts have developed appropriate modeling techniques for reaching statistically significant and reliable conclusions.' [Citations.]" (Bell III, supra, 115 Cal.App.4th 715, 754.) Here, the plan used by the trial court was not based on appropriate modeling techniques as developed by experts. As in the flawed double-time award in Bell III, the "parties' experts did not offer foundational calculations for the determination of double-time or propose an appropriate class size, margin of error, or sampling methodology." (Id. at p. 756.) The results achieved here thus do not reflect a statistically significant and reliable methodology. Accordingly, the judgment must be reversed.
The trial court's error was prejudicial as there was evidence in the form of deposition testimony, as well as the pretrial declarations obtained by USB, that a substantial portion of the class was properly classified as exempt. For all the reasons stated above we conclude the judgment must therefore be reversed. In light of our decision, we need not address USB's other arguments in favor of reversing judgment. We must, however, address the issue of whether the trial court erred in certifying this case as a class action initially or in maintaining it as such by denying USB's two motions to decertify. We conclude the trial court abused its discretion in denying USB's second motion to decertify.
USB contends that the trial court abused its discretion in certifying the class of BBO's in 2005, and in later denying the motions for decertification USB filed in 2007 and 2008. USB claims the court's rulings were in error because the law and the evidence in this case rendered class treatment inappropriate as "individual issues predominated and were unmanageable." It claims it was harmed "because the court improperly proceeded on a class basis and subjected USB to its statistically invalid and unconstitutional trial plan that erroneously and improperly resulted in an adverse $15 million judgment."
Class actions are authorized when there is a question of "common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court, one or more may sue or defend for the benefit of all." (Code Civ. Proc., § 382.) While class actions "offer a means of avoiding `repetitious litigation' [citation] and `a multiplicity of legal actions dealing with identical basic issues ...' [citation]" (Bell III, supra, 115 Cal.App.4th 715, 741) by greatly expediting the resolution of claims, class actions can create possibilities for injustice in an individual case. (City of San Jose v. Superior Court (1974) 12 Cal.3d 447, 458 [115 Cal.Rptr. 797, 525 P.2d 701] (City of San Jose).)
Common issues predominate when they would be "the principal issues in any individual action, both in terms of time to be expended in their proof and of their importance ...." (Vasquez v. Superior Court (1971) 4 Cal.3d 800, 810 [94 Cal.Rptr. 796, 484 P.2d 964].) "[T]he community of interest requirement is not satisfied if every member of the alleged class would be required to litigate numerous and substantial questions determining his individual right to recover ...." (City of San Jose, supra, 12 Cal.3d 447, 459.) Our Supreme Court has stated: " `The ultimate question in every case of this type is
A trial court's rulings on class certification are reviewed for abuse of discretion. (Sav-On, supra, 34 Cal.4th 319, 326.) " `Because trial courts are ideally situated to evaluate the efficiencies and practicalities of permitting group action, they are afforded great discretion in granting or denying certification.... [Accordingly,] a trial court ruling supported by substantial evidence generally will not be disturbed "unless (1) improper criteria were used [citation]; or (2) erroneous legal assumptions were made [citation]" [citation].... "Any valid pertinent reason stated will be sufficient to uphold the order."' [Citations.]" (Id. at pp. 326-327.)
While USB contests all the certification decisions made by the trial court, we focus on the denial of USB's second motion to decertify, which was filed after the completion of Phase I of the trial.
The three-factor community of interest analysis applies equally to an order decertifying a class as well as an order granting certification. (See Walsh, supra, 148 Cal.App.4th 1440, 1450-1451 [order decertifying subclass].) If individualized issues arise out of a defendant's affirmative defense, the predominance factor can be defeated: "In examining whether common issues of law or fact predominate, the court must consider the plaintiff's legal theory of liability. [Citation.] The affirmative defenses of the defendant must also be considered, because a defendant may defeat class certification by showing that an affirmative defense would raise issues specific to each potential class member and that the issues presented by that defense predominate over common issues." (Id. at p. 1450.)
In Keller v. Tuesday Morning, Inc. (2009) 179 Cal.App.4th 1389, 1391 [102 Cal.Rptr.3d 498], a trial court had certified a class action lawsuit filed by store managers alleging the defendant had wrongly failed to pay overtime wages. Two years later, the court granted a motion to decertify the class, finding that individual issues predominated over common issues. (Ibid.) In support of its motion to decertify, the defendant had introduced a statistical analysis based on the declarations of 45 managers indicating they spent anywhere from 10 to 100 percent of their worktime on managerial tasks. (Id. at p. 1394.) In granting the motion to decertify, the trial court observed "the question of mandated management policies was subject to classwide proof, yet the amount of time a manager spent performing these acts and his or her exercise of discretion are matters of individual inquiry." (Id. at p. 1396.) The appellate court sustained the decision to decertify the class, finding the lower court's conclusions were supported by substantial evidence. (Id. at p. 1399.)
Other appellate courts have found decertification appropriate in similar circumstances. In Marlo v. United Parcel Service, Inc. (9th Cir. 2011) 639 F.3d 942 (Marlo), the district court decertified a class action lawsuit after it determined the plaintiff had not provided " `common proof to support a class-wide judgment as to liability....' [Citation.]" (Id. at p. 948.) The putative class was comprised of full-time supervisors, who had allegedly been misclassified under the executive and administrative employee exemptions. (Id. at p. 944.) Four years after certification, the district court decertified the class on the ground that the plaintiff had failed to establish predominance under Rule 23(b)(3). (Marlo, supra, at p. 944.) The plaintiff had relied heavily on an annual employee survey conducted by the employer, which the court found "was neither reliable nor representative of the class." (Id. at p. 945.) The court also found individual testimony and evidence of the exemption policy was insufficient to allow a fact finder to make a classwide judgment. (Ibid.)
On appeal, the Ninth Circuit concluded the district court had not erred. (Marlo, supra, 639 F.3d 942, 949.) The appellate court noted the existence of a common classification policy did not necessarily establish the entire class was misclassified "because the policy may have accurately classified some employees and misclassified others." (Id. at p. 948.) The court also cited to our decision in Dunbar in concluding the district court did not err in requiring a week-by-week determination of exempt status. (Marlo, supra, at p. 948.) An additional survey of 160 class members was also deemed " `unrepresentative, unreliable, and [having] essentially no probative value' " because the survey's designer could not state whether the sample was
In response to USB's argument at the initial certification stage that commonality did not exist because Ramirez requires an individualized analysis to determine whether an employee is properly classified as exempt, the trial court stated that the Supreme Court's opinion in Sav-On "dissecting the merits" of Ramirez was the "complete answer to that argument." In deciding to certify the class, the court relied heavily on USB's company policy of classifying BBO's as exempt, and also on evidence that it failed to train and monitor its employees regarding their exempt status.
The Supreme Court did consider Ramirez in its subsequent opinion in Sav-On. In Sav-On, two salaried drugstore managers filed a class action against their employer, arguing that the defendant had misclassified them under the managerial exemption based on their job title and description, without reference to their actual work. In seeking to certify the class, the plaintiffs offered evidence suggesting putative class members were obligated to perform nonexempt work during more than half of their workdays and were thus entitled to overtime pay. (Sav-On, supra, 34 Cal.4th 319, 324-325.)
On review, the Supreme Court found substantial evidence supported the trial court's conclusions that "deliberate misclassification was defendant's policy and practice" and that "classification based on job descriptions alone resulted in widespread de facto misclassification." (Sav-On, supra, 34 Cal.4th 319, 329.) Emphasizing the great deference given to a trial court's certification order, the opinion concluded the court had not abused its discretion in certifying the class. (Id. at pp. 329, 331.) In so ruling, the court found Ramirez inapposite not just because that case did not involve the managerial exemption, but also because Ramirez did not involve a class action claim. As the court in Sav-On observed, "we did not even discuss certification standards [in Ramirez], let alone change them." (Sav-On, supra, at p. 336.) The court concluded: "Accordingly, Ramirez is no authority for constraining trial courts' `great discretion in granting or denying certification' [citation] or ... for applying a particular set of `factors' whenever plaintiffs in an overtime case seek class certification." (Ibid.)
As the Supreme Court stated in Sav-On, "if unanticipated or unmanageable individual issues do arise, the trial court retains the option of decertification." (Sav-On, supra, 34 Cal.4th 319, 335.) When USB filed its second motion to decertify, it had already made repeated efforts to introduce evidence pertaining to its affirmative defense. Thus, this case is further distinguishable from Sav-On, wherein the court stated that because the burden of proof is on the employer, it was not equitable to require plaintiffs to demonstrate that the entire class was nonexempt at the initial certification stage. (Id. at p. 338.) The trial court's denial of the second motion to decertify was based on the erroneous legal assumption that a finding of liability due to misclassification could be determined by extrapolating the findings based on the RWG to the entire class. As we have demonstrated, this conclusion was legally unsound because the methodology employed by the trial court was legally unsound; it violated USB's right to present relevant evidence in its defense.
USB also claims that the trial court gave excessive weight to its finding that USB classified all BBO's as exempt and did so without any inquiry as to "any particular employee's job duties, hours worked, performance or any other factor."
In Spainhower v. U.S. Bank National Assn. (C.D.Cal., Mar. 25, 2010, No. 2:08-CV-00137-JHN-PJWx) 2010 U.S.Dist. Lexis 46316, the district court denied a motion to certify a class action of in-store bank managers. The defendant (the same defendant as in the present case) contended the putative class members were exempt from overtime pay and meal and rest requirements under the executive, administrative, and outside sales exemptions. (Id.
At this juncture, we need not speculate as to whether a workable trial plan could have been devised to account for these individual inquiries. In view of the many courts that have considered this problem at the classification stage, it is doubtful that such a plan could be successfully implemented. Here, the trial court attempted to manage the individual issues in the first phase of this trial by resorting to an unproven statistical sampling methodology that denied USB the right to properly defend the claims against it. As we have demonstrated, the plan fell short. Accordingly, we conclude the failure to grant USB's second motion to decertify was an abuse of discretion.
"Under the abuse of discretion standard, `a reviewing court should not disturb the exercise of a trial court's discretion unless it appears that there has been a miscarriage of justice.' [Citation.]" (Cristler v. Express Messenger Systems, Inc. (2009) 171 Cal.App.4th 72, 80 [89 Cal.Rptr.3d 34].) We have already concluded that the trial court's trial management plan constituted a miscarriage of justice. Accordingly, the class is ordered decertified.
The judgment is reversed. We further order the case decertified as a class action. The order awarding expert witness fees for Miles Locker to plaintiffs is reversed.
Costs on appeal are awarded to USB.
Marchiano, P. J., and Margulies, J., concurred.
