Will The California Court of Appeal Follow Dukes And Reject “Trial By Formula” In Class Action Trials?

Authored by Andrew McNaught

On November 10, 2011 the California Court of Appeal, First District, heard oral argument in Duran, et al. v. U.S. Bank. While perhaps overshadowed by the excitement surrounding the oral argument before the California Supreme Court in Brinker Rest. Corp. v. Superior Court, just two days prior, the Duran case presents extremely important issues relating to how class action trials are conducted in California. In a matter of first impression, the Court of Appeal is considering whether class action plaintiffs may use statistical sampling and representative evidence to establish liability on a class-wide basis.

Plaintiffs filed the misclassification case in Alameda County Superior Court on December 26, 2001. After class certification, Judge Robert Freedman granted Plaintiffs’ motion for summary adjudication on the Bank’s defenses of administrative exemption and commission sales exemption. The case then went to a bench trial on the Bank’s remaining defense under the outside sales exemption.

The trial court conducted the liability phase of the trial based on a purportedly random sample of 20 class members out of 260 total. It determined that the Bank had misclassified 19 of the 20 class members in the sample, and then extrapolated from that result that all 260 class members had been misclassified. The trial court also refused to allow U.S. Bank to put on evidence at trial that at least 70 of the 260 class members, who had signed declarations for the company, were not misclassified. After the damages phase, the trial court entered judgment against the Bank in the amount of approximately $15 million.

The Bank’s arguments on appeal centered on four separate points: (1) the trial court’s grant of class certification was an abuse of discretion; (2) the trial court’s grant of Plaintiffs’ motion for summary adjudication as to two of the Bank’s defenses was legal error; (3) the trial plan approved by the court was unconstitutional because it violated the Bank’s due process rights to present individualized defenses and resulted in a 43.3% margin of error as to the class-wide liability determination; and (4) the trial court erroneously expanded the remedies available to Plaintiffs by awarding class-wide restitution.

The panel appeared receptive to the Bank’s arguments. The Court had “significant questions” about the trial court’s trial management plan which appeared to implicate the Bank’s due process rights, and also regarding the trial court’s exclusion of defendant’s evidence supporting individualized defenses. The panel also demonstrated considerable concern regarding the trial court’s approval of extrapolating class-wide liability to 260 class members based on a trial sample of only 19, which resulted in a 43.3% margin of error. While at least one California appellate court has held that statistical sampling can be utilized to prove damages (Bell v. Farmers Insurance Exchange), no California appellate court has ever held that statistical sampling may be used to prove liability.

It appears that the Court of Appeal may be poised to overturn the judgment against U.S. Bank and at the very least reject the trial plan and use of sampling for liability authorized by the trial court. The Court may follow the U.S. Supreme Court’s guidance in Wal-Mart Stores v. Dukes, disapproving “trial by formula” because “a class cannot be certified on the premise that [a defendant] will not be entitled to litigate its statutory defenses against individual claims.” A decision in the Duran case is expected before the end of February 2012.