The opinion
Filed 5/29/26
CERTIFIED FOR PARTIAL PUBLICATION *
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIFTH APPELLATE DISTRICT
CAROLYN CORTINA et al.,
F085389
Plaintiffs and Respondents,
(Super. Ct. No. 07CECG01169)
v.
NORTH AMERICAN TITLE COMPANY, OPINION
Defendant and Appellant.
APPEAL from a judgment of the Superior Court of Fresno County. Jeffrey Y.
Hamilton, Jr., Judge.
O’Melveny & Myers, David Marroso, Adam J. Karr, Anton Metlitsky, Jenya
Godina; McCormick, Barstow, Sheppard, Wayte & Carruth, Scott M. Reddie; Morgan,
Lewis & Bockius, Barbara J. Miller and John D. Hayashi for Defendant and Appellant.
Wagner, Jones, Kopfman & Artenian, Andrew B. Jones, Lawrence M. Artenian;
Cornwell & Sample, Stephen R. Cornwell, René Turner Sample; Wanger Jones Helsley
and Patrick D. Toole for Plaintiffs and Respondents.
-ooOoo-
In Duran v. U.S. Bank National Assn. (2014) 59 Cal.4th 1 (Duran), Justice Carol
Corrigan used the phrase “exceedingly rare beast” to describe “a wage and hour class
* Pursuant to California Rules of Court, rules 8.1105(b) and 8.1110, this opinion is
certified for publication with the exception of part III of the Discussion.
action that proceeded through trial to verdict.” (Id. at p. 12.) The plaintiffs in Duran had
alleged their employer misclassified them as exempt from the laws requiring premium
pay for overtime and mandatory meal breaks and rest periods during the workday. Such
lawsuits are notoriously difficult to manage on a large scale, are often deemed unsuitable
for class treatment, and usually settle if class certification is granted. The Duran action,
which involved a class of 260 people, lasted more than 16 years and ultimately ended in
decertification due to the unmanageability of issues arising from the employer’s defenses.
We dare say the present case is even rarer and more beastly than Duran. The
original complaint was filed 19 years ago. There have been numerous interlocutory
appeals and writ proceedings, the most recent of which involved review by the California
Supreme Court. (North American Title Co. v. Superior Court (2024) 17 Cal.5th 155.) At
long last, an appeal of the underlying judgment is presented for review on the merits.
Unfortunately, the end is still nowhere in sight.
The wage and hour claims of approximately 700 plaintiffs, divided into
two classes based on whether they had been designated as exempt or nonexempt
employees, were litigated in a bifurcated bench trial. Upon conclusion of the first phase,
the “Nonexempt” class was ordered decertified. However, the trial court ruled against the
defendant employer on certain defenses asserted as to the claims of the “Exempt” class.
The court then appointed a referee to conduct the second phase of trial, doing so without
the parties’ consent and over defendant’s strenuous objections. The reference
proceedings lasted years and included live testimony from over 230 class members, all
leading to the entry of a $43 million judgment.
A nonconsensual reference of the scope and magnitude ordered in this case is not
merely a rare occurrence. It appears unprecedented in our state jurisprudence. A trial
court’s authority to delegate matters to a referee without the parties’ consent is strictly
circumscribed by the California Constitution and Code of Civil Procedure. The reference
2.
proceedings below were entirely unauthorized. This error alone compels reversal of the
judgment.
Prejudicial errors were also committed in the first phase of trial, which became
known as the “liability phase” even though it did not truly resolve all issues of liability.
Critical aspects of the trial plan and format contravened the holdings of Duran. The
employer’s affirmative defenses were also rejected out of hand, on a classwide basis, due
to misinterpretations of the applicable law.
The employer relied on two different Labor Code exemptions, both of which
largely depend on how employees spend their time during the workday. To provide a
very simplified primer, certain types of employees may be exempt from California’s
overtime laws if they spend over half of their time performing duties and tasks meeting
the legal definitions of exempt work. If an employee spends 49 percent of their time on
exempt work, such as managerial tasks, but the other 51 percent of their time on
nonexempt work, they do not qualify for the exemption. “Given California’s uniquely
quantitative approach … [citation], some proof about how individual employees use their
time will often be necessary to accurately determine an employer’s overtime liability [on
a classwide basis].” (Duran, supra, 59 Cal.4th at p. 27.)
It was alleged that all members of the roughly 400-person “Exempt” class, despite
having a variety of different job titles and working in different offices throughout the
state over a 10-year period, all performed the same allegedly nonexempt job the same
way, all the time. One problem with this theory was that several cohorts within the class,
e.g., “Branch Managers,” indisputably did perform exempt work on a regular basis. The
issue then became how to make a classwide showing that, despite variation among and
between class members, none met the 51 percent threshold.
In the Branch Manager example, plaintiffs elicited testimony from roughly
15 percent of the cohort (about 24 out of 156 people) and argued the work habits and
experiences of those witnesses could be relied upon as representative of the entire group.
3.
The Duran opinion rejects such reasoning as scientifically invalid. “If sampling is used
to estimate the extent of a party’s liability, care must be taken to ensure that the
methodology produces reliable results.” (Duran, supra, 59 Cal.4th at p. 42.) A valid
extrapolation model requires expert input to determine the appropriate sample size and
margin of error, and the sample group of witnesses must be randomly selected. (Id. at
pp. 42–43.) None of those requirements were met.
Without common proof of employee misclassification, the trier of fact “may have
sufficient evidence to make judgments as to particular individuals, but lacks a basis to
extrapolate from those findings to a class-wide judgment.” (Marlo v. United Parcel
Service, Inc. (C.D.Cal. 2008) 251 F.R.D. 476, 485 (Marlo).) The absence of common
proof leaves the alternative of hearing individual testimony from hundreds of class
members, which turns the class action device on its head. In the “liability phase,” the
trial court imposed limits on how many witnesses could testify. The number was
arbitrarily set at approximately 100 witnesses for each side to prove or refute the claims
of all 700 people comprising both classes. The court later authorized individual
testimony from all members of the “Exempt” class in the second phase of trial (such
authorization being the main reason for appointing a referee) but prohibited the employer
from questioning the witnesses on matters related to its exemption defenses. The
exemption defenses were deemed to have failed on a classwide basis in the first phase of
trial.
As held in Duran, “decertification must be ordered whenever a trial plan proves
unworkable.” (Duran, supra, 59 Cal.4th at p. 32.) Here, the obligation to decertify both
classes was apparent during the initial phase of trial. Failure to decertify the “Exempt”
class, in combination with the other prejudicial errors, warrants reversal and a
decertification order by this court. (Id. at pp. 24, 50.) The cause will be remanded for
retrial of the named plaintiffs’ individual claims. “The trial court is of course free to
entertain a new certification motion on remand [as to the “Exempt” class], but if it
4.
decides to proceed with a class action it must apply the guidelines set out here.” (Id. at
p. 33.)
FACTUAL AND PROCEDURAL BACKGROUND
Parties
Defendant below and appellant herein, and respondent to the cross-appeal, is
identified in the operative complaint (amended posttrial and shortly before entry of
judgment) as “North American Title Company, (formerly known as North American Title
Company, Inc. and CalAtlantic Title, Inc., and now known as Lennar Title, Inc.).”
(Bolding and some capitalization omitted.) In the appellate briefing, this party identifies
itself as “formerly known as North American Title Company and now called Lennar Title,
Inc.” We will refer to this party, in its capacity as both appellant and respondent, as
defendant or NATC. 1
Plaintiffs below and Respondents herein, and appellants in the cross-appeal,
include the following 11 individuals hereinafter collectively referred to as the “named
plaintiffs” or “class representatives”: Kimberly Baker, Judith Bates, Catherine Bell,
Melodie Benton, Carolyn Cortina, Martha Dominguez, Cheryl Fuller, Laurel Johnstone,
Teresa Spencer, Tina Texeira, and Mary Weidmark. Regarding both the appeal and
cross-appeal, the term “plaintiffs” will collectively refer to the same 11 individuals and,
where applicable, all unnamed plaintiffs classified as exempt employees while employed
by NATC during the class period, i.e., the “Exempt” class.
The terms defined in the previous paragraph do not apply to Janet Doran. Her
unique circumstances were the subject of a prior appeal, Cortina v. North American Title
Co. (May 30, 2019, F074938) [nonpub. opn.]. There are no claims in the appeal or
1 The California Style Manual states, “The terms ‘cross-appellant’ and
‘cross-respondent’ are never used in appellate titles and should be avoided in the body of
opinions.” (Cal. Style Manual (4th ed. 2000) § 6:3, p. 212.)
5.
cross-appeal regarding the trial court’s entry of judgment against Doran. Accordingly, the
part of the judgment concerning Doran will be affirmed.
A codefendant, North American Services, LLC (“NAS”), prevailed at trial against
both classes and all named plaintiffs. The term “defendants” will collectively refer to
both NATC and NAS. There are no claims in the appeal or cross-appeal regarding the
trial court’s entry of judgment in favor of NAS. Accordingly, the part of the judgment
concerning NAS will be affirmed.
Factual Background
Overview
The class period for all claims against NATC was April 17, 2003, through
December 31, 2012. During that time, NATC employed several hundred people as
escrow officers and in other escrow-related positions. Those employees collectively
worked in over 80 offices located in 23 counties throughout California. As best we can
discern from the record, NATC and its employees used the terms “branch” and “office”
synonymously.
What do escrow officers do? Defendant’s opening brief offers this summary:
“Escrow officers employed by [NATC] serve as fiduciaries who play an integral part in
real estate transactions by receiving, holding, and transferring funds; reviewing contracts,
title reports, insurance policies, and loan documents; preparing and following escrow
instructions; and checking for and taking affirmative actions to clear encumbrances such
as liens or unpaid taxes, among other varying duties. [Record citations.] Escrow officers
must make important decisions that can expose their employer to liability, including the
critical determination that all requisite conditions for escrow closure have been satisfied.”
The summary in NATC’s official job description identifies these responsibilities:
“Preparation of all documents associated with the processing and
closing of escrow, conveyance of title, recording of documents, clearing of
title requirements and issuance of title insurance. Interviews escrow
principals to obtain pertinent facts, directs the preparation of escrow
6.
instructions, drawing of documents, issuance of title policies and the
disbursement of funds, and otherwise assists escrow principals, their
lenders, and/or agents in the consummation of escrows involving the
financing or sale of single family and small multi-family residences.
Reconciles escrow instructions with commitment and/or preliminary title
report. Develops and maintains business by the extensive application of
basic marketing and customer service techniques.”
Plaintiffs generally contend that an escrow officer’s job is routine and
standardized. At trial they introduced into evidence a flow chart summarizing what they
referred to as the “Escrow Process.” (A copy of that exhibit, which was partially created
by class member Christine English, is attached to this opinion as Appendix A, post, at
page 138.)
One class member described escrow officers as “glorified data-processing people.”
The more common sentiment was that escrow work is “complicated” and presents
“unique” challenges from one transaction to another. Many witnesses agreed the
“Escrow Process” chart was accurate, though perhaps overly “basic” in its synopsis.
Other witnesses were more critical of it, contending it was incomplete.
By all accounts, the profession was very demanding but also lucrative. Escrow
officers progress in their career by building a “book of business.” This involves
cultivating relationships with realtors, banking professionals, and others in the real estate
industry. Escrow officers with a reputation for meeting their closing deadlines and
error-free transactions develop a client base that refers work specifically to them.
Companies such as NATC compete for and hire escrow officers based on their books of
business, which gives such individuals leverage in a thriving real estate market. In the
early part of the class period (circa 2003 to 2006), experienced escrow officers with an
established book of business could easily command base salaries ranging from $50,000 to
$70,000 per year, and higher. Those figures did not include other performance-based
compensation.
7.
NATC had “[d]esk [i]ncentive” and “[b]ranch [i]ncentive” policies under which
escrow officers and other employees received a percentage of the revenue they generated,
individually and as a branch, above certain threshold amounts. For example, class
member Dawna Monroe’s base salary gradually increased from $51,600 to $69,600 as
she was promoted from escrow officer to “Unit Manager,” and later to “Branch
Manager.” She testified that in addition to her salary, “I think average after taxes, my
commission would run about [$]6[,000] to [$]8,000” per month.
The most striking example among the higher-earning class members was
Gina Oldham, who held the position of Branch Manager. In the year 2003, she earned
$103,500 in base salary plus $184,906 in incentive pay, which defendant argued
constituted “commissions” for purposes of a separate exemption defense. Oldham’s
incentive compensation also exceeded her base salary in 2004, for combined earnings of
over $250,000. In 2005 her base salary increased to $15,000 per month ($180,000
annually), but the appellate record does not show her incentive compensation for that
year.
During the second phase of trial, NATC submitted evidence showing that most
people in the Exempt class had at least some pay periods where their incentive
compensation exceeded the amount they received in base salary. A notable example was
Christine English, who at different times held the positions of “Advisory Escrow Officer”
and “Senior Escrow Officer.” Her incentive compensation exceeded her base salary in
over 40 percent of her pay periods during eight years of employment with NATC.
Job Titles and Classifications
In 2003, most NATC employees involved in escrow and escrow-related work were
internally classified and treated as exempt employees. In other words, they were not paid
extra for working overtime. Employees in this category included those with the job titles
of Senior Escrow Officer, Special Projects Escrow Officer, and Escrow Officer
Supervisor.
8.
In addition to the job titles noted above, some evidence indicates that two different
“Escrow Officer” positions, one exempt and one nonexempt, existed prior to 2004. The
record is murky on this point, and defendant should have clarified it at trial. The
apparently nonexempt position was Escrow Officer (job code 1169), and the exempt
position was called Escrow Officer California (job code 1032). The former was an
entry-level job. The latter, i.e., Escrow Officer California, required “[o]ne year [of]
Escrow Officer experience … or two years general escrow experience.” Defendant’s
discovery responses show these as two distinct positions, and some evidence in the
second phase of trial reportedly showed employees being paid overtime as “Escrow
Officers” in 2003. Nevertheless, since they appear to have all been lumped into the
“Exempt” class below, we use the term “2003 Escrow Officer” in reference to plaintiffs
classified under either or both job codes (1032 and 1169) prior to January 2004.
NATC conducted a “Staffing Study” in 2003 to determine how many hours its
employees were working, including those employees it classified as exempt. The
Staffing Study preceded a corporate decision to reclassify certain positions and create a
new exempt position called Escrow Unit Manager (Unit Manager). Internal company
documents state, in pertinent part: “The Escrow Officer Job Title became overly broad
and needed to be narrowed in scope. The Escrow Officer Job Title is being split into
two Job Titles, one is Exempt and one is Non-Exempt. Incumbents fulfilling the 80%
Exempt Duties Test and who manage two or more individuals, may be moved to the new
Exempt Job Title,” i.e., designated as an exempt Unit Manager. 2
2 Other parts of the same documents refer to The Fair Labor Standards Act of 1938
(29 U.S.C. § 201 et seq.), thus indicating NATC’s reliance on federal law. The reference
to an “80% Exempt Duties Test” alludes to older versions of federal regulations that were
revised in 2004. (See fn. 3, post.) Under those older regulations, the overtime
exemptions for managerial and administrative employees required that 80 percent of the
employee’s time be devoted to exempt work. (29 C.F.R. former §§ 541.1(e) (2003),
541.2(d) (2003), 541.112(a) (2003), 541.209(a) (2003).) In short, NATC ostensibly
imposed upon itself a more stringent “duties test” than was required under California law.
9.
Effective January 2004, defendant reclassified the positions of 2003 Escrow
Officer, Senior Escrow Officer, Special Projects Escrow Officer, and Escrow Officer
Supervisor as nonexempt and thus eligible for overtime compensation. Some employees
who previously held those positions were moved into the exempt position of Unit
Manager. “Unit” referred to a group consisting of one escrow officer and at least
two assistants over whom the escrow officer had supervisory authority.
Four additional job titles are of particular importance to this case: Advisory
Escrow Officer, Branch Manager, Escrow Manager, and Escrow Operations Manager.
NATC classified these positions as exempt both before and after 2004.
Procedural History
A detailed summary of the trial court proceedings, from the point of class
certification through entry of judgment, is set forth in the Discussion, post. We provide
here an abbreviated procedural history.
In April 2007, Carolyn Cortina filed a putative class action complaint against
NATC alleging various Labor Code violations for failing to pay overtime, and failing to
provide meal breaks and rest periods, to all of its California employees “in the position of
Escrow Officer or [an] equivalent position, however titled ….” In addition to the
statutory claims, a cause of action was pleaded under Business and Professions Code
section 17200 et seq., commonly known as the unfair competition law (UCL).
Cortina was originally hired as a nonexempt Escrow Assistant. She was promoted
to Unit Manager in 2004, bypassing the nonexempt Escrow Officer position, and worked
as a Unit Manager until leaving the company in 2005. In a declaration filed in support of
class certification, Cortina alleged the job titles of Unit Manager and Escrow Officer
were interchangeable. She further declared, “I did not manage anyone.”
The complaint was amended in 2009, adding four more proposed class
representatives. Those parties had previously worked in positions including the
nonexempt job titles of Escrow Assistant and Junior Escrow Officer. In 2010, the trial
10.
court certified two classes. A second amended complaint was filed shortly thereafter,
adding more class representatives and naming NAS as a codefendant. NAS was sued
pursuant to a theory of liability as a joint employer.
A class of current and former employees whom NATC had classified as
nonexempt was labeled the “Non-Exempt Class” (Nonexempt class). It was defined to
include the job titles of Junior Escrow Officer, Escrow Officer, Senior Escrow Officer,
Special Projects Escrow Officer, and Escrow Supervisor (also known as an Escrow
Officer Supervisor). The position of Escrow Assistant was specifically excluded from the
class definition.
A class of current and former employees whom NATC had classified as exempt
was labeled the “Exempt Class” (Exempt class.) It was defined to include the following
job titles: “[2003] Escrow Officer, Senior Escrow Officer, Special Projects Escrow
Officer, Escrow Supervisor, Advisory Escrow Officer, Escrow Unit Manager, Escrow
Manager, Branch Manager, and Escrow Operations Manager.” The position of Escrow
Assistant was specifically excluded from the class definition.
The claims of the Nonexempt class were different from those of the Exempt class.
The Nonexempt class alleged NATC had policies and practices prohibiting them from
reporting overtime on their timesheets and/or pressuring them not to report overtime or to
underreport overtime, and requiring or pressuring them to skip meal breaks and rest
periods. In other words, policies or practices requiring class members to work “off the
clock.”
The claims of the Exempt class were based on NATC’s alleged misclassification of
them as exempt employees when, according to their allegations, they were in fact
nonexempt. Put differently, the Exempt class alleged entitlement to overtime
compensation and meal breaks and rest periods, which they did not receive. Plaintiffs
later withdrew their claims for missed rest periods.
11.
Prior to trial, both classes dismissed their statutory causes of action under the
Labor Code and elected to proceed solely on the UCL claim. Trial began in
September 2015. Witness testimony in the first phase of trial ended in December 2015.
Written submissions followed, including closing briefs.
In October 2016, the trial court issued a statement of decision. The court ruled
against NATC on its exemption defenses. It further ordered the appointment of a referee
to make findings and recommendations on the claims of the Exempt class for restitution
under the UCL. The Nonexempt class was ordered decertified and the individual claims
of its class representatives were also referred to the referee.
In March 2021, the trial court issued an order adopting nearly all of the referee’s
findings and recommendations. Later that year, due to what defendant labels “corporate
reorganizations,” plaintiffs amended their complaint two more times. Issues surrounding
the “corporate reorganizations” caused delays in the entry of judgment.
On August 31, 2022, the trial court entered judgment in favor of the named
plaintiffs, except Kimberly Baker and Carolyn Cortina, on their individual claims.
Judgment was likewise entered for the Exempt class against NATC. NATC’s financial
liability was calculated at $43,547,946, with prejudgment interest accounting for over
half of the sum. Judgment was entered in favor of NATC as to the individual claims of
Baker and Cortina. Defendant filed a motion for new trial, as did plaintiffs Baker and
Cortina.
While the motions for new trial were pending, defendant sought writ relief from
this court on matters unrelated to the present appeal. Further background on the writ
proceedings can be found in North American Title Co. v. Superior Court, supra, 17
Cal.5th 155. The writ proceedings resulted in a stay of the underlying action and denial
of the motions for new trial by operation of law. Meanwhile, both sides filed timely
notices of appeal. The remittitur in the writ matter issued on July 14, 2025.
12.
DISCUSSION
The issues in this case are numerous, complex, and require familiarity with several
areas of law. Part I of the Discussion provides a broad legal overview before addressing
defendant’s claims regarding the first phase of the trial. Part II addresses defendant’s
claims regarding the second phase of trial, i.e., the nonconsensual reference proceedings.
Part III addresses plaintiffs’ cross-appeal.
Many of the issues present questions of law, which are reviewed de novo. (Leider
v. Lewis (2017) 2 Cal.5th 1121, 1127.) “We review class action trial management
decisions for abuse of discretion.” (Duran, supra, 59 Cal.4th at p. 49.) A trial court
abuses its discretion when it makes decisions based on erroneous legal assumptions or
reasoning. (American Honda Motor Co., Inc. v. Superior Court (2011) 199 Cal.App.4th
1367, 1372; Mejia v. City of Los Angeles (2007) 156 Cal.App.4th 151, 158.)
I. First Phase of Trial
Legal Overview
A. California Wage and Hour Laws
In California, claims for unpaid wages are governed by the Labor Code and a
series of wage orders promulgated by the Industrial Welfare Commission (IWC).
(Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, 1026 (Brinker).)
The IWC is a state agency vested with the quasi-legislative power to develop and issue
wage orders, i.e., regulations “specifying minimum requirements with respect to wages,
hours, and working conditions” for all industries and occupations. (Ibid.) Although it
was defunded by the Legislature in 2004, the IWC’s wage orders continue to have the
same force of law as when the agency was operational. (Mendiola v. CPS Security
Solutions, Inc. (2015) 60 Cal.4th 833, 838, fn. 6; see Brinker, at p. 1027 [“The IWC’s
wage orders are to be accorded the same dignity as statutes”].)
13.
“Of the 18 wage orders in effect today, ‘16 cover[] specific industries and
occupations, one cover[s] all employees not covered by an industry or occupation order,
and a general minimum wage order amend[s] all others to conform to the amount of the
minimum wage currently set by statute.’ ” (Mendiola v. CPS Security Solutions, Inc.,
supra, 60 Cal.4th at pp. 838–839.) IWC wage order No. 4-2001 (Cal. Code Regs., tit. 8,
§ 11040 (Wage Order 4)) governs wages, hours, and working conditions for all persons
employed in “professional, technical, clerical, mechanical, and similar occupations.”
(Id., subd. 1.) We accept the parties’ shared contention that Wage Order 4 applies to the
claims and defenses in this case. (See id., subd. 2(P) [providing a nonexhaustive list of
included occupations].)
The Fair Labor Standards Act of 1938 (29 U.S.C. § 201 et seq. (FLSA)), along
with regulations promulgated by the United States Department of Labor, is the “federal
counterpart” to California’s state wage and hour laws. (United Parcel Service Wage &
Hour Cases (2010) 190 Cal.App.4th 1001, 1009 (UPS Wage & Hour Cases); see
Montano v. Montrose Restaurant Associates (5th Cir. 2015) 800 F.3d 186, 190 [noting the
Department of Labor “is authorized to promulgate rules interpreting and clarifying the
FLSA”].) The FLSA “does not preempt state law in this area, and therefore state law is
controlling to the extent it is more protective of workers than federal law.” (Alvarado v.
Dart Container Corp. of California (2018) 4 Cal.5th 542, 554.) “In the absence of
controlling or conflicting California law, California courts generally look to federal
regulations under the FLSA for guidance.” (See’s Candy Shops, Inc. v. Superior Court
(2012) 210 Cal.App.4th 889, 903.)
Our state has a public policy “favoring an eight-hour workday and a six-day
40-hour workweek, and discouraging employers from imposing work in excess of those
limits.” (Alvarado v. Dart Container Corp. of California, supra, 4 Cal.5th at p. 561.)
The concept of “overtime” is thus defined as “[a]ny work in excess of eight hours in
one workday and any work in excess of 40 hours in any one workweek and the
14.
first eight hours worked on the seventh day of work in any one workweek.” (Lab. Code,
§ 510, subd. (a); accord, Wage Order 4, subd. 3(A)(1).) Unless subject to an exemption,
overtime must be compensated at a premium rate of at least 150 percent of the
employee’s regular rate of pay (commonly known as “time and a half”). Any work in
excess of 12 hours in one day, or in excess of eight hours on any seventh day of a
workweek, must be compensated by no less than double the employee’s regular rate of
pay. (Lab. Code, § 510, subd. (a); Wage Order 4, subd. 3(A)(1)(a), (b).)
Labor Code section 1194 provides for a cause of action against an employer to
recover unpaid overtime compensation. Nonexempt employees are further entitled to
meal breaks and rest periods during the workday (id., § 512, subd. (a); Wage Order 4,
subds. 11(A), 12(A)), and those rights are enforceable under Labor Code section 226.7.
Missed breaks are compensable by “one additional hour of pay at the employee’s regular
rate of compensation for each workday that the meal or rest or recovery period is not
provided.” (Lab. Code, § 226.7, subd. (c); accord, Wage Order 4, subds. 11(B), 12(B).)
B. Relevant Exemptions
The Labor Code authorizes exemptions from the requirement of premium
overtime pay for “executive” and “administrative” employees. (Lab. Code, § 515,
subd. (a).) The applicable wage orders establish such exemptions and detail the
prerequisites. Three elements are common to both exemptions. The employee must
(1) be “primarily engaged in the duties that meet the test of the exemption”;
(2) “regularly exercise[] discretion and independent judgment in performing those
duties”; and (3) earn “a monthly salary equivalent to no less than two times the state
minimum wage for full-time employment.” (Ibid.) Employees who qualify for either
exemption will also be exempt from the meal and rest period requirements of Labor Code
section 512. (E.g., Wage Order 4, subd. 1(A); see Lab. Code, § 226.7, subd. (e).)
“ ‘[T]he assertion of an exemption from the overtime laws is considered to be an
affirmative defense, and therefore the employer bears the burden of proving the
15.
employee’s exemption.’ ” (Negri v. Koning & Associates (2013) 216 Cal.App.4th 392,
397 (Negri). “[W]e narrowly construe exemptions against the employer, ‘and their
application is limited to those employees plainly and unmistakably within their terms.’ ”
(Peabody v. Time Warner Cable, Inc. (2014) 59 Cal.4th 662, 667.) Nevertheless,
“[d]etermining whether or not all of the elements of the exemption have been established
is a fact-intensive inquiry.” (UPS Wage & Hour Cases, supra, 190 Cal.App.4th at
p. 1014.) The applicability of an exemption is a mixed question of law and fact, and the
analysis can be complicated. (Ramirez v. Yosemite Water Co. (1999) 20 Cal.4th 785, 794
(Ramirez).)
The requirement of “ ‘primarily’ ” engaging in duties meeting the tests for the
exemptions means spending “more than one-half of [one’s] worktime” on such duties.
(Lab. Code, § 515, subd. (e); accord, Wage Order 4, subd. 2(O).) The trier of fact must,
“first and foremost,” determine what work is “actually performed by the employee during
the course of the workweek.” The amount of time the employee actually “spends on such
work” must then be considered “together with the employer’s realistic expectations and
the realistic requirements of the job.” (Wage Order 4, subds. 1(A)(1)(e), (2)(f).) In other
words, this element alone contemplates a four-part assessment of (1) the tasks actually
performed by the employee; (2) the amount of time devoted to each task; (3) the
employer’s realistic expectations of how the employee will or should be spending their
time; and (4) how those facts align with the realistic requirements of the job. (Judicial
Council of California Civil Jury Instructions (CACI) Nos. 2720, 2721; see Safeway Wage
& Hour Cases (2019) 43 Cal.App.5th 665, 671, 679; Martinez v. Landry’s Restaurants,
Inc. (2018) 26 Cal.App.5th 783, 797.) In conjunction with that assessment, the trier of
fact must also evaluate the degree to which the employee’s job involves the exercise of
discretion and independent judgment. (Lab. Code, § 515, subd. (a).)
“Whether an employee satisfies the elements of the exemption is a question of
fact,” but the “appropriate manner of evaluating the employee’s duties is a question of
16.
law.” (Heyen v. Safeway Inc. (2013) 216 Cal.App.4th 795, 817.) In a jury trial, the trier
of fact will be instructed on which tasks may be characterized as exempt or nonexempt.
(See Directions for Use to CACI Nos. 2720, 2721.) In a bench trial, as was conducted in
this case, the trial court must perform the legal analysis itself.
In determining whether a given task qualifies as exempt or nonexempt work, the
employee’s duties “shall be construed in the same manner” as under certain federal
regulations “effective as of the date of [the wage] order.” (Wage Order 4,
subds. 1(A)(1)(e), (2)(f).) Due to the Legislature’s defunding of the IWC in 2004, the
applicable law is frozen in time, to a certain extent, circa the early part of this century.
(See Harris v. Superior Court (2011) 53 Cal.4th 170, 190 (Harris) [“The IWC Statement
issued in connection with Wage Order [4] clearly states that ‘only those federal
regulations specifically cited in its wage orders, and in effect at the time of promulgation’
shall be applied in defining exempt duties under California law”].)
Wage Order 4 was last revised effective January 1, 2001, and it incorporates
several federal regulations that no longer exist. The California Supreme Court has
arguably suggested, however, that current federal regulations have some degree of
“instructive” value since they are “ ‘intended to be consistent with the old regulations.’ ”
(Gallardo v. AIG Domestic Claims, Inc. (9th Cir. 2015) 629 Fed.Appx. 783, 784, fn. 2,
citing and quoting Harris, supra, 53 Cal.4th at p. 189, fn. 8.) At a minimum, the legal
analysis requires cross-referencing and parsing older versions of multiple federal
regulations as they existed in January 2001. 3 (E.g., Harris, at pp. 180–182.)
3 The IWC was defunded, and its operations ceased, effective July 1, 2004.
(Huntington Memorial Hospital v. Superior Court (2005) 131 Cal.App.4th 893, 902,
fn. 2; accord, IWC Web site <https://www.dir.ca.gov/IWC/IWC_Defunded.html> [as of
May 29, 2026] [announcing the end of IWC operations], archived at
<https://perma.cc/8GZH-R6JR>.) Approximately seven weeks later, in August 2004, the
United States Department of Labor “substantially revised the FLSA overtime exemption
regulations.” (Robinson-Smith v. Government Employees Ins. Co. (D.C. Cir. 2010) 590
F.3d 886, 892, fn. 6; accord, Combs v. Skyriver Communications, Inc. (2008) 159
17.
Another potentially complicated issue is the possibility of both exempt and
nonexempt periods during a course of employment. (See, e.g., UPS Wage & Hour Cases,
supra, 190 Cal.App.4th at p. 1013 [employee qualified for exemptions in three different
positions held during employment period of over 10 years]). Here, roughly 25 percent of
the Exempt class (around 100 members) held multiple allegedly exempt job positions
during the nearly 10-year class period ending on December 31, 2012. Furthermore, there
is precedent for examining and applying exemptions on a week-to-week basis. (Dunbar
v. Albertson’s, Inc. (2006) 141 Cal.App.4th 1422, 1426–1427, 1430 (Dunbar).) The trier
of fact may, however, “make reasonable inferences about a party’s activities during the
relevant period based on his or her activities in earlier and later periods, particularly
where there is nothing to suggest the employee’s duties and responsibilities changed
significantly.” (Batze v. Safeway, Inc. (2017) 10 Cal.App.5th 440, 479.)
Under federal law, employees who perform a sufficient combination of managerial
and administrative duties may be classified as exempt. (29 C.F.R. § 541.708.) “In other
words, work that is exempt under one section of the [overtime regulations] will not defeat
the exemption under any other section.” (Ibid.) This approach implicitly recognizes that
some jobs “may not fit comfortably” into only one exemption category, i.e., “executive,
administrative, or professional.” 4 (Anderson v. City of Cleveland (E.D.Tenn. 2000) 90
F.Supp.2d 906, 915–916 [discussing a predecessor statute, former 29 C.F.R. § 541.600];
accord, Campanelli v. Hershey Co. (N.D.Cal. 2011) 765 F.Supp.2d 1185, 1197
[discussing 29 C.F.R. § 541.708].)
Cal.App.4th 1242, 1255, fn. 5.) Due to the timing of those events, none of the IWC wage
orders incorporate the August 2004 revisions to, or current version of, part 541 of title 29
of the Code of Federal Regulations.
4 A “[p]rofessional [e]xemption” also exists under California law, but it has no
relevance to this case. (Wage Order 4, subd. 1(A)(3); see Lab. Code, § 515, subd. (a).)
18.
In a 2003 opinion letter, the Department of Industrial Relations, Division of Labor
Standards Enforcement (DLSE), wrote that it “construes state law, like federal law
[citation], to permit the so-called ‘tacking’ of one type of exempt work with another type,
so that, for example, an employee who spends more than 50% of his worktime
performing exempt managerial and exempt administrative work would meet the
‘primarily engaged’ test.” (Dept. Industrial Relations, DLSE Opn. Letter No. 2003.05.23
(May 23, 2003) p. 5 [citing former 29 C.F.R. § 541.600].) As the state agency
“ ‘ “empowered to enforce California’s labor laws,” ’ ” the DLSE’s opinion letters,
“ ‘ “ ‘ “while not controlling … do constitute a body of experience and informed
judgment to which courts and litigants may properly resort for guidance.” ’ ” ’ ”
(Brinker, supra, 53 Cal.4th at p. 1029, fn. 11; e.g., Stone v. Alameda Health System
(2024) 16 Cal.5th 1040, 1072; Hill v. R+L Carriers, Inc. (N.D.Cal. 2010) 690 F.Supp.2d
1001, 1008 [citing DLSE Opn. Letter No. 2003.05.23 (May 23, 2003) as an indication
“California appears to recognize a … ‘combination’ exemption” similar to 29 C.F.R.
§ 541.708]; Campanelli v. Hershey Co., supra, 765 F.Supp.2d at p. 1197, fn. 22 [same].)
We have found no published decisions analyzing the concept of “ ‘tacking’ ” under
California law, but some cases impliedly accept the premise that overtime exemptions are
not mutually exclusive. (See, e.g., UPS Wage & Hour Cases, supra, 190 Cal.App.4th at
p. 1013 [affirming trial court’s determination the appellant was both “an exempt
executive employee and an exempt administrative employee”].)
In the present case, defendant has at times relied on a combination of two or even
three different exemptions (discussed momentarily under separate subheadings) to
dispute the claims of numerous class members. Plaintiffs have never denied the
availability of such “ ‘tacking’ ” defenses under California law. They argue defendant
simply did not prove any theories of exemption.
19.
1. The Executive Exemption
The executive exemption applies to those in managerial and/or supervisory
positions, i.e., any employee “[w]hose duties and responsibilities involve the
management of the enterprise in which they are employed or of a customarily recognized
department or subdivision thereof.” (Wage Order 4, subd. 1(A)(1)(a).) Such individuals
must “customarily and regularly” direct the work of two or more people. (Id.,
subd. 1(A)(1)(b).) They must also have the authority to hire and fire personnel or,
alternatively, be someone “whose suggestions and recommendations as to the hiring or
firing and as to the advancement and promotion or any other change of status of other
employees will be given particular weight.” (Id., subd. 1(A)(1)(c).)
The remaining elements, as earlier discussed, consist of regularly exercising
discretion and independent judgment; being “primarily engaged” in duties satisfying “the
test of the exemption”; and earning “a monthly salary equivalent to no less than two (2)
times the state minimum wage for full-time employment.” (Wage Order 4,
subd. 1(A)(1)(d)–(f).) Duties meeting “the test of the exemption” are to be construed in
accordance with title 29 of the Code of Federal Regulations, sections “541.102, 541.104–
111, and 541.115–116,” as those regulations existed on January 1, 2001. (Wage Order 4,
subd. 1(A)(1)(e).)
“[I]t is generally clear that work such as the following is exempt work when it is
performed by an employee in [a managerial or supervisory context]: Interviewing,
selecting, and training of employees; … directing their work; maintaining their
production or sales records for use in supervision or control; appraising their productivity
and efficiency for the purpose of recommending promotions or other changes in their
status; handling their complaints and grievances and disciplining them when necessary;
planning the work; determining the techniques to be used; apportioning the work among
the workers; [and] determining the type of materials, supplies, machinery or tools to be
used .…” (29 C.F.R. § 541.102 (2001); see Wage Order 4, subd. 1(A)(1)(e).)
20.
The list in the previous paragraph is non-exhaustive. The delegation of tasks to
subordinate employees may qualify as exempt work that also constitutes the exercise of
discretion and independent judgment. (See Bargas v. Rite Aid Corp. (C.D.Cal. 2017) 245
F.Supp.3d 1191, 1212 [applying California law in finding store manager “had discretion
in prioritizing and delegating tasks to her employees on a daily basis”]; Thomas v.
Speedway SuperAmerica, LLC (6th Cir. 2007) 506 F.3d 496, 507 [gas station manager’s
discretionary exempt duties included delegating work among her employees and
determining the weekly work schedule].) Various forms of problem-solving may also
qualify as exempt work. (See UPS Wage & Hour Cases, supra, 190 Cal.App.4th at
pp. 1019–1020; see generally Demos v. City of Indianapolis (S.D.Ind. 2000) 126
F.Supp.2d 548, 562 [“Problem-solving generally requires the exercise of discretion and
independent judgment”].)
“Moreover, ‘exempt work includes not only the tasks necessary for the actual
management of a department and the supervision of its employees, but also tasks that are
“closely associated with the performance of the duties involved in such managerial and
supervisory functions or responsibilities.” ’ ” (Batze v. Safeway, Inc., supra, 10
Cal.App.5th at p. 473; see Wage Order 4, subd. 1(A)(1)(e).) Put differently, activities that
are not inherently managerial or supervisory may sometimes be classified as exempt
depending on the surrounding circumstances. This includes “work which is properly
viewed as a means for carrying out exempt functions.” (Wage Order 4, subd. 1(A)(1)(e).)
Defendant maintains that a majority of the Exempt class, including Escrow
Operations Managers, Branch Managers, Escrow Managers, and Unit Managers,
qualified for the executive exemption.
2. The Administrative Exemption
Wage Order 4 “provides a five-part test to determine whether the administrative
employee exemption applies. The employee must (1) perform ‘office or non-manual
work directly related to management policies or general business operations’ of the
21.
employer or its customers, (2) ‘customarily and regularly exercise[] discretion and
independent judgment,’ (3) ‘perform[] under only general supervision work along
specialized or technical lines requiring special training[, experience, or knowledge]’ or
‘execute[] under only general supervision special assignments and tasks,’ (4) be engaged
in the activities meeting the test for the exemption at least [51] percent of the time, and
(5) earn twice the state’s minimum wage [on a salaried basis].” (Eicher v. Advanced
Business Integrators, Inc. (2007) 151 Cal.App.4th 1363, 1371, quoting Wage Order 4,
subd. 1(A)(2).)
Some elements of the exemption are construed in accordance with title 29 of the
Code of Federal Regulations, sections “541.201–205, 541.207–208, 541.210, and
541.215,” as in effect on January 1, 2001. (Wage Order 4, subd. 1(A)(2)(f).) To satisfy
those elements, the employee’s work must be both “qualitatively” and “quantitatively”
administrative. (Harris, supra, 53 Cal.4th at p. 181, italics omitted.) The quantitative
requirement means the work “must be of substantial importance to the management or
operations of the business.” (Ibid.) Qualitatively, “the work must be administrative in
nature.” (Id. at p. 182.)
“ ‘The administrative operations of the business include the work performed by
so-called white-collar employees [including executive assistants] engaged in “servicing”
a business as, for example, advising the management, planning, negotiating, representing
the company, purchasing, promoting sales, and business research and control.’ ” (Harris,
supra, 53 Cal.4th at p. 180, fn. 6.) Examples of workers who do not qualify for the
exemption include “ ‘bookkeepers, secretaries, and clerks of various kinds [who] hold the
run-of-the-[mill] positions in any ordinary business,’ ” i.e., positions devoted to routine
clerical tasks. (Ibid.) “ ‘Employees whose work is “directly related” … to general
business operations include those … whose responsibility it is to execute or carry it out.
The phrase [“directly related”] also includes a wide variety of persons who … carry out
major assignments in conducting the operations of the business .…’ ” (Ibid.)
22.
The element of discretion and independent judgment, while the same for both the
executive and administrative exemptions, was a particularly contested issue at trial in
connection with defendant’s reliance on the administrative exemption. “[T]he phrase
‘exercise of discretion and independent judgment’ is defined as generally involving ‘the
comparison and the evaluation of possible courses of conduct and acting or making a
decision after the various possibilities have been considered. The term … implies that the
person has the authority or power to make an independent choice, free from immediate
direction or supervision and with respect to matters of significance.’ ” (UPS Wage &
Hour Cases, supra, 190 Cal.App.4th at p. 1024.)
Plaintiffs argued that all escrow officers are constrained “by the requirements of a
highly systematic process while handling an escrow account.” Defendant argued the so-
called “escrow process” allows for, and often requires, the exercise of discretion and
judgment to successfully perform the job. (See generally UPS Wage & Hour Cases,
supra, 190 Cal.App.4th at p. 1026 [“merely because an employer requires adherence to
regulations, guidelines or procedures does not mean an [employee] does not exercise
discretion or judgment”]; id. at p. 1030 [concluding discretion element met for
administrative and executive exemptions]; cf. Thomas v. Speedway SuperAmerica, LLC,
supra, 506 F.3d at p. 507 [finding element met even though discretion “was somewhat
circumscribed by [a] district manager’s supervision and [the employer’s] standardized
operating procedures”].) Defendant maintains that Advisory Escrow Officers and 2003
Escrow Officers were properly classified as exempt administrative employees.
Defendant further contends most class members with managerial titles, including Branch
Managers and Unit Managers, also qualified for the administrative exemption or at least
performed exempt administrative tasks in addition to their managerial duties.
3. The Outside Salesperson Exemption
Labor Code section 1171 and Wage Order 4 both provide an exemption for outside
salespersons. An “ ‘outside salesperson’ ” is defined as any adult employee “who
23.
customarily and regularly works more than half the working time away from the
employer’s place of business selling tangible or intangible items or obtaining orders or
contracts for products, services or use of facilities.” (Wage Order 4, subd. 2(N).) The
applicability of this exemption depends on “how the employee actually spends his or her
time as well as the employer’s realistic expectations of the job and the extent to which the
employee diverges from them.” (Walsh v. IKON Office Solutions, Inc. (2007) 148
Cal.App.4th 1440, 1454.)
Defendant did not rely on the outside salesperson exemption during the liability
phase of trial. During the restitution phase and in its motion for a new trial, defendant
identified three class members to whom the exemption allegedly applied. Our main
reason for noting this exemption is because it was the defense at issue in Duran, supra,
59 Cal.4th 1.
4. The Commissioned Employee Exemption
Only two wage orders permit an exemption based on commission earnings: Wage
Order 4 and IWC wage order No. 7-2001 (Cal. Code Regs., tit. 8, § 11070 (Wage Order
7)). The exemption applies “to any employee whose earnings exceed one and one-half
([1.5]) times the minimum wage if more than half of that employee’s compensation
represents commissions.” (Wage Order 4, subd. 3(D); Wage Order 7, subd. 3(D).)
Despite the facial simplicity of this language, the exemption has been construed as having
additional prerequisite elements. (See, e.g., Peabody v. Time Warner Cable, Inc., supra,
59 Cal.4th at pp. 668–670; Ramirez, supra, 20 Cal.4th at pp. 803–804.)
Defendant relied on the commission exemption as a tertiary defense in the liability
phase of trial. The defense was asserted with greater emphasis in the restitution phase,
but it is only cursorily mentioned in defendant’s appellate briefs. The inadequate briefing
results in forfeiture of issues regarding the merits of that defense. (See Aton Center, Inc.
v. United Healthcare Ins. Co. (2023) 93 Cal.App.5th 1214, 1241 [a reviewing court need
not address undeveloped arguments]; Lewis v. County of Sacramento (2001) 93
24.
Cal.App.4th 107, 116 [appellate review is limited to issues “adequately raised and
briefed”].)
C. The Unfair Competition Law
The common law tort of unfair competition “developed as an equitable remedy
against the wrongful exploitation of trade names and common law trademarks that were
not otherwise entitled to legal protection.” (Bank of the West v. Superior Court (1992) 2
Cal.4th 1254, 1263.) The UCL’s predecessor statute, former section 3369 of the Civil
Code, was amended in 1933 to provide for injunctive relief against any “unfair or
fraudulent business practice” and/or “unfair, untrue, or misleading advertising.” (Stats.
1933, ch. 953, § 1, p. 2482; Nationwide Biweekly Administration, Inc. v. Superior Court
(2020) 9 Cal.5th 279, 297–298 (Nationwide Biweekly Administration).) The UCL thus
began “as a Depression-era enactment that for 30 years did little more than reinforce
common law proscriptions against trade name infringement.” (Stern, Cal. Practice
Guide: Bus. & Prof. Code, § 17200 Practice (The Rutter Group 2025) ¶ 1:2.)
The availability of monetary restitution as a UCL remedy was established by case
law in 1973 and codified in 1976. (Korea Supply Co. v. Lockheed Martin Corp. (2003)
29 Cal.4th 1134, 1147.) “In 1977, the Legislature moved the relevant sections of the
Civil Code embodying the UCL into the Business and Professions Code at sections 17200
to 17206.” (Nationwide Biweekly Administration, supra, 9 Cal.5th at p. 299.) The UCL
was amended in 1992 to expansively define unfair competition as “any unlawful, unfair
or fraudulent business act or practice[,] and unfair, deceptive, untrue or misleading
advertising[,] and any act prohibited by [the false advertising law (Bus. & Prof. Code,
§ 17500 et seq.)].” (Bus. & Prof. Code, § 17200; Stats. 1992, ch. 430, § 2; see Kasky v.
Nike, Inc. (2002) 27 Cal.4th 939, 949.)
The modern UCL is intended to protect business competitors and consumers “by
promoting fair competition in commercial markets for goods and services.” (Kasky v.
25.
Nike, Inc., supra, 27 Cal.4th at p. 949.) By broadly proscribing “any” unlawful business
“act” or “practice” (Bus. & Prof. Code, § 17200), “the UCL ‘ “borrows” ’ rules set out in
other laws and makes violations of those rules independently actionable.” (Zhang v.
Superior Court (2013) 57 Cal.4th 364, 370.) For that reason, UCL claims are often
derivative of other separately pleaded causes of action. “Virtually any law—federal, state
or local—can serve as a predicate for an action under [the UCL].” (Smith v. State Farm
Mutual Automobile Ins. Co. (2001) 93 Cal.App.4th 700, 718.) “However, a practice may
violate the UCL even if it is not prohibited by another statute. Unfair and fraudulent
practices are alternate grounds for relief.” (Zhang, at p. 370.)
As recognized in Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th
163 (Cortez), unlawfully withheld overtime pay may be recovered as restitution in a UCL
action. (Id. at pp. 173–177.) Moreover, the UCL’s four-year statute of limitations (Bus.
& Prof. Code, § 17208) effectively supersedes the three-year statute of limitations
otherwise applicable to wage and hour claims under the Labor Code (see Code Civ. Proc.,
§ 338, subd. (a)). (Cortez, at pp. 167, 178–179.) “Thus, the general rule is that a UCL
cause of action borrows the substantive portion of the borrowed statute to prove the
‘unlawful’ prong of that statute, but not the limitations procedural part of the borrowed
statute.” (Blanks v. Seyfarth Shaw LLP (2009) 171 Cal.App.4th 336, 364.) Because of
the UCL’s four-year limitations period, plaintiffs were able to include the 2003 Escrow
Officers in the certified classes and extend the class period back to April 2003 instead of
April 2004.
“While the scope of conduct covered by the UCL is broad, its remedies are
limited.” (Korea Supply Co. v. Lockheed Martin Corp., supra, 29 Cal.4th at p. 1144.)
The equitable nature of a UCL action precludes the recovery of damages or financial
penalties by private plaintiffs. (Ibid.; see Bus. & Prof. Code, § 17206 [authorizing civil
penalties only in actions brought by the government].) Injunctions are “ ‘the primary
form of relief available under the UCL,’ while restitution is merely ‘ancillary.’ ”
26.
(Clayworth v. Pfizer, Inc. (2010) 49 Cal.4th 758, 790.) “The object of restitution is to
restore the status quo by returning to the plaintiff funds in which he or she has an
ownership interest.” (Korea Supply, at p. 1149.)
“Where the remedies invoked are purely and exclusively equitable, the right to a
jury trial does not exist.” (Tibbitts v. Fife (1958) 162 Cal.App.2d 568, 572; accord,
Hodge v. Superior Court (2006) 145 Cal.App.4th 278, 284–285.) Claims brought
exclusively under the UCL must therefore be tried “by the court rather than by a jury.”
(Nationwide Biweekly Administration, supra, 9 Cal.5th at p. 305.) This explains why a
bench trial was conducted in this case following plaintiffs’ dismissal of their statutory
causes of action under the Labor Code.
D. Class Treatment of Employee Misclassification Claims
1. General Principles
The class action is “a procedural device for aggregating claims ‘when the parties
are numerous, and it is impracticable to bring them all before the court.’ ” (Kim v. Reins
International California, Inc. (2020) 9 Cal.5th 73, 86.) The device is authorized by Code
of Civil Procedure section 382, but the statute “provides scant legislative guidance
regarding the multitude of procedural questions that arise in such complex actions.” 5
(Estrada v. Royalty Carpet Mills, Inc. (2024) 15 Cal.5th 582, 612.) The requirements for
class treatment have developed judicially and are generally modeled upon rule 23 of the
Federal Rules of Civil Procedure. (See Estrada, at pp. 613–614; In re Tobacco II Cases
(2009) 46 Cal.4th 298, 318 (Tobacco II).) Where state law authority is lacking,
California courts “may look to the procedures governing federal class actions … for
5 Code of Civil Procedure section 382 states, “If the consent of any one who should
have been joined as plaintiff cannot be obtained, he may be made a defendant, the reason
thereof being stated in the complaint; and when the question is one of a 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.”
27.
guidance.” (Washington Mutual Bank v. Superior Court (2001) 24 Cal.4th 906, 922; see
Tobacco II, at p. 318.)
The party advocating for class treatment must show “the existence of an
ascertainable and sufficiently numerous class, a well-defined community of interest
[among class members], and substantial benefits from certification that render proceeding
as a class superior to the alternatives.” (Brinker, supra, 53 Cal.4th at p. 1021; accord,
Richmond v. Dart Industries, Inc. (1981) 29 Cal.3d 462, 470.) “The community of
interest requirement embodies three factors: (1) predominant common questions of law
or fact; (2) class representatives with claims or defenses typical of the class; and (3) class
representatives who can adequately represent the class.” (Richmond, at p. 470.) Class
action proponents must also demonstrate manageability, i.e., that the “ ‘litigation of
individual issues, including those arising from affirmative defenses, can be managed
fairly and efficiently.’ ” (Cobos v. National General Ins. Co. (2025) 112 Cal.App.5th
1272, 1281, quoting Duran, supra, 59 Cal.4th at p. 29.)
Predominance “hinges on ‘whether the theory of recovery advanced by the
proponents of certification is, as an analytical matter, likely to prove amenable to class
treatment.’ ” (Brinker, supra, 53 Cal.4th at p. 1021.) Generally, “ ‘if the defendant’s
liability can be determined by facts common to all members of the class, a class will be
certified even if the members must individually prove their damages.’ ” (Id. at p. 1022,
italics added.) But in cases alleging the misclassification of workers as exempt from
overtime laws, “some proof about how individual employees use their time will often be
necessary to accurately determine an employer’s overtime liability.” (Duran, supra, 59
Cal.4th at p. 27.) Since many exemptions depend on whether an employee spends at least
51 percent of their time doing certain types of work, “a misclassification claim has the
potential to raise numerous individual questions that may be difficult, or even impossible,
to litigate on a classwide basis.” (Ibid.)
28.
Class treatment may be appropriate, “even if the case involves an exemption that
typically entails fact-specific individual inquiries,” when the employees’ job duties are
highly standardized in a manner that requires most time to be spent on nonexempt tasks.
(Duran, supra, 59 Cal.4th at p. 31.) Corporate policies may similarly have the resulting
effect of “employees uniformly spending most of their time on nonexempt work.” (Ibid.)
Outside of those two scenarios, “California courts have been reluctant to certify class
actions alleging misclassification.” (Id. at pp. 30–31.)
The certification ruling is often the most consequential decision in a class action
lawsuit. (3 Newberg and Rubenstein on Class Actions (6th ed. 2026) § 7:18.) If the
motion to certify is granted, the case will likely settle. (Duran, supra, 59 Cal.4th at p. 27,
fn. 27.) This is especially true of certified employee misclassification cases, which
almost never proceed to trial. (Id. at p. 25.) “Settlement should never be treated as a
foregone conclusion, however.” (Id. at p. 27.) Trial courts have a continuing obligation
to “manage individual issues” after a class has been certified, and to “decertify a class
action if individual issues prove unmanageable.” (Id. at p. 29.)
2. Notable Pre-Duran Cases
The first California Supreme Court decision to address class treatment of
employee misclassification claims was Sav-On Drug Stores, Inc. v. Superior Court (2004)
34 Cal.4th 319 (Sav-On). There, two plaintiffs asserted causes of action under the Labor
Code and the UCL alleging their employer (“a drugstore chain”) had misclassified them
and approximately 600 to 1400 putative class members as exempt managerial employees.
(Id. at pp. 325–326.) The superior court’s decision to grant class certification was upheld
by the California Supreme Court.
The Sav-On plaintiffs supported their motion for class certification with “evidence
that deliberate misclassification was [the employer’s] policy and practice,” and “that,
owing in part to operational standardization and perhaps contrary to what [the employer]
expected, classification based on job descriptions alone resulted in widespread de facto
29.
misclassification.” (Sav-On, supra, 34 Cal.4th at p. 329.) The plaintiffs’ evidence was
disputed and arguably less robust than the employer’s opposing evidence, the latter of
which included “declarations from 51 current employees …, each [holding one of the
two managerial positions in question], describing their work.” (Ibid.) Those declarations
were offered to show that the “actual activities performed by [the putative class
members], and the amount of time spent by each [putative class member] on exempt
activities, … varied significantly from store to store and individual to individual, based
on multiple factors .…” (Id. at p. 325.)
The Sav-On opinion discusses how trial courts are “ ‘afforded great discretion in
granting or denying certification’ ” and need only find that the requirements for class
treatment are supported by a preponderance of the evidence. (Sav-On, supra, 34 Cal.4th
at pp. 326–327.) “[A] reviewing court is not authorized to overturn a certification order
merely because it finds the record evidence of predominance less than determinative or
conclusive.” (Id. at p. 338.) The intermediate appellate court in Sav-On erred “to the
extent it engaged in any reweighing of that evidence,” and “to the extent it stated or
implied that the community of interest requirement for certification mandates that class
members’ claims be uniform or identical.” (Ibid.)
Further, “neither variation in the mix of actual work activities undertaken … [by
putative class members], nor differences in the total unpaid overtime compensation owed
each class member, bar class certification as a matter of law.” (Sav-On, supra, 34 Cal.4th
at p. 335.) “Individual issues do not render class certification inappropriate so long as
such issues may effectively be managed.” (Id. at p. 334.) In theory, widespread
employee misclassification may be proven through “statistical evidence, sampling
evidence, [and/or] expert testimony” that accounts for individual variation among class
members. (Id. at p. 333 & fn. 6; see Brinker, supra, 53 Cal.4th at p. 1054 (conc. opn. of
Werdegar, J.).) The Sav-On opinion does not, however, address the practical challenges
of implementing those methods. (See Sav-On, at p. 339, fn. 12 [“It is not our role at this
30.
stage either to devise or to dictate the methods by which a trial court conducting a
particular class action may choose to manage it”].)
Following the Sav-On decision, several appellate courts published opinions
affirming the denial of class certification in similar wage and hour lawsuits. (E.g., Dailey
v. Sears, Roebuck & Co. (2013) 214 Cal.App.4th 974, 977–978; Soderstedt v. CBIZ
Southern California, LLC (2011) 197 Cal.App.4th 133, 138 (Soderstedt); Mora v. Big
Lots Stores, Inc. (2011) 194 Cal.App.4th 496, 498–499; Arenas v. El Torito Restaurants,
Inc. (2010) 183 Cal.App.4th 723, 726; Dunbar, supra, 141 Cal.App.4th at p. 1424.) The
trial courts in those cases determined that individual issues arising from exemption
defenses weighed against a finding of predominance. In Dailey, for example, “highly
individualized inquiries” regarding how much time managers spent on exempt and
nonexempt activities would have “dominate[d] resolution of the key issues in [the] case.”
(Dailey, at p. 992.) In Dunbar, the evidence showed “significant variation in the work
performed by grocery managers from store to store and week to week.” (Dunbar, at
p. 1431.) In Soderstedt, there was variation in the individual circumstances of
approximately 150 workers classified as administrative employees. (Soderstedt, at
pp. 138–139, 148–149.)
Appellate courts have also affirmed decertification orders issued at various stages
when “individual issues related to an exemption defense threaten[ed] to overwhelm the
litigation.” (Duran, supra, 59 Cal.4th at p. 30.) “For example, in Walsh v. IKON Office
Solutions, Inc., supra, 148 Cal.App.4th at pages 1445–1448, the court certified an
overtime class action involving the outside salesperson exemption. It later decertified the
class when discovery revealed that the circumstances of each class member’s
employment differed significantly. The Court of Appeal affirmed this ruling, noting that
differences in time spent on sales activities and work outside the office meant that
adjudication of the exemption would require individual hearings on liability and
damages.” (Duran, at p. 30.) “Similarly, Keller v. Tuesday Morning, Inc. (2009) 179
31.
Cal.App.4th 1389 upheld the decertification of an overtime class action brought by retail
store managers. Although the trial court initially certified a class based on [the Sav-On
decision], two years later it determined that individual inquiries concerning how
managers spent their time would overwhelm the issues susceptible to classwide proof.”
(Duran, at p. 30, citing Keller, at p. 1399.)
3. Duran v. U.S. Bank National Assn., supra, 59 Cal.4th 1
By 2014, nearly a decade after Sav-On, only two class actions predicated on
theories of employee misclassification had ever been tried to verdict in a California state
court. (Duran, supra, 59 Cal.4th at p. 25.) The first was Bell v. Farmers Ins. Exchange
(2004) 115 Cal.App.4th 715 (Bell), which went to trial only on the issue of damages (the
employer’s liability was determined on summary adjudication). (Duran, at pp. 16, 25,
fn. 23; Bell, at p. 720.) The second was Duran, where allegations of classwide
misclassification were litigated at trial. The present case went to trial approximately
15 months after Duran was published and was likely only the second time—and possibly
last time—such issues were tried to verdict in this state. Given the scarcity of precedent,
we examine Duran and its holdings in detail.
The Duran plaintiffs were loan officers employed by a national bank with over
130 branches in California. (Duran, supra, 59 Cal.4th at pp. 12–13.) The plaintiffs “sued
for unpaid overtime, claiming they had been misclassified as exempt employees under
the outside salesperson exemption.” (Id. at p. 12.) As previously noted, that exemption
“applies to employees who spend more than 50 percent of the workday engaged in sales
activities outside the office.” (Ibid.)
A putative class action complaint alleged three causes of action based on the
employer’s failure to pay overtime: (1) a violation of Labor Code section 1194; (2) a
violation of the UCL; and (3) the tort of conversion. (Duran, supra, 59 Cal.4th at p. 14
& fn. 3.) The trial court certified a class of 260 current and former employees who held a
particular sales position between December 1997 and September 2005. (Duran, at
32.
pp. 13–15.) The job title is abbreviated as “BBO” (for business banking officer)
throughout the Duran opinion. (Id. at p. 13 & fn. 1.)
The propriety of class treatment was disputed from the outset. (Duran, supra, 59
Cal.4th at p. 14.) “Relying on Sav-On …, [the trial court] found common questions of
law and fact predominated over individual issues based on evidence that: (1) the BBO
position was ‘standardized’; (2) [the employer] classified all BBOs as exempt without
examining each employee’s duties or work habits; and (3) [the employer] failed to train
or monitor BBOs to ensure that exemption requirements were satisfied.” (Id. at pp. 14–
15.)
Following class certification, the parties spent months developing and arguing
over “competing trial management plans.” (Duran, supra, 59 Cal.4th at p. 15.) The
defendant employer “proposed to divide the class into 20 or 30 groups and have special
masters conduct individualized evidentiary hearings on liability and damages.” (Ibid.)
The plaintiffs objected, arguing the employer “had no due process right to assert its
affirmative defenses against each individual class member.” (Ibid.)
“As an alternative, plaintiffs proposed the use of surveys and random sampling, as
described in a declaration from [their] statistics expert .… First, the parties would
identify all tasks performed by BBOs and classify which were sales related. Next, the
amount of time class members typically spent on outside activities would be assessed
using a classwide survey. The parties’ experts would then jointly design a random sample
of surveyed class members to proceed through focused discovery and a phase one trial.
Finally, aggregate, classwide damages would be determined at a phase two trial. Once an
aggregate damages figure was established, the parties would agree upon a claims
procedure to distribute damages to individual class members.” (Duran, supra, 59 Cal.4th
at p. 15.)
The defense “strenuously objected to the use of representative sampling.” (Duran,
supra, 59 Cal.4th at p. 15.) “There was no precedent for using random sampling to
33.
establish liability in a class action involving the outside sales exemption.” (Id. at p. 16,
italics omitted.) Moreover, the law was unsettled as to whether statistical sampling could
“legitimately be used to prove a defendant’s liability to absent class members” in any
type of case. (Id. at p. 39.)
The trial court in Duran rejected the various proposals and adopted a much
simpler trial plan of its own creation. Under the court’s plan, a “representative witness
group” would be created by randomly selecting 20 people from the 260-person class.
(Duran, supra, 59 Cal.4th at p. 16.) With exception of the named plaintiffs, no class
members other than the selected individuals would testify at trial. “Any findings on
liability and damages for this sample would then be extrapolated to the remainder of the
class.” (Id. at pp. 15–16.) The defendant’s objections to the plan were overruled, and its
subsequent requests for decertification were denied. (Id. at pp. 16–17, 20.)
“[A]round the same time the trial court finalized the trial management plan and
selected the [representative witness group], plaintiffs moved to dismiss their claims under
the Labor Code and proceed solely on a claim for equitable relief under the [UCL].”
(Duran, supra, 59 Cal.4th at p. 16.) The motion was granted and resulted in a few
litigants opting out of the case, including four people originally chosen for the 20-person
group. Over the defendant’s objections, the opt-outs were removed from the group of
testifying witnesses and replaced by other class members. (Id. at pp. 16–17.)
A total of 21 class members testified in a bifurcated liability phase of trial: the
two named plaintiffs and 19 of the randomly selected witnesses. One randomly selected
witness did not respond to a trial subpoena. (Duran, supra, 59 Cal.4th at pp. 17–18
& fn. 11.) The 21 class members “all testified that they generally spent more than half of
their workday inside bank offices,” thus negating the main element of the disputed
exemption. (Id. at p. 18, italics added.) Although the employer was prepared to counter
this evidence with sworn declarations from dozens of other class members, the trial court
“refused to hear any testimony about the work habits of BBOs not included in the
34.
[representative witness group].” (Ibid.) The defense could only attempt to impeach the
testifying class members and present evidence of the job requirements and employer
expectations through non-class-member testimony from upper management. 6 (Id. at
p. 19.)
Although some witnesses in the sample group were impeached with their own
prior declarations, the trial court “concluded [the employer] did not carry its burden of
proof on the outside salesperson exemption.” (Duran, supra, 59 Cal.4th at p. 21.)
“Based primarily on testimony from [only 21 class members], the court ruled that the
entire class … was misclassified as exempt, and all class members were owed overtime
in amounts to be determined in phase two of the trial.” (Ibid.) The court also granted a
motion to prohibit the employer “from introducing any evidence pertaining to liability” in
the restitution phase. “The court thus barred any challenge to its phase one decision that
all class members were misclassified as exempt and all were entitled to overtime
compensation.” (Ibid.) “After the second phase of trial, which focused on testimony
from statisticians, the court extrapolated the average amount of overtime reported by the
sample group [during the liability phase] to the class as a whole, resulting in a verdict of
approximately $15 million and an average recovery of over $57,000 per person.”
(Duran, at p. 12.)
6 As with the executive and administrative exemptions, the outside salesperson
defense presents “[a]ncillary questions [that] include ‘whether the employee’s practice
diverges from the employer’s realistic expectations, whether there was any concrete
expression of employer displeasure over an employee’s substandard performance, and
whether these expressions were themselves realistic given the actual overall requirements
of the job.’ ” (Duran, supra, 59 Cal.4th at p. 26, quoting Ramirez, supra, 20 Cal.4th at
p. 802.) Those inquiries serve to prevent employers from skirting the law by merely
“fashioning an idealized job description that [has] little basis in reality,” and employees
from evading a valid exemption by intentionally or negligently spending disproportionate
amounts of time on nonexempt work. (Ramirez, at p. 802.)
35.
The employer successfully appealed. The appellate court found several reversible
errors stemming from “the trial plan’s reliance on representative sampling.” (Duran,
supra, 59 Cal.4th at p. 24.) “In addition to reversing the trial court’s judgment, the Court
of Appeal ordered the class decertified.” (Ibid.) The California Supreme Court granted
review and upheld the appellate court’s disposition “in its entirety.” (Id. at p. 50.)
The California Supreme Court identified two general categories of prejudicial
error: (1) the methodology used to extrapolate classwide findings and (2) the wholesale
exclusion of relevant defense evidence. (Duran, supra, 59 Cal.4th at p. 50.) We will
focus on the first category. Certain principles explained by Duran regarding inferential
statistics are covered elsewhere in this opinion, but for now it suffices to highlight the
following points.
“A sample must be randomly selected for its results to be fairly extrapolated to the
entire class.” (Duran, supra, 59 Cal.4th at p. 43.) For genuine randomization, each
member of the class must have an equal probability of being selected for inclusion in the
sample. (Ibid.) Selection bias, which diminishes the reliability of any conclusions
extrapolated from the sample, “occurs when members of the [class] are chosen based on a
nonrandom criterion or are selectively included or excluded from the sample group.”
(Ibid.)
The randomness of the 21-person sample in Duran was tainted by the inclusion of
two named plaintiffs. “These plaintiffs were selected, not randomly, but by class
counsel.” (Duran, supra, 59 Cal.4th at p. 45.) This is not to say class representatives
should be excluded from testifying as to liability (id. at p. 43), but “data derived from the
named plaintiffs’ testimony would not normally be included in a statistical analysis of a
random sample” (id. at p. 45).
Randomness was further undermined by the removal of four opt-out parties from
the 20-person sample, which also constituted selection bias. (Duran, supra, 59 Cal.4th at
p. 45.) A similar error was made in the removal of a fifth person from the original
36.
20-person group (id. at p. 16, fn. 8) “because his work activities differed from those of
other BBOs and the court did not consider him to be a ‘true’ BBO” (id. at p. 44). “As a
randomly selected member of the class, [the witness] may in fact have been
representative of a sizeable, if unknown, group of BBOs whose job duties differed from
the norm.… By characterizing [him] as atypical and excluding his testimony, the court
imposed a greater uniformity on the [group of testifying witnesses] than its ‘random’
sampling methodology warranted.” (Duran, at p. 44.)
In addition to being randomized, a sample “must be sufficiently large to provide
reliable information about the larger group.” (Duran, supra, 59 Cal.4th at p. 42.) “It is
impossible to determine an appropriate sample size without first learning about the
variability in the population,” i.e., variability in the group the sample is intended to
represent. (Ibid.; see id. at p. 38, fn. 32 [defining “ ‘population’ ” as used in statistical
analysis].) Determining statistical variability and the necessary sample size requires
expertise in the field of statistics. (See id. at pp. 33, 42.) Therefore, any trial plan that
relies on statistical sampling “must be developed with expert input and must afford the
defendant an opportunity to impeach the model or otherwise show its liability is
reduced.” (Id. at p. 13.)
“With input from the parties’ experts, the court must determine that a chosen
sample size is statistically appropriate and capable of producing valid results within a
reasonable margin of error.” (Duran, supra, 59 Cal.4th at p. 42.) The margin of error “is
a statistical measurement of the reliability of an estimate produced by sampling. It
reflects the amount by which the estimate may be wrong given a certain confidence
interval.” (Id. at p. 46; see ibid. & fn. 36 [explaining “confidence interval”].) The
sampling methods used in Duran were “profoundly flawed” (id. at p. 13) because the
sample was not random, the extrapolation model was designed without expert input, the
sample size was too small, and the margin of error was “intolerably high” for both the
37.
restitution findings (id. at p. 46) and the determination of classwide liability (see id. at
pp. 48–49).
In summary, one relatively straightforward exemption defense “raised a host of
individual issues.” (Duran, supra, 59 Cal.4th at p. 32.) “While common issues among
class members may have been sufficient to satisfy the predominance prong for
certification, the trial court also had to determine that these individual issues could be
effectively managed in the ensuing litigation.” (Ibid.) Manageability “is just as
important as the existence of common questions uniting the proposed class” (id. at p. 29),
and “a statistical plan for managing individual issues must be conducted with sufficient
rigor” (id. at p. 31). “With no sensitivity to variability in the class, the court forced the
case through trial with a flawed statistical plan that did not manage but instead ignored
individual issues.” (Id. at p. 33.)
The Duran opinion instructs that “[i]f statistical evidence will comprise part of the
proof on class action claims, the court should consider at the certification stage whether a
trial plan has been developed to address its use.” (Duran, supra, 59 Cal.4th at p. 31.)
“Rather than accepting assurances that a statistical plan will eventually be developed,
trial courts would be well advised to obtain such a plan before deciding to certify a class
action. In any event, decertification must be ordered whenever a trial plan proves
unworkable.” (Id. at p. 32.)
4. Notable Post-Duran Cases
On remand from the California Supreme Court, the Duran case “was reassigned to
a new judicial officer” who ruled on competing motions to recertify it as a class action.
(Duran v. U.S. Bank National Assn. (2018) 19 Cal.App.5th 630, 634.) To demonstrate
manageability, the plaintiffs conducted a survey of putative class members and developed
a new trial plan. The survey was intended to show “ ‘margins of errors for various
possible numbers of witnesses who could testify at trial,’ ” and statistical proof on issues
of liability and restitution. (Id. at pp. 634–635.)
38.
The plaintiffs’ new trial plan “proposed using representative testimony with
sample sizes ranging from 15 to 50 BBOs, having associated respective margins of error
ranging from 11 percent to 5.53 percent.” (Duran v. U.S. Bank National Assn., supra, 19
Cal.App.5th at p. 635.) In other words, if the numbers were accurate, findings of exempt
or nonexempt status could be reliably extrapolated to approximately 89 to 94 percent of
the entire class (but be wrong for the remaining 6 to 11 percent). (See Duran, supra, 59
Cal.4th at pp. 23 & fn. 19 [converting margin of error percentage to number of class
members], 46 [explaining margin of error principles].) The trial plan was largely based
on the plaintiffs’ new survey data, which a defense expert opined was tainted by selection
bias. (Duran v. U.S. Bank National Assn., supra, 19 Cal.App.5th at pp. 640, 648.) The
defense expert further opined that “ ‘far larger sample sizes than those proposed would be
required’ ” to achieve a margin of error at or below 11 percent. (Ibid.)
On remand, the trial court appointed an independent expert “to advise it on the
survey science underpinning the parties’ motions.” (Duran v. U.S. Bank National Assn.,
supra, 19 Cal.App.5th at p. 636.) Ultimately, the plaintiffs’ survey was deemed
“unreliable as evidence of uniformity in how BBOs spent their time, and unreliable as
statistical support for selecting a representative witness group to testify as to liability or
restitution without causing the inquiry to devolve into a multiplicity of individual mini
trials .…” (Id. at p. 650.) This was especially true “in light of the [defendant’s] right to
call witnesses outside the sample to establish its affirmative defense.” (Ibid.) The denial
of class certification was unanimously affirmed on appeal. (Id. at p. 651.)
Other courts have heeded Duran’s admonitions regarding trial plans that rely on
statistical evidence. The case of Martinez v. Joe’s Crab Shack Holdings (2014) 231
Cal.App.4th 362 involved a putative class of restaurant employees and the employer’s
reliance on the executive exemption. (Id. at pp. 367–368.) The trial court’s denial of
class certification was reversed on appeal with instructions to reconsider issues
concerning predominance and manageability. Despite faulting the trial court for being
39.
overly focused on the likelihood of individual issues, the appellate court noted “[t]he
statistical sampling plan proposed by plaintiffs below lacked the specificity contemplated
in Duran.” (Martinez, at p. 383.) The plaintiffs were thus advised “to submit a revised
plan upon remand that more adequately addresses the concerns expressed by the Supreme
Court.” (Ibid.)
In Mies v. Sephora U.S.A., Inc. (2015) 234 Cal.App.4th 967, the denial of class
certification in an overtime lawsuit involving both the executive and administrative
exemptions was affirmed on appeal. The plaintiff had argued the possibility of using
“statistical evidence to determine liability on a classwide basis,” but “did not propose or
justify any particular statistical method” of proof. (Id. at p. 973.) The appellate court
held there was no obligation “to accept her unjustified assurances regarding what she
could prove, especially given the declaration of [a defense] expert stating the use of
sampling to determine liability with respect to absent class members would not work.”
(Id. at p. 985; accord, Dailey v. Sears, Roebuck & Co., supra, 214 Cal.App.4th at
pp. 999–1000 [trial courts may reject generic statistical sampling proposals]; see Dunbar,
supra, 141 Cal.App.4th at p. 1432 [“the party seeking class certification must explain
how [such methods] will effectively manage the issues in question”].)
The Parties’ Respective Burdens
A major dispute in this appeal concerns which burdens are borne by the respective
parties in this type of class action. Plaintiffs raise the issue in response to defendant’s
reliance on Duran. They accuse defendant of arguing “that Duran somehow reversed the
burden of proof for a defendant employer’s affirmative defenses in a class action trial.”
The issue is presented in terms of whether plaintiffs had a burden to prove all class
members were misclassified as exempt employees. The subtext of plaintiffs’ argument is
that statistical sampling errors in their trial plan do not matter because it was defendant’s
burden to prove the exemption defenses.
40.
Defendant contends it was plaintiffs’ burden to “demonstrate a policy or practice
that amounted to deliberate misclassification or widespread de facto misclassification.”
Defendant also contends plaintiffs “were required to demonstrate, via common proof, that
‘misclassification was the rule rather than the exception.’ ” The arguments are derived
from Duran and Sav-On, but neither case specifically characterizes theories of
misclassification as a burden of proof at trial. (See Duran, supra, 59 Cal.4th at p. 37;
Sav-On, supra, 34 Cal.4th at pp. 329–330.) They are theories recognized as being
“amenable to class treatment.” (Sav-On, at p. 329.) It is settled that exemptions are
affirmative defenses, “and therefore the employer bears the burden of proving the
employee’s exemption.” (Ramirez, supra, 20 Cal.4th at pp. 794–795.) Class treatment is
proper if exemption defenses can be litigated without excessive individual inquiries into
the class members’ responsibilities and apportionment of their time. (See Modaraei v.
Action Property Management, Inc. (2019) 40 Cal.App.5th 632, 635–636, 643; Duran v.
U.S. Bank National Assn., supra, 19 Cal.App.5th at p. 650; Soderstedt, supra, 197
Cal.App.4th at p. 157.)
Employee plaintiffs have the burden to show they worked overtime without
receiving premium compensation. (Maldonado v. Epsilon Plastics, Inc. (2018) 22
Cal.App.5th 1308, 1328; Kizer v. Tristar Risk Management (2017) 13 Cal.App.5th 830,
839.) Meeting that requirement is generally sufficient to shift the burden to the defendant
employer to prove the applicability of an exemption. But if the same type of claim is
litigated in a class action trial, the plaintiffs have likely already promised to provide
common proof of widespread misclassification. As we have discussed, class certification
is rarely granted in an overtime exemption case without such assurances being made. 7
7 This discussion assumes the typical scenario of class certification being requested
by the plaintiff(s) and opposed by the defendant(s). (See Van v. LLR, Inc. (9th Cir. 2023)
61 F.4th 1053, 1066, fn. 10 [using same assumption]; Lessin v. Ford Motor Co. (S.D.Cal.
41.
“In wage and hour cases where a party seeks class certification based on
allegations that the employer consistently imposed a uniform policy or de facto practice
on class members, the party must still demonstrate that the illegal effects of this conduct
can be proven efficiently and manageably within a class setting.” (Duran, supra, 59
Cal.4th at p. 29.) The real question, therefore, is which party has the burden of
demonstrating the manageability of individual issues arising from exemption defenses at
the time of trial. In other words, does plaintiffs’ success at the class certification stage
put the onus on the defendant to develop a trial plan that fulfills the plaintiffs’ promise of
manageability by statistical proof or other common evidence? The answer is no.
The same question was addressed in Marlo, supra, 251 F.R.D. 476, a federal
district court ruling later affirmed by the Ninth Circuit Court of Appeals (Marlo v. United
Parcel Service, Inc. (9th Cir. 2011) 639 F.3d 942). Michael Marlo, referred to in the
decision as “Plaintiff,” filed a putative class action complaint against United Parcel
Service, Inc. (UPS) alleging a failure to pay overtime compensation, and failure to
provide meal breaks and rest periods, in violation of California law. (Marlo, supra, 251
F.R.D. at p. 479.) UPS relied on the executive exemption under the applicable IWC wage
order. (Id. at p. 481 & fn. 3.)
The Marlo court certified a class of approximately 1,200 workers employed by
UPS in three different supervisory positions. (Marlo, supra, 251 F.R.D. at pp. 479–480.)
“Notably, the Court accepted Plaintiff’s representation that common proof of
misclassification would be offered to determine the class-wide applicability of the
exemption.” (Id. at p. 480.) When the case proceeded beyond motions for summary
judgment, and triable issues of fact were found to exist on matters including the exercise
of discretion and independent judgment required by the exemption, “the Court became
2024) 756 F.Supp.3d 885, 928 [noting the proponent of class treatment is “usually the
plaintiff”].)
42.
increasingly concerned that individualized issues may predominate over class-wide
issues.” (Id. at p. 479.)
“[T]he Court met with the parties on several occasions to discuss various
substantive and management issues in preparation for trial .…” (Marlo, supra, 251
F.R.D. at p. 479.) During those conferences, the court repeatedly “inquired of Plaintiff’s
counsel how they intended to try this case,” but “received unsatisfactory answers.” (Id. at
p. 487.) Beyond the fact of a “uniform classification policy” and certain “standardized
procedures,” the plaintiffs intended to rely on individual witness testimony and the results
of a survey conducted of 160 class members (roughly 13 percent of the entire class). (Id.
at p. 483.) The survey, however, was found unreliable due to “methodological and design
problems.” (Id. at p. 486.) “In light of the individualized nature of some aspects of the
exemption test,” the court’s manageability concerns “ripened into doubt regarding the
continuing efficacy of a class action.” (Id. at p. 480.)
Facing decertification, the Marlo plaintiffs argued their only burden was to show
UPS classified them as exempt employees and did not pay overtime—“a prima facie case
to which UPS was willing to stipulate.” (Marlo, supra, 251 F.R.D. at p. 482.) At that
point, according to the plaintiffs, “UPS would have the burden of proving that it properly
applied the exemption on a class-wide basis.” (Ibid.) UPS disagreed. It argued
plaintiffs’ decision to litigate the matter as a class action resulted in a self-imposed
“burden of ultimately proving misclassification on a class-wide basis.” (Ibid.) The court
had to decide “whether there is any difference between an individual case, where it is
well-established that an employer has the burden of proving that the overtime exemption
was appropriate, and a class action challenging an employer’s decision to classify as
exempt a group of employees.” (Ibid.)
The Marlo court stated its understanding of California law based on the Sav-On
decision: “[I]n order to maintain a class action challenging the overtime exemption, a
plaintiff must have common evidence to support a legal theory of misclassification, either
43.
‘that deliberate misclassification was defendant’s policy or practice’ or similarly, that
‘classification based on job descriptions alone resulted in widespread de facto
misclassification.’ [Citation.] A class action is appropriate if ‘plaintiffs are able to
demonstrate pursuant to either scenario that misclassification was the rule rather than the
exception .…’ ” (Marlo, supra, 251 F.R.D. at pp. 481–482, fn. omitted, citing and
quoting Sav-On, supra, 34 Cal.4th at pp. 329–330.)
The Marlo court went on to rule as follows:
“The Court finds that Plaintiff has the ultimate burden of proving
misclassification at a class action trial. A plaintiff bringing a class action
normally has the ultimate burden of proving class-wide liability at trial.
[Citation.] Because Plaintiff has brought a class action challenging UPS’s
exemption [determinations] as a policy of misclassification, Plaintiff must
be ‘able to demonstrate pursuant to either scenario that misclassification
was the rule rather than the exception .…’ [quoting Sav-On], supra, 34
Cal.4th at p. 330 .… Where, as here, Plaintiff has sought the benefit of
class treatment, he too must accept its burden. This burden may be met
with common proof of misclassification. [Citation.]
“The Court finds this approach consistent with the rule that an
employer has the burden of proving the exemption as an affirmative
defense in an individual case. As to any individual, UPS would have the
burden of proving the exemption was proper. However, as to a class-wide
finding of misclassification which is the result Plaintiff seeks here, Plaintiff
would have the ultimate burden of showing misclassification on a
class-wide basis. This does not mean to succeed at trial, or to otherwise
maintain a class action, that Plaintiff is required to show that all or
substantially all [class members] were misclassified. Rather, Plaintiff must
show that it is more likely than not that UPS’s exemption as applied to [the
class members] was a policy or practice of misclassification. In any event,
a plaintiff must provide common evidence of misclassification to maintain
class certification and proceed with a class action trial.” (Marlo, supra, 251
F.R.D. at pp. 482–483.)
It is unnecessary to decide whether Marlo provides an accurate statement of the
law on all points. The holding is generally correct insofar as where class plaintiffs have
given assurances regarding common proof of misclassification at the certification stage,
they will, as a practical matter, have a burden of production on that issue at trial. “Class
44.
actions do not create a ‘requirement of common evidence.’ Instead, class litigation may
be appropriate if the circumstances of a particular case demonstrate that there is common
evidence.” (Duran, supra, 59 Cal.4th at p. 36.) If evidence that was promised to satisfy
the manageability requirement does not materialize, there is a strong likelihood of
decertification. (See id. at p. 29 [“Trial courts … have the obligation to decertify a class
action if individual issues prove unmanageable”]; Cobos v. National General Ins. Co.,
supra, 112 Cal.App.5th at p. 1281 [noting the proponent of class certification has the
burden to demonstrate manageability].)
Both Duran and Sav-On indicate that a pledge to provide common proof, when
made in support of class certification, is expected to be honored at trial. The Sav-On
opinion includes the following language about the underlying certification ruling: “A
reasonable court, even allowing for individualized damage determinations, could
conclude that, to the extent plaintiffs are able to demonstrate pursuant to either scenario
that misclassification was the rule rather than the exception, a class action would be the
most efficient means of resolving class members’ overtime claims.” (Sav-On, supra, 34
Cal.4th at p. 330, italics added.) The Duran opinion contains remarks contemplating the
production by class plaintiffs of “common proof [that] would be sufficient to call for the
employer to defend its claimed exemption.” (Duran, supra, 59 Cal.4th at pp. 37–38,
italics added.)
Returning to the issue we framed above, Duran cautions that “a misclassification
claim has the potential to raise numerous individual questions that may be difficult, or
even impossible, to litigate on a classwide basis.” (Duran, supra, 59 Cal.4th at p. 27.)
“If statistical methods are ultimately incompatible with the nature of the plaintiffs’ claims
or the defendant’s defenses, resort to statistical proof may not be appropriate.” (Id. at
p. 40.) Here, defendants steadily maintained that classwide findings of exempt or
nonexempt status could not be reliably extrapolated from a fractional sample of class
45.
member testimony. Plaintiffs, on the other hand, represented “that every single
requirement of Duran” would be “scrupulously adhered to” at trial.
The class certification order is “necessarily provisional in that it [is] subject to
development of a trial plan that [will] manage the individual issues surrounding [the
exemption defenses].” (Duran, supra, 59 Cal.4th at p. 33.) The inability of class
plaintiffs to develop such a trial plan, after warranting it could be done using statistical
methodology, does not permit them to simply shrug their shoulders and say
manageability is the defendant’s problem. It may be that a feasible plan cannot be
devised. That is precisely why Duran advises trial courts “to obtain such a plan [from the
plaintiffs] before deciding to certify a class action.” (Id. at p. 32.)
Plaintiffs’ UCL Arguments
Plaintiffs assert that “under the terms of the UCL, proof of liability as to any
exempt class representative was sufficient to entitle absent class members to recover
restitution for wages they lost as a result of Defendant[’]s unfair business practices.” The
phrase “exempt class representative” is used in reference to the named plaintiffs in the
relevant certified class. The argument relates to the parties’ dispute over whether
common or “classwide” proof of misclassification was necessary. As with the arguments
discussed in the previous section, plaintiffs’ contentions are made in the hope of avoiding
reversal under Duran.
Despite some ambiguity, plaintiffs appear to contend a finding of misclassification
for only one class representative, or perhaps each of the six class representatives who
testified at trial, triggered a conclusive presumption that all 400 class members were in
fact misclassified as exempt employees. The trial court expressed a similar view by
declaring “no proof of classwide injury” was required to determine the “liability of
NATC.” 8 (Bolding and capitalization omitted.)
8 Plaintiffs’ UCL arguments are set forth in the respondents’ brief under the
following subheading: “In a Class Action Trial of a UCL Claim, Once a Named Plaintiff
46.
Preliminarily, it is important to remember the purpose and limitations of the class
action device. The main objective is “litigative efficiency and economy” (American Pipe
& Construction Co. v. Utah (1974) 414 U.S. 538, 556), but “convenience alone cannot
justify procedures that substantially curtail the parties’ ability to litigate their case”
(Duran, supra, 59 Cal.4th at p. 42). “Class action rules and due process principles do not
permit [class] certification … unless it permits the defendant to fairly litigate individual
liability questions.” (Kight v. CashCall, Inc. (2014) 231 Cal.App.4th 112, 131; accord,
Duran, at p. 35 [“ ‘a class cannot be certified on the premise that [the defendant] will not
be entitled to litigate its statutory defenses to individual claims’ ”].)
Plaintiffs argue that litigating wage and hour claims under the UCL somehow
eliminates the normal requirements for class treatment. They purport to believe the only
relevant individual liability questions are those concerning the class representatives,
because a finding that one or more named plaintiffs were misclassified will conclusively
establish all class members were misclassified. We will explain why plaintiffs’ argument
fails, and why the trial court’s related analysis was misguided.
Additional Background
In its tentative statement of decision for the first phase of trial, the trial court
referenced Tobacco II, supra, 46 Cal.4th 298. During its brief remarks about Tobacco II,
the court opaquely asserted that defendant had “urged a burden of proof that applied to a
cause of action for failure to pay overtime, not one for a breach of the UCL.” The court
went on to cite Cortez, supra, 23 Cal.4th at page 177, for the proposition “that restitution
can be ordered without proof of individual harm” in a UCL action.
Shows That He or She Suffered Injury in Fact and Lost Money or Property as a Result of
the Unfair Competition, No Further Individualized Proof of Injury or Causation is
Required to Impose Restitution Liability Against the Defendant in Favor of Absent Class
Members.” (Bolding omitted.) As previously noted, the size of the relevant class is
approximated.
47.
The trial court later issued a final written statement of decision. A discussion
labeled “Liability of NATC” began with the subheading, “No Proof of Classwide Injury
Required.” (Bolding omitted.) Two paragraphs followed, which are reproduced here
verbatim:
“In 2004, Proposition 64 amended the standing requirement to bring
an action for relief, by amending Business and Professions Code
section 17204. Same now states a claim must be brought by: ‘by a person
who has suffered injury in fact and has lost money or property as a result of
the unfair competition.’ [Sic.]
“In 2009, the Supreme Court determined that ‘the effect of
Proposition 64 is to prevent uninjured private persons from suing for
restitution on behalf of others.’ [Tobacco II, supra,] 46 Cal.4th 298, 314. It
also found that the new standing requirement applied solely to the class
representative, not to the absent class members. ‘Restitution under the
UCL and FAL may be ordered without individualized proof of harm.’
People v. Sarpas (2014) 225 Cal. App.4th 1539, 1548.”
No explanation was given regarding the perceived relevance of Tobacco II and the
issue of standing. The only hint came toward the end of the second phase of trial, when
the trial court issued its “Order Adopting and Rejecting Referee’s Recommendations”
(later incorporated by reference into the final judgment). (Capitalization omitted.)
Defendant had objected to being precluded from asserting any exemption defenses as to
individual class members in the restitution phase. The court responded to the objection,
in relevant part, as follows:
“The sole cause of action on which this case was tried was for
breach of [the UCL], which permits restitution where an unlawful,
fraudulent, or unfair practice is proven. Where such is brought as a class
action, only the named plaintiffs must prove they lost money or property as
a result of the practice. [Citations to Bus. & Prof. Code, § 17204 and
Tobacco II, supra, 46 Cal.4th at p. 306.] For absent class members, the
proof required is that they were exposed to the wrongful conduct.”
Law and Analysis
48.
The types of prohibited business practices listed in the UCL—unlawful, unfair,
and fraudulent—are sometimes referred to as different “prong[s]” of the statute. (E.g.,
Tobacco II, supra, 46 Cal.4th at pp. 311–312.) The fraud prong incorporates Business
and Professions Code section 17500, which is commonly known as the false advertising
law (FAL). (Nationwide Biweekly Administration, supra, 9 Cal.5th at pp. 292, 305.)
“The procedures set forth in the FAL and the UCL are in many respects parallel to one
another, and the UCL specifically provides that any practice that violates the FAL is also
prohibited by the UCL.” (Id. at p. 305.) The “restitutionary remedies” authorized by the
UCL and FAL are “identical and are construed in the same manner.” (Cortez, supra, 23
Cal.4th at p. 177, fn. 10.)
The “without individualized proof” language relied upon by plaintiffs and the trial
court traces back to Fletcher v. Security Pacific National Bank (1979) 23 Cal.3d 442.
The case involved a FAL claim based on a bank’s fraudulent/unfair practice of computing
“ ‘per annum’ interest rates on the basis of a 360-day year.” (Id. at p. 445.) Fletcher
holds that under the FAL, “once an unfair trade practice has been established, a trial court
has discretion to order restitution without requiring proof of each class member’s lack of
knowledge as to that unfair trade practice.” (Id. at p. 449, italics omitted.) Subsequent
California Supreme Court decisions, all involving false or deceptive advertising claims
under the UCL and FAL, have rephrased Fletcher’s holding by using the words, “without
individualized proof of deception, reliance, and injury.” (E.g., Bank of the West v.
Superior Court, supra, 2 Cal.4th at p. 1267; Committee on Children’s Television, Inc. v.
General Foods Corp. (1983) 35 Cal.3d 197, 211.) To appreciate the contextual meaning
of this language, one must understand the distinct nature of claims brought under the
fraud prong of the UCL.
“A claim based upon the fraudulent business practice prong of the UCL is ‘distinct
from common law fraud. “A [common law] fraudulent deception must be actually false,
known to be false by the perpetrator and reasonably relied upon by a victim who incurs
49.
damages. None of these elements are required to state a claim for … relief” under the
UCL.’ ” (Morgan v. AT&T Wireless Services, Inc. (2009) 177 Cal.App.4th 1235, 1255,
quoting Tobacco II, supra, 46 Cal.4th at p. 312.)
Under the UCL, “a fraudulent business practice is one that is likely to deceive
members of the public.” (Morgan v. AT&T Wireless Services, Inc., supra, 177
Cal.App.4th at p. 1255, italics added.) “An advertisement or promotional practice is
likely to deceive if it includes assertions that are (1) untrue, or (2) ‘ “true[, but are] either
actually misleading or which [have the] capacity, likelihood or tendency to deceive or
confuse the public.” [Citation].’ [Citations.] By focusing on whether ‘members of the
public’ are likely to be deceived, the [UCL] views the challenged ad or promotional
practice through the eyes of the ‘reasonable consumer’—that is, the ‘ordinary consumer
acting reasonably under the circumstances’—unless the advertisement or practice is
‘aimed at a particularly susceptible audience.’ [Citations.] This focus on the ‘reasonable
consumer’—rather than any particular consumer—means that an ad or practice may be
‘fraudulent’ even without any ‘ “individualized proof of deception, reliance and injury.”
[Citation.]’ ” (Shaeffer v. Califia Farms, LLC (2020) 44 Cal.App.5th 1125, 1135–1136.)
In Tobacco II, the California Supreme Court addressed changes to the UCL
enacted by voter initiative in 2004. (Tobacco II, supra, 46 Cal.4th at pp. 305–306.)
Previously, “any person acting for the interests of itself, its members or the general
public” had standing to bring a UCL action. (Bus. & Prof. Code, former § 17204, as
amended by Stats. 1993, ch. 926, § 2.) The 2004 amendment restricted private standing
to “a person who has suffered injury in fact and has lost money or property as a result of
the unfair competition.” (Bus. & Prof. Code, § 17204, as amended by Prop. 64, as
approved by voters, Gen. Elec. (Nov. 2, 2004) § 3.)
“Tobacco II held that, for purposes of standing in context of the class certification
issue in a ‘false advertising’ case involving the UCL, the class members need not be
assessed for the element of reliance. Or, in other words, class certification may not be
50.
defeated on the ground of lack of standing upon a showing that class members did not
rely on false advertising. In short, Tobacco II essentially ruled that, for purposes of
standing, as long as a single plaintiff is able to establish that he or she relied on a
defendant’s false advertising, a multitude of class members will also have standing,
regardless of whether any of those class members have in any way relied upon the
defendant’s allegedly improper conduct.” (Cohen v. DIRECTV, Inc. (2009) 178
Cal.App.4th 966, 981.)
The Tobacco II opinion notes, with regard to UCL restitution in a false advertising
context, “that relief under the UCL is available without individualized proof of deception,
reliance and injury.” (Tobacco II, supra, 46 Cal.4th at p. 320.) However, as explained in
numerous subsequent cases, the quoted language does not concern or alter the main
requirements for class treatment, including the elements of predominance and
manageability. (See Downey v. Public Storage, Inc. (2020) 44 Cal.App.5th 1103, 1108–
1109, 1120–1121; Davis-Miller v. Automobile Club of Southern California (2011) 201
Cal.App.4th 106, 123–124; Cohen v. DIRECTV, Inc., supra, 178 Cal.App.4th at pp. 979–
981; Kaldenbach v. Mutual of Omaha Life Ins. Co. (2009) 178 Cal.App.4th 830, 847–
850.) Depending on the plaintiffs’ theories of liability and monetary recovery, the
predominance of individual issues may preclude class certification even in cases brought
under the UCL’s fraud prong. (E.g., Downey, at p. 1119, [holding trial court “had ample
basis to fear it would be ‘required to litigate numerous and substantial questions
determining … individual [class members’] right to recover’ ”]; Tucker v. Pacific Bell
Mobile Services (2012) 208 Cal.App.4th 201, 228 [“ ‘[I]f the issue of materiality or
reliance is a matter that would vary from consumer to consumer, the issue is not subject
to common proof, and the action is properly not certified as a class action.’ ”].)
“The statement in Tobacco II and prior cases that relief is available under the
[UCL] and [FAL] ‘without individualized proof of deception, reliance and injury’ does no
more than reaffirm that the focus of both the [UCL] and [FAL] is the ‘reasonable
51.
consumer’ and whether the content of the challenged advertisement is ‘likely to deceive’
that ‘reasonable consumer’ [citations], such that there is no need for plaintiffs to prove
that ‘individual’ class members were actually, subjectively deceived or actually,
subjectively relied on a deceptive advertisement.” (Downey v. Public Storage, Inc.,
supra, 44 Cal.App.5th at p. 1121.)
Moreover, the “without individualized proof” language has never been applied in a
wage and hour context. While liability for false advertising may be provable regardless
of the individual circumstances of class members, “an employer’s liability for
misclassification under most Labor Code exemptions will depend on employees’
individual circumstances.” (Duran, supra, 59 Cal.4th at pp. 36–37, italics added.)
“Liability to one employee is in no way excused or established by the employer’s
classification of other employees.” (Id. at p. 37.)
The ability to recover unpaid wages as a form of UCL restitution was established
in Cortez, supra, 23 Cal.4th 163. Contrary to what the trial court suggested below,
Cortez does not hold that classwide entitlement to restitution may be found without
common proof of liability. The Cortez opinion discusses two of the earliest UCL
restitution cases, including Fletcher, and notes the remedy in those cases “was literally
restoration of money, the return of money acquired from an individual to that individual.”
(Cortez, at p. 177, citing Fletcher v. Security Pacific National Bank, supra, 23 Cal.3d 442
& People v. Superior Court (Jayhill) (1973) 9 Cal.3d 283.) Summarizing Fletcher, the
high court explained “that under [the FAL], the trial court had the power to order
restitution of money, collected through excess interest charges, to the persons from whom
it had been collected even absent individualized proof that the claimant lacked knowledge
of the overcharge when the transaction occurred.” (Cortez, at p. 177.)
The rationale for allowing overtime restitution is that earned but unpaid wages
“are as much the property of the employee who has given his or her labor to the employer
in exchange for that property as is property a person surrenders through an unfair
52.
business practice.” (Cortez, supra, 23 Cal.4th at p. 178.) “An order that earned wages be
paid is therefore a restitutionary remedy authorized by the UCL.” (Ibid.) Unearned
wages, on the other hand, are not recoverable as restitution because the requisite property
interest is missing. (Lee v. Luxottica Retail North America, Inc. (2021) 65 Cal.App.5th
793, 803.) Therefore, individual class members in an overtime class action are not
entitled to UCL restitution if they were properly classified as exempt employees. “[A]ny
compensation awarded to the class must be based solely on overtime hours worked by
nonexempt employees. Overtime hours worked by exempt employees are irrelevant.”
(Duran, supra, 59 Cal.4th at p. 41, citing King & Muraco, Classwide Determinations of
Overtime Exemptions: The False Dichotomy Posed by Sav-On and a Suggested Solution
(2006) 21 Lab.Law. 257, 268–269.)
In Duran, the California Supreme Court acknowledged, but declined to resolve,
the following issue:
“The parties disagree about whether standards of proof are relaxed
or heightened when a wage and hour class action proceeds solely under the
UCL. Citing several false advertising cases, [the] plaintiffs assert that relief
under the UCL is generally available without individualized proof of injury.
[Citation.] In contrast, [the defendant] argues the UCL imposes a stricter
proof requirement for restitution than is otherwise required for damages,
because restitution is only available for property the defendant wrongfully
obtained through an unfair business practice. [Citation.] Thus, they argue,
[the] plaintiffs must show they were actually misclassified and are owed
unpaid wages for overtime.” (Duran, supra, 59 Cal.4th at p. 41, fn. 35.)
The Duran court did not decide whether misclassification must be shown for each
class member as a prerequisite to individual restitution because, inter alia, “the restitution
award [there] was subject to [an intolerably] high margin of error.” (Duran, supra, 59
Cal.4th at p. 41, fn. 35.) Under the statistical model used to extrapolate the number of
overtime hours worked by all 260 class members, the margin of error was 43.3 percent.
As such, findings that each class member worked an average of 11.87 hours of overtime
each week may have been 5.14 hours too high (id. at pp. 19–20), i.e., “nearly double the
53.
true extent of [the employer’s restitutionary obligation]” (id. at p. 46). The court also
noted that in Bell, supra, 115 Cal.App.4th 715, it was determined “a 32 percent margin of
error was so large that the resulting damages award violated due process.” (Duran, at
p. 46, citing Bell, at pp. 756–757.)
“[B]roadly speaking, the law tolerates more uncertainty with respect to damages
than to the existence of liability.” (Duran, supra, 59 Cal.4th at p. 40.) In Duran, experts
for both sides opined that the statistical model used to determine liability would have had
a 13 to 14 percent margin of error even if the sampling methodology had otherwise been
perfect. (Id. at pp. 22–23.) The California Supreme Court refrained from deciding
whether a 13 percent margin of error would be acceptable (id. at pp. 48–49), but the
discussion necessarily implies a conclusion relevant to plaintiffs’ UCL argument in this
case. If greater certainty is required for liability findings, and a 32 percent margin of
error would be too high for a damages finding, then any statistical model used to
conclusively establish classwide liability would have to reliably show, at a minimum, that
a significant majority of the class members were misclassified. And that is assuming
such an all-or-nothing determination is even proper. 9
9 The Duran opinion does not necessarily condone the type of trial procedure
employed in this case, where the results of sampling are used to establish universal
liability, regardless of the margin of error or variation among witness testimony, and the
defendant is prohibited from further contesting the exemption status of individual class
members. (See Duran, supra, 59 Cal.4th at pp. 36–38, 49.) “If the trial proceeds with a
statistical model of proof, a defendant accused of misclassification must be given a
chance to impeach that model or otherwise show that its liability is reduced because
some plaintiffs were properly classified as exempt.” (Id. at p. 49, italics added.) Where
sampling evidence does not compel a classwide liability finding for one side or the other,
further proceedings or alternative dispositions may be warranted. (See id. at pp. 56–57
(conc. opn. of Liu, J.) For example, “the court might notice patterns that suggest
unmanageable variation in particular subgroups, resulting in partial decertification. Or
the court might conclude that the individualized evidence shows only a few outliers that
can be handled through minitrials without disrupting the class proceeding.” (Id. at p. 56.)
54.
We need not reach the issue left undecided in Duran to reject plaintiffs’ UCL
argument. The Duran plaintiffs, like plaintiffs here, elected to proceed at trial “solely on
a claim for equitable relief under the [UCL].” (Duran, supra, 59 Cal.4th at p. 16.) There
were two named plaintiffs in Duran, and both testified along with 19 class members from
the so-called representative witness group in a liability phase of trial. (Id. at pp. 18, 45.)
The employer defendant was prevented from introducing evidence regarding the exempt
status of other class members, but it was afforded a full opportunity to defend against the
claims of the named plaintiffs and the sample group. (See id. at pp. 18–19.) If proving
liability to the named plaintiffs were sufficient to establish a conclusive presumption of
misclassification as to all class members, the California Supreme Court would not have
issued a detailed opinion explaining why both phases of the trial were “seriously flawed.”
(Id. at p. 33.) “[W]ithout following a valid statistical model developed by experts, the
court improperly extrapolated liability findings from a small, skewed sample group to the
entire class.” (Ibid., italics added.)
The 260 class members in Duran all held the same position, and it was generally
agreed they spent most of their time on sales activity. (Duran, supra, 59 Cal.4th at
pp. 12–13, 26.) The main dispute was over how much time the class members spent
working inside versus outside of the office. (Id. at p. 26.) Here, in contrast, there were
approximately 400 class members, nine different positions, and two disputed exemptions
hinging on the amount of time spent on administrative and/or managerial tasks. There
were eight named plaintiffs in the relevant class, but only six testified at trial. The named
plaintiffs had collectively held only four of the nine job titles at issue. To extrapolate
liability findings to the entire class based on the individual experiences of the named
plaintiffs would be patently unfair and a violation of due process. 10
10 The breakdown of positions held by any of the named plaintiffs who testified at
trial was as follows: 2003 Escrow Officer, four; Senior Escrow Officer, none; Special
Projects Escrow Officer, none; Escrow Officer Supervisor, none; Advisory Escrow
55.
The Trial Plan Was Materially Flawed
Additional Background
A. 2010 (Class Certification)
In 2010, after a few years of discovery, the parties filed competing motions
regarding class certification. At the time, the putative representatives for what was
eventually designated the “Exempt” class consisted of two former Unit Managers and one
former 2003 Escrow Officer. Plaintiffs estimated a total class size of 470 people,
including those who were classified as nonexempt while employed by defendant.
Plaintiffs’ reliance on certain discovery responses implied that the proposed class
definition(s) would not include the positions of Branch Manager, Escrow Manager, or
Escrow Operations Manager. As to the claims of employee misclassification, plaintiffs
relied on the discovery responses to argue all putative class members “perform[ed]
non-exempt work more than 50[ percent] of their work time.” The argument presumed
an ultimate finding that all work performed by escrow officers was nonexempt. Plaintiffs
had propounded a written interrogatory asking defendant to identify the positions in
which employees spent “the majority of their time performing Escrow Officer job
duties,” and defendant’s response included 2003 Escrow Officers, Advisory Escrow
Officers, and Unit Managers. The response did not include Branch Managers, Escrow
Managers, or Escrow Operations Managers.
Defendant’s motion papers suggested the size of the putative class was twice as
large as plaintiffs were estimating. Based on a declaration from its human resources
(HR) director, Diana Bloxham, defendant claimed “approximately 356 of about 974
putative class members were at some point [classified as] exempt employees.”
Officer, one; Unit Manager, two; Branch Manager, one; Escrow Manager, none; Escrow
Operations Manager, none.
56.
Bloxham’s estimates notably included current and former employees in the positions of
Escrow Manager and Branch Manager.
Defendant argued the “misclassification claims” were not suitable for class
treatment due to the individual issues associated with its exemption defenses. Defendant
also complained about the lack of a trial plan to deal with those issues. Plaintiffs argued
a trial plan was unnecessary at the certification stage. On the issue of manageability,
plaintiffs’ counsel proposed to utilize, inter alia, “pattern and practice evidence, statistical
evidence, sampling evidence, [and] expert testimony.”
The trial court eventually certified the “Exempt” and “Nonexempt” classes of
current and former employees. Noting its uncertainty about the proposed composition of
the Exempt class, the court allowed plaintiffs to unilaterally decide which positions
would be included in the class definition. Plaintiffs elected to include nine different job
titles, including Branch Manager, Escrow Manager, and Escrow Operations Manager.
B. 2011–2012 (Early Trial Plan Disputes)
By late 2011, defendant had moved to compel the submission of a trial plan. The
parties were ordered to meet and confer, and a schedule was set for filing a proposed plan
and responses to the proposal. Plaintiffs outlined, in general terms, the anticipated use of
“representative testimony to prove liability and damages.” The plan included, in relevant
part, “random sampling evidence” and testimony from a “statistician regarding results of
sampling analysis concerning job duties and tasks of Exempt Class Members ….”
Defendant argued the “planned use of unexplained sampling and representative
testimony to establish liability and damages” would be unfair and violate its due process
rights. It correctly observed that samples yield only probabilities, “each with a margin of
error.” Referencing the parties’ meet and confer efforts, defendant alleged plaintiffs
could not explain “how large the proposed sample(s) would be, what data would be used
by their ‘expert(s)’ and what margins of error their expert believe[d] [could] be achieved
57.
through the use of sampling.” Defendant further observed that “many sizeable samples
would need to be taken to address each variable, including nine different job titles over a
period of [many] years in approximately 90 offices located throughout the State of
California.”
In December 2011, the trial court heard arguments on the trial plan. Over
defendant’s objections, and “in light of not having any other feasible alternative,” the
court stated it was “inclined to allow statistical sampling … subject to defense experts
and proper objections and things like that.” Describing the trial plan as being “at an
infant stage,” the court instructed plaintiffs’ counsel to “[b]egin formulating your
statistical plan and experts.” Plaintiffs committed to providing their statistical
methodology, including sample sizes, by the end of January 2012. The parties mutually
agreed to a February 2013 trial date.
In early 2012, the First Appellate District, Division One, published the decision
that was later affirmed by Duran, supra, 59 Cal.4th 1. On April 18, 2012, a status
conference was held in this case regarding, inter alia, plaintiffs’ proposed sampling
methodology. We have no transcript of the hearing, but the appellate record indicates
plaintiffs conceded they had not determined a sampling size or margin of error for any
statistical evidence. The record further indicates the court set a briefing schedule for a
motion to decertify both classes.
In May 2012, defendant filed a decertification motion based on the appellate court
decision in Duran and plaintiffs’ failure to develop a statistical methodology. The
California Supreme Court granted review in Duran while the motion was pending.
Under former rule 8.1105(e)(1) of the California Rules of Court, the grant of review
resulted in automatic depublication of the underlying opinion.
Plaintiffs’ opposition to the decertification motion argued against any
consideration of the (then) pending Duran case. Plaintiffs also informed the trial court
they “no longer intend[ed] to engage in a random sampling of [c]lass [m]embers as a tool
58.
to establish liability and damages.” Their new proposal was to rely on nonrandom
“representative testimony.” Regarding the misclassification claims, plaintiffs argued
statistical evidence was unnecessary because all class members “performed essentially
the same job processing escrows.” The quoted assertion was, of course, a disputed issue
for which common proof was needed in lieu of testimony from hundreds of individual
class members.
At the motion hearing, defense counsel argued the revised trial plan was “even
worse” than before. The defense objected to plaintiffs’ proposal to use a nonrandom
sample of roughly 90 class members to extrapolate liability findings for both classes.
Defense counsel also referenced a supporting declaration from its statistics expert, Ali
Saad, Ph.D., who reportedly opined that a nonrandom sample “is not a representative
sample.” 11
Plaintiffs’ counsel stated their intention to use some form of “survey” evidence,
explaining, “[W]e’re not getting rid of all statistical evidence, but the random sampling
we have backed away from.” Plaintiffs’ counsel and the trial court both noted the lack of
an alternative defense plan, which led to defense counsel arguing, “We do not have the
burden of coming up with a trial plan in a class action case.” The trial court replied, “I
agree. I agree.” Defense counsel later said, “Your Honor mentioned that defendant had
chosen not to offer some representative statistical sampling or some survey proposal.
That’s because we don’t believe they are possible under the facts … of this case and
under the law applicable to the claims in this case.”
11 Defendant’s decertification motion had voluminous attachments, including the
declaration of Dr. Saad, which were not designated for inclusion in the record on appeal.
During the motion hearing, however, plaintiffs’ counsel acknowledged the expert
declaration and noted Saad had criticized the methodology of the proposed plan. Counsel
further explained that plaintiffs’ decision to abandon a random sampling plan was
partially in response to Saad’s opinions and the (then) pending Duran case.
59.
The decertification motion was denied by written order in August 2012. The trial
court found plaintiffs had proposed an appropriate “mix of representative testimony and
expert testimony, the [latter] to involve sampling and survey evidence.” The following
comments were made regarding the lack of randomization: “Defendants are highly
unlikely to randomly pick employees and put them on the stand with no idea of what they
will say either. Plaintiffs will have their representative witnesses—those representing
plaintiffs’ theory. And defendants will have theirs.” Citing Teamsters v. United States
(1977) 431 U.S. 324, the trial court described the anticipated evidence as “exactly the
type of proof commonly offered to show a wrongful pattern and practice.” 12
Defendant challenged the denial of its motion by petitioning this court for a writ of
mandate. An order to show cause was issued in late 2012, which resulted in the
February 2013 trial date being vacated.
C. 2013–2014 (Pre-Duran and Post-Duran Proceedings)
Defendant’s writ petition remained pending throughout 2013. In March 2014, the
petition was denied. (North American Title Company v. Superior Court (Mar. 17, 2014,
F065900) [nonpub. opn.].) Ten weeks later, the California Supreme Court issued its
opinion in Duran. (Duran, supra, 59 Cal.4th 1.) Defendant unsuccessfully sought
review by the high court of the denial of its writ petition, and the parties stipulated to a
rescheduled trial date of September 21, 2015.
D. 2015 (Pretrial Proceedings)
The class period was originally defined as “four years prior to the filing of the
original [c]omplaint up to the time final judgment is entered.” It was later redefined as
running from April 17, 2003, through December 31, 2012. Prior to trial, the combined
12 The Teamsters case, which involved claims of discriminatory employment
practices in violation of federal law, is distinguished as inapposite in the Duran opinion.
(Duran, supra, 59 Cal.4th at pp. 35–37, citing Teamsters v. United States, supra, 431 U.S.
at pp. 328, 335, 360–362 & fn. 50.)
60.
size of the Exempt and Nonexempt classes was estimated to be 717 people, including
18 opt-outs.
In August 2015, plaintiffs served a witness list identifying approximately 425 class
members (inclusive of both classes), plus dozens of additional people, as trial witnesses.
Two weeks later, defendant filed an ex parte application for an order shortening the time
to file another decertification motion (the fully drafted motion was attached). Defendant
argued the witness list (1) showed plaintiffs did not have a workable trial plan and (2)
vindicated defendant’s longstanding position on manageability. Defendant further
noted/alleged that more than half of the class members on the list had not been deposed,
and plaintiffs had previously “fought tooth and nail to prevent [defendant] from taking
additional class member depositions .…”
The application was briefly heard on September 3, 2015, and continued to the
following day. In opening remarks, the trial court noted the trial plan had previously
“[consisted] of a hundred witnesses and some nefarious survey that I have still never seen
or heard or know of.” The court continued: “Now we’re talking about 488 witnesses. I
can tell you right now, without reading any[ more], not even another word, that I would
decertify.” Plaintiffs’ attorneys were chastised for not providing an updated trial plan,
which the court had apparently been waiting to receive. They were ordered to file the
updated plan the next morning and be prepared to show compliance with Duran.
On September 4, 2015, the hearing resumed with plaintiffs’ counsel stating, “It
would be our intention to show on a class-wide basis from several different sources that
all of the people who are classified as exempt in fact do virtually the same job duties.”
Counsel further stated, “We will have statistical evidence that will show that people who
are classified as managers in an exempt position spend the majority of their time doing
the same duties as escrow officers, because we have survey data to show that.
[¶] … [¶] We also have answers to interrogatories from the defendants admitting that all
job descriptions performed the majority of their time doing the duties of escrow officers.”
61.
The defense attorneys claimed they were familiar with the survey evidence and
knew it did not constitute valid proof of universal misclassification. Accordingly, and for
other reasons stated during the lengthy hearing, the defense argued the trial plan was
“completely inconsistent” with Duran. Plaintiffs’ counsel offered further assurances:
“We have represented to the Court, and we do this in the trial plan and we did it today,
that we will show on a class-wide basis that these people, regardless of job title, all do the
same thing the majority of the time.” “Duran has a series of very, very specific directions
of what proper survey and statistical evidence should have … [and we] believe that we
will demonstrate that every single requirement of Duran has been scrupulously adhered
to.”
Plaintiffs’ revised trial plan described a case-in-chief that would include
“approximately 55 to 70 witnesses.” This estimate was acceptable to the trial court if the
total number of trial witnesses, including defendant’s witnesses, did not exceed 200.
Based on those numbers, and giving weight to the promise of valid survey evidence, it
denied defendant’s application to shorten time and did not reach the merits of the
decertification motion.
Defendant proposed an alternative trial plan. The written proposal asserted
objections under Duran and reiterated defendant’s “position that, because there is no
classwide evidence of liability in this case, [the necessity of individual class member
testimony] results in this case being unmanageable as a class action.” Subject to its
objections, defendant proposed a five-phase trial. “Phase One” would involve a hearing
under Evidence Code section 402 regarding the admissibility of plaintiffs’ survey
evidence and expert witness testimony. Assuming class treatment remained proper after
the first phase, “Phase Two” would focus on plaintiffs’ claims of unlawful policies and
practices affecting both classes. “Phase Three,” if necessary, would determine the claims
against codefendant NAS. In “Phase Four,” which would occur only if “uniform,
classwide” policies/practices and unlawful effects were shown in the earlier phases,
62.
defendant “would have the opportunity to establish the absence of liability to specific
class members.” The final phase, if necessary, “would involve an individualized
assessment of damages.” (Bolding omitted.)
Another pretrial conference was held on September 14, 2015, which parts of the
record label as the first day of trial. Either way, the trial plan remained unsettled.
Plaintiffs’ counsel struggled to articulate various aspects of their anticipated case-in-chief,
and the trial court made the following statement: “I have to say I’m a little concerned
that Plaintiffs are either unable, which is more concerning, or unwilling, … to tell me
exactly what it is, the number of witnesses that they intend to prove and how they intend
to prove it.” The parties continued to debate the necessity of “ ‘class-wide proof,’ ” and
questions arose over what plaintiffs’ long-promised survey evidence was expected to
show. The hearing ended without a clear indication of whether the survey evidence
would be used to demonstrate misclassification.
E. 2015–2021 (Trial)
Defendant’s trial plan was rejected in favor of a bifurcated trial in which the
claims of both classes were heard together in a liability phase. Plaintiffs elicited live
testimony from 53 class members, 44 of whom were members of the Exempt class or
both classes. The rest were exclusively members of the Nonexempt class.
The 44 witnesses from the Exempt class were not randomly chosen; each person
was selected by counsel. Of those 44, eight were members of the class only by virtue of
having been employed as an escrow officer in 2003. The remaining 36 Exempt class
members included Branch Managers (24 witnesses), Unit Managers (11 witnesses), and
Advisory Escrow Officers (seven witnesses). (All parenthetical numbers are
approximated). Two of the 36 witnesses had worked as an Escrow Operations Manager
(Douglas Aunkst and Dana Forysthe), and one had worked as an Escrow Manager
63.
(Lori Baker). None of the witnesses had ever been an Escrow Supervisor or Special
Projects Escrow Officer (two very uncommon positions held by only a few individuals).
Plaintiffs also called seven current and former NATC executives who held
positions higher than those in the Exempt class, plus HR director Bloxham. During
Bloxham’s testimony, plaintiffs introduced defendant’s discovery responses identifying
the positions in which employees spent “the majority of their time performing Escrow
Officer job duties.” Subject to an objection, defendant had identified the following job
titles: “Escrow Officer, Senior Escrow Officer, Junior Escrow Officer, Advisory Escrow
Officer, Escrow Unit Manager, Special Projects Escrow Officer, [and] Escrow Officer
Supervisor.” Although viewed by plaintiffs as a proverbial smoking gun, the trial court
denied their motion to treat the discovery responses as conclusive proof of
misclassification.
On October 21, 2015, after 17 days of witness testimony, plaintiffs conceded that
their survey evidence was only tangentially relevant to liability issues. Moreover, such
relevance did not concern the question of misclassification. The survey evidence was
found to be unreliable for any purpose, and the related expert witness testimony was
ordered stricken.
Trial continued with another 13 days of testimony from plaintiffs’ chosen
witnesses, concluding on November 18, 2015. A two-week recess followed, during
which time defendant filed a detailed and voluminous motion for judgment (Code Civ.
Proc., § 631.8). As relevant here, the motion noted (1) plaintiffs’ failure to provide valid
statistical data and (2) the methodological errors in the “ ‘representative’ testimony” of
select class member witnesses. Defendant highlighted the ratios of testifying witnesses to
the sizes of various cohorts within the Exempt class: “For example, … the court heard
64.
testimony from only … [six] out of 46 Advisory Escrow Officers, 11 out of 85 Escrow
Unit Managers, and 21 out of 158 Branch Managers.” 13 (Fns. omitted.)
Trial resumed on December 3, 2015. After hearing argument on defendant’s
motion for judgment, the trial court announced its ruling would be deferred. No ruling
was ever made.
The trial court requested “an offer of proof” regarding the anticipated defense
case, and in doing so made the following statements: “[W]hat I don’t want is essentially
a tit for tat. [For example,] Christine English testified X, so we’re going to have Sallie
Mae testify Y. And then we’re going to go to Ms. Yanos, and then we’re going to have
Cindy testify Y. I’m not going to engage in that.” In response to the inquiry, defense
counsel discussed, inter alia, calling Branch Managers “falling kind of in two categories;
one, folks who just didn’t do escrows at all ….” The trial court interrupted, “Let me stop
you there. That’s I think now getting more to what I’m a little concerned about. Rather
than an affirmative defense—and clearly that’s fine, and you’re able to do it, I just don’t
want there to be another 60 of those [witnesses].”
The defense case began with expert testimony on matters related to the claims of
the Nonexempt class, which lasted an entire day. On December 7, 2015, following a
three-day recess, defense counsel advised the trial court as follows: “We were discussing
the comments the Court made last week about having the tit for tat evidence issue, and
given that we feel we’ve tried a lot of our case within [plaintiffs’] case, and the fact that
the depositions took place a lot closer in time to the events, and also the fact that we can’t
13 Defendant made this argument prior to additional Branch Manager and Advisory
Escrow Officer testimony on December 8, 2012. Defendant also overlooked the earlier
testimony of Michelle Byrnes Bryant. By our count, the trial witnesses included 24 of
156 total Branch Managers, i.e., roughly 15 percent of the cohort. Defendant’s figures
with respect to Advisory Escrow Officers and Unit Managers were within a low
single-digit variance of our own estimates from a close examination of the appellate
record.
65.
talk to these folks [class members], obviously, and they [plaintiffs’ counsel] clearly have,
and can, we have decided that we’re going to submit most of the class member testimony
through their depositions, so that’s going to shorten the trial considerably.”
Relevant to the misclassification issue, the defense case included live testimony
from two Escrow Managers (Anita Rubeck and Virginia Williamson) and one Escrow
Operations Manager (Pearl Grace). Defendant also submitted transcripts of 30 class
member depositions: 13 from the Nonexempt class and 17 from the Exempt class. The
latter included approximately six 2003 Escrow Officers, three Unit Managers,
three Advisory Escrow Officers, nine Branch Managers, three Escrow Managers (there
are discrepancies in the record as to the Escrow Manager classifications), and one Escrow
Operations Manager. Plaintiffs submitted five deposition transcripts of Exempt class
members, consisting of one 2003 Escrow Officer, two Unit Managers, and two Branch
Managers.
The first phase of trial concluded with the submission of closing briefs.
Defendant’s brief reasserted its objections under Duran. Notwithstanding those
objections, defendant argued plaintiffs failed to show the existence of any policies
resulting in classwide misclassification. Defendant further argued the testimony of
plaintiffs’ own “cherry-picked” witnesses demonstrated the applicability of the executive
and administrative exemptions.
The trial court ultimately decertified the Nonexempt class for lack of common
proof of unlawful policies and Labor Code violations. As to the Exempt class, however,
it found NATC did not meet its burden on the exemption defenses (for erroneous reasons
discussed later in this opinion). Consequently, all members of the Exempt class were
found to have been misclassified and thus eligible to seek restitution.
The restitution phase began in 2017 and concluded in 2021. Over 230 individual
class members gave live testimony. Defendant was prohibited from asking the witnesses
any questions relating to its exemption defenses since those issues were deemed to have
66.
been fully resolved in the first phase of trial. At the conclusion of the proceedings, the
Exempt class was determined to consist of approximately 400 people (including
14 opt-outs).
Analysis
Plaintiffs argue Duran involved “the use of a statistical analysis of survey
evidence,” which they contend is distinguishable from their reliance upon class member
testimony in this case. The word “survey” is used with conspicuous intentionality, e.g.,
“[n]either the Plaintiffs’ liability case nor the trial court’s liability finding involved
extrapolation of anything from survey evidence.” Brushing aside all prior assurances that
misclassification would be shown through survey evidence, plaintiffs contend their
failure to produce such evidence renders Duran inapplicable. They misread Duran.
The Duran plaintiffs “proposed the use of surveys and random sampling” as part
of their trial plan. (Duran, supra, 59 Cal.4th at p. 15, italics added.) The proposal was
rejected in favor of “representative testimony” from a small group of class members from
which liability findings were extrapolated to the entire class. (Id. at p. 16.) The
extrapolation model was fundamentally flawed because it was not designed with expert
input to determine the necessary sample size and margin of error, there was no
assessment of variability among class members, and the sample was not random. (Id. at
pp. 42–43.)
Here, plaintiffs relied on testimony from roughly 13 percent of the Exempt class to
show all class members “performed essentially the same job of processing escrows” and
uniformly “[did] the same thing the majority of the time.” Whatever label plaintiffs wish
to use, the method of proof was a form of statistical sampling. “Sampling is a
methodology based on inferential statistics and probability theory. ‘The essence of the
science of inferential statistics is that one may confidently draw inferences about the
whole from a representative sample of the whole.’ [Citation.] Whether such inferences
67.
are supportable, however, depends on how representative the sample is.” (Duran, supra,
59 Cal.4th at p. 38.)
“In general, when a trial plan incorporates representative testimony and random
sampling, a preliminary assessment should be done to determine the level of variability in
the class.” (Duran, supra, 59 Cal.4th at p. 33.) As in Duran, “[n]o such assessment was
done here.” (Ibid.) The trial court seemed frustrated with plaintiffs’ vague and
ever-changing trial plan, and it expressed a primary concern for the total number of trial
witnesses. There was no inquiry into how many people had ever held the nine positions
at issue, nor the ratios of trial witnesses to the sizes of those cohorts. When defendant
called attention to the problem, it was ignored. Plaintiffs even criticized defendant for
“attempting to invent subclasses.” Plaintiffs and the court both eschewed any
consideration of subclassing in favor of an all-or-nothing approach to liability. (See
Sav-On, supra, 34 Cal.4th at p. 344 [discussing subclassing as a tool to manage
variability among class members]; Cal Rules of Court, rule 3.765(b) [a class action may
be “limited to particular issues” and the class “may be divided into subclasses”].)
Plaintiffs’ statistical sampling violated every basic requirement of Duran. The
sample group of witnesses were not randomly chosen to testify. (Duran, supra, 59
Cal.4th at p. 43 [“A sample must be randomly selected for its results to be fairly
extrapolated to the entire class”].) There was no expert input to determine the proper
sample size and margin of error (id. at pp. 13, 42), and “the variability of the population”
was disregarded (id. at p. 42).
Even where valid statistical methods are utilized, such methods “cannot entirely
substitute for common proof.” (Duran, supra, 59 Cal.4th at p. 31.) “There must be some
glue that binds class members together apart from statistical evidence.” (Ibid.) “Assume
that the court permitted proof through random sampling of class members, and that the
data, in fact, indicated that one out of every [10 class members was] exempt. How would
the finder of fact accurately separate the one exempt [class member] from the
68.
nine nonexempt [class members] without resorting to individual mini-trials?” (In re
Wells Fargo Home Mortgage Overtime Pay Litigation (N.D.Cal. 2010) 268 F.R.D. 604,
612.)
Plaintiffs continue to rely on defendant’s discovery responses as proof “that all job
descriptions revolved around the processing of escrows[,] and that all employees in all
job titles spent the majority of their time processing escrows.” However, as explained
above, the discovery responses did not cover the positions of Branch Manager, Escrow
Manager, and Escrow Operations Manager.
The appellate record shows approximately 156 class members were Branch
Managers during the class period, and two-thirds of them would not have been part of the
lawsuit but for their employment in that position. There were also 23 Escrow Managers
and nine Escrow Operations Managers (these estimates include a small number of
opt-outs and a few discrepancies in the Branch Manager and Escrow Manager
designations). The three groups thus comprised nearly half of the Exempt class. Even
assuming the discovery responses cured all statistical errors for the cohorts to which they
pertained, common proof was lacking for a sizeable portion of the class.
Plaintiffs also overstate the degree to which defendant was “[b]ound” by its
discovery responses concerning the other groups. (Bolding omitted.) Answers to written
interrogatories “do not assume the status of judicial admissions.” (Weiss v. Baba (1963)
218 Cal.App.2d 45, 50; see Weil & Brown, Cal. Practice Guide: Civil Procedure Before
Trial (The Rutter Group 2025) ¶ 8:1247 [“Interrogatory answers are not preclusive”].)
They may be used as evidentiary admissions to help prove material facts, but a
“contradiction between an answer to an interrogatory and a witness’s testimony at trial
does not in itself affect the latter’s admissibility.” (Phillips v. Cooper Laboratories
(1989) 215 Cal.App.3d 1648, 1661; see Code Civ. Proc., § 2030.410; compare with Code
Civ. Proc., § 2033.410, subd. (a) [affirmative responses to requests for admissions are
conclusively binding].) “Absent significant prejudice to the opponent, a party may
69.
present evidence at variance to prior answers to interrogatories.” (Phillips, at p. 1661.)
And if plaintiffs themselves testified to spending none of their time processing escrows or
less than half of their time on such work, defendant’s interrogatory responses would not
preclude the trier of fact from accepting the witnesses’ testimony as true.
Defendant identified errors in the statistical methodology before, during, and after
the liability phase. In other words, defendant impeached the extrapolation model. (See
Duran, supra, 59 Cal.4th at p. 49 [“If the trial proceeds with a statistical model of proof,
a defendant accused of misclassification must be given a chance to impeach that
model .…”].) As shown by a closer examination of different cohorts within the Exempt
class, defendant also demonstrated significant variation among and between those
cohorts. (See id. at p. 32 [“Wide variation among class members is a factor informing
whether the exemption question can be resolved by a simple ‘yes’ or ‘no’ answer for the
entire class”].)
1. Escrow Managers
The title of Escrow Manager was held by approximately 23 class members in
12 different counties during the nearly 10-year class period. We are including
three opt-outs and a few people for whom there are record discrepancies concerning their
title of Branch Manager versus Escrow Manager, most notably Richard Drumm. Despite
the small number of people in this cohort, their inclusion in the universal finding of
misclassification accounted for near or above $1 million of defendant’s financial liability
(inclusive of the $491,023 awarded to Drumm alone).
Plaintiffs’ only witness for this position, Lori Baker, testified to processing
escrows during her time as both a Branch Manager and Escrow Manager. She
acknowledged a distinction between Branch Manager and Escrow Manager, but never
really explained the difference. Baker further acknowledged that her managerial
positions involved “jobs that a normal escrow officer would not have done.” She
supervised and directed the work of “[seven] to 14” people, and she also made hiring
70.
decisions. Baker estimated spending 80 percent of her time on “escrow officer related”
tasks and 20 percent on managerial tasks.
Defendant’s trial witnesses were Anita Rubeck and Virginia (“Ginny”)
Williamson. Rubeck was hired toward the end of the class period, but Williamson was an
Escrow Manager from 2004 to 2012. Both answered “no” when asked if they ran an
“escrow desk” during their time as managers. “Running a desk” was the parlance used
by counsel and witnesses in broad reference to processing escrows and/or performing the
duties of an escrow officer.
Williamson testified to spending most of her time managing employees in offices
throughout several counties in Southern California. Her duties included hiring, firing,
and making other staffing decisions for various branches; training personnel; “handling
claims”; attending management meetings; and “being available for the staff” to answer
questions and resolve issues. The people who reported to her included Branch Managers,
“some of the advisory floaters, and some escrow officers.”
Defendant also proffered the deposition testimony of Richard Drumm and
Patricia Hopper, but the transcripts are not included in the appellate record. Drumm
reportedly testified to supervising nine escrow officers and 10 escrow assistants, and
spending “well in excess of 50% of his time on managerial and supervisory duties.”
Another class member (Ingrid Sheikh) who worked with Drumm testified in the
restitution phase that Drumm did not process escrows.
2. Escrow Operations Managers
Approximately nine class members worked as Escrow Operations Managers
during the class period: Douglas Aunkst, Amy Chadim, Susan Coffman, Dana Forsythe,
Susanna Juarez, Janelle Martinsen, Betty Sorensen, Meloney Turner, and Pearl Grace.
Only five were awarded restitution, but the collective sum was a high six-figure amount.
Plaintiffs elicited testimony from Forsythe and Aunkst, the latter of whom was called as
an adverse witness (Evid. Code, § 776).
71.
Forsythe worked in Fresno County throughout most of the class period. During
her time at the Clovis branch, she held the positions of 2003 Escrow Officer, Unit
Manager, and Branch Manager. She processed escrows in all three positions. When her
job title changed to Escrow Operations Manager, she was transferred to the Fresno
branch and prohibited from running an escrow desk. She testified in deposition to being
promoted “for the purpose of training and for the purpose of managing” escrow officers
and assistants. Her trial testimony was essentially the same, describing her duties as
“training and auditing, making sure that everyone was following the company’s
procedures.” Although she still occasionally processed escrows, Forsythe described her
main role as managerial. (See 29 C.F.R. § 541.102 (2001); Wage Order 4,
subd. 1(A)(1)(e); e.g., UPS Wage & Hour Cases, supra, 190 Cal.App.4th at pp. 1018–
1019 [characterizing training and auditing as exempt management-related duties].)
Forsythe oversaw the branches in Clovis and Fresno, as well as the Hanford branch in
Kings County, and she traveled to the Concord branch in Contra Costa County for
monthly meetings.
Plaintiffs’ examination of Aunkst was intended to address other topics, but it
touched upon his time as an Escrow Operations Manager in 2003 and 2004. While
holding that position, the Branch Managers from six offices in Southern California
reported directly to him. Aunkst did not personally perform any escrow work. His duties
included recruiting, staffing decisions, and being “the advisory person that escrow
officers [would] contact or the branch manager or the next line up the chain to discuss a
transaction, to discuss how … to handle a transaction.”
Juarez was an Escrow Operations Manager in Northern California during the
entire class period, overseeing more than 20 branches. Grace was hired in
December 2012 to replace Juarez when she retired. Defendant called Grace as a trial
witness and submitted a transcript of Juarez’s deposition. Juarez testified to the primary
duties of advising escrow officers and other managers “on anything pertaining to the
72.
escrow process[, i.e.,] [t]rouble shooting, questions, [and] problems that arise.” She gave
further examples: “Difficulties with clients, difficulties with title issues, difficulties with
escrow issues, difficulties with other questions pertaining to the statutes that pertain to
[or] impact escrow in any way, shape, or form; with lenders, interacting, et cetera.”
3. Branch Managers
Approximately 156 class members worked as Branch Managers in 20 different
counties and over 60 cities throughout California. Plaintiffs called 24 witnesses from this
group at trial, with the geographi
This text is long and has been trimmed here. Open the source document for the complete record.