Peter Sindhuphak

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Peter Sindhuphak is an associate in the Los Angeles office of Barger & Wolen LLP. He practices in the litigation department where he handles a wide range of matters in state and federal courts including class action defense and insurance coverage disputes. Mr. Sindhuphak also has experience in advising insurers on regulatory matters.Prior to joining the firm, Peter was a Deputy District Attorney for the Sacramento County District Attorney’s Office, where he prosecuted criminal cases on behalf of the People of the State

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Statistical Sampling in Class Action Trial Violated Defendant's Due Process Rights

In a unanimous decision, the California Supreme Court on May 29 reversed a class action verdict for a class which was based on a flawed statistical model to determine liability and damages. Duran v. U.S. Bank National Association.

In Duran, plaintiffs brought a class action to challenge U.S. Bank’s (“USB”) classification of its business banking officers (“BBO’s”) as exempt under the “outside salesperson” exemption under California Labor Code section 1171

At trial, USB sought to introduce evidence demonstrating that a substantial amount of the class members performed more than 50% of their work engaged in outside sales and thus fell within the “outside salesperson” exemption. The trial court barred this evidence and instead relied on testimony from its sample size of 21 class members to find USB liable to the entire class for misclassification.  With respect to damages, the trial court accepted the estimate of plaintiffs’ expert (with an admitted 43.3% margin of error) that each class member on average worked approximately 11.87 hours of overtime per week. 

In reversing the verdict, the Supreme Court gave a scathing review of the class action trial plan at issue, specifically, its sole reliance on evidence from a flawed statistical sample of the class and its refusal to permit litigation of relevant affirmative defenses outside of the sample.

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Employers Are Not "Big Brother" and Cannot Force Employees to Actually Take Breaks

In Hernandez v. Chipotle Mexican Grill, Inc., published October 28, 2010, the California Court of Appeal held that, while employers must provide employees with breaks, they need not ensure employees actually take their breaks. 

Rogelio Hernandez (Hernandez) brought this class action against Chipotle Mexican Grill, Inc. for allegedly denying employees meal and rest breaks. In moving for certification, Hernandez submitted statistical evidence allegedly showing that a overwhelming majority of employees missed their breaks, e.g. 92% of employees missed at least one meal break.

Chipolte also filed a motion, but to deny certification, and it presented evidence of a company-wide policy encouraging meal and rest breaks. As noted by the Court, Chipotle provides employees with free food and beverages during breaks. Because Chipotle paid employees during breaks, the employee time records may not reflect whether breaks were actually taken.

In determining whether certification was appropriate, both the trial court and appellate court addressed the legal issue of whether employers must only provide breaks, or whether employers must also ensure that breaks are actually taken.

The Court recognized that this issue was currently pending review before the California Supreme Court (Brinker v. Public Storage, S166350, and Brinkley v. Public Storage, S168806), but ruled that the Supreme Court would likely hold that employers need not ensure that breaks are actually taken.

The Court stated that placing this obligation on employers would place an

undue burden on employers whose employees are numerous or who … do not appear to remain in contact with the employer during the day.”

It would also create

perverse incentives, encouraging employees to violate company meal break policy in order to receive extra compensation under California wage and hour laws.”

The decision is significant not only for its substance, but also for procedural reasons. 

Class counsel often times will argue on certification motions that their legal theory of liability and damages should not be decided on certification, because certification is only a procedural, not a merits question. This misstates what a trial court may be obligated to review for certification.

In order to decide whether common or individual issues predominate, it must be determined at the certification stage how the law requires liability and damages to be proven at trial. This inquiry may not be able to be satisfied without the trial court actually addressing what the law is at the certification stage, and in certain cases where the certification issues are intertwined with the merits issues some analysis of the merits is permitted.

As noted by the Hernandez trial court, if the law does require employers to ensure breaks are actually taken, class treatment of this case would be appropriate. Having held that the law only requires employers to provide breaks, certification in this action was inappropriate.

Take the Money or Rescind -- Not Both

In Village Northridge Homeowners Association v. State Farm Fire and Casualty Company (decided August 30, 2010), the California Supreme Court rejected an insured’s attempt to sue State Farm for fraud in inducing settlement of the insured’s property damage claim. The insured alleged the settlement was procured by State Farm’s undervaluing of the earthquake loss and misrepresentation of the policy limits to be only $4,979,900, while the limits were allegedly $11,905,500. 

While the settlement agreement between State Farm and the insured released all known and potential claims related to the Northridge Earthquake damage claims, the insured insisted it need not seek to rescind the settlement agreement but could instead elect to affirm the settlement and release, and also then sue for fraud damages. 

As noted by the Court, the insured “seeks to affirm those parts of the agreement that benefit it, but to invalidate a major part of the agreement that benefits State Farm.” This is a rescission remedy and the party seeking to rescind must restore benefits received under the contract.  Civ. Code § 1688 et seq. 

The Court recognized that other jurisdictions, relying on common law principles, have allowed a party challenging a settlement to “affirm and sue” for fraud in the inducement without restoring benefits.

In significant contrast, the California Legislature has spoken in this area and specifically rejected the “affirm and sue” principle.

Instead, the Civil Code requires the aggrieved party to rescind and restore consideration received in their original settlement and release with the caveat that any actual return of benefits may be delayed until final judgment unless it substantially prejudices the defendant. Civ. Code § 1693

The Court rejected public policy arguments that an “affirm and sue” principle was necessary to combat fraud in settlements. In closing, the Court stated: 

The Legislature has created a fair and equitable remedy to address the alleged fraud problem:  rescission of the release, followed by suit. When restoration is impossible because the settlement monies have been spent, the financially constrained parties can turn to section 1693 to delay restoration until judgment, unless the defendants can show substantial prejudice. Our statutory scheme therefore effectively ensures that plaintiffs who may have been defrauded in the settlement process will be allowed access to the courts.”


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