Espejo v. The Copley Press ( 2017 )

Filed 7/7/17
CERTIFIED FOR PUBLICATION
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
LILIANA ESPEJO et al., D065397
Plaintiffs and Appellants,
v. (Super. Ct. Nos. 37-2009-00082322-
CU-OE-CTL, 37-2010-00085012-CU-
THE COPLEY PRESS, INC., OE-CTL)
Defendant and Appellant.
APPEALS from a judgment of the Superior Court of San Diego County, John S.
Meyer, Judge. Judgment affirmed in part, reversed in part and remanded with directions.
Cooley, Steven M. Strauss, Seth A. Rafkin, Summer J. Wynn and Heather C.
Meservy for Defendant and Appellant.
Callahan & Blaine, Daniel J. Callahan, Michael J. Sachs, Jill A. Thomas and
Scott D. Nelson; Cadena Churchill and Raul Cadena for Plaintiffs and Appellants.
Defendant The Copley Press, Inc., owner of the San Diego Union-Tribune
newspaper (collectively UT), appeals from a second amended and restated judgment (the
judgment) after a court trial in this class action brought by and on behalf of persons
whom UT formerly engaged as newspaper home delivery carriers (plaintiffs or carriers).
The main issue at trial was whether the carriers were employees of UT or independent
contractors. The trial court decided the carriers were employees.
UT contends (1) the plaintiff class must be decertified because the class
representatives were inadequate; (2) the court committed reversible error by not limiting
the trial to certified issues and by granting plaintiffs' motion to amend their second
amended complaint according to proof; (3) the class should be decertified and the
judgment reversed because the court did not and could not manage individualized issues;
(4) the court's order bifurcating plaintiffs' cause of action under Business and Professions
Code section 172001 to be tried first deprived UT of its right to a jury trial; (5) the class
award must be reversed because UT paid carriers enhanced compensation that
reimbursed them for expenses the court awarded; (6) the amounts the court awarded were
not restitution; (7) the court erred in awarding plaintiffs prejudgment interest;
(8) substantial evidence does not support the court's determination that the carriers were
employees rather than independent contractors; (9) the court erred in awarding plaintiffs
attorney fees under Code of Civil Procedure section 1021.5;2 (10) even if attorney fees
could be awarded, the court erred by not substantially reducing them for limited success;
and (11) the court erred by adopting plaintiffs' lodestar amount in awarding attorney fees.
1 Subsequent references to section 17200 are to Business and Professions Code
section 17200.
2 Subsequent references to section 1021.5 are to Code of Civil Procedure section
1021.5.
2
Plaintiffs appeal the portion of the judgment awarding them attorney fees,
contending (1) the court abused its discretion in not awarding an enhancement of the
lodestar amount of their fees; and (2) the court erred in ruling they abandoned their cause
of action for damages under Labor Code section 28023 and therefore could not recover
attorney fees under that statute. We affirm in part and reverse in part the judgment with
directions to redetermine the class award, attorney fees, and prejudgment interest as
explained below.
FACTUAL AND PROCEDURAL BACKGROUND
The trial court (Judge Lisa Foster) certified a class consisting of "[t]hose persons
who signed contracts directly with [UT] as newspaper home [d]elivery carriers of the
San Diego Union-Tribune newspaper in the [S]tate of California between January 2005
and the present."4 The carriers each signed a contract with UT entitled "Independent
Contractor Distribution Agreement Home Delivery." The contract provided that the
carrier owned and operated an independent business enterprise and was not an employee,
and that the carrier and UT "fully and freely" intended to create an independent
contractor relationship under the contract.
3 Subsequent references to section 2802 are to Labor Code section 2802.
4 The class period effectively ran from January 2005 through June 2007 because UT
began phasing out direct-contract carriers in 2006 and as of July 1, 2007, there were no
longer any direct-contract carriers delivering papers for UT. Judge Foster noted in the
certification order that by the end of 2007, no carriers contracted directly with UT; they
all contracted with third-party distributors.
3
The contract required the carrier to deliver each newspaper "in a clean, dry,
undamaged and readable condition at a time and location" that met the subscriber's
reasonable requests and expectations. The carrier agreed to complete deliveries by 5:30
a.m. on weekdays and 6:30 a.m. on Saturdays, Sundays, and holidays. The carrier could
not directly or indirectly engage in the delivery, sale, or distribution of any other daily or
Sunday newspaper in the San Diego area without UT's written consent.
UT paid carriers on a per-piece basis and provided for "[i]nsert [f]ees"i.e.,
payment for putting inserts into newspaperand fees for delivering publications other
than the San Diego Union-Tribune, such as the USA Today and the Wall Street Journal.
UT tracked subscriber complaints against a carrier by documenting the number of
complaints per thousand deliveries (CPT) against the carrier. The contract provided that
CPT's "regarding missed or late deliveries; or wet, stolen or damaged newspapers must
not exceed 1.0. . . ." UT charged the carrier $4.00 for more than one CPT and $8.00 for
more than two CPT's.
The contract required the carriers to obtain accident insurance to cover injury to
the carrier or his or her substitutes or helpers, and bonding in the amount of $1,200
through a bonding company acceptable to UT. The minimum bonding for each route was
$600, and the carrier could elect to obtain bonding with Wilson Gregory Agency, Inc., for
$1.00 per month for each $600 in coverage, which would result in a monthly bond
deduction of $2.00 from the carrier's pay.
Carriers picked up the newspapers they were to deliver each morning and "mail"
(written communications, including delivery instructions) from UT at one of UT's
4
regional distribution centers. The carriers arrived at the distribution centers between 2:00
and 4:00 a.m. and spent about 45 minutes to an hour assembling their newspapers and
preparing them for delivery. The contract required the carriers to assemble their papers at
the distribution centers.5 The carrier agreed to pay UT a distribution center fee and
authorized UT to debit from the carrier's account "[i]nserting [f]ees" to compensate a
third party for performing certain inserting services (putting inserts into the newspapers
for the carriers).
Plaintiffs filed their original class action complaint in January 2009. Plaintiffs'
second amended complaint, the operative complaint at trial, named UT and various other
entities as defendants and included causes of action under the Labor Code for (1) failure
to pay minimum wage and overtime wages; (2) failure to provide meal breaks or
compensation in lieu thereof; (3) failure to provide rest periods or compensation in lieu
thereof; (4) failure to reimburse for reasonable business expenses (§ 2802);6 (5) unlawful
deductions from wages; (6) failure to provide itemized wage statements; and (7) failure to
5 The court in its statement of decision stated: "The contract stated that the carriers
were required to prepare and fold their newspapers in [UT's] distribution centers. . . ."
Presumably, the court was referring the following language in the contract: "Contractor
agrees to deliver publication (and any products therein) on the specified delivery day and
to insert separate pieces and any other sections, inserts, or jackets that are part of that
publication together prior to leaving [UT's] designated location."
6 Subdivision (a) of section 2802 provides: "An employer shall indemnify his or her
employee for all necessary expenditures or losses incurred by the employee in direct
consequence of the discharge of his or her duties, or of his or her obedience to the
directions of the employer, even though unlawful, unless the employee, at the time of
obeying the directions, believed them to be unlawful."
5
keep accurate records. The second amended complaint also included an eighth cause of
action under section 17200 for unfair business practices.
In 2011, plaintiffs filed a motion to certify a class defined as "[a]ll persons
presently or formerly engaged by [UT] as newspaper home delivery carriers of The
San Diego Union-Tribune newspaper in the [S]tate of California during the class period,
whether engaged directly by [UT] or indirectly through its agents." UT (and other
defendants) filed a motion to strike the class allegations from the second amended
complaint and opposition to plaintiffs' motion to certify the class.
The trial court granted in part and denied in part plaintiffs' motion for class
certification and UT's motion to strike class allegations. With respect to plaintiffs' fourth
cause of action and sixth through eighth causes of action only, the court certified a class
consisting of "[t]hose persons who signed contracts directly with [UT] as newspaper
home [d]elivery carriers of The San Diego Union-Tribune newspaper in the [S]tate of
California between January 2005 and the present." The court denied plaintiffs' motion
for certification and "concurrently grant[ed] the motion to strike the class allegations,
with respect to the large class for whom certification was sought by plaintiffs and with
respect to the first, second, third and fifth causes of action." The court excluded from the
class persons who contracted with third-party distributors to deliver The San Diego
Union-Tribune rather than with UT directly.
In September 2012, plaintiffs filed a motion to bifurcate the trial, requesting that
their eighth cause of action under section 17200 for unfair business practices (an
equitable claim) be tried before their fourth cause of action under section 2802 for
6
reimbursement of business expenses (a legal claim). In that motion, plaintiffs conceded
their sixth and seventh causes of action were time-barred because the limitations period
for obtaining penalties under those causes of action had expired when plaintiffs filed their
original complaint in 2009. Consequently, the fourth cause of action and eighth cause of
action were the only remaining causes of action to be tried.
Plaintiffs argued that equitable claims generally should be tried before legal claims
because doing so might dispense with the need to try the legal claims. Specifically,
plaintiffs noted that the issue of whether they were employees of UT or independent
contractors was the foundational issue under both remaining causes of action, and a
determination that they were independent contractors would be dispositive of both causes
of action. The court (Judge Gonzalo Curiel) granted the motion to bifurcate and ordered
that plaintiffs' equitable cause of action for unfair business practices would be tried first
as a bench trial before the trial of their legal claim for reimbursement of expenses under
section 2802.
In January 2014, plaintiffs' counsel sent UT's counsel a letter stating: "Please be
advised that it is our intention to seek all of the class members' damages in
the . . . section 17200 cause of action. This includes, but is not limited to, mileage
reimbursement, insurance, bonds, warehouse rent, bags and rubber bands, insert charges,
carrier collect and complaint charges. We bring this to your attention since it was
previously our intention to seek the mileage damages in the . . . section 2802 claim.
However, since mileage reimbursement is a vested right once the miles are driven, it is
also a recoverable item of damage under the section 17200 claim pursuant to Cortez v.
7
Purolater Air Filtration Products Co. (2000) 23 Cal. 4th 163 [(Cortez)]."7 In December
2012, UT filed a pretrial motion to decertify the class. The court denied the motion
without prejudice.
The case was tried to the court in May and June of 2013. After plaintiffs rested,
UT moved for judgment under Code of Civil Procedure section 631.8 on the grounds the
evidence proved the class representative who testified at trial, Genardo Valderrama, was
an independent contractor, and plaintiffs had not met their burden of proving damages
under section 2802. UT also renewed its motion to decertify the class on the grounds
Valderrama was not an adequate or typical class representative and plaintiffs had failed to
put on "common proof." The court denied both motions. In addition to Valderrama's
testimony, the court heard testimony from 12 other witnesses, including two expert
witnesses and a number of present and former UT employees.
In December 2013, the court filed a statement of decision, in which it found
"[p]laintiffs showed by a significant preponderance of the evidence that the carriers were,
in fact, employees [of UT] and not independent contractors." Accordingly, the court
concluded plaintiffs were "entitled to recover under . . . section 17200." The court
rejected UT's defense that it had "provided enhanced compensation to the carriers such
7 The California Supreme Court in Cortez did not authorize recovery of damages in
an action under the unfair competition law (UCL) (Bus. & Prof. Code, § 17200 et seq.),
as plaintiffs' counsel's letter suggests. The Cortez court held that unlawfully held wages
may be recovered as restitution in a UCL action, even though they might also be
recovered as damages in a civil suit for breach of contract or fraud. (Cortez, supra, 23
Cal.4th at pp. 173–178.) The Cortez court confirmed that damages are not available
under the UCL. (Id. at p. 173.)
8
that it subsumed all of their expenses, including when gas prices spiked during the Class
Period." In the statement of decision, the court granted plaintiffs' motion to amend their
second amended complaint to conform to proof to include three "categories of damages
they sought recovery for at trial" but did not specify in their complaint, namely, carrier
collect charges, insert charges, and warehouse rent.
The court awarded plaintiffs restitution under section 17200 in the total amount of
$3,188,445, consisting of business expenses in the following amounts: $2,280,059 for
mileage reimbursement; $618,569 for poly bags and rubber bands; $74,014 for insurance
premiums; $29,577 for bond premium; $116,430 for warehouse rent; and $69,796 for
insert charges. The court denied recovery for carrier collect charges and complaint
charges.
Plaintiffs' lead counsel and associate counsel filed separate motions for attorney
fees under section 1021.5 and section 2802. The court ruled that plaintiffs were not
entitled to fees under section 2802 because they had abandoned that cause of action, but
the court granted the motions under section 1021.5. In June 2014, the court entered a
final judgment awarding plaintiffs on their eighth cause of action the principal sum of
$3,188,445 against UT, plus prejudgment interest at the rate of seven percent from
January 1, 2006 to November 27, 2013, in the sum of $1,765,350.27 for a total award of
$4,953,795.27. The judgment awarded attorney fees to plaintiffs and the class members
9
in the amount of $6,160,416, of which $1,250,000 was to be paid from the common
fundi.e., the class award.8
DISCUSSION
UT's Appeal
I. Determination that the Carriers Were Employees and not Independent Contractors
UT contends substantial evidence does not support the court's determination that
the carriers were employees rather than independent contractors. We disagree.
The trial court's determination of employee or independent contractor status is one
of fact if it depends upon the resolution of disputed evidence or inferences and, as such,
must be affirmed on appeal if supported by substantial evidence. (S.G. Borello & Sons,
Inc. v. Department of Industrial Relations (1989) 48 Cal. 3d 341, 349 (Borello); Estrada
v. FedEx Ground Package System, Inc. (2007) 154 Cal. App. 4th 1, 16–17 (Estrada).) The
question is one of law only if the evidence is undisputed. (Borello, at p. 341.) "The label
placed by the parties on their relationship is not dispositive, and subterfuges are not
countenanced." (Id. at p. 349.)
"California decisions applying statutes enacted for the protection of employees
'uniformly declare that "[t]he principal test of an employment relationship is whether the
person to whom service is rendered has the right to control the manner and means of
accomplishing the result desired. . . ." [Citations.]' [Citation.] But courts 'have long
recognized that the "control" test, applied rigidly and in isolation, is often of little use in
8 The judgment also awarded costs to plaintiffs and incentive awards to the class
representatives. Those awards are not challenged in this appeal.
10
evaluating the infinite variety of service arrangements.' [Citation.] So, while the right to
control work details 'is the "most important" or "most significant" consideration, the
authorities also endorse several "secondary" indicia of the nature of a service
relationship.' [Citation.] Thus, ' "the right to discharge at will, without cause," ' is
' "[strong] evidence in support of an employment relationship. . . ." ' [Citation.]
Additional factors include '(a) whether the one performing services is engaged in a
distinct occupation or business; (b) the kind of occupation, with reference to whether, in
the locality, the work is usually done under the direction of the principal or by a specialist
without supervision; (c) the skill required in the particular occupation; (d) whether the
principal or the worker supplies the instrumentalities, tools, and the place of work for the
person doing the work; (e) the length of time for which the services are to be performed;
(f) the method of payment, whether by the time or by the job; (g) whether or not the work
is a part of the regular business of the principal; and (h) whether or not the parties believe
they are creating the relationship of employer-employee.' " (Arzate v. Bridge Terminal
Transport, Inc. (2011) 192 Cal. App. 4th 419, 426, quoting Borello, supra, 48 Cal.3d at
pp. 350–351.)
Regarding the right-to-control test, "what matters under the common law is not
how much control a hirer exercises, but how much control the hirer retains the right to
exercise. [Citations.] Whether a right of control exists may be measured by asking
' " 'whether or not, if instructions were given, they would have to be obeyed' " ' on pain of
at-will ' " 'discharge[ ] for disobedience.' " ' " (Ayala v. Antelope Valley Newspapers, Inc.
(2014) 59 Cal. 4th 522, 533 (Ayala).)
11
The trial court in its statement of decision identified the facts and evidence that
supported its finding that the carriers were employees of UT. The court found that
although the contract provided that the carriers were independent contractors, it was a
contract of adhesion that the carriers entered into "on a take-it-or-leave it basis." The
court cited testimony of former UT management employee Scott Zimmerman that a
carrier never requested a new rate from him,9 and Valderrama's testimony that there was
no negotiation of rates he was to be paid, which were filled in when he was provided the
contract. The court also cited evidence that the occasional rate increases the carriers
received were not the result of negotiations with the carriers, but rather were "pragmatic
business decision[s]" and an effort by some UT "distribution centers to determine
whether the carriers were making similar compensation to occupations that competed
with the pool of persons who worked as carriers."
The court noted that UT's carrier contract was revised 11 times during the class
period, and that all of the revisions were unilateral by UT and for UT's sole benefit. As
examples, the court cited a liquidated damages provision added to the contract in 2006
"on a take-it-or-leave it basis," and UT's unilateral decision to have carriers pay others to
do the inserts for their Sunday papers. The court found credible Valderrama's testimony
that there was no negotiation regarding any amendments or addendums to the contract.
9 UT management employee Nancy Tetrault also testified that she was not aware of
any prospective carrier asking at the time of contracting for a higher rate than the rates
UT offered.
12
The court cited the following provisions in the contract that showed UT's right to
control the carrier's manner and means of delivery: (1) the contract required the carriers
to prepare and fold their newspapers in the distribution centers unless they had written
waivers of that requirement; (2) the carriers could not insert messages into their papers
with the exception of holiday cards; (3) the carriers could use only bags that were
approved by UT; (4) the carriers could not add a delivery surcharge; (5) the carriers were
required to deliver their papers by a specified deadline; (6) the carriers could not sell their
subscriber lists; (7) the carriers had to be properly attired and wear closed-toed shoes in
the distribution centers; (8) the carriers could deliver only publications authorized by UT;
(9) the carriers could not assign their contracts; and (10) a carrier's compensation would
be reduced if his or her CPT exceeded one.
There was evidence of certain control measures that the court incorrectly cited as
contract provisions, including UT's requirement that the carriers prepare the papers in
accordance with daily specifications that UT provided in order to comply with advertiser
requests, and UT's policy that the carriers could not communicate directly with the home
delivery subscribers.10
In addition to the contract, the court specified other evidence of control supporting
its conclusion that the carriers were employees of UT, including "substantial testimony
10 The court later in its statement of decision noted evidence apart from the contract
that UT did not allow carriers to deal with customer complaints and were discouraged
from communicating directly with customers, including testimony to that effect from
Valderrama and Pierre Savoie, who worked for UT during the class period as a consumer
distribution manager.
13
regarding [UT's] employees training, mentoring, and coaching carriers." Zimmerman
testified about a comprehensive "Orientation Procedures" checklist that UT employees
used to train new carriers. The checklist covered every aspect of the carrier's work,
including warehouse safety, how to bill and maintain records for carrier-collect accounts,
double bagging on rainy days, procedures at the distribution center, how Sunday
procedures differed from weekday procedures, how and where to order and pick up
supplies, how to interpret a route/delivery list, how to handle paper shortages, customer
complaint procedures, and contractual obligations and procedures for using substitutes.
The carrier's daily mail from UT included instructions specifying how particular
customers wanted their papers delivered, and the carrier had to comply with those
demands or risk being charged with a customer complaint.
The court noted Savoie's testimony that UT employees were evaluated on their
training, mentoring, and supervision of carriers. Savoie also testified that UT sought to
have uniform policies at the distribution center, including policies regarding the training
of carriers.
The court referenced testimony of former UT employee Richard Conahan that UT
set goals for employees to assist with carrier training and that employees mentored
carriers, and the testimony of former UT employee Victor Diep, who testified that he
trained carriers by taking them on their routes and showing them where to put the papers,
how to read their daily mail and delivery instructions, and how to use a RouteSmart list,
which was a computer program that provided specific instructions on delivering papers
according to customer demands. The court also cited former UT employee Harold
14
Button's testimony about a UT "best practices" document, which was an interoffice
memorandum that established uniform policies for dealing with carriers at UT's
distribution centers.11
As additional evidence of UT's control of the carriers, the court noted that UT
employees at the distribution centers watched over the carriers to make sure they were
assembling their papers correctly and "would counsel, mentor, and supervise the
carriers." The court specifically noted former UT management employee Phillip
Prather's testimony that he would walk around his distribution center and make sure the
carriers were assembling papers correctly, and Valderrama's testimony that UT
employees supervised him while he was assembling papers at the distribution center. The
court also noted "unrefuted" evidence that if carriers failed to arrive at their distribution
centers in a timely fashion, UT employees would call them and sometimes go to a
carrier's residence to wake up the carrier.
The court cited testimony by Zimmerman and Valderrama, whom the court found
to be credible witnesses, that UT employees conducted audits and field checks of the
carriers' deliveries to determine whether the papers delivered by the carriers had been
prepared correctly, and Conahan's testimony that field checks were done on a regular
basis. As additional evidence of UT's right to control the carriers, the court cited Savoie's
testimony that the UT unilaterally changed carrier routes to satisfy advertisers who
wanted their advertisements delivered to specific subscribers.
11 Zimmerman also testified about the "best practices" document.
15
The court found that the carriers delivered "alternate publications" (e.g. the New
York Times and Wall Street Journal) under instructions from UT, and that "[t]here was
no evidence that a carrier who did not want to deliver any or all of the alternate
publications could have chosen to do so. Indeed, it was clear that the carriers had to
deliver these publications, regardless of their preference." These findings are supported
by Zimmerman's and Valderrama's testimony and the provision of the contract stating:
"[UT] agrees to provide [the carrier] . . . with sufficient copies of publications other than
The San Diego Union-Tribune . . . for delivery to locations designated by [UT], which
may include The San Diego Union-Tribune subscriber stops and other designated stops."
Valderrama initialed that provision in the appendix to his contract but testified that the
carriers had no choice whether to sign contract addendums, stating, "We had to sign."
Zimmerman testified that there was no negotiation on the alternate publication
addendums. He stated, "I believe the first one was the Los Angeles Times, and we pretty
much approached the carrier and said, 'You're going to have 12 weekly customers, and
you might have 20 Sunday customers that are Los Angeles Times. . . ."
The court cited the following as additional evidence of UT's right to control the
carriers' work: the carriers had to purchase bonds and accident insurance from UT's
broker; the carriers' invoices were prepared by UT rather than the carriers; and UT
limited the carriers' right to use substitutes. The court cited evidence that if a nonfamily
member substituted for a carrier, UT had to know who the substitute was and "when the
substitute would be there." The court noted Zimmerman's testimony that UT routinely
16
obtained information about a substitute, particularly the substitute's name and phone
number.
After discussing the evidence showing UT's right to control the carriers' manner
and means of performing their work, the court addressed the secondary factors under
Borello that showed the carriers were employees as follows:
(1) The right to discharge at will: The court noted that all of the carrier's contracts
provided that the contract was terminable on 30 days' notice, indicating the contract was
terminable at will. The contract also gave UT the right to terminate the contract
immediately for a "material breach."
(2) Whether the carriers were engaged in a distinct occupation or business: The
court initially addressed this factor by noting UT employees did the same job as the
carriers. The court cited testimony that during the class period up to 10 percent of UT's
home-delivery routes were delivered by UT employees, who delivered the routes in the
same way as the carriers and used their own vehicles.12 However, the employees were
reimbursed for their mileage.
Later in its statement of decision, the court stated: "When the class members first
applied to become carriers, they were not independent newspaper delivery businesses.
They were people looking for a job. They did not have any fictitious business names or
business licenses. The only thing [UT] required was that the carriers had a driver's
12 Savoie was asked whether at certain points during the class period "nearly 10
percent of the routes were open," meaning they were not assigned to a carrier and had to
be delivered by UT employees. Savoie responded, "I don't believe it got that high, but it
got high."
17
license, acceptable automobile insurance, and a Social Security card." The court's
findings were supported by testimony of Zimmerman and Savoie.
(3) Provision of instrumentalities, tools, and place of work: The court found that
the carriers had to use bags and rubber bands they purchased from UT. The court stated:
"The court supposes that the carriers may have been able to purchase bags and rubber
bands from another source if they were acceptable to [UT], but there is no credible
evidence that actually occurred. Instead, the evidence showed carriers purchased their
supplies from [UT], by filling out a required form." The court cited testimony by
Zimmerman that new carriers were provided a kit they purchased for one dollar to use
while they were learning to be a carrier. The kit provided the necessary supplies for the
carrier's first month. Valderrama testified that when he started working as a carrier for
UT, he was told he was going to be buying rubber bands and plastic bags for the papers
from UT. When he asked if he could buy bags or rubber bands elsewhere, he was told by
a UT management employee that he had to buy them from UT. Zimmerman testified he
was not aware of any carriers that bought supplies from anyone other than UT.
(4) Delivery as part of UT's business: The court correctly noted it was undisputed
that newspaper delivery is an integral part of UT's business. Savoie testified to that
effect.
(5) Duration of services: The court noted the evidence showed a large percentage
of carriers stayed contracted with UT for many years, which is indicative of employment
status. Zimmerman estimated that 25 percent of the carriers stayed four years or longer,
18
and there were carriers who had delivered for UT for decades. He testified that the
average amount of time a carrier would stay with UT was one to three years.
(6) Investment in equipment:13 The court correctly noted there was no evidence
that the carriers had a substantial investment in their work other than their vehicles,
which they also used for their personal needs.
The evidence discussed above sufficiently supports the court's finding that the
carriers were employees of UT rather than independent contractors. California case law
also supports that finding. As the court noted in its statement of decision, Antelope
Valley Press v. Poizner (2008) 162 Cal. App. 4th 839 (Antelope Valley) is persuasive
authority because the Court of Appeal in that case affirmed the insurance commissioner's
determination, under facts similar to those presented here, that newspaper carriers were
employees rather than independent contractors for purposes of workers' compensation
insurance. (Id. at pp. 842–843.)
Applying the substantial evidence test and the common law test for employment
approved in Borello, the Antelope Valley court concluded there was substantial evidence
that the Antelope Valley Press (AVP) controlled the manner and means by which its
carriers accomplished their tasks, even though the form contract between AVP and the
13 In addition to the secondary factors noted above, the Borello court noted a "six-
factor test developed by other jurisdictions. . . . Besides the 'right to control the work,'
the factors include (1) the alleged employee's opportunity for profit or loss depending on
his managerial skill; (2) the alleged employee's investment in equipment or materials
required for his task, or his employment of helpers; (3) whether the service rendered
requires a special skill; (4) the degree of permanence of the working relationship; and
(5) whether the service rendered is an integral part of the alleged employer's business."
(Borello, supra, 48 Cal.3d at pp. 354–355, italics added.)
19
carriers stated that the carrier " 'has the right to control the manner and means of delivery'
of AVP's publications and 'has the right to determine the equipment and supplies needed
to perform delivery services.' " (Antelope Valley, supra, 162 Cal.App.4th at p. 853.)
Like UT, AVP permitted its customers to dictate where they wanted the papers placed on
their property. (Id. at pp. 853–854.) Any harm to or loss of the paper could result in
financial loss to the carrier, like the charges against the carriers for customer complaints
in the present case. (Id. at p. 854.) The carriers in Antelope Valley had to abide by the
pick up and delivery times specified in the contract or face economic consequences or
termination. (Ibid.) AVP controlled the price paid by customers to AVP, which included
the cost of the delivery service. (Ibid.)
The Antelope Valley court also concluded substantial evidence supported the
finding that most of the secondary factors under Borello indicated an employer-employee
relationship between AVP and its carriers. Like the carriers' contract in the present case,
the carriers' contract in Antelope Valley provided that AVP could terminate the contract
on 30 days' notice to the carrier, which provision the Antelope Valley court viewed as
clearly giving AVP "the right to discharge at will without cause." (Antelope Valley,
supra, 162 Cal.App.4th at p. 854.) The Antelope Valley court further noted the evidence
did not show that in delivering AVP's publication, the carriers were engaged in a distinct
occupation or business of their own; that any of the carriers held themselves out as being
an independent delivery service that happened to have AVP as one of its customers; or
that the carriers had a substantial investment in their AVP delivery duties other than their
time and the vehicles they used, which were the same vehicles they used for their
20
personal activities. (Id. at pp. 354–355.) Similarly, there was no evidence in the present
case that the carriers operated as independent newspaper delivery businesses with
fictitious business names or business licenses or that the carriers had a substantial
investment in their work other than their time and their vehicles, which they also used for
their personal needs.
Other factors supporting the determination that the carriers in Antelope Valley
were employees were that delivering newspapers required no particular skill; AVP
supplied many of the materials used by the carriers, such as the newspapers, bags, and
subscriber lists; and a large percentage of carriers had been contracted with AVP for a
period of more than a year, unlike an independent contractor "hired to achieve a specific
result that is attainable within a finite period of time, such as plumbing work, tax service,
or the creation of a work of art for a building's lobby . . . ." (Antelope Valley, supra, 162
Cal.App.4th at p. 855.) The Antelope Valley court also noted that payment for the
carriers was "essentially in a piecework fashion" and that delivery of its publications was
"part and parcel of the newspaper business," as evidenced by the fact that AVP
employees also delivered AVP's publications. (Id. at pp. 855–856.) Finally, the Antelope
Valley court noted that although the carrier contract allowed the carriers to hire
employees and substitutes, the contract limited that right in certain respects. (Id. at
p. 856.) Each of these factors is also present in this case.
The instant case is also similar to Gonzales v. Workers' Comp. Appeals Bd. (1996)
46 Cal. App. 4th 1584 (Gonzalez), in which the Court of Appeal applied the Borello right-
to-control test in determining that a newspaper carrier was an employee of the newspaper
21
rather than an independent contractor for purposes of workers' compensation. The
Gonzalez court noted the carrier "had very little control over the mode and manner in
which he performed his service. [The newspaper] specified the time at which the
newspapers were to be picked up for distribution and specified the time each day by
which the newspapers were to be delivered to the customers. [The newspaper] furnished
both the customers and the routes by which the customers were served. [The carrier] had
almost no interaction with the customers, as the customers paid their subscription fees
directly to [the newspaper] and rendered complaints about delivery directly to [the
newspaper]. Although [the newspaper's] supervision of the performance of the services
was indirect, it was focused on and totally responsive to the complaints received from
customers." (Id. at p. 1593.) The Gonzalez court further noted that the newspaper could
discharge a carrier at will (ibid.); the carriers made no capital investment aside from their
vehicles; the publisher provided bags and rubber bands; newspaper delivery was a form
of manual labor that required no special skill; newspaper delivery was an integral part of
the newspaper's business operation; and "no finite time for service was involved as is
normally the case with a true independent contractor relationship." (Id. at p. 1594.) Each
of these circumstances described in Gonzalez is present in the instant case.
Finally, just as the trial court here found the carriers' form contract was not
controlling on the issue of independent contractor/employment status because it was an
adhesion contract that the carriers entered into "on a take-it-or-leave it basis," the
Gonzalez court noted "there was no indication that [the carrier] had any real choice of
terms of employment or contract." (Gonzalez, supra, 46 Cal.App.4th at p. 1594.) The
22
Gonzalez court concluded: "The totality of the circumstances substantiates
the . . . conclusion that [the publisher's] carrier agreement, which purported to 'disavow'
an employer-employee relationship, was a subterfuge to avoid the workers' compensation
laws of California. 'The label placed by the parties on their relationship is not dispositive,
and subterfuges are not countenanced.' " (Ibid., quoting Borello, supra, 48 Cal.3d at
p. 349.)
UT argues that Antelope Valley and Borello are inapposite because they were
decided in the context of workers' compensation law. We disagree that the common law
test discussed in Borello for determining an employment relationship is limited to
workers' compensation cases. The California Supreme Court in Borello stated that its
answer to the question of whether agricultural laborers engaged to harvest cucumbers
under a written " 'sharefarmer' " agreement were independent contractors exempt from
workers' compensation coverage had "implications for the employer-employee
relationship upon which other state social legislation depends." (Borello, supra, 48
Cal.3d at p. 345, fn. omitted.)
In Ayala, the Supreme Court considered whether a complaint alleging that a
newspaper publisher illegally treated its carriers as independent contractors and thereby
deprived them of various administrative and statutory wage and hour protections could
proceed as a class action. The Ayala court applied the Borello right-to-control test and
secondary factors in considering "whether the operative legal principles, as applied to the
facts of the case, render[ed] the claims susceptible of resolution on a common basis."
(Ayala, supra, 59 Cal.4th at pp. 530, 531–540.) Finally, the Court of Appeal in Estrada
23
held that "[b]ecause the Labor Code does not expressly define 'employee' for purposes of
section 2802, the common law test of employment applies." (Estrada, supra, 154
Cal.App.4th at p. 10.) The trial court did not err in applying the common law test
discussed in Borello to determine whether the carriers were employees or independent
contractors.
UT also argues the trial court erred in disregarding regulations adopted by the
Employment Development Department (EDD) to define what constitutes an independent
contractor relationship with a carrier in the newspaper industry. Specifically, UT
contends that the court should have applied California Code of regulations, title 22,
section 4304-6 (section 4304-6), which sets forth various factors to consider in
determining whether a carrier is an employee or an independent contractor in newspaper
distribution industry, and that had it done so, it would have concluded the carriers were
independent contractors.
The court did not err in not specifically applying section 4304-6 to determine the
employment status of the carriers. The EDD regulations expressly apply the same
common law test for determining employment status articulated in Borello. (Cal. Code
Regs., tit. 22, §§ 4304-1 & 4304-6.) Section 4304-6, subdivision (a) provides that
"determination of whether a carrier is an employee or an independent contractor in the
newspaper distribution industry will be determined generally by the rules set forth in
[section] 4304-1 . . . ." California Code of regulations, title 22, section 4304-1 states:
"Whether an individual is an employee for the purposes of [unemployment
compensation] will be determined by the usual common law rules applicable in
24
determining an employer-employee relationship. Under those rules, to determine
whether one performs services for another as an employee, the most important factor is
the right of the principal to control the manner and means of accomplishing a desired
result. If the principal has the right to control the manner and means of accomplishing
the desired result, whether or not that right is exercised, an employer-employee
relationship exists. Strong evidence of that right to control is the principal's right to
discharge at will, without cause." Subdivision (a) of section 4304-1 lists the same factors
to be considered in applying the right-to-control test that the Borello court listed.
(Borello, supra, 48 Cal.3d at pp. 350–351.)
Section 4304-6, subdivision (c) sets forth "Basic Guidelines" or factors to be
considered in determining the employment/independent contractor status of newspaper
carriers, some of which evidence employment status and some of which evidence
independent contractor status. However, the factors listed in section 4304-6 are merely
what they purport to bei.e., guidelines; they do not establish an absolute test or compel
a particular finding of employment or independent contractor status under particular
circumstances. The trial court was not required to specifically consider the section 4304-
6 guidelines in making its employment status determination; it could properly make that
determination by applying the common law factors set forth in Borello and section 4304-
1. Substantial evidence and California law supports the court's determination that the
carriers were employees rather than independent contractors.
II. Class Action Certification and Trial
A. Adequacy of class representatives
25
UT contends the class must be decertified because the class representatives were
inadequate. "The party advocating class treatment must demonstrate the existence of an
ascertainable and sufficiently numerous class, a well-defined community of interest, and
substantial benefits from certification that render proceeding as a class superior to the
alternatives. [Citations.] 'In turn, 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." ' " (Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal. 4th
1004, 1021 (Brinker).)
Typically, "[t]he adequacy of representation component of the community of
interest requirement for class certification comes into play when the party opposing
certification brings forth evidence indicating widespread antagonism to the class suit."
(Capitol People First v. Department of Developmental Services (2007) 155 Cal. App. 4th
676, 696–697.) " 'It is axiomatic that a putative representative cannot adequately protect
the class if his interests are antagonistic to or in conflict with the objectives of those he
purports to represent. But only a conflict that goes to the very subject matter of the
litigation will defeat a party's claim of representative status.' " (Richmond v. Dart
Industries, Inc. (1981) 29 Cal. 3d 462, 470.)
In the present case, there was no evidence of antagonism to the class suit by any
class members. Thus, representation of the class was adequate as long as the
representative(s) had claims typical of the class (Brinker, supra, 53 Cal.4th at p. 1021)
and could "adequately represent the class by vigorously and tenaciously protecting the
26
class members' interests." (Sharp v. Next Entertainment, Inc. (2008) 163 Cal. App. 4th
410, 432.) A relevant factor in the latter analysis is "the competency of class counsel, if
the firm is representing the class as a whole and not simply the interests of the named
representative plaintiffs [citations], and if the named plaintiffs have lent their names to
litigation that is controlled by class counsel." (Id. at p. 433.)
Here, plaintiffs' counsel represented the entire class; class counsel's competency is
not at issue; and nothing in the record suggests the named representatives through
counsel did not vigorously and tenaciously advance the class members' interests
throughout the litigation. In the order certifying the class, the court stated: "With respect
to the claims the Court has certified for class treatment, the class representatives satisfy
the typicality requirement. None of the UT's arguments in this regard undermine
plaintiffs' showing that the class representatives['] claims arise from the same events,
practices and course of conduct that give rise to the claims of the other class members.
[Citation.] Similarly, the Court finds that class counsel unquestionably are qualified to
conduct the proposed litigation on behalf of the class." (Italics added.)
Because UT contends that the class representatives were inadequate at trial and
asks that we decertify the class on appeal, we also consider the legal principles that apply
to a motion to decertify a class. "After certification, a trial court retains flexibility to
manage the class action, including to decertify a class if 'the court subsequently discovers
that a class action is not appropriate.' [Citations.] To prevail on a decertification motion,
a party must generally show 'new law or newly discovered evidence showing changed
circumstances. [Citation.] A motion for decertification is not an opportunity for a
27
disgruntled class defendant to seek a do-over of its previously unsuccessful opposition to
certification. "Modifications of an original class ruling, including decertifications,
typically occur in response to a significant change in circumstances, and '[i]n the absence
of materially changed or clarified circumstances . . . courts should not condone a series of
rearguments on the class issues[.]' [Citation.]" ' [Citation.] A 'class should be decertified
"only where it is clear there exist changed circumstances making continued class
treatment improper." ' " (Kight v. CashCall, Inc. (2014) 231 Cal. App. 4th 112, 125–126.)
We find no significant change in circumstances between the time the class was certified
and the time of trial that would support our decertifying the class or reversing the
judgment on the ground of inadequacy of the class representatives.
In arguing that the class representatives were inadequate and, therefore, the class
must be decertified, UT relies on the following three cases for the proposition that class
representatives are inadequate if they merely lend their name to a lawsuit controlled
entirely by class counsel: Howard Gunty Profit Sharing Plan v. Superior Court (2001)
88 Cal. App. 4th 572 (Gunty), Soderstedt v. CBIZ Southern California, LLC (2011) 197
Cal. App. 4th 133 (Soderstedt), and Jones v. Farmers Ins. Exchange (2013) 221
Cal. App. 4th 986 (Jones). UT complains that five of the six class representatives did not
testify at trial and the one who did, Valderrama, was inadequate because he was generally
uninformed about the case and did not consent to be a class representative.
Gunty is inapposite. The trial court in Gunty, in ruling on a motion to certify a
class in an action against a banking corporation for fraud and unlawful market
manipulation, ruled that the proposed representative plaintiffa profit sharing planwas
28
not an adequate representative because it was a " 'professional plaintiff' "14 and was not
typical of the class. (Gunty, supra, 88 Cal.App.4th at p. 575.) The main issues before the
Court of Appeal were whether the plaintiffs should be allowed to send a letter to potential
class members soliciting a new class representative, whether such a communication is
constitutionally protected by the First Amendment as commercial speech, and whether
defendants should be allowed to send a letter urging potential class members not to
participate. (Id. at pp. 576–577.) The Gunty court discussed recent increased concern
over potentially meritless securities lawsuits filed by professional plaintiffs (id. at p. 578),
the potential for misuse and abuse of the class action procedure (id. at p. 579), and the
potential for abuse inherent in precertification communication (id. at p. 580). Concerned
that the trial court had not weighed these potential abuses against the rights of the parties,
the Gunty court remanded the matter and directed the trial court to conduct a hearing on
plaintiffs' motion to certify the class and, if it determined the plaintiffs had "established a
prima facie proper class action," to then determine what controls, if any, it should impose
on the parties' communications to potential class members. (Id. at pp. 580–581.)
In the present case, there is no evidence that Valderrama or any of the other class
representatives is a professional plaintiff. Valderrama testified that he had read the
complaint, and that after he spoke to plaintiffs' counsel about the lawsuit, he decided he
wanted to be a part of it. When UT's counsel asked him if plaintiffs' counsel offered to
14 The Gunty court explained that " '[t]he term professional plaintiff generally is used
to refer to a plaintiff who is either a frequent filer . . . or a "hired gun" (one who allows an
attorney to sue in his name in exchange for a fee), or both.' " (Gunty, supra, 88
Cal.App.4th at p. 575, fn. 2.)
29
pay him "something depending on how this lawsuit turns out," he testified that he was
told he "might get partial for whatever . . . the amount is, and everyone else will. That
was it." Counsel then asked, "So you were told that you might get something out of this
lawsuit if it's successful?" Valderrama responded, "Yes, sir." He further testified that he
was not told he would recover a specific amount and had not been paid anything so far.
The fact that plaintiffs' counsel discussed with Valderrama the lawsuit's potential to result
in a monetary recovery for the entire class does not make Valderrama a professional
plaintiff. Gunty does not compel the conclusion that Valderrama and the other class
representatives were inadequate.
Nor does the fact that Valderrama was the only class representative who testified
at trial render the other representatives inadequate. Valderrama's testimony describing
his daily routine and the various aspects of his work for UT as a carrier was largely
cumulative to the testimony of UT's present and former management employees who
testified about the carriers' work and how they were trained and managed. Nothing in the
record suggests the class members' interests were harmed by the failure of other class
representatives to provide additional cumulative trial testimony about their experiences as
carriers for UT.
Soderstedt and Jones were appeals from orders denying class certification
motions. In Soderstedt, the trial court found the appellants failed to meet their
evidentiary burden of showing they were adequate class representatives because their
declarations did not show they desired to represent the putative class or understood the
30
obligations of being an adequate representative.15 In affirming the denial of class
certification, the Soderstedt court concluded "[s]ubstantial evidence supported the trial
court's finding that appellants failed to meet their burden to show they were adequate
class representatives." (Soderstedt, supra, 197 Cal.App.4th at p. 156.) However, the
Soderstedt court observed that the same evidence (declarations) on which the trial court
based its finding of inadequacy of the representatives could also have reasonably
supported the opposite findingi.e., that the proposed representatives could adequately
represent the class.16
In Jones, the trial court denied class certification based in part on its finding that
the proposed class representative (Jones) was not an adequate class representative
because he had not filed his own "declaration in support of the motion and therefore
failed to show that he understood his fiduciary obligation owed to the class. . . ." (Jones,
15 The appellants' declarations in Soderstedt each stated: " 'I have been actively
involved in this litigation for its entire duration. I am regularly in contact with my
counsel. I have assisted counsel in responding to discovery requests. I understand that as
a Class Representative, I must assist counsel in prosecuting the action on behalf of the
Class. I have made myself available to date, and will continue to do so and to represent
the interests of absent class members to the best of my ability.' " (Soderstedt, supra, 197
Cal.App.4th at p. 155.)
16 The Court of Appeal stated: "Although it may have been reasonable on the basis
of [the appellants' declarations] for the trial court to have concluded that appellants would
adequately represent the interests of the absent class members, that does not mean the
trial court's contrary conclusion was necessarily unreasonable." (Soderstedt, supra, 197
Cal.App.4th at pp. 155–156.)
31
supra, 221 Cal.App.4th at p. 992.)17 Although the Jones court reversed the order
denying the class certification motion, it concluded substantial evidence supported the
trial court's finding that Jones was not an adequate representative. (Id. at p. 998.)18
Thus, the Soderstedt and Jones courts did not set forth definitive requirements for
adequacy of class representation; they simply decided the trial court could reasonably
find the representative was inadequate based on the evidence before iti.e., that
substantial evidence supported the trial court's finding. As noted, the Soderstedt court
observed that the trial court could also have reasonably made the opposite finding. We
conclude the trial court here could reasonably find the class representation was adequate,
as the trial court could have done in Soderstedt. We find no basis to decertify the class or
disturb the judgment on the ground the class was not adequately represented.
B. Trial of claims specified in plaintiffs' fourth cause of action
UT contends the trial resulted in abuse of the class action procedure because the
court allowed plaintiffs to litigate claims that were not certified for class treatment.
Plaintiffs disagree with UT's view of the scope of the class certification order. There was
much argument and discussion between the parties and the court over this issue at trial.
17 Plaintiffs' counsel filed a declaration on Jones's behalf stating that Jones had
reviewed the complaint and understood the basic theories of the case and his role as a
class representative. (Jones, supra, 221 Cal.App.4th at p. 998.)
18 The Jones court concluded that the trial court was required to allow the plaintiffs
an opportunity to amend their complaint to name a suitable class representative. (Jones,
supra, 221 Cal.App.4th at p. 999.)
32
The fourth cause of action of plaintiffs' operative second amended complaint
sought reimbursement of reasonable business expenses under section 2802 and related
administrative regulations, and specified the following five categories of business
expenses: (1) vehicle expenses (gasoline, maintenance, and insurance); (2) charges for
customer complaints; (3) plastic bags, strings, and rubber bands; (4) insurance to cover
accidental injury on the job; and (5) the cost of a bond to secure the carrier's performance.
The fifth cause of action for "Unlawful Withholding of Wages Due" under Labor Code
sections 221 and 223 and related regulations sought recovery of the same expenses
specified in the fourth cause of action, with the exception of vehicle expensesi.e., it
sought recovery of "illegal deductions" for customer-complaint charges; plastic bags,
strings, and rubber bands; workers' compensation insurance; and surety bonds. As noted,
Judge Foster struck and denied certification as to the fifth cause of action.19
19 The certification order did not explain and it is unclear why the court (Judge
Foster) struck the fifth cause of action. As noted, the court struck the first, second, third,
and fifth causes of action. The court's explanation of that portion of its ruling indicated it
struck those causes of action because it concluded they required proof that was too
individualized for class treatment, but the court's explanation specifically addressed only
the first, second, and third causes of action for failure to pay minimum and overtime
wages, failure to provide or compensate for meal breaks, and failure to provide or
compensate for rest periods, respectively. The court discussed "how individualized the
determination of liability for minimum wage violations and overtime violations [would]
be," and noted the "same [individual] questions make certifying the class on the second
and third causes of action problematic." The court concluded that "determining whether
there will be any liability for overtime pay, minimum wage violations, rest periods or
meal breaks will necessarily involve a myriad of individual inquiries making class
certification inappropriate." The court did not explain why litigating the fifth cause of
action for unlawful wage deductions would be too individualized for class treatment.
33
In her written certification order, Judge Foster certified the class as to the fourth
cause of action and referred to that cause of action as "the Fourth cause of actionfailure
to pay reimbursement for auto expenses . . . ." UT contends this language clearly shows
Judge Foster certified the fourth cause of action only as to the claim for auto expenses
and not the other categories of expenses specified in that cause of action. UT also
reasons that by denying certification as to and striking the fifth cause of action, Judge
Foster intended that plaintiffs' claims for any expenses that were specified in both the
fourth and fifth causes were not certified for trial, leaving only the claim for vehicle
expenses within the scope of class certification.
We disagree with UT's interpretation of the certification order. Read in context,
the order's reference to "the Fourth cause of actionfailure to pay reimbursement for
auto expenses" is reasonably read as merely exemplifying that plaintiffs' business
expense claims were susceptible to proof on a classwide basis. In that paragraph, Judge
Foster began by "agree[ing] with plaintiffs" that the certified (fourth and sixth through
eighth) causes of action were amenable to class treatment and, to exemplify, addressed
the fourth and sixth causes of action as follows: "For example, if plaintiffs establish that
the carriers properly should have been classified as employees, then without question,
they will prevail on liability for . . . failure to provide an itemized wage statement. The
UT either did or did not provide each class member with an itemized wage statement.
The UT does not contend that it provided wage statements to some carriers but not to
others. Similarly, with respect to the Fourth cause of actionfailure to pay
34
reimbursement for auto expenses, there is no dispute the UT did not reimburse plaintiffs
for auto expenses. If the carriers are found to be employees, the UT will be required to
reimburse plaintiffs for automobile-related expenses. The only question is one of
damages."
Thus, Judge Foster did not expressly rule that the reimbursement/unlawful
deduction claims common to the fourth and fifth causes of action were too individualized
for class treatment and that her certification of the fourth cause of action was limited to
the claim for vehicle expenses.20 Her reference to that claim is reasonably interpreted as
simply intending to illustrate that plaintiffs' claims for reimbursement of business
expenses were not too individualized to be litigated on a classwide basis. In any event,
the court at trial exercised its discretion to allow plaintiffs to litigate all of their business
expense claims notwithstanding any language in Judge Foster's certification order
indicating a contrary intent. During extended argument over the scope of the certification
order and whether litigation of the fourth cause of action was limited to vehicle expenses,
the court (Judge Meyer) stated: "I'm not going to allow this issue to get me off track.
This case is going, and these [business expense claims] are items of damage[.]"
[¶] . . . [¶] "[A]nd . . . I'm not going to be necessarily limited by Judge Foster's
20 In a later hearing before Judge Foster regarding notice to class members, Judge
Foster indicated she did not intend to limit certification of the fourth cause of action to
vehicle expenses by stating, in reference to the proposed notice's description of the class
claims: "I don't have an issue with how the claims are described. Itthe court did
reference mileage. I'm not sure there are other expenses that might not properly be
encompassed within those claims." (Italics added.) During argument over this point at
trial, the court (Judge Meyer) noted that Judge Foster's certification order did not
expressly limit litigation of the fourth cause of action to auto expenses only.
35
determination. This is my case, not hers, with all due respect to Judge Foster. And I'm
going to make the same determination that she made: If there is . . . an expense that is
easily determinable on a classwide basis, fine. If it's not, it's not going to be considered."
"Trial courts are afforded broad discretion when managing class actions [citation],
and we presume the correctness of their rulings unless an abuse of discretion is shown."
(In re BCBG Overtime Cases (2008) 163 Cal. App. 4th 1293, 1301–1302.) We find no
abuse of discretion in the court's allowing plaintiffs to litigate all of their expense
reimbursement claims.
C. Amendment to conform to proof to add claims not alleged in the second
amended complaint
UT contends the court committed reversible error by granting, in its statement of
decision, plaintiffs' motion to amend their second amended complaint to conform to proof
to include claims for three categories of business expensescarrier collect charges, insert
charges, and warehouse rentfor which they sought recovery at trial but did not identify
in their second amended complaint.
" '[T]he allowance of amendments to conform to the proof rests largely in the
discretion of the trial court and its determination will not be disturbed on appeal unless it
clearly appears that such discretion has been abused. [Citations.] Such amendments
have been allowed with great liberality "and no abuse of discretion is shown unless by
permitting the amendment new and substantially different issues are introduced in the
case or the rights of the adverse party prejudiced [citation]." (Italics added.) [Citations.]'
Conversely, ' "amendments of pleadings to conform to the proofs should not be allowed
36
when they raise new issues not included in the original pleadings and upon which the
adverse party had no opportunity to defend." ' " (Garcia v. Roberts (2009) 173
Cal. App. 4th 900, 909, quoting Trafton v. Youngblood (1968) 69 Cal. 2d 17, 31.) We see
no reason why a trial court has any less discretion to allow amendment of a pleading to
conform to proof in a class action than in other civil actions. (See Town of New Hartford
v. Conn. Res. Recovery Auth. (Conn. 2009) 970 A.2d 592, 625–628 [trial court in
certified class action did not abuse its discretion in allowing posttrial amendment of
complaint to conform to proof]; B.W.I. Custom Kitchen v. Owens-Illinois, Inc. (1987) 191
Cal. App. 3d 1341, 1348 [trial court may alter or amend a class certification order before a
decision on the merits].)
We find no abuse of discretion in the trial court's allowing plaintiffs to amend their
second amended complaint to include claims for carrier collect charges, insert charges,
and warehouse rent because plaintiffs sought recovery of the carriers' business expenses
through their fourth cause of action and as restitution under their eighth cause of action,
and the record shows that UT had ample notice of those specific claims and the
opportunity to defend against them. On January 14, 2013, plaintiffs' counsel wrote a
letter to UT's counsel stating their "intention to seek all of the class members' damages in
the Business & Professions Code section 17200 cause of action. This includes, but is not
limited to, mileage reimbursement, insurance, bonds, warehouse rent, bags and rubber
bands, insert charges, carrier collect and complaint charges." (Italics added.) At an ex
parte hearing in February 2013, UT's trial counsel acknowledged receiving that letter and
that plaintiffs were seeking those categories of damages. In a letter dated March 13,
37
2014, plaintiffs' counsel again listed the "categories of damages" plaintiffs would seek at
trial, including warehouse rent, insert charges, and carrier collect charges, and informed
the court of those categories at a trial management conference on March 29, 2013. UT
defended against all of the reimbursement claims during trial, including the claims for
warehouse rent, insert charges, and carrier collect charges.21
Before UT put on its defense, the court addressed whether it would be proper to
allow amendment of the second amended complaint to include plaintiffs' claims to
recover carrier collect charges, insert charges, and warehouse rent, noting that "generally
amendments according to proof are accorded a lot of liberality" and that the court had not
been cited a case that a different rule applies to class actions. The court observed: "[T]he
question is, have you had an opportunity to defend at trial. And there is evidence that
even though the [s]econd [a]mended [c]omplaint didn't specifically identify those three
same components, in the several years that this case has been pending, you have been put
on notice that that's what the class would be claiming. So it would be manifestly unjust
to, at trial, say, we didn't know anything about this, when the evidence is that you cross-
examined their expert, you argued in front of Judge Foster, blah, blah . . . you didn't ask
for a continuance . . . . The usual arguments against amending according to proof." The
court's observation about UT's notice of and opportunity to defend against plaintiffs'
claims to recover carrier collect charges, insert charges, and warehouse rent was accurate.
21 As noted, the court denied recovery for carrier collect charges.
38
Thus, the court acted within its discretion in allowing amendment of the second amended
complaint to include those claims.
D. Bifurcation
UT contends the court's order bifurcating plaintiffs' cause of action under section
17200 to be tried first deprived UT of its right to a jury trial. We find no error in
connection with the bifurcation order and conclude UT waived the right to challenge the
order and was not prejudiced by it.
Plaintiffs first moved to bifurcate in February 2012, and UT opposed the motion,
arguing it was premature and should be denied without prejudice because it was more
appropriately the subject of later case management conferences addressing a
comprehensive trial plan. The court denied the motion without prejudice.
In September 2012, plaintiffs again moved to bifurcate the trial, requesting that
their eighth cause of action under section 17200 for unfair business practices (an
equitable claim) be tried before their fourth cause of action under section 2802 seeking
reimbursement of business expenses (a legal claim). Plaintiffs argued that equitable
claims generally should be tried before legal claims because doing so might dispense
with the need to try the legal claims. Specifically, plaintiffs noted that the issue of
whether they were employees of UT or independent contractors was the foundational
issue under both causes of action and a determination that they were independent
contractors would be dispositive of both causes of action. UT again opposed the motion,
arguing it was still premature and should be denied without prejudice because it would
more appropriately be decided as part of a case and trial management plan. The court
39
(Judge Gonzalo Curiel) granted the motion to bifurcate and ordered that plaintiffs'
equitable cause of action for unfair business practices would be tried by the court before
the trial of their legal claim for reimbursement of expenses under section 2802.
As noted, plaintiffs' counsel sent UT's counsel a letter in January 2013 stating
plaintiffs' "intention to seek all of the class members' damages in the . . . section 17200
cause of action." At an ex parte hearing in February 2013, the parties and the court
(Judge Meyer) discussed Judge Curiel's bifurcation order. The court suggested that the
threshold issue of whether the carriers were employees or independent contractors was a
jury question. Plaintiffs' counsel responded, "No, [Y]our [H]onor. It's been bifurcated so
that's going to be a [section] 17200 action. That's why it was bifurcated because I
think . . . it would be in the best interest of everyone to have that determined first."
However, plaintiffs' counsel asserted that plaintiffs were not waiving a jury trial. The
court asked what a jury would decide and plaintiffs' counsel responded, "Damages,
[Y]our [H]onor."
The court then asked whether the employee-independent contractor determination
was going to be made by the court or by a jury. UT's counsel responded, "Court, [Your]
[H]onor. We're in agreement on that." The court then asked, "You're waiving jury on
that determination?" UT's counsel responded, "It's not a jury issue." The court again
asked what the jury was going to decide, and plaintiffs' counsel said, "[section] 2802, if
your honor decides that we can't recover all under [section] 17200." The court said, "All
right. So it looks like we have got a bench trial." UT's counsel stated, "Looks like a
bench trial, [Y]our [H]onor."
40
At a trial management conference in March 2013, UT's counsel informed the court
the parties "wanted to revisit this question with you as to whether it's a judge or jury trial.
And the dispute on that issue appears to be this question of whether the auto expenses
would be considered restitution under [section] 17200." UT's counsel stated that "if [the
court] were to determine that, then I'm led to believe there wouldn't be a jury." UT's
counsel later said he was "not sure the jury [trial] is buried yet," explaining that if the
court were to determine in a bench trial on plaintiffs' section 17200 claim that plaintiffs
were not entitled to restitution, "then they want a second shot to a jury. And I would like
to see us avoid second shot [i.e., jury trial], and I think you would too." (Italics added.)
The court responded: "I don't care. . . . I mean . . . if you're entitled to a jury, I'm the last
one to keep you from getting it. What would you want a jury to do? To decide what?"
Plaintiffs' counsel stated that "the only thing that would be left for a jury to decide would
be what the mileage is if [Y]our Honor decides that mileage is not recoverable under
[section 17200]." Plaintiffs' counsel stated he was "happy to have [the court] decide [the
mileage claim]." UT's counsel stated, "If the plaintiffs are saying no jury. Then we'll
present that to our client, but I'd recommend it, too, and then at least we know we have a
bench trial . . . , and we have a little more flexibility on how to do it because we've done
this a few times."
"[A]n appellant waives [the] right to attack error by expressly or implicitly
agreeing or acquiescing at trial to the ruling or procedure objected to on appeal." (In re
Marriage of Broderick (1989) 209 Cal. App. 3d 489, 501.) It is clear from the record that
UT acquiesced to bifurcation of plaintiffs' section 17200 claim and expressed its
41
preference for a court trial on that claim. The record reflects the parties' and the court's
understanding that because plaintiffs elected to seek their entire recovery as restitution
under their section 17200 cause of action, a jury trial on their section 2802 cause of
action was unnecessary.22 Accordingly, UT waived the right to challenge the bifurcation
order on appeal and, in any event, has not shown or even argued that it was prejudiced by
the order or the resulting trial by the court instead of a jury.23
22 On appeal, UT asserts that it repeatedly objected that it was being deprived of a
jury trial. However, UT provides no citation to the record to support that assertion and
we are unable to find anything in the record that supports it. UT could have requested a
jury trial but did not do so. As noted, the court stated that "if you're entitled to a jury, I'm
the last one to keep you from getting it."
23 UT's reason for raising the bifurcation issue appears to be a concern that if
plaintiffs are allowed to seek statutory attorney fees under section 2802 despite having
sought their monetary award solely under section 17200, UT will have been deprived of a
jury trial that could have occurred had plaintiffs not decided to seek their recovery under
section 17200 instead of section 2802. This concern is a nonissue because plaintiffs were
not and will not be awarded attorney fees under section 2802.
42
E. Challenges to class award
UT contends, generally, that the court erred in relying on individualized evidence
to make classwide determinations and that certain components of the class award reflect
the court's failure to properly manage the class trial.24 UT raises the following specific
challenges to the court's monetary award to the class:
1. Enhanced-compensation defense
UT contends the court erred in awarding the class expenses that UT had already
reimbursed by paying the carriers enhanced compensation to cover their vehicle expenses
and other expenses. UT argues that in rejecting its enhanced-compensation defense, the
court misconstrued and misapplied Gattuso v. Harte-Hanks Shoppers, Inc. (2007) 42
Cal. 4th 554 (Gattuso).
24 Regarding individualized evidence supporting classwide findings, UT specifically
complains that the court in its statement of decision cited testimony of Valderrama and
Zimmerman as support for the following findings: the carriers did not negotiate their pay
rate and other contract terms; UT used an "orientation" checklist in training and dealing
with carriers; UT employees supervised carriers in the distribution centers and made sure
they were assembling the newspapers correctly; carriers were discouraged from
communicating directly with other customers; there were audits and field checks of the
carrier's deliveries; and new carriers were provided a kit that they purchased for one
dollar to use while they were learning to be a carrier.
The court reasonably relied on Zimmerman's and Valderrama's testimony to make
these findings, over which there was little or no dispute, and most were corroborated by
testimony of other witnesses. E.g., Savoie testified that UT would not allow carriers to
negotiate hourly rates or lump-sum payments and warehouse fees were not negotiated,
and that carriers were told not to tell customers to call them with complaints; Savoie
testified that field checks were done "through the whole market" every day; Conahan and
Diep also testified that UT employees regularly conducted field checks, and UT zone
manager Nancy Tetrault testified that carriers were prohibited from distributing any
communications to customers other than holiday greetings and billing notices.
43
Section 2802, subdivision (a) requires an employer to indemnify its employees for
all necessary expenditures they incur in discharging their duties. The California Supreme
Court in Gattuso held that an employer may satisfy its obligation under section 2802 to
reimburse employee business expenses by paying employees enhanced compensation in
the form of increases in base pay or commission rates, provided that (1) the employer
establishes some method or means to apportion the enhanced compensation to identify
what portion is intended as expense reimbursement; and (2) the identified reimbursement
amounts are sufficient to reimburse employees for all expenses they necessarily incurred.
(Gattuso, supra, 42 Cal.4th at pp. 558, 575.)
UT argues that Gattuso does not require employers to give employees the
apportionment information to identify expense reimbursement at the time it pays the
enhanced compensation; it requires only that the employer provide the employee the
information upon request, if the employee challenges the enhanced compensation as
insufficient. We disagree with UT's interpretation of Gattuso and conclude Gattuso
requires that the employer communicate to employees the method or means of identifying
the portion of compensation that is intended to provide expense reimbursement at or near
the time of compensation.
The Gattuso court explained that providing the employee the means of identifying
the portion of compensation intended to reimburse expenses enables employees and
officials charged with enforcing state and federal wage laws to "readily determine
whether the employer has discharged all of its legal obligations as to both wages and
business expense reimbursement. Although section 2802 does not expressly require the
44
employer to provide an apportionment method, it is essential that employees and officials
charged with enforcing the labor laws be able to differentiate between wages and expense
reimbursements. Because providing an apportionment method is a practical necessity for
effective enforcement of section 2802's reimbursement provisions, it is implicit in the
statutory scheme." (Gattuso, supra, 42 Cal.4th at p. 573, italics added.)
This language implies that the method of identifying the amount of compensation
intended to reimburse expenses must be provided at or near the time of payment. If the
apportionment method is revealed only through litigation or some other challenge to the
sufficiency of the expense reimbursement, employees and enforcement officials would
not be able to "readily determine" whether the employee is being sufficiently reimbursed
under section 2802. The Gattuso court's reference to the provision of the apportionment
method as being a "practical necessity for effective enforcement" further implies that the
apportionment method must be reviewable at or near the time of payment, because it
would be impractical to require enforcement officials to review undisclosed
apportionment methods. If officials are required to demand from employers disclosure of
apportionment methods that may or may not be readily available, they would not be able
to readily determine whether the employer is sufficiently reimbursing expenses under
section 2802.
Moreover, in later reiterating that employers must provide a means of apportioning
between wages and expense reimbursement, the Gattuso court stated that "an employer
that uses salary and/or commission increases to discharge its reimbursement obligation
must also communicate to its employees the method or basis for apportioning any
45
increases in compensation between compensation for labor performed and business
expense reimbursement. Such a requirement . . . is necessary for effective enforcement
of section 2802's reimbursement provisions and, thus, implicit in the statutory scheme."
(Gattuso, supra, 42 Cal.4th at p. 574.) The Supreme Court's directive that employers
communicate the apportionment method to employees is inconsistent with UT's view that
an employer is required to disclose the apportionment only if an employee challenges the
sufficiency of the amount intended to reimburse expenses.
Considering the Gattuso court's recognition that the employer's communication of
an apportionment method is a "practical necessity" to enable employees and enforcement
officials to "readily determine" whether the employer has satisfied the reimbursement
obligation of section 2802, we conclude Gattuso requires communication of the
apportionment method to employees in the course of businessi.e., at or near the time of
compensation and not only if and when the employer is called upon to communicate its
apportionment method in the face of a demand or legal claim. As one federal court
noted, "Gattuso is clear . . . that a lump sum payment only satisfies an employer's
obligations if the employee is given sufficient information to determine what part of his
salary constituted 'wages' and what part was for the reimbursement of expenses. There is
no authority to suggest that this obligation is satisfied if that information only becomes
available through litigation, nor would such a rule comport with the reasoning of
Gattuso. Whether the [trier of fact] will be able to easily calculate the amount of the
lump sum payments using information that was not available to [employees] prior
46
to . . . litigation . . is not the issue." (Villalpando v. Exel Direct Inc. (N.D.Cal. 2016) 161
F. Supp. 3d 873, 887 (Villalpando), italics added.)25
UT argues the evidence shows it satisfied Gattuso's apportionment requirement,
citing evidence that it factored anticipated business expenses, included route mileage,
into the amount it paid its carriers and communicated that fact to the carriers; that the
carriers' contracts listed the delivery and insert fees UT paid; and that the carriers'
monthly invoices "detailed every reversal, credit and fee for every carrier." This
evidence does not show that UT complied with Gattuso's requirement of communicating
to carriers an apportionment method that enabled the carriers to readily determine the
25 In arguing that it was not required to provide carriers the apportionment
information required to identify expense reimbursement at the time it paid the carriers,
UT notes that the Gattuso court stated: "In the future, employers that provide business
expense reimbursement to employees through increases in base salary or commission
rates should, in providing the [itemized wage statement] documentation required by
[Labor Code] section 226, subdivision (a), separately identify the amounts that represent
payment for labor performed and the amounts that represent reimbursement for business
expenses." (Gattuso, supra, 42 Cal.4th at p. 574, fn. 6.) UT contends this "forward-
looking instruction" does not apply here because the class period ended before the
California Supreme Court decided Gattuso. UT further notes that the quoted language in
Gattuso addresses satisfying Labor Code section 226, not section 2802, and there is no
section 226 claim in this case.
We view the Gattuso court's advice to employers to provide expense
reimbursement information in wage statements as simply a recommendation of an
obvious and relatively simple way to comply with the court's apportionment requirement
in the future; the Gattuso court did not say there was no current or past requirement that
employers provide some means to apportion compensation between pay for labor and
expense reimbursement to prevail on an enhanced-compensation defense. "The
requirement in [Labor Code s]ection 226 that employers separately identify the amounts
that represent payment and reimbursement is separate from the requirement that an
employer communicate to its employees the method or basis for apportioning any
increases in compensation between compensation for labor and expense reimbursement."
(Aguilar v. Zep Inc. (N.D.Cal., Oct. 10, 2013, No. 13-CV-00563-WHO) 2013 WL
5615688, at p. 7.)
47
amount of their pay that was intended to reimburse expenses. The cited evidence shows
only that UT communicated that expenses were factored into the amount of compensation
and occasionally may have shared certain information that it considered in determining
pay to certain carriers; it does not show that the carriers were generally provided a means
of determining how much of their gross pay was intended to reimburse expenses.
UT suggests that the deductions from gross pay listed on the carriers' monthly
invoices serve as a breakdown of the amount of enhanced compensation that was
intended to cover those expenses. However, the invoices did not communicate that the
carriers were being reimbursed or compensated in the amount of the deductions stated on
the invoices. In Smith v. Cardinal Logistics Management Corp. (N.D.Cal., Aug. 19,
2009, No. 07-2104SC) 2009 WL 2588879, a class action seeking expense reimbursement
under section 2802, an employer similarly argued that amounts appearing as expense
deductions on weekly statements issued to delivery truck drivers should be construed as
reimbursements because the drivers' compensation rates factored in their projected
expenses. (Id. at p. 3.) The court found that the employer's compensation system did not
satisfy Gattuso's requirements for expense reimbursement through enhanced
compensation because there was no lump-sum payment that included a means of
identifying the amount being paid for labor performed and the amount being paid as
reimbursement for business expenses, and the only payment the drivers received occurred
after expenses had already been deducted. (Id. at p. 4.) The court concluded "[t]his
system of compensation is too far removed from what the California Supreme Court had
48
in mind. The Court will not treat it as equivalent to the lump-sum payment method
endorsed by the California Supreme Court in Gattuso." (Ibid.)
The court in Villalpando discussed the above analysis in Smith and concluded that
while the employers in both cases were not required to pay twice for employee expenses,
they could not meet their obligations under Gattuso "by simply stating that their [pay]
rate covers these expenses; they must provide their employees with a means of
determining whether these assertions are true." (Villalpando, supra, 161 F.Supp.3d at
p. 886.) The court concluded that absent any evidence that class members could have
determined that their unreimbursed expenses or the expenses that were later deducted
from their pay were actually included in their gross pay, that the employer could not
prevail on an enhanced compensation defense under Gattuso. (Id. at p. 887.)
Similarly, the carriers' invoices in the present case did not set forth a lump-sum
payment that included a means of identifying the amount being paid for labor performed
and the amount being paid as reimbursement for business expenses, and the only payment
the carriers received occurred after various expenses had already been deducted.
Moreover, Savoie testified that UT's policy was to explain to carriers that they were
responsible for their expenses and that the fees they were paid were "the gross fee minus
any expenses that they incur through [UT], but that they're going to be responsible."
Savoie also acknowledged that there was no breakdown on carriers' invoices of the
amount carriers were being compensated for auto expenses.
49
UT argues that even if it did not satisfy Gattuso's requirements, equity requires
reversal of the judgment and remand to reconsider crediting UT for its payment of
enhanced compensation. Although plaintiffs elected to seek recovery of their business
expenses as restitution under section 17200, the court properly held UT to Gattuso's
requirements for an enhanced-compensation defense to a section 2802 claim because
section 2802 was the predicate statute for plaintiffs' cause of action under section 17200.
We recognize that the trial court has broad discretion to fashion equitable remedies under
the UCL (Cortez, supra, 23 Cal.4th at p. 180), but conclude the court may not exercise its
equitable powers to disregard the requirements of section 2802 as construed by
Gattusoi.e., to effect an end run around Gattuso.
UT asserts that business expenses under section 2802 are not recoverable as
restitution under section 17200. We disagree. "The 'unlawful' practices prohibited by
section 17200 are any practices forbidden by law, be it civil or criminal, federal, state, or
municipal, statutory, regulatory, or court-made. [Citation.] It is not necessary that the
predicate law provide for private civil enforcement. [Citation.] . . . Section 17200
'borrows' violations of other laws and treats them as unlawful practices independently
actionable under section 17200 et seq." (Saunders v. Superior Court (1994) 27
Cal. App. 4th 832, 838–839.)
An order for payment of wages unlawfully withheld from an employee is a
restitutionary remedy authorized by the UCL. (Cortez, supra, 23 Cal.4th at pp. 177–
178.) The term "wages" includes not only an employee's periodic monetary earnings but
also other benefits to which the employee is entitled as part of compensation. (In re
50
Work Uniform Cases (2005) 133 Cal. App. 4th 328, 337–338 (Uniform Cases).) In
Uniform Cases, the plaintiffs sought reimbursement under section 2802 for the cost of
work uniforms. (Id. at p. 332.) The Uniform Cases court concluded that "payment to
employees for work uniforms is a part of the employees' compensation and should be
considered like any other payment of wages, compensation or benefits." (Id. at p. 338.)
Accordingly, an employee's recovery of unlawfully withheld expenses under section
2802 is a proper restitutionary remedy under the UCL. (See Harris v. Best Buy Stores,
L.P. (N.D.Cal., Aug. 1, 2016, No. 15-CV-00657-HSG) 2016 WL 4073327, at p. 10 [UCL
claim may be maintained to the extent it is predicated on plaintiff's section 2802 claim];
Ordonez v. Radio Shack (C.D.Cal., Feb. 7, 2011, No. CV 10-7060 CAS (MANx)) 2011
WL 499279, at p. 6 [UCL claim may be maintained to the extent it is predicated on
plaintiff's claim under Labor Code, § 221 and section 2802].) The court did not err or
misapply Gattuso in rejecting UT's enhanced compensation defense.
2. Reversals and credits
UT contends the court ignored individualized issues and improperly awarded
amounts already paid to carriers in the form of credits and reversals on their invoices. It
is important to note that the issue of whether specified credits and reversals on carrier
invoices should be credited to UT in fashioning a restitutionary award is different from
the issue of whether alleged enhanced compensation as a component of gross pay is
properly viewed as reimbursement for business expenses under section 2802 and
51
Gattuso.26 We conclude the court erred in failing to take into account clearly specified
credits, reversals, and payments to carriers in the business expense categories at issue in
determining the amount of restitution to award plaintiffs.
"There must be evidence that supports the amount of restitution necessary to
restore to the plaintiff 'any money . . . which may have been acquired by means of such
unfair competition.' (§ 17203.) The Supreme Court has made clear that 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.' [Citations.] Thus, 'restitutionary awards encompass
quantifiable sums one person owes to another. . . .' " (Colgan v. Leatherman Tool Group,
Inc. (2006) 135 Cal. App. 4th 663, 697–698.) "[R]estitution under the [UCL] must be of a
measurable amount to restore to the plaintiff what has been acquired by violations of the
statutes, and that measurable amount must be supported by evidence." (Id. at
p. 698.) "That the trial court may have discretion as to whether to order restitution as a
remedy [citation] does not mean that when it does, it may select an amount unsupported
by evidence." (Ibid.; In re Tobacco Cases II (2015) 240 Cal. App. 4th 779, 792–793
[restitution award under the UCL must be supported by substantial evidence; thus, the
trial court's broad discretion to grant equitable relief does not extend beyond the parties'
26 At the hearing in which the court orally announced its intended decision, the court
indicated that it viewed the issue of whether UT was entitled to offset the monetary
award to plaintiffs by the amounts of reversals and credits as an enhanced compensation
issue governed by Gattuso. UT's counsel offered to provide the court with a report
showing all of the gas credits and incentives UT gave the carriers. The court stated, "No,
I don't think Gattuso allows it[,]" and "I think Gattuso says if you pay enhanced
compensation, you do it at your peril, unless you do it the right way."
52
evidentiary showing].) Accordingly, a restitutionary award based on a failure to
reimburse business expenses improperly charged to a plaintiff cannot properly include
specific quantifiable charges and expenses that the defendant credited back or otherwise
reimbursed to the plaintiff.
As evidence of the business expenses plaintiffs sought to recover, plaintiffs'
counsel prepared a spreadsheet entitled "Unreimbursed Non-Mileage Expense Detail," on
which it entered every debit or charge in each of the subject expense categories on 16,559
carrier invoices and color coded the charges by category. Counsel then added the charges
to arrive at the total amount of unreimbursed expenses in each category for the entire
class. However, Ruth Ortega, an employee of plaintiffs' counsel who prepared the
spreadsheet, testified on cross-examination that she was instructed to list only charges
and not to include any credits or reversals on the invoices.
Plaintiffs' accounting expert James Skorheim took the total amounts from the
spreadsheet and prepared a summary that set forth the total amount in each expense
category by month. Skorheim testified that his summary included only charges and no
credits. He admitted that the carrier invoices specified credits and reversals, but his
analysis did not take any of them into account. He testified, "If counsel asked me to
assume that only the charges are actual in this case and that credits are irrelevant, then I
do my calculation based upon the assumption that's asked of me. And that's what I did in
this case."
53
Carrier invoices that UT presented showed credits and reversals in every
nonmileage expense category, including bags and rubber bands, insurance, bonds,
warehouse rent, insert charges, carrier collect, and complaint charges. Plaintiffs'
restitution award must be recalculated to account for these credits and reversals.
Plaintiffs contend that it was UT's burden to produce evidence proving the amount
of any set off it claimed, and it failed to do so. The record shows that UT did produce the
evidence of the credits and reversals that should have been taken into account in
calculating plaintiffs' restitution award, and they cross-examined plaintiffs' witnesses
Ortega and Skorheim about the credits and reversals. What UT did not do is add up all
the credits and reversals and present the court with a total amount in each expense
category, which would have been helpful.27 However, UT's failure to total the credits is
not fatal to its right to have them taken into account. UT met its evidentiary burden by
showing that the same documentary evidence that plaintiffs and the court used to
calculate the award includes the amounts of credits and reversals by which the court
should have reduced the award. When an offsetting credit or reversal is clearly specified
on the same invoice that specifies a charge to be included in a restitution award, the court
27 UT's financial analyst Anthony Basilio answered "yes" when asked on cross-
examination if he had the ability to add up credit reversals, at which point UT's counsel
suggested it was unnecessary to do so because it was plaintiffs' burden to prove damages.
54
cannot properly ignore the offsetting credit and impose only the charge against the
defendant, because such an award would not be supported by the evidence.28
In sum, plaintiffs' award should be reduced by the amount of any documented and
readily identifiable payments, credits, or reversals that the class members received in the
subject expense categories. Although the court properly declined to credit UT with
payment of the carrier's business expenses through enhanced compensation because UT
did not meet Gattuso's requirements for an enhanced-compensation defense, Gattuso
does not preclude UT from being credited with the credits and reversals specified on
carrier invoices and other relevant documents in the calculation of plaintiffs' monetary
award.
3. Mileage award
UT contends the judgment's mileage award is flawed because the proof of the
mileage driven by the carriers is "impossibly individualized" and plaintiffs did not
account for the gas and service incentives and credits that UT provided to the carriers.
We conclude the method of calculating the mileage award that the court accepted was
permissible. However, in accordance with our discussion above regarding the other
expense categories, we conclude that the mileage award must be recalculated to take into
28 As noted, UT's counsel offered to provide the court with a report showing all of
the gas credits and incentives. If the court had decided to take all of the specifically
documented credits and reversals into account in calculating plaintiffs' award, the court
could have directed UT's counsel to provide the necessary total amounts from the
documentary evidence, and presumably will do so on remand.
55
account any documented credits or payments for gasoline, including any service
incentives that UT can show were tied to compensation for gas.29
As explained by their expert Skorheim, plaintiffs calculated the total mileage
driven by class members during the class period by first identifying the mileage of each
route that class members operated based on Savoie's deposition testimony and exhibits
that he produced at his deposition. For each month of the class period, plaintiffs
determined the routes that were operated by a class member and routes that were being
operated fully or partially by a nonclass member, such as a UT employee covering a route
that was not assigned to a carrier. Plaintiffs excluded the miles that were driven by
nonclass members, calculated the daily mileage driven by class members during the class
period, and multiplied the total daily mileage driven by class members by the number of
days in the class period to arrive at a total number of miles driven by class members
during the class period.30 Skorheim then broke down miles driven by class members for
29 UT presented evidence of gasoline reimbursement in the form of gas credits,
addendums, and payments. At trial, the court asked UT's counsel if they had been able to
quantify gas credits. Counsel responded that gas credits and certain service incentive
credits could be added and totaled, but admitted that they could not total the amounts paid
through gas cards given to carriers, stating, "We don't have records of when people were
given gas cards. That's not in the invoices. They were handed physical gas cards that
they can take to the [gas station]. We don't have evidence of that." Again, UT's counsel
offered to provide the court with a report showing all of the gas credits and incentives UT
gave the carriers, representing "it's just something under [$]200,000 if you consider that
as an offset from mileage."
30 Based on Savoie's deposition testimony, Skorheim testified that the carriers drove
an average of 7,000 miles per day, and that there were "somewhere around 600 routes"
with an average distance of 11 miles per route.
56
each month of the class period and "applied the IRS mileage rate for the applicable month
to determine the . . . estimated mileage expense."
UT complains that the mileage award based on the IRS mileage rate is only an
estimate, and cites Estrada for the proposition that estimates and educated guesses are not
allowed unless the amount cannot be proven. (Estrada, supra, 154 Cal.App.4th at p. 20
[estimates and educated guesses are not allowed where damages are susceptible of exact
proof].) We conclude the court properly allowed plaintiffs to establish vehicle expenses
on a classwide basis through their expert's reasonable estimate of the mileage driven by
the carriers during the class period because the actual mileage driven by class members
was not susceptible of exact proof. The total mileage driven by carriers during the class
period could not be calculated with mathematical precision for the reasons UT argues
proof of vehicle expenses was not amenable to proof on a classwide basisi.e., plaintiffs
could not establish how much a particular carrier actually drove during a given time
period because many carriers used substitutes.
Generally, "the law tolerates more uncertainty with respect to damages than to the
existence of liability. 'Uncertainty of the fact whether any damages were sustained is
fatal to recovery, but uncertainty as to the amount is not.' " (Duran v. U.S. Bank Nat.
Assn. (2014) 59 Cal. 4th 1, 40.) "[W]here the fact of damage has been established, the
precise amount of the damage need not be calculated with absolute certainty. 'As long as
there is available a satisfactory method for obtaining a reasonably proximate estimation
of the damages, the defendant whose wrongful act gave rise to the injury will not be
heard to complain that the amount thereof cannot be determined with mathematical
57
precision.' " (DuBarry Internat., Inc. v. Southwest Forest Industries, Inc. (1991) 231
Cal. App. 3d 552, 562.)
We further note that the remedial nature of overtime compensation laws "militates
in favor of a reasonably expeditious means of calculating and distributing classwide
aggregate damages if individual adjudication of the entitlements of all class members, or
a substantial portion of the members, would impose impossible burdens on the courts and
litigants." (Bell v. Farmers Ins. Exchange (2004) 115 Cal. App. 4th 715, 751.) Appellate
" 'review of a trial court's plan for proceeding in a complex case is a deferential one that
recognizes the fact that the trial judge is in a much better position than an appellate court
to formulate an appropriate methodology for a trial.' " (Ibid.) The remedial nature of
section 2802 requiring employee compensation for reasonable business expenses likewise
militates in favor of a reasonably expeditions methodology for calculating the class
mileage award in this case, because calculating the exact actual mileage driven by each
class member during the class period would impose an impossible burden. The court
acted within its discretion in adopting plaintiffs' methodology for calculating the mileage
award.
Regarding the IRS mileage rate, we note that Gattuso implicitly approved use of
that rate by recognizing that employers may use either the mileage reimbursement
method or the actual expense method of vehicle expense reimbursement under section
2802 (Gattuso, supra, 42 Cal.4th at pp. 568–569), and that the parties in that case agreed
that "section 2802 permits use of the IRS mileage rate to calculate automobile expense
reimbursement under the mileage reimbursement method." (Gattuso, at p. 569.) The
58
court did not abuse its discretion in adopting the IRS mileage rate to arrive at a
reasonably proximate estimation of the carrier's vehicle expenses during the class period.
Although we conclude the general method of calculating the mileage award that
the court adopted was permissible, as we discussed, the mileage award must be
recalculated to take into account any documented credits or payments for gasoline,
including any service incentive credits that UT can show were given to the carriers as
compensation for gas.
4. Insert charges
UT paid carriers insert fees or credits to compensate for their putting inserts into
newspapers, but also charged carriers an insert fee to compensate third parties to
assemble their Sunday papers, which are the largest papers of the week. The insert
charges and credits were both specified on the carriers' monthly invoices. On some
invoices, the total amount of insert charges exceeded the total amount of insert credits; on
others the amount of insert credits exceeded the amount of insert charges.
As an alternative to awarding the class the total amount of insert charges with no
reduction for insert credits ($849,000, including interest), plaintiffs' counsel asked the
court to award 14 percent of that total amount or $118,992.31 Counsel explained that the
14 percent figure was based on a declaration by Savoie in which he cited one page of a
single carrier invoice on which there was a 14 percent difference between the insert
charge of $9.99 and insert credits totaling $8.64. The court accepted plaintiffs' 14 percent
31 Fourteen percent of $849,000 is actually $118,860.
59
analysis but did not want to include interest in its base award. Based on plaintiffs'
counsel's representation that the total amount of insert charges without interest was
$498,543, the court awarded 14 percent of that amount or $69,796.
In its statement of decision, the court stated: "The Court will not allow inserting
charges as Section 2802 damages. This was a benefit to the class that allowed the class
members to not have to spend Saturday afternoon or Saturday at midnight to assemble[]
their papers. However, the Court does recognize that the carriers had to pay some money
out of pocket to use the inserters. The Court allows recovery of 14% of the insert charges
under . . . Section 17200. This equals $69,796."
UT contends that the award for insert charges should be reversed because (1) the
court expressly found the insert charges were not necessary business expenses under
section 2802; and (2) the amount awarded is not supported by the evidence because it is
arbitrarily based on a single invoice out of 16,559 invoices issued to class members
during the class period. Assuming, without deciding, that the court had authority to
award restitution for insert charges under section 17200 notwithstanding its finding that
those charges were not recoverable under the sole predicate statute for plaintiffs' section
17200 cause of action, we conclude the insert-charge award must be reversed on the
ground it is not supported by substantial evidence.
The court's 14 percent calculation was based on charges and credits for a single
week on a single monthly invoice of a single carrier. There is no evidentiary basis for a
finding that the single invoice on which the court based the award represented even a
reasonable estimate of the difference between insert charges and credits for that carrier
60
over the entire class period, let alone for the entire class. Our review of carrier invoices
in the record confirms that insert credits on some invoices exceeded the amount of insert
charges. Plaintiffs did not meet their burden of proving the class was entitled to a
monetary recovery for insert charges.
5. Time period of award
The class period began on January 29, 2005. Without citation to authority, UT
contends the class award impermissibly includes charges on the carriers' February 2005
invoices that were incurred in January 2005 before the class period began. Plaintiffs
respond that the award properly includes the charges in question on the carriers' February
2005 invoices because that is when the charges were actually incurredi.e., when UT
actually deducted the money from the carriers' payments.
Plaintiffs cite no legal authority for their position, but cite their expert Skorheim's
testimony that "when an invoice is issued, . . . at least from an accounting standpoint,
that's when the charge takes place . . . ." Skorheim further explained, "I excluded all
invoices that were presented to a carrier before January 29, 2005. Similarly, I excluded
all invoices that were presented to the carrier after the end of the . . . class period, which
would include a large part of . . . July of 2007." Thus, under UT's view of the class
period, invoices presented in the first month of the class period would be excluded, but
invoices presented the month following the last month of the class period would be
included. As the trial court observed, "So it's a wash." As long as invoices issued in
either the first month of the class period or the month following the last month of the
class period were excluded, UT was not prejudiced.
61
We conclude the court properly adopted plaintiffs' view that the charges (and
credits) to be taken into account in calculating the class award were properly those that
appeared on invoices issued during the class period, because the recoverable charges
occurred when they were actually deducted from the carriers' pay. This view accords
with the general rule that "[w]hen damages are an element of a cause of action, the cause
of action does not accrue until the damages have been sustained." (City of Vista v. Robert
Thomas Securities, Inc. (2000) 84 Cal. App. 4th 882, 886; see Phillis v. City of Santa
Barbara (1968) 264 Cal. App. 2d 781, 787 [if charter amendment was unconstitutional
insofar as it authorized any deduction from city employee's salary, employee had a cause
of action for unpaid balance of his salary each time he received a pay check from which a
deduction had been made].)
6. Prejudgment interest
UT contends the court erred by including prejudgment interest in the class award
because section 17200 does not authorize prejudgment interest, all of the amounts
awarded were unliquidated, and equitable considerations weigh against an award of
prejudgment interest.
Courts ordinarily award prejudgment interest under Civil Code section 3287,
subdivision (a), which provides: "A person who is entitled to recover damages certain, or
capable of being made certain by calculation, and the right to recover which is vested in
the person upon a particular day, is entitled also to recover interest thereon from that
day. . . ." (Italics added.) However, the UCL does not authorize an award of
prejudgment interest and "Civil Code section 3287, subdivision (a) . . . is inapplicable [to
62
a UCL claim] because it governs recovery of damages. . . . [U]nder the UCL a plaintiff is
entitled to injunctive relief and restitution, but not damages." (M & F Fishing, Inc. v.
Sea-Pac Ins. Managers, Inc. (2012) 202 Cal. App. 4th 1509, 1538 (M & F Fishing.)
Although a court may not award prejudgment interest under Civil Code section
3287, subdivision (a), to a restitutionary award under the UCL, the court nevertheless has
discretion in equity to award prejudgment interest on a UCL award as a component of
restitution. (M & F Fishing, supra, 202 Cal.App.4th at p. 1539; Rodriguez v. RWA
Trucking Company, Inc. (2013) 238 Cal. App. 4th 1375, 1411; People v. Beaumont Inv.,
Ltd. (2003) 111 Cal. App. 4th 102, 132, 139 [affirming order awarding restitution of rents
charged to tenants in unlawful long-term leases plus prejudgment interest on those
amounts].) The policy underlying an award of prejudgment interest is to make the
injured party whole for the accrual of wealth that could have been produced during the
period of loss. (Cassinos v. Union Oil Co. (1993) 14 Cal. App. 4th 1770, 1790.)
Accordingly, the court in Wallace v. Countrywide Home Loans, Inc. (C.D.Cal.
April 29, 2013, No. SACV 08-1463-JST (MLGx) 2013 WL 1944458 (Wallace) ruled that
prejudgment interest on UCL claims was a form of restitution necessary to fully
compensate plaintiffs. (Id. at pp. 7–8.) The Wallace court explained that " '[t]he object
of restitution [under the UCL] is to restore the status quo by returning to the plaintiff
funds in which he or she has an ownership interest.' [Citation.] Restitution under the
UCL is not limited to money that was once in the plaintiff's possession but also includes
money in which the plaintiff had a vested interest. [Citation.] 'The intent of the section is
to make whole, equitably, the victim of an unfair practice.' " (Id. at p. 7.) "Thus,
63
prejudgment interest on wrongfully withheld wages is the property of the employee from
whom the wages have wrongfully been withheld, because, had the employee been in
possession of the withheld wages, he would have been able to earn interest on those
wages. Not awarding prejudgment interest on the withheld wages fails to restore the
status quo and make the victim of the withheld wages whole." (Id. at p. 8.) We agree
with the Wallace court's analysis and conclude it applies equally to wrongfully withheld
reimbursement of employee business expenses, which, as we discussed ante, are a part of
employees' compensation that "should be considered like any other payment of wages,
compensation or benefits." (Uniform Cases, supra, 133 Cal.App.4th at p. 338.)
We further conclude that where, as here, an award of prejudgment interest is a
matter of the trial court's equitable discretion, the requirement under Civil Code section
3287, subdivision (a), that damages be "certain, or capable of being made certain by
calculation" does not apply. Civil Code section 3287, subdivision (b), allows a court, in
its discretion, to award prejudgment interest on unliquidated damages,32 whereas an
award of prejudgment interest under subdivision (a) is mandatory. (Watson Bowman
Acme Corporation v. RGW Construction, Inc. (2016) 2 Cal.App.5th 279, 293 [trial court
has no discretion under subdivision (a) of Civil Code section 3287—it must award
prejudgment interest from the first day there exists both a breach and a liquidated claim].)
32 Civil Code section 3287, subdivision (b), provides: "Every person who is entitled
under any judgment to receive damages based upon a cause of action in contract where
the claim was unliquidated, may also recover interest thereon from a date prior to the
entry of judgment as the court may, in its discretion, fix, but in no event earlier than the
date the action was filed."
64
A corollary of the principle that a court has discretion to award prejudgment interest on
unliquidated claims is that where the court has discretion in equity to award prejudgment
interest, it may do so on claims that are not liquidated. The certainty requirement of Civil
Code section 3287, subdivision (a) applies only to mandatory awards of prejudgment
interest under that subdivision.33
In the present case, the court made it clear it was exercising its equitable discretion
to award prejudgment interest, stating: "[Y]ou can say that [UT] profited from the money
because they had earned interest. I mean, just from an equitable standpoint, they get their
money back plus interest. That's just fair." The court later stated, "Well, the court's
visceral reaction, and I think it's pretty obvious, is under the facts of this case, it would be
inappropriate to not award the plaintiffs interest just because that's the way people get
compensated. If you take their money or make them pay for something that they didn't
have to pay for, they get interest for the money that they no longer have that they were
entitled to." In other words, plaintiffs were entitled to recover interest they could have
earned on the class award had that money not been wrongfully withheld. The court's oral
explanation of its discretionary decision to award prejudgment interest accords with the
principle that prejudgment interest is a necessary component of restitution. The court did
not abuse its discretion in awarding prejudgment interest at the rate of seven percent in
accordance with article XV, section 1 of the California Constitution, which provides: "In
33 Although the trial court's discretionary award of prejudgment interest in this case
does not require liquidated claims, we note the court's award of business expenses in all
of the categories except vehicle expenses is capable of being made certain by totaling the
relevant credits and reversals on the carriers' invoices.
65
the absence of the setting of such rate by the Legislature, the rate of interest on any
judgment rendered in any court of the state shall be 7 percent per annum."
UT contends the court erred in awarding prejudgment interest from January 1,
2006, instead of September 21, 2011, the date of the certification order. We find no
abuse of discretion in the court's decision to award prejudgment interest from January 1,
2006. As noted, the class period effectively ran from January 2005 through June 2007.
UT's counsel argued that interest should begin to accrue when the lawsuit was filed or on
July 1, 2007, when UT stopped contracting directly with carriers. Plaintiffs' counsel
argued that beginning interest accrual in 2007 would be unfair because "most of the
damages were incurred in 2005 and then a little bit in 2006, and by 2007, most of the
change had occurred." The court decided to compromise and award prejudgment interest
from January 1, 2006. The court explained, "The problem is you're both taking positions
that just benefit you. [Plaintiffs are] taking the earliest possible date, and [UT is] taking
the latest possible date, and I'm just, frankly, sick of that, and I'm just going to try to do
something in the middle, so that's it."
The court's compromise was reasonable. "[T]he trial court's discretion to award
restitution under the UCL is very broad." (People v. Beaumont Inv., Ltd., supra, 111
Cal.App.4th at p. 135, citing Cortez, supra, 23 Cal.4th at p. 180.) As one court observed,
" 'when necessary in order to arrive at fair compensation, the court in the exercise of a
discretion may include interest or its equivalent as an element of damages.' If the trial
court can, within its discretion, allow interest for the whole period, it can also allow
interest for only a part of the period." (National Union Fire Ins. Co. of Pittsburgh, Pa. v.
66
California Cotton Credit Corp. (9th Cir. 1935) 76 F.2d 279, 291 [interpreting Civ. Code,
§ 3287].) We will not disturb the trial court's decision to award prejudgment interest
from January 1, 2006, although the court will have to recalculate the amount of
prejudgment interest based on the redetermined amount of the class award.
III. Attorney Fee Award
UT contends the court erred in awarding attorney fees under section 1021.5
because plaintiffs failed to meet the requirements for fees under that statute. UT
additionally contends the court improperly awarded fees to plaintiffs for both successful
and unsuccessful claims that were unrelated; the court should have reduced the fee award
for plaintiffs' limited success even if the successful and unsuccessful claims were related;
and the court erred by adopting plaintiffs' lodestar amount in awarding attorney fees. We
conclude the court did not abuse its discretion in awarding attorney fees under section
1021.5 or in adopting plaintiffs' lodestar amount. However, as we explain, we remand
with directions to reconsider the attorney fee award in light of the possible reduction of
plaintiffs' monetary recovery and to determine whether plaintiffs' limited success requires
reduction of the fee award.
"We review an attorney fee award under section 1021.5 generally for abuse of
discretion. Whether the statutory requirements have been satisfied so as to justify a fee
award is a question committed to the sound discretion of the trial court, unless the
question turns on statutory construction, which we review de novo." (Collins v. City of
Los Angeles (2012) 205 Cal. App. 4th 140, 152 (Collins).) " 'An abuse of discretion
occurs if, in light of the applicable law and considering all of the relevant circumstances,
67
the court's decision exceeds the bounds of reason and results in a miscarriage of justice.
[Citations.] This standard of review affords considerable deference to the trial court
provided that the court acted in accordance with the governing rules of law. We presume
that the court properly applied the law and acted within its discretion unless the appellant
affirmatively shows otherwise.' " (Id. at p. 153.)
"Section 1021.5 authorizes an award of attorney fees 'to a successful party against
one or more opposing parties in any action which has resulted in the enforcement of an
important right affecting the public interest,' provided that three additional conditions are
satisfied: '(a) a significant benefit, whether pecuniary or nonpecuniary, has been
conferred on the general public or a large class of persons, (b) the necessity and financial
burden of private enforcement, or of enforcement by one public entity against another
public entity, are such as to make the award appropriate, and (c) such fees should not in
the interest of justice be paid out of the recovery, if any.'[34] (§ 1021.5.) All of the
statutory requirements must be satisfied to justify a fee award." (Collins, supra, 205
Cal.App.4th at p. 153.)
"The necessity and financial burden requirement encompasses two issues:
' " 'whether private enforcement was necessary and whether the financial burden of
private enforcement warrants subsidizing the successful party's attorneys.' " [Citation.]'
[Citation.] Private enforcement is necessary only if public enforcement of the 'important
right affecting the public interest' (§ 1021.5) at issue is inadequate. [Citation.] The trial
34 In a footnote at this point the court noted that section 1021.5 codifies the private
attorney general doctrine.
68
court's finding that plaintiffs had satisfied the statutory requirements necessarily implies a
finding that private enforcement was necessary. . . .
"The financial burden of private enforcement concerns not only the costs of
litigation, but also the financial benefits reasonably expected by the successful party.
[Citation.] The appropriate inquiry is whether the financial burden of the plaintiff's legal
victory outweighs the plaintiff's personal financial interest. [Citations.] An attorney fee
award under section 1021.5 is proper unless the plaintiff's reasonably expected financial
benefits exceed by a substantial margin the plaintiff's actual litigation costs. [Citation.]
The focus in this regard is on the plaintiff's incentive to litigate absent a statutory attorney
fee award. ' "[S]ection 1021.5 is intended to provide an incentive for private plaintiffs to
bring public interest suits when their personal stake in the outcome is insufficient to
warrant incurring the costs of litigation.' " [Citations.]
"The successful litigant's reasonably expected financial benefits are determined by
discounting the monetary value of the benefits that the successful litigant reasonably
expected at the time the vital litigation decisions were made by the probability of success
at that time. [Citations.] The resulting value must be compared with the plaintiff's
litigation costs actually incurred, including attorney fees, expert witness fees, deposition
costs and other expenses." ' " (Collins, supra, 205 Cal.App.4th at pp. 154–155, fn.
omitted.)
As noted, in reviewing the trial court's attorney fee award for abuse of discretion,
" '[w]e presume that the court properly applied the law and acted within its discretion
unless the appellant affirmatively shows otherwise.' " (Collins, supra, 205 Cal.App.4th at
69
p. 153.) Accordingly, "[w]e presume the trial court . . . was aware of the requirements of
section 1021.5 and specifically of the requirement that 'the necessity and financial burden
of private enforcement . . . [be] such as to make the award appropriate.' " (Vasquez v.
State (2008) 45 Cal. 4th 243, 259.)
The trial court's order awarding attorney fees reflects that the court fully
understood and considered the requirements for an award under section 1021.5 and
properly analyzed and applied the statute's financial burden requirement. The court noted
the statutory requirements for the award and set forth the correct analysis under case law
for determining whether the financial burden requirement is satisfied, noting it was
required to consider the estimated value of the case at the time the vital litigation
decisions were being made, rather than plaintiffs' actual recovery, and compare that
amount to actual litigation costs.
The trial court referenced two points in time when "plaintiffs were making vital
litigation decisions as to whether there was sufficient inventive to move forward with this
litigation." The earliest of these was when the court ruled on the class certification
motion. The certification order, in the court's words, "gutted a large part of the class
envisioned and proposed. . . . Once the class certification motion was heard, the litigation
fees and costs were out of proportion to plaintiffs' stake in the matter." The court found
that plaintiffs' second vital litigation decision was the "strategic decision to proceed on
the Bus. & Prof. §17200 claim in order to obtain a larger statute of limitations. This
decision resulted in a much greater recovery for the class, but presented a real possibility
that attorney fees would be limited to 25% of any recovery to the class." Noting that the
70
fees plaintiffs' counsel earned in obtaining recovery for the class amounted "to at least $5
million," the court concluded: "To require counsel to recover fees from the common fund
alone would be a financial disaster." The court expressly found "private enforcement"
was necessary and that the financial burden of private enforcement warranted subsidizing
plaintiffs' counsel.
The court reasonably found the financial burden requirement for section 1021.5
was satisfied from the point in time when it granted class certification. As noted,
plaintiffs' cost of litigation includes attorney fees, expert witness fees, deposition costs,
and other expenses. (Collins, supra, 205 Cal.App.4th at p. 154.) Considering that the
court's attorney fee award alone was $5,847,875, the trial court could reasonably find that
plaintiffs' actual litigation costs substantially exceeded the financial benefits they
reasonably expected to obtain from litigation.35
UT argues that if the financial burden requirement was not met at the outset of the
litigation but was met later, attorney fees should be awarded only from the point when the
financial burden element was met. UT relies on Los Angeles Police Protective League v.
City of Los Angeles (1986) 188 Cal. App. 3d 1 (Protective League), in which the Court of
Appeal limited an award of attorney fees under section 1021.5 on remand to fees the
35 Plaintiffs represent in their respondents' brief that their costs of litigation totaled
$8,757,137.43. That figure is the sum of the amount of unenhanced attorney fees and
costs plaintiffs' counsel Callahan & Blaine requested in their motion for attorney fees.
Callahan & Blaine asked the court to award fees in the lodestar amount of $7,967,340.55
plus an enhancement multiplier of 1.5, and costs of $789,796.88 ($7,967,340.55 +
$789,796.88 = $8,757,137.43). Plaintiffs' cocounsel, Cadena Churchill, filed a separate
motion for attorney requesting fees in the lodestar amount of $152,559.25, plus an
enhancement multiplier of 1.5, and costs of $5,501.09.
71
plaintiff incurred in prosecuting a prior appeal because the requirements of benefiting a
large class of persons and financial burden were not at the trial stage of the case; it was
only "at the appellate level the case implicated the public interest and where it might not
have made economic sense to proceed without the incentive of an attorney fee award
should the appeal prove successful." (Id. at p. 17.) Protective League is distinguishable
because the financial burden and public or large-class benefit requirements in the present
case were satisfied at the trial stage and not only on appeal.
In any event, we need not decide at this point whether an award of attorney fees
under section 1021.5 should only take account of lodestar fees incurred after the financial
burden requirement is satisfiedi.e., in this case after the motion for class certification
was decided. The trial court found "an award of fees at 25% of [plaintiffs' common fund]
would not be inequitable," and, accordingly, ordered that 25 percent of plaintiffs' attorney
fee award was "recoverable from [plaintiffs'] common fund in the amount of
$1,250,000,00." From this we can infer that the court took into account plaintiffs'
counsel's financial incentive at the beginning of the litigation in exercising its equitable
discretion to apportion fees between UT and the common fund, rather than ordering UT
to pay the entire fee award.
Although we find no abuse of discretion in the court's determination that the
requirements of section 1021.5 to justify a fee award were satisfied, we conclude the trial
court should reconsider the amount of the award in light of the possible reduction of
plaintiffs' monetary award on remand. We understand that in doing so, the court will
evaluate " 'a number of factors, including the nature of the litigation, its difficulty, the
72
amount involved, the skill required in its handling, the skill employed, the attention
given, the success or failure, and other circumstances in the case.' " (PLCM Group, Inc.
v. Drexler (2000) 22 Cal. 4th 1084, 1096, italics added.)36 Because the degree of success
plaintiffs will achieve after redetermination of their monetary award on remand may
change, the court's assessment of the degree of success achieved by plaintiffs' counsel
could also change. (Sokolow v. County of San Mateo (1989) 213 Cal. App. 3d 231, 248
[the degree or extent of plaintiffs' success in obtaining the results they sought must be
taken into consideration in determining the reasonable amount of their attorney fee
award].) In addition, plaintiffs are entitled to an award of attorney fees incurred on
appeal. (Protective League, supra, 188 Cal.App.3d at p. 17.)
UT contends the court improperly awarded fees to plaintiffs for both successful
and unsuccessful claims that were unrelated, and that even if the claims were related, the
court should have reduced the fee award for plaintiffs' limited success. "California law,
like federal law, considers the extent of a plaintiff's success a crucial factor in
determining the amount of a prevailing party's attorney fees. [Citation.] 'Although fees
36 "[T]he fee setting inquiry in California ordinarily begins with the 'lodestar,' i.e.,
the number of hours reasonably expended multiplied by the reasonable hourly rate.
'California courts have consistently held that a computation of time spent on a case and
the reasonable value of that time is fundamental to a determination of an appropriate
attorneys' fee award.' [Citation.] The reasonable hourly rate is that prevailing in the
community for similar work. [Citations.] The lodestar figure may then be adjusted,
based on consideration of factors specific to the case, in order to fix the fee at the fair
market value for the legal services provided. [Citation.] Such an approach anchors the
trial court's analysis to an objective determination of the value of the attorney's services,
ensuring that the amount awarded is not arbitrary." (PLCM, supra, 22 Cal.4th
at p. 1095.)
73
are not reduced when a plaintiff prevails on only one of several factually related and
closely intertwined claims [citation], "under state law as well as federal law, a reduced
fee award is appropriate when a claimant achieves only limited success." ' [Citations.]
The trial court may reduce the amount of the fee award 'where a prevailing party plaintiff
is actually unsuccessful with regard to certain objectives of its lawsuit.' " (Environmental
Protection Information Center v. California Dept. of Forestry and Fire Protection (2010)
190 Cal. App. 4th 217, 238 (Environmental Protection).)
California courts applying section 1021.5 in cases of limited success have adopted
a two-step inquiry set forth in Hensley v. Eckerhart (1983) 461 U.S. 424 (Hensley).
(Environmental Protection, supra, 190 Cal.App.4th at pp. 238–239.) The first step
inquiry is to determine whether the prevailing party's unsuccessful claims are related to
its successful ones. (Id. at p. 239.) If the different claims are based on different facts and
legal theories, they are unrelated; if they involve a common core of facts or are based on
related legal theories, they are related. (Ibid.)
If successful and unsuccessful claims are related, the second step of the Hensley
inquiry is to determine "whether 'the plaintiff achieve[d] a level of success that makes the
hours reasonably expended a satisfactory basis for making a fee award.' [Citation.] In
this step, the court will 'evaluate the "significance of the overall relief obtained by the
plaintiff in relation to the hours reasonably expended on the litigation." ' [Citations.] Full
compensation may be appropriate where the plaintiff has obtained 'excellent results,' but
may be excessive if 'a plaintiff has achieved only partial or limited success.' [Citation.]
'The court may appropriately reduce the lodestar calculation "if the relief, however
74
significant, is limited in comparison to the scope of the litigation as a whole." ' "
(Environmental Protection, supra, 190 Cal.App.4th at p. 239.)
The court's attorney fee order does not reflect that the court applied the Hensley
two-step inquiry or otherwise considered plaintiffs' limited success in determining the
amount of their fee award. Consequently, in redetermining the amount of the fee award
in light of plaintiffs' reduced monetary recovery, the court should also consider whether
the award should be reduced by the amount of any fees that were attributable to
unsuccessful claims that were unrelated to successful claims.
UT contends the court erred by adopting plaintiffs' lodestar amount in awarding
attorney fees. Plaintiffs respond that the court did not fully adopt its lodestari.e., all of
the fees they soughtand that the court's lodestar determination was correct.
Understanding that the trial court's calculation of allowable hours may change on remand,
we find no abuse of discretion in the manner in which court made the lodestar
determination.
" 'It is well established that the determination of what constitutes reasonable
attorney fees is committed to the discretion of the trial court . . . . [Citations.] The value
of legal services performed in a case is a matter in which the trial court has its own
expertise. [Citation.] The trial court may make its own determination of the value of the
services contrary to, or without the necessity for, expert testimony. ' " (PLCM Group v.
Drexler, supra, 22 Cal.4th at p. 1096.) The trial court's exercise of discretion in deciding
whether to increase or reduce the lodestar figure "will not be disturbed unless the
appellate court is convinced the award is clearly wrong." (Downey Cares v. Downey
75
Community Development Com. (1987) 196 Cal. App. 3d 983, 994; PLCM, at p. 1095
[" 'The "experienced trial judge is the best judge of the value of professional services
rendered in his court, and while his judgment is of course subject to review, it will not be
disturbed unless the appellate court is convinced that it is clearly wrong." ' "].) A
reviewing court is "entitled to presume the trial court considered all the appropriate
factors in choosing the multiplier and applying it to the whole lodestar." (Downey Cares
v. Downey, at p. 998.)
In its order awarding attorney fees, the court stated it had "carefully reviewed the
billing information submitted by plaintiff, and [had] considered the motions papers and
exhibits submitted." The court further stated: "The Court declines to rely on expert
opinions, as this Court is thoroughly familiar with this case and has adjudicated attorney
fee requests in many other cases." After noting there was "no evidence of pre-litigation
settlement offers," the "litigation was fiercely fought," and "[p]re-litigation attempts to
settle would likely have been futile[,]" the court "calculate[d] 11,695.75 hours of attorney
time as reasonable." The court excluded time for work performed by nonattorneys and
determined "that an across-the-board blended hourly rate of $500 [was] a reasonable rate,
considering the various rates throughout the four years, and considering counsel's
experience and the standards within the community." Bearing in mind that the
experienced trial judge is the best judge of the value of professional services rendered in
the trial court (PLCM, supra, 22 Cal.4th at p. 1095), we find nothing "clearly wrong"
with the court's lodestar determination, although the attorney fee award must be
reconsidered for the reasons discussed above.
76
Plaintiffs' Appeal
I. Denial of Enhancement of Attorney Fee Award
Plaintiffs contend the court abused its discretion in not awarding an enhancement
of the lodestar amount of their attorney fees. As we discussed above, we will not disturb
the trial court's exercise of discretion in deciding whether to increase or reduce the
lodestar figure unless the fee award is clearly wrong (PLCM, supra, 22 Cal.4th at
p. 1095), and we may "presume the trial court considered all the appropriate factors in
choosing the multiplier and applying it to the whole lodestar." (Downey Cares v.
Downey Community Development Com., supra, 196 Cal.App.3d at p. 998.)
Plaintiffs complain that the trial court did not consider the factors that, in their
words, "trial courts must consider in ruling on a fee enhancement request." The factors
that plaintiffs specify are: "(1) the novelty and difficulty of the questions involved, (2)
the skill displayed in presenting them, (3) the extent to which the nature of the litigation
precluded other employment by the attorneys, (4) the contingent nature of the fee award."
(Ketchum v. Moses (2001) 24 Cal. 4th 1122, 1132 (Ketchum), citing Serrano v. Priest
(1977) 20 Cal. 3d 25, 49 (Serrano III).) The Ketchum court noted that the lodestar "may
be adjusted by the court based on [those] factors . . . ." (Ketchum, at p. 1132.)37
37 The California Supreme Court has not carved these factors "into concrete or barred
consideration of other relevant and nonduplicative factors; nor have the courts of appeal
sought to do so. On the contrary, . . . the Supreme Court [has] described the
factors . . . as among those 'the trial court may consider in adjusting the lodestar figure.' "
(Lealao v. Beneficial California, Inc. (2000) 82 Cal. App. 4th 19, 40–41, quoting Press v.
Lucky Stores, Inc. (1983) 34 Cal. 3d 311, 322, fn. 12.)
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The Ketchum court also noted: "Of course, the trial court is not required to
include a fee enhancement to the basic lodestar figure for contingent risk, exceptional
skill, or other factors, although it retains discretion to do so in the appropriate case;
moreover, the party seeking a fee enhancement bears the burden of proof. In each case,
the trial court should consider whether, and to what extent, the attorney and client have
been able to mitigate the risk of nonpayment, e.g., because the client has agreed to pay
some portion of the lodestar amount regardless of outcome. It should also consider the
degree to which the relevant market compensates for contingency risk, extraordinary
skill, or other factors under Serrano III. We emphasize that when determining the
appropriate enhancement, a trial court should not consider these factors to the extent they
are already encompassed within the lodestar. The factor of extraordinary skill, in
particular, appears susceptible to improper double counting; for the most part, the
difficulty of a legal question and the quality of representation are already encompassed in
the lodestar. A more difficult legal question typically requires more attorney hours, and a
more skillful and experienced attorney will command a higher hourly rate. [Citation.]
Indeed, the ' "reasonable hourly rate [used to calculate the lodestar] is the product of a
multiplicity of factors . . . the level of skill necessary, time limitations, the amount to be
obtained in the litigation, the attorney's reputation, and the undesirability of the case." '
[Citation.] Thus, a trial court should award a multiplier for exceptional representation
only when the quality of representation far exceeds the quality of representation that
would have been provided by an attorney of comparable skill and experience billing at
the hourly rate used in the lodestar calculation. Otherwise, the fee award will result in
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unfair double counting and be unreasonable. Nor should a fee enhancement be imposed
for the purpose of punishing the losing party." (Ketchum, supra, 24 Cal.4th at pp. 1138–
1139, italics added.)
In the present case, we cannot say the trial court's decision to not enhance the
lodestar was clearly wrong. The court reasonably could have viewed the Serrano III
factors of the difficulty of the questions involved, the skill displayed in presenting them,
and the extent to which the litigation precluded other employment as being encompassed
in the lodestar, and could reasonably decide that the quality of the representation
provided by plaintiffs' counsel was comparable to the quality that would have been
provided by counsel of comparable skill and experience billing at the hourly rate used in
the lodestar calculation. The court did not abuse its discretion in denying plaintiffs'
request to enhance the lodestar.
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II. Recovery of Attorney Fees Under Section 2802
Plaintiffs contend the court erred in ruling they could not recover attorney fees
under Labor Code section 2802. Plaintiffs state in their opening brief that they "preserve
this issue because if [this] Court for some reason reverses the trial court's award of
attorney's fees under . . . section 1021.5, Plaintiffs reserve the right to seek these fees
under . . . section 2802 . . . ." Although we are reversing the attorney fee award with
directions to redetermine the award, we are not reversing the trial court's decision to
award attorney fees under section 1021.5. Consequently, we will not address plaintiffs'
contention that they are entitled to recover attorney fees under section 2802, other than to
express our view that the court reasonably found plaintiffs abandoned their section 2802
cause of action by electing to seek recovery solely under section 17200, as the court fully
explained in its January 21, 2014 order awarding attorney fees.
DISPOSITION
The portions of the judgment awarding the class members the principal sum of
$3,188,445 plus prejudgment interest and attorney fees in the amount of $6,160,416 are
reversed and the matter is remanded. The court is directed to redetermine the amount of
the class award and prejudgment interest consistent with the views expressed in this
opinion, including reducing the award by the amount of any documented and readily
identifiable payments, credits, or reversals in the subject expense categories that UT is
able to show the class members received, and disallowing recovery for insert credits. The
court is further directed to redetermine attorney fees consistent with the views expressed
in this opinion, taking into consideration any reductions in the class monetary recovery
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on remand and whether the fee award should be reduced by the amount of any fees that
were attributable to unsuccessful claims that were unrelated to successful claims. In all
other respects, the judgment is affirmed. Plaintiffs are awarded their costs on appeal.
McCONNELL, P. J.
WE CONCUR:
HALLER, J.
DATO, J.
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