Cochran v. Schwan’s Home Service, Inc. (2014) 228 Cal.App.4th 1137

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[No. B247160.  Second  Dist., Div. Two. Aug.  12, 2014.]

COLIN COCHRAN,  Plaintiff  and Appellant,  v.
SCHWAN’S HOME SERVICE,  INC., Defendant  and Respondent.





   *Judge  of the Los Angeles  Superior  Court,  assigned  by the Chief  Justice  pursuant  to  article
VI, section 6 of the California  Constitution.

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Counsel
Law Offices of Kevin T. Barnes, Kevin T. Barnes, Gregg Lander; Kokozian
Law Firm and Bruce Z. Kokozian for Plaintiff and Appellant.
Kutak Rock, Matthew C.  Sgnilek; and Alan L. Rupe for Defendant and
Respondent.

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 Opinion

ASHMANN-GERST, Acting P. J- . We hold that when employees  must use
 their personal  cell phones  for work-related   calls, Labor Code  section 28021
requires  the employer  to reimburse  them. Whether  the employees  have  cell
phone  plans  with  unlimited  minutes  or limited  minutes,  the reimbursement
owed  is a reasonable  percentage  of their  cell phone  bills. Because  the  trial
court  relied on erroneous  legal assumptions  about  the application  of section
2802, we must  reverse  the  order  denying  certification  to a class  of  1,500
service  managers  in an action  against Schwan’s Home  Service,  Inc. (Home
Service),  seeking,  inter  alia, reimbursement   of work-related   cell phone  ex-
penses.  Upon  remand,  the  trial  court  shall  reconsider  the motion  for  class
certification  in light of our interpretation  of section 2802. When reconsidering
the  motion,   it  shall  apply  the  principles   set  forth  in Duran  v. U.S. Bank
National Assn. (2014)  59  Cal.4th  1 [172  Cal.Rptr.3d  371, 325  P.3d 916]
(Duran) to the degree  that the class representative,  Colin Cochran  (Cochran),
proposes  to use  statistical  sampling  evidence  to  establish  either  liability  or
damages.  The  parties  shall  have  the  opportunity   to  revise  their  papers  to
address  the issues  raised  herein.

                       FACTS

  Cochran  filed a putative  class  action  against Home  Service  on behalf  of
customer  service managers who were not reimbursed  for expenses  pertaining
to the work-related  use of their  personal  cell phones. He  alleged  causes  of
action  for violation  of section 2802; unfair business  practices  under Business
and Professions  Code  section 17200  et seq.; declaratory  relief; and statutory
penalties  under Labor Code section  2699,  the Private Attorneys  General Act
of 2004.

  He moved  to certify the class. Home Service  filed an opposition  as well as
a motion  to deny  certification.

  On October  24, 2012, the  trial court held a hearing.  It found  that the class
was  ascertainable;   the  class was  sufficiently  numerous  because   it included
1,500 people;  Cochran was a typical  as well  as an adequate  class member;
and counsel  for the putative  class was qualified  to act as class counsel.  Next,
the  trial  court  analyzed  commonality.   It determined   that  the elements  of a
section 2802 claim were  (1) expenditures  by the customer  service managers;
(2) the expenditures  were necessarily  incurred  in the discharge  of their duties;
(3) Home  Service knew  or had reason  to know  of the expenditures;  and  (4)

  1    All further  statutory  references  are to the Labor Code unless  otherwise  indicated.

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Home  Service  did not exercise  due diligence  to reimburse  the expenditures.
The  trial  court  concluded   that common  questions  predominated   regarding
issues  2, 3 and  4. As  to  the  first  issue, Home  Service  argued  that  the
expenditure  element  “is  subject  to   .  .  . individual  questions  because  many
people now have unlimited  data plans for which they do not actually incur an
additional  expense  when  they  use  their  cell phone.  In  order  to determine
whether  an expense  was  incurred  for  [a class member’s]  business  use  will
require  an  examination   of  each  class member’s   cell  phone  plan   .   .   .  .”
Cochran  argued  “that whether  [a class member]  actually  incurred an expense
when  using  their personal  cell phone  for work  is an issue  of damages  and
individualized  damages do not impact  the commonality  analysis.”  In the  trial
court’s  view, Cochran  “misstate[d]  the  elements  of a failure  to reimburse
claim,”  explaining  that  “[t]he  showing  of an actionable  expenditure  or loss
by   .  .  . class member[s]  pertains  to [Home  Service’s]   liability,  not  to  class
members’  damages  as  it  is  set  forth  in   .   .   .  section  2802.  If  the  class
member[s]  did not incur  . . . loss[es],  there can be no liability.” Next, the  trial
court  noted  that  there  was  an  issue  regarding  whether  Cochran   or  his
girlfriend  paid  for his phone  bill, implying  that whether  each  class member
paid for his or her phone  bill was an issue. Also,  it found  that the expenditure
inquiry would involve  questions  about whether  class members “purchased    . . .
different  cell phone  plans because  of their work  cell phone usage.”  Because
Cochran  did not provide  a means  for managing  these questions,  the trial court
ordered  further  briefing.  It deferred  ruling on whether  a class  action was  a
superior method  for adjudicating  the claims.

   In  his  supplemental   brief,  Cochran  argued  that  statistical  evidence  and
representative  testimony  could be used  to establish Home  Service’s  liability.
The  brief was  supported  by  the  expert  declaration  of G. Michael  Phillips,
Ph.D., an economist  and  statistician. He opined  that there were two methods
for establishing  liability  as well as damages.  First, he could assume damages
of  $2  per  day,  which  was  the  amount  he  claimed   that Home  Service
reimbursed   putative  class  members  in 2006  and  2007.  Second,  he  could
conduct  a survey.

   Regarding   the  latter  method,  Dr.  Phillips  provided  a 22-question   draft
survey. He stated: “A survey implementation  plan would proceed  as follows:
first, a letter would be mailed  to the address  of each class member, informing
them  that  they would  be  called  in  the  next  few  days  to  take  part  in  an
important  survey.  It would ask them to find their  cellular telephone  records,  if
possible,  to  assist with  accurate  data collection.  Next,  an interviewer  would
attempt  to call each  class member  and administer  the telephonic  survey. For
working  numbers,  up  to five attempts would be made,  at varying  days  and
times,  to reach each  class member  by phone.  In the instance  that an  initial
call reached  a nonworking  number,  an attempt  would  be made  to  find  an
alternative  number. The  data from  the  survey  would  then be  analyzed  for

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potential nonsampling  errors through standard  statistical procedures, and finally
used for analysis  of reported  losses and expenditures  by class members.”

  On January  31, 2013, the  trial court held a second  hearing.  It denied  class
 certification  due to lack of commonality,  and because  a class action was not a
superior method  of litigating  the claims.  It noted  that there was a question  as
to “whether  the  cell phone  charges  [Cochran]  allegedly  incurred  were  in-
curred  and paid  for by him  or by his  live-in  girlfriend,”  and explained  that
this  issue was  resolved  only  after Cochran  was examined.  In  addition,  the
trial  court  stated  that Home  Service  “would be entitled  to ask whether  each
driver purchased  a different  cell phone  plan, because  of their work cell phone
usage,”  and therefore Home  Service had “demonstrated   that these  individual
issues  exist  for”  class members.  The  trial  court added  that  statistics  from  a
survey  could not be used  to prove  liability,  especially  because  there was no
pattern  or practice  regarding  the expenditures  or losses  of class members.   It
concluded:  “[Cochran]  has not demonstrated  how  the  cell phone  plans  and
method  of payment  exhibited by a portion  of the class will accurately  reflect
the  plans  and  method  of payment   for  the  entire  class.    .   .   . Therefore,
individualized  inquiries  of the class members’  cell phone plans and payments
are necessary  to determine  liability. This inquiry  for 1500 class members,  as
evidenced  by the four-page  22 question  survey,  will overwhelm  the  liability
determination.  Therefore, common  questions  do not predominate    . .  . .”

   This timely  appeal followed.

                      DISCUSSION

I.   Class Certification Law; Standard  of Review.

     A party  seeking  class  certification  must demonstrate  an ascertainable
class and a well-defined  community  of interest.  (Soderstedt v. CBIZ Southern
California, LLC  (2011)  197  Cal.App.4th   133,  142-143   [127  Cal.Rptr.3d
394].) The  requisite  community   interest  is established  when  there  are pre-
dominate  common  questions,  the  class  representatives  have  claims  or  de-
fenses  typical  of  the  class,  and  the  class  representatives   can  adequately                                              “represent  the class.  (Id. at p. 143.) Generally,     ‘if the defendant’s  liability can
be determined  by facts common  to  all members  of the  class, a class  will be
certified even  if the members  must  individually  prove  their damages.’  [Cita-
tions.]”  (Brinker Restaurant  Corp. v. Superior Court (2012) 53 Cal.4th  1004,
1022 [139 Cal.Rptr.3d  315, 273 P.3d 513].)

      When  sufficient common  questions  predominate,   “it may be possible
to  manage   individual   issues  through   the  use  of  surveys  and   statistical

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sampling.”  (Duran, supra,  59 Cal.4th  at p.  31.) Duran,  a case involving  a
wage and hour class action, explained  that sampling  is a “methodology  based
on inferential  statistics and probability  theory. ‘The essence  of the science  of
inferential   statistics  is  that  one may  confidently  draw  inferences  about  the
whole from a representative  sample  of the whole.’  [Citation.] Whether  such
inferences   are  supportable,   however,  depends  on how  representative   the               ‘sample  is.  [Inferences  from  the part to the whole  are justified  [only] when
the  sample   is  representative.’   [Citation.]  Several  considerations   determine
whether  a sample  is  sufficiently  representative   to  fairly  support  inferences
about  the underlying  population.”  (Duran, supra,  at p. 38.) Those  consider-
ations  include  variability  in  the  population,  whether  size  of the sample   is
appropriate,  whether  the sample  is random  or infected  by selection  bias, and
whether  the margin  of error  in the  statistical  analysis  is reasonable.   (Id. at
pp.  38^46.)  At  the  certification   stage,  a  trial  court  “should  consider    .  .  .
whether  a [statistical]  plan has been developed.”  (Id. at p. 31.) Duran noted
that the use of statistical  sampling  to prove  liability  in overtime  class actions
is controversial,  and explained  that the use of  it to prove damage  is less  so
because  “the law  tolerates more  uncertainty  with respect  to damages  than  to
the existence  of liability.”  (Id. at p. 40.) The court stopped  short of deciding
whether  sampling  “should  be  available  as a tool  for proving  liability  in a
class  action.”  (Ibid.)  Instead,   inter   alla,   it  warned   that  “when   statistical
methods  such as sampling  are appropriate,  due concern  for the parties’  rights
requires  that they be employed  with caution.”  (Id. at p. 41.)

  Whether  to grant or deny class certification  is a matter within a trial court’s
discretion.  That  said,  “appellate  review  of orders  denying  class  certification
differs from  ordinary  appellate  review. Under  ordinary  appellate  review, we
do not address the trial court’s reasoning  and consider  only whether  the result
was  correct.  [Citation.]  But when denying  class  certification,  the  trial  court
must  state  its  reasons,  and we must  review  those  reasons  for  correctness.
[Citation.] We may  only  consider  the reasons  stated by the  trial  court  and
must ignore any unexpressed  reason that might support  the ruling.  [Citations.]
[¶] We  will  affirm  an  order  denying  class  certification   if any  of  the  trial
court’s  stated reasons was  valid and  sufficient  to justify  the order, and  it  is
supported  by  substantial   evidence.   [Citations.]  We  will  reverse  an  order
denying  class  certification   if the  trial  court used  improper  criteria  or made
erroneous  legal assumptions,  even  if substantial  evidence  supported  the order.
[Citations.] A trial court’s  decision  that rests on an error of law is an abuse  of
discretion.   [Citations.]”  (Knapp v. AT&T Wireless Services, Inc. (2011)  195
Cal.App.4th  932, 939 [124 Cal.Rptr.3d  565].)

II.   Section 2802.

        Pursuant  to section 2802, subdivision  (a), “[a]n employer  shall indem-
nify his or her employee  for  all necessary  expenditures  or losses incurred  by

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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   .  .  . .” The purpose  of               “this  statute  is    ‘to prevent  employers  from passing  their  operating  expenses                         ”on to their  employees.’    (Gattuso v. Harte-Hanks Shoppers, Inc. (2007) 42
Cal.4th  554,  562  [67  Cal.Rptr.3d  468,  169 P.3d  889]  (Gattuso)   [quoting
legislative  history  from  the 2000 amendment  to the  statute].)  “In calculating
the  reimbursement   amount  due  under  section  2802,  the  employer  may
consider  not only  the  actual  expenses  that  the employee  incurred,  but  also
whether each of those expenses was  ‘necessary,’ which in turn depends on the
reasonableness   of the employee’s  choices.  [Citation.]”  (Gattuso, supra, 42
Cal.4th  at p. 568.)

       The threshold  question  in this case  is this: Does an employer  always
have  to reimburse  an employee  for the reasonable  expense  of the mandatory
use of a personal  cell phone,  or is the reimbursement  obligation  limited  to the
situation  in which  the employee  incurred  an  extra  expense  that he  or she
would  not  have  otherwise  incurred  absent  the  job?  The  answer   is  that
reimbursement   is always  required.  Otherwise,  the employer  would  receive  a
windfall  because    it  would  be  passing   its  operating  expenses  on  to  the
employee.  Thus,  to be in compliance  with  section  2802,  the employer  must
pay some reasonable  percentage  of the employee’s  cell phone  bill. Because  of
the differences  in cell phone plans and work-related  scenarios,  the calculation
of reimbursement  must be left to the trial court and parties  in each particular
case.

III.  The Order Denying Class Certification Must Be Reversed Because the
     Court Made Erroneous Legal Assumptions.

  When  ruling,  the  trial court assumed  that an employee  does not  suffer an
expenditure  or loss under  section 2802  if his or her  cell phone  charges were
paid for by a third person,  or if the employee  did not purchase  a different  cell
phone  plan because  of cell phone  usage  at work.  In addition,  the  trial court
assumed  that  liability  could  not be determined  without  an inquiry  into  the
specifics  of each  class members’   cell phone  plan. As we  discuss,  each  of
these  legal assumptions  was erroneous.

           If an employee  is required  to make  work-related   calls on a personal
cell phone,  then he or she  is incurring  an expense  for purposes  of section
2802.  It does not matter whether  the phone  bill  is paid for by a third person,
or at  all. In other words,  it is no concern  to the employer  that the employee
may pass on the expense  to a family member  or friend, or to a carrier that has
to then write off a loss.  It is irrelevant  whether  the employee changed plans to
accommodate  work-related  cell phone usage. Also, the details  of the employ-
ee’s  cell  phone  plan  do  not  factor  into  the  liability   analysis.  Not  only

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does  our  interpretation   prevent  employers  from  passing  on  operating  ex-
penses,   it  also  prevents  them  from  digging  into  the  private  lives  of  their
employees  to unearth how they handle  their finances  vis-a-vis  family, friends
and  creditors. To show  liability  under  section  2802,  an employee  need  only
show  that  he  or she was  required  to use  a personal   cell phone  to make
work-related   calls, and he or she was not reimbursed.  Damages,  of course,
raise issues  that are more complicated.

       Because  the  trial court made erroneous  legal  assumptions,  the denial
of class certification  must be reversed.

   All other issues  are moot.

                       DISPOSITION

  The  order  denying  class  certification   is reversed.  Upon remand,  the  trial
court  shall  reconsider  Cochran’s  motion.  In doing  so,  the  trial  court  shall
heed our interpretation  of section 2802 and apply  the principles  set forth  in
Duran regarding   statistical  sampling.  Cochran  shall have the opportunity   to
revise  its motion, and Home  Service  shall have the opportunity  to respond.

   Cochran  shall recover  his costs on appeal.

   Chavez,  J., and Ferns,  J.,* concurred.

   Respondent’s   petition   for  review  by  the  Supreme  Court  was  denied
November  25, 2014, S221319.





   “Judge  of the Los Angeles  Superior  Court,  assigned  by the Chief  Justice  pursuant  to  article
 VI, section 6 of the California  Constitution.