Opinion
A146422
01-12-2017
TERRI CHRISTENSEN, Plaintiff and Appellant, v. CVS PHARMACY, INC., Defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Alameda County Super. Ct. No. RG13682182)
Terri Christensen filed a putative class action complaint on behalf of certain employees of CVS Pharmacy, Inc. (CVS) alleging that CVS violated California Labor Code section 2802 by paying its employees an insufficient reimbursement rate for their use of their personal vehicles to perform work-related tasks. Christensen moved for class certification, arguing that common questions of law and fact predominated. She argued that CVS violated section 2802: (1) by arbitrarily setting its reimbursement rate at a preconceived margin below the rate used by the IRS for business expense deductions; and (2) by failing to consider certain categories of vehicle-related costs in determining that rate, and thereby failing to reimburse for them. Whether a given mileage reimbursement rate is lawful, in Christensen's view, is a common issue that warrants class certification. The trial court denied the motion, and Christensen appeals. We affirm.
All statutory references are to the Labor Code.
FACTUAL AND PROCEDURAL BACKGROUND
CVS is a national pharmacy chain with over 800 locations in California. As part of its operations, CVS employees transfer inventory between stores and perform other business-related driving tasks using their personal vehicles. CVS reimburses those employees for their vehicle related expenses using a per-mile rate, according to which employees are reimbursed a fixed amount for each mile driven for business purposes. Between 2009 and 2014, that fixed amount varied between 40 and 45 cents per mile. During that same time period, the rate that the Internal Revenue Service (IRS) used to compute the deductible cost of operating a vehicle for business purposes ranged from 50 to 56 cents per mile.
Christensen was employed by CVS and a predecessor company from 1986 until December 2012 as a shift supervisor and assistant manager. During that time, she used her personal vehicle to perform work-related tasks, as did other employees holding the positions of shift supervisor, assistant manager, and store manager.
On June 3, 2013, Christensen filed a class action complaint against CVS, alleging that CVS had failed to fully reimburse its employees for their vehicle-related expenses in violation of section 2802. She moved for certification of two classes: (1) a "Mileage Rate Class" consisting of "all current and former Store Managers, Store Assistant Managers, and Shift Supervisors, and all similarly titled employees employed by CVS in California from June 3, 2009 through the conclusion of this action ("Class Period"), who were reimbursed for mileage expenses at a rate less than the applicable IRS mileage rate"; and (2) an "Unpaid Mileage Expenses or ISIT Class" consisting of "all current and former Store Assistant Managers, and Shift Supervisors, and all similarly titled employees employed by CVS during the Class Period." In support of her motion, Christensen cited deposition testimony of CVS's person most knowledgeable, Anna Umberto, that CVS's mileage rate was calculated to be "within ten cents under the IRS rate", and that CVS had "never looked into — never analyzed whether its rate specifically covers insurance costs" or "other costs such as wear and tear and depreciation and maintenance."
We will use the same shorthand as the trial court and refer to these classes as the "Mileage Rate Class" and the "Unpaid Mileage Expense Class," respectively.
By its April 9, 2015 order, the trial court denied Christensen's motion, based in part on admissions by her counsel at the hearing on the motion that demonstrating class members were not reimbursed at the IRS rate would not "end the inquiry" into liability, which would "turn on a comparison of actual expenses to CVS's chosen mileage rate." The trial court concluded that Christensen had not carried her burden to show that this "inherently individualized inquiry" could be effectively managed as a class action.
Christensen retained new class counsel who filed a motion for reconsideration pursuant to California Code of Civil Procedure section 1008, subdivision (a). She modified her theory of the case, arguing that liability could be established under section 2802 by showing that CVS arbitrarily set a mileage reimbursement rate 10 to 15.5 cents per mile below the IRS rate that failed to account for the costs of depreciation, insurance, and maintenance, and that individualized inquiries into class members' actual expenses would not be necessary to establish liability or damages because plaintiffs would seek class damages based on the difference between CVS's rate and the IRS rate. The trial court found that reconsideration was not warranted under section 1008, subdivision (a) of the Code of Civil Procedure, but exercised its inherent authority to reconsider the motion for class certification, and permitted further briefing based on Christensen's reformulated theory of liability.
In her motion, Christensen did not seek reconsideration of the trial court's decision not to certify the "Unpaid Mileage Expenses" class, and she modified the definition of the "Mileage Rate Class" to eliminate the phrase "and all similarly titled employees" and to define the end of the class period as the "date of entry of the Court's order granting class certification" rather than the "conclusion of this action."
On July 27, 2015, the trial court again denied Christensen's motion for class certification on the grounds that she had failed to satisfy the commonality and predominance requirements. As a threshold legal issue, the trial court found that a mileage rate below the IRS rate that did not consider depreciation, maintenance, and insurance did not in and of itself violate section 2082, reasoning that "Section 2802 prohibits only the failure to fully reimburse; it does not directly regulate the methods by which an employer can calculate reimbursements. [Citation.]" Thus, in order to establish liability, Christensen was required to demonstrate that the "rate itself provides for less than full reimbursement."
The trial court went on to conclude that Christensen had failed to establish that lack of reimbursement could be established based upon common evidence. The trial court found that she had failed to put forward any evidence "that the failure to consider depreciation, maintenance, and insurance had a common, material impact on any number of class members." Moreover, Christensen did not "provide evidence that the mileage rate failed to compensate even a single member of the putative class for his or her actual per-mile expense of driving his or her vehicle during the class period." Thus, the trial court found that she had not met her burden to provide substantial evidence to support a finding of commonality and predominance, and denied her motion. Christensen timely appeals.
On June 2, 2016, CVS filed a motion for judicial notice of an August 13, 2015 Los Angeles County trial court order denying a motion for class certification in circumstances similar to those presented here. We deferred ruling on CVS's motion until our decision on the merits. The August 13, 2015 order was not before the trial court, and we do not perceive any "exceptional circumstances" that would justify deviating from the rule that we do not generally take judicial notice of evidence not before the trial court. (Vons Companies, Inc. v. Seabest Foods, Inc. (1996) 14 Cal.4th 434, 444 fn. 3.) Accordingly, the motion for judicial notice is denied.
Standard of Review
We review denial of a motion for class certification for abuse of discretion. (See Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, 1017.) "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.) The trial court's legal analysis is reviewed de novo. (See Marler v. E.M. Johansing, LLC (2011) 199 Cal.App.4th 1450, 1459.)
DISCUSSION
In order to prevail on her motion for class certification, Christensen is required to demonstrate a "well-defined community of interest," which in turn requires her to show the existence of "predominant common questions of law or fact." (Code Civ. Proc., § 382; Fireside Bank v. Superior Court (2007) 40 Cal.4th 1069, 1089.) Christensen bears the burden "not merely to show that some common issues exist, but, rather, to place substantial evidence in the record that common issues predominate. [Citation.]" (Lockheed Martin Corp. v. Superior Court (2003) 29 Cal.4th 1096, 1108.) "As a general rule 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." (Hicks v. Kaufman & Broad Home Corp. (2001) 89 Cal.App.4th 908, 916.)
In support of her motion for class certification, Christensen introduced testimony from CVS's Anna Umberto that CVS set its mileage reimbursement rate within 10 cents under the IRS rate, and that in doing so, CVS did not expressly consider certain types of vehicle-related expenses, including insurance, maintenance, and depreciation. On appeal, Christensen asserts that this evidence was sufficient to establish liability on a class wide basis, leaving only individualized questions as to damages that do not preclude class certification. (See Sav-on Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 334.)
In particular, Christensen argues that the trial court erred as a matter of law under two main theories. First, she discusses at length the DLSE advice and opinion letters regarding section 2802 quoted in Gattuso v. Harte-Hanks Shoppers, Inc. (2007) 42 Cal.4th 554 (Gattuso), which state that paying the IRS rate creates a rebuttable presumption that the employer has satisfied its obligations under section 2802. (Id. at pp. 564-565.) In Christensen's opening brief she relies on these DLSE opinion letters to suggest a burden shifting argument: "[i]f an employer like CVS is going to adopt a mileage rate below the presumptively reasonable rate, the employer should be prepared to justify its methodology in setting the rate to show that it has complied with its duty to fully reimburse its employees." In her reply brief, she develops this argument further in arguing the DSLE's rebuttable presumption imposes on "the employer [who] pays below the IRS rate . . . the affirmative duty of showing that its lower rate is adequate to fully reimburse its employees." According to Christensen, the employer's use of a rate below the IRS rate "easily fulfills the requirement of common proof to warrant class certification."
Arguments raised for the first time in a reply brief are ordinarily not considered. (See In re Groundwater Cases (2007) 154 Cal.App.4th 659, 693.) We question whether Christensen has adequately developed this argument in her opening brief, but we exercise our discretion to consider it nevertheless.
Second, in failing to consider the costs of insurance, depreciation, and maintenance in setting its reimbursement rate, Christensen reasons that CVS violated section 2802 by failing altogether to reimburse for these expenses. Thus, liability can be established on a class-wide basis. We are not persuaded.
I.
Christensen Cannot Establish Liability Under Gattuso and the DLSE Guidance
Section 2802 requires employers to indemnify employees "for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties." (§ 2802, subd. (a).) In Gattuso, the defendant employer argued that it had complied with its obligation to reimburse its employees for their vehicle related expenses by paying them higher wages and commissions. (Gattuso, supra, 42 Cal.4th at p. 560.) The Supreme Court reviewed the legislative history and administrative guidance pertaining to section 2802, and concluded that employers are permitted to satisfy their obligations under section 2802 by using either: (1) the "actual expense" method, whereby employees keep detailed records of the vehicle related expenses they incur and submit them to their employers for reimbursement; (2) the "mileage reimbursement" method, whereby the employer reimburses employees a certain amount per mile driven for work-related purposes; or (3) the "lump sum" method, whereby the employer pays the employee a fixed lump sum at certain intervals meant to compensate the employee for vehicle related expenses. (Id. at pp. 567-571.) "Nothing in the language of section 2802 restricts the methods that an employer may use to calculate reimbursement." (Id. at p. 570.) Gattuso concluded that employers could reimburse employees by using "enhanced compensation" as a type of lump sum reimbursement, provided that the employer somehow identified the amount of that compensation meant to provide reimbursement for vehicle-related expenses, and provided that the amount itself was sufficient "to fully reimburse the employees for all expenses actually and necessarily incurred." (Id. at pp. 574-575.)
Christensen points to DLSE advice and opinion letters, quoted but not analyzed in Gattuso, stating that for the purposes of the mileage rate reimbursement method, the IRS rate is "presumptively reasonable," whereas a mileage rate set below the IRS rate is "rebuttably presumed not to comply with Section 2802" and means that "the employer bears the burden of proving that the employee's costs of operating the vehicle for work is actually less." (Gattuso, supra, 42 Cal.4th at pp. 565-566.) Christensen argues that because CVS's mileage rate was set arbitrarily 10 to 15 cents below the IRS rate, it was "facially invalid" and liability has been established. We disagree.
First, Christensen would have us elevate the DSLE opinion letters to controlling legal authority. " 'DLSE's opinion letters, . . . " ' " 'while not controlling . . . , do constitute a body of experience and informed judgment to which courts and litigants may properly resort for guidance.' " ' " [Citations.]' [Citation.]" (Peabody v. Time Warner Cable, Inc. (2014) 59 Cal.4th 662, 668, fn. 5; see Jennifer Augustus v. ABM Security Services, Inc. (Dec. 22, 2016, S224853) — Cal.5th —, [2016 WL 7407328 at p. *2].) Notably, the Gattuso court cautioned that "the DSLE interpretation of section 2802, because it was embodied in a void regulation, is not entitled to deference." (Gattuso, supra, 42 Cal.4th at p. 574; see Alvarado v. Dart Container Corp. of California (2016) 243 Cal.App.4th 1200 , review granted May 11, 2016, S232607.) The Gattuso court did not itself determine the DLSE's position regarding burden-shifting to be correct. (Gattuso, supra, 42 Cal.4th at p. 563.)
Moreover, the Supreme Court in Gattuso repeatedly characterized the question of liability under section 2802, subd. (a) as turning on whether employees were reimbursed for all expenses "actually and necessarily" incurred. (Gattuso, supra, 42 Cal.4th at pp. 567-569, 575.) Gattuso expressly recognized that where either the mileage rate method or the lump sum method result in a "reimbursement amount that . . . is less than the actual expenses that the employee has necessarily incurred for work-required automobile use (as calculated using the actual expense method), the employer must make up the difference." (Id. at p. 569.) Thus, liability under section 2802 depends not on how an employer established its mileage reimbursement rate, but on whether the reimbursement provided is "sufficient to fully reimburse the employees for all expenses actually and necessarily incurred." (Id. at 575; see Ortiz v. CVS Caremark Corp. (N.D. Cal., Dec. 2, 2013, No. C-12-05859 EDL) 2013 WL 6236743 at p. *12 ["[A]ny challenge to Defendants' mileage reimbursement method would require Plaintiffs to show that the mileage reimbursement was less than class members' actual expenses"].)
The DLSE advice relied on by Christensen is not to the contrary. That advice acknowledges that use of the IRS rate is "not dispositive" as to the issue of whether section 2802 has been complied with. (Gattuso, supra, 42 Cal.4th at p. 565 [IRS rate " 'is not dispositive with respect to the issue of indemnification of expenses actually incurred' "].) It also provides that " 'if the employer could prove that the actual costs incurred by the employee were less than the IRS rate, no violation of Section 2802 occurs if the employee is indemnified for actual expenses incurred' " and " '[c]onversely, payment of the IRS allowance rate confers no irrebutable presumption of compliance with Section 2802.' " (Ibid.) " 'The DLSE enforcement position also allows for a deviation from the IRS rate where appropriate.' " (Id. at p. 566.)
But regardless of who has the burden of proving CVS employees were or were not fully compensated, Christensen assumes that by failing to pay a certain rate, class certification is required. She is wrong. In Duran v. U.S. Bank National Assn. (2014) 59 Cal.4th 1, the Supreme Court held that defendants must be allowed to present their defenses to liability, and where those defenses present individualized issues, the plaintiff must demonstrate that those issues can be effectively managed in a class action. (See id. at pp. 28-38.) So too here. CVS must be allowed to litigate whether its reimbursement rate was sufficient to reimburse individual class members, and even if it bears the burden of proof on that point, it remains Christensen's obligation to demonstrate that common issues nevertheless predominate and that individualized issues can be effectively managed in the class context. Christensen has made no showing whatever or offer of proof in this regard, and thus the trial court was well within its discretion to conclude that "Plaintiff has not met her moving burden to provide substantial evidence to support a finding of commonality[,]" or manageability.
II.
Failure to Consider Certain Categories of Expenses Does Not Establish Predominance
For the same reasons, we cannot accept Christensen's alternative argument that CVS has violated section 2802 by failing to compensate at all for specific expenses that must be reimbursed such as the costs of insurance, depreciation, or maintenance in setting its mileage reimbursement rate. As we have stated, liability under section 2802 turns on whether the employer's reimbursement rate is "sufficient to fully reimburse the employees for all expenses actually and necessarily incurred," not on the methodology employed in setting the rate or the employer's view of what categories of costs the rate does or does not reimburse. (Gattuso, supra, 42 Cal.4th at p. 575.) The authorities relied on by Christensen do not support her argument, because they involve expenses for which the employer provided no reimbursement whatsoever, thereby establishing liability and leaving the exact amount of under reimbursement as a question of damages. (See Cochran v. Schwan's Home Service, Inc. (2014) 228 Cal.App.4th 1137, 1140, 1145; Dilts v. Penske Logistics, LLC (S.D. Cal., Feb. 19, 2014, No. 08-CV-318-CAB) 2014 WL 866954 at p. *5.)
Additionally, we do not agree with Christensen that the trial court erred by prematurely reaching the merits of her theories of liability in ruling on the class certification motion. Her very brief discussion of this argument and citation to Brinker Restaurant Corp. v. Superior Court, supra, 53 Cal.4th 1004 in support are not sufficient "reasoned argument and citations to authority" to avoid waiver. (See Badie v. Bank of America (1998) 67 Cal.App.4th 779, 784-85.) In any event, the argument fails on its merits, because Brinker expressly acknowledged that "whether an element may be established collectively or only individually, plaintiff by plaintiff, can turn on the precise nature of the element and require resolution of disputed legal or factual issues affecting the merits." (Brinker Restaurant Corp. v. Superior Court, supra, 53 Cal. 4th at p. 1024.)
We also reject Christensen's policy arguments that the Gattuso court did not intend that employees be forced to bear the " 'onerous burdens' " of proving their actual vehicle related expenses in order to challenge their employer's mileage rate, or that the trial court's reasoning "insulates" an employer's arbitrary mileage rate from challenge. (See Gattuso, supra, 42 Cal.4th at p. 569.) Contrary to Christensen's characterization, the trial court did not suggest that each class member would be required to prove their actual vehicle expenses in order to prevail on their section 2802 claim. Instead, the trial court properly held that Christensen was simply required to introduce "some evidence of impact across the class" from which the court could "infer commonality." But she did not introduce any evidence, let alone substantial evidence, that "the mileage rate failed to compensate even a single member of the putative class for his or her actual per-mile expense of driving his or her vehicle during the class period." (See Sav-on Drug Stores, Inc. v. Superior Court, supra, 34 Cal.4th 319, 333.) Because Christensen failed to introduce any such evidence to support a finding of commonality or predominance, the trial court was well within its discretion to deny her motion for class certification.
For this reason, Christensen's reliance on Tyson Foods, Inc. v. Bouaphakeo (2016) 577 U.S. ___ is unavailing. Tyson Foods held that the particular representative sample at issue in that case could serve as a basis for establishing classwide liability and thus could satisfy the plaintiff's burden to establish predominance. (Id. at pp. 1047-1049.) As discussed above, Christensen has not introduced a representative sample, or any other evidence sufficient to establish liability (as properly framed) on a classwide basis. Similarly, we reject her argument that merely establishing a prima-facie case of liability is sufficient to warrant class certification. Christensen overreads this quote from Tyson Foods, which had to do with the definition of a common question. (See id. at pp. 1045-1048 [considering whether a representative sample can "establish liability"].) In this case, establishing liability will require a comparison of CVS's reimbursement rate to class members' actual driving expenses, and Christensen has provided no evidence, let alone substantial evidence, that this comparison can be conducted on a class-wide basis so that individual questions will not predominate.
The trial court also found that Christensen had not satisfied the manageability requirement because of the individualized nature of the liability inquiry.
DISPOSITION
The order denying class certification is affirmed.
/s/_________
Jones, P. J. We concur: /s/_________
Simons, J. /s/_________
Bruiniers, J.