Trial Court Class Action Judgment Against FedEx for Labor Law Violations Generally Upheld but California State Appellate Court Reverses Attorney Fee Award as Excessive and because Multiplier Improperly Based on Same Facts that Triggered Entitlement to Fees
Plaintiffs filed a class action in California state court against FedEx Ground Package System, Inc. alleging violations of the state’s labor laws for failure to reimburse work-related expenses; the thrust of the class action complaint was that, “for the limited purpose of their entitlement to reimbursement for work-related expenses, [class members] were employees, not independent contractors.” Estrada v. FedEx Ground Package Sys., Inc., 64 Cal.Rptr.3d 327 330 (Cal.App. 2007). The trial court granted plaintiffs’ motion to certify the litigation as a class action, and a trifurcated trial followed during which (1) “the court found the drivers were employees within the meaning of Labor Code section 2802 (Phase I) , ordered FedEx to reimburse some (about $5 million, including prejudgment interest) but not all of their expenses (Phase II), granted most of the equitable relief sought by the drivers (Phase III), and ordered FedEx to pay the drivers’ costs and attorneys’ fees (about $12.3 million).” Id. Defense attorneys appealed and plaintiffs cross-appealed.
The Court of Appeal noted that this represented the third appeal in this case, and that it here considered defense challenges to the trial court order certifying the class action, the finding that the drivers were employees, the reimbursement findings, and the award of attorney fees. Estrada, at 330-31. The facts are quite detailed, and we do not repeat them here. See id., at 331-34. On the direct appeal, the Court of Appeal affirmed that the drivers were employees of FedEx, not independent contractors. Id., at 335. The appellate court noted that the California Labor Code does not define “employee” for purposes of section 2802 so the common law test applies, and explained at page 335 that under that test the question is “whether the principal has the right to control the manner and means by which the worker accomplishes the work” based on a number of factors including “(1) whether the worker is engaged in a distinct occupation or business, (2) whether, considering the kind of occupation and locality, the work is usually done under the principal’s direction or by a specialist without supervision, (3) the skill required, (4) whether the principal or worker supplies the instrumentalities, tools, and place of work, (5) the length of time for which the services are to be performed, (6) the method of payment, whether by time or by job, (7) whether the work is part of the principal’s regular business, and (8) whether the parties believe they are creating an employer-employee relationship.” (Citations omitted.) Under those factors, substantial evidence supported the finding that the drivers were “employees,” see id., at 336-37.
Next, the Court of Appeal affirmed that class action treatment was appropriate, holding that “it is clear that common issues – whether the drivers were employees and, if so, which expenses would be reimbursable – predominated.” Estrada, at 338. The appellate court affirmed also the trial court finding that FedEx failed to reimburse the drivers for all expenses required by law, see id., at 339.
Turning to the attorney fee award, FedEx argued that plaintiffs’ request for $7.4 million, plus a multiplier of 2.0 for a total of $14.8 million, was excessive and that plaintiffs’ were primarily motivated by their own financial interests. Estrada, at 339-40. The Court of Appeal rejected the argument that plaintiffs’ “personal motivation” rendered attorney fees unavailable, holding that self-interest “does not diminish the fact that he pursued this public interest class action not only for himself but on behalf of a class comprised of FedEx’s past and present drivers and ultimately obtained awards for 209 drivers.” Id., at 340. As the Court concluded at page 340, “No more is required to satisfy the ‘significant benefit,’ ‘public interest,’ and ‘large class of persons’ requirements of section 1021.5.” However, the appellate court agreed that “the amount must be reduced and that the same facts cannot be used to trigger the application of section 1021.5 and justify a multiplier.” Id., at 340. On the other hand, plaintiffs did not “get everything” they sought, id., at 340-41; thus, “the factual predicate for the trial court’s award – that Estrada won on all points, including the far-reaching injunctions – is no longer valid,” id., at 341. The Court further held that the trial court must “determine anew whether any multiplier is appropriate in this case,” particularly because “[t]he fee award sans multiplier ($5,567,246) exceeded the amount of the award to the entire class of plaintiffs.” Id. For guidance, the appellate court held that “the fee must above all else be reasonable and a multiplier, if used, must be based on facts other than those used to trigger the application of section 1021.5.” Id.
Plaintiffs’ cross-appeal raised five issues. We do not here discuss the challenge to the trial court’s use of class questionnaires in connection with defining the class, but we note that the appellate court found no error, see Estrada, at 348. Plaintiffs’ other four issues involved trial court Phase II rulings concerning damages. Id., at 342. First, the trial court limited employee reimbursement to “items actually paid out by the drivers or deducted from their settlement checks.” Id. In this regard, the court rejected expert analysis and lay testimony estimating employee expenses, requiring instead that drivers produce receipts or other records. Id., at 342-43. Because these damages were susceptible to exact proof, the appellate court affirmed this ruling. Id., at 343. However, at trial the court permitted proof of recoverable expenses in a manner inconsistent with its prior ruling. Specifically, plaintiffs’ lawyer “prepared spreadsheets listing the drivers’ out-of-pocket expenses” with the idea that FedEx would review the spreadsheets and advise plaintiffs of the items that they disputed, after which plaintiffs’ lawyer would produce receipts “for only the disputed items.” Id. FedEx, however, objected to the spreadsheets as inadmissible and that plaintiffs were required by the court’s order to “present all supporting documentation,” id.
The referee permitted plaintiffs to reopen but only as to those documents produced by FedEx during discovery (concluding that this would not prejudice FedEx), which covered more than $5 million in expenses. Estrada, at 343. The trial court agreed with the referee but excluded all expenses that could not be proven by reference solely to documents produced by FedEx during discovery, thereby “necessarily exclud[ing] all of the drivers’ out-of-pocket expenses provable only by the drivers’ documents.” Id., at 343-44. The appellate court reversed, holding that the trial court should not limit the drivers’ recovery; so long as the expenses sought “were fully documented and produced to FedEx during discovery,” they should be recoverable. Id., at 344.
The appellate court affirmed the trial court ruling that the drivers were not entitled to reimbursement for expenses related “to purchasing or leasing a vehicle for the purpose of performing pick up and delivery services” because “employers in the pick up and delivery industry in California can require as a condition of employment that their drivers, at their own expense, purchase or lease a truck to the employer’s specifications.” Estrada, at 344. The Court of Appeal found no error in relying on the opinion of the Labor Commissioner that “neither an automobile nor a truck is considered a tool within the meaning of [section 2802], and an applicant for employment may be required, as a condition of employment, to furnish his[] own automobile or truck to be used in the course of employment, regardless of the amount of wages paid.” Id., at 345.
Finally, the appellate court turned to the trial court order denying plaintiffs’ the right to recover sums paid for work accident insurance. The order certifying the litigation as a class action had listed “workers compensation” insurance as a recoverable expense rather than “work accident” insurance: plaintiffs’ lawyer discovered this mistake in 2002, but “failed to clarify the point at that time” sot the trial court refused to allow reimbursement for work accident insurance. Estrada, at 347. The appellate court reversed, explaining that while plaintiffs’ counsel “should have sought clarification instead of assuming that everyone understood that the drivers would be reimbursed for their work accident insurance premiums, the failure to do so does not justify a windfall to FedEx,” id. The appellate court held that the drivers were entitled to reimbursement for accident insurance premiums. Id., at 348.
In sum, the resolution of this third appeal resulted in the Court of Appeal reversing the $12.4 million award of attorney fees and costs and the trial court judgment disallowing certain expenses, affirming the judgment in all other respects, and remanding for the trial court to determine (1) the out-of-pocket expenses recoverable by the drivers, (2) the amount due for work accident insurance premiums, and (3) the amount of plaintiffs’ reasonable attorney fees and costs. Id., at 348.
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