Posts belonging to Category PAGA

The California Supreme Court will be handing down its decision in Iskanian v. CLS Transportation Los Angeles, LLC, No. S204032, on Monday, June 23, 2014 at 10 a.m. Oral argument in Iskanian took place earlier this year.

Oral argument in Iskanian v. CLS Transportation Los Angeles, LLC, No. S204032, took place before the California Supreme Court on April 3, 2014 (Mr. Iskanian is represented by Capstone Law APC). Previously, the Court of Appeal had affirmed an order compelling individual arbitration of the plaintiff’s California Labor Code claims by enforcing class action and representative action waivers, relying heavily on Concepcion. Iskanian v. CLS Transp. Los Angeles, LLC, 206 Cal.App.4th 949 (2012).

The California Supreme Court granted review of the following issues:

(1) Did AT&T Mobility LLC v. Concepcion (2011) 563 U.S. [321] impliedly overrule Gentry v. Superior Court (2007) 42 Cal.4th 443 with respect to contractual class action waivers in the context of non-waivable labor law rights? (2) Does the high court’s decision permit arbitration agreements to override the statutory right to bring representative claims under the Labor Code Private Attorneys General Act of 2004 (Lab. Code, § 2698 et seq.)? (3) Did defendant waive its right to compel arbitration?

With respect to the enforceability of the class action waiver under Gentry, the justices’ line of questioning reflected skepticism that it could survive Concepcion. Plaintiff’s counsel Glenn Danas suggested that, following the Court’s decision in Sonic-Calabasas A, Inc. v. Moreno, 57 Cal. 4th 1109 (2013) (“Sonic-Calabasas II”), the Gentry test be modified to a two-step unconscionability-based test, with the first step focused on whether the unavailability of class arbitration would lead to a de facto waiver of unwaivable statutory rights and, if so, the second step focused on whether the employer’s particular arbitration procedure provides alternative protections that ameliorate the claimants’ inability to utilize such aggregate procedures in arbitration. Several justices, including the Chief Justice and Justice Kennard, had probing follow-up questions regarding the proposed two-step analysis, but Justice Liu appeared skeptical that even the suggested modified test would not be foreclosed by Concepcion, due to its strongly-worded dicta against class arbitration.

Michael Rubin, on behalf of amicus curiae Service Employees International Union and the California Employment Lawyers Association, also argued before the high court, presenting an alternative basis for striking the class action waiver under federal labor statutes, thereby avoiding any possible preemption issue. This argument, which was adopted by the National Labor Relations Board in the D.R. Horton decision, asserts that employees’ right to join together in group litigation (utilizing a class, collective, or representative action) is protected activity under both the National Labor Relations Act and the Norris LaGuardia Act. 357 NLRB No. 184. Rubin’s argument compellingly articulated the position, and was met with a series of thoughtful questions by the justices demonstrating, at a minimum, a keen interest in the issue. For instance, picking up on the U.S. Supreme Court’s reasoning in American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013), Justice Liu asked whether the class action procedure pre-dates the Federal Arbitration Act, the implication being that, if not, there can be no “right” to collective litigation of employment grievance. Rubin responded, without missing a beat, that certain antecedents to the Federal Rule 23 existed long before 1966. Justice Liu also had pointed questions for CLS’s counsel David Faustman, at one point growing weary of Faustman’s refusal to answer his question regarding the basis for his position that the Federal Arbitration Act “trumps” the later-enacted federal labor law statutes. Ultimately, Faustman moved on, unable to answer Justice Liu’s questions. However, it is also widely acknowledged that a decision based in part on upholding D.R. Horton would be more likely to draw review by the U.S. Supreme Court.

With regard to PAGA actions, the justices seemed inclined to reverse the Court of Appeal’s ruling, discerning that a complete ban on a statutory cause of action or the right to pursue statutory remedies cannot be completely foreclosed by any contract, arbitration or otherwise. Specifically, the justices focused their questions on the origin of the rights codified by PAGA—that PAGA actions are essentially government enforcement actions and that individual plaintiffs cannot waive the government’s right to enforce the labor laws. Drawing a parallel to EEOC v. Waffle House, 534 U.S. 279 (2002), where the U.S. Supreme Court held that the EEOC could pursue a discrimination claim on behalf of an employee despite the employee’s having signed an arbitration agreement, Justice Liu indicated that a PAGA plaintiff cannot waive the state’s right to collect civil penalties under PAGA by signing a private mandatory arbitration agreement. Moderate members of the Court including Chief Justice Cantil-Sakauye and Justice Corrigan both questioned Andrew Pincus, appearing for the Chamber of Commerce of the United States of America on behalf of CLS, pointing out the practical reality of enforcing PAGA waivers such as the one at issue would allow employers to entirely shield themselves from liability under PAGA, a result that cannot be squared with decades of U.S. Supreme Court case law.

The opinion is due in 90 days, on July 2, 2014.

The Ninth Circuit Court of Appeals issued a precedent-setting decision in Baumann v. Chase Investment Services Corp. last week (Mr. Baumann is represented by Capstone Law APC), holding that a pure Private Attorneys General Act of 2004 (“PAGA”) action does not meet the definition of a “class action” under Class Action Fairness Act of 2005 (“CAFA”) and thus cannot be removed to federal court. No. 12-55644 (9th Cir. March 13, 2014) (slip opinion available here). Baumann was argued together with Urbino v. Orkin Services of Calif., 726 F.3d 1118 (9th Cir. 2012), as both cases presented the issue of whether PAGA penalties can be aggregated to meet the $75,000 amount in controversy threshold for diversity jurisdiction. In Urbino, the Court answered that question in the negative. The defendant in Baumann had also argued that federal jurisdiction was established under CAFA as a “class action,” and because the United States Supreme Court had granted certiorari in Mississippi ex rel. Hood, Attorney General v. AU Optronics Corp., 571 U.S. __ (2014), to determine whether a parens patriae suit brought by the state is removable under CAFA (albeit under the “mass action” prong), the Baumann court issued a stay following oral argument, pending the outcome of Hood. Ultimately, the Supreme Court in Hood held that a parens patriae suit does not qualify as a “mass action” under CAFA, and is thus not removable.

Baumann is a case based on the unlawful misclassification of Financial Advisor Associates as salaried and exempt employees, and was brought solely for civil penalties under California overtime, meal and rest breaks, and business expense reimbursement statutes. The complaint stated that the plaintiff’s potential share of any penalties recovered and attorneys’ fees would be less than $75,000. Defendant removed the case based on diversity jurisdiction, arguing that the penalties attributable to all non-party aggrieved employees could be aggregated to meet the $75,000 threshold under CAFA, and the plaintiff moved to remand, citing the well-established federal “anti-aggregation rule” that precludes such aggregation, as well as the fact that a PAGA action is not a “class action” under CAFA. The district court denied the motion to remand, but granted a subsequent motion to certify the case for interlocutory appeal. The Ninth Circuit then granted the plaintiff permission to file a discretionary appeal due to the split among federal district courts as to PAGA’s treatment under both federal diversity jurisdiction and CAFA.

After a full merits briefing and oral argument, the panel reversed the lower court’s order. Building on the Ninth Circuit’s decision in Washington v. Chimei Innolux Corp., which held that parens patriae suits are not “class actions” within the plain meaning of CAFA because they “lack the defining attributes of true class actions . . . [and] only ‘resemble’ class actions in the sense that they are representative suits,” 659 F.3d 842, 847-850 (9th Cir. 2011), the Baumann court held that PAGA actions are likewise not sufficiently similar to Rule 23 class actions to establish original jurisdiction under CAFA. Dissimilarities between PAGA and class actions identified by the court included that, in PAGA actions, there are no notice requirements, non-party aggrieved employees cannot opt out of the proceedings, the court does not assess the adequacy of the named plaintiff or counsel, and a final judgment does not preclude aggrieved employees from seeking other remedies based on the same predicate labor code violations in the future. The panel stated, “[i]n the end, Rule 23 and PAGA are more dissimilar than alike. A PAGA action is at heart a civil enforcement action filed on behalf of and for the benefit of the state, not a claim for class relief.” Slip op. at 14. Also, in light of Urbino, because plaintiff’s portion of the recovery would be less than $75,000, the court found no diversity jurisdiction under 28 U.S.C. section 1332(a), and therefore plaintiff’s motion to remand should have been granted.

Taken together, Baumann and Urbino would seem to foreclose federal jurisdiction for nearly all suits filed in state court seeking only civil penalties under PAGA.

In the first Ninth Circuit decision relating to the Private Attorneys General Act of 2004 (“PAGA”), a panel held in Urbino v. Orkin Services of Calif., No. 11-56944, 11-57002 (9th Cir. Aug. 13th, 2013) (slip opinion available here) that federal diversity jurisdiction cannot be exercised over California’s unique PAGA enforcement action. At the same time, the panel stayed its decision in Baumann v. Chase Investment Services, No. 12-55644 (Mr. Baumann is represented by Capstone Law APC), heard concurrently with Urbino and which presented an additional, closely-related issue as to whether a PAGA action is removable under the Class Action Fairness Act (“CAFA”).

First, Urbino prohibits district courts from aggregating PAGA civil penalties to establish the amount in controversy for diversity jurisdiction. Under the PAGA statute, civil penalties are measured by the number of violations against an employer’s current and former employees. If penalties for all aggrieved employees could be aggregated to meet the $75,000 amount in controversy threshold, most PAGA actions would be subject to federal jurisdiction. Urbino holds that aggregation is improper because, although a PAGA action unites aggrieved employees’ claims into one action, their underlying interests are not “common and undivided,” and thus do not fall within the narrow exception to the prevailing non-aggregation principle. Rather, in a PAGA action “[e]ach employee suffers a unique injury… [and therefore] Defendants’ obligation to them is not ‘as a group,’ but as ‘individuals severally.’” Slip op. at 8 (quoting Gibson v. Chrysler Corp., 261 F.3d 927, 944 (9th Cir. 2001)). Second, and separately, Urbino holds that because the benefits of PAGA inure primarily to the state, “[t]he state [is] the real party in interest [and] is not a ‘citizen’ for diversity purposes.” Slip op. at 9.

The main result of Urbino is that pure PAGA actions will not be removable under 28 U.S.C. §1332 (the statutory basis for diversity jurisdiction), since “federal courts lack subject matter over this quintessentially California dispute.” Slip op. at 9. But Urbino leaves open the question of whether PAGA actions are subject to removal under CAFA. That question will be settled by Baumann, which has been stayed pending the U.S. Supreme Court’s decision in Mississippi ex rel. Hood v. AU Optronics Corp., 701 F.3d 796 (5th Cir. 2012), cert. granted, 133 S. Ct. 2736 (May 28, 2013). However, it is unlikely that Hood, which addresses the “mass action” provision of CAFA, will affect the analysis. CAFA excludes from its definition of “mass action” any action where “all of the claims in the action arise from an event or occurrence in the state” where the action was filed. 8 U.S.C. § 1332(d)(11)(B)(ii). Because a PAGA action is limited to collecting penalties arising from labor law violations that occurred in California, it cannot be defined as a “mass action” for CAFA purposes. In the meantime, PAGA plaintiffs faced with a removal under CAFA should continue to rely on Washington v. Chimei Innolux Corp., 659 F.3d 842 (9th Cir. 2011), which makes clear that only class actions — and not actions “resembling” class actions — are removable under the class action provision of CAFA. Baumann is unlikely to upend the reasoning of Chimei.

Finally, by identifying the state as “the real party in interest,” Urbino also bolsters recent scholarship and case law drawing a close analogy between PAGA and the qui tam action. See, e.g., Cunningham v. Leslie’s Poolmart, 2013 U.S. Dist. LEXIS 90256 (C.D. Cal. June 25, 2013); Janet Alexander, To Skin a Cat: Qui Tam Actions as a State Legislative Response to Concepcion, 46 U. Mich. J. L. Reform 1203 (Summer 2013).