PAGA claims of multiple employees are not a "common and undivided interest"

In  Urbino v. Orkin Servs. of California, Inc. (9th Cir. Aug. 13, 2013), the Ninth Circuit took up the question of whether PAGA claims aggregate for purposes of CAFA's damage prerequisite.  Plaintiff, a California citizen, worked in a nonexempt, hourly paid position for defendants, each of whom is a corporate citizen of another state, in California. Alleging that defendants illegally deprived him and other nonexempt employees of meal periods, overtime and vacation wages, and accurate itemized wage statements, plaintiff filed a representative PAGA action.  Defendants removed.  Plaintiff moved to remand.  The district court was obligated to decide whether the potential penalties could be combined or aggregated to satisfy the amount in controversy requirement. If they could, federal diversity jurisdiction would lie because statutory penalties for initial violations of California’s Labor Code would total $405,500 and penalties for subsequent violations would aggregate to $9,004,050. If not, the $75,000 threshold would not be met because penalties arising from plaintiff’s claims would be limited to $11,602.40.  Acknowledging a split of opinion, the district court found PAGA claims to be common and undivided and therefore capable of aggregation.

The Court examined the "common and undivided interest" exception to the rule that multiple plaintiffs cannot aggregate claims.  Observing that common questions do not create that common and undivided interest, the Court said:

But simply because claims may have “questions of fact and law common to the group” does not mean they have a common and undivided interest.  Potrero Hill Cmty. Action Comm. v. Hous. Auth., 410 F.2d 974, 977 (9th Cir. 1969). Only where the claims can strictly “be asserted by pluralistic entities as such,” id., or, stated differently, the defendant “owes an obligation to the group of plaintiffs as a group and not to the individuals severally,” will a common and undivided interest exist, Gibson v. Chrysler Corp., 261 F.3d 927, 944 (9th Cir. 2001) (quoting Morrison v. Allstate Indem. Co., 228 F.3d 1255, 1262 (11th Cir. 2000)).

Slip op., at 8.

The defendants then argued that the interest asserted by plaintiff was not his, but was actually the state's interest.  The Court's majority did not find that argument compelling:

To the extent Plaintiff can—and does—assert anything but his individual interest, however, we are unpersuaded that such a suit, the primary benefit of which will inure to the state, satisfies the requirements of federal diversity jurisdiction. The state, as the real party in interest, is not a “citizen” for diversity purposes. See Navarro Sav. Ass’n v. Lee, 446 U.S. 458, 461 (1980) (courts “must disregard nominal or formal parties and rest jurisdiction only upon the citizenship of real parties to the controversy.”); Mo., Kan. & Tex. Ry. Co. v. Hickman, 183 U.S. 53, 59 (1901); see also Moor v. Cnty. of Alameda, 411 U.S. 693, 717 (1973) (explaining that “a State is not a ‘citizen’ for purposes of the diversity jurisdiction”).

Slip op., at 9.   By the way, this cleverly avoids deciding an unnecessary issue that is of some consequence in the world of arbitration.  It does, however, suggest a point upon which the California Supreme Court will likely have to express an opinion when it decides whether PAGA claims are excused from arbitration clause enforcement or, alternatively, from arbitration clauses that preclude “class” claims.

The dissent, like the majority opinion, is also relatively short, but it is also well argued.

Thanks to the tipster for directing me to the decision (since I don't know whether you want to be identified, you remain anonymous).

NOTE:  This is an updated version of an earlier post on this case.  The older post has been removed. 

The best line of the day award

I was at a hearing today.  I will omit all names and locations, but this exchange (recounted to the best of my recollection) between a Clerk and a purported objector to a class action settlement is too important to withhold from the world:

CLERK [to objector sitting at counsel's table]: Are you an attorney?

OBJECTOR:  Yes, yes I am.  I am a private attorney.....general.

The exchange went on a little longer, but, really, what more is there to say?  I think we are all, at heart, private attorneys....general from time to time.

Brown v. Ralphs Grocery Co. is now final final final

Assuming you fall into the camp that doesn't want to see arbitration used to destroy all collective rights (which camp includes plaintiffs' counsel explicilty and defendants' counsel covertly), here is some good  news, compliments of The UCL Practitioner.  The U.S. Supreme Court denied a petition for writ of certiorari in Brown v. Ralphs Grocery Co., 197 Cal.App.4th 489 (2011).  In Brown, the Court of Appeal (Second Appellate District, Division Five) held that representative PAGA claims (i.e., not class-based claims) are not subject to arbitration, even post-Concepcion.  That's Concepcion, the case, not the other option (with different spelling).

Get your PAGA letters ready.

Second Court of Appeal holds that PAGA penalties are available for certain wage order violations

In Bright v. 99¢ Only Stores, 189 Cal. App. 4th 1472 (2010), on an issue of first impression, the Court of Appeal (Second Appellate District, Division Five) held that (1) violations of Wage Order No. 7, subdivision 14 are violations of section 1198; and (2) civil penalties under section 2699, subdivision (f) are available despite the fact that Commission wage order No. 7-2001 has its own general penalty provision.  (Discussed on this blog, in a very serious post, here.)  In other words, PAGA penalties are available for wage order violations, at least as far as the adequate seating requirement is concerned.  But when a Court of Appeal tackles a question of first impression, you always have to wonder whether that holdling to stand up over time.  Today, in Home Depot U.S.A., Inc. v. Superior Court (December 22, 2010), the Court of Appeal (Second Appellate District, Division Four) agreed with their fellow justices from Division Five and held that (1) violations of a Wage Order are violations of section 1198; and (2) civil penalties under section 2699, subdivision (f) are available unless some other penalty is specifically provided for in the Wage Order.

At this point, the best business opportunity in California would be small footprint stools that can fit behind registers at retail stores.

Discovery ruling in Currie-White v. Blockbuster, Inc. holds that a protective order is sufficient protection for class member contact information ordered produced

United States Chief Magistrate Judge Maria-Elena James is on a roll with the class member contact information discovery orders.  In Currie-White v. Blockbuster, Inc., 2010 WL 1526314 (N.D.Cal. Apr 15, 2010), Magistrate Judge James Ordered defendant to produce class member contact information, subject to certain modifications to a pre-existing protective order in the case.  The interesting additional tidbit in this case is that it is described as a "class action against Defendant under the Labor Code Private Attorneys General Act of 2004, Cal. Labor Code §§ 2698, et seq."  Moving to certify PAGA-based penalty claims certainly eliminates all the uncertainty about PAGA-based representative actions.

Judge Patel offers interesting comments about the puzzle of PAGA

United States District Court Judge Marilyn Hall Patel (Northern District of California) offered some interesting comments, but no clear solutions, to the puzzle posed by litigation of PAGA claims as representative actions.  Ochoa-Hernandez v. Cjaders Foods, Inc.. (N.D. Cal. Apr. 2, 2010) 2010 WL 1340777.  In the course of denying plaintiff's motion to preclude the defendant from contacting current or former employees about the litigation, the Court said:

From a practical perspective, plaintiff's analogy between class actions and PAGA claims is also misplaced. While both fall within the general category of virtual representation, there are significant differences between the two. Unlike a class action seeking damages or injunctive relief for injured employees, the purpose of PAGA is to incentivize private parties to recover civil penalties for the government that otherwise may not have been assessed and collected by overburdened state enforcement agencies. Id. (“The act's declared purpose is to supplement enforcement actions by public agencies, which lack adequate resources to bring all such actions themselves.”). Unlike class actions, these civil penalties are not meant to compensate unnamed employees because the action is fundamentally a law enforcement action. Moreover, unlike the binding finality of a class action with respect to damages, the individual employee has less at stake in a PAGA representative action: if the employer defeats a PAGA claim, the nonparty employees, because they were not given notice of the action or afforded an opportunity to be heard, are not bound by the judgment as to remedies other than civil penalties. Id. at 987, 95 Cal.Rptr.3d 588, 209 P.3d 923. Thus, nonparty employees can bring an action against the employer based on identical facts so long as they do not seek civil penalties. Class members, however, would be bound by a judgment against the class, independent of the remedy later sought.

*5 Class actions litigated in federal court also contain numerous procedural protections that are not available in PAGA claims. Unnamed employees need not be given notice of the PAGA claim, nor do they have the ability to opt-out of the representative PAGA claim. There is no indication that the unnamed plaintiffs can contest a settlement, if any, reached between the parties. The court does not have to approve the named PAGA plaintiff, nor does the court inquire into the adequacy of counsel's ability to represent the unnamed employees. These procedural protections ensure the fidelity of the attorney-client arrangement in a class action. Their absence further militate against considering a PAGA claim akin to a certified class action.

Additionally, in order to bridge the gap between Arias and the creation of an attorney-client relationship, at least two inferential steps are required, and neither is present. First, Arias is silent on what procedures, if not class action procedures, are sufficient to perfect representative status in representative actions. While representative status may accrue once administrative requirements have been satisfied, Arias does not so hold and plaintiff cites no further authority. Second, assuming that representative status is perfected once administrative requirements are satisfied, Arias does not contemplate the practical issue of when, if at all, an attorney-client relationship arises between plaintiff's counsel and the current or former employees.

Slip op., at 4-5.  If it isn't obvious from this long excerpt, the argument up for discussion was whether an attorney-client relationship existed between the absent employees and the attorney for the named plaintiff.  While the Court's comments explain why a PAGA claim is different from a class action, the discussion is not intended to address the case management question posed by PAGA.  Nevertheless, the brief observations by this Court are of interest to practitioners in this area of law.