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CAFA Law Blog Information, cases and insights regarding the Class Action Fairness Act of 2005

PAGA Penalties Cannot Be Used to Reach CAFA’s Amount-in-Controversy Requirement

Posted in Case Summaries, Wage and Hour

Henry Chen, et al. v. United Talent Agency, LLC, et al., 2017 WL 946642 (C.D. Cal. March 10, 2017).

A class action filed in state court was remanded by the U.S. District Court in California because the court found that the removing defendant improperly relied on PAGA penalties and anticipated but un-accrued attorney’s fees to satisfy CAFA’s jurisdictional amount-in-controversy requirement.

The plaintiffs brought a putative class action in the California Superior Court alleging that the defendants violated the California Labor Code by, inter alia, failing to pay minimum wages and overtime compensation. The plaintiffs then filed a first amended complaint that asserted an additional cause of action for civil penalties pursuant to the Private Attorneys General Act (“PAGA”).

A defendant removed the action to the U.S. District Court pursuant to CAFA, which provides that district courts have original jurisdiction over any class action in which (1) the amount in controversy exceeds five million dollars, (2) any plaintiff class member is a citizen of a state different from any defendant, (3) the primary defendants are not states, state officials, or other government entities against whom the district court may be foreclosed from ordering relief, and (4) the number of plaintiffs in the class is at least 100. 28 U.S.C. §§ 1332(d)(2), (d)(5). The amount in controversy requirement excludes “interest and costs,” and therefore attorneys’ fees are included in the calculation of the amount in controversy. 28 U.S.C. § 1332(a); Guglielmino v. McKee Foods Corp., 506 F.3d 696, 700 (9th Cir. 2007). Defendant argued that, based on the causes of action the plaintiffs asserted, and assuming only 100 class members working each year for 34 weeks, the amount in controversy exceeded $5,500,000, including compensatory damages, statutory penalties, and a 25% attorneys’ fee.

The defendant’s estimate included allegedly unpaid minimum wages and associated liquidated damages; allegedly unpaid overtime; allegedly failing to allow proper rest breaks and associated penalties; allegedly improperly itemized wage statements and associated penalties; and penalites for alleged waiting time pay. It also included $635,000 in separate civil penalties under PAGA and $1,113,000 representing a 25% attorneys’ fee. The aggregate of the defendant’s alleged amount in controversy was $5,565,400.

As a preliminary matter, the District Court noted that the estimated $635,000 in civil penalties under PAGA could not be used to reach CAFA’s $5,000,000 amount-in-controversy requirement. See Yocupicio v. PAE Grp., LLC, 795 F.3d 1057, 1062 (9th Cir. 2015); Santoyo v. Consol. Foundries, Inc., No. CV 16-2232 BRO (SSx), 2016 WL 5955851, at *3 (C.D. Cal. Oct. 13, 2016) (“[T]he Court cannot consider any damages arising from the PAGA claims to determine if the amount in controversy exceeds $5,000,000”). As such, the Court thus found that when the improperly asserted PAGA penalties were not included, the alleged amount in controversy was only $4,930,400, which fell below the jurisdictional limit.

Additionally, although attorneys’ fees may properly be considered as part of the amount in controversy, the Ninth Circuit recognizes a split as to whether only those fees accrued at the time of removal should be considered or whether anticipated attorneys’ fees may be included. In this case, the California District Court found persuasive the Oregon District Court’s reasoning in Reames v. AB Car Rental Servs., 899 F. Supp. 2d 1012, 1020 (D. Or. 2012), which held that only accrued fees could be included. As such, the court here held that the defendant’s reliance on anticipated attorneys’ fees was insufficient to satisfy its burden to show that the amount in controversy exceeded the jurisdictional minimum.  Because the defendant had offered no evidence of any pre-removal attorneys’ fees accrued by the plaintiffs, the court had no basis to consider any portion of the asserted $1,113,000 in attorneys’ fees to determine the amount in controversy.

Without those improperly-included sums, the alleged amount in controversy was only $3,817,400. Therefore, the District Court held that the defendant had not met its burden to establish federal subject-matter jurisdiction and remanded the action to state court.

–Barry A. McCain