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

PAGA Penalties Divided Among Employees and State of California May Not Be Aggregated To Satisfy CAFA’S Amount-In-Controversy Requirement

Posted in Case Summaries, Wage and Hour

Main v. Dolgen California, LLC, 13-01637, 2013 WL 5799019 (E.D. Cal. Oct. 28, 2013).

In this case, a California district court remanded a putative class action after finding that plaintiffs’ individual recoveries under the California Labor Code’s Private Attorneys General Act (“PAGA”) could not be aggregated with civil penalties under the Act that inure to the benefit of the State of California.

The named plaintiff filed this putative class action in California state court seeking civil penalties under PAGA due to defendant’s alleged failure to provide adequate meal breaks, pay wages due upon separation of employment, and to issue accurate, itemized wage statements.  The defendant-employer filed a notice of removal.  In response, plaintiff moved to remand on the grounds that defendant had not established CAFA’s amount-in-controversy requirement.

CAFA grants federal district courts original jurisdiction over any civil action where (1) the matter in controversy exceeds $5,000,000, exclusive of interest and costs; (2) the action was pled as a class action involving more than 100 putative class members; and (3) there is minimal diversity between any member of a class of plaintiffs and any defendant. 28 U.S.C. § 1332(d).  Here, the critical issue was whether the $5,000,000 amount-in-controversy requirement was satisfied.

The district court first noted the general rule that, under CAFA, the court must aggregate the individual class members’ claims to determine whether the value of the case exceeds $5,000,000. Id. at § 1332(d)(6).  In this case, plaintiff sought monetary penalties under PAGA on behalf of herself and other class members, but the complaint did not specify a dollar amount for the aggregated class claims.  Therefore, as the removing party opposing plaintiff’s remand motion, it was the defendant’s burden to establish the requisite amount in controversy by a preponderance of the evidence. See id. at § 1446(c)(2)(B).

In her motion to remand, plaintiff argued that defendant improperly calculated the amount in controversy by including civil penalties under PAGA that must be distributed to the California Labor and Workforce Development Agency (“LWDA”).  In that regard, civil penalties recovered by an aggrieved employee under PAGA are distributed 75% to the LWDA and 25% to the aggrieved employee. Cal. Lab. Code § 2699(i).  Under Ninth Circuit precedent, “a suit, the primary benefit of which would inure to the state,” could not satisfy the requirements of federal diversity jurisdiction. Urbino v. Orkin Servs. of California, Inc., 726 F.3d 1118, 1122–23 (9th Cir. 2013).  Under these authorities, the district court held that the statutory penalties recoverable by plaintiffs under PAGA were distinct from the penalties recoverable by the State of California through the LWDA.  Thus, the civil penalties recoverable by plaintiffs (25%) and those recoverable by the LWDA (75%) could not be aggregated when calculating CAFA’s amount in controversy.

In its notice of removal, defendant alleged that the amount in controversy was $6,280,675, which included $2,286,900 in statutory penalties under PAGA.  Even assuming they were accurate, the district court reduced these amounts by $1,715,175 – i.e., 75% of the $2,286,675 in PAGA penalties that must go to the LWDA.  Consequently, the court concluded that the total aggregate amount in controversy was $4,565,500 ($6,280,675—$1,715,175 = $4,565,500).  As such, the district court found that defendant failed to establish CAFA’s amount-in-controversy requirement by a preponderance of the evidence and remanded the case.

Despite the Main court’s ruling, there is currently a split among California district courts over the issue of whether, when PAGA claims are asserted as a class action, the amount in controversy under CAFA includes the statutory penalties recoverable by both individual employees and the LWDA.  Some district courts have held that all potential PAGA penalties should be included when calculating CAFA’s amount in controversy, whereas others have held that only the individual employee’s 25% may be counted. Compare Pagel v. Dairy Farmers of Am., Inc., 986 F. Supp. 2d 1151, 1152–53 (C.D. Cal. 2013) (“[T]he full amount of potential PAGA penalties payable by defendant must be included in assessing whether ‘the matter in controversy exceeds the sum or value of $5,000,000, exclusive of interest and costs’ under 28 U.S.C. § 1332(d)(2).”); Altamirano v. Shaw Indus., Inc., 13-0939, 2013 WL 2950600, at *7 (N.D. Cal. June 14, 2013) (holding entire amount of PAGA statutory penalties should be considered when calculating CAFA amount in controversy); Quintana v. Claire’s Stores, Inc., 13-0368, 2013 WL 1736671, at *7 (N.D. Cal. Apr. 22, 2013) (same), with Walker v. CorePower Yoga, LLC, 12-4, 2013 WL 2338675, at *5 (S.D. Cal. May 28, 2013) (“[O]nly 25 percent of the total potential PAGA recovery may be included in calculating the amount in controversy on the PAGA claims.”); Hernandez v. Towne Park, Ltd., 12-02972, 2012 WL 2373372, at *16 (C.D. Cal. June 22, 2012) (“[O]nly 25% of the potential recovery on the representative action can be included in calculating the amount in controversy on the PAGA claim.”).  The Ninth Circuit has not resolved this split.

California employment law practitioners, especially those representing employers seeking to remove PAGA class actions, should be mindful of these conflicting authorities.  Likewise, when removing putative class actions under statutes similar to PAGA, defendants in other jurisdictions should not assume that statutory penalties divided among the government and private litigants can automatically be aggregated to meet CAFA’s jurisdictional threshold.