Walker v Corepower Yoga LLC, 2013 WL 2338675 (S.D. Cal. May 28, 2013).

 In absence of the Ninth Circuit precedent on the issue, a the District Court for the Southern District of  California, remanded an action to the state court and held that only 25 percent of the total potential California Labor Code Private Attorney General Act (“PAGA”) recovery may be included in calculating the amount in controversy on the PAGA claims. 

The plaintiff, a former yoga instructor, brought an action asserting violations of the California Labor Code, and unlawful and unfair business practices pursuant to California Business and Professions Code § 17200.  The plaintiff also sought statutory penalties pursuant to the PAGA, and damages for wrongful discharge in violation of public policy. 

The defendant removed the action from San Diego County Superior Court to the District Court asserting that the plaintiff was more likely than not seeking damages in excess of $75,000 and, alternatively, CAFA.  The plaintiff moved to remand, contending that the defendant did not meet its burden of showing that the amount in controversy requirement had been met.  The District Court remanded the case.

The defendant contended that a reasonable estimate of the amount in controversy with respect to all of the plaintiff’s claims, excluding statutory damages and penalties and attorneys’ fees, amounted to $38,770. The plaintiff did not challenge this estimate; the parties, however, disputed the amounts attributed towards statutory damages and penalties and attorneys’ fees.

Although the defendant contended that the statutory damages and penalties amounted to $49,718, the plaintiff contended that this amount was improperly inflated.  The Complaint was filed on November 14, 2011 and the plaintiff was only employed with the defendant through May 2011.  Thus, the District Court opined that the plaintiff could only recover PAGA and § Labor Code 226(e) penalties for a maximum of six months rather than the one-year period asserted by the defendant.  Accordingly, the District Court reduced by half the amount in controversy the defendant attributed to statutory penalties. 

Next, the parties disputed whether the total PAGA recovery should be considered in determining the amount in controversy.  The plaintiff asserted that the defendant improperly aggregated the penalties to be paid to the California Labor and Workforce Development Agency (“LWDA”) and the penalties to be paid to plaintiff pursuant to the PAGA.  The District Court observed that PAGA provides that 75 percent of the recovery must go to the LWDA, leaving 25 percent for aggrieved employees, and that as a general rule, aggregated claims of multiple claimants cannot form the basis of the amount in controversy.

The District Court noted that the Ninth Circuit has yet to rule on whether the total PAGA recovery or only 25 percent which is distributed to the aggrieved employees should be considered in determining amount in controversy.  The district courts, with in the Ninth Circuit are split on this issue.  Some district courts have held that the amount at stake in a PAGA claim is predicated on the total amount of the penalties that can be sought by the aggrieved employees as the proxy of the LWDA.  However, in Hernandez v. Towne Park, Ltd., 2012 WL 2373372 (C.D. Cal. June 22, 2012), the court stated that PAGA permits either the LWDA or the aggrieved employees to act independently to enforce the Labor Code, which cuts against aggregating the agency’s claims with the employees’ claims, even if the employees’ individual claims should be aggregated under the common and undivided interest exception.

Further, Pulera v. F & B, Inc., 2008 WL 3863489 (E.D. Cal. Aug.19, 2008) held that the amounts recoverable by plaintiff based on her PAGA claims are separate and distinct from the amounts recoverable by the State of California via the LWDA, and therefore these amounts may not be aggregated. 

Placing reliance on Hernandez and Pulera, the District Court held that only 25 percent of the total potential PAGA recovery may be included in calculating the amount in controversy on the PAGA claims.  

Further, the defendant contended that, even subtracting the entire amount to be remitted to the LWDA, the amount in controversy exceeded $75,000 because the PAGA recovery of all aggrieved employees should be aggregated, and there were 400 or more aggrieved employees.  In estimating the number of aggrieved employees, the defendant relied upon the allegation in the Complaint that there were over 400 individuals employed as yoga instructors during the four-year class period and the evidence submitted by the defendant that, from November 2007 to June 2012, 487 individuals worked for as yoga instructors. 

The District Court, however, remarked that the Complaint did not allege how many yoga instructors were employed during the one year PAGA limitations period, and the evidence submitted by the defendant did not contain any information regarding dates of employment.  Thus, the District Court stated that it would be required to speculate to an impermissible degree to arrive at a reasonable estimate of the number of aggrieved employees pursuant to the PAGA, and that the defendant thus failed to show that the amount in controversy requirement was met by including the PAGA penalties recoverable by all aggrieved employees. 

When only considering the PAGA penalties attributable to the plaintiff’s individual claims, the most reasonable estimate of PAGA penalties offered was the plaintiff’s estimate of $5,637.50.   

Next, the District Court held that attorneys’ fees awarded under California’s Consumer Legal Remedies Act must be divided among all plaintiff class members for purposes of amount in controversy.  Here, the defendant estimated attorneys’ fees as $50,000 over the life of the case, and the evidence indicating that there are 487 class members.  Dividing the estimated $50,000 in attorneys’ fees among the 487 class members resulted in $104 in attorneys’ fees being considered as part of the amount in controversy for the plaintiff’s claims.   

Adding $5,637.50, the PAGA penalties attributable to the plaintiff’s individual claims with the previously discussed estimate of $38,770 along with the attorney’s fees, the amount in controversy amounted to $46,175.50.  Thus, the District Court stated that the defendant failed to meet its burden of showing that the $75,000 amount in controversy requirement was met. 

The defendant also asserted that a settlement letter sent by the plaintiff’s counsel established that the amount in controversy requirement was met because the letter stated that the defendant’s possible total exposure was approximately $25,570,375. 

The plaintiff, however, contended that this figure was calculated using nothing but unsupported and inflated assumptions because at the time the plaintiff had not yet received initial disclosures or any discovery from the defendant.  Thus, because the settlement letter did not appear to reflect a reasonable estimate of the plaintiff’s claim, the District Court opined that it was insufficient to establish that the $75,000 amount in controversy requirement was met.

Finally, the defendant contended that federal subject matter jurisdiction existed pursuant to CAFA.  The defendant, however, provided no evidence to support its contention that the CAFA amount in controversy requirement was met.  The District Court stated that the defendant’s speculation was particularly unreasonable because the defendant could reasonably be expected to have access to its own employment records and therefore could produce summary-judgment-type evidence sufficient to show the amount in controversy. 

Accordingly, the District Court granted the plaintiff’s motion and remanded the action to the state court.

This case has importance to labor law practitioners in California, specifically in PAGA cases with jurisdiction issues.  No Ninth Circuit case here, so add this one to your research file.  — JR