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

An Employee’s PAGA Claims Can Be Aggregated for CAFA Purposes

Posted in Case Summaries, Wage and Hour

Stafford v. Brinks Inc., 2014 WL 10320456 (C.D. Cal. May 28, 2014)

A District Court in California ruled that civil penalties under the California Labor Code Private Attorneys General Act of 2004 (“PAGA”) could be aggregated as class claims to meet the amount-in-controversy requirement for CAFA jurisdiction.

The plaintiff brought a wage and hour action alleging various violations of the California Labor Code and PAGA, which the defendant removed to federal court under CAFA. To meet CAFA’s $5,000,000 jurisdictional minimum, the defendant calculated penalties for plaintiff’s class claims under Labor Code § 226(e) as $2,385,950 and calculated penalties for the related PAGA claim as $4,771,900.

The plaintiff moved to remand, arguing that under the Ninth Circuit’s ruling in Baumann v. Chase Inv. Servs. Corp., 747 F.3d 1117 (9th Cir. 2014), the amount in controversy in plaintiff’s PAGA claim could not be aggregated with the class claims to meet the $5 million jurisdictional minimum.

The Court, however, observed that the Ninth Circuit had not specifically addressed this issue in Baumann. The Baumann action did not involve class claims under California’s class action statute, only a claim under PAGA itself, and the Ninth Circuit limited its consideration to the issue of whether a PAGA action involving 100 employees was a class action under CAFA. CAFA defines “class action” as an action under Rule 23 of the Federal Rules of Civil Procedure or a “similar State statute or rule of judicial procedure authorizing an action to be brought by 1 or more representative persons as a class action.” 28 U.S.C. § 1332(d)(1)(B). Accordingly, the Baumann court only determined whether §§ 2699(a) and 2699.3 of the California Labor Code were similar to Rule 23, and answered in the negative.

Unlike Baumann, this action involved class claims under the California class action statute along with a PAGA claim. In examining similar cases, the Court observed that the primary axis of controversy among the district courts in the Ninth Circuit had been whether to include all of the expected civil penalties under PAGA, or only that portion that may ultimately be paid to the individual employees. The defendant here claimed that it was appropriate to include 100 percent of the expected recovery on the PAGA claims in the amount-in-controversy.

The Court observed that under PAGA, 75% of the civil penalties recovered are awarded to the Labor and Workforce Development Agency (“LWDA”), while the aggrieved employees recover 25% of the penalties. The defendant suggested that the total amount-in-controversy for the PAGA claim was $4,771,900, which was calculated by totaling the number of allegedly improper wage statements provided to each putative class member during the statutory period, and allowing a $100 penalty for the first wage statement and a $200 penalty for each wage statement thereafter. According to the defendant’s calculations, then, the total recovery that could be realized by the individual employees was $1,192,975. Combined with the $2,385,950 in penalties for plaintiff’s class claims under Labor Code § 226(e), the amount in controversy would not exceed $5,000,000.

The Court observed that the district courts in the Ninth Circuit were split over whether any recovery that is expected to be paid to LWDA is a part of the amount-in-controversy under CAFA. Those courts that have included only the 25% payable to the individual employees in the amount in controversy have focused on the fact that PAGA claims are owned by the government, and the government claims are not claims of the individual class members under the claim aggregation rule in CAFA. In fact, in Urbino v. Orkin Services of California, Inc., 726 F.3d 1118 (9th Cir. 2013), the Ninth Circuit determined that the penalties payable to individual employees under PAGA may not be aggregated in order to meet the $75,000 minimum amount-in-controversy for the diversity jurisdiction under § 1332(a).

The Court noted that Urbino did not hold that PAGA claims were claims belonging to the state, rather than claims of the individual employees; it stated that if PAGA claims were understood as claims belonging to the state, the claims would not be part of the amount in controversy because the state is not a citizen. In fact, the Court remarked that the Urbino dictum seemed to conclude that whether or not a PAGA claim is considered a claim of the state, it should not be understood as two separate claims. Instead, a PAGA claim should be viewed as either primarily seeking to assert an individual’s interest or to benefit the state.

The Court also observed that under the “either viewpoint” rule for determining the amount in controversy, the test is the greater of the pecuniary result to either party that the judgment would produce. Even though not all of the recovery under a PAGA claim inures to the plaintiff’s benefit, the claim necessarily puts the entire possible award into controversy from the defendant’s perspective. There was no basis in the statutory language of CAFA, and the Court noted that the plaintiff pointed to no guidance in the legislative history, suggesting that Congress intended to abrogate the either viewpoint rule for purposes of CAFA jurisdiction. Accordingly, the Court held that it was improper to divide PAGA claims and only include the 25% of the penalties recoverable by the aggrieved employees in the amount in controversy.

The Court next considered whether the entire PAGA claims should be considered a claim of the individual class members or a claims of the state agency, and found that virtually all courts had included PAGA penalties in the amount in controversy for class actions with both class claims and PAGA claims. However, the Court observed that none of those courts directly considered whether PAGA claims were claims of individual class members subject to aggregation.

The Court ultimately concluded that under California law, PAGA claims brought by individual employees were claims belonging to those individuals, even though they represented the same legal right and interest as the state labor law enforcement agencies. Because PAGA explicitly allows the civil penalties to be pursued by either the agency or an aggrieved employee, the Court held that an action brought by an employee belongs to that individual and an action brought by the agency belongs to the state.

Accordingly, the Court concluded that the plaintiff’s PAGA claim belonged to the individual class members and could be aggregated to meet the amount-in-controversy requirement under CAFA. As a result, the Court concluded that the amount in controversy exceeded the $5,000,000 threshold and denied the plaintiff’s motion to remand.

– Kevin Lampone