The California Supreme Court has eliminated another tool for employers to use when defending lawsuits brought under the state’s Private Attorneys General Act, prompting business lawyers to predict the decision will make it even easier to sue employers under the controversial state law.
Chief Justice Patricia Guerrero wrote the unanimous opinion filed Jan. 18, explaining the court resolved contrary appellate court conclusions over whether trial courts can use the issue of manageability to dismiss PAGA lawsuits workers bring against their employers.
In the decision, Guerrero said an Orange County judge wrongly determined California state lawmakers had given courts latitude to shut down PAGA actions are "unmanageable" by determining that the lawsuits involve too many different workers claiming different things, leaving the courts to sort them out.
In analyzing a variety of procedural history, Guerrero concluded California legal “precedent makes clear that PAGA permits a plaintiff to have representational standing to seek penalties on behalf of individuals who have allegedly suffered violations that vary widely in nature. To permit the striking of such claims merely because they require individual determination would deprive the state of the very remedy the Legislature has authorized and would thereby defeat the purpose of the statute.”
She noted that while the court was reviewing the issue, the U.S. Ninth Circuit Court of Appeals “resolved a similar split among federal district courts applying California law.”
The case history involved an Orange County Superior Court lawsuit that started when Jorge Estrada accused Royalty Carpet Mills of violating state Labor Code provisions. The Supreme Court’s review focused on a California Fourth District Appellate Court opinion on the third amended complaint, which alleged seven class claims and asked the court to impose PAGA penalties.
Lawsuits brought under PAGA function differently from other kinds of collective actions against employers. Under the PAGA law, individual workers are empowered to essentially stand in place of California state labor officials and sue over alleged labor law violations on behalf of all their co-workers. Under PAGA, plaintiffs can demand employers pay civil penalties under the law, with 75% of the penalties paid to the state of California and 25% to employees.
Critics, however, say the real winners in such PAGA actions are attorneys, who can reap considerable attorney fees from lawsuits that often are based on scant evidence of any real wrongdoing, while forcing employers to pay steep costs to defend or settle the lawsuits.
In the case against Royalty Carpet Mills, Chief Justice Guerrero explained, Orange County Judge Randall Sherman decertified subclasses after determining “there were too many individualized issues to support class treatment,” then dismissed a claim seeking PAGA penalties with respect to everyone but named plaintiffs, finding the claim unmanageable.
The appeals panel sided with the workers and revived the complaint, prompting Royalty’s appeal to the Supreme Court to resolve differing opinions.
On appeal, Royalty, along with support briefs from the California State University Board of trustees, Employers Group and California Law Counsel, and the U.S. and California chambers of commerce, the National Retail Federation and the Retail Litigation Center, argued trial courts should be able to strike any unmanageable claim on grounds of judicial economy or “any representative claim that is unmanageable,” Guerrero wrote.
Royalty also argued having to retry the PAGA claim would violate its due process rights.
In detailing the relevant legal framework, the court explained the 2003 enactment of PAGA as a remedy for “systemic underenforcement” of Labor Code violations.
“Contrary to Royalty’s contention that trial courts possess a broad and general power to dismiss claims in the name of judicial economy, our case law has recognized that the inherent authority of trial courts to dismiss claims is limited and operates in circumstances that are not present here,” Guerrero wrote.
She explained that, although the company framed the issue as one of removing power from trial courts, “Royalty would have this court sanction a broad new power that we have never before recognized.”
The court further said Royalty’s argument specifically to PAGA claims was narrower, but also flawed, because PAGA litigation significantly differs from class action lawsuits, under which manageability is commonly invoked as ground for dismissal.
“There is no requirement that a plaintiff establish predominance of common issues to state a PAGA claim,” Guerrero wrote. “Likewise, there is no authority suggesting that superiority is a requirement for a representative PAGA action. On the contrary, PAGA is based on the Legislature’s intent to maximize the enforcement of labor laws.”
The court further said the question of manageability with respect to class actions is “part of the consideration of the costs and benefits of class adjudication as opposed to other methods for resolving the controversy,” but PAGA actions operate under a different framework, and further noted the superiority and predominance factors in class certification are specifically not PAGA requirements.
“PAGA claims are effectively administrative enforcement actions, and imposing a manageability requirement would impede the effectiveness of such actions,” Guerrero wrote.
While Royalty argued PAGA incentivizes private lawyers to bring claims against employers, the court framed that as “a concern better addressed to the Legislature” and also noted the limited ability for courts to provide relief under PAGA actions further makes a manageability requirement inappropriate.
The court further rejected Royalty’s arguments regarding its due process rights, finding defendant companies are not prevented from presenting affirmative defenses to PAGA claims and that Royalty specifically hadn’t attempted to present testimony beyond two former employees and one expert witness nor has it established the “due process right to present the individual testimony of each allegedly aggrieved employee.”
In the Estrada decision. Guerrero noted trial courts remain empowered to limit the types of evidence workers can introduce and have tools beyond outright dismissal to assure effective trial of PAGA claims. Further, with the burden of proof on the worker, she wrote, “it behooves the PAGA plaintiff to ensure that trial of the action is manageable so the maximum number of potential violations may be established.”
The workers are represented by attorneys Rudy Ginez Jr., of Ginez Steinmetz & Associates, of Santa Ana, and Clifton E. Smith, of the CE Smith Law Firm, of Oceanside.
Royalty was represented by attorneys Joseph L. Chairez, Daniel F. Lula, Vartan S. Madoyan, Joseph S. Persoff, David B. Rivkin Jr. and Andrew M. Grossman, from the firm of Baker & Hostetler, of Costa Mesa.
Lawyers from the firms of Munger Tolles & Olson and DLA Piper wrote the support briefs.
The decision has attracted large amounts of attention from California employers and the lawyers who represent them.
Attorney Gerald Maatman, a prominent employer defense lawyer from the firm of Duane Morris, noted the decision "narrows the range of effective defenses employers can mount to defeat PAGA litigation."
“If one views rulings as ‘courthouse door openers’ or ‘courthouse door closers,’ Estrada opens the door to the courthouse for workers, as it makes it easy to prosecute those sorts of claims," Maatman said.