A state appeals panel has ruled a California workforce regulatory agency isn’t obligated to pay the legal bills of a plaintiff who lodged a failed lawsuit against Hobby Lobby, even though the state agency potentially stood to reap the biggest financial reward should the lawsuit have succeeded.
The underlying litigation began when former Hobby Lobby cashier Kelly Rose sued the retailer in March 2017 for violations of the state labor laws through the state's controversial Private Attorneys General Act (PAGA.)
Under the PAGA law, individual workers are allowed to essentially step into the place of labor officials, and sue employers on behalf of the state and their coworkers for alleged violations of state labor laws, often for small or merely technical violations.
Successful PAGA plaintiffs can seek civil penalties under state labor law. Under PAGA, 75% of those penalties are then paid to the California Labor and Workforce Development Agency. The remaining 25% are then paid to the affected workers, collectively. Attorneys also can seek fees on top of the penalties.
In this case, Rose accused Hobby Lobby of allegedly violating the so-called suitable seating provisions under an Industrial Welfare Commission wage order.
Such suitable seating provisions generally prohibit employers from stopping workers from sitting when standing for their job duties is not required.
Following a nine-day bench trial, Alameda County Superior Court Judge Evelio Grillo ruled in favor of Hobby Lobby.
Rose challenged that decision before the California First District Appellate Court, which upheld the ruling.
Grillo then awarded almost $125,000 in litigation costs to Hobby Lobby as the prevailing party and directed the LWDA should make the payment despite not directly participating in the litigation.
The LWDA challenged that ruling before the same appeals court. Justice Marla Miller wrote the panel’s opinion, filed May 14; Justices James Richman and Tara Desautels concurred.
The appeals panel framed the broader question as whether the agency is liable when a defendant defeats a PAGA lawsuit. But Miller said the justices didn’t specifically decide that issue because, in this case, the LWDA didn’t participate in proceedings.
When Rose filed her complaint, Miller wrote, employees who won such lawsuits would keep 25% of the penalties, along with being reimbursed for legal fees, while the LWDA would get the remainder. Such workers first have to notify the agency and the employer, which gives the LWDA time to investigate the complaint and issue a citation before a lawsuit can proceed.
Hobby Lobby initially claimed it was owed almost $475,000 in litigation costs. Rose agued PAGA doesn’t allow for cost awards to prevailing employers and further said “certain costs should be taxed as unrecoverable, unreasonable or unnecessary.” Judge Grillo invited the LWDA to file a brief addressing its liability, which the agency said triggered its first knowledge of Hobby Lobby’s fee request and led to a motion to intervene in the litigation supporting Rose’s request to reduce the costs owed.
Judge Grillo ultimately ruled the agency — and not workers — is responsible for costs when an employer defeats a PAGA claim, but agreed to reduce the amount owed to about $125,000. The LDWA appealed that order, meaning Rose was not a party to the issue before the First District panel.
Miller noted the law allowing private litigation to enforce labor code violations “says nothing about prevailing employers.” Rather than address the arguments both parties cited, the panel said, the more salient issue is participation in litigation.
“The LWDA did not sue Hobby Lobby,” Miller wrote. “The LWDA was not a party to Rose’s lawsuit, nor did it take any action in the lawsuit until it moved to intervene, which it did only after it got word that Hobby Lobby sought to impose its costs on the LWDA. Accordingly, Hobby Lobby cannot recover its costs from the LWDA.”
The panel said the California Supreme Court has instructed PAGA filings be treated as qui tam actions - or lawsuits filed by private citizens on behalf of government agencies - which makes the agency “the real party of interest” and not an individual plaintiff. But the benefiting entity, Miller continued, isn’t a party to the action unless or until it formally becomes one through intervention.
Hobby Lobby argued against that reading, asserting Rose was LWDA’s agent when she filed. But the panel found no support for that position in PAGA itself and said “the relationship between the LWDA and the PAGA plaintiff is defined by PAGA itself, not by the general law of agency. And under PAGA, a plaintiff’s relationship with the LWDA is unlike an agency relationship as defined by the Civil Code.”
Furthermore, Miller wrote, PAGA doesn’t mandate LWDA take control of a plaintiff’s litigation, but only offers the agency discretion to claim such responsibility.
“If the LWDA in exercising its discretion declines to issue a citation against the employer or bring an action against the employer under Labor Code section 98.3 based on the facts and theories alleged in the notice,” Miller wrote, “the prospective plaintiff is free to file a lawsuit, and PAGA provides no mechanism for the LWDA to prevent the employee from doing so.”
The panel also said Hobby Lobby showed no evidence of a real party in interest being subject to the costs of litigation in which it didn’t actively participate, nor did it identify any government entity so affected via qui tam actions.
Attorney Alec Segarich, of the Division of Labor Standards Enforcement, represented the state agency.
Hobby Lobby was represented by attorneys Brent Matthew Giddens, Jeffrey Sikkema and Corey J. Cabral, of the firm of Vorys Sater Seymour & Pease, of Irvine.