Thursday, July 8, 2010

Two PAGA Decisions of Note: Mendez v. Tween Brands and Nordstrom Commission Cases

On June 30, 2010, Eastern District Judge Morrison C. England, Jr. issued an opinion in Mendez v. Tween Brands, 2010 U.S. Dist. LEXIS 66454 (E.D. Cal. June 30, 2010), concluding that a PAGA representative claim need not be certified as a class action in Federal Court. Defendants sought to strike the plaintiff’s PAGA claims, which were pled in a representative capacity, on the grounds that PAGA claims are procedural in nature, and under Erie, needed to be certified under Rule 23. See Mendez, 2010 U.S. Dist. LEXIS 66454, at 6-7.  Based on this argument, the defendants maintained that litigation of PAGA claims were governed by Federal Rules of Procedure, rendering inapplicable the California Supreme Court’s decision in Arias v. Superior Court, 46 Cal. 4th 969 (2009) that PAGA claims need not satisfy class action requirements.

The Court Disagreed. In addition to reasoning that such a result would encourage forum shopping by employers [Id, at 10], the Court reasoned that the defendant’s argument was based on the misperception that PAGA claims vest employees with an entitlement to PAGA penalties, rather than implicating a purely “law enforcement” action that is conducted on behalf of the State:
Defendants fundamentally misstate the nature of PAGA claims. PAGA claims are law enforcement actions, not class actions. A plaintiff brings claims pursuant to PAGA as "the proxy or agent of the state's labor law enforcement agencies." Arias, 209 P.3d at 933. n4 The remedy sought in a PAGA suit consists of civil penalties, not individual or class damages. Cal. Lab. Code § 2699(a). "[A PAGA] action is fundamentally a law enforcement action designed to protect the public and penalize the employer for past illegal conduct. Restitution is not the primary object of a PAGA action, as it is in most class actions." Franco v. Athens Disposal Co., Inc., 171 Cal. App. 4th 1277, 1300 (2009). Defendant relies on the Supreme Court's ruling in Shady Grove that Rule 23 governs all class actions brought in federal court, Shady Grove Orthopedic Assocs. v. Allstate Ins. Co., 130 S. Ct. 1431 (2010), but PAGA claims, by definition, are not class actions. This renders Defendant's argument moot.
See Mendez, 2010 U.S. Dist. LEXIS 66454, at 10-11.

In a second PAGA related decision, on July 7, 2010, the Fourth District (Division 3) published its decision in Nordstrom Commission Cases, __ Cal.App.4th __ (2010) upholding final approval of a class action settlement which expressly allocated "nothing" to PAGA claims. It is important to note that the Court’s decision does not ratify a wholesale abandonment of PAGA claims to facilitate a wage settlement, but rather, approved an allocation of "nothing" based on a very narrow set of circumstances.

First, the Court’s decision appears to ratify the release of PAGA claims which were actually pled by employee. As noted by the Nordstrom Court, “PAGA ... allows aggrieved employees to bring civil actions to recover already existing penalties if the Labor and Workforce Development Agency, which is authorized to recover such penalties, does not do so.” Slip Opinion, at 13. Indeed, under Labor Code § 2699.3 an employee has no standing to pursue a PAGA claim unless and until (1) written notice is provided to the Labor and Workforce Development Agency and (2) the Agency indicates that it does not intend to pursue the claim. (Thus, contrary to the efforts of some defense counsel, a broad releases of PAGA claims may not be achieved as part and parcel of a wage and hour settlement absent an employee's prior satisfaction of the requirements of Section 2699.3). Here, PAGA claims were apparently before the Court, as the the Nordstrom Court noted that “the PAGA penalty claims were at issue, and were resolved as a part of the overall settlement of the case.” See Slip Opinion, at 15.

Second, the Nordstrom Court’s approval of the allocation of nothing to plaintiff’s PAGA claims was based on the trial court’s determination that the record reflected that the PAGA claims were arguably not viable, and thereon, worth nothing. Specifically, the Court concluded that Nordstrom was acting under a consent judgment that was the product of a prior class action settlement, and as such, there was a good faith dispute as to whether Nordstrom engaged in any PAGA violation:
The Nordstrom Commission Cases settlement agreement identifies liability for PAGA penalties as a claim against Nordstrom and includes the following language: “The Parties allocate $0 to any Private Attorneys General Act penalty claim under Labor Code § 2699 et seq., for penalty claims based on the Released Claims. During the Class Period, Nordstrom paid Putative Class Members’ commissions pursuant to a commission plan that it contends was approved by the United States District Court in Rios, and consequently, Nordstrom contends no claim for penalties of any nature is valid.” Thus, the PAGA penalty claims were at issue, and were resolved as a part of the overall settlement of the case. We find no abuse of discretion in the trial court’s approval of the settlement agreement containing these terms.
Slip Opinion, at 14-15.

Thus, Nordstrom does not appear to stand for the proposition that a plaintiff may simply settle out PAGA claims for nothing without a justification that would warrant doing so.

No comments:

Post a Comment