Monday, October 25, 2010

Second District Holds that PAGA Claims Are Encompassed Within a Wage Settlement Regardless of Whether Basis For Claims Are Pled or Litigated: Villacres v. Abm Indus.

On October 22, 2010, the Second District Court of Appeal in Villacres v. Abm Indus., __ Cal. App. 4th __ (2010) held that a PAGA action brought by an individual encompassed within a prior class action settlement was barred on res judicata grounds.  As explained in the Court’s opinion, the plaintiff’s participation in the settlement of a prior action involving overtime claims precluded his PAGA action despite the fact that (1) the settlement agreement released only those claims that “could have been raised as part of the Plaintiffs’ claims”, and (2) the bulk of violations alleged in his action were not included in the prior action, including  meal and rest break violations, wage statement violations, untimely mage payments.

Although the Court declined to delve into whether a PAGA claim involves a different primary right [Slip Opinion, at 17 (“We need not decide whether, as defendants argue, the primary rights theory treats all wage-related Labor Code violations and PAGA penalties as a single cause of action or whether, as Villacres contends, every Labor Code violation and PAGA penalty involves a separate primary right.”)], the Court nonetheless concluded that plaintiff’s PAGA action implicated the same claims asserted and settled in the prior action.  The Court based this determination on the more broad finding that “Villacres's PAGA claims could have been raised in the prior action for purposes of res judicata.”  See id., at 14-29.  According to the Court, plaintiff could have acted in numerous ways to preserve and/or protect his rights subsequent to receiving notice:
In response to the Notice, Villacres could have (1) objected to the proposed settlement on the ground it should have included additional Labor Code violations and corresponding PAGA penalties, (2) sought to intervene in Augustus to pursue the same goal, or (3) opted out of the settlement and preserved his right to bring an independent action. (See Home Sav. & Loan Assn. v. Superior Court, supra, 42 Cal.App.3d at p. 1010; accord, Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial, supra, P 14:133, p. 14-80; Cohelan on California Class Actions (2009-2010 ed.) §§ 4:28, 9:11-9:12, pp. 64-65, 377-381; 4 Newberg on Class Actions (4th ed. 2002) §§ 11:55, 11:58, pp. 168-181, 186-211 [discussing objections]; 5 Newberg on Class Actions, supra, § 16:9, at pp. 171-179 [discussing intervention]; Cal. Rules of Court, rule 3.767(a)(4).)
Slip Opinion, at 21.

As asserted by Justice Chaney in the dissent, this approach was flawed for several reasons, not the least of which, it ignored the language in settlement agreement purporting to release only those claims that “‘could have been raised as part of the Plaintiffs’ claims….’”  See id., at 8 (dissent).   As Justice Chaney reasoned, this limiting language not only reflected an intent by the parties to confine the release to wage issues that were actually raised in the lawsuit [id.], such limiting language was required by existing class action settlement precedent:
[T]he parties had good reason to install a limited release-they needed court approval of the settlement. Class representatives have no standing to release all claims, and overbroad general releases should be avoided. "Any attempt to include in a class settlement terms which are outside the scope of the operative complaint should be closely scrutinized by the trial court to determine if the plaintiff genuinely contests those issues and adequately represents the class." (Trotsky v. Los Angeles Fed. Sav. & Loan Assn. (1975) 48 Cal.App.3d 134, 148.) "[T]o exercise this power of careful scrutiny over the inclusion of additional claims in the settlement, the trial court has the right to expect the settling parties to disclose the effect of such terms at the time the proposed settlement is brought to the attention of the court." (Ibid.) Judge Minning presumably would have found a release of all conceivable claims to be overbroad.
Slip Opinion, at 8-9.

The insightful issues raised by Justice Chaney are significant, and poke material holes in the analysis of the majority.

First, the existence of such limiting language in the scope of the settlement release would eliminate any basis for a class member to believe they were required to object or opt-out to preserve their rights on other issues. Indeed, the release language expressly stated that it did not encompass wage/employment issues not raised in the lawsuit. From this proposition, as Justice Chaney highlights, the majority’s position encourages (if not requires) class members to always take affirmative action to preserve their rights, by way of opt-out or objection, on grounds that are infinite. See id., at 10 (“a release of any claim that can be articulated in an objection or complaint in intervention, even frivolously, would be truly limitless”).

Second, insofar as this limiting language was insufficient to exclude other wage issues not raised in the litigation, the majority’s broad holding seemingly compels a de facto release of all wage/employment claims in every class settlement regardless of efforts to restrict the release of claims in the settlement agreement to the claims actually litigated in the action. This proposition has the potential to unleash a due process Pandora’s Box by compelling the inclusion of “all claims” within every class action settlement – even those claims that, if included in the lawsuit, would render class adjudication improper. As Justice Chaney aptly explains, “[a] class member would not be permitted to intervene where his or her separate claim threatens to destroy the community of interest” and “[e]ven if the trial court were to contemplate establishing a subclass, it would not do so to accommodate a single class member's separate claim.” See id., at 10-11.

In sum, the majority's res judicata analysis appears to be detached from numerous class adjudication principles, not the least of which being that settlement of a class action is contractual in nature.

No comments:

Post a Comment