The Class Action Weekly Wire – Episode 39: PAGA Faces Potential Transformation In California Supreme Court Decision

Duane Morris Takeaway:
This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jerry Maatman and special counsel Eden Anderson with their discussion of a PAGA case currently before the California Supreme Court weighing whether trial courts have inherent authority to ensure that PAGA claims will be manageable at trial, and to strike or narrow such claims if they cannot be managed appropriately.

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Episode Transcript

Jerry Maatman: Thank you for being here, loyal blog readers, in our next installment of the Class Action Weekly wire. I’m very excited to join my colleague, Eden Anderson, who is on the show today to talk about new California developments.

Eden Anderson: Thanks, Jerry. I’m very happy to be here.

Jerry: Great. A significant decision in the PAGA area was argued this past month in the California Supreme Court. And I know you’re following all things PAGA and all things arbitration on behalf of employers, and are very much in the forefront of thought leadership in this area. Could you tell our audience a bit about the case and what it means?

Eden: Yes, the Estrada, et al v. Royalty Carpet Mills case. There the plaintiff Jorge Estrada filed a putative class and PAGA action against his former employer asserting meal period violations under California law. The employer manufactured carpets and had employees working at a number of different locations and a number of different positions. The court initially certified two classes of workers from two different production facilities – 157 employees in total – and the claims were tried to the bench. The judge ultimately to decertified one of the two classes. The judge found there were too many individualized issues to support class treatment for that group, and as to the PAGA claim for that group, the judge deemed it not manageable, and dismissed it. Mr. Estrada appealed, and he argued that PAGA claims have no manageability requirement, and the Court of Appeal agreed with him; it reasoned that class action requirements don’t apply to PAGA actions, and therefore the manageability requirement that is rooted in class action procedure does not apply. And at the same time the Court of Appeal acknowledged that the difficulty that employers face, and trial courts as well with PAGA claims involving hundreds or thousands of employees, but it concluded that dismissal for lack of manageability just isn’t a tool that trial courts can utilize.

Jerry: I know there are a range of approaches that trial courts and appellate courts have undertaken when it comes to managing or adjudicating a PAGA action. Is there a split in authority that the California Supreme Court is going to be debating and looking at in terms of its ultimate ruling?

Eden: Yes, that’s correct. The holding in Estrada is contrary to the holding in Wesson v. Staples, where the trial court struck a PAGA claim as unmanageable, and the Court of Appeal affirmed. The claims at issue in Wesson involved the alleged misclassification of 345 store managers. The employer’s exemption affirmative defense turned on individualized issues as to each manager’s performance of exempt versus non-exempt tasks, which varied based on a number of factors including store size, sales volume, staffing levels, labor budgets, store hours, customer traffic, all of which varied across the stores.  The split in authority prompted the California Supreme Court to grant review in Estrada, but not Wesson. The Court of Appeal there determined that they had properly been dismissed for lack of manageability.

Jerry: I know the case was argued on November 8, and the stakes are quite high. It’s a vexing area for employers. It’s a challenging area for judges and lawyers. What were your takeaways from the oral argument, and what employers ought to know about the issues that were argued over that day before the California Supreme Court?

Eden: Overall, it was an uplifting oral argument for employers, which, as you know, can be a little bit unusual out here. On the downside, several justices, including justices Liu and Jenkins, express some skepticism about whether a trial court’s inherent powers allow it to outright strike or dismiss an entire PAGA action for lack of manageability. Justice Liu commented that permitting trial courts such wide-ranging power could shortchange the PAGA statute, unless there’s an overriding constitutional interest. On that point several justices acknowledged that an employer has a due process right to present evidence to support its affirmative defenses, and that in certain cases that evidence might require a series of mini trials over a period of years and wholly consume a trial court’s resources. Justice Kruger asked questions of Estrada’s counsel about the impracticability of requiring trial courts to consume years of time and resources in that manner. Justice Groban also expressed concern about a PAGA case, for example, where you have multiple labor code violations alleged, hundreds or even thousands of employees at issue, different work sites, different types of employees ranging from janitors to accountants, and he asked why, in such a case a trial court could not just limit the case to the accountants only, and other justices raised similar concerns. Chief Justice Guerrero asked Estrada’s counsel why the answer shouldn’t just be that trial courts have this broad discretion and that it’s just something that’s going to be subject to appellate review.

Jerry: It’s often said that California is the toughest venue in the United States to be an employer and litigate cases in courtrooms there. I suspect the answer is a little more nuanced, since every case is different. But given your expertise in this area and your thought leadership, do you have any prognostications for employers as to the outcome of the Estrada case and the California Supreme Court?

Eden: Yeah, given the constellation of comments from the justices, the court may hold that trial courts have an inherent authority to protect an employer’s due process rights, and that such power necessarily encompasses the right to gauge the manageability of PAGA claims, and to narrow them down as to whether that authority includes outright dismissal of an entire PAGA case. Employers are going to have to wait and see – a decision has to issue within 90 days, so we will soon know the answer.

Jerry: Well, in following the dockets of filings in all the states as we do, I think the number one case being filed these days by the plaintiffs’ bar are PAGA representative actions. So this particular decision certainly has the potential to be a game changer in the landscape of legal liability, especially in California. Well, thank you so much, Eden, and thank you to our loyal blog listeners for another edition and participation in our Class Action Weekly Wire.

Eden: Thank you for having me, Jerry, and thank you listeners.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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