Eden Anderson – Page 2 – Class Action Defense

January 18, 2024 by Eden Anderson

California Supreme Court Rules That Lack Of Manageability Is An Improper Basis Upon Which To Strike A PAGA Claim, But Leaves Open Due Process Challenges

By Eden E. Anderson, Gerald L. Maatman, Jr., and Jennifer A. Riley

Duane Morris Takeaways: On January 18, 2024, the California Supreme Court issued its opinion in Estrada v. Royalty Carpet Mills, No. S274340 (Cal. Jan. 18, 2024). It is a game changer for employers operating in California. The Supreme Court held, in a unanimous decision, that trial courts lack inherent authority to dismiss claims under the Private Attorneys General Act of 2004 – the “PAGA”- with prejudice due to lack of manageability. The Supreme Court declined to address whether, and under what circumstances, a defendant’s right to due process might ever support striking a PAGA claim. As such, the decision in Estrada is a required read for employers and their decision-makers.

Case Background

Jorge Estrada filed a putative class and PAGA action against his former employer asserting, as relevant here, meal period violations. After two classes comprised of 157 individuals were certified, the case was tried to the bench. The trial court ultimately decertified the classes, finding there were too many individualized issues to support class-wide treatment. Although the trial court awarded relief to four individual plaintiffs, it dismissed the non-individual PAGA claim on the grounds that it was not manageable.

On appeal, Estrada argued that PAGA claims have no manageability requirement, and the Court of Appeal agreed in Estrada v. Royalty Carpet Mills, Inc., 76 Cal.App.5th 685 (2022). The Court of Appeal reasoned that class action requirements do not apply in PAGA actions and, therefore, the manageability requirement rooted in class action procedure was inapplicable. Further, the Court of Appeal reasoned that “[a]llowing courts to dismiss PAGA claims based on manageability would interfere with PAGA’s express design as a law enforcement mechanism.” Id. at 712. The Court of Appeal acknowledged the difficulty that employers and trial courts face with PAGA claims involving thousands of allegedly aggrieved employees, each with unique factual circumstances, but concluded that dismissal for lack of manageability was not an available tool for a trial court to utilize.

The Court of Appeal in Estrada recognized its holding was contrary to the holding in Wesson v. Staples the Office Superstore, LLC, 68 Cal.App.5th 746 (2021), and created a split in authority. In Wesson, 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.

The California Supreme Court’s Decision

At the outset, the California Supreme Court noted that the issue before it was whether trial courts possess inherent authority to “strike” PAGA claims for lack of manageability, defining the word “strike” to mean a dismissal with prejudice. Jan. 18 Opinion at 7. The Supreme Court then addressed, and rejected, the employer’s argument that trial courts possess inherent authority to, for judicial economy purposes, strike any claim a plaintiff asserts. The Supreme Court explained that the power to dismiss a claim with prejudice is limited to cases involving a failure to prosecute, frivolous claims, or egregious misconduct, and that judicial economy does not warrant the dismissal of any claim.

The Supreme Court rejected the employer’s argument that the manageability requirement for class actions should be imported into PAGA actions. It reasoned that there are three structural differences between class actions and PAGA representative actions that warrant treating these claims differently, as well as differences in jurisprudential history. The three structural differences cited by the Supreme Court were: (1) that plaintiffs in PAGA actions are not required to establish superiority or predominance of common issues; (2) PAGA’s purpose is to maximize enforcement of labor laws; and (3) that the California Labor and Workforce Development Agency (LWDA) can impose civil penalties for Labor Code violations without considering manageability.

As to jurisprudential history differences, the Supreme Court noted that, unlike class actions which were an “invention of equity,” PAGA actions are not “creatures of equity.” Id. at 30. Thus, while class action jurisprudence developed to create various common law requirements for class actions that are not set forth in California’s class action statute, the PAGA statute provides detailed statutory requirements for maintaining a PAGA claim, thereby constraining trial courts from using “extra-statutory inherent authority to strike PAGA claims that the Legislature has authorized.” Id. at 31. Because PAGA’s express wording permits a plaintiff who has suffered one labor code violation to seek civil penalties on behalf of other employees for “violations that vary widely in nature,” imposing a manageability requirement would “defeat the purpose of statute.” Id. at 32.

The Supreme Court declined to address whether, and under what circumstances, a defendant’s right to due process might ever support striking a PAGA claim other than to note that any such authority would be “narrow authority of last resort.” Id. at 41. Although the employer argued its due process rights would be violated if the PAGA claims against it were re-tried, the Supreme Court noted that the employer had only offered the testimony of two employees in the original trial and, thus, the due process issue was “hypothetical.” Id. at 40. The Supreme Court, however, agreed that employers have a due process right to present an affirmative defense, but emphasized that an employer has no due process right to present the testimony of an “unlimited number of individual employees” or “each allegedly aggrieved employee.” Id. at 40.

The Supreme Court concluded by noting that trial courts have “numerous tools” to manage complex cases, and suggested that the “extent of liability” in a PAGA case can be determined by surveys or statistical methods that estimate the number of aggrieved employees. Id. at 41. The Supreme Court emphasized that the burden of proof in a PAGA case remains with plaintiffs who should endeavor to be “prudent in their approach to PAGA claims” and that, if “a plaintiff alleges widespread violations of the Labor Code . . . but cannot prove them in an efficient manner, it does not seem unreasonable for the punishment assessed to be minimal.” Id. at 44.

Implications For Employers

The Estrada opinion strikes a blow to employers facing PAGA claims by removing lack of manageability as a ground for dismissal. While the California Supreme Court encouraged PAGA plaintiffs to be prudent to their approach to their PAGA theories, in practice, such prudence is uncommon. On the bright side, the decision leaves open an employer’s ability to seek dismissal on due process grounds.

January 4, 2024 by Eden Anderson

Permanent Injunction Issued Precluding Enforcement Of California’s Ban On Mandatory Arbitration Agreements

By Eden Anderson, Rebecca Bjork, and Gerald Maatman, Jr.

Duane Morris Takeaways: Last year, the Ninth Circuit held in Chamber of Commerce of the United States v. Bonta, 62 F.4th 473 (9th Cir. 2023), that California Assembly Bill (AB) 51 — a statute that attempted to criminalize employers’ use of mandatory arbitration agreements — was preempted by the Federal Arbitration Act. In Bonta, the Ninth Circuit affirmed a preliminary injunction prohibiting the State of California from enforcing AB 51. On January 1, 2024, following remand in the case, the district court entered a permanent injunction that enjoins the State from enforcing the Labor and Government Code sections enacted as part of AB 51, and awarding the plaintiffs, as prevailing parties, $822,496. The district court’s order brings finality, judgment, and ultimate success to a strong coalition of employer interests who banded together to challenge California’s attempt to criminalize the use of mandatory arbitration agreements.

Case Background

AB 51, effective January 1, 2020, added Section 432.6 to the California Labor Code and Section 12953 to the California Government Code. Labor Code Section 432.6 makes it a misdemeanor for employers to require employees or applicants to waive “any right, forum, or procedure for violation of any provision of the California Fair Employment and Housing Act” or the California Labor Code. Government Code Section 12953 makes it an unlawful employment practice to violate Labor Code Section 432.6.

In December 2019, the U.S. Chamber of Commerce, California Chamber of Commerce, National Retail Federation, California Retailers Association, National Association of Security Companies, Home Care Association of America, and the California Association for Health Services at Home (“Plaintiffs”) filed a complaint against the State of California challenging AB 51 as preempted by the Federal Arbitration Act (FAA).

The district court granted the Plaintiffs’ motion for a preliminary injunction, finding that Plaintiffs were likely to succeed on the merits. California appealed, and challenged only the district court’s holding that AB 51 was likely to be preempted by the FAA. A divided panel of the Ninth Circuit initially reversed the district court in a September 2021 opinion but, after a rehearing petition was filed, the Ninth Circuit withdrew its opinion and issued a new opinion, which affirmed the district court’s preliminary injunction order and held that the FAA preempts AB 51.

The District Court’s Issuance Of A Permanent Injunction

After the decision, the case was remanded to the district court and, on January 1, 2024, the district court issued an order permanently enjoining the State of California from enforcing Labor Code Section 432.6 and Government Code Section 12953. Additionally, the district court awarded the Plaintiffs, as prevailing parties, $822,496 in attorneys’ fees. The order was obtained via stipulation of the parties whereby they agreed that the Ninth Circuit’s decision in Bonta was dispositive of the legal issues in the case and further agreed to the amount of attorneys’ fees to be paid by the State.

Implications For Employers

The district court’s order brings finality, judgment, and ultimate success to a strong coalition of employer interests who banded together to challenge AB 51. Employers in California may permissibly use mandatory arbitration agreements. However, the use of mandatory arbitration agreements potentially can be problematic when it comes to enforcing the agreement. When an applicant or employee must sign an arbitration agreement as a condition of employment, the agreement is a contract of adhesion that will likely be found to be procedurally unconscionable. Thus, a court may refuse to enforce a mandatory arbitration agreement if there are also terms in the agreement that are substantively unconscionable and non-severable.

November 12, 2023November 12, 2023 by Eden Anderson

California Supreme Court Expresses Concern At Estrada Oral Argument About Manageability Of PAGA Claims

By Eden E. Anderson, Gerald L. Maatman, Jr., and Jennifer A. Riley

Duane Morris Takeaways: In a case with significant consequences for employers, the California Supreme Court heard oral argument in Estrada v. Royalty Carpet Mills, No. S274340, on November 8, 2023. In Estrada, the Supreme Court will decide 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. The Supreme Court signaled during oral argument its concerns with unwieldy PAGA claims that, if tried, would require a series of mini-trials over the course of years. The Supreme Court further expressed concern with ensuring that employers’ due process rights to present affirmative defenses are protected, potentially signaling the issuance of an employer-friendly decision. A decision is expected in the next three months, and has the potential to transform the prosecution and defense of PAGA litigation.

Case Background

Jorge Estrada filed a putative class action and PAGA action against his former employer asserting meal period violations. After two classes comprised of 157 individuals were certified, the parties tried the claims before a judge in a bench trial. The trial court ultimately decertified the classes, finding there were too many individualized issues to support class treatment. Although the trial court awarded relief to four individual plaintiffs, it dismissed the non-individual PAGA claim, concluding it was not manageable.

On appeal, Estrada argued that PAGA claims have no manageability requirement, and the Court of Appeal agreed in Estrada v. Royalty Carpet Mills, Inc., 76 Cal.App.5th 685 (2022). The Court of Appeal reasoned that class action requirements do not apply in PAGA actions and, therefore, the manageability requirement rooted in class action procedure was inapplicable. Further, the Court of Appeal opined that “[a]llowing courts to dismiss PAGA claims based on manageability would interfere with PAGA’s express design as a law enforcement mechanism.” Id. at 712. The Court of Appeal acknowledged the difficulty that employers and trial courts face with PAGA claims involving thousands of allegedly aggrieved employees, each with unique factual circumstances, but concluded that dismissal for lack of manageability was not an available tool for a trial court to utilize.

Estrada is contrary to the holding in Wesson v. Staples the Office Superstore, LLC, 68 Cal.App.5th 746 (2021), and created a split in authority. In Wesson, 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.

Oral Argument At The California Supreme Court

During oral argument on November 8, 2023, several Justices, most prominently Justices Liu and Jenkins, expressed skepticism that a trial court’s inherent powers include the ability to outright strike or dismiss an entire PAGA action for lack of manageability. As Justice Liu commented, permitting trial courts such wide ranging power would shortchange the PAGA statute unless there is an overriding constitutional interest.

Several Justices also acknowledged that an employer has a due process right to present evidence to support its affirmative defenses and that, in certain cases, such evidence presentation 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 that suggested the illogical nature of these issues telling trial courts as to what to do in terms of mini-trials, and how unwieldy such PAGA-related problems would evolve under such a set of principles.

Justice Groban also expressed concern about a PAGA case where multiple Labor Code violations are alleged, hundreds or thousands of employees are at issue, and different work sites and different types of employees ranging from janitors to accountants are implicated. Justice Groban asked why, in that case, a trial court could not just limit the case to the accountants only. Other justices raised similar concerns, with Chief Justice Guerrero asking Estrada’s counsel why the answer is that this is all subject to appellate review.

Implications For Employers

The constellation of the comments from the justices seemingly signals that the California Court may hold that trial courts possess inherent authority to ensure an employer’s right to due process is safeguarded, which necessarily encompasses the right to gauge the manageability of PAGA claims and to narrow them as appropriate. As to whether such authority could include outright dismissal of an entire PAGA case, employers will have to wait and see.