On January 18, 2024, the California Supreme Court issued its long-awaited opinion in Jorge Luis Estrada et al. v. Royalty Carpet Mills, Inc., resolving a court of appeal split between the Second District (Wesson v. Staples the Office Superstore, LLC (2021) 68 Cal. App. 5th 746) and the Fourth District (Estrada v. Royalty Carpet Mills, Inc. (2022) 76 Cal. App. 5th 685) over whether courts have the inherent authority to dismiss claims under California's Private Attorney General Act (PAGA) with prejudice on manageability grounds.

That split is now resolved: trial courts lack the authority to dismiss a PAGA cause of action purely on manageability grounds.

But the Court limited its ruling to that narrow issue, making clear that trial courts have many other tools they can employ to address manageability in the context of PAGA claims short of outright dismissal:

[W]hile trial courts may use a vast variety of tools to efficiently manage PAGA claims, given the structure and purpose of PAGA, striking such claims due to manageability concerns—even if those claims are complex or time-intensive—is not among the tools trial courts possess.

Those other tools are where parties and courts must turn next to address manageability concerns in PAGA claims.

Procedural History of Estrada v. Royalty Carpet Mills, Inc.

Jorge Estrada, a former employee of Royalty Carpet Mills ("Royalty"), filed a wage and hour class and representative action lawsuit seeking to represent current and former employees working at two of Royalty's manufacturing facilities. In his lawsuit, and relevant to the Supreme Court's decision, Estrada sought to recover damages and PAGA penalties for Royalty's failure to provide first and second meal periods. While the trial court initially certified Estrada's proposed meal period subclass, it later decertified the class following a bench trial, as the trial court determined that "there were too many individualized issues to support class treatment." As part of its order, the trial court also dismissed Estrada's PAGA claim for meal period violations on manageability grounds.

After judgment was entered in Royalty's favor, Estrada appealed the decision, arguing the trial court erred in dismissing his meal period claim under PAGA. The court of appeal agreed and overturned the judgment. Royalty requested review by the California Supreme Court.

Review by the Supreme Court

Before the California Supreme Court, Royalty made two arguments regarding the Court's authority to dismiss PAGA claims, both of which were addressed by the Court.

First, Royalty argued that courts may dismiss with prejudice any claim that is unmanageable for reasons of judicial economy or, at a minimum, any representative claim that is unmanageable. The Supreme Court rejected these arguments. Looking at a trial court's inherent authority to dismiss claims, the Court found that a trial court's authority to dismiss claims was narrow and limited to two scenarios: (a) where a plaintiff failed to diligently prosecute their claims; and (b) where a complaint has been shown to be fictitious or a sham. Neither was present in Estrada.

Next, the Court considered whether it was appropriate to apply the class action manageability requirement to PAGA claims. The Court conducted a detailed comparison of class action and PAGA requirements and determined it was not, as doing so would impede the effectiveness of PAGA's administrative purpose and legislative intent.

Second, Royalty argued that courts must have the discretion to dismiss PAGA claims with prejudice to preserve the employer's due process right to present an affirmative defense. Specifically, Royalty argued that when Estrada's class and representative claims are tried again, pursuant to the court of appeal's order, its due process rights would be violated if it was not allowed to call every employee it wished to testify on its behalf. The Court agreed that a general due process right exists to present an affirmative defense. However, it rejected Royalty's contention that Royalty "had an unfettered right to present individualized evidence in support of a defense." The Court added that courts have the authority to impose limits on the right to present an affirmative defense, so long as the defendant "is permitted to introduce its own evidence."

Even though the Court rejected Royalty's interpretation of its due process rights, the Court did not reject due process as a basis to dismiss PAGA claims with prejudice. Specifically, the Court held that under certain circumstances, and as a measure of last resort, PAGA's "broad standing rules and the lack of need for common proof or class certification" could create a scenario where a court dismisses a PAGA claim to preserve the defendant's due process right.

Takeaways

Following this ruling, manageability can no longer be the sole basis for dismissal by a trial court of a PAGA claim. However, the Court outlined a non-exhaustive list of tools that remain available to address potentially unmanageable claims, including:

• use of representative testimony, surveys, and statistical analysis:

  'Representative testimony, surveys, and statistical analysis,' along with other types of evidence, 'are available as tools to render manageable determinations of the extent of liability

• limiting the type and extent of evidence presented at trial by plaintiff when determining the number of violations and the amount of penalties:

  our holding that trial courts lack inherent authority to strike a PAGA claim on manageability grounds does not preclude trial courts from limiting the types of evidence a plaintiff may present or using other tools to assure that a PAGA claim can be effectively tried.

  and

• dispositive motions (i.e., demurrers, motions for summary judgment, and judgment not withstanding the verdict) to address overbroad and unspecific PAGA claims:

  a trial court may issue substantive rulings, including those on demurrer, or on motions for summary judgment or judgment notwithstanding the verdict, provided for in the Code of Civil Procedure to fairly and efficiently adjudicate an action in cases in which a plaintiff pleads the claim in such an overbroad or unspecific manner that the plaintiff is unable to prove liability as to all or most employees.

Post-Estrada, those tools and due process concerns are where parties and trial courts must turn to address the unique challenges posed by managing potentially unwieldy PAGA claims.