Federal Court Clarifies CAFA’s Jurisdictional Amount in State PAGA Cases

by Ogletree, Deakins, Nash, Smoak & Stewart, P.C.
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A judge of the U.S. District Court for the Central District of California recently issued a pro-employer ruling with regard to the jurisdictional minimum amount in controversy required by the Class Action Fairness Act (CAFA) of 2005—an issue that has not been resolved by the Ninth Circuit Court of Appeals and on which the district courts are split. According to this federal court, the amount in controversy in a case brought under the California Labor Code Private Attorneys General Act of 2004 (PAGA) includes the entire amount of potentially recoverable statutory damages regardless of how much of it is recoverable by the state or by individual employees. Stafford v. Brink’s Incorporated, U.S. District Court for the Central District of California, No. CV-14-1352-MWF-PLA (May 28, 2014).

Under CAFA, federal courts have jurisdiction over class actions in which “the matter in controversy exceeds the sum or value of $5,000,000.” The defendant-employer removed the class action pursuant to CAFA, but the plaintiff tried to send the case back to a California state court, arguing that the amount in controversy did not meet the $5 million jurisdictional amount. Specifically, the named plaintiff claimed that the amount in controversy in his PAGA claims were not class claims and, therefore, could not be aggregated with the class claims to meet CAFA’s jurisdictional minimum.

Under PAGA, the Labor and Workforce Development Agency is entitled to 75 percent of the recoverable penalties, and the “aggrieved employees” are entitled to 25 percent of the penalties. The defendant-employer in the case argued that the amount in controversy on the class claims is $2,385,950, and that the amount in controversy for the PAGA claim is $4,771,900—a total exceeding the $5 million jurisdictional amount. According to these estimates, 25 percent of the $4,771,900 that is recoverable for the PAGA claim, or $1,192,975, would be the individual employees’ recovery. Based on recent Ninth Circuit authority that PAGA representative actions are not similar enough to class actions to be removed pursuant to CAFA, the plaintiff argued that no PAGA penalties should be included in the calculation of the amount in controversy, or, alternatively, that not more than 25 percent should be included in the amount in controversy.

In rejecting the plaintiff’s argument, U.S. District Court Judge Michael W. Fitzgerald expressed favor for the “either viewpoint” rule according to which the amount in controversy for purposes of diversity jurisdiction is determined by the plaintiff’s or the defendant’s viewpoint: “The amount in controversy in a given action is the greater of either the value that the plaintiff would realize from a favorable outcome or the value to the defendant of avoiding a favorable outcome.” Based on this rule, Judge Fitzgerald ruled that “it is improper to divide PAGA claims and include in the amount in controversy only the 25 percent of the penalties recoverable by the aggrieved employees.”

The court next considered whether PAGA claims can constitute “claims of individual class members” subject to aggregation under CAFA. According to Judge Fitzgerald “[a] claim belonging entirely to the state agency likely cannot be understood as a claim of individual class members.” “[I]t appears,” Judge Fitzgerald concluded, that under California law, employees with PAGA claims are representing their own interests as well as the interest of state labor law enforcement agencies. As such, PAGA claims belong to individual employees and are “claims of individual class members, which may be aggregated to meet the amount in controversy under CAFA.” Since, in this case, the jurisdictional limitation was met, Judge Fitzgerald denied the plaintiff’s motion to send the case to California Superior Court.

According to Beth A. Gunn, a shareholder in the Los Angeles office of Ogletree Deakins, who was lead counsel for the defendant and argued the motion, “In denying the plaintiff’s motion for remand, Judge Fitzgerald issued a very detailed decision in favor of the proposition that, when PAGA claims are asserted with class claims, the amount in controversy for CAFA purposes includes the possible damages resulting from both the individual and state portions of PAGA penalties. This is a fantastic result not just for this case, but also because it provides compelling arguments for parties seeking CAFA removals throughout the state. Judge Fitzgerald’s opinion thoroughly explores several interconnected legal issues, and the ultimate result is an intelligent legal analysis regarding this issue of first impression. It seems inevitable that this issue will eventually make its way to the Ninth Circuit, and the decision presents a great model for a future well-reasoned Ninth Circuit decision.”

 

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