Who Needs the Aggregation? Ninth Circuit Rejects Combining of PAGA Penalties to Establish Minimum Amount in Controversy

by Ogletree, Deakins, Nash, Smoak & Stewart, P.C.
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The Ninth Circuit Court of Appeals recently issued a decision in Urbino v. Orkin Services of California, Inc., No. 11-56944 (August 13, 2013) holding that civil penalties available under California’s Private Attorneys General Act of 2004 (PAGA) may not be aggregated to establish the minimum amount in controversy of $75,000, which is required for federal diversity jurisdiction.

Under PAGA, if the California Labor and Workforce Development Agency (LWDA) chooses not to investigate certain violations of the California Labor Code, an aggrieved employee may then initiate a civil action, on behalf of himself or herself and other current or former employees, against his or her employer. If the representative plaintiff prevails, the aggrieved employees are statutorily entitled to 25% of the civil penalties received, and the LWDA is entitled to the other 75%.

John Urbino filed a representative PAGA action against his former employers, Orkin Services of California, Inc. and Rollins, Inc. Urbino’s lawsuit alleges that he and other nonexempt employees were denied overtime and vacation wages, accurate itemized wage statements, and meal periods.

Based on diversity jurisdiction, Orkin and Rollins removed Urbino’s lawsuit to federal court. They presented evidence that the labor code violations alleged by Urbino would lead to claims involving more than 800 other employees and that the aggregation of those claims would easily satisfy the $75,000 threshold for diversity jurisdiction. Urbino responded by filing a motion to remand the case to state court.

The district court, therefore, had to decide whether the potential penalties could be aggregated to satisfy the amount in controversy requirement. If aggregation was permissible, federal diversity jurisdiction would be met because the statutory penalties for the initial violations of California’s Labor Code were estimated at more than $400,000. If, however, aggregation was not permissible, the $75,000 minimum would not be met because Urbino’s individual claims were estimated at only $11,000. Ultimately, the district court denied the motion to remand, holding that the PAGA claims were common and undivided and therefore aggregation was permissible.

Following an interlocutory appeal, the Ninth Circuit held that although aggrieved employees have a host of claims available to them to redress their employers’ alleged breaches of California’s Labor Code, all of these rights are held individually. Because these rights are held individually, each employee suffers a unique injury that can be redressed without the involvement of other employees. As a result, the employees’ PAGA claims could not be aggregated, and therefore diversity jurisdiction was not established.

Based on its finding that diversity jurisdiction was not established, the Ninth Circuit vacated the district court’s order denying Urbino’s motion to remand and directed the district court to return the matter to state court for resolution.

Although the Ninth Circuit’s holding makes it difficult for employers to remove PAGA-based lawsuits to federal court, it does help employers by providing further guidance on the appropriateness of the aggregation of PAGA claims.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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