On January 18, 2024, the California Supreme Court issued its long-awaited opinion in Estrada v. Royalty Carpet Mills to decide the question of whether California trial courts have inherent authority to strike claims brought under California’s Private Attorneys General Act (“PAGA”) on the grounds that the claims were not manageable.  The Court ultimately upheld the appellate court’s holding, which we previously discussed in detail here, finding that trial courts do not have such inherent authority.

Brief Factual and Procedural Background

Royalty, operating relevant facilities on Derian Avenue and Dyer Road in Orange County (the Derian/Dyer class), was sued by Jorge Luis Estrada, who worked at the Derian location. Estrada’s complaint included claims of Labor Code violations, particularly related to the provision of first and second meal periods, as well as a claim under PAGA. At trial, the court dismissed the PAGA claim on the grounds that the PAGA claim was unmanageable.

The Court of Appeals reversed the trial court’s striking of the PAGA claim on manageability grounds, ruling that permitting courts to dismiss PAGA claims on such grounds “would interfere with PAGA’s express design as a law enforcement mechanism.”  The Court of Appeals overturned the trial court’s ruling, which led to the California Supreme Court addressing the issue.

California Supreme Court’s Holding and Analysis

On appeal, Royalty argued two points: (1) trial courts have inherent authority to strike any claim that is unmanageable for reasons of judicial economy; or (2) at a minimum, trial courts may strike any representative claim that is unmanageable.

The Court’s Opinion explained the extent and source of authority that trial courts have, finding that authority is derived from “the historic power of equity courts . . . and supervisory or administrative powers which all courts possess to enable them to carry out their duties.”  The Court further explained that “[c]ourts . . . do not have the authority to adopt procedures or policies that conflict with statutory law” when fashioning remedies for situations regarding manageability.

The Court then discussed a trial court’s power to strike a claim, clarifying that “the power to strike a claim, while ‘[t]here may be cases in which the use of a nonstatutory motion procedure to dismiss a cause of action before trial is called for, . . . courts should be wary of such requests.’”  The Court went on to recite its previous holding in a previous case discussing instances where striking a cause of action was appropriate: (1) the plaintiff has failed to prosecute diligently; or (2) the complaint has been shown to be “fictitious or [a] sham” such that the plaintiff has no valid cause of action.^[i]  The Court found that no authorities existed permitting trial courts to strike claims outside of these two contexts, including on manageability grounds, and used that reasoning to support its conclusion that there is no inherent power to strike PAGA claims on manageability grounds.

The Supreme Court, however, did emphasize that trial courts are not left helpless in tackling otherwise complicated situations involving PAGA claims. Specifically, the Court explained that trial courts have significant discretion to fashion procedural and administrative rules to ensure PAGA cases are as “manageable” as possible. The Court listed examples such as limiting or excluding witness testimony and other forms of evidence such as representative statistical models. This portion of the Court’s ruling does leave employers with some room to argue for alternative means to manage these types of cases in order to present these issues in the most favorable light to the ultimate trier of fact.

Concluding Thoughts and How Estrada Affects Employers

It is no secret that California courts have not been allies to employers. The holding in Estrada is further evidence of that, severely limiting another tool from the litigation toolkit of defendant-employers across California. Therefore, it is critical to do the following in the wake of Estrada to minimize exposure in either an ongoing or a potential PAGA case:

• Review litigation strategy with your employment counsel to correspond with Estrada moving forward;
• Conduct an audit of all wage-and-hour policies and procedures to ensure compliance with California law and minimize the potential for PAGA violations; and
• Consider implementing mandatory arbitration agreements requiring that employees waive their ability to bring actions on a class and representative basis.  While this will not prevent PAGA actions altogether, it will delay any representative actions until the arbitration has concluded.

^[i] (Lyons v. Wickhorst (1986) 42 Cal.3d 911, 915.)