In Urbino v. Orkin Servs. of California Inc., a divided Ninth Circuit held that civil penalties recoverable by individual employees under California’s Private Attorneys General Act of 2004 (“PAGA”) cannot be aggregated to meet the $75,000 amount in controversy requirement for diversity jurisdiction.

A wage-and-hour representative PAGA action brought originally in California state court, Urbino was removed by defendants to federal court on the theory that individual claims, when aggregated, meet the minimum requirements of diversity jurisdiction.  After removal, defendants moved to compel arbitration on the basis that Urbino had executed an Arbitration Agreement agreeing to arbitrate all claims against the company, including PAGA and representative action claims.

The District Court maintained its federal jurisdiction, and denied defendants’ motion to compel arbitration, distinguishing representative PAGA action waivers from class action waivers enforced by the U.S. Supreme Court in AT&T Mobility LLC v. Concepcion.  

Defendants appealed the District Court’s denial of their motion to compel arbitration, and Urbino cross-appealed the District Court’s refusal to remand the case to state court.

On appeal, the  Ninth Circuit determined that it lacked subject matter jurisdiction over the PAGA dispute, and remanded the action to state court for resolution – leaving undecided the issue of whether an arbitration agreement’s waiver of a PAGA representative action claim is enforceable.  The latter issue is pending before the California Supreme Court in Iskanian v. CLS Transportation of Los Angeles

Although it is anticipated that defendants will challenge the Ninth Circuit decision in Urbino, until and unless Urbino is overturned, employers will not be able aggregate claims in the removal of a PAGA action based on diversity.  However, the Ninth Circuit did not address whether a PAGA  action could be removed under the Federal Class Action Fairness Act  (“CAFA”).  Recently a California district court held that a defendant could remove a PAGA action under CAFA by aggregating the civil penalties.  The Ninth Circuit vacated the submission of that case pending the U.S. Supreme Court’s decision in Mississippi ex rel. Hood v. AU Optronics Corp.

The Ninth Circuit’s interpretation of PAGA could also have effects outside the removal context; e.g., whether PAGA claims can be made on an individual vs. representative basis.  

Stay tuned!