On March 13, 2014, in Baumann v. Chase Investment Services Corp. (No. 12-55644), the Ninth Circuit Court of Appeals held that the federal district does not have original jurisdiction under the federal Class Action Fairness Act (CAFA) over wage and hour suits brought under California’s Private Attorneys General Act (PAGA). (Cal. Lab. Code §§ 2698 – 2699.5.)
Joseph Baumann, a former financial advisor, sued his employer, Chase Investment Services Corp. (Chase), in California state court for failure to pay him and co-employees overtime, provide meal breaks, allow rest periods, and timely reimburse expenses. Plaintiffs sought statutory civil penalties under PAGA. Chase sought to remove the case to federal court. Because Baumann’s individual claim did not exceed $75,000, the Court found federal diversity jurisdiction to be improper. (See Urbino v. Orkin Services (9th Circ. 2013) 726 F.3d 1118 [PAGA penalties may not be aggregated to meet diversity jurisdiction’s minimum amount in controversy requirement].)
Chase asserted CAFA as a basis for removal. CAFA confers original jurisdiction on federal district courts over class actions involving at least 100 members, in which the amount in controversy exceeds $5,000,000 in the aggregate, provided any plaintiff is a citizen of a state different from any defendant. (28 U.S.C. § 1332.) The only requirement at issue on appeal was whether a PAGA action is a “class action” under CAFA. The district court agreed with Chase that it was, and denied Baumann’s motion to remand the case to state court.
The Ninth Circuit reversed. CAFA defines “class action” as “any civil action filed under Rule 23 of the Federal Rules of Civil Procedure or similar State statute or rule of judicial procedure authorizing an action to be brought by 1 or more representative persons as a class action.” Since Baumann’s suit was brought in state court, the Court determined it was not initiated under rule 23 and that PAGA is not a statute “similar” to that of Rule 23.
The Court first noted that the California Supreme Court has held PAGA actions are not class actions under state law because they are essentially law enforcement actions. (Arias v. Super. Ct. (2009) 46 Cal.4th 969; see Cal. Code Civ. Proc. § 382.) For similar reasons, the Ninth Circuit held PAGA actions are “fundamentally different than a class action” under Rule 23. “PAGA plaintiffs are private attorneys general who … bring claims on behalf of the state agency” and keep 25% of the recovery (the remainder going to the state).
As a result, PAGA is procedurally distinct from Rule 23 class actions. It does not mandate inquiry into the named plaintiffs and class counsel’s ability to fairly and adequately represent unnamed employees. Nor does it require that the class be sufficiently numerous, that Plaintiff’s claims are typical of the class, or that common issues predominate. Further, PAGA does not direct notice to class members, or an opportunity to opt out of the action. Following judgment in PAGA actions, employees retain all rights “to pursue or recover other remedies available under state or federal law …” (Cal. Lab. Code § 2699, subd. (g)(1).)
The Court concluded that “Rule 23 and PAGA are more dissimilar than alike.” Accordingly, the Court reversed the district court’s decision, instructing it to grant Baumann’s motion to remand the case to state court.
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