Last week, in Baumann v. Chase Investment Services Corporation, the Ninth Circuit Court of Appeals held that representative actions brought pursuant to the California Labor Code Private Attorneys General Act (PAGA) are not sufficiently similar to Rule 23 class actions for removal to federal court under the Class Action Fairness Act (CAFA).
In that case, the company removed a PAGA representative action based on both diversity jurisdiction and CAFA. The district court denied the plaintiff’s motion to remand, holding that the employees’ aggregated potential claims satisfied the $75,000 amount in controversy required for diversity jurisdiction. The plaintiff appealed. In the meantime, as discussed previously, the Ninth Circuit held that potential civil penalties in a PAGA representative action could not be aggregated to establish diversity jurisdiction, removing that question from the appeal.
The only question remaining on appeal was therefore whether Baumann could be removed as a class action under CAFA. CAFA defines a “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 one or more representative persons as a class action.” In concluding a PAGA representative action was not a “class action” for removal under CAFA, the Ninth Circuit first noted Baumann was not brought under California’s class action statute, but only as a PAGA representative action, which the California Supreme Court held, in Arias v. Superior Court, is essentially a law enforcement action, not a class action.
However, the Ninth Circuit stated, Arias was not determinative because CAFA allows an action to be removed if it is “similar” to a class action brought under Rule 23. In this respect, the Ninth Circuit found that PAGA representative actions were similar to parens patriae suits, which it had previously held could not be removed because such suits, brought by state attorneys general, do not contain certification procedures and lack the statutory requirements for numerosity, commonality, typicality or adequacy of representation required for certification of class actions under Rule 23. The court found that PAGA representative actions also do not have notice requirements or opt-out procedures as Rule 23 does. In addition, PAGA representative actions expressly allow employees to pursue their legal rights under state or federal law even after a judgment or settlement, unlike class actions under Rule 23 in which a final judgment precludes any other lawsuits.
Moreover, PAGA plaintiffs are private attorneys general who step into the shoes of the California Labor Workforce Development Agency (LWDA) and seek civil penalties on the state’s behalf. Because an enforcement action by the LWDA would not qualify as a class action, the same type of action brought by an individual acting as a private attorney general should also not qualify as a class action. Finally, the Ninth Circuit noted, the portion of the PAGA civil penalties that a plaintiff is allowed to recover (25%) is not restitution for wrongs done to aggrieved employees, as recovery in a class action would be, but instead acts as an incentive to plaintiffs to perform a law enforcement service for the state. Accordingly, the Ninth Circuit concluded that although they are representative actions, PAGA actions are not “class actions” for removal under CAFA.
The Ninth Circuit’s decision in Baumann, together with its decision last year that PAGA civil penalties cannot be aggregated to establish diversity jurisdiction, has made it more difficult for employers to remove PAGA representative actions to federal court. Prior to Baumann, district courts were divided as to whether 100% of the PAGA penalties could satisfy the $5,000,000 amount in controversy for removal under CAFA. These district court decisions all assumed that a PAGA representative action qualified as a “class action” under CAFA. Now, the amount in controversy debate is moot, as the Ninth Circuit has held that a PAGA representative action does not qualify as a “class action” under CAFA. Consequently, it would appear that the only way a PAGA claim for civil penalties can be removed to federal court under CAFA is if it is part of a class action.