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Calif.: PAGA Claims Cannot Be Aggregated for Federal Jurisdiction

By Joanne Deschenaux  8/21/2013
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While a named plaintiff may assert claims on behalf of other similarly situated employees under California’s Private Attorneys General Act of 2004 (PAGA), the claims cannot be aggregated for purposes of the minimum amount-in-controversy requirement for federal diversity jurisdiction, the federal appellate court with jurisdiction over California ruled.

Reversing the lower court’s decision, the appellate court held that plaintiff John Urbino's PAGA claim for penalties against Orkin Services of California Inc. fell far short of the $75,000 threshold for federal court jurisdiction and that combining individual claims in a lawsuit that would primarily benefit the state of California did not establish a basis for diversity jurisdiction.

Wage and Hour Claims Asserted

Urbino filed a June 2011 state court lawsuit against Orkin, a pest-control firm, and Rollins Inc., its parent corporation. Urbino, who worked for Orkin from 2005 to 2010, alleged that the company illegally deprived him and other nonexempt employees of meal periods, overtime compensation, vacation pay and itemized wage statements required by the California Labor Code.

Urbino claimed that Orkin was liable under PAGA for civil penalties for its labor code violations. State law gives California's Labor and Workforce Development Agency (LWDA) primary jurisdiction over enforcement, but in the absence of agency action, an aggrieved employee may file a lawsuit on behalf of himself and other current or former workers.

Under PAGA, Cal. Lab. Code Section 2699(i), if the representative plaintiff prevails in a lawsuit, the aggrieved employees are entitled to 25 percent of the civil penalties assessed against the employer, while the LWDA is entitled to 75 percent.

Orkin Removed Suit to Federal Court

Orkin removed Urbino's lawsuit to the U.S. District Court for the Central District of California. Both Orkin and Rollins are Delaware corporations with headquarters in Georgia, and they invoked the federal court's jurisdiction, 28 U.S.C., Section 1332(a)(1), over lawsuits “between citizens of different states.”

Urbino sought to remand the lawsuit to the state court, arguing that the federal court's jurisdiction in cases based on diversity of state citizenship requires that there be a “matter in controversy” in an amount or value above $75,000. PAGA penalties for his claim would be limited to $11,602, he argued.

The trial court found that Urbino's claims could be aggregated with those of other Orkin claimants to satisfy the $75,000 requirement for federal jurisdiction; thus, it denied Urbino's request to send the case back to state court. Orkin then appealed to the 9th U.S. Circuit Court of Appeals. The appellate court reversed the ruling and ordered the case remanded to state court.

Appellate Court Finds No Diversity Jurisdiction

A 2-1 majority of the three-judge appellate panel said the representative PAGA action did not come under an exception to the “anti-aggregation” rule, which was crafted by the U.S. Supreme Court and applies when “two or more plaintiffs unite to enforce a single right in which they have a common and undivided interest.”

The rights of aggrieved employees under California's Labor Code “are held individually,” Judge Michael Hawkins wrote for the majority.

“Each employee suffers a unique injury—an injury that can be redressed without the involvement of other employees,” Hawkins explained. “Defendants’ obligation to them is not 'as a group' but as 'individuals severally.'"

Judge Sidney Thomas dissented, agreeing with Orkin that the claims of its employees should be combined because Urbino had brought “a common and undivided claim in his role as proxy for the state.”

“A PAGA plaintiff stands in a position comparable to a plaintiff in a shareholder derivative suit, who likewise lacks a direct proprietary interest in the subject of the litigation and sues as a proxy for the injured corporation,” he wrote. “Notwithstanding the individual recovery secured by successful shareholder derivative plaintiffs, we have long held their claims subject to aggregation, relying on the rationale that derivative suits vindicate corporate interests and benefit the shareholders only indirectly.”

Urbino v. Orkin Servs. of Calif. Inc., 9th Cir., No. 11-56944 (Aug. 13, 2013).

Joanne Deschenaux, J.D., is SHRM’s senior legal editor.

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