Judge David S. Cunningham, Case Number: 20STCV19057, Date: 2024-06-21 Tentative Ruling

Judge: David S. Cunningham, Case: 20STCV19057, Date: 2024-06-21 Tentative Ruling

Moving Party: Elizabeth Ruiz and Joseph Duran (collectively “Plaintiffs”)

The hearing is continued as to the gross settlement amount ($1,240,000.00) and the net settlement amount ($781,393.04). The Court orders Plaintiffs’ counsel to file a supplemental declaration.

During oral arguments, the Court intends to question Plaintiffs’ counsel about the scope of the releases.

In February 2024, the parties participated in a mediation and eventually reached a settlement.

PAGA permits an “aggrieved employee” to recover Labor Code civil penalties on the Labor & Workforce Development Agency’s (“LWDA”) behalf, if the LWDA declines to collect the penalties itself. (Cal. Lab. Code, § 2699, subd. (a); see also Mejia v. Merchants Building Maintenance, LLC (2019) 38 Cal.App.5th 723, 732-733.) The California Supreme Court has distinguished between Labor Code “civil penalties” that are “intended to ‘punish the employer’ for wrongdoing, often ‘without reference to the actual damage sustained’” and “statutory damages” that “primarily seek to compensate employees for actual losses incurred” – a PAGA action can recover only the former. (Z.B., N.A. v. Superior Court (2019) 8 Cal.5th 175, 182, 198 [holding that Labor Code section 558 “amount sufficient to recover unpaid wages” is not a “civil penalty” recoverable via PAGA].) “A PAGA action is ‘fundamentally a law enforcement action designed to protect the public and not to benefit private parties.’” (Mejia, supra, 38 Cal.App.5^th at 732; see also Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 381.)

PAGA requires a court to “review and approve any settlement of any civil action filed” under PAGA, but it does not provide review and approval standards or guidelines. (Cal. Lab. Code, § 2699, subd. (l)(2).) The California Supreme Court has interpreted PAGA as requiring courts to ensure that “any negotiated [PAGA] resolution is fair to those affected.” (Williams v. Superior Court (2017) 3 Cal.5th 531, 549, emphasis added).) The parties affected by a PAGA settlement include: (1) the LWDA, who receives 75% of settlement funds and is “bound by the outcome of the proceeding to adjudicate the employee’s PAGA claim” (Mejia, supra, 38 Cal.App.5th at 732); (2) the aggrieved employees, both party and non-party, who receive 25% percent of settlement funds and are, like the LWDA, bound by a PAGA action judgment; (3) plaintiffs’ counsel, who may be awarded reasonable attorney fees and costs; and (4) defendant, who pays the settlement.

Moniz v. Adecco USA, Inc. (2021) 72 Cal.App.5^th 56 provides greater detail about the standard courts should apply when evaluating PAGA settlements. The opinion adopts the “fair, reasonable, and adequate” standard used in class settlements.

Plaintiffs’ counsel’s declaration establishes that, throughout the litigation, and in preparing for mediation, the parties took part in informal discovery. (See Chang Decl., ¶¶ 21-22, 24-25.) Plaintiff’s counsel used the information to assess the value of the case and the associated risks. (See, e.g., id. at ¶ 28.) Ultimately, Plaintiff’s counsel came up with maximum and discounted estimates. (See id. at ¶¶ 48-64.) Plaintiff’s counsel asserts that the gross settlement amount ($1,240,000.00) is within a reasonable range, especially considering the defenses Defendant raised, and that the settlement is fair, reasonable, and adequate. (See id. at ¶¶ 6-8, 64.)

The parties agreed to the gross settlement amount ($1,240,000.00) via arm’s-length mediation after investigation and discovery.

Nevertheless, the Court finds that the hearing should be continued. The gross settlement amount constitutes approximately 6% of the maximum possible exposure (see id. at ¶ 58) and approximately 13% of the discounted estimate. (See id. at ¶ 63.) Plaintiffs’ counsel fails to provide a minimum estimate in his declaration, so it is unclear whether the gross settlement amount exceeds the minimum estimate. The Court orders Plaintiffs’ counsel to provide a supplemental declaration to address this point.

The amount for attorney fees ($413,333.33) is fair, reasonable, and adequate because Plaintiffs’ counsel represented Plaintiffs on a contingency basis. (See Motion, p. 20.) One-third of the gross recovery is standard in contingency cases.

The amount for attorney costs ($23,723.63) is fair, reasonable, and adequate because, in addition to being modest in general, it is less than 2% of the gross settlement amount.

The settlement agreement sets a $40,000.00 cap for costs, but Plaintiffs’ counsel has only incurred $23,723.63 so far. The Court finds that the incurred amount should be awarded instead of the capped amount. This will allow additional settlement money to go to the LWDA and aggrieved employees.

The amount for administration costs ($6,550.00) is fair, reasonable, and adequate because it is unopposed and within the range that this Court has approved in other complex cases. It is less than 1% of the gross settlement amount.

The Court finds that the amount for the incentive awards ($7,500.00 per Plaintiff) should be reduced. The Court believes $5,000.00 per Plaintiff is standard and appropriate, and the Court sees nothing in the record that supports more than the standard award.

Whether the net settlement amount ($781,393.04) is fair, reasonable, and adequate depends on whether the gross settlement amount ends up being found fair, reasonable, and adequate. The hearing is continued as to this portion of the motion.

5.1. Plaintiffs’ Release. Plaintiffs and their respective former and present spouses, representatives, agents, attorneys (including PAGA Counsel), heirs, administrators, successors, and assigns generally, release and discharge Released Parties from all claims, transactions, or occurrences that occurred during the PAGA Period , including, but not limited to: (a) all claims that were, or reasonably could have been, alleged, based on the facts contained in the Operative Complaint and the PAGA Notice (“Plaintiffs’ Release”). Plaintiffs’ Release does not extend to any claims or actions to enforce this Agreement, or to any claims for vested benefits, unemployment benefits, disability benefits, social security benefits, workers’ compensation benefits, wrongful termination, violation of the Fair Employment and Housing Act, discrimination, harassment, or retaliation related claims that arose at any time, or claims based on occurrences outside the PAGA Period. Plaintiff acknowledges that Plaintiff may discover facts or law different from, or in addition to, the facts or law that Plaintiff now knows or believes to be true but agrees, nonetheless, that Plaintiffs’ Release shall be and remain effective in all respects, notwithstanding such different or additional facts or Plaintiffs’ discovery of them.

5.2. Release by Aggrieved Employees: All Aggrieved Employees are deemed to release, on behalf of themselves and their respective former and present representatives, agents, attorneys, heirs, administrators, successors, and assigns, the Released Parties from all claims, rights, demands, liabilities and causes of action that arose during the PAGA Period for civil penalties under PAGA that were alleged, or reasonably could have been alleged, based on the PAGA Period facts stated in the Operative Complaint and the PAGA Notices, whether or not specifically delineated as a claim or cause of action, including, claims for PAGA penalties relating to Defendant’s alleged failure to pay overtime compensation, failure to provide minimum wages or pay for all hours worked, failure to provide meal and/or rest periods, failure to pay meal or rest period penalties, failure to reimburse all business-related expenses, failure to provide and maintain accurate, itemized wage statements, and claims arising under or relating to the alleged violations of California Labor Code Sections 200, 201, 201.1, 201.3, 201.5, 202, 203, 204, 205.5, 206, 210, 216, 218, 218.5, 218.6, 222, 222.5, 223, 224, 225, 225,5, 226, 226.3, 226.7, 226.8, 227.3, 246, 256, 432, 450 510, 511 512, 516, 550, 552, 558, 1174, 1174.5, 1182.12, 1194, 1194.2, 1197, 1197.1, 1198, 1198.1, 1198.5, 2698 et seq. 2699 et seq., 2800, 2802, and 2810.5, and applicable California Industrial Welfare Commission (“IWC”) Wage Orders, including but not limited to IWC Wage Order No. 4 (Cal. Code Regs., tit. 8, § 11040 (“PAGA Released Claims”), against the Released Parties. Upon approval of the Settlement, Plaintiffs and the Aggrieved Employees will be forever barred from pursuing against the Released Parties any and all claims for civil penalties under PAGA based upon alleged violations of the California Labor Code, Wage Orders, regulations, and/or other provisions of the law alleged or that could have been alleged to have been violated in, or reasonably related to, the Action.

5.3. Release by PAGA Counsel: PAGA Counsel release, on behalf of their present and former attorneys, employees, agents, successors and assigns, the Released Parties from all claims for PAGA Fees incurred in connection with the Operative Complaint and the PAGA Period facts stated in the Operative Complaint and the PAGA Notice, except as described herein.

The Court is concerned about overbreadth. Do the parties have standing to release claims on behalf of heirs, successors, etc.? At the hearing, counsel needs to address the scope of the releases.[1]

[1] Notably, a PAGA action does not involve aggrieved employees’ individual claims for Labor Code penalties, only civil penalties that the LWDA may assess. In light of this, a PAGA settlement should only preclude future PAGA enforcement and not employees’ individual claims. (See, e.g., Julian v. Glenair, Inc. (2017) 17 Cal.App.5th 853, 871 [“PAGA does not create any new substantive rights or legal obligations, but ‘is simply a procedural statute allowing an aggrieved employee to recover civil penalties — for Labor Code violations — that otherwise would be sought by state labor law enforcement agencies’”]; see also Iskanian, supra, 59 Cal.4th at pp. 386-387 [a PAGA claim “is a dispute between an employer and the state, which alleges directly or through its agents — either the Labor and Workforce Development Agency or aggrieved employees — that the employer has violated the Labor Code”].)