Judge David S. Cunningham, Case 22STCV05477 2023-02-01 Tentative Ruling

Judge: David S. Cunningham, Case: 22STCV05477, Date: 2023-02-01 Tentative Ruling

* Plaintiff’s request for attorneys’ fees in the amount of $66,666.67 to be paid from the gross amount.

* Plaintiff’s request for settlement administrator costs in the amount of up to $2,000.00 to be paid from the gross amount.

* The net amount of $122,639.05. The Labor Workforce Development Agency (“LWDA”) is entitled to receive 75% of the net amount – $91979.29, and the aggrieved employees are entitled to receive 25% – $30,659.76.

The hearing is continued as to Plaintiff’s request for attorneys’ costs in the amount of $8,694.28.

At the hearing, the Court expects the attorneys to discuss the settlement release’s scope.

Clearflo Pools, Inc. (“Clearflo”) “provid[es] swimming pool and spa construction and maintenance services[.]” (First Amended Complaint (“FAC”), ¶ 9.) Plaintiff worked for Clearflo as a “non-exempt Maintenance employee at various assigned client-locations, including throughout Los Angeles County and Riverside Country, from approximately September 2020 through December 2021.” (Id. at ¶ 10.) He alleges several representative “wage and hour” claims – “unpaid minimum wages, meal break violations, rest period violations, waiting time violations, wage statement violations, [and] failure to reimburse necessary business expenses” – under the Private Attorneys General Act (“PAGA”). (Sani Decl., ¶ 10.)[2]

PAGA permits an “aggrieved employee” to recover Labor Code civil penalties on the LWDA’s behalf, if the LWDA declines to collect the penalties itself. (See 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; 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. (See 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’s fees and costs; and (4) defendant, who pays the settlement.

A recent decision from the First District Court of Appeal provides greater detail about the standard courts should apply in evaluating PAGA settlements. The decision requires courts to use the “fair, reasonable, and adequate” standard. (See Moniz v. Adecco USA, Inc. (2021) 72 Cal.App.5^th 56.)

This Settlement provides for Defendants to pay a Gross Settlement Amount of $200,000.00. [Citation.] After deducting amounts for requested attorneys’ fees, attorneys’ costs, and settlement administration costs, the Settlement provides for distribution of the remaining Net Settlement Amount [] to Aggrieved Employees and the [Labor and Workforce Development Agency (“LWDA”)] distributed as follows: 75% to the LWDA and 25% to Aggrieved Employees pursuant to Labor Code § 2699(i). [Citation.] The Settlement is non-reversionary and does not require Aggrieved Employees to submit a claim form to reap financial benefit from the Settlement. [Citation.]

In preparation for mediation, “Defendants provided (1) all employee handbooks and wage and hour policies applicable to Aggrieved Employees, (2) a sampling of timekeeping records and payroll data for the Aggrieved Employees, [and] (3) key data points regarding the number of Aggrieved Employees and pay periods worked by Aggrieved Employees[.]” (Sani Decl., ¶ 14.)

Plaintiff’s counsel “conducted an analysis and extrapolated the payroll data and time records produced by Defendants to calculate Defendants’ potential exposure[.]” (Ibid.) “After the detailed review of the sampling of payroll and time records and other documents and policies produced by Defendants,” counsel “assess[ed] the strengths and weaknesses of Plaintiff’s PAGA claim.” (Ibid.) Ultimately, counsel determined a maximum amount of PAGA civil penalties for the alleged violations and a discounted “realistic recovery” amount to account for Defendants’ defenses and the risks and costs of continued litigation. (See id. at ¶ 25; see also id. at ¶¶ 18-24.) The “realistic recovery” amount is $218,961.00. (Id. at ¶ 25.)

Plaintiff contends the PAGA settlement is fair and reasonable given the “realistic recovery” amount. (Ibid.; see also Motion, pp. 13-20.)

The Court generally agrees. As explained next, Plaintiffs’ showing meets the “fair, reasonable, and adequate” standard, except the Court:

* is inclined to continue the hearing to give Plaintiff’s counsel an opportunity to submit costs records; and

* anticipates questioning the attorneys about the scope of the release during oral arguments.

The gross settlement amount is $200,000.00. The parties agreed to it via negotiations with a private mediator following an “extensive exchange of informal documents and information[,]” and it “represents approximately 91.34% of the realistic total recovery.” (Sani Decl., ¶ 33; see also id. at ¶¶ 14-15.) The Court finds the amount fair, reasonable, and adequate.

The settlement calls for Plaintiff’s counsel to be paid 33.33% of the gross amount – $66,666.67 – for attorneys’ fees. (See id. at Exh. B, p. 4, § 3.2.1.) Plaintiff’s counsel represented Plaintiff on a contingency basis. (See Motion, p. 22.) One-third of the gross recovery is standard payment in contingency cases. The Court finds the amount fair, reasonable, and adequate for this reason and because of the result achieved.

The settlement also calls for Plaintiff’s counsel’s costs – up to $10,000 – to be paid from the gross amount. (See Sani Decl., Exh. B, p. 4, § 3.2.1.) The requested amount is only $8,694.28, which is less than the maximum amount permitted, but counsel’s declaration fails to state that the costs summary is a true and correct copy (see id. at ¶ 27 and Exh. C) and no other supporting documents are attached. To reiterate, the Court intends to continue the hearing to give counsel a chance to supplement the record.

The settlement requires the settlement administrator to be paid up to $2,000.00 from the gross amount. (See id. at Exh. B, p. 4, § 3.2.2.) The Court finds the amount fair, reasonable, and adequate.

The net settlement amount is $122,639.05. The LWDA is entitled to receive 75% of the net amount – $91,979.29, and the aggrieved employees are entitled to receive 25% – $30,659.76. The Court finds the net amount fair, reasonable, and adequate.

5. RELEASES OF CLAIMS. Effective on the date when Defendant Clearflo fully funds the entire Gross Settlement Amount, Plaintiff and PAGA Counsel will release claims against all Released Parties as follows:

5.1 Plaintiffs Release. Plaintiff and his 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 that arose at any time, or 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.

5.1.1 Plaintiff's Waiver of Rights Under California Civil Code Section 1542. For purposes of Plaintiff's Release, Plaintiff expressly waives and relinquishes the provisions, rights, and benefits, if any, of section 1542 of the California Civil Code, which reads: A general release does not extend to claims that the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the release, and that if known by him or her would have materially affected his or her settlement with the debtor or Released Party.

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 for PAGA penalties that were alleged, or reasonably could have been alleged, based on the PAGA Period facts stated in the Operative Complaint, and the PAGA Notice.

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.

The italicized language seems overbroad. For example, do the parties have standing to release claims on behalf of spouses and heirs? At the hearing, the Court wants the attorneys address the intended scope of the settlement release.[3]

[1] “PAGA” means Private Attorneys General Act.

[2] “Brandon Anderson was an owner, director, officer, or managing agent” of Clearflo. (FAC, ¶ 4.) The Court refers to him and Clearflo collectively as “Defendants.”

[3] The Court notes that 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”].)