Judge: Michael P. Linfield, Case: 21STCV18889, Date: 2024-02-13 Tentative Ruling

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Case Number: 21STCV18889    Hearing Date: February 13, 2024    Dept: 34

SUBJECT:        Motion for Approval of PAGA Settlement

Moving Party: Plaintiff Phillip Hamlin and Non-Party Efrain Cervantes 

Resp. Party:    None 

The Motion to Approve PAGA Settlement is DENIED without prejudice. 

PRELIMINARY COMMENTS:

        Plaintiff’s counsel seems to believe that this case has been consolidated with Cervantes v. Mike Thompson Recreation Vehicles, 19STCV31754.  It has not.  Efraim Cervantes is not a party to this action.  Therefore, settling this case will have no effect on any proposed settlement in the Cervantes action.  Further, since Cervantes is not a party to this action, it is not clear to the Court that the settlement of this case should even mention Cervantes. The Proposed Settlement Agreement needs to be revised so that it pertains only to this case.

        Further, the Court wishes to advise the parties that any monies not awarded the parties, their attorneys or the administrator are expected to be re-allocated to the Aggrieved Employees.

BACKGROUND:

        On May 19, 2021, Plaintiff Phillip Hamlin filed his Complaint against Defendants Mike Thompson Recreational Vehicles and Mike Thompson Recreational Vehicles, Colton on a cause of action for violation of the Labor Code Private Attorneys General Act of 2004 (“PAGA”).    

        On September 20, 2021, Defendants filed their respective Answers.

        On October 21, 2022, the Court compelled arbitration of Plaintiff’s individual PAGA claims but denied dismissal of the representative PAGA claims.

        On January 12, 2024, Plaintiff filed Stipulation to Consolidate Actions for All Purposes. The Stipulation contained a proposed order. The Stipulation would have consolidated Case No. 19STCV31754 (a case pending before Department SS12, brought by Efrain Cervantes) and Case No. 21STCV18889 (this case, pending before Department 34, brought by Phillip Hamlin).

        On January 12, 2024, the Clerk’s Office rejected the Stipulation because the two cases have not been related.

        On January 16, 2024, Plaintiff filed: (1) Motion for Approval of PAGA Settlement; (2) Memorandum of Points and Authorities; (3) Declaration of Phillip Hamlin; (4) Declaration of Efrain Cervantes; (5) Declaration of Fawn F. Bekam; (6) Proposed Order; and (7) Certificate of Service.

        On January 19, 2024, refiled the items previously filed on January 16, 2024.

ANALYSIS:

I.          Legal Standard

“This part shall be known and may be cited as the Labor Code Private Attorneys General Act of 2004.” (Lab. Code, § 2698.)

“Notwithstanding any other provision of law, any provision of this code that provides for a civil penalty to be assessed and collected by the Labor and Workforce Development Agency or any of its departments, divisions, commissions, boards, agencies, or employees, for a violation of this code, may, as an alternative, be recovered through a civil action brought by an aggrieved employee on behalf of himself or herself and other current or former employees pursuant to the procedures specified in Section 2699.3.” (Lab. Code, § 2699, subd. (a).)

In bringing an action pursuant to the Labor Code Private Attorneys General Act of (2004) (“PAGA”), “the aggrieved employee acts as the proxy or agent of state labor law enforcement agencies, representing the same legal right and interest of those agencies, in a proceeding that is designed to protect the public, not to benefit private parties.” (Amalgamated Transit Union, Local 1756, AFL-CIO v. Super. Ct. (2009) 46 Cal.4th 993, 1003, citations omitted.)

        PAGA claims, as well as settlements of PAGA claims, involve multiple statutory requirements. (Lab. Code, § 2699, et seq.)

II.       Discussion

The Court considers below the various statutory requirements of PAGA, as well as whether the settlement meets the fair, reasonable, and adequate standard.

A.          Proof of Service on the Labor and Workforce Development Agency Prior to Commencement of Action, at Commencement of Action, and Prior to Settlement of Action

1.          Legal Standard

“A civil action by an aggrieved employee pursuant to subdivision (a) or (f) of Section 2699 alleging a violation of any provision listed in Section 2699.5 shall commence only after the following requirements have been met:

“(1)

“(A) The aggrieved employee or representative shall give written notice by online filing with the Labor and Workforce Development Agency and by certified mail to the employer of the specific provisions of this code alleged to have been violated, including the facts and theories to support the alleged violation.

“(B) A notice filed with the Labor and Workforce Development Agency pursuant to subparagraph (A) and any employer response to that notice shall be accompanied by a filing fee of seventy-five dollars ($75). The fees required by this subparagraph are subject to waiver in accordance with the requirements of Sections 68632 and 68633 of the Government Code.”

(Lab. Code, § 2699.3, subd. (a)(1)(A)–(B).)

“The provisions of subdivision (a) of Section 2699.3 apply to any alleged violation of the following provisions: subdivision (k) of Section 96, Sections 98.6, 201, 201.3, 201.5, 201.7, 202, 203, 203.1, 203.5, 204, 204a, 204b, 204.1, 204.2, 205, 205.5, 206, 206.5, 208, 209, and 212, subdivision (d) of Section 213, Sections 221, 222, 222.5, 223, and 224, paragraphs (1) to (5), inclusive, (7), and (9) of subdivision (a) of Section 226, Sections 226.7, 227, 227.3, 230, 230.1, 230.2, 230.3, 230.4, 230.7, 230.8, and 231, subdivision (c) of Section 232, subdivision (c) of Section 232.5, Sections 233, 234, 351, 353, and 403, subdivision (b) of Section 404, Sections 432.2, 432.5, 432.7, 435, 450, 510, 511, 512, 513, 551, 552, 601, 602, 603, 604, 750, 751.8, 800, 850, 851, 851.5, 852, 921, 922, 923, 970, 973, 976, 1021, 1021.5, 1025, 1026, 1101, 1102, 1102.5, and 1153, subdivisions (c) and (d) of Section 1174, Sections 1194, 1197, 1197.1, 1197.5, and 1198, subdivision (b) of Section 1198.3, Sections 1199, 1199.5, 1290, 1292, 1293, 1293.1, 1294, 1294.1, 1294.5, 1296, 1297, 1298, 1301, 1308, 1308.1, 1308.7, 1309, 1309.5, 1391, 1391.1, 1391.2, 1392, 1683, and 1695, subdivision (a) of Section 1695.5, Sections 1695.55, 1695.6, 1695.7, 1695.8, 1695.9, 1696, 1696.5, 1696.6, 1697.1, 1700.25, 1700.26, 1700.31, 1700.32, 1700.40, and 1700.47, Sections 1735, 1771, 1774, 1776, 1777.5, 1811, 1815, 2651, and 2673, subdivision (a) of Section 2673.1, Sections 2695.2, 2800, 2801, 2802, 2806, and 2810, subdivision (b) of Section 2929, and Sections 3073.6, 6310, 6311, and 6399.7.” (Lab. Code, § 2699.5.)

“For cases filed on or after July 1, 2016, the aggrieved employee or representative shall, within 10 days following commencement of a civil action pursuant to this part, provide the Labor and Workforce Development Agency with a file-stamped copy of the complaint that includes the case number assigned by the court.” (Lab. Code, § 2699, subd. (l)(1).)

“The superior court shall review and approve any settlement of any civil action filed pursuant to this part. The proposed settlement shall be submitted to the agency at the same time that it is submitted to the court.” (Lab. Code, § 2699, subd. (l)(2).)

2.          Discussion

Plaintiff filed causes of action for various labor code violations, including violations of Labor Code sections 201 through 204, 510, 1194, 1198, and others. These sections are covered by Labor Code section 2699.5, and thus the pre-complaint notice requirement to the Labor Workforce Development Agency (LWDA) applies here. (Lab. Code, § 2699.3, subd. (a).)

Plaintiff’s Counsel declares that Plaintiff sent a notice letter to the LWDA on September 13, 2019. (Decl. Bekam, ¶ 3 and Exh. 1.) Notably, this initial notice letter to the LWDA only included claimant Efrain Cervantes. (Ibid.) Plaintiff’s Counsel then sent an amended notice letter to LWDA on February 4, 2021, which included Plaintiff (Phillip Hamlin). (Decl. Bekam, ¶ 4 and Exh. 2.) The Court finds that this meets the notice requirement under Labor Code sections 2699.3 and 2699.5.

Plaintiff’s Counsel provides evidence that the notice letter to LWDA on February 4, 2021 included a copy of a first amended complaint for a different case (Case No. 19STCV31754), but not a copy of the complaint filed in this matter. (Decl. Bekam, Exh. 2.) The Court does not have sufficient evidence to find that Plaintiff has sufficiently satisfied the notice requirement under Labor Code section 2699, subdivision (l)(1).

Plaintiff’s Counsel provides email evidence of submission of a copy of the proposed settlement to LWDA at the same time that it submitted the proposed settlement to the Court. (Lab. Code, § 2699, subd. (l)(2); Decl. Bekam, ¶ 9 and Exh. 4.) The Court finds that this meets the notice requirement under Labor Code section 2699, subdivision (l)(2).

B.          The PAGA Settlement

1.          Legal Standard

“For all provisions of this code except those for which a civil penalty is specifically provided, there is established a civil penalty for a violation of these provisions, as follows: . . . (2) If, at the time of the alleged violation, the person employs one or more employees, the civil penalty is one hundred dollars ($100) for each aggrieved employee per pay period for the initial violation and two hundred dollars ($200) for each aggrieved employee per pay period for each subsequent violation.” (Lab. Code, § 2699, subd. (f)(2).)

“For purposes of this part, whenever the Labor and Workforce Development Agency, or any of its departments, divisions, commissions, boards, agencies, or employees, has discretion to assess a civil penalty, a court is authorized to exercise the same discretion, subject to the same limitations and conditions, to assess a civil penalty.” (Lab. Code, § 2699, subd. (e)(1).)

“In any action by an aggrieved employee seeking recovery of a civil penalty available under subdivision (a) or (f), a court may award a lesser amount than the maximum civil penalty amount specified by this part if, based on the facts and circumstances of the particular case, to do otherwise would result in an award that is unjust, arbitrary and oppressive, or confiscatory.” (Lab. Code, § 2699, subd. (e)(2).)

“Except as provided in subdivision (j), civil penalties recovered by aggrieved employees shall be distributed as follows: 75 percent to the Labor and Workforce Development Agency for enforcement of labor laws, including the administration of this part, and for education of employers and employees about their rights and responsibilities under this code, to be continuously appropriated to supplement and not supplant the funding to the agency for those purposes; and 25 percent to the aggrieved employees.” (Lab. Code, § 2699, subd. (i).)

“Except as provided in paragraph (2), an aggrieved employee may recover the civil penalty described in subdivision (f) in a civil action pursuant to the procedures specified in Section 2699.3 filed on behalf of himself or herself and other current or former employees against whom one or more of the alleged violations was committed. Any employee who prevails in any action shall be entitled to an award of reasonable attorney’s fees and costs, including any filing fee paid pursuant to subparagraph (B) of paragraph (1) of subdivision (a) or subparagraph (B) of paragraph (1) of subdivision (c) of Section 2699.3. Nothing in this part shall operate to limit an employee’s right to pursue or recover other remedies available under state or federal law, either separately or concurrently with an action taken under this part.” (Lab. Code, § 2699, subd. (g)(1).)

2.          Highlights of the Proposed PAGA Settlement

Among other things, the following are the highlights of the proposed PAGA settlement:

(1)       Defendants will pay a gross settlement amount of $450,000.00 (the “Gross Settlement Amount”).

(2)       “PAGA Counsel” (who are Plaintiff’s Counsel) will be paid up to one-third of the Gross Settlement Amount (which would be $150,000.00) for fees. PAGA Counsel will also be paid up to $30,000.00 (which is an additional 6.67% of the Gross Settlement Amount) in expenses. Payment less than the amounts requested will be allocated to the remainder of the “Net Settlement Amount” (which is the “Gross Settlement Amount” minus these listed costs). 

(3)       CPT Group, Inc. (the “Administrator”) will be paid up to $10,000.00, except for a showing of good cause and as approved by the Court. This is 2.22% of the Gross Settlement Amount. To the extent the Administration Expenses are less than $10,000.00 or the Court approves payment less than $10,000.00, the remainder will be retained in the Net Settlement Amount.

(4)       Plaintiff will be awarded an individual settlement release payment of $10,000.00 (2.22% of the Gross Settlement Amount), and that Non-Party Efrain Cervantes will be awarded an individual settlement release payment of $45,000.00 (10% of the Gross Settlement Amount). If the Court does not approve the individual settlement, the Parties shall work in good faith to determine the value of the individual settlement release that would be approved, however, it shall not permit Plaintiff to withdraw from any individual settlement release. The remainder will be placed in the Gross Settlement Amount.

(5)       LWDA and the Aggrieved Employees will receive 75% and 25%, respectively, of the remaining $206,087.10.

(6)       There are estimated to be 755 Aggrieved Employees who worked a total of 25,060 PAGA-relevant pay periods. The Aggrieved Employees will receive payments from the Administrator based on a division of the employee share of the PAGA penalties that is multiplied by each employee’s number of PAGA-relevant pay periods.

(7)       Aggrieved Employees will have up to 180 days to cash their settlement checks, after which those checks will be voided, and the funds represented by such checks will be sent to the California Controller’s Unclaimed Property Fund in the name of the Aggrieved Employee.

(8)       Defendants have agreed to not receive any reversion from the Gross Settlement Amount.

(9)       The proposed PAGA settlement also includes other terms, such as for distribution of the settlement and release from claims.

(Decl. Bekam, Exh. 3.)

3.          Attorneys’ Fees and Attorneys’ Costs

PAGA Counsel requests $150,000.00 in attorneys’ fees, which is one-third of the Gross Settlement Amount. PAGA Counsel further requests $30,000.00 in costs, which is an additional 6.67% of the Gross Settlement Amount.

According to Plaintiff’s Counsel, they spent 248.9 hours on this matter. (Decl. Bekam, ¶ 31.) The hours were incurred by six attorneys who are paid between $500.00 per hour to $875.00 per hour. (Ibid.) Given the information provided about each attorney, some of these hourly rates appear to be inflated. (Id. at ¶¶ 18–29.) No invoices are provided that would assist the Court in determining whether these hours were reasonably incurred. In total, the amount of attorney’s fees claimed to have been incurred is $168,820.00.

The Court has not been provided with sufficient information to find that this amount of attorney’s fees was reasonably incurred. The Court would like to see invoices or other evidence in support of the hours and rates claimed.

As to costs, the Court has reviewed the cost invoices provided and finds that there has also been a significant amount of overbilling on costs. (Decl. Bekam, Exh. 6.)

First, only $28,920.50 in costs were actually claimed ($27,245.10 in costs for Efrain Cervantes and $1,675.40 for Phillip Hamlin), not $30,000.00. (Decl. Bekam, Exh. 6.)

Second, this case has not been consolidated with any other case. Thus, none of the costs associated with Efrain Cervantes are allowable. (Decl. Bekam, Exh. 6, pp. 1–3.)

Finally, the Court did not order mediation in this case. Rather, the Court only ordered the Parties’ respective counsel to meet and confer regarding mediation. (See Minute Order dated October 21, 2021.) Thus, even if the Court were to consolidate this matter, the Court declines to award mediation costs of $21,650.00 for JAMS fees and mediation services. (Decl. Bekam, Exh. 6, pp. 1–2.)

The Court will allow the $1,675.40 incurred for this case. The remaining $28,324.60 that was allocated for costs in the settlement shall be retained in the Net Settlement Amount.

4.          PAGA Administrator Costs

PAGA Counsel requests that the Administrator be paid up to $10,000.00 (which is 2.22% of the Gross Settlement Amount) for expenses incurred in administering the settlement.

The Court has not been provided with an invoice or declaration regarding how this cost was calculated.

Without further information, the Court cannot determine whether this amount of costs for administering the settlement is reasonable.

5.          Remaining Civil Penalties for LWDA and Aggrieved Employees

PAGA Counsel requests that LWDA and the Aggrieved Employees receive 75% and 25%, respectively, of the Net Settlement Amount.

This division of the civil penalties is required pursuant to Labor Code section 2699, subdivision i.

PAGA Counsel claim that the Net Settlement Amount is estimated to be $206,087.10. The Court is unaware of how PAGA Counsel came to this specific number and would like additional information.

Moreover, the Net Settlement Amount will be larger given the reductions to PAGA Counsel’s costs, and possibly to other costs.

In any case, a division of 75% of the Net Settlement Amount to the LWDA and 25% of the Net Settlement Amount to the Aggrieved Employees would be appropriate, with any further savings being split similarly.

6.          Reversion of Funds

The settlement agreement gives Aggrieved Employees up to 180 days to cash their settlement checks, after which those checks will be voided. Further, the funds represented by such checks will be sent to California Controller’s Unclaimed Property Fund.

        The Court finds that this would be appropriate.

7.          Plaintiff’s Service Award

PAGA Counsel request that Phillip Hamlin (who is the plaintiff in this matter) and Efrain Cervantes (who is not a party to this matter) obtain individual settlement amounts.

Each of these individuals has submitted a declaration in support of their claims to the individual settlement amounts requested, which are $10,000.00 for Phillip Hamlin (who declares he spent 25 hours working on this case and believes he is owed much more than $10,000.00 for the hours he worked and was not paid for, in addition to a claim of discrimination) and $45,000.00 for Efrain Cervantes (who declares he spent 75 hours working on this case and believes he is owed much more than $45,000.00 for the hours he worked and was not paid for).

        Plaintiff Phillip Hamlin, a non-attorney, is requesting $400 per hour for helping his attorneys.  The Court finds this “hourly rate” to be unreasonable.  A more reasonable Service Award would be $5,000.  If his attorneys believe he should be reimbursed more than that for helping them, they can do so out of their own attorney's fees award.

        Non-party Efrain Cervantes, a non-attorney, is requesting $600 per hour for helping his attorneys.  However, Cervantes is not a party to this action.  The Court does not understand how it can approve a Service Award to him.

8.          Notice of Release of Claims

PAGA Counsel provides a copy of the proposed notice to the Aggrieved Employees. (Decl. Bekam, Exh. 5.)

The Court is not satisfied with the proposed notice. The Court would like PAGA Counsel to submit a revised proposed notice, which should include (with the capitalization, bolded font, and boxed formatting show below) the following notice:

C.          The Fair, Reasonable, and Adequate Standard

1.          Legal Standard

The Court of Appeal has held “that a trial court should evaluate a PAGA settlement to determine whether it is fair, reasonable, and adequate in view of PAGA’s purposes to remediate present labor law violations, deter future ones, and to maximize enforcement of state labor laws.” (Moniz v. Adecco USA, Inc. (2021) 72 Cal.App.5th 56, 77, citations omitted.)

“Despite the fact that a representative action under PAGA is not a class action, and is instead a type of qui tam action, a standard requiring the trial court to determine independently whether a PAGA settlement is fair and reasonable is appropriate. . . . Because many of the factors used to evaluate class action settlements bear on a settlement’s fairness—including the strength of the plaintiff's case, the risk, the stage of the proceeding, the complexity and likely duration of further litigation, and the settlement amount—these factors can be useful in evaluating the fairness of a PAGA settlement.” (Moniz, supra, at pp. 76–77.)

2.          Discussion

PAGA Counsel have provided a breakdown of the total potential penalties possible, as well as a brief explanation of how they came to the settlement. (Decl. Bekam, ¶¶ 13–15.)

The Court would like additional information on the settlement efforts before the Court finds that this settlement meets the fair, reasonable, and adequate standard.

II.        Conclusion

The Motion to Approve PAGA Settlement is DENIED without prejudice.