Judge: Michelle Williams Court, Case: 21STCV43700, Date: 2022-08-31 Tentative Ruling

Case Number: 21STCV43700    Hearing Date: August 31, 2022    Dept: 74

21STCV43700           GLADYS GONZALEZ vs ZARA USA, INC

Motion for Approval of Settlement of Claims Brought under the Private Attorneys’ General Act and Reasonable Attorneys’ Fees, Costs, and Enhancement Payment

TENTATIVE RULING:  The motion is GRANTED in part.  The Court shall not approve the enhancement/service awards and Plaintiffs must provide a revised judgment that removes the enhancement awards by September 6, 2022.  An OSC re entry of judgment is scheduled for September 22, 2022 at 8:30 a.m.  Today’s OSC re Dismissal and Case Management Conference are taken OFF CALENDAR.

Background

On November 30, 2021, Plaintiff Gladys Gonzalez filed this action against Zara USA, Inc. asserting a single cause of action under PAGA.

On February 2, 2022, Plaintiff filed a Notice of Settlement of Entire Case.

No Consolidation Occurred

Plaintiff Melissa Magana initially filed a separate action against Defendant, which included a PAGA claim, in the Orange County Superior Court on September 26, 2018, which was thereafter removed to federal court. (Jackson Decl. ¶ 3.) On February 3, 2022, Plaintiff Gonzalez filed the First Amended Complaint adding Melissa Magana as a named Plaintiff and adding allegations made by Magana in the prior proceeding.

Plaintiffs repeatedly use the term “consolidated” to describe the First Amended Complaint, based upon the inclusion of Plaintiff Magana and her claims that were previously filed in another case. (See Mot. at 3:21-25; Jackson Decl. ¶ 3, Ex. Ex. A §§ I (B); I (J); II (A)(6); III (D)(1).)

However, no consolidation occurred within the meaning of the Code of Civil Procedure and the applicable rules. Consolidation occurs between related cases pending in one superior court pursuant to specified statutory procedures. (See Code Civ. Proc. § 1048; Cal. R. Ct., rule 3.350; LASC Local Rule 3.3(g).) Additionally, the parties did not comply with the requirements for coordination, which is the procedure when cases are pending in different counties. (Code Civ. Proc. § 403; Cal. R. Ct., rule 3.500; LASC Local Rule 3.3(h).) Plaintiffs merely utilized permissive joinder to add Plaintiff Magana and her claims to this existing action. (Code Civ. Proc. § 378.)

Motion to Approve PAGA Settlement

On August 8, 2022, Plaintiffs filed their motion to approve their PAGA settlement reached in this action. 

The motion is unopposed.

Discussion

Standard

Pursuant to Labor Code section 2699(l)(2), “[t]he 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.” The purpose of this requirement is to “ensur[e] that any negotiated resolution is fair to those affected.” (Williams v. Superior Court (2017) 3 Cal.5th 531, 549.) “Aside from the requirement that the court ‘review and approve’ a settlement in a civil action filed under PAGA (§ 2699, subd. (l)(2)), PAGA itself does not provide a standard for this review.” (Moniz v. Adecco USA, Inc. (2021) 72 Cal.App.5th 56, 75.) “[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.” (Id. at 77.)

“A PAGA representative action is therefore a type of qui tam action.” (Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 382 abrogated on other grounds by Viking River Cruises, Inc. v. Moriana (2022) 142 S.Ct. 1906.) Approval of a qui tam action generally requires a court determination “that the proposed settlement is fair, adequate, and reasonable under all of the circumstances.” (Gov. Code § 12652(e)(2)(B).) “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. Given PAGA's purpose to protect the public interest, we also agree with the LWDA and federal district courts that have found it appropriate to review a PAGA settlement to ascertain whether a settlement is fair in view of PAGA's purposes and policies.” (Moniz, supra, 72 Cal.App.5th at 77.)

Terms of the Settlement

The parties agreed to a gross settlement of $865,000.00, which “includes, without limitation, any and all payments Defendant may be responsible for under the Settlement, including any Fees Award and Costs Award to Class Counsel, Named Plaintiff Enhancement Awards, payment of the PAGA Fund (i.e. the LWDA Payment and the PAGA Payments), Settlement Administration Costs, and all employee-side payroll taxes (exclusive of employer-side payroll taxes) due and owing as a result of the Settlement.” (Jackson Decl. Ex. A  § I (I).) The “PAGA Period” is defined as August 22, 2017 through the date of the settlement approval. (Id. § I (V).)

The settlement includes enhancement payments of $10,000.00 for Plaintiff Magana and $5,000.00 for Plaintiff Gonzalez, attorneys’ fees “of up to $288,304.50, which constitutes one-third (1/3) of the Gross Settlement Amount,” litigation costs up to $30,000.00, and $25,000.00 for settlement administration. (Id. § C (1)–(3).) The settlement is properly non-reversionary. (Id. § III (E)(3)(c).) The release provided by the aggrieved employees is appropriately narrow to solely encompass claims for PAGA penalties that could have been asserted in this action. (Id. Ex. A § III (D)(1).)

The settlement includes the required distribution of civil penalties of 75% to the LWDA and 25% to the aggrieved employees. (Id. § III (C)(4); Labor Code § 2699(i).) In their motion, Plaintiffs indicate that, of the Gross Settlement Amount, “[s]eventy-[f]ive percent, equaling $382,762.59, will be apportioned to the California Workforce Development Agency; and [] the remaining [t]wenty-[f]ive percent, equaling $127,587.53, will be distributed to the PAGA Group.” (Mot. at 16:11-21.) Each aggrieved employee will receive “a pro rata share based on the number of pay periods worked during the PAGA Period.” (Jackson Decl. Ex. A § III (C)(4)(b).) There are approximately 6,500 aggrieved employees with a total of 61,488 pay periods. (Jackson Decl. ¶ 4.)

The Court Shall Not Approve The Enhancement/Service Payments

“[A]n action to recover civil penalties is fundamentally a law enforcement action designed to protect the public and not to benefit private parties.” (Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 381 abrogated on other grounds in Viking River Cruises, Inc. v. Moriana (2022) 142 S.Ct. 1906.) This Court interprets Labor Code § 2699(i) to prohibit incentive payments or service awards to named aggrieved employees in PAGA actions.

Labor Code section 2699(i) provides that  “[e]xcept 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.” Subdivision (j), in turn, provides that “[c]ivil penalties recovered under paragraph (1) of subdivision (f) shall be distributed 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.”

Nothing within the PAGA statutory framework permits recovery of an incentive payment or enhancement award. To the contrary, the statute specifically instructs how the civil penalties “shall” be distributed. The ordinary meaning of “shall” is of mandatory effect, while the ordinary meaning of “may” is purely permissive in character. (See Labor Code § 14.) Thus, the use of “shall” setting forth a specific procedure that a party is to follow supports the construction that the procedure is mandatory rather than permissive. (See generally In re Ins. Installment Fee Cases (2013) 211 Cal.App.4th 1395, 1430.)

As summarized by the court in Provost v. YourMechanic, Inc. (2020) 55 Cal.App.5th 982, 991, “[t]he Legislature provided two financial incentives for aggrieved employees to pursue the recovery of civil penalties under PAGA. First, when a civil penalty is recovered under PAGA, 75 percent goes to LWDA and the remaining 25 percent goes to the aggrieved employees. [Citation] Second, any employee who prevails in an action is entitled to his or her reasonable attorney fees and costs. [Citation].” Further incentive in the form of an enhancement award or incentive payment is neither permitted nor warranted.

The settlement provides “[i]f the Court awards Named Plaintiff Enhancement Awards less than $10,000 for Plaintiff Magana, and $5,000 for Plaintiff Gonzalez, the unawarded amounts shall remain in the PAGA Penalties Fund and be distributed to PAGA Aggrieved Employees.” (Jackson Decl. Ex. A § C (1).) Accordingly, Plaintiffs must provide a revised proposed judgment that removes the enhancement payments.

The Total Settlement Amount is Fair, Reasonable, and Adequate Under the Circumstances of the Case

Plaintiff Melissa Magana initially filed a separate action against Defendant, which included a PAGA claim, in the Orange County Superior Court, which was removed to federal court and heavily litigated. (Jackson Decl. ¶ 3.) On November 30, 2021, Plaintiff Gladys Gonzalez filed this action in the Los Angeles Superior Court asserting a single claim under PAGA. (Ibid.) As part of the parties’ settlement, Plaintiff Gonzalez permitted Plaintiff Magana to join this action via the First Amended Complaint that included the claims asserted by Magana in the prior proceeding.

The parties reached the proposed settlement after significant discovery and motion practice in Magana’s action and a full-day mediation. (Jackson Decl. ¶¶ 3-4.) Plaintiffs acknowledge the partial preclusive effects of other settlements, (Id. ¶ 3), and provide a detailed analysis of Defendant’s potential liability for the claims asserted as well as Defendant’s potential defenses. (Id. ¶¶ 5-9, Mot. at 12:4-13:12.) The Court finds the $865,000.00 settlement is fair, reasonable, and adequate in light of Plaintiffs’ PAGA claims, Defendant’s potential defenses, including claim preclusion based upon other PAGA settlements, possible reductions in any eventual PAGA award, and the posture of this case. (See Kullar v. Foot Locker Retail, Inc. (2008) 168 Cal.App.4th 116, 130 (“The most important factor is the strength of the case for plaintiffs on the merits, balanced against the amount offered in settlement.”).) The $865,000.00 settlement provides genuine and meaningful relief consistent with the purpose of PAGA. (Moniz, supra, 72 Cal.App.5th at 77 (“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.”).)

Plaintiffs request attorneys’ fees in the amount of $288,304.50 and $26,345.37 in costs. The fees and costs are supported by the declaration of Armond Jackson, counsel for Plaintiffs. (Jackson Decl. ¶¶ 10-13,  Ex. E-F.) The proposed fees and costs are acceptable under the common fund doctrine and are significantly less than the pre-multiplier lodestar of $307,801.35. (Jackson Decl. ¶ 13. See Consumer Privacy Cases (2009) 175 Cal.App.4th 545, 557; Laffitte v. Robert Half Internat. Inc. (2016) 1 Cal.5th 480, 503.) Considering the work completed by Plaintiffs’ counsel to bring about this PAGA settlement, (e.g., legal research, discovery, damages analysis, mediation, etc.), the Court finds that the fee and cost awards are reasonable.

The Parties Should Correct Erroneous Information in the Notice of Settlement

While not a basis to deny the motion, the Court notes Plaintiffs provided a “Notice of Settlement” document that will be sent to aggrieved parties containing inaccurate information. (Jackson Decl. Ex. A § III (E)(3)(a), Ex. 2.) Specifically, it contains references to the Orange County Superior Court that should be amended. (See e.g. Id. (“Re: Gladys Gonzalez and Melissa Magana v. Zara USA, Inc., Orange County Superior Court Case No. 21STCV43700. . . . On [DATE], the Orange County Superior Court issued an Order approving the settlement.”).) Additionally, Plaintiffs should delete reference to enhancement payments in the notice.