Judge: Theresa M. Traber, Case: 21STCV11208, Date: 2023-08-04 Tentative Ruling

Case Number: 21STCV11208    Hearing Date: August 4, 2023    Dept: 47

Tentative Ruling

Judge Theresa M. Traber, Department 47

HEARING DATE:     August 4, 2023                       TRIAL DATE: March 14, 2023

CASE:                         Jennifer Leighton, on behalf of all other aggrieved employees v. The RealReal, Inc., et al.

CASE NO.:                 21STCV11208           

MOTION FOR APPROVAL OF PAGA SETTLEMENT

MOVING PARTY:               Plaintiff Jennifer Leighton

RESPONDING PARTY(S): No response on eCourt as of 7/14/23.

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

            This is a PAGA action that was filed on March 23, 2021. Plaintiff alleges that Defendant intentionally misclassifies its California sales employees as exempt employees to deprive them of wage and hour law protections.

Plaintiff moves for an order (1) approving a proposed PAGA settlement; (2) approving the PAGA penalties fund; (3) appointing CPT Group as the settlement administrator; (4) directing Defendant to deposit the maximum settlement amount into an account for administrating the settlement and directing the settlement administrator to distribute the settlement fund pursuant to the agreement; (5) directing the mailing of individual PAGA payment checks to the aggrieved employees under a proposed cover letter; (6) awarding $10,000 to Plaintiff as a general release payment; (7) approving payment to the settlement administrator of $7,000; and (8) awarding Plaintiff’s counsel attorney’s fees and costs.

TENTATIVE RULING:

Plaintiff’s motion for approval of settlement of their claims for civil penalties under PAGA is GRANTED as modified herein.

The Court orders that the award of costs to Plaintiff’s counsel be reduced to $32,989.15, with the remainder returned to the net settlement amount pursuant to the terms of the settlement agreement.

DISCUSSION:

Plaintiff moves for an order (1) approving a proposed PAGA settlement of $825,000; (2) approving the PAGA penalties fund; (3) appointing CPT Group as the settlement administrator; (4) directing Defendant to deposit the maximum settlement amount into an account for administrating the settlement and directing the settlement administrator to distribute the settlement fund pursuant to the agreement; (5) directing the mailing of individual PAGA payment checks to the aggrieved employees under a proposed cover letter; (6) awarding $10,000 to Plaintiff as a general release payment; (7) approving payment to the settlement administrator of $7,000; and (8) awarding Plaintiff’s counsel attorney’s fees and costs.

Procedural Requirements

An application to approve a settlement under PAGA must include a copy of the proposed settlement agreement, a copy of the predicate letter to the LWDA seeking an investigation of the claims prior to filing the lawsuit, and a declaration from counsel explaining the reasonable range of recovery in the case and the reasons why the settlement is fair and reasonable.  Further, “the proposed settlement” must be given to the LWDA at the same time as the Court receives the request for approval of the settlement.  (Labor Code section 2699(l)(2).) 

The motion initially submitted to the Court did not meet the procedural requirements for seeking such approval.  A copy of the proposed settlement agreement was included.  (Declaration of Tae Kim ISO Mot Exh. A.)  Further, the declaration of counsel in support of the motion revealed that the settlement agreement was simultaneously submitted to the LWDA as is required under the statute.  (Id. ¶ 34.) While Plaintiff did not originally provide a copy of the predicate letter sent to the LWDA before filing suit, pursuant to the Court’s July 18, 2023 minute order, Plaintiff has since filed a supplemental declaration from Attorney Tae Kim including both the original notice letter submitted on January 6, 2021, and the amended letter submitted on September 14, 2021. (Supplemental Declaration of Tae Kim ISO Mot. ¶ 2, Exh. 1.) Plaintiff has therefore satisfied the procedural requirements of the motion.

Reasonableness of Settlement

PAGA was enacted to aid public agencies, which lack adequate funding, in enforcement of California’s labor laws. Private persons suing under the PAGA do so as a proxy of the state. (ZB, N.A. v. Superior Court (2019) 8 Cal.5th 175, 185 (Lawson).) Aggrieved employees suing under the PAGA are authorized to recover civil penalties, which advances a law enforcement function, designed to protect the public. (Ibid., citing Arias v. Superior Court (2009) 46 Cal.4th 969, 986 (Arias) and Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348 (Iskanian)).) Labor Code §2699(l)(2) requires courts to “review and approve any settlement of any civil action filed pursuant to this part.” The California Supreme Court explains that a PAGA claim is a form of a qui tam action. (Iskanian, supra, 59 Cal.4th 348, 382.)

As such, the Court looks to the standards for evaluating a qui tam settlement in assessing this settlement, that is, whether the settlement is “fair, adequate, and reasonable.” (Cf. Cal. Govt. Code § 12652 [In a qui tam action a state or political subdivision may settle the action with the defendant notwithstanding the objections of the qui tam plaintiff if the court determines, after a hearing providing the qui tam plaintiff an opportunity to present evidence, that the proposed settlement is fair, adequate, and reasonable under all the circumstances].)

An application for approval of such a settlement must demonstrate that the proposed settlement is adequate, reasonable, and fair to all those affected by it.  (Williams v. Superior Court (2017) 3 Cal.5th 531, 549.)  Those affected by a PAGA settlement include: (1) the LWDA, who receives 75% of settlement funds (Lab. Code § 2699(i)) and is “bound by the outcome of the proceeding to adjudicate the employee’s PAGA claim” (Mejia v. Merchants Building Maintenance, LLC, supra, 38 Cal.App.5th at p. 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 (Lab. Code § 2699(i); Arias v. Superior Court (2009) 46 Cal.4th 969, 985); (3) plaintiffs’ counsel, who may be awarded “reasonable attorney’s fees and costs” (Lab. Code § 2699(g)(1); and (4) the defendant who pays the settlement.

Assessing the fairness and adequacy of any settlement necessitates decision-making based on unknowns. In determining whether a settlement falls within the parameters of what may be considered reasonable, courts regularly rely on estimates of potential maximum values weighed against weaknesses of the claims. Other important indicia of fairness include arms’-length negotiations, experienced counsel, and an adequate investigation of the claims. But the potential value of the claims being settled is primary to any evaluation. (Dunk v. Ford Motor Co. (1996) 48 Cal.App.4th 1794, 1802; Kullar v. Foot Locker Retail, Inc. (2008) 168 Cal.App.4th 116, 129-130.)

            Plaintiff has shown the parties engaged in an arms’-length negotiation by independently meeting and conferring, as well as participating in mediation with mediator Marisa Ratinoff on April 18, 2023. (Kim Decl. ¶¶ 35-38.) Plaintiff’s counsel has also provided evidence of their substantial experience in wage and hour litigation and in PAGA actions. (Id. ¶¶ 15-16.)

In addition, Plaintiff has provided sufficient evidence regarding the nature of the PAGA investigation to determine its adequacy. Plaintiff states that Defendant produced a random sampling of time and payroll records, as well as wage and hour policies and relevant policy documents in place during the relevant time period. (Kim Decl. ¶ 36.) Plaintiff explains that these records show there were approximately 380 aggrieved employees, including Plaintiff, during the relevant time period, for which there were 10,903 pay periods between July 11, 2019 through the present. (Id. ¶ 12.) The Court finds that, based on this evidence, the investigation of the PAGA claims was adequate to justify a settlement.

Under the proposed settlement, Defendant will pay a total of $825,000 in a non-reversionary settlement payment.  Plaintiff justifies this settlement by reference to the maximum possible value of the aggregate PAGA claims and the relative strengths and weaknesses of those claims, including various procedural pitfalls Plaintiffs would have to overcome to achieve full success. Plaintiff calculates, based on the number of workweeks and aggrieved parties, their hourly rates, and the theories of how the Labor Code was violated, that the maximum value of the claims would be $14,737,600. (Kim Decl. ¶ 39.) Applying the same fee structure as in the proposed settlement, this would result in a total settlement amount to the aggrieved parties of $589,504.00 amounting to an average recovery of $1,551.33 among the 380 aggrieved parties. Here, the settlement proposes to distribute $124,000 (representing 25% of the total Settlement Fund) among the 380 aggrieved parties for an average recovery of approximately $326.32 each. (Kim Decl. ¶ 24.) The Court finds that Plaintiffs have offered sufficient evidence to determine the relative strength and weaknesses of the claims and the range of possible settlement values.

The proposed enhancement payment to be paid to Plaintiff out of the settlement funds appears reasonable. Under the terms of the settlement agreement, Plaintiff is to receive $10,000 from the settlement funds, amounting to 1.2% of the total settlement funds, contrasting with the 60% allotted to the net settlement amount and 15% allotted to the funds to be distributed to aggrieved employees.  In exchange for this payment, Plaintiff has provided a general release of all claims she may have against Defendants.

Plaintiff’s counsel request that $37,000 in costs and $275,000 in attorneys’ fees, or 1/3 of the total settlement, be paid out of the settlement funds. Plaintiff justifies these amounts as appropriate on the basis that Plaintiff’s counsel achieved a favorable result in a case that required thorough investigation and intensive negotiations, and for which there were several potentially meritorious defenses. This recovery matches other awards approved by courts in California for wage and hour claims. (See, e.g., Martin v. Ameripride Servs. (S.D. Cal. June 9, 2011) 2011 U.S. Dist. LEXIS 61796, 23 [“courts may award attorney’s fees in the 30-40% range in wage and hour class actions that result in recovery of a common fund under $10 million.) Plaintiff also provides verified statements under penalty of perjury and timesheets showing that the total amount of actual attorney’s fees billed is $283,515.00. (Kim Decl. ¶ 76, Exh. C.) The Court agrees with Plaintiff regarding the characterization of the complexity of the potential issues and the favorability of the resolution achieved. In light of this showing and the evidence that Plaintiffs’ counsel are requesting a reduced amount of fees compared to what was actually billed, the Court finds that the requested fees are reasonable based on the evidence provided.

Plaintiff justifies the requested $37,000 in costs based on actual litigation costs incurred in the amount of $32,989.15 plus an additional anticipated $2,500. (Kim Decl. Exh. D.) The itemized list of costs accounts for the costs actually incurred but does not demonstrate how Plaintiff reaches the anticipated costs, nor does it account for the remaining $1,510.85 in costs. In the Court’s view, the appropriate amount of costs to be awarded should be the costs actually incurred, with the remainder to be returned to the net settlement amount pursuant to the terms of the settlement agreement.

Plaintiff states that CPT Group was selected as the administrator based on its experience in administering complex settlements. (Kim Decl. ¶ 91.) Plaintiff also states that CPT Group’s quote to administer the settlement was $7,000, the amount sought in allotment for the settlement administrator. The Court finds that Plaintiff has justified the allotment.

At the initial hearing on this motion on July 18, 2023, the Court ordered that the release agreement be modified to provide that all aggrieved parties shall be deemed to have released Defendants from:

(1) all claims under the PAGA related to or arising out of their misclassification as outside sales employees, including those for penalties, attorneys’ fees and costs under PAGA, and (2) all claims that were pled under the PAGA in the Action but only to the extent that they were properly asserted in the LWDA predicate letter that dictates the scope of the PAGA claims that can be brought in this action.

(July 18, 2023 Minute Order.)

            The modified release agreement provided in Attorney Kim’s supplemental declaration has been revised to provide that all aggrieved parties shall be deemed to have released Defendants from:

(1) all claims under the PAGA related to or arising out of their misclassification as outside sales employees, including those for penalties, attorneys’ fees and costs under PAGA, and (2) all claims that were pled under the PAGA in the Action which include Labor Code sections 201-204, 226, 226.3, 226.7, 510, 512, 558, 1174, 1194, 1197, 1197.1, 1198, and 2802, including claims for penalties, attorneys’ fees and/or costs for the Covered Period for those Labor Code violations.

(Kim Supp. Decl. Exh. 2 ¶ 38.) Comparison with the LWDA letter reveals that the claims identified in the modified release agreement correspond directly with the claims asserted in the predicate LWDA letters. (See Kim Supp. Decl. Exh. 1.)

            As Plaintiff has satisfied the Court’s remaining concerns regarding the settlement, the Court finds that the proposed PAGA settlement is fair, adequate, and reasonable such that it should be approved, subject to the reduction of the award of costs pursuant to the terms of the settlement.

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CONCLUSION:

Accordingly, Plaintiff’s motion for approval of settlement of their claims for civil penalties under PAGA is GRANTED as modified herein.

The Court orders that the award of costs to Plaintiff’s counsel be reduced to $32,989.15, with the remainder returned to the net settlement amount pursuant to the terms of the settlement agreement.

            Moving Party to give notice.

IT IS SO ORDERED.

Dated: August 4, 2023                                    ___________________________________

                                                                                    Theresa M. Traber

                                                                                    Judge of the Superior Court

            Any party may submit on the tentative ruling by contacting the courtroom via email at Smcdept47@lacourt.org by no later than 4:00 p.m. the day before the hearing. All interested parties must be copied on the email. It should be noted that if you submit on a tentative ruling the court will still conduct a hearing if any party appears. By submitting on the tentative you have, in essence, waived your right to be present at the hearing, and you should be aware that the court may not adopt the tentative, and may issue an order which modifies the tentative ruling in whole or in part.