In Urbino v. Orkin Services, 9th Circuit Holds No Diversity For PAGA Actions

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In the first Ninth Circuit decision relating to the Private Attorneys General Act of 2004 (“PAGA”), a panel held in Urbino v. Orkin Services of Calif., No. 11-56944, 11-57002 (9th Cir. Aug. 13th, 2013) (slip opinion available here) that federal diversity jurisdiction cannot be exercised over California’s unique PAGA enforcement action. At the same time, the panel stayed its decision in Baumann v. Chase Investment Services, No. 12-55644 (Mr. Baumann is represented by Capstone Law APC), heard concurrently with Urbino and which presented an additional, closely-related issue as to whether a PAGA action is removable under the Class Action Fairness Act (“CAFA”).

First, Urbino prohibits district courts from aggregating PAGA civil penalties to establish the amount in controversy for diversity jurisdiction. Under the PAGA statute, civil penalties are measured by the number of violations against an employer’s current and former employees. If penalties for all aggrieved employees could be aggregated to meet the $75,000 amount in controversy threshold, most PAGA actions would be subject to federal jurisdiction. Urbino holds that aggregation is improper because, although a PAGA action unites aggrieved employees’ claims into one action, their underlying interests are not “common and undivided,” and thus do not fall within the narrow exception to the prevailing non-aggregation principle. Rather, in a PAGA action “[e]ach employee suffers a unique injury… [and therefore] Defendants’ obligation to them is not ‘as a group,’ but as ‘individuals severally.’” Slip op. at 8 (quoting Gibson v. Chrysler Corp., 261 F.3d 927, 944 (9th Cir. 2001)). Second, and separately, Urbino holds that because the benefits of PAGA inure primarily to the state, “[t]he state [is] the real party in interest [and] is not a ‘citizen’ for diversity purposes.” Slip op. at 9.

The main result of Urbino is that pure PAGA actions will not be removable under 28 U.S.C. §1332 (the statutory basis for diversity jurisdiction), since “federal courts lack subject matter over this quintessentially California dispute.” Slip op. at 9. But Urbino leaves open the question of whether PAGA actions are subject to removal under CAFA. That question will be settled by Baumann, which has been stayed pending the U.S. Supreme Court’s decision in Mississippi ex rel. Hood v. AU Optronics Corp., 701 F.3d 796 (5th Cir. 2012), cert. granted, 133 S. Ct. 2736 (May 28, 2013). However, it is unlikely that Hood, which addresses the “mass action” provision of CAFA, will affect the analysis. CAFA excludes from its definition of “mass action” any action where “all of the claims in the action arise from an event or occurrence in the state” where the action was filed. 8 U.S.C. § 1332(d)(11)(B)(ii). Because a PAGA action is limited to collecting penalties arising from labor law violations that occurred in California, it cannot be defined as a “mass action” for CAFA purposes. In the meantime, PAGA plaintiffs faced with a removal under CAFA should continue to rely on Washington v. Chimei Innolux Corp., 659 F.3d 842 (9th Cir. 2011), which makes clear that only class actions — and not actions “resembling” class actions — are removable under the class action provision of CAFA. Baumann is unlikely to upend the reasoning of Chimei.

Finally, by identifying the state as “the real party in interest,” Urbino also bolsters recent scholarship and case law drawing a close analogy between PAGA and the qui tam action. See, e.g., Cunningham v. Leslie’s Poolmart, 2013 U.S. Dist. LEXIS 90256 (C.D. Cal. June 25, 2013); Janet Alexander, To Skin a Cat: Qui Tam Actions as a State Legislative Response to Concepcion, 46 U. Mich. J. L. Reform 1203 (Summer 2013).