Baumann v. Chase: Pure PAGA Actions Not Removable Under CAFA

The Ninth Circuit Court of Appeals issued a precedent-setting decision in Baumann v. Chase Investment Services Corp. last week (Mr. Baumann is represented by Capstone Law APC), holding that a pure Private Attorneys General Act of 2004 (“PAGA”) action does not meet the definition of a “class action” under Class Action Fairness Act of 2005 (“CAFA”) and thus cannot be removed to federal court. No. 12-55644 (9th Cir. March 13, 2014) (slip opinion available here). Baumann was argued together with Urbino v. Orkin Services of Calif., 726 F.3d 1118 (9th Cir. 2012), as both cases presented the issue of whether PAGA penalties can be aggregated to meet the $75,000 amount in controversy threshold for diversity jurisdiction. In Urbino, the Court answered that question in the negative. The defendant in Baumann had also argued that federal jurisdiction was established under CAFA as a “class action,” and because the United States Supreme Court had granted certiorari in Mississippi ex rel. Hood, Attorney General v. AU Optronics Corp., 571 U.S. __ (2014), to determine whether a parens patriae suit brought by the state is removable under CAFA (albeit under the “mass action” prong), the Baumann court issued a stay following oral argument, pending the outcome of Hood. Ultimately, the Supreme Court in Hood held that a parens patriae suit does not qualify as a “mass action” under CAFA, and is thus not removable.

Baumann is a case based on the unlawful misclassification of Financial Advisor Associates as salaried and exempt employees, and was brought solely for civil penalties under California overtime, meal and rest breaks, and business expense reimbursement statutes. The complaint stated that the plaintiff’s potential share of any penalties recovered and attorneys’ fees would be less than $75,000. Defendant removed the case based on diversity jurisdiction, arguing that the penalties attributable to all non-party aggrieved employees could be aggregated to meet the $75,000 threshold under CAFA, and the plaintiff moved to remand, citing the well-established federal “anti-aggregation rule” that precludes such aggregation, as well as the fact that a PAGA action is not a “class action” under CAFA. The district court denied the motion to remand, but granted a subsequent motion to certify the case for interlocutory appeal. The Ninth Circuit then granted the plaintiff permission to file a discretionary appeal due to the split among federal district courts as to PAGA’s treatment under both federal diversity jurisdiction and CAFA.

After a full merits briefing and oral argument, the panel reversed the lower court’s order. Building on the Ninth Circuit’s decision in Washington v. Chimei Innolux Corp., which held that parens patriae suits are not “class actions” within the plain meaning of CAFA because they “lack the defining attributes of true class actions . . . [and] only ‘resemble’ class actions in the sense that they are representative suits,” 659 F.3d 842, 847-850 (9th Cir. 2011), the Baumann court held that PAGA actions are likewise not sufficiently similar to Rule 23 class actions to establish original jurisdiction under CAFA. Dissimilarities between PAGA and class actions identified by the court included that, in PAGA actions, there are no notice requirements, non-party aggrieved employees cannot opt out of the proceedings, the court does not assess the adequacy of the named plaintiff or counsel, and a final judgment does not preclude aggrieved employees from seeking other remedies based on the same predicate labor code violations in the future. The panel stated, “[i]n the end, Rule 23 and PAGA are more dissimilar than alike. A PAGA action is at heart a civil enforcement action filed on behalf of and for the benefit of the state, not a claim for class relief.” Slip op. at 14. Also, in light of Urbino, because plaintiff’s portion of the recovery would be less than $75,000, the court found no diversity jurisdiction under 28 U.S.C. section 1332(a), and therefore plaintiff’s motion to remand should have been granted.

Taken together, Baumann and Urbino would seem to foreclose federal jurisdiction for nearly all suits filed in state court seeking only civil penalties under PAGA.