(CN) - Federal court is not the proper venue for overtime claims against Chase Investment Services under California's Private Attorney General Act, the 9th Circuit ruled.
Joseph Baumann is the lead plaintiff in the action alleging that Chase had failed to pay financial advisers for overtime or allow them meal and rest breaks.
He brought the suit under the California Labor Code Private Attorneys General Act of 2004 (PAGA), which authorizes aggrieved employees, acting as private attorneys general, to recover civil penalties from their employers for violations of the Labor Code when the California Labor and Workforce Development Agency (LWDA) declines to investigate the alleged violations.
In such actions, the agency receives 75 percent of the penalties collected and the aggrieved employees receive the remaining 25 percent.
Baumann filed his complaint in California superior court, seeking PAGA statutory civil penalties for each of Chase's alleged violations. Chase removed the action to the U.S. District Court for the Central District of California, invoking jurisdiction under the Class Action Fairness Act (CAFA).
A federal judge in Los Angeles refused to remand, but the 9th Circuit reversed Thursday after finding that a PAGA suit is not a "class action" as defined in CAFA.
The California Supreme Court already authoritatively determined that PAGA actions are not class actions under state law, as such statutory suits are essentially law-enforcement actions, according to the ruling.
CAFA does not require, however, that a lawsuit be filed under a state class action statute, only that it be brought under a state statute similar to Federal Rule of Civil Procedure 23, which allows for class actions under certain conditions.
The three-judge panel found that PAGA suits are fundamentally different than Rule 23 class actions, so they do not trigger CAFA jurisdiction.
Unlike Rule 23, "PAGA has no notice requirements for unnamed aggrieved employees, nor may such employees opt out of a PAGA action," Judge Andrew Hurwitz wrote for the Pasadena court. "In a PAGA action, the court does not inquire into the named plaintiff's and class counsel's ability to fairly and adequately represent unnamed employees - critical requirements in federal class actions."
PAGA also allows employees to retain all rights to pursue other remedies in connection to the claims in the suit, whereas the federal rule ensures that any class members who received notice and did not opt out are bound by the judgment in the case, according to the ruling.
"PAGA plaintiffs are private attorneys general who, stepping into the shoes of the LWDA, bring claims on behalf of the state agency," Hurwitz wrote. "Because an identical suit brought by the state agency itself would plainly not qualify as a CAFA class action, no different result should obtain when a private attorney general is the nominal plaintiff."
PAGA penalties are also different than the damages sought in Rule 23 class actions, as the bulk of any recovery goes to the LDWA, not the employees.
"In 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," Hurwitz wrote.