Josefina Arzate, et al. v. Coastal Blooms Nursery, LLC

Case Number

22CV00778

Case Type

Hearing Date / Time

Wed, 02/21/2024 - 10:00

Nature of Proceedings

Plaintiffs’ Renewed Motion To Approve Settlement Agreement And Release Of PAGA Claims Pursuant To Labor Code Section 2698 et seq.

Tentative Ruling

For Plaintiff Josefina Arzate, individually, and on behalf of all others similarly situated: Kane Moon, Allen Feghali, Charlotte Mikat-Stevens, Moon Law Group, PC                  

For Defendant Coastal Blooms Nursery, LLC: Chandra A. Beaton, Kathleen M. Fellows, LightGabler

RULING

For all reasons discussed herein, the renewed motion of Plaintiff to approve settlement agreement and release of PAGA claims pursuant to Labor Code Section 2698 et seq. is denied without prejudice.

Background

On February 25, 2022, Plaintiff Josefina Arzate filed a class action complaint against Coastal Blooms Nursery, LLC (CBN). On April 29, 2022, Arzate filed a first amended complaint (FAC) adding a cause of action under Labor Code section 2698 et seq. (the Labor Code Private Attorneys General Act of 2004 or PAGA). The FAC, which is the operative pleading, alleges nine causes of action: (1) failure to pay minimum wages; (2) failure to pay overtime compensation; (3) failure to provide meal periods; (4) failure to authorize and permit rest breaks; (5) failure to indemnify necessary business expenses; (6) failure to timely pay final wages at termination; (7) failure to provide accurate itemized wage statements; (8) unfair business practices; and (9) civil penalties under PAGA.

On November 7, 2022, the Court upon Plaintiff’s application, ordered Plaintiff’s class and individual causes of action one through eight dismissed without prejudice. (See Nov. 7, 2022, Order.) The ninth cause of action for civil penalties under PAGA is the remaining operative cause of action.

CBN filed its answer to the FAC on November 17, 2022, generally denying its allegations and asserting fifty-nine affirmative defenses.

Court records reflect that on June 30, 2023, following a mediation which resulted in settlement, Arzate filed a motion to approve a settlement agreement and release of PAGA claims which was unopposed.

On July 26, 2023, the Court issued its Minute Order denying Arzate’s motion for approval without prejudice, on the grounds that the settlement agreement and proposed order were inconsistent with Labor Code section 2699 et seq., and other relevant authority.

On January 17, 2024, Arzate filed a renewed motion to approve settlement agreement and release of PAGA claims which is also unopposed.

Analysis

“Notwithstanding any other provision of law, any provision of this code that provides for a civil penalty to be assessed and collected by the Labor and Workforce Development Agency or any of its departments, divisions, commissions, boards, agencies, or employees, for a violation of this code, may, as an alternative, be recovered through a civil action brought by an aggrieved employee on behalf of himself or herself and other current or former employees pursuant to the procedures specified in Section 2699.3.” (Lab. Code, § 2699, subd. (a).)

“ ‘In September 2003, the Legislature enacted [PAGA]. The Legislature declared that adequate financing of labor law enforcement was necessary to achieve maximum compliance with state labor laws, that staffing levels for labor law enforcement agencies had declined and were unlikely to keep pace with the future growth of the labor market, and that it was therefore in the public interest to allow aggrieved employees, acting as private attorneys general, to recover civil penalties for Labor Code violations, with the understanding that labor law enforcement agencies were to retain primacy over private enforcement efforts. [Citation.]’ [Citation.]” (Moniz v. Adecco USA, Inc. (2021) 72 Cal.App.5th 56, 73-74 (Moniz).)

“ ‘A PAGA claim is legally and conceptually different from an employee’s own suit for damages and statutory penalties.’ [Citation.] An aggrieved employee suing under PAGA ‘does so as the proxy or agent of the state’s labor law enforcement agencies.’ [Citation] ” Every PAGA action is ‘a dispute between an employer and the state.’ [Citation.]” (Moniz, supra, 72 Cal.App.5th at p. 74, original italics.)

“In a PAGA lawsuit, ‘the employee Plaintiff represents the same legal right and interest as state labor law enforcement agencies—namely, recovery of civil penalties that otherwise would have been assessed and collected by the [LWDA].’ [Citation.] Thus, the civil penalties a PAGA Plaintiff may recover on the state’s behalf are distinct from the statutory damages or penalties that may be available to employees suing for individual violations. [Citation.] An action under PAGA ‘ “is fundamentally a law enforcement action” ’ and relief is ‘ “designed to protect the public and not to benefit private parties.” ’ [Citation.] ‘A PAGA representative action is therefore a type of qui tam action,’ conforming to all ‘traditional criteria, except that a portion of the penalty goes not only to the citizen bringing the suit but to all employees affected by the Labor Code violation.’ [Citation.] The ‘government entity on whose behalf the Plaintiff files suit is always the real party in interest.’ [Citation.]” (Moniz, supra, 72 Cal.App.5th at p. 74.)

Once statutory procedural prerequisites are met, an aggrieved employee can bring a PAGA action. (See §§ 2699, subd. (a), 2699.3.) As a condition of filing a PAGA action, “[t]he aggrieved employee or representative shall give written notice by online filing with the Labor and Workforce Development Agency and by certified mail to the employer of the specific provisions of this code alleged to have been violated, including the facts and theories to support the alleged violation.” (Lab. Code, § 2699.3, subd. (a)(1)(A); Moniz, supra, 72 Cal.App.5th at p. 74.)

On February 19, 2022, Arzate gave written notice by online filing with the Labor and Workforce Development Agency (LWDA) of provisions of the Labor Code alleged to have been violated by CBN. (FAC, ¶ 99.) The notice was sent to CBN by certified mail on the same date. (Ibid.)

The Court has reviewed the notice provided to the LWDA and CBN. (Moon Dec., Exh. 2.) The notice references specific provisions of the Labor Code that Arzate claims CBN violated and sets forth the facts and theories that support the alleged violation. The Court finds that the notice given by Arzate to CBN and the LWDA complies with Labor Code section 2699.3, subdivision (a)(1)(A). Therefore, Arzate has met the procedural prerequisites for bringing the present action.

Available information also demonstrates that the LWDA did not provide notice of its intention to investigate the alleged violations by CBN within the statutory 65-day waiting period, or at any other time. (FAC, ¶ 99; see Lab. Code, § 2699.3, subd. (a)(2)(A).)

An aggrieved employee may settle a PAGA lawsuit on behalf of the state. (Moniz, supra, 72 Cal.App.5th at p. 78; Lab. Code, § 2699, subds. (a) & (l)(2).) Attached to the Moon declaration as Exhibit 1 is a copy of an amended PAGA settlement agreement (the agreement).

“The superior Court shall review and approve any settlement of any civil action filed pursuant to this part.” (Lab. Code, § 2699, subd. (l)(2).) Though a PAGA action is not a class action, when evaluating a PAGA settlement, the Court must 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.” (Moniz, supra, 72 Cal.App.5th at p. 77.) The Court’s review and approval of a PAGA settlement acts as a “safeguard” to ensure the negotiated resolution is fair and protects the interests of the public and the LWDA in maximizing the enforcement of state labor laws in consideration of PAGA’s purposes and policies. (Id. at pp. 76-77.) Factors useful in evaluating the fairness of a PAGA settlement include “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….” (Id. at p. 77.)

A copy of the proposed settlement must be provided to the LWDA at the same time it is submitted to the Court. (Lab. Code, § 2699, subd. (l)(2).) Available information demonstrates that Arzate submitted the agreement to the LWDA on January 5, 2024, before filing the present renewed motion. (Moon Dec., ¶ 10 & Exh. 3.) Counsel for Arzate further declares that, upon finalizing the present motion, counsel will submit the motion to the LWDA via the agency’s online process. (Moon Decl,, ¶ 10.) The LWDA has not indicated its objection to the agreement or an intent to intervene. (Ibid)

Pursuant to the terms of the agreement, the period from February 19, 2021, through May 22, 2023, constitutes the PAGA period (the PAGA period) for settlement purposes. (Agreement, ¶ 1.19.) The agreement defines an “aggrieved employee” as “a person employed by [CBN] in California and classified as a non-exempt hourly paid employee during the PAGA period.” (Agreement, ¶ 1.4.)

Prior to the parties’ mediation, CBN provided the approximate number of aggrieved employees and pay periods within the PAGA period, documents evidencing CBN’s written employment policies, Arzate’s personnel file and payroll records, and a sample of time and payroll records for 15 percent of the aggrieved employees. (Moon Decl., ¶ 7.) After reviewing and analyzing the records provided by CBN, Arzate’s counsel evaluated the probability of success on the merits and CBN’s maximum monetary exposure. (Moon Decl., ¶ 8.) Arzate also retained a statistics expert to prepare a damage analysis prior to mediation, who determined that CBN did not properly incorporate all remunerations into the regular rate of pay which resulted in the underpayment of overtime, meal and rest premiums, and sick pay. (Ibid.) However, the analysis also revealed that certain claims were not as strong as Arzate and her counsel originally believed. (Ibid.)

According to data provided by CBN at the time of mediation, and assuming a civil penalty of $100 per pay period, Arzate estimated CBN’s maximum PAGA exposure to be approximately $1,397,200. (Moon Decl., ¶ 19.) Based on counsel’s investigation, the maximum exposure calculated by Arzate did not comport with the reasonable exposure faced by CBN. (Id. at ¶ 20.) Based on various factors including whether a Court would award the full number of penalties based on due process concerns, Arzate asserts that it is reasonable to assume for settlement purposes that a violation occurred in one-third of all pay periods, resulting in a maximum exposure of CBN in the amount of $465,733.33. (Ibid.) After applying discounts based on manageability issues, CBN’s defenses on the merits, due process concerns, and the discretionary nature of an award of any penalties, Arzate believes a more realistic liability exposure in this matter totals approximately $232,866.67. (Ibid.)

Pursuant to the agreement, CBN has agreed to pay as civil penalties (the PAGA penalties) the sum of $67,996.69 (the gross settlement amount), subject to increase to the extent the number of pay periods is larger than the estimated number of pay periods provided by CBN. The gross settlement amount represents 29.2 percent of CBN’s realistic exposure in this matter as further discussed above.

The gross settlement amount will be allocated as follows: (1) 75 percent of the PAGA penalties will be paid to the LWDA in an amount that is at least $50,997.52 (the LWDA PAGA payment); and (2) 25 percent will be allocated to individual PAGA payments to be made to aggrieved employees based on each aggrieved employee’s pro rata share calculated according to the number of pay periods worked by that employee during the PAGA period, in total amount of at least $16,999.17 (the individual PAGA payment).

The total amount CBN has agreed to pay is $150,000 (the total settlement amount). The total settlement amount includes the gross settlement amount further discussed above, plus payment of not more than $50,000 to be made separately to Arzate’s counsel for reimbursement of attorneys’ fees incurred to prosecute this action (the PAGA attorneys fee payment), payment of not more than $18,253.31 to be made to Arzate’s counsel for reimbursement of expenses incurred to prosecute this action (the PAGA litigation expenses payment), payment to Arzate in the amount of $7,500 in addition to any individual PAGA payment that Arzate may be entitled to receive as an aggrieved employee (the Arzate settlement payment), and payment to Phoenix Class Action Administration Solutions (the settlement administrator) in an amount not to exceed $6,250 as reimbursement for reasonable fees and expenses subject to Court approval (the administration expenses payment). The parties have jointly approved the settlement administrator as the neutral entity to administer the agreement. In addition, Arzate asserts that the Arzate settlement payment “is not intended as an enhancement for [Arzate’s] service as the PAGA representative. (Moon Decl., ¶ 13.)

Prior to disbursing the gross settlement amount, which is non-reversionary, the settlement administrator will provide a disbursement to the parties’ counsel for approval, with any disputes to be resolved by the Court. Upon counsel’s approval, the settlement administrator will disburse the gross settlement amount. Aggrieved employees are not required to submit a claim to receive their individual PAGA payment.

Subject to Court approval, the settlement administrator will also disburse the PAGA attorneys fee payment and PAGA litigation expenses payment, which CBN will not oppose to the extent any request for Court approval of such payments does not exceed the amounts identified above. The settlement administrator will also disburse the administration expenses payment and the Arzate settlement payment.

The settlement administrator will calculate each individual PAGA payment on a pro rata basis by dividing the amount of each aggrieved employee’s 25 percent share of PAGA penalties by the total number of pay periods worked by all aggrieved employees during the PAGA period, and multiplying that result by each aggrieved employee’s pay periods. Aggrieved employees are responsible for any taxes owed on their individual PAGA payment. CBN estimates there are 697 aggrieved employees who worked a total of 13,972 pay periods.

Pursuant to an escalator clause in the agreement, if the actual number of pay periods is more than 10 percent greater than the estimated number of pay periods, the gross settlement amount will be increased by the percentage by which the actual number of pay periods exceeds the estimated number of pay periods. The gross settlement amount will not be reduced due to CBN’s estimate.

CBN has agreed to fund the gross settlement amount and the additional separate payments under the agreement by transmitting the funds to the settlement administrator no later than 304 days after the date the Court enters a judgment on any order approving the agreement, and the judgment becomes final and no longer subject to appeal. Within 14 days after CBN funds the gross settlement amount and the separate payments owed under the agreement, and after counsel approves the settlement administrator’s proposed list of distributions, the settlement administrator will mail checks for the individual PAGA payments, the LWDA PAGA payment, the administration expenses payment, the Arzate settlement payment, the PAGA attorneys fee payment, and the PAGA litigation expenses payment. Disbursement of the PAGA attorneys fee payment and the PAGA litigation expenses payment shall not precede disbursement of the individual PAGA payment.

The settlement administrator will send checks for the individual PAGA payments to the aggrieved employees via First Class U.S. Mail, postage prepaid. The face of each check will prominently state the date each check will be voided, which will be a date not less than 180 days after the mailing date. The settlement administrator will cancel all checks not cashed by the void date. Before mailing any checks, the settlement administrator will update each aggrieved employee’s mailing address using the National Change of Address Database.

With respect to all individual PAGA payment checks that are returned as undelivered without a forwarding address, the settlement administrator will conduct a search for all aggrieved employees and, within 7 days of receipt of any returned check, will remail checks to the forwarding address provided or any address ascertained by the settlement administrator through an address search. The settlement administrator will promptly send a replacement check to any aggrieved employee whose original check was lost or misplaced and who has requested a replacement check prior to the void date stated on the check.

To the extent an individual PAGA payment check remains uncashed and cancelled after its void date, the settlement administrator will transmit the funds represented by such checks to the California Controller’s Unclaimed Property Fund in the name of the aggrieved employee.

Aggrieved employees will receive a letter explaining the agreement in English and Spanish. The Court has reviewed the letter attached to the agreement as Exhibit A. The letter does not state the gross settlement amount and other amounts to be paid by CBN as further discussed above. To the extent that these amounts are accurately inserted in the letter upon the Court’s approval of the agreement, if any, the notice is sufficient to apprise aggrieved employees of the terms of the agreement and payments to be made thereunder.

Counsel for Arzate declares that the estimated average payment to each aggrieved employee will be roughly $24.39 with an estimated pay period value of $1.22 based on the estimated number of aggrieved employees and pay periods. (Moon Decl., ¶ 22.) Those aggrieved employees who worked longer for CBN will receive a benefit greater than the average estimated amount. (Ibid.)

The agreement also includes a release of claims (the release). Under the terms of the release, the aggrieved employees and the LWDA are deemed to release claims for PAGA penalties during the PAGA period that were or reasonably could have been alleged based on the facts stated in the operative pleading and the PAGA notice that was sent by Arzate to CBN and the LWDA. Though the release purports to release claims for PAGA penalties only including those based on facts stated in the FAC and the notice to the LWDA, the release also includes claims for violations under Business and Professions Code section 17200 et seq. (See Agreement at ¶ 5.2.)

The settlement is the product of the parties’ negotiations and mediation regarding the details of the settlement. Arzate has presented evidence demonstrating that the parties exchanged information to permit a meaningful mediation of this matter. Based on the parties’ exchange of information, counsel conducted an independent investigation and evaluation of the merits of this action. There is no evidence of fraud, collusion, or conflicts of interest with Arzate, the aggrieved employees, or the settlement administrator.

In evaluating the agreement, Arzate’s counsel accounted for the strengths and weaknesses of Arzate’s claims and CBN’s defenses, the need for extensive and costly proceedings to resolve the issues presented in this action, and the disproportionate burden of continued litigation versus its potential benefits as well the risks and uncertainties regarding the outcome of this litigation. The risks presented by Arzate appear to be substantial. Counsel believes that, based on these factors, the agreement is in the best interest of the aggrieved employees.

Arzate has also presented information demonstrating the approximate amount of the individual PAGA payments to be issued to each aggrieved employee and information demonstrating that the gross settlement amount provides meaningful relief consistent with the underlying purposes of PAGA and based on CBN’s realistic liability exposure.

Based on the information provided in the Moon declaration, Arzate’s counsel has substantial experience with PAGA representative actions. Counsel believes that this litigation could not have been settled on better terms than provided under the agreement and that the settlement is fair, adequate, and reasonable.

Notwithstanding the above, the Court notes that, in the FAC and the notice provided to the LWDA, Plaintiff does not allege claims under Business and Professions Code section 17200. (See Moniz, supra, 72 Cal.App.5th at pp. 82-84 [discussion of preclusive effect of a PAGA settlement or judgment].) In addition, the remedies available under Business and Professions Code section 17200, are not necessarily the same as those provided under PAGA. (See Lee v. Luxottica Retail North America, Inc. (2021) 65 Cal.App.5th 793, 800 [discussion of limited remedies available under statute].)

Though the information and evidence presented in the renewed motion and matters further discussed above indicate that the settlement is generally fair, adequate, and reasonable, in the best interests of the aggrieved employees in light of known facts and circumstances and the risks and expense of continued litigation, and not the product of fraud or collusion, the agreement includes a release which purports to release claims of aggrieved employees under another state law and beyond PAGA as further discussed above.

Therefore, the Court will require the parties to narrow the scope of the release. For this reason, the Court will deny the renewed motion, without prejudice.