Case Name: Juan Vasquez v. Le Boulanger, Inc., et al.
Case No.: 17-CV-316829

This is a Private Attorneys General Act (“PAGA”) and putative class action alleging wage statement violations by defendant Le Boulanger, Inc. Before the Court is plaintiff’s motion for approval of a PAGA settlement, which is unopposed.

I. Factual and Procedural Background

Plaintiff alleges that the wage statements provided by defendant failed to include night shift pay in the total hours worked and hourly rates earned by employees. (Complaint, ¶¶ 19-20.) This practice caused employees to experience confusion over whether they received all wages owed to them and suffer difficulty and expense in reconstructing pay records and making mathematical computations to analyze whether they had been paid correctly. (Id. at ¶ 22.)

Based on these allegations, plaintiff filed this action on behalf of a putative class of non-exempt employees on October 5, 2017. The complaint asserts claims for (1) violation of Labor Code section 226, subdivision (a)(2) and (9) and (2) penalties under the Private Attorneys General Act (“PAGA”). Defendant answered the complaint and filed a motion for summary judgment, which the Court denied on March 23, 2018.

The parties have reached a settlement of plaintiff’s PAGA claim, and seek to dismiss the putative class claim. Plaintiff’s motion for an order approving the PAGA settlement is now before the Court.

II. Legal Standard for Approving a PAGA Settlement

Under PAGA, an aggrieved employee may bring a civil action personally and on behalf of other current or former employees to recover civil penalties for Labor Code violations. (Iskanian v. CLS Transp. Los Angeles, LLC (2014) 59 Cal.4th 348, 380.) 75 percent of any penalties recovered go to the Labor and Workforce Development Agency (“LWDA”), leaving the remaining 25 percent for the employees. (Ibid.) PAGA is intended “to augment the limited enforcement capability of [LWDA] by empowering employees to enforce the Labor Code as representatives of the Agency.” (Id. at p. 383.) A judgment in a PAGA action binds all those, including nonparty aggrieved employees, who would be bound by a judgment in an action brought by the government. (Id. at p. 381.)

Labor Code section 2699, subdivision (l) provides that “[t]he superior court shall review and approve any penalties sought as part of a proposed settlement agreement pursuant to” PAGA. “[T]here is no requirement that the Court certify a PAGA claim for representative treatment” as in a class action. (Villalobos v. Calandri Sonrise Farm LP (C.D. Cal., July 22, 2015, No. CV122615PSGJEMX) 2015 WL 12732709, at *5.)

There is little case law addressing the standard for approving a PAGA settlement. (See Syed v. M-I, L.L.C. (E.D. Cal., Feb. 22, 2017, No. 112CV01718DADMJS) 2017 WL 714367, at *13, fn. 8.) As one federal court recently noted, “aside from [the] bland mandate” that courts “review” PAGA settlements, “the Act is surprisingly short on specifics. … [N]either the California legislature, nor the California Supreme Court, nor the California Courts of Appeal, nor the [LWDA] has provided any definitive answer to th[e] vexing question” of what standards govern the courts’ review. (Flores v. Starwood Hotels & Resorts Worldwide, Inc. (C.D. Cal., May 19, 2017, No. SACV1401093AGANX) 2017 WL 2224265, at *1.)

What guidance there is comes largely from federal cases. In connection with one such case, the LWDA indicated that “when a PAGA claim is settled, the relief provided for under the PAGA [should] be genuine and meaningful, consistent with the underlying purpose of the statute to benefit the public ….” (Villalobos v. Calandri Sonrise Farm LP, supra, 2015 WL 12732709, at *13.) The PAGA settlement must be reasonable in light of the potential verdict value (see O’Connor v. Uber Technologies, Inc. (N.D. Cal. 2016) 201 F.Supp.3d 1110, 1135 [rejecting settlement of less than one percent of the potential verdict]); however, it may be substantially discounted given that courts often exercise their discretion to award PAGA penalties below the statutory maximum even where a claim succeeds a trial (see Viceral v. Mistras Group, Inc. (N.D. Cal., Oct. 11, 2016, No. 15-CV-02198-EMC) 2016 WL 5907869, at *8-9).

III. Settlement Process and the Parties’ Agreement

According to a declaration by plaintiff’s counsel, plaintiff learned as a result of formal and informal discovery during settlement negotiations that the violations at issue occurred for less than one year and impacted only a subset of defendant’s employees (26 employees over 372 wage statements), so that the maximum PAGA penalties in this action are $37,200. Further, upon receiving plaintiff’s PAGA letter, defendant met with the union representing its employees and explained the lawsuit, associated penalties, and how the error on the wage statements had occurred. It further explained that it intended to make settlement offers to all affected employees. The union helped draft a release agreement and assisted defendant in explaining the lawsuit and settlement offer to its members. Ultimately, 24 of the 26 affected employees signed the release in exchange for a payment. While the agreements are confidential, plaintiff’s counsel has reviewed an exemplar and discussed the amounts paid to the affected employees with defendant, and has concluded that the agreements are enforceable waivers. Pursuant to Kim v. Reins Internat. California, Inc. (2017) 18 Cal.App.5th 1052, review granted Mar. 28, 2018, No. S246911, 413 P.3d 1132, plaintiff’s counsel concludes that the 24 employees who executed individual releases are no longer “aggrieved” under the PAGA statute.

Against this background, the parties entered into a settlement agreement on September 18, 2018. The settlement requires defendant to pay a total settlement amount of $70,000 in exchange for a comprehensive general release by the two remaining aggrieved employees, with the putative class claim to be dismissed for no consideration to plaintiff or the putative class. The parties have agreed that attorney fees and costs of $30,500 will be deducted from the gross settlement, with the net settlement distributed 75 percent ($29,625) to the LWDA and 25 percent ($9,875) to be split between the two remaining aggrieved employees, plaintiff and his brother Mario Vasquez.

Given that the two aggrieved employees have individually executed the settlement agreement, there will be no notice to the aggrieved employees. The class claim will also be dismissed without notice to the putative class, which the Court agrees is appropriate. Under the circumstances, dismissal of the putative class claim without notice will not prejudice the absent class members, who have executed individual releases with the assistance of their union. (Cal. Rules of Court, rule 3.770(c).)

IV. Analysis of the Penalties Provided by the Settlement

The net settlement of $39,500 represents a full recovery of the potential penalties in this action, including penalties attributable to violations experienced by employees who are likely no longer aggrieved under Kim due to their acceptance of individual settlement payments.

There is no guidance to be found in the case law regarding the Court’s role in reviewing attorney fees associated with a PAGA settlement. However, it is difficult to imagine that courts can fulfill their statutory duty to review the penalties associated with PAGA settlements while turning a blind eye to the economically critical issue of attorney fees. The Court thus finds that it must scrutinize the attorney fee arrangement associated with a PAGA settlement. This is consistent with the observation of many courts that PAGA claims are analogous to “qui tam” suits like those under the federal False Claims Act: in reviewing settlements of qui tam claims, courts do consider any associated attorney fee arrangement. (See U.S. v. Texas Instruments Corp. (9th Cir. 1994) 25 F.3d 725, 728 [“the government claims the $300,000 payment for attorneys’ fees is really a settlement under the False Claims Act … contraven[ing] the requirements of § 3730(d)(2), which guarantees the government a substantial portion of any [such] settlement”; this concern must be considered by the trial court as part of its review of the “entire settlement arrangement”].)

The conclusion that the Court must review an attorney fee arrangement associated with a PAGA settlement begs the question of what standard should be applied to this analysis. (See Rodriguez v. RCO Reforesting, Inc. (E.D. Cal., Jan. 25, 2019, No. 2:16-CV-2523 WBS DMC) 2019 WL 331159, at *6 [the PAGA statute does not “provide[] a standard for evaluating attorneys’ fees related to a settlement”; applying lodestar method].) Plaintiff takes the position that the common fund doctrine should apply, and the Court agrees. The main advantage of the settlement at issue is that it creates a significant fund to benefit the LWDA and the remaining aggrieved employees. As noted by the trial court in Harrington v. Payroll Entertainment Services, Inc. (2008) 160 Cal.App.4th 589, plaintiff’s attorneys should share in this recovery. (At p. 594.) These circumstances are analogous to cases, like wage and hour class actions, where the common fund doctrine is applied. (See City and County of San Francisco v. Sweet (1995) 12 Cal.4th 105, 110-111 [California recognizes and consistently applies the common fund doctrine, recognizing the historic power of equity to permit a party recovering a fund for the benefit of others in addition to himself to recover costs including attorney fees from the fund itself].) The Court finds that the common fund approach is the most reasonable one here, given the nature of the case and of the parties’ settlement.

Here, counsel requests a fee award of $27,855.51, approximately forty percent of the settlement fund. While this percentage is higher than typically awarded, the Court finds it is reasonable considering counsel’s lodestar of $105,000 (resulting in a negative multiplier) and the full recovery of potential penalties achieved by the settlement. (See Laffitte v. Robert Half Intern. Inc. (Cal. 2016) 1 Cal.5th 480, 488, 503-504 [trial court did not abuse its discretion in approving fee award of 1/3 of the common fund, cross-checked against a lodestar resulting in a multiplier of 2.03 to 2.13].) Given those unique circumstances, the fee award is approved.

Counsel’s request for litigation costs of $2,644.49 is also reasonable based on the summary provided and is approved.

V. Order and Judgment

In accordance with the above, IT IS HEREBY ORDERED, ADJUDGED, AND DECREED THAT:

Plaintiff’s motion for approval of the PAGA settlement is GRANTED. The aggrieved employees are plaintiff Juan Vasquez and Mario Vasquez. The remaining class claim is hereby DISMISSED WITHOUT PREJUDICE.

Judgment shall be entered through the filing of this order and judgment. (Code Civ. Proc., § 668.5.) Plaintiff shall take from his complaint only the relief set forth in the settlement agreement and this order and judgment. The Court retains jurisdiction over the parties to enforce the terms of the settlement agreement and the final order and judgment.

The Court will prepare the order and judgment.