Case Name: Justin Scheiber v. Shoe Palace Corporation, et al.
Case No.: 2013-1-CV-254589

This is an action under the Private Attorneys General Act (“PAGA”) arising from defendant’s alleged practice of requiring employees to undergo off-the-clock security checks. Before the Court is plaintiff’s second, unopposed motion for approval of a settlement.

I. Factual and Procedural Background

In the operative second amended complaint (“SAC”), plaintiff alleges that he worked for Shoe Palace as a non-exempt retail store employee. (SAC, ¶ 7.) After his work shifts and when leaving the store for his meal break, plaintiff was required to clock out. (Ibid.) He was then required to wait to be “checked” and/or patted down by a supervisor/manager before being released from work. (Ibid.) This time was not compensated and resulted in plaintiff routinely receiving less than 30 minutes for his meal breaks. (Ibid.) Based on these allegations, plaintiff brings a single claim under PAGA arising from defendant’s alleged violations of Labor Code sections 201-203, 226.7, 510, 1194, and 1197.

Plaintiff’s original complaint, filed on October 15, 2013, alleged direct claims under the Labor Code in addition to his derivative PAGA claim. In July of 2014, the Court (Hon. Kirwan) granted in part defendant’s motion to compel arbitration of this action, holding that plaintiff’s claims under the Labor Code were subject to arbitration, but his PAGA claim must be litigated in court. The Court stayed the arbitration of plaintiff’s Labor Code claims pending the resolution of the PAGA claim. Shoe Palace appealed. In response, plaintiff dismissed all of his claims other than his PAGA claim, and the Court of Appeal dismissed defendant’s appeal as moot in August of 2016. Plaintiff subsequently filed a first amended complaint asserting a single claim under PAGA. He filed the SAC to correct an error in the PAGA penalty period he had initially alleged.

The parties conducted discovery and participated in a successful mediation on May 21, 2018. On October 19, 2018, the Court continued plaintiff’s initial motion for approval of the parties’ settlement. The Court stated that it was disinclined to approve the settlement based on the record before it, primarily because the settlement did not provide for the distribution of 25 percent of the recovered penalties to the aggrieved employees as required under PAGA. The October 19th order directed the parties to provide supplemental briefing regarding (1) Shoe Palace’s claimed inability to identify the employees aggrieved by its practice of requiring off-the-clock security checks and (2) plaintiff’s analysis of the maximum value of the case and the reasonableness of the settlement.

On December 6, 2018, the Court entered a stipulated order denying the original motion for approval of the settlement without prejudice, based on the parties’ representations that Shoe Palace had identified the aggrieved employees and the parties would enter into a new settlement in light of this development. Plaintiff’s motion for approval of this new 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 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 at 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 filed in support of plaintiff’s motion for approval of the original settlement, plaintiff has received written discovery including the relevant policies related to security checks of employees at defendant’s retail locations. Plaintiff also provided a deposition on May 3, 2017. Based on the discovery provided by defendant, plaintiff determined that defendant changed its policy beginning on January 1, 2014 so that security checks of employees were no longer off-the-clock. “Defendant represented to Plaintiff that there were approximately 2,500 non-exempt employee paid periods [sic] worked” from the beginning of the PAGA penalty period until the policy was changed, and “[i]ndependent investigation by Plaintiff’s counsel based upon the number of stores Defendant had in operation at this time and the staffing level of these stores confirmed that this number was a reasonable approximation.”

After this investigation and discovery, the parties attended a mediation on May 21, 2018. They agreed to settle the case for $200,000, or approximately $80 per estimated pay period. The original settlement provided that $66,000 in attorney fees, a $10,000 enhancement award, and up to $11,000 in litigation costs would be deducted from the settlement, for a net settlement of $113,000 or $45.20 per estimated pay period. The original settlement provided that all of the net penalties would be remitted to the LWDA.

Following the Court’s order continuing the hearing on the motion for approval of the original settlement, Shoe Palace reviewed its records and determined that 107 employees and 1,713 wage statements were impacted by the practice at issue. The parties adjusted the gross settlement pursuant to the terms of their original agreement in light of the reduced number of eligible wage statements. The revised gross settlement is $157,400 or $91.68 per wage statement, representing a decrease in the gross settlement but an increase in its value per wage statement.

The revised settlement provides that $1,750 will be deducted from the gross settlement for administration costs and $11,988.24 will be deducted for litigation costs. The named plaintiff will receive $10,000, and plaintiff’s counsel will receive $52,346 in attorney fees (1/3 of the gross settlement). 75 percent of the net settlement ($60,986.82) will be paid to the LWDA and 25 percent ($20,328.94) will be paid to the aggrieved employees, who will receive an average of $189.99. Individual payments will be calculated on a pro rata basis based on employees’ eligible pay periods.

Aggrieved employees will receive notice of the settlement and the claims they will be deemed to release when it is finalized with their settlement payments. The revised settlement provides that aggrieved employees will release “all claims for PAGA penalties arising out of or directly related to the allegations in the Action … based on the allegations in the [SAC] for the entirety of the Covered Period.” Consistent with the statute, there will be no right to opt out or object. Funds associated with checks uncashed after 180 days will be distributed to the LWDA. The Court finds these notice procedures to be fair and reasonable, and the form of notice submitted by the parties is also appropriate.

IV. Analysis

The parties’ revised settlement addresses the Court’s primary concern with their original settlement by providing for the payment of 25 percent of the recovered penalties to the aggrieved employees. However, the Court also directed plaintiff to provide supplemental briefing setting forth his analysis of the maximum penalties in the case and the reasonableness of the settlement value in light of that estimate. In his brief supporting the instant motion, plaintiff merely states that “the maximum PAGA penalty per pay period for the initial violation is $100” and concludes that a gross recovery of $91.68 per pay period is consequently reasonable.

Plaintiff’s analysis does not explain why he assumes that only a single violation was associated with each wage statement, nor does it consider the $200 “catchall” PAGA penalty for subsequent violations. Still, even assuming that the maximum value of the case is two to three times higher than plaintiff’s analysis would suggest, the Court is satisfied that the settlement provides genuine and meaningful relief consistent with the purpose of the PAGA statute. This litigation caused Shoe Palace to change its policy of conducting off-the-clock security checks and will result in the payment of a substantial portion of the potential penalties to aggrieved employees and the LWDA.

Finally, while no authority addresses the courts’ role in reviewing attorney fees associated with a PAGA settlement, 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 this economically critical issue. The Court finds that it must scrutinize the attorney fee arrangement associated with a PAGA settlement as part of its duty to review the settlement as a whole. While a settlement of 1/3 to half the maximum penalties associated with plaintiff’s claim appears to be a good result for the state and the aggrieved employees at first blush, the Court must consider this recovery in light of the fees and other amounts that will be deducted from it.

In the past, the Court has approved fee awards associated with PAGA settlements under the common fund doctrine. Consistent with this approach, the main advantage of the settlement at issue is that it creates a significant fund to benefit the LWDA and aggrieved employees. These circumstances are analogous to cases where the common fund doctrine is applied, such as wage and hour class actions. (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. A recovery of one-third of the total settlement is typical in common fund cases, matching the figure agreed by the parties. (See Laffitte v. Robert Half Intern. Inc. (2016) 1 Cal.5th 480, 488.) In support of his motion for approval of the parties’ original settlement, plaintiff provided a lodestar figure of $90,455, which did not include time spent revising the settlement and filing the instant motion. The requested fees are thus significantly below counsel’s lodestar. As a cross-check, the lodestar supports the 1/3 percentage fee requested. (See id. at pp. 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].)

Plaintiff also seeks $11,988.24 in litigation costs and a $10,000 incentive award for his service as the named plaintiff. Prevailing PAGA plaintiffs are entitled to their litigation costs under the statute, and the small incentive award requested by plaintiff furthers the statute’s purpose in a case like this where the payments to aggrieved employees will be small. The requested administrative fees are also reasonable and appropriately paid from the settlement.

The Court thus finds that the fees and costs requested by plaintiff are reasonable. (See Mancini v. The Western and Southern Life Insurance Co. (S.D. Cal., Sept. 18, 2018, No. 16CV2830-LAB (WVG)) 2018 WL 4489590, at *2 [approving fees, costs, and incentive awards in connection with a PAGA-only settlement].) Even when these sums are deducted, the net settlement represents perhaps 15 to 25 percent of the maximum penalties in the case, relief that is genuine, meaningful, and consistent with the purpose of the statute for the reasons already discussed.

V. Order and Judgment

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

Plaintiff’s motion for approval of the parties’ revised PAGA settlement is GRANTED.

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.