Joseph Baumann v. Chase Investment Services Corp

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

JOSEPH BAUMANN, individually, and No. 12-55644

on behalf of other members of the

general public similarly situated, D.C. No.

Plaintiff-Appellant, 2:11-cv-06667-

GHK-FMO

v.

CHASE INVESTMENT SERVICES OPINION

CORP., a Delaware corporation;

JPMORGAN CHASE BANK NA;

JPMORGAN CHASE & CO., a

Delaware corporation,

Defendants-Appellees.

Appeal from the United States District Court

for the Central District of California

George H. King, Chief District Judge, Presiding

Argued and Submitted March 5, 2013

Submission Vacated August 13, 2013

Resubmitted March 6, 2014

Pasadena, California

Filed March 13, 2014

Before: Michael Daly Hawkins, Sidney R. Thomas,

and Andrew D. Hurwitz, Circuit Judges.

2 BAUMANN V. CHASE INVESTMENT SERVICES

Opinion by Judge Hurwitz;

Concurrence by Judge Thomas

SUMMARY*

Class Action Fairness Act

The panel reversed the district court’s order denying

plaintiff’s motion to remand an action, brought in state court

under the California Labor Code Private Attorneys General

Act of 2004, and then removed by defendants on the basis of

diversity jurisdiction and pursuant to the Class Action

Fairness Act of 2005.

Plaintiff sued his employer, Chase Investment Services

Corporation, under the Private Attorney General Act in

California superior court, alleging that Chase had failed to

pay him and other “aggrieved parties” (Chase financial

advisors) for overtime, provide for meal breaks, allow rest

periods, and timely reimburse expenses. The complaint

sought statutory civil penalties for each alleged violation, and

asserted that plaintiff’’s potential share of any penalties

recovered and attorneys’ fees would be less than $75,000.

The panel held that the district court could not exercise

jurisdiction over this removed California Private Attorney

General action under the Class Action Fairness Act. The

panel conclude that California Private Attorney General Act

actions are not sufficiently similar to Rule 23 class actions to

*

This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

BAUMANN V. CHASE INVESTMENT SERVICES 3

establish the original jurisdiction of a federal court under the

Class Action Fairness Act. The panel also noted that because

plaintiff’s portion of the recovery would be less than $75,000,

there was also no diversity jurisdiction under 28 U.S.C.

§ 1332(a), and therefore plaintiff’s motion to remand should

have been granted. The panel reversed with instructions to

grant that motion.

Judge Thomas concurred in the majority opinion. He

wrote separately only to note his prior disagreement on the

question of whether claims under the Labor Code Private

Attorney General Act of 2004 can be aggregated in

determining whether diversity jurisdiction exists. Urbino v.

Orkin Services of California, Inc., 726 F.3d 1118, 1123 (9th

Cir. 2013) (Thomas, J., dissenting).

COUNSEL

Glenn A. Danas (argued), Marc Primo, and Ryan H. Wu,

Initiative Legal Group APC, Los Angeles, California, for

Plaintiff-Appellant.

Carrie A. Gonell (argued) and John A. Hayashi, Morgan,

Lewis & Bockius LLP, Irvine, California; Samuel S.

Shaulson, New York, New York; and Alison B. Willard, San

Francisco, California, for Defendants-Appellees.

Allen Graves (argued) and Elizabeth Sullivan, The Graves

Firm, Pasadena, California, for Amicus Curiae Stacy

Thompson.

George W. Abele and Melinda A. Gordon, Paul Hastings

LLP, Los Angeles, California; Robin S. Conrad, Kate

4 BAUMANN V. CHASE INVESTMENT SERVICES

Comerford Todd, and Shane B. Kawka, National Chamber

Litigation Center, Washington, D.C., for Amicus Curiae

California Employment Law Council and Chamber of

Commerce of the United States of America.

OPINION

HURWITZ, Circuit Judge:

This is a civil action filed in California state court under

the California Labor Code Private Attorneys General Act of

2004 (“PAGA”), Cal. Lab. Code §§ 2698–2699.5, and then

removed to the United States District Court for the Central

District of California. PAGA authorizes aggrieved

employees, acting as private attorneys general, to recover

civil penalties from their employers for violations of the

Labor Code. See Arias v. Super. Ct., 209 P.3d 923, 929–30

(Cal. 2009). The sole question presented on appeal is

whether the district court had subject matter jurisdiction over

this removed action.

In Urbino v. Orkin Services, 726 F.3d 1118 (9th Cir.

2013), we held that potential PAGA penalties against an

employer may not be aggregated to meet the minimum

amount in controversy requirement of 28 U.S.C. § 1332(a).

The remaining issue in this appeal is whether a district court

may instead exercise original jurisdiction over a PAGA action

under the Class Action Fairness Act of 2005 (“CAFA”),

28 U.S.C. §§ 1332(d), 1453, 1711–15. We hold that CAFA

provides no basis for federal jurisdiction.

BAUMANN V. CHASE INVESTMENT SERVICES 5

I.

Factual and Procedural Background

Joseph Baumann sued his employer, Chase Investment

Services Corporation (“Chase”), under PAGA in California

superior court, alleging that Chase had failed to pay him and

other “Aggrieved Parties” (Chase financial advisors) for

overtime, provide for meal breaks, allow rest periods, and

timely reimburse expenses. The complaint sought PAGA

statutory civil penalties for each alleged violation, and

asserted that Baumann’s potential share of any penalties

recovered and attorneys’ fees would be less than $75,000.

Chase filed a notice of removal, invoking diversity

jurisdiction under § 1332(a) and alleging that the amount in

controversy exceeded $75,000 if all potential statutory

penalties and attorneys fee awards were aggregated. The

notice of removal also invoked CAFA jurisdiction under

§ 1332(d)(2), alleging minimal diversity, a class of more than

100 members, and an amount in controversy exceeding

$5,000,000. The district court denied Baumann’s motion to

remand, aggregating the potential claims against Chase and

finding subject matter jurisdiction under § 1332(a). The court

accordingly declined to address CAFA jurisdiction.

The district court certified its order denying Baumann’s

motion to remand, and we permitted an appeal to be taken

from that order. See 28 U.S.C. § 1292(b). Section 1292(b)

authorizes appeals from orders, not questions, so “our review

of the present controversy is not automatically limited solely

to the question deemed controlling by the district court.” In

re Cinematronics, Inc., 916 F.2d 1444, 1449 (9th Cir. 1990).

And, because the sole question remaining in this appeal—

6 BAUMANN V. CHASE INVESTMENT SERVICES

whether a PAGA suit is a “class action” as defined in CAFA,

28 U.S.C. § 1332(d)(1)(B)—is a purely legal issue, which we

review de novo, Washington v. Chimei Innolux Corp.,

659 F.3d 842, 846–47 (9th Cir. 2011), we choose as a matter

of judicial economy to address it in the first instance.1

II.

CAFA Jurisdiction

CAFA confers original jurisdiction to the district courts

“of any civil action in which the matter in controversy

exceeds the sum or value of $5,000,000, exclusive of interest

and costs, and is a class action in which – any member of the

class of plaintiffs is a citizen of a State different from any

defendant.” 28 U.S.C. § 1332(d)(2)–(A). The claims of class

members may be aggregated to determine whether the

amount in controversy requirement has been satisfied. Id.

§ 1332(d)(6). The class also must have at least 100 members.

Id. § 1332(d)(5)(B). There is no question that this PAGA

action involves statutory violations allegedly suffered by

more than 100 Chase employees, that the citizenship of one

of those employees is different than Chase’s, or that the

aggregated statutory penalties sought exceed $5,000,000.

Therefore, the only issue for decision is whether this is a

“class action.”

A “class action” is defined by CAFA as “any civil action

filed under rule 23 of the Federal Rules of Civil Procedure or

1

Because it is undisputed that Baumann’s portion of any recovery

(including fees) would be less than $75,000, we hold for the reasons

explained in Urbino that the district court erred in finding the amount in

controversy requirement in § 1332(a) satisfied.

BAUMANN V. CHASE INVESTMENT SERVICES 7

similar State statute or rule of judicial procedure authorizing

an action to be brought by 1 or more representative persons

as a class action.” Id. § 1332(d)(1)(B). Because this action

was commenced in California state court, it clearly was not

filed pursuant to Federal Rule of Civil Procedure 23. The

question before us thus boils down to “whether the suit was

‘filed under’ a state statute or rule of judicial procedure

‘similar’ to Rule 23 that authorizes a class action.” Purdue

Pharma L.P. v. Kentucky, 704 F.3d 208, 214 (2d Cir. 2013).

We therefore begin with an overview of PAGA, the state

statute under which this suit was filed.

1. PAGA

The California legislature enacted PAGA because of

inadequate financing and staffing to enforce state labor laws.

2003 Cal. Stat. Ch. 906, §§ 1–2. The legislature declared it

“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.” Arias, 209 P.3d at 929–30. If the

California Labor and Workforce Development Agency

(“LWDA”) declines to investigate an alleged labor law

violation or issue a citation, an aggrieved employee may

commence a PAGA action against an employer “personally

and on behalf of other current or former employees to recover

civil penalties for Labor Code violations.” Id. at 930. “[T]he

civil penalty is one hundred dollars ($100) for each aggrieved

employee per pay period for the initial violation and two

hundred dollars ($200) for each aggrieved employee per pay

period for each subsequent violation.” Cal. Lab. Code

§ 2699(f)(2). An aggrieved employee is “any person who

was employed by the alleged violator and against whom one

8 BAUMANN V. CHASE INVESTMENT SERVICES

or more of the alleged violations was committed.” Id.

§ 2699(c). The LWDA receives seventy-five percent of the

penalties collected in a PAGA action, and the aggrieved

employees the remaining twenty-five percent. Id. § 2699(i).

2. PAGA and Class Actions

Section 382 of the California Code of Civil Procedure

authorizes a class action if “the question is one of a common

or general interest, of many persons, or when the parties are

numerous, and it is impracticable to bring them all before the

court.” In addition, before a class may be certified

a party must establish the existence of both an

ascertainable class and a well-defined

community of interest among the class

members. The community of interest

requirement involves three factors:

(1) predominant common questions of law or

fact; (2) class representatives with claims or

defenses typical of the class; and (3) class

representatives who can adequately represent

the class.

Linder v. Thrifty Oil Co., 2 P.3d 27, 31 (Cal. 2000) (internal

quotation marks and citations omitted).

The complaint in this case did not invoke the California

class action statute. The state Labor Code is silent as to

whether a PAGA action is a “class action,” but the California

Supreme Court has authoritatively addressed that issue,

holding that PAGA actions are not class actions under state

law. Arias, 209 P.3d at 926. The court found PAGA actions

fundamentally different from class actions, chiefly because

BAUMANN V. CHASE INVESTMENT SERVICES 9

the statutory suits are essentially law enforcement actions. Id.

at 933–34.

The state high court’s decision, however, does not end our

inquiry. CAFA does not require that a suit be filed under a

state class action statute or rule, but only that the action be

brought under a “similar State statute or rule of judicial

procedure authorizing an action to be brought by 1 or more

representative persons as a class action.” 28 U.S.C.

§ 1332(d)(1)(B). “A state statute or rule is ‘similar’ to

Federal Rule of Civil Procedure 23 if it closely resembles

Rule 23 or is like Rule 23 in substance or in essentials.” West

Virginia ex rel. McGraw v. CVS Pharmacy, Inc., 646 F.3d

169, 174 (4th Cir. 2011).

The substance and essentials of Rule 23 are familiar.

Rule 23 allows for class actions “only if”:

(1) the class is so numerous that joinder of all

members is impracticable;

(2) there are questions of law or fact common

to the class;

(3) the claims or defenses of the

representative parties are typical of the claims

or defenses of the class; and

(4) the representative parties will fairly and

adequately protect the interests of the class.

Fed. R. Civ. P. 23(a). In addition, a class action cannot be

maintained unless one of the three requirements of Rule 23(b)

is also met. A class certification order is subject to the

10 BAUMANN V. CHASE INVESTMENT SERVICES

detailed requirements of Rule 23(c) both as to form and

notice.2

2

(1) Certification Order.

(A) Time to Issue. At an early practicable time after a

person sues or is sued as a class representative, the

court must determine by order whether to certify the

action as a class action.

(B) Defining the Class; Appointing Class Counsel. An

order that certifies a class action must define the class

and the class claims, issues, or defenses, and must

appoint class counsel under Rule 23(g).

(C) Altering or Amending the Order. An order that

grants or denies class certification may be altered or

amended before final judgment.

(2) Notice.

(A) For (b)(1) or (b)(2) Classes. For any class certified

under Rule 23(b)(1) or (b)(2), the court may direct

appropriate notice to the class.

(B) For (b)(3) Classes. For any class certified under

Rule 23(b)(3), the court must direct to class members

the best notice that is practicable under the

circumstances, including individual notice to all

members who can be identified through reasonable

effort. The notice must clearly and concisely state in

plain, easily understood language:

(i) the nature of the action;

(ii) the definition of the class certified;

(iii) the class claims, issues, or defenses;

BAUMANN V. CHASE INVESTMENT SERVICES 11

In determining whether PAGA is sufficiently “similar” to

Rule 23 to qualify under CAFA as a statute “authorizing a[]

[class] action,” we do not write on a blank analytical slate. In

Chimei, we held that “parens patriae suits filed by state

Attorneys General may not be removed to federal court

because the suits are not ‘class actions’ within the plain

meaning of CAFA.” 659 F.3d at 847; cf. Mississippi ex rel.

Hood v. AU Optronics Corp., 134 S. Ct. 736, 739 (2014)

(holding that a parens patriae suit is also not a CAFA “mass

action”). We noted that parens patriae suits “lack statutory

requirements for numerosity, commonality, typicality, or

adequacy of representation that would make them sufficiently

‘similar’ to actions brought under Rule 23, and . . . do not

contain certification procedures.” Chimei, 659 F.3d at 850.

Accordingly, we concluded that parens patriae suits “lack the

defining attributes of true class actions. As such, they only

‘resemble’ class actions in the sense that they are

representative suits.” Id.; accord Purdue Pharma, 704 F.3d

at 216–17.

Applying the Chimei rubric, we conclude that PAGA

actions are also not sufficiently similar to Rule 23 class

(iv) that a class member may enter an appearance

through an attorney if the member so desires;

(v) that the court will exclude from the class any

member who requests exclusion;

(vi) the time and manner for requesting exclusion;

and

(vii) the binding effect of a class judgment on

members under Rule 23(c)(3).

Fed. R. Civ. P. 23(c).

12 BAUMANN V. CHASE INVESTMENT SERVICES

actions to trigger CAFA jurisdiction. Unlike Rule 23(c)(2),

PAGA has no notice requirements for unnamed aggrieved

employees, nor may such employees opt out of a PAGA

action. 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 under Rules 23(a)(4)

and (g). See, e.g., Phillips Petroleum Co. v. Shutts, 472 U.S.

797, 812 (1985) (“[T]he Due Process Clause of course

requires that the named plaintiff at all times adequately

represent the interests of the absent class members.”);

Radcliffe v. Experian Info. Solutions Inc., 715 F.3d 1157,

1165–69 (9th Cir. 2013) (noting the importance of class

counsel’s ability to adequately represent the class and absent

class members). Moreover, unlike Rule 23(a), PAGA

contains no requirements of numerosity, commonality, or

typicality. Cf. Purdue Pharma, 704 F.3d at 216–17 (noting

that parens patriae suits contain none of the “hallmarks of

Rule 23 class actions; namely, adequacy of representation,

numerosity, commonality, typicality, or the requirement of

class certification” and thus “lack the equivalency to Rule 23

that CAFA demands”); CVS Pharmacy, 646 F.3d at 175–76

(noting that the West Virginia law at issue does not “contain[]

any numerosity, commonality, or typicality requirements, all

of which are essential to a class action.”).

In addition, the finality of PAGA judgments differs

distinctly from that of class action judgments. The Federal

Rules ensure that members of the class receiving notice and

declining to opt out are bound by a judgment. Fed. R. Civ. P.

23(c)(3). Class action judgments are also preclusive as to all

claims the class could have brought. Cooper v. Fed. Reserve

Bank of Richmond, 467 U.S. 867, 874 (1984).

BAUMANN V. CHASE INVESTMENT SERVICES 13

In contrast, PAGA expressly provides that employees

retain all rights “to pursue or recover other remedies available

under state or federal law, either separately or concurrently

with an action taken under this part.” Cal. Lab. Code

§ 2699(g)(1). “[I]if the employer defeats a PAGA claim, the

nonparty employees, because they were not given notice of

the action or afforded an opportunity to be heard, are not

bound by the judgment as to remedies other than civil

penalties.” Ochoa-Hernandez v. Cjaders Foods, Inc., No. C

08-2073 MHP, 2010 WL 1340777, at *4 (N.D. Cal. Apr. 2,

2010); see Arias, 209 P.3d at 934.

In short, “a PAGA suit is fundamentally different than a

class action.” McKenzie v. Fed. Express Corp., 765 F. Supp.

2d 1222, 1233 (C.D. Cal. 2011). These differences stem from

the central nature of PAGA. PAGA plaintiffs are private

attorneys general who, stepping into the shoes of the LWDA,

bring claims on behalf of the state agency. See Arias,

209 P.3d at 929–30. 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.

The nature of PAGA penalties is also markedly different

than damages sought in Rule 23 class actions. In class

actions, damages are typically restitution for wrongs done to

class members. But PAGA actions instead primarily seek to

vindicate the public interest in enforcement of California’s

labor law. See Sample v. Big Lots Stores, Inc., No. C 10-

03276 SBA, 2010 WL 4939992, at *3 (N.D. Cal. Nov. 30,

2010); Franco v. Athens Disposal Co., 90 Cal. Rptr. 3d 539,

556 (Ct. App. 2009). The bulk of any recovery goes to the

LDWA, not to aggrieved employees. And, the twenty-five

percent portion of the penalty awarded to the aggrieved

14 BAUMANN V. CHASE INVESTMENT SERVICES

employee does not reduce any other claim that the employee

may have against the employer—in this case, for example, for

withheld overtime pay. See Caliber Bodyworks, Inc. v.

Super. Ct., 36 Cal. Rptr. 3d 31, 40 (Ct. App. 2005). The

employee’s recovery is thus an incentive to perform a service

to the state, not restitution for wrongs done to members of the

class.

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.

Despite these fundamental differences, Chase argues that

PAGA actions are “class actions” under CAFA because

PAGA is a state procedural law that would be displaced by

Rule 23 in federal court under the rationale of Shady Grove

Orthopedic Associates, P.A. v. Allstate Insurance Co.,

559 U.S. 393 (2010). But Shady Grove is of no help to

Chase. In Shady Grove, the Supreme Court considered

whether a New York law, which precluded suits seeking

recovery of penalties from proceeding as class actions,

deprived a federal district court of jurisdiction over a

diversity suit proposed as a Rule 23 class action. Id. at 397.

The issues were whether Rule 23 conflicted with the New

York law, and if so, whether the Rule exceeded the

authorization of the Rules Enabling Act or Congress’s

rulemaking power. Id. at 398. The Supreme Court held that

the New York law conflicted with Rule 23, and after applying

the analysis mandated by Hanna v. Plumer, 380 U.S. 460

(1965), concluded that the Federal Rule was not ultra vires.

Shady Grove, 559 U.S. at 398–410; id. at 429–36 (Stevens, J.,

concurring).

BAUMANN V. CHASE INVESTMENT SERVICES 15

In contrast, the issue before us is simply one of statutory

construction—whether the action sought to be removed was

“filed under” a state statute “similar” to Rule 23. We do not

today decide whether a federal court may allow a PAGA

action otherwise within its original jurisdiction to proceed

under Rule 23 as a class action. We hold only that PAGA is

not sufficiently similar to Rule 23 to establish the original

jurisdiction of a federal court under CAFA.

III.

Conclusion

For the reasons above, we hold that the district court

could not exercise jurisdiction over this removed PAGA

action under CAFA. And because, in light of Urbino, there

was also no federal subject matter jurisdiction under

§ 1332(a), see supra n.1, Baumann’s motion to remand

should have been granted. We reverse with instructions to

grant that motion.

RE VE RS E D AND REMANDE D WI T H

INSTRUCTIONS.

THOMAS, Circuit Judge, concurring:

I concur in the majority opinion. I write separately only

to note my prior disagreement on the question of whether

claims under the Labor Code Private Attorney General Act of

2004, Cal. Lab.Code § 2698 et seq, can be aggregated in

determining whether diversity jurisdiction exists. Urbino v.

Orkin Services of California, Inc., 726 F.3d 1118, 1123 (9th

16 BAUMANN V. CHASE INVESTMENT SERVICES

Cir. 2013) (Thomas, J., dissenting). Urbino is law of the

circuit, of course, and binds this panel. However, if I were

writing on a clean slate, I would hold otherwise as to the

question of aggregation.