Steven B. Katz
Partner Constangy, Brooks, Smith & Prophete LLP
1800 Century Park E Fl 6
Los Angeles , CA 90067
Phone: (310) 597-4553
Email: skatz@constangy.com
USC Law School
Steven B. Katz is a partner and co-chair of the Appellate Practice Group at Constangy, Brooks, Smith & Prophete, LLP. He represents employers in class, collective and representative actions, and appeals.
Whether Private Attorneys General Act representative actions are tried to the court or a jury has been a hotly contested issue in wage-and-hour litigation. Although the state appellate courts have yet to rule, numerous trial courts have held that PAGA claims are for the court. See, e.g., Espinosa v. Bodycote Thermal Processing, Inc., BC501617 (L.A. Sup. Ct., Feb. 15, 2017); Banta v. Am. Med. Response, BC393113 (L.A. Sup. Ct., Sept. 2, 2016); Tanguilig v. Neiman Marcus Grp., Inc., CGC-07-466079 (S.F. Sup. Ct., Jan. 16, 2014); Thomas v. CVS Health Corp., 2:19-CV-04283-R-FFM (C.D. Cal., Aug. 1, 2019); O'Connor v. Uber Techs., Inc., 13-cv- 03826-EMC (N.D. Cal. Dec. 10, 2015). Last week's California Supreme Court decision in Nationwide Biweekly Administration, Inc. v. Superior Ct., 2020 DJDAR 4019 (2020), although not a PAGA case, all but definitively settles the issue: There is no right to jury trial in PAGA actions.
The issue in Nationwide Biweekly was whether a defendant was entitled to jury trial in an unfair competition law (Bus. & Prof. Code Sections 17200 et seq.) and false advertising law (Bus. & Prof. Code Sections 17500 et seq.) action brought by the government seeking civil penalties and injunctive relief. The 1st District Court of Appeal, following the U.S. Supreme Court's decision in Tull v. United States, 481 U.S. 412 (1987), held that the defendant was entitled to a jury. The California Supreme Court reversed, affirming a half-century-long "uniform line" of Court of Appeal decisions that there was no such right to a jury trial.
Nationwide Biweekly started with the well-established framework: A right to jury trial in civil matters is based on statute or the state Constitution. Regardless of whether the Constitution guarantees one, the Legislature has "broad general legislature authority" "to grant the parties in a civil action the right to a jury trial by statute." Shaw v. Superior Court, 2 Cal. 5th 983 (2017) (quoted in Nationwide Biweekly). Where the Legislature is silent, the Constitution guarantees a jury trial only for "actions comparable to those legal causes of action in which the right to jury trial existed at the time of the first Constitution's adoption in 1850 and does not apply to causes of action that are equitable in nature." "'[L]egal' causes of action ... typically involved lawsuits in which the plaintiff sought to recover money damages to compensate for an injury," while "'equitable' causes of action ... sought relief that was unavailable in actions at law."
The Supreme Court thus turned first to whether the UCL or FAL themselves provided for jury trial. Finding no express provision addressing this question, the court turned to indications in "the legislative history and legislative purpose of both statutes" which "convincingly establish the Legislature intended that such ... action[s] ... be tried by the court, exercising traditional flexible discretion and judicial expertise of a court of equity." The court focused on four such indications: First, both the UCL and the FAL originally only provided for injunctive relief (later expanded to include civil penalties and other equitable relief, such as restitution). Second, their substantive standards are equitable in nature, as they require a determination of whether commercial conduct was "unfair," "fraudulent," untrue" or "misleading." Third, the provisions permitting the imposition of civil penalties expressly state that "the court" shall determine the amount of civil penalties. Fourth, in doing so, "the court shall consider any one or more of the relevant circumstances presented by any of the parties to the case, including, but not limited to, the following: the nature and seriousness of the misconduct, the number of violations, the persistence of the misconduct, the length of time over which the misconduct occurred, the willfulness of the defendant's misconduct, and the defendant's assets, liabilities, and net worth."
Finding it "clear" that the Legislature intended actions for civil penalties under both the UCL and FAL to be tried to a court, Nationwide Biweekly then turned to the question of whether the California Constitution required otherwise.
Once again, the Supreme Court started with well-established principles. In determining whether a cause of action is "comparable to [one] ... in which the right to jury trial existed ... in 1850," it is "the substance of the cause of action that matters," not "the form or title of a statutory cause of action." (Emphasis in original.) The right to jury trial "is not strictly limited to those cases in which it existed" before 1850, "but is extended to cases of a like nature" or "of the same class." People v. One 1941 Chevrolet Coupe, 37 Cal. 2d 283, 300 (1951) (quoted in Nationwide Biweekly).
Where a cause of action raises both legal and equitable issues, and the issues are severable, there is a right to jury trial over legal issues, while the court decides equitable ones. Where they cannot be severed, courts look to "the gist of the action" to determine whether it is predominantly legal or equitable. "[I]n the absence of a comparable common law counterpart ... [courts] must look to the statutory scheme as a whole to determine whether the gist of a cause of action."
The court concluded the gist of UCL and FAL actions are equitable in nature regardless of whether they are brought by the government or a private litigant, and regardless of the remedy sought (injunction, penalties, restitution or other equitable relief), for two overarching reasons. First, the UCL and FAL "are clearly not of like nature or of the same class as any common law right of action." Historically, common-law unfair competition was limited to claims based on trade-name or mark infringement (i.e., "passing off"). "The UCL and FAL were enacted for the specific purpose of creating new rights and remedies that were not available at common law." Second, "the bulk of the remedies provided for in the statutes -- injunctive relief, restitution, and other clearly equitable remedies such as the appointment of a receiver ... are clearly equitable in nature." Although the label "civil penalties" is not dispositive (as the court noted, civil penalties are "a type of remedy that in some contexts is properly considered legal in nature"), the "broad discretion" expressly given to a court "in assessing the amount of civil penalty to be imposed" -- including "discretion to consider a nonexclusive list of factors that include the relative seriousness of the defendant's conduct and the potential deterrent effect of such penalties" suggests that the remedy is equitable. Civil penalties under the UCL and FAL "are noncompensatory in nature." They "require no showing of actual harm" and "are not based on the amount of losses incurred." "[T]heir primary purpose is to secure obedience to statutes and regulations ...."
Finally, the court turned to Tull. In Tull, the U.S. Supreme Court held that the defendant in an action for civil penalties under the federal Clean Water Act (33 U.S.C. Section 1251 et seq.) was entitled to a jury trial under the Seventh Amendment to the federal Constitution. Nationwide Biweekly held that the Court of Appeal erred in relying on Tull for two reasons: First, the Seventh Amendment does not apply to state court proceedings. Second, federal law imposed different standards to its gist-of-the-action analysis.
Nationwide Biweekly's analysis yields the same conclusion when applied to PAGA as it did to the UCL and FAL.
PAGA, like the UCL and FAL, expressly provides that civil penalties are to be assessed by a "court" (Lab. Code Section 2699(e)(1)), and permits the court to "award a lesser amount than the maximum civil penalty amount specified by this part if, based on the facts and circumstances of the particular case, to do otherwise would result in an award that is unjust, arbitrary and oppressive, or confiscatory." Lab. Code Section 2699(e)(2). It is a proper of exercise to such discretion to reduce PAGA penalties because an employer "took [its] obligations ... seriously and attempted to comply with the law" as well as its inability to pay a full civil penalty. Thurman v. Bayshore Transit Mgmt., Inc., 203 Cal. App. 4th 1112 (2012). Similarly, PAGA penalties have been reduced when the employer was "not aware" of its violation, "took prompt steps to correct all violations once notified," and the employees "suffered no injury" from the violations. Fleming v. Covidien, ED CV 10-01487 RGK (OPx) (C.D. Cal. Aug. 12, 2011). The discretion given the court in PAGA is no less "broad" than that under the UCL and FAL, and certainly permits the court to consider "the relative seriousness of the defendant's conduct and the potential deterrent effect of such penalties" just as much.
Further, PAGA penalties, like penalties under the UCL and FAL, "are noncompensatory in nature," "require no showing of actual harm," "are not based on the amount of losses incurred," and primarily serve "to secure obedience to statutes and regulations ...." Last year, the Supreme Court held that "an action for [PAGA] civil penalties '"is fundamentally a law enforcement action designed to protect the public and not to benefit private parties."'" ZB, N.A. v. Superior Court, 8 Cal. 5th 175 (2019) (quoting Arias v. Superior Ct., 46 Cal. 4th 969 (2009)). Last March, the court held that PAGA "civil penalties recovered on the state's behalf are intended to 'remediate present violations and deter future ones,' not to redress employees' injuries." Kim v. Reins International California, Inc., 9 Cal. 5th 73 (2020) (quoting Williams v. Superior Ct., 3 Cal. 5th 531 (2017)).
Nationwide Biweekly compels the conclusion that when it comes to PAGA, no less than the UCL/FAL, "the Legislature intended that such ... action[s] ... be tried by the court, exercising traditional flexible discretion and judicial expertise of a court of equity ...."
Turning to whether the "gist" of a PAGA action is legal or equitable, the question is whether PAGA itself is "of a like nature" or "of the same class" as actions at law -- not whether the underlying Labor Code enforced through PAGA are analogous to actions at law that existed in 1850. In Hodge v. Superior Court, 145 Cal. App. 4th 278 (2006), the Court of Appeal held that there was no right to jury trial for a UCL action seeking restitution of unpaid overtime wages. Noting that the UCL expressly declared that is "remedies ... are cumulative ... to the remedies or penalties available under all other laws of this state" (Bus. & Prof. Code Section 17205), the court squarely held that "[a]lthough the unlawful prong of the UCL borrows from other laws, it is not a substitute for those laws." PAGA too provides that its remedies are cumulative. See Labor Code Sections 2699(a), 2699(g)(1), 2699.6. Hodge necessarily applies to any analysis of PAGA.
PAGA representative actions are a "type of qui tam action." Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4th 348 (2014). As the U.S. Supreme Court observed in Vermont Agency of Natural Resources v. U.S. ex rel. Stevens, 529 U.S. 765 (2000), "there is no evidence" American law ever "allowed common-law qui tam actions." (Although common-law qui tam actions arose in 13th-century England, they "fell into disuse" in the 14th century as Parliament began creating qui tam statutes. Similar statutory actions existed in American during the time around the creation of the federal Constitution, but not common-law ones.) In a PAGA action, a private person assists a regulatory agency as a private attorney general. Such suits are "filed on behalf of the state to assist it with labor law enforcement" and are meant to "directly enforce the state's interest in penalizing and deterring employers who violate California's labor laws." Williams, 3 Cal. 5th 531. Indeed, the phrase "private attorney general" was not coined until 1943. See Assoc. Indus. of N.Y. St., Inc. v. Ikes, 134 F.2d 694, 704 (2nd Cir. 1943), vacated on other grounds, Ikes v. Assoc. Indus. of N.Y. St., Inc., 320 U.S. 707 (1943). A PAGA plaintiff "do[es] not own a personal claim for PAGA civil penalties" and has no "personal claim[]" for relief in PAGA litigation. Williams, 3 Cal. 5th 531. The LWDA -- the agency that a PAGA plaintiff assists -- was not established until 2002. A PAGA action is thus utterly unlike any common law cause of action existing in 1850.
As with UCL/FAL actions, injury is not required to secure an award of civil penalties. Kim, 9 Cal. 5th 73 (citing with approval Raines v. Coastal Pacific Food Distributors, Inc., 23 Cal. App. 5th 667 (2018)). Indeed, in ZB, N.A. v. Superior Court, the Supreme Court recently held restitution of unpaid wages -- even when expressly authorized in civil penalty statute -- could not be recovered in a PAGA representative action.
"PAGA claims are different from conventional civil suits. The Legislature's sole purpose in enacting PAGA was 'to augment the limited enforcement capability of the [LWDA] by empowering employees to enforce the Labor Code as representatives of the Agency.'" Kim, 9 Cal. 5th 73 (quoting Iskanian). As such, no principled distinction can be drawn between PAGA and the UCL under Nationwide Biweekly. The jury is in on the right to juries in PAGA actions -- juries are definitely out.