Employee Cannot Pursue PAGA Claims Against Employer After Settling Individual Claims

In one of the final judicial decisions of 2017, a California court of appeal has held that an employee who settled his individual wage and hour claims against his former employer could not continue to pursue his PAGA claims against that employer. The court therefore affirmed the trial court’s judgment dismissing the employee’s PAGA claims. Kim v. Reins International California, Inc., 2d Dist. Case No. B278642 (filed December 29, 2017).

The Plaintiff, Justin Kim, sued his former employer, Reins International California, Inc. (“Reins”) alleging individual and class claims for wage and hour violations and seeking civil penalties on behalf of the State of California and aggrieved employees under the Labor Code Private Attorneys General Act of 2004 (“PAGA”). Mr. Kim had signed an arbitration agreement at the commencement of his employment; therefore, Reins moved to compel arbitration of Mr. Kim’s individual claims, dismiss his class claims, and stay his PAGA cause of action until the arbitration had concluded. The trial court granted the motion. While the arbitration was pending, Mr. Kim accepted Reins’ offer to compromise under Code of Civil Procedure section 998. As a result, Mr. Kim dismissed his individual claims with prejudice and dismissed the class claims without prejudice, leaving only the PAGA cause of action.

Reins filed a motion for summary adjudication of the PAGA cause of action, arguing that after Mr. Kim dismissed his individual causes of action he was no longer an “aggrieved employee” under PAGA and therefore could not longer pursue the PAGA cause of action. The court granted the motion. Mr. Kim appealed.

PAGA provides that an action may be brought by “an aggrieved employee on behalf of himself or herself and other current or former employees.” Labor Code section 2699(a). The term “aggrieved employee” “means any person who was employed by the alleged violator against whom one or more of the alleged violations was committed.” Labor Code section 2699(c). The court concluded that once Mr. Kim settled his individual claims and dismissed them with prejudice, he was no longer an “aggrieved employee” as defined in Labor Code section 2699, so he no longer had standing to maintain his PAGA action.

The court noted that Mr. Kim’s inability to pursue his PAGA cause of action, because he was no longer an “aggrieved employee,” would not prevent any other aggrieved employee from bringing a PAGA action against Reins. The court rejected Reins’ suggestion that the trial court’s dismissal with prejudice of Mr. Kim’s PAGA cause of action was a “decision on the merits” that would bar any other employee from bringing a PAGA claim against Reins.

The decision in Kim v. Reins International California, Inc. is not surprising, but suggests a likely employer strategy for trying to avoid liability under PAGA. That strategy depends on the employer’s ability to settle a plaintiff employee’s individual wage and hour claims. Such a strategy may be pursued regardless of whether the employee is subject to mandatory arbitration of his or her individual claims. However, such a strategy may have a higher likelihood of success if the employee is subject to mandatory arbitration since the PAGA claims are likely to be stayed while the employee’s individual claims are litigated in the arbitration forum.

What Happens At the End of an LLC’s Term?

In its operating agreement, a Limited Liability Company, or LLC, may specify a termination date or other event that will result in the dissolution of the LLC. On the termination date or occurrence of another specified event, the LLC is “dissolved” (Corporations Code section 17707.01(e)), with only limited powers to “wind up” its affairs (Corporations Code section 17707.04).

Generally, after the dissolution has occurred, a certificate of dissolution must be filed with the California Secretary of State. Corporations Code section 17707.08(a). Upon the completion the winding up of the LLC’s affairs, a certificate of cancellation of the articles of organization must be filed with the California Secretary of State. Corporations Code section 17707.08(b). When the certificate of cancellation is filed, “a limited liability company shall be cancelled and its powers, rights and privileges shall cease.” Corporations Code section 17707.08(c).

Even after the filing of a certificate of cancellation, the LLC continues to exist for the purpose of prosecuting and defending actions by or against it in order to collect and discharge obligations, disposing of and conveying its property, and collecting and dividing its assets. Corporations Code section 17707.06(a). However, “A limited liability company shall not continue business except so far as necessary for its winding up.” Corporations Code section 17707.06(a).

Even after a certificate of dissolution has been filed, the LLC can be revived under limited circumstances enumerated in Corporations Code Section 17707.09, by the filing of a “certificate of continuation,” which has the effect of nullifying the certificate of dissolution.

Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. We have successfully prosecuted and defended various types of business and property claims. Contact us at (310) 277-7747 to see how we can help you with your business law concerns.

U.S. Supreme Court Declines To Rule On Large Fees For Homebuilders

Recently, the United States Supreme Court denied certiorari in 616 Croft Ave., LLC v. City of West Hollywood (2016) 3 Cal.App.5th 621, in which the issue for review was whether the City of West Hollywood’s in-lieu housing fee was an exaction. While the Supreme Court did not rule for or against the homebuilder claiming city fees were invalid, the decision not to hear the case affirms precedent. Just five months earlier, the Supreme Court issued a takings decision, authored by Justice Kennedy, in Murr v. Wisconsin (2017) 137 S. Ct. 1933. This most recent Supreme Court ruling is the latest in a line of cases that deprive property owners of power over their properties. The Court in Murr held the two parcels along the St. Croix River, combined under common ownership in 1995, were required to be evaluated as a single parcel in determining whether the regulations constituted a regulatory taking. Ultimately, the Court found the regulations, which did not allow petitioners to sell one parcel as part of an improvement plan for the lots, did not constitute a compensable regulatory taking.

Declining to hear a case like 616 Croft Ave., for now, continues the trend. The California Appellate Court in 616 Croft Ave. found a half a million dollar in-lieu fee imposed by the City of West Hollywood, to permit the homebuilder to build a condominium, was not an exaction or a taking. The Supreme Court declined to hear a similar case last year. For now, the Court is leaving open to interpretation the constitutionality of large fees upon homebuilders. With rumors of Justice Kennedy retiring soon and New Justices entering the Bench, perhaps a changed Supreme Court may tackle the constitutionality of fees upon homebuilders in coming years.

Ezer Williamson Law provides a wide range of both transactional and litigation services to individuals and businesses. We have successfully prosecuted and defended various types of business and property claims. Contact us at (310) 277-7747 to see how we can help you with your property law concerns.

California Court Eases Employee’s Burden in Proving Employer’s Wage Statement Violations

In 2004, the State legislature enacted the Labor Code Private Attorneys General Act of 2004 (“PAGA”), which authorizes California employees to sue their employers for Labor Code violations and collect civil penalties that would otherwise be collectible only by California’s Labor and Workforce Development Agency. PAGA suits are known as “representative actions,” in which an employee sues “on behalf of himself or herself and other current or former employees.” Civil penalties recovered in a PAGA action are distributed 75% to the State of California and 25% to the employees.

Recently, a California appellate court, in Eduardo Lopez v. Friant & Associates, LLC, held that an employee can sue his or her employer under PAGA for failure to provide accurate wage statements without showing that the employer’s conduct was “knowing and intentional.” The ruling is significant because employees can also sue their employer for wage statement violations without using the PAGA statute. But when they do, they must show that the employer’s violation was “knowing and intentional” in order to win their case. Thus, the Lopez decision is likely to significantly impact how suits for wage claim violations will be filed in the future. After Lopez, it is unclear why employees would bring lawsuits for “knowing and intentional” wage statement violations when they can bring PAGA claims without proving the wage statement violations were knowing and intentional.

In the Lopez case, the plaintiff, Mr. Lopez, filed an action seeking recovery of civil penalties under PAGA for his employer’s failure to include the last four digits of its employees’ social security numbers or employee identification numbers on their itemized wage statements. The trial court found that the employer had been unaware that this required information was missing and therefore ruled in favor of the employer. The trial court reasoned that Lopez could not prevail because the employer’s omission was not “knowing or intentional” within the meaning of Labor Code section 226, which specifies what information must be included in employee wage statements.

The appellate court reversed the judgment. The Lopez court reasoned a PAGA claim is not subject to Section 226’s “knowing and intentional” requirement, and that the “knowing and intentional” requirement applies only to non-PAGA lawsuits.

Ezer Williamson Law provides a wide range of employment services to employers and employees. Contact us at (310) 277-7747 to see how we can help you with your employment law concerns.

Cal Supreme Court Approves Class Action Fees Based on Settlement Percentage

California Supreme Court Approves Award of Class Action Attorney Fees Based on a Percentage of the Class Action Settlement

Earlier this month, the California Supreme Court issued its decision in a case challenging the traditional method of calculating attorney fees to be paid to the plaintiff attorneys in wage and hour class actions. Laffitte v. Robert Half International Inc., ____ Cal.4th ____, 2016 Daily Journal Daily Appellate Report 8287 (California Supreme Court August 11, 2016).  That case involved a $19 million settlement of three related wage and hour class action lawsuits against the staffing firm Robert Half International, Inc. The settlement provided that no more than one-third of the settlement amount would go to the plaintiff attorneys, also known as the “class counsel.”  The class counsel sought an award of the maximum amount, $6,333,333.33. A single member of the class objected to the requested attorney fee. Nonetheless, the trial court approved the settlement and awarded the requested attorney fee.  The objecting class member appealed, and the Court of Appeal affirmed the trial court’s rulings.  The California Supreme Court accepted the objecting class member’s petition for review for the sole purpose of deciding whether a 1977 California Supreme Court decision, Serrano v. Priest (1977) 20 Cal.3d 25, sometimes referred to as Serrano III, prohibited trial courts from calculating an attorney fee award as a percentage of the settlement amount in class action settlements. The California Supreme Court also considered whether trial courts can use various alternative methods of calculating attorney fees as a means of checking whether the percentage amount is appropriate.

The objecting class member argued that Serrano III requires that attorney fee awards by trial courts be calculated based on the amount of time spent by the attorneys on the case rather than a percentage of the settlement amount. The California Supreme Court disagreed, however, stating that Serrano III arose under a “private attorney general doctrine” that was not applicable to this wage and hour class action.

Ezer Williamson Law proudly announces Robert C. Hayden as Senior Counsel

Ezer Williamson Law proudly announces the addition of Robert C. Hayden as Senior Counsel.

Mr. Hayden brings with him over 37 years of legal experience and expertise in the areas of labor and employment law, as well as extensive experience in business and commercial litigation, including contract and intellectual property disputes.

Prior to joining Ezer Williamson, Mr. Hayden was a partner at RG Lawyers LLP where he practiced for over six years representing both employees and companies in employment litigation, including wage and hour class actions, wrongful termination, and employment litigation.

Prior to RG Lawyers, Mr. Hayden was a partner with K&R Law Group LLP. At K&R, Mr. Hayden created and headed the employment law group for approximately 11 years, until the firm’s dissolution. While at K&R, Mr. Hayden also worked on complex commercial, business, contract, and intellectual property litigation.

Mr. Hayden began his career in 1978 in the Labor and Employment Department of Kindel & Anderson and moved with the head of that department to Overton, Lyman & Prince to develop a Labor & employment practice at that firm. He became a partner in 1985 and left in 1989 upon the firm’s dissolution. During his time at Kindel & Anderson and Overton, Lyman & Prince, Mr. Hayden represented employers in all aspects of union organizing campaigns, unfair labor practice proceedings before the National Labor Relations Board, and state and federal litigation.  Following the dissolution of Overton,  Mr. Hayden spent over six years at Lewis, D’Amato, Brisbois & Bisgaard (now Lewis, Brisbois, Bisgaard & Smith), leaving as a partner in 1995 to develop the Employment Law group at K&R Law Group.  While at Lewis, D’Amato, Mr. Hayden worked on a wide range of civil litigation matters, including real estate, construction, contract, and commercial disputes.

Mr. Hayden graduated from Stanford University in 1975 with a Bachelor of Science degree.  He then received his legal education at University of California at Berkeley – Boalt Hall School of Law, where he was awarded a Juris Doctor degree in 1978.

To read more about Mr. Hayden, please visit his attorney page here.

Ezer Williamson Law Announces Affiliation With Leven & Seligman, LLP

Ezer Williamson Law is proud to announce its formal affiliation with Century City’s Leven & Seligman, LLP.  With this association, both firms build on their reputations for superior quality, client service, and results.

The association will enable both firms to add depth and breadth to their existing practice areas of Real Estate Law and Litigation, Business and Corporate Transactions, Business and Commercial Law and Litigation, Partnership and Member Disputes, Shareholder Rights, Business Formation, and Estate Planning and Administration.

As part of the affiliation, Ezer Williamson Law gains a physical presence at Leven & Seligman, LLP’s offices in Century City, located at 1801 Century Park East, Suite 1460, Los Angeles, California to further serve Ezer Williamson Law’s West Los Angeles and Valley clients.  The association will also provide Leven & Seligman, LLP with the Ezer Williamson Law South Bay office.

Tenant Security Deposits and “Deduct-and-Return” Under Civil Code Section 1950.5

Subject to certain limitations, a landlord may withhold tenant security deposits in order to clean, repair, and make ready a rental unit for new tenants.  In fact, California Civil Code Section 1950.5 provides that the landlord may use summary “deduct-and-return” procedures (that is, procedures that do not require formal legal process) as long as certain rules are followed.

“Deduct-and-Return” Under Civil Code Section 1950.5

Under California law, after a tenant has vacated the premises a landlord has 21 days or less to notify the tenant either (1) that the landlord will provide a full refund of the security deposit, or (2) mail or personally deliver to the tenant an itemized statement listing the amounts of any deductions from the security deposit and the reasons for the deductions, together with a refund of any amounts not deducted. Civil Code Section 1950.5(g)(1).  The landlord must include copies of receipts for the charges that were incurred to repair or clean the rental unit with the itemized statement, or, if the landlord or their employees performed the work or repairs, then the itemized statement must describe the work performed, including the time spent, the hourly rate charged, and the hourly rate must be reasonable. Civil Code Section 1950.5(g)(2).

Failing to Follow the Section 1950.5 Procedure and Potential Penalties

When a landlord fails to follow the timeline and steps identified in Section 1950.5 in good faith, the landlord loses the ability to use the summary procedure.  Put differently, the landlord cannot simply “deduct-and-return” the tenant’s security deposit, but, instead, must return the security deposit in full and bring an action for damages to recover amounts owed to clean and/or repair the rental units.

If the landlord withholds the tenant’s security deposit in bad faith then the tenant may bring an action against the landlord and the landlord may be forced to pay “statutory damages of up to twice the amount of the security, in addition to actual damages.” Civil Code Section 1950.5(l).

What is the Parol Evidence Rule?

A key part of understanding why an integration clause is important is understanding what the parol evidence rule is.

What is the Parol Evidence Rule?

Generally speaking, the parol evidence rule bars (or keeps out) extrinsic evidence of a prior or contemporaneous agreement.  In English, this means that once parties to a contract sign and agree to the terms of the contract, the parol evidence rule will keep the parties to the agreement from trying to submit prior oral or written statements to modify or contradict terms or clauses in the contract.

Take the example we posted in our previous blog post on integration clauses.  In that example, Party B agreed to buy “industry standard gears” for a specified sum, but in Party B’s conversations with Party A, they discussed “type-1” gears.  Thus, when Party A delivers “type 3” gears, Party B will go to court and attempt to submit parol evidence that the agreement was for 100 “type-1” gears.

As we noted in prior posts, the parol evidence rule is codified in California Code of Civil Procedure section 1856, which states that the “[t]erms set forth in a writing intended by the parties as a final expression of their agreement with respect to the terms included therein may not be contradicted by evidence of a prior agreement or of a contemporaneous oral agreement.”   Likewise,  California Civil Code section 1625 states that “[t]he execution of a contract in writing, whether the law requires it to be written or not, supersedes all the negotiations or stipulations concerning its matter which preceded or accompanied the execution of the instrument.”

As we explained in our prior blog post, most contracts have an integration clause, which will be used  to determine whether the contract is “a final expression” of the parties’ agreement.  Assuming that is the case, a party will have to show that an exception to the parol evidence rule applies.

What are the Exceptions to the Parol Evidence Rule?

Generally, the parol evidence rule will not allow a party to a written agreement to submit prior inconsistent statements (written or oral), although there are exceptions.  The following general circumstances are exceptions to the parol evidence rule:

  • Incomplete writings
  • Collateral or independent agreements
  • Subsequent agreements
  • Ambiguity or uncertainty in instrument
  • Illegality or bad faith
  • Fraud
  • Mistake
  • Lack of consideration

If one of these exceptions applies a party may then be able to submit evidence that was prior to or contemporaneous with the written contract in order to explain or contradict the terms of the deal.

What is an Integration Clause in a contract?

An integration clause (also known as a merger clause or an entire agreement clause) is found in most contracts and simply provides that the agreement or contract between the parties is the final and complete understanding between the parties, and supersedes all prior negotiations, agreements, or understandings on the subject.

The typical integration clause will say something like this: This Agreement is the entire agreement between the parties in connection with the subject matter of this Agreement, and supersedes all prior and contemporaneous discussions and understandings.1

Integration clauses are key when there is a dispute between two or more contracting parties and one party wants to use prior or contemporaneous discussions to contradict or explain terms within a contract.

By way of example, suppose that Party A negotiates to sell Party B 100 “type-1” gears for a specified sum.  The parties sign a contract which states that Party A agrees to sell Party B 100 “industry standard gears” for a specified sum, but with no reference to “type 1” in the description.  Party A delivers 100 “type-3” gears (considered “industry standard”) and demands payment. Party B refuses to pay.  Party B wants to use communications between the parties before the contract was signed to show that Party A was to deliver 100 “type-1” gears.  Party A, on the other hand, claims that the gears delivered are “industry standard” and the contract contains an integration clause that excludes prior or contemporaneous agreements.

How would a court decide whether the pre-contract communications about “type-1” gears can be used?  Determining whether the written contract was meant to be the exclusive embodiment of the parties’ agreement is known as determining whether the contract is “fully integrated.”  Thus, the existence of an integration clause is a key factor because an integration clause is typically conclusive as to the issue of integration.  The court will therefore look at the contract to determine whether the parties intended the written agreement to be a final and complete expression of their understanding. (Code Civ. Proc., § 1856, subd. (d).)

California has codified (i.e., set out by statute) many rules of contract interpretation; these rules apply to all contracts, absent exceptional circumstances.  Civil Code § 1635.  The basic goal of contract interpretation is to give effect to the parties’ mutual intent that existed at the time of contracting. Civil Code § 1636. When an agreement is set forth in a final written contract, the parties’ intent is determined from the writing alone, if possible. Civil Code § 1639.  “The words of a contract are to be understood in their ordinary and popular sense” (Civil Code § 1644), and  the terms of a final, integrated contract “may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement” (CCP § 1856).

Nevertheless, in our example above, Party B may still be able to submit evidence that the agreement was for 100 “type-1” gears.   This is because a written contract “may be explained or supplemented by evidence of consistent additional terms unless the writing is intended also as a complete and exclusive statement of the terms of the agreement.” Code Civ. Proc., § 1856, subd. (b).  Also, technical words are to be interpreted as usually understood by persons in the profession or business to which they relate, unless clearly used in a different sense. Civil Code § 1645; Cal. Civ. Proc. Code § 1856 (“The terms set forth in a writing described in subdivision (a) may be explained or supplemented by course of dealing or usage of trade or by course of performance.”).

Thus, the dispute between the parties in our example above will center on the court’s determination as to whether the prior and contemporaneous statements are admissible as consistent additional terms and/or to explain what “industry standard” means in this context.

Grey v. Am. Mgmt. Servs., 204 Cal. App. 4th 803, 805 (2012).