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.

Attorneys’ Fees Awarded Based on Void Contract

Recently, in California-American Water Company v. Marina Coast Water District, a California court of appeal found prevailing parties could recover attorneys’ fees based on a void contract under Code of Civil Procedure section 1717 (“section 1717”). The non-prevailing party challenged the trial court’s award of attorneys’ fees, posing the question, “How can an attorney fees provision in a contract govern the parties’ fees obligations when the contract itself is deemed to have been void from its inception?”

In Santisas v. Goodin (1998) 17 Cal.4th 599, the California Supreme Court held that “when a party litigant prevails in an action on a contract by establishing that the contract is invalid, inapplicable, unenforceable, or nonexistent, section 1717 permits that party’s recovery of attorney fees whenever the opposing parties would have been entitled to attorney fees under the contract had they prevailed.” (Santisas, supra, 17 Cal.4th at p. 611.)

The appellant in California-American argued that the trial court’s attorney fees award contravened section 1717’s limitation that fees be awarded only in an “action on a contract.” In California-American, no contract-based claims were at issue. The only issue litigated was the effect of a board member’s conflict of interest on the validity of certain contracts. In other words, the action was one to declare certain contracts void. The losing party argued that such a claim is not an “action on a contract.” However, the appellate court in California-American found “a party’s entitlement to attorney fees under section 1717 turns on the fact that the litigation was about the existence and enforceability of the contract, not on the presence of particular contractual claims . . .” The court noted that a California appellate court had previously found a suit brought by litigants seeking to have a contract declared void is an “action on a contract” for the purposes of section 1717. (Eden Township Healthcare Dist. v. Eden Medical Center (2013) 220 Cal.App.4th 418, 426.) Since an action to declare a contract void is an “action on a contract” for purposes of section 1717, attorneys’ fees can be awarded based on an attorney fees provision of a void contract.

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.

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.

New Rules For Businesses Offering Automatic Renewals To Their Customers

Governor Jerry Brown recently signed SB 313, which is a significant change in law for businesses offering automatic renewals of contracts for their goods or services. The legislative counsel’s digest described the new law as prohibiting businesses from “charging a consumer’s credit or debit card, or the consumer’s account with a 3rd party, for an automatic renewal or continuous service that is made at a promotional or discounted price for a limited period of time without first obtaining the consumer’s consent to the agreement.”

Commencing on July 1, 2018, Business and Professions Code Section 17602 as amended by SB 313, will require that businesses who offer automatic renewals or continuous services that include a free gift or trial will also have to include a clear and conspicuous explanation of what happens to the price when the trial period ends. Businesses will also have to disclose how to cancel, and allow cancellation of the automatic renewal, before the consumer pays for the goods or services. To allow cancellation under the new law, businesses will have to provide consumers with an easy method such as a toll-free telephone number, electronic email address, or mailing address. Yet if the consumer accepts an offer online, they must be able to cancel online. And further, if there are any material changes to the terms of the automatic renewal or continuous service, the new law requires that the consumer receive a clear and conspicuous statement of the changes.

This new law applies only to businesses that offer automatic renewals or continuous services to consumers. Businesses that offer automatic renewals or continuous services should become familiar with the new law and change their policies in an effort to avoid violations.

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.

Shareholder Obstacles Under the Business Judgment Rule

Previously on our blog, we described what information members of a corporation’s Board of Directors can rely on in discharging their duties and explained how they can use the Business Judgment Rule (“BJR”) as a defense to liability imposed in the event of an alleged breach of their duty of care. The use of the BJR as a defense by directors creates an obstacle to shareholders attempting to hold directors personally liable for a breach of the duty of care. Under the BJR, courts will not review directors’ business decisions if the directors were disinterested, acting in good faith, and reasonably diligent in informing themselves of the facts. Shareholders must show directors have not met those requirements in order for courts to evaluate the directors’ business decision.

Shareholders may show that directors are not disinterested by proving that the director(s) have a personal interest in the corporate decision underlying the dispute. However, under California law, it is unclear what amount of personal interest is necessary to find directors interested in a corporate decision.

Arguably the toughest element for shareholders to overcome, courts generally will assume disinterested directors acted on an informed basis and with the honest belief that their decision was in the best interest of the company. This presents an even further obstacle; if a court does find directors did not act in good faith, shareholders must show more than ordinary negligence. In other words, it is not enough for shareholders to prove directors did not act as reasonably prudent people.

Thus, although the Business Judgment Rule presents an obstacle for shareholders challenging decisions made by a corporation’s Board of Directors, the obstacle may be overcome on a case-by-case basis.

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, including claims involving the business judgment rule. Contact us at (310) 277-7747 to see how we can help you with your business law concerns.

California Supreme Court Issues Important New Wage and Hour Decision

On July 13, 2017, the California Supreme Court issued a decision that California employment law attorneys have been anticipating for over two years. Williams v. Superior Court (Marshalls of California, LLC) (S227228 7/13/17). The Williams decision significantly impacts the nature and extent of the information employers may be forced to give employees who sue their employers on what are commonly called “PAGA” claims. But before explaining that decision, a bit of background information is required.

In California, employees have at least four different ways to make claims against their current or former employers for unpaid wages and penalties: (1) They can make an administrative claim with the State Labor Commissioner (a “wage claim”); (2) they can file an individual lawsuit in court; (3) they can file a wage and hour class action on behalf of themselves and other current and former employees; or (4) they can file a “representative” action under California’s Labor Code Private Attorneys General Act of 2004, commonly known as a PAGA Claim. The first two options, the wage claim and the individual lawsuit, typically seek recovery only of wages and penalties due to an individual claimant or plaintiff. The other two options seek wages or penalties, or both, for a much wider group of employees, represent a risk of far greater liability for the employer and a far greater potential attorney fee reward for the plaintiff’s attorneys. Thus, plaintiff attorneys prefer to bring class actions and PAGA claims rather than wage claims and individual lawsuits. Not surprisingly, class actions and PAGA claims tend to strike fear in employers.

Under the current state of California and federal law, wage and hour class actions may well be less scary for employers than PAGA claims. It used to be the other way around, because in a PAGA claim all that can be recovered are the myriad penalties assessable under the California Labor Code for violation of the wage and hour provisions of the Labor Code. While those penalties can be substantial they are typically (but not always) far, far less than the unpaid wages resulting from an employer’s wage and hour violations.

There are two reasons why PAGA claims have become more problematic for employers relative to class actions. First, the California Supreme Court has held that plaintiffs in PAGA claims do not have to meet certain requirements that they must meet in class actions. Arias v. Superior Court (2009) 46 Cal.4th 969. So PAGA claims can be more difficult to defend against than class actions. Second, as a result of developments in federal law over the last several years, employers can frequently require employees to sign mandatory arbitration agreements that require them to arbitrate all wage and hour claims and give up any right to bring a wage and hour class action in court or in arbitration. Thus, for many employers, the risk from wage and hour class actions has been greatly reduced – in fact almost eliminated.

Employers have argued that PAGA claims are also subject to mandatory arbitration under federal law. They have also argued that they should be able to avoid “representative” PAGA claims in the same way they can avoid class actions. In other words, they have argued that they should be able require employees to sign mandatory arbitration agreements that require them to arbitrate all PAGA claims and give up any right to bring a PAGA claim in court or in arbitration on behalf of anyone other than themselves. However, in Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, the California Supreme Court noted that PAGA claims are a form of government action – with the plaintiff acting as a “private attorney general” on behalf of the state of California to collect Labor Code penalties. The California Supreme Court reasoned that forcing plaintiffs to arbitrate their PAGA claims and preventing PAGA claims on behalf of other employees would really be preventing California from bringing such claims, thereby frustrating the purpose of the PAGA law. Therefore, the California Supreme Court held that employees cannot be forced to arbitrate PAGA claims and cannot be forced to give up their right to bring such claims on behalf of other employees.

That brings us to the decision issued on July 13, 2017 by the California Supreme Court, Williams v. Superior Court (Marshalls of California, LLC) (S227228 7/13/17). In Williams, the plaintiff, Mr. Williams, had worked in a single Marshalls store in California. He brought a PAGA claim, asserting that Marshalls had violated California wage and hour laws including those governing employee meal and rest breaks. Apparently, Marshalls had over 16,000 current and former employees in the time period covered by Mr. Williams’ lawsuit, spread across a large number of stores across the state. In the course of pretrial discovery, Mr. Williams asked Marshalls for the names and contact information for all of those thousands of employees. Marshalls refused Mr. Williams’ request, claiming the request was unfairly burdensome and would violate the privacy rights of those employees. Marshalls argued that until Mr. Williams had demonstrated that his claim of alleged wage and hour violations had some merit he should only be given information on the employees who had worked at the same store as Mr. Williams. The trial court and the court of appeal (in a 2015 decision) agreed with Marshalls. Mr. Williams sought and obtained review by the California Supreme Court.

At this point, it bears noting that if Mr. Williams had brought his law suit as a class action (assuming he had not signed a mandatory arbitration agreement giving up his right to bring a class action), he probably would have been entitled to the names and contact information for all of the thousands of current and former employees. But Marshalls’ argument was that, as the California Supreme Court has held, a PAGA claim is not a class action. So, logically, the rules governing a PAGA claim should be different. The trial court and the court of appeal agreed.

Yesterday, the California Supreme Court disagreed with each of Marshalls’ arguments, and reversed. Therefore, at least for the foreseeable future, plaintiffs in PAGA actions, just like plaintiffs in wage and hour class actions, can require the defendant employers to provide the names and contact information of potentially thousands of current and former employees impacted by the plaintiffs’ PAGA claims.

Ezer Williamson Law – 2016 Year in Review

In 2016, Ezer Williamson continued to achieve excellent results for its clients, opened a second office, and expanded into the area of labor and employment law.

The Firm is excited to announce the completion of our newly remodeled South Bay office and our expanded team, including the addition of Robert C. Hayden, Esq., as Senior Counsel, and Dominique Stango and Heather Domingo, the Firm’s new legal assistants.  The addition of Mr. Hayden, Ms. Stango, and Ms. Domingo reflects both the Firm’s commitment to providing exemplary service to our clients, as well as the growth and success the Firm has experienced throughout the 2015 and 2016 periods.

In 2016, the Firm achieved many favorable outcomes for our clients, including, (1) securing a settlement valued in excess of $1 million for the plaintiff in a commercial lease dispute, (2) resolving claims valued in excess of $20 million stemming from a Federal Multidistrict litigation matter regarding mortgage-backed securities, (3) resolving claims made against a real estate investor by an alleged employee, for less than 1% of the multi-million dollar amount sought, (4) successfully negotiated a complicated settlement transaction of a partnership dispute that included several business entities, and (5) favorably resolved a substantial wage and hour class action brought on behalf of individuals who claimed to be improperly classified as independent contractors rather than employees.

As we look forward to 2017, Ezer Williamson plans to further deepen and expand the services offered to our clients, including growing the Firm’s Labor and Employment practice group, as well as continuing to develop the Firm’s presence in our Century City office.

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.