Joseph Baumann v. Chase Investment Services Corp, et al

Filing

FILED OPINION (MICHAEL DALY HAWKINS, SIDNEY R. THOMAS and ANDREW D. HURWITZ) REVERSED AND REMANDED. Judge: SRT Concurring, Judge: ADH Authoring. FILED AND ENTERED JUDGMENT. [9013877]

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FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

JOSEPH BAUMANN, individually, and
on behalf of other members of the
general public similarly situated,
Plaintiff-Appellant,

No. 12-55644
D.C. No.
2:11-cv-06667GHK-FMO

v.
CHASE INVESTMENT SERVICES
CORP., a Delaware corporation;
JPMORGAN CHASE BANK NA;
JPMORGAN CHASE & CO., a
Delaware corporation,
Defendants-Appellees.

OPINION

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.

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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.

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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

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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.

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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—

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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.

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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

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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

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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

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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;

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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).

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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).

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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 1003276 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

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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).

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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
INSTRUCTIONS.

AND

REMANDE D

WI T H

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

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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.

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