LILIANA CANELA, individually and on behalf of all others similarly situated, Plaintiff-Appellee, v. COSTCO WHOLESALE CORPORATION, Defendant-Appellant.
No. 18-16592
United States Court of Appeals for the Ninth Circuit
July 9, 2020
D.C. No. 5:13-cv-03598-BLF
Opinion by Judge Wallace
UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
Appeal from the United States District Court for the Northern District of California
Beth Labson Freeman, District Judge, Presiding
Argued and Submitted January 6, 2020
San Francisco, California
Filed July 9, 2020
Before: J. Clifford Wallace and Michelle T. Friedland, Circuit Judges, and Timothy Hillman,* District Judge.
Opinion by Judge Wallace
* The Honorable Timothy Hillman, United States District Judge for the District of Massachusetts, sitting by designation.
SUMMARY**
Diversity Jurisdiction / Class Action Fairness Act
The panel vacated the district court‘s summary judgment with instructions to remand to state court because the district court lacked subject matter jurisdiction at the time the action was removed to federal court.
Plaintiff, a Costco Wholesale Corporation employee, filed a state class action complaint alleging that Costco violated
Concerning traditional diversity jurisdiction, the panel held that the amount in controversy did not meet the statutory threshold at the time of removal. Because the named plaintiff‘s pro-rata share of civil penalties, including attorney‘s fees, totaled $6,600 at the time of removal, and the claims of other employees could not be aggregated with hers under Urbino v. Orkin Services of California, Inc., 726 F.3d 1118 (9th Cir. 2013), the requisite $75,000 jurisdictional threshold was not met. Accordingly, the district court lacked diversity jurisdiction at the time of removal.
** This summary constitutes no part of the opinion of the court. It has been prepared by court staff for the convenience of the reader.
The panel held that the district court also lacked subject matter jurisdiction under CAFA because plaintiff‘s standalone PAGA lawsuit was not, and could not have been, filed under a state rule similar to Rule 23 of the Federal Rules of Civil Procedure. The panel held that the holding in Baumann v. Chase Investment Services Corp., 747 F.3d 1117, 1122 (9th Cir. 2014), that “PAGA actions are [] not sufficiently similar to Rule 23 class actions to trigger CAFA jurisdiction,” controlled the outcome of this appeal. The panel rejected Costco‘s argument that because the named plaintiff originally sought class status in her complaint, her case was filed as a class action within the meaning of CAFA. The panel also rejected Costco‘s argument that the decisions in Mississippi ex rel. Hood v. AU Optronics Corp., 571 U.S. 161 (2014), and Hawaii ex rel. Louie v. HSBC Bank Nevada, N.A., 761 F.3d 1027 (9th Cir. 2014), compelled a different result.
COUNSEL
Kiran Aftab Seldon (argued), David D. Kadue, James M. Harris, and Emily Schroeder, Seyfarth Shaw LLP, Los Angeles, California; William J. Dritsas, Seyfarth Shaw LLP, San Francisco, California; for Defendant-Appellant.
Michael Rubin (argued) and Andrew Kushner, Altshuler Berzon LLP, San Francisco, California; Kevin J. McInerney, Reno, Nevada; for Plaintiff-Appellee.
Richard J. Simmons, Sheppard Mullin Richter & Hampton LLP, Los Angeles, California; Paul S. Cowie and John D. Ellis, Sheppard Mullin Richter & Hampton LLP, San Francisco, California; for Amici Curiae Employers Group and California Employment Law Council.
OPINION
WALLACE, Circuit Judge:
Costco Wholesale Corporation appeals from the district court‘s summary judgment in favor of Liliana Canela. We have appellate jurisdiction under
I.
Costco is a nationwide retail chain that sells merchandise and offers services to registered members. To verify that those entering its warehouses are members, Costco hires greeters to stand near the entrance where customers display their membership card. Costco also hires exit checkers to stand near the exit and check customers’ purchases against their receipts. Costco classifies its greeters and exit checkers as “member service” employees.
Canela worked as a greeter and exit checker at two of Costco‘s warehouses in California. She sued Costco in a state trial court in California, alleging that Costco had violated
Relying on both the federal diversity statute, see
About a year later, Canela notified the district court that she no longer planned to seek class status. Canela suggested that the district court lacked jurisdiction because her PAGA claim was always a “representative action” and could have never been brought as a “class action” under CAFA. In light of Canela‘s submission, the district court ordered the parties to brief the issue of its jurisdiction. Because Canela had denominated her lawsuit as a “class action” and had sought class status on her PAGA claim as of the time the case was removed from state court, the district court concluded that it had retained CAFA jurisdiction even though Canela had later decided not to pursue class certification.
Costco then moved for partial summary judgment, contending that without a certified class, Canela lacked Article III standing to represent absent aggrieved employees and could not represent absent “aggrieved employees” under
Costco swiftly moved to certify an interlocutory appeal under
II.
“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
“We review de novo a district court‘s denial of a motion to remand to state court for lack of federal subject matter jurisdiction.” Chapman v. Deutsche Bank Nat‘l Tr. Co., 651 F.3d 1039, 1043 (9th Cir. 2011) (citation omitted). We review the “construction, interpretation, or applicability” of CAFA de novo. Bush v. Cheaptickets, Inc., 425 F.3d 683, 686 (9th Cir. 2005) (citation omitted). Removal is to be “strictly construed,” and a “defendant seeking removal has the burden to establish that removal is proper,” with “any doubt resolved against removability.” Luther v. Countrywide Home Loans Servicing LP, 533 F.3d 1031, 1034 (9th Cir. 2008) (citations omitted).
In removing the case, Costco invoked two independent bases for federal subject matter jurisdiction: diversity under section 1332(a) and CAFA jurisdiction. We address each in turn.
A.
Traditional diversity jurisdiction requires complete diversity of citizenship and an amount in controversy greater than $75,000.
We hold that the amount in controversy did not meet the statutory threshold at the time of removal. Our decision in Urbino v. Orkin Services of California, Inc., 726 F.3d 1118 (9th Cir. 2013), controls.
In Urbino, the plaintiff employee had brought a representative PAGA cause of action in state court. Id. at 1121. The defendants removed the case to federal court, submitting evidence that the alleged labor code violations involved over 800 other employees and over 17,000 paychecks, thereby establishing that the aggregated claims exceeded $75,000. Id. If the claims could be aggregated among all employees with potential claims, the civil penalties for the alleged violations exceeded $9,000,000, well above the $75,000 threshold. Id. However, with no aggregation, the action fell short of the $75,000 threshold because the named plaintiff‘s pro rata share was only a little over $11,000. Id.
The question before us was therefore whether the penalties of all employees could be aggregated to satisfy the amount in controversy requirement. Id. We concluded that PAGA civil penalties could not be aggregated for this purpose, and therefore that the district court lacked diversity jurisdiction. Id. at 1122–23.1
B.
We next turn to the question whether the district court had CAFA jurisdiction. CAFA “relaxed” the diversity requirements for putative class actions. Dart Cherokee Basin Operating Co., LLC v. Owens, 574 U.S. 81, 84 (2014). Under CAFA, federal courts have jurisdiction over a “class action” when the parties are minimally diverse, i.e., any member of a class of plaintiffs is a citizen of a state different from that of any defendant, and the amount in controversy exceeds $5,000,000, see
The proposed “class” here is made up of at least 100 members and Canela‘s citizenship (California) is diverse from Costco‘s (Washington). Although the parties dispute whether the amount in controversy exceeded $5,000,000 at the time of removal, see
CAFA defines a “class action” as “any civil action filed under Rule 23 of the Federal Rules of Civil Procedure or similar State statute or rule of judicial procedure authorizing an action to be brought by 1 or more representative persons as a class action.”
In resolving this issue, we do not write on a clean slate. We have observed that there is “no ambiguity in CAFA‘s definition of class action.” Washington v. Chimei Innolux Corp., 659 F.3d 842, 848 (9th Cir. 2011). If Congress had “intended CAFA to apply to any representative actions demonstrating sufficient similarity to class actions under Rule 23, it would not have also included an explicit requirement that the suit be brought ‘as a class action.‘” Id.,
CAFA therefore requires “that the state statute authorize the suit ‘as a class action‘” and that the suit meet “the central requirements of class actions.” Id. Although “suits [that] lack the defining attributes of true class actions” may be “representative actions,” they are not “class actions” under CAFA. Id. at 848, 850.
We expounded on this language a few years later in Baumann. 747 F.3d 1117 (9th Cir. 2014). We explained that a state statute or rule is similar to Rule 23 if it “closely resembles” it “or is like Rule 23 in substance or in essentials.” Id. at 1121, quoting W. Va. ex rel. McGraw v. CVS Pharmacy, Inc., 646 F.3d 169, 174 (4th Cir. 2011) (emphasis added).
We observed that in a PAGA suit, “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....” Id. (citations omitted). In addition, “unlike Rule 23(a), PAGA contains no requirements of numerosity, commonality, or typicality.” Id. at 1123, citing Purdue Pharma L.P. v. Kentucky, 704 F.3d 208, 216–17 (2d Cir. 2013) (holding that the suit was not filed as a “class action” under CAFA because it contained none of the “hallmarks of Rule 23 class actions; namely, adequacy of representation, numerosity, commonality, typicality, or the requirement of class certification“); CVS Pharmacy, Inc., 646 F.3d at 175–76 (same).
We also explained that unlike the due process protections afforded to putative class members under Rule 23, “PAGA has no notice requirements for unnamed aggrieved employees, nor may such employees opt out of a PAGA action.” Baumann, 747 F.3d at 1122. As a result, the preclusive effect of PAGA judgments differs from that of class action judgments in two important ways. Id.
First, unlike a class action, a judgment from a PAGA suit “binds all those, including nonparty aggrieved employees, who would be bound by a judgment in an action brought by the government.” Arias, 209 P.3d at 933. So, “with respect to the recovery of civil penalties, nonparty employees as well as the government are bound by the judgment in an action brought under” PAGA, without an opportunity to opt out. Iskanian v. CLS Transp. L.A., LLC, 327 P.3d 129, 147 (Cal. 2014).
Second, unlike class action judgments that preclude all claims the class could have brought under traditional res judicata principles, employees retain all rights “to pursue or recover other remedies available under state or federal law” in PAGA judgments. Baumann, 747 F.3d at 1123, quoting
We also highlighted the different remedial schemes that exist in Rule 23 class actions and PAGA suits. “In class actions, damages are typically restitution for wrongs done to class members.” Baumann, 747 F.3d at 1123. In contrast, PAGA suits “primarily seek to vindicate the public interest in enforcement of California‘s labor law.” Id. (citations omitted). While 75 percent of the recovered civil penalties in a PAGA action is distributed to the Labor and Workforce Development Agency (Agency), only 25 percent is allocated among aggrieved employees. Id. at 1121, citing
Costco attempts to distinguish Baumann because the complaint there, unlike the one here, “did not invoke the California class action statute.” Baumann, 747 F.3d at 1121. In Costco‘s view, because Canela originally sought class status in her Complaint, her suit was filed as a “class action” under CAFA.
We recognize that Canela titled her Complaint “Class Action Complaint for Violations of the Private Attorneys General Act of 2004.” In the caption page, Canela also referred to the Complaint as “a class and representative
action.” The footer of her Complaint refers to the document as a “Class Action Complaint.”
We also acknowledge that Canela suggested that the nature of her lawsuit was a “class action.” In her Complaint, Canela stated that she sued “individually and on behalf of all others similarly situated” as “a class action ... for the recovery of civil penalties ... pursuant to” PAGA. Canela claimed to represent a putative “class” of all “employees of Costco who ... within the applicable period ... have been designated as member service and have, within California, been assigned to work either as a greeter or as an exit checker, and were not provided with a seat.” Canela also alleged that her proposed class satisfied the requirements of a class in California.
But these labels and allegations do not transform her PAGA cause of action into one filed under a “similar State statute or rule of judicial procedure authorizing an action to be brought by 1 or more representative
We declined to adopt a formalistic test in Chimei. We explained that “it is not only that parens patriae suits are not ‘labeled class actions,’ it is that they also lack statutory requirements for numerosity, commonality, typicality, or adequacy of representation that would make them sufficiently ‘similar’ to actions brought under Rule 23....” Chimei, 659 F.3d at 850 (emphasis added). Thus, for a case to be removable under CAFA, the “state action must be filed under a statute that ... authorizes an action ‘as a class action.‘” Id. at 849, quoting
We also rejected a formalistic test in Baumann. We held there that the PAGA statute was not a state statute similar to
Both holdings comported with the proper “statutory construction” of CAFA. Id.; Chimei, 659 F.3d at 847. To hold otherwise would, “for CAFA jurisdictional purposes ... exalt form over substance,” which the Supreme Court has instructed us not to do. Standard Fire Ins. Co. v. Knowles, 568 U.S. 588, 595 (2013).
Costco argues that the United States Supreme Court‘s decision in Mississippi ex rel. Hood v. AU Optronics Corporation, 571 U.S. 161 (2014), and our decision in Hawaii ex rel. Louie v. HSBC Bank Nevada, N.A., 761 F.3d 1027 (9th Cir. 2014), compel a different result. We disagree.
In AU Optronics, the Supreme Court resolved the different question whether a lawsuit filed by a state was a “mass action” under CAFA even though the claim was based on injuries suffered by citizens who were not named plaintiffs. AU Optronics Corp., 571 U.S. at 164, quoting
AU Optronics did not address the district court‘s and court of appeal‘s separate “determination that Mississippi‘s suit is not a ‘class action’ under CAFA” because that determination was never challenged. Id. at 167 & n.2. In fact, the Supreme Court distinguished between the “two types of cases” included in CAFA. See id. at 165 (observing that, for purposes of CAFA, “class action” is defined in section 1332(d)(1)(B) and “mass action” is defined in section 1332(d)(11)(B)(i)). The Supreme Court rejected the argument that the case was filed as a “mass action” because it was “‘similar to a class action’ such that it should be removed[,]” as that view “fail[ed] to recognize this key distinction” between a “mass action” and a “class action.” Id. at 173. AU Optronics therefore says nothing about the meaning of a “class action” under CAFA.
Nor does the reasoning in AU Optronics support Costco‘s theory here. In holding that the case was not a “mass action,” the Court primarily relied on the statutory text of CAFA. Id. at 168–74. By contrast, the plain meaning of a “class action” under CAFA requires that a state
We acknowledge that AU Optronics rejected an inquiry into the “substance of the action,” and instead selected one that looks “only at the labels that the parties may attach.” Id. at 174, quoting La. ex rel. Caldwell v. Allstate Ins. Co., 536 F.3d 418, 424 (5th Cir. 2008), abrogated by AU Optronics Corp., 571 U.S. at 174. However, that rationale has no significance here.
To begin with, the plain meaning of “class action” under CAFA controls, even if a conflicting “background principle” would otherwise apply. Id. Consistent with the statutory text, we evaluate the “substance and essentials” when deciding whether a state cause of action is filed
The “background principle” that the Supreme Court discussed in AU Optronics—that the “real party in interest inquiry identifies what party‘s (or parties‘) citizenship should be considered in determining diversity,” id. at 175—does not apply here. The question here is not whether the parties are minimally diverse. There is no dispute that they are. Instead, we are asked to decide whether this stand-alone PAGA lawsuit was filed under a state rule or statute similar to Rule 23. For the reasons we outlined in Baumann, we conclude that it was not.5
We are also not persuaded by Costco‘s suggestion that our decision in HSBC Bank affects our analysis. We held there that a complaint that disclaimed class status was not filed as a suit similar to a class action. 761 F.3d at 1042. We declined to “ignore [the class] disclaimers and transmogrify the[] suits into class actions.” Id. at 1039.
In explaining this point, we said that the “appropriate inquiry is ... whether a complaint seeks class status.” Id. at 1040. We also said that “a plaintiff files a class action for CAFA purposes by invoking a state class action rule, regardless of whether the putative class ultimately will be
certified.” Id., quoting United Steel Workers Int‘l Union v. Shell Oil Co., 602 F.3d 1087, 1091–92 (9th Cir. 2010). Costco interprets this language to suggest that what matters is whether a plaintiff formally makes class allegations. We disagree.
It is clear that, in context, we meant to convey the point that a cause of action filed as and authorized as a class action under state law is a “class action” under CAFA, even if, after discovery or litigation of the class certification question, the cause of action might not be certifiable. Here, though, the question is whether a PAGA cause of action could have ever, as a matter of law and without any need for discovery into the facts, been filed as a class action. On the face of the Complaint, we hold that it could not have been.
The cases on which we relied in the course of making these observations confirm this reading. We cited United Steel, in which we discussed whether “post-filing developments ... defeat jurisdiction if jurisdiction was properly invoked as of the time of filing,” and not whether deficiencies with the complaint could do so. 602 F.3d at 1091–92. We also relied on the
But our holding here is wholly consistent with the principle that “if jurisdiction exists at the time an action is commenced, such jurisdiction may not be divested by subsequent events.” Freeport-McMoRan, Inc. v. K N Energy, Inc., 498 U.S. 426, 428 (1991) (per curiam). We therefore reject Costco‘s argument to supplant our substantive test with one that considers
Costco next argues that even if we were to consider the “substance and essentials” of Canela‘s PAGA claim, we ought to hold that there is CAFA jurisdiction because a PAGA cause of action could be brought as a class action in California. Costco relies on Arias v. Superior Court, in which the California Supreme Court suggested that PAGA causes of action could possibly be brought as class actions. See 209 P.3d at 930 n.5. We disagree.
The Arias footnote on which Costco relies is dicta. In Arias, which was decided soon after PAGA was enacted, the California Supreme Court held that a PAGA cause of action need not be brought as a class action. Id. at 930. In a footnote, the California Supreme Court said that PAGA actions “may be brought as class actions.” Id. at 930 n.5. In support of this proposition, the California Supreme Court cited Amaral v. Cintas Corp. No. 2, 78 Cal. Rptr. 3d 572, 583–84 (Ct. App. 2008). However, Amaral had proceeded as a class action without the parties’ or California‘s intermediate appellate court‘s addressing whether the PAGA claim could be brought as a class action. Id. In context, the Arias footnote was an observation that parties had been filing PAGA claims as class actions, rather than a pronouncement that PAGA claims could actually be brought as class actions.
But even if the footnote in Arias left open the question whether there is such a thing as a PAGA class action, the California Supreme Court has since definitively rejected that view. In Kim v. Reins International California, Inc., 459 P.3d 1123 (Cal. 2020), the California Supreme Court addressed whether “aggrieved employees” lose standing to pursue a PAGA cause of action after settling their individual claims for Labor Code violations. Id. at 1126–27. Kim held that the settlement and dismissal of individual Labor Code claims did not strip an employee of standing to bring a PAGA claim as an authorized representative of the State of California. See id. In reaching this conclusion, Kim emphasized that a PAGA cause of action cannot be a class action. Id. at 1130.
Looking first at the statutory text, Kim observed that “PAGA standing is not inextricably linked to the plaintiff‘s own injury.” Id. Examining the statutory purpose, Kim confirmed the point that “PAGA claims are different from conventional civil suits.” Id.
Most significantly for our purposes, Kim then explained that a PAGA claim is different from a class action. Although a
Kim also analyzed the statutory context of stand-alone PAGA claims, acknowledging that “many PAGA actions consist of a single cause of action seeking civil penalties.” Id. at 1132. Kim observed that “courts have rejected efforts to split PAGA claims into individual and representative components.” Id. (citing cases). Thus, standing for “PAGA-only cases cannot be dependent on the maintenance of an individual claim because individual relief has not been sought.” Id. (emphasis added).
Kim confirms that Canela, as an aggrieved employee, has no individual claim of her own and is not seeking individual relief. See ZB, N.A. v. Superior Ct., 448 P.3d 239, 250 (Cal. 2019). Instead, Canela‘s PAGA suit is a type of qui tam action. As the only real party in interest, the State of California received notice from Canela, as was required by law, before she filed this suit. See
For these reasons, a PAGA claim cannot be brought as a “class action” under CAFA. CAFA jurisdiction was therefore lacking at the time of removal.
IV.
The district court lacked diversity jurisdiction under section 1332(a). The district court also lacked subject matter jurisdiction under CAFA because Canela‘s stand-alone PAGA lawsuit was not, and could not have been, filed under a state rule similar to a Rule 23 class action. The district court erred by not remanding the case to state court. Thus, the district court‘s summary judgment is
VACATED WITH INSTRUCTIONS TO REMAND TO STATE COURT.