By David D. Kadue and Simon L. Yang

Remember the Black Knight in Monty Python and the Holy Grail? The overconfident fellow who refuses to desist, even after losing four limbs in combat? Some lawyers are like that.

Although the California Supreme Court in Iskanian (June 23, 2014) upheld employer efforts to force waivers of class-action claims in mandatory arbitration agreements, some plaintiffs’ lawyers say that the real take-away from Iskanian is its holding that those agreements cannot be used to waive an employee’s right to bring representative PAGA actions. Moreover, say these lawyers, PAGA actions are particularly potent for plaintiffs because they are categorically unremovable to federal court, thus permitting the plaintiff to remain in more favorable state court.

So does this mean that Iskanian really was a disaster, signaling a new reign of terror for hapless employers who now must confront “gotcha” claims of obscure wage and hour violations while being subject exclusively to the tender mercies of California Superior Court?

Well, perhaps there are a couple of chinks in the Black Knight’s armor.

First, how solid is the dogmatic view about categorical unremovability of PAGA claims? PAGA cases once were routinely removed to federal court under diversity-of-citizenship jurisdiction, where the defendant employer was a non-California citizen and the amount in controversy exceeded the jurisdictional threshold ($75,000 in an individual action or $5,000,000 in a class action, although PAGA claims need not be brought as class actions). The amount in controversy was often easy to establish, as PAGA penalties mount rapidly: $100 per employee per pay period, even if one counts only the 25% of the penalties that go to the employees (75% go to the State of California).

But recent Ninth Circuit decisions dropped flies in the removal ointment. They rejected the efforts of removing defendants, in calculating the amount in controversy, to aggregate the potential individual recoveries of all the employees the plaintiff purported to represent. These decisions now suggest that one should consider only the PAGA plaintiff’s individual recovery, which would be well below $75,000. And the Ninth Circuit has stated, rather elliptically, that the State of California is not a citizen, suggesting that this observation precludes a finding of diversity of citizenship. Hence the basis for a new conventional wisdom that PAGA claims are categorically unremovable. But is this necessarily so?
Continue Reading After Iskanian, What’s Next For Defending PAGA Actions?