In Baumann v. Chase Investment Services Corp., ___ F.3d ___ (9th Cir. March 13, 2014), the Ninth Circuit Court of Appeals reversed the order of the U.S. District Court for the Central District of California (Judge King) denying plaintiff’s motion to remand and action that had been removed from state court under the Class Action Fairness Act (“CAFA”).

Plaintiff sued defendant employer in California superior court under the state Private Attorney General Act (“PAGA”), alleging that defendant had failed to pay him and other financial advisors for overtime, meal and rest period premiums and expenses.  The complaint explicitly stated that plaintiff’s potential share of any penalties recovered and attorneys’ fees would be less than $75,000.

Defendant removed the action to federal court on diversity jurisdiction grounds, 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, alleging minimal diversity, a class of more than 100 members, and an amount in controversy exceeding $5,000,000.  The district court denied plaintiff’s motion to remand and plaintiff appealed.

The sole question presented on appeal was whether the district court had subject matter jurisdiction over the action.  The appellate court concluded that it did not.  First, the court noted that potential PAGA penalties from unpaid overtime and other wage and hour violations may not be aggregated to meet the minimum amount in controversy requirement for diversity jurisdiction.  Second, the court ruled that a district court may not exercise original jurisdiction over a PAGA action under CAFA (over which federal courts do have original jurisdiction), finding that PAGA actions are not sufficiently similar to Rule 23 class actions.

Although, the court noted, all of the requirements for original jurisdiction were met, PAGA actions are “fundamentally different” from class actions.  First, unlike class actions, “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 . . . .”  Also, PAGA contains no requirements of numerosity, commonality, or typicality, as do class actions.  “In addition, the finality of PAGA judgments differs distinctly from that of class action judgments in that class members who decline to opt out of a judgment are bound by it whereas under PAGA, “employees retain all rights ‘to pursue or recover other remedies available under state or federal law . . . .’”  Finally, the nature of PAGA penalties is “markedly different than damages sought in Rule 23 class actions” because PAGA actions “primarily seek to vindicate the public interest in enforcement of California’s labor law,” as opposed to providing restitution.