The California Court of Appeal recently issued an opinion that modifies the way in which parties litigate and settle claims brought under California’s Private Attorneys’ General Act (“PAGA”).
In LaCour v. Marshalls of California, the Court of Appeals looked at an overlap between two different lawsuits brought under PAGA by different plaintiffs against the same defendant. The Court addressed whether a settlement and release in the first PAGA case barred the second PAGA claim against the same defendant.
LaCour was a former Loss Prevention Specialist at Marshalls who filed a PAGA action in January 2021. Marshalls argued that all allegations of Labor Code violations predating November 2020 should be stricken because PAGA claims against Marshalls through that date were released in the settlement of an earlier case (Rodriguez). The trial court found that Lecour would be allowed to pursue those claims subject to a time cutoff in the Rodriguez release.
The court accepted Marshalls' argument that, as the California Labor & Workforce Development Agency’s (LWDA) proxy, the first plaintiff had authority to settle. Because of this, and since judgment was entered in her case based on a court-approved settlement, the court ruled that the res judicata effect of the judgment in the first plaintiff's case applied to the Rodriguez settlement release. And because the Rodriguez settlement release covered claims for the relevant period, the court granted the motion to strike to the extent LaCour sought to pursue PAGA recovery for Labor Code violations prior to November 17, 2020. This appeal followed.
The Decision of the Court of Appeals
LaCour argued that the trial court erred by giving res judicata effect to the Rodriguez judgment.
Judge Jon B. Streeter explained in his opinion that unlike issue preclusion, which applies only to issues that were actually litigated, claim preclusion applies not just to what was litigated, but more broadly to what could have been litigated. “Merger” is the idea that, for a winning plaintiff, all claims the plaintiff did raise or could have raised merge into the judgment in his favor. If the plaintiff attempts to litigate any of those claims again, the judgment itself serves as a defense. “Bar” is the idea that a judgment for a winning defendant bars the plaintiff from litigating any claims he brought or could have brought in the prior suit. This case involves the bar aspect of claim preclusion.
California law is clear that a dismissal with prejudice is considered a judgment on the merits preventing subsequent litigation between the parties on the dismissed claim. When an action is dismissed “with prejudice” following a settlement, it means the plaintiff's right of action is terminated and may not be revived. A dismissal with prejudice bars any future action on the same subject matter.
The California Supreme Court has explained that a “cause of action” is based upon the harm suffered, as opposed to the particular theory asserted by the litigant. Even where there are multiple legal theories upon which recovery might be predicated, one injury gives rise to only one claim for relief. Thus, the determinative factor is the harm suffered. When two actions involving the same parties seek compensation for the same harm, they generally involve the same primary right.
The second issue concerns “privity,” a concept which extends the res judicata effect of a prior judgment beyond the parties to their nonparty privies. The Court of Appeals has recognized that in “certain limited circumstances,” a nonparty may be bound by a judgment because she was adequately represented by someone with the same interests who was a party to the suit. These circumstances include representative suits brought on a nonparty's behalf by an agent or proxy, such as this PAGA action.” But with these principles, there are two key questions to decide:
- Under the primary rights test, can we say that the first plaintiff pleaded or could have pleaded the same claims that LaCour now seeks to pursue?
- When the first plaintiff settled her PAGA claims in Rodriguez, was she acting in privity with LaCour?
The Court of Appeals concluded that the answer to both questions is no.
Identity of Claims
Examining at the operative complaint in Rodriguez, Judge Streeter found that the only Labor Code violations embraced by the pleaded PAGA claims in that action focused narrowly on compensation for off-the-clock work during time employees spent undergoing an antitheft bag check procedure at the end of their shifts. That’s the “injury” the first plaintiff allegedly suffered and the hook for her PAGA claim as an “aggrieved employee” on behalf of other Marshalls employees.
While the claim preclusive effect of the Rodriguez judgment may extend beyond the first plaintiff's pleaded claims to claims she could have brought, the judge opined that “if we were to define the ‘injury’ suffered more broadly as her right to be free from any and all Labor Code violations in the course of her employment with Marshalls, one problem Marshalls faced in arguing for such broad preclusive effect was that the first plaintiff's LWDA notice letter tracked her complaint.” It also was limited to off-the-clock work at the end of shifts.
Because the first plaintiff's LWDA notice letter identified nothing more than failure to compensate employees for off-the-clock work at the end of shifts, it was impossible to say she “could have” sued for other violations. Rather than assess what was or could have been properly pleaded in Rodriguez, which was required in order to analyze the primary rights issue, the trial court focused on what was released. The two inquiries aren’t the same, Judge Streeter said.
At issue was the validity of a PAGA settlement releasing claims that were neither listed in the plaintiff's LWDA notice nor pleaded in the complaint. Trial courts “should evaluate … PAGA settlement[s] to determine whether [they are] fair, reasonable, and adequate in view of PAGA's purposes to remediate present labor law violations, deter future ones, and to maximize enforcement of state labor laws.” Because a PAGA claimant may settle a case with judicial approval of the settlement, it’s logical to expect “he or she is authorized to bind the state to a settlement releasing claims commensurate with those that would be barred by res judicata in a subsequent suit had the settling suit been litigated to judgment by the state.”
However, that logic isn’t unavoidable under all circumstances, Judge Streeter said. A subsequent PAGA claimant will identify limitations on a prior settling PAGA claimant's authority that no one had any incentive to bring to the court's attention in the prior case.
Here, the record showed that a settlement release extends beyond the plaintiff's authority to act on behalf of the LWDA, such a settlement will certainly bind the settling PAGA plaintiff by its literal terms. However, any judgment entered pursuant to the settlement will have limited preclusive effect in binding nonparties.
The Court of Appeals held that res judicata doesn’t apply in this case, but with an important caveat. Not only do LaCour's pleaded PAGA claims appear to encompass the first plaintiff's more narrowly focused PAGA claims, but he received a share of the settlement proceeds in Rodriguez following approval of that settlement. He isn’t eligible for double payment on the same Labor Code violations the first plaintiff pursued and resolved in Rodriguez within the scope of her LWDA authority. The judgment entered in favor of Marshalls and the order granting in part Marshalls' motion to strike were reversed. The order overruling Marshalls' demurrer was affirmed. (LaCour v. Marshalls of California, LLC, 1st Appellate District, 8/29/23).
Employers should note that a plaintiff’s PAGA notice letter to the LWDA controls the scope of a lawsuit brought under PAGA and any resulting settlement. Employers looking to resolve claims brought under PAGA should be certain that all factual claims that they intend to include in a settlement are detailed in the plaintiff’s notice letter to the LWDA.