Business, California Labor and Workforce Development Agency, Hobby Lobby ruling, Legal and Law, Private Attorneys General Act

A PAGA Victory to Bring in the New Year: Trial Court Holds LWDA Responsible for Prevailing Employer’s Costs

SAN FRANCISCO, Calif. -- Last week a trial court in Alameda County entered an order permitting Hobby Lobby Stores, Inc. to recover nearly $125,000 in costs from the California Labor and Workforce Development Agency (LWDA). Hobby Lobby incurred these costs during six years of hard-fought litigation involving claims brought under California's Private Attorneys General Act (PAGA), CDF Labor Law LLP announced today.

The lawsuit was based on allegations that Hobby Lobby failed to allow retail store workers to use suitable seats while they were working. Since the outset of the case in 2017, Hobby Lobby maintained that the placement of seats in retail stores and the use of seats by working employees would create a risk of injury. The lawsuit culminated in a three-week bench trial in February and March of 2023, which resulted in a complete victory for Hobby Lobby. The trial court filed its order requiring the LWDA to pay for Hobby Lobby's costs after several rounds of briefing related to the matter in which both the plaintiff and the State of California attempted to avoid any accountability for the failed PAGA claim.

CDF Labor LLP partners Brent M. Giddens and Corey J. Cabral, Chair of CDF's PAGA Litigation Practice, represented Hobby Lobby in this lawsuit since the time it was filed in 2017, at trial, and through the present.

Plaintiff's Effort to Avoid Liability for Costs

After judgment was entered in Hobby Lobby's favor, the company sought to recover its costs as the prevailing party. California's general cost shifting rule, set forth in Code of Civil Procedure (CCP) section 1032, provides that prevailing parties are entitled to recover their costs as a matter of right unless "otherwise expressly provided by statute." Recoverable costs are determined by statute. A prevailing party can only recover attorney fees as a recoverable cost if authorized by statute that "refers to the award of 'costs and attorney's fees.'" (CCP §§ 1033.5(a)(10)(B) and 1033.5(c)(5).)

Plaintiff responded to Hobby Lobby's effort to recover of costs by filing a motion to tax. Therein, she argued that the PAGA's attorney fee and cost provision, Labor Code section 2699(g)(1), serves as an exception to California's general cost shifting rule. The PAGA's fee and cost provision states, "Any employee who prevails in any action shall be entitled to an award of reasonable attorney's fees and costs." Plaintiff also argued that public policy prohibits the recovery of costs by defendant-employers that successfully defend PAGA claims. She claimed that making PAGA plaintiffs liable for an employer's costs would have a "chilling effect" on PAGA litigation and undermine its purpose.

Hobby Lobby's Request to Recover Costs from the LWDA

Hobby Lobby opposed Plaintiff's motion to tax, demonstrating that PAGA's fee and cost provision is not an express exception to the general cost shifting rule. It merely establishes that attorney fees are a recoverable cost for prevailing employees; it does not foreclose a prevailing employer from recovering its costs. As for Plaintiff's public policy arguments, Hobby Lobby made the novel argument that the LWDA is responsible for an employer's costs resulting from an unsuccessful PAGA lawsuit. The company's argument was predicated on the unique relationship between a PAGA plaintiff and the LWDA. Specifically, in any PAGA lawsuit, the LWDA is the "real party in interest," the plaintiff serves as a "proxy" or "agent" of the LWDA, and the plaintiff has no personal right or interest at stake. And the LWDA retains "primacy over private enforcement efforts." Moreover, the California Supreme Court and Courts of Appeal have held that PAGA does not violate constitutional separation of powers requirements because the LWDA retains sufficient control over PAGA litigation to render it a constitutional delegation of authority.

Just three days after Hobby Lobby filed its opposition-before the matter was fully briefed-the trial court weighed in on the matter. The court entered an order continuing the hearing date for plaintiff's motion to tax, inviting the LWDA to file an amicus brief, and setting a schedule for supplemental briefing. The trial court requested that the LWDA and the parties address several topics, including the reciprocity of benefit and burden as it applies to the LWDA and factual information about the dollar value of civil penalties the LWDA collected through PAGA cases.

The LWDA's Response to the Trial Court's Order

The LWDA declined to file an amicus brief and, instead, enlisted the Department of Labor Standards Enforcement (DLSE) to intervene on its behalf. The DLSE argued that it had a right to intervene on behalf of the LWDA because it was authorized to administer the PAGA pursuant to delegations from the LWDA and the Department of Industrial Relations, and because the LWDA had a material interest in the outcome of the trial court's decision of allocation of liability for Hobby Lobby's costs. However, as discussed further below, the DLSE parroted Plaintiff's arguments that no employer may recover costs resulting from a failed PAGA action.

Hobby Lobby opposed the DLSE's intervention, arguing that it was an unnecessary procedural tactic aimed at precluding the LWDA's liability for "pre-intervention costs." The trial court ultimately granted the DLSE's request to intervene but noted that the intervention-status "will not determine the substantive issue of whether the LWDA is responsible for the costs."

The DLSE then filed a brief in support of Plaintiff's motion to tax costs and agreeing with Plaintiff's argument that employers have no right to recover costs as a prevailing party in a PAGA lawsuit. The DLSE claimed that the trial court should interpret the PAGA's fee and cost provision as a "one-way cost shifting" provision akin to that in California's minimum wage laws. The DLSE did not address the value of civil penalties the LWDA collected through PAGA cases. Nonetheless, the DLSE's argument relied on the oft-cited legislative purpose of the PAGA-to supplement and increase enforcement of the Labor Code by public agencies which lack adequate resources. Moreover, the DLSE disavowed the LWDA's control over PAGA litigation. The DLSE went as far as to claim the "LWDA cannot prevent an aggrieved employee from pursuing a PAGA claim that it would not otherwise prosecute."

CDF's Public Records Requests

When the trial court invited the LWDA's amicus brief and requested financial information about PAGA civil penalties, Hobby Lobby's counsel doubted the DLSE would provide the information. Accordingly, soon after the trial court invited the LWDA's amicus brief, the firm submitted Public Record Act requests to the LWDA seeking financial information related to PAGA litigation, including the amount of civil penalties the LWDA recovered in recent years. In doing so, the firm obtained evidence that undermines the oft-cited and out-of-date findings that the LWDA has "scarce" or "limited" resources.

As anticipated, the evidence established that the LWDA has received a staggering amount of civil penalties from PAGA litigation. In just the last three fiscal years, the LWDA has received approximately $375 million in civil penalties. The evidence also demonstrated the funds were not being used as required under PAGA. Specifically, Labor Code section 2699(i) states that the civil penalties received by the LWDA are "for enforcement of labor laws, including the administration of this part, and for education of employers and employees about their rights and responsibilities under this code, to be continuously appropriated to supplement and not supplant the funding to the agency for those purposes." The LWDA's records indicate the PAGA funds have been used to make a $107,000,000 "loan" to the General Fund, to supplant funding to the agency's various departments, and other non-enforcement uses. However, many of the funds are simply not allocated to any use and remain in the Labor and Workforce Development Fund.

Hobby Lobby's Supplemental Briefing

In its supplemental briefing, Hobby Lobby buttressed its arguments that the PAGA's fee and cost shifting provision can only be interpreted as authorizing prevailing employees to recover attorney's fees as a cost under CCP sections 1032, 1033.5(a)(10)(B), and 1033.5(c)(5). The PAGA's fee and cost provision does not displace California's general cost shifting rule, and it is not a "one-way cost shifting" provision, as claimed by Plaintiff and the DLSE. Further, Hobby Lobby established that although the LWDA is not a formal party to PAGA litigation, it is the only "real party in interest" to a PAGA claim, and it has control over PAGA litigation. Hobby Lobby cited to the Legislature's delegation of authority to the LWDA to promulgate regulations under PAGA, the PAGA's notice provisions, and the LWDA's efforts to intervene in and control the resolution of other PAGA cases. Moreover, it is well established that if the LWDA directly enforced the Labor Code by filing an action and the employer prevailed, the LWDA would be liable for the employer's costs.

Hobby Lobby argued that the LWDA's failure to exercise control over PAGA litigation does not render it powerless to do so-the LWDA has both available methods and the means to control PAGA claims and prevent wasteful litigation. To that point, Hobby Lobby maintained that "the significant amount of money the LWDA has received as a result of PAGA settlements and judgments in just the last few years should preclude the DLSE (and, frankly, all California courts) from continuing to rely on the oft-repeated notion that PAGA should be construed and applied with the understanding that the 'LWDA lacks adequate staffing and resources...' " Furthermore, Hobby Lobby demonstrated the if the LWDA did lack the ability to exercise such control over PAGA litigation, the statute would be subject to constitutional challenges based on a complete delegation of the LWDA's enforcement discretion to private attorneys.

The Trial Court's Order and Anticipated Appeals

The trial court agreed with Hobby Lobby at every turn and, on December 28th, it issued a 35-page, full-throated order roundly rejecting the DLSE's arguments. You can find a copy of the order here - https://www.callaborlaw.com/_images/blog_files/2023.12.28_Order_Granting_in_Part_Motion_of_Plaintiff_to_Strike_.pdf.

This appears to be the first occasion on which the LWDA has been found liable for the costs of a prevailing employer in a PAGA case.

Although the LWDA will undoubtedly appeal the decision-just as plaintiff appealed the trial court's judgment on the merits-we are confident that the trial court's analysis and decision will withstand scrutiny. While the effect of this order is yet to be seen, we believe it is a significant victory for California employers. One can reasonably suspect that the LWDA will begin taking a more active role in the PAGA notice process and any subsequent litigation to prevent, or put a stop to, the more frivolous and wasteful PAGA lawsuits that have been burdening employers and causing economic waste across the state.

Employers faced with PAGA claims can now implement strategies during the PAGA's notice period that may increase the chances of preventing a lawsuit and litigation strategies that will increase the likelihood of an earlier and more favorable resolution. But, if forced to defend unwarranted PAGA claims, employers should be able to hang their hat on actually recovering their litigation costs because the LWDA clearly has the funds to pay for them, unlike a judgment-proof plaintiff.

About CDF Labor Law LLP

For close to 30 years, CDF Labor Law LLP has distinguished itself as one of the top labor and employment defense firms in California, representing employers in single-plaintiff and class action lawsuits, and advising employers on related legal compliance and risk avoidance. The firm has five offices throughout California - in Sacramento, San Francisco, Los Angeles, Orange County and San Diego.

For more information, visit: https://www.cdflaborlaw.com/ and find CDF on LinkedIn or Twitter to learn more about how the firm protects California employers.

Related link: https://www.cdflaborlaw.com/

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