Court of Appeal Issues Class Settlement Decision, Including PAGA Settlement Issue

Nordstrom Commission Cases (June 10, 2010, publication ordered July 7, 2010) 186 Cal.App.4th 576, is another case dealing with class action settlement approval. To my knowledge, it is the first one dealing with settlement of PAGA claims, although it does so without much detailed discussion.

The plaintiffs alleged that Nordstrom's policy of paying net sales commissions to its commissioned sales employees violated Labor Code sections 221 and 203 of the Labor Code. The parties settled for $6.405 million in cash and $2.5 million in Nordstrom merchandise vouchers. The trial court approved the settlement, and an objector appealed. The Court of Appeal affirmed.

The objector argued that the settlement was insufficient because it did not include or "grossly undervalued" the class members' waiting time penalties under Labor Code section 203. The Court rejected this argument:

The trial court's order overruling Taylor's objections specifies that the section 203 claims were "pleaded, demands made, and then penalty issues considered throughout the lengthy settlement negotiations. It is clear from the evidence presented too, that issues of purported 'willfulness' under section 203 and the difficulty of proof of that issue in light of the 'good faith dispute' requirement were evaluated and considered."

Id. at 584. The Court noted that Nordstrom had raised several arguments that it had acted in good faith. "[T]here was a good faith dispute regarding whether and when commission wages were due. The trial court did not abuse its discretion in determining that the class's case regarding section 203 penalties was not strong, and therefore deciding the terms of the settlement were fair, adequate, and reasonable." Id. at 587. Distinguishing Clark v. American Residential Services LLC (2010) 175 Cal.App.4th 785, the Court held that the trial court "did consider a substantiated explanation of the strengths and weaknesses of the class's claims, as well as the potential total recovery by the class under various damage theories." Id. at 588. (See our post on Clark here.)

The objector next argued that the settlement was insufficient because it did not allocate any amount to PAGA penalties. "Taylor argues the Nordstrom Commission Cases settlement 'effectively nullifies PAGA by failing to include PAGA penalties and purporting to settle all of the claims of the class members.'" Id. at 589. The Court rejected this argument. Unfortunately, its analysis is Spartan at best:

The Nordstrom Commission Cases settlement agreement identifies liability for PAGA penalties as a claim against Nordstrom and includes the following language: “The Parties allocate $0 to any Private Attorneys General Act penalty claim under Labor Code § 2699 et seq. , for penalty claims based on the Released Claims. During the Class Period, Nordstrom paid Putative Class Members' commissions pursuant to a commission plan that it contends was approved by the United States District Court in Rios, and consequently, Nordstrom contends no claim for penalties of any nature is valid.” Thus, the PAGA penalty claims were at issue, and were resolved as a part of the overall settlement of the case. We find no abuse of discretion in the trial court's approval of the settlement agreement containing these terms.

The cases Taylor cites are inapposite, at best. In Franco v. Athens Disposal Co., Inc. (2009) 171 Cal.App.4th 1277, 1300, 90 Cal.Rptr.3d 539, the appellate court held: “The Legislature has made clear that an action under the PAGA is in the nature of an enforcement action, with the aggrieved employee acting as a private attorney general to collect penalties from employers who violate labor laws. Such an action is fundamentally a law enforcement action designed to protect the public and penalize the employer for past illegal conduct.” The case did not address whether a settlement agreement could allocate zero dollars to PAGA penalties, however. The case stands only for the proposition that an individual arbitration agreement is invalid to the extent it purports to prevent an employee plaintiff from acting in a private attorney general capacity. (Franco v. Athens Disposal Co., Inc., supra, 171 Cal.App.4th at p. 1282, 90 Cal.Rptr.3d 539.)

Taylor also cites Waisbein v. UBS Fin. Servs. Inc. (N.D.Cal. Aug. 15, 2007, No. C-07-02328 MMC) 2007 WL 2348699, 2007 U.S.Dist. Lexis 62723. That United States District Court order, however, was vacated by a later order which directly contradicts Taylor's arguments on appeal. (Waisbein v. UBS Fin. Servs. Inc. (N.D.Cal. Dec. 5, 2007, No. C-07-2328 MMC) 2007 WL 4287334 at p. *3, 2007 U.S.Dist. Lexis 92051 at p. *9 [“the question is whether the Bowman class members voluntarily entered into an agreement in which they accepted a monetary benefit from UBS in exchange for not pursuing their claims under PAGA. The indisputable answer to that question is ‘yes' ”].)

Id. at 589.

Finally, the Court rejected the objector's argument that funding the settlement in part with in-store vouchers violated Labor Code section 212.

Section 212 does not apply because ... there is a good faith dispute as to whether and when commission wages were owed to the class members. “ ‘[W]ages are not “due” if there is a good faith dispute as to whether they are owed.’ ” (Chindarah v. Pick Up Stix, Inc. (2009) 171 Cal.App.4th 796, 802, 90 Cal.Rptr.3d 175.) Employees may release claims for disputed wages and may negotiate the consideration they are willing to accept in exchange. (Id. at pp. 802-803, 90 Cal.Rptr.3d 175.)

Ibid. The Court noted that the vouchers made up approximately 20% of the total settlement fund and were intended to compensate class members with claims of less than $20.