Alonzo v. First Transit, Inc.

ANGEL ALONZO et al., Plaintiffs and Respondents, v. FIRST TRANSIT, INC., Defendant and Respondent;ERIC P. CLARKE, Appellant.

B277109

COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION SEVEN

October 22, 2018

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

(Los Angeles County Super. Ct. No. BC433932)

APPEAL from an order and judgment of the Superior Court of Los Angeles County, Elihu M. Berle, Judge. Affirmed in part, reversed in part, and remanded with directions.

Law Offices of Mark Yablonovich and Mark Yablonovich, for Appellant Eric P. Clarke.

Hunter Pyle Law, Hunter Pyle and Chad Saunders for Plaintiffs and Respondents Angel Alonzo et al.

Littler Mendelson, Theodore R. Scott and David J. Dow for Defendant and Respondent First Transit, Inc.

Blank Rome, Laura Reathaford and Harrison M. Brown for Association of Southern California Defense Counsel as Amicus Curiae on behalf of Defendant and Respondent First Transit, Inc.

Kim E. Card, Acting Chief Counsel and Dan L. Gildor, Counsel, Department of Industrial Relations for Labor and Workforce Development Agency as Amicus Curiae upon the request of the Court of Appeal.

____________________

INTRODUCTION

This is the second appeal in this class action. In the first appeal, we affirmed the trial court's order denying Eric P. Clarke's ex parte application for leave to intervene but reversed the judgment entered after the court approved a settlement. We held the trial court failed to separately review and approve the settlement of claims under the Private Attorneys General Act (PAGA) (Lab. Code, § 2698 et seq.).¹ (Alonzo v. First Transit, Inc. (Oct. 15, 2015, B253699) [nonpub. opn.] (Alonzo I).) On remand, the trial court approved a revised settlement, and Clarke appealed again.

After the parties filed their briefs in this appeal, the Supreme Court decided Hernandez v. Restoration Hardware, Inc. (2018) 4 Cal.5th 260 (Hernandez), which held that unnamed classmembers do not have standing to appeal from a judgment in a class action unless they intervened in the class action or filed a motion to vacate the judgment. (Id. at p. 273.) We requested supplemental briefing on whether Clarke has standing to appeal in light of Hernandez. We conclude Hernandez did not alter or clarify the rules of appellate procedure we applied in Alonzo I. Thus, the law of the case doctrine applies, and Clarke has standing to appeal from the judgment approving the settlement of the PAGA claims. Under Hernandez, however, Clarke does not have standing to appeal from the judgment approving the settlement of the remaining class claims.

On the merits we largely affirm the trial court's order and judgment because, even if we adopted the standard for reviewing and approving settlements of PAGA actions proposed by Clarke, the settlement complies with that standard. We also reject Clarke's contentions that the settlement resulted from improper collusion and that the settlement created an inappropriate conflict of interest between counsel for plaintiffs and the state. We vacate the order approving the settlement, however, and remand for the limited purpose of clarifying that 25 percent of the civil penalties paid under the settlement will be distributed to all aggrieved employees and not only those who returned claim forms.

FACTUAL AND PROCEDURAL BACKGROUND

A. Clarke

Clarke worked as a bus driver for First Transit, Inc. from February 2000 to June 2006. Following a leave of absence, First Transit terminated Clarke's employment in February 2007. In 2008 Clarke filed a lawsuit against First Transit and others in Los Angeles County Superior Court seeking civil penalties under PAGA for alleged violations of Labor Code provisions, including those governing meal and rest breaks (§§ 226.7, 512), wage statements (§ 226), wages and overtime (§§ 204, 510), and compensation following an employee's discharge or resignation (§§ 201, 202). (Eric Clarke v. First Transit, Inc. (Super. Ct. Los Angeles County, 2008, No. BC384583) (Clarke).) Clarke, however, did not wait the time prescribed by statute after notifying the Labor and Workforce Development Agency (LWDA) before he commenced a civil action against First Transit. (See former § 2699.3, subd. (a)(2)(A).)

The trial court stayed the Clarke action in February 2009 because Clarke had previously filed a putative class action against First Transit in 2007 (which First Transit removed to federal court) that was likely to resolve common factual and legal issues. Eventually, after the plaintiffs in this case filed their putative class action and reached a tentative settlement, the trial court in Clarke extended the stay in that action until final resolution of this case.

B. Alonzo I

In March 2010 Angel Alonzo and approximately 65 other named plaintiffs filed a putative class action alleging, amongother things, First Transit violated Labor Code provisions governing rest breaks (§ 226.7), wage statements (§ 226), and compensation after an employee is discharged or resigns (§§ 201, 202 & 203). The complaint included a cause of action for unfair competition under Business and Professions Code section 17200 et seq., but it did not seek civil penalties under PAGA for qualifying violations of the Labor Code. In July 2012 the trial court certified the class defined in the second amended complaint. As a member of the class, Clarke received notice of the pending action, and, on October 25, 2012, he opted out.

The parties conducted discovery and reached a settlement in February 2013 following two days of mediation. In June 2013 the trial court preliminarily approved a settlement pursuant to which First Transit agreed to pay up to $2 million to settle the class claims. As part of the settlement, the plaintiffs agreed to file a third amended complaint that added claims for civil penalties under PAGA, and First Transit agreed to pay $10,000 of the settlement amount to the Labor and Workforce Development Agency (LWDA) to resolve the PAGA claims. The settlement agreement did not distribute to the aggrieved employees any of the $10,000 allocated to the PAGA claims.

Following the trial court's preliminary approval, the class representatives provided notice of the settlement to class members.² By September 8, 2013, 350 class members hadsubmitted claims, which accounted for 83 percent of the $2 million allotted to the class. None of the class members objected to the proposed settlement.

On October 2, 2013 Clarke filed an ex parte application for leave to intervene. Clarke asserted he was entitled to intervene because, among other reasons, he had an interest in the parties' resolution of the PAGA claims, which he argued the parties had drastically undervalued and colluded in settling. The trial court denied Clarke's application as untimely, and Clarke appealed.

We affirmed the trial court's order denying Clarke's ex parte application to intervene. We stated Clarke had standing to appeal from the judgment because "resolution of the PAGA claims in this action will bar the PAGA claims alleged in [Clarke]." (Alonzo I, supra, at p. 11.) We reversed the judgment because the settlement did not allocate 25 percent of the civil penalties to the aggrieved employees, as required by section 2699, subdivision (i), and because the trial court did not specifically review and approve the civil penalties allocated to the PAGA claims, as required by section 2699, subdivision (l)(2). (Alonzo I, at pp. 17-18.) We also directed the trial court to allow Clarke to participate in the final approval hearing for purposes of contesting the settlement of the PAGA claims. (Id. at p. 20.)

C. Remand

On remand Alonzo filed a renewed motion for final approval of the settlement and an addendum to the settlement agreement that increased the amount allocated to the PAGA claims from $10,000 to $13,333.33, 25 percent of which would be distributed to class members. The trial court ruled the proposed settlement "was entered into in good faith; is fair, reasonable and adequate; and satisfies the standards and applicable requirements for final approval" under California law, including California Rules of Court, rule 3.769. Among other things, the court ruled (1) the parties "thoroughly litigated" the case for over three years before reaching settlement, (2) the parties attended two mediation sessions with an experienced wage and hour mediator, (3) no class member other than Clarke objected to any terms of the settlement, (4) the parties reached the settlement through arm's-length bargaining in a mediation, and (5) investigation and discovery were sufficient to fully apprise the court and counsel of the claims, which gave the settlement a presumption of fairness.

Regarding the settlement of the PAGA claims, the trial court stated, "Actions pursuant to the PAGA are not class actions" and "are not subject to [the] requirement that the Court conduct a fairness hearing." (See Cal. Rules of Court, rule 3.769(g) ["[b]efore final approval [of a settlement or compromise of an entire class action or a cause of action in a class action], the court must conduct an inquiry into the fairness of the proposed settlement"].) Instead, the court stated, PAGA requires only that the court "review and approve any penalties sought as part of a proposed settlement agreement."

"Nevertheless," the court ruled, "the Court considered the PAGA penalty and its fairness through inquiry at the time the court granted [its initial] final approval of the Settlement. Though not separately articulated in the record at the time of final approval the Court did review the PAGA settlement taking into consideration that the gross settlement exceeded the maximum exposure...