Saucillo v. Peck

25 F.4th 1118

Gilbert SAUCILLO; James R. Rudsell, on behalf of themselves and all others similarly situated, Plaintiffs-Appellees,

and

John Burnell; Jack Pollock, Plaintiffs,

v.Lawrence PECK, Objector-Appellant,

v.Swift Transportation Company of Arizona, LLC, an Arizona corporation, Defendant-Appellee,andSwift Transportation Company Incorporated; Does, Defendants.

Gilbert Saucillo; James R. Rudsell, on behalf of themselves and all others similarly situated, Plaintiffs-Appellees,

and

John Burnell; Jack Pollock, Plaintiffs,

v.Sadashiv Mares, Objector-Appellant,

v.Swift Transportation Company of Arizona, LLC, an Arizona corporation, Defendant-Appellee,andSwift Transportation Company Incorporated; Does, Defendants.

No. 20-55119

No. 20-55159

United States Court of Appeals, Ninth Circuit.

Argued and Submitted April 16, 2021 Pasadena, California

Filed February 11, 2022

Neal J. Fialkow (argued) and James S. Cahill, Law Office of Neal J. Fialkow Inc., Pasadena, California, for Objector-Appellant Lawrence Peck.

Joseph Clapp (argued), Aiman-Smith & Marcy, Oakland, California, for Objector-Appellant Sadashiv Mares.

Deepak Gupta (argued) and Urja Mittal, Gupta Wessler PLLC, Washington, D.C.; James R. Hawkins and Gregory Mauro, James Hawkins APLC, Irvine, California; Stanley D. Saltzman, Marlin & Saltzman LLP, Agoura Hills, California; for Plaintiffs-Appellees.

Paul S. Cowie (argued), Karin Dougan Vogel, and John D. Ellis, Sheppard Mullin Richter & Hampton LLP, San Francisco, California, for Defendant-Appellee.

Before: MILAN D. SMITH, JR. and SANDRA S. IKUTA, Circuit Judges, and JOHN E. STEELE,^* District Judge.

OPINION

M. SMITH, Circuit Judge:

Gilbert Saucillo and James Rudsell (Plaintiffs) are plaintiffs in actions brought against Swift Transportation Company of Arizona and associated entities and individuals (Swift). In 2019, after years of litigation, Plaintiffs and Swift reached a settlement pertaining to Plaintiffs' class claims and claims brought pursuant to the California Private Attorneys General Act (PAGA), Cal. Lab. Code §§ 2698 et seq. , which allows private citizens to recover civil penalties on behalf of themselves "and other current or former employees" for violations of the California Labor Code. Cal. Lab. Code § 2699(a). Lawrence Peck and Sadashiv Mares filed objections to the settlement agreement. Peck objected to the PAGA portion of the settlement, while Mares argued that the monetary award for the class claims was not fair and reasonable. The district court overruled both sets of objections and gave final approval to the settlement.

We hold that Peck may not appeal the PAGA settlement because he is not a party to the underlying PAGA action, and so we dismiss his appeal. However, we vacate the district court's approval of the class action settlement agreement and remand the class action for further proceedings, as we agree with Mares that the district court abused its discretion by applying an incorrect legal standard when evaluating the settlement.

FACTUAL AND PROCEDURAL BACKGROUND

I. Facts

Swift is a trucking company that operates throughout the United States. In September 2009, John Burnell, a former Swift driver, informed the California Labor and Workforce Development Agency (LWDA) of Swift's alleged violations of California labor law. Burnell specifically claimed that Swift was violating California Labor Code § 2802, which requires an employer to "indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of his or her duties ...." Cal. Lab. Code § 2802(a). The next month, LWDA informed Burnell that it would not investigate the claim. In October 2010, another former Swift driver, Jack Pollock, sent a letter to LWDA asserting various violations of California labor law, including § 2802. Pollock's letter purportedly "serve[d] as an update to [Burnell's] correspondence."

II. District Court Proceedings

In February 2010, Burnell filed a class action against Swift in California state court alleging various wage and hour violations pursuant to California law. In June 2010, Swift removed the case to federal court. Burnell then amended the complaint in October 2010, adding Pollock as a named plaintiff. The amended complaint asserted both an independent cause of action pursuant to § 2802 and a PAGA cause of action. Pollock subsequently withdrew as a named plaintiff, and Burnell then filed another amended complaint, this time adding Saucillo as a named plaintiff. In 2016, the district court denied a motion by Burnell and Saucillo for class certification. Burnell v. Swift Transp. Co of Ariz., LLC , No. EDCV10809VAPSPX, 2016 WL 2621616, at *1 (C.D. Cal. May 4, 2016). We denied a petition for permission to appeal pursuant to Federal Rule of Civil Procedure 23(f). Eventually, the district court granted Swift's motion for partial judgment on the pleadings, but we vacated that ruling after issuing Dilts v. Penske Logistics, LLC , 769 F.3d 637 (9th Cir. 2014).

In 2012, Rudsell, another Swift driver, sent his own letter to the LWDA, similarly alleging that Swift had violated various California labor laws. Rudsell did not specifically cite § 2802, nor did his complaint, which he attached to the letter. Rudsell next filed an amended complaint, and Swift eventually removed Rudsell's suit to federal court. The district court stayed Rudsell's suit while Burnell's action was pending. Rudsell never moved for class certification.

In May 2019, Burnell, Saucillo, and Rudsell reached a settlement with Swift pertaining to the class claims and PAGA claims in both their suits. The settlement provided that Swift would pay $7,250,000 for the class claims, $2,416,666.66 for attorneys' fees, and $500,000 for the PAGA claim. Pursuant to PAGA, $375,000 (75%) would be paid to the LWDA, and $125,000 (25%) would be paid to aggrieved employees. See Cal. Lab. Code § 2699(i).

Upon the instruction of the district court, Plaintiffs¹ filed a new, consolidated complaint in June 2019. In the consolidated complaint, Plaintiffs alleged that Swift violated § 2802. Plaintiffs also asserted a PAGA cause of action that "incorporate[d] each and every one of the allegations contained in the preceding paragraphs of [the consolidated] Complaint." The parties submitted a copy of the settlement agreement to the LWDA, in accordance with PAGA. See Cal. Labor Code § 2699(l). The LWDA did not object to the settlement.

Peck and Mares, two Swift drivers, objected to the proposed settlement. Both Peck and Mares had filed their own suits against Swift. Peck filed a PAGA complaint in California state court, while Mares filed a class action.²

Despite these objections, the district court granted final approval to the settlement agreement in January 2020. In outlining the legal standard by which to evaluate the agreement, the district court wrote:

As previously found by this Court, the parties engaged in arm's-length, serious, informed, and non-collusive negotiations between experienced and knowledgeable counsel. Additionally, the Settlement Agreement was reached after mediation with a neutral mediator, Mark Rudy. The Settlement Agreement is therefore presumptively the product of a non-collusive, arms-length negotiation. See Roe v. SFBSC Management, LLC , No. 14-cv-03616-LB, 2017 WL 4073809, at *9 (N.D. Cal. Sept. 14, 2017) (holding that a settlement that is the product of an arm's-length negotiation "conducted by capable and experienced counsel" is presumed to be fair and reasonable); Satchell v. Fed. Express Corp. , No. 03-cv-2878-SI, 2007 WL 1114010, at *4 (N.D. Cal. Apr. 13, 2007) ("The assistance of an experienced mediator in the settlement process confirms that the settlement is non-collusive."). This factor weighs in favor of approval.

(Some citations omitted.) The district court then evaluated the agreement pursuant to the eight-factor test in Hanlon v. Chrysler Corp. , 150 F.3d 1011, 1026 (9th Cir. 1998).³

The district court rejected the objections raised by Peck and Mares. Peck argued that "the class representatives lack standing to settle the PAGA clam, as they allegedly failed to exhaust certain administrative procedures before bringing the present lawsuit." The district court dismissed this argument because " ‘[f]ailure to exhaust administrative remedies under the PAGA is an affirmative defense subject to waiver’ rather than a prerequisite to standing." (Citations omitted.)

Mares contended that the monetary award in the settlement was "inadequate for several reasons, the common theme of which is that he believes the parties' estimate of [Swift's] maximum possible exposure is too low." The district court concluded that the settlement agreement was fair and reasonable, and that the parties' calculation of Swift's possible exposure was accurate. The district court granted final approval to the settlement agreement for both the class claims and the PAGA claim, though the court reduced the attorneys' fees.

III. Developments on Appeal

Peck raises his same objection on appeal, while Mares now argues that the district court applied an incorrect presumption that the settlement agreement was the product of arm's-length negotiations. Both appeals were fully briefed, oral argument was held, and both Peck's and Mares's cases were submitted in April 2021.

Approximately one month later, we decided Magadia v. Wal-Mart Associates, Inc. , 999 F.3d 668 (9th Cir. 2021), which concluded that the plaintiff—Roderick Magadia—lacked Article III standing⁴ to bring a "meal-break claim" under PAGA "because he did not suffer an injury himself." See id. at 672.⁵ This conclusion flowed from Magadia 's core holding that plaintiffs seeking penalties under PAGA for California labor law violations must satisfy the traditional Article III standing requirement of an injury in fact. See id. at 678 ("[W]e hold that Magadia lacks standing to bring a PAGA claim for Walmart's meal-break violations since he himself did not suffer injury."). We noted that there is an...