LWDA Not Liable For Costs in PAGA Case It Wasn’t Involved In

A California appellate panel recently determined that California’s Labor and Workforce Development Agency (LWDA) is not on the hook for costs after the trial court ruled in favor of an employer in a Private Attorneys General Act (PAGA) case where the agency wasn’t involved in the suit.

Kelly Rose, a former cashier at Hobby Lobby Stores, notified the LWDA and Hobby Lobby that she intended to seek civil penalties under PAGA on behalf of herself and other cashiers for alleged violations of the “suitable seating” provisions of Wage Order No. 7.

After the statutory deadline for the LWDA to respond to the notice had passed, Rose filed a civil action against Hobby Lobby.

The litigation went on for several years. Following a nine-day bench trial, the court ruled in favor of Hobby Lobby.

Hobby Lobby then sought costs. At the trial court’s direction, Hobby Lobby served an order inviting the LWDA—which had not participated in the litigation—to file an amicus brief addressing its liability for an award of costs to a prevailing defendant in a PAGA action.

The LWDA objected, arguing that a prevailing defendant could not recover its litigation costs under PAGA and that, even if the costs were recoverable, they could not be imposed on the LWDA because it was neither a party to the litigation nor an “actively involved real party in interest.”

Disagreeing, the trial court ordered the LWDA to pay Hobby Lobby $125,000 in litigation costs.

The agency appealed and the appellate panel reversed.

Noting that the issue of whether prevailing defendants in a PAGA action are entitled to recover costs has not been addressed in any published opinions, the court reached its conclusion on a different basis.

“[E]ven if a prevailing defendant in a PAGA action is entitled to recover its litigation costs under section 1032(b), those costs cannot be recovered from the LWDA in a case where the LWDA did not participate in the litigation,” the court wrote.

Section 1032(b) provides that a prevailing defendant is entitled to recover its costs from the party or parties over which it prevailed.

“The LWDA did not sue Hobby Lobby,” the court explained. “The LWDA was not a party to Rose’s lawsuit, nor did it take any action in the lawsuit until it moved to intervene, which it did only after it got word that Hobby Lobby sought to impose its costs on the LWDA. Accordingly, Hobby Lobby cannot recover its costs from the LWDA.”

A PAGA action is a type of qui tam action, which would make the LWDA the real party in interest in the action.

“But the entity on whose behalf a qui tam plaintiff sues is not itself a party to the action ‘unless and until the entity intervenes in the action,’” the court said. “That did not happen here until the LWDA learned, after judgment had been entered against Rose, that Hobby Lobby sought an award of costs against it – and then only after the trial court ordered Hobby Lobby to serve the LWDA with a copy of its order inviting the LWDA to file an amicus brief in response.”

The court disagreed with Hobby Lobby, opining that the LWDA had an agency relationship with Rose, as the statute does not impose any express fiduciary obligations on a plaintiff, nor does it give the agency control over litigation brought by a PAGA plaintiff.

Instead, the statute requires a potential plaintiff to provide notice and a file-stamped copy of the complaint to the LWDA before filing suit, along with a copy of any proposed settlement and a copy of a judgment or order concerning penalties.

“These provisions, which would be unnecessary if the LWDA were a party to the litigation, were added to PAGA in 2016 to ‘increase the LWDA’s involvement in PAGA litigation, including the settlement process’ but they do not make the LWDA a party nor do they give it control over the litigation or settlement,” the court said. “Although the LWDA may exercise its discretion to comment on a proposed settlement, it is not required to do so.”

The court reversed the order imposing costs on the LWDA.

To read the opinion in Rose v. Hobby Lobby Stores, Inc., click .

Why it matters: The California appellate panel sidestepped the question of whether prevailing defendants in a PAGA action are entitled to recover costs, instead tackling a narrower issue to hold that the LWDA could not be liable for payment when it was not involved in the case.