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Royalty Carpet Mills Inc., operated facilities located on Derian Avenue and the other on Dyer Road in Orange County. Jorge Luis Estrada worked at Derian.

Estrada filed a complaint against Royalty alleging various claims, including one asserting that Royalty violated Labor Code provisions requiring that it provide first and second meal periods, and one seeking PAGA penalties for various alleged Labor Code violations. Estrada and plaintiff Paulina Medina, a former Royalty employee who worked at Dyer, filed a second amended complaint that realleged Estrada’s individual claims as class claims and retained the PAGA claim from the original complaint.

Estrada, Medina, and 11 other plaintiffs then filed the operative third amended complaint. The third amended complaint alleged a total of seven class claims, one which was based on the failure to provide first and second meal periods, and one which sought PAGA penalties for various Labor Code violations, including those related to meal periods.

Several named plaintiffs moved for class certification in June 2017. The trial court certified a Dyer/Derian class composed of former nonexempt hourly workers who worked at the two facilities between December 13, 2009, and June 14, 2017. The court also certified three Dyer/Derian subclasses, including a meal period subclass to determine whether “class members were provided timely first meal periods and/or deprived of second meal periods.”

The trial court held a bench trial on plaintiffs’ claims. Plaintiffs presented “live testimony from 12 of the 13 named plaintiffs, deposition testimony from four different managers and officers of Royalty, live testimony from two of Royalty’s human resources employees, and live testimony from an expert witness.” In defense, Royalty presented testimony from two former employees and an expert witness.

After hearing this evidence, the trial court entered an order decertifying the two Dyer/Derian meal period subclasses alleging the first and second meal period violations, on the ground that there were too many individualized issues to support class treatment. In the same order, the trial court dismissed the PAGA claim seeking penalties for the alleged Dyer/Derian meal break-related violations with respect to persons other than the named plaintiffs as being unmanageable and subsequently entered judgment. Plaintiffs appealed from the decertification order and the judgment.

In the Court of Appeal, plaintiffs claimed that the trial court abused its discretion by decertifying the Dyer/Derian meal period subclasses and erred in dismissing the subclasses’ PAGA meal period claims on manageability grounds. The Court of Appeal agreed with plaintiffs on both issues.The Court of Appeal, in it’s published decision, directed the trial court to hold a new trial on both claims on remand, and added, “[a]s to both, we leave it in the court’s discretion to determine whether additional witnesses or other evidence will be allowed in light of the principles set forth in this opinion.” Estrada v. Royalty Carpet Mills, Inc. (2022) 76 Cal.App.5th 685).

The California Supreme Court granted Royalty’s petition for review to resolve the issue dividing the appellate courts: whether trial courts have inherent authority to strike a PAGA claim on manageability grounds. The Supreme Court affirmed the Court of Appeal and concluded that “trial courts lack inherent authority to strike PAGA claims on manageability grounds in the case of Estrada v. Royalty Carpet Mills, Inc. -S274340 (January 2024).

In 2003, the Legislature enacted PAGA to remedy “systemic underenforcement” of the Labor Code. Civil penalties recovered on a PAGA claim are split between the state and aggrieved employees. PAGA suits exhibit virtually none of the procedural characteristics of class actions.

The term “manageability” and its variants may be used more specifically to refer to a factor utilized in determining whether a class may be certified. This factor looks to whether issues pertaining to individual putative class members may be fairly and efficiently adjudicated.

Under federal law, manageability refers to the rule that a court consider “the likely difficulties in managing a class action” in determining whether the class action certification requirements of predominance and superiority are met.

Royalty and some amici curiae claim that trial courts have broad inherent authority to strike any type of claim, irrespective of its nature, to foster judicial economy.Contrary to Royalty’s contention “case law has recognized that the inherent authority of trial courts to dismiss claims is limited and operates in circumstances that are not present here.” The California Supreme Court explained the limits of a court’s “inherent discretionary power to dismiss claims with prejudice” in Lyons v. Wickhorst (1986) 42 Cal.3d 911,

In reaching this conclusion, the Supreme Courts emphasized that trial courts do not generally possess a broad inherent authority to dismiss claims. Nor is it appropriate for trial courts to strike PAGA claims by employing class action manageability requirements. And, while trial courts may use a vast variety of tools to efficiently manage PAGA claims, given the structure and purpose of PAGA, striking such claims due to manageability concerns – even if those claims are complex or time-intensive – is not among the tools trial courts possess.”