June 6, 2017

U.S. Supreme Court Decision Could End California's Jagged Legal Pill

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An upcoming U.S. Supreme Court decision could end the era of PAGA claims, which refers to claims for the civil penalties set forth by the California Private Attorneys General Act of 2004 or “PAGA.” Although PAGA became effective in 2004, its widespread use began in or around 2011, when a pair of U.S. Supreme Court cases gutted the class action legal industry by tightening the standards to maintain a class action and, at the same time, limiting arguments available to stop a civil class action from being compelled into individual arbitration. In many ways, PAGA can solve both problems because some courts have refused to compel individual arbitration in a case filed as a PAGA representative action, while other courts have held that typical class action requirements do not apply. As a result, PAGA claims are currently viewed as a necessity to any worker who wishes to pursue a class or group action. However, a closer look at the incentives created by PAGA reveals that PAGA is a relatively poor substitute for traditional class actions. Class actions in the United States can directly trace their lineage to medieval England in 1200, when group legal actions grew in popularity. A typical case involved one member of a recognized group suing on behalf of the pre-existing group. Similarly, group actions occurred where one member of a group defended the pre-existing group. Their prevalence rose over the next few hundred years, until about 1400. From 1400 until 1700, class actions declined in England. Meanwhile, the United States was a seedling which, when it sprouted, did not have a well-organized body of common law, with pieces of the British system forming a patchwork of a legal system. At this point in time, group litigation’s place in the U.S. was anything but certain. By 1820, the United States had a well-organized judicial system, and Justice Joseph Story penned what is considered to be the first U.S. legal opinion regarding class actions, West v. Randall, regarding the several parties that must be involved in one suit to properly divide the estate of a Revolutionary War general, William West. Justice Story also discussed group actions in two equity treatises, although he did not characterize them favorably. In 1833, the first group litigation rule was codified: Equity Rule 48 which permitted a representative suit where too many parties were at issue to maintain separate actions. The law soon evolved such that Rule 48 was extended to allow a representative action on behalf of individuals who had not individually filed a suit. In 1938, the rules of equity and law were merged, and Equity Rule 38 became Federal Rule of Civil Procedure 23. Rule 23 still governs federal class actions and informally guides California class actions, despite the fact that the State has its own codified rules. Procedural changes to Rule 23 in the mid-1960’s—propelled by passionate movements in the fields of civil rights, environmentalism, and consumer protection—jettisoned class actions’ status into a high impact legal tool that is one of the most significant deterrents of unlawful conduct in the business world. Class actions had grown to become a core aspect of America’s enforcement system. One of the most famous cases in U.S. history—Brown v. Board of Education—ended racial segregation in schools in 1954; most know of the famous case, but what many do not know is that this was a class action. The entire governmental system shifted as private class actions took on a larger and larger role in prosecuting unlawful behavior. This trend is evident in the employment industry, which accounts for a large percentage of overall class actions. Between 1980 and 2007, the number of inspectors enforcing federal minimum wage and overtime laws declined by 31 percent, even as the labor force grew by 52 percent. Similarly, the budget of the Occupational Safety and Health Administration was reduced by about $25 million between 2001 and 2007. A study by the Economic Policy Institute concluded that private attorneys recovered slightly more than one-half of the $933 million in wages recovered by U.S. workers in 2012. In the early 21st century, although scholars may debate the positive and negative effects of class actions, none can debate class actions’ prominent role in the legal system.