STEPHANIE BORDENAVE VS SPORT CHALET LLC

Tentative Rulings

Case Number: BC593271    Hearing Date: July 23, 2020    Dept: 20

Tentative Ruling

Judge David J. Cowan

Department 20

Hearing Date: Thursday, July 23, 2020

Case Name: Stephanie Bordenave v. Sport Chalet LLC

Case No.: BC593271

Motion: Approval of PAGA Penalty Award

Moving Party: Plaintiff Stephanie Bordenave

Responding Party: *UNOPPOSED*

Notice: OK

Ruling: The Motion is GRANTED.

Plaintiff to give notice.

BACKGROUND

On September 2, 2015, Plaintiff Stephanie Bordenave filed a Complaint against Defendant Sport Chalet LLC stating claims for Labor Code violations under PAGA. 

On July 5, 2016, Plaintiff filed a Proof of Claim for her PAGA claims in Defendant’s bankruptcy case before the U.S. Bankruptcy Court for the District of Delaware.

On January 9, 2019, the Bankruptcy Court confirmed a liquidation plan that provided for liquidation of Defendant Sport Chalet LLC and transferred Defendant’s assets to the Liquidating Trustee for winding down.

On December 23, 2019, the Liquidating Trustee made a first and final distribution to Plaintiff Bordenave under the liquidation plan in the amount of $59,793.44.

On April 15, 2020, Plaintiff filed a Motion for Approval of PAGA Award. The Motion is unopposed.

On June 26, 2020, the Court continued the motion for supplemental briefing on the apportionment of attorney fees from the gross sum or the net sum of the PAGA award.

On July 16, 2020, Plaintiff filed a supplemental brief and declaration.

DISCUSSION

The Court initially notes that the motion is unopposed. Defendant Sport Chalet LLC is no longer in existence following bankruptcy liquidation and defense counsel have been permitted to withdraw from the case. As a consequence, although prevailing employees in PAGA actions would typically recover fees from the employer by way of a separate fee motion, a fee motion is not possible here because Sport Chalet LLC no longer exists. (See, e.g., Atempa v. Pedrazzani (2018) 27 Cal.App.5th 809, 829.) Hence, the Court also considers Plaintiff’s counsel’s requests for apportionment of fees from the PAGA Award.

Labor Code § 2699 governs approval and distribution of PAGA penalties/awards. Subdivision (i) provides that “civil penalties recovered by aggrieved employees shall be distributed . . . 75 percent to the Labor and Workforce Development Agency . . . and 25 percent to the aggrieved employees.” Here, the civil penalty distributed to Plaintiff under the liquidation plan is $59,793.44 (the “gross sum”).

Plaintiff’s fee agreement provides for 40% “of the gross amount collected in this action” and for reimbursement of incurred litigation costs. The proposed order provides Plaintiff’s counsel with $29,931.00 of the $59,793.44 distribution, accounting for 33% of the gross sum plus $10,000 in litigation costs. This leaves $29,862.44 (the “net sum”) for distribution between the LWDA and Plaintiff under subdivision (i). The next proposed distribution is 75% of the net sum ($22,396.83) to LWDA and 25% of the net sum ($7,456.61) to Plaintiff. (Labor Code sec. 2699(i).)

Plaintiff’s supplemental briefing has persuaded the Court this allocation—which distributes fees from the gross sum rather than the net sum—is indeed consistent with the Legislature’s intent to “achieve maximum compliance with state labor laws” in enacting PAGA. (Arias v. Superior Court (2009) 46 Cal.4th 969, 979.) By authorizing private litigants to enforce labor laws, the litigant acts “as the proxy or agent of the state's labor law enforcement agencies” and “supplement[s] enforcement actions by public agencies, which lack adequate resources to bring all such actions themselves.” (Id. at 986.) PAGA is primarily intended to maximize enforcement of labor laws, not to maximize recovery by the LWDA. Allocating fees from the gross sum here, where the employer is no longer in existence and cannot be pressed for fees and costs, properly maximizes enforcement by making such litigation economically feasible for plaintiff-side attorneys.

The Motion is therefore GRANTED.

Plaintiff to give notice.

Case Number: BC593271    Hearing Date: June 26, 2020    Dept: 20

Tentative Ruling

Judge David J. Cowan

Department 20

Hearing Date: Friday, June 26, 2020

Case Name: Stephanie Bordenave v. Sport Chalet LLC

Case No.: BC593271

Motion: Approval of PAGA Penalty Award

Moving Party: Plaintiff Stephanie Bordenave

Responding Party: *UNOPPOSED*

Notice: OK

Ruling: The Motion is CONTINUED to July 23, 2020 at 1:30 p.m.

Plaintiff shall submit supplemental briefing on the distribution priority issue by July 16, 2020.

BACKGROUND

On September 2, 2015, Plaintiff Stephanie Bordenave filed a Complaint against Defendant Sport Chalet LLC stating claims for Labor Code violations under PAGA.  

On July 5, 2016, Plaintiff filed a Proof of Claim for her PAGA claims in Defendant’s bankruptcy case before the U.S. Bankruptcy Court for the District of Delaware.

On January 9, 2019, the Bankruptcy Court confirmed a liquidation plan that provided for liquidation of Defendant Sport Chalet LLC and transferred Defendant’s assets to the Liquidating Trustee for winding down.

On December 23, 2019, the Liquidating Trustee made a first and final distribution to Plaintiff Bordenave under the liquidation plan in the amount of $59,793.44.

On April 15, 2020, Plaintiff filed a Motion for Approval of PAGA Award. The Motion is unopposed.

DISCUSSION

The Court initially notes that the motion is unopposed. Defendant Sport Chalet LLC is no longer in existence following bankruptcy liquidation and defense counsel have been permitted to withdraw from the case. The Court also recognizes that, as explained below, the proposed allocation of the award greatly favors Plaintiff’s counsel over LWDA and Plaintiff, and Plaintiff is not necessarily in a position to oppose counsel’s proposal. Finally, the Court observes that prevailing employees in PAGA actions would typically recover fees from the employer under Labor Code § 2699(g) by way of a separate fee motion. (See, e.g., Atempa v. Pedrazzani (2018) 27 Cal.App.5th 809, 829.) A fee motion is not possible here because Sport Chalet LLC no longer exists, even though Plaintiff is a prevailing employee under subdivision (g). For the foregoing reasons, the Court carefully and independently evaluates the merits of this motion to ensure it does not act as a “rubber stamp” for an improper distribution.

Labor Code § 2699 governs approval and distribution of PAGA penalties/awards. Subdivision (i) provides that “civil penalties recovered by aggrieved employees shall be distributed . . . 75 percent to the Labor and Workforce Development Agency . . . and 25 percent to the aggrieved employees.” Here, the civil penalty distributed to Plaintiff under the liquidation plan is $59,793.44 (the “gross sum”).

The proposed order provides Plaintiff’s counsel with $29,931.00 of the $59,793.44 distribution, accounting for 33% of the gross sum plus $10,000 in litigation costs. This leaves $29,862.44 (the “net sum”) for distribution between the LWDA and Plaintiff under subdivision (i). The Court notes that counsel recovers more than 50% of the gross sum on this proposal. Next, the proposed distribution is 75% of the net sum ($22,396.83) to LWDA and 25% of the net sum ($7,456.61) to Plaintiff. (Labor Code sec. 2699(i).)

Ordinarily, instead of paying attorney fees out of a prevailing employee’s PAGA award, the prevailing employee would typically bring a fee motion against the employer under sec. 2699(g)(1). Subdivision (g)(1) is “a one-way fee shifting statute, benefitting only prevailing employees.” (USS-Posco Industries v. Case (2016) 244 Cal.App.4th 197, 222.) However, no fee motion can be brought against Sport Chalet LLC, which is no longer an active party or existent entity due to its liquidation. Thus, Plaintiff’s counsel seeks to recover fees and costs from the gross sum rather than Plaintiff’s portion of the net sum. It is not clear to the Court that section 2699 authorizes this—for three reasons.

First, Plaintiff’s fee agreement with counsel is a private agreement. The fee agreement provides for 40% “of the gross amount collected in this action,” but the language of the fee agreement is not binding on LWDA and does not override sec. 2699. If LWDA is statutorily entitled to 75% of the gross sum, Plaintiff’s private agreement cannot deprive it of that distribution. Rather, section 2699(i) may require distribution to LWDA before applying Plaintiff’s fee agreement.

Second, sec. 2699 does not clearly authorize counsel to recover more than 50% of the gross sum before LWDA and Plaintiff see any of it. Plaintiff asserts this priority allocation is “consistent with” Labor Code sec. 2699(g)(1), but does not elaborate. Subdivision (g)(1) provides that a prevailing employee “shall be entitled to an award of reasonable attorney’s fees and costs”—it is silent on payment of attorney fees from the PAGA penalty, likely because that is not contemplated by sec. 2699. The fee shifting provision is intended to benefit “only prevailing employees” by requiring the losing party to pay attorney fees rather than the employee, and the payment of fees under subdivision (g) appears unrelated to distribution to the LWDA under subdivision (i). By contrast, prioritizing attorney’s fees appears to protect counsel at the expense of Plaintiff and the LWDA, which is not the apparent purpose of subdivisions (i) and (g).

Third, the Court observes that distributing the gross sum to LWDA and Plaintiff before Plaintiff’s counsel produces a starkly different allocation. The distribution under subdivision (i) would then be $44,845.08 to LWDA and $14,948.36 to Plaintiff—more than double the distributions allocated to LWDA and Plaintiff in the proposed order. Under the proposed order, LWDA and Plaintiff would be recovering 75% and 25% from the net sum, which is less than half of the gross distribution. However, Plaintiff’s counsel may be unable to adequately recover attorney fees and $10,000 in litigation costs from Plaintiff’s $14,948.36 portion of the net sum.

Essentially, it is unclear to the Court whether Plaintiff’s attorney fees should be paid from the gross sum of $59,793.44 before applying subd. (i) or from Plaintiff’s $14,948.36 portion of the net sum after applying subd. (i). There is no appellate authority on this issue, since ordinarily the prevailing employee would simply move to recover fees from the employer, which cannot be done in this case. The Court is aware that interpreting Labor Code sec. 2699 to require application of subdivision (i) before fee distribution substantially reduces the recovery of Plaintiff’s counsel, as indicated. However, counsel’s interpretation of sec. 2699 could deprive LWDA of its statutorily-required distribution, which is at the heart of the PAGA scheme.

Accordingly, the Court requires supplemental briefing to address whether distribution under the private fee agreement can take priority over distribution under subdivision (i).

CONCLUSION

The Motion is therefore CONTINUED to July 23, 2020 at 1:30 pm.

Plaintiff shall submit supplemental briefing on the distribution priority issue discussed above by July 16, 2020.

Case Number: BC593271    Hearing Date: February 19, 2020    Dept: 20

Tentative Ruling

Judge David J. Cowan

Department 20

Hearing Date: Wednesday, April 19, 2020

Case Name: Stephanie Bordenave v. Sport Chalet LLC

Case No.: BC593271

Motion: Motion to be Relieved as Counsel

Moving Party: Littler Mendelson, P.C. (for Elizabeth Staggs Wilson and Christopher Dengler, counsel for Defendant Sport Chalet LLC)

Responding Party: *Unopposed*

Notice: OK

Ruling: The Motion to be Relieved as Counsel of Littler Mendelson, P.C. is CONTINUED for submission of supplemental evidence and a new Proposed Order.

Moving party to give notice.

Moving party Littler Mendelson, P.C. claims its client, Sports Chalet LLC, "has ceased to exist as an operating entity per the bankruptcy court's orders.” At this point, “any remaining assets and liabilities" of Sports Chalet LLC have been transferred to a Liquidating Trust and "are being managed by the Liquidating Trustee, META Advisors, LLC," pursuant to the Delaware bankruptcy court's January 9, 2019 Order confirming the First Amended Joint Plan of Liquidation of VRG Liquidating, LLC. Thus, Littler Mendelson, P.C. seeks to withdraw its representation of Sports Chalet LLC by Elizabeth Staggs Wilson and Christopher Dengler.

Neither the Order of the Delaware bankruptcy court nor the First Amended Joint Plan are attached to the motion, and these have not been otherwise provided to the undersigned—who was assigned to this case recently on February 3, 2020. The Court currently lacks sufficient information and evidence to grant this motion. The Court cannot know with any reasonable certainty whether Sports Chalet LLC still exists without examining the liquidation plan, the order, or some argument or evidence on the legal consequences of bankruptcy liquidation. Moreover, the Proposed Order for this motion is defective—only the caption has been filled in, while the form order does not check any boxes and therefore does not actually propose any findings or rulings. The Proposed Order is thus insufficient under CRC Rule 3.1362.

Accordingly, the Motion to be Relieved as Counsel of Littler Mendelson, P.C. is CONTINUED for submission of supplemental evidence and a new Proposed Order. Moving party to give notice.