Doubts about PAGA passing muster

In Iskanian v. CLS Transp. Los Angeles Inc., 59 Cal. 4th 348 (2014), cert. denied, 134 S. Ct. 1155 (2015), the California Supreme Court held for the first time that a suit under the Private Attorneys General Act, "is ... a type of qui tam action." Doing so raises a constitutional question that has not yet been addressed by the courts: Does PAGA meet the minimum standards necessary for qui tam statutes to pass muster under the separation of powers doctrine? The answer is no.

The doctrine is expressly enumerated in California's constitution and inheres in the federal. Cal. Const. art. III, Section 3 ("The powers of state government are legislative, executive, and judicial. Persons charged with the exercise of one power may not exercise either of the others except as permitted by this Constitution."); United States ex rel. Kelly v. The Boeing Company, 9 F.3d 743, 749 (9th Cir. 1993), cert. denied, 510 U.S. 1140 (1994) ("the separation of powers principle [is] inherent in the structure of the [federal] Constitution").

The "primary purpose" of the separation of powers doctrine is "to prevent the combination in the hands of a single person or group of the basic or fundamental powers of government" (Parker v. Riley, 18 Cal. 2d 83, 89 (1941)) and "to protect any one branch against the overreaching of any other branch." Bixby v. Pierno, 4 Cal. 3d 130, 141 (1971). In line with this purpose, the doctrine "limits the authority of one of the three branches of government to arrogate to itself the core functions of another branch." Carmel Valley Fire Protection Dist. v. State of California, 25 Cal. 4th 287, 297 (2001).

Qui tam laws, like the federal and California False Claims Acts (FCAs), by delegating to private litigants the power to act on behalf of the state, raise a concern whether the Legislature has impermissibly interfered with the executive branch's law enforcement function. When Iskanian held that PAGA is a qui tam statute, it raised (but did not resolve) the same question.

The FCAs are consistent with separation of powers principles only because the government has robust powers to control or intervene in a FCA action at any juncture of the proceedings. The government lacks any such powers under PAGA. Accordingly, PAGA does not pass separation of powers muster, and is unconstitutional.

In Kelly, for example, the 9th U.S. Circuit Court of Appeals held that "the FCA gives the Attorney General sufficient means of controlling or supervising relators to satisfy separation of powers concerns." It emphasize the fact that, "[u]nder the FCA, the Executive Branch can control a qui tam relator's exercise of prosecutorial powers in several ways. The government can intervene in a case and then take primary responsibility for prosecuting the action; it can seek judicial limitation of the relator's participation; it can move for dismissal of a case which it believes has no merit, after notice to the relator and opportunity for a hearing; it can seek a judicial stay of the relator's discovery regardless of whether it intervenes; and it remains free to seek any alternate remedies available, including through any administrative proceeding."

What saves the FCA from constitutional infirmity under separation of powers principles is the government's discretion at any juncture in the proceedings to intervene, supplant the plaintiff, and control the litigation - even dismissing the litigation. Because PAGA lacks the same provisions designed to preserve robust governmental control over the private prosecution, it must fall.

PAGA includes virtually none of the provisions for ongoing government oversight of PAGA actions that the FCAs contain. The only oversight that PAGA permits the government is a short initial window during which the government can investigate, and presumably preempt the private action by creating a plea in abatement resulting from a preexisting government action. This falls so far short of measures which save the FCAs from constitutional infirmity that there can be no reasonable question about PAGA's unconstitutionality.

Government attorneys retain no control whatsoever over any aspect of PAGA litigation. PAGA does not require private litigants to obtain government permission to sue a particular defendant nor does the government have any say in the grounds for the case.

Rather, the sole manner in which the executive can play any role in controlling a PAGA prosecution is through the pre-dispute notice requirements imposed by Labor Code Section 2699.3. But that provision merely requires litigants contemplating suing an employer for certain alleged violations under PAGA to inform the executive of their intention to do so, and give it an opportunity to investigate. Moreover, although the notice provision requires the executive to expressly inform the plaintiff whether it intends to investigate the matter, that is the extent of the notice. If it declines to investigate the alleged violations - which is what occurs nearly every time - that single, pre-litigation, decision amounts to the only connection the executive will ever have to the lawsuit.

When the executive branch declines to investigate, private litigants enjoy carte blanche authority to proceed, guided only by their personal needs and interests. Thus, it has no say in whether a PAGA claim will even be filed, the facts or theories on which the claim will be based, what discovery will be taken, what motions will be filed, whether the case will be settled, or the terms of the settlement.

PAGA does not provide for any means by which the executive can later intervene to ensure neutrality or that the public's interests are being met, or even monitor the progress of the litigation. Nor does PAGA provide any means by which the executive can later step in to oversee negotiations to prevent 'shakedown' settlements, except for a few types of health and safety violations. In nearly all wage and hour PAGA actions, the employee and his or her counsel alone decide whether to settle PAGA claims and on what terms.

This issue has so far been all but ignored by the courts. Iskanian rejected an unrelated separation of powers argument based on People ex rel. Clancy v. Superior Court, 39 Cal. 3d 740 (1985), and County of Santa Clara v. Superior Court, 50 Cal. 4th 35 (2010), which claimed that private enforcement of penalties under PAGA impermissibly interfered with the judiciary's ability to regulate the conduct of lawyers. A 2009 decision from a federal magistrate did squarely address this separation of powers concern, but its analysis is demonstrably wrong. See Currie-White v. Blockbuster Inc., 2009 WL 2413451 (N.D. Cal. Aug. 5, 2009). First, the magistrate concluded, contrary to Iskanian, that PAGA actions are not qui tam actions and not subject to the same constitutional standards. Second, the magistrate concluded that the California Supreme Court, in Stop Youth Addiction Inc. v. Lucky Stores Inc., 17 Cal. 4th 553 (1998), "rejected a separation of powers argument similar to that advanced by defendant." This conclusion is just plain wrong. There is no reference in the majority opinion in Stop Youth Addiction to the separation of powers doctrine, and no discussion of the standards of, sources for and cases concerning the doctrine. There is no indication that any party raised such an issue. Justice Janice Rogers Brown, in dissent, did address separation of powers concerns she believed were implicated by the Unfair Competition Law, but the majority did not address any separation of powers claim in any respect.

It is time for the courts squarely to address this problem. PAGA simply does not survive constitutional muster.

Steven B. Katz is senior counsel to Constangy, Brooks, Smith & Prophete LLP, resident in their Century City office. He represents employers in class actions and multi-plaintiff disputes. You can reach him at skatz@contangy.com.