paga-standing-memo.docx

1017-00004 · Entities. Aurelius Global Media Group · Case Assessment & Strategy

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CALDERWOOD & HARKNESS LLP 1999 Avenue of the Stars, Suite 3200 Los Angeles, California 90067 Telephone: (310) 555-7400

CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT This memorandum is protected by the attorney-client privilege and the work product doctrine. It is intended solely for the use of the client and should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP.

MEMORANDUM

TO: Engagement File — Matter No. 1017-00004

FROM: Nadia Petrov

DATE: November 15, 2022

RE: PAGA Standing and Procedural Requirements — Fuentes v. Aurelius Media Americas Inc., LASC Case No. 22STCV38214

I. Issue Presented

The complaint filed by Marisol Fuentes in the above-captioned action includes a cause of action under the Private Attorneys General Act ("PAGA"), California Labor Code Sections 2698 through 2699.8. Plaintiffs' counsel — Castellano Byrne & Salas LLP, through Marco Castellano and Diane Salas, together with Veltrano Employment Law Group PC, through Sandra Higuera, who is serving as PAGA co-counsel — served a PAGA notice on the California Labor and Workforce Development Agency ("LWDA") on September 15, 2022, and contemporaneously served a copy on AMA by certified mail.

This memorandum analyzes whether all statutory prerequisites for filing a PAGA representative action have been satisfied and whether any procedural deficiencies exist that may provide a viable defense for Aurelius Media Americas Inc. ("AMA"). Specifically, the memorandum addresses the following issues:

(1) Whether the written notice requirement under California Labor Code Section 2699.3(a)(1) has been satisfied;

(2) Whether the 65-day waiting period mandated by California Labor Code Section 2699.3(a)(2)(A) has been observed and, if not, whether the premature filing of the complaint constitutes a curable defect or a jurisdictional bar;

(3) Whether named plaintiff Marisol Fuentes has standing as an "aggrieved employee" within the meaning of California Labor Code Section 2699(c); and

(4) The framework for calculating PAGA penalties, including the potential for judicial reduction under California Labor Code Section 2699(e)(2), and the implications for AMA's overall litigation exposure and settlement posture.

This memorandum should be read in conjunction with the broader case assessment memorandum (Document 3/23) and the draft Answer and Affirmative Defenses (Document 21/23), which incorporate the recommendations set forth herein.

II. Background

A. Aurelius Media Americas Inc.

Aurelius Media Americas Inc. ("AMA") is a Delaware corporation qualified to do business in the State of California. Its Delaware incorporation file number is 5284731, and it maintains its principal office at 8500 Sunset Boulevard, Suite 1400, West Hollywood, California 90069. AMA is a wholly owned subsidiary of Aurelius Global Media Group PLC, a United Kingdom-domiciled parent company listed on the London Stock Exchange. AMA's California operations encompass seven production facilities located throughout the greater Los Angeles metropolitan area. The company employs approximately 2,400 California-based workers, of whom approximately 1,850 are or were non-exempt, hourly production-support employees during the relevant class period. These production-support employees include, among other positions, production coordinators, post-production assistants, production assistants, associate producers (non-exempt classification), and various technical crew support personnel. AMA's operations are principally governed by IWC Wage Order 12 (Motion Picture Industry), although certain administrative employees may fall under other applicable Wage Orders.

B. The Fuentes Action

On November 1, 2022, named plaintiff Marisol Fuentes filed a putative class action complaint in the Superior Court of the State of California, County of Los Angeles — Central District, bearing Case Number 22STCV38214. The action has been assigned to the Honorable Raymond Escobedo, Department 34. Ms. Fuentes is a former Production Coordinator who was employed in AMA's Unscripted Programming Division from March 14, 2019 through August 5, 2022. At the time of her separation from AMA, her hourly rate of pay was $28.50 per hour. Ms. Fuentes resides at 4227 Los Feliz Boulevard, Apartment 6, Los Angeles, California 90027.

The complaint asserts seven causes of action alleging violations of numerous provisions of the California Labor Code and related statutes. Specifically, the complaint alleges violations of:

• California Labor Code Section 226.7 (meal and rest period premium pay);

• California Labor Code Sections 510, 1194, and 1198 (overtime compensation);

• California Labor Code Section 512 (meal period requirements);

• California Labor Code Sections 1197 and 1197.1 (minimum wage);

• California Labor Code Section 226 (accurate itemized wage statements);

• California Labor Code Sections 201–203 (timely payment of wages upon separation);

• California Business and Professions Code Section 17200 et seq. (Unfair Competition Law); and

• PAGA representative claims for civil penalties under California Labor Code Section 2699 et seq.

The complaint's factual allegations arise primarily from AMA's alleged meal-and-rest-break violations, off-the-clock work during pre-production and wrap periods, and the purported misclassification of approximately 1,850 non-exempt production-support employees. The alleged violations fall primarily under IWC Wage Order 12 (Motion Picture Industry), which governs employment conditions in the motion picture industry and contains specific provisions regarding meal and rest periods for production employees.

Central to the complaint's factual allegations is AMA's use of the TimeTrack Pro timekeeping system and, in particular, the system's auto-deduction feature for meal periods. The complaint alleges that the auto-deduction feature automatically deducted thirty minutes from employees' recorded time for a meal period regardless of whether the employee actually received a compliant, uninterrupted, duty-free meal period. Additionally, the complaint alleges that the Missed Meal Attestation feature — a software function within TimeTrack Pro that would allow employees to report missed or interrupted meal periods — was not activated at three of AMA's seven facilities (Facilities 2, 4, and 7), including the Studio City facility where Ms. Fuentes was employed.

C. Related Action — Halloran

A second related action by Derek Halloran is anticipated to be filed imminently and is expected to raise substantially overlapping claims. Mr. Halloran was employed by AMA as a Post-Production Assistant in the Digital Content Division from June 1, 2020 through November 30, 2022, at an hourly rate at separation of $24.75 per hour. This action was filed on November 18, 2022, and assigned Case Number 22STCV39501. The Halloran action will likely be subject to a motion to consolidate with the Fuentes action before Judge Escobedo in Department 34, given the overlapping factual and legal issues.

III. PAGA Statutory Framework

The Private Attorneys General Act of 2004, codified at California Labor Code Sections 2698 through 2699.8, was enacted by the California Legislature to address the state's lack of resources to enforce labor law violations. PAGA authorizes an "aggrieved employee" to bring a civil action on behalf of herself and other current or former employees to recover civil penalties that would otherwise be assessed and collected by the LWDA. The Act was designed to supplement the state's enforcement capabilities by deputizing private citizens — specifically, aggrieved employees — to act as proxies or agents of the state in prosecuting Labor Code violations.

A critical feature of PAGA that distinguishes it from other private enforcement mechanisms is its nature as a representative action rather than a class action. A PAGA claim does not require class certification, is not subject to the requirements of California Code of Civil Procedure Section 382, and operates under a fundamentally different procedural framework than traditional class litigation. The California Supreme Court has repeatedly emphasized this distinction, noting that a PAGA plaintiff acts as a proxy for the state and that the PAGA claim is "a dispute between an employer and the state." (Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 386–87.)

Penalties recovered under PAGA are distributed in a prescribed allocation: seventy-five percent (75%) of the penalties are remitted to the LWDA, and twenty-five percent (25%) are distributed to the aggrieved employees. (Cal. Lab. Code § 2699(i).) This allocation underscores the public enforcement character of PAGA — the majority of any recovery inures to the benefit of the state, not to individual plaintiffs.

PAGA claims are subject to specific pre-suit procedural requirements codified in California Labor Code Section 2699.3. These requirements, discussed in detail below, are designed to provide the LWDA with an opportunity to investigate alleged violations before private enforcement proceeds. The pre-suit requirements include a written notice to the LWDA and the employer, a specified waiting period during which the LWDA may elect to investigate, and standing requirements that limit PAGA actions to "aggrieved employees" who have personally experienced at least one of the alleged violations. Compliance with these prerequisites is a condition precedent to maintaining a PAGA cause of action in court.

IV. Analysis of PAGA Prerequisites

A. Written Notice to LWDA and Employer (Cal. Lab. Code § 2699.3(a)(1))

1. Statutory Requirement

California Labor Code Section 2699.3(a)(1) provides that an aggrieved employee must, as a prerequisite to bringing a PAGA civil action, give written notice to both the LWDA and the employer of the specific provisions of the Labor Code alleged to have been violated, including the facts and theories supporting the alleged violation. The notice must be filed with the LWDA through its online filing portal and must be served on the employer by certified mail. The purpose of the written notice requirement is to apprise the LWDA of the specific violations at issue and provide the agency with sufficient information to evaluate whether state investigation and enforcement action is warranted. The notice also serves to put the employer on notice of the specific allegations and the factual and legal theories underlying the claimed violations.

Courts have required that the PAGA notice contain sufficient factual specificity to enable the LWDA to intelligently assess the situation. The notice need not contain every fact that would ultimately be proved at trial, but it must identify the particular Labor Code sections allegedly violated and provide a factual narrative setting forth the nature, scope, and basis of the claimed violations. A notice that is too vague or conclusory may be deemed insufficient to satisfy the pre-suit notice requirement. (See Caliber Bodyworks, Inc. v. Superior Court (2005) 134 Cal.App.4th 365, 382–83.)

2. Compliance Analysis

Plaintiffs' PAGA notice was filed with the LWDA through its online filing portal on September 15, 2022. We have confirmed through a search of the LWDA's public database that the filing is reflected in the agency's records and that the notice was assigned a PAGA Case ID. The notice was submitted by Castellano Byrne & Salas LLP and co-signed by Sandra Higuera of Veltrano Employment Law Group PC, consistent with the co-counsel arrangement described in the complaint.

We have obtained and reviewed a copy of the PAGA notice. The notice identifies specific violations of the following Labor Code provisions:

• California Labor Code Section 226.7 (failure to provide compliant meal and rest periods and failure to pay corresponding premium wages);

• California Labor Code Sections 510 and 512 (failure to provide timely first and second meal periods; failure to pay overtime for hours worked beyond eight in a day and forty in a week);

• California Labor Code Sections 1194 and 1197 (failure to pay minimum wage for all hours worked);

• California Labor Code Section 1198 (hours worked in excess of permitted hours without overtime compensation);

• California Labor Code Section 226 (failure to provide accurate, itemized wage statements); and

• California Labor Code Sections 201–203 (failure to timely pay all wages owed upon separation from employment).

The notice provides a narrative of the facts and theories supporting the allegations. In particular, the notice describes the TimeTrack Pro auto-deduction system and its application to meal periods, alleging that the automatic deduction of thirty minutes from recorded time resulted in systematic underpayment for meal periods that were missed, short, or interrupted. The notice further alleges that rest period violations occurred because production-support employees were required to remain on or near set during designated rest periods and were frequently interrupted or recalled to duty. Additionally, the notice describes off-the-clock work allegations, asserting that production coordinators and other production-support employees were required to perform compensable work during pre-production setup and post-production wrap periods without recording the time on their timesheets.

AMA has confirmed receipt of a copy of the PAGA notice by certified mail on September 19, 2022. The notice was addressed to AMA's registered agent for service of process in California and was delivered to the company's principal office at 8500 Sunset Boulevard, Suite 1400, West Hollywood, California 90069. AMA's Director of Human Resources, Karen Whitfield, acknowledged receipt of the notice by email to this firm on September 22, 2022.

3. Conclusion

The written notice requirement under California Labor Code Section 2699.3(a)(1) appears to have been satisfied. The PAGA notice was timely filed with the LWDA through the online portal, was served on AMA by certified mail, and contains the requisite specificity regarding the Labor Code provisions allegedly violated and the factual theories supporting the allegations. We do not identify any deficiency in the notice that would support a challenge to its sufficiency.

B. 65-Day Waiting Period (Cal. Lab. Code § 2699.3(a)(2)(A))

1. Statutory Requirement

Under California Labor Code Section 2699.3(a)(2)(A), upon receipt of a PAGA notice, the LWDA has sixty-five (65) calendar days from the postmark date of the notice to decide whether to investigate the alleged violations. If the LWDA does not issue a citation or notify the employee and employer that it intends to investigate within the 65-calendar-day period, the aggrieved employee "may commence a civil action pursuant to" PAGA. The 65-day waiting period serves a critical purpose in the PAGA statutory scheme: it provides the LWDA with a meaningful opportunity to evaluate the alleged violations and determine whether state enforcement resources should be directed to the matter. During this period, the LWDA may exercise its discretion to investigate, issue citations, or decline to act, in which case the right of private enforcement accrues to the aggrieved employee.

The plain language of Section 2699.3(a)(2)(A) is clear that the employee's authorization to "commence a civil action" arises only after the expiration of the 65-day period without LWDA action. The statute does not expressly address the consequences of a premature filing — i.e., a filing before the 65-day period expires — which has given rise to litigation concerning whether premature filing constitutes a jurisdictional defect or a curable procedural irregularity.

2. Compliance Analysis

The PAGA notice was filed with the LWDA and postmarked on September 15, 2022. Calculating the 65-day waiting period from that date, the waiting period expired on November 19, 2022. The calculation is straightforward: September 15, 2022, plus 65 calendar days, yields November 19, 2022. We note that various internal calculations have identified November 14, 2022, as a potentially relevant date — this appears to reflect a calculation error or an alternative calculation methodology that does not affect the controlling 65-day deadline.

During the 65-day period, the LWDA did not issue a citation to AMA, did not notify either the plaintiffs or AMA that it intended to investigate the alleged violations, and took no other action responsive to the notice. As of the date of this memorandum (November 15, 2022), the LWDA has not communicated with either party regarding the notice. The 65-day period will expire in four days, on November 19, 2022, and we have no reason to believe that the LWDA will act before that date.

The critical issue is one of timing. The Fuentes complaint — including the PAGA cause of action — was filed on November 1, 2022, which was eighteen (18) days before the expiration of the 65-day waiting period on November 19, 2022. Under the plain language of Section 2699.3(a)(2)(A), the employee's right to commence a civil action accrues only after the 65-day period expires without LWDA action. Filing the complaint before the waiting period expired is, by the statute's terms, premature.

3. Legal Authority on Premature Filing

The question of whether premature filing of a PAGA claim constitutes a jurisdictional defect or a claim-processing requirement has been addressed by California courts, and the prevailing authority supports the conclusion that premature filing is a curable procedural irregularity rather than a fatal jurisdictional bar.

The leading case on this issue is Brown v. Ralphs Grocery Co. (2018) 28 Cal.App.5th 824. In Brown, the Court of Appeal for the Second District considered whether the premature filing of a PAGA claim — before the expiration of the 65-day notice period — required dismissal of the claim. The court held that the 65-day waiting period is a claim-processing requirement rather than a jurisdictional bar. (Id. at pp. 839–40.) The court reasoned that the purpose of the notice period is to give the LWDA an opportunity to investigate the alleged violations, not to divest the trial court of subject matter jurisdiction over the dispute. The court observed that the LWDA's interest is in receiving timely notice and having a meaningful opportunity to act; once the 65-day period has expired without LWDA action, the purpose of the notice requirement has been fully served regardless of when the complaint was filed.

Under Brown, a premature filing can be cured by the passage of time. Once the 65-day period actually expires and the LWDA has not acted, the procedural defect is deemed cured, even if the action was initiated before the expiration of the waiting period. The court analogized the 65-day waiting period to other statutory pre-suit notice requirements — such as the government tort claims filing requirement — that courts have treated as curable procedural conditions rather than absolute jurisdictional prerequisites.

Applied to the present case, the analysis under Brown is straightforward. Although the Fuentes complaint was filed on November 1, 2022, eighteen days before the expiration of the 65-day waiting period, the waiting period will expire on November 19, 2022, without LWDA action. Under Brown, the premature filing defect will be deemed cured as of that date. Additionally, plaintiffs' counsel could cure any remaining defect by filing an amended complaint after November 19, 2022, or by seeking leave to relate back to the original filing date. Given the procedural posture of the case — no responsive pleading has yet been filed, and no substantive motions have been heard — plaintiffs would have ample opportunity to amend if the court were to identify the premature filing as a deficiency requiring correction.

We note that Brown is binding authority in the Second Appellate District, which encompasses Los Angeles County. As the Fuentes action was filed in the Los Angeles Superior Court, Brown is directly applicable and controlling.

4. AMA's Potential Defense

AMA could raise the premature filing of the PAGA claim as an affirmative defense, arguing that the PAGA cause of action was not ripe when the complaint was filed on November 1, 2022, because the 65-day waiting period had not yet expired. This argument has facial merit as a technical matter — the complaint was indisputably filed before the statutory precondition was satisfied.

However, the likelihood of obtaining dismissal of the PAGA claim based on this procedural defect is low, for several reasons. First, as discussed above, Brown v. Ralphs Grocery Co. holds that the defect is curable, and the 65-day period will have expired (or will have expired, as of November 19, 2022) without LWDA action. Second, the court will almost certainly permit amendment or deem the defect cured given the absence of any prejudice to AMA and the strong policy favoring resolution of disputes on the merits. Third, the LWDA did not take any action during the 65-day period, which means the purpose of the waiting period — providing the LWDA with an opportunity to investigate — has been fully served.

Beyond the low likelihood of success, there is a meaningful risk that aggressively pursuing the premature-filing argument could be perceived as hyper-technical and may antagonize the court. The Honorable Raymond Escobedo, who is assigned to this matter, has a reputation for pragmatic case management and has demonstrated limited patience for procedural gamesmanship that does not address the substantive merits of a dispute. Presenting the premature-filing argument as a basis for a dispositive motion could undermine AMA's credibility with Judge Escobedo, particularly where the substance of the PAGA claim — the underlying alleged Labor Code violations — is entirely unaffected by the timing of the filing.

5. Recommendation

We recommend that AMA preserve the premature-filing argument in its Affirmative Defenses. As proposed in our draft Answer (see Document 21/23), the premature-filing argument is incorporated as the Eleventh Affirmative Defense regarding PAGA standing and procedural prerequisites. By asserting the defense in the Answer, AMA avoids waiving the argument and retains the option of raising it if the law develops in a manner favorable to the defense or if circumstances change.

However, we recommend that AMA not lead with this argument as a primary defense strategy. Specifically, AMA should not file a standalone demurrer or motion to dismiss the PAGA claim on the basis of premature filing. The argument is unlikely to result in dismissal, carries the risk described above of undermining AMA's credibility, and would consume litigation resources disproportionate to the negligible benefit it is likely to yield.

C. Standing — "Aggrieved Employee" (Cal. Lab. Code § 2699(c))

1. Statutory Requirement

To maintain a PAGA cause of action, the plaintiff must qualify as an "aggrieved employee" within the meaning of California Labor Code Section 2699(c). The statute defines an "aggrieved employee" as "any person who was employed by the alleged violator and against whom one or more of the alleged violations was committed." This definition requires two elements: (1) an employment relationship with the defendant employer, and (2) the commission of at least one of the alleged Labor Code violations against the plaintiff personally.

The California Supreme Court addressed the scope of PAGA standing in Kim v. Reins International California, Inc. (2020) 9 Cal.5th 73. In Kim, the Court held that a plaintiff who settles her individual claims retains standing to pursue PAGA claims as a representative of the state. (Id. at pp. 83–84.) The Court reasoned that because a PAGA claim is a representative action brought on behalf of the state — not an individual claim for personal relief — the resolution of the plaintiff's individual claims does not extinguish her interest in prosecuting the PAGA claim. Under Kim, an aggrieved employee's PAGA standing is not dependent on the continued viability of her individual claims; it is sufficient that she was an employee against whom at least one alleged violation was committed.

The Kim decision is significant for the Fuentes action because it means that even if Fuentes's individual claims were to be resolved through settlement, arbitration, or otherwise, she would retain standing to pursue the PAGA representative claim on behalf of all aggrieved employees. This effectively immunizes the PAGA claim from individual-level defenses that might otherwise eliminate the plaintiff's interest in the litigation.

2. Compliance Analysis

Marisol Fuentes was employed by AMA from March 14, 2019, through August 5, 2022, as a non-exempt, hourly Production Coordinator in the Unscripted Programming Division. She worked at AMA's Studio City production facility, located at 4024 Penmark Strategy Partners Avenue, Studio City, California 91604. The Studio City facility is designated internally as Facility 4.

The complaint alleges that Ms. Fuentes personally experienced the following Labor Code violations during her employment:

• Meal period violations arising from the TimeTrack Pro auto-deduction system, which automatically deducted thirty minutes from her recorded time for meal periods regardless of whether she actually received a compliant, uninterrupted, duty-free meal period. The complaint further alleges that the Missed Meal Attestation feature within TimeTrack Pro was not activated at the Studio City facility (Facility 4), which was one of three facilities — Facilities 2, 4, and 7 — where this feature was not available to employees. The absence of the attestation feature at Ms. Fuentes's facility is particularly relevant because it suggests that employees at these facilities had no mechanism within the timekeeping system to report missed or non-compliant meal periods.

• Rest period violations arising from the alleged requirement that production-support employees remain on or near set during designated rest periods and the frequent interruption of rest periods by production demands.

• Off-the-clock work during pre-production setup and post-production wrap periods, for which Ms. Fuentes allegedly was not compensated.

Ms. Fuentes's employment with AMA — March 14, 2019, through August 5, 2022 — falls within the class period as defined in the complaint (November 1, 2018, to present). Her employment also overlaps substantially with the PAGA look-back period, which extends from approximately September 15, 2021 (one year before the filing of the PAGA notice on September 15, 2022) forward.

Based on the foregoing, Ms. Fuentes appears to satisfy both elements of the "aggrieved employee" definition: she was employed by AMA (the alleged violator), and at least one of the alleged Labor Code violations — specifically, the meal period violations arising from the auto-deduction system at a facility where the Missed Meal Attestation feature was not activated — was allegedly committed against her.

3. Potential Challenge to Standing

If AMA could demonstrate that Ms. Fuentes did not personally experience any of the alleged violations during her employment, her PAGA standing could be challenged. For example, if AMA could show that Ms. Fuentes always received compliant meal and rest periods, was never required to perform off-the-clock work, and that all of her wages were correctly calculated and timely paid, there would be a colorable argument that she is not an "aggrieved employee" because no violation was committed "against" her.

However, such a challenge faces significant practical obstacles. The auto-deduction system was applied uniformly at the Studio City facility, and the Missed Meal Attestation feature was not available to employees at that location. Under the complaint's theory, the mere application of the auto-deduction system without a corresponding attestation mechanism constitutes a systematic violation affecting all non-exempt employees at the affected facilities. Establishing that Ms. Fuentes individually was unaffected by this system-wide practice would require a fact-intensive inquiry that is unlikely to be resolved at the pleading stage and would more appropriately be addressed through discovery and, if necessary, summary judgment.

Additionally, we note that Ms. Fuentes's separation from AMA (August 5, 2022) predates the filing of the complaint (November 1, 2022) by approximately three months. However, this temporal gap does not affect her PAGA standing. Under Kim v. Reins International California, Inc., former employees have standing under PAGA, and the statute's definition of "aggrieved employee" encompasses "any person who was employed by the alleged violator" — the use of the past tense "was employed" expressly contemplates standing for former employees.

4. Conclusion

PAGA standing appears satisfied. Ms. Fuentes was employed by AMA at a facility where the Missed Meal Attestation feature was not activated, and she alleges that she personally experienced meal period violations, rest period violations, and off-the-clock work during her employment. We do not recommend challenging Ms. Fuentes's standing as an "aggrieved employee" on this basis. Such a challenge is unlikely to succeed at any stage of the proceedings and would divert resources from more productive defense strategies.

V. PAGA Penalties Calculation and Reduction

A. Statutory Penalty Framework

Under California Labor Code Section 2699(f)(2), the default civil penalty for each violation of an applicable Labor Code provision is as follows:

• One hundred dollars ($100) for each aggrieved employee per pay period for the initial violation; and

• Two hundred dollars ($200) for each aggrieved employee per pay period for each subsequent violation.

These default penalties apply where no other specific civil penalty is provided for the underlying Labor Code violation. The term "initial violation" refers to the first pay period in which the violation occurs with respect to a given employee, and the term "subsequent violation" refers to each additional pay period in which the violation recurs. Because the initial violation penalty of $100 applies only to the very first pay period, and because the putative class period in this case spans approximately four years (from November 1, 2018, to present), the overwhelming majority of pay periods would be subject to the higher $200 subsequent violation penalty.

The PAGA notice filed by plaintiffs' counsel asserts penalties based on violations of multiple Labor Code provisions — Sections 226.7, 510, 512, 1194, 1197, 1198, 226, and 201–203 — across the entire putative class of approximately 1,850 non-exempt production-support employees for the full class period. Importantly, penalties under PAGA can be "stacked" — meaning that a single pay period can generate separate penalties for each distinct type of Labor Code violation. For example, if an employee experienced a meal period violation, a rest period violation, an overtime violation, and a wage statement violation in a single pay period, four separate PAGA penalties could be assessed for that one pay period.

B. Plaintiffs' Penalty Claim

Plaintiffs' PAGA notice claims aggregate PAGA penalties of $12.2 million. This figure represents the sum of penalties across all alleged violation types, all putative aggrieved employees, and all pay periods within the class period, calculated in accordance with the statutory penalty framework described above.

We have not yet independently verified this calculation, but based on our preliminary review, we note that the $12.2 million figure assumes the following:

(a) A high violation rate across the full class period (essentially assuming that nearly every non-exempt production-support employee experienced at least one violation in nearly every pay period throughout the class period);

(b) Application of the $200 "subsequent violation" penalty for the vast majority of pay periods, given that the initial violation penalty of $100 applies only to the first pay period in which a violation occurs with respect to each employee;

(c) Stacking of penalties for multiple violation types per pay period, such that a single pay period for a single employee could generate penalties for meal period violations, rest period violations, overtime violations, wage statement violations, and waiting time penalties, each assessed separately; and

(d) An assumption that the full putative class of approximately 1,850 non-exempt employees constitutes the universe of "aggrieved employees" for PAGA purposes.

The $12.2 million PAGA claim is a subset of plaintiffs' total claimed exposure of $38.6 million, as stated in the PAGA notice and as anticipated to be supported by expert analysis from Dr. Howard Rennick of Pinnacle Economic Consulting Group LLC. The broader $38.6 million figure includes class-wide damages for meal and rest period premium pay, unpaid overtime, minimum wage violations, wage statement penalties, and waiting time penalties, in addition to the PAGA civil penalties.

C. Judicial Discretion to Reduce PAGA Penalties

While the statutory penalty amounts establish the maximum exposure, courts have broad discretion to reduce PAGA penalties to an amount that is just and proportionate under the circumstances of the particular case. This discretion is codified in California Labor Code Section 2699(e)(2), which provides:

"The court may, in its discretion, award a lesser amount than the maximum civil penalty amount specified by this part if, based on the facts and circumstances of the particular case, to do otherwise would result in an award that is unjust, arbitrary and oppressive, or confiscatory."

This provision grants trial courts substantial latitude to calibrate PAGA penalties to the particular circumstances of each case, ensuring that the penalty amount serves the statute's remedial and deterrent purposes without imposing a punitive financial burden that is grossly disproportionate to the nature and severity of the underlying violations.

California courts have routinely exercised this discretion to reduce PAGA penalties substantially, particularly in cases where one or more of the following mitigating factors are present:

• The employer's violations were not willful or malicious, but rather resulted from negligence, inadvertence, or good faith misinterpretation of legal requirements;

• The employer has taken corrective action to remedy the violations upon learning of them;

• The total penalty amount, if assessed at the statutory maximum, would be disproportionate to the actual harm suffered by the aggrieved employees;

• The employer acted in good faith reliance on a facially compliant policy or system that proved inadequate or deficient in application; and

• The violations were technical or procedural in nature rather than substantive deprivations of employee rights.

The leading case on PAGA penalty reduction is Amaral v. Cintas Corp. No. 2 (2008) 163 Cal.App.4th 1157. In Amaral, the Court of Appeal upheld the trial court's exercise of discretion in reducing PAGA penalties by seventy-five percent (75%) where the employer's violations were not willful and the employer had implemented corrective measures to address the identified compliance deficiencies. (Id. at pp. 1213–14.) The court emphasized that the statutory penalty reduction provision reflects a legislative recognition that mechanical application of the per-violation, per-pay-period penalty formula can produce aggregate penalty amounts that bear no reasonable relationship to the severity of the underlying violations or the degree of the employer's culpability.

Additional authority supports the conclusion that substantial penalty reductions are appropriate in the circumstances presented here. In Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, while the Supreme Court did not directly address PAGA penalty reduction, the Court's discussion of meal period compliance standards suggests that employers who maintain facially compliant policies but fall short in implementation may be treated more favorably than employers who adopt no policies at all or who deliberately circumvent legal requirements.

Several factors in this case support a substantial reduction of the claimed PAGA penalties:

(1) Facially compliant policies. AMA has maintained written meal and rest break policies that are facially compliant with California law. The policies describe employees' entitlement to uninterrupted, duty-free meal periods of not less than thirty minutes and authorize employees to take rest periods of not less than ten minutes for each four-hour work period. The compliance deficiency alleged by plaintiffs arises not from the absence of a policy but from the implementation of the TimeTrack Pro auto-deduction feature, which plaintiffs contend undermined the effectiveness of the written policy.

(2) Absence of willfulness or malice. The auto-deduction system was not implemented with the intent to deprive employees of meal period premiums or to circumvent California labor law. Rather, the system was a timekeeping convenience that was widely used in the industry and that created compliance risk through its automatic operation. There is no evidence in the record suggesting that AMA's management directed the adoption of the auto-deduction feature as a deliberate strategy to avoid paying meal period premiums.

(3) Corrective action. AMA has already begun to implement corrective measures in response to the issues raised in the PAGA notice and the Fuentes complaint. Specifically, AMA has initiated the process of activating the Missed Meal Attestation feature at all seven of its California production facilities, including the three facilities (Facilities 2, 4, and 7) where the feature was previously not available. Additionally, AMA is correcting the meal period trigger threshold from six hours to five hours — a change that brings the system into alignment with the California Labor Code Section 512(a) requirement that a meal period be provided no later than the end of the fifth hour of work, rather than the sixth hour as previously programmed. These corrective actions are expected to be fully implemented by December 2022.

(4) Proportionality. Assessing the full $12.2 million in PAGA penalties would be grossly disproportionate to the actual harm suffered by the aggrieved employees, particularly given that the penalties are additive to the class-wide damages for meal and rest period premiums, unpaid overtime, and other compensation-based claims. The combined exposure of $38.6 million for a workforce of approximately 1,850 employees — even assuming widespread violations — reflects a mechanical application of stacked penalties that does not account for the remedial measures already underway or the non-willful nature of the violations.

D. Preliminary Assessment of Realistic PAGA Exposure

Based on our review of the statutory framework, the applicable case law on penalty reduction, and the specific facts of this case, we assess that the $12.2 million PAGA penalty claim is likely subject to a seventy-five to ninety percent (75%–90%) reduction in any settlement or judgment. This assessment is based on the following considerations:

• Courts routinely reduce PAGA penalties by 75% or more in cases involving non-willful violations and employer corrective action, as in Amaral;

• The stacking of penalties for multiple violation types per pay period produces an aggregate figure that is disproportionate to the actual harm and is likely to be viewed by the court as "unjust, arbitrary and oppressive, or confiscatory" within the meaning of Section 2699(e)(2);

• AMA's facially compliant policies and ongoing corrective action provide strong mitigating factors; and

• Prevailing PAGA settlement trends in comparable wage-and-hour class actions in the Central District of Los Angeles support a PAGA component in the range of three to twelve percent of the claimed PAGA exposure.

Based on this analysis, a realistic PAGA settlement component would be in the range of $500,000 to $1,500,000. We note, for purposes of internal planning and as reflected in the eventual settlement terms, that the PAGA payment from the Gross Settlement Amount was set at $750,000, of which seventy-five percent ($562,500) is allocated to the LWDA and twenty-five percent ($187,500) is distributed to aggrieved employees, consistent with the statutory distribution requirement of California Labor Code Section 2699(i).

We recommend that the PAGA penalty reduction argument be asserted as the Twelfth Affirmative Defense in AMA's Answer, as proposed in Document 21/23. The defense should cite California Labor Code Section 2699(e)(2) and reference the Court's broad discretion to award lesser penalties. This affirmative defense will be critical in both settlement negotiations — where it provides AMA with leverage to resist inflated PAGA settlement demands — and at trial, where the court's exercise of reduction discretion could significantly limit AMA's ultimate exposure.

VI. Interaction Between PAGA Claims and Class Action Claims

PAGA claims and class action claims, while frequently brought together in a single action, are distinct in their legal character, procedural requirements, and practical consequences. Understanding these distinctions is essential to AMA's defense strategy and to the structuring of any eventual settlement.

A. Procedural Distinctions

PAGA does not require class certification. A PAGA representative action is brought on behalf of the state by an aggrieved employee acting as the state's proxy. The procedural requirements of California Code of Civil Procedure Section 382 — including the requirements of ascertainability, numerosity, commonality, typicality, and adequacy of representation — do not apply to PAGA claims. As a result, even if the court were to deny class certification of the underlying wage-and-hour claims, the PAGA claim would survive and proceed independently as a representative action.

PAGA penalties are distinct from the damages and premiums sought in the class action. The class action component of the Fuentes complaint seeks compensatory relief — meal period premiums under Section 226.7, unpaid overtime under Sections 510 and 1194, minimum wage differentials, wage statement penalties under Section 226, and waiting time penalties under Sections 201–203. The PAGA component seeks civil penalties under Section 2699(f)(2), which are separate and additional monetary remedies assessed on a per-employee, per-pay-period basis. The two forms of relief are not duplicative, and recovery of class-wide damages does not preclude recovery of PAGA penalties (and vice versa).

A PAGA judgment binds all "aggrieved employees" regardless of whether they opt out of a class settlement or are excluded from the certified class. Because a PAGA claim is a representative action brought on behalf of the state, the resulting judgment or settlement has preclusive effect as to all employees who meet the definition of "aggrieved employee" during the relevant period. This is in contrast to a class action, where class members who opt out retain their individual claims.

B. PAGA Claims in the Class Certification Context

In the class certification context, the PAGA claim will proceed separately from the certified class claims. Should the court certify a class for the wage-and-hour claims, the PAGA representative claim will not be subject to the certification order and will proceed on its own representative basis. The court may, however, coordinate discovery and trial of the class claims and the PAGA claim to promote efficiency and avoid duplication of effort. As noted by the court in the August 11, 2023 certification order, "PAGA claims proceed as representative actions, not class actions, and do not require class certification." This observation is consistent with well-established California law and confirms that the PAGA claim will be managed separately from the class claims.

C. Settlement Considerations

In any settlement of the Fuentes action, the PAGA component should be separately identified and allocated from the class settlement fund. This separation is necessary for several reasons:

(1) Statutory distribution requirement. The 75/25 LWDA/employee distribution requirement under California Labor Code Section 2699(i) applies exclusively to PAGA penalties. The PAGA settlement allocation must be segregated from class-wide compensatory damages to ensure that the statutory distribution is properly calculated and implemented.

(2) Court approval. PAGA settlements require court approval and must be submitted to the LWDA for review. The court and the LWDA must be able to identify the PAGA allocation and verify that it complies with the statutory framework.

(3) Insurance coverage. Pemberton Mutual Assurance Co. has issued a reservation of rights regarding coverage for PAGA penalties under the Employment Practices Liability ("EPL") Policy (Policy No. PMA-EPL-2022-00837). Specifically, Pemberton has reserved its rights under the Penalty Exclusion set forth in Section IV.F of the EPL Policy, which may exclude coverage for civil penalties imposed by statute. The separate identification of the PAGA allocation in any settlement is essential to resolving the coverage dispute and to ensuring that AMA can accurately determine its net exposure after insurance recovery.

VII. Statute of Limitations for PAGA Claims

The statute of limitations applicable to PAGA claims is distinct from the statutes of limitations governing the underlying Labor Code violations and the broader class claims, and careful attention to this distinction is necessary to avoid confusion in the calculation of recoverable penalties.

A. One-Year Limitation on Filing

Under California Labor Code Section 2699.3(d), a PAGA civil action must be commenced within one year after the date on which the PAGA notice was filed with the LWDA. This one-year limitation period governs the time within which the aggrieved employee must initiate the civil action, and it begins to run from the date of filing of the LWDA notice — not from the date of the underlying violation or the date of the employee's separation from employment.

In the present case, the PAGA notice was filed with the LWDA on September 15, 2022. Accordingly, the one-year deadline for commencing the PAGA civil action is September 15, 2023. The Fuentes complaint, which includes the PAGA cause of action, was filed on November 1, 2022 — well within the one-year limitation period. There is no statute-of-limitations defense available to AMA with respect to the timeliness of the PAGA filing.

B. Distinction from Underlying Claims

The one-year PAGA statute of limitations is distinct from the statutes of limitations applicable to the underlying Labor Code claims. The underlying wage-and-hour claims are generally subject to the following limitations periods:

• Three years under California Code of Civil Procedure Section 338(a) for statutory penalties and liability created by statute, which encompasses the majority of the Labor Code violations alleged in the complaint;

• Four years for claims brought under the Unfair Competition Law (California Business and Professions Code Section 17200 et seq.), pursuant to the four-year limitations period prescribed by Section 17208; and

• Three years for claims for unpaid wages under the Labor Code, as a liability created by statute.

C. PAGA Look-Back Period

The one-year PAGA statute of limitations does not directly govern the "look-back" period for calculating recoverable penalties. Under PAGA, penalties may be recovered for violations occurring within one year prior to the filing of the PAGA notice. Because the PAGA notice in this case was filed on September 15, 2022, the PAGA look-back period extends to approximately September 15, 2021 — that is, penalties are recoverable under PAGA for violations occurring from September 15, 2021, forward.

This PAGA look-back period is narrower than the class period for the broader class action, which extends back to November 1, 2018 (approximately four years before the filing of the complaint, consistent with the four-year UCL statute of limitations). The distinction is significant for purposes of calculating AMA's PAGA exposure: while the class-wide damages claim encompasses violations over a four-year period, the PAGA penalty claim is limited to violations occurring within the approximately one-year look-back period prior to the filing of the PAGA notice. This temporal limitation reduces the number of pay periods for which PAGA penalties can be assessed and correspondingly reduces the total PAGA penalty exposure.

VIII. Recommendations

Based on the foregoing analysis, we recommend the following course of action with respect to the PAGA claims in the Fuentes action:

1. Preserve the premature-filing argument in AMA's Affirmative Defenses. The premature-filing defect should be asserted as the Eleventh Affirmative Defense (No PAGA Standing / Failure to Satisfy Pre-Suit Prerequisites) in AMA's draft Answer, as proposed in Document 21/23. Preserving this defense ensures that AMA does not waive the argument and retains the option of raising it in the event of favorable legal developments or changed circumstances. However, AMA should not pursue the premature-filing argument as a primary defense strategy and should not file a standalone demurrer or motion to dismiss the PAGA claim on this basis. The procedural defect is likely cured under Brown v. Ralphs Grocery Co. (2018) 28 Cal.App.5th 824, and pursuing the argument aggressively could be perceived as hyper-technical and risks undermining AMA's credibility with the Honorable Raymond Escobedo.

2. Assert the PAGA penalty reduction argument as the Twelfth Affirmative Defense. AMA should assert, as its Twelfth Affirmative Defense, the Court's broad discretion to reduce PAGA penalties under California Labor Code Section 2699(e)(2). This defense should specifically reference the statutory standard — that the Court may award a lesser amount if the maximum penalty would be "unjust, arbitrary and oppressive, or confiscatory" — and should identify AMA's facially compliant policies, non-willful conduct, and corrective action as mitigating factors. This affirmative defense is an essential component of AMA's defense strategy and will be critical in both settlement negotiations and at trial. The penalty reduction argument is AMA's strongest PAGA defense and should be treated as a primary defense theme throughout the litigation.

3. Do not challenge Fuentes's PAGA standing on "aggrieved employee" grounds. Ms. Fuentes's employment at the Studio City facility — one of three facilities where the Missed Meal Attestation feature was not activated — provides a strong factual basis for her standing as an aggrieved employee. Her former-employee status does not affect her standing under Kim v. Reins International California, Inc. (2020) 9 Cal.5th 73. A challenge to her standing is unlikely to succeed and would not be a productive use of litigation resources.

4. Structure the PAGA component separately in settlement negotiations. In any settlement discussions, the PAGA component should be separately identified and allocated from the class settlement fund. The PAGA allocation should be kept at a modest level consistent with our preliminary exposure assessment of $500,000 to $1,500,000, and should comply with the seventy-five/twenty-five percent LWDA/employee distribution requirement under California Labor Code Section 2699(i). We should also coordinate with Bernard Crawford regarding Pemberton Mutual Assurance Co.'s position on coverage for PAGA penalties, as the carrier has reserved its rights under the Penalty Exclusion (Section IV.F) of the Employment Practices Liability Policy (Policy No. PMA-EPL-2022-00837). A clear separation of the PAGA component from the compensatory damages component of any settlement will be essential to resolving the coverage dispute and to ensuring that AMA can accurately determine its out-of-pocket exposure after any available insurance recovery.

5. Monitor PAGA legislative developments. The California Legislature has been actively considering amendments to PAGA that could significantly affect penalty calculations, employer cure provisions, and the interaction between PAGA and class actions. Recent legislative proposals have included provisions that would allow employers to cure certain violations before PAGA penalties accrue, caps on aggregate PAGA penalties, and revisions to the pre-suit notice requirements. Any amendments enacted during the pendency of the Fuentes litigation could affect our defense strategy, our exposure analysis, and the terms on which a settlement might be reached. We recommend that the team monitor legislative activity on an ongoing basis and provide updates as developments warrant.

6. Coordinate with PAGA co-counsel. Sandra Higuera of Veltrano Employment Law Group PC, located at 350 South Grand Avenue, Suite 2800, Los Angeles, California 90071, has been identified as co-counsel responsible for the PAGA claim and the California Labor Code Section 226 derivative claims (wage statement violations). The involvement of Veltrano as PAGA-specific co-counsel suggests that plaintiffs' counsel intend to pursue the PAGA claim with particular vigor and may seek to leverage the PAGA penalties as a significant component of any settlement demand. We should ensure that all discovery responses, written discovery propounded by AMA, and settlement discussions appropriately account for the PAGA-specific issues raised in this memorandum and for Veltrano's role in the litigation. Discovery directed to the PAGA claim — including interrogatories regarding the penalty calculations, requests for production of documents supporting the $12.2 million figure, and potential deposition of Dr. Howard Rennick regarding his anticipated expert analysis — should be coordinated with our broader class action discovery plan.

IX. Conclusion

The PAGA claim asserted in the Fuentes complaint presents a procedural defect — the complaint was filed on November 1, 2022, eighteen days before the expiration of the sixty-five-day waiting period on November 19, 2022 — but this defect is likely cured under the holding of Brown v. Ralphs Grocery Co. (2018) 28 Cal.App.5th 824 and presents a low probability of resulting in dismissal of the PAGA cause of action. Named plaintiff Marisol Fuentes has standing as an "aggrieved employee" by virtue of her employment at a facility where the Missed Meal Attestation feature was not activated and her allegations that she personally experienced meal period violations, rest period violations, and off-the-clock work during her employment with AMA.

The claimed PAGA penalties of $12.2 million are subject to substantial judicial reduction under California Labor Code Section 2699(e)(2), given AMA's facially compliant policies, non-willful conduct, and corrective action. Our preliminary assessment of realistic PAGA exposure is in the range of $500,000 to $1,500,000, and the eventual PAGA settlement allocation of $750,000 falls within this range. AMA's primary PAGA defense should focus on penalty reduction under Section 2699(e)(2) rather than on procedural or standing challenges, which are unlikely to succeed and carry a risk of diminishing AMA's credibility with the court.

This memorandum will be supplemented as additional factual information becomes available, as the anticipated Halloran action (Case No. 22STCV39501) is filed and consolidated, and as any PAGA legislative amendments are enacted.

cc: Renata Vasquez (file) Devon Archer (file)

CALDERWOOD & HARKNESS LLP 1999 Avenue of the Stars, Suite 3200 Los Angeles, California 90067 Telephone: (310) 555-7400 | Facsimile: (310) 555-7401
CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT This memorandum is protected by the attorney-client privilege and the work product doctrine. It is intended solely for the use of the client and should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP.
MEMORANDUM
TO: Engagement File — Matter No. 1017-00004
FROM: Nadia Petrov
DATE: November 15, 2022
RE: PAGA Standing and Procedural Requirements — Fuentes v. Aurelius Media Americas Inc., LASC Case No. 22STCV38214
I. Issue Presented
The complaint filed by Marisol Fuentes in the above-captioned action includes a cause of action under the Private Attorneys General Act ("PAGA"), California Labor Code Sections 2698 through 2699.8. Plaintiffs' counsel — Castellano Byrne & Salas LLP, through Marco Castellano and Diane Salas, together with Veltrano Employment Law Group PC, through Sandra Higuera, who is serving as PAGA co-counsel — served a PAGA notice on the California Labor and Workforce Development Agency ("LWDA") on September 15, 2022, and contemporaneously served a copy on AMA by certified mail.
This memorandum analyzes whether all statutory prerequisites for filing a PAGA representative action have been satisfied and whether any procedural deficiencies exist that may provide a viable defense for Aurelius Media Americas Inc. ("AMA"). Specifically, the memorandum addresses the following issues:
(1) Whether the written notice requirement under California Labor Code Section 2699.3(a)(1) has been satisfied;
(2) Whether the 65-day waiting period mandated by California Labor Code Section 2699.3(a)(2)(A) has been observed and, if not, whether the premature filing of the complaint constitutes a curable defect or a jurisdictional bar;
(3) Whether named plaintiff Marisol Fuentes has standing as an "aggrieved employee" within the meaning of California Labor Code Section 2699(c); and
(4) The framework for calculating PAGA penalties, including the potential for judicial reduction under California Labor Code Section 2699(e)(2), and the implications for AMA's overall litigation exposure and settlement posture.
This memorandum should be read in conjunction with the broader case assessment memorandum (Document 3/23) and the draft Answer and Affirmative Defenses (Document 21/23), which incorporate the recommendations set forth herein.
II. Background
A. Aurelius Media Americas Inc.
Aurelius Media Americas Inc. ("AMA") is a Delaware corporation qualified to do business in the State of California. Its Delaware incorporation file number is 5284731, and it maintains its principal office at 8500 Sunset Boulevard, Suite 1400, West Hollywood, California 90069. AMA is a wholly owned subsidiary of Aurelius Global Media Group PLC, a United Kingdom-domiciled parent company listed on the London Stock Exchange. AMA's California operations encompass seven production facilities located throughout the greater Los Angeles metropolitan area. The company employs approximately 2,400 California-based workers, of whom approximately 1,850 are or were non-exempt, hourly production-support employees during the relevant class period. These production-support employees include, among other positions, production coordinators, post-production assistants, production assistants, associate producers (non-exempt classification), and various technical crew support personnel. AMA's operations are principally governed by IWC Wage Order 12 (Motion Picture Industry), although certain administrative employees may fall under other applicable Wage Orders.
B. The Fuentes Action
On November 1, 2022, named plaintiff Marisol Fuentes filed a putative class action complaint in the Superior Court of the State of California, County of Los Angeles — Central District, bearing Case Number 22STCV38214. The action has been assigned to the Honorable Raymond Escobedo, Department 34. Ms. Fuentes is a former Production Coordinator who was employed in AMA's Unscripted Programming Division from March 14, 2019 through August 5, 2022. At the time of her separation from AMA, her hourly rate of pay was $28.50 per hour. Ms. Fuentes resides at 4227 Los Feliz Boulevard, Apartment 6, Los Angeles, California 90027.
The complaint asserts seven causes of action alleging violations of numerous provisions of the California Labor Code and related statutes. Specifically, the complaint alleges violations of:
• California Labor Code Section 226.7 (meal and rest period premium pay);
• California Labor Code Sections 510, 1194, and 1198 (overtime compensation);
• California Labor Code Section 512 (meal period requirements);
• California Labor Code Sections 1197 and 1197.1 (minimum wage);
• California Labor Code Section 226 (accurate itemized wage statements);
• California Labor Code Sections 201–203 (timely payment of wages upon separation);
• California Business and Professions Code Section 17200 et seq. (Unfair Competition Law); and
• PAGA representative claims for civil penalties under California Labor Code Section 2699 et seq.
The complaint's factual allegations arise primarily from AMA's alleged meal-and-rest-break violations, off-the-clock work during pre-production and wrap periods, and the purported misclassification of approximately 1,850 non-exempt production-support employees. The alleged violations fall primarily under IWC Wage Order 12 (Motion Picture Industry), which governs employment conditions in the motion picture industry and contains specific provisions regarding meal and rest periods for production employees.
Central to the complaint's factual allegations is AMA's use of the TimeTrack Pro timekeeping system and, in particular, the system's auto-deduction feature for meal periods. The complaint alleges that the auto-deduction feature automatically deducted thirty minutes from employees' recorded time for a meal period regardless of whether the employee actually received a compliant, uninterrupted, duty-free meal period. Additionally, the complaint alleges that the Missed Meal Attestation feature — a software function within TimeTrack Pro that would allow employees to report missed or interrupted meal periods — was not activated at three of AMA's seven facilities (Facilities 2, 4, and 7), including the Studio City facility where Ms. Fuentes was employed.
C. Related Action — Halloran
A second related action by Derek Halloran is anticipated to be filed imminently and is expected to raise substantially overlapping claims. Mr. Halloran was employed by AMA as a Post-Production Assistant in the Digital Content Division from June 1, 2020 through November 30, 2022, at an hourly rate at separation of $24.75 per hour. This action was filed on November 18, 2022, and assigned Case Number 22STCV39501. The Halloran action will likely be subject to a motion to consolidate with the Fuentes action before Judge Escobedo in Department 34, given the overlapping factual and legal issues.
III. PAGA Statutory Framework
The Private Attorneys General Act of 2004, codified at California Labor Code Sections 2698 through 2699.8, was enacted by the California Legislature to address the state's lack of resources to enforce labor law violations. PAGA authorizes an "aggrieved employee" to bring a civil action on behalf of herself and other current or former employees to recover civil penalties that would otherwise be assessed and collected by the LWDA. The Act was designed to supplement the state's enforcement capabilities by deputizing private citizens — specifically, aggrieved employees — to act as proxies or agents of the state in prosecuting Labor Code violations.
A critical feature of PAGA that distinguishes it from other private enforcement mechanisms is its nature as a representative action rather than a class action. A PAGA claim does not require class certification, is not subject to the requirements of California Code of Civil Procedure Section 382, and operates under a fundamentally different procedural framework than traditional class litigation. The California Supreme Court has repeatedly emphasized this distinction, noting that a PAGA plaintiff acts as a proxy for the state and that the PAGA claim is "a dispute between an employer and the state." (Iskanian v. CLS Transportation Los Angeles, LLC (2014) 59 Cal.4th 348, 386–87.)
Penalties recovered under PAGA are distributed in a prescribed allocation: seventy-five percent (75%) of the penalties are remitted to the LWDA, and twenty-five percent (25%) are distributed to the aggrieved employees. (Cal. Lab. Code § 2699(i).) This allocation underscores the public enforcement character of PAGA — the majority of any recovery inures to the benefit of the state, not to individual plaintiffs.
PAGA claims are subject to specific pre-suit procedural requirements codified in California Labor Code Section 2699.3. These requirements, discussed in detail below, are designed to provide the LWDA with an opportunity to investigate alleged violations before private enforcement proceeds. The pre-suit requirements include a written notice to the LWDA and the employer, a specified waiting period during which the LWDA may elect to investigate, and standing requirements that limit PAGA actions to "aggrieved employees" who have personally experienced at least one of the alleged violations. Compliance with these prerequisites is a condition precedent to maintaining a PAGA cause of action in court.
IV. Analysis of PAGA Prerequisites
A. Written Notice to LWDA and Employer (Cal. Lab. Code § 2699.3(a)(1))
1. Statutory Requirement
California Labor Code Section 2699.3(a)(1) provides that an aggrieved employee must, as a prerequisite to bringing a PAGA civil action, give written notice to both the LWDA and the employer of the specific provisions of the Labor Code alleged to have been violated, including the facts and theories supporting the alleged violation. The notice must be filed with the LWDA through its online filing portal and must be served on the employer by certified mail. The purpose of the written notice requirement is to apprise the LWDA of the specific violations at issue and provide the agency with sufficient information to evaluate whether state investigation and enforcement action is warranted. The notice also serves to put the employer on notice of the specific allegations and the factual and legal theories underlying the claimed violations.
Courts have required that the PAGA notice contain sufficient factual specificity to enable the LWDA to intelligently assess the situation. The notice need not contain every fact that would ultimately be proved at trial, but it must identify the particular Labor Code sections allegedly violated and provide a factual narrative setting forth the nature, scope, and basis of the claimed violations. A notice that is too vague or conclusory may be deemed insufficient to satisfy the pre-suit notice requirement. (See Caliber Bodyworks, Inc. v. Superior Court (2005) 134 Cal.App.4th 365, 382–83.)
2. Compliance Analysis
Plaintiffs' PAGA notice was filed with the LWDA through its online filing portal on September 15, 2022. We have confirmed through a search of the LWDA's public database that the filing is reflected in the agency's records and that the notice was assigned a PAGA Case ID. The notice was submitted by Castellano Byrne & Salas LLP and co-signed by Sandra Higuera of Veltrano Employment Law Group PC, consistent with the co-counsel arrangement described in the complaint.
We have obtained and reviewed a copy of the PAGA notice. The notice identifies specific violations of the following Labor Code provisions:
• California Labor Code Section 226.7 (failure to provide compliant meal and rest periods and failure to pay corresponding premium wages);
• California Labor Code Sections 510 and 512 (failure to provide timely first and second meal periods; failure to pay overtime for hours worked beyond eight in a day and forty in a week);
• California Labor Code Sections 1194 and 1197 (failure to pay minimum wage for all hours worked);
• California Labor Code Section 1198 (hours worked in excess of permitted hours without overtime compensation);
• California Labor Code Section 226 (failure to provide accurate, itemized wage statements); and
• California Labor Code Sections 201–203 (failure to timely pay all wages owed upon separation from employment).
The notice provides a narrative of the facts and theories supporting the allegations. In particular, the notice describes the TimeTrack Pro auto-deduction system and its application to meal periods, alleging that the automatic deduction of thirty minutes from recorded time resulted in systematic underpayment for meal periods that were missed, short, or interrupted. The notice further alleges that rest period violations occurred because production-support employees were required to remain on or near set during designated rest periods and were frequently interrupted or recalled to duty. Additionally, the notice describes off-the-clock work allegations, asserting that production coordinators and other production-support employees were required to perform compensable work during pre-production setup and post-production wrap periods without recording the time on their timesheets.
AMA has confirmed receipt of a copy of the PAGA notice by certified mail on September 19, 2022. The notice was addressed to AMA's registered agent for service of process in California and was delivered to the company's principal office at 8500 Sunset Boulevard, Suite 1400, West Hollywood, California 90069. AMA's Director of Human Resources, Karen Whitfield, acknowledged receipt of the notice by email to this firm on September 22, 2022.
3. Conclusion
The written notice requirement under California Labor Code Section 2699.3(a)(1) appears to have been satisfied. The PAGA notice was timely filed with the LWDA through the online portal, was served on AMA by certified mail, and contains the requisite specificity regarding the Labor Code provisions allegedly violated and the factual theories supporting the allegations. We do not identify any deficiency in the notice that would support a challenge to its sufficiency.
B. 65-Day Waiting Period (Cal. Lab. Code § 2699.3(a)(2)(A))
1. Statutory Requirement
Under California Labor Code Section 2699.3(a)(2)(A), upon receipt of a PAGA notice, the LWDA has sixty-five (65) calendar days from the postmark date of the notice to decide whether to investigate the alleged violations. If the LWDA does not issue a citation or notify the employee and employer that it intends to investigate within the 65-calendar-day period, the aggrieved employee "may commence a civil action pursuant to" PAGA. The 65-day waiting period serves a critical purpose in the PAGA statutory scheme: it provides the LWDA with a meaningful opportunity to evaluate the alleged violations and determine whether state enforcement resources should be directed to the matter. During this period, the LWDA may exercise its discretion to investigate, issue citations, or decline to act, in which case the right of private enforcement accrues to the aggrieved employee.
The plain language of Section 2699.3(a)(2)(A) is clear that the employee's authorization to "commence a civil action" arises only after the expiration of the 65-day period without LWDA action. The statute does not expressly address the consequences of a premature filing — i.e., a filing before the 65-day period expires — which has given rise to litigation concerning whether premature filing constitutes a jurisdictional defect or a curable procedural irregularity.
2. Compliance Analysis
The PAGA notice was filed with the LWDA and postmarked on September 15, 2022. Calculating the 65-day waiting period from that date, the waiting period expired on November 19, 2022. The calculation is straightforward: September 15, 2022, plus 65 calendar days, yields November 19, 2022. We note that various internal calculations have identified November 14, 2022, as a potentially relevant date — this appears to reflect a calculation error or an alternative calculation methodology that does not affect the controlling 65-day deadline.
During the 65-day period, the LWDA did not issue a citation to AMA, did not notify either the plaintiffs or AMA that it intended to investigate the alleged violations, and took no other action responsive to the notice. As of the date of this memorandum (November 15, 2022), the LWDA has not communicated with either party regarding the notice. The 65-day period will expire in four days, on November 19, 2022, and we have no reason to believe that the LWDA will act before that date.
The critical issue is one of timing. The Fuentes complaint — including the PAGA cause of action — was filed on November 1, 2022, which was eighteen (18) days before the expiration of the 65-day waiting period on November 19, 2022. Under the plain language of Section 2699.3(a)(2)(A), the employee's right to commence a civil action accrues only after the 65-day period expires without LWDA action. Filing the complaint before the waiting period expired is, by the statute's terms, premature.
3. Legal Authority on Premature Filing
The question of whether premature filing of a PAGA claim constitutes a jurisdictional defect or a claim-processing requirement has been addressed by California courts, and the prevailing authority supports the conclusion that premature filing is a curable procedural irregularity rather than a fatal jurisdictional bar.
The leading case on this issue is Brown v. Ralphs Grocery Co. (2018) 28 Cal.App.5th 824. In Brown, the Court of Appeal for the Second District considered whether the premature filing of a PAGA claim — before the expiration of the 65-day notice period — required dismissal of the claim. The court held that the 65-day waiting period is a claim-processing requirement rather than a jurisdictional bar. (Id. at pp. 839–40.) The court reasoned that the purpose of the notice period is to give the LWDA an opportunity to investigate the alleged violations, not to divest the trial court of subject matter jurisdiction over the dispute. The court observed that the LWDA's interest is in receiving timely notice and having a meaningful opportunity to act; once the 65-day period has expired without LWDA action, the purpose of the notice requirement has been fully served regardless of when the complaint was filed.
Under Brown, a premature filing can be cured by the passage of time. Once the 65-day period actually expires and the LWDA has not acted, the procedural defect is deemed cured, even if the action was initiated before the expiration of the waiting period. The court analogized the 65-day waiting period to other statutory pre-suit notice requirements — such as the government tort claims filing requirement — that courts have treated as curable procedural conditions rather than absolute jurisdictional prerequisites.
Applied to the present case, the analysis under Brown is straightforward. Although the Fuentes complaint was filed on November 1, 2022, eighteen days before the expiration of the 65-day waiting period, the waiting period will expire on November 19, 2022, without LWDA action. Under Brown, the premature filing defect will be deemed cured as of that date. Additionally, plaintiffs' counsel could cure any remaining defect by filing an amended complaint after November 19, 2022, or by seeking leave to relate back to the original filing date. Given the procedural posture of the case — no responsive pleading has yet been filed, and no substantive motions have been heard — plaintiffs would have ample opportunity to amend if the court were to identify the premature filing as a deficiency requiring correction.
We note that Brown is binding authority in the Second Appellate District, which encompasses Los Angeles County. As the Fuentes action was filed in the Los Angeles Superior Court, Brown is directly applicable and controlling.
4. AMA's Potential Defense
AMA could raise the premature filing of the PAGA claim as an affirmative defense, arguing that the PAGA cause of action was not ripe when the complaint was filed on November 1, 2022, because the 65-day waiting period had not yet expired. This argument has facial merit as a technical matter — the complaint was indisputably filed before the statutory precondition was satisfied.
However, the likelihood of obtaining dismissal of the PAGA claim based on this procedural defect is low, for several reasons. First, as discussed above, Brown v. Ralphs Grocery Co. holds that the defect is curable, and the 65-day period will have expired (or will have expired, as of November 19, 2022) without LWDA action. Second, the court will almost certainly permit amendment or deem the defect cured given the absence of any prejudice to AMA and the strong policy favoring resolution of disputes on the merits. Third, the LWDA did not take any action during the 65-day period, which means the purpose of the waiting period — providing the LWDA with an opportunity to investigate — has been fully served.
Beyond the low likelihood of success, there is a meaningful risk that aggressively pursuing the premature-filing argument could be perceived as hyper-technical and may antagonize the court. The Honorable Raymond Escobedo, who is assigned to this matter, has a reputation for pragmatic case management and has demonstrated limited patience for procedural gamesmanship that does not address the substantive merits of a dispute. Presenting the premature-filing argument as a basis for a dispositive motion could undermine AMA's credibility with Judge Escobedo, particularly where the substance of the PAGA claim — the underlying alleged Labor Code violations — is entirely unaffected by the timing of the filing.
5. Recommendation
We recommend that AMA preserve the premature-filing argument in its Affirmative Defenses. As proposed in our draft Answer (see Document 21/23), the premature-filing argument is incorporated as the Eleventh Affirmative Defense regarding PAGA standing and procedural prerequisites. By asserting the defense in the Answer, AMA avoids waiving the argument and retains the option of raising it if the law develops in a manner favorable to the defense or if circumstances change.
However, we recommend that AMA not lead with this argument as a primary defense strategy. Specifically, AMA should not file a standalone demurrer or motion to dismiss the PAGA claim on the basis of premature filing. The argument is unlikely to result in dismissal, carries the risk described above of undermining AMA's credibility, and would consume litigation resources disproportionate to the negligible benefit it is likely to yield.
C. Standing — "Aggrieved Employee" (Cal. Lab. Code § 2699(c))
1. Statutory Requirement
To maintain a PAGA cause of action, the plaintiff must qualify as an "aggrieved employee" within the meaning of California Labor Code Section 2699(c). The statute defines an "aggrieved employee" as "any person who was employed by the alleged violator and against whom one or more of the alleged violations was committed." This definition requires two elements: (1) an employment relationship with the defendant employer, and (2) the commission of at least one of the alleged Labor Code violations against the plaintiff personally.
The California Supreme Court addressed the scope of PAGA standing in Kim v. Reins International California, Inc. (2020) 9 Cal.5th 73. In Kim, the Court held that a plaintiff who settles her individual claims retains standing to pursue PAGA claims as a representative of the state. (Id. at pp. 83–84.) The Court reasoned that because a PAGA claim is a representative action brought on behalf of the state — not an individual claim for personal relief — the resolution of the plaintiff's individual claims does not extinguish her interest in prosecuting the PAGA claim. Under Kim, an aggrieved employee's PAGA standing is not dependent on the continued viability of her individual claims; it is sufficient that she was an employee against whom at least one alleged violation was committed.
The Kim decision is significant for the Fuentes action because it means that even if Fuentes's individual claims were to be resolved through settlement, arbitration, or otherwise, she would retain standing to pursue the PAGA representative claim on behalf of all aggrieved employees. This effectively immunizes the PAGA claim from individual-level defenses that might otherwise eliminate the plaintiff's interest in the litigation.
2. Compliance Analysis
Marisol Fuentes was employed by AMA from March 14, 2019, through August 5, 2022, as a non-exempt, hourly Production Coordinator in the Unscripted Programming Division. She worked at AMA's Studio City production facility, located at 4024 Penmark Strategy Partners Avenue, Studio City, California 91604. The Studio City facility is designated internally as Facility 4.
The complaint alleges that Ms. Fuentes personally experienced the following Labor Code violations during her employment:
• Meal period violations arising from the TimeTrack Pro auto-deduction system, which automatically deducted thirty minutes from her recorded time for meal periods regardless of whether she actually received a compliant, uninterrupted, duty-free meal period. The complaint further alleges that the Missed Meal Attestation feature within TimeTrack Pro was not activated at the Studio City facility (Facility 4), which was one of three facilities — Facilities 2, 4, and 7 — where this feature was not available to employees. The absence of the attestation feature at Ms. Fuentes's facility is particularly relevant because it suggests that employees at these facilities had no mechanism within the timekeeping system to report missed or non-compliant meal periods.
• Rest period violations arising from the alleged requirement that production-support employees remain on or near set during designated rest periods and the frequent interruption of rest periods by production demands.
• Off-the-clock work during pre-production setup and post-production wrap periods, for which Ms. Fuentes allegedly was not compensated.
Ms. Fuentes's employment with AMA — March 14, 2019, through August 5, 2022 — falls within the class period as defined in the complaint (November 1, 2018, to present). Her employment also overlaps substantially with the PAGA look-back period, which extends from approximately September 15, 2021 (one year before the filing of the PAGA notice on September 15, 2022) forward.
Based on the foregoing, Ms. Fuentes appears to satisfy both elements of the "aggrieved employee" definition: she was employed by AMA (the alleged violator), and at least one of the alleged Labor Code violations — specifically, the meal period violations arising from the auto-deduction system at a facility where the Missed Meal Attestation feature was not activated — was allegedly committed against her.
3. Potential Challenge to Standing
If AMA could demonstrate that Ms. Fuentes did not personally experience any of the alleged violations during her employment, her PAGA standing could be challenged. For example, if AMA could show that Ms. Fuentes always received compliant meal and rest periods, was never required to perform off-the-clock work, and that all of her wages were correctly calculated and timely paid, there would be a colorable argument that she is not an "aggrieved employee" because no violation was committed "against" her.
However, such a challenge faces significant practical obstacles. The auto-deduction system was applied uniformly at the Studio City facility, and the Missed Meal Attestation feature was not available to employees at that location. Under the complaint's theory, the mere application of the auto-deduction system without a corresponding attestation mechanism constitutes a systematic violation affecting all non-exempt employees at the affected facilities. Establishing that Ms. Fuentes individually was unaffected by this system-wide practice would require a fact-intensive inquiry that is unlikely to be resolved at the pleading stage and would more appropriately be addressed through discovery and, if necessary, summary judgment.
Additionally, we note that Ms. Fuentes's separation from AMA (August 5, 2022) predates the filing of the complaint (November 1, 2022) by approximately three months. However, this temporal gap does not affect her PAGA standing. Under Kim v. Reins International California, Inc., former employees have standing under PAGA, and the statute's definition of "aggrieved employee" encompasses "any person who was employed by the alleged violator" — the use of the past tense "was employed" expressly contemplates standing for former employees.
4. Conclusion
PAGA standing appears satisfied. Ms. Fuentes was employed by AMA at a facility where the Missed Meal Attestation feature was not activated, and she alleges that she personally experienced meal period violations, rest period violations, and off-the-clock work during her employment. We do not recommend challenging Ms. Fuentes's standing as an "aggrieved employee" on this basis. Such a challenge is unlikely to succeed at any stage of the proceedings and would divert resources from more productive defense strategies.
V. PAGA Penalties Calculation and Reduction
A. Statutory Penalty Framework
Under California Labor Code Section 2699(f)(2), the default civil penalty for each violation of an applicable Labor Code provision is as follows:
• One hundred dollars ($100) for each aggrieved employee per pay period for the initial violation; and
• Two hundred dollars ($200) for each aggrieved employee per pay period for each subsequent violation.
These default penalties apply where no other specific civil penalty is provided for the underlying Labor Code violation. The term "initial violation" refers to the first pay period in which the violation occurs with respect to a given employee, and the term "subsequent violation" refers to each additional pay period in which the violation recurs. Because the initial violation penalty of $100 applies only to the very first pay period, and because the putative class period in this case spans approximately four years (from November 1, 2018, to present), the overwhelming majority of pay periods would be subject to the higher $200 subsequent violation penalty.
The PAGA notice filed by plaintiffs' counsel asserts penalties based on violations of multiple Labor Code provisions — Sections 226.7, 510, 512, 1194, 1197, 1198, 226, and 201–203 — across the entire putative class of approximately 1,850 non-exempt production-support employees for the full class period. Importantly, penalties under PAGA can be "stacked" — meaning that a single pay period can generate separate penalties for each distinct type of Labor Code violation. For example, if an employee experienced a meal period violation, a rest period violation, an overtime violation, and a wage statement violation in a single pay period, four separate PAGA penalties could be assessed for that one pay period.
B. Plaintiffs' Penalty Claim
Plaintiffs' PAGA notice claims aggregate PAGA penalties of $12.2 million. This figure represents the sum of penalties across all alleged violation types, all putative aggrieved employees, and all pay periods within the class period, calculated in accordance with the statutory penalty framework described above.
We have not yet independently verified this calculation, but based on our preliminary review, we note that the $12.2 million figure assumes the following:
(a) A high violation rate across the full class period (essentially assuming that nearly every non-exempt production-support employee experienced at least one violation in nearly every pay period throughout the class period);
(b) Application of the $200 "subsequent violation" penalty for the vast majority of pay periods, given that the initial violation penalty of $100 applies only to the first pay period in which a violation occurs with respect to each employee;
(c) Stacking of penalties for multiple violation types per pay period, such that a single pay period for a single employee could generate penalties for meal period violations, rest period violations, overtime violations, wage statement violations, and waiting time penalties, each assessed separately; and
(d) An assumption that the full putative class of approximately 1,850 non-exempt employees constitutes the universe of "aggrieved employees" for PAGA purposes.
The $12.2 million PAGA claim is a subset of plaintiffs' total claimed exposure of $38.6 million, as stated in the PAGA notice and as anticipated to be supported by expert analysis from Dr. Howard Rennick of Pinnacle Economic Consulting Group LLC. The broader $38.6 million figure includes class-wide damages for meal and rest period premium pay, unpaid overtime, minimum wage violations, wage statement penalties, and waiting time penalties, in addition to the PAGA civil penalties.
C. Judicial Discretion to Reduce PAGA Penalties
While the statutory penalty amounts establish the maximum exposure, courts have broad discretion to reduce PAGA penalties to an amount that is just and proportionate under the circumstances of the particular case. This discretion is codified in California Labor Code Section 2699(e)(2), which provides:
"The court may, in its discretion, award a lesser amount than the maximum civil penalty amount specified by this part if, based on the facts and circumstances of the particular case, to do otherwise would result in an award that is unjust, arbitrary and oppressive, or confiscatory."
This provision grants trial courts substantial latitude to calibrate PAGA penalties to the particular circumstances of each case, ensuring that the penalty amount serves the statute's remedial and deterrent purposes without imposing a punitive financial burden that is grossly disproportionate to the nature and severity of the underlying violations.
California courts have routinely exercised this discretion to reduce PAGA penalties substantially, particularly in cases where one or more of the following mitigating factors are present:
• The employer's violations were not willful or malicious, but rather resulted from negligence, inadvertence, or good faith misinterpretation of legal requirements;
• The employer has taken corrective action to remedy the violations upon learning of them;
• The total penalty amount, if assessed at the statutory maximum, would be disproportionate to the actual harm suffered by the aggrieved employees;
• The employer acted in good faith reliance on a facially compliant policy or system that proved inadequate or deficient in application; and
• The violations were technical or procedural in nature rather than substantive deprivations of employee rights.
The leading case on PAGA penalty reduction is Amaral v. Cintas Corp. No. 2 (2008) 163 Cal.App.4th 1157. In Amaral, the Court of Appeal upheld the trial court's exercise of discretion in reducing PAGA penalties by seventy-five percent (75%) where the employer's violations were not willful and the employer had implemented corrective measures to address the identified compliance deficiencies. (Id. at pp. 1213–14.) The court emphasized that the statutory penalty reduction provision reflects a legislative recognition that mechanical application of the per-violation, per-pay-period penalty formula can produce aggregate penalty amounts that bear no reasonable relationship to the severity of the underlying violations or the degree of the employer's culpability.
Additional authority supports the conclusion that substantial penalty reductions are appropriate in the circumstances presented here. In Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, while the Supreme Court did not directly address PAGA penalty reduction, the Court's discussion of meal period compliance standards suggests that employers who maintain facially compliant policies but fall short in implementation may be treated more favorably than employers who adopt no policies at all or who deliberately circumvent legal requirements.
Several factors in this case support a substantial reduction of the claimed PAGA penalties:
(1) Facially compliant policies. AMA has maintained written meal and rest break policies that are facially compliant with California law. The policies describe employees' entitlement to uninterrupted, duty-free meal periods of not less than thirty minutes and authorize employees to take rest periods of not less than ten minutes for each four-hour work period. The compliance deficiency alleged by plaintiffs arises not from the absence of a policy but from the implementation of the TimeTrack Pro auto-deduction feature, which plaintiffs contend undermined the effectiveness of the written policy.
(2) Absence of willfulness or malice. The auto-deduction system was not implemented with the intent to deprive employees of meal period premiums or to circumvent California labor law. Rather, the system was a timekeeping convenience that was widely used in the industry and that created compliance risk through its automatic operation. There is no evidence in the record suggesting that AMA's management directed the adoption of the auto-deduction feature as a deliberate strategy to avoid paying meal period premiums.
(3) Corrective action. AMA has already begun to implement corrective measures in response to the issues raised in the PAGA notice and the Fuentes complaint. Specifically, AMA has initiated the process of activating the Missed Meal Attestation feature at all seven of its California production facilities, including the three facilities (Facilities 2, 4, and 7) where the feature was previously not available. Additionally, AMA is correcting the meal period trigger threshold from six hours to five hours — a change that brings the system into alignment with the California Labor Code Section 512(a) requirement that a meal period be provided no later than the end of the fifth hour of work, rather than the sixth hour as previously programmed. These corrective actions are expected to be fully implemented by December 2022.
(4) Proportionality. Assessing the full $12.2 million in PAGA penalties would be grossly disproportionate to the actual harm suffered by the aggrieved employees, particularly given that the penalties are additive to the class-wide damages for meal and rest period premiums, unpaid overtime, and other compensation-based claims. The combined exposure of $38.6 million for a workforce of approximately 1,850 employees — even assuming widespread violations — reflects a mechanical application of stacked penalties that does not account for the remedial measures already underway or the non-willful nature of the violations.
D. Preliminary Assessment of Realistic PAGA Exposure
Based on our review of the statutory framework, the applicable case law on penalty reduction, and the specific facts of this case, we assess that the $12.2 million PAGA penalty claim is likely subject to a seventy-five to ninety percent (75%–90%) reduction in any settlement or judgment. This assessment is based on the following considerations:
• Courts routinely reduce PAGA penalties by 75% or more in cases involving non-willful violations and employer corrective action, as in Amaral;
• The stacking of penalties for multiple violation types per pay period produces an aggregate figure that is disproportionate to the actual harm and is likely to be viewed by the court as "unjust, arbitrary and oppressive, or confiscatory" within the meaning of Section 2699(e)(2);
• AMA's facially compliant policies and ongoing corrective action provide strong mitigating factors; and
• Prevailing PAGA settlement trends in comparable wage-and-hour class actions in the Central District of Los Angeles support a PAGA component in the range of three to twelve percent of the claimed PAGA exposure.
Based on this analysis, a realistic PAGA settlement component would be in the range of $500,000 to $1,500,000. We note, for purposes of internal planning and as reflected in the eventual settlement terms, that the PAGA payment from the Gross Settlement Amount was set at $750,000, of which seventy-five percent ($562,500) is allocated to the LWDA and twenty-five percent ($187,500) is distributed to aggrieved employees, consistent with the statutory distribution requirement of California Labor Code Section 2699(i).
We recommend that the PAGA penalty reduction argument be asserted as the Twelfth Affirmative Defense in AMA's Answer, as proposed in Document 21/23. The defense should cite California Labor Code Section 2699(e)(2) and reference the Court's broad discretion to award lesser penalties. This affirmative defense will be critical in both settlement negotiations — where it provides AMA with leverage to resist inflated PAGA settlement demands — and at trial, where the court's exercise of reduction discretion could significantly limit AMA's ultimate exposure.
VI. Interaction Between PAGA Claims and Class Action Claims
PAGA claims and class action claims, while frequently brought together in a single action, are distinct in their legal character, procedural requirements, and practical consequences. Understanding these distinctions is essential to AMA's defense strategy and to the structuring of any eventual settlement.
A. Procedural Distinctions
PAGA does not require class certification. A PAGA representative action is brought on behalf of the state by an aggrieved employee acting as the state's proxy. The procedural requirements of California Code of Civil Procedure Section 382 — including the requirements of ascertainability, numerosity, commonality, typicality, and adequacy of representation — do not apply to PAGA claims. As a result, even if the court were to deny class certification of the underlying wage-and-hour claims, the PAGA claim would survive and proceed independently as a representative action.
PAGA penalties are distinct from the damages and premiums sought in the class action. The class action component of the Fuentes complaint seeks compensatory relief — meal period premiums under Section 226.7, unpaid overtime under Sections 510 and 1194, minimum wage differentials, wage statement penalties under Section 226, and waiting time penalties under Sections 201–203. The PAGA component seeks civil penalties under Section 2699(f)(2), which are separate and additional monetary remedies assessed on a per-employee, per-pay-period basis. The two forms of relief are not duplicative, and recovery of class-wide damages does not preclude recovery of PAGA penalties (and vice versa).
A PAGA judgment binds all "aggrieved employees" regardless of whether they opt out of a class settlement or are excluded from the certified class. Because a PAGA claim is a representative action brought on behalf of the state, the resulting judgment or settlement has preclusive effect as to all employees who meet the definition of "aggrieved employee" during the relevant period. This is in contrast to a class action, where class members who opt out retain their individual claims.
B. PAGA Claims in the Class Certification Context
In the class certification context, the PAGA claim will proceed separately from the certified class claims. Should the court certify a class for the wage-and-hour claims, the PAGA representative claim will not be subject to the certification order and will proceed on its own representative basis. The court may, however, coordinate discovery and trial of the class claims and the PAGA claim to promote efficiency and avoid duplication of effort. As noted by the court in the August 11, 2023 certification order, "PAGA claims proceed as representative actions, not class actions, and do not require class certification." This observation is consistent with well-established California law and confirms that the PAGA claim will be managed separately from the class claims.
C. Settlement Considerations
In any settlement of the Fuentes action, the PAGA component should be separately identified and allocated from the class settlement fund. This separation is necessary for several reasons:
(1) Statutory distribution requirement. The 75/25 LWDA/employee distribution requirement under California Labor Code Section 2699(i) applies exclusively to PAGA penalties. The PAGA settlement allocation must be segregated from class-wide compensatory damages to ensure that the statutory distribution is properly calculated and implemented.
(2) Court approval. PAGA settlements require court approval and must be submitted to the LWDA for review. The court and the LWDA must be able to identify the PAGA allocation and verify that it complies with the statutory framework.
(3) Insurance coverage. Pemberton Mutual Assurance Co. has issued a reservation of rights regarding coverage for PAGA penalties under the Employment Practices Liability ("EPL") Policy (Policy No. PMA-EPL-2022-00837). Specifically, Pemberton has reserved its rights under the Penalty Exclusion set forth in Section IV.F of the EPL Policy, which may exclude coverage for civil penalties imposed by statute. The separate identification of the PAGA allocation in any settlement is essential to resolving the coverage dispute and to ensuring that AMA can accurately determine its net exposure after insurance recovery.
VII. Statute of Limitations for PAGA Claims
The statute of limitations applicable to PAGA claims is distinct from the statutes of limitations governing the underlying Labor Code violations and the broader class claims, and careful attention to this distinction is necessary to avoid confusion in the calculation of recoverable penalties.
A. One-Year Limitation on Filing
Under California Labor Code Section 2699.3(d), a PAGA civil action must be commenced within one year after the date on which the PAGA notice was filed with the LWDA. This one-year limitation period governs the time within which the aggrieved employee must initiate the civil action, and it begins to run from the date of filing of the LWDA notice — not from the date of the underlying violation or the date of the employee's separation from employment.
In the present case, the PAGA notice was filed with the LWDA on September 15, 2022. Accordingly, the one-year deadline for commencing the PAGA civil action is September 15, 2023. The Fuentes complaint, which includes the PAGA cause of action, was filed on November 1, 2022 — well within the one-year limitation period. There is no statute-of-limitations defense available to AMA with respect to the timeliness of the PAGA filing.
B. Distinction from Underlying Claims
The one-year PAGA statute of limitations is distinct from the statutes of limitations applicable to the underlying Labor Code claims. The underlying wage-and-hour claims are generally subject to the following limitations periods:
• Three years under California Code of Civil Procedure Section 338(a) for statutory penalties and liability created by statute, which encompasses the majority of the Labor Code violations alleged in the complaint;
• Four years for claims brought under the Unfair Competition Law (California Business and Professions Code Section 17200 et seq.), pursuant to the four-year limitations period prescribed by Section 17208; and
• Three years for claims for unpaid wages under the Labor Code, as a liability created by statute.
C. PAGA Look-Back Period
The one-year PAGA statute of limitations does not directly govern the "look-back" period for calculating recoverable penalties. Under PAGA, penalties may be recovered for violations occurring within one year prior to the filing of the PAGA notice. Because the PAGA notice in this case was filed on September 15, 2022, the PAGA look-back period extends to approximately September 15, 2021 — that is, penalties are recoverable under PAGA for violations occurring from September 15, 2021, forward.
This PAGA look-back period is narrower than the class period for the broader class action, which extends back to November 1, 2018 (approximately four years before the filing of the complaint, consistent with the four-year UCL statute of limitations). The distinction is significant for purposes of calculating AMA's PAGA exposure: while the class-wide damages claim encompasses violations over a four-year period, the PAGA penalty claim is limited to violations occurring within the approximately one-year look-back period prior to the filing of the PAGA notice. This temporal limitation reduces the number of pay periods for which PAGA penalties can be assessed and correspondingly reduces the total PAGA penalty exposure.
VIII. Recommendations
Based on the foregoing analysis, we recommend the following course of action with respect to the PAGA claims in the Fuentes action:
1. Preserve the premature-filing argument in AMA's Affirmative Defenses. The premature-filing defect should be asserted as the Eleventh Affirmative Defense (No PAGA Standing / Failure to Satisfy Pre-Suit Prerequisites) in AMA's draft Answer, as proposed in Document 21/23. Preserving this defense ensures that AMA does not waive the argument and retains the option of raising it in the event of favorable legal developments or changed circumstances. However, AMA should not pursue the premature-filing argument as a primary defense strategy and should not file a standalone demurrer or motion to dismiss the PAGA claim on this basis. The procedural defect is likely cured under Brown v. Ralphs Grocery Co. (2018) 28 Cal.App.5th 824, and pursuing the argument aggressively could be perceived as hyper-technical and risks undermining AMA's credibility with the Honorable Raymond Escobedo.
2. Assert the PAGA penalty reduction argument as the Twelfth Affirmative Defense. AMA should assert, as its Twelfth Affirmative Defense, the Court's broad discretion to reduce PAGA penalties under California Labor Code Section 2699(e)(2). This defense should specifically reference the statutory standard — that the Court may award a lesser amount if the maximum penalty would be "unjust, arbitrary and oppressive, or confiscatory" — and should identify AMA's facially compliant policies, non-willful conduct, and corrective action as mitigating factors. This affirmative defense is an essential component of AMA's defense strategy and will be critical in both settlement negotiations and at trial. The penalty reduction argument is AMA's strongest PAGA defense and should be treated as a primary defense theme throughout the litigation.
3. Do not challenge Fuentes's PAGA standing on "aggrieved employee" grounds. Ms. Fuentes's employment at the Studio City facility — one of three facilities where the Missed Meal Attestation feature was not activated — provides a strong factual basis for her standing as an aggrieved employee. Her former-employee status does not affect her standing under Kim v. Reins International California, Inc. (2020) 9 Cal.5th 73. A challenge to her standing is unlikely to succeed and would not be a productive use of litigation resources.
4. Structure the PAGA component separately in settlement negotiations. In any settlement discussions, the PAGA component should be separately identified and allocated from the class settlement fund. The PAGA allocation should be kept at a modest level consistent with our preliminary exposure assessment of $500,000 to $1,500,000, and should comply with the seventy-five/twenty-five percent LWDA/employee distribution requirement under California Labor Code Section 2699(i). We should also coordinate with Bernard Crawford regarding Pemberton Mutual Assurance Co.'s position on coverage for PAGA penalties, as the carrier has reserved its rights under the Penalty Exclusion (Section IV.F) of the Employment Practices Liability Policy (Policy No. PMA-EPL-2022-00837). A clear separation of the PAGA component from the compensatory damages component of any settlement will be essential to resolving the coverage dispute and to ensuring that AMA can accurately determine its out-of-pocket exposure after any available insurance recovery.
5. Monitor PAGA legislative developments. The California Legislature has been actively considering amendments to PAGA that could significantly affect penalty calculations, employer cure provisions, and the interaction between PAGA and class actions. Recent legislative proposals have included provisions that would allow employers to cure certain violations before PAGA penalties accrue, caps on aggregate PAGA penalties, and revisions to the pre-suit notice requirements. Any amendments enacted during the pendency of the Fuentes litigation could affect our defense strategy, our exposure analysis, and the terms on which a settlement might be reached. We recommend that the team monitor legislative activity on an ongoing basis and provide updates as developments warrant.
6. Coordinate with PAGA co-counsel. Sandra Higuera of Veltrano Employment Law Group PC, located at 350 South Grand Avenue, Suite 2800, Los Angeles, California 90071, has been identified as co-counsel responsible for the PAGA claim and the California Labor Code Section 226 derivative claims (wage statement violations). The involvement of Veltrano as PAGA-specific co-counsel suggests that plaintiffs' counsel intend to pursue the PAGA claim with particular vigor and may seek to leverage the PAGA penalties as a significant component of any settlement demand. We should ensure that all discovery responses, written discovery propounded by AMA, and settlement discussions appropriately account for the PAGA-specific issues raised in this memorandum and for Veltrano's role in the litigation. Discovery directed to the PAGA claim — including interrogatories regarding the penalty calculations, requests for production of documents supporting the $12.2 million figure, and potential deposition of Dr. Howard Rennick regarding his anticipated expert analysis — should be coordinated with our broader class action discovery plan.
IX. Conclusion
The PAGA claim asserted in the Fuentes complaint presents a procedural defect — the complaint was filed on November 1, 2022, eighteen days before the expiration of the sixty-five-day waiting period on November 19, 2022 — but this defect is likely cured under the holding of Brown v. Ralphs Grocery Co. (2018) 28 Cal.App.5th 824 and presents a low probability of resulting in dismissal of the PAGA cause of action. Named plaintiff Marisol Fuentes has standing as an "aggrieved employee" by virtue of her employment at a facility where the Missed Meal Attestation feature was not activated and her allegations that she personally experienced meal period violations, rest period violations, and off-the-clock work during her employment with AMA.
The claimed PAGA penalties of $12.2 million are subject to substantial judicial reduction under California Labor Code Section 2699(e)(2), given AMA's facially compliant policies, non-willful conduct, and corrective action. Our preliminary assessment of realistic PAGA exposure is in the range of $500,000 to $1,500,000, and the eventual PAGA settlement allocation of $750,000 falls within this range. AMA's primary PAGA defense should focus on penalty reduction under Section 2699(e)(2) rather than on procedural or standing challenges, which are unlikely to succeed and carry a risk of diminishing AMA's credibility with the court.
This memorandum will be supplemented as additional factual information becomes available, as the anticipated Halloran action (Case No. 22STCV39501) is filed and consolidated, and as any PAGA legislative amendments are enacted.
cc: Renata Vasquez (file) Devon Archer (file)

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