AMALGAMATED TRANSIT UNION v. SUPERIORCOURTOFLOS ANGELESCOUNTY

Filed 2/28/07

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION EIGHT

ORIGINAL PROCEEDINGS in mandate. Carl J. West, Judge. Petition denied. Neyhart, Anderson, Flynn & Grosboll, John L. Anderson and Scott M. De Nardo for Petitioners.

No appearance for Respondent.

McMahon Berger, James N. Foster, Jr. and Michelle M. Cain; Kampe & Kampe and K.W. Kampe, III for Real Party in Interest First Transit, Inc.

Gleason & Favarote, Paul M. Gleason and Torey J. Favarote for Real Party in Interest ATC/Vancom, Inc.

Jenkens & Gilchrist, Margaret Rosenthal and Sabrina L. Shadi for Real Parties in Interest Progressive Transportation Services, Inc. and Coach USA Transit Services.

Littler Mendelson and Theodore R. Scott for Real Party in Interest Laidlaw Transit Services, Inc.

______________________________

SUMMARY

In this writ proceeding, we hold:

(1) An individuals statutory right to sue in a representative capacity, conferred under the Labor Code Private Attorneys General Act of 2004 (Labor Code section 2699) and under the unfair competition law (Business and Professions Code section 17203), may not be assigned to a third party.

(2) Section 17203 of the unfair competition law, as amended by Proposition 64, providing that representative claims may be brought only if the injured claimant complies with Section 382 of the Code of Civil Procedure, means that private representative claims must meet the procedural requirements applicable to class action lawsuits.

FACTUAL, LEGAL AND PROCEDURAL BACKGROUND

Under the Labor Code, an employer who fails to provide required meal and rest periods is required to pay the employee one additional hour of pay at the employees regular rate of compensation for each work day that the meal or rest period is not provided. (Lab. Code, 226.7, subds. (a) & (b).) Employers who violate regulations governing hours and days of work are also subject to civil penalties under Labor Code section 558. The Labor Code Private Attorneys General Act of 2004 (PAGA) authorizes an aggrieved employee to bring a civil action, on behalf of himself or herself and other current or former employees, to recover civil penalties for violations of any section of the Labor Code that provides for assessment and collection of civil penalties by the Labor and Workforce Development Agency or any of its departments or divisions. (Lab. Code, 2699, subd. (a).)

Two labor unions that represent mechanics and transit operators (Unions), along with 17 members or former members of the unions (collectively, plaintiffs), filed a lawsuit against several transit company employers.[1] Plaintiffs alleged the employers failed to provide their employees with the meal and rest periods required by law, and sought unpaid wages estimated at over 10 million dollars, an award of civil penalties estimated at over $2.6 million, and other relief. In a second cause of action, plaintiffs asserted the employers failure to provide the legally required meal and rest periods violated the unfair competition law (UCL), and sought injunctive relief and restitution of unpaid wages. (Bus. & Prof. Code, 17200 et seq.) The fourth amended complaint alleged the Unions were suing in their representative capacity on behalf of members who are or were employed by the defendant employers. In addition, the Unions brought the action as assignees of rights transferred to the Unions by over 150 employees and former employees of the defendant employers, including the right to sue in a representative capacity on behalf of all other current and former aggrieved employees of Defendants . . . .

At the trial courts suggestion, the parties identified several threshold issues as controlling questions of law, including (1) whether the unions had standing to sue under the UCL and under PAGA; (2) whether the action must be brought as a class action; and (3) whether the payments specified in Labor Code section 226.7 constituted a penalty or a wage. The trial court deferred considering whether section 226.7 payments constitute a penalty or a wage, an issue which is now pending before the Supreme Court in Murphy v. Kenneth Cole Productions, review granted Feb. 22, 2006, S140308.[2] The parties briefed the other issues, a hearing was held, and on April 25, 2006, the trial court ruled, inter alia, that:

        The unions do not have standing to recover civil penalties or attorney fees under PAGA, which requires such actions to be brought by an aggrieved employee on behalf of himself or herself and other current or former employees . . . . (Lab. Code,  2699, subd. (a).)

        The unions do not have standing to sue for violations of the UCL which, as a result of Proposition 64, allows a private party to bring a UCL action only if the person has suffered injury in fact and has lost money or property as a result of such unfair competition. (Bus. & Prof. Code, 17204.)

        The assignments which the unions obtained from some of their members did not confer standing on the unions to prosecute PAGA, representative or class claims on behalf of all members of the unions.

        Proposition 64s requirement that a person may pursue representative claims, or relief on behalf of others, only if the person meets the standing requirements and complies with Section 382 of the Code of Civil Procedure, was intended to impose class action procedures on claims such as those asserted in the complaint.

The Unions filed a petition for writ of mandate and a request for a stay of the trial court proceedings. They requested a writ directing the trial court to vacate its order and enter a new order holding the Unions have standing to recover civil penalties and attorney fees under PAGA; the Unions have standing to sue for violations of the UCL; and the assignments obtained by the Unions confer standing on the Unions to prosecute PAGA and representative claims on behalf of all members of the Unions. This court issued a temporary stay order and directed the real parties in interest to file a preliminary response to the petition, and particularly to discuss whether the assignments from current and former union members to the Unions conferred standing on the Unions. After a preliminary response and a reply from the Unions were filed, the court issued an order to show cause why the trial court should not be compelled to vacate portions of its order and enter a new order, concluding that the causes of action are assignable and that the Unions have complied with the requirements of Code of Civil Procedure section 382.

Written returns were filed by the real parties in interest; the Unions filed a reply; and the order to show cause was heard on November 28, 2006. We now deny the writ petition.

DISCUSSION

The Unions concede they are not aggrieved employee[s] under PAGA and have not suffered an injury in fact under the UCL. They assert standing to sue based on the assignment to the Unions by some of their members of the members claims for recovery of wages. They further assert the assignments include the assignors right to sue in a representative capacity, and that the Unions may sue under the UCL in a representative capacity without meeting the procedural requirements applicable to class actions.

Our conclusions are these:

(1) We agree the Unions have standing as assignees to assert the claims of union members who have assigned to the Unions their rights to recover wages owing to them. The Unions may not, however, assert claims on behalf of members who have not assigned their claims to the Unions. An assignment purporting to transfer to the Unions my right to sue in a representative capacity on behalf of current and former employees is not a transfer by the owner of a right to recover money or other personal property within the meaning of Civil Code sections 953 and 954. Nor is such an assignment the transfer of an injury in fact from assignor to assignee that confers standing on the assignee within the meaning of Vermont Agency of Natural Resources v. United States ex rel. Stevens (2000) 529 U.S. 765 (Vermont Agency). Consequently, the Unions do not have standing under PAGA or the UCL to assert the rights of members who have not assigned their recovery rights to the Unions.

(2) We further conclude that the UCL requirement that a person pursuing relief on behalf of others must both meet standing requirements and [compl[y] with Section 382 of the Code of Civil Procedure means, as stated in the Voter Information Guide for Proposition 64, that unfair competition lawsuits on behalf of others, initiated by persons other than the Attorney General and local public prosecutors, must meet the additional requirements of class action lawsuits. (Voter Information Guide, Gen. Elec. (Nov. 2, 2004) analysis of Prop. 64 by Legislative Analyst, p. 39 (hereafter Guide).)

We address each issue in turn.

A. Although an employee may assign his right to recover money

to the Union, the employee may not assign a statutorily granted

right to pursue claims on behalf of others.

The Unions contend they have the right to pursue representative claims on behalf of others because one or more employees who have been granted that right by statute assigned it to the Unions. The Unions contention necessarily depends upon the premise that a legislative grant of the procedural right to bring a representative action is a type of property, like a cause of action, that can be owned and transferred. We conclude the premise is mistaken. While a cause of action is an intangible form of property that may be assigned by its owner, the right to bring a representative suit on behalf of others is another matter entirely. The right to bring a representative suit is not itself a cause of action (or any other form of property) that is owned and therefore assignable. Unlike causes of action, which arise from obligations or from the violation of property rights of the owner, the right to sue on behalf of others is a procedural mechanism created by the Legislature to facilitate the prosecution of similar claims owned by many different persons. Authorization to bring a representative suit is conferred by the Legislature, and persons authorized to bring suit have no power to assign that authorization to a third party.

Our conclusion that the right to bring a representative suit on behalf of others is not an assignable property right flows ineluctably from the statutes defining causes of action, as well as from the nature of and the law governing assignments. The Unions position to the contrary is founded, it appears, on a failure to distinguish between an injury in fact or cause of action, which is most assuredly a transferable property right, and standing to seek relief on behalf of others, which is not. We turn first to the law of assignment and the statutes defining assignable property rights, and then address the specific contentions raised by the Unions.

1. The law of assignment confirms an employee

may assign his own cause of action to his union

(or to anyone else).

It is settled that California maintains a policy encouraging the free transferability of all types of property. (Essex Ins. Co. v. Five Star Dye House, Inc. (2006) 38 Cal.4th 1252, 1259 (Essex).) Essexobserved that a chief incident of ownership in property is the right to transfer it, a right which applies equally to tangible and intangible forms of property, including causes of action. (Ibid.) The court quoted Civil Code section 954, which states: A thing in action, arising out of the violation of a right of property, or out of an obligation, may be transferred by the owner. Essexexplained that although the assignability of causes of action is derived from the common law, section 954 had the effect of liberalizing restrictions on the types of actions that may be assigned to a third party. (Essex, supra, 38 Cal.4th at p. 1259.) The only causes of action not transferable or assignable are

those which are founded upon wrongs of a purely personal nature, such as slander, assault and battery, negligent personal injuries, criminal conversation, seduction, breach of marriage promise, malicious prosecution, and others of like nature. All other demands, claims and rights of action whatever are generally held to be transferable. [Citations.] (Essex, supra, 38 Cal.4th at p. 1260.)

From these principles, and in the absence of an express statutory prohibition, we necessarily conclude an employee may assign his or her statutory causes of action for recovery of unpaid wages and for UCL violations founded on unpaid wages to the Unions.[3] Claims for unpaid wages are not    wrongs of a purely personal nature    (Essex, supra, 38 Cal.4th at p. 1260), and employees may assign their claims to their Unions just as any other person may assign a cause of action arising out of the violation of a right of property, or out of an obligation . . . . (Civ. Code, 954; Road Sprinkler Fitters Local Union No. 699 v. G & G Fire Sprinklers, Inc. (2002) 102 Cal.App.4th 765, 770, 780 (Road Sprinkler) [because workers had private statutory remedies against their employers, the assignment of their statutory rights to the union gave the union standing to sue for recovery of unpaid prevailing wages under Labor Code section 1774].) [4]

2. The right to sue in a representative capacity

is not a cause of action that may be assigned.

In addition to assigning the right to recover wages owed to them, the employees assignments in this case purported to includ[e] my right to sue in a representative capacity on behalf of current and former employees under PAGA and the UCL. The statutes defining causes of action and the law of assignment, however, clearly demonstrate that the right to sue in a representative capacity is not a cause of action, or any other form of property right, and it therefore is not assignable.

A cause of action a thing in action has been defined by statute since 1892: A thing in action is a right to recover money or other personal property by a judicial proceeding. (Civ. Code, 953.) A thing in action, if it arises out of the violation of a right of property, or out of an obligation, may be transferred by the owner. (Civ. Code, 954.) The Legislature may by statute define new legal rights or forms of compensable injury, and authorize recovery for the injury in a judicial proceeding. (See Vermont Agency, supra, 529 U.S. at p. 773.) But it is the violation of the statute or property right that creates a cause of action in the injured party, who owns the cause of action the right to recover money arising from the violation and therefore may transfer it. (See id. at pp. 773-774.)

By contrast, statutory provisions such as those in the UCL and PAGA, which authorize injured or aggrieved persons to seek relief for others as well as for themselves, do not create a cause of action. Any UCL or PAGA cause of action arises from the underlying statutory violation. The UCL, for example, defines unfair competition in section 17200 and in section 17204 allows a person who has suffered injury in fact and has lost money or property as a result of . . . unfair competition to seek relief in court. The cause of action owned by the injured party under the UCL is the right to redress, given in section 17204, for the violation defined in section 17200. Similarly, PAGA gives an aggrieved employee the right to recover civil penalties, on behalf of himself or herself and other current or former employees, for violations of other provisions of the Labor Code. [5] (Lab. Code, 2699, subd. (a).) Again, the right to recover money the cause of action arises from the underlying violation of the Labor Code (here, the failure to give meal or rest periods, for which section 226.7 requires payment to the employee). The aggrieved employee is aggrieved by the failure to give the meal or rest periods required under section 226.7, not by any statutory violation created by PAGA. Consequently, PAGA does not create a cause of action that may be transferred by its owner. The right it confers to recover civil penalties for other Labor Code violations on behalf of others, by definition, is not a cause of action, is not owned by the person on whom it is conferred and, as a necessary consequence, is not assignable. (See Civ. Code, 953 & 954.)

In short, section 17203 of the UCL and section 2699 of the Labor Code merely identify circumstances under which a person may pursue relief for a cause of action owned by someone else. The right to do so cannot be assignable for that very reason: in a representative action, the injuries for which the representative is authorized to seek relief belong to others. Stated differently, because the purported assignor (the employee), although authorized by section 17203 or PAGA to bring an action on behalf of others, has no ownership interest in the causes of action owned by others, the employee necessarily has no right to transfer those causes of action to a third party.

3. The right to sue in a representative capacity is not an

incident of an employees cause of action that is

assigned by operation of law along with the cause of action.

The Unions insist the legal effect of an employees assignment is to transfer each assignors injury in fact to the Union assignee and to grant the Union assignee standing to sue in a representative capacity under Bus. & Prof. Code 17203 and Labor Code 2699(a). As we have seen, the first prong of the contention is correct: an assignor in effect transfers his injury in fact, and his right to recover for it, to his assignee. The second prong of the contention, however, is a non sequitur, and no authority supports it.

The Unions rely solely on the general principle that [a]n assignment carries with it all rights of the assignor (1 Witkin, Summary of Cal. Law (10th ed.) Contracts, 734), and [t]he assignee stands in the shoes of the assignor and his rights are no greater than those of the assignor. (Road Sprinkler, supra, 102 Cal.App.4th at p. 775.) While these principles are, of course, correct, the Unions apply them incorrectly when they maintain, in effect, that a statutory right to pursue claims on behalf of others is an incident of the assignors right to recover compensation for his own injury. The cases cited by the Unions merely teach that, even when an assignment is silent, any incidents of the property right transferred are, by operation of law, transferred with the assignment. (See Civ. Code, 1084 [[t]he transfer of a thing transfers also all its incidents, unless expressly excepted].) For example:

o       Champion Home Builders Co. v. Sipes (1990) 219 Cal.App.3d 1415, 1423-1424, held that a finance companys assignment to plaintiff of defendants debt included the defendants personal guaranties of that debt, even though there was no express assignment of the guaranties. The transfer of the debt from Champion Credit to Champion included by operation of law the guaranty because the transfer of a thing transfers the incidents. (Ibid., footnote omitted.)

o       Mitchell v. Shoreridge Oil Co. (1938) 24 Cal.App.2d 382, 384, held that a mechanics lien is a mere incident of the debt which it secures and . . . the assignment of the debt carries with it the lien, entitling the assignee of the debt to enforce the liens. The assignee . . . became the legal owner of the claims and the liens which secured their payment.[6] (Ibid.)

o       Adjustment Corp. v. Marco (1929) 100 Cal.App. 338 held that an assignment by a landlord of a claim for $2,000 in rent due included the right to recover the attorney fees provided in the lease: The right to such fees in that event [a suit to enforce the lessors rights] was an incident to the demand, and a valuable one. (Id. at p. 341.) The assignee was entitled to recover the fee in precisely the same manner as his assignors could have done. (Id. at pp. 342-343.) The court observed the principle that transfer of a thing transfers also all its incidents, unless expressly excepted (Civ. Code, 1084) has been frequently applied. For example, it is uniformly held that the transfer of the note without mention of the security carries with it the benefit of the security. (Adjustment Corp. v. Marco, supra, 100 Cal.App. at p. 341.)

o       Essex, supra, 38 Cal.4th 1252, held that when an insured assigned a bad faith cause of action against an insurer, the assignee received the assignors right to recover the policy benefits in full, including attorney fees incurred in prosecuting the assigned claim. As the assignee of [the insureds] claim against [the insurer], [the assignee] stands in his shoes, and so may assert his right to recover . . . fees incurred in prosecuting the assigned claim. (Id. at p. 1264.)

The cited cases show that the assignee stands in the shoes of the assignor with respect to the assignors recovery rights not for other purposes unrelated to the assignors right to recover his own property. (See Adjustment Corp. v. Marco, supra, 100 Cal.App. at p. 342 [the assignee stands in the shoes of the assignor and whatever right of recovery was in the assignor on a rescission of the contract passed with the contract to the assignee].)[7] The incidents that accompany a right to recover money the guaranty along with the debt, the security along with the note, the mechanics lien along with the debt, the right to attorney fees along with the bad faith cause of action are themselves property rights owned by the assignor and therefore transferred by operation of law along with the thing assigned. The right to bring a representative suit, on the other hand, is a procedural right conferred by the Legislature to facilitate the prosecution of claims not an incident of the employees right to recover unpaid wages that is in any sense owned and therefore transferable by the employee.[8]

TO BE CONTINUED AS PART II.

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[1] The plaintiff unions are the Amalgamated Transit Union, Local 1756, AFL-CIO, and the Teamsters Joint Council 42. The employers named in the fourth amended complaint are First Transit, Inc., Progressive Transportation Services, Inc., Coach USA Transit Services, and Laidlaw Transit Services, Inc.

[2] In Murphy v. Kenneth Cole Productions, the Supreme Court directed the parties to brief and argue the question whether a claim for the required payment of one additional hour of pay at the employees regular rate of compensation for each day that an employer fails to provide mandatory meal or rest periods is governed by the three-year statute of limitations for a claim for compensation or the one-year statute of limitations for a claim for payment of a penalty.

[3] We do not decide any issue concerning the validity vel non of the particular assignments executed by the employees in this case.

[4] We emphasize that the trial court did not decide, and we do not decide, whether claims under Labor Code section 226.7 are claims for unpaid wages (as characterized by the Unions in their complaint) or claims for statutory penalties. The Supreme Court has held that a right to recover that is in the nature of a statutory penalty is not assignable. (Esposti v. Rivers Brothers, Inc. (1929) 207 Cal. 570, 573.) As previously mentioned, the question whether section 226.7 payments constitute a penalty or a wage for statute of limitations purposes is an issue now pending before the Supreme Court. (See footnote 2, ante, and accompanying text.)

[5] To the extent PAGA permits aggrieved employees to recover a civil penalty applicable to the underlying Labor Code violation, the right to do so may not be assignable on the additional ground that a right to recover statutory penalties may not be assignable. (See footnote 4, ante.)

[6] In denying a petition for hearing in Mitchell, the Supreme Court withheld approval of a portion of the opinion not pertinent to the point for which it is cited in the text. (Mitchell v. Shoreridge Oil Co., supra, 24 Cal.App.2d at p. 385.)

[7] The same conclusion flows from other authorities, which show that a valid assignment transfers legal title to a claim. Legal title passes to the assignee when a chose in action is transferred, even though the assignment is made only for collection. (1 Witkin, Summary of Cal. Law, supra, 732; see APCC Services, Inc. v. Sprint Communications Co. (D.C. Cir. 2005) 418 F.3d 1238, 1244[[c]ourts and commentators agree that, if an assignment properly transfers ownership of a claim, then the assignees interest is not affected by the parties additional agreement that the transferee will be obligated to account for the proceeds of a suit brought on the claim].) The critical point is that the assignee has legal title to an assigned claim. But there is no such thing as legal title to or ownership of a statutorily conferred right to bring suit on behalf of others. According, the right to bring a representative suit cannot be subject to assignment.

[8] The right conferred by statute to bring a representative suit may be likened by analogy to a right conferred by a power of attorney. A provision by which one person grants another the power to sue on and collect on a claim confers on the grantee a power of attorney with respect to that claim. [Citation.] The grant of a power of attorney, however, is not the equivalent of an assignment of ownership . . . . (Advanced Magnetics, Inc. v. Bayfront Partners, Inc. (2d Cir. 1997) 106 F.3d 11, 17-18.)