RUSSO v. FEDERAL MEDICAL SERVICES INC (2024)

ORDER DENYING MOTIONS TO REMAND AND DISMISS, GRANTING MOTION TO AMEND, AND CONSOLIDATING CASES

This order addresses three motions across two cases. In Russo v. Federal Medical Services, Inc., No. 5:24-cv-00748-PCP (Russo I), plaintiff Alexander Russo asserts several causes of action against two of his former employers, Federal Medical Services, Inc. (hereinafter “Federal Medical”) and Ben Fitzgerald Real Estate Services, LLC (hereinafter “Ben Fitzgerald”), as well as several associated individuals, including Jim Slattery (Federal Medical's CEO), Jerry Tate (Ben Fitzgerald's owner), and Abigail Woulfe (Russo's supervisor at both firms). His claims arise under the California Labor Code, California's Unfair Competition Law, and the federal Fair Labor Standards Act. Russo has moved to amend his complaint in Russo I to add Erick Reddick as an additional plaintiff.

In Russo v. Federal Medical Services, No. 5:24-cv-03701-PCP (Russo II), Russo asserts similar causes of action against several of the same defendants. The primary difference between the two cases is that in Russo II he sues under California's Private Attorneys General Act (PAGA). PAGA allows a plaintiff to sue on behalf of similarly situated “aggrieved employees” and recover civil penalties. See Cal. Lab. Code §§ 2698-2699.8. Plaintiffs receive 25 percent of PAGA penalties and California's Labor & Workforce Development Agency (“LWDA”) receives the other 75 percent.¹ In Russo II, Russo asserts that defendants Federal Medical, Abigail Woulfe, and Jim Slattery have violated many of the same wage and labor laws asserted in Russo I, but he seeks only civil penalties under PAGA. Russo has moved to remand Russo II to state court, and all three defendants have moved to dismiss Russo II.

For the reasons set forth below, the motion to amend in Russo I to add Erick Reddick as a plaintiff is granted; the motions to remand and dismiss Russo II are denied; and the Court orders the two cases consolidated under Federal Rule of Civil Procedure 42.

I. The motion to amend in Russo I is granted.

Russo seeks leave to file a fourth amended complaint joining Erick Reddick as an additional plaintiff. Federal Rule of Civil Procedure 20(a) governs permissive joinder of plaintiffs. It requires that “(1) the plaintiffs assert [a] right to relief arising out of the same transaction, occurrence, or series of transactions or occurrences; and (2) there are common questions of law or fact.” Coughlin v. Rogers, 130 F.3d 1348, 1350 (9th Cir. 1997). These are “relatively loose requirements” that “allow district courts discretion in granting joinder.” Campbell v. City of Los Angeles, 903 F.3d 1090, 1112 (9th Cir. 2018). Separately, Federal Rule of Civil Procedure 15 governs the amendment of pleadings. Absent consent of the opposing party, the moving party generally must have “the court's leave.” Fed. R. Civ. P. 15(a)(2). “The court should freely give leave when justice so requires.” Id. Courts in this Circuit apply Rule 15 “with extreme liberality.” Desertrain v. City of Los Angeles, 754 F.3d 1147, 1154 (9th Cir. 2014). The propriety of a motion to amend depends on “the presence of any of four factors: bad faith, undue delay, prejudice to the opposing party, and/or futility.” Griggs v. Pace Am. Grp., Inc., 170 F.3d 877, 880 (9th Cir. 1999). Defendants argue that the amendment does not satisfy Rule 20 and is thus futile under Rule 15.

Rule 20’s “ ‘same transaction’ requirement, refers to similarity in the factual background of the claim.” Coughlin, 130 F.3d at 1350. Russo's amended complaint alleges that both Reddick and Russo overlapped in their employment with Federal Medical and Ben Fitzgerald for a period of four years. It further alleges that both Russo and Reddick reported their hours to Woulfe; that she supervised their work; and that both plaintiffs were paid the same wage, performed similar duties, and faced similar injuries (e.g., failure to pay overtime, failure to give breaks, etc.). The thrust of the amendment is that both Russo and Reddick experienced a common pattern of employment and supervision that deprived them of rights under California labor statutes.

Defendants argue that Reddick's employment contract with a different entity (Rosemark dba Ben Fitzgerald) than Russo (Ben Fitzgerald) will lead to individualized factual analyses unsuited for Rule 20(a). But on balance, the commonalities between the two plaintiffs outweigh their individual circumstances. The two plaintiffs’ overlapping employment period, similar duties, shared management, and identical pay present a common “transaction, occurrence, or series of transactions or occurrences” for the purposes of Rule 20(a). Campbell, 903 F.3d at 1112.

For similar reasons, the amendment also satisfies Rule 20’s second prong, which requires both plaintiffs to allege “common questions of law or fact.” Coughlin, 130 F.3d at 1350. For example, Reddick and Russo's reporting to Woulfe as their supervisor raises common factual questions about Woulfe's tracking and reporting hours to Federal Medical and Ben Fitzgerald for the purposes of overtime pay. Factual questions related to Slattery's management, control, maintenance of employee records, and firing practices may also be common to both plaintiffs. Further, the amendment alleges that both plaintiffs received hourly pay of $16.28. Whether this rate satisfies California minimum wage standards is a common question of law. And any internal policies of Federal Medical and Ben Fitzgerald related to the provision of wage statements or allowance of meal and rest breaks, for example, will likely raise common legal questions.

The case will undoubtedly involve certain individualized questions as to each plaintiff but “[t]he rule does not require that all questions of law and fact raised by the dispute be common.” Mosley v. General Motors Corp., 497 F.2d 1330, 1334 (8th Cir. 1974). Rather, the purpose of Rule 20(a) is to “identify those shared issues that will collectively advance the prosecution of multiple claims in a joint proceeding.” Campbell, 903 F.3d at 1115 (discussing the commonality requirement of rules 23(a), 20(a), and 42(a)). The Court is therefore satisfied that the common questions of fact and law raised by the amendment will materially advance the joint litigation. And while defendants argue that individualized issues may lead to jury confusion, this presents a problem down the road and the Court retains discretion to order separate trials should it be necessary. See Fed. R. Civ. P. 42(b).

Finally, Rule 15 presents no bar to amendment because defendants have failed to show “bad faith, undue delay, prejudice to the opposing party, and/or futility” that may otherwise warrant denial of Russo's motion. Griggs, 170 F.3d at 880. As demonstrated, the amendment satisfies the requirements of Rule 20 and is thus not futile under Rule 15. Given that the Court extended fact discovery through December 9, 2024, the amendment does not prejudice defendants by preventing them from completing further discovery as to the new plaintiff. At the Court's hearing on this motion, plaintiffs’ counsel further confirmed that Reddick will not seek to take advantage of the filing date of Russo's complaint for the purpose of the relevant statutes of limitations. The irrelevance of relation back to plaintiffs’ motion further reduces any risk of prejudice to defendants. Should defendants need additional time to conduct fact discovery for Reddick's claims, the parties may seek leave to amend discovery deadlines upon a showing of good cause.

For the foregoing reasons, Russo's motion to amend to add Erick Reddick as a plaintiff is granted.

II. The motion to remand Russo II is denied.

Russo moves to remand the second case to state court on the grounds that removal was untimely and the Court lacks subject matter jurisdiction under 28 U.S.C. § 1332. His motion is denied.

a. Removal was timely.

Where a defendant sued in state court removes the case to federal court, they must do so within 30 days after receiving service of summons. 28 U.S.C. § 1446(v)(2)(C). The clock runs from the point at which the latest-served defendant was served. See id. § 1446(b)(2)(C). Defendants filed for removal on June 20, 2024, meaning that the latest-served defendant must have received notice on or after May 21, 2024.

Russo argues that service upon Jim Slattery on May 17, 2024 constituted service on both Slattery and Federal Medical because Slattery serves as CEO of Federal Medical. But in this litigation, Russo is suing Slattery in his individual capacity, not just as a representative of Federal Medical. The proof of service papers that the parties submitted to the Court show that Slattery was served “as an individual defendant” and the box for service on behalf of a corporation was left unchecked. Thus, service upon Slattery was insufficient to put Federal Medical on notice of the pending action. Indeed, if that alone were enough, Russo would not have needed to serve Federal Medical's registered agent for service, John Bluxie, but Russo did in fact serve Bluxie on May 21, 2024 with service forms showing that he was “served on behalf of an entity or as an authorized agent.” The forms list “Federal medical Services, Inc.” as the party served.

Because service of Federal Medical did not occur until May 21, 2024, defendants’ removal 30 days later on June 20, 2024 was timely.

b. The Court has subject matter jurisdiction over the complaint.

Under 28 U.S.C. § 1332(a), federal courts have diversity jurisdiction over cases that involve parties from different states and whose value exceeds $75,000. Russo moves to remand on the ground that the parties in this litigation are not diverse from one another and that the amount in controversy does not exceed $75,000.

Russo is a citizen of California, and all three defendants are citizens of Texas. Russo argues, however, that in a PAGA lawsuit, the state (not the lead plaintiff) is the true party in interest. Because “a State is not a ‘citizen’ for purposes of the diversity jurisdiction,” Moor v. Cnty. of Alameda, 411 U.S. 693, 717, 93 S.Ct. 1785, 36 L.Ed.2d 596 (1973), Russo argues that remand is required.

In support of his position, Russo relies upon Urbino v. Orkin Servs. Of Cal., Inc., 726 F.3d 1118, 1123 (9th Cir. 2013). In Urbino, California plaintiff John Urbino sued on behalf of 811 similarly situated employees against corporate defendants, each of whom were citizens of different states. The question before the court was not whether California was a party in interest but whether a lead PAGA plaintiff can aggregate the civil penalties owed to all similarly aggrieved employees for the purpose of the amount in controversy requirement. Contrary to the “traditional rule” of aggregation, the Ninth Circuit held that in PAGA litigation multiple aggrieved employees cannot aggregate their PAGA claims to satisfy 28 U.S.C.§ 1332(a). Id. at 1122–23.

The Urbino court briefly touched on a state's citizenship, explaining that “[t]he state, as the real party in interest, is not a ‘citizen’ for diversity purposes.” Urbino, 726 F.3d at 1123 (emphasis added). But the Court cabined this logic as applying only “[t]o the extent Plaintiff can—and does—assert anything but his individual interest.” Id. at 1122. The court, primarily concerned with the amount in controversy requirement, did not consider whether John Urbino himself was a party in interest because, even if he was, his claim did not reach the $75,000 threshold. As one district court has explained, the “better reading of this passage” is that the court accepted “for the sake of argument” that Urbino “was effectively a representative of the State of California.” Patel v. Nike Retail Servs., Inc., 58 F. Supp. 3d 1032, 1046 (N.D. Cal. 2014); see also Canela v. Costco Wholesale Corp., 971 F.3d 845, 849 (9th Cir. 2020) (“[In Urbino, w]e concluded that PAGA civil penalties could not be aggregated for [the amount in controversy requirement], and therefore that the district court lacked diversity jurisdiction.”). Urbino required remand to the state court because Urbino could not satisfy the amount in controversy requirement even if both he and California were real parties in interest.

Here, Russo alleges violations of California wage and labor laws that arise from his own unique circumstances, namely his employment with Federal Medical and Ben Fitzgerald. He clearly asserts his own interest because the PAGA claims rise and fall upon a consideration of factual circumstances and alleged injuries that are unique to him. Assuming that Russo is an “aggrieved employee,” the PAGA statute gives him a right to sue and “recover[ penalties] through a civil action.” Cal. Lab. Code. § 2699(a). This right makes him a party in interest. See Warth v. Seldin, 422 U.S. 490, 499, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975) (“[a] plaintiff generally must assert his own legal rights and interests.”); see also Nat'l Grange of the Ord. of Patrons of Husbandry v. Cal. Guild, 334 F. Supp. 3d 1057 (E.D. Cal. 2018) (“[T]he ‘real party in interest’ rule ․ explains that the real party is the person who has the right to sue under the substantive law.”). And even if “California is a party in interest to a PAGA action, this does not convert California into an actual party in all PAGA litigation.” Archila v. KFC U.S. Props., Inc., 420 Fed. Appx. 667, 668 (9th Cir. 2011) (internal citation omitted). “There is no basis” for deeming California the only party in interest when the state, as “a real party in interest has declined to bring the action or intervene.” United States ex rel. Eisenstein v. City of N.Y., 556 U.S. 928, 129 S.Ct. 2230, 173 L.Ed.2d 1255 (2009). Thus, Russo is a party in interest for the purposes of 28 U.S.C. § 1332(a). Because defendants are all citizens of Texas, the parties are completely diverse.

Whether the amount in controversy in Russo II exceeds $75,000 is a closer call because Urbino did not address whether federal courts can aggregate the 75 percent of PAGA penalties paid to the state with the lead plaintiff's 25 percent. The “removing defendant bears the burden of establishing, by a preponderance of the evidence, that the amount in controversy exceeds [$75,000].” Sanchez v. Monumental Life Ins. Co., 102 F.3d 398, 404 (9th Cir. 1996). If the court can include the 75 percent state share, then defendants have met this burden. PAGA calculates penalties at $100 per employee per pay period for the first initial violation and $200 per employee per pay period for every subsequent violation. Defendants argue that for Russo's ten claims, which span about 32 pay periods, this amounts to roughly $63,000.² And where, as here, “an underlying statute authorizes an award of attorneys’ fees, ․ such fees may be included in the amount in controversy.” Galt G/S v. JSS Scandinavia, 142 F.3d 1150, 1156 (9th Cir. 1998). The declaration of Russo's counsel states that he has already incurred over $19,000 in fees related solely to the motion to remand. This clearly pushes the amount in controversy above the jurisdictional threshold.

If the court cannot include the state's 75 percent share, however, the amount in controversy falls well below the threshold because Russo's 25 percent share, before attorneys’ fees, is only $15,750 and defendants have not shown that attorneys’ fees alone will bring that amount above $75,000.

District courts throughout California have reached different conclusions on the question of whether California's 75 percent share of PAGA penalties is part of the amount in controversy for purposes of exercising diversity jurisdiction over a PAGA claim. Some courts read Urbino broadly to imply that if the claims of “other represented workers [are not] ‘common and undivided’ with those of a PAGA litigant,” then it would be logically inconsistent to “consider[ ] the state's ‘collective interest,’ vindicated by the litigation of these claims, to be such a common and undivided interest.” Lopez v. Ace Cash Express, No. LA CV11-07116-JAK, 2015 WL 1383535 (C.D. Cal. Mar. 24, 2015); see also Steenhuyse v. UBS Financial Servs., Inc., 317 F. Supp. 3d 1062 (N.D. Cal. 2018) (excluding the state's share). Other courts read Urbino narrowly as only addressing aggregation in the context of separate plaintiffs. Those courts have instead recognized that “the question of whether employees share their claims with the LWDA is importantly different than the question of whether employees share their claims with each other.” Patel, 58 F. Supp. 3d at 1047 (N.D. Cal. 2014); accord Ruiz v. Snyder's-Lance, Inc., No. 24-cv-04053-RFL, 2024 WL 4295280, at *2 (N.D. Cal. 2024) (holding that “to the extent the State has an interest in an employee's individual PAGA claims, that interest is ‘held in common’ with the employee”). Indeed, when the court adjudicates an individual litigant's PAGA claims, “any ‘rights’ the LWDA has in those claims will either be vindicated or extinguished.” Patel, 58 F. Supp. 3d at 1048.

This Court agrees with the courts that have included the state's PAGA share in calculating the amount in controversy. Urbino plainly does not consider this question. The court considered only whether individual plaintiffs have a “common and undivided interest” in their collective PAGA claims. Urbino, 726 F.3d at 1122. The court did not consider the unity of the State's interest with that of an individual plaintiff.

Further, aggregating penalties from claims that arise from the individualized factual circumstances of different plaintiffs is conceptually different from combining the state's share of penalties with that of a plaintiff because the combined penalties arise from the same underlying facts. For example, Russo and Reddick, though they may share “questions of fact and law [in] common,” cannot assert a “common and undivided interest” because their “rights are held individually.” Id. Russo and Reddick each “suffer[ ] a unique injury” that one can “redress[ ] without the involvement of [the] other.” Id. Claims are “common and undivided” only where those claims “are derived from rights that [the plaintiffs] hold in group status.” Eagle v. Am. Tel. & Tel. Co., 769 F.2d 541, 546 (9th Cir. 1985). Because Russo and Reddick's claims arise from their individual rights, they are “separate and distinct,” and their PAGA fees therefore cannot be aggregated. Id.

By contrast, the injury of a plaintiff like Russo or Reddick is a necessary predicate to the LWDA's ability to bring a suit under PAGA at all. In that sense, the right of both a PAGA plaintiff and the LWDA derive from a common source: the injury to a plaintiff that results from their employer's violation of California wage and labor laws. Absent that employee's unique injury, the state—and PAGA itself—have no role to play. Put differently, “both ‘claims’ have as their source the exact same injuries.” Patel, 58 F. Supp. 3d at 1047. For that reason, once a Plaintiff has pursued and adjudicated their claims under PAGA, the final judgment in the plaintiffs’ suit precludes the state from seeking those penalties in any subsequent proceeding.

For this reason, Urbino does not require remand here. Russo and the state share a common and undivided interest, the whole of which the Court can include in the amount in controversy for the purposes of 28 U.S.C. § 1332(a).

Because the parties are diverse and the amount in controversy exceeds the jurisdictional threshold, Russo's motion to remand is denied.

III. The motion to dismiss Russo II is denied, and the Court orders the two cases consolidated for further proceedings.

Defendants move to dismiss Russo II on three grounds: (1) that Russo fails to plead an employee relationship with Woulfe and Slattery, (2) that the pleadings are undifferentiated and not sufficiently specific, and (3) that the complaint amounts to improper claim splitting. Defendants previously moved to dismiss Russo I on the first two grounds, raising arguments indistinguishable from those now presented in Russo II. For the same reasons stated in the Court's order in Russo I, see Russo v. Federal Medical Services, Inc. ––– F. Supp. 3d ––––, 2024 WL 3738193 (N.D. Cal. Aug. 9, 2024), defendants’ first two arguments for dismissing Russo II are rejected.

Defendants next invoke the doctrine against claim splitting, which holds that “[p]laintiffs generally have no right to maintain two separate actions involving the same subject matter at the same time in the same court and against the same defendant.” Mendoza v. Amalgamated Transit Union Int'l, 30 F.4th 879, 886 (9th Cir. 2022) (internal citations omitted). While claim preclusion may apply where a plaintiff could have brought a claim in an earlier filed litigation, claim splitting permits a court to preclude a plaintiff from asserting claims in a later filed action. Crucially, however, claim splitting is a discretionary doctrine reflecting “[d]istrict courts ․ broad discretion to control their dockets.” Adams v. California Dept. of Health Servs., 487 F.3d 684, 688 (9th Cir. 2007), overruled on other grounds by Taylor v. Sturgell, 553 U.S. 880, 128 S.Ct. 2161, 171 L.Ed.2d 155 (2008). Because the doctrine is discretionary, courts faced with a claims-splitting plaintiff can choose “to dismiss [the] later-filed complaint without prejudice, to consolidate the two actions, or to stay or enjoin proceedings.” Id. 692.

The Court declines to exercise its discretion to dismiss Russo II on claims-splitting grounds. To be certain, Russo likely could have asserted his PAGA claims at the time he brought Russo I in state court because both cases assert nearly identical causes of action arising from the same series of events. The Court notes, however, that Russo II asserts claims on behalf of similarly situated employees of whom Russo may not have been aware upon filing Russo I. In any event, there was no great delay between the filing of the two cases that might otherwise prejudice the defendants and favor dismissal. At the Court's hearing on the matter, Russo expressed a seemingly good faith belief that Russo's PAGA claims could only be brought in state court.

As noted above, defendants’ claims splitting arguments ultimately invoke the Court's docket management discretion. From that perspective, the best manner for both cases to proceed would be to consolidate them for further proceedings. See Adams, 487 F.3d at 692. Courts have the authority to “consolidate the actions” if both suits “involve a common question of law or fact.” Fed. R. Civ. P. 42(a); see Hall v. Hall, 584 U.S. 59, 77, 138 S.Ct. 1118, 200 L.Ed.2d 399 (2018) (“District courts enjoy substantial discretion in deciding whether and to what extent to consolidate cases.”). As is apparent from the preceding discussion, there is significant legal and factual overlap between the two cases. In both suits, Russo alleges having started employment with defendants on the same date, that he was supervised by Woulfe, and that Slattery served as CEO of the company. Thus, his claims arise out of the same nucleus of facts: his employment with and treatment by defendants. Further the PAGA claims in Russo II require a finding that the defendants violated California Labor Code sections 201, 202, 203, 204, 226(a), 226.7, 510, 512(a), 1174(d), 1194, 1197, 1197.1, 2800, or 2802. Russo I alleges violations of the exact same statutes. In other words, to succeed Russo II, Russo must necessarily succeed on many of the claims in Russo I based on the same factual predicate. To proceed in representing similarly situated employees in Russo II, Russo will also need to show that he is an “aggrieved employee,” which he can do only by prevailing on his claims in Russo I. Should the two cases proceed on separate tracks, the parties will likely engage in duplicative discovery and motions practice. Consolidation is the most efficient manner for the parties and the Court to proceed with respect to the claims asserted in both Russo I and Russo II.

IV. Conclusion

The motions to remand and dismiss Russo II are denied; Russo's motion to amend in Russo I is granted, and the Court orders the two cases consolidated under Federal Rule of Civil Procedure 42. Within 14 days of this order, Russo must file one consolidated complaint that includes plaintiff Erick Reddick, Russo's amendments related to defendant Jerry Tate, and all of Russo's PAGA claims. The parties shall make all future filings under Case No. 24-cv-00748-PCP, and the Clerk shall close Case No. 24-cv-03701-PCP. Within 14 days, the parties shall meet and confer and file a stipulation setting the deadline for defendants to respond to the consolidated complaint.³

IT IS SO ORDERED.

FOOTNOTES

1.   The State recently overhauled PAGA to, among other chings, increase the penalty awarded to suing plaintiffs. Because the amendments apply only to PAGA claims filed after June 19, 2024, they are not relevant here.

2.   Defendants also argue that the Court should include the value of Russo's underlying lost wages claims, which amount to $375,000. But Russo's prayer for relief seeks only civil penalties recoverable under PAGA, not damages for lost wages or unpaid overtime. As Russo's counsel has explained, separate claims for the alleged wage violations were pleaded in the complaint based on the mistaken belief that doing so was required to plead a PAGA claim premised on those violations.

3.   Although Rule 12 permits the defendants to respond to Reddick's individual claims with a motion to dismiss rather than an answer, defendants should do so only if they can raise arguments that were not or could not have been asserted in their motions to dismiss Russo's claims.

P. Casey Pitts, United States District Judge