Liliana Canela v. Costco

FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

LILIANA CANELA, individually and No. 18-16592
on behalf of all others similarly
situated, D.C. No.
Plaintiff-Appellee, 5:13-cv-03598-
BLF
v.

COSTCO WHOLESALE CORPORATION, OPINION
Defendant-Appellant.

Appeal from the United States District Court
for the Northern District of California
Beth Labson Freeman, District Judge, Presiding

Argued and Submitted January 6, 2020
San Francisco, California

Filed July 9, 2020

Before: J. Clifford Wallace and Michelle T. Friedland,
Circuit Judges, and Timothy Hillman, * District Judge.

Opinion by Judge Wallace

*
The Honorable Timothy Hillman, United States District Judge for
the District of Massachusetts, sitting by designation.
2 CANELA V. COSTCO

SUMMARY **

Diversity Jurisdiction / Class Action Fairness Act

The panel vacated the district court’s summary judgment
with instructions to remand to state court because the district
court lacked subject matter jurisdiction at the time the action
was removed to federal court.

Plaintiff, a Costco Wholesale Corporation employee,
filed a state class action complaint alleging that Costco
violated California Labor Code § 1198 by failing to provide
her and other employees suitable seating. Plaintiff’s only
claim arose under California’s Private Attorney General Act
(“PAGA”). Costco removed the case to federal court based
on the federal diversity statute, 28 U.S.C. § 1332(a), and the
Class Action Fairness Act (“CAFA”).

Concerning traditional diversity jurisdiction, the panel
held that the amount in controversy did not meet the
statutory threshold at the time of removal. Because the
named plaintiff’s pro-rata share of civil penalties, including
attorney’s fees, totaled $6,600 at the time of removal, and
the claims of other employees could not be aggregated with
hers under Urbino v. Orkin Services of California, Inc.,
726 F.3d 1118 (9th Cir. 2013), the requisite $75,000
jurisdictional threshold was not met. Accordingly, the
district court lacked diversity jurisdiction at the time of
removal.

**
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
 CANELA V. COSTCO 3

The panel held that the district court also lacked subject
matter jurisdiction under CAFA because plaintiff’s stand-
alone PAGA lawsuit was not, and could not have been, filed
under a state rule similar to Rule 23 of the Federal Rules of
Civil Procedure. The panel held that the holding in
Baumann v. Chase Investment Services Corp., 747 F.3d
1117, 1122 (9th Cir. 2014), that “PAGA actions are [] not
sufficiently similar to Rule 23 class actions to trigger CAFA
jurisdiction,” controlled the outcome of this appeal. The
panel rejected Costco’s argument that because the named
plaintiff originally sought class status in her complaint, her
case was filed as a class action within the meaning of CAFA.
The panel also rejected Costco’s argument that the decisions
in Mississippi ex rel. Hood v. AU Optronics Corp., 571 U.S.
161 (2014), and Hawaii ex rel. Louie v. HSBC Bank Nevada,
N.A., 761 F.3d 1027 (9th Cir. 2014), compelled a different
result.

COUNSEL

Kiran Aftab Seldon (argued), David D. Kadue, James M.
Harris, and Emily Schroeder, Seyfarth Shaw LLP, Los
Angeles, California; William J. Dritsas, Seyfarth Shaw LLP,
San Francisco, California; for Defendant-Appellant.

Michael Rubin (argued) and Andrew Kushner, Altshuler
Berzon LLP, San Francisco, California; Kevin J. McInerney,
Reno, Nevada; for Plaintiff-Appellee.

Richard J. Simmons, Sheppard Mullin Richter & Hampton
LLP, Los Angeles, California; Paul S. Cowie and John D.
Ellis, Sheppard Mullin Richter & Hampton LLP, San
Francisco, California; for Amici Curiae Employers Group
and California Employment Law Council.
4 CANELA V. COSTCO

OPINION

WALLACE, Circuit Judge:

Costco Wholesale Corporation appeals from the district
court’s summary judgment in favor of Liliana Canela. We
have appellate jurisdiction under 28 U.S.C. § 1292(b).
Because the district court lacked subject matter jurisdiction
at the time of removal, we vacate the district court’s
summary judgment with instructions to remand the case to
state court.

I.

Costco is a nationwide retail chain that sells merchandise
and offers services to registered members. To verify that
those entering its warehouses are members, Costco hires
greeters to stand near the entrance where customers display
their membership card. Costco also hires exit checkers to
stand near the exit and check customers’ purchases against
their receipts. Costco classifies its greeters and exit checkers
as “member service” employees.

Canela worked as a greeter and exit checker at two of
Costco’s warehouses in California. She sued Costco in a
state trial court in California, alleging that Costco had
violated California Labor Code section 1198 by failing to
provide her and other member service employees who
worked as greeters and exit checkers with “suitable
seat[ing]” under section 14 of California’s Wage Order 7-
2001. Cal. Code Regs. tit. 8 § 11070. Because a violation
of Labor Code section 1198 confers a cause of action under
California’s Private Attorneys General Act of 2004 (PAGA),
Canela’s only claim arises under PAGA. Cal. Labor Code
§ 2698. Canela’s Complaint said “Class Action Complaint”
 CANELA V. COSTCO 5

on its cover page and included references to the lawsuit as a
class action.

Relying on both the federal diversity statute, see
28 U.S.C. § 1332(a), and the Class Action Fairness Act of
2005 (CAFA), see id. § 1332(d), Costco removed the case to
federal court.

About a year later, Canela notified the district court that
she no longer planned to seek class status. Canela suggested
that the district court lacked jurisdiction because her PAGA
claim was always a “representative action” and could have
never been brought as a “class action” under CAFA. In light
of Canela’s submission, the district court ordered the parties
to brief the issue of its jurisdiction. Because Canela had
denominated her lawsuit as a “class action” and had sought
class status on her PAGA claim as of the time the case was
removed from state court, the district court concluded that it
had retained CAFA jurisdiction even though Canela had
later decided not to pursue class certification.

Costco then moved for partial summary judgment,
contending that without a certified class, Canela lacked
Article III standing to represent absent aggrieved employees
and could not represent absent “aggrieved employees” under
Federal Rule of Civil Procedure 23. The district court denied
Costco’s motion.

Costco swiftly moved to certify an interlocutory appeal
under 28 U.S.C. § 1292(b), raising two questions:
(1) “Whether, absent class certification, a PAGA plaintiff in
federal court has Article III standing to represent absent
aggrieved employees[?]” and (2) “Whether a PAGA plaintiff
in federal court can represent absent aggrieved employees
without qualifying for class certification under Rule 23[?]”
Canela v. Costco Wholesale Corp., No. 13-cv-03598-BLF,
6 CANELA V. COSTCO

2018 WL 3008532, at *1 (N.D. Cal. June 15, 2018).
Concluding that they presented controlling issues of law
over which there was a substantial ground for difference in
opinion, the district court certified both questions. Id. at *4.
We agreed and granted Costco permission to appeal. Costco
timely appealed.

II.

“Section 1292(b) authorizes appeals from orders, not
questions, so ‘our review of the present controversy is not
automatically limited solely to the question deemed
controlling by the district court.’” Baumann v. Chase Inv.
Servs. Corp., 747 F.3d 1117, 1120 (9th Cir. 2014), quoting
In re Cinematronics, Inc., 916 F.2d 1444, 1449 (9th Cir.
1990). The district court’s order on its jurisdiction led to and
was discussed in the district court’s summary judgment from
which Costco now appeals. Because the district court’s
subject matter jurisdiction is “material” to the summary
judgment before us, we address it here. In re Cinematronics,
Inc., 916 F.2d at 1449 (citation omitted; emphasis in
original). We must do so before we may turn to the merits.
See Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 94
(1998). To that end, we ordered the parties to submit
briefing on the jurisdictional question.

“We review de novo a district court’s denial of a motion
to remand to state court for lack of federal subject matter
jurisdiction.” Chapman v. Deutsche Bank Nat’l Tr. Co.,
651 F.3d 1039, 1043 (9th Cir. 2011) (citation omitted). We
review the “construction, interpretation, or applicability” of
CAFA de novo. Bush v. Cheaptickets, Inc., 425 F.3d 683,
686 (9th Cir. 2005) (citation omitted). Removal is to be
“strictly construed,” and a “defendant seeking removal has
the burden to establish that removal is proper,” with “any
doubt . . . resolved against removability.” Luther v.
 CANELA V. COSTCO 7

Countrywide Home Loans Servicing LP, 533 F.3d 1031,
1034 (9th Cir. 2008) (citations omitted).

III.

In removing the case, Costco invoked two independent
bases for federal subject matter jurisdiction: diversity under
section 1332(a) and CAFA jurisdiction. We address each in
turn.

A.

Traditional diversity jurisdiction requires complete
diversity of citizenship and an amount in controversy greater
than $75,000. 28 U.S.C. § 1332(a). Where, as here, “a
plaintiff’s state court complaint does not specify a particular
amount of damages, the removing [party] bears the burden
of establishing, by a preponderance of the evidence, that the
amount in controversy exceeds” the threshold at the time of
removal. Sanchez v. Monumental Life Ins. Co., 102 F.3d
398, 404 (9th Cir. 1996).

We hold that the amount in controversy did not meet the
statutory threshold at the time of removal. Our decision in
Urbino v. Orkin Services of California, Inc., 726 F.3d 1118
(9th Cir. 2013), controls.

In Urbino, the plaintiff employee had brought a
representative PAGA cause of action in state court. Id.
at 1121. The defendants removed the case to federal court,
submitting evidence that the alleged labor code violations
involved over 800 other employees and over 17,000
paychecks, thereby establishing that the aggregated claims
exceeded $75,000. Id. If the claims could be aggregated
among all employees with potential claims, the civil
penalties for the alleged violations exceeded $9,000,000,
8 CANELA V. COSTCO

well above the $75,000 threshold. Id. However, with no
aggregation, the action fell short of the $75,000 threshold
because the named plaintiff’s pro rata share was only a little
over $11,000. Id.

The question before us was therefore whether the
penalties of all employees could be aggregated to satisfy the
amount in controversy requirement. Id. We concluded that
PAGA civil penalties could not be aggregated for this
purpose, and therefore that the district court lacked diversity
jurisdiction. Id. at 1122–23. 1

For the same reason, diversity jurisdiction is lacking
here. In its Notice of Removal, Costco said that the 968
employees collectively sought $5,324,000 in civil penalties.
Costco also said that it could be liable for $1,064,800 in
attorney’s fees. Because Canela’s pro-rata share of civil
penalties, including attorney’s fees, totaled $6,600 at the
time of removal, and the claims of other member service
employees may not be aggregated under Urbino, the $75,000
jurisdictional threshold was not met. See id. at 1122; Gibson
v. Chrysler Corp., 261 F.3d 927, 942 (9th Cir. 2001)
(explaining that we consider a successful party’s pro rata
share of attorney’s fees in assessing whether her claim meets
the jurisdictional threshold). 2 Thus, the district court lacked
diversity jurisdiction at the time of removal.

1
We were also unpersuaded that the PAGA action could satisfy the
complete diversity element because the State of California was the real
party in interest and was not a citizen. Id. at 1123. Because the amount-
in-controversy requirement was not satisfied here, we do not address the
issue of whether the parties are completely diverse.
2
Our logic in Gibson extends to this case. Like the statute at issue
in Gibson, PAGA does not provide that attorney’s fees may only be
 CANELA V. COSTCO 9

B.

We next turn to the question whether the district court
had CAFA jurisdiction. CAFA “relaxed” the diversity
requirements for putative class actions. Dart Cherokee
Basin Operating Co., LLC v. Owens, 574 U.S. 81, 84 (2014).
Under CAFA, federal courts have jurisdiction over a “class
action” when the parties are minimally diverse, i.e., any
member of a class of plaintiffs is a citizen of a state different
from that of any defendant, and the amount in controversy
exceeds $5,000,000, see 28 U.S.C. § 1332(d)(2)(A), and
when the proposed class has at least 100 members, see id.
§ 1332(d)(5)(B).

The proposed “class” here is made up of at least 100
members and Canela’s citizenship (California) is diverse
from Costco’s (Washington). Although the parties dispute
whether the amount in controversy exceeded $5,000,000 at
the time of removal, see 28 U.S.C. § 1332(d)(6), we need not
resolve that issue here, because we hold that the Complaint
was not filed as a “class action” under CAFA.

CAFA defines a “class action” as “any civil action filed
under Rule 23 of the Federal Rules of Civil Procedure or
similar State statute or rule of judicial procedure authorizing

awarded to the representative who files the suit. Compare Cal. Civ. Proc.
Code § 1021.5 (providing that “a court may award” attorney’s fees “to a
successful party” (emphasis added)), with Cal. Lab. Code § 2699(g)(1)
(providing that “[a]ny employee who prevails in any action” shall be
entitled to reasonable attorney’s fees (emphasis added)). And like the
statute at issue in Gibson, California courts have not treated only the
representative or named plaintiff as a prevailing party. See Gibson,
261 F.3d at 942; Arias v. Superior Court, 209 P.3d 923, 933 (Cal. 2009)
(explaining that a PAGA judgment “is binding not only on the named
employee plaintiff but also on government agencies and any aggrieved
employee not a party to the proceeding”).
10 CANELA V. COSTCO

an action to be brought by 1 or more representative persons
as a class action.” 28 U.S.C. § 1332(d)(1)(B). Because
Canela sued in California state court, the suit was not “filed
under Rule 23 of the Federal Rules of Civil Procedure.” Id.
The only issue before us is whether Canela filed her PAGA
cause of action under a “similar State statute or rule of
judicial procedure authorizing an action to be brought by 1
or more representative persons as a class action.” Id.

In resolving this issue, we do not write on a clean slate.
We have observed that there is “no ambiguity in CAFA’s
definition of class action.” Washington v. Chimei Innolux
Corp., 659 F.3d 842, 848 (9th Cir. 2011). If Congress had
“intended CAFA to apply to any representative actions
demonstrating sufficient similarity to class actions under
Rule 23, it would not have also included an explicit
requirement that the suit be brought ‘as a class action.’” Id.,
quoting 28 U.S.C. § 1332(d)(1)(B). Applying the plain
meaning of CAFA, we have held that parens patriae suits
are not “class actions” when they “lack statutory
requirements for numerosity, commonality, typicality, or
adequacy of representation that would make them
sufficiently ‘similar’ to actions brought under Rule 23, and
[other] certification procedures.” Id. at 850.

CAFA therefore requires “that the state statute authorize
the suit ‘as a class action’” and that the suit meet “the central
requirements of class actions.” Id. Although “suits [that]
lack the defining attributes of true class actions” may be
“representative actions,” they are not “class actions” under
CAFA. Id. at 848, 850.

We expounded on this language a few years later in
Baumann. 747 F.3d 1117 (9th Cir. 2014). We explained
that a state statute or rule is similar to Rule 23 if it “closely
resembles” it “or is like Rule 23 in substance or in
 CANELA V. COSTCO 11

essentials.” Id. at 1121, quoting W. Va. ex rel. McGraw v.
CVS Pharmacy, Inc., 646 F.3d 169, 174 (4th Cir. 2011)
(emphasis added).

Our holding in Baumann that “PAGA actions are [] not
sufficiently similar to Rule 23 class actions to trigger CAFA
jurisdiction” controls the outcome of this appeal. Id. at 1122.
In reaching this conclusion, we explained exactly why
PAGA causes of action were nothing like Rule 23 class
actions.

We observed that in a PAGA suit, “the court does not
inquire into the named plaintiff’s and class counsel’s ability
to fairly and adequately represent unnamed employees—
critical requirements in federal class actions . . . .”
Id.(citations omitted). In addition, “unlike Rule 23(a),
PAGA contains no requirements of numerosity,
commonality, or typicality.” Id. at 1123, citing Purdue
Pharma L.P. v. Kentucky, 704 F.3d 208, 216–17 (2d Cir.
2013) (holding that the suit was not filed as a “class action”
under CAFA because it contained none of the “hallmarks of
Rule 23 class actions; namely, adequacy of representation,
numerosity, commonality, typicality, or the requirement of
class certification”); CVS Pharmacy, Inc., 646 F.3d at 175–
76 (same).

We also explained that unlike the due process protections
afforded to putative class members under Rule 23, “PAGA
has no notice requirements for unnamed aggrieved
employees, nor may such employees opt out of a PAGA
action.” Baumann, 747 F.3d at 1122. As a result, the
preclusive effect of PAGA judgments differs from that of
class action judgments in two important ways. Id.

First, unlike a class action, a judgment from a PAGA suit
“binds all those, including nonparty aggrieved employees,
12 CANELA V. COSTCO

who would be bound by a judgment in an action brought by
the government.” Arias, 209 P.3d at 933. So, “with respect
to the recovery of civil penalties, nonparty employees as well
as the government are bound by the judgment in an action
brought under” PAGA, without an opportunity to opt out.
Iskanian v. CLS Transp. L.A., LLC, 327 P.3d 129, 147 (Cal.
2014).

Second, unlike class action judgments that preclude all
claims the class could have brought under traditional res
judicata principles, employees retain all rights “to pursue or
recover other remedies available under state or federal law”
in PAGA judgments. Baumann, 747 F.3d at 1123, quoting
Cal. Lab. Code § 2699(g)(1). Because non-party aggrieved
employees in PAGA suits are “not given notice of the action
or afforded any opportunity to be heard,” they are not
“bound by the judgment as to remedies other than civil
penalties.” Arias, 209 P.3d at 934, citing Taylor v. Sturgell,
553 U.S. 880, 900–01 (2008)).

We also highlighted the different remedial schemes that
exist in Rule 23 class actions and PAGA suits. “In class
actions, damages are typically restitution for wrongs done to
class members.” Baumann, 747 F.3d at 1123. In contrast,
PAGA suits “primarily seek to vindicate the public interest
in enforcement of California’s labor law.” Id. (citations
omitted). While 75 percent of the recovered civil penalties
in a PAGA action is distributed to the Labor and Workforce
Development Agency (Agency), only 25 percent is allocated
among aggrieved employees. Id. at 1121, citing Cal Lab.
Code § 2699(i). The portion of civil penalties reserved for
aggrieved employees is not “restitution for wrongs done to
members of the class” and “does not reduce any other claim
that the employee may have against the employer.” Id.
at 1123. Instead, it is an “incentive to perform a service to
 CANELA V. COSTCO 13

the state.” 3 Id. PAGA is therefore a “type of qui tam action”
in which the “government entity on whose behalf the
plaintiff files suit is always the real party in interest in the
suit.” Iskanian, 327 P.3d at 148 (citation omitted). 4

Costco attempts to distinguish Baumann because the
complaint there, unlike the one here, “did not invoke the
California class action statute.” Baumann, 747 F.3d at 1121.
In Costco’s view, because Canela originally sought class
status in her Complaint, her suit was filed as a “class action”
under CAFA.

We recognize that Canela titled her Complaint “Class
Action Complaint for Violations of the Private Attorneys
General Act of 2004.” In the caption page, Canela also
referred to the Complaint as “a class and representative

3
This incentive is not awarded exclusively to the employee who
files the suit. Instead, it is allocated among the aggrieved employees.
See Williams v. Superior Court, 398 P.3d 69, 79 (Cal. 2017) (explaining
that PAGA “deputiz[es] employees harmed by labor violations to sue on
behalf of the state and collect penalties, to be shared with the state and
other affected employees”); Iskanian, 327 P.3d at 148 (“The PAGA
conforms to [the] traditional criteria [of a qui tam action] except that a
portion of the penalty goes not only to the citizen bringing the suit but to
all employees affected by the Labor Code violation.”); Cal Lab. Code
§ 2699(i) (providing that “[c]ivil penalties recovered by aggrieved
employees shall be distributed as follows: 75 percent to the . . . Agency
. . . and 25 percent to the aggrieved employees” (emphasis added)); see
also Moorer v. Noble L.A. Events, Inc., 244 Cal. Rptr. 3d 219, 224 (Ct.
App. 2019) (interpreting Iskanian and Williams to stand for the
proposition that fees should be allocated among aggrieved employees on
a pro rata basis).
4
We highlighted the fundamental differences between a PAGA
claim and a Rule 23 action again the following year. See Sakkab v.
Luxottica Retail N. Am., Inc., 803 F.3d 425, 435 (9th Cir. 2015).
14 CANELA V. COSTCO

action.” The footer of her Complaint refers to the document
as a “Class Action Complaint.”

We also acknowledge that Canela suggested that the
nature of her lawsuit was a “class action.” In her Complaint,
Canela stated that she sued “individually and on behalf of all
others similarly situated” as “a class action . . . for the
recovery of civil penalties . . . pursuant to” PAGA. Canela
claimed to represent a putative “class” of all “employees of
Costco who . . . within the applicable period . . . have been
designated as member service and have, within California,
been assigned to work either as a greeter or as an exit
checker, and were not provided with a seat.” Canela also
alleged that her proposed class satisfied the requirements of
a class in California.

But these labels and allegations do not transform her
PAGA cause of action into one filed under a “similar State
statute or rule of judicial procedure authorizing an action to
be brought by 1 or more representative persons as a class
action.” 28 U.S.C. § 1332(d)(1)(B). The plain meaning of
CAFA precludes the formalistic test that Costco asks us to
adopt here.

We declined to adopt a formalistic test in Chimei. We
explained that “it is not only that parens patriae suits are not
‘labeled class actions,’ it is that they also lack statutory
requirements for numerosity, commonality, typicality, or
adequacy of representation that would make them
sufficiently ‘similar’ to actions brought under Rule 23 . . . .”
Chimei, 659 F.3d at 850 (emphasis added). Thus, for a case
to be removable under CAFA, the “state action must be filed
under a statute that . . . authorizes an action ‘as a class
action.’” Id. at 849, quoting 28 U.S.C. § 1332(d)(1)(B).
 CANELA V. COSTCO 15

We also rejected a formalistic test in Baumann. We held
there that the PAGA statute was not a state statute similar to
Rule 23 after evaluating its “substance and essentials.”
Baumann, 747 F.3d at 1121. Because “a PAGA suit is
fundamentally different than a class action” id. at 1123,
quoting McKenzie v. Fed. Express Corp., 765 F. Supp. 2d
1222, 1233 (C.D. Cal. 2011), and “Rule 23 and PAGA are
more dissimilar than alike,” id. at 1124, a PAGA cause of
action is not authorized as a “class action” under CAFA.

Both holdings comported with the proper “statutory
construction” of CAFA. Id.; Chimei, 659 F.3d at 847. To
hold otherwise would, “for CAFA jurisdictional purposes
. . . exalt form over substance,” which the Supreme Court
has instructed us not to do. Standard Fire Ins. Co. v.
Knowles, 568 U.S. 588, 595 (2013).

Costco argues that the United States Supreme Court’s
decision in Mississippi ex rel. Hood v. AU Optronics
Corporation, 571 U.S. 161 (2014), and our decision in
Hawaii ex rel. Louie v. HSBC Bank Nevada, N.A., 761 F.3d
1027 (9th Cir. 2014), compel a different result. We disagree.

In AU Optronics, the Supreme Court resolved the
different question whether a lawsuit filed by a state was a
“mass action” under CAFA even though the claim was based
on injuries suffered by citizens who were not named
plaintiffs. AU Optronics Corp., 571 U.S. at 164, quoting
28 U.S.C. §1332(d)(11)(B)(i). The Supreme Court held that
it was not, interpreting CAFA’s text as requiring a “mass
action” to be brought by 100 or more named plaintiffs. Id.
at 169–76. Because the State of Mississippi was the only
named plaintiff, the action was not filed as a “mass action”
under CAFA. Id.
16 CANELA V. COSTCO

AU Optronics did not address the district court’s and
court of appeal’s separate “determination that Mississippi’s
suit is not a ‘class action’ under CAFA” because that
determination was never challenged. Id. at 167 & n.2. In
fact, the Supreme Court distinguished between the “two
types of cases” included in CAFA. See id. at 165 (observing
that, for purposes of CAFA, “class action” is defined in
section 1332(d)(1)(B) and “mass action” is defined in
section 1332(d)(11)(B)(i)). The Supreme Court rejected the
argument that the case was filed as a “mass action” because
it was “‘similar to a class action’ such that it should be
removed[,]” as that view “fail[ed] to recognize this key
distinction” between a “mass action” and a “class action.”
Id. at 173. AU Optronics therefore says nothing about the
meaning of a “class action” under CAFA.

Nor does the reasoning in AU Optronics support
Costco’s theory here. In holding that the case was not a
“mass action,” the Court primarily relied on the statutory text
of CAFA. Id. at 168–74. By contrast, the plain meaning of
a “class action” under CAFA requires that a state cause of
action be authorized as a “class action” under state law.

We acknowledge that AU Optronics rejected an inquiry
into the “substance of the action,” and instead selected one
that looks “only at the labels that the parties may attach.” Id.
at 174, quoting La. ex rel. Caldwell v. Allstate Ins. Co.,
536 F.3d 418, 424 (5th Cir. 2008), abrogated by AU
Optronics Corp., 571 U.S. at 174. However, that rationale
has no significance here.

To begin with, the plain meaning of “class action” under
CAFA controls, even if a conflicting “background principle”
would otherwise apply. Id. Consistent with the statutory
text, we evaluate the “substance and essentials” when
 CANELA V. COSTCO 17

deciding whether a state cause of action is filed under a state
law similar to a “class action” under CAFA.

The “background principle” that the Supreme Court
discussed in AU Optronics—that the “real party in interest
inquiry identifies what party’s (or parties’) citizenship
should be considered in determining diversity,” id. at 175—
does not apply here. The question here is not whether the
parties are minimally diverse. There is no dispute that they
are. Instead, we are asked to decide whether this stand-alone
PAGA lawsuit was filed under a state rule or statute similar
to Rule 23. For the reasons we outlined in Baumann, we
conclude that it was not. 5

We are also not persuaded by Costco’s suggestion that
our decision in HSBC Bank affects our analysis. We held
there that a complaint that disclaimed class status was not
filed as a suit similar to a class action. 761 F.3d at 1042. We
declined to “ignore [the class] disclaimers and transmogrify
the[] suits into class actions.” Id. at 1039.

In explaining this point, we said that the “appropriate
inquiry is . . . whether a complaint seeks class status.” Id.
at 1040. We also said that “a plaintiff files a class action for
CAFA purposes by invoking a state class action rule,
regardless of whether the putative class ultimately will be

5
Before the Supreme Court decided AU Optronics, we had already
departed from the Fifth Circuit’s holding, concluding that a state suit was
not filed as a “mass action” under CAFA because the real party in interest
was the only named party—the State of Nevada. See Nevada v. Bank of
Am. Corp., 672 F.3d 661, 671–72 (9th Cir. 2012). Before turning to the
“mass action” provision of CAFA, we held that the attorney general
enforcement action was not a “class action” under CAFA. Id. at 667. In
so doing, we treated the two classes of cases in CAFA as the separate
provisions that they are. We follow the same framework here.
18 CANELA V. COSTCO

certified.” Id., quoting United Steel Workers Int’l Union v.
Shell Oil Co., 602 F.3d 1087, 1091–92 (9th Cir. 2010)).
Costco interprets this language to suggest that what matters
is whether a plaintiff formally makes class allegations. We
disagree.

It is clear that, in context, we meant to convey the point
that a cause of action filed as and authorized as a class action
under state law is a “class action” under CAFA, even if, after
discovery or litigation of the class certification question, the
cause of action might not be certifiable. Here, though, the
question is whether a PAGA cause of action could have ever,
as a matter of law and without any need for discovery into
the facts, been filed as a class action. On the face of the
Complaint, we hold that it could not have been.

The cases on which we relied in the course of making
these observations confirm this reading. We cited United
Steel, in which we discussed whether “post-filing
developments . . . defeat jurisdiction if jurisdiction was
properly invoked as of the time of filing,” and not whether
deficiencies with the complaint could do so. 602 F.3d at
1091–92. We also relied on the proposition in Baumann that
because “the plaintiff’s complaint was brought under
PAGA, a statute not similar to Rule 23, it was irrelevant that
the action might later be converted to a class action if
removed.” HSBC Bank, 761 F.3d at 1040, quoting
Baumann, 747 F.3d at 1124 (emphasis added).

But our holding here is wholly consistent with the
principle that “if jurisdiction exists at the time an action is
commenced, such jurisdiction may not be divested by
subsequent events.” Freeport-McMoRan, Inc. v. K N
Energy, Inc., 498 U.S. 426, 428 (1991) (per curiam). We
therefore reject Costco’s argument to supplant our
 CANELA V. COSTCO 19

substantive test with one that considers only the formal
labels and allegations in a complaint. 6

Costco next argues that even if we were to consider the
“substance and essentials” of Canela’s PAGA claim, we
ought to hold that there is CAFA jurisdiction because a
PAGA cause of action could be brought as a class action in
California. Costco relies on Arias v. Superior Court, in
which the California Supreme Court suggested that PAGA
causes of action could possibly be brought as class actions.
See 209 P.3d at 930 n.5. We disagree.

The Arias footnote on which Costco relies is dicta. In
Arias, which was decided soon after PAGA was enacted, the
California Supreme Court held that a PAGA cause of action
need not be brought as a class action. Id. at 930. In a
footnote, the California Supreme Court said that PAGA
actions “may be brought as class actions.” Id. at 930 n.5. In
support of this proposition, the California Supreme Court
cited Amaral v. Cintas Corp. No. 2, 78 Cal. Rptr. 3d 572,
583–84 (Ct. App. 2008). However, Amaral had proceeded
as a class action without the parties’ or California’s
intermediate appellate court’s addressing whether the PAGA
claim could be brought as a class action. Id. In context, the
Arias footnote was an observation that parties had been
filing PAGA claims as class actions, rather than a
pronouncement that PAGA claims could actually be brought
as class actions.

6
The Sixth Circuit also recently rejected a purely formalistic inquiry
in interpreting the class action provision of CAFA. See Nessel ex rel.
Mich. v. AmeriGas Partners, L.P., 954 F.3d 831, 837 (6th Cir. 2020).
20 CANELA V. COSTCO

But even if the footnote in Arias left open the question
whether there is such a thing as a PAGA class action, the
California Supreme Court has since definitively rejected that
view. In Kim v. Reins International California, Inc.,
459 P.3d 1123 (Cal. 2020), the California Supreme Court
addressed whether “aggrieved employees” lose standing to
pursue a PAGA cause of action after settling their individual
claims for Labor Code violations. Id. at 1126–27. Kim held
that the settlement and dismissal of individual Labor Code
claims did not strip an employee of standing to bring a
PAGA claim as an authorized representative of the State of
California. See id. In reaching this conclusion, Kim
emphasized that a PAGA cause of action cannot be a class
action. Id. at 1130.

Looking first at the statutory text, Kim observed that
“PAGA standing is not inextricably linked to the plaintiff’s
own injury.” Id. Examining the statutory purpose, Kim
confirmed the point that “PAGA claims are different from
conventional civil suits.” Id.

Most significantly for our purposes, Kim then explained
that a PAGA claim is different from a class action. Although
a PAGA claim is “representative in nature,” it “is not simply
a collection of individual claims for relief, and so is different
from a class action. The latter is a procedural device for
aggregating claims ‘when the parties are numerous, and it is
impracticable to bring them all before the court.’” Id.,
quoting Cal. Civ. Proc. Code § 382 (emphasis added). “In a
class action, the ‘representative plaintiff still possesses only
a single claim for relief—the plaintiff’s own.’” Id. (internal
quotation marks and citation omitted). By contrast, “a
representative action under PAGA is not a class action.” Id.
at 1131, quoting Huff v. Securitas Sec. Servs. USA, Inc.,
233 Cal. Rptr. 3d 502, 509 (Ct. App. 2018).
 CANELA V. COSTCO 21

Kim also analyzed the statutory context of stand-alone
PAGA claims, acknowledging that “many PAGA actions
consist of a single cause of action seeking civil penalties.”
Id. at 1132. Kim observed that “courts have rejected efforts
to split PAGA claims into individual and representative
components.” Id. (citing cases). Thus, standing for “PAGA-
only cases cannot be dependent on the maintenance of an
individual claim because individual relief has not been
sought.” Id. (emphasis added).

Kim confirms that Canela, as an aggrieved employee, has
no individual claim of her own and is not seeking individual
relief. See ZB, N.A. v. Superior Ct., 448 P.3d 239, 250 (Cal.
2019). Instead, Canela’s PAGA suit is a type of qui tam
action. As the only real party in interest, the State of
California received notice from Canela, as was required by
law, before she filed this suit. See Cal. Lab. Code.
§ 2699.3(a). If Canela’s claim has merit, she will obtain a
pro-rata share of the civil penalties as an incentive for
bringing the suit as California’s authorized representative.
Finally, the essential attributes of a class action have no
place in this stand-alone PAGA suit.

For these reasons, a PAGA claim cannot be brought as a
“class action” under CAFA. CAFA jurisdiction was
therefore lacking at the time of removal.

IV.

The district court lacked diversity jurisdiction under
section 1332(a). The district court also lacked subject matter
jurisdiction under CAFA because Canela’s stand-alone
PAGA lawsuit was not, and could not have been, filed under
a state rule similar to a Rule 23 class action. The district
22 CANELA V. COSTCO

court erred by not remanding the case to state court. Thus,
the district court’s summary judgment is

VACATED WITH INSTRUCTIONS TO REMAND
TO STATE COURT.