Timbs v. Indiana: The Potential Impact on PAGA Penalties of the Supreme Court’s Decision that the Eighth Amendment Excessive Fines Clause Applies to the States


I.  Introduction – Timbs, the Excessive Fines Clause, and a Potential Defense to PAGA Penalties

The U.S. Supreme Court’s recent decision in Timbs v. Indiana (Feb. 20, 2019) 2019 WL 691578, holding that the Eighth Amendment’s Excessive Fines Clause applies to the states through the Fourteenth Amendment’s Due Process Clause, could offer support for a defense to the large monetary penalties sought in representative claims against employers under the California Labor Code Private Attorneys General Act (“PAGA”) (Cal. Labor Code §§ 2698 – 2699.6).

II.  The Timbs Decision and the Eighth Amendment Excessive Fines Clause

Under the Eighth Amendment to the U.S. Constitution, “[e]xcessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted.”  The portion of the amendment prohibiting excessive fines “limits the government’s power to extract payments, whether in cash or in kind ‘as punishment for some offense.’”  (Id. at *3 (citing United States v. Bajakajian (1998) 524 U.S. 321, 327-28).)  The restrictions imposed by the Excessive Fines Clause are not limited to criminal statutes; they cut across the division between criminal and civil law.  Civil proceedings may advance criminal and remedial goals.  The question is not whether a civil or criminal law is involved, but whether the purpose of the fine is punishment, in which case the clause applies, or remedial, in which case it does not.  (Austin v. United States (1993) 509 U.S. 602, 609-10.)

In explaining why the Excessive Fines Clause applies to the states, the Court noted:

“For good reason the protection against excessive fines has been a constant shield throughout Anglo-American history:  Exorbitant tolls undermine other constitutional liberties.  Excessive fines can be used, for example, to retaliate against or chill the speech of political enemies . . . .  Even absent a political motive, fines may be employed ‘in a measure out of accord with the penal goals of retribution and deterrence,” for ‘fines are a source of revenue,’ while other forms of punishment ‘cost a State money.’”

(Id. at *4 (citing Harmelin v. Michigan, 501 U.S. 957, 979, n.9 (1991) (opinion of Scalia, J.) (“it makes sense to scrutinize governmental action more closely when the State stands to benefit”).)

In applying the Eighth Amendment’s Excessive Fines Clause, “[t]he touchstone of the constitutional inquiry . . . is the principle of proportionality: The amount of the forfeiture must bear some relationship to the gravity of the offense that it is designed to punish. [Citations.] … [A] punitive forfeiture violates the Excessive Fines Clause if it is grossly disproportional to the gravity of a defendant’s offense.”  (United States v. Bajakajian, 524 U.S. at 334; People v. Urbano (2005) 128 Cal.App.4th 396, 406 (citing Bajakajian).)

III.  The California Constitution’s Excessive Fines Clause and Litigation Challenging PAGA

California has its own Excessive Fines Clause in Article I, section 17 of the California Constitution.  Even before Timbs was decided, the California Business & Industrial Alliance had filed a lawsuit in Orange County Superior Court against California Attorney General Xavier Becerra, seeking declaratory and injunctive relief against PAGA, in part based upon the state’s constitutional prohibition against excessive fines.  (California Business & Industrial Alliance v. Becerra, Orange County Sup. Ct. Case No. 30-2018-01035180-CU-JR-CXC (filed Nov. 28, 2018).)  The Attorney General filed a demurrer to the complaint, which is scheduled for hearing on March 28, 2019.

IV.  Timbs and PAGA

By encouraging PAGA lawsuits by private parties and their counsel, the PAGA statute raises one of the concerns on which the Court’s Timbs decision was based – that excessive fines might be used “in a measure out of accord” with the goal of retribution and deterrence, to promote increased revenues to the state.  Under PAGA, violations of Labor Code provisions governing, among other wage and hour issues, overtime, meal and rest breaks and payroll records, can result in large civil penalties that far exceed the value of the unpaid or underpaid wages.  In representative actions filed by private attorneys, 25 percent of the penalties recovered are paid to the State, without the state having expended any amount in fees to recover them.  The State of California has established a system to raise revenues via penalties imposed on employers without having appropriated any funds for an enforcement infrastructure and with minimal to no oversight of how those enforcement measures are used on its behalf.

Granted that PAGA penalties can have a significant deterrent effect on companies bent on what has been characterized as “wage theft”.  But they also can wreak havoc on companies that have inadvertently violated wage and hour laws and are prepared to correct and pay any erroneously unpaid wages, but are hit with the prospect of also incurring multiples of the amount of the unpaid wages in penalties.  The prospect of representative lawsuits by private counsel alleging hundreds of thousands to millions of dollars of such penalties, for which attorneys’ fees are also recoverable, can create harrowing concerns for companies.

Beginning in 1996, with the case of BMW North America, Inc. v. Gore (1996) 517 U.S. 559, the United States Supreme Court began to establish, based upon due process concerns, limitations on the amount of punitive damages that could be awarded against a defendant.  The Court set bounds on such awards, requiring the amount of the award to bear some relationship to the gravity of the defendant’s conduct.  “Perhaps the most important indicium of the reasonableness of a punitive damages award is the degree of reprehensibility of the defendant’s conduct.”  (Id. at 575.)

The Court also looked at the ratio of punitive to compensatory damages, which was 500 to one in that case, and noted that, while that ratio cannot be the deciding criteria, “[w]hen the ratio is a breathtaking 500 to 1, . . . the award must surely “raise a suspicious judicial eyebrow.”  (Id. at 583 (citation omitted).)  Moreover, the penalty that could have been imposed by statute for the conduct involved in BMW was only $2,000.  “The sanction imposed in this case cannot be justified on the ground that it was necessary to deter future misconduct without considering whether less drastic remedies could be expected to achieve that goal.”  (Id. at 584.)  In subsequent cases, the Court established further bounds on awards of punitive damages.

Are we on the brink of other judicially crafted principles, based upon the Excessive Fines Clause of the Eighth Amendment, to reign in PAGA penalties?  The Court’s prior treatment of punitive damages, together with the excesses of some representative PAGA penalty claims, and the gathering of a solid conservative majority on the Court makes it more likely that the issue will be taken up.  However, the question of whether the Court will be able to draw definite bounds on such penalties will most likely take several cases and years to resolve.

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