John Urbino worked as a nonexempt employee for the defendants from 2005 to 2010. He filed a representative action in state court under California's Private Attorneys General Act of 2004 (PAGA) alleging that the defendants violated the state's labor code by depriving him and other employees of meal periods, vacation time and accurate itemized wage statements. PAGA allows an employee to bring a private right of action on behalf of himself and other employees if the California Labor and Workforce Development Agency (LWDA) declines to investigate alleged labor code violations. A prevailing representative plaintiff and the aggrieved employees are statutorily entitled to 25% of the civil penalties recovered and the LWDA is entitled to 75%.

Defendants removed the action to federal court based on diversity jurisdiction, submitting evidence that the $75,000 amount in controversy requirement had been met. Defendants asserted that the labor code violations alleged by the plaintiff would give rise to claims by 811 other employees, resulting in possible initial penalties of $405,500 and subsequent penalties of $9,004,050. If considered on its own, the plaintiff's claims would result in potential penalties of only $11,602.40. Finding that the plaintiff's claims under PAGA could be combined with that of other aggrieved employees to meet the monetary threshold required for diversity jurisdiction, the district court denied plaintiff's motion to remand. Plaintiff filed an interlocutory appeal.

On August 13, 2013, the US Court of Appeals for the Ninth Circuit issued an opinion holding that a plaintiff's claims under PAGA could not be aggregated with potential penalties recoverable on behalf of all aggrieved employees to satisfy the jurisdictional requirement. The appellate court vacated the district court's order for lack of federal subject matter jurisdiction and remanded the matter to state court.

The Ninth Circuit reasoned that claims of class members could only be aggregated to meet the jurisdictional amount requirement when the claims "unite to enforce a single title or right in which they have a common and undivided interest." A common and undivided interest is found where the defendant owes an obligation to the plaintiffs as a group, and not as individuals separately. The Ninth Circuit found that various alleged labor code violations asserted under PAGA were:

Judge Thomas dissented from the panel, arguing that diversity jurisdiction was reached because the PAGA claims could be aggregated. Judge Thomas cited California Supreme Court precedent in arguing that the PAGA was primarily enacted to protect the public and not individuals, satisfying the aggregation requirement that the plaintiff's claims and that of aggrieved employees be united in interest.