Kaye Scholer Successfully Defends California State Controller in Budget Impasse Litigation

In July 2010, the California Department of Personnel Administration ("DPA") sued California State Controller John Chiang, an independently elected Constitutional Officer who runs the state's payroll system, in a dispute arising out of the 2010 California budget impasse. DPA had issued an order directing the Controller to immediately lower most state employees' salaries to either nothing or minimum wage (depending on their Fair Labor Standards Act exemption status) for the duration of the budget impasse. The Controller maintained that the state's antiquated payroll system (which is in the process of being replaced by a new system) could not lawfully, accurately, or responsibly comply with the DPA's demand. In response, DPA sued, and the Controller retained Kaye Scholer to defend the action. The Kaye Scholer team began by defeating DPA's application for a temporary restraining order and preliminary injunction, thus ensuring that 300,000 state employees would be paid their normal wage during the pendency of the litigation, and averting severe financial hardship to those employees and their families. The case then entered discovery, during which Kaye Scholer obtained testimony from the administration's own witnesses regarding the limitations of the payroll system, and presented an expert report detailing the impossibility of compliance with DPA's order. Eventually, based on the evidence Kaye Scholer developed and presented, DPA's expert witness conceded that the Controller was essentially correct. DPA has now dismissed the suit in its entirety, conceding that the Controller had a substantial factual basis for opposing DPA's order.