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finding that the court could accord complete relief between the named parties despite the individual defendants' frustration that other fellow shareholders were not joined in the suit
Summary of this case from United States v. RoncaOpinion
NO. CIV. 2:13-00724 WBS GGH
08-12-2013
JEANETTE HOANG, YUN WU, GUANG GU XIANG, MENGTING FANNY KUO, GIA NHAM THANH, EDMOND CAU VAN, GAO ZHI WEI, DANNY HUNG LEUNG, YE-GUI BU, and COOC MAN COONG, Plaintiffs, v. VINH PHAT SUPERMARKET, INC., a California Corporation; SAU v. VONG, as an individual; CAM LY, as an individual; SUYING PLASKET, as an individual; and DOES 1 through 100, inclusive, Defendants.
MEMORANDUM AND ORDER RE:
MOTIONS TO DISMISS AND JOIN
NECESSARY PARTY
Plaintiffs Jeanette Hoang, Yun Wu, Guang Gu Xiang, Mengting Fanny Kuo, Gia Nham Thanh, Edmond Cau Van, Gao Zhi Wei, Danny Hung Leung, Ye-Gui Bu, and Cooc Man Coong bring this action against defendants Vinh Phat Supermarket ("Vinh Phat"), Sau V. Vong, Cam Ly, Suying Plasket, and Does one through one hundred, arising from defendants' allegedly wrongful conduct related to the conditions of plaintiffs' employment. Vinh Phat now moves to dismiss plaintiffs' Private Attorney General Act ("PAGA") claim for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6). Vong, Ly, and Plasket (collectively, the "individual defendants") move to dismiss plaintiffs' California Labor Code section 558 claim against them, as well as plaintiffs' alter ego claim, for failure to state a claim upon which relief can be granted pursuant to Rule 12(b)(6). They also move to join Muoi Lam as a necessary party pursuant to Rule 21.
I. Factual and Procedural Background
Plaintiffs filed their Complaint on December 7, 2012, in Sacramento County Superior Court. (Notice of Removal Ex. A ("Compl.") (Docket No. 1).) Among other claims, plaintiffs brought a PAGA claim alleging that Vinh Phat violated various provisions of the California Labor Code and Industrial Welfare Commission ("IWC") wage orders and seeking civil penalties. (Id. ¶¶ 66-71.) They also brought a claim for violation of California Labor Code section 558 alleging that the individual defendants failed to pay plaintiffs overtime and to provide meal and rest periods and seeking civil penalties. (Id. ¶¶ 81-86.) According to the Complaint, plaintiffs sought permission pursuant to Labor Code section 2699 et seq. to pursue these claims and sent the requisite notice to defendants. (See id. ¶ 19.)
As explained below, plaintiffs' section 558 claim against the individual defendants must be brought pursuant to PAGA's procedural requirements. For clarity, the court refers to the claim as a section 558 claim rather than a PAGA claim.
All references to the "Labor Code" are to the California Labor Code.
Despite the last allegation, plaintiffs did not send written notice of their PAGA and section 558 claims to the Labor and Workforce Development Agency ("LWDA") and defendants until December 13, 2012, more than a week after filing the Complaint. (Pls.' Exs. in Supp. of Opp'n Ex. B ("Dec. 13, 2012 Letter") (Docket No. 21-3).) The letter lists the Labor Code and IWC wage order provisions that plaintiffs contend defendants violated and purports to provide the "facts and theories" substantiating those violations. (Id. at 1.)
The court may consider the December 13, 2012 letter sent by plaintiffs to the LWDA and defendants, (Pls.' Exs. in Supp. of Opp'n Ex. B ("Dec. 13, 2012 Letter") (Docket No. 21-3)); the January 8, 2013 letter sent by Vinh Phat to the LWDA, (id. Ex. D ("Jan. 8, 2013 Letter") (Docket No. 21-3)); and the January 21, 2013 letter sent by plaintiffs to the LWDA, (id. Ex. E ("Jan. 21, 2013 Letter") (Docket No. 21-3)). These documents, while not attached to the Second Amended Complaint, are referenced therein and are therefore properly considered on a motion to dismiss. See Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994) ("As it makes sense and comports with existing practice, we hold that documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the pleading, may be considered in ruling on a Rule 12(b)(6) motion to dismiss."), overruled on other grounds by Galbraith v. County of Santa Clara, 307 F.3d 1119 (9th Cir. 2002).
The parties requested judicial notice of various other documents and facts. Because it is not necessary for the court to rely on these sources to resolve the instant motions, it declines to rule on the parties' requests regarding them.
On or about March 12, 2013, plaintiffs amended the Complaint to allege claims under the Fair Labor Standards Act ("FLSA"). (Notice of Removal Ex. B ("FAC").) Vinh Phat then removed the action to this court on April 14, 2013. (Docket No. 1.) After Vinh Phat filed a motion to dismiss the First Amended Complaint ("FAC"), the parties stipulated to allow plaintiffs to file the Second Amended Complaint ("SAC"), which was deemed filed and served on May 15, 2013. (See Docket Nos. 6, 9, 10, 11, 13.)
In the SAC, plaintiffs bring claims for: (1) overtime compensation, Cal. Labor Code § 1194; (2) failure to pay minimum wages, Cal. Labor Code § 1194; (3) failure to provide meal and rest periods, Cal. Labor Code § 226.7; (4) waiting time penalties, Cal. Labor Code § 203; (5) failure to provide accurate wage statements, Cal. Labor Code § 226(a); (6) violation of PAGA, Cal. Labor Code §§ 2699 et seq.; (7) violation of California's Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code §§ 17200-17210; (8) violation of California Labor Code section 558; (9) failure to pay overtime under the FLSA, 29 U.S.C. § 207; and (10) failure to pay minimum wages under the FLSA, 29 U.S.C. § 206.
In their PAGA claim, plaintiffs allege that defendants violated the following Labor Code sections: 201-203, 226, 226.7, 510, 558, and 1194. (Second Am. Compl. ("SAC") ¶ 96 (Docket No. 14).) Each of the claims are alleged against Vinh Phat and Does one through one hundred, except that the eighth claim for violation of California Labor Code section 558 and the ninth and tenth claims under the FLSA are also alleged against the individual defendants.
The SAC elaborates on plaintiffs' initial allegation that they sought permission to pursue their claims and sent the requisite notice to defendants. Plaintiffs allege that they "sought permission pursuant to Labor Code section 2699.3 et seq. to pursue the claims set forth in [the SAC] against [d]efendants as a Private Attorney General on behalf of themselves and other similarly situated employees." (Id. ¶ 19.) They gave written notice via certified mail to the LWDA, Vinh Phat, and the individual defendants on approximately December 17, 2012. (Id.; see also Dec. 17, 2012 Letter.) Vinh Phat wrote a letter to the LWDA on approximately January 8, 2013, which stated that plaintiffs' claims were unfounded and requested that the LWDA investigate the allegations. (SAC ¶ 19; Pls.' Exs. in Supp. of Opp'n Ex. D ("Jan. 8, 2013 Letter") at 1 (Docket No. 21-3).) Plaintiffs thereafter sent the LWDA a letter on approximately January 21, 2013, expressing their understanding that Vinh Phat did not "cure" the alleged Labor Code section 558 violation. (SAC ¶ 19; Pls.' Exs. in Supp. of Opp'n Ex. E ("Jan. 21, 2013 Letter") at 2 (Docket No. 21-3).) As of the filing of the SAC, the LWDA has not provided any response to plaintiffs' or Vinh Phat's correspondence. (SAC ¶ 19.)
The FAC contains the same allegations regarding exhaustion and notice as the Complaint. (See Compl. ¶ 19; FAC ¶ 19.)
Vinh Phat now moves to dismiss plaintiffs' PAGA claim pursuant to Rule 12(b)(6). (Docket No. 14.) The individual defendants move to dismiss plaintiffs' Labor Code section 558 claim against them, as well as plaintiffs' alter ego claim, pursuant to Rule 12(b)(6). (Docket No. 16.) They also move to join Muoi Lam as a necessary party pursuant to Rule 21. (Id.)
The individual defendants' request is more properly considered under Rule 19, which governs compulsory party joinder in federal district courts. See E.E.O.C. v. Peabody W. Coal Co., 610 F.3d 1070, 1077 (9th Cir. 2010).
II. Legal Standard
To survive a motion to dismiss, a plaintiff must plead "only enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). This "plausibility standard," however, "asks for more than a sheer possibility that a defendant has acted unlawfully," Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009), and "[w]here a complaint pleads facts that are 'merely consistent with' a defendant's liability, it 'stops short of the line between possibility and plausibility of entitlement to relief.'" Id. (quoting Twombly, 550 U.S. at 557). In deciding whether a plaintiff has stated a claim, the court must accept the allegations in the complaint as true and draw all reasonable inferences in favor of the plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), overruled on other grounds by Davis v. Scherer, 468 U.S. 183 (1984); Cruz v. Beto, 405 U.S. 319, 322 (1972).
Rule 19 governs the joinder of persons necessary for a suit's just adjudication. The court undertakes a three-step inquiry under Rule 19. E.E.O.C. v. Peabody W. Coal Co., 610 F.3d 1070, 1078 (9th Cir. 2010). It must first determine whether a nonparty should be joined under Rule 19(a); if so, that nonparty is a "person required to be joined if feasible." Id. (quoting Fed. R. Civ. P. 19(a)). If joinder is not feasible, the court must determine whether the case may proceed without the absentee nonparty or whether the action must be dismissed. Id.
III. Analysis
Under the California Labor Code, employers may be subject to liability for violations of the law in three ways. First, certain labor code provisions allow an individual to bring a private action for unpaid wages and statutory penalties. See, e.g., Cal. Labor Code § 203 (providing for statutory penalty for failure to pay wages due to an employee who quits or is discharged); see also Caliber Bodyworks, Inc. v. Superior Court, 134 Cal. App. 4th 365, 377-78 (2d Dist. 2005). The LWDA and its departments may also assess and collect civil penalties for violations of specified provisions of the Labor Code. See Cal. Labor Code § 210; Caliber Bodyworks, 134 Cal. App. 4th at 370. Finally, under PAGA, individuals may bring a private action against an employer for violations of specific provisions of the Labor Code and recover civil penalties. See Cal. Labor Code § 2699(a); Thomas v. Home Depot USA Inc., 527 F. Supp. 2d 1003, 1006 (N.D. Cal. 2007). "In sum, an employer is potentially liable for unpaid wages and interest, statutory penalties and civil penalties for many violations of Labor Code wage-and-hour provisions." Caliber Bodyworks, 134 Cal. App. 4th at 378.
Relevant to the instant motions to dismiss, plaintiffs bring a PAGA claim against Vinh Phat and seek civil penalties under Labor Code section 2699(f)(2). Labor Code section 2699 "provides for a default civil penalty for all provisions of the Labor Code for which a civil penalty is not specifically provided." Thomas, 527 F. Supp. 2d at 1007 (citing Cal. Labor Code § 2699(f)). An aggrieved employee who brings a PAGA claim seeking such penalties must comply with certain pre-filing notice and exhaustion requirements set forth in Labor Code section 2699.3. See id. at 1007; Caliber Bodyworks, 134 Cal. App. 4th at 381. The individual must also plead compliance with those requirements. Caliber Bodyworks, 134 Cal. App. 4th at 382.
Plaintiffs also bring a Labor Code section 558 claim against the individual defendants seeking civil penalties under that section. Section 588 provides for a civil penalty for "[a]ny employer or other person acting on behalf of an employer who violates, or causes to be violated, a section of . . . [C]hapter [One] or any provision regulating hours and days of work in any order of the Industrial Welfare Commission . . . ." Cal. Labor Code § 558(a). For this claim, plaintiffs must also comply with the pre-filing notice and exhaustion requirements of section 2699.3. See id. § 2699(a); Caliber Bodyworks, 134 Cal. App. 4th at 379 & n.15, 381.
There are two sets of similar administrative requirements in subdivisions (a) and (c) of section 2699.3. The requirements of subdivision (a) must be met where a plaintiff alleges a violation of any Labor Code provision listed in Labor Code section 2699.5. Cal. Lab. Code § 2699.3(a). Under subdivision (a), the aggrieved employee must give notice by certified mail to the LWDA and the employer of the specific code provisions alleged to have been violated and the "facts and theories" underlying the alleged violations. Id. § 2699.3(a)(1). The employee may then bring a civil suit containing a PAGA claim if: (1) he receives written notice from the LWDA within thirty days that the agency does not intend to investigate the alleged violation, or (2) thirty-three days pass from the date the employee provided notice to the LWDA and the LWDA does not respond. Id. § 2699.3(a)(2).
Where an employee alleges violations of provisions of the Labor Code not enumerated in section 2699.5 or Division 5, the pre-filing requirements of subdivision (c) apply. Id. § 2699.3(c)(1). These requirements are similar to those in subdivision (a), except that the employee must wait thirty-three days after providing notice to the LWDA and the employer to give the employer an opportunity to cure the alleged violation. Cal. Lab. Code §§ 2699.3(c)(1)-(2). If the employer chooses to cure the violation, the employer must provide notice by certified mail to the employee and the LWDA. Id. § 2699.3(c)(2)(A). If no cure notice is received within the thirty-three day period, the employee may commence a civil suit. Id.
Division 5 contains requirements related to occupational safety and health.
A. Plaintiffs' Compliance with Section 2699.3 as to the PAGA Claim Against Vinh Phat
1. Timeliness of Pre-filing Notice
Vinh Phat contends that because plaintiffs did not provide notice to it and the LWDA before filing this action in state court, plaintiffs' PAGA claim must be dismissed for failure to exhaust administrative remedies. (Vinh Phat Mem. in Supp. at 5:21-23, 6:14-17 (Docket No. 14-1).) To summarize the relevant procedural history, on December 7, 2012, plaintiffs filed suit in state court and alleged a PAGA claim based on violations of California Labor Code sections 201, 202, 203, 226, 226.7, 227.3, 510, 558, and 1194. (Compl. ¶¶ 66-71.) Of these alleged Labor code violations, section 558 is the only provision not listed in section 2699.5.
On December 17, 2012, plaintiffs sent notice of the alleged violations to their employer, Vinh Phat, the individual defendants, and the LWDA via certified mail. (Dec. 17, 2012 Letter; SAC ¶ 19.) After more than thirty-three days had passed without any response from the LWDA or notice of cure from Vinh Phat, plaintiffs filed the First Amended Complaint, again alleging a PAGA claim predicated upon the same violations. (Notice of Removal Ex. B.)
In the SAC, plaintiffs dropped the section 227.3 claim.
Although Labor Code section 2699.3(a) provides that "a civil action by an aggrieved employee alleging a violation of any provision listed in Section 2699.5 shall commence only after" exhausting pre-filing notice and exhaustion requirements, Caliber Bodyworks recognized that a plaintiff's failure to provide notice to the LWDA and the employer prior to commencing suit need not be fatal to the plaintiff's PAGA claim if the plaintiff subsequently satisfies the notice and exhaustion requirements and amends the complaint accordingly. Caliber Bodyworks, 134 Cal. App. 4th at 383 n.18, 385 n.19; see also Cal. Lab. Code § 2699.3(c) (mandating that "[a] civil action by an aggrieved employee pursuant to subdivision (a) or (f) of Section 2699 alleging a violation of any provision other than those listed in Section 2699.5 or Division 5 (commencing with Section 6300) shall commence only after" exhausting administrative prerequisites).
In Caliber Bodyworks, the plaintiffs sought civil penalties for some of their causes of action alleging violations of the Labor Code, although the complaint did not expressly mention PAGA or request remedies under it. Caliber Bodyworks, 134 Cal. App. 4th at 370, 379. The plaintiffs did not allege that they had satisfied PAGA's pre-filing notice and exhaustion requirements before initiating their lawsuit. Id.
The court explained that as to the causes of action seeking civil penalties, plaintiffs were required to comply with the provisions of section 2699.3(a). Id. at 381 ("[T]he first category of causes of action seeking only civil penalties . . . falls squarely within the Act."); see also id. at 383 ("[P]laintiffs' first, third and fourth causes of action seek civil penalties for alleged violations of Labor Code provisions specified in section 2699.5. Under the plain language of the Act, plaintiffs cannot pursue civil penalties for those violations without complying with the pre-filing notice and exhaustion requirements of section 2699.3, subdivision (a).").
The court dismissed the causes of action seeking only civil penalties with prejudice because plaintiffs failed to plead compliance with the pre-filing notice and exhaustion requirements in section 2699.3(a), and failed to specify any manner in which they would amend their allegations. Id. at 383 & n.18. For causes of action for which plaintiffs requested both civil penalties and other penalties, the court struck the request for civil penalties. Id. at 385 & n.19. The court observed, however, that "plaintiffs certainly may follow the administrative procedures in section 2699.3, subdivision (a), and, should the LWDA choose not to investigate or cite Caliber based on the alleged violations, then request leave to amend the first amended complaint to seek civil penalties." Id. at 383 n. 18; see also id. at 385 n.19.
Vinh Phat offers no reason to distinguish Caliber Bodyworks on the ground that the plaintiffs there did not plead compliance with section 2699.3(a) in their complaint, while plaintiffs here so pled. The court discerns none. The individual defendants raise another possible basis for distinguishing Caliber Bodyworks, and it is best addressed at this point.
The Caliber Bodyworks court noted that PAGA became effective on January 1, 2004, and was amended to require exhaustion effective August 11, 2004. Id. at 375. As the individual defendants describe it, "[t]he time line in Caliber was: plaintiffs filed a class action, defendants demurred to the complaint on failure to exhaust grounds, the trial court sustained the demurrer, plaintiffs filed a petition for writ of mandate, the Court of Appeal ordered briefing and, after reviewing the briefs, published its decision on November 23, 2005." (Vong Reply at 6:8-12 (citing Caliber Bodyworks, 134 Cal. App. 4th at 365, 371-72) (Docket No. 24).) In light of this chain of events, the individual defendants argue that "[g]iven the measured pace of judicial proceedings, it is nearly impossible to conceive that the complaint was filed after August 11, 2004, yet generated this amount of activity in only [fourteen] months." (Id. at 6:12-14.)
While creative, the individual defendants' argument is unconvincing. The Caliber Bodyworks court made no inquiry into whether the exhaustion requirement should apply retroactively to--as the individual defendants would have the court speculate--a complaint filed before the requirement became law. In comparison, the court in Thurman v. Bayshore Transit Management, Inc., 203 Cal. App. 4th 1112 (4th Dist. 2012), concluded that the plaintiff's PAGA claim could go forward without notice to the LWDA where the suit was initiated after PAGA's effective date but before the administrative exhaustion requirement was added only after a detailed examination of whether the administrative exhaustion requirement was meant to apply retroactively. Thurman, 203 Cal. App. 4th at 1150. More importantly, Caliber Bodyworks nowhere states, much less implies, that its directive that plaintiffs could reallege their PAGA claims after fulfilling section 2699.3's pre-filing and notice requirements was not a general prescription for the ordinary case, but rather depended on the circumstance that the complaint was filed before the requirements came into effect. In the absence of any discussion or mention in Caliber Bodyworks of the procedural situation hypothesized by the individual defendants, the court declines to distinguish the case on those grounds.
Further, Vinh Phat cites no case law contrary to Caliber Bodyworks's conclusion. Federal courts applying PAGA have also excused strict compliance with section 2699.3's notice and exhaustion requirements and have considered a PAGA claim despite delayed notice to the LDWA. See, e.g., Harris v. Vector Mktg. Corp., C-08-5198 EMC, 2010 WL 56179, at *2 (N.D. Cal. Jan. 5, 2010). In Harris, the plaintiff initially pled a PAGA claim in her first amended complaint, but failed to send notice to the LWDA until almost six months later. Id. at *1. Although the court ultimately denied the plaintiff's request for leave to amend her complaint because the PAGA claim was time barred, the court found that the delayed notice to the LWDA was not dispositive. Id. at *2 ("The bottom line is that Ms. Harris has now sent a PAGA notice . . . [and] that problem has now, in essence, been cured."); see also Stagner v. Luxottica Retail N. Am., Inc., C 11-02889 CW, 2011 WL 3667502, at *6-7 (N.D. Cal. Aug. 22, 2011) (dismissing PAGA claim with leave to amend where plaintiff did not dispute that she failed to satisfy the pre-filing prerequisites and observing that to satisfy PAGA's requirements, the plaintiff must allege that the thirty-three day deadline passed without any notice from the LWDA); Kamar v. RadioShack Corp., CV07-2252AHM(AJWX), 2008 WL 2229166, at *14-15 (C.D. Cal. May 15, 2008) (dismissing PAGA claim requesting civil penalties under section 558 where plaintiffs did not dispute that they failed to meet PAGA's pre-filing notice and cure requirements, but granting leave to amend complaint to plead compliance with those requirements).
Under other California statutory regimes, courts have likewise allowed claims to proceed where plaintiffs have not strictly complied with a statutory exhaustion or presentation requirement prior to filing suit. For example, California's Fair Employment and Housing Act ("FEHA") has a claim presentation requirement similar to PAGA's exhaustion requirement. Under FEHA, an employee must file a complaint with the Department of Fair Employment and Housing ("DFEH") and receive from DFEH a notice of right to sue before filing a civil action based on violations of FEHA. Sutton v. Derosia, 1:11-CV-01426-LJO, 2012 WL 4863788, at *21 (E.D. Cal. Oct. 12, 2012) (citing Romano v. Rockwell Int'l, Inc., 14 Cal. 4th 479, 492 (1996)).
In Sutton, the plaintiff initiated suit almost a year before filing a complaint with DFEH, which issued a "right to sue" letter the same day the plaintiff filed the complaint. Id. at 22. The court explained that "[a]lthough plaintiff initiated the lawsuit before obtaining her right to sue letter, the subsequent issuance of the letter prior to trial cured any procedural defect." Id. It observed that "there is no evidence that the premature filing precluded the state from performing its administrative duties, especially in light of the fact that plaintiff requested an immediate right to sue notice." Id.
Section 2966.3's notice requirement serves the dual purpose of providing the LWDA with an initial opportunity to investigate Labor Code violations and cite employers, and giving employers, in certain instances, an opportunity to cure the alleged violations. Cal. Lab. Code §§ 2699.3(a), (c); Caliber Bodyworks, 134 Cal. App. at 375; Harris, 2010 WL 56179 at *2. Although this action was filed prematurely, allowing plaintiffs to bring their PAGA claims would not undermine these purposes.
As in Sutton, there is no indication that plaintiffs' notice--sent so soon after the original Complaint was filed--precluded the LWDA from performing its administrative function. When plaintiffs filed the FAC, it had been well over thirty-three days since they provided notice to the LWDA. (See Dec. 17 2012 Letter.) By the time plaintiffs filed the SAC, the agency had still not responded to any of the parties' correspondence. (SAC ¶ 19.) Thus, there is no risk that allowing plaintiffs to proceed would impinge upon the LWDA's time-limited option to pursue plaintiffs' claims.
Nor did the late notice deprive Vinh Phat of the opportunity to cure. After plaintiffs sent their notice letter, Vinh Phat promptly notified the LWDA that it disputed "each and every one" of plaintiffs' allegations in the notice letter. (Jan. 8, 2013 Letter at 2.) More generally, a dismissal with prejudice is not required to satisfy the purpose of allowing the employer to cure. See Morgan v. AT & T Wireless Servs., Inc., 177 Cal. App. 4th 1235, 1261 (2d Dist. 2009) (allowing Consumers Legal Remedies Act claim in third amended complaint to proceed even though the plaintiffs had not complied with notice and exhaustion requirements that allowed the defendant to cure when they initially brought the claim in the second amended complaint). Instead, the claim must simply be dismissed and cannot be realleged until thirty-three days or more after the plaintiff complies with 2699.3's notice requirements. See id. If, before that period passes, the employer corrects the alleged Labor Code violations, the employer cannot be held liable for damages. See id.
Here, the court finds that plaintiffs have cured the defects in their conformance with section 2699.3's requirements by complying with the notice requirements listed therein, waiting thirty-three days without any notice from the LWDA that it intended to investigate the alleged violations or from Vinh Phat that it intended to cure, and then amending the Complaint to reallege their PAGA claim. See Caliber Bodyworks, 134 Cal. App. at 383 n.18, 385 n.19.
2. Sufficiency of Pre-Filing Notice
Under section 2699.3, a plaintiff's notice to the LWDA and the employer must include the specific code provisions alleged to have been violated and the "facts and theories" to support the alleged violation. Cal. Lab. Code § 2699.3(a)(1). While the exact requirements of this standard remain undefined, courts have marked its contours. In Archila v. KFC U.S. Properties, Inc., 420 F. App'x 667 (9th Cir. 2011), the court found plaintiff's notice to be insufficient where "[t]he demand letter merely list[ed] several California Labor Code provisions [the plaintiff] allege[d] KFC violated and request[ed] that KFC conduct an investigation." Archila, 420 F. App'x at 669.
Given how bare the letter at issue in Archila was, the court rejects the gloss put on that case in Soto v. Castlerock Farming & Transport Inc., CIV-F-09-0701 AWI, 2012 WL 1292519 (E.D. Cal. Apr. 16, 2012). Soto interpreted Archila to require that the notice letter have an "exceedingly detailed level of specificity . . . ." Soto, 2012 WL 1292519, at *8.
The court in Gonzalez v. Millard Mall Services, Inc., 09CV2076-AJB WVG, 2012 WL 3629056 (S.D. Cal. Aug. 21, 2012), distinguished Archila and found that plaintiffs' letter to the LWDA provided sufficient notice under section 2699.3. The letter stated that the defendant violated Labor Code section 212, which "prohibits employers from issuing paychecks that [are] not negotiable, payable in cash, on demand, without discount, at an established place of business in California, the name and address of which appears on the instrument, and which place of business has been prepared, by the deposit of funds, understanding to pay the money called for by the instrument." Gonzalez, 2012 WL 3629056, at *6 (citing Cal. Labor Code § 212). It then explained that "[i]n violation of these statutory requirements, the Defendants issued pay checks out of a bank in Illinois and the address of the bank does not appear on the checks." Id. at *6 (internal quotation marks omitted). The court held that, "[c]ontrary to the notice letter in Archila where Plaintiffs merely listed a long list of specific labor code sections without any facts to support each, here, Plaintiffs state the labor code violation and [sic] provides sufficient facts to provide notice to the LWDA." Id.
Similarly, in Lessard v. Trinity Protection Services, Inc., 2:10-CV-01262-MCE, 2010 WL 3069265 (E.D. Cal. Aug. 3, 2010) (England, J.), the plaintiffs' notice letter alleged that the defendant violated Labor Code section 204, which sets forth guidelines for when wages must be paid. Lessard, 2010 WL 3069265, at *1. The notice letter stated that the defendant's practice was to pay wages twelve days after the pay period ended for each employee. Id. The court held that the notice letter informed the defendant of the "facts and theories" supporting the alleged violation and was sufficient to enable the LWDA to investigate the claim. Id. at 3.
Here, in their December 17, 2012 notice letter to defendants and the LWDA, plaintiffs alleged that Vinh Phat violated Labor Code sections and related IWC wage order provisions requiring payment of overtime wages for hours worked in excess of eight hours in a day or forty hours in a week (Labor Code sections 510 and 1194); payment of the minimum wage (Labor Code section 1194 and IWC Minimum Wage Order MW-2007); meal and rest periods at certain intervals (Labor Code section 226.7 and IWC Wage Order 4 sections (11)(A) and (12)(A)); provision of itemized statements accurately depicting, among other things, the "gross wages earned" and the "net wages earned" (Labor Code section 226); and that all wages, including overtime wages, be paid to employees upon separation and/or termination of employment (Labor Code sections 201-203). (See Dec. 17, 2012 Letter.) Plaintiffs also alleged that Vinh Phat violated section 558 by infringing on their rights to overtime and meal and rest periods. (Id. at 4.)
Plaintiffs' notice letter also addressed an alleged violation of Labor Code section 227.3 for failure to pay accrued vacation wages upon termination, but plaintiffs no longer allege a violation of that provision in the SAC.
In their notice letter, plaintiffs stated that they, along with similarly situated employees, worked in excess of eight hours per day and forty hours per work, but only received a set salary per work week. (Id. at 2.) This set salary did not compensate them for overtime and minimum wages for any work beyond eight hours in a day and forty hours in a week. (Id.) Plaintiffs also stated that Vinh Phat did not keep track of the hours that they actually worked. (Id.)
According to plaintiffs' notice letter, Vinh Phat required its employees to work over ten hours per day without providing full meal periods and ten-minute rest breaks. (Id. at 3.) Plaintiffs also claimed that Vinh Phat failed to inform them that they were able to take rest periods and did not have a rest period policy. (Id.) Further, Vinh Phat customers regularly sought out plaintiffs for assistance such that it was not possible for them to take rest periods. (Id.)
The notice letter also stated that Vinh Phat failed to itemize the hours plaintiffs worked on their pay stubs, as well as the missed meal and rest period premiums that were owed to them, which precluded plaintiffs from determining the total amount of wages due and owing. (Id. at 3.) Plaintiffs claimed they did not receive all their final wages at the time of termination or within seventy-two hours of that time. (Id. at 4.)
Plaintiffs' notice letter provides sufficient "facts and theories" to support the violations of the Labor Code that they allege Vinh Phat committed. As to the alleged violations related to overtime and the minimum wage, plaintiffs supplied more facts than the plaintiffs in Archila, who offered none, and at least as much detail as the plaintiffs in Gonzalez and Lessard. While plaintiffs' statement that they worked more than forty hours per week, for example, is in one sense a restatement of a provision alleged to have been violated, it is nonetheless a fact that notifies defendants and the LWDA of the basis for plaintiffs' claims. Of particular importance, plaintiffs explain that they only received a set salary that did not compensate them for work performed over eight hours in a day or forty hours in a week, and that Vinh Phat did not record their hours. For minimum wage and overtime violations, these facts are sufficient for the employer to understand the basis of an employee's grievance on those grounds or for the LWDA to initiate an investigation, especially when the names of the aggrieved employees are provided. See Cardenas v. McLane FoodServices, Inc., 796 F. Supp. 2d 1246, 1259-60 (C.D. Cal. 2011) (holding that the plaintiff's letter to the LWDA provided sufficient notice where it named the aggrieved employees and set forth some, but not all, facts supporting the alleged violations of the Labor Code).
Plaintiffs repeatedly suggest that defendants "waived" their sufficiency argument because they never raised any concerns regarding the sufficiency of the December 17, 2012 letter before these motions. Plaintiffs provide no authority to support this proposition. It therefore must be rejected.
As to the remaining alleged violations, plaintiffs have also provided comparable factual specificity to the plaintiffs in Gonzalez and Lessard. See also Moua v. Int'l Bus. Machines Corp., 5:10-CV-01070 EJD, 2012 WL 370570, at *5 (N.D. Cal. Jan. 31, 2012) (rejecting the argument that aggrieved employees were required to include specific facts as to each violation); Cardenas, 796 F. Supp. 2d at 1259-60. In sum, the court finds that plaintiffs' notice letter complies with Labor Code section 2699.3 because it "identifies at least some alleged facts and theories" in support of Vinh Phat's alleged violations, Moua, 2012 WL 370570, at *5, and provides a sufficient basis for the LWDA to investigate the aggrieved employees' allegations.
Because the court finds that the December 17, 2012 letter provided sufficient notice, it need not consider the effect of an additional letter that plaintiffs sent July 2, 2013.
Vinh Phat argues that Gonzalez, Lessard, and Cardenas are distinguishable because they did not consider an employer's right to cure under section 2699.3(c). In its view, where the employer may cure, the notice letter must contain all the facts needed, such as the precise number of hours and the dates and times those hours were worked, in order for the employer to cure the alleged deficiencies. (Vinh Phat Reply at 6:11-17 (Docket No. 22).) Only one of the predicate statutory violations of plaintiffs' PAGA claim against Vinh Phat, section 558, however, requires allowing the employer to cure. See Cal. Labor Code § 2699.3(c). According to their notice letter, plaintiffs' section 558 claim derives from violations of Labor Code provisions and IWC wage orders related to overtime and meal and rest periods. (Dec. 17, 2012 Letter at 4.)
Even in light of Vinh Phat's opportunity to cure the section 558 violation, the court finds plaintiffs' notice letter sufficient. There is no difference in the language between subdivision (a)(1) and (c)(1) suggesting that a notice letter must contain different or more facts where the employer may cure. Requiring that all the information needed to cure allegations of complex overtime and meal and break periods violations be in the notice letter would seem to go beyond what was contemplated by the "facts and theories" standard of section 2699.3.
The California legislature amended PAGA to include section 2699.3 to allow "the [LWDA] to act first on more 'serious' violations such as wage and hour violations and give employers an opportunity to cure less serious violations." Caliber Bodyworks, 134 Cal. App. 4th at 375 (internal quotation marks and citations omitted). Even if the information provided in the notice letter is alone insufficient to allow the employer to cure, the purpose of the notice requirement is not undermined. The employer's cure was not intended to be a panacea in all cases, but rather an opportunity to foreclose unnecessary litigation in cases that are easily resolved by basic communication between the parties. This is reflected in the short time period the statute provides for cure. The court also notes that the Labor Code sections regarding overtime (sections 510 and 1194), meal periods (sections 226.7 and 512), and rest periods (section 226.7) are included in section 2699.5 and would not usually be subject to cure. Had plaintiffs only requested civil penalties under section 2699(f) and not also under section 558, Vinh Phat would not have the opportunity to cure the alleged violations of the substantive Labor Code provisions it had in this case.
Plaintiffs' section 558 claim is predicated upon violations of section 510 and 512. (See SAC ¶ 108.) While plaintiffs did not expressly mention section 512 in their notice letter, they did refer to IWC Wage Order 4 section 11(A), which has comparable substantive requirements related to meal periods as section 512. (See Dec. 17, 2012 Letter at 3.)
Where an employer may cure, the notice letter is sufficient so long as it enables the employer to understand the basis for the aggrieved employee's allegations and to further investigate them. For the reasons explained above, the notice letter at issue in this case meets this standard. If the employer cannot cure after a quick, reasonable investigation based upon such a notice letter, no abuse is done to the purpose of section 2699.3's notice and exhaustion requirements.
Accordingly, plaintiffs' PAGA claim against Vinh Phat will not be dismissed for failure to comply with section 2699.3.
B. Plaintiffs' Compliance with Section 2699.3 as to Their Labor Code Section 558 Claim Against the Individual Defendants
Section 558 provides that "[a]ny employer or other person acting on behalf of an employer who violates, or causes to be violated, a section of . . . [C]hapter [One] or any provision regulating hours and days of work in any order of the Industrial Welfare Commission shall be subject to a civil penalty . . . ." Cal. Labor Code § 558(a). The individual defendants argue that "[b]ecause individuals may be liable under [section] 558, and the intent of [section] 2699.3 is to provide notice to potentially liable parties, corporate agents the employee believes are liable (such as Defendants) are entitled to pre-filing PAGA notice." (Vong Mem. in Supp. at 7:12-15 (Docket No. 16).) They expressly contend, however, that "corporate agents are not generally 'employers' under the Labor Code" and that "[n]otice to an 'employer' is not notice to a corporate agent." (Id. at 7:9-10, 7:12.)
The individual defendants state that they only assume for purposes of their motion that they may be held liable under section 558. (Vong Mem. in Supp. at 7 n.3.)
When interpreting a California statute, the court first gives "the words their ordinary definitions unless special definitions are provided." London v. Dri-Honing Corp., 117 Cal. App. 4th 999, 1004 (3d Dist. 2004). "If the meaning of the words is clear, then the language controls; if not, [a court] may use various interpretive aids." Id. Section 2699.3(c) requires that the aggrieved employee give notice to the LWDA and the employer. Cal. Labor Code § 2699.3(c)(1) (emphasis added). It also gives the employer the opportunity to cure the alleged violation within a specified period of time. Id. § 2699.3(c)(2)(A) (emphasis added).
The language of section 2699.3 is clear: the aggrieved employee must only provide notice to the employer. Likewise, only an employer, not a corporate agent, may cure. The individual defendants identify no authority suggesting that the term "employer" should be read to include corporate agents. To the contrary, cases construing the scope of "employer" under the Labor Code teach that the term does not reach individual corporate agents acting within the scope of their agency. See Martinez v. Combs, 49 Cal. 4th 35, 66, 75 (2010); Reynolds v. Bement, 36 Cal. 4th 1075, 1087-88 (2005), abrogated on other grounds by Martinez, 49 Cal. 4th at 66. While the individual defendants may understandably prefer to be forewarned about their potential liability, the court is bound to follow the section's clear language. Notice to the employer, even where the aggrieved employee brings a claim against a corporate agent, is therefore sufficient to comply with the notice requirement of section 2699.3. As the court found above, plaintiffs have satisfactorily cured any defects as to the timeliness of their notice.
Moreover, because section 2699.3 did not obligate plaintiffs to provide notice of their claims to the individual defendants, a fortiori they had no obligation "to indicate [that the individual defendants] are liable or explain how they 'violated or caused to be violated' overtime and meal period requirements." (Vong Mem. in Supp. at 8:13-14 (quoting Cal. Labor Code § 558).) To provide sufficient notice, plaintiffs only needed to detail "the specific provisions of [the Labor] [C]ode alleged to have been violated, including the facts and theories to support the alleged violation." Cal. Labor Code § 2699.3(c)(1). As explained above, plaintiffs did so. Accordingly, plaintiffs' Labor Code section 558 claim against the individual defendants will not be dismissed for failure to comply with section 2699.3(c).
C. Statute of Limitations
California Code of Civil Procedure section 340(a) imposes a one-year statute of limitations for any action on a statute for a penalty or forfeiture. Section 340(a) applies to claims for civil penalties under PAGA. Harris, 2010 WL 56179, at *3; Thomas, 527 F. Supp. 2d at 1007-08. Additionally, "the entire remedy provided by section 558, including the recovery of underpaid wages, is a civil penalty," Thurman, 203 Cal. App. 4th at 1147, and therefore section 340(a) also applies to section 558 claims, Yadira v. Fernandez, C-08-05721 RMW, 2011 WL 2434043, at *5 (N.D. Cal. June 14, 2011). Plaintiffs allege that Bu was terminated November 20, 2010, and that Thanh was terminated October 10, 2010. (SAC ¶¶ 30, 47.) Plaintiffs did not provide notice to the LWDA until December 2012, over two years after Bu and Thanh were terminated.
Plaintiffs did not respond to defendants' argument that Bu's and Thanh's claims are time barred. Accordingly, Bu's and Thanh's PAGA and section 558 claims will be dismissed with prejudice. See Silva v. U.S. Bancorp, 5:10-CV-01854-JHN, 2011 WL 7096576, at *3 (C.D. Cal. Oct. 6, 2011) (finding that the plaintiff conceded that claim should be dismissed by failing to address defendants' arguments in his opposition); see also Harris, 2010 WL 56179, at *3 (finding PAGA claim untimely where, although the complaint alleging the claim was filed within the limitations period, notice was not sent to the LWDA within that period); Baas v. Dollar Tree Stores, Inc., C 07-03108 JSW, 2009 WL 1765759, at *5 (N.D. Cal. June 18, 2009) ("Because Plaintiffs did not even serve the required notice until after the statute of limitations had passed, their proposed PAGA claim does not relate back.").
D. Alter Ego
Under California law, "there is no such thing as a substantive alter ego claim . . . ." Ahcom, Ltd. v. Smeding, 623 F.3d 1248, 1251 (9th Cir. 2010). "'A claim against a defendant, based on the alter ego theory, is not itself a claim for substantive relief, e.g., breach of contract or to set aside a fraudulent conveyance, but rather, procedural.'" Id. (quoting Hennessey's Tavern, Inc. v. Am. Air Filter Co., 204 Cal. App. 3d 1351, 1358 (2d Dist. 1988)). The court therefore interprets the individual defendants' request "to dismiss the alter ego claim" as a request to dismiss plaintiffs' claims against the individual defendants to the extent those claims rely on a theory of alter ego, rather than individual, liability.
In the SAC, plaintiffs expressly bring only two claims against the individual defendants. All parties appear to assume, however, that all the claims brought against Vinh Phat are also alleged against the individual defendants on an alter ego theory.
"The alter ego doctrine arises when a plaintiff comes into court claiming that an opposing party is using the corporate form unjustly and in derogation of the plaintiff's interests." Mesler v. Bragg Mgmt. Co., 39 Cal. 3d 290, 300 (1985). Under the doctrine, "[a] corporate identity may be disregarded--the 'corporate veil' pierced--where an abuse of the corporate privilege justifies holding the equitable ownership of a corporation liable for the actions of the corporation." Sonora Diamond Corp. v. Superior Court, 83 Cal. App. 4th 523, 538 (5th Dist. 2000). "[C]ourts will ignore the corporate entity and deem the corporation's acts to be those of the persons or organizations actually controlling the corporation" "when the corporate form is used to perpetrate a fraud, circumvent a statute, or accomplish some other wrongful or inequitable purpose." Id.
Although counsel for the individual defendants indicated at the hearing on these motions that he believes plaintiffs are attempting to hold the individual defendants liable for the totality of Vinh Phat's wrongdoing, it remains unclear whether the individual defendants believe that plaintiffs may not proceed against them on an alter ego theory under the FLSA, or merely that if plaintiffs proceed on such a theory, California alter ego law applies. (See Vong Mem. in Supp. at 3:1-16); cf. Maddock v. KB Homes, Inc., 631 F. Supp. 2d 1226, 1242 (C.D. Cal. 2007) (applying federal alter ego law to FLSA claim and noting that "[i]n considering whether to pierce the corporate veil in a suit arising under federal law, a court must apply federal substantive law, though it may look to state law for guidance"). Regardless of the validity of either proposition, the court finds that even if federal alter ego law applies to the FLSA claim, because plaintiffs' allegations are insufficient to allege alter ego theory under California law, they are also insufficient under federal law. See Ministry of Def. of the Islamic Republic of Iran v. Gould, Inc., 969 F.2d 764, 769 (9th Cir. 1992) (noting that California alter ego law is substantially similar to federal law).
The doctrine may be invoked when two conditions are met: (1) there is such unity of interest and ownership that the separate personalities of the individual and the corporation no longer exist; and (2) that, if the acts in question are treated as those of the corporation alone, an inequitable result will follow. Mid-Century Ins. Co. v. Gardner, 9 Cal. App. 4th 1205, 1212 (3d Dist. 1992). "Conclusory allegations of 'alter ego' status are insufficient to state a claim. Rather, a plaintiff must allege specifically both of the elements of alter ego liability, as well as facts supporting each." Neilson v. Union Bank of Cal., N.A., 290 F. Supp. 2d 1101, 1116 (C.D. Cal. 2003).
1. Unity of Interest
"Factors that courts have found militated towards finding alter ego liability include commingling of assets, treatment of the assets of the corporation as the individual's own, failure to maintain corporate records, employment of the same employees and attorneys, undercapitalization, and use of the corporation as a shell for the individual." Ontiveros v. Zamora, CIV S-08-567LKK/DAD, 2009 WL 425962, at *7 (E.D. Cal. Feb. 20, 2009) (Karlton, J.) (citing Associated Vendors, Inc. v. Oakland Meat Co., 210 Cal. App. 2d 825, 838-40 (1st Dist. 1962)).
Plaintiffs allege that there existed such "a unity of ownership and interest between" Vinh Phat, Vong, Ly, and Plasket "that any individuality and separateness" between them dissolved, rendering Vinh Phat the alter ego of Vong, Ly, and Plasket. (SAC ¶ 21.) The individual defendants were allegedly also the officers and directors, shareholders, and owners of Vinh Phat and directed the working conditions and compensation practices of the supermarket. (Id. ¶¶ 12-14.)
Plaintiffs further allege that because Vong, Ly, and Plasket have funneled Vinh Phat's funds into the personal accounts of themselves, their families, and associates, Vinh Phat is undercapitalized. (Id. ¶ 22.) Further, Vinh Phat's business activities were conducted without the holding of directors or shareholders meetings, no records or minutes of any corporate proceedings were maintained, and Vinh Phat entered into "personal transactions with investments without the approval of other corporate officers." (Id. ¶ 23.)
To sufficiently allege a theory of alter ego, plaintiffs must provide "more than labels and conclusions"--"[f]actual allegations must be enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555 (internal citation omitted). Plaintiffs' allegations of a unity of ownership and interest and control over working conditions are conclusory, as is their claim that Vinh Phat is undercapitalized. The factual allegation that they offer to show undercapitalization--that the individual defendants have "funneled" Vinh Phat's funds into the personal accounts of themselves, their family, and their associates--is insufficient. Without further factual context, such "funneling" could merely be the usual practice of corporations to pay dividends to shareholders, and engaging in such a practice does not necessarily mean that a corporation is undercapitalized. Cf. Dollar Tree Stores Inc. v. Toyama Partners LLC, C 10-0325 SI, 2011 WL 872724, at *2 (N.D. Cal. Mar. 11, 2011) (concluding that the plaintiff sufficiently alleged that corporation was undercapitalized where alleged specific facts demonstrating undercapitalization). Additionally, the court cannot decipher what plaintiffs intend by their allegation that Vinh Phat entered into "personal transactions with investments without the approval of other corporate officers." (See SAC ¶ 23.)
Setting aside plaintiffs' recitation of the elements of alter ego and their unsupported conclusions, the only factual allegations that remain are those showing that Vinh Phat failed to observe corporate formalities. These allegations above are insufficient under California law to question the independence and separateness of the individual shareholders and Vinh Phat. Plaintiffs have therefore failed to plead unity of interest. Cf. Pac. Mar. Freight, Inc. v. Foster, 10-CV-0578-BTM-BLM, 2010 WL 3339432, at *6 (S.D. Cal. Aug. 24, 2010) (noting that "[t]he identification of the elements of alter-ego liability plus two or three factors has been held sufficient to defeat a 12(b)(6) motion to dismiss").
2. Inequitable Result
To allege the inequitable result element of the alter ego theory, plaintiffs must allege bad-faith conduct by defendants. Mid-Century Ins. Co., 9 Cal. App. 4th at 1213. "[T]he kind of inequitable result that makes alter ego liability appropriate is an abuse of the corporate form, such as under-capitalization or misrepresentation of the corporate form to creditors." Firstmark Capital Corp. v. Hempel Fin. Corp., 859 F.2d 92, 94 (9th Cir. 1988) (internal quotation marks and citations omitted) (applying California law). "[W]hile the doctrine does not depend on the presence of actual fraud, it is designed to prevent what would be fraud or injustice, if accomplished." Associated Vendors, Inc., 210 Cal. App. 2d at 838.
Undercapitalization is a relative term. Plaintiffs' allegations are too vague to determine what they mean by undercapitalization in the context of this case. Plaintiffs also failed to allege any facts suggesting that the individual defendants left Vinh Phat undercapitalized in bad faith or with the intention of prejudicing creditors such that it would be inequitable to hold only the corporate defendant liable for its acts. See id. at 837. Plaintiffs have therefore failed to plead an inequitable result.
Plaintiffs argue that they are not required to plead alter ego with particularity because the theory involves facts that are in the sole possession of defendants and no discovery has been conducted to date. They cite no apposite case for this proposition, and the court rejects it in light of the applicable pleading standards set forth at the onset of this Order. Accordingly, to the extent they are based on an alter ego theory, plaintiffs' claims against the individual defendants will be dismissed with leave to amend.
Plaintiffs cite only to a case decided before Bell Atlantic Corp. v. Twombly and Ashcroft v. Iqbal regarding an exception to the particularized pleading requirement of Rule 9(b) that allows allegations of fraud based on information and belief with respect to matters within the opposing party's knowledge. See Neubronner v. Milken, 6 F.3d 666, 672 (9th Cir. 1993).
E. Joinder of a Necessary Party
The individual defendants request that the court order joinder of Muoi Lam as a necessary party. See Fed. R. Civ. P. 19(a)(2). They contend that she is a necessary party because she worked at Vinh Phat as a supervisor, exercised the same control over employees as the individual defendants, and participated in employee-related corporate decisions to the same extent as the individual defendants. (Vong Mem. in Supp. at 9:25-10:1.) The individual defendants also contend that, like them, Lam is a Vinh Phat shareholder. (Id. at 9:15-20.)
Because the court finds that Lam is not a necessary party, it assumes the truth of these facts offered by the individual defendants for the purposes of resolving this motion.
Rule 19 does not require the joinder of joint tortfeasors. Fed. R. Civ. P. 19 advisory committee's note to 1966 amends. Where there is joint and several liability among defendants, each defendant is merely a permissive party to the action. See Temple v. Synthes Corp., Ltd., 498 U.S. 5, 7 (1990) ("It has long been the rule that it is not necessary for all joint tortfeasors to be named as defendants in a single lawsuit."); Wynn v. Nat'l Broad. Co., 234 F. Supp. 2d 1067, 1090 (C.D. Cal. 2002). The individual defendants and plaintiffs have spent a lot of time arguing about whether Lam would be jointly and severally liable with the individual defendants for the claims alleged against the individual defendants. Regardless of whether she was or was not a joint tortfeasor, however, the individual defendants have not met their burden of showing that Lam is a necessary party. See Brum v. County of Merced, 1:12-CV-01636-AWI, 2013 WL 2404844, at *4 (E.D. Cal. May 31, 2013) (Oberto, M.J.).
Rule 19(a) provides that an absent nonparty is "required to be joined if feasible"--that is, necessary--if:
(A) in that person's absence, the court cannot accord complete relief among existing parties; orFed. R. Civ. P. 19(a)(1).
(B) that person claims an interest relating to
the subject of the action and is so situated that disposing of the action in the person's absence may:
(i) as a practical matter impair or impede the person's ability to protect the interest; or
(ii) leave an existing party subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations because of the interest.
"There is no precise formula for determining whether a particular non-party is necessary to an action" and the inquiry is context-specific based upon the facts and circumstances of each case." Confederated Tribes of Chehalis Indian Reservation v. Lujan, 928 F.2d 1496, 1498 (9th Cir. 1991). Nonetheless, the court must first "consider if complete relief is possible among those parties already in the action." Id.
Second, the court must consider "whether the non-party has a 'legally protected interest' in this action that would be 'impaired or impeded' by adjudicating the case without it." Paiute-Shoshone Indians of Bishop Cmty. v. City of Los Angeles, 637 F.3d 993, 997 (9th Cir. 2011) (quoting Yellowstone County v. Pease, 96 F.3d 1169, 1172-73 (9th Cir. 1996)). The interest "must be more than a financial stake and more than speculation about a future event." Makah Indian Tribe v. Verity, 910 F.2d 555, 558 (9th Cir. 1990) (internal citations omitted).
The "complete relief" contemplated by subsection (a)(1)(A) of Rule 19 applies only to "relief as between the persons already parties, not as between a party and the absent person whose joinder is sought." Eldredge v. Carpenters 46 N. Cal. Cntys. Joint Apprenticeship & Training Comm., 662 F.2d 534, 537 (9th Cir. 1981) (internal quotation marks and citation omitted). "'This factor is concerned with consummate rather than partial or hollow relief as to those already parties, and with precluding multiple lawsuits on the same cause of action.'" Disabled Rights Action Comm. v. Las Vegas Events, Inc., 375 F.3d 861, 879 (9th Cir. 2004) (quoting Northrop Corp. v. McDonnell Douglas Corp., 705 F.2d 1030, 1043 (9th Cir. 1983)). While the individual defendants may be frustrated that their fellow shareholder may not be held liable with them, the individual defendants do not appear to contend that the court cannot accord meaningful relief between plaintiffs and the named individual defendants without joinder of Lam. The court discerns no reason for so concluding.
The parties dispute whether Lam has an interest in this action that will be impaired by her absence. The individual defendants argue that Lam may have different defenses from the other individual defendants and that from her perspective, "to state it bluntly, Defendants have every incentive to pile any individual responsibility on her rather than on themselves." (Vong Reply at 7:8-10; see Vong Mem. in Supp. at 12:8.) The individual defendants' argument misses the obvious point: the court will not make any finding as to Lam's liability so long as she is not a party to the action. Thus, whether she has different defenses or is painted as the wrongdoer by the other individual defendants, there will be no legal obligations imposed on her in her absence. Further, the individual defendants remain free to make their argument at trial that Lam caused plaintiffs' injuries. Nothing prevents them from subpoenaing Lam and offering evidence in support of their arguments.
Castner v. First Nat'l Bank of Anchorage, 278 F.2d 376 (9th Cir. 1960), does not otherwise require joinder of Lam. In Castner the court explained that corporate directors are "indispensable where they themselves are charged with fraudulent or improper conduct." Castner, 278 F.2d at 384. Here plaintiffs do not bring any claims sounding in fraud. While they do allege alter ego as a basis for the court to pierce the corporate veil, they are not attempting to hold defendants liable for the acts of bad faith that support a finding of alter ego. Instead, they wish to hold defendants liable for their alleged violations of statutes governing employment conditions. Further, this is not an action by or on behalf of a corporation that the individual defendants control. See id. ("Directors are generally not necessary or indispensable parties to an action by or on behalf of the corporation they control. They are of course indispensable where they themselves are charged with fraudulent or improper conduct." (internal citations omitted)).
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Nor is joinder warranted under Rule 19(a)(1)(B)(ii) because the individual defendants are likely to incur "inconsistent findings and multiple liability." (Vong Reply at 7:7-8.) The individual defendants have not explained what inconsistent findings or multiple liability they may be subjected to if Lam is not joined. See Cachil Dehe Band of Wintun Indians of the Colusa Indian Cmty. v. California, 547 F.3d 962, 976 (9th Cir. 2008) (adopting the First Circuit's approach that inconsistent obligations are not the same as inconsistent adjudications or results). The court declines to speculate as to how the individual defendants might later be burdened. Accordingly, because Lam is not a necessary party to any of plaintiffs' claims, the court will not order her joinder.
IT IS THEREFORE ORDERED that:
(1) Vinh Phat's motion to dismiss be, and the same hereby is, GRANTED as to plaintiffs Bu and Thanh and DENIED as to all other plaintiffs.
(2) The individual defendants' motion to dismiss be, and the same hereby is, GRANTED IN PART and DENIED IN PART. Plaintiffs' claims against the individual defendants are dismissed with leave to amend to the extent they rely on an alter ego theory. Plaintiffs Bu's and Thanh's California Labor Code section 558 claims are also dismissed.
(3) The individual defendants' motion to join a necessary party be, and the same hereby is, DENIED.
______________________
WILLIAM B. SHUBB
UNITED STATES DISTRICT JUDGE