Przygoda vs 1 More Usa Inc

Opposition Other

Cal. Super. - 4th Dist.June 12, 2018

AN nn Bs W N 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SHAKOURI LAW FIRM ELECTRONICALLY FILED Ashkan Shakouri, Esq. [SBN 242072] Superior Court of California, 11601 Wilshire Blvd., Fifth Floor Courty of San Diego Los Angeles, California 90025 11/26/2018 at 10:22:00 PI Telephone: (310) 575-1827 Clerk of the Superior Court Fax: (310) 575-1890 By ‘valera Contreras, Deputy Clerk Attorneys for Plaintiff David Przygoda SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY OF SAN DIEGO DAVID PRZYGODA, CASE NO. 37-2018-00028914-CU-EO-CTL [Honorable Richard E.L. Strauss] Plaintiff, PLAINTIFFS OPPOSITION TO VS. DEFENDANTS’ DEMURRER TIM BURTON, an individual; DAVID Time: 9:00 a.m. KELLOGG, an individual, and DOES 1 - Dept.: C-75 100, inclusive, ) ) ) ) ) ) ) ) 1 MORE USA, INC., a Delaware company; ) Date: December 7, 2018 ) ) ) ) ) Defendants. ) ) ) ) ) 1 PLAINTIFF’S OPPOSITION TO DEFENDANTS’ DEMURRER AN nn Bs W N 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 I INTRODUCTION In their Demurrer, Defendants 1 MORE USA, INC., Tim Burton and David Kellogg (collectively “Defendants”) ask the Court to ignore binding California law and rule that the company stocks they promised Plaintiff David Przygoda (“Plaintiff”) in exchange for services he performed before they fired him are not wages under the Labor Code. In Schachter v. Citigroup, Inc. (2010) 47 Cal. 4th 610, no less than the California Supreme Court held that, like any other form of incentive compensation, company stocks promised to an employee as compensation are wages, but if the employee voluntarily resigns prior to vesting of his or her stocks those wages are not earned. In Woods v. Fox Broadcasting Sub., Inc. (2005) 129 Cal. App. 4th 344, a California Court of Appeals similarly held that if stock options are compensation for employee services then they constitute wages. These rulings are in line with Labor Code § 200(a), which broadly defines wages as “all amounts for labor performed by employees of every description, whether the amount is fixed or ascertained by the standard of time, task, piece, commission basis, or other method of calculation.” (emphasis added) While the value of stock options at a given time may be more difficult to ascertain than the value of other forms of compensation, it does not mean that they are not valuable consideration or valid inducements for employee services, and thus, wages under said Code. Here, Plaintiff alleges that Defendants induced him to relocate his residence and work for them for almost a year because they promised him company stocks that would be worth “50 times more” than their purchase price once they started vesting, but then fired him just 13 days before the initial vesting date. Plaintiff further alleges that absent Defendants’ promise of equity in their company, he would not have accepted the job with them. Applying California law to these allegations at the pleading stage, the Court should overrule Defendants’ Demurrer. II. RELEVANT FACTUAL ALLEGATIONS In or around January 2017, Defendant Kellogg, then Chief Branding Officer of Defendant 1 MORE, offered Plaintiff the Director of Marketing position at its San Diego office, which paid $100,000, plus benefits. [FAC | 3, 12 & 13] Plaintiff responded to the offer by telling Defendant Kellogg that he could not accept the job for that kind of low salary because it was much less than he was accustomed to earning and that it would not be worth relocating his whole family, including his 2 PLAINTIFF’S OPPOSITION TO DEFENDANTS’ DEMURRER AN nn Bs W N 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 two young children, for a job that may not pan out long term. [FAC 13] To induce Plaintiff to the job, Defendant Kellogg, among other things, promised Plaintiff stock options in one-percent of Defendant 1 MORE and told him that they “would be worth 50 times more” than their purchase price because the company was going public or being sold in the next couple of years. [FAC | 13] Defendant Burton, the then CEO of Defendant 1 MORE also told Plaintiff that the stocks promised to him in form of options would be worth exponentially more once they began to vest. [FAC {5 & 14] Based on these (and other) promises, Plaintiff accepted the job and uprooted his entire family from Berkley to San Diego to work for Defendants. [FAC q 15] He made the reason for his decision clear to Defendant Burton, telling him that the offered equity in Defendant 1 MORE was a “very important factor in my decision to join the team.” Id. On February 9, 2017, Plaintiff executed Defendant 1 MORE’s written job offer, which, in part, promised him “$100,000 annual base salary, 25% annual discretionary bonus and participation in the employment stock option”, and Defendant Burton, in an email to Plaintiff the same day, confirmed that Plaintiff: “would have a 2,000 share grant which currently represents approximately 1% of 1 MORE USA, Inc.” Id. As such, Defendants presented the stock options to Plaintiff as part of his compensation package. Id. Absent this promise of stock options by Defendants, Plaintiff would not have accepted the position with Defendants and would have pursued other employment opportunities. /d. Plaintiff began working for Defendants on or about February 13, 2017. [FAC 16] On or about July 27, 2017, the parties executed a stock option agreement, which promised that Plaintiff could begin exercising his options at quarterly intervals with the first vesting date set for February 13, 2018. [FAC q 16] Defendants never intended to allow Plaintiff to exercise his rights under the stock option agreement. [FAC | 17] On January 30, 2018, 13 days before the initial vesting date of Plaintiff’s stocks, Defendants fired him, but told him that his termination was not performance-related. [FAC 19] To the extent Plaintiff failed to fulfill any of the terms and conditions of his employment, he was legally excused from doing so because Defendants prevented him from performing them or it was otherwise impossible for him to perform them. [FAC 37] 3 PLAINTIFF’S OPPOSITION TO DEFENDANTS’ DEMURRER AN nn Bs W N 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 III. ARGUMENT A. Company Stocks Defendants Promised to Plaintiff in Exchange for Services He Performed Are Wages Under California Law The Demurrer solely relies on the federal courts’ interpretation of wages under the California Labor Code and dismisses California precedent on the subject matter. It goes without saying that since Plaintiffs’ claims arise under California law, California, not federal, precedents are binding. And those binding precedents undermine Defendants’ Demurrer in its entirety. In Schachter, supra, employee-plaintiff participated in his employer’s incentive compensation plan that provided him with shares of restricted company stock at a reduced price in lieu of a portion of his annual cash compensation. /d. at 614. Under the company plan, plaintiff’s restricted stock would only vest after a period of two years, but if he voluntarily resigned or was terminated for cause before the end of that two-year period, he forfeited his stocks as well as the percentage of annual income designated by him to be paid as shares of those stock. Id. at 615. If plaintiff was involuntarily terminated without cause, he also forfeited his stocks, but received in return a cash payment equal to the portion of his annual compensation that he paid for the forfeited stocks. Id. Schachter voluntarily resigned prior to the vesting of his stocks and the company, according to its plan, did not pay him anything for his unvested stocks. Id. Schachter subsequently sued claiming that his employer’s forfeiture plan was unlawful under the Labor Code because it deprived him of earned wages. Id. 615- 616. Before adjudicating whether the Schachter had, under the facts of his case, actually “earned” or legally forfeited his stocks, the Supreme Court found that unvested company stocks are wages under the Labor Code: The Court of Appeal concluded, and we agree, that the shares of restricted stock issued to Schachter also constituted a wage. The company does not dispute that both the cash compensation and restricted stock-including the “conditional present rights (voting dividend rights),” as well as “contingent future rights of full ownership in that restricted stock” (awarded but never transformed into noncontingent, fully vested rights)- constituted wages. Id. at 619. kooks 4 PLAINTIFE’S OPPOSITION TO DEFENDANTS’ DEMURRER AN nn Bs W N 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Incentive compensation, whether in the form of a traditional cash bonus program or a more complex restricted stock plan, is generally understood as an “‘inducement to employees to procure efficient and faithful service.” (Dept. of Industrial Relations, Div. of Labor Stds. Enforcement (DLSE), Enforcement Policies and Interpretations Manual (Rev. 2006) § 35.1, quoting Duffy Bros. v. Bing & Bing (N.Y.App.Div. 1926) 217 A.D. 10 [215 N.Y.S. 755, 758].) Eligibility to receive incentive compensation “is properly determined by the ... plans' specific terms and general contract principles.” (Neisendorf, supra, 143 Cal.App.4th at p. 523.) While “[t]he public policy in favor of full and prompt payment of an employee's earned wages is fundamental and well established ...” (Smith v. Superior Court (2006) 39 Cal.4th 77, 82 [45 Cal. Rptr. 3d 394, 137 P.3d 218]), “nothing in the public policy of this state concerning wages ... transforms [a] contingent expectation of receiving bonuses into an entitlement” (Neisendorf, supra, 143 Cal. App.4th at p. 522). Only when an employee satisfies the condition(s) precedent to receiving incentive compensation, which often includes remaining employed for a particular period of time, can that employee be said to have earned the incentive compensation (thereby necessitating payment upon resignation or termination). (Ibid.; Lucian v. All States Trucking Co., supra, 116 Cal. App. 3d at p. 975 [“[Aln employee who voluntarily leaves his employment before the bonus calculation date is not entitled to receive it.”’].) Id. at 621. After holding that unvested stocks are a form of wages, our Supreme Court held that Schachter had not earned those wages because he did not fulfill the terms of the stock plan by voluntarily resigning prior to their vesting date. Id. at 621-622. Relevant to the matter at hand, it then went on to say: We note that had Schachter been involuntarily terminated by the company without cause, he would have been required to forfeit his shares of restricted stock in exchange for “a cash payment equal to the portion of his or her annual compensation that had been paid in the form of such forfeited [r]estricted [s]tock,” “without interest.” This provision is consistent with contract law principles prohibiting efforts by one party to a contract to prevent completion by the other party. (See DLSE, Enforcement Policies and Interpretations Manual, supra, § 35.5.) “If the employee is discharged before completion of all of the terms of the bonus agreement, and there is not valid cause, based on conduct of the employee, for the discharge, the employee may be entitled to recover at least a pro-rata share of the promised bonus.” (Ibid.; see DLSE Opn. Letter No. 1987.06.03 (June 3, 1987).) In the analogous context of commissions on sales, it has long been the rule that termination (whether voluntary or involuntary) does not necessarily impede an employee's right to receive a commission where no other action is required on the part of the employee to complete the sale leading to the commission payment. (See Willison v. Turner Resilient Floors (1949) 89 Cal. App. 2d 589 [201 P.2d 406].) This concept has been colorfully described as “ © “He who shakes the tree is the one to gather the fruit.” >” (E. A. Strout Western Realty Agency, Inc. v. Lewis (1967) 255 Cal. App. 2d 254, 259 [62 Cal. Rptr. 918], quoting Sessions v. Pacific Improvement Co. (1922) 57 Cal. App. 1, 18 [206 P. 653]; see also DLSE, Enforcement Policies and Interpretations Manual, supra, § 34.6.) 5 PLAINTIFF’S OPPOSITION TO DEFENDANTS’ DEMURRER AN nn Bs W N 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Here, Schachter's actions-not the company's-resulted in the loss of Schachter's contingent incentive compensation. As such, Schachter is not entitled to “gather the fruit” because he failed to perform the condition necessary to do so-in this case, remain employed with the company until two years had passed from the date he received the restricted stock. Id. at 622-623. The scenario presented above is the same Plaintiff faces here. Again, Plaintiff’s initial vesting date was set to occur a year after commencement of his employment and just 13 days short of that anniversary, Defendants fired him without cause. Had he not been terminated, Plaintiff would have continued his employment and exercised his right to own equity in the company that Defendants promised to induce him to the take the job. In their Demurrer, Defendants claim that Schachter is inapposite because the employee there was promised restricted stocks while Plaintiff here was promised stock options. [Demurrer p. 6, fn. 7] Defendants do not explain why such difference is significant. In fact, the only difference between the two stock plans appears to be that Schachter was required to set a portion of his salary set aside by his employer to purchase company stocks prior to their vesting date while Plaintiff was required to purchase his stocks directly at the time of their vesting. What is significant here is that in both cases the stocks were unvested at the time of employee-separation so that Schachter did not have any greater contingent rights to his unvested stocks than Plaintiff does to his here. Thus, the only material difference between the two employees is that Plaintiff was willing to continue to work until his company stocks vested, while Schachter was not. Because Defendants prevented that from happening by firing Plaintiff 13 days before the initial vesting date, Plaintiff was legally excused from fulfilling that condition precedent. Prevention of performance by the promisee is equivalent to performance by the promisor. Unruh v. Smith (1954) 123 Cal.App.2d 431, 437 ("[a] party to a contract cannot take advantage of his own act or omission to escape liability thereon. Where a party to a contract prevents the fulfillment of a condition or its performance by the adverse party, he cannot rely on such condition to defeat his liability.") If Schachter is not sufficiently convincing because the magical term “stock options” does not appear in the holding, Woods v. Fox Broadcasting Sub., supra, takes care of that supposed problem. 6 PLAINTIFF’S OPPOSITION TO DEFENDANTS’ DEMURRER AN nn Bs W N 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 The Court there, on an appeal from the lower court’s grant of demurrer, considered whether stock options are wages under Labor Code § 206.5, which precludes an employer from requiring an employee to sign a release as a condition of receiving wages already owed to the employee. The Court reasoned that stock options are wages if they are granted as part of any employee’s compensation: Appellants alleged that their stock options were “compensatory” options which they had “earned.” In California, “wages” are broadly defined to include more than just salary. (Lab. Code, § 200, subd. (a); Department of Industrial Relations v. UI Video Stores, Inc. (1997) 55 Cal. App.4th 1084, 1091 [64 Cal. Rptr. 2d 457] [wages includes not just salary but also other benefits that are part of an employee's compensation].) Although the Ninth Circuit has held that stock options are not wages under California law (International Business Machines Corp. v. Bajorek (9th Cir. 1999) 191 F.3d 1033, 1039), that case turned on the unpredictability of the stock price at any given time and the inability to determine their relationship to the defendant's labor. Without deciding whether the Ninth Circuit was correct, appellants’ allegations that they “earned” their “compensatory” options raises factual issues concerning the reasons why they were awarded and the methods by which they were determined. As a result, it is not appropriate for us to reach that issue now. Id. at 357. Defendants do not challenge the above precedent or explain why it should not control especially since here, as in Woods, the parties are only at the pleading stage. Instead, Defendants deflect by pointing to a federal district court (in Duvall v. Galt Med. Corp., No. C-07-03714 JCS, 2007 WL 4207792, at *10 (N.D. Cal. Nov. 27, 2007) that opted not follow this California precedent. But that federal decision, along with the host of others relied on in the Demurrer, are not binding in this State’s courts. Defendants’ reliance on the DLSE Manual § 49.1.2.4 fares no better. That Subsection, in its entirety, provides that the following payments may be excluded from employees’ regular rate of pay: Any value or income derived from employer-provided grants or rights provided pursuant to a stock option, stock appreciation right, or bona fide employee stock purchase program which is not otherwise excludable under any of paragraphs (1) through (7) if- 8) (A) grants are made pursuant to a program, the terms and conditions of which are communicated to participating employees either at the beginning of the employee's participation in the program or at the time of the grant; (B) in the case of stock options and stock appreciation rights, the grant or right cannot be exercisable for a period of at least 6 months after the time of grant (except that grants 7 PLAINTIFF’S OPPOSITION TO DEFENDANTS’ DEMURRER AN nn Bs W N 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 or rights may become exercisable because of an employee's death, disability, retirement, or a change in corporate ownership, or other circumstances permitted by regulation), and the exercise price is at least 85 percent of the fair market value of the stock at the time of grant; (C) exercise of any grant or right is voluntary; and (D) Any determinations regarding the award of, and the amount of, employer-provided grants or rights that are based on performance are- (1) made based upon meeting previously established performance criteria (which may include hours of work, efficiency, or productivity) of any business unit consisting of at least 10 employees or of a facility, except that, any determinations may be based on length of service or minimum schedule of hours or days of work; or (i1) made based upon the past performance (which may include any criteria) of one or more employees in a given period so long as the determination is in the sole discretion of the employer and not pursuant to any prior contract. There is no allegation in the FAC regarding whether “the exercise price [was] at least 85 percent of the fair market value of the stock at the time of the grant.” Even if there was such allegation, it would still not save Defendants because under the same DLSE guidelines certain payments can be excluded from the regular rate of pay even if they are wages. For instance, another exemption in the same Subsection provides that the following forms of compensation may also be excluded from the regular rate of pay: 4) Extra compensation provided by a premium rate paid for work by the employee on Saturdays, Sundays, holidays, or regular days of rest, or on the sixth or seventh day of the workweek, where such premium rate is not less than one and one-half times the rate established in good faith for like work performed in nonovertime hours on other days. If the above-mentioned form of remuneration is not wages, as Defendants argue, then nothing is. IV. CONCLUSION Defendants are seemingly of the opinion that something of value an employer promises an employee he could purchase at a discounted price after his performance of requested services can never constitute wages. Perhaps an illustration will help. Suppose a farmer agrees to work in the field for a month for an agreed-to hourly rate and in exchange for his employer’s promise to sell his car to the 8 PLAINTIFF’S OPPOSITION TO DEFENDANTS’ DEMURRER AN nn Bs W N 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 employee at the end of that month for half price. Further suppose that the employer terminates the farmer the day before the end of that month and reneges on his promise to sell his car for the discounted price. Because the amount of discount offered by the employer represents an “amount for labor performed” by the employee that can be “ascertained by...some [|] method of calculation” it is wages under Labor Code § 200. For the same reason, the company stocks Defendants promised Plaintiff in exchange for his performed services also count as wages because their value can be determined by some method of calculation. The Court should overrule Defendants’ Demurrer in its entirety. DATED: November 26, 2018 SHAKOURI LAW FIRM Ashkan Y. Shakouri Attorney for Plaintiff David Przygoda 9 PLAINTIFF’S OPPOSITION TO DEFENDANTS’ DEMURRER AN nn Bs W N 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PROOF OF SERVICE STATE OF CALIFORNIA, COUNTY OF LOS ANGELES I am employed in the County of Los Angeles, State of California, I am over the age of 18 and not a party to the within action; my business address is 11601 Wilshire Boulevard, Fifth Floor, Los Angeles, California 90025. I served the foregoing document(s) described as: PLAINTIFF’S OPPOSITINON TO DEFENDANTS’ DEMURRER by mailing said document(s) in a sealed envelope with postage fully prepaid, as follows: X By Electronic Service. I caused the above-referenced document(s) to be served through One Legal to the person(s) listed below. I placed the envelope(s) for collection and processing for mailing following this business’ ordinary practice with which I am readily familiar. On the same day correspondence is placed for collection and mailing, it is deposited in the ordinary course of business with the United States Postal Service. Date of deposit: November 26, 2018 Place of deposit: Los Angeles, California. Addressed to: Philip I. Person Greenberg Traurig, LLP 4 Embarcadero Ctr, Ste. 3000 San Francisco, CA 94111-5983 I declare under penalty of perjury under the laws of the State of California that the above is true and correct. Date: November 26, 2018 : Melissa De Los Reyes 10 PLAINTIFF’S OPPOSITION TO DEFENDANTS’ DEMURRER