Case Number: BC525141    Hearing Date: September 30, 2014    Dept: 58

JUDGE ROLF M. TREU
DEPARTMENT 58
________________________________________
Hearing Date: Tuesday, September 30, 2014
Calendar No: 7
Case Name: Extra Express (Cerritos), Inc. v. Employment Development Department
Case No.: BC525141
Motion: (1) Motion for Summary Judgment
(2) Demurrer
Moving Party: Plaintiff/Cross-Defendant Extra Express (Cerritos), Inc.
Responding Party: Defendant/Cross-Complainant Employment Development Department
Notice: OK

Tentative Ruling: Motion for summary judgment is denied. Demurrer is overruled. Cross-Defendant to answer by 10/2/14.
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Background –
On 10/18/13, Plaintiff Extra Express (Cerritos), Inc. (“EXE”) filed this action against Defendant Employment Development Department (“EDD”) to recover unemployment insurance contributions, taxes, and penalties assessed and collected by EDD. The Complaint asserted causes of action for (1) recovery of unlawfully collected contributions, interest and penalties; (2) injunctive relief; (3) declaratory relief; and (4) attorneys’ fees and costs.

On 3/10/14, the Court sustained EDD’s demurrer to the 2nd and 3rd COAs without leave to amend. On 3/24/14, EDD filed a cross-complaint against EXE alleging that EXE has a tax liability for failure to file quarterly returns and/or reports. After the Court sustained EXE’s demurrer with leave to amend, EDD filed a First Amended Cross-Complaint on 6/30/14. EXE has filed a motion for summary judgment as to the 1st COA in the Complaint and a demurrer as to the FACC. Trial is set for 10/6/14.

Motion for Summary Judgment –

1. Undisputed Facts
EDD conducted an audit of EXE and issued assessments for unpaid payroll taxes on 7/22/08 and 11/26/08 based on EDD’s determination that EXE’s vendors operated as employees instead of independent contractors. Opp’n Separate Statement [“OSS”] ¶¶ 15-17. EXE filed petitions for reassessment on 8/14/08 and 12/10/08 (id. ¶ 33): the cases were heard before an administrative law judge (Oleh Saciuk) on 8/3/11, 10/4/11, and 1/24/12 (id. ¶¶ 34-35). On 6/14/12, ALJ Saciuk granted and denied in part EXE’s petitions (id. ¶ 36) which was affirmed by the California Unemployment Insurance Appeals Board (“CUIAB”) on 7/23/13 (id. ¶ 38).

In August 2008, the DLSE conducted a separate investigation of EXE to determine whether it had properly classified its vendors as independent contractors. Id. ¶¶ 18-21. A DLSE investigator (Hsaio-Tse Chao) determined that only 38 of EXE’s vendors were misclassified as independent contractors (id. ¶¶ 22-24), and issued a stop order/penalty assessment to EXE (id. ¶ 25). EXE timely appealed the DLSE citation (id. ¶ 26): a hearing was conducted on 2/26/09 and 4/2/09 before a DLSE hearing officer (Joseph Middleton) (id. ¶¶ 27-28), who concluded on 5/22/09 that the 38 vendors were independent contractors and lifted the DLSE citation (id. ¶¶ 29-31). The DLSE hearing officer’s decision is final. See id. ¶ 32.

2. Requests for Judicial Notice
EDD requests judicial notice of EXE’s Complaint, ALJ Saciuk’s decisions in petitions for reassessment filed by Expressshipit.com (“ESC”) and EXE, the CUIAB’s decisions affirming ALJ Saciuk’s decisions, and a complaint for refund filed by ESC (Case NO. 06AS02401). Judicial notice is granted as to the fact of the filing of the pleadings only, and is otherwise denied.

3. Objections
Plaintiff objects to portions of the declaration of Gilbert Tanielu and the attached audit report. All objections are overruled.

4. Collateral Estoppel
EXE moves for summary judgment of the 1st COA in the Complaint on the ground that the DLSE’s decision precludes relitigation of the issue of whether EXE’s vendors were independent contractors. Res judicata and collateral estoppel can be applied to administrative decisions generally. Murray v. Alaska Airlines, Inc. (2010) 50 Cal.4th 860, 867; Noble v. Draper (2008) 160 Cal.App.4th 1, 11-12; People v. Garcia (2006) 39 Cal.4th 1070, 1077 (citing People v. Sims (1982) 32 Cal.3d 468).

The Supreme Court has noted that “the courts have held that agents of the same government are in privity with each other, since they represent not their own rights but the right of the government.” Lerner v. Los Angeles City Bd. of Educ. (1963) 59 Cal.2d 382, 398 (footnote omitted). However, the Supreme Court has also declined to apply collateral estoppel for administrative decisions where doing so is contrary to the intent of the legislative body that established the proceeding for which collateral estoppel is urged. Pac. Lumber Co. v. State Water Resources Control Bd. (2006) 37 Cal.4th 921, 945.

As pertinent here, the legislature has established the EDD to assess and administer credits and refunds under a system of providing unemployment insurance benefits (see Unemployment Ins. Code §§ 100, 301(e), 317, 1127): the DLSE was established to administer and enforce wage and hour and working conditions (see Labor Code §§ 61, 90.5, 1171). The EDD and DLSE therefore have different interests that are not sufficiently close to support privity. Cf. Zapata v. Dept. of Motor Vehicles (1991) 2 Cal.App.4th 108, 115 (addressing the DMV and the district attorney as having the same interest of protecting the public from those who drive under the influence).

EXE argues that the EDD and DLSE share the common goal of ensuring employers’ compliance with law, citing to their participation in the Joint Enforcement Strike Force (“JESF”) on the Underground Economy (see Unemployment Ins. Code § 329). However, the JESF is primarily empowered to improve the cooperation and coordination of enforcement efforts: this does not establish that the EDD and DLSE have sufficiently close interests such that privity applies especially given the EDD and DLSE’s different jurisdiction as granted by the legislature. Therefore, the Court concludes that EXE has failed to establish that collateral estoppel applies to the DLSE’s decision.

Even if the Court were to conclude that the EDD and DLSE were in privity, EXE fails to explain why the DLSE’s decision would govern over the EDD’s. Notably, it appears that both the EDD assessments and the DLSE citation, including the appeals, occurred during the same time period. EXE fails to address the policies of the administrative schemes of the EDD and DLSE, such as how decisions by one would preclude subsequent assertion of claims by the other. See Mahon v. Safeco Title Ins. Co. (1988) 199 Cal.App.3d 616, 622.

5. Independent Contractor
EXE has also requested summary judgment on the ground that its vendors are independent contractors, submitting that the relationships are governed by written agreements (Sep. Statement ¶¶ 4-7) and that EXE has distributed a document that memorializes certain issues concerning their relationships (id. ¶¶ 8-9). However, this is sharply disputed by EDD. See, e.g., Opp’n Sep. Statement ¶ 4. This is sufficient to raise triable issues of fact as to whether EXE’s relationship with its vendors was an employer-employee relationship. See, e.g., Ayala v. Antelope Valley Newspapers, Inc. (2014) 59 Cal.4th 522, 531-32.

6. Ruling
The motion for summary judgment is denied.

Demurrer –
The FACC seeks collection of delinquent payroll taxes against ESC and EXE (see FACC ¶¶ 27-28.2 ), which were cancelled by ALJ Saciuk (id. ¶ 18) and affirmed by the CUIAB (id. ¶ 22). In connection with the demurrer, the parties have submitted several requests for judicial notice. Judicial notice is granted as to the fact of the filing of the parties’ pleadings in this action, as to the Court’s 6/12/14 ruling on EXE’s demurrer, as to decisions concerning the petitions for reassessment, as to the fact of the filing of various documents by the parties in relation to the petitions for reassessments, and as to the legislative history of Unemployment Ins. Code § 1960.

1. Res Judicata
EXE argues that the CUIAB’s decision acts as res judicata to bar the FACC. The Court previously sustained EXE’s demurrer on this ground: however, the Court did not determine that res judicata applied to the CUIAB’s decisions but only concluded that EDD failed to allege facts as to why the offset claims were not barred by res judicata. The FACC now asserts that ALJ Saciuk’s decisions do not have preclusive effect due to the legislature limiting the application of the doctrine (Cal. Logistics, Inc. v. State (2008) 161 Cal.App.4th 242, 250), citing to Unemployment Ins. Code § 1960. FACC ¶ 20.

EXE argues that EDD’s attempt to avoid res judicata directly contradicts Unemployment Ins. Code § 410 which states that the CIUAB’s decisions are “final, except for such action as may be taken by a judicial tribunal as permitted or required by law.” This section also states that the CIUAB’s decisions are binding on the EDD. EDD argues that res judicata does not apply because of the administrative scheme that permits EXE to file its refund action pursuant to Unemployment Ins. Code § 1241(a). See Mahon, 199 Cal.App.3d at 622. EDD has the better argument at the pleading stage.

Unemployment Ins. Code § 410 limits EDD’s right to seek judicial review of CUIAB decisions. EDD’s reliance on Unemployment Ins. Code § 1960 is inapposite because it deals with a subsequent action or proceeding between an individual and his or her employer, which is not the case here. Additionally, the parties dispute whether the separate assessments, petitions, and decisions (see FACC ¶¶ 15-18, 21-22) should be treated as essentially one assessment, appeal, and decision based on the unity of enterprise between EXE and ESC (see id. ¶¶ 9-12): this is irrelevant to the issue of res judicata.

EDD correctly notes that it may relitigate tax liability for any tax years that have been raised by EXE’s action. See Pope Estate Co., 43 Cal.App.2d at 174; see also Unemployment Ins. Code § 1852. At the pleading stage, the Court cannot determine that EXE’s action does not seek refunds for any tax years in which EDD is attempting to seek offsets. Notably, EXE’s action seeks a refund for all payroll taxes collected pursuant to the assessments. See Complaint ¶ 49.

2. Sufficiency of Allegations
EXE also argues that the FACC is vague and unintelligible as to the basis for EDD’s offset claim, arguing that it is unclear how EDD’s claims are calculated. The FACC is not a model of clarity. It is unclear how EDD has calculated its figures. Compare FACC ¶ 23 (indicating that EDD refunded $339,072.31 to EXE in total for the cancelled assessments against ESC and EXE), p. 7:5-8 (requesting $339,072.31 plus $58,917.80 ) with FACC ¶¶ 27-28.1 (totaling $589,178.03). However, EDD clearly distinguishes between the tax liabilities of ESC and EXE (FACC ¶¶ 27-28.1), and indicates that it is seeking offsets for these tax liabilities (see id. ¶ 28.2, p. 7:5-8). EXE’s argument is really a demurrer for uncertainty; however, “[a] demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures.” Khoury v. Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 616.

3. Ruling
The demurrer is overruled. EXE to file an answer by 10/2/14.