Case Name: Umamoto, et al. v. Insphere Insurance Solutions, Inc.
Case No.: 1-12-CV-234443

Defendant Insphere Insurance Solutions, Inc. (“Insphere”) demurs to the fourth amended complaint (“4AC”) filed by plaintiffs Greg Umamoto (“Greg”) and Shirley Umamoto (“Shirley”) (collectively, “Plaintiffs”).

This is an action involving wrongful termination, discrimination and various Labor Code violations. Greg and Shirley were previously employed by Insphere, a company in the business of selling insurance policies. (4AC at ¶ 10.) Greg held the title of Division/Agency Manager and Shirley worked as a Sales Leader. (Id. at ¶¶ 6, 7.) Greg and Shirley were both terminated by Insphere in 2012, Greg in February and Shirley in April, purportedly “due to performance.” (Id. at ¶¶ 43, 44.) Plaintiffs allege that during the time of their employment with Insphere, the company misclassified them as independent contractors rather than employees and, due to that misclassification, failed to pay them properly, violating numerous provisions of the Labor Code. (Id. at ¶ 28.) Plaintiffs reported these violations to the Labor Commissioner and were subsequently terminated. (Id. at ¶¶ 28, 63.) Plaintiffs allege that they were terminated due to this action. (Id.)

Plaintiffs filed their initial complaint on October 17, 2012, asserting numerous claims including wrongful termination, fraud, defamation and various violations of the Labor Code. After several rounds of demurrers and amended pleadings, Plaintiffs were granted leave to file the 4AC on April 17, 2014. The 4AC incorporates four new causes of action: (1) the third cause of action for wrongful failure to promote in violation of public policy (asserted by Shirley only); (2) the sixth cause of action for retaliation under the Fair Employment and Housing Act (the “FEHA”), Gov. Code § 12940(h) (asserted by Greg only); (3) the eighth cause of action for conversion (asserted by Greg only); and (4) the ninth cause of action for intentional interference with prospective economic relations (asserted by Plaintiffs).

On May 19, 2014, Insphere filed the instant demurrer to the third, sixth, eighth and ninth causes of action on the ground of failure to state facts sufficient to constitute a cause of action. (See Code Civ. Proc., § 430.10, subd. (e).)

Insphere’s request for judicial notice is GRANTED. (See Evid. Code, § 452, subds. (d) and (h); see Harris v. Civil Serv. Comm’n (1998) 65 Cal.App.4th 1356, 1371, fn. 4 [judicially noticing plaintiff’s complaint with the Department of Fair Employment and Housing and Equal Employment Opportunity Commission]; see also Circle Star Center Associates, L.P. v. Liberate Tech. (2007) 147 Cal.App.4th 1203, 1206, fn. 1 [taking judicial notice of lease that was incorporated by reference in the operative pleading].)

Plaintiffs’ request for judicial notice is GRANTED. (See Evid. Code, § 452, subd. (d).)

The third cause of action alleges that Insphere’s refusal to promote Shirley to assume Greg’s position after Insphere took adverse employment actions against him was a retaliatory action against Shirley and violated public policy as set forth in the FEHA. (4AC at ¶ 69.) In demurring to this cause of action, Insphere asserts that Plaintiffs have failed to stated a claim for wrongful failure to promote in violation of public policy because (1) wrongful failure to promote is not a cognizable cause of action and (2) even if viable, the claim fails on statute of limitations grounds.

Insphere’s first contention, that no claim for wrongful failure to promote exists under California law, is unavailing. There is no state supreme or appellate court decision that holds, as a matter of law, that no claim for wrongful failure to promote in violation of public policy exists. The federal cases cited by Insphere, which hold that Tameny v. Atlantic Richfield Co. (1980) 27 Cal.3d 167 claims “do not necessarily extend to all adverse employment actions short of termination” (Hall v. Apartment Inv. and Management Co. (N.D. Cal. 2008) 2008 WL 4415053, *4) run up against contrary federal decisions which recognize the existence of a claim for wrongful failure to promote in violation of public policy. (See e.g., Crommie v. State of Cal. (N.D. Cal. 1993) 1993 WL 106472, *2, citing Gantt v. Sentry Ins. (1992) 1 Cal.4th 1083 [“[c]learly, California law supplies a cause of action in tort to workers who are denied promotions in retaliation for challenging their employers’ … unlawful practices”].)

However, Insphere’s second contention is well-taken. There is no dispute between the parties over the applicable limitations period for Shirley’s claim, which is two years pursuant to Code of Civil Procedure section 335.1 (actions for personal injury). Nor is there a significant dispute as to when this claim accrued, and thus when the limitations period began to run. Generally, a cause of action for personal injury accrues on the date the injury was sustained. (See Howe v. Pioneer Mfg. Co. (1968) 262 Cal.App.2d 330, 340.) While Insphere asserts that the limitations period began to run in December 2011 when President/CEO Ken Fasola (“Fasola”) was unwilling to discuss Shirley’s potential promotion to Greg’s vacant Agency Manager position at a meeting she requested for that purpose, and Plaintiffs insist that it began to run in February 2012 when another individual was given the position, this variation is not determinative with regards the timeliness of this claim. Ultimately, the viability of the claim turns on application of the relation-back doctrine.

Even if the limitations period began running in February 2012, when Shirley was allegedly affirmatively denied the promotion, the 4AC was not filed until April 21, 2014, more than two years later. The only way this claim would be timely is if it “relates back” to the original complaint filed on October 17, 2012. In order for an amended pleading to relate back to the original complaint, it must “(1) rest on the same general set of facts, (2) involve the same injury, and (3) refer to the same instrumentality, as the original one.” (Norgart v. Upjohn Co. (1999) 21 Cal.4th 383, 409, internal citations omitted.)

It is clear from a review of the allegations of the 4AC and the allegations of the original complaint that the former is based on the same operative facts, i.e., those creating the right to recovery. Relation back “focuses on factual similarity rather than rights or obligations arising from the facts.” (Dudley v. Department of Transportation (2001) 90 Cal.App.4th 255, 265.) In the 4AC, Plaintiffs allege that several minutes after Greg was placed on administrative leave on December 17, 2011, Shirley asked to meet with Regional Manager Kathy Feeny to discuss the possibility of filling Greg’s vacant Agency Manager position, which she was the clear favorite to assume given her considerable experience, consistent recognition of being one of the top Sales Leaders in the country, and having assisted Greg in running one of the most profitable divisions in the country. (4AC at ¶ 36.) At the meeting, Shirley was surprised to meet Fasola, who advised her that Greg was put on administrative leave “due to actions against the company” and that he “didn’t like the fact Greg went to the Labor Board and filed a lawsuit.” (Id.) Insphere subsequently refused to promote her. (Id.)

Plaintiffs’ allegations regarding Shirley’s request to meet with Feeny to discuss filling Greg’s position and Fasola’s willingness to only discuss his meeting with Greg when he met with Shirley appeared, nearly verbatim, in the original complaint. (See Plaintiffs’ Request for Judicial Notice, Exhibit A at ¶ 36.) This alone demonstrates that Shirley’s new cause of action rests on the same general set of facts alleged in the complaint. Moreover, in determining whether an amended complaint alleges facts sufficiently similar to those in the original complaint, “the critical inquiry is whether the defendant had adequate notice of the claim based on the original pleading.” (Pointe San Diego Residential Community, L.P. v. Procopio, Cory, Hargreaves & Savitch, LLP (2011) 195 Cal.App.4th 265, 277.) As allegations concerning Shirley and a possible promotion appeared in the original complaint, Insphere had adequate notice of Shirley’s claim based on failure to promote.

However, the same injury is not involved. A failure to promote an individual to a particular position is separate and distinct from a wrongful termination which, unlike the failure to promote, completely separates that individual from their employment. In other words, invasion of the same primary right is not involved. (See, e.g. Lee v. Bank of America (1994) 27 Cal.App.4th 197, 212-214 [holding that new claims based on plaintiff’s termination did not relate back to original claims based upon her demotion because a wrongful demotion is substantively “separate and distinct” from a wrongful termination].) Because separate injuries are involved, Shirley’s third cause of action for wrongful failure to promote does not relate back to the original complaint and thus is time-barred.

Accordingly, Insphere’s demurrer to the third cause of action (wrongful failure to promote in violation of public policy) on the ground of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITHOUT LEAVE TO AMEND.

Plaintiffs’ sixth cause of action for retaliation in violation of the FEHA alleges that Insphere’s decision to terminate Greg’s employment was based in part on his complaints regarding gender discrimination to the DFEH. (4AC at ¶ 87.) Insphere asserts that this claim fails because Greg did not properly exhaust his administrative remedies.

“It is fundamental that ‘… where an administrative remedy is provided by statute, relief must be sought from the administrative body and this remedy exhausted before the courts will act.” (Okoli v. Lockheed Technical Operations Co. (1995) 36 Cal.App.4th 1607, 1612, internal citation omitted.) The FEHA provides such a remedy for claims of retaliation based on the filing of a complaint for unlawful employment discrimination, as alleged here. (Gov. Code, §§ 12930, 12963, et seq.) Accordingly, a prospective plaintiff must file a written charge with the DFEH within one year of the alleged employment discrimination and obtain a right-to-sue letter. (Gov. Code, § 12960.) Failure to exhaust the foregoing requirement is a jurisdictional defect that is grounds for dismissal of an action based on an alleged violation of the FEHA. (See Martin v. Lockheed Missiles & Space Co. (1994) 29 Cal.App.4th 1718, 1724.)

Here, Insphere contends that Greg’s DFEH complaint demonstrates that he did not exhaust his administrative remedies as to the retaliatory termination claim because at the time he filed the complaint, on January 25, 2012, he had not yet been terminated. According to the 4AC, Greg was informed of Insphere’s decision to terminate him on February 3, 2012. (4AC at ¶ 43.) Therefore, Insphere asserts, the DFHE complaint Greg filed did not and could not have encompassed any claim for retaliatory termination based on gender discrimination complaints because it had yet to happen.

In opposition, Greg argues that his claim for retaliation is proper, insisting that the retaliatory act listed in his DFEH complaint, that he was “laid off,” is essentially the same as his termination, and his claim would likely have been discovered during a DFHE investigation.

The Court finds Greg’s contentions to be persuasive. As a general matter, any civil action for violation of the FEHA is limited to matters like or related to the DFEH complaint. (See Okoli, supra, 36 Cal.App.4th at 1615 [“[e]ssentially, if an investigation of what was charged … would necessarily uncover other incidents that were not charged, the latter incidents could be included in a subsequent (civil) action”].) This can include “like or related” acts of discrimination that occur after the charge was filed: “To force an employee to return to the state agency every time he claims a new instance of discrimination … would erect a needless procedural barrier.” (Id. at 1614-1615, internal quotes omitted.) Here, Greg’s termination is unquestionably “like or reasonably related to” the his allegations in the DFEH complaint of being “laid off” due to his gender and in retaliation for opposing wrongful conduct against him and others by Insphere. (See Insphere’s RJN, Exhibit 3.) Greg’s challenge to his firing does not raise an entirely new basis for the alleged retaliation. (See e.g., Couveau v. American Airlines, Inc. (9th Cir. 2000) 218 F.3d 1078 [plaintiff who had filed DFEH charges complaining of company’s failure to reinstate her status following medical leave and subsequently sued for wrongful termination did not fail to exhaust her administrative remedies because her termination was “like or reasonably related to” the refusal-to-reinstate charge she had filed with the DFEH].)

As Insphere’s argument is without merit, its demurrer to the sixth cause of action (retaliation) on the ground of failure to state facts sufficient to constitute a cause of action is OVERRULED.

Greg’s eighth cause of action for conversion alleges that Insphere wrongfully exercised control over his personal property- his insurance business. (4AC at ¶ 110.) Insphere argues that this cause of action is untimely, with Greg’s conversion claim accruing on October 16, 2009. Pursuant to Code of Civil Procedure section 338, subdivision (c), a cause of action for conversion must be asserted within three years of accrual of the claim. This three-year limitations period “is triggered by the act of wrongfully taking property.” (AmerUS Life Ins. Co. v. Bank of America, N.A. (2006) 143 Cal.App.4th 631, 639.)

Insphere obtains the October 16, 2009 date not from the 4AC, but from Greg’s first amended complaint in a separate action by him and others against Insphere which proceeded the instant action. In that action, which Insphere refers to as Umamoto I, Greg alleged that on the aforementioned date, Insphere informed him that he never owned his own office. (See Insphere’s RJN, Exhibit 2 at ¶ 118.) Greg does not dispute that he was told of the taking of his business on October 16, 2009 (and indeed, this date is included in the 4AC and preceding versions of the complaint), but insists that his conversion claim did not accrue on that date because Insphere did not actually assert ownership over his business until January 1, 2010. (4AC at ¶ 25.)

A demurrer based on statute of limitations grounds will not be sustained unless it appears “clearly and affirmatively” from the allegations of the complaint that the action is untimely; it is not enough that the complaint shows that the action might be barred. (Marshall v. Gibson, Dunn & Crutcher (1995) 37 Cal.App.4th 1397, 1403.) Contrary to Insphere’s assertions, it does not appear with certainty that the three-year limitations period was triggered on October 16, 2009, especially in light of Plaintiffs’ allegations that Insphere did not actually assert ownership over Greg’s business property, i.e., his office, equipment, supplies, clients, files, insurance and sales agents and leaders until January 1, 2010. Moreover, there is nothing about the January 1st allegation that contradicts facts previously alleged as argued by Insphere; while Plaintiffs have asserted in every version of their complaint that Insphere implied or communicated to him that he did not own his own business on October 16, 2009, they did not allege that that is the date upon which Insphere actually asserted ownership over the business.

However, even with an accrual date of January 1, 2010, Greg’s conversion claim is not timely unless is relates back to the original complaint, as the three year limitations period would have run out on January 1, 2013 and the 4AC was not filed until April 21, 2014. Though the 4AC is based on the same operative facts as the original complaint, Greg’s conversion claim seeks recovery for a different injury, the harm to his property rights. Consequently, the claim does not relate back to the original complaint and is time-barred.

Therefore, Insphere’s demurrer to the eighth cause of action (conversion) on the ground of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITHOUT LEAVE TO AMEND.

Lastly, Plaintiffs’ ninth cause of action is predicated on allegations that Insphere intentionally interfered with an “indirect economic relationship between [Plaintiffs] and third-party insurance carriers, through a process known as override commissions, which would have resulted in an economic benefit to Plaintiffs.” (4AC at ¶ 115.) The alleged interference is Insphere’s assumption of control of Greg’s business and subsequent termination of Plaintiffs’ employment. (Id. at ¶ 116.) Insphere contends that this cause of action is deficient because (1) the claim is time-barred and (2) a party, Insphere, cannot tortiously interfere with its own contract.

Plaintiffs’ concede that this claim is deficient as to Greg given the fact that as of January 1, 2010, when he became an employee, he was no longer receiving new override commissions. Thus, his claim for intentional interference is time-barred. Accordingly, Insphere’s demurrer to the ninth cause of action (intentional interference with prospective economic relations) is SUSTAINED WITHOUT LEAVE TO AMEND as to Greg.

A claim for intentional interference with prospective economic relations is subject to a two-year statute of limitations. (Code Civ. Proc., § 339; see also Knoell v. Petrovich (1999) 76 Cal.App.4th 164, 168.) Insphere asserts that Shirley’s claim accrued at the latest on April 3, 2012, when she was terminated from her employment. In opposition, Plaintiffs identify April 3rd as the date of accrual and argue that Shirley’s claim relates back to the original complaint because it is based on the same general set of facts, seeks recovery for the same injuries, and refers to the same incident.

Plaintiffs’ contention that this claim relates back to the original complaint is well-taken. The same general facts are involved in both complaints, with allegations in the original complaint that Sales Leaders and Division Managers derived most of their income from “overwrite commission” based on the sales activities of the Sales Agents. (See Complaint at ¶ 19.) This cause of action also seeks recovery, at least in part, for the same injury- Shirley’s wrongful termination by Insphere. It is this termination which is alleged to be one of the acts of intentional interference by Insphere. The termination is also the offending instrumentality and thus is the same in the original complaint and the 4AC. Therefore, as the claim relates back to the original complaint, Insphere’s assertion that it is untimely is without merit.

As to Insphere’s second argument, “an essential element of the tort of intentional interference with prospective business advantage is the existence of a business relation with which the tortfeasors interfered.” (Roth v. Rhodes (1994) 25 Cal.App.4th 530, 546.) Importantly, this tort “can only be asserted against a stranger to the relationship.” (Kasparian v. County of Los Angeles (1995) 38 Cal.App.4th 242, 263.) In other words, a party to the economic relationship cannot, as a matter of law, commit a tortious interference with that relationship.

With the foregoing limitation in mind, Insphere asserts that the overrides at issue are payable to Plaintiffs only as a product of the agreements between themselves and Insphere and thus it is not a stranger to the agreements and cannot interfere with them as a matter of law. This argument is well-taken. In Kasparian, supra, the court held that the general partner defendants, as parties to the relationship from which anticipated economic advantage would arise, were not legally capable of committing the tort of intentional interference with prospective economic advantage. Here, Plaintiffs entered into relationships with third-party insurance carriers on Insphere’s behalf that Insphere stood to benefit from. Consequently, as a non-stranger to these arrangements, Insphere cannot interfere with them under California law. Thus, no claim for intentional interference has been stated by Shirley and Insphere’s demurrer to the ninth cause of action on the ground of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITHOUT LEAVE TO AMEND as to her.