Case Name:         Jason Jones, et al. v. SiVision Inc., et al.

Case No.:             1-14-CV-264839

 

Currently before the Court is defendants SiVision Inc. (“SiVision”), Sreedhar Natarajan (“Natarajan”), and Rohita Joshi’s (“Joshi”) (collectively, “Defendants”) demurrer to and motion to strike the complaint of plaintiffs Jason Jones and Tom Willwerth (collectively, “Plaintiffs”) .

 

Demurrer to Complaint

 

Natarajan demurs to the first, second, third, fourth, fifth, and seventh 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).) Joshi demurs to the first, second, third, fourth, fifth, seventh, and eighth 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).) SiVision demurs to the third cause 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).)

 

First, Second, Fourth, Fifth and Seventh Causes of Action for Violations of Labor Code and Breach of Contract

 

Natarajan and Joshi demur to the first, second, fourth, fifth, and seventh causes of action for failure to pay earned wages, failure to pay minimum wage, failure to indemnify employees, failure to provide proper wage statements, and breach of contract, respectively, on the basis that they cannot be held individually liable for statutory violations of the Labor Code and breach of contract because they are not Plaintiffs’ employers. In opposition, Plaintiffs contend that Natarajan and Joshi are the alter egos of SiVision and, therefore, are liable for its statutory violations and breach of contract.

 

With regard to their alter ego theory of liability, Plaintiffs allege: “At all relevant times, each defendant was and is the alter ego of all other Defendants and/or operated as a joint enterprise. Natarajan and Joshi were founders, principals and officers of SiVision. Natarajan and Joshi controlled the day-to-day operations of SiVision, including employment decisions, failed to adequately capitalize the corporation, co-mingled personal and corporate funds and debts, failed to comply with corporate formalities, failed to respect the corporation as a separate entity, and created and manipulated the corporation for the improper purpose of escaping liability. Disregard of the SiVision purported separate existence is necessary to prevent inequity and injustice.” (Compl.,     p. 4:12-18.)

 

These allegations suggest a unity of interest and ownership between Natarajan, Joshi and SiVision such that the separate personalities of the corporation and the individuals do not exist and that inequity will result if SiVision is treated as a separate personality. (See Vasey v. California Dance Co. (1977) 70 Cal.App.3d 742, 749.)  Given the liberal policy of applying the alter ego theory at the pleading stage, Plaintiffs allege sufficient facts to plead an alter ego theory of liability against Natarajan and Joshi for violations of Labor Code sections 201, 1194, and 2802 and breach of contract. (See Reynolds v. Bement (2005) 36 Cal.4th 1075, 1089, fn. 10, Jones v. Gregory (2006) 137 Cal.App.4th 798, 806; Bradstreet v. Wong (2008) 161 Cal.App.4th 1440, 1457 [acknowledging that corporate officers may be held liable under alter ego theory for violations of Labor Code], abrogated in part as stated in People v. Sarpas (2014) 225 Cal.App.4th 1539, 1558-1560.)

 

Accordingly, Natarajan and Joshi’s demurrer to the first, second, fourth, fifth, and seventh causes of action is OVERRULED.

 

Third Cause of Action for Issuing Checks with Insufficient Funds

 

            Defendants contend that there is no private right of action against an employer for issuing checks with insufficient funds. In particular, it contends that the Labor Code sections 212 and 225.5 do not grant a private right of action. In addition, Natarajan and Joshi argue that as corporate employees, they cannot be held liable for SiVision’s alleged issuance of checks with insufficient funds. In opposition, Plaintiffs acknowledge that Labor Code sections 212 and 225.5, on their own, do not provide them with a private right of action. Nevertheless, they argue that an employee may bring a cause of action against their employer for the issuance of bad checks under Labor Code section 203.1. They further assert that Natarajan and Joshi are liable under this section as alter egos of the corporation.

 

In Caliber Bodyworks, Inc. v. Superior Court (2005) 134 Cal.App.4th 365, the Court of Appeal found that an employee could bring a cause of action against an employer for statutory penalties under Labor Code section 203, a similarly worded statute to Labor Code section 203.1.[1] The dispute in Caliber, supra, concerned whether employees could directly bring a civil action against an employer for penalties under the Labor Code without having to comply with the requirements of the Private Attorneys General Act of 2004, section 2698, et seq. (“PAGA”). (Id. at p. 378.) The Court held that PAGA applied only to those causes of action in which the employee sought “civil penalties” as opposed to “statutory penalties.” (Id. at p. 378.)  Statutory penalties are those that are “provided by the Labor Code for employer wage-and-hour violations, which were recoverable directly by employees well before [PAGA] became part of the Labor Code, and … ‘civil penalties’ [were] previously enforceable only by the State’s labor law enforcement agencies. An example of the former is section 203, which obligates an employer that willfully fails to pay wages due an employee who is discharged or quits to pay the employee, in addition to the unpaid wages, a penalty equal to the employee’s daily wages for each day, not exceeding 30 days, that the wages are unpaid.” (Id. at p. 377.)  Thus, the Court found that as section 203 was a statutory penalty, employees could directly bring a private right of action under Labor Code section 203 without having to comply with the requirements of PAGA. (Id. at p. 386.)

 

Here, given the similarity of the operative language between section 203 and 203.1, the Court finds that Labor Code section 203.1 is a “statutory” penalty directly enforceable by employees. Accordingly, Plaintiffs may bring a private cause of action to enforce the alleged violation of Labor Code section 203.1. (See Caliber, supra, 134 Cal.App.4th at p. 377),

With regard to Natarajan and Joshi’s argument that they cannot be liable for SiVision’s alleged issuance of checks with insufficient funds, as indicated above, Plaintiffs adequately allege that Natarajan and Joshi are the alter egos of SiVision. Therefore, they are liable for the obligations of SiVision, including liability stemming from the violation of Labor Code section 203.1. (See Reynolds, supra, 36 Cal.4th at        p. 1089, fn. 10; Jones, supra, 137 Cal.App.4th at p. 806; Bradstreet, supra, 161 Cal.App.4th at p. 1457.)

 

Based on the foregoing, Defendants’ demurrer to the third cause of action is OVERRULED.

 

Eighth Cause of Action

 

Joshi contends that Plaintiffs do not allege facts sufficient to state a cause of action for intentional misrepresentation against her because the cause of action is not pleaded with particularity. (See Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 73 [pleading must allege facts as to how, when, where to who, and by what means the representations tendered].)

 

With regard to their intentional misrepresentation claim against Joshi, Plaintiffs allege: “Defendants promised Plaintiffs throughout their employment that they would receive the compensation owed to them, and made statements of facts that they had funds available to pay all earned compensation to Plaintiffs….” (Compl., p. 10:5-7.) These allegations do not disclose how, where and by what means Joshi tendered these misrepresentations to Plaintiff. Thus, Plaintiffs fail to plead facts sufficient to state a cause of action for intentional misrepresentation against Joshi. Accordingly, Joshi’s demurrer to the eighth cause of action for intentional misrepresentation is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.

 

Motion to Strike

 

Pursuant to Code of Civil Procedure sections 435 and 436, Defendants move to strike the following portions of the complaint: (1) the portion of paragraph 78 in the eighth cause of action stating “emotional anguish and distress;” (2) the portion of paragraph 87 in the ninth cause of action stating “emotional anguish and distress;” (3) the portion of paragraph 7 in the prayer for relief stating “including emotional distress, in excess of $250,000;” (4) the entirety of paragraph 88 in the ninth cause of action; (5) the portion of paragraph 94 in the tenth cause of action stating “penalties;” and (6) the portion of paragraph 92 in the tenth cause of action stating “Labor Code sections 201, 203, 203.1, 204, 216, 212, 226, 226(a), 210, 225.5, 26(e), 1182, 1194.2, 1197.1, 226, 2802, 2804, and,” as alleged against Natarajan and Joshi only.

 

Emotional Distress Damages for Intentional Misrepresentation

Defendants assert that Plaintiffs’ request for the recovery of emotional distress damages in connection with their eighth cause of action for intentional misrepresentation is barred by the workers’ compensation exclusivity rule. In this regard, they argue that their representations regarding their ability to pay Plaintiffs are the type of risk reasonably encompassed within the compensation bargain. In opposition, Plaintiffs contend that the workers’ compensation exclusivity rule does not apply to the type of fraudulent inducement of employment at issue in their complaint. In support of this proposition, Plaintiffs rely on Lenk v. Total-Western, Inc. (2001) 89 Cal.App.4th 959.

 

In Lenk, the plaintiff, Mike Lenk, a corporate purchasing agent for a construction firm, was recruited by a competing firm, TWI, based on its Vice President’s representation that TWI was in good financial condition and Mr. Lenk would be employed for more than one year. (Lenk, supra, 89 Cal.App.4th at p. 964-965.) After working for TWI for six months, Mr. Lenk was laid off due to a downturn in business conditions. (Id. at p. 967.) Mr. Lenk subsequently filed suit against TWI, asserting a number of causes of action including fraud. (Id. at p. 967.) At trial, the jury found in his favor and awarded $50,000 in emotional distress damages in connection with TWI’s fraud. (Id. at p. 967.) On appeal, TWI sought reversal of the award for emotional distress, arguing that the worker’s compensation exclusivity rule barred the award. (Id. at

p. 970.) The Court of Appeal disagreed, stating that a misrepresentation concerning the financial stability of a company “simply does not reflect matters that can be expected to occur with substantial frequency in the working environment.” (Id. at p. 972.) Thus, the Court held that a company’s financial stability did not constitute a risk reasonably encompassed within the compensation bargain. (Id. at p. 973.)

 

Here, Plaintiffs seek emotional distress damages based on Defendants’ misrepresentations concerning the financial stability of SiVision. They allege that, in order to persuade them to continue working for almost four months without pay, Natarajan falsely stated that Defendants had sufficient funds to pay their wages and all back wages would be promptly paid. (See Compl., pp. 3:7-28, 4:1-7.) As indicated in Lenk, supra, the risk that Plaintiffs’ employer would not be able to pay them is not the type of risk reasonably encompassed within the compensation bargain. Therefore, the workers’ compensation exclusivity rule does not bar Plaintiffs’ claim for emotional distress damages.

 

Accordingly, Defendants’ motion to strike the portion of paragraph 78 in the eighth cause of action stating “emotional anguish and distress” and the portion of paragraph 7 in the Prayer stating “including emotional distress in excess of $250,000” is DENIED.

 

Labor Code Violations as Predicates for Unfair Competition Claim

 

Natarajan and Joshi move to strike allegations concerning Labor Code violations in the tenth cause of action for violation of Business and Professions Code section 17200. They contend that, as SiVision’s corporate officers, they cannot be held individually liable for Labor Code violations. Thus, they reason that these Labor Code violations cannot serve as predicate offenses for Plaintiffs’ Business and Professions Code section 17200 claim. In opposition, Plaintiffs contend that the Labor Code violations may serve as predicate offenses in their unfair competition claim against Natarajan and Joshi because Plaintiffs allege that they are the alter egos of SiVision.

 

As discussed above, Plaintiffs properly allege that Natarajan and Joshi are alter egos of SiVision. Therefore, the alleged Labor Code violations attributed to SiVision are likewise attributed to them and may serve as predicate offenses for their Business and Professions Code section 17200 claim. Accordingly, Natarajan and Joshi’s motion to strike the portion of paragraph 92 of the tenth cause of action stating “Labor Code sections 201, 203, 203.1, 204, 216, 212, 226, 226(a), 210, 225.5, 26(e), 1182, 1194.2, 1197.1, 226, 2802, 2804, and,” is DENIED.

 

Emotional Distress and Punitive Damages as to the Ninth Cause of Action and Civil Penalties under Business and Professions Code Section 17200

 

In their opposition, Plaintiffs agree to strike the portion of paragraph 87 in the ninth cause of action stating “emotional anguish and distress,” the entirety of paragraph 88 in the ninth cause of action, and the portion of paragraph 84 in the tenth cause of action stating “penalties.” Accordingly, the motion to strike these allegations is GRANTED WITHOUT LEAVE TO AMEND.

 

 

 

[1] Section 203, subdivision (a), provides, in pertinent part: If an employer willfully fails to pay, without abatement or reduction, in accordance with Sections 201, 201.3, 201.5, 202, and 205.5, any wages of an employee who is discharged or quits, the wages of the employee shall continue as a penalty from the due date thereof at the same rate until paid or until an action therefor is commenced.” (Labor Code, § 203, subd. (a) [emphasis added].) In turn, section 203.1 reads, in pertinent part: “If an employer pays an employee in the regular course of employment or in accordance with Section 201, 201.3, 201.5, 201.7, or 202 any wages or fringe benefits, or both, by check, draft or voucher, which check, draft or voucher is subsequently refused payment because the employer or maker has no account with the bank, institution, or person on which the instrument is drawn, or has insufficient funds in the account upon which the instrument is drawn at the time of its presentation, so long as the same is presented within 30 days of receipt by the employee of the check, draft or voucher, those wages or fringe benefits, or both, shall continue as a penalty from the due date thereof at the same rate until paid or until an action therefor is commenced.” (Labor Code, § 203.1 [emphasis added].)