30-2013-00672543

Demurrer by Defendants to Amended Complaint:

Defendants Brooks T. Morgan, DDS, aka Brooks Tygh Morgan; Morgan Coast Management, LLC; and BT Morgan Dental Corp. demurrer to the Plaintiffs’ Second Amended Complaint second through seventh causes of action is overruled.
The demurrer to the eighth cause is sustained without leave to amend.

(a) Second and Third Causes of action for Breach of Oral and Implied Contract:

The Defendants argue that the Plaintiffs have not alleged facts to override the strong presumption that they were “at-will” employees. The Plaintiffs allege in paragraphs 49 and 55 that as part of their employment contracts they were promised that any termination of their employment would only be for cause. The Plaintiff alleges that such agreement was oral and implied. The breach of oral agreement is pled in the second cause of action. The breach of implied agreement is pled in the third cause of action.

(i) There is no requirement that an employment agreement be express or be in writing. The Defendants have presented no authority which supports such a requirement. An employment agreement can be implied and can be oral.

(ii) The complaint adequately sets forth the terms of the Plaintiffs employment with the Defendant such as to apprize the Defendants of the allegations against them. The Plaintiffs allege that their employment agreements provided that they could only be terminated for cause. The Plaintiffs allege that they were terminated without cause and suffered damages as a result. Thus, the terms which are pertinent to the causes are pled.

(b) Fourth Cause of action for Breach of Covenant of Good Faith and Fair Dealing:

(i) The Defendants argue that the cause of action fails because the complaint does not plead whether the employment contract is written, oral or implied. To the contrary, the Plaintiffs allege that the agreements are implied and expressed and is clearly referring to the agreements alleged in the second and third causes of action as opposed to the operating agreement which is alleged in the fifth cause of action.

(ii) The Plaintiffs have alleged all elements necessary for their Breach of Covenant of Good Faith and Fair Dealing cause of action. The Plaintiffs allege that the Defendants demoted them to lesser jobs with decreased pay and ultimately terminated them under pretext that their positions were being eliminated. [SAC ¶ 61] As such, they have pled that the Defendants conduct destroyed or impaired their rights to receive benefits which they were entitled to pursuant to their implied and express employment agreements. [SAC ¶ 62]

(iii)The Defendants also argue that the cause of action is defective because it alleges tort compensatory damages which are barred by the Economic Loss Rule. The Plaintiffs do not seek tort damages. The Plaintiffs assert that they have suffered damages in the form of lost wages and other employment benefits. [SAC ¶ 64]

(c) Fifth Cause of action for Breach of Operating Agreement:

The Plaintiffs have pled all necessary elements for breach of a written agreement. The Plaintiffs allege that Operating Agreement provides certain obligations regarding the Plaintiffs rights to participate in the decision making of the business. [SAC ¶¶ 67-71] The Plaintiffs allege that the obligations were breached and provides allegations identifying the actions and failures which constitute the breach. [SAC ¶¶ 75-76]. The Plaintiffs further allege that Operating Agreements requires that the managers not participate in unlawful actions. [SAC Exhibit A § 3.2] The Plaintiffs allege that their termination without cause and in retaliation for sending an email to management about drug use by a dentist was unlawful and thus, a breach of the operating agreement which caused damage to the Plaintiffs. As such, the Plaintiffs have properly pled the cause of action for breach of written agreement.

(d) Sixth Cause of Action for Rescission of the Operating Agreement:

The Defendants argue that the cause of action is not properly supported by a basis for rescission. The Defendants argue that the complaint fails to allege a failure of consideration, fraud or that the consent was not freely given. The cause is properly pled. The Plaintiffs allege that the $65,000 they each paid for units in Morgan Coast has failed through the fault of the Defendants who terminating Plaintiffs without cause. [SAC ¶¶82-83] The Plaintiffs allege that they would not have invested in Morgan Coast had they not been employed by Morgan Coast and that they expected to be able to contribute towards the success of Morgan Coast and their investments by continuing to work there. [SAC ¶ 22] As such, the cause if properly pled.

(e) Seventh Cause of action for Breach of Fiduciary Duty:

The Defendants argue that there is no relationship between the parties which creates a fiduciary duty. The Plaintiffs have alleged breach of fiduciary duty against the Defendants based upon the Defendants position as a majority member of the LLC and the Plaintiffs positions as minority members of the LLC.

(f) Eighth Cause of action For Violation of Labor Code Section 98.6:

(i) The Defendants argue that the eighth cause fails to allege that the Plaintiffs filed a claim with law enforcement, a government agency or the labor commission prior to the alleged retaliation. Labor Code § 98.6 provides that an employee cannot be terminated because the employee filed a complaint with a government agency or for exercising any right afforded to the employee.

(ii) The Plaintiffs contend that they had a right to complain to management that a dentist was using drugs while working with patients. The Plaintiffs alleged “right” to complain to management does not as a matter of plain reading fall within the terms of the statute and the Plaintiffs have presented no authority to support such application. As such, the demurrer to the eighth cause of action is sustained without leave to amend.

Defendants shall answer the operative 2nd Amended Complaint on the remaining causes of action within 15 days.

Moving Party shall give Notice.