2011-00113628-CU-MC

Ca Self-Insurers Security Fund vs. Blue Lake Rancheria

Nature of Proceeding: Hearing on Demurrer to Fourth Amended Complaint

Filed By: Vitek, Marina N.

The demurrer of AMR Staffing, Inc.; Nippon Express, USA, Inc.; Reliable Resources, Inc.; Jack H. Caldwell & Sons, Inc.; and Trichromatic West, Inc., as joined by Harvest Farms, Beacon Property and Southwind Foods (collectively the “Employer Defendants”) to the third cause of action in the fourth amended complaint (4AC) is OVERRULED.

Procedural Background

This case has a long procedural history that need not be fully recounted here. For purposes of the instant demurrer, the court notes the following:

Plaintiff California Self-Insurers’ Security Fund (SISF) commenced this action in November 2011. SISF seeks reimbursement under Labor Code § 3744 for workers’ compensation liabilities it assumed following the 2009 insolvency of Mainstay Business Solutions (Mainstay). Mainstay, a tribal entity, was a temporary staffing operation that obtained a certificate of consent to self-insure workers’ compensation liabilities. The Employer Defendants allegedly obtained temporary employees through Mainstay and entered into agreements to use the latter’s certificate of consent to self-insure.

Section 3744(c) authorizes SISF to commence actions to recover workers’ compensation benefits paid or liabilities assumed. SISF’s third cause of action under § 3744(c) is based on the allegation that the Employer Defendants did not pay benefits to injured workers procured through Mainstay. SISF alleges it paid those benefits and is entitled to reimbursement.

As a result of prior law and motion, as well as the decision in American Cargo Express, Inc. v. Superior Court (2017) 16 Cal.App.5th 145, this demurrer has been whittled down to a single issue: Does the superior equities doctrine bar SISF’s third cause of action? Although defendants other than the Employer Defendants originally brought or joined in the demurrer, settlements have reduced the number of moving parties.

Discussion

Section 3744(c) authorizes SISF to “bring an action against any person to recover compensation paid and liability assumed by the fund… .” SISF alleges that it advanced funds to cover workers’ compensation liabilities for which the Employer Defendants are liable.

The superior equities doctrine limits the circumstances in which an insurer may seek subrogation following payment for an insured’s loss. The doctrine “prevents an insurer from recovering against a party whose equities are equal or superior to those of the insurer.” (State Farm General Ins. Co. v. Wells Fargo Bank, N.A. (2006) 143 Cal.App.4th 1098, 1107.) Hence, “[u]nder the doctrine of superior equities, although an insurer might have a subrogation interest in the insured’s claim against the party that caused the loss, it cannot enforce its subrogation rights unless it has equities superior to those of the wrongdoer.” (Id., p. 1108.)

In their moving papers, the Employer Defendants argue SISF affirmatively admits in the 4AC that it lacks superior equities. The Employer Defendants cite SISF’s allegation that, by entering into agreements to obtain coverage under Mainstay’s certificate of consent to self-insure, they were “deemed to be in compliance with Labor Code § 3700(b).” (4AC, ¶ 31.) The Employer Defendants construe this allegation as an admission they complied with the law and, as a consequence, their equal or superior equities vis-a-vis SISF.

SISF raises several arguments in opposition. The court does not address most of these arguments because the allegations need not be construed as the Employer Defendants suggest. Although SISF alleges the Employer Defendants were “deemed” to be in compliance by virtue of agreements to use Mainstay’s certificate of consent to self-insure, it does not allege that the Employer Defendants were in fact in compliance. In paragraph 18(a), SISF alleges some of the Employer Defendants’ employees were “’converted’ to Mainstay ‘paper’ employees, with or without [the employees’] understanding.” Moreover, SISF alleges in paragraph 18(c) that:

In many cases the contracts between Employer Defendants and Mainstay did not specifically state that coverage would be secured by Mainstay’s self-insurance certificate. In many cases Employer defendants had no contract directly with Mainstay, and instead had contracts with intermediate staffing companies which falsely promised that insurance would be obtained by such staffing company. In some cases, the contracts with intermediate staffing companies made no promise to obtain insurance. In most cases, contracts with intermediate staffing companies did not specifically refer to the Mainstay self-insurance certificate. In all cases, any agreement an Employer Defendant may have had pursuant to which Mainstay agreed to pay compensation benefits, or to secure the obligation to pay compensation

benefits through its self-insurance certificate or otherwise, was unenforceable by the Employer Defendant. Mainstay has asserted in court, and has obtained a ruling in its favor, that the scope of its waiver of sovereign immunity, made at the time of its settlement with DIR in 2005, extended only to claims brought by injured workers in the for compensation benefits, and not to any other type of action, including actions brought by the Security Fund against Mainstay or Blue Lake. As a result, the Employer Defendants and their intermediate staffing companies would not have had the right to enforce any contract with Mainstay in court. This means that those contracts were not valid or enforceable by the Employer Defendants.

Although the Employer Defendants reference paragraph 18(c) in passing, (Moving Memo. at 7:27), they construe it merely as establishing that they contracted either with Mainstay or others to obtain self-insurance coverage. Another construction is available, however, namely that no such coverage was obtained. At this juncture, the court must construe the allegations in SISF’s favor. As a result, it rejects the Employer Defendants’ construction and concludes the 4AC does not contain an admission barring the third cause of action.

Disposition

The demurrer is overruled. The Employer Defendants are directed to file and serve their answer(s) no later than 3/05/18.