Case Name: Sheng v. Leotek Electronics USA LLC
Case No.: 17-CV-312025

This is a retaliation action initiated by plaintiff Daymay Sheng (“Plaintiff”) against defendant Leotek Electronics USA LLC (“Defendant”).

According to the allegations of the complaint (“Complaint”), Plaintiff was employed by Defendant as a warehouse manager and responsible for supervising the shipment of its products. (Complaint, ¶¶ 6, 9.) Defendant is in the business of manufacturing and/or assembling light-emitting diode (“LED”) products, including traffic signals and street lighting. (Id. at ¶ 7.) Certain products are required to pass the Edison Testing Laboratories (“ETL”) test as proof of product compliance with safety standards. (Id. at ¶ 8.)
Plaintiff learned some of Defendant’s products sold to various departments of transportation failed the ETL test due to defective LED boards and/or power supplies. (Complaint, ¶ 9.) Plaintiff confronted Defendant about the shipment of defective products and asked why it would knowingly ship them, to which Defendant replied it “needed the sales numbers.” (Id. at ¶ 10.) Plaintiff also complained to Defendant that it was shipping products made in Taiwan to the United States that were falsely labeled as being from the United States. (Id. at ¶ 11.) Plaintiff was subsequently terminated from her employment in retaliation for complaining about what she believed in good faith were illegal practices. (Id. at ¶ 12.)

In addition to the conduct about which Plaintiff complained, Defendant also “stuffed the sales pipeline by selling product in a certain month and/or quarter and booking it for the previous month and/or quarter, thereby engaging in falsification of the books” and employed undocumented and/or improperly documented workers from Taiwan in the United States. (Complaint, ¶ 13.)

Plaintiff asserts four causes of action for violation of Labor Code section 1102.5 (“Section 1102.5”), termination in violation of public policy, violation of Business and Professions Code section 17200, et seq. (“UCL”), and intentional infliction of emotional distress (“IIED”).

Defendant presently demurs to each cause of action on the ground of failure to state sufficient facts to constitute a cause of action.

I. First Cause of Action – Violation of Section 1102.5

Plaintiff alleges Defendant violated Section 1102.5, subdivision (c) by terminating her because she complained about the shipment of products that failed the ETL test and the mislabeling of the origin of its products. (Complaint, ¶¶ 16-17.) Section 1102.5 subdivision (c) provides that “[a]n employer, or any person acting on behalf of the employer, shall not retaliate against an employee for refusing to participate in an activity that would result in a violation of state or federal statute, or a violation of or noncompliance with a local, state, or federal rule or regulation.”

First, Defendant asserts Plaintiff fails to state a claim because she does not identify the specific statute, rule, or regulation that it purportedly violated. Defendant’s argument is unsubstantiated as it provides no legal authority supporting its proposition that Plaintiff must do so. It does not otherwise appear that such identification is required.

To state a cause of action under Section 1102.5, subdivision (c), a plaintiff must establish a prima facie case of retaliation. (See Edgerly v. City of Oakland (2012) 211 Cal.App.4th 1191, 1199.) “To establish a prima facie case for whistleblower liability, a plaintiff must show that he or she was subjected to adverse employment action after engaging in protected activity and that there was a causal connection between the two. Protected activity is the disclosure of or opposition to a violation of state or federal statute, or a violation or noncompliance with a state or federal rule or regulation.” (Ibid., internal citations and quotations omitted, original italics.) To adequately allege that he or she engaged in protected activity, the plaintiff must allege “what she [or he] has reasonable cause to believe is a violation of a state or federal statute.” (Dowell v. Contra Costa County (N.D. Cal. 2013) 928 F.Supp.2d 1137, 1155, original italics.) It is sufficient to allege illegal behavior without identifying the exact statute or regulation. (See ibid.) Here, Plaintiff alleges two forms of misconduct she explicitly considers illegal. (Complaint, ¶ 12.) As such, the demurrer is not sustainable on the basis Plaintiff does not allege which statute, rule, or regulation Defendant purportedly violated.

Next, Defendant contends Plaintiff does not allege she refused to participate in the subject improper conduct as required under Section 1102.5, subdivision (c). This argument is well-taken as Plaintiff does not actually allege as much. Instead, she alleges she complained about the conduct and asked why Defendant was engaging in it. (See Complaint, ¶¶ 10, 12.)

Plaintiff’s arguments in opposition do not support a contrary conclusion. She maintains that these allegations support the inference she refused to participate in the improper conduct. While the court must consider all reasonable inferences of the alleged facts in ruling on a demurrer (see Bush v. California Conservation Corps (1982) 136 Cal.App.3d 194, 198), the fact Plaintiff asked why the conduct was occurring and complained about it does not necessarily mean she refused to participate in the conduct. Further, Plaintiff explicitly pleads she was terminated because she complained about the conduct, not because she refused to participate in it. (Complaint, ¶ 12.) It is entirely possible that Plaintiff still engaged in the conduct despite the fact she complained about it.

Plaintiff also asserts that even if she fails to state a claim under subdivision (c), she adequately alleges one under Section 1102.5 subdivision (b), which provides that an employer “shall not retaliate against an employee for disclosing information . . . to a government or law enforcement agency, to a person with authority over the employee or another employee who has the authority to investigate, discover, or correct the violation or noncompliance . . . if the employee has reasonable cause to believe that the information discloses a violation of state or federal statute, or a violation of or noncompliance with a local, state, or federal rule or regulation[.]”

As aptly argued by Defendant in reply, Plaintiff’s argument is without merit because she explicitly alleges this cause of action is predicated on subdivision (c). Statutory causes of action, as this one, must be pleaded with particularity. (See Covenant Care, Inc. v. Superior Court (2004) 32 Cal.4th 771, 783.) This requires a plaintiff to plead every fact material to the existence of the defendant’s statutory liability. (See Hood v. Hacienda La Puente Unified School Dist. (1998) 65 Cal.App.4th 435, 439.) To the extent Plaintiff intends this cause of action to be predicated on a violation of subdivision (b), she must expressly allege as much in order to satisfy the particularity requirement. (See Khoury v. Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 619 [failure to plead statutory cause of action when plaintiff failed to identify a section within a statutory scheme].)

In light of the above, the demurrer to the first cause of action is SUSTAINED with 10 days leave to amend after service of notice of entry of this order signed by the Court. .

II. Second Cause of Action – Termination in Violation of Public Policy

Plaintiff alleges Defendant terminated her in violation of Section 1102.5, thereby also terminating her in violation of public policy. (Complaint, ¶¶ 23-29.)

A necessary element of a cause of action for wrongful termination in violation of public policy is that the termination was substantially motivated by a violation of public policy. (Yau v. Santa Margarita Ford, Inc. (2014) 229 Cal.App.4th 144, 154.) The subject public policy must be “sufficiently fundamental, well-established and tethered to a statutory or constitutional provision to support liability.” (Id. at p. 155.) As persuasively argued by Defendant, Plaintiff fails to state a claim for a violation of public policy because she fails to allege a violation of Section 1102.5 for the reasons stated above.

Consequently, the demurrer to the second cause of action is SUSTAINED with 10 days leave to amend after service of notice of entry of this order signed by the Court.

III. Third Cause of Action – Violation of the UCL

Plaintiff alleges Defendant violated the UCL by terminating her in violation of Section 1102.5, “stuffing the sales pipeline,” and employing undocumented workers from Taiwan in the United States. (Complaint, ¶ 31.) Plaintiff seeks restitution of Defendant’s illicit profits as a remedy. (Id. at ¶ 33.)

“The UCL prohibits, and provides civil remedies for, unfair competition, which it defines as ‘any unlawful, unfair or fraudulent business act or practice.’ Its purpose ‘is to protect both consumers and competitors by promoting fair competition in commercial markets for goods and services.’” (Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, 320, citations omitted.)

“Because . . . section 17200 is written in the disjunctive, it establishes three varieties of unfair competition-acts or practices which are unlawful, or unfair, or fraudulent. In other words, a practice is prohibited as unfair or deceptive even if not unlawful and vice versa.” (Puentes v. Wells Fargo Home Mortgage, Inc. (2008) 160 Cal.App.4th 638, 644, citations and quotations marks omitted.)
Plaintiff’s cause of action is based on both the unlawful and unfair prongs. In order for the demurrer to be sustainable, Defendant must demonstrate the pleading is inadequate as to both prongs because a demurrer does not lie to a portion of a cause of action. (See PH II, Inc. v. Superior Court (1995) 33 Cal.App.4th 1680, 1682.)

“A violation of another law is a predicate for stating a cause of action under the UCL’s unlawful prong.” (Graham v. Bank of America, N.A. (2014) 226 Cal.App.4th 594, 610, internal citations and quotations omitted.) Defendant asserts that because Plaintiff’s UCL cause of action is partly predicated on her inadequately pleaded Section 1102.5 cause of action, this cause of action is similarly inadequately pleaded. This argument is well-taken as, for reasons discussed above, Plaintiff fails to allege a violation of Section 1102.5.
Next, Defendant asserts Plaintiff fails to state a claim based on any unfair acts because she lacks standing.

“Standing is a threshold issue, because without it no justiciable controversy exists. Standing goes to the existence of a cause of action. Pursuant to Code of Civil Procedure section 367, ‘[e]very action must be prosecuted in the name of the real party in interest, except as otherwise provided by statute.’” (Saterbak v. JPMorgan Chase Bank, N.A. (2016) 245 Cal.App.4th 808, 813, internal citations and quotation marks omitted.) Relative to the UCL, the standing requirement is set forth in Business and Professions Code section 17204, which provides that a plaintiff must have “suffered injury in fact and has lost money or property as a result of the unfair competition.” This law was enacted in 2004 Proposition 64 was passed. (Clayworth v. Pfizer, Inc. (2010) 49 Cal.4th 758, 788.)

[By passing Proposition 64], the electorate substantially revised the UCL’s standing requirement; where once private suits could be brought by any person acting for the interests of itself, its members or the general public, now private standing is limited to any person who has suffered injury in fact and has lost money or property as a result of unfair competition. The intent of this change was to confine standing to those actually injured by a defendant’s business practices and to curtail the prior practice of filing suits on behalf of clients who have not used the defendant’s product or service, viewed the defendant’s advertising, or had any other business dealing with the defendant.

(Ibid., internal citations and quotation marks omitted.)

Here, Plaintiff’s cause of action is predicated on Defendant wrongfully terminating her employment, stuffing the pipelines, and employing undocumented workers. (Complaint, ¶ 31.) The third cause of action is completely devoid of any allegations of injury; therefore, the pleading reflects Plaintiff lacks standing to sue. The law is well-established a plaintiff must affirmatively allege facts demonstrating he or she has standing to sue. (See Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, 327.) As such, the demurrer is sustainable on the basis Plaintiff lacks standing.

Plaintiff does not advance any arguments supporting a contrary outcome. Plaintiff contends she is not required to plead she suffered any injury as she only seeks restitution of Defendant’s illicit profits. (See Complaint, ¶ 33.) In other words, Plaintiff argues that injury in fact is not required to adequately state a claim for restitution under the UCL. That argument is meritless. The changes in the UCL requiring injury in fact apply equally where restitution is sought. (See Californians For Disability Rights v. Mervyn’s, LLC (2006) 39 Cal.4th 223, 232 (“Mervyn’s”) [“Proposition 64 does prevent uninjured private persons from suing for restitution on behalf of others.”].) As such, Plaintiff must allege she suffered an injury in fact to state a UCL claim.

As Defendant successfully challenged both bases for the UCL cause of action, the demurrer to the third cause of action is SUSTAINED with 10 days leave to amend after service of notice of entry of this order signed by the Court.

IV. Fourth Cause of Action – IIED

Plaintiff pleads Defendant’s conduct was intentional, malicious, and/or oppressive and done for the purpose of causing her to suffer severe emotional distress and mental pain and anguish. (Complaint, ¶ 35.)

Defendant contends Plaintiff fails to state a cause of action for IIED because injuries sustained and arising out of the course of employment are subject to the exclusivity remedy of workers’ compensation law.

“Where an employee is injured in the course and scope of his or her employment, workers’ compensation is generally the exclusive remedy of the employee and his or her dependents against the employer. The ‘exclusivity rule’ is based upon a presumed compensation bargain: ‘[T]he employer assumes liability for industrial personal injury or death without regard to fault in exchange for limitations on the amount of that liability. The employee is afforded relatively swift and certain payment of benefits to cure or relieve the effects of industrial injury without having to prove fault but, in exchange, gives up the wider range of damages potentially available in tort.’” (LeFiell Mfg. Co. v. Superior Court (2012) 55 Cal.4th 275, 279, citations omitted; see also Lab. Code, §§ 3600-3602.)

Generally, emotional distress caused by an employer’s conduct in employment actions involving termination is deemed a normal part of the employment relationship and is barred by the exclusive remedy provisions of the workers’ compensation law. (Cole v. Fair Oaks Fire Protection Dist. (1987) 43 Cal.3d 148, 160; Miklosy v. Regents of Univ. of Calif. (2008) 44 Cal.4th 876, 902 (“Miklosy”).) “[M]any intentional acts by an employer could be expected to cause emotional distress and yet do not lie outside the proper scope of workers’ compensation,” and “[e]ven intentional misconduct may constitute a normal part of the employment relationship” when “characterized as intentional, unfair or outrageous.” (Livitsanos v. Superior Court (1992) 2 Cal.4th 744, 752 (“Livitsanos”).)

There are, however, several exceptions to the exclusivity rule; for example, it does not bar an IIED claim resulting from sexual harassment, unlawful discrimination or other misconduct that exceeds the normal risks of the employment relationship. (Livitsanos, supra, 2 Cal.4th at p. 756.)

Plaintiff contends there is an exception for violations of fundamental public policy, which applies here because she alleges Defendant violated Section 1102.5. That argument is problematic for two reasons. First, for the reasons discussed above, Plaintiff fails to allege a violation of that statute. Next, even if she had, such a violation would not fall within any exception to the exclusivity rule. While prior to 2008 some legal authority supported the proposition that an employee’s termination in violation of public policy was not a normal part of employment and constituted an exception to the exclusivity rule (see Cabesuela v. Browning-Ferris Industries of California, Inc. (1998) 68 Cal.App.4th 101, 112–113), the California Supreme Court held otherwise in Miklosy.

In Miklosy, the Supreme Court stated that whistleblower retaliation is a risk inherent in an employment relationship and is not an exception to the exclusivity rule. (Miklosy, supra, 44 Cal.4th at pp. 902-903.) The court additionally held that the exception to the exclusivity rule for conduct contravening fundamental public policy is aimed at permitting a cause of action for termination in violation of public policy and exists to permit that cause of action to proceed despite the exclusivity rule. (Ibid.) Thus, that exception does not apply to IIED causes of action. (Ibid.) Since Miklosy, courts bar IIED causes of action predicated on a termination in violation of public policy. (See Yau v. Santa Margarita Ford, Inc. (2014) 229 Cal.App.4th 144, 161–162; see also Vasquez v. Franklin Management Real Estate Fund, Inc. (2013) 222 Cal.App.4th 819, 832–833.) For this reason, the IIED claim fails. Leave to amend is not warranted because the Court cannot conceive of how Plaintiff could cure this defect and she does not offer any facts suggesting she could do so. (See Goodman v. Kennedy (1976) 18 Cal.3d 335, 349 [a “[p]laintiff must show in what manner he [or she] can amend his [or her] complaint and how that amendment will change the legal effect of the pleading”].) The demurrer to the fourth cause of action is therefore SUSTAINED without leave to amend.

The Court shall prepare the Order.