Judge Barbara M. Scheper, Case Number: 23STCV31366, Date: 2024-05-06 Tentative Ruling

Defendant demurs to the Complaint on the grounds that it is barred as a compulsory cross-complaint to another action. Defendant also demurs to the alter ego allegations and to the first through third and twelfth through fifteenth causes of action on the grounds that they fail to sufficiently state facts to support each claim. Defendant also moves to strike the prayer for punitive damages. The demurrer is sustained without leave to amend and the motion to strike is denied as moot.

A demurrer should be sustained only where the defects appear on the face of the pleading or are judicially noticed. (Code Civ. Pro., §§ 430.30, et seq.) As is relevant here, a court should sustain a demurrer if a complaint does not allege facts that are legally sufficient to constitute a cause of action. (See id. § 430.10, subd. (e).) As the Supreme Court held in Blank v. Kirwan (1985) 39 Cal.3d 311: “We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. . . . Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context.” (Id. at p. 318; see also Hahn. v. Mirda (2007) 147 Cal.App.4th 740, 747 [“A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed. [Citation.]”)

A demurrer should not be sustained without leave to amend if the complaint, liberally construed, can state a cause of action under any theory or if there is a reasonable possibility the defect can be cured by amendment. (Schifando v. City of Los Angeles, supra, 31 Cal.4th at p. 1081.) The demurrer also may be sustained without leave to amend where the nature of the defects and previous unsuccessful attempts to plead render it probable plaintiff cannot state a cause of action. (Krawitz v. Rusch (1989) 209 Cal.App.3d 957, 967.)

Defendant Network Experts, Inc. is correct that Plaintiff’s claims against it are compulsory crossclaims properly brought in the earlier-filed action, LASC Case No. 23SMCV00517, Network Experts, Inc. v. Beverly Hills IT.

“[I]f a party against whom a complaint has been filed and served fails to allege in a cross-complaint any related cause of action which (at the time of serving his answer to the complaint) he has against the plaintiff, such party may not thereafter in any other action assert against the plaintiff the related cause of action not pleaded.” (Code Civ. Proc., § 426.30, subd. (a).) A “related” cause of action is one “which arises out of the same transaction, occurrence, or series of transactions or occurrences as the cause of action which the plaintiff alleges in his complaint.” (Code Civ. Proc., § 426.10, subd. (c).)

“Because of the liberal construction given to the statute to accomplish its purpose of avoiding a multiplicity of actions, ‘transaction’ is construed broadly; it is “not confined to a single, isolated act or occurrence ... but may embrace a series of acts or occurrences logically interrelated.” (Align Technology, Inc. v. Tran (2009) 179 Cal.App.4th 949, 960.)

Plaintiff’s claims alleged against Defendant Network Experts, Inc. here arise out of his employment with Defendant. He alleges that Defendant failed to pay him the salary agreed to, misclassified him as an independent contractor, engaged in a number of wage-and-hour violations related thereto, failed to maintain worker’s compensation insurance, constructively terminated him by failing to allow him paid sick leave in December 2022 when he had a bad case of COVID-19 (Complaint ¶ 33), and defamed his good name to other businesses and “clients” that Plaintiff intended to work with.

The earlier action that Defendant identifies arises from the relationship between Defendant and Plaintiff. In the 23SMCV00517 case,[1] Network Experts is the plaintiff, and Mostafa Baboli (the plaintiff here) is one of the defendants, along with Beverly Hills IT Services and Beverly Hills IT. Where the present complaint alleges that Defendant misclassified Plaintiff as an independent contract, the 23SMCV00517 complaint alleges that Baboli was the one who proposed that he no longer be paid as an employee, but rather be paid as an independent contractor through the corporate entities (Beverly Hills IT Services and Beverly Hills IT) that he had formed for the purpose of claiming various “tax advantages” on the advice of his accountant. (23SMCV00517 Complaint ¶¶ 19–20.) However, that complaint alleges that Baboli’s proposal, in addition to conferring tax advantages, was a cover through which Baboli could secretly poach clients away from Network Experts in favor of his own entities. (23SMCV00517 Complaint ¶¶ 22–24.) That complaint in fact alleges that Plaintiff was using the cover of a false COVID-19 diagnosis to poach Network Experts’ clients. (23SMCV00517 Complaint ¶¶ 27–29.)

Here, the claims arise directly out of Baboli’s relationship with Network Experts — whether characterized as an employment or independent contractor relationship, which is enough to deem the matters related under Code of Civil Procedure § 426.30. (See Align Technology, Inc. v. Tran (2009) 179 Cal.App.4th 949, 962 [“The claims here concerned alleged breaches of Tran's obligations to his employer, while those in the cross-complaint involved alleged breaches of Align's obligations to its employee.”].)

But the claims not only arise from the same relationship, but they also concern identical subject matters — Baboli’s alleged initiation of the “independent contractor” relationship with Defendant through various intermediary entities, Baboli’s termination under a cloud of either illness or wrongful client-poaching, and the parties’ conflicting efforts to maintain clients in what Network Experts’ characterized as his “territory.” (Complaint ¶ 161.) Plaintiff has filed a new action to contest the very same allegations made to support Network Experts’ claims.

Plaintiff offers no persuasive counterarguments in opposition. Plaintiff only characterizes the prior action as a “business action” involving allegations against “entities,” and the present action as an “employment action” against Network Experts. (Opposition at p. 5.) This argument is, first, factually incorrect, as the prior complaint alleges that these other business entities are mere alter egos of Plaintiff, and indeed were mere shells by which Plaintiff could claim tax advantages for his employment with Network Experts. (23SMCV00517 Complaint ¶¶ 7–12.) But in any event, Plaintiff engages in no substantive evaluation of the facts or relationships underlying his and Network Experts claims, except to note the different labels used by the parties in their pleadings. (Opposition at pp. 5–7.) This is insufficient. In evaluating claims on demurrer, “we look beyond the claim’s label,” and instead “focus on the complaint's actual gravamen, on its facts alleged.” (Peterson v. Cellco Partnership (2008) 164 Cal.App.4th 1583, 1595, internal quotation marks and citations omitted.) The facts alleged in Plaintiff’s Complaint reveal a more than substantial relationship with the claims and facts underlying Network Experts’ other, earlier filed action. This action should have been brought as a cross-complaint.

[1] Baboli filed an answer in the 23SMCV00517 case on November 8, 2023, a little more than a month before filing the present action on December 22, 2023.