Judge: Bruce G. Iwasaki, Case: 20STCV04871, Date: 2023-08-23 Tentative Ruling

Case Number: 20STCV04871    Hearing Date: January 25, 2024    Dept: 58

Judge Bruce G. Iwasaki

Hearing Date:             January 25, 2024

Case Name:                La Roche v. American Skating Entertainment Centers, LLC

Case No.:                    20STCV04871

Matter:                        Motion for Summary Judgment

Moving Party:             Plaintiff/Cross-Defendant Rosendo Gonzalez, as Bankruptcy Trustee of the Estate of Nicholas Roche, and Cross-Defendant The Estate Of Nicholas La Roche

Opposing Party:          Defendants/Cross-Complainants American Skating Entertainment Centers, LLC and L.A. Ice Venture Company, LLC

            This action alleges wage and hour claims by Plaintiff, Nicholas La Roche (LaRoche), an ice-skating instructor, against Defendants American Skating Entertainment Centers, LLC (ASEC) and L.A. Ice Venture Company, LLC (LA Ice) (Defendants). The Second Amended Complaint alleges causes of action for (1.) Violation of Labor Code Section 230 et seq.; (2.) Wrongful Termination in Violation of Labor Code Section 230 et seq.; (3.) Wrongful Termination in Violation of Public Policy (Government Code Section 12941.5 et seq.); (4.) Violation of Labor Code Section 201-203 (Unpaid wages at discharge); (5.) Failure to Pay Overtime Compensation; (6.) Unreimbursed Business Expenses (7.) Failure to Provide Rest Periods pursuant to Labor Code Section 226.2; (8.) Failure to Provide Rest Periods; (9.) Failure to provide Meal Periods pursuant to Labor Code Section 226.7; (10.) Failure to Provide Accurate Wage Statements; (11.) Failure to Provide Personnel File; and (12.) Violation of Business and Professions Code Section 17200.

On February 3, 2021, Defendants filed an Answer.

            On June 13, 2023, Defendants filed a Cross-Complaint against Rosendo Gonzalez, as Trustee of the Estate of Plaintiff Nicholas LaRoche. The cross-complaint sought declaratory relief on two issues: (1) private lesson liability and (2) indemnification. Plaintiff moved to strike the Cross-Complaint on the basis that Defendants did not obtain leave from this Court prior to filing this pleading. On July 26, 2023, Defendants dismissed the Cross-Complaint, without prejudice. On July 26, 2023, Defendants moved for leave to file a First Amended Cross-Complaint. The Court granted Plaintiff’s motion for leave to file the First Amended Cross-Complaint.

Plaintiff and Cross-Defendant Rosendo Gonzalez (Gonzalez) and Cross-Defendant the Estate of Nicholas La Roche (LaRoche) (Plaintiffs or LaRoche) moved for Summary Adjudication on the Second Amended Complaint. Defendants American Skating Entertainment Centers, LLC (ASEC) and L.A. Ice Venture Company, LLC (LA Ice) opposed the motion. The Court denied the motion for summary adjudication in its entirety.

Defendants also moved for summary judgment, or, summary adjudication, of the Second Amended Complaint. Plaintiff opposed the motion. The Court denied the motion for summary judgment but granted in part and denied in part the motion for summary adjudication.

            Now, Plaintiffs/Cross-Defendants move for summary judgment against the First Amended Cross-Complaint filed by Cross-Complainants ASEC and LA Ice. ASEC and LA Ice oppose the motion.

            The motion for summary judgment is denied.

Legal Standard

            “The party moving for summary judgment bears the burden of persuasion that there is no triable issue of material fact and that he is entitled to judgment as a matter of law.” (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850.) A triable issue of material fact exists if the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof. (Ibid.) 

            “When deciding whether to grant summary judgment, the court must consider all of the evidence set forth in the papers (except evidence to which the court has sustained an objection), as well as all reasonable inferences that may be drawn from that evidence, in the light most favorable to the party opposing summary judgment.” (Avivi v. Centro Medico Urgente Medical Center (2008) 159 Cal. App. 4th 463, 467; Code Civ. Proc., § 437c, subd. (c).)

Discussion

Bankruptcy Discharge:

            Plaintiffs/Cross-Defendants argue the First Amended Cross-Complaint is barred by the bankruptcy discharge order.

            The First Amended Cross-Complaint contains two causes of action, each for declaratory relief. The Cross-Complaint seeks the following relief: a court declaration on “whether Cross-Defendants are required to indemnify and hold [ASEC and LA Ice] harmless for all activities related to Cross-Defendants’ acts, omissions and activities . . . and whether Cross-Complainants may recoup its [sic] its damages from the bankruptcy estate.” (XC 6:5-9.) The First Amended Cross-Complaint also seeks a judicial declaration as to “[w]hether Cross-Complainants may recoup their damages against any liability they have to Cross-Defendants." (XC 6:10-11.)

            The only relevant citation for the purposes of adjudicating this issue is Material Fact No. 15, which states that on December 9, 2019, a Chapter 7 discharge order regarding debtor Nicholas La Roche was issued by the United States Bankruptcy Court for the Central District of California, Case No. 2:19-bk20282-BB. (XDSS 15.)

Plaintiffs/Cross-Defendants cite no legal authority in support of their argument that the bankruptcy discharge bars the First Amended Cross-Complaint. This alone warrants denying the motion for summary judgment.[1]

            Moreover, in opposition, Cross-Complainants contend that these crossclaims were not discharged by the bankruptcy discharge order.

            A Chapter 7 discharge relieves the debtor of personal liability for all claims or debts that arose before the filing of the bankruptcy petition. (11 U.S.C. § 727, subd. (b); 11 U.S.C. § 524.) A “claim” includes a right to payment “whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured” or right to equitable remedy “for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured.” (11 U.S.C. § 101, subd. (5).) A “debt” means “liability on a claim.” (11 U.S.C. § 101, subd. (12).)

            However, “[r]ecoupment is an equitable doctrine arising from the common law, not expressly recognized in the Bankruptcy Code, and is not affected by a debtor's discharge or automatic stay.” (Gaynor v. Slade (S.D. Cal., Sept. 2, 2021, No. 21CV777 GPC(NLS)) 2021 WL 3929699, at *4 [citing In re Madigan (B.A.P. 9th Cir. 2001) 270 B.R. 749, 754 and Newbery Corp. v. Fireman's Fund Ins. Co. (9th Cir. 1996) 95 F.3d 1392, 1399.) Recoupment “ ‘is the setting up of a demand arising from the same transaction as the plaintiff's claim or cause of action, strictly for the purpose of abatement or reduction of such claim.’ ” (In re Madigan, 270 B.R. at 754.) “It concerns a netting out of a debt arising from a single transaction in order to reduce the amount demanded and only to the extent of the plaintiff's claim.” (Gaynor v. Slade, supra, 2021 WL 3929699 at *4; In re Straightline Invs., Inc. (9th Cir. 2008) 525 F.3d 870, 882.) In recoupment, “the respective claims may arise either before or after the commencement of the bankruptcy case, but they must arise out of the same transaction.” (In re Madigan, 270 B.R. at 754 (citation omitted).) “Because recoupment is used as a defense, there is no “debt” or “claim” against the estate property.” (Gaynor v. Slade, supra, 2021 WL 3929699 at *4.) “Since recoupment is neither a claim nor a debt, it is unaffected by either the automatic stay or the debtor's discharge” and survives a bankruptcy discharge. (In re Madigan, 270 B.R. at 754; see In re Harmon (B.A.P. 9th Cir. 1995) 188 B.R. 421, 425 [“Because recoupment only reduces a debt as opposed to constituting an independent basis for a debt, it is not a claim in bankruptcy, and is therefore unaffected by the debtor's discharge.”].)

            Here, the Cross-Complainant points to the Order Granting Motion for Relief from the Automatic Stay Under 11 U.S.C. §362, which states: “The order is entered to clarify that the Automatic Stay does not apply to any defense or crosscomplaint that does not seek affirmative relief against the Debtor or the Estate. The decision to permit the filing of a cross complaint seeking recoupment or any other defensive relief is entirely in the discretion of the Superior Court.” (XCSS 15 [Court Order referencing Order Granting Motion for Relief from the Automatic Stay Under 11 U.S.C. §362]; 7/26/2023 Horwitz Decl., ¶ 3, Ex. B].) Further, the crossclaims at issue are a crossclaims for declaratory relief and indemnity arising out of Plaintiff’s affirmative claims against Cross-Complaints. (See Aetna U.S. Healthcare, Inc. v. Madigan (In re Madigan) (9th Cir. BAP 2001) 270 B.R. 749, 755 [stating that recoupment is the common law precursor to the compulsory counterclaim].)

Thus, Plaintiffs/Cross-Defendants have not shifted their burden of demonstrating the First Amended Cross-Complaint is barred by the bankruptcy discharge for the additional reason that the crossclaims here are not “claims” or “debts” under the Bankruptcy Code.

            The motion for summary judgment on this ground is denied.

Validity of the Indemnity Agreement:

            Cross-Defendants’ remaining arguments in support of the summary judgment are confusing. Cross-Defendants seem to suggest that LaRoche was an employee under the ABC Test and therefore the indemnification agreement between LA Ice and ASEC, on the one hand, and La Roche, on the other hand, is invalid as matter of law – citing Labor Code Section 226.8 and Labor Code Section 2802, subdivision (a).

            As a preliminary matter, Cross-Defendants’ reliance on Labor Code Section 226.8 and Labor Code Section 2802, subdivision (a), is entirely undeveloped.

            Labor Code section 226.8 provides:

“(a) It is unlawful for any person or employer to engage in any of the following activities: (1) Willful misclassification of an individual as an independent contractor.

(2) Charging an individual who has been willfully misclassified as an independent contractor a fee, or making any deductions from compensation, for any purpose, including for goods, materials, space rental, services, government licenses, repairs, equipment maintenance, or fines arising from the individual's employment where any of the acts described in this paragraph would have violated the law if the individual had not been misclassified. . ..”

            Labor Code Section 2802, subd. (a), provides:

“(a) An employer shall indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer, even though unlawful, unless the employee, at the time of obeying the directions, believed them to be unlawful.”

Cross-Defendants fail to articulate how these statutes bar enforcement of the parties’ indemnity agreement.

Moreover, the Court extensively reviewed the evidence submitted by both parties in their dueling motions for summary adjudication on the issue of LaRoche’s status as an employee.  The Court concluded that LaRoche was not an employee for all purposes at all times, and Defendants LA Ice and ASEC established Parts A, B, and C of the ABC Test, which rebuts the presumption that LaRoche worked as an employee when providing private lessons. This same evidence has been submitted on this motion, Thus, Cross-Defendants’ argument that an employee cannot indemnify an employer – even assuming this was legally correct – fails because it is based on the false assumption that LaRoche was an employee for all purposes. 

            Thus, the motion for summary judgment is denied on this ground, as well.

Conclusion

             Plaintiffs/Cross-Defendants’ motion for summary judgment is denied.