Judge Bruce G. Iwasaki, Case Number: 23STCV08646, Date: 2025-05-09 Tentative Ruling

The action arises out of an underlying judgment involving Labor Code violations against employers, Zabihullah Kator (Kator) and Guardnow, Inc. (Guardnow); in the instant action, Plaintiffs Lakayla Burrell and Justine Notto now seek to enforce this underlying judgment against Defendant Speech Improvement Center, Inc. (Defendant or Speech Improvement Center).

Plaintiffs allege that they previously worked for Kator and Guardnow. On September 13, 2019, Plaintiffs obtained a judgment against Defendant Kator and Guardnow in the sum of $350,162.80 for California Labor Code violations (Underlying Judgment). This Underlying Judgment remains unsatisfied. On October 29, 2020, Kator formed a new business, Defendant Speech Improvement Center. The Complaint seeks to impose liability for this Underlying Judgment on Defendant Speech Improvement Center pursuant to Labor Code section 200.3 by alleging, among other things, that Defendant Speech Improvement Center has substantially the same owners or managers that control the labor relations as the judgment debtor, Guardnow. The Complaint contains a single cause of action for successorship pursuant to Labor Code section 200.3.

On July 26, 2023, Defendant Speech Improvement Center filed a demurrer to the Complaint. Plaintiffs opposed the demurrer. On August 29, 2023, the demurer was overruled.

On February 7, 2025, Defendant filed a motion for judgment on the pleadings. An amended Motion was February 11, 2025. An opposition was filed on March 12, 2025. On March 18, 2025, a reply was filed.

On March 21, 2025, the Court continued the matter as Defendant’s motion for judgment on the pleadings failed to demonstrate compliance with the meet and confer requirements of Code of Civil Procedure section 439.

“[A] motion for judgment on the pleadings is the functional equivalent of a general demurrer.... Indeed, the only significant difference between the two motions is in their timing.” (People v. $20,000 U.S. Currency (1991) 235 Cal.App.3d 682, 691.)

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) When considering demurrers, courts read the allegations liberally and in context. The defects must be apparent on the face of the pleading or via proper judicial notice. (Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.) 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. (Code Civ. Proc., §§ 430.30, 430.70.) At the pleading stage, a plaintiff need only allege ultimate facts sufficient to apprise the defendant of the factual basis for the claim against him. (Semole v. Sansoucie (1972) 28 Cal. App. 3d 714, 721.) A “demurrer does not, however, admit contentions, deductions or conclusions of fact or law alleged in the pleading, or the construction of instruments pleaded, or facts impossible in law.” (S. Shore Land Co. v. Petersen (1964) 226 Cal.App.2d 725, 732 [internal citations omitted].)

Defendant argues that it complied with the meet and confer requirements of Code of Civil Procedure section 439. Specifically, on April 19, 2024, Defendant’s counsel submitted a declaration stating that, on October 8, 2024, he sent a letter to Plaintiff’s counsel regarding its intent to file a motion for judgment on the pleadings. (Moores Decl., ¶ 7, Ex. C, p. 3; see also Moores Decl., ¶ 9-10.) The letter adequately put Plaintiffs on notice of the argument at issue. Further, the letter and the declaration indicate that Defendant’s counsel previously had discussions on this same issue. For the purposes of this motion, the meet and confer requirements are adequate.

Defendant moves for judgment on the pleadings on the grounds that the Court lacks subject matter jurisdiction because Labor Code section 200.3 does not apply retroactively.

Citing Anaya v. Hopkins (Cal. Ct. App., Jan. 30, 2025, No. B336999) 2025 WL 341786, Plaintiffs argue that even judgments predating section 200.3 fall well within its ambit when viewed alongside California’s longstanding common-law successorship principles.

As a preliminary matter, it is inappropriate to cite and rely on an unpublished case. (Cal. Rules of Court, Rule 8.1115.)

Moreover, Plaintiffs misstate the holding in Anaya v. Hopkins. The Court in Anaya v. Hopkins did not conclude that Section 200.3 applies retroactively. Rather, the appellate court affirmed the trial court’s decision to add the defendant as a judgment debtor—but not under § 200.3. Instead, it applied the equitable “successor corporation” theory, which predates § 200.3 and allows liability where the successor is a mere continuation of the former entity, especially where fraud or creditor evasion is involved.

As noted in the Court’s previous on ruling on the demurrer, in the context of alter ego, a judgment creditor has two options on how to proceed where the creditor discovers post judgment that the judgment debtor has little or no assets and is controlled by a nonparty alter ego: First, the creditor may file a noticed motion to amend the judgment to add a nonparty alter ego as a judgment debtor, or may apply for an order to show cause why the nonparty alter ego should not be joined as a defendant. (See Code Civ. Proc. § 187; Jack Farenbaugh & Son v. Belmont Construction, Inc. (1987) 194 Cal.App.3d 1023, 1027–1029; Misik v. D'Arco (2011) 197 Cal.App.4th 1065, 1074–1075 [failure to allege alter ego in underlying lawsuit does not preclude motion to amend judgment].)

Second, in the alternative, the judgment creditor “may file an independent action on the judgment, alleging that the proposed judgment debtor was an alter ego of an original judgment debtor.” (Highland Springs Conference & Training Center v. City of Banning (2016) 244 Cal.App.4th 267, 288.) Such an action is not referred to as an alter ego claim, but as an “action on the judgment.” (Highland Spring, supra, 244 Cal.App.4th at p. 288.)

Here, Plaintiffs’ claim is an action on the judgment. The Complaint alleges a judgment was entered as to Plaintiffs’ former employers, Defendant Kato and Guardnow. In the instant action, Plaintiffs now seek to impose liability on that Underlying Judgment on Defendant Speech Improvement Center, Inc. through the successorship liability pursuant to Labor Code section 200.3.

“(a) A successor to a judgment debtor shall be liable for any wages, damages, and penalties owed to any of the judgment debtor's former workforce pursuant to a final judgment, after the time to appeal therefrom has expired and for which no appeal therefrom is pending. Successorship is established upon meeting any of the following criteria:

(1) Uses substantially the same facilities or substantially the same workforce to offer substantially the same services as the judgment debtor. This factor does not apply to employers who maintain the same workforce pursuant to Chapter 4.5 (commencing with Section 1060) of Part 3.

(2) Has substantially the same owners or managers that control the labor relations as the judgment debtor.

(3) Employs as a managing agent any person who directly controlled the wages, hours, or working conditions of the affected workforce of the judgment debtor. The term managing agent has the same meaning as in subdivision (b) of Section 3294 of the Civil Code.

(4) Operates a business in the same industry and the business has an owner, partner, officer, or director who is an immediate family member of any owner, partner, officer, or director of the judgment debtor.

(b) This section shall not be construed to limit other means of establishing successor liability for wages, damages, and penalties.”

It is undisputed that Labor Code section 200.3 did not go into effect until January 1, 2021. Further, as alleged in the Complaint, the judgment in the underlying action against Defendant Kator and Guardnow was entered before this effective date – on September 13, 2019. (Compl., ¶ 10.) Based on the foregoing, Defendant takes the position that Plaintiffs’ attempt to apply Labor Code section 200.3 to the Underlying Judgment would be an improper retroactive application of the statute.

“California courts comply with the legal principle that unless there is an ‘express retroactivity provision, a statute will not be applied retroactively unless it is very clear from extrinsic sources that the Legislature ... must have intended a retroactive application.’” (Myers v. Philip Morris Companies, Inc. (2002) 28 Cal.4th 828, 841.) Numerous general statutory provisions are considered to codify or relate to this general rule. (Evangelatos v. Superior Court (1988) 44 Cal.3d 1188, 1207–1208; Code Civ. Proc. § 3 [“[n]o part of [this code] is retroactive, unless expressly so declared.”]; Lab Code § 4 [“No action or proceeding commenced before this code takes effect, and no right accrued, is affected by the provisions of this code, but all procedure thereafter taken therein shall conform to the provisions of this code so far as possible.”].)

Here, there is admittedly no express retroactive language incorporated in the statute to demonstrate Legislative intent that the statute was intended to be applied retroactively. (See e.g., Civ. Code § 1646.5 [“This section applies to contracts, agreements, and undertakings entered into before, on or after its effective date; it shall be fully retroactive”]; see also e.g., Gov. Code § 9355.8 [“This section shall have retroactive application, as well as prospective application”].)[1]

On the prior demurrer, the Court determined that it need not resolve the issue of retroactivity because the parties had agreed that the judgment was not final until January 12, 2023. (Dem., ¶ 7; see also Compl., ¶ 14.)

On the motion for judgment on the pleadings, however, Defendant now argues that in 2019 Judgment became final after the appeal period expired. That is, Defendant now takes the position that Zabi Kator’s motion to vacate the default judgment pursuant to Code of Civil Procedure section 473, subdivision (d) did not affect the finality of the 2019 default judgment. (Mot., 6:1-21 [citing Rochin v. Pat Johnson Manufacturing Co. (1998) 67 Cal.App.4th 1228 and Litvinuk v. Litvinuk (1945) 27 Cal.2d 38.)

Although these cited cases are not directly on point, Plaintiffs do not dispute that the judgment was final before the enactment of Section 200.3. Moreover, Defendant appears to be correct on the law. (See Code Civ. Proc., § 1049 [“An action is deemed to be pending from the time of its commencement until its final determination upon appeal, or until the time for appeal has passed, unless the judgment is sooner satisfied.”]; Cal. Rule of Court, rule 8.104 [time to appeal a civil action generally expires no later than 180 days after entry of judgment].) Moreover, in contrast, a void judgment may be set aside at any time pursuant to Code of Civil Procedure section 473, subdivision (d).

Nonetheless, as the Court previously noted, the statute appears to function as procedural rule as opposed to a substantive rule.

Again, the Court relies on legal doctrines similar in form and function to analyze this issue. With respect to the alter ego doctrine, case law explains that “[a] claim against a defendant, based on the alter ego theory, is not itself a claim for substantive relief, e.g., breach of contract ..., but rather, procedural, i.e., to disregard the corporate entity as a distinct defendant and to hold the alter ego individuals liable on the obligations of the corporation where the corporate form is being used by the individuals to escape personal liability, sanction a fraud, or promote injustice.” (Greenspan v. LADT, LLC (2010) 191 Cal.App.4th 486, 516 [emphasis added].) Similarly, courts have held that the “statute of limitations is procedural; it affects the remedy only, not the substantive right or obligation.” (Nelson v. Flintkote Co. (1985) 172 Cal.App.3d 727, 733; Talei v. Pan American World Airways (1982) 132 Cal.App.3d 904, 909 “Limitations periods represent a public policy about the privilege to litigate; they relate to matters of procedure, not to substantial rights.”.)

Based on the foregoing legal authority, Labor Code section 200.3 must also be treated as procedural rule, and “a procedural rule . . . is not subject to the general rule that statutes should not be retroactive.” (Nelson v. Flintkote Co., supra, 172 Cal.App.3d at 733; Republic Corp. v. Superior Court (1984) 160 Cal.App.3d 1253, 1257.)

Instead, “[a] statute which is procedural in nature may be given effect as to pending and future litigation even if the event underlying the cause of action occurred before the statute took effect.” (Pacific Coast Medical Enterprises v. Department of Benefit Payments (1983) 140 Cal.App.3d 197, 204.) Said another way, “ ‘[a] lawsuit is governed by a change in procedural rules made during its pendency, and the suit is pending until its final determination on appeal.’ ” (Republic Corp. v. Superior Court, supra, 160 Cal.App.3d at p. 1257.)

The Court concludes that Labor Code section 200.3 is applicable to Plaintiffs’ claim because it may be applied retroactively to the 2019 Judgment.

Further, irrespective of whether the Section 200.3 applies to Plaintiffs’ claims, a common law theory of successor liability having the same effect would apply to Plaintiffs’ claims.

Under the equitable doctrine of successor liability, “ ‘corporations cannot escape liability by a mere change of name or a shift of assets when and where it is shown that the new corporation is, in reality, but a continuation of the old. This is particularly well settled when actual fraud or the rights of creditors are involved, under which circumstances the courts uniformly hold the new corporation liable for the debts of the former corporation.’ ” (Cleveland v. Johnson (2012) 209 Cal.App.4th 1315, 1327.)

The general rule concerning successor liability is that “a corporation purchasing the principal assets of another corporation ... does not assume the seller's liabilities unless (1) there is an express or implied agreement of assumption, (2) the transaction amounts to a consolidation or merger of the two corporations, (3) the purchasing corporation is a mere continuation of the seller, or (4) the transfer of assets to the purchaser is for the fraudulent purpose of escaping liability for the seller's debts.” (Ray v. Alad Corp. (1977) 19 Cal.3d 22, 28; see Daniels v. Select Portfolio Servicing, Inc. (2016) 246 Cal.App.4th 1150, 1170; McClellan v. Northridge Park Townhome Owners Ass'n, Inc. (2001) 89 Cal.App.4th 746, 753-754.) Whether successor liability is applicable in a given case involves equitable issues to be examined on their own unique facts. (Cleveland, supra, 209 Cal.App.4th at p. 1330.)

Successor liability is permitted because “corporations cannot escape liability by a mere change of name or a shift of assets when and where it is shown that the new corporation is, in reality, but a continuation of the old.” (McClellan v. Northridge Park Townhome Owners Ass'n, Inc., supra, 89 Cal.App.4th at 754.) “Thus, where the successor corporation is a mere continuation and hence liable for the acts of its predecessor, the liability of the new corporation may be enforced in an independent action, ...” (Id.)

[1] Despite this absence of an express legislative declaration, retroactive operation may be “inferred . . . from the words of the statute taken by themselves and in connection with the subject matter, and the occasion of the enactment . . ..” (Estate of Frees (1921) 187 Cal. 150, 156; People v. Brown (2012) 54 Cal.4th 314, 319; Fox v. Alexis (1985) 38 Cal.3d 621, 629 [“An express declaration that the Legislature intended the law to be applied retroactively is not necessarily required.”].)