Judge Daniel M. Crowley, Case Number: 21STCV40948, Date: 2023-12-20 Tentative Ruling

Defendants Arcadia Transit, Inc.’s, San Gabriel Transit, Inc.’s, California Transit, Inc.’s, Southland Transit, Inc.’s, Tri-City Transportation Systems, Inc.’s, G&S Transit Management, Inc.’s, and MTS Management, Inc.’s unopposed demurrer to the complaint of Plaintiffs Supershuttle International, Inc. and Supershuttle Franchise, Corporation is sustained as to the 2nd cause of action without leave to amend.

Defendant Arcadia Transit, Inc.’s unopposed motion to quash Plaintiffs’ deposition subpoena for business records issued to East West Bank is granted. Defendant Arcadia Transit, Inc.’s request for attorneys’ fees incurred in connection with its motion is granted in the reduced amount of $1,925.00. Sanctions are payable within 20 days.

Defendants Arcadia Transit, Inc. (“Arcadia”), San Gabriel Transit, Inc. (“SG Transit”), California Transit, Inc. (“California Transit”), Southland Transit, Inc. (“STI”), Tri-City Transportation Systems, Inc. (“Tri-City Transportation”), G&S Transit Management, Inc. (“G&S Transit”), and MTS Management, Inc. (“MTS Management”) (collectively, “Defendants”) demur unopposed to the 2nd (contingent liability under Labor Code §558.1) cause of action in the complaint (“Complaint”) of Plaintiffs Supershuttle International, Inc. (“SSI”) and Supershuttle Franchise, Corporation (“SSF”) (collectively, “Plaintiffs”). (Notice of Demurrer, pg. 2; C.C.P. §430.10.)

Defendant Arcadia moves unopposed to quash Plaintiffs’ deposition subpoena for business records issued to East West Bank. Defendant Arcadia requests attorneys’ fees incurred in connection with its motion in the amount of $3,850.00. (Notice of Motion Quash, pg. 2; C.C.P. §§1987.1, 1987.2(a).)

Plaintiffs filed the operative complaint against Defendants on November 5, 2021, alleging four causes of action: (1) breach of contract for defense and indemnity; (2) contingent liability under Labor Code §588.1; (3) fraudulent conveyance; and (4) declaratory relief.

Defendants filed their demurrer on January 13, 2023. As of the date of this hearing, Plaintiffs have not filed an opposition.

Plaintiffs allege at all times relevant to this action, Plaintiff SSI was the owner of the brands, trademarks, and other intellectual property associated with the “SuperShuttle” brand. (Complaint ¶14.) Plaintiffs allege Plaintiff SSFC is a subsidiary of Plaintiff SSI, contractually authorized by Plaintiff SSI to enter into licensing agreements with other entities that intend to operate shared-ride passenger transportation systems while using and benefiting from Plaintiff SSI’s intellectual property. (Complaint ¶14.) Plaintiffs allege the relationship between Defendant Arcadia and Plaintiff SSFC is entirely contractual. (Complaint ¶14.) Plaintiffs allege neither Plaintiffs SSI nor SSFC had any ownership or managing interest in Defendant Arcadia, either directly or indirectly. (Complaint ¶14.)

Plaintiffs allege Plaintiff SSFC and Defendant Arcadia were parties to an Area Development Licensing Agreement (“ADLA”) executed on October 21, 2013, which authorized Arcadia to operate as a SuperShuttle-branded transportation provider, using Plaintiff SSI’s intellectual property and other systems associated with the “SuperShuttle” brand. (Complaint ¶15.) Plaintiffs allege the ADLA allowed Defendant Arcadia the non-exclusive right to provide transportation for passengers, to and from Los Angeles International Airport and Bob Hope Airport, and “all points within the San Fernando Valley (West Valley) and cities of Atwater (90039), Eagle Rock (90041), Glassel Park (90065), Mt. Washington (90065), Highland Park (90042), San Fernando, Burbank, Glendale, La Canada/Flintridge and Universal City and Ventura county.” (Complaint ¶15; see Exh. 1 [ADLA] at pg. 0053 [Exh. B(1) of Exh. 1], “Description of Licensee’s Market”.)

Plaintiffs allege, by attaching Exhibit 1, a true and correct copy of the ADLA executed by Defendant Arcadia and signed by Timmy Mardirossian in his stated capacity as President of Arcadia. (Complaint ¶16.) Plaintiffs allege section 4.B(1) of the ADLA provides that Defendant Arcadia will “to indemnify, defend and hold SuperShuttle, SuperShuttle affiliates, Licensor and their respective current and former affiliates, shareholders, officers, directors, employees, partners, agents . . .” and “reimburse them for any and all obligations, expenses, fines, suits, costs, judgments, proceedings, claims, losses, damages (actual and consequential), liabilities, actions, or proceedings of any kind or nature (including costs and attorneys’ fees) . . .,” relating to these claims or any related “investigations, administrative proceedings, suits or other actions.” (Complaint ¶16.) Plaintiffs allege per Item 4B(2) of the ADLA, any defense is “conducted by and under the control of the Indemnitees” and SSI’s counsel of choice. (Complaint ¶16.) Plaintiffs allege that accordingly, Defendant Arcadia’s duty to defend this action includes an obligation to pay the invoices of Plaintiffs’ elected counsel and arbitration fees (among other requirements). (Complaint ¶16; see Exh. 1, pgs. 0022-0023.)

Plaintiffs allege on or about December 19, 2017, an action was filed against Defendant Arcadia and Plaintiff SSI by Edvart Hovanesian, Serzhik Sargsyan and Khosrow Petrossian. (Complaint ¶17.) Plaintiffs allege this matter is captioned Edvart Hovanesian et al. v. Arcadia Transit, Inc. et al., Los Angeles Superior Court Case No. BC687617 (“Hovanesian Lawsuit”). (Complaint ¶17.) Plaintiffs allege the Hovanesian Lawsuit was filed by alleged shuttle van operators who had signed contracts with Defendant Arcadia. (Complaint ¶17.) Plaintiffs allege it was filed as a putative class action and representative action under California’s Private Attorney General Act (“PAGA”) [Labor Code §2698 et seq.]. (Complaint ¶17.) Plaintiffs allege it alleged multiple causes of action for claimed violations of the Labor Code, including §§201-204, 216, 226, 226.2, 226.7, 510, 512, 1194, 1194.2, 1197, 2802 arising from Defendant Arcadia’s operations and included a derivative claim under Business & Professions Code §17200. (Complaint ¶17.)

Plaintiffs allege on or about July 14, 2017, Defendant Arcadia affirmed, by and through its General Counsel Steven Niemand that, “Arcadia Transit, Inc. agrees to fully indemnify and defend SuperShuttle International, Inc. with respect to the claims being made. Arcadia further acknowledges that these individuals [plaintiffs in the Hovanesian Lawsuit] performed no services for, and had no legal relationship with, SuperShuttle International, Inc.” (Complaint ¶18; Exh. 2.)

Plaintiffs allege Defendant Arcadia proceeded to pay to Plaintiffs the costs and fees necessary for Plaintiffs defense of the claims filed in the Hovanesian Lawsuit. (Complaint ¶19.) Plaintiffs allege these payments were made consistent with the indemnity clause of the ADLA, and the July 14, 2017, communication referenced above (Exh. 2). (Complaint ¶19.) Plaintiffs allege Defendant Arcadia’s conduct in compliance with its obligation to pay for Plaintiffs’ defense lasted through Defendant Arcadia’s timely payment of an invoice from Plaintiffs’ defense counsel made on September 3, 2019. (Complaint ¶19.)

Plaintiffs allege on or about October 28, 2019, an invoice for accrued attorneys’ fees and costs necessarily incurred for the defense of Plaintiffs in the Hovanesian Lawsuit was forwarded to Defendant Arcadia, with payment required in 30 days. (Complaint ¶20.) Plaintiffs allege Plaintiffs’ counsel also sent a letter along with the invoice, on November 11, 2019, urging Defendant Arcadia not breach the indemnity agreement by refusing payment, as it had threatened to do. (Complaint ¶20.)

Plaintiffs allege the invoice thereafter remained unpaid and overdue, with no effort by Defendants to make payment as required. (Complaint ¶21.) Plaintiffs allege on November 27, 2019, and thereafter, Plaintiffs were required to incur attorneys’ fees and costs and make payments therefor, in order to continue the defense of the Hovanesian Lawsuit. (Complaint ¶21.) Plaintiffs allege Defendant Arcadia breached the ADLA by refusing to continue payment of Plaintiffs’ attorneys’ fees and costs. (Complaint ¶21.) Plaintiffs allege they have thereafter incurred fees and costs in the amount of $62,165.97. (Complaint ¶21.) Plaintiffs allege these fees and costs continue to accrue. (Complaint ¶21.)

Plaintiffs allege on September 7, 2021, a Joint Report was filed in which Counsel for Messrs. Hovanesian, Sargsyan, and Petrossian advised that they planned to file individual arbitrations and expected to proceed only against Plaintiffs, because a settlement had been “tentatively agreed” between Defendant Arcadia and the Hovanesian Plaintiffs. (Complaint ¶22.) Plaintiffs allege Counsel for Messrs. Hovanesian, Sargsyan, and Petrossian further stated that they would prepare arbitration demands to be served on Plaintiff SSI only, assuming they were able to reach a class-wide compromise with Defendant Arcadia. (Complaint ¶22.) Plaintiffs allege any such settlement would be a breach of Defendant Arcadia’s contractual obligation to defend and indemnify Plaintiffs, as is provided in the ADLA [Exhibit 1]. (Complaint ¶22.)

Plaintiffs allege on or about September 29, 2021, thirty-six individual (“Hovanesian Arbitrations”) Demands for Arbitration (“Demands”) were submitted to Judicate West Arbitration against Plaintiffs herein by individuals alleging that they signed contracts with Defendant Arcadia as shuttle van operators. (Complaint ¶23.) Plaintiffs allege Defendant Arcadia was not named as a Respondent in those arbitration filings, although its conduct is referenced throughout each of the 36 demands for arbitration, as the basis of the claims. (Complaint ¶23.)

Plaintiffs allege Defendant Arcadia’s Counsel was notified of these filings and an oral request for defense and indemnification of Plaintiffs in these thirty-six arbitrations was made during a phone call with the undersigned on October 4, 2021. (Complaint ¶25.) Plaintiffs allege Defendant Arcadia’s Counsel rejected the invocation of the indemnity agreement in these thirty-six arbitrations. (Complaint ¶25.) Plaintiffs allege Plaintiffs’ counsel advised that this action would be filed unless Defendant Arcadia agreed to fully honor its defense and indemnity obligations in regard to the litigation of the Hovanesian Lawsuit and the Hovanesian Arbitrations. (Complaint ¶25.) Plaintiffs allege Defendant Arcadia did not agree to resume payments for the defense of Plaintiffs in these actions and did not agree that Plaintiffs would be released from all claims in any settlement between Defendant Arcadia and any (or all) of the thirty-six claimants in the Hovanesian Arbitrations or by the three claimants in the Hovanesian Lawsuit. (Complaint ¶25.)

Defendants demur to the 2nd cause of action on the basis it fails to state facts sufficient to constitute a cause of action on the basis that Plaintiffs lack standing to assert their claim for contingent liability under Labor Code §558.1. Defendants also demur to the 2nd cause of action on the basis that the Complaint fails to allege facts supporting a violation of any of the wage and hour laws or Labor Code provisions set forth in Labor Code §558.1.

(a) Any employer or other person acting on behalf of an employer who violates, or causes to be violated, any provision regulating minimum wages or hours and days of work in any order of the Industrial Welfare Commission, or violates, or causes to be violated, Sections 203, 226, 226.7, 1193.6, 1194, or 2802, may be held liable as the employer for such violation.

(b) For purposes of this section, the term “other person acting on behalf of an employer” is limited to a natural person who is an owner, director, officer, or managing agent of the employer, and the term “managing agent” has the same meaning as in subdivision (b) of Section 3294 of the Civil Code.

The purpose of the Labor Code is to protect employees. (See Augustus v. ABM Security Services, Inc. (2016) 2 Cal.5th 257, 262.) Labor Code §558.1, by its very terms, expands the remedies available to employees subjected to certain Labor Code violations by broadening the definition of persons who may be liable for such violations to include the owners/officers/directors of a company employer under certain circumstance. (Lab. Code §558.1.)

“Every action must be prosecuted in the name of the real party in interest.” (C.C.P. §367.) Generally, the real party in interest is the person who has the right to sue under the substantive law. It is the person who owns or holds title to the claim or property involved, as opposed to others who may be interested or benefited by the litigation. (Gantman v. United Pacific Insurance Co. (1991) 232 Cal.App.3d 1560, 1566; Jasmine Networks, Inc. v. Superior Court (2009) 180 Cal.App.4th 980, 991; Killian v. Millard (1991) 228 Cal.App.3d 1601, 1605.)

Plaintiffs lack standing to assert a cause of action under Labor Code §558.1 because Plaintiffs do not allege that they are or were employed by Defendants or that they were subjected to any wage and hour violations. (See Complaint.) Instead, Plaintiffs are attempting to assert the rights of the plaintiffs/claimants in the Hovanesian Lawsuit and Arbitrations (who presumably allege an employment relationship that resulted in wage and hour violations). (See Complaint ¶¶49-50.) Plaintiffs cannot assert a substantive right to sue for Contingent Liability under Labor Code §558.1, and as such, Defendants’ demurrer must be sustained for failure to assert a cause of action.

(Carsten v. Psychology Examining Committee (1980) 27 Cal.3d 793, 796, en banc [stating a complaint filed by someone other than the real party in interest is subject to general demurrer on the ground that it fails to state a cause of action.].)

Accordingly, Defendants’ demurrer to Plaintiffs’ 2nd cause of action is sustained without leave to amend.

Defendant New Hope’s demurrer to Plaintiff’ FAC is sustained as to the 1st and 2nd causes of action without leave to amend.

On April 8, 2022, Plaintiffs’ counsel issued a Deposition Subpoena for Production of Business Records to East West Bank. (Decl. of Yarbrough ¶1, Exh. 1.) The subpoena seeks, without limitation, all documents related to Defendant Arcadia’s bank account with East West Bank, including account statements, copies of checks, deposit records, and credit and debit card records from September 1, 2019, to present. (Decl. of Yarbrough, Exh. 1.) The date for production of the documents requested by the subpoena is May 4, 2022. (Decl. of Yarbrough, Exh. 1.) No other discovery has been conducted in this matter, to date. (Decl. of Yarbrough ¶2.)

Defendant Arcadia filed the instant motion on April 29, 2023. As of the date of this hearing Plaintiffs have not filed an opposition.

Defendant Arcadia submitted a declaration stating it sent a meet and confer letter to Plaintiffs’ counsel on April 26, 2022, setting forth Defendant Arcadia’s position that the subpoena is overbroad, in that it seeks information plainly outside the scope of discovery, including information that is not even arguably relevant to this litigation, but that is clearly protected by Arcadia’s right to privacy. (Decl. of Yarbrough ¶¶3, Exh. 2.) Defendant Arcadia’s counsel declares that on April 27, 2022, counsel for Plaintiffs and Arcadia met and conferred about the subpoena over the phone. (Decl. of Yarbrough ¶3.) Defendant Arcadia’s counsel declares during that call, counsel for Arcadia reiterated its position that the subpoena is overbroad and seeks irrelevant and protected information. (Decl. of Yarbrough ¶4.) Defendant Arcadia’s counsel declares Plaintiffs’ counsel stated that he would discuss the situation with his senior colleagues and respond accordingly. (Decl. of Yarbrough ¶4.) Defendant Arcadia’s counsel declares to date Defendant Arcadia’s counsel has not received any further response from Plaintiffs’ counsel to Defendant Arcadia’s meet and confer efforts. (Decl. of Yarbrough ¶4.) The Court determines Defendant Arcadia’s meet and confer declaration is sufficient.

If a subpoena requires . . . the production of books, documents, electronically stored information, or other things before a court, . . . the court, upon motion reasonably made by [a party], or upon the court’s own motion after giving counsel notice and an opportunity to be heard, may make an order quashing the subpoena entirely, modifying it, or directing compliance with it upon such terms or conditions as the court shall declare, including protective orders. In addition, the court may make any other order as may be appropriate to protect the person from unreasonable or oppressive demands, including unreasonable violations of the right of privacy of the person.

While afforded less protection than individuals, corporations do have a right to privacy. (SCC Acquisitions, Inc. v. Superior Court (2015) 243 Cal.App.4th 741, 756.) A balancing test is used to determine whether document requests, such as those at issue, infringe upon that right: “The discovery’s relevance to the subject matter of the pending dispute and whether the discovery ‘appears reasonably calculated to lead to the discovery of admissible evidence’ is balanced against the corporate right of privacy.” (Id.)

Here, the subpoena requires the production of private financial information that is unrelated to this lawsuit, including, for example, documents related to payments made to vendors, funds received from clients, monthly business expenses, etc. (Decl. of Yarbrough, Exh. 1.) The subpoena seeks, without limitation, all documents related to Defendant Arcadia’s bank account with East West Bank, including account statements, copies of checks, deposit records, and credit and debit card records. (Decl. of Yarbrough, Exh. 1.) Generally, this type of confidential financial information is covered by the right to privacy. (See Ovestock.com, Inc. v. Goldman Sachs Group, Inc. (2014) 231 Cal.App.4th 471, 503 [“[R]ight [to privacy] embraces confidential financial information in ‘whatever form it takes, whatever that form be tax returns, checks, statements, or other account information.’”], citations omitted.) On balance, Defendant Arcadia’s right to privacy in its confidential financial affairs outweighs the relevancy of the information sought against.

Accordingly, Defendant Arcadia’s motion to quash Plaintiffs’ Deposition Subpoena for Production of Business Records to East West Bank is granted.

[T]he court may in its discretion award the amount of the reasonable expenses incurred in making or opposing the motion, including reasonable attorney’s fees, if the court finds the motion was made or opposed in bad faith or without substantial justification or that one or more of the requirements of the subpoena was oppressive.

Defendant Arcadia requests sanctions in the amount of $3,850.00, constituting the reasonable attorney’s fees incurred in connection with this motion. (Memo Quash, pg.6.) Defendant Arcadia’s counsel declares his hourly rate is $350.00 and he incurred 7.5 hours drafting the moving papers and meeting and conferring with opposing counsel about the discovery issues raised in the instant motion. (Decl. of Yarbrough ¶5.) However, time incurred meeting and conferring with opposing counsel is not considered reasonable fees incurred on the motion. Further, Defendant’s counsel’s motion is unopposed, which nullifies Defendant’s counsel’s request for anticipated fees to draft a reply brief. Therefore, the Court calculates Defendant Arcadia’s counsel’s reasonable fees incurred on the instant motion as follows: ($350.00 x 5.5 hours = $1,925.00.)

Accordingly, the Court grants Defendant’s counsel’s request for reasonable fees in the reduced amount of $1,925.00.

Defendant Arcadia’s motion to quash Plaintiffs’ Deposition Subpoena for Production of Business Records to East West Bank is granted.

Defendant Arcadia’s request for sanctions against Plaintiffs is granted in the reduced amount of $1,925.00. Sanctions are payable within 20 days.

Hon. Daniel M. Crowley

Judge of the Superior Court