Judge Gail Killefer, Case Number: 23STCV00510, Date: 2023-11-28 Tentative Ruling

on January 10, 2023, BakeMark USA, LLC (“BakeMark”) and BMark Investment Holdings, L.P.(“BMark”) (collectively “Plaintiffs”) filed a Complaint against Robert Braden (“Braden”) and Does 1 to 50. The operative First Amended Complaint (“FAC”), filed May 8, 2023, alleges a single cause of action for breach of contract.

On June 6, 2023, Defendant Braden filed a Cross-Complaint against Plaintiff BakeMark. The operative First Amended Cross-Complaint (“FACC”), filed July 31, 2023, alleges a cause of action for (1) Declaratory and Injunctive Relief, (2) Violation of Bus. & Prof. Code § 17200, and (3) Violation of Labor Code § 2698.

On August 22, 2023, Plaintiff/Cross-Defendant BakeMark filed a demurrer to the FACC. Defendant/Cross-Complainant Braden filed opposing papers on November 13, 2023. On November 17, 2023, Plaintiff/Cross-Defendant BakeMark filed a reply. The matter is now before the court.

Discussion

I. Legal Standard

Where pleadings are defective, a party may raise the defect by way of a demurrer. (Coyne v. Krempels (1950) 36 Cal.2d 257, 262.) A demurrer tests the sufficiency of a pleading, and the grounds for a demurrer must appear on the face of the pleading or from judicially noticeable matters.¿ (CCP § 430.30(a); Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) In evaluating a demurrer, the court accepts the complainant’s properly pled facts as true and ignores contentions, deductions, and conclusory statements. (Daar v. Yellow Cab Co. (1976) 67 Cal.2d 695, 713; Serrano v. Priest (1971) 5 Cal.3d 584, 591.) Moreover, the court does not consider whether a plaintiff will be able to prove the allegations or the possible difficulty in making such proof. (Fisher v. San Pedro Peninsula Hospital (1989) 214 Cal.App.3d 590, 604.)

Leave to amend must be allowed where there is a reasonable possibility of successful amendment. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348.)¿ The burden is on the complainant to show the Court that a pleading can be amended successfully. (Id.)

The FACC alleges that Defendant Braden (herein after “Braden”) was a former employee of Plaintiff BakeMark from 2017 to December 2021, and served as the Human Resources Labor Relations Manager. (FACC ¶ 5.) The FACC alleges that Plaintiff BakeMark has “undertaken a series of steps to unfairly retain its California employees from obtaining employment” and restrain trade after they leave Plaintiff’s by making them sign illegal agreements. (FACC ¶ 6.) Braden was forced to sign Plaintiff’s Employee Non-Solicitation, Inventions & Confidentiality Agreement (“Confidentiality Agreement”) as a condition of employment that prevented Braden and other employees from disclosing information regarding their own compensation and working conditions. (FACC ¶ 7, Ex. A.)

The Confidentiality Agreement also contained a post-employment restrictive covenant that prohibited Braden and other employees who signed the Confidentiality Agreement from soliciting or causing to solicit Plaintiff BakeMark’s clients or prospective clients for one year after their separation date. (FACC ¶ 8.) Plaintiff also forced employees to agree to the choice of law provision in the Confidentiality Agreement that mandated that the agreement would be governed and construed in accordance with Georgia law. (FACC ¶¶ 9, 19.) Moreover, under the Confidentiality Agreement, Braden and other employees agreed not to compete with BMark and its subsidiaries or solicit employee(s), sales representative(s), agent(s), independent contractor(s) or consultant(s) for a period of two years following employment.” (Compl. ¶ 13.) The Complaint alleges that these provisions were an illegal restraint on trade and did not fall into the exceptions described in Bus. & Prof. Code §§ 16601 and 16602. (Compl. ¶¶ 13, 18.)

The FACC also alleges that Plaintiff engaged in unfair business practices in restraining trade by offering employees a minuscule percentage of Class B shares in a holding company called BMark Investment Holdings, LP (“BMark”), where the shares would only vest to Braden and other employees if the employees remained employed for a certain period of time and/or there was a change of control, such a merger, recapitalization, sale or other disposition of the business. (FACC ¶ 12.) As such the employees with shares were not true “Partners” pursuant to the provisions Bus. & Prof. Code §§ 16601 and 16602 because the employees owned a minuscule percentage of shares, had no voting rights, and were not engaged in the same business as other partners. (FACC ¶ 12.) As BMark also purchased the employees’ shares without providing the employees with a valuation or appraisal of the shares, the shares may have been undervalued. Moreover, the transaction lacked consideration to support the terms of the Shareholder Distribution Agreement (“SDA”). (FACC ¶¶ 14, 15.) Defendant Braden states that he had to sign the SDA as a condition of employment with the understanding that he would continue to stay employed at BakeMark. (FACC ¶ 15.)

The FACC also alleges that the restrictive covenants of the SDA are unenforceable, but that BakeMark is attempting to restrict Defendant Braden and other employees from competing with BakeMark. This is despite the fact that Braden did not transfer any shares or interest in BakeMark, but BMark, a separate entity, meaning that BakeMark cannot take advantage of the trade restrictions permissible under the exceptions outlined in Bus. & Prof. Code SS 16601 and 16602. (FACC. ¶ 18.) In this manner, Plaintiff BakeMark created a sham transaction to make it appear as if employees were selling their “partnership” interest and restrain them from working in any competitive industry after leaving Plaintiff’s employment. (FACC. ¶ 20.)

Lastly, Defendant Braden’s Cross-Complaint also brings a PAGA action. (FACC ¶¶ 21-32.) Defendant alleges Labor Code violations of §§ 232, 232.5, 432.5 and 925. (FACC ¶ 32.)

Plaintiff BakeMark now demurs to the first and second causes of action of the FACC on the grounds that Defendant Braden fails to state sufficient facts against Plaintiff to constitute a cause of action. Braden also demurs to the third cause of action on the grounds that the PAGA claim is barred by the applicable statute of limitations.

“A complaint for declaratory relief is legally sufficient if it sets forth facts showing the existence of an actual controversy relating to the legal rights and duties of the parties under a written instrument or with respect to property and requests that the rights and duties of the parties be adjudged by the court.... If these requirements are met and no basis for declining declaratory relief appears, the court should declare the rights of the parties whether or not the facts alleged establish that the plaintiff is entitled to favorable declaration.” (Wellenkamp v. Bank of America (1978) 21 Cal.3d 943, 947, 148.)

Defendant asserts that a controversy exists regarding the respective rights of the parties related to the Confidential Agreement and the SDA. (FACC ¶ 44.) This includes whether the agreements are enforceable and lawful or violate Bus. & Prof. Code § 16600 and Labor Code §§ 232, 232.5, 432.5 and 925.

As outlined below, the court finds that a present controversy exists regarding the legality and enforceability of the SDA and the rights and duties of the parties under said agreement, such that it precludes granting Plaintiff BakeMark’s demurrer to the first cause of action. The demurrer to the first cause of action is overruled.

Business and Professions Code § 17200 (“UCL”) prohibits “any unlawful, unfair or fraudulent business act or practice.” (Bus. & Prof. Code, § 17200; see Clark v. Superior Court (2010) 50 Cal.4th 605, 610.) To plead this statutory claim, the pleadings must state with reasonable particularity the facts supporting the statutory elements of the violation. (Khoury v. Maly's of California, Inc. (1993) 14 Cal.App.4th 612, 619.)

“An unlawful business practice or act is an act or practice, committed pursuant to business activity, that is at the same time forbidden by law.” (Klein v. Earth Elements, Inc. (1997) 59 Cal.App.4th 965, 969.) “A business practice is unfair within the meaning of the UCL if it violates established public policy or if it is immoral, unethical, oppressive or unscrupulous and causes injury to consumers which outweighs its benefits.” (McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1473.) Lastly, a fraudulent business practice claim under section 17200 “is not based upon proof of the common law tort of deceit or deception, but is instead premised on whether the public is likely to be deceived.” (Pastoria v. Nationwide Ins. (2003) 112 Cal.App.4th 1490, 1499.)

Plaintiff BakeMark asserts that the Confidentiality Agreement does not violate Labor Code §§ 232 and 232.5 because it does not prohibit Braden or other employees from disclosing or discussing wages or work conditions. The FACC alleges that “[t]he clauses contained in the confidentiality agreements restrict employees from disclosing ‘compensation agreements” of themselves as well as other.” (FACC ¶ 33.) A copy of the Confidentiality Agreement is attached as Exhibit A to FACC, and BakeMark points to provisions in the Confidentiality Agreement that show that the prohibition on disclosure is limited to BakeMark’s “customers, manufacturing, products, services, pricing and sales, research, business, practices, procedures or Baking products not generally known by or available to the public, including but not limited to . . . information about the Company’s finances and business, including personnel data relating to the Company’s employees, such as compensation arrangements;” and (ii) BakeMark’s business, practices, and procedures to third parties. (FACC Ex. A.)

In opposition, Defendant Braden fails to point to provisions in the Confidentiality Agreement that prohibit employees from discussing compensation or working conditions. Moreover, Defendant Braden fails to show that Gov. Code § 2964.5, pertaining to non-disparagement agreements, applied to the Confidentiality Agreement or the SDA such that Plaintiff BakeMark was required to specifically include language showing that the agreements were expressly required to state that employees were not prevented from discussing or disclosing unlawful acts. Accordingly, the allegations that the “confidentiality agreements” violate Labor Code §§ 232 and 232.5 are conclusory because they are not supported by facts.

Furthermore, Defendant Braden also fails to explain how the Confidentiality Agreement violates Labor Code §§ 432.5 and 925.

No employer, or agent, manager, superintendent, or officer thereof, shall require any employee or applicant for employment to agree, in writing, to any term or condition which is known by such employer, or agent, manager, superintendent, or officer thereof to be prohibited by law.

An employer shall not require an employee who primarily resides and works in California, as a condition of employment, to agree to a provision that would do either of the following:

(1) Require the employee to adjudicate outside of California a claim arising in California.

(2) Deprive the employee of the substantive protection of California law with respect to a controversy arising in California.

Provision 10 of the Confidentiality Agreement, entitled “Choice of Law” states: “The laws of the State of California shall govern this Agreement.” (FACC Ex. A.) The FACC fails to explain how this provision violates Labor Code §§ 432.5 and 925. The court agrees that the FACC fails to state a UCL claim in relation to the Confidentiality Agreement.

As to the SDA Agreement, the FACC sufficiently alleges that Braden and other employees were forced to sign the SDA as a condition of employment and that employees who signed the SDA were subject to a non-competition clause that prohibited employees for a period of one year after their termination from competing with BakeMark. The FACC alleges this provision was illegal under Bus. & Prof. Code § 16000 because the SDA did not fit the exceptions outlined in Bus. & Prof. Code §§ 16601 or 16602. (FACC ¶¶ 15, 16, 18.) Moreover, Plaintiff BakeMark fails to point to any facts in the FACC or provision in the SDA to show that signing the SDA was not a condition of employment and was wholly optional.

Accordingly, the court finds that Braden has sufficiently articulated an unlawful business practice to support a UCL claim. Whether the SDA does in fact violate Bus. & Prof. Code § 16600 remains a disputed issue of fact as Braden sufficiently alleges facts that he was not a true “partner” of the business and that Braden did not transfer any shares or interest in BakeMark, but in BMark. (FACC ¶ 18.)

“The statute of limitations under PAGA is one year from the date of the last violation. [Citations.] An alleged aggrieved employee cannot file a PAGA action until after the aggrieved employee exhausts PAGA remedies by filing a notice with the LWDA, and the statute of limitations is tolled up to 65 days to give the LWDA a chance to respond to the notice. (Labor Code, § 2699.3, subds. (a), (d).).” (LaCour v. Marshalls of California, LLC (2023) 94 Cal.App.5th 1172, 1184–1185 (LaCour); see also CCP § 340(a).)

Plaintiffs demur to the third cause of action on the basis that it is barred by PAGA’s one year statute of limitations. Plaintiffs state that because Defendant was terminated in December 2021, to timely file a claim with the Labor & Workforce Development Agency (“LWDA”), Plaintiff must have filed his PAGA notice by December 2022. (FACC ¶ 5.) Plaintiff did not file the notice until March 8, 2023. (FACC ¶ 29(c).)

In Brown v. Ralphs Grocery Co. (2018) 28 Cal.App.5th 824, the plaintiff was terminated from her employment in December 2009, and “to timely pursue PAGA claims for alleged violations occurring during her employment or upon her discharge, plaintiff had until December 2010 to file her PAGA notice” pursuant to CCP § 340(a). (Id. at p. 839.) “Section 2699.3 then gave [the plaintiff] another 93 days, or until March 2011, to amend her complaint to include any PAGA claims. But plaintiff waited until March 2016 to file the 2016 Notice alleging violations of sections 201, 202, 203, 1174, subdivision (d), and 1198 and to seek to file the third amended complaint based on the 2016 Notice. By then, the one-year statute of limitations on her PAGA claims for violations of those provisions had long since run.” (Ibid.)

Pursuant to Brown, Defendant had one year and 65 days to file his LWDA Notice, meaning that he had until February 4, 2023, or March 6, 2023, depending on whether Defendant’s termination date^{^[2]} was December 1, 2023, or December 31, 2023.

However, neither party has considered that under LaCour, Defendant Braden’s PAGA claims may be timely because the Judicial Council’s Emergency Rule 9 tolled the statute of limitations for civil causes of action.

Acting in parallel with the Governor [Newsom’s issuance of Executive Order N-38-20], the Council took a series of steps to ensure courts would remain open and functioning during the COVID-19 crisis. Among them was Emergency Rule 9, adopted on April 6, 2020. Emergency Rule 9 provided as follows: ‘Notwithstanding any other law, the statutes of limitations and repose for civil causes of action that exceed 180 days are tolled from April 6, 2020, until October 1, 2020.’ (Emergency Rule 9, subd. (a).) By its terms, this rule was ‘intended to apply broadly to toll any statute of limitations on the filing of a pleading in court asserting a civil cause of action.’ (Id., Advisory Committee Comment.)

(LaCour, supra, 94 Cal.App.5th at p. 1186.) Defendant Braden’s March 8, 2023, LWDA Notice may be timely given that the statute of limitations was tolled during COVID-19.

The FACC continues to remain deficient because Defendant Braden fails to state that the LWDA notice was timely, fails to state the last date that the violations of Labor Code §§ 232, 232.5, 432.5, and 925 occurred, or the date of Braden’s termination. Without this information, the court cannot ascertain if Braden’s LWDA notice was timely and if Defendant Braden has standing to bring a PAGA claim. Therefore, the demurrer to the first cause of action is sustained with leave to amend.

Plaintiff/Cross-Defendant BakeMark’s demurrer is overruled as to the first and second causes of action and sustained with leave to amend as to the third cause of action.

The court sets an OSC Re: Amended Complaint for January 9, 2024, at 8:30 a.m. BakeMark to give notice.

[1] Pursuant to CCP § 430.41, the meet and confer requirement has been met. (Di Tullio Decl. ¶ 12.)

[2] Defendant does not provide the exact date of his termination in the FACC or when the last date of the Labor Code violation occurred.