Judge: James L. Crandall, Case: 19-1085676, Date: 2022-10-13 Tentative Ruling
Motion for Summary Judgment and/or Adjudication
The motion for summary adjudication by Defendants Eric Y. Waki, M.D. and Associated Head and Neck Surgeons of Greater Orange County, Inc. (AHNS) as to the 2nd and 3rd causes of action in Plaintiff’s Fourth Amended Complaint is DENIED.
Plaintiff’s objections to exhibits attached to the declaration of Defendant Waki, filed under ROA 374, are overruled.
Plaintiff’s objections to the declaration of George Burns, filed under ROA 375, are overruled.
Plaintiff’s objections to the declaration of Defendant Waki, filed under ROA 376, are overruled.
Defendants’ objections to Plaintiff’s declaration are sustained as to the legal conclusion in paragraph 2 that Plaintiff was an independent contractor, and the remaining objections are overruled.
“[T]he 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.11 That is because of the general principle that a party who seeks a court's action in his favor bears the burden of persuasion thereon. (See Evid.Code, § 500.) There is a triable issue of material fact if, and only 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.”
(Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850.)
Code of Civil Procedure section 437c(p)(2) states,
“A defendant or cross-defendant has met his or her burden of showing that a cause of action has no merit if the party has shown that one or more elements of the cause of action, even if not separately pleaded, cannot be established, or that there is a complete defense to the cause of action. Once the defendant or cross-defendant has met that burden, the burden shifts to the plaintiff or cross-complainant to show that a triable issue of one or more material facts exists as to the cause of action or a defense thereto. The plaintiff or cross-complainant shall not rely upon the allegations or denials of its pleadings to show that a triable issue of material fact exists but, instead, shall set forth the specific facts showing that a triable issue of material fact exists as to the cause of action or a defense thereto.”
Here, Defendants move for summary adjudication of the second and third causes of action in Plaintiff’s fourth amended complaint.
Second Cause of Action – Conversion
Regent Alliance Ltd. v. Rabizadeh (2014) 231 Cal.App.4th 1177, 1181, holds:
“Conversion is generally described as the wrongful exercise of dominion over the personal property of another.[Citation.] The basic elements of the tort are (1) the plaintiff's ownership or right to possession of personal property; (2) the defendant's disposition of the property in a manner that is inconsistent with the plaintiff's property rights; and (3) resulting damages. [Citation.]” (Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 119, 55 Cal.Rptr.3d 621.)
“Conversion is a strict liability tort. The foundation of the action rests neither in the knowledge nor the intent of the defendant. Instead, the tort consists in the breach of an absolute duty; the act of conversion itself is tortious. Therefore, questions of the defendant's good faith, lack of knowledge, and motive are ordinarily immaterial.” (Burlesci v. Petersen (1998) 68 Cal.App.4th 1062, 1066, 80 Cal.Rptr.2d 704.)”
In the fourth amended complaint, Plaintiff alleges Defendants “collected Plaintiffs earned revenue, kept it, and refused to pay it to Plaintiff, as provided int eh Profit-Sharing Agreement,” with total damages of $765,415.00. (¶¶ 42-43.)
Plaintiff also alleges Defendants have taken control of company property including computers, software, files, operating income and bank accounts, and medical billing. (¶ 44.)
Defendants’ motion states, “This court should grant summary adjudication on the second cause of action for conversion because Dr. Kim did not personally own any of the property which he alleges was converted by defendants.” (Motion, p. 4.)
Defendants’ separate statements of undisputed facts, supported by the declaration of Defendant Waki, states that Defendant AHNS owns all of its medical equipment, files, bank accounts, billings, accounts receivables, financial books and records, computers, and software. (Defendants’ Facts 3-11.)
However, Plaintiff disputes that AHNS owned all of the billings and accounts receivables which are the subject of his conversion claim. (Plaintiff’s Response to Defendant’s Facts 6 and 7.)
Plaintiff declares that, although AHNS owned its assets, AHNS refused to pay him for salary, profit-sharing, and receivables for 12/31-18 – 1/31/19, net profits for the calendar year 2018, and patient accounts receivable, totaling $667,948.00. (Kim Decl., ¶¶ 10, 39, 50.)
There is a triable issue of material fact regarding whether Plaintiff had a right of possession of payment for his services in the amounts specified in paragraph 39 and 50 of the declaration of Plaintiff Kim. Therefore, the motion is denied as to the grounds raised in the motion.
Defendants raise additional grounds for the motion in reply, which were not raised in the moving papers. In reply, Defendants contend that contract damages cannot be the subject of a cause of action for conversion under Voris v. Lampert (2019) 7 Cal. 5th 1141, 1156 (Voris). (Reply, pp. 1-4.)
The court may disregard grounds for the motion raised for the first time in reply. (See Luri v. Greenwald (2003) 107 Cal.App.4th 1119, 1128.) However, the Court will exercise its discretion to consider Defendants’ new argument.
Voris, supra, 7 Cal.5th at 1152, states:
“[C]ases recognizing claims for the conversion of money “typically involve those who have misappropriated, commingled, or misapplied specific funds held for the benefit of others.” (PCO, supra, 150 Cal.App.4th at p. 396, 58 Cal.Rptr.3d 516.) For instance, one California court has held that a real estate agent may be liable for conversion where he had accepted commissions on behalf of himself and a business partner, but refused to give the partner his share. (Sanowicz, supra, 234 Cal.App.4th at p. 1042, 184 Cal.Rptr.3d 517.) Another has held that a sales agent may be liable for the conversion of proceeds from a consignment sale where the agent did not remit any portion of the proceeds to the principal seller. (Fischer, supra, 50 Cal.App.4th at pp. 1072–1074, 58 Cal.Rptr.2d 213.) And another has held that a client may be liable to an attorney for conversion of attorney fees received as part of a settlement, where a lien established the attorney's ownership of the fees in question. (Weiss v. Marcus (1975) 51 Cal.App.3d 590, 599, 124 Cal.Rptr. 297 (Weiss).)
[¶]. . .[¶]
Here, Voris claims a right to money that did once exist, but which he believes was squandered. At least in such cases, Voris argues, the nonpayment of wages should be treated as a conversion of property, not as a failure to satisfy a “ ‘mere contractual right of payment.’ ” (Sanowicz, supra, 234 Cal.App.4th at p. 1041, 184 Cal.Rptr.3d 517.) But to accept this argument would require us to indulge a similar fiction: namely, that once Voris provided the promised services, certain identifiable monies in his employers’ accounts became Voris's personal property, and by failing to turn them over at the agreed-upon time, his employers converted Voris's property to their own use.”
In Voris, the Supreme Court further explained that the Labor Code already provides an extensive framework for employer’s liability for nonpayment of wages. (Id. at 1157-1162.)
Here, unlike Voris, Plaintiff has identified a specific sum of money which Plaintiff alleges he earned by treating patients but which Defendants have failed to turn over after the medical practice dissolved. Voris is distinguishable because this is not a garden-variety wage claim, and Plaintiff has identified a specific sum, i.e. revenues arising from his treatment of patients, which Plaintiff declares has been improperly withheld by Defendants.
The motion is therefore denied as to the second cause of action.
Third Cause of Action – Failure to Pay Wages and Penalties
Plaintiff’s third cause of action is for failure to pay wages and compensation including profit sharing in violation of Labor Code section 200 et seq.
Defendants contend this cause of action isn’t viable because Plaintiff wasn’t an “employee” of Defendants under Labor Code section 2783 and S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 (Borello). (Defendants’ Undisputed Facts 19-41.)
Labor Code section 2783 states in part:
“Section 2775 and the holding in Dynamex do not apply to the following occupations as defined in the paragraphs below, and instead, the determination of employee or independent contractor status for individuals in those occupations shall be governed by Borello:
[¶]. . .[¶]
(b) A physician and surgeon, dentist, podiatrist, psychologist, or veterinarian licensed by the State of California pursuant to Division 2 (commencing with Section 500) of the Business and Professions Code, performing professional or medical services provided to or by a health care entity, including an entity organized as a sole proprietorship, partnership, or professional corporation as defined in Section 13401 of the Corporations Code. Nothing in this subdivision shall circumvent, undermine, or restrict the rights under federal law to organize and collectively bargain.”
Here, it is undisputed that Plaintiff is a physician and surgeon who provided medical services at AHNS. (Defendant’s Undisputed Facts 20-22.) Therefore, the Court will apply the Borello factors to determine if there is a triable issue as to whether Plaintiff was Defendants’ employee.
Borello, supra, 48 Cal.3d at 350-351 states:
“Thus, we have noted that “[s]trong evidence in support of an employment relationship is the right to discharge at will, without cause. [Citations.]” (Tieberg, supra, 2 Cal.3d at p. 949, quoting Empire Star Mines, supra, 28 Cal.2d at p. 43.) Additional factors have been derived principally from the Restatement Second of Agency. These include (a) whether the one performing services is engaged in a distinct occupation or business; (b) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision; (c) the skill required in the particular occupation; (d) whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work; (e) the length of time for which the services are to be performed; (f) the method of payment, whether by the time or by the job; (g) whether or not the work is a part of the regular business of the principal; and (h) whether or not the parties believe they are creating the relationship of employer-employee. (Tieberg, supra, at p. 949; Empire Star Mines, supra, 28 Cal.2d at pp. 43-44; see Rest.2d Agency, § 220.) (4a) “Generally, ... the individual factors cannot be applied mechanically as separate tests; they are intertwined and their weight depends often on particular combinations.” (Germann, supra, 123 Cal.App.3d at p. 783.)”
It is undisputed that Plaintiff provided medical services to AHNS patients at his discretion and using his own judgment, without supervision. (Defendant’s Undisputed Fact 22.)
Defendants rely on the unsigned Group Physician Recruitment Agreement, which Plaintiff testified at his deposition was his employment agreement with AHNS and St. Jude Medical Center. (Waki Decl., Exhibit 1; Burns Decl., Exhibit 6.) Paragraph 5.1 of the Group Physician Recruitment Agreement states, “it is mutually understood and agreed that Group and Physician are at all times acting and performing as independent contractors…”
Defendant Waki declares that in 2014, Plaintiff joined the practice through the Group Physician Recruitment Agreement, and in January 2016, Plaintiff became a 25% owner of Defendant AHNS. (Waki Decl., ¶ 2.)
Plaintiff declares that he entered the Group Physician Recruitment Agreement in 2014 but that he worked exclusively for AHNS commencing July 2014 and that he only received one check from St. Jude and cancelled all future checks, and paid the hospital back in 2015. (Kim Decl., ¶ 15.)
Plaintiff declares, “I did not have any contract with AHNS Corporation that identified me as an independent contractor during my employment. In fact, I received W-2 statements every year for wages earned and taxes paid.” (Kim Decl., ¶ 4.)
Plaintiff further declares he was never issued a form 1099 from Defendants and that, “The agreement we had for earnings was a profit-sharing agreement which was shared by the four physicians, and allocated as actual wages: salary and bonus based on a comprehensive profit-sharing plan of earned revenue by each physician paid to the corporation.” (Id. at ¶ 5.)
Plaintiff also declares, “The corporation controlled everything including new patient intake, billing for services performed by its physician employees, collection of services performed by its physician employees, payment of all employee expenses, payment of all employees for services rendered, payment of business operating expenses, controlled all patient Software, control all billing Software, and collected all revenue earned by the corporation. The revenue collected by the corporation was used to pay all overhead, and distributed to each physician as wages consisting of a salary and profit sharing of revenue earned by each physician.” (Kim Decl., ¶ 14.)
Plaintiff’s W-2 statement for 2018 reflects AHNS as the employer, Plaintiff as the employee, and shows state and federal taxes were withheld by the employer from Plaintiff’s gross pay of approximately $525,000. (Kim Decl., Exhibit 1.)
Plaintiff also relies on the AHNS 401(k) profit sharing plan which reflects AHNS as the “employer” and lists Plaintiff and the other physicians as “employees.” (Kim Decl., Ex. 2.)
Applying the Borello factors to the foregoing evidence, there is a dispute of material fact as to whether was an “employee” of Defendants who may pursue a wage claim under the Labor Code. Plaintiff was a specialist physician with a high degree of skill working without supervision. However, Defendants provided Plaintiff’s regular place of work, except for surgeries which were performed at hospitals, from 2014 to 2019. Plaintiff received payment from AHNS using form W-2, not form 1099, with taxes withheld by AHNS as the employer. There is conflicting evidence as to whether the parties’ intent was to create an independent contractor or employer/employee relationship.
While the Group Physician Recruitment Agreement reflects Plaintiff being hired as an independent contractor, the primary purpose of this agreement appears to have been obtaining a loan from St. Jude Medical Center to assist in covering the costs of recruiting Plaintiff to practice in the hospital’s service area, not to define Plaintiff’s relationship with ANHS. Moreover, there is a triable issue as to whether the Group Physician Recruitment Agreement continued to apply after 2015, once Plaintiff terminated the agreement with St. Jude and became a shareholder of AHNS.
Therefore, the motion is denied as to the third cause of action.
Plaintiff to give notice.
Future hearing dates
10/14/22 – MSC
10/31/22 – Jury Trial
12/8/22 – Mtn. for Attorney Fees