Judge John J. Kralik, Case 22BBCV00570 2023-01-06 Tentative Ruling

Plaintiff Julia Bucio Garcia (“Plaintiff”) alleges that she was employed by Defendant Elite Auto Parts Co (“Elite”), of which Defendant Richard Diament (“Diament”) was the owner, director, CEO, manager, officer, or managing agent. Plaintiff alleges that she was employed at the auto shop to rebuild motors, take inventory, take order, and to clean. Plaintiff alleges that she took orders directly from Diament. She alleges that she worked Monday through Friday from 7 a.m. to 4 p.m. and on Saturday from 8 a.m. to 2 p.m., but there was no system to punch in/punch out to track her time or her lunch breaks. Plaintiff alleges that on June 6, 2022, she was terminated based on Diament’s inability to continue paying Plaintiff’s salary. Plaintiff alleges she was not paid for the day worked, was not given a warning of her last day, or that she would be let go for the foreseeable future. Plaintiff alleges that she worked overtime and did not take breaks when mandated by law.

Plaintiff also alleges that she entered into loan agreements with Defendants whereby she loaned Defendants $10,000 and allowed Defendant to use her credit card so that Defendants could buy equipment. Plaintiff alleges that Defendants did not pay her back on the full amount of the loan.

The complaint, filed August 9, 2022, alleges causes of action for: (1) violation of Labor Code § 510 (overtime pay); (2) violation of Labor Code § 1197 (minimum wage); (3) violation of Labor Code § 204 (paid wages in timely fashion); (4) violation of Labor Code § 226(a) (itemized wage); (5) violation of Labor Code §§ 201 and 202 (wages need to be paid at time of termination; (6) violation of Labor Code §§ 2800 and 2802 (reimburse necessary expenditures); (7) violation of Labor Code § 558.1 (unpaid minimum wage); (8) unfair business practices in violation of Business & Professions Code § 17200 et seq. (unfair competition law); (9) breach of contract; (10) breach of implied covenant of good faith and fair dealing; (11) conversion; (12) unjust enrichment; and (13) failure to permit inspection of personnel and payroll records, Labor Code §§ 1198.5 and 226(c).

On October 28, 2022, Defendants Elite and Diament (“Defendants”) filed a demurrer and motion to strike portions of the complaint.

Defendants demur to the 9^th, 10^th, 11^th, and 12^th causes of action alleged in the complaint.

The essential elements of a cause of action for breach of contract are: “(1) the existence of the contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and (4) the resulting damages to plaintiff.” (Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 821.) “An oral contract may be pleaded generally as to its effect, because it is rarely possible to allege the exact words.” (Khoury v. Maly's of California, Inc. (1993) 14 Cal.App.4th 612, 616.)

In the 9^th cause of action, Plaintiff alleges that she and Defendant entered into: (1) the first written contract on December 17, 2021 following written consent in the form of a text for the first loan and (2) the second verbal contract for a second loan in April 2022. (Compl., ¶85.) She alleges that on June 17, 2021, Defendant asked Plaintiff for a $10,000 loan over text and she loaned Defendant $10,000 upon the agreement that Defendant would pay her back at the rate of $500 a week and $1,000 in interest. (Id., ¶86, Ex. A.) She also alleges that around April 2022, Defendant asked Plaintiff if she could use her credit card to buy industrial washers and machinery for Elite and Defendant orally agreed to pay her back. (Id., ¶87, Ex. B.) Plaintiff alleges that before payments could be discussed, she was fired and that Defendant owed her nearly $33,000. (Id., ¶88.) Plaintiff alleges that Defendant gave her checks ranging from $1,700 to $3,400 from January 2022 to May 2022, but that they were never cashed because there was no balance behind the checks and the checks bounced each time. (Id., ¶89, Ex. C.) Plaintiff alleges that she performed on the oral agreement by giving Defendant $10,000 cash on the first loan and purchasing machinery with respect to the second. (Id., ¶90.) She alleges that Defendant breached the agreement because he did not pay her back on the first loan or the interest, nor for the machinery purchase in April 2022. (Id., ¶91.) She alleges damages in the amount of $33,000. (Id., ¶92.)

Defendants demur to the 1^st cause of action arguing that Plaintiff has not alleged sufficient facts regarding the two agreements at issue.

Here, the material terms of the first loan are adequately alleged. For example, Plaintiff alleges that the parties agreed that Plaintiff would loan Defendant $10,000 and that Defendant would pay back $500 a week on the loan, including $1,000 in interest. According to the text message by “Nuevo Num Del Jefe” (which Plaintiff alleges was from Defendant), Defendant texted Plaintiff: “Necesito $9500 lo siento si lo pudes prestarmelo y voy a pagarte $500/semana y $1000 interest?” (Compl., Ex. A.)[1]

With respect to the second loan, the terms are a bit uncertain. Plaintiff alleges that she purchased equipment on behalf of Elite on her credit card and that the parties agreed that Defendant would pay her back. (Compl., ¶87.) However, she states that the parties only began discussing when repayment would occur, but did not reach the terms of the agreement because she was fired. (Id., ¶¶87-88.) Further facts as to the nature of the agreement should be provided, such as whether the terms of the second agreement were the same as the first agreement, if interest was to be paid on the second agreement, etc.

As such, the demurrer to the 9^th cause of action is sustained with leave to amend. To clarify the pleadings, Plaintiff should separate her 9^th cause of action into two separate causes of action—one regarding the $10,000 loan and one regarding the credit card charge to purchase Elite’s equipment—as there are two different agreements and two separate breaches alleged.

B. 10^th cause of action for Breach of implied covenant of good faith and fair dealing

As to the breach of the implied covenant, every contract imposes on each party a duty of good faith and fair dealing in each performance and in its enforcement. (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1393.) A breach of the implied covenant of good faith and fair dealing involves something beyond breach of the contractual duty itself; further, bad faith implies unfair dealing rather than mistaken judgment. (Id. at 1394.) As a result, allegations that assert such a breach of the implied covenant must show that the conduct of the defendant, whether or not it also constitutes a breach of a consensual contract term, demonstrates a failure or refusal to discharge contractual responsibilities, prompted not by an honest mistake, bad judgment or negligence but rather by a conscious and deliberate act, which unfairly frustrates the agreed common purposes and disappoints the reasonable expectations of the other party thereby depriving that party of the benefits of the agreement. (Id. at 1395.) If the allegations do not go beyond the statement of a mere contract breach and, relying on the same alleged acts, simply seek the same damages or other relief already claimed in a companion contract cause of action, they may be disregarded as superfluous as no additional claim is actually stated. (Id.) The covenant cannot be endowed with an existence independent of its contractual underpinnings. (Guz v. Bechtel Nat. Inc. (2000) 24 Cal.4th 317, 349.)

In the 10^th cause of action, Plaintiff alleges that Defendants Elite and Diament breached the implied covenant by unfairly interfering with her right to receive the benefits of the written agreement #1 (for the principal loan amount of $10,000, plus interest) and oral agreement #2 (the oral agreement regarding the purchase of machinery for Elite’s business, plus interest). (Compl., ¶96.) Plaintiff alleges that Defendants breached the implied covenant by actively attempting to avoid paying Plaintiff any interest or principal amounts due under any agreement. (Id.)

Defendants argue that because the 9^th cause of action fails, the 10^th cause of action also fails. For the reasons discussed above, the Court sustains the demurrer to the 10^th cause of action with leave to amend.

Further, a breach of implied covenant cause of action must be based on something beyond the breach of the contractual duty itself. As currently alleged, the 10^th cause of action essentially alleges the same facts as the 9^th cause of action. This is another reason to sustain the demurrer to the 10^th cause of action with leave to amend.

In the 11^th cause of action, Plaintiff alleges that she is the owner of the loaned $33,000 that was used to fulfill the contract made between Plaintiff and Defendants. (Compl., ¶101.) She alleges that Defendant completely failed and/or refused to account for the use of her funds and has failed/refused to return any of her funds. (Id., ¶102.) Plaintiff alleges that Defendant had no right to the $33,000 and that she is now without the funds. (Id., ¶¶102-103.)

Plaintiff delivered the $10,000 in funds to Defendants in performance of her contractual obligations with Defendants, in exchange the benefit of receiving the funds back with interest. In addition, she used her credit card to purchase equipment for Defendants upon the loose agreement that she would be reimbursed. However, a mere contractual right of payment will not suffice to plead a claim for conversion. (Plummer v. Day/Eisenberg, LLP (2010) 184 Cal.App.4th 38, 45.)

Defendants argue that Plaintiff has also not alleged any facts that Defendants retained possession of the tools/equipment that Plaintiff purportedly purchased on Elite’s behalf. A review of the complaint shows that such facts are lacking. However, it should be noted that Plaintiff’s claim of conversion is based on a sum of money and not on the possession of equipment. Regardless, the second claim for money ($23,000) based on Plaintiff’s purchase of equipment for Elite still runs into the same issues as discussed above.

Defendants move to strike Exhibits A to D of the complaint, Plaintiff’s alter ego and joint employer allegations, and the prayer for punitive and liquidated damages.

Defendants move to strike Exhibits A to D, arguing that Plaintiff has failed to plead the existence of two agreements. This will not be a reason to strike the Exhibits as the Court has given Plaintiff leave to amend the 9^th and 10^th causes of action. Further, the Exhibits are relevant evidence to show the parties’ formation of a possible agreement and the circumstances surrounding the purported agreements. The motion to strike Exhibits A to D is denied. However, as noted above, the Exhibits lack certified English translations. Upon amendment of the complaint, Plaintiff should provide English translations of the documents with the corresponding Exhibits.

Defendants move to strike the alter ego and joint employer allegations in the complaint.

The alter ego doctrine is used to hold the persons controlling the corporation liable for the acts of the corporation when the persons are using the corporate form to perpetrate a fraud, circumvent a statute, or accomplish some other wrongful or unequitable purpose. (Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 538.) Bare conclusory allegations that a corporation is an alter ego of an individual is insufficient to justify the court in disregarding the corporate entity in the absence of allegations of facts from which it appears that justice cannot otherwise be accomplished. (Vasey v. Cal. Dance Co. (1977) 70 Cal.App.3d 742, 749.) To succeed on a cause of action to disregard the corporate form, the plaintiff must “…plead and prove such a unity of interest and ownership that the separate personalities of the corporation and the individuals do not exist, and that an inequity will result if the corporate entity is treated as the sole actor.” (Id.) While the plaintiff may not have alleged specific facts to support an alter ego theory, the plaintiff is only required to allege “ultimate rather than evidentiary facts.” (Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 235-236 [finding sufficient to withstand a demurrer, allegations stating that “… Caswell dominated and controlled PDR; that a unity of interest and ownership existed between Caswell and PDR; that PDR was a mere shell and conduit for Caswell's affairs; that PDR was inadequately capitalized; that PDR failed to abide by the formalities of corporate existence; that Caswell used PDR assets as her own; and that recognizing the separate existence of PDR would promote injustice.”].) There is no legal requirement for specific or particular factual allegations in a pleading because the alter ego doctrine is used “when the equities and justice of the situation call for it.” (First Western Bank & Trust Co. v. Bookasta (1968) 267 Cal.App.2d 910, 915.)

Defendants argue that the allegations are mere recitations of the law regarding alter ego and lack any supporting facts. However, ultimate facts are sufficient for an alter ego allegation and there is no requirement to plead facts with particularity. In the complaint, Plaintiff has a section entitled “ALTER EGO, AGENCY AND JOINT EMPLOYER” from paragraphs 18 to 21. Plaintiff alleges that Elite and Diament are alter egos of the another because Elite is completely dominated and controlled by Diament, who personally committed the frauds and violated the law but is currently hiding behind Elite; Diament derives actual and significant monetary benefits from Elite; Defendants are really one and the same; Defendants do not comply with the requisite corporate formalities; and Defendants’ business affairs are mixed and intermingled and cannot reasonably be segregated. (Id., ¶19.) The alter ego allegations are sufficient.

With respect to the joint employer allegations in paragraph 21, Plaintiff alleges upon information and belief that Elite and Diament are joint employers by virtue of their joint enterprise and that she was employed by both Defendants. She alleges that she performed services for both Defendants to the mutual benefits of Defendants. (Compl., ¶21.) She also alleges that was employed by both Elite and Diament and took orders directly from Diament. (Id., ¶6, 23.)

A complaint including a request for punitive damages must include allegations showing that the plaintiff is entitled to an award of punitive damages. (Clauson v. Superior Court (1998) 67 Cal.App.4th 1253, 1255.) A claim for punitive damages cannot be pleaded generally and allegations that a defendant acted "with oppression, fraud and malice" toward plaintiff are insufficient legal conclusions to show that the plaintiff is entitled to an award of punitive damages. (Brousseau v. Jarrett (1977) 73 Cal.App.3d 864, 872.) Specific factual allegations are required to support a claim for punitive damages. (Id.)

Civil Code § 3294 authorizes a plaintiff to obtain an award of punitive damages when there is clear and convincing evidence that the defendant engaged in malice, oppression, or fraud. Section 3294(c) defines the terms in the following manner:

(1) "Malice" means conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others.

(2) "Oppression" means despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person's rights.

(3) "Fraud" means an intentional misrepresentation, deceit, or concealment of a material fact known to the defendant with the intention on the part of the defendant of thereby depriving a person of property or legal rights or otherwise causing injury.

In the prayer for damages at paragraph 11, Plaintiff seeks punitive damages to punish Defendant and deter others from engaging in similar misconduct. (Compl., at p.22.) A review of the complaint shows that the allegations for punitive damages have not been pled with the requisite specificity or particularity. The allegations of the complaint fail to allege what actions by Defendants constituted malice, oppression, and/or fraud.

In opposition, Plaintiff argues that the heightened pleading standard is based on old case law, but Plaintiff has not cited any recent case law deviating from this heightened pleading standard.

The motion to strike the allegations for punitive damages is granted with leave to amend.

In the prayer for damages at paragraph 7, Plaintiff seeks liquidated damages pursuant to Labor Code, § 1194.2. (Compl., at p.21.)

(a) In any action under Section 98, 1193.6, 1194, or 1197.1 to recover wages because of the payment of a wage less than the minimum wage fixed by an order of the commission or by statute, an employee shall be entitled to recover liquidated damages in an amount equal to the wages unlawfully unpaid and interest thereon. Nothing in this subdivision shall be construed to authorize the recovery of liquidated damages for failure to pay overtime compensation. A suit may be filed for liquidated damages at any time before the expiration of the statute of limitations on an action for wages from which the liquidated damages arise.

(b) Notwithstanding subdivision (a), if the employer demonstrates to the satisfaction of the court or the Labor Commissioner that the act or omission giving rise to the action was in good faith and that the employer had reasonable grounds for believing that the act or omission was not a violation of any provision of the Labor Code relating to minimum wage, or an order of the commission, the court or the Labor Commissioner may, as a matter of discretion, refuse to award liquidated damages or award any amount of liquidated damages not exceeding the amount specified in subdivision (a).

Defendants argue that liquidated damages are inappropriate in this case because Plaintiff has not alleged a minimum wage violation as required by section 1194.2.

The 2^nd cause of action for failure to pay minimum wages cites only to Labor Code, § 1197, but not section 11971.1. (See Compl., at p.9.) The complaint cites to sections 1194 and 1194.2 with Plaintiff’s request for recovery of unpaid minimum wage compensation and liquidated damages. (Id., ¶51.)

Although Plaintiff has not cited to section 1197.1, Plaintiff has alleged a cause of action based on minimum wage. Section 1197 generally states that any payment lower than the minimum wage is unlawful, while section 1197.1 provides the statutory ground for employees to seek wages and liquidated damages from their employers for being paid less than minimum wage. Although the sections that Plaintiff is referring to could be implied, Plaintiff should cite the appropriate sections upon amendment in support of the liquidated damages request.

The motion to strike the allegations for liquidated damages is granted with leave to amend.

Defendants Elite Auto Parts co and Richard Diament’s demurrer to the complaint is sustained with 20 days leave to amend as to the 9^th, 10^th, and 11^th causes of action. The demurrer is sustained without leave to amend as to the 12^th cause of action.

Defendants’ motion to strike the allegations for punitive and liquidated damages is granted with 20 days leave to amend. The remainder of the motion to strike is denied.

The Court sets a mandatory settlement conference in this matter for May 26, 2023 at 10:00 a.m.

[1] The Court notes that no certified translation of this text message has been provided. Upon amendment, certified translations of the exhibits should be provided.

Superior Court of California

County of Los Angeles

Department B