Judge Michael T. Smyth, Case Number: 37-2021-00011133-CU-OE-CTL, Date: 2024-05-24 Tentative Ruling

Judge: Michael T. Smyth, Case: 37-2021-00011133-CU-OE-CTL, Date: 2024-05-24 Tentative Ruling

SUPERIOR COURT OF CALIFORNIA,

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HALL OF JUSTICE

TENTATIVE RULINGS - May 23, 2024

05/24/2024 09:00:00 AM C-67 COUNTY OF SAN DIEGO

JUDICIAL OFFICER:Michael T. Smyth

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Civil - Unlimited Other employment Demurrer / Motion to Strike 37-2021-00011133-CU-OE-CTL RAYBURN VS WELK RESORT GROUP INC [IMAGED] CAUSAL DOCUMENT/DATE FILED: Demurrer, 06/26/2023

Defendants Welk Resort Group, Inc. dba Welk Resorts, Member Development, Inc. dba Welk Resort Sales, Inc., and Welk Resort Properties, Inc. dba Welk Resort San Diego's Demurrer is SUSTAINED as to the fifth cause of action without leave to amend. Defendants' request for judicial notice is GRANTED.

All objections are overruled.

1. Request for Judicial Notice Defendants have requested judicial notice of relevant pages from the Agreement and Plan of Merger By and Among Marriott Vacations Worldwide Corporation, Sommelier Acquisition Corp., Champagne Resorts, Inc., Welk Hospitality Group, Inc., and Sellers' Representative (the 'Merger Agreement'). The full Merger Agreement is available as an exhibit to Marriott Vacations Worldwide Corporation's 2021 Form 8-K filing on the U.S. Securities and Exchange Commissions public database. The court finds that the Merger Agreement is judicially noticeable. (See, e.g., StorMedia Inc. v. Super. Ct. (1999) 20 Cal.4th 449, 457, fn. 9 [approving of and taking judicial notice of documents filed with the SEC]; Smiley v. Citibank (1995) 11 Cal.4th 138, 145, fn. 2 [courts may take judicial notice of documents from federal administrative agencies].) Plaintiffs argue that the court should not notice these documents because they are being put forward in support of factual arguments. The court disagrees that there is any factual dispute as to the contents of the Merger Agreement. 'While the truthfulness or proper interpretation of a judicially-noticed document is disputable, [the court] is not persuaded that such a dispute exists here. . . .

[P]laintiffs offer no alternate interpretation of the SEC filing[] and point to no contrary evidence' that would create a dispute as to the Merger Agreement or its legal effect. (Apple Inc. v. Super. Ct. (2017) 18 Cal.App.5th 222, 241-242; cf. People v. Ashford University, LLC (2024) 100 Cal.App.5th 485, 505, fn. 5 [suggesting that a Defendant could have but did not request the trial court take judicial notice of a SEC filing].) The request is granted.

2. Demurrer A demurrer may be sustained upon defects that appear on the face of the pleading or any matter of which the court takes judicial notice. (Code Civ. Proc., § 430.30.) Courts 'treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions, or conclusions of fact or law.' (Sarale v. Pacific Gas & Electric Co. (2010) 189 Cal.App.4th 225, 245.) A demurrer may be sustained where the pleading 'does not state facts sufficient to constitute a cause of action. (Code Civ.

Proc., § 430.10(e).) Plaintiffs fifth cause of action alleges that Defendants' being acquired by Marriott constituted a Calendar No.: Event ID: TENTATIVE RULINGS

3104230 2 CASE NUMBER: CASE TITLE: RAYBURN VS WELK RESORT GROUP INC [IMAGED] 37-2021-00011133-CU-OE-CTL separation of employment under Labor Code section 227.3. Defendants have demurred. As an initial matter, Plaintiffs argue that the court already decided this issue could not be decided at the pleading stage. In its order granting leave to amend, the court stated: 'However, it is true that, at least in some cases, acquisitions do constitute a separation of employment under California law and here, Plaintiff has alleged that Marriott acquired Defendants. The court cannot adequately determine the correctness of the parties' arguments on a motion for leave to amend and will not deny a motion for leave to amend where the defects do not appear on the face of the complaint.' (ROA 106 [Minute Order].) But that order did not preclude Defendants from demurring and requesting judicial notice of documents to support said demurrer. '[A] demurrer may be sustained where judicially noticeable facts render the pleading defective[.]' (Scott v. JPMorgan Chase Bank, N.A. (2013) Cal.App.4th 743, 751.) With the benefit of the judicially noticed Merger Agreement, the court may now properly address the arguments regarding whether Marriott's acquisition constitutes a separation of employment.

Labor Code section 227.3 provides that 'whenever a contract of employment or employer policy provides for paid vacations, and an employee is terminated without having taken off his vested vacation time, all vested vacation shall be paid to him as wages at his final rate in accordance with such contract of employment or employer policy respecting eligibility or time served. . . . [I]n the resolution of any dispute with regard to vested vacation time, shall apply the principles of equity and fairness.' Defendants argue that Marriot's acquisition did not affect any employment relationship or constitute a separation of employment. On April 1, 2021, Marriott acquired the capital stock of Welk Hospitality Group, Inc. (Defendants' parent company). As a result of this transaction, Marriott became the indirect parent company of Defendants. (See ROA 117, RJN, Ex. 1 [Recitals].) Following the equity purchase, Defendants employees remained employed by the same respective entities that employed them before the sale. Marriott did not assume any employment relationship between any of the Defendants and their respective employees through the sale. Defendants argue that because Defendants' employees did not experience a termination of employment, they were not entitled to payment of their accrued vacation or other paid time off at the time of the acquisition. (Lab. Code, § 227.3.) Further, Defendants argue that the statutory mandate to 'apply the principles of equity and fairness' weigh against a contrary finding since neither Plaintiffs nor their putative class suffered any material difference in their employment when Marriott acquired Defendants. The court agrees. Federal law is in accord with this result. (See 26 CFR § 54.4980B-9 [in different legal context '[a] covered employee who continues to be employed by the acquired organization after the sale does not experience a termination of employment as a result of the sale.']) The state case law cited by Plaintiffs is distinguishable in that those cases involved situations, for example, where the facts involved an asset sale rather than an equity sale and 'made it wholly impossible for [plaintiffs] to continue their employment with [the defendant].' (Chapin v. Fairchild Camera and Instrument Corp. (1973) 31 Cal.App.3d 192, 199.) Here, there was an equity rather than asset sale and Plaintiffs remained employed by Defendants.

Further, the court agrees that even if Plaintiffs were correct that the acquisition constituted a separation of employment, the legal question is novel enough that there was at minimum a good faith belief that the equity sale did not result in a termination of employment triggering required payments under the Labor Code. (See Sasone v. Charter Communications, Inc. (S.D. Cal. May 10, 2022) 2022 WL 1478521, *6-*7; Naranjo v. Spectrum Services, Inc. (Cal. May 6, 2024) – P.3d –, 2024 WL 1979980, *1 [objective, good faith belief that employer was attempting to follow Labor Code bars penalties].) While Plaintiff has requested leave to amend, the court cannot see how Plaintiff can cure the fundamental defect that the acquisition did not constitute a separation of employment.

The demurrer is sustained without leave to amend.

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