Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_06-cv-07611/USCOURTS-cand-5_06-cv-07611-0/pdf.json

Nature of Suit Code: 710
Nature of Suit: Fair Labor Standards Act
Cause of Action: 29:201 Fair Labor Standards Act

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28 1 The holding of this court is limited to the facts and the particular circumstances

underlying the present motion.

ORDER, page 1

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

TIAN-RUI SI, MAO-TIN SUN,

Plaintiffs,

v.

CSM INVESTMENT CORP., DBA

DARDA SEAFOOD RESTAURANT,

SHIH-KWEI CHEN & DOES 1 TO 10,

Defendants. __________________________________

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Case No.: C- 06-7611 PVT

ORDER GRANTING IN PART AND

DENYING IN PART MOTION TO

DISMISS FIRST AMENDED

COMPLAINT AND REFERRING CASE

FOR EARLY JUDICIAL SETTLEMENT

CONFERENCE

I. INTRODUCTION AND FACTUAL BACKGROUND

Plaintiffs Tian-Rui Si (“Si”) and Mao-Tin Sun (“Sun”, collectively “Plaintiffs”) brought

this action alleging failure to pay overtime as required by the California Labor Code and the Fair

Labor Standards Act (“FLSA”, 29 U.S.C. § 201 et seq.).1

 Plaintiffs were cooks of Defendant

CSM Investment Corp., dba Darda Seafood Restaurant (“CSM”). Defendant Shih-Kwei Chen is

the Manager at Darda Seafood Restaurant. 

On March 28, 2007, Defendants filed a Motion to Dismiss, setting the hearing date for

May 8, 2007. On April 17, 2007, Plaintiffs filed a First Amended Complaint (“FAC”) and an

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 2The original complaint alleged that plaintiffs’ employment was subject to FLSA by virtue of

their direct engagement in interstate commerce. The FAC adds “or in production of goods for

commerce or by their employment with defendant CSM Investment Corp. who was, at all times

relevant, an enterprise engaged in commerce or in the production of goods for commerce as

defined by 29 U.S.C. §203(s). 

 3

At 11:23 p.m. on May 7, 2007, Defendants filed Objections to Plaintiff’s Supplemental

Brief. Because this brief was filed without permission, the Court has not considered the brief. 

ORDER, page 2

Opposition to Defendant’s Motion to Dismiss the original Complaint, but addressing facts

alleged in the FAC. The FAC is substantially similar to the original Complaint. The only

differences are: 1) the FAC does not contain paragraph 11 of the original complaint, asserting

that Defendant Chen is the alter ego of Defendant CSM; and 2) paragraph 20 of the FAC (21 of

the original complaint) contains a more detailed allegation of jurisdiction under the FLSA.2

 

On March 24, 2007, Defendants filed a Motion to Dismiss the First Amended Complaint

and a Stipulation to shorten time so that the Motion to Dismiss the First Amended Complaint

could be heard on the same day as the Motion to Dismiss the original Complaint. The

Stipulation stated that no new issues would be raised in the Reply Brief. On May 1, 2007, the

Court granted Plaintiff’s request to file a supplemental brief to address a new issue raised in the

Reply Brief.3

 

Individual Defendant Chen moves to dismiss the state law claims (counts one, three, four

and five), arguing that individuals cannot be sued under the state law alleged. Defendants also

move to dismiss: 1) under Rule 12(b)(1), for lack of subject matter jurisdiction; 2) under

12(b)(3), for improper venue; 3) under 12(b)(6), for failure to state a claim . Finally, Defendants

also ask the court to convert the motion to one for summary judgment and grant it based on

Plaintiffs’ failure to rebut their evidence with competent declarations. 

II. DISCUSSION

A. Defendant Chen’s Motion to Dismiss State Law Claims

Defendants move to dismiss all the state claims because Defendant Chen is not properly

named as a defendant under California law. Plaintiffs conceded at the hearing that individual

managers cannot be held liable under California law. See Reynolds v. Bement, 36 Cal.4th 1075,

1087 (2005) (no individual liability under section 1194 for failure to pay minimum wage or

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 4Defense counsel moved on behalf of the Doe Defendants. Because the Doe Defendants have

not yet been identified, they are not represented by Defense counsel and no motion is properly

before the courts on the basis of the Doe Defendants.

ORDER, page 3

overtime). Accordingly, the motion is granted as to Defendant Chen.4

 However, the dismissal

only applies to Defendant Chen, the state counts remain against Defendant CSM.

B. Motion to Dismiss for Lack of Jurisdiction

1. Legal Standards for Motion to Dismiss under Rule 12(b)(1)

Rule 12(b)(1) allows this Court to dismiss a claim for lack of jurisdiction. “It is a

fundamental principle that federal courts are courts of limited jurisdiction.” Owen Equip. &

Erection Co. v. Kroger, 437 U.S. 365, 374 (1978). Thus, the plaintiff bears the burden of

establishing subject matter jurisdiction. Scott v. Breeland, 792 F.2d 925, 927 (9th Cir. 1986). 

When a defendant challenges the factual existence of jurisdiction, as opposed to the sufficiency

of the allegations in the complaint, the Court may properly consider facts outside of the

complaint, can evaluate disputed facts to determine jurisdiction, and need not assume the

truthfulness of the allegations in the complaint. Doe v. Schacter, 804 F. Supp. 53, 56 (N.D. Cal.

1992), citing Thornhill Pub. v. General Tel. & Elec. Corp., 594 F.2d 730, 733-35 (9th Cir.

1979). However, “where the jurisdictional issue and substantive issues are so intertwined that

the question of jurisdiction is dependent on the resolution of factual issues going to the merits,

the jurisdictional determination should await a determination of the relevant facts on either a

motion going to the merits or at trial.” Doe, 804 F. Supp at 57. 

In this case, the Defendants are challenging the existence of jurisdiction, not merely the

sufficiency of the allegations. Whether CSM is covered by the FLSA depends on whether it

qualifies as an enterprise handling goods that have been moved in interstate commerce. This

issue is separate from the issues of how many hours Plaintiffs worked and what compensation

they received. Accordingly, the court may properly make a factual determination as to

jurisdiction. Jurisdiction is not defeated “by the possibility that the averments might fail to state

a cause of action” and a dismissal for want of jurisdiction is only appropriate where the claim

“clearly appears to be immaterial and made solely for the purpose of obtaining jurisdiction or

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ORDER, page 4

where such a claim is wholly insubstantial and frivolous.” Bell v. Hood, 327 U.S. 678, 682-83 

(1946). 

2. Definition of Covered Employer Under FLSA

The maximum hour and overtime provisions of the FLSA apply to any employee

who:

is engaged in commerce or in the production of goods for commerce, or is

employed in an enterprise engaged in commerce or in the production of goods for

commerce.

29 U.S.C. § 207. 

 The FLSA defines “commerce”as: 

trade, commerce, transportation, transmission, or communication among the

several States or between any State and any place outside thereof.

29 U.S.C. § 203 (b). 

The FLSA defines “Enterprise” as:

the related activities performed (either through unified operation or common

control) by any person or persons for a common business purpose, and includes

all such activities whether performed in one or more establishments or by one or

more corporate or other organizational units including departments of an

establishment operated through leasing arrangements, but shall not include the

related activities performed for such enterprise by an independent contractor. 

29 U.S.C. § 203(r)(1).

The FLSA defines an “Enterprise engaged in commerce or in the production of goods for

commerce” as 

an enterprise that--

(A)(i) has employees engaged in commerce or in the production of goods for

commerce, or that has employees handling, selling, or otherwise working on

goods or materials that have been moved in or produced for commerce by any

person; and

(ii) is an enterprise whose annual gross volume of sales made or business done is

not less than $500,000 (exclusive of excise taxes at the retail level that are

separately stated).

29 U.S.C. § 203(s)(1) (emphasis added). Additionally, the act should be interpreted in light of

its purpose “to extend federal control in this field throughout the farthest reaches of the channels

of interstate commerce.” Overstreet v. North Shore Corp., 318 U.S. 125, 128 (1943) (citation

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ORDER, page 5

omitted). 

Defendants have not challenged the annual gross volume of sales requirement. Instead,

Defendants assert no engagement in commerce by any employees and dispute that CSM qualifies

as an “enterprise.” 

3. Individual Employee Coverage

Defendants argue that the Plaintiffs do not meet the individual “engaged in commerce”

test in their jobs as cooks. Plaintiffs argue that their employment was directly engaged in

commerce because they prepared food eaten by interstate travelers and used supplies that must

have been moved in commerce. Defendants submitted a declaration from Defendant Chen 

stating that all suppliers for the restaurant have been in California and that he lacked personal

knowledge of the sources of his suppliers. (Chen Decl. ¶ 6.) Plaintiffs argue that defendant’s

employees do not have to move the goods, they just need to be involved with “handling, selling,

or otherwise working on goods or materials that have been moved in or produced for commerce

by any person” 29. U.S.C. § 203(s)(1)(A)(i.) That section, however, defines an enterprise

engaged in commerce. 

The definition for individual coverage requires that the employee “is engaged in

commerce or in the production of goods for commerce” and is not so broad as to include

working on goods or materials that have been moved in commerce by any person.” 29 U.S.C. §

207. The occasional service of food to people traveling interstate and the handling of food that

was moved interstate is insufficient to establish that the individual employee is engaged in

commerce. McLeod v. Threlkeld, 319 U.S. 491, 494 (1943) (“So handlers of goods for a

wholesaler who moves them interstate on order or to meet the needs of specified customers are

in commerce, while those employees who handle goods after acquisition by a merchant for

general local disposition are not”); See also Russell v. Continental Restaurant, Inc., 430 F.

Supp.2d 521, 525-27( D. Md. 2006) (waitress at restaurant possibly serving out of state patrons

not engaged in commerce); Lamont v. Frank Soup bowl, Inc. 2001 WL 521815 at *2 (S.D.N.Y.

May 16, 2001)(same); Xelo v. Mavros, 2005 WL 2385724 at * 4-5 (E.D.N.Y. Sep 28, 2005)

(same). However, the employees are still covered if the employer is covered as an enterprise.

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ORDER, page 6

4. Enterprise Coverage

Defendants argue that CSM cannot be covered by FLSA because it does not have

employees engaged in commerce and is not an enterprise. 

a. Employees Were Engaged in Commerce

Plaintiffs argue that Darda Seafood Restaurant serves food to interstate travelers based on

a number of hotels and two Interstate Highways, I-680 and I-880, near the restaurant. (Wang

Decl. Exhs. 1, 2). Plaintiffs rely on Shelton v. Ervin, 646 F.Supp.1011, 1015 (M.D. Ga. 1986)

(finding a liquor store located near a major interstate highway could be assumed to be engaging

in commerce.) Defendants object that the “interstate highways” do not extend past the state of

California. According to the Department of Transportation website, these roads are part of the

interstate system and designate an area of I-80 that are around or within urban areas. See

http://www.fhwa.dot.gov/programadmin/interstate.cfm. Accordingly, that I-680 and I-880 are

parts of I-80 contained within California does not diminish the inference that interstate travelers

frequent the restaurant. 

Plaintiffs also argue that ingredients and supplies must have moved across state lines. 

Plaintiffs are correct that, for enterprise liability, Defendants cannot show lack of commerce by

buying their supplies from local vendors. In Shelton the court found that employees ordered

supplies that must have crossed state lines, because liquors are known to come from particular

places, such as Kentucky whiskey. As in Shelton, it can be assumed that the some of the

ingredients for Chinese food would need to be imported from out of state. Accordingly, the

court finds that Defendants have sufficiently shown that employees have handled materials that

have been moved in commerce.

b. Enterprise Requires No Related Activities

Defendants assert that an Enterprise requires related activities and CSM has no related

activities because it only engages in the sale of prepared food. Defendants misunderstand the

nature of “related activities.” If a business engages in only one business activity, then all of the

activities of that business comprises the “related activities.” As explained in the Code of Federal

Regulations:

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ORDER, page 7

(a) The single establishment business. In the simplest type of organization-- the

entire business ordinarily is one enterprise. The entire business activity of the

single owner-employer may be performed in one establishment, as in the typical

independently owned and controlled retail store. In that case the establishment

and the enterprise are one and the same. All of the activities of the store are

"related" and are performed for a single business purpose and there is both unified

operation and common control. The entire business is the unit for applying the

statutory tests. If the coverage tests are met, all of the employees employed by

the establishment are employed in the enterprise and will be entitled to the

benefits of the Act unless otherwise exempt.

29 C.F.R. § 779.204(a).

The definition of related activities is broad enough that Defendant CSM must engage in

related activities. For example, related activities include: “auxiliary and service activities,” such

as bookkeeping, purchasing, advertising, and the hiring and training of employees. 29 C.F.R. §

779.208. These are functions that must be carried out by Defendant CSM in some form. Cf . 29

C.F.R. § 779.207 (the sale of multiple items by a single retail establishment constitutes related

activities.) 

C. Motion to Dismiss for Improper Venue

1. Legal Standards for Motion to Dismiss under Rule 12(b)(3)

A motion to dismiss based on a forum selection clause is treated as a motion under Rule

12(b)(3) to dismiss for improper venue. Federal law governs the validity of a forum selection

clause. Manetti-Farrow, Inc. v. Gucci America, Inc., 858 F.2d 509, 513 (9th Cir.1988). A court

can look outside the pleadings and need not accept the pleadings as true. Argueta v. Banco

Mexicano, S.A., 87 F.3d 320, 324 (9th Cir.1996). The trial court has discretion whether to decide

this issue on affidavits submitted or to allow discovery and hold an evidentiary hearing. Murphy

v. Schneider National, Inc., 362 F. 3d 1133, 1139-40 (9th Cir. 2004).

Because a 12(b)(3) motion has a dramatic effect on plaintiff's forum choices, the trial

court must “draw all reasonable inferences in favor of the non-moving party and resolve all

factual conflicts in favor of the non-moving party.” Murphy v. Schneider National, Inc., 362 F.3d

1133, 1138-39 (9th Cir. 2003). However, the party seeking to avoid a freely bargained for forum

selection clause faces a “heavy burden of proof.” M/S Bremen v. Zapata Off-Shore Co., 407

U.S. 1, 17 (1972). 

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ORDER, page 8

2. Forum Selection Clause

a. Plaintiff Si

Defendants seek to force Plaintiffs into state court based on a provision in Plaintiff Si’s 

employment contract requiring wage claims to be brought in “local court.” (Chen Decl. Exh. 8.) 

As Plaintiffs argue, this clause is ambiguous and should be construed against the drafter,

Defendants. Accordingly, the forum selection clause shall not be read to bar litigation in federal

court. Moreover, Plaintiff Si claims that he never saw or agreed to the agreement in which the

forum selection clause is found. (Si Declaration ¶ 5, Wang Decl. Exh 9.) Defendants submitted a

single piece of paper; the top of the paper is a signed W-4 form and the bottom is a copy of the

employment agreement. (Chen Decl. Exh. 8.) Plaintiffs argue that the only signed portion is the

W-4 and there is no evidence that Si signed the contract containing the forum selection clause. 

Accordingly, there is no evidence that Plaintiff Si should be bound by the forum selection clause

and deprived of his chosen forum.

b. Plaintiff Sun

Defendants concede that Plaintiff Sun’s employment agreement contains no forum

selection clause, but argue that he should be forced to litigate in state court because Defendants

merely neglected to include the clause. The court declines interpret an ambiguous forum

selection clause against Plaintiff Sun according to the unilateral, mistaken interpretation

Defendant Chen possessed when he put the clause in other contracts.

3. Discretion to Decline Federal Question Jurisdiction

Defendants assert that this court has discretion to decline federal question jurisdiction

where the federal issues are “non-core”. Defendants cite Minnette v. Time Warner, 997 F.2d

1023, 1027 (2nd Cir. 1993) and King v. Russell, 963 F.3d 1301. In Minnette, the plaintiff had

filed her case in a federal district in which venue was improper and the court exercised its

discretion to transfer the case to the proper district instead of dismissing it. In King, the court

dismissed an action brought in an improper venue. Neither case provides any support for

Defendants’ argument that this court can decline federal question jurisdiction when there are

more state causes of action asserted than federal causes of action. Because this court has no

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ORDER, page 9

discretion to decline to hear outnumbered federal claims, the motion to dismiss on this basis is

denied.

D. Motion to Dismiss for Failure to State a Claim

1. Legal Standards for Motion to Dismiss under Rule 12(b)(6)

A motion to dismiss under Rule 12(b)(6) cannot be granted unless “it appears beyond

doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him

to relief.” Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957) (footnote

omitted). Dismissal can be based on the lack of a cognizable legal theory or the absence of

sufficient facts alleged under a cognizable legal theory. Balistreri v. Pacifica Police Dept., 901

F.2d 696, 699 (9th Cir.1988). The sole issue in a Rule 12(b)(6) motion is whether the facts, if

established, no matter how improbable, support a valid claim for relief. See Neitzke v. Williams,

490 U.S. 319, 327 (1989).

Defendants argue that Plaintiffs have not provided enough notice of their claims under

Rule 8. Defendants assert that Plaintiffs failure to state the period of employment and hourly

rate violate the notice pleading standards. Defendants are mistaken. Pursuant to Federal Rule of

Civil Procedure 8(a), a plaintiff only has to set forth “a short and plain statement of the claim

showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). Under the liberal federal

pleading rules, notice and clarity of claims is all that is required. Colaprico v. Sun Microsystems,

Inc., 758 F. Supp. 1335, 1337 (N.D. Cal. 1991). Plaintiffs have met that standard. 

Defendants also move under Rule 12(b)(6) arguing that the affidavits they submitted

prove Plaintiffs are not owed money. A court cannot consider outside evidence without

converting a 12(b)(6) motion to summary judgment motion. North Star Intern. v. Arizona Corp.

Com'n, 720 F.2d 578, 581-582 (9th Cir.1983). 

 Accordingly, the motion under Rule 12(b)(6) is denied.

2. Motion is Not Converted to Summary Judgment Motion

Defendants also seek to convert the 12(b)(6) motion to a motion for summary judgment

and ask the court to grant the motion based on Plaintiff’s failure to oppose the motion with

competent evidence. Rule 12(b)(6) provides:

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ORDER, page 10

If, on a motion asserting the defense numbered (6) to dismiss for failure of the

pleading to state a claim upon which relief can be granted, matters outside the

pleading are presented to and not excluded by the court, the motion shall be

treated as one for summary judgment and disposed of as provided in Rule 56, and

all parties shall be given reasonable opportunity to present all material made

pertinent to such a motion by Rule 56.

Fed. R.Civ. P. 12(b)(6). At this early stage in the litigation, there is no reason for the court to

adjudicate a summary judgment motion. Moreover, as Plaintiffs were never directed by the

court to provide facts to oppose the summary judgment motion, it would be patently unfair to

grant the motion under these circumstances. Accordingly, the court excludes from consideration

of the 12(b)(6) motion all affidavits and other evidence submitted by the Plaintiffs and declines

to convert the motion to dismiss under Rule 12(b)(6) to a motion for summary judgment under

Rule 56.

III. CONCLUSION

For the foregoing reasons, It Is Hereby Ordered that:

1. Counts One, Three, Four and Five are dismissed as to Defendant Chen

only;

2. The Motion to Dismiss for Lack of Jurisdiction is Denied

3. The Motion to Dismiss for Improper Venue is Denied.

4. The Motion to Dismiss for Failure to State a Claim is Denied;

5. The Request to Convert the Motion to a Summary Judgment Motion is

Denied; and

6. The parties are referred to Magistrate Judge Lloyd for an early judicial

settlement conferences to take place no later than July 31, 2007. Within

ten days of entry of this Order, the parties shall contact Judge Lloyd’s

chambers at 408-535-5365 with at least three mutually convenient dates.

IT IS SO ORDERED.

Dated: May 21, 2007

____________________________

PATRICIA V. TRUMBULL

United States Magistrate Judge

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