Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_08-cv-00206/USCOURTS-caed-2_08-cv-00206-1/pdf.json

Parties Involved:
Dennis Dayrit
Defendant
Bill Gibson
Defendant
Glen Ross
Plaintiff
SGS Testcom, Inc.
Defendant

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UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

GLEN ROSS,

NO. CIV. S-08-206 LKK/GGH 

Plaintiff,

v.

O R D E R

SGS TESTCOM, INC., a New

York corporation doing

business in California;

DENNIS DAYRIT, an individual;

BILL GIBSON, an individual;

and DOES 1-25,,

Defendants.

 /

Plaintiff, Glen Ross, originally brought a wage and hour

complaint in Sacramento County Superior Court, naming both

California and non-California defendants. The defendants removed

the action to federal court based on diversity jurisdiction,

alleging that the California defendant, Bill Gibson, was

fraudulently joined and therefore should be disregarded. Pending

before the court is plaintiff’s motion to remand, which contends

that the California defendant was properly joined and that subject

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matter jurisdiction in federal court is therefore lacking. The

court resolves the motion on the papers and after oral argument.

For the reasons set forth below, the court grants plaintiff’s

motion and remands the action to Sacramento County Superior Court.

I. Background

In December 2007, plaintiff Glen Ross, a citizen of

California, filed a loss of wages complaint in Sacramento Superior

Court against corporate defendant, SGS Testcom, Inc., and

individual defendants, Dennis Dayrit and Bill Gibson. Plaintiff

alleged the following seven causes of action against all defendants

in his state complaint: (1) failure to pay over time (Labor Code

§§ 510, 1194, 1198), (2) waiting time penalties (Lab.C. §§ 203,

558), (3) failure to provide accurate itemized statements (Lab.C.

§ 226), (4) failure to provide meal periods (Lab.C. §§ 226.7, 512,

IWC Wage Orders), (5) failure to provide rest periods (Lab.C. §

226.7, IWC Wage Orders), (6) unfair competition (Business &

Professions Code §§ 17200 et seq.), and (7) constructive trust. On

January 28, 2008 defendants removed the case to this court.

Pending before the court is plaintiff’s motion to remand the

case to Sacramento County Superior Court.

II. Standard for a Motion to Remand

Civil actions not involving a federal question are

removable to a federal district court only if there is diversity

of citizenship between the parties. 28 U.S.C. § 1332(a)(1). 

Section 1332 requires that there be complete diversity; that is,

each plaintiff's citizenship must be diverse as to each

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defendant's citizenship. Id. A defendant may remove a civil

action that alleges claims against a non-diverse defendant when

the plaintiff has no basis for suing that defendant, or in other

words, when that defendant has been fraudulently joined. McCabe

v. General Foods Corp., 811 F.2d 1336, 1339 (9th Cir. 1987). 

“‘If the plaintiff fails to state a cause of action against

a resident defendant, and the failure is obvious according to

the settled rules of the state, the joinder of the resident

defendant is fraudulent.’” Ritchey v. Upjohn Drug Co., 139 F.3d

1313, 1318 (9th Cir.1998) (quoting McCabe, 811 F.2d at 1339). 

Where a non-diverse defendant has been "fraudulently joined" to

an otherwise completely diverse case, that defendant is

disregarded for diversity jurisdiction purposes. See, e.g.,

Calero v. Unisys Corp., 271 F. Supp. 2d 1172, 1176 (N.D. Cal.

2003).

In order to establish that a non-diverse defendant has been

fraudulently joined, the removing party carries the heavy burden

of establishing the absence of any possibility of recovery. 

Ritchey, 139 F.3d at 1318. The claim of fraudulent joinder must

be supported by clear and convincing evidence. Hamilton

Materials Inc. v. Dow Chem. Corp., 494 F.3d 1203, 1206 (9th Cir.

2007). In determining whether a non-diverse defendant has been

improperly joined, courts may look beyond the pleadings and

examine the factual record. McCabe, 811 F.2d at 1339.

The court must initially resolve all disputed questions of

fact and all ambiguities in the controlling state law in favor

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of the non-removing party. Macey v. Allstate Prop. & Cas. Ins.

Co., 220 F. Supp. 2d 1116, 1117-18 (N.D. Cal. 2002). If, after

doing so, there is any possibility that the non-removing party

may recover against the party whose joinder is questioned, the

court must grant the motion to remand since complete diversity

of citizenship and thus federal jurisdiction is lacking. Plute

v. Roadway Package Sys., Inc., 141 F. Supp. 2d 1005, 1012 (N.D.

Cal. 2001).

III. Analysis

Defendants removed the action to federal court pursuant to

28 U.S.C. § 1441(b), alleging that Bill Gibson, a citizen of

California, was fraudulently joined. Specifically, defendants

assert that plaintiff has no valid cause of action against

individual defendant Gibson under California law, and thus his

joinder is fraudulent and his presence should be disregarded for

purposes of diversity. Plaintiff maintains that there are valid

claims against defendant Bill Gibson for waiting time penalties

(Cal. Labor Code § 558) and unfair competition (Cal. Business &

Professions Code §§ 17200 et seq.). Therefore, plaintiff

asserts that joinder of defendant Gibson was not fraudulent and

complete diversity in federal court is destroyed by his

presence.

As explained below, the court finds that defendants fail to

establish by clear and convincing evidence that plaintiff has no

possibility of recovery against defendant Gibson. Plaintiff’s

motion is granted.

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At oral argument, the defendants asserted for the first time 1

that the plaintiff’s allegations against defendant Gibson were

proper only under Labor Code § 510, not § 558, because they allege

failures to pay overtime wages. Aside from the impropriety of

raising a new argument at oral argument that was not raised in the

briefs, the court finds this argument meritless. Upon a plain

reading of § 558, it is not evident to the court that a claim for

failure to pay overtime wages could not be properly brought under

this section. Even if that were the case, the specific factual

allegations made against defendant Gibson encompass more than

simply failure to pay overtime wages. See Notice of Removal, Ex.

A (complaint filed in Superior Court of California, County of

Sacramento at ¶ 5). Furthermore, the plaintiff’s causes of action

were alleged against all defendants, including defendant Gibson.

See id. (complaint at ¶¶ 29-72). The court therefore cannot

conclude that § 558 is not the proper avenue for the relief that

the plaintiff seeks against defendant Gibson.

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A. Waiting Time Penalties Claim under Labor Code Section 558

While plaintiff’s complaint alleges all seven claims

against individual defendant Gibson, plaintiff specifically

argues in his motion to remand that he has a possibility of

recovery under the waiting time penalties claim (Cal. Labor Code

§ 558) and unfair competition claim (Cal. Bus. & Prof. Code §§

17200 et seq.). Defendants first argue that § 558 does not

permit recovery as a matter of law and, alternatively, that

there is no evidence to show that defendant Gibson may be liable

under § 558.

1. Section 558 Permits Plaintiff’s Cause of Action

Against Defendant Gibson

Defendants maintain two arguments as to the text of

California Labor Code § 558. First, defendants assert that the 1

plain language of Labor Code § 558 does not provide for

imposition of liability on managers. Second, defendants

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maintain that the legislative history of § 558 does not support

the imposition of personal liability on supervisors. The court

finds both arguments unpersuasive.

California Labor Code § 558 states, “Any employer or other

person acting on behalf of an employer who violates, or causes

to be violated, a section of this chapter or any provision

regulating hours and days of work in any order of the Industrial

Welfare Commission shall be subject to a civil penalty as

follows...” (emphasis added). For the purpose of defining

“person” as it is used in § 558, Labor Code § 18 provides that,

“Person means any person, association, organization,

partnership, business trust, limited liability company, or

corporation.” 

A plain reading of § 558, therefore, indicates that a

“person acting on behalf of an employer” can be subject to the

civil penalties of § 558. This language tends to demonstrate

that the legislature did contemplate directly holding a

corporate agent or representative liable to such civil penalties

under the statute. In addition, since a “person” is defined in §

18 as including an individual person, this further supports the

possibility that individual corporate agents are subject to the

civil penalties of § 558.

Since the court finds that on its face, the statutory

language demonstrates possible liability for individual

corporate agents, it is not necessary to take judicial notice of

the legislative history as requested by defendants. See Funbus

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Systems Inc. v. California Public Utilities Com., 801 F.2d 1120,

1126 (9th Cir. 1986)(explaining that only if language of statute

is ambiguous, may court then consider legislative history).

However, the court observes that the legislative history of §

558 does not appear to support defendants’ argument. Defendants

point to the legislative history’s complete lack of discussion

regarding intent for § 558 to change the common law rule that

only an employer may be liable for unpaid wages and associated

penalties. This absence of discussion of individual agent

liability in the legislative history does not in and of itself

persuade the court that the legislature decided against such

liability.

Defendants also argue that it is well-settled by California

courts that corporate agents acting within the scope of their

agency cannot be held personally liable for their employer’s

failure to pay wages. Defendants further maintain that because

plaintiff’s interpretation of Labor Code § 558 conflicts with

this long-standing common law, plaintiff’s interpretation should

not stand. Defendants principally rely on Reynolds v. Bement,

116 P.3d 1162 (Cal. 2005) and Jones v. Gregory, 137 Cal.App.4th

798 (2006) in support of this contention. The court finds these

cases to be inapposite.

In Reynolds, the California Supreme Court held that

individual corporate defendants were not liable for alleged

misclassifications of employees under Labor Code §§ 1194 and

510. Reynolds, 116 P.3d 1162 at 1170. Since § 1194 did not

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explicitly define “employer,” the plaintiff in Reynolds

suggested that the court apply the Industrial Welfare Commission

(IWC) definition in which an employer was any individual who

“exercises control over the wages, hours, or working conditions

of any person.” Reynolds, 116 P.3d at 1168; see also Wage Order

No. 9, subd. 2(F). Following an examination of the legislative

history of § 1194, the court concluded that the legislature did

not clearly manifest intent to incorporate the IWC’s definition

of “employer” and impose personal civil liability on corporate

agents. Reynolds, 116 P.3d at 1170. 

Reynolds is easily distinguished from the case at hand. 

First, unlike Reynolds, the instant case does not deal with only

a § 1194 claim against an individual defendant. Rather, the

plaintiff also asserts a separate § 558 claim against individual

defendant Gibson. The Reynolds court itself acknowledged that a

§ 558 claim and a § 1194 claim are distinct causes of action,

noting that to § 558 was a potential alternative to § 1194 for

holding individual corporate agents subject to civil penalties

for unpaid wages. Reynolds, 116 P.3d at 1170-71; see also

Jones, 137 Cal.App.4th at 810 (differentiating § 1194 and § 558

claim while alluding to possibility of private enforcement of §

558 through newly created Private Attorneys General Act of

2004). Moreover, the Reynolds’ court’s holding was based on the

absence of a statutory definition of “employer” in § 1194. See

Reynolds, 116 P.3d at 1170. This is not the case in § 558,

where, as discussed supra, the persons who may be liable for the

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violation of the section are expressly described and include

persons acting on behalf of an employer. Neither Reynolds nor

Jones appear to be plausibly read as to bar the plaintiff’s

cause of action under § 558 against defendant Gibson.

2. Facts In Support of Plaintiff’s Section 558 Claim

Against Defendant Gibson

Finally, defendants assert that even if there were a

potential claim against individual defendant Gibson under § 558,

no facts exit that could be used to hold him liable. The court

disagrees. The plaintiff has tendered evidence in the form of

his own declaration, stating that Gibson “was in charge of the

SGS Testcom, Inc. division in California. He was in direct

control of my wages, hours, and working conditions at SGS

Testcom, Inc. He was further directly responsible for applying

the California labor laws to my employment, and to the

employment of others in my department.” See Declaration of Glen

Ross in Support of Plaintiff’s Motion for Remand ¶ 3.

When examining the factual record to determine fraudulent

joinder, the court must initially resolve all disputed questions

of fact and all ambiguities in the law in favor of the nonremoving party. Macey v. Allstate Prop. & Cas. Ins. Co., 220 F.

Supp. 2d 1116, 1117-18 (N.D. Cal. 2002). Here, the plaintiff

has presented some evidence to support his allegation that

defendant Gibson may have been acting as an agent for the

corporation. Whether this evidence is credible is an ambiguity

that must be resolved in favor of the plaintiff. The defendants

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have not met their burden to show that there is no potential

factual basis for recovery against defendant Gibson.

Because the court concludes that a potential claim exists

under Labor Code § 558 as against individual defendant Gibson,

it need not determine whether there is also a claim under

California Business & Professions Code §§ 17200 et. seq.

The defendants have not established by clear and convincing

evidence that defendant Gibson was fraudulently joined. 

Consequently, the presence of defendant Gibson in this case

destroys the complete diversity required in 28 U.S.C. § 1332 and

the case must be remanded to the state superior court with

proper jurisdiction.

IV. CONCLUSION

For the reasons set forth above, plaintiff’s motion to

remand is GRANTED and the action is REMANDED to Sacramento

County Superior Court.

IT IS SO ORDERED.

DATED: April 8, 2008.

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