Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_06-cv-02676/USCOURTS-caed-2_06-cv-02676-0/pdf.json

Parties Involved:
Childtime Childcare, Inc.
Counter Claimant
Amy James
Counter Defendant

Document Text:

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IN THE UNITED STATES DISTRICT COURT 

FOR THE EASTERN DISTRICT OF CALIFORNIA 

AMY JAMES, 

 Plaintiff, 

v. 

CHILDTIME CHILDCARE, INC., 

 Defendant. 

CHILDTIME CHILDCARE, INC., 

 Cross Claimant, 

 v. 

AMY JAMES 

 Cross Defendant. /

No. Civ. S-06-2676 DFL DAD 

Memorandum of Opinion

and Order

Amy James filed a state action against her former employer 

Childtime Childcare, Inc. (“Childtime”) alleging that she was 

terminated in violation of California’s Fair Employment and 

Housing Act (FEHA) and public policy. Childtime filed a crossCase 2:06-cv-02676-RRB-DAD Document 19 Filed 06/01/07 Page 1 of 12
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complaint containing seven causes of action arising from James’ 

employment. Childtime removed the action to federal court on 

the basis of diversity jurisdiction. James now seeks to remand 

the action, strike certain allegations from the cross-complaint, 

and dismiss the cross-complaint. For the following reasons, the 

court DENIES the motion to remand, GRANTS the motion to strike, 

and GRANTS IN PART the motion to dismiss. 

I. 

James is a resident of Yolo County, California and was 

employed by Childtime as a center director. James became 

pregnant prior to July 13, 2006. On July 13, her doctor imposed 

work restrictions requiring her to work no more than 40 hours 

per week and to lift no more than 10 pounds. James immediately 

informed Childtime of these restrictions and was placed on 

administrative leave. James alleges that Childcare failed to 

make reasonable accommodations for her between July 13 and July 

19, when Childcare terminated her employment, allegedly because 

of her pregnancy. On October 24, James filed a complaint in 

Superior Court. She alleges that “she has suffered the loss of 

wages, salary, benefits, and additional amounts of money she 

would have received” if Childtime had not fired her. She also 

alleges “the intangible loss of . . . employment-related 

opportunities,” humiliation, emotional distress, and injury of 

“mind and body.” For relief, she requests: (1) “back pay, front 

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pay, and other monetary relief;” (2) general damages; (3) 

punitive damages; (4) interest on the sum of damages; (5) 

attorney’s fees; and (6) costs. 

On November 22, 2006, Childtime filed a cross-complaint in 

state court alleging that James received care for her child and 

allowed others to receive care for their children at Childtime’s 

facility without proper enrollment or tuition payments. 

Specifically, Childtime alleges the following causes of action: 

(1) violations of California Labor Code § 2865; (2) fraudulent 

concealment; (3) negligent misrepresentation; (4) breach of 

fiduciary duties; (5) misappropriation of services; (6) 

restitution and unjust enrichment; and (7) negligence. 

Childtime removed the action the same day it filed the crosscomplaint. James now seeks to remand the action to state court, 

strike certain allegations from the cross-complaint, and dismiss 

the cross-complaint. 

II. 

A. Motion to Remand 

James argues that the court lacks subject matter 

jurisdiction over her action because the amount in controversy 

does not exceed $75,000. Defendant carries the burden of 

proving that removal was proper. See Gaus v. Miles, Inc., 980 

F.2d 564, 566 (9th Cir. 1992). Since the amount in controversy 

is not facially apparent from James’ complaint, “the court may 

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consider facts in the removal petition, and may require parties 

to submit summary-judgment-type evidence relevant to the amount 

in controversy at the time of removal.” Kroske v. US Bank 

Corp., 432 F.3d 976, 980 (9th Cir. 2005) (internal quotation 

marks and citation omitted). 

The damages sought by James satisfy the amount-incontroversy requirement. Beyond roughly $12,700 in lost wages 

already accrued at the time of removal, the amount in 

controversy in this action includes additional back pay accrued 

following removal, emotional distress damages, punitive damages, 

and attorney’s fees.1 See Schwarzer, Tashima & Wagstaffe, 

Federal Civil Procedure Before Trial, § 2:442 at 2C-78 (2006) 

(emotional distress damages); Gibson v. Chrysler Corp., 261 F.3d 

927, 945 (9th Cir. 2001) (punitive damages); Chabner v. United 

of Omaha Life Ins. Co., 225 F.3d 1042, 1046 n.3 (9th Cir. 2000) 

(attorney’s fees). The Court finds that these damages taken 

cumulatively likely would exceed $75,000. Furthermore, 

Childtime presents a letter from James in which she offered to 

settle the case for $104,000 prior to removal. “A settlement 

letter is relevant evidence of the amount in controversy if it 

 

1

 James erroneously assumes that the court includes only 

those wages lost before removal when calculating the amount in 

controversy. The court evaluates the amount in controversy at 

the time of removal, but it may consider both past and future 

lost wages. See Kroske, 432 F.3d at 980. 

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appears to reflect a reasonable estimate of the plaintiff’s 

claim.” Cohn v. Petsmart, Inc., 281 F.3d 837, 840 (9th Cir. 

2002). Given the scope of damages discussed above, the proposed 

settlement amount appears to be a reasonable estimate. For 

these reasons, the Court finds that the amount in controversy 

requirement has been met and DENIES the motion to remand.2 

B. Motion to Strike 

James seeks to strike allegations from Childtime’s crosscomplaint that it was injured by paying James’ salary. James 

specifically requests that defendant strike passages in 

paragraphs twenty, twenty-six, thirty-one, and thirty-six. 

Childtime does not oppose the motion. Therefore, the Court 

GRANTS the motion to strike. 

C. Motion to Dismiss 

James seeks to dismiss all seven of Childtime’s causes of 

action for failure to state a claim. 

1. Cause of Action 1: Labor Code § 2865 

California Labor Code § 2865 states: “An employee who is 

guilty of a culpable degree of negligence is liable to his 

employer for the damage thereby caused to the employer.” James 

 

2 Childtime’s cross-claims are compulsory since they arise 

out of the same transaction and occurrence as James’ 

allegations. See Fed. R. Civ. Pro. 13(a). The cross-complaint, 

therefore, is properly before the court based upon supplemental 

jurisdiction. See 28 U.S.C. § 1367(a). 

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argues that to state a claim under the statute a plaintiff must 

allege an actual loss due to an adverse judgment based upon an 

employee’s negligence. Childtime argues that such an 

indemnification-only interpretation goes against the plain 

language of the statute. Although authority interpreting the 

statute is inconclusive, the Court adopts Childtime’s reading of 

§ 2865. 

 James argues that the statute’s use of the word “guilty” 

demonstrates that it creates only a right of indemnification. 

Although employers may seek indemnification from their employees 

under the statute, § 2865’s plain language supports a broader 

range of permissible claims. When California lawmakers have 

intended to create only a right of indemnification in the Labor 

Code, they have used the term of art. See, e.g., Cal. Labor 

Code § 2800 (“Losses caused by employer’s negligence; 

indemnification”); id. § 2802 (“An employer shall indemnify his 

or her employee.”). No such term is present in § 2865. If the 

court were to read the section as requiring a prior judgment, it 

would be adding an element to the section not required by its 

plain language. A plaintiff seeking to make a claim need only 

allege that “an employee . . . is guilty of a culpable degree of 

negligence,” resulting in “damage . . . to the employer.” Id.

at § 2865. Therefore, the Court finds that Childtime 

sufficiently pleaded claim one under § 2865 by alleging that it 

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was damaged by James’ negligent acts. See 3 Witkin, Agency & 

Employment, Torts Against Principal § 115 (10th ed. 2005)(citing 

§ 2865).3 The Court DENIES the motion to dismiss as to the 

§ 2865 claim. 

2. Causes of Action 2 and 3: Fraudulent Concealment and 

Negligent Misrepresentation 

“Federal Rule of Civil Procedure 9(b) requires a pleader of 

fraud to detail with particularity the time, place, and manner 

of each act of fraud, plus the role of each defendant in each 

scheme.” Lancaster Cmty. Hosp. v. Antelope Valley Hosp. Dist., 

940 F.2d 397, 405 (9th Cir. 1991). James argues that Childtime 

fails to plead its fraud and misrepresentation claims with 

sufficient particularity. Childtime argues that James’ points 

 

3 The only two Ninth Circuit cases to apply § 2865 did so in 

the indemnification context. See O’Hara v. Teamsters Union 

Local #856, 151 F.3d 1152, 1160 (9th Cir. 1998); St. Paul Fire & 

Marine Ins. Co. v. Cunningham, 257 F.2d 731, 732 (9th Cir. 

1958). These cases, however, neither resemble Childtime’s claim 

nor hold that the section cannot be used for direct negligence 

claims against employees. The employee in O’Hara, 151 F.3d at 

1155-58, acted negligently only towards a third party, thereby 

giving the employer no grounds for a direct action. The 

employer suffered its injury in defending the subsequent thirdparty action. Id. at 1160. In St. Paul Fire, 257 F.2d at 731-

32, the statute of limitations precluded a direct negligence 

claim by the employer against the employee. Despite the absence 

of federal authority supporting Childtime’s interpretation of 

the section, at least one California court has discussed 

application of § 2865 by an employer to recover from a negligent 

employee without a prior adverse judgment. Dahl-Beck Elec. Co. 

v. Rogge, 275 Cal.App.2d 893, 901-05 (1969)(holding that 

defendant Stradford was an employee of plaintiff Dahl-Beck and 

subject to suit under § 2865). 

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are “well-taken.” The Court finds that Childtime has failed to 

plead claims two and three with sufficient particularity and 

DISMISSES them with leave to amend.4 

3. Cause of Action 4: Breach of Fiduciary Duties 

James argues that, as an employee, she had no fiduciary 

duty to her employer Childtime. Childtime argues that James was 

the director of the center, not a mere employee, and therefore 

subject to fiduciary duties. Childtime cites no authority for 

the existence of such duties. However, at least one California 

court has found fiduciary obligations from a “managerial” 

employee to an employer. Diodes, Inc. v. Franzen, 260 

Cal.App.2d 244, 249 (1968). Moreover, California law recognizes 

a duty of loyalty that is breached when an employee takes action 

against an employer’s best interests. See, e.g., Stokes v. Dole 

Nut Co., 41 Cal.App.4th 285, 296 (1995). The Ninth Circuit has 

described the duty of loyalty as a “fiduciary-like” duty. 

Thorman v. American Seafoods, Co., 421 F.3d 1090, 1098 (9th Cir. 

2005). Liberally construing the cross-claim’s language, the 

Court DENIES the motion to dismiss as to the fiduciary duty 

claim. 

 

4

 Childtime expresses concern regarding the privacy rights of 

children and parents who could be named through particular 

pleading. Such concerns are not grounds for easing the pleading 

standards and may be addressed through other precautionary 

measures. 

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4. Cause of Action 5: Misappropriation of Services 

James argues that California law does not recognize a claim 

for misappropriation of services. Rather, she argues, 

California law recognizes only claims for misappropriation of 

property and Childtime has failed to allege what property is at 

stake in its claim. Childtime argues that there is no 

meaningful difference between a service and property, so common 

law misappropriation claims cover both.5

Childtime correctly argues that there is no meaningful 

distinction between a service and property when making a 

misappropriation claim. The leading case defining common law 

misappropriation, Int’l News Serv. v. Associated Press, 248 U.S. 

 

5 Under California law: 

[c]ommon law misappropriation is one of a number of 

doctrines subsumed under the umbrella of unfair 

competition. It is normally invoked in an effort to 

protect something of value not otherwise covered by 

patent or copyright law, trade secret law, breach of 

confidential relationship, or some other form of 

unfair competition. 

United States Golf Ass’n v. Arroyo Software Corp., 69 

Cal.App.4th 607, 618 (1999). A misappropriation claim requires 

that: 

(a) the plaintiff invested substantial time, skill or 

money in developing its property; (b) the defendant 

appropriated and used plaintiff’s property at little 

or no cost to defendant; (c) the defendant’s 

appropriation and use of the plaintiff’s property was 

without authorization or consent of the plaintiff; and 

(d) the plaintiff can establish that it has been 

injured by the defendant’s conduct. 

Id. A California misappropriation claim does not require direct 

competition between plaintiff and defendant. Id. 

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215, 236-38 (1918), uses the terms “service” and “property” 

interchangeably. Moreover, including services within the scope 

of misappropriation doctrine serves the Supreme Court’s stated 

intent to protect interests that might otherwise be considered 

“too fugitive or evanescent to be regarded as property.” Id. at 

240. Although Childtime’s cross-complaint does not specifically 

describe the investment of time, skill, or money into its 

services, the Court assumes such investment since Childtime need 

not plead the claim with particularity. Therefore, the Court 

DENIES the motion to dismiss as to the misappropriation of 

services claim. 

5. Cause of Action 6: Restitution / Unjust Enrichment 

James argues that Childtime fails to state a claim for 

restitution or unjust enrichment because it fails to allege that 

she “retained” a benefit. She misstates the law. “A person is 

enriched if he or she has received a benefit. A benefit is 

conferred not only where one adds to the property of another, 

but also where one saves the other from expense or loss.” 

California Fed. Bank v. Matreyek, 8 Cal.App.4th 125, 131 (1992). 

Childtime alleges that James’ deceptive activity unjustly saved 

her from the expense of paying for child care. So long as she 

has not compensated Childtime for the alleged care, she has 

“retained” the benefit. An alleged failure to compensate 

Childtime can reasonably be inferred from the allegations. 

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Therefore, the Court DENIES the motion as to the restitution 

claim. 

6. Cause of Action 7: Negligence 

James argues that California Labor Code § 2865 specifically 

addresses negligence claims by an employer against an employee 

and, therefore, is the exclusive remedy for such claims.6 James 

classifies Childtime’s seventh cause of action as a “general” 

negligence claim, pre-empted by § 2865.7 James provides no 

specific authority supporting her interpretation of § 2865 as an 

exclusive carve-out from general negligence for employeremployee claims. Moreover, the construction rule she relies 

upon concerns statutes in direct logical conflict. In re 

Pacific Far East Line, Inc., 644 F.2d 1290, 1293 (9th Cir. 

1981). She fails to demonstrate such conflict here. Therefore, 

the Court DENIES the motion as to the negligence claim. 

III. 

For these reasons, the Court: 

 (1) DENIES the motion to remand; 

 

6 James’ argument against claim seven contradicts her 

argument against claim one. Although James does not reconcile 

her conflicting interpretations of § 2865, the court assumes 

that her argument against claim seven is in the alternative. 

 

7

 James also raises this argument against claim three 

(negligent misrepresentation). Because James has not 

established that § 2865 is an exclusive remedy, the argument 

fails for the same reasons as it did against claim seven 

(negligence). 

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 (2) GRANTS the motion to strike; 

(3) GRANTS the motion to dismiss as to Childtime’s 

second and third causes of action, with leave to amend 

within 21 days of the date of this order; and 

(4) DENIES the motion to dismiss as to Childtime’s 

first, fourth, fifth, sixth, and seventh causes of 

action. 

IT IS SO ORDERED. 

Dated: May 31, 2007 

 /s/ David F. Levi___________

 DAVID F. LEVI 

United States District Judge 

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