Yeomans v. World Financial Group

[3] 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA [6] 7 TRICIA YEOMANS, et al., Case No. 19-cv-00792-EMC 8 Plaintiffs, ORDER GRANTING IN PART AND 9 v. DENYING IN PART DEFENDANTS’ MOTION FOR JUDGMENT ON THE 10 WORLD FINANCIAL GROUP PLEADINGS INSURANCE AGENCY, INC., et al., 11 Docket No. 119 Defendants. [13] 14 Pending before the Court is Defendants’ motions for judgment on the pleadings as to 15 Plaintiffs’ Ninth Cause of Action, for failure to provide accurate itemized wage statements, and 16 Eleventh Cause of Action, for violation of California’s Unfair Competition Law. Docket No. 119. 17 For the following reasons, the Court GRANTS in part and DENIES in part Defendants’ 18 motion. 19 I. BACKGROUND 20 A. Factual Background 21 Plaintiffs Tricia Yeomans, Ismail Chraibi, Adrian Rodriguez, Robert Jenkins, Dorothy 22 Jenkins, Cameron Bradford, and Fatemeh Abtahi allege the following on behalf of themselves and 23 a putative class of others similarly situate. Defendants represent themselves as a financial- and 24 insurance-products marketing company; they recruit individuals as “Associates” and purport to 25 give people the tools “to build and operate their own financial services business.” See Docket No. 26 23 (“FAC”) ¶ 1. However, Plaintiffs assert that “Defendants conduct their business by way of a 27 massive pyramid scheme,” wherein recruiting new Associates is one of the “main factors involved 1 person to “purchase Defendants’ financial and insurance products” and to “sell financial and 2 insurance products to the new Associates.” Id. ¶ 3. 3 Central to Plaintiffs’ case is their allegation that “Defendants have unlawfully misclassified 4 Associates as ‘independent contractors’ rather than as employees” to further increase company 5 profits. Id. ¶ 4. Specifically, each Associate is “required to sign identical, nonnegotiable 6 Associate Membership Agreements (‘AMAs’),” which “set forth uniform rules and policies 7 promulgated by Defendants, which subject Associates to strict control.” Id. ¶ 5. “Plaintiffs and 8 Class Members signed the AMAs.” Id. Plaintiffs also contend that “Defendants completely 9 control the overall operation of the business” and “retain the exclusive authority to hire and fire 10 every Associate.” Id. ¶¶ 6, 7. Furthermore, because of this classification, Associates earn only 11 commissions, not minimum wage, and they bear the burden of business costs, which Defendants 12 might otherwise bear. Id. ¶¶ 8, 9. In addition, Associates are improperly deprived of the 13 protection of workers’ compensation, the benefits of overtime pay, and meal and rest breaks. Id. 14 ¶¶ 9, 10. 15 Plaintiffs allege thirteen causes of action arising from these facts. Relevant to the currently 16 pending motion, Plaintiffs ninth cause of action alleges violations of Cal. Lab. Code § 226 for 17 inadequate and/or failure to provide accurate, itemized wage statements. FAC ¶¶ 149-52. 18 Plaintiffs allege that 19 Defendants compensate all of the Associates exclusively via Defendants’ commission plan, and Associates are not paid 20 separately for any required non-sales activity, nor are they provided with or compensated for meal or rest periods. They did not receive 21 pay stubs that, among other issues, recorded their rate of pay, the number of hours that they worked, or broke out the total hours of 22 compensable rest and recovery periods. [23] Id. ¶ 36 . “By willfully and intentionally misclassifying Associates, including Plaintiffs and Class 24 Members, as independent contractors Defendants failed to pay them minimum wages. . .. [and] 25 failed to provide accurate wage statements.” Id. ¶ 10 . Plaintiffs allege that wage statements 26 provided by Defendants do not show all wages earned, all hours worked, or all applicable rates, in 27 violation of the California Labor Code. Id. ¶ 81-83 . 1 Competition Law (“UCL”), Cal. Bus. & Prof. Code §§ 17200 , et. seq. 2 Defendants have engaged and continue to engage in unfair and unlawful business practices in California by practicing, employing, 3 and utilizing the policies, customs, and practices outlined above, including, to wit: (1) not paying all wages, including minimum 4 wage, and overtime; (2) failing to pay all earned wages in a timely fashion; (3) failing to pay premium wages for meal and rest breaks 5 not provided; (4) making improper deductions from compensation and failing to keep proper records as required by law; (5) failing to 6 reimburse and/or indemnify Plaintiffs and Class Members for Defendants’ necessary business expenses; (6) improperly classifying 7 Plaintiffs and Class Members as independent contractors; and (7) Failing to pay all wages owed upon termination. [8] 9 FAC ¶ 158. Plaintiffs further allege Defendants have engaged and continue to engage in unfair 10 and unlawful business practices by requiring prospective Associates to pay a $100 application fee 11 in violation of Labor Code section 450, heavily recruiting members of the public to ensnare 12 thousands of individuals in Defendants’ unlawful scheme, failing to pay employment-related 13 California and Federal taxes, and generally requiring putative class members to absorb 14 Defendants’ costs of doing business. Id. ¶¶ 157-165 . 15 To remedy Plaintiffs’ UCL claim, they seek “full restitution of monies, as necessary and 16 according to proof, to restore any and all monies withheld, acquired and/or converted by the 17 Defendants by means of the unfair practices complained of herein.” Id. ¶ 162 . They also request: 18 [I]njunctive relief and on behalf of the general public, to prohibit Defendants from continuing to engage in the unlawful, deceptive, 19 and unfair business practices complained of herein, as Defendants’ strong emphasis on heavy recruitment harms the public at large by 20 ensnaring thousands of individuals into Defendants’ unlawful scheme. [22] Id. ¶ 165 . 23 B. Procedural Background 24 Plaintiffs filed this case in San Francisco Superior Court in December 2018. Defendants 25 removed the case to federal court in February 2019. In June 2019, Plaintiffs filed a first amended 26 class action complaint. See Docket No. 23. Shortly after the FAC was filed, Defendants filed a 27 motion to transfer the case to the U.S. District Court for the Northern District of Georgia, Docket 1 mandamus petition asking the Ninth Circuit to transfer this case to the Northern District of 2 Georgia. 3 On June 18, 2020, Defendants filed a motion to compel arbitration, dismiss the class 4 claims, and stay the case. Docket No. 73. The Court denied the motion. Docket No. 82. 5 Defendants appealed. See Docket No. 83. 6 On November 17, 2021, the Ninth Circuit denied Defendants’ petition for mandamus and 7 affirmed the Court’s denial of Defendant’s motion to compel arbitration. Docket No. 116. The 8 Ninth Circuit’s mandate issued on December 9, 2021. 9 Now pending is Defendants’ motion for judgment on the pleadings as to Plaintiff’s ninth 10 (wage statements) and eleventh (UCL) causes of action. Docket No. 119 (“Mot.”). 11 II. STANDARD OF REVIEW 12 A. Fed. R. Civ. P. 12(c): Judgment on the Pleadings 13 Pursuant to Fed. R. Civ. P. 12(c), “a party may move for judgment on the pleadings” after 14 the pleadings are closed “but early enough not to delay trial.” A Rule 12(c) motion is 15 “‘functionally identical’” to a Rule 12(b)(6) motion to dismiss for failure to state a claim, and 16 therefore the same legal standard applies. Cafasso v. General Dynamics C4 Sys., Inc., 637 F.3d 17 1047 , 1055 n.4 (9th Cir. 2011). 18 Federal Rule of Civil Procedure 8(a)(2) requires a “pleading that states a claim for relief” 19 to include “a short and plain statement of the claim showing that the pleader is entitled to relief.” 20 Fed. R. Civ. P. 8(a)(2). A pleading that fails to meet this standard may be dismissed pursuant to 21 Rule 12(b)(6). See Fed. R. Civ. P. 12(b)(6). To overcome a Rule 12(b)(6) motion to dismiss after 22 the Supreme Court’s decisions in Ashcroft v. Iqbal, 556 U.S. 662 (2009) and Bell Atlantic 23 Corporation v. Twombly, 550 U.S. 544 (2007), a plaintiff’s “factual allegations [in the pleading] 24 ‘must . . . suggest that the claim has at least a plausible chance of success.’” Levitt v. Yelp! Inc., [25] 765 F.3d 1123, 1135 (9th Cir. 2014). The court “accept[s] factual allegations in the [pleading] as 26 true and construe[s] the pleadings in the light most favorable to the nonmoving party.” Manzarek 27 v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). But “allegations in a 1 sufficient allegations of underlying facts to give fair notice and to enable the opposing party to 2 defend itself effectively.” Levitt, 765 F.3d at 1135 (quoting Eclectic Props. E., LLC v. Marcus & 3 Millichap Co., 751 F.3d 990, 996 (9th Cir. 2014)). “A claim has facial plausibility when the 4 Plaintiff pleads factual content that allows the court to draw the reasonable inference that the 5 Defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 . “The plausibility 6 standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that 7 a defendant has acted unlawfully.” Id. (quoting Twombly, 550 U.S. at 556 ). 8 III. DISCUSSION 9 A. Wage Statement Claim (Count 9) 10 An employee is deemed to suffer an injury for purposes of the damages provision in Labor 11 Code § 226(e) if “the employer fails to provide a wage statement” or if the employer “fails to 12 provide accurate and complete information as required by any one or more of items (1) to (9), 13 inclusive, of subdivision (a).” Id. §§ 226(e)(2)(A), (B). An employer must provide to every 14 employee an accurate itemized statement in writing showing: 15 (1) gross wages earned, (2) total hours worked by the employee..., (3) the number of piece rate units earned and any applicable piece rate if 16 the employee is paid on a piece-rate basis, (4) all deductions, provided that all deductions made on written orders of the employee may be 17 aggregated and shown as one item, (5) net wages earned, (6) the inclusive dates of the period for which the employee is paid, (7) the 18 name of the employee and only the last four digits of his or her social security number or an employee identification number other than a 19 social security number, (8) the name and address of the legal entity that is the employer..., and (9) all applicable hourly rates in effect 20 during the pay period and the corresponding number of hours worked at each hourly rate by the employee[.] [22] Cal. Labor Code § 226 (a). A claim for damages under § 226(e) requires a showing of three 23 elements: “(1) a violation of Section 226(a); (2) that is ‘knowing and intentional’; and (3) a 24 resulting injury.” Willner v. Manpower Inc., 35 F. Supp. 3d 1116, 1128 (N.D. Cal. 2014) 25 Defendants do not contest that Plaintiffs have adequately alleged the first two elements of a 26 claim under § 226(e) – knowing and intentional violations of § 226(a). Instead, Defendants argue 27 that the Court should dismiss Plaintiffs’ wage statement claim, Count 9, because (1) Plaintiffs 1 other claims and seeks impermissible double recovery. Mot. at 7. 2 Neither argument is persuasive. Dismissal of Plaintiffs’ wage statement claim is 3 unwarranted. 4 Injury 5 When wage statement claims are predicated on inaccurate or incomplete reporting of “total 6 hours worked” and “number of hours worked at each hourly rate,” under 226 (a)(2) and 226(a)(9), 7 injury is presumed. See Cal. Lab. Code § 226 (e)(2)(B)(i) (“An employee is deemed to suffer 8 injury . . . if the employer fails to provide accurate and complete information as required by any 9 one or more of items (1) to (9), inclusive. . . and the employee cannot promptly and easily 10 determine from the wage statement alone. . . [t]he amount of the gross wages or net wages paid to 11 the employee during the pay period”); Ahmed v. W. Ref. Retail, LLC, 2021 WL 2548958 , at *5-6 12 (C.D. Cal. May 13, 2021) (citing Maldonado v. Epsilon Plastics, Inc., 22 Cal. App. 5th 1308 , 13 1336-37 (2018) (“subdivision (a)(2) and (9) refers to the ‘total hours worked,’ and ‘number of 14 hours worked at each hourly rate.’ These categories are included in subdivision (e)(2)(B)(i)—if 15 they are excluded from the wage statement, injury may be presumed.”). Plaintiffs have alleged 16 that the “Commission Statements” provided to them by Defendants in lieu of regular wage 17 statements did not include total hours worked or number of hours worked at each hourly rate. 18 FAC ¶¶ 36, 81-83. Thus, Plaintiffs are entitled to a presumption of injury for the purposes of their 19 wage statement claim. 20 Moreover, in addition to the presumption of injury to which Plaintiffs are entitled, 21 Plaintiffs have adequately alleged actual injury under § 226. “An aggrieved employee is held to 22 have suffered injury under section 226(a) if his employer fails to provide accurate and complete 23 information. . . and the employee cannot promptly and easily determine from the wage statement 24 alone one or more of the following: (i) the amount of gross or net wages paid or any other 25 information required to be provided pursuant to items (2) to (4), (6), and (9).” Colopy v. Uber 26 Techs. Inc., No. 19-CV-06462-EMC, 2019 WL 6841218 , at *10 (N.D. Cal. Dec. 16, 2019) (citing 27 Achal v. Gate Gourmet, Inc., 114 F. Supp. 3d at 811). The deprivation of information required by 1 “[I]njuries. . . may be shown through the possibility of not being paid overtime, employee 2 confusion over whether they received all wages owed them, difficulty and expense involved in 3 reconstructing pay records, and forcing employees to make mathematical computations to analyze 4 whether the wages paid in fact compensated them for all the hours they worked.” Achal, 114. F. 5 Supp. 3d at 811–12. As the court noted in Alonzo v. Maximus, Inc., 832 F. Supp. 2d 1122 , 1135 6 (C.D. Cal. 2011) (“Courts interpreting California law have recognized that the possibility of not 7 being paid overtime, employee confusion over whether they received all wages owed them, 8 difficulty and expense involved in reconstructing pay records, and forcing employees to make 9 mathematical computations to analyze whether the wages paid in fact compensated them for all 10 hours worked can constitute an injury under section 226(e).” (Internal quotations omitted.) 11 Here, Plaintiffs alleged Defendants failed to “provide employees with accurate itemized 12 wage statements showing gross wages, total hours worked, all applicable hourly rates worked 13 during each pay period, the corresponding number of hours worked at each hourly rate, and the 14 beginning and end of all meal breaks taken,” FAC ¶ 81, and that employees “did not receive pay 15 stubs that, among other issues, recorded their rate of pay, the number of hours that they worked, or 16 broke out the total hours of compensable rest and recovery periods,” id. ¶ 36. Plaintiffs, thus, have 17 sufficiently alleged facts for the Court to infer that they were actually injured because those 18 deficiencies indicate a “possibility of not being paid overtime, employee confusion over whether 19 they received all wages owed them, [and] difficulty and expense involved in reconstructing pay 20 records,” see Achal, 114 F. Supp. 3d. at 811-12. Indeed, this Court so held in Colopy, 2019 WL 21 6841218, at *10 (“Here, Plaintiff's allegations support—although he does not state this point 22 explicitly—a claim that he ‘could not promptly and easily determine’ critical information, 23 including his hours worked and his hourly wages.”). Thus, Plaintiffs have sufficiently plead 24 cognizable injury under § 226. 25 Derivative Claim and Double Recovery 26 Defendants cite Maldonado v. Epsilon Plastics, Inc., 22 Cal. App. 5th 1308 , 1336–37 27 (2018) for the proposition that a plaintiff may not recover on a wage statement claim under § 226 1 damages awarded under Section 226 would result in double recovery. Defendants, however, 2 overstate the holding and reasoning of Maldonado. Maldonado is inapposite. 3 In Maldonado, the California Court of Appeal considered whether plaintiffs had 4 established injury flowing from inaccurate wage statements. 22 Cal. App. 5th at 1335–37. Due to 5 defendant's failure to account for certain hours as overtime, the wage statements misstated the 6 actual wages earned by plaintiffs. Id. The trial court determined plaintiffs had suffered injury 7 because they were not paid all overtime compensation due to them. Id. at 1334–35. On appeal, 8 defendant argued that the injury was insufficient because it did not flow from the inaccurate wage 9 statements but rather the underlying overtime violations. Id. In response, plaintiffs argued that a 10 presumption of injury should be applied pursuant to § 226(e). Id. The court disagreed, concluding 11 the award of wage statement penalties was improper and explaining “only the absence of the hours 12 worked will give rise to an inference of injury” and not the absence of accurate wages earned. Id. 13 at 1336–37 (emphasis in original). The court concluded that because plaintiffs challenged the 14 accuracy of earned wages, which provides no presumption of injury under subdivision (e), and did 15 not allege an injury distinct from that flowing from the underlying wage and hour violation, an 16 award of penalties under § 226 was improper. Hence, the plaintiff failed to demonstrate either a 17 presumptive injury under Section 226(e) or any injury distinct from the actual underlying wage 18 and hour violation: the wage statement claim was wholly derivative of the wage violation. 19 Here, the wage statement claim is not wholly derivative of the wage. This is not a situation 20 where the wage statement is inaccurate solely because of the failure to account for (and pay), e.g., 21 overtime. Here, there was no wage statement at all – a violation that obtains irrespective of, e.g., 22 failure to pay overtime or minimum wage. 23 Moreover, as a matter of statutory construction, Maldonado is distinguishable from the 24 instant case on the question of presumptive injury. As Judge Orrick explained: 25 Following bench trial in Maldonado, the Los Angeles County Superior Court awarded damages for unpaid overtime and penalties 26 for inaccurate wage statements. The Court of Appeals reversed, finding a “failure to pay overtime at the appropriate rate” does not 27 also generate “a wage statement injury justifying the imposition of 1 The court analyzed the statutory language of section 226, drawing a distinction between the term “earned” and the term “worked.” Id. 2 Subdivisions (a)(1) and (5) require the employer to provide information regarding the “gross wages earned” and “net wages 3 earned,” but “these two categories are excluded from subdivision (e)(2)(B)(i)’s list of those categories whose omission gives rise to a 4 presumption of injury.” Id. (emphasis in original). In contrast, subdivisions (a)(2) and (9) refer to the “total hours worked,” and 5 “number of hours worked at each hourly rate.” Id. “These categories are included in subdivision (e)(2)(B)(i)—if they are 6 excluded from the wage statement, injury must be presumed.” Id. Accordingly, the court found that this shows “[t]here is [] clearly a 7 significance to the Legislature's decision that injury is not presumed when a wage statement fails to include wages ‘earned’ but is 8 presumed when the wage statement fails to include hours ‘worked at’ a particular rate.” Id. Therefore, it concluded, “only the absence 9 of the hours worked will give rise to an inference of injury; the absence of accurate wages earned will be remedied by the violated 10 wage and hour law itself.” Id. at 1337 (emphasis in original). 11 Plaintiffs in Maldonado argued that the wage statements did not properly indicate the ninth and tenth hours they worked as overtime, 12 a claim that the court found can be remedied by the violated wage and hour law addressing unpaid overtime. Id. at 1334. Specifically, 13 “there was no suggestion that the wage statements were inaccurate due to time clock rounding or the fact that the meal period was 14 simply included in 12 hours of paid work, rather than separately itemized.” Id. at 1334 n.14. [15] 16 Fodera v. Equinox Holdings, Inc., No. 19-CV-05072-WHO, 2020 WL 3961985 , at *4–5 (N.D. 17 Cal. July 13, 2020). Judge Orrick went on to distinguish the allegations in the case before him 18 from those in Maldonado: 19 The allegations here are different from the facts in Maldonado. Here, plaintiffs allege that the wage statements do not reflect all 20 hours that they worked. SAC ¶ 28. This is precisely the type of section 226 claim that Maldonado court approved of because it does 21 not run into the problem of double recovery; rather, it would be entitled to an inference of injury pursuant to subdivision (e)(2)(B)(i). 22 See Kastler v. Oh My Green, Inc., No. 19-CV-02411-HSG, 2019 WL 5536198 , at *9 (N.D. Cal. Oct. 25, 2019) (finding defendant's 23 double recovery argument based on Maldonado unconvincing and concluding plaintiff sufficiently alleged a section 226 claim for 24 failure to provide the total hours worked on wage statements due to the automatic deduction policy) [.] [26] Id. at *5 . 27 As in Fodera, Plaintiffs have alleged that they were deprived of wage statements that 1 claim that the Maldonado court approved of because it does not run into the problem of double 2 recovery.” Id. 3 Notably, courts in this district have repeatedly found that section 226 claims are adequately 4 pleaded even if they are derivative of other wage and hour claims. See, e.g., id.; Johnson v. 5 Q.E.D. Envtl. Sys. Inc., No. 16-CV-01454-WHO, 2016 WL 4658963 , at *4 n.1 (N.D. Cal. Sept. 7, 6 2016) (“Because Johnson sufficiently alleges his first two claims for missed meal and rest breaks 7 and failure to pay overtime, and Johnson's third claim for failure to provide accurate written wages 8 is derivative of his first two claims, QED's motion to dismiss the third claim is DENIED.”); 9 Suarez v. Bank of Am. Corp., No. 18-CV-01202-MEJ, 2018 WL 3659302 , at *13 (N.D. Cal. Aug. 10 2, 2018) (denying motion to dismiss plaintiff’s wage statement claim that was based on underlying 11 claims for missing meal and rest period and unrecorded overtime); see also Castillo v. Bank of 12 Am. Nat'l Ass'n, No. SACV170580DOCKESX, 2019 WL 7166055 , at *8 (C.D. Cal. Oct. 29, 13 2019) (“[T]he Court rejects Defendant's argument that the wage statement theory predicated on the 14 unpaid wages violation fails as a matter of law. . . [H]ere Plaintiff argues there is an absence of 15 actual hours worked on her wage statement. Therefore, Maldonado is inapposite.”). 16 Accordingly, dismissal of Plaintiffs’ wage statement claim is unwarranted. 17 B. UCL Claim (Count 11) 18 Defendants argue that the Court should dismiss Plaintiff’s UCL claim, Count 11, because 19 Plaintiffs do not allege that they lack an adequate remedy at law. Mot. at 7. Next, Defendants 20 argue that, if Plaintiff’s UCL claim may proceed, they may not recover labor code penalties for 21 meal and rest break violations as restitution. Id. at 15 . Finally, Defendants contend that Plaintiff 22 cannot pursue injunctive relief because they no longer contract with Defendants. Id at 7. 23 Pleading Remedies in the Alternative 24 Defendants argue that the Ninth Circuit’s decision in Sonner v. Premier Nutrition Corp., [25] 971 F.3d 834, 838 (9th Cir. 2020) requires dismissal of Plaintiffs’ UCL claim because Plaintiffs 26 have not alleged that they lack an adequate remedy at law to establish that they are entitled to seek 27 equitable remedies under the UCL. As the parties correctly note, the import of Sonner at the 1 Eason v. Roman Catholic Bishop of San Diego, 414 F. Supp. 3d 1276 , 1282 (S.D. Cal. 2019) 2 (citing cases taking conflicting positions). This Court’s analysis of the issue has evolved, too. 3 Previously, the Court held that a Plaintiff must sufficiently allege an inadequate remedy at law to 4 state a claim under the UCL and that failure to do so at the pleading stage could warrant dismissal. 5 Mish v. TForce Freight, Inc., No. 21-CV-04094-EMC, 2021 WL 4592124 , at *6 (N.D. Cal. Oct. 6, 6 2021). But, in its most recent examination of the issue in Nacarino v. Chobani, LLC, this Court 7 joined courts that have held that Sonner does not preclude plaintiffs from pleading equitable 8 remedies in the alternative: 9 Sonner teaches that a plaintiff, on the eve of trial, cannot create an inadequacy of a legal remedy by eliminating its availability by 10 taking volitional action. See Guzman v. Polaris Indus. Inc., No. 8:19-cv-01543-FLA (KESx), 2021 WL 2021454 , at *11 (C.D. Cal. 11 May 12, 2021) (in granting the defendants' motion for summary judgment the court explained that the plaintiff sought damages for 12 violations of the CLRA in addition to restitution under the UCL in the second amended complaint but failed to identify facts to 13 establish an inadequate legal remedy and the court noted that “the relevant question, however, is not whether [the plaintiff] has pleaded 14 legal remedies, but whether he could have sought an adequate legal remedy.”), appeal filed May 19, 2021 (No. 21-55520). Similarly, 15 where the plaintiff had an adequate legal remedy but forsook it (e.g., by failure to abide by the statute of limitations), the plaintiff cannot 16 be said to have been without an adequate legal remedy. See Guzman, 2021 WL 2021454 , at *11. [17] Thus, while a plaintiff may not through actions within its control 18 forsake an adequate legal remedy and then claim it has no adequate legal remedy, thereby opening the door to otherwise identical 19 equitable relief, the analysis is less clear where the legal remedy has been denied despite plaintiff's best efforts. In particular, it is not 20 clear whether the plaintiff must demonstrate there is some structural impediment to an equivalent legal remedy (such as a statutory limit) 21 as opposed to e.g., a failure of factual proof on the legal claim. Although this Court in its prior order suggested the plaintiff 22 must demonstrate there is some “inherent limitation” on the legal remedy (Order at 22; Docket No. 48), other courts have 23 indicated imposing such a burden at the pleading state may be premature. The Court takes note of those decisions and refines 24 its analysis, at least as it applies at this pleading stage. 25 In Junhan Jeong v. Nexo Financial LLC, et. al., No. 21-CV-02392BLF, 2022 WL 174236 (N.D. Cal. Jan. 19, 2022), in addition to 26 several other claims, the plaintiff sought damages under breach of contract and UCL claims, as well as restitution under the UCL and 27 injunctive relief under the UCL and CLRA. On a motion to dismiss, “[c]ourts in the Ninth Circuit are divided on how exacting a standard 1 Sonner imposes on plaintiffs who plead claims for equitable remedies at the pleading stage.” Id. at*27 (citing Byton N. Am. Co. 2 v. Breitfeld, No. CV 19–10563–DMG (JEMx), 2020 WL 3802700 , at *9 (C.D. Cal. Apr. 28, 2020) (referencing an “intra-circuit split on 3 the issue of whether courts may allow UCL claims to proceed past the pleading stage when other adequate remedies exist” but holding 4 that in the absence of controlling authority, the court would allow the plaintiffs to plead UCL claims in the alternative, even when 5 other adequate remedies may exist) (citation omitted)). The court found “that Sonner has limited applicability to the pleading stage 6 because it pertained to circumstances in which a plaintiff dropped all damages claims on the eve of trial” and as such, “provides limited 7 guidance for pleading claims for legal and equitable relief.” Id. In so finding, the court noted other cases where courts “d[id] not 8 consider Sonner to impose strict requirements at the pleading stage.” Id. (citing Freeman v. Indochino Apparel, Inc., 443 F.Supp.3d 1107 , 9 1114 (N.D. Cal. 2020) (“Plaintiff may allege claims in the alternative at the pleading stage. The equitable remedies afforded 10 by the UCL and CLRA are expressly stated to be in addition to other available remedies at law.”); Byton, 2020 WL 3802700 , at *9 11 (“[T]he Ninth Circuit's general rule is that plaintiffs may plead alternative claims, even if those claims are inconsistent.”)). The 12 court emphasized that, “in light of Sonner's limited applicability to the pleading stage, there is no binding precedent that holds 13 that pleading equitable restitution in the alternative is improper.” Id. Thus, “[g]iven the general liberal policy courts 14 have toward pleading in the alternative,” the court held that the plaintiff could “proceed with his equitable restitution claim at 15 this stage even though he is also seeking contract damages” and that the court could “reassess at a later stage of the case ....” Id. 16 . . .These rulings are consistent with Federal Rule of Civil Procedure 8 which allows for pleading in the alternative. 17 Specifically, Rule 8 states that a claim for relief must contain “a demand for relief sought, which may include relief in the 18 alternative or different types of relief.” Fed. R. Civ. P. 8(a)(3) (emphasis added). See Sagastume v. Psychemedics Corp., 2020 WL 19 8175597, at *7 (C.D. Cal. Nov. 30, 2020) (“Sonner does not hold that plaintiffs may not seek alternative remedies at the pleading 20 stage.”) (citations omitted). . . . 21 Thus, “[w]hile the Court may reassess at a later stage of this case, it declines to trim out Plaintiff's equitable restitution claim 22 at this early stage.” Junhan Jeong, 2022 WL 174236 , at *27. The issue of Plaintiff's entitlement to seek the equitable remedy 23 of restitution may be revisited at a later stage. 24 No. 20-CV-07437-EMC, 2022 WL 344966 , at *8–10 (N.D. Cal. Feb. 4, 2022) (emphases added). 25 Consistent with Nacarino, the Court concludes Sonner does not preclude a plaintiff from pleading 26 equitable remedies in the alternative. Id.1 Thus, Plaintiffs’ request for restitution under the UCL [27] 1 as a remedy in the alternative to legal remedies under the labor code is both sufficient and 2 permissible at the pleading stage. As in Nacarino, the “issue of [P]laintiffs’ entitlement to seek 3 the equitable remedy of restitution may be revisited at a later stage.” Id. at *10 . 4 Wages or Penalties Under § 226.7? 5 Defendants contend Plaintiffs cannot recover meal and rest period premium pay under 6 Section 226.7 as restitution under their UCL claim. Mot. at 15. Section 226.7 of the California 7 Labor Code provides that an employer who fails to provide legally compliant meal and rest breaks 8 must pay the employee one addition hour of pay at the employee's regular rate of compensation. [9] Cal. Lab. Code § 226.7 (b). Remedies under the UCL are generally limited to restitution and 10 injunctions. Cel-Tech Comms., Inc. v. Los Angeles Cellular Tel., 20 Cal 4th 163, 179 (1999). 11 Restitution under the UCL includes “earned wages.” Cortez v. Purolator Air Filtration Prods. 12 Co., 23 Cal. 4th 163, 177-78 (2000). 13 The California Supreme Court has not addressed whether Section 226.7 pay is recoverable 14 under the UCL, but it has treated such pay as wages for some purposes. In Murphy v. Kenneth 15 Cole Productions, Inc., the Court held that the “additional hour of pay” required under Section 16 226.7 is “a premium wage intended to compensate employees, not a penalty,” for purposes of 17 statute of limitations. 40 Cal. 4th 1094, 1102-14 (2007). However, in Kirby v. Immoos Fire 18 Protection, Inc., the court held that a Section 226.7 claim does not represent an action for 19 nonpayment of wages because the legal violation triggering the statute is failure to provide meal 20 and rest breaks, rather than failure to pay wages. 53 Cal. 4th 1244, 1256-57 (2012). The differing 21 treatment by California's highest court has led to a split among district courts in treatment of 22 Section 226.7 pay under the UCL. See Brewer v. Gen. Nutrition Corp., No. 11-CV-3587 YGR, [23] 2015 WL 5072039 , at *18 (N.D. Cal. Aug. 27, 2015) (listing cases demonstrating split). 24 Judge White recently analyzed this intra-circuit split in McGhee v. Tesoro Ref. & Mktg. 25 Co. LLC and provided persuasive analysis that violations of Section 226.7 are recoverable under 26 the UCL: [27] 1 Defendants now argue that McGhee cannot recover payment under Section 226.7 because they do not constitute “earned wages” under 2 Cortez. As support, they cite Kirby and other cases that found that violations leading to payments Section 226.7 are not for 3 “nonpayment of wages,” as well as district court cases that relied on these decisions. E.g., Jones v. Spherion Staffing LLC, 2012 WL 4 3264081, at *6 (C.D. Cal. Aug. 7, 2012); Guerrero v. Halliburton Energy Servs., Inc., 231 F. Supp. 3d 797, 808 (E.D. Cal. 2017). In 5 so doing, Defendants entirely ignore Murphy. As Kirby explained, there is no inconsistency between its holding and that 6 of Murphy because they address different questions: Kirby analyzed the action triggering the violation under Section 226.7, 7 while Murphy considered whether the resulting penalty constitutes “wages.” 53 Cal. 4th at 1257 . In this regard, Murphy 8 is clear: the additional hour of pay under Section 226.7 is “a premium wage intended to compensate employees.” Murphy, 40 9 Cal. 4th at 1114. 10 Section 226.7 pay is therefore recoverable as restitution because it is “the property of the employee who has given his or her 11 labor” by working without breaks. Cortez, 23 Cal. 4th at 178 ; see also Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134 , 12 1149 (2003) (restitution “restore[s] the status quo by returning to the plaintiff finds in which he or she has an ownership 13 interest”). 14 Defendants argue that Section 226.7 pay does not constitute “earned” wages because it results from employers' actions, rather 15 than the employee's labor. Defendants cite Pineda v. Bank of America, N.A. as authority, where the California Supreme Court 16 held that Section 203 waiting time penalties are not recoverable under the UCL because they are “not designed to compensate 17 employees for work performed,” but rather to “punish employers” who fail to pay final wages on time. 50 Cal. 4th 1389, 1401 (2010). 18 But extending Pineda in this way plainly conflicts with Murphy, which held that Section 226.7 payments are not a penalty, but a 19 “premium wage.” 40 Cal. 4th at 1114 . 20 The better interpretation is that Section 226.7 compensates employees for working without breaks, which is properly 21 recoverable as restitution because it is triggered in part by the employee's actions. [23] 440 F. Supp. 3d 1062 , 1072 (N.D. Cal. 2020) (emphases added). See also Calleros v. Rural Metro 24 of San Diego, Inc., No. 17-CV-00686-CAB-BLM, 2017 WL 3252551 , at *3 (S.D. Cal. July 31, 25 2017) (“The wages provided by section 226.7 are akin to overtime wages, and thus constitute 26 restitution. This conclusion is grounded in the state’s supreme court decisions in Murphy and 27 Pineda v. Bank of America, N.A., 241 P.3d 870 (2010), the relevant statute of limitations, and a 1 1276, 1284 (S.D. Cal. 2019) (“Wages awarded for meal period violations are recoverable as 2 restitution under the UCL. Wages recovered under section 226.7 compensate the employee for 3 more than the hours actually worked.”) (citing Calleros). 4 The Court agrees with Judge White’s analysis, and rejects Defendants’ arguments. 2 5 Accordingly, the Court denies Defendants’ request to dismiss UCL claim for restitution as to pay 6 under § 226.7. 7 Injunctive Relief 8 Defendants argue that Plaintiffs, as former employees, lack standing to pursue prospective 9 injunctive relief against their former employers in the absence of allegations demonstrating an 10 ongoing relationship or that they would benefit from the injunctive relief. Mot. at 16 (citing Wal11 Mart Stores, Inc. v. Dukes, 564 U.S. 338 , 364–65 (2011); Walsh v. Nevada Dep’t of Human Res., [12] 471 F.3d 1033 , 1036–37 (9th Cir. 2006)). Plaintiffs do not dispute that the FAC, as plead, lacks 13 sufficient allegations to provide a basis for their requests for injunctive relief. Opp. at 17. Instead, 14 Plaintiffs argue that the additional details they alleged in their ex parte application for Temporary 15 Restraining Order, including facts demonstrating a continuing personal need for prospective relief 16 in light of Defendants’ actions to enforce and collect debts against Plaintiffs stemming from 17 Plaintiffs’ time employed with Defendants, would cure any deficiencies. Plaintiffs acknowledge 18 that the details in their TRO application are not currently plead in the FAC, and seek leave to 19 amend. 20 Thus, the Court grants Defendants’ motion to dismiss Plaintiffs’ requests for injunctive 21 relief but, in light of Fed. R. Civ. P. 15(a) liberal policy favoring amendment, also grants Plaintiffs 22 leave to amend to allege facts that might support some form of injunctive relief. 23 /// 24 /// [26] 2 Defendants’ reference (in a footnote in their reply brief) to Naranjo v. Spectrum Sec. Servs., Inc., 40 Cal. 5th (2019) is not on point and does not alter the analysis. There a California Court of [27] Appeal held “that section 226.7 actions do not entitle employees to pursue the derivative penalties 1 IV. CONCLUSION 2 The Court GRANTS Defendants’ motion for judgment on the pleadings as to Plaintiffs’ 3 request for injunctive relief, but grants Plaintiffs leave to amend this request. The Court DENIES 4 Defendants’ motion for judgment on the pleadings in all other respects. Plaintiffs have thirty (30) 5 days from entry of this order to file an amended complaint. 6 This order disposes of Docket No. 119. [7] 8 IT IS SO ORDERED. [9] 10 Dated: March 22, 2022 [11] 12 ______________________________________ EDWARD M. CHEN 13 United States District Judge