Young v. Chao

[3] 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA [6] 7 CHERYL YOUNG, Case No. 19-cv-01411-JCS 8 Plaintiff, ORDER DENYING MOTION TO 9 v. DISMISS COUNTERCLAIMS 10 PETE BUTTIGIEG, Re: Dkt. No. 84 Defendant. [11] 12 I. INTRODUCTION 13 Plaintiff Cheryl Young, pro se, prevailed on administrative claims for employment 14 discrimination against her former employer, the Department of Transportation (“DOT”). When 15 Defendant, the Secretary of Transportation, failed to offer Young a position she considered 16 equivalent for reinstatement, Young brought this action to challenge the outcome of the 17 administrative proceedings. By necessity, Young seeks de novo review of the administrative 18 determination. The Court previously denied the Secretary’s motion for summary judgment based 19 on Young’s failure to return the back pay she received from the administrative decision, but 20 allowed the Secretary to bring a counterclaim for such funds, subject to a motion to dismiss. 21 The Secretary has now filed counterclaims for unjust enrichment and recovery of a debt 22 owed to the United States, and Young moves to dismiss. The Court finds the matter suitable for 23 resolution without oral argument and VACATES the motion hearing set for May 13, 2022. The 24 case management conference set for the same time remains on calendar and will occur as 25 scheduled. For the reasons discussed below, the motion to dismiss is DENIED.1 [27] 1 II. BACKGROUND 2 A. Procedural History and Previous Order 3 The procedural history of this case is complex and largely not relevant to the outcome of 4 the present motion. In brief, Young prevailed on administrative claims of discrimination, and the 5 Equal Employment Opportunity Commission (“EEOC”) ordered the DOT to reinstate her to an 6 equivalent position and provide back pay. The DOT offered her a position, but Young did not 7 agree that it was equivalent to previous job, and she filed a petition for enforcement. The EEOC 8 granted that petition in part, finding some fault with the DOT’s documentation and payment of 9 back pay, but concluding that the position the DOT offered Young was sufficiently similar to her 10 past position to be equivalent, and that Young was only entitled to back pay through March 17, 11 2017, when she “effectively rejected said offer.” 2nd Am. Compl. (“SAC,” dkt. 44) Ex. 40 at 8. 12 Young filed this action pro se, seeking to enforce the EEOC’s decision as she understood 13 it, which would require either offering a different position for reinstatement or providing front pay 14 if no such position was available. See Compl. (dkt. 1). The Court dismissed her complaint as 15 untimely, and the Ninth Circuit affirmed the decision to dismiss the claim Young actually asserted 16 (which sought to enforce the EEOC’s final order) because the DOT had complied with that order, 17 relying on Carver v. Holder, 606 F.3d 690 (9th Cir. 2010), which held that a plaintiff who 18 prevailed on liability in administrative proceedings but was unsatisfied with the EEOC’s decision 19 on a petition for enforcement (where, as here, the EEOC concluded that the defendant agency had 20 complied with its previous order and no further action was necessary) could not “parse his action 21 to increase the remedy without relitigating the liability issue in pursuing his claim in federal 22 court.” Carver, 606 F.3d at 692 ; see generally Young v. Chao,2 816 F. App’x 154 (9th Cir. 2020). 23 The Ninth Circuit reversed the denial of leave to amend, however, holding that Young should be 24 permitted to amend her complaint to pursue de novo review of the EEOC’s decision. Young, 816 25 F. App’x at 154–55. 26 Young filed an amended complaint asserting claims for de novo review under Title VII and [27] 1 the Age Discrimination in Employment Act (“ADEA”), and the Court denied in large part the 2 Secretary’s motion to dismiss. Order re Mot. to Dismiss SAC (dkt. 56).3 The Secretary then 3 moved for summary judgment or again to dismiss, raising arguments regarding timeliness that the 4 Court rejected, see Order Denying Mot. for Summ. J. (“MSJ Order,” dkt. 79)4 at 6–12, as well as 5 an argument that Young could not proceed without returning the back pay that she received 6 pursuant to the EEOC’s decision. As to the latter issue, the Court held that Young was not 7 required to return the funds as a precondition to bring her claim, relying on two appellate decisions 8 rejecting similar arguments. Id. at 12–18 9 In Massingill v. Nicholson, 496 F.3d 382 (5th Cir. 2007), the Fifth Circuit addressed the 10 issue as follows: 11 Furthermore, we do not think that Massingill must disgorge or offer to disgorge the money she has received so far for her case to proceed. 12 We recognize that, as the district court noted, two district courts have held otherwise. Indeed, one of those courts held that the defendant’s 13 performance of the injunctive remedy and sending to plaintiff of checks for compensatory damages and attorneys’ fees precluded 14 relief, even though plaintiff had returned the former check and offered to return the latter or post a bond for it and the checks were sent after 15 plaintiff had filed suit but before defendant was served. But there is nothing in the statute creating the right of action, 42 U.S.C. § 2000e– 16 16(c), which precludes suit if the award has been partially or even completely rendered. Defendants might complain that, having 17 rendered an award, they are entitle to repose, but § 2000e-16(c) gives plaintiffs only ninety days after the final agency disposition to sue, 18 and it’s not unreasonable to delay such repose for three months. This is not a situation involving the common-law defense of satisfaction of 19 a debt, settlement, or judgment from some time ago, it is situation where the administrative scheme has played out, the plaintiff has 20 ninety days to sue, and she does so within that time. We do not mean to encourage plaintiffs to accept awards and then file suit, but we 21 cannot conclude that Massingill has forfeited her rights under § 2000e-16(c) in the present circumstances. [22] Of course, the VA here can counterclaim against Massingill for the 23 amounts already paid, obtaining offset against any recovery by Massingill and judgment against Massingill if no liability is found or 24 the offset is greater than the recovery. 25 Massingill, 496 F.3d at 386 (footnote omitted). The D.C. Circuit reached the same conclusion: 26 In this case, Farrar has also expressed no such intent [to return funds]. [27] But so what? Farrar sued under the Rehabilitation Act, which gives 1 employees 90 days from the Commission’s decision—without referring to its award—to file a civil action. 42 U.S.C. § 2000e-16(c). 2 The Act says nothing about requiring an employee to first disgorge, or offer to disgorge, an administrative remedy already received. 3 Although Farrar could have returned, or offered to return, his award before filing suit, the statute doesn’t require it. And we cannot read 4 that requirement into the statute without rewriting it. 5 Farrar v. Nelson, 2 F.4th 986, 988 (D.C. Cir. 2021). 6 Finding those decisions persuasive, this Court held that “[n]otwithstanding whatever claim 7 the Secretary might have to Young’s administrative award if Young fails to prevail in this action,” 8 her “continued possession of those funds is not grounds for dismissal of her claim for de novo 9 review.” MSJ Order at 18. The Court also declined at that time to order Young to place funds in 10 escrow, post a bond, or otherwise secure the funds at issue pending the outcome of this case. Id. at 11 18–20. Based on the Massingill and Farrar decisions’ treatment of potential remedies for the 12 government as dependent on bringing a counterclaim, the Court held “that the Secretary cannot 13 recover funds at issue without affirmatively bringing a claim for them,” and set a schedule for the 14 Secretary to bring a counterclaim, for Young to move to dismiss, and—if the counterclaim 15 survived that motion—for the Secretary to “move for requiring funds to be placed in escrow or the 16 posting of a bond.” Id. at 19–20. 17 B. The Secretary’s Counterclaim and the Parties’ Arguments 18 The Secretary alleges in his counterclaim that pursuant to the administrative award now on 19 review in this case, the DOT paid Young $60,000 in compensatory damages, reimbursed her 20 attorneys’ fees and costs totaling $196,177.84, and—after accounting for offsets due to retirement 21 benefits, tax liabilities, and other factors—paid back pay of $168,798.69 to Young directly, 22 $35,292 to Young’s Thrift Savings Plan account as employee contributions, and $15,687.69 to 23 Young’s Thrift Savings Plan account as employer contributions. Counterclaim (dkt. 83) ¶¶ 10–16. 24 The Secretary asserts two counterclaims. First, in a counterclaim for unjust enrichment, 25 the Secretary asserts that “[b]y electing to initiate this de novo action, Young forfeited her 26 entitlement to the payments and benefits that she received pursuant to the . . . administrative 27 remedial award and to the benefits of additional payments made by DOT to others pursuant to the 1 ¶¶ 20–27. Second, in a counterclaim under 28 U.S.C. § 3001 et seq., the Secretary asserts that 2 “DOT did not violate Title VII or the ADEA, and thus is not liable to Young for any sums or 3 relief,” and Young therefore “owes DOT the sums it has paid to date as remedies for alleged 4 violations of Title VII and the ADEA.” Id. ¶¶ 28–31. 5 Young argues that the Secretary’s unjust enrichment claim was a compulsory counterclaim 6 that the Secretary waived by failing to include in his answer. Mot. (dkt. 84) at 4–5. Young 7 contends that the Secretary’s unjust enrichment counterclaim is barred by res judicata, citing the 8 Court’s previous order that Young need to return the funds she received in order to proceed on her 9 claim for de novo review. Id. at 5–6. Young also argues that the unjust enrichment counterclaim 10 lacks a necessary allegation that the judgment at issue was “reversed or avoided,” id. at 6–7 (citing 11 the Restatement of Restitution), and that it is not cognizable because the Secretary has an adequate 12 remedy at law pursuant to federal regulations for return of overpayments of back pay, id. at 7–8 13 (citing 5 C.F.R. § 550.805 ). Young makes clear that she agrees the money she received should 14 offset any judgment she obtains here, and that she would likely be required to return funds if she 15 does not prevail here or obtains a lesser judgment. Id. at 7. Young construes the second claim 16 under 28 U.S.C. § 3001 as a request for preliminary relief, and argues that the Secretary has not 17 made the necessary showing for a preliminary injunction under the test of Winter v. Natural 18 Resources Defense Council, Inc., 555 U.S. 7 (2008). Mot. at 8–11. 19 The Secretary contends that he has not waived his counterclaim for unjust enrichment 20 because courts routinely permit counterclaims to be stated in a separate document from a 21 defendant’s answer, and that the Court’s previous order denying the motion for summary 22 judgment effectively granted the Secretary leave to amend his answer to assert his counterclaims. 23 Opp’n at 2–3. The Secretary argues that the doctrine of res judicata is inapplicable because there 24 was no separate action or judgment decided against the Secretary, and that to the extent the Court 25 might construe Young’s motion as instead asserting law of the case, the Secretary’s counterclaim 26 was specifically contemplated by the Court’s previous order and is not inconsistent with the ruling 27 that disgorgement is not a precondition for Young’s own claim for de novo review. Id. at 3–4. 1 “maintains that the administrative award was unjustly retained once Young filed de novo claims, 2 following the Court’s decision on summary judgment, the Secretary’s counterclaim for restitution 3 will depend on the outcome of Young’s de novo claims in this lawsuit.” Id. at 4–5. He further 4 argues that Young has not alleged a remedy on a valid contract claim that would preclude relief 5 through unjust enrichment, and that the regulation she cites also does not afford adequate relief 6 because it provides only for an offset against payment of back pay, which would be of no use here 7 if the Court determined that Young was not entitled to any award. Id. at 5–6. As for his claim 8 under § 3001, the Secretary argues that in accordance with the Court’s previous order, he has not 9 yet sought preliminary injunctive relief, and thus need not satisfy the Winter test at this time. Id. 10 at 6. The Secretary requests leave to amend if the Court finds any defect in his counterclaims. Id. 11 at 7. 12 Young makes clear again in her reply that she does not dispute that she would be required 13 to return funds if she loses this case, and that her primary objection to the counterclaims is the 14 Secretary’s stated position that Young forfeited her right to the funds she received by filing this 15 case, rather than that she would forfeit the funds if she loses. Reply at 2–3. She argues that the 16 Court’s previous order precluded that position by contemplating a return of funds only in the event 17 of a judgment against Young. Id. at 3–4. She also generally frames her waiver and insufficient 18 pleading arguments as based on the counterclaim’s assertion that she lost her right to the funds 19 upon filing this action, but adds that “[t]o survive a motion to dismiss, the Secretary must plead 20 sufficient factual allegations to show it is not only possible but plausible that Young will lose.” Id. 21 at 4–5. She contends that the Secretary has not shown grounds for preliminary relief under § 3100 22 and related provisions, and that the Secretary’s desire for preliminary relief despite Young’s 23 creditworthiness and ability to satisfy any eventual judgment is indicative of bad faith. Id. at 6–7. 24 Young argues that the assertions in the Secretary’s second claim that the DOT did not violate Title 25 VII or the ADEA, and that Young owes the Secretary the funds previously paid, are legal 26 conclusions not entitled to be taken as true. Id. at 5. [27] 1 III. ANALYSIS 2 A. Legal Standard 3 A complaint (or counterclaim) may be dismissed for failure to state a claim on which relief 4 can be granted under Rule 12(b)(6) of the Federal Rules of Civil Procedure. “The purpose of a 5 motion to dismiss under Rule 12(b)(6) is to test the legal sufficiency of the complaint.” N. Star 6 Int’l v. Ariz. Corp. Comm’n, 720 F.2d 578, 581 (9th Cir. 1983). Generally, a claimant’s burden at 7 the pleading stage is relatively light. Rule 8(a) of the Federal Rules of Civil Procedure states that 8 a “pleading which sets forth a claim for relief . . . shall contain . . . a short and plain statement of 9 the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a). 10 In ruling on a motion to dismiss under Rule 12(b)(6), the court takes “all allegations of 11 material fact as true and construe[s] them in the light most favorable to the non-moving party.” 12 Parks Sch. of Bus. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). Dismissal may be based on a 13 lack of a cognizable legal theory or on the absence of facts that would support a valid theory. 14 Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). The claim must be 15 “‘plausible on its face,’” which generally requires that the claimant must plead sufficient factual 16 allegations to “allow the court to draw the reasonable inference that the defendant is liable for the 17 misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. 18 Twombly, 550 U.S. 544, 570 (2007)). 19 B. Unjust Enrichment 20 While the parties dispute the appropriate form for the Secretary’s claim, and the Secretary 21 apparently still maintains a belief that Young forfeited her right to the funds she received by 22 asserting a claim for de novo review, the parties agree on the substantial issues in question. 23 First, that at least in light of the Court’s prior order following the reasoning of Massingill and 24 Farrar, the Secretary will not have final right to recover funds from Young unless and until 25 Young either fails to prevail in this action or obtains a lesser judgment than she did in 26 administrative proceedings. See Opp’n at 5 (“[F]ollowing the Court’s decision on summary 27 judgment, the Secretary’s counterclaim for restitution will depend on the outcome of Young’s de 1 to return any excess funds she received. See Reply at 2–3 (“Young’s position, repeatedly stated in 2 pleadings, is that ‘the amount should be calculated after the adjudication in this court and either 3 offset the award or return to the Agency should the award be less or zero.’” (citing dkt. 70 at 15; 4 dkt. 84 at 7)). 5 Given that Young does not dispute that the Secretary would be entitled to reimbursement if 6 she loses this case, unjust enrichment is an appropriate framework to present that contingent claim. 7 The claim of unjust enrichment is recognized in at least some circumstances under both federal 8 common law and California law. See United States ex rel. Mei Ling v. City of Los Angeles, No. 9 CV 11-974 PSG (JCX), 2018 WL 3814498 , at *33 (C.D. Cal. July 25, 2018) (citing United States 10 v. California, 932 F.2d 1346, 1350 (9th Cir. 1991), for the proposition that “the federal common 11 law already recognizes claims for unjust enrichment”); Hartford Cas. Ins. Co. v. J.R. Mktg., 12 L.L.C., 61 Cal. 4th 988, 1000, 1008 (2015) (reversing dismissal of an unjust enrichment claim 13 under California law). 14 As Young notes in her motion, the Restatement (Third) of Restitution recognizes that a 15 “transfer or taking of property, in compliance with or otherwise in consequence of a judgment that 16 is subsequently reversed or avoided, gives the disadvantaged party a claim in restitution as 17 necessary to avoid unjust enrichment.” Restatement (Third) of Restitution & Unjust Enrichment 18 § 18; see PSM Holding Corp. v. Nat’l Farm Fin. Corp., 884 F.3d 812, 822 (9th Cir. 2018) 19 (addressing § 18 as potentially persuasive as to California law and noting that California courts 20 have applied its predecessor from an earlier version of the Restatement). “Although the present 21 section refers only to a ‘judgment’ that is subsequently reversed or avoided, the same principle 22 governs any case of unjust enrichment in consequence of a judicial or administrative order . . . that 23 is subsequently dissolved or withdrawn.” Id. comment a. Such a claim “may be asserted in any 24 forum having jurisdiction,” and relief may “be decreed by an appellate court as an incident of its 25 power to correct errors,” “ordered by the original tribunal on remand (either sua sponte or on 26 motion); or following reversal even without remand, as an exercise of the court’s inherent 27 equitable powers; or in response to a collateral attack on the judgment,” or “sought in a separate 1 “California courts have long relied on the American Law Institute’s Restatements for 2 guidance.” Pro. Tax Appeal v. Kennedy-Wilson Holdings, Inc., 29 Cal. App. 5th 230, 240 (2018). 3 To the extent federal common law might apply instead, the Court is aware of no reason it would 4 differ. The principle of section 18 discussed above encompasses the relief that both parties agree 5 the Secretary would be entitled to if Young does not prevail on her claim, and given the 6 comments’ emphasis on flexibility as to procedures and forums by which to assert that right, the 7 Court holds that asserting a counterclaim for restitution contingent on the plaintiff’s failure to 8 prevail is consistent with the Restatement. Given that the Secretary has now made clear he does 9 not intend to assert a final right to the funds at issue unless and until Young loses this case, see 10 Opp’n at 5, the Court construes his counterclaim as contingent on that outcome, despite some 11 language therein suggesting that Young forfeited her right to the funds upon filing her claim. See 12 Counterclaim ¶ 24 (“By electing to initiate this de novo action, Young forfeited her entitlement to 13 the payments and benefits that she received . . . .”). Requiring an amendment to more clearly 14 conform the counterclaim to the Secretary’s stated position would be an inefficient exercise in 15 formality serving no practical purpose, inconsistent with the spirit of the Federal Rules of Civil 16 Procedure. Cf., e.g., Fed. R. Civ. P. 15(b)(2) (permitting pleadings to be deemed amended by 17 consent). 18 So construed, the counterclaim is consistent with the Court’s order on summary judgment 19 permitting the filing of “whatever claim the Secretary might have to Young’s administrative award 20 if Young fails to prevail in this action.” See MSJ Order at 18; see also id. at 20 (setting a schedule 21 for such a counterclaim). As Young appears to acknowledge in her reply, the permission granted 22 in the Court’s previous order negates her arguments regarding waiver and preclusion. 23 The question remains what, exactly, the Secretary must allege to support such a claim. The 24 Court is aware of no authority addressing that issue in the context of a counterclaim for unjust 25 enrichment asserted in an action under Title VII or the ADEA for de novo review of an order by 26 the EEOC. 27 Normally, a party asserting a claim for relief must include sufficient factual allegations to 1 unusual. Since Young has elected to pursue de novo review of the claims previously adjudicated 2 by the EEOC, whatever outcome is reached in this case will supersede the administrative order in 3 her favor. The burden is on Young to prove her claims, and if she fails to do so, judgment will be 4 entered against her, nullifying the relief she obtained from the EEOC. The only other requirement 5 for the Secretary to prevail on his claim for unjust enrichment under the restatement principles 6 discussed above is a showing that the Secretary paid Young money pursuant the administrative 7 order, which the Secretary has alleged. See Counterclaim ¶¶ 10–16. The Court finds those 8 allegations sufficient in this context, and will not require the Secretary to allege facts negating the 9 elements of Young’s claims—a function better served by the Secretary’s answer, where the 10 Secretary has denied many of Young’s allegations. See generally Answer (dkt. 58). 11 Accordingly, the Secretary’s unjust enrichment counterclaim may proceed as construed by 12 this order, and Young’s motion to dismiss that counterclaim is DENIED. 13 C. Section 3001 14 The Secretary’s second claim is under 28 U.S.C. § 3001 , the Federal Debt Collection 15 Procedures Act. 16 The Federal Debt Collection Procedures Act of 1990 (FDCPA), 28 U.S.C. §§ 3001–3308, sets forth the “exclusive civil procedures for 17 the United States . . . to recover a judgment on . . . an amount that is owing to the United States on account of . . . restitution.” Id. 18 §§ 3001(a)(1), 3002(3)(B). The FDCPA was enacted “to give the Justice Department uniform Federal procedures—prejudgment 19 remedies and postjudgment remedies—to collect debts owed the United States nationwide.” H.R.Rep. No. 103–883, at 81 (1995). [20] 21 United States v. Mays, 430 F.3d 963, 965 (9th Cir. 2005). “Debts” subject to the statute are 22 defined broadly, and include “an amount that is owing to the United States on account of a fee, 23 duty, lease, rent, service, sale of real or personal property, overpayment, fine, assessment, penalty, 24 restitution, damages, interest, tax, bail bond forfeiture, reimbursement, recovery of a cost incurred 25 by the United States, or other source of indebtedness to the United States.” 28 U.S.C. 26 § 3002(3)(B). 27 Young moves to dismiss this claim on the grounds that the Secretary has not shown ] a currently-existing debt, and has not sufficiently alleged that he did not violate Title VII or the 2 |} ADEA. See Mot. at 8-11; Reply at 5-7. As with the unjust enrichment counterclaim, the Court 3 holds the Secretary to the position taken in his opposition brief, and construes this counterclaim as 4 || asserting a right to the funds at issue that is contingent on Young’s failure to prevail on her own 5 claims. As discussed above, Young does not contest that she would be required to return the funds 6 || in that event. Such an obligation would fall within this statute’s broad definition of a “debt,” and 7 || thus would be subject to the statute’s “exclusive civil procedures” for collection. 8 As a procedural mechanism, it is not entirely clear whether the statute provides an 9 || affirmative claim for relief—an issue the parties have not addressed. But given that there is no 10 || dispute that Young would owe the government money if she does not prevail, and it appears clear 11 that this statute would govern the procedures for collection of such funds, the Court finds no basis 12 || to dismiss it. Young’s motion to dismiss the second counterclaim is DENIED. 13 || IV. CONCLUSION 14 For the reasons discussed above, Young’s motion to dismiss the Secretary’s counterclaims 3 15 is DENIED. Young shall file an answer to the counterclaims admitting or denying each allegation 16 || therein, see Fed. R. Civ. P. 8(b), no later than May 31, 2022. The Secretary, if he so chooses, may 17 || file a motion for preliminary relief after Young files her answer. 18 The Court’s conclusion here does not mean that the Secretary is necessarily entitled to any 19 || form of preliminary relief, under § 3001 or otherwise, or that the Secretary will prevail on the 20 || merits of the case. On the other hand, the Secretary’s concession that he does not have a final 21 right to the funds unless and until Young fails to prove her claims does not necessarily preclude 22 || preliminary relief to ensure that funds would be available in that event. If the Secretary believes 23 such relief is warranted, that is an issue to be addressed on a separate motion. 24 IT ISSO ORDERED. 25 || Dated: May 10, 2022 26 5 ¢ Zo J PH C. SPERO 27 ief Magistrate Judge