Roush et al v. MSI Inventory Service Corporation et al

Filing 21

ORDER signed by District Judge John A. Mendez on 07/30/18 GRANTING IN PART and DENYING IN PART the 15 Motion to Dismiss as follows: the Court GRANTS the McClains' Motion with respect to the state law claims, with prejudice as to violations a lleged to have occurred prior to 01/01/16, and with LEAVE TO AMEND those allegations against the McClains as to violations alleged to have occurred on and after 01/01/16. The Court DENIES the McClains' Motion as to Plaintiffs' Fair Labor S tandards' Act claim. Plaintiffs shall file their amended complaint within 20 days; McClains shall file their responsive pleading within 20 days thereafter. Counsel for the McClains is ORDERED TO PAY $150.00 in sanctions to the Clerk of the Court within 5 days for exceeding page limits. (Benson, A.)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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KIM ROUSH, et al.,

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No.

2:17-cv-1010-JAM-KJN

Plaintiffs,

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v.

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MSI INVENTORY SERVICE CORP.,
et al.,

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Defendants.

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ORDER GRANTING IN PART
INDIVIDUAL DEFENDANTS JAMES O.
MCLAIN AND SANDRA B. MCCLAIN’S
MOTION FOR JUDGMENT ON THE
PLEADINGS

Kim Roush, Sheila Emmerling, and Cindy Henderson

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(collectively “Plaintiffs”) filed this putative class action

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against their employers MSI Inventory Service Corporation, I-

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Fran, Inc., James O. McClain, and Sandra B. McClain

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(collectively “Defendants”) alleging various wage and labor law

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violations.1

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“McClains”) seek dismissal, or judgment on the pleadings, of

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Plaintiffs’ Complaint against them.

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below, the McClains’ motion is granted in part, with leave to

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amend.

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James O. McClain and Sandra B. McClain (the

For the reasons set forth

This motion was determined to be suitable for decision without
oral argument. E.D. Cal. L.R. 230(g). The hearing was
scheduled for July 10, 2018.
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I.

FACTUAL ALLEGATIONS AND PROCEDURAL BACKGROUND

The following facts are taken as true for purposes of this
motion:
Plaintiffs are current or former employees who have worked

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for Defendants within the last four years.

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Complaint (“FAC”), ECF No. 5, ¶ 7.

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product inventory in retail stores within the State of

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California by traveling to store locations and manually

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capturing the stock keeping unit number for each item of

Their job is to count

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physical inventory.

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not properly paid for time spent reporting to local company

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offices, loading equipment into vehicles used to travel to the

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retail stores, and traveling to those retail stores.

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They further claim that Defendants’ time-keeping system resulted

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in unlawful deductions of employee work hours.

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Specifically, Defendants “record their employees’ work hours in

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finite increments of minutes during periods in which the

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scanners [(the tool employees use to scan barcodes or enter

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stock keeping unit numbers of products being counted)]

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transmitted electronic signals to the host computer.”

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Under this system, employees are not compensated for time during

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which the scanners are left idle or malfunction but the

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employees continue to perform work or are otherwise engaged to

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wait.

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of 10 to 13 hours of labor but only 4 to 6 hours of actual pay.

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FAC ¶ 16.

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FAC ¶ 15.

FAC ¶¶ 7, 13.

First Amended

They claim that they were

FAC ¶ 14.

FAC ¶ 15.

FAC ¶ 15.

These systems have resulted in long workdays

Plaintiffs claim that all four named defendants violated
their rights under the Fair Labor Standards Act, the California
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Labor Code, and California’s Unfair Competition Law.

Defendants

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MSI Inventory Service Corporation and I-Fran, Inc.,

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(collectively “Corporate Defendants”) are corporations

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headquartered in Mississippi. FAC ¶¶ 3, 4.

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McClain is the President and Director of Defendant MSI and the

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President, Treasurer, and Director of Defendant I-Fran.

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¶ 5.

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of Defendant MSI, and is the Vice President, Secretary, and

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Director of Defendant I-Fran.

Defendant James O.

FAC

Defendant Sandra B. McClain is the Secretary and Director

FAC ¶ 6.

Due to their respective

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roles, Plaintiffs allege that the McClains are each an “owner,

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director, officer, managing agent, or ‘other person acting on

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behalf of’ the Defendant Employers within the meaning of Labor

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Code section 558.1.”

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FAC ¶¶ 5, 6.

Plaintiffs filed their Complaint against all Defendants on

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May 13, 2017, ECF No. 1, and filed their First Amended Complaint

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on August 8, 2017, adding a claim under the Private Attorney

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General Act, ECF No. 5.

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Dismiss and/or for Judgment on the Pleadings in February of

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2018, but, due to notice deficiencies, the motion was not set to

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be heard until July 10, 2018.

The McClains filed their Motion to

ECF Nos. 10, 11, 12, 14, & 16.

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II.

OPINION

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A.

Legal Standard

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A complaint may be dismissed pursuant to Federal Rule of

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Civil Procedure 12(b)(6) for failure to state a claim upon which

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relief may be granted.

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defendant may move for judgment on the pleadings under Federal

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Rule of Civil Procedure 12(c) on the same basis.

After an answer has been filed, a

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Aldabe v.

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Aldabe, 616 F.2d 1089, 1093 (9th Cir. 1980) (“We believe the

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best approach is . . . treating the motion to dismiss as a

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motion for judgment on the pleadings. . . . Rule 12(h)(2) should

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be read as allowing a motion for judgment on the pleadings,

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raising the defense of failure to state a claim, even after an

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answer has been filed.”).

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identical, the same standard of review applicable to a Rule

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12(b) motion applies to its Rule 12(c) analog.”

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Hustler Magazine Inc., 867 F.2d 1188, 1192 (9th Cir. 1989).

“Because the motions are functionally

Dworkin v.
As

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with a motion to dismiss, a district court granting a Rule 12(c)

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motion based on the plaintiff’s failure to state a claim should

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grant leave to amend where appropriate.

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F.3d 755, 767 (9th Cir. 2014) (district court erred in granting

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judgment on the pleadings and not permitting plaintiff an

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opportunity to amend his complaint where it was not “absolutely

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clear” that he could not cure its deficiencies by amendment).

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Jackson v. Barnes, 749

Defendants filed their Answer to the First Amended

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Complaint on September 5, 2017.

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its Status (Pre-Trial Scheduling) Order on January 1, 2018.

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No. 9.

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motion as one for judgment on the pleadings.

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the standard of review is identical to a motion to dismiss for

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failure to state a claim and leave to amend should be granted

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unless it is clear Plaintiffs will be unable to cure any

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identified deficiencies.

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B.

ECF No. 6.

The Court issued
ECF

Given this background, the Court treats the McClains’
As outlined above,

Analysis
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State Law Claims

In 2016, a new law took effect that changes the terms of
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individual liability for California Labor Code violations.

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California Labor Code section 558.1 reads as follows:

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(a) Any employer or other person acting on behalf of
an employer, who violates, or causes to be violated,
any provision regulating minimum wages or hours and
days of work in any order of the Industrial Welfare
Commission, or violates, or causes to be violated,
Sections 203, 226, 226.7, 1193.6, 1194, or 2802, may
be held liable as the employer for such violation.

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(b) For purposes of this section, the term “other
person acting on behalf of an employer” is limited to
a natural person who is an owner, director, officer,
or managing agent of the employer, and the term
“managing agent” has the same meaning as in
subdivision (b) of Section 3294 of the Civil Code.

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(c) Nothing in this section shall be construed to
limit the definition of employer under existing law.

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Cal. Lab. Code § 558.1 (emphasis added) (“section 558.1”).

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Plaintiffs’ Labor Code claims against the McClains are premised

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on this new Labor Code section.

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The McClains argue that Plaintiffs have failed to state a

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claim against them.

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personally liable for Plaintiffs’ wage and hour claims because

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Plaintiff has not sufficiently pled that either of them employed

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Plaintiffs.

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to sufficiently allege that they are alter egos of the Corporate

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Defendants.

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not apply to them because it did not exist when the alleged

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Labor Code violations began.

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section 558.1 should not be interpreted in a manner that

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interferes with long-standing corporate protections.

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First, they argue that they cannot be held

Mot. at 5–7.

Mot. at 8–9.

Second, they argue Plaintiffs failed

Third, they argue section 558.1 does

Mot. at 9–11. Fourth, they argue

Mot. at

The Court addresses each argument in turn.2

The Court declines the McClains’ invitation to hold the law
“invalid, unlawful, and unconstitutional on the basis that it
directly clashes with the various, long-standing protections that
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The text of Labor Code section 558.1 disposes of the

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McClains’ argument that Plaintiffs’ claims fail because

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Plaintiffs did not allege that the McClains are “employers.”

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Because section 558.1 expands liability beyond just “employers”

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to include “other persons acting on behalf of the employer,”

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“employer” allegations are no longer necessary.

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the McClains’ cited authority defining “employer” is inapposite.

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See Mot. at 5–7 (discussing Cordell).

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analysis in Cordell involved the question of whether an owner of

Accordingly,

The district court’s

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a company could be held liable as an “employer” under the Labor

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Code.

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2016 WL 4702654 (N.D. Cal. Sept. 8, 2016).

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owner is to be treated similarly to a corporate agent and cannot

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be held individually liable for a violation of Labor Code

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section 203.

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specifically noted that section 558.1 entered into effect after

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the alleged violations in that case took place and did not apply

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to Cordell’s (plaintiff’s) claims.

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558.1 expands liability to those acting on behalf of an

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employer, including “a natural person who is an owner, director,

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officer, or managing agent of the employer.”

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limiting liability for Labor Code violations to “employers” has

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been superseded insofar as it conflicts with the newly enacted

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law.

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See Cordell v. PICC Lines Plus LLC, No. 16-CV-01814-TEH,

Id. at *9.

It found that an

However, the Cordell court

Id. at *8 n.3.

Now, section

Thus, authority

Similarly, the Court is not persuaded that the absence of

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alter ego allegations defeats liability here.

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have been afforded to corporate shareholders, officers[,] and
directors for decades” because the McClains cite no legal
authority for this proposition. See Mot. at 13.
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Again, the new

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statute expressly expands liability to include owners of an

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employer when those owners have violated the enumerated sections

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of the Labor Code.

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their theory that alter ego allegations need to be asserted to

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establish liability, the California Appellate Court—like the

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district court in Cordell—specifically noted that section 558.1

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went into force after the events at issue in that case. See

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Terrazaz v. Unlimited Baking Ingredients, No. B278856, 2017 WL

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6398191, at *5 n.10 (Cal. App. Dec. 15, 2017) (unpublished).

In the McClains’ only cited case supporting

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Thus Terrazaz—which is an unpublished California Appellate

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decision—offers no insight into the relationship between section

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558.1 and the alter ego doctrine.

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The Court agrees that the McClains cannot be held liable

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for violations that occurred before January 1, 2016.

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at 9–11.

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Opp’n at 7.

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prospectively unless there is ‘an express declaration of

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retrospectivity or a clear indication’ that the Legislature

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intended otherwise.”

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Cal. 4th 197, 228 (2001) (quoting Tapia v. Super. Ct., 53 Cal.

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3d 282, 287 (1991)).

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declaration or clear indication from the State Legislature that

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it intended section 558.1 to operate retrospectively.

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Therefore, the Court grants the McClains’ motion for judgment on

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the pleadings with prejudice insofar as Plaintiffs’ state law

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claims against them encompass violations occurring before

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January 1, 2016.

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See Mot.

Plaintiffs do not appear to dispute this point.

See

In California, “[a] statute is presumed to operate

Preston v. State Bd. of Equalization, 25

Plaintiffs have not pointed to any express

As for the proper interpretation of the new law, the Court
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finds that section 558.8 does not enable courts to, in effect,

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pierce the corporate veil to hold corporate owners,

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shareholders, or other officers liable for wrongdoing committed

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by the employer corporation.3

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individuals (owners, directors, officers, or managing agents)

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liable for their own violations of the enumerated state laws or

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for causing such violation.

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recover against the McClains by virtue of their position as

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officers and directors of the corporate defendants alone.

Instead, the law makes these

Accordingly, Plaintiffs cannot

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Rather, the McClains may only be held liable under the statute

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if they themselves acted to violate or cause the violation of

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California’s labor laws.

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The Court finds Plaintiffs’ allegations insufficient to

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state a claim against the McClains.

Plaintiffs only allege that

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the McClains are officers and directors of the Corporate

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Defendants.

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McClains took in their individual capacity to violate

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Plaintiffs’ labor rights or to cause such violation.

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at 7.

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together with respect to some allegations, conclusory

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allegations that do not specify the McClains’ role in the

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alleged wrongdoing do not suffice.

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McClains’ motion is granted with respect to the state law claims

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asserted against them.

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the allegations against the McClains, only.

They do not allege what specific actions the

See Mot.

While it may be acceptable to group all four Defendants

For this reason, the

Plaintiffs are permitted leave to amend

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As of the date of this Order, it appears that no California
Appellate Court has been called upon to interpret Labor Code
section 558.1 or to address the arguments presented in this
motion.
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2.

Federal Claim

As Plaintiffs point out, “[t]he McClains make no challenge

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to their personal liability for FLSA violations as corporate

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officers of [Corporate Defendants].”

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their moving papers, the McClains only argue that the

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allegations are insufficient to establish their status as

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“employers” as defined under California law.

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They did not argue that Plaintiffs failed to state a claim under

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FLSA, set forth any legal standards under FLSA, or cite any

Opp’n at 4.

Indeed, in

See Mot. at 6–7.

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court authority interpreting FLSA.

The Court declines to grant

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the McClains’ motion on a claim that the McClains failed to

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address in their moving papers.

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III.

ORDER

For the reasons set forth above, the Court GRANTS the

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McClains’ Motion for Judgment on the Pleadings with respect to

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the state law claims, with prejudice as to violations alleged to

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have occurred prior to January 1, 2016, and with leave to amend

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those allegations against the McClains as to violations alleged

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to have occurred on and after January 1, 2016.

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the McClains’ Motion for Judgment on the Pleadings as to

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Plaintiffs’ Fair Labor Standards’ Act claim. Plaintiffs shall

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file their amended complaint within twenty days of the date of

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this Order and the McClains shall file their responsive pleading

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within twenty days thereafter.

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The Court DENIES

On May 15, 2017, this court issued its Order re Filing

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Requirements.

ECF No. 4-2.

The Order limits memoranda of law

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in support of and in opposition to motions, including those made
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under Federal Rule of Civil Procedure 12, to fifteen pages and

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reply memoranda to five pages.

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of this Order will result in monetary sanctions being imposed

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against counsel in the amount of $50.00 per page and the Court

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will not consider any arguments made past the page limit.”

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Order re Filing Requirements at 1.

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pages long.

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after page five of the Reply.

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ordered to pay $150.00 in sanctions to the Clerk of the Court

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It further states: “A violation

The McClains’ Reply is eight

The Court has not considered any arguments made
Counsel for the McClains is

within five days of the date of this Order.
IT IS SO ORDERED.
Dated: July 30, 2018

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