Gallano v. Burlington Coat Factory of Cal., LLC ( 2021 )

Filed 8/16/21
CERTIFIED FOR PARTIAL PUBLICATION *
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION ONE
KRIZEL GALLANO,
Plaintiff, Respondent, and
Cross-Appellant A158391
v. (San Mateo County
BURLINGTON COAT FACTORY Super. Ct. No. CIV532414)
OF CALIFORNIA, LLC,
Defendant, Appellant, and
Cross-Respondent.
Defendant Burlington Coat Factory of California (Burlington) appeals
from the trial court’s order granting in part and denying in part its special
motion to strike under Code of Civil Procedure section 425.16 (the anti-
SLAPP statute). 1 Krizel Gallano, a former employee, filed a putative class
action complaint alleging that Burlington forces its employees to pay for
business losses incurred for common on-the-job mistakes by misusing
California’s shoplifting statute. In a prior opinion, we reversed the lower
court’s determination that Burlington’s conduct amounted to extortion as a
matter of law and was therefore unprotected by the anti-SLAPP statute.
Pursuant to California Rules of Court, rules 8.1105(b) and 8.1110, this
*
opinion is certified for publication with the exception of parts II. B, C and D.
1“ ‘SLAPP’ is an acronym for ‘strategic lawsuit against public
participation.’ ” (Baral v. Schnitt (2016) 1 Cal.5th 376, 381, fn. 1.) Krizel
Gallano has filed a cross-appeal from the same order.
1
(Gallano v. Burlington Coat Factory of Cal. LLC (Apr. 27, 2017 No. A146335)
[nonpub. opn.] (Gallano I).) We remanded and directed the trial court to
determine whether Gallano has established a probability of prevailing on her
claims. On remand, the trial court sustained Burlington’s motion to strike
two of the four causes of action in the complaint, and denied the motion with
respect to the other two causes of action. We conclude the trial court erred in
striking one of Gallano’s causes of action. Accordingly, we affirm the order in
part, reverse in part, and remand for further proceedings.
I. FACTUAL AND PROCEDURAL BACKGROUND
Gallano worked as a cashier and customer service representative for
Burlington at its Daly City store. (Gallano I, supra.) One day in March
2014, she was told to go to a room at the back of the store where she was
confronted by loss prevention personnel about mistakes she purportedly
committed that resulted in business losses. She was allegedly coerced into
signing a statement confessing to these mistakes, which included processing
a return of perfume that resulted in a loss of $400 and ringing up items that
had been mismarked by other employees with the wrong price tag. (Id.)
Gallano contends she was not accused of changing prices on merchandise
herself, profiting from her mistakes, or committing any acts of dishonesty.
(Id.) Burlington characterized these mistakes as “fraudulent” returns and
other acts of “shoplifting.”
After Gallano signed the statement, she was directed to sign a
promissory note establishing a personal debt of $880 for the losses her
employer had allegedly sustained. Gallano was told that if she paid the
amount owed on the promissory note and resigned, Burlington would not
pursue criminal charges against her. (Gallano I.) She signed a letter of
resignation and was told she would receive further instructions on how to
2
make payments on her debt. She later received two civil demand letters from
a law firm seeking $350 for “shoplifting, theft, or fraud” pursuant to Penal
Code section 490.5. The letters stated: “This civil claim is separate from, and
in addition to, any criminal proceedings that may have arisen from the
incident and is not an attempt to collect a debt.” (Ibid, bold font omitted.) No
criminal proceedings were ever initiated against Gallano in connection with
her employment at Burlington.
In February 2015, Gallano filed a class action complaint against
Burlington. (Gallano I, supra.) She declared that the purpose of her
complaint was to stop Burlington’s “ ‘unlawful practice of intimidating its
employees into indemnifying the company for [its] ordinary business losses.’ ”
She alleged that Burlington has a practice of mischaracterizing routine retail
mistakes as theft, such as processing fraudulent returns or selling mis-tagged
items. Burlington then misuses the civil shoplifting provision (Pen. Code §
490.5) to intimidate employees into signing promissory notes that force them
to shoulder the debt for the company’s financial losses. (Id.) Gallano
asserted four causes of action: (1) violations of Labor Code 2 section 2802,
subdivision (a); (2) violations of section 1198 and Wage Order No 7-2001(8)
(Cal. Code Regs, tit. 8, §11070); (3) violations under the unfair competition
law (UCL) (Bus. & Prof. Code, § 17200 et seq.); and (4) declaratory relief.
Burlington filed a special motion to strike the complaint under the anti-
SLAPP statute. (Gallano I, supra.) Burlington argued that Gallano’s claims
arose out of protected activity because the challenged conduct was
undertaken in anticipation of litigation. (Id.) Specifically, Burlington
asserted that each of her claims was premised on demands for payment that
2Subsequent citations to code sections are to the Labor Code, unless
otherwise specified.
3
are authorized under Penal Code section 490.5. (Id.). The trial court denied
the motion, concluding that, as a matter of law, Burlington’s conduct
amounted to criminal extortion. (Id.)
We reversed the court’s order in Gallano I, concluding that plaintiff’s
allegations did not conclusively establish that Burlington’s conduct was
illegal and therefore Burlington had carried its initial burden of showing that
plaintiff’s causes of action arise from protected speech or petitioning activity.
(Id.) We remanded for the trial court to consider the second prong of the anti-
SLAPP analysis, which addresses the probability of a plaintiff prevailing on
his or her causes of action and the validity of a defendant’s defenses in
defeating those claims. (Id.)
Following our remand, Gallano moved to conduct limited discovery on
Burlington’s assertion of two affirmative defenses: the litigation privilege
under Civil Code section 47 and the investigation privilege under Penal Code
section 490.5, subdivision (f). As noted above, Burlington previously argued
that its actions were protected by the litigation privilege because they were
undertaken in anticipation of litigation. However, following disagreements
over the discovery requests, Burlington opted to withdraw its litigation
privilege defense.
Burlington continued to assert that it was immune from liability under
the merchant’s “investigation privilege.” Under the shoplifting statute, a
“merchant may detain a person for a reasonable time for the purpose of
conducting an investigation in a reasonable manner whenever the merchant
has probable cause to believe the person to be detained . . . has unlawfully
taken merchandise from the merchant’s premises.” (Pen. Code § 490.5, subd.
(f)(1)). Burlington maintained that investigating employee theft and sending
civil demand letters for the recovery of theft losses are statutorily protected
4
activities under Penal Code section 490.5. (See Pen. Code § 490.5, subd. (f)(7)
[“[I]t shall be a defense to such action that the merchant detaining or
arresting such person had probable cause to believe that the person had
stolen or attempted to steal merchandise and that the merchant acted
reasonably under all the circumstances.”]). The trial court granted Gallano’s
request for discovery, explaining that “if Plaintiff is able to demonstrate on
the second prong that Defendant lacked probable cause, then it would negate
Defendant’s asserted defense of the investigation privilege.”
In opposing Burlington’s renewed special motion to strike, Gallano
argued that the investigation privilege was inapplicable because her claims
related to Burlington forcing its employees to indemnify the company for
ordinary business losses, not to any detention arising from an investigation
for shoplifting. Gallano asserted that she would prevail on her Labor Code
and unlawful competition claims because “Burlington required [her] to
execute an $880 promissory note purporting to indebt her for [alleged] losses
to the company that were, by Burlington’s admissions and documents, and as
demonstrated by [her] uncontroverted testimony, ‘mistakes.’ ” In support of
her declaratory relief action seeking to void the promissory note, she noted
that the website “recoverypay.com”—to which Burlington’s attorney had
directed her to make a payment—still showed that she owed Burlington
$350.
Burlington responded that the investigation privilege barred Gallano’s
claims as a matter of law because her claims all challenge whether
Burlington had probable cause to suspect her of theft and therefore whether
the company was authorized to send the demand letters. Burlington also
argued that Gallano could not establish a probability of prevailing on her
claims because she had not made any expenditure or sustained any loss
5
under the promissory note or the demand for payment under Penal Code
section 490.5. There was no basis for declaratory relief either because
Burlington had “unequivocally relinquished any right to enforce the
promissory note” and “waived any right to recover any sums under Penal
Code section 490.5.” Burlington also clarified it would waive any right to fees
and costs available under Code of Civil Procedure section 425.16, should it
prevail on its anti-SLAPP motion.
On July 31, 2019, the trial court granted in part and denied in part
Burlington’s special motion to strike. The court denied Burlington’s motion
as to the complaint’s section 2802 and declaratory relief causes of action, and
granted the motion as to the section 1198 and unfair competition causes of
action. In doing so, the trial court found that Gallano had “demonstrated a
probability of prevailing on the merits against [Burlington’s] investigation
privilege defense.” 3 This appeal and cross-appeal followed.
II. DISCUSSION
“Courts analyze anti-SLAPP motions using a familiar two-step
analysis.” (Area 51 Productions, Inc. v. City of Alameda (2018) 20
Cal.App.5th 581, 592.) In the first step,“ ‘ “ ‘the court decides whether the
defendant has made a threshold showing that the challenged cause of action
is one ‘arising from’ protected activity.’ ” ’ ” (Id. at 592-593.) Given our prior
holding that Burlington satisfied the first step, we are here concerned only
with the second step of the analysis. “[T]he plaintiff’s second-step burden is a
limited one. The plaintiff need not prove her case to the court [citation]; the
bar sits lower, at a demonstration of ‘minimal merit’ [citation]. At this stage,
‘ “[t]he court does not weigh evidence or resolve conflicting factual claims. Its
3Burlington does not challenge on appeal the trial court’s finding that
Gallano overcame the company’s investigation privilege defense.
6
inquiry is limited to whether the plaintiff has stated a legally sufficient claim
and made a prima facie factual showing sufficient to sustain a favorable
judgment. It accepts the plaintiff’s evidence as true, and evaluates the
defendant’s showing only to determine if it defeats the plaintiff’s claim as a
matter of law.” ’ [Citations.]” (Wilson v. Cable News Network, Inc. (2019) 7
Cal.5th 871, 891 (Wilson).) We review an order granting or denying a motion
to strike under Code of Civil Procedure section 425.16 de novo. (Flatley v.
Mauro (2006) 39 Cal.4th 299, 325.)
A. Section 2802 Claim
The trial court denied Burlington’s motion to strike the complaint’s
first cause of action under section 2802. Section 2802 provides that “[a]n
employer shall indemnify his or her employee for all necessary expenditures
or losses incurred by the employee in direct consequence of the discharge of
his or her duties . . . .” (§ 2802, subd. (a).) Subdivision (c) defines “ ‘necessary
expenditures or losses’ ” as including “all reasonable costs, including, but not
limited to, attorney’s fees incurred by the employee enforcing the rights
granted by this section.” (§ 2802, subd. (c).)
“ ‘The elements of a section 2802, subdivision (a) cause of action, as
delineated by the statutory language, are: (1) the employee made
expenditures or incurred losses; (2) the expenditures or losses were incurred
in direct consequence of the employee’s discharge of his or her duties, or
obedience to the directions of the employer; and (3) the expenditures or losses
were necessary.’ [Citation.]” (Nicholas Laboratories, LLC v. Chen (2011) 199
Cal.App.4th 1240, 1249.) “ ‘California has a strong public policy that favors
the indemnification (and defense) of employees by their employers for claims
and liabilities resulting from the employees’ acts within the course and scope
of their employment.’ [Citation.] [Section] 2802 codifies this policy and gives
7
an employee a right to indemnification from his or her employer. [Citations.]”
(Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937, 952.)
On appeal, Burlington focuses on the first element of a section 2802
claim and contends that Gallano cannot maintain her cause of action because
she “never paid Burlington any money in relation to the promissory note or
the civil demand letters, which she alleges in her complaint as the basis for
her claims.” Burlington argues that “[t]he mere existence of a purported debt
— without an actual expenditure or loss (i.e., payment) — fails to state a
claim under Section 2802.” 4 Burlington relies on our decision in USS-Posco
Industries v. Case (2016) 244 Cal.App.4th 197 (Case).
In Case, employees choosing to participate in optional training at the
company’s expense were required to sign a reimbursement agreement. (Case,
supra, 244 Cal.App.4th at p. 202.) The defendant employee signed the
agreement pledging to refund $30,000 of his training expenses to the
employer if he was fired for cause or voluntarily left the company within 30
months of completing the training program. (Id. at p. 203.) Two months
after completing the training program, the employee resigned from the
company. (Ibid.) After he refused to reimburse the company for his training
expenses, the company filed suit against him for breach of contract. (Ibid.)
The employee cross-complained, asserting that the company’s reimbursement
agreement violated section 2802 because the agreement was “an unlawful
attempt to foist workforce costs onto employees.” (Id. at p. 205.)
4 Burlington also contends that Gallano’s section 2802 claim cannot be
based on her BART train expenses to consult her attorneys or other costs
incurred in preparing claims against her former employer. We need not
address this contention because Gallano does not rely on post-employment
travel costs as a basis of her section 2802 claim. Gallano does rely on these
costs to assert standing on her UCL claim. See infra page 17.
8
We rejected this claim, explaining that section 2802 only applies “to
expenditures made or losses sustained by an employee, and then, only to
those expenditure or losses an employee must ‘necessarily incur.’ ” (Id. at
205.) We concluded that the employee “made no expenditure, nor suffered
any loss, in direct consequence of the discharge of his duties or in obedience
to the directions of [the employer].” (Id. at 206.) Even if the employee “could
be said to have made a qualifying expenditure or incurred a loss, such
expenditure or loss was not necessary” because the training was voluntary
and was not specifically required for the position the employee was seeking.
(Ibid.)
We find Case distinguishable from the instant appeal. In Case, the
employee voluntarily agreed to participate in an optional training program,
understanding from the outset that his employer would expect to be
reimbursed for those training costs if he chose to leave the company
prematurely. The employee agreed to reimburse his employer for the amount
it incurred for his specialized training, a benefit he retained despite his
departure. We observed that the Legislature’s interest in preventing
employers from passing on certain operating expenses to employees was not
implicated “by a strictly voluntary, optional training program of the sort [the
employer] offered here.” (Case, supra 244 Cal.App.4th at p. 205.)
In contrast, Gallano alleges that she did not voluntarily assume the
obligation to pay the debt on the promissory note, nor did she receive any
benefit in exchange for taking on this debt. Rather, the complaint alleges
that she was coerced into signing the promissory note to cover ordinary and
predictable business losses that should be absorbed by the company, not its
employees. The complaint further alleges that Burlington has a “policy and
practice” of shifting liability for ordinary business losses to its employees by
9
forcing them “to assume liability and/or pay for Burlington’s losses” for
transactions arising within the course and scope of their employment. These
are precisely the kinds of claims that section 2802 was intended to address.
(See Grissom v. Vons Companies, Inc. (1991) 1 Cal.App.4th 52, 59–60 [the
purpose of section 2802 is “to protect employees from suffering expenses in
direct consequence of doing their jobs”]; Janken v. GM Hughes Electronics
(1996) 46 Cal.App.4th 55, 74, fn. 24 [section 2802 “shows a legislative intent
that duty-related losses ultimately fall on the business enterprise, not on the
individual employee”].)
Burlington emphasizes that Gallano has not “incurred” any
expenditure or loss because she never paid anything pursuant to the
promissory note or the civil demand letters. Burlington’s argument is not
supported by a practical construction of the statute. 5 Section 2802 requires
employer indemnification for “all necessary expenditures or losses incurred
by the employee” (§ 2802, subd. (a), italics added). To “incur” is “to become
liable or subject to: bring down upon oneself.” (Merriam-Webster’s Collegiate
Dict. (10th ed. 1999) p. 590.) Thus, an indemnification claim may arise under
section 2802 when the employee has made a monetary payment (i.e., an
expenditure) for a business-related expense or incurred a loss in some other
way—such as by becoming “liable or subject to” a charge or obligation on the
5 Burlington’s request for judicial notice of a legislative committee
report relating to the passage of section 2802 is denied. Burlington is
precluded from raising a legislative history argument for the first time on
reply. (California Building Industry Assn. v. State Water Resources Control
Bd. (2018) 4 Cal.5th 1032, 1050 [where appellant fails to raise an argument
“until its appellate reply brief,” it “has forfeited the argument”].) In any
event, the statutory language is clear and does not require us to examine the
legislative history of this statute. (See Sun v. City of Oakland (2008) 166
Cal.App.4th 1177, 1192.)
10
employer’s behalf. As Gallano points out, if an employee is directed to charge
business related expenses on his or her personal credit card and becomes
indebted on behalf of their employer, it defies common sense to suggest that
the employee has not incurred a “loss” subject to reimbursement until he or
she posts payment to the credit card company.
In other contexts, courts have found that an economic loss may be
incurred by the creation of a liability or debt even when payment on the debt
is never made. In In re Anthony S. (2014) 227 Cal.App.4th 1352 (Anthony S.),
a minor’s assault on a victim caused serious injury that resulted in a hospital
bill of over $400,000. At a restitution hearing, the hospital representative
testified that because the victim was indigent, the hospital had written off
the debt as uncollectible and would be unlikely to seek recovery from the
victim in the future. (Id. at pp. 1354-1355.) Nevertheless, the juvenile court
ordered the minor to pay $80,000 to the victim in restitution. (Id. at p. 1356.)
On appeal, the minor argued that the restitution order was contrary to
Welfare and Institutions Code section 730.6 because there was insufficient
evidence the victim had incurred an economic loss. (Ibid.) That statute
provides in relevant part: “It is the intent of the Legislature that a
victim . . . who incurs any economic loss as a result of the minor’s conduct
shall receive restitution directly from that minor.” (Welf. & Inst. Code
§730.6, subd. (a).)
The appellate court upheld the restitution order, noting that “[d]espite
evidence that [the hospital] had written off the charges to [the victim] as
uncollectible debt, and despite evidence that seeking to collect on such debts
was not the ‘general’ practice of the hospital, there was no evidence that [the
hospital] had released [the victim] from the debt in such a way that collection
would be barred by law.” (Anthony S., supra, 227 Cal.App.4th at p. 1356,
11
1359. In reaching its conclusion, the Anthony S. court cited to an opinion
that observed, “[t]o constitute evidence of a ‘loss incurred,’ there must be
some basis to conclude that the victim is ‘liable or subject to’ a charge.” (Id.
at p. 1358.) Because the minor’s victim had been billed and was liable for the
hospital’s charges, and there was no legal impediment to subsequent
collection efforts, the victim had incurred an economic loss under the
restitution statute even if he was unlikely to make payment on his debt
obligation. (Id. at p. 1360.)
We see no basis for limiting the indemnification requirement under
section 2802 in the manner urged by Burlington. Section 2802 is designed to
protect workers from bearing the costs of business expenses that are incurred
by workers doing their jobs in service of an employer. In light of the remedial
purpose of statutes that regulate “wages, hours and working conditions for
the protection and benefit of employees, the statutory provisions are to be
liberally construed with an eye to promoting such protection . . . . ”
(Industrial Welfare Commission v. Superior Court of Kern County (1980) 27
Cal.3d 690, 702.) When Gallano allegedly executed the promissory note at
the direction and for the benefit of her employer, she incurred an economic
loss. She became legally obligated under the promissory note and subject to
debt collection efforts and possible exposure to civil liability if she did not
pay. Under these circumstances, we conclude that an employee may incur a
“loss” for purposes of a section 2802, subdivision (a) claim when the employer
causes or directs the employee to become personally liable for a necessary
business-related expense.
Burlington also asserts that it “has expressly disclaimed any intent,
and has waived any right, to enforce the promissory note or to seek [Penal
Code] Section 490.5 penalties or damages from Gallano in the future. . . .
12
Consequently, Gallano has not and never will make any payment or incur
any loss as a result of the promissory note or the demand letters.” Burlington
contends on appeal that this disclaimer has essentially mooted Gallano’s
claims. We disagree.
Burlington’s post-motion conduct in disclaiming any interest in
enforcing the promissory note or the civil demand letters appears designed to
preempt this lawsuit from proceeding as a class action. “Pick off” cases “arise
when, prior to class certification, a defendant in a proposed class action gives
the named plaintiff the entirety of the relief claimed by that individual. The
defendant then attempts to obtain dismissal of the action, on the basis that
the named plaintiff can no longer pursue a class action, as the named
plaintiff is no longer a member of the class the plaintiff sought to represent.
The cases are sometimes referred to as ‘pick off’ cases, as the defendant seeks
to avoid exposure to the class action by ‘picking off’ the named plaintiff,
sometimes by picking off named plaintiffs serially. [Citations.]” (Watkins v.
Wachovia Corp. (2009) 172 Cal.App.4th 1576, 1590 (Watkins).) “Pick off”
cases are distinguishable from cases in which a named plaintiff voluntarily
settles his or her claims against the defendant after a complaint has been
filed. “The ‘pick off’ cases present the issue of whether an individual plaintiff
who has been involuntarily granted relief necessarily no longer possesses
enough of an interest to continue to pursue the class action. Courts have
concluded that the involuntary receipt of relief does not, of itself, prevent the
class plaintiff from continuing as a class representative. [Citations.]”
(Watkins, supra, 172 Cal.App.4th 1576 at p. 1590.) There is no indication
that Gallano herself desires to settle her claims against Burlington and we
decline to give effect to Burlington’s unilateral attempt to moot her section
2802 claim at this stage of the proceedings.
13
In sum, Gallano’s pleadings, declaration, and accompanying evidence
support her claim that she personally incurred a necessary loss in direct
consequence of the discharge of her duties or obedience to the directions of
her employer. Gallano has stated a legally sufficient claim and made a prima
facie factual showing sufficient to survive Burlington’s special motion to
strike.
B. Section 1198 Claim 6
Section 1198 authorizes the Industrial Welfare Commission (IWC) to
set the “standard conditions of labor” by wage order: “The maximum hours of
work and the standard conditions of labor fixed by the commission shall be
the maximum hours of work and the standard conditions of labor for
employees. The employment of any employee for longer hours than those
fixed by the order or under conditions of labor prohibited by the order is
unlawful.” (§ 1198.)
IWC Wage Order No. 7-2001, subdivision (8), prohibits an employer
from deducting from any employee’s wage or requiring any employee to
reimburse the employer “for any cash shortage, breakage, or loss of
equipment, unless it can be shown that the shortage, breakage, or loss is
caused by a dishonest or willful act, or by the gross negligence of the
6 Gallano contends that the trial court erred by reaching the merits of
her claims once Burlington’s affirmative defenses had been withdrawn or
defeated. If Burlington has abandoned its litigation privilege or investigation
privilege defenses, it is unclear what protected speech or petitioning activity
the company relies upon to obtain relief under the anti-SLAPP statute.
While we understand the point, the trial court was constrained to follow our
remittitur, which directed the lower court to address Gallano’s probability of
prevailing on her causes of action. (Gallano I, supra, at pp. 11.) We need not
resolve this issue because we conclude that Gallano’s section 1198 claim
cannot be maintained as a private right of action and therefore requires
dismissal.
14
employee.” Gallano asserts that she has sufficiently alleged and supported
through uncontested evidence her claim that Burlington violated this wage
order by seeking reimbursement for ordinary business losses resulting from
conduct that was not dishonest, willful, or grossly negligent.
The trial court did not explain its reasoning for granting Burlington’s
motion to strike this claim. However, Burlington argued below that Gallano’s
claim failed as a matter of law because there is no private right of action for
violation of section 1198, an argument it renews on appeal. We agree with
Burlington.
In Lu v. Hawaiian Gardens Casino (2010) 50 Cal.4th 592, 595, the
Supreme Court considered whether an employee may bring an action against
his employer under section 351, which prohibits employers from taking tips
that patrons leave for their employees. In finding that section 351 does not
establish a private right to sue, the Lu court reiterated the general principle
that “[a] violation of a state statute does not necessarily give rise to a private
cause of action [Citation.] Instead, whether a party has a right to sue
depends on whether the Legislature has ‘manifested an intent to create such
a private cause of action’ under the statute. [Citations.]” (Id. at p. 596.) The
high court explained that such legislative intent can be inferred by the
inclusion of explicit statutory language referring to a private cause of action,
or by legislative history indicating the intent to create such a right of action.
(Id. at pp. 596-597.) Here, Gallano has not pointed to anything in the
statutory text or legislative history of section 1198 that evinces a legislative
intent to create a private right of action to sue for damages under section
1198.
Courts considering this question have held that an employee plaintiff
seeking to bring a claim for violation of section 1198 must proceed under the
15
Private Attorney General Act of 2004 (PAGA) (§ 2698 et seq.). “PAGA was
enacted to provide a civil remedy to employees for Labor Code violations
previously enforceable only through administrative or criminal actions,
including violations of section 1198 arising from labor conditions prohibited
in a wage order.” (Home Depot U.S.A., Inc. v. Superior Court (2010) 191
Cal.App.4th 210, 223 (Home Depot).) Section 2699, subdivision (a) of PAGA
states: “Notwithstanding any other provision of law, any provision of this
code that provides for a civil penalty to be assessed and collected by the Labor
and Workforce Development Agency . . . for a violation of this code, may, as
an alternative, be recovered through a civil action brought by an aggrieved
employee on behalf of himself or herself and other current or former
employees pursuant to the procedures specified in Section 2699.3.”
In Jue v. Costco Wholesale Corp. (N.D. Cal. Mar. 11, 2010) No. C-10-
00033-WHA, 2010 WL 889284, the plaintiff conceded that her PAGA cause of
action seeking to recover civil penalties under section 1198 was time barred.
She attempted to avoid this bar by arguing she could assert an independent
claim under section 1198. (Id. at p. *2-*3.) The district court disagreed,
concluding that “a private right of action under section 1198 does not exist,
except through the procedures set forth in PAGA.” (Id. at p. *3.) The Jue
court relied, in part, on Caliber Bodyworks, Inc. v. Superior Court (2005) 134
Cal.App.4th 365 (disapproved on other grounds in ZB, N.A. v. Superior Court
(2019) 8 Cal.5th 175, 196, fn. 8) (Caliber Bodyworks).
In Caliber Bodyworks, the appellate court distinguished between
“statutory penalties . . . which were recoverable directly by employees well
before [PAGA] became part of the Labor Code, and a demand for ‘civil
penalties,’ previously enforceable only by the state’s labor law enforcement
agencies.” (Caliber Bodyworks, supra, 134 Cal.App.4th at p. 377.) The court
16
observed that in order to recover civil penalties, the aggrieved employee must
satisfy the prerequisite procedures in section 2699.3 by giving written notice
by certified mail to the Labor and Workforce Development Agency and the
employer of the specific Labor Code provision alleged to have been violated.
(§ 2699.3, subd. (a)(1); Caliber Bodyworks, supra, at p. 376.) Section 2699.3’s
administrative procedures apply to recover civil penalties for violation of an
assortment of Labor Code provisions, including section 1198. (See § 2699.5).
Given this distinction between statutory and civil penalties, the Caliber
Bodyworks court found that a demand for civil penalties is — in the absence
of a PAGA claim — “enforceable only by the State’s labor law enforcement
agencies” as the code section contained no independent grant of authority to
recover statutory penalties through private action. (Id. at p. 377).
Gallano’s complaint seeks damages and civil penalties for the alleged
violations of section 1198, but she does not assert this cause of action as a
PAGA claim. Because Gallano has not demonstrated that her section 1198
claim as pleaded is enforceable through a private right of action, the trial
court did not err in striking this claim.
C. UCL Claim
In her cross-appeal, Gallano contends that the trial court erroneously
struck her third cause of action for violation of the UCL. The trial court did
not explain its reasoning for doing so in its order. However, at the hearing on
Burlington’s motion, the court suggested that Gallano lacked standing to
maintain her claim because she had not proffered any evidence of an
economic loss.
On appeal, Gallano contends that she presented evidence of economic
loss when she became indebted to Burlington for $880 after signing the
promissory note, and when she incurred travel expenses to consult legal
17
counsel on these matters. She emphasizes that the trial court found she was
likely to prevail on her section 2802 claim, which is sufficient to establish
standing under the UCL. We agree with Gallano that she has demonstrated
a probability of prevailing on her claim under the UCL.
“The UCL prohibits, and provides civil remedies for, unfair competition,
which it defines as ‘any unlawful, unfair or fraudulent business act or
practice.’ ([Bus. & Prof. Code] § 17200.)” (Kwikset Corp. v. Superior Court
(2011) 51 Cal.4th 310, 320 (Kwikset)). In Kwikset, the California Supreme
Court examined the standing requirements of the UCL in light of voter
approval of Proposition 64 in 2004, which limited private standing to any
“ ‘person who has suffered injury in fact and has lost money or property’ ” as
a result of unfair competition. (Ibid.; see also Animal Legal Defense Fund v.
LT Napa Partners LLC (2015) 234 Cal.App.4th 1270 (LT Napa Partners).)
“Kwikset interpreted the Proposition 64 requirement that a party has ‘lost
money or property’ to mean that a party must ‘(1) establish a loss or
deprivation of money or property sufficient to qualify as injury in fact, i.e.,
economic injury, and (2) show that that economic injury was the result of, i.e.,
caused by, the unfair business practice or false advertising that is the
gravamen of the claim.’ ” (LT Napa Partners, at p. 1279, citing Kwikset,
supra, 51 Cal.4th at p. 322.) “Kwikset pointed out that ‘ “[i]njury in fact” is a
legal term of art’ that makes reference to one of the requirements for federal
standing under article III, section 2 of the United States Constitution” and
that in selecting this phrase, the drafters and voters of Proposition 64
“intended to incorporate the established federal meaning.” (Ibid.) 7
7Injury in fact has been described for purposes of standing in federal
court as “an invasion of a legally protected interest which is (a) concrete and
particularized . . . and (b) ‘actual or imminent, not “conjectural” or
18
“Kwikset noted that such ‘economic injury . . . is itself a classic form of
injury in fact,’ and ‘the quantum of lost money or property necessary to show
standing is only so much as would suffice to establish injury in fact.’ ” (LT
Napa Partners, supra, 234 Cal.App.4th at p. 1279, citing Kwikset, supra, 51
Cal.4th at p. 323-324.) The Kwikset court added that injury in fact is “ ‘not a
substantial or insurmountable hurdle’ ” and allegations of “ ‘ “ ‘some specific,
“identifiable trifle” of injury’ ” ’ ” would suffice. (Ibid., citing Kwikset, at p.
324.) Thus, “[i]f a party has alleged or proven a personal, individualized loss
of money or property in any nontrivial amount, he or she has also alleged or
proven injury in fact.” (Id. at 325; see also LT Napa Partners, at p. 1279.)
At the second step of the anti-SLAPP analysis, we must accept
plaintiff’s evidence as true, and determine only whether the plaintiff has
stated a legally sufficient claim and made a prima facie factual showing
sufficient to sustain a favorable judgment. (Wilson, supra, 7 Cal.5th at p.
891.) At this stage of the litigation, our only task is to determine whether
Gallano has established that her cause of action has “minimal merit,” not
whether she will ultimately succeed in proving her claim. (Ibid.)
In light of our conclusion that Gallano has established a probability of
prevailing on her section 2802 claim, we conclude that the economic loss
established by that claim provides an adequate basis for standing under the
UCL. There are “innumerable ways” in which “lost money or property” can
be shown under the UCL, including where plaintiffs “(1) surrender in a
transaction more, or acquire in a transaction less, than he or she otherwise
would have; (2) have a present or future property interest diminished; (3) be
deprived of money or property to which he or she has a cognizable claim; or
“hypothetical,” ’ [citations].” (Lujan v. Defenders of Wildlife (1992) 504 U.S.
555, 560, fn. omitted.)
19
(4) be required to enter into a transaction, costing money or property, that
would otherwise have been unnecessary.” (Kwikset, supra, 51 Cal.4th at p.
323.)
Gallano’s complaint and declaration provide evidence that the
promissory note obligated her to pay Burlington the balance on her account
and subjected her to debt collection efforts and possible legal liability. She
contends that Burlington’s forced indebtedness and collection efforts
constituted illegal acts that exposed Gallano to an imminent loss of money or
property and required her to expend money to defend her interests. We
conclude that the complaint adequately alleges an invasion of a legally
protected interest sufficient to support standing under the UCL.
Several authorities cited by Gallano support her assertion of standing.
In Rubio v. Capital One Bank (9th Cir. 2010) 613 F.3d 1195, 1204, the Ninth
Circuit found the plaintiff had adequately alleged standing under the UCL
when her credit card company gave her the choice to either pay off her
balance and cancel her account or accept a fraudulently imposed higher
interest rate. The appellate court concluded that the plaintiff suffered
economic injury under either scenario, because the plaintiff would be forced
to pay a higher interest rate or would lose access to the credit that had
previously been extended to her. (Ibid.) In Rex v. Chase Home Finance LLC
(2012) C.D. Cal. 905 F.Supp.2d 1111, 1147 (Rex), the district court held that
standing under the UCL was satisfied by allegations that the defendants
damaged the plaintiff’s credit by reporting false information to credit
reporting bureaus. Finally, in Lane v. Wells Fargo Bank, N.A. (N.D.Cal. June
21, 2013, No. C 12-04026 WHA) 2013 U.S.Dist.LEXIS 87669, at *31-32, the
district court held that a class of borrowers who had not yet paid an allegedly
improper expense charged by the bank on their mortgage accounts had
20
standing to sue under the UCL because they would eventually have to pay
that expense to remove the lien against their property.
In each of these cases, allegations of a “loss of money or property” did
not require an actual expenditure of money by the plaintiff to confer standing
to support a UCL claim. Here, Gallano has adequately alleged that
Burlington’s actions, in forcing her to sign the promissory note, exposed her
to a multitude of non-trivial financial and legal consequences. (See Rex,
supra, 905 F.Supp.2d at p. 1145 [“Defendants’ argument fails because an
Article III injury exists where there is a dispute between parties as to the
amount one owes under a contract, regardless of whether that amount has
been ‘paid or not.’ ”].)
Burlington’s reliance on Hall v. Time Inc. (2008) 158 Cal.App.4th 847 is
unpersuasive. The appellate court found that the plaintiff lacked standing to
bring a claim under the UCL based on a publisher’s practice of sending
invoices before the end of a free trial period to mislead its customers into
making premature payments. (Id. at 857.) Hall is inapposite because it
involved an ordinary invoice for a product received by the plaintiff in
exchange, as opposed to a legally enforceable promissory note securing an
allegedly unlawful debt for which Gallano received no benefit in return.
As discussed above, the fact that Burlington elected, well after this
lawsuit was commenced, to refrain from undertaking further efforts to
enforce the promissory note does not negate the complaint’s allegation that
Burlington violated the law with respect to Gallano and other putative class
members. Accordingly, we reverse the trial court’s order striking the
complaint’s third cause of action under the UCL.
21
D. Declaratory Relief Claim
Gallano’s fourth claim for declaratory relief seeks an order from the
court declaring that Burlington’s promissory note “is void as a matter of law”
because it violates section 2802. 8 She also seeks a declaration that the
promissory note is invalid under section 2804 because it purports to waive an
employee’s indemnity rights. The trial court concluded that Gallano stated a
meritorious claim for declaratory relief. We agree.
Code of Civil Procedure section 1060 provides, in relevant part: “Any
person interested under a written instrument, excluding a will or a trust, or
under a contract, or who desires a declaration of his or her rights or duties
with respect to another . . . may bring an original action or cross-complaint
in the superior court for a declaration of his or her rights and duties . . .
including a determination of any question of construction or validity arising
under the instrument or contract. He or she may ask for a declaration of
rights or duties, either alone or with other relief; and the court may make a
binding declaration of these rights or duties, whether or not further relief is
or could be claimed at the time. The declaration may be either affirmative or
negative in form and effect, and the declaration shall have the force of a final
judgment.”
On appeal, Burlington renews the contentions made above, namely that
Gallano failed to prove she had incurred a loss or expense and that the
company’s “unequivocal waiver” of any right to enforce the promissory note in
the future has mooted her claim. As we discussed, Burlington’s post-motion
8 Section 2804 provides: “Any contract or agreement, express or
implied, made by any employee to waive the benefits of this article or any
part thereof, is null and void, and this article shall not deprive any employee
or his personal representative of any right or remedy to which he is entitled
under the laws of this State.”
22
conduct does not eliminate the controversy as Burlington has not conceded
that the promissory note is void and unenforceable as a matter of law. Our
task here is to determine whether Gallano has stated a claim, not to
adjudicate it. We conclude Gallano has satisfied her pleading burden and has
submitted sufficient evidence to demonstrate a probability of prevailing on
the merits of her claim.
III. DISPOSITION
The order is affirmed in part and reversed in part. The parties are to
bear their own costs on appeal.
23
SANCHEZ, J.
We concur.
HUMES, P.J.
BANKE, J.
(A158391)
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San Mateo County Superior Court
Honorable Nancy L. Fineman and Honorable V. Raymond Swope
Counsel:
Morgan Lewis & Bockus, Joseph Duffy and Joseph Bias for Defendant,
Appellant and Cross Respondent.
Olivier Schreiber & Chao, Monique Olivier and Christian Schreiber; Legal
Aid at Work, Chris Ho and Galen Arkush Ages for Plaintiff, Respondent and
Cross-Appellant.
25