CCP § 1033 Does Not Apply Where Wage Claim Not Brought in Bad Faith.

Cruz v. Fusion Buffet, Inc., 57 Cal.App.5th 221 (Nov. 9, 2020)

Plaintiff filed a wage and hour lawsuit against her former employer and two alleged alter ego individuals, alleging the individuals commingled assets and failed to maintain corporate formalities. After nearly 18 months of litigation, the trial court held a three-day bench trial and found in Plaintiff’s favor on seven of her ten causes of action, including claims for nonpayment of wages, failure to pay overtime premium wages, and failure to pay meal period and rest period premium wages. A little under three weeks before trial, Defendants moved to reclassify the action as a limited jurisdiction case; upon a representation from Plaintiff that she was seeking approximately $41,250, the trial court denied the motion for reclassification, and Defendants did not challenge the ruling.

The parties submitted competing fee motions and motions to tax costs, and the trial court applied the statutory framework of Labor Code sections 218.5 and 1194 in analyzing the fee requests. Section 218.5 is a two-way fee shifting statute (only available to prevailing employers, though, where the court finds the employee brought the wage action in bad faith) which applies to wage claims in the 200 series of the Labor Code (such as nonpayment of wages, Section 204, or nonpayment of meal or rest period premium wages, Section 226.7) but does not apply to fees recoverable under Section 1194 (minimum wage or overtime premium wages), which is a one-way fee shifting statute available only to prevailing employees. The trial court specifically found Plaintiff’s meal and rest break claims were “inextricably intertwined” with her other wage claims such that the work her counsel performed could not be apportioned between the claims she had prevailed on and the claims she had lost. The trial court awarded Plaintiff a reduced fee award (from what she had sought) and all her costs. Conversely, the court denied the individual defendants’ motions for fees and costs, ruling that Code of Civil Procedure sections 998 and 1032 did not apply considering the specific fee provisions in statutes that govern fee awards in wage and hour actions.

On appeal, Defendants argued the trial court should have used CCP § 1033(a) as the applicable fee statute because the court had not awarded Plaintiff damages in excess of $25,000, the unlimited jurisdictional threshold. The Court of Appeal rejected this argument, holding that Section 1033(a) simply allows a trial court the discretion to deny a prevailing plaintiff’s litigation costs, including fees, in situations like these where the trial court deems such denial appropriate but does not require the court to do so. The Court further found the trial court had not abused its discretion in awarding Plaintiff her fees. Relying on Chavez v. City of Los Angeles (2010) 47 Cal.4th 970, 986, the Cruz court reiterated that when applying Section 1033(a) to a fee request, a trial court “must give due consideration to the policies and objectives of the [specific attorney fees and cost shifting statute at issue] and determine whether denying attorney fees [pursuant to the discretion granted in Code of Civil Procedure section 1033, subdivision (a)], in whole or in part, is consistent with those policies and objectives.” Because the trial court had already denied Defendants motion to reclassify before trial, the appellate court found Plaintiff reasonably could have expected to recover more than $25,000 and did not appear to have pursued the action in unlimited jurisdiction in bad faith, and therefore the trial court had not abused its discretion in awarding Plaintiff what it awarded her.

Regarding Section 998, the individual defendants had made an offer to compromise of $1 each, which Plaintiff did not accept, and at trial Plaintiff only prevailed against the employer entity. However, the Fourth Appellate District found that the public policy underlying Labor Code section 1194, a one-way fee and cost shifting statute, superseded a more general cost-shifting provision such as CCP section 1032. Moreover, the Court concluded “that where section 1194 applies, it displaces any application of [CCP] section 1032, subdivision (b), thereby rendering [CCP] section 998 also inapplicable.”

The Court also rejected Defendants’ argument that Plaintiff brought the action against the individual defendants in bad faith because she failed to prove alter ego, finding that Defendants had made it difficult for Plaintiff to obtain the relevant financial documents in discovery and that Plaintiff had made at least some showing at trial to support her theory. That the trial court did not ultimately agree with Plaintiff did not mean that pursuing her action against the individual defendants was frivolous, unreasonable, or without foundation.

[i]  The Court noted that this issue currently is pending before the Ninth Circuit and that there is a circuit split as the First Circuit has held that prong B of the Massachusetts ABC test (which contains the same language as California’s) is preempted by the FAAAA.

[i] Christiansburg Garment Co. v. Equal Employment Opportunity Comm’n (1978) 434 U.S. 412, 421-422.

 

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