Case Name: Dhiraj Bora v. Corwil Technology Corporation, et al.
Case No.: 2016-CV-298720
Demurrer to the Second Amended Complaint by Defendants Corwil Technology Corporation and Matt Bergeron
Factual and Procedural Background
This is an employment case involving alleged retaliation. In February 2015, plaintiff Dhiraj Bora (“Plaintiff”) was hired by defendant Corwil Technology Corporation (“Corwil”) to be the Vice-President of Sales and Marketing. (Second Amended Complaint [“SAC”] at ¶ 10.) Plaintiff also agreed to become a shareholder in the corporation and invested $40,000 of his own personal income. (Id. at ¶ 9.) Defendant Matt Bergeron (“Bergeron”) is the CEO, corporate officer and shareholder of Corwil and Plaintiff’s “direct report.” (Id. at ¶ 11.) In late 2015, Plaintiff discovered that Corwil and Bergeron (collectively, “Defendants”) were engaged in pervasive unethical and unlawful business practices internally, and in relation to the company’s day-to-day business contracts with ongoing, well-respected customers. (Ibid.) Such unlawful business practices included invoicing customers for goods that were not shipped, falsely representing that certain products passed industry approved tests when they did not, and false accounting within the corporation’s internal financial records. (Ibid.)
In November 2015, Plaintiff immediately reported this activity to Bergeron, who failed to take action to correct the misconduct. (SAC at ¶ 12.) Instead, Defendants retaliated against Plaintiff by increasing his work responsibilities without increasing his compensation while decreasing his monthly sales incentives and undermining the effectiveness of other well-performing sales people. (Ibid.) When Bergeron failed to take action, Plaintiff met with Steve Soderling, Corwil’s Chairman of the Board, to discuss these issues. (Id. at ¶ 13.) Shortly thereafter, Corwil terminated Plaintiff “for cause.” (Id. at ¶¶ 13-14.) Following his termination, Plaintiff alleges that Corwil has still not paid him the amounts due under the employment agreement, including bonus and severance payments. (Id. at ¶ 15.)
On November 1, 2016, Plaintiff filed a first amended complaint (“FAC”) setting forth causes of action for: (1) Retaliation for Whistleblowing in Violation of Labor Code § 1102.5(b); (2) Retaliation for Refusing to Participate in Illegal Activity in Violation of Labor Code § 1102.5(c); (3) Wrongful Termination in Violation of Public Policy; (4) Breach of Fiduciary Duty; (5) Breach of Written Contract; (6) Breach of the Covenant of Good Faith and Fair Dealing; (7) Nonpayment of Wages; and (8) Unjust Enrichment.
On December 5, 2016, Defendants filed a demurrer to the first, second, fourth, and eighth causes of action on the ground that they failed to state a claim. Following oral argument on the motion, the Court took the matter under submission and issued a written decision. The Court sustained the demurrer to the fourth cause of action with leave to amend and overruled the demurrer as to the other claims.
On March 10, 2017, Plaintiff filed the operative SAC setting forth causes of action for: (1) Retaliation for Whistleblowing in Violation of Labor Code § 1102.5(b); (2) Retaliation for Refusing to Participate in Illegal Activity in Violation of Labor Code § 1102.5(c); (3) Wrongful Termination in Violation of Public Policy; (4) Breach of Fiduciary Duty; (5) Breach of Written Contract; (6) Breach of the Covenant of Good Faith and Fair Dealing; (7) Nonpayment of Wages; and (8) Unjust Enrichment.
Demurrer to the SAC
Currently before the Court is Defendants’ demurrer to the fourth cause of action on the ground that it fails to state a claim. (Code Civ. Proc., § 430.10, subd. (e).) Defendants filed a request for judicial notice in conjunction with the motion. Plaintiff filed written opposition. Defendants filed reply papers.
Request for Judicial Notice
In support of the motion, Defendants request judicial notice of the following: (1) Court’s Order Sustaining the Demurrer to the FAC, in part, filed on February 28, 2017 (Exhibit A); and (2) Plaintiff’s Verified Responses to Special Interrogatories, Set One, served on March 2, 2017 (Exhibit B).
“Judicial notice is the recognition and acceptance by the court, for use by the trier of fact or by the court, of the existence of a matter of law or fact that is relevant to an issue in the action without requiring formal proof of the matter.” (Poseidon Development, Inc. v. Woodland Lane Estates, LLC (2007) 152 Cal.App.4th 1106, 1117.)
With respect to Exhibit A, the Court takes judicial notice of its Order on Demurrer to the FAC pursuant to Evidence Code section 452, subdivision (d) as a record of the superior court. (See Stepan v. Garcia (1974) 43 Cal.App.3d 497, 500 [the court may take judicial notice of its own file].) With respect to Exhibit B, a court may take judicial notice of a plaintiff’s own discovery responses to the extent that they contradict the complaint. (See Bockrath v. Aldrich Chem. Co., Inc. (1999) 21 Cal.4th 71, 83 [the California Supreme Court acknowledged that “a complaint’s allegations may be disregarded when they conflict with judicially noticed discovery responses.”].) For reasons stated below, the Court finds that Plaintiff’s discovery responses do not contradict the SAC and thus the request for judicial notice is improper.
Therefore, the request for judicial notice is GRANTED IN PART and DENIED IN PART. The request is granted as to Exhibit A. The request is denied as to Exhibit B.
Legal Standard
“In reviewing the sufficiency of a complaint against a general demurer, we are guided by long settled rules. ‘We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. We also consider matters which may be judicially noticed.’” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “A demurrer tests only the legal sufficiency of the pleading. It admits the truth of all material factual allegations in the complaint; the question of plaintiff’s ability to prove these allegations, or the possible difficulty in making such proof does not concern the reviewing court.” (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213–214.)
“The reviewing court gives the complaint a reasonable interpretation, and treats the demurrer as admitting all material facts properly pleaded. The court does not, however, assume the truth of contentions, deductions or conclusions of law. … [I]t is error for a trial court to sustain a demurrer when the plaintiff has stated a cause of action under any possible legal theory. And it is an abuse of discretion to sustain a demurrer without leave to amend if the plaintiff shows there is a reasonable possibility any defect identified by the defendant can be cured by amendment.” (Gregory v. Albertson’s, Inc. (2002) 104 Cal.App.4th 845, 850.)
Fourth Cause of Action: Breach of Fiduciary Duty
The fourth cause of action is a claim for breach of fiduciary duty. “In order to plead a cause of action for breach of fiduciary duty, there must be shown the existence of a fiduciary relationship, its breach, and damage proximately caused by that breach. The absence of any of one of these elements is fatal to the cause of action.” (Pierce v. Lyman (1991) 1 Cal.App.4th 1093, 1101.)
Defendants argue that Plaintiff fails to plead facts necessary to sustain a direct action against Bergeron for breach of fiduciary duty. Instead, Defendants contend that such a claim must be brought as a derivative action.
“An action is derivative if the gravamen of the complaint is injury to the corporation, or to the whole body of its stock or property without any severance of distribution among individual holders, or if it seeks to recover assets for the corporation or to prevent the dissipation of its assets. Shareholders may bring a derivative suit to, for example, enjoin or recover damages for breaches of fiduciary duty directors and officers owe the corporation. An individual cause of action exists only if damages to the shareholders were not incidental to damages to the corporation. Examples of direct shareholder actions include suits brought to compel the declaration of a dividend, or the payment of lawfully declared or mandatory dividends, or to enjoin a threatened ultra vires act or enforce shareholder voting rights.” (Schuster v. Gardner (2005) 127 Cal.App.4th 305, 313 [internal quotations and citations omitted].)
The Court previously sustained the demurrer to the breach of fiduciary duty claim in the FAC, in part, because Plaintiff was only seeking recovery for harm done to the corporation. (See FAC at ¶ 34.) Thus, Plaintiff failed to state a direct action for breach of fiduciary duty against defendant Bergeron. In the SAC, Plaintiff now alleges that he is not seeking to recover for any damage to the corporation but only damage caused by Bergeron’s actions. (See SAC at ¶ 34.) Such conduct includes diverting compensation intended for Plaintiff over to Bergeron in violation of his fiduciary duty to Plaintiff. (Ibid.) Given these allegations, which must be accepted as true for purposes of demurrer, the Court finds that Plaintiff has stated a direct claim for breach of fiduciary duty against Bergeron.
Even if Plaintiff has alleged a direct claim against Bergeron, Defendants argue that such an allegation should be disregarded as it is contradicted by Plaintiff’s sworn discovery responses. (See Request for Judicial Notice at Exhibit B.) In particular, Defendants attach Plaintiff’s response to Special Interrogatory No. 76 which asks Plaintiff to state all facts which support his breach of fiduciary claim at paragraph 34 of the SAC. (Ibid.) In response, Plaintiff provides in part, that Bergeron increased his own compensation and took retaliatory steps against Plaintiff by decreasing his compensation. (Ibid.) This response does not contradict the SAC which, as stated above, alleges that Bergeron diverted compensation over to himself in violation of his fiduciary duty to the Plaintiff. Thus, the demurrer on this ground is not sustainable.
Also, Defendants contend that there is no legal authority for holding an employer or supervisor liable for breach of fiduciary duty. However, as the opposition points out, Plaintiff also seeks to hold Bergeron liable for breach of fiduciary duty in his role as a shareholder, CEO, senior manager, and board member of the corporation. (SAC at ¶¶ 11, 33, 34; see Meister v. Mensinger (2014) 230 Cal.App.4th 381, 395 [“There is a ‘strong public interest in assuring that corporate officer, directors, majority shareholders and others are faithful to their fiduciary obligations to minority shareholders.’”]; see also PH II, Inc. v. Super. Court (1995) 33 Cal.App.4th 1680, 1682 [“A demurrer does not lie to a portion of a cause of action.”].)
Finally, to the extent that Plaintiff alleges his compensation was reduced in retaliation for whistleblowing, the moving parties assert that this allegation is the subject of the first cause of action and thus cannot support a claim for breach of fiduciary duty. This contention lacks merit as it is not supported by any citation to legal authority. (Benach v. County of Los Angeles (2007) 149 Cal.App.4th 836, 852 [issues do not have a life of their own and if they are not raised or supported by argument or citation to authority, they are waived].) Furthermore, to the extent that Defendants argue that this claim is duplicative of the first cause of action, redundancy is simply not a ground for demurrer. (See McDonell v. American Trust Co. (1955) 130 Cal.App.2d 296, 303.)
Therefore, the demurrer to the fourth cause of action on the ground that it fails to state a claim is OVERRULED.
The Court will prepare the Order.