Nicholas Laboratories v. Chen
132 Cal. Rptr. 3d 223
Cal. Ct. App.2011Background
- Nicholas Labs sues Chen on seven theories, seeking damages and attorney fees.
- Chen cross-claims for indemnity under Labor Code 2802, Corp. Code 317 and operating agreement.
- On the eve of trial the parties dismiss the main complaint and proceed by written submission on the cross-complaint.
- Indemnity evidence centers on whether Chen was an employee/agent of NS Holdings (the manager) or Nicholas Labs.
- Nicholas Labs’ operating agreement contains a broad indemnity for the manager and its agents, potentially affecting fees.
- Trial court denies indemnity: §2802 not applicable to first-party claims, §317 inapplicable to LLCs, and insufficient evidence Chen was NS Holdings’ agent.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does §2802 require indemnity for attorney fees in a suit brought by an employer against an employee? | Nicholas Labs argues §2802 applies only to third‑party suits against an employee. | Chen contends §2802 contemplates indemnity in defensive costs in such cases regardless of third party status. | No; §2802 does not require first‑party indemnity in this context. |
| Does Corporations Code §317(d) apply to LLCs for indemnifying a company’s agents? | Nicholas Labs argues §317 is inapplicable to LLCs, so indemnity cannot be awarded. | Chen contends §317 contemplates indemnity for corporate agents, supporting recovery. | §317(d) does not apply to LLCs. |
| Does the operating agreement’s indemnity provision authorize indemnity for first‑party disputes between Nicholas Labs and NS Holdings/Chen? | Nicholas Labs asserts the indemnity clause covers the manager and its agents, potentially including Chen. | Chen argues the clause supports his fees if he is deemed an NS Holdings employee/agent. | Substantial evidence supports denying indemnity to Chen; no clear showing Chen was NS Holdings’ employee/agent. |
Key Cases Cited
- Cassady v. Morgan, Lewis & Bockius LLP, 145 Cal.App.4th 220 (Cal. App. 2006) (§2802 indemnity when sued for conduct in course of employment; not dependent on unfounded action)
- O’Hara v. Teamsters Union Local 856, 151 F.3d 1152 (9th Cir. 1998) (employee fees recoverable when enforcing §2802 rights vs. union actions; first‑party context discussed)
- Jacobus v. Krambo Corp., 78 Cal.App.4th 1096 (Cal. App. 2000) (employee fees in defense against employer action; scope of indemnity)
- Freund v. Nycomed Amersham, 347 F.3d 752 (9th Cir. 2003) (employer‑employee §2802 applicability to wrongful termination actions)
- Edwards v. Arthur Andersen LLP, 44 Cal.4th 937 (Cal. 2008) (policy supporting indemnification and defense costs under §2802)