Chang v. Cashman

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STACY CHANG v. CARLOS CASHMAN, et al.

Case No. 22-cv-02010-AMO

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

November 15, 2024

ARACELI MARTINEZ-OLGUIN

Re: Dkt. No. 132

ORDER RE MOTION FOR SUMMARY JUDGMENT AND ALTERNATIVE MOTION FOR PARTIAL SUMMARY JUDGMENT

In this employment action arising out of an alleged failed joint investment venture, Plaintiff Stacy Chang sues Defendants Carlos Cashman, Arrowside Capital, LLC, Arrowside Fund GP, LLC, Arrowside Ventures, LLC, Cashman Family Investments II LLC, and Perseverus LLC¹ (collectively, “Defendants“) for (1) fraudulent inducement, (2) negligent misrepresentation, (3) misrepresentations in violation of California Labor Code § 970, (4) breach of contract, (5) promissory estoppel, (6) unjust enrichment, (7) failure to pay wages upon separation of employment in violation of California Labor Code §§ 201, 202, and 2926, (8) violation of California Business and Professions Code § 17200 (the “UCL“), and (9) failure to reimburse expenses and losses in violation of California Labor Code § 2802. ECF 109 (“SAC“) ¶¶ 87-144.

In connection with her Labor Code claims, Chang also seeks related statutory penalties under Sections 203, 210, and 972 and civil penalties under the Private Attorneys General Act of 2004, California Labor Code §§ 2698, et seq. (“PAGA“). Id. ¶¶ 108, 111, 130-131, 133, 144.

Defendants move for summary judgment, arguing that all of Chang‘s causes of action fail. ECF 132-1 (“MSJ“) at 6. Alternatively, Defendants seek partial summary judgment on two issues specific to two of Chang‘s Labor Code claims: first, that even if Chang prevailed on the merits of her seventh cause of action for failure to pay wages upon separation, she would not be entitled to penalties under Labor Code §§ 203 and 210; second, that even if Chang prevailed on her UCL claim, she is not entitled to attorney‘s fees. Id. Chang opposes and raises objections to Defendants’ reply evidence. ECF 146-1 (“Opp.“); ECF 158 (“Objs.“).

A. Legal Standard

A party may move for summary judgment on a “claim or defense” or “part of [a] claim or defense.” Fed. R. Civ. P. 56(a). Summary judgment is appropriate when there is no genuine dispute as to any material fact, and the moving party is entitled to judgment as a matter of law. Id. The party seeking summary judgment bears the initial burden of informing the court of the basis for its motion and identifying those portions of the pleadings and discovery responses that demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Material facts are those that might affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute as to a material fact is “genuine” if there is sufficient evidence for a reasonable jury to return a verdict for the nonmoving party. Id.

Where the moving party will have the burden of proof at trial, it must affirmatively demonstrate that no reasonable trier of fact could find other than for the moving party. Soremekun v. Thrifty Payless, Inc., 509 F.3d 978, 984 (9th Cir. 2007). On an issue where the nonmoving party will bear the burden of proof at trial, the moving party may carry its initial burden of production by submitting admissible “evidence negating an essential element of the nonmoving party‘s case,” or by showing, “after suitable discovery,” that the “nonmoving party does not have enough evidence of an essential element of its claim or defense to carry its ultimate burden of persuasion at trial.” Nissan Fire & Marine Ins. Co., Ltd. v. Fritz Cos., Inc., 210 F.3d 1099, 1106 (9th Cir. 2000); see also Celotex, 477 U.S. at 325 (moving party can prevail merely by pointing out to the district court that there is an absence of evidence to support the nonmoving party‘s case).

When the moving party has carried its burden, the nonmoving party must respond with specific facts, supported by admissible evidence, showing a genuine issue for trial. Fed. R. Civ. P. 56(c), (e). But disputed facts must be material – the existence of only “some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment[.]” Anderson, 477 U.S. at 247-48. When deciding a summary judgment motion, a court must view the evidence in the light most favorable to the non-moving party and draw all justifiable inferences in its favor. Id. at 255; Hunt v. City of Los Angeles, 638 F.3d 703, 709 (9th Cir. 2011). However, when a non-moving party fails to produce evidence rebutting the moving party‘s showing, then an order for summary adjudication is proper. Nissan Fire, 210 F.3d at 1103 (“If the nonmoving party fails to produce enough evidence to create a genuine issue of material fact, the moving party wins the motion for summary judgment.“). The court‘s function on a summary judgment motion is not to make credibility determinations or weigh conflicting evidence with respect to a disputed material fact. See T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass‘n, 809 F.2d 626, 630 (9th Cir. 1987).

B. Analysis

With the above framework in mind, the Court first addresses Chang‘s objections to portions of Defendants’ reply before turning to the merits of Defendants’ summary judgment motion.

1. Objections to Reply Evidence

When a party “raises a new argument or presents new evidence in a reply brief, a court may consider these matters only if the adverse party is given an opportunity to respond.” Banga v. First USA, NA, 29 F. Supp. 3d 1270, 1276 (N.D. Cal. 2014) (citations omitted). However, ” ‘[e]vidence submitted in direct response to evidence raised in [the preceding brief] . . . is not new.’ ” In re Cathode Ray Tube (CRT) Antitrust Litig., No. C-07-5944 JST, 2016 WL 11505721, at *3 (N.D. Cal. Mar. 9, 2016) (quoting In re ConAgra Foods, Inc., 90 F. Supp. 3d 919, 955 (C.D. Cal. 2015) (modifications in original)). “Moreover, when new evidence is presented to the court ‘[t]he opportunity for rebuttal . . . need not be in writing; an opportunity for oral rebuttal may be sufficient.’ ” Id. (quoting Gray v. Cnty. of Riverside, No. EDCV 13-00444-VAP (OPx), 2014 WL 5304915, at *15 n.7 (C.D. Cal. Sept. 2, 2014)).

Chang seeks to strike certain portions of Defendants’ reply or alternatively, permission to file a sur-reply in response.² Objs. at 1. She contends that “[w]hile Defendants did not include a new affidavit or cite documents not previously identified as part of their Reply, they make several factual assertions without any citations that are equivalent of presenting new evidence.” Id. at 2. Chang describes the unsupported factual assertions as pertaining to two topics: first, whether Tom Copeman, who initially approached Chang about working with Defendants, could legally act on Cashman‘s behalf and, if so, when any such agency relationship arose; second, whether Chang expected remuneration for her work and qualifies as an employee under California law. See id.

Chang‘s objections are OVERRULED for two reasons. First, the arguments Defendants raise on reply are not “new.” See In re Cathode Ray Tube (CRT) Antitrust Litig., 2016 WL 11505721, at *3. Defendants’ assertions about whether Copeman had authority to act on Cashman‘s behalf respond to Chang‘s own unsupported contention that “Defendants do not dispute that Cashman is responsible for Copeman‘s actions. . . .” Opp. at 22 n.5. Similarly, Defendants’ contentions that Chang does not meet the definition of an employee respond to her arguments that she does. See id. at 26-27.

Second, in asserting her objections, Chang ignores that Rule 56 does not permit parties to rely on bare assertions at the summary judgment stage. Rule 56(c)(1) provides that:

A party asserting that a fact cannot be or is genuinely disputed must support the assertion by:

(A) citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials; or

(B) showing that the materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact.

Fed. R. Civ. P. 56(c)(1). In keeping with this directive, the Court does not credit unsupported assertions of fact in ruling on the pending motion for summary judgment. Nor does the Court credit the evidentiary citations Chang offers with her objections to rebut the unsupported assertions she challenges. See Objs. at 3-4. For this reason, Chang‘s objections are moot.

Having resolved Chang‘s evidentiary objections, the Court now turns to the merits of Defendants’ motion. Because each side proffers its own version of the relevant facts, the Court focuses on the specific facts that, in the context of each cause of action Chang asserts, either present a genuine dispute of material fact that precludes summary judgment in Defendants’ favor or entitle Defendants to judgment as a matter of law. The Court begins with Chang‘s first cause of action.

2. Fraudulent Inducement

Chang‘s first cause of action is for fraudulent inducement. SAC ¶¶ 87-94. To prevail on this claim, Chang must prove the following elements: “(a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter‘); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.” Lazar v. Superior Ct., 12 Cal. 4th 631, 638 (1996) (citations omitted).

Defendants argue that Chang fails to satisfy each of these elements. MSJ at 19-21. First, they contend that Chang has failed to “demonstrate that any misrepresentations were made about the prospect of a partnership position at a venture fund because the parties knew that any potential partnership position was contingent on a venture fund being raised, which was never guaranteed.” Id. at 19. Next, Defendants argue that even if such misrepresentations were made, “there is simply no evidence that the offer was a misrepresentation with the requisite level of intent . . . . ” Id. Defendants further contend that Chang cannot demonstrate Defendants intended to induce reliance or that such any reliance by Chang was reasonable. Id. at 17, 20. Finally, Defendants argue that Chang cannot show damages.³ Id. at 20.

Chang sets forth the following contrary facts in her declaration.⁴ With respect to the representations made, she declares that “Thomas Copeman directly promised [her] a partnership position in the venture capital arm of the Arrowside investment platform over Zoom in June 2021.” ECF 147-1 (“Chang Decl.“) ¶ 8. That promise “was reiterated and much of the fund operations agreed upon at the September 22, 2021 in-person meeting,” at which Copeman, Cashman, and Chang were present. Id. She “was to be compensated with salary and carry.” Id. Chang “agreed to take the partnership position at Arrowside at the September 22, 2021 meeting.” Id. ¶ 10.

During that meeting, Cashman also “assured [Chang] the fund would be raised and promised anchor funding, with the only contingency being that his anchor funding was reliant on his anticipated secondaries transaction in connection with the Series D funding found for his company, Thrasio.” Id. ¶ 9. According to Chang, Cashman received funds from that transaction “a few weeks later as anticipated.” Id.

This, combined with the examples Chang raised during oral argument, including the December 16, 2021 email in which Cashman tells Copeman that he failed to communicate to Chang that the potential venture was not set in stone, instead pitching it to Chang as “her next thing[;]” communications in which Cashman held Chang out as a partner in Arrowside; and the November 11, 2021 text in which Chang informs Copeman that she is resigning, to which Copeman responds with enthusiasm – present a genuine dispute for trial. “Intent is ‘always a question of fact’ under California law[,]” see Copart, Inc. v. Sparta Consulting, Inc., 277 F. Supp. 3d 1127, 1151 (E.D. Cal. 2017), and Chang has presented sufficient evidence from which a jury may find that Defendants acted with intent to defraud. See, e.g., Swafford v. IBM Corp., 408 F. Supp. 3d. 1131, 1146 (N.D. Cal. 2019) (finding a genuine dispute of material fact as to whether the defendant made certain representations about its compensation structure with the intent to defraud where circumstantial evidence showed that defendant would not be able to recruit sales representations if the defendants had been truthful about capping commission). The reasonableness of Chang‘s reliance is also a matter reserved for the jury. See Id. at 1146. Accordingly, Defendants’ motion for summary judgment is DENIED as to Chang‘s first cause of action for fraudulent inducement.

3. Negligent Misrepresentation

Chang‘s second cause of action is for negligent misrepresentation. SAC ¶¶ 95-102. To prevail on this claim, Chang must prove: ” ‘(1) a misrepresentation of a past or existing material fact, (2) without reasonable grounds for believing it to be true, (3) with intent to induce another‘s reliance on the fact misrepresented, (4) ignorance of the truth and justifiable reliance thereon by the party to whom the misrepresentation was directed, and (5) damages.’ ” Colgate v. JUUL Labs, Inc., 345 F. Supp. 3d 1178, 1195 (N.D. Cal. 2018) (quoting Fox v. Pollack, 181 Cal. App. 3d 954, 962 (1986)).

As they did in connection with Chang‘s fraudulent inducement claim, Defendants argue that Chang cannot establish any of the above elements. MSJ at 17-21. The negligent misrepresentation claim survives for the same reason the fraudulent inducement claim does. Even if a jury does not find that Defendants acted with the scienter required for a fraudulent inducement claim, the record in this case, and the December 16 email in particular, may lead a reasonable jury to conclude that Defendants nonetheless made misrepresentations without reasonable grounds for believing them to be true. See Golden Gate Way, LLC v. Enercon Servs., Inc., 572 F. Supp. 3d 797, 827 (N.D. Cal. 2021) (explaining that “[t]he elements of a negligent misrepresentation . . . are the same as those of actual fraud, except that there is no scienter requirement[]“). Accordingly, Defendants’ motion for summary judgment is DENIED as to Chang‘s second cause of action for negligent misrepresentation.

4. Labor Code § 970

Chang‘s third cause of action is for misrepresentations made in violation of California Labor Code § 970. SAC ¶¶ 103-111. In connection with the alleged violation, Chang seeks double damages under Labor Code § 972 and civil penalties under PAGA.⁵ SAC ¶¶ 110-111.

Section 970 prohibits individuals from “directly or indirectly . . . influenc[ing], persuad[ing], or engag[ing] any person to change from . . . any place outside to any place within the State, . . . for the purpose of working in any branch of labor, through or by means of knowingly false representations, whether spoken, written, or advertised in printed form[.]” S.S. v. Ali, No. 3:23-CV-05074-JSC, 2024 WL 150728, at *9 (N.D. Cal. Jan. 11, 2024) (quoting Cal. Lab. Code § 970).

Defendants argue that they are entitled to summary judgment on Chang‘s Section 970 claim for two reasons. MSJ at 19-20. First, Chang cannot establish that the requisite misrepresentation was made. Id. at 19. Second, Chang cannot show that she was required to relocate her residence. Id.

In opposition, Chang offers no evidence of any relocation of residence. See generally Opp. Instead, she contends:

Defendants induced Plaintiff to temporarily change her location by traveling from San Francisco to other places in California, Boston, and New York on behalf of Arrowside. MSJ at 8, 15. That Plaintiff combined certain trips for Arrowside with personal meetings does not negate the fact that Defendants induced her to travel. For example, when Defendants informed Plaintiff of her ouster, Plaintiff was in New York to meet with potential LP investors on behalf of Arrowside, a trip Copeman approved and encouraged. Ex. VV.

Opp. at 30.

The type of temporary business travel Chang describes is not sufficient to establish a violation of Section 970 as a matter of law. The California Supreme Court has explained that the statute covers “temporary as well as permanent relocation of residence, as contrasted with a mere change in the site of employment.” See Collins v. Rocha, 7 Cal. 3d 232, 239 (1972) (emphasis added). Absent evidence of such a relocation, Chang‘s Section 970 claim is not viable. See Asnaashari v. PNY Techs., Inc., No. C 13-1308 PJH, 2013 WL 2403605, at *2 (N.D. Cal. May 31, 2013) (applying Collins and granting motion to dismiss because “even if for a short duration, section 970 still requires a relocation of residence, and not merely a site visit[]“); see also Stevens v. Thomas Keller Rest. Grp., No. C-09-0622 EMC, 2009 WL 3841879, at *3 (N.D. Cal. Nov. 17, 2009) (stating, in deciding a motion to dismiss, that the purpose of Section 970 “is protecting employees who have been induced to move[]“) (internal quotations omitted).

The sole case Chang cites in support of a contrary conclusion – Miller v. Unified Sci., LLC, No. 3:19-cv-02004-BEN-DEB, 2020 WL 6161634 (S.D. Cal. Oct. 20, 2020) – is both procedurally and factually inapposite. In that case, the plaintiff‘s claim under Section 970 survived the defendants’ motion to dismiss. Id. at *4-5. The plaintiff plausibly alleged that although he was hired to fill a position based in California, he was induced to go to Wisconsin for a project then told he would have to stay there because the position in California was no longer available. Id. Chang has brought forth no comparable facts here.

For the reasons explained above, Defendants’ motion for summary judgment is GRANTED as to Chang‘s third cause of action for violation of California Labor Code § 970.

5. Breach of Contract

Chang‘s fourth cause of action is for breach of contract. SAC ¶¶ 112-116. To prevail on this claim, Chang must prove: “(1) existence of the contract; (2) plaintiff‘s performance or excuse for nonperformance; (3) defendant‘s breach; and (4) damages to plaintiff as a result of the breach.” CDF Firefighters v. Maldonado, 158 Cal. App. 4th 1226, 1239 (2008) (citation omitted).

Defendants argue that Chang‘s breach of contract claim fails because she cannot demonstrate the existence of an enforceable offer, that any alleged offer “was rife with contingencies and ambiguities,” and that essential terms – such as the fund‘s carry structure and salary – “were not agreed upon.” MSJ at 15-16.

Chang offers contrary evidence. According to her declaration, she was promised a partnership position in Arrowside in September 2021, and she accepted. Chang Decl. ¶¶ 8, 10. The only contingency was that Cashman‘s anchor funding was dependent on a transaction involving one of his company‘s. Id. ¶ 9. That transaction proceeded as planned, and Cashman received the funds as anticipated. Id. At deposition, Chang testified that Cashman approved a salary of $225,000 and carried interest of 25%, along with the fund‘s structure. Chang Dep. 128:8-12; 154:8-156:17; see also Chang Decl. ¶ 8 (promised compensation included salary and carry).

It is not for the Court to weigh this conflicting evidence but for the jury to determine which account to believe. Accordingly, Defendants’ motion for summary judgment is DENIED as to Chang‘s fourth cause of action for breach of contract.

6. Promissory Estoppel

Chang‘s fifth cause of action is for promissory estoppel. SAC ¶¶ 117-120. To recover under a theory of promissory estoppel, Chang must prove the following elements: “(1) a promise clear and unambiguous in its terms; (2) reliance by the party to whom the promise is made; (3) [the] reliance must be both reasonable and foreseeable; and (4) the party asserting the estoppel must be injured by [such] reliance.” Flintco Pac., Inc. v. TEC Mgmt. Consultants, Inc., 1 Cal. App. 5th 727, 734 (2016) (citations omitted; modification in original).

Defendants argue that Chang cannot establish that there was a clear and unambiguous promise, that Chang reasonably relied on such a promise, or that she suffered damages as a result. MSJ at 15-16, 17, 21. Defendants point to Copeman‘s deposition testimony in support. He testified that he, Chang, and Cashman “started looking at deals together in the summer of 2021 while everybody had their day jobs exploring the possibility of what-ifs and raising a fund and seeing if the group – the collective enjoyed working together.” ECF 132-2 (“Manousos Decl.“) ¶ 5; ECF 132-4 (“Copeman Dep.“) at 10:15-20. He also testified that he could “recall and say that if [they] were to raise a fund, [Chang] would have been a general partner[,]” though he couldn‘t “recall anything specifically, everybody sitting around a group and discussing those things specifically.” Id. at 16:20-17:9.

Defendants also rely on a portion of Chang‘s deposition testimony, quoted below:⁶

He [Cashman] told me that the -- when we met on September 22nd, he said that the capital that was going to be associated with funding this platform was going to be directly connected from the Series D Thrasio round. And he believed -- I mean, I -- I remember very distinctly, like, nothing is done until it‘s done, but we are, like, 99 percent there. But he‘s like, you understand there‘s, like -- you know, it‘s not done until it‘s, like, wired. And I was like, got it.

Manousos Decl. ¶ 3; ECF 132-3 (“Chang Dep.“) at 27:5-14. In addition, Defendants point to a text chain between Chang to Cashman from December 2021:

Image in original document— text message chain

Manousos Decl. ¶ 21; ECF 132-18 (“December 2021 Chain“) at 2.

In response, Chang offers facts from which a reasonable jury could decide in her favor. Chang declares that she was promised a partnership position in Arrowside in September 2021. Chang Decl. ¶ 8. In October 2021, she told Cashman and Copeman that she would be giving notice to her prior employer. Id. ¶ 11. She tendered that notice to her prior employer on November 11, 2021, and her position there ended on November 30, 2021. Id. She would not have left that position “except for a step up to secure position as a partner at a venture capital fund[,]” which she had communicated to Copeman when he first approached her. Id. ¶ 6.

Whether Chang‘s actions were reasonable given the nature of the promised partnership is for a jury to decide. See Flintco Pac., Inc., 1 Cal. App. 5th at 734 (explaining that “whether the reliance was reasonable is a question of fact unless reasonable minds could reach only one conclusion based on the evidence, in which case the question is one of law[]“). It is also for the jury to decide whether Defendants ever made promise of a partnership position as Chang contends, and if so, whether it was as concrete as Chang believed it to be. See Zetwick v. Cnty. of Yolo, 850 F.3d 436, 441 (9th Cir. 2017) (instructing that “where evidence is genuinely disputed on a particular issue – such as by conflicting testimony – that issue is inappropriate for resolution on summary judgment[]“) (internal quotations and citation omitted). Accordingly, Defendants’ motion for summary judgment is DENIED as to Chang‘s promissory estoppel claim.

7. Unjust Enrichment

Chang‘s sixth cause of action is for unjust enrichment. SAC ¶¶ 121-125. To prevail on this claim, Chang must prove that: “defendant[s] received and unjustly retained a benefit at the [her] expense.” ESG Cap. Partners, LP v. Stratos, 828 F.3d 1023, 1038 (9th Cir. 2016) (citation omitted).

As to this claim, Defendants argue:

Initially, Plaintiff vastly overstates and speculates on the “significant monetary benefit” her efforts conferred upon Defendants. “Arrowside” as allegedly conceptualized was never created, so to the extent Plaintiff alleges that she worked to found “Arrowside,” the efforts were for naught. What remains is only a handful of investments for which Plaintiff provided feedback, and a few investments funded exclusively by Cashman that Plaintiff helped to source. However, those investments in early stage companies (many of which fail) have not realized, and may never realize, any return, much less a significant return to which Plaintiff would have been entitled carry had the venture fund been raised. The retention of such benefits, to the extent they even exist, is clearly not unjust particularly where Cashman made the investments with his own capital – bearing the full risk of the investment – and offered Plaintiff compensation for her time and carry for the deals she was involved with, which she declined. See Ex. E at 227:14-21, 234:9-21; Ex. V at 29:1-11. Plaintiff also cannot demonstrate that either Arrowside Ventures’ or Perseverus’ investments were made due to any unique “investment thesis” created by Plaintiff. Accordingly, Plaintiff cannot state a claim for unjust enrichment.

MSJ at 22.⁷

These arguments do not establish that, as a matter of law, Defendants received no benefit or that they have not retained a benefit at Chang‘s expense. To the contrary, the evidence in the record presents a genuine dispute for trial. Chang declares that “[w]hile working for Arrowside, [she] evaluated and passed on numerous investments on behalf of Cashman and Ventures . . . .” Chang Decl. ¶ 12. She “spent more than 400 hours working for Arrowside in 2021.” Id. She also worked on economic models for Arrowside, which she sent to Cashman at his request (made during an email exchange) after the venture fell apart in December 2021. December 2021 Text Chain at 2. In that same exchange, Cashman told Chang that he had been “impressed with what [Chang had] done.” Id. A reasonable jury may conclude that the work Chang performed conferred a benefit on Defendants and that by failing to compensate Chang for that work, they have unjustly retained a benefit at her expense. Accordingly, Defendants’ motion for summary judgment is DENIED as to Chang‘s sixth cause of action for unjust enrichment.

8. Failure to Pay Wages Upon Separation

Chang‘s seventh cause of action is for failure to pay all wages due upon separation of employment, in violation of California Labor Code §§ 201, 202, and 2926. SAC ¶¶ 126-133. Chang also seeks statutory penalties under Labor Code §§ 203 and 210 and civil penalties under PAGA. Id. ¶¶ 130, 131, 133. The Court first addresses the parties’ arguments with respect to the underlying wage claim before turning to their arguments about related penalties.

a. Whether Chang was an employee

Defendants first argue that Chang cannot establish that she was their employee. MSJ at 16-17. They contend:

[T]here was no understanding between the parties that an employment relationship was being created (and, indeed, Plaintiff retained her job at FF for virtually the entire time), there was no written employment agreement, no agreement about salaries and the fund carry structure, and the parties were not anywhere near close to raising the fund for which she purportedly would have worked.

MSJ at 17. In support of this argument, Defendants point to portions of Chang‘s deposition testimony, which confirms that there never was “any kind of written employment agreement with Arrowside Ventures” and that, by December 10, 2021, there was no final written agreement reached “as to what the carry structure would be overall for Arrowside Ventures[.]” Manousos Decl. ¶ 3; Chang Dep. at 25:5-8, 31:7-13. Defendants also point to a draft budget Cashman redlined, presumably to show that relevant documents had not been finalized. Manousos Decl. ¶ 15; ECF 132-12 (“Redlined Budget“). Defendants further rely on the opinion of their industry expert, Jim Timmins, who opines that the parties did not have the foundational documents necessary to approach institutional investors for funding for their venture. Manousos Decl. ¶ 12; ECF 132-9 at 24, 28-31.

Defendants also argue, without citation to the record or any legal authority, that they “did not employ or exercise control over [Chang‘s] wages, hours, or working conditions.” MSJ at 17. They describe Chang‘s “efforts to participate in the potential raising of a fund” as being “done in the spirit of entrepreneurship and a potential business partnership, as happens all of the time in the venture capital industry[.]” Id. According to Defendants, Chang “participated voluntarily and during her free time while she maintained full-time employment.” Id.

Defendants’ arguments fail. “[T]he ABC test remains the operative test for determining whether a worker is an employee for purposes of the Labor Code, the Unemployment Insurance Code, and all wage orders.” Becerra v. McClatchy Co., 69 Cal. App. 5th 913, 935 (2021) (citations omitted). That test is codified in Labor Code § 2775, which provides, in part:

(b)(1) For purposes of this code and the Unemployment Insurance Code, and for the purposes of wage orders of the Industrial Welfare Commission, a person providing labor or services for remuneration shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates that all of the following conditions are satisfied:

(A) The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.

(B) The person performs work that is outside the usual course of the hiring entity‘s business.

(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

Cal. Lab. Code § 2775(b)(1). “The ABC test places the burden on the hiring entity to establish that a worker is an independent contractor, and the hiring entity‘s failure to establish any one of the ABC factors will be sufficient in itself to establish that the worker is an employee . . . .” Olson v. California, 104 F.4th 66, 73 (9th Cir. 2024), cert. denied, --- S.Ct. ----, 2024 WL 4486406 (U.S. Oct. 15, 2024).

Defendants’ arguments, which are devoid of legal authority or citation to the record, do not satisfy this burden. Accordingly, because Defendants seek summary judgment on Chang‘s claim under California Labor Code §§ 201, 202, and 2926 on the basis that Chang has not shown she is an employee, their motion is DENIED.

Having denied Defendants’ motion for summary judgment as to Chang‘s wage claim, the Court now turns to Defendants’ alternative motion for partial summary judgment on the issue of whether Chang would be entitled to recover waiting time penalties under Labor Code § 203 and statutory penalties under Labor Code § 210 if she prevailed on her underlying claim. The Court addresses each issue in turn.

b. Penalties under Labor Code § 203

California Labor Code § 203 states:

If an employer willfully fails to pay, without abatement or reduction, in accordance with Sections 201, 201.3, 201.5, 201.6, 201.8, 201.9, 202, and 205.5, any wages of an employee who is discharged or who quits, the wages of the employee shall continue as a penalty from the due date thereof at the same rate until paid or until an action therefor is commenced; but the wages shall not continue for more than 30 days.

Cal. Lab. Code § 203(a). The provision allows the court to:

award an employee who is discharged or who quits a penalty equal to up to 30 days’ worth of the employee‘s wages if an employer willfully fails to pay the employee his full wages immediately (if discharged) or within 72 hours (if he or she quits). It is called a waiting time penalty because it is awarded for effectively making the employee wait for his or her final paycheck. A waiting time penalty may be awarded when the final paycheck is for less than the applicable wage – whether it be the minimum wage, a prevailing wage, or a living wage.

Diaz v. Grill Concepts Services, Inc., 23 Cal. App. 5th 859, 867 (2018) (internal quotations, citations, and modifications omitted). “Under long established law, an employer cannot incur civil or criminal penalties for the willful nonpayment of wages when the employer reasonably and in good faith disputes that wages are due.” Naranjo v. Spectrum Sec. Servs., Inc., 15 Cal. 5th 1056, 1065 (2024) (citations omitted).

Defendants argue that such a good faith dispute exists here because “there was no employment relationship between Defendants and [Chang], which is supported by the lack of an employment agreement, [Chang‘s] full-time employment during nearly the entirety of the period relevant to this Action, and [Chang‘s] acknowledgment that there was never a commitment to raising a fund in which she might be a partner.” MSJ at 25. In their reply, Defendants add that “there is no dispute that the compensation Plaintiff claims she is owed is subject to a good faith legal and factual dispute. . . . There is substantial evidence in this case that Plaintiff did not, and has never, met the legal definition of an employee, or, an individual providing services for remuneration to an entity or individual.” ECF 155 (“Reply“) at 14-15.

These arguments fail. Defendants’ assertion that a good faith dispute exists is insufficient. “[I]t cannot be the case that a straight denial of plaintiff‘s version of the facts always constitutes a defense that triggers the good faith exception. Otherwise, the vast majority of defendants would escape liability for waiting time penalties, simply by disputing the facts.” Cuc Dang v. Sutter‘s Place, Inc., No. C-10-02181 RMW, 2012 WL 2977223, at *7 (N.D. Cal. July 19, 2012).

Moreover, the evidence in the record undermines Defendants’ contention. Plaintiffs point to a December 16, 2021 email, in which Cashman tells Copeman, “I feel like we made a commitment to Stacy, she banked on that, and we should stand by it. So please figure something out here.” ECF 148 (“Zitrin Decl.“) ¶ 27; ECF 149-19 (“Dec. 16 Email.“) at 2. At deposition, Cashman also testified that he approved a proposal to Chang that provided three months of backpay. Manousos Decl. ¶ 10; ECF 132-7 (“Cashman Dep.“) at 22:9-21. In a text exchange from December 2021, Cashman also told Chang that he would make sure she was part of all the deals she had participated in. December 2021 Chain at 2.

Viewing this evidence in the light most favorable to Chang, a jury could conclude that there was no good faith dispute as to whether Defendants owed Chang her wages and as a result, that she should recover waiting time penalties under Section 203. See Danko v. O‘Reilly, No. CGC-09-495203, 2012 WL 3279431 (Cal. Super. Apr. 12, 2012) (finding that the defendant‘s acknowledgment that the plaintiff was entitled to a bonus raised a trial issue on whether the plaintiff was entitled to waiting time penalties). Accordingly, Defendants’ motion for partial summary judgment as to Chang‘s potential entitlement to waiting time penalties under Section 203 is DENIED.

c. Penalties under California Labor Code § 210

California Labor Code § 210 provides that:

(a) In addition to, and entirely independent and apart from, any other penalty provided in this article, every person who fails to pay the wages of each employee as provided in Sections 201.3, 204, 204b, 204.1, 204.2, 204.11, 205, 205.5, and 1197.5, shall be subject to a penalty as follows:

(1) For any initial violation, one hundred dollars ($100) for each failure to pay each employee.

(2) For any subsequent violation, or any willful or intentional violation, two hundred dollars ($200) for each failure to pay each employee, plus 25 percent of the amount unlawfully withheld.

(b) The penalty shall either be recovered by the employee as a statutory penalty pursuant to Section 98 or by the Labor Commissioner as a civil penalty through the issuance of a citation or pursuant to Section 98.3. The procedures for issuing, contesting, and enforcing judgments for citations issued by the Labor Commissioner under this section shall be the same as those set forth in subdivisions (b) through (k), inclusive, of Section 1197.1.

(c) An employee is only entitled to either recover the statutory penalty provided in this section or to enforce a civil penalty as set forth in subdivision (a) of Section 2699, but not both, for the same violation.

Cal. Lab. Code § 210.

Defendants argue that Chang is not entitled to penalties under Section 210 for two reasons. MSJ at 26. First, they argue that penalties under the statute are only recoverable by the Labor Commissioner. Id. at 26. Second, they argue that Chang “does not allege in her Complaint that she falls under any of these categories, and the record evidence demonstrates that she is not.” Id.

In opposition, Chang seeks to avoid summary judgment on this issue by referencing matters not previously raised in the case or those which Defendants do not challenge. Opp. at 22. She asserts:

Plaintiff is of the class of employees protected by California Labor Code Section 210. That provision provides for penalties for violations of certain Labor Code provisions, including Section 204. MSJ at 21. In turn, Labor Code Section 204(a) applies to the salaries of executives of employers, like Defendants, covered by the Fair Labor Standards Act, which must be paid monthly. Id.; see also On-Line Power, Inc. v. Mazur, 149 Cal. App. 4th 1079, 1086, 57 Cal. Rptr. 3d 698, 702 (2007) (“section 204 . . . permits payment of wages on a monthly basis to executive, administrative, and professional employees“). While Plaintiff‘s salary was supposed to be retroactive to December 1, Exs. FF, WW, it was never paid, which qualifies as a violation of Section 204(a).

Although Defendants also claim that there is no private right of action under these Labor Code provisions, they overlook the fact that Plaintiff has properly asserted a Private Attorneys General Act claim, which allows Plaintiff to recover penalties for Defendants’ Labor Code violations. See Nguyen v. Wells Fargo Bank, 2016 WL 5390245, at *10 (N.D. Cal. Sept. 26, 2016) (“a violation of section 204 can form the basis for a claim under the UCL or for PAGA penalties“); Amaral v. Cintas Corp. No. 2, 163 Cal. App. 4th 1157, 1195 (2008) (PAGA allows private recovery of penalties previously unavailable under Section 210).

Id.

Chang‘s contentions in opposition are insufficient to defeat Defendants’ motion on the Section 210 issue. First, there is no claim in the complaint under Section 204, which is how Chang seeks to belatedly salvage any entitlement to penalties under Section 210. The Court will not allow Chang to expand the scope of her claims at this late stage. See Clark v. Beard, No. 11-cv-03520-YGR (PR), 2015 WL 4452470, at *4 n.7 (N.D. Cal. July 20, 2015) (“Plaintiff cannot raise new claims [in his summary judgment opposition] that were not previously raised in his amended complaint.“). Second, as confirmed during the hearing, Defendants do not independently move for summary judgment on any civil penalties Chang seeks under PAGA. Accordingly, Defendants’ motion for partial summary judgment on Chang‘s potential entitlement to penalties under Section 210 is GRANTED.

9. UCL

Chang‘s eighth cause of action is for violations of the unlawful and unfair prongs of the UCL. SAC ¶¶ 134-138. Chang‘s UCL claim under the statute‘s unlawful prong is based on alleged violations of California Labor Code §§ 201, 202, and 970. Id. ¶¶ 134-136. Chang‘s UCL claim under the statute‘s unfair prong is based on Defendants “unfairly competing through violations of state law, including Labor Code Sections 201 and 202.” Id. ¶ 136.

Because Defendants’ motion for summary judgment fails as to Chang‘s claim for unpaid wages, which partially serves as the predicate for Chang‘s claim under the UCL‘s unlawful prong, Defendants’ motion for summary judgment as to this portion of the UCL claim is DENIED. See Arroyo v. Int‘l Paper Co., 611 F. Supp. 3d 824, 846 (N.D. Cal. 2020) (denying motion for summary judgment on UCL claim where underlying statutory claim survived). The motion, however, is GRANTED to the extent Chang relies on an alleged violation of Labor Code § 970 as a predicate. The motion is also GRANTED with respect to Chang‘s UCL claim under the statute‘s unfair prong. Chang has failed to respond to the arguments Defendants made in their opening brief that the violations on which she relies cannot, as a matter of law, serve as a predicate act under the UCL‘s unfair prong. The claim asserted under that theory is therefore abandoned. See Jenkins v. Cnty. of Riverside, 398 F.3d 1093, 1095 n.4 (9th Cir. 2005) (treating two claims as abandoned when the plaintiff failed to address them in opposition to the defendant‘s motion for summary judgment).

Defendants’ alternative motion for partial summary judgment on the issue of whether Chang can recover attorney‘s fees in the event she prevails on her UCL claim is DENIED. Defendants have pointed to no authority in which a court has resolved this seemingly premature issue on a motion for summary judgment, and absent any such authority, the Court declines to reach it now.

10. Labor Code § 2802

Chang‘s ninth cause of action is for failure to reimburse expenses and losses in violation of California Labor Code § 2802. SAC ¶¶ 139-143. She also seeks interest and PAGA penalties in connection with the violation. Id. ¶¶ 142, 144.

To prevail on this claim, Chang must prove that she: “(1) 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 reasonable and necessary.” Arroyo, 611 F. Supp. 3d at 844-45 (citing McLeod v. Bank of Am., N.A., No. 16-CV-03294-EMC, 2017 WL 6373020, at *5 (N.D. Cal. Dec. 13, 2017)). “[A]n employee‘s failure to submit a request for reimbursement does not waive his or her rights under Section 2802.” Id. “Rather, when the employer knows or has reason to know that the employee has incurred an expense, then it has the duty to exercise due diligence and take any and all reasonable steps to ensure that the employee is paid for the expense.” Id. (internal quotation marks, citation, and alteration omitted).

As with the seventh cause of action, Defendants seek summary judgment on Chang‘s claim for failure to reimburse expenses and losses on the ground that Chang has failed to establish the requisite employee-employer relationship. MSJ at 16-17. The Court has already addressed Defendants’ argument on that point, and for the reasons already explained, Defendants’ motion for summary judgment on this claim is DENIED.

C. Conclusion

For the reasons set forth above, Defendants’ motion for summary judgment is GRANTED IN PART AND DENIED IN PART. Their alternative motion for partial summary judgment is also GRANTED IN PART AND DENIED IN PART.

IT IS SO ORDERED.

Dated: November 15, 2024

ARACELI MARTÍNEZ-OLGUÍN

United States District Judge

Notes

1

On November 7, 2024, the parties stipulated to a dismissal with prejudice as to Perseverus. ECF 177.

2

The Court notes that Chang‘s request for a sur-reply is procedurally improper. One of the cases Chang cites in her objections – Reyes v. Fed. Express Corp., No. 23-CV-00693-AMO, 2023 WL 4183473, at *5 (N.D. Cal. June 23, 2023) – makes it clear that an administrative motion pursuant to Civil Local Rule 7-11 is the proper vehicle for seeking leave to file a sur-reply. Chang has not done so here, and her request for a sur-reply, even if properly directed at “new” arguments, would be rightly denied for this reason alone.

3

Defendants mount an across-the-board challenge to damages, arguing that, as to all claims, Chang has suffered no damages. MSJ at 21. This argument is not persuasive. At oral argument, Defendants conceded that “it‘s essentially a damages issue more than a summary judgment issue.” The Court therefore leaves it to the jury to determine what amount of damages, if any, Chang has sustained as a result of not being able to secure full-time employment in the venture capital industry since December 2021. To the extent Defendants challenge Chang‘s ability to establish damages based on the statement that she was not leaving anything on the table by leaving Founder‘s Fund, that is disputed. In her declaration, Chang states: “I did not tell Defendants I was leaving no money on the table when I resigned from Founders Fund to join Arrowside.” Chang Decl. ¶ 6.

4

The Court rejects Defendants’ contention that Chang‘s declaration is a sham affidavit that must be disregarded. See Yeager v. Bowlin, 693 F.3d 1076, 1080 (9th Cir. 2012) (instructing that “the sham affidavit rule should be applied with caution because it is in tension with the principle that the court is not to make credibility determinations when granting or denying summary judgment[]“) (citations and quotations omitted).

5

“PAGA provides for civil penalties for various Labor Code violations and authorizes ‘aggrieved employees, acting as private attorneys general, to recover [those] penalties.’ ” Estrada v. Royalty Carpet Mills, Inc., 15 Cal. 5th 582, 598-99 (2024) (quoting Iskanian v. CLS Transp. Los Angeles, LLC, 59 Cal. 4th 348, 379 (2014), abrogated in part on other grounds by Viking River Cruises, Inc. v. Moriana, 596 U.S. 639 (2022)) (modifications in original). Those penalties are “$100 for any initial violation, and $200 for each subsequent violation per pay period.” Taylor v. Interstate Grp., LLC, No. 15-CV-05462-YGR, 2016 WL 861020, at *5 (N.D. Cal. Mar. 7, 2016) (citing Cal. Lab. Code § 2699(f)(2)). The “penalties recovered on a PAGA claim are split between the state and aggrieved employees.” Estrada, 15 Cal. 5th at 599. “[I]f the representative plaintiff prevails, the aggrieved employees are statutorily entitled to 25% of the civil penalties recovered,” plus reasonable attorney‘s fees and costs, and the state labor law enforcement agency “is entitled to 75%.” Patel v. Nike Retail Servs., Inc., 58 F. Supp. 3d 1032, 1043 (N.D. Cal. 2014); see also Cal. Lab. Code § 2699(g)(1), (i).

6

Chang disputes whether Defendants characterize her testimony correctly. The Court need not decide which characterization is correct. It is for the jury to decide which version of the disputed events is credible. See Chan v. ArcSoft, Inc., No. 19-CV-05836-JSW, 2023 WL 8260886, at *14 (N.D. Cal. Nov. 29, 2023).

7

Defendants offer no caselaw in support of their legal arguments on this point.

Case Details

Case Name: Chang v. Cashman

Court Name: District Court, N.D. California

Date Published: Nov 15, 2024

Citation: 3:22-cv-02010

Docket Number: 3:22-cv-02010

Court Abbreviation: N.D. Cal.