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Claver v. Coldwell Banker Residential Brokerage Co.

March 25, 2009


The opinion of the court was delivered by: M. James Lorenz United States District Court Judge


Pending before the court is Defendant's motion to dismiss complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons which follow, the motion is GRANTED IN PART AND DENIED IN PART. Plaintiff is GRANTED LEAVE TO AMEND.

Plaintiff is a real estate salesperson and Defendant is a real estate broker. They entered into a contract whereby Plaintiff was to list and sell residential real estate exclusively on behalf of Defendant. Plaintiff filed a complaint alleging that Defendant violated California Labor Code Sections 221 and 400 though 410 as well as the Industrial Welfare Commission ("IWC") Order No. 4-2001 ("Wage Order 4-2001"). Defendant allegedly required him and others to purchase automobile and professional liability insurance in order to indemnify Defendant in case of any third-party claims. In addition, Plaintiff alleged that this constituted unlawful and unfair business practice in violation of California Business and Professions Code Sections 17200 et. ("Unfair Competition Law" or "UCL").

A Rule 12(b)(6) motion to dismiss tests the sufficiency of the complaint. Navarro v., 250 F.3d 729, 732 (9th Cir. 2001). Dismissal is warranted under Rule 12(b)(6) where the complaint lacks a cognizable legal theory. Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 534 (9th Cir. 1984); see Neitzke v. Williams, 490 U.S. 319, 326 (1989) ("Rule 12(b)(6) authorizes a court to dismiss a claim on the basis of a dispositive issue of law"). Alternatively, a complaint may be dismissed where it presents a cognizable legal theory yet fails to plead essential facts under that theory. Robertson, 749 F.2d at 534. The "complaint must, at a minimum, plead 'enough facts to state a claim for relief that is plausible on its face.'" Johnson v. Riverside Healthcare Sys., LP, 534 F.3d 1116, 1122 (9th Cir. 2008), quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, ___; 127 S.Ct. 1955, 1974 (2007).

In reviewing a motion to dismiss under Rule 12(b)(6), the court must assume the truth of all factual allegations and must construe them in the light most favorable to the nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). However, legal conclusions need not be taken as true merely because they are cast in the form of factual allegations. Roberts v. Corrothers, 812 F.2d 1173, 1177 (9th Cir. 1987); W. Mining Council v., 643 F.2d 618, 624 (9th Cir. 1981). Similarly, "conclusory allegations of law and unwarranted inferences are not sufficient to defeat a motion to dismiss." Pareto v. Fed. Deposit Ins. Corp., 139 F.3d 696, 699 (9th Cir. 1998.)

Defendant argues that the complaint should be dismissed. The alleged labor law violations are possible only if Plaintiff was Defendant's employee rather than an independent contractor.*fn1 See Cal. Labor Code §§ 221 & 400-410; Wage Order 4-2001. The contract between Plaintiff and Defendant specifically provided that Plaintiff was an independent contractor and not an employee (see Compl. Ex. A), and California Business and Professions Code Section 10032(b) authorizes such contracts. Nevertheless, Defendant has not cited any authority to conclusively negate the possibility of an employment relationship. Neither the California Labor Code nor the IWC defines the terms "employee" and "independent contractor" for purposes of the claims asserted in the Complaint. See Estrada v. FedEx Ground Package Sys., Inc., 154 Cal. App. 4th 1, 10 (2007); Wage Order 4-2001 ¶ 2(F). The relevant determination is made based on a fact intensive analysis. See Estrada, 154 Cal. App. 4th at 10 (listing factors). A contract designating a contracting party as an independent contractor and not an employee does not per negate a finding of an employment relationship. See id.; see also Real v. Driscoll Strawberry Assoc., Inc., 603 F.2d 748, 775 (9th Cir. 1979).

Defendant next maintains that the first cause of action pertaining to the professional liability insurance should be dismissed for failure to adequately allege that Defendant required Plaintiff to purchase the insurance. Specifically, Defendant argues that Exhibit B to the complaint contradicts the allegations. Plaintiff alleged that he was "required to purchase, and did in fact purchase out of [his] own personal funds, insurance and/or indemnification related to legal claims brought by third parties against [Defendant] or Plaintiff... or both...." (Compl. at see also id. at 7 ("Defendant... required Plaintiff... to become then direct or indirect insurer[] of Defendant against losses from third party tort liability by requiring Plaintiff... to purchase insurance for Defendant's benefit.").) Although the complaint refers to Exhibit B (id. at 2-3), this information does not appear there. However, contrary to Defendant's argument, Exhibit B is silent on the issue rather than contradictory. Accordingly, Defendant's argument is rejected.

Last, Defendant argues that the Complaint should be dismissed because it only conclusively alleges that Plaintiff was an employee and does not attempt to allege any facts in support of various factors relevant to distinguishing employees from independent contractors. In response, Plaintiff maintains he was an employee as a matter of law, because in California, "for purposes of liability to third parties for torts, a real estate salesperson is the agent of the broker who employs him or her" and not an independent contractor. Cal. Real Estate Loans, Inc. v. Wallace, 18 Cal. App. 4th 1575, 1581 (1993). Accordingly, "[t]he broker is liable as a matter of law for all damages caused to third persons by the tortious acts of the salesperson committed within the course and scope of employment." Id.

This argument is unpersuasive. Plaintiff cites no legal authority, and the court is aware of none, where this concept is extended, as suggested by Plaintiff, beyond the third party's right to recover tort damages from the broker. Furthermore, Plaintiff's interpretation of this legal authority appears to be at odds with California Business and Professions Code Section 10032(b), which expressly permits a broker and a salesperson licensed under that broker to contract between themselves as independent contractors "for purposes of their legal relationship with and obligations to each other." Section 10032(b) was expressly intended to not interfere with the broker's vicarious liability for a salesperson's tortious acts. See Wallace, 18 Cal. App. 4th at 1581 & n.2.

To establish he was Defendant's employee Plaintiff must therefore meet the common law definition. See Estrada, 154 Cal. App. 4th 10. The federal pleading standard is not onerous:

Federal Rule of Civil Procedure 8(a)(2) requires only a short and plain statement of the claim showing that the pleader is entitled to relief, in order to give the defendant fair notice of what the claim is and the grounds upon which it rests.

While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact).

Bell Atl., 127 S.Ct. at 1964-65. Plaintiff's conclusory allegation that he was Defendant's employee, without more, does not meet this pleading standard. The court therefore finds that Plaintiff does not sufficiently allege his labor law claims.

Defendant also moves to dismiss Plaintiff's UCL claim. The Unfair Competition Law prohibits unlawful, unfair or fraudulent business acts or practices. Cal. Bus. & Prof. Code § 17200. "[I]t establishes three varieties of unfair competition - acts or practices which are unlawful, or unfair, or fraudulent." Cal-Tech. Commc'ns, Inc. v. Los Angeles Cellular Tel. Co., 20 ...

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