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Brecher v. Citigroup Global Markets

March 29, 2010


The opinion of the court was delivered by: Honorable Larry Alan Burns United States District Judge


[Docket No. 14.]

This putative class action brings claims under California law. Claims are brought on behalf of four Plaintiff classes consisting of Defendants' past or current employees who were eligible for several particular types of benefits or compensation. Defendants have moved to dismiss the First Amended Complaint ("FAC").

In support of their motion, Defendants have requested judicial notice of a California Supreme Court decision handed down after the motion was fully briefed.

I. Request for Judicial Notice

Under Fed. R. Evid. 201(b), the Court can take judicial notice of facts not subject to reasonable dispute, including the existence of orders and decisions by other courts. Lee v. City of Los Angeles, 250 F.3d 668, 690 (9th Cir. 2001). Under FRE 201(d), the Court must take notice if requested by a party and if supplied with the necessary information. Plaintiffs did not object to the request for notice.

The case is Schachter v. Citigroup, Inc., 47 Cal.4th 610 (2009) and it addresses many of the issues raised here. Furthermore, because the Court is sitting in diversity, it must apply the substantive law of the forum state, under the doctrine of Erie R. Co. v. Tompkins, 304 U.S. 64, 78 (1938). Because it is relevant, the Court GRANTS the request and takes notice of the California Supreme Court's decision and holdings.

II. Motion to Dismiss

A. Legal Standards

A Rule 12(b)(6) motion to dismiss tests the sufficiency of the complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). When determining whether a complaint states a claim, the Court accepts all allegations of material fact in the complaint as true and construes them in the light most favorable to the non-moving party. Cedars-Sinai Medical Center v. National League of Postmasters of U.S., 497 F.3d 972, 975 (9th Cir. 2007) (citation omitted). However, the Court is "not required to accept as true conclusory allegations which are contradicted by documents referred to in the complaint," and does "not... necessarily assume the truth of legal conclusions merely because they are cast in the form of factual allegations." Warren v. Fox Family Worldwide, Inc., 328 F.3d 1136, 1139 (9th Cir. 2003) (citations and quotation marks omitted).

Generally, the scope of review on a motion to dismiss for failure to state a claim is limited to the contents of the complaint. See Warren, 328 F.3d at 1141 n.5 (9th Cir. 2003). Under Rule 12(b)(6), extrinsic evidence can generally only be considered if the motion is converted to a Rule 56 motion for summary judgment. However, "documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the pleading, may be considered in ruling on a Rule 12(b)(6) motion to dismiss." Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994) overruled on other grounds by Galbraith v. County of Santa Clara, 307 F.3d 1119 (9th Cir. 2002). The court may treat such a document as "part of the complaint, and thus may assume that its contents are true for purposes of a motion to dismiss under Rule 12(b)(6)." United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003).

B. The FAC

The FAC brings five claims. The first is for violation of California's Unfair Competition Law ("UCL"), § 17200 et seq., based on the allegations of violations of Cal. Bus. & Prof. Code § 16600, as well as unfair forfeiture of wages. The second is brought against all Defendants for breach of fiduciary duty, for allowing Citigroup's share price to decline. Plaintiffs allege Defendants had a fiduciary duty either to prevent this from happening or to compensate Plaintiffs for the decline. The third claim is for breach of contract, based on allegations that the employer*fn1 agreed to award Plaintiffs bonuses if they met certain goals, then did not award the bonuses even though the goals were met. (FAC, ¶ 35.) As part of the same claim, Plaintiffs argue in the alternative that even if the goals were not met, they made a good faith effort to meet them and therefore "have substantially performed all of their obligations on their part [sic] to be performed, except for those obligations that were excused...." (Id.)

The fourth claim, for breach of the implied covenant of claim and fair dealing, alleges the employer interfered with Plaintiff's right to receive the benefit of the agreement. No further details are alleged. The fifth claim is for violation of California Labor Code § 2802(a), which requires employers to indemnify employees "for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties...." The fifth claim also incorporates a claim for waiting time penalties under Cal. Lab. Code § 203.

The "Loan Class" alleged in the FAC consists of employees who received forgivable loans that would accelerate if their employment terminated. The "Stock Award Class" consists of employees who received stock awards that would be forfeited if their employment terminated. The "Unawarded Bonus Class" consists of employees who were deprived of bonuses they are allegedly entitled to. The "Business Expense Class" consists of employees who incurred certain reimbursable business expenses that Defendants failed to reimburse.

The Loan Class's claims are based on "Acceleration Provisions." As described in paragraph 11 of the FAC, the employer made loans to Plaintiffs in exchange for a promissory note. For each year Plaintiffs worked there, a portion was forgiven. If Plaintiffs left employment, the loans accelerated immediately, pursuant to the Acceleration Provisions.

The FAC describes the terms of the Citigroup Stock Award Program ("CSAP"), from which the Stock Award Class's claims arise. Plaintiffs "received an initial award of Citigroup stock" when their employment began, and "received additional awards of Citigroup stock" as other goals were met. (FAC, ¶ 12.) Although the FAC alleges Plaintiffs "received" the stock, in fact it was held for them. (Id.) If Plaintiffs left employment before delivery of the shares, they were forfeited. Plaintiffs refer to the terms providing for forfeiture of the shares as the "Forfeiture Provisions."

With regard to the Acceleration Provisions and Forfeiture Provisions, the allegations do not distinguish between terminations for cause, terminations without cause, and voluntary departures. The FAC alleges that because both sets of provisions "restrain[ed] plaintiffs from leaving their employment at Smith Barney and competing against defendants," they were unlawful under Cal. Bus. & Prof. Code ยง 16600, which provides, subject to exceptions, "every contract by ...

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