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Technology & Intellectual Property Strategies Group Pc, A California Professional Corporation v. Insperity

November 29, 2012


The opinion of the court was delivered by: Lucy H. Koh United States District Judge

United States District Court For the Northern District of California


Plaintiff Technology & Intellectual Property Strategies Group PC ("Plaintiff" or "TIPS Group") brings this action against Insperity, Inc. and Does 1 through 10 alleging: (1) false 23 advertising under Section 43(a) of the Lanham Act, 15 U.S.C. § 1117(a); (2) fraud/fraud in the 24 inducement; (3) intentional misrepresentation; (4) negligent misrepresentation; (5) breach of 25 promise (promissory estoppel); (6) breach of contract; (7) violation of California Business & 26 Professions Code § 17200, et seq.; (8) breach of fiduciary duty; (9) breach of covenant of good 27 faith and fair dealing; (10) tortious breach of contract (bad faith); and (11) bad faith retaliation.

Plaintiff's allegations stem from a contractual dispute with Defendant over wage claims 2 filed against Plaintiff by Basil Fthenakis, a former partner at TIPS Group. For the reasons 3 discussed below, the Court hereby GRANTS the Motion to Intervene filed by Insperity PEO 4 Services, L.P. ("Insperity PEO"). In addition, the Court GRANTS the Motion for Stay and to 5 Compel Arbitration filed by Defendant Insperity, Inc. and Intervenor Insperity PEO (collectively 6 "Defendants"). Finally, the Court DENIES Plaintiff's Motion to Dismiss the Counterclaim filed by 7 Insperity PEO. 8


A.Factual Allegations

Plaintiff, a professional corporation engaged in the practice of technology law, brings suit against Insperity, Inc., a professional employer organization ("PEO") which contracts with small 12 and medium-sized businesses to provide services related to human resources. ECF No. 1 13 ("Compl.") ¶¶ 1, 5--6. According to Plaintiff, "Insperity operates as a co-employer with the client 14 business, managing payroll and benefits for the client's employees, and handling employment-15 related regulatory issues." Compl. ¶7. 16

Plaintiff alleges that, in or around April 12, 2008, it responded to an Insperity advertisement-then known as "Administaff"-for PEO services with a request for additional 18 information. Compl. ¶12 (citing ECF No. 1-1, Exh. B, an advertisement by Administaff).*fn1 A 19 representative responded to Plaintiff's request and scheduled a meeting at Plaintiff's office. 20 Compl. ¶13. According to Plaintiff, a large portion of the sales presentation involved 21 representations that Insperity's expertise in human resources would reduce Plaintiff's risk of 22 employment-related administrative and legal liabilities and permit TIPS Group to be indemnified 23 for up to one million dollars for co-employee lawsuits. Compl. ¶14. 24

1.Client Service Agreement

On June 17, 2008, Plaintiff TIPS Group signed a Client Service Agreement ("CSA or "Agreement") with Administaff Companies II, L.P. ("Administaff II")-a subsidiary of Insperity, 3 Inc./Administaff that changed its name to Insperity PEO Services L.P. on March 3, 2011. Compl. 4 ¶16, see ECF No. 1-1, Exh. C (Adminstaff II & TIPS Group's Client Service Agreement); see also 5 Ramzel Decl. ¶4 ("Insperity, Inc. is the parent company of Insperity PEO Services, L.P., which 6 operated under the name Administaff Companies II, L.P. until adopting its current name on or 7 about March 3, 2011."). 8

The CSA provides, in part, that: "Administaff hereby agrees to indemnify, defend, and hold Client [TIPS Group] harmless from and against any and all liability, expenses (including cost of 10 investigations, court costs and reasonable attorney's fees) and claims for damages of any nature whatsoever . . . which Client may incur, suffer, become liable for, or which may be asserted or be 12 claimed against Client as a result of Administaff: (a) failing to pay when due wages to Staff . . . ." 13 CSA § 10.1 ("Insperity Indemnity").*fn2 The CSA also includes an explicit arbitration agreement 14 which provides as follows: 15 Except for unpaid invoices owed by Client to Administaff, Administaff and Client agree and stipulate that all claims, disputes, and other matters in question between Administaff and Client arising out of, or relating to this Agreement or the breach thereof, will be decided by arbitration in accordance with the Federal Arbitration Act (9 U.S.C. 10 and 11) and the Commercial Arbitration Rules of the American Arbitration Association subject to the limitations of this Article XII. This Agreement to so arbitrate and any other agreement or consent to arbitrate entered into in accordance herewith as provided in this Article XII will be specifically enforceable under the prevailing law of any court having jurisdiction.

CSA §12.1. Finally, in Section 13.3, the CSA permits an award of costs, including attorney's fees, 22 court costs, and related expenses, to the prevailing party in any enforcement action arising with 23 respect to the CSA. After signing the CSA, Plaintiff alleges that it relied upon the advertised 24 25 expertise of Insperity to indemnify Plaintiff against administrative and legal actions by persons in 2 its employ. Compl. ¶17.

2.Fthenakis Wage Claim

On or about February 1, 2011, Basil Fthenakis, a partner at Plaintiff TIPS Group, informed Plaintiff of his intent to terminate employment. Compl. ¶20. Pursuant to directions from a 6 "payroll specialist" who presumably worked for Administaff II, Fthenakis then filled out the 7 "Administaff Employee Termination" forms. The Termination Agreement signed by Fthenakis 8 instructed that his "final wages" were to be "direct deposited" into his bank account. Compl. ¶22. 9

The day after Fthenakis officially terminated his employment with TIPS Group, Fthenakis 10 complained that he had not been paid his final wages when due. Compl. ¶23. Fthenakis's complaints regarding his wages "continued and escalated," resulting in Fthenakis filing a claim 12 with the California Labor Commissioner, alleging violations of the California Labor Code, and 13 subsequently filing a federal lawsuit. Compl. ¶¶24, 30, 34. 14

On or about February 16, 2012, Insperity emailed Plaintiff stating that it "has elected to 15 exercise its option to terminate the Agreement [CSA] effective 11:59 p.m. on March 19, 2012. 16

After such date, you assume full responsibility as employer for the employees." Compl. ¶49.17

On or about March 22, 2012, Plaintiff agreed to pay Fthenakis $125,000.00 as part of a 18 settlement agreement, "[i]n order to mitigate any further adverse economic harm to Plaintiff" by 19 proceeding with trial "with no assistance or support from Insperity in defending against the 20 Ftehnakis claim." Compl. ¶51. In addition to the settlement fee paid to Fthenakis, Plaintiff alleges 21 that it incurred costs in excess of $200,000.00 in legal expenses associated with Fthenakis's wage 22 claim. Id. 23

B.Procedural History

Plaintiff commenced this action on June 19, 2012, in part to recover from Defendant its expenses related to Fthenakis's wage claims. ECF No. 1. On or about July 30, 2012, Defendant 26 Insperity, Inc. filed an answer to Plaintiff's Complaint and Counterclaim. ECF No. 6. Then, on August 16, 2012, Defendant filed its Answer to the Complaint and Intervening Plaintiff Insperity PEO Services, LP'sFirst Amended Counterclaims and Application to Compel Arbitration, alleging 2 that Plaintiff/Counter Defendant TIPS Group breached the CSA by failing to submit its claims to 3 arbitration and requesting that the Court enforce Insperity's right to arbitration of TIPS Group's 4 claims. ECF No. 15 ("Am. Countercl."). 5
On or about August 17, 2012, Insperity PEO filed a Motion to Intervene alleging that it, rather than Insperity, Inc., is the proper counter-party to the agreement giving rise to Plaintiff's 7 suit. ECF No. 18 ("Mot. to Intervene"). Simultaneously with this filing, Defendant Insperity, Inc. 8 and Intervenor Insperity PEO filed a Motion for Stay and to Compel Arbitration. ECF No. 19 9 ("Mot. to Compel Arb."). On August 31, 2012, Plaintiff filed an opposition to Insperity PEO's 10

Motion to Intervene, see ECF No. 23 ("Opp'n to Mot. to Intervene"), and an opposition to Defendants' Motion for Stay and to Compel Arbitration, see ECF No. 24 ("Opp'n to Mot. to 12 Compel Arb."). Intervenor then filed a reply in support of its Motion to Intervene on September 7, 2012, see ECF No. 27 ("Reply Supp. Mot. to Intervene"), and Defendants filed a reply in support 14 of their Motion for Stay and to Compel Arbitration on the same day, see ECF No. 26 ("Reply 15 Supp. Mot. to Compel Arb."). 16

On or about September 6, 2012, Plaintiff filed a Motion to Dismiss Insperity PEO's Counterclaim. ECF No. 25 ("Mot. to Dismiss"). Intervenor filed an opposition to Plaintiff's 18 Motion to Dismiss, ECF No. 28 ("Opp'n to Mot. to Dismiss"), to which Plaintiff filed a reply, ECF 19 No. 29 ("Reply Supp. Mot. to Dismiss"). Intervenor then filed a Motion for Leave to File Surreply 20 to Plaintiff's Reply in Support of its Motion to Dismiss, objecting to new evidence allegedly 21 included by Plaintiff in its reply. See ECF No. 30 ("Surreply"). In response, Plaintiff filed an 22 opposition, ECF No. 38 ("Opp'n to Surreply"), and Intervenor filed another reply in support of its 23 surreply, ECF No. 42 ("Reply Supp. Surreply"). 24


Insperity PEO seeks to intervene in this lawsuit claiming that it, rather than Insperity, Inc., 26 is the proper counter-party as Plaintiff's Complaint is based on alleged acts or omissions by 27 Insperity PEO in its performance of the CSA. See Mot. to Intervene at 3. Plaintiff characterizes 28 Defendant Insperity, Inc.'s attempt to replace itself with Insperity PEO as part of "an elaborate 2 corporate shell game," and argues that Insperity PEO should neither be allowed to intervene in this 3 action as of right nor subject to the Court's permission. Opp'n to Mot. to Intervene at 1. The 4 Court finds that Insperity PEO is entitled to intervene "as of right" pursuant to Rule 24(a)(2) of the 5 Federal Rules of Civil Procedure. Accordingly, the Court GRANTS Insperity PEO's Motion to 6 Intervene. 7

A. Legal Standard

Federal Rule of Civil Procedure 24(a)(2) requires that a court permit anyone to intervene who "claims an interest relating to the property or transaction that is the subject of the action, and 10 is so situated that disposing of the action may as a practical matter impair or impede the movant's ability to protect its interest, unless existing parties adequately represent that interest." An 12 applicant seeking to intervene "as of right" pursuant to Rule 24(a)(2) must satisfy four 13 requirements: "(1) the motion must be timely; (2) the applicant must claim a 'significantly 14 protectable' interest relating to the property or transaction which is the subject of the action; (3) the 15 applicant must be so situated that the disposition of the action may as a practical matter impair or 16 impede its ability to protect that interest; and (4) the applicant's interest must be inadequately 17 represented by the parties to the action." United States v. Aerojet Gen. Corp., 606 F.3d 1142, 1148 18 (9th Cir. 2010) (internal quotation marks and citations omitted); accord United States v. Alisal 19 Water Corp., 370 F.3d 915, 919 (9th Cir. 2004). 20

"[A]lthough an applicant seeking to intervene has the burden to show that these four 21 elements are met, 'the requirements are broadly interpreted in favor of intervention.'" Prete v. 22 Bradbury, 438 F.3d 949, 954 (9th Cir. 2006) (quoting Alisal Water Corp., 370 F.3d at 919); see 23 also SW Ctr. for Biological Diversity v. Berg, 268 F.3d 810, 818 (9th Cir. 2001) ("In general, we 24 construe Rule 24(a) liberally in favor of potential intervenors."). Furthermore, "[i]n determining 25 whether intervention is appropriate, courts are guided primarily by practical and equitable 26 considerations." Alisal Water Corp., 370 F.3d at 919; accord Citizens for Balanced Use v. Mont. 27 Wilderness Ass'n, 647 F.3d 893, 897 (9th Cir. 2011). 28

Alternatively, the Court has discretion to grant an applicant's request for permissive 2 intervention. Under Federal Rule of Civil Procedure 24(b), "on a timely motion, the court may 3 permit anyone to intervene who . . . has a claim or defense that shares with the main action a 4 common question of law or fact." Permissive intervention under Rule 24(b) requires an applicant 5 to "prove that it meets three threshold requirements: (1) it shares a common question of law or fact 6 with the main action; (2) its motion is timely; and (3) the court has an independent basis for 7 jurisdiction." Donnelly v. Glickman, 159 F.3d 405, 412 (9th Cir. 1998). If these threshold 8 requirements are met, the court has broad discretion to permit or deny intervention under Rule 9 24(b). See Orange v. Air Cal., 799 F.2d 535, 539 ...

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