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Layton v. Terremark North America, LLC

United States District Court, N.D. California, San Jose Division

June 5, 2014

DAVID LAYTON, Plaintiff,


PAUL S. GREWAL, Magistrate Judge.

Before the court is Defendants Terremark North America and Verizon Enterprise Solutions' motion to dismiss Plaintiff David Layton's Second Amended Complaint for failure to state a claim. Layton opposes. The parties appeared for a hearing on the matter. Having considered the arguments and the parties' pleadings, Defendants' motion is DENIED.


Layton worked for Defendants in the data management field for over ten years, receiving positive performance reviews and promotions.[1] Layton alleges Defendants misrepresented to their clients the capacity of their data centers, resulting in the overselling the power available to the client by as much as 130 percent to 400 percent.[2] Defendants' internal policy was that oversell was not to exceed 130 percent sold, but the industry standard was only to oversell a facility by 120 percent.[3] During the time of Layton's employment, Defendants' data center experienced numerous power failures due to an overload of power.[4]

Layton disapproved of this practice and believed it was unlawful.[5] He frequently complained to upper management and urged management to be more transparent with customers.[6] When at least one customer complained of power failure, Layton was told not to talk with the customer and was isolated from the customer's account.[7] Defendants frequently prevented Layton from speaking to customers, including government agency customers.[8]

On December 17, 2012, Layton was fired.[9] In a letter to Layton, Defendants' Vice-President of Platform Operations accused Layton of failing to protect Verizon's tangible and intangible property, failing to handle company funds responsibly, and failing to be honest and forthcoming in a company investigation.[10] The letter also was shared with at least seven other of Defendants' employees.[11] In his operative complaint, Layton alleges (1) retaliation, (2) wrongful termination in violation of public policy, (3) defamation and (4) recovery pursuant to the Private Attorneys General Act.[12]


A complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief."[13] When a plaintiff fails to proffer "enough facts to state a claim to relief that is plausible on its face, " the complaint may be dismissed for failure to state a claim upon which relief may be granted.[14] A claim is facially plausible "when the pleaded factual content allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged."[15] Under Fed.R.Civ.P. 12(b)(6), "dismissal can be based on the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory."[16] Dismissal without leave to amend is appropriate only if it is clear that the complaint could not be saved by amendment.[17]

For the purposes of Defendants' Rule 12 motion, the court accepts all material allegations in the complaint as true and construes them in the light most favorable to Layton.[18] The court's review is "limited to the complaint, materials incorporated into the complaint by reference, and matters of which the court may take judicial notice."[19] The court need not accept as true allegations that are conclusory, unwarranted deductions of fact, or unreasonable inferences.[20]


A. Retaliation Claim - Violation of California Whistleblower Protection Act

Layton alleges Defendants retaliated against him because of his refusal to participate in illegal activities, which is a violation of California Labor Code § 1102.5.[21]

Defendants move to dismiss the claim on the ground that (1) Layton has not exhausted his administrative remedy under California Labor Code § 98.7, and (2) that Layton fails to plead a claim under Section 1102.5. As discussed below, the court finds that Layton's failure to exhaust his administrative remedy under Section 98.7 does not bar his Section 1102.5 claim. Layton successfully pleads a claim under Section 1102.5(a), but fails to plead a claim under Section 1102.5(c).

1. Layton Need Not Exhaust His Administrative Remedy Under Section 98.7

California Labor Code § 98.7(a) provides, in relevant part: "Any person who believes that he or she has been discharged or otherwise discriminated against in violation of any law under the jurisdiction of the Labor Commissioner may file a complaint with the division within six months after the occurrence of the violation." Before 2014, courts disagreed as to whether this language required a plaintiff to file a complaint with the California Labor Commissioner before bringing suit for violations of the California Labor Code.

In 2005, the California Supreme Court held that a plaintiff's claim for retaliatory discharge under Section 1102.5 was properly dismissed on demur because the plaintiff failed to exhaust the defendant's internal complaint resolution process.[22] Because university policy required employees to resort initially to internal grievance practices and procedures, university employees had an administrative remedy that they were required to exhaust before suing under California Labor Code § 1102.5.[23]

While Campbell did not address Section 98.7 specifically, a number of federal district courts extended Campbell to require a plaintiff to file a complaint with the Labor Commissioner under § 98.7(a) as a prerequisite to filing a lawsuit alleging a Section 1102.5 violation.[24] A number of other courts, however, reached the opposite conclusion, finding that Campbell did not resolve the application of § 98.7 and finding that because the language of § 98.7 is permissive, it does not itself require exhaustion.[25]

The only post- Campbell published opinion by the California Court of Appeals on this question, Lloyd v. Cnty. of L.A., [26] held that administrative remedy exhaustion is not required and that § 98.7 "merely provides the employee with ...

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