----oo0oo---- MARTIN J. WALSH, Secretary of No. 2:22-cv-00583 WBS DB Labor, United States Department of Labor, Plaintiff, MEMORANDUM AND ORDER RE: DEFENDANTS’ MOTION TO STRIKE, v. OR IN THE ALTERNATIVE DISMISS, PLAINTIFF’S FIRST SL ONE GLOBAL, INC., dba VIVA AMENDED COMPLAINT SUPERMARKET, a California corporation; SMF GLOBAL, INC. dba VIVA SUPERMARKET, a California corporation, NARI TRADING, INC., dba VIVA SUPERMARKET; UNI FOODS, INC., dba VIVA SUPERMARKET, a California corporation; SEAN LOLOEE, an individual, and as owner and managing agent of the Corporate Defendants; and KARLA MONTOYA, an individual, and managing agent of the Corporate Defendants, Defendants. ----oo0oo---- Plaintiff Martin J. Walsh, in his capacity as Secretary of the United States Department of Labor, brought this action against defendants SL One Global, SMF Global, Nari Trading, and Uni Foods, all of which allegedly do business as Viva Supermarket (the “corporate defendants”); Sean Loloee; and Karla Montoya alleging various ongoing violations of federal labor laws at grocery stores operated by defendants. Specifically, plaintiff alleges (1) interference with employees’ rights under the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 215(a)(3); (2) obstruction of the Secretary’s investigation under the FLSA, 29 U.S.C. § 211(a); (3) violation of minimum wage requirements under the FLSA, 29 U.S.C. §§ 206, 215(a)(2); (4) violation of overtime requirements under the FLSA, 29 U.S.C. §§ 207, 215(a)(2); (5) violation of recordkeeping requirements under the FLSA, 29 U.S.C. §§ 211(c), 215(a)(5); (6) violation of child labor requirements under the FLSA, 29 U.S.C. §§ 212, 215(a)(4); and (7) violation of paid sick leave requirements under the Emergency Paid Sick Leave Act, Pub. L. No. 116-127, 134 Stat. 178 §§ 5101-5111 (2020). (First Am. Compl. (“FAC”) (Docket No. 18).) The court does not recite a full background of the case as it has done so in its prior order. (Docket No. 17.) The court’s prior order dismissed Counts III and IV for overtime violations as against defendant SL One Global, to the extent that they alleged violations before February 19, 2020, based on the parties’ Second Agreement releasing SL One Global from claims relating to violations occurring from February 20, 2018 to February 19, 2020 (the “Agreement Period”). The Order also dismissed the same counts as against all defendants to the extent that they alleged violations occurring prior to April 1, 2019, before which date claims were barred by the applicable statute of limitations. Defendants now move to strike, or in the alternative dismiss, plaintiff’s First Amended Complaint. (Docket No. 25.) I. Motion to Strike Rule 12(f) authorizes the court to “strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.” Fed. R. Civ. P. 12(f). “The function of a 12(f) motion to strike is to avoid the expenditure of time and money that must arise from litigating spurious issues by dispensing with those issues prior to trial . . . .” Fantasy, Inc. v. Fogerty, 984 F.2d 1524, 1527 (9th Cir. 1993) (quotation marks, citation, and first alteration omitted), rev’d on other grounds, Fogerty v. Fantasy, Inc., 510 U.S. 517, 114 (1994). “Because motions to strike are ‘often used as delaying tactics,’ they are ‘generally disfavored’ and are rarely granted in the absence of prejudice to the moving party.” Pickern v. 3 Stonedeggs, Inc., No. 2:13-cv-1373 WBS, 2014 WL 309552, at *1 (E.D. Cal. Jan. 28, 2014) (quoting Rosales v. Citibank, FSB, 133 F. Supp. 2d 1177, 1180 (N.D. Cal. 2001)). Defendants do not assert possible prejudice, but rather move to strike on the basis that the First Amended Complaint exceeded the scope of leave to amend granted by this court. However, “[e]xceeding the scope of a court’s leave to amend is not necessarily sufficient grounds for striking a pleading or portions thereof.” Beavers v. New Penn Fin. LLC, No. 1:17-cv- 00747 JLT, 2018 WL 385421, at *3 (E.D. Cal. Jan. 11, 2018) (citing Khan v. K2 Pure Sols., L.P., No. 12–cv–05526 WHO, 2013 WL 6503345, at *11 (N.D. Cal. Dec. 4, 2013)); Allen v. Cnty. of Los Angeles, No. CV 07-102-R SH, 2009 WL 666449, at *3 (C.D. Cal. Mar. 12, 2009) (collecting cases). See also Vahora v. Valley Diagnostics Lab’y Inc., No. 1:16-cv-01624 SKO, 2017 WL 2572440, at *2 (E.D. Cal. June 14, 2017) (finding that plaintiff’s amended complaint exceeded scope of leave to amend, but denying motion to strike as “premature”). Defendants argue that the entire First Amended Complaint should be stricken because “the offending language cannot be stricken from the FAC in a manner that remedies this issue.” (Def.’s Mem. at 8.) The court disagrees. The First Amended Complaint merely suffers from imprecise pleading and reliance on a faulty legal theory, as discussed below. The court will therefore deny defendants’ motion to strike, and now considers plaintiff’s alternative motion to dismiss. II. Motion to Dismiss Federal Rule of Civil Procedure 12(b)(6) allows for dismissal when the plaintiff’s complaint fails to state a claim upon which relief can be granted. See Fed. R. Civ. P. 12(b)(6). The inquiry before the court is whether, accepting the allegations in the complaint as true and drawing all reasonable inferences in the plaintiff’s favor, the complaint has stated “a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). As this court held in its prior order, plaintiff may not bring claims alleging that SL One Global violated FLSA’s minimum wage and overtime provisions during the Agreement Period, as such claims are precluded by the parties’ Second Agreement. (Docket No. 17 at 7.) Defendants argue that plaintiff’s reference to the statute of limitations and inclusion of kickback allegations impermissibly include violations occurring during the Agreement Period. The court will address each in turn. A. Reference to Statute of Limitations Defendants object to the allegations that defendant committed various violations “[i]n every workweek during the applicable statute of limitations periods.” (FAC ¶¶ 40, 44.) Defendants argue that by referencing a statute of limitations period that includes some of the Agreement Period, plaintiff is attempting to “covertly” include wage violations occurring during the Agreement Period. (Def.’s Mem. at 4.) In response, plaintiff assures the court that he is not seeking to impermissibly include such claims, and argues that this language was added to comply with this court’s order that Counts III and IV be dismissed as to violations occurring outside the applicable statute of limitations periods. (Pl.’s Opp’n at 5-6.) Although the First Amended Complaint could be clearer as to the time period applicable to claims brought against SL One Global, this imprecision does not warrant dismissal. B.
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----oo0oo---- MARTIN J. WALSH, Secretary of No. 2:22-cv-00583 WBS DB Labor, United States Department of Labor, Plaintiff, MEMORANDUM AND ORDER RE: DEFENDANTS’ MOTION TO STRIKE, v. OR IN THE ALTERNATIVE DISMISS, PLAINTIFF’S FIRST SL ONE GLOBAL, INC., dba VIVA AMENDED COMPLAINT SUPERMARKET, a California corporation; SMF GLOBAL, INC. dba VIVA SUPERMARKET, a California corporation, NARI TRADING, INC., dba VIVA SUPERMARKET; UNI FOODS, INC., dba VIVA SUPERMARKET, a California corporation; SEAN LOLOEE, an individual, and as owner and managing agent of the Corporate Defendants; and KARLA MONTOYA, an individual, and managing agent of the Corporate Defendants, Defendants. ----oo0oo---- Plaintiff Martin J. Walsh, in his capacity as Secretary of the United States Department of Labor, brought this action against defendants SL One Global, SMF Global, Nari Trading, and Uni Foods, all of which allegedly do business as Viva Supermarket (the “corporate defendants”); Sean Loloee; and Karla Montoya alleging various ongoing violations of federal labor laws at grocery stores operated by defendants. Specifically, plaintiff alleges (1) interference with employees’ rights under the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 215(a)(3); (2) obstruction of the Secretary’s investigation under the FLSA, 29 U.S.C. § 211(a); (3) violation of minimum wage requirements under the FLSA, 29 U.S.C. §§ 206, 215(a)(2); (4) violation of overtime requirements under the FLSA, 29 U.S.C. §§ 207, 215(a)(2); (5) violation of recordkeeping requirements under the FLSA, 29 U.S.C. §§ 211(c), 215(a)(5); (6) violation of child labor requirements under the FLSA, 29 U.S.C. §§ 212, 215(a)(4); and (7) violation of paid sick leave requirements under the Emergency Paid Sick Leave Act, Pub. L. No. 116-127, 134 Stat. 178 §§ 5101-5111 (2020). (First Am. Compl. (“FAC”) (Docket No. 18).) The court does not recite a full background of the case as it has done so in its prior order. (Docket No. 17.) The court’s prior order dismissed Counts III and IV for overtime violations as against defendant SL One Global, to the extent that they alleged violations before February 19, 2020, based on the parties’ Second Agreement releasing SL One Global from claims relating to violations occurring from February 20, 2018 to February 19, 2020 (the “Agreement Period”). The Order also dismissed the same counts as against all defendants to the extent that they alleged violations occurring prior to April 1, 2019, before which date claims were barred by the applicable statute of limitations. Defendants now move to strike, or in the alternative dismiss, plaintiff’s First Amended Complaint. (Docket No. 25.) I. Motion to Strike Rule 12(f) authorizes the court to “strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.” Fed. R. Civ. P. 12(f). “The function of a 12(f) motion to strike is to avoid the expenditure of time and money that must arise from litigating spurious issues by dispensing with those issues prior to trial . . . .” Fantasy, Inc. v. Fogerty, 984 F.2d 1524, 1527 (9th Cir. 1993) (quotation marks, citation, and first alteration omitted), rev’d on other grounds, Fogerty v. Fantasy, Inc., 510 U.S. 517, 114 (1994). “Because motions to strike are ‘often used as delaying tactics,’ they are ‘generally disfavored’ and are rarely granted in the absence of prejudice to the moving party.” Pickern v. 3 Stonedeggs, Inc., No. 2:13-cv-1373 WBS, 2014 WL 309552, at *1 (E.D. Cal. Jan. 28, 2014) (quoting Rosales v. Citibank, FSB, 133 F. Supp. 2d 1177, 1180 (N.D. Cal. 2001)). Defendants do not assert possible prejudice, but rather move to strike on the basis that the First Amended Complaint exceeded the scope of leave to amend granted by this court. However, “[e]xceeding the scope of a court’s leave to amend is not necessarily sufficient grounds for striking a pleading or portions thereof.” Beavers v. New Penn Fin. LLC, No. 1:17-cv- 00747 JLT, 2018 WL 385421, at *3 (E.D. Cal. Jan. 11, 2018) (citing Khan v. K2 Pure Sols., L.P., No. 12–cv–05526 WHO, 2013 WL 6503345, at *11 (N.D. Cal. Dec. 4, 2013)); Allen v. Cnty. of Los Angeles, No. CV 07-102-R SH, 2009 WL 666449, at *3 (C.D. Cal. Mar. 12, 2009) (collecting cases). See also Vahora v. Valley Diagnostics Lab’y Inc., No. 1:16-cv-01624 SKO, 2017 WL 2572440, at *2 (E.D. Cal. June 14, 2017) (finding that plaintiff’s amended complaint exceeded scope of leave to amend, but denying motion to strike as “premature”). Defendants argue that the entire First Amended Complaint should be stricken because “the offending language cannot be stricken from the FAC in a manner that remedies this issue.” (Def.’s Mem. at 8.) The court disagrees. The First Amended Complaint merely suffers from imprecise pleading and reliance on a faulty legal theory, as discussed below. The court will therefore deny defendants’ motion to strike, and now considers plaintiff’s alternative motion to dismiss. II. Motion to Dismiss Federal Rule of Civil Procedure 12(b)(6) allows for dismissal when the plaintiff’s complaint fails to state a claim upon which relief can be granted. See Fed. R. Civ. P. 12(b)(6). The inquiry before the court is whether, accepting the allegations in the complaint as true and drawing all reasonable inferences in the plaintiff’s favor, the complaint has stated “a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). As this court held in its prior order, plaintiff may not bring claims alleging that SL One Global violated FLSA’s minimum wage and overtime provisions during the Agreement Period, as such claims are precluded by the parties’ Second Agreement. (Docket No. 17 at 7.) Defendants argue that plaintiff’s reference to the statute of limitations and inclusion of kickback allegations impermissibly include violations occurring during the Agreement Period. The court will address each in turn. A. Reference to Statute of Limitations Defendants object to the allegations that defendant committed various violations “[i]n every workweek during the applicable statute of limitations periods.” (FAC ¶¶ 40, 44.) Defendants argue that by referencing a statute of limitations period that includes some of the Agreement Period, plaintiff is attempting to “covertly” include wage violations occurring during the Agreement Period. (Def.’s Mem. at 4.) In response, plaintiff assures the court that he is not seeking to impermissibly include such claims, and argues that this language was added to comply with this court’s order that Counts III and IV be dismissed as to violations occurring outside the applicable statute of limitations periods. (Pl.’s Opp’n at 5-6.) Although the First Amended Complaint could be clearer as to the time period applicable to claims brought against SL One Global, this imprecision does not warrant dismissal. B. Inclusion of Kickback Allegations Defendants next take issue with the following allegation: “During the Latest Investigation, the [Department of Labor’s Wage and Hour Division (“WHD”)] received information that Defendant Loloee and Defendant Montoya coerced employees who had received back wage payments in resolution of WHD’s Second Investigation to return these payments in the form of illegal ‘kickbacks’ following the distribution of these back wage payments to Defendants’ employees.” (FAC ¶ 37.) This paragraph is incorporated by reference into Count I for interference with FLSA rights; Count III for violation of minimum wage requirements; and Count IV for violation of overtime wage requirements. (See FAC ¶¶ 65, 71, 74.) Defendants only contest the inclusion of kickback allegations as to Counts III and IV. (See Def.’s Mem. at 4.) Plaintiff alleges that the kickbacks constitute new wage violations occurring after the Agreement Period under a regulation providing: Whether in cash or in facilities, “wages” cannot be considered to have been paid by the employer and received by the employee unless they are paid finally and unconditionally or “free and clear.” The wage requirements of the Act will not be met where the employee “kicks-back” directly or indirectly to the employer or to another person for the employer’s benefit the whole or part of the wage delivered to the employee. 29 C.F.R. § 531.35. Under this regulation, “there would be a violation of the Act in any workweek when the cost of [the kickbacks] cuts into the minimum or overtime wages required to be paid [the employee] under the Act.” Id.; see also Rivera v. Peri & Sons Farms, Inc., 735 F.3d 892, 897 (9th Cir. 2013) (to the extent that kickbacks “lower an employee’s wages below the minimum wage, they are unlawful”). In other words, when a kickback is at issue, a plaintiff must allege an underlying minimum or overtime wage violation caused by the kickback. See id.; Layton v. Mainstage Mgmt., Inc., No. 3:21-cv-1636-N, 2022 WL 2760533, at *3 (N.D. Tex. May 3, 2022) (“the cited regulation does not independently authorize recovery of ‘kickback’ payments,” but rather the plaintiff must prove that the kickback “caused their pay to fall below minimum wage”). Defendants’ alleged conduct in obtaining kickbacks may very well constitute a FLSA violation. See Stein v. HHGREGG, Inc., 873 F.3d 523, 531 (6th Cir. 2017) (“Under the regulations, it would be unlawful for an employer to require an employee to return wages already ‘delivered to the employee.’”) (quoting 29 C.F.R. § 531.35). The question here is whether that alleged violation occurred during the Agreement Period (in which case it is precluded), or at the time the employees returned the back wages to defendants. Crucially, the First Amended Complaint does not allege that the kickbacks were causally connected to any minimum or overtime wage violation occurring after the Agreement Period. But even if plaintiff had identified a correlate wage violation occurring after the Agreement Period, the court rejects plaintiff’s argument that the court can treat the kickbacks as a deduction from employees’ wages owed at the time of kickback-- i.e., wages earned after the Agreement Period. The regulation provides that wages “cannot be considered to have been paid” if they are later kicked-back. 29 C.F.R. § 531.35. If the employees returned their Agreement Period back wages, defendants would be considered to have never paid those wages, which were earned during the Agreement Period. Thus, the alleged kickbacks would create anew a violation of FLSA’s wage requirements as to the Agreement Period. Plaintiff has not cited, nor has the court found, any authority applying the regulation in the way plaintiff’s opposition suggests. However, Donovan v. Crisostomo, 689 F.2d 869 (9th Cir. 1982), while it does not explicitly cite the nn ee nen nen nen nnn nnn nn nn nn I SE ID OE
regulation at issue, is instructive. In Donovan, the employer deducted employees’ overtime wages from their straight time wages. The court characterized this kickback as a violation of the overtime wage requirement, even though the deduction was from non-overtime wages. Id. at 876. Analogously, the alleged kickback of Agreement Period back wages--even though it occurred during a later pay period--should be viewed as a violation of wage requirements applying to the Agreement Period. Accordingly, plaintiff’s kickback allegations under Counts III and IV concern violations occurring during the Agreement Period and are barred by the parties’ Second Agreement. IT IS THEREFORE ORDERED that defendants’ motion to strike (Docket No. 25) be, and the same hereby is, DENIED. IT IS FURTHER ORDERED that Defendant’s alternative motion to dismiss (Docket No. 25) be, and the same hereby is, GRANTED, to the extent that the First Amended Complaint alleges violations by SL One Global occurring before February 19, 2020. Plaintiff has twenty days from the date of this Order to file a second amended complaint. On amendment, plaintiff shall (1) clarify that no claims are brought against SL One Global for violations occurring prior to February 19, 2020, and (2) remove allegations of kickbacks of Agreement Period back wages from Counts III and IV to the extent that they allege violations by SL One Global. Dated: December 15, 2022 fd. be—~ UNITED STATES DISTRICT JUDGE