Mercado v. Jechi, Inc.

ISMAEL MERCADO, Plaintiff and Appellant, v. JECHI, INC. et al., Defendants and Respondents.

A158348

COURT OF APPEAL OF THE STATE OF CALIFORNIA FIRST APPELLATE DISTRICT DIVISION ONE

February 17, 2021

ORDER MODIFYING OPINION AND DENYING REHEARING[NO CHANGE IN JUDGMENT]

THE COURT:

It is ordered that the opinion filed herein on February 17, 2021, be modified as follows:

1. On page 24, in the first full paragraph, in the second sentence, which begins "We emphasize," we replace "be confined to" with "based on," so the sentence reads:

We emphasize, however, that such PAGA claim must be based on the allegations stated in the current FAC concerning his employment at Bowl'd Albany, the only restaurant in which he was employed by Jeschi.

2. On page 24, at the end of the first full paragraph that begins with "To the extent," add:

Should Mercado establish standing as an "aggrieved employee" under section 2699, subdivision (c), he may assert a representative action under PAGA on behalf of all affected Jechi employees at the Bowl'd Albany and Korean Spoon Bistro restaurants. (See Huff v Securitas Security Services USA, Inc. (2018) 23 Cal.App.5th 745, 754; Crestwood Behavioral Health, Inc. v. Superior Court (Feb. 17, 2021, A160523) ___ Cal.App.5th ___, ___ [2021 WL 613700 at p. *3].) We express no opinion as to the merits of these potential claims.

The modification does not change the appellate judgment. (Cal. Rules of Court, rule 8.264(c)(2).)

Respondent's petition for rehearing is denied.

Dated:

/s/_________

Humes, P.J.

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

(Alameda County Super. Ct. No. RG18899432)

Appellant and proposed class representative Ismael Mercado brought a class action alleging various wage and hour violations on behalf of workers at several restaurants owned or operated by entity respondents Jechi Inc., Kho Corporation, OMC Brands LLC, Eat Bop Corporation, and Kansai Japanese Restaurant, and individual respondents Micha Oh, Jessica Kwon, Chiyoung Moon, and Dongwon Lee. The trial court sustained respondents' demurrer to Mercado's third amended complaint (TAC) without leave to amend, disposing of Mercado's class allegations. On appeal, Mercado contends the trial court abused its discretion in disallowing further amendment to his class claims and dismissing a proposed claim under the Private Attorneys General Act(PAGA) (Lab. Code, § 2698 et seq.)¹ We conclude the trial court properly sustained the demurrer to the TAC's class allegations when it found that Mercado lacked standing to represent the proposed class and there was no reasonable possibility he could satisfy the community of interest requirement for class certification. However, we conclude that Mercado should be permitted to amend his complaint to plead a PAGA claim based on his employment at one of the restaurants, Bowl'd Albany. The order is affirmed in part and reversed in part, and the matter is remanded for further proceedings consistent with this opinion.

I. FACTUAL AND PROCEDURAL BACKGROUND

A. Background Preceding the Operative Complaint

In April 2018, Cesareo Perez filed a complaint against two of the respondents, Jechi, Inc. (Jechi) and Kho Corporation (Kho), asserting five causes of action. Perez alleged that Jechi and Kho jointly operated a restaurant called Charcoal Korean BBQ, where he had worked for seven years as a produce handler. He claimed Jechi and Kho had violated various wage and hour statutes by failing to pay him minimum and overtime wages, denying him rest and meal breaks, failing to provide paystubs, and failing to pay wages due at termination.

In May 2018, Mercado joined Perez as a co-plaintiff in filing an amended complaint restating the wage and hour violations against Jechi and Kho. They alleged that the two companies jointly operated a second restaurant named Bowl'd (also known as Bowl'd Albany), where Mercado had worked for two years. In October, Perez voluntarily dismissed his claims against Jechi and Kho. Mercado sought leave to file a second amendedcomplaint (SAC) to add class allegations, to add co-plaintiff Juan Manuel Luna de Anda, and to name additional defendants. The trial court granted Mercado leave to file the SAC.

In November 2018, Mercado and de Anda filed the SAC against eight defendants, comprised of individual respondents Oh, Kwon, and Moon, and five corporate respondents, Jechi, Kho, OMC Brands LLC (OMC), Eat Bop Corporation (Eat Bop), and Kansai Japanese Restaurant, Inc (Kansai). The SAC alleged that the corporate respondents owned and operated at least 12 restaurants, including three where Mercado had worked—Bowl'd Albany, Kansai, and Ohgane Oakland—and two that had employed de Anda— Bowl'd Albany and Moong Bong Ri. The SAC did not identify any employees who worked in the remaining eight restaurants. Oh, Kwon, and Moon were alleged to have ownership interests in all five companies and exercised personal control over the restaurants' day-to-day operations. The SAC restated the same wage and hour violations that had previously been alleged, and prayed for damages of $5 million.

The SAC defined the putative class to include all individuals who had ever worked at any of the respondents' restaurants in the four years preceding October 23, 2018, and all individuals who had worked for the restaurants since January 1, 2017 who had not been paid a minimum wage. The alleged basis for class treatment was that respondents had collectively implemented the same illegal wage and hour policies in all 12 restaurants. All respondents except for Kansai filed a joint demurrer, contending that the SAC did not adequately plead facts to show that they were the plaintiffs' employers or that they had enforced allegedly uniform wage and hour policies. De Anda subsequently filed a request for dismissal.

On May 24, 2019, the trial court sustained respondents' demurrer to the SAC, denying leave to amend with respect to OMC based on Mercado's admission in his opposition to a related motion to bifurcate that he had never worked for any restaurant owned by OMC.² The court otherwise granted leave to amend, while noting that the respondents had "raised legitimate concerns regarding [Mercado's] standing to bring this action against them" and directing that plaintiffs "address [these] concerns to the best of their ability, and dismiss any Defendants against whom Plaintiffs admit they cannot establish standing." Addressing Mercado's expressed intent to add PAGA claims,³ the trial court stated that its order was "not to be interpreted by Plaintiffs as permission from the Court to add any [PAGA] claims to the complaint" because "this issue is not directly before the Court."

B. The Operative Complaint

In May 2019, Mercado filed the TAC, essentially alleging the same wage and hour claims as before. In addition to the respondents named in the SAC, Mercado added respondent Dongwon Lee. The TAC defined the putative class as "all individuals who had worked at the Restaurants owned by [respondents other than OMC] in the four years preceding October 23, 2018." This time, Mercado alleged that he had worked for four of the eight restaurants in question, though his employment at three of the restaurantslasted for one to two days each. Mercado alleged that he worked at Bowl'd Albany (owned by Jechi) for approximately two years, with his employment ending on December 30, 2017. As to the other four restaurants which had never employed Mercado, he alleged that one was owned by Jechi and was subject to the same unlawful wage and hour scheme. He did not identify which of the respondents owned the other three restaurants.

In June 2019, Mercado filed a motion seeking leave to file a fourth amended complaint (FAC). The proposed FAC augmented the claims in the TAC by adding a cause of action under section 558.1⁴ and a PAGA claim against certain respondents. The proposed class definition remained unchanged.

Respondents demurred to the TAC on the grounds that Mercado had failed to cure the standing issues previously noted by the trial court and could not satisfy the community of interest requirement for establishing a class action. Respondents argued, in part, that Mercado could not substantiate his conclusory allegations that respondents enforced the same unlawful employment policy over a four year period because he had not worked at all the restaurants named in the TAC and had never worked for some of the respondents. Respondents attached transcripts of Mercado's deposition, which they asked the trial court to judicially notice.⁵

In his opposition to the demurrer, Mercado conceded that his proposed class definition was "overbroad." Mercado asserted that the only legal theory justifying joint employment claims was under section 1182.12, subdivisions (b)(3)-(4), and those provisions only applied to employees jointly managed or controlled by respondent Oh.⁶ He proposed to modify the class definition into five subclasses covering "all workers" who had ever worked at the eight restaurants. The subclasses were largely organized around the restaurants' respective corporate owners. Mercado identified the five proposed subclasses as (1) all workers at the two Jechi restaurants (Bowl'd Albany and Korean Spoon Bistro), (2) all workers at the Kho restaurant Oghane, (3) all workers at Kansai-owned Kansai Japanese restaurant, (4) all workers at Bowl'd Oakland (owned by Kho and Lee), and (5) all workers at Eat Bop restaurants.

On August 7, 2019, the trial court entered an order sustaining the demurrer. The court found Mercado lacked standing to maintain the lawsuit as a class action and that he had failed to state a sufficient basis for class certification. The court granted Mercado leave...