Li v. WeRide Inc.

Background

Haochen Li and Yu Wang filed the case in state court against their former employers, WeRide Corp. and WeRide Inc. Plaintiffs alleged that the defendants improperly required them to pay applicable taxes to maintain restricted stock units when those units vested in October 2024. Their claims included alleged violations of the California Labor Code, breach of contract, and negligence.

The defendants removed the case to federal court. They argued that plaintiffs’ negligence claim required interpretation of federal tax law, creating federal-question jurisdiction. Plaintiffs disputed that basis and moved to remand the case to state court. The defendants did not dispute at the hearing that diversity jurisdiction was lacking.

Court’s analysis

Federal-question jurisdiction generally exists when a federal issue appears on the face of a plaintiff’s complaint. A narrow exception can apply when a state-law claim necessarily raises a substantial and disputed federal issue that a federal court can resolve without upsetting the balance between federal and state courts. The court applied the four-part test for that exception: whether the federal issue is necessarily raised, actually disputed, substantial, and capable of resolution in federal court without disrupting the federal-state balance.

The court concluded that the third and fourth requirements were not met. Plaintiffs’ negligence theory alleged that the defendants breached a duty by failing to comply with 26 U.S.C. § 3402 and by requiring plaintiffs to pay taxes to maintain their restricted stock units. The court characterized this as a negligence-per-se theory, under which a jury would determine issues including violation, causation, and injury.

The court held that the claim did not present a substantial federal question. It did not challenge the validity of the Internal Revenue Code or the functioning of the Internal Revenue Service, and it did not present a pure legal issue likely to control numerous other cases. Instead, the court viewed the dispute as fact-specific and focused on what these defendants allegedly owed these plaintiffs in this case.

The court also rejected the defendants’ comparison to a Supreme Court case involving federal tax collection and property seized by the Internal Revenue Service. Unlike that case, this dispute did not involve federal agency action, the Internal Revenue Service did not have an important stake, and the case would not directly affect people outside the defendants and possibly their former employees.

The court further rejected the argument that the absence of a private right of action under 26 U.S.C. § 3402 created a substantial federal issue. It relied on precedent holding that a state tort claim does not become a federal case merely because it includes an alleged violation of a federal statute for which Congress provided no private federal cause of action.

Finally, the court concluded that exercising federal jurisdiction would upset the federal-state balance. State courts commonly consider violations of federal statutes and regulations as part of negligence-per-se claims. Allowing federal courts to hear ordinary state tort claims based on statutory violations could move many traditionally state-law cases into federal court.

Disposition

The court found that it lacked subject matter jurisdiction, granted plaintiffs’ motion to remand, and remanded the case to Santa Clara County Superior Court. The opinion did not decide whether plaintiffs’ state-law claims were valid or whether the defendants were liable.