Jacobs v. Sustainability Partners LLC

Background

Joel Ray Jacobs sued Sustainability Partners LLC (SP) and Thomas Cain on seven claims: breach of contract; wrongful termination in violation of public policy; California Labor Code sections 201 and 203 waiting-time penalties; failure to reimburse business expenses under section 2802; fraud, false promise, or intentional misrepresentation; quantum meruit; and civil penalties under California’s Private Attorneys General Act (PAGA).

Jacobs alleged that he began working for SP in April 2016 and later entered a written employment agreement under which he was hired as SP’s managing director. He alleged that Cain promised him a 15% equity position in SP in exchange for past and future services, but that the promised ownership interest was never put into writing or transferred. Jacobs also alleged that SP reclassified him as an independent contractor, later presented him with another agreement, and terminated him after he refused to sign it because he believed he was an employee and was being improperly misclassified.

Venue

Defendants moved to dismiss for improper venue under Federal Rule of Civil Procedure 12(b)(3), arguing that the case belonged in Arizona, or alternatively moved to transfer the case there under 28 U.S.C. § 1404(a). The court found that venue was not proper under the provision concerning where defendants reside, but concluded that a substantial part of the events occurred in the Northern District of California. Jacobs worked from his home in Sonoma County, California, which the court found was the intended place of performance of his duties. The court also found that his other claims were closely related to the contract claim and could be heard under pendent venue.

The court denied defendants’ Rule 12(b)(3) motion to dismiss. It also denied the motion to transfer. Although the case could have been brought in Arizona, the court gave substantial weight to Jacobs’s choice of forum because he resided in California and substantial events occurred there. The witness-convenience factor favored transfer only slightly, while the evidence-access, court-congestion, local-interest, and other factors did not provide the strong showing of inconvenience required to overcome that choice.

The court also ruled that the forum-selection clause in Jacobs’s employment agreement did not control because Jacobs was not suing for breach of that agreement. The court declined to apply the forum-selection clause in the proposed independent-contractor agreement because the parties disputed whether Jacobs accepted it and defendants had not produced an executed agreement.

Rule 12(b)(6) rulings on the claims

A Rule 12(b)(6) motion tests whether the complaint alleges facts sufficient to state a legally plausible claim. The court ruled on the claims as follows:

1. Breach of contract: The court found that Jacobs plausibly alleged an oral agreement under which he would provide services in exchange for 15% of SP’s equity. The court held that he did not need to plead the precise value of the equity at this stage. The motion was granted in part and denied in part: it was granted as to the claim against Cain and denied as to the claim against SP. The claim against Cain was dismissed with leave to amend because the complaint did not allege that Cain was a signatory to the agreement. The court instructed that any amended complaint should distinguish between Cain and SP.

2. Wrongful termination: The court held that Jacobs plausibly alleged that he was an employee despite SP’s classification of him as an independent contractor and that he was terminated for objecting to the alleged misclassification. The motion to dismiss this claim was denied.

3. Waiting-time penalties: The court held that Jacobs had not alleged when he received his final paycheck, how much he received, how much he should have received, or sufficient facts showing that defendants acted willfully. The motion to dismiss this claim was granted, and the claim was dismissed with leave to amend. Because the claim against SP was not adequately pleaded, the court did not reach whether Cain could also be liable under California Labor Code section 518.1.

4. Failure to reimburse business expenses: The court found that Jacobs sufficiently identified categories of allegedly unreimbursed expenses, including travel, lodging, meals, parking, ridesharing, and cellular telephone expenses, and that the allegations plausibly connected those expenses to his work. The motion was denied as to SP. It was granted as to Cain because Jacobs did not allege facts showing Cain’s individual role in SP’s failure to reimburse the expenses. The claim against Cain was dismissed with leave to amend.

5. Fraud, false promise, or intentional misrepresentation: The court held that Jacobs plausibly alleged promissory fraud based on Cain’s alleged promise of a 15% ownership interest, Cain’s alleged knowledge that he would not fulfill the promise, Jacobs’s continued work and expenditures in reliance on the promise, and the failure to provide the promised ownership. The court concluded that the alleged fraudulent inducement could avoid application of the economic-loss rule at this stage. Because Jacobs alleged that Cain personally made the promise, the motion to dismiss this claim was denied.

6. Quantum meruit: Quantum meruit is an equitable claim seeking the reasonable value of services when retaining the benefit without payment would be unjust. The court held that Jacobs had not alleged facts suggesting that the express contract was invalid or unenforceable, as required to plead quantum meruit alongside a contract theory. The court also found that Jacobs had not alleged that his services directly benefited Cain rather than SP. The motion to dismiss this claim was granted, and the claim was dismissed with leave to amend.

7. PAGA civil penalties: The court found that Jacobs’s notice to the Labor and Workforce Development Agency contained enough factual information to satisfy the notice requirement. But because a PAGA claim depends on establishing an underlying Labor Code violation, the court held that the inadequately pleaded waiting-time and reimbursement claims could not support PAGA penalties as currently pleaded. The motion to dismiss the PAGA claim was granted in part and denied in part, and the claim was dismissed without prejudice.

Disposition

The court denied the Rule 12(b)(3) motion and denied the motion to transfer. It denied dismissal of the wrongful-termination claim, the fraud claim, the breach-of-contract claim against SP, and the reimbursement claim against SP. It granted dismissal of the breach-of-contract claim against Cain, the waiting-time claim, the reimbursement claim against Cain, and the quantum-meruit claim, each with leave to amend. It granted in part and denied in part dismissal of the PAGA claim and dismissed that claim without prejudice. Jacobs was allowed 21 days to file an amended complaint, and no new parties or causes of action could be added without permission or the agreement of all defendants.