Dai v. Liu

Background

Mengyang Dai brought a wage-and-hour action against 3 Kingdoms, Inc. and Erdan Liu. According to her complaint, Dai worked as a non-exempt employee at the 3 Kingdoms Hot Pot restaurant and alleged violations involving minimum wages, overtime compensation, meal and rest breaks, tips, retaliation, and termination. Her complaint asserted 14 claims under the federal Fair Labor Standards Act, the California Labor Code, California’s Unfair Competition Law, California’s Private Attorney General Act, and California’s public-policy exception to wrongful termination.

The defendants asserted counterclaims and affirmative defenses. Their counterclaims alleged, among other things, that Dai used the Social Security numbers of three people who had not worked for the restaurant to report wages, kept some or all of the resulting money, falsified time records, and improperly allocated tips to herself. 3 Kingdoms’ fourth counterclaim alleged that Dai received stolen property in violation of California Penal Code section 496.

Dai admitted using the Social Security numbers of the three identified people to report part of her restaurant earnings, but otherwise denied the defendants’ allegations.

Motions and legal standards

Dai moved under Rule 12 to dismiss the fourth counterclaim and moved under Rule 12(f) to strike several affirmative defenses. Because Dai filed the dismissal motion after answering the counterclaims and the pleadings were closed, the court treated the motion as one for judgment on the pleadings under Rule 12(c), rather than as a Rule 12(b)(6) motion.

A Rule 12(c) motion tests whether the pleadings legally state a claim. The court accepts well-pleaded factual allegations as true and views them favorably to the nonmoving party, but need not accept conclusory allegations.

Rule 12(f) permits a court to strike an insufficient defense or other improper matter from a pleading. The court explained that such motions are generally disfavored and ordinarily should be granted only when the challenged matter clearly could have no possible bearing on the litigation, or when striking it would reduce prejudice, delay, or confusion.

Fourth counterclaim

The court denied Dai’s motion for judgment on the pleadings concerning 3 Kingdoms’ section 496 counterclaim. California Penal Code section 496(a) concerns receiving, concealing, selling, withholding, or helping to conceal, sell, or withhold property that was stolen or obtained through theft. Section 496(c) allows a person injured by a section 496 violation to bring a civil action for three times the actual damages, costs, and reasonable attorney’s fees. The court stated that a criminal conviction is not required for recovery under section 496(c).

The court rejected Dai’s principal argument that the defendants alleged only theft and that she could not be liable for receiving the same property she allegedly stole. Relying on California authorities and federal decisions, the court concluded that the statutory bar against being convicted both for theft and receiving the same property is limited to dual criminal convictions and does not prevent civil liability under section 496(c).

The court found that the defendants had sufficiently alleged the three required elements: property was stolen or obtained through theft, Dai knew it was stolen or so obtained, and Dai received or possessed it. The allegations identified the alleged misreporting of wages using other people’s Social Security numbers, falsified timecards and hours, and improper distribution of tip-pool funds. The court therefore denied Dai’s motion regarding the fourth counterclaim.

Affirmative defenses

At the hearing, Dai agreed that the defenses other than the tenth and fifteenth would not require additional discovery or impose an additional litigation burden if they remained. The defendants agreed that they did not need to assert the tenth and fifteenth defenses as affirmative defenses because those defenses stated alleged legitimate-business or good-faith reasons for the challenged conduct rather than separate affirmative defenses.

The court granted Dai’s motion to strike the tenth and fifteenth defenses insofar as the defendants had asserted them as affirmative defenses. The court stated that this ruling did not prevent the defendants from defending the action by arguing that Dai had not proved her claims. The court denied Dai’s motion to strike the remaining affirmative defenses.

Disposition

The court (1) denied Dai’s Rule 12(c) motion to dismiss 3 Kingdoms’ fourth counterclaim and (2) granted Dai’s Rule 12(f) motion to strike the defendants’ tenth and fifteenth affirmative defenses, but otherwise denied her motion to strike the remaining defenses.