LGCY Power, LLC v. Superior Court

• Decision Date: 01 March 2022
• Docket Number: F082353
• Citation: 291 Cal.Rptr.3d 50,75 Cal.App.5th 844
• Parties: LGCY POWER, LLC, Petitioner, v. The SUPERIOR COURT OF FRESNO COUNTY, Respondent; Michael Jed Sewell, Real Party in Interest.
• Court: California Court of Appeals Court of Appeals

75 Cal.App.5th 844

291 Cal.Rptr.3d 50

LGCY POWER, LLC, Petitioner,

v. The SUPERIOR COURT OF FRESNO COUNTY, Respondent;Michael Jed Sewell, Real Party in Interest.

F082353

Court of Appeal, Fifth District, California.

Filed March 1, 2022

Alston & Bird, Jesus M. Jauregui, Kaitlin H. Owen, Los Angeles, and Newman A. Nahas, Dallas, TX, for Petitioner.

No appearance for Respondent.

Snell & Wilmer, Mark O. Morris, Salt Lake City, UT, Jing Hua, Cameron J. Cutler and Sarah A. Hafen, Salt Lake City, UT, for Real Party in Interest.

SNAUFFER, J.

California Labor Code section 925 went into effect on January 1, 2017, and provides that employers cannot force an employee who resides and works primarily in California to agree, as a condition of employment, to: (1) litigate a claim arising in California in a forum outside of California; or (2) waive the employee's right to the substantive protection of California law with respect to a controversy arising in California. (Labor Code, § 925, subd. (a)(1)—(2).)¹ Any provision in a contract that violates these terms is voidable by the employee, and if a violative provision is rendered void at the employee's request, the matter must be adjudicated in California under California law. ( § 925, subd. (b).)

This writ proceeding requires us to address the interplay between section 925 and California's compulsory cross-complaint statute ( Code Civ. Proc., § 426.30 ), as well as the interplay between section 925 and the Full Faith and Credit Clause of the United States Constitution ( U.S. Const., art IV, § 1 ).²

The petitioner in this writ proceeding, LGCY Power, LLC ("LGCY"), is a Utah limited liability company formed in Delaware and headquartered in Salt Lake County, Utah. It markets and sells residential solar energy systems in various parts of the western United States. Michael Jed Sewell, the real party in interest, is a California resident who worked for LGCY as a sales representative, and later a sales manager, from January 2015 to August 2019.

Around August 2019, Sewell and six other former LGCY executives and managers left LGCY and formed a competing solar company. LGCY filed suit in Utah state court against all seven of them, alleging various causes of action including breach of their employment agreements with LGCY, which contained noncompetition, non-solicitation, and confidentiality provisions.

Most of the defendants, but not Sewell, filed a joint cross-complaint in the Utah action alleging claims including LGCY's breach of their employment agreements and failure to pay wages and commissions. Rather than join this cross-complaint, Sewell filed a complaint in Fresno County Superior Court alleging virtually identical claims as those of his codefendants in their Utah cross-complaint.

LGCY demurred to Sewell's complaint, contending his causes of action were barred by both California and Utah's compulsory cross-complaint statutes, which both require that a defendant bring any related causes of action he or she has against the plaintiff in a cross-complaint. ( Code Civ. Proc., § 426.30, subd. (a) ; Ut. Rules Civ. Proc., rule 13(a).)³ The superior court overruled the demurrer, concluding section 925 provided an exception to Code of Civil Procedure section 426.30, subdivision (a), and thus Sewell was not precluded under California law from bringing his claims in California despite there being a pending related suit in Utah.

LGCY brings this petition for a writ of mandate challenging the Fresno County Superior Court's order overruling its demurrer. LGCY requests we issue a writ of mandate directing the superior court to vacate its order overruling the demurrer and enter a new order sustaining the demurrer.

We are required to answer two related questions of first impression in this opinion. First, does section 925 provide an exception to California's compulsory cross-complaint statute ( Code Civ. Proc., § 426.30 ) such that an employee who comes within section 925 's purview may file a complaint in California alleging claims that are related to the causes of action their employer has filed against them in a pending action in a sister state? We conclude the answer to this question is yes.

Second, if a related action was filed first and is still pending in a sister state (here, Utah), does the Clause compel a state court (here, California) to extend credit to and apply the sister state's compulsory cross-complaint statute? We conclude the answer to this question is no.

LGCY has not demonstrated that the Fresno County Superior Court erred in overruling its demurrer, and we therefore deny its petition.

FACTS

I. Background

LGCY is a Delaware limited liability company with its principal place of business in Utah. LGCY is a certified partner of a company called Sunrun Solar which markets and sells residential solar energy systems in various parts of the western United States, primarily through direct door-to-door sales. LGCY hires an extensive number of sales managers and representatives. The sales managers and representatives are required to sign comprehensive employment agreements which include noncompetition, non-solicitation, and confidentiality provisions.

Sewell joined LGCY in January 2015 and signed a "Solar Representative Agreement" with LGCY that month. The agreement stated Sewell was hired as a "solar sales representative in such geographic area ("Area") as the Company may determine to sell solar panels, solar panel-related products and services offered by the Company[.]" Sewell was to be compensated as set forth in a compensation schedule attached to the agreement. The agreement provided Sewell would be an independent contractor and not an employee.

The agreement also contained a provision pertaining to choice of law and forum selection issues. We will refer to this provision as "the Provision." Regarding choice of law, the Provision stated the agreement "shall be governed by the laws of State of Utah, without giving effect to any choice of law provision or rule (whether in the State of Utah or any other jurisdiction) that would cause the application of the laws of any jurisdictions other than the State of Utah." As for the litigation forum, the Provision stated that jurisdiction and venue for any legal action arising out of any of the subject matter addressed in the agreement "shall be in the state or federal Utah court of competent jurisdiction." The record on appeal contains only Sewell's employment agreement, so it is unknown precisely how similar it was to any of LGCY's other employment agreements.

Around August 2019, Sewell and several other executives and managers left LGCY and formed a solar sales company, Sunder Energy, LLC ("Sunder"), in direct competition with LGCY. Sunder was formed in Delaware and its principal executive office is in South Jordan, Utah, which is in Salt Lake County.

II. Utah litigation

On September 23, 2019, LGCY filed a complaint in state court in the Third Judicial District Court, Salt Lake County, State of Utah, captioned as LGCY Power, LLC v. Nielsen et al , Case No. 190907492, against Sewell and six other individuals engaged in the Sunder enterprise. The complaint alleged causes of action against the defendants for breach of their employment agreements, breach of the covenant of good faith and fair dealing, breach of fiduciary duty, breach of the Utah Uniform Trade Secrets Act ( Utah Code Ann. § 13-24-1, et seq. ), intentional interference with contract and prospective economic relations, and declaratory relief. All of the causes of action were against all defendants, except the declaratory relief claim, which was against only one of the defendants (not Sewell).

The gravamen of LGCY's claims was that the defendants, acting in concert, breached contractual obligations and fiduciary duties during and after the time they worked for LGCY, misappropriated LGCY's trade secrets, and tortiously interfered with LGCY's existing and prospective contractual relationships. The defendants supervised LGCY's sales operations in a number of states, including Arizona, Nevada, California, and Texas.

The complaint further averred all seven defendants signed employment agreements when they were hired by LGCY, and each of their agreements contain the same noncompetition, non-solicitation, confidentiality clauses, and choice of law and venue provisions. It was also alleged that each of the defendants had managerial or executive responsibilities.

On November 18, 2019, Sewell and the other named defendants filed a joint answer to the complaint. On February 11, 2020, four of the defendants—excluding Sewell—filed a joint cross-complaint in the Utah court alleging claims including breach of contract and failure to pay wages owed under the respective laws of the states of Utah, Arizona, Nevada, and Texas.⁴ The cross-complaint also alleged LGCY failed to pay for commissions owed under each defendant's respective employment agreement.

A. Motion to dismiss the California defendants

Before the four defendants filed their joint cross-complaint, on December 13, 2019, Sewell and defendant Michael Gutschmidt, who both resided in California at that time, filed a motion to dismiss the two of them as defendants on the stated grounds of forum non conveniens and lack of personal jurisdiction. Relevant to both grounds, Sewell and Gutschmidt ("California defendants") submitted declarations stating that they both had been living and working in California for many years (Sewell since January 2016 and Gutschmidt since April 2016), had never made a sale in Utah for LGCY, and traveled to Utah two or three times a year for business meetings and rarely traveled to Utah for any other reason.

The California defendants also argued in their motion that the Utah court should give "little deference" to the forum selection clause in their employment agreements because LGCY's decision to sue in Utah "seeks to circumvent the substantial protections that California law affords its employees and independent contractors." The...