Cifuentes v. Costco: Former Employer Properly Withheld Payroll Taxes When Paying Judgment for Lost Wages

In Cifuentes v. Costco Wholesale Corporation (6/26/15) --- Cal.App.4th ---, the plaintiff sued his former employer, Costco, for breach of contract and received a judgment for more than $300,000 in back pay and front pay. Costco paid the judgment, withholding payroll taxes from the portion of the judgment attributed to lost wages. The trial court denied Costco's motion for an acknowledgement of satisfaction of judgment, and Costco appealed. The Court of Appeal reversed, holding that Costco properly withheld employment taxes from the portion of the judgment representing lost earnings:

Under prevailing federal decisional law, an award of back or front pay arises from the employer-employee relationship, and therefore qualifies as wages, even though the plaintiff is no longer employed and the award is not for actual services performed.

Addressing the effect of the plaintiff's obligation to pay his attorneys from his recovery, the Court stated:

Additionally, we reject Cifuentes' assertion the withholding was improper because it did not take into account his obligation to pay his attorney a contingency-based fee. As Costco points out, the entire award of lost wages was taxable as income regardless of whether a portion was used to pay contingent attorney fees. (C.I.R. v. Banks (2005) 543 U.S. 426, 430 ["[T]he litigant's income includes the portion of the recovery paid to the attorney as a contingent fee"].) Nor are we convinced by Cifuentes' reference to the section of the American Jobs Creation Act of 2004 authorizing an "above-the-line" deduction of attorney fees and costs incurred in connection with a claim of discrimination or retaliation. (26 U.S.C. § 62(a)(20), (21).) The award in this case was for breach of contract, not unlawful discrimination or retaliation. (See Banks, at p. 439.) 

The opinion is available here.

Ninth Circuit Issues Two Class Action Decisions: Bateman v. American Multi-Cinema and Wang v. Chinese Daily News

In Bateman v. American Multi-Cinema, Inc., --- F.3d --- (9th Cir., September 27, 2010), the Court held that the district court abused its discretion in denying class certification in lawsuit based on defendant’s printing of more than the last five digits of consumers’ credit or debit card numbers on electronically printed receipts in violation of the Fair and Accurate Credit Transactions Act. Full opinion here.

In Wang v. Chinese Daily News, Inc., --- F.3d --- (9th Cir., September 27, 2010), the Court affirmed a judgment in favor of a newspaper's employees under the Fair Labor Standards Act and California law:

Chinese Daily News, Inc. (“CDN”), a Chinese-language newspaper, appeals the district court's judgment in an action brought by some of its California-based employees under the federal Fair Labor Standards Act (“FLSA”) and under California law. The district court certified the FLSA claim as a collective action. It certified the state-law claims as a class action under Rule 23(b)(2) and, alternatively, under Rule 23(b)(3). In the state-law class action, it provided for notice and opt out, but subsequently invalidated the opt outs. It granted partial summary judgment to plaintiffs; held jury and bench trials; entered judgment for plaintiffs; awarded attorney's fees to plaintiffs; and conducted a new opt-out process. CDN appeals, challenging aspects of each of these rulings, as well as the jury's verdict. We have jurisdiction under 28 U.S.C. § 1291 and we affirm.

Slip op. at 1. More on this as soon as I have the chance.

Full opinion here.

Ninth Circuit Rejects Appeal of Partial Summary Judgment in Home Care Wage Case

In Solis v. Jasmine Hall Care Homes, Inc., --- F.3d ----, 2010 WL 2612692 (9th Cir., July 1, 2010), the Ninth Circuit dismissed as improper an appeal from an order granting partial summary judgment.

The defendants operated residential care facilities for developmentally disabled adults. The Department of Labor ("DOL") sued to enjoin violations of the federal Fair Labor Standards Act ("FLSA"), alleging that the defendants willfully violated FLSA's overtime compensation requirements. The parties brought cross-motions for partial summary judgment on the impact of a federal regulation on the action. The District Court granted partial summary judgment for the DOL, and the employer appealed.

The Ninth Circuit held that it did not have jurisdiction to hear the appeal because there was no final decision.

Where there really is very strong reason for interlocutory correction of a district court error, even though the case falls within no exception from the final judgment rule, we can use mandamus. Beyond that, it is a rare district court case indeed that can be interrupted by an appeal if it does not fall within a statutory exception to the statutory final decision rule. The interlocutory appeal in this case is not the albino black bear that Gillespie excepts from the “final decision” requirement, so this interlocutory appeal must be dismissed for lack of jurisdiction.

Slip op. at 4.

Post-Judgment Costs of Collection and Bankruptcy

I find this decision interesting, given the current economic climate and the number of employers who threaten to file bankruptcy when their employees ask to be paid lawful wages. On December 30, 2008, the California Court of Appeal held that Code of Civil Procedure Section 685.040, which allows a judgment creditor to recover reasonable and necessary attorney fees incurred in "enforcing" a judgment, applies to those attorney fees that creditor incurrs in a debtor’s post-judgment bankruptcy proceeding. Chinese Yellow Pages Company v. Chinese Overseas Marketing Service Corporation (December 30, 2008, Second District, Division Five).