Brinker v. Axos Bank et al, No. 3:2022cv00386 - Document 43 (S.D. Cal. 2023)

Court Description: ORDER Granting in Part and Denying in Part Defendants' Motion to Dismiss (Dkt. No. 36 ). Signed by Judge Michael M. Anello on 7/13/2023. (jms)

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Brinker v. Axos Bank et al Doc. 43 Case 3:22-cv-00386-MMA-DDL Document 43 Filed 07/13/23 PageID.941 Page 1 of 25 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 JENNIFER BREAR BRINKER, Case No. 22-cv-386-MMA (DDL) Plaintiff, 12 13 v. 14 AXOS BANK, et al., ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS’ MOTION TO DISMISS Defendants. 15 [Doc. No. 36] 16 17 18 19 Plaintiff Jennifer Brear Brinker (“Plaintiff”) brings this action against Defendants 20 Axos Bank, Axos Financial Inc., and John Tolla (collectively, “Defendants”). See Doc. 21 No. 31 (“Second Amended Complaint” or “SAC”). Defendants now move to dismiss 22 Plaintiff’s first, third, fourth, fifth, sixth, and eighth causes of action pursuant to Federal 23 Rule of Civil Procedure 12(b)(6). See Doc. No. 36. Defendant Axos Financial also 24 separately moves to dismiss all causes of action against it. See id. Plaintiff filed an 25 opposition to Defendants’ motion, 1 to which Defendants replied. See Doc. Nos. 40, 41. 26 27 28 1 Plaintiff is reminded that the Civil Local Rules require that briefs, including footnotes, be “no smaller than 14-point standard font (e.g. Times New Roman).” CivLR 5.1.a. -1- 22-cv-386-MMA (DDL) Dockets.Justia.com Case 3:22-cv-00386-MMA-DDL Document 43 Filed 07/13/23 PageID.942 Page 2 of 25 1 The Court found the matter suitable for determination on the papers and without oral 2 argument pursuant to Federal Rule of Civil Procedure 78(b) and Civil Local Rule 7.1.d.1. 3 See Doc. No. 42. For following reasons, the Court GRANTS IN PART and DENIES 4 IN PART Defendants’ motion to dismiss. I. BACKGROUND 2 5 6 The factual background is set forth more fully in the Court’s Order on Defendants’ 7 Motion to Dismiss Plaintiff’s First Amended Complaint and Motion to Strike, see Doc. 8 No. 30, which the Court incorporates by reference here. For the purpose of this 9 background section, the Court provides the following summary. 10 In October 2018, Plaintiff was hired by Axos Bank as a Senior Independent Credit 11 Review Officer for the Governance, Risk Management, and Compliance Department. 12 SAC ¶ 10. Plaintiff was responsible for reviewing Axos Bank’s loan portfolios to 13 examine, measure, monitor, and report weaknesses and deficiencies with the Bank’s 14 lending and risk management standards and practices. Id. 15 Generally speaking, Plaintiff alleges that Axos Bank “has a long history of high 16 employee turnover in the Bank’s compliance, risk management, and internal audit 17 functions” and that “[t]hese turnover rates are caused in part by the Bank’s practice of 18 hiring audit and credit review professionals who lack the skills required to identify the 19 Bank’s many failures, and then retaliating against those who do.” Id. ¶ 22. During her 20 time at Axos Bank, Plaintiff contends she uncovered a laundry list of compliance, 21 governance, and risk-management issues in her review of the Bank’s Correspondent 22 Lending, Equipment Finance, Warehouse Lending, and Lender Finance Portfolios. See 23 id. at ¶¶ 25–34, 40–48, 53–61, 63–67,72–77, 83–87. Plaintiff alleges that when she 24 raised her concerns to Axos Bank, such as in reports and meetings, she was rebuffed in a 25 26 27 28 2 Because this matter is before the Court on a motion to dismiss, the Court must accept as true the allegations set forth in the First Amended Complaint. See Hosp. Bldg. Co. v. Trs. of Rex Hosp., 425 U.S. 738, 740 (1976). -2- 22-cv-386-MMA (DDL) Case 3:22-cv-00386-MMA-DDL Document 43 Filed 07/13/23 PageID.943 Page 3 of 25 1 variety of ways. For example, she contends she was told to exclude certain findings from 2 her final report, see id. ¶ 30, diminish the severity of her findings, see id. ¶ 32, “socialize” 3 her findings with non-compliance personnel, see id. ¶¶ 35, 62, 78, and in one instance, 4 rewrite her report, see id. ¶ 49, resulting in her reports being late and “significantly 5 watered down,” see id. ¶¶ 36, 50, 51, 62. Additionally, she contends that her concerns 6 were attacked and ignored, see id. ¶¶ 36, 44, 46, 49, or that only nominal changes were 7 made, see id. ¶ 45, and that on one occasion she was excluded from presenting her report, 8 see id. ¶ 52. 9 Plaintiff also maintains that various persons at Axos Bank criticized her complaints 10 and reports with comments such as that she was “too negative,” “needed to lower her 11 standards,” was “too demanding,” “had communication problems,” see id. ¶ 37, was “too 12 bureaucratic,” see id. ¶ 39, was “meddling beyond the scope of her duties,” id. ¶ 42, 13 should “let it go,” id. ¶ 43, and was “crazy,” see id. ¶ 50. 14 Plaintiff further asserts that Axos Bank has a policy and practice of paying women 15 less than men in the same or substantially similar job positions and promotes men more 16 frequently. See id. ¶ 93. 17 Plaintiff first complained about these issues in January 2020, when she met with 18 her supervisor and manager, Defendant John Tolla, during Axos Bank’s semi-annual 19 review. See id. ¶ 96. She complained again to Mr. Tolla in August 2020. See id. ¶ 97. 20 In October 2020, Plaintiff filed a formal complaint with Human Resources. See id. 21 ¶¶ 80, 98. In early November 2020, Axos Bank’s HR Vice President, Ms. Mary Ellen 22 Ciafardini, found her complaint was without merit. See id. ¶ 81. Ms. Ciafardini told 23 Plaintiff to solve the problem because things “couldn’t go on like this any longer.” Id. 24 Ms. Ciafardini indicated that Plaintiff would have to leave Axos Bank and asked “what 25 kind of severance would make her happy to leave and ask[ed] her to propose a severance 26 in return for a full release of any claims against the Bank.” Id. Two days after the 27 meeting, Ms. Ciafardini called Plaintiff to reiterate the offer to leave Axos Bank and 28 asked Plaintiff to “let her know” what it would take to get Plaintiff to leave. Id. ¶ 82. -3- 22-cv-386-MMA (DDL) Case 3:22-cv-00386-MMA-DDL Document 43 Filed 07/13/23 PageID.944 Page 4 of 25 1 On January 5, 2021, Plaintiff was terminated along with several other members of 2 the Independent Credit Review team. See id. ¶¶ 4, 100. She was offered a severance in 3 return for a settlement and general release of claims against Axos Bank and signing a 4 declaration under oath. See id. ¶ 101. When Plaintiff refused to sign the release, Axos 5 Bank sent her a cease-and-desist letter and threatened litigation. See id. ¶ 104. 6 Based upon the foregoing, Plaintiff asserts the following eight causes of action: 7 (1) retaliation in violation of the Sarbanes-Oxley Act, 18 U.S.C. § 1514A, against all 8 Defendants; (2) whistleblower retaliation in violation of California Labor Code § 1102.05 9 against Axos Bank and Axos Financial; (3) violation of the California Equal Pay Act, 10 Cal. Lab. Code § 1197.5, against Axos Bank and Axos Financial; (4) gender 11 discrimination in violation of the California Fair Employment and Housing Act, Cal. 12 Gov. Code § 12940 et seq. (“FEHA”), against Axos Bank and Axos Financial; (5) failure 13 to prevent discrimination and harassment in violation of FEHA, Cal.Gov. Code 14 § 12940(j)(k), against Axos Bank and Axos Financial; (6) retaliation in violation of 15 FEHA, Cal. Gov. Code § 12940 et seq. against Axos Bank and Axos Financial; 16 (7) wrongful termination in violation of public policy against Axos Bank and Axos 17 Financial; and (8) unlawful business practices in violation of California Business & 18 Professions Code § 17200 et seq. against Axos Bank and Axos Financial. 19 II. LEGAL STANDARD A Rule 12(b)(6) 3 motion to dismiss tests the sufficiency of the complaint. Navarro 20 21 v. Block, 250 F.3d 729, 732 (9th Cir. 2001). A pleading must contain “a short and plain 22 statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 23 8(a)(2). However, plaintiffs must also plead “enough facts to state a claim to relief that is 24 plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007); see also 25 Fed. R. Civ. P. 12(b)(6). The plausibility standard demands more than a “formulaic 26 27 28 3 Unless otherwise noted, all “Rule” references are to the Federal Rules of Civil Procedure. -4- 22-cv-386-MMA (DDL) Case 3:22-cv-00386-MMA-DDL Document 43 Filed 07/13/23 PageID.945 Page 5 of 25 1 recitation of the elements of a cause of action,” or “‘naked assertions’ devoid of ‘further 2 factual enhancement.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 3 550 U.S. at 555, 557). Instead, the complaint “must contain sufficient allegations of 4 underlying facts to give fair notice and to enable the opposing party to defend itself 5 effectively.” Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011). 6 In reviewing a motion to dismiss under Rule 12(b)(6), courts must assume the truth 7 of all factual allegations and must construe them in the light most favorable to the 8 nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337–38 (9th Cir. 1996) 9 (citing Nat’l Wildlife Fed’n v. Espy, 45 F.3d 1337, 1340 (9th Cir. 1995)). The court need 10 not take legal conclusions as true merely because they are cast in the form of factual 11 allegations. Roberts v. Corrothers, 812 F.2d 1173, 1177 (9th Cir. 1987) (quoting W. Min. 12 Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981)). Similarly, “conclusory allegations 13 of law and unwarranted inferences are not sufficient to defeat a motion to dismiss.” 14 Pareto v. FDIC, 139 F.3d 696, 699 (9th Cir. 1998). In determining the propriety of a 15 Rule 12(b)(6) dismissal, courts generally may not look beyond the complaint for 16 additional facts. See United States v. Ritchie, 342 F.3d 903, 907–08 (9th Cir. 2003). 17 Where dismissal is appropriate, a court should grant leave to amend unless the 18 plaintiff could not possibly cure the defects in the pleading. Knappenberger v. City of 19 Phoenix, 566 F.3d 936, 942 (9th Cir. 2009) (quoting Lopez v. Smith, 203 F.3d 1122, 1127 20 (9th Cir. 2000)). 21 III. REQUEST FOR JUDICIAL NOTICE 22 Plaintiff has filed a request for judicial notice in support of her opposition to 23 Defendants’ motion. See Doc. No. 38. While, generally, the scope of review on a motion 24 to dismiss for failure to state a claim is limited to the contents of the complaint, see 25 Warren v. Fox Family Worldwide, Inc., 328 F.3d 1136, 1141 n.5 (9th Cir. 2003), a court 26 may consider certain materials, including matters of judicial notice, without converting 27 the motion to dismiss into a motion for summary judgment, see United States v. Ritchie, 28 342 F.3d 903, 908 (9th Cir. 2003). For example, “a court may take judicial notice of -5- 22-cv-386-MMA (DDL) Case 3:22-cv-00386-MMA-DDL Document 43 Filed 07/13/23 PageID.946 Page 6 of 25 1 matters of public record,” Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 999 (9th 2 Cir. 2018) (quoting Lee v. City of Los Angeles, 250 F.3d 668, 689 (9th Cir. 2001), 3 overruled on other grounds by Galbraith v. County of Santa Clara, 307 F.3d 1119, 1125– 4 26 (9th Cir. 2002)), and of “documents whose contents are alleged in a complaint and 5 whose authenticity no party questions, but which are not physically attached to the 6 pleading,” Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994), overruled on other 7 grounds by Galbraith, 307 F.3d at 1125–26; see also Fed. R. Evid. 201. 8 9 A judicially noticed fact must be one not subject to reasonable dispute in that it is either: (1) generally known within the territorial jurisdiction of the trial court; or 10 (2) capable of accurate and ready determination by resort to sources whose accuracy 11 cannot reasonably be questioned. See Fed. R. Evid. 201(b); see also Khoja, 899 F.3d at 12 999 (quoting Fed. R. Evid. 201(b)). 13 Plaintiff asks the Court to judicially notice four exhibits: (A) her October 4, 2022 14 “Right to Sue” Letter from the California Department of Fair Employment and Housing 15 (“DFEH”); (B) the “Commission Guidance Regarding Management’s Report on Internal 16 Control Over Financial Reporting Under Section 13(a) or 15(d) of the Securities 17 Exchange Act of 1934,” available on the Securities and Exchange Commission’s (“SEC”) 18 website; (C) the “Internal Routine and Controls Section 4.2” from the RMS Manual of 19 Examination Policies, available on the Federal Deposit Insurance Corporation’s website; 20 and (D) AXOS Financial, Inc.’s 2021 Form 10-K, available on the SEC’s website. 21 Defendants have not opposed her request. 22 The Court has already granted Plaintiff’s request as to Exhibits A, B, and C, see 23 Doc. No. 30 at 10–11, and for those same reasons GRANTS her request here. As to 24 Exhibit D, the Court finds that it is a publicly available document that is neither subject to 25 reasonable dispute nor can be reasonably questioned. See U.S. ex rel. Modglin v. DJO 26 Glob. Inc., 48 F. Supp. 3d 1362, 1381 (C.D. Cal. 2014) (collecting cases in which courts 27 have taken judicial notice of the websites of government agencies). Accordingly, the 28 Court GRANTS Plaintiff’s request as to Exhibit D as well. -6- 22-cv-386-MMA (DDL) Case 3:22-cv-00386-MMA-DDL Document 43 Filed 07/13/23 PageID.947 Page 7 of 25 1 IV. DISCUSSION 2 Defendants move to dismiss Plaintiff’s first, third, fourth, fifth, sixth, and eighth 3 causes of action pursuant to Federal Rule of Civil Procedure 12(b)(6). See Doc. No. 36. 4 Axos Financial separately moves to dismiss all claims against it. See id. The Court 5 addresses each argument in turn. 6 A. 7 Axos Financial & Alter Ego Theory None of the allegations of wrongdoing, in both the First and Second Amended 8 Complaints, are particular to Axos Financial. The Court previously dismissed all of 9 Plaintiff’s claims against Axos Financial, holding that Plaintiff failed to plead a theory of 10 alter ego liability in her First Amended Complaint. See Doc. No. 30 at 24–25. Axos 11 Financial again seeks to be dismissed from this action for the same reasons. See Doc. 12 No. 6-1 at 29–31. Plaintiff does not address this argument in opposition. 13 Under California law, the “alter ego” theory “refers to situations where the ‘owner 14 of a corporation will be held liable for the actions of the corporation.’” Daewoo Elecs. 15 Am., Inc. v. Opta Corp., 875 F.3d 1241, 1249 (9th Cir. 2017) (quoting Wady v. Provident 16 Life & Accident Ins. Co. of Am., 216 F. Supp. 2d 1060, 1066 (C.D. Cal. 2002) (itself 17 quoting Roman Catholic Archbishop of S.F. v. Superior Court, 93 Cal. Rptr. 338, 341 18 (Cal. Ct. App. 1971))). Alter ego liability allows a plaintiff to “pierce the corporate veil” 19 and hold a corporate actor or parent corporation liable for the conduct of the corporation 20 or subsidiary. Stark v. Coker, 20 Cal. 2d 839, 845 (Cal. 1942). To plead alter ego 21 liability, a plaintiff must allege: “(1) that there be such unity of interest and ownership 22 that the separate personalities of the corporation and the individual no longer exist and 23 (2) that, if the acts are treated as those of the corporation alone, an inequitable result will 24 follow.” Pac. Mar. Freight, Inc. v. Foster, No. 10-cv-0578-BTM-BLM, 2010 U.S. Dist. 25 LEXIS 87205, at *16–17 (S.D. Cal. Aug. 24, 2010) (quoting Automotriz Del Golfo De 26 California S. A. De C. V. v. Resnick, 47 Cal. 2d 792, 796 (Cal. 1957) (internal quotation 27 marks omitted); see also Daewoo Elecs., 875 F.3d at 1249–50 (quoting Mesler v. Bragg 28 Mgmt. Co., 216 Cal. Rptr. 443, 448 (Cal. 1985)). -7- 22-cv-386-MMA (DDL) Case 3:22-cv-00386-MMA-DDL Document 43 Filed 07/13/23 PageID.948 Page 8 of 25 1 2 Defendants argue that Plaintiff fails to allege facts to support the unity of interest element. See Doc. No. 36-1 at 30. 3 4 5 6 7 8 Factors that can be used to support the first element, unity of interest, include commingling of funds, failure to maintain minutes or adequate corporate records, identification of the equitable owners with the domination and control of the two entities, the use of the same office or business locations, the identical equitable ownership of the two entities, the use of a corporation as a mere shell, instrumentality or conduit for a single venture or the business of an individual, and the failure to adequately capitalize a corporation. 9 10 Pac. Mar. Freight, 2010 U.S. Dist. LEXIS 87205, at *17 (citing Associated Vendors, Inc. 11 v. Oakland Meat Co., 26 Cal. Rptr. 806, 814–815 (Cal. Ct. App. 1962)). 12 Turning to Plaintiff’s allegations related to the first element, Plaintiff represents 13 that Axos Financial is a holding company that is publicly traded on the New York Stock 14 Exchange. See SAC ¶ 8. Plaintiff alleges that Axos Financial is Axos Bank’s parent 15 company; Axos Bank is a wholly owned subsidiary of Axos Financial. See id. ¶ 7. 16 Plaintiff explains that Axos Bank and Axos Financial “were originally branded as Bank 17 of Internet USA,” and that in September 2018, “BofI Holding, Inc., parent of BofI 18 Federal Bank, announced that its new corporate name was Axos Financial, Inc. (“Axos 19 Financial”). BofI Federal Bank became Axos Bank on October 1, 2018.” Id. ¶ 17. 20 Plaintiff contends that Axos Bank and Axos Financial 21 22 23 24 25 26 maintain interlocking boards and employ many of the same management personnel. They commingle funds and assets, or divert funds or assets from one entity to another. They frequently use the same offices or business locations. They conceal or misrepresent their financial interests so as to benefit each other. They manipulate corporate assets and liabilities in entities to concentrate the assets in one and the liabilities in another, and contract with each other as a shield against personal liability in their external corporate contracts. 27 28 Id. ¶ 18. -8- 22-cv-386-MMA (DDL) Case 3:22-cv-00386-MMA-DDL Document 43 Filed 07/13/23 PageID.949 Page 9 of 25 1 Plaintiff further asserts that Axos Bank and Axos Financial have the same 2 executive officers, see id. ¶ 19, and share the same Board members, see id. ¶ 20, and that 3 they often refer to themselves as one company in public disclosures, see id. ¶ 21. 4 The Court agrees with Defendants that Plaintiff’s allegations are rather conclusory, 5 and “California courts emphasize that the alter ego determination is very fact specific.” 6 Smith v. Simmons, 638 F. Supp. 2d 1180, 1191 (E.D. Cal. 2009), aff’d, 409 F. App’x 88 7 (9th Cir. 2010). However, “[a]t the motion to dismiss stage, the pleading requirements 8 for alleging an alter ego theory are ‘not strict.’” Parrish v. Gordon Lane Healthcare, 9 LLC, No. SACV 22-01790-CJC (KESx), 2022 U.S. Dist. LEXIS 233356, at *7–8 (C.D. 10 Cal. Dec. 29, 2022) (quoting Unichappell Music, Inc. v. Modrock Prods., LLC, 2015 U.S. 11 Dist. LEXIS 16111, at *11 (C.D. Cal. Feb. 10, 2015)). “Because the most damning 12 evidence of the unity of ‘interest and identity’ is often in the hands of the corporation and 13 its principals and can be found nowhere else,” some courts find it sufficient for a plaintiff 14 to plead only “two or three” of the factors showing unity of interest or identity to 15 withstand a motion to dismiss. Id. (citing Pac. Mar. Freight, 2010 U.S. Dist. LEXIS 16 87205, at *19); see also Laguna v. Coverall N. Am., Inc., 2009 U.S. Dist. LEXIS 118098, 17 2009 WL 5125606, at *3 (S.D. Cal. Dec. 18, 2009) (denying motion to dismiss alter ego 18 claims when “[t]he allegations sufficiently identif[ied] the contours of an alter ego claim 19 such that [the defendant was] able to prepare a response to the SAC and to conduct 20 discovery,” noting that “[t]he fundamental inquiry to establish a viable alter ego claim 21 requires the parties to delve into the unity of interests shared by [the alleged alter ego 22 entities]—knowledge uniquely within the possession of the corporate entities, and not 23 Plaintiff”). Here, the Plaintiff has identified and supported at least two “unity of interest” 24 factors. Accordingly, the Court finds that Plaintiff’s allegations are sufficient at this 25 stage and therefore DENIES Defendants’ motion to dismiss on this basis. 26 As to the second element, Defendants argue in a footnote that Plaintiff fails to 27 allege that fraud or injustice will result if Axos Financial is not a defendant. See Doc. 28 No. 36-1 at 30 fn.16. “A footnote is the wrong place for substantive arguments on the -9- 22-cv-386-MMA (DDL) Case 3:22-cv-00386-MMA-DDL Document 43 Filed 07/13/23 PageID.950 Page 10 of 25 1 merits of a motion, particularly where such arguments provide independent bases for 2 dismissing a claim not otherwise addressed in the motion.” Rivera v. Garland, No. 21- 3 cv-213-MMA (AGS), 2021 U.S. Dist. LEXIS 90007, at *13–14 n.3 (S.D. Cal. May 11, 4 2021) (quoting First Advantage Background Servs. Corp. v. Private Eyes, Inc., 569 F. 5 Supp. 2d 929, 935 n.1 (N.D. Cal. 2008)). As such, arguments raised only in footnotes are 6 generally deemed waived. Riegels v. Comm’r (In re Estate of Saunders), 745 F.3d 953, 7 962 n.8 (9th Cir. 2014); see also Kamal v. Eden Creamery, LLC, No. 18-cv-01298-BAS- 8 AGS, 2019 U.S. Dist. LEXIS 107263, at *24 n.5 (S.D. Cal. June 26, 2019) (“Much like 9 the Court ‘do[es] not expect to find elephants in mouseholes,’ the Court does not expect 10 to find dispositive arguments in footnotes.”) (quoting Gallo v. Moen Inc., 813 F.3d 265, 11 269 (6th Cir. 2016)). Nonetheless, the Court agrees that Plaintiff has failed to plead the 12 second element, either formulaically or with facts. Accordingly, the Court GRANTS 13 Axos Financial’s motion on this basis. 14 B. 15 Claim 1: Sarbanes-Oxley Act Whistleblower Retaliation Plaintiff’s first cause of action is for whistleblower retaliation in violation of the 16 Sarbanes-Oxley Act (“SOX”), 18 U.S.C. § 1514A, against all Defendants. SAC ¶¶ 109– 17 27. The Court previously dismissed Plaintiff’s SOX claim for failure to put Defendants 18 on notice of particular conduct she believed violated § 1514A(a)(1)’s enumerated 19 categories. See Doc. No. 30 at 17. 20 To state a prima facie case under 18 U.S.C. § 1514A, Plaintiff must plead that: 21 (1) she engaged in a protected activity; (2) Defendant knew or suspected, actually or 22 constructively, that she engaged in the protected activity; (3) she suffered an adverse 23 employment action; and (4) the circumstances were sufficient to raise the inference that 24 the protected activity was a contributing factor in the adverse action. Van Asdale v. Int’l 25 Game Tech., 577 F.3d 989, 996 (9th Cir. 2009). As to the protected activity element, the 26 anti-retaliation statute protects an employee who “provide[s] information . . . regarding 27 any conduct which the employee reasonably believes constitutes a violation of section 28 1341 [mail fraud], 1343 [wire fraud], 1344 [bank fraud], or 1348 [securities or -10- 22-cv-386-MMA (DDL) Case 3:22-cv-00386-MMA-DDL Document 43 Filed 07/13/23 PageID.951 Page 11 of 25 1 commodities fraud], any rule or regulation of the Securities and Exchange Commission, 2 or any provision of Federal law relating to fraud against shareholders . . . .” 18 U.S.C. 3 § 1514A(a)(1). The second to last segment, “any rule or regulation of the [SEC],” refers 4 to “administrative rules or regulations,” not statutes. See Wadler v. Bio-Rad Labs., Inc., 5 916 F.3d 1176, 1186–87 (9th Cir. 2019). 6 The parties’ dispute is centered on whether Plaintiff has plausibly pleaded the first 7 element: that she engaged in a protected activity. To allege a protected activity, Plaintiff 8 “‘need only show that [ ] she ‘reasonably believe[d]’ that the conduct complained of is a 9 violation of the laws enumerated in 18 U.S.C. § 1514A.” Erhart v. Bofi Holding, Inc., 10 269 F. Supp. 3d 1059, 1072 (S.D. Cal. 2017) (quoting Rhinehimer v. U.S. Bancorp Invs., 11 Inc., 787 F.3d 797, 811 (6th Cir. 2015) (quoting Nielsen v. AECOM Tech. Corp., 762 12 F.3d 214, 220–21 (2d Cir. 2014))). The reasonable belief standard “involves both a 13 subjective component and an objective component.” Id. “The subjective component is 14 satisfied if the employee actually believed that the conduct complained of constituted a 15 violation of relevant law.” Id. As for the objective component, it “is evaluated based on 16 the knowledge available to a reasonable person in the same factual circumstances with 17 the same training and experience as the aggrieved employee.” Id. (quoting Harp v. 18 Charter Commc’ns, Inc., 558 F.3d 722, 723 (7th Cir. 2009)); see also Nielsen, 762 F.3d 19 at 221 (“That is to say, a plaintiff ‘must show not only that he believed that the conduct 20 constituted a violation, but also that a reasonable person in his position would have 21 believed that the conduct constituted a violation.’”). The reasonable person standard 22 recognizes that “[m]any employees are unlikely to be trained to recognize legally 23 actionable conduct by their employers.” Nielsen, 762 F.3d at 221. Accordingly, “the 24 inquiry into whether an employee had a reasonable belief is necessarily fact-dependent, 25 varying with the circumstances of the case.” Rhinehimer, 787 F.3d at 811. 26 The Court begins by ascertaining what protected laws, rules, and regulations 27 Plaintiff allegedly reported. At the outset of her Second Amended Complaint, Plaintiff 28 identifies the following: -11- 22-cv-386-MMA (DDL) Case 3:22-cv-00386-MMA-DDL Document 43 Filed 07/13/23 PageID.952 Page 12 of 25 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 13. 15 U.S.C. § 78m(b)(2)(B) requires that a securities issuer: “devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances” that “transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary (I) to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements, and (II) to maintain accountability for assets . . . ; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.” 14. Federal law and SEC regulations require that Axos maintain adequate “internal control over financial reporting,” 17 C.F.R. § 240.13a-15(a), and that Axos evaluate its internal controls on a yearly basis and certify that its controls are adequate, as well as disclose any control deficiencies. Id., 17 C.F.R. § 240.13a-14. 15. Exchange Act Rules 13a-15(f) and 15d-15(f), 17 CFR 240.13a-15(f) and 15d-15(b), define internal control over financial reporting as: A process . . . to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: (1) Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the registrant; and (2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the registrant are being made only in accordance with authorizations of management and directors of the registrant. 16. Federal Law and SEC rules also prohibit fraud against shareholders by a publicly traded company such as Axos Financial. See, e.g., 15 U.S.C. § 78j(b); 17 C.F.R. § 240.10b-5. 23 24 25 SAC ¶¶ 13–16. Peppered throughout Plaintiff’s Second Amended Complaint are identical 26 references to “15 U.S.C. § 78m(b)(2)(B)(ii), 15 U.S.C. § 78j(b), and 17 C.F.R. § 240.10b- 27 5.” See id. ¶¶ 34, 48, 60, 75, 87. However, in support of her SOX claim, Plaintiff 28 repeatedly asserts that she believed that all of the issues she identified and reported -12- 22-cv-386-MMA (DDL) Case 3:22-cv-00386-MMA-DDL Document 43 Filed 07/13/23 PageID.953 Page 13 of 25 1 violated SOX § 404, as well as SEC Rule 10b-5 and section 17(a)(2) of the Securities 2 Act. See id. ¶¶112–115, 117–122. 3 Generally speaking, Defendants argue that while Plaintiff has now identified 4 authorities protected by § 1514A, she has not tethered the alleged failures, misconduct, 5 and issues to her beliefs. See Doc. No. 36-1 at 14–23. 6 The Court begins by noting the obvious but presently unstated: Plaintiff is not the 7 ordinary employee “unlikely to be trained to recognize legally actionable conduct by their 8 employers.” Nielsen, 762 F.3d at 221. She is, or was, some type of compliance, 9 governance, and/or risk management officer. See SAC ¶ 10. She was hired by Axos 10 Bank specifically to review its Portfolios to assess, among other things, deficiencies in 11 their standards and practices, see id., and it appears that part of her duties involved 12 assessing Axos Bank’s regulatory compliance, see, e.g., id. ¶¶ 26, 32. The Court can 13 therefore plausibly infer that her reports of various alleged misconduct were tethered to a 14 belief in a violation of some law, rule, or regulation. 15 16 The question then is whether Plaintiff pleads that she believed the violations were of an authority protected by § 1514A. 17 1. 18 While Plaintiff identifies 17 C.F.R. §§ 240.13a-14 and 240.13a-15 at the outset of SEC Internal Controls Rules 19 her pleading, the remainder of her Second Amended Complaint is devoid of any 20 reference to these authorities. It is not clear if Plaintiff seeks to premise her SOX claim 21 upon a believed violation of these SEC Rules—while Plaintiff repeatedly pleads that she 22 believed Axos Bank was inaccurately certifying that its internal controls were adequate, 23 see SAC ¶¶ 33, 48, 60, Plaintiff never pleads that she believes any of the issues she 24 complained of violated these Rules. To be sure, Rules 240.13a-14 and 240.13a-15 are 25 referenced only seven (7) times in the Second Amended Complaint, and all are on page 3. 26 See SAC at 4. 27 28 The Court will not parse through Plaintiff’s pleading and tie her allegations and beliefs to specific authorities covered by § 1514A from a hindsight perspective; it is -13- 22-cv-386-MMA (DDL) Case 3:22-cv-00386-MMA-DDL Document 43 Filed 07/13/23 PageID.954 Page 14 of 25 1 Plaintiff’s obligation to plead and ultimately prove what she believed at the time she 2 complained of the issues. Accordingly, to the extent Plaintiff brings her SOX claim 3 based upon an alleged violation of 17 C.F.R. §§ 240.13a-14 or 240.13a-15, the Court 4 finds she has not pleaded a protected activity on this basis and therefore DISMISSES her 5 claim. 6 2. 7 Turning to 15 U.S.C. § 78m(b)(2)(B)(ii), the Court is not convinced that Plaintiff FCPA and SOX § 404 8 has plausibly pleaded her SOX claim based upon a believed violation of the Foreign 9 Corrupt Practices Act, § 78dd-1 et seq. (“FCPA”). Plaintiff repeatedly references this 10 statute in a string citation. See SAC ¶¶ 48, 60, 75, 87. Section 78m is entitled 11 “Periodical and other reports,” and subsection (b)(2)(B) requires securities issuers to 12 “devise and maintain a system of internal accounting controls sufficient to provide 13 reasonable assurances” that four enumerated controls are in place. 15 U.S.C. 14 § 78m(b)(2)(B). While this provision references the preparation of financial statements 15 in accordance with generally accepted accounting principles, see id. 16 § 78m(b)(2)(B)(ii)(I), it is facially neither an enumerated statute, an SEC rule or 17 regulation, nor a law relating to shareholder fraud. On this issue, the Wadler case is 18 instructive. In Wadler, the Ninth Circuit held that the FCPA, including its books-and- 19 records provisions at § 78m(b)(2)(A), is not an SEC rule or regulation within the meaning 20 of § 1514A. 916 F.3d at 1187. At the post-trial motions stage, the district court in 21 Wadler rejected the defendants’ argument that an alleged FCPA violation was not a 22 protected activity within the meaning of § 1514A, reasoning that there is a corresponding 23 SEC regulation and that the FCPA is an amendment to and codified within the Securities 24 and Exchange Act of 1934. Wadler v. Bio-Rad Labs., Inc., No. 15-cv-02356-JCS, 2017 25 U.S. Dist. LEXIS 71532, at *17–18 (N.D. Cal. May 10, 2017). On appeal the issue was 26 limited to whether the statute was an SEC rule or regulation, which the Ninth Circuit 27 easily resolved in the negative. Wadler, 916 F.3d at 1187. While the Wadler case only 28 reviewed, as relevant here, the district court’s inclusion of the FCPA in the jury -14- 22-cv-386-MMA (DDL) Case 3:22-cv-00386-MMA-DDL Document 43 Filed 07/13/23 PageID.955 Page 15 of 25 1 instruction on § 1514A’s SEC rule or regulation category, the Ninth Circuit found that 2 the error was not harmless, see id. at 1182, 1187, but also that a reasonable jury could 3 nonetheless find that “the plaintiff reasonably believed he reported misconduct related to 4 the books-and-records provisions—which unlike the anti-bribery provision of the FCPA, 5 is also an SEC rule or regulation, and therefore falls under § 1514A.” La Belle v. 6 Barclays Capital Inc., No. 19-CV-3800 (JPO), 2023 U.S. Dist. LEXIS 50770, at *37 7 (S.D.N.Y. Mar. 24, 2023) (citing Wadler, 916 F.3d at 1188). Presumably, then, it is the 8 SEC’s corresponding rule—not the FCPA—that is covered by § 1514A. This would 9 apply with equal force to the FCPA’s internal controls provision at § 78m(b)(2)(B). 10 To that end, the First Circuit, relying on Wadler, has recently indicated that 11 reporting a reasonably believed violation of the FCPA, specifically § 78m(b)(2), (5), is 12 not a protected activity under § 1514A. See Baker v. Smith & Wesson, Inc., 40 F.4th 43, 13 48 (1st Cir. 2022) (finding on summary judgment that the FCPA is not an SEC rule or 14 regulation and noting that the plaintiff “concedes that Section 78m(b)(2), (5) is not . . . a 15 provision of Federal law relating to fraud against shareholder”) (internal quotation marks 16 and citations omitted). 17 Relatedly, Plaintiff argues in a footnote that SOX § 404, codified at 15 U.S.C. 18 § 7262, is a federal law relating to fraud against shareholders. See Doc. No. 40 at 8 fn.3. 19 The Court not persuaded by the cases Plaintiff relies on. While Thomas v. Tyco Int’l 20 Mgmt. Co., LLC, 262 F. Supp. 3d 1328, 1337 (S.D. Fla. 2017), citing Wiggins v. ING 21 U.S., Inc., No. 3:14-CV-01089 (JCH), 2015 U.S. Dist. LEXIS 167362, at *14 (D. Conn. 22 Dec. 15, 2015), does seemingly stand for the proposition that a § 1514A claim may be 23 based upon a SOX § 404 violation, the Wiggins case does not make such an explicit 24 finding. Rather, Wiggins involved a string of laws and regulations, much like the ones in 25 Plaintiff’s Second Amended Complaint, and does not differentiate among them as 26 providing the basis for whistleblower protection under § 1514A. Wiggins, 2015 U.S. 27 Dist. LEXIS 167362, at *14. And in any event, both cases are devoid of explanation as 28 to how SOX § 404 is a law relating to shareholder fraud. -15- 22-cv-386-MMA (DDL) Case 3:22-cv-00386-MMA-DDL Document 43 Filed 07/13/23 PageID.956 Page 16 of 25 1 The Ninth Circuit has made it clear that “rule or regulation” does not mean statute, 2 and “law” does not mean rule or regulation. See Wadler, 916 F.3d at 1186. Therefore, 3 for an unlisted statute to be covered by § 1514A, it must relate to shareholder fraud. 4 SOX § 404, entitled “Management assessment of internal controls,” grants the SEC 5 authority to prescribe rules governing issuers’ reporting of internal controls, requires 6 management personnel make certifications regarding its internal controls in the issuer’s 7 annual reports, and provides and exemption from such a certification for small issuers. 8 15 U.S.C. § 7262(a)–(c). There appears to be nothing on the face of this statute to 9 suggest that it relates to shareholder fraud. If Congress intended § 1514A to cover any 10 11 violation of SOX, the Court assumes it would have stated as much. Unfortunately, the issue of whether the FCPA and SOX § 404 are encompassed by 12 § 1514A was not briefed. Nonetheless, it is apparent that Plaintiff has not pleaded that 13 she engaged in a protected activity on these bases—she fails to plausibly plead that these 14 statutes are laws relating to shareholder fraud. Accordingly, the Court DISMISSES 15 Plaintiff’s SOX’s claim to the extent it is based upon her reporting of an alleged violation 16 of these statutes. 17 3. 18 Title 15 of the United States Code, § 78j and 17 C.F.R. § 240.10b-5, known as Shareholder Fraud 19 Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, respectively, as 20 well as section 17(a) of the Securities Act of 1933, prohibit fraud in the sale of securities. 21 Plainly, each of these authorities is either a law pertaining to shareholder fraud or an SEC 22 rule. Therefore, reporting a reasonably believed violation of these authorities is a 23 protected activity under § 1514A. 24 In an attempt to untangle Plaintiff’s pleading, Defendants identify seven categories 25 of issues Plaintiff uncovered and complained of: (1) deficient lending, underwriting, and 26 credit risk management controls; (2) inaccurate internal control certifications; 27 (3) inaccurate loan loss reserves; (4) deficient anti money laundering (“AML”) practices; 28 (5) failure to account for operating lease schedules; (6) failure to disclose a new credit -16- 22-cv-386-MMA (DDL) Case 3:22-cv-00386-MMA-DDL Document 43 Filed 07/13/23 PageID.957 Page 17 of 25 1 product; and (7) inaccurate loan to value ratios. See Doc. No. 36-1 at 16. Plaintiff in 2 opposition explains that she identified the following additional issues: (8) failure to 3 monitor loans; (9) inadequate personnel; and (10) interference with and failure to address 4 her reports and complaints. See Doc. No. 40 at 17–18. 5 Based upon the Court’s discussion supra Sections IV.B.1–2, securities fraud, 6 whether unlawful under the Securities Act, the Exchange Act, or the SEC rules, is the 7 only violation Plaintiff has adequately and plausibly identified in support of her SOX 8 claim. 9 As was the case in Erhart, Plaintiff’s pleading is imperfect and imprecise, but she 10 nevertheless plausibly supports her reasonable belief that she complained of shareholder 11 fraud. With respect to all of the issues identified during all of her Portfolio reviews, 4 she 12 pleads that she believed Axos Bank was inaccurately certifying that its internal controls 13 were adequate and correct. See, e.g., SAC ¶¶ 33, 47–48, 59–60, 74–75. Plaintiff also 14 contends that these issues left the Bank at risk of holding risky loans, with inaccurate 15 reserves for loan losses, over-exposed to risky borrowers, and unable to accurately state 16 the value of its assets. See, e.g., SAC ¶¶ 33, 48, 75. In one instance, Plaintiff asserts that 17 she discovered Axos Bank had extended an outsized line of credit to a former Banc of 18 California executive, and friend of several Bank executives, in a transaction that did not 19 appear to be at arms-length, and that Axos Bank thereafter acquired a company owned by 20 the former executive and took a write-down for $16 million in bad debt. See id. ¶ 61. 21 Plaintiff also alleges that the excessive role of management in editing her reports created 22 a risk that numbers on financial statements would not reflect her independent analysis but 23 the self-interested conclusions of the Bank’s management. See id. 35, 60. 24 25 26 27 28 4 While the parties separate their analyses for each category of issues, the Court declines to do so here. The question of whether Plaintiff actually reasonably believed the issues, either in isolation or in totality, amounted to securities fraud, and whether such a belief was objectively reasonable, is a question for summary judgment or trial. For the purpose of resolving Defendants’ motion to dismiss, the Court need only determine whether Plaintiff has plausibly pleaded she engaged in a protected activity; whether Plaintiff’s allegations, taken as true, support the reasonable inference that Defendants violated § 1514A. -17- 22-cv-386-MMA (DDL) Case 3:22-cv-00386-MMA-DDL Document 43 Filed 07/13/23 PageID.958 Page 18 of 25 1 True, Plaintiff does not specifically allege that she discovered inaccuracies or 2 misstatements in Axos Bank’s financial statements. However, it is plausible that Plaintiff 3 reasonably believed all of the issues infected Axos Bank’s financial statements and 4 resulted in Axos Bank’s financial statements being materially misleading and therefore 5 amounting to shareholder fraud. See, e.g., id. ¶¶ 34, 48, 60, 69, 75. Further, Plaintiff 6 pleads that Axos Bank made a material misstatement to investors during its 1Q2021 7 earnings call regarding the Loan to Value ratios of its loans. See id. ¶¶ 77. She also 8 alleges Axos Bank failed to report loan exceptions and a new credit product to investors. 9 See id. ¶ 69. The Court therefore cannot say that Plaintiff’s allegations are wholly 10 untethered to shareholder fraud. 11 To plausibly state a SOX whistleblower claim, Plaintiff need not plead that Axos 12 Bank actually engaged in securities fraud. Rather, she need only plead that she held a 13 subjectively and objectively reasonable belief that the conduct she complained of 14 amounted to such a violation. It is plausible that Plaintiff, a compliance, governance, 15 and/or risk management officer, held a reasonable belief that these issues, in isolation or 16 in totality, infected the accuracy of Axos Bank’s reporting. And specifically in terms of 17 Plaintiff’s reasonable belief in intent to defraud, the Second Amended Complaint is rife 18 with allegations that various persons at Axos Bank undertook efforts to silence Plaintiff 19 or otherwise cover up her concerns, and Plaintiff alleges insider dealing, see id. ¶ 61. 20 Accordingly, accepting Plaintiff’s factual allegations as true, the Court finds 21 Plaintiff has plausibly pleaded she engaged in a protected activity. The Court therefore 22 DENIES Defendants’ motion to dismiss Plaintiff’s SOX § 1514A whistleblower 23 retaliation claim on this basis. 24 C. 25 Claim 3: California’s Equal Pay Act Plaintiff’s third cause of action is for violation of California’s Equal Pay Act 26 (“EPA”), Cal. Lab. Code § 1197.5, against Axos Bank and Axos Financial. The EPA 27 provides that “[a]n employer shall not pay any of its employees at wage rates less than 28 the rates paid to employees of the opposite sex for substantially similar work, when -18- 22-cv-386-MMA (DDL) Case 3:22-cv-00386-MMA-DDL Document 43 Filed 07/13/23 PageID.959 Page 19 of 25 1 viewed as a composite of skill, effort, and responsibility, and performed under similar 2 working conditions” unless certain exceptions apply. Cal. Lab. Code § 1197.5(a). The 3 Court previously dismissed Plaintiff’s EPA claim with leave to amend because she failed 4 to factually allege that she was paid lower wages than her male counterparts with similar 5 qualifications, seniority, and experience. See Doc. No. 30 at 20–21. 6 Plaintiff again alleges that that she “is a woman who was paid wages lower than 7 those paid to male employees of similar qualifications, seniority, and experience.” SAC 8 ¶ 140. She now alleges that her base salary was $88,000 per year, while a male 9 employee, Mr. Anthony Maniscalco, was paid nearly twice as much. Id. ¶ 142. Plaintiff 10 further contends that she and Mr. Maniscalco performed identical duties and held the 11 same job title: 12 13 14 15 16 17 18 19 20 21 Like Ms. Brinker, Mr. Maniscalco was responsible for reviewing the Bank’s loan portfolios to examine, measure, monitor and report weaknesses and deficiencies with the Banks lending and risk management standards and practices. Like Ms. Brinker, Mr. Maniscalco performed reviews of the Bank’s major lending portfolios and issued reports regarding credit risks in those portfolios and deficiencies in the Bank’s processes and practices. Indeed Mr. Maniscalco was tasked with conducting the 2020 Warehouse Lending supplemental report alongside Ms. Brinker. In other words, Mr. Maniscalco performed the exact same job duties under the exact same circumstances as Ms. Brinker. Despite the fact that the[y] performed the same work under the same circumstances, Mr. Maniscalco was paid nearly twice as much as Ms. Brinker. Their training, skills and qualifications were substantively similar, making the pay disparity between them unjustifiable. 22 23 Id. ¶¶ 141–42. 24 Plaintiff also alleges that Mr. Maniscalco admitted to her that he lacked computer 25 and technology skills and relied on other staff to supplement those job requirements for 26 him. See id. ¶ 93. 27 28 The Court finds that these allegations are sufficient to survive dismissal. In support of their motion, Defendants identify several considerations missing from -19- 22-cv-386-MMA (DDL) Case 3:22-cv-00386-MMA-DDL Document 43 Filed 07/13/23 PageID.960 Page 20 of 25 1 Plaintiff’s pleading, such as Plaintiff’s and Mr. Maniscalco’s job locations, qualifications, 2 and length of tenure. See Doc. No. 36-1. But it is not apparent that such a deficiency 3 warrants dismissal. Plaintiff provides sufficient factual detail comparing her and 4 Mr. Maniscalco’s skill, effort, responsibility, and working conditions to support her claim 5 that they perform substantially similar work. And while a single comparator may not be 6 enough to ultimately overcome summary judgment, or prove her claim at trial, see Hein 7 v. Or. Coll. of Educ., 718 F.2d 910, 918 (9th Cir. 1983) (noting on review of a summary 8 judgment order that the Ninth Circuit “look[s] critically upon the use of a single 9 comparator to make out a prima facie case . . . [but that] use of a single comparator is not 10 clearly erroneous unless an appropriate comparator is wrongly excluded from comparison 11 with the plaintiff”), it is sufficient at this stage to plausibly support her claim that she was 12 paid less than males for substantially similar work, see Allen v. Staples, Inc., 299 Cal. 13 Rptr. 3d 779, 784 (Cal. Ct. App. 2022) (noting that an EPA plaintiff “may establish a 14 prima facie case by showing that she was paid less in salary than a single male 15 comparator”). Accordingly, the Court DENIES Defendants’ motion on this basis. 16 D. 17 Claims 4 – 6: Fair Employment and Housing Act Plaintiff’s fourth, fifth, and sixth causes are pursuant to California’s Fair 18 Employment and Housing Act (“FEHA”), Cal. Gov’t Code § 12940, et seq., for gender 19 discrimination, harassment, and retaliation, respectively. In order to pursue FEHA claims 20 in federal court, a plaintiff must first exhaust his or her administrative remedies. 21 Rodriguez v. Airborne Express, 265 F.3d 890, 896 (9th Cir. 2001). “It is the plaintiff’s 22 burden to plead and prove timely exhaustion of administrative remedies.” Ayala v. Frito 23 Lay, Inc., 263 F. Supp. 3d 891, 902 (E.D. Cal. 2017); see also Kim v. Konad USA 24 Distribution, Inc., 226 Cal. App. 4th 1336, 1345, 172 Cal. Rptr. 3d 686 (2014) (citing 25 Garcia v. Los Banos Unified School Dist., 418 F. Supp. 2d 1194, 1215 (E.D. Cal. 2006)). 26 Because Plaintiff previously failed to plead timely exhaustion, the Court dismissed her 27 FEHA claims with leave to amend. See Doc. No. 30 at 22. Plaintiff now pleads that she 28 exhausted her administrative remedies. See SAC ¶ 10. Namely, she contends that she -20- 22-cv-386-MMA (DDL) Case 3:22-cv-00386-MMA-DDL Document 43 Filed 07/13/23 PageID.961 Page 21 of 25 1 filed a complaint with the Department of Fair Employment and Housing (“DFEH”) 2 against Defendants and obtained a right-to-sue letter. See id. 3 Plaintiff’s DFEH complaint and right-to-sue letter, see Defs. Ex. A, are 4 problematic for several reasons. First, as Defendants point out, Plaintiff initiated this 5 action on March 21, 2022, but did not obtain her right-to-sue letter until over six months 6 later, on October 4, 2022. Plaintiff in opposition argues that because she obtained her 7 right-to-sue letter before she filed the Second Amended Complaint on January 17, 2023, 8 she has satisfied the exhaustion requirement; Plaintiff believes that her amendment cured 9 any previous untimely exhaustion. 10 The Ninth Circuit has not spoken on this issue. It has, however, along with other 11 circuits, suggested that a premature suit can be cured by a subsequent receipt of a right to 12 sue letter—but at a minimum, only where the requirement is not jurisdictional, such as is 13 the case with Title VII. See Edwards v. Occidental Chem. Corp., 892 F.2d 1442, 1445 14 n.1 (9th Cir. 1990); see also Whitmore v. O’Connor Mgmt., 156 F.3d 796, 800 (8th Cir. 15 1998) (citing Perkins v. Silverstein, 939 F.2d 463, 471–72 (7th Cir. 1991)). The only 16 district court in this circuit to deal precisely with this issue at the dismissal stage held that 17 a plaintiff could cure a premature FEHA claim by obtaining a right to sue letter after 18 filing suit. See Greenly v. Sara Lee Corp., No. CIV. S-06-1775 WBS EFB, 2006 U.S. 19 Dist. LEXIS 90868, at *25 (E.D. Cal. Dec. 13, 2006). But in coming to this conclusion, 20 the Greenly court seems to have relied on the incorrect legal principle that FEHA 21 exhaustion is not a jurisdictional prerequisite. Id. at *26. It is well understood that unlike 22 the exhaustion requirement in the Title VII context, which is a claims processing rule, see 23 Fort Bend Cty. v. Davis, 139 S. Ct. 1843, 1851 (2019); see also Sommatino v. United 24 States, 255 F.3d 704, 708 (9th Cir. 2001) (citing Zipes v. Trans World Airlines, Inc., 455 25 U.S. 385, 393 (1982)), exhaustion of administrative remedies under California law, such 26 as FEHA, “is a jurisdictional prerequisite to resort to the court.” Johnson v. City of Loma 27 Linda, 99 Cal. Rptr. 2d 316, 322–23 (Cal. 2000) (quoting Abelleira v. Dist. Court of 28 Appeal, 17 Cal. 2d 280, 293 (Cal. 1941) (internal quotation marks omitted). As such, -21- 22-cv-386-MMA (DDL) Case 3:22-cv-00386-MMA-DDL Document 43 Filed 07/13/23 PageID.962 Page 22 of 25 1 while courts may look to decisions interpreting Title VII for assistance with construing 2 the substantively analogous provisions of FEHA, see Rodriguez v. Airborne Express, 265 3 F.3d 890, 896 (9th Cir. 2001); Kohler v. Inter-Tel Techs., 244 F.3d 1167, 1173 (9th Cir. 4 2001); see also State Dept. of Health Services v. Superior Court, 6 Cal. Rptr. 3d 441, 449 5 (Cal. 2003) (explaining that the California Supreme Court has stated that “[o]nly when 6 FEHA provisions are similar to those in Title VII do we look to the federal courts’ 7 interpretation of Title VII as an aid in construing the FEHA” and noting that “explicit 8 differences between federal law and the FEHA diminish the weight of the federal 9 precedents”) (internal quotation marks and citations omitted), the Court will not rely on 10 Title VII’s exhaustion principles in examining whether Plaintiff has timely exhausted her 11 FEHA claims. 12 At least one district court has concluded that obtaining a right to sue letter after 13 filing suit does not save a plaintiff’s FEHA claims. See Ramirez-Castellanos v. Nugget 14 Mkt., Inc., No. 2:17-cv-01025-JAM-AC, 2020 U.S. Dist. LEXIS 93521, at *11-12 (E.D. 15 Cal. May 27, 2020) (granting summary judgment for the defendant on the plaintiffs’ 16 FEHA claims where they initiated the action on May 16, 2017 and did not obtain a right 17 to sue letter from the DFEH until April 2018). Because the Ramirez-Castellanos case 18 properly recognizes that FEHA exhaustion is a jurisdiction requirement, see id. at * 11, 19 the Court finds it instructive. However, given that the issue in Ramirez-Castellanos was 20 resolved at the summary judgment stage, and that the jurisdictional requirement does not 21 implicate the Court’s subject matter jurisdiction, Rodriguez v. Airborne Express, 265 22 F.3d 890, 900 (9th Cir. 2001), it is not entirely clear whether the Court can resolve this 23 issue at the motion to dismiss stage. 24 Plaintiff nonetheless argues that the Court’s granting of leave to amend implicitly 25 endorsed her position that her prior failure to obtain a right-to-sue letter could be saved 26 by subsequent amendment. Setting aside the fact that the Court made no such 27 representation, Plaintiff fails to recognize that the defect was her failure to plead timely 28 exhaustion of her administrative remedies. To that end, Plaintiff again fails to plead that -22- 22-cv-386-MMA (DDL) Case 3:22-cv-00386-MMA-DDL Document 43 Filed 07/13/23 PageID.963 Page 23 of 25 1 she timely exhausted her administrative remedies and for that reason, her claims are 2 subject to dismissal. 3 Additionally, it is apparent that Plaintiff did not timely exhaust her administrative 4 remedies and therefore cannot plead timely exhaustion. Based upon the allegations in the 5 Second Amended Complaint, the last alleged adverse action occurred when Plaintiff was 6 terminated on January 5, 2021. 5 Therefore, Plaintiff had until January 5, 2022 to file her 7 DFEH complaint. See Cal. Gov’t Code § 12960(d) (providing that a complaint with the 8 DFEH must be filed within “one year from the date upon which the alleged unlawful 9 practice . . . occurred”). Plaintiff did not file her DFEH complaint until nine months 10 later, on October 4, 2022. Defs. Ex. A. Therefore, Plaintiff did not timely exhaust her 11 administrative remedies. 12 Because Plaintiff fails to plead timely exhaustion and it is apparent that she cannot 13 cure this defect, the Court DISMISSES Plaintiff’s FEHA claims without leave to amend. 14 E. 15 Claim 8: Unlawful Business Practices By way of her eighth cause of action, Plaintiff pleads a violation of the unlawful 16 prong 6 of California’s Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code 17 § 17200 et seq. against Defendants Axos Bank and Axos Financial. The unlawful prong 18 “is essentially an incorporation-by-reference provision.” Obesity Research Inst., LLC v. 19 Fiber Research Int’l, LLC, 165 F. Supp. 3d 937, 952 (S.D. Cal. 2016). Under the 20 unlawful prong, the UCL “borrows violations of other laws and treats them as unlawful 21 22 23 24 25 26 27 28 5 In Plaintiff’s DFEH complaint, she seemingly identifies October 4, 2022, as the date of her complained adverse actions. See Defs. Ex. A. Interestingly, this is also the same date she submitted her DFEH complaint. See id. Plaintiff was terminated on January 5, 2021, and therefore Defendants presumably could not have taken any adverse employment action against her after that date. Regardless, the SAC only identifies adverse actions up through Plaintiff’s termination date. Accordingly, Plaintiff’s reference to October 4, 2022 in her DFEH complaint does not cure her untimely exhaustion prior to initiating this action. 6 While Defendants also argue that Plaintiff fails to plead the unfair and fraudulent prongs of the UCL, see Doc. No. 36-1 at 28, a review of Plaintiff’s Second Amended Complaint and her opposition reveal that she does not intend to pursue these theories of UCL liability. -23- 22-cv-386-MMA (DDL) Case 3:22-cv-00386-MMA-DDL Document 43 Filed 07/13/23 PageID.964 Page 24 of 25 1 practices that the unfair competition law makes independently actionable.” Cel-Tech 2 Commc’ns, Inc. v. L.A. Cellular Tel. Co., 83 Cal. Rptr. 2d 548, 561 (Cal. 1999) (internal 3 quotations omitted). As such, “[w]hen a statutory claim fails, a derivative UCL claim 4 also fails.” Obesity Research Inst., LLC, 165 F. Supp. 3d at 953 (quoting Aleksick v. 7- 5 Eleven, Inc., 140 Cal. Rptr. 3d 796, 801 (Cal. Ct. App. 2012)). 6 Defendants argue that Plaintiff has failed to plead the unlawful prong of the UCL 7 because it is wholly predicated on her EPA claim, which Defendants argue must be 8 dismissed. See Doc. No. 36-1 at 27–28. However, because the Court finds that Plaintiff 9 has stated a claim for violation of the EPA, her UCL claim survives dismissal. 10 Defendants also argue that Plaintiff fails to plead a remedy under the UCL because 11 the only monetary relief available under the UCL is restitution and that Plaintiff fails to 12 plead facts showing she has any ownership interest in lost money or property. Doc. 13 No. 36-1 at 28–29. Plaintiff asserts in opposition that she is legally entitled to be paid, 14 and therefore has an ownership interest in being paid, the same amount for her work as a 15 man in a comparable position. See Doc. No. 40 at 22. 16 Defendants are correct that the remedies for violation of the UCL are limited to 17 injunctive relief and restitution—a plaintiff may not recover monetary damages. See Cal. 18 Bus. & Prof. Code § 17203; see also In re Tobacco II Cases, 93 Cal. Rptr. 3d 559, 569 19 (Cal. 2009) (“A UCL action is equitable in nature; damages cannot be recovered. . . . We 20 have stated under the UCL, ‘[p]revailing plaintiffs are generally limited to injunctive 21 relief and restitution.”) (internal citations omitted); Cortez v. Purolator Air Filtration 22 Prods. Co., 96 Cal. Rptr. 2d 518, 525 (Cal. 2000); Martinez v. Ford Motor Co., No. 22- 23 cv-1082-MMA (BGS), 2023 U.S. Dist. LEXIS 67165, at *18 (S.D. Cal. Apr. 17, 2023). 24 Here, Plaintiff does not request injunctive relief, but she does seek restitution. See SAC 25 ¶ 180. 26 Whether recovery of the difference between Plaintiff’s wages and a comparable 27 man’s wages can be considered restitution—i.e., whether Plaintiff has an interest in the 28 unpaid amounts such that it can be considered her property, cf. Cortez, 96 Cal. Rptr. 2d at -24- 22-cv-386-MMA (DDL) Case 3:22-cv-00386-MMA-DDL Document 43 Filed 07/13/23 PageID.965 Page 25 of 25 1 528—is an issue best left for summary judgment. Accordingly, Court DENIES 2 Defendants’ motion to dismiss on this basis without prejudice to Defendants raising this 3 argument again at summary judgment. 4 5 V. CONCLUSION Based upon the foregoing, the Court GRANTS IN PART and DENIES IN PART 6 Defendants’ motion to dismiss. In particular, the Court DISMISSES all claims against 7 Axos Financial, Plaintiff’s SOX § 1514A whistleblower retaliation claim to the extent it 8 is premised upon a believed violation of SEC Rules 240.13a-14 and 240.13a-15, the 9 FCPA, and SOX § 404, and Plaintiff’s FEHA claims. To the extent Plaintiff can cure the 10 defects identified above consistent with this Order and the law cited herein, dismissal is 11 with leave to amend. If Plaintiff wishes to file a Third Amended Complaint, she must do 12 so on or before August 3, 2023. 13 14 IT IS SO ORDERED. Dated: July 13, 2023 15 _____________________________ 16 HON. MICHAEL M. ANELLO United States District Judge 17 18 19 20 21 22 23 24 25 26 27 28 -25- 22-cv-386-MMA (DDL)

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