-WVG Taylor et al v. Waddell & Reed Inc et al, No. 3:2009cv02909 - Document 48 (S.D. Cal. 2010)
Court Description: ORDER denying 25 Motion to Dismiss, and, alternatively, Motion to Strike. Signed by Judge Dana M. Sabraw on 8/12/10. (All non-registered users served via U.S. Mail Service)(lao)
Download PDF
<![CDATA[
-WVG Taylor et al v. Waddell & Reed Inc et al Doc. 48 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 MICHAEL TAYLOR, et al., CASE NO. 09CV2909 DMS (WVG) 12 Plaintiffs, 13 ORDER DENYING WADDELL & REED INC.’S MOTION TO DISMISS, AND, ALTERNATIVELY, MOTION TO STRIKE vs. 14 15 [Doc. 25.] WADDELL & REED INC., et al., 16 Defendants. 17 18 Pending before the Court is Defendant Waddell & Reed, Inc.’s (“W&R Inc.”) motion to 19 dismiss Plaintiffs’ First Amended Complaint (“FAC”) for failure to state a claim under Federal Rule 20 of Civil Procedure 12(b)(6), and alternatively, to strike certain allegations pursuant to Rule 12(f). The 21 matter came on for hearing on July 23, 2010. Michael Grace, Graham Hollis, Diane Richard, and 22 Thomas Rutledge appeared on behalf of Plaintiffs. Orrin Harrison, Raymond Bertrand, and Gregory 23 Knopp appeared on behalf of Defendants. For the reasons set forth below, W&R Inc.’s motion is 24 denied. 25 /// 26 /// 27 /// 28 /// -1- 09cv2909 Dockets.Justia.com 1 I. 2 BACKGROUND 3 This matter is a proposed wage and hour class action brought by former Waddell & Reed 4 (“W&R”) financial advisors (“Advisors”).1 (FAC ¶ 1.) Plaintiffs allege they were classified as 5 independent contractors, when, in fact, they were employees. (Id. at ¶¶ 3, 5.) 6 W&R is in the business of selling financial products, which are distributed through a sales 7 force of Advisors. (Id. at ¶ 2.) When Advisors begin working for W&R, they are required to sign a 8 “Professional Career Agreement” (“PCA”). (Id. at ¶ 37.) This agreement provides the basic terms 9 governing the association with W&R Inc. and Waddell & Reed Affiliates (“W&R Affiliates”). (Id.) 10 Advisors were classified as independent contractors and were paid on a commission basis. (Id. at ¶ 11 34, 114.) Advisors did not receive a salary or hourly wage and were not paid overtime. (Id. at ¶¶ 114, 12 117-118.) 13 According to Plaintiffs, Advisors should have been classified as employees because, among 14 other things, Advisors could sell only under the name of W&R and could only sell securities 15 authorized by W&R. (Id. at ¶¶ 40-41.) Advisors were assigned clients by W&R and had to surrender 16 all client files, client lists and client data to W&R upon termination of the working relationship. (Id. 17 at ¶ 49.) Advisors were required to work a specified number of hours and generally adhere to a 18 schedule proposed by W&R. (Id. at ¶ 57.) Advisors were encouraged to work at W&R’s offices and 19 had to explain any activities conducted outside the office. (Id. at ¶¶ 60-61.) Advisors were required 20 to attend meetings or face disciplinary action, and were subject to periodic performance reviews by 21 Defendants. (Id. at ¶¶ 68-69.) 22 Plaintiffs filed suit on December 28, 2009, alleging nine claims for violations of the Fair Labor 23 Standards Act (“FLSA”), 29 U.S.C. §§ 206-207, the California Labor Code, and California’s Unfair 24 Competition Law (“UCL”), Cal. Bus. & Prof. Code § 17200, et. seq. On April 28, 2010, Plaintiffs 25 filed the FAC. W&R Inc. filed a motion to dismiss Plaintiffs’ complaint on April 30, 2010, which the 26 Court construed as a motion to dismiss the FAC. (Doc. 26.) Plaintiffs filed an opposition and 27 28 1 Plaintiffs use “Advisors” to refer to persons holding positions such as “Advisor,” “Financial Sales,” “Senior Financial Advisor,” “Representative” and “Financial Advisor.” (FAC ¶ 1.) -2- 09cv2909 1 Defendant filed a reply. (Docs. 33 & 40.) Additionally, on July 16, 2010, the Court received an 2 amicus brief from Financial Services Institute, Inc. regarding issues raised in Defendant’s motion. 3 (Doc. 42.) 4 II. 5 DISCUSSION 6 W&R is a registered broker-dealer in the financial services industry, a highly regulated field. 7 W&R is a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”) and is subject 8 FINRA, SEC and California insurance regulations. Defendant argues that Plaintiffs’ allegations of 9 employment indicia are requirements imposed by law, and are therefore irrelevant to the determination 10 of Plaintiffs’ employment classification. Defendant argues that when allegations regarding legally 11 mandated conduct are stripped away, Plaintiffs fail to state a claim under the FLSA or California law. 12 A. Legal Standard 13 In two recent opinions, the Supreme Court established a more stringent standard of review for 14 12(b)(6) motions. See Ashcroft v. Iqbal, ___ U.S. ___, 129 S.Ct. 1937 (2009); Bell Atlantic Corp. v. 15 Twombly, 550 U.S. 544 (2007). To survive a motion to dismiss under this new standard, “a complaint 16 must contain sufficient factual matter, accepted as true, to ‘state a claim for relief that is plausible on 17 its face.’” Iqbal, 129 S.Ct. at 1949 (citing Twombly, 550 U.S. at 570). “A claim has facial plausibility 18 when the plaintiff pleads factual content that allows the court to draw the reasonable inference that 19 the defendant is liable for the misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556). 20 “Determining whether a complaint states a plausible claim for relief will ... be a context-specific task 21 that requires the reviewing court to draw on its judicial experience and common sense.” Id. at 1950 22 (citing Iqbal v. Hasty, 490 F.3d 143, 157-58 (2d Cir. 2007)). The reviewing court must therefore 23 “identify the allegations in the complaint that are not entitled to the assumption of truth” and evaluate 24 “the factual allegations in [the] complaint to determine if they plausibly suggest an entitlement to 25 relief.” Id. at 1951. 26 /// 27 /// 28 /// -3- 09cv2909 1 B. Analysis 2 Wage and hour laws apply to employees, not independent contractors. Under the FLSA, an 3 employee is defined as “any individual employed by an employer.” 29. U.S.C. § 203(e)(1). In 4 determining whether an individual is an employee or an independent contractor, courts apply an 5 “economic realities” test. Hale v. Arizona, 993 F.2d 1387, 1393 (9th Cir. 1993); Real v. Driscoll 6 Strawberry Associates, Inc., 603 F.2d 748, 754 (9th Cir. 1979). The test examines a number of 7 factors, such as: 1) the degree of the alleged employer’s right to control the manner in which the work 8 is to be performed; 2) the alleged employee’s opportunity for profit or loss depending upon his 9 managerial skill; 3) the alleged employee’s investment in equipment or materials required for his task, 10 or his employment of helpers; 4) whether the service rendered requires a special skill; 5) the degree 11 of permanence of the working relationship; and 6) whether the service rendered is an integral part of 12 the alleged employer's business. Real, 603 F.3d at 754. No one factor is dispositive; rather, courts 13 evaluate the totality of circumstances in making a determination. Id. 14 California law is similar. The test for an employment relationship relies principally on whether 15 the alleged employer “has the right to control the manner and means by which the worker 16 accomplishes the work.” Estrada v. FedEx Ground Package System, Inc., 154 Cal. App. 4th 1, 10 17 (2007). Other factors also are considered, such as: 1) whether the worker is engaged in a distinct 18 occupation or business, 2) whether, considering the kind of occupation and locality, the work is 19 usually done under the principal’s direction or by a specialist without supervision, 3) the skill 20 required, 4) whether the principal or worker supplies the instrumentalities, tools, and place of work, 21 5) the length of time for which the services are to be performed, 6) the method of payment, whether 22 by time or by job, 7) whether the work is part of the principal’s regular business, and 8) whether the 23 parties believe they are creating an employer-employee relationship. Id. The determination of 24 whether a person is an employee or an independent contractor is generally a question of fact. Id. 25 Defendants argue that the indicia of control mandated by state and federal regulations should 26 not be considered in determining whether Plaintiffs were employees. For example, Defendant argues 27 Plaintiffs’ allegation that “Defendants inform advisors that all incoming and outgoing messages are 28 the company’s records and are subject to monitoring by Defendants” is not relevant to the question -4- 09cv2909 1 of control because FINRA requires each member to “develop written procedures . . . for the review 2 of incoming and outgoing written and electronic correspondence with the public.” NASD Rule 3 3010(d)(2). 4 The Court agrees with Defendant’s general contention, i.e., that compliance with legal 5 requirements is not indicative of control for purposes of establishing an employer-employee 6 relationship. The cases cited by Defendant, however, have used that general proposition in a narrow 7 and limited way. See Zhao v. Bebe Stores, Inc., 247 F. Supp. 2d 1154, 1160-1161 (C.D. Cal. 2003) 8 (clothing store’s use of a compliance monitor to ensure garment manufacturer’s compliance with labor 9 laws, as encouraged by the Department of Labor, was not considered when examining the existence 10 of a joint employer relationship); Matson v. 7455, Inc., 2000 WL 1132110 (D. Or. 2000) (rule imposed 11 by the defendants to ensure compliance with criminal statute was not reflective of the defendant’s 12 control over the plaintiff’s job performance). Here, however, the FINRA regulations are far more 13 general. For example, FINRA Rule 3010 requires each member to “establish and maintain a system 14 to supervise the activities of each registered representative, registered principal and other associated 15 person that is reasonably designed to achieve compliance with applicable securities laws and 16 regulations, and with applicable NASD Rules.” NASD Rule 3010(a). But FINRA does not specify 17 how such supervision must be carried out. 18 Plaintiffs allege that Advisors were assigned clients by W&R and had to surrender all client 19 files, client lists and client data to W&R upon termination of the working relationship. (FAC ¶ 49.) 20 Advisors were required to work a specified number of hours and generally adhere to a schedule 21 proposed by W&R. (Id. at ¶ 57.) Advisors were encouraged to work at W&R’s offices and had to 22 explain any activities conducted outside the office. (Id. at ¶¶ 60-61.) Advisors used telephones, 23 offices and fax machines provided by Defendant. (Id. at ¶ 55.) Advisors were required to attend 24 meetings or face disciplinary action, and were subject to periodic performance reviews by Defendants. 25 (Id. at ¶¶ 68-69.) Defendant set job performance and sales goals for the Advisors. (Id. at ¶ 64.) 26 Defendant established quotas concerning many aspects of Advisors’ jobs, such as the number of newly 27 scheduled appointments, appointments scheduled in advance, and daily appointments. (Id. at ¶¶ 65.) 28 These allegations indicate that Defendant’s actions may have gone beyond the general supervision -5- 09cv2909 1 required by FINRA and created an employer-employee relationship. Accordingly, Plaintiffs’ 2 allegations are sufficient to survive a Rule 12(b)(6) motion. 3 Alternatively, Defendant seeks to strike many of Plaintiff’s allegations as immaterial under 4 Rule 12(f). The allegations, however, are not immaterial, impertinent or scandalous. Defendant’s 5 motion to strike is therefore denied. 6 III. 7 CONCLUSION 8 9 10 11 For the reasons set forth above, Defendant’s motion to dismiss, and, alternatively, motion to strike is denied. IT IS SO ORDERED. DATED: August 12, 2010 12 13 14 HON. DANA M. SABRAW United States District Judge 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -6- 09cv2909
]]>
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You
should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google
Privacy Policy and
Terms of Service apply.
