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Date: 08-20-2020
Case Style:
Fushan Li v. Department of Industrial Relations, Division of Labor Standard Enforcement
Case Number: B288104
Judge: Perluss, P.J.
Court: California Court of Appeals Second Appellate District, Division Seven on appeal from the Superior Court, County of Los Angeles
Plaintiff's Attorney: Ray Hsu and Minh Phan
Defendant's Attorney: Patricia Salazar
Description:
Labor Code section 1197.1, subdivision (c)(2),
1 authorizes
an employer to challenge by petition for writ of mandate in
superior court decisions of the Labor Commissioner concerning
underpayment of wages. Section 1197.1, subdivision (c)(3),
requires, “[a]s a condition to filing a petition for writ of mandate,
the petitioner seeking the writ shall first post a bond with the
Labor Commissioner equal to the total amount of any minimum
wages, contract wages, liquidated damages, and overtime
compensation that are due and owing” pursuant to the citation
being contested.2
Fushan Li’s petition for writ of mandate was dismissed by
the superior court after his request that the court waive the bond
requirement was denied and he failed to post a bond. On appeal
Li contends he was not properly subject to the bond requirement,
which was adopted after the citations he challenged were issued,
and, alternatively, the trial court abused its discretion in denying
his request for relief from the requirement once he had
demonstrated his indigency. We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
1. The Citations for Unpaid Wages
Li, the owner/operator of four massage parlors in
Lawndale, received three citations in January 2016 from the
Department of Industrial Relations, Division of Labor Standards
Enforcement (Department) for violations of California’s wageand-hour laws. At issue in this appeal is citation no. WA-102321,
1 Statutory references are to this code unless otherwise
stated.
2 The required bond amount does not include any penalties
assessed by the Labor Commissioner. (§ 1197.1, subd. (c).)
3
which assessed unpaid minimum wages, overtime compensation
and liquidated damages on behalf of four of Li’s employees, Shu
Mei Sun, Jing Zhang, Fengqiu Zhang and Wei Wang, during the
period January 28, 2013 to January 27, 2016, and a civil penalty
for the violation period January 28, 2015 to January 27, 2016.
Li contested all three citations. Following hearings on
September 19, 2016 and January 3, 2017, the hearing officer on
April 4, 2017 issued findings and an order affirming all three
citations, including a total of $198,576 in unpaid wages and
liquidated damages for citation no. WA-102321.
2. Li’s Petition for Writ of Mandate and Motion for Relief
from the Bond Requirement
On May 15, 2017 Li filed a petition for writ of mandate in
superior court, challenging the Labor Commissioner’s decision
affirming the assessments in citation no. WA-102321. Li
requested relief from section 1197.1’s bond requirement,
3
contending he was not subject to the retroactive application of the
requirement and, even if he were, the requirement should be
waived due to his indigency. Li supported his motion with a
declaration in which he asserted he had lost his business in
January 2016 due to the Department’s wage-and-hour-violation
stop order; he had only been able to find sporadic employment
after the loss of his business and borrowed money from his adult
children to support himself and his wife, who was also
unemployed; he was medically unable to work; he had obtained a
fee waiver for the pending litigation based on his indigency; and
he could not pay for a bond. Li attached to his declaration bank
3 Pursuant to section 1197.1, subdivision (c)(3), Li was
obligated to post a bond of $198,576 to contest citation
no. WA-102321.
4
account statements for the Li-Zhu Family Trust and a printout of
results of a blood test.
The Department opposed Li’s motion for waiver of the bond
requirement and submitted evidence that, approximately
one week after Li was cited for Labor Code violations at his
massage parlors, he and his wife transferred real property valued
in excess of $370,000 to their children, as trustees of the Li-Zhu
Family Trust. The children then quitclaimed the property back
to Li’s wife. The Department also provided evidence a massage
parlor was still operating at one of the four locations where Li
had conducted his business. The owner was one of Li’s
daughters.
The court denied Li’s motion, ruling he was subject to the
bond requirement and had failed to demonstrate he was indigent
and could not obtain a surety bond. However, the court invited Li
to file a renewed motion providing “detailed evidence that
petitioner has no income, no job, owns the house, whether the
house had been transferred to a trust, who the trust is held by,
why [the] property was transferred to a trust a week after the
citation was issued, who is paying the mortgage now and why
it[’]s in the employee[s’] interest that petitioner not post a bond.”
The court orally advised Li he should also provide evidence
establishing whether Li’s bank was aware of the property
transfer and whether Li could obtain a surety.
3. Li’s Renewed Motion for Relief from Bond Requirement
In support of his renewed motion for relief from the bond
requirement, Li submitted a new declaration in which he
provided additional bank statements; described unsuccessful
efforts to obtain personal or corporate surety bonds; explained
where his monthly income from the massage businesses had been
5
directed; asserted the real property had been placed into a living
trust when he and his wife were unable to make payments on the
secured loan on the house so that their children could make the
payments and receive the home when Li and his wife passed
away; stated he had transferred the business lease to his
daughter because the masseurs wanted to operate the business
but lacked sufficient credit to satisfy the landlord; and insisted
“[t]here will be no harm to my former employees if the bond is
waived, because four of them testified for me in January 2017
that they did not work overtime and only worked about 4-6 hours
a day and 5-6 days a week. All of them disclaim any penalty or
unpaid wage assessment assessed by the Labor Commissioner.”
Li also submitted declarations from three former
employees, Xiao Juan Li, Yukun Tian and Fengqiu Zhang,
4 who
stated they wanted to operate one of Li’s massage parlors but did
not have sufficient credit to assume the lease. They confirmed
Li’s explanation that his daughter had acquired the lease so they
could continue the business. Li’s daughter also provided a
declaration stating she had agreed to set up a corporation after
several of her father’s former employees approached her about
taking over the lease for the massage parlor.
The Department opposed Li’s renewed motion for waiver of
the bond requirement.
After a hearing on November 16, 2017 the trial court
denied Li’s renewed motion. In a written ruling the court
observed that Li’s account of the transfer of the home to the trust
was inconsistent with the date of the transfer and that he had
failed to adequately explain why the property was transferred,
4 Of the three former employees, only Fengqiu Zang’s unpaid
wages were at issue in citation no. WA-102321.
6
how the transfer was necessary to avoid foreclosure or how the
transfer assisted Li’s children in paying the loan on the house. Li
also provided no explanation why the children transferred the
house back to Li’s wife. Moreover, Li had again failed to provide
evidence the bank was aware of the transfer or had consented to
Li’s children making payments on the secured loan. The court
concluded the transfer appeared to have been designed to remove
his name from the property.
The court also found that Li was not indigent. The house,
held by Li’s wife, was worth between $359,994 and $397,283.
Deducting the loans Li claimed to have taken on the property,
there remained between $66,000 and $104,000 in equity in the
home. Because Li had a community property interest in the real
estate and his wife could be expected to post her share of equity
for a bond, Li was not indigent.
The court also found Li had not presented clear evidence of
his inability to obtain a corporate surety. The court explained,
“Li presents evidence that he asked one corporation to post a
bond on his behalf, sought a loan from two banks, and requested
a bond from one bond servicing corporation. [Citation.] Li
asserts that he could not obtain a bond from Bond Services, LLC.
Li claims that a civil surety requires a cash bond, but does not
explain why he could not obtain such a bond from Bond Services,
LLC. [Citation.] He states only that the fees for a non-cash
bond, which is available for a criminal bond, would be
unaffordable. [Citation.] Li does not provide any evidence as to
what dollar amount of the fees would be, whether such fees also
applied to a cash bond, and why Li was unable to afford the
monthly fees. Apparently, Li did not seek any other surety
insurers to see if other companies had lower fees.”
7
Finally, the court concluded Li had not presented evidence
that waiving a bond would be in the interests of his former
employees. Only one of the four former employees with whom the
citation was concerned, Fengqiu Zhang, had provided a
declaration in support of Li’s renewed motion. Although Zhang
stated he did not want any of the alleged unpaid wages or
penalties assessed by the Labor Commissioner, the court
explained Zhang could not speak for the other three affected
employees. As to them, Li did not provide any evidence that
waiving the bond requirement would be in their interest.
4. The Motion To Dismiss
After the court denied Li’s renewed motion and Li failed to
post a bond, the Department moved to dismiss Li’s petition for
writ of mandate. In opposition Li argued imposing the bond
requirement in connection with a petition for writ of mandate
challenging a citation issued before the provision’s effective date
constituted an improper retroactive application of the amended
statute. He also argued, because he had been determined to be
indigent for fee waivers, due process required he be excused from
posting the bond. Finally, Li asserted he should not be required
to post a bond in the full amount of the citation (excluding
penalties) because the amount assessed was incorrect.
The court granted the Department’s motion and dismissed
the action on December 12, 2017.
DISCUSSION
1. The Applicability of Section 1197.1, Subdivision (c)(3)
Assembly Bill No. 2899 (2015-2016 Reg. Sess.), signed by
the Governor on September 25, 2016, added subdivision (c)(3) to
section 1197.1, imposing a bond requirement for employers
petitioning the superior court for a writ of mandate overturning
8
the Labor Commissioner’s citations imposing assessments for
unpaid minimum wages and overtime compensation. As
explained by the Legislative Counsel, “This bill would require a
person seeking a writ of mandate contesting the Labor
Commissioner’s ruling to post a bond with the Labor
Commissioner, as specified, in an amount equal to the unpaid
wages assessed under the citation, excluding penalties. The bill
would require that the bond be issued in favor of the unpaid
employees, and ensure that the person seeking the writ makes
prescribed payments pursuant to the proceedings. The bill would
provide that the proceeds of the bond, sufficient to cover the
amount owed, would be forfeited to the employee if the employer
fails to pay the amounts owed within 10 days from the conclusion
of the proceedings, as specified.” (See Legis. Counsel’s Dig.,
Assem. Bill No. 2899 (2015-2016 Reg. Sess.), as amended May 4,
2016.)5
The new provision was effective January 1, 2017.
(Stats. 2016, ch. 622, § 1.) The citations against Li were issued,
5 The language in section 1197.1, subdivision (c)(3), requiring
the posting of a bond in the amount of the wages and liquidated
damages assessed by the Labor Commissioner as a condition to
filing a petition for writ of mandate to overturn a citation, was
intended by the Legislature to impose the same bond
requirement as exists in section 98.2 for appeals by employers of
adverse determinations of employee wage claims. (See Assem.
Com. on Labor and Employment, Rep. on Assem. Bill No. 2899
(2015-2016 Reg. Sess.), as amended April 13, 2016.) The parallel
language in section 98.2, subdivision (b), has been interpreted as
establishing an undertaking requirement that is “mandatory and
jurisdictional.” (Palagin v. Paniagua Construction, Inc. (2013)
222 Cal.App.4th 124, 140.)
9
and Li had contested those citations before the Labor
Commissioner, prior to the effective date of the amendment.
However, the Labor Commissioner’s findings and order
confirming the amount due were issued in April 2017, and Li
filed his petition for writ of mandate challenging the Labor
Commissioner’s decision in May 2017 after the effective date of
the amendment.
Because the underlying citation had been issued and the
review process with the Labor Commissioner began prior to the
January 1, 2017 effective date of section 1197.1,
subdivision (c)(3), Li argues, citing Californians for Disability
Rights v. Mervyn’s, LLC (2006) 39 Cal.4th 223 (Mervyn’s), that
conditioning his right to petition for writ of a mandate
challenging the citation on the posting of a bond would be an
impermissible retroactive application of the law. However, the
analysis and holding in Mervyn’s fully support application of
section 1197.1, subdivision (c)’s bond requirement in this case.
To be sure, as Li contends, “When a statute’s application to
a given case is challenged as impermissibly retroactive, we
typically begin our analysis by reiterating the presumption that
statutes operate prospectively absent a clear indication the voters
or the Legislature intended otherwise.” (Mervyn’s, supra,
39 Cal.4th at p. 230.) But to determine whether application of
the law actually is retroactive, courts must consider the impact of
the law on the affected parties’ rights and liabilities and ask
whether the law changes the legal consequences of past conduct.
(Id. at p. 231.)6 If the law does not substantially alter existing
6 As the Mervyn’s Court emphasized, “‘In deciding whether
the application of a law is prospective or retroactive, we look to
function, not form.’” (Mervyn’s, supra, 39 Cal.4th at pp. 230-231;
10
rights and obligations, application of a new law at a trial of
preenactment conduct is permitted; if it does substantially affect
existing rights and obligations, then the new law may not be
applied to a trial of preenactment conduct unless the Legislature
expressly intended for the law to be retroactive. (Ibid.)
Significantly, “a statute that establishes rules for the conduct of
pending litigation without changing the legal consequences of
past conduct ‘“‘is not made retroactive merely because it draws
upon facts existing prior to its enactment. . . . [Instead,] [t]he
effect of such statutes is actually prospective in nature since they
relate to the procedure to be followed in the future.’ [Citations.]
For this reason, we have said that ‘it is a misnomer to designate
[such statutes] as having retrospective effect.’”’” (Ibid.)
Here, although section 1197.1, subdivision (c)(3), now
requires employers to post a bond as a condition to filing a
petition for writ of mandate challenging the Labor
Commissioner’s citations, employers’ substantive, preenactment
obligations toward their employees under the Labor Code have
not changed. Li either owed his former employees $110,604 for
unpaid minimum wages and overtime compensation, as well as
$87,972 in liquidated damages and $8,100 in civil penalties, or he
did not. All that changed is the addition of the procedural
requirement that Li post a bond to secure payment of the
assessed amounts. Application of that requirement to a
proceeding that had not yet been initiated prior to the effective
date of section 1197.1, subdivision (c)(3), does not constitute a
retroactive application of the statute.
see also id. at p. 231 [“[w]e consider the effect of a law on a
party’s rights and liabilities, not whether a procedural or
substantive label best applies”].)
11
2. The Court Did Not Abuse Its Discretion in Denying Li’s
Request To Waive the Bond Requirement
Code of Civil Procedure section 995.240 authorizes the trial
court, in its discretion, to waive a provision for a bond if the court
determines the principal is indigent and is unable to obtain
sufficient sureties. In exercising its discretion the court “shall
take into consideration all factors it deems relevant, including
but not limited to the character of the action or proceeding, the
nature of the beneficiary, whether public or private, and the
potential harm to the beneficiary if the provision for the bond is
waived.” (Code Civ. Proc., § 995.240.)7
Focusing on the court’s discussion of potential harm to
beneficiaries if the bond requirement were waived, Li contends
the court’s evaluation of this factor was “impermissibly rigid and
untenable.” He also insists, in conclusory fashion, that failing to
waive the bond requirement resulted in a gross miscarriage of
justice.
In challenging the court’s exercise of discretion, however, Li
fails to demonstrate its finding he was not indigent was not
7 Code of Civil Procedure section 995.240 provides in full,
“The court may, in its discretion, waive a provision for a bond in
an action or proceeding and make such orders as may be
appropriate as if the bond were given, if the court determines
that the principal is unable to give the bond because the principal
is indigent and is unable to obtain sufficient sureties, whether
personal or admitted surety insurers. In exercising its discretion
the court shall take into consideration all factors it deems
relevant, including but not limited to the character of the action
or proceeding, the nature of the beneficiary, whether public or
private, and the potential harm to the beneficiary if the provision
for the bond is waived.”
12
supported by substantial evidence. (See Sanchez v. Kern
Emergency Medical Transportation Corp. (2017) 8 Cal.App.5th
146, 154 [“‘When applying the deferential abuse of
discretion standard, “the trial court’s findings of fact are reviewed
for substantial evidence, its conclusions of law are reviewed
de novo, and its application of the law to the facts is reversible
only if arbitrary and capricious.”’ [Citation.] ‘It is the appellant’s
burden on appeal to show the trial court abused its discretion’”].)
Despite multiple opportunities to establish indigency and
clear instructions from the trial court, Li never proffered the
evidence concerning ownership of his home that the court
requested so it could assess his financial condition. To the
contrary, the details Li did provide concerning the transfer of the
property to a trust of which his children were the trustees and
then back to his wife were inconsistent with the timeline of
events and failed to establish a logical explanation for the
transactions. The trial court’s finding the transfers appeared
designed to remove Li’s name from the title was a reasonable
inference from the evidence in the record. Similarly, the evidence
before the court supported its findings there existed significant
equity in the home, Li had a community property interest in the
home, and Li’s wife could be expected to post her share of the
equity for any bond. (See Cardinal Care Management, LLC v.
Afable (2020) 47 Cal.App.5th 1011, 1020 [“[i]t is no abuse of
discretion to deny relief from an undertaking where, as here, a
litigant made only a ‘weak and incomplete showing of
indigency’”].)
Indigency is an essential element of any decision to grant
relief from a bond requirement under Code of Civil Procedure
section 995.240. Absent proof of Li’s indigency, the trial court did
not abuse its discretion in denying his motion to waive the bond
required by Labor Code section 1197.1, subdivision (c)(3).
Outcome: The judgment is affirmed. The Department is to recover its costs on appeal.
Plaintiff's Experts:
Defendant's Experts:
Comments: