Nicholas Labs., LLC v. Chen, 199 Cal. App. 4th 1240 (2011)

Nicholas Labs sued its former employee, Christopher Chen, for breach of contract, conversion, negligence, money had and received, unjust enrichment, etc., after discovering that, while employed by Nicholas Labs, Chen had engaged in a business that made him a competitor of Nicholas Labs and that Chen had diverted business opportunities away from Nicholas Labs, stolen personal property of the company and misused company credit cards. Chen responded with a cross-complaint in which he claimed he had incurred and would continue to incur damages, including attorney’s fees and costs, in defending himself against Nicholas Labs’ claims. Chen invoked the indemnity provisions of Cal. Labor Code § 2802 and Cal. Corp. Code § 317 as the basis for his cross-complaint. On the eve of trial, the parties filed a stipulation in which Nicholas Labs dismissed its complaint without prejudice and Chen submitted his cross-complaint (in which he sought $90,000 in attorney’s fees) to be determined by the trial court exclusive of a jury and without the presentation of live testimony. The trial court rejected Chen’s claim for indemnity, holding that Section 2802 is applicable to third-party claims against an employee and not claims by an employer against its own employee. The Court of Appeal affirmed and further held that Chen was not entitled to indemnity under the Corporations Code because Nicholas Labs is an LLC and not a corporation. See also CDF Firefighters v. Maldonado, 200 Cal.App.4th 158 (2011) (union member was entitled to recover his attorney’s fees as prevailing party in breach of contract action prosecuted against him by union).