Fushan Li v. Department of Industrial Relations, Division of Labor Standard Enforcement

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.”

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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

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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”].)

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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.”

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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).

The judgment is affirmed. The Department is to recover its costs on appeal.