False advertising claim preclusion from agency proceedings?

Noble v. Draper, --- Cal.Rptr.3d ----, 2008 WL 257233 (Cal.App. 3 Dist.)

In a case of “employment relationships gone awry,” plaintiffs were allegedly induced to come to the US from Mexico by defendants’ ads in Mexican newspapers soliciting chefs. Defendants allegedly promised them employment for a substantial period of time, inducing them to quit their jobs in Mexico and come to the US; they worked for defendants for a short time before defendants fired them (allegedly keeping their recipes and other useful knowledge) and failed to pay them.

Plaintiffs pursued wage claims in an administrative forum before the Labor Commissioner and two were awarded back wages, while the Commissioner ruled that one was not an employee. The court of appeals ruled that the former ruling didn’t preclude their fraud (intentional and negligent misrepresentation), false advertising, and unfair business practices claims. Though administrative proceedings can have preclusive effect, application of res judicata and collateral estoppel to those plaintiffs was inappropriate because the Labor Commissioner lacked jurisdiction over those claims. The administrative determination that there was no employment relationship as to the third plaintiff, however, could not be relitigated. That plaintiff argued that his fraud claims didn’t depend on his employment status, but the complaint’s allegations all turned on an allegation that he worked for defendants.