Judge: Donald F. Gaffney, Case: "Nation Motor Club, LLC v. Alberto’s Towing, LLC", Date: 2023-05-24 Tentative Ruling

TENTATIVE RULING: 

For the reasons set forth below, Cross-Defendant/Plaintiff Nation Motor Club, LLC’s Motion for Judgment on the Pleadings is GRANTED, with leave to amend, as to the Cross-Complaint’s first cause of action for Breach of Contract and the fifth cause of action for Breach of the Implied Covenant of Good Faith and Fair Dealing. The Motion is DENIED as to the third cause of action for Common Counts.

The Court finds Nation Motor Club complied with its meet-and-confer obligation prior to filing the Motion. (Code Civ. Proc., § 439.)

First Cause of Action – Breach of Contract

It is well-established that “the elements of a cause of action for breach of contract are (1) the existence of the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) the resulting damages to the plaintiff. [Citation.]” (Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 821; Professional Collection Consultants v. Lauron (2017) 8 Cal.App.5th 958, 968.)

“‘A written contract may be pleaded either by its terms—set out verbatim in the complaint or a copy of the contract attached to the complaint and incorporated therein by reference—or by its legal effect. [Citation.] In order to plead a contract by its legal effect, plaintiff must “allege the substance of its relevant terms. This is more difficult, for it requires a careful analysis of the instrument, comprehensiveness in statement, and avoidance of legal conclusions.” [Citation.]’ [Citation.]” (Heritage Pacific Financial, LLC v. Monroy (2013) 215 Cal.App.4th 972, 993; accord, Maxwell v. Dolezal (2014) 231 Cal.App.4th 93, 98; see Construction Protective Services, Inc. v. TIG Specialty Ins. Co. (2002) 29 Cal.4th 189, 198-199 [“In an action based on a written contract, a plaintiff may plead the legal effect of the contract rather than its precise language”].)

While the Cross-Complaint references a service provider agreement (Cross-Complaint, ¶ 10), absent from the Cross-Complaint are any facts regarding the terms or the legal effect of the contract. The Court recognizes the Cross-Complaint incorporates the allegations of Nation Motor Club’s First Amended Complaint, which includes limited allegations regarding the terms of the subject contract. However, Nation Motor Club Plaintiff dismissed its First Amended Complaint, such that Defendants cannot rely on it to fill in the gaps caused by the absence of facts in the Cross-Complaint.

Of note, it is disingenuous for Plaintiff to feign ignorance about the terms of the contract, considering the contract was the basis for Plaintiff’s own complaint, as well as its pending motion for summary judgment, which attached the subject contract as an exhibit. (See CytoDyn of New Mexico, Inc. v. Amerimmune Pharmaceuticals, Inc. (2008) 160 Cal.App.4th 288, 299, fn. 9 [allegations in complaint constitute judicial admissions]; but see Barno v. Ryan (S.D. Cal., July 9, 2008, No. CIV.07CV1373JMWMC) 2008 WL 2704976, at *1 [withdrawn pleading ceases to be a conclusive judicial admission].)

The deficiencies with the first cause of action are easily remedied. Thus, the Motion is granted as to the first cause of action for breach of contract, with leave to amend.

Third Cause of Action – Common Counts

Nation Motor Club argues the third cause of action is duplicative of the first cause of action, as it is based on the same purported facts as the first cause of action, and it seeks the same remedy. Not so, as “[c]ommon counts is an alternate theory of recovery based on a contract that is either ‘implied in fact’ or ‘implied in law.’ [Citations].)” (Katsura v. City of San Buenaventura (2007) 155 Cal.App.4th 104, 109.)

In their Cross-Complaint, Defendants allege Nation Motor Club became indebted to them pursuant to a written open book account, or account stated, in the sum of at least $33,945.90, and for services Defendants provided to Nation Motor Club. This is sufficient to allege a common count claim based on a written open book account or account stated.

In its Motion and Reply, Nation Motor Club cites to McBride v. Boughton (2004) 123 Cal.App.4th 379 for the proposition that, since the common count is being used as an alternative way of seeking the same recovery demanded in a specific cause of action, the common count must stand or fall with the first cause of action. (Motion 8:11-8:13; Reply, 3:25-4:2.) The complaint at issue in McBride included two causes of action, one for unjust enrichment, and a second for common count. (McBride, supra, 123 Cal.App.4th at p. 384.) However, a cause of action for unjust enrichment is the equitable remedy of restitution for quasi-contracts, which are contracts that are implied by law. (Id. at p. 388, fn. 6.)

In other words, both causes of action in McBride dealt with recovery for an implied-in-law contract, rather than an express contract, which is what Defendant’s first cause of action seeks. (See McBride, supra, 123 Cal.App.4th at p. 388 [recognizing the difference between a breach of an express contract and a common count that seeks quasi-contractual restitution in lieu of tort damages]; see Jade Fashion & Co., Inc. v. Harkham Industries, Inc. (2014) 229 Cal.App.4th 635, 655 [plaintiff pled three common count claims as alternatives to its breach of contract claims, and there was no prejudicial error in granting summary judgment on the common count claims because plaintiff was entitled to judgment as a matter of law on the breach of contract claims and no additional damages were awarded on the common count claims]; see Oliver v. Campbell (1954) 43 Cal.2d 298, 305-306 [plaintiff may plead a common count where plaintiff partly performed but has been prevented from full performance due to defendant’s repudiation of the contract, and the plaintiff need not plead the contract or its repudiation and rescission of it.)

For example, Defendants allege, based on the “course of dealing within the industry, each contracting tow truck company was allowed at least one instance per year to submit invoices that were more than ninety (90) days old….” (Cross-Complaint, ¶ 11.) This supports a finding that, in addition to an express contract claim, Defendants have a clam based on an implied contract that relies on the parties’ course of dealing.

Further, even assuming no contract existed between the parties, reading the Cross-Complaint as a whole, and all its parts in context, Defendants allege they were already owed $33,945.90 for towing and storage services they provided.

The Court denies the Motion as to the third cause of action for common counts.

Fifth Cause of Action – Breach of the Implied Covenant of Good Faith and Fair Dealing

Nation Motor Club again argues the fifth cause of action fails because it is based on the same conclusory allegations as the first cause of action for breach of contract.

“‘“The [implied] covenant of good faith and fair dealing [is] implied by law in every contract.”’ [Citation.] The covenant is read into contracts and functions ‘“as a supplement to the express contractual covenants, to prevent a contracting party from engaging in conduct which (while not technically transgressing the express covenants) frustrates the other party's rights to the benefits of the contract.”’ [Citation.] The covenant also requires each party to do everything the contract presupposes the party will do to accomplish the agreement's purposes. [Citation.] A breach of the implied covenant of good faith is a breach of the contract [citation], and ‘breach of a specific provision of the contract is not ... necessary’ to a claim for breach of the implied covenant of good faith and fair dealing [citation.].” (Thrifty Payless, Inc. v. Americana at Brand, LLC (2013) 218 Cal.App.4th 1230, 1244.)

“[A]llegations which assert [a breach of the implied covenant of good faith and fair dealing] must show that the conduct of the defendant, whether or not it also constitutes a breach of a consensual contract term, demonstrates a failure or refusal to discharge contractual responsibilities, prompted not by an honest mistake, bad judgment or negligence but rather by a conscious and deliberate act, which unfairly frustrates the agreed common purposes and disappoints the reasonable expectations of the other party thereby depriving that party of the benefits of the agreement. Just what conduct will meet these criteria must be determined on a case by case basis and will depend on the contractual purposes and reasonably justified expectations of the parties.” (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1395; accord, Thrifty, supra, 218 Cal.App.4th at p. 1244 [explaining the covenant of good faith and fair dealing is intended to prevent one party from engaging in conduct that frustrates the other party’s rights to the benefits of the contract].)

“To prove breach of the implied covenant of good faith and fair dealing, plaintiff must show that defendants engaged in conduct which frustrated plaintiff's rights to the benefits of the parties’ agreement…. [Citation.]” (Ojjeh v. Brown (2019) 43 Cal.App.5th 1027, 1037.)

Absent from the Cross-Complaint are any allegations regarding the terms of the contract between Nation Motor Club and Defendants, and there are no allegations regarding the legal effect of the contract. Thus, the Court cannot determine what Defendants’ contractual rights were under the parties’ contract, and it cannot determine whether there are sufficient allegations that Nation Motor Club frustrated Defendants’ rights to the benefits of the contract.

In their Opposition, Defendants contend Nation Motor Club breached this implied covenant by filing a false police report in order to take possession of two vehicles that belonged to Cross-Complainant Avis Budget Car Rental, LLC. However, without sufficient allegations regarding the terms or legal effect of the contract, it cannot be ascertained whether Nation Motor Club was unjustified in getting the police involved to retrieve these two vehicles.

As with the first cause of action, this deficiency is easily resolved. Thus, the Court grants the Motion as to the Cross-Complaint’s fifth cause of action for breach of the implied covenant of good faith and fair dealing, with leave to amend.

Should Cross-Complainant desire to file an amended cross-complaint that addresses the issues in this ruling, Cross-Complainant shall file and serve the amended pleading within 30 days of service of the notice of ruling

Moving party is ordered to give notice.

TENTATIVE RULING: 

Motion to Compel Arbitration

Cross-Defendant Avis Budget Rental, LLC, (“Avis”) moves to compel arbitration of Cross-Complainant’s claims against it. For the following reasons, the motion is DENIED.

On 05/10/2023, this court continued the hearing on this motion and requested further briefing. In making this ruling, the court considers all materials filed by the parties, including the supplemental briefing and relevant supplemental evidence.

Relevant Facts

The Cross-Complaint initially pled two causes of action against Avis/Budget, for breach of contract and civil conspiracy to convert property.

In the Second Cause of Action for breach of contract, Cross-Complainants allege that:

Cross-Complainants are informed and believe and based thereon allege that at all times herein mentioned they were intended contractual or incidental third party beneficiaries of a contract that Cross-Defendants AVIS RENT A CAR SYSTEM LLC (“AVIS”) and ROES 7 TO 32, Inclusive held with Cross-Defendants NATION MOTOR CLUB and ROES 1 TO 27, Inclusive, in that AVIS and ROES 7 TO 32, Inclusive knew that ALBERTO’S TOWING was on NATION MOTOR CLUB’s tow rotation, had approved this, and knew that the money it was paying for its customers’ tows of AVIS vehicles, would (or was supposed to) be paid to ALBERTO’s TOWING, net of NATION MOTOR CLUB and ROES 1 TO 27, Inclusive’s tow broker fee. . . .

(Cross-Compl. ¶ 17.) The contract between Avis/Budget and Nation is the Outsourcing Master Services Agreement (the “MSA”). (Flaherty Decl. ¶ 2.) The Cross-Complaint alleges that Avis/Budget knew that money paid to tow its customers’ Avis/Budget vehicles would be paid to Cross-Complainants, except for any broker fee paid to Nation. (Cross-Compl. ¶ 17.) Cross-Complainants allege that “a substantial portion of the approximate $33,945.90 owed” to Cross-Complainants “came from towing and storage work done at the instance and request and benefit of [Avis/Budget]. (Id. at ¶ 18.)

The breach of contract claim was dismissed without prejudice on 05/05/2023.

The Fourth Cause of Action for civil conspiracy alleges Nation and Avis conspired to convert two vehicles in Cross-Complainant’s possession, subject to monetary liens. (Cross-Compl. ¶ 23.)

Avis/Budget maintains its corporate headquarters in New Jersey and operates services throughout the United States. (Williams Decl. ¶¶ 2-3, Ex. A.)

On or about 07/31/2019, Avis/Budget entered into the Master Servicing Agreement (the “MSA”) with Nation, a Florida-based company providing services to customers including vehicle rental companies such as Avis/Budget. (Flaherty Decl. at ¶ 3.) Avis/Budget “does not have record of an executed copy of the agreement,” but “a ‘final’ version of the agreement is included in Avis/Budget’s records.” (Flaherty Decl. ¶ 4.) The MSA includes a choice of law and arbitration provision. Paragraph 27.1.1 of the MSA provides: “This Agreement and the interpretation of this Agreement’s terms shall be governed by and construed in accordance with the laws of the State of New Jersey . . . .” Paragraph 27.26 provides:

Any dispute, controversy, claim, doubt and/or ambiguity arising out of or relating to this Agreement, or the breach thereof, other than those relating to undisputed payments due by ABCR, that cannot be settled by the Parties through such good faith negotiations shall be settled by arbitration administered by the American Arbitration Association under its Commercial Arbitration Rules, and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof . . . .

The provision also states that: “The arbitration shall take place in Delaware, U.S.A. at a venue to be mutually agreed upon by the Parties.” (Id.)

Choice of Law

The court finds California law applies here.

Avis contends that New Jersey law applies, pursuant to the relevant agreement’s choice of law provision. As such, Avis has the initial burden to show that New Jersey law materially differs from the law of California, and that New Jersey has an interest in having its law applied. (Washington Mutual Bank, FA v. Superior Court (2001) 24 Cal.4th 906, 919-920 [citing Hurtado v. Superior Court (1974) 11 Cal.3d 574, 580].) Avis does not contend there is a material difference in the laws of both states, arguing instead that both states’ laws compel the same result. (See Mot. at 6:8-22.)

There was no supplemental briefing on the issue of which state law applies, so the parties presumably do not dispute the court’s previously expressed tentative ruling on this issue.

Compelling Arbitration

The right to arbitration depends upon contract; a petition to compel arbitration is simply a suit in equity seeking specific performance of that contract. (Little v. Pullman (2013) 219 Cal.App.4th 558, 565.) The petitioner bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence, and a party opposing the petition bears the burden of proving by a preponderance of the evidence any fact necessary to its defense. (Id.) In these summary proceedings, the trial court sits as a trier of fact, weighing all the affidavits, declarations, and other documentary evidence, as well as oral testimony received at the court’s discretion, to reach a final determination. (Id.)

Here, it is undisputed that no arbitration agreement exists between Cross-Complainants and moving Cross-Defendant Avis. Avis argues that the arbitration agreement included in its Master Services Agreement (the “MSA”) with Cross-Defendant Nation Motor Club, LLC, (“Nation”) can be enforced against non-signatory Cross-Complainants. The MSA provides that “[a]ny dispute, controversy, claim, doubt and/or ambiguity arising out of or relating to this Agreement, or the breach thereof, other than those relating to undisputed payments due by [Avis], that cannot be settled by the Parties through such good faith negotiations shall be settled by arbitration administered by the American Arbitration Association under its Commercial Arbitration Rules . . . .”

Compelling Arbitration Against Third Parties

Under California law, an arbitration agreement can be enforced against certain nonsignatories under applicable principles of agency and contract law. (Suh v. Superior Court (2010) 181 Cal.App.4th 1504, 1513; see also Knight, et al., Cal. Prac. Guide: Alt. Disp. Res. (Rutter Group 2022) ¶ 5:267.) There are six theories by which a nonsignatory may compel or be bound to arbitrate: “ ‘(a) incorporation by reference; (b) assumption; (c) agency; (d) veil-piercing or alter ego; (e) estoppel; and (f) third-party beneficiary’ [citations].” (Suh v. Superior Court (2010) 181 Cal.App.4th 1504, 1513 [collecting cases of each theory].) These exceptions are based on a significant relationship between the nonsignatory and a signatory that makes it equitable to allow the nonsignatory to enforce the agreement against a signatory. (DMS Services, LLC v. Superior Court (2012) 205 Cal.App.4th 1346, 1353 [“These exceptions ... ‘generally are based on the existence of a relationship between the nonsignatory and the signatory, such as principal and agent or employer and employee, where a sufficient “identity of interest” exists between them’ ”]; NORCAL Mutual Ins. Co. v. Newton (2000) 84 Cal.App.4th 64, 76 [“The common thread of all the above cases is the existence of an agency or similar relationship between the nonsignatory and one of the parties to the arbitration agreement”].) 

Equitable Estoppel

Persons accepting direct benefits under the agreement containing the arbitration clause are estopped from refusing to comply with that clause. (Boucher v. Alliance Title Co., Inc. (2005) 127 Cal.App.4th 262, 269.) Civil Code Section 1589 provides that “[a] voluntary acceptance of the benefit of a transaction is equivalent to a consent to all the obligations arising from it, so far as the facts are known, or ought to be known, to the person accepting.” In NORCAL Mutual Insurance Co. v. Newton (2000) 84 Cal.App.4th 64, a medical malpractice insurer provided both the insured psychiatrist and his wife with a defense to a malpractice suit, subject to a reservation of rights. (Id., at pp. 67-68.) That was the sole benefit offered to respondents under the insurance policy. (See id., at p. 71.) The court held that the wife could be compelled to arbitrate subsequent claims against the insurer. (Id., at p. 84.) “The fundamental point is that respondent [wife] was not entitled to make use of the policy as long as it worked to her advantage, then attempt to avoid its application in defining the forum in which her dispute with [the insurer] should be resolved,” as “ ‘[h]e who takes the benefit must bear the burden.’” (NORCAL Mutual, supra, 84 Cal.App.4th at p. 84 [citing Civ. Code, § 3521].) 

In Madden v. Kaiser Foundation Hospitals (1976) 17 Cal.3d 699, the court held that a state employee could be compelled to arbitrate her claims against health care providers, under the contract entered between her employer and the health services plan. The court in Madden concluded that because the board of the state employees’ retirement system acted as a general agent for the state employees in negotiating the contract, the board also had the authority to agree to an arbitration provision that would bind state employees. (Id. at p. 709.) 

Cross-Complainants had initially pled two causes of action against Avis, for breach of contract and civil conspiracy to convert property. The breach of contract claim alleged that Cross-Complainants are intended third-party beneficiaries under a contract between Cross-Defendants Avis and Nation; Avis shows that alleged agreement to be the MSA. While this motion was pending, Cross-Complainants dismissed without prejudice the contract claim. The sole remaining cause of action against Avis is for civil conspiracy to convert property. That claim alleges that Nation and Avis conspired to convert two vehicles in Cross-Complainant’s possession, subject to monetary liens. (See Cross-Compl. ¶¶ 10, 23-31.)

Avis contends that Cross-Complainants’ allegation that they are “intended contractual or incidental third party beneficiaries” to the MSA constitutes a judicial admission, and that in any event, the civil conspiracy claim falls within the scope of the arbitration agreement.

Here, Cross-Defendant Avis does not show that equitable estoppel applies.

The allegation that Cross-Complainants are “third party beneficiaries” to the MSA is a legal conclusion, not a factual allegation, and thus cannot be considered a judicial admission. (See Thurman v. Bayshore Transit Mgmt., Inc. (2012) 203 Cal.App.4th 1112, 1155 [holding that admissions of fact in the pleadings constitute judicial admissions that can be deemed as true against the pleading party].) In any event, the allegation is made on information and belief without alleging the information that leads the plaintiff to believe the allegation to be true. (See Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149, 1158 [holding that on demurrer, “a pleading made on information and belief is insufficient if it merely asserts the facts so alleged without alleging such information that leads the plaintiff to believe that the allegations are true”].)

To the extent that Avis argues that Cross-Complainants’ remaining civil conspiracy claim supports the application of equitable estoppel because that claim falls within the scope of the arbitration agreement, the court does not find that argument to be persuasive. Showing that the claim “arises out of” the MSA is insufficient to show that Cross-Complainants accepted direct benefits under the MSA such that it would be inequitable for Cross-Complainants to disclaim any obligation to arbitrate. Unlike the plaintiffs in NORCAL Mutual Insurance Co. v. Newton or Madden v. Kaiser Foundation Hospitals, Cross-Complainants here did not directly benefit from the MSA. Cross-Complainants’ civil conspiracy claim is based on an alleged lien created pursuant to a separate Service Provider Agreement (“SPA”) with Nation. (See Cross-Compl. ¶¶ 10, 23.) Even if the court assumes that the MSA precipitated Nation’s entering into the separate SPA with Cross-Complainant Alberto’s Towing, any benefit received by Cross-Complainants from the MSA is merely incidental. (See Martinez v. Socoma Companies, Inc. (1974) 11 Cal.3d 394, 400 [holding that parties “who are only incidentally or remotely benefited by [an agreement]” cannot enforce it].)

Avis argues that the court must allow the arbitrator to decide whether the civil conspiracy claim is subject to arbitration.

Because Avis does not meet its initial burden to show the arbitration agreement can be enforced against Cross-Complainants, the issue of arbitrability is immaterial here.

Cross-Complainants to give notice.