Judge Jon R. Takasugi, Case BC707386 2022-08-22 Tentative Ruling

Judge: Jon R. Takasugi, Case: BC707386, Date: 2022-08-22 Tentative Ruling

Case Number: BC707386 Hearing Date: August 22, 2022 Dept: 17

Superior Court of California

County of Los Angeles

DEPARTMENT 17

TENTATIVE RULING

AETNA, INC.

vs.

WHATLEY KALLAS, LLP, et al.

Case No.: BC707386

Hearing Date: August 22, 2022

Defendant’s demurrer is OVERRULED.

On 5/23/2018, Plaintiff Aetna, Inc (Plaintiff) filed this action. On 5/23/2018, Plaintiff filed a first amended complaint (FAC) against Whatley Kallas, LLP, Whatley Kallas, LLC, and Consumer Watchdog, alleging: (1) equitable indemnity; (2) contribution; and (3) declaratory relief.

On 3/1/2022, Whatley Kallas, LLP (Whatley) filed a Cross-Complaint (XC) for implied equitable indemnity against KCC Class Action Services, LLC (KCC), Kurtzman Carson Consultants (KCC), Computershare Communication Services, Inc. (CCS), and Gibson Dunn & Crutcher, Inc (Gibson).

Now, KCC and CSS demur (collectively, Defendants) to Whatley’s XC.

Legal Standard

A demurrer for sufficiency tests whether the complaint states a cause of action.¿ (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747 (Hahn).) ¿When considering demurrers, courts read the allegations liberally and in context.¿ (Taylor v. City of Los Angeles Dept. of Water and Power¿(2006) 144 Cal.App.4th 1216, 1228.)¿ In a demurrer proceeding, the defects must be apparent on the face of the pleading or via proper judicial notice.¿ (Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.)¿ “A demurrer tests the pleadings alone and not the evidence or other extrinsic matters.¿ Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed.”¿ (SKF Farms v. Superior Court (1984) 153 Cal.App.3d 902, 905.)¿ “The only issue involved in a demurrer hearing is whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action.”¿ (Hahn, supra, 147 Cal.App.4th at p. 747.)

Discussion

Defendants argue that Whatley’s claim for equitable indemnity is improper because: (1) the XC presents no justiciable controversy; (2) even if it did, the proper claim would be for declaratory judgment; (3) Whatley has not alleged sufficient facts to show fault or damages; and (4) Whatley’s claim is barred by underlying contracts.

In opposition, Whatley argues that: (1) there is a justiciable controversy because an equitable indemnity claim can be brought against a joint-tortfeasor even before the claim has accrued for statute of limitations purposes; (2) it has alleged that KCC and CCS are joint tort-feasors, and thus its claim for equitable indemnity is valid; (3) the XC sets forth clear allegations of Defendants’ alleged wrongdoing; and (4) neither the settlement agreement between KCC and Aetna nor KCC’s proposal bar Whatley’s claims.

The Court agrees with Whatley, and addresses each contention in turn.

As to the first point, Defendants argues that there is no actual controversy or damages yet because there has been no judgment or settlement against Whatley (yet). However, as noted by Whatley, there is a difference between “accru[al],” which is a concept related to statute of limitations, and the ability of an alleged tortfeasor to sue in a cross-complaint for equitable indemnity against another alleged joint tortfeasor. (See People ex rel. Dept. of Transp. v. Superior Court (1980) 26 Cal.3d 744, 759-60 (“a defendant is permitted under a third party procedure to bring a declaratory cross-complaint in the original tort action,” notwithstanding the “general rule that, for statute of limitations purposes, the defendant’s indemnity action does not accrue until he has suffered actual loss through payment”); Allen v. Southland Plumbing, Inc. (1988) 201 Cal.App.3d 60, 65 (“A defendant may properly bring a declaratory cross-complaint for indemnity in the original tort action even though for statute of limitations purposes, the defendant's indemnity action does not accrue until he has suffered actual loss through payment.”) Based on this authority, the Court is persuaded that Whatley is not required to wait until it has paid a judgment or settlement to allege a third-party claim for indemnity against a joint tortfeasor.

As to the second point, Defendants argue that the “proper mechanism” for Whatley’s XC is declaratory judgment. However, t]he remedy of declaratory relief is cumulative and does not restrict other remedies.” (Kirkwood v. Calif. State Auto. Assn. Inter-Ins. Bureau (2011) 193 Cal.App.4th 49, 59.) Courts have consistently permitted cross-complainants to allege claims for both equitable indemnity and declaratory relief in cross-complaint, and Whatley submitted an extensive body of case law in support of this. (See Motion, 8: 28- 9:13; See e.g. AmeriGas Propane, L.P. v. Landstar Ranger, Inc. (2010) 184 Cal.App.4th 981 (reversing summary judgment for cross-defendant and allowing cross-complaint including claims for both equitable indemnity and declaratory relief to proceed).

Moreover, the cases cited by Defendants in support do not indicate that equitable indemnity claims and declaratory relief can never be brought together. In Christian v. County of Los Angeles (1986) 176 Cal.App.3d 466, 471, the court stated, “Although a defendant may cross-complain for equitable indemnity against even a previously unnamed third party ..., that cross-complaint properly takes the form of an action for declaratory relief.” (Id. at p. 471 (citations omitted).) But the court did not hold that declaratory relief is the sole cause of action allowed. Rather, the thrust of that opinion was whether the plaintiff, as assignee of two other defendants with whom the plaintiff had settled, had a viable cross-claim against a third party defendant, where the settlement had involved no monetary payment. In Postley v. Harvey (1984) 153 Cal.App.3d 280, 285, the Court stated, “a cross-complaint for equitable indemnity properly takes the form, as adopted by the Postleys here, of an action for declaratory relief.” (Id. at p.285.) However, this does not amount to a ruling that separate counts of equitable indemnity and declaratory relief are barred as a matter of law. As such, Defendants have not set forth case law that indicates that equitable indemnity and declaratory relief cannot both be asserted, nor have Defendants set forth argument to show that the facts in either Christian or Postley are sufficiently analogous such that Whatley should only be able to bring a declaratory relief claim here.

As to the third point, Defendants argue that Whatley has failed to alleged sufficient facts to show fault by Defendants or damages to Whatley. However, as to fault, Whatley’s XC contains extensive allegations as to the alleged wrongdoing by Defendants. (See XC ¶¶ 4, 24, 31, 40-41.) Indeed, Whatley alleges that it was KCC who subcontracted the task of physically mailing the notice to its subsidiary CSS and then failed to oversee the formatting and distributing process used by CCS. CCS in turn improperly sent out notices in windowed envelopes resulting in improper disclosure of Aetna member’s HIV status to third-parties. As such, Whatley has clearly alleged sufficient facts to show fault by Defendants.

The Court is similarly unpersuaded that Whatley has not adequately alleged damages. Here, Whatley alleges that KCC and CCS were joint tortfeasors, along with Gibson and Aetna, in breaching their duty of care in connection with the mailing of the Change of Practice Notices. As set forth above, there is extensive California case law upholding the right to seek equitable indemnity through cross-complaints even if liability in the underlying action has yet to be determined. Indeed, the California Supreme Court has “praised the practical advantages of indemnity actions brought by way of a cross-complaint as permitting a complete determination of the dispute among all the parties by consolidating related evidence and matters of proof in a single judicial proceeding.” Postley, supra, 153 Cal.App.3d at 286 (citing Valley Circle Estates v. VTN Consolidated, Inc. (1983) 33 Cal.3d 614).) Accordingly, the fact that final damages have not been adjudicated in the underlying Complaint does not render Whatley’s allegations of damages here insufficient.

Fourth, and finally, Defendants argue that Whatley’s claim is barred by an underlying settlement agreement and proposal. As for the settlement agreement, as Whatley noted, it is not referenced in Whatley’s XC, and Defendants did not seek judicial notice of this document. As such, it is not properly considered here. However, even assuming the Court did consider the agreement, it was entered into by KCC and Aetna. As such, if KCC has a claim for indemnity against Aetna pursuant to the settlement agreement, it can still make that demand. However, Defendants have not cited authority for the proposition that a claim for equitable indemnity is moot as a matter of law on the grounds that the cross-defendant could, in turn, seek indemnity from another party that is not the party seeking indemnity against it. As for the Proposal, it is unsigned and the Court will not determine on demurrer whether or not this unsigned proposal is a binding agreement between KCC and Whatley which bars Whatley’s claims. (See Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 115 (“[A] court ruling on a demurrer cannot decide a question that may depend on disputed facts by means of judicial notice.”).

Based on the foregoing, Defendants’ demurrer is overruled.

It is so ordered.

Dated: August , 2022

Hon. Jon R. Takasugi
Judge of the Superior Court

Parties who intend to submit on this tentative must send an email to the court at smcdept17@lacourt.org by 4 p.m. the day prior as directed by the instructions provided on the court website at www.lacourt.org. If a party submits on the tentative, the party’s email must include the case number and must identify the party submitting on the tentative. If all parties to a motion submit, the court will adopt this tentative as the final order. If the department does not receive an email indicating the parties are submitting on the tentative and there are no appearances at the hearing, the motion may be placed off calendar.

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Superior Court of California

County of Los Angeles

DEPARTMENT 17

TENTATIVE RULING

AETNA, INC.

vs.

WHATLEY KALLAS, LLP, et al.

Case No.: BC707386

Hearing Date: August 22, 2022

Gibson Dunn’s demurrer to Whatley’s XC is OVERRULED.

Now, Gibson Dunn demurs to Whatley’s XC.

Legal Standard

Discussion

Gibson Dunn argues that Whatley’s claims against it fail because counsel cannot sue opposing counsel for equitable indemnity, Whatley has failed to state sufficient facts to assert a claim against it, and because the declaratory relief claim is duplicative of the equitable indemnity claim.

In opposition, Whatley argues that its claim does not raise issues of privilege or conflict of interest, and its claim for declaratory relief is well-pled.

The Court agrees with Whatley, and addresses each contention in turn.

As to the first point, Gibson Dunn argues that Whatley’s claim is barred because public policy bars an attorney-defendant from maintaining cross-claims for equitable indemnity against opposing counsel. Gibson Dunn contends that such suits create a potential conflict of interest for cross-defendant counsel that might detract from its representation of its client. However, this argument fails for a number of reasons.

First, as noted by Whatley, Aetna is not being represented by Gibson Dunn with respect to its claim in this case, and thus there is no potential chilling effect on the relationship between Aetna and its present counsel. Moreover, Whatley’s claim against Gibson Dunn seeks to hold Gibson Dunn liable for its non-litigation, non-communicative conduct in failing to properly oversee the activities of non-clients (KCC and CCS) in implementing the Settlement Agreement. Such claims do not raise any concerns of conflict of interest or the attorney-client privilege with Gibson Dunn's former client, as the claims do not relate in any manner to Gibson Dunn's communications with Aetna or any legal advice provided to Aetna during its former representation. (See Crouse v. Brobeck Phleger & Harrison (1998) 67 Cal.App.4th 1509, 1545-46 (allowing claim for equitable indemnity by the plaintiff's most recent attorney and law firm against a law firm that formerly represented the plaintiff and holding that a "former attorney is not subject to any conflict of interest and has no continuing privileged communications or work product to protect.").

Second, nearly all of the cases cited by Gibson Dunn in support involve a lawsuit against a lawyer or law firm by their own clients in which the defendant law firm sought indemnity against the clients’ successor counsel. (See Held v. Arant (1977) 67 Cal.App.3d 748, 750 (cited in Gibson Dunn's Demurrer at 6, 9-11,13-14) (court described the case as raising "the right of a lawyer sued for professional negligence to seek indemnity from another lawyer subsequently retained by the suing client in the same matter on the theory that the second lawyer's negligence enhanced rather than reduced the initial loss."); Lewis v. Purvin (1989) 208 Cal.App.3d 1208, 1215 (cited in Gibson Dunn's Demurrer at 6-7, 9-10, 12, 14-15) ("where an attorney sued for malpractice attempts to cross-complain against successor counsel for indemnity, important public policies preclude the application of these ordinary principles of indemnity.") (emphasis added); Gibson, Dunn & Crutcher v. Superior Court (1979) 94 Cal.App.3d 347, 349 (cited in Gibson Dunn's Demurrer at 6, 9-10,13) ("The issue presented is whether lawyer I who is sued by a former client for professional negligence may cross-complain for equitable indemnity against lawyer II who was retained to extricate the client from the situation created by the alleged negligence of lawyer I."). In contrast to Held, Lewis and Gibson Dunn, the present case does not involve a successor counsel situation. There is no allegation that Whatley ever represented Aetna as its attorney or undertook to give Aetna legal advice. Thus, these cases are distinguishable.

Third, Gibson Dunn cites to cases where the courts refused a claim for indemnity because there was an adversarial relationship involved that raised public policy concerns. For example, in Lewis, supra, the trial court sustained a demurrer to the cross-claim, and the Court of Appeal affirmed, explaining that “[w]here an attorney has been retained for the purpose of representing his client against persons who are actual or potential adversaries, the possibility that one of those adversaries may seek indemnity from the attorney if he is held liable to the client can impinge upon the undivided loyalty owed by counsel. Thus, public policy considerations are uniformly adverse.” (Id. at p. 1217.)

However, at the time that the incident here took place (i.e., the windowed envelopes were sent out revealing private health information (PHI)), the settlement was being implemented, and the parties were no longer adversaries. As the Court noted in its 7/12/2021 ruling on Whatley demurrer’s to Aetna’s Complaint, “[A]t the time the notices were sent, the underlying litigation had been settled and dismissed several months earlier. The parties were no longer acting as adversaries, but were working together to implement the settlement.” Indeed, in its opposition to Whatley’s demurrer, Aetna represented to the Court that, at the time of the incident, “[t]he interests of Aetna, Defendants, and the class were all aligned. Everyone wanted the settlement to be handled properly.” (Opp. to Whatley Demurrer., p. 18: 7-11.) Accordingly, Gibson Dunn’s own former client has conceded that no adversarial relationship existed between the parties at the time that the windowed notices were sent out revealing PHI. Accordingly, for the same reason that Aetna’s claim was not barred against Whatley as a matter of public policy, Whatley’s claim cannot be barred against Gibson Dunn.

Fourth, while Gibson Dunn argues that Whatley’s claim raises issues of privilege or conflict of interest, the Court already considered, and rejected, a substantially similar argument in its ruling on Whatley’s demurrer to Aetna’s Complaint. Here, the basis for Whatley’s indemnity claim against Gibson Dunn is Gibson Dunn’s failure to oversee KCC’s and CC’s mailing of the notices required by the settlement to ensure that protected PHI would not be disclosed. This is not conduct that involved giving legal advice, and KCC and CCS are not, and have never been, Gibson Dunn’s clients. Thus, the Court is not persuaded that privilege concerns bar Whatley’s indemnity claim.

Fifth, and finally, the litigation privilege does not apply to conduct equivalent to attorney negligence/malpractice. (See Mattco Forge, Inc. v. Arthur Young & Co. (1992) 5 Cal.App.4th 392, 406.) Here, Whatley alleges that Gibson Dunn negligently failed to supervise the settlement. As such, Whatley’s claims against Gibson Dunn involve negligent conduct, rather than communicative acts. Moreover, to the extent any communications are relevant to the indemnity claim against Gibson Dunn, those communications were with KCC and CCS, who were not Gibson Dunn's clients. Such communications are not protected by the attorney-client privilege, and Gibson Dunn will not violate any privilege by disclosing its communications with those third parties

Based on the foregoing, Gibson Dunn’s demurrer to Whatley’s XC is overruled.

It is so ordered.

Dated: August , 2022

Hon. Jon R. Takasugi
Judge of the Superior Court

Superior Court of California

County of Los Angeles

DEPARTMENT 17

TENTATIVE RULING

AETNA, INC.

vs.

WHATLEY KALLAS, LLP, et al.

Case No.: BC707386

Hearing Date: August 22, 2022

Cross-Defendants’ motion to seal is GRANTED.

Plaintiff Aetna, Inc (Plaintiff) filed this action on 5/23/2018. On 5/23/2018, Plaintiff filed a first amended complaint (FAC) against Whatley Kallas, LLP, Whatley Kallas, LLC, and Consumer Watchdog, alleging: (1) equitable indemnity; (2) contribution; and (3) declaratory relief.

Now, KCC and CCS (Cross-Defendants) move to seal portions of their 6/13/2022 demurrer.

The motion is unopposed.

Discussion

Cross-Defendants move to seal the following portions of 6/13/2022 demurrer:

· Demurrer, Page 1, line 19

· Demurrer, Page 1, lines 21-22

· Demurrer, Page 1, lines 26-28

· Demurrer, Page 4, lines 5-10

· Demurrer, Page 6, lines 13-18

· Demurrer, Page 7, lines 8-10

· Clark Decl., ¶ 5

· Clark Decl., ¶ 6

· Clark Decl., ¶ 7

Cross-Defendants request that the Court seal the above-described portions of the Demurrer because these materials discuss or reflect what KCC, Kurtzman, and Aetna have agreed to treat as confidential information pursuant to the February 2021 protective order.

Given the overriding interest in protecting confidential information, alongside the lack of opposition, the Court is persuaded that the motion should be granted.

Based on the foregoing, Cross-Defendants’ motion to seal is granted.

It is so ordered.

Dated: August , 2022

Hon. Jon R. Takasugi
Judge of the Superior Court