Judge: Mark H. Epstein, Case: 21SMCV01494, Date: 2023-04-19 Tentative Ruling

Case Number: 21SMCV01494    Hearing Date: April 19, 2023    Dept: R

The demurrer is SUSTAINED WITH LEAVE TO AMEND.

Plaintiff Michael D. Borookhim (“plaintiff”) filed this equitable indemnity action against defendant Kamal Waheb (“defendant”).  According to the operative First Amended Complaint (“FAC”), on or around June 1, 2015, plaintiff entered into a written contract with third party Corona Pathology CPS, Inc. (“Corona”) subletting office space to Corona. (FAC, ¶7.) Corona would apparently sublet the space in exchange for monthly payments of $2,000 with a 10 percent late fee; the contract term was 2 years.  (Ibid.)  Corona purportedly paid rent for three months but stopped making payments around August 2015.  (Id. at ¶8.)  Plaintiff claims that Corona continued operating out of the premises despite not paying rent for months thereafter.  (Id. at ¶9.)  However, Corona allegedly did vacate the premises at some point.  (Ibid.) Plaintiff contends it has suffered damages in the total amount of $48,400. (Id. at ¶10.)

Plaintiff filed a complaint for breach of contract against Corona on or around July 16, 2019.  (FAC, ¶11.)  Plaintiff states that upon service of the summons and compliant, it discovered that Waheb, the owner of Corona when the lease was executed, had sold the company without disclosing the unpaid rent obligation the company owed to the new buyer.  (Id. at ¶¶2-3, 11.)  Currently, Pamela Knecht owns Corona.  Knecht settled with plaintiff on November 22, 2019 by paying a sum of $31,500 and assigning to plaintiff any and all claims for indemnity and otherwise against Waheb for his failure to disclose the unpaid rent when he sold Corona.  (Id. at ¶12.)

Upon receiving that assignment, plaintiff sued Waheb asserting a single claim for equitable indemnity.  Defendant demurs and plaintiff opposes.  The court previously heard defendant’s motion for judgment on the pleadings, which it granted.  (2/10/23 MO.)  At that point, the court noted there were issues with the equitable indemnity claim as alleged.

Equitable indemnity is not available as a plaintiff’s remedy for a defendant’s wrongful conduct.  “It is well-settled in California that equitable indemnity is only available among tortfeasors who are jointly and severally liable for the plaintiff's injury.  (Leko v. Cornerstone Bldg. Inspection Service (2001) 86 Cal.App.4th 1109, 1115; Munoz v. Davis (1983) 141 Cal.App.3d 420, 425.)  With limited exception, there must be some basis for tort liability against the proposed indemnitor.  (Munoz v. Davis, supra, 141 Cal.App.3d at p. 425.)  ‘Generally, it is based on a duty owed to the underlying plaintiff [citations], although vicarious liability [citation] and strict liability [citation] also may sustain application of equitable indemnity.  In addition, implied contractual indemnity between the indemnitor and the indemnitee can provide a basis for equitable indemnity.  [Citation.]’  (BFGC Architects Planners, Inc. v. Forcum/Mackey Construction, Inc. (2004) 119 Cal.App.4th 848, 852.)”  (Stop Loss Ins. Brokers, Inc. v. Brown & Toland Medical Group (2006) 143 Cal.App.4th 1036, 1040–1041, parallel citations omitted, emphasis by Stop Loss court.)  Indemnity and contribution may also be available as to co-obligors in contract.  For example, if two people sign a promissory note for $10,000 and one of them settles with the lender for $9000 in return for which the lender assigns its claims to the person who paid, the person who paid may have an indemnity or contribution claim against the other person signing the note.  The claim is not for $10,000, or even half of $10,000.  But a claim could be made to require the other party to pay her or his fair share of the $9000.

It is that kind of claim that plaintiff seems to be alleging here.  Plaintiff is not suing Waheb in his own right, but rather as the assignee of Knecht’s right to contribution or indemnity.  But peeling the onion back a bit more, it becomes more complex.  The court does not understand why Knecht would have had any obligation ever to plaintiff.  Corona had an obligation, and Knecht, who owned Corona, may well have paid plaintiff on Corona’s behalf.  But it was Corona that had the debt and, assuming that Knecht repaid on Corona’s behalf, it was Corona that had the right to contribution or indemnity against any co-obligor on the lease.  The court is not aware, though, that there were any such co-obligors on the lease.  The court does not believe that the record reflects that Waheb was a guarantor or a party to the underlying lease, for example.  If there was no co-obligor on the lease, then there is no right to contribution or indemnity based in contract, and the court is not aware of any tort liability that Corona had to plaintiff.  It could be that plaintiff’s theory is that Waheb was Corona’s alter ego, but that does not work either.  Alter ego means that Corona and Waheb were one and the same for purposes of the cause of action, but indemnity and contribution lie only as between co-obligors or joint tortfeasors.  Even if one could get around that, plaintiff would have to plead with much greater detail why it is that Waheb was Corona’s alter ego at the pertinent time.

It could be that Knecht meant to assign the fraud claim.  The theory would be that Waheb is liable for fraud because he sold Corona without disclosing the debt.  Corona’s buyer would be the proper plaintiff there.  But again, there are problems.  First, there is no indemnity or contribution action.  Waheb is the sole tortfeasor in the fraud case.  Second, it is not clear that Knecht is the person Waheb defrauded.  But even assuming that Knecht had a cause of action against Waheb for fraud, it is fraud, not indemnity or contribution that describes the claim she had.

The assignment might be broad enough to encompass a claim for fraud, and it could be that Knecht had such a claim—direct or indirect.  But if so, that is the cause of action that must be alleged, not one for indemnity.

The fact is that the court needs plaintiff to plead the proper cause of action.  The court will give plaintiff one last chance to amend (and plaintiff will have 30 days to do so).  But if plaintiff still cannot allege a valid cause of action, then there likely will be no further leave given.