Judge: Nathan Nhan Vu, Case: 30-2023-01305262, Date: 2023-08-28 Tentative Ruling

Plaintiff Steve Sclimenti’s Demurrer to Defendant’s Amended Answer to Plaintiff’s Complaint is OVERRULED.

Plaintiff Steve Sclimenti demurs to the 7th Affirmative Defense of Defendants USA Insurance Services LLC’s and USI Advantage Corp.’s Answer to Plaintiff Steve Sclimenti’s Complaint.

Standard for Demurrer

 “A party against whom an answer has been filed may object, by demurrer . . . to the answer upon any one or more of the following grounds:

(a)  The answer does not state facts sufficient to constitute a defense.

(b)  The answer is uncertain. As used in this subdivision, “uncertain” includes ambiguous and unintelligible.

(c)  Where the answer pleads a contract, it cannot be ascertained from the answer whether the contract is written or oral.”

(Code Civ. Proc., § 430.20.) A demurrer may be asserted against “the whole answer, or to any one or more of the several defenses set up in the answer.” (Code Civ. Proc., § 430.50, subd. (b).)

A demurrer challenges only the legal sufficiency of the affected pleading, not the truth of the factual allegations in the pleading or the pleader’s ability to prove those allegations. (Cundiff v. GTE Cal., Inc. (2002) 101 Cal.App.4th 1395, 1404-05.) Questions of fact cannot be decided on demurrer. (Berryman v. Merit Prop. Mgmt., Inc. (2007) 152 Cal.App.4th 1544, 1556.)

Because a demurrer tests only the sufficiency of the pleading, the court “treat[s] the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law . . . [and] consider[s] matters which may be judicially noticed.” (Serrano v. Priest (1971) 5 Cal.3d 584, 591, citation omitted.)

Although courts should take a liberal view of inartfully drawn pleadings, (see Code Civ. Proc., § 452), it remains essential that a pleading set forth the actionable facts relied upon with sufficient precision to inform the responding party of the matters that the pleading party is alleging, and what remedies or relief is being sought, (see Leek v. Cooper (2011) 194 Cal.App.4th 399, 413). Bare conclusions of law devoid of any facts are insufficient to withstand demurrer. (Schmid v. City and County of San Francisco (2021) 60 Cal.App.5th 470, 481; see Code Civ. Proc., § 425.10, subd. (a).)

7th Affirmative Defense (Unclean Hands)

Plaintiff demurs to the 7th Affirmative Defense based on Unclean Hands. Plaintiff argues that, as a matter of law, the Unclean Hands Defense is an inapplicable to statutory violations. Thus, the 7th Affirmative Defense fails as a matter of law with respect to the Plaintiff’s 1st Cause of Action for Declaratory Relief pursuant to Civil Procedure Code section 1060, et. seq., and Business and Professions Code section 16600, et seq., (declaratory relief regarding contract in restraint of profession, trade, or business) and Business and Professions Code section 17200, et. seq. (unfair competition law).

With respect to the 1st Cause of Action, Plaintiff cites to Brown v. TGS Management Company, LLC (2020) 57 Cal.App.5th 303. In that case, the Court of Appeal determined that an unclean hands defense could not be used to defeat a claim under Section 16600 that a contract was “void or against public policy”. (Id. at pp. 319-320.) This ruling forecloses the possibility that the unclean hands defense may be asserted against the 1st Cause of Action for Declaratory Relief under Section 16600.

With respect to the 2nd Cause of Action, “Courts have long held that the equitable defense of unclean hands is not a defense to an unfair trade or business practices claim based on violation of a statute.” (Ticconi v. Blue Shield of California Life & Health Ins. Co. (2008) 160 Cal.App.4th 528, 543.) “To allow such a defense would be to judicially sanction the defendant for engaging in an act declared by statute to be void or against public policy.” (Ibid.; see also Ghory v. Al–Lahham (1989) 209 Cal.App.3d 1487, 1492 “[p]rinciples of equity cannot be used to avoid a statutory mandate.”].)

However, as the Court of Appeal went on to explain in Ticconi v. Blue Shield of California Life & Health Ins. Co., “[the] Supreme Court held that the equities may be considered when the trial court exercises its discretion to fashion a remedy under Business and Professions Code section 17203.” (Ticconi v. Blue Shield of California Life & Health Ins. Co., supra, 160 Cal.App.4th at p. 544, italics original.)

While, “equitable defenses may not be asserted to wholly defeat a UCL claim since such claims arise out of unlawful conduct[,] [i]t does not follow, however, that equitable considerations may not guide the court's discretion in fashioning the equitable remedies authorized by section 17203.” (Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163, 179.) As the Supreme Court explained, “[a] court cannot properly exercise an equitable power without consideration of the equities on both sides of a dispute.” (Id. at p. 180.)

“Therefore, in addition to those defenses which might be asserted to a charge of violation of the statute that underlies a UCL action, a UCL defendant may assert equitable considerations. In deciding whether to grant the remedy or remedies sought by a UCL plaintiff, the court must permit the defendant to offer such considerations.” (Id. at pp. 180–181.)

Therefore, while Defendants’ unclean hands affirmative defense may not be used to wholly defeat the 2nd Cause of Action, Defendants may still allege the affirmative defense as an equitable consideration in fashioning a remedy for a violation of Section 17200 et seq. Just as other affirmative defenses such as comparative fault, indemnity, and failure to mitigate may not wholly eliminate liability but may reduce it, the equitable defense of unclean hands may be considered in reducing any remedy ordered for Plaintiff’s Unfair Competition Law claim.

“A demurrer must dispose of an entire cause of action to be sustained.” (Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 119.) “Thus, a court must overrule a demurrer to a cause of action if it is based on at least one viable theory of liability.” (Thompson v. Spitzer (2023) 90 Cal.App.5th 436, 452.) The same rule should apply to demurrers to a defense. Because Plaintiff’s argument does not dispose of the unclean hands argument in its entirety and because there is at least one viable theory upon which that defense may be asserted, the court must overrule the demurrer to the 7th Affirmative Defense.

Defendants shall give notice of this ruling.