Judge: Ronald F. Frank, Case: 19STCV27867, Date: 2023-05-10 Tentative Ruling

Case Number: 19STCV27867    Hearing Date: May 10, 2023    Dept: 8

Tentative Ruling 

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HEARING DATE:                 May 10, 2023¿ 

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CASE NUMBER:                  19STCV27867

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CASE NAME:                        Rafael Torres v. Technion Contractors TCI, Inc., et al

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MOVING PARTY:                Cross-Defendant, Asbestos Instant Response, Inc

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RESPONDING PARTY:       Cross-Complainant, Technion Contractors TCI, Inc.   

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TRIAL DATE:                        Not set.

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MOTION:¿                              (1) Demurrer

Tentative Rulings:                  (1) Demurrer is SUSTAINED IN PART, with 20 days leave to amend, and OVERRULED IN PART.

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I. BACKGROUND¿¿ 

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A. Factual¿¿ 

Plaintiff Rafael Torres filed First Amended Complaint (“FAC”) against defendants Technion Contractors TCI, Inc. (“TCI”), Suttles Plumbing, Inc. (“Suttles”), and Does 1 through 50, alleging one cause of action for negligence arising out of a construction project for the Los Angeles Unified School District at Paseo Del Rey Elementary School in Playa Del Rey (the “Property”). Defendants were alleged to be negligent in the construction of the gas pipe systems and their related parts (the “Gas System”) at the Property.  The Complaint alleges that on July 1, 2019, while Plaintiff was working at the Property he cut into a gas pipe, causing an explosion that resulted in Plaintiff’s severe and permanent injuries.

 On September 16, 2020, TCI filed a Cross-Complaint against cross-defendants Asbestos Instant Response, Inc. (“AIR”) and Roes 1 through 20. The Cross-Complaint asserts eight causes of action, but as of 2023 only the claims for express indemnity and breach of written contract remained. After this Court sustained a Demurrer to the original Cross-Complaint, on March 3, 2023, TCI filed a First Amended Cross-Complaint (“FAXC”) alleging causes of action for: (1) Express Indemnity; (2) Breach of Written Contract; (3) Subrogation; (4) Violation of Civil Code section 2782.05(f); and (5) Equitable Indemnity – Civil Code section 2782.05(j).

TCI’s FAXC alleges that AIR entered into a written Subcontract Agreement (“Agreement”) with TCI to provide demolition work at the Property. The Agreement stated that AIR agreed to indemnify TCI from all claims, debts, attorney’s fees, costs, and expenses of any kind that arise out of the performance of the subcontracting work, including claims by AIR’s employees. The FAXC further alleges that the incident described in Plaintiff’s FAC arose from AIR’s scope of work because Plaintiff was AIR’s employee at the time performing work at the Property pursuant to the Agreement.   Plaintiff sued TCI and the plumbing subcontractor 5 weeks after the incident.  According to the FAXC, TCI’s insurers settled Plaintiff’s bodily injury claim for $9.9Million in February of 2022, and are now seeking to subrogate against the alleged culpable parties who are alleged to be the Cross-Defendants including AIR.   TCI asserts that it has incurred attorneys’ fees, court costs, and settlement proceed expenses to defend against Plaintiff’s Complaint and prosecute AIR. Therefore, the FAXC asserts, among other things, that TCI by the express terms of the Agreement is entitled to be indemnified by AIR.

As it did with respect to the original Cross-Complaint, Cross-Defendant AIR demurs to TCI’s FAXC.

B. Procedural¿¿ 

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            On April 14, 2023, AIR filed this (corrected) demurrer to the entire FAXC. On April 25, 2023, TCI filed an opposition. On May 3, 2023, AIR filed a reply brief.  

¿II. GROUNDS FOR DEMURRER & MOTION TO STRIKE

            AIR demurs on the grounds that it claims: (1) the Assignment by TCI’s insurers is inadequate under California law to convey a complete assignment of “title” to the causes of action alleged in the FAXC; (2) TCI has no standing to asset any of the non-subrogation causes of action; (3) TCI failed to comply with the 20-day notice provision in the subcontract agreement thereby barring any contractual or express indemnity claim against AIR; (4) TCI cannot seek indemnification for any portion of the settlement arising from its own active negligence under Civil Code section 2782.05(a); (5) TCI cannot seek indemnification for any passive negligence because it faced no risk of liability for passive negligence; (6)TCI fails to state sufficient facts to support its express indemnity cause of action; (7)TCI fails to state sufficient facts to allege a breach of contract claim; and (8) TCI fails to state sufficient facts to allege a subrogation cause of action. Although the Demurrer itself purports to assert a general demurrer to the entire FAXC, it argues on page 2 and subsequently that the FAXC has a single cause of action for subrogation and non-substantive causes of action.  The supporting brief asserts what appear to be special demurrer arguments as to specific individual causes of action alleged in the FAXC. 

III. ANALYSIS¿ 

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A.    Legal Standard

A demurrer can be used only to challenge defects that appear on the face of the pleading under attack or from matters outside the pleading that are judicially noticeable. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “To survive a demurrer, the complaint need only allege facts sufficient to state a cause of action; each evidentiary fact that might eventually form part of the plaintiff’s proof need not be alleged.” (C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 872.) For the purpose of testing the sufficiency of the cause of action, the demurrer admits the truth of all material facts properly pleaded. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-967.) A demurrer “does not admit contentions, deductions or conclusions of fact or law.” (Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 713.)¿¿¿ 

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A pleading is uncertain if it is ambiguous or unintelligible. (Code Civ. Proc., § 430.10, subd. (f).) A demurrer for uncertainty may lie if the failure to label the parties and claims renders the complaint so confusing defendant cannot tell what he or she is supposed to respond to.¿ (Williams v. Beechnut Nutrition Corp. (1986) 185 Cal.App.3d 135, 139, fn. 2.) However, “[a] demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures.” (Khoury v. Maly's of California, Inc. (1993) 14 Cal.App.4th 612, 616.)¿

B.     Discussion

Assignment

            First, AIR asserts that the assignment by TCI’s insurers of their subrogation rights, if any, against AIR was inadequate and failed to satisfy basic legal requirements for the “complete”  assignment of rights. AIR submits that under the express terms of the Assignment, Everest – and Everest alone – maintains full control and discretion over the prosecution of the FAXC against AIR: “Everest will solely control the prosecution of any action seeking to enforce the Recovery Rights and whether to accept any settlement relating to the Recovery Rights.” (Assignment, p. 3, Section III.(5).) AIR argues that TCI is a nominal party at best, a cross-plaintiff in name only, and has no risk since Everest has agreed it will pay all of TCI’s fees, expenses, and costs, and agrees to indemnify TCI for any judgment, fees, costs, and/or sanctions without limitation. (Assignment, p. 3, Section III.(3-4).)

            In opposition, TCI notes that AIR is correct that it agreed to repay Everest and then Liberty from its recovery, and that Everest controls the litigation and is responsible for the fees, costs, and any liabilities to TCI arising out of the case. However, TCI argues that this “collateral arrangements” do not prevent the assignment from being complete.  The Opposition argues that as long as the assignment is absolute, so as to vest legal title in the assignee, the latter is entitled to sue in his own name, whatever collateral arrangements have been made between him and the assignor respecting the proceeds." (Fink v. Shemtov (2012) 210 Cal.App.4th 599, 611 [internal quotation omitted, emphasis added]; see also Jim 82 Props., LLC v. Montgomery Cleaners (C.D. Cal 2015) 151 F. Supp. 3d 1092, 1101 ["So long as the transfer itself was absolute, any ancillary terms between the assignor and the assignee will not render the immediate transfer itself void...."].) TCI argues that because the Assignment Agreement passed title from the insurers’ claims to TCI’s, there was a complete assignment and TCI may sue in its own name. Lastly, TCI argues that by the Assignment Agreement, Liberty and Everest passed titled for all their claims against AIR, and TCI therefore has the right to pursue the assigned claims. TCI further notes that AIR faces no threat of multiple lawsuits and has no valid grounds for objection to the assignment.

            The California Supreme Court discussed the formalities and requirements of an effective assignment of a cause of action in Amalgamated Transit Union, Local 1756, AFL-CIO v. Superior Court (2009) 46 Cal.4th 993, 1002.  Before holding that a PAGA claim could not be assigned to a noninjured party, the Court stated as follows:

“An assignment requires very little by way of formalities and is essentially free from substantive restrictions. “[I]n the absence of [a] statute or a contract provision to the contrary, there are no prescribed formalities that must be observed to make an effective assignment. It is sufficient if the assignor has, in some fashion, manifested an intention to make a present transfer of his rights to the assignee.” (9 Corbin on Contracts (rev. ed.2007) § 47.7, pp. 147–148; see Rest.2d Contracts, §§ 317, 324.) Generally, interests may be assigned orally (Civ.Code, § 1052; 1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 709, p. 795), and assignments need not be supported by any consideration.” 

The Demurrer cites to Amalgamated Transit Union at page 5, but proceeds to argue that the Assignment Agreement is ineffective to vest TCI with a complete assignment because of the retention by TCI’s insurers of the right to control the litigation.  Without directly so stating, AIR is arguing that Everest and Liberty, TCI’s insurers, are the real parties in interest and that they rather than TCI should be prosecuting the FAXC, citing to Bank of the Orient v. Superior Court (1977) 67 Cal.App.3d 588, 595 (“where . . . there has been a partial assignment all parties claiming an interest in the assignment must be joined as plaintiffs, and as indispensable parties.)  The Demurrer seems to argue that Everest or Liberty must be joined or are indispensable parties, yet still seeks to have the FAXC dismissed. This inconsistent position may need to be explained in oral argument.            

            The Court’s tentative is to overrule the Demurrer as to the subrogation claim.  In the Court’s view, TCI has adequately alleged a complete assignment notwithstanding the fact that its insurers have retained a continuing equitable interest in the FAXC.  The Court interprets the Assignment Agreement as manifesting the insurers’ intention to assign their rights to pursue claimed tortfeasor AIR, as an insurer does in most insurance subrogation agreements.  TCI has contracted to sue in its own name, bearing the duty to account to and repay its insurers if and when it collects on the FAXC.  The facts that Everest and Liberty maintain an equitable interest in the FAXC including the right as FCI’s principal to decide whether to settle or drop the cross-complaint, and the duty to indemnify TCI for any costs or fees incurred or judgment against it, do not alter the parties intention that the insurers assigned and delegated their rights to TCI to litigate the FAXC in TCI’s own name.    

Standing for Non-Subrogation Causes of Action

            Next, AIR asserts that TCI has no standing to pursue any of its non-subrogation causes of action because it has suffered no damages under any of them. AIR asserts that those claims require TCI to establish that it paid sums of money for which it is entitled to indemnity, or that it has suffered out-of-pocket losses as a result of AIR’s breach of contract.  AIR cites in this part of its brief to Bramalea California, Inc. v. Reliable Interiors, Inc. (2004) 119 Cal.App.4th 468, 474 as support for its argument.  AIR notes that the FAXC does not allege that TCI paid Plaintiff anything, and in fact, it is undisputed that TCI’s insurers – not TCI – paid the entire $9.9 million to settle Plaintiff’s personal injury claims. But Bramalea and the earlier case it relied on (Patent Scaffolding) are both equitable subrogation cases, not an express contractual subrogation case.  The Fourth District in Bramalea specifically noted, id. at p. 473, that the insured Bramalea California could have pursued the claim for attorney’s fees there in its own name if there were an express assignment of the claim which was not alleged in that case.  Accordingly, the only two cases cited by AIR in this section of its Demurer brief are distinguishable.  Neither case arose form an express contractual assignment by the insurer to its insured to pursue the tortfeasor in the name of the insured. 

            In opposition, TCI asserts that AIR’s argument relies on the contention that that the Assignment Agreement was ineffective to convey the right to litigate the FACX, but the Court finds, as TCI argues, to the contrary. The Court does not believe that an insured must pay money out of its own pocket (other than insurance premiums) in order to pursue a subrogation claim in the insured’s own name after the insured has obtained its contracted-for indemnification from its insurers who paid to settle a covered claim. 

20-Day Notice Provision

            The subcontract included the following notice provision that the Demurrer alleges to preclude the contractual or express indemnity causes of action in the FACX:

“Neither party shall be entitled to recover damages from the other as a result of any act, omission, or event without proof that it gave the other party, within 20 days of the first occurrence of the action, omission[,] or event, written notice that it was being or would be damaged by such act, omission[,] or event. A failure to provide this notice is conclusive proof of a failure to mitigate damages and a complete defense to recovery of any damages, including damages for delay, caused by such act, omission[,] or event regardless of whether the theory of recovery is legal, contractual, equitable, or otherwise.” 

(FAXC, Ex. B at 3.)

            In its demurrer, AIR asserts that because the incident occurred on July 1, 2019, the subcontract agreement required TCI to give AIR written notice by July 21, 2019. AIR also asserts that the FAXC fails to provide the requisite proof of written notice as an exhibit. As such, AIR argues that TCI’s failure to comply with the 20-day notice acts as a complete bar to any claim by TCI for contractual indemnity. 

            In its opposition, TCI assert that even if this notice provision was a condition precedent to indemnity, the pled allegations would be sufficient since it alleges: “Plaintiff Mr. Torres was injured in an accident while working for AIR on July 1, 2019. (FAXC, ¶ 10.) Mr. Torres filed suit against Technion on August 8, 2019. (Id., ¶ 11.) Technion tendered its defense and indemnification to AIR pursuant to the Subcontract on or about August 20, 2019.” (Id., ¶ 12.) RCI asserts that based on the pled allegations, if did not become clear that TCI would be damaged by Mr. Torres’ accident until he sued TCI on August 8, 2019, at which point incurring defense costs became certain. Further, the FAXC alleges that TCI tendered its defense and indemnity to AIR on August 20, 2019, just 12 days after the lawsuit was filed (FAXC, ¶¶ 11, 12.)

            In its reply brief, AIR asserts that TCI ignores the express language of the provision and then injects language (or concepts) that do not apply, nor are remotely reasonable. Instead, AIR argues that TCI was required to give notice within 20 days of the act, omission, or event, which was when Plaintiff sustained personal injuries. AIR contends that TCI was the general contractor for a project where a worksite gas line was cut and then ignited, causing injury to Mr. Torres. AIR asserts that this accident was undoubtably an “event” that “would damage” TCI. Lastly, AIR asserts that the FAXC ignores the requirement that “written notice” must be given, instead, vaguely alleging that TCI “tendered” its defense and indemnification to AIR fifty-one (51) days after plaintiff’s injury.

            The Court disagrees with the premise of the Demurrer on this point.  The FACX sufficiently alleges a cause of action for contractual or express indemnity.  Whether AIR may pursue or possibly obtain summary judgment on these causes or action, the Court finds the causes of action to be sufficiently pleaded and are not barred based on what is alleged as to the 20-day notice provision.

Equitable Subrogation/ Indemnity 

“An indemnitee seeking to recover on an agreement for indemnification must allege the parties’ contractual relationship, the indemnitee’s performance of that portion of the contract which gives rise to the indemnification claim, the facts showing a loss within the meaning of the parties’ indemnification agreement, and the amount of damages sustained.” (Four Star Electric, Inc. v. F & H Construction (1992) 7 Cal.App.4th 1375, 1380.)

“In the case of insurance, subrogation takes the form of an insurer’s right to be put in the position of the insured in order to pursue recovery from third parties legally responsible to the insured for a loss which the insurer has both insured and paid.” (Fireman’s Fund Ins. Co. v. Maryland Casualty Co. (1998) 65 Cal.App.4th 1279, 1291).) The doctrine of equitable subrogation “is broad enough to include every instance in which one person, not acting as a mere volunteer or intruder, pays a debt for which another is primarily liable, and which in equity and good conscience should have been discharged by the latter.” (Ibid.)

“The essential elements of an insurer’s cause of action for equitable subrogation are as follows: (a) the insured suffered a loss for which the defendant is liable, either as the wrongdoer whose act or omission caused the loss or because the defendant is legally responsible to the insured for the loss caused by the wrongdoer; (b) the claimed loss was one for which the insurer was not primarily liable; (c) the insurer has compensated the insured in whole or in part for the same loss for which the defendant is primarily liable; (d) the insurer has paid the claim of its insured to protect its own interest and not as a volunteer; (e) the insured has an existing, assignable cause of action against the defendant which the insured could have asserted for its own benefit had it not been compensated for its loss by the insurer; (f) the insurer has suffered damages caused by the act or omission upon which the liability of the defendant depends; (g) justice requires that the loss be entirely shifted from the insurer to the defendant, whose equitable position is inferior to that of the insurer; and (h) the insurer’s damages are in a liquidated sum, generally the amount paid to the insured.”

(Fireman’s Fund, supra, 65 Cal.App.4th at p. 1292.)

Here, AIR’s demurrer argues that TCI does not allege that it provided a complete written tender of the claim to AIR as required by Civil Code § 2782.05(e). Preliminarily, AIR argues that TCI does not attach a copy of that tender/demand to their FAXC. Second, AIR argues that there is no indication that TCI fully complied with the requirements under Civil Code § 2782.05(e). For instance, AIR notes that TCI does not state that the tender/demand by Technion included an itemization of the claims caused by AIR’s scope of work in their tender letter. Moreover, AIR asserts that Technion does not allege in its FAXC that their demand/tender provides a written statement regarding how the reasonable allocated share of fees and costs was determined. 

In opposition, TCI asserts that it has sufficiently met its pleading standard because it’s FAXC alleges that: 

On or about August 20, 2019, Cross-Complainant demanded in writing that AIR, Inc. defend and fully indemnify Cross-Complainant against Plaintiff’s claims. The tender included information describing how Plaintiff was injured in the course and scope of his work as an AIR, Inc. employee when he cut into a gas pipe that was designated "No Demo." The tender also explained that AIR, Inc.'s negligence included, but was not limited to, its failure to provide its employees with safety orientation, and its failure to comply with Cal/OSHA safety standards.

(FAXC, ¶ 47.) TCI asserts that there is no pleading requirement for it to attach the demand, or to plead facts referenced in AIR’s demurrer. While this may be true, TCI’s pleading is devoid of the indemnitee’s performance of that portion of the contract which gives rise to the indemnification claim, namely, that it provided a complete written tender, does not attach said tender/demand to its FAXC, does not state the tender/demand by TCI included an itemization of the claims caused by AIR’s scope of work, or that TCI does not allege in its FAXC that their demand/tender provides a written statement regarding how the reasonable allocation share of fees and costs was determined.

            Without so alleging, the Court sustains the demurrer to the equitable subrogation cause of action, with leave to amend.

Breach of Written Contract

To state a cause of action for breach of contract, Plaintiff must be able to establish “(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.” (Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 821.) If a breach of contract claim “is based on alleged breach of a written contract, the terms must be set out verbatim in the body of the complaint or a copy of the written agreement must be attached and incorporated by reference.” (Harris v. Rudin, Richman & Appel (1999) 74 Cal.App.4th 299, 307.) In some circumstances, a plaintiff may also “plead the legal effect of the contract rather than its precise language.” (Construction Protective Services, Inc. v. TIG Specialty Ins. Co. (2002) 29 Cal.4th 189, 198-199.) 

AIR’s demurrer argues that TCI has not performed as required by the terms and conditions of the subcontract because TCI failed to allege in their FAXC that they gave written notice to AIR within 20 days of Plaintiff’s incident that it was being or would be damaged as a result of Plaintiff’s incident.

The FAXC alleges that TCI entered into an agreement whereby AIR agreed, and was required, to defend and indemnify cross-complainant against claims of any kind arising out of or in any way connected with the performance of AIR, Inc.’s work at the project that did not arise out of, pertain to, or relate to the active negligence or willful misconduct of cross-complainant or other subcontractors. (FAXC, ¶ 30.) TCI goes on to allege that it has performed, or been excused from perming, all conditions, covenants and promises required, by it in accordance with the terms and conditions of the agreement. (FAXC, ¶ 31.) The FAXC contends that pursuant to the agreement, AIR was required to defend and indemnify cross-complainant with respect to the claim in Plaintiff’s complaint against cross-complainant. (FAXC, ¶ 32.) TCI contends in its FAXC that AIR has breached the Agreement by failing to defend and indemnify cross-complainant against the Complaint as required by sections 4(c) and 8 of the agreement. (FAXC, ¶ 33.) Lastly, TCI has alleged damages. (FAXC, ¶ 34.) 

            As noted above, the Court finds that TCI has sufficiently alleged the elements of its breach of contract cause of action, notwithstanding AIR’s 20-day notice argument.   For purposes of the pleading stage, rather than at the MSJH / MSA stage of this case, the Demurrer to this cause of action is overruled. 

Subrogation

            AIR asserts that TCI’s FAXC fails to allege a subrogation cause of action. AIR indicates that the elements of a cause of action for subrogation are: (1) the insured suffered a loss for which the defendant is liable, either as the wrongdoer whose act or omission caused the loss or because the defendant is legally responsible to the insured for the loss caused by the wrongdoer; (2) the claimed loss was one for which the insurer was not primarily liable; (3) the insurer has compensated the insured in whole or in part for the same loss for which the defendant is primarily liable; (4) the insurer has paid the claim of its insured to protect its own interest and not as a volunteer; (5) the insured has an existing, assignable cause of action against the defendant which the insured could have asserted for its own benefit had it not been compensated for its loss by the insurer; (6) the insurer has suffered damages caused by the act or omission upon which the liability of the defendant depends; (7) justice requires that the loss be entirely shifted from the insurer to the defendant, whose equitable position is inferior to that of the insurer; and (8) the insurer's damages are in a liquidated sum, generally the amount paid to the insured.”

            AIR argues that the FAXC does not allege that TCI suffered a loss for which AIR is allegedly liable as required by the first element, nrt could the FAXC so allege since TCI made no such payments. AIR asserts that the FAXC only alleges that Liberty and Everest paid for the settlement with Plaintiff. (FAXC, ¶ 42.)

            In opposition, TCI argues that the subrogation claim is adequately pled because TCI has been has been assigned the subrogation claims held by Liberty and Everest, and the FAXC alleges that these insurers made payments for which subrogation rights have been assigned to TCI. (FAXC, ¶¶ 19-21, 39-44.) TCI also argues that TCI bore liability risk for AIR’s own negligence under rules of joint and several liability, and TCI bore litigation risk against Mr. Torres arising out of claimed passive negligence.

The Court overrules the Demurrer on this point as detailed above. 

Indemnification for Negligence under Civil Code § 2782.05(a)

            When it comes to negligence, AIR argues that TCI cannot seek indemnification for any portion of the settlement arising from its own active negligence under Civil Code § 2782.05(a). However AIR also argues that TCI cannot seek indemnification for any passive negligence because if faced no risk of liability for passive negligence. AIR notes that Plaintiff was employed by TCI, and California’s Workers’ Compensation Act is the exclusive remedy of employees against their employers for injuries arising out of and in the court of employment. As such, AIR argues that TCI faced no possible liability for its passive negligence, and all settlements amounts paid on TCI’s behalf by its insurers to Plaintiff would necessarily have been for TCI’s active negligence and therefore unrecoverable.

            In opposition, TCI notes it does not seek indemnification for its own active negligence, but recovery is not limited to its passive negligence. TCI’s opposition is riddled with statements like “potential liability” and “could have been held liable.” The Court will take oral argument as to whether the passive-active distinction has been adequately fleshed out in the FACX for purposes of this cause of action.

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