Judge Stephen I. Goorvitch, Case 22STCV34399 2023-05-15 Tentative Ruling

Judge: Stephen I. Goorvitch, Case: 22STCV34399, Date: 2023-05-15 Tentative Ruling

Case Number: 22STCV34399 Hearing Date: May 15, 2023 Dept: 39

AVL Mobility Technologies, Inc. v. Canoo Technologies, Inc.

Case No. 22STCV34399

Demurrer to Cross-Complaint

Plaintiff AVL Mobility Technologies, Inc. (“AVL”) filed this action against Canoo Technologies, Inc. (“Canoo”) for breach of contract and related claims, as well as promissory fraud. AVL alleges as follows: The parties entered into a written contract, dated June 24, 2021, whereby AVL provided services and deliverables relating to Canoo’s electric vehicles. (See Complaint, Exh. A, p. 10.) There was a dispute over the contract. (Ibid.) On September 16, 2022, the parties entered into a settlement and release agreement to resolve a prior dispute. (Complaint, ¶ 7.) The settlement agreement provided that Canoo would pay a total of $3,250,000 in four instalments on the following dates: (1) $500,000 on September 19, 2022; (2) $500,000 on September 30, 2022; (3) $1.125 million on October 7, 2022; and (4) $1.125 million on October 14, 2022. (Complaint, ¶ 8.) AVL alleges that Canoo made the first payment on September 19, 2022, but has not made any additional payments. (Complaint, ¶ 10.) AVL alleges that Canoo had no intention of honoring the terms of the settlement agreement when it executed the agreement. (Complaint, ¶¶ 32-37.)

Canoo filed a cross-complaint asserting causes of action for breach of written contract and breach of warranty. Canoo does not dispute that the parties had a written contract, dated June 24, 2021. (First Amended Cross-Complaint, ¶ 6.) Canoo alleges as follows: Canoo paid AVL over $9 million for work performed under the agreement, but AVL failed to perform its duties under the agreement. (First Amended Cross-Complaint, ¶ 7.) Among other things, many of the deliverables were untimely, incomplete, defective, or unsuitable for their intended purpose, or did not pass objective performance criteria. (Ibid.) Despite being notified of the problems, AVL failed to correct the problems and comply with its requirements under the agreement. (Id., ¶ 8.) Canoo concedes that it did not pay the remaining $2.75 million under the settlement agreement in payments based upon these issues. (Id., ¶ 18.)

AVL demurs to the cross-complaint. “It is black letter law that a demurrer tests the legal sufficiency of the allegations in a complaint.” (Lewis v. Safeway, Inc. (2015) 235 Cal.App.4th 385, 388.) In ruling on a demurrer, the court must “liberally construe[]” the allegations of the complaint. (Code Civ. Proc., § 452.) “This rule of liberal construction means that the reviewing court draws inferences favorable to the Farias, not the Cross-Defendant.” (Perez v. Golden Empire Transit Dist. (2012) 209 Cal.App.4th 1228, 1238.)

AVL argues that the parties’ settlement agreement bars the cross-claims and requests that the Court take judicial notice of the parties’ agreement. Governing contracts are subject to judicial notice as propositions not reasonably subject to dispute. (Ascherman v. General Reinsurance Corp. (1986) 183 Cal.App.3d 307, 310-311.) Therefore, the Court grants the request.

The settlement agreement states that “the Parties mutually dispute one or more business terms relating to the Agreement and desire to terminate the services and relationship.” (Request for Judicial Notice, Exh. A, p. 5.) The settlement agreement states that “the Parties wish to compromise and settle fully and finally all claims, controversies, or causes of action that they may have arising out of their relationship, or any work performed by AVL or arising from the cessation of AVL providing services.” (Ibid.) Therefore, the parties agreed that Canoo would make a “termination payment” of $3.25 million. (Ibid.) The parties agree that AVL would provide “limited support services” of: (1) “AVL shall provide MatLab user license integration support services for five (5) users to Canoo through December 31, 2024;” and (2) “AVL shall “provide to Canoo a final cost estimate, on a time and materials basis, for rolling back Canoo’s SIL pipeline to the last stable version (a.k.a. ‘Spring 40’).” (Request for Judicial Notice, Exh. A, p. 6, ¶¶ 2(b) & 4.) The settlement agreement includes a mutual release. (Request for Judicial Notice, Exh. A, pp. 5, ¶ 3.)

Canoo argues that the mutual waiver is effective only upon the satisfaction of the parties’ obligations under the settlement agreement. Canoo argues that AVL has not satisfied its obligations under the settlement agreement because it has not rectified the problems with the untimely, incomplete, defective, or unsuitable deliverables. Canoo attempts to rewrite the settlement agreement. The agreement does not require AVL to do so. AVL was only required to do provide MatLab user license integration support services for five users through December 31, 2024, and to provide a final cost estimate, on a time and materials basis, for rolling back Canoo’s SIL pipeline to the last stable version. (Request for Judicial Notice, Exh. A, ¶ 4.) Moreover, AVL was not required to do anything until on or after the “effective date,” which is the date on which AVL receives the full termination payment. (Request for Judicial Notice, Exh. A, p. 7, ¶ 4.) There is no dispute that Canoo did not make the full termination payment.

Based upon the foregoing, the Court orders as follows:

1. The Court sustains AVL’s demurrer to Canoo’s cross-complaint.

2. The Court denies leave to amend. It is undisputed that there is a mutual waiver of all claims relating to the dispute over the underlying contract, and the settlement agreement does not require AVL to provide the services claimed by Canoo’s cross-complaint. Moreover, any obligations by AVL were triggered by Canoo’s full payment of the settlement amount, and there is no dispute that Canoo has not paid the entire amount. Therefore, no amendment would be successful.

3. Counsel for AVL shall provide notice and file proof of such with the Court.