2014-00166580-CU-BC

Dale M. Wallis vs. PHL Associates, Inc.

Nature of Proceeding: Motion for Summary Judgment and/or Adjudication (Dale M. Wallis)

Filed By: Green, Mary E.

The motion of Plaintiff Dale M. Wallis D.V.M. (“Dr. Wallis”) for summary adjudication as to her first cause of action for breach of contract and fifth cause of action for rescission of the subject contract as against Defendant PHL Associates, Inc. (“PHL”) is denied as set forth below.

The general operative facts and evidence presented upon this motion, both for and against, are essentially the same addressed in PHL’s motion for summary judgment and alternative motion for summary adjudication. The statement of those general facts are incorporated by reference here, and will not be reproduced at length.

PHL’s request for judicial notice is granted as to “tab” 1, 2, 3, 4, 6-26, 28-32, 34, 38, 42. Otherwise denied.

Wallis’ objections to PHL’s evidence are overruled as to the evidence relied upon by the court in this ruling.

PHL’s objections to Wallis’ evidence are overruled as to the evidence considered by the court in this ruling

Dr. Wallis moves for an order granting summary adjudication as to the first cause of action of her Complaint for breach of contract, including an award of damages in the amount of the Stipulated Judgment against the Hanzo Estate in the amount of

$535,000.00, plus interest. Dr. Wallis also seeks, alternatively, summary adjudication of her fifth cause of action for Rescission based on unilateral mistake and failure of consideration (i.e. PHL’s failure to perform its duty/duties under the SRA).

Dr. Wallis contends that no triable issues of material fact exist as to the First Cause of Action for Breach of Contract, and that she is entitled to judgment as a matter of law on that cause of action. This motion is also made on the ground that no triable issue of material fact exists as to Dr. Wallis’ alternative remedy of rescission as stated in the Fifth Cause of Action for Rescission, and Dr. Wallis is entitled to judgment as a matter of law on that claim and remedy. Dr. Wallis argues that based upon PHL’s alleged breaches of the SRA by its failure to indemnify the Hanzo Estate for the judgment Wallis obtained against it, or alternatively its failure to defend the Estate in the Wallis Yolo Action, Dr. Wallis can enforce the SRA and require PHL to pay the judgment she obtained against the Hanzo Estate as a third party beneficiary, a creditor beneficiary, and/or an assignee of Mr. Hanzo’s rights under the SRA. She alternatively argues that she can rescind the SRA as an assignee of Mr. Hanzo’s rights under the SRA, and take back the 40 shares Mr. Hanzo owned in PHL before entering into the SRA.

Specifically, Dr. Wallis argues that she is entitled to summary adjudication of her first cause of action for breach of contract, because: (1) she is a third party beneficiary to the SRA, and Dr. Wallis has obtained judgment against Mr. Hanzo and his Estate which PHL has refused to pay; (2) she is a judgment and/or creditor beneficiary under the SRA, and Dr. Wallis has obtained judgment against the Hanzo Estate which PHL has refused to pay; (3) she is an assignee of Mr. Hanzo’s right to indemnity for the judgment, and Dr. Wallis has obtained judgment against the Hanzo Estate which PHL has refused to pay; (4) PHL breached the SRA by failing to pay the judgment obtained by Dr. Wallis against the Hanzo Estate; and (5) PHL breached the SRA by failing to defend the Hanzo Estate in the Wallis Yolo Action.

In the alternative, Dr. Wallis specifically contends that she is entitled to summary adjudication of her fifth cause of action for rescission as an assignee of Mr. Hanzo’s rights under the SRA: (1) based on PHL’s failure to perform its duty to indemnify the Hanzo Estate under the SRA; (2) based on PHL’s failure to perform its duty to defend the Hanzo Estate under the SRA.

Last, Dr. Wallis argues she is entitled to summary adjudication of the issue of duty untethered to a specified cause of action for PHL recognize her as standing in Mr. Hanzo’s shoes regarding the SRA based on assignment of all of his rights through her settlement with the Administrator of his Estate.

In her Reply, Wallis summarizes this motion as follows: “The salient, and undisputed

facts are actually quite few: (1) A jury awarded damages against Mr. Hanzo and for Dr. Wallis in the Wallis Yolo Litigation; (2) subsequent thereto, Mr. Hanzo and PHL entered into the SRA whereby PHL agreed to defend and indemnify Mr. Hanzo and his heirs, successors, and assigns for any claims arising out the Wallis Yolo Action; (3) after Mr. Hanzo’s death, PHL refused to provide counsel to the Estate in the Wallis Yolo Action; (4) his Estate entered into a Settlement Agreement with Dr. Wallis; (5) the

Hanzo Estate had independent legal representation during the settlement negotiations that was chosen by Ms. Hanzo; (6) the settlement agreement assigned the Estate’s rights under the SRA to Dr. Wallis, (7) the Settlement Agreement led to a Stipulated Judgment in favor of Dr. Wallis and against the Estate; and (8) PHL failed to honor its promises under the SRA to indemnify the Hanzo Estate. That’s it. The procedural history of the underlying case, including the facts surrounding the judgment and appeal as to Mr. Hanzo’s co-defendants, are irrelevant. The alleged conversations between Mrs. Hanzo and Ms. Mendoza are irrelevant, as Ms. Mendoza was not involved with drafting the Settlement Agreement. And, even more importantly, they do not, as defendant would have the court believe, indicate any wrongdoing on the part of Ms. Mendoza, let alone collusion.” (Pltf. Reply, p. 1:2-17.)

PHL opposes the motion on several grounds. PHL’s initial challenge is that Dr. Wallis’ motion as to her issues number one, two, six, seven, and eight should be denied because those issues are not fairly raised in the pleadings. This challenge has merit as to issues one, two, six and seven. (Roth v. Rhodes (1994) 25 Cal.App.4th 530, 541.)

PHL then opposes the motion as to the first cause of action for breach of contract and the fifth cause of action for rescission upon the same grounds asserted for judgment is its own motion.

Simplified, all of the issues raised in this motion balance upon two core issues: (1) did Dr. Wallis obtain indemnity rights under the SRA that she can enforce against PHL; and (2) if so, did PHL breach those rights. If there are triable issues of material fact on either or both issues, the motion must be denied.

In this respect, the court finds triable issues of material fact as to whether the assignment and stipulated judgment between Dr. Wallis and the Hanzo Estate are enforceable against PHL as in its status as indemnitor based upon PHL’s contention of collusion or bad faith in that transaction. The court further finds triable issues of material fact as to whether PHL’s duty under the SRA indemnity agreement is triggered by “loss” or “liability.”

As the court addressed in PHL’s motion, PHL contends that under Pruyn v. Agricultural Ins. Co. (1995) 36 Cal.App.4th 500, 518 and Civil Code section 2778(7), PHL is relieved of any indemnity obligation to Hanzo or Wallis because the stipulated judgment was the product of collusion, or the amount of the stipulated judgment is not conclusive as to PHL’s indemnity obligation since Hanzo failed to exercise ordinary care in defending its position in the Wallis v. PHL action by failing to appeal Wallis’ judgment or pursue Hanzo’s cross-complaint. The Court finds that the facts surrounding the execution of the Hanzo settlement agreement and the origination of the stipulated judgment, coupled with the impecunious state of the Hanzo Estate, draw the motivations of Hanzo and Wallis into question for purposes of imposing liability on PHL as an indemnitor. However, whether these motivations constituted “collusion” or “want of ordinary care” that absolve PHL of responsibility under the SRA indemnity present disputed issues of fact that cannot be resolved on summary judgment.

Whether the settlement was in the best interests of the Hanzo Estate and Mrs. Hanzo, or was the product of “arms-length” negotiation, or was valued in bad faith with no concern by Mrs. Hanzo due to her resulting immunity from the judgment, are all quintessential jury questions.

As the court also addressed in PHL’s motion, the proper interpretation and contractual obligation of indemnity under the SRA are subject to a material dispute as to the parties’ contractual intent as to whether the indemnity would cover only “loss”, “liability”, or both.

In light of the existence of triable issues of material fact on both the enforceability of the Wallis/Hanzo assignment and stipulated judgment against PHL, and the scope and nature of the indemnity rights under the SRA, Dr. Wallis’ motion is denied.