2014-00166580-CU-BC

Dale M. Wallis vs. PHL Associates, Inc.

Nature of Proceeding: Motion for Summary Judgment and/or Adjudication (PHL Associates)

Filed By: Griffin, Tory E.

The motion of defendants, PHL Associates, Inc. (“PHL”) and Jeffrey Wichmann (“Wichmann”) for summary judgment or, in the alternative, summary adjudication as to the complaint of plaintiff, Dale M. Wallis (“Wallis”), is denied as to the motion for summary judgment, denied as to the motion for summary adjudication on the First, Second, Eighth, and Twelfth causes of action, and is granted as to the motion for summary adjudication as to the Fourth, Fifth, Sixth, and Seventh causes of action, as set forth below.

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’ request for judicial notice is granted.

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

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

Wallis’ objection to Wichmann’s joinder is overruled.

The long history of related litigation between PHL, Wichmann, Wallis and others

dating back to 1994 exceeds in detail, volume and relevance the necessary scope of this ruling, and shall not be recounted here at length. The original underlying litigation is well-described in general the Third District’s opinion in Wallis v. PHL Associates, Inc. (2013) 220 Cal. App.4th 814.

The core issue of this action and this motion is whether Wallis obtained

enforceable rights under an indemnity agreement between PHL and Thomas Hanzo, through which Wallis is now entitled by virtue of a settlement agreement with Hanzo’s estate to payment from PHL of $535,000.00 on a stipulated judgment entered in Wallis’ favor against Thomas Hanzo’s estate.

The key documents on this core issue are as follows. The subject indemnity agreement between PHL and Thomas Hanzo is contained in a “Stock Repurchase Agreement” (“SRA”) that is Exhibit 5 to PHL’s omnibus evidence. The Settlement and Mutual Release Agreement between Wallis and Mrs. Hanzo who acted as the administrator of Thomas Hanzo’s estate in settling the claims between Wallis and Hanzo is Exhibit 16. The Stipulation for Judgment; Judgment, in favor of Wallis and against the Hanzo Estate is Exhibit 35.

It should suffice for purposes of this motion to summarize the following background facts which upon review of the moving and opposing papers do not appear to be in genuine material dispute – with some noted exceptions.

In 1994, Wallis who was a former employee of PHL, filed the Wallis v. PHL action in Yolo Superior Court against PHL and three officers/directors of PHL – Wichmann, Holmes, and Thomas Hanzo. Wallis’ lawsuit alleged causes of action for fraud, conversion, and unjust enrichment arising out of Wallis’ employment as PHL’s Director of Laboratories and her work in connection with creation of a veterinary vaccine. (Separate Statement of Undisputed Material Facts (“UMF”), #1 [Complaint, 8-9].) The defendants each filed a cross-complaint against Wallis, her husband and their company. (UMF 2.)

Trial on the Complaint in the Wallis v. PHL action occurred in 2000, after which the jury awarded $259,330 in damages in favor of Wallis and against both Hanzo and a similar judgment against Wichmann (each a 40% shareholder of PHL), $129,665 in damages against Mary B. Holmes (a 20% shareholder), and separate damages of $1,944,997, and punitive damages against PHL. (UMF 4.) In a subsequent equitable phase of the trial, the trial judge also found that PHL was unjustly enriched and imposed a constructive trust against PHL in Wallis’ favor with additional damages. (UMF 5.)

The litigation then proceeded as to the cross-complaints against Wallis, et al.

In August 2003, while the cross-complaints were pending, PHL and Hanzo entered into a Stock Repurchase Agreement (“SRA”). In essence, the SRA bought-out Mr. Hanzo’s interest and position in PHL in exchange for $600,000 of compensation in various forms and credits. Hanzo was in declining health. The SRA contained

indemnity agreements between PHL and Hanzo. The indemnity provision in favor of

Hanzo, which is the subject of this litigation, provided:

“[PHL] agrees to defend and indemnify [Hanzo] from and against any and all claims, demands, or causes of action arising out of [Hanzo’s] position as an Employee, Officer or Director of Company, including, but not limited to the litigation of Dale Wallis vs. PHL Associates, Inc., et al., currently pending in Yolo County Superior Court.” (Defs’ Sep. Evid., Ex. 5, UMF 8.)

Mr. Hanzo subsequently died less than a year later in January 2004. (UMF, 13.)

Wallis, Hanzo’s litigation adversary, initiated a probate proceeding regarding the Hanzo Estate in Tuolumne County Superior Court, in which Wallis sought to be appointed the Administrator of the estate. (UMF 15.) However, the Tuolumne County Superior Court instead appointed Mr. Hanzo’s widow, Heidi Hanzo, as personal representative of Mr. Hanzo’s Estate.

Also following Mr. Hanzo’s death, PHL filed a motion to continue as Mr. Hanzo’s successor-in-interest in the pending litigation with Wallis. (UMF 14.) However, the Yolo County Superior Court likewise denied PHL’s motion, and instead substituted in Mrs. Hanzo as the personal representative of Hanzo’s Estate in the Wallis litigation.

Mrs. Hanzo testified that after her husband died, Wichmann called her and told her that PHL would provide attorneys to continue to represent Hanzo’s interest in the Wallis litigation. (UMF 19. Wallis’ objections are noted as to this fact.)

PHL thereafter arranged and paid for attorney William J. Coffill to represent the Hanzo Estate in the Tuolumne probate proceeding. (UMF 20.) Mr. Coffill continued to represent Ms. Hanzo as the administrator of the Hanzo Estate from 2004 until October 2009. (UMF 21.)

Wallis filed a $20,000,000 creditor’s claim against the Hanzo Estate in the Tuolumne probate proceeding. (UMF 22.) Ms. Hanzo, as Administrator, rejected Wallis’ $20,000,000 claim through a pleading filed by her attorney, Mr. Coffill. In the probate action, the Hanzo Estate’s assets were inventoried as having a negligible value. (UMF 23.) The Court notes that Wallis disputes this fact on the sole ground that the SRA’s defense and indemnity provisions had some monetary value and was an asset of the Hanzo Estate.

Mrs. Hanzo testified that Mr. Griffin told her that PHL would not provide her legal representation. (UMF 29.) Ms. Hanzo testified that she wrote an email to Mr. Griffin in November, 2006, wherein she stated her belief that Mr. Wichmann was lying. (UMF 30.) Ms. Hanzo believed Mr. Wichmann was lying because she did not feel like she was being heard, was continually asking for representation, and was “just

frustrated.” (UMF 31.) In February of 2007, Mrs. Hanzo met with Wallis in Elk Grove. (UMF 32.) There is a dispute as to whether Wallis’ then legal counsel, Ms. Mendoza, was also present at that meeting. However, there is no apparent dispute

that such a meeting occurred between Mrs. Hanzo and Wallis. The meeting involved Mrs. Hanzo needing legal representation in the pending litigation by Wallis against the Hanzo Estate, and the estate’s cross litigation against Wallis. (UMF 34, 35, 36, 37, 38, and 39.) Mrs. Hanzo testified that at the time of that meeting in 2007 she was upset because she believed that under the SRA she would have legal counsel provided to her, and that Mr. Wichmann had told her “you will always have representation,” but in reality that was “not true” because “[t]hat’s not the way it went down.”

On July 12, 2007, the law firm of Bullivant Hauser Bailey PC sent a letter indicating that it was representing Mrs. Hanzo in her capacity as personal representative of the Hanzo Estate in the Wallis v. PHL litigation, and Mrs. Hanzo executed a substitution of attorneys to that effect. (UMF 42.)

After Ms. Hanzo’s lunch meeting in 2007 with Wallis, Mrs. Hanzo did not have any further discussions with PHL or its counsel. (UMF 44.)

On June 4, 2009, Wallis and her legal counsel Ms. Mendoza met with Mrs. Hanzo at a Mimi’s restaurant in Elk Grove. At that time, Mrs. Hanzo signed a settlement agreement as to the litigation between Wallis and the Hanzo Estate.

Under the settlement agreement, the Hanzo Estate and Wallis agreed that: (1) The Hanzo Estate would dismiss Hanzo’s still pending cross-complaint against Wallis in the Wallis v. PHL action; (2) the Hanzo Estate would stipulate to a judgment against itself and in favor of Wallis in the amount of $535,000, based roughly upon the jury verdict against Hanzo and accrued interest; (3) Wallis agreed not to enforce the stipulated judgment against the Hanzo Estate, but instead would only seek payment from PHL; and (4) to enable Wallis to seek payment from PHL on the stipulated judgment, the Hanzo Estate would assign certain of its rights to Wallis including all of the estate’s rights to contribution or indemnity arising in connection with the Wallis v. PHL action, all rights under the SRA, and all rights of indemnification under PHL’s articles of incorporation. (UMF 67.)

Approximately a month after Wallis and Hanzo settled, on July 20, 2009, all parties to the Wallis v. PHL action, except for the Hanzo Estate, reached a settlement of the remaining cross-complaints following mediation. (UMF 51.) The settlement agreement between Wallis and the Hanzo Estate was not presented to the Tuolumne Probate court until approximately one year after Ms. Hanzo signed it, and was not approved by the probate court until May 25, 2010. Wallis did not serve PHL with the petition to approve the Hanzo settlement agreement or court order approving the settlement agreement. Wallis counters on this point that PHL was not a party to the probate, and had not filed a request for special notice in the probate proceeding. (UMF 69.)

On July 27, 2010, following post-trial motions, judgment was entered against all defendants (except Hanzo’s Estate) in the Wallis v. PHL action. (UMF 52.) The parties appealed.

In August 2011, Wallis submitted her proposed stipulated judgment against the Hanzo Estate to the Sacramento County Superior Court, which had since become the trial court over the Wallis v. PHL action due to intervening judicial disqualifications in the Yolo Superior Court. (UMF 72.) The Sacramento Superior Court entered the stipulated judgment on August 12, 2011. (UMF 73.) Wallis’ primary theory of recovery against PHL in this action is summarized as follows: (1) under the SRA indemnity provision, Hanzo was entitled to a legal defense and indemnification from PHL against any liability to Wallis; (2) Wallis obtained the jury verdict against Hanzo, and then the stipulated judgment by Mrs. Hanzo under the settlement, so Hanzo would have been entitled to require PHL to indemnify (i.e. pay) that liability to Wallis to protect Hanzo; and (3) the Hanzo Estate assigned to Wallis all of the estate’s indemnity rights against PHL, so Wallis now owns the indemnity rights that the Hanzo Estate once owned to compel PHL to payoff the liability to Wallis under the stipulated judgment.

In this action, Wallis asserts causes of action for breach of contract, breach of implied contract, promissory estoppel, statutory indemnification, rescission based on unilateral mistake, economic duress, and fraudulent inducement, fraudulent conveyance, unjust enrichment, and constructive trust.

PHL moves for summary judgment and alternatively for summary adjudication as to Wallis’ separate causes of action, upon numerous bases which are separately discussed below.

A. PHL is not entitled to summary adjudication on Wallis’ first cause of action for breach of contract on the ground that the settlement agreement is unenforceable against PHL because it was not supported by consideration.

On this ground, PHL argues that the settlement agreement between Wallis and the Hanzo Estate is unenforceable as to PHL because it lacked consideration as between Wallis and Hanzo. Thus, PHL contends that if the contract between Hanzo and Wallis is nullified due to lack of consideration, then Wallis obtained no indemnity rights against PHL under the SRA. PHL contends there is no dispute of fact on the issue of consideration in the Wallis/Hanzo settlement agreement, because the Hanzo Estate received nothing of value from Wallis in the exchange since the Hanzo Estate was “judgment proof.” PHL argues that Wallis’ claims against Hanzo, even if reduced to judgment were worthless and uncollectible. Thus, Wallis’ agreement not to collect against the estate was meaningless.

Wallis opposes this ground, arguing that the Hanzo settlement was supported by consideration. Wallis first notes that she is not enforcing the Hanzo settlement contract against PHL, only the SRA. Thus, Wallis implies that PHL may not challenge the validity of Wallis’ standing under the SRA by attacking the enforceability of the underlying settlement contract that conveyed that standing to Wallis. The parties cite no authorities on this point. Regardless, Wallis argues that the Hanzo Estate was not “:judgment proof” because it retained the indemnity right under the SRA. Further, Hanzo still had a cross-complaint against Wallis, and both parties retained the right to

appeal their claims. So, Wallis contends that Wallis relinquished her rights to seek greater damages against the Hanzo Estate, relinquished her right to enforce the judgment against the estate, and took on the responsibility to pursue PHL on the “breached” indemnity agreement.

There is sufficient disputed evidence on the issue of consideration supporting the Wallis/Hanzo settlement agreement to defeat summary adjudication.

B. PHL is not entitled to summary adjudication on Wallis’ first and second causes of action upon the ground that Wallis cannot prove that PHL breached the indemnity contract with Hanzo.

PHL argues that Wallis’ derivative breach of contract claims must fail because the undisputed facts show conclusively that: (1) PHL did not breach the SRA indemnity agreement because PHL provided Hanzo and his estate with a defense to the Wallis action and legal counsel in the Probate action; (2) Mrs. Hanzo breached the indemnity agreement and relieved PHL of any further contractual duty thereunder by her colluding with Wallis and taking adverse litigation positions to PHL and Wichmann; (3) the SRA indemnity agreement covers only actual “loss” not “liability,” and Hanzo incurred no actual “loss” because Hanzo has paid nothing in the litigation for defense or on the Wallis judgment, and is now released from direct liability to Wallis under the terms of the settlement agreement; (4) these causes of action are barred by the four
(4) year statute of limitations under Code of Civil Procedure section 337(1) because both Hanzo and Wallis knew that PHL breached the duty to defend no later than December 2009, more than 4 years before Wallis commenced this action; and (5) PHL is relieved from its indemnity obligation because the stipulated judgment against the Hanzo Estate was the product of collusion. PHL’s foregoing positions present numerous questions of fact and law, but are not established as a matter of law or by undisputed facts sufficient to warrant summary adjudication.

PHL’s Performance Under the SRA Indemnity and Defense Provision.

It is undisputed that PHL provided Hanzo with a legal defense and later with Probate counsel. It is also undisputed that PHL withdrew defense of Hanzo before the end of the Wallis litigation, and denied indemnification on the stipulated judgment. The question is whether PHL properly performed under the SRA indemnity agreement in this respect. In part, PHL contends that the court may look at what it did for Wichmann’s defense and interests, and can “conclude, as a matter of law” by implication and inference that any alleged failure to defend and indemnify Hanzo was prevented by Hanzo and Wallis. (PHL MPA, p. 14:27-15:3.) These questions clearly present disputed issues of fact that cannot be resolved or concluded as a matter of law on summary judgment.

Whether the SRA Indemnity Agreement Cover “Loss,” “Liability,” or “Loss and Liability.”

PHL’s argument that the SRA indemnity agreement covers only “loss” as

opposed to “liability” does present primarily a question of law and contractual interpretation. Wallis opposes this argument contending that the contractual intent of PHL and Hanzo must instead be gleaned from extrinsic (parol evidence) including Mr. Wichmann’s representations as to the actual intent of the protection provided under the SRA indemnity agreement.

If PHL is correct, and the indemnity provision covers only actual “loss,” then PHL’s position that Hanzo has incurred no covered “loss” and PHL thus has no obligation to pay Wallis is persuasive and supported by undisputed facts. Under PHL’s theory, Hanzo could not recover on the indemnity agreement unless and until Hanzo paid the judgment to Wallis, but Hanzo has not paid the judgment and has instead been released from that liability. On the other hand, if the indemnity provision covers “liability” or “liability and loss” as argued by Wallis, then it is irrelevant that Hanzo has not first paid for defense costs or satisfied the Wallis stipulated judgment, in order for Hanzo and any successor to recover on the indemnity against PHL. For purposes of this motion, the court finds that there is sufficient evidence to support a conclusion that the indemnity provision is reasonably susceptible to two competing interpretations, and defeats summary adjudication.

In interpreting an indemnity agreement the court’s fundamental task is to determine the mutual intention of the parties at the time the contract was formed. “‘”Such intent is to be inferred, if possible, solely from the written provisions of the contract. [Citation.] The ‘clear and explicit’ meaning of these provisions, interpreted in their ‘ordinary and popular sense,’ unless ‘used by the parties in a technical sense or a special meaning is given to them by usage’ [citation], controls judicial interpretation. [Citation.]”‘ [Citation.]” (E.M.M.I. Inc. v. Zurich American Ins. Co. (2004) 32 Cal.4th 465, 470, see also City of Chino v. Jackson (2002) 97 Cal.App.4th 377, 382.)

If the language is unambiguous, the court must enforce the plain meaning. ( Clarendon America Ins. Co. v. North American Capacity Ins. Co. (2010) 186 Cal.App.4th 556, 566.) However, if contract language is susceptible to two or more reasonable interpretations, the court may admit extrinsic evidence to aid in interpreting the contract. (Wolf v. Walt Disney Pictures & Television (2008) 162 Cal.App.4th 1107, 1126 (Wolf); City of Chino, supra, 97 Cal.App.4th at pp. 383-384.) The court may also admit extrinsic evidence to assist in determining whether contract language is susceptible to more than one reasonable inference. (Wolf, supra, 162 Cal.App.4th at p. 1126.) When there is no material conflict in the extrinsic evidence, the trial court interprets the contract as a matter of law. (Ibid.) An issue of fact arises only if the contractual language is reasonably susceptible to both parties’ competing interpretations and there is a credibility contest in the extrinsic evidence. (Id. at p.

1134.) Further, if the extrinsic evidence or other construction rules do not clarify the ambiguity, the ambiguity may be construed against the party who prepared the contract. (Steller v. Sears, Roebuck & Co. (2010) 189 Cal.App.4th 175, 183, 116 Cal. Rptr. 3d 824.)

Again, courts “interpret contractual indemnity provisions under the same rules

governing other contracts, with a view to determining the actual intent of the parties.” ( Maryland Casualty Co. v. Bailey & Sons, Inc. (1995) 35 Cal.App.4th 856, 864, 41 Cal. Rptr. 2d 519; see also Gribaldo, Jacobs, Jones & Associates v. Agrippina Versicherunges A.G. (1970) 3 Cal.3d 434, 442; Wilshire – Doheny Associates, Ltd. v. Shapiro (2000) 83 Cal.App.4th 1380, 1396 [indemnity agreements are ” ‘interpreted according to the language and contents of the contract as well as the intention of the parties as indicated by the contract. [Citation.] The extent of the duty to indemnify is determined from the contract’ “].) Moreover, “the provisions of [Civil Code] section 2778, prescribing the rules for interpreting indemnity agreements, are as much a part of such instrument as those set out therein, unless a contrary intention appears.” ( Gribaldo, 3 Cal.3d at p. 442.) In the absence of extrinsic evidence, the interpretation of the contract in light of the statute is a question of law. (Id. at p. 445; see United States Elevator Corp. v. Pacific Investment Co. (1994) 30 Cal.App.4th 122, 125.)

Civil Code section 2778 provides in relevant part that in “the interpretation of a contract of indemnity, the following rules are to be applied, unless a contrary intention appears: 1. Upon an indemnity against liability, expressly, or in other equivalent terms, the person indemnified is entitled to recover upon becoming liable; 2. Upon an indemnity against claims, or demands, or damages, or costs, expressly, or in other equivalent terms, the person indemnified is not entitled to recover without payment thereof…”

“There are two classes of contracts of indemnity. In one class the indemnitor engages to save the indemnitee from loss, meaning actual loss. In the other class the indemnitor engages to save the indemnitee from liability. In the first class the indemnitee must prove loss actually suffered by him. … In the second class the indemnitee need not prove actual loss but only that he has become liable. The indemnitee may, without having paid anything, recover from the indemnitor as soon as liability is legally imposed. [Citations.] [¶] The same instrument may indemnify against actual loss and against liability. [Citations.] Liability is established upon the rendition of a judgment against the indemnitee with respect to the thing indemnified although the judgment remains unpaid. [Citations.] The form which the litigation takes is of no importance so long as the liability of the indemnitee is established. . . . [T]he undertaking of the indemnitor may not be extended by construction or implication beyond the terms of the contract.” (Alberts v. American Cas. Co. of Reading, Pa. (1948) 88 Cal.App.2d 891, 898-899.)

In Alberts, the appellate court held that language in a contract indemnifying plaintiffs ” ‘against any loss of money . . . belonging to the Insured, or in which the Insured had a pecuniary interest, or for which the Insured is legally liable, or held by the Insured in any capacity whether the Insured is legally liable therefor or not, which the insured shall sustain’ ” was an agreement to indemnify against liability as well as actual loss. (Alberts v. American Cas. Co. of Reading, Pa., supra, 88 Cal.App.2d at pp. 898, 900.) The court explained that because the contract was one against liability, the defendant became liable to the plaintiffs for a third party’s loss of money upon a determination of the plaintiff’s liability to the third party by a judgment. (Id. at pp. 900-

901.)

Here, PHL and Hanzo agreed that “[PHL] agrees to defend and indemnify [Hanzo] from and against any and all claims, demands, or causes of action arising out of [Hanzo’s] position as an Employee, Officer or Director of Company, including, but not limited to the litigation of Dale Wallis…” Was this an indemnity against only “loss” requiring Hanzo to pay a judgment to Wallis first, before PHL would be obligated to reimburse him. Was this an indemnity against only liability, requiring PHL to protect Hanzo from the judgment without need for Hanzo to pay on the judgment first. Was this an indemnity against both liability and loss?

There is at least a genuine dispute as to whether PHL and Hanzo intended the indemnity provision to cover Hanzo only if he first paid money on the liability, or whether PHL would step in to pay any liability upon the enforceability of a judgment against Hanzo. Plaintiff relies upon Mr. Wichmann statements after Mr. Hanzo’s death, to the general intended effect of the SRA indemnity agreement (Pltf’s Ex. 2 at ¶¶ 5, 6) For example, Plaintiff notes that in 2004, Mr. Wichmann declared: “ At the time Tom’s health became so severely impaired, he and I and the other PHL shareholder. Mary Holmes, believed the instant litigation had been fully resolved by terms of a settlement agreement, but we also knew Tom would never be able to meaningfully participate in litigation proceedings again. Accordingly, all three shareholders of the company agreed that PHL would redeem Tom’s shares, terminate his employment and take over his position in the litigation in all respects, including the full assumption of liability for any judgment against him and the right to recover any judgment in his favor. We negotiated details of the agreement for several months before we finally signed it in August 2003. … PHL is able to meet any financial obligations that might have been or could be imposed on Tom” Plaintiff cites a similar declaration by Mr. Wichmann in 2005 where he again confirms that part of the intent of the SRA was to take over Hanzo’s position in the Wallis litigation in all respects “including the full assumption of liability for any judgment against him and the right to recover any judgment in his favor.” (Pltf’s Ex. 3, p. 3:1-5.)

In Reply, PHL disputes the meaning or intent of Mr. Wichmann’s declarations on the issue of PHL’s assumption of Hanzo’s liability, both in terms of context and purpose of the declarations. PHL disputes that Mr. Wichmann was declaring his understanding as a negotiator of the SRA that PHL’s full assumption of Hanzo’s liability can give meaning to the SRA indemnity provision. (PHL Reply, p. 10:5-27.)

These statements by Mr. Wichmann may be considered by the Court on this motion under Wolf, the SRA indemnity agreement is susceptible to the competing interpretations, and there is a credibility contest in the extrinsic evidence to the extent PHL disputes the meaning of Mr. Wichmann’s declarations.

The Statute of Limitations

With respect to the issue of the statute of limitations, PHL and Wallis argue different accrual dates. PHL contends that any action for breach by Hanzo (or a

successor like Wallis) was triggered when it was clear that PHL would no longer honor its duty to provide a defense. In opposition, Wallis argues that its action is on PHL’s separate duty to provide indemnity of the stipulated judgment, and PHL did not breach that duty until it refused to pay the stipulated judgment upon demand in 2012. Wallis also makes a persuasive argument that under PHL’s position, Wallis would have been required to file her complaint for breach and PHL’s failure to indemnify the judgment prior to the judgment being entered. (Pltf. Opp., p. 18:21-23.) Whether Mrs. Hanzo or Wallis, knew or should have known, that PHL would refuse to indemnify Hanzo against the stipulated judgment, based upon PHL’s withdraw of defense in 2009, or whether the breach of the duty to defend constituted a complete breach as to the indemnity provision, is a disputed issue of fact that cannot be resolved on summary judgment.

Collusion

Last, 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.

C. Defendants are entitled to summary adjudication on Wallis’ Third and Eleventh Causes of Action because Wallis cannot demonstrate a false promise or other wrongful conduct entitling her to an equitable remedy of promissory estoppel, unjust enrichment, or constructive trust.

Defendants present evidence of the formation of the SRA, PHL’s performance under its terms, and Hanzo’s performance under its terms. In essence, Defendant’s evidence is sufficient to meet its burden that the SRA was not the product of false promise or wrongful conduct necessary to support the identified equitable claims.

In opposition to the Defendant’s claim that Dr. Wallis “cannot show any false promise or fraud or other wrongful conduct in relation to the SRA…,” Wallis argues as follows. (Defs. P&A at p. 22:6-7.) “Defendants are wrong. Mrs. Hanzo has testified that she personally observed faxes, was part of a three way telephone conference with Mr. Wichmann and her late husband, and that she personally attended meetings or

gatherings where she, Mr. Wichmann, and her late husband discussed the SRA, and its nefarious intent, (Opp. to defendant’s UMF 9; plaintiffs AUMF 6,9.) The SRA itself was just one of several schemes that Mrs. Hanzo testified she knew about that were designed by PHL and Mr. Wichmann to avoid ever paying a judgment that would inevitably follow Dr. Wailis’ substantial jury verdicts. (Plaintiffs AUMF 6, 9.) From her plain words, Mrs. Hanzo clearly had the requisite first-hand knowledge and observation to testify about the fact that PHL and its shareholders intended the SRA not only to divest Mr. Hanzo of his shares in PHL, but also to siphon cash out of PHL in any way they could in circumvention of the court’s orders and in preparation for declaring bankruptcy should a substantial judgment be entered against them. (Opp to defendants’ UMF 9; plaintiffs AUMF 6, 9.)” (Pltf’s Opp., p.27:10-23.)

Plaintiff’s position fails to establish a disputed issue of fact as to whether the SRA was the product of fraud, duress, or wrongful conduct. Plaintiff’s opposition at best argues that PHL, Mr. Hanzo and Mrs. Hanzo actively engaged in an effort to defraud Wallis as a creditor. However, to establish her equitable claims (if any were conveyed under the settlement agreement with the Hanzo Estate), Wallis would need to show that PHL was guilty of fraud, coercion, or wrongful conduct as against Mr. Hanzo. Plaintiff has failed to raise any dispute of fact in this respect, and the Defendants’ motion for summary adjudication is granted as to the Third and Eleventh Causes of Action.

D. Defendants are also entitled to summary adjudication on Wallis’ Third and Eleventh causes of action because those causes of action are expressly based on promises made by PHL in the SRA and as a matter of law neither promissory estoppel nor unjust enrichment are viable theories where an express contract governing the same subject matter exists.

Defendants also essentially demur to the Third and Eleventh Causes of Action, upon the alternate ground that Plaintiff’s unequivocal allegation of right under the express contract of indemnity in the SRA, negates these equitable claims under the authorities cited by PHL’s moving brief. This legal challenge to the viability of the equitable claims in light of the undisputed fact of the express agreement in the SRA, has independent merit as well supporting summary adjudication as to the Third and Eleventh Causes of Action

E. PHL is entitled to summary adjudication on Wallis’ Fifth or Sixth causes of action for rescission based on duress or unilateral mistake because Wallis establishes no triable issue of fact that Mr. Hanzo acted under duress or mistake at the time he executed the SRA.

Defendant moves for summary adjudication as to the Fifth and Sixth causes of action upon the grounds that there are no triable issues of fact as to whether Mr. Hanzo acted under duress or mistake at the time he executed the SRA, and that these claims are barred by the statute of limitations for the same reason the breach of contract claim is time barred. Defendant relies upon the facts surrounding the

execution of the SRA.

Plaintiff presents no evidence from which a triable issue of fact as to duress or unilateral mistake may be found or inferred. PHL’s motion for summary adjudication as to the Fifth and Sixth Causes of action are granted on that basis. The motion would otherwise be denied on PHL’s argument on the statute of limitation through incorporation by reference of its argument and evidence on the breach of contract claim.

F. PHL is entitled to summary adjudication on Wallis’ Fourth cause of action for indemnification pursuant to Labor Code Section 2802 because Wallis establishes no triable issue of fact that Mr. Hanzo incurred an expenditure or loss as a consequence of his employment, and the claim is time-barred under Code of Civil Procedure Section 338(a).

Defendant moves for summary adjudication as to Plaintiff’s fourth cause of action for “statutory indemnification” upon the grounds that Plaintiff cannot demonstrate that Hanzo (or the Estate) made expenditures or incurred losses as required by Labor Code Section 2802 (UMF 50, 67.), or that any such expenditure or loss was incurred less than three year before Plaintiff commenced this action. Plaintiff opposes the motion as to this cause of action by incorporating her arguments in her opposition, without addressing the specific contentions. The court finds no disputed issue of fact as to Mr. Hanzo’s incurrence of an indemnified loss under Section 2802, or that such a loss would have been incurred by him as an employee less than three years before this action was commenced. Defendants’ motion for summary adjudication as to the Fourth cause of action is granted.

G. PHL is entitled to summary adjudication on Wallis’ Seventh cause of action because Wallis presents no triable issue of fact showing that PHL defrauded Mr. Hanzo at the time they entered the SRA.

Plaintiff opposes the motion simply arguing that “Mrs. Hanzo testified at her deposition that PHL represented to Mr. Hanzo and herself that it would indemnify and defend Mr. Hanzo and his estate and pay any judgment entered against it in the Wallis Yolo action. But when repeatedly requested to provide that defense, PHL refused, calling into question its intent in entering into the SRA. Based upon PHL’s subsequent repudiation of its defense and indemnity obligations, and its subsequent argument that the indemnity provision is a “pay on loss” and not a “pay on liability” provision (despite Mr. Wichmann’s declarations to the contrary), it can be reasonably inferred that PHL and Mr. Wichmann knew that the representation was not true at the time it was made, and that despite reassurances to the contrary, they never had any intent to fulfill their promises to the Hanzo Estate.” (Pltf’s Opp. p. 32:13-21.)

To establish liability for promissory fraud based on a failure to perform a contractual obligation, “‘something more than nonperformance is required to prove the defendant’s intent not to perform his promise.'” (Tenzer v. Superscope, Inc. (1985) 39 Cal.3d 18, 30.) For example, fraudulent intent may be inferred “from such

circumstances as defendant’s insolvency, his hasty repudiation of the promise, his failure even to attempt performance, or his continued assurances after it was clear he would not perform. [Citation.] However, if plaintiff adduces no further evidence of fraudulent intent than proof of nonperformance of an oral promise, he will never reach a jury.” (Id. at pp. 30-31, citing Prosser, Torts (5th ed. 1984) § 109, pp. 764-765; see River island Cold Storage, Inc. v. Fresno-Madera Production Credit Assn. (2013) 55 Cal.4th 1169, 1183 [“the intent element of promissory fraud entails more than proof of an unkept promise or mere failure of performance”]; Conrad v. Bank of America (1996) 45 Cal.App.4th 133, 156-157 [“a claim of fraud cannot be permitted to serve simply as an alternative cause of action whenever an enforceable contract is not formed”]; Building Permit Consultants, Inc. v. Mazur (2004) 122 Cal.App.4th 1400, 1414 [“‘The mere failure to perform a promise made in good faith does not constitute fraud’ “]. Plaintiff does not meet her burden of identifying ” ‘specific facts showing that a triable issue of material fact exists’ ” on her fraud claims. (Merrill v. Navegar, Inc. (2001) 26 Cal.4th 465, 477; Tenzer, supra, 39 Cal.3d at p. 31.)

PHL is entitled to summary adjudication on Wallis’ Seventh cause of action because Wallis presents no triable issue of fact showing that PHL defrauded Mr. Hanzo at the time they entered the SRA.

H. PHL is not entitled to summary adjudication as to Wallis’ Eighth cause of action for fraudulent conveyance (common law fraud) because PHL does not demonstrate that Plaintiff (or Mrs. Hanzo) was aware PHL would not provide indemnity more than three years before the action was commenced.

PHL merely incorporates by reference is statute of limitations argument applicable to the contract cause of action. (PHL MPA, p. 26:21-27:1.) In sum, PHL argues that Ms. Hanzo (Plaintiff) should have discovered that PHL would not provide indemnification under the SRA, before PHL refused to provide indemnification under the SRA. PHL does not address whether the statute of limitations accrues as to the indemnity provision before the indemnity provision was triggered. The motion is denied as to this cause of action.

I. Defendants are not entitled to summary adjudication on Wallis’ Twelfth cause of action upon the ground that none of her other causes of action survive summary adjudication.

PHL argues that the “constructive trust is an equitable remedy not a separate cause of action citing Farmers Ins. Exchange v. Zerin (1997) 53 Cal.App.4th 445, 457; and Weiss v. Marcus (1975) 51 Cal.App.3d 590, 600. PHL thus contends that since Wallis’ constructive trust cause of action is dependent on her other causes of action, it must fail for the same reasons her other causes of action fail. Since some of Plaintiff’s causes of action survive the motion, the argument is defeated, and the motion on that ground is denied.