Newsura Insurance Services, Inc. vs. Beta Healthcare Group

S-CV-0038387 Newsura Insurance Services, Inc. vs. Beta Healthcare Group
This tentative ruling is issued by the Honorable Charles D. Wachob. If oral argument is requested, it shall be heard on March 27,2 018, at 8:30 a.m. in Department 42.

BETA Defendants’ Motion for Summary Judgment

Rulings on Request for Judicial Notice and Objections to Evidence

Defendants’ request for judicial notice is granted.

Defendants’ objections to evidence are ruled on as follows: Objection Nos. 1-7 are sustained.

Ruling on Motion for Summary Judgment

Defendants Tom Wander, Corey Grove, Health Providers Insurance Reciprocal, a Risk Retention Group, and BETAlliance Insurance Services (collectively, the “BETA defendants”) move for summary judgment as to the sole cause of action alleged against them for aiding and abetting breach of fiduciary duty.

As a preliminary matter, plaintiff’s opposition includes a request to continue the motion pursuant to Code of Civil Procedure section 437c(h). As noted by defendants, this is plaintiff’s second request for a continuance. On its own motion, the court takes judicial notice of plaintiff’s January 23, 2018, Ex Parte Application to Continue Defendants’ Motion for Summary Judgment, and the court’s order thereon. On January 23, 2018, plaintiff filed an ex parte application to continue the motion pursuant to Code of Civil Procedure section 437c(h). In ruling on the application, the court noted that plaintiff had failed to satisfy the mandatory requirements of the statute by failing to identify any particular facts that were essential to the opposition. Nevertheless, though mandatory relief was not warranted, the court found good cause for a discretionary continuance of approximately five weeks. Plaintiff’s current request to continue does not reference the previous continuance granted by the court. Further, plaintiff’s current request again fails to satisfy the requirements of Code of Civil Procedure section 437c(h) as plaintiff fails to identify any particular facts which it contends are essential to the opposition, or any reason to believe that such facts even exist. Nor does the court find good cause to grant a discretionary continuance in this instance. Accordingly, the current request to continue is denied.
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Summary judgment may be granted where there is no triable issue as to any material fact, and moving party is entitled to judgment as a matter of law. Code Civ. Proc. § 437c(c). Defendants moving for summary judgment bear the burden of persuasion that one or more elements of the causes of action in question cannot be established, or that there is a complete defense thereto. Code Civ. Proc. § 437c(p)(2); Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850. If the moving party carries its initial burden of production to make a prima facie showing that there are no triable issues of material fact, the burden shifts to the opposing party to make a prima facie showing of the existence of a triable issue of material fact. Id.

For purposes of its cause of action for aiding and abetting breach of fiduciary duty, plaintiff must show: (1) a third party breached fiduciary duties owed to plaintiff; (2) defendants had actual knowledge of the breach of fiduciary duties; (3) defendants provided substantial assistance or encouragement to the breach; and (4) defendants’ conduct was a substantial factor in causing harm to plaintiff. (Am. Master Lease LLC v. Idanta Partners, Ltd. (2014) 225 Cal.App.4th 1451, 1478; Casey v. U.S. Bank Nat’l Ass’n (2005) 127 Cal.App.4th 1138, 1145.) Plaintiff alleges that Ben Borchers (“Borchers”) and Devin Eckhardt (“Eckhardt”) breached their fiduciary duty to plaintiff by misappropriating trade secrets and soliciting plaintiff’s clients to the benefit of a new company which they had formed, Prevail Insurance Management Services, Inc. (“Prevail”), and to the detriment of plaintiff. (Second Amended Complaint at 8:1-8.) Plaintiff alleges that Borchers and Eckhardt discussed their intention to misappropriate trade secrets and solicit clients from plaintiff with the BETA defendants prior to their resignations. (Id. at 8:1521.) Plaintiff alleges that the BETA defendants provided substantial assistance or encouragement by listening to Borchers and Eckhardt’s plans without promptly ending any such meetings and informing plaintiff’s founder and president, Terry Borchers, of Borchers and Eckhardt’s plans. Further, plaintiff alleges that the BETA defendants assured Borchers and Eckhardt that they would do business with Prevail and accept broker of record letters from Prevail on accounts taken from Newsura Insurance Services, Inc. (“plaintiff” or “Newsura”) after Borchers and Eckhardt’s resignations. (Id. at 12:27-13:13.) Borchers and Eckhardt resigned from Newsura on September 15, 2012. (Pltf. RSSMF 25.)

The BETA defendants assert that plaintiff can produce no evidence supporting the allegation that they were aware of any intention on the part of Borchers and Eckhardt to misappropriate trade secrets or improperly solicit clients from Newsura in connection with their resignations. The only communications with any of the BETA defendants relating to Borchers and Eckhardt’s departure from Newsura were between Borchers and defendant Corey Grove (“Grove”). (Pltf. RSSMF 27-29, 32-61.) Borchers met with Grove on August 14, 2012, and informed him that Borchers and Eckhardt intended to present a “win-win” solution to Terry “that allowed us to clave off in a very friendly non-competing manner in order to start our own business.” (Pltf. RSSMF 43.) Neither Grove nor any other BETA defendants were shown a copy of Borchers and Eckhardt’s business plan for Prevail, and there is no evidence that either Grove or any other BETA defendants were informed of any actions by Borchers and Eckhardt that would constitute a breach of their duty of loyalty to Newsura. (Pltf. RSSMF 44.)

The BETA defendants assert that plaintiff can produce no evidence supporting the allegation that they provided substantial encouragement to Borchers and Eckhardt’s alleged breach of their fiduciary duties to Newsura. Grove informed Borchers that defendant Health
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Providers Insurance Reciprocal would offer appointment to the new company, if established, and that if insureds wanted to move accounts from Newsura to the new company, Health Providers Insurance Reciprocal would accept the insureds’ broker of record letters in favor of the new company. (Pltf. RSSMF 46-47.) Plaintiff does not dispute that “it is the custom and practice in the insurance industry for an insurance company to accept broker of record letters for a new company/broker because the insured ‘has a choice of who they want to work with and the insurance companies in the industry honor that claim.’” (Pltf. RSSMF 48.)

Finally, the BETA defendants assert that plaintiff can produce no evidence supporting the allegation that the BETA defendants’ conduct was a substantial factor in causing harm to plaintiff. Plaintiff does not dispute that following Borchers and Eckhardt’s resignations, no Newsura clients insured by any of the BETA defendants moved directly from Newsura to Prevail, and Newsura did not lose any business from any entities affiliated with the BETA defendants at that time. (Pltf. RSSMF 63-64.)

Based on the foregoing, the BETA defendants satisfy their initial burden to make a prima facie showing that there are no triable issues of material fact as to the necessary elements of plaintiff’s sole cause of action for aiding and abetting breach of fiduciary duty. The burden thus shifts to plaintiff to make a prima facie showing of the existence of a triable issue of material fact. Plaintiff fails to meet its burden in this regard.

To establish the cause of action, plaintiff must show that defendant had “actual knowledge of the primary wrong the defendant substantially assisted.” (Casey v. U.S. Bank Nat’l Ass’n (2005) 127 Cal.App.4th 1138, 1149.) “[A] vague suspicion of wrongdoing” or the notion that “something fishy is going on” is not sufficient for these purposes. (Id.) Here, plaintiff provides no evidence of actual knowledge on the part of the BETA defendants. Rather, plaintiff speculates that there may have been other relevant communications between Borchers and the BETA defendants in which information about Borchers and Eckhardt’s intentions may have been shared. (See Pltf. RSSMF 39 (“On July 6, 2012, email communication between Ben Borchers and Corey Grove suggested that there was communication prior to August 14, 2012, addressing his intention to resign from Newsura or about setting up Prevail.”)) In support of this assertion, plaintiff cites to the following deposition testimony from the deposition of Borchers:

Q: Going back to your July 6, 2012 email to Mr. Grove, you mentioned, quote, in your note to him, quote, “Thanks for your time earlier,” end quote. What does that refer to, sir? A: I don’t know. Probably some renewal accounts.

(Pltf. Exh. D, Deposition of Ben Borchers at 84:8-12.) The cited deposition testimony is plainly insufficient to raise a triable issue of material fact as to whether the BETA defendants had knowledge that Borchers and Eckhardt were breaching, or intended to breach, any fiduciary duties they owed to Newsura.

Likewise, plaintiff presents no evidence to support the allegation that the BETA defendants provided substantial encouragement in support of Borchers and Eckhardt’s alleged breaches. While Grove agreed that the BETA defendants would work with Prevail in the future,
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plaintiff admits that such a representation comports with the custom and practice in the industry. (Pltf. RSSMF 48.) Contrary to plaintiff’s argument, there is no evidence that any of the BETA defendants were “partners” with Newsura as defined in the Corporations Code, nor did the BETA defendants owe fiduciary duties to Newsura as proscribed by Corporations Code section 16404. Neither the failure to inform Newsura of what the BETA defendants knew of Borchers and Eckhardt’s plans, nor the acknowledgement that the BETA defendants would follow the custom and practice of the insurance industry by accepting broker of record letters from Prevail, are sufficient to raise a triable issue of material fact as to whether the BETA defendants provided substantial encouragement for purposes of plaintiff’s claim.

Finally, plaintiff fails to establish a triable issue of material fact as to whether the BETA defendants’ conduct was a substantial factor in plaintiff’s harm. Following Borchers and Eckhardt’s resignations, no Newsura clients insured by any BETA defendants moved directly from Newsura to Prevail, and Newsura did not lose any business from BETA defendants to Prevail at that time. (Pltf. RSSMF 63-64.) Approximately three months later, Health Providers Insurance Reciprocal did terminate its relationship with Newsura. However, plaintiff has presented no admissible evidence to dispute the BETA defendants’ contention that the termination of its relationship with Newsura was unrelated to Borchers and Eckhardt’s resignations. (Pltf. RSSMF 65-66.)

As plaintiff fails to establish a triable issue of material fact with respect to the essential elements of its cause of action for aiding and abetting breach of fiduciary duty against the BETA defendants, summary judgment is appropriate. Accordingly, the court will not address defendants’ alternative arguments regarding whether the claim is also barred by the applicable statute of limitations, or plaintiffs’ failure to include indispensable parties in this action.

Based on the foregoing, the BETA defendants’ Motion for Summary Judgment is granted.

Norcal’s Motion for Summary Judgment

Rulings on Request for Judicial Notice and Objections to Evidence

Defendants’ request for judicial notice is granted.

Defendants’ objections to evidence are ruled on as follows: Objection Nos. 1-7 are sustained. Objection No. 8 is overruled.

Ruling on Motion for Summary Judgment

Defendants Norcal Mutual Insurance Company and Medicus Insurance Company (collectively, “Norcal”) move for summary judgment as to the sole cause of action alleged against them for aiding and abetting breach of fiduciary duty.

Summary judgment may be granted where there is no triable issue as to any material fact, and moving party is entitled to judgment as a matter of law. Code Civ. Proc. § 437c(c). Defendants moving for summary judgment bear the burden of persuasion that one or more elements of the causes of action in question cannot be established, or that there is a complete defense thereto. Code Civ. Proc. § 437c(p)(2); Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850. If the moving party carries its initial burden of production to make a prima facie showing that there are no triable issues of material fact, the burden shifts to the opposing party to make a prima facie showing of the existence of a triable issue of material fact. Id.

For purposes of its cause of action for aiding and abetting breach of fiduciary duty, plaintiff must show: (1) a third party breached fiduciary duties owed to plaintiff; (2) defendants had actual knowledge of the breach of fiduciary duties; (3) defendants provided substantial assistance or encouragement to the breach; and (4) defendants’ conduct was a substantial factor in causing harm to plaintiff. (Am. Master Lease LLC v. Idanta Partners, Ltd. (2014) 225 Cal.App.4th 1451, 1478; Casey v. U.S. Bank Nat’l Ass’n (2005) 127 Cal.App.4th 1138, 1145.) Plaintiff alleges that Ben Borchers (“Borchers”) and Devin Eckhardt (“Eckhardt”) breached their fiduciary duty to plaintiff by misappropriating trade secrets and soliciting plaintiff’s clients to the benefit of a new company which they had formed, Prevail Insurance Management Services, Inc. (“Prevail”), and to the detriment of plaintiff. (Second Amended Complaint at 8:1-8.) Plaintiff alleges that Borchers and Eckhardt discussed their intention to misappropriate trade secrets and solicit clients from plaintiff with Norcal prior to their resignations. (Id. at 8:15-21.) Plaintiff alleges that Norcal provided substantial assistance or encouragement by listening to Borchers and Eckhardt’s plans without promptly ending any such meetings and informing plaintiff’s founder and president, Terry Borchers, of Borchers and Eckhardt’s plans. Further, plaintiff alleges that Norcal assured Borchers and Eckhardt that they would do business with Prevail and accept broker of record letters from Prevail on accounts taken from Newsura Insurance Services, Inc. (“plaintiff” or “Newsura”) after Borchers and Eckhardt’s resignations. (Id. at 17:17-18:4.) Borchers and Eckhardt resigned from Newsura on September 15, 2012. (Pltf. RSSMF 41.)

Norcal asserts that plaintiff can produce no evidence supporting the allegation that they were aware of any intention on the part of Borchers and Eckhardt to misappropriate trade secrets or improperly solicit clients from Newsura in connection with their resignations. The only
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communications with any representative of Norcal relating to Borchers and Eckhardt’s departure from Newsura were between Borchers and Keith Hui of Norcal, and Jeanne Zosky of Norcal. (Pltf. RSSMF 20-33.) Borchers met with Mr. Hui on August 10, 2012, and informed him that he planned to purchase a portion of the Newsura business as a “win-win” proposal for all involved. (Pltf. RSSMF 22.) Borchers met Ms. Zosky at a baseball game on August 15, 2012, and informed her the same. (Pltf. RSSMF 29-30.) Neither Mr. Hui nor Ms. Zosky were shown a copy of Borchers and Eckhardt’s business plan for Prevail, and there is no evidence that Norcal was informed of any actions by Borchers and Eckhardt that would constitute a breach of their duty of loyalty to Newsura. (Pltf. RSSMF 23, 26, 28.)

Norcal asserts that plaintiff can produce no evidence supporting the allegation that it provided substantial encouragement to Borchers and Eckhardt’s alleged breach of their fiduciary duties to Newsura. At most, Mr. Hui and Ms. Zosky “seemed willing” to work with Borchers in the future. (Pltf. RSSMF 24, 31.) Plaintiff provides no authority for the proposition that Norcal’s potential willingness to work with Borchers in the future based on the information it was provided was improper or in violation of the law.

Finally, Norcal asserts that plaintiff can produce no evidence supporting the allegation that Norcal’s conduct was a substantial factor in causing harm to plaintiff. Following Borchers and Eckhardt’s resignations, no Newsura clients insured by Norcal were converted by Prevail. (Pltf. RSSMF 43.) Borchers and Eckhardt have both testified under oath that even if Norcal had not seemed willing to work with them in the future, they still would have resigned from Newsura. (Pltf. RSSMF 27, 32, 39, 40.)

Based on the foregoing, Norcal satisfies its initial burden to make a prima facie showing that there are no triable issues of material fact as to the necessary elements of plaintiff’s sole cause of action for aiding and abetting breach of fiduciary duty. The burden thus shifts to plaintiff to make a prima facie showing of the existence of a triable issue of material fact. Plaintiff fails to meet its burden in this regard.

Likewise, plaintiff presents no evidence to support the allegation that Norcal provided substantial encouragement in support of Borchers and Eckhardt’s alleged breaches. At most, Mr. Hui and Ms. Zosky affirmed a vague willingness to work with Borchers in the future. As noted, plaintiff presents no evidence that Norcal was made aware of any intention on the part of Borchers and Eckhardt to breach their fiduciary duties to Newsura. Contrary to plaintiff’s argument, there is no evidence that Norcal was a “partner” with Newsura as defined in the Corporations Code, nor did Norcal owe fiduciary duties to Newsura as proscribed by
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Corporations Code section 16404. Neither the failure to inform Newsura of what Norcal knew of Borchers and Eckhardt’s plans, nor the acknowledgement that Norcal was willing to follow the custom and practice of the insurance industry by working with Prevail in the future, are sufficient to raise a triable issue of material fact as to whether Norcal provided substantial encouragement for purposes of plaintiff’s claim.

Finally, plaintiff fails to establish a triable issue of material fact as to whether Norcal’s conduct was a substantial factor in plaintiff’s harm. Plaintiff disputes the assertion that following Borchers and Eckhardt’s resignations, no Newsura clients insured by Norcal were converted by Prevail. (Pltf. RSSMF 43.) However, plaintiff submits no evidence to support its insistence that as of December 2012, Prevail had converted its clients. (See Declaration of Terry Borchers at 4:4-7.)

As plaintiff fails to establish a triable issue of material fact with respect to the essential elements of its cause of action for aiding and abetting breach of fiduciary duty against Norcal, summary judgment is appropriate. Accordingly, the court will not address defendants’ alternative arguments regarding whether the claim is also barred by the applicable statute of limitations, or plaintiffs’ failure to include indispensable parties in this action.

Based on the foregoing, Norcal’s Motion for Summary Judgment is granted.

The Doctors Company’s Motion for Summary Judgment

Rulings on Request for Judicial Notice and Objections to Evidence

Defendant’s request for judicial notice is granted.

Defendant’s objections to evidence are ruled on as follows: Objection No. 1 to the authentication declaration of Terry Borchers is overruled. Objection No. 2 to the authentication declaration of Terry Borchers is sustained. Objection Nos. 1 (lines 9-12 only), 2 (lines 14-17 only), 6, 7, 9, 10, 11, 12, 14 and 15 to the oppositional declaration of Terry Borchers are sustained. The remaining objections to the oppositional declaration of Terry Borchers are overruled.

Ruling on Motion for Summary Judgment

Defendant The Doctors Company (“TDC”) moves for summary judgment as to the sole cause of action alleged against it for aiding and abetting breach of fiduciary duty.

As a preliminary matter, plaintiff’s opposition includes a request to continue the motion pursuant to Code of Civil Procedure section 437c(h). As noted by defendant, this is plaintiff’s second request for a continuance. On its own motion, the court takes judicial notice of plaintiff’s January 23, 2018, Ex Parte Application to Continue Defendants’ Motion for Summary Judgment, and the court’s order thereon. On January 23, 2018, plaintiff filed an ex parte application to continue the motion pursuant to Code of Civil Procedure section 437c(h). In ruling on the application, the court noted that plaintiff had failed to satisfy the mandatory requirements of the
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statute by failing to identify any particular facts that were essential to the opposition. Nevertheless, though mandatory relief was not warranted, the court found good cause for a discretionary continuance of approximately five weeks. Plaintiff’s current request to continue does not reference the previous continuance granted by the court. Further, plaintiff’s current request again fails to satisfy the requirements of Code of Civil Procedure section 437c(h) as plaintiff fails to identify any particular facts which it contends are essential to the opposition, or any reason to believe that such facts even exist. Nor does the court find good cause to grant a discretionary continuance in this instance. Accordingly, the current request to continue is denied.

For purposes of its cause of action for aiding and abetting breach of fiduciary duty, plaintiff must show: (1) a third party breached fiduciary duties owed to plaintiff; (2) defendant had actual knowledge of the breach of fiduciary duties; (3) defendant provided substantial assistance or encouragement to the breach; and (4) defendant’s conduct was a substantial factor in causing harm to plaintiff. (Am. Master Lease LLC v. Idanta Partners, Ltd. (2014) 225 Cal.App.4th 1451, 1478; Casey v. U.S. Bank Nat’l Ass’n (2005) 127 Cal.App.4th 1138, 1145.) Plaintiff alleges that Ben Borchers (“Borchers”) and Devin Eckhardt (“Eckhardt”) breached their fiduciary duty to plaintiff by misappropriating trade secrets and soliciting plaintiff’s clients to the benefit of a new company which they had formed, Prevail Insurance Management Services, Inc. (“Prevail”), and to the detriment of plaintiff. (Second Amended Complaint at 8:1-8.) Plaintiff alleges that Borchers and Eckhardt discussed their intention to misappropriate trade secrets and solicit clients from plaintiff with TDC prior to their resignations. (Id. at 8:15-21.) Plaintiff alleges that TDC provided substantial assistance or encouragement by listening to Borchers and Eckhardt’s plans without promptly ending any such meetings and informing plaintiff’s founder and president, Terry Borchers, of Borchers and Eckhardt’s plans. Further, plaintiff alleges that TDC assured Borchers and Eckhardt that it would do business with Prevail and accept broker of record letters from Prevail on accounts taken from Newsura Insurance Services, Inc. (“plaintiff” or “Newsura”) after Borchers and Eckhardt’s resignations. (Id. at 21:22-22:8.) Borchers and Eckhardt resigned from Newsura on September 15, 2012. (Pltf. RSSMF 23.)

TDC asserts that plaintiff can produce no evidence supporting the allegation that it was aware of any intention on the part of Borchers and Eckhardt to misappropriate trade secrets or improperly solicit clients from Newsura in connection with their resignations. The only communications with any representative of TDC relating to Borchers and Eckhardt’s departure from Newsura were between Borchers and Beth Bridges of TDC. (Pltf. RSSMF 33.) Borchers met with Ms. Bridges sometime between August 14-16, 2012, and informed her that heplanned to purchase a portion of the Newsura business as a “win-win” proposal for all involved. (Pltf.
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RSSMF 33-40.) There is no evidence that TDC was informed of any actions by Borchers and Eckhardt that would constitute a breach of their duty of loyalty to Newsura. (Id.)

TDC asserts that plaintiff can produce no evidence supporting the allegation that it provided substantial encouragement to Borchers and Eckhardt’s alleged breach of their fiduciary duties to Newsura. At most, Ms. Bridges “seemed willing to support that as long as it was winwin and done in a way that was well above board.” (Pltf. RSSMF 35.) Plaintiff provides no authority for the proposition that TDC’s potential willingness to work with Borchers in the future based on the information it was provided was improper or in violation of the law.

Finally, TDC asserts that plaintiff can produce no evidence supporting the allegation that TDC’s conduct was a substantial factor in causing harm to plaintiff. Following Borchers and Eckhardt’s resignations, Prevail has done no business with TDC. (Pltf. RSSMF 46.) Borchers and Eckhardt have both testified under oath that even if TDC had not seemed willing to work with them in the future, they still would have resigned from Newsura. (Pltf. RSSMF 47.)

Based on the foregoing, TDC satisfies its initial burden to make a prima facie showing that there are no triable issues of material fact as to the necessary elements of plaintiff’s sole cause of action for aiding and abetting breach of fiduciary duty. The burden thus shifts to plaintiff to make a prima facie showing of the existence of a triable issue of material fact. Plaintiff fails to meet its burden in this regard.

Likewise, plaintiff presents no evidence to support the allegation that TDC provided substantial encouragement in support of Borchers and Eckhardt’s alleged breaches. At most, Ms. Bridges affirmed a vague willingness to work with Borchers in the future. As noted, plaintiff presents no evidence that TDC was made aware of any intention on the part of Borchers and Eckhardt to breach their fiduciary duties to Newsura. Contrary to plaintiff’s argument, there is no evidence that TDC was a “partner” with Newsura as defined in the Corporations Code, nor did TDC owe fiduciary duties to Newsura as proscribed by Corporations Code section 16404. Neither the failure to inform Newsura of what TDC knew of Borchers and Eckhardt’s plans, nor the acknowledgement that TDC was willing to follow the custom and practice of the insurance industry by working with Prevail in the future, are sufficient to raise a triable issue of material fact as to whether TDC provided substantial encouragement for purposes of plaintiff’s claim.

Finally, plaintiff fails to establish a triable issue of material fact as to whether TDC’s conduct was a substantial factor in plaintiff’s harm. It is undisputed that Prevail has done no
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business with TDC following Borchers and Eckhardt’s resignations from Newsura. (Pltf. RSSMF 51.)

As plaintiff fails to establish a triable issue of material fact with respect to the essential elements of its cause of action for aiding and abetting breach of fiduciary duty against TDC, summary judgment is appropriate. Accordingly, the court will not address defendant’s alternative arguments regarding whether the claim is also barred by the applicable statute of limitations, or plaintiffs’ failure to include indispensable parties in this action.

Based on the foregoing, TDC’s Motion for Summary Judgment is granted.

Motion for Attorneys’ Fees

Ruling on Request for Judicial Notice

Defendants’ request for judicial notice is granted.

Ruling on Motion

Defendants Ben Borchers (“Borchers”) and Devin Eckhardt (“Eckhardt”) move for an award of attorneys’ fees as prevailing parties in this action.

Borchers and Eckhardt were named as defendants in this action by way of plaintiff’s second amended complaint, filed April 7, 2017. Borchers and Eckhardt subsequently moved for judgment on the pleadings on statute of limitations grounds, which motion was granted on November 6, 2017. In the instant motion plaintiffs seek attorneys’ fees pursuant to an attorneys’ fees clause in the settlement agreement previously entered into between the parties.

On or about December 21, 2012, Borchers, Eckhardt, Newsura, Inc. and Newsura Insurance Services, Inc. (“Newsura”) entered into a written settlement agreement and mutual release of all claims (the “Settlement Agreement”). By its terms, the Settlement Agreement was intended to resolve disputes between the parties arising from Newsura’s employment of Borchers and Eckhardt, Borchers’ and Eckhardt’s ownership of stock in Newsura, Inc., and Borchers’ and Eckhardt’s departure from Newsura. (See Declaration of Richard M. Watts, Jr., Exhibit A (“Exh. A”) at p. 2, pgh. L.) The Settlement Agreement included certain attachments, Exhibits A and B, which were Stock Redemption Agreements by which Borchers, Eckhardt, and their respective spouses, agreed to the sale of all of the stock they owned in Newsura, Inc. The Stock Redemption Agreements each in turn referenced another attached exhibit, labeled as Exhibit 1, which were Non-Solicitation and Non-Competition Agreements. Pursuant to Civil Code section 1642, the Settlement Agreement, Stock Redemption Agreements, and Non-Solicitation and NonCompetition Agreements must be construed together. (Mayers v. Loew’s, Inc. (1950) 35 Cal.2d 822, 827.)

The attorneys’ fees clause referenced by Borchers and Eckhardt is found within the Stock Redemption Agreement. There is no attorneys’ fees clause in the Settlement Agreement. The attorneys’ fees clause in the Stock Redemption Agreement states:
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Attorneys’ Fees. If any legal action or any arbitration or other proceeding is brought for the enforcement of this Agreement or because of any dispute, or alleged breach, default or misrepresentation in connection with any of the provisions of this Agreement, the prevailing party shall be entitled to recover reasonable attorneys’ fees … and costs … incurred in that action or proceeding, in addition to any relief to which they may be entitled.

(See Declaration of Richard M. Watts, Jr., Exhibit B (“Exh. B”) at p. 6, sec. 6.08.)

Borchers and Eckhardt argue that the attorneys’ fees clause in the Stock Redemption Agreement should be read broadly to encompass any action brought for enforcement of the Settlement Agreement, regardless of whether the action relates to the Stock Redemption Agreement. Because Borchers and Eckhardt were forced to defend claims in this action which were resolved and released by the Settlement Agreement, they contend that they are entitled to attorneys’ fees pursuant to section 6.08 of the Stock Redemption Agreement. This argument, however, ignores other language within the Stock Redemption Agreement, most notably the first line which defines “this ‘Agreement’” as “THIS STOCK REDEMPTION AGREEMENT.” (Exh. B at p. 1.) It follows that the attorneys’ fees provision by its terms actually provides that if an action is brought for the enforcement of the Stock Redemption Agreement or because of any dispute, breach, default or misrepresentation in connection with the provisions of the Stock Redemption Agreement, then the prevailing party is entitled to its attorneys’ fees. As the allegations against Borchers and Eckhardt in the second amended complaint are not related to any terms of the Stock Redemption Agreement, the subject attorneys’ fees provision would not apply.

Borchers and Eckhardt cite to Boyd v. Oscar Fisher Co. (1989) 210 Cal.App.3d 368, and assert that in that case the court found that “[w]here multiple contracts are ‘part of the same transaction’ the courts will consider the documents one contract for the purposes of application of an attorneys’ fees provision.” (Deft. Memo. at 5:2-4.) Defendants overstate the holding of that case. Boyd involved cross-claims between a dealer and manufacturer which were governed by California’s Uniform Commercial Code (UCC). The initial dealership agreement between the parties did not include an attorneys’ fees provision, but subsequent invoices issued by the manufacturer and accepted by the dealer did include attorneys’ fees provisions. Noting that the UCC’s definition of a contract is “the total legal obligation which results from the parties’ agreement as affected by this code and any other applicable rules of law,” the court felt it necessary to examine the relationship between the dealership agreement and the invoices. The court found that there was substantial evidence to support the conclusion that the parties intended to add terms to the dealership agreement by the subsequent invoices, and agreed with the manufacturer that the invoices modified the parties’ original agreement to include attorneys’ fees provisions. (See Boyd v. Oscar Fisher Co., supra, 210 Cal.App.3d at 378.)

In Boyd, the language of the attorneys’ fees provisions stated, “[i]f referral to a collection agency or attorney becomes necessary as a result of non-payments cost of collection proceedings including reasonable attorneys fees shall be added to the amount due.” (Boyd v. Oscar Fisher Co., supra, 210 Cal.App.3d at 374.) As the manufacturer prevailed on its claim of unpaid invoices, assuming the invoices were found to be part of the parties’ agreement, the attorneys’
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fees provision clearly applied to the parties’ dispute. In contrast, the attorneys’ fees provision at issue in this case limits fees to those incurred in enforcing the Stock Redemption Agreement. Neither Civil Code section 1642 nor Boyd v. Oscar Fisher Co. stand for the proposition that the court may ignore plain contractual language in determining whether particular claims fall within the terms of attorneys’ fees provisions under Civil Code section 1717.

As defendants do not establish that this action involved enforcement of the Stock Redemption Agreement, or a dispute, breach, default or misrepresentation in connection with any provisions of the Stock Redemption Agreement, the motion for attorneys’ fees must be denied.

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