Case Name: Hong Pan, et al. v. Mota Group, Inc.
Case No.: 18CV323324

I. Background

This is a breach of contract case brought by plaintiffs Hong Jun Pan and Wei Xia (collectively “Plaintiffs”) against defendant Mota Group, Inc., aka UNorth, Inc. (“Defendant”).

According to the allegations of the First Amended Complaint (“FAC”), Plaintiffs invested $100,000 in Defendant by means of a loan memorialized in a convertible promissory note (the “Note”). Per the terms of the Note, the loan was to be repaid with interest in two years. Defendant failed to repay the principal and interest. Plaintiffs assert two causes of action against Defendant for breach of contract and common counts.

Defendant answered the FAC utilizing a judicial council form pleading entitled First Amended General Denial to First Amended Complaint (“Denial”), which contains a general denial of all allegations in the FAC as well as seven affirmative defenses.

Currently before the Court is Plaintiffs’ motion to strike portions of the Denial.

II. Request for Judicial Notice

Plaintiffs request judicial notice of the following documents in support of their motion: (1) the FAC, inclusive of Exhibit A attached thereto; and (2) the Denial.

Court records are generally proper subjects for judicial notice. (Evid. Code, § 452, subd. (d).) The FAC is also relevant to certain arguments raised by Plaintiffs in support of their motion to strike. (See People ex rel. Lockyer v. Shamrock Foods Co. (2000) 24 Cal.4th 415, 422, fn. 2 [only relevant matters are subject to judicial notice].) That pleading is therefore noticeable.
With respect to the Denial, however, the Court finds judicial notice unnecessary because it is the pleading under review. (See Paul v. Patton (2015) 235 Cal.App.4th 1088, 1091, fn.1 [denying as unnecessary a request for judicial notice of pleading under review on demurrer].)

Accordingly, the request for judicial notice is GRANTED as to the FAC but DENIED as to the Denial.

III. Discussion

Plaintiffs move to strike the entirety of the second affirmative defense; certain allegations in the third and fourth affirmative defenses related to the second affirmative defense; the entirety of the fifth affirmative defense; a jurisdiction allegation in the fifth affirmative defense ; and the prayer for attorney’s fees.

The motion is brought pursuant to Code of Civil Procedure section 436. Section 436 states “[t]he court may, upon a motion made pursuant to Section 435, or at any time in its discretion, and upon terms it deems proper: (a) Strike out any irrelevant, false, or improper matter inserted in any pleading. (b) Strike out all or any part of any pleading not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court. (Code Civ. Proc., § 436.) Plaintiffs rely on subdivision (a), asserting that various portions of the Denial are irrelevant.

A. The Second Affirmative Defense

The second affirmative defense alleges that Plaintiffs breached written confidentiality agreements between the parties and that said breached have harmed Defendant. The defense concludes that, “[t]o the extent the harm may be quantified and remedied by money damages, those damages must be off-set against the damages claimed” by Plaintiffs in this action. (Denial, p.1:23-25.)

Plaintiffs argue the second affirmative defense is not a defense at all but instead a request for affirmative relief, which cannot be claimed in an answer pursuant to Code of Civil Procedure section 431.30, subdivision (c). Plaintiffs further contend that the allegations of breach of confidentiality are unrelated to Plaintiffs’ causes of action. Plaintiffs conclude the defense is irrelevant and should be stricken.

Section 431.30, subdivision (c) states: “Affirmative relief may not be claimed in the answer.” (Code Civ. Proc., § 431.30.) “ ‘Affirmative relief’ is an award, such as damages, that goes beyond merely defeating the plaintiff’s recovery. [Citation.]” (City of Stockton v. Superior Court (2007) 42 Cal.4th 730, 746, fn. 12.) Thus, if “the defendant seeks affirmative relief in its favor (such as the recovery of damages), it must file a cross-complaint, because section 431.30, subdivision (c), bars it from claiming affirmative relief by way of the answer.” (Construction Protective Services, Inc. v. TIG Specialty Ins. Co. (2002) 29 Cal.4th 189, 198. (Construction Protective Services, Inc.).)

While the law is abundantly clear that affirmative relief cannot be sought by an answer, a point Defendant does not dispute, Plaintiffs’ characterization of the second affirmative defense as seeking such relief is misplaced. As pointed out by Defendant, the defense is one for a setoff.

“The basis for [a setoff] is Code of Civil Procedure section 431.70, which provides that cross-demands for money between two persons may be set off against each other and considered paid to the extent they balance in amount.” (Nymark v. Heart Fed. Savings & Loan Assn. (1991) 231 Cal.App.3d 1089, 1095; see Keith G. v. Suzanne H. (1998) 62 Cal.App.4th 853, 859.) “[A] setoff claim may only be used defensively, being in nature a defensive pleading asserting that the claim constituted prior payment for the amount sought in the plaintiff’s complaint. Indeed, section 431.70 expressly refers to the setoff claim as ‘the defense of payment[]’…” (Construction Protective Services, Inc., supra, 29 Cal.4th at pp. 197–198.) In other words, a setoff is a recognized affirmative defense. (American Nat. Bank v. Stanfill (1988) 205 Cal.App.3d 1089, 1097 [“[c]laims of a setoff can be raised by way of affirmative defense”].)
Here, the defense specifically refers to a setoff and Defendant acknowledges in opposition to the instant motion that it cannot pursue affirmative relief based upon a setoff. Thus, Plaintiffs’ contention that the second affirmative defense should be stricken because it seeks affirmative relief lacks merit.

As for Plaintiffs’ assertion that the breach of confidentiality allegations do not relate to Plaintiffs’ causes of action, while not clearly articulated, Plaintiffs are apparently arguing there must be some commonality between a cause of action and any setoff claim. Plaintiffs do not cite any law for this proposition. As such, their position is unsupported.

Accordingly, the motion to strike the second affirmative defense in its entirety is DENIED.

B. Allegations in Third and Fourth Affirmative Defenses Related to Second Affirmative Defense

The third and fourth affirmative defenses both include an allegation incorporating by reference therein all allegations contained in the second affirmative defense. They also include an allegation referencing Plaintiffs’ purported disclosure of confidential information. Plaintiffs move to strike these allegations as irrelevant since the second affirmative defense should be stricken in the first instance. Because the motion to strike that defense has been denied, it necessarily follows that the motion to strike related allegations from the third and fourth causes of action is unwarranted. The motion to strike those allegations is therefore DENIED.

C. Fifth Affirmative Defense and Prayer for Attorney’s Fees
The fifth affirmative defense initially alleges that the choice of law provision in the Note, which states that New York law shall apply, is unenforceable. The defense goes on to allege that the one-sided attorney’s fee provision in the Note, which favors Plaintiffs, is in turn unenforceable because California law requires contractual fee provisions to be interpreted as bilateral under Civil Code section 1717. The defense concludes that, in the event Defendant is the prevailing party in this action, it is entitled to attorney’s fees. The Denial contains a corresponding prayer for attorney’s fees at the end of the pleading.

Plaintiffs move to strike the fifth affirmative defense and related prayer for attorney’s fees on the ground they are irrelevant, false or improper matter because the contractual fee provision is controlling. Plaintiffs insist Defendant cannot rely on Civil Code section 1717 since there is a clear choice of law provision in the Note.

As a preliminary matter, the Court observes that the fifth affirmative defense is not actually a defense at all; rather, it is merely an argument raised to support a claim for attorney’s fees in the event Defendant is the prevailing party. (See generally, City of Stockton v. Superior Court (2007) 42 Cal.4th 730, 746 [“An ‘affirmative defense,’ on the other hand, is [a defense] that depends on facts beyond those put at issue by the plaintiff.”].)

In any event, Plaintiffs’ argument in support of the motion is wholly conclusory. They fail to cite any legal authority whatsoever in support of their premise that the choice of law provision is enforceable. Choice of law provisions are not always enforceable, and similar choice of law provisions have been rejected in the past. (See ABF Capital Corp. v. Grove Properties Co. (2005) 126 Cal.App.4th 204, 211, 217, 220 [rejecting similar choice of law provision].) Defendant is asserts in the affirmative defense that the choice of law provision is unenforceable. Legal analysis is required to determine whether a choice of law provision is enforceable. (See Nedlloyd Lines B.V. v. Superior Court (1992) 3 Cal.4th 459 [stating a test for choice of law provisions].) Plaintiffs do not identify an applicable test. In sum, Plaintiffs’ argument on this topic does not adequately support their motion.

Accordingly, the motion to strike the fifth affirmative defense and the prayer for attorney’s fees is DENIED.

D. Jurisdiction Allegation in Fifth Affirmative Defense

Plaintiffs move to strike the following allegation from the fifth affirmative defense: “the action is pending in the State of California.” They argue this allegation is redundant and irrelevant because both parties have conceded to the Court’s jurisdiction. Plaintiffs fail to cite any authority for the proposition that a jurisdiction allegation may be stricken as irrelevant simply because jurisdiction is not contested. Furthermore, Plaintiffs completely disregard the context for the allegation, which is apparently to support Defendant’s overarching position that California law rather than New York law should be applied in this case. In this regard, the challenged allegation is at least minimally relevant. Thus, the motion to strike the jurisdiction allegation lacks merit and is DENIED.