Fresno Tentative Ruling | Legal News

Re: In re California Management Company, Inc. Cases
Court Case No. 17JCCP04915
Hearing Date: February 27, 2018 (Dept. 502)
Motions: 1. Colligere Farm Management Company’s Demurrer to Complaint
2. Calif. Farm Management Co., Inc.’s Demurrer to Marcos Rentaria
Ag. Services, Inc.’s Amended Answer
3. Calif. Farm Management Co., Inc.’s Demurrer to Tapestry
Vineyards, Inc., dba Frey Farming Vineyard Management’s
Amended Answer
4. Calif. Farm Management Co., Inc.’s Demurrer to Roseann R.
Maravilla’s Answer
5. Calif. Farm Management Co., Inc.’s Demurrer to Precision Hay
Co.’s, Mike McCurdy’s, and Desmond Wilson’s Amended Answer

Tentative Ruling:

To overrule Colligere Farm Management Company’s Demurrer to Complaint. Colligere shall file and serve its answer within 10 days of the clerk’s service of this minute order.

With respect to the demurrers to the Answer and Amended Answer to overrule the demurrers to the first, second, sixth, seventh, ninth, fifteenth, sixteenth, nineteenth, twenty-third and twenty-seventh affirmative defenses; to sustain the demurrers with leave to amend as to the tenth, twelfth and seventeenth affirmative defenses; and to sustain without leave to amend as to the third, fourth, fifth, eighth, eleventh, eighteenth, twentieth, twenty-first, twenty-fourth, and twenty-eighth affirmative defenses. Amended answers shall be filed and served within 10 days of the clerk’s service of this minute order. All new allegations shall be in boldface typefont.

Explanation:

Colligere’s Demurrer to Complaint

First Cause of Action:

A demurrer to a complaint may be general or special. A general demurrer challenges the legal sufficiency of the complaint on the ground it fails to state facts sufficient to constitute a cause of action. (Code Civ. Proc., § 430.10, subd. (e).) A special demurrer challenges other defects in the complaint, including whether a pleading is uncertain. (Code Civ. Proc., § 430.10, subd. (f).) The term uncertain includes the issue of whether the pleading is “ambiguous and unintelligible.” (Ibid.) A demurrer for uncertainty should be sustained if the complaint is drafted in such a manner that the

defendant cannot reasonably respond, i.e., the defendant cannot determine what issues must be admitted or denied, or what counts are directed against the defendant. (Khoury v. Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 616.)

Colligere raises both general and special demurrers to the first cause of action. The first cause of action is not uncertain. It is perfectly clear that Cal. Farm is pleading breach of written contract and the basis of its claim. The special demurrer is overruled.

Contract:

The elements of a cause of action for breach of contract are (1) the existence of the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) the resulting damages to the plaintiff. (Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 821.) Initially, Colligere challenges the adequacy of Cal. Farm’s allegation of the contractual obligation to pay the assessment. A plaintiff may plead the existence of a written contract by alleging its terms verbatim, by alleging its making and attaching and incorporating a copy of the contract, or by alleging the substance of its material terms. (Scolinos v. Kolts (1995) 37 Cal.App.4th 635, 640; Construction Protective Services, Inc. v. TIG Specialty Ins. Co. (2002) 29 Cal.4th 189, 198-199.)

Cal. Farm has done both. It has attached a variety of documents which it alleges form a written contract and alleged specifically that it and Colligere “entered into a written contract whereby [Cal. Farm] would provide workers compensation coverage to Colligere and whereby Colligere would pay its contributions and assessments.” (Complaint at ¶ 29.) Colligere however, focuses only on one document as the basis for the written contract claim, Exhibit C, the Indemnity Agreement and Power of Attorney, Form A4-8. Colligere claims nothing in Exhibit C obligates it to pay the sum demanded in the complaint, or any assessment at all.

It is true that to the extent the factual allegations conflict with the content of the exhibits to the complaint, the court relies on and accepts as true the contents of the exhibits and treats as surplusage the pleader’s allegations as to the legal effect of the exhibits. (Barnett v. Fireman’s Fund Ins. Co. (2001) 90 Cal.App.4th 500, 505.) And in ruling on a demurrer the plain meaning of an attached contract controls unless (1) the plaintiff alleges the existence of “specified parol evidence” contrary to that meaning and (2) the contract is reasonably susceptible of the plaintiff’s claimed interpretation. (George v. Automobile Club of Southern California (2011) 201 Cal.App.4th 1112, 1122, 1127–28.)

Colligere claims that Exhibit C lacks necessary terms, asserting that that Exhibit C lacks an expiration date, contains no method of determining breach, does not provide for terms of payment, collection, and is silent on how damages shall be calculated – thus, is too vague to be enforced. Nevertheless, “[n]either law nor equity requires that every term and condition be set forth in a contract.” (Frankel v. Board of Dental Examiners (1996) 46 Cal.App.4th 534, 545.) Thus, “usual and reasonable terms found in similar contracts may be considered, unexpressed provisions of the contract may be inferred from the writing, external facts may be relied upon, and custom and usage

may be resorted to in an effort to supply a deficiency if it does not alter or vary the terms of the agreement.” (Ibid.; Midwest Television, Inc. v. Scott, Lancaster, Mills & Atha, Inc. (1988) 205 Cal.App.3d 442, 451.) A court may find an implied contract provision only if (1) the implication either arises from the contract’s express language or is indispensable to effectuating the parties’ intentions; (2) it appears that the implied term was so clearly within the parties’ contemplation when they drafted the contract that they did not feel the need to express it; (3) legal necessity justifies the implication; (4) the implication would have been expressed if the need to do so had been called to the parties’ attention; and (5) the contract does not already address completely the subject of the implication. (Civ. Code, § 1655.)

Here, the contract at issue, Exhibit C, is a state-drafted contract and Cal. Farm is not permitted to vary the terms. Moreover, the existence of self-insured workers’ compensation insurance groups is statutory, and their existence is highly regulated. Thus, each law and regulation applying to self-insured groups must be read into each contract and can supply the missing terms, as each party to the self-insurance contract is bound to know the applicable law.

The law provides that current and former group members in a given plan year may be subject to special assessments in subsequent years on approval of OSIP. (See Cal. Code Regs., tit. 8, § 15477, subd. (b)(3); see also § 15479 [CALDIR may enforce “the liability of group members for any unpaid contributions and assessments”].) A contract that leaves an amount to be paid to future determination or agreement is not too vague to be enforced, particularly where applicable statutes and rules set forth a procedure for determining the amount. (Elite Show Services, Inc. v. Staffpro, Inc. (2004) 119 Cal.App.4th 263, 268-269 [agreement to pay prevailing party’s attorney’s fees].)

“ ‘When reviewing whether a plaintiff has properly stated a cause of action for breach of contract, we must determine whether the alleged agreement is ‘reasonably susceptible’ to the meaning ascribed to it in the complaint. [Citation.] “ ‘So long as the pleading does not place a clearly erroneous construction upon the provisions of the contract, in passing upon the sufficiency of the complaint, we must accept as correct plaintiff’s allegations as to the meaning of the agreement.’ ” ‘ ” (Marzec v. Public Employees’ Retirement System (2015) 236 Cal.App.4th 889, 909.)

Exhibit C, read along with the relevant law, and given the interpretation alleged in the Complaint is susceptible of the interpretation given it by Cal. Farm, that it is an agreement that Colligere agreed to pay lawful special assessments by Cal. Farm in exchange for the provision of workers’ compensation coverage.

Damages:

Colligere asserts Cal. Farm has failed to allege the existence of any damages caused by Colligere’s breach. Colligere is wrong. Cal. Farm has alleged the existence of a contract to pay assessments, an assessment of $257,205.36, and that Colligere has failed to pay the assessed sum of $257,205.36. (Complaint at ¶¶ 26, 27, 29, 31.) There is no requirement under the law that the reason for the assessment be a worker’s compensation claim of Colligere’s.

Statute of Limitations:

“A demurrer may be sustained on statute of limitations grounds if the time bar clearly and affirmatively appears on the face of the complaint.” (Doe v. Roman Catholic Archbishop of Los Angeles (2016) 247 Cal.App.4th 953, 960.) Colligere claims that the first cause of action is time-barred because Cal. Farm’s Board of Trustees knew of the financial deficits prompting the assessment no later than 2012, but this action was filed in 2017. Indeed, the shortfalls began to occur in 2006. Thus, Colligere argues, this action is barred by the four year statute of limitations imposed on actions for breach of written contracts by Code of Civil Procedure section 337(1).

However, Colligere is not being sued for causing the financial deficits suffered by Cal. Farm. It is being sued for refusing to pay the particular assessment issued on August 8, 2016, and due on October 1, 2016. (See Exhibit F) This complaint filed, October 12, 2017, is timely.

Second Cause of Action:

The terms of an express contract “are stated in words” (Civ. Code, § 1620), while the terms and the existence of an implied contract “are manifested by conduct.” (Civ. Code, § 1621.) The second cause of action alleges the existence of an implied contract whereby Cal. Farm provided workers’ compensation coverage to Colligere in exchange for Colligere’s promise to pay its contributions and assessments. (Complaint at ¶ 34.) Given that the Complaint alleges that Colligere applied for and was granted consent to self-insure and became a paying member of Cal. Farm. In 2008, an implied contract to pay special assessments has been clearly alleged. The demurrer for uncertainty is overruled.

The second cause of action is not barred by the two year statute of limitations provided by Code of Civil Procedure 339(1), because the suit was filed within 13 months of Colligere’s refusal to pay its assessment.

Demurrers to Answers

The determination whether an answer states a defense is governed by the same principles which are applicable in determining if a complaint states a cause of action. (South Shore Land Co. v. Petersen (1964) 226 Cal.App.2d 725, 732.) A general demurrer to the answer raises the objection that the answer does not state facts sufficient to constitute a defense. (Code Civ. Proc., § 430.20, subd. (a).) Here, Cal. Farm demurs to the 1st-12th, 15th – 24th, and 26th – 28th affirmative defenses. The court has reviewed each Answer and Amended Answer and each Demurrer. As they appear word for word identical, the Court treats them as one motion.

“Under Code of Civil Procedure section 431.30, subdivision (b)(2), the answer to a complaint must include ‘[a] statement of any new matter constituting a defense.’ The phrase ‘new matter’ refers to something relied on by a defendant which is not put in issue by the plaintiff. [Citation.] Thus, where matters are not responsive to essential

allegations of the complaint, they must be raised in the answer as ‘new matter.’ [Citation.] Where, however, the answer sets forth facts showing some essential allegation of the complaint is not true, such facts are not ‘new matter,’ but only a traverse. [Citation.]” (State Farm Mut. Auto. Ins. Co. v. Superior Court (1991) 228 Cal. App. 3d 721, 725.)

The general rule is that the same pleading of “ultimate facts” rather than evidentiary matter or legal conclusions is required in pleading an answer as in pleading a complaint. The answer must aver facts “as carefully and in as much detail as the facts which constitute the cause of action and which are alleged in the complaint.” Conclusions of law are not sufficient to state a valid defense, and will not withstand a general demurrer. (See In re Quantification Settlement Agreement Cases (2011) 201 Cal.App.4th 758, 812–13, quoting FPI Dev., Inc. v. Nakashima (1991) 231 Cal.App.3d 367, 384.)

First Affirmative Defense

The first affirmative defense provides that Cal. Farm’s complaint fails to state facts sufficient to constitute a cause of action. Defendants’ assertion that the complaint fails to allege sufficient facts to state a claim is not a statement of new matter; it is a challenge to the legal sufficiency of the complaint. (Code Civ. Proc., § 431.30, subd. (b)(2).) This objection is never waived (See Code Civ. Proc., § 430.80, subd. (a)) and may be raised in an answer, as well as a demurrer. (See Code Civ. Proc., § 430.10, subd. (e).)

The demurrer is overruled.

Second Affirmative Defense

Cal. Farm argues that the second affirmative defense based on the statute of limitations fails because (1) the facts alleged in the complaint demonstrate that its claims are not barred by the statute of limitations, and (2) Code of Civil Procedure sections 337, subdivision (3) and 339, subdivision (2) do not apply given the facts alleged in the complaint.

Code of Civil Procedure section 458 provides that a party need not allege facts supporting a statute of limitations defense, but must only state “that the cause of action is barred by the provisions of Section ___ (giving the number of the section and subdivision thereof, if it is so divided, relied upon).” The second affirmative defense is in this format and is adequately alleged. The demurrer is overruled.

Third, Fourth, Fifth, Eighth, Ninth, Eleventh, Eighteenth, Twenty-Fourth, and Twenty-Eighth Affirmative Defenses

Cal. Farm argues that the third, fourth, fifth, eighth, ninth, eleventh, eighteenth, twenty-fourth, and twenty-eighth affirmative defenses fail to allege facts sufficient to constitute a defense because they are based in tort and the complaint alleges causes of action for breach of contract. Cal. Farm further contends that even if the tort-based

affirmative defenses applied to its claims, defendants have not pled sufficient facts supporting the elements of the defenses.

Defendants assert that they may properly allege tort-based defenses in this case, citing Kransco v. American Empire Surplus Lines Ins. Co. (2000) 23 Cal.4th 390 (Kransco). Kransco does not help defendants. Kransco involved an action for breach of the covenant of good faith and fair dealing brought by an insured against an insurer. (Id. at p. 393-400.) On appeal, the court held that the insurer’s comparative negligence and bad faith defenses were not viable affirmative defenses. (Id., at pp. 410-12.) The Court opined that an insurer’s breach of the covenant of good faith and fair dealing is governed by tort principles, but an insured’s breach of the covenant is not a tort. (Id., at p. 404.) Because an insured’s breach of the covenant does not sound in tort, the insured’s contractual breach of an express policy provision cannot be raised by the insurer as a defense in a bad faith action brought against it by the insured. (Id., at p. 405.) Thus, Kransco does not stand for the proposition that defendants may assert tort-based defenses to Cal. Farm’s claims for breach of contract.

The third affirmative defense of comparative fault, the fourth affirmative defense of negligence of third parties, the fifth affirmative defense of third party fault, the eighth affirmative defense of willful or intentional acts of third parties, the eleventh affirmative defense of assumption of the risk, the eighteenth affirmative defense of proximate cause, the twenty-fourth affirmative defense of alternate cause, and the twenty-eighth defense of indemnity from third parties, as pleaded, sound in tort. Because the complaint pleads only breach of contract claims, these tort-based defenses are not appropriate. The demurrers to these affirmative defenses are sustained without leave to amend.

The ninth affirmative defense – despite its name: “no violation of duty” – alleges that defendants performed all of the obligations under the alleged agreements such that they have not committed any breach of contract. Accordingly, the ninth affirmative defense only challenges Cal. Farm’s ability to prove an element of its breach of contract claims, and is a traverse. (Oasis West Realty, LLC v. Goldman, supra, 51 Cal.4th at p. 821.) Accordingly, the demurrer to the ninth affirmative defense is overruled.

Sixth Affirmative Defense

Cal. Farm argues that the Court should sustain its demurrer to the sixth affirmative defense of failure to mitigate because defendants do not plead facts describing how it could have mitigated its damages.

“‘It is generally held to be the duty of the defendant to plead the facts in mitigation of damages if he would rely thereon.’” (Steelduct Co. v. Henger-Seltzer Co. (1945) 26 Cal.2d 634, 655.) Here, defendants allege that Cal. Farm failed to mitigate its damages because it was aware, as early as 2012, that a financial deficit existed, but it did not take any corrective action for four years. Accordingly, defendants have pled facts describing how Cal. Farm failed to mitigate its damages.

The demurrer is overruled.

Seventh, Fifteenth, Sixteenth, Twenty-Third, and Twenty-Seventh Affirmative Defenses

Cal. Farm argues that the Court should sustain its demurrer to these affirmative defenses because the defenses are mere denials of its claims and defendants do not plead facts supporting their denials.

The seventh affirmative defense of full performance, the fifteenth affirmative defense of speculative damages, sixteenth affirmative defense of lack of standing, the twenty-third affirmative defense of no breach, and the twenty-seventh affirmative defense of no resulting damages challenge Cal. Farm’s ability to prove elements of its breach of contract claims. (Oasis West Realty, LLC v. Goldman, supra, 51 Cal.4th at p. 821.) The defenses are mere traverses and the demurrers are overruled.

Tenth Affirmative Defense

Cal. Farm argues that the tenth affirmative defense of offset fails because defendants do not allege any facts showing that the parties had cross-demands for money. The affirmative defense of offset requires “cross-demands for money [to] have existed between persons at any point in time when neither demand was barred by the statute of limitations.” (Code Civ. Proc., § 431.70.) The tenth affirmative defense does not include any facts showing that cross-demands for money existed between the parties at any point in time. Consequently, the demurrer to the tenth affirmative defense for failure to allege a defense is sustained with leave to amend.

Twelfth Affirmative Defense

Cal. Farm argues that the Court should sustain its demurrer to the twelfth affirmative defense because defendants do not allege facts showing that it intentionally relinquished a known right.

Defendants allege that Cal. Farm’s claims are barred by the doctrine of release because Cal. Farm’s Board of Trustees became aware of the deficit prior to 2012, but it failed to take timely action to resolve the deficit. Defendants contend that Cal Farm thereby intentionally relinquished a known right such that it is barred from recovering damages.

Based on these allegations, the twelfth affirmative defense is based on waiver, not on an executed release of claims. “Waiver is the intentional relinquishment of a known right after full knowledge of the facts” (DRG/Beverly Hills, Ltd. v. Chopstix Dim Sum Cafe & Takeout III, Ltd. (1994) 30 Cal.App.4th 54, 59.) Here, defendants allege sufficient facts showing that Cal. Farm had knowledge of the deficit and, thereafter, failed to timely resolve it. However, defendants do not plead facts demonstrating that Cal. Farm’s failure to timely resolve the deficit constituted an intentional relinquishment of a known right.

Thus, the demurrer to the twelfth affirmative defense on the ground of failure to allege sufficient facts to state a defense is sustained with leave to amend.

Seventeenth Affirmative Defense

Cal. Farm alleges that the seventeenth affirmative defense fails because the alleged agreements do not set out perpetual liability; even if the alleged contracts were in perpetuity, such an agreement is not void under California law; and the defense is pled as a terse legal conclusion.

The seventeenth affirmative defense alleges that the contract alleged in the complaint is void or unenforceable because the contract sets out liability into perpetuity. The seventeenth affirmative defense, as alleged, fails to state sufficient facts showing that the alleged contract is void for lack of a duration clause. The contract provision referenced by defendants simply provides that defendants are jointly and severally liable for paying the liabilities of group members resulting from an occurrence with a date of injury period their period of membership. (Complaint, Ex. C.) Nothing pled, or judicially noticeable, suggests that the membership in a self-insured group is perpetual, thus the duration of the contract does not continue in perpetuity. Accordingly, the demurrer to the seventeenth affirmative defense on the ground of failure to state a defense is sustained with leave to amend.

Nineteenth Affirmative Defense

Cal. Farm argues that the Court should sustain its demurrer to the nineteenth affirmative defense of unclean hands because defendants do not: identify the representatives on the Board of Trustees that purportedly favored other group members; state the timeframe of the alleged actions; describe how the representatives favored other group members; explain how the favoritism prejudiced them; or show that the favoritism has any bearing on the alleged breach of contract.

Affirmative defenses need only be pled in “ultimate facts” rather than evidentiary matter or legal conclusions. The answer must aver facts “as carefully and in as much detail as the facts which constitute the cause of action and which are alleged in the complaint.” (See In re Quantification Settlement Agreement Cases, supra, 201 Cal.App.4th at pp. 812–13.) Defendants have met that standard here by alleging that members of Cal. Farm’s Board of Trustees, who are representatives of members of the self-insured group, influenced assessment rate distributions in a manner that favored those members that had representatives on the Board of Trustees. These acts and others allegedly substantially contributed to Cal. Farm’s deficit. The identities of the Board Members and the time frame involved are evidentiary matter which can be found out in discovery. Accordingly, the demurrer to the nineteenth affirmative defense is overruled.

Twentieth Affirmative Defense

Cal. Farm argues that the twentieth affirmative defense of laches is unavailable because the claims for breach of contract are actions in law for which laches is not a

defense. This is correct. In Abbott v. City of Los Angeles (1958) 50 Cal.2d 438, the high court held that the equitable doctrine of laches was not available as an affirmative defense to a contract action for money damages. (Id. p. 498.) The demurrer to this affirmative defense is sustained without leave to amend.

Twenty-First Affirmative Defense

Cal. Farm argues that the twenty-first affirmative defense fails because unjust enrichment is a cause of action, not a defense.

Unjust enrichment is not a cause of action, nor a defense. (Melchior v. New Line Productions, Inc. (2003) 106 Cal.App.4th 779, 793 [Unjust enrichment is not a cause of action, however, or even a remedy, but rather “ ‘ “a general principle, underlying various legal doctrines and remedies” ’ …. [Citation.] It is synonymous with restitution.

[Citation.]”].) Defendants cite no legal authority, and the Court is aware of none, providing that unjust enrichment is an affirmative defense.

Therefore, the demurrer to the twenty-first affirmative defense is sustained without leave to amend.

Pursuant to California Rules of Court, rule 3.1312(a) and Code of Civil Procedure section 1019.5, subdivision (a), no further written order is necessary. The minute order adopting this tentative ruling will serve as the order of the court and service by the clerk will constitute notice of the order.

Tentative Ruling
Issued By: DSB on 02/26/18

(Judge’s initials) (Date)