Case Number: 16K07428 Hearing Date: January 17, 2018 Dept: 77

The Court, having taken this matter under submission and having considered the arguments of counsel and relevant case authority, now issues its final order.

Defendant Costco Wholesale Corporation’s Demurrer to the Second Amended Complaint is SUSTAINED without leave to amend.

The Motion to Strike is MOOT.

Background

On June 10, 2016, Plaintiff California Capital Insurance Co.’s (“Plaintiff”) filed this subrogation action. Plaintiff’s insureds, non-parties Sherry and Mark Young (collectively, the “Youngs” or “insureds”), purchased an HVAC unit at Defendant Costco Wholesale Corporation (“Costco”), which was sold and installed by Defendants Rowland Air, Inc. and its employees, Robert Avalos, Jeff Hanley, Jonathan Morales, and Javier Ramirez (collectively, “non-Costco Defendants”). Because of the purported improper installation of the HVAC and the property damages arising therefrom, Plaintiff paid the Youngs $24,421.22, under to their insurance policy, and filed this subrogation action to recover the damages.

On February 1, 2017, Plaintiff and non-Costco Defendants settled the matter as between themselves by which the non-Costco Defendants agreed to pay Plaintiff $24,422.22 (one dollar more than the damages alleged in the Complaint). The non-Costco Defendants were subsequently dismissed with prejudice, leaving Costco as the only remaining defendant.

On July 19, 2017, the Court granted Costco’s Motion for Judgment on the Pleadings as to the Complaint. On October 30, 2017, the Court sustained Costco’s Demurrer to the First Amended Complaint (“FAC”) for lack of standing. On November 9, 2017, Plaintiff filed a Second Amended Complaint (“SAC”), asserting causes of action for (1) breach of contract, (2) general negligence, and (3) intentional tort.

On December 11, 2017, Costco filed the instant Demurrer to and Motion to Strike the SAC. On December 28, 2017, Plaintiff filed (1) Opposition to the Motion to Strike, (2) Opposition to the Demurrer, and (2) Objections to Defendant’s Request for Judicial in Support of Its Demurrer. On January 4, 2018, Costco filed replies to the Demurrer and the Motion to Strike.

Meet and Confer

Pursuant to CCP § 430.41(a), “[b]efore filing a demurrer pursuant to this chapter, the demurring party shall meet and confer in person or by telephone with the party who filed the pleading that is subject to demurrer for the purpose of determining whether an agreement can be reached that would resolve the objections to be raised in the demurrer.” (Italic added.)

CCP § 430.41(a)(2) states: “The parties shall meet and confer at least five days before the date the responsive pleading is due. If the parties are not able to meet and confer at least five days prior to the date the responsive pleading is due, the demurring party shall be granted an automatic 30-day extension of time within which to file a responsive pleading, by filing and serving, on or before the date on which a demurrer would be due, a declaration stating under penalty of perjury that a good faith attempt to meet and confer was made and explaining the reasons why the parties could not meet and confer.” (Italics added.)

CCP § 430.41(a)(3) states: “The demurring party shall file and serve with the demurrer a declaration stating either of the following:

(A) The means by which the demurring party met and conferred with the party who filed the pleading subject to demurrer, and that the parties did not reach an agreement resolving the objections raised in the demurrer.

(B) That the party who filed the pleading subject to demurrer failed to respond to the meet and confer request of the demurring party or otherwise failed to meet and confer in good faith.”

(Italics added.)

Costco submits a declaration from its counsel and a meet-and-confer letter sent to Plaintiff, stating its meet-and-confer with Plaintiff failed to resolve the issues raised in the Demurrer and Motion to Strike. (Taylor Decl. ¶¶ 15-16, Exh. M.) The Court is satisfied with Costco’s meet-and-confer effort.

Timeliness

CCP section 430.40(a) states, “[a] person against whom a complaint or cross-complaint has been filed may, within 30 days after service of the complaint or cross-complaint, demur to the complaint or cross-complaint.” CRC 3.1322(b) provides: “A notice of motion to strike must be given within the time allowed to plead, and if a demurrer is interposed, concurrently therewith, and must be noticed for hearing and heard at the same time as the demurrer.” Courts have the discretion to consider untimely demurrer so long as their action does not affect the substantial rights of parties. (Jackson v. Doe (2011) 192 Cal.App.4th 742, 749.)

The Court notes that the Demurrer and Motion to Strike were filed on December 11, 2017, more than 30 days after the SAC was filed on November 9, 2017. Thus, the Demurrer and Motion to Strike are untimely by two days. The Court notes, however, that Plaintiff does not object to the untimeliness of the Demurrer or Motion to Strike, and the Court cannot discern any prejudicial effect to Plaintiff’s substantial right by considering the Demurrer and Motion to Strike. The Court, therefore, exercises its discretion and consider the Demurrer and Motion to Strike.

Legal Standards

The legal standard for a demurrer and a motion to strike is the same. “A demurrer tests the legal sufficiency of the factual allegations in a complaint.” (Ivanoff v. Bank of America, N.A. (2017) 9 Cal.App.5th 719, 725.) “The grounds for a motion to strike shall appear on the face of the challenged pleading or from any matter of which the court is required to take judicial notice.” (CCP § 437(a).) The Court looks to whether “the complaint alleges facts sufficient to state a cause of action or discloses a complete defense.” (Ivanoff, supra, 9 Cal.App.5th at 725.) The court “assume[s] the truth of the properly pleaded factual allegations, facts that reasonably can be inferred from those expressly pleaded and matters of which judicial notice has been taken.” (Id.) Additionally, “[i]n the construction of a pleading, for the purpose of determining its effect, its allegations must be liberally construed, with a view to substantial justice between the parties.” (CCP § 452.) “This rule of liberal construction means that the reviewing court draws inferences favorable to the plaintiff, not the defendant.” (Perez v. Golden Empire Transit Dist. (2012) 209 Cal.App.4th 1228, 1238.) Allegations in the complaint must not be read in isolation for purposes of a demurrer or a motion to strike. (Perkins v. Superior Court (1981) 117 Cal.App.3d 1, 6.)

“‘[U]nder the doctrine of truthful pleading, the courts ‘will not close their eyes to situations where a complaint contains allegations of fact inconsistent with attached documents, or allegations contrary to facts which are judicially noticed.’” (Ivanoff, supra, 9 Cal.App.5th at 725.) “‘Although a general demurrer does not ordinarily reach affirmative defenses, it ‘will lie where the complaint ‘has included allegations that clearly disclose some defense or bar to recovery.’ ‘Thus, a demurrer based on an affirmative defense will be sustained only where the face of the complaint discloses that the action is necessarily barred by the defense.’’” (Id.)

“Where the defect raised by a motion to strike or by demurrer is reasonably capable of cure, ‘leave to amend is routinely and liberally granted to give the plaintiff a chance to cure the defect in question.’” (CLD Const., Inc. v. City of San Ramon (2004) 120 Cal.App.4th 1141, 114.)

Discussion

A. Request for Judicial Notice

“In ruling on a demurrer a court may consider facts of which it has taken judicial notice.” (StorMedia Inc. v. Superior Court (1999) 20 Cal.4th 449, 457, fn. 9.) “Judicial notice may not be taken of any matter unless authorized or required by law.” (Evid. Code, § 450.) Evidence Code sections 451 and 452 list matters that are subject to judicial notice. “Although the existence of a document may be judicially noticeable, the truth of statements contained in the document and its proper interpretation are not subject to judicial notice if those matters are reasonably disputable.” (Fremont Indem. Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 113–14.) “Taking judicial notice of a document is not the same as accepting the truth of its contents or accepting a particular interpretation of its meaning.” (Id.) “On a demurrer a court’s function is limited to testing the legal sufficiency of the complaint. [Citation.] ‘A demurrer is simply not the appropriate procedure for determining the truth of disputed facts.’” (Id.) Documents subject to judicial notice must be properly authenticated. (Evid. Code, §§ 452(c)-(d), 1400.)

In support of its Demurrer, Costco requests that the Court take judicial notice of the following:

Exhibit “A”: Second Amended Complaint

Exhibit “B”: Original Complaint

Exhibit “C”: Plaintiff’s Responses to Defendant’s Special Interrogatories, Set One

Exhibit “D”: Plaintiff’s Responses to Defendant’s Form Interrogatories, Set One from Rowland Air

Exhibit “E”: Plaintiff’s Responses to Defendant’s Request for Production of Documents, Set One

Exhibit “F”: Plaintiff’s Verification of its Responses to Defendant’s Special Interrogatories, Set One, Form Interrogatories, Set One, and Request for Production of Documents, Set One

Exhibit “G”: Declaration of Bruce Graham Re: Defendants’ Motion to Compel Further Answers to Request for Admission

Exhibit “H”: Notice of Entry of Dismissal

Exhibit “I”: The Court’s Minute Order on July 19, 2017

Exhibit “J”: Rowland Air’s Form Interrogatories, Set One to Plaintiff

Exhibit “K”: Plaintiff’s First Amended Complaint

Exhibit “L”: The Court’s Tentative Ruling on Defendant’s Demurrer to Plaintiff’s FAC on October 30, 2017

Plaintiff filed Objections to Costco’s Request for Judicial Notice. Plaintiff contends that the Court should not take judicial notice of the truth of the matters stated in the exhibits and prior pleadings may not be considered in determining the sufficiency of the SAC. (Plaintiff’s Objections to Defendant’s RJN pp. 1-2.)

The Court notes that Exhibits “A,” “B,” “G,” “H,” “I,” “K,” and “L” are all in the court records. Therefore, the Court grants Costco’s request for judicial notice of the existence of these exhibits, but the Court does not accept the truth of their contents, unless they are not subject to reasonable dispute, or a particular interpretation of their meaning. (Fremont Indem. Co., supra, 148 Cal.App.4th 97, 113–14 [“Taking judicial notice of a document is not the same as accepting the truth of its contents or accepting a particular interpretation of its meaning.”]; see also Lockley v. Law Office of Cantrell, Green, Pekich, Cruz & McCort (2001) 91 Cal.App.4th 875, 882 [“[W]hile courts are free to take judicial notice of the existence of each document in a court file, including the truth of results reached, they may not take judicial notice of the truth of hearsay statements in decisions and court files.”].)

As for Exhibits “C,” “D,” “E,” “F,” and “J,” the Court may only take judicial notice

of discovery responses “to the extent ‘they contain statements of the [party] or his agent which are inconsistent with the allegations of the pleading before the court.” (Bounds v. Superior Court (2014) 229 Cal.App.4th 468, 477 (quoting Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 605).) Further, the Court may not draw inferences from Plaintiff’s discovery responses and find that, based on the inferences, that Plaintiff’s SAC is untruthful. (See Williams v. Southern California Gas Co. (2009) 176 Cal.App.4th 591, 600.) Accordingly, the Court grants Costco’s request for judicial of the submitted discovery responses to the extent permitted by Bounds, supra, 229 Cal.App.4th 468 and Williams, supra, 176 Cal.App.4th 591.

B. Demurrer

Costco demurs to the SAC, arguing that (1) Plaintiff’s breach of contract claim fails to state sufficient facts, (2) the intentional tort claim is barred by statutes of limitations, and (3) Plaintiff lacks standing to bring this subrogation action. The Court will first address the dispositive issue of whether Plaintiff has standing to bring this action for recovery of damages.

Plaintiff’s Standing in a Subrogation Action

Before the Court delves into the issue of standing, a detailed review of the procedural history of this action and the Court’s previous rulings is useful.

On July 19, 2017, the Court ruled on Costco’s Motion for Judgment on the Pleadings as to Plaintiff’s Complaint (the “July 19, 2017 Order”). In its ruling, Court noted that Plaintiff’s Complaint alleged $24,421.22 in damages, but Plaintiff had settled its claims against the non-Costco Defendants for $24,422.22 – one dollar more than the damages stated in the Complaint. (July 19, 2017 Order, p. 7.) Pursuant to CCP § 1032 and case law, the Court found that the settlement amount of one dollar over the amount of damages Plaintiff was alleging meant that Plaintiff could not obtain a “net monetary recovery” (a judgment for actual damages over zero, which excluded costs and attorney’s fees in the calculation) against Costco. (Id.) Accordingly, the Court further found that Plaintiff could not be deemed a “prevailing party” under CCP § 1032 and, thus, did not state a viable cause of action against Costco for either actual damages, costs, attorney’s fees, or interest. (Id.) For these reasons, the Court granted Costco’s Motion for Judgment on the Pleadings on the Complaint with leave to amend. (Id. p. 9.)

On October 30, 2017, the Court ruled on Costco’s Demurrer to the FAC (the “October 30, 2017 Order”). In its ruling, the Court noted that the FAC did not allege that Plaintiff’s claims against Costco were based on its assignment of rights from its insureds. (October 30, 2017 Order, p. 3.) The Court further found that because the written contract at issue for the HVAC was between the Youngs and non-Costco Defendants, Plaintiff did not have standing based on the contract to bring this action for breach of contract and negligence against Costco. (Id. pp. 5-6.) The Court also found that Plaintiff failed to allege any other basis for standing to bring its breach of contract and negligence claims against Costco either. (Id.) For these reasons, the Court sustained Costco’s Demurrer to Plaintiff’s FAC with leave to amend. (Id. p. 6.) In light of these rulings, the Court now turns to Costco’s Demurrer to the SAC.

a. Merits

“Subrogation is the ‘substitution of another person in place of the creditor or claimant to whose rights he or she succeeds in relation to the debt or claim.’ [Citation.] ‘In the case of insurance, subrogation takes the form of an insurer’s right to be put in the position of the insured in order to pursue recovery from third parties legally responsible to the insured for a loss which the insurer has both insured and paid. [Citations.]’” (Interstate Fire & Casualty Ins. Co. v. Cleveland Wrecking Co. (2010) 182 Cal. App. 4th 23, 31-32, italics added.) “Under the doctrine of subrogation, when an insurer pays money to its insured for a loss caused by a third party, the insurer succeeds to its insured’s rights against the third party in the amount the insurer paid.” (Hodge v. Kirkpatrick Development, Inc. (2005) 130 Cal. App. 4th 540, 548, italics added.)

“The essential elements of an insurer’s cause of action for equitable subrogation are as follows: (a) the insured suffered a loss for which the defendant is liable, either as the wrongdoer whose act or omission caused the loss or because the defendant is legally responsible **303 to the insured for the loss caused by the wrongdoer; (b) the claimed loss was one for which the insurer was not primarily liable; (c) the insurer has compensated the insured in whole or in part for the same loss for which the defendant is primarily liable; (d) the insurer has paid the claim of its insured to protect its own interest and not as a volunteer; (e) the insured has an existing, assignable cause of action against the defendant which the insured could have asserted for its own benefit had it not been compensated for its loss by the insurer; (f) the insurer has suffered damages caused by the act or omission upon which the liability of the defendant depends; (g) justice requires that the loss be entirely shifted from the insurer to the defendant, whose equitable position is inferior to that of the insurer; and (h) the insurer’s damages are in a liquidated sum, generally the amount paid to the insured.” (Fireman’s Fund Ins. Co. v. Maryland Casualty Co. (1998) 65 Cal.App.4th 1279, 129, italics added.)

As the cited case law provides, an insurer’s damages in a subrogation action are limited to the amount it paid to the insured. In the SAC, Plaintiff seeks damages that its insureds’ suffered, “including the payment of $8,084 for the purchase and installation of the air conditioner,” the loss of use of the premises, and other damages as may be presented at the time of trial. (SAC ¶ GN-1.) Plaintiff, however, does not allege in the SAC that it paid these damages to its insureds.

In the Demurrer, Costco contends that Plaintiff lacks standing in this action because the amount of damages Plaintiff is seeking in the SAC contradicts the amount of damages it previously asserted in the Complaint and its discovery responses. (Demurrer pp. 12-14.) Costco cites to the Complaint and Plaintiff’s discovery responses where Plaintiff asserted that the damages it was seeking were $24,421.22 in property damages only, which did not include damages assert in the SAC for $8,084 for the purchase and installation of the air conditioner and the loss of use of the premises. (Id.) Costco also contends that Plaintiff’s subrogation action is barred as a matter of law because an insurer may not seek damages greater than the amount of that the insurer paid to its insured. (Id. p. 14.)

The Court agrees. The SAC alleges that Plaintiff’s standing to bring the breach of contract and negligence claims against Costco is based on an assignment of rights by its insureds. (SAC ¶ 13.) Plaintiff has not alleged that the assignment of rights by the insureds was solely for losses not covered by the insurance policy in place and that the damages sought in this action are unrelated to the water damage incident for which the non-Costco defendants paid $24,422.22. At the hearing on this motion, Plaintiff argued that this action is not a subrogation case because this case is based on an “independent basis” arising out of an assignment of “uninsured losses.” The Court disagrees. There is no independent basis from which to analyze this demurrer and the SAC as the allegations in the SAC are intertwined and dependent on the claims for damages for which the non-Costco defendants settled. (SAC ¶ 13.)

Thus, the Court finds that Plaintiff’s action against Costco is a subrogation action. The Court also notes that in Plaintiff’s responses to request for production of documents, Plaintiff produced letters and a statement of loss showing that it paid its insureds $24,421.22 and is seeking the same in damages. (Demurrer, Exh. E.) The $24,421.22 corresponds with the amount of damages Plaintiff originally alleged in its Complaint for the amount of repairs paid to its insureds. (Compl. ¶¶ 14, BC-4.) In its Objections to Costco’s Request for Judicial Notice, Plaintiff does not contest the facts Plaintiff provided in its verified discovery responses or Complaint. The Court, therefore, takes judicial notice of these facts as they are Plaintiff’s own statements and records not subject to reasonable dispute.

In the SAC, Plaintiff alleges additional damages for the purchase and installation of a replacement air conditioner and the loss of use of its insureds’ premises, but Plaintiff does not allege that these damages were part of the payment it made to its insureds. Because Plaintiff paid its insureds $24,421.22 in damages, the Court finds that Plaintiff cannot seek damages greater than that amount under established legal principles. Therefore, Plaintiff lacks standing to bring the instant subrogation action against Costco for a greater amount of damages than it suffered as a result of its payment to its insureds.

In opposition, Plaintiff contends that “in equity, by statute, and under contract by way of an assignment,” an insurer may bring action for damages beyond the sums it paid to its insureds. (Opp. to Demurrer p. 2.) Plaintiff cites to Patent Scaffolding Co. v. William Simpson Const. Co. (1967) 256 Cal.App.2d 506, 510; Pacific Indemnity Co. v. American Mutual Ins. Co. (1972) 28 Cal.3d 983, 998; and CCP § 875(e) in support of its argument (id.), but does not explain how. The Court has reviewed Patent, supra, 256 Cal.App.2d 506 and Pacific Indemnity Co., supra, 28 Cal.3rd 983, and it does not appear the cases support Plaintiff’s proposition.

As for CCP § 875(e), the statute states: “A liability insurer who by payment has discharged the liability of a tortfeasor judgment debtor shall be subrogated to his right of contribution.” Thus, CCP § 875(e) applies when the issue of contribution is involved. In Fireman’s Fund Ins. Co., supra, 65 Cal.App.4th at 1291, the Court of Appeals held:

“Equitable contribution is entirely different. It is the right to recover, not from the party primarily liable for the loss, but from a co-obligor who shares such liability with the party seeking contribution. In the insurance context, the right to contribution arises when several insurers are obligated to indemnify or defend the same loss or claim, and one insurer has paid more than its share of the loss or defended the action without any participation by the others.”

In this context, it does not appear Plaintiff “has paid more than its share of the loss or defended the action without any participation by the others [co-obligators],” so it is unclear to the Court how the theory of contribution applies here.

Plaintiff also cites to Shifrin v. McGuire & Hester Const. Co. (1966) 239 Cal.App.2d 420, 423 for the proposition that “assignment from policyholder to insurer transferred rights to recover for damage to both insured and uninsured property.” (Opp. to Demurrer p. 2.) The issue here is not whether Plaintiff can recover damages for uninsured property, but whether Plaintiff can recover damages in a subrogation action above the amount it paid to its insureds – the actual damages Plaintiff suffered. Therefore, Shifrin, supra, is distinguishable.

Plaintiff’s last citation is, Jones v. Martin (1953) 41 Cal.2d 23, 26 overruled by Fracasse v. Brent (1972) 6 Cal.3d 784, which Plaintiff argues stands for the proposition that “assignment by insured transfer all the insured’s rights, including the right to compromise or waive the claims.” (Opp. to Demurrer p. 3.) The issue is not whether Plaintiff has the right to bring a subrogation action, but, again, whether Plaintiff can recover damages in a subrogation action above the amount it paid to its insureds. Therefore, Jones, supra, is distinguishable. Based on the above-cited case law, an insurer’s damages in a subrogation action are limited by the amount it paid to its insured.

Because Plaintiff’s subrogation action is limited by the amount it paid, which Plaintiff has recovered in full through its settlement with the non-Costco Defendants, the Court finds that Plaintiff does not have standing to bring the instant action.

At the hearing on this Demurrer and Motion to Strike on January 11, 2018, Plaintiff argued that its assignment of rights from the Youngs is an independent assignment of rights that is not subject to the subrogation rule. Having reviewed the pleadings, the Court is not persuaded.

In its SAC, Plaintiff asserts its standing to bring the instant action for the $8,084 in damages for the purchase and installation of the air conditioner and the loss of use of the premises as follows:

“At all material times Plaintiff was the property insurer of Sherri and Mark Young. Plaintiff paid insurance benefits suffered to the home of Youngs as alleged herein and acquired by assignment of rights to bring the instant claims for damages.” (SAC ¶ 13.) Elsewhere in the SAC, Plaintiff painstakingly describes the negligence of the non-Costco defendants who caused the water damage to the insured’s property (a covered loss), then alleges that non-covered losses also occurred. (SAC, first and second causes of action for negligence.)

In effect, Plaintiff is alleging that the assignment of rights that it acquired from the Youngs arose from their insurer-insured relationship, as distinct from an express, independent assignment of rights. Unquestionably, the SAC is premised on a subrogation action. “The insurer merely had a cause of action arising by way of subrogation or equitable assignment.” (Dibble v. San Joaquin Light & Power Corp. (1920) 47 Cal.App. 112, 117; see also Caledonia Ins. Co. v. Northern Pac. Ry. Co. (1905) 32 Mont. 46 [“[S]ubrogation is merely an equitable assignment, or an assignment by operation of law.”] Accordingly, Plaintiff’s recovery through their assignment of rights arising from their insurer-insured relationship with the Youngs is limited by the amount of damages it “insured and paid” as with any subrogation action. (Interstate Fire and Cas. Ins. Co., supra, 182 Cal.App.4th at 32 [“In the case of insurance, subrogation takes the form of an insurer’s right to be put in the position of the insured in order to pursue recovery from third parties legally responsible to the insured for a loss which the insurer has both insured and paid.”], italics added; see also San Diego Assemblers, Inc. v. Work Comp for Less Insurance Services, Inc. (2013) 220 Cal.App.4th 1363, 1368. [“An insurer’s right to subrogation is delimited by the application of equitable principles and not by the law of assignments.”].)

Having found that Plaintiff lacks standing to maintain this action, the Court need not address the arguments made in the demurrer as to why the causes of action are deficient.

Defendant Costco Wholesale Corporation’s Demurrer to the Second Amended Complaint is sustained without leave to amend, and the Motion to Strike is therefore moot.

Defendant to give notice.