Dolce International/San Jose, LLC v. City of San Jose,California

• Court: District Court, N.D. California
• Decided: October 6, 2020
• Docket: 5:20-cv-03774
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 SAN JOSE DIVISION 7 DOLCE INTERNATIONAL/SAN JOSE, 8 LLC, Case No. 5:20-cv-03774-EJD

9 Plaintiff, ORDER GRANTING PARTIAL MOTION TO DISMISS 10 v. Re: Dkt. No. 14 11 CITY OF SAN JOSE,CALIFORNIA, 12 Defendant.

13 Before the Court is Defendant the City of San Jose’s (the “City”) motion to dismiss certain 14 claims brought by Plaintiff Dolce International/San Jose LLC (“Dolce”) pursuant to Federal Rule 15 of Civil Procedure 12(b)(6). See Defendant’s Partial Motion to Dismiss, Dkt. No. 14 (“Motion”). 16 The Court took the matter under submission for decision without oral argument pursuant to Civil 17 Local Rule 7-1(b). For the reasons below, the Court GRANTS the City’s motion. 18 I. Background 19 In 2003, the City and Dolce entered into a management agreement (Dkt. No 1-1, Complaint Ex. A, (“Management Agreement”)) by which Dolce would run and manage the City’s 20 historic Hayes Mansion as a conference center and hotel. Dkt. No. 1 (“Compl.”) ¶ 13. 21 Under the Management Agreement, the Parties agreed that Dolce would manage Hayes 22 Mansion using funds drawn from an operating account funded by the City but maintained by 23 Dolce. See Management Agreement § 2.4. These funds would be used to pay all “Operating 24 Expenses” associated with managing the property, including, among other things, “the cost of 25 wages, salaries, incentives and bonuses, severance or settlement payments to terminated 26 employees” as well as “legal, accounting and other professional fees and expenses (including 27 1 settlement costs approved by the [City]) incurred with respect to matters directly relating to the 2 operation of the [property],” such as “resolution of employee claims.” Id. § 1.35. 3 In December 2017, a former Hayes Mansion employee brought a lawsuit alleging various 4 wage-and-hour claims against Dolce on behalf of a purported class of employees. Dolce ultimately 5 paid a total of $630,201.69 to settle the claims (the “Settlement Payment”). Compl. ¶¶ 20-21. 6 In December 2018, the City notified Dolce that the City had entered into a Purchase and 7 Sale Agreement for the sale of the property. Id. ¶ 24. In light of that notice and subsequent sale, 8 the Management Agreement terminated effective February 4, 2019. Id. ¶ 26. A couple months 9 later, Dolce asked the City to pay a termination fee and other fees as provided in the Management 10 Agreement. Id. ¶¶ 22, 27. Under the Management Agreement, termination of the agreement 11 triggers payment of a “Termination Fee equal to the lesser of (i) one time the sum of the Base and 12 Incentive Management Fees,” as defined by the Management Agreement, “earned by [Dolce] in 13 the twelve (12) months immediately prior to the Termination effective date or (ii) $800,000.” Id. ¶ 14 22. Dolce calculated the Termination Fee to be $480,325.41. Id. ¶ 28. The City paid Dolce 15 $391,523.36 “in partial satisfaction of the Termination Fee,” but Dolce contends the City still 16 owes a balance of $88,802.05. Id. ¶ 29. 17 Prior to the closing of the Purchase and Sale Agreement for the sale of Hayes Mansion, 18 Dolce additionally requested that the City make appropriate arrangements to comply with certain 19 requirements under the Employee Retirement Income Security Act of 1974 (“ERISA”) in order to 20 avoid a withdrawal from the retirement fund in which Dolce’s unionized personnel participated. 21 Id. ¶ 33. The City did not make any such arrangements and the retirement fund assessed a 22 “withdrawal liability” of $1,136,944.00 against the City. Id. ¶¶ 33-34. The City notified the 23 retirement fund that the withdrawal liability was Dolce’s responsibility, and the retirement fund 24 thereafter pursued both the City and Dolce for the payment.1 Id. ¶¶ 35-41. Dolce maintains that 25

26 1 The retirement fund is separately suing both the City and Dolce to collect the withdrawal liability 27 in a related lawsuit before this Court. Unite Here Retirement Fund et al v. City Of San Jose, Case No. 5:20-cv-06069-EJD. 1 the City is obligated to indemnify Dolce for the withdrawal liability pursuant to certain 2 indemnification provisions in the Management Agreement. Specifically, Dolce cites Section 17.2 3 of the Management Agreement, which requires the City to “indemnify, defend and hold [Dolce] 4 for, from and against any costs, loss, damage or expense (including but not limited to, reasonable 5 attorneys’ fees and all court costs and other expenses of litigation, whether or not recoverable 6 under local law) resulting from (I) the fraud, negligence or willful misconduct of the Owner, and 7 (ii) payment of Operating Expenses.” Id. ¶ 18. Dolce also cites Section 11.6, which states 8 “[u]pon the termination of this Agreement for any reason . . . [a]ny obligations incurred in the 9 operation of the [property], which were incurred in accordance with the provisions of th[e 10 Management] Agreement, shall be assumed by the [City], and the [City] shall indemnify and hold 11 [Dolce] harmless against all claims, demands, or liabilities made against [Dolce] with respect to 12 any such obligation and all expenses incurred by [Dolce] in connection therewith.” Compl. ¶ 23. 13 On June 8, 2020, Dolce brought this lawsuit against the City seeking payment based on (i) 14 the City’s failure to pay past-due fees and Operating Expenses, including the Settlement Payment; 15 (ii) the City’s failure to pay a termination fee after it sold the property; and (iii) the City’s failure 16 to indemnify Dolce for the Withdrawal Liability. Id. ¶¶ 18, 23, 27, 37. Dolce brought claims for 17 (1) breach of contract for failure to pay past due fees; (2) unjust enrichment for failure to pay past 18 due fees; (3) breach of good faith and fair dealing for failure to pay past due fees; (4) breach of 19 fiduciary duty for failure to pay operating expenses; (5) breach of contract for failure to pay the 20 termination fee; (6) unjust enrichment for failure to pay the termination fee; (7) breach of good 21 faith and fair dealing for failure to pay the termination fee; (8) breach of contract for failure to pay 22 the withdrawal liability; (9) unjust enrichment for failure to pay the withdrawal liability; (10) 23 breach of good faith and fair dealing for failure to pay the withdrawal liability; (11) indemnity for 24 the withdrawal liability; (12) breach of fiduciary duty for failure to pay the withdrawal liability; 25 and (13) declaratory relief stating that the City must indemnify Dolce for the withdrawal liability. 26 The City filed the present motion seeking to dismiss Dolce’s claims for equitable or tort 27 relief, arguing that such remedies are duplicative and impermissible where Dolce also brings 1 breach of contract claims. Specifically, the City seeks to dismiss Dolce’s claims for unjust 2 enrichment (Claims 2, 6, and 9), breach of fiduciary duty (Claims 4 and 12), and equitable 3 indemnity (Claim 11). The City does not seek to dismiss the breach of contract or breach of good 4 faith and fair dealing claims, and in fact, concedes that the Parties have an “enforceable contract.” 5 Motion, p. 1. Dolce opposes the motion, arguing that it is entitled to pursue alternative and even 6 inconsistent claims under Rule 8(d)(2) and (3) of the Federal Rules of Civil Procedure and 7 California law. Plaintiff’s Opposition To Defendant’s Partial Motion To Dismiss, Dkt. No. 15 8 (“Opposition”), p. 1. 9 II. Legal Standard 10 Federal Rule of Civil Procedure 8(a) requires a plaintiff to plead each claim with sufficient 11 specificity to “give the defendant fair notice of what the . . . claim is and the grounds upon which 12 it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S. Ct. 1955, 167 L. Ed. 2d 929 13 (2007) (internal quotations omitted). A complaint which falls short of the Rule 8(a) standard may 14 be dismissed if it fails to state a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). 15 To survive a Rule 12(b)(6) motion to dismiss, the complaint “must contain sufficient factual 16 matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 17 556 U.S. 662, 678, 129 S. Ct. 1937, 173 L. Ed. 2d 868 (2009) (quoting Bell Atlantic Corp., 550 18 U.S. at 570). A claim has facial plausibility when the plaintiff pleads factual content that allows 19 the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. 20 Id. Dismissal “is proper only where there is no cognizable legal theory or an absence of sufficient 21 facts alleged to support a cognizable legal theory.” Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 22 2001). 23 Under Rule 8(d), “[a] party may set out 2 or more statements of a claim or defense 24 alternatively or hypothetically, either in a single count or defense or in separate ones. If a party 25 makes alternative statements, the pleading is sufficient if any one of them is sufficient.” Fed. R. 26 Civ. P. 8(d)(2), (3). A claim should not be dismissed “unless it appears beyond doubt that plaintiff 27 can prove no set of facts in support of his claim which would entitle him to relief. Van Buskirk v. 1 Cable News Network, Inc., 284 F.3d 977, 980 (9th Cir. 2002) (citation omitted). 2 III. Discussion 3 a. Unjust Enrichment 4 The City first argues that Dolce’s claim for unjust enrichment must be dismissed because it 5 is duplicative of Dolce’s breach of contract claim. In general, “[i]f two parties have a valid and 6 enforceable written contract, the plaintiff is not generally permitted to proceed on a claim in quasi- contract.” Schulz v. Cisco Webex, LLC, No. 13-CV-04987-BLF, 2014 WL 2115168, at *5 (N.D. 7 Cal. May 20, 2014) (citing Klein v. Chevron U.S.A., Inc., 202 Cal. App. 4th 1342, 8 1388, 137 Cal. Rptr. 3d 293 (2012)); see also California Med. Ass’n, Inc. v. Aetna U.S. Healthcare 9 of California, Inc., 94 Cal. App. 4th 151, 172, 114 Cal. Rptr. 2d 109 (2001) (“a quasi-contract 10 action or unjust enrichment does not lie where, as here, express binding agreements exist and 11 define the parties’ rights . . . When parties have an actual contract covering a subject, a court 12 cannot – not even under the guise of equity jurisprudence – substitute the court’s own concepts of 13 fairness regarding that subject in place of the parties’ own contract.”) (internal quotations and 14 citations omitted). 15 Dolce acknowledges that it will not be able to recover on both the breach of contract and 16 unjust enrichment claims, but argues that it is permitted to raise alternative claims at the pleading 17 stage. Rule 8(d) of the Federal Rules of Civil Procedure expressly permits parties to raise 18 alternative and even inconsistent claims. Fed. R. Civ. P. 8(d); see Molsbergen v. United States, 19 757 F.2d 1016, 1018–19 (9th Cir. 1985). Even though Rule 8 permits inconsistent claims at the 20 pleading stage, it “it does not alter a substantive right between the parties and accordingly does not 21 allow a plaintiff invoking state law to [state] an unjust enrichment claim while also alleging an 22 express contract.” Brodsky v. Apple Inc., 445 F. Supp. 3d 110 (N.D. Cal. 2020) (citting Deras v. 23 Volkswagen Grp. of Am., Inc., No. 17-CV-05452-JST, 2018 WL 2267448, at *3 (N.D. Cal. May 24 17, 2018) and Gerlinger v. Amazon.Com, Inc., 311 F. Supp. 2d 838, 856 (N.D. Cal. 2004)). 25 Indeed, “a plaintiff may not plead the existence of an enforceable contract and maintain a quasi- 26 contract claim at the same time, unless the plaintiff has pled facts suggesting that the contract may 27 be unenforceable or invalid.” Jacobs v. Sustainability Partners LLC, No. 20-CV-01981-PJH, 1 2020 WL 5593200, at *17 (N.D. Cal. Sept. 18, 2020) (quoting Schulz, 2014 WL 2115168, at *5); 2 see also Klein, 202 Cal. App. 4th at 1389; World Surveillance Grp. Inc. v. La Jolla Cove 3 Investors, Inc., Case No. 13–CV–03455–WHO, 2014 WL 1411249 (N.D. Cal. Apr. 11, 2014) 4 (dismissing claim for restitution based on unjust enrichment where plaintiff explicitly alleged 5 existence of enforceable contract). 6 Dolce affirmatively alleges that the Parties are bound by the Management Agreement and does not allege any facts suggesting that the Management Agreement may be unenforceable or 7 invalid. Dolce relies on Sunday’s Child, LLC v. Irongate, in which the court declined to dismiss 8 an unjust enrichment claim at an early stage. Sunday’s Child, LLC v. Irongate AZREP BW LLC, 9 No. CV 13-00502 DKW-RLP, 2017 WL 561338, at *6–7 (D. Haw. Feb. 10, 2017). In that case, it 10 was not clear from the complaint whether the dispute could be “answered entirely” by the legal 11 and contract claims. Id. at 6. Unlike Sunday’s Child, the complaint in this case makes clear that 12 the unjust enrichment claims are based entirely on the City’s alleged obligations under the 13 Management Agreement. In fact, Dolce expressly bases its unjust enrichment claims on the 14 existence of the Management Agreement itself. See e.g. Compl. ¶¶ 49-50 (“Despite its obligation 15 to do so, the City has failed to pay the Past-Due Fees due and owing to Dolce San Jose under the 16 Management Agreement . . . The City’s failure to compensate Dolce San Jose constitutes unjust 17 enrichment”) (emphasis added). 18 Because Dolce fails to allege that the express contract governing the Parties conduct may 19 be unenforceable or invalid, the Complaint fails to state a claim for unjust enrichment, even in the 20 alternative. See Brodsky, 445 F. Supp. 3d at 134 (granting motion to dismiss unjust enrichment 21 claim “because Plaintiffs fail[ed] to allege that their contract with [defendant] is unenforceable or 22 invalid” and therefore, “the [complaint] fail[ed] to state a quasi-contract claim for unjust 23 enrichment.”); Lansmont Corp. v. SPX Corp., No. 5:10-CV-05860 EJD, 2011 WL 2463281, at *5 24 (N.D. Cal. June 20, 2011) (granting motion to dismiss unjust enrichment claim because complaint 25 alleged that a valid, enforceable contract existed); In re Facebook Privacy Litig., 791 F. Supp. 2d 26 705, 718 (N.D. Cal. 2011), aff’d, 572 F. App’x 494 (9th Cir. 2014) (same); Clear Channel 27 Outdoor, Inc. v. Bently Holdings California LP, No. C-11-2573 EMC, 2011 WL 6099394, at *9 1 (N.D. Cal. Dec. 7, 2011) (same). 2 The City’s motion to dismiss Dolce’s claims for unjust enrichment is GRANTED. 3 Because Dolce’s failure to state a claim may be cured with additional facts, the claims are 4 dismissed with leave to amend. 5 b. Breach of Fiduciary Duty 6 The City next argues that Dolce’s breach of fiduciary duty claims should be dismissed 7 because (1) the City owed no fiduciary duty to Dolce, and (2) the claims are duplicative of the 8 breach of contract claims. As an initial matter, the complaint alleges that Dolce acted as the City’s 9 agent in managing the property. There is no doubt that a principal owes certain duties to an agent, 10 just as the agent owes certain duties to the principal. See generally Restatement (Third) Of 11 Agency § 8 (2006) (“Duties of Agent and Principal to Each Other”). 12 Dolce cites to Fidelity Mortgage Trustee Service, Inc. v. Ridgegate East Homeowners 13 Association, for the proposition that “an agent is entitled to indemnification by its principal for 14 losses incurred by the agent in the execution of the agency.” Fid. Mortg. Tr. Serv., Inc. v. 15 Ridgegate E. Homeowners Assn., 27 Cal. App. 4th 503, 509–11, 32 Cal. Rptr. 2d 521 (1994) 16 (citing Restatement (Second) of Agency § 438 (1958)). Both Fidelity, and the Restatement of 17 Law to which it cites, however, make clear that the principal is only subject to such a duty 18 “[u]nless otherwise agreed.” Id.; see also Restatement (Second) of Agency § 438 (1958) (stating 19 that “[a] principal is under a duty to indemnify the agent in accordance with the terms of the 20 agreement with him” and listing duties that apply “[i]n the absence of terms to the contrary in the 21 agreement of employment”). Thus, because the Management Agreement includes multiple 22 express indemnity provisions to which the Parties agreed, the City’s duty to indemnify Dolce is 23 governed by the contract, and the remedy for breaching those duties is based in contract, not tort. 24 The fiduciary duty claims are therefore DISMISSED without prejudice. 25 c. Equitable Indemnity Dolce brings one claim for indemnity related to the withdrawal liability. Compl. ¶¶ 85-88. 26 Dolce states that this claim is made “in the alternative to its causes of action above related to 27 1 breach of the express indemnity provision in the Management Agreement” and that the City’s 2 actions “resulted in damages to [Dolce], including attorneys’ fees and costs already incurred, for 3 which the City is contractually or equitably responsible.” Compl. ¶¶ 85, 88. As with the unjust 4 enrichment and fiduciary duty claims above, the City argues that Dolce’s equitable indemnity 5 claims fail because they are impermissibly duplicative of the breach of contract claims and Dolce 6 argues that it is permitted to plead equitable indemnity in the alternative. “Indemnity may be defined as the obligation resting on one party to make good a loss or 7 damage another party has incurred. This obligation may be expressly provided for by contract, it 8 may be implied from a contract not specifically mentioning indemnity, or it may arise from the 9 equities of particular circumstances.” Rossmoor Sanitation, Inc. v. Pylon, Inc., 13 Cal. 3d 622, 10 628, 532 P.2d 97 (1975). Where “the parties expressly contract with respect to the duty to 11 indemnify, the extent of that duty must be determined from the contract and not by reliance on the 12 independent doctrine of equitable indemnity.” Id.; see also Krag v. Kaiser Found. Hosps., No. C 13 89-3042 TEH, 1993 WL 226108, at *5 (N.D. Cal. June 15, 1993) (“‘an express indemnity clause 14 is accorded a certain preemptive effect, displacing any implied rights which might otherwise arise’ 15 . . . including both equitable and implied indemnification”) (quoting E. L. White, Inc. v. City of 16 Huntington Beach, 21 Cal. 3d 497, 507–08, 579 P.2d 505 (1978)). 17 In Liftech Consultants Inc. v. Samsung Shipbuilding & Heavy Indus., Ltd., the defendant 18 sought to dismiss the plaintiff’s claims for equitable indemnity, arguing that it was barred by 19 plaintiff’s claim for contractual indemnity. Liftech Consultants Inc. v. Samsung Shipbuilding & 20 Heavy Indus., Ltd., No. C 10-2976 SBA, 2010 WL 4510905 (N.D. Cal. Nov. 2, 2010). The 21 plaintiff argued that it was permitted to plead the claims in the alternative, but the court held that 22 the question of “whether [plaintiff] is permitted to plead alternative theories is inapposite.” Id. at 23 4. The court held that because “an express indemnity agreement governs the parties’ relationship . 24 . . [plaintiff] is legally precluded from pursuing claims for equitable indemnity.” Id. (citing 25 Maryland Cas. Co. v. Bailey & Sons, Inc., 35 Cal. App. 4th 856, 864, 872–73, 41 Cal. Rptr. 2d 26 519 (1995) (holding that equitable indemnity claims were “barred by the express indemnity 27 provisions in the parties’ contracts”)). 1 Dolce relies on E.L. White, in which the California Supreme Court held that “when parties 2 || by express contractual provision establish a duty in one party to indemnify another, the extent of 3 that duty must be determined from the contract and not from the independent doctrine of equitable 4 || indemnity.” E. L. White, Inc., 21 Cal. 3d at 500. The court further held that “when . . □ the duty 5 || established by contract is by the terms and conditions of its creation inapplicable to the particular 6 || factual setting before the court, the equitable principles of implied indemnity may come into play.” 7 Id. Unlike in E.L. White, where there was no provision requiring the defendant to indemnify the 8 plaintiff, the Management Agreement in the present case includes an express contractual provision 9 requiring the City to indemnify Dolce in certain circumstances. Thus, the Court finds that the 10 || exPress indemnity provisions in the Management Agreement preclude Dolce’s equitable indemnity claim. 10 Dolce’s indemnity claim is, therefore, DISMISSED with leave to amend.

IV. Conclusion

3 4 For the reasons stated above, the City’s partial motion to dismiss is GRANTED and S Claims 2, 4, 6, 9, 11, and 12 are DISMISSED without prejudice for failure to state a claim. 2 15 Plaintiff may file an amended complaint, if any, by no later than October 28, 2020. 16 IT IS SO ORDERED. 17 Dated: October 6, 2020 Z 18 19 EDWARD J. DAVILA United States District Judge 21 22 23 24 25 26 27 28 || Case No.: 5:20-cv-03774-EJD ORDER GRANTING PARTIAL MOTION TO DISMISS