1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 11 ZURICH AMERICAN INSURANCE No. 2:18-cv-02066-TLN-CKD COMPANY OF ILLINOIS, 12 Plaintiff, 13 ORDER v. 14 VFORCE INC.; CORTECH, LLC; and Does 15 1 to 100, inclusive, 16 Defendants. 17
18 VFORCE INC., 19 Cross-Claimant, 20 v. 21 CORTECH, LLC,
22 Cross-Defendant. 23
24 /// 25 /// 26 /// 27 /// 28 1 VFORCE INC., 2 Third-Party Plaintiff, 3 v. 4 BEAN TEAM NETWORK 2 LLC; CAPSERV, INC.; KAISERKANE 5 CONSULTING, LLC; MICHAEL 6 DiMANNO; RICHARD GARDNER; CHARLES MUSGROVE; MELISSA 7 OGLESBY; HYBRID FINANCIAL GROUP, LLC; CHARLES FORBES; and Roes 1 8 through 30 inclusive,
9 Third-Party Defendants. 10 11 12 13 This matter is before the Court on Cross-Defendant CorTech, LLC (“CorTech”) and 14 Third-Party Defendants Accuire, LLC (“Accuire”), CapServ, Inc. (“CapServ”), KaiserKane, 15 Michael DiManno (“DiManno”), Richard Gardner (“Gardner”), Charles Musgrove (“Musgrove”), 16 Melissa Oglesby (“Oglesby”), and Charles Adam Forbes’s (“Forbes”) separate Motions to 17 Dismiss Defendant/Cross-Complainant/Third-Party Plaintiff VForce Inc.’s (“VForce”) Cross- 18 Complaint and Third-Party Complaint. (ECF Nos. 21, 38, 40, 61.) VForce opposed all motions. 19 (ECF Nos. 28, 45, 46, 62.) Only Forbes filed a Reply. (ECF No. 63.) 20 Also before the Court is VForce’s Motion for Leave to Amend its Cross-Complaint and 21 Third-Party Complaint and for Permissive Joinder. (ECF No. 51.) Eight of the Third-Party 22 Defendants filed an Opposition to the Motion and VForce filed a Reply. (ECF Nos. 54–55.) 23 Lastly before the Court is Cory Barnwell of Barnwell Law Group, P.C.’s (“Barnwell”) 24 uncontested Motion to Withdraw as counsel for seven of the eight Third-Party Defendants he 25 represents. (ECF No. 48.) 26 For the reasons stated herein, VForce’s Motion to Amend and for Permissive Joinder 27 (ECF No. 51) is GRANTED. The Motions to Dismiss the Cross-Complaint and Third-Party 28 Complaint filed by CorTech, Accuire, CapServ, KaiserKane, DiManno, Gardner, Musgrove, and 1 Oglesby (ECF Nos. 21, 38, 40) are DENIED as moot. Forbes’s Motion to Dismiss the Third- 2 Party Complaint (ECF No. 61) is GRANTED with leave to amend. Further, Barnwell’s Motion 3 to withdraw (ECF No. 48) is GRANTED. 4 I. FACTUAL AND PROCEDURAL BACKGROUND 5 Plaintiff Zurich American Insurance Company of Illinois (“Plaintiff”) initiated this action 6 against Defendants VForce and CorTech (collectively, “Defendants”) on July 28, 2018. (ECF 7 No. 1.) Immediately thereafter, the Court issued an Initial Pretrial Scheduling Order. (ECF No. 8 5.) 9 On January 30, 2019, Plaintiff filed a First Amended Complaint (“FAC”). (ECF No. 6.) 10 The FAC generally alleges that Plaintiff entered into an agreement to issue a workers’ 11 compensation insurance policy (the “Policy”) to Defendants in exchange for an initial premium 12 payment, plus a supplemental payment in an amount to be determined by a post-remuneration 13 audit of the Policy (the “Zurich Agreement”). (Id. at 3.) However, after Plaintiff completed the 14 remuneration audit, Defendants failed to pay the additional amount owed, despite multiple 15 requests. (Id.) Plaintiff further alleges VForce merged with and became the wholly-owned 16 subsidiary of CorTech on or about April 23, 2018. (Id.) The FAC asserts a single cause of action 17 against Defendants for breach of contract. (Id. at 3–4.) On March 12, 2019, VForce filed an 18 Answer to the FAC. (ECF No. 14.) 19 That same day, VForce also filed a Cross-Complaint and Third-Party Complaint seeking 20 express and equitable indemnification, and breach of contract damages from CorTech and ten 21 Third-Party Defendants: Bean Team Network 2, LLC (“Bean Team”); Kaiserkane Consulting, 22 LLC (“Kaiserkane”); Hybrid Financial Group, LLC (“Hybrid”); Accuire; CapServ; Gardner; 23 Oglesby; Forbes; Musgrove; and DiManno (collectively, the “Third-Party Defendants”). (ECF 24 No. 15.) The Cross-Complaint/Third-Party Complaint alleges that VForce and Bean Team 25 entered into an asset purchase agreement on December 22, 2014 (“VForce Agreement”). (Id. at 26 10–16 (Ex. A).) Pursuant to a defense and indemnification clause in the VForce Agreement, 27 Bean Team agreed to indemnify VForce for any additional amounts due to Plaintiff under the 28 Zurich Agreement for the Policy. (Id. at 5, 11–12.) According to the Cross-Complaint/Third- 1 Party Complaint, Bean Team breached the VForce Agreement when it failed to pay Plaintiff the 2 supplemental payment owed on the Policy and failed to defend and indemnify VForce. (Id. at 6– 3 7.) As to the other Third-Party Defendants, VForce alleges Accuire later merged with or acquired 4 Bean Team, and CapServ, Kaiserkane, DiManno, Gardner, Musgrove, and Oglesby were 5 “Members” of Bean Team. (Id. at 3.) Bean Team subsequently dissolved and these Third-Party 6 Defendants, as successors-in-interest to Bean Team, became responsible for Bean Team’s 7 obligations to VForce under the VForce Agreement. (Id. at 3–6.) Lastly, VForce alleges that 8 Forbes and Hybrid were the insurance broker and agent for VForce and Bean Team “with regards 9 to the purchase from Zurich of [the Policy].” (Id. at 3, 6.) 10 On April 3, 2019, CorTech filed a Motion to Dismiss the Cross-Complaint pursuant to 11 Federal Rule of Civil Procedure (“Rule”) 12(b)(6). (ECF No. 21.) Thereafter, Third-Party 12 Defendants Accuire, CapServ, KaiserKane, DiManno, Gardner, Musgrove, and Oglesby moved 13 to dismiss the Third-Party Complaint, also pursuant to Rule 12(b)(6). (ECF Nos. 38, 40.) Bean 14 Team and Hybrid answered the Third-Party Complaint. (ECF Nos. 39, 44.) Though filed 15 separately, each motion to dismiss similarly challenges the Cross-Complaint and Third-Party 16 Complaint on the grounds that VForce fails to allege facts establishing each moving Defendant’s 17 liability where it was not a party to either the VForce Agreement or the Zurich Agreement. 18 VForce filed separate Oppositions to each Motion to Dismiss. (ECF Nos. 28, 45, 46.) No replies 19 were filed. 20 On August 6, 2019, attorney Barnwell filed a Motion to Withdraw as counsel for the 21 Third-Party Defendants Bean Team, CapServ, Kaiserkane, DeManno, Gardner, Musgrove, and 22 Oglesby. (ECF No. 48.) Barnwell seeks to withdraw on the basis that the Third-Party 23 Defendants voluntarily terminated him and hired another attorney to represent them. Barnwell’s 24 Motion is unopposed. 25 On August 22, 2019, VForce filed a “Motion for Leave to Amend Its Crossclaim and 26 Third-Party Complaint and for Permissive Joinder” pursuant to Rules 15 and 20. (ECF No. 51.) 27 By that Motion, VForce seeks to join eight of the current Third-Party Defendants as Cross- 28 Defendants to the Cross-Complaint and proposes additional allegations to support its existing 1 three claims, plus six new causes of action: (1) breach of the implied covenant of good faith and 2 fair dealing; (2) false promise; (3) intentional misrepresentation; (4) negligent misrepresentation; 3 (5) conspiracy; and (6) unfair competition. (Id.) On September 5, 2019, CorTech and the same 4 eight Third-Party Defendants opposed the Motion to Amend on the basis of undue delay. (ECF 5 No. 54.) The Third-Party Defendants further opposed the Motion for Permissive Joinder on the 6 basis that the proposed crossclaims against them are not related to Plaintiff’s allegations in the 7 Complaint. (Id.) VForce filed a reply. (ECF No. 55.) 8 On November 26, 2019, Forbes filed a Motion to Dismiss the Third-Party Complaint 9 pursuant to Rule 12(b)(6). (ECF No. 61.) Forbes argues that VForce’s claim for equitable 10 indemnity fails as a matter of law because California law does not permit equitable apportionment 11 of damages for breach of contract claims and Forbes is not jointly and severally liable to Plaintiff. 12 (ECF No. 61 at 5–8.) VForce opposed Forbes’s Motion to Dismiss and Forbes filed a Reply. 13 (ECF Nos. 62–63.) 14 The Court will address each motion in turn. 15 II. MOTION TO AMEND THE CROSS-COMPLAINT AND THIRD-PARTY COMPLAINT 16 AND FOR PERMISSIVE JOINDER 17 Defendant/Cross-Complainant/Third-Party Plaintiff VForce seeks to amend the Cross- 18 Complaint and Third-Party Complaint to include additional facts and claims against Cross- 19 Defendant CorTech and the Third-Party Defendants based on recently discovered facts supporting 20 these new claims that arise out of the same transaction and/or occurrence as the original claims. 21 VForce additionally seeks to join eight of the ten current Third-Party Defendants as Cross- 22 Defendants pursuant to Rule 20. (ECF No. 51.) CorTech and the eight identified Third-Party 23 Defendants oppose the Motion.1 (ECF No. 54.) 24 /// 25
1 VForce seeks to join Third-Party Defendants Bean Team, Accuire, CapServ, KaiserKane, 26 DiManno, Gardner, Musgrove, and Oglesby (and not Hybrid or Forbes) as Cross-Defendants in 27 its First Amended Cross-Complaint and Third-Party Complaint. For purposes of discussion regarding this motion only, these eight Third-Party Defendants will be referred to collectively as 28 the Third-Party Defendants. 1 A. Standards of Law 2 i. Amendment Under Federal Rules of Civil Procedure 15 and 16 3 Granting or denying leave to amend a complaint rests within the sound discretion of the 4 trial court. Foman v. Davis, 371 U.S. 178, 182 (1962). When a court issues a pretrial scheduling 5 order that establishes a timetable to amend the complaint, Rule 16 governs any amendments to 6 the complaint. Coleman v. Quaker Oats Co., 232 F.3d 1271, 1294 (9th Cir. 2000). To allow for 7 amendment under Rule 16, a plaintiff must show good cause for not having amended the 8 complaint before the time specified in the pretrial scheduling order. Id. This standard “primarily 9 considers the diligence of the party seeking the amendment.” Johnson, 975 F.2d at 609. 10 Although the existence or degree of prejudice to the party opposing the modification might 11 supply additional reasons to deny a motion, the focus of the inquiry is on the reasons why the 12 moving party seeks to modify the complaint. Id. If that party was not diligent, the inquiry should 13 end. Id. Ultimately, a district court has “broad discretion” to alter the schedule. United States v. 14 Flynt, 756 F.2d 1352, 1358 (9th Cir. 1985). 15 If good cause exists, the moving party must next demonstrate that the proposed 16 amendment is permissible under Rule 15. Johnson, 975 F.2d at 608 (citing Forstmann v. Culp, 17 114 F.R.D. 83, 85 (M.D.N.C. 1987). Under Rule 15(a)(2), a party may amend its pleading only 18 with the opposing party’s written consent or the Court’s leave. However, “[t]he court should 19 freely give leave [to amend] when justice so requires,” bearing in mind “the underlying purpose 20 of Rule 15 ... [is] to facilitate decision on the merits, rather than on the pleadings or 21 technicalities.” Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (en banc). Whether leave to 22 amend should be granted is generally determined by considering the following factors: (1) undue 23 delay; (2) bad faith or dilatory motive on the part of the movant; (3) repeated failure to cure 24 deficiencies by amendments previously allowed; (4) undue prejudice to the opposing party by 25 allowing amendment; and (5) futility of amendment. See Foman, 371 U.S. at 182; Allen v. City of 26 Beverly Hills, 911 F.2d 367, 373 (9th Cir. 1990)). Of these considerations, “it is the consideration 27 of prejudice to the opposing party that carries the greatest weight.” Eminence Capital, LLC v. 28 Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003) (per curiam). “Absent prejudice, or a strong 1 showing of any of the remaining Foman factors, there exists a presumption under Rule 15(a) in 2 favor of granting leave to amend.” Id. (emphasis in original). A proposed amendment is futile 3 “only if no set of facts can be proved under the amendment to the pleadings that would constitute 4 a valid and sufficient claim or defense.” Miller v. Rykoff-Sexton, Inc., 845 F.2d 209, 214 (9th Cir. 5 1988); United States v. Corinthian Colleges, 655 F.3d 984, 995 (9th Cir. 2011). However, denial 6 of leave to amend on this ground is rare. See Netbula, LLC v. Distinct Corp., 212 F.R.D. 534, 7 539 (N.D. Cal. 2003). Ordinarily, “courts will defer consideration of challenges to the merits of a 8 proposed amended pleading until after leave to amend is granted and the amended pleading is 9 filed.” Id. 10 ii. Permissive Joinder Under Federal Rule of Civil Procedure 20 11 Permissive joinder is to be liberally construed in order to promote trial convenience and to 12 expedite the final determination of disputes, thereby preventing multiple lawsuits. Cuprite Mine 13 Partners LLC v. Anderson, 809 F.3d 548, 552 (9th Cir. 2015). The purpose of Rule 20(a) is to 14 address the “broadest possible scope of action consistent with fairness to the parties; joinder of 15 claims, parties and remedies is strongly encouraged.” United Mine Workers of Am. v. Gibbs, 383 16 U.S. 715, 724 (1966). 17 Under Rule 20, joinder of defendants is proper if: “(A) any right to relief is asserted 18 against them jointly, severally, or in the alternative with respect to or arising out of the same 19 transaction, occurrence, or series of transactions or occurrences; and (B) any question of law or 20 fact common to all the defendants will arise in the action.” Fed. R. Civ. P. 20(a)(2); see League 21 to Save Lake Tahoe v. Tahoe Regl. Plan. Agency, 558 F.2d 914, 917 (9th Cir. 1977). 22 The first prong, the “same transaction” requirement, refers to similarity in the factual 23 background of a claim. Coughlin v. Rogers, 130 F.3d 1348, 1350 (9th Cir. 1997). Courts assess 24 the facts of each case individually to determine whether joinder is sensible in light of the 25 underlying policies of permissive party joinder. See id. Although there might be different 26 occurrences, where the claims involve enough related operative facts, joinder in a single case may 27 be appropriate. Accordingly, all “logically related” events entitling a person to institute a legal 28 action against another generally are regarded as comprising a transaction or occurrence. See 1 Mosley v. Gen. Motors Corp., 497 F.2d 1330, 1333 (8th Cir. 1974) (citing 7 C. WRIGHT, 2 FEDERAL PRACTICE AND PROCEDURE § 1653 at 270 (1972)). 3 The second prong of the joinder test addresses commonality. Commonality under Rule 4 20(a)(1)(B) is not a particularly stringent test. See Robinson v. Geithner, No. 1:05-cv-01258- 5 LJO-SKO, 2011 WL 66158, at *5 (E.D. Cal. Jan. 10, 2011). The Rule requires only a single 6 common question, not multiple common questions. See Fed. R. Civ. P. 20. Further, the common 7 question may be one of fact or of law and need not be the most important or predominant issue in 8 the litigation. See Mosley, 497 F.2d at 1333. 9 Finally, once the first two requirements are met, a district court must examine whether 10 permissive joinder would “comport with the principles of fundamental fairness ….” Coleman, 11 232 F.3d at 1296. This may include consideration of factors such as the possible prejudice that 12 may result to any of the parties in the litigation, the delay of the moving party in seeking an 13 amendment to his pleadings, the motive that the moving party has in seeking such amendment, 14 the closeness of the relationship between the new and the old parties, the effect of an amendment 15 on the court’s jurisdiction, and the new party’s notice of the pending action. Desert Empire Bank 16 v. Insurance Co. of North America, 623 F.2d 1371, 1375 (9th Cir. 1980). 17 B. Analysis 18 i. Motion to Amend 19 VForce argues leave to amend is proper because the pleadings are not yet settled 20 (CorTech and the Third-Party Defendants’ Motions to Dismiss are still pending) and therefore 21 there has been no undue delay and no prejudice to any of the parties. (ECF No. 51-1 at 4.) 22 VForce further argues amendment promotes judicial economy because it will permit VForce to 23 avoid pursuing its additional claims against CorTech and the Third-Party Defendants in a separate 24 state court action and therefore will prevent a multiplicity of lawsuits. (Id.) The only apparent 25 basis for CorTech and the Third-Party Defendants’ Opposition is that VForce “unduly delayed” in 26 bringing the motion until six months after filing its initial Cross-Complaint/Third-Party 27 Complaint and should have asserted the proposed additional facts and claims in its original Cross- 28 Complaint/Third-Party Complaint. (ECF No. 54 at 2, 4–5.) 1 As an initial matter, the Court notes it issued an Initial Pretrial Scheduling Order on July 2 30, 2018, establishing a deadline for joinder of parties and amendments to pleadings. (ECF No. 5 3 at 2.) Consequently, VForce’s motion is governed by the requirements set forth under Rule 16, 4 and VForce is required to establish “good cause” exists to modify the Scheduling Order before it 5 may seek leave to amend under Rule 15. Johnson, 975 F.2d at 608. However, VForce did not 6 specifically request that the Court modify its Scheduling Order; it merely moved to amend the 7 Cross-Complaint/Third-Party Complaint. (ECF No. 50.) For this reason alone, Ninth Circuit 8 case law supports a district court’s denial of a motion to amend as untimely. See Johnson, 975 9 F.2d at 608–09 (citing Jauregui v. City of Glendale, 852 F.2d 1128, 1133–34 (9th Cir.1988); U.S. 10 Dominator, Inc. v. Factory Ship Robert E. Resoff, 768 F.2d 1099, 1104 (9th Cir.1985), 11 superseded by statute on other grounds, Simpson v. Lear Astronics Corp., 77 F.3d 1170 (9th Cir. 12 1996); Dedge v. Kendrick, 849 F.2d 1398 (11th Cir.1988). 13 Nevertheless, the Ninth Circuit also indicated a court may treat a motion to amend as a de 14 facto motion to amend the scheduling order, Johnson, 975 F.2d at 608–09, and the Court finds the 15 circumstances of this case warrant doing so here. Construing the instant motion as one to amend 16 the scheduling order, the Court finds good cause exists to grant VForce leave to amend. 17 First, the Court notes the “Joint Scheduling Report” filed by Plaintiff, Defendants VForce 18 and CorTech, and Third-Party Defendants CapServe, Kaiserkane, DiManno, Gardner, Musgrove, 19 and Oglesby indicates the parties were still evaluating the need for joinder and amendment as of 20 June 12, 2019, and proposed a deadline of November 1, 2019, for joining parties. (ECF No. 41 at 21 3, 5.) Thus, in light of the parties’ self-imposed deadline, VForce’s Motion to Amend and for 22 Permissive Joinder, filed on August 22, 2019, appears timely and demonstrates appropriate 23 diligence in attempting to adhere to the pretrial schedule. Further, because motions to dismiss the 24 original Cross-Complaint/Third-Party Complaint are still pending, the Court finds the initial 25 pretrial schedule could not reasonably be met despite VForce’s diligence. The Court therefore 26 finds good cause exists to amend the Initial Pretrial Scheduling Order to allow VForce to seek 27 leave to amend its Cross-Complaint/Third-Party Complaint. 28 /// 1 Having established good cause exists under Rule 16, the Court turns to the parties’ 2 arguments under Rule 15. On balance, the Court finds the Foman factors support granting leave 3 to amend. See Foman, 371 U.S. at 182. Here, VForce seeks leave to amend its Cross- 4 Complaint/Third-Party Complaint for the first time, the pleadings are not yet settled as to all 5 parties, discovery has not been completed, and no trial dates have been set by the Court. By 6 contrast, the cases relied upon in the Opposition are easily distinguishable, as amendment in those 7 cases was sought at a much later stage in the litigation and after several previous attempts to 8 amend. See, e.g., Texaco Inc. v. Ponsoldt, 939 F.2d 794, 798–99 (9th Cir. 1991) (affirming denial 9 of motion to amend due to undue delay where amendment was sought after discovery ended, 10 eight months after summary judgment was granted, and four and a half months before trial); 11 Allen, 911 F.2d at 373–74 (affirming denial of leave to file fourth amended complaint where 12 further amendment would be futile). Further, granting VForce’s Motion to Amend, which was 13 filed after the pending Motions to Dismiss and appears to address the deficiencies identified in 14 those Motions, would promote judicial economy rather than cause any undue delay. For these 15 reasons, the Court also finds the risk of prejudice to the parties, if any, is minimal. Finally, the 16 Opposition raises no argument that amendment would be futile.2 (See ECF No. 54); see also 17 Netbula, LLC, 212 F.R.D. at 539. Accordingly, VForce’s Motion to Amend the Cross- 18 Complaint/Third-Party Complaint is GRANTED. 19 ii. Motion for Permissive Joinder 20 By way of the same Motion, VForce additionally seeks to join eight Third-Party 21 Defendants as Cross-Defendants. More specifically, VForce proposes amended allegations 22 demonstrating CorTech and the Third-Party Defendants conspired to commit certain torts and 23 therefore became jointly and severally liable to VForce for the indemnity obligations owed to 24 VForce by Bean Team, pursuant to the VForce Agreement. (ECF No. 51-1 at 5.) VForce argues 25 these claims therefore involve the same transaction, occurrence, or series of transactions and
26 2 The Court acknowledges that Third-Party Defendant Forbes filed a motion to dismiss the 27 Cross-Complaint/Third-Party Complaint after the instant motion to amend was fully briefed, seeking dismissal on the basis that any amendment to the claim asserted against him would be 28 futile. The Court will separately address Forbes’s motion to dismiss herein. 1 occurrences: Bean Team’s indemnity obligation to VForce and the issue of which parties became 2 responsible for that obligation after Bean Team was dissolved. (Id. at 6.) The Third-Party 3 Defendants oppose the joinder on the basis that Plaintiff does not pursue any claims against the 4 Third-Party Defendants and there are no common questions of law or fact between Plaintiff and 5 the Third-Party Defendants. (ECF No. 54 at 2.) 6 The Court agrees with VForce. The relevant part of the VForce Agreement concerns the 7 defense and indemnification clause under which Bean Team agreed to indemnify VForce for any 8 additional amounts due to Plaintiff under the Zurich Agreement for the Policy. Since Plaintiff is 9 suing VForce for the additional amounts due on the Policy pursuant to the Zurich Agreement, 10 VForce’s claims for indemnification naturally arise from the same series of transactions. See 11 Coughlin, 130 F.3d at 1350. Similarly, VForce’s tort claims relate to wrongful actions 12 purportedly taken by the Cross-Defendant and Third-Party Defendants to avoid these 13 indemnification obligations and are therefore part of the same series of transactions and 14 occurrences. The determination of whether/which parties are liable for the remaining amounts 15 due on Plaintiff’s Policy is also a question of law or fact sufficiently common to all parties, 16 satisfying the second prong of the Rule 20 analysis. See Mosley, 497 F.2d at 1333–34. The 17 Third-Party Defendants’ argument that joinder should be denied because Plaintiff does not pursue 18 any claims against them (ECF No. 54 at 2) is unavailing. The Third-Party Defendants identify no 19 legal authority in support of such a narrow application of the permissive joinder rule. 20 Finally, for the same reasons that support granting VForce’s Motion to Amend, the Court 21 finds the proposed joinder is not prejudicial to any of the parties, but rather promotes judicial 22 efficiency and prevents the risk of conflicting or overlapping judgments. Desert Empire Bank, 23 623 F.2d at 1375; League to Save Lake Tahoe, 558 F.2d at 917–18. Accordingly, the Court 24 GRANTS VForce’s Motion for Permissive Joinder as to Third-Party Defendants Bean Team, 25 Accuire, CapServe, Kaiserkane, DiManno, Gardner, Musgrove, and Oglesby. (ECF No. 51.) 26 /// 27 /// 28 /// 1 III. MOTIONS TO DISMISS THE CROSS-COMPLAINT/THIRD-PARTY COMPLAINT (ECF 2 NOS. 21, 38, 40) 3 Cross-Defendants/Third-Party Defendants CorTech, Accuire, CapServ, KaiserKane, 4 DiManno, Gardner, Musgrove, and Oglesby’s Motions to Dismiss the Cross-Complaint/Third- 5 Party Complaint (ECF Nos. 21, 38, 40) were filed prior to Defendant/Third-Party Plaintiff 6 VForce’s Motion to Amend the Cross-Complaint and Third-Party Complaint, and the arguments 7 raised therein were adequately addressed by the Motion to Amend and proposed amendments (see 8 ECF No. 51-2). Accordingly, the Motions to Dismiss the Cross-Complaint/Third-Party 9 Complaint filed by CorTech, Accuire, CapServ, KaiserKane, DiManno, Gardner, Musgrove, and 10 Oglesby are hereby DENIED as moot. (ECF Nos. 21, 38, 40.) 11 IV. FORBES’S MOTION TO DISMISS THE THIRD-PARTY COMPLAINT (ECF NO. 61) 12 Defendant/Third-Party Plaintiff VForce alleges Third-Party Defendant Forbes was VForce 13 and Bean Team’s insurance broker who facilitated the purchase of the workers’ compensation 14 Policy from Plaintiff Zurich. VForce asserts one claim against Forbes for equitable indemnity, 15 based on Forbes’s purported “wrongful actions” during facilitation of the “purchase from Zurich 16 of the [Policy].” (ECF No. 15.) Forbes moves to dismiss on the basis that California law does 17 not permit equitable apportionment of damages for breach of contract claims and Forbes is not 18 jointly and severally liable to Plaintiff. (ECF No. 61.) 19 A. Standard of Law 20 A motion to dismiss for failure to state a claim under Rule 12(b)(6) tests the legal 21 sufficiency of a complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). Rule 8(a) 22 requires that a pleading contain “a short and plain statement of the claim showing that the pleader 23 is entitled to relief.” See Ashcroft v. Iqbal, 556 U.S. 662, 678–79 (2009). Under notice pleading 24 in federal court, the complaint must “give the defendant fair notice of what the claim . . . is and 25 the grounds upon which it rests.” Bell Atlantic v. Twombly, 550 U.S. 544, 555 (2007) (internal 26 quotations omitted). “This simplified notice pleading standard relies on liberal discovery rules 27 and summary judgment motions to define disputed facts and issues and to dispose of 28 unmeritorious claims.” Swierkiewicz v. Sorema N.A., 534 U.S. 506, 512 (2002). 1 On a motion to dismiss, the factual allegations of the complaint must be accepted as true. 2 Cruz v. Beto, 405 U.S. 319, 322 (1972). A court is bound to give the plaintiff the benefit of every 3 reasonable inference to be drawn from the “well-pleaded” allegations of the complaint. Retail 4 Clerks Int’l Ass’n v. Schermerhorn, 373 U.S. 746, 753 n.6 (1963). A plaintiff need not allege 5 “‘specific facts’ beyond those necessary to state his claim and the grounds showing entitlement to 6 relief.” Twombly, 550 U.S. at 570. “A claim has facial plausibility when the plaintiff pleads 7 factual content that allows the court to draw the reasonable inference that the defendant is liable 8 for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556). 9 Nevertheless, a court “need not assume the truth of legal conclusions cast in the form of 10 factual allegations.” United States ex rel. Chunie v. Ringrose, 788 F.2d 638, 643 n.2 (9th Cir. 11 1986). While Rule 8(a) does not require detailed factual allegations, “it demands more than an 12 unadorned, the defendant–unlawfully–harmed–me accusation.” Iqbal, 556 U.S. at 678. A 13 pleading is insufficient if it offers mere “labels and conclusions” or “a formulaic recitation of the 14 elements of a cause of action.” Twombly, 550 U.S. at 555; see also Iqbal, 556 U.S. at 678 15 (“Threadbare recitals of the elements of a cause of action, supported by mere conclusory 16 statements, do not suffice.”). Moreover, it is inappropriate to assume that the plaintiff “can prove 17 facts that it has not alleged or that the defendants have violated the . . . laws in ways that have not 18 been alleged.” Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 19 U.S. 519, 526 (1983). 20 Ultimately, a court may not dismiss a complaint in which the plaintiff has alleged “enough 21 facts to state a claim to relief that is plausible on its face.” Iqbal, 556 U.S. at 697 (quoting 22 Twombly, 550 U.S. at 570). Only where a plaintiff has failed to “nudge[] [his or her] claims . . . 23 across the line from conceivable to plausible,” is the complaint properly dismissed. Id. at 680. 24 While the plausibility requirement is not akin to a probability requirement, it demands more than 25 “a sheer possibility that a defendant has acted unlawfully.” Id. at 678. This plausibility inquiry is 26 “a context–specific task that requires the reviewing court to draw on its judicial experience and 27 common sense.” Id. at 679. 28 /// 1 If a complaint fails to state a plausible claim, “[a] district court should grant leave to 2 amend even if no request to amend the pleading was made, unless it determines that the pleading 3 could not possibly be cured by the allegation of other facts.” Lopez, 203 F.3d at 1130 (quoting 4 Doe v. United States, 58 F.3d 484, 497 (9th Cir. 1995)); see also Gardner v. Marino, 563 F.3d 5 981, 990 (9th Cir. 2009) (finding no abuse of discretion in denying leave to amend when 6 amendment would be futile). 7 B. Analysis 8 Forbes argues VForce’s claim for equitable indemnity must fail because California law 9 does not permit equitable apportionment of damages for breach of contract claims and the 10 underlying suit in this action is a single cause of action for breach of contract. (ECF No. 61 at 2, 11 5–7.) Further, Forbes argues equitable indemnity is only available among tortfeasors who are 12 jointly and severally liable for the plaintiff’s injury, which Forbes is not. (Id. at 2, 8–9.) In 13 opposition, VForce argues Forbes’s motion is premised on a “fundamental misunderstanding of 14 the differences between implied contractual indemnity and traditional equitable indemnity under 15 California law,” and that VForce’s claim against Forbes is viable under implied contractual 16 indemnity principles. (ECF No. 62 at 3–4.) The Court disagrees. 17 Equitable indemnity is an equitable doctrine that apportions responsibility among 18 tortfeasors responsible for the same indivisible injury on a comparative fault basis. American 19 Motorcycle Assn. v. Superior Court, 20 Cal. 3d 578, 598 (1978). “[T]he equitable indemnity 20 doctrine originated in the common sense proposition that when two individuals are responsible 21 for a loss, but one of the two is more culpable than the other, it is only fair that the more culpable 22 party should bear a greater share of the loss.” Id. at 593. Historically, the obligation of indemnity 23 took three forms: (1) indemnity expressly provided for by contract (express indemnity); (2) 24 indemnity implied from a contract not specifically mentioning indemnity (implied contractual 25 indemnity); and (3) indemnity arising from the equities of particular circumstances (traditional 26 equitable indemnity). Prince v. Pac. Gas & Elec. Co., 45 Cal. 4th 1151, 1157 (2009) (citing PPG 27 Industries, Inc. v. Transamerica Ins. Co., 20 Cal. 4th 310, 318 (1999).) Currently, the California 28 Supreme Court recognizes only two basic categories of indemnity: express indemnity and 1 equitable indemnity. Prince, 45 Cal. 4th at 1157. Implied contractual indemnity is considered “a 2 form of equitable indemnity.” Id. (citing E. L. White, Inc. v. City of Huntington Beach, 21 Cal. 3d 3 497, 506–07 (1978)). 4 Within the category of equitable indemnity, traditional equitable indemnity and implied 5 contractual indemnity differ to the extent that traditional equitable indemnity is “rooted in 6 principles of equity” and “requires no contractual relationship between an indemnitor and an 7 indemnitee,” whereas implied contractual indemnity presupposes a contractual relationship that 8 supports a right to indemnification not rooted in an express contract term. See Prince, 45 Cal. 4th 9 at 1158–59; Exxess Electronixx v. Heger Realty Corp., 64 Cal. App. 4th 698, 714 (1998); E. L. 10 White, Inc., 21 Cal. 3d at 506–07. However, both forms of equitable indemnity share a key 11 feature that distinguishes them from express indemnity: unlike express indemnity, neither 12 traditional equitable indemnity nor implied contractual indemnity is available “in the absence of a 13 joint legal obligation to the injured party.” Prince, 45 Cal. 4th at 1160–61. Under this principle, 14 the indemnitee and indemnitor must share liability for the injury. See Children’s Hospital v. 15 Sedgwick, 45 Cal. App. 4th 1780, 1787 (1996) (“there can be no indemnity without liability.”) 16 Therefore, no indemnity may be obtained from an entity that has no pertinent duty to the injured 17 third party, that is immune from liability, or that has been found not to be responsible for the 18 injury. Prince, 45 Cal. 4th at 1159–61, 1166 n.10, 1168–69; Children’s Hospital, 45 Cal. App. 19 4th at 1787. 20 VForce’s equitable indemnity claim against Forbes — premised on a theory of implied 21 contractual indemnity — fails for two reasons. First, VForce has not alleged the existence of a 22 contractual relationship between itself and Forbes that would suggest express or implied 23 contractual indemnity is appropriate. As VForce correctly notes, the right to implied contractual 24 indemnity is predicated on the indemnitor’s breach of contract. See Bay Dev., Ltd. v. Superior 25 Court, 50 Cal. 3d 1012, 1029 (1990) (noting an implied contractual indemnity claim is based on 26 “contractual language not specifically dealing with indemnification”). Yet, glaringly absent from 27 /// 28 /// 1 VForce’s Cross-Complaint/Third-Party Complaint are allegations showing any contractual 2 relationship between VForce and Forbes.3 For this reason alone, VForce’s claim fails. 3 Second, as Forbes correctly notes, the underlying action is premised on Plaintiff’s claim 4 for breach of contract against CorTech and VForce with respect to payments owed on the Policy. 5 (ECF No. 61-1 at 4; ECF No. 6.) Forbes did not contract with Plaintiff, therefore, Forbes is not 6 jointly and severally liable to Plaintiff for breach of contract. (See id.) In its Opposition, VForce 7 seems to all-but concede that Forbes is not jointly and severally liable by arguing that implied 8 contractual indemnity claims are distinct from traditional equitable indemnity claims in that they 9 do not require the indemnitor and indemnitee be joint tortfeasors. (ECF No. 62 at 7–8.) 10 However, this argument is unavailing. Prince, 45 Cal. 4th at 1166 n.10 (“Our reiteration that 11 indemnity is restitutionary in nature and our recognition of a shared liability requirement will 12 avoid transforming a breach of contract claim into a vehicle for the recovery of tort damages.”) 13 To that end, VForce’s reliance on West v. Superior Court, 27 Cal. App. 4th 1625 (1994) 14 for this contention is misplaced. The Court notes that West pre-dates Prince and was overruled to 15 the extent it conflicts with Prince’s holding that “implied contractual indemnity has always been 16 subject to the rule that ‘there can be no indemnity without liability.’” Prince, 45 Cal. 4th at 1165. 17 “Indeed, [the Prince court’s] recognition that ‘a claim for implied contractual indemnity is a form 18 of equitable indemnity subject to the rules governing equitable indemnity claims’ . . . corrects any 19 misimpression that joint liability is not a component of such claims.” Id. at 1166. For this reason 20 as well, VForce’s claim fails. 21 In its Opposition, VForce requests leave to amend in the event the Court grants Forbes’s 22 Motion to Dismiss. VForce claims it can assert factual allegations demonstrating a contractual 23
24 3 In opposition to Forbes’s motion, VForce argues its equitable indemnity claim survives under the implied contractual indemnity theory because VForce alleged, “in Paragraphs 27 to 30 25 … that: (1) Forbes acted under an agreement to represent VForce as its insurance agent; (2) Forbes performed his duties negligently; and (3) such conduct caused any liability that VForce 26 may owe to Zurich in this case.” (ECF No. 62 at 5.) However, absolutely none of this language 27 appears in the Cross-Complaint/Third-Party Complaint (or the proposed Amended Cross- Complaint/Third-Party Complaint) and VForce’s egregious misrepresentation to this Court is not 28 well-taken. 1 relationship between VForce and Forbes that affects liability to Plaintiff in this case. (ECF No. 2 62 at 9.) Notably, VForce’s proposed First Amended Cross-Complaint/Third-Party Complaint is 3 similarly devoid of allegations relating to a contract with Forbes. (See ECF No. 51-2 at ¶¶ 9, 19, 4 22, 27, 45.) Moreover, it is not clear from VForce’s allegations whether Forbes purportedly 5 facilitated the initial Zurich Agreement, the subsequent VForce Agreement, or both. Nor is it 6 immediately clear to the Court that VForce’s claim against Forbes has accrued. See Southern 7 Pacific Transportation Co. v. Ohbayashi America Corp., 147 Cal. App. 3d 233, 238–39 (1983) 8 (claims for equitable indemnity and implied contractual indemnity accrue “at the time the 9 indemnity claimant suffers loss or damage—that is, at the time of payment of the underlying 10 claim. [Citations.]”). Nonetheless, because the Court cannot determine at this stage that 11 VForce’s proposed amendments “could not possibly cure” the identified defects, in an abundance 12 of caution, and because VForce has not yet had an opportunity to amend its Cross- 13 Complaint/Third-Party Complaint, the Court will grant VForce leave to file an Amended Cross- 14 Complaint/Third-Party Complaint. Lopez, 203 F.3d at 1130. Accordingly, Forbes’s Motion to 15 Dismiss the Third-Party Complaint is GRANTED with leave to amend. (ECF No. 61.) 16 V. MOTION TO WITHDRAW 17 Attorney Barnwell seeks to withdraw as counsel for Third-Party Defendants Bean Team, 18 CapServ, Kaiserkane, DeManno, Gardner, Musgrove, and Oglesby.4 (ECF No. 48.) His Motion 19 is unopposed. As an initial matter, it seems a substitution of attorney would have been sufficient 20 in this instance to replace Mr. Barnwell with Mr. Hicks5 for all affected parties, except that a 21 single party was unreachable and therefore did not consent as to the form of the filing. Indeed, 22 Barnwell indicates the clients voluntarily terminated him and agreed to have Hicks represent them 23 in this matter. A motion to withdraw is only necessary where the clients will be left to proceed 24 4 Barnwell’s Motion seeks leave to withdraw as counsel for each of the Third-Party 25 Defendants he represents, except Accuire. For purposes of this Motion only, the seven identified Third-Party Defendants will be collectively referred to as the “Third-Party Defendants.” 26
27 5 Barnwell identifies Nathan W. Hicks, counsel for Defendant/Cross-Defendant CorTech in this action, as the alternative counsel that will represent the Third-Party Defendants if Barnwell’s 28 Motion to Withdraw is granted. (ECF No. 48 at 7.) 1 pro se. Nonetheless, because a substitution of attorney was apparently not workable, and because 2 Barnwell has met the requirements for withdrawal, the Court will address the Motion as such. 3 A. Standard of Law 4 In the Eastern District of California, attorneys representing parties to a civil case are 5 subject to this Court’s Local Rule 182(d) which provides: 6 Unless otherwise provided herein, an attorney who has appeared may not withdraw leaving the client in propria persona without leave of 7 court upon noticed motion and notice to the client and all other parties who have appeared. The attorney shall provide an affidavit 8 stating the current or last known address or addresses of the client and the efforts made to notify the client of the motion to withdraw. 9 Withdrawal as attorney is governed by the Rules of Professional Conduct of the State Bar of California, and the attorney shall 10 conform to the requirements of those Rules. The authority and duty of the attorney of record shall continue until relieved by order of the 11 Court issued hereunder. Leave to withdraw may be granted subject to such appropriate conditions as the Court deems fit. 12 13 L.R. 182(d). 14 Under the California Rules of Professional Conduct, an attorney may not withdraw unless 15 he “has taken reasonable steps to avoid reasonably foreseeable prejudice to the rights of the 16 client, including giving due notice to the client, allowing time for employment of other counsel, 17 complying with rule 3-700(D), and complying with applicable laws and rules.” Cal. R. Prof. 18 Conduct 3-700(A)(2); see also CE Res., Inc. v. Magellan Group, LLC, No. 2:08-cv-02999-MCE- 19 KJM, 2009 WL 3367489, at *1 (E.D. Cal. Oct. 14, 2009); McClintic v. U.S. Postal Serv., No. 20 1:13-cv-00439, 2014 WL 51151, at *2 (E.D. Cal. Jan. 7, 2014). 21 When considering a motion to withdraw as counsel, the Court will weigh four factors: (1) 22 the reasons why withdrawal is sought; (2) the prejudice withdrawal may cause to other litigants; 23 (3) the harm withdrawal might cause to the administration of justice; and (4) the degree to which 24 withdrawal will delay resolution of the case. See e.g., CE Res., Inc., 2009 WL 3367489, at *2 25 (collecting cases). Ultimately, the Court’s ruling must involve a balancing of the equities. The 26 decision to grant or deny a motion to withdraw is within the Court’s discretion. See United States 27 v. Carter, 560 F.3d 1107, 1113 (9th Cir. 2009); McNally v. Eye Dog Found. for the Blind, Inc., 28 No. 1:09-cv-01174-AWI-SKO, 2011 WL 1087117, at *1 (E.D. Cal. Mar. 24, 2011). 1 B. Analysis 2 First, the Court finds Barnwell has complied with the applicable California Rules of 3 Professional Conduct in seeking to withdraw as counsel for the Third-Party Defendants. 4 Specifically, the Third-Party Defendants were “notified” of Barnwell’s proposed withdrawal as 5 counsel when they voluntarily terminated his representation and indicated their intent to retain 6 other counsel. (ECF No. 48 at 4, 6.) 7 For the same reason, the Court finds that on balance, the relevant factors for consideration 8 favor withdrawal. First, the proposed withdrawal will not cause any prejudice to the Third-Party 9 Defendants because they willingly terminated Barnwell’s representation and retained another 10 attorney. (Id. at 4, 6–7.) Further, the prospective new attorney already represents other 11 Defendants in this case and should therefore not require any additional time to adjust to the 12 absence of Barnwell as counsel. (Id.) Therefore, the Court finds the proposed withdrawal will 13 cause neither prejudice to the other parties nor “unreasonable delay” in this case. Similarly, the 14 proposed withdrawal also poses hardly any risk of harming the administration of justice. In sum, 15 the Court finds Barnwell has sufficiently established good cause to withdraw from representation 16 of the Third-Party Defendants. Therefore, the Motion to Withdraw is hereby GRANTED. (ECF 17 No. 48.) 18 VI. CONCLUSION 19 For the foregoing reasons, the Court GRANTS VForce’s Motion to Amend and for 20 Permissive Joinder. (ECF No. 51.) Third-Party Defendants Bean Team, Accuire, CapServ, 21 KaiserKane, DiManno, Gardner, Musgrove, and Oglesby are hereby joined as Cross-Defendants 22 pursuant to Federal Rule of Civil Procedure 20. Cross-Defendants/Third-Party Defendants 23 CorTech, Accuire, CapServ, KaiserKane, DiManno, Gardner, Musgrove, and Oglesby’s Motions 24 to Dismiss the Cross-Complaint/Third-Party Complaint are DENIED as moot. (ECF Nos. 21, 38, 25 40.) Third-Party Defendant Forbes’s Motion to Dismiss the Third-Party Complaint is 26 GRANTED with leave to amend. (ECF No. 61.) 27 Finally, Barnwell Law Group, P.C.’s Motion to Withdraw as counsel for the Third-Party 28 Defendants is GRANTED. (ECF No. 48.) Barnwell is hereby withdrawn as counsel for Bean 1 Team, CapServ, Kaiserkane, DeManno, Gardner, Musgrove, and Oglesby. The aforementioned 2 Cross-Defendants/Third-Party Defendants are ordered to file a Notice of Substitution of Counsel 3 — or, if such a substitution is not possible — file a status report not more than 20 days from the 4 date of electronic filing of this Order. 5 VForce is directed to file a First Amended Cross-Complaint and Third-Party Complaint, 6 consistent with this Court’s rulings on the Motion to Amend and for Permissive Joinder and 7 Forbes’s Motion to Dismiss, not more than 20 days from the electronic filing of this Order. 8 Cross-Defendants and Third-Party Defendants shall file a response to the First Amended Cross- 9 Complaint and Third-Party Complaint within 21 days of the electronic filing of the First 10 Amended Cross-Complaint and Third-Party Complaint. 11 IT IS SO ORDERED. 12 DATED: May 26, 2020 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28