Case Name: Huan P. Nguyen v. Global Equipment Services and Manufacturing, Inc.

Case No.: 2016-CV-303886

Judgment on the Pleadings to the Answer by plaintiff Huan P. Nguyen

Factual and Procedural Background

This is an action for advancement of attorney’s fees, costs, and expenses incurred by plaintiff Huan P. Nguyen (“Plaintiff”) by virtue of his employment as a former officer, director, and employee of defendant Global Equipment Services and Manufacturing Inc. (“GES”). (Complaint at ¶ 1.) Pursuant to the GES Indemnification Agreement and Bylaws, Plaintiff is entitled to advancement for any costs, fees, and expenses incurred in the investigation, defense, settlement or appeal of any action brought against him by GES. (Id. at ¶ 2.) In February 2014, GES filed a lawsuit (case no. 2014-1-CV-260551) against Plaintiff resulting in execution of a Settlement and Release Agreement in that action. (Ibid.)

Thereafter, defendants allegedly breached the terms of the Settlement Agreement. (Complaint at ¶ 3.) Thus, Plaintiff was compelled to bring an action (case no. 2016-CV-301863) to rescind the Settlement Agreement as a result of the breach. (Ibid.) As Plaintiff’s Rescission and Breach of Contract action is in connection with the settlement of the earlier lawsuit, Plaintiff alleges that he is entitled to have his expenses, costs, and fees for his action advanced to him pursuant to GES’ Bylaws and Indemnification Agreement. (Ibid.)

The advancement obligations contained in the GES Bylaws and the Indemnification Agreement are mandatory, and not optional, and Plaintiff’s right to advancement is perfected upon written request. (Complaint at ¶ 5.) On November 9, 2016, Plaintiff made his request for advancement to GES. (Ibid.) GES rejected the demand thus forcing Plaintiff to file the current action to enforce his right to advancement. (Ibid.)

On December 12, 2016, Plaintiff filed a Complaint against GES setting forth causes of action for: (1) breach of contract of mandatory advancement provisions; (2) declaratory relief; (3) injunctive relief; and (4) specific performance.

On January 11, 2017, GES filed a demurrer to the Complaint on the ground that it fails to state a cause of action. Plaintiff also filed a motion for preference in trial setting. The motions were set for hearing on March 7, 2017. Following oral argument, the Court took the matters under submission and issued a written ruling overruling the demurrer and granting the motion for trial setting preference.

On March 22, 2017, GES filed its Answer alleging various affirmative defenses.

Currently before the Court is Plaintiff’s motion for judgment on the pleadings to the Answer. Plaintiff filed a request for judicial notice in conjunction with the motion. GES filed written opposition. Plaintiff filed reply papers. Trial is set for May 22, 2017.

Motion for Judgment on the Pleadings to the Answer

Request for Judicial Notice

In support of the motion, Plaintiff requests judicial notice of the following: (1) the Court’s order denying the motion to enforce the settlement agreement pursuant to Code of Civil Procedure section 664.6 brought by GES in the earlier action titled Global Equipment Services and Manufacturing, Inc. v. Nguyen (2014-1-CV-260551) (Exhibit 1); and (2) the Court’s Order on the demurrer to the Complaint and motion for preference in trial setting in this action (Exhibit 2). These orders constitute records of the superior court subject to judicial notice under Evidence Code section 452, subdivision (d). (See Stepan v. Garcia (1974) 43 Cal.App.3d 497, 500 [the court may take judicial notice of its own file].) The request also appears sufficiently relevant to issues raised by the motion. (See Gbur v. Cohen (1979) 93 Cal.App.3d 296, 301 [judicial notice is always confined to those matters which are relevant to the issues at hand].)

Therefore, the request for judicial notice is GRANTED.

Legal Standard

A plaintiff may only move for judgment on the pleadings on the ground “that the complaint states facts sufficient to constitute a cause or causes of action against the defendant and the answer does not state facts sufficient to constitute a defense to the complaint.” (Code Civ. Proc., § 438, subd. (c)(1)(A).) Therefore, to prevail on a motion for judgment on the pleadings, a plaintiff has the burden of establishing (1) that his or her complaint states facts sufficient to constitute a cause of action and (2) the answer does not state facts sufficient to constitute a defense. (Ibid.; see also Barasch v. Epstein (1957) 147 Cal.App.2d 439, 440 [providing that “[a] plaintiff may recover judgment on a motion for judgment on the pleadings only if his complaint states facts sufficient to constitute a cause of action and the answer neither raises a material issue nor states a defense”]; McClain v. City of South Pasadena (1957) 155 Cal.App.2d 423, 430 [same].)

The grounds for a motion for judgment on the pleadings must appear on the face of the complaint, and in any matters subject to judicial notice. (Shea Homes Limited Partnership v. County of Alameda (2003) 110 Cal.App.4th 1246, 1254.) “The court accepts as true all material factual allegations, giving them a liberal construction, but it does not consider conclusions of fact or law, opinions, speculation, or allegations contrary to law or judicially noticed facts. [Citations.]” (Ibid.)

Complaint States a Cause of Action

As stated above, to prevail on the motion, Plaintiff must first establish that the Complaint states a valid cause of action. In support, Plaintiff submits the Court’s order on demurrer where the Court concluded that Plaintiff stated valid claims for relief. (See Request for Judicial Notice at Exhibit 2.) Having done so, the Court now examines the Answer to determine if it alleges facts to support the affirmative defenses.

First Affirmative Defense

The first affirmative defense alleges that “[t]he Complaint, and each purported action therein, fails to state a claim upon which relief can be granted.” (See Answer at p. 2:9-10.) Plaintiff argues that the affirmative defense is improper as the Court overruled the demurrer thus finding that the Complaint states a valid cause of action. (See Request for Judicial Notice at Exhibit 2.) However, the failure to state facts sufficient to constitute a cause of action is a challenge to a pleading and the court’s power to grant relief and, therefore, is never waived. (See Code Civ. Proc. § 430.80, subd. (a); see also Weil & Brown, Cal. Prac. Guide: Civ. Pro. Before Trial (The Rutter Group 2016) ¶ 7:33, p. 7(l)-17, ¶ 7:34, p. 7(1)-18; see also Henry v. Associated Indemnity Corp. (1990) 217 Cal.App.3d 1405, 1413.) There are no factual allegations which are necessary to raise the objection and so this first defense appears to be properly pled. In addition, there does not appear to be any prejudice to the Plaintiff in allowing such an objection to be made as an affirmative defense.

Accordingly, the motion for judgment on the pleadings to the first affirmative defense is DENIED.

Second, Fourth, and Tenth Affirmative Defenses

With respect to the second [unclean hands], fourth [bad faith conduct] and tenth [offset due to plaintiff’s conduct] affirmative defenses, Plaintiff argues that, based on the Indemnification Agreement, these defenses are irrelevant to this action. However, as stated above, the motion for judgment on the pleadings can only be granted on grounds that an affirmative defense fails to allege sufficient facts. (See Code Civ. Proc., § 438, subd. (c)(1)(A).) There is nothing in the statute to suggest that relevance is a ground for the motion. Ultimately, the trier of fact will determine at the time of trial whether these affirmative defenses are relevant to this action.

Therefore, the motion for judgment on the pleadings to the second, fourth, and tenth affirmative defenses is DENIED.

Third Affirmative Defense

The third affirmative defense provides that “[t]he Indemnification Agreement alleged in the Complaint is unlawful and contrary to public policy to the extent that it purports to grant Plaintiff an advance of litigation expenses for acts or omissions that involve intentional misconduct or a knowing and culpable violation of the law. Alternatively, Plaintiff must post a bond for the full anticipated amount of any advancement of fees.” (See Answer at p. 2:17-21.) Plaintiff argues that this affirmative defense lacks merit as GES drafted the Indemnification Agreement and thus must be construed against GES as the drafter. Plaintiff further claims that the advancement provisions contained in the Indemnification Agreement are neither rare nor contrary to public policy. However, Plaintiff simply argues the merits of this affirmative defense which is improper on a motion for judgment on the pleadings. (See Eckler v. Neutrogena Corporation (2015) 238 Cal.App.4th 433, 439 [motion for judgment on the pleadings challenges only the defects on the face of the pleading]; see also Lance Camper Manufacturing Corp. v. Republic Indemnity Co. (1996) 44 Cal.App.4th 194, 198 [“We are not concerned with a plaintiff’s [or defendant’s] possible inability to prove the claims [or defenses] made in the complaint [or the answer], the allegations of which are accepted as true and liberally construed with a view toward attaining substantial justice.”].) As stated above, the trier of fact will determine whether GES can prevail with this affirmative defense at the time of trial.

Accordingly, the motion for judgment on the pleadings to the third affirmative defense is DENIED.

Fifth Affirmative Defense

The fifth affirmative defense alleges that “[s]ome or all of Plaintiff’s claims are barred by the applicable statutes of limitation, including but not limited to, Code of Civil Procedure sections 337, 338, 339, 343, 344.” (See Answer at p. 2:27-28.) Plaintiff argues that he timely brought his action for advancement without delay and thus the defense for statute of limitations fails as a matter of law. Again, this argument lacks merit as Plaintiff is contesting the merits of the affirmative defense which is improper on a motion for judgment on the pleadings. Specifically, with respect to the statute of limitations, a defendant need only plead that the cause of action is barred and allege the relevant code sections. (See Code Civ. Proc., § 458.) GES has pled a valid affirmative defense for statute of limitations to overcome a motion for judgment on the pleadings. The trier of fact will determine whether GES can prevail on this affirmative defense at the time of trial.

Therefore, the motion for judgment on the pleadings to the fifth affirmative defense is DENIED.

Sixth, Seventh, Eighth, and Ninth Affirmative Defenses

With respect to the sixth [failure to mitigate damages], seventh [waiver/estoppel], eighth [failure to exercise ordinary care], and ninth [comparative fault] affirmative defenses, Plaintiff argues that these defenses lack the necessary factual support. An affirmative defense must be supported by facts alleged in the answer, the corresponding complaint, or any relevant judicially noticeable material. (See South Shore Land Co. v. Petersen (1964) 226 Cal.App.2d 725, 732-733.) However, a defendant is required only to plead ultimate facts stating all of the required elements of a defense, and is not required to allege evidentiary facts. (See id. at p. 732 [explaining that the determination of whether an answer states a defense is governed by the same principles applicable to determining whether a complaint states a cause of action].) Affirmative defenses that consist only of legal conclusions cannot survive a demurrer or motion for judgment on the pleadings. (See Westly v. Bd. of Administration (2003) 105 Cal.App.4th 1095, 1118.) Here, GES has not pled ultimate facts to support these affirmative defenses.

Therefore, the motion for judgment on the pleadings to the sixth, seventh, eighth, and ninth affirmative defenses is GRANTED. Ordinarily, GES would be given 30 days’ leave to amend the answer. (See Code Civ. Proc., § 438, subd. (h)(2).) However, this case is set for trial on May 22, 2017. As a result, the Court will grant 10 days’ leave to amend. (See Angie M. v. Super. Ct. (1995) 37 Cal.App.4th 1217, 1227 [“Liberality in permitting amendment is the rule, if a fair opportunity to correct any defect has not been given.”].)

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