Free Motion to Dismiss - District Court of California - California

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1 Todd J. Hilts (CSB No. 190711) LAW OFFICE OF TODD J. HILTS 2 2214 2nd Ave San Diego, CA 92101 3 Telephone (619) 531-7900 4 Facsimile (619) 531-7904 5 Derek J. Emge (CSB No. 161105) EMGE & ASSOCIATES 6 550 West C Street, Ste. 1600 San Diego, CA 92101 7 Telephone (619) 595-1400 8 Facsimile (619) 595-1480 9 David A. Huch (CSB No. 222892) LAW OFFICES OF DAVID A. HUCH 10 7040 Avenida Encinas, Suite 104 Carlsbad, CA 92011 11 Telephone (760) 402-9528 12 Facsimile (760) 683-3245 13 Attorneys for Plaintiff, JOSUE SOTO, Individually, on Behalf of All Others Similarly Situated, on Behalf of All Other Aggrieved Employees, and on Behalf of the General Public 14 15 16 SOUTHERN DISTRICT OF CALIFORNIA 17 JOSUE SOTO, Individually, On Behalf of All ) Case No. 08-CV-0033 L (AJB) 18 Others Similarly Situated, and on Behalf of the ) General Public, ) CLASS ACTION 19 ) Plaintiff, ) MEMORANDUM OF POINTS AND 20 ) AUTHORITIES IN SUPPORT OF 21 v. ) MOTION TO DISMISS COUNTERCLAIM ) AS TO JOSUE SOTO AND THIRD PARTY 22 DIAKON LOGISTICS (DELAWARE), INC., a ) COMPLAINT AS TO SAYBE'S LLC ) PURSUANT TO FED. R. CIV. P. 12(b)(6) 23 foreign corp.; and DOES 1 through 50, inclusive, ) ) Date: April 7, 2008 24 Defendants. ) Time: 10:30 a.m. 25 ) Judge: Hon. M. James Lorenz ______________________________________ ) Dpt: 14 26 AND ALL COUNTER-CLAIMS ) ______________________________________ ) Original Complaint Filed: 12/5/2007 27 28 - 1 08-cv-0033 L (AJB) MEMORANDUM OF POINTS AND AUTHORITES IN SUPPORT OF MOTION TO DISMISS CONTERCLAIM AND THIRD PARTY COMPLAINT

UNITED STATES DISTRICT COURT

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PRELIMINARY STATEMENT Plaintiff JOSUE SOTO ("SOTO") brought this action against his alleged employer to

3 remedy a misclassification of his employment status and recoup wages, unreimbursed business 4 expenses and penalties. Rather than address the issue at hand ­ misclassification ­ Defendant 5 DIAKON LOGISTICS (DELAWARE), INC. ("Defendant") is attempting, through a tortured 6 interpretation of a general indemnification agreement, to scare SOTO into dropping his claim. The 7 indemnification clause relied upon by Defendant was drafted to cover third party claims rather than 8 employment-related claims by SOTO against his alleged employer. Defendant's attempted 9 interpretation of the indemnification clause would have SOTO paying the cost of Defendant's 10 defense as well as any settlement or judgment even if SOTO is the prevailing party in the present 11 employment action! Such an interpretation defies logic and runs counter to established authority. 12 As such, Defendant's counter-claim and Third-Party Complaint cannot, as a matter of law, result in 13 a verdict in Defendant's favor. 14 15 BACKGROUND FACTS As alleged specifically in Plaintiff SOTO'S complaint [exhibit "A" to Doc. No. 1] filed

16 December 5, 2007 in San Diego Superior Court, SOTO was a driver of a delivery truck for
1 17 Defendant. Defendant holds itself out as a national leader in the home delivery industry.

18 Defendant contracts with large retailers, including furniture and home appliance stores, to provide
2 19 trucks and drivers to complete the retailers' home deliveries.

20

On or about May 4, 2005, SOTO was hired as a delivery driver for Defendant.3 He signed

4 21 a Service Agreement in which he was labeled an independent contractor of Defendant. He

22 renewed his Service Agreements in November 2005 (exhibit "A" [Doc. No. 10] to Defendant's 23 third party complaint [Doc No. 9] and again in November 2006 (exhibit "B" [Doc. No. 10-2] under 24 25 26 Plaintiff's Answer and Counterclaim, [Doc. No. 3], ¶18. Id., ¶19. 3 Id.,¶9. 27 4 Exhibit A to Doc. No. 3. - 2 28
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5 1 the name of Saybe's LLC. SOTO is the sole member of Saybe's LLC. Despite the categorization

2 of the SOTO under the Service Agreements as an independent contractor, SOTO was under 3 constant and complete control by Defendant in all aspects of his delivery duties. For example, he
6 4 was not allowed to make personal deliveries or deliveries for other companies, all delivery 7 8 5 schedules were arranged by Defendant, and all work duties were controlled by Defendant. In

6 short, SOTO was a misclassified employee rather than an independent contractor. 7 Throughout the course of his employment, SOTO was paid rates that fell below the State's

9 10 8 minimum wage rules. SOTO was not provided with proper meal breaks. SOTO was not 11 9 provided with state mandated rest periods. Further, Defendant failed to reimburse SOTO for

10 business expenses, including deposits for use of the delivery trucks, fuel and maintenance for the 11 trucks, cell-phone charges, the cost of insurance, and damages to Defendant's trucks and its
12 12 client's merchandise.

13 14

PROCEDURAL HISTORY On December 5, 2007, SOTO filed a complaint against Defendant in Superior Court on

15 behalf of himself and all of Defendant's delivery drivers between December 5, 2003 and the 16 present, alleging misclassification of employment status and wrongful denial of minimum wages, 17 meal breaks, rest periods and expense reimbursements. SOTO also sued under the California 18 Labor Code Private Attorney General Act of 2004 for civil penalties. 19 On January 4, 2008, Defendant removed Plaintiff's case to Federal Court and thereafter

20 filed an answer and counterclaim against SOTO [Document 3]. Defendant's counterclaim contains 21 a single cause of action for indemnity. On January 28, 2008, Defendant filed a third party 22 complaint against SOTO'S LLC, SAYBE'S LLC [Documents 9 ­ 10-2] containing an identical 23 24 25 26 27 28
5
6

Doc. No. 9, page 2 lines 10-11. Complaint, ¶20. 7 Id., ¶20. 8 Id., ¶25. 9 Id., ¶¶37-39. 10 Id., ¶¶40-43. 11 Id., ¶¶44-46. 12 Id., ¶¶47-50. - 3 08-cv-0033 L (AJB) MEMORANDUM OF POINTS AND AUTHORITES IN SUPPORT OF MOTION TO DISMISS CONTERCLAIM AND THIRD PARTY COMPLAINT

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1 single cause of action for indemnity. On February 1, 2008 the parties stipulated and the Court 2 granted their joint motion to have SOTO and SAYBE'S LLC'S responsive pleadings filed 3 simultaneously within 20 days of service of the third-party complaint [Doc No. 15]. Plaintiff 4 JOSUE SOTO and Third-Party Defendant SAYBE'S LLC (collectively hereafter referred to as 5 "SOTO") now move the Court for an order dismissing both the counterclaim and the Third-Party 6 Complaint on the grounds that Defendant has failed to state a cause of action upon which relief can 7 be granted. 8 9 1. 10 11 ARGUMENT LEGAL STANDARD FOR MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM Federal Rule of Civil Procedure 12(b)(6) authorizes a motion to dismiss as a test of the

th 12 sufficiency of the complaint. Navarro v. Block, 250 F.3d 729, 732 (9 Cir. 2001). Dismissal of a

13 claim or complaint under this Rule should be granted where "it appears beyond doubt that the 14 [complainant] can prove no set of facts in support of his claim which would entitle him to relief." 15 Conley v. Gibson, 335 U.S. 41, 45-46 (1957). Rule 12(b)(6) "authorizes a court to dismiss a claim 16 on the basis of a dispositive issue of law." Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530,
th 17 534 (9 Cir. 1984).

18 19 2. 20 21 DEFENDANT/COUNTER-CLAIMANT FAILS TO STATE A CAUSE OF ACTION FOR INDMENITY UPON WHICH RELIEF CAN BE GRANTED Defendant's counter-claim and Third-Party Complaint each contain a single cause of action

22 entitled "INEMNITY." The claim for indemnity is based solely on the Service Agreements which
13 23 contain the following identical provision:

24 25 The entirety of the indemnification agreement is included herein for a full understanding of the 26 intent of the parties. Although not cited in full in the counterclaim, the agreements were included as an Exhibit "A" to Doc. No. 3 and Exhibits "A" [Doc. No. 10] and "B" [Doc. No. 10-2] to Doc. 27 No. 9. - 4 28
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SECTION 6. INDEMNIFICATION. Without limiting any other rights that the Company may have hereunder or under applicable law, the Contractor agrees to indemnify the Company harmless from any and all claims, losses, liabilities, costs and expenses of any kind whatsoever, including, without limitation, attorneys' fees (all of the foregoing being collectively referred to as "Indemnified Amounts") incurred by or asserted against the Company and arising out of, or resulting from, in whole or in part, the Contractor's performance including, without limitation, Indemnified Amounts arising out of, or resulting from, in whole or in part, the Contractor's performance of the services arising out of or relating to this Agreement, including, without limitation, Indemnified Amounts arising out of, or resulting from (i) injury or death to persons, including, without limitation, third parties, employees of the Contractor or persons driving, riding in, operating, repairing, maintaining, loading or unloading the Contractor's vehicles, equipment or other property, (ii) damage to the property of any person or legal entity, including, without limitation, loss or damage to items intended fro transport which are in the Contractor's possession or under his dominion and control, and (iii) violation of any law, ordinance or regulation of any Federal, state or local governmental authority by the Contractor or its employees, subcontractors or agents. The Contractor shall pay to the Company, on demand, any and all amounts necessary to indemnify the Company from and against all such Indemnified Amounts incurred by or asserted against the Company, and the Company shall have the right to set-off any such Indemnified Amounts against any amounts owed by the Company to the contractor under this Agreement. Section 6 cited above discusses three scenarios wherein indemnification might arise, and all

18 three contemplate a situation where the Company (Defendant) is sued by a third party for an act or 19 conduct of the Contractor (SOTO). Section 6 does not, however, discuss the allocation of 20 attorneys' fees in a situation where the indemnitor (SOTO) brings an action against the indemnitee 21 (Defendant) for the conduct of Defendant. Nor does Defendant cite to or allege any other 22 agreement or provision of the Service Agreement that would provide indemnification rights 23 specific to a shifting of attorneys' fees in an indemnitor vs. indemnitee lawsuit. Nevertheless, 24 Defendant would like this Court to apply greater meaning to the language of the Service 25 Agreement than that which was written so that it might include indemnification of the indemnitee 26 in situations where they are sued for statutory, regulatory and common law employment rights by 27 28 - 5 08-cv-0033 L (AJB) MEMORANDUM OF POINTS AND AUTHORITES IN SUPPORT OF MOTION TO DISMISS CONTERCLAIM AND THIRD PARTY COMPLAINT

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1 the indemnitor. SOTO disputes that this was the intent of the contracting parties at the time the 2 Service Agreement was entered into. 3 Contract interpretation is a question of law. Badie v. Bank of America, 67 Cal.App.4th 779,

4 798 (1998). It is well accepted that the goal of contract interpretation is to give effect to the
th 5 parties' mutual intent. Cal. Civ. Code § 1636; Bank of the West v. Superior Court, 2 Cal. 4 1254,

6 1264 (1992). "It is the outward expression of the agreement, rather than a party's unexpressed
th 7 intention, which the court will enforce." Winet v. Price, 4 Cal.App.4 1159, 1166 (1992).

The

8 Court must therefore ascertain the intent of the parties by considering the contract as a whole, 9 keeping in mind the rule "however broad may be terms of a contract, it extends only to those things 10 concerning which it appears that the parties intended to contract." Badie v. Bank of America, 67
th 11 Cal.App.4 at 800. Additionally, the Court is guided by the principle that contract interpretation

12 must make the agreement "definite, reasonable, and capable of being carried into effect" while 13 "avoiding an interpretation that would make it harsh, unjust or inequitable." Id. 14 Here, Defendant's purported interpretation of the indemnification agreement extends well

15 beyond that which was intended and what was, in fact, written. There is no discussion of 16 indemnification for situations where the indemnitee sues the indemnitor for damages arising from 17 the conduct of the indemnitor. On the contrary, each enumerated example: injury or death 18 (example "i"), damage to property (example "ii"), and violation of law (example "iii") 19 contemplates a third-party suing Defendant for the acts of SOTO. It does not contemplate the 20 situation of SOTO suing Defendant for employment rights under California law. 21 The listing of the three specific instances where indemnification would apply gives

22 meaning to the initial general language of "all claims, losses, liabilities, costs and expenses of any 23 kind." The maxim ejusdem generis used for legislative interpretation is applicable in this instance.
th 24 As explained by the California Supreme Court in People v. Giordano, 42 Cal.4 644 (2007),

25 "ejusdem generis applies whether specific words follow general words in a statute or vice versa. In 26 either event, the general term or category is restricted to those things that are similar to those 27 which are enumerated specifically. Although the phrase `including, but no limited to' is a phrase - 6 28
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1 of enlargement, the use of this phrase does not conclusively demonstrate that the [drafter] intended 2 a category to be without limits." Id. at 660 [emphasis added]; See also, Circuit City Stores, Inc. v. 3 Saint Clair Adams, 532 U.S. 105, 114-115 (2001) ["Under this rule of construction the residual 4 clause should be read to give effect to the terms `seamen' and `railroad employees,' and should 5 itself be controlled and defined by reference to the enumerated categories of workers which are 6 recited just before it".] 7 Defendant's tortured interpretation of the indemnity agreement also runs counter to the

8 "American Rule" of attorneys' fees where a party prevailing in a lawsuit is not entitled to recover 9 fees from the loser. Alyeska Pipeline Service Co. v. Wilderness Society 421 U.S. 240, 247 (1975)
st 10 [Superseded by statute on other grounds as stated in Perez v. Rodriguez Bou 575 F.2d 21, 24 (1

11 Cir. 1978) ­ In the Civil Rights Attorney's Fees Award Act of 1976 Congress established an 12 exception to the "American Rule" for private actions brought under 42 U.S.C. § 1983 and other 13 specified measures designed to secure civil rights.] 14 In fact, if the indemnity clause is interpreted as Defendant's propose, SOTO would be

15 required to pay Defendant's judgment and attorney's fees even if SOTO prevails in establishing 16 that Defendant violated California's labor laws! Such an interpretation would be "harsh, unjust
th 17 and inequitable," not to mention absurd. Winet v. Price, 4 Cal.App.4 1159, 1166 (1992).

18

Defendant's attempt to apply on overbroad reading of an indemnification agreement is not

19 unique. A similar attempt to expand an indemnity agreement to cover attorneys' fees and costs in a 20 suit by an indemnitee against an indemnitor occurred in Layman v. Brownell Combs, II 994 F.2d
th 21 1344 (9 Cir. 1992). There, the Court found that the identical purported interpretation created an

22 "absurdity" that "undermines the reasonableness of the defendants' interpretation of the 23 indemnification." Id. at 1352. If the parties intend to deviate from the American rule on the 24 payment of attorneys' fees, "[i]t is not too much to ask that a clause effectuating such a deviation 25 from the norm be explicit. Id. 26 The California Supreme Court has similarly dismissed the notion that a general

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1 of the conduct of the indemnitee. For example, in Price v. Shell Oil Co., 2 Cal. 3d 245 (1970), the 2 Court was faced with a situation where a lessee of a tank truck sued the manufacturer of the truck 3 for injuries and the manufacturer countersued for indemnification under the agreement contained in 4 the lease. The indemnification agreement, like the one presented in the present case, sought 5 indemnity "against any and all claims and liability for injury or death of persons or damage to 6 property caused by or happening in connection with the equipment..." Id. at 256 [emphasis 7 added]. In refusing to construe the indemnity agreement as Defendant proposed, the Court 8 summarized the rules governing express contracts for indemnity as follows: 9 10 11 12 13 The Court in Price v. Shell recognized that that the indemnity clause at issue contained no 14 language that "expressly and unequivocally" required the lessee to indemnify the manufacturer for 15 liability caused by the manufacturer's own acts. Id. at 258. The identical situation exists in the 16 present case. The indemnification agreement between SOTO and Defendant is general in nature, 17 pertains by direct reference to claims from third parties, and fails to contain any language 18 addressing the situation where SOTO makes employment law claims against Defendant for 19 Defendant's illegal conduct. 20 Other federal courts have applied the same logic in denying the expansion of 21 indemnification clauses, holding that there is no right to indemnification of claims between an 22 indemnitor and indemnitee unless the contract expressly contemplates such an entitlement. See, 23 Petit v. BASF Corp., 2001 Mass. Super. LEXIS 124 (2001); Astrolabe Inc., v. Esoteric 24 Technologies Pty, Ltd., 2002 U.S. Dist. LEXIS 5764 (D. Mass. 2002); Longport Ocean Plaza 25 26 27 28 - 8 08-cv-0033 L (AJB) MEMORANDUM OF POINTS AND AUTHORITES IN SUPPORT OF MOTION TO DISMISS CONTERCLAIM AND THIRD PARTY COMPLAINT

An indemnity clause phrased in general terms will not be interpreted, however, to provide indemnity for consequences resulting from the indemnitee's own actively negligent acts...Although the cases have held that one may provide by agreement for indemnification against his own negligence, the agreement for indemnification must be clear and explicit; the agreement must be strictly construed against the indemnitee." Id. at 257.

Condominium, Inc. v. Robert Cato & Assocs., 137 Fed. Appx. 464 (3rd Cir. 2005).

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Even accepting as true all of Defendant's allegations contained in their counterclaim and

2 Third-Party Complaint for the limited purpose of this motion to dismiss, Defendant has failed to 3 state a claim upon which relief can be granted. As a matter of law, the indemnification agreement 4 at issue cannot be read to cover or include indemnification of Defendant by SOTO for fees and 5 costs incurred in defending SOTO'S employment law claims that Defendant's own conduct, 6 whether negligent or intentional, resulted in injury to SOTO and the class of misclassified 7 employees he seeks to represent. 8 9 CONCLUSION Based upon the foregoing argument and citation to authority, Plaintiff/Cross-

10 Defendant/Third-Party Defendant SOTO submits that Defendant's claims for indemnity must fail 11 as a matter of law and therefore respectfully requests that this Court grant this Motion to Dismiss 12 the Counterclaim as to Plaintiff Josue Soto and Third-Party Complaint as to Third-Party Defendant 13 Saybe's LLC. 14 DATED: February 8, 2008 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 9 08-cv-0033 L (AJB) MEMORANDUM OF POINTS AND AUTHORITES IN SUPPORT OF MOTION TO DISMISS CONTERCLAIM AND THIRD PARTY COMPLAINT

EMGE & ASSOCIATES ____s/__Derek J. Emge__________ DEREK J. EMGE 550 West "C" Street, Suite 1600 San Diego, CA 92101 LAW OFFICE OF TODD J. HILTS Todd J. Hilts 2214 2nd Ave San Diego, CA 92101 LAW OFFICES OF DAVID A. HUCH David A. Huch 7040 Avenida Encinas, Suite 104 Carlsbad, CA 92011 Attorneys for Plaintiff and Cross-Defendant, JOSUE SOTO, Individually, on behalf of all others similarly situated, all aggrieved employees, and on behalf of the General Public and attorneys for Third-Party Defendant SAYBE'S LLC