Free Order on Motion to Amend/Correct - District Court of California - California

Case 4:07-cv-04408-CW

Document 31

Filed 12/11/2007

Page 1 of 6

1 2 3 4 5 IN THE UNITED STATES DISTRICT COURT 6 7 8 9 10 United States District Court For the Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MIDWEST TRANSPORT, INC., a Delaware Corporation, Plaintiff and Counter-Defendant, v. FCE BENEFIT ADMINISTRATORS, INC., a California Corporation, Defendant and Counterclaimant. / Plaintiff and Counter-Defendant Midwest Transport has filed a motion to dismiss Defendant's counterclaim for indemnity and a motion for leave to file an amended complaint. Defendant and Nos. C 07-4408 CW ORDER GRANTING PLAINTIFF'S MOTION TO DISMISS DEFENDANT'S COUNTERCLAIM FOR INDEMNITY AND PLAINTIFF'S MOTION FOR LEAVE TO FILE AN AMENDED COMPLAINT FOR THE NORTHERN DISTRICT OF CALIFORNIA

Counterclaimant FCE Benefit Administrators opposes the motion to dismiss and has filed a statement of non-opposition to the motion for leave to file an amended complaint. on the papers. The motions were decided

Having considered all of the parties' papers, the

Court GRANTS Plaintiff's motions. BACKGROUND Plaintiff is a federal government contractor that delivers mail throughout the United States. Defendant is a third-party

benefit administrator that Plaintiff hired to design, implement and

Case 4:07-cv-04408-CW

Document 31

Filed 12/11/2007

Page 2 of 6

1 2 3 4 5 6 7 8 9 10 United States District Court For the Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

administer a medical benefits plan for its employees.

According to

Plaintiff, Defendant committed to design and implement a benefit program that would not require Plaintiff to pay any more than the amount it was required to pay as fringe benefits for its employees based on its status as a government contractor. Plaintiff alleges

that Defendant's design resulted in $700,000 in medical claims from Plaintiff's employees that were not reimbursable under the insurance selected. Plaintiff further alleges that Defendant's

response to this problem was unilaterally to terminate its relationship with Plaintiff on March 9, 2007. On August 27, 2007 Plaintiff filed its complaint, alleging breach of contract, negligence and negligent misrepresentation. Defendant answered and filed counterclaims for indemnity, breach of contract and defamation. indemnity counterclaim. Plaintiff now moves to dismiss the Plaintiff also moves for leave to file an

amended complaint, seeking to name its insurance broker as a defendant. LEGAL STANDARD Dismissal of a complaint can be based on either the lack of a cognizable legal theory or the lack of sufficient facts alleged under a cognizable legal theory. Balistreri v. Pacifica Police All material allegations

Dept., 901 F.2d 696, 699 (9th Cir. 1990).

in the complaint will be taken as true and construed in the light most favorable to the plaintiff. F.2d 896, 898 (9th Cir. 1986). NL Indus., Inc. v. Kaplan, 792

Although the court is generally

confined to consideration of the allegations in the pleadings, when the complaint is accompanied by attached documents, such documents 2

Case 4:07-cv-04408-CW

Document 31

Filed 12/11/2007

Page 3 of 6

1 2 3 4 5 6 7 8 9 10 United States District Court For the Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

are deemed part of the complaint and may be considered in evaluating the merits of a Rule 12(b)(6) motion. Durning v. First

Boston Corp., 815 F.2d 1265, 1267 (9th Cir. 1987). A complaint must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." Civ. P. 8(a). Fed. R.

"Each averment of a pleading shall be simple, No technical forms of pleading or motions are The Federal Rules of Civil

concise, and direct. required."

Fed. R. Civ. P. 8(e).

Procedure do not require a claimant to set out in detail the facts upon which it bases its claim. See Bell Atl. Corp. v. Twombly, __ To the contrary, all the

U.S. __, 127 S.Ct. 1955, 1964 (2007).

Rules require is that the plaintiff "give the defendant fair notice of what the [plaintiff's] claim is and the grounds on which it rests." Id. (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957))

(internal quotation marks omitted). When granting a motion to dismiss, a court is generally required to grant a plaintiff leave to amend, even if no request to amend the pleading was made, unless amendment would be futile. Cook, Perkiss & Liehe, Inc. v. N. Cal. Collection Serv. Inc., 911 F.2d 242, 246-47 (9th Cir. 1990). In determining whether amendment

would be futile, a court examines whether the complaint could be amended to cure the defect requiring dismissal "without contradicting any of the allegations of [the] original complaint." Reddy v. Litton Indus., Inc., 912 F.2d 291, 296 (9th Cir. 1990). Leave to amend should be liberally granted, but an amended complaint cannot allege facts inconsistent with the challenged pleading. Id. at 296-97. 3

Case 4:07-cv-04408-CW

Document 31

Filed 12/11/2007

Page 4 of 6

1 2 3 4 5 6 7 8 9 10 United States District Court For the Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
1

DISCUSSION Defendant's first counterclaim is titled "indemnity" and cites a clause in the parties' contract which provides, Employer hereby agrees to indemnify, hold harmless and assume the defense of FCE, its directors, shareholders, officers, employees, agents and attorneys ("FCE Parties") from any claim, liability, loss, damage, fine, penalties and costs, including reasonable attorney's fees, ("Claims") which any FCE Party may incur to the extent that Claim arises from (a) any failure of Employer to comply with any covenant or obligation of Employer under this Agreement, the Plan or Trust or (b) any misrepresentation or breach of warranty by Employer under this Agreement, the Plan or Trust. If Employer fails to do so, FCE may compromise and settle or defend against any Claim, and Employer will be obligated to indemnify and hold harmless TPA1 for all costs of defense, compromise and settlement, including any judgments incurred by or rendered against TPA, which arise out of the Claim. The provisions of this Section will survive the termination of this Agreement and the Plan. Complaint, Ex. A at 7. Defendant argues that Plaintiff's claims

against it are "related to and directly arising out of" Plaintiff's own failure "to comply with various covenants and obligations." Counterclaims ¶¶ 2, 3. Specifically, Defendant asserts that

Plaintiff "misrepresented the number of employees who would participate in the [insurance plan]; the amount of contributions that would be made to the Plan, and the status of certain employees being enrolled in the Plan." Id. at ¶ 8. Therefore, Defendant

argues that Plaintiff must indemnify it under the terms of the clause quoted above. Id. at ¶ 4.

Plaintiff counters that the indemnity clause on its face applies only to claims brought by third parties and that its

TPA stands for third-party administrator. 4

Case 4:07-cv-04408-CW

Document 31

Filed 12/11/2007

Page 5 of 6

1 2 3 4 5 6 7 8 9 10 United States District Court For the Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

complaint is based on allegations of Defendant's negligence, which is not explicitly covered by the clause. Further, Plaintiff notes

that interpreting the contract to require it to indemnify Defendant for claims brought by Plaintiff would lead to an absurd result. Plaintiff's first argument, that the clause explicitly applies only to claims brought by third parties is not supported by the language, which makes no such limitation.2 Similarly, the fact

that Plaintiff has plead that Defendant was negligent in its actions does not automatically preclude the applicability of the indemnity clause. This argument would only apply if Defendant was Further, it appears that the clause was

found actually negligent.

drafted to cover situations in which claims, including claims of negligence, are brought against Defendant but the fault actually lies with Plaintiff. However, Plaintiff's final argument, that reading the contract as proposed by Defendant leads to absurd results, is well-taken. As Plaintiff points out, interpreting the provision in the manner proposed by Defendant would require Plaintiff to defend the case against itself, to pay Defendant's attorneys' fees regardless of whether it wins or loses and to pay a judgment in its favor on Defendant's behalf. Further Defendant's proposed interpretation

would preclude Plaintiff from enforcing the contract against Defendant, essentially rendering the contract meaningless. Under

However, the Court notes that "an indemnitor in an indemnity contract generally undertakes to protect the indemnitee against loss or damage through liability to a third person." Myers Building Industries, Ltd. v. Interface Technology, Inc., 13 Cal. App. 4th 949, 968 (1993). 5

2

Case 4:07-cv-04408-CW

Document 31

Filed 12/11/2007

Page 6 of 6

1 2 3 4 5 6 7 8 9 10 United States District Court For the Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24

California law, "contracts should be read in a manner that renders them reasonable and capable of being put into effect". Heppler v.

J.M. Peters Co., 73 Cal. App. 4th 1265, 1278 (1999); see also Cal. Civ. Code § 1643 ("A contract must receive such a interpretation as will make it lawful, operative, definite, reasonable, and capable of being carried into effect, if it can be done without violating the intention of the parties."). As stated above, the Court is ordinarily required to dismiss a complaint with leave to amend. amendment would be futile. However, the Court finds that

There is no way in which Defendant can

plead a claim requiring Plaintiff to indemnify it in this case. CONCLUSION For the foregoing reasons, the Court GRANTS Plaintiff's motion to dismiss Defendant's indemnity counterclaim without leave to amend (Docket No. 23). As stated above, Plaintiff has also filed a motion for leave to file an amended complaint, seeking to add its insurance broker, Calfia Development Corp. as a defendant. statement of non-opposition. Defendant has filed a

The Court GRANTS Plaintiff's motion Plaintiff

for leave to file an amended complaint (Docket No. 22). may file and serve its amended complaint.

Pursuant to the parties'

stipulation, an initial case management conference will be held on February 12, 2008. IT IS SO ORDERED.

25 26 27 28 6 Dated: 12/11/07 CLAUDIA WILKEN United States District Judge