defendants the phoenic insurance company and the travelers indemnity c

Cal. Super. - 1st Dist.July 22, 2021

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5232317 1 DEFENDANTS THE PHOENIX INSURANCE COMPANY AND THE TRAVELERS INDEMNITY COMPANY’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEMURRER C L Y D E & C O U S L L P F o u r E m b a rc a d e ro C e n te r, S u ite 1 3 5 0 S a n F ra n c is co , C a lif o rn ia 9 4 1 1 1 T e le p h o n e : (4 1 5 ) 3 6 5 -9 8 0 0 BRUCE D. CELEBREZZE, State Bar No. 102181 bruce.celebrezze@clydeco.us THEODORE A. HAMMERS, State Bar No. 324951 ted.hammers@clydeco.us CLYDE & CO US LLP Four Embarcadero Center, Suite 1350 San Francisco, California 94111 Telephone: (415) 365-9800 Facsimile: (415) 365-9801 Attorneys for Defendants THE PHOENIX INSURANCE COMPANY and THE TRAVELERS INDEMNITY COMPANY SUPERIOR COURT OF THE STATE OF CALIFORNIA CITY AND COUNTY OF SAN FRANCISCO WILBUR-ELLIS COMPANY, LLC, Plaintiff, v. TRUCK INSURANCE EXCHANGE; THE PHOENIX INSURANCE COMPANY; TRAVELERS INDEMNITY COMPANY; and DOES 1-100, Defendants. Case No. CGC-20-586317 DEFENDANTS THE PHOENIX INSURANCE COMPANY AND THE TRAVELERS INDEMNITY COMPANY’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEMURRER Date: November 24, 2020 Time: 9:30 a.m. Dept: 302 Judge: Hon. Ethan P. Schulman ELECTRONICALLY F I L E D Superior Court of California, County of San Francisco 10/30/2020 Clerk of the Court BY: SANDRA SCHIRO Deputy Clerk 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5232317 2 DEFENDANTS THE PHOENIX INSURANCE COMPANY AND THE TRAVELERS INDEMNITY COMPANY’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEMURRER C L Y D E & C O U S L L P F o u r E m b a rc a d e ro C e n te r, S u ite 1 3 5 0 S a n F ra n c is co , C a lif o rn ia 9 4 1 1 1 T e le p h o n e : (4 1 5 ) 3 6 5 -9 8 0 0 TABLE OF CONTENTS Page I. INTRODUCTION AND SUMMARY OF ARGUMENT .................................................. 6 II. ALLEGATIONS OF PLAINTIFF’S COMPLAINT .......................................................... 7 A. Allegations Relating To Hourly Rates Paid Under The Phoenix Policy ................. 7 B. Allegations Against Travelers ................................................................................. 8 III. ARGUMENT ...................................................................................................................... 9 A. Standard On Demurrer ............................................................................................ 9 B. Wilbur-Ellis’ Claim Must Be Resolved By Final And Binding Arbitration ........... 9 1. Long and Compulink Are Most Analogous To The Facts In This Case And Support Phoenix’s and Travelers’ Demurrer ............................ 10 2. CaiafaAnd Janopaul, In Which The Courts Did Not Order The Case To Arbitration, Involved Very Different Facts Than Those Here And Also Support Phoenix And Travelers’ Demurrer ...................................... 12 C. Separately, Wilbur-Ellis Cannot State A Cause Of Action Against Travelers ..... 15 1. Wilbur-Ellis Cannot State A Cause of Action For Breach Of Contract As There Is No Contract Between Wilbur-Ellis And Travelers .................................................................................................... 15 2. Wilbur-Ellis’ Cause Of Action Against Travelers For Breach Of The Implied Covenant Of Good Faith And Fair Dealing Must Fail ................ 16 3. Wilbur-Ellis’ Claim Against Travelers Based On The Alter Ego Doctrine Fails As A Matter Of Law .......................................................... 16 D. The Court Should Sustain The Demurrer Without Leave To Amend ................... 20 IV. CONCLUSION ................................................................................................................. 20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5232317 3 DEFENDANTS THE PHOENIX INSURANCE COMPANY AND THE TRAVELERS INDEMNITY COMPANY’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEMURRER C L Y D E & C O U S L L P F o u r E m b a rc a d e ro C e n te r, S u ite 1 3 5 0 S a n F ra n c is co , C a lif o rn ia 9 4 1 1 1 T e le p h o n e : (4 1 5 ) 3 6 5 -9 8 0 0 TABLE OF AUTHORITIES Page Cases Aragon-Haas v. Family Security Ins. Services, Inc. 231 Cal. App. 3d 232 (1991) ......................................................................................................... 9 Associated Vendors, Inc. v. Oakland Meat Co. 210 Cal. App. 2d 825 (1962) ....................................................................................................... 17 Automotriz etc. De California v. Resnick 47 Cal. 2d 792 (1957) .................................................................................................................. 17 Balikov v. Southern Cal. Gas Co. 94 Cal. App. 4th 816 (2001) .......................................................................................................... 9 Blank v. Kirwan 39 Cal. 3d 311 (1985) .............................................................................................................. 9, 19 Caiafa Professional Law Corp. v. State Farm Fire & Cas. Co. 15 Cal. App. 4th 800 (1993) .................................................................................................. 12, 13 Campbell v. Regents of University of California 35 Cal. 4th 311 (2005) ................................................................................................................. 20 Careau & Co. v. Security Pacific Business Credit, Inc. 222 Cal. App. 3d 1371 (1990) ..................................................................................................... 15 Carson v. Mercury Ins. Co. 210 Cal. App. 4th 409 (2012) ...................................................................................................... 16 Compulink Management Center, Inc. v. St. Paul Fire & Marine Ins. Co. 169 Cal. App. 4th 289 (2008) ................................................................................................ 11, 12 Comunale v. Traders & General Ins. Co. 50 Cal. 2d 654 (1958) .................................................................................................................. 16 Duggal v. G.E. Capital Communications Services, Inc. 81 Cal. App. 4th 81 (2000) ............................................................................................................ 9 Flying Dutchman Park, Inc. v. City & County of San Francisco 93 Cal. App. 4th 1129 (2001) ........................................................................................................ 9 Gruenberg v. Aetna Ins. Co. 9 Cal. 3d 566 (1973) .................................................................................................................... 16 Hatchwell v. Blue Shield of California 198 Cal. App. 3d 1027 (1988) ............................................................................................... 15, 16 Howard Contracting, Inc. v. G.A. MacDonald Construction Co. 71 Cal. App. 4th 38 (1998) .......................................................................................................... 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5232317 4 DEFENDANTS THE PHOENIX INSURANCE COMPANY AND THE TRAVELERS INDEMNITY COMPANY’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEMURRER C L Y D E & C O U S L L P F o u r E m b a rc a d e ro C e n te r, S u ite 1 3 5 0 S a n F ra n c is co , C a lif o rn ia 9 4 1 1 1 T e le p h o n e : (4 1 5 ) 3 6 5 -9 8 0 0 Janopaul + Block Cos. v. Superior Court 200 Cal. App. 4th 1239 (2011) .............................................................................................. 13, 14 Jones v. Aetna Cas. & Sur. Co. 26 Cal. App. 4th 1717 (1994) ...................................................................................................... 16 Lawrence v. Bank of America 163 Cal. App. 3d 431 (1985) ....................................................................................................... 20 Leek v. Cooper 194 Cal. App. 4th 399, 415 (2011) .............................................................................................. 18 Long v. Century Indem. Co. 163 Cal. App. 4th 1460 (2008) .............................................................................................. 10, 11 Murphy v. Allstate Ins. Co 17 Cal. 3d 937 (1976) .................................................................................................................. 15 Robbins v. Blecher 52 Cal. App. 4th 886 (1997) ........................................................................................................ 17 Roman Catholic Archbishop v. Superior Court 15 Cal. App. 3d 405 (1972) ......................................................................................................... 17 Roy Allan Slurry Seal, Inc. v. American Asphalt South, Inc. 2 Cal. 5th 505 (2017) ..................................................................................................................... 9 San Diego Navy Federal Credit Union v. Cumis Ins. Society, Inc. 162 Cal. App. 3d 358 (1984) ....................................................................................................... 10 Sonora Diamond Corp. v. Superior Court 83 Cal. App. 4th 523 (2000) ........................................................................................................ 17 Stansfield v. Starkey 220 Cal. App. 3d 59 (1990) ......................................................................................................... 18 Talbot v. Fresno-Pacific Corp. 181 Cal. App. 2d 425 (1960) ....................................................................................................... 17 Vasey v. California Dance Co. 70 Cal. App. 3d 742 (1977) ......................................................................................................... 18 Wallis v. Centennial Ins. Co. 927 F. Supp. 2d 909 (E.D. Cal. 2013) ......................................................................................... 15 Wilner v. Sunset Life Ins. Co. 78 Ca1. App. 4th 952 (2000) ....................................................................................................... 20 Windham at Carmel Mountain Ranch Assn. v. Superior Court 109 Cal. App. 4th 1162 (2003) .................................................................................................... 15 Statutes Civ. Code Cal. § 2860(c) ................................................................................................. 6, 10, 12, 14 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5232317 5 DEFENDANTS THE PHOENIX INSURANCE COMPANY AND THE TRAVELERS INDEMNITY COMPANY’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEMURRER C L Y D E & C O U S L L P F o u r E m b a rc a d e ro C e n te r, S u ite 1 3 5 0 S a n F ra n c is co , C a lif o rn ia 9 4 1 1 1 T e le p h o n e : (4 1 5 ) 3 6 5 -9 8 0 0 Civ. Code Cal.§ 2860 .................................................................................................... 10, 11, 13, 14 Code of Civ. Proc. § 430.10(e) .......................................................................................................... 9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5232317 6 DEFENDANTS THE PHOENIX INSURANCE COMPANY AND THE TRAVELERS INDEMNITY COMPANY’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEMURRER C L Y D E & C O U S L L P F o u r E m b a rc a d e ro C e n te r, S u ite 1 3 5 0 S a n F ra n c is co , C a lif o rn ia 9 4 1 1 1 T e le p h o n e : (4 1 5 ) 3 6 5 -9 8 0 0 I. INTRODUCTION AND SUMMARY OF ARGUMENT This lawsuit is a dispute concerning the hourly rates paid by insurance companies to independent counsel representing their policyholder in a number of underlying environmental cases (hereinafter referred to as the “TCP Litigation”). In its complaint, plaintiff Wilbur-Ellis Company, LLC (“Wilbur Ellis”) purports to bring two causes of action against defendants The Phoenix Insurance Company (“Phoenix”) and The Travelers Indemnity Company (“Travelers”) related to Phoenix’s alleged failure to pay the full amount of attorneys’ fees incurred by Wilbur- Ellis’ independent counsel in the TCP Litigation. Wilbur-Ellis’ first cause of action is for an alleged breach of contract and its second cause of action is for an alleged breach of the implied covenant of good faith and fair dealing. Both causes of action stem from Phoenix’s alleged failure to reimburse Wilbur-Ellis at the hourly rates charged by its independent counsel in the TCP Litigation. Both causes of action fail to state a legally sufficient claim because, pursuant to California Civil Code § 2860(c), disputes over rates an insurer is required to pay independent counsel must be resolved through final and binding arbitration. This dispute cannot be adjudicated in this Court. In addition, and without regard to Civil Code § 2860(c), Wilbur-Ellis’ claims against Travelers fail as a matter of law. As Wilbur-Ellis has alleged, Phoenix entered into an insurance policy with Wilbur-Ellis. Wilbur-Ellis does not even attempt to allege that Travelers entered into an insurance policy with Wilbur-Ellis. Both of Wilbur-Ellis’ causes of action stem from the alleged failure by the contracting insurer Phoenix, not Travelers which entered into no contract with Wilbur-Ellis, to reimburse Wilbur-Ellis at the hourly rates charged by its independent counsel in the TCP Litigation. Because the policy at issue was issued by Phoenix, not Travelers, both causes of action fail to state a legally sufficient claim against Travelers. There is no privity of contract between Wilbur-Ellis and Travelers and, as such, any claims against Travelers must fail as a matter of law. Therefore, the Court should sustain Phoenix and Travelers’ demurrer to the first and second causes of action in Wilbur-Ellis’ complaint, with prejudice and without leave to amend. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5232317 7 DEFENDANTS THE PHOENIX INSURANCE COMPANY AND THE TRAVELERS INDEMNITY COMPANY’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEMURRER C L Y D E & C O U S L L P F o u r E m b a rc a d e ro C e n te r, S u ite 1 3 5 0 S a n F ra n c is co , C a lif o rn ia 9 4 1 1 1 T e le p h o n e : (4 1 5 ) 3 6 5 -9 8 0 0 II. ALLEGATIONS OF PLAINTIFF’S COMPLAINT A. Allegations Relating To Hourly Rates Paid Under The Phoenix Policy Wilbur-Ellis asserts that Phoenix “issued to Wilbur-Ellis a primary commercial liability policy that was in effect for the period from June 30, 1966 to June 30, 1969 bearing policy number CC104255.” Complaint ¶ 9. The policy at issue provides third-party defense coverage. Wilbur-Ellis avers that, beginning in 2004, it was sued by a number of claimants seeking damages for alleged property damage to well and water supplies (as identified above, “the TCP Litigation”). Complaint ¶ 12. Thereafter, Wilbur-Ellis submitted the defense of each of the TCP Litigation lawsuits to Phoenix under the policy and retained two law firms as independent counsel. Complaint ¶ 13. Phoenix agreed to reimburse Wilbur-Ellis for its independent counsel at an hourly rate of $225 per hour for partners and $205 per hour for associates. Complaint ¶ 16. Wilbur-Ellis contends that, due to Phoenix’s refusal to reimburse Wilbur-Ellis for the full hourly rates charged by its independent counsel, Wilbur-Ellis has been required to make up the difference. Complaint ¶ 17. Wilbur-Ellis alleges in its first cause of action that Phoenix “breached and continues to breach the contracts of insurance by refusing and failing to provide a defense to Wilbur-Ellis by reimbursing Wilbur-Ellis at legally required hourly rates for its independent counsel in the TCP litigation.” Complaint ¶ 29. Wilbur-Ellis contends that “as a direct and proximate result of the Insurers’ breaches of contractual duties, Wilbur-Ellis has incurred damages in an amount to be proven at trial.” Complaint ¶ 30. Wilbur-Ellis alleges in its second cause of action that by “refusing to acknowledge Wilbur- Ellis’s right to reimbursement of appropriate hourly rates for its independent counsel, by purposefully forcing Wilbur-Ellis to incur needless legal costs to secure its rights to the reimbursement and by seeking to stall and defeat solely for their own benefit Wilbur-Ellis’ rights under the Policies Insurers have acted wrongfully, vexatiously, unreasonably and without proper cause, thereby breaching the implied covenant of good faith and fair dealing.” Complaint ¶ 32. Wilbur-Ellis avers that, as an alleged result of Phoenix’s conduct, it “has suffered substantial damages, including without limitation the attorneys’ fees and other costs incurred to pay the actual 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5232317 8 DEFENDANTS THE PHOENIX INSURANCE COMPANY AND THE TRAVELERS INDEMNITY COMPANY’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEMURRER C L Y D E & C O U S L L P F o u r E m b a rc a d e ro C e n te r, S u ite 1 3 5 0 S a n F ra n c is co , C a lif o rn ia 9 4 1 1 1 T e le p h o n e : (4 1 5 ) 3 6 5 -9 8 0 0 hourly rates of its independent counsel beyond the fraction that the Insurers have reimbursed.” Complaint ¶ 36. B. Allegations Against Travelers Wilbur-Ellis’ factual allegations against Travelers are sparse. As quoted above, Wilbur- Ellis admits that Phoenix, not Travelers, “issued to Wilbur-Ellis a primary commercial liability policy that was in effect for the period from June 30, 1966 to June 30, 1969 bearing policy number CC104255.” Complaint ¶ 9. Wilbur-Ellis asserts that “[o]n information and belief, Phoenix is wholly owned by Travelers Indemnity Company.” Complaint ¶ 4. Wilbur-Ellis avers that “[w]hile Phoenix remains a separate entity, upon information and belief employees from Travelers direct the activities of Phoenix and communicate with insureds like Wilbur-Ellis on Phoenix’s behalf.” Complaint ¶ 5. Wilbur-Ellis further alleges that “all persons associated either with Phoenix or with Travelers consistently have referred to themselves in connection with all matters relating to this complaint simply and solely as acting on behalf of Travelers.” Id. Furthermore, Wilbur-Ellis asserts that “Phoenix and Travelers have acted in concert and as a single, unitary enterprise, and alter-ego of one another in all of their dealings with Wilbur-Ellis involved in this action, such that any corporate distinction between them is, and must be disregarded.” Id. Wilbur-Ellis admits that it did not enter into an insurance contract with Travelers, but it nevertheless alleges in its first cause of action that not just Phoenix, but also Travelers, “breached and continue to breach the contracts of insurance by refusing and failing to provide a defense to Wilbur-Ellis by reimbursing Wilbur-Ellis at legally required hourly rates for its independent counsel in the TCP Litigation.” Complaint ¶ 29. Wilbur-Ellis contends that “[a]s a direct and proximate result of the Insurers’ breaches of contractual duties, Wilbur-Ellis has incurred damages in an amount to be proven at trial.” Complaint ¶ 30. Again, at the same time Wilbur-Ellis admits that it did not enter into an insurance contract with Travelers, Wilbur-Ellis pursues not just Phoenix, but also Travelers, in the second cause of action by alleging that “[b]y unreasonably refusing to acknowledge Wilbur-Ellis’s right to reimbursement of appropriate hourly rates for its independent counsel, by purposefully forcing Wilbur-Ellis to incur needless legal costs to secure its rights to the reimbursement and by seeking 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5232317 9 DEFENDANTS THE PHOENIX INSURANCE COMPANY AND THE TRAVELERS INDEMNITY COMPANY’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEMURRER C L Y D E & C O U S L L P F o u r E m b a rc a d e ro C e n te r, S u ite 1 3 5 0 S a n F ra n c is co , C a lif o rn ia 9 4 1 1 1 T e le p h o n e : (4 1 5 ) 3 6 5 -9 8 0 0 to stall and defeat solely for their own benefit Wilbur-Ellis’ rights under the Policies Insurers have acted wrongfully, vexatiously, unreasonably and without proper cause, thereby breaching the implied covenant of good faith and fair dealing.” Complaint ¶ 32. Wilbur-Ellis avers that, as an alleged result of the conduct of Travelers - which has no privity with Wilbur Ellis - it “has suffered substantial damages, including without limitation the attorneys’ fees and other costs incurred to pay the actual hourly rates of its independent counsel beyond the fraction that the Insurers have reimbursed.” Complaint ¶ 36. III. ARGUMENT A. Standard On Demurrer “The function of a demurrer is to test the sufficiency of the complaint by raising questions of law.” Aragon-Haas v. Family Security Ins. Services, Inc., 231 Cal. App. 3d 232, 238 (1991). The court “treat[s] the demurrer as admitting all material facts properly pleaded, but not contentions, deductions, or conclusions of fact or law.” Blank v. Kirwan, 39 Cal. 3d 311, 318 (1985). A demurrer should be sustained if the complaint does not state facts sufficient to constitute a cause of action. Code of Civ. Proc. § 430.10(e). When a ground for objection to a complaint appears on its face or from matters of which the court may or must take judicial notice, a demurrer on that ground is proper. Duggal v. G.E. Capital Communications Services, Inc., 81 Cal. App. 4th 81, 86 (2000). A demurrer is properly sustained when the pleading does not state facts sufficient to constitute a cause of action. Roy Allan Slurry Seal, Inc. v. American Asphalt South, Inc., 2 Cal. 5th 505, 512 (2017). To overcome this demurrer, Wilbur-Ellis bears the burden of proving that there is a reasonable possibility to cure any defect in the complaint by amendment. Balikov v. Southern Cal. Gas Co., 94 Cal. App. 4th 816, 819 (2001). If Wilbur-Ellis cannot meet this burden, the demurrer should be sustained without leave to amend. Flying Dutchman Park, Inc. v. City & County of San Francisco, 93 Cal. App. 4th 1129, 1134-35 (2001). B. Wilbur-Ellis’ Claim Must Be Resolved By Final And Binding Arbitration Where an insurer provides a defense under a reservation of rights, a conflict of interest may arise between the insurer and its insured. San Diego Navy Federal Credit Union v. Cumis Ins. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5232317 10 DEFENDANTS THE PHOENIX INSURANCE COMPANY AND THE TRAVELERS INDEMNITY COMPANY’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEMURRER C L Y D E & C O U S L L P F o u r E m b a rc a d e ro C e n te r, S u ite 1 3 5 0 S a n F ra n c is co , C a lif o rn ia 9 4 1 1 1 T e le p h o n e : (4 1 5 ) 3 6 5 -9 8 0 0 Society, Inc., 162 Cal. App. 3d 358, 364-65 (1984). In that case, the insured has a right to be represented by independent counsel of the insured’s choosing. Id. at 375. This rule was codified, and the details expanded upon, in Civil Code § 2860. That statute places certain strictures on independent counsel, including in section 2860(c), which provides: . . . The insurer’s obligation to pay fees to the independent counsel selected by the insured is limited to the rates which are actually paid by the insurer to attorneys retained by it in the ordinary course of business in the defense of similar actions in the community where the claim arose or is being defended. . . . Any dispute concerning attorney’s fees not resolved by these methods shall be resolved by final and binding arbitration by a single neutral arbitrator selected by the parties to the dispute. (Emphasis added.) 1. Long and Compulink Are Most Analogous To The Facts In This Case And Support Phoenix and Travelers’ Demurrer Consistent with Civil Code § 2860, California courts have held that fee disputes between an insured’s independent counsel and an insurance carrier must be resolved through arbitration. In Long v. Century Indem. Co., 163 Cal. App. 4th 1460 (2008), a recycling company was sued by the California Department of Toxic Substances Control as part of a hazardous waste cleanup action. Id. at 1465. The recycling company hired independent counsel, Long, to represent it in the environmental action. Long tendered the defense to the recycling company’s insurer, which agreed to provide a defense pursuant to a reservation of rights. The insurer agreed to have Long undertake the representation of the recycling company, but was unwilling to pay Long the hourly rate he requested, contending that Long was subject to the Civil Code § 2860 rate cap. Id. After settling the claim, Long, pursuant to an assignment of rights from the recycling company, sued the insurer for breach of contract and breach of the implied covenant of good faith and fair dealing based on the insurer’s failure to pay the attorney’s full hourly rate for his independent representation of the insured. Id. at 1466. The insurer demurred to Long’s complaint, asserting that Long’s claim was in effect a fee dispute subject to mandatory arbitration. Id. at 1466. After the filing of an amended complaint, the trial court sustained the insurer’s demurrer to that complaint holding, “the law is real clear. It says the jurisdiction lies in arbitration only and section 2860 could not be more specific. This is a 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5232317 11 DEFENDANTS THE PHOENIX INSURANCE COMPANY AND THE TRAVELERS INDEMNITY COMPANY’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEMURRER C L Y D E & C O U S L L P F o u r E m b a rc a d e ro C e n te r, S u ite 1 3 5 0 S a n F ra n c is co , C a lif o rn ia 9 4 1 1 1 T e le p h o n e : (4 1 5 ) 3 6 5 -9 8 0 0 fight over a fee dispute pursuant to [Cumis] counsel. . . . I know you’ve tried to make it into something else, which is very creative on your part, but it’s just not here. . . .” Id. at 1467. The Court of Appeal held that “[a]ny dispute concerning attorney fees to be paid [to] Cumis counsel must be submitted to arbitration unless an alternative dispute resolution procedure is required by the insurance policy.” Id. at 1471. The Court of Appeal further found that filing a lawsuit was improper, even where it was asserted that the insurer had waived the right to arbitrate by refusing an earlier arbitration demand: In light of the statutory mandate that all fee disputes between an insured’s Cumis counsel and the insurer be resolved by arbitration (§ 2860, subd. (c)), however, the issue is not INA’s entitlement to compel arbitration but the Legislature’s allocation of decisionmaking responsibility between the courts and arbitrators. ….- if Long was Cumis counsel, the insurer’s refusal to voluntarily participate in arbitration as required by section 2860, subdivision (c), does not confer jurisdiction on the courts to hear Long’s attorney fee dispute. Rather than file a lawsuit, Long’s appropriate remedy was a petition to compel arbitration. [Citation.] Id. at 1474 (emphasis added). Thus, although Wilbur-Ellis alleges that the insurers have “waived their right to compel [arbitration] and are estopped from doing so” (Compl. ¶ 25), pursuant to Long, this alleged conduct does not provide a basis for removing this dispute from an arbitration forum. Attorneys’ fee disputes that are coupled with bad faith claims are not exempt from arbitration mandated by section 2860. In Compulink Management Center, Inc. v. St. Paul Fire & Marine Ins. Co., 169 Cal. App. 4th 289 (2008), Compulink Management Center, Inc. was insured under a general liability policy issued by St. Paul Fire & Marine Insurance Company. Id. at 292. During the policy period, Compulink sued one of its former distributors, which then cross- complained against Compulink. Compulink tendered the defense of the cross-complaint to St. Paul. St. Paul agreed to provide a defense subject to a reservation of rights, and Compulink was allowed to select its own independent counsel. Id. at 293. Once the case settled, Compulink sued St. Paul alleging claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and declaratory relief. Compulink alleged that St Paul’s bad faith conduct caused it to incur additional legal fees and to obtain a less favorable settlement. St. Paul filed a petition to compel arbitration pursuant to section 2860. Id. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5232317 12 DEFENDANTS THE PHOENIX INSURANCE COMPANY AND THE TRAVELERS INDEMNITY COMPANY’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEMURRER C L Y D E & C O U S L L P F o u r E m b a rc a d e ro C e n te r, S u ite 1 3 5 0 S a n F ra n c is co , C a lif o rn ia 9 4 1 1 1 T e le p h o n e : (4 1 5 ) 3 6 5 -9 8 0 0 The trial court denied St. Paul’s petition to compel arbitration due to Compulink’s allegations of bad faith. St. Paul appealed. Id. at 294. The Court of Appeal reversed the order denying St. Paul’s petition to compel arbitration, finding that The language of the statute is clear. It requires arbitration of any and all Cumis fee disputes unless the parties’ insurance policy provides for an alternative dispute resolution procedure. On its face, section 2860 does not contain an exception for fee disputes in cases where other claims or issues also are alleged. It accordingly does not exempt from arbitration Cumis fee disputes that are coupled with additional bad faith claims. Id. at 296-97. The Court of Appeal held that “[w]hile Compulink’s complaint alleges wrongful conduct beyond the mere failure to pay attorney’s fees, the parties do not dispute that the amount of attorney’s fees owed by St. Paul is a contested issue in this action. Pursuant to section 2860, subdivision (c), that issue must be resolved by an arbitrator, not by any other trier of fact.” Id. at 300. Here, according to the allegations in Wilbur-Ellis’ complaint, the dispute arises entirely out of the rates paid to independent counsel. Wilbur-Ellis submitted its defense related to the TCP Litigation to Phoenix, and Phoenix promptly agreed to defend Wilbur-Ellis under a reservation of rights. Wilbur-Ellis then retained independent counsel at Barg Coffin Lewis & Trapp, LLC and Becherer Kannett & Schweitzer to represent it in the TCP Litigation. Complaint, ¶ 13. Phoenix agreed to reimburse Wilbur-Ellis for its independent counsel at an hourly rate of $225 per hour for partners and $205 per hour for associates. Complaint, ¶ 16. Dissatisfied with those hourly rates, Wilbur-Ellis filed this action. This dispute must be arbitrated. It cannot proceed in light of Civil Code § 2860(c) and the controlling appellate decisions cited above. 2. CaiafaAnd Janopaul, In Which The Courts Did Not Order The Case To Arbitration, Involved Very Different Facts Than Those Here And Also Support Phoenix And Travelers’ Demurrer In Caiafa Professional Law Corp. v. State Farm Fire & Cas. Co., 15 Cal. App. 4th 800 (1993) , Caiafa served as independent Cumis counsel to represent the insured. The insurer initially paid the bills submitted by Caiafa, but eventually stopped paying and filed a civil Racketeer 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5232317 13 DEFENDANTS THE PHOENIX INSURANCE COMPANY AND THE TRAVELERS INDEMNITY COMPANY’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEMURRER C L Y D E & C O U S L L P F o u r E m b a rc a d e ro C e n te r, S u ite 1 3 5 0 S a n F ra n c is co , C a lif o rn ia 9 4 1 1 1 T e le p h o n e : (4 1 5 ) 3 6 5 -9 8 0 0 Influenced and Corrupt Organizations Act (RICO) action against Caiafa in federal court. The RICO lawsuit alleged that Caiafa had defrauded the insurer by “submitting padded bills and engaging in unnecessary legal work.” Id. at 802. Approximately nine months after the insurer filed the RICO action against Caiafa, Caiafa filed a petition to compel arbitration in state court pursuant to section 2860. The trial court denied the petition and stayed the proceedings pending the outcome of the RICO action. Id. at 803. In affirming the trial court’s decision, the Court of Appeal reasoned that “[i]f the only issue in dispute truly was the amount of Cumis counsel fees the insurance company owed, it would be improper, in most circumstances at least, for a trial court to stay the arbitration proceeding mandated under section 2860 in order to allow a judicial proceeding in the California courts to decide that issue and that issue alone.” Id. at 803. (Emphasis in original.) However, “this is an entirely different issue than the propriety of staying a section 2860 arbitration while a Federal court decides a case involving those same Cumis counsel fees.” Id. at 803. (Emphasis in original.) The court concluded that, “[i]t is true the California Legislature has spoken. It has decided that within the California courts these Cumis fee issues are to be decided in an arbitration forum, not the state’s judicial forum.” Id. at 803. (Emphasis in original.) In contrast to Caiafa, the only issue in dispute here is the hourly rate the insurers are obligated to pay independent counsel. This case does not involve extraneous claims - such as the federal RICO claims in Caiafa. And the Caiafa court acknowledged that, absent such extraneous claims, the lawsuit must be dismissed so the hourly rate dispute can be resolved by arbitration. Similarly, in Janopaul + Block Cos. v. Superior Court, 200 Cal. App. 4th 1239 (2011), Janopaul was sued by the El Cortez Owners Association related to the restoration of the El Cortez Hotel in San Diego. Janopaul tendered its defense to its insurer, St. Paul Fire & Marine Insurance Company. Id. at 1242. St. Paul acknowledged receipt of Janopaul’s tender, but stated that it was investigating the matter and was unable to decline or accept the tender. Id. More than two years after the initial tender, Janopaul informed St. Paul that it intended to file a bad faith claim for St. Paul’s failure to provide a defense. Shortly thereafter, St. Paul agreed to provide Janopaul a defense under a reservation of rights and provide Cumis counsel. Id. at 1243. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5232317 14 DEFENDANTS THE PHOENIX INSURANCE COMPANY AND THE TRAVELERS INDEMNITY COMPANY’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEMURRER C L Y D E & C O U S L L P F o u r E m b a rc a d e ro C e n te r, S u ite 1 3 5 0 S a n F ra n c is co , C a lif o rn ia 9 4 1 1 1 T e le p h o n e : (4 1 5 ) 3 6 5 -9 8 0 0 After a dispute concerning Janopaul’s Cumis counsel fees, St. Paul filed a petition to compel arbitration, which the trial court granted. Id. at 1244-45. Subsequently, the Court of Appeal vacated the trial court’s order and denied St. Paul’s petition to compel arbitration and vacated the stay of proceedings because “Janopaul sought compensatory and punitive damages against St. Paul for the latter’s alleged breach of contract/bad faith in connection with, among other concerns, St. Paul’s alleged unreasonable delay in accepting the tender of defense.” Id. at 1247, 1252. If Janopaul’s allegation that St. Paul’s conduct in delaying the acceptance of the tender for two years resulted in a breach of the insurance contract and a loss of all of St. Paul’s rights under that contract, including the right to cap hourly rates under Civil Code § 2860, were to be proven true, then there would be nothing to arbitrate. In short, Janopaul + Block involved a bad faith claim stemming out of the insured’s complaints of St. Paul’s long delay in accepting and then handling the defense. That bad faith claim did not arise out of a dispute over the hourly rates. Rather, the insured’s complaint was more foundational - it alleged that, by its conduct, St. Paul breached the duty to defend in its entirely; if that were true, St. Paul would owe all damages that flowed from that breach and would not be entitled to rely on Civil Code § 2860 at all, including its hourly rate caps. In contrast, here, Wilbur-Ellis’ bad faith claim stems exclusively from Phoenix’s alleged refusal to reimburse Wilbur-Ellis for attorneys’ fees at the hourly rates which Wilbur-Ellis contends should be paid. Contrary to the situation in Janopaul + Block, Wilbur-Ellis’ second cause of action is solely founded upon Phoenix’s alleged refusal to reimburse Wilbur-Ellis at the hourly rates incurred by Wilbur-Ellis in hiring independent counsel for its defense. See, e.g., Complaint, ¶¶ Introduction, 14-25, 29, 32-34. The reimbursement sought by Wilbur-Ellis is the difference in the agreed upon hourly rate designated by Phoenix and the rate charged by Wilbur- Ellis’ independent counsel. Therefore, because the Wilbur-Ellis complaint is predicated fully, completely, and exclusively on a dispute over the rates charged for attorneys’ fees, Wilbur-Ellis’ only recourse is through final and binding arbitration as mandated by Civil Code § 2860(c). 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5232317 15 DEFENDANTS THE PHOENIX INSURANCE COMPANY AND THE TRAVELERS INDEMNITY COMPANY’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEMURRER C L Y D E & C O U S L L P F o u r E m b a rc a d e ro C e n te r, S u ite 1 3 5 0 S a n F ra n c is co , C a lif o rn ia 9 4 1 1 1 T e le p h o n e : (4 1 5 ) 3 6 5 -9 8 0 0 C. Separately, Wilbur-Ellis Cannot State A Cause Of Action Against Travelers 1. Wilbur-Ellis Cannot State A Cause of Action For Breach Of Contract As There Is No Contract Between Wilbur-Ellis And Travelers “A cause of action for damages for breach of contract is comprised of the following elements: (1) the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) the resulting damages to plaintiff.” Careau & Co. v. Security Pacific Business Credit, Inc., 222 Cal. App. 3d 1371, 1388 (1990), citing Reichert v. General Ins. Co., 68 Cal. 2d 822, 830 (1968). “In general, a non-party, or nonsignatory, to an insurance contract is not liable for a breach of that contract.” Wallis v. Centennial Ins. Co., 927 F. Supp. 2d 909, 914 (E.D. Cal. 2013). Only parties in privity of contract can sue under the terms of the contract. Howard Contracting, Inc. v. G.A. MacDonald Construction Co., 71 Cal. App. 4th 38, 60 (1998). A party has no standing to enforce a contract if it is not a party to the contract. Windham at Carmel Mountain Ranch Assn. v. Superior Court, 109 Cal. App. 4th 1162, 1173 (2003), citing Hatchwell v. Blue Shield of California, 198 Cal. App. 3d 1027, 1034 (1988). By definition therefore, a “party” cannot seek to enforce a contract that does not exist. “A third party should not be permitted to enforce covenants made not for his benefit, but rather for others. He is not a contracting party; his right to performance is predicated on the contracting parties’ intent to benefit him.” Murphy v. Allstate Ins. Co, 17 Cal. 3d 937, 944 (1976), citing Lucas v. Hamm, 56 Cal. 2d 583, 590-91 (1961). “Permitting a third party to enforce a covenant made solely to benefit others would lead to the anomaly of granting him a bonus after his receiving all intended benefit.” Id. Applying this same reasoning, a “party” cannot seek to enforce a contract that does not exist. Here, in order to sustain a claim for breach of contract, Wilbur-Ellis must first show that a contract existed between Wilbur-Ellis and Travelers. In its complaint, Wilbur-Ellis makes no allegations that a contract existed between Wilbur-Ellis and Travelers. As such, Wilbur-Ellis and Travelers were not in privity of contract and Wilbur-Ellis has no basis to sue Travelers under the terms of the contract between Wilbur-Ellis and Phoenix. Wilbur-Ellis’ right to performance is predicated on the contract between Wilbur-Ellis and Phoenix and their intent within the contract. Allowing Wilbur-Ellis to enforce the Phoenix contract against 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5232317 16 DEFENDANTS THE PHOENIX INSURANCE COMPANY AND THE TRAVELERS INDEMNITY COMPANY’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEMURRER C L Y D E & C O U S L L P F o u r E m b a rc a d e ro C e n te r, S u ite 1 3 5 0 S a n F ra n c is co , C a lif o rn ia 9 4 1 1 1 T e le p h o n e : (4 1 5 ) 3 6 5 -9 8 0 0 Travelers, a non-party, would lead to Wilbur-Ellis potentially gaining a “bonus” after already receiving all intended benefits under the Phoenix policy as may be determined in the appropriate forum. Therefore, Wilbur-Ellis’ first cause of action for breach of contract must fail as there was never a contract between Wilbur-Ellis and Travelers. 2. Wilbur-Ellis’ Cause Of Action Against Travelers For Breach Of The Implied Covenant Of Good Faith And Fair Dealing Must Fail “It is well established a breach of the implied covenant of good faith is a breach of the contract.” Carson v. Mercury Ins. Co., 210 Cal. App. 4th 409, 429 (2012). “While an action for breach of the covenant of good faith and fair dealing sounds in tort, the duty of good faith and fair dealing arises from and exists solely because of the contractual relationship between the parties.” Jones v. Aetna Cas. & Sur. Co., 26 Cal. App. 4th 1717, 1722 (1994), citing Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566, 577-78 (1973). Furthermore, “[d]efendants’ duty, as we have explained, arises from a contractual relationship existing between the parties. This duty has been characterized as an ‘implied covenant’ that ‘neither party will do anything which will injure the right of the other to receive the benefits of the agreement.’” Gruenberg, 9 Cal. 3d at 577-78, citing Comunale v. Traders & General Ins. Co., 50 Cal. 2d 654, 658 (1958). “Thus, someone who is not a party to the contract has no standing to enforce it or to recover extra-contractual damages for the wrongful withholding of benefits to the contracting party.” Jones, 26 Cal. App. 4th at 1722, citing Hatchwell v. Blue Shield of California, 198 Cal. App. 3d 1027, 1034 (1988). Again, here, there is no allegation that a contract existed between Wilbur-Ellis and Travelers. A claim based on a breach of the implied covenant of good faith and fair dealing requires a contractual relationship between the parties. No such relationship exists here between Wilbur-Ellis and Travelers. Because there is no contract between Wilbur-Ellis and Travelers, there cannot be a breach of the implied covenant of good faith and fair dealing. Wilbur-Ellis’ second cause of action for breach of the implied covenant of good faith and fair dealing must fail. 3. Wilbur-Ellis’ Claim Against Travelers Based On The Alter Ego Doctrine Fails As A Matter Of Law Wilbur-Ellis ignores the fact that it has no contractual relationship with Travelers, and hence no standing to sue for breach of contract or breach of the covenant of good faith and fair 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5232317 17 DEFENDANTS THE PHOENIX INSURANCE COMPANY AND THE TRAVELERS INDEMNITY COMPANY’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEMURRER C L Y D E & C O U S L L P F o u r E m b a rc a d e ro C e n te r, S u ite 1 3 5 0 S a n F ra n c is co , C a lif o rn ia 9 4 1 1 1 T e le p h o n e : (4 1 5 ) 3 6 5 -9 8 0 0 dealing, by using the term “alter ego” in its complaint. Complaint ¶ 5. Wilbur-Ellis’ allegation of “alter ego” does not come close to pleading what courts require to invoke that doctrine. “Under the alter ego doctrine … when the corporate form is used to perpetrate a fraud, circumvent a statute, or accomplish some other wrongful or inequitable purpose, the courts will ignore the corporate entity and deem the corporation’s acts to be those of the persons or organizations actually controlling the corporation, in most instances the equitable owners.” Sonora Diamond Corp. v. Superior Court, 83 Cal. App. 4th 523, 538 (2000), citing Robbins v. Blecher, 52 Cal. App. 4th 886, 892 (1997). “In California, two conditions must be met before the alter ego doctrine will be invoked. First, there must be such a unity of interest and ownership between the corporation and its equitable owner that the separate personalities of the corporation and the shareholder do not in reality exist. Second, there must be an inequitable result if the acts in question are treated as those of the corporation alone.” Sonora Diamond Corp., 83 Cal. App. 4th at 538; citing Automotriz etc. De California v. Resnick, 47 Cal. 2d 792, 796 (1957). “Among the factors to be considered in applying the doctrine are commingling of funds and other assets of the two entities, the holding out by one entity that it is liable for the debts of the other, identical equitable ownership in the two entities, use of the same offices and employees, and use of one as a mere shell or conduit for the affairs of the other.” Sonora Diamond Corp., 83 Cal. App. 4th at 538-39, citing Roman Catholic Archbishop v. Superior Court, 15 Cal. App. 3d 405, 411 (1972); Associated Vendors, Inc. v. Oakland Meat Co., 210 Cal. App. 2d 825, 838-39 (1962). “Other factors which have been described in the case law include inadequate capitalization, disregard of corporate formalities, lack of segregation of corporate records, and identical directors and officers. [Citation omitted] No one characteristic governs, but the courts must look at all the circumstances to determine whether the doctrine should be applied.” Sonora Diamond Corp., 83 Cal. App. 4th at 539; citing Talbot v. Fresno-Pacific Corp., 181 Cal. App. 2d 425, 432 (1960). “Alter ego is an extreme remedy, sparingly used.” Sonora Diamond Corp., 83 Cal. App. 4th at 539. “To recover on an alter ego theory, a plaintiff need not use the words ‘alter ego,’ but must allege sufficient facts to show a unity of interest and ownership, and an unjust result if the 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5232317 18 DEFENDANTS THE PHOENIX INSURANCE COMPANY AND THE TRAVELERS INDEMNITY COMPANY’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEMURRER C L Y D E & C O U S L L P F o u r E m b a rc a d e ro C e n te r, S u ite 1 3 5 0 S a n F ra n c is co , C a lif o rn ia 9 4 1 1 1 T e le p h o n e : (4 1 5 ) 3 6 5 -9 8 0 0 corporation is treated as the sole actor.” Leek v. Cooper, 194 Cal. App. 4th 399, 415 (2011), citing Vasey v. California Dance Co., 70 Cal. App. 3d 742, 749 (1977). A court will sustain a demurrer to alter ego allegations if the facts alleged are insufficient to demonstrate alter ego liability. Stansfield v. Starkey, 220 Cal. App. 3d 59, 74 (1990) (sustaining demurrer to alter ego claims where complaint’s allegations were “inconsistent with other allegations” and “fail to include facts showing a unity of interest and a resultant injustice, prerequisites to an alter ego theory”). Here, Wilbur-Ellis pleads neither of the two requirements to establish alter ego - a unity of interest between Phoenix and Travelers and an inequitable result if Wilbur-Ellis were to pursue and obtain a judgment against solely the party with which it entered into a contract - Phoenix. As in Leek and Vasey cited above, Travelers’ demurrer to the alter ego allegation should be sustained. Wilbur-Ellis does not plead sufficient facts to support its contention that Phoenix was an alter ego of Travelers. According to the case law above, the facts that must be alleged to state a claim for alter ego: • Sufficient facts to show a unity of interest and ownership - NOT PLEADED • Unjust or inequitable result if the corporation [Phoenix] is treated as the sole actor - NOT PLEADED • The corporate form must be used to perpetrate a fraud, circumvent a statute, or accomplish some other wrongful or inequitable purpose - NOT PLEADED • Commingling of funds and other assets of the two entities -- NOT PLEADED • The holding out by one entity that it is liable for the debts of the other - NOT PLEADED • Identical equitable ownership in the two entities - NOT PLEADED • Use of the same offices and employees - OVERLAPPING EMPLOYEES IS ALLEGED1 • Use of one entity as a mere shell or conduit for the affairs of the other - NOT PLEADED • Inadequate capitalization - NOT PLEADED • Disregard of corporate formalities - NOT PLEADED 1 The submission of this demurrer should not be construed as Travelers’ and/or Phoenix’s acceptance of and/or agreement with Wilbur-Ellis’ characterization of the employment relationship and/or employer of the individuals involved in this matter. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5232317 19 DEFENDANTS THE PHOENIX INSURANCE COMPANY AND THE TRAVELERS INDEMNITY COMPANY’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEMURRER C L Y D E & C O U S L L P F o u r E m b a rc a d e ro C e n te r, S u ite 1 3 5 0 S a n F ra n c is co , C a lif o rn ia 9 4 1 1 1 T e le p h o n e : (4 1 5 ) 3 6 5 -9 8 0 0 • Lack of segregation of corporate records - NOT PLEADED • Identical directors and officers - NOT PLEADED As set out above, Wilbur-Ellis does not plead sufficient facts to support the two requisite elements needed to establish alter ego - unity of interest and ownership, and an unjust or inequitable result if the corporation is treated as the sole actor - nor virtually any of the other factors which courts consider in determining if the two requisite elements of alter ego are met. Wilbur-Ellis admits that Phoenix remains a “separate entity.” Complaint ¶ 5. Wilbur-Ellis then merely alleges that “employees from Travelers direct the activities of Phoenix and communicate with insureds like Wilbur-Ellis on Phoenix’s behalf” (Complaint ¶ 5), which, even if proven, would not establish alter ego. Wilbur-Ellis further avers that “all persons associated either with Phoenix or with Travelers consistently have referred to themselves in connection with all matters relating to this complaint simply and solely as acting on behalf of Travelers” (Complaint ¶ 5); again, even if proven, this would not establish alter ego. Wilbur-Ellis alleges not one single fact in support of its baseless conclusory allegation that “Phoenix and Travelers have acted in concert and as a single, unitary enterprise, and alter-ego of one another in all of their dealings with Wilbur-Ellis involved in this action, such that any corporate distinction between them is, and must be disregarded.” Complaint ¶ 5. These mere conclusory allegations are insufficient to sustain a claim based on the alter ego doctrine. As set out above, the court “treat[s] the demurrer as admitting all material facts properly pleaded, but not contentions, deductions, or conclusions of fact or law.” Blank v. Kirwan, 39 Cal. 3d 311, 318 (1985). (Emphasis added.) Wilbur-Ellis pleads no factual allegations that there is such a unity of interest between Travelers and Phoenix that the separate entities do not actually exist. This showing is the first element necessary for a claim based on the alter ego doctrine. Additionally, Wilbur-Ellis did not, and cannot, plead sufficient facts showing that there would be an inequitable result if the allegations in the complaint are treated as acts of Phoenix alone. This showing is the second requisite element for a claim based on the alter ego doctrine. Wilbur-Ellis does not allege that, should it obtain a judgment against Phoenix, Phoenix would not be able to satisfy such a 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5232317 20 DEFENDANTS THE PHOENIX INSURANCE COMPANY AND THE TRAVELERS INDEMNITY COMPANY’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEMURRER C L Y D E & C O U S L L P F o u r E m b a rc a d e ro C e n te r, S u ite 1 3 5 0 S a n F ra n c is co , C a lif o rn ia 9 4 1 1 1 T e le p h o n e : (4 1 5 ) 3 6 5 -9 8 0 0 judgment. Therefore, Wilbur-Ellis’ throw-away conclusions that Phoenix and Travelers are acting as an alter ego of one another cannot stand. D. The Court Should Sustain The Demurrer Without Leave To Amend When a pleading is not susceptible to amendment because it involves strictly a legal issue, the court should sustain a demurrer without leave to amend: “Leave to amend should be denied where the facts are not in dispute and the nature of the claim is clear, but no liability exists under substantive law.” Lawrence v. Bank of America, 163 Cal. App. 3d 431, 436 (1985). A demurrer is properly sustained without leave to amend where the nature of the defect renders it probable that the pleading party cannot thereafter cure the deficiency which gave rise to the demurrer. Wilner v. Sunset Life Ins. Co., 78 Ca1. App. 4th 952, 958-59 (2000). “The plaintiff has the burden of proving that an amendment would cure the defect.” Campbell v. Regents of University of California, 35 Cal. 4th 311, 320 (2005). Here, the application of the principles of Lawrence, Wilner, and Campbell to the “facts” Wilbur-Ellis has alleged points to an inevitable conclusion: Wilbur-Ellis will not be able to cure the defects to state any viable claims against Phoenix or Travelers. The deficiencies in the complaint are solely legal in nature. Accordingly, this Court should sustain Phoenix and Travelers’ demurrer to the first and second causes of action without leave to amend. IV. CONCLUSION For the foregoing reasons, Phoenix and Travelers’ demurrer should be sustained without leave to amend. Dated: October 30, 2020 CLYDE & CO US LLP By: Bruce D. Celebrezze Theodore A. Hammers Attorneys for Defendants THE PHOENIX INSURANCE COMPANY and THE TRAVELERS INDEMNITY COMPANY 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5232317 21 DEFENDANTS THE PHOENIX INSURANCE COMPANY AND THE TRAVELERS INDEMNITY COMPANY’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEMURRER C L Y D E & C O U S L L P F o u r E m b a rc a d e ro C e n te r, S u ite 1 3 5 0 S a n F ra n c is co , C a lif o rn ia 9 4 1 1 1 T e le p h o n e : (4 1 5 ) 3 6 5 -9 8 0 0 PROOF OF SERVICE STATE OF CALIFORNIA, COUNTY OF SAN MATEO At the time of service, I was over 18 years of age and not a party to this action. I am employed in the County of San Francisco, State of California. My business address is Four Embarcadero Center Suite 1350, San Francisco, CA 94111; this proof of service is being sent from my residence in the County of San Mateo, State of California, due to the COVID19 situation. On October 30, 2020, I served true copies of the following document(s) described as DEFENDANTS THE PHOENIX INSURANCE COMPANY AND THE TRAVELERS INDEMNITY COMPANY’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEMURRER on the interested parties in this action as follows: SEE ATTACHED SERVICE LIST BY E-MAIL OR ELECTRONIC TRANSMISSION: I caused a copy of the document(s) to be sent from e-mail address andrea.mackenzie@clydeco.us to the persons at the e- mail addresses listed in the Service List. I did not receive, within a reasonable time after the transmission, any electronic message or other indication that the transmission was unsuccessful. BY ELECTRONIC SERVICE: I served the document(s) on the person listed in the Service List by submitting an electronic version of the document(s) to One Legal, LLC, through the user interface at www.onelegal.com. I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. Executed on October 30, 2020, at South San Francisco, California. Andrea Mackenzie 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5232317 22 DEFENDANTS THE PHOENIX INSURANCE COMPANY AND THE TRAVELERS INDEMNITY COMPANY’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF DEMURRER C L Y D E & C O U S L L P F o u r E m b a rc a d e ro C e n te r, S u ite 1 3 5 0 S a n F ra n c is co , C a lif o rn ia 9 4 1 1 1 T e le p h o n e : (4 1 5 ) 3 6 5 -9 8 0 0 SERVICE LIST RYAN M. BUSCHELL COVINGTON & BURLING LLP Salesforce Tower 415 Mission Street, Suite 5400 San Francisco, CA 94105-2533 Telephone: + 1 (415) 591-6000 Facsimile: + 1 (415) 591-6091 Email: rbuschell@cov.com DEVON MOBLEY-RITTER COVINGTON & BURLING LLP 3000 El Camino Real 5 Palo Alto Square, 10th Floor Palo Alto, CA 94306-2112 Telephone: +1 (650) 632 4700 Facsimile: +1 (650) 632 4800 Email: dmobleyritter@cov.corn Attorneys for Plaintiff WILBUR-ELLIS COMPANY LLC GARY R. SELVIN SELVIN WRAITH HALMAN LLP 505 14th Street, Suite 1200 Oakland, ca 94612-1419 Telephone:: +1 (510) 874-1811 Facsimile: +1 (510) 465-8976 Email: gselvin@selvinwraith.com Attorneys for Defendant TRUCK INSURANCE EXCHANGE