WILLIAM H. ORRICK, District Judge.
Roscoe Walker ("Walker") alleges that Ford Motor Company ("Ford") breached a California Code of Civil Procedure section 998 settlement agreement reached prior to proceeding to trial in state court in 2011 when it refused to pay in accordance with its offer and repeatedly opposed Walker's attempts to have the trial court enter judgment. In 2016, five years later, the state trial court entered judgment nunc pro tunc, awarding Walker the $850,000 amount originally offered, plus 10% interest totaling $400,000. I am baffled that it took so long for the state court to enter judgment. And I am troubled by counsels' inability to resolve their dispute, apparently over a Medicare lien worth a few thousand dollars, after the Section 998 offer was accepted. Instead, they have wasted hundreds of thousands of dollars in fees and costs battling as a result of their dispute, and appear ready to spend a lot more to fight here.
In this case, Walker sues for breach of the Section 998 settlement agreement. He seeks to collect the "post-breach" costs and attorneys' fees incurred in preparation for the underlying personal injury lawsuit and damages for emotional distress. While concluding that Ford should have performed under the Section 998 settlement agreement is easily plausible, the damages Walker seeks are not cognizable for breach of contract. His claim fails as a matter of law. But since it is not clear whether he will be able to allege a cause of action to recover those types of damages, his complaint is DISMISSED WITH LEAVE TO AMEND within 21 days.
On September 4, 2007, Walker filed a lawsuit in state court against Ford for personal injuries resulting from an automobile accident. Compl. ¶ 5 (Dkt. No. 1). On July 18, 2011, Ford served a Statutory Offer to Compromise pursuant to Code of Civil Procedure Section 998 ("Section 998 settlement agreement"). Compl. ¶ 7. The compromise stated that Ford:
Compl. ¶ 7; Ex. I (Dkt. No. 15-10 at 6). Ford also served a Section 998 settlement agreement for $50,000 on Walker's wife, Paula Walker, for a loss of consortium claim. Compl. ¶ 7; Pl.'s Response at 6 (Dkt. No. 18). On August 19, 2011, both Roscoe and Paula Walker filed acceptances of the settlements with the court clerk. Compl. ¶ 8. Walker's offer of acceptance stated:
Id.; Ex. I (Dkt. No. 15-10 at 9).
The court clerk never entered judgment. Mot. 4 (Dkt. No. 15). On September 22, 2011, Ford indicated it would not pay unless Walker agreed to additional terms because he was identified as a Medicare beneficiary.
On January 6, 2012, Walker filed a Motion to Enforce the Settlement. Compl. ¶ 11. Based on Ford's opposition, the court denied the motion and ordered that Walker provide a Conditional Payment Letter from Medicare. Compl. ¶ 12. On February 23, 2012, the court denied Walker's Petition for Writ of Mandate, which requested an Order to enforce the terms of settlement. Compl. ¶ 14. Unable to enforce the terms of the original 998 offer, Walker served his own Statutory Offer to Compromise for $849,999.99 and agreed to "satisfy any claim by Medicare related to the care and treatment of Roscoe Walker arising out of the accident." Compl. ¶ 16. Ford rejected the offer. Compl. ¶ 16. He also sought to amend his complaint to allege settlement and release, but the court denied his motion. Compl. ¶ 18.
On March 23, 2012, Walker filed another Petition for Writ of Mandate in the Court of Appeal, which was denied on April 9, 2012. Compl. ¶ 19. Walker also filed a Motion to Enter Judgment pursuant to the accepted Offer to Compromise, after he had received a letter stating that no Medicare benefits were paid.
Trial began on March 21, 2016. Compl. 22. During the pre-trial hearings, Walker once again raised the issue of the 2011 Section 998 Settlement Agreement. Compl. ¶ 22. This time, the state trial court found that the court clerk erred in not entering judgment pursuant to the Section 998 agreement reached on August 19, 2011. Mot. 5. On September 2, 2016, the court entered judgment pursuant to the terms of the original Section 998 settlement agreement, and made it nunc pro tunc to the date of acceptance: August 19, 2011. Compl. ¶ 23. Ford paid the $850,000 principle judgment and $400,000 in interest, and Walker filed an Acknowledgement of Satisfaction of Judgment in Full on November 14, 2016. Ex. M; Mot. at 6. On November 7, Walker filed a Notice of Appeal to the California Court of Appeal, based on the trial court's denial of his motion to amend the complaint to allege breach of the settlement. Ex. N; Mot. at 6.
Walker filed his federal complaint on November 1, 2016, alleging "as a direct and proximate result of defendant Ford's breach of the settlement agreement, plaintiff Roscoe Walker did suffer injury including additional litigation costs of approximately $700,000, as well as reasonable attorney's fees of over $1,000,000, as well as other damages according to proof at trial." Compl. ¶ 34. He also seeks damages for emotional distress. Compl. at 7. On January 27, 2017, Ford filed a Motion to Dismiss for Lack of Jurisdiction and for Failure to State a Claim. Mot. 2.
A motion to dismiss filed pursuant to Rule 12(b)(1) is a challenge to the court's subject matter jurisdiction. See Fed. R. Civ. P. 12(b)(1). "Federal courts are courts of limited jurisdiction," and it is "presumed that a cause lies outside this limited jurisdiction." Kokkonen v. Guardian Life Ins. of Am., 511 U.S. 375, 377 (1994). The party invoking the jurisdiction of the federal court bears the burden of establishing that the court has the requisite subject matter jurisdiction to grant the relief requested. Id.
A challenge pursuant to Rule 12(b)(1) may be facial or factual. See White v. Lee, 227 F.3d 1214, 1242 (9th Cir. 2000). In a facial attack, the jurisdictional challenge is confined to the allegations pleaded in the complaint. See Wolfe v. Strankman, 392 F.3d 358, 362 (9th Cir. 2004). The challenger asserts that the allegations in the complaint are insufficient "on their face" to invoke federal jurisdiction. See Safe Air Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). To resolve this challenge, the court assumes that the allegations in the complaint are true and draws all reasonable inference in favor of the party opposing dismissal. See Wolfe, 392 F.3d at 362.
"By contrast, in a factual attack, the challenger disputes the truth of the allegations that, by themselves, would otherwise invoke federal jurisdiction." Safe Air, 373 F.3d at 1039. To resolve this challenge, the court "need not presume the truthfulness of the plaintiff's allegations." Id. (citation omitted). Instead, the court "may review evidence beyond the complaint without converting the motion to dismiss into a motion for summary judgment." Id. (citations omitted). Once the moving party has made a factual challenge by offering affidavits or other evidence to dispute the allegations in the complaint, the party opposing the motion must "present affidavits or any other evidence necessary to satisfy its burden of establishing that the court, in fact, possesses subject matter jurisdiction." St. Clair v. City of Chico, 880 F.2d 199, 201 (9th Cir. 1989); see also Savage v. Glendale Union High Sch. Dist. No. 205, 343 F.3d 1036, 1040 n.2 (9th Cir. 2003).
Under Federal Rule of Civil Procedure 12(b)(6), a district court must dismiss a complaint if it fails to state a claim upon which relief can be granted. To survive a Rule 12(b)(6) motion to dismiss, the plaintiff must allege "enough facts to state a claim to relief that is plausible on its face." See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is facially plausible when the plaintiff pleads facts that "allow the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citation omitted). There must be "more than a sheer possibility that a defendant has acted unlawfully." Id. While courts do not require "heightened fact pleading of specifics," a plaintiff must allege facts sufficient to "raise a right to relief above the speculative level." See Twombly, 550 U.S. at 555, 570.
In deciding whether the plaintiff has stated a claim upon which relief can be granted, the Court accepts the plaintiff's allegations as true and draws all reasonable inferences in favor of the plaintiff. See Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). However, the court is not required to accept as true "allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences." See In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008).
If the court dismisses the complaint, it "should grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts." See Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000). In making this determination, the court should consider factors such as "the presence or absence of undue delay, bad faith, dilatory motive, repeated failure to cure deficiencies by previous amendments, undue prejudice to the opposing party and futility of the proposed amendment." See Moore v. Kayport Package Express, 885 F.2d 531, 538 (9th Cir. 1989).
Ford moves to dismiss on the basis that Walker's requested relief for attorney's fees, costs, and emotional distress is not valid under California contract law. Ford also argues that Walker fails to state a claim since the settlement agreement was never breached, and his case should be dismissed because it is duplicative of ongoing state court proceedings.
Ford urges that Walker is unable to satisfy the $75,000 amount in controversy requirement as a matter of law and, therefore, this court lacks subject matter jurisdiction. Mot. 1. Walker requests attorney's fees, litigation costs, and emotional distress damages. Compl. ¶ 34. Ford does not challenge the amount sought, but argues that these are not legally cognizable damages since California law does not allow this relief under a breach of contract. Mot. 1.
It is true that federal courts are courts of limited jurisdiction and cannot reach the merits of a dispute until it confirms subject matter jurisdiction. Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 94-95 (1998)("The requirement that jurisdiction be established as a threshold matter `spring[s] from the nature and limits of the judicial power of the United States' and is `inflexible and without exception.'"). But Ford does not challenge the amount of Walker's damages, just his right to recover those damages as presently pleaded. Mot. at 8; Pl.'s Response at 8; Reply at 2 (Dkt. No. 19). Its argument depends on the specific cause of action alleged by Walker. It is possible, drawing all reasonable inferences in favor of Walker, that he has plausibly alleged damages exceeding $75,000 but misnamed his claim for relief. Under these circumstances, it is appropriate for the court to proceed to a discussion under Federal Rule of Civil Procedure 12(b)(6).
Walker asserts only one claim—breach of contract. Compl. at 6. A breach of contract requires: (1) the existence of a contract, (2) the plaintiff's performance or excuse for nonperformance, (3) the defendant's breach, and (4) resulting damage to the plaintiff. Wall St. Network, Ltd. v. N.Y. Times Co., 164 Cal.App.4th 1171, 1178 (2008). Ford provides three reasons why Walker's claim fails: he suffered no "legally-cognizable damage for any purported breach"; the settlement has been fully performed; and there could be no breach because judgment was never entered and that was a condition precedent to Ford relinquishing payment to Walker. Mot. at 2-10. As I agree with Ford's first argument, I will not reach the other two at this time.
Courts customarily follow the "American rule," which does not allow the recovery of attorney's fees unless specified by statute. Alyeska Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240, 245 (1975). Federal courts apply state law when determining breach of contract claims and attorney's fees. Matter of Sparkman, 703 F.2d 1097, 1099 (9th Cir. 1983). California law dictates, "in the absence of a special statute or a contractual provision for attorney's fees, the prevailing party is not entitled to recover attorney's fees from his opponent." Olson v. Arnett, 113 Cal.App.3d 59, 67 (Ct. App. 1980).
In support of his contention that attorneys' fees are recoverable here—in the absence of a statute or contractual provision—Walker attempts to distinguish between the fees "incur[red] in prosecuting this breach of contract action" with those "incurred due to Ford's breach of the agreement in the underlaying [sic] action."
As in Olson v. Arnett, Walker and Ford continued to litigate after an agreement had been reached because they disputed the existence of a condition precedent to settlement. 113 Cal. App. 3d at 65. In Olson, the matter proceeded to trial, the jury found for the party claiming there was no condition precedent, awarded damages, and the trial court ordered recovery "for attorneys' fees and costs, which damages were necessarily incurred in defending against the underlying action for personal injuries and prosecuting the cross-complaint subsequent to the breach of said settlement agreement." Id. at 64 (quoting trial court judgment). The court of appeal reversed, holding that "the trial court erred in awarding respondents attorney's fees as damages." Id. The Navellier court took Olson's reasoning one step further in finding that costs are also not recoverable for breach of contract in the absence of a specific provision. Navellier v. Sletten, 106 Cal.App.4th 763, 777 (2003).
Walker presents the same argument as the respondents in Olson: "when [Ford] repudiated the settlement, [Walker was] forced to continue to employ attorneys and that therefore [his] attorney fees logically flow as damages from the breach." Id. (citing Civ. Code § 3300). In attempting to distinguish the scenarios, he mistakenly associates his right to attorneys' fees as contingent on the case and not the cause of action. See Pl.'s Response at 9 ("Plaintiff is not claiming that he is entitled to the attorneys [sic] fees he will incur in prosecuting this breach of contract action. Rather, he is claiming the attorneys [sic] fees that were incurred due to Ford's breach of the agreement in the underlaying [sic] action."). But "[t]he instant case is based on a contract, the agreement to settle the underlying action[,]" Olson, 113 Cal. App. 3d at 67, and fees expended towards this action and the underlying action stem from the same alleged breach of the settlement agreement. As the Olson court found, "this case is not basically different from any other contract action where the nonbreaching party is forced to employ an attorney to enforce the contract but is not entitled to his attorney's fees as damages." Id. at 68. Walker has not pointed to a contractual provision allowing him to recover fees and costs expended in enforcing the contract, and he cites no authority permitting such recovery as damages for a breach of contract claim. Accordingly, he cannot seek those damages for an alleged breach of contract.
Walker also requests damages for emotional distress. Compl. at 7. Under California law, emotional distress damages are not recoverable for breach of contract claims. Erlich v. Menezes, 21 Cal.4th 543, 558 (1999). But Walker argues that recovery should be allowed here under the exception to the general rule, "where the breach is of such a kind that serious emotional disturbance was a particularly likely result." Pl.'s Response at 10 (quoting Plotnik v. Meihaus, 208 Cal.App.4th 1590, 1601 (2012)(internal quotation marks and citation omitted)). "Thus, when the express object of the contract is the mental and emotional well-being of one of the contracting parties, the breach of the contract may give rise to damages for mental suffering or emotional distress." Plotnik, 208 Cal. App. 4th at 1602.
As Ford argues, Plotnick is easily distinguishable because the parties there included an express provision aimed at the emotional well-being of the contracting parties. Mot. at 7. Not so here. Moreover, "Walker completely ignores Navellier and MacCharles—cases specifically rejecting damages for emotional distress arising out of litigation... ." Id. "It has always been understood in our system that attorney's fees and the mental stress of litigation are burdens which the parties must ordinarily bear themselves." MacCharles v. Bilson, 186 Cal.App.3d 954, 958 (Ct. App. 1986); see also Navellier, 106 Cal. App. 4th at 777 ("[D]amages for mental suffering and emotional distress are generally not recoverable in an action for breach of an ordinary commercial contract in California."). Walker fails to offer a convincing reason why he should be permitted to allege emotional distress damages for his breach of contract claim.
In the absence of any allowable damages—a necessary element for a breach of contract claim—Walker has not alleged a plausible claim for relief. Navellier, 106 Cal. App. 4th at 776.
Walker has failed to state a claim for breach of contract. Ford's motion is GRANTED. Walker's complaint is DISMISSED WITH LEAVE TO AMEND within 21 days.
