Marin Housing Authority v. MotivIT LLC

Defendant MotivIT LLC’s (“Defendant”) demurrer to Plaintiff The Housing Authority of the County of Marin’s (“MHA”) First Amended Complaint (“FAC”) is OVERRULED.

BACKGROUND

This lawsuit arises out of a cybersecurity incident affecting MHA. MHA hired Defendant to provide IT support and cybersecurity services. (FAC, ¶ 8, Ex. C.) MHA alleges that the contract defining the parties’ business relationship consists of the proposal Defendant submitted in response to MHA’s Request for Proposals (“RFP”), certain “documentation” “related” to that response, a service contract, and addenda to the service contract. (Id. at ¶¶ 9, 11; see also Ex. A [MHA’s RFP], C [service contract]; B [addendum to service contract].) The service contract contains an indemnity clause. (Id. at ¶ 12; Ex. C, § 11.17.)

MHA alleges that hackers accessed MHA’s IT system, resulting in MHA employees being tricked with MHA losing nearly $1 million to the hackers. (FAC, ¶¶ 1-2, 13-14, 28-33.) The complaint states that MHA, as a matter of compliance with privacy laws, reported the data breach to consumers and regulators, which was costly. (Id. at ¶ 34.) The breach has also resulted in MHA being sued by consumers. (Id. at ¶¶ 35-37.) MHA alleges that it formally demanded that Defendant indemnify MHA against these losses. Defendant claims no liability for the breach. (Id. at ¶¶ 38, 41-42.)

MHA asserts causes of action for breach of contract (for breach of the indemnity provision and for breach of the contractual obligation to protect MHA’s systems against cyberattacks); equitable indemnity, styled “breach of common law indemnity”; and negligence.

In early March, the Court ruled on Defendant’s demurrer to the entirety of MHA’s original complaint. It sustained that demurrer with leave to amend as to the equitable indemnity claim

and the negligence claim. (See March 6, 2026 Order (“Order”), p. 1.) MHA amended the complaint, and the Court now considers Defendant’s demurrer to that amended pleading.1

Defendant now demurs to the equitable indemnity and the negligence claims.

I. LEGAL STANDARD

The function of a demurrer is to test the legal sufficiency of the challenged pleading. (Hernandez v. City of Pomona (1996) 49 Cal.App.4th 1492, 1497.) As a general rule, in testing a pleading against a demurrer, the facts alleged in the pleading are deemed to be true, however improbable they may be. (Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 604; Mead v. Sanwa Bank California (1998) 61 Cal.App.4th 561, 567-568.) This treatment applies only to facts. A court does not assume the truth of contentions, deductions, or conclusions of fact or law. (Moore v.

Regents of University of California (1990) 51 Cal.3d 120, 147.) The complaint must be liberally construed and all reasonable inferences must be drawn in favor of its allegations. (Teva Pharmaceuticals USA, Inc. v. Superior Court (2013) 217 Cal.App.4th 96, 102; see also Code Civ. Proc., § 452.) The court gives the pleading a reasonable interpretation by reading it as a whole and all of its parts in their context. (Moore, supra, 51 Cal.3d 120, 125.)

In a demurrer proceeding, the defects must be apparent on the face of the pleading or via proper judicial notice. (Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.) The face of the complaint includes matters shown in exhibits attached to the complaint and incorporated by reference. (Frantz v. Blackwell (1987) 189 Cal.App.3d 91, 94.) “The only issue involved in a demurrer hearing is whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action.” (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.)

If the complaint fails to state a cause of action, the court must grant the plaintiff leave to amend if there is a reasonable possibility that the defect can be cured by amendment. (Blank v. Kirwan (1985) 39 Cal.3d 311, 317.)

II. DISCUSSION2

A. Second Cause of Action: “Breach of Common Law Indemnity”

Historically, California recognized three types of indemnity: express indemnity, or indemnity expressly provided for by contract; implied contractual indemnity, meaning indemnity implied based on a contract not specifically mentioning indemnity; and equitable indemnity (often referred to in the past as “implied indemnity”), or indemnity arising from the equities of the circumstances, without regard to any contractual relationship between the parties. (Prince v.

1 Defendant filed two versions of its moving brief and declaration, one version of each on April 17 and a second on April 29. The Court does not know whether the versions are substantively different, but it has considered only the April 29 versions. 2 Citing Evidence Code §451, MHA requests judicial notice of an unpublished trial court decision from Massachusetts. It relies on Lockley v. Law Office of Cantrell, Green, Pekich, Cruz & McCort (2001) 91 Cal.App.4th 875, arguing that a court “may in its discretion take judicial notice of any court record in the United States.” (91 Cal.App.4th 875, 882.) The court believes MHA is mistaken and refers to Evidence Code §459. Whatever the case, the Court does not rely on that case in this ruling.

Pacific Gas & Electric. Co. (2009) 45 Cal.4th 1151, 1157 & fn. 2, 1163; see also Rossmoor Sanitation, Inc. v. Pylon, Inc. (1975) 13 Cal.3d 622, 628.) Current law recognizes “only two basic types of indemnity[,]” express and equitable, with implied contractual indemnity now seen as a form of equitable indemnity. (Prince, supra, 45 Cal.4th 1151, 1157.)

“Where . . . the parties have expressly contracted with respect to the duty to indemnify, the extent of that duty must be determined from the contract and not by reliance on the independent doctrine of equitable indemnity.” (Rossmoor Sanitation, supra, 13 Cal.3d 622, 628; accord Regional Steel Corp. v. Superior Court (1994) 25 Cal.App.4th 525, 529; Maryland Casualty Co. v. Bailey & Sons, Inc. (1995) 35 Cal.App.4th 856, 864.) “This rule seeks to ‘permit [] people to voluntarily order their affairs in a manner agreeable to them’ and recognizes that ‘equity rarely interferes with a contract knowledgeably executed.’” (Maryland Casualty Co., supra, 35 Cal.App.4th 856, 873 [quoting C.L.

Peck Contractors v. Superior Court (1984) 159 Cal.App.3d 828, 834].) For example, in Regional Steel Corp., supra, 25 Cal.App.4th 525, a contract between a general contractor and a subcontractor expressly provided that the subcontractor was to indemnify the general contractor against losses or damage caused by the subcontractor. (25 Cal.App.4th 525, 529.) The Fourth District held that this limited the general contractor to theories of indemnity arising out of that contractual language, so the subcontractor was entitled to summary judgment on an equitable indemnity claim. (Ibid.)

MHA pleads that there is an express contractual indemnity provision in the contract between MHA and Defendant that requires Defendant to indemnify MHA against the losses described in the pleading. (FAC, ¶ 48.) Generally speaking, a plaintiff “may plead in the alternative and may make inconsistent allegations.” (Adams v. Paul (1995) 11 Cal.4th 583, 593; Mendoza v. Continental Sales Co. (2006) 140 Cal.App.4th 1395, 1402.) Thus, a plaintiff could plead the existence of an enforceable express contractual indemnity provision and could plead, in support of an equitable indemnity claim brought in the alternative, the nonexistence of any enforceable contractual indemnity provision.

However, where a party pleads both express contractual indemnity and equitable indemnity, and the latter claim “does not allege that [the] contract is unenforceable or that the parties did not have a contract[,]” the equitable indemnity claim is not properly pleaded in the alternative and is subject to demurrer. (See Klein v. Chevron U.S.A., Inc. (2012) 202 Cal.App.4th 1342, 1389-1390 [discussing this principle in the context of simultaneous claims for breach of contract and quasi-contract unjust enrichment].)

The Court sustained Defendant’s demurrer to the original complaint’s equitable indemnity claim on this basis, finding that the equitable indemnity claim did not “ ‘deny the existence or enforceability of’ ” the contract between MHA and Defendant or its indemnity provision. (Order, p. 5 [quoting Klein, supra, 202 Cal.App.4th 1342, 1389-1390].) The Court did not “rule[] that [MHA] cannot maintain an equitable indemnity claim while simultaneously alleging that the parties’ contract – and its indemnity provision – is valid and enforceable.” (Memorandum, p. 6.)

It stated that MHA can do that; however in order to do so, MHA must expressly plead inconsistent allegations regarding the existence or enforceability of the contractual indemnity provision. MHA must allege, in connection with the equitable indemnity claim, that the contractual indemnity provision does not exist or is unenforceable. (Order, p. 5.)

The FAC explains that Defendant has taken the position that an addendum to the parties’ service contract wrote the indemnification clause out of the agreement. (FAC, ¶ 63; see also Order, p. 3

[describing Defendant’s argument regarding the effect of the addendum on the indemnification clause].) The FAC states that “[i]f [Defendant’s] position [regarding the effect of the addendum] is accepted, then a contractual indemnification claim would not be available to [MHA] or would be curtailed by the terms of the Addendum.” (Id. at ¶ 63.) Here the FAC pleads that MHA offers its equitable indemnity claim as an alternative basis for indemnification if Defendant establishes that the contractual indemnity provision either does not exist or is unenforceable. (Ibid.)

MHA has cured the defect the Court identified in its prior order and the demurrer to the second cause of action is OVERRULED.

B. Third Cause of Action: Negligence

The economic loss rule provides that “[i]n general, there is no recovery in tort for negligently inflicted ‘purely economic losses,’ meaning financial harm unaccompanied by physical or property damage[.]” (Moore v. Centrelake Medical Group, Inc. (2022) 83 Cal.App.5th 515, 534- 535 [quoting Sheen v. Wells Fargo Bank, N.A. (2022) 12 Cal.5th 905, 922].) Defendant argues, as it did in connection with the last demurrer, that MHA’s negligence claim is barred by the economic loss rule.

MHA has alleged that Defendant, which maintained a backup of one of MHA’s servers, irretrievably deleted certain files that should have been included as part of that backup. (FAC, ¶¶ 43-45, 90.) MHA alleges that this deletion rendered the server nonoperational. (Id. at ¶ 91.) This is an allegation of property damage, and the Court is required to accept it as true for purposes of this demurrer. This is sufficient to insulate the negligence claim against the economic loss rule.

The demurrer to the third cause of action is likewise OVERRULED.

Counsel for Plaintiff to prepare the order.

Parties must comply with Marin County Superior Court Local Rules, Rule 2.10(A), (B), which provides that if a party wants to present oral argument, the party must contact the Court at (415) 444-7046 and all opposing parties by 4:00 p.m. the court day preceding the scheduled hearing. Notice may be by telephone or in person to all other parties that argument is being requested (i.e., it is not necessary to speak with counsel or parties directly.) Unless the Court and all parties have been notified of a request to present oral argument, no oral argument will be permitted except by order of the Court. In the event no party requests oral argument in accordance with Rule 2.10(B), the tentative ruling shall become the order of the court.

IT IS ORDERED that evidentiary hearings shall be in-person in Department L. For routine appearances, the parties may access Department L for video conference via a link on the court website. Kindly turn your camera on when your case is called and make sure the party or lawyer making the appearance is properly identified on the screen.

FURTHER ORDERED that the parties are responsible for ensuring that they have a good connection and that they are available for the hearing while using the virtual remote courtroom. If the connection is inadequate, the Court may proceed with the hearing in the party’s absence. If it is determined that you are diving your car during the hearing, you will be removed from the virtual courtroom. (Yes, this happens).