DFB Portal, LLC vs. Marco Fine Arts

Civil Code section 1642 does not authorize importing the terms of one agreement into another. (Ahern v. Asset Management Consultants, Inc. (2022) 74 Cal.App.5th 675, 693.)

“Civil Code section 1642 is simply one of the rules referred to in Civil Code section 1637 for aiding in the interpretation of a contract when the intent of the parties is otherwise doubtful.” (Ahern v. Asset Management Consultants, Inc. (2022) 74 Cal.App.5th 675, 694.) Similar to the circumstances in Ahern, Defendants “misconstrue Civil Code section 1642 when they simplistically contend the terms of one agreement are necessarily incorporated into all other agreements that form parts of a single transaction.” (Id. at p. 693.)

Notably, Defendants do not identify any ambiguous provisions within the Promissory Note or Guaranty, or any related provisions in the Operational Agreement, which would illuminate the meaning of such provisions. Consequently, Defendants’ reliance on Civil Code section 1642 is misplaced and irrelevant to the resolution of this motion.

However, Defendants argue a triable issue exists, as to whether “DFB Portal and 240 Tech are alter egos of one another,” asserting “[i]f so, then 240 Tech’s failure to substantially perform its obligations under Section 1 of the Agreement precludes recovery on the Note and Guaranty because both entities are one in the same.” (Opposition: 16:15-17.)

While there has been no showing the Operational Agreement was incorporated into the Note and Guaranty, whether DFB Portal and 240 Tech are alter egos and whether 240 Tech breached the Operational Agreement, Page 26 of 27

materially affect Defendants’ affirmative defense of setoff. (See Thirteenth Affirmative Defense [ROA No. 134].)

“Setoff [or offset] is an equitable doctrine under which a defendant may offset sums owing to the plaintiff against sums owing from plaintiff to defendant, with the result that the offsetting amounts are cancelled and the defendant is obligated to pay plaintiff only the net amount, if any.” (Jogani v. Jogani (2026) 118 Cal.App.5th 823, 888.) “[A] setoff claim may only be used defensively, being in nature a defensive pleading asserting that the claim constituted prior payment for the amount sought in the plaintiff’s complaint.” (Morris Cerullo World Evangelism v. Newport Harbor Offices & Marina, LLC (2021) 67 Cal.App.5th 1149, 1159.)

In responding to this argument, Plaintiff asserts, simply, that setoff does not preclude summary judgment. (Reply: 13:6-12 [ROA No. 338].) In making this argument, Plaintiff relies on Los Angeles Unified School District v. Torres Construction Corp. (2020) 57 Cal.App.5th 480 (Torres), an action which reached precisely this conclusion; however, the circumstances in Torres were distinguishable.

In Torres, the defendant alleged setoff as an affirmative defense and as a claim within a cross-complaint. (Torres, supra, 57 Cal.App.5th at p. 499.) The court in Torres held the setoff defense did not create a triable issue of material fact, as to the amount of damages owed to plaintiff therein, explaining: “The affirmative defense of setoff is equitable in nature [citation] and so would not ordinarily be decided by the jury which decides the amount of damages.” (Id. at p. 500.) “Thus, LAUSD would not have been required to disprove the affirmative defense of setoff at a jury trial, and Torres would not have been entitled to prove it as an affirmative defense at such trial.” (Ibid.)

The Court in Torres, explained that “a setoff defense does not negate or change the plaintiff’s damages.” (Ibid.) Similar to the above, the Court in McMillin Companies, LLC v. American Safety Indemnity Co. (2015) 233 Cal.App.4th 518, explained “[t]he significance of this distinction” is that “offset affects the right to recover damages, not the amount of damages suffered...” (Id. at p. 535.)

Nonetheless, the Torres court acknowledged that, “[i]n some instances, a defendant’s offset claim may be directly related to and intertwined with the claims asserted in plaintiff’s complaint, and deciding one will necessarily decide the other.” (Torres, supra, 57 Cal.App.5th at p. 501.) “In such cases, summary adjudication on the plaintiff’s claim may not be possible unless the defendant’s offsetting counterclaim can also be resolved.” (Ibid.)

Although not explicitly stated, Plaintiff appears to take the position this action is one where the issues are not intertwined.

In Torres, in holding the setoff defense did not create a triable issue relevant to the motion for summary judgment, the court explained: “Here, Torres’s offset defense and counterclaim did not arise from the jobs that were the source of LAUSD’s claims, and resolution of LAUSD’s claims would in no way de cide the merits of Torres’s claim for withheld payments on unrelated and undisputed jobs.” (Torres, supra, 57 Cal.App.5th at p. 501.)

Similar to the above, the setoff defense herein arises from the alleged breach of a separate agreement; however, unlike the circumstances in Torres, there is no cross-complaint which remains to be tried or determined. In Torres, the Page 27 of 27

court explained “the trial court could decide Torres’s offset defense after summary adjudication and before entering a final judgment in the matter.” (Torres, supra, 57 Cal.App.5th at p. 501.)

Here, in contrast, granting summary judgment as requested by Plaintiff, would seemingly lead to the conclusion of this action and final judgment, without any determination of the defense.

While Plaintiff asserts the setoff defense need not be determined in this context, Plaintiff does not identify the process by which it believes the setoff defense would more appropriately be addressed. Per a leading secondary authority, “set off can only be asserted as a defense, and is not [a] basis for ‘postjudgment motion’ to reduce judgment.” (Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2025) Chapter 6-C [Answer], ¶6:447.)

In light of the above, the Court continues this motion to 7/24/2026 at 10:00 AM. Counsel shall appear at the hearing, prepared to discuss an appropriate and efficient procedure to address Defendants’ setoff defense. In particular, the Court requests the parties be prepared to discuss consolidation of this action with the related action Marco Fine Arts, Inc. v. 240 Tech LLC (2023- 01317799) and whether the same would place this action on a similar procedural posture as Torres, thereby permitting entry summary adjudication in favor of Plaintiff DBF Portal while preserving the “set off” defense and final judgment, until after adjudication of the related claims.

Of note, the setoff defense asserted by Defendants within this motion, appears to mirror the breach of contract claim asserted within Marco Fine Arts, Inc. v. 240 Tech LLC (2023-01317799).

“Consolidation, as a procedural matter, converts two cases into one action.” (Guardianship of C.E. (2019) 31 Cal.App.5th 1038, 1053.) Where “a complete consolidation or consolidation for all purposes” occurs, “the two actions are merged into a single proceeding under one case number and result in only one verdict or set of findings and one judgment.” (Hamilton v. Asbestos Corp., Ltd. (2000) 22 Cal.4th 1127, 1147.)

The Court notes that, while Plaintiff DFB Portal is technically not a party to the related action, Defendants are asserting DFB Portal, is an alter ego of 240 Tech.

The parties may file supplemental briefs addressing the above issues, not to exceed 5 pages in length, no later than 14 days prior to the continued hearing date.