Dolce International/San Jose, LLC v. City of San Jose,California

Background

In 2003, Dolce International/San Jose, LLC and the City of San Jose,California entered into a management agreement under which Dolce operated and managed Hayes Mansion as a conference center and hotel. The agreement addressed operating expenses, termination fees, and indemnification obligations.

A former Hayes Mansion employee later sued Dolce over wage-and-hour claims brought on behalf of a purported class. Dolce paid $630,201.69 to settle those claims. After the City sold the property, the management agreement ended effective February 4, 2019. Dolce alleged that the City paid part of a termination fee but still owed $88,802.05.

Dolce also alleged that the City failed to make arrangements concerning requirements under the Employee Retirement Income Security Act of 1974. A retirement fund then assessed $1,136,944.00 in withdrawal liability against the City and pursued both the City and Dolce for payment. Dolce claimed that the City had to indemnify it under the management agreement.

Dolce asserted 13 claims, including contract, unjust-enrichment, breach-of-fiduciary-duty, good-faith-and-fair-dealing, indemnity, and declaratory-relief claims. The City’s partial motion to dismiss challenged only Claims 2, 4, 6, 9, 11, and 12: unjust enrichment, breach of fiduciary duty, and equitable indemnity. The City did not seek dismissal of the contract or good-faith-and-fair-dealing claims and conceded that the parties had an enforceable contract. Dolce argued that Federal Rule of Civil Procedure 8(d) and California law allowed it to plead alternative or inconsistent claims.

Court’s analysis

A Rule 12(b)(6) motion tests whether a complaint states a legally sufficient claim. The court accepts well-pleaded factual allegations as true for this purpose but dismisses claims lacking a valid legal theory or sufficient supporting facts. Rule 8(d) generally permits alternative or inconsistent claims, but the court explained that this pleading rule does not change substantive California law.

Unjust enrichment. The court held that a party generally may not pursue an unjust-enrichment or other quasi-contract claim when an enforceable written contract covers the subject. Dolce alleged that the management agreement governed the City’s obligations and did not allege facts suggesting that the agreement was invalid or unenforceable. Because the unjust-enrichment claims were based entirely on the agreement, the court found that they failed to state a claim, even as alternative claims. The court granted dismissal of Claims 2, 6, and 9 with leave to amend.

Breach of fiduciary duty. The complaint alleged that Dolce acted as the City’s agent in managing the property. The court recognized that a principal and agent may owe duties to each other, but explained that the management agreement contained express indemnity provisions. As a result, the City’s alleged duty to indemnify Dolce was governed by the contract, and any remedy for violating that duty was contractual rather than tort-based. The court dismissed Claims 4 and 12 without prejudice.

Equitable indemnity. Dolce pleaded equitable indemnity in connection with the withdrawal liability and alternatively to its contract-based indemnity claims. The court held that when parties expressly agree about indemnification, the scope of that duty must be determined from the contract rather than from the separate doctrine of equitable indemnity. Because the management agreement contained express indemnity provisions, those provisions precluded Dolce’s equitable-indemnity claim. The court dismissed Claim 11 with leave to amend.

Disposition

Judge Edward J. Davila granted the City’s partial motion to dismiss. Claims 2, 4, 6, 9, 11, and 12 were dismissed without prejudice for failure to state a claim. The order allowed Dolce to file an amended complaint by October 28, 2020. The order did not dismiss the breach-of-contract or breach-of-good-faith-and-fair-dealing claims because the City’s motion did not challenge them.