Collaborative Imaging Technology, LLC vs CMI Management LLC et al
Collaborative Imaging Technology, LLC vs CMI Management LLC et al
Case Number
24CV05224
Case Type
Hearing Date / Time
Mon, 09/22/2025 - 10:00
Nature of Proceedings
CMC; Application to Appear Pro Hac Vice; (2) Demurrers; (3) Motions to Compel; Motion re Protective Order; Motion to Quash; Motion re Sanctions; (2) Motion to Seal; (2) Motion to Stay; (2) Motion to Strike
Tentative Ruling
Collaborative Imaging Technology, LLC, v. CMI Management, LLC, et al.
Case No. 24CV05224
Hearing Date: September 22, 2025
HEARING: (1) Demurrer of Collaborative Imaging Technology to Cross-Complaint (filed Apr. 25)
(2) Motion of Collaborative Imaging Technology to Strike Portions of Cross-Complaint (filed Apr. 25.)
(3) Demurrer of Collaborative Image Technology to Second Amended Answer of Defendants (filed July 10)
(4) Motion of Collaborative Imaging Technology to Strike Portions of Second Amended Answer (filed July 10)
(5) Motion of Defendants to Stay Complaint (filed May 15)
(6) Motion of Collaborative Imaging Technology for Sanctions re Motion to Stay (filed July 18)
(7) Motion of Defendants to file under Seal (i) Portions of Motion to Stay Complaint and (ii) Exhibit A to Scudelari Declaration (filed May 28)
(8) Motion of Defendants to File under Seal (i) Portions of Baldwin Declaration and (ii) Exhibit B to Baldwin Declaration (filed July 22)
(9) Motion of Collaborative Imaging Technology for Protective Order (filed Apr. 25)
(10) Motion of Collaborative Imaging Technology to Compel Further Responses to Interrogatories, Sets One and Two, from Defendants (filed July 21)
(11) Motion of Collaborative Imaging Technology to Compel Further Responses to Requests for Admission, Set One, from Defendants (filed July 21)
(12) Motion of Collaborative Imaging Technology to Compel Further Responses to Requests for Production of Documents, Sets One, Two, and Three, from Defendants (filed July 21)
(13) Motion of Collaborative Imaging Technology to Quash Deposition Subpoenas to Proskauer Rose LLP and to King & Spaulding LLP (filed June 13)
(14) Motion of Defendants to Stay the Deposition of, or Quash the Notice of Deposition of, Laura Traube, M.D., and for Protective Order (filed July 7)
(15) Application of Kristopher Neil Austin for Admission Pro Hac Vice
ATTORNEYS: For Plaintiff and Cross-Defendant Collaborative Imaging Technology: Nilay U. Vora, Jeffrey A. Atteberry, Patricia H. Jun, Shenel Ozisik, The Vora Law Firm, P.C.
For Defendants and Cross-Complainants CMI Management, LLC, Pueblo Radiology Medical Group, Inc., and Pueblo Radiology Associates, Inc.: Christopher B. Queally, Imran F. Vakil, Gordon Rees Scully Mansukhani, LLP
For Cross-Defendant Collaborative Imaging, LLC: Noel S. Cohen, Allegra Gorchynski, Polsinelli LLP
TENTATIVE RULING:
(1) Cross-defendant Collaborative Imaging Technology’s demurrer to the cross-complaint of cross-complainants CMI Management, LLC, Pueblo Radiology Medical Group, Inc., and Pueblo Radiology Associates, Inc., is sustained, with leave to amend, as to the sixth cause of action (tortious interference with contract), and is in all other respects overruled.
(2) The motion of cross-defendant Collaborative Imaging Technology to strike portions of the cross-complaint is denied in its entirety.
(3) Plaintiff Collaborative Imaging Technology’s demurrer to the second amended answer of defendants CMI Management, LLC, Pueblo Radiology Medical Group, Inc., and Pueblo Radiology Associates, Inc., is sustained, with leave to amend, as to the third (estoppel), seven (litigation privilege), and ninth (uncertainty) affirmative defenses and is in all other respects overruled. Defendants shall file and serve their third amended answer on or before October 7, 2025.
(4) The motion of cross-defendant Collaborative Imaging Technology to strike portions of defendants’ second amended answer is denied in its entirety.
(5) Good cause appearing, the application of attorney Kristopher Neil Austin for admission pro hac vice is granted.
(6) The motion of defendants CMI Management, LLC, Pueblo Radiology Medical Group, Inc., and Pueblo Radiology Associates, Inc., filed May 28, 2025, to file under seal (i) portions of Motion to Stay Complaint and (ii) exhibit A to Scudelari Declaration, is denied. The documents lodged provisionally under seal on May 28, 2025, consisting of “Defendants CMI Management, LLC, Pueblo Radiology Medical Group, Inc., and Pueblo Radiology Associates, Inc.’s Notice of Motion and Motion to Stay Plaintiff Collaborative Imaging Technology, LLC’s Complaint” and “Declaration of Chuck Scudelari in Support of Defendants’ Motion to Stay Plaintiff Collaborative Imaging Technology, LLC’s Complaint,” shall be permanently deleted by the Clerk of the Court unless moving defendants file with the court within 10 calendar days of this ruling a notice that the lodged records are to be filed unsealed in the public record.
(7) The motion of defendants CMI Management, LLC, Pueblo Radiology Medical Group, Inc., and Pueblo Radiology Associates, Inc., filed July 22, 2025, to file under seal (i) portions of the declaration of Wayne Baldwin and (ii) exhibit B to the declaration of Wayne Baldwin filed in support of defendants’ motion to quash is granted. The document lodged provisionally under seal on July 22, 2025, entitled “Declaration of Wayne Baldwin in Support of Defendants’ Opposition to Plaintiff Collaborative Imaging Technology, LLC’s Motion to Quash Deposition Subpoenas to Proskauer Rose LLP and King & Spalding LLP, and to Pay Sanctions” is ordered filed under seal.
(8) The court will consider the appointment of a discovery referee to address the discovery motions now pending with the court in the first instance. Counsel are to be prepared to discuss appointment of a referee.
(9) All motions set for this hearing and not resolved are continued to November 24, 2025.
Background:
The procedural history of this matter is as follows:
On September 19, 2024, plaintiff Collaborative Imaging Technology, LLC, (CIT) filed its original complaint in this action asserting three causes of action against defendants CMI Management, LLC, (CMI), Pueblo Radiology Medical Group, Inc. (PRMG), and Pueblo Radiology Associates, Inc. (PRA) (collectively, defendants or Pueblo): (1) breach of contract; (2) declaratory relief; and (3) promissory fraud. The complaint was initially lodged with the court provisionally under seal, but was unsealed and filed in the public record following the court’s denial of CIT’s motion to seal.
On November 21, 2024, defendants filed their motion to compel arbitration of their breach of contract claims and to stay the balance of the action.
On January 8, 2025, defendants made an ex parte application to stay discovery pending disposition of their motion to compel arbitration, which was partially granted by the court on January 9 to stay discovery to February 24 or further order of the court.
On February 18, 2025, the parties filed their initial stipulation, entered as the court’s order, withdrawing the pending motion to compel arbitration and setting deadlines for responsive pleadings.
On February 21, 2025, the parties filed an amended stipulation (Amended Stipulation), entered as the court’s order, again withdrawing the pending motion to compel arbitration and setting deadlines for responsive pleadings.
On February 27, 2025, defendants filed their answer to the complaint, generally denying the allegations of the complaint and asserting 23 affirmative defenses. Defendants concurrently filed their cross-complaint against cross-defendants CIT and Collaborative Imaging, LLC (CI), asserting six causes of action: (1) breach of contract (specific performance); (2) breach of contract (damages); (3) breach of the implied covenant of good faith and fair dealing; (4) accounting; (5) breach of fiduciary duty; and (6) tortious interference with contractual relations.
On April 17, 2025, defendants filed their first amended answer to the complaint, generally denying the allegations of the complaint and asserting 19 affirmative defenses.
On April 25, 2025, CIT filed its demurrer to the fourth, fifth, and sixth causes of action of Pueblo’s cross-complaint. Also on April 25, CIT filed a motion to strike portions of the Pueblo’s cross-complaint, and a motion for protective order relating to the number of special interrogatories.
On April 30, 2025, CIT filed a declaration of demurring party stating that CIT intended to file a demurrer to Pueblo’s answer to the complaint to support an automatic extension of time.
On May 15, 2025, Pueblo filed a motion to stay CIT’s complaint on the grounds that CIT has conducted intrastate business and has failed to register to do business in California.
On May 28, 2025, Pueblo filed its second amended answer (SAA) to CIT’s complaint, generally denying the allegations of the complaint and asserting 19 affirmative defenses. Also on May 28, Pueblo filed a motion to seal portions of its motion to stay the complaint.
On June 11, 2025, CIT filed its motion to compel arbitration of the cross-complaint.
On June 13, 2025, CIT filed its motion to quash deposition subpoenas to Proskauer Rose LLP and to King & Spaulding LLP.
On June 18, 2025, CI filed its joinder in CIT’s motion to compel arbitration.
On July 7, 2025, Pueblo filed its combined motion to stay the deposition of, or quash the notice of deposition of, Laura Traube, M.D., and for protective order.
On July 10, 2025, CIT filed its demurrer to Pueblo’s SAA. CIT concurrently filed a motion to strike portions of the SAA.
On July 18, 2025, CIT filed its motion for sanctions under Code of Civil Procedure sections 128.7 and 128.5.
On July 21, 2025, Pueblo filed an ex parte application to stay all discovery pending disposition of the motion to compel arbitration. The ex parte application was heard and granted on July 22, staying discovery pending the future hearing of all pending motions.
Also on July 21, 2025, CIT filed motions to compel further responses to interrogatories, further responses to requests for admissions, and further responses to requests for production of documents.
On July 22, 2025, Pueblo filed opposition to the demurrer to the cross-complaint, motion to strike portions of the cross-complaint, motion for protective order, and motion to compel arbitration. Also on July 22, CIT filed opposition to the motion to stay complaint, combined motion as to the deposition of Traube, and motion to quash deposition subpoenas as to Proskauer Rose and King & Spaulding.
Also on July 22, 2025, Pueblo filed a motion to seal certain documents lodged provisionally under seal in support of Pueblo’s motion to quash.
On July 28, 2025, CIT filed replies to the demurrer to the cross-complaint, motion to strike, motion to compel arbitration, motion to quash subpoenas as to Proskauer Rose and King & Spaulding (with reply declarations), and motion for protective order. Also on July 28, Pueblo filed replies as to the combined motion as to the deposition of Traube, and the motion to stay complaint (with reply declarations, a request for judicial notice, and objections to evidence).
On August 4, 2025, the court denied the motion of CIT, joined by CI, to compel arbitration. The court ordered the parties to meet and confer to discuss whether the denial of the motion to compel arbitration affected any other pending motion. The court continued all other then-pending motions to this hearing of September 22.
On August 13, 2025, Pueblo filed a motion for an order approving pro hac vice admission of attorney Kristopher Neil Austin.
On August 29, 2025, in response to the court’s orders of August 4, the parties filed a joint status report regarding their existing disputes in light of the court’s denial of the motion to compel arbitration. The parties continue to disagree on virtually everything, the exception being the motion approving pro hac vice admission of attorney Austin.
On September 15, 2025, CIT filed replies to the motion for sanctions, demurrer to the SAA, motion to strike portions of the SAA, motion to compel further responses to requests for production of documents, motion to compel further responses to requests for admission, and motion to compel further responses to interrogatories.
On September 16, 2025, Pueblo filed opposition to the demurrer to the SAA, and to the motion for sanctions. Pueblo also filed the declaration of attorney Christopher B. Queally stating that he mistakenly believed from the court’s August 4 ruling and subsequent discussions that further briefing on the motions was suspended until the September 22. (Queally decl., ¶ 5.) Queally also states that oppositions to the discovery motions will be filed by Thursday, September 18. (Queally decl., ¶ 10.)
Analysis:
(1) Challenges to Cross-Complaint
(A) Allegations of Cross-Complaint
PRMG and PRA are medical practices which collectively formed CMI in 2010 so that they could all bill under one medical payor ID for efficiency. (Cross-complaint, ¶ 1.) CMI retained, per a Billing Agreement, CI as its revenue cycle management (RCM) vendor in 2021, after CMI terminated its prior RCM vendor at CI’s urging. (Ibid.) CI was responsible for CMI’s claims submission, billing, payment tracking, and all other aspects of revenue cycle billing management. (Ibid.) An important function of CI was reconciling payments CMI received from medical payor to the appropriate medical practice that had provided the service. (Ibid.)
In 2022, Pueblo entered into a Management Services Agreement and Practice Management Agreement with CI. (Cross-complaint, ¶ 26.) Under these agreements, which were separate from CMI’s agreements with CI, CI took over management of all Pueblo’s business and imaging center operations, including managing its finances, payroll, accounts payable, and other functions. (Ibid.) Preeth Hegde, who was the CFO of CI, became the contract CFO of Pueblo and Chopra himself became the de facto CEO of Pueblo under the MSA. (Ibid.) It was also under these agreements that CI was subcontracted to perform management, administrative, and executive services for CMIM and CMI (after approval by the CMI board, with the CMI board ultimately appointing Preeth Hegde as CFO of CMI). (Ibid.)
CI developed its own Radiology Information System software (RIS), called “CIVIE,” and in 2022, Pueblo agreed to become the roll out site for this software. (Cross-complaint, ¶ 28.) CIVIE had constant application problems that CI could never resolve. (Cross-complaint, ¶ 29.)
In March 2023, the one-year trial of the MSA expired and the MSA was terminated. (Cross-complaint, ¶ 31.) The relationship with CI deteriorated rapidly in mid-2023. (Cross-complaint, ¶ 32.) In August 2023, the CIVIE and PMA agreements between Pueblo and CI ended, with a plan to transition from CIVIE to an established RIS vendor between August 2023 and January 2024. (Ibid.)
In January 2024, CI announced that it was entering into a funding agreement with an investor which would result in the change of CI to CIT. (Cross-complaint, ¶ 39.) After CMI announced it would be moving on to another RCM vendor and needed
to work out details, CIT (former CI) shut off access to CMI’s billing data on CIT’s Radico and Tableau software platforms for the CMI and CMI Management, LLC, (CMIM) representatives tasked with obtaining and analyzing the data. (Cross-complaint, ¶ 44.) The data on the platforms belonged to CMI, Pueblo and its affiliate practices, and their patients. (Ibid.)
To address these disputes, the parties entered into the Transition Agreement on July 24, 2024. (Cross-complaint, ¶¶ 52, 78 & exhibit A.) The Transition Agreement includes the following provisions with an effective date of July 24, 2024:
“NOW THEREFORE, the Parties, hereby agreeing to be mutually bound, and in an attempt to resolve the disputes and work cooperatively to effectuate the outcomes and terms set forth in these recitals, hereby agree as follows:
“1. Termination of Billing Agreement and this Transition Agreement. The Parties acknowledge and agree that the Billing Agreement was previously terminated solely with respect to PRMG, PRA, and their respective employed and contracted physicians and other health care professionals, effective May 31, 2024 at 11:59 PM PST (the ‘Pueblo Termination’). Pursuant to this Agreement, the Billing Agreement is hereby terminated effective as of the Effective Date with respect to all of the Parties, and no Party shall have any further rights, obligations or liabilities thereunder, except as otherwise expressly set forth in this Transition Agreement. This Transition Agreement shall terminate at the end of the Exiting Practices Transition Period (defined below), except for those provisions which, by their terms, survive such termination.” (Transition Agreement, preface & § 1.)
“CIT, CMI, and CMIM shall, and CMI shall cause MSN to, meet and confer with each other in good faith no less frequently than once a month during the Exiting Practices Transition Period and for a period of six (6) months following the end of the Exiting Practices Transition Period, and thereafter for each calendar month for so long as there are at least $50,000 of claims that were reconciled and paid during the immediately preceding month, to resolve any disagreements regarding the amounts transferred or to be transferred to an Exiting Practice or retained or to be retained in CMI’s bank and lockbox accounts. Each such party shall, and CMI
shall cause MSN to, promptly (but no later than five (5) business days) after the reasonable written request of another Party, provide copies of all original remittance advice or similar information, to the extent held or controlled, or reasonably accessible (with the corresponding legal right to disseminate) by such Party, relating to claims billing and management submitted, as reasonably and in good faith requested for such Party (or their respective billing or collection agents) to confirm and reconcile any amount purported to be due to an Exiting Practice (or any Practice with respect for dates of service prior to the termination of the Agreement) with respect to specific claims for items and services provided or rendered by physicians or other health care professionals employed or contracted with the Exiting Practice and any associated remittance(s) and deposit(s) in CMI’s bank and lockbox accounts. If a disagreement is not resolved at a meeting pursuant to the previous sentence, CMI and CMIM each has the right to submit the dispute for resolution by Sharon Fremer, the Fremer Group (the ‘Independent Expert’). The Independent Expert shall be instructed to use commercially reasonable efforts to provide its final determination on the Disputed Items submitted to it within twenty (20) business days following such submission. The Parties agree to cooperate in good faith with the Independent Expert and promptly provide all information requested by the Independent Expert during the dispute resolution process. The Independent Expert shall act as an expert, not as an arbitrator, in resolving the Disputed Items. The Independent Expert’s determinations shall be based solely on the submissions by the Parties (which shall be based on information within each Party’s books and records, books and records will be made available for reasonable examination by the Independent Expert, as reasonably requested by the Independent Expert) and the terms of this Transition Agreement. The Independent Expert may not assign a value to any disputed item greater than the greatest value for such disputed item claimed by either of CMI or CIT or less than the lowest value for such dispute item claimed by either of CMI or CIT. The resolution of any dispute by the Independent Expert will be conclusive and binding upon the Parties as to the amounts to be transferred or to be retained in CMI’s bank and lockbox accounts. If CMI or CMIM elects to submit a dispute to an Independent Expert under this Section 4(g), then payment of the reasonable and documented fees, costs, and expenses of the Independent Expert shall be the responsibility of CMI; provided, however, if an amount CIT represented to be transferred to an Exiting Practice varies from the Independent Expert’s determination of such amount by more than ten percent (10%), then CIT and the Exiting Practices shall be responsible for the reasonable and documented fees, costs, and expenses of the Independent Expert. Notwithstanding anything to the contrary in this Agreement, transfer of any amounts by CMI to the Exiting Practices pursuant to this Section 4(g) or Section 4(i) shall not be construed to limit or preclude CMI’s or CMIM’s right to assert a claim against an Existing Practice or to be indemnified by an Exiting Practice with respect to any third party payor clawbacks, refunds, repayments, or recoupments, and related patient refunds, merchant fees, and other third party charges related to reprocessing or reversing payment transaction, incurred by CMI or CMIM associated with, arising from, or related to any amounts determined to be owed to a Practice and paid to the Practice pursuant to this provision. The obligations set forth in this Section 4(g) shall survive the termination of this Transition Agreement for three (3) years.” (Transition Agreement, § 4(g).)
“During and following the end of the Exiting Practices Transition Period, the Exiting Practices, CI, and CIT shall cause any amounts that any of them (or any of their applicable billing or collection agents) may receive with respect to items or services provided or rendered by any of the physicians or other health care professionals employed or contracted with PRMG or PRA to be paid to CMI promptly following receipt thereof; and each other Party shall, and shall cause its respective billing agents to, cooperate in good faith to cause the foregoing to occur. The obligations set forth in this Section 4(h) shall survive the termination of this Transition Agreement for three years.” (Transition Agreement, § 4(h).)
“Upon the Effective Date, the Practices, CMI, and CMIM irrevocably and
unconditionally release CI and CIT, and each of their respective directors, managers, officers, equity holders, employees, attorneys, affiliates and successors, of all claims, liabilities, or actions, both known or unknown, contingent or matured, and whether arising under Law or otherwise, from the beginning of time to the Effective Date related to or arising out of the Transaction and/or the Billing Agreement.” (Transition Agreement, § 6(a).)
“Upon the Effective Date, CI and CIT irrevocably and unconditionally release the Practices, CMI, CMIM, and MSN, and each of their respective directors, managers, officers, equity holders, employees, attorneys, affiliates and successors, of all claims, liabilities or actions, both known or unknown, contingent or matured, and whether arising under Law or otherwise, from the beginning of time to the Effective Date related to or arising out of the Transaction and/or the Billing Agreement, other than any such claims, liabilities or actions in respect of expenses incurred in connection with litigation involving Zotec Partners, LLC as addressed in Section 6(c) below. Notwithstanding anything to the contrary in this Transition Agreement, each of the Parties acknowledges and agrees that MSN and its directors, managers, officers, equity holders, employees, attorneys, affiliates and successors are express, intended third party beneficiaries of release set forth in this provision.” (Transition Agreement, § 6(b).)
“Notwithstanding anything to the contrary in this Transition Agreement, (i) nothing in this Section 6 shall release or otherwise diminish the obligations of any Party set forth in or arising under any provisions of this Transition Agreement or any services agreement (other than the Billing Agreement) entered into between CIT and any Exiting Practice, and (ii) the release contemplated in Section 6(b) shall not apply to any fees or compensation due to CI or CIT for services performed under the Billing Agreement for any period up to and including the Effective Date that have not been paid as of the Effective Date.” (Transition Agreement, § 6(f).)
“Each Party will, during the Exiting Practices Transition Period and for a period of six years thereafter, maintain all records (including medical and financial) with respect to any healthcare items or services provided prior to the end of the Exiting Practices Transition Period and billed under CMI’s tax identification number, provider and supplier numbers, participation agreements with third party payors, or related credentialing and enrollments, in sufficient detail to confirm the accuracy of any payments or compensation related to the Billing Agreement or this Transition Agreement.” (Transition Agreement, § 8(b).)
Pueblo alleges that CIT and CI breached the Transition Agreement by, among other things, failing to furnish complete billing and reconciliation data. (Cross-complaint, ¶ 82.)
(B) Choice of Law
As the court has observed in another context, the Transition Agreement states that it is to be construed according to Texas law. (Transition Agreement, § 13.) While contract issues may be governed by Texas law, there is no separate discussion as to the basis for applying Texas law to the torts alleged by the parties. In any case, the parties both regularly cite California cases and present no substantial argument that Texas law is different from California law as it relates to the issues presented on demurrer. (See Demurrer, at p. 9, fn. 2; Opposition, at pp. 6, fn. 3, 10, fn. 6, 11, fn. 7.) In such instances, the court will apply California law. (Chen v. Los Angeles Truck Centers, LLC (2019) 7 Cal.5th 862, 867; Hurtado v. Superior Court (1974) 11 Cal.3d 574, 580; see also Brandwein v. Butler (2013) 218 Cal.App.4th 1485, 1515, fn. 17; Shields v. Singleton (1993) 15 Cal.App.4th 1611, 1621.)
(Note: Because this is likely to be a recurring issue, it would be helpful to the court either that the parties enter into a stipulation that California law is, for purposes of the applicable substantive law, not substantially different from Texas law so that California law may be cited and used without qualification in resolving the issues of the parties or that the parties identify where, based on their respective positions, Texas law differs from California law so that application of Texas law rather than California law would materially affect particular outcome under consideration.)
(C) Demurrer to Accounting Cause of Action
Pueblo’s fourth cause of action is for an accounting. CIT demurs to this cause of action on the grounds that the action is barred by the releases in the Transition Agreement and that Pueblo otherwise does not allege a relationship sufficient for an accounting.
“An action for an accounting has two elements: (1) ‘that a relationship exists between the plaintiff and defendant that requires an accounting’ and (2) ‘that some balance is due the plaintiff that can only be ascertained by an accounting.’ [Citations.] The action carries with it an inherent limitation; an accounting action ‘is not available where the plaintiff alleges the right to recover a sum certain or a sum that can be made certain by calculation.’ [Citations.]” (Sass v. Cohen (2020) 10 Cal.5th 861, 869 (Sass).)
“An action for an accounting has been characterized as ‘a means of discovery.’ [Citation.] This characterization is consistent with the idea that a plaintiff seeking an accounting cannot ‘allege[ ] the right to recover a sum certain’ because he or she lacks the information necessary to determine the precise amount that may be due. [Citation.] The plaintiff’s lack of knowledge drives the need for discovery; and the fact that the gap can be filled via discovery implies the information is within the control of the defendant. In other words, the defendant in an accounting action possesses information unknown to the plaintiff that is relevant for the computation of money owed.” (Sass, supra, 10 Cal.5th at p. 869.) “In short, the underpinning of an accounting action is an information asymmetry between the parties, an asymmetry that generally favors the defendant but never the plaintiff. (Id. at pp. 869–870.)
Pueblo alleges that the parties are parties to a contractual relationship by virtue of the Transition Agreement and were parties to prior contracts where CIT and CI were obliged to perform accounting functions as an RCM vendor, management service provider, and practice manager. (Cross-complaint, ¶ 99.) Pueblo also alleges that CIT and CI were entrusted with property, including electronic data pertaining to Pueblo’s patient DOS, claims, electronic remittance advices, and payment information, that CIT and CI retain and refuse to return. (Cross-complaint, ¶ 101.) Pueblo further alleges that a balance is due to Pueblo that can only be ascertained by an accounting. (Cross-complaint, ¶ 102.)
The Transition Agreement contains express terms releasing claims arising out of prior agreements. (E.g., Transition Agreement, § 4(a).) Notwithstanding these releases, the Transition Agreement itself contains obligations with respect to accounts receivable arising prior to the effective date of the Transition Agreement. (E.g., Transition Agreement, § 3.) Regardless of the parties’ disputes as to the scope of the releases, the allegations of the cross-complaint do not demonstrate that all matters encompassed within the claim for an accounting are necessarily released by the releases in the Transition Agreement. The demurrer on the ground that the action is precluded by the Transition Agreement releases will therefore be overruled. (See Kong v. City of Hawaiian Gardens Redevelopment Agency (2002) 108 Cal.App.4th 1028, 1047 [“a demurrer cannot rightfully be sustained to part of a cause of action or to a particular type of damage or remedy”].)
CIT also demurs on the ground that Pueblo has not alleged a relationship on which an accounting can be based. “[A] a fiduciary relationship between the parties is not required to state a cause of action for accounting. All that is required is that some relationship exists that requires an accounting. [Citation.] The right to an accounting can arise from the possession by the defendant of money or property which, because of the defendant’s relationship with the plaintiff, the defendant is obliged to surrender.” (Teselle v. McLoughlin (2009) 173 Cal.App.4th 156, 179–180.) The nature of the relationship, even within the Transition Agreement itself, is sufficient, for pleading purposes, to support a cause of action for an accounting. The demurrer on the ground that the relationship is not adequately alleged will be overruled.
(D) Demurrer to Breach of Fiduciary Duty Cause of Action
Pueblo asserts as its fifth cause of action a claim for breach of fiduciary duty. CIT demurs to this cause of action on the grounds that Pueblo does not plead the existence of a fiduciary relationship between the parties.
“In order to plead a cause of action for breach of fiduciary duty, a plaintiff must show the existence of a fiduciary relationship, its breach, and damage caused by the breach.” (Apollo Capital Fund LLC v. Roth Capital Partners, LLC (2007) 158 Cal.App.4th 226, 244.)
“ ‘[B]efore a person can be charged with a fiduciary obligation, he must either knowingly undertake to act on behalf and for the benefit of another, or must enter into a relationship which imposes that undertaking as a matter of law. [Citations.]’ [Citation.] ‘Fiduciary duties are imposed by law in certain technical, legal relationships such as those between partners or joint venturers [citation], ... trustees and beneficiaries, principals and agents, and attorneys and clients [citation].’ [Citations.] The investment adviser/client relationship is one such relationship, giving rise to a fiduciary duty as a matter of law. [Citation.] A fiduciary duty under common law may arise ‘when one person enters into a confidential relationship with another.’ [Citation.] It is a question of fact whether one is … a party to a confidential relationship that gives rise to a fiduciary duty under common law [citations].” (Hasso v. Hapke (2014) 227 Cal.App.4th 107, 140.)
CIT argues that no fiduciary relationship is alleged, only a contractual relationship. “A mere contract or a debt does not constitute a trust or create a fiduciary relationship.” (Waverly Productions, Inc. v. RKO General, Inc. (1963) 217 Cal.App.2d 721, 732.) Pueblo argues that it has alleged that CIT and CI were entrusted with highly sensitive financial and medical data on behalf of medical groups, establishing a confidential relationship. “A contract between parties that includes the rendering of services does not preclude recovery for breach of a confidential relationship where property is misappropriated.” (Michelson v. Hamada (1994) 29 Cal.App.4th 1566, 1580 [fiduciary relationship existed between doctors with one handling accounts and proceeds of other’s accounts, notwithstanding contractual relationship].)
In this demurrer, the only issue is whether the facts alleged are sufficient for this cause of action. The court concludes these allegations are sufficient for these pleading purposes.
CIT also argues that this cause of action is within the release of the Transition Agreement. For the same reasons discussed above, without determining the disputed scope of the releases, this argument does not resolve all aspects of this cause of action.
The demurrer to this cause of action will be overruled.
(E) Demurrer to Tortious Interference with Contract Cause of Action
Pueblo’s sixth cause of action is for tortious interference with contract. CIT argues that this cause of action is within the release of the Transition Agreement and that Pueblo does not allege that CIT is a stranger to the underlying contracts.
Pueblo alleges: “[PRMG and PRA], as an Affiliate Practice of third party [CMI], is a party to the following valid, enforceable contracts with CMI: (i) a Management and Billing Services Agreement; (ii) a Joint Operating Agreement; (iii) a Radiology Services Subcontract; and (iv) that certain Side Letter Agreement, July 24, 2024 (‘the CMI Agreements’). The material terms of the CMI Agreements require CMI to timely and accurately transfer to [PRMG and PRA] from CMI’s bank account those amounts due to [PRMG and PRA] for radiology services rendered to patients and claims approved by medical payors.” (Cross-complaint, ¶ 111.) CIT and CI were aware of the CMI Agreements prior to and following the execution of the Transition Agreement. (Cross-complaint, ¶ 112.) The conduct of CIT and CI, since July 24, 2024, prevented, or made more expensive, performance by CMI under the CMI Agreements. (Cross-complaint, ¶ 113.)
With respect to CIT’s argument that the cause of action is within the release of the Transition Agreement, Pueblo alleges conduct occurring after the effective date of Transition Agreement. As a matter of pleading, that is sufficient to allege conduct not released by the Transition Agreement. However, the Transition Agreement demonstrates the interrelatedness of the parties.
“ ‘To recover in tort for intentional interference with the performance of a contract, a plaintiff must prove: (1) a valid contract between plaintiff and another party; (2) defendant’s knowledge of the contract; (3) defendant’s intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage. [Citation.] In this way, the “expectation that the parties will honor the terms of the contract is protected against officious intermeddlers.” [Citation.]’ [Citation.]” (Asahi Kasei Pharma Corp. v. Actelion Ltd. (2013) 222 Cal.App.4th 945, 958.)
“California recognizes a cause of action against noncontracting parties who interfere with the performance of a contract. ‘It has long been held that a stranger to a contract may be liable in tort for intentionally interfering with the performance of the contract.’ [Citation.] [¶] However, consistent with its underlying policy of protecting the expectations of contracting parties against frustration by outsiders who have no legitimate social or economic interest in the contractual relationship, the tort cause of action for interference with contract does not lie against a party to the contract.” (Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 513–514, italics and fn. omitted (Applied Equipment)). “One contracting party owes no general tort duty to another not to interfere with performance of the contract; its duty is simply to perform the contract according to its terms. The tort duty not to interfere with the contract falls only on strangers—interlopers who have no legitimate interest in the scope or course of the contract’s performance.” (Id. at p. 514.)
All of the parties to the interference cause of action are expressly parties to the Transition Agreement. (Transition Agreement, ¶ 1.) By its terms, the Transaction Agreement defines the rights and obligations of the parties thereto with respect to the services to be rendered by CIT and CI to Pueblo. The conduct that is alleged in the cross-complaint that interferes with the performance of CMI under the CMI Agreements is the same conduct that Pueblo alleges breaches the Transaction Agreement. (See Cross-complaint, ¶¶ 88, 113.) The policy underlying the distinction in Applied Equipment is to protect the expectations of contracting parties from outsiders to those expectations. Pueblo’s expectations as to the conduct of CIT are addressed in the Transition Agreement and therefore are appropriately limited to contract remedies. Accordingly, Pueblo has not sufficiently alleged a contractual relationship that may be the subject to the interference tort by CIT. The demurrer to this cause of action will be sustained.
This is the first cross-complaint on which the court has sustained a demurrer. The demurrer will be sustained with leave to amend.
(F) Motion to Strike
CIT also moves to strike from the cross-complaint allegations in paragraphs 18, 19, 22 through 39, 41, 43 through 45, 47, 49, 51, 53, 75, and 76.
“The court may, upon a motion made pursuant to Section 435, or at any time in its discretion, and upon terms it deems proper: (a) Strike out any irrelevant, false, or improper matter inserted in any pleading.” (Code Civ. Proc., § 436.)
“An immaterial allegation in a pleading is any of the following:
“(1) An allegation that is not essential to the statement of a claim or defense.
“(2) An allegation that is neither pertinent to nor supported by an otherwise sufficient claim or defense.
“(3) A demand for judgment requesting relief not supported by the allegations of the complaint or cross-complaint.” (Code Civ. Proc., § 431.10, subd. (b).)
“An ‘immaterial allegation’ means ‘irrelevant matter’ as that term is used in Section 436.” (Code Civ. Proc., § 431.10, subd. (c).)
“The grounds for a motion to strike shall appear on the face of the challenged pleading or from any matter of which the court is required to take judicial notice.” (Code Civ. Proc., § 437, subd. (a).)
CIT argues that the paragraphs subject to the motion to strike are all irrelevant to Pueblo’s claims because of the broad mutual release of the Transition Agreement. (E.g., Motion, at p. 1.) Pueblo argues that the allegations are not irrelevant and provide context to the charging allegations of the cross-complaint.
The court has reviewed the allegations in the affected paragraphs. The allegations provide detail as to the complex relationship and disputes among the parties that gave rise to the Transition Agreement. Insofar as the principal dispute between the parties is the construction of the Transition Agreement, the context in which the terms arose may be relevant and material to that construction.
“It is essentially a judicial function to apply the rules of interpretation to a written contract ‘so that the purposes of the instrument may be given effect.’ [Citation.] In so doing, the trial court may ‘properly admit[ ] evidence extrinsic to the written instrument to determine the circumstances under which the parties contracted and the purpose of the contract.’ [Citation.] ‘ “Extrinsic evidence is admissible to prove a meaning to which the contract is reasonably susceptible.” ’ [Citation.] The court, at least initially, considers ‘all credible evidence offered to prove the intention of the parties. [Citations.] Such evidence includes testimony as to the “circumstances surrounding the making of the agreement ... including the object, nature and subject matter of the writing ...” so that the court can “place itself in the same situation in which the parties found themselves at the time of contracting.” ’ [Citation.]” (Hewlett-Packard Co. v. Oracle Corp. (2021) 65 Cal.App.5th 506, 531.)
The court does not determine that the allegations subject to this motion cannot as a matter of law have some relevance to the construction of the Transition Agreement or to the capacity of the cross-defendants doing business in California. The motion to strike these allegations will therefore be denied.
(2) Challenges to SAA
CIT’s complaint asserts three causes of action: (1) breach of contract; (2) declaratory relief; and (3) promissory fraud. Defendants’ SAA generally denies the allegations of the complaint and asserts 19 affirmative defenses: (1) failure to perform by plaintiff/ excuse of performance; (2) conditions precedent unfulfilled; (3) equitable estoppel; (4) lack of standing/ plea in abatement; (5) comparative fault of third parties/ apportionment; (6) contrary to public policy; (7) litigation privilege; (8) frustration of purpose; (9) uncertainty; (10) unclean hands; (11) justification; (12) good faith; (13) waiver and release; (14) truth; (15) unconscionability; (16) impossibility; (17) fraud; (18) set off; and (19) additional defenses. The SAA incorporates by reference Pueblo’s cross-complaint. (SAA, at p. 2 & exhibit A.)
CIT demurs to the third through tenth, fifteenth, and seventeenth affirmative defenses. CIT concurrently moves to strike the ninth affirmative defense and the request for attorney fees.
(A) Timeliness of Opposition
As explained in the declaration of attorney Queally, the opposition to this demurrer was untimely because of the mistake of counsel as to whether opposition needed to be filed in advance of this hearing. In CIT’s reply, filed a day before the opposition, CIT argues that the failure to oppose the demurrer waives opposition and requires the demurrer to be sustained. This is not an accurate statement of the law.
“It is well established that the failure of a party to appear and argue against a demurrer to his pleading is not per se a waiver of the cause of action stated in the complaint or the defense stated in the answer, but that it is the duty of the court to rule on the sufficiency of the pleading.” (Dobbins v. Hardister (1966) 242 Cal.App.2d 787, 797.)
Because of the nature of this demurrer and the issues presented, the court will disregard the untimely-filed opposition and rule on the merits.
(B) Requests for Judicial Notice
In support of the demurrer and motion to strike, CIT requests that the court take judicial notice of: (CIT Request for Judicial Notice [CIT RJN], exhibit 1) the complaint in this action; (exhibit 2) the cross-complaint in this action; (exhibit 3) Pueblo’s answer in this action; (exhibit 4) Pueblo’s amended answer in this action; (exhibit 5) the SAA; (exhibit 6) the approved Amended Joint Stipulation and Order to Withdraw Pending Motion to Compel Arbitration and Motion to Seal, filed February 21, 2025; (exhibit 7) the Notice of Election to Proceed with Unsealed Complaint, filed February 28, 2025; and (exhibit 8) a screenshot of part of the docket in this action. The court grants these request for judicial notice. (See Evid. Code, § 452, subd. (d)(1).)
(C) Demurrer
“A party against whom an answer has been filed may object, by demurrer as provided in Section 430.30, to the answer upon any one or more of the following grounds:
“(a) The answer does not state facts sufficient to constitute a defense.
“(b) The answer is uncertain. As used in this subdivision, "uncertain" includes ambiguous and unintelligible.
“(c) Where the answer pleads a contract, it cannot be ascertained from the answer whether the contract is written or oral.” (Code Civ. Proc., § 430.20.)
“Under general rules of civil procedure, an answer must contain ‘[t]he general or specific denial of the material allegations of the complaint controverted by the defendant’ and ‘[a] statement of any new matter constituting a defense.’ (Code Civ. Proc., § 431.30, subd. (b)(1) & (2).) ‘The phrase “new matter” refers to something relied on by a defendant which is not put in issue by the plaintiff. [Citation.] Thus, where matters are not responsive to essential allegations of the complaint, they must be raised in the answer as “new matter.”’ [Citation.]” (Quantification Settlement Agreement Cases (2011) 201 Cal.App.4th 758, 812.) “Such ‘new matter’ is also known as ‘an affirmative defense.’ [Citation.] Affirmative defenses must not be pled as ‘terse legal conclusions,’ but ‘rather … as facts “averred as carefully and with as much detail as the facts which constitute the cause of action and are alleged in the complaint.”’ [Citation.]” (Id. at pp. 812-813.)
“Unlike the usual general demurrer to a complaint the inquiry is not into the statement of a cause of action. Instead it is whether the answer raises a defense to the plaintiff’s stated cause of action.” (Timberidge Enterprises, Inc. v. City of Santa Rosa (1978) 86 Cal.App.3d 873, 879-880.) “The allegations of the pleading demurred to must be regarded as true [citations]; a demurrer does not, however, admit contentions, deductions or conclusions of fact or law alleged in the pleading [citations], or the construction placed on an instrument pleaded therein [citation], or facts impossible in law [citation], or allegations contrary to facts of which a court may take judicial knowledge.” (South Shore Land Co. v. Petersen (1964) 226 Cal.App.2d 725, 732.)
“There are, however, certain important differences between these two kinds of demurrer. An important difference is that in the case of a demurrer to the answer, as distinguished from a demurrer to the complaint, the defect in question need not appear on the face of the answer. The determination of the sufficiency of the answer requires an examination of the complaint because its adequacy is with reference to the complaint it purports to answer. [Citations.] This requirement, however, does not mean that the allegations of the complaint, if denied, are to be taken as true, the rule being that the demurrer to the answer admits all issuable facts pleaded therein and eliminates all allegations of the complaint denied by the answer. [Citations.] Another rule, particularly applicable to the case of a demurrer to the answer, is that each so-called defense must be considered separately without regard to any other defense. [Citations.] Accordingly, a ‘separately stated defense or counterclaim which is sufficient in form and substance when viewed in isolation does not become insufficient when, upon looking at the answer as a whole, that defense or counterclaim appears inconsistent with or repugnant to other parts of the answer.’ [Citations.]” (South Shore Land Co. v. Petersen, supra, 226 Cal.App.2d at pp. 733-734, fn. omitted.)
“Even as against a special demurrer, a plaintiff is required only to ‘set forth in his complaint the essential facts of his case with reasonable precision and with particularity sufficiently specific to acquaint the defendant of the nature, source, and extent of his cause of action.’ [Citations.] He need not particularize matters ‘presumptively within the knowledge of the demurring’ defendant. [Citation.]” (Smith v. Kern County Land Co. (1958) 51 Cal.2d 205, 209.)
CIT demurs to the third affirmative defense of equitable estoppel. “The burden of pleading facts which raises the issue of estoppel lies with the party who would estop the other party [citation], and for estoppel to be available it must be specially pleaded.” (Larue v. Swoap (1975) 51 Cal.App.3d 543, 551.)
“The doctrine of equitable estoppel is founded on concepts of equity and fair dealing. It provides that a person may not deny the existence of a state of facts if he intentionally led another to believe a particular circumstance to be true and to rely upon such belief to his detriment. The elements of the doctrine are that (1) the party to be estopped must be apprised of the facts; (2) he must intend that his conduct shall be acted upon, or must so act that the party asserting the estoppel has a right to believe it was so intended; (3) the other party must be ignorant of the true state of facts; and (4) he must rely upon the conduct to his injury.” (City of Goleta v. Superior Court (2006) 40 Cal.4th 270, 279.)
These elements are fully pleaded in the third affirmative defense. The demurrer will be sustained to this defense.
CIT demurs to the fourth affirmative defense of lack of standing/ plea in abatement. In this affirmative defense, Pueblo alleges that CIT has been transacting intrastate business in California, that the complaint is based on such intrastate business, and that CIT is not registered to do business in California. (SAA, ¶ 4.)
“A foreign corporation must obtain a certificate of qualification from California's Secretary of State in order to transact intrastate business.” (The Capital Gold Group, Inc. v. Nortier (2009) 176 Cal.App.4th 1119, 1132 (Capital Gold Group); Corp. Code, § 2105, subd. (a).) “A foreign corporation which transacts intrastate business without complying with section 2105 cannot maintain an action commenced in a California court prior to compliance with section 2105 until the corporation has obtained a certificate of qualification, paid fees and a penalty, and filed receipts with the court in which the action is pending showing payment of fees, penalties, and taxes for the period during which it transacted intrastate business.” (Capital Gold Group, supra, at p. 1132; Corp. Code, § 2203, subd. (c).)
The facts of transacting intrastate business without required registration are ultimate facts sufficient to assert this affirmative defense. The demurrer is overruled as to the fourth affirmative defense.
CIT demurs to the fifth affirmative defense of comparative fault of third parties/ apportionment as uncertain. Pueblo alleges that “in the event Plaintiff is found to have suffered damages, such damages were caused by the comparative fault, acts, and omissions by Plaintiff and certain third parties, and Defendants are entitled to and request apportionment of fault.” (SAA, ¶ 5.)
CIT has sought damages only for causes of action for breach of contract and promissory fraud. It is unclear how, or to what extent, these general allegations make this affirmative defense applicable to either of those causes of action. The demurrer will be sustained to the fifth cause of action.
CIT demurs to the sixth affirmative defense of contrary to public policy as uncertain. Pueblo alleges that it would be contrary to public policy to allow CIT, a third party which is not a health care provider, to retain sole possession, custody, and control of electronic records which are necessary for the provision of care and business operation of licensed health care providers. (SAA, ¶ 6.) CIT argues that this allegation does not specify what law or public policy underlies this defense, nor what electronic records could be exclusively within CIT’s control. The allegation sufficiently identifies the public policy asserted for pleading purposes. The demurrer to the sixth cause of action will be overruled.
CIT demurs to the seventh affirmative defense for litigation privilege. Pueblo alleges that “Defendants allege that any and all acts, conduct or statements by and/or attributed to it, or its employees, managers, or supervisors, were justified, undertaken in good faith and privileged under California Civil Code section 47. The statements complained of as defamatory were, if uttered, made prior to an anticipated legal proceeding by a litigant or agent of such litigant have a logical connection to the proceedings.” (SAA, ¶ 7.) Insofar as no claim of defamation is made in the complaint and section 47 applies only to communications rather than noncommunicative conduct (Rusheen v. Cohen (2006) 37 Cal.4th 1048, 1058), the allegations in this affirmative defense do not show that the litigation privilege applies as a defense, in whole or in part, to any action asserted in the complaint. The demurrer to the seventh cause of action will be sustained.
CIT demurs to the eighth affirmative defense of frustration of purpose. Pueblo alleges that “unforeseen events, including Plaintiff’s failure to provide all billing data, failure to furnish adequate reports, failure to meet and confer, and failure to submit to the Independent Expert, make it impossible to achieve, and have frustrated the contract’s purpose.” (SAA, ¶ 8.) Frustration of purpose is a defense to a claim of breach of contract that relates to consideration for performance. (Autry v. Republic Productions (1947) 30 Cal.2d 144, 148.) CIT argues that this affirmative defense is pleaded without facts describing the contract’s purpose or terms of the contract. It is not necessary for an answer to plead the contract alleged in the complaint which it answers. The purpose and terms of the contract are sufficiently determined from the contract itself. The demurrer to the eighth affirmative defense will be overruled.
CIT demurs to the ninth affirmative defense of uncertainty. The SAA alleges: “Plaintiff’s claims, causes of action and prayer for relief are barred based on uncertainty in that Plaintiff’s Motion to Seal was denied by the Court, Plaintiff was ordered to file and serve an unredacted version of the pleading by a date certain, Plaintiff failed to comply with the Court’s Order, and the current operative pleading, as constituted, is uncertain.” (SAA, ¶ 9.)
The defense is inapplicable given the pleading history. CIT originally filed a public redacted version of its complaint, lodged provisionally under seal an unredacted version of its complaint, and filed a motion to file the unredacted version under seal. On December 9, 2024, the court denied the motion to seal, and ordered the unredacted lodged version to be deleted (leaving only the redacted version as the operative complaint) unless CIT notified the court that the unredacted version was to be filed unsealed (making the unredacted, publicly filed version the operative complaint). On February 27, 2025, Pueblo filed its original answer to the complaint. On February 28, CIT filed its notice of election to proceed with the unsealed complaint, attaching the unredacted version of the complaint. The SAA was filed on May 28, after the notice of election was filed.
CIT’s notice of election was filed beyond the time the court gave in its December 9 order for such an election. Nonetheless, in response to the notice, the Clerk of the Court filed the unredacted version in the public record. At this point, the court deems the unredacted version of CIT’s complaint, unsealed and filed in the public record as requested in and attached to CIT’s notice, as CIT’s operative pleading. There is no existing uncertainty as to the operative pleading as a matter of law. The demurrer to the ninth affirmative defense will be sustained.
CIT demurs to the tenth affirmative defense of unclean hands. Pueblo alleges that “Plaintiff is barred from recovery by the doctrine of unclean hands based on the fact Plaintiff’s conduct was not in good faith or equitable, and that such conduct relates to the subject matter of Plaintiff’s claims being asserted.” (SAA, ¶ 10.)
“The defense of unclean hands must be raised in the trial court to be available. Accordingly, it must be pleaded or called to the attention of the trial court in order that it may pass on the defense and also to permit the person against whom it is sought to be applied the opportunity to present such evidence as might bear on that issue.” (Fibreboard Paper Products Corp. v. East Bay Union of Machinists (1964) 227 Cal.App.2d 675, 726.) A party relying upon an equitable defense, such as unclean hands, must plead it with some particularity. (Hayward Lumber & Investment Co. v. Construction Products Corp. (1953) 117 Cal.App.2d 221, 228; see also Swasey v. Adair (1891) 88 Cal. 179, 182 [equitable defenses must be pleaded “with the same fullness and particularity as is required in cases involving like subjects of inquiry in suits in equity”]; Knopf v. Producers Guild of America, Inc. (1974) 40 Cal.App.3d 233, 237, fn. 5 [defense of unclean hands stricken on motion for failure to state facts].)
“Not every wrongful act constitutes unclean hands. But, the misconduct need not be a crime or an actionable tort. Any conduct that violates conscience, or good faith, or other equitable standards of conduct is sufficient cause to invoke the doctrine.” (Kendall-Jackson Winery, Ltd. v. Superior Court (1999) 76 Cal.App.4th 970, 979.)
In demurring to this affirmative defense, CIT argues only that Pueblo fails to include any supporting facts alleging what conduct was not in good faith or equitable. (Demurrer, at p. 11.) Looking solely at paragraph 10 of the SAA, that characterization is correct. However, Pueblo has alleged facts in support of the third cause of action of its cross-complaint for breach of the covenant of good faith and fair dealing (incorporated by reference into the SAA) which alleges conduct that was not in good faith or equitable. (Cross-complaint, ¶¶ 93-97.) The allegations are sufficiently specific to address the issues raised by CIT in its demurrer. The demurrer the tenth affirmative defense will be overruled.
CIT demurs to the fifteenth affirmative defense of unconscionability. Pueblo alleges that “Plaintiff’s claims are barred on the grounds Plaintiff’s proposed interpretation of section 4(g) of the written contract would render the written contract unconscionable.” (SAA, ¶ 15.)
“ ‘To briefly recapitulate the principles of unconscionability, the doctrine has “ ‘both a “procedural” and a “substantive” element,’ the former focusing on ‘ “oppression” or ‘ “surprise” ’ due to unequal bargaining power, the latter on ‘ “overly harsh” ’ “or ‘ “one-sided” ’ results.” [Citation.] The procedural element of an unconscionable contract generally takes the form of a contract of adhesion, “ ‘which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.’ ” ... [¶] Substantively unconscionable terms may take various forms, but may generally be described as unfairly one-sided.’ [Citations.]” (Discover Bank v. Superior Court (2005) 36 Cal.4th 148, 160, abrogated on other grounds in AT&T Mobility LLC v. Concepcion (2011) 563 U.S. 333, 352 [131 S.Ct. 1740, 179 L.Ed.2d 742].)
In Pueblo’s cross-complaint that is incorporated by reference, Pueblo alleges the facts upon which it asserts that section 4(g) of the contract is unconscionable. (E.g., Cross-complaint, at ¶¶ 63, 66.) The allegations are sufficient to plead unconscionability. The demurrer to the fifteenth affirmative defense will be overruled.
Finally, CIT demurs to the seventeenth affirmative defense of fraud. Pueblo alleges: “Defendants allege Plaintiffs’ causes of action are barred by the intentional misrepresentations, concealments, and fraud of Plaintiff prior to and following execution of the contract.” (SAA, ¶ 17.) Pueblo does not allege a cause of action for fraud in its cross-complaint. Fraud as an affirmative defense generally serves as a basis for rescission (see Nieto v. Blue Shield of California Life & Health Ins. Co. (2010) 181 Cal.App.4th 60, 74) and so must be sufficiently pleaded as such (see McCall v. Superior Court (1934) 1 Cal.2d 527, 538). This affirmative defense is insufficiently alleged to demonstrate the basis of fraud as a defense on that ground; if fraud is asserted on a different defensive basis, the basis for the defense is unclear from the allegations. The demurrer to the seventeenth affirmative defense will be sustained.
This is the first answer for which the court has ruled on a demurrer. Leave to amend will be granted as to all affirmative defenses for which the demurrer is sustained.
(D) Motion to Strike
CIT concurrently moves to strike the ninth affirmative defense (uncertainty) from the SAA and to strike the request for attorney fees. No opposition has been filed to the motion to strike.
“The court may, upon a motion made pursuant to Section 435, or at any time in its discretion, and upon terms it deems proper: (a) Strike out any irrelevant, false, or improper matter inserted in any pleading.” (Code Civ. Proc., § 436.) “Irrelevant matter” includes a “demand for judgment requesting relief not supported by the allegations of the complaint.” (Code Civ. Proc., § 431.10, subds. (b)(3), (c).) “The grounds for a motion to strike shall appear on the face of the challenged pleading or from any matter of which the court is required to take judicial notice.” (Code Civ. Proc., § 437, subd. (a).)
With respect to the ninth affirmative defense, the court will sustain the demurrer to this affirmative defense, making the motion to strike moot.
With respect to the request for attorney fees, the SAA requests “That Defendants recover its costs of suit incurred herein as well as attorneys’ fees to the extent permitted by law.” (SAA, prayer, ¶ 3.) The notice of motion fails to identify this provision as required by California Rules of Court, rule 3.1322(a). This is a sufficient basis to deny the motion to strike as to this request.
The court notes nevertheless that the complaint answered by the SAA alleges breach of contract and seeks an award of attorney fees. (Complaint, ¶ 39 & prayer, ¶ E.) Because CIT has requested an award of attorney fees, a reciprocal request for attorney fees may be proper. (See Santisas v. Goodin (1998) 17 Cal.4th 599, 611 [prevailing party on a contract action may be entitled to attorney fees even by showing that contract is invalid, inapplicable, unenforceable, or nonexistent].)
The motion to strike will be denied.
(3) Admission Pro Hac Vice
The unopposed application of attorney Kristopher Neil Austin of the Massachusetts Bar for admission pro hac vice appears in order and will be granted.
(4) Motions to Seal
There are two pending motions of defendants to file documents under seal: (a) the motion, filed May 28, 2025, (the May Motion) to file under seal (i) portions of Motion to Stay Complaint and (ii) exhibit A to Scudelari declaration; and (b) the motion, filed July 22, 2025, (the July Motion) to file under seal (iii) Portions of Baldwin Declaration and (iv) Exhibit B to Baldwin Declaration.
With respect to the May Motion, the text sought to be filed under seal is presented to the court in support of defendants’ motion to stay CIT’s complaint. These documents are thus within the scope of the requirements of the California Rules of Court for sealing. (Cal. Rules of Court, rule 2.550(a).) The May Motion explains that it is made by Pueblo because someone from CI stamped on the bottom of the affected documents “proprietary and confidential” even though the affected documents themselves do not otherwise identify themselves as confidential. (May Motion, at p. 3.)
Subject to exceptions which do not appear to be present here, the public has a constitutional right of access to documents filed with the court in civil litigation matters, which is “grounded in the First Amendment.” (Overstock.com, Inc. v. Goldman Sachs Group, Inc. (2014) 231 Cal.App.4th 471, 484, 495; Savaglio v. Wal-Mart Stores, Inc. (2007) 149 Cal.App.4th 588, 596.) “Unless confidentiality is required by law, court records are presumed to be open.” (Cal. Rules of Court, rule 2.550(c).) A court may order that a record be filed under seal only upon an express factual finding establishing an “overriding interest that overcomes the right of public access to the record”, that “the overriding interest supports sealing the records”, that “a substantial probability exists that the overriding interest will be prejudiced if the record is not sealed”, that “the proposed sealing is narrowly tailored”, and that “no less restrictive means exist to achieve the overriding interest.” (Cal. Rules of Court, rule 2.550(d)(1)-(5); Sander v. State Bar of California (2013) 58 Cal.4th 300, 319, fn. 7.)
“[A] reasoned decision about sealing or unsealing records cannot be made without identifying and weighing the competing interests and concerns. Such a process is impossible without (1) identifying the specific information claimed to be entitled to such treatment; (2) identifying the nature of the harm threatened by disclosure; and (3) identifying and accounting for countervailing considerations. The burden of presenting information sufficient to accomplish the first two steps is logically placed upon the party seeking the sealing of the documents, who is presumptively in the best position to know what disclosures will harm him and how. This means at a minimum that the party seeking to seal documents, or maintain them under seal, must come forward with a specific enumeration of the facts sought to be withheld and specific reasons for withholding them.” (H.B. Fuller Co. v. Doe (2007) 151 Cal.App.4th 879, 894 (H.B. Fuller).)
Pueblo states that it is making the motion “as a courtesy and a prophylactic measure in good faith after meeting and conferring with CIT’s counsel would did not offer any insight on the issue.” (May Motion, at p. 5.) There does not appear to be any papers filed by CIT or CI (the party identifying the materials as confidential) in support of, or in response to, the May Motion.
On the evidence presented, the court cannot make the factual findings necessary to support a sealing order. The court further finds the motion insufficient to demonstrate that there is an overriding interest that overcomes the right of public access to court records. The May Motion will therefore be denied.
Because Pueblo filed this motion to seal documents lodged in support of its underlying motion to stay the complaint, California Rules of Court, rule 2.551(b)(6) applies: “If the court denies the motion or application to seal, the moving party may notify the court that the lodged record is to be filed unsealed. This notification must be received within 10 days of the order denying the motion or application to seal, unless otherwise ordered by the court. On receipt of this notification, the clerk must unseal and file the record. If the moving party does not notify the court within 10 days of the order, the clerk must (1) return the lodged record to the moving party if it is in paper form or (2) permanently delete the lodged record if it is in electronic form.”
Consequently, unless Pueblo notifies the court within 10 days of this order that the lodged records are to be filed unsealed, the clerk will permanently delete the lodged records now in electronic form.
The July Motion, on the other hand, seeks to file under seal a confidential settlement and release agreement in connection with Pueblo’s opposition to CIT’s motion to quash deposition subpoenas. (July Motion, at p. 2.) The California Rules of Court applicable to sealed records “do not apply to discovery motions and records filed or lodged in connection with discovery motions or proceedings. However, the rules do apply to discovery materials that are used at trial or submitted as a basis for adjudication of matters other than discovery motions or proceedings.” (Cal. Rules of Court, rule 2.550(a)(3).)
Accordingly, the court will grant the July Motion to seal documents in connection with a discovery motion. By granting this motion, the court makes no determination whether the standards for sealing under rule 2.550 would be met if the same documents were presented to the court in a different context.
(5) Remaining Motions
The remaining motions consist of the motion of defendants to stay the complaint (filed May 15), the motion of CIT for sanctions re Motion to Stay (filed July 18), and six discovery motions.
At the hearing of these matters, the court will consider the appointment of a discovery referee to address the discovery motions now pending with the court. Counsel are to be prepared to discuss appointment of a referee.
The court will continue all remaining motions.