Sephora United States, Inc. v. Palmer, Reifler & Assocs., P.A.

• Decision Date: 13 May 2016
• Docket Number: Case No. 15-cv-05750-JCS
• Court: U.S. District Court — Northern District of California
• Parties: SEPHORA USA, INC., Plaintiff, v. PALMER, REIFLER & ASSOCIATES, P.A., Defendant.

SEPHORA USA, INC., Plaintiff, v. PALMER, REIFLER & ASSOCIATES, P.A., Defendant.

Case No. 15-cv-05750-JCS

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

May 13, 2016

ORDER DENYING MOTION FOR JUDGMENT ON THE PLEADINGS

Re: Dkt. No. 31

I. INTRODUCTION

Plaintiff Sephora USA, Inc. ("Sephora") brings this action alleging that Defendant Palmer, Reifler & Associates, P.A. ("PRA") breached its obligations under a contract for legal services that includes a provision requiring each party to defend and indemnify against claims arising from that party's negligence or improper conduct. Sephora seeks to recover attorneys' fees incurred successfully defending a case in California state court that arose at least in part from PRA's conduct under the parties' agreement. PRA answered Sephora's Complaint and now moves for judgment on the pleadings. The Court held a hearing on May 13, 2016. For the reasons discussed below, PRA's Motion is DENIED.¹

II. BACKGROUND

A. Allegations of the Complaint and Facts Subject to Judicial Notice

In 2005, Sephora contracted with PRA for "Loss Recovery Services" through an "Attorney/Client Service Agreement" (hereinafter, the "Contract"). See Compl. (dkt. 1) ¶¶ 1, 8; Def.'s Request for Judicial Notice ("DRJN," dkt. 32) Ex. 1 (the Contract).² The Contract providedthat PRA would pursue "damages and/or civil penalties for theft offenses"—i.e., shoplifting—on behalf of Sephora, and would remit proceeds of those recovery efforts to Sephora, less attorneys' fees structured a percentage of the amount recovered. Contract §§ 1-2; Compl. ¶ 10. PRA agreed to "perform its services in accordance with all laws and regulations, including without limitation all laws relating to the pursuit of, and collection for, theft claims." Contract § 1; Compl. ¶ 9. The present action turns on the Contract's indemnification provision:

Section 5. Indemnification.

Each party agrees to defend and indemnify the other party from and against any and all suits, judgments, or liabilities directly arising from the negligence or other improper conduct of such party.

Contract § 5.

Tamera Renn, the mother of a minor child alleged to have shoplifted from a Sephora store in Glendale, California, filed a purported class action against Sephora in July of 2014 captioned Renn v. Sephora USA, Inc., No. BC551523, in the California Superior Court for the County of Los Angeles. Compl. ¶ 12; DRJN Ex. 2 (the complaint in Renn).³ Renn alleged that Sephora, and PRA acting on Sephora's behalf, engaged in unfair, unlawful, and fraudulent business practices, intentional misrepresentation, and fraud. DRJN Ex. 2. Although Sephora now alleges that Renn's claims "were based entirely on allegations of improper conduct by PRA," Compl. ¶ 13, Renn's actual allegations involved conduct by both Sephora and PRA, see generally DRJN Ex. 2.

According to Renn's complaint, "Sephora is a knowing participant in . . . an unlawful scheme" to profit by demanding more money than it could actually obtain from alleged shoplifters, sometimes on flimsy evidence, with no intent to follow through on its threats of legal action. DRJN Ex. 2 ¶¶ 2-4. Many of Renn's allegations relate to PRA's conduct on behalf of Sephora, particularly sending demand letters and making telephone calls to Renn and other alleged shoplifters (or parents of minors alleged to have shoplifted). See id. ¶¶ 5, 6, 24, 33, 35. Other allegations, however, relate more specifically to Sephora—in particular, an allegation that "theamount of Sephora's demand is a preset amount unilaterally determined by Sephora." Id. ¶ 83. After receiving demand letters for first $500,⁴ then $775, and finally $200, Renn—at that point represented by counsel—paid Sephora $200. Id. ¶¶ 21, 24, 29, 35, 36, 46. She alleged that she would not have done so but for multiple misrepresentations in the letters, including misrepresentations as to whether California law actually authorized recovery in the amounts that Sephora (via PRA) claimed. See id. ¶¶ 64-65, 73, 86-87. Renn did not name PRA as a defendant in her lawsuit. See generally id.

After receiving the complaint in Renn, "Sephora made written demand on PRA that it bear the cost of defense and otherwise indemnify Sephora from and against the asserted claims." Compl. ¶ 15; DRJN Ex. 10 (indemnification demand letter dated July 25, 2014).⁵ Sephora's letter to PRA invoked the indemnification provision of the Contract, "demand[ed] that PRA bear the costs to defend and indemnify Sephora from and against the claims in the Renn Complaint," and informed PRA that "Sephora retained the right to control the defense of this matter" and would therefore submit invoices for its attorneys' fees to PRA. DRJN Ex. 10. "Despite continuing and repeated requests, PRA has failed and refused to reimburse Sephora for the costs and fees incurred in defense of the Renn matter." Compl. ¶ 16.

Sephora, through outside counsel at the Bryan Cave firm, filed a demurrer and an anti-SLAPP motion to strike. See Compl. ¶ 14. The superior court granted the latter and entered judgment in Sephora's favor, holding that the demand letters PRA sent to Renn were protected as "writings in contemplation of litigation" because they were captioned as "settlement offers." DRJN Ex. 9 at ECF p. 13.⁶ The court held that Sephora's alleged lack of any actual intent toinitiate litigation was irrelevant, in part because Renn did not dispute Sephora's account of her daughter shoplifting. See id. at ECF pp. 13-17. According to the court, the amounts that the letters demanded from Renn may not have been supported by law, but such "exaggerating" and "bluff[ing]" fell within the normal process of litigation and settlement. Id. at ECF p. 15. Renn did not appeal the judgment. Compl. ¶ 14.

Although Sephora prevailed in Renn, Sephora now seeks to recover its attorneys' fees and costs in that action from PRA pursuant to section 5 of the Contract. See id. ¶¶ 19-20.

B. Parties' Arguments

1. PRA's Motion

PRA moves for judgment on the pleadings primarily on the basis that Sephora's Complaint alleges a failure to "reimburse" the cost of its defense, and the Contract does not explicitly frame any relevant duty using the word "reimburse." Mot. (dkt. 31) at 13. Along the same lines, PRA argues that Sephora never properly tendered the defense of the Renn action to PRA, because Sephora's letter demanded "that PRA bear the costs to defend" rather than actually defend, and "Sephora retained the right to control the defense." See DRJN Ex. 10; Mot. at 13-14. According to PRA, although the Contract provided for a duty to defend in some circumstances, it did not provide for a duty to bear the cost of Sephora's defense where Sephora declined to relinquish control of the defense. See Mot. at 13-14; see also id. at 15 (presenting Sephora's decision to retain the defense as a reason to deny leave to amend).

PRA frames its remaining arguments as reasons why leave to amend should be denied. First, PRA argues that the Contract only creates a duty to defend or indemnify against claims actually based on a party's own negligence or other wrongful conduct. Id. at 15-20 (citing Nat'l R.R. Passenger Corp. v. Rountree Transp. & Rigging, Inc., 286 F.3d 1233, 1259-63 (11th Cir. 2002)). Because the Renn court found that the letters PRA sent to Renn were not actionable, PRA argues that—as a matter of law—its conduct was not negligent or improper, and thus did not trigger any duty to defend or indemnify Sephora. Id. at 19.

Next, PRA argues that Florida law disfavors indemnification of a party's own sole or joint liability, as opposed to purely vicarious liability arising from the acts of the indemnitor. Id. at20-21 (citing, e.g., Cox Cable Corp. v. Gulf Power Co., 591 So. 2d 627, 629 (Fla. 1992)). PRA disputes Sephora's characterization of Renn's complaint as based solely on PRA's actions, citing as evidence to the contrary: (1) the allegation that Sephora was a "knowing participant" in an "unlawful scheme," see DRJN Ex. 2 ¶ 4; (2) the allegation that Sephora and other merchants embarked on a business strategy of detaining purported shoplifters for the purpose of making demands for payment, see id. ¶ 2; (3) the allegation that Renn and her daughter suffered harm at a Sephora store, see id. ¶ 14; (4) the allegation that Sephora did not adequately consult with PRA regarding the facts at issue; see id. ¶ 21; (5) the allegation that Sephora unilaterally determined how much to demand from purported shoplifters, see id. ¶ 83; (6) the fact that Renn sought an injunction against Sephora's "searches, seizures, and invasions of privacy," see id. ¶ 90; and (7) the fact that Renn sought punitive damages against Sephora, see id. at 22 (prayer for relief). Mot. at 20-24.

2. Sephora's Opposition

Sephora argues throughout its Opposition that PRA's arguments improperly conflate two separate duties under Florida law: the duty to defend and the duty to indemnify, both of which appear in the Contract's indemnity provision. See Opp'n (dkt. 34) at 7-8.

According to Sephora, the duty to defend arises from the filing of a covered complaint, without any requirement of formal tender, and thus any defect in Sephora's tender letter—such as demanding reimbursement of defense costs rather than demanding that PRA defend—is irrelevant to whether PRA had a duty to defend. Id. at 8-9. Sephora argues that so long as an indemnitor has notice of a claim, it is only relieved of the duty to defend under Florida law if the indemnitee refuses to cooperate in the defense and the indemnitor is materially prejudiced by that refusal. Id. at 9. Sephora contends that its success in obtaining early dismissal of the Renn case, as compared to the persistence of a different case against PRA and another defendant in federal court, demonstrates that PRA was not prejudiced by Sephora maintaining control of the defense. Id. at 9-10 (citing Lee v. The Pep Boys, No. 3:12-cv-5064-JSC (N.D. Cal.)).

Sephora also argues that its letter...