A party to a lawsuit served with the complaint may have an opportunity to end the case early by filing a motion to dismiss, known in California as a demurrer. The summary below illustrates such a scenario.
Once upon a recent time, there were three colleagues employed by a Silicon Valley company specialized in manufacturing of raw materials used in the semiconductor industry (quartz, silicon, ceramic, etc). The owners of the company intended to sell it and wanted to ensure that the employees would stay with the company and continue working until the sale was completed. As an incentive to key employees, the owners offered stock and stock options that would reward the loyalty of the employees who stayed during the pre-sale period.
Seeing no action following the offer to transfer company stock, some managers and key employees started to leave. In an effort to retain employees, the owners promised them a bonus “sufficient to retire”. The employees continued to work for the company for five years, with the expectation that the bonus will be paid to them as promised. This promise was repeated many times to the three colleagues, each time they expressed doubt or a wish to leave the company. During one discussion on the subject of the bonus, the owners indicated that they were consulting with financial advisors to determine the amount of the bonus, such that it would have minimal tax liability. The promise was the reason for not moving out of the area or accepting other job offers over the years.
Five years later, the company was eventually sold for approx. $30 million. While some employees received substantial bonuses, Randy and his colleagues got no bonus at all. The three of them filed a lawsuit against the company and its original owners for breach of contract, misrepresentation – concealment, promissory estoppel, and more.
The reaction to the lawsuit was to say that the complaint “failed to state facts sufficient for a cause of action”. In California, the device used to make this statement is called a demurrer (in federal rules of civil procedure refer to it as a motion to dismiss). In other words, even if all the facts are true, the plaintiff does not have a legal remedy because the defendant’s conduct does not amount to a violation of the law, or that the plaintiff has failed to include facts to support each element of the cause of action (for example even if all the facts are true, plaintiff suffered no injury or damages). The three amended their complaint and Defendants came back with the same defense “facts not sufficient for a cause of action”. The court agreed with the Defendants’ position, and Randy and his former colleagues appealed.
The majority of the judges at the court of appeal did not share the sentiment, concluding Plaintiffs adequately stated a cause of action for breach of contract, misrepresentation – concealment, promissory estoppel. One of the judges disagreed and provided her own opinion in a lengthy and detailed analysis.
The judges focused their analysis on the meaning of “bonus sufficient to retire”. They saw the case as an exchange of employees continuing to work for the company in reliance on the owners promise to pay a bonus sufficient for them to retired. What is sufficient in that context? The court’s majority concluded that the amount of bonus was not vague and indefinite, and that it could be determined by considering the employee’s debts and obligations, their lifestyles at that time, and life expectancy. The dissenting judge on the other hand came to the conclusion that there was no meeting of the minds between the owners of the company and the three employees, and therefore no agreement on the amount of the bonus. Because the amount of the bonus was too indefinite, there was no enforceable contract between the parties, no breach, and no damages.
Apart from the challenge that plaintiffs’ complaint should be dismissed because the vagueness of the bonus amount translated in a lack of contract and therefore no damages, the court considered another avenue for the plaintiffs under the doctrine of quantum meruit, which they chose not to pursue.
The court of appeal reversed the trial court’s order on the demurrer and ordered Defendants to answer the complaint. Had Defendants been successful in their demurrer, the case would have ended before it began. A demurrer can be the first salvo in a series of efforts to end the case short of trial. It requires strategic consideration as to the reasons, costs, and benefits of allocating resources at the early stage of the lawsuit. A demurrer may educate opposing side, providing it with an opportunity to amend, and the case continuing on its way to trial or settlement.
The case returned to the trial court where it was eventually settled a year later and dismissed with prejudice by the plaintiffs.
I. Moncada, et al vs West Coast Quartz Corporation, et al (2013) 221 Cal. App. 4th 768, 774