Judge Alison Mackenzie, Case Number: 24STCV07209, Date: 2025-01-23 Tentative Ruling

Judge: Alison Mackenzie, Case: 24STCV07209, Date: 2025-01-23 Tentative Ruling

Case Number: 24STCV07209 Hearing Date: January 23, 2025 Dept: 55

NATURE OF PROCEEDINGS: Hearing on GL Construction Group, Inc.’s Demurrer - with Motion to Strike (CCP 430.10)

GL’s Demurrer is overruled in part and sustained in part. GL’s Motion to Strike is granted.

BACKGROUND

Plaintiff Opsis Capital Real Estate Fund I, LLC filed this action against GL Construction Group, Inc. (GL), Xion Zi Lai, and the Ohio Casualty Insurance Company (collectively “Defendants”), alleging GL failed to timely perform construction work in accordance with the plans provided by Plaintiff, resulting in defective and non-compliant construction.

The causes of action are: (1) Breach of Written Contract; (2) Negligence; (3) Violation of California Business & Professions Code §7159, et seq.; (4) Money Had and Received; (5) Breach of Express Warranty; (6) Breach of Implied Warranty; and (7) Recovery on Contractor’s Bond.

GL Construction Group, Inc. filed a Demurrer - with Motion to Strike. Plaintiff filed an Opposition.

LEGAL STANDARD

When considering demurrers, courts read the allegations liberally and in context. Wilson v. Transit Authority of City of Sacramento (1962) 199 Cal.App.2d 716, 720-21. In a demurrer proceeding, the defects must be apparent on the face of the pleading or via proper judicial notice. Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994. “A demurrer tests the pleading alone, and not on the evidence or facts alleged.” E-Fab, Inc. v. Accountants, Inc. Servs. (2007) 153 Cal.App.4th 1308, 1315. As such, courts assume the truth of the complaint’s properly pleaded or implied factual allegations. Ibid. However, they do not accept as true deductions, contentions, or conclusions of law or fact. Stonehouse Homes LLC v. City of Sierra Madre (2008) 167 Cal.App.4th 531, 538.

Further, the court may, upon a motion, or at any time in its discretion, and upon terms it deems proper, strike any irrelevant, false, or improper matter inserted in any pleading. Code Civ. Proc., § 436(a). The court may also strike all or any part of any pleading not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court. Id., § 436(b). The grounds for a motion to strike are that the pleading has irrelevant, false, or improper matter, or has not been drawn or filed in conformity with laws. Id. § 436. The grounds for moving to strike must appear on the face of the pleading or by way of judicial notice. Id. § 437.

Leave to amend must be allowed where there is a reasonable possibility of successful amendment. See Goodman v. Kennedy (1976) 18 Cal.3d 335, 349 (court shall not "sustain a demurrer without leave to amend if there is any reasonable possibility that the defect can be cured by amendment"); Kong v. City of Hawaiian Gardens Redevelopment Agency (2002) 108 Cal.App.4th 1028, 1037 ("A demurrer should not be sustained without leave to amend if the complaint, liberally construed, can state a cause of action under any theory or if there is a reasonable possibility the defect can be cured by amendment."). The burden is on the complainant to show the Court that a pleading can be amended successfully. Blank v. Kirwan (1985) 39 Cal.3d 311, 318.

ANALYSIS

I. Demurrer

GL demurs to the third and fourth causes of action.

A. Violation of Business and Professions Code Section 7159

First, GL argues that Plaintiff’s third cause of action fails because violating Business and Professions Code section 7159 is not a cause of action.

If a covered contract includes a downpayment, California Business and Professions Code §7159, subdivision (d)(8)(C) requires the contract to include “The following statement in at least 12-point boldface type:

‘THE DOWNPAYMENT MAY NOT EXCEED $1,000 OR 10 PERCENT OF THE CONTRACT PRICE, WHICHEVER IS LESS.’”

“If payments, other than the downpayment, are to be made before the project is completed, the details of these payments, known as progress payments, shall be expressed in substantially the following form, and shall include the text of the statement as specified in subparagraph C.” Bus. & Prof. Code, § 7159, subd. (d)(9).

“‘The schedule of progress payments must specifically describe each phase of work, including the type and amount of work or services scheduled to be supplied in each phase, along with the amount of each proposed progress payment. IT IS AGAINST THE LAW FOR A CONTRACTOR TO COLLECT PAYMENT FOR WORK NOT YET COMPLETED, OR FOR MATERIALS NOT YET DELIVERED. HOWEVER, A CONTRACTOR MAY REQUIRE A DOWNPAYMENT.’” Bus. & Prof. Code, § 7159, subd. (d)(9)(C).

California Business and Professions Code §7159, subdivision (a)(5) states: “Failure by the licensee, their agent or salesperson, or by a person subject to be licensed under this chapter, to provide the specified information, notices, and disclosures in the contract, or to otherwise fail to comply with any provision of this section, is cause for discipline.”

“Pursuant to section 7159, home improvement contracts for work in excess of $500 and any changes in such contracts, between a licensed contractor and an owner or tenant, must be evidenced by a writing and signed by all the parties. A violation of this provision by the licensee is a misdemeanor.” Davenport & Co. v. Spieker (1988) 197 Cal.App.3d 566, 569.

A contract that violates the requirements of section 7159 is not automatically void. Asdourian v. Araj (1985) 38 Cal.3d 276, 292 ( Asdourian) (“there is no indication that the Legislature intended that all contracts made in violation of section 7159 are void. Absent an express statutory prohibition, other exceptions to the general rule that illegal contracts are unenforceable may be applied.”). “The contracts in Asdourian were held enforceable because as real estate investors, the owners were not within the class of unsophisticated consumers the statute was designed to protect. The Supreme Court concluded that in this context, the misdemeanor penalties provided in section 7159 were sufficient and that the policy underlying the statute would not be defeated if the contractor was allowed to recover for work performed.” Hinerfeld-Ward, Inc. v. Lipian (2010) 188 Cal.App.4th 86, 92. Therefore, contracts made in violation of section 7159 are not void, but “voidable depending on the factual context and the public policies involved.” Asdourian, supra, at p. 293.

Here, Plaintiff pleaded facts showing that GL violated section 7159 because the written contract required a downpayment over the statutory limit and failed to include a compliant schedule of payments. Whether those violations, under the circumstances, require the Court to void the contract is a question of fact not resolvable on demurrer.

While the Court agrees with GL that section 7159 does not create a private right of action, the title of claim is not controlling. “If the complaint states a cause of action under any theory, regardless of the title under which the factual basis for relief is stated, that aspect of the complaint is good against a demurrer.” Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 38; O'Grady v. Merchant Exchange Productions, Inc. (2019) 41 Cal.App.5th 771, 792 (“[T]he actual title of plaintiff's count IV cannot be dispositive. This District has also repeatedly accepted that ‘“‘there is no particular form of pleading necessary to invoke the doctrine” of restitution.’”)

The Court reads the complaint as stating a claim for restitution based on unjust enrichment. “Whether termed unjust enrichment, quasi-contract, or quantum meruit, the equitable remedy of restitution when unjust enrichment has occurred ‘is an obligation (not a true contract [citation]) created by the law without regard to the intention of the parties, and is designed to restore the aggrieved party to his or her former position by return of the thing or its equivalent in money.’” Federal Deposit Ins. Corp. v. Dintino, 167 Cal. App. 4th 333, 346 (quoting 1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 1013, p. 1102.)

“‘[A]n action based on an implied-in-fact or quasi-contract cannot lie where there exists between the parties a valid express contract covering the same subject matter.’ However, ‘restitution may be awarded in lieu of breach of contract damages when the parties had an express contract, but it was procured by fraud or is unenforceable or ineffective for some reason.’ Thus, a party to an express contract can assert a claim for restitution based on unjust enrichment by ‘alleg[ing in that cause of action] that the express contract is void or was rescinded.’” Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 231 (citations omitted). “A claim for restitution is permitted even if the party inconsistently pleads a breach of contract claim that alleges the existence of an enforceable agreement.” Ibid.

Because Plaintiff has adequately pleaded a basis for voiding the contract, the Court overrules the demurrer as to the third cause of action.

B. Money Had and Received

Next, Defendant argues that Plaintiff fails to state a cause of action for money had and received.

“‘A cause of action for money had and received is stated if it is alleged [that] the defendant “is indebted to the plaintiff in a certain sum ‘for money had and received by the defendant for the use of the plaintiff.’”’ The claim is viable ‘“wherever one person has received money which belongs to another, and which in equity and good conscience should be paid over to the latter.”’ Avidor v. Sutter's Place, Inc. (2013) 212 Cal.App.4th 1439, 1454 (citations omitted). “[T]he plaintiff must prove that the defendant received money ‘intended to be used for the benefit of [the plaintiff],’ that the money was not used for the plaintiff's benefit, and that the defendant has not given the money to the plaintiff.” Id. (quoting CACI No. 370.)

Here, Plaintiff alleges it gave Defendants $2,741,180 to be used for construction of Plaintiff’s new buildings. FAC ¶ 47. Plaintiff further alleges that Defendants failed to complete the renovation according to the approved plans. Ibid. However, Plaintiff does not allege that this failure resulted from Defendants not using the money to complete the project. As pleaded, these facts are insufficient to show that Defendants received money for Plaintiff’s benefit, and the money was not used for Plaintiff’s benefit. Accordingly, the Court sustains GL’s demurrer with leave to amend.

II. Motion to Strike

A. FAC Exhibit A.

GL moves to strike Exhibit A attached to the FAC, arguing that it falsely includes portions of a separate contract that is not at issue in this case. Plaintiff concedes that a page from a different contract was inadvertently included in Exhibit A. Accordingly, the Court grants GL’s motion to strike Exhibit A with leave to amend.

B. Terms of Ex. A

For the reasons given above, the Court likewise strikes the terms, taken from Ex. A’s payment schedule, referenced in paragraphs 24, 36, and 43, with leave to amend.

C. Void

Next, GL argues that the allegations that the parties’ contract is void under Business and Professions Code section 7159 are false and improper conclusions. “In order to plead a cause of action, the complaint must contain a ‘statement of the facts constituting the cause of action, in ordinary and concise language.’” Perkins v. Superior Court (1981) 117 Cal.App.3d 1, 6 (Perkins) (quoting Code Civ. Proc., § 425.10, subd. (a).) “While it is true that pleading conclusions of law does not fulfill this requirement, it has long been recognized that ‘[the] distinction between conclusions of law and ultimate facts is not at all clear and involves at most a matter of degree.’ Ibid.

As explained above, contracts that violate section 7159 are not automatically void but voidable. “‘The word “void,” in its strictest sense, means that which has no force and effect, is without legal efficacy, is incapable of being enforced by law, or has no legal or binding force, but frequently the word is used and construed as having the more liberal meaning of ‘voidable.’” ‘Voidable" is defined as ‘[that] which may be avoided, or declared void; not absolutely void, or void in itself . . . .’” Little v. CFS Service Corp. (1987) 188 Cal.App.3d 1354, 1358 (quoting Black's Law Dict. (5th ed. 1979) p. 1411, col. 2.) Therefore, the Court is not concerned about Plaintiff’s use of the word “void” instead of “voidable,” but whether that legal conclusion is supported by factual allegation. See Perkins, supra,117 Cal.App.3d 1, 6 (holding allegation that defendant was guilty of “oppression, fraud and malice” could not be stricken where the complaint contained sufficient facts to support such allegations). Because the Court has stricken the underlying allegations constituting the section 7159 violations, it likewise strikes the allegations of voidness with leave to amend.

D. General Damages

Finally, GL moves to strike Plaintiff’s prayer for general damages.

“General damages refers to damages for harm or loss such as pain, suffering, emotional distress, and other forms of detriment that are sometimes characterized as subjective or not directly quantifiable.” Beeman v. Burling (1990) 216 Cal.App.3d 1586, 1599 (citation omitted) (internal quotation marks omitted). Plaintiff fails to allege any facts giving rise to general damages. Accordingly, the motion to strike general damages is granted with leave to amend.

CONCLUSION

GL’s demurrer is overruled as to the third cause of action and sustained as to the fourth cause of action. GL’s motion to strike is granted. Plaintiff has twenty days leave to amend.