Judge Christian R. Gullon, Case Number: 24PSCV00945, Date: 2024-10-07 Tentative Ruling

Judge: Christian R. Gullon, Case: 24PSCV00945, Date: 2024-10-07 Tentative Ruling

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RETAIL VENTURES ONE LLC’S MOTION REQUIRING PLAINTIFF TO POST BOND is DENIED because Section 1029.8 does not provide for the recovery of attorney fees under these facts.

This case arises from a contract for improvements to certain real property. Plaintiff P&K Builders LLC alleges the following against Defendants RETAIL VENTURES ONE LLC (“Retail”) and KORTH DIRECT MORTGAGE INC. (“Korth”): Plaintiff served as the construction manager on the Project at issue in this litigation in conjunction with general contractor SQS Contractors Inc. (First Amended Complaint (FAC) ¶2);[1] Defendant Retail was the owner of the project; and Defendant Korth holds a security interest in the property as the construction lender. In February 2022, “Plaintiff began its construction management services at the subject Property pursuant to an oral agreement with [Retail].” (¶15.) $526,270.45 has accrued in unreimbursed costs and associated management fees based on Plaintiff's services. (¶30.)

On April 2, 2024, Retail filed a ‘Notice of Related Case.’ That same day, Retail filed a cross-complaint (CC) against Plaintiff for:[2]

On April 10, 2024, Plaintiff filed an Amendment to Complaint indicating that the correct name of Retail is RETAIL VENTURES ONE LLC, a Delaware limited liability company, not Retail Ventures One LLC, a California corporation.

On April 15, 2024, the court issued a minute order regarding Notice of Related Case. The court stated the following: “The Court finds that the following cases, 24PSCV00945 and 24PSCV00993, are related within the meaning of California Rules of Court, rule 3.300(a). 24PSCV00945 is the lead case. For good cause shown, said cases are assigned to Judge Christian R. Gullon in Department O at Pomona Courthouse South for all purposes.”

On April 26, 2024, the court issued its order regarding Retail’s Motion to Remove Mechanic’s Lien, namely because there was no admissible evidence that P&K served as a manager (which would serve as an exception to the license requirement). Based on that ruling, the court advanced the hearing on the Motion to Expunge the Lis Pendens and granted the motion as absent a real property claim, pursuant to CCP section 405.31, the lis pendens must have been expunged.

On September 12, 2024, Retail filed a DISC-030 form to take a deposition outside of California; specifically, Retails issued a deposition subpoena to produce documents upon Texas Gulf Bank (for generally all financial statements for all accounts held by P&K).

On September 23, 2024, P&K filed an opposition to the motion (along with evidentiary objections).

On September 30, 2024, Retail filed its reply (along with responses to P&K’s evidentiary objections).

Defendant Retail brings forth this motion pursuant to Code of Civil Procedure (CCP)[3] section 1030. The relevant portions of the statute are as follows:

(a) When the plaintiff in an action or special proceeding resides out of the state, or is a foreign corporation, the defendant may at any time apply to the court by noticed motion for an order requiring the plaintiff to file an undertaking to secure an award of costs and attorney's fees which may be awarded in the action or special proceeding. For the purposes of this section, “attorney's fees” means reasonable attorney's fees a party may be authorized to recover by a statute apart from this section or by contract.

(b) The motion shall be made on the grounds that the plaintiff resides out of the state or is a foreign corporation and that there is a reasonable possibility[4] that the moving defendant will obtain judgment in the action or special proceeding. The motion shall be accompanied by an affidavit in support of the grounds for the motion and by a memorandum of points and authorities. The affidavit shall set forth the nature and amount of the costs and attorney's fees the defendant has incurred and expects to incur by the conclusion of the action or special proceeding.

(c) If the court, after hearing, determines that the grounds for the motion have been established, the court shall order that the plaintiff file the undertaking in an amount specified in the court's order as security for costs and attorney's fees.

(d) The plaintiff shall file the undertaking not later than 30 days after service of the court's order requiring it or within a greater time allowed by the court. If the plaintiff fails to file the undertaking within the time allowed, the plaintiff's action or special proceeding shall be dismissed as to the defendant in whose favor the order requiring the undertaking was made. (Code of Civ. Proc., § 1030 subds. (a)-(d), emphasis and italics added.)

Defendant Retail moves for a $500,000 bond because P&K continues to insist that it was a contract manager when the evidence indicates that P&K was the general contractor and provided either its own laborers or subcontracted out certain aspects of the job. Accordingly, Retail “requires the protection of a bond to cover the attorney fees and costs it will incur defending this frivolous action.” (Motion p. 1:17-18, emphasis added.)

The first requirement for a bond is not disputed as P&K is a Texas entity with its principal offices also located in Texas. (FAC ¶1.)

Before addressing the issue of whether there is a reasonable possibility that Retail will obtain judgment (i.e., that P&K—which does not dispute its lack of licensure—performed work or hired others to perform work), the court needs to address the main argument raised in opposition: that section 1030 does not apply to cross-complaints. For reasons to be explained, the court disagrees with P&K’s interpretation Yao v. Superior Court (2002) 104 Cal.App.4th 327 and Section 1030.

In Yao, the plaintiff (Lovell)—a California resident—sued a defendant—a citizen of Hong Kong residing in Canda. (Id. a p. 330.) The out-of-state defendant (Yao) then filed a cross-complaint against the California plaintiff. In response, Lovell/plaintiff filed a section 1030 motion for Yao/defendant “to post security in order to continue to prosecute her cross-complaint.” (Ibid, emphasis added.) The trial court granted the plaintiff’s motion reasoning that because a cross-complaint was filed, the plaintiff became a defendant. (Ibid.) On appeal, the “only issue …is whether section 1030 applies to a nonresident cross-complaint.” (Id. at p. 331.) The appellate court “decline[d] plaintiff's invitation to rewrite section 1030 to provide that ‘plaintiff’ includes cross-complainant.” (Id. at pp. 332-333, emphasis added.) “The first is that section 1030 unambiguously refers only to a “plaintiff”; when the Legislature intends for a specific statutory provision to apply to both a plaintiff and cross-complainant, it expressly indicates that intent. The second is that to construe the statute to include an out-of-state cross-complainant would not promote the policy served by the statute.” (Id. at pp. 331-332.) The statute’s goal “is to protect California residents who are sued by out-of-state plaintiffs when there is no reasonable possibility the out-of-state plaintiff will prevail. The section protects California residents by requiring the out-of-state plaintiff to post security to ensure payment of costs and attorney fees (if recoverable) in the likely event the plaintiff's action is defeated.” (Id. at pp. 333-334, emphasis added.)[5]

Plaintiff P&K argues that Yao stands for the proposition that the statute is limited to plaintiffs and complaints; not cross-complainants and cross-complaints. And because Defendant will merely obtain a judgment of dismissal should it prevail on P&K’s complaint (i.e., no money judgment) and that the requested bond is based on the value of the cross-complaint’s disgorgement and negligence claims, then the statute doesn’t apply. (See generally Opp. pp. 4-6.) The court disagrees with Plaintiff’s interpretation for multiple reasons.

Here, as noted by Retail in Reply, Retail, as a defendant, is filing the motion whereas in Yao the plaintiff Lovell was, by way of a cross-complaint, attempting to characterize himself as a defendant/cross-complainant to fall within the ambit of CCP section 1030. What is more, unlike Yao wherein the plaintiff Lovell explicitly sought bond to prosecute the cross-complaint, here, Retail is seeking bond to defend itself on Plaintiff’s purportedly frivolous action. And defending oneself from a frivolous claim is the very purpose of the statute. Now, whether defending is limited to the action or a CC was not contemplated in Yao, but the Legislature did address the matter.[6] Section 1030 subdivision (a) provides that attorney fees are recoverable “in the action.” The statute does not provide that attorney fees are recoverable in defending “against the complaint” nor does the statute does provide that attorney fees are “not recoverable in simultaneously prosecuting a cross-complaint.” Echoing the appellate court in Yao, “the Legislature clearly knows how to indicate when it wants a statutory provision to apply” (Yao, supra, 104 Cal.App.4th at p. 332), and here, the Legislature by not limited the recovery of fees to the complaint “did so deliberately…and [this court] should not read statutes ….to include omitted language.” (Ib. at p. 333.) Furthermore, to accept P&K’s invitation—which is to bar an in-state defendant from invoking section 1030 should the in-state Defendant file a cross-complaint—that would strip the in-state defendant of due process (i.e., have the right to have its claims adjudicated) because the in-state defendant would be barred from pursuing those related claims. (See Yao, supra, 104 Cal.App.4th at p. 332, fn. 4.) Finally, should Plaintiff be unpersuaded, the court turns to Wada Farms, Inc. v. Jules and Associates, Inc. 2015 WL 13298572 (Wada) cited in opposition. In Wada, the plaintiff, which farms, transports, and process potatoes, filed suit in Idaho against the defendant corporation, which was presumably a California corporation based upon the defendant’s filing a section 1030 motion. There, even though the defendant pursued counterclaims against the plaintiffs (at *8), that was not a factor the court found dispositive in denying the motion. Thus, Wada inherently supports this court’s finding that a California resident/or corporation may invoke section 1030 against an out of state defendant even if the California corporation pursues counterclaims.

Notwithstanding, P&K has not addressed whether a statute or contract APART FROM section 1030 permits recovery of attorney fees. (Code of Civ. Proc., § 1030 subd. (a).) Here, the court’s review of the AIA contract does not provide a provision for attorney fees. (See Defendant’s Evidence pp. 56-63 of 270 of PDF.) As for Retail’s seeming reliance upon Section 1029.8 to permit recovery of fees, the court is unclear how that even applies. (Motion p. 13.) Section 1029.8 applies when an unlicensed person “causes injury or damage to another person.” (Code of Civ. Proc., § 1029.8 (a), emphasis added.) Here, the motion explains that P&K “horribly perform[ed] roofing work that resulted in significant damage from water intrusion” (Motion p. 2:6-8); damage to property is not injury to a person. Thus, section 1029.8 is not a statute that would allow for recovery of attorney fees.

With that, the court need not fully address the second requirement of Section 1030 (reasonably possibility of obtaining judgment).[7]

The motion to expunge the mechanic’s lien was this court’s first introduction to the facts and evidence of this case. Ultimately, the court granted Retail’s motion for the following reasons:

First, the Mechanics Lien recorded by P&K contains a description of the “labor, services, equipment, or materials;" there is no mention of management fees, manage, or management. Second, the 12/28/23 Mechanics Lien recorded by Dons Retail Services’ provides that it was hired by P&K (not SQS), which suggests that P&K was the direct contractor, not a manager. Third, the 1/2/24 Mechanics lien recorded by Commercial Dock & Door, Inc. provides that it too was hired by P&K (not SQS), which suggests that P&K was a contractor, not a manager. Fourth, the declaration from P&K's CEO does not affirmatively state that P&K was hired as a project manager…Fifth, the declaration of SQS's officer does not provide the terms of the purported oral agreement entered into with Retail nor the names of individuals who entered into said purported agreement. (See 4/26/24 Minute Order.)

Now, in this motion, Retail heavily relies upon the AIA agreement (between Retail and P&K) and SQS’s PMQ (Rosa Santillana).[8] As for AIA agreement, Bryan Pyne’s declaration, who is the CEO of P&K, argues that the agreement was never updated into a final version and used documents from other projects P&K and Retail worked on together. (See Pyne Decl., ¶5; see also Reply p. 5, fn. 2.) But Pyne is not disputing the existence of a written contract, notably when the identifies P&K as the “contractor.” As for Santillana, even if she is an unreliable witness because she now confirms that SQS had no contractual relationship with Retail and that SQS never performed any contracting work or supervision on the project (despite stating otherwise in her declaration on the mechanic’s lien motion), her deposition is still evidence, and evidence that directly undermines P&K’s argument that SQS was the general contractor. The standard is the reasonable possibility of prevailing at trial. And against that evidence, P&K has not offered sufficiently compelling evidence as it only provides Pyne’s declaration.

As for attorney fees, should the court have granted the motion, the court would reduce the hourly rates of $575 and $650. It is an attorney’s obligation to establish “reasonable rates in the local community as a basis for [the fee] award.” (Nemecek & Cole v. Horn (2012) 208 Cal.App.4th 641, 652; see also Graciano v. Robinson Ford Sales, Inc. (2006) 144 Cal.App.4th 140, 155 [explaining the reasonable hourly rate is that prevailing in the community for similar work].) Here, absent evidence that his rate is reasonable in the local community (Nichols v. City of Taft (2007) 155 Cal.App.4th 1233, 1243), the court would reduce the hourly fee to $400/hour.

As for hours, they are limited to reasonable hours. Here, Retail states that it has thus far incurred about $135,000 in attorney fees (no hours provided) and it intends on expending over 600 hours on the matter. To contend that “the likely costs for proceeding with this case through trial are approximately $800,000,” (Motion p. 15:2-3) is patently unreasonable.

In sum, while Section 1030 would allow Retail to secure a bond as it is an in-state Defendant being sued by an out-of-state Plaintiff/corporation on an allegedly frivolous claim, the statute allows for attorney fees and costs predicated upon a statute apart from Section 1030, which Retail has not provided. Notwithstanding, should the court have granted the motion as Retail has met the second requirement of a reasonably possibility of obtaining a judgment at trial, the court would heavily reduce the attorney fees as both the hourly rate and incurred/projected hours are unreasonable. Based on the foregoing, the motion is DENIED.

[1] For clarity, SQS is not a named defendant in this action. According to Retail, it “is not familiar with and has no contract with SQS Construction. To Retail Ventures’ knowledge, it has never worked with SQS Construction in any capacity.” (Motion to Remove Mechanic’s Lien, p. 3, fn. 2.)

[2] According to the CC, which provides more details than the complaint, P&K, which does not have a valid California contractor’s license, entered an agreement to perform preliminary construction work related to remodeling the property for an incoming tenant. After some work was performed, the parties entered a written contract on 12/6/2022. Throughout the course of work, P&K issued several change orders. In total, Retail has paid P&K $3,595,233.70 for its unlicensed work on the Property.

[3] All statutory references are to the Code of Civil Procedure.

[4] The “reasonable possibility” standard is relatively low. A defendant (here, Retail) need not show there is no reasonable possibility that the plaintiff (here, P&K) will prevail at trial, but only that it is reasonably possible that the defendant will prevail. (Baltayan v. Est. of Getemyan (2001) 90 Cal.App.4th 1427, 1432.)

[5] See also Alshafie v. Lallande (2009) 171 Cal.App.4th 421, 428 [“The statute therefore acts to prevent out-of-state residents from filing frivolous lawsuits against California residents.”].

[6] And here, the court agrees with Retail that their CC claims are inherently intertwined with P&K’s complaint, and in such a circumstance,

[7] Briefly, however, the court would find this requirement satisfied. Even if the AIA agreement deems P&K a contractor and even if SQS’s PMQ (Rosa Santillana) is not a reliable witness as she previously made false statements but at her recent deposition she confirmed that SQS had no contractual relationship with Retail and SQS never performed any contracting work or supervision on the project, which undermines P&K’s position that SQS was the general contractor, the standard is the reasonable possibility of prevailing at trial. And against that evidence, P&K has offered none.

[8] P&K filed numerous objections, but all are overruled as they are boilerplate. It is fundamental that evidentiary objections must "make clear the specific ground of the objection or motion." (Evid. Code section 353, subd. (a).)