Judge Christopher K. Lui, Case Number: 20STCV28179, Date: 2023-10-11 Tentative Ruling

Judge: Christopher K. Lui, Case: 20STCV28179, Date: 2023-10-11 Tentative Ruling

Case Number: 20STCV28179 Hearing Date: October 11, 2023 Dept: 76

Plaintiff alleges that Defendant has failed to pay for Plaintiff’s project management, jobsite supervision, labor and materials, general construction work and related construction services for the work of improvement at Defendant’s property.

Defendant Scott Lowry filed a Cross-Complaint against Plaintiff The J. Alexander Company, Inc. and American Contractors Indemnity Company, alleging that Cross-Defendants engaged in negligent construction and defective workmanship regarding fire damage renovation, repairs and improvement at Cross-Complainant’s property. Cross-Complainant also alleges misrepresentations made during solicitation of the contract regarding the completion time and costs and permits for the work.

Various other Cross-Complaints for indemnity were also filed.

Defendant/Cross-Complainant Scott Lowry demurs to the First Amended Complaint.

TENTATIVE RULING

Defendant/Cross-Complainant Scott Lowry's demurrer to the First Amended Complaint is SUSTAINED without leave to amend as to the fourth and sixth causes of action, and OVERRULED as to the first through third, fifth and seventh causes of action.

Defendant/Cross-Complainant Scott Lowry is ordered to answer the remaining allegations of the First Amended Complaint within 10 days.

ANALYSIS

Demurrer

Request For Judicial Notice

Defendant/Cross-Complainant Scott Lowry requests that the Court take judicial notice of the following:

• Exhibit 1 – December 9, 2021 Citation No. 2 2021 1622 issued by the Contractors State License Board (“CSLB”) against Plaintiff and Cross-Defendant The J. Alexander Company, Inc. (“Plaintiff”)

• Exhibit 2 – Website printout of the Summer 2010 Publication from the Contractors State License Board https://www.cslb.ca.gov/newsletter/2010-summer/page9.htm), California Department of Consumer Affairs, accessed November 21, 2022.

• Exhibit 3 – U.S. Patent No. 8,689,802;

• Exhibit 4 – U.S. Patent No. D749,262;

• Exhibit 5 – Website printout from the United States Patent and Trademark Office Trademark Electronic Search System (TESS) database for U.S. Trademark Reg. No. 4,461,013, accessed July 31, 2023;

• Exhibit 6 – Website printout from the United States Patent and Trademark Office Trademark Electronic Search System (TESS) database for U.S. Trademark Reg. No. 4,453,584, accessed July 31, 2023;

• Exhibit 7 – The J. Alexander Company, Inc. Responses To Form Interrogatories – Set One – Construction Set dated January 7, 2021.

The Request as to Exhibits 1 and 2 is GRANTED. The Court may take judicial notice of the official acts of the Contractors’ State License Board and Department of Consumer Affairs. (Rodas v. Spiegel (2001) 87 Cal. App. 4th 513, 518.)

Request Nos. 3 – 6 are GRANTED. Pursuant to Evid. Code § 452(c), the Court may take judicial notice of official records of an administrative agency. (Ordlock v. Franchise Tax Bd. (2006) 38 Cal.4th 897, 912.)

Request No. 7 is GRANTED.

As a general rule in testing a pleading against a demurrer the facts alleged in the pleading are deemed to be true, however improbable they may be. (Citation omitted.) The courts, however, will not close their eyes to situations where a complaint contains allegations of fact inconsistent with attached documents, or allegations contrary to facts which are judicially noticed. (Citations omitted.) Thus, a pleading valid on its face may nevertheless be subject to demurrer when matters judicially noticed by the court render the complaint meritless. In this regard the court passing upon the question of the demurrer may look to affidavits filed on behalf of plaintiff, and the plaintiff's answers to interrogatories (citation omitted), as well as to the plaintiff's response to request for admissions. (Citations omitted.)

The court will take judicial notice of records such as admissions, answers to interrogatories, affidavits, and the like, when considering [*605] a demurrer, only where they contain statements of the plaintiff or his agent which are inconsistent with the allegations of the pleading before the court. The hearing on demurrer may not be turned into a contested evidentiary hearing through the guise of having the court take judicial notice of affidavits, declarations, depositions, and other such material which was filed on behalf of the adverse party and which purports to contradict the allegations and contentions of the plaintiff. (Citation omitted.)

(Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 604-05.)

Meet and Confer

The Declaration of Theresa Crawford Tate reflects that counsel for Defendant satisfied the meet and confer requirement set forth in Civ. Proc. Code, § 430.41.

Discussion

1. First Cause of Action (Breach of Contract).

Defendant argues that this cause of action fails because the home improvement contract is illegal and unenforceable as a matter of law for violating Bus. & Prof. Code, § 7159.

Defendant argues that the contract is inherently inequitable, and thus, an exception to enforce the illegal contract does not apply. Defendant argues that the provision that the Contractor’s total fee anticipated to be earned by paid, whether fully earned or not, is unconscionable.

Plaintiff argues that a contract which does not meet the requirements of Bus. & Prof. Code, § 7159 may still be enforced. Defendant argues that the factors for an exception to occur have not been sufficiently pled.

In Hinerfeld-Ward, Inc. v. Lipian, the Court recognized that a home improvement contract which does not comply with Bus. & Prof. Code, § 7159 may still be enforced, depending on the consideration of certain factors:

The issue is whether an oral contract for home improvements, in violation of section 7159, is void or merely voidable. The general rule is that “a contract made in violation of a regulatory statute is void. [Citation.] Normally, courts will not ‘ “lend their aid to the enforcement of an illegal agreement or one against public policy … .” ’ [Citations.]” (Asdourian, supra, 38 Cal.3d at p. 291.) But as the Supreme Court recognized in Asdourian, “ ‘the rule is not an inflexible one to be applied in its fullest rigor under any and all circumstances. A wide range of exceptions has been recognized.’ [Citation.]” (Ibid.)

In Calwood, the court reversed an order sustaining a demurrer to a complaint for unpaid fees brought by a contractor on an oral home improvement contract. The trial court had reasoned that the contract was void because it did not comply with section 7159. The Calwood court noted that “section 7159 contains no express prohibition respecting the enforceability of contracts made contrary to its terms, but is limited in its specification of penalty to criminal fine or imprisonment.” (Calwood, supra, 105 Cal.App.3d at p. 521.) The oral contract was enforceable because the work had been completed, was performed under authority granted by the owners, and was ratified by them. The court reasoned that the violation of section 7159 did not involve serious moral turpitude. The policy of consumer protection would not be furthered by finding the contract before it to be unenforceable, since the transaction was completed. If the contract was not enforced, the owners would be unjustly enriched at the expense of the contractor, a penalty disproportionately harsh in relation to the violation. (Calwood, supra, 105 Cal.App.3d at p. 522.)

Asdourian involved oral contracts for home improvements between homeowners and their contractor. The court found “[n]othing in the statute [which] declares that an oral contract entered into in contravention of section 7159 shall be void.” (Asdourian, supra, 38 Cal.3d at p. 291.) While the court concluded that the Legislature did not intend the express penalty provisions of section 7159 to be exclusive, it found “no indication that the Legislature intended that all contracts made in violation of section 7159 are void.” (38 Cal.3d at p. 292.) Absent an express legislative prohibition, the Asdourian court concluded it could apply exceptions to the general rule that illegal contracts are unenforceable. (Ibid.)

[*93]

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. (Asdourian, supra, 38 Cal.3d at p. 292.) The court also concluded that a contract in violation of section 7159 does not present the type of illegality that automatically renders a contract void. Instead, the contracts were found merely “voidable depending on the factual context and the public policies involved.” (Asdourian, at p. 293.) Citing Calwood, supra, 105 Cal.App.3d at page 522, the Asdourian court reasoned that the failure to observe strict statutory formalities was understandable because the contractor and owners were friends and had prior business dealings. In addition, it was significant that the contractor fully performed according to the oral agreements and the owners accepted the benefits of those agreements. “If [the owners] are allowed to retain the value of the benefits bestowed by [the contractor] without compensating him, they will be unjustly enriched.” (Asdourian, supra, at p. 293; see also Davenport & Co. v. Spieker (1988) 197 Cal.App.3d 566 [242 Cal. Rptr. 911] [contractor's noncompliance with § 7159 did not preclude recovery from owners, one of whom was experienced in real estate investment and development, where many informal changes and additions were made to contract].)’

. . .

[*94]

. . .

We agree with Hinerfeld that the construction of section 7159 urged by the Lipians is too narrow. As we have discussed, the sophistication of the parties in construction matters is only one of several factors considered by the Asdourian court and its progeny. . . .

. . . [*95] . . .

Finally, as in Asdourian, Calwood, and Arya, the Lipians would be unjustly enriched if Hinerfeld is not allowed recovery. Although the work on the project was not complete when Hinerfeld was terminated, the jury expressly found that the value of the services it rendered was $ 820,000, that the Lipians had not paid that amount, and that the damages for the Lipians' breach of contract were in excess of $ 202,000. In contrast, on the Lipians' cross-complaint, only $ 1,000 in damages were awarded.

We agree with the trial court that this is a compelling case warranting enforcement of the oral home improvement contract under the Asdourian, supra, 38 Cal.3d 276, line of authority.

(Hinerfeld-Ward, Inc. v. Lipian (2010) 188 Cal.App.4th 86, 92-95 [bold emphasis and underlining added].)

Here, Plaintiff pleads that Defendant Lowry was a sophisticated consumer because:

SCOTT LOWRY is and at all times mentioned herein was an attorney and a sophisticated consumer, with an undergraduate degree in engineering and whose law practice covers all facets of intellectual property law, with a specific focus on patent and trademark prosecution. Plaintiff is informed and believes SCOTT LOWRY has prosecuted patents before the U.S. Patent and Trademark Office for companies and individuals of different industries, such as medical devices, automotive, and technologies that utilize radio frequency identification and the patentability of business method and software patents. Plaintiff is further informed and believes SCOTT LOWRY authors scholarly articles on the latest developments in intellectual property law and has been cited by the European Patent Organization.

(1AC, ¶ 3.)

It is for a jury to decide whether this alleged background made Lowry a sophisticated consumer vis-à-vis Plaintiff. There is not authority holding that the sophistication must pertain to construction matters. Indeed, a trier of fact might consider a lawyer who deals with intellectual property sophisticated relative to any contract he may enter into. A home improvement contract may not present the same complexity as matters of intellectual property law.

The Court agrees that the allegations at ¶ 4 regarding Plaintiff’s principal Schoenfeld and Defendant Lowry regarding Lowry performing legal work for Schonfeld’s son’s company, and Lowry hiring Plaintiff to deal with the insurer for policy benefits probably does not factor into the balance of whether the subject contract should be enforced. However, Defendant did not move to strike these allegations, and a demurrer does not lie to only certain allegations.

Plaintiff also alleges the following:

12. Plaintiff has fully performed all conditions, covenants, and promises required to be performed in accordance with the terms and conditions of the Contract, except those which have been excused by Defendants’ breaches. The work was performed under the authority granted by SCOTT LOWRY and was ratified by him. SCOTT LOWRY accepted the benefits of the work performed by Plaintiff.

13. As of July 15, 2020, after giving Defendants due credit for payments made, Plaintiff was owed the sum of $63,126.50 for the work performed under the Contract, as is more particularly set forth in the Summary Billing and Release, a true and correct copy of which is attached hereto as

Exhibit “B” and is incorporated herein by this reference.

14. Despite demand therefore, Defendants have failed to perform their obligations under the Contract in that Defendants have failed and refused to pay the balance due for the materials, services and supplies furnished under the Contract in the sum of $63,126.50 and said sum is now

due, owing and unpaid, together with interest at the maximum legal rate per annum, and late charges, according to proof, all dating from the date of the breach, until paid in full.

(1AC, ¶¶ 12 – 14 [bold emphasis added].)

“The sole issue raised by a general demurrer is whether the facts pleaded state a valid cause of action, not whether they are true. No matter how unlikely or improbable, plaintiff's allegations must be accepted as true for the purpose of ruling on the demurrer. (Citation omitted.) Furthermore, plaintiff's possible inability or difficulty in proving the allegations of the complaint is of no concern. (Citation omitted.)” (Kerivan v. Title Ins. & Trust Co. (1983) 147 Cal.App.3d 225, 229.)

The foregoing is sufficient to plead factors whereby the contract may be enforced despite violation of Bus. & Prof. Code, § 7159. Whether or not the contract is unconscionable or whether unclean hands bars enforcement of the contract are affirmative defenses which Defendant may litigate on the merits at a later stage.

[S]ubdivision (b) of Civil Code section 1670.5 provides that "[w]hen it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose, and effect to aid the court in making the determination." This language reflects "legislative recognition that a claim of unconscionability often cannot be determined merely by examining the face of the contract, but will require inquiry into its setting, purpose, and effect." (Citation omitted.)

(Stirlen v. Supercuts, Inc. (1997) 51 Cal.App.4th 1519, 1536.)

Thus, as a general rule, the application of the doctrine of unclean hands is primarily a question of fact. (Citation omitted.) This doctrine is usually associated with the rule of law which precludes a grantor from recovering his property from a grantee when the conveyance is deemed a fraudulent one. (Citation omitted.) In other contexts, equity may also refuse relief to a plaintiff who does not come into court with clean hands. The doctrine is, however, not necessarily "'. . . a complete defense. It is well settled that public policy may favor the nonapplication of the doctrine as well as its application.' (Citation omitted.) 'Whenever an inequitable result would be accomplished by the application of the "clean hands" doctrine the courts have not hesitated to reject it.' (Citation omitted.)

(Health Maint. Network v. Blue Cross of So. Cal. (1988) 202 Cal.App.3d 1043, 1061.)

The demurrer to the first cause of action is OVERRULED.

2. Second Cause of Action (Indebitatus Assumpsit).

Defendant argues that this cause of action fails because it is based on the failed breach of contract claim. For the reasons discussed above re: the first cause of action, this argument is not persuasive.

Defendant also argue that the elements of this cause of action are insufficiently pled.

It is established that when a contract has been fully performed and nothing remains to be done under it except the payment of money by defendant, plaintiff may declare generally in indebitatus assumpsit. (Citations omitted.) Such count may be joined with one on the contract, and a plaintiff is under no compulsion to elect but may submit his case to the trier of fact for determination upon the facts, and it is the province of the trier of fact to decide which count is supported by the evidence.

(Haggerty v. Warner (1953) 115 Cal.App.2d 468, 474-75.)

Here, Plaintiff alleges at ¶ 19 that Plaintiff has fully performed such services, with nothing remaining to be done thereunder other than the payment of money by the Defendants to Plaintiff. For purposes of this demurrer, the allegation must be accepted as true. (Kerivan, supra, 147 Cal.App.3d at 229.)

Although Defendant argues that Plaintiff stated in the response to Form Interrogatory No. 324.1 that Defendant terminated the parties’ agreement before Plaintiff could complete its work, the 1AC may be construed to mean that the remainder of Plaintiff’s performance was excused by Defendant’s alleged breach.

The demurrer to the second cause of action is OVERRULED.

3. Third Cause of Action (Quantum Meruit).

A quantum meruit or quasi-contractual recovery rests upon the equitable theory that a contract to pay for services rendered is implied by law for reasons of justice. See, e.g., 1 Witkin, Summary of California Law (9th ed. 1987) Contracts, sections 12, page 47; 91, pages 122-123; 112, pages 137-138. However, it is well settled that there is no equitable basis for an implied-in-law promise to pay reasonable value when the parties have an actual agreement covering compensation. Willman v. Gustafson (1944) 63 Cal. App. 2d 830 [147 P.2d 636] (there can be no implied promise to pay reasonable value for services when there is an express agreement to pay a fixed sum). See also 55 California Jurisprudence Third, Restitution, sections 19, page 328 et seq.; and 58, and pages 375-376 (no ground to imply payment obligation in conflict with express contract).

(Hedging Concepts, Inc. v. First Alliance Mortgage Co. (1996) 41 Cal.App.4th 1410, 1419.)

However, “[t]he court may consider the price agreed upon by the parties ‘as a criterion in ascertaining the reasonable value of services performed.’ (Citation omitted.)” (Watson v. Wood Dimension (1989) 209 Cal.App.3d 1359, 1365.)

Thus, Plaintiff is entitled to plead this cause of action in the alternative.

It is well established that an operative pleading, . . . can allege multiple causes of action or charges based on the same conduct. (Citations omitted.)

It is also well recognized that the same conduct can be found to constitute various wrongs. (Citations omitted.)

(Gillis v. Dental Bd. of California (2012) 206 Cal.App.4th 311, 323, overruled on other grounds as stated in Dhillon v. John Muir Health (2017) 2 Cal. 5th 1109, 1116 n.2.)

The demurer to the third cause of action is OVERRULED.

4. Fourth Cause of Action (Account Stated).

Defendant argues that this cause of action also fails because the Complaint fails to identify any previous transactions between the parties establishing the relationship of debtor and creditor, nor whether the parties agreed on the amount due and that Defendant promised to pay the alleged $63,216.50 balance.

“An account stated is an agreement, based on prior transactions between the parties, that the items of an account are true and that the balance struck is due and owing. [Citation.] To be an account stated, ‘it must appear that at the time of the statement an indebtedness from one party to the other existed, that a balance was then struck and agreed to be the correct sum owing from the debtor to the creditor, and that the debtor expressly or impliedly promised to pay to the creditor the amount thus determined to be owing.’ [Citation.]”

(Maggio, Inc. v. Neal (1987) 196 Cal.App.3d 745, 752–753 [241 Cal. Rptr. 883].)

“The essential elements of an account stated are: (1) previous transactions between the parties establishing the relationship of debtor and creditor; (2) an agreement between the parties, express or implied, on the amount due from the debtor to the creditor; (3) a promise by the debtor, express or implied, to pay the amount due. [Citations.]” (Zinn v. Fred R. Bright Co. (1969) 271 Cal.App.2d 597, 600 [76 Cal. Rptr. 663].)

(Leighton v. Forster (2017) 8 Cal.App.5th 467, 490-91.)

The fourth cause of action does not plead that Defendant agreed to the correct sum owing and promised to pay that outstanding amount due in the sum of $63,126.50.

The demurrer to the fourth cause of action is SUSTAINED without leave to amend.

5. Fifth Cause of Action (Open Book Account).

Defendant argues that this cause of action does not plead the elements of an open book account.

Defendant also argues that an express contract which defines the duties and liabilities of the parties is not an open book account.

A “book account” is “a detailed statement which constitutes the principal record of one or more transactions between a debtor and a creditor arising out of a contract or some fiduciary relation, and shows the debits and credits in connection therewith, and against whom and in favor of whom entries are made, is entered in the regular course of business as conducted by such creditor or fiduciary, and is kept in a reasonably permanent form and manner and is (1) in a bound book, or (2) on a sheet or sheets fastened in a book or to backing but detachable therefrom, or (3) on a card or cards of a permanent character, or is kept in any other reasonably permanent form and manner.” (§ 337a.) Examples of statements held to be book accounts include a law firm's billing statements reflecting work performed on an hourly basis (In re Roberts Farms, Inc. (9th Cir. 1992) 980 F.2d 1248, 1252 [applying California law]) and a ledger sheet recording amounts due for hay deliveries (Costerisan v. DeLong (1967) 251 Cal.App.2d 768, 769–771 [59 Cal. Rptr. 803]). A book account is “open” where a balance remains due on the account. (Interstate Group Administrators, Inc. v. Cravens, Dargan & Co. (1985) 174 Cal.App.3d 700, 708 [220 Cal. Rptr. 250]; Reigelsperger v. Siller (2007) 40 Cal.4th 574, 579, fn. 5 [53 Cal. Rptr. 3d 887, 150 P.3d 764].) “An express contract, which defines the duties and liabilities of the parties, whether it be oral or written, is not, as a rule, an open account.” (Durkin v. Durkin (1955) 133 Cal.App.2d 283, 290 [284 P.2d 185].) However, the parties may agree to treat money due under an express contract, such as a lease, as items under an open book account. (Parker v. Shell Oil Co. (1946) 29 Cal.2d 503, 507 [175 P.2d 838].) “[I]n such a case the cause of action is upon the account, not under the [express contract].” (Ibid.)

(Professional Collection Consultants v. Lauron (2017) 8 Cal.App.5th 958, 969 [bold emphasis and underlining added].)

Here, Plaintiff alleges as follows:

37. Plaintiff maintained a written record of all costs incurred for the Work, and provided same to Defendants on a monthly basis.

38. As of July 15, 2020, after giving Defendants due credit for payments made, Plaintiff was owed the sum of $63,126.50 for the work performed under the Contract, as is more particularly set forth in Exhibit B hereto, consisting of Plaintiff’s July 15, 2022 Summary Billing and Release. The parties agreed that this sum incurred under the Contract could be treated as an open book account.

(1AC, ¶¶ 37, 38.)

For purposes of demurrer, these allegations must be accepted as true, no matter how improbable. (Kerivan, supra, 147 Cal.App.3d at 229.)

The demurrer to the fifth cause of action is OVERRULED.

6. Sixth Cause of Action (Enforcement of Mechanics Lien).

Defendant argues that this cause of action fails because the proof of service affidavit was not signed, as required by Civil Code, § 8416(a).

Plaintiff argues that Plaintiff has proof the lien was indeed served.

(a) A claim of mechanics lien shall be a written statement, signed and verified by the claimant, containing all of the following:

. . .

(7) A proof of service affidavit completed and signed by the person serving a copy of the claim of mechanics lien pursuant to subdivision (c). The affidavit shall show the date, place, and manner of service, and facts showing that the service was made in accordance with this section. The affidavit shall show the name and address of the owner or reputed owner upon whom the copy of the claim of mechanics lien was served pursuant to paragraphs (1) or (2) of subdivision (c), and the title or capacity in which the person or entity was served.

(Civ. Code § 8416(a)(7)[bold emphasis and underlining added].)

(e) Failure to serve the copy of the claim of mechanics lien as prescribed by this section, including the Notice of Mechanics Lien required by paragraph (8) of subdivision (a), shall cause the claim of mechanics lien to be unenforceable as a matter of law.

( Civ. Code § 8416(e)[bold emphasis].)

The unsigned affidavit (1AC, Exh. C) cannot retroactively be remedied.

On this basis, the demurrer to the sixth cause of action is SUSTAINED without leave to amend.

7. Seventh Cause of Action (Unjust Enrichment).

Defendant argues that an unjust enrichment claim cannot lie where there exists a valid express contract covering the same subject matter.

“Unjust enrichment is not a cause of action, however, or even a remedy, but rather ‘ “ ‘a general principle, underlying various legal doctrines and remedies’ ” … . [Citation.] It is synonymous with restitution.’ ” (Citation omitted.) Like the trial court, we will construe the cause of action as a quasi-contract claim seeking restitution.

“[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.” (Citation omitted.) 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.” (Citation omitted.) 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.” (Citation 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. (Citation omitted.)

(Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 231 [bold emphasis and underlining added].)

Here, if the contract is found to be unenforceable, as Defendant argues, then restitution based on unjust enrichment may be available to Plaintiff.

The demurrer to the seventh cause of action is OVERRULED.

Defendant/Cross-Complainant Scott Lowry is ordered to answer the remaining allegations of the First Amended Complaint within 10 days.