Judge: Daniel S. Murphy, Case: 23STCV05811, Date: 2023-08-09 Tentative Ruling

Case Number: 23STCV05811    Hearing Date: February 9, 2024    Dept: 32

BACKGROUND

            On March 15, 2023, Plaintiffs BFF Construction, Inc. (BFF) and RB Realty Management, LLC (RB) filed this action against Defendants R&M Bro’s Construction Inc. (R&M) and Miguel Duarte Olmos (Duarte), alleging (1) breach of contract, (2) implied indemnity, (3) negligence, (4) conversion, and (5) fraud.

            The case involves a construction project that took place in Ventura County. The property is owned by RB. BFF was the general contractor on the project, and R&M was the subcontractor. Duarte owns and operates R&M. The complaint alleges that R&M performed its work negligently, causing multiple shutdowns and delays. BFF terminated R&M from the project, and Duarte allegedly retaliated by vandalizing the property and destroying or stealing certain materials. R&M also allegedly absconded with money meant for paying BFF’s vendors.

            On April 26, 2023, R&M and Duarte filed a lawsuit in Ventura Superior Court (Case No. 2023CUBC008227). R&M and Duarte filed the first amended complaint in that action on July 11, 2023 (R&M Complaint). The R&M Complaint was asserted against RB, BFF, Arixa Enhanced Income Fund, Hudson Insurance Company, and Bahram Fata. The R&M Complaint alleged that R&M was not paid for the work it performed on the project and sought, among other things, to foreclose on a mechanics lien. The R&M Complaint also alleged that Duarte suffered physical injuries while working on the project.

            R&M and Duarte thereafter filed a motion to transfer this case to Ventura Superior Court. The Court denied this motion on September 1, 2023. On November 28, 2023, R&M and Duarte filed a cross-complaint in this Court, essentially mirroring the R&M Complaint that was filed in Ventura, with a few added causes of action.

On December 20, 2023, Hudson Insurance Company filed a cross-complaint against R&M, Duarte, and BFF, asserting declaratory relief and interpleader.

            On January 2, 2024, BFF, RB, and Bahram Fata (collectively, Cross-Defendants) filed the instant demurrer to the cross-complaint of R&M and Duarte. Arixa Enhanced Income Fund filed a joinder to the demurrer on January 9, 2024. R&M and Duarte filed their opposition on January 29, 2024. Cross-Defendants filed their reply on February 2, 2024.    

LEGAL STANDARD

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) When considering demurrers, courts read the allegations liberally and in context. (Taylor v. City of Los Angeles Dept. of Water and Power (2006) 144 Cal.App.4th 1216, 1228.) In a demurrer proceeding, the defects must be apparent on the face of the pleading or by proper judicial notice. (Code Civ. Proc., § 430.30, subd. (a).) A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. (SKF Farms v. Superior Court (1984) 153 Cal.App.3d 902, 905.) Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed. (Ibid.) The only issue involved in a demurrer hearing is whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action. (Hahn, supra, 147 Cal.App.4th at 747.)

MEET AND CONFER

Before filing a demurrer or a motion to strike, the demurring or moving party is required to meet and confer with the party who filed the pleading demurred to or the pleading that is subject to the motion to strike for the purposes of determining whether an agreement can be reached through a filing of an amended pleading that would resolve the objections to be raised in the demurrer. (Code Civ. Proc., §§ 430.41, 435.5.) The Court notes that Cross-Defendants have complied with the meet and confer requirement. (See Ardalan Decl.)

DISCUSSION

I. Mechanic’s Lien

            Cross-Defendants argue that the second and fourth causes of action for mechanic’s lien fail because the cross-complaint does not allege compliance with notice requirements, incorporates liens that are not properly verified, and does not allege that R&M had proper licensure to perform grading services. Cross-Defendants also argue that the lien was not timely recorded.

            a. Notice

             “Except as otherwise provided by statute, before recording a lien claim . . . a claimant shall give preliminary notice to the following persons: (1) The owner or reputed owner. (2) The direct contractor or reputed direct contractor to which the claimant provides work, either directly or through one or more subcontractors. (3) The construction lender or reputed construction lender, if any.” (Civ. Code, § 8200(a).) The preliminary notice must comply with various requirements. (Id., §§ 8200(b), 8204(a).) “In order to perfect a mechanic's lien, a preliminary notice must be given in strict compliance with the statutory requirements. Where notice does not meet those requirements a lien cannot attach to funds or property.” (IGA Aluminum Products, Inc. v. Manufacturers Bank (1982) 130 Cal.App.3d 699, 705.)

Cross-Defendants argue that R&M has not alleged its compliance with the preliminary notice requirement. However, it cannot be determined from the pleadings alone that R&M failed to notify Cross-Defendants. This is a factual matter beyond the scope of a demurrer. For example, in IGA, the lack of notice was established on summary judgment. (IGA, supra, 130 Cal.App.3d at p. 701.) For pleading purposes, it may be reasonably inferred that R&M provided adequate notice of the lien.  

b. Verification

“A claim of mechanics lien shall be a written statement, signed and verified by the claimant . . . .” (Civ. Code, § 8416(a).) Cross-Defendants argue that the liens incorporated in the cross-complaint as Exhibits 2 and 4 are not verified by the claimant, R&M. Instead, the liens are verified by an attorney-in-fact based on information and belief.

However, the authority cited by Cross-Defendants does not support their position. The court in Sunset Lumber Co. v. Smith (1928) 95 Cal.App. 307, 316 acknowledged that “the verification to claims of lien . . . may be made by any person who knows the facts.” Similarly, the court in Parke & Lacy Co. v. Inter Nos Oil & Development Co. (1905) 147 Cal. 490, 494 held that “the claim of lien may be verified by any person who is possessed of sufficient knowledge upon the subject to make the verification, and the particular relation that he bears to the claimant is immaterial.” Cross-Defendants cite no authority suggesting that a claimant cannot verify a lien through an agent or representative such as an attorney-in-fact.

Here, the liens are verified by R&M’s attorney-in-fact who attests to her knowledge of the contents as true. This is sufficient at the pleading stage. Cross-Defendants cite no authority for the proposition that a verification signed on information and belief is invalid as a matter of law.  

c. Licensure

“[N]o person engaged in the business or acting in the capacity of a contractor, may bring or maintain any action, or recover in law or equity in any action, in any court of this state for the collection of compensation for the performance of any act or contract where a license is required by this chapter without alleging that they were a duly licensed contractor at all times during the performance of that act or contract . . . .” (Bus. & Prof. Code, § 7031(a).)

Cross-Defendants argue that R&M improperly seeks recovery for the performance of grading services, which require a “Class A” license, whereas R&M only has a “Class B” license. (See Bus. & Prof. Code, §§ 7055-7057; Cross-Compl. ¶¶ 1, 27-31.) A “Class B” license applies to “a contractor whose principal contracting business is in connection with any structure built, being built, or to be built, for the support, shelter, and enclosure of persons, animals, chattels, or movable property of any kind . . . .” (Bus. & Prof. Code, § 7057.) R&M alleges that the project involved the construction of a luxury residence. (Cross-Compl. ¶ 13.) For pleading purposes, this sufficiently establishes that R&M was engaged in “Class B” activities, for which it was licensed.

A “Class A” contractor is one “whose principal contracting business is in connection with fixed works requiring specialized engineering knowledge and skill,” including in the subject of grading. (Bus. & Prof. Code, § 7506.) But that does not mean that all grading work necessarily involves specialized knowledge requiring a “Class A” license. (See Pacific Caisson & Shoring, Inc. v. Bernards Bros. Inc. (2011) 198 Cal.App.4th 681, 691 [“only class A licensee may engage in land leveling and earthmoving, excavation, grading, and trenching when it demands ‘specialized engineering knowledge and skill’”].) In sum, R&M has sufficiently alleged its licensure.

d. Recordation

“A direct contractor may not enforce a lien unless the contractor records a claim of lien after the contractor completes the direct contract, and before the earlier of the following times: (a) Ninety days after completion of the work of improvement. (b) Sixty days after the owner records a notice of completion or cessation.” (Civ. Code, § 8412.)

Cross-Defendants argue that R&M timely recorded a lien within 90 days of work completion only in the Ventura action. Cross-Defendants argue that since the Ventura action has been dismissed, that lien has expired, and the new lien that R&M filed in relation to this case is untimely. However, under Section 8412, the 90-day deadline does not begin to run until the work has been completed, and the 60-day deadline does not begin to run until the owner records a notice of completion. The cross-complaint does not allege that either of these two events has occurred, and outside facts cannot be considered on a demurrer. Therefore, for pleading purposes, R&M has not missed either deadline, and the lien is timely.  

II. Breach of Contract

            A demurrer for uncertainty applies “if the pleading is so incomprehensible that a defendant cannot reasonably respond.” (A.J. Fistes Corp. v. GDL Best Contractors, Inc. (2019) 38 Cal.App.5th 677, 695.) Usually, a complaint does not need to be a “model of clarity” to survive a demurrer because most ambiguities can be clarified through discovery. (Ibid.)

To establish breach of contract, a plaintiff must show: (1) the contract existed, (2) the plaintiff’s performance of the contract or excuse for nonperformance, (3) the defendant’s breach, and (4) the resulting damage to the plaintiff. (Richman v. Hartley (2014) 224 Cal.App.4th 1182, 1186.) A breach of contract can be alleged by simply “plead[ing] the legal effect of the contract rather than its precise language.” (Miles v. Deutsche Bank National Trust Co. (2015) 236 Cal.App.4th 394, 402.)

            Cross-Defendants argue that the first cause of action is uncertain because it is unclear what terms were included in the subject agreement and how Cross-Defendants supposedly breached those terms. However, the cross-complaint alleges that Cross-Defendants engaged R&M to perform grading and earthwork services, that R&M began those services, that Cross-Defendants agreed to pay for those services, and that Cross-Defendants breached the agreement by failing to pay. (Cross-Compl. ¶¶ 27-30.) This sufficiently establishes a breach of contract.  

III. Open Book Account

            “A book account is defined . . . as ‘a detailed statement, kept in a book, in the nature of debit and credit, arising out of contract or some fiduciary relation.’” (Joslin v. Gertz (1957) 155 Cal.App.2d 62, 65-66, internal citations omitted.) “A book account may furnish the basis for an action on a common count . . . when it contains a statement of the debits and credits of the transactions involved completely enough to supply evidence from which it can be reasonably determined what amount is due to the claimant. A book account is described as ‘open’ when the debtor has made some payment on the account, leaving a balance due.” (Interstate Group Administrators, Inc. v. Cravens, Dargan & Co. (1985) 174 Cal.App.3d 700, 708, internal citations omitted.) To prevail on a claim for open book account, the plaintiff must establish: (1) the plaintiff and defendant had financial transactions with each other; (2) the plaintiff, in the regular course of business, kept a written or electronic account of the debits and credits involved in the transactions; (3) defendant owes plaintiff money on the account; and (4) the amount owed. (CACI No. 372.)

            Cross-Defendants argue that the cross-complaint fails to allege any statement of transactions or a precise amount owed. These are factual issues not suited for demurrer. When the complaint is read as a whole and interpreted liberally, it supports a reasonable inference that the parties engaged in a financial transaction resulting in a balance owed. That R&M may be uncertain of the precise amount at the pleading stage is not fatal to its claim. A sum certain may be established through evidence.

IV. Account Stated

“An account stated is an agreement, based on the prior transactions between the parties, that the items of the account are true and that the balance struck is due and owing from one party to another.” (Gleason v. Klamer (1980) 103 Cal.App.3d 782, 786-87.) To establish an account stated, a plaintiff must prove: (1) defendant owed plaintiff money from previous financial transactions; (2) the parties agreed, by words or conduct, that the amount claimed is correct; (3) defendant, by words or conduct, promised to pay the stated amount; (4) defendant has not paid the amount; and (5) the amount owed. (CACI No. 373.)

Cross-Defendants reiterate their argument that the claim fails to state a definite amount, instead claiming “at least” $484,667.74. (See Cross-Compl. ¶ 67.) As discussed above, a sum certain may be ascertained in discovery. R&M need not prove the amount owed at the pleading stage.

V. Quantum Meruit

            Cross-Defendants’ only argument against this claim is R&M’s purported lack of licensure. As discussed above, R&M has adequately alleged its license.

VI. Alter Ego

            “To succeed on their alter ego claim, plaintiffs must be able to show (1) such a unity of interest and ownership between the corporation and its equitable owner that no separation actually exists, and (2) an inequitable result if the acts in question are treated as those of the corporation alone.” (Leek v. Cooper (2011) 194 Cal.App.4th 399, 417.) “Whether a party is liable under an alter ego theory is a question of fact.” (Id. at p. 418.)

            Here, the cross-complaint alleges sufficient facts to support a reasonable inference of alter ego. (Cross-Compl. ¶¶ 6-7.) Similar facts were found sufficient to survive demurrer in Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 235-36. Therefore, the cross-complaint sufficiently pleads alter ego liability against Defendant Fata.

CONCLUSION

            Cross-Defendants’ demurrer is OVERRULED.