Judge: Elaine Lu, Case: 22STCV00356, Date: 2022-07-28 Tentative Ruling

Case Number: 22STCV00356    Hearing Date: July 28, 2022    Dept: 26

Superior Court of California

County of Los Angeles

Department 26

Procedural Background

            On January 5, 2022, Plaintiff Coachella Valley Water District (“CVWD”) filed the instant breach of contract action against Defendant Imperial Irrigation District (“IID”).  The complaint asserts four causes of action for (1) Declaratory Relief, (2) Breach of Contract, (3) Accounting, and (4) Breach of Fiduciary Duty.

            On February 18, 2022, IID filed the instant demurrer to the complaint.  On July 15, 2022, CVWD filed an opposition.  On July 21, 2022, IID filed a reply.

Allegations of the Operative Complaint

The complaint alleges that:

            On February 14, 1934, IID and CVWD entered into a written Agreement of Compromise under which CVWD agreed to lease all of its power possibilities along the All-American Canal for a period of 99 years to end on January 1, 2033 as joint venture partners (“Power Joint Venture”).  (Complaint ¶¶ 4-5, Exh. A.)  Under the agreement, CVWD is a passive joint venturer with IID “such that the operation of and accounting for the Power Joint Venture are entirely the responsibility of IID.”  (Id. ¶ 6.) 

            Pursuant to “the Compromise Agreement, IID is to retain 92% of the net proceeds generated from the Power Joint Venture on an annual basis, to be determine[d] as directed in Section 17(f), and IID is required to pay to CVWD eight percent (8%) of the joint venture net proceeds.”  (Id. ¶ 7.)  Moreover, the Compromise Agreement provides CVWD a right to inspect all of IID’s books and records relating to its power operations.  (Id. ¶ 8.)

            In 1994, CVWD filed suit against IID alleging that IID had improperly calculated the net proceeds under the Compromise Agreement.  (Id. ¶ 10.)  This resulted in three separate statements of decision and a 2007 appeal that ruled in favor of CVWD and established that IID owed CVWD “the utmost fiduciary duty” in connection with the Power Joint Venture.  (Id. ¶¶ 11-13.)

            On August 16, 2012, CVWD again filed suit against IID alleging that IID had improperly calculated net proceeds and failed to adhere its calculations to the requirements of the 1994 litigation.  (Id. ¶¶ 14-15.)  In 2017, the parties entered into a Settlement Agreement under which the parties resolved the accounting issues for the years 2002-2015.  (Id. ¶ 16.)  The 2017 Settlement Agreement also included “certain limited requirements, adjustments, and rights applicable to net proceed statements and calculations beginning with the year 2016.”  (Id. ¶ 18.)

            Beginning March 22, 2017, and each subsequent year, IID provided CVWD with net proceed statements for the years 2016-2020 and onward (the “Challenged Net Proceeds Statements).  (Id. ¶¶ 19-21.) 

            In 2019, CVWD initiated a review of IID’s books and records for the Challenged Net Proceeds pursuant to the Compromise Agreement.  After numerous requests from CVWD, IID failed to provide all the books and records requested relating the IID’s power operations.  (Id. ¶¶ 22-23.)  Accordingly, “CVWD is unable to determine the extent to which said calculations and statements fail to comply with the applicable net proceeds statement and calculation requirements.”  (Id. ¶ 23.)  Based on its limited review of IID’s books and records, CVWD is informed and believes that IID has improperly calculated the net proceeds by failing to adhere to the Compromise Agreement, the rulings from the 1994 action, and the 2017 Settlement Agreement.  (Id. ¶¶ 26, 28.) 

Legal Standard

A demurrer can be used only to challenge defects that appear on the face of the pleading under attack; or from matters outside the pleading that are judicially noticeable. (Blank v. Kirwan (1985) 39 Cal 3d 311, 318.) No other extrinsic evidence can be considered (i.e., no “speaking demurrers”). (Ion Equipment Corp. v. Nelson (1980) 110 Cal.App.3d 868, 881.)

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 Dep’t of Water & Power (2006) 144 Cal. App. 4th 1216, 1228.)  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 pleadings alone and not the evidence or other extrinsic matters.  Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed.”  (SKF Farms v. Superior Ct. (1984) 153 Cal. App. 3d 902, 905.)  “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 Requirement

Code of Civil Procedure § 430.41, subdivision (a) requires that “[b]efore filing a demurrer pursuant to this chapter, the demurring party shall meet and confer¿in person or by telephone¿with the party who filed the pleading that is subject to demurrer for the purpose of determining whether an agreement can be reached that would resolve the objections to be raised in the demurrer.” The parties are to meet and confer at least five days before the date the responsive pleading is due and if they are unable to meet the demurring party shall be granted an automatic 30-day extension.  (CCP § 430.41(a)(2).)  The demurring party must also file and serve a declaration detailing the meet and confer efforts.  (Id.¿at (a)(3).)¿ If an amended pleading is filed, the parties must meet and confer again before a demurrer may be filed to the amended pleading.  (Id.¿at (a).) 

Here, Defendant has fulfilled the meet and confer requirement. (Griffin Decl. ¶ 2.)

Discussion

Second Cause of Action: Breach of Contract

            IID contends that the second cause of action for breach of contract fails because CVWD has not alleged any breach.

“The elements of a cause of action for breach of contract are: ‘(1) the contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and (4) the resulting damages to plaintiff.’”  (Coles v. Glaser (2016) 2 Cal.App.5th 384, 391 [internal citations omitted].)  “Facts alleging a breach, like all essential elements of a breach of contract cause of action, must be pleaded with specificity.”  (Levy v. State Farm Mutual Automobile Ins. Co. (2007) 150 Cal.App.4th 1, 5.)  “In other words, an allegation that a defendant might have breached a contract does not state a valid cause of action.”  (Melican v. Regents of University of California (2007) 151 Cal.App.4th 168, 174.)

Here, the Complaint alleges two separate breaches of the Compromise Agreement.  First the Complaint alleges that pursuant to Subsection 17(n) of the Compromise Agreement, CVWD may inspect all of the books and records of IID relating to its power operations.  (Complaint ¶ 8, Exh. A.)  However, in 2019, after CVWD made multiple request to inspect all books and records, IID refused to provide all of the books and records requested relating to IID’s power operations.  (Id. ¶ 23.)  Second, the complaint alleges that pursuant to the Compromise Agreement sections 17(f), 17(h) and 17(i), CVWD was to receive 8% of the net proceeds generated from the Power Joint Venture on an annual basis.  (Id. ¶ 7, Exh. A.)  From 2016 onward, “[b]ased upon its limited examination of IID’s books and records, CVWD is informed and believes that IID’s erroneous interpretation of the Compromise Agreement and improper net proceeds calculations has deprived CVWD of its rightful 8% share of the Power Joint Venture net proceeds[.]”  (Id. ¶ 28.) 

The Complaint specifies two breaches and the contractual basis for each of the breaches; IID has failed to provide all books and records related to IID’s power operations as required and has also improperly calculated the net proceeds, thereby depriving CVWD of its 8% interest in the annual net proceeds to which CVWD is entitled.  While the second breach is made information and belief, CVWD has properly alleged facts leading CVWD to believe that this allegation is true.  (See Doe v. City of Los Angeles (2007) 42 Cal.4th 531, 550; [A “[p]laintiff may allege on information and belief any matters that are not within his personal knowledge, if he has information leading him to believe that the allegations are true.”], [italics added].)  CVWD has not merely alleged that IID might be in breach.  CVWD has also specifically alleged how IID is in breach of the Compromise Agreement.

Accordingly, IID’s demurrer to the second cause of action is OVERRULED.

First, Third, and Fourth Causes of Action

            IID contends that the first cause of action for declaratory relief, the third cause of action for accounting, and the fourth cause of action for breach of fiduciary duty are duplicative and superfluous of the second cause of action.

As a preliminary matter, there is a split of authority as to whether a demurrer can be properly sustained on the ground that one cause of action is duplicative of another cause of action.  (Compare Palm Springs Villas II Homeowners Assn., Inc. v. Parth (2016) 248 Cal.App.4th 268, 290 [demurrer properly sustained on ground that cause of action was duplicative] with Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC (2008) 162 Cal.App.4th 858, 890 [that a cause of action is duplicative “is not a ground on which a demurrer may be sustained”]; see also Civ. Code, § 3537 [“Superfluity does not vitiate”].)

Assuming that a demurrer is the proper mechanism for addressing duplicitous causes of action, the Court notes that “[t]he cause of action is based on the injury to the plaintiff, not on the legal theory or theories advanced to characterize it. Thus, if a plaintiff states several purported causes of action which allege an invasion of the same primary right he has actually stated only one cause of action. On the other hand, if a plaintiff alleges that the defendant's single wrongful act invaded two different primary rights, he has stated two causes of action, and this is so even though the two invasions are pleaded in a single count of the complaint.”  (Skrbina v. Fleming Companies (1996) 45 Cal.App.4th 1353, 1364.)

First Cause of Action: Declaratory Relief

The elements of declaratory relief are “‘(1) a proper subject of declaratory relief, and (2) an actual controversy involving justiciable questions relating to [Plaintiff’s] rights or obligations.... [Citation.]’”  (Wilson & Wilson v. City Council of Redwood City (2011) 191 Cal.App.4th 1559, 1582.)  Declaratory relief is proper “in cases of actual controversy relating to the legal rights and duties of the respective parties[.]” (CCP § 1060.)  However, “[t]he court may refuse to exercise the power granted by this chapter in any case where its declaration or determination is not necessary or proper at the time under all the circumstances.”  (CCP § 1061.)  “The broad discretionary power of the trial court to deny declaratory relief may be invoked by general demurrer.”  (General of America Ins. Co. v. Lilly (1968) 258 Cal.App.2d 465, 471.)

“ ‘ “The purpose of a declaratory judgment is to ‘serve some practical end in quieting or stabilizing an uncertain or disputed jural relation.’ ” [Citation.] “Another purpose is to liquidate doubts with respect to uncertainties or controversies which might otherwise result in subsequent litigation [citation].” [Citation.]' [Citation.] ‘ “One test of the right to institute proceedings for declaratory judgment is the necessity of present adjudication as a guide for plaintiff’s future conduct in order to preserve his legal rights.” ’ ”  (Meyer v. Sprint Spectrum L.P. (2009) 45 Cal.4th 634, 647.)  “Code of Civil Procedure section 1060 does not require a breach of contract in order to obtain declaratory relief, only an ‘actual controversy.’ Declaratory relief pursuant to this section has frequently been used as a means of settling controversies between parties to a contract regarding the nature of their contractual rights and obligations.”  (Ibid.) 

“ ‘Declaratory relief operates prospectively, serving to set controversies at rest. If there is a controversy that calls for a declaration of rights, it is no objection that past wrongs are also to be redressed; but there is no basis for declaratory relief where only past wrongs are involved. Hence, where there is an accrued cause of action for an actual breach of contract or other wrongful act, declaratory relief may be denied.’ [Citation.]”  (Osseous Technologies of America, Inc. v. DiscoveryOrtho Partners LLC (2010) 191 Cal.App.4th 357, 366.)

Here, the cause of action for declaratory relief seeks a judicial determination that “CVWD is entitled to full and unfettered access to all the books and records relating to IID’s power operations, and that IID’s net proceeds calculations do not conform to the Compromise Agreement, the Statements of Decision, the Court of Appeal Opinion, and the 2017 Settlement Agreement.”  (Complaint ¶ 34.)  While this would address past wrongs – i.e., the net proceed calculations from 2016-2020 – the declaratory relief sought would also resolve the ongoing contractual relationship between the parties as to how the net proceeds are to be calculated in accordance with the Compromise Agreement, the Statements of Decision, the Court of Appeal Opinion, and the 2017 Settlement Agreement. 

Moreover, the claim is clearly not duplicative of the breach of contract claim.  The breach of contract claim only seeks a determination that IID failed to provide the all the books and records for the years 2016 through the conclusion of the case and that IID owes CVWD the alleged withheld portion of the 8% net proceeds for certain years.  (Complaint ¶¶ 36-39.)  Though a determination of these issues may provide guidance for how the net proceeds should be calculated going forward, adjudication of the first cause of action does not necessarily resolve these issues for future time periods.  Accordingly, IID’s demurrer to the first cause of action is OVERRULED.

Third Cause of Action: Accounting

            “A cause of action for accounting requires a showing of a relationship between the plaintiff and the defendant, such as a fiduciary relationship, that requires an accounting or a showing that the accounts are so complicated they cannot be determined through an ordinary action at law.”  (Fleet v. Bank of America N.A. (2014) 229 Cal.App.4th 1403, 1413.)  “However, a fiduciary relationship between the parties is not required to state a cause of action for accounting. All that is required is that some relationship exists that requires an accounting. [Citation.]  The right to an accounting can arise from the possession by the defendant of money or property which, because of the defendant’s relationship with the plaintiff, the defendant is obliged to surrender.”  (Teselle v. McLoughlin (2009) 173 Cal.App.4th 156, 179–180.) 

            “‘Equitable principles govern, and the plaintiff must show the legal remedy is inadequate.... Generally, an underlying fiduciary relationship, such as a partnership, will support an accounting, but the action does not lie merely because the books and records are complex. [Citations.] Some underlying misconduct on the part of the defendant must be shown to invoke the right to this equitable remedy.’ [Citation.]”  (Green Valley Landowners Assn. v. City of Vallejo (2015) 241 Cal.App.4th 425, 442.) 

            Here, Plaintiff seeks an accounting to determine the unascertained amount owed to CVWD as part of its 8% of the net proceeds.  As alleged, this the third lawsuit that Plaintiff has brought to review the calculation of the net proceeds, and IID has not provided all of the books and records to adequately determine a fixed sum.  The complaint sufficiently alleges that “the books and records are so complicated that an action demanding a fixed sum is impracticable, an accounting is appropriate.”  (Prakashpalan v. Engstrom, Lipscomb & Lack (2014) 223 Cal.App.4th 1105, 1137.)  Moreover, this cause of action is not duplicative of the second cause of action for breach of contract because this cause of action merely seeks the unascertained amount that is owed by IID to CVWD.

            Accordingly, IID’s demurrer to the third cause of action is OVERULED.

Fourth Cause of Action: Breach of Fiduciary Duty

            In addition to claiming that the fourth cause of action is duplicative, IID also contends that the fourth cause of action is improperly seeking to “tortify” a breach of contract claim and is barred by the economic loss rule.

“‘The elements of a cause of action for breach of fiduciary duty are: (1) the existence of a fiduciary duty; (2) the breach of that duty; and (3) damage proximately caused by that breach.’”  (IIG Wireless, Inc. v. Yi (2018) 22 Cal.App.5th 630, 646, [internal citation omitted].)

Here, the Complaint alleges that by virtue of their status as joint venturers, IID owes a fiduciary duty to CVWD.  (Complaint ¶ 13.)  This obligation arises from the Power Joint Venture.  (Ibid.)  As noted above with the third cause of action, misconduct and a relationship, such as a fiduciary duty, are required to state a claim for accounting.  (Green Valley Landowners Assn., supra, 241 Cal.App.4th at p.442.)  Thus, Plaintiff’s claim for breach of fiduciary is not duplicative of the second cause of action for breach of contract.

In addition, the economic loss rule is inapplicable.  “Not all tort claims for monetary losses between contractual parties are barred by the economic loss rule. But such claims are barred when they arise from — or are not independent of — the parties’ underlying contracts.”  (Sheen v. Wells Fargo Bank, N.A. (2022) 12 Cal.5th 905, 923.)  A fiduciary relationship is an independent duty permitting tort damages for breach of contract.  (Id. at pp.930-931, [discussing the permissibility of punitive damages in breach of contract actions against insurers due to the special quasi-fiduciary relationship].)  Thus, the economic loss rule is inapplicable to the instant claim for breach of fiduciary duty.

            Accordingly, IID’s demurrer to the fourth cause of action is OVERRULED.

CONCLUSION AND ORDER

Based on the foregoing, Defendant Imperial Irrigation District’s demurrer to the complaint is OVERRULED.

Defendant Imperial Irrigation District is to file an answer within 15 days of notice of this order.

The case management conference is continued to August 25, 2022 at 8:30 am.

Moving Party to provide notice of this order and file proof of service of such.

DATED: July 28, 2022                                                           ___________________________

                                                                                          Elaine Lu

                                                                                          Judge of the Superior Court