Judge: Elaine Lu, Case: 22STCV10408, Date: 2022-10-12 Tentative Ruling

Case Number: 22STCV10408    Hearing Date: October 12, 2022    Dept: 26

Superior Court of California

County of Los Angeles

Department 26

Procedural Background

On March 25, 2022, Plaintiff Platform Hayden Tract III, LLC (“Plaintiff”) filed the instant breach of construction contract action against Defendant REX Engineering Group, Inc. (“Defendant”).  The complaint asserts three causes of action for (1) Negligence, (2) Breach of Contract, and (3) Breach of the Implied Covenant.

On April 28, 2022, Defendant filed a demurrer to the first and third causes of action of the complaint.  On September 29, 2022, Plaintiff filed an opposition.  On October 5, 2022, Defendant filed a reply.

Allegations of the Operative Complaint

The complaint alleges that:

            “Plaintiff [] is the developer of Synapse, an approximately 90,000 square foot retail and office building at 8888 Washington Blvd in Culver City, California.”  (Complaint ¶ 9.)  In December 2016, Plaintiff hired IED – which merged with another engineering firm to become Defendant – to provide shell and core interior engineering services for Synapse including designing Synapse’s generator room.  (Id. ¶ 10.)  “The agreement required, among other things, for all work by [Defendant] to be done in accordance with governing codes.”  (Id. ¶ 11.) 

            “REX failed to exercise due care, skill, and diligence in designing the generator room. REX’s design for the generator room at Synapse provided insufficient airflow. In particular, REX failed to include an appropriate exhaust system and other needed air flow features. As a result, the generators would overheat and shut down.”  (Id. ¶ 12.)  “In April 2021, the generators failed to pass their start up test due to overheating caused by REX’s design flaws. The generators and generator room were not in compliance with Chapter 27 of the California Building Code as a result.”  (Id. ¶ 13.)  “To correct these design flaws, an exhaust fan, additional ducting, and a louvered door had to be installed, among other things. REX’s design failures also caused a significant delay in obtaining final electrical and mechanical inspection approvals at Synapse.”  (Id. ¶ 14.)

Evidentiary Objections

            In reply, Defendant objects to portions of the declaration of Colin H. Rolfs.  However, there is no statutory basis for evidentiary objections for a demurrer.  Moreover, these objections are unnecessary because the court, when reviewing the evidence is presumed to ignore material it knows it incompetent, irrelevant, or inadmissible.  (In re Marriage of Davenport (2011) 194 Cal. App. 4th 1507, 1526.)  Courts are presumed to know and apply the correct statutory and case law and to be able to distinguish admissible from inadmissible evidence, relevant from irrelevant facts, and to recognize those facts which properly may be considered in the judicial decision-making process.  (People v. Coddington (2000) 23 Cal.4th 529, 644.)  Accordingly, the court declines to rule on these objections.  However, the court notes that extrinsic matters outside the pleadings cannot be considered in a demurrer.

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.) 

A special demurrer for uncertainty, Code of Civil Procedure §430.10(f), is disfavored and will only be sustained where the pleading is so bad that defendant cannot reasonably respond—i.e., cannot reasonably determine what issues must be admitted or denied, or what counts or claims are directed against him/her.  (Khoury v. Maly’s of Calif., Inc. (1993) 14 Cal.App.4th 612, 616.)  Moreover, even if the pleading is somewhat vague, “ambiguities can be clarified under modern discovery procedures.” (Ibid.) 

Meet and Confer Requirement

Code of Civil Procedure section 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).) 

Defendant has fulfilled the meet and confer requirement.  (Menjou Decl. ¶¶ 3-4, Exh. A.)

Discussion

First Cause of Action: Negligence

            Defendant contends that the first cause of action is barred by the economic loss rule.

            Under the economic loss rule, “there is no recovery in tort for negligently inflicted ‘purely economic losses,’ meaning financial harm unaccompanied by physical or property damage.”  (Sheen v. Wells Fargo Bank, N.A. (2022) 12 Cal.5th 905, 922.)  “‘[T]here is no liability in tort for economic loss caused by negligence in the performance or negotiation of a contract between the parties.’ (Rest., § 3.)”  (Id. at p.923.)  However, “[n]ot 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.”  (Ibid.)  “Tort damages have been permitted in contract cases where a breach of duty directly causes physical injury [Citation] for breach of the covenant of good faith and fair dealing in insurance contracts [Citation]; for wrongful discharge in violation of fundamental public policy [Citation]; or where the contract was fraudulently induced. [Citation.] In each of these cases, the duty that gives rise to tort liability is either completely independent of the contract or arises from conduct which is both intentional and intended to harm.”  (Erlich v. Menezes (1999) 21 Cal.4th 543, 551–552.) 

            Here, the complaint alleges that Defendant’s design provided insufficient airflow which caused the generators to overheat and shut down.  (Complaint ¶ 12.)  However, there is no allegation that the design caused any physical damage to the generators.  Nor is there any allegation that the claim for tort liability is completely independent of the contract. 

            Relying on Transwestern Pipeline Co. v. Monsanto Co. (1996) 46 Cal.App.4th 50, Plaintiff in opposition contends that the excess heat alone constitutes physical damage.  In Transwestern, the defendant’s product Turbinol, a lubricant for gas compressors, caused PCB contamination in gas pipes, and the Court of Appeal concluded that the economic loss rule was inapplicable as the “PCB contamination constituted property damage”.  (Id. at p.527.)  Comparing the situation to asbestos contamination cases, the Court of Appeal noted that “economic loss occurs when the toxic substance is merely present but property damage occurs when the toxic substance actually contaminates the plaintiff's property.”  (Ibid.) 

Unlike in Transwestern, the excess heat here is not itself a toxic contaminant like PCB or asbestos.  Nor can it reasonably be stated that the excess heat contaminates property.  Unlike the PCB in Transwestern, which could not be removed from the gas pipes, heat dissipates on its own.  While undoubtably excess heat could lead to and cause property damage – i.e., damage to the engine from overheating – Plaintiff has not alleged as such.  Accordingly, the first cause of action is barred by the economic loss rule.

Therefore, Defendant’s demurrer to the first cause of action is SUSTAINED.

Third Cause of Action: Breach of the Implied Covenant

            Defendant contends that the third cause of action is duplicative and merely a restatement of the breach of contract claim.

“The covenant of good faith and fair dealing, implied by law in every contract, exists merely to prevent one contracting party from unfairly frustrating the other party's right to receive the benefits of the agreement actually made.”  (Guz v. Bechtel Nat. Inc. (2000) 24 Cal.4th 317, 349.)  “It cannot impose substantive duties or limits on the contracting parties beyond those incorporated in the specific terms of their agreement.”  (Id. at pp.349–350.)  Accordingly, “[a] breach of the implied covenant of good faith is a breach of the contract.”  (Thrifty Payless, Inc. v. The Americana at Brand, LLC (2013) 218 Cal.App.4th 1230, 1244.)  Therefore, “[a] breach of the covenant of good faith and fair dealing does not give rise to a cause of action separate from a cause of action for breach of the contract containing the covenant.”  (Smith v. International Brotherhood of Electrical Workers (2003) 109 Cal.App.4th 1637, 1645, Fn.3.)

Moreover, “[a] ‘breach of the implied covenant of good faith and fair dealing involves something beyond breach of the contractual duty itself’ and it has been held that ‘[b]ad faith implies unfair dealing rather than mistaken judgment....’ [Citations.]”  (Careau & Co., supra, 222 Cal.App.3d at p.1394.) 

Accordingly, “[i]f the allegations do not go beyond the statement of a mere contract breach and, relying on the same alleged acts, simply seek the same damages or other relief already claimed in a companion contract cause of action, they may be disregarded as superfluous as no additional claim is actually stated. Thus, absent those limited cases where a breach of a consensual contract term is not claimed or alleged, the only justification for asserting a separate cause of action for breach of the implied covenant is to obtain a tort recovery.”  (Id. at p.1395.)  However, tort recovery for breach of contract, even in bad faith, is limited solely to claims for breach of an insurance contract.  (Freeman & Mills, Inc. v. Belcher Oil Co. (1995) 11 Cal.4th 85, 87-103; See also Erlich v. Menezes (1999) 21 Cal.4th 543, 552–553,[“ In holding that a tort action is available for breach of the [implied covenant of good faith] in an insurance contract, we have “emphasized the “special relationship” between insurer and insured, characterized by elements of public interest, adhesion, and fiduciary responsibility.’”)

            Here, the complaint alleges that Defendant breached the implied covenant of good faith and fair dealing “by failing to deliver designs for a functional generator room. [Defendant]’s design failed to provide sufficient airflow to the generators, causing them to overheat.”  (Complaint ¶ 26.)  While nearly identical to the breach of contract claim, (See Complaint ¶ 22), the breach of contract claim also alleges that “[Defendant] further breached the agreement by failing to design the generator room in accordance with governing codes, including Chapter 27 of the California Building Code.”  (Complaint ¶ 23.)  For purposes of the first cause of action, the complaint also expressly alleges that the agreement provided that “[t]he agreement required, among other things, for all work by [Defendant] to be done in accordance with governing codes.”  (Id. ¶ 11.)  These allegations are omitted for the third cause of action.  Accordingly, the third cause of action  reasonably alleges that Defendant’s design failed to provide sufficient airflow, which though not in direct violation of an express term of the agreement, violated an implied term of the agreement, frustrating the purpose of the agreement.  Therefore, the third cause of action is not superfluous of the second cause of action.

            Accordingly, Defendant’s demurrer to the third cause of action is OVERRULED.

Leave to Amend

Leave to amend must be allowed where there is a reasonable possibility of successful amendment. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348.) The burden is on the plaintiff to show the court that a pleading can be amended successfully. (Goodman v. Kennedy, supra, 18 Cal.3d at p. 348; Lewis v. YouTube, LLC (2015) 244 Cal.App.4th 118, 226.) 

Here, it seems reasonably possible that Plaintiff may successfully amend the complaint.  Moreover, Plaintiff has only now been given notice of the legal defects in its causes of action. The court finds it is proper to allow Plaintiff an opportunity to cure the defects discussed in this order. (See Goodman v. Kennedy (1976) 18 Cal.3d 335, 349; Kong v. City of Hawaiian Gardens Redevelopment Agency (2002) 108 Cal.App.4th 1028, 1037.) 

CONCLUSION AND ORDER

            Based on the foregoing, Defendant REX Engineering Group, Inc.’s demurrer to the complaint is SUSTAINED IN PART WITH LEAVE TO AMEND as to the first cause of action and otherwise OVERRULED.

            Plaintiff is to file an amended complaint within fifteen (15) days of notice of this order.

            The case management conference is continued to December 12, 2022 at 8:30 am.

            Moving Party is to give notice and file proof of service of such.

DATED:  October 12, 2022                                                    _____________________________

                                                                                                  Elaine Lu

                                                                                                  Judge of the Superior Court