Judge John J. Kralik, Case 21BBCV00674 2023-02-17 Tentative Ruling

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Superior Court of California

County of Los Angeles

Department B

Plaintiff Dbik Construction & Design, Inc. (“Dbik”) alleges that it entered into a construction agreement with Defendant Four Joy Investment LLC on April 30, 2019, in which Dbik agreed to provide certain improvements to real property located at 1200 E Huntington Dr., Duarte, CA 91010 including the renovation of the exterior and roof of a 67-unit hotel building, the exterior renovation of a separate 8-unit commercial building, and landscaping of the entire property. In exchange, Defendants agreed to pay Plaintiff a total of $945,000. In the next 4 months, structural safety concerns were discovered with respect to the commercial building, which necessitated the addition of a central column in the building and other design changes. During the construction, supervision costs escalated due to increased scope of work, COVID-19 pandemic challenges, involvement of third-party contractors hired by Four Joy Investment LLC, etc. Dbik alleges that for the additional supervision, it is entitled to a project management fee of $828,823.31, or approximately 20%. Dbik allges that the total change order between the parties increased the contract amount by $3,899,454.44, resulting in an adjusted contract amount of $4,844,454.44. Dbik alleges it made a demand for $4,844,454.44 and Defendants have failed to pay $1,776,084.08 remaining.

The complaint, filed July 30, 2021, alleges causes of action for: (1) breach of contract; (2) open book account; (3) account stated; (4) reasonable value of labor and materials furnished; and (5) foreclosure of mechanic’s lien.

On October 1, 2021, Dbik filed an Amendment to Complaint, naming Doe 1 as “Four Joy One LLC a California limited liability company.” On October 8, 2021, Dbik filed an Amendment to Complaint, correcting the name of “Four Joy Investment LLC, a California Corporation” to “Four Joy Investment LLC, a California Limited Liability Company.”

On July 11, 2022, Cross-Complainants Dbik and Danny Hung Cheng filed a cross-complaint against Cross-Defendants Angel Development, Inc., N Pro Electric, and Albert Harding Butcher Jr. dba Harding Construction for: (1) implied indemnity; (2) contribution and indemnity; (3) declaratory relief; and (4) negligence.

ON December 28, 2021, Cross-Complainants Four Joy Investment, LLC and Four Joy One, LLC (“Four Joy Entities”) filed a cross-complaint against Cross-Defendants Dbik and “Danny” Hung Cheng for: (1) violation of Business & Professions Code, §§ 7125.2 and 7031(b) (disgorgement action against unlicensed contractor); (2) violation of Business & Professions Code, § 7160 (statutory fraud by unlicensed contractor); (3) (deceit) intentional misrepresentation; (4) deceit (negligent misrepresentation); (5) negligence; and (6) violation of Business & Professions Code, § 17200 et seq.

On January 20, 2023, Four Joy Entities filed a cross-complaint against Cross-Defendant Angel Development, Inc. for: (1) intentional misrepresentation (fraud/deceit); (2) negligent misrepresentation; (3) breach of contract; (4) breach of implied covenant of good faith and fair dealing; (5) negligence; and (6) recovery of payments made to unlicensed subcontractors pursuant to Business & Professions Code, § 7031(b). That same day, the Four Joy Entities filed an Amendment to Cross-Complaint naming Roe 1 as DC International Design & Construction, Inc.

On January 12, 2023, Four Joy Investment, LLC and Four Joy One, LLC (“Four Joy Entities”) filed a motion for leave to amend the cross-complaint.

CCP § 473(a)(1) states: “The court may, in furtherance of justice, and on any terms as may be proper, allow a party to amend any pleading or proceeding by adding or striking out the name of any party, or by correcting a mistake in the name of a party, or a mistake in any other respect; and may, upon like terms, enlarge the time for answer or demurrer. The court may likewise, in its discretion, after notice to the adverse party, allow, upon any terms as may be just, an amendment to any pleading or proceeding in other particulars; and may upon like terms allow an answer to be made after the time limited by this code.”

CRC rule 3.1324 requires a motion seeking leave to amend to include a copy of the proposed pleadings, to identify the amendments, and to be accompanied by a declaration including the following facts:

The Court’s discretion regarding granting leave to amend is usually exercised liberally to permit amendment of pleadings. (Nestle v. Santa Monica (1972) 6 Cal.3d 920, 939.) If a motion to amend is timely made and the granting of the motion will not prejudice the opposing party, it is error to refuse permission to amend. (Morgan v. Superior Court of Los Angeles County (1959) 172 Cal.App.2d 527, 530.)

Four Joy Entities move for leave to amend the cross-complaint filed against Dbik and “Danny” Hung Cheng. A copy of the [Proposed] First Amended Cross-Complaint (“FAXC”) has been lodged with the Court on January 13, 2023.

In support of the motion, Ronald Ho, counsel for Four Joy Entities, provides his declaration. Mr. Ho states that on January 6, 2023, while reviewing discovery responses and the list of subcontractors provided by Dbik, he discovered via searches on the Contractors State License Board (“CSLB”) website that about 12 or so of the identified subcontractors lacked proper licensure or that the entities could not be located online. (Ho Decl., ¶2.) He cites to Kim v. TWA Construction (2022) 78 Cal.App.5th 808 for the proposition that a general contractor may not recover compensation paid to unlicensed subcontractors, thus arguing that an amendment of the cross-complaint is necessary. (Id., ¶3.) Mr. Ho states that the following amendment will include the following allegations: “Cross-Complainants discovered that many of the subcontractors retained and utilized by Plaintiff DBIK on the construction project lacked the proper licensure resulting in disgorgement of all compensation paid to both the general contractor and to the subcontractors under Business & Professions Code, section 7031(b)” and "Disgorgement of all compensation paid to both unlicensed general contractor and subcontractors." (Id., ¶4 [citing to FAXC, ¶28].)[1] Mr. Ho states that the purpose and effect of the amendment are to resolve all claims. (Id., ¶5.) He states that he added allegations will be necessary and proper to address the issue of payments (the disgorgement claim) to the unlicensed general contractor and subcontractors. (Id., ¶6.) Mr. Ho states that no trial date has been set, the parties are still engaging in discovery, and the non-moving parties have not taken any depositions as of January 12, 2023. (Id., ¶8.)

In opposition, Dbik argues that Four Joy Entities have not provided any arguments in the moving papers why leave to amend should be granted. Dbik argues that Four Joy Entities misinterpret the Kim case and seek to expand the applicability of Business & Professions Code, § 7031(b) and invent a cause of action without proper authority. Dbik attempts to argue the legal merits of the amendment and argues that any alleged unlicensed subcontractors hired by Dbik would he considered employees.

However, at the pleading stage, the Court declines to engage in a discussion about the underlying merits of the case. Further, the Court lacks evidence at this time that the alleged unlicensed subcontractors were unlicensed or employees of Dbik. The Court declines to make certain assumptions at this time without evidence. By making this ruling, the Court is not foreclosing Dbik’s ability to demur to the pleadings, where the facts alleged therein will be taken as true.

Thus, based on the declaration of Mr. Ho, which adequately addresses the factors in CRC Rule 3.1324, and the liberal policy in favor of allowing amendments to the pleading, the Court grants the motion for leave to file the proposed FAXC.

Cross-Complainants Four Joy Investment, LLC and Four Joy One, LLC’s motion for leave to file a proposed First Amended Cross-Complaint is granted. Cross-Complainants are ordered to electronically file a separate version of the First Amended Cross-Complaint with the Court by this date following the hearing on the matter.

[1] Business & Professions Code, § 7031(b) states:

(b) Except as provided in subdivision (e), a person who utilizes the services of an unlicensed contractor may bring an action in any court of competent jurisdiction in this state to recover all compensation paid to the unlicensed contractor for performance of any act or contract.

…

(e) The judicial doctrine of substantial compliance shall not apply under this section where the person who engaged in the business or acted in the capacity of a contractor has never been a duly licensed contractor in this state. However, notwithstanding subdivision (b) of Section 143, the court may determine that there has been substantial compliance with licensure requirements under this section if it is shown at an evidentiary hearing that the person who engaged in the business or acted in the capacity of a contractor (1) had been duly licensed as a contractor in this state prior to the performance of the act or contract, (2) acted reasonably and in good faith to maintain proper licensure, and (3) acted promptly and in good faith to remedy the failure to comply with the licensure requirements upon learning of the failure.

(Bus. & Prof. Code, § 7031(b), (e).)