Judge: Kevin C. Brazile, Case: 24STCP01166, Date: 2024-08-09 Tentative Ruling

Hearing Date: August 9, 2024

Case Name: Morrow-Meadows Corporation v. PCL Construction Services, Inc., et al.

Case No.: 23STCV18527

Matter: Demurrer

Moving Party: Defendant LA Gateway Partners, LLC

Responding Party: Plaintiffs Morrow-Meadows Corporation

Notice: OK

Ruling: The Demurrer is sustained, with twenty days leave to amend.

Moving party to give notice.

If counsel do not submit on the tentative, they are strongly 

encouraged to appear by LACourtConnect rather than in person due to the COVID-19 pandemic. 

On October 20, 2023, Plaintiff Morrow-Meadows Corporation filed the operative First Amended Complaint (“FAC”) alleging causes of action for (1) breach of contract, (2) reasonable value of goods and services, (3) breach of implied covenant of good faith and fair dealing, (4) enforcement of stop payment notice, (5)-(7) claim on payment bond, and (8) claim on stop payment notice release bond.  

The relevant allegations are as follows.  “In 2018, the City of Los Angeles’ Department of Airports, known as Los Angeles World Airports (‘LAWA’), acting through its Board of Airport Commissioners, approved a roughly $2 billion contract for GATEWAY PARTNERS [(Defendant LA Gateway Partners, LLC)] to design, build, finance, operate, and maintain a work of improvement known as the Consolidated Rent-A-Car Facility (‘ConRAC’) at Los Angeles International Airport [ ]. The Project was procured through a purported Public Private Partnership Design-Build Finance, Operate, Maintain (DBFOM) procurement model. The stated goal of the ConRAC Project was to consolidate more than 20 various rental car locations in and around LAX into one convenient facility, along with rental car employee parking spaces and LAWA employee parking spaces.”

“In turn, GATEWAY PARTNERS entered into a design/build agreement with PCL [(Defendant PCL Construction Services, Inc.)] dated November 6, 2018. PCL was selected as the design-build contractor for the Project. Contractually, PCL was hired to design and build the Project.”

“On or about March 31, 2019, [Plaintiff] MMC and PCL entered into a written subcontract (‘Subcontract’) whereby MMC agreed to furnish and install electrical and low voltage systems.” 

“PCL breached the Subcontract by failing to pay MMC all amounts due and owing for performance on the Project, including for extra work, despite MMC’s continued demands for payment.”

“The labor, services, equipment, and materials furnished by MMC were and are reasonably worth the sum of $202,451,662.52. The amount due, owing, and unpaid is the sum of $60,588,010.64.  Prior to the expiration of the period within which a stop payment notice must be served, MMC served on GATEWAY PARTNERS its Stop Payment Notice in the amount of $60,588,010.64.”

Defendant LA Gateway Partners, LLC (“LAGP”) now demurs to the FAC’s fourth cause of action for failure to state sufficient facts.  LAGP argues that Plaintiff seeks to enforce two stop payment notices for the same amount and same work against (a) the City of Los Angeles, a public entity, and (b) a private developer, LAGP, and “[b]ecause the Project is a work of public improvement, and MMC’s work was furnished pursuant to a public works contract within the meaning of Civil Code section 8038 and Public Contract Code section 1100, MMC’s remedies are governed exclusively by Civil Code section 9350, et. seq. Accordingly, the Second Stop Payment Notice to LAGP is invalid, and MMC’s Fourth Cause of Action based thereon fails to state a claim as a matter of law and should be dismissed.”

When considering demurrers, courts read the allegations liberally and in context, and “treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions Of Fact Or Law.” (Serrano V. Priest (1971) 5 Cal.3d 584, 591.)  “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. 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 V. Mirda¿(2007) 147 Cal.App.4th 740, 747.)  It Is Error “To Sustain A Demurrer Without Leave To Amend If The Plaintiff Shows There Is A Reasonable Possibility Any Defect Identified By The Defendant Can Be Cured By Amendment.”  (Aubry V. Tri-City Hospital Dist.¿(1992) 2 Cal.4th 962, 967.)

“Part 6 of division 4 of the Civil Code (§§ 8000-9566) lays out a comprehensive statutory scheme to resolve payment disputes in construction projects. Different remedies are available in public versus private construction projects. (Compare § 8160 et seq. with § 9000 et seq.) Sovereign immunity principles prevent mechanics liens from being asserted on public works projects. (N.V. Heathorn, Inc. v. County of San Mateo (2005) 126 Cal.App.4th 1526, 1535, 25 Cal.Rptr.3d 400; Liton Gen. Engineering Contractor, Inc. v. United Pacific Insurance (1993) 16 Cal.App.4th 577, 584, 20 Cal.Rptr.2d 200 (Liton).) Accordingly, the principal statutory remedies for claimants who have furnished labor, services, equipment, or material on a public works project are stop payment notices and payment bonds. (§ 9100, subd. (a)(1).  [¶] Nevertheless, the statutes dealing with both private and public works ‘deal with the same specific subject, and are to be construed together.’ (Globe Indemnity Co. v. Hanify (1933) 217 Cal. 721, 730, 20 P.2d 689, accord Capitol Steel Fabricators, Inc. v. Mega Construction Co. (1997) 58 Cal.App.4th 1049, 1061, 68 Cal.Rptr.2d 672 (Capitol Steel).)

A stop payment notice notifies a project owner [ ] to withhold funds due to the direct contractor sufficient to satisfy the amount of the stop notice claim, plus reasonable litigation costs. (§ 9358; see generally, §§ 9350-9510.) A payment bond ‘guarantees payment to claimants on a construction project to the extent they are not otherwise paid.’ (4 Witkin, Summary of Cal. Law (11th ed. 2017) Security Transactions in Real Property, § 27, p. 820; see generally §§ 9550-9566.) . . . Every direct contractor awarded a public works contract in excess of $25,000 must, before beginning the work, provide a payment bond to the public entity. (§ 9550, subd. (a).) ‘In addition to protection of the public entity from liability for a defaulting contractor, the purpose of the surety bond is to provide a distinct remedy to public works subcontractors and suppliers of labor or materials to public works projects.’ (Liton, supra, 16 Cal.App.4th at p. 584, 20 Cal.Rptr.2d 200.) If the direct contractor fails to satisfy its payment obligation to the subcontractor or supplier, the surety must do so. (§ 9554, subd. (b)(1).)”  (Crosno Constr., Inc. v. Travelers Cas. & Sur. Co. of Am. (2020) 47 Cal. App. 5th 940, 950–51.)

LAGP is correct that stop notice law differs depending on whether the notice relates to a public or private work.  Indeed, as discussed, “California law distinguishes between stop notices on private and public projects.”  (3 Bruner & O'connor Construction Law § 8:172.) 

Plaintiff argues that the subject project is a hybrid public-private project and, therefore, both a private and public stop notice are appropriate.  Plaintiff, however, does not cite any cases supporting a “hybrid” theory.  Further, the FAC fails to explain the “private” component of the project.  Additionally, the stop notices relate to the same amount of money and Plaintiff has already dismissed the City of Los Angeles so as to pursue a bond.  At the very least, the FAC creates uncertainty as to how both a private and public stop notice can be issued for the same amount and for what seems to be the same work.    

Plaintiff cites two cases to argue that a private stop notice can be issued when directed at a private improvement on public land and, within its Opposition, points to a lease between LAWA and LAGP.   The lease, however, is not mentioned in the FAC, and the Court cannot take judicial notice of it.  Therefore, this argument is rejected for the time-being.  And, again, even if permissible, it’s not clear how or why the two stop notices would be in the same amount. 

In sum, because the basis for and propriety of the private stop notice is unclear, the Demurrer is sustained, with twenty days leave to amend.  The RJN is granted.

Moving party to give notice.

If counsel do not submit on the tentative, they are strongly encouraged to appear by LACourtConnect rather than in person due to the COVID-19 pandemic.