Judge: Lee W. Tsao, Case: 22NWCV00412, Date: 2023-06-20 Tentative Ruling
Case Number: 22NWCV00412 Hearing Date: January 24, 2024 Dept: C
GA Technical
services v. city of pico rivera
CASE NO.: 22NWCV00412
HEARING: 1/24/24 @ 10:30 AM
#3
Cross-Defendant GA Technical Services, Inc.’s
Demurrer to Cross-Complainant City of Pico Rivera’s Cross-Complaint is
SUSTAINED in part as to the Third Cause of Action and OVERRULED in part as to
the Fifth and Sixth Causes of Action. GAT’s Motion to Strike is DENIED. The City has
30 days leave to amend.
Moving Party to give NOTICE.
Plaintiff/Cross-Defendant GA Technical
Services, Inc. (GATS) demurs to Defendant/Cross-Complainant City of Pico Rivera’s
(the City) Cross-Complaint. GATS argues
that the Third Cause of Action for Negligence, the Fifth Cause of Action for
Fraud, and the Sixth Cause of Action for California False Claims Action
Violations fail to state facts sufficient to constitute causes of action and
are uncertain.
GATS
filed this action against the City on May 26, 2022, alleging (1) breach of
contract, (2) violation of California Civil Code for Prompt Payment Act, (3)
breach of implied covenant of good faith and fair dealing, (4) breach of
implied warranty of plans and specifications, (5) lost bonding capacity, and
(6) wrongful termination. On November 1, 2022, this Court sustained Defendant’s
demurrer to the third and sixth causes of action.
The
City filed a Cross-Complaint against GATS alleging:
1.
Breach
of Contract
2.
Breach
of Contract Anticipatory Repudiation
3.
Negligence
4.
Breach
of Implied Covenant
5.
Fraud
6.
False
Claims Act Violations
Legal
Standard
The party against whom
a complaint has been filed may object to the pleading, by demurrer, on several
grounds, including the ground that the pleading does not state facts sufficient
to constitute a cause of action. (CCP § 430.10(e).) A party may demur to an
entire complaint, or to any causes of action stated therein. (CCP § 430.50(a).)
Motions
to strike are used to reach defects or objections to pleadings which are not
challengeable by demurrer (i.e., words, phrases, prayer for damages, etc.).
(CCP §§ 435, 436 & 437.) A motion to strike lies only where the pleading
has irrelevant, false or improper matter, or has not been drawn or filed in
conformity with laws. (C.C.P. § 436.) The grounds for moving to strike must
appear on the face of the pleading or by way of judicial notice. (C.C.P. §
437.)
Discussion
1)
Third
Cause of Action
GATS argues that the City’s Third Cause of
Action for Negligence is barred because the allegations supporting the
negligence claim are the same as those supporting the breach of contract claim.
The City argues that tort law allows for a negligence claim when construction
defects cause property damage or personal injury. GATS argues that the negligence claims are
barred by the economic loss rule because the Cross-Complaint claims solely
economic damages and not property damage or personal injury. Specifically,
the Cross-Complaint alleges “[a]s a direct and proximate cause of the
negligent, improper, and unauthorized performance of work by Cross-Defendants,
the improvements at the Project will require repair and re-installation in
accordance with plan specifications resulting in the loss of use of Plant No. 3
and the subsequent delay in the development of the PFAS treatment facility.”
(Cross-Complaint, ¶ 61.) Thus, the City has not alleged that it sustained any
property damage or personal injury as a result of the claimed negligence in GATS’s
performance of the contract. Therefore, as it currently stands, the City’s
Negligence Cause of Action is barred by the economic loss rule. GATS’s Demurrer
to the Third Cause of Action for Negligence is SUSTAINED.
2)
Fifth
Cause of Action and Punitive Damages
GATS argues that the City’s Fifth Cause of
Action for Fraud fails to state a claim and is uncertain because it is based on
Business & Professions Code (BPC) § 7160 which pertains to home improvement
contractors and Civil Code §§ 1709 and 1710 which require inducement without
intent to perform the work. GATS also argues that the City was not obligated to
accept GATS’s bid even if it was the lowest and that the City failed to
sufficiently plead fraud under the heightened pleading standard. The City
argues that BPC § 7160’s language is broad and includes any improvement
contract.
First, the court determines that BPC § 7160
does not include public bidding contracts. The court’s “role in construing a
statute is to ascertain the intent of the Legislature so as to effectuate the
purpose of the law. [Citation.] Because the statutory language is generally the
most reliable indicator of that intent, we look first at the words themselves,
giving them their usual and ordinary meaning. [Citation.] We do not, however,
consider the statutory language in isolation, but rather examine the entire substance
of the statute in order to determine the scope and purpose of the provision,
construing its words in context and harmonizing its various parts. [Citation.]”
(ACCO Engineered Systems, Inc. v. Contractors' State License Bd. (2018)
30 Cal.App.5th 80, 88.) Here, BPC § 7160 is found within Article 10, Home
Improvement Business. Regulations for
bidding on and awarding public contracts are found within the Public Contract
Code (PCC). It is reasonable to infer
that the legislature did not intend BPC § 7160 to apply to public contracts.
Therefore, the City cannot rely on BPC § 7160 to support a claim for fraud
against GATS.
Second, the City has sufficiently alleged fraud
with specificity. “Each element in a cause of action for fraud or negligent
misrepresentation must be factually and specifically alleged.” (Cadlo v.
Owens-Illinois, Inc. (2004) 125 Cal.App.4th 513, 519.) “The elements of
fraud, which give rise to the tort action for deceit, are (1) a
misrepresentation, (2) with knowledge of its falsity, (3) with the intent to
induce another's reliance on the misrepresentation, (4) justifiable reliance,
and (5) resulting damage.” (Conroy v. Regents of Univ. of Cal. (2009) 45
Cal. 4th 1244, 1255 .) Here, the City alleges that GATS made the lowest bid on
the contract, knowing that it could not complete the contract for the bid price
and the City was required to accept the lowest bid. (Cross-Complaint ¶¶ 12-13
and 67-71.) GATS argues that the City could have rejected its bid, however, PCC
§ 22038(a) and (b) require that the agency determine that it could perform the
contract more economically, otherwise it must award the contract to the lowest
bidder. Therefore, the City has adequately pled a cause of action for fraud. GATS’s
Demurrer to the Fifth Cause of Action for Fraud is OVERRULED.
Additionally, GATS’s Motion to Strike Punitive
Damages is DENIED on the grounds that the City has adequately alleged fraud.
3)
Sixth
Cause of Action
A False Claims Act claim penalizes any person
who “[k]nowingly presents or causes to be presented a false or fraudulent claim
for payment or approval.” (CCP § 12651(a)(1).)
GATS argues that the City’s Sixth Cause of Action under the False Claims
Act (FCA) fails to state a claim because the City knew of the facts surrounding
the claim and approved the claim by issuing payment. In support of this argument, GATS relies upon
American Contract Services v. Allied Mold & Die, Inc. (2001) 94
Cal.App.4th 854, 864. In American,
a government agency issued an invitation for bids to produce 500,000 infant
training cups. After receiving three
bids, including one bid from Plaintiff, the agency cancelled the bidding
process and contracted directly with Defendant, one of Plaintiff’s competitors. Defendant eventually delivered the products
and was duly paid. Plaintiff sued Defendant
for violation of the False Claims Act.
Plaintiff alleged that the contract between the agency and Defendant was
void because the agency did not follow proper contracting practices when it
awarded the contract to Defendant. The Defendant
in American argued, just as GATS argues here, that there cannot be a
knowing presentation of a false claim where the government is fully aware of
the facts surrounding the claim and approves it. (Id. at 864.) The court in American agreed with the Defendant
in that case, finding that the government paid the invoice with full knowledge
of the circumstances.
Unlike the facts in American, however,
this case involves allegations of fraud.
The City alleges that GATS engaged in fraud by knowingly presenting
false claims for payment. (Cross-Complaint, ¶¶ 73-77) The City further alleges
it did not discover the fraud until after it had agreed to pay GATS’s payment
requests. (Id., ¶ 78). In American,
the government agency was fully aware of the circumstances surrounding its contract
with the Defendant before the Defendant submitted its claims. That knowledge effectively negated any subsequent
wrongdoing by the Defendant. Here, the City
alleges it did not discover the alleged fraud until after GATS submitted its
claims and after the City issued payment.
The fact that the City paid GATS for its claims does not operate to
negate GATS’s alleged wrongdoing because the City alleges it was not aware of
the fraud when it issued payment.
Accordingly, GATS’s Demurrer to the Sixth Cause
of Action is OVERRULED.
Leave to Amend
The City requests leave to amend. Leave to
amend must be allowed where there is a reasonable possibility of successfully
stating a cause of action. (Schulz v. Neovi Data Corp. (2007) 152 Cal.
App. 4th 86, 92.) Thus, leave to amend is granted.
Accordingly, GATS’s
Demurrer is SUSTAINED in part as to the Third Cause of Action and OVERRULED in
part as to the Fifth and Sixth Causes of Action. GATS’s Motion to Strike is
DENIED. The City has 30 days leave to amend.