Judge: Malcolm Mackey, Case: 22STCV13345, Date: 2023-01-20 Tentative Ruling

Case Number: 22STCV13345    Hearing Date: January 20, 2023    Dept: 55

SELA, et al. v. UTOPIA DEVELOPMENT, INC., et al.                         22STCV13345

Hearing Date:  1/20/23,  Dept. 55

10#:   DEMURRER TO PLAINTIFF’S FIRST AMENDED COMPLAINT.

Notice:  Okay (corrected following 12/8/22 hearing; notice filed on 12/14/22)

Opposition

MP:  Defendant BUSINESS ALLIANCE INSURANCE COMPANY (BAIC).

RP:  Plaintiffs SELA FAMILY TRUST, JONATHAN SELA, AND MEGAN SCHOENBACHLER (collectively, “Plaintiffs”)

Summary

On 4/21/22, Plaintiff filed a Complaint.

On 5/19/22, Plaintiff filed a First Amended Complaint, alleging that plaintiffs contracted with Defendant UTOPIA DEVELOPMENT, INC. to remove a residential structure, at 549 Westminster Ave., Los Angeles, and to replace it with a new structure, but water staining, mold, delamination, plaster separation, and other damages resulted from defendants’ contractor negligence and construction defects, including an improperly waterproofed home leading to rain leaks. It is further alleged that UTOPIA DEVELOPMENT, INC. subcontracted some of the work to Defendant GENTY GROUP, INC. (Genty). Defendant BAIC is alleged to be one of license bond sureties for Defendant Genty.

The causes of action are:

1. NEGLIGENCE

2. BREACH OF CONTRACT

3. BREACH OF WARRANTY

4. UNFAIR COMPETITION LAW

5. RECOVERY ON CONTRACTOR’S LICENSE BOND

6. BREACH OF FIDUCIARY DUTY.

MP Positions

Moving party requests an order sustaining the demurrer to the First Amended Complaint, on grounds including the following:

·         The Fifth Cause of Action of the FAC fails to state facts sufficient to state a cause of action against Defendant for Recovery on Contractor’s License Bond.

·         The operative facts occurred more than one year before the effective date of the Bond (December 6, 2020).

·         Plaintiffs’ allegations are based on events that occurred between “late 2016” and “the last few months of 2019” (FAC ¶ 15).

·         Plaintiffs allegedly discovered the operative facts “in November and December 2019,” (FAC ¶ 17).

·         A surety is not liable for the acts or omissions of the licensee that occur prior to the posting of a bond. Morton Regent Enterprises, Inc. v. Leadtec California, Inc. ((1977) 74 Cal.App.3d 842, 846.

·         To the extent that Plaintiffs allege that BAIC’s bondholder failed to fulfill any warranty obligations, the allegations of the FAC fail to identify the nature or terms of the warranty or how Genty allegedly breached said warranty, when the bondholder is not alleged to have issued any warranty.

RP Positions

Opposing party requests overruling the instant demurrer or leave to amend, for reasons including the following:

·         Plaintiffs are entitled to the pursuant to the pertinent consumer protection statutes.

·         The First Amended Complaint sufficiently alleges that Genty violated the contractor’s state license laws by failing to perform warranty services in the years 2021-2022 and for failing to completing the project. Genty’s failure to return and complete the project is a continuing violation, and as a result, Plaintiff are able to seek recovery against the bond issued by BAIC.

·         Alternatively, Plaintiffs request leave to amend.

Tentative Ruling

The demurrer is overruled.  20 days to respond.

            Demurrer and Pleading Procedure

In ruling upon demurrers, courts treat as being true “not only the complaint's material factual allegations, but also facts that may be implied or inferred from those expressly alleged.”  Poseidon Development, Inc. v. Woodland Lane Estates, LLC (2007) 152 Cal.App.4th 1106, 1111-12.  [Emphasis added.]  Accord  Schauer v. Mandarin Gems of Cal., Inc. (2005) 125 Cal. App. 4th 949, 953.

In ruling upon demurrers, courts consider whether any cause of action has been alleged sufficiently, notwithstanding that a cause of action is labeled otherwise.  Arce ex rel. Arce v. Kaiser Found. Health Plan, Inc. (2010) 181 Cal.App.4^th 471, 482;  Berkley v. Dowds¿ (2007) 152 Cal.App.4^th 518,  525;  McBride v. Boughton (2004) 123 Cal. App. 4th 379, 387;  Lovejoy v. AT&T Corp. (2001) 92 Cal. App. 4th 85, 98.  “[T]he allegations in the body of the complaint, not the caption, constitute the cause of action against the defendant.”  Davaloo v. State Farm Ins. Co. (2005) 135 Cal.App.4th 409, 418. 

            Fifth Cause of Action: Recovery on Contractor’s License Bond

Effectively, BAIC demurrers to the fifth cause of action on the ground on the ground that it has not been sufficiently pleaded because the alleged conduct occurred prior to the effective period of the bond it issued to Defendant Genty. See Demurrer at pp. 4-6.

Violations of the contractor’s state license law creates grounds for the injured party to seek recovery against the offending contractor’s license bond. Bus. & Prof. Code § 7071.5. “When a surety decides to fight a lawsuit, it can make itself liable for the costs of that litigation in excess of the face value of its bond. . . .” Karton v. Ari Design & Construction, Inc., 61 Cal.App.5th 734, 753.

“Abandonment without legal excuse of any construction project or operation engaged in or undertaken by the licensee as a contractor constitutes a cause for disciplinary action.” Bus. & Prof. Code § 7107. “Failure in a material respect on the part of a licensee to complete any construction project or operation for the price stated in the contract for such construction project or operation or in any modification of such contract constitutes a cause for disciplinary action.” Id. at § 7113. Section 7107 proscribes a contractor from abandoning a “construction project or operation” without legal excuse.  See Viking Pools, Inc. v. Maloney (1989) 48 Cal.3d 602, 606 (breach of express contract warranty against pool defect was ground for section 7107 project abandonment discipline even though physical project was installed).

Upon review of the First Amended Complaint, the Court finds that the fifth cause of action for recovery on contractor’s license bond has been sufficient alleged as against BAIC. It is alleged that Genty willfully conduct and violations of applicable building code requirements resulted in water damage to Plaintiffs’ home. See FAC at ¶¶ 4, 8, 9, 11, 15, and 46. Additionally, it is alleges that Genty made express warranties to Plaintiffs regarding the project. See FAC at ¶ 22. Also, it is alleged that Genty’s conduct fell within BAIC’s bond period because Genty did not conduct any warranty services, despite Plaintiffs’ requests, and failed to complete the project. See FAC at ¶ 46. As determined in Viking Pools, Inc., “construction project or operation” is not construed narrowly; otherwise, “a contractor could induce a consumer to enter a contract by making an express warranty, ostensibly complete physical construction, and deem the construction project ‘complete.’” Id., supra, 48 Cal.3d at 607608) By broadly interpreting “construction project or operation”, this prevents the contractor from “ignore[ing] his basic contractual obligations to the consumer, including the warranty,” and “avoid[ing] discipline under sections 7107 and 7113,” which is necessary to protect the consumer from “dishonest or incompetent contractors.” Id. Therefore, based on a broad interpretation of the term “construction project,” it would include Genty’s failure to complete the project and to perform warranty services in 2021-2022, and this falls under the effective period for the bond issued by BAIC, i.e. December 6, 2020 to December 6, 2021. 

Accordingly, the Court overrules BAIC’s demurrer.