Judge: Margaret L. Oldendorf, Case: 22AHCV0044, Date: 2024-01-09 Tentative Ruling
Case Number: 22AHCV0044 Hearing Date: January 9, 2024 Dept: P
SUPERIOR COURT OF THE STATE OF CALIFORNIA
FOR THE COUNTY OF LOS ANGELES
NORTHEAST DISTRICT
I.
INTRODUCTION
These consolidated cases concern a
construction project. Pasadena Oaks Life Properties and Signature Health
Services, LLC retained Jokake Construction Services, Inc. to construct a
two-story psychiatric hospital known as Las Encinas.
Jokake and Pasadena entered into a Construction
Agreement in April 2017; the contract had a Substantial Completion date of
September 18, 2018. Jokake retained various subcontractors. Problems and delays
arose, which the parties attempted to work through. Following a June 2019
mediation, Pasadena and Jokake executed an amendment to the contract. The
disputes continued. In March 2022, Pasadena terminated the Contract. These
related and consolidated cases followed.
The lead case is Jokake’s complaint against
Pasadena. The pleading alleges claims for breach of contract, abandonment of
contract, quantum meruit, and related claims against Pasadena. It includes a
claim for breach of the warranty of correctness of plans and specifications and
fraud against Pasadena and Signature. It also includes claims for foreclosure
of mechanic’s lien against Pasadena, Signature, Western Alliance Bank (WAB, Pasadena’s
construction lender), and several subcontractors. Numerous subcontractors filed
actions against Jokake for breach of contract, common counts, and foreclosure
of mechanic’s liens. One of those subcontractors is ENC Lath & Plaster.
Huntington’s suit against Jokake,
Pasadena Oaks, Signature Health, and Travelers Casualty and Surety was filed in
September 2020. In January 2023, Travelers filed a cross-complaint against ENC
Lath & Plaster (ENC) and Navigators Insurance Company (Navigators). On
October 4, 2023, Travelers filed a second amended cross-complaint (SACC) against
ENC and Navigators.
Before the Court is Navigators’ demurrer to the October 4,
2023 second amended cross-complaint filed by Travelers. Navigators urges that the
sixth cause of action for recovery on payment bond fails to state facts
sufficient to constitute a cause of action.
For the reasons set forth below, the demurrer is overruled.
II. LEGAL
STANDARD
Code
Civ. Proc. Section 430.10(e) provides for a demurrer on the basis that a
complaint fails to state a cause of action. (CCP § 430.10(e).) A demurrer tests
the legal sufficiency of a complaint. (Donabedian
v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.)
A
general demurrer lies where a complaint fails to state a cause of action. (CCP
§ 430.10(e).) A demurrer challenges defects appearing on the face of the
complaint or in material as to which judicial notice may be taken. (CCP §
430.30.) A demurrer admits,
provisionally for purposes of testing the pleading, all material facts properly
pleaded. (Tindell v. Murphy (2018) 22
Cal.App.5th 1239, 1247.) Allegations need not be accepted as true if they are
contradicted by judicially noticeable facts. (Cansino v. Bank of America (2014) 224 Cal.App.4th 1462, 1474.)
III. DISCUSSION
A. Meet and Confer Requirement Met
The Declaration of Mina Imen is offered in support of
counsel’s compliance with Code Civ. Proc. Section 430.41. Imen declares that she
met and conferred with Cross-Complainant Travelers’ Counsel via telephone. She further
declares that a resolution was not reached. (Imen Declaration ¶ 3.)
Consequently, the meet and confer requirement has been met.
B. Analysis
i. Jokake as an indispensable party
Navigators urges that the sixth cause of action fails as Jokake
is an indispensable party. (Demurrer Memorandum of Points and Authorities p. 5:
18.) Navigators cites CCP Section 389 in support. (CCP § 389.) CCP Section
389(a) defines an indispensable party as someone who has an interest in the
action such that without him/her/they/it, duplicative recovery would result or
a decision without them would result in prejudice or incomplete recovery. (CCP
§ 389(a).) Navigators urges that Jokake is indispensable, as it is the
beneficiary of the bond at issue in the sixth cause of action. As Travelers
brought the SACC in its name only, Navigators urges that the sixth cause of
action fails for this reason.
In
opposition, Travelers urges that the arguments as to misjoinder of parties are not
proper on demurrer. Travelers cites Verizon California Inc. v. Board of
Equalization for the proposition that “a defendant may not make an
allegation of defect or misjoinder of parties in the demurrer if the pleadings
do not disclose the existence of the matters relied on.” (Verizon California
Inc. v. Board of Equalization (2014) 230 Cal.App.4th 666, 680, citation
omitted.) Further, “[a] demurrer is particularly unsuited to resolving
questions of fact regarding the misjoinder of parties.” (Id.)
In reply,
Navigators notes that Exh. D to the SACC provides that Jokake is the
beneficiary of the bond at issue. (Reply, p. 2: 22-28.) However, Travelers has
alleged that Jokake has elected not to sue Travelers. Travelers also alleges that as a result of
Jokake’s default under the terms of the GAI, it has expressly assigned its
rights to Travelers. (See SACC ¶15.) Thus, duplicative recovery is not possible.
Accordingly,
the Court overrules the demurrer on the basis of misjoinder of parties.
ii. Bond Prohibits Assignment
Secondly, Navigators urges that the demurrer to the sixth
cause of action should be sustained as the payment bond at issue contains an
express anti-assignment clause. (Demurrer Memorandum of Points and Authorities
p. 6:16.) In support, Navigators cites the bond’s anti-assignment clause. (SACC
p. 87 “Subcontractor Performance Bond.) Navigators urges that the clause
prohibits assignment by Jokake to Travelers, and that case law supports
enforcing anti-assignment clauses. (See San Francisco Newspaper Printing Co.
v. Superior Court (1985) 170 Cal. App. 3d 438, 464.) Navigators also attempts
to distinguish the instant case from the unenforced anti-assignment language in
Balfour, Guthrie & Co. v. Hansen (1964) 227 Cal.App.2d 173, 187. (Demurrer Memorandum of Points and
Authorities, p. 7: 6-9.) Navigators urges that the unenforceable language in Balfour
was part of a settlement agreement, there were no disputes about misjoinder and
that the agreement was for significant consideration. (Id. at p. 7:
3-23.)
In opposition, Travelers notes that this Court has already
favorably cited Balfour in this case on this exact point. The Court’s July
6, 2023 Minute order provided, in pertinent part, “Balfour interprets
language that is nearly identical to the language contained in the Navigators
bond…The holding is that the prohibition against assignment does not prevent
assignment of a cause of action under the contract.” (7/6/23 Minute Order.) This
minute order is judicially noticeable. Further, the Balfour court relied on
analysis of the anti-assignment language itself and what that language did and
did not prohibit; not the title/type of document it appeared in. (Balfour,
Guthrie & Co. v. Hansen, supra at 187.)
Secondly,
Travelers urges that the assignment of rights from Jokake to itself at issue
here was for significant consideration, as alleged in the SACC. (See SACC p. 30
[“NOW, THEREFORE, as an inducement to Company and in consideration of… and for
other good and valuable consideration”]; SACC ¶ 10.) In addition, Travelers is
asserting rights against Navigators from the Takeover Agreement with Pasadena,
which was executed for consideration. (SACC ¶¶ 16,17.)
For
these reasons, the Court declines to sustain the demurrer on basis of the
anti-assignment language.
iii. Equitable Subrogee
Lastly,
Navigators urges that sixth cause of action cannot be asserted against it as a
subrogee because: (1) it is barred by the doctrine of superior equities; and
(2) the SACC does not allege that Travelers has fully performed or paid the
entire debt. (See Demurrer Memorandum of Points and Authorities, p. 7:24-9:1.)
In support, Navigators cites Meyers v. Bank of America. (Meyers v.
Bank of America etc. Assn. (1938) 11 Cal.2d 92, 103.) As Navigators is the
insurer and surety of fellow cross-defendant ENC, Navigators urges that
Travelers, as the insurer and surety of Jokake, cannot seek to recover under the
superior equities doctrine unless it alleges that it has paid the insured.
(Demurrer Memorandum of Points and Authorities, p. 8: 3-13.)
Travelers
argues that this issue is not appropriately resolved on demurrer: that like the
misjoinder argument, the doctrine of superior equities is a fact-intensive
inquiry and cannot be determined at the pleading stage. (See Meyers, supra, at 103; see
Opposition p. 11:13- p. 12: 10.) Travelers further distinguishes the facts of
the instant case from Meyers. The Court agrees that this issue should
not be determined at the demurrer stage.
Thirdly,
Travelers urges that the exact same set of facts have been found to be a valid
basis for a subrogation claim. (See Opposition p. 12:27- 13:2, referencing Continental
Casualty Co. v. Hartford Accident & Indemnity Co. (1966)
243 Cal.App.2d 565.) In Continental Casualty, a general contractor’s
surety filed suit against a subcontractor’s surety. The Appeals Court held that
the subcontractor’s surety was liable on the bond to the general contractor’s
surety for unpaid bills and materials if certain conditions are met. (Id. at
571.) Here, Travelers is the surety for general contractor Jokake, and
Navigators is the surety for subcontractor ENC. Travelers is suing Navigators
on the bond regarding ENC’s allegedly defective work.
Lastly,
Travelers urges that it has adequately alleged subrogation, and that it does
not need to allege that it has paid the entire debt to its insured, Jokake.
(Opposition p. 13: 17.) Indeed, the contract at issue provides that Travelers
shall be entitled to subrogate all debts in the event of default, which is defined,
and the definition includes “a declaration of Contract default by any Obligee.”
(SACC Exh. B p. 31 ¶ 6, Exh. B p. 30 ¶ Default.) There is no provision
requiring full payment of the debt before default and subsequent subrogation
rights accrue. Based upon the contract language in this case, payment of the
entire debt is not required. (American Contractors Indem. v. Saladino
(2004) 115 Cal.App.4th 1262, 1271.)
On
reply, Navigators attempts to distinguish Continental Casualty from the
instant case on a factual basis. Navigators does not address the argument as to
the General Indemnity Agreement.
The Court
declines to sustain the demurrer on this basis.
IV. ORDER
The demurrer is overruled.
Navigators is ordered to file an answer to the second amended
cross-complaint within 20 days.
Plaintiff
is ordered to give notice of this ruling.
Dated: _______________________________
MARGARET L. OLDENDORF
JUDGE OF THE SUPERIOR COURT
