Judge Mark A. Young, Case 22SMCV00326 2023-01-04 Tentative Ruling

Defendants GS Neptune Marina Apartments, LLC (“GS Neptune”), Jerry Brand, Tom Murphy, Perry Pound, Jordon Chase, Gil Gonzalez, and Jimi Nelson demur to Plaintiff Johnstone Moyer Inc.’s (“JMI”) First Amended Complaint (“FAC”) for: (1) foreclosure of mechanic’s lien; (2) breach of contract; (3) breach of duty of good faith; (4) quantum meruit; (5) action pursuant to labor code §1784; (6) intentional misrepresentation; (7) negligent misrepresentation; (8) express indemnity; (9) equitable indemnity; and (10) declaratory relief.

This suit regards the development of a five-story, multi-family housing facility, consisting of four buildings, for the real property located at 14000-14126 Marquesas Way, Marina Del Rey, California 90292, and commonly known as Neptune Marina Apartments (“the Project”). Plaintiff JMI asserts that the developer defendants failed to identify and affirmatively misrepresented that the project was not subject to the stringent requirements of a public works project under the California Labor Code. Furthermore, Plaintiff also seeks indemnification from subcontractors for the subcontractors’ alleged violations of the California Labor Code.

The FAC alleges that on September 2, 2016, Plaintiff JMI and Defendant GS Neptune entered into a written contract (“the Contract”) pursuant to which JMI agreed to perform all work necessary to construct the Project. Plaintiff JMI and its subcontractors performed all of the work and other obligations called for by the plans and specifications. (FAC ¶ 19.) The Project was built on public property owned by non-party County of Los Angeles and leased to Defendant GS Neptune. (FAC ¶ 20.) Prior to the entering into the Contract by Plaintiff JMI and Defendant GS Neptune, and during the early stages of the performance of work on the Project, JMI and several of its subcontractors inquired with Defendant GS Neptune and its representatives, including but not limited to Defendants Jerry Brand, Tom Murphy, Perry Pound, Jordon Chase, Gil Gonzalez and Jimi Nelson, as to whether the Project was a public works project, for purposes of the California Labor Code Chapter 1, Public Works. (FAC ¶21.) The FAC alleges that this was a significant question because public works projects in California are subject to strict requirements, including the requirement to pay specifically established prevailing wage rates, the requirement to certify payroll, and the requirement to comply with apprenticeship requirements. Perhaps most significantly, public work projects in California are subject to strict enforcement of public works requirements with heavy penalties by the Division of Labor Standards Enforcement (“DLSE”), a subdivision of the California Department of Industrial Relations (“DIR”). (Id.)

Investigators for the DLSE/DIR made a finding that the Project was a public work and, based upon this finding, issued four Civil Wage and Penalty Assessments (the “CWPAs”) against the Project for violation of California Labor Code sections applicable to public works projects. (FAC ¶¶ 28-36.)

Finally, the FAC alleges that GS Neptune has withheld a $2,549,789.73 payment otherwise payable to Plaintiff JMI, despite the fact that Defendants GS Neptune, and its agents, Defendants Jerry Brand, Tom Murphy, Perry Pound, Jordon Chase, Gil Gonzalez and Jimi Nelson are at fault for Plaintiff JMI’s potential liability under the CWPAs, having failed to identify the Project as a public work (and in fact misrepresented that it was not a public work). (FAC ¶ 37.) Plaintiff seeks the $2,549,789.73 withheld by Neptune and additional expenses, including attorneys’ fees and related damages from the CWPAs and the misrepresentations described in the FAC. Plaintiff JMI also seeks indemnity and defense of the CWPAs from Defendant JPI, Defendant ARSS Parties, and Defendant CRPI. (FAC ¶ 38.)

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) When considering demurrers, courts read the allegations liberally and in context. In a demurrer proceeding, the defects must be apparent on the face of the pleading or via proper judicial notice. (Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.) 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. (CCP §§ 430.30, 430.70.) At the pleading stage, a plaintiff need only allege ultimate facts sufficient to apprise the defendant of the factual basis for the claim against him. (Semole v. Sansoucie (1972) 28 Cal. App. 3d 714, 721.) A “demurrer does not, however, admit contentions, deductions or conclusions of fact or law alleged in the pleading, or the construction of instruments pleaded, or facts impossible in law.” (S. Shore Land Co. v. Petersen (1964) 226 Cal.App.2d 725, 732, internal citations omitted.)

A special demurrer for uncertainty is disfavored and will only be sustained where the pleading is so bad that defendant cannot reasonably respond—i.e., cannot reasonably determine what issues must be admitted or denied, or what counts or claims are directed against him/her. (CCP § 430.10(f); Khoury v. Maly’s of Calif., Inc. (1993) 14 Cal.App.4th 612, 616.) Moreover, even if the pleading is somewhat vague, “ambiguities can be clarified under modern discovery procedures.” (Ibid.)

“Liberality in permitting amendment is the rule, if a fair opportunity to correct any defect has not been given.” (Angie M. v. Superior Court (1995) 37 Cal.App.4th 1217, 1227.) It is an abuse of discretion for the court to deny leave to amend where there is any reasonable possibility that plaintiff can state a good cause of action. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349.) The burden is on plaintiff to show¿in what manner¿plaintiff can amend the complaint, and¿how¿that amendment will change the legal effect of the pleading.¿(Id.)

Before filing a demurrer or motion to strike, the moving party must meet and confer in person or by telephone with the party who filed the pleading to attempt to reach an agreement that would resolve the objections to the pleading. (CCP §§ 430.41, 435.5.) Counsel’s declaration satisfies the meet and confer requirements.

Second Cause of Action for Breach of Contract

Defendants demur to the breach of contract cause of action on the grounds that the contract fails to plead the material terms of the contract, and that the FAC pleads an excuse for performance. “The standard elements of a claim for breach of contract are: ‘(1) the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) damage to plaintiff therefrom.’” (Wall Street Network, Ltd. v. New York Times Co. (2008) 164 Cal.App.4th 1171, 1178.)¿

A contract must be pleaded verbatim in the body of the complaint, attached to the complaint and incorporated by reference or pleaded according to its legal effect. (Bowden v. Robinson (1977) 67 Cal. App. 3d 705, 718.) “If the action is based on an alleged breach of a written contract, the terms must be set out verbatim in the body of the complaint or a copy of the written instrument must be attached and incorporated by reference.” (Otworth v. Southern Pac. Transportation Co. (1985) 166 Cal. App. 452, 459.) Alternatively, a party can “plead a contract by its legal effect.” (McKell v. Washington Mutual, Inc. (2006) 142 Cal. App. 4th 1457, 1489.) This, however, is a “more difficult” endeavor—the plaintiff “must ‘allege the substance of its relevant terms” through “a careful analysis of the instrument, comprehensiveness in statement, and avoidance of legal conclusions.’” (Id. at 1489.)

Plaintiff alleges that GS Neptune breached the parties’ written construction contract by withholding contract funds. (FAC ¶ 37.) Defendants cite to Labor Code section 1727(a), which states that GS Neptune, as the “awarding body” (FAC ¶ 29), is obligated to withhold contract funds that could be used to satisfy a CWPA fine until a final order is entered and the period for judicial review of the CWPA’s fine has passed. “Before making payments to the contractor [JMI] of money due under a contract for public work, the awarding body [GS Neptune] shall withhold and retain therefrom all amounts required to satisfy any civil wage and penalty assessment issued by the Labor Commissioner . . . until receipt of a final order that is no longer subject to judicial review.” (Lab. Code § 1727(a).)

Notably, the FAC alleges that the parties requested review for each of the CWPAs. (FAC ¶ 34.) The FAC does not plead that this period of review has expired. Thus, under the facts pled, GS Neptune cannot disburse the withheld contract funds to Plaintiff without violating the Labor Code. GS Neptune’s performance to pay Plaintiff is therefore excused. (Civ. Code § 1511(1) [performance is excused when such performance is prevented or delayed by operation of law].)

JMI fails to identify any controlling authority to support the argument that performance should still be required despite that performance is blocked by operation of law. Accordingly, the demurrer is SUSTAINED without leave to amend. Plaintiff may seek leave to amend if the stay lifts and Defendants fail to pay as required under the contract.

Third Cause of Action for Breach of Implied Contract

The covenant of good faith and fair dealing is implied by law in every contract, and it acts “as a supplement to the express contractual covenants, to prevent a contracting party from engaging in conduct which (while not technically transgressing the express covenants) frustrates the other party’s rights to the benefits of the contract.” (Racine & Laramie, Ltd. v. Department of Parks & Recreation (1992) 11 Cal.App.4th 1026, 1031-1032.)¿

Plaintiff alleges that “[i]n failing to inform Plaintiff JMI of the public work nature of the Project and in misrepresenting that the Project was not a public work, Defendant GS Neptune… breached the implied covenant. (FAC ¶ 56.) However, this does not allege that this failure frustrated the JMI’s rights to the benefits of the contract. Further,

Accordingly, Defendants’ demurrer is SUSTAINED with leave to amend.

Fourth Cause of Action for Quantum Meruit

Plaintiff may plead this cause of action as an alternative theory. (Newport Harbor Ventures, LLC v. Morris Cerullo World Evangelism (2016) 6 Cal.App.4th 1207, 1223.) Thus, the demurrer is OVERRRULED.

Sixth and Seventh Cause of Action for Intentional & Negligent Misrepresentation

Intentional and negligent misrepresentation are both species of fraudulent deceit. (Bock v. Hansen (2014) 225 Cal. App. 4th 215, 227-28 [discussing the difference between the two types of misrepresentation but classifying them both as deceit].) “Every element of the cause of action for fraud must be alleged in the proper manner and the facts constituting the fraud must be alleged with sufficient specificity to allow defendant to understand fully the nature of the charge made.” (Stansfield v. Starkey (1990) 220 Cal. App. 3d 59, 73.) “[G]eneral and conclusory allegations do not suffice.” (Lazar v. Superior Court (1996) 12 Cal. 4th 631, 645.) Moreover, where a plaintiff has alleged fraud against an entity, it must specifically allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote and when it was said or written. (Archuleta v. Grand Lodge etc. of Machinists (1968) 262 Cal. App. 2d 202, 208-09.)

Here, Plaintiff alleges -- with specificity -- facts which would give rise to an action sounding in fraud against each of the GS Neptune Defendants. The FAC alleges that authorized agents of Defendant GS Neptune, including, but not limited to Defendants Jerry Brand, Tom Murphy, Jordon Chase, Perry Pound, Gil Gonzalez, Jim Nelson intentionally misrepresented that the Project was not a public work. (FAC ¶ 67.)” For example, Ms. Jimi Nelson stated on November 16, 2017, to Ms. Sorenson that it was not a public project. (FAC ¶¶27, 67.) Similarly, on November 29, 2017, Michael Stock of Plaintiff JMI emailed Gil Gonzalez, of Defendant GS Neptune, writing, “[c]an you please confirm that this will not be certified as a DIR project?” Gil Gonzalez, during the course of his employment with Defendant GS Neptune, responded, “[t]his is not a governmental funded job. It’s a private job.” (Id., Emphasis added.)

“GS Neptune, Jerry Brand, Tom Murphy, Perry Pound, Jordon Chase, Gil Gonzalez and Jimi Nelson and Does 21 through 30 knew that the Project was a public work or, at the very least, these parties knew that Defendant GS Neptune had not requested a formal opinion from the DIR or taken other steps to confirm conclusively whether or not the Project was a public work, as defined by the California Labor Code.” (FAC ¶22.) The DIR Determination that the project was public was based upon a finding that the County of Los Angeles provided Defendant GS Neptune with subsidies in the form of a decrease in rent from 10.5 percent to 2 percent. (FAC ¶ 35.)

The representations by Defendants Jerry Brand, Tom Murphy, Jordon Chase, Perry Pound, Gil Gonzalez and Jimi Nelson and other agents of Defendant GS Neptune and Does 21 through 30 were false. They knew that the Project was subsidized by the County of Los Angeles, and thus knew that the Project was, in fact, a public project. (FAC ¶ 69.) Because Plaintiff JMI was led to believe this Project was not a public work, Plaintiff JMI did not believe that it was required to ensure that the subcontractors complied with the Labor Code provisions applicable to a public work project. (FAC ¶ 70.) Plaintiff JMI did not manage the Project as a public works project. Consequently, Plaintiff JMI became potentially liable to the DIR related to the CWPAs. Moreover, Plaintiff JMI incurred attorneys’ fees and other expenses. (FAC 71.)

Defendants claim that this only relies on opinions concerning future actions or determinations by DIR. (See Borba v. Thomas (1977) 70 Cal. App. 3d 144, 152 [misrepresentation must be made as to past or existing facts, predictions as to future events, or statements as to future action by some third party, are deemed opinions, and are not actionable fraud.].) However, the FAC does not allege that Defendants misrepresented any future action. Rather, Defendants misrepresented the current state of the funding, i.e., this “is not a public project” and “this is not a government job” despite the fact they knew that the Project was subsidized by the County. (FAC ¶¶ 22, 35, 69.)