Judge: Mark H. Epstein, Case: 23SMCV02379, Date: 2023-11-27 Tentative Ruling

Case Number: 23SMCV02379    Hearing Date: March 5, 2024    Dept: I

Plaintiff Cause Communications (“plaintiff”) filed this breach of contract action against defendant California Mental Health Services Authority (“defendant”).  According to the operative Second Amended Complaint (“SAC”), defendant is a governmental entity that works at the direction of the county that is providing funding for its programs.  (SAC, ¶3.)  The parties entered into the first of five agreements in March 2018, under which plaintiff would serve as the expert on creating mental health campaigns.  (Id. at ¶4.)  On or around June 14, 2020, the parties entered into a Standard Services Agreement LA Media & Communications, Agreement No. 607-2020-LAM-COPY, effective from July 1, 2020 to June 30, 2023.  (Id. at ¶5.)  Plaintiff asserts the total funding it received under the agreement was $13,082,500.  (Id. at ¶6.)  Exhibit A to the Agreement stated that plaintiff would “ ‘keep[] projects in forward motion’ (Deliverable 1.3).”  (Id. at ¶7.)  Among various amendments was one on January 12, 2022, that plaintiff asserts extended the term through and including June 30, 2024.  (Id. at ¶9.)  Additionally, this revision allegedly revised the contract’s statement of work to include the Why We Rise 2022 campaign, increased the budget to $4,250,000, and required plaintiff to submit a plan on how to sustain the Why We Rise campaign beyond June 30, 2022.  (Id. at ¶10.)  Plaintiffs contend there were more revisions thereafter, but it never received any notice of termination during that time.  (Id. at ¶¶11-14.)

Plaintiff sent multiple invoices to defendant, and defendant paid them.  (SAC, ¶15.)  However, plaintiff contends it has not yet been paid a (very large) $400,000 invoice issued for work carried out as part of the Why We Rise 2022 campaign.  (Ibid.)  “On October 3, 2022, CAUSE issued its final invoice for $400,000, which remains outstanding. . .  The line items in the invoice include, but are not necessarily limited to, the following line items in the Agreement’s scope of work: Community Engagement: Direct Grants to Community Organizations; Community Engagement: Fund Organizers; Education/Project Implementation & Management: Social Media/Media Relations; Education/Project Implementation & Management: Website, Marketing & Promotion; and Education/Project Implementation & Management: Capacity Building for Community Organizations & Project Implementation/Management.”  (Id. at ¶15.)  Plaintiff demanded payment and the last demand was made on February 14, 2023.  (Id. at ¶16.)  Plaintiff asserts it performed all of its services and obligations are required under the agreement.  (Id. at ¶17.)

Plaintiff asserts that on October 3, 2022, Los Angeles County Department of Mental Health’s (“DMH”) Acting Director, Lisa Wong, told plaintiff in writing, “we’re moving forward with Cause & We Rise for 22/23.  Connie will be contacting you to discuss details.  I am looking forward to a wonderful event in May/2023[.]”  (SAC, ¶19.)  Throughout October and November 2022, plaintiff claims that it expressed concern about negotiating a future agreement with defendant, given the slow payments and past due receivables.  (Id. at ¶21.)  Plaintiff contends that on November 23, 2022, DMH’s employee Darlesh Horn, at the direction of the Acting Director Connie Draxler, sent plaintiff a draft contract between plaintiff and defendant.  (Id. at ¶22.)  The draft contract was for a term between October 12, 2022 to July 31, 2023, with funding not to exceed $4,250,000.  (Ibid.)  During negotiations, plaintiff claims that it pressed four issues: (1) the past due $400,000 invoice; (2) a significant advance of the funding at the beginning of the agreement, pending plaintiff’s demonstration that the advance was necessary; (3) prompt payment of invoices at specific intervals; and (4) acknowledgment of DMH as subject matter experts for plaintiff’s reporting purposes.  (Id. at ¶23.)

Plaintiff states that defendant questioned the validity of the first issue, and stated the second and third were against its policies, though plaintiff claims that defendant’s statement was not true.  (SAC, ¶24.)  Plaintiff and DMH allegedly had a call scheduled on November 30 to discuss things, but it was cancelled by DMH. (Ibid.)  Plaintiff contends that on December 18, 2022, DMH’s Draxler told plaintiff that defendant was open to negotiating a We Rise 2023 contract and to reach out to defendant.  (Id. at ¶25.)  Plaintiff asserts it was ready, willing, and able to provide services for the We Rise 2023 program, and so it began background and preparatory activities at defendant’s request.  (Id. at ¶26.)  Plaintiff purportedly sent defendant revisions to the draft agreement on December 19, 2022, only to receive defendant’s responsive draft on January 24, 2023, which reverted to the original November 2022 draft that did not address plaintiff’s four issues.  (Id. at ¶¶27-28.)  During a phone call that same day, defendant purportedly demanded documentation to support plaintiff’s concerns.  (Id. at ¶28.)  Plaintiff claims that it sent the documentation on January 30.  (Id. at ¶29.)  Plaintiff states that on January 31, defendant abruptly terminated negotiations for the We Rise 2023 agreement.  (Id. at ¶30.)  Defendant allegedly claimed negotiations were terminated in consultation with DMH, although plaintiff asserts that DMH denied it.  (Id. at ¶31.)

Currently before the court is defendant’s demurrer to the first cause of action on the ground of failure to state sufficient facts. (See Code Civ. Proc., § 430.10, subd. (e).)  Plaintiff opposes.  (It is unclear whether defendant thinks it is demurring to more than that, but the demurrer itself is clear that the demurrer is to the first cause of action only.)

The court first addresses a few preliminary matters.  Defendant requests judicial notice of plaintiff’s two claim letters, defendant’s bylaws, and a resolution by defendant’s executive committee. The request is GRANTED.  As to the two claim letters, “If a plaintiff alleges compliance with the claims presentation requirement, but the public records do not reflect compliance, the governmental entity can request the court to take judicial notice under Evidence Code section 452, subdivision (c) that the entity's records do not show compliance.  (See Fowler v. Howell (1996) 42 Cal.App.4th 1746, 1752; California Government Tort Liability Practice (Cont.Ed.Bar 4th ed. 2014) § 5.17, p. 181 (rev. 2/13)).)”  (Gong v. City of Rosemead (2014) 226 Cal.App.4th 363, 376, parallel citations omitted.)  In opposition, plaintiff objects on the basis defendant has not authenticated the letters. This is true, but plaintiff does not otherwise dispute the authenticity of them.  Nor would it be dispositive unless there is truly some question as to authenticity.  Authenticity is a low bar.  The court would take it amiss for plaintiff to take the position that the demurrer should be overruled on that basis only to have a motion for judgment on the pleadings filed the next day to be granted because the authentication is now proper.  The court and the taxpayer have better uses of their resources.  Unless plaintiff says otherwise at the hearing, the court assumes plaintiff will abandon the authenticity issue.

The request as to defendant’s by-laws and the resolution is GRANTED.  “The hearing on demurrer may not be turned into a contested evidentiary hearing through the guise of having the court take judicial notice of documents whose truthfulness or proper interpretation are disputable.”  (Joslin v. H.A.S. Ins. Brokerage (1986) 184 Cal.App.3d 369, 374.)  That said, defendant contends that the documents are available to the public on the web.  As such, the court can take judicial notice of that fact even though there is no evidence that plaintiff had actual notice (as opposed to constructive notice) of these by-laws and the resolution or know what was required thereunder.  Those documents have jural effect; there is thus no hearsay component.

Plaintiff also questions the adequacy of the meet and confer.  Specifically, plaintiff complains that defendant did not submit a meet and confer declaration and the effort itself was insufficient.  The Kardassakis declaration notes that she and defendant’s attorney “did not discuss CalMHSA’s anticipated demurrer in person, by telephone, or by videoconference prior to CalMHSA filing the Demurrer to First Cause of Action in Second Amended Complaint.”  (Kardassakis Decl., ¶3.) This is troubling, given that the failure to meet and confer was raised in the prior opposition to the demurrer to the FAC.  In its reply, the defendant argued (correctly) that the court may not overrule or sustain a demurrer based on deficiencies in the meet and confer process.  (Code Civ. Proc., § 430.41, subd. (a)(4).)  Even so, if plaintiff’s counsel’s recitation of the meet and confer effort is true, the court wonders if defendant purposely ignored the meet and confer effort because the court cannot overrule a demurrer for any deficiency in that process. The court will question counsel about the meet and confer effort.  While it is true that the court cannot overrule a demurrer or strike it for lack of a meet and confer, the court can certainly continue the matter.  The new date is within the court’s discretion and, should it be true that there was no meet and confer, the court will assume it is because defense counsel is very busy.  As such, as an accommodation to the defense, the court will ensure ample time—seven or eight months perhaps—to make sure that the meet and confer will go forward.  (And, of course, during that period the court would not entertain an MJOP.)  The statutory requirement is a real one and it is mandatory, not optional.  All of that said, this is not the first demurrer.  The court presumes that much of the debate has already been had and the court is not assuming a marathon meet and confer would be needed here.  The court does note that plaintiff opposes the demurrer, suggesting that a meet and confer would not have been fruitful.

With those preliminary matters resolved, the court turns to the merits (assuming no continuance based on the meet and confer).

The first cause of action is for breach of contract and it concerns the failure to pay the $400,000 invoice and negotiate the We Rise 2023 contract.  (FAC, ¶¶37-40.) “The essential elements of a claim of breach of contract, whether express or implied, are the contract, the plaintiff's performance or excuse for nonperformance, the defendant's breach, and the resulting damages to the plaintiff.”  (Green Valley Landowners Assn. v. City of Vallejo (2015) 241 Cal.App.4th 425, 433.)  In that cause of action, plaintiff asserts both a written contract and (in the alternative) an implied in fact contract.

The court begins with the portion of the claim predicated on the $400,000 invoice, which is part of the ultimate $590,000 claimed on this cause of action.  In sustaining the prior demurrer, the court stated that the $400,000 had to be tied to the contractual language.  The court believes plaintiff has done so, at least for pleading purposes.  Defendant takes issue with the general language used in the complaint, but plaintiff is not required to plead every evidentiary fact, and defendant can take discovery on whether the specific events were authorized under the general listed heading.  Further, as discussed in more detail below, there is an ambiguity as to whether plaintiff was supposed to perform material work on the future projects for which it would be reimbursed, given the contractual language and parol evidence.

As for the claimed damages for We Rise 2023 totaling $590,000, it concerns the $400,000, plus an additional $190,000 that relates to work done in preparation for We Rise 2023.  In the court’s view, this survives the demurrer and requires the demurrer to be overruled.  The court is aware of the rule that “Ordinarily, a general demurrer does not lie as to a portion of a cause of action, and if any part of a cause of action is properly pleaded, the demurrer will be overruled.  (Campbell v. Genshlea (1919) 180 Cal. 213, 217.)”  (Fire Ins. Exchange v. Superior Court (2004) 116 Cal.App.4th 446, 452, parallel citations omitted.)  Defendant argues, and with some force, that plaintiff cannot overcome a demurrer by jamming what ought to be separate causes of action into a single cause of action.  That sort of artful pleading ought not overcome this motion and the court agrees with the defense on that point.  These are separate alleged breaches of the written contract and a claim of an implied in fact contract.  They ought to have been pled separately.  Accordingly, if the only thing barring the demurrer was the “partial cause of action” rule, the court would not overrule.  But there is more.

There are multiple statements in the contracts themselves indicating that the contractual relationship would continue.  First, the January 12, 2022, contract explicitly identifies the term of the contract to extend to June 30, 2024.  (SAC, Exh. 3, p. 77 of SAC PDF.)  That makes no sense at all if the contract involved only We Rise 2022 as a matter of law.  Further, the Revised Statement of Work requires plaintiff to continue the work through the revised term.  (Id. at p. 78 [“Contractor will carry forward the Why We Rise campaign efforts through the term of this Agreement Amendment.  This includes, but not limited to: All planning and coordination of Community organizers, Community Partner Leads and Consultants, fulfill all activities related to public relations, marketing, websites, social media, etc., to include coordinating with partners, Supervisors, other County Departments, etc.”].)  The March 9, 2022, revision is the same and reiterates that plaintiff must “carry forward the Why We Rise campaign efforts” and adds additional work.  (Id. at p. 82.)  The “Funding” section for FY22-23 and FY23-24 states “TBD” for the amount.  (Id. at p. 83.)  According to the defense, that is rock solid evidence that there was no funding available for anything beyond 2022 absent a separate contract.  Maybe; maybe not.  It could also indicate only that the amount of funding was not yet determined but not whether there would be funding.  Both are reasonable interpretations of the term.  For purposes of a demurrer, the court must draw the inference most favorable to plaintiff.

Of course, as defendant points out, there are also allegations of the opposite view.  But this is a classic ambiguity in the contractual language that cannot be determined on a demurrer.  Rather, ambiguities are often resolved through parol evidence.  The court is familiar with defendant’s argument that parol evidence is inadmissible given that the contract at issue was an integrated one.  But that is not the parol evidence rule.  Put simply, in the context of an integrated contract, parol evidence can be used to resolve a latent or patent ambiguity so long as the resolution is one to which the contract’s words are reasonably susceptible.  Settled authority puts it thusly: “The interpretation of a contract involves ‘a two-step process: “First the court provisionally receives (without actually admitting) all credible evidence concerning the parties' intentions to determine ‘ambiguity,’ i.e., whether the language is ‘reasonably susceptible’ to the interpretation urged by a party.  If in light of the extrinsic evidence the court decides the language is ‘reasonably susceptible’ to the interpretation urged, the extrinsic evidence is then admitted to aid in the second step—interpreting the contract. [Citation.]”  (Winet v. Price (1992) 4 Cal.App.4th 1159, 1165.)  The trial court's determination of whether an ambiguity exists is a question of law, subject to independent review on appeal. (Ibid.)  The trial court's resolution of an ambiguity is also a question of law if no parol evidence is admitted or if the parol evidence is not in conflict.  However, where the parol evidence is in conflict, the trial court's resolution of that conflict is a question of fact and must be upheld if supported by substantial evidence.  (Id. at p. 1166.)  Furthermore, “[w]hen two equally plausible interpretations of the language of a contract may be made . . . parol evidence is admissible to aid in interpreting the agreement, thereby presenting a question of fact which precludes summary judgment if the evidence is contradictory.”  (Walter E. Heller Western, Inc. v. Tecrim Corp. (1987) 196 Cal.App.3d 149, 158.)’ ”  (Wolf v. Superior Court (2004) 114 Cal.App.4th 1343, 1351, citing WYDA Associates v. Merner (1996) 42 Cal.App.4th 1702, 1710, parallel citations omitted.)

Importantly, plaintiff attaches parol evidence that would help explain the ambiguity in the contracts on whether plaintiff was supposed to perform work for the 22-23 fiscal year.  There is an email from DMH’s acting director stating the same: “Good news -we're moving forward with Cause & We Rise for 22/23. Connie will be contacting you to discuss details.  I am looking forward to a wonderful event in May/2023.” (SAC, Exh. 8.) Thus, the court cannot sustain the demurrer.  This issue is best suited for an evidentiary motion explaining with evidence if there was any actual ambiguity, how the parties understood their legal obligations, whether the work claimed actually matched the contractual language, and whether plaintiff’s claim as to the entire amount was properly presented in compliance with Government Code section 910 (the $400,000 was properly presented).  The court understands the old adage that “men must turn square corners when they deal with the Government.”  (Rock Island, Arkansas & Louisiana R.R. Co. v. United States (1920) 254 U.S. 141, 143 (Holmes, J.).)  But still, it is not clear as a pleading matter that the corner was not square. 

Finally, defendant contends that the notice was not adequate.  The notice and amended notice did talk about the harm from the decision not to go forward with We Rise 2023 and 2024.  There is an issue properly raised whether that claim was based on a failure to renew the contract, which does not seem to be at issue in the instant litigation, or a failure to pay for work done in anticipation of that contract at defendant’s request, which is the basis of the litigation.  For pleading purposes, it is ambiguous enough that the court is reluctant to sustain the demurrer on that basis.  Having said that, however, the court is not ruling out a later motion that more squarely—and perhaps with evidence—addresses the issue.

Defendant also complains of the alternative cause of action within this cause of action—implied in fact contract.  The court notes that this is pled in the alternative only, meaning that if the written contract covers the issue, then the implied contract cause of action must fail.  But if the written contract is silent on this point, then the implied contract is not inconsistent and the rule stating that there cannot be both an express and an implied contract is no bar.  Defendant’s major argument is that an implied in fact contract (unlike an implied at law contract) requires mutual assent—the theory is that the parties have actually reached an agreement on a contract, it has just never been uttered in writing or orally.  According to the defense, it cannot impliedly consent to a contract under its bylaws and resolutions, and Cause had actual or constructive knowledge of both.  The argument is not a weak one, but at the end of the day, whether defendant was given the authority to request work and impliedly agree to pay for it is one better addressed by way of evidentiary motion rather than demurrer.  Given the various indications, it would seem incongruous if plaintiff could prove that it did work for We Rise 2023 at defendant’s specific request and under the guise that it was required to do so given that the next contract was under discussion, but that there was no promise of payment.  To be sure, there is nothing illegal with defendant asking plaintiff to do work and hope that a contract would be forthcoming and that absent a later contract, the work would be gratis, but that is the exception, not the rule and the court is not prepared to say, as a pleading matter, that the parties did not mutually understand that work defendant requested would be paid for under any circumstances even if the parties could not come to terms on a future overall agreement.

The demurrer is OVERRULED.

In short, defendant might well prevail, and it took plaintiff some time to plead a cause of action that survived.  But given the current pleading, if defendant is to prevail it will have to do so by evidentiary motion (like summary judgment) or at trial.

Defendant has 30 days to answer.