Judge: Maurice A. Leiter, Case: 22STCV30100, Date: 2023-03-30 Tentative Ruling

Case Number: 22STCV30100    Hearing Date: March 30, 2023    Dept: 54

Hearing Date: March 30, 2023

Department 54, Judge Maurice A. Leiter

Demurrer to Cross-Complaint and Motion to Strike

Moving Party: Plaintiff/Cross-Defendant Los Angeles County Metropolitan Transportation Authority

Responding Party: Defendant/Cross-Complainant Talgo, Inc.

T/R:    MTA’S DEMURRER IS SUSTAINED WITHOUT LEAVE TO AMEND.

THE MOTION TO STRIKE IS DENIED AS MOOT.

MTA TO FILE AND SERVE ITS ANSWER TO THE CROSS-COMPLAINT WITHIN 20 DAYS OF NOTICE OF RULING.

            MTA to notice. 

If the parties wish to submit on the tentative, please email the courtroom at¿SMCdept54@lacourt.org¿with notice to opposing counsel (or self-represented party) before 8:00 am on the day of the hearing. 

            The Court considers the moving papers, opposition, and reply.

BACKGROUND

            On September 15, 2022, Plaintiff LACMTA sued Defendant Talgo, Inc., asserting causes of action for (1) breach of contract; (2) conversion; (3) trespass to property; (4) declaratory relief; and (5) injunctive relief. LACMTA and Talgo entered into an agreement for Talgo to “overhaul and perform critical component replacement services on seventy-four (74) of Metro’s A650 Heavy Rail Vehicles.” (Compl. ¶ 2.) LACMTA alleges Talgo defaulted on the agreement and has refused to return possession of 10 metro vehicles.

            On October 21, 2022, Talgo filed a cross-complaint against LACMTA, asserting causes of action for (1) breach of contract; (2) breach of the covenant of good faith and fair dealing; (3) quantum meruit; (4) promissory estoppel; and (5) declaratory relief. Talgo alleges LACMTA failed to reasonably collaborate and used the delays caused by LACMTA to falsely claim Talgo breached the contract.

ANALYSIS

A demurrer to a complaint may be taken to the whole complaint or to any of the causes of action in it.  (CCP § 430.50(a).)  A demurrer challenges only the legal sufficiency of the complaint, not the truth of its factual allegations or the plaintiff's ability to prove those allegations.  (Picton v. Anderson Union High Sch. Dist. (1996) 50 Cal. App. 4th 726, 732.)  The court must treat as true the complaint's material factual allegations, but not contentions, deductions or conclusions of fact or law.  (Id. at 732-33.)  The complaint is to be construed liberally to determine whether a cause of action has been stated.  (Id. at 733.)

MTA demurs to the second, third, and fourth causes of action in the cross-complaint. MTA asserts that Talgo cannot recover in tort for a breach of the parties’ contract and cannot recover for work performed outside of the contract under the equitable remedies of quantum meruit and promissory estoppel.

This action arises from a public works contract between MTA and Talgo. MTA alleges Talgo defaulted on the contract. Talgo alleges in its cross-complaint that MTA manufactured Talgo’s default on the contract to avoid paying termination for convenience fees as provided for in the contract. Both scenarios were contemplated in the parties’ contract.

Article GC-26 “TERMINATION FOR CONVENIENCE” provides the protocols and payment calculation methods in the event MTA terminates the contract for convenience. GC-26-J states, “The Contractor shall not be entitled to anticipatory or consequential damages as a result of any termination under this Article. Payment to the Contractor in accordance with this Article shall constitute the Contractor's exclusive remedy for any termination hereunder. The rights and remedies of LACMTA provided in this Article are in addition to any other rights and remedies provided by law or under the Contract.”

Article GC-27 “TERMINATION FOR DEFAULT” provides the circumstances under which MTA may terminate the contract for Talgo’s default, such as failure or refusal of the Contractor to perform any obligation required under the Contract. GC-27-G states, “If, after the notice of termination for failure to fulfill Contract obligations, it is determined that the Contractor has not so failed, the termination shall be deemed to have been effected for the convenience of LACMTA. In such event, adjustment shall be made as provided in Article entitled TERMINATION FOR CONVENIENCE herein. The Contractor shall not be entitled to anticipatory or consequential damages as a result of any termination under this Article. Payment to the Contractor in accordance with this Article shall constitute the Contractor's exclusive remedy for any termination hereunder.”

The contract also is governed by Public Contract Code § 7105. This section provides in pertinent part,

(d) (1) Where authority to contract is vested in any public agency, excluding the state, the authority shall include the power, by mutual consent of the contracting parties, to terminate, amend, or modify any contract within the scope of such authority.

(2) Paragraph (1) shall not apply to contracts entered into pursuant to any statute expressly requiring that contracts be let or awarded on the basis of competitive bids. Contracts of public agencies, excluding the state, required to be let or awarded on the basis of competitive bids pursuant to any statute may be terminated, amended, or modified only if the termination, amendment, or modification is so provided in the contract or is authorized under provision of law other than this subdivision. The compensation payable, if any, for amendments and modifications shall be determined as provided in the contract. The compensation payable, if any, in the event the contract is so terminated shall be determined as provided in the contract or applicable statutory provision providing for the termination.

            Section 7105(d)(2) restricts an agency’s ability to terminate, amend or modify a competitive bid contract to the those contemplated in the contract itself or under other applicable statutes. It also restricts compensation for these events to the compensation contemplated for these events in the contract itself or under other applicable statutes.

The contract lays out the available means of termination and the available remedies in the event of termination under GC-26 & GC-27. Both articles restrict Talgo’s damages, prohibiting anticipatory and consequential damages and limiting any remedies to those contemplated in the contract. This precludes remedies outside the four corners of the contract, including tort damages and common counts for work performed outside the scope of the contract.

In opposition, Talgo asserts that Section 7105(d)(2) does not apply because MTA’s alleged actions in terminating the contract (falsely claiming Talgo has defaulted and actively working to prevent Talgo from performing its obligations) were not permitted under the contract or any other provision of law. This does not entitle Talgo to additional damages.

Courts have held that contractors cannot recover for work performed under a competitive bidding contract with a public entity if the public entity exceeds its authority in creating or modifying the contract. (See Amelco Electric v. City of Thousand Oaks (2002) 27 Cal.4th 228, 234.) This similarly precludes recovery under quantum meruit for extra work performed outside the scope of the contract. (Id.) Though this may seem unfair to contractors, courts have found that protecting the public by enforcing only compliant competitive bidding contracts outweighs the potential harm to contractors. (Id. at 239-40.) “Persons dealing with the public agency are presumed to know the law with respect to the requirement of competitive bidding and act at their peril....” (Id. at 234.)

Under the contract and the applicable law concerning competitive bid contracts, Talgo cannot recover damages outside those contemplated by the contract. MTA’s demurrer is SUSTAINED without leave to amend.