Judge: Monica Bachner, Case: 19STCV45587, Date: 2022-10-21 Tentative Ruling

Case Number: 19STCV45587    Hearing Date: October 21, 2022    Dept: 71

 

 

 

Superior Court of California

County of Los Angeles

 

DEPARTMENT 71

 

TENTATIVE RULING

 

LSG LAS TUNAS, LP,

 

         vs.

 

A&R CORPORATION, INC., et al.

 Case No.:  19STCV45587

 

 

 

Hearing Date:  October 21, 2022

 

Cross-Defendant LSG Las Tunas, LP’s Demurrer to Cross-Complainant A&R Corporation, Inc.’s First Amended Cross Complaint is sustained without leave to amend as to the third and fourth causes of action and overruled as to the fifth cause of action.

 

The Motion to Strike is granted with leave to amend in 10 days as to requests 1, 2, and 3, granted without leave to amend as to requests 4-11, and denied as to requests 12-15.

 

          Cross-Defendant LSG Las Tunas, LP (“LSG”) demurs to the 2nd (Negligence) 3rd (Intentional Misrepresentation), 4th (Negligent Misrepresentation), 5th (Fraudulent Concealment/Violations of Civil Code Sections 2782.9, 2782.95 and 2782.97), 6th (Intentional Interference with Contractual Relations), 7th (Negligent Interference with Prospective Economic Relations/Advantage), 8th (Breach of Contract – Insurance), 9th (Equitable Indemnity), and 10th (Contribution) causes of action in the First Amended Cross-Complaint (“FACC”) of the Cross-Complainant A&R Corporation, Inc. (“A&R”). A&R agrees in their opposition to dismiss the 2nd (Negligence), 6th (Intentional Interference with Contractual Relations), 7th (Negligent Interference with Prospective Economic Relations/Advantage), 8th (Breach of Contract – Insurance), and 9th (Equitable Indemnity) causes of action, without prejudice, against LSG. The 10th (Contribution) cause of action was not pled by A&R against LSG, therefore LSG has no basis to demur to it. (Opp., at p. 5:1-18.)

         

          The remaining causes of action between the parties are the 3rd (Intentional Misrepresentation), 4th (Negligent Misrepresentation), and 5th (Fraudulent Concealment/Violations of Civil Code Sections 2782.9, 2782.95 and 2782.97).

 

 

 

          Background

 

On December 19, 2019, LSG filed its initial complaint against A&R alleging causes of action for (1) breach of contract, (2) negligence, (3) breach of implied warranty, (4) indemnity, and (5) fraud by deceit and omission based on A&R’s alleged breach of an August 8, 2016 written contract pursuant to which A&R agreed to provide construction services as a general contractor toward a construction project improving real property located at 704-712 W Las Tunas Dr., San Gabriel, California (“Property”), comprised of 35 condominium units, subterranean parking, and retail space.  (Complaint ¶¶4-16.) On April 10, 2020, LSG filed its first amended complaint (“FAC”).

 

A&R filed the initial cross complaint on July 14, 2020, alleging 10 causes of action against LSG, LIM CHANG & ASSOCIATES, INC., MY ENGINEERING, INC., EGL ASSOCIATES, INC., ENERGY DESIGN, INC., PARK’S ENGINEERING CONSTRUCTION SERVICES, and DOES 1 through 100. A&R filed the FACC on March 16, 2022, which adds several more named cross-defendants. The FACC removes claims for breach of implied covenant of good faith and fair dealing, fraud, and indemnity but adds claims for intentional misrepresentation, fraudulent concealment/violation of Civil Code Sections 2782.9, 2782.95 and 2782.97, breach of contract, equitable indemnity, and declaratory relief. LSG filed a demurrer to the second through tenth causes of the FACC and a motion to strike on April 14, 2022. A&R filed an opposition to the demurrer and motion to strike on September 28, 2022. LSG filed their reply to the opposition on October 3, 2022.  

         

          Demurrer

 

          LSG demurs to the FACC under CCP § 430.10(e) alleging that “the pleading does not state facts sufficient to constitute a cause of action.” When ruling on a demurrer, the Court “accept[s] the factual allegations of the complaint as true … but not contentions, deductions or conclusions of fact or law.” (Mitchell v. California Department of Public Health (2016) 1 Cal.App.5th 1000, 1007.) Before filing a demurrer, parties must satisfy a meet and confer obligation under CCP §430.41(a). If the parties fail to meet and confer, CCP §430.41(a)(4) states it is not a valid ground to “overrule or sustain the demurrer.”

 

          A&R alleges that LSG did not fully comply with the meet and confer requirement of CCP §430.41(a). LSG sent a meet and confer letter to A&R on April 1, 2022, which A&R responded to on April 13, 2022, and LSG filed this demurrer one day later: April 14, 2022. A&R correctly points out that letters do not satisfy the “in person or by telephone” meet and confer requirement of CCP §430.41(a). However, the Court cannot overrule or sustain the demurrer based on failing to satisfy the meet and confer requirements under CCP §430.41(a)(4). Accordingly, the Court will consider the demurrer without satisfying the meet and confer requirement.

 

          Intentional and Negligent Misrepresentation (3rd and 4th causes of action)

 

          The elements of a claim for intentional misrepresentation are “(a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.’ [Citations]” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.) A claim of negligent misrepresentation requires the same elements (a), (c), (d), and (e) but modifies (b) to require only “a misrepresentation of fact by a person who has no reasonable grounds for believing it to be true.” (Civ. Code § 1710(2); Gagne v. Bertran (1954) 43 Cal.2d 481, 488.) A cause of action for fraud must be alleged with factual specificity. Plaintiff must plead facts showing “how, when, where, to whom, and by what means the representations were tendered. [Citation]” (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184.)

 

A&R fails to allege sufficient facts to constitute a cause of action for either intentional or negligent misrepresentation against LSG. As to intentional misrepresentation, A&R alleges that George Lin, LSG’s owner, “made several false, representations, concealments, or omissions/nondisclosures to A&R from the period of October 2019, until January 2020.” (FACC, ¶79.) A&R alleges a specific misrepresentation “about November 2016, in order to induce Cross-Complainant to perform services at the Project for $70,388 less than the agreed contract price, Cross-Defendants represented that Cross-Complainant would receive the benefits of an OCIP policy with a limit of $5,000,000 per occurrence for damages subject to a $30,000 deductible per occurrence.” (Ibid.) A&R alleges that “LSG and Lin knew such statements were false at the time they were made. As of October 2019, LSG knew it would terminate the Contract with A&R but strung it along to maximize work on site.” (FACC, ¶80.)

 

Regarding negligent misrepresentations, A&R alleges that LSG “orally and in writing represented to A&R that it would fully perform and abide by the terms of the Contract with regard to this Project, including reviewing and approving Change Orders, answering RFI's, coordinating and adhering to the Project schedule, and administering timely inspections. Cross-Defendants also represented that its designs were complete and up to professional standards.” (FACC, ¶85.) A&R presents that the statements made to them must have been negligent because “at all relevant times, Cross-Defendants represented to A&R that their work was complete and without defects. However, Cross-Defendants lacked the capacity, experience in the type of multi-family construction and/or labor, and/or oversight to be able to complete its contractual obligations and other duties in a timely manner.” (FACC, ¶87.)

 

While these allegations satisfy some of the required elements of intentional and negligent misrepresentation claims, A&R only makes a conclusory statement that they “justifiably relied upon the misrepresentations.” (FACC, ¶82.) This is contradicted by Exhibit C to the FACC, the relevant contract between A&R and LSG, which provides:

 

The parties understand and agree that no representations of any kind whatsoever have been made to it other than as they appear in the Agreement and in this Amendment; that they have not relied on any representations not contained therein; and that no claim that it has so relied on may be made at any time and for any purpose. (FACC, Exhibit C, ¶D.)

 

Thus even if A&R had alleged facts sufficient to show justifiable reliance, the language in this contract would take precedence.  (See Dodd v. Citizens Bank of Costa Mesa (1990) 222 Cal.App.3d 1624, 1626-1627 [“facts appearing in exhibits attached to the complaint will also be accepted as true and, if contrary to the allegations in the pleading, will be given precedence.”].) Without factual allegations of justifiable reliance, A&R fails to allege sufficient facts to constitute a cause of action for intentional or negligent misrepresentation against LSG. Thus, the demurrer is sustained without leave to amend as to the third and fourth causes of action.

 

Fraudulent Concealment/Violations of Civil Code Sections 2782.9, 2782.95 and 2782.97 (5th cause of action)

 

“[T]he elements of an action for fraud and deceit based on a concealment are: (1) the defendant must have concealed or suppressed a material fact, (2) the defendant must have been under a duty to disclose the fact to the plaintiff, (3) the defendant must have intentionally concealed or suppressed the fact with the intent to defraud the plaintiff, (4) the plaintiff must have been unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact, and (5) as a result of the concealment or suppression of the fact, the plaintiff must have sustained damage.” (Boschma v. Home Loan Center, Inc. (2011) 198 Cal.App.4th 230, 248 [129 Cal.Rptr.3d 874].)

 

A&R alleges that LSG did not make the required disclosures under Civil Code Section 2782.95 pertaining to an owner-controlled insurance program (“OCIP”). (FACC, ¶88.) Civil Code Section 2782.95 lists required disclosures that the policy holder must give to the general contractor or other participant in the policy. LSG correctly points out that Civil Code Section 2782.97 does not exist.

 

The relevant agreement between LSG and A&R Section 12.2.3 states that A&R was to, “procure, at its own expense, commercial general liability insurance with limits no less than $5,000,000 per occurrence for bodily injury, personal injury and property damage.” (FACC, ¶46.) A&R states they are “informed and believe” that “LSG chose to modify the terms of the Agreement by (1) waiving the requirement that A&R procure commercial general liability insurance; (2) choosing instead that LSG would purchase commercial general liability insurance for itself, A&R and all subcontractors working on the Project through what is known as an "OCIP" (owner-controlled insurance program) or "wrap-u policy; and (3) directing A&R to issue a Change Order giving a credit of $70,388 to LSG in exchange for waiving A&R's obligation to purchase the required coverage.” (FACC, ¶47.) A&R states they relied on LSG to procure a policy covering the same scope of risk as Section 12.2.3 of the agreement. (FACC, ¶47.) “LSG furnished A&R with a document captioned "OCIP Insurance Manua which stated that the OCIP policy procured by LSG had liability limits of $5,000,000 per occurrence, and which further stated that the policy required "satisfaction of a per occurrence deductible in the amount of $30,000." (FACC, ¶48.) A&R claims they relied on the OCIP Insurance Manual and “reasonably understood” that the OCIP policy would conform to the language of Section 12.2.3 of the agreement between LSG and A&R. (FACC, ¶52.)

 

A&R alleges that LSG fraudulently concealed the policy terms of coverage, the eroding nature of the policy limits, and self-insured retention obligations which might impact the insured’s duty to defend or indemnify for a claim of property damage. (FACC, ¶91.) Simply put, the OCIP policy includes both defense and indemnification costs which would be attributed to the $5,000,000 per occurrence limit. A&R alleges this fact was fraudulently concealed from them and they reasonably relied on representations by LSG that the $5,000,000 per occurrence limit would only include damages, not defense. A&R alleges LSG concealed to “induce Cross-Complainant to (a) execute change order, (b) agree to a reduction in the contract price, and (3) perform services at the Project.” (FACC, ¶92.)

 

A&R alleges sufficient facts to constitute a cause of action for fraudulent concealment. The OCIP Manual provided to A&R on the policy simply stated that the policy had “liability limits of $5,000,000 per occurrence” while Section 12.2.3 of the agreement between LSG and A&R was limited to “per occurrence for bodily injury, personal injury and property damage.” A&R has demonstrated that LSG is under an affirmative duty to disclose information about the policy under Civil Code Section 2782.95. A&R alleges that failing to disclose the policy terms was intentional to induce A&R to execute a change order and reduce the contract price.

 

LSG argues that A&R’s concealment claim relies on its own misinterpretations as opposed to affirmative misrepresentations by LSG. At this stage, however, construing the allegations liberally and drawing reasonable inferences in favor of A&R, the Court finds that A&R alleges sufficient facts to constitute a cause of action for fraudulent concealment. Thus, the demurrer is overruled as to the fifth cause of action.

 

          Motion to Strike

 

          CCP § 436 allows the Court to strike information from a pleading which is irrelevant, false, improper, and/or any portion of a pleading not drawn in conformity with the laws of the state, court rules, or court order. A motion to strike is not to be used to determine whether a plaintiff (or cross-complainant) has stated sufficient facts to constitute a cause of action. Pierson v. Sharp Memorial Hosp. (1989) 216 Cal.App.3d 340, 342- 43.

 

          LSG alleges three sets of information which should be stricken from the FACC; (1) allegations regarding the amount of the mechanics lien; (2) allegations stating the design and plans were insufficient; and (3) allegations regarding punitive damages.

 

A&R does not object to the mechanics lien amount being modified and the reduction was already affirmed by the California Court of Appeal. Therefore, the motion to strike is granted with leave to amend as to requests 1, 2, and 3.

 

Based on the prior analysis, the only claim left for A&R to pursue is Fraudulent Concealment/Violations of Civil Code Sections 2782.9, 2782.95 and 2782.97 (5th cause of action). Because this claim only focuses on the OCIP policy, the allegation that the design and plans were insufficient are irrelevant. CCP 436(a) allows the court to strike “irrelevant” matter. Therefore, the motion to strike is granted as to requests 4 – 11.

 

The claim for punitive damages, however, is directly linked to the Fraudulent Concealment/Violations of Civil Code Sections 2782.9, 2782.95 and 2782.97 (5th cause of action). There is no dispute that punitive damages are available for a claim of fraudulent concealment. See Civil Code § 3294; Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal. 4th 979, 988. Instead, LSG argues that the punitive damages asserted are devoid of any factual support and should be stricken as misleading. (See Smith v. Superior Court, (1992) 10 Cal.App.4th 1033, 1042 (conclusory allegations “devoid of any factual assertions supporting a conclusion that [defendant] acted with oppression, fraud or malice” should be stricken.))

 

The material listed in allegations 12 – 15 are conclusory, but the material “must be read not in isolation, but in the context of the facts alleged in the rest of [plaintiff's] complaint." Perkins v. Super. Ct. (1981) Cal.App.3d 1. A&R alleges facts as to who, what, and why they believe LSG committed fraudulent concealment which puts into factual context why they would be entitled to punitive damages. For example, LSG requests to strike the language which concludes that LSG engaged in fraudulent concealment which makes them guilty of “oppression, fraud and malice.” (Mot. to Strike, ¶13.) In context, however, A&R presents that LSG provided the OCIP Manual to A&R which concealed the true policy limitations and A&R alleges it was provided specifically to induce A&R to rely on the information and provide a change order to lower the cost of work. These are all factual allegations which put into context the conclusory statement by A&R. Therefore, the motion to strike is denied as to requests 12 – 15.

 

Dated:  October 21, 2022

                                                                                                                       

Hon. Monica Bachner

Judge of the Superior Court