TENTATIVE RULING

 

Calendar: 1

Date: 7/29/2022

Case No: 20 GDCV00466 Trial Date: August 22, 2022

Case Name: A Cut Above Building & Developing, Inc. v. Stull

                          MOTION FOR LEAVE TO FILE FIRST AMENDED CROSS-COMPLAINT

Moving Party:      Cross-Complainant Rachelle K. Stull  

Responding Party:        Cross-Defendant A Cut Above Building & Developing, Inc.  

RELIEF REQUESTED: File a First Amended Cross-Complaint

Date Original Cross-Complaint filed:   April 5, 2021 

Effect of Amendment 

Adds cause of action for negligence

Specifies construction defects, issues to be addressed by expert witnesses 

RELEVANT FACTS:

Plaintiff A Cut Above Building & Development Inc.  (“A Cut Above”) alleges that in August of 2018 plaintiff commenced construction work at property in Monrovia, title of which is held by the Rachelle K. Stull 2014 Revocable Trust, of which defendant Rachelle K. Stull is the trustee.  Plaintiff alleges that the subject property was originally purchased at the request of Stull by Michael Scott Dowell and Julia L. Dowell, who are husband and wife, and are the beneficiaries of a deed of trust recorded against the property on July 5, 2019.  These Dowell parties are referred to collectively as the “Beneficiaries.”   The TAC alleges that the Beneficiaries purchased the property on Stull’s behalf, and held naked title to the property, but Stull was given free and exclusive use and enjoyment of the property from the purchase of the property on June 1, 2018 until July 2, 2019.   Plaintiff alleges that the Beneficiaries offered to have plaintiff A Cut Above perform renovation at the property, pursuant to Stull’s desires, at cost, with no profit to plaintiff, in exchange for which defendant Stull agreed to pay for all the costs plaintiff incurred in making the renovations.   The TAC alleges that the Beneficiaries cooperated with Stull and plaintiff in this agreement and consented to the arrangement, and that the agreement was oral but was reinforced by the parties’ conduct and various elements memorialized via emails and text messages. 

Plaintiff alleges that it commenced work in August of 2018, and soon identified a number of problems which expanded the scope of the project, and that Stull agreed that the issues must be addressed, expanding the scope of work.  Based on the expanded scope of work, plaintiff sent Stull an itemized budget identifying work Stull had requested to be performed thus far.  The City of Monrovia then determined permits would be required to continue most of this work, and the majority of the work froze, during which period Stull made further decisions about expanding the scope of the project and made a $80,000 payment to finance the costs of the expanded scope. 

In July of 2019, Stull purchased the property.   The Beneficiaries agreed to issue Stull an interest only carryback note in the amount of $491,000.00 at a rate of 4.75% with a maturity date of July 5, 2020, which was secured by the property by the deed of trust. 

Stull represented that she would pay outstanding construction costs at the conclusion of construction using outside case or cash she might be able to obtain from a cash-out refinance.  

The project was completed on February 6, 2020, with the total costs incurred by plaintiff of at least $424,920, and an outstanding balance to be paid at completion of $344,920, which defendants have failed and refused to pay.  The TAC alleges causes of action for money due on contract, open book account, account stated, reasonable value of materials and serviced furnished, claim on mechanic’s lien release bond, and equitable lien.  

Defendant Stull has filed a cross-complaint against A Cut Above and the Dowells as cross-defendants, alleging that the Dowells are the sole officers, directors and shareholders of A Cut Above, and that in June of 2018, the Dowells advised Stull they intended to purchase the subject property, which had horse stables and directly abuts the horse show jumping business operated by Stull at Bellaventage Farms, and told Stull the subject property with certain improvements was a great opportunity for Stull and her business.   The cross-complaint alleges that cross-defendants were aware that Stull did not have the financial ability to purchase the subject property, as Stull was going through a difficult divorce, and advised Stull that the Dowells would assist Stull in the financing of the subject property or make the loan themselves.  The Dowells purchased the subject property and advised Stull that she could use some of the horse stalls at the rear of the property in exchange for certain expenses, including the property taxes of the real property. 

The cross-complaint alleges that the Dowell cross-defendants told Stull that the repairs and improvements to the house and garage would be done at their costs, and that such repairs would be beneficial to Stull and would costs approximately $150,000 and would not exceed $200,000.   Stull alleges that cross-defendants are improperly attempting to charge Stull for construction work done without permits, in violation of Business & Professions Code sections 7090 and 7110.   The cross-complaint alleges that in July of 2019, Stull completed the purchase of the property, that there was no contract providing for an amount claimed to be due for any improvements, or any mention of any amount due in excess of the $80,000 Stull had previously paid toward the improvements.  During the period of construction, Stull repeatedly advised that she was concerned about the costs of the work and was advised by the Dowells that the costs would not be excessive and on account of their friendship, she would not be subject to any surprise or excessive costs, and that cross-defendants would work with her to finance any amounts which might be owed.  In October of 2019, cross-defendants stated in an email that the work had cost them $352,000, and that she would owe $272,000, with anticipated further costs in the range of $148,950 to $171,840 to complete the remodel project.  Although Stull was upset and shocked at these amounts, and she wanted the project to stop, cross-defendants advised Stull that the project was nearly complete, they had workers lined up to finish, and also again represented that they would assist in financing and would work with Stull to use the rental income from the remodeled house and outbuildings on the subject property to obtain financing.  

In January of 2020, cross-defendants advised Stull that they had completed the project, and that they were owed $344,920 by Stull.  In February of 2020, cross-defendants recorded a mechanic’s lien against the subject property, and subsequently a loan broker arranged by cross-defendants was unable to find a loan due to the mechanic’s lien, and cross-defendants have failed to make the loan they had said they would make to cover the costs.  The cross-complaint alleges causes of action for violation of Business & Professions Code sections 7159 and 7163, violation of Business & Professions Code section 7031, violation of Business & Professions Code sections 7090 and 7110, money had and received, declaratory relief, and unfair business practices. 

 

ANALYSIS:

CCP § 473 (a)(1) provides that “The court may..., in its discretion, after notice to the adverse party, allow, upon any terms as may be just, an amendment to any pleading...”  The court’s discretion should usually be exercised liberally to permit amendment of pleadings.    Nestle v. City of Santa Monica (1971) 6 Cal.3d 920, 939.  This is especially true where the motion to amend is timely made and the granting of the motion will not prejudice the opposing party.  Morgan v. Superior Court (1959, 2nd Dist.) 172 Cal.App.2d 527, 530.  

The Second District in Record v. Reason (1999) 73 Cal.App.4th 472, set forth the standard for reviewing the trial court’s discretionary determination on a motion to amend:

“"[T]he trial court has wide discretion in allowing the amendment of any pleading [citations], [and] as a matter of policy the ruling of the trial court in such matters will be upheld unless a manifest or gross abuse of discretion is shown. [Citations.]" (Bedolla v. Logan & Frazer (1975) 52 Cal. App. 3d 118, 135-136 [125 Cal. Rptr. 59].)”

Record, at 486.

Cross-complainant here seeks to amend the cross-complaint to add to the list of construction defects identified in the pleading as additional defects disclosed in discovery, as well as issues to be addressed by the parties’ experts as revealed by their expert witness disclosures.  Primarily, the motion seeks to add a cause of action for negligence, which cross-complainant argues is necessary to ensure that cross-complainant recovers for all damages suffered in connection with this matter, including the rising construction costs to make necessary repairs, which may exceed the disgorgement amount sought, and to permit cross-complainant at trial to seek a negligence per se presumption.  Cross-complainant argues that counsel for cross-complainant discovered in June of 2022 for the first time that A Cut Above had consented to violations identified in a citation issued by the California Contractors State License Board (“CSLB”) and agreed to pay a fine with respect to those violations.  [Goldberg Decl., paras. 5, 10].   

It appears that the amendments are necessary to reflect the current posture of the matter, and to ensure that all theories of liability and recovery are determined in this matter with respect to the dispute concerning the subject property.

Cross-defendants A Cut Above and the Dowells oppose the motion, arguing that cross-complainant is seeking by this motion, after the close of non-expert discovery and on the eve of trial, to add a tort cause of action in clear prejudice to cross-defendants and with no explanation why the amendment was not sought earlier. 

Cross-defendants argue that the moving papers essentially concede that the separate cause of action for negligence is based upon the same facts previously alleged but seeks to add additional damages of no less than $100,000 on the eve of trial.   Cross-defendants argue that this attempt to amend is not timely but was inspired by the mandatory settlement conference the parties attended in June and prejudices A Cut Above.  

Cross-defendants also argue that the negligence cause of action is barred by the applicable statute of limitations.  However, it is recognized that a court is permitted to deny leave to amend based on the merits of a pleading only if it is clear as a matter of law that there is no liability.   Pomona College v. Superior Court (1996, 2nd Dist.) 45 Cal.App.4th 1716, 1721.   Even where the proposed legal theory is a novel one, “the preferable practice would be to permit the amendment and allow the parties to test its legal sufficiency by demurrer, motion for judgment on the pleadings or other appropriate proceedings.”   Kittredge Sports Co. v. Superior Court (1989) 213 Cal.App.3d 1045, 1048, quoting California Casualty Gen. Ins. Co. v. Superior Court (1985) 173 Cal.App.3d 274, 281.   Here, cross-defendants may challenge the sufficiency of any new aspects of the pleading through demurrer or motion to strike, after engaging in meet and confer.   

Cross-defendants argue that they will be prejudiced by permitting the expansion of this matter to include a tort theory after non-expert discovery has been concluded and the matter is set for trial in August of 2022, and that a trial continuance would be improper given the lack of a reasonable excuse for the delay.   Absent prejudice, delay alone is held not to be a sufficient ground for denial of leave to amend, and where no prejudice is shown, “the liberal rule of allowance prevails.”  Higgins v. Del Faro (1981) 123 Cal.App.3d 558, 564-565.   The prejudice here would be that non-expert discovery would have to be re-opened for the limited purpose of exploring the new theory, and the trial date postponed.   There is no prejudice urged by the opposing parties which is the type of prejudice which would ordinarily justify denying leave to amend, such as loss of evidence which due to the delay has been destroyed, cannot be recollected, or cannot be replaced.  It has been held, for example, that it is not an abuse of discretion to deny leave to amend where a plaintiff knew for several months of the facts underlying the claim but failed to amend until after summary judgment had been entered against it  (Fisher v. Larsen (1982) 138 Cal.App.3d 627, 649), or where there is a strong showing that dilatory amendment is the result of “legal gamesmanship.” Green v. Rancho Santa Margarita Mortgage Co. (1994) 28 Cal.App.4th 686, 693.   It appears that it did not come to the attention of cross-complainant that cross-defendant A Cut Above had conceded liability for building violations and paid assessed fines without objection until recently, and that this circumstance has triggered a recognition that negligence per se principles could apply here to support a theory of liability against cross-defendant.  The delay is appropriately explained, and the delay here has not resulted in any prejudice which is of a nature to justify denying leave to amend the pleading, where it is still possible to conduct further discovery and continue the trial.    

The opposition cites Magpali v. Farmers Group, Inc. (1996) 48 Cal.App.4th 471, in which the Second District affirmed a trial court’s granting of nonsuit and denial of plaintiff’s request to amend the complaint to add a discrimination claim under the Unruh Civil Rights Act to an employment action alleging breach of contract, fraud and IIED.  The Second District carefully reviewed the decision to deny leave to amend based on comments made by the court during trial which could have been interpreted as minimizing sensitivity to racial discrimination, and noted that its “independent review of the record reveals no abuse of  discretion,” noting that the amendment was proposed on the eve of trial, nearly two years after the complaint was filed, with no explanation for bringing the request so late, and that prejudice to defendant in that case was “clearly shown,” as “in preparing for trial on  claims of breach of contract, misrepresentation, and intentional infliction of emotional distress, [defendant] had not discovered or deposed many of the witnesses who would support the new allegations, and had not marshaled evidence to oppose the contention that a system-wide discriminatory policy existed.”  Magpali, at 486-487. 

  The Second District in Magpali also relied on the circumstance that in that case a simple trial continuance was not a practically convenient option, concluding:

“It is apparent that adding the new cause of action would have changed the tenor and complexity of the complaint from its original focus on representations and demands made to Magpali by his superiors to an exploration of Farmers's activities and practices in the entire Southern California area. Magpali conceded at oral argument that addition of the new claim would have necessitated, at the very least, a continuance to allow Farmers to depose new witnesses. Where the trial date is set, the jury is about to be impaneled, counsel, the parties, the trial court, and the witnesses have blocked the time, and the only way to avoid prejudice to the opposing party is to continue the trial date to allow further discovery, refusal of leave to amend cannot be an abuse of discretion. Our concern over the unfortunate remarks appearing in the record does not persuade us otherwise. With every relevant factor aligned on the opposing side, denial of the motion for leave to amend was the only appropriate outcome.”

Magpali, at 487-488. 

The opposition does not submit any evidentiary showing supporting the type of prejudice presented in Magpali, such as that time has been blocked for trial and schedules cannot be modified.  It does not appear to be a situation in which there is some circumstance implicating a deliberate strategy to gain an advantage in the situation litigation.  No prejudice has been established which would warrant denying leave to amend.   

The liberal rule of allowing amendment accordingly prevails here, and the motion is granted. 

CCP § 473(a)(2) provides:

“When it appears to the satisfaction of the court that the amendment renders it necessary, the court may postpone the trial….”

The court will finds that amendment renders necessary the postponement of the trial and discovery cut off dates in this matter. 

RULING:

Cross-Complainant Rachelle K. Stull’s Motion for Leave to File First Amended Cross-Complaint is GRANTED.  

Cross-complainant is ordered file a signed copy of the First Amended Cross-Complaint on eCourt no later than close of business this date, and the First Amended Cross-Complaint will be deemed served on the current parties upon the efiling of the First Amended Cross-Complaint.   

Pursuant to CCP § 473(a)(2), it appearing to the satisfaction of the Court that the amendment renders it necessary, the trial date is postponed to a date to be determined, with all discovery cut-offs to be measured from the new trial date.  

 GIVEN THE CORONAVIRUS CRISIS, AND TO ADHERE TO HEALTH GUIDANCE THAT DICTATES SAFETY MEASURES, DEPARTMENT D IS ENCOURAGING AUDIO OR VIDEO APPEARANCES

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