Judge Ralph C. Hofer, Case 22AHCV00603 2023-03-17 Tentative Ruling

Plaintiff Constructure, Inc. alleges that in November of 2019, defendant POVAC Investments, Inc. dba Adept Building and Construction (POVAC) entered into a subcontract with plaintiff pursuant to which plaintiff would perform construction work on real property in San Gabriel relating to concrete, rebar and lumber work, and defendant would pay plaintiff $4,356,184.21 for the work, which sum was subject to increase for additional work.

Plaintiff alleges that after its work commenced, defendant POVAC requested additional work, for which written change orders remain pending, not yet approved, but for which plaintiff has already performed all work required at the insistence of defendant POVAC. The remaining unpaid balance on the change orders is $895,272.00. The complaint alleges that to date plaintiff has been paid $4,022,006.68, leaving a balance of $446,889.63 on the initial subcontract. This balance, combined with the change orders, brings the principal balance owed to plaintiff to $992,653.41, plus accruing penalties and interest. Plaintiff alleges that it has served defendant 860 E&A, LLC and defendant POVAC with its Preliminary Notice, and has recorded a mechanic’s lien on the project.

Plaintiff also brings a cause of action for claim on contractor’s license bond, alleging that before plaintiff entered into its part of the construction project, defendant American Contractors Indemnity Company, as surety, executed a contractor’s bond with POVAC as principal, and these defendants have failed to pay plaintiff pursuant to the terms and conditions of the surety bond.

Defendant POVAC has filed a cross-complaint against Constructure as cross-defendant, various surety cross-defendants, and cross-defendants Benjamin John Bohannan, Adam Bohannan, and Brian Bohannan, alleging that cross-complainant POVAC entered into a subcontract with cross-defendant Constructure to provide portions of labor, services, equipment and materials necessary for the construction project, and that cross-defendants breached the contract in numerous respects, including failing to comply with sections of the subcontract, failing to commence, perform and complete the work in a prompt and diligent manner, failing to cooperate with cross-complainant in scheduling and performing work, failing to avoid conflict and interference with the work of cross-complainant and other subcontractors, performing work that was not workmanlike, failing to timely cure defaults after receiving notices of default, failing to pay suppliers, diverting funds from the project, and abandoning the project.

The cross-complaint alleges that at the time that Constructure negotiated the terms of the contract, and throughout the performance of the contract, Constructure, through its officers, directors and representatives, and the Bohannan Cross-defendants knew but concealed from cross-complainant that it had no intention of performing its obligations under the contract for the project, that it was not properly staffed, that it would disrupt or delay the project, and that it would bill for and submit and demand change orders for services, equipment and materials not provided to the project.

Cross-defendants Benjamin John Bohannan, Adam Bohannan and Bryan Bohannan, along with cross-defendant Constructure, file this demurrer to the second and third causes of action of the cross-complaint, and cross-defendant Constructure also demurs to the fourth cause of action of the cross-complaint.

To state a cause of action for fraud, plaintiff must plead the following elements: A false representation, actual or implied, or concealment of a matter of fact material to the transaction which defendant had a duty to disclose, or defendant’s promise made without intention to perform; defendant’s knowledge of the falsity; defendant’s intent to deceive; plaintiff’s justifiable reliance thereon; and resulting damage to plaintiff. Pearson v. Norton (1964) 230 Cal.App.2d 1.

Generally, in a fraud cause of action, a plaintiff must allege specifically how, what, where, to whom and by what means a defendant made a misrepresentation. Stansfield v. Starkey (1990, 2nd Dist.) 220 Cal.App.3d 59, 73, citation omitted. When such a claim is made against a corporation, the level of specificity required is even higher. Under Lazar v. Superior Court (1996) 12 Cal.4th 631, 645, in fraud complaints against a corporation, a plaintiff must allege all of the following:

Cross-defendants argue that the causes of action are not alleged with sufficient specificity. The second cause of action alleges numerous specific concealments, and then alleges that Constructure, “by and through Kevin Villafuerte, Fernando Avila, Jordy Silva, Jaspreet Singh, Sean Coker, Brian Bohannan, Benjamin Bohannan, Adam Bohannan” and the Bohannan cross-defendants suppressed and concealed the facts at various points in the relationship between the parties. [Cross-complaint, paras. 23, 24]. The third cause of action similarly provides a lengthy list of alleged representations, allegedly made on behalf of Constructure and the Bohannan defendants, by and through these named individually, who “falsely and deceitfully represented (orally and in writing) to Cross-Complainant’s project managers, superintendents, officers…” the subject facts. [Cross-complaint, para. 30].

It is not clear which of these persons engaged in making the identified representations or concealments, when each of the representations or concealments were made, to whom, by what means, and it is not alleged how any of the individuals are related to the entity cross-defendant Constructure. As also argued in the demurrer, it is not clear what relationship each of the Bohannan defendants has to the corporate entity, and to the extent the allegations appear to be that the fraud was by Constructure “by and through” the named individuals, it is not clear how the Bohannan defendants are alleged to be personally liable for any such fraud. [Cross-complaint, para. 24]. Particularly in a pleading such as this one, involving multiple cross-defendants which are differently situated, the requisite specificity as to the alleged fraudulent conduct must be alleged. The demurrer is sustained on this ground.

Cross-defendants also argue that part performance of the contract here precludes fraudulent inducement and false promise claims. The causes of action are a mixture of fraudulent inducement, false promises with respect to the initial contract, as well as throughout the project, so that it is not clear that all of the alleged representations or concealments alleged would be subject to an argument of part performance. It is alleged that there were promises to cure defaults, and that there were representations that work was performed which was not in fact performed. [Cross-complaint, para. 19, para. 30 (e), (f), para. 30 (c)- (e), para. 31(k)]. Moreover, the argument appears to present a defense to the causes of action, and not one which the pleading would be required to plead around. The demurrer on this ground is overruled.

“Speaking very generally, tort law provides a remedy for construction defects that cause property damage or personal injury. Focusing on the conduct of persons involved in the construction process, courts in this state have found such a remedy in the law of negligence. Viewing the home as a product, courts have also found a tort remedy in strict products liability, even when the property damage consists of harm to a sound part of the home caused by another, defective part. For defective products and negligent services that have caused neither property damage nor personal injury, however, tort remedies have been uncertain. Any construction defect can diminish the value of a house. But the difference between price paid and value received, and deviations from standards of quality that have not resulted in property damage or personal injury, are primarily the domain of contract and warranty law or the law of fraud, rather than of negligence. In actions for negligence, a manufacturer's liability is limited to damages for physical injuries; no recovery is allowed for economic loss alone. (Seely v. White Motor Co., supra, 63 Cal. 2d 9, 18.) This general principle, the so-called economic loss rule, is the primary obstacle to plaintiffs' claim.”

Cross-defendants cite to Erlich v. Menezes (1999) 21 Cal.4th 543, , in which the California Supreme Court recognized that conduct amounting to a breach of contract becomes tortious when it violates an independent duty arising from principles of tort law. Erlich v. Menezes (1999) 21 Cal.4th 543, 551.

“Tort damages have been permitted in contract cases where a breach of duty directly causes physical injury (Fuentes v. Perez (1977) 66 Cal. App. 3d 163, 168, fn. 2 [136 Cal. Rptr. 275]); for breach of the covenant of good faith and fair dealing in insurance contracts (Crisci v. Security Ins. Co. (1967) 66 Cal. 2d 425, 433 434 [58 Cal. Rptr. 13, 426 P.2d 173]); for wrongful discharge in violation of fundamental public policy (Tameny v.Atlantic Richfield Co. (1980) 27 Cal. 3d 167, 175 176 [164 Cal. Rptr. 839, 610 P.2d 1330, 9 A.L.R.4th 314]); or where the contract was fraudulently induced. (Las Palmas Associates v. Las Palmas Center Associates (1991) 235 Cal.App. 3d 1220, 1238 1239 [1 Cal. Rptr. 2d 301].) In each of these cases, the duty that gives rise to tort liability is either completely independent of the contract or arises from conduct which is both intentional and intended to harm. (See, e.g., Christensen v. Superior Court (1991) 54 Cal. 3d 868, 885 886 [2 Cal. Rptr. 2d 79, 820 P.2d 181].)”

Cross-defendant Constructure argues that this cause of action is barred by the economic loss rule, as cross-complainant has not alleged physical harm, personal injury or property damage, and has not alleged any conduct by anyone which could be considered negligent.

The cause of action clearly alleges numerous instances of conduct which breached the duty of due care and the standard in the industry. [Cross-complaint, paras. 39-42]. Among the conduct complained of is damaging work performed by others, which appears to allege property damage. [Cross-complaint, para. 42(l)]. It is also alleged in the cause of action that cross-defendant engaged in concealment. [Cross-complaint, paras. 42 (q)]. The cause of action does not appear at this stage to be barred completely by the economic loss rule, and the demurrer on this ground is overruled.

The demurrer argues that the demurrer should be sustained without leave to amend. There has been no opposition filed, so cross-complainant has not explained how the pleading could be appropriately amended to state the fraud causes of action. However, this is the original cross-complaint in the matter, and it is held that in the case of an original pleading, a party need not even request leave to amend: “unless [an original complaint] shows on its face that it is incapable of amendment, denial of leave to amend constituted an abuse of discretion, irrespective of whether leave to amend is requested or not.” King v. Mortimer (1948) 83 Cal.App.2d 153, 158, citations omitted. The court of appeal in King cited to CCP section 472c, which provides, in pertinent part, “the question as to whether or not such court abused its discretion in making such an order is open on appeal even though no request to amend such pleading was made.”

This situation is cross-defendant’s first attempt to state these causes of action, and it is not clear from the face of the cross-complaint that it cannot be amended to state causes of action based on these facts, particularly when the basis for sustaining the demurrer is lack of specificity. The court accordingly permits cross-defendant one opportunity to amend.

The motion to strike seeks to strike the allegations and prayers for punitive damages. The cross-complaint seeks punitive damages in connection with the second and third causes of action only. [See Cross-Complaint, paras. 28, 36, prayer, paras. 2, 3]. Since the demurrer to these causes of action is sustained with leave to amend, the motion to strike is taken off calendar as moot.

Cross-Defendants Constructure, Inc., Benjamin John Bohannan, Adam Bohannan, and Bryan Bohannan’s Demurrer to the Second and Third Causes of Action and Constructure, Inc.’s Demurrer to the Fourth Cause of Action on Cross-Complaint of POVAC Investments, Inc., dba Adept Building & Construction:

Demurrer to the second cause of action for misrepresentation and concealment, and third cause of action for fraud and misrepresentation is SUSTAINED WITH LEAVE TO AMEND on the ground the causes of action are not alleged with sufficient specificity. See Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 73 (plaintiff must allege specifically how, what, where, to whom and by what means a defendant made a misrepresentation); see also Lazar v. Superior Court (1996) 12 Cal.4th 631, 645 (in fraud complaints against a corporation, a plaintiff must allege the names of the persons who made the misrepresentation, the authority of such persons to speak for the corporation; the persons to whom they spoke; what was said or written; and when it was said or written). Particularly here, where there are multiple cross-defendants, the pleading must specify which cross-defendant made what representations in the required detail. The cross-complaint must also allege facts supporting imposing personal liability on each of the demurring Bohannan cross-defendants.

Cross-Defendants Constructure, Inc., Benjamin John Bohannan, Adam Bohannan, and Bryan Bohannan’s Motion to Strike Portions of POVAC’s Cross-Complaint is MOOT in light of the sustaining of the demurrer to the second and third causes of action with leave to amend.

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