Judge Ralph C. Hofer, Case Number: 23GDCV02611, Date: 2024-03-15 Tentative Ruling

Plaintiffs Bertram Yuh and Janice Yuh allege that they have a primary residence located in La Canada Flintridge, and that in December of 2020, plaintiffs entered into a written contract with defendant Building Worx, Inc. (Building Worx or Defendant), whereby defendant agreed to provide construction remodeling services for $1,425,223.52 at plaintiffs’ property.

The complaint alleges that it was agreed that the approximate start date of the project was to be in February 2021, and that the project would be completed within twelve months. The completion date was material as plaintiffs rented another house pending completion. The project began in June of 2021, which aligned with a June 2022 completion date. In July of 2021, Building Worx obtained a permit to demolish the existing residence only, and even though it had not applied for or obtained a pool demolition permit at the time, defendant nevertheless proceeded to demolish the pool as well and substantially regraded the site without a grading permit, grading plans, or City inspection. It is also alleged that the grading work went well beyond what was called for in the architect’s plans.

Plaintiffs allege that the site grading work resulted in the issuance of a Citation and Stop Work Order by the City in August of 2021, which Citation notes that Building Worx had performed extensive illegal site grading without the benefit of grading plans, grading permits, or inspection as required under the Code. The Citation and subsequent inspection records also note extensive site grading of the building pad, along with the demolition of the pool and backfill, without proper permits or City inspection. Defendant was instructed in writing to obtain proper permits through the City before doing any further work, resulting in a significant delay in the project.

Plaintiffs allege that defendant has never provided to plaintiffs any of the City’s original paperwork related to the Citation and Stop Work Order, but instead falsely represented through its owner, defendant Robert Artura, both verbally and in writing, that the reason behind the issuance of the Citation and Stop Work Order related specifically to the pool demolition and related backfill. This work was not a part of the original construction contract but was subsequently added by a written change order. Defendant further represented that a City Public Works crew had observed the unpermitted pool demolition and grading work in progress and alerted the City. Plaintiffs allege that the representations were apparently false and intended to deceive plaintiffs about the true nature of the Citation and Stop Work Order.

The complaint alleges that the true facts were that the City Building inspector was called to site by either defendant or a subcontractor to sign off on a temporary power pole installation, and that the City inspector then alerted a City compliance officer who issued the Citation and Stop Work Order the following morning, and that the reason for the Citation and Stop Work Order goes far beyond the pool work, but relates to the unpermitted grading and compaction work on the site undertaken by defendant without proper plans, permits and inspections. Defendant’s conduct created almost a year long delay in the project, requiring plaintiffs to rent another house during the duration of the delay, and face added interest costs on plaintiffs’ loans. Plaintiffs also allege that instead of revealing the true facts behind the City’s enforcement actions, defendant instructed plaintiffs to engage a civil and soils engineer to resolve the issue, which would allow the work to continue, and then without plaintiffs’ prior knowledge provided a scope of work to an outside engineering firm and advised plaintiffs to hire the firm or that the project would continue to languish, as a result of which plaintiffs engaged the engineering firm and accepted its proposal.

The complaint also alleges that by the time plaintiff discovered the false representations, plaintiffs also discovered that defendant had negligently performed the work they were contracted to do, far below industry standards, and had breached the contract between the parties in numerous respects. Specifically, it is alleged that, among other things, defendant failed to perform the work in a timely or workmanlike manner and in compliance with the plans and specifications, failed to adequately supervise the project, failed to protect the property from weather, provided unwanted services unnecessary to the project and demanded payment for those services, failed to obtain required permits, charged for items not required or within the scope of work, charged for services and expenses that were not provided, utilized facilities and resources for which plaintiffs paid for the benefit of other clients, failed to maintain accurate accounting, and issued numerous improper change orders.

Plaintiffs also allege a cause of action against defendant American Contractors Indemnity Company, also referred to in the complaint (apparently erroneously) as Old Republic Surety Company (Surety), who allegedly issued a Bond to defendant general contractor Building Worx in the sum of $25,000, inuring to the benefit of any person damaged as a result of a violation of the Business and Professions Code governing licensed general contractors. The complaint alleges that the acts and omissions of defendant Building Worx constitute violations of Business and Professions Code sections 7000 and 7173, so that defendant Surety is indebted to plaintiffs in the full amount of the penal sum of the license bonds issued to defendant Building Worx.

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:

Defendants argue that plaintiffs fail to set forth particularized facts supporting the circumstances surrounding the alleged misrepresentation, knowledge of the falsity and intent to defraud. Defendants argue that the conclusory allegations that defendants made change orders to extract more money lacks factual support and plaintiffs fail to demonstrate knowledge of any alleged falsity, that the allegations that there were false representations concerning the reason behind the issuance of the Citation and Stop Work Order do not clearly indicate that defendants made a false statement or knew of its falsity, and that conclusory allegations of the concealment of information from plaintiffs are insufficient.

Plaintiffs in opposition argue that much of what defendants point to as lacking particularity is the question of defendants’ intent, which is information exclusively within defendants’ control. Plaintiffs rely on Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, in which the California Supreme Court held that if the defendant is in a better position to know the facts concerning the alleged fraud, the requirement of specificity is relaxed. Committee on Children’s Television, at 216. The intent of defendants in connection with their conduct would certainly be within the knowledge of defendants.

Moreover, the complaint here alleges in some detail the circumstances giving rise to the unexpected delay in the project due to the Citation and Stop Work Order, the alleged concealment of the true reasons for the City’s issuance of those orders, and the subsequent attempts by defendants to recover the costs associated with the delay by creating their own allegedly false change orders. [Complaint, paras. 8-12, 20, 21, 38-45]. These circumstances do in fact factually support the allegations concluding that defendants acted with intent to defraud and engaged in deceptive practices. [Complaint, paras. 10, 22, 43-45, 47].

In any case, as acknowledged in the demurrer, the complaint alleges fraud and deceit on several distinct theories. These theories include allegations that defendants actively engaged in concealment of information, including the full reason for the issuance of the Citation and Stop Work Order which in turn led to the delay which caused a significant portion of plaintiffs’ alleged damages. Plaintiffs also allege concealment of the true circumstances giving rise to defendants’ numerous change orders. [Complaint, paras. 9-11, 20, 38, 39, 43-47].

There is authority under which it is held that in concealment claims, a plaintiff is not required to allege with the usual detail required in connection with fraud claims based on affirmative representations. In Vega v. Jones, Day, Reavis & Pogue (2004) 121 Cal. App.4th 282, the Second District found that the trial court had improperly sustained a demurrer to a concealment cause of action on the ground plaintiff had failed to allege the cause of action “with the requisite degree of specificity,” noting “The pertinent question in a concealment case is not who said what to whom…” Vega, at 296.

“As restated by Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 993 [22 Cal. Rptr. 3d 352, 102 P.3d 268], “‘[i]n California, fraud must be pled specifically; general and conclusory allegations do not suffice. [Citations.] “Thus ‘“the policy of liberal construction of the pleadings … will not ordinarily be invoked to sustain a pleading defective in any material respect.”’ [Citation.] [¶] This particularity requirement necessitates pleading facts which ‘show how, when, where, to whom, and by what means the representations were tendered.’ ” ’ ” (Cf. Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC, supra, 162 Cal.App.4th 858, 878.)

This statement of the rule reveals that it is intended to apply to affirmative misrepresentations. If the duty to disclose arises from the making of representations that were misleading or false, then those allegations should be described. (Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC, supra, 162 Cal.App.4th 858, 877–878.) However, as noted above (see fn. 18, ante, at p. 1381), plaintiffs have apparently abandoned their earlier claims of intentional and negligent misrepresentations. As plaintiffs accurately respond, it is harder to apply this rule to a case of simple nondisclosure. “How does one show ‘how’ and ‘by what means’ something didn't happen, or ‘when’ it never happened, or ‘where’ it never happened?”

In this case, with respect to the fraud cause of action, punitive damages are appropriately stated. As argued in the opposition, it is held that a properly pleaded fraud claim will itself support recovery of punitive damages; no allegations of malice or intent to injure are required. Stevens v. Superior Court (1986, 2nd Dist.) 180 Cal.App.3d 605, 610-611; see also Perkins v. Superior Court (1981, 2nd Dist.) 117 Cal.App.3d 1, 3-4.