Judge Ralph C. Hofer, Case EC068092 2022-07-29 Tentative Ruling

Plaintiff King Cobra Construction, P.C. (“King Cobra”) alleges that it is a licensed general contractor, and in 2019 entered into a written agreement with defendants Corazon S. Nieves, Trustee of the Corazon Revocable Trust Dated October 10, 2013, to act as the general contractor for a project located on 3080 Hollywell Place in Glendale, which property was owned by defendant. There were also approved change orders and extra work performed that improved the property.

Plaintiff alleges that it performed all of the conditions of the agreement, but defendant materially breached the terms of the agreement by failing to pay for the work performed, and owes plaintiff no less than the sum of $288,000 plus interest and prompt payment penalties. The complaint alleges causes of action for breach of written contract, breach of implied covenant of good faith and fair dealing, indebitatus assumpsit, account stated, foreclosure of mechanic’s lien and declaratory relief.

Defendant Nieves, individually, and as trustee, has filed a cross-complainant against King Cobra and its principal, Haroutyan Keshishyan, as cross-defendants, alleging that the construction contract between the parties did not contain any provision for payment of construction supervision fees to cross-defendants, or payment of profits, and that there were no executed change orders. The cross-complaint alleges that to finance the construction, Corazon obtained a loan from U.S. Bank (“USB”) (the “Construction Loan”), disbursements from which were handled by Dixieline Builders Fund Control, Inc. (“Dixieline”). The cross-complaint alleges that as of the time of the filing of this action, USB and Dixlieline have paid to King Cobra the total sum of $613,501.00 out of the original contact price, and there remains $39,499.00 in escrow on hold until the instant litigation is resolved.

Cross-complainant alleges that during the construction, Keshishyan alerted Nieves that disbursements were being held up by Dixieline because Dixieline required additional or specific forms to be completed, which Keshishyan offered to complete to spare cross-complainant the trouble of reviewing and completing the forms. Cross-complainant alleges that cross-complainant would sign the forms completed by cross-defendants, and was not permitted to review the documents, and was assured that cross-complainant would have the opportunity to review the documents and make adjustments or corrections later in the process. The cross-complaint alleges that unbeknownst to cross-complainant, the Dixieline Standard Cost Breakdown included a provision for “supervision” fees of $35,000 and “profit” of $60,000, which were not discussed or agreed upon by the parties.

The cross-complaint alleges that over the course of the construction, Keshishyan began requesting that Nieves pay King Cobra directly for monies to fund the construction, separate and apart from the Construction Loan, representing that such would expedite completion, and that defendants would agree to an accounting for cross-defendants to reimburse any overpayment from reimbursement received from Dixieline. The cross-complaint alleges that cross-complainant ultimately paid cross-defendants direct payments of $332,579.22, and that cross-defendants have been paid a total sum of $946,080.22 from the Construction Loan and direct payments. The cross-complaint alleges that in April of 2020, after cross-complainant refused an offer to sell the property as is to a buyer located by cross-defendants to resolve cross-complainant’s growing liquidity problems, refused to make any further direct payments, and demanded that cross-defendants complete construction and perform an accounting, cross-defendants abandoned construction, and took with them personal property belonging to cross-complainant, including appliances in fixtures, with the approximate value of $25,000. Cross-defendant King Cobra then recorded a mechanic’s lien and sued cross-complainant in this lawsuit.

It is also alleged that during the construction, defendant Keshishyan sought a personal favor from Nieves, asking that she co-sign a car lease for the use of Keshishyan’s son, which ultimately turned out to be a lease with cross-complainant as the sole leaseholder, and that in September of 2020, after this lawsuit was filed, demanded that cross-complainant forward registration paperwork on the leased vehicle and threatened that if cross-complainant did not comply with the demand, Keshishyan would not pay the lease and ruin cross-complainant’s credit. The cross-complaint alleges causes of action for breach of written contract, breach of covenant of good faith and fair dealing, conversion, fraud, elder financial abuse, unfair competition, unjust enrichment, and declaratory relief.

“The motion shall be supported by a declaration stating facts showing that the actions meet the standards specified in Section 404.1, are not complex as defined by the Judicial Council and that the moving party has made a good faith effort to obtain agreement to the transfer from all parties to each action. Notice of the motion shall be served on all parties to each action and on each court in which an action is pending.”

In this case, the declaration does not indicate whether the cases are complex, but it appears from the memorandum, and the files themselves that they are not. The notice of motion has also not been served in the related action, although it has been filed in this court, which is the same department in which the other matter is pending. The motion could be denied or continued to require a declaration complying with the statute, but the court elects not to do so and will address the matter on its merits.

Defendant/Cross-complainant Corazon Nieves seeks to have this action consolidated with an action filed and assigned to this court in which Nieves is the plaintiff, on behalf of herself and as attorney in fact for her brother, who allegedly co-owns the subject property. The more recent action was filed on January 3, 2022. Plaintiffs in that action allege that defendants U.S. Bank National Association, and its servicers and agents Dixieline Builders Fund Control and Pro Build, were negligent in issuing payments to the construction company King Cobra in connection with the construction project at 3600 Hollywell Place in Glendale because work was not performed in a workmanlike fashion, and defendants failed to properly inspect and verify that the construction work was properly done. The motion indicates that discovery suggests that only 8 of 22 prepaid inspections were performed by the Bank and its agents.

“(a) When actions involving a common question of law or fact are pending before the court, it may order a joint hearing or trial of any or all the matters in issue in the actions; it may order all the actions consolidated and it may make such orders concerning proceedings therein as may tend to avoid unnecessary costs or delay.”

This section grants discretion to the trial court to consolidate actions involving common questions of law or fact. The court's decision will not be disturbed on appeal absent a clear showing of abuse of discretion. Todd Stenberg v Dalkon Shield Claimants Trust (1996) 48 Cal. App. 4th 976, 978; Estate of Baker (1982, 2nd Dist) 131 Cal App 3d 471, 485; Fellner v Steinbaum (1955, 2nd Dist) 132 Cal.App 2d 509, 511.

The motion indicates that counsel for moving parties has met and conferred on the issue of consolidation and that King Cobra and Keshishyan agree to the consolidation. [Espina Decl., para. 7]. The banking defendants in the recently filed case object to consolidation and have filed an opposition to the motion.

The moving papers argue that both cases here center on the construction on the subject property, the workmanship of the construction, the allegations of non-payment by the owners, the allegations of abandonment of the construction, and double-billing and questionable receipts submitted by the construction company as well as the alleged negligence of the bank in issuing payments but failing to inspect the work.

It does appear that the cross-complaint in the older filed action concedes that there is a sum being held in escrow in connection with the Construction Loan, the entitlement to which will necessarily be resolved in that case. The recently filed case, seeking to attach liability for the management of the Construction Loan and the release of sums from that Construction Loan to the general contractor appears to be intertwined with the issues to be resolved in the original action, and involve the rights and liabilities of all parties arising from a single common construction project.

It would appear that many of the same facts to be resolved in the action between the general contractor parties and the owner parties, such as the performance of work, and the conduct of the parties in obtaining or authorizing the release of funds from the Construction Loan, would also be factual disputes to be resolved in this matter, so common facts and issues abound, and there also appears to be a strong possibility of inconsistent findings or rulings if the matters were to proceed separately. The matters appear to involve similar witnesses and evidence, particularly given the allegations in the cross-complaint that the owner was defrauded into approving paperwork resulting in payments from the Construction Loan, and into making direct payments which were not credited against the Construction Loan proceeds. There does not appear to be any prejudice from having the matters proceed together. The file in this matter shows that the only significant activity in this action has been motions to compel responses to form interrogatories, which were heard and determined on June 17, 2022, last month.

The Bank affiliated defendants in opposition argue that the matters do not involve the same facts, witnesses, claims, or defenses, as the bank defendants have no involvement in the Construction Agreement upon which the other action is based, but are sued under two different agreements, a fund control escrow and an inspection agreement. Defendants also argue that the issues arising under the Construction Agreement are not relevant to the recent action, as the bank defendants are not a party to that agreement, and the allegations of the cross-complaint based on theories such as elder abuse, fraud and conversion, and the pressure Keshishyan allegedly exercised under a car loan are not remotely related to the role of the bank defendants as it relates to the construction.

The opposition also argues that the even if there is some overlap of facts or witnesses, the two actions are at different points in the litigation, as the U.S. Bank action is not at issue, with a demurrer and motion to strike the FAC scheduled to be heard shortly, when the initial action has been at issue for 18 months.

As noted above, while the initial action is unquestionably older than the more recently filed action, there is no showing that the first action has proceeded significantly, or that the banking defendants would somehow suffer prejudice from that case having proceeded, such as the deprivation of discovery which may have to be repeated or may involve facts or matters no longer available, such as in the case of diminishing memories or destructive testing.

The opposition appears to primarily argue that the banking defendants owed no duty to plaintiffs in the second action, and that the action has no merit. This issue is a matter best resolved through other means, and if defendants are able to extract themselves from this lawsuit at an early stage, this would appear to weaken any argument that there would be prejudice from consolidating the matters.

Motion to Consolidate is GRANTED. The Court finds that the actions involve common questions of law and fact which are predominating and significant to the litigation with respect to the payments made to a general contractor on the same construction project pursuant to a construction loan, and otherwise, and that the cases present a strong potential for resulting in disadvantage from inconsistent rulings.

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