Judge Randolph M. Hammock, Case BC659723 2022-09-19 Tentative Ruling

Plaintiff R&J Sheet Metal, Inc. (“Plaintiff” or “R&J”) filed this action in 2017 against Defendants T.B. Penick & Sons, Inc. (“Defendant” or “Penick”), The Western Surety Company (“Western”), and Long Beach Unified School District (“Defendant” or “the District”). R&J alleged that on or about November 20, 2014, Plaintiff and Defendants entered into a written agreement where Plaintiff, as a subcontractor of Defendant Penick, was to provide labor and materials for the installation of cut and fabricated sheet-metal components at Browning High School, 2180 Obispo Avenue, Long Beach, California 90804. Plaintiff provided and installed fabricated sheet-metal components and defendants retained them. R&J further alleges that Defendants failed to tender the full payment due. R&J named Defendant District only in the fifth cause of action (foreclosure of lien) based on the District’s failure to release funds under the “Stop Notice” Plaintiff filed with the District.

Subsequently, on August 9, 2017, Defendant Penick filed a Cross-Complaint against Plaintiff R&J, alleging a sole claim for breach of contract, based on Plaintiff R&J’s alleged defective work and delays on the project. Defendant did not name Defendant District in the Cross-Claim. On April 1, 2022, this court granted Penick’s motion for leave to file an amended Cross-Complaint to include the District as a Cross-Defendant. The First Amended Cross-Complaint asserts claims against the District for (1) indemnity, (2) declaratory relief, and (3) equitable indemnity/contribution.

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal. App. 4th 740, 747.) When considering demurrers, courts read the allegations liberally and in context. (Taylor v. City of Los Angeles Dept. of Water and Power (2006) 144 Cal. App. 4th 1216, 1228.) In a demurrer proceeding, the defects must be apparent on the face of the pleading or by proper judicial notice. (CCP § 430.30(a).) A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. (SKF Farms v. Superior Court (1984) 153 Cal. App. 3d 902, 905.) Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed. (Id.) The only issue involved in a demurrer hearing is whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action. (Hahn, 147 Cal.App.4th at 747.)

The District demurs to the declaratory relief cause of action based on Penick’s failure to bring a Government Code claim before filing the Cross-Complaint. Generally, no suit for money or damages may be brought against a government entity (or against a government employee acting in the scope of employment) unless and until a timely claim has been presented pursuant to the Government Claims Act (Gov.Code § 810 et seq.) and either acted upon or deemed rejected by the passage of time. [Gov.Code §§ 945.4, 950.2, 912.4.) “[A] plaintiff must allege facts demonstrating or excusing compliance with the claim presentation requirement. Otherwise, his complaint is subject to a general demurrer for failure to state facts sufficient to constitute a cause of action.” (State of California v. Superior Ct. (2004) 32 Cal. 4th 1234, 1243.)

In opposition, Penick argues a declaratory relief claim is not subject to demurrer. It relies on the rule that “[s]trictly speaking, a demurrer is not an appropriate weapon to attack a claim for declaratory relief inasmuch as the plaintiff is entitled to a declaration of its rights, even if adverse.” (Farmers Ins. Exch. v. Zerin (1997) 53 Cal. App. 4th 445, 460.) However, Penick cites no authority showing this general rule takes precedence over the rule permitting a demurrer for a plaintiff’s failure to comply with the Claims Act.

Even if the claim can be demurred to, Penick argues, a claim for declaratory relief is not subject to the claim notice requirements of the Government Claims Act. “The Claims Act generally applies only to claims for money or damages, and not to actions for declaratory relief.” (Hart v. Alameda Cnty. (1999) 76 Cal. App. 4th 766, 782.) “This exception does not apply, however, where the demand for nonmonetary relief is merely incidental or ancillary to a prayer for damages.” (Id.) The parties disagree on whether the damages sought are “incidental” to the declaratory relief claim.

“In December of 2021, Penick became aware that the District is now withholding excessive Project funds related to the allegedly defective work performed by R&J. Therefore, contrary to its legal stance and defense that the District is simply a “stakeholder” related to R&J’s Stop Payment Notice, the District is, in fact, an active participant in this litigation because of the large and questionable offsets it is now asserting and excessive funds it is now holding from Penick and R&J. Penick is informed and believes that the District is now withholding close to $1,100,000 of Project funds from Penick and R&J, which include nearly $300,000 for R&J’s Stop Payment Notice and about $800,000 in alleged back-charges for defects and repair costs it is contending are related to R&J’s Project work but yet it classifies itself as a mere stakeholder for this litigation.”

“Penick is therefore, entitled to have this Court decide the respective rights, duties and obligations of Penick, the District, R&J and MOES 1 through 50, inclusive, with respect to such rights, obligations, or remedies arising under whether impliedly or otherwise the Prime Contract, the Subcontract, R&J’s allegedly defective work, and the District’s wrongful and excessive withholding of funds otherwise owed R&J and/or other parties.”

The First Amended Cross-Complaint’s language suggests the declaratory relief claim is for more than just declaratory relief, as it appears based on the “questionable offsets [the District] is now asserting and excessive funds it is now holding from Penick and R&J.” (FACC ¶ 10.) If this action was really just about the District’s role as a stakeholder—who gets what between Penick and R&J—then the cause of action appears unnecessary. The District agrees that the funds in dispute belong to either R&J, Penick, or both. The only issue is to whom.

Thus, the District appears correct that this “is affirmative relief in the guise of a declaratory relief cause of action,” as Penick appears to seek damages above and beyond the withheld funds. (Mtn. 5: 9-10.) (See Ameron Internat. Corp. v. Insurance Co. of State of Pennsylvania (2010) 50 Cal.4th 1370, 1386 [in characterizing pleadings, it is policy to emphasize substance over form].) Put differently, the FACC “in essence states a claim ‘for money or damages,’ against the [governmental entity]…and hence is subject to the requirement that a claim be presented.” (Southern California Edison Co. v. City of Victorville (2013) 217 Cal.App.4th 218, 238.)

This court notes that the District explains, in logical detail, why it contends the declaratory relief claim seeks affirmative relief. The District devotes four pages of its brief to make the point. (See Mtn. pp. 3-7.) On the other hand, Penick gives the argument four lines, relying on the general proposition that a declaratory relief claim is not subject to the claim notice requirements. (Opp. 4: 21-25.) This court does not ignore that general proposition. But Penick mostly fails to address the contention that it seeks monetary damages that are more than merely “incidental” to the declaratory relief sought. As the party who drafted the pleading, this court would have expected more argument or clarification from Penick’s end. Be that as it may, and for these reasons, this court finds the declaratory relief claim as presented in this case is subject to the claim presentation requirements.

Here, the Declaratory relief claim does not plead facts “demonstrating or excusing compliance with the claim presentation requirement.” (Id.) Penick’s only argument in opposition is that it did not need to comply with the Government Claims Act. As explained above, this court rejects that argument.

Generally speaking, leave to amend must be allowed where there is a reasonable possibility of successful amendment. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348.) Cross-Complainant must demonstrate this possibility at the hearing. However, it does appear unlikely that Cross-Complainant will be able to do so, since it appears to be undisputed that no such compliance of the GCA was made, assuming that it was required.

Defendant next demurs to the third cause of action for indemnity, again arguing this claim seeks affirmative relief and is subject to the claim presentment requirements. Although there could be an argument to the contrary, Penick appears to accept that the indemnity claim is subject to the claim presentment requirements. Instead, Penick argues that it has “substantially complied” with the Act, and “fully satisfied” the Act’s purpose. (Opp. 5: 2-4.)

The First Amended Complaint alleges that the Third and Fourth Causes of Action “do[] not require a Government Code Claim to the District because Penick is bringing it in defense of the R&J Complaint and not asking that Penick be awarded any Project funds because the funds being withheld by the District are either owed to R&J and/or to other parties.” (FACC ¶¶ 25, 31.) In addition, the claims will not prejudice the District “because R&J’s claims were previously made and reviewed by this District. Also, the District would not need to conduct a new investigation to address these allegations because it previously conducted a detailed investigation of all work performed and all claims asserted by R&J, using consultants that are experts in the construction industry.” (Id.)

“[C]ourts employ a test of substantial rather than strict compliance in evaluating whether a plaintiff has met the demands of the claims act. If the claim satisfies the purpose of the act without prejudice to the government, substantial compliance will be found.” (Mouchette v. Board of Education (1990) 217 Cal.App.3d 303, 311.) “[N]o more is required under the statutory scheme than the governmental entity be apprised of the claim and have an opportunity to investigate and potentially to settle the matter.” (Krainock v. Superior Court (1990) 216 Cal.App.3d 1473, 1477.)

[1] “[T]he District was served with R&J’s original Complaint in May of 2017, only two months after the purported injury that began this dispute. R&J’s Complaint detailed the full extent of damages alleged, including the underlying facts and contentions.”

[2] “Penick’s original Cross-Complaint, served on the district as a party to the litigation, was founded upon the exact same series of events, albeit alleging a different interpretation of facts. This cross-complaint, filed on August 9, 2017, was also filed well within the one-year period for making claims under the Act.”

[3] “Between R&J’s Complaint and Penick’s Cross-Complaint, the District was provided with sufficient information to enable it to adequately investigate the claims and determine whether settlement was appropriate…[and] [a]s a result, there is no risk of prejudice to the District. The claims Penick brings in its First Amended Cross-Complaint are simply an extension of the claims brought by R&J in its original Complaint.”

[4] “No further investigation of stale or fresh evidence is required of the District, nor would it even need to draw new conclusions from the investigation it has already conducted. It would simply need to direct its defenses to Penick instead of solely toward R&J.”

The District counters that up until the filing of the First Amended Cross-Complaint, it had the position it was merely “holding the funds,” leaving it to the court to decide “how much Penick is to receive out of the held funds and how much R&J is to receive.” (Reply 5: 12-13.)

“The primary purpose of the governmental claims act is to apprise the governmental body of an imminent legal action so that the entity may investigate and evaluate the claim and, where appropriate, avoid litigation by settling meritorious claims. Thus, the act should not be allowed to become a snare for the unwary litigant if its statutory purposes have been satisfied.” (S. California Edison Co., supra, 217 Cal. App. 4th at 238.) Here, in fact, the District is more appropriately deemed the “unwary litigant.” The District was named in the original Complaint filed by R&J only in the fifth cause of action (foreclosure of lien) based on the District’s failure to release funds under the “Stop Notice” R&J filed with the District. Penick then filed its original Cross-Complaint against R&J on August 9, 2017, but did not name the District as a Defendant. It was not until nearly 5 years later—on April 5, 2022—that Penick sought to assert cross-claims against the District. Moreover, as noted above, the language of the Complaint suggests that Penick seeks monetary damages beyond just declaratory relief or indemnity.

This court also finds no support for Penick’s argument that the presentment requirements “were met by either Penick’s Cross-Complaint or R&J’s Complaint, or by some combination of the two.” (See S. California Edison Co., supra, 217 Cal. App. 4th at 239 [holding a cross-complaint filed against different party in the same litigation did not meet the Government Code claim requirements as to the entity defendant when the new allegations went “beyond the set of facts” upon which the other pleadings were premised].) Penick has not cited any case for the proposition that the service of a lawsuit between two parties constitutes proper notice for new claims against a different party. In this context, this court concludes that Penick cannot be excused from complying with the Act. Because they did not do so, the Cross-Complaint is subject to demurrer.

The District also demurs to the equitable indemnity cause of action on the grounds it is barred by the applicable statute of limitations. Because the demurrer is sustained based on failure to meet the Government claim requirements, this court need not address whether the relation-back doctrine applies to the equitable indemnity cause of action.

Any party may submit on the tentative ruling by contacting the courtroom via email at Smcdept49@lacourt.org by no later than 4:00 p.m. the day before the hearing. All interested parties must be copied on the email. It should be noted that if you submit on a tentative ruling the court will still conduct a hearing if any party appears. By submitting on the tentative you have, in essence, waived your right to be present at the hearing, and you should be aware that the court may not adopt the tentative, and may issue an order which modifies the tentative ruling in whole or in part.