Judge Ronald F. Frank, Case 22TRCV00941 2023-03-24 Tentative Ruling

Judge: Ronald F. Frank, Case: 22TRCV00941, Date: 2023-03-24 Tentative Ruling

Case Number: 22TRCV00941 Hearing Date: March 24, 2023 Dept: 8

Tentative Ruling

HEARING DATE: March 24, 2023¿

CASE NUMBER: 22TRCV00941

CASE NAME: Morley Construction Company v. PCL Construction Services, Inc, et al.

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MOVING PARTY: Defendants, PCL Construction Services, Inc., and The City of Los Angeles

RESPONDING PARTY: Plaintiff, Morley Construction Company

MOTION:¿ (1) Defendant’s Demurrer to Plaintiff’s Complaint

(2) City’s Motion to Remove Mechanic’s Lien and Expunge Notice of Pending Action

Tentative Rulings: (1) Defendant’s Demurrer to Plaintiff’s Complaint is SUSTAINED with 20 days Leave to Amend

(2) The Motion to Remove the Mechanics Lien and Expunge the Lis Pendens is GRANTED, without prejudice to being reasserted once the pleading defects are corrected

I. BACKGROUND¿

A. Factual¿

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On October 12, 2022, Plaintiff, Morley Construction Company filed a complaint against PCL Construction Services, Inc. (“PCL”), Fidelity and Deposit Company of Maryland, Zurich American Insurance Company, Travelers Casualty and Surety Company of America, Federal Insurance Company, and The City of Los Angeles (“City”), acting through its Board of Airport Commissioners.

On January 23, 2023, Plaintiff filed a First Amended Complaint (“FAC”) alleging causes of action for: (1) Breach of Contract (against Defendants, PDL and Does 1 through 25); (2) Claim on Private Works Payment Bond (against Defendants PCL, Fidelity, Zurich, and Does 26 through 50); (3) Claim on Private Works Payment Bond (against Defendants PCL, Travelers, and Does 51 through 75); (4) Claim on Private Works Payment Bond (against Defendants PCL, Federal, and Does 76 through 100); and (5) Foreclosure of Mechanics’ Lien (against Defendants, The City of Los Angeles, and Does 101 through 200).

Defendants PCL and City now file a demurrer as to the fifth cause of action for Foreclosure of Mechanics’ Lien. In addition the City has brought a motion to expunge the lis pendens and the expunge the mechanics lien. The claimed amount of unpaid invoices include in the mechanics lien is over $14 Million.

B. Procedural

On February 28, 2023, PCL and City filed their demurrer. On March 13, 2023, Plaintiff filed its opposition brief. On March 17, 2023, PCL and City filed a reply brief. On February 28, 2023, the City brought its Motion to Remove Mechanics Lien and Expunge the Amended Notice of Pending Action with supporting brief and declarations. Morley filed Opposition to the City’s Motion on March 13, 2023, and on March 17 the City filed its Reply papers. The Mechanics Lien Motion and the Demurrer raise very similar and related issues.

¿II. GROUNDS FOR DEMURRER and Motion to Remove/Expunge

Defendants, PCL and City filed this motion on the grounds that they claim the Fifth Cause of Action for Foreclosure of Mechanic’s Lien fails because: (1) Morley seeks to enforce an invalid lien against the City’s public property interest and (2) the FAC alleges that only the City has property interests in the Property subject to the lien. The City’s Motion to Remove Mechanics Lien and to Expunge the Amended Notice of Pendency of Action is predicated on the ground that the mechanics lien asserts an interest in public property rather than a private property interest, and the City asserts the lien even after amending includes language that the lien is not only against the leasehold interest in the premise but also “upon every estate or interest in such structures, improvements, and premises held by any party . . . .”

The cause of action to foreclose on the mechanics lien names only the City as a defendant, and as alleged in the Complaint (as distinct from the amended mechanics lien) the lawsuit does not expressly state that Plaintiff seeks to foreclose only against PCL’s alleged leasehold interest. The City also argues that pursuant to the terms of the DBFOM Contract, the relationship between the City and PCL is not a “lease” or leasehold interest, but rather is a contract to “operate and maintain” the site of the massive rental car structure.

III. REQUEST FOR JUDICIAL NOTICE

Defendants PCL and City have requested that this Court take judicial notice of the following:

1. Plaintiff Morley Construction Company’s Mechanic’s Lien, recorded in Los Angeles County, California, on December 22, 2022, as Instrument No. 20221195590, against the real property owned by the City, acting through the Los Angeles World Airports Board of Airport Commissioners, located at 5440 W. 98th Street, Los Angeles, California, Assessor Parcel No. 4128-021-924 (“Lien”). (A certified copy of the Lien is attached to the City’s demurrer as Exhibit “1.”)

This Court grants Defendants’ request and take judicial notice of the above.

In their reply brief, Defendants PCL and City have also requested that this Court take judicial notice of the following:

1. Plaintiff Morley Construction Company’s Mechanic’s Lien, recorded in Los Angeles County, California, on July 15, 2022, as Instrument No. 20220728059, against the real property owned by the City, acting through the Los Angeles World Airports Board of Airport Commissioners, located at 5440 W. 98th Street, Los Angeles, California, Assessor Parcel No. 4128-021-924. (A certified copy of the lien is attached to the City’s Reply Brief supporting its demurrer as Exhibit “1.”)

This Court grants Defendants’ request and take judicial notice of the above.

IV. ANALYSIS ¿

A. Demurrer

A demurrer can be used only to challenge defects that appear on the face of the pleading under attack or from matters outside the pleading that are judicially noticeable. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “To survive a demurrer, the complaint need only allege facts sufficient to state a cause of action; each evidentiary fact that might eventually form part of the plaintiff’s proof need not be alleged.” (C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 872.) For the purpose of testing the sufficiency of the cause of action, the demurrer admits the truth of all material facts properly pleaded. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-967.) A demurrer “does not admit contentions, deductions or conclusions of fact or law.” (Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 713.)¿

A pleading is uncertain if it is ambiguous or unintelligible. (Code Civ. Proc., § 430.10, subd. (f).) A demurrer for uncertainty may lie if the failure to label the parties and claims renders the complaint so confusing defendant cannot tell what he or she is supposed to respond to.¿ (Williams v. Beechnut Nutrition Corp. (1986) 185 Cal.App.3d 135, 139, fn. 2.) However, “[a] demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures.” (Khoury v. Maly's of California, Inc. (1993) 14 Cal.App.4th 612, 616.)¿

Foreclosure of Mechanics’ Lien

The Complaint alleges that within the last two years, Plaintiff furnished concrete work and related materials to Defendants PCL, and Does 1 through 25, inclusive, which materials were delivered to and used in the certain work of improvement known as the ConRAC Project located at 5440 W. 98th St, Los Angeles, CA 90045; APN 4128-021-924. (FAC, ¶ 35.) Plaintiff next alleges that the City is the owner and/or has a leasehold interest in the aforementioned ConRAC Project. (FAC, ¶ 36.)

Plaintiff further alleges that Defendants PCL, and Does 1 through 25 entered into a contract with the City to perform and provide certain work, labor, and services, at the ConRAC Project, that Plaintiff provided concrete work and related materials to PCL used in the construction of said work of improvement, and that Plaintiff has the right to foreclose on the City’s claimed leasehold interest in said property. (FAC, ¶ 38.)

The materials and services furnished by Plaintiff to PCL were claimed to be worth the sum of $14,282,789. Plaintiff alleged that it recorded and served a verified claim of lien and notice of mechanics lien in the office of the County Recorder of the County of Los Angeles. (FAC, ¶ 40.)

In Defendants’ demurrer, they argue that that the Mechanics’ Lien is improper because it can only be enforced against private property interests. Under Lambert v. Superior Court (1991) 228 Cal.App.3d 383, 385, the City has the right to contest and remove an improper or invalid mechanics lien. The City notes that in 2012, the Legislature repealed Civil Code section 3109 and replaced it with Civil Code section 8160. Section 8160 is located under Title 2 (Private Works of Improvement) of Part 6 (Works of Improvement) of Division 4 (General Provisions) of the Civil Code. Regarding the applicability of Title 2, Section 8160 provides: “This title applies to a work of improvement that is not governed by Title 3 (commencing with Section 9000) of this part.” (Emphasis added.) Section 9000 provides: “This title [Title 3] applies to a work of improvement contracted for by a public entity.” Section 8036 defines “public entity” to mean, among other things, a “city, district, public authority, public agency, and any other political subdivision or public corporation in the state.” In other words, mechanic’s liens may only be recorded and enforced against private real property interests, not public property or public property interests.

Based on this, City argues that the lien is invalid because it was recorded against the City’s public property interest in the property. City further asserts that Morley now seeks to enforce the Lien against the City’s interests in City-owned real property. Specifically, City notes that the Lien states the claim of lien is “upon every estate or interest in such structures, improvements, and premises held by any party holding any estate therein” (emphasis added.) City further notes that the lien claim further states the City “is/are the reputed owner(s) and/or is/are the leaseholder(s) of said building and/or premises, or have some leasehold interest therein.” Based on this language, City argues that the Lien was recorded against and seeks to foreclose on improved real property owned by the City and the City’s property interests therein.

City also argues that the FAC alleges that the City is the reputed owner of the ConRAC Project. (FAC, ¶ 36.) Although the FAC alleges Does 101 through 150 may also be the reputed owners “and/or have a leasehold interest” in the ConRAC project, City argues that plaintiff’s pleading does not allege any private entity is the owner or holds such a leasehold interest. (FAC, ¶ 36.) The FAC further alleges “Defendants, Does 151 through 200, inclusive, claim to have some right, title or interest in the above real property, the exact nature of which claim, or claims or leasehold claim is unknown to Plaintiff.” (FAC, ¶ 37.) City asserts, however, that the FAC does not allege DOES 151 through 200 include a private entity with private property interests in the Property. As such, City contends that the FAC alleges only that the City, a public entity, has an interest in the Property to which the Lien attaches.

In opposition, Plaintiff argues that it only seeks to foreclose on the leasehold or other allegedly private property interest granted by the City to PCL to operate the ConRAC facility. Specifically, plaintiff asserts that Morley’s intention in its foreclosure of mechanics lien cause of action is only to foreclose on the private property interest granted to PCL via its contract with the City that gives PCL a 28 year right to operate the ConRAC facility. Plaintiff further argues that it is not seeking to lien the City’s land. In fact, Plaintiff even agrees that it does not dispute that the land owned by the City is not subject to a mechanics lien. Plaintiff notes that its counsel met multiple times with City’s counsel and made clear, on numerous occasions, that it was not seeking to lien the City’s land (i.e., the airport) and was only pursuing the leasehold interest that was granted to operate the ConRAC facility. Plaintiff further asserts that the new mechanics lien expressly states Morley “as claimant, claims a lien for labor, services, equipment and/or materials under Section 8400 et seq. of the Civil Code of the State of California, upon the leasehold interest in the premises hereinafter described.

Plaintiff also describes that although City argues that the lien states a claim against the entirety of the property owned by the City because Morley has identified the City on the mechanics lien as the owner, Plaintiff did not name City because it seeks to enforce its mechanics lien rights against City’s land, but because the statute requires Morley to name the owner on the mechanics lien. Plaintiff further notes that it named the City in the Complaint because the City granted the interest to PCL that Morley seeks to foreclose on. The City and various Does are the only parties named in the 5^th cause of action to foreclose on the mechanics lien. Further, the FAC alleges in ¶ 36 that the City is the owner of or have a leasehold interest in the ConRAC Project, ¶37 alleged that the Does 151 through 200 claim to have some right, title, or interest “in the above real property” but their claims are alleged to be subordinate to Plaintiff’s claims [to such real property], ¶39 alleges that the preliminary notice of the mechanics line warned that if the bills were not paid then “the improved property might be subject to mechanic’s lien,” and ¶40 alleges that the lien described the “property sought to be charged with a lien.” Neither the preliminary notice nor the original or amended mechanic’s liens are attached in the FAC nor is their language quoted. Thus, as alleged, the FAC appears to the Court to allege lien rights to improved real property and does not clearly and unmistakably seek to impose a lien solely and exclusively on private property or leasehold rights. Given the fact that the City is the only named party (aside from Does) in the mechanics lien cause of action, the Court finds the pleading to be defective because it appears to embrace a mechanics lien on public property which is impermissible as a matter of law. (See, e.g., Mayrhofer v. Board of Education (1891) 89 Cal. 110, 112.)

B. Arguments Regarding Applicability of Various Precedents.

The parties’ briefs argue the applicability of several cases, each side urging the Court that one or the other precedent is controlling or is not applicable. The key cases cited include North Bay Construction, Inc. v City of Petaluma (2006) 143 Cal.App.4^th 552, In re South Bay Expressway, L.P. v. Otay River Constructors (Bankr. S.D. Cal. 2010) 434 B.R. 589, and Industrial Asphalt, Inc. v. Garrett Corp. (1986) 180 Cal.App.3d 1001. None of these cases is on all fours with the instant litigation, no matter how vigorously counsel argue them to be so.

While Industrial Asphalts permitted the contractor to foreclose on its mechanics lien on an admitted lease of real property at the Los Angeles International Airport, the City here makes not such admission and in fact denies that it vested PCL with any leasehold, lease, or other possessory interest in its land, structures, improvements, or other public property. Plaintiff argues that the City has concealed several pages of its agreement with PCL so it cannot be sure what the missing pages say, but the pages the City did attach to its moving papers support the City’s position that it deliberately did NOT grant a leasehold interest here. Webster’s dictionary aside, the City’s contract does not vest PCL with a lease in City land, structures, or improvements. Further, Industrial Asphalts does not discuss the City’s argument here that mechanics liens cannot be enforced against public property. The ratio decidendi of the Second District’s decision concerned the notice requirements of the statute, the court holding that there was “no reason, in the absence of prejudice to the property owner [citations omitted], why the subcontractor's failure to serve notice upon an original contractor should render unenforceable a lien against an owner who did receive proper notice. (Industrial Asphalt, supra, 180 Cal.App.3d at p. 1007.) Here, the City DOES raise a prejudice argument bearing on the explicit language of the mechanics lien itself, indicating an effort to foreclose on the city’s public property not only against the leasehold interest in the premise but also “upon every estate or interest in such structures, improvements, and premises held by any party . . . .” The City is prejudiced because the mechanics lien purports to act against City structures, City improvements, City premises, etc. A private party, even one allegedly owed $14 Million, cannot foreclose against city property to satisfy its unpaid bills.

In the case of In re South Bay Expressway, L.P. (Bankr. S.D. Cal. 2010) 434 B.R. 589, the debtors argued that no mechanic's lien could attach to any interest in a Tollway because it is “public property” and a “public work.” The Bankruptcy Court found that the Debtors there owned distinct private property interests in the public SR 125 Tollway arising from their 35–year operating lease, which the judge deemed to not be public property. (Id. at p. 593.) The operative agreement here, of which the Court has less than all pages, appears to be a different animal than a lease. Instead, it appears the City took great pains to avoid be characterized as a lease, leasehold, landlord-tenant, or similar characterization. Further distinguishing S.B. Expressway is the fact that there was no public agency named in that bankruptcy proceeding but rather the adversary claim there was between the private party debtors and the private party unpaid contractor. Further, the Tollway there was a privately funded project explored on an experimental basis during a public revenue crisis, as distinct from the publicly funded project here.

In North Bay, the First District affirmed the sustaining of a demurrer in an action by a contractor against the City of Petaluma where the contactor sought to foreclose on a mechanics lien. The court noted the Mayrhofer, supra. precedent, over a century old, that a mechanic's lien may not be imposed on public property, the First District noting “because of principles of sovereign immunity, any right to impress a mechanic's lien on public property must be expressly, not implicitly, provided for by statute.” (North Bay, supra, 143 Cal.App.4th at p. 556.) North Bay concluded that there was no express right granted by the Legislature. Instead, the Legislature has enacted a comprehensive scheme prescribing how a judgment may be satisfied against a public entity, but that scheme does not include execution on public property. (Id. at p. 560.) Here, as alleged in the lawsuit and on the face of the amended mechanics lien, Plaintiff purports to violate the teaching of the Mayrhofer line of cases.

The Complaint could be further amended, and the mechanics lien can be further amended, to delete any reference to public property being the object of the mechanics lien cause of action. But until then, the Court will SUSTAIN the Demurrer with 20 days leave to amend, and the Court will GRANT the motion to remove the mechanics lien and Notice of Pendency of Action. The City is to give notice of these rulings.