Judge Ronald F. Frank, Case Number: 22TRCV00941, Date: 2023-06-29 Tentative Ruling

Judge: Ronald F. Frank, Case: 22TRCV00941, Date: 2023-06-29 Tentative Ruling

Case Number: 22TRCV00941 Hearing Date: June 29, 2023 Dept: 8

Tentative Ruling

HEARING DATE: June 29, 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) Defendants, PCL and LAGP’s Demurrer to Plaintiff’s Complaint

(2) Defendants, PCL and LAGP’s Motion to Remove Mechanic’s Lien and Expunge Notice of Pending Action

(3)Defendants, PCL and City’s Motion for Attorneys’ Fees

Tentative Rulings: (1) Demurrer to SAC is SUSTAINED

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

(3) City’s Motion for Attorneys’ Fees is GRANTED in the amount of $20,000

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, The City of Los Angeles (“City”), acting through its Board of Airport Commissioners. On January 23, 2023, Plaintiff filed a First Amended Complaint (“FAC”). On April 13, 2023, Plaintiff filed a Second Amended Complaint (“SAC”) alleging causes of action for: (1) Breach of Contract (against Defendants, PCL 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, PCL, and Does 1 through 25, LA Gateway, and DOES 101 through 200.)

Defendants PCL, and LA Gateway Partners, LLC (“LAGP”) filed a demurrer as to the fifth cause of action for Foreclosure of Mechanics’ Lien.

B. Procedural

On June 2, 2023, PCL and LGAP filed their demurrer and Motion to Remove Mechanic’s Lien ant Expunge Notice of Pending Action. On June 15, 2023, Plaintiff filed its opposition brief to both motions. On June 22, 2023, Defendants filed reply briefs.

On May 25, 2023, Defendant City filed a Motion for Attorneys’ Fees. On June 15, 2023, Plaintiff filed an opposition. On June 22, 2023, Defendants filed a reply brief.

¿II. GROUNDS FOR DEMURRER

Defendants, PCL and LAGP filed this motion on the grounds that it claims the Fifth Cause of Action for Foreclosure of Mechanic’s Lien fails on the grounds that it does not state facts sufficient to constitute a cause of action.

III. REQUEST FOR JUDICIAL NOTICE

Defendants 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 April 12, 2023, as Instrument No. 20230234662, against the alleged private property interests held by LAGP and PCL in the real property (“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 copy of the Lien as pulled from a title search related to the Property is attached to PCL and LAGP’s demurrer as Exhibit “1.”)

This Court grants Defendants’ request and takes 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

On March 24, 2023, this Court issued a minute order sustaining the demurrer to Plaintiff’s FAC that noted that neither the preliminary notice nor the original or amended mechanic’s liens were attached to the FAV, nor was their language quoted. Thus, this Court found that as alleged, the FAC appeared to allege lien rights to improved real property and did not clearly and unmistakably seek to impose a lien solely and exclusively on private property or leasehold rights. This Court further held that given the fact that the City was the only named party (aside from DOES) in the mechanics lien cause of action, the Court found the pleading to be defective as it appeared 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.) This Court further instructed that the complaint could be further amended, and the mechanics lien could be further amended, to delete any reference to public property being the object of the mechanics lien cause of action.

Since then, Plaintiff has filed a SAC on April 13, 2023 clarifying (SAC ¶41, at page 7 lines 20-22) that it seeks only to foreclose on private property rights in the ConRAC Project, and does not seek or take any action against the public property interest of the City of Los Angeles or any other public property interest in the ConRAC Project. Accordingly, the City is not a demurring party as to the SAC. The SAC is 10 pages long, but its exhibits and attachments add over 150 additional pages. It is the 5^th cause of action for foreclosure of mechanics’ lien that is the subject of the Demurrer and the motion to expunge lis pendens and to remove the $14.282M mechanics’ lien.

In Defendants’ demurrer, they assert that their argument as to why the 5^th cause of action should be excised is located in the mechanics’ lien motion. Defendants concede that the success of the Demurrer rises or falls on the Court’s ruling on the expungement / removal motion. There, Defendants contend that there is no private property interest subject to lien. Defendants note that there are no private property interests held by LAGAP or PCL that are subject to lien as expressly provided and demonstrated by the Design-Build Finance, Operate, Maintain (“DBFOM”) procurement model. Defendants assert that Article 2 expressly provides there is no leasehold or other possessory interest in the Property created by the DBFOM (except with respect to tanks, fuels, fluids, which was not part of Morley’s concrete scope.) Defendants further assert that the DBFOM expressly provides LAGP is not a tenant and the City’s payments are not rent. Further, Defendants contend it expressly provides title to all materials, equipment, and supplies furnished by LAGP transfer to the City upon incorporation. Defendants further assert that the DBFOM cannot be characterized as creating a leasehold interest or any other private property interest because it is an agreement for the performance of services. Defendants put forth that the City contracted LAGP to design, build, finance, operate, and maintain the ConRAC project. They also note that the DBFOM details LAGP’s approach to design and construction of the ConRAC project, details LAGP’s approach to operations and maintenance of the ConRAC project once it is operational and specifies how and when the City is to pay LAGP based on performance of those service. Further, Defendants clarify that as LAGP received no private property interest from DBFOM, PCL received no private property interest from LAGP by virtue of the parties’ Design-Build agreement.

In opposition, Plaintiff notes that Morley seeks only to foreclose on the claimed leasehold or other private property interest granted by the City to LAGP and PCL to operate the ConRAC facility. Plaintiff asserts that regardless of what language the parties used in their contracts (and regardless of whether the DBFOM specifically states that the agreement is not a lease, easement, lien, mortgage, etc. per Section 2.4.1(b)), the DBFOM walks like a duck and quacks like a duck so it must be a duck. Plaintiff asserts that regardless of whether the contract specifically states that payments received under the DBFOM “are for services to be performed by Developer, and are not payments in the nature of rent, fees . . . or purchase price of real property (id. Section 2.4.1(c)), the payments smell like rent, look like rent, and thus must be rent. Plaintiff also contends that at the previous hearing challenging its mechanics lien, Morley made clear its intention is to foreclose only on the leasehold or other private property right that is granted in connection with the 28-year operation of the ConRAC facility. Morley asserts this has not changed, and that the only thing that has changed is some of the boilerplate language it used in its mechanics lien to address the Court’s concern that a single line was broad enough that it would encompass real property of the City of Los Angeles. Further, the opposition argues that since Defendants’ demurrer has no substantive argument, and instead, relies on the arguments made in the motion to remove mechanics lien, the demurrer should be overruled.

Although the Court previously noted that if Plaintiff were to remove any reference to public property being the object of the mechanics lien cause of action, that this may strengthen Plaintiff’s cause of action, the mechanic’s lien has been judicially noticed per Defendants’ Demurrer. Additionally, the Declaration of Karl Schaefer, the project executive for LAGP has also summarized the DBFOM to show that no private property interest exists to which a mechanics lien can attach. The Opposition argues that it needs deposition testimony and a full un-redacted copy of the 1,256 page DBFOM and full unredacted copy of the 21 exhibits attached to the contract before the Court should decide this motion. The Court disagrees. Expungement motions and demurrers and motions to remove mechanics’ liens are proceedings at the pleading stage, not mid-way through discovery. The information before the Court at this time is that a full unredacted version of the BBFOM was offered by Defendants to Plaintiffs pursuant to Protective Order, an offer the Reply papers admit but argue that they should not have been obligated to signa protective order as to a public document that Plaintiff argues it does not agree should be veiled in secrecy. The Court’s response is that decisions have consequences. Here, the consequence is that Plaintiff is arguing points from a redacted version rather than the full unredacted version.

Based on the evidence and law presented at the time of this hearing, the Court concludes that Defendants (other than the City and LAWA) do not have a private property interest as to which a mechanics lien validly attaches. As such, the demurrer as to the fifth cause of action is SUSTAINED based on the analysis made below.

B. Defendants’ Motion to Remove Mechanics Lien and Expunge Amended Notice of Pending Action

A Lambert Motion arises from Lambert v. Superior Court (1991) 228 Cal.App.3d 383 where the Court of Appeal determined that an owner, whose property was directly impacted by a mechanics lien, may challenge the mechanics lien via a motion. That challenge is limited under Lambert to the probable validity of the mechanics lien. (Howard S. Wright Construction Co. v. Superior Court (2003) 106 Cal.App.4th 314, 318.) The burden is on the party seeking to enforce the mechanics lien, which is Plaintiff here, to establish the probable validity by a preponderance of the evidence. (Id. at 319.) The party seeking to enforce the mechanics lien must “at least establish a prima facie case. If the defendant makes an appearance, the court must then consider the relative merits of the position of the respective parties and make a determination of the probable outcome of the litigation.” (Id., quoting from Cal. Law Revision Com. com., 15A West's Ann. Code Civ. Proc. (1979 ed.) foll. § 481.190, p. 15.) In such a motion, the question presented is not the ultimate merit of the contractor's claim but whether the contractor should be entitled to retain the security of the mechanic's lien or stop notice pending resolution of the matter. (Id at 318.)

“When the property is subject to a lease and the lessee orders the work to be done on the leased premises without the lessor's knowledge, then the lien attaches only to the lessee's leasehold interest.” (Howard S. Wright Construction Co., supra, 106 Cal.App.4th at p. 321.) But if the party who files the mechanics lien cannot carry its burden to prove the expunging party has an ownership interest in the property sought to be liened, and cannot prove the expunging party holds no lease or leasehold interest either, then there is no private property interest sufficient for a mechanics lien to attach.

In Defendants’ Motion to Remove Mechanic’s Lien and Expunge Notice of Pending Action, Defendants asserts there is no private property interest subject to lien. Defendants assert that there are no private property interests held by LAGAP or PCL that are subject to lien as expressly provided and demonstrated by the Design-Build Finance, Operate, Maintain (“DBFOM”) procurement model. Defendants assert that Article 2 expressly provides there is no leasehold or other possessory interest in the Property created by the DBFOM (except with respect to tanks, fuels, fluids, which was not part of Morley’s concrete scope.) Defendants further assert that the DBFOM expressly provides LAGP is not a tenant and the City’s payments are not rent, referencing Section 2.4.1(b). Further, Defendants contend it expressly provides title to all materials, equipment, and supplies furnished by LAGP transfer to the City upon incorporation. Defendants further assert that the DBFOM cannot be characterized as creating a leasehold interest or any other private property interest because, it is an agreement for the performance of services. Defendants put forth that the City contracted LAGP to design, build, finance, operate, and maintain the ConRAC project. They also note that the DBFOM details LAGP’s approach to design and construction of the ConRAC project, details LAGP’s approach to operations and maintenance of the ConRAC project once it is operational and specifies how and when the City is to pay LAGP based on performance of those service. Further, Defendants clarify that as LAGP received no private property interest from DBFOM, PCL received no private property interest from LAGP by virtue of the parties’ Design-Build agreement.

In opposition, Plaintiff argues that simply because Defendants contractually say it is not a lease, does not mean it is not a lease or other private property interest. Plaintiff argues that the FBFOM between City and Defendants, which grants Defendants the right to operate the ConRAC facility for the next 28-years appears to be a lease, even if Defendants do not want to call it such. However, as noted in the Court’s previous tentative, the City’s contract does not vest PCL with a lease in City or LAWA land, structures, or improvements.

Plaintiff also asserts that testimony of witnesses, disclosure and exchange of factual and documentary evidence, and a trial (or a decision by the arbitrator) is needed for the Court to determine the existence of rights between the parties. Plaintiff posits whether a lessee or other private property right exists is determined by the relationship of the parties, not what the parties put into the DBFOM to try and avoid tax liability to Defendants. With respect to the property tax tax avoidance, Plaintiff argues that the intent of Section 2.4.2 and 2.4.2 are to help Defendants avoid paying required property taxes to the county, not to disavow Defendants private property rights. Plaintiff cites to Vanguard Car Rental USA, Inc. v. County of San Mateo (2010) 181 Cal.App.4th 1316, noting that there, the County of San Mateo assessed property taxes against Vanguard Rental Car for its exclusive possessory use of public property within the rental car facility at San Francisco International Airport. Plaintiff notes Vanguard challenged the tax with the County, and then the Superior Court, both ruled against Vanguard. (Id. at 1318.) The Court of Appeal agreed, holding Vanguard had exclusive beneficial rights in certain areas of the rental car facility at SFO sufficient to establish a possessory interest and permit the County of San Mateo to tax Vanguard. (Id. at 1332.) Plaintiff argues that like Vanguard, this raises a significant question that must be part of the Court’s analysis in determining the rights and relationship between City and Defendants.

However, in opposition, Defendants note that contrary to Morley’s claims, Section 2.4.2 provides that if the County of any other agency wrongly imposes possessory interest taxes on any portion of any purported interest in the property supposedly created by the DBFOM, then LAGP shall contest such assessment and pay the tax while LAGP appeals the decision. Defendants assert that this provision does not concede the existence of a property interest, and that Vanguard was premised on the finding that the company had “exclusive possessory use of public property,” something Defendants argue was not granted to LAGP under the BDFOM

Plaintiff suggests that in order for this Court to decide the extent of the private property rights it must look to the relationship of the parties, what did they intend by the terms of their agreement, what is the length of the right granted, how the payment structure works, and how the operational right works. In arguing, Plaintiff relies on many of the same cases already distinguished by this Court. (In re South Bay Expressway, L.P. and Industrial Asphalts.) Plaintiff also argues that it is prejudiced by not having access to the complete DBFOM.

In their reply brief, Defendants contend that only the DBFOM is needed. Defendants argue that the general principles of contract interpretation are instructive. In doing so, they cite to San Jose Parking, Inc. v. Superior Court (2003) 110 Cal.App.4th 1321. There, the Court determined there is no lease or other private property interest where the agreement expressly provides no property interest is conveyed and otherwise lacks the fundamentals of a lease. In San Jose Parking, the operator of a parking lot filed writ of mandate, seeking the Superior Court be directed to vacate order finding that the city redevelopment agency, as owner of a parking lot, had the right to take the operator’s interest in the parking lot by condemnation. The Court there determined that the agreement specifically stated that it did not grant “any leasehold interest,” and lacked several fundamental attributes of a lease. For example, the Agreement did not embody the distinguishing characteristics of a leasehold estate…that the lease gives the lessee the exclusive possession of the premises against all the world, including the owner. Additionally, there the agreement specifically required the company to provide reasonable access for pedestrian customers of the adjacent property owners, required maintenance of preexisting monthly parking spaces at the lot, and limited the rate the company could charge the patrons. Further, the public agency retained, among other rights, the right to set the maximum parking rate, and there was no payment of rent by the company to the public agency. Thus, based on the plain language of the parties’ agreement, the San Jose Parking court held the agreement did not convey a real property interest and the public agency’s taking was improper.

Defendants argue that the DBFOM is similar in that it makes expressly clear it conveys no leasehold or other private property interest to LAGP, that LAGP is not a tenant and payments are not in the nature of rent, and that title to all materials installed is retained by the City. It makes further clear that LAGP is being contracted to provide services in the nature of design, construction, operations, and maintenance, and that payment is made in exchange for those services. The agreement details the scope of each of those services. It also details the payment mechanism in exchange for those services. Further, Defendants specifically note the DBFOM conveys no real property interest because it expressly provides as much. The Court agrees. The City and LAWA have not surrendered their right to possession of the rental care facility for 28 years as in a lease, and the parties have not contracted for the payment of “rent” but rather are paying for a series of ongoing services that will be rendered in operating and maintain the rental car facility, which are distinguishable form a leasehold or rental agreement. There is no lienable private property interests that supports a mechanics lien as to the moving defendants. As such, the motion to remove the mechanics’ lien is GRANTED, and the motion to expunge the notice of pending action is GRANTED.

C. PCL and City’s Motion for Attorneys’ Fees

Defendants, PCL and City bring forward a Motion for Attorneys’ Fees. City asserts it is entitled to fees and costs for its previous motion to expunge Morley’s lien and lis pendens. City cites to Code of Civil Procedure § 405.38 asserting the right to recover attorney’s fees and costs on a motion to expunge, noting: The court shall direct that the party prevailing on any motion under this chapter be awarded the reasonable attorney’s fees and costs of making or opposing the motion unless the court finds that the other party acted with substantial justification or that other circumstances make the imposition of attorney’s fees and costs unjust. City contends that the language of section 405.38 makes the Court’s award of attorney’s fees and costs to the prevailing party on such a motion mandatory, unless it is unjust. Here, City argues its motion to expunge Morley’s notice of pending action was entirely premised on the invalidity of the lien such that all fees and costs incurred in bringing the motion are recoverable.

City also notes its fees and costs incurred were reasonable, noting counsel, Mr. Baird, lead trial counsel, has practiced for 25 years, has specialized in construction litigation for his inter career, and as such has an hourly rate of $510. City further notes that Mr. Floyd prepared and drafted the motion, the reply brief, and this fee motions, has practiced for 11 years, and also has a specialization in construction litigation for his entire career, thus has an hourly rate of $450. City notes counsel spent 21.1 hours preparing and drafting the first motion (Floyd Dec., ¶ 7), did this while Morley amended original lien, without notice, and thus had to make revisions, taking an additional 8.1 hours. Counsel also notes they spent 14.3 hours preparing for and appearing at the hearing on the motion, and spent 13.9 hours preparing this current motion. Counsel estimated an additional 5 hours for the reply brief and an additional 2.5 hours preparing for and appearing at the hearing. As such, City is requesting $39,284.53 in attorneys’ fees and costs.

In opposition, Plaintiff argues that a party does not have a right to recover fees on a lis pendens that is incident to a mechanics lien because there are no attorney fees on a mechanics lien. Plaintiff cites to Abbett Electric Corp. v. California Fed. Savings & Loan Assn (1991) 230 Cal.app.3d 355, 361-362, to assert “[A] lis pendens is purely incidental to the action where it is filed and its effectiveness depends entirely on the action of which it is a part, the lis pendens could not establish any lien not otherwise available in the action…” However, this does not mean that a party is not entitled to attorneys fees, even if the action is purely incidental.

In opposition, City notes that Courts have awarded attorney’s fees to parties prevailing on motions to expunge a lis pendens related to an invalid lien or other encumbrance. (Ayala v. World Sav. Bank, FSB (C.D. Cal. 2009) 616 F.Supp.2d 1007, 1010 [awarding fees in connection with successful motion to expunge notice of pending action related to recording of trust deed]; Consol. Elec. Distribs. v. Porter Ranch Dev., 2021 Cal. Super. LEXIS 43175, *18 [awarding fees on successful motion to expunge lis pendens related to action to foreclose mechanic’s lien].)

The Court does not find Plaintiff’s arguments particularly persuasive. But the Court finds that the number of hours incurred or estimated by City substantially exceeds what the Court would expect from hearings on other expungement motions it has heard in the past year. Accordingly, the Court’s tentative ruling is that City is entitled to attorneys’ fees in the lowered amount of $20,000.

III. CONCLUSION¿

Based on the foregoing, Defendants PCL and LAGP’s Demurrer is SUSTAINED. Additionally, Defendants PCL and LAGP’s Motion to remove mechanics’ lien and expunge amended notice of pending action is GRANTED. Lastly, City’s Motion for Attorneys’ Fees is GRANTED in the lowered amount of $20,000. Moving party is to give notice.