Judge: Teresa A. Beaudet, Case: 21STCV21382, Date: 2022-08-31 Tentative Ruling
Case Number: 21STCV21382 Hearing Date: August 31, 2022 Dept: 50
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R&R MASONRY, Plaintiff, vs. H.A. LEWIS, INC., et
al., Defendants. |
Case No.: |
21STCV21382 |
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Hearing Date: |
August 31, 2022 |
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Hearing Time: |
10:00 a.m. |
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[TENTATIVE]
ORDER RE: LOS
ANGELES UNIFIED SCHOOL DISTRICT’S DEMURRER TO H.A. LEWIS, INC.’S FIRST
AMENDED CROSS- COMPLAINT; LOS
ANGELES UNIFIED SCHOOL DISTRICT’S MOTION TO STRIKE PORTIONS OF H.A. LEWIS,
INC.’S FIRST AMENDED CROSS-COMPLAINT |
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AND RELATED CROSS-ACTION |
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Background
On June 7, 2021,
Plaintiff R&R Masonry (“R&R”) filed this action against Defendants H.A.
Lewis, Inc. (“H.A. Lewis”), Los Angeles Unified School District (the “District”),
and U.S. Specialty Insurance Company. The Complaint alleges causes of action
for (1) breach of contract, (2) quantum meruit, (3) account stated, (4) open
book account, (5) enforcement of stop payment notice, (6) enforcement of stop
payment notice release bond, and (7) recovery on payment bond.
In the Complaint, R&R
alleges that prior to September 10, 2018, H.A. Lewis entered into a prime
contract to provide labor, services, equipment, and materials for a work of
improvement known and described as Marshall High School Towe Repair, Contract
No. 1810063, Project No. 23A10590. (Compl., ¶ 11.) On or about September 10,
2018, R&R and H.A. Lewis entered into a subcontract for R&R to provide
labor, services, equipment, and materials necessary to do a portion of the
subject project, identified in the subcontract as “Historical Restoration,
Façade Renovation and Masonry.” (Compl., ¶ 12.) H.A. Lewis ordered extra work
from R&R, which increased the total compensation under the subcontract to
the sum of $1,008,741.80. (Compl., ¶
13.) R&R alleges that on or about September 30, 2020, H.A. Lewis breached
the subcontract by failing to pay the sum then due and owing in the amount of
$388,059.94. (Compl., ¶ 15.)
On July 28, 2021, H.A.
Lewis filed a Cross-Complaint against R&R, the District, and Fidelity
and Deposit Company of Maryland. On
January 18, 2022, H.A. Lewis filed the operative First Amended Cross-Complaint
(“FACC”), asserting causes of action for (1) breach of contract, (2) breach of
warranty, (3) breach of subcontract, (4) breach of warranty, (5) recovery on
performance bond, (6) equitable indemnity, and (7) declaratory relief.
The District now demurs
to the sixth and seventh causes of action of the FACC, and moves to strike portions
of the FACC. H.A. Lewis opposes the demurrer.[1]
Request for Judicial
Notice
The Court grants the District’s request for
judicial notice.
Demurrer
A. Legal Standard
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. (
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. (
B. Allegations
of the FACC
In
the FACC, H.A. Lewis alleges that in or
about August 2018, H.A. Lewis and the
District entered into a contract wherein the District agreed
to pay H.A. Lewis for performing the work on a historical renovation of John
Marshall High School, Contract No. 1810063 (the “Contract”), Project No.
23A10590 (the “Project”). (FACC, ¶ 9.)
Among other things, the Contract
required H.A. Lewis to partially design and install Glass Fiber Reinforced Concrete Crenellations (“GFRC
Crenellations”) and to use the District’s
designated manufacturer to fabricate the GFRC Crenellations. (FACC, ¶ 9.)
On or about September 10, 2018, R&R
and H.A. Lewis entered into a subcontract for R&R to provide labor,
services, equipment, and materials to complete a portion of the Project (the
“Subcontract”). (FACC, ¶ 11.)
In March 2019, the District made a
submittal to the Division of the State Architect (“DSA”) for its approval of
the GFRC Crenellations. (FACC, ¶ 13.) DSA rejected the submittal in May 2019
because the “deferred submittal” was incomplete and, among other things, did
not include a GFRC Crenellations testing and inspection program (the “Crenellations
Testing Program”). (FACC, ¶ 13.) Thereafter, the District made additional
submittals to DSA, which also were rejected. (FACC, ¶ 13.) When the District’s
submittal was eventually approved by DSA in September 2019, that submittal
still failed to include the Crenellations Testing Program. (FACC, ¶ 13.)
H.A. Lewis notified the District that
the Contract expressly allocates to the District the responsibility for the
Crenellations Testing Program. (FACC, ¶ 14.) However, the District denied any responsibility
for the Crenellations Testing Program and in January 2020, directed and
demanded R&R’s GFRC Manufacturer’s Engineer of Record perform this work.
(FACC, ¶ 14.) To mitigate the Project’s delays and corresponding losses, and
without prejudice to its position, H.A. Lewis requested that R&R develop
the Crenellations Testing Program. (FACC, ¶ 15.)
At that time, H.A. Lewis requested
change orders from the District to compensate for performing work outside of its
contractual obligations, and it also provided the District with reports
outlining Project delays caused by the District’s refusal to develop the Crenellations
Testing Program as required. (FACC, ¶ 16.) H.A. Lewis alleges that the
District, inter alia, failed “to approve proper schedule updates,
schedule fragnets and time impact analyses on the Project,” and issue change
orders to compensate for the extra work and time. (FACC, ¶ 16.)
On February 14, 2020, H.A. Lewis
presented a notice of claim on performance bond to R&R and its bonding
company Fidelity. (FACC, ¶ 17.) The notice provided an explanation of R&R’s
failure to perform and complete its work pursuant to the Subcontract. (FACC, ¶
17.) Fidelity refused to pay H.A. Lewis for R&R’s alleged default. (FACC, ¶
17.) On or about February 19, 2021, R&R served a stop payment notice and
statement of claim for a sum of $388,059.94. (FACC, ¶ 20.)
H.A. Lewis alleges that the District breached
the parties’ Contract by various acts and
omissions, and that as a result of such breaches, work on
the Project was delayed and disrupted, the work was made more difficult and expensive,
and H.A. Lewis was required to perform extra work without compensation. (FACC,
¶¶ 26, 28.)
C. Sixth
Cause of Action for Equitable Indemnity
The District asserts that H.A. Lewis’s sixth cause of
action for equitable indemnity must fail for a number of reasons.
First,
the District notes that “[u]nder the equitable
indemnity doctrine, defendants are entitled to seek apportionment of loss
between the wrongdoers in proportion to their relative culpability so there
will be equitable sharing of loss between multiple tortfeasors. A condition of
equitable indemnity is that there must be some basis for tort liability against
the proposed indemnitor, usually involving breach of a duty owed to the
underlying plaintiff. The doctrine applies only among defendants who are jointly
and severally liable to the plaintiff.” (Stonegate Homeowners Assn. v. Staben (2006) 144
Cal.App.4th 740, 751 [internal quotations, citations, and emphasis omitted].)
The District
asserts that R&R has not alleged any tort against H.A. Lewis or the
District in its Complaint in this action, and that H.A. Lewis likewise has not
alleged any tort against R&R, the District, or any other party in its FACC.
The District argues that H.A. Lewis and the District accordingly cannot be joint
tortfeasors, and the equitable indemnity cause of action must fail.
H.A. Lewis counters that its equitable indemnity claim is based in
contract, not tort. In its opposition, H.A. Lewis relies
primarily on Sehulster Tunnels/Pre-Con v. Traylor Brothers, Inc./Obayashi
Corp. (2003) 111
Cal.App.4th 1328, 1331,
which concerns a contract to build the “South Bay Ocean Outfall Project,” a tunnel
under the Pacific Ocean to discharge treated sewage at sea. “The City of
San Diego (City) was the Project owner, Traylor Brothers, Inc./Obayashi
Corporation, a joint venture (TBO), was the general contractor and Sehulster
Tunnels/Pre-Con, a joint venture (Sehulster), was the subcontractor that
supplied to TBO the precast concrete ring segments lining the tunnel.” (Ibid.) “[D]isputes arose between City, TBO and Sehulster for
cost overruns incurred by Sehulster in manufacturing the tunnel ring segments
as a result of certain design changes in the Project.” (Ibid.)
The Sehulster Court concluded, inter alia, that
“because City did not breach its contract with TBO, as a matter of law City
cannot be held liable to TBO under the equitable theory of implied contractual
indemnity on a public works contract for cost overruns incurred by a
subcontractor under a purchase order agreement with the general contractor.” (Id. at p. 1332-1333.)
However, the Court noted
that “[i]mplied contractual indemnity
is applied to contract parties and is designed to apportion loss among contract
parties based on the concept that one who enters a contract agrees to perform
the work carefully and to discharge foreseeable damages resulting from that
breach. As a form of equitable indemnity, the doctrine
rests on the equities apparent from the surrounding circumstances, because
contracting parties should share loss in proportion to their breach. An implied
contractual indemnity action does not amount to a claim for contribution from a
joint tortfeasor because it is founded neither in tort nor on any duty that the
indemnitor owes to the injured party. Rather, it is predicated on the
indemnitor’s breach of duty owing to the indemnitee to properly perform its
contractual responsibilities.” (Id. at p. 1350-1351
[internal quotations and citations omitted].)
H.A. Lewis asserts that here, it has sued the District for equitable
indemnity in the form of implied contractual indemnity, to recover costs H.A. Lewis has incurred, and will incur, in defending against R&R’s claims. H.A. Lewis contends that its “indemnity claim properly alleges
LAUSD’s liability for pass-through claims from
Lewis’ subcontractor,
[R&R].” (Opp’n at p. 4:15-16.)
In Sehulster, the Court of
Appeal found that “California law protects the
interests of the subcontractor by providing that a subcontractor’s claim
passes through the general contractor to the owner. Consequently, by contract or
settlement agreement, a general contractor and a subcontractor can agree that
the contractor will pass through the subcontractor’s claims against the
contractor to the owner…When a public agency
breaches a construction contract with a contractor, damage often ensues to a
subcontractor. In such a situation, the subcontractor may not have legal
standing to assert a claim directly against the public agency due to a
lack of privity of contract, but may assert a claim against the general
contractor. In such a case, a general
contractor is permitted to present a pass-through claim on behalf of the
subcontractor against the public agency. The pass-through process
and such agreements are designed to shorten the legal process by not requiring
the subcontractor to first sue the general contractor and the latter to
actually pay damages to the former before suing the owner. (Sehulster Tunnels/Pre-Con v.
Traylor Brothers, Inc./Obayashi Corp., supra, 111 Cal.App.4th
1328, 1348-1349 [internal quotations and citations omitted].)
In the reply, the District notes that in Sehulster, the Court
also found that “[b]ecause of our conclusion that TBO is not entitled to implied
contractual indemnity from City, it is unnecessary to address whether
permitting TBO to recover under the theory of implied contractual indemnity
implicates the public policy considerations recognized in Amelco Electric v. City of
Thousand Oaks, supra, 27 Cal.4th 228, that preclude a contractor
from recovering additional compensation from a governmental entity on a public
works contract if it would defeat the policies to protect the public underlying
the competitive bidding statutes. Further,
we note that the parties proffered no authority specifically addressing
whether a public entity in this context can be held liable under an implied
contractual indemnity claim to a general contractor on a public works contract.”
(Sehulster Tunnels/Pre-Con v. Traylor Brothers, Inc./Obayashi Corp.,
supra, 111 Cal.App.4th 1328, 1352, fn. 22, emphasis added.) The
District contends that Sehulster thus does not support H.A.
Lewis’s position. However, the District also does not cite to any legal
authority demonstrating that a public entity such as the District
here cannot be held liable under an implied contractual indemnity claim to a
general contractor on a public works contract.
The
District also asserts in the reply that “allowing an implied contractual
indemnity claim would violate well-established law prohibiting a contractor
from recovering additional compensation – or adding terms - on a
competitively-bid public works contract.” (Reply at p. 3:17-20, citing to Amelco
Electric v. City of Thousand Oaks (2002) 27 Cal.4th 228.) The Court notes that the District did not
raise this point in the demurrer, and “[p]oints raised for the first time in a reply brief will ordinarily not be considered, because
such consideration would deprive the respondent of an opportunity to counter
the argument.” (American Drug Stores, Inc. v. Stroh (1992)
10 Cal.App.4th 1446, 1453.)
The
District also asserts that in the reply that H.A. Lewis has not pled a
pass-through claim on behalf of R&R. As discussed above, H.A. Lewis argues
in its opposition to the demurrer that “California case law confirms that
equitable indemnity and a derivative declaratory relief claim are appropriate
where, like here, an owner of a construction project breaches its contract with
the general contractor which, in turn, results in claims by a subcontractor –
regardless of whether the owner and general contractor are jointly and
severally liable. (Sehulster Tunnels/Pre-Con v.
Traylor Brothers, Inc./Obayashi Corp. (2003) 111 Cal.App.4th 1328.) In
that instance, the owner (i.e. LAUSD) is liable for the subcontractor’s claims
on a pass-through basis and is liable for the costs incurred in defending those
claims as set forth in an equitable indemnity claim by the general contractor
(i.e. Lewis).” (Opp’n at p. 4:7-15.) But as the District notes, the FACC
does not allege that R&R submitted a
pass-through claim to H.A.
Lewis. The FACC does not mention “pass-through” claims at all, and the sixth
cause of action for equitable indemnity does not mention R&R specifically.
In
light of the foregoing, the Court sustains the District’s demurrer to the sixth
cause of action for equitable indemnity, with leave to amend.
D. Seventh
Cause of Action for Declaratory Relief
In support of the seventh cause of action for
declaratory relief, H.A. Lewis alleges that it “seeks a judicial declaration, decree,
or order determining Cross-Defendants’ duties and obligations to indemnify H.A.
Lewis or its surety and/or to provide contribution or a basis for recoupment
with respect to any sums H.A. Lewis pays to Cross-Defendants or others by way
of settlement, judgment, or otherwise.” (FACC, ¶ 55.)
The District asserts that the declaratory relief cause of action is
thus “wholly derivative” of H.A. Lewis’s equitable indemnity cause of action.
The District notes that “[w]here
a trial court has concluded the plaintiff did not state sufficient facts to
support a statutory claim and therefore sustained a demurrer as to that claim,
a demurrer is also properly sustained as to a claim for declaratory relief
which is ‘wholly derivative’ of the statutory claim.” (Ball v. FleetBoston Financial Corp. (2008) 164
Cal.App.4th 794, 800.) In the opposition, H.A. Lewis concedes that its “declaratory relief claim is largely
derivative of its equitable indemnity claim.” (Opp’n at p. 11:15.)
Thus, because the Court sustains the demurrer to H.A. Lewis’s
equitable indemnity cause of action, the Court also sustains the demurrer to
the declaratory relief cause of action, with leave to amend.
Motion to Strike
A court may strike any “
The District moves to
strike certain allegations contained in H.A. Lewis’s seventh cause of action
for declaratory relief. (Mot. at p. 2:7-12.) Because the Court sustains the
District’s demurrer
to the seventh cause of action, the motion to strike is denied as moot.
Conclusion
Based
on the foregoing, the District’s demurrer is sustained in its entirety, with
leave to amend. The District’s motion to strike is denied as moot.
The Court orders H.A. Lewis to file and serve an amended cross-complaint,
if any, within 20 days of this Order. If no amended cross-complaint is filed
within 20 days of this Order, the District is ordered to file and serve its
answer within 30 days of this Order.
The District is ordered to give notice of this Order.
DATED: August 31, 2022 ________________________________
Hon. Teresa A.
Beaudet
Judge, Los
Angeles Superior Court