Judge Teresa A. Beaudet, Case 21STCV21382 2023-02-23 Tentative Ruling

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 a 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 demurred to the sixth and seventh causes of action of the FACC, and moved to strike portions of the FACC. On August 31, 2022, the Court issued an Order sustaining the District’s demurrer in its entirety, with leave to amend. The District’s motion to strike was denied as moot.

On September 21, 2022, H.A. Lewis field the operative Second Amended Cross-Complaint (“SACC”), 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) implied contractual indemnity, (7) declaratory relief, and (8) declaratory relief.

The District now demurs to the sixth and seventh causes of action of the SACC. The District also moves to strike portions of the SACC. H.A. Lewis opposes the demurrer.[1]

In the SACC, 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”). (SACC, ¶ 9.) Among other things, the Contract required H.A. Lewis to construct and install Glass Fiber Reinforced Concrete (“GFRC”) crenellations on the Project. (SACC, ¶ 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”). (SACC, ¶ 10.) In March 2019, the District made a submittal to the Division of the State Architect (“DSA”) for its approval of the GFRC crenellations. (SACC, ¶ 12.) DSA rejected the submittal in May 2019 because the submittal was incomplete and, among other things, did not properly provide for the specifications for the GFRC, including without limitation the GFRC testing and inspection requirements. (SACC, ¶ 12.)

In December 2019, the District first advised H.A. Lewis of its position that H.A. Lewis, and specifically, R&R’s manufacturer’s engineer, was responsible for developing the GFRC testing requirements. (SACC, ¶ 14.) H.A. Lewis, R&R, and R&R’s subcontractors immediately disputed the District’s position, and explained how the contract expressly allocated the responsibility for developing the GFRC testing requirements and testing and inspection program to the District. (SACC, ¶ 14.)

To mitigate further delays and corresponding losses, and without prejudice to its position, H.A. Lewis directed R&R to perform the subject work. (SACC, ¶ 16.) Under protest, H.A. Lewis, R&R, and R&R’s subcontractors developed the GFRC testing requirements and testing and inspection program for the District’s review and submittal to the DSA. (SACC, ¶ 17.) All the while, H.A. Lewis and R&R continued to assert that all such work was outside the scope of their contractual obligations. (SACC, ¶ 17.)

On February 14, 2020, H.A. Lewis presented a notice of claim on performance bond to R&R and its bonding company Fidelity. (SACC, ¶ 18.) The notice detailed R&R’s failure to perform and complete its work pursuant to the Subcontract. (SACC, ¶ 18.) Fidelity refused to pay H.A. Lewis for R&R’s alleged default. (SACC, ¶ 18.)

On May 21, 2020, in compliance with the Contract’s requirements for presentation of claims, H.A. Lewis formally presented to the District its claims and a change order proposal for adjustments to contract time and contract amount. (SACC, ¶ 19.) By way of this claim, H.A. Lewis, in part, sought to pass through, to the District, R&R’s alleged losses on the Project, including but not limited to, R&R’s losses related to the GFRC testing and inspection. (SACC, ¶ 19.) The District disputed all aspects of the claim and rejected the claim in its entirety. (SACC, ¶ 19.) On or about February 19, 2021, R&R served a stop payment notice and statement of claim for a sum of $388,059.94. (SACC, ¶ 21.)

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. (SACC, ¶¶ 27, 29.)

The District asserts that H.A. Lewis’s sixth cause of action for implied contractual indemnity is improper for several reasons.

First, the District asserts that there are no allegations that H.A. Lewis and the District have a joint obligation to R&R. The District notes that “[t]raditional equitable indemnity and implied contractual indemnity share a key feature that distinguishes them from express indemnity: unlike express indemnity, neither traditional equitable indemnity nor implied contractual indemnity is available in the absence of a joint legal obligation to the injured party. Under this principle, there can be no indemnity without liability, that is, the indemnitee and the indemnitor must share liability for the injury.” (Jocer Enterprises, Inc. v. Price (2010) 183 Cal.App.4th 559, 573 [internal quotations and citation omitted].)

The District asserts that it does not have any contractual relationship with R&R. In the SACC, H.A. Lewis alleges that in or about August 2018, H.A. Lewis and the District entered into a contract, and that on or about September 10, 2018, R&R and H.A. Lewis entered into a subcontract. (SACC, ¶¶ 9-10.) The District also asserts that the only claims alleged against the District by R&R in R&R’s Complaint concern enforcement of its stop payment notice, which does not involve allegations of District fault or liability on a contract. (Citing to Crosno Construction, Inc. v. Travelers Casualty & Surety Co. of America (2020) 47 Cal.App.5th 940, 950, “[a] stop payment notice notifies a project owner…to withhold funds due to the direct contractor sufficient to satisfy the amount of the stop notice claim, plus reasonable litigation costs.”) In R&R’s Complaint in the instant action, only the fifth cause of action for enforcement of stop payment notice and the sixth cause of action for enforcement against stop payment notice release bond are alleged against the District. The District asserts that because it is not a party to H.A. Lewis’s subcontract with R&R, the District cannot have a joint and several legal obligation with H.A. Lewis to R&R.

H.A. Lewis counters that its implied contractual indemnity cause of action does not require R&R to have contractual privity with the District. 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 pp. 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.” (Sehulster Tunnels/Pre-Con v. Traylor Brothers, Inc./Obayashi Corp., supra, 111 Cal.App.4th at pp. 1350-1351 [internal quotations and citations omitted].)

H.A. Lewis asserts that “[c]ontrary to LAUSD’s contentions, the fact that R&R does not pursue these contract claims by itself is irrelevant because R&R – like the subcontractor in Sehulster – does not have privity with owner and thus, requires Lewis – the party with such contractual privity-to pass through contract claims on R&R’s behalf to LAUSD.” (Opp’n at p. 12:7-11.) 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 at pp. 1348-1349 [internal quotations and citations omitted].)

The District notes that in Sehulster, the Court of Appeal 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 at p. 1352, fn. 22.) The District contends that Sehulster thus cannot provide authority for maintaining a claim for implied contractual indemnity against the District. But as set forth above, the Sehulster Court also found that “[a]n 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.” (Sehulster Tunnels/Pre-Con v. Traylor Brothers, Inc./Obayashi Corp., supra, 111 Cal.App.4th at p. 1351.) The District’s first argument in the demurrer that “[t]here are no allegations that H.A. Lewis and the District have a joint obligation to R&R Masonry”[2] is thus refuted by the foregoing authority in Sehulster.

The District also asserts that H.A. Lewis cannot maintain an implied contractual indemnity claim under the circumstances of this case. The District notes that the Sehulster Court found as follows:

“Additionally, Public Contract Code section 7105, subdivision (d)(2) provides that a public works contract that must be awarded by competitive bid may be amended or modified only if it is so provided in the contract or authorized by law. The section expressly states: ‘The compensation payable, if any, for amendments and modifications shall be determined as provided in the contract.’ TBO requested City to implement the design changes and later agreed they would have no impact on the Prime Contract price. On its own behalf under the provisions of the Prime Contract, TBO never requested the originally negotiated price be modified as a result of the redesign. The Prime Contract is without any indemnity provision that would require City to indemnify TBO for its liability for Sehulster’s cost overruns occasioned by the redesign. To permit TBO to recover here under the theory of implied contractual indemnity would be inconsistent with the cited public policy reflected in Public Contract Code section 7105.” (Sehulster Tunnels/Pre-Con v. Traylor Brothers, Inc./Obayashi Corp., supra, 111 Cal.App.4th at p. 1352.)

The District asserts that here too, an implied contractual indemnity claim would violate law prohibiting a contractor from recovering additional compensation or adding/modifying terms on a competitively-bid public works contract. The District notes that “public works contracts are the subject of intensive statutory regulation and lack the freedom of modification present in private party contracts.” (Amelco Electric v. City of Thousand Oaks (2002) 27 Cal.4th 228, 242.)

To the extent the District is asserting that H.A. Lewis’s implied contractual indemnity cause of action is barred by Public Contract Code section 7105, H.A. Lewis asserts that this is not the case. As set forth above, in Sehulster, “TBO requested City to implement the design changes and later agreed they would have no impact on the Prime Contract price…The Prime Contract is without any indemnity provision that would require City to indemnify TBO for its liability for Sehulster’s cost overruns occasioned by the redesign.” (Sehulster Tunnels/Pre-Con v. Traylor Brothers, Inc./Obayashi Corp., supra, 111 Cal.App.4th at p. 1352.) H.A. Lewis asserts that to the contrary, in this case, the SAC alleges that “[o]n May 21, 2020, in compliance with the Contract’s requirements for presentation of claims, H.A. Lewis formally presented to the District its claims and a change order proposal for adjustments to contract time and contract amount. Although H.A. Lewis did not know the full extent of its or R&R’s losses at the time of this presentation, H.A. Lewis intended to recover, among other things, all losses from the District’s breaches and repudiations of the Contract, including but not limited to, the unwarranted and untimely hoisting of the District’s own responsibility to develop the GFRC testing requirements and testing and inspection program onto H.A. Lewis, and in turn, R&R.” (SACC, ¶ 19, emphasis added.) H.A. Lewis asserts that it thus does not seek a “termination, amendment, or modification” of the prime contract as described in Public Contract Code section 7105, subdivision (d)(2), but rather for the District to approve H.A. Lewis’s change orders and claims after the District allegedly breached the prime contract.

Next, the District asserts that H.A. Lewis still has not alleged a pass-through claim on behalf of R&R. The District notes that in the SACC, H.A. Lewis alleges as follows:

“On May 21, 2020, in compliance with the Contract’s requirements for presentation of claims, H.A. Lewis formally presented to the District its claims and a change order proposal for adjustments to contract time and contract amount. Although H.A. Lewis did not know the full extent of its or R&R’s losses at the time of this presentation, H.A. Lewis intended to recover, among other things, all losses from the District’s breaches and repudiations of the Contract, including but not limited to, the unwarranted and untimely hoisting of the District’s own responsibility to develop the GFRC testing requirements and testing and inspection program onto H.A. Lewis, and in turn, R&R. By way of this claim, H.A. Lewis, in part, sought to pass through, to the District, R&R’s alleged losses on the Project, including but not limited to, R&R’s losses related to the GFRC testing and inspection. Presentation of this claim was timely. Nevertheless, the District disputed all aspects of the claim and rejected the claim in its entirety.” (SACC, ¶ 19.)

The District contends that these allegations are insufficient because they are “limited to what H.A. Lewis – with no mention of R&R – ‘intended’ to recover by the pre-litigation claim it submitted to the District…H.A. Lewis does not allege that R&R actually presented a pass-through claim, requested that H.A. Lewis make a pass-through claim on its behalf, or that R&R believed that it had, or intended to assert, a claim against the District for breach of contract.” (Demurrer at p. 15:7-11, emphasis omitted.) But the District does not cite to any legal authority demonstrating that those specific allegations must be pled for purposes of stating a cause of action for implied contractual indemnity.

In addition, H.A. Lewis now alleges in support of the sixth cause of action that “[t]he District’s breaches of Contract, breaches of warranty, acts, omissions, and wrongful conduct have caused or contributed as a substantial factor in causing R&R to make certain claims against H.A. Lewis, and thus, caused or contributed as a substantial factor in causing H.A. Lewis to incur or sustain costs, fees, liability, or damages in defending against these claims by R&R.” (SACC, ¶ 51.) H.A. Lewis further alleges that “[t]o the extent [it] has incurred and will incur fees, costs, and expenses, in defending against R&R’s claims that are caused by the District’s breaches of Contract, breaches of warranty, acts, omissions, and wrongful conduct, the District is responsible and liable to H.A. Lewis.” (SACC, ¶ 52.) As set forth above, H.A. Lewis also now alleges that “[o]n May 21, 2020, in compliance with the Contract’s requirements for presentation of claims, H.A. Lewis formally presented to the District its claims and a change order proposal for adjustments to contract time and contract amount…By way of this claim, H.A. Lewis, in part, sought to pass through, to the District, R&R’s alleged losses on the Project, including but not limited to, R&R’s losses related to the GFRC testing and inspection.” (SACC, ¶ 19.) The Court does not find that the District has demonstrated that the foregoing allegations are insufficient for purposes of pleading a cause of action for implied contractual indemnity.

The District also asserts that the allegations of the sixth cause of action are impermissibly uncertain, ambiguous, and unintelligible. A pleading is uncertain if it is ambiguous or unintelligible. (Code Civ. Proc., § 430.10(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.)¿

The District asserts that “R&R Masonry does not allege any breach of warranty or other ‘breaches of Contract, breaches of warranty, acts, omissions, and wrongful conduct’ by the District in its complaint – only a breach of the subcontract by H.A. Lewis…Given the lack of clarity in the allegations of the SACC in light of the allegations of R&R’s Complaint, it is impossible for the District to ascertain which claims H.A. Lewis is passing through to the District on behalf of R&R.” (Demurrer at p. 15:24-16:1.) But H.A. Lewis’s first cause of action in the SACC is for breach of contract against the District, and paragraph 51 of the SACC alleges that “[t]he District’s breaches of Contract, breaches of warranty, acts, omissions, and wrongful conduct have caused or contributed as a substantial factor in causing R&R to make certain claims against H.A. Lewis, and thus, caused or contributed as a substantial factor in causing H.A. Lewis to incur or sustain costs, fees, liability, or damages in defending against these claims by R&R.” (SACC, ¶ 51.) The Court does not find that the sixth cause of action is ambiguous or unintelligible. Therefore, the special demurrer on the basis of uncertainty is overruled.¿

The District also asserts in the reply that R&R does not allege a cause of action for breach of contract against the District in the Complaint, such that “there can be no indemnity.” (Reply at p. 5:15-16.) But as the District acknowledges in the demurrer, “[a]s a matter of law, a general contractor can present a subcontractor’s claim on a pass-through basis. 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.” (Howard Contracting, Inc. v. G. A. MacDonald Construction Co . (1998) 71 Cal.App.4th 38, 60 [internal citation omitted].)

Next, the District asserts that the implied contractual indemnity cause of action is barred by the express indemnity provision of the District’s contract with H.A. Lewis. The District notes that “[w]ithin the limitations of the language used, however, an express indemnity clause is accorded a certain preemptive effect, displacing any implied rights which might otherwise arise within the scope of its operation.” (E. L. White, Inc. v. Huntington Beach (1978) 21 Cal.3d 497, 507-508.)

The District requests that the Court take judicial notice of “[t]he General Conditions of the contract between H.A. Lewis and the District for the work on a historical renovation of John Marshall High School, Contract No. 1810063.” (District’s RJN, ¶ 3, Ex. C.) The District notes that pursuant to Evidence Code section 452, subdivision (c), “[j]udicial notice may be taken of…Official acts of the legislative, executive, and judicial departments of the United States and of any state of the United States.”

The District also cites to Ingram v. Flippo (1999) 74 Cal.App.4th 1280, 1285, footnote 3, where the Court of Appeal noted that “[s]ince the contents of the letter and media release form the basis of the allegations in the complaint, it is essential that we evaluate the complaint by reference to these documents. Respondents have requested that we take judicial notice of the letter and media release under Evidence Code section 452, subdivision (h), and appellant has not opposed this. We therefore take judicial notice of the District Attorney’s March 28, 1997, letter and press release and we attach them as appendices A and B to this opinion.” In the SACC, 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. (SACC, ¶ 9.) Portions of the contract are attached to the SACC as Exhibit 1. (SACC, ¶ 9, Ex. 1.) The District asserts that “H.A. Lewis failed to attach to its Complaint a relevant portion of the Prime Contract known as the General Conditions, which sets forth detailed terms and conditions of the Contract, including indemnity provisions. Because of this and as the General Conditions are official documents of a public agency, it is appropriate for the Court to take judicial notice of Exhibit C.” (District’s RJN at p. 3:26-5:2.) In light of the foregoing and H.A. Lewis’s lack of opposition to the request, the Court grants the District’s request for judicial notice of Exhibit “C.”

The District asserts that the provisions of the parties’ contract do not require the District to indemnify H.A. Lewis for R&R’s claims, and that rather, H.A. Lewis is obligated to indemnify the District for third-party claims. The District notes that Section 6.53 of the contract provides in pertinent part:

“6.53 Indemnification: . . . CONTRACTOR shall defend, indemnify, and hold harmless

OWNER . . . from and against claims, actions, damages, losses, penalties, costs and

expenses (including, but not limited to attorneys’ fees and costs including fees of

consultants) arising out of or resulting from, whether in whole or in part, breach of or

CONTRACTOR’s obligations under this Article 6.53 include without limitation . . .

(v) other losses, liabilities, damages or costs resulting from, in whole or in part, any acts, omissions or other conduct of CONTRACTOR . . . arising out of or related to the

Contract, Work and/or Project, including without limitation, performance of the Work;

payment of Subcontractors and/or others; use of the Project site; . . . . The obligations

provided in this Article 6.53 shall be binding on CONTRACTOR regardless of whether

the allegations underlying such claims, action, damage, loss, penalty, cost or expense

are with or without merit, true or false and whether or not caused in part by any of the

Indemnified Parties. . . . Nothing set forth in this Article 6.53 is intended to provide

indemnification for those situations precluded by law, including without limitation, the circumstances described in Civil Code §§ 2782(a) and 2782(b).” (District’s RJN, ¶ 3, Ex. C.)

The District asserts that “any claim by R&R falls squarely within the scope of the indemnity provisions of the Contract because it arises out of or results from H.A. Lewis’ “breach of or noncompliance with this Contract” and/or “performance of the Work; payment of Subcontractors.” The District asserts that H.A. Lewis is accordingly “obligated to defend and indemnify the District for any claims, actions, damages, losses, penalties, costs and expenses (including, but not limited to attorneys’ fees and costs including fees of consultants) regarding the same, not the other way around.” (Demurrer at p. 18:5-8.)

H.A. Lewis counters that the subject indemnity provision covers H.A. Lewis’s indemnity obligations to the District in the event that the conduct of H.A. Lewis, its subcontractors, or their agents caused losses, damages, or costs to the District and its agents. H.A. Lewis notes that the provision does not cover the District’s indemnity obligations to H.A. Lewis in the event that the District and its agents are the cause of certain losses, damages, or costs to H.A. Lewis or its subcontractors.

Both parties cite to E.L. White, Inc. v. Huntington Beach, supra, 21 Cal.3d at page 502, where “Plaintiff E. L. White, Inc. (White) and its insurance carrier appeal from a judgment of dismissal entered following an order sustaining, without leave to amend, the demurrer of defendant City of Huntington Beach (City) to its first amended complaint in an action for indemnity and equitable contribution.” (Internal quotations omitted.) The California Supreme Court reversed the judgment. (Ibid.) In E. L. White, the City demurred on the grounds that “the complaint failed to state a cause of action because the contract of the parties -- providing that White would indemnify and save City harmless from ‘any suits, claims, or actions brought by any person or persons for or on account of any injuries or damages sustained’ because of or arising out of the work -- effectively operated to preclude any claim for implied indemnity or ‘equitable contribution’ in favor of White and its carrier against City.” (Id. at p. 506.) “In short it [was] argued that the parties, by agreeing to the quoted indemnification provision, thereby memorialized the entire agreement between them regarding indemnity inter se, and by excluding from their agreement any language indicating a right of indemnity in White against City, they indicated their intention that no such right should exist or be implied under any circumstances in favor of White.” (Ibid.) The California Supreme Court found that “[t]his contention finds no support in our law. The obligation of indemnity, which we have defined as the obligation resting on one party to make good a loss or damage another has incurred may arise under the law of this state from either of two general sources. First, it may arise by virtue of express contractual language establishing a duty in one party to save another harmless upon the occurrence of specified circumstances. Second, it may find its source in equitable considerations brought into play either by contractual language not specifically dealing with indemnification or by the equities of the particular case.” (Id. at pp. 506-507 [internal quotations and citations omitted].)

In light of the foregoing, the Court overrules the District’s demurrer to the sixth cause of action for implied contractual indemnity.

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 the District’s duties and obligations to indemnify H.A. Lewis for such costs, fees, liability or damages incurred or sustained by H.A. Lewis in defending against R&R’s claims that are caused by the District’s breaches of Contract, breaches of warranty, acts, omissions, and wrongful conduct.” (SACC, ¶ 56.)

The District asserts that the declaratory relief cause of action is “wholly derivative” of H.A. Lewis’s implied contractual indemnity cause of action, and is therefore improper. Thus, because the Court overrules the District’s demurrer to H.A. Lewis’s implied contractual indemnity cause of action, the Court also overrules the demurrer to the seventh cause of action for declaratory relief.

A court may strike any “irrelevant, false, or improper matter inserted in any pleading” or any part of a pleading “not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court.” (Code Civ. Proc., § 436.)

The District moves to strike paragraph 30 from the SACC, which alleges that “[p]ursuant to California law, H.A. Lewis is entitled to recover its reasonable attorney’s fees incurred in the prosecution of this action and/or penalties against the District as a result of their violation of the Prompt Payment Act as alleged herein. H.A. Lewis has retained the law firm of Rutan & Tucker, LLP to protect its interests pursuant to the Contract. As a result, H.A. Lewis has incurred and will continue to incur attorney’s fees in connection herewith.” (SACC, ¶ 30.)

The District asserts that the applicable prompt payment statute does not authorize an award of attorney’s fees or penalty interests against the District based on H.A. Lewis’s allegations. The District notes that the “California Prompt Payment Act” is contained at Government Code section 927, et seq. Government Code section 927, subdivision (c) provides that “[n]otwithstanding any other provision of law, this chapter shall apply to all state agencies, including, but not limited to, the Public Employees’ Retirement System, the State Teachers’ Retirement System, the Treasurer, and the Department of General Services.” The District indicates that it is not a state agency. In the SACC, H.A. Lewis does not allege that the District is a state agency, rather, it generally alleges that the District “is, and at all times alleged herein was, a public entity organized and existing under the laws of California.” (SACC, ¶ 2.)

H.A. Lewis indicates that it does not oppose the granting of the District’s motion to strike. However, it requests leave to amend and asserts that the alleged defects in paragraph 30 are correctible. H.A. Lewis states in its opposition that “the LAUSD correctly points out that the Prompt Payment Act does not apply to LAUSD as a non-State agency… The LAUSD also concedes that to the extent the LAUSD wrongfully withheld or delayed payment of retention, penalties pursuant to P.C.C. section 7107 might apply.” (Opp’n at p. 3:15-20.) In the motion to strike, the District states that “H.A. Lewis has not alleged any other basis to recover attorneys’ fees, such as section 7107 of the Public Contract Code,” but also argues that “H.A. Lewis may not seek penalty interest from the District under section 20104.50 or section 7107 of the Public Contract Code.” (Mot. at p. 4:7-9; 4:15-16.)

Based on the foregoing, the Court grants the District’s motion to strike, with leave to amend.

Based on the foregoing, the District’s demurrer is overruled in its entirety. The District’s motion to strike is granted, with leave to amend.

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.

[1]H.A. Lewis indicates that it does not oppose the motion to strike.

[2]See Demurrer at p. 11:1-2.

R&R MASONRY, Plaintiff, vs. H.A. LEWIS, INC., et al., Defendants.	Case No.:	21STCV21382
	Hearing Date:	February 23, 2023
	Hearing Time:	10:00 a.m.
	[TENTATIVE] ORDER RE: LOS ANGELES UNIFIED SCHOOL DISTRICT’S DEMURRER TO H.A. LEWIS, INC.’S SECOND AMENDED CROSS-COMPLAINT; LOS ANGELES UNIFIED SCHOOL DISTRICT’S MOTION TO STRIKE PORTIONS OF H.A. LEWIS, INC.’S SECOND AMENDED CROSS-COMPLAINT
AND RELATED CROSS-ACTION

Superior Court of California

County of Los Angeles

Department 50