Judge Theodore R. Howard, Case 22-1266407 2023-08-31 Tentative Ruling

Judge: Theodore R. Howard, Case: 22-1266407, Date: 2023-08-31 Tentative Ruling

Cross-Defendant PL Energy, LLC’s Demurrer to the First Amended Cross-Complaint (“FAXC”) is OVERRULED in part and SUSTAINED without leave to amend in part.

Special Demurrer for Uncertainty

A demurrer for uncertainty will only be sustained where the complaint is so poorly pled that a defendant cannot reasonably determine what issues must be admitted or denied, or what counts or claims are directed against him or her. (See Khoury v. Maly’s of California, Inc. (1993) 14 Cal. App. 4th 612, 616.) Here, the causes of action pled against Cross-Defendant are not so unclear as to render them indecipherable. Accordingly, the demurrer based on uncertainty is OVERRRULED.

First Cause of Action - Negligence

Cross-Defendant again contends the negligence cause of action is barred by the Economic Loss Rule, as this action is purely a contractual dispute. The economic loss rule ordinarily prevents a party to a contract from recovering in tort for purely economic loss. (Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 988.) The purpose of the rule is to “prevent[ ] the law of contract and the law of tort from dissolving one into the other.” (Robinson Helicopter Co., 34 Cal.4th at 988 (internal quotation marks and citation omitted).) However, conduct amounting to a breach of contract becomes tortious and justifies the recovery of economic loss when “it also violates a duty independent of the contract arising from principles of tort law.” (Id. at 989.)

In Opposition, Cross-Complainant again argues the economic loss rule does not apply where the parties have contracted for the performance of services. As support, it again cites North American Chemical Co. v. Superior Court (1997) 59 Cal. App. 4th 764. However, as this Court recognized in its ruling on Cross-Defendant’s first demurrer, the North American Chemical court did not categorically hold that the economic loss rule does not apply when the parties have contracted for the performance of services. (Id. at 785.)

The North American Chemical court held that, where the contract is for the performance of services, a “special relationship” between the contracting parties may create an independent duty of care permitting the plaintiff to recover economic losses in tort. (Id.) The court then applied the six-factor “special relationship” test as announced by the California Supreme Court in J'Aire Corp. v. Gregory (1979) 24 Cal.3d 799, 804. Thus, under North American Chemical, a party to a contract for services may argue that there exists a special relationship between the parties giving rise to a duty of care independent of the contract. Cross-Complainant contends the FAXC alleges facts sufficient to satisfy the six-factor “special relationship” test stated in J’Aire, while Cross-Defendant contends the “special relationship” exception is inapplicable here.

As this Court previously recognized, this extension of the special relationship exception has not been universally adopted and there is no California Supreme Court ruling on the same. Since North American Chemical was decided, the California Supreme Court has not explicitly overruled it, but has, on multiple occasions, found negligence claims barred by the economic loss rule when the contract at issue was one for services. (See Aas v. Superior Court (2000) 24 Cal. 4th 627, 643, superseded by statute on other grounds, Cal. Civ. Code §§ 895–945.5, as recognized in Rosen v. State Farm General Ins. Co. (2003) 30 Cal. 4th 1070, 1079; Erlich v. Menezes (1999) 21 Cal. 4th 543, 552.) In Aas, the court specifically found that an argument relying on the North American Chemical holding was “not persuasive,” and reiterated that “[a] person may not ordinarily recover in tort for the breach of duties that merely restate contractual obligations.” (Aas v. Superior Court, supra, 24 Cal. 4th at 643.)

In any event, North American Chemical maintained “the general rule that where the ‘negligent’ performance of a contract amounts to nothing more than a failure to perform the express terms of the contract, the claim is one for contract breach, not negligence.” (59 Cal. App. 4th at 774 (emphasis in original).) Here, as with the initial pleading, Cross-Complainant again alleges that Cross-Defendant owed a duty of care to provide expert engineering consulting services and that Cross-Defendant breached this duty by providing recommendations of methods and products that were ultimately determined to be unsuitable for Cross-Complainant’s commercial customers. (FAXC ¶¶ 7, 9.) Thus, as with the initial cross-complaint, the FAXC essentially alleges that Cross-Defendant negligently failed to perform the services it undertook under the contract between the parties. The claim again amounts to nothing more than a claim that Cross-Defendant failed to perform the express terms of the contract.

In addition, Cross-Complainant added this cause of action in contravention of the Court’s February 16, 2023 order, which granted leave to amend “to provide Cross-Complainant an opportunity to sufficiently plead a cause of action for breach of contract or negligence.” (See ROA 45.) The FAXC includes both a breach of contract cause of action and a negligence cause of action. Thus, the addition of both causes of action is in contravention of the Court’s prior ruling.

Accordingly, as Cross-Complainant again failed to allege a viable negligence claim and as the claim was added in violation of the Court’s prior ruling, the demurrer to the first cause of action is SUSTAINED without leave to amend.

Second Cause of Action - Breach of Implied Covenant of Good Faith and Fair Dealing

A party given leave to amend following a demurrer is only authorized to amend as permitted by the court ruling. (People By & Through Dep't of Pub. Works v. Clausen (1967) 248 Cal.App.2d 770, 785–86; Harris v. Wachovia Mortgage, FSB (2010) 185 Cal.App.4th 1018, 1023; Taliaferro v. Davis (1962) 220 Cal.App.2d 793, 794–95.)

Here, the Court’s February 16, 2023 order sustaining Cross-Defendant’s demurrer to the original pleading indicated the demurrer was sustained with leave to amend “so as to provide Cross-Complainant an opportunity to sufficiently plead a cause of action for breach of contract or negligence.” (See ROA 45.) The order did not permit the addition of causes of action against Cross-Defendant other than breach of contract or negligence. Thus, the second cause of action for breach of implied covenant of good faith and fair dealing asserts a new cause of action against Cross-Defendant that is not within the scope of the Court’s prior order granting leave to amend.

Accordingly, the demurrer to the second cause of action is SUSTAINED without leave to amend. (People By & Through Dep't of Pub. Works v. Clausen, 248 Cal.App.2d at 785–86; Harris v. Wachovia Mortg., FSB, 185 Cal.App.4th at 1023.)

Moving Party to give notice.