Judge: Virginia Keeny, Case: 22VECV00629, Date: 2023-02-02 Tentative Ruling

Case Number: 22VECV00629    Hearing Date: February 2, 2023    Dept: W

WC STRUCTURES, INC. v. MGAM, INC.

 

plaintiffs/cross-defendants wc structures, inc. and william whitley’s demurrer with motion to strike the firsT amended CROSS complaint

 

Date of Hearing:        February 2, 2023                   Trial Date:       None set.  

Department:              W                                            Case No.:        22VECV00629

 

Moving Party:            Cross-Defendant WC Structures, Inc. and William Whitley

Responding Party:     Cross-Complainants MGAM Inc., MGA Electric Corporation dba Trust Electric, and Joshua Manevich

Meet and Confer:      Yes. (Velthoen Decl. ¶2.)

 

BACKGROUND

 

This is a breach of contract cause of action. Plaintiffs WC Structures, Inc. and William Whitley filed a complaint against Defendants MGAM Inc., MGA Electric Corporation dba Trust Electric, and Joshua Manevich asserting causes of action for breach of contract, quantum meruit, and account stated. Plaintiffs allege Defendant MGAM entered into a written agreement with National Commercial Construction, Inc. (“NCCI”) to provide rough carpentry for a residential project. MGAM subsequently entered into a written agreement with WC Structures to furnish labor and materials as a rough carpentry subcontractor. However, due to some disputes regarding payment by NCCI, it is alleged that MGAM breached the agreement by failing to pay WC Structures all amounts due under the contract.

 

MGAM Inc. and MGA Electric Corporation dba Trust Electric filed a Cross-Complaint against WC Structures, Inc. and William Whitley. On October 14, 2022, Cross-Complainants filed a First Amended Cross Complaint for breach of contract, breach of the implied covenant of good faith and fair dealing, and fraud. Cross-Complainants allege William Whitley and WC Structures breached the written agreement by intentionally misrepresenting the percentage of completion of the framing in its reports to MGAM and refused to go back to work after MGAM was served with a 48 hours’ notice to recommence work. Cross-Complainants further allege Cross-Defendants agreed to pay half of the court costs and attorney fees incurred by MGAM in its legal action against NCCI for its failure to pay the final payment.

 

[Tentative] Ruling

 

Cross-Defendants WC Structures, Inc., and William Whitley’s Demurrer is SUSTAINED in part. Cross-Defendants’ Motion to Strike is GRANTED in part.

 

ANALYSIS

 

Cross-Defendants WC Structures, Inc., and William Whitley (“West Coast Cross Defendants”) demur to the First Amended Cross Complaint on the grounds the first, second, and third causes of action fail to state facts sufficient to constitute a valid claim against Cross-Defendants and are uncertain.

 

Third Party Beneficiary

 

The West Coast Cross Defendants first demur to the First Amended Cross Complaint on the grounds Trust Electric was not a third-party beneficiary of the subcontract.

 

The Supreme Court has established a three-part test to determine whether an individual or entity that is not a party to a contract may bring a breach of contract action against a party to the contract as a third-party beneficiary. (Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 830.) That test requires the third party to establish “not only (1) that it is likely to benefit from the contract, but also (2) that a motivating purpose of the contracting parties is to provide a benefit to the third party, and further (3) that permitting the third party to bring its own breach of contract action against a contracting party is consistent with the objectives of the contract and the reasonable expectations of the contracting parties. All three elements must be satisfied to permit the third party action to go forward.” (Ibid.)

 

The West Coast Defendants argue Trust Electric cannot meet any of the three elements. Defendants first argue the Framing Subcontract had nothing to do with Trust Electric. Defendants contend Trust Electric is not named in the Framing Subcontract and none of the framing work performed by West Coast was for its benefit. Moreover, West Coast Defendants argue Cross-Complainants have not and cannot allege facts showing that a motivating purpose of MGAM and West Coast was to provide a benefit to Trust Electric. West Coast Defendants contend MGAM did not enter the Framing Subcontract to benefit Trust Electric but because its own crew was no longer available and West Coast did not agree to perform the framing work to make Trust Electric look good to NCCI. Lastly, West Coast Defendants argue there are no facts to suggest that West Coast anticipated that it had any obligations to Trust Electric, much less that Trust Electric could sue West Coast if it breached the Framing Subcontract. Trust Electric contention that the breach of the Framing Subcontract caused him some harm does not mean that the contracting parties specifically intended to benefit Trust Electric.

 

In opposition, Cross-Complainants argue an allegation of third-party beneficiary status must be accepted as correct in a ruling on a demurrer where the contract is ambiguous unless the pleading places a clearly erroneous construction on the agreement. In the absence of grounds for estoppel, the contracting parties should be allowed to testify as to their actual intention to benefit a third party. (See Clemens v. American Warranty Corp. (1987) 193 Cal.App.3d 444, 455.)

 

Cross-Complainants allege on February 1, 2018, MGAM and the West Coast Defendants entered into a written agreement for WC Structures to frame the Chanel Island Apartment project. WC Structures was to be paid $1,950,000.00, the same amount that NCCI agreed to pay MGAM for the framing. (FAXC ¶22.) Cross-Complainants allege the West Coast Defendants were aware that MGAM was not making a profit on the Framing Subcontract because MGAM and Trust Electric were trying to lock in a long term relationship with NCCI. (FAXC ¶22, 24.) Moreover, Cross-Complainants anticipated substantial profits from the relationship. (FAXC ¶24.)

 

While Cross-Defendants may have been aware of Cross-Complainants’ intentions when entering the contract, Cross-Complainants have not sufficiently alleged the motivating purpose of the contract was to benefit Trust Electric or that Trust Electric’s action against West Coast Defendants is consistent with the objective and reasonable expectations of the contracting parties. The Framing Subcontract does not show that Cross-Complainants and West Coast Defendants agreed or intended to include Trust Electric as a beneficiary of the agreement. Rather, the Framing Subcontract shows that West Coast Defendants were to furnish and install all materials for the frame job and Cross-Complainants were to provide a dumpster and adequate staging as well as water, power, telephone, parking and temporary toilet facilities.

 

Accordingly, Cross-Defendants’ Demurrer is SUSATINED WITHOUT LEAVE TO AMEND.

 

Duplicative Causes of Action

 

The West Coast Defendants also demur to the First Amended Cross Complaint on the grounds the claims for breach of the implied covenant are duplicative. West Coast Defendants contend Cross-Complainants simply allege that West Coast breached the same express covenants as alleged in their first and third causes of action for breach of contract.

 

When the allegations for breach of the implied covenant “do not go beyond the statement of a mere contract breach,” then demurrer to the implied covenant claim may be sustained on the grounds that it is duplicative of, and entirely contained within, the corresponding breach of contract claim. (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 139.)

 

In opposition, Cross-Complainants argue they have alleged a tortious breach of the implied covenant of good faith and fair dealing and therefore, the causes of action are not duplicative. (See Erlich v. Menezes (1999) 21 Cal.4th 543, 553– 54.)

 

The court finds that there is no aspect of this ordinary breach of contract case that would allow cross-complainants to bring  a claim for tortious breach of the implied covenant.   The breach of implied covenant claim is therefore identical to and adds nothing to the breach of contract cause of action already stated. 

 

Accordingly, West Coast Defendants’ demurrer is SUSTAINED WITH OUT LEAVE TO AMEND as to the Second and Fourth causes of action.

 

Motion to Strike

 

The West Coast Defendants move to strike Paragraphs 47 through 49, 72, and 87 on the grounds the paragraphs include improper matter.

 

West Coast Defendants argue that Paragraphs 47 through 49 are improper matter as they refer to mediation that occurred between the parties, which violates their mediation privilege.

 

“All communications, negotiations, or settlement discussions by and between participants in the course of a mediation or a mediation consultation shall remain confidential.” (Evid. Code, §1119.) “[T]hese confidentiality provisions are clear and absolute. Except in rare circumstances, they must be strictly applied and do not permit judicially crafted exceptions or limitations, even where competing public policies may be affected.” (Cassel v. Superior Court (2011) 51 Cal.4th 113, 118.)

 

In opposition, Cross-Complainants argue the allegations contained in paragraph 48 do not reveal any communications made during a mediation. Cross-Complainants agree, however, that the following language may be stricken from paragraph 49: “As a result of the evidence presented and the effect the evidence had on the mediator.”  

 

The court finds the allegations do not reveal the confidentiality of mediation. “Mediation confidentiality is to be applied where the writing, or statement would not have existed but for a mediation communication, negotiation, or settlement discussion.” (Wimsatt v. Superior Court (2007) 152 Cal.App.4th 137, 160.) Cross-Complainants alleged when the parties engaged in mediation, NCCI presented evidence that the percentage of the completion claimed by the West Coast Defendants was overstated. (FAXC ¶¶47-49.) Although the evidence presented did occur during mediation, the evidence presented could have been presented even if there was no mediation.

 

Accordingly, the court denies West Coast Defendants’ motion to strike paragraphs 47-49 except for Paragraph 49 --“As result of the evidence presented and the effect the evidence had on the mediator.”

 

As for Cross-Complainants punitive damages claims, Cross-Complainants have sufficiently alleged fraud and therefore, may seek punitive damages for that cause of action only.