Judge William A. Crowfoot, Case 22AHCV00527 2023-05-03 Tentative Ruling

Judge: William A. Crowfoot, Case: 22AHCV00527, Date: 2023-05-03 Tentative Ruling

Plaintiff Ethan Capital, LLC (“Plaintiff”) filed this action on August 1, 2022 against defendant City of Monterey Park (“City”) and Does 1 to 10 for breach of contract, fraud, and unjust enrichment.

On November 15, 2022, the Honorable Colin Leis sustained City’s demurrer to the breach of contract and fraud claims with leave to amend and sustained City’s demurrer to the unjust enrichment claim without leave to amend. Plaintiff filed the operative First Amended Complaint (“FAC”) on December 14, 2022. The FAC added several defendants including Mark McAvoy (“McAvoy”), Frank Lopez (“Lopez”), Eagle Stone Group LLC, and John Jorgensen. Plaintiff asserts claims for breach of contract and fraud against City. On February 21, 2023, City, McAvoy, and Lopez (collectively, “Defendants”) filed a demurrer and a request for judicial notice. Defendants request this Court dismiss the first and second causes of action without leave to amend and order Plaintiff to pay for City’s fees and costs pursuant to Code of Civil Procedure section 128.5.

Defendants request the Court judicially notice portions of the Monterey Park Municipal Code. The request is GRANTED.

A demurrer tests the legal sufficiency of the pleadings and will be sustained only where the pleading is defective on its face. (City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1998) 68 Cal.App.4th 445, 459.) “We treat the demurrer as admitting all material facts properly pleaded but not contentions, deductions or conclusions of fact or law. We accept the factual allegations of the complaint as true and also consider matters which may be judicially noticed. [Citation.]” (Mitchell v. California Department of Public Health (2016) 1 Cal.App.5th 1000, 1007; Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 604 [“the facts alleged in the pleading are deemed to be true, however improbable they may be”].) Allegations are to be liberally construed. (Code Civ. Proc., § 452.) A demurrer may be brought if insufficient facts are stated to support the cause of action asserted. (Code Civ. Proc., § 430.10, subd. (e).) Leave to amend must be allowed where there is a reasonable possibility of successful amendment. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348.) The burden is on the complainant to show the Court that a pleading can be amended successfully. (Ibid.)

“A party demurring to a pleading that has been amended after a demurrer to an earlier version of the pleading was sustained shall not demur to any portion of the amended complaint . . . on grounds that could have been raised by demurrer to the earlier version of the complaint . . ..” (Code Civ. Proc., § 430.41. subd. (b).)

Before filing a demurrer, the demurring party shall meet and confer with the party who has filed the pleading and shall file a declaration detailing their meet and confer efforts. (Code Civ. Proc., § 430.41, subd. (a).) The declaration must state either of the following: (a) the means by which the demurring party met and conferred with the party who filed the pleading subject to demurrer, and that the parties did not reach an agreement resolving the objections raised in the demurrer or (b) that the party who filed the pleading subject to demurrer failed to respond to the meet and confer request of the demurring party or otherwise failed to meet and confer in good faith. (Id., subd. (a)(3).)

In their demurrer, Defendants cite to a Declaration of Timothy E. Campen which was purportedly concurrently filed. (Notice of Demurrer, 2:15; Demurrer, 13:24-14:11.) The Court’s docket does not show that a declaration was filed. However, the memorandum of points and authorities describes the meet and confer process with adequate detail. Mr. Campen sent via email and U.S. mail a request to meet and confer and did not receive any response. Therefore, the Court finds that the meet and confer requirement has been satisfied.

An action for money or damages against a public entity may not proceed unless a written claim has first been presented to the governmental entity and the claim either has been granted or rejected. (Gov’t Code, §§ 905, 945.4.) Unless a specific exception applies, a suit for “money or damages” includes all actions where the plaintiff is seeking monetary relief, regardless whether the action is founded in tort, contract or some other theory. (Lozada v. City and County of San Francisco (2006) 145 Cal.App.4th 1139, 1152.) A plaintiff must allege facts demonstrating or excusing compliance with the claim presentation requirement. (State v. Superior Court (Bodde) (2004) 32 Cal.4th 1234, 1243.) Otherwise, his/her complaint is subject to a general demurrer for failure to state facts sufficient to constitute a cause of action. (Ibid.)

City previously argued that the original complaint failed to state a claim because Plaintiff did not allege that it complied with the Government Claims Act. The demurrer was sustained on this ground and Plaintiff was given leave to amend. Now, in the FAC, Plaintiff alleges that the claim presentation requirement has been substantially met or, in the alternative, the requirement should be waived on equitable grounds. (FAC, ¶ 25.) City once again argues that Plaintiff has failed to allege facts showing compliance with the claims presentation requirement. Nor, City adds, has Plaintiff alleged any facts showing that City waived the claims presentation requirement. In its opposition, Plaintiff only argues that the claims presentation requirement should be waived. The Court thus addresses this argument of waiver.

“[A] public entity may be estopped from asserting the limitations of the claims statute where its agents or employees have¿prevented or deterred¿the filing of a timely claim by some affirmative act.” (John R. v. Oakland Unified School Dist.¿(1989) 48 Cal.3d 438, 445;¿City of Stockton v. Superior Court (2007) 42 Cal.4th 730, 744;¿Santos v. Los Angeles Unified School Dist.¿(2017) 17 Cal.App.5th 1065, 1077.) To establish estoppel, a plaintiff needs to allege that: 1) plaintiff was ignorant of the true facts; 2) the public entity was apprised of the true facts; 3) the public entity intended its statements or conduct be relied upon; and 4) plaintiff reasonably relied on the public entity's statements or conduct to its detriment. (See Driscoll v. City of Los Angeles (1967) 67 Cal.2d 297, 305; Ortega v. Pajaro Valley Unified School Dist. (1998) 64 Cal.App.4th 1023, 1044.)

“[Plaintiff] told Defendant Frank Lopez and City Manager Ron Bow that Plaintiff would sue the City, Frank Lopez, and Mark McAvoy. The City Engineer intentionally prevented Plaintiff to file [sic] a claim in time to the City Clerk by reassuring Plaintiff that he was the point of contact for this matter and that all the communications should go through him. The City Engineer even threatened Plaintiff that if Plaintiff continued to demand the money, [Defendant] would try to find minor violations of Plaintiff’s Marriot Hotel and prevent it from opening and operating as intended. What’s more, City Manager Ron Bow attended the conferences and was well aware of what happened and told Plaintiff they had investigated this matter thoughtfully and [sic] no need to file a claim to other city officials. City Manager Ron Bow told Plaintiff that Plaintiff could go ahead and file the lawsuit against [Defendant] in court if Plaintiff was not satisfied with [Defendant’s] decision.

City argues that Plaintiff’s allegations are insufficient to invoke the doctrine of equitable estoppel because “Plaintiff does not provide any case law or statutory authority, and [City] is not aware of any, that recognizes fraudulent or ‘threatening’ statements made by City representatives as permitting a waiver of the claims requirements.” (Demurrer, 8:17-19.) City also argues that it cannot be held liable for fraud and, therefore, any alleged fraud or misrepresentations cannot be used to evade the claim presentation requirements. (Id., 8:20-21.)

City misconstrues its burden on a demurrer. On a demurrer, a defendant is attacking a plaintiff’s complaint. Therefore, it is City’s burden to show that Plaintiff’s complaint is legally insufficient; a plaintiff need not cite to or provide legal authority within a complaint. More importantly, City misstates the law. Equitable estoppel may be based on misleading statements by a public officer about the need for or advisability of filing a claim and actual fraud or intent to mislead is¿not¿required. (John R., supra, 48 Cal.3d at p. 445.)

Construing the allegations liberally, Plaintiff pleads sufficient facts that, if proved, would estop Defendant from asserting the claims presentation requirement as a defense. Accordingly, City’s demurrer on this ground is OVERRULED.

McAvoy and Lopez similarly demur to the FAC on the grounds that no claim specifying their wrongful acts was submitted. For the same reasons stated above, the Court OVERRULES McAvoy and Lopez’s demurrer.

City argues that Plaintiff fails to allege a valid contract because there are no allegations showing that there was compliance with the Public Contracts Code or Monterey Park Municipal Code. This is an argument that Judge Leis previously found unpersuasive. In its order overruling this ground for demurrer, the Court (Leis, J.) noted that the municipal code language that City cited does not establish necessary pleading requirements as opposed to elements which Plaintiff must prove at trial. (11/15/2022 Order, 3:23-28.) City’s demurrer to the FAC on this ground is substantively – and, in some places, literally – identical to its previous demurrer. Accordingly, the Court OVERRULES City’s demurrer on the ground that Plaintiff insufficiently alleges compliance with the Public Contracts Code or Monterey Park Municipal Code.

Next, City argues that the FAC is subject to a demurrer because it cannot be ascertained from the FAC whether the alleged contract was written, oral or implied by contract. (Demurrer, 11:18-19; Code Civ. Proc., § 430.10, subd. (g).) Plaintiff argues that this ground for demurrer cannot be considered because it was not raised in City’s earlier demurrer. However, Plaintiff previously specified that the contract with City was oral. (Compl., ¶ 19 [“In July 2019, Ethan Capital entered into an oral contract. . .”].) Therefore, this ground for demurrer did not exist until Plaintiff filed the FAC.

Plaintiff argues in its opposition that it already pleaded that the contract with City was a written one in paragraph 27. In Paragraph 27 of the FAC, Plaintiff alleges the following:

“In July 2019, Ethan Capital entered into a contract that Ethan Capital would change water line laterals that went from west to east below Atlantic Blvd that connect the main water lines on both sides of the street and the City of Monterey Park agreed to reimburse Ethan Capital after the work was done and the City reviewed the costs. The contract terms were written down during the meeting held in the City Hall of Monterey Park on 7/15/2019. Defendant Frank Lopez told Plaintiff that this agreement was approved by all the relevant City Officials.”

Although Plaintiff states that the terms of the contract were “written down,” Plaintiff does not explicitly allege that the contract was a written contract. Nor does Plaintiff provide any explanation for why it removed the earlier allegation that the contract was an oral one, which further adds to the uncertainty of this cause of action. Furthermore, though Plaintiff argues that there are various emails with Lopez and McAvoy which, when viewed together, “can be regarded as a written contract” and that Plaintiff anticipates finding more written communications in the discovery process, none of these facts are alleged in the FAC. (Opp., 7:19-25.)

Accordingly, City’s demurrer to the First Cause of Action is SUSTAINED with leave to amend.

Last, Defendants argue that Plaintiff’s cause of action for fraud fails pursuant to Government Code section 818.8.

Plaintiff argues that Defendants are unable to demur for this reason because this argument could have been raised in its earlier demurrer to the original complaint. (Code Civ. Proc., § 430.41. subd. (b).)

On reply, Defendants argue that the Court has the discretion to consider their demurrer and invites the Court to do so in order to conserve judicial and litigant resources. The Court accepts the invitation because a party cannot waive its objection to a complaint on the grounds that the pleading does not state facts sufficient to constitute a cause of action. (Code Civ. Proc., § 430.080, subd. (a).)

Section 818.8 provides: “A public entity is not liable for an injury caused by misrepresentation by an employee of the public entity, whether or not such misrepresentation be negligent or intentional.” Based on the language of this statute, City may be insulated from Plaintiff’s fraud claim, but not McAvoy or Lopez. McAvoy and Lopez argue against the fraud claim in more detail in their reply brief after Plaintiff invokes Government Code section 822.2.

Plaintiff does not discuss the statutory language of section 818.8 but instead cites to Government Code section 822.2 in its opposition brief to support its fraud claim against McAvoy or Lopez. Section 822.2 prohibits recovery against public employees acting in the scope of their employment for misrepresentations unless they are guilty of “actual fraud, corruption or actual malice.” Plaintiff argues that Lopez and McAvoy are liable because: (1) they committed actual fraud by telling Plaintiff that the water lines arrangement was approved and (2) acted with malice by threatening to delay its hotel project if Plaintiff did not agree to replace the water lines. (Opp., 8:12-23.)

Defendants argue on reply that Plaintiff fails to allege facts establishing actual fraud or actual malice. Actual fraud is defined in Civil Code section 1572 which states:

Actual fraud, within the meaning of this Chapter, consists in any of the following acts, committed by a party to the contract, or with his connivance, with intent to deceive another party thereto, or to induce him to enter into the contract:

1. The suggestion, as a fact, of that which is not true, by one who does not believe it to be true;

2. The positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true;

3. The suppression of that which is true, by one having knowledge or belief of the fact;

Defendants argue that Plaintiff does not adequately plead fraud because it is simply “a developer cutting corners, making unrealistic assumptions, and failing to engage in even rudimentary due diligence in the process of trying to complete construction on a major hotel project.” (Reply, 7:27-8:2.) Defendants suggest it is implausible for Plaintiff to be “misled by City employees to think that a $366,286.71 public works project did not require a real contract, did not need to be competitively bid, did not need City Council approval, or otherwise comply with state and local laws.” (Reply, 7:19-21.) However, accepting this characterization would require the Court to look beyond the four corners of the FAC and test the veracity of the allegations, which the Court cannot do on a demurrer.

City’s demurrer to the second cause of action is SUSTAINED without leave to amend.

Defendants request its fees and costs as sanctions pursuant to Code of Civil Procedure section 128.5 and argues that: (1) filing this pleading without complying with the Government Claims Act “cannot objectively meet the ‘reasonable attorney’ standard, (2) the City cannot enter into a public works contract as alleged as a matter of law, and (3) a fraud cause of action is not available against the City as a matter of law.

Code of Civil Procedure section 128.5 permits a trial court to “order a party, a party’s attorney, or both, to pay the reasonable expenses, including attorney’s fees, incurred by another party as a result of actions or tactics, made in bad faith, that are frivolous or solely intended to cause unnecessary delay.” (Code Civ. Proc., § 128.5, subd. (a).) Actions or tactics include, but are not limited to, filing or opposing motions, complaints, answers, or other responsive pleadings. (Code Civ. Proc., § 128.5, subd. (b)(1).) “ ‘Frivolous’ means totally and completely without merit or for the sole purpose of harassing an opposing party.” (Code Civ. Proc., § 128.5, subd. (b)(2).) Bad faith is determined using a subjective standard. (In re Marriage of Sahafzadeh-Taeb & Taeb (2019) 39 Cal.App.5th 139, 134-35.)

Defendant’s request for sanctions is procedurally defective and DENIED. A motion for sanctions under section 128.5 “shall be made separately from other motions or requests.” (Code Civ. Proc., § 128.5, subd. (f)(1)(A).) Also, “[i]f the alleged action or tactic is the . . . filing and service of a complaint, cross-complaint, answer, or other responsive pleading that can be withdrawn or appropriately corrected, a notice of motion shall be served as provided in Section 1010, but shall not be filed with or presented to the court, unless 21 days after service of the motion or any other period as the court may prescribe, the challenged action or tactic is not withdrawn or appropriately corrected.” (Code Civ. Proc., § 128.5, subd. (f)(1)(B).)

Even if the Court were to entertain the merits of Defendants’ request, the Court does not find these alleged actions to be sanctionable conduct. First, Plaintiff added allegations to excuse its failure to comply with the Government Claims Act. Second, City’s complaint about the form of the contract is premature when no discovery has been conducted. Third, considering that the City failed to demur to Plaintiff’s fraud claim earlier based on Government Code section 818.8, the Court cannot find that Plaintiff’s oversight of this code provision when drafting the FAC is totally and completely without merit.

City’s demurrer to the First Cause of Action for breach of contract is SUSTAINED with 20 days’ leave to amend.

City’s demurrer to the Second Cause of Action for fraud is SUSTAINED without leave to amend.

Lopez and McAvoy’s demurrer to the FAC based on the Government Claims Act is OVERRULED.

Lopez and McAvoy’s demurrer to the Second Cause of Action for fraud is OVERRULED.

William A. Crowfoot

Judge of the Superior Court

Parties who intend to submit on this tentative must send an email to the Court at ALHDEPT3@lacourt.org indicating intention to submit on the tentative as directed by the instructions provided on the court website at www.lacourt.org. Please be advised that if you submit on the tentative and elect not to appear at the hearing, the opposing party may nevertheless appear at the hearing and argue the matter. Unless you receive a submission from all other parties in the matter, you should assume that others might appear at the hearing to argue. If the Court does not receive emails from the parties indicating submission on this tentative ruling and there are no appearances at the hearing, the Court may, at its discretion, adopt the tentative as the final order or place the motion off calendar.