IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA THIRD APPELLATE DISTRICT (Placer)
September 12, 2011
GOLDEN SIERRA JOB TRAINING AGENCY, PLAINTIFF AND APPELLANT,
COUNTY OF SIERRA ET AL., DEFENDANTS AND RESPONDENTS.
(Super. Ct. No. S-CV-25102)
The opinion of the court was delivered by: Butz , J.
Golden Sierra Job Training Agency v. County of Sierra CA3
NOT TO BE PUBLISHED
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
Plaintiff Golden Sierra Job Training Agency (Golden Sierra), a joint powers agency, appeals from a judgment of dismissal after a demurrer to its second amended complaint against former member agencies--Nevada County and Sierra County (collectively defendants)--was sustained without leave to amend. That complaint alleged that defendants breached a five-county joint powers agreement by refusing to contribute toward healthcare and retirement benefits for Golden Sierra's employees, obligations that were allegedly incurred prior to defendants' withdrawal from Golden Sierra.
On appeal, Golden Sierra contends that the demurrer should have been overruled because the joint powers agreement "contains ambiguity and ambiguity between contract terms is a question of fact that cannot be resolved by demurrer." We find no ambiguity in the language of the paragraph cited by Golden Sierra to support the lawsuit. Furthermore, we find Golden Sierra's construction of the cited paragraph to be patently unreasonable. Hence, we shall affirm the judgment.
FACTUAL AND PROCEDURAL BACKGROUND
On June 5, 2009, Golden Sierra, a joint powers agency (Gov. Code, § 6500 et seq.), filed the underlying lawsuit against Nevada and Sierra Counties for breach of contract and declaratory relief. The initial complaint alleged that defendants had breached the "First Amended and Restated Joint Exercise of Powers Agreement for Golden Sierra" "(Revised JPA: September 8, 2005)" (hereafter the agreement), entered into by all member agencies, by failing to contribute toward the healthcare and retirement benefits of Golden Sierra employees. It was averred that these financial obligations were incurred prior to the time that defendants withdrew from Golden Sierra and that the financial obligations extended beyond the date of withdrawal.
Defendants filed a demurrer to the initial complaint on the ground that it failed to state a cause of action. The trial court sustained the demurrer with leave to amend, noting that the initial complaint failed to allege what defendants' obligations were under the agreement. A first amended complaint was filed in October 2009, and a second demurrer was brought by defendants. Again the trial court sustained the demurrer with leave to amend.
Golden Sierra filed its second amended complaint in March 2010, the complaint at issue here, and defendants demurred again. This time the trial court sustained the demurrer without leave to amend, ruling that Golden Sierra could not state a cause of action for breach of the agreement. Golden Sierra appeals the judgment of dismissal.
Summary of the Second Amended Complaint
We derive our factual summary from the allegations of Golden Sierra's second amended complaint (hereafter complaint). (See Blank v. Kirwan (1985) 39 Cal.3d 311, 318 ["'We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions, or conclusions of fact or law.'"]; White v. State of California (2001) 88 Cal.App.4th 298, 304 [on review of dismissal after sustaining of demurrer, we "assume the truth of all facts properly pled and the truth of facts that may be implied or inferred from these allegations"].)
Golden Sierra is a joint powers authority organized under section 6500 et seq. of the Government Code. It was formed in 1983 to develop public and private job training programs to meet community goals. At its formation, Golden Sierra's member counties included Alpine, El Dorado, Nevada, Placer and Sierra Counties. Each member county receives federal funding for job training under the Workforce Investment Act of 1998 (the WIA; 29 U.S.C. § 2801 et seq.), and those funds are the primary source of funding for Golden Sierra. If a county withdraws from Golden Sierra, federal funding for the agency is proportionately reduced.
In 1983, Golden Sierra, through its board of directors which included representatives of defendants, decided to hire and retain staff and to provide retirement, healthcare and other employee benefits. Such benefits vest after five years of continuous employment with Golden Sierra.
In September 2005, all member counties of Golden Sierra, including defendants, entered into the agreement for Golden Sierra.*fn1 The purpose of the agreement, as stated in section 2,*fn2 is to "create a public entity, separate and apart from the parties hereto, to be known as the Golden Sierra Job Training Agency . . . ."
Section 3 of the agreement provides that "The debts, liabilities, and obligations of the Agency shall not, under any circumstances, constitute debts, liabilities or obligations incurred by any party under this Agreement. Should any debt, liability or obligation of the Agency not be waived or allowed payable through assets of the Agency, the counties shall each not be liable, except as provided by Government Code sections 895 through 895.8."*fn3 (Italics added.)
Section 15 of the agreement grants any party the right to withdraw from it upon 90 days' written notice. However, paragraph B of section 15 (section 15.B.) goes on to state: "Such withdrawal shall not release the withdrawing party from any obligation incurred prior to withdrawal extending beyond the effective date of withdrawal, nor from liability for any act or omission of the Agency which occurred during the period when such withdrawing party was a member." (Italics added.)
In June 2006, defendant Sierra County withdrew from Golden Sierra. In June 2008, defendant Nevada County withdrew from Golden Sierra. Prior to these withdrawals, Golden Sierra incurred obligations for employee retirement and healthcare benefits for its employees, obligations that extended beyond the effective dates of defendants' withdrawal.
Since their withdrawal, defendants have failed and refused to pay for employee retirement and healthcare benefits owed by Golden Sierra to its employees, obligations Golden Sierra incurred prior to defendants' withdrawal.
Based on these averments, Golden Sierra sought damages for breach of the agreement, which damages include defendants' share of healthcare and retirement benefits, which were alleged to have been incurred prior to defendants' withdrawal from Golden Sierra. A declaratory relief cause of action sought a judicial declaration of the same asserted contractual obligation.
I. Applicable Principles
"The function of a demurrer is to test the sufficiency of the complaint alone and not the evidence or other extrinsic matters." (Ingram v. Flippo (1999) 74 Cal.App.4th 1280, 1283.) "As a reviewing court we are not bound by the construction placed by the trial court on the pleadings but must make our own independent judgment thereon, even as to matters not expressly ruled upon by the trial court." (Miller v. Bakersfield News-Bulletin, Inc. (1975) 44 Cal.App.3d 899, 901.)
"'"We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions, or conclusions of fact or law."'" (Sarale v. Pacific Gas & Electric Co. (2010) 189 Cal.App.4th 225, 245, quoting Blank v. Kirwan, supra, 39 Cal.3d at p. 318.) Moreover, the rule that we assume the truth of the complaint's allegations does not apply to allegations contradicted by the exhibits to the complaint. (Vance v. Villa Park Mobilehome Estates (1995) 36 Cal.App.4th 698, 709.) "'[W]hen a written instrument which is the foundation of a cause of action or defense is attached to a pleading as an exhibit and incorporated into it by proper reference, the court may, upon demurrer, examine the exhibit and treat the pleader's allegations of its legal effect as surplusage.'" (Weitzenkorn v. Lesser (1953) 40 Cal.2d 778, 785-786, quoting Washer v. Bank of America (1943) 21 Cal.2d 822, 829-830, disapproved on other grounds in MacLeod v. Tribune Publishing Co. (1959) 52 Cal.2d 536, 551.)
"When the facts are undisputed, as they are deemed to be in connection with a demurrer, the interpretation of a contract, including the resolution of any ambiguity, is a question of law." (Sprinkles v. Associated Indemnity Corp. (2010) 188 Cal.App.4th 69, 76; accord, Hervey v. Mercury Casualty Co. (2010) 185 Cal.App.4th 954, 962-963.)
A. Section 15.B. of the Agreement Provides No Basis for a Breach of Contract Action
Golden Sierra's complaint is squarely based on the written agreement. It makes no reference to any other written or oral agreement between the parties. Furthermore, the final section of the agreement, section 21, states in relevant part, "This Agreement contains the entire agreement between the parties and supersedes all prior understanding [sic] between them with respect to the subject matter of this Agreement. There are no promises, terms, conditions or obligations, oral or written, between or among the parties relating to the subject matter of this Agreement that are not fully expressed in this Agreement." This is a classic integration clause. (See Banco do Brasil, S.A. v. Latian, Inc. (1991) 234 Cal.App.3d 973, 1003.) Thus, if a viable contract claim lies, it must be found within the four corners of the agreement.
It is immediately apparent that the asserted contractual duty runs afoul of section 3 of the agreement, which precludes any obligation of Golden Sierra from becoming obligations of its individual members. Except with respect to tort liability imposed by the Government Code (see fn. 3, ante), section 3 provides, "The debts, liabilities, and obligations of the Agency shall not, under any circumstances, constitute debts, liabilities or obligations incurred by any party under this Agreement. . . ." (Italics added.) This language is consistent with section 6, paragraph P of the agreement, which allows Golden Sierra, in its own right, to "[m]ake and enter contracts [and] employ agents and employees."
Golden Sierra nevertheless claims that liability may be imposed on individual defendant counties under section 15.B., which provides that a participant's withdrawal from the agreement "shall not release the withdrawing party from any obligation incurred prior to withdrawal extending beyond the effective date of withdrawal, nor from liability for any act or omission of [Golden Sierra] which occurred during the period when such withdrawing party was a member." But, as the trial court pointed out, section 15 does not speak to how an "obligation" on the part of individual members of Golden Sierra is created. Accordingly, Golden Sierra's reliance on section 15 begs the crucial question of whether defendants obligated themselves to fund retirement and healthcare benefits beyond the date of withdrawal.
Golden Sierra points to no provision, apart from section 15.B., that would create individual liability. Instead, it reasons that the obligation arose because defendants were members of Golden Sierra when the agency decided to grant employees healthcare and retirement benefits. Under this theory, defendants' membership status when the obligation was created imposed perpetual liability for each member's share of the employee benefits, even after withdrawal.
Golden Sierra does not deny that its theory of liability cannot be reconciled with section 3, which says that obligations undertaken by Golden Sierra are not imputed to its members. Instead, Golden Sierra urges that there exists a "conflict" between section 3 and section 15 that creates a contractual "ambiguity" not susceptible of resolution on demurrer. This position is untenable.
As we stated in Estate of Dye (2001) 92 Cal.App.4th 966, "An ambiguity arises when language may be applied in more than one way. To say that language is ambiguous is to say there is more than one semantically permissible candidate for application, though it cannot be determined from the language which is meant. Every substantial claim of ambiguity must tender a candidate reading of the language which is of aid to the claimant. One must ask what meanings are proffered and examine their plausibility in light of the language. A party attacking a meaning succeeds only if the attacker can propose an alternative, plausible, candidate of meaning." (Id. at p. 976, italics added.)
This principle applies where the sustaining of a demurrer is based upon the interpretation of a written instrument. If a party proceeds on the theory that a contract's terms are ambiguous, then it must "allege in the complaint the meaning which the party ascribes to that contract." (Hayter Trucking, Inc. v. Shell Western E&P, Inc. (1993) 18 Cal.App.4th 1, 17 (Hayter); accord, Beck v. American Health Group Internat., Inc. (1989) 211 Cal.App.3d 1555, 1561 (Beck).) "[W]here an ambiguous contract is the basis of an action, it is proper, if not essential, for a plaintiff to allege its own construction of the agreement." (Marina Tenants Assn. v. Deauville Marina Development Co.(1986)181 Cal.App.3d 122, 128.)
Golden Sierra does not specify any language in section 15.B. that can be construed in more than one way. It merely offers up a construction of section 15.B. that clashes with another provision in the same contract. Without alternate candidates for meaning, there is no ambiguity in the contract that could require judicial resolution by aid of extrinsic evidence.
Because Golden Sierra has not tendered an ambiguous clause that could provide the foundation for a breach of contract action, we "will construe the language of the contract on its face to determine whether, as a matter of law, the contract is reasonably subject to a construction sufficient to sustain a cause of action for breach." (Hayter, supra, 18 Cal.App.4th at p. 18, italics added.)
Golden Sierra reads section 15.B. as saying that all obligations incurred by Golden Sierra while member counties were parties to the agreement became those members' obligations, even after withdrawal. Section 3, however, says just the opposite.*fn4 Golden Sierra's proposed reading of section 15.B. would thus not only contradict, but eviscerate section 3, reducing the latter to surplusage. Such a construction would violate a number of cardinal principles of contract interpretation.
"The interpretation of a contract 'must be fair and reasonable, not leading to absurd conclusions.'" (Kashmiri v. Regents of University of California (2007) 156 Cal.App.4th 809, 842.) "'The whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other.'" (County of San Joaquin v. Workers' Comp. Appeals Bd. (2004) 117 Cal.App.4th 1180, 1185, quoting Civ. Code, § 1641.) Accordingly, an interpretation of one contractual provision that would render another one surplusage is disfavored. (Boghos v. Certain Underwriters at Lloyd's of London (2005) 36 Cal.4th 495, 503; London Market Insurers v. Superior Court (2007) 146 Cal.App.4th 648, 669.) Finally, "where two clauses of a contract cannot be reconciled, the first shall be received and the latter rejected." (Estate of Cox (1970) 8 Cal.App.3d 168, 199, citing Burns v. Peters (1936) 5 Cal.2d 619, 623.)
Since the meaning ascribed by Golden Sierra to section 15.B. would not only create an internal contradiction within the contract but violate the fundamental principles of contract law, we have no hesitation in concluding that its interpretation cannot be a reasonable one.
"'When a dispute arises over the meaning of contract language, the first question to be decided is whether the language is "reasonably susceptible" to the interpretation urged by the party. If it is not, the case is over.'" (Dore v. Arnold Worldwide, Inc. (2006) 39 Cal.4th 384, 393 (Dore).)
Because Golden Sierra has failed to tender a plausible reading of a contract provision that would support the imposition of the duty asserted, its "case is over"--it cannot state a viable cause of action for breach of the agreement.*fn5
Golden Sierra insists that if its construction of section 15.B. (i.e., that all obligations incurred by Golden Sierra while defendants were members continue to be obligations of former members after withdrawal) is rejected, the section means nothing at all. We disagree.
As defendants point out, nothing in the agreement forbids member counties from independently undertaking obligations as members of Golden Sierra, apart from the agreement itself. Thus, section 15.B. can plausibly be read to mean that any independently created obligation to Golden Sierra undertaken by a member while a party to the agreement continues beyond that member's withdrawal from the agency. Unlike Golden Sierra's construction, which creates an irreconcilable conflict between two provisions, this interpretation harmonizes section 3 with section 15 and gives effect to all parts of the contract.
Golden Sierra also places much emphasis on the allegation of the complaint averring that when Golden Sierra's member counties made the decision to provide employee benefits, "the member counties, including Defendants, were aware that the primary source of funding for these long term benefits was the WIA federal funding that was based upon the allocations made for each member county by the federal government . . . ." (Italics added.)
But subjective awareness of dire consequences is no surrogate for a duty imposed by contract. No relief is sought based upon promissory estoppel or other equitable theories. This is a garden variety breach of contract action based on a written agreement. In such a situation, one party's state of mind is not relevant. Contracts are interpreted according to an objective assessment of the words expressed. (Beck, supra, 211 Cal.App.3d at p. 1562 ["The objective intent as evidenced by the words of the instrument, not the parties' subjective intent, governs our interpretation."]; see also Citizens Utilities Co. v. Wheeler (1957) 156 Cal.App.2d 423, 432 ["[T]he outward manifestation or expression of assent is controlling [citation], and . . . what the language of a contract means is a 'matter of interpretation for the courts and not controlled in any sense by what either of the parties intended or thought its meaning to be.'"].) Thus, whatever subjective intent defendants may have had when employee benefits were approved, cannot now be alchemized into a contractual duty.*fn6
B. The Declaratory Relief Cause of Action Was Properly Dismissed
Because the breach of contract claim is fatally defective, the demurrer was also properly sustained as to the declaratory relief count. The latter cause of action asks for an advisory opinion as to the viability of Golden Sierra's contract claim. Since we have already determined that the claim is not viable, a judicial declaration is no longer necessary or proper. "'"The fundamental basis of declaratory relief is the existence of an actual, present controversy over a proper subject."' [Citation.] The court may sustain a demurrer on the ground that the complaint fails to allege an actual or present controversy, or that it is not 'justiciable.' The court also may sustain a demurrer without leave to amend if it determines that a judicial declaration is not 'necessary or proper at the time under all the circumstances.'" (DeLaura v. Beckett (2006) 137 Cal.App.4th 542, 545.)
The judgment is affirmed. Defendants shall recover costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1), (2).)
We concur: BLEASE , Acting P. J. MAURO , J.