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Black & Veatch Corporation v. Modesto Irrigation District

October 27, 2011

BLACK & VEATCH CORPORATION,
PLAINTIFF,
v.
MODESTO IRRIGATION DISTRICT,
DEFENDANTS. MODESTO IRRIGATION DISTRICT,
COUNTER-CLAIMANT,
v.
BLACK & VEATCH CORPORATION, COUNTER-DEFENDANT. MODESTO IRRIGATION DISTRICT,
THIRD-PARTY PLAINTIFF,
v.
WESTERN SUMMIT CONSTRUCTORS, INC., ET AL.,
THIRD-PARTY DEFENDANTS.



The opinion of the court was delivered by: Lawrence J. O'Neill United States District Judge

ORDER ON MOTION TO DISMISS OR IN THE ALTERNATIVE MOTION TO STRIKE THIRD PARTY PLAINTIFF COMPLAINT (DOCS 38, 40)

I. INTRODUCTION.

Counter-Claimant and Third-Party Plaintiff, Modesto Irrigation District ("MID") filed its Third-Party Complaint in Interpleader ("Interpleader Complaint"), naming as Defendants, Western Summit Constructors, Inc. ("Western"), Big B Construction, Inc. ("BBC") and three surety companies. Western and BBC bring this motion to dismiss MID‟s Interpleader Complaint. Both Western and BBC make similar arguments, contending that many of the claims in the Complaint are not properly pled, not based on a cognizable legal theory and/or are redundant of other claims.

II. PROCEDURAL HISTORY.

On April 29, 2011, plaintiff, Black & Veatch Corporation ("B&V") filed its complaint against MID for claims relating to additional services that B&V provided as a result of MID‟s, Western's and/or BBC's allegedly deficient work and delay. ECF No. 1. MID counter-claimed on July 25, 2011. ECF No. 17.

On August 8, 2011, MID filed its Interpleader Complaint against, inter alia, Western and BBC. The relevant causes of action against Western and BBC are: (1) express contractual indemnity; (2) total equitable indemnity; (3) comparative equitable indemnity; (4) breach of contract against Western; (5) breach of express warranty against Western; (6) negligence against Western; (7) negligence against BBC; (8) breach of implied warranty of merchantability against BBC; (9) breach of implied warranty of fitness against BBC; (10) breach of implied warranty of workmanship against BBC; and (11) negligent misrepresentation against Western. ECF No. 22.

The Interpleader Complaint also includes an at-issue request for declaratory relief. Id. On September 9, 2011, Western filed a motion to dismiss, or in the alternative, motion to strike portions of MID's Interpleader Complaint. ECF No. 38. On September 16, 2011, BBC filed its own motion to dismiss, or in the alternative, motion to strike portions of MID's Interpleader Complaint. ECF No. 40.

III. BACKGROUND.

MID sought to expand its existing water treatment plant through construction of a 36,000,000 gallon per day water treatment plant, located in Stanislaus County, California (the "Project"). Interpleader Complaint ¶ 9. In 2007, MID entered into a written agreement with B&V in which B&V agreed to perform various construction-related services for the Project, including construction management services. Id. ¶ 11-13. On or about June 8, 2007, Western, as prime contractor, and MID, as owner, entered into a written public works contract (the "Contract"). Id. ¶ 17. After June 8, 2007, Western hired BBC as a subcontractor and entered into a written subcontract agreement (the "Subcontract") in which BBC agreed to perform concrete work on the Project. Id. ¶ 20.

During construction of the Project, MID discovered numerous alleged defects with Western's work. Id. ¶ 23. Due to these construction defects and deficiencies, the Project was delayed past the contract deadline and has not yet been completed. Id. at ¶ 24.

IV. STANDARD OF DECISION.

A. Motion to Dismiss.

A motion to dismiss brought under Federal Rule of Civil Procedure 12(b)(6) "tests the legal sufficiency of a claim." Navarro v. Block, 250 F.3d 729, 732 (9th Cir.2001). In deciding whether to grant a motion to dismiss, the court "accept[s] all factual allegations of the complaint as true and draw[s] all reasonable inferences" in the light most favorable to the nonmoving party. Rodriguez v. Panayiotou, 314 F.3d 979, 983 (9th Cir.2002). To survive a motion to dismiss, a complaint must "contain sufficient factual matter, accepted as true, to "state a claim to relief that is plausible on its face.‟" Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).

A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. The plausibility standard "is not akin to a "probability requirement,‟ but it asks for more than a sheer possibility that defendant has acted unlawfully. Where a complaint pleads facts that are "merely consistent with‟ a defendant‟s liability, it "stops short of the line between possibility and plausibility of entitlement to relief.‟" Id. (citing Twombly, 550 U.S. 556-57).

Nevertheless, the court "need not assume the truth of legal conclusions cast in the form of factual allegations." United States ex rel. Chunie v. Ringrose, 788 F.2d 638, 643 n.2 (9th Cir. 1986). While the standard does not require detailed factual allegations, "it demands more than an unadorned, the defendant-unlawfully-harmed-me accusation." Iqbal, 129 S. Ct. at 1949. A pleading is insufficient if it offers mere "labels and conclusions" or "a formulaic recitation of the elements of a cause of action." Twombly, 550 U.S. at 555; Iqbal, 129 S. Ct. at 1950 ("Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice."). A court need not permit an attempt to amend a complaint if "it determines that the pleading could not possibly be cured by allegation of other facts." Cook, Perkiss and Liehe, Inc. v. N. Cal. Collection Serv. Inc., 911 F.2d 242, 247 (9th Cir.1990).

In ruling upon a motion to dismiss, the court may consider only the complaint, any exhibits thereto, and matters which may be judicially noticed pursuant to Fed. R. Evid. 201. See Mir v. Little Co. of Mary Hosp., 844 F.2d 646, 649 (9th Cir. 1988).

B. Motion to Strike.

Federal Rule of Civil Procedure 12(f) permits the Court to "[strike] from any pleading any insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Fed. R. Civ. Pro. 12(f).

Redundant matter "consists of allegations that constitute a needless repetition of other averments in the pleading." 5 Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 1382 (1990). Immaterial matter is "that which has no essential or important relationship to the claim for relief or the defenses being pleaded." Id. Impertinent matter "consists of statements that do not pertain, and are not necessary, to the issues in question." Id. Scandalous matter is "that which improperly casts a derogatory light on someone, most typically on a party to the action." Id.

V. DISCUSSION.*fn1

A. BBC‟s and Western‟s Objections.

Both Western and BBC object to the use of attorney at record, Mr. Klotsche‟s, declaration in support of the Opposition. The objections to Mr. Klotsche‟s declaration are moot as the court did not consider the declaration in its decision. Western further objects to various material in MID‟s Opposition. Western states that it is "improper material outside of the pleadings" and also that the material assumes facts not in evidence. These objections are moot as the court only considered MID‟s arguments which were based on material plead in the Interpleader Complaint.

B. Total Equitable Indemnity (Second claim).

Both BBC and Western argue that MID‟s total equitable indemnity claim is not based on a cognizable legal theory and is redundant of MID‟s third claim for comparative equitable indemnity. Specifically, both movants assert that "while the doctrine of equitable indemnity is recognized in California, it is not divisible into causes of action that seek differing degrees of indemnity." Western‟s Mot. Dismiss ("Western MTD"), ECF No. 38, 3:26-28 (emphasis in original). MID rejoins that although its "comparative equitable indemnity claim may incorporate its total equitable indemnity claim. . . MID is unaware of any California case that bars a plaintiff from separately pleading a claim for total equitable indemnity." Opp‟n to BBC, ECF No. 48, 5:7-8.

"There are not two separate equitable indemnity doctrines in California but a single "comparative indemnity‟ doctrine which permits partial indemnification on a comparative fault basis in appropriate cases." Far West Financial Corp. v. D & S Co., 46 Cal. 3d 796, 808 (1988).

For example, it would be "[]proper, in a comparative indemnity action, for a trier of fact to determine that the facts and equities in a particular case support a complete shifting of a loss from one tortfeasor to another, rather than, for example, a 60 percent/40 percent or 95 percent/5 percent division of the loss. Id.; see also E. L. White, Inc. v. City of Huntington Beach, 138 Cal. App. 3d 366, 375-377 (1982). "Comparative equitable indemnity includes the entire range of possible apportionments, from no right to any indemnity to a right of complete indemnity. Total indemnification is just one end of the spectrum of comparative equitable indemnification." Far West Financial Corp.,46 Cal. 3d at 808 (citing Standard Pacific of San Diego v. A. A. Baxter Corp., 176 Cal. App. 3d 577, 587-588 (1986). Tortfeasors "are not entitled to any species of indemnity other than [] comparative indemnity." Gentry Construction Co. v. Superior Court, 212 Cal.App.3d 177, 183 (1989).

MID asserts a claim for both "total equitable indemnity" (second claim) and comparative indemnity (third claim), but under California law "total equitable indemnity" is part of, and included in, a claim for comparative indemnity; i.e., a claim for "total equitable indemnity" does not exist. Western‟s and BBC‟s motion to dismiss MID‟s second claim for relief is GRANTED WITHOUT LEAVE TO AMEND.*fn2

C. Negligence and Property Damage Against Western (Sixth Claim).

Western asserts that MID‟s sixth claim is an "untenable restatement" of its fourth and fifth contractual claims. Western further asserts that MID does not plead a duty independent of the contract because MID fails to properly assert property damage. Western MTD, 6:2-5. MID rejoins that it properly alleged property damage. Opp‟n to Western‟s MTD, ECF No. 47, 6:5-6. Both parties agree that "negligent performance of a construction contract, without more, [does not] justif[y] an award of tort damages." Erlich v. Menezes, 21 Cal. 4th 543, 551, 550-554 (1999). "[C]onduct amounting to a breach of contract [only] becomes tortious when it also violates a duty independent of the contract arising from principles of tort law. Aas v. Superior Court of San Diego, 24 Cal. 4th 627, 636 (2000) (superseded by statute on other grounds). Tort damages were initially permitted in contract cases where a breach of duty directly caused physical injury. Elrich, 21 Cal. 4th at 552-552 (citing Fuentes v. Perez, 66 Cal.App.3d 163, 168, fn. 2 (1977)). Recovery for negligence has since been expanded to include construction defects that cause property damage. Aas, 24 Cal. 4th at 637 (citing Stewart v. Cox, 55 Cal. 2d 857 (1961) as the first case to allow recovery in negligence for construction defects which caused property damage, and extensively analyzing cases which have allowed recovery for property damage since Stewart).

Property damage does not include mere economic loss, such as repair and replacement costs. Aas, 24 Cal.4th at 635-636. "[T]he difference between price paid and value received, and deviations from standards of quality that have not resulted in property damage or personal injury, are primarily the domain of contract and warranty law or the law of fraud, rather than of negligence. In actions for negligence, a manufacturer's liability is limited to damages for physical injuries; no recovery is allowed for economic loss alone." Id. (quoting Seely v. White Motor Co., 63 Cal.2d 9, 18 (1965). This principle is known as the economic loss rule. Aas, 24 Cal.4th at 635- 636; see e.g., Zamora v. Shell Oil Co. 55 Cal.App.4th 204, 208-211 (1997) (finding homeowners were not allowed to recover in negligence for the cost of replacing water pipes known to be defective, but which had not yet leaked); Fieldstone v. Briggs Plumbing Products, Inc. 54 Cal.App.4th 357, 363-367 (1997) (finding that a general contractor could not be awarded the cost of replacing installed sinks that rusted and chipped prematurely, because no other property had been damaged); San Francisco Unified School Dist. v. W.R. Grace & Co., 37 Cal.App.4th 1318, 1327-1330 (1995) (finding that a public school district could not state a cause of action in negligence or strict liability based on the presence of asbestos products in its buildings, when the products had not contaminated the buildings by releasing friable asbestos).

Accordingly,if a complainant alleges property damage, i.e., a defect which causes harm to other portions of the property, as a result of a contractor‟s negligence, the complainant has alleged a duty independent of the contract. Robinson Helicopter Co. v. Dana Corp., 34 Cal. 4th 979, 989 (2004) (citing Jimenez v. Superior Court, 29 Cal.4th 473, 482--483 (2002)).

1. Duty Independent of The Contract.

a. Similarity of MID‟s Contractual Claims and Negligence Claim.

Western incorrectly argues that MID does not properly assert an independent duty because the allegations are the same or similar in MID‟s contractual and negligence claims. Under California law "the same wrongful act may constitute both a breach of contract and an invasion of an interest protected by the law of torts." Erlich, 21 Cal.4th at 551 (emphasis added). A plaintiff is permitted to pursue remedies in both contract and tort law provided that the actions that constitute the breach "violate a duty independent of the contract arising from principles in tort law." Id. (conduct amounting to a breach of contract becomes tortious when "it also violates a duty independent of the contract."); Aas, 24 Cal.4th at 643; see also Robinson Helicopter Co., Inc., 34 Cal.4th at 990. Accordingly, the same conduct alleged in a contractual claim may be alleged to constitute a negligence claim so long as the conduct also violates a tortious duty.

b. Property Damage.

Western asserts that "MID does not allege. . . damage to anything other than the property under construction itself. . . . [which] is fatal to MID‟s negligence claim for relief because in the absence of. . . damage to property other than the Project work itself, MID cannot avoid application of the economic loss rule." Western MTD, 10:9-11. MID rejoins that "property damage can be shown if defective portions of a construction project damage other portions of that same project," and the Interpleader Complaint pleads as such. Opp‟n to Western MTD, 9:25-26.

"[T]he economic loss rule allows a plaintiff to recover in. . . tort when a product defect causes damage to "other property,‟ that is, property other than the product itself." Robinson Helicopter Co., 34 Cal. 4th at 989 (citing Jimenez, 29 Cal.4th at 482--483). Several California courts have found that a defectively constructed building is not a single defective product, but is comprised of multiple products. See, e.g., Stearmen v. Centex Homes, 78 Cal. App. 4th 611, 613 (2000) (plaintiff suffered property damage when defective foundations damaged walls and ceilings of newly constructed home ); Jiminez, 29 Cal.4th at 483 ("the economic loss rule does not necessarily bar recovery in tort for damage that a defective product (e.g., a window) causes to other portions of a larger product (e.g., a house) into which the former has been incorporated"); Huang v. Garner, 157 Cal.App.3d 404, 411 (1984) (allowing a negligence claim based on physical damage to the structure of the plaintiffs property caused by "defected and cracked beams and dry rot damages.") (disapproved on other grounds). "[P]hysical damage to plaintiffs' real property caused by defective construction. . . is [not solely] "an injury to the product itself,‟ and [not] barred by the economic loss rule." Stearmen, 78 Cal. App. 4th at 617.

MID asserts that three allegations in the Interpleader Complaint demonstrate property damage. First, the Interpleader Complaint alleges that "as a proximate result of [BBC‟s] negligence, MID has sustained . property damages." Interpleader Complaint ¶ 7. MID asserts that this allegation, in and of itself, is enough to allege property damage. This is incorrect. The standard on a motion to dismiss "demands more than an unadorned, the defendant-unlawfully- harmed-me accusation." Iqbal, 129 S. Ct. at 1949. Merely stating that property damage was suffered without any factual support is exactly the kind of bare legal conclusion the court cannot accept. Id. ("a complaint must contain sufficient factual matter, accepted as true, to "state a claim to relief that is plausible on its face.") (emphasis added.)

Second, MID points to a single example in paragraph 23 of Interpleader Complaint which states, in part: "improperly cured membrane filter basin walls. . . have been declared defective, deficient and not in compliance with the Project documents and will, in all probability, have to be demolished and replaced along with the membrane basin floors." Based on this, MID asserts it has properly alleged that "as a result of [BBC‟s] defectively constructed basin walls, the Project‟s basin floors were damaged to the point where those floors will likely need to be demolished." See Opp‟n to Western, 8:2-3. However, MID‟s Opposition overstates its pleading and inserts an allegation of property damage where none exists. In re Daou, 411 F.3d 1006, 1013 (2005) ("unwarranted inferences are insufficient to defeat a motion to dismiss.") There is nothing in the actual complaint regarding what, if any, damage the membrane basin floors suffered, if the floors were even damaged by the basin walls -- which is the key requirement of the claim -- or why the floors purportedly have to be removed. MID‟s cited language is not sufficient to plead property damage.

Last, MID‟s Opposition alleges that defective pipes caused property damage through the loss and contamination of water -- the product MID sells. Opp‟n to Western, 11:8-10. This allegation, however, is not stated anywhere in the Interpleader Complaint. It is not "proper to assume that [a plaintiff] can prove facts that it has not alleged. Associated General California, Inc. v. California State Council of Carpenters, 459 U.S. 519, 526 (1983); see also Fed. R. Civ. Pro. 12(d) ("If, on a motion under Rule 12(b)(6) or 12(c), matters outside the pleadings are presented. . . the motion must be treated as one for summary judgment under Rule 56.") Because these allegations are not included in the Interpleader ...


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