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West Pacific Electric Company Corp. v. Dragados/Flatiron

United States District Court, E.D. California

May 4, 2018

DRAGADOS/FLATIRON, a joint venture, et al., Defendants.




         Judges in the Eastern District of California carry the heaviest caseloads in the nation, and this Court is unable to devote inordinate time and resources to individual cases and matters. Given the shortage of district judges and staff, this Court addresses only the arguments, evidence, and matters necessary to reach the decision in this order. The parties and counsel are encouraged to contact the offices of United States Senators Feinstein and Harris to address this Court's inability to accommodate the parties and this action. The parties are required to reconsider consent to conduct all further proceedings before a Magistrate Judge, whose schedules are far more realistic and accommodating to parties than that of U.S. Chief District Judge Lawrence J. O'Neill, who must prioritize criminal and older civil cases.

         Civil trials set before Chief Judge O'Neill trail until he becomes available and are subject to suspension mid-trial to accommodate criminal matters. Civil trials are no longer reset to a later date if Chief Judge O'Neill is unavailable on the original date set for trial. Moreover, this Court's Fresno Division randomly and without advance notice reassigns civil actions to U.S. District Judges throughout the Nation to serve as visiting judges. In the absence of Magistrate Judge consent, this action is subject to reassignment to a U.S. District Judge from inside or outside the Eastern District of California.


         Defendant, a joint venture between Dragados USA, Inc., and Flatiron West, Inc. (“DFJV”), moves to dismiss the first through fourth causes of action in the Complaint, brought by Plaintiff West Pacific Electric Company, Inc. (“WPEC”). ECF No. 18. DFJV also requests judicial notice of certain documents. ECF No. 18-2. Plaintiff has opposed the motion to dismiss, ECF No. 20, and objects to the request for judicial notice. ECF No. 20-1. Defendants filed a reply. ECF No. 21. The Court took the matter under submission on the papers pursuant to Local Rule 230(g). ECF No. 23. For the reasons set forth below, the motion to dismiss is DENIED IN PART, and the parties are directed to submit supplemental briefing on certain issues.


         This case concerns WPEC's work on the California High Speed Rail Project (the “Project”). In 2015, DFJV became the prime contractor on the Project pursuant to a prime contract (“Prime Contract”) between DFJV and the California High Speed Rail Authority (“CHSRA”), whereby DFJV agreed to design and build a section of the Project to extend from Fresno to Bakersfield. ECF No. 1 (“Compl.”) at ¶ 16. On October 25, 2016, WPEC and DFJV entered into a written subcontract (“Subcontract”) pursuant to which WPEC agreed to complete installation of certain telecommunication infrastructure for five specific “Reaches” of the Project. Id. at ¶ 17. The Subcontract required WPEC to provide a performance bond in the amount of 50% of the contract price and a payment bond in the amount of 100% of the contract price. Id. at ¶ 18. It is alleged that WPEC, which has limited bonding capacity, agreed to provide such bonding on the basis that the entire scope of work was to be performed within the expressed 90 days set forth in a schedule attached to the Subcontract, such that WPEC's capacity for bonding (and concomitant ability to seek and obtain other work requiring bonds) would not be impaired for a significant amount of time. See Id. at ¶ 19; see also ECF No. 1-1 (Subcontract), Attachment C at 7.

         Plaintiffs first cause of action is for rescission of the Subcontract based upon fraud. This claim points out that the Prime Contract contains a provision that precludes construction of any portion of the Project until all necessary rights of access for that portion of the Project have been obtained. Compl. at ¶ 21. CHSRA was responsible for acquiring all relevant rights of way (“ROW”) for the Project. See Id. at ¶¶ 23-24. Plaintiff alleges that, prior to entering into the Subcontract with WPEC, DFJV had been notified by CHSRA that CHSRA had not acquired all the rights of way necessary for DFJV to complete its work on the Subcontract and that DFJV failed to disclose to WPEC that CHSRA had not acquired the necessary rights of way “to permit WPEC to begin, let alone complete, its work within 90 days of executing the Subcontract.” Compl. at ¶ 23. In addition, WPEC alleges that DFJV knew at the time it executed the Subcontract that portions of the DFJV-controlled design pertaining to WPEC's work Reaches “were either already in the process of being revised, or would need to be revised, and that such revisions would delay the delivery of the rights of way by CHSRA due to the need to modify/alter the limits of the various rights of way needed.” Id. at ¶ 24. WPEC alleges that had it possessed or known of this information, WPEC would not have executed the Subcontract. Id. at ¶ 28.

         The second cause of action is for rescission of the contract based upon mistake of fact, including Plaintiffs belief that all ROW for the parcels on which Plaintiffs work would be performed had been acquired, that no work could begin on a portion of the Project until all rights of way had been obtained, and that the design was not in flux such that such chances might affect the rights of way obtained or still needing to be obtained. Id. at ¶ 32.

         The third cause of action is for fraudulent concealment and alleges that, while the Subcontract provides that WPEC's work was to be completed within 90 days of execution of the Subcontract, DFJV intentionally concealed the fact that the rights of way for the Reaches on which WPEC would be required to work had yet to be acquired by CHSRA and that portions of the design pertaining to WPEC's work were in the process of being revised or would need to be revised in ways that would materially impact the acquisition of the necessary rights of way. Id. at ¶ 35.

         The fourth cause of action alleges a violation of California's Unfair Practices Act, Cal. Bus. Prof. Code § 17200 et seq., based upon the conduct alleged in the other causes of action. Id. at ¶¶ 41-48.

         The remaining causes of action (fifth through eleventh) are not challenged in the motion to dismiss. See ECF No. 18 at 2.


         Dismissal is appropriate under Rule 12(b)(6) of the Federal Rules of Civil Procedure when a plaintiffs allegations fail “to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). A dismissal under Rule 12(b)(6) ”can be based on the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory.” Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990). In considering a motion to dismiss for failure to state a claim, the court generally accepts as true the allegations in the complaint, construes the pleading in the light most favorable to the party opposing the motion, and resolves all doubts in the pleader's favor. Lazy Y Ranch LTD. v. Behrens, 546 F.3d 580, 588 (9th Cir. 2008).

         Federal Rule of Civil Procedure 9(b) requires a party alleging fraud to “state with particularity the circumstances constituting [the] fraud [.]” Fed.R.Civ.P. 9(b). This heightened pleading standard requires the party to do more than simply identify a transaction and allege in a conclusory manner that the transaction was fraudulent. See In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1548 (9th Cir. 1994) (en banc), superseded by statute on other grounds. Rather, the party must set forth in detail “the who, what, when, where, and how” of the alleged fraudulent conduct. Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003) (citation omitted). The purpose of Rule 9(b) is to protect defendants from factually baseless claims of fraud inasmuch as it is meant to give defendants notice of the claims asserted against them. See Kearns v. Ford Motor Co., 567 F.3d 1120, 1125 (9th Cir. 2009). When a party averring fraud fails to meet the heightened pleading standard of Rule 9(b), dismissal of the claim is proper. See Vess, 317 F.3d at 1107 (“A motion to dismiss a complaint or claim ‘grounded in fraud' under Rule 9(b) for failure to plead with particularity is the functional equivalent of a motion to dismiss under Rule 12(b)(6) for failure to state a claim.”).

         V. ANALYSIS

         A. Fraud Claims.

         The elements of fraud under California law are: (1) a misrepresentation (which may include a false representation, concealment, or nondisclosure); (2) knowledge of its falsity; (3) intent to defraud, i.e., to induce reliance; (4) justifiable reliance; and (5) resulting damage. See Lazar v. Super. Ct, 12 Cal.4th 631, 638 (1996); see also In re First Am. Home Buyers Prot. Corp. Class Action Litig., 313 F.R.D. 578, 603 (S.D. Cal. 2016), aff'd sub nom. Carrera v. First Am. Home Buyers Prot. Co., 702 Fed.Appx. 614 (9th Cir. 2017). To establish fraud through nondisclosure or concealment of facts, a plaintiff must prove: (1) defendant concealed or suppressed a material fact; (2) defendant was under a duty to disclose the fact to plaintiff; (3) defendant intentionally concealed or suppressed the fact with the intent to defraud plaintiff; (4) plaintiff was unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact; and (5) as a result of the concealment or suppression of the fact, the plaintiff sustained damage. See Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC, 162 Cal.App.4th 858, 868 (2008); see also Davis v. HSBC Bank Nev., N.A., 691 F.3d 1152, 1163 (9th Cir. 2012). “There are four circumstances in which nondisclosure or concealment may constitute actionable fraud: (1) when the defendant is in a fiduciary relationship with the plaintiff; (2) when the defendant had exclusive knowledge of material facts not known to the plaintiff; (3) when the defendant actively conceals a material fact from the plaintiff; and (4) when the defendant makes partial representations but also suppresses some material facts.” LiMandri v. Judkins, 52 Cal.App.4th 326, 336 (1997) (internal quotation omitted); see also Hoffman v. 162 N. Wolfe LLC, 228 Cal.App.4th 1178, 1186-87 (2014), as modified on denial of reh'g (Aug. 13, 2014); Baggett v. Hewlett-Packard Co., 582 F.Supp.2d 1261, 1267-68 (CD. Cal. 2007) (citing LiMandri, 52 Cal.App.4th at 336). Plaintiff makes clear in its opposition that it is attempting to rely on the second and fourth circumstances described in LiMandri.

         a. Transaction Between the Parties

         As the court in LiMandri explained, where no fiduciary relationship exists to trigger a disclosure duty, “the other three circumstances in which nondisclosure may be actionable presuppose[ ] the existence of some other relationship between the plaintiff and defendant in which a duty to disclose can arise. . . . [W]here material facts are known to one party and not to the other, failure to disclose them is not actionable fraud unless there is some relationship between the parties which gives rise to a duty to disclose such known facts.” 52 Cal.App.4th at 336-37 (internal quotation omitted). A relationship between the parties is present if there is “some sort of transaction between the parties.” Id. at 337 (emphasis in original). “Thus, a duty to disclose may arise from the relationship between seller and buyer, employer and prospective employee, doctor and patient, or parties entering into any kind of contractual agreement.” Id.; see also Hoffman, 228 Cal.App.4th at 1187.

         Here, there can be no dispute that a transaction existed between the parties by virtue of the Subcontract between them. Defendants appear to acknowledge in their opposition that the relationship between the parties would be sufficient to constitute a “transaction” under LiMandri, and would thereby permit a claim for fraud where facts supporting application of the second, third, or fourth LiMandri circumstance were alleged. See ECF No. 18-1 at 18.

         b. Allegations of Active Concealment Not Required

         Next, Defendants suggest that for transactions not involving fiduciary relationships, a plaintiff must allege “facts of active concealment.” ECF No. 21 at 7. In support of this proposition, Defendants quote Warner Construction Corp. v. City of Los Angeles, 2 Cal.3d 285, 294 (1970), which held that:

In transactions which do not involve fiduciary or confidential relations, a cause of action for non-disclosure of material facts may arise in at least three instances: (1) the defendant makes representations but does not disclose facts which materially qualify the facts disclosed, or which render his disclosure likely to mislead;[FN5] (2) the facts are known or accessible only to defendant, and defendant knows they are not known to or reasonably discoverable by the plaintiff;[FN6] (3) the defendant actively conceals discovery from the plaintiff.[FN7]
[FN5] Civil Code section 1710, subdivision 3; Rogers v. Warden (1942) 20 Cal.2d 286, 289; McCue v. Bruce Enterprises, Inc. (1964) 228 Cal.App.2d 21');">228 Cal.App.2d 21[, ] 27; Gillespie v. Ormsby (1959) 126 Cal.App.2d 513, 527.
[FN 6] Lingsch v. Savage (1963) 213 Cal.App.2d 729, 735; Sime v. Malouf (1949) 95 Cal.App.2d 82');">95 Cal.App.2d 82, 100. Barder v. McClung (1949) 93 Cal.App.2d 692, 697.
[FN 7] Herzog v. Capital Co. (1945) 27 Cal.2d 349, 353; Sime v. Malouf, supra., 95 Cal.App.2d 82');">95 Cal.App.2d 82, 99; Williams v. Graham (1948) 83 Cal.App.2d 649, 652.

Id. (parallel citations omitted). While Defendants' brief quoted this language without the footnotes, the Court includes them here to demonstrate that each of the “instances” mentioned in Warner operate independent of one another, as they are drawn from separate lines of authority. So, while active concealment may constitute a form of proof in a non-disclosure of material fact case, so may circumstances in which “the defendant makes representations but does not disclose facts which materially qualify the facts disclosed, or which render his disclosure likely to mislead” or when material “facts are known or accessible only to defendant, and defendant knows they are not known to or reasonably discoverable by the plaintiff.” Id. These latter examples are equivalent to the two LiMandri circumstances relied upon by Plaintiff in this case.[1] In other words, Plaintiff relies on forms of fraudulent concealment that do not require “active concealment.”

         c. Exclusive Knowledge of Material Facts Not Known to the Plaintiff

         WPEC invokes directly the second LiMandri circumstance: exclusive knowledge of material facts not known to the plaintiff. Neither party makes any concerted effort to explain the law applicable to such a claim in the context of a construction contract dispute. In general, “[t]he duty to disclose may arise without any confidential relationship where the defendant alone has knowledge of material facts that are not accessible to the plaintiff.” 5 Witkin, Summary 11th Torts § 916 (2017) (emphasis added). “Whether a duty exists in a specific case and the scope of that duty are questions of law to be determined on a case-by-case basis.” Amardeep ...

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