Case Name: Mike Payne & Associates, Inc. v. The Namm Group d/b/a Artistic Aggregate Services, et al.
Case No.: 17CV315190
The Namm Group d/b/a Artistic Aggregate Services, Harvey Namm, Rudolph & Sletten, Inc., and Capitol Indemnity Corporation’s Demurrer to Plaintiff Mike Payne & Associates, Inc.’s First Amended Complaint
Factual and Procedural Background
Plaintiff Mike Payne & Associates, Inc. (“MPA”) specializes in terrazzo and stone installation, and is an industry leader in ceramic and mosaic tile related work and materials, including polished concrete floors, cementitious overlays, corrective grinding and epoxy flooring for commercial, retail, governmental, and residential facilities. (First Amended Complaint (“FAC”), ¶1.)
In connection with the construction of defendant Apple Inc.’s (“Apple”) new 175 acre signature campus and headquarters known as Apple Park (“Project”), Apple entered into a written prime contract with defendant Rudolph & Sletten, Inc. (“Rudolph”) in or around June 10, 2015 to act as general or prime contractor for the construction of all or a portion of the Project. (FAC, ¶11.)
Rudolph entered into a written subcontract with defendant The Namm Group d/b/a Artistic Aggregate Services (“Aggregate”) on or about June 22, 2015 pursuant to which Aggregate agreed, among other things, to furnish and install all necessary work for the main staircases terrazzo for the Project. (FAC, ¶12.)
In 2015 and through 2016, defendant Harvey Namm (“Namm”) and Shelly Katz (“Katz”), Aggregate’s then Executive Manager, on behalf of Aggregate contacted and solicited MPA’s assistance to act as subcontractor for Aggregate, including installation of precast terrazzo staircases, precast tread and riser combinations, base board, and stringers, and installation of the poured in place landings, for the Project. (FAC, ¶13.) Namm and Katz made various representations to James Michael Payne, COO of MPA. (Id.)
In reliance on those representations, MPA agreed to act as subcontractor to Aggregate and Namm for the installation of the precast terrazzo staircases and certain related work for the Project pursuant to a written subcontract dated April 28, 2016 (“Subcontract”). (FAC, ¶14 and Exh. A.)
Aggregate and Namm did not perform in accordance with their written and verbal promises, representations, and agreements. (FAC, ¶15.) The Project was delayed multiple times by the actions and omissions of defendants Apple, Rudolph, Aggregate, and Namm. (Id.) To address the delays, MPA requested Aggregate and Namm amend the Subcontract to increase the price from $2,390,000 to $3,526,900, but Aggregate and Namm never responded to MPA’s requests as required by the Subcontract. (Id.) Instead, Aggregate and Namm tried to cover up their own delays and blamed MPA for their and Rudolph’s errors, omissions, and lack of performance. (Id.)
Aggregate and Namm failed to furnish proper precast parts to MPA for installation as required by the Subcontract causing delays on site and additional work not contemplated under the Subcontract. (FAC, ¶¶16 and 20.) Aggregate and Namm improperly modified approved shop drawings which substantially increased the cost and impacted MPA’s work without furnishing MPA change orders for additional compensation. (FAC, ¶17.) Aggregate and Namm failed to properly coordinate the work and made unwarranted requests that MPA add additional staff at the Project. (FAC, ¶18.) Aggregate and Namm improperly requested MPA perform coordination and communication functions beyond the scope of the Subcontract. (FAC, ¶19.)
Despite challenges caused by Aggregate and Namm, MPA faithfully performed its work and obligations at the Project in accordance with the Subcontract. (FAC, ¶21.) MPA remained ready, willing, and able to complete its obligations under the Subcontract but by letter dated November 28, 2016, Aggregate and Namm purported to terminate the Subcontract. (Id.) Aggregate and Namm blamed MPA for delays and defective work rather than accept responsibility for their own failures. (Id.) Aggregate and Namm have failed to pay MPA for work, labor, and materials furnished to the Project or for delays and extra work performed. (Id.)
On August 18, 2017, MPA filed a complaint against Aggregate, Namm, Rudolph, and Apple asserting various causes of action.
On October 12, 2017, MPA filed a FAC adding defendant Capitol Indemnity Corporation (“Capitol”) and now asserting the following causes of action:
(1) Breach of Subcontract
(2) Recovery Against the Mechanic’s Lien Release Bonds
(3) Breach of California Prompt Payment Statutes
(4) Fraud
(5) Negligent Misrepresentation
(6) Quantum Meruit
(7) Account Stated
(8) Breach of the Covenant of Good Faith and Fair Dealing
(9) Violation of California’s Unfair Business Practices Act, Business and Professions Code Section 17200 et seq.
(10) Declaratory Relief
On November 28, 2017, defendants Aggregate, Namm, Rudolph, and Capitol filed the motion now before the court, a demurrer to the eighth cause of action of MPA’s FAC.
Discussion
I. Defendants Aggregate and Namm’s demurrer to the eighth cause of action of plaintiff MPA’s FAC is OVERRULED.
“Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.” (Rest.2d Contracts, § 205.) “There is an implied covenant of good faith and fair dealing in every contract that neither party will do anything which will injure the right of the other to receive the benefits of the agreement.” (Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 658; see also CACI No. 325.)
“The covenant of good faith and fair dealing, implied by law in every contract, exists merely to prevent one contracting party from unfairly frustrating the other party’s right to receive the benefits of the agreement actually made. [Citation.] The covenant thus cannot ‘be endowed with an existence independent of its contractual underpinnings.’ [Citations.] It cannot impose substantive duties or limits on the contracting parties beyond those incorporated in the specific terms of their agreement.” (Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 349 – 350.)
“The implied covenant of good faith and fair dealing rests upon the existence of some specific contractual obligation. [Citation.] ‘The covenant of good faith is read into contracts in order to protect the express covenants or promises of the contract, not to protect some general public policy interest not directly tied to the contract’s purpose.’ [Citation.] … ‘In essence, the covenant is implied as a supplement to the express contractual covenants, to prevent a contracting party from engaging in conduct which (while not technically transgressing the express covenants) frustrates the other party’s rights to the benefits of the contract.’” (Racine & Laramie, Ltd. v. Department of Parks & Recreation (1992) 11 Cal.App.4th 1026, 1031 – 1032.)
In Guz, supra, 24 Cal.4th at p. 327, the California Supreme Court stated, “[W]here breach of an actual term is alleged, a separate implied covenant claim, based on the same breach, is superfluous.” In demurring to MPA’s eighth cause of action, Defendants Aggregate and Namm contend the eighth cause of action is superfluous because it alleges breaches of the Subcontract already addressed by the first cause of action for breach of Subcontract. In plaintiff MPA’s eighth cause of action, MPA alleges defendants Aggregate and Namm “breached the covenant of good faith and fair dealing implied into the Subcontract by: (a) diverting monies owed to MPA for work, labor and materials furnished to the Project; (b) not processing or submitting valid and legitimate claims for extra work and delays by MPA for the Project to Rudolph and Apple and instead blaming MPA for delays and defective work that were caused by their own actions and omissions; (c) failing to timely or fully distribute payments received on behalf of work and materials furnished by MPA to the Project; and (d) terminating MPA in bad faith, fraudulently, illegally, and without any valid or legitimate basis.” (FAC, ¶72.)
In the first cause of action, plaintiff MPA alleges Aggregate and Namm breached the Subcontract by, “among other things, failing to make full or timely payments to MPA for work performed and materials ordered for and furnished to the Project, terminating the Subcontract without any justification, in bad faith and contrary to California law, failing to submit or pay for delay and extra work claims.” (FAC, ¶26.)
The alleged breach described in subparagraph 72(d) of the FAC is entirely conclusory and contains no factual allegations. Although the court agrees with defendants Aggregate and Namm that the breaches described in subparagraphs 72, (a) and (c), allege essentially a failure to pay and are substantively identical to the alleged breach in the first cause of action, the breach alleged in subparagraph 72(b) could support a claim for breach of implied covenant of good faith and fair dealing.
A defendant cannot demur to a portion of a cause of action. (See Financial Corp. of America v. Wilburn (1987) 189 Cal.App.3d 764, 778—“[A] defendant cannot demur generally to part of a cause of action;” see also PH II, Inc. v. Superior Court (1995) 33 Cal.App.4th 1680, 1682—“A demurrer does not lie to a portion of a cause of action;” Pointe San Diego Residential Community, L.P. v. Procopio, Cory, Hargreaves & Savitch, LLP (2011) 195 Cal.App.4th 265, 274—“A demurrer challenges a cause of action and cannot be used to attack a portion of a cause of action.”)
Since the allegation at subparagraph 72(b) is adequate to state a claim for breach of implied covenant of good faith and fair dealing, defendants Aggregate and Namm’s demurrer to the eighth cause of action on the ground that the pleading does not state facts sufficient to constitute a cause of action [Code Civ. Proc., §430.10, subd. (e)] is OVERRULED.