Opinion
Case No. CV 13-08787 DDP (SHx)
01-15-2015
ULTRASYSTEMS ENVIRONMENTAL, INC., a California corporation, Plaintiff, v. STV, INC., a California Corporation; CALIFORNIA HIGH SPEED RAIL AUTHORITY, a State of California Governmental Authority, Defendant.
ORDER GRANTING DEFENDANT'S MOTION TO DISMISS
[Dkt. No. 33]
Presently before the court is Defendant STV, Inc. ("STV")'s Motion to Dismiss Plaintiff's First Amended Complaint. (Dkt. No. 31.) Having considered the parties' submissions, the court grants the motion and adopts the following order.
I. Background
The California High Speed Rail Authority ("CHSRA") is responsible for designing and constructing a network of high-speed passenger trains in California. (FAC ¶ 3.) To this end, in 2006, CHSRA issued a request for environmental impact reports for the planned Los Angeles - Orange County segment. (FAC ¶ 9.)
Defendant STV, Inc. ("STV") was hired by CHSRA as a consultant, and thus became a prime contractor. (Motion to Dismiss at 1.) The contract between STV and CHSRA (the "Prime Agreement") required STV to perform "preliminary engineering and project-specific environmental work". (FAC ¶ 11; Mot. at 3.) The Prime Agreement's compensation and payment provisions stated that "[p]ayment will be made in accordance with, and within the time specified in, [California] Government Code Chapter 4.5, commencing with Section 927." (FAC ¶ 16b; Ex. B at 10.)
As part of its request for environmental impact reports, CHSRA expressed its commitment to support small businesses, and asked prime contractors such as STV to solicit such businesses for subcontracts. (FAC ¶ 9.) Plaintiff in this action, Ultrasystems Environmental, Inc. ("UEI"), is an environmental planning firm. (Mot. to Dismiss at 1.) It was also certified as a disadvantaged, woman-owned small business. (FAC ¶ 1.)
In September 2006, STV contacted Plaintiff UEI in relation to a high-speed rail project subcontract. (FAC ¶ 12.) Plaintiff was awarded the contract ("Consultant Agreement" or "subcontract") in December 2006. (FAC ¶ 12.) According to the Consultant Agreement, UEI was to provide "architectural and/or engineering consulting services" related to the project. (FAC ¶ 13.) The subcontract contemplated payment of no more than $407,178 to UEI, absent STV's prior written consent. (FAC, Ex. A at 3.) The subcontract also stated that "[a] copy of the Prime Agreement, including [UEI]'s responsibilities and timing of services hereunder -, is incorporated by reference into this Agreement and attached as exhibit 'A'.'" (FAC ¶ 16; Ex. A at 1.)
Plaintiff began work on the project in 2007, shortly after entering into the Consultant Agreement with STV. On November 25, 2009, STV issued a stop-work order. (FAC ¶ 14.) Up to that point, STV had paid Plaintiff $4.5 million for work completed. (Mot. at 9, n.1.) The gravamen of the complaint is that Defendant owes Plaintiff in excess of $2 million, representing penalties for late payments. (FAC ¶ 21.) Defendant STV now moves to dismiss.
II. Legal Standard
A complaint will survive a motion to dismiss when it "contain[s] 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)). When considering a Rule 12(b)(6) motion, a court must "accept as true all allegations of material fact and must construe those facts in the light most favorable to the plaintiff." Resnick v. Hayes, 213 F.3d 443, 447 (9th Cir. 2000). Although a complaint need not include "detailed factual allegations," it must offer "more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Iqbal, 129 S. Ct. at 1949. Conclusory allegations or allegations that are no more than a statement of a legal conclusion "are not entitled to the assumption of truth." Id. at 1950. In other words, a pleading that merely offers "labels and conclusions," a "formulaic recitation of the elements," or "naked assertions" will not be sufficient to state a claim upon which relief can be granted. Id. at 1949 (citations and internal quotation marks omitted).
"When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement of relief." Id. at 1950. Plaintiffs must allege "plausible grounds to infer" that their claims rise "above the speculative level." Twombly, 550 U.S. at 555-56. "Determining whether a complaint states a plausible claim for relief" is "a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Iqbal, 129 S. Ct. at 1950.
III. Discussion
A. Section 927
The thrust of Plaintiff's First Amended Complaint is that Defendant breached its contractual obligations by failing to make prompt payments, in violation of California Government Code § 927 - the California Prompt Payment Act. (FAC ¶ 19.) Section 927 states, in relevant part:
(b) It is the intent of the Legislature that state agencies pay properly submitted, undisputed invoices, refunds, or other undisputed payments due to individuals within 45 days of receipt or notification thereof, or automatically calculate and pay the appropriate late payment penalties as specified in this chapter.Cal. Gov. Code § 927 (emphasis added).
(c) Notwithstanding any other provision of law, this chapter shall apply to all state agencies . . . .
The subcontract between STV and Plaintiff makes no reference to payment deadlines or to Section 927. However, the Prime Agreement, entered into by the CHSRA and STV, does state that payment will be made in accordance with Section 927. (FAC, Ex. B at 10.) Plaintiff UEI asserts that Section 927's 45-day deadline applies not only to payments from the CHSRA to STV, but also from STV to Plaintiff because the subcontract incorporates the Prime Agreement into the Consultant Agreement by reference. Plaintiff also points to the subcontracting provisions of the Prime Agreement, which state that "[a]ny subagreement in excess of $25,000, entered into as a result of this Agreement, shall contain all the applicable provisions stipulated in this Agreement." (FAC, Ex. B at 13.) In so doing, Plaintiff appears to suggest that the subcontract, which unquestionably exceeded $25,000, necessarily incorporated Section 927, its deadlines, and statutory penalties.
Plaintiff's contentions have no merit. The plain language of Section 927 makes clear that it is applicable to state agencies. Cal. Gov. Code § 927(c) ("Notwithstanding any other provision of law, this chapter shall apply to state agencies . . . .".) The Prime Agreement's reference to Section 927 is in no way "applicable" to the Consultant Agreement between private entities UEI and STV. For that same reason, the subcontract's incorporation of the Prime Agreement, to the extent such incorporation includes Section 927, simply has no bearing on the relationship between UEI and STV or the payment obligations owed by the latter to the former. See Voices of the Wetlands v. State Water Resources Control Board, 52 Cal.4th 499 (2011) ("When interpreting statutes, we begin with the plain, commonsense meaning of the language used by the Legislature. If the language is unambiguous, the plain meaning controls." (internal citation omitted). Plaintiff offers no authority for the proposition that Section 927, which plainly refers only to state agencies, is in any way applicable to private entities.
The inapplicability of the 45-day deadline to prime contractors with respect to subcontractors is further illustrated by California Government Code § 927.10, which (reads, "State agencies shall encourage claimants to promptly pay their subcontractors and suppliers, especially those that are small businesses. In furtherance of this policy, state agencies shall utilize expedited payment processes to enable faster payment by prime contractors to their subcontractors and suppliers, and shall promptly respond to any subcontractor or supplier inquiries regarding the status of payments made to prime contractors." While the statute seeks to encourage and facilitate "faster" payment, it does not impose any specific deadlines or requirements upon private contractors.
Plaintiff also contends that Section 927's timing and penalty provisions apply to STV because portions of the "Manner and Times of Payment" section of the subcontract are ambiguous. Article 5.1 of the Consultant Agreement provides for monthly progress payments from STV to Plaintiff, following Plaintiff's monthly progress reports and invoices to STV and STV's subsequent application to the CHSRA for payment. (FAC, Ex. A at 3.) Article 5.3 of the subcontract states that STV will pay Plaintiff within 15 days of receipt of payment from the CHSRA on the invoices provided by Plaintiff. (Id.) Though Plaintiff is correct that ambiguities in a contract are resolved against the drafter, that principle does not serve Plaintiff here. See, e.g. J.Alexander Securities, Inc. v. Mendez, 17 Cal.App.4th 1083, 1094 (1993). There does not appear to be any inherent tension between Articles 5.1 and 5.3, which essentially, respectively, set out invoice and payment schedules.
Furthermore, even if an ambiguity did exist, resolution of that ambiguity in Plaintiff's favor would not somehow import Section 927's deadlines and penalties or make them applicable against a private entity. The nature of the supposed ambiguity is not clear to the court. Plaintiff's opposition asks, "If [Plaintiff] invoiced STV for a progress payment was that an 'invoice' or a 'progress payment'? If a 'progress payment,' [Plaintiff] should have been paid monthly." (Opposition at 5.) The Opposition then, however, makes a logical leap and contends that if STV failed to make a timely monthly progress payment, Section 927 (which, the court notes, includes a 45-day payment period longer than that contemplated by Article 5 of the subonctract) should apply. (Id.) Ambiguities in contractual language exist only when there are multiple reasonable interpretations of the contract's terms. See Transport Ins. Co., v. Superior Court, 222 Cal.App.4th 1216, 1221 (2014). Article 5 makes no reference to Section 927 or payment penalties of any sort. Any interpretation of Article 5 of the subcontract that would import the language of Section 927 and make its deadlines and penalties applicable to a private entity is unreasonable. Any ambiguity in Article 5 does not, therefore, entitle Plaintiff to the relief it seeks.
Lastly, Plaintiff points to Article 5.4, which states that STV was not obligated to pay Plaintiff for any work "unless and until" STV received payment from the CHSRA. (FAC, Ex. A at 3-4.) Plaintiff contends that this language constitutes both an unenforceable "pay if paid" clause and a potentially enforceable "pay when paid" clause. (Opp. at 6.) See Capitol Steel Fabricators, Inc. v. Mega Construction Co., 58 Cal.App.4th 1049, 1058 (1997). Plaintiff argues that if the former, "paragraph 5.4 . . . falls out leaving [Section 927] to fill the void," and if the latter, "the incorporation by reference of the . . . Prime Agreement put STV in the position of having to pay . . . within the time specified in [Section 927]." (Opp. at 6.) As discussed above, this argument is meritless. Plaintiff provides no authority or reasoning to explain why Section 927, which applies to state agencies, would fill any potential void left by unenforceable "pay if paid" language. Regardless whether Article 5.4 is enforceable in whole or in part, Section 927 does not apply to STV.
The court also notes that Plaintiff does not allege that it was not paid.
B. Futility of Amendment
Plaintiff asserts in its Opposition that, if granted leave to amend, it would allege a claim based on Defendant's breach of "its duty to collect prompt payment penalties from the State and share those penalties pro rata with Plaintiff." (Opp. at 12.) Plaintiff contends that the Consultant Agreement "imposed upon [Defendant] a duty of good faith and fair dealing to pursue collection of prompt payment penalties from the State for the State's failure to comply with Section 927 et seq." (Opp. at 2.)
"The implied covenant of good faith and fair dealing does not impose substantive terms and conditions beyond those to which the parties actually agreed." Avidity Partners, LLC v. State, 221 Cal.App.4th 1180, 1204 (2013). Plaintiff does not identify any portion of the subcontract that obligated STV to seek prompt payment penalties from the CHSRA, let alone to share any such penalties pro rata with subcontractors. Rather, the subcontract explicitly stated that STV would pay UEI within fifteen days of receipt of payment from the CHSRA, and that UEI expressly assumed the risk that it would not be paid for any work completed, but not paid for by the CHSRA. (FAC, Ex. A at 3-4.) Amendment of the FAC to include a claim for breach of the covenant of good faith and fair dealing would, therefore, be futile. Accordingly, dismissal with prejudice is warranted. See Carrico v. City & County of San Francisco, 656 F.3d 1002, 1008 (9th Cir. 2011).
As discussed above, any question regarding the enforceability of this "pay if paid" language is distinct from questions regarding the applicability of Section 927.
IV. Conclusion
For the reasons stated herein, Defendant STV's Motion to Dismiss is GRANTED. The First Amended Complaint is DISMISSED, with prejudice. IT IS SO ORDERED. Dated: January 15, 2015
/s/
DEAN D. PREGERSON
United States District Judge