Aubry v. Tri-City Hospital District

831 P.2d 317, 2 Cal. 4th 962, 9 Cal. Rptr. 2d 92, 92 Daily Journal DAR 8832, 92 Cal. Daily Op. Serv. 5599, 1992 Cal. LEXIS 2897

• Court: California Supreme Court
• Decided: June 25, 1992
• Docket: S011123
• Status: Published

Opinions

Opinion

PANELLI, J.

We granted review to decide whether Government Code section 815.6 provides a cause of action against a public entity that fails to comply with its obligations under the prevailing wage law. (Lab. Code, § 1720 et seq.) We conclude that the Court of Appeal was correct in holding that Government Code section 815.6 does not provide a cause of action in these circumstances. However, we also conclude that the Division of Labor Standards Enforcement (the DLSE) should be granted leave to amend its complaint to attempt to allege a cause of action under an alternative theory.

Facts

Tri-City Hospital District (the District), a public entity whose principal office is located in Oceanside, California, decided to greatly expand its existing hospital facility. In June 1983, the District entered into an “Installment Sale Agreement” with Imperial Municipal Services Group (Imperial), a private corporation, under which Imperial would “sell” the finished addition to the District. Under the agreement, the District was to be Imperial’s “agent” for purposes of procuring a general contractor and overseeing construction. The agreement further provided that the District, as Imperial’s agent, would assure that the general contractor paid its employees the prevailing wage, as required on public works projects by Labor Code section 1770 et seq. Imperial, through the District as its agent, then entered into a contract with Lusardi Construction Company (Lusardi) as general contractor on the project. The contract with Lusardi did not refer to the project as a public work, nor did it include a provision requiring Lusardi to pay prevailing wage rates.

More than two years later, when substantial portions of the project had been completed, the DLSE, a part of the Department of Industrial Relations, commenced an investigation into possible violations of the public works laws. After the Director of the Department of Industrial Relations (the Director) determined that the project was a public work, the DLSE ordered Lusardi to comply with the prevailing wage requirements and to submit certified payroll records. When Lusardi failed to do so, the DLSE notified the District to withhold funds due Lusardi.

Lusardi filed suit for declaratory and injunctive relief against the Director and the DLSE in November 1986 in the Orange County Superior Court. The DLSE cross-complained¹ against the District, seeking declaratory relief and damages for violation of the prevailing wage law. In the main action, the trial court granted Lusardi’s motion for summary judgment enjoining the DLSE from enforcing the public works law against it, its subcontractors, or the District. The Court of Appeal affirmed, and we granted review. In the separate opinion in the main action, Lusardi Construction Co. v. Aubry (1992) 1 Cal.4th 976 [4 Cal.Rptr.2d 837, 824 P.2d 643], this court held that when a public entity and a private contractor enter into an arrangement that is in substance a contract for a public work under the Labor Code but fails to provide for the payment of the prevailing wage for public works, the Director may seek statutory remedies for underpayment of the prevailing wage against the contractor.

In the action on the cross-complaint that continued in the trial court, the DLSE alleged that the District, to reduce its construction costs, engaged in activities that “were part of an overall scheme” to “circumvent the public works laws.” The DLSE sought damages consisting of the prevailing wage differential and statutory penalties. The DLSE’s first amended cross-complaint attempted to state a cause of action against the District for violation of its duties under the Labor Code. The trial court sustained the District’s demurrer to this cross-complaint on the ground that the Labor Code does not authorize an action for damages or penalties against an alleged public awarding body; the trial court also granted the DLSE leave to amend to attempt to state a cause of action under Government Code section 815.6. The DLSE amended its complaint,² and the District demurred to the second amended cross-complaint on the grounds that Government Code section 815.6 does not provide a cause of action against an awarding body under these circumstances, that the District was immune from liability under Government Code section 818.8, and that the DLSE’s cross-complaint was time-barred by the statute of limitations. The trial court sustained the District’s demurrer to the DLSE’s second amended cross-complaint without leave to amend, dismissed the cross-action, and entered judgment for the District.³

On the DLSE’s appeal, the Court of Appeal affirmed, holding that the DLSE could not state a claim against the District for failing to discharge its mandatory duties as an awarding body because Imperial, and not the District, was the awarding body. The Court of Appeal additionally held that Government Code section 815.6 does not serve to make an awarding body liable for any shortfall in wages where it fails to comply with its obligations under the prevailing wage law, and that in any event the action against the District was in major part barred under the statute of limitations of Labor Code section 1775.

Discussion

1. Standard of Review

On appeal from a judgment dismissing an action after sustaining a demurrer without leave to amend, the standard of review is well settled. The reviewing court gives the complaint a reasonable interpretation, and treats the demurrer as admitting all material facts properly pleaded. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318 [216 Cal.Rptr. 718, 703 P.2d 58]; Buckaloo v. Johnson (1975) 14 Cal.3d 815, 828 [122 Cal.Rptr. 745, 537 P.2d 865].) The court does not, however, assume the truth of contentions, deductions or conclusions of law. (Moore v. Regents of University of California (1990) 51 Cal.3d 120, 125 [271 Cal.Rptr. 146, 793 P.2d 479].) The judgment must be affirmed “if any one of the several grounds of demurrer is well taken. [Citations.]” (Longshore v. County of Ventura (1979) 25 Cal.3d 14, 21 [157 Cal.Rptr. 706, 598 P.2d 866].) However, it is error for a trial court to sustain a demurrer when the plaintiff has stated a cause of action under any possible legal theory. (Barquis v. Merchants Collection Assn. (1972) 7 Cal.3d 94, 103 [101 Cal.Rptr. 745, 496 P.2d 817].) And it is an abuse of discretion to sustain a demurrer without leave to amend if the plaintiff shows there is a reasonable possibility any defect identified by the defendant can be cured by amendment. (Blank v. Kirwan, supra, 39 Cal.3d at p. 318.)

2. The Awarding Body’s Duties Under the Labor Code

The public works laws (Lab. Code, § 1720 et seq.) impose a variety of responsibilities on public entities awarding contracts for public works. Among its duties, an awarding body must obtain from the Director the prevailing wage rate in the locality for each craft, classification or type of worker needed to carry out the contract (Lab. Code, § 1773); it must then either specify in the call for bids, the bid specifications and in the contract itself what the prevailing wages are, or it must state that those rates are available at the public entity’s office. (Lab. Code, § 1773.2.) The awarding body is also required to cause to be inserted into the contract stipulations that, in the event that the contractor fails to pay the prevailing wages, the contractor is liable for penalties and for the shortfall in wages. (Lab. Code, § 1775.) Additionally, the awarding body is required to “take cognizance of violations” in the execution of the contract (Lab. Code, § 1726) and is expected to assist the DLSE if necessary in court actions to recover unpaid wages and penalties, either where there is insufficient money due the contractor to cover the full amount, or where the awarding body does not owe money directly to the contractor. (Lab. Code, § 1775.) Thus, the awarding body has a variety of responsibilities designed to help ensure that workers are paid the prevailing wages on public works.

3. Government Code Section 815.6

The DLSE contends that it has properly alleged a cause of action against the District under Government Code section 815.6. This statute provides: “Where a public entity is under a mandatory duty imposed by an enactment that is designed to protect against the risk of a particular kind of injury, the public entity is liable for an injury of that kind proximately caused by its failure to discharge the duty unless the public entity establishes that it exercised reasonable diligence to discharge the duty.”

Applying the standard of review set forth above, we assume for purposes of this discussion that the “Expansion Project” was a public work. Although technically Imperial rather than the District awarded the contract to Lusardi, the DLSE alleges that there was an alter ego relationship between the District and Imperial that served to make the District the awarding body for purpose, of the obligations imposed by the prevailing wage law. It alleges that the District as awarding body failed to carry out its mandatory duties under the Labor Code, and that as a result the workers on the project were damaged. However, in our view, even if the DLSE has adequately alleged that the District is the awarding body, Government Code section 815.6 does not authorize an action against an awarding body that fails to comply with its responsibilities under the prevailing wage laws. Such a result would stretch liability under section 815.6 beyond what the Legislature intended.

Government Code section 815.6 is a part of the Tort Claims Act. The injury alleged in this case, however, is not of the type protected by this act. For purposes of the Tort Claims Act, injury is defined as “death, injury to a person, damage to or loss of property, or any other injury that a person may suffer to his person, reputation, character, feelings or estate, of such nature that it would be actionable if inflicted by a private person." (Gov. Code, § 810.8, italics added.) The California Law Revision Commission Comment on this definition states that “[t]he purpose of the definition is to make clear that public entities and public employees may be held liable only for injuries to the kind of interests that have been protected by the courts in actions between private persons.” (Cal. Law Revision Com. com., Deering’s Ann. Gov. Code, § 810.8 (1982 ed.) p. 125; italics added.) Here, the DLSE alleges that as a result of the District’s failure to perform its mandatory duties, the workers were paid less than the prevailing wage while engaged on a public work. This injury is one which by its very nature could not exist in an action between private persons; if the defendant awarding body were not a public entity, there would be no injury. As a result, the injury alleged in this case is not included within the Tort Claims Act’s definition of injury. Accordingly, the District is not subject to liability under Government Code section 815.6 for any failure to carry out its responsibilities under the Labor Code’s prevailing wage provisions.

In defining “injury” as it did, the Legislature set limits on the injuries for which public bodies are liable. The DLSE has not been able to direct us to any authority establishing liability under the Tort Claims Act for an injury of this nature. In response to the District’s argument that Government Code section 815.6 only applies to actions for negligent conduct,⁴ the DLSE points out that Government Code section 815.6 has been used to hold public entities liable for intentional violation of a mandatory duty. However, neither of the cases cited by the DLSE persuades us that section 815.6 should be extended to apply to the present situation. In Sullivan v. County of Los Angeles (1974) 12 Cal.3d 710 [117 Cal.Rptr. 241, 527 P.2d 865], a sheriff falsely imprisoned the plaintiff. In Ramos v. County of Madera (1971) 4 Cal.3d 685 [94 Cal.Rptr. 421, 484 P.2d 93], two children became physically ill after working in the fields when the defendant county’s welfare department employees coerced several children to harvest grapes for private employers in violation of the child welfare laws. Thus, both cases relied on by the DLSE involve tort actions for personal injury “of such nature that it would be actionable if inflicted by a private person.” (See Gov. Code, § 810.8.)⁵ It would be an unwarranted extension of the law to hold that Government Code section 815.6 was intended to impose liability for the failure of an awarding body to ensure that contractors paid their workers prevailing wages on a public works project. This is an injury that could not exist in an action between private persons, and so it is outside the scope of the Tort Claims Act.⁶

The DLSE asserts that Government Code section 815.6 authorizes it to seek recovery from the District not only of the shortfall in wages, but also of the statutory penalties that a contractor would be required to pay under Labor Code section 1775. At the time the present action was instituted, this section provided in part that “[t]he contractor shall, as a penalty to the state or political subdivision on whose behalf the contract is made or awarded, forfeit twenty-five dollars ($25) for each calendar day, or portion thereof, for each workman paid less than the prevailing rates . . . .” (Stats. 1978, ch. 1249, § 2, p. 4061.)

For the same reasons as those given above, the DLSE’s claim against the District for these penalties must fail. The recovery of statutory penalties by a state agency for failure to pay the prevailing wage on a public work does not fall within the ambit of the types of interests that are protected in actions between private persons, and therefore is not an injury for purposes of the Tort Claims Act. (See Gov. Code, § 810.8, and Cal. Law Revision Com. com., Deering’s Ann. Gov. Code, § 810.8, supra, p. 125.) As was the case with the claim for the shortfall in wages, the claim for the penalties is predicated on the involvement of a public entity in the transaction; if the defendant awarding body were not a public entity, no liability for the penalties would ever arise. Furthermore, the DLSE is pursuing damages for injuries caused to the workers; because Labor Code section 1775 does not provide for the penalties to be paid to the workers, the workers would not be able to recover those penalties. It follows that the DLSE cannot recover them when it brings a cause of action for injury to the workers. Therefore, Government Code section 815.6 does not provide a cause of action against an awarding body for the recovery of the penalties authorized under Labor Code section 1775.⁷

4. Leave to Amend Complaint

The trial court sustained the District’s demurrer to the DLSE’s second amended cross-complaint without leave to amend. “Where the complaint is defective, *[i]n the furtherance of justice great liberality should be exercised in permitting a plaintiff to amend his complaint, and it ordinarily constitutes an abuse of discretion to sustain a demurrer without leave to amend if there is a reasonable possibility that the defect can be cured by amendment. [Citations.]’ ” (Scott v. City of Indian Wells (1972) 6 Cal.3d 541, 549 [99 Cal.Rptr. 745, 492 P.2d 1137]; see Code Civ. Proc., § 472c.) This abuse of discretion is reviewable on appeal “even in the absence of a request for leave to amend” (Scott, supra, 6 Cal.3d at p. 550, citing Code Civ. Proc., § 472c), and even if the plaintiff does not claim on appeal that the trial court abused its discretion in sustaining a demurrer without leave to amend. (Baldwin v. Marina City Properties, Inc. (1978) 79 Cal.App.3d 393, 413-414 [145 Cal.Rptr. 406].)

Although the DLSE had the opportunity to amend the first amended cross-complaint, this leave to amend was granted for the sole purpose of permitting the DLSE to attempt to state a cause of action under Government Code section 815.6. It does not appear from these facts that the DLSE had a fair opportunity to amend its complaint to state a cause of action under any other legal theory. (See Larwin-Southem California, Inc. v. JGB Investment Co. (1979) 101 Cal.App.3d 626, 635 [162 Cal.Rptr. 52]; Barquis v. Merchants Collection Assn., supra, 7 Cal.3d at p. 103.)

The contract between the District and Imperial included a provision that the District, as Imperial’s agent, would cause contractors to pay prevailing wages. From this language, it may be possible to allege that the workers on the construction project were thus third party beneficiaries of the contract between the District and Imperial. Accordingly, at our request, the parties have submitted supplemental briefs addressing whether the DLSE should be granted leave to amend its complaint to permit it to allege a cause of action on the theory that the workers were third party beneficiaries of this agreement.

We conclude that the DLSE should be granted leave to amend its complaint to allege a cause of action on a third party beneficiary theory. Because the DLSE has not yet attempted to plead this cause of action, and since the trial court has not ruled on its merits, we believe that any discussion of the viability of such a claim would constitute an advisory opinion. Accordingly, we do not decide here, nor do we express any opinion concerning, whether the DLSE will be successful on any amended complaint which states such a cause of action. Instead, the matter should be remanded to give the DLSE the opportunity to attempt to do so.⁸

Disposition

The judgment of the Court of Appeal is affirmed to the extent that it concludes that the DLSE has not stated a cause of action under Government Code section 815.6. The cause is remanded to the Court of Appeal, which shall direct the superior court to grant the DLSE leave to amend its complaint.

Lucas, C. J., Arabian, J., Baxter, J., and George, J., concurred.

1 Technically, the cross-complainant is Lloyd W. Aubry, Jr., as Labor Commissioner etc. For the purpose of clarity, the cross-complainant is referred to as “the DLSE” throughout.

2 We have no occasion in this case to decide whether the trial court was correct in sustaining the District’s demurrer to the DLSE’s first amended cross-complaint. Rather than appealing the trial court’s order, the DLSE chose to amend its complaint. By doing so, it waived its right to appeal any error in the sustaining of the first demurrer. (See Sheehy v. Roman Catholic Archbishop (1942) 49 Cal.App.2d 537, 540-541 [122 P.2d 60].) Accordingly, the question of whether the Labor Code provides a cause of action against an awarding body for prevailing wages and penalties is not before us.

3 The trial court stated in its order that the demurrer was sustained because the action was time barred and “[f]or the reasons set forth in Cross-Defendant’s points and authorities.”

4 The California Law Revision Commission Comment following this statute states, “This section declares the familiar rule, applicable to both public entities and private persons, that failure to comply with applicable statutory or regulatory standards is negligence unless reasonable diligence has been exercised in an effort to comply with those standards.” (Cal. Law Revision Com. com., Deering’s Ann. Gov. Code, supra, § 815.6, p. 157.)

5 Contrary to the dissent’s bald assertion that a worker may proceed directly against a contractor who has not agreed to pay the statutory prevailing wages, this court has not yet had the opportunity to decide that issue. Lusardi Construction Co. v. Aubry, supra, 1 Cal.4th 976, established that the DLSE can proceed against the contractor under Labor Code section 1775 for prevailing wages even where the contractor has not agreed to pay those wages. We did not address whether the workers have a right of action against the contractor.

However, even if such an action is available, it does not bring the present action within the scope of the Tort Claims Act. Any action by a worker against a contractor for wages must necessarily be based on the worker’s contractual relationship with the contractor, for absent an express or implied contractual relationship with the worker, the contractor has no duty to pay that worker any wages, let alone statutory prevailing wages. Thus, a worker’s action against an employer for unpaid statutorily required wages sounds in contract. (See Longshore v. County of Ventura, supra, 25 Cal.3d at pp. 22-23 and cases cited therein.) As we recently stated in a unanimous decision, “[t]he Tort Claims Act is a comprehensive statutory scheme that sets forth the liabilities and immunities of public entities and public employees for torts.” (Kizer v. County of San Mateo (1991) 53 Cal.3d 139, 145 [279 Cal.Rptr. 318, 806 P.2d 1353], italics in original.) The Tort Claims Act was not intended to address injuries to contractual interests. (See Gov. Code, § 814.)

6 The Court of Appeal stated as an additional reason for rejecting the DLSE’s claims that the Tort Claims Act’s definition of injury does not include injury to rights created by statute where those rights are of the type that did not exist at common law. However we have no reason, in this case, to decide that question.

7 Because we conclude that Government Code section 815.6 does not provide a cause of action for either the shortfall in wages or the penalties, we need not consider whether the DLSE’s action was barred in large part by the statute of limitations, which formed an alternate basis for the Court of Appeal’s decision and for the trial court’s ruling on the demurrer. Nor do we need to reach the question of whether either public entity’s immunity from punitive damages (Gov. Code, § 818) or immunity for an employee’s misrepresentation (Gov. Code, § 818.8) protects the District from liability in this case.

8 We note that in Lusardi Construction Co. v. Aubry, supra, 1 Cal.4th 976, this court held that the DLSE may proceed against Lusardi under the prevailing wage law to recover the unpaid wages. Obviously, if this case goes forward, the DLSE may not recover for the same injury twice. (See Witt v. Jackson (1961) 57 Cal.2d 57, 73 [17 Cal.Rptr. 369, 366 P.2d 641].) In such a case, the trial court may consider staying proceedings in one action while the other action is proceeding.