Morrow-Meadows Corporation v. Honeywell International Inc.

• Court: District Court, C.D. California
• Decided: October 24, 2022
• Docket: 2:22-cv-05716
• Status: Unknown

Opinion

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1 ro! Q UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 11 12 | MORROW-MEADOWS CV 22-05716-RSWL-SKx CORPORATION, ORDER re: 13 mlaintite DEFENDANT’S MOTION TO 14 ARRELES DISMISS [11] Vv. 15 16 HONEYWELL INTERNATIONAL Inc. et al., 17 Defendant. 18 19 Plaintiff Morrow-Meadows Corporation (“Plaintiff”) 20 | brought the instant Action against Defendant Honeywell 21 | International Inc. (“Defendant”) alleging breach of 22 | contract and violations of statutory prompt payment 23 | penalties (pursuant to Business & Professions Code § 24 | 7108.5! and Public Contract Code §§ 7107, 10262, and 250 a 1 In the Complaint, Plaintiff refers to Business & 26 Professions Code section 7108.8. See Compl. FI 17, ECF No. 1-1. 27 No such statute exists. Plaintiff likely meant to refer to Business & Professions Code section 7108.5. See Pl.’s Opp’n. to 28 Mot. (“Opp’n”) 2:18 n.1, ECF No. 15.

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1 10262.5). Currently before the Court is Defendant’s

2 Motion to Dismiss [11] (“Motion”). Having reviewed all

3 papers submitted pertaining to the Motion, the Court NOW 4 FINDS AND RULES AS FOLLOWS: the Court GRANTS Defendant’s 5 Motion WITH LEAVE TO AMEND. 6 I. BACKGROUND 7 A. Factual Background 8 The Complaint alleges as follows: 9 Plaintiff, a subcontractor, and Defendant, a 10 general contractor, entered into a master subcontract 11 agreement (the “MSA”). Compl. ¶ 4. The parties amended 12 the MSA to incorporate the City of Los Angeles’ 13 Wastewater Information Network System Project (the “WINS 14 Project”). Id. ¶ 5. 15 Defendant issued to Plaintiff Purchase Order No. 16 4402186019 on or about May 17, 2012, and Purchase Order 17 No. 4408556431 on or about July 14, 2016 (collectively 18 “Purchase Orders”). Id. ¶¶ 7-8. The former provided 19 that for $6,961,710, Plaintiff would supply and install 20 the WINS Project’s Hyperion Facility’s electrical and 21 controls system with an estimated completion date of 22 December 31, 2018. Id. ¶¶ 7, 9. The latter provided 23 that for $1,686,970, Plaintiff would supply and install 24 the WINS Project’s Terminal Island site’s electrical 25 system with an anticipated completion date of December 26 29, 2017. Id. ¶¶ 8-9. 27 On both projects, Defendant encountered serious 28 delays not caused by Plaintiff. Id. ¶ 10. These delays 2 Case 2:22-cv-05716-RSWL-SK Document 18 Filed 10/24/22 Page 3 of 12 Page ID #:196

1 resulted in Defendant submitting a substantial claim –

2 Claim No. 004 - against the City of Los Angeles (the

3 “City”), which included claims for Plaintiff’s extended 4 performance costs. Id. The City agreed to pay 5 Defendant $11,075,901 in connection with Claim No. 004. 6 Id. ¶ 15. 7 Plaintiff performed all Purchase Order obligations 8 other than those prevented or excused by Defendant. Id. 9 ¶ 11. Defendant breached the Purchase Orders by failing 10 to compensate Plaintiff for its delay-induced damages. 11 Id. ¶ 12. By refusing to pay Plaintiff a portion of the 12 sum recovered from the City, Defendant also violated 13 California’s various “prompt payment” statutes. Id. ¶ 14 17. 15 B. Procedural Background 16 Plaintiff filed its Complaint in the Superior Court 17 of California, County of Los Angeles, on July 6, 2022. 18 On August 12, 2022, Defendant removed [1] this Action to 19 this Court based on diversity jurisdiction. Defendant 20 filed the instant Motion to Dismiss [11] on August 19, 21 2022. Plaintiff opposed [15] the Motion on September 22 12, 2022. Defendant replied [16] on September 20, 2022. 23 II. DISCUSSION 24 A. Legal Standard 25 Federal Rule of Civil Procedure (“Rule”) 12(b)(6) 26 allows a party to move for dismissal of one or more 27 claims if the pleading fails to state a claim upon which 28 relief can be granted. A complaint must “contain 3 Case 2:22-cv-05716-RSWL-SK Document 18 Filed 10/24/22 Page 4 of 12 Page ID #:197

1 sufficient factual matter, accepted as true, to state a

2 claim to relief that is plausible on its face.”

3 Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quotation 4 omitted). Dismissal is warranted for a “lack of a 5 cognizable legal theory or the absence of sufficient 6 facts alleged under a cognizable legal theory.” 7 Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 8 (9th Cir. 1988) (citation omitted). 9 In ruling on a 12(b)(6) motion, a court may 10 generally consider only allegations contained in the 11 pleadings, exhibits attached to the complaint, and 12 matters properly subject to judicial notice. Swartz v. 13 KPMG LLP, 476 F.3d 756, 763 (9th Cir. 2007). A court 14 must presume all factual allegations of the complaint to 15 be true and draw all reasonable inferences in favor of 16 the non-moving party. Klarfeld v. United States, 944 17 F.2d 583, 585 (9th Cir. 1991). “[T]he issue is not 18 whether a plaintiff will ultimately prevail but whether 19 the claimant is entitled to offer evidence to support 20 the claims.” Jackson v. Birmingham Bd. of Educ., 544 21 U.S. 167, 184 (2005) (quoting Scheuer v. Rhodes, 416 22 U.S. 232, 236 (1974)). While a complaint need not 23 contain detailed factual allegations, a plaintiff must 24 provide more than “labels and conclusions” or “a 25 formulaic recitation of the elements of a cause of 26 action.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 27 (2007). However, “a well-pleaded complaint may proceed 28 even if it strikes a savvy judge that actual proof of 4 Case 2-22-cv-05716-RSWL-SK Document 18 Filed 10/24/22 Page5of12 Page ID #:198

1] those facts is improbable, and ‘that a recovery is very 2 | remote and unlikely.’” Id. at 556 (quoting Scheuer v. 3 | Rhodes, 416 U.S. 232, 236 (1974)). Discussion 5 1. Judicial Notice 6 Before turning to the merits of Defendant’s Motion, 7 | the Court first addresses Defendant’s request for 8 | judicial notice. A court may take judicial notice of an 9 | adjudicative fact that is “not subject to reasonable 10 | dispute because it: (1) is generally known within the 11 J trial court’s territorial jurisdiction; or (2) can be 12 | accurately and readily determined from sources whose 13 | accuracy cannot reasonably be questioned.” Fed. R. 14] Evid. 201(b). Under the judicially created 15 J incorporation-by-reference doctrine, “[a] court may 16 | consider evidence on which the complaint ‘necessarily 17 J] relies’ if: (1) the complaint refers to the document; 18 (2) the document is central to the plaintiff's claim; 19 Jf and (3) no party questions the authenticity of the copy 20 | attached to the 12(b) (6) motion.” Marder v. Lopez, 450 21] F.3d 445, 448 (9th Cir. 2006). Judicial notice is 22 | proper for documents satisfying the incorporation-by- 23 | reference doctrine. * In re Maxwell Techs., Inc. 24 ? An extensive body of Ninth Circuit case law maintains that courts can judicially notice documents that satisfy the 25 | incorporation-by-reference doctrine. See, e.g., In re CNET Networks, Inc., 483 F. Supp. 2d 947 (N.D. Cal. 2007) (“In 26 | considering a motion to dismiss, judicial notice of the full text of documents referenced in a complaint 1S proper under the 27 | doctrine of incorporation by reference.”); Maxwell, 2014 WL 2212155, at *1 (granting request for judicial notice because 28 | “documents incorporated by reference in the Complaint” are

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1 Derivative Litig., No. 13-CV-966-BEN RBB, 2014 WL

2 2212155, at *1 (S.D. Cal. May 27, 2014).

3 Here, Defendant requests the Court take judicial 4 notice of the Purchase Orders. Mot. 7:4-5. Plaintiff 5 alleged a breach of contract claim because Defendant 6 “breached the Purchase Orders.” Compl. ¶ 12. 7 Therefore, the claim necessarily relies on the Purchase 8 Orders’ contractual provisions, and the Purchase Orders 9 are central to the Complaint. See Marder at 448. 10 Plaintiff did not question the authenticity of the 11 documents attached to the Motion. See generally Opp’n. 12 Thus, the Court can consider the Purchase Orders under 13 the incorporation-by-reference doctrine, and judicial 14 notice is appropriate. See Maxwell, 2014 WL 2212155, at 15 *1. The Purchase Orders are not subject to reasonable 16 dispute; therefore, the Court GRANTS Defendant’s request 17 for judicial notice. 18 2. Plaintiff Failed to Plead that Defendant 19 Breached a Contractual Provision 20 Under California law, a breach of contract claim 21 must be dismissed when the plaintiff fails to identify 22 any contract provision that was breached. See Satvati 23 v. Allstate Northbrook Indem. Co., No. CV 21-08840-RSWL- 24 properly considered in a motion to dismiss). However, the Ninth 25 Circuit has previously distinguished between judicial notice and incorporation-by-reference and held that “unlike rule-established 26 judicial notice, incorporation-by-reference is a judicially created doctrine that treats certain documents as though they are 27 part of the complaint itself.” Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 1002 (9th Cir. 2018). 28 6 Case 2:22-cv-05716-RSWL-SK Document 18 Filed 10/24/22 Page 7 of 12 Page ID #:200

1 PDx, 2022 U.S. Dist. LEXIS 184902, at *6 (C.D. Cal. Oct.

2 6, 2022). Moreover, where breach of contract is based

3 on a writing, the writing must express the obligation 4 sued upon. Miron v. Herbalife Int'l, Inc., 11 F. App'x 5 927, 929 (9th Cir. 2001) (affirming dismissal of a 6 breach of contract claim because the plaintiffs failed 7 to allege any contractual provision supporting their 8 claim). 9 Here, Plaintiff alleged Defendant breached the 10 Purchase Orders by not paying Plaintiff for the damages 11 it suffered due to the project delays. Compl. ¶ 12. 12 However, in the Complaint, Plaintiff did not specify 13 which Purchase Order provision required Defendant to 14 compensate Plaintiff for delays. See generally id. In 15 its Opposition, Plaintiff advanced a new theory: 16 Defendant failed to pay Plaintiff for its performance by 17 the anticipated completion dates. Opp’n. 6:9-10. When 18 deciding a motion, courts should not consider a new 19 argument unconnected to the complaint. 3 The Complaint 20 both did not allege that Defendant failed to timely pay 21 under the contract, nor did it specify a contractual 22 3 When alleging breach, a plaintiff may plead “the legal effect of a contract rather than pleading its precise language.” 23 Constructive Protective Servs., Inc. v. TIG, 57 P.3d 372, 377 24 (2002). However, “[r]aising a completely new theory of liability, with only attenuated connection to a complaint, in 25 a[n] . . . opposition . . . does not grant Defendant fair notice of Plaintiffs' claim.” Provencio v. Vazquez, 258 F.R.D. 626, 639 26 (E.D. Cal. 2009); see also Gerritsen v. Warner Bros. Ent. Inc., 116 F. Supp. 3d 1104, 1126 (C.D. Cal. 2015) (holding it 27 “improper” for a plaintiff to assert an unpled theory of 28 liability in an opposition to a motion to dismiss). 7 Case 2:22-cv-05716-RSWL-SK Document 18 Filed 10/24/22 Page 8 of 12 Page ID #:201

1 provision mandating payment occur by a certain date.

2 See generally Compl. Instead, in its Complaint,

3 Plaintiff simply maintained that it is entitled to 4 extended performance costs caused by the delay. Id. ¶ 5 10. Therefore, because Plaintiff failed to identify in 6 its Complaint a contract provision entitling it to delay 7 costs or mandating timely payment by a certain date, the 8 Court GRANTS Defendant’s Motion on Plaintiff’s breach of 9 contract claim. 10 3. Plaintiff Did Not Plead a Plausible Claim for 11 Relief Under the Prompt Payment Statutes 12 Plaintiff alleged that Defendant violated four 13 California4 “prompt payment” statutes (collectively, the 14 “Statutes”). Id. ¶ 17. The first statute is California 15 Business and Professions Code section 7108.5, which 16 provides that within seven days of receiving progress 17 payments, a “prime contractor” must pay its 18 subcontractors according to their interest in the 19 payment. Cal. Bus. & Prof. Code § 7108.5. The next two 20 statutes, California Public Contract Code Sections 10262 21 and 10262.5, impose the exact same requirement. Cal. 22 Pub. Cont. Code § 10262 (“The contractor shall pay to 23

24 4 Defendant contends that each Purchase Order has a choice- of-law provision stating that New York law governs any claim 25 between the parties. Mot. 8:8-10. Defendant argues that given the choice-of-law provision, the California statutes do not 26 apply. Id. at 9:17. Because the Complaint fails to plead a plausible claim for relief under the California statutes, the 27 Court does not need to determine at this time whether New York 28 Law governs any claim between the parties. 8 Case 2:22-cv-05716-RSWL-SK Document 18 Filed 10/24/22 Page 9 of 12 Page ID #:202

1 his or her subcontractors, within seven days of receipt

2 of each progress payment, the respective amounts allowed

3 the contractor on account of the work performed by his 4 or her subcontractors, to the extent of each 5 subcontractor's interest therein”); Cal. Pub. Cont. Code 6 § 10262.5. The final statute Plaintiff cites to, 7 California Public Contract Code section 7107, holds 8 contractors must pay its subcontractors their share of 9 retention proceeds within the same seven-day timeframe. 10 Cal. Pub. Cont. Code § 7107. 11 California prompt payment statutes distinguish 12 between payment types; thus, as a threshold matter, 13 courts must evaluate the type of payment involved to 14 determine what statutes apply. Harry D. Miller & Marvin 15 B. Starr, Ch. 31. Construction Law and Contracting, in 16 Miller and Starr Cal. Real Est. (4th ed. 2015) § 31:92. 17 Both “progress payments” and “retention proceeds” are 18 defined terms in the construction trade. Id. “A 19 progress payment is a . . . periodic payment, paid over 20 the length of a project . . . typically based on a 21 percentage of work during a defined time period.” Id. 22 “Retention proceeds” refer to payment withheld by an 23 owner or contractor until project completion to secure 24 full contract performance. Id.; see also Yassin v. 25 Solis, 108 Cal. Rptr. 3d 854, 861 (2010) (noting 26 “retention occurs when the owner retains a percentage 27 from each progress payment as a form of security”) 28 (citing Kenneth C. Gibbs et al., Cal. Construction Law 9 Case 2:22-cv-05716-RSWL-SK Document 18 Filed 10/24/22 Page 10 of 12 Page ID #:203

1 (16th ed. 2000) § 3.02[A][5] at 103).

2 Here, because of delays, Defendant served the City

3 with various claims for compensation, including Claim 4 No. 004. Compl. ¶ 14. Plaintiff alleged Defendant 5 violated the Statutes by refusing to pay Plaintiff any 6 portion of its Claim 004 “recovery.” Id. ¶¶ 14, 17-18. 7 However, nothing in the Complaint established that the 8 recovery constituted a progress payment or retention 9 proceeds. See generally id. Plaintiff further failed 10 to allege that it possessed any contractual interest in 11 the recovery, and the Statutes all presuppose a 12 contractual payment obligation. See, e.g., Cal. Bus. & 13 Prof. Code § 7108.5 (“to the extent of each 14 subcontractor’s interest therein”); see generally Compl. 15 Instead, Plaintiff merely alleged that because Claim No. 16 004 included compensation requests for Plaintiff’s 17 extended performance costs, it was entitled to a portion 18 of the recovery.5 Id. ¶ 14. 19 In its Complaint, Plaintiff did not allege that 20 Defendant failed to timely proffer any of the 21 contractually owed payment. See generally Compl.

22 5 Moreover, the Purchase Orders appear to have explicitly established “Terms of payment” - “90% Net, 10% Retention.” See 23 Mot. Ex. 1, at 1; Ex. 2, at 1. These provisions likely entitled 24 Plaintiff to 90 percent of the Purchase Orders’ payment within ninety days of the invoice receipt and enabled Defendant to 25 retain 10 percent of the cost until project completion. The latter 10 percent would qualify as “retention proceeds” under 26 California Public Contract Code section 7107. The Purchase Orders appear to contain no provisions that would compensate 27 Plaintiff’s extended performance costs. See generally Mot. Ex. 28 1; Ex. 2. 10 Case 2:22-cv-05716-RSWL-SK Document 18 Filed 10/24/22 Page 11 of 12 Page ID #:204

1 Therefore, it is unclear whether Plaintiff possesses any

2 interest in Defendant’s Claim No. 004 recovery. In sum,

3 Plaintiff failed to meet the Statutes’ requirements 4 because Plaintiff did not allege that Claim No. 004 5 recovery constituted a progress payment or retention 6 proceeds, nor that Plaintiff possessed a contractual 7 interest in the recovery. The Court therefore GRANTS 8 Defendant’s Motion on Plaintiff’s statutory prompt 9 payment penalties claim. 10 4. Leave to Amend 11 “Where a motion to dismiss is granted, a district 12 court must decide whether to grant leave to amend.” 13 Winebarger v. Pennsylvania Higher Educ. Assistance 14 Agency, 411 F. Supp. 3d 1070, 1082 (C.D. Cal. 2019). 15 “The court should give leave [to amend] freely when 16 justice so requires.” Fed. R. Civ. P. 15(a)(2). In the 17 Ninth Circuit, “Rule 15’s policy of favoring amendments 18 to pleadings should be applied with ‘extreme 19 liberality.’” United States v. Webb, 655 F.2d 977, 979 20 (9th Cir. 1981). Against this extremely liberal 21 standard, the Court may consider “the presence of any of 22 four factors: bad faith, undue delay, prejudice to the 23 opposing party, and/or futility.” Owens v. Kaiser 24 Found. Health Plan, Inc., 244 F.3d 708, 712 (9th Cir. 25 2001). 26 Here, Plaintiff’s breach of contract claim and 27 statutory penalties claim can be cured by alleging more 28 specific factual information relating to the claims. 11 Case 2:22-cv-05716-RSWL-SK Document 18 Filed 10/24/22 Page 12 of 12 Page ID #:205

1 Alternatively, Plaintiff could plead for relief under a

2 different theory of liability. There is no evidence of

3 bad faith or undue delay by Plaintiff, nor potential 4 prejudice to Defendant by allowing amendment. The Court 5 therefore GRANTS Defendant’s Motion to Dismiss WITH 6 LEAVE TO AMEND. 7 III. CONCLUSION 8 Based on the foregoing, the Court GRANTS 9 Defendant’s Motion WITH LEAVE TO AMEND. Plaintiff may 10 file an amended complaint by no later than November 24, 11 2022. 12 13 IT IS SO ORDERED. 14 15 DATED: October 24, 2022 /s/Ronald S.W. Lew HONORABLE RONALD S.W. LEW 16 Senior U.S. District Judge 17 18 19 20 21 22 23 24 25 26 27 28 12