PG&E Corporation v. AECOM Technical Services, Inc..

• Court: District Court, N.D. California
• Decided: April 30, 2021
• Docket: 4:20-cv-05381
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 JH KELLY, LLC, Case No. 20-cv-05381-HSG 8 Plaintiff, ORDER GRANTING MOTION TO DISMISS CLAIM FOR 9 v. FORECLOSURE OF MECHANICS LIEN 10 AECOM TECHNICAL SERVICES, INC.., et al., Re: Dkt. No. 24 11 Defendants. 12 13 Pending before the Court is Defendant Pacific Gas & Electric Company’s (“PG&E”) 14 motion to dismiss Plaintiff JH Kelly’s claim for Foreclosure of Mechanics Lien. Dkt. No. 24 15 (“Mot.”). JH Kelly opposes the motion. Dkt. No. 41 (“Opp.”). A hearing was held on April 29, 16 2021. Dkt. No. 54. For the following reasons, the motion to dismiss is GRANTED WITHOUT 17 LEAVE TO AMEND. 18 I. BACKGROUND 19 This construction dispute arises out of the Burney K2 Replacement Project (“Project”), 20 which involved the replacement of a natural gas compressor unit and various upgrades at the 21 compressor station near Burnley, California. Dkt. No. 18 (“FAC”) ¶ 11. The Burney Compressor 22 Station is part of PG&E’s natural gas distribution system that supplies natural gas to the 23 surrounding area and allows compressed gas to continue traveling through pipelines from Oregon 24 to consumers in California. Id. PG&E’s natural gas distribution system provides service to 25 around 4.2 million customers from Bakersfield, California to the Oregon border. Id. 26 In February 2016, PG&E contracted with Defendant AECOM Technical Services, Inc. 27 (“AECOM”) to act as the prime contractor for the Project. Id. ¶ 19. AECOM then contracted with 1 $14,341,281. Id. ¶¶ 15, 25. According to the FAC, the Project was characterized by delays and 2 mismanagement. Id. ¶¶ 29-47. JH Kelly demobilized from the Project site on June 28, 2018. Id. 3 ¶ 49. 4 JH Kelly alleges that AECOM owes it approximately $37,504,464.95 for invoiced contract 5 amounts, pending change order requests, and various other impacts and damages. ¶ 48. Following 6 its demobilization, JH Kelly recorded a mechanics lien against the Project property, generally 7 located at 37667 Highway 299, Burney, CA 96013 (the “Property”). Id. ¶ 51, 54. The Property is 8 owned by PG&E. Id. ¶¶ 1, 51. JH Kelly claimed a mechanics lien of $15,881,776.21 on the 9 Property and now brings a claim for foreclosure of the mechanics lien against PG&E and 10 AECOM. Id. ¶¶ 50-56. JH Kelly also brings breach of contract and other claims against 11 AECOM. Id. ¶¶ 57-90. 12 II. LEGAL STANDARD 13 Federal Rule of Civil Procedure 8(a) requires that a complaint contain “a short and plain 14 statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). A 15 defendant may move to dismiss a complaint for failing to state a claim upon which relief can be 16 granted under Rule 12(b)(6). “Dismissal under Rule 12(b)(6) is appropriate only where the 17 complaint lacks a cognizable legal theory or sufficient facts to support a cognizable legal theory.” 18 Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th Cir. 2008). To survive a Rule 19 12(b)(6) motion, a plaintiff need only plead “enough facts to state a claim to relief that is plausible 20 on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is facially plausible 21 when a plaintiff pleads “factual content that allows the court to draw the reasonable inference that 22 the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). 23 In reviewing the plausibility of a complaint, courts “accept factual allegations in the 24 complaint as true and construe the pleadings in the light most favorable to the nonmoving party.” 25 Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). Nevertheless, 26 courts do not “accept as true allegations that are merely conclusory, unwarranted deductions of 27 fact, or unreasonable inferences.” In re Gilead Scis. Secs. Litig., 536 F.3d 1049, 1055 (9th Cir. 1 Even if the court concludes that a 12(b)(6) motion should be granted, the “court should 2 grant leave to amend even if no request to amend the pleading was made, unless it determines that 3 the pleading could not possibly be cured by the allegation of other facts.” Lopez v. Smith, 203 4 F.3d 1122, 1127 (9th Cir. 2000) (en banc) (quotation omitted). 5 III. DISCUSSION 6 The current motion to dismiss presents a discrete legal issue in the midst of an otherwise 7 sprawling construction contract dispute. PG&E moves to dismiss only one of JH Kelly’s claims: 8 the claim for foreclosure of mechanics lien against the Property. Mot. at 5. PG&E argues that JH 9 Kelly’s mechanics lien against the Property constitutes an unlawful encumbrance of a public 10 utility’s property in violation of California Public Utility Code § 851 (“Section 851”) with the 11 consequence that the mechanics lien is void. Id. at 5-6. JH Kelly disputes the applicability and 12 interpretation of Section 851, contending that the mechanics lien is valid and its claim for 13 foreclosure should be allowed to proceed. Opp. at 7. 14 Section 851 provides in relevant part:

15 A public utility . . . shall not sell, lease, assign, mortgage, or otherwise dispose of, or encumber the whole or any part of its . . . plant, system, 16 or other property necessary or useful in the performance of its duties to the public, or any franchise or permit or any right thereunder . . . 17 without first having either secured an order from the commission authorizing it to do so . . . Every sale, lease, assignment, mortgage, 18 disposition, encumbrance, merger, or consolidation made other than in accordance with the advice letter and approval from the 19 commission authorizing it is void. . . .

20 Cal. Pub. Util. Code § 851 (West). 21 PG&E argues that “Section 851 generally prohibits: (i) the encumbrance of (ii) any part of 22 a public utility’s (iii) system or property necessary or useful in the performance of duties to the 23 public, (iv) without first having secured prior authorization from the Public Utilities Commission 24 (Commission).” Mot. at 5. The parties do not dispute that the Property is an integral part of 25 PG&E’s natural gas distribution system and therefore necessary and useful in the performance of 26 PG&E’s duties to the public. See FAC ¶ 11; Mot. at 13-14. Nor do the parties dispute that JH 27 Kelly has not received authorization from the Commission for its mechanics lien. Mot. at 14; 1 Opp. at 17 (“There will be more than adequate time for PG&E and Kelly to seek Commission 2 authorization, if necessary, prior to that sale.”). Therefore, the dispositive question is whether 3 Section 851 in fact applies to JH Kelly’s mechanics lien and precludes the current foreclosure 4 claim. JH Kelly responds that the plain language of Section 851 applies only to an encumbrance 5 by the public utility itself and does not address actions by third parties that may affect public 6 utility property. Opp. at 9-13. JH Kelly further argues that adopting PG&E’s broader 7 interpretation would lead to absurd results. Opp. at 13-19. 8 “In a case requiring a federal court to apply California law, the court ‘must apply the law 9 as it believes the California Supreme Court would apply it.’” Kairy v. SuperShuttle Int’l, 660 F.3d 10 1146, 1150 (9th Cir. 2011). “In the absence of a controlling California Supreme Court decision, 11 the panel must predict how the California Supreme Court would decide the issue, using 12 intermediate appellate court decisions, statutes, and decisions from other jurisdictions as 13 interpretive aids.” Id. 14 Unfortunately, there is no California Supreme Court decision that directly addresses 15 whether Section 851 bars the foreclosure of a mechanics lien on public utility property. Both 16 parties instead cite to California Court of Appeal and Public Utility Commission decisions that 17 discuss the relationship of Section 851 and various types of encumbrances on public utility 18 property. In Hosford v. Henry, the California Court of Appeal considered whether a trial court 19 could order reformation of a contract that expanded a lien on public utility property. 107 Cal. 20 App. 2d 765 (Cal. Ct. App. 1951). The Commission had approved the earlier contract, but the 21 Court of Appeal determined that the trial court could not order a reformation that granted and 22 foreclosed an expanded lien not approved by the Commission:

23 We think it beyond the power of a court of equity to do by reformation what the parties are forbidden to do themselves and that, even though 24 the trial court justifiably found that the security instrument must be reformed in order to coincide with the parties’ intentions, nevertheless 25 having so determined it could not itself decree a lien and enforce the same until and unless the Commission had consented that the lien be 26 imposed. 27 Id. at 775. The court emphasized the necessity of Commission approval before an encumbrance 1 utilities made without the prior permission of the Commission are void.” Id. The court made 2 clear that the Commission retained its prerogative of approval without regard to the trial court’s 3 determination on the merits of the disputed lien: “Until and unless such consent has been obtained 4 it is beyond the power of the trial court to place a lien upon the utility properties.” Id. at 776. The 5 Hosford court also addressed arguments like those made by JH Kelly, Opp. at 19-22, that a party 6 would lack recourse if its lien were found invalid. As the Hosford court explained, if the 7 Commission withholds permission, then “the parties must be left where their own mistake has 8 placed them” or must seek “action for damages.”1 Id. 9 JH Kelly argues that the broad principle articulated in Hosford—that “any encumbrance[s] 10 upon operative properties of utilities made without the prior permission of the Commission are 11 void”—does not apply to the current case because the encumbrance in Hosford was agreed to by 12 the utility and was not a mechanics lien. Opp. at 18-19. In support of its interpretation, JH Kelly 13 relies on another California Court of Appeal decision that explains that “the plain language of 14 section 851 itself indicates that it was designed to regulate the actions of a public utility in its own 15 dealings with property which has been appropriated to public use and is affected by the public 16 interest.” People By Pub. Utilities Comm’n v. City of Fresno, 254 Cal. App. 2d 76, 82 (Cal. Ct. 17 App. 1967) (“City of Fresno”). But that decision dealt with the exercise of eminent domain by a 18 local government, and the court made clear that its interpretation of Section 851 was restricted to 19 that context. Id. (“It is therefore manifest that the crucial question is whether Public Utilities Code 20 section 851 regulates the otherwise unrestricted power of the city to condemn public utility 21 property . . . by requiring the consent of the commission before the superior court may enter a final 22 judgment of condemnation.”). Section 851’s scope was limited by the holding that “eminent 23 domain is an attribute of sovereignty and must not be restricted by judicial interpretation in the 24 absence of a clear legislative intent to so restrict.” Id. at 83. JH Kelly’s mechanics lien, in 25 contrast, does not implicate any sovereign interests that run counter to Section 851’s applicability 26 27 1 to “the disposition of public utility property in general.” Id. at 84.2 2 The clearest statement about mechanics liens in the Section 851 case law is found in dicta 3 in a 1989 Court of Appeal decision, Automatic Sprinkler Corp. v. S. Cal. Edison Co., 216 Cal. 4 App. 3d 627, 636–37 (Cal. Ct. App. 1989):

5 Finally, raising the issue for the first time in its appellant’s reply brief, Automatic argues that Public Utilities Code section 851 “precludes 6 the recording and enforcement of a mechanic's lien against SONGS.” Although we need not consider this argument, we point out that it is 7 not meritorious. The plain terms of Public Utilities Code section 851 permit an encumbrance if, among other things, the Public 8 Utilities Commission first issues an authorizing order. Thus, the section does not “preclude” a mechanic’s lien. 9 10 Id. at 636-637 (citations and footnotes omitted). Although dicta, this is a clear statement that a 11 mechanics lien may be recorded if, but only if, it is first authorized by the Commission. 12 Considering Hosford, City of Fresno, and Automatic Sprinkler together, the Court concludes that 13 Section 851 applies to the attempt by a private party, like JH Kelly, to foreclose on a lien against 14 necessary and useful public utility property. 15 This conclusion is also supported by the Commission’s administrative decision in In Re 16 Golconda Utilities Company, which held that Section 851 requires Commission authorization 17 before a lien may be foreclosed. 59 Cal. P.U.C. 174 (1965) (“The question before the 18 Commission is whether a Sheriff’s Sale resulting from foreclosure on a mechanic’s lien must first 19 be authorized by this Commission to make it valid. . . . It is clear from [the language of Public 20 Utilities Code section 851] that the transfer, voluntary or otherwise, of a well site, wells and 21 pumps which have been dedicated to public use and are the sole source of water supply for a 22 public utility system is void without prior Commission authorization.”). JH Kelly argues that In 23 Re Golconda is distinguishable because that case considered the actual transfer of the property 24

25 2 Moreover, the court also recognized that Section 851 applies to involuntary as well as voluntary encumbrances. Id. at 82 (“The section simply provides that ‘(n)o public utility (meaning a private 26 company or individual) shall sell, lease, assign, mortgage, or otherwise dispose of or encumber (meaning by its own action whether voluntary or involuntary) the whole or any part of its * * * 27 property necessary or useful in the performance of its duties to the public (recognizing the public 1 without authorization as opposed to the current claim for foreclosure, which JH Kelly contends 2 does not require the sale of public utility property. Opp. at 12-13, 16-8. But JH Kelly’s argument 3 is belied by its own complaint, which demands a judgment “[o]rdering that Kelly’s Claim of 4 Mechanics Lien be foreclosed and that the usual judgment be made for the sale of the Property 5 according to law.” FAC at 22; see also Withington v. Shay, 47 Cal. App. 2d 68, 73 (Cal. Ct. App. 6 1941) (“The code provisions relating to the foreclosure of mechanics’ liens provide no mode of 7 enforcing a judgment other than by a sale of the property and docketing a deficiency judgment 8 against the defendant who may be liable therefor.”); Cal. Civ. Code § 8466 (“If there is a 9 deficiency of proceeds from the sale of property on a judgment for enforcement of a lien, a 10 deficiency judgment may be entered against a party personally liable for the deficiency in the 11 same manner and with the same effect as in an action to foreclose a mortgage.” (emphasis added)). 12 In summary, the weight of California authority supports the position that an encumbrance 13 on necessary and useful public utility property must first be authorized by the Commission before 14 it may be foreclosed by a court. Because the Property is necessary and useful for PG&E to 15 perform its duties and because JH Kelly’s mechanics lien has not been authorized by the 16 Commission, the Court finds that the claim for foreclosure of the mechanics lien fails “to state a 17 claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). The Court’s decision is based 18 on the legal conclusion that Section 851 applies to JH Kelly’s mechanics lien and the undisputed 19 facts that the Property is necessary and useful and that the mechanics lien has not been 20 authorized.3 Therefore, the Court also finds that this legal deficiency could not be cured by the 21 allegation of other facts and leave to amend need not be granted. See Lopez, 203 F.3d at 1127. 22 Accordingly, the claim for foreclosure of mechanics lien against PG&E is DISMISSED 23 24 3 JH Kelly also argues that their foreclosure claim should be allowed to proceed because there 25 would be adequate time for PG&E and JH Kelly to seek Commission authorization prior to the sale. Opp. at 16-17. But Section 851 provides that an unauthorized encumbrance, like JH Kelly’s 26 mechanics lien, is “void.” (“Every sale, lease, assignment, mortgage, disposition, encumbrance, merger, or consolidation made other than in accordance with the advice letter and approval from 27 the commission authorizing it is void.”). The fact that there are intermediate steps before the 1 || WITHOUT LEAVE TO AMEND.* 2 || IV. CONCLUSION 3 The Court GRANTS PG&E’s motion to dismiss. JH Kelly’s claim for foreclosure of 4 || mechanics lien against PG&E is DISMISSED WITHOUT LEAVE TO AMEND. 5 IT IS SO ORDERED. 6 || Dated: 4/30/2021 ’ g HAYWOOD S. GILLIAM, JR. United States District Judge 9 10 11 a 12

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Z 18 19 20 21 22 23 24 25 26 7 4 JH Kelly also argues that it should be permitted to seek discovery regarding PG&E’s prior handling of mechanics liens on its properties. Opp. at 22. But information about PG&E’s prior 2g || handling of mechanics liens would not alter the Court’s legal conclusion that Section 851 applies to JH Kelly’s mechanics lien. Accordingly, JH Kelly’s request for discovery is also DENIED.