Air Quality Products. Inc. v. State of California

• Decision Date: 24 August 1979
• Citation: 157 Cal.Rptr. 791,96 Cal.App.3d 340
• Court: California Court of Appeals Court of Appeals
• Parties: AIR QUALITY PRODUCTS, INC., Plaintiff and Appellant, v. STATE of California and State Air Resources Board, Defendants and Respondents. Civ. 20623.

Page 791

157 Cal.Rptr. 791

96 Cal.App.3d 340

AIR QUALITY PRODUCTS, INC., Plaintiff and Appellant, v. STATE of California and State Air Resources Board, Defendants and Respondents.

Civ. 20623.

Court of Appeal, Fourth District, Division 2, California.

Aug. 24, 1979.

Hearing Denied Nov. 15, 1979.

Fadem, Berger & Norton and Michael M. Berger, Santa Monica, for plaintiff and appellant

George Deukmejian, Atty. Gen., R. H. Connett, Asst. Atty. Gen., Walter E. Wunderlich, Joel S. Moskowitz and Michael Strumwasser, Deputy Attys. Gen., for defendants and respondents.

OPINION

KAUFMAN, Acting Presiding Justice.

Plaintiff Air Quality Products, Inc. appeals from an order of dismissal with prejudice entered after the trial court sustained the demurrer of defendant State Air Resources Board without leave to amend.

Facts

On November 1, 1973, Air Quality Products, Inc. (Air Quality) filed a complaint against the State Air Resources Board (Board) and the State of California seeking damages of $52,000,000. The complaint alleged that Board improperly accredited and authorized installation of General Motors Corporation retrofit exhaust emission control devices for use in California motor vehicles, causing monetary loss to Air Quality, which had previously developed, received Board accreditation for and, accordingly, made contractual commitments for the manufacture of its own exhaust device.

On April 27, 1978, the Attorney General, acting as attorney for both defendants, Board and the State of California, filed a motion to dismiss the action for failure to bring it to trial within two years after the complaint was filed (Code Civ.Proc., § 583(a)), a motion to dismiss the action for failure to serve and return the summons on the complaint within three years after the complaint was filed (Code Civ.Proc., § 581a), and a demurrer to the complaint. On June 9, 1978, the trial court granted the motion to dismiss for failure to timely serve and return the summons as to the State, but denied the motion as to Board, ¹ leaving Board the sole defendant. The demurrer was not then heard, as Air Quality filed an amended complaint on the same date.

The amended complaint, consisting of two counts, was substantially the same as the complaint, though the amount of damages sought was reduced to $3,000,000. The allegations of the first count are as follows. Air Quality is a California corporation with its principal place of business in Orange County, engaging in inventing, distributing, installing and servicing exhaust emission controls for addition to used cars to combat air pollution. The state enacted the Pure Air Act of 1968 (Motor Vehicle Pollution Control) ² in order to curb air pollution resulting from the exhaust emissions of motor vehicles, including emissions from older cars manufactured without the appropriate controls. The Act made mandatory installation of exhaust emission control devices, thereby "guaranteeing a market" in order to "induce" private industry to invest in, develop and produce exhaust devices. Board ³ publicized the inducements of the Act, and actively encouraged private industry, including Air Quality, to develop exhaust controls. The Act requires, inter alia, that in all nonexempt cars manufactured between 1955-1965 exhaust devices approved by the Board be installed upon initial registration or resale and registration. (See Health & Saf.Code, §§ 43600, et seq., 43652.) The Act and administrative regulations set forth the applicable procedures, including testing, for approval of the devices. To receive Board accreditation, a device must "be designed so as to have no adverse effect on engine operation or vehicle performance. . . ." (13 Cal.Admin.Code, § 2002.)

Air Quality developed a device called the "Pure Air System," which controls exhaust emissions as required by the Act and regulations, with no adverse effect on engine operation or vehicle performance. In November 1971, after testing the Pure Power System, Board approved the device as meeting the Act's requirements for installation in 1955-1965 vehicles. At this time, no other device meeting the Act's requirements had been submitted to Board. "In reliance" on Board's approval of the device, Air Quality contracted with Northrop Corporation to produce 500 production prototypes for submission to Board for testing and approval, at a contract price in excess of $125,000.

Prior to 1972, General Motors Corporation (GM) developed an exhaust device. GM did not submit it to Board because GM knew the device did not meet the statutory and regulatory standards. For instance, its installation would impair engine operation and vehicle performance.

Board, instead of setting a date for mandatory installation of Air Quality's device, requested that GM submit its device for testing and approval. After submission of the GM device, Board found it increased fuel consumption by 10 percent, and caused burning of exhaust pipes, requiring early replacement. Notwithstanding the Board's findings, it approved the GM device for installation in 1955-1965 cars.

THE GM device costs less to produce than the Pure Power System, and can be offered for sale at one-third of the latter's price. Since the great majority of automobile owners would buy the less expensive device, as a result of Board's approval of the GM device, Air Quality's device could only be sold to owners of 1955-1965 cars on which the GM device could not be installed.

In approving the GM device, Board required a 14 to 1 air-to-fuel ratio in each car's carburetor to achieve the requisite carbon monoxide level of 1.5 percent. ⁴ It is impossible, however, to comply with these requirements in about 15 percent of 1955-1965 automobiles having "sufficiently worn" carburetors. In April 1972, Board told Air Quality it would require installation of the Pure Power System in 15 percent of 1955-1965 cars if Air Quality: had available by September 1972 enough devices for 15 percent of the cars expected to be transferred; warranted performance of the device; trained servicemen at local installation stations to install and service the device; and had sufficient financial resources to meet production, service and warranty commitments. Board also required a corporate guarantee and guarantees of principal shareholders of Air Quality's performance. Air Quality met each of Board's requirements, reasonably relying on Board's "inducements" to Air Quality to produce the Pure Power System, which Board would require to be installed in 15 percent of 1955-1965 vehicles.

After Air Quality "had Northrop produce" 90,000 devices at a cost of $2,000,000, Board changed its requirements for installation of the GM device, repudiating the representations on which Air Quality relied, by "waiver" of the requirement of the 14 to 1 air-to-fuel ratio, or the 1.5 percent carbon monoxide level. As a result, the GM device could be used on all 1955-1965 vehicles. In July 1976, Northrop obtained a $1,009,000 judgment against Air Quality, representing the unpaid balance of the cost of Northrop's production of the Pure Power System devices.

On the first count of the amended complaint, Air Quality seeks damages in excess of $3,000,000.

In the second count Air Quality claims that it obtained a "vested property right" when Board, in accordance with the Act, approved the Pure Air System, giving Air Quality "an interest in the sale of emission control systems for '55-'65 cars, subject only to competition from others who met the standards of the Board.'' In approving the GM device that did not satisfy the requirements of the Act, "Board took and damaged Air Quality's vested property right without compensation, in violation of Cal.Const., art. I, § 19."

Board demurred to the amended complaint, asserting inter alia, that (1) Board is not a suable public entity; (2) Board is immune from tort liability pursuant to Government Code sections 818.4 (issuance, denial, suspension or revocation of permit, license, certificate, approval or similar authorization) and 818.2 (adoption or failure to adopt or enforce enactment); (3) Air Quality has not pleaded facts sufficient to state a cause of action for inverse condemnation against Board; (4) Air Quality has not pleaded facts sufficient to state a cause of action against Board for breach of either an express or implied contract; (5) Air Quality has not pleaded facts sufficient to state a cause of action based on estoppel; and (6) Air Quality has failed to join GM, an indispensable party.

The trial court sustained Board's demurrer on grounds of "defect of parties," stating that Board "is not an independent existing entity. It isn't a state; it is an agency of the State and part of the State. And I don't understand how Board can be sued if the State has been dismissed because the Board is the State." The court expressly refrained from consideration of the other grounds of the demurrer. The court's "Order of Dismissal After Sustaining General Demurrer Without Leave To Amend" was subsequently filed, dismissing the action with prejudice pursuant to Code of Civil Procedure section 581(3). This appeal followed.

On appeal Air Quality contends the court erred in sustaining the demurrer on the ground of defect of parties, and additionally asserts that the facts pleaded state causes of action for breach of contract and inverse condemnation.

Discussion

Code of Civil Procedure section 430.10 authorizes a party to object by demurrer to the complaint based, inter alia, upon "a defect . . . of parties" or failure to "state facts sufficient to constitute a cause of action." A demurrer necessarily constitutes an admission of the material and issuable facts properly pleaded in the complaint, but does not admit the contentions, deductions, or conclusions of fact or law. Notwithstanding facts unclearly stated, lack of precise form or language, insertion of irrelevant facts and requests for inappropriate relief, the rule is that if, upon...