Aubry v. Tri-City Hospital Dist., TRI-CITY

• Court: United States State Supreme Court (California)
• Writing for the Court: PANELLI; LUCAS; KENNARD; MOSK
• Citation: 2 Cal.4th 962,9 Cal.Rptr.2d 92
• Parties: , 831 P.2d 317, 126 Lab.Cas. P 57,559 Lloyd W. AUBRY, Jr., as Labor Commissioner, etc., Cross-complainant and Appellant, v.HOSPITAL DISTRICT, Cross-defendant and Respondent.
• Decision Date: 25 June 1992
• Docket Number: TRI-CITY,No. S011123

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9 Cal.Rptr.2d 92 2 Cal.4th 962, 831 P.2d 317, 126 Lab.Cas. P 57,559 Lloyd W. AUBRY, Jr., as Labor Commissioner, etc., Cross-complainant and Appellant,
v.
TRI-CITY HOSPITAL DISTRICT, Cross-defendant and Respondent. No. S011123. Supreme Court of California,
In Bank. June 25, 1992.

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[2 Cal.4th 964] [831 P.2d 318] Thomas H. Cadell, Jr., Dept. of Indus. Relations, Chief Counsel, D.I.R., San Francisco, for cross-complainant and appellant.

Allen, Matkins, Leck, Gamble & Mallory and Dwight L. Armstrong, Irvine, for cross-defendant and respondent.

PANELLI, Justice.

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.

2 Cal.4th 965

FACTS

Tri-City Hospital District (the District), a public entity whose principal office is located

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[831 P.2d 319] 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-complained ¹ 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.

[2 Cal.4th 966] 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[831 P.2d 320]

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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 [2 Cal.4th 967] 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, 216 Cal.Rptr. 718, 703 P.2d 58.)

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

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[831 P.2d 321] under Government Code section 815.6. This statute [2 Cal.4th 968] 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 purposes 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...