A.J. Fistes Corp. v. GDL Best Contractors, Inc.

• Citation: 38 Cal.App.5th 677,251 Cal.Rptr.3d 423
• Decision Date: 16 July 2019
• Docket Number: B283662
• Court: California Court of Appeals
• Parties: A.J. FISTES CORPORATION, Plaintiff and Appellant, v. GDL BEST CONTRACTORS, INC., et al., Defendants and Respondents.

38 Cal.App.5th 677

251 Cal.Rptr.3d 423

A.J. FISTES CORPORATION, Plaintiff and Appellant,

v.GDL BEST CONTRACTORS, INC., et al., Defendants and Respondents.

B283662

Court of Appeal, Second District, Division 7, California.

Filed July 16, 2019

As Modified August 13, 2019

Carlin Law Group and Kevin R. Carlin for Plaintiff and Appellant.

Lanak & Hanna, Francis J. Lanak and Mac W. Cabal, Orange, for Defendants and Respondents.

FEUER, J.

Plaintiff A.J. Fistes Corporation (Fistes) appeals from a judgment entered after the trial court sustained without leave to amend the demurrer filed by defendants GDL Best Contractors, Inc. (GDL) and its officers, Francisco M. Lopez, Jose C. Lopez, and Benjamin Lopez (collectively, the Lopezes), to Fistes's third amended complaint. Fistes brought suit against GDL, the Lopezes, and the Montebello Unified School District (the District), seeking a declaration the contract the District awarded to GDL for the remediation of school properties was void due to violations of the Public Contract Code and the Government Code. Fistes alleged it was the low bidder on the contract. Fistes also sought a constructive trust against GDL in favor of the District. In sustaining the demurrer, the trial court found Fistes lacked standing to sue GDL and the Lopezes, and Fistes's third amended complaint was fatally uncertain. Fistes later voluntarily dismissed the District without prejudice. On appeal, Fistes contends it has standing as a state taxpayer because the District is an agency of the state and state money wholly funded the remediation project.

While Fistes’s appeal was pending, the Legislature amended Code of Civil Procedure section 526a,¹ effective January 1, 2019, to specify what types of tax payments are sufficient to establish taxpayer standing. Section 526a now provides a corporation that has been assessed and is liable to pay or has paid within one year before the commencement of an action "a tax that funds the defendant local agency" has standing to sue a local agency to challenge the agency’s expenditure of public funds. The amendment to section 526a applies prospectively to this case because the change in law does not alter the legal consequences of defendants’ past conduct, but instead only expands the scope of who may sue under the statute. Further, a plaintiff may take advantage of a change in law during an appeal to support a finding of standing on remand. The contention by GDL and the Lopezes that a corporation only has standing if it pays taxes that fund the challenged project lacks merit. Under the amended statute, the taxes paid by a plaintiff corporation need only fund the local agency to confer standing. Fistes has therefore alleged facts sufficient to establish standing under section 526a based on its payment of state taxes that fund the District.²

The trial court also erred in sustaining the demurrer based on uncertainty without leave to amend. Although Fistes has not adequately alleged a cause of action against the Lopezes, it has made a sufficient showing for leave to amend.

We reverse and remand for further proceedings. On remand, the trial court should grant Fistes leave to amend its complaint.

FACTUAL AND PROCEDURAL BACKGROUND

A. The Fistes and GDL Bids and the District's Contract Award

In February 2016 the District issued specifications for a project entitled, "Exterior Environmental Remediation and Painting at Various Sites" (the project).³ The project involved painting, improvements, and the removal of hazardous materials at several elementary school sites in the District. The specifications indicated the work was to be performed over "[a] total of 30 consecutive calendar days." (Boldface omitted.)

The District opened bidding on the project on March 1, 2016. Fistes submitted a bid to complete the work for $1,127,900; GDL submitted a bid for $2,555,000. On March 7 the District informed Fistes its bid was deemed nonresponsive because the company had failed to include required financial statements, and the bid was missing a corporate seal. Fistes sent the District a letter on March 9 protesting the rejection of its bid. On April 7, 2016 the District awarded the contract to GDL.

B. Department 85 Proceedings

On April 19, 2016 Fistes filed a petition for a writ of mandate against the District, naming GDL as a real party in interest. On April 27 Fistes filed an ex parte application for issuance of an alternative writ of mandate and a temporary restraining order. The District and GDL opposed the application. GDL argued it had "begun substantial performance and [was] nearing completion of its performance on the Project." (Italics omitted.) On April 27, after hearing argument from counsel, the trial court denied the application, but set a hearing on the petition for November 15, 2016.⁴

On August 8, 2016 Fistes filed a verified first amended petition for writ of mandate and complaint for declaratory, injunctive, and other equitable relief. Fistes named the District as a defendant and respondent and GDL as a defendant and real party in interest. Fistes alleged the District's governing board illegally awarded GDL the project contract, which Fistes sought to declare void. Fistes alleged the District violated multiple provisions of the Public Contract Code and Government Code, including accepting GDL's bid proposal despite its failure to prequalify for the contract ( Pub. Contract Code, § 20111.5, subd. (d) ) and contracting with GDL despite a conflict of interest ( Gov. Code, § 1090 ). Fistes sought a judgment declaring the award of the contract to GDL void or invalid, a constructive trust in favor of the District and taxpayers, injunctive relief, and a peremptory writ of mandate directing the District to rescind all illegal payments to GDL and to deliver to Fistes a number of requested documents.

On September 28, 2016 Fistes filed an ex parte application seeking continuation of the trial, a briefing schedule on two discovery motions, and leave to amend to add a reference to Public Contract Code section 20111.6, which requires prospective bidders on specified public projects to submit prequalification questionnaires and financial statements. GDL opposed the application, arguing Fistes's petition for a writ of mandate was "moot as the Project has now been completed," and Fistes lacked standing to bring its claims. After a hearing, on September 28, 2016 the trial denied Fistes's ex parte application, dismissed the writ of mandate cause of action as moot, and granted Fistes leave to amend.⁵ The trial court transferred the case from the writs and receivers department (Department 85) to Department 50.

C. Department 50 Proceedings

1. Fistes's third amended complaint

On October 18, 2016 Fistes filed a second amended complaint. Following the filing of a demurrer by GDL, but before a hearing, Fistes filed the operative third amended complaint. Fistes named the District, GDL, and the Lopezes as defendants.

The third amended complaint alleged "[a]t all times relevant hereto [Fistes] has paid taxes to the State of California that were used directly and/or indirectly to make the payments that are the subject of this action and is interested in assuring [the District] does not pay money out under contracts that are awarded in violation of California law." Further, the project "was funded by the State of California via the Leroy F. Greene School Facilities Act of 1998 ... and/or funds from state school bonds." Fistes also alleged the District "paid GDL $2,416,470.62 from the California State School Facility Program" for its work on the project.

Fistes alleged the District violated Public Contract Code sections 20111.5 and 20111.6 by failing to require bidders to prequalify for the contract. Fistes also alleged conflicts of interest between the District and GDL, in violation of Government Code section 1090. Specifically, the District and GDL had agreed GDL would perform other contracts for less compensation in return for the District awarding the project to GDL. In addition, the District's "officers, employees and/or consultants (including GDL)" had financial and nonfinancial interests in the contract.

Fistes alleged Francisco M. Lopez, Benjamin Lopez, and Jose C. Lopez were, respectively, the president, vice president, and secretary-treasurer of GDL. Fistes alleged as to the Lopezes: "GDL was used by [the Lopezes] to perpetrate fraud (i.e. obtain payment from [the District] on an illegal contract), circumvent a statute (i.e. not comply with the Public Contract Code statutes applicable to school district bidder pre-qualification and contract awards) and/or accomplish some other wrongful or inequitable purpose (i.e. obtain payment from [the District] on an illegal contract), such that justice and equity require the Court to disregard the corporate entity separateness of GDL from [the Lopezes] and treat GDL's acts and liabilities as if they were those of [the Lopezes] since they were the ones actually controlling GDL as its only officers, directors and shareholders and they benefitted most from [the District]'s illegal payments to GDL. For purposes of this action [the Lopezes] are the alter egos of GDL such that their liability should be joint and several with GDL ...." Further, GDL "pass[ed] significant portions of [the] $2,416,470.62 to [the Lopezes] in the form of increased salary, bonuses, distributions, shareholder advances and other forms of compensation, value and/or other benefits that they would not have received but for the monies GDL received from [the District] on the Project."

Fistes sought a judgment declaring the contract between the District and GDL "void, invalid and/or that amounts paid thereunder must be reduced and returned to [the District] as provided in Public Contract Code § 5110." Fistes also sought to establish a constructive trust in favor of the District against GDL and the Lopezes and a judgment ordering GDL and the Lopezes "to repay to [the District] (or Plaintiff on behalf of and...