Morillo Constr. v. L. A. Cmty. Coll. Dist.
| Decision Date | 18 May 2022 |
| Docket Number | B313361 |
| Parties | MORILLO CONSTRUCTION, INC., Plaintiff and Respondent, v. LOS ANGELES COMMUNITY COLLEGE DISTRICT, Defendant and Appellant. |
| Court | California Court of Appeals Court of Appeals |
MORILLO CONSTRUCTION, INC., Plaintiff and Respondent,
v.
LOS ANGELES COMMUNITY COLLEGE DISTRICT, Defendant and Appellant.
B313361
California Court of Appeals, Second District, Second Division
May 18, 2022
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County No. 20STCV01263, Michael L. Stern, Judge. Reversed and remanded.
Musick, Peeler & Garrett, Cheryl A. Orr, Richard S. Conn and Peter J. Diedrich for Defendant and Appellant.
Richards, Watson & Gershon, Saskia T. Asamura and T. Peter Pierce for Plaintiff and Respondent.
CHAVEZ, J.
Appellant Los Angeles Community College District (LACCD) appeals from a judgment entered after the trial court granted summary judgment in favor of Morillo Construction, Inc. (Morillo), on Morillo's claims against LACCD for contractual indemnity, breach of contract, and declaratory relief. We find that the indemnity provision in the contract at issue-a settlement agreement between the parties-does not encompass the qui tam lawsuit filed against Morillo by third party Newt Kellam under the California False Claims Act, Government Code section 12650 et seq. (CFCA). The trial court erred as a matter of law in interpreting the settlement agreement to create a duty on the part of LACCD to defend Morillo against the qui tam lawsuit.
We reverse the judgment and remand for entry of judgment in favor of LACCD on Morillo's complaint.
FACTUAL BACKGROUND
The project and Sigma case
LACCD is a California public agency, which operates nine community colleges throughout Los Angeles County. In 2007, Morillo entered into a contract with LACCD to serve as the general contractor on a project at East Los Angeles College (project). Morillo subsequently entered into subcontracts with various subcontractors, including McKinney Drywall, Inc. (McKinney). Morillo began work on the project in 2008.
On April 15, 2009, before the project was complete, LACCD terminated the contract for convenience. As a result, several subcontractors, including McKinney, sued Morillo for damages arising from the project's termination. The cases were consolidated, and the consolidated cases became known as the "Sigma case." Morillo cross-complained against LACCD and
others in the Sigma case. Morillo alleged claims for defamation and intentional interference with prospective economic advantage against LACCD.
LACCD and Morillo commenced arbitration. The arbitration led to competing petitions to confirm and vacate the arbitration award, resulting in an order remanding the matter to the arbitrator. Eventually, LACCD and Morillo entered into a settlement agreement (settlement agreement or agreement).
The settlement agreement
LACCD and Morillo are the only parties to the settlement agreement. The agreement, effective January 6, 2014, resulted in a $3.4 million payment from LACCD to Morillo in exchange for dismissal of Morillo's cross-complaint in the Sigma case and dismissal of the litigation arising out of the arbitration.
Paragraph 5 of the settlement agreement provided, in part:
"The Parties mutually, fully, finally and forever release, waive, discharge and exonerate each other and their respective principals, owners, partners, attorneys, guarantors, subsidiaries, successors, indemnitors, predecessors, affiliates, assigns, officers, directors, employees, agents, architects, inspectors, program managers, project managers, completion and follow on contractors, subcontractors, insurance companies, reinsurance companies, and surety companies, from any and all existing or past claims, obligations, costs, fees, expenses, damages, compensation, liens, promises, demands, rights, actions, causes of action, litigation and/or liability, of any kind whatsoever, whether known or unknown, relating to the Project and/or the Dispute."
Paragraph 7 provided:
"With respect to matters within the scope of the Dispute, the Parties mutually waive their respective
rights under the provisions of Section 1542 of the California Civil Code, which reads as follows:
"'A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.'
"In so agreeing, the Parties declare that they understand the full nature, extent and import of their waiver of their rights under Section 1542 of the California Civil Code and have been so advised by their attorneys."
Paragraph 8 provided:
"In the event that either Party institutes an action against any other person or entity ('Released Party') on a claim that is released by that Party pursuant to Section 5 of this Agreement, such instituting Party shall indemnify, hold harmless and defend the other Party of and from any claim, action or demand for indemnification or contribution made or brought by such Released Party, including for all damages, costs, expenses and attorney's fees incurred by the other Party."
Paragraph 9 provided:
"Each Party shall defend and indemnify the other Party against any and all claims, obligations, costs, fees, expenses, damages, compensation, promises, demands, rights, actions, causes of action, litigation and/or liability, of any kind whatsoever, relating to, resulting from or arising out of a breach of a warranty, representation or promise contained in this Agreement."
Subsequent developments in the Sigma case
After the settlement agreement was finalized between LACCD and Morillo, LACCD was dismissed from the Sigma case. The claims between the subcontractors and Morillo continued to be litigated. Subcontractor McKinney was represented by Attorney Newt Kellam.
In May 2015, counsel for Morillo submitted a request to the Contractors State Licensing Board for a certified license history for McKinney. Upon review of the licensing history, Morillo discovered that McKinney had multiple license suspensions, with two such suspensions during the time that McKinney worked on the project. Morillo brought a motion to bifurcate the trial of McKinney's claims, in order to first determine whether McKinney was unlicensed and therefore ineligible to pursue claims against Morillo. On June 15, 2016, the Sigma case trial court entered judgment in favor of Morillo against McKinney because McKinney had not been adequately licensed during the time it performed work on the project. Morillo obtained a judgment against McKinney for more than $1.6 million, representing a refund of the money it paid McKinney under the subcontract for McKinney's work on the project. McKinney failed to pay Morillo any part of the judgment.
The qui tam lawsuit
On August 13, 2018, McKinney's former attorney, Kellam, filed the qui tam lawsuit in propria persona, acting as a relator under the CFCA on behalf of LACCD. The action, captioned Los Angeles Community College District ex rel. Newt Kellam v. Morillo Construction, Inc., et al. (Super. Ct. L.A. County, No. BC717712) (the qui tam lawsuit), alleged 40 violations of the
CFCA against Morillo. As provided in the CFCA, the complaint in the qui tam lawsuit was filed under seal.
The qui tam lawsuit alleged, inter alia, that Morillo's submission of payment applications to LACCD for work on the project by Morillo constituted false claims under the CFCA because Morillo certified in each of those applications that all subcontractors' state licenses were current and valid, without having taken steps to ensure that was true. Kellam alleged that Morillo had obtained a nearly $3 million windfall from its false statements to LACCD.[1] LACCD had no knowledge of the action before it was filed.
LACCD received notice of the qui tam lawsuit on August 27, 2018, and received a copy on or about October 3, 2018.
Pursuant to the CFCA, LACCD was required to notify the court of its intention to intervene in the qui tam lawsuit or not. On October 12, 2018, LACCD filed a notice of election to decline intervention in the qui tam lawsuit. LACCD objected to Kellam's position as qui tam plaintiff due to a conflict of interest, as Kellam was simultaneously representing a contractor in a different matter against LACCD. Later, another attorney, Erik McLain, was substituted as counsel in the qui tam lawsuit.
Morillo was served with the summons and complaint in the qui tam lawsuit on January 15, 2019. On the same day Morillo tendered to LACCD the defense and indemnity of the qui tam lawsuit, taking the position that defense and indemnity were required by the terms of the settlement agreement. LACCD
interpreted the settlement agreement and applicable law as not requiring it to defend and indemnify Morillo in the qui tam lawsuit, and therefore rejected Morillo's tender.
PROCEDURAL HISTORY
On January 9, 2020, Morillo filed its complaint in this matter against LACCD, alleging three causes of action: (1) contractual indemnity, (2) breach of contract, and (3) declaratory relief. Morillo took the position that the qui tam lawsuit was an action by LACCD. Morillo alleged that "Kellam, as qui tam plaintiff, brought or instituted the CFCA lawsuit on behalf of LACCD as LACCD's de facto agent, standing in LACCD's shoes." Morillo asserted that LACCD breached the settlement agreement when the qui tam lawsuit was filed on its behalf and through its refusal to intervene and attempt to have the matter dismissed. Morillo's claim for declaratory relief sought a declaration that LACCD had a duty to indemnify and defend Morillo from the qui tam lawsuit.
LACCD denied the allegations of the complaint. The parties filed competing motions for summary judgment on June 1, 2020.
On March 1, 2021, the two motions for summary judgment were heard in the trial court. A minute order issued granting Morillo's motion for summary judgment and denying LACCD's motion for summary judgment. The court later...
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