Roy Allan Slurry Seal, Inc. v. Am. Asphalt S., Inc.

• Decision Date: 20 February 2015
• Docket Number: B255558
• Court: California Court of Appeals Court of Appeals
• Parties: ROY ALLAN SLURRY SEAL, INC., et al., Plaintiffs and Appellants. v. AMERICAN ASPHALT SOUTH, INC., Defendant and Respondent,

234 Cal.App.4th 748

184 Cal.Rptr.3d 279

ROY ALLAN SLURRY SEAL, INC., et al., Plaintiffs and Appellants.

v.AMERICAN ASPHALT SOUTH, INC., Defendant and Respondent,

B255558

Court of Appeal, Second District, Division 8, California.

Filed February 20, 2015

See 5 Witkin, Summary of Cal. Law (10th ed. 2005) Torts, § 741 et seq.

APPEAL from a judgment of the Superior Court of Riverside County. Richard J. Oberholzer, Judge. Affirmed in part, reversed in part and remanded with directions. (Riverside County Super. Ct. No. RIC1308832)

Doyle & Schafer, Daniel W. Doyle, Irvine, and David Klehm for Plaintiffs and Appellants.

Atkinson, Andelson, Loya, Ruud & Romo, Scott K. Dauscher, Paul G. Szumiak and Jennifer D. Cantrell, Cerritos, for Defendant and Respondent.

RUBIN, ACTING P.J.

INTRODUCTION

May the second-place bidder on a public works contract state a cause of action for intentional interference with prospective economic advantage against the winning bidder if the winner was only able to obtain lowest bidder status by illegally paying its workers less than the prevailing wage? We hold that the answer is yes if the plaintiff alleges it was the second lowest bidder and therefore would have otherwise been awarded the contract, because that fact gives rise to a relationship with the public agency that made plaintiff's award of the contract reasonably probable.

FACTS AND PROCEDURAL HISTORY

Between 2009 and 2012 American Asphalt South, Inc. (American), outbid either Roy Allan Slurry Seal, Inc. (Allan), or Doug Martin Contracting, Inc. (Martin), on 23 public works contracts totaling more than $14.6 million to apply a slurry seal protective coating to various roadways throughout Los Angeles, San Bernardino, Riverside, Orange, and San Diego Counties.¹

Allan and Martin jointly sued American in those five counties for intentional interference with prospective economic advantage and other torts, alleging that American had only been able to submit the lowest bid by paying its workers less than the statutorily required prevailing wage. (Lab.Code, §§ 1770, 1771 [contractors on public works projects must pay the prevailing wage, as determined by the Department of Industrial Relations].) Allan and Martin alleged that each was the second lowest bidder, as to, respectively,17 and 6 of the contracts and would have been awarded those contracts as the lowest bidder had American's bid included labor costs based on the prevailing wage.² Plaintiffs alleged that each contractor's material costs were effectively the same and that the only substantial difference in their bids came from American's unlawfully deflated labor costs. Plaintiffs also alleged a cause of action for predatory pricing under the Unfair Practices Act ( Bus. & Prof.Code, §§ 17000 et seq., 17043(UPA)) and sought an injunction to enjoin American's bidding practices under the Unfair Competition Law. ( Bus. & Prof.Code, § 17200(UCL).)

American demurred to the complaints, contending that plaintiffs did not have the required existing relationship and reasonable probability of being awarded the contracts that was required to show intentional interference with prospective economic advantage. American also contended that the unfair practices and unfair competition claims were defective on grounds we discuss in detail below.

These demurrers led to conflicting rulings from three trial courts. In July 2013, the Los Angeles Superior Court overruled American's demurrers to the intentional interference with economic advantage and UCL claims, but sustained the demurrer as to the UPA claim with leave to amend. On November 5, 2013, the Riverside Superior Court sustained without leave to amend American's entire demurrer. On November 15, 2013, the San Diego Superior Court overruled American's entire demurrer. Plaintiffs appealed from the Riverside judgment in January 2014, and one week later our Supreme Court ordered all five matters coordinated for trial in Los Angeles Superior Court and for appellate purposes in the Second District Court of Appeal.

Plaintiffs contend that the Riverside trial court erred because their bid submissions created the required economic relationship for the intentional interference with economic advantage tort.

STANDARD OF REVIEW

In reviewing a judgment of dismissal after a demurrer is sustained without leave to amend, we assume the truth of all facts properly pleaded by the plaintiff-appellant. Regardless of the label attached to the cause of action, we examine the complaint's factual allegations to determine whether they state a cause of action on any available legal theory. (Doe v. Doe 1 (2012) 208 Cal.App.4th 1185, 1188, 146 Cal.Rptr.3d 215.) We do not assume the truth of contentions, deductions, or conclusions of law or fact and may disregard allegations that are contrary to the law or to a fact that may be judicially noticed. (Ibid.)

To the extent issues of statutory construction are raised, we apply the rules of statutory construction and exercise our independent judgment. Our first task in construing a statute is to ascertain the Legislature's intent in order to carry out the purpose of the law. If the statutory language is clear and unambiguous, no judicial construction is required. If the statute is ambiguous, the words must be construed in context and in light of the statutory purpose. (Doe v. Doe 1, supra, 208 Cal.App.4th at p. 1189, 146 Cal.Rptr.3d 215.)

DISCUSSION

1. The Tort of Intentional Interference With Prospective Economic Advantage

The tort of intentional interference with prospective economic advantage(intentional interference) provides a remedy to those “who suffer[ ] the loss of an advantageous relationship” due to the actions of “a malicious interloper.” (Zimmerman v. Bank of America (1961) 191 Cal.App.2d 55, 57, 12 Cal.Rptr. 319.) “[T]he mere fact that a prospective economic relationship has not attained the dignity of a legally enforceable agreement does not permit third parties to interfere with performance.” (Buckaloo v. Johnson (1975) 14 Cal.3d 815, 827, 122 Cal.Rptr. 745, 537 P.2d 865 (Buckaloo ), disapproved on other grounds in Della Penna v. Toyota Motor Sales, U.S.A., Inc. (1995) 11 Cal.4th 376, 393, fn. 5, 45 Cal.Rptr.2d 436, 902 P.2d 740.) The tort is considerably more inclusive than actions for interference with contract, and therefore does not depend on the existence of a valid contract. (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1157, 131 Cal.Rptr.2d 29, 63 P.3d 937 (Korea Supply ).)

In order to state a cause of action for this tort, a plaintiff must allege five elements. First, the existence of an economic relationship with some third party that makes it reasonably probable the plaintiff will gain some future economic benefit. This protects the expectation that the relationship will eventually produce the desired benefit, not the speculative expectation that a potentially beneficial relationship will arise. (Korea Supply, supra, 29 Cal.4th at p. 1164, 131 Cal.Rptr.2d 29, 63 P.3d 937.)

Second, the defendant must have knowledge of the plaintiff's economic relationship. (Korea Supply, supra, 29 Cal.4th at p. 1164, 131 Cal.Rptr.2d 29, 63 P.3d 937.)

Third, the defendant must have engaged in wrongful acts designed to disrupt the plaintiff's relationship. This requires allegations that the defendant engaged in an independently unlawful act separate and apart from the acts of interference and that the defendant either intended to interfere or acted with the knowledge that interference was certain or substantially certain to occur. (Korea Supply, supra, 29 Cal.4th at pp. 1164–1165, 131 Cal.Rptr.2d 29, 63 P.3d 937.) This does not require that the plaintiff have been identified by name, however, and it is enough that the defendant was aware its actions would frustrate the legitimate expectations of a specific, albeit unnamed, party. (Ramona Manor Convalescent Hospital v. Care Enterprises (1986) 177 Cal.App.3d 1120, 1132–1133, 225 Cal.Rptr. 120.)

Fourth, plaintiffs' economic relationship was actually disrupted. (Korea Supply, supra, 29 Cal.4th at p. 1165, 131 Cal.Rptr.2d 29, 63 P.3d 937.)

Fifth, plaintiffs suffered economic harm that was proximately caused by defendant's interference. (Korea Supply, supra, 29 Cal.4th at p. 1165, 131 Cal.Rptr.2d 29, 63 P.3d 937.)

2. Plaintiffs, as the Lawful And Second Lowest Bidders, Had a Reasonably Probable Economic Expectancy that They Would be Awarded the Contracts

The competitive bidding laws for public works contracts are designed to protect the public, not bidders. (See Konica Business Machines U.S.A., Inc. v. Regents of University of California (1988) 206 Cal.App.3d 449, 456, 253 Cal.Rptr. 591; Universal By–Products, Inc. v. City of Modesto (1974) 43 Cal.App.3d 145, 152, 117 Cal.Rptr. 525.) Therefore while public agencies are generally expected to accept the bid of the lowest responsible bidder, they still have discretion to reject all bids or accept one of multiple bids that have tied as the lowest.³ (Pub. Contract Code, §§ 10122, subd. (d), 20166, 22038, subd. (b).)

Based on appellate decisions applying this principle in various contexts, which we discuss post, American contends that losing bidders are barred from suing their successful competitors for intentional interference because there was no existing relationship with which to interfere and no reasonable probability that any contract would ever have been awarded.

No reported California decision has reached this issue. We turn for guidance to two decisions of the California Supreme Court: Korea Supply, supra, 29 Cal.4th 1134, 131 Cal.Rptr.2d 29, 63 P.3d 937, and Buckaloo, supra, 14 Cal.3d 815, 122 Cal.Rptr. 745, 537 P.2d 865. The Buckaloo court, which first articulated the elements of the intentional interference tort, noted that the tort could be established by showing interference with a contract “which is certain to be consummated.” (Buckaloo, at p. 823, fn. 6, 122 Cal.Rptr. 745, 537 P.2d 865, citing ...