W. Pac. Elec. Co. v. Dragados/Flatiron, 1:18-cv-00166-NONE-BAM

• Court: United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Eastern District of California
• Writing for the Court: Dale A. Drozd, UNITED STATES DISTRICT JUDGE
• Citation: 534 F.Supp.3d 1209
• Parties: WEST PACIFIC ELECTRIC COMPANY CORPORATION, Plaintiff, v. DRAGADOS/FLATIRON, et al., Defendants.
• Docket Number: No. 1:18-cv-00166-NONE-BAM,1:18-cv-00166-NONE-BAM
• Decision Date: 18 April 2021

534 F.Supp.3d 1209

WEST PACIFIC ELECTRIC COMPANY CORPORATION, Plaintiff,
v.
DRAGADOS/FLATIRON, et al., Defendants.

No. 1:18-cv-00166-NONE-BAM

United States District Court, E.D. California.

Signed April 18, 2021
Filed April 19, 2021

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David Michael Schoenfeld, Lisa Denise Nicolls, Murphy Austin Adams Schoenfeld LLP, Sacramento, CA, for Plaintiff.

David William Smiley, Phillip Randolph Finch, Jr., Marks Finch Thornton & Bird, LLP, San Diego, CA, for Defendants.

ORDER DENYING DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT OR, IN THE ALTERNATIVE FOR PARTIAL SUMMARY JUDGMENT

Dale A. Drozd, UNITED STATES DISTRICT JUDGE

This action arises from a construction dispute over a segment of the California High Speed Rail Project extending from Fresno to Bakersfield, also known as the Construction Package 2-3 or CP 2-3 project. After the California High-Speed Rail

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Authority ("CHSRA")¹ contracted with defendant Dragados/Flatiron, a joint venture, ("DFJV") to design and build the CP 2-3 project, DFJV in turn subcontracted a portion of the project to plaintiff West Pacific Electric Company Corporation ("WPEC"). The parties’ relationship subsequently turned sour. Claiming that it was fraudulently induced into executing the subcontract, WPEC brought this action against DFJV in January 2018 seeking over $1 million in damages. In response, DFJV brought a counterclaim for disgorgement against WPEC seeking to recover $322,278.71 in payments it had made to WPEC. Pending before the court is DFJV's motion for summary judgment in its favor on all of the claims asserted in WPEC's complaint and in DFJV's cross-complaint for disgorgement. (Doc. No. 82-1 at 8.) WPEC filed an opposition to the motion on November 20, 2019, (Doc. No. 86), to which DFJV replied seven days later, (Doc. No. 98).

The motion was taken under submission for decision on the papers pursuant to Local Rule 230(g).² Having considered the parties’ submissions, relevant law, and the evidence submitted to the court on summary judgment, DFJV's motion will be denied in its entirety for the reasons explained below.

BACKGROUND

The following summary of facts is based on undisputed material facts provided in the parties’ joint, additional³ responses to statements of undisputed material facts, as well as genuinely disputed facts drawn therefrom and read in light most reasonably favorable to WPEC for purposes of summary judgment. See Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (on summary judgment, "[t]he evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor.") (citation omitted).⁴

WPEC initiated this action on January 30, 2018, (Doc. No. 1), even though DFJV did not terminate WPEC from the subcontract until mid-March 2018, (Doc. No. 85 (WPEC's Response to DFJV's Statement of Undisputed Material Facts) ¶ 45). WPEC's complaint asserts eleven causes of action under California law based on DFJV's alleged misconduct relating to the subcontract: (1) rescission based on fraud, (2) rescission based on mistake of fact, (3) fraudulent concealment, (4) violation of

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California Business & Professions Code § 17200, et seq. , (5) breach of contract, (6) "reasonable value for labor and materials furnished," (7) open book account, (8) account stated, (9) violation of California Business & Professions Code § 7108.5, (10) "enforcement of payment bond," and (11) "recovery on contractor's license bond." (Doc. No. 1 ¶¶ 2–69.) At its core, WPEC's theory of liability is that DFJV allegedly concealed material information about the difficulties WPEC would encounter in performing the subcontract in a timely manner, and but-for DFJV's fraudulent concealment of that information, WPEC would not have entered into the subcontract. (Id. ¶¶ 24–29, 35.) DFJV denies the allegation and counters with a crossclaim for $322,278.71 in disgorgement of payments made to WPEC under the subcontract. (Doc. Nos. 49; 72 at 8–9; 85 ¶ 44.) DFJV's theory of liability is that WPEC was not a duly licensed subcontractor as required by California law to perform the subcontract work and, as a result, WPEC is obligated to disgorge the payments received. (Doc. No. 85 ¶¶ 6–22.)

A. The Subcontract and WPEC's Fraudulent Concealment Claim

In June 2015, CHSRA entered into a prime contract⁵ with DFJV to design and construct a 60- or 65-mile high-speed rail system connecting Fresno and Bakersfield. (Doc. Nos. 82-3 (Joint Statement of Undisputed Material Facts) ¶ 18; 85 ¶¶ 41, 78.) In August 2016, DFJV published an invitation for bids to solicit potential subcontractors to excavate and install the CP 2-3 project's telecommunications utilities. (Doc. No. 82-3 ¶ 21; see also Doc. No. 82-1, Ex. Q.) WPEC submitted a bid in September 2016, (Doc. No. 82-3 ¶ 24), and was later awarded the subcontract by DFJV,⁶ (Doc. No. 85 ¶ 158). The subcontract was executed on November 14, 2016. (Doc. No. 82-3 ¶ 28.) By its terms, the subcontract incorporates by reference the general provisions of the prime contract.⁷ (Doc. No. 85 ¶ 178; see also Doc. No. 93-2, Ex. J (Subcontract), Attach. C at 68–69 (listing documents that are incorporated by reference).) The five locations along the CP 2-3 project that WPEC was subcontracted to install the telecommunications are: (1) Peach Avenue, (2) Cairo Avenue; (3) 9th Avenue; (4) Clovis Avenue; and (5) Elkhorn Avenue—the composite plans of the locations were also incorporated by reference into the subcontract. (Doc. Nos. 82-3 ¶¶ 1, 21, 26; 85 ¶ 81). The subcontract emphasizes that "[t]ime is of the essence" and requires WPEC to substantially complete work at the five locations by February 28, 2017, specifically consisting of furnishing and installing underground conduit and barrel vaults together with constructing underground infrastructure for the installation of the telecommunications. (Doc. No. 82-3 ¶¶ 1, 21, 29; 92 (WPEC's Statement of Additional Undisputed Material Facts) ¶ 186.) At the same time, the subcontract also provided for the possibility of

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revision and update to the completion deadline. (Doc. No. 85 ¶¶ 80, 159.)

In addition, in a provision that is critical to the parties’ dispute in this case, the prime contract prohibits DFJV from starting construction on the CP 2-3 project unless all the rights of way ("ROWs") necessary for the project have been acquired. (Doc. No. 82-1, Fegan Decl., Ex. A (Prime Contract) ¶ 3.2(d).) CHSRA was responsible for acquiring all the ROWs—either by purchasing them from property owners or through eminent domain proceedings—to the five locations so WPEC could begin its work. (Doc. Nos. 82-3 ¶ 20; 85 ¶ 79.) CHSRA shared the status of the ROW acquisition with DFJV through periodic reports. (Doc. Nos. 82-3 ¶ 25; 85 ¶ 106.) CHSRA had all the ROWs for the Peach Avenue, Cairo Avenue, 9th Avenue, and Clovis Avenue locations, but never acquired the ROWs for the Elkhorn Avenue location. (Doc. No. 85 ¶¶ 82, 87–88.) Notwithstanding the failure to acquire those ROWs, as early as October 2016, CHSRA permitted DFJV to begin work at the Elkhorn Avenue location before all ROWs at that location had been acquired.⁸ (Id. ¶¶ 111–12.) DFJV never informed WPEC about the early work permit granted by CHSRA or that the ROW prerequisite had been waived.⁹ (Doc. Nos. 85 ¶¶ 111–12; 92 ¶ 190.)

Thus, WPEC began its subcontract work under the assumption that all necessary ROWs had been acquired. (Doc. Nos. 85 ¶¶ 82–87; 92 ¶¶ 190–91.) But, as indicated above, CHSRA failed to acquire all the necessary ROWs for the Elkhorn Avenue location; the other locations—Peach Avenue, Cairo Avenue, 9th Avenue, and Clovis Avenue—"were underneath county owned streets that were in existing county right-of-way and were not impacted by ROW delay." (Doc. No. 85 ¶¶ 82, 88) (emphasis added). It is undisputed that WPEC could not start working on parcels of land for which CHSRA had no ROWs, and because there was a delay acquiring ROW related to at least some portions of the Elkhorn Avenue location, WPEC ultimately failed to substantially complete all its work by February 28, 2017 as required by the subcontract. (Id. ¶¶ 82–88, 111–12.) In the end, WPEC substantially completed work on the Peach Avenue location by January 25, 2017, the Cairo Avenue location by February 24, 2017, and the 9th Avenue location by August 1, 2017; but the work on the Clovis Avenue and Elkhorn Avenue locations was not completed at the time DFJV terminated WPEC as a subcontractor in mid-March 2018. (Id. ¶¶ 45, 83–87, 167.)

WPEC's fraudulent concealment claim is premised on DFJV's failure to communicate to WPEC—prior to the execution of the subcontract—that CHSRA had not acquired all the necessary ROWs, even though DFJV had no reasonable belief that WPEC could substantially complete all the work by February 28, 2017 without

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access to all the ROWs. (Doc. No. 92 ¶¶ 190, 192–93.) WPEC maintains that it would not have executed the subcontract had it known of the concealed information and that DFJV knew this to be the case. (Doc. Nos. 85 ¶ 10; 92 ¶¶...