StarBuilding Systems v. G.W. Davis, Inc.

Filed 6/27/08 Star Building Systems v. G.W. Davis, Inc. CA6

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SIXTH APPELLATE DISTRICT

In an action arising from a county construction project, defendant G.W. Davis, Inc. (Davis) moved for sanctions under Code of Civil Procedure section 128.7 against plaintiff Star Building Systems (Star) for filing a meritless claim against Davis. The court denied the motion and directed Davis to pay the attorney fees Star had incurred in opposing the motion. Davis appeals, contending that this was an unauthorized sanction. We disagree and affirm the order.

Background

Davis, a general contractor, was hired by Santa Clara County for a public works project, the construction of hangars at the South County Airport in San Martin. A.M. Star Construction, Inc. (AMS), a subcontractor on the project, was to furnish and erect the hangars, using pre-manufactured steel buildings and other materials that were supplied by plaintiff Star. As the project progressed, Davis received funds from the County and issued one check to AMS and two subsequent checks payable jointly to AMS and Star. Standard practice in the construction industry called for joint payment to a subcontractor and its supplier. The joint checks were delivered to AMS, notwithstanding AMS's authorization to Davis to pay the vendors directly.

One of the joint checks destined for Star was written in the amount of $347,061. AMS, however, unilaterally endorsed the check and deposited the entire amount into its bank account. In early September of 2004 Star agreed to accept $145,610.10 and released its interest in the remaining funds. Shortly thereafter Davis issued another joint check for $109,231, but this time its president, Mark Corley, hand-delivered the check to Star after obtaining a signature from an AMS representative. Corley also obtained a release which acknowledged payment to Star for services and supplies furnished through July 31, 2004.

In November 2004, however, Star filed a Stop Notice with the County, claiming $323,820.97 due on Star's contract with AMS. The County then withheld that amount, plus an additional 25 percent ($80,955.24). Davis demanded a release of the funds and then brought an action under Civil Code section 3201 for a declaration of rights. Star maintained that the date on the waiver was erroneous; it had subsequently rescinded the lien release and replaced it with a release with the correct date. The superior court ruled that Star's unconditional release was valid notwithstanding Star's assertion that it had rescinded the release. Star's remedy, the court explained, was to bring an action against AMS for failure to pay. Accordingly, the court ordered the County to release the funds to Davis.[1] The County did so in May 2005.

In December 2005 Star brought the present action against AMS and Davis. The only claim against Davis was the fifth cause of action for restitution, unjust enrichment, and constructive trust. The trial court sustained Davis's demurrer to the fifth cause of action with leave to amend, as Star had not pleaded that Davis knew that the issuance of lien releases was a mistake; consequently, the fifth cause of action did not "state facts supporting a claim that the receipt of the alleged benefit was an 'unjust' enrichment."

In the first amended complaint, filed in April 2006, Star alleged that Davis "knew or by the exercise of reasonable diligence should have known that Star had not been paid in full for its materials and in an amount which was material and significant." In addition to its request for damages from AMS, Star sought a constructive trust to cover the payments Davis had received from the County for Star's building materials in the project.

Davis took the position that it had not benefited from the release Star had signed; indeed, Davis argued, it was "absurd" that a sophisticated supplier like Star would believe that AMS had returned the balance of the $347,061 to Davis or that the County would pay Davis twice for the steel. According to Davis, Star knew that it had no evidence of an underlying breach of contract or other duty which would be necessary to prove unjust enrichment. Davis believed that it was named in the lawsuit only as a deep pocket because Star knew it would never recover the fraudulently withheld funds from AMS.

Based on Davis's view that Star's complaint was unsupported by law or evidence, Davis filed a motion for sanctions under Code of Civil Procedure section 128.7. Davis asked the court to strike the fifth cause of action and award the reasonable costs and attorney fees it had incurred "in defending this groundless claim."

The trial court denied Davis's motion on the ground that Davis had "failed to satisfy the requirements of Code of Civil Procedure section 128.7 for sanctions against Star or its counsel." As Star was the prevailing party on the motion, the court awarded $9,750 in expenses and attorney fees for Star's opposition.

Discussion

Under Code of Civil Procedure section 128.7, subdivision (b),[2]an attorney or unrepresented party who files a pleading implicitly certifies that the document is not being presented for an improper purpose; the legal contentions are warranted by law or nonfrivolous argument for extending, modifying or reversing existing law; and the allegations and factual contentions are supported by the evidentiary record or likely to be so after a reasonable opportunity to further investigate.[3] If the court determines that counsel or the unrepresented party violated subdivision (b), then it may, under subdivision (c), impose a sanction against the responsible person or law firm after notice and an opportunity to be heard.[4]

In denying the sanctions motion in this case, the trial court's order stated simply that Davis had failed to satisfy the requirements of section 128.7. Davis contends, however, that the court refused to consider the merits of the motion and then sanctioned Davis "for counsel's temerity in bringing a sanctions motion before filing a motion for summary judgment." With that premise, Davis maintains that it should not have been sanctioned without receiving safe harbor or adequate notice as the statute requires. As to the merits, Davis argues that the trial court erred in "admonish[ing]" it for bringing a sanctions motion prematurely, because "one must bring a sanctions motion before a motion for summary judgment or trial." Davis's counsel refers to his own experience in pointing out that sanctions can be effective to discourage offensive and frivolous pleading.

Addressing the premise of Davis's position first, we find insufficient support for its assertion that the imposition of attorney fees constituted a sanctions order rather than an award to the prevailing party on the motion. The court did query whether the motion was premature, and it discussed with counsel the advisability of seeking sanctions after a motion for summary judgment.[5] But the court's emphasis appears to have been not on any procedural bar, but on the lack of justification for sanctions at this stage of the proceedings. The court pointed out that the first demurrer had been sustained based on an easily remedied defectby amending the complaint to allege the necessary knowledge that would support unjust enrichment. In light of Davis's position that there was no evidence supporting the claim, the court apparently concluded that the factual issue of knowledge should be resolved by summary judgment or trial, not by a motion for sanctions. Counsel agreed that a motion after summary judgment would be appropriate. The court expressly declined to decide whether unjust enrichment had occurred; it would instead focus exclusively on whether Davis had satisfied the requirements of section 128.7.

In both its oral statement and its written order, the court concluded that Davis had failed to satisfy those requirements. This result reflected the court's finding that at this stage of the proceedings, justification for sanctions had not been shown. The order did not indicate in any way that the court was punishing Davis for bringing the motion in the first place. Indeed, in response to counsel's suggestion that the court was "indicating that this motion wasn't brought in good faith," the court rejected any such inference: "What I am indicating I will be happy to indicate it right now is that you did not satisfy the requirements of Code of Civil Procedure Section 128.7. And as you know, that same statute indicates that if warranted, the Court may order attorney's fees to the prevailing party. [] I don't think I said anything about any faith." (Italics added.) As the court's order was not in the nature of a sanction, the prerequisites of notice and safe harbor were inapplicable.

If the order denying sanctions is not a sanction in itself, then a question is raised as to whether it is appealable. Star does not dispute the appealability of the order, and we agree that we may address the merits as an appeal from "an interlocutory order collateral to the main issue, dispositive of the rights of the parties in relation to the collateral matter, and directing payment of money . . . ." (In re Marriage of Skelley (1976) 18 Cal.3d 365, 368.)

The next question is whether attorney fees were warranted on the merits. Subdivision (c) of section 128.7 authorizes an award of attorney fees and expenses, "[i]f warranted," to the party who prevails on a sanctions motion. Counsel for Davis acknowledged that such fee awards were "completely discretionary." On appeal, Davis further recognizes that an award of attorney fees may be reversed only for abuse of discretion. (Guillemin v. Stein (2002) 104 Cal.App.4th 156, 167; Day v. Collingwood (2006) 144 Cal.App.4th 1116, 1130.)

Davis has not met its burden to show such abuse, even if we disregard its reliance on the factual assumption that the order was a sanction. The trial court could have granted the motion if it had found that the filing of Star's first amended complaint was frivolous, unwarranted under existing law, or brought for an improper purpose such as harassment or delay or an increase in the cost of litigation. ( 128.7, subd. (b).) In denying the motion, the court stated that Davis had not demonstrated that the pleading was frivolous, as Davis had asserted. The viability of the fifth cause of action being largely dependent on the underlying facts, the court did not exceed the bounds of reason in declining to engage in the parties' debate over the sufficiency of evidence supporting unjust enrichment and the request for restitution. Reversal is not required.

Disposition

The order is affirmed.

_____________________________

ELIA, J.

WE CONCUR:

_____________________________

RUSHING, P.J.

_____________________________

PREMO, J.

Publication courtesy of California free legal advice.

Analysis and review provided by Carlsbad Property line Lawyers.

San Diego Case Information provided by www.fearnotlaw.com

[1]This court denied Star's petition for a writ of certiorari or mandate.

[2] All further statutory references are to Code of Civil Procedure section 128.7.

[3]Section 128.7 provides, in pertinent part: "(b) By presenting to the court . . . a pleading, petition, written notice of motion, or other similar paper, an attorney or unrepresented party is certifying that to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances, all of the following conditions are met: [] (1) It is not being presented primarily for an improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation. [] (2) The claims, defenses, and other legal contentions therein are warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law. [] (3) The allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery . . . "

[4]Subdivision (c) provides for sanctions as follows: "If, after notice and a reasonable opportunity to respond, the court determines that subdivision (b) has been violated, the court may, subject to the conditions stated below, impose an appropriate sanction upon the attorneys, law firms, or parties that have violated subdivision (b) or are responsible for the violation. In determining what sanctions, if any, should be ordered, the court shall consider whether a party seeking sanctions has exercised due diligence."

[5] The court and Davis's counsel engaged in the following colloquy: "THE COURT: Well, why not file a summary judgment or a summary adjudication motion? [] MR. REDENBACHER [Davis's counsel]: Well, you can. And that's certainly what would follow this, if the sanctions motion didn't work. [] It's a little bit different in this case-- [] THE COURT: Don't you think this motion is premature? I mean, procedurally there was a demurrer filed and sustained and ordered by Judge Elfving, I believe, where he indicated in his written order that the demurrer problem could be satisfied with language alleging both unjust and enrichment. [] And so the first thing that struck me about your motion is this is the type of motion that I would expect to be brought after summary judgment/adjudication motion or perhaps after trial. [] MR. REDENBACHER: Actually that's not a bad idea, in retrospect. [] THE COURT: Thank you. [] MR. REDENBACHER: Maybe what should be done, is to bring a motion for summary judgment, and then refile the sanctions motion. You know, wait for the result of the motion for summary judgment."