Synergy Project Management, Inc. v. City and County of San Francisco et al, No. 3:2017cv06763 - Document 58 (N.D. Cal. 2018)

Court Description: ORDER GRANTING MOTION TO DISMISS by Judge Jon S. Tigar granting 51 Motion to Dismiss. Amended Pleadings due by 1/22/2019. (wsn, COURT STAFF) (Filed on 12/31/2018)
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Synergy Project Management, Inc. v. City and County of San Francisco et al Doc. 58 1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 SYNERGY PROJECT MANAGEMENT, INC., 7 8 Plaintiff, 9 v. ORDER GRANTING MOTION TO DISMISS Re: ECF No. 51 10 CITY AND COUNTY OF SAN FRANCISCO, et al., 11 United States District Court Northern District of California Case No. 17-cv-06763-JST Defendants. 12 13 Before the Court is Defendants City and County of San Francisco, San Francisco Public 14 15 Utilities Commission, San Francisco Municipal Transportation Agency, San Francisco 16 Department of Public Works, London Breed, and Mohammed Nuru’s (collectively, “the City”) 17 motion to dismiss portions of Plaintiff Synergy Project Management, Inc. (“Synergy”)’s second 18 amended complaint (“SAC”). ECF No. 51. The Court will grant the motion. 19 I. BACKGROUND The facts are discussed in greater detail in the Court’s order granting in part and denying in 20 21 part the City’s motion to dismiss Synergy’s first amended complaint, ECF No. 49, and are 22 summarized briefly here.1 On February 10, 2015, the City and contractor Ghilotti Brothers, Inc. (“Ghilotti”) entered 23 24 into a contract to replace the sewer line, install new water lines, and renovate the pavement on 25 Haight and Hayes Streets (the “Haight Street Project”). SAC ¶ 26. Synergy was selected as a 26 subcontractor on the project: Ghilotti and the City entered into a prime contract, and Synergy and 27 28 1 The Court takes the facts as true from the SAC, ECF No. 50. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). United States District Court Northern District of California 1 Ghilotti entered into a subcontract. Id. ¶¶ 26-27. 2 The Synergy-Ghilotti contract explicitly incorporated the terms of Ghilotti’s contract with 3 the City. Id. ¶ 134. The City-Ghilotti contract, in turn, “expressly precluded the establishment of 4 any contractual or quasicontractual relationship between the City and Synergy.” Id. ¶ 34, Exh. E. 5 Section 102(B) of the City-Ghilotti contract states: “Nothing in the [City-Ghilotti contract] shall 6 be construed to create a contractual relationship between the City and a Subcontractor . . . or a 7 person or entity other than the City and the Contractor.” SAC, Exh. E, Exhibit E., sect. 1.02(B), p. 8 1929 (ECF No. 50-2 at 10). The terms of the City-Ghilotti contract imposed certain obligations on 9 the City, including making available “survey information, such as monuments, property lines, and 10 reports describing physical characteristics, legal limitations and utility locations,” and “apply[ing] 11 and pay[ing] for the building permit if required for the Work and . . . pay[ing] all permanent utility 12 service connection fees.” ECF No. 25-1 at 12. The project “was a particularly difficult one, due to many unknown subsurface structures 13 14 not disclosed to Synergy in the plans provided to it by the City.” SAC ¶¶ 41. During the course of 15 the project, Synergy damaged five PG&E gas lines. Id. ¶ 43. “The damaged gas lines drew 16 significant public attention, and criticism from neighborhood residents and businesses disrupted 17 by the corrective measures necessitated by the damaged gas lines.” Id. ¶ 45. The City concluded 18 that Synergy was responsible for the gas line damage, and instructed Ghilotti to terminate 19 Synergy. Id. ¶¶ 47-49. In addition to its claims regarding the Haight Street Project, Synergy also complains that 20 21 the City blocked its proposal to serve as a subcontractor under a different prime contractor, Walsh 22 Contruction Company II, “in the Core Work on the San Francisco Municipal Transportation 23 Agency (‘SFMTA’) Van Ness Corridor Improvement Project (the ‘Van Ness Project’), an 24 extensive renovation project for a major San Francisco north/south arterial commissioned by 25 SFMTA in conjunction with SFPUC.” Id. ¶ 79. Synergy claims the City removed claimed 26 Synergy from the Van Ness project on the pretext that its bid was too high, when in fact its bid 27 was lower than Walsh’s internal estimate and the estimate of the City’s own consultant. Id. ¶¶ 83- 28 86. 2 On November 24, 2017, Synergy filed a complaint in this Court, ECF No. 1, portions of 1 2 which the City moved to dismiss on December 1, 2017. ECF No. 8. On May 16, 2018, the Court 3 granted the motion in part and denied it in part. ECF No. 49. The Court dismissed without 4 prejudice Synergy’s claims for intentional interference with contractual relations, intentional 5 interference with prospective economic advantage, and negligent interference with prospective 6 economic advantage because Defendants were not “strangers” to the Synergy/Ghilotti contract. 7 The Court dismissed the same three claims without prejudice as to the Van Ness Project for failure 8 to comply with the Government Tort Claims Act. The Court also dismissed without prejudice 9 Synergy’s fourth cause of action for violation of Section 1983 on due process grounds. The Court 10 denied the motion to dismiss in all other respects. On June 5, 2018, Synergy filed its SAC. ECF No. 50. The City now moves to dismiss United States District Court Northern District of California 11 12 Synergy’s first, second, third, fourth, and fifth claims for intentional interference with contractual 13 relations, intentional interference with prospective economic advantage, negligent interference 14 with prospective economic advantage, breach of contract, and breach of the covenant of good faith 15 and fair dealing. ECF No. 51. 16 II. JURISDICTION The Court has jurisdiction over Synergy’s § 1983 claims under 28 U.S.C. § 1331. The 17 18 Court exercises supplemental jurisdiction over Synergy’s related state-law claims pursuant to 28 19 U.S.C. § 1367(a). 20 III. 21 LEGAL STANDARD To survive a Rule 12(b)(6) motion to dismiss, a complaint must contain sufficient factual 22 matter that, when accepted as true, states a claim that is plausible on its face. Ashcroft v. Iqbal, 23 556 U.S. 662, 678 (2009). “A claim has facial plausibility when the plaintiff pleads factual 24 content that allows the court to draw the reasonable inference that the defendant is liable for the 25 misconduct alleged.” Id. While this standard is not a probability requirement, “[w]here a 26 complaint pleads facts that are merely consistent with a defendant’s liability, it stops short of the 27 line between possibility and plausibility of entitlement to relief.” Id. (internal citation omitted). In 28 determining whether a plaintiff has met this plausibility standard, a court must accept all factual 3 1 allegations in the complaint as true and construe the pleadings in the light most favorable to the 2 plaintiff. Knievel v. ESPN, 393 F.3d 1068, 1072 (9th Cir. 2005). 3 IV. 4 A. 5 Synergy alleges that the City intentionally interfered with contractual relations, SAC ¶¶ 95- Tortious Interference Claims 6 109, intentionally interfered with prospective economic advantage, id. ¶¶ 111-22, and negligently 7 interfered with prospective economic advantage, id. ¶¶ 124-32. The Court dismisses these claims 8 for the same reason it dismissed them in its prior order – the City is not a stranger to the contracts. 9 ECF No. 49 at 9. 10 United States District Court Northern District of California DISCUSSION Synergy argues that the City is a stranger to the subcontract because the City-Ghilotti 11 contract, which was incorporated by reference into the Synergy-Ghilotti contract, precludes any 12 contractual relationship between Synergy and the City. ECF No. 55 at 8 (citing ECF No. 50-2 13 § 1.02(B) (providing that nothing in the prime contract “shall be construed to create a contractual 14 relationship between the City and a Subcontractor”)). This provision does not change the result, 15 because the test for whether an entity is a “stranger” to a contract is not whether it is a party to that 16 contract. Rather, the relevant question is whether the City was an “interested party whose 17 performance was . . . required under the” Synergy-Ghilotti contract, Maritz Inc. v. Carlson Mktg. 18 Grp., Inc., No. C 07-05585 JSW, 2009 WL 3561521, at *4 (N.D. Cal. Oct. 30, 2009) (citing PM 19 Grp., Inc. v. Stewart, 154 Cal. App. 4th 55, 57-58 (2007), or whether that contract “contemplated” 20 the City’s performance. Hamilton San Diego Apartments v. RBC Capital Markets Corp., No. 21 312CV2259JMBLM, 2013 WL 12090313, at *3 (S.D. Cal. Mar. 5, 2013). For the reasons 22 explained in the Court’s earlier order, the City meets this test and is therefore not a stranger to the 23 Synergy-Ghilotti contract. ECF No. 49. Although the prime contract clarifies that the City has no 24 contract with Synergy, it also describes the City’s performance in Synergy’s subcontract. See 25 ECF No. 25-1 § 2.02 (providing the City would make available survey information and pay for the 26 building permit); ECF No. 56 at 4 (“[I]f San Francisco had not performed its contractual duty to 27 pay its prime contractor Ghilotti, Ghilotti could not in turn have performed its duty to pay its 28 subcontractor Synergy.”); see also c.f., ECF No. 50-2 § 4.04(c) (providing the subcontractor must 4 1 prosecute work “in a manner satisfactory to the City” or face removal at the written request of the 2 City). Synergy argues that granting the City’s motion to dismiss would be unfair because “[t]o United States District Court Northern District of California 3 4 shield parties with an economic interest in the contract from potential liability would create an 5 undesirable lacuna in the law between the respective domains of tort and contract.” ECF No. 55 at 6 6, 11, 17, 20, 22 (citing United Nat. Maint., Inc. v. San Diego Convention Ctr., Inc., 766 F.3d 7 1002, 1007 (9th Cir. 2014)). This argument is unpersuasive. First, as the foregoing discussion 8 makes clear, and whether it seems fair or not, the California courts do shield parties with an 9 economic interest in a contract from liability in at least some instances, as the Ninth Circuit has 10 acknowledged. See United Nat. Maint., 766 F.3d at 1008. Second, Synergy is not without a 11 remedy. Synergy may pursue a claim against Ghilotti directly, ECF No. 50-1 at 114 (describing 12 the claims and dispute resolution procedures Synergy has against Ghilotti), or submit a claim 13 against the City through Ghilotti, ECF No. 25-1 at 47 (similar). Lastly, Synergy – a large, 14 sophisticated business with long prior experience doing work for the City – chose to enter a 15 contract whose terms precluded the claims it now seeks to bring. If it thought those terms were 16 unfair, it could have either bargained for better terms or rejected the contract.2 See Cont'l Heller 17 Corp. v. Amtech Mech. Servs., Inc., 53 Cal. App. 4th 500, 507 (1997) (stating that “two large, 18 sophisticated construction enterprises . . . could be expected to review, understand and bargain 19 over their” contract). It did neither. Finally, Synergy argues that the City fails to point to any provision requiring the City’s 20 21 performance in the Van Ness Project. ECF No. 55 at 18. As the Court held in its prior order, 22 “[f]or both the Haight Street Project and the Van Ness Project, the primary contract was between 23 the City and a general contractor, and that general contractor in turn entered or sought to enter a 24 subcontract with Synergy. Each of the subcontracts envisioned San Francisco’s performance as 25 26 27 “The sophisticated business entity is more likely . . . to be able to bargain effectively for balanced terms.” Harry G. Prince, Unconscionability in California: A Need for Restraint and Consistency, 46 Hastings L.J. 459, 481 (1995). 2 28 5 United States District Court Northern District of California 1 the owner of the contract.” ECF No. 49 at 9. The allegations and exhibits demonstrate that any 2 subcontract Synergy would have formed with Walsh for the Van Ness Project would have 3 provided for the City’s performance. See, e.g., SAC ¶ 79 (explaining that the project included 4 renovating the City’s public transportation); ECF No. 50-1 at 67 (proposing a personnel chart with 5 two City officials as the head project managers); id. at 80-82 (describing the specific steps the City 6 would perform on the prime contract, such as developing budgets and cost estimates, and 7 relocating bus stops).3 Synergy cites cases which hold that a subcontractor cannot sue the owner 8 on a prime contract for breach of contract, ECF No. 55 at 18, but since Synergy’s cause of action 9 lies in tort, these cases are unhelpful. 10 B. Contract Claims 11 Synergy alleges that the City breached its contract when it terminated Synergy in violation 12 of Section 4107 of the Public Contract Code. SAC ¶¶ 135-38. Similarly, Synergy alleges that the 13 City breached the covenant of good faith and fair dealing when it interfered with its rights to 14 receive the benefit of the subcontract. Id. ¶¶ 140-43. Although there was no formal contract 15 between Synergy and the City, Synergy alleges it formed a contractual relationship with the City 16 when it “was accepted as a Subcontractor” because its subcontract with Ghilotti “incorporates all 17 of the terms of the contract between” Ghilotti and the City. Id. ¶¶ 34-35. As previously noted, one of the terms in Ghilotti’s contract with the City provides that 18 19 “[n]othing in the [contract] shall be construed to create a contractual relationship between the City 20 and a Subcontractor.” Id. ¶ 34 (quoting ECF No. 50-2 § 1.02(B)). This term, which was imported 21 into Synergy’s contract with Ghilotti, ends the discussion. Synergy’s contract claims fail because 22 the written instrument itself “expressly disavows” the contractual relationship that Synergy alleges 23 exists. See Johnson v. Fed. Home Loan Mortg. Corp., 793 F.3d 1005, 1007 (9th Cir. 2015) 24 (disregarding an allegation that was a “legal conclusion, not a fact, and was belied” by the written 25 contract).4 Synergy’s argument that it may plead in the alternative, ECF No. 55 at 19, does not 26 27 28 Additionally, Walsh’s prime contract with the City would have incorporated the same general conditions which governed the Haight Street Project. See sites/default/files/007200-General-Conditions-SFPW-08-2015.pdf 4 Synergy argues that because the City is not a stranger to the contract, it must be a party. ECF 6 3 1 save these claims. The issue is not whether Synergy may allege the existence of a contractual 2 relationship for the purposes of some claims but not others; the issue is whether its contract claims 3 can plausibly be reconciled with the language of the agreements themselves. They cannot. CONCLUSION 4 5 6 are dismissed with prejudice, and the contract claims are dismissed without prejudice. An 7 amended complaint is due within 21 days of the issuance of this order. Unless Synergy obtains 8 prior leave of Court for good cause shown, any amendment must be limited to the causes of 9 actions alleged in the SAC. If no amended complaint is filed, the case will proceed only on the 10 11 United States District Court Northern District of California For the reasons set forth above, the motion to dismiss is granted. The interference claims 12 13 14 remaining claims. IT IS SO ORDERED. Dated: December 31, 2018 ______________________________________ JON S. TIGAR United States District Judge 15 16 17 18 19 20 21 22 23 24 25 26 27 28 No. 55 at 21 (citing Popescu v. Apple Equipment, 1 Cal. App. 5th 39, 54 (2016)). Synergy’s argument relies on the narrow view of the stranger to the contract doctrine which the Court rejected in its prior order and again in this order. ECF No. 49 at 9. 7