Bard Water District v. James Davey and Associates, Inc. et al, No. 3:2013cv02727 - Document 120 (S.D. Cal. 2018)
Court Description: ORDER Granting 103 Defendants' Motion for Summary Judgment. Signed by Judge Jeffrey T. Miller on 10/1/2018. (sjm)
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Bard Water District v. James Davey and Associates, Inc. et al Doc. 120 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 Case No.: 13cv2727 JM (RBB) BARD WATER DISTRICT, Plaintiff, 12 13 v. 14 JAMES DAVEY AND ASSOCIATES, INC., an Arizona corporation; JAMES DAVEY; and DOES 1 through 50, 15 16 ORDER GRANTING DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT Defendants. 17 18 19 20 21 22 23 24 JAMES DAVEY AND ASSOCIATES, INC., an Arizona corporation, Third-Party Plaintiff, v. GEORGE CAIRO ENGINEERING, INC., an Arizona corporation; and ROES 1 through 10, inclusive, Third-Party Defendants. 25 26 Defendants James Davey and Associates, Inc. and James Davey move for summary 27 judgment against Plaintiff Bard Water District on its remaining claim for breach of 28 fiduciary duty. (Doc. No. 103.) Plaintiff opposes. (Doc. No. 113.) Having carefully 1 13cv2727 JM (RBB) Dockets.Justia.com 1 considered the matters presented, the court record, and the arguments of counsel, the court 2 grants Defendants’ motion for summary judgment. 3 BACKGROUND 4 This case arises from an unsuccessful canal improvement project. Plaintiff Bard 5 Water District (“Bard”) is a public water district with its principal place of operation in 6 Winterhaven, California. Bard alleges that it retained Defendants James Davey and 7 Associates, Inc. (“JDA”) and James Davey (“Davey”) to act as project engineer for a canal 8 improvement project in Imperial County, California. As project engineer, Bard alleges, 9 Defendants were responsible for supervising and inspecting the work of the general 10 contractor, including by ensuring that all required tests and inspections were performed. 11 Shortly after the project was completed in 2004, the new concrete lining of the canals began 12 to crack. Bard concluded that the cracking occurred because the soil beneath the canals 13 was not properly compacted before the concrete lining was laid. Upon investigation in 14 2005 through 2007, Bard learned that the general contractor failed to perform the required 15 number of tests and inspections intended to ensure that the soil was adequately compacted. 16 On November 13, 2013, Bard filed suit against Defendants alleging claims for breach of 17 contract and breach of fiduciary duty. (Doc. No. 1.) 18 On November 14, 2014, the court dismissed with prejudice the breach of contract 19 and breach of fiduciary duty claims in Plaintiff’s Third Amended Complaint (“TAC”). 20 (Doc. No. 35.) The court dismissed Plaintiff’s breach of contract claim because the alleged 21 contract documents were, on their face, more akin to a bid package than a contract between 22 the parties. (Id. at 7.)1 The court dismissed Plaintiff’s breach of fiduciary duty claim 23 because it was “based solely on Defendants’ alleged failure to comply with the specific 24 duties of the project engineer as described in the project document.” (Id. at 9.) Plaintiff 25 appealed. The Ninth Circuit affirmed dismissal of Plaintiff’s breach of contract claim, but 26 27 28 All page citations in this order refer to the page numbers generated by the CM/ECF system. 1 2 13cv2727 JM (RBB) 1 reversed the dismissal of its breach of fiduciary duty claim. (Doc. No. 49.) In reversing 2 dismissal of Plaintiff’s breach of fiduciary duty claim, the Ninth Circuit found that “under 3 California law, a fiduciary relationship, such as agent to principal, can exist separate and 4 apart from a contractual relationship.” (Id. at 3) (citing Stephenson v. Drever, 16 Cal. 4th 5 1167, 1179 (1997)). The court also found that Plaintiff’s claims were governed by the 6 four-year statute of limitations provided by Cal. Code Civ. P. § 343. (Doc No. 49 at 4-5.) 7 As a result, Plaintiff’s sole remaining claim is breach of fiduciary duty. (Doc. No. 8 26.) Defendants argue that the court should grant summary judgment in their favor because 9 (1) they did not owe any fiduciary duty to Plaintiff, (2) even if they owed a fiduciary duty, 10 Defendants did not breach that duty, and (3) Plaintiff’s complaint is time-barred by several 11 statutes of limitations and repose. 12 LEGAL STANDARDS 13 A motion for summary judgment shall be granted where “there is no genuine issue 14 as to any material fact and . . . the moving party is entitled to judgment as a matter of law.” 15 Fed. R. Civ. P. 56(c). The moving party bears the initial burden of informing the court of 16 the basis for its motion and identifying those portions of the record that it believes 17 demonstrate the absence of a genuine issue of material fact. 18 Catrett, 477 U.S. 317, 323 (1986). But Federal Rule of Civil Procedure 56 contains “no 19 express or implied requirement . . . that the moving party support its motion with affidavits 20 or other similar materials negating the opponent’s claim.” Id. (emphasis in original). Celotex Corp. v. 21 In response to a motion for summary judgment, the nonmoving party cannot rest on 22 the mere allegations or denials of a pleading, but must “go beyond the pleadings and by 23 [its] own affidavits, or by the depositions, answers to interrogatories, and admissions on 24 file, designate specific facts showing that there is a genuine issue for trial.” Id. at 324 25 (internal citations omitted). In other words, the nonmoving party may not rely solely on 26 conclusory allegations unsupported by factual data. Taylor v. List, 880 F.2d 1040, 1045 27 (9th Cir. 1989). The court must examine the evidence in the light most favorable to the 28 nonmoving party, United States v. Diebold, Inc., 369 U.S. 654, 655 (1962), and any doubt 3 13cv2727 JM (RBB) 1 as to the existence of an issue of material fact requires denial of the motion, Anderson v. 2 Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). 3 DISCUSSION 4 Plaintiff filed this case on November 13, 2013, approximately nine years after the 5 canal improvement project concluded. Defendants argue that Plaintiff’s claims are time- 6 barred by the following statutes of limitation and repose: Cal. Code Civ. P. § 343 (four- 7 year statute of limitations), Cal. Code Civ. P. § 338 (three-year statute of 8 limitations), Cal. Code Civ. P. § 339 (two-year statute of limitations), Cal. Code Civ. P. 9 § 337.1 (four-year statute of repose), and Cal. Code Civ. P. § 337.15 (ten-year statute of 10 11 12 repose). A. Applicable Statute of Limitations “In California, courts look to the ‘gravamen’ of the complaint to determine which 13 statute of limitations applies.” 14 8 Cal. 4th 1, 22 (1994).) On appeal, the Ninth Circuit held that the “gravamen of Bard’s 15 complaint is breach of fiduciary duty.” (Doc. No. 49 at 4.) Because California’s four-year 16 statute of limitations for most written agreements, Cal. Code Civ. P. § 337, does not specify 17 a statute of limitations for breach of fiduciary duty, the Ninth Circuit held that the residual 18 four-year statute of limitations, Cal. Code Civ. P. § 343, governs Plaintiff’s breach of 19 fiduciary duty claim. (Doc. No. 49 at 4-5.) Defendants’ argument that the two- and three- 20 year statutes of limitations provided in Cal. Code Civ. P. §§ 338 and 339 apply instead of 21 the four-year statute of limitation provided in Cal. Code Civ. P. § 343 ignores the Ninth 22 Circuit’s mandate. See also Solomon v. N. Am. Life & Cas. Ins. Co., 151 F.3d 1132, 1137 23 (9th Cir. 1998) (“California courts have expressly held that claims for breach of fiduciary 24 duty are governed by the four-year statute of limitations, pursuant to CCP § 343.”). 25 B. Plaintiff’s Claim is Barred By California Code of Civil Procedure § 343 26 (Doc. No. 49) (citing Hensler v. City of Glendale, Defendants argue that even under Cal. Code Civ. P. § 343, Plaintiff failed to file this 27 action within four years of when it knew or reasonably should have known of Defendants’ 28 alleged breach of a fiduciary duty. The court agrees. 4 13cv2727 JM (RBB) 1 The elements of a breach of fiduciary duty claim are (1) the existence of a fiduciary 2 duty, (2) a breach of that duty, and (3) damage proximately caused by the breach. Amtower 3 v. Photon Dynamics, Inc., 158 Cal. App. 4th 1582, 1599 (2008) (citing City of Atascadero 4 v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 68 Cal. App. 4th 445, 483 (1998)). 5 Section 343 provides that an action “must be commenced within four years after the 6 cause of action shall have accrued.” Generally, a claim accrues at “the time when the cause 7 of action is complete with all of its elements.” Fox v. Ethicon Endo-Surgery, Inc., 8 35 Cal. 4th 797, 806 (2005) (quoting Norgart v. Upjohn Co., 21 Cal. 4th 383, 389 (1999)). 9 10 11 12 13 14 15 16 17 18 An important exception to this general rule is the discovery rule. Id. The discovery rule “most frequently applies when it is particularly difficult for the plaintiff to observe or understand the breach of duty, or when the injury itself (or its cause) is hidden or beyond what the ordinary person could be expected to understand.” Shively v. Bozanich, 31 Cal. 4th 1230, 1248 (2003). The rule provides that a claim accrues “when the plaintiff has reason to suspect an injury and some wrongful cause, unless the plaintiff pleads and proves that a reasonable investigation at that time would not have revealed a factual basis for that particular cause of action.” Fox, 35 Cal. 4th at 803. “In that case, the statute of limitations for that cause of action will be tolled until such time as a reasonable investigation would have revealed its factual basis.” Id. “Simply put, in order to employ the discovery rule to delay accrual of a cause of action, a potential plaintiff who suspects 19 that an injury has been wrongfully caused must conduct a reasonable investigation of all 20 potential causes of that injury. If such an investigation would have disclosed a factual basis 21 for a cause of action, the statute of limitations begins to run on that cause of action when 22 the investigation would have brought such information to light.” Id. at 808-09. 23 The trust relationship between fiduciaries limits that duty of inquiry. WA Sw. 2, 24 LLC v. First Am. Title Ins. Co., 240 Cal. App. 4th 148, 157 (2015); Eisenbaum v. 25 W. Energy Res., Inc., 218 Cal. App. 3d 314, 325 (1990). This is because in a fiduciary 26 27 28 relationship “facts which ordinarily require investigation may not incite suspicion.” Eisenbaum, 218 Cal. App. 3d at 325 (citing Hobbs v. Bateman Eichler, Hill Richards, Inc., 164 Cal. App. 3d 174, 201 (1985)). “Thus, when a potential plaintiff is in a fiduciary 5 13cv2727 JM (RBB) 1 2 relationship with another individual, that plaintiff’s burden of discovery is reduced and he is entitled to rely on the statements and advice provided by the fiduciary.” Eisenbaum, 3 218 Cal. App. 3d at 324. The duty to inquire arises only when the facts—considering the 4 fiduciary relationship—warrant suspicion. See id. However, the existence of a fiduciary 5 relationship does not mean that a plaintiff has no duty of inquiry. WA Sw. 2, LLC, 6 240 Cal. App. 4th at 157 (citing Miller v. Bechtel Corp., 33 Cal. 3d 868, 874-75 (1983)). 7 If a plaintiff “became aware of facts which would make a reasonably prudent person 8 suspicious, she had a duty to investigate further, and she was charged with knowledge of 9 10 11 12 13 14 15 16 17 18 matters which would have been revealed by such an investigation.” Miller, 33 Cal. 3d at 875. Accord WA Sw. 2, LLC, 240 Cal. App. 4th at 157. The question of whether a plaintiff was on inquiry notice and had a duty to investigate is typically a question of fact. E-Fab, Inc. v. Accountants, Inc. Servs., 153 Cal. App. 4th 1308, 1320 (2007). But when “reasonable minds can draw only one conclusion from the evidence, the question becomes one of law.” Id. (quoting Snow v. A.H. Robins Co., Cal. App. 3d 120, 128 (1985)). Plaintiff alleges that Defendants breached a fiduciary duty owed to Plaintiff by failing to ensure that the general contractor complied with the project requirements and by unilaterally waiving the soil compaction testing and inspection requirements without Plaintiff’s knowledge. (Doc. No. 26 ¶ 29.) Defendants provided engineering services to 19 Plaintiff during the construction of an improved concrete-lined canal over an original 20 earthen canal. According to Plaintiff’s expert, the project plans and specifications called 21 for excavation and replacement of the original wet soil of the earthen canal with dry soil. 22 (Doc. No. 103-7 at 55.) The dry soil would then be compacted and tested for a minimum 23 density. (Id. at 55, 95.) Finally, the plans and specifications called for lining the canals 24 with concrete. (Id. at 95.) As a result of the failure to adequately compact the soil during 25 construction, Plaintiff’s expert found that the canals settled and the concrete lining cracked. 26 27 (Doc. No. 113-3 at 33.) Plaintiff alleges that Defendants were responsible for ensuring that the general contractor complied with the project plans and specifications. (Doc. No. 26 ¶ 28 6 13cv2727 JM (RBB) 1 2 29.) Instead, Plaintiff alleges, Defendants unilaterally waived necessary soil compaction inspections and tests, and concealed this waiver from Plaintiff. (Id.) 3 Plaintiff argues that it first learned of Defendants’ waiver of the inspection and 4 testing requirements in November 2009 when Bard’s general manager, Ronald Derma, 5 heard that Davey planned to sign a declaration stating that Defendants had waived 6 inspection and testing requirements.2 Plaintiff admits that cracking was observed in some 7 canals as early as 2004. (Doc. No. 113 at 14.) In 2005, Plaintiff retained an expert, Dudek 8 and Associates, Inc. (“Dudek”), to investigate the source of the cracking. (Id.) On 9 10 11 12 13 14 15 16 17 18 January 14, 2005, Dudek employees exchanged internal emails stating that Plaintiff’s attorney informed Dudek “that the engineer Jim Davey prepared the plans and specs and was suppose [sic] to be keeping tabs on the construction. Now it looks like one or more of the contractors was not held to doing proper construction.” (Doc. No. 103-8 at 7.) Dudek employees further stated that it “[s]ounds like Ron Derma has had it with his engineer, James Davey and Associates” and was looking for a replacement engineer. (Id. at 8.)3 On March 4, 2005, Dudek sent Bard a letter stating that, based on preliminary findings, the soil had not been adequately compacted. (Doc. No. 103-7 at 50-51.) On July 8, 2005, Derma sent a letter to the general contractor stating that Bard was concerned that they had not yet addressed the “significant issue of poor compactions in violation of the contract specifications that only became apparent after September 2004.” (Id. at 45.)4 On July 9, 19 20 2 21 22 23 24 25 26 27 28 Davey’s November 15, 2009 declaration states that JDA was responsible for scheduling compaction testing of the soils and that he “recommended to Bard that the number of compaction tests be reduced in some areas of the Project . . .” (Doc. No. 113-3, Exh. D ¶¶ 13, 17.) 3 The Dudek emails appear to contain hearsay statements; however, the court may consider this evidence as Plaintiff did not object. See Fed. Deposit Ins. Corp. v. New Hampshire Ins. Co., 953 F.2d 478, 484-85 (9th Cir. 1991). 4 The parties do not dispute that in 2005, Plaintiff and the general contractor were engaged in litigation regarding the improved canal project. Defendants argue that Plaintiff asserted a counterclaim against the general contractor in this litigation relating to the failure to adequately compact the soil during construction of the canals, but in support of this argument provide the court with a California Court of Appeal opinion that does not discuss Plaintiff’s counterclaim. (See Doc. No. 109-3, Exh. 11 at 10-29.) The court grants 7 13cv2727 JM (RBB) 1 2005, Dudek provided Bard with its investigation results, stating: “Failure to properly 2 compact the subgrade soils constitute a major deficiency in the construction of the Cocopah 3 Canal. The service life of the canal is seriously compromised. The contractor apparently 4 did not meet his commitment and obligations under the contract for the Cocopah Canal 5 construction.” (Id. at 56.) On October 3, 2007, a second report by Dudek found that only 6 45 compaction tests were taken during construction, instead of the 714 tests required by 7 the plans and specifications. (Id. at 93.) Meaning, approximately 94 percent of the required 8 tests were not performed. Defendants argue that based on these facts, Plaintiff “could have 9 10 11 12 13 14 15 16 17 investigated to find out facts had been concealed regarding compaction testing” more than four years before it filed this case. (Doc. No. 103-1 at 24.) Plaintiff claims that it did not know Defendants breached their fiduciary duty until November 2009,5 when Derma learned that Davey would sign a declaration admitting that Defendants waived testing and inspection requirements. Plaintiff argues that once it observed cracking in the canals, it took all available actions to investigate, including hiring an expert. Plaintiff argues that despite its efforts, “it was still unable to discover that its trusted engineer was the one who had waived the tests.” (Doc. No. 113 at 14.) But Plaintiff does not dispute that by 2007, it knew that (i) cracking was observed in the canals; (ii) almost 94 percent of the required soil compaction tests were not performed 18 during construction; (iii) the failure to properly compact the dry soil caused the cracking 19 observed in the canals; (iv) Plaintiff’s expert opined that the general contractor failed to 20 perform the required soil compaction tests and inspections; and (v) Defendants were 21 responsible for ensuring the general contractor complied with the project plans and 22 specifications, including performance of the required number of soil compaction tests. 23 24 25 26 27 28 Defendants’ request to take judicial notice of the existence the court opinion, see Lee v. City of Los Angeles, 250 F.3d 668, 689-90 (9th Cir. 2001) (courts may take judicial notice of the existence and authenticity of matters of public record but not the truth of its contents), but finds that the opinion does not discuss Plaintiff’s counterclaim or provide the background Defendants seek to establish. 5 The parties dispute the exact date in November 2009 that Derma became aware of Davey’s intent to sign the declaration. 8 13cv2727 JM (RBB) 1 2 Even viewing the evidence in the light most favorable to Plaintiff, a jury could not reasonably find that these facts did not warrant suspicion on Plaintiff’s part. 3 By 2007, Plaintiff had sufficient notice of its breach of fiduciary duty claim to trigger 4 a duty to investigate. Plaintiff does not dispute that it knew of the alleged fiduciary 5 relationship at that time. Plaintiff knew that the required soil compaction tests and 6 inspections had not been performed and that it was Defendants’ duty to ensure that those 7 tests were performed. In its complaint, Plaintiff alleges that Defendants’ failure to ensure 8 the general contractor complied with these requirements was itself a breach of the fiduciary 9 10 11 12 13 14 15 16 17 18 duty they owed Plaintiff. (Doc No. 26 ¶ 29) (“Defendants breached their fiduciary duty owed to Plaintiff . . . by failing to ensure that the general contractor complied with its requirements and by unilaterally waiving, without plaintiff’s knowledge or consent, necessary testing and inspection requirements…”) (emphasis added.) In addition, the detailed expert analyses Plaintiff commissioned in 2005 and 2007 provided it with knowledge of the damage caused by the failure to adequately compact the soil. Even assuming a fiduciary relationship existed, by the end of 2007 Plaintiff reasonably should have harbored some suspicion that Defendants failed to ensure the general contractor performed all required compaction tests and should have investigated at that time. See Czajkowski v. Haskell & White, LLP, 208 Cal. App. 4th 166, 178 (2012) (once executive of company was aware employee embezzled funds causing tax liabilities, 19 plaintiff reasonably should have suspected “that there might be other concurrent causes, in 20 the actions or inactions of other retained professionals who had been dealing with or 21 reporting on the Company’s finances”). And on this evidentiary record, no reasonable trier 22 of fact could find otherwise. Other than the initial failure to disclose the alleged waiver, 23 Plaintiff does not present any evidence that Defendants made misrepresentations or took 24 actions to prevent Plaintiff from discovering the waiver of inspection and testing 25 requirements. Nor does Plaintiff argue (or present any evidence) that it relied on any 26 27 28 statements made by Defendants in choosing not to investigate further. See Eisenbaum, 218 Cal. App. 3d 314 (purchaser of limited partnership entitled to rely on general partner’s false representation that complex transaction was exempt from registration under state and 9 13cv2727 JM (RBB) 1 federal securities laws). It appears that Plaintiff only needed to ask Defendants why 94 2 percent of the required soil compaction tests were not performed to discover the answer. 3 Because Plaintiff knew that Defendants were responsible for ensuring the inspections and 4 tests were performed, Plaintiff had a duty to inquire once it knew that these inspections and 5 tests had not been performed. Instead, Plaintiff failed to inquire and waited at least six 6 years after it had this information before filing suit. 7 The court does not address Defendants’ remaining arguments in support of its 8 motion for summary judgment as Plaintiff’s claim is barred by the statute of limitation 9 10 11 12 provided in Cal. Code Civ. P. § 343.6 CONCLUSION The court grants Defendants’ motion for summary judgment as Plaintiff failed to file this action before the statute of limitations expired. IT IS SO ORDERED. 13 14 DATED: October 1, 2018 15 16 JEFFREY T. MILLER United States District Judge 17 18 19 20 21 22 23 24 25 26 27 28 Under any and all circumstances, Defendants’ motion for summary judgment is granted as to Defendant James Davey, as an individual, as Plaintiff conceded at oral argument that Defendant JDA, in the absence of an alter ego theory, is the exclusive responsible defendant on the breach of fiduciary duty claim. 6 10 13cv2727 JM (RBB)
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