Case Name: Lehigh Hanson, Inc., et al. v. Adia Industrial Services LLC, et al.
Case No.: 17CV307965

Plaintiffs/cross-defendants Lehigh Hanson, Inc. and Lehigh Southwest Cement Company (collectively, “Lehigh” or “Plaintiffs”) move for summary adjudication in its favor on the following: (1) defendant/cross-complainant Industrial Workforce, Inc.’s (“IWI”) cross-complaint for breach of contract, open book account, quantum meruit and account stated; (2) defendant/cross-complainant Rascom’s cross-complaint for breach of contract, open book account, quantum meruit and account stated; (3) Lehigh’s sixth cause of action for recovery of compensation paid to unlicensed construction contractor (against IWI); (4) Lehigh’s sixth cause of action for recovery of compensation paid to unlicensed construction contractor (against Rascom); (5) Lehigh’s seventh cause of action for declaratory relief regarding unlicensed construction contractor (against IWI); and (6) Lehigh’s seventh cause of action for declaratory relief regarding unlicensed construction contractor (against Rascom). In the alternative, Lehigh seeks an order summarily adjudicating, in its favor, that neither IWI nor Rascom satisfied their statutory duty to obtain and maintain a contractor’s license under California’s Contractor’s State Licensing Law (“CSLL”) and that neither had such a license during the relevant time.

I. Factual and Procedural Background

This action arises out of an alleged scheme by defendants Adia Industrial Services LLC (“Adia”), Mohammed Reza Saffari, Rascom, IWI, Robert Anthony Segura, Jr. (“Segura”), Alan Sabawi (“Sabawi”), and Ricardo Del Valle (“Del Valle”) to defraud Lehigh.

According to the allegations of the operative First Amended Complaint (“FAC”), Lehigh operates the Permanente Quarry and Cement Plant (“Plant”) located in Cupertino, California. (FAC, ¶ 15.) Plaintiffs regularly engage contractors and/or vendors to perform maintenance construction at the Plant. (Id. at ¶ 16.) Plaintiffs and the contractors and/or vendors enter into written master services agreements that govern the terms of any services provided to them. (Ibid.) Under Plaintiffs’ purchasing guidelines, they issue a “request for quotation” (“RFQ”) to several contractors and/or vendors, requesting the submission of a bid for the work. (Ibid.) Approval of each RFQ, purchase order, and payment are accomplished using the “SAP system.” (Id. at ¶ 17.)
On June 15, 2015, Lehigh into written master services agreements with both Rascom and IWI, pursuant to which they agreed to perform certain construction work at the Plant in exchange for compensation. (FAC, ¶¶ 19-20.) On June 24, 2015, Lehigh entered into a similar written master services agreement with Adia. (Id. at ¶ 18.) Sabawi, as Manager of the Plant, and Del Valle, as Assistant Manager of the Plant, subsequently awarded certain work and issued purchase orders to Adia, Rascom, and IWI (collectively “Contractor Companies”) under the terms of the individual agreements. (Id. at ¶ 21.) The Contractor Companies each submitted invoices for payment for work allegedly performed pursuant to the agreements, and Plaintiffs paid them. (Ibid.)

From June 2015 onwards, all defendants engaged in a scheme to defraud and steal from Plaintiffs by which Sabawi and Del Valle received “kickback payments” from the Contractor Companies in exchange for them awarding work at inflated prices, awarding work that was never intended to be completed, and approving invoices to be paid for that unperformed work. (FAC, ¶ 22(a).) To accomplish this scheme, Sabawi and Del Valle circumvented the SAP system’s internal controls for corporate approval of RFQs and purchase orders by splitting up the services in each RFQ into numerous line items so that each line item dollar amount fell below the approval limit. (Id. at 22(b).) The Contractor Companies concealed this scheme from Plaintiffs. (Id. at ¶ 22(c).) Despite the wrongful conduct of the Contractor Companies, they each claim entitlement to additional compensation from Plaintiffs for work performed at the Plant. (Id. at ¶ 24.)

On March 29, 2017, Lehigh filed its original complaint against the defendants asserting claims for (1) declaratory relief (against the Contractor Companies); (2) fraudulent concealment (against all defendants); (3) conversion (against all defendants); (4) breach of fiduciary duty (against all defendants); (5) breach of contract (against the Contractor Companies); (6) recovery of compensation paid to unlicensed contractors (against Rascom and IWI); and (7) declaratory relief regarding unlicensed construction contractors (against Rascom and IWI). In July 2017, Rascom, IWI and Segura demurred to the first through fifth causes of action on the grounds of uncertainty and failure to state facts sufficient to constitute a cause of action and moved to strike portions of Lehigh’s pleading. The demurrer was sustained with leave to amend as to the second cause of action but otherwise overruled, and the motion to strike was granted in part and denied in part.

On August 2, 2017, Lehigh filed the FAC asserting the same seven claims against the defendants as in the original complaint. On September 6, 2017, Rascom and IWI filed a cross-complaint against Lehigh for (1) breach of contract; (2) breach of contract; (3) open book account; (4) quantum meruit; and (5) account stated. The thrust of this pleading is that Lehigh has not paid IWI and Rascom outstanding amounts due for services that they provided at the Plant.

On February 20, 2019, Lehigh filed the instant motion for summary adjudication. Rascom and IWI oppose the motion.

II. Lehigh’s Motion for Summary Adjudication

A. Burdens of Proof

Lehigh’s motion is directed at two different pleadings: one asserted against them as cross-defendants (by IWI and Rascom) and one asserted by them as Plaintiffs against several parties. Thus, as Lehigh maintains roles as both Plaintiffs and defendants, there are two different burdens of proof that are implicated in this motion.

“A defendant seeking summary judgment [or adjudication] must show that at least one element of the Plaintiffs’ cause of action cannot be established, or that there is a complete defense to the cause of action … The burden then shifts to the Plaintiffs to show there is a triable issue of material fact on that issue.” (Alex R. Thomas & Co. v. Mutual Service Casualty Ins. Co. (2002) 98 Cal.App.4th 66, 72 [internal citations omitted].)

“The ‘tried and true’ way for defendants to meet their burden of proof on summary judgment motions is to present affirmative evidence (declarations, etc.) negating, as a matter of law, an essential element of Plaintiffs’ claim.” (Weil & Brown, Cal. Prac. Guide; Civ. Proc. Before Trial (The Rutter Group 2014) ¶ 10:241, p. 10-104, citing Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 334.) “The moving party’s declaration and evidence will be strictly construed in determining whether they negate (disprove) an essential element of Plaintiff’s claim ‘in order to resolve any evidentiary doubts or ambiguities in Plaintiffs’ (opposing party’s) favor.’” (Id., ¶ 10:241.20, p. 10-105, citing Johnson v. American Standard, Inc. (2008) 43 Cal.4th 56, 64.)

“Another way for a defendant to obtain summary judgment is to ‘show’ that an essential element of Plaintiff’s claim cannot be established. Defendant does so by presenting evidence that Plaintiff ‘does not possess and cannot reasonably obtain, needed evidence’ (because Plaintiff must be allowed a reasonable opportunity to oppose the motion).” (Id., ¶ 10:242, p. 10-105, citing Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 854-855.) “Such evidence usually consists of admissions by Plaintiffs following extensive discovery to the effect that he or she has discovered nothing to support an essential element of the cause of action.” (Id.)

Conversely, a plaintiff moving for summary judgment bears the burden to produce admissible evidence on each element of a cause of action entitling him or her to judgment. (Code Civ. Proc., § 437c(p)(1); see Hunter v. Pacific Mechanical Corp. (1995) 37 Cal.App.4th 1282, 1287 (disapproved on other grounds in Aguilar v. Atlantic Richfield Co. (2001) 25 Cal. 4th 826.) This means that a plaintiff who bears the burden of proof at trial by a preponderance of evidence must produce evidence that would require a reasonable trier of fact to find any underlying material fact more likely than not. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal. 4th 826, 851.) Otherwise, the plaintiff would not be entitled to judgment as a matter of law. (Id.) The defendant has no evidentiary burden until the plaintiff produces admissible and undisputed evidence on each element of a cause of action. (Weil & Brown, Cal. Prac. Guide: Civ. Proc. Before Trial (The Rutter Group 2012), ¶ 10:238.) If the plaintiff meets this initial burden, it then shifts to defendant to “show that a triable issue of one or more material facts exists as to that cause of action.” (Code Civ. Proc., § 437c, subd. (p)(1).)

Despite the slightly varied burdens of proof, Lehigh’s motion as to both pleadings rests on the exact same argument: that IWI and Rascom performed work at the Plant without contractor’s licenses in violation of California law and thus (1) cannot pursue an action on unpaid invoices for that work against Lehigh and (2) must disgorge all amounts previously paid for such work to Lehigh.

B. Lehigh’s Motion as to IWI and Rascom’s Cross-Complaint

As stated above, the entire basis of Lehigh’s motion for summary adjudication is that Rascom and IWI performed work at the Plant without the necessary licenses required under the California Contractors’ State License Law (Bus. & Prof. Code, § 7000 et seq.) (“CSLL”) and thus are not only not permitted to recover payment for that work, but must also disgorge any payment already received. Thus, with respect to IWI and Rascom’s cross-complaint, Lehigh’s position is that a required element of their claims to recover on the outstanding invoices for work performed is that each possessed a contractors’ license while performing the subject work.

As a general matter, the CSLL provides “a comprehensive scheme which governs contractors doing business in California.” (Asourdian v. Araj (1985) 38 Cal.3d 276, 282.) “The purpose of the licensing law is to protect the public from incompetence and dishonesty in those who provide building and construction services. [Citation.] The licensing requirements provide minimal assurance that all persons offering such services in California have the requisite skill and character, understand applicable local laws and codes, and know the rudiments of administering a contracting business.” (Hydrotech Systems, Ltd. v. Oasis Waterpark (1991) 52 Cal.3d 988, 995.) For the purposes of the CSLL, “a contractor is any person who undertakes to or offers to undertake to …, or does himself or herself or by or through others, construct, alter, [or] repair … any … structure, project, development or improvement, or to do any part thereof ….” (Bus. & Prof. Code, § 7026.) Among other things, the CSLL provides that no person “engaged in the business or acting in the capacity of a contractor” can bring an action for compensation for work requiring a contractor’s license if the person was not properly licensed at all times during the performance of the work.” (Bus. & Prof. Code, § 7031, subd. (a).)

Lehigh submit copies of the written master services agreements (“MSA”) that they entered into with IWI and Rascom on June 15, 2015. (Lehigh’s Separate Statement of Undisputed Material Facts in Support of Motion for Summary Adjudication (“UMF”) No. 2.) The IWI MSA, which was signed by Segura in his capacity as President of IWI, provided that IWI would provide “Services,” defined in the MSA as “Labor support/staffing, as more particularly described in Exhibit A attached hereto, any Purchase Order, or any Scope of Work pertaining to a specific service to be provided.” (UMF Nos. 2-3.) Per its own terms, the IWI MSA “does not itself order any Services but set out terms and conditions by which such Services may be ordered by way of a Purchase Order.” (Id.) Exhibit A to the IWI MSA sets forth the hourly rates for different types of work, including work by “Engineering & Automation,” “Electrical & Instr. Technician,” “Sr. Maintenance Technician,” “Electrical Technician,” “Skilled Trades Person,” “Maintenance Technicians,” “Laborer,” and “Maintenance Truck.”

Lehigh maintain that IWI performed work at the Plant pursuant to the MSA and the Purchase Orders it issued. (UMF No. 4.) IWI disputes this assertion, arguing that it merely supplied laborers to Lehigh who then performed work under Plaintiffs’ supervision and direction that did not require a contractor’s license, e.g. maintenance and yard work. (See Declaration of Robert A. Segura in Support of Opposition to Lehigh’s Motion for Summary Adjudication (“Segura Decl.”), ¶¶ 12-13.) IWI explains that the work performed by the laborers it provided was not done to “construct, alter, repair, add to, subtract from, improve, move, wreck or demolish any building, highway, road, parking facility, railroad, excavation or other structure, project, development or improvement, or to do any part thereof, including the erection of scaffolding or other structures or works in connection therewith” (Bus. & Prof. Code, § 7026), i.e., work held to fall within the scope of the term “contractor” under the CSLL for which a license is required. Consequently, it maintains, it was not required to possess a contractor’s license and can properly sue Lehigh for money owed
Kelly Olsen of Lehigh, who identifies himself as the Director of Purchasing for the West Region of the company, conversely states in his supporting declaration that the work performed at the Plant by IWI did relate to the “construction, alteration, repair, demolition, or improvement of various structures at the Plant used by Lehigh to manufacture cement.” (Declaration of Kelly Olsen in Support of Lehigh’s Motion for Summary Adjudication (“Olsen Decl.”), ¶ 3.) Lehigh additionally explain that IWI does not have to have performed the foregoing work itself in order to fall within the licensing requirements; it was enough, it explains, that IWI supplied the labor that performed these tasks, as the CSLL provides that the term “contractor” includes “[a] temporary labor service agency that, as the employer, provides employees for the performance of work covered by this chapter.” (Bus. & Prof. Code, § 7026.1, subd. (a)(3).)

Given the foregoing, there is a direct dispute between the parties about the nature of the work performed by IWI at the Plant. Consequently, there is a triable issue of material fact as to whether IWI was required to possess a contractor’s license when it performed that work so as to enable it to recover payment from Lehigh. Thus, Lehigh’s request for adjudication of the claims asserted against it by IWI in its cross-complaint is DENIED.

Turning to Rascom, unlike with IWI, there does not appear to be any dispute between the parties that the nature of the work performed by it at the Plant fell within the scope of the term “contractor” as defined by the CSLL. (UMF Nos. 11, 15, 16.) However, Rascom maintains that during the period that it provided services to Lehigh at the Plant, it was in possession of a valid contractor’s license. Lehigh’s response to this is to state that Segura, Rascom’s principal, possessed a sole proprietorship license when Rascom provided services at the Plant but did not obtain a license for Rascom, the corporation, which is purportedly the entity that contracted with Lehigh and is suing in this case, until after it stopped performing services for the company. This distinction is critical, Lehigh argues, based on the court’s holding in Opp. v. St. Paul Fire & Marine Ins. Co. (2007) 154 Cal.App.4th 71, 75-76.

In that case, the licensed president of an unlicensed corporate subcontractor filed suit to recover on a payment bond. The president executed a subcontract on behalf of the corporation with the general contractor and inserted his individual license number where the various contract documents called for a license number. When the general contractor subsequently filed for bankruptcy, the subcontractor sued under the payment bond. When the general responded that the sub was unlicensed and thus could not sue to recover on the bond under the CSLL, the president filed a first amended complaint substituting as Plaintiffs himself doing business as the corporation. Except as it was alleged to be merely a fictitious business name under which the president did business, the corporation, as a separate entity, dropped out of case entirely.

The Court ultimately granted the general’s motion for summary judgment, agreeing with its contention that the corporation, and not the president in his individual capacity (despite using his own contractor’s license number), was a party to the contract and had performed work under it. Consequently, the Court found, the sub was not entitled to recover on the payment bond because Business and Professions Code section 7031 precludes recovery by an unlicensed corporation.

Lehigh insist that the same situation is present in the instant action. Reviewing the copy of the MSA entered into between Lehigh and Rascom, Lehigh was identified as a Delaware Corporation and Rascom as a Chapter S-Corporation. (See Olsen Decl., Exhibit 2 at p. 1.) Olsen signed on behalf of Lehigh and Segura on behalf of Rascom. Thus, Lehigh’s assertion that Rascom the corporation was a party to the MSA and the entity providing services such that it must have a contractor’s license is well taken. Lehigh then submits copies of printouts of the results of searches it conducted on the website operated by the California Contractors State License Board (“CLSB”) on February 13, 2019, which it contends show that: (1) Rascom was issued a contractor’s license on March 3, 2017, with the entity type listed as “corporation,” and (2) Rascom was issued a contractor’s license on March 18, 2015, with the entity type listed as “Sole Ownership.” (Declaration of Jay T. Ramsey in Support of Motion for Summary Adjudication (“Ramsey Decl.”), ¶ 5, Exhibits 5 and 6.) It therefore maintains that Rascom the corporation, the party to the MSA, was not in possession of a contractor’s license when it performed work for Lehigh and thus cannot succeed on its claims.

In its opposition, Rascom disputes that it was not in possession of the necessary license, with Segura stating in his declaration that he has never done business using “Rascom” as a fictitious business name or “dba” and that the corporation applied for and was issued a contractor’s license on March 18, 2015. (Segura Decl., ¶¶ 4-5.) Segura submits a copy of this license as Exhibit A to his declaration and the document contains no indication that it is for one type of entity or another. (Id., Exhibit A.) It merely states that on March 18, 2015, a contractor’s license was issued to “Rascom.” Segura explains that to his knowledge there is no entity called “Rascom, Inc.” Rascom notes that the CLSB’s site itself recognizes that it may contain information that is incorrect and asserts that Lehigh’s counsel, who conducted the aforementioned license searches, does not possess the personal knowledge necessary to vouch for the accuracy of his results.

Given the foregoing search caveat, Segura’s representations and the fact that a copy of the actual contractor’s license issued to Rascom prior to it performing work for Lehigh does not establish that the license belonged to an individual rather than a corporation, the Court finds that there is a triable issue of material fact as to whether Rascom possessed the necessary license when it worked at the Plant. Consequently, Lehigh’s request for adjudication of the claims asserted against it by Rascom in its cross-complaint is DENIED.

C. Lehigh’s Motion as to Claims in Lehigh’s FAC

While the burden for Plaintiffs with respect to obtaining summary adjudication of claims in its own pleading is different, the determinative issue is still the same. Under the CSLL, a person “who utilizes the services of an unlicensed contractor” is permitted to bring an action for disgorgement of “all compensation paid to the unlicensed contractor.” (Bus. & Prof. Code, § 7031, subd. (b).) As articulated above, there are triable issues of material fact as to whether IWI needed to possess such a license for the work it performed for Lehigh and whether Rascom possessed the necessary license during that time. Thus, summary adjudication in Lehigh’s favor on their sixth and seventh causes of action against IWI and Rascom is not appropriate.

In sum, Lehigh’s motion for summary adjudication is DENIED in its entirety.