Case Number: BC509609    Hearing Date: July 21, 2014    Dept: 58

JUDGE ROLF M. TREU
DEPARTMENT 58
________________________________________
Hearing Date: Friday, July 18, 2014
Calendar No: 10
Case Name: Sun Construction Group, Inc. v. Affinity Development Venture, LLC
Case No.: BC509609
Motion: Motion for Summary Judgment/Adjudication
Moving Party: Defendant Affinity Development Venture, LLC
Opposing Party: Plaintiff Sun Construction Group, Inc.
Notice: OK

Tentative Ruling: Motion for summary judgment is denied. Summary adjudication is granted as to the 3rd and 4th COAs.
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I. Background and Procedural History
On 5/21/13, Plaintiff Sun Construction Group, Inc. filed this action against Defendant Affinity Development Venture, LLC (“Affinity”) arising out of the award of a final construction contract. Plaintiff asserts causes of action for (1) breach of written contract, (2) breach of the covenant of good faith and fair dealing, (3) unjust enrichment, (4) quantum meruit, and (5) breach of implied contract. On 8/20/13, the Court sustained Affinity’s demurrer to the 5th COA without leave to amend and otherwise overruled Affinity’s demurrer.

On 8/23/13, Plaintiff named Bolour Associates, Inc. (“Bolour”) as Defendant Moe 1. On 9/9/13, Affinity filed an answer to the Complaint. On 12/4/13, the Court sustained a demurrer filed by Bolour to the Complaint with leave to amend. On 12/18/13, Plaintiff filed a First Amended Complaint. On 1/29/14, the Court denied Bolour’s motion for sanctions pursuant to CCP § 128.7 without prejudice. On 3/28/14, the Court sustained Bolour’s demurrer to the FAC without leave to amend.

II. Motion for Summary Judgment/Adjudication
Affinity moves for summary judgment/adjudication.

1. Evidentiary Objections
Affinity objects to portions of the declarations of Ken O’Leary and Brett Isaacman. All objections are overruled. Affinity’s objections noted that the declarations referenced exhibits that were not attached to the declarations: however, these references appear to be to the exhibits attached to Plaintiff’s opposition separate statement. The Court treats the separation of the exhibits as an appendix of exhibits.

2. Undisputed Facts
In 2008-2009, Affinity sought to develop a multi-unit multi-family development located at 7045 Lanewood Ave., Hollywood, CA 90028. Opp’n Sep. Statement [“OSS”] ¶ 1. Affinity retained architect Frank Afari from AFCO Development Company to prepare preliminary plans and specifications for the project. ¶ 2. Initially, Affinity considered a conventional loan to finance the project (¶ 3); and obtained a “non-prevailing wage” construction budget of $5,950,503 from AFCO (¶ 5 (also referred to as the “Owner’s Budget”)).

Affinity learned of the possibility of securing a HUD loan (¶ 6) which typically provides more favorable interest rates and payment terms (¶ 8). However, a HUD loan requires construction estimates based various wage compliance requirements concerning payment of workers including setting wage rates not less than the prevailing rates set by the Secretary of Labor (¶¶ 9-10): this results in a “prevailing wage” construction budget with higher development costs (¶¶ 11-12).

Affinity was informed that it would need a prevailing wage construction estimate (¶¶ 13-14), and in April 2009, Affinity was referred to Plaintiff (¶ 15), which expressed an interest in providing a prevailing wage construction estimate (¶ 16). The parties’ representatives discussed the project (¶ 17), and on 4/28/09, Plaintiff forwarded comments to Affinity’s legal representative, Todd Allen, regarding AFCO’s plans and specifications (¶ 18). In August 2009, Affinity informed Plaintiff that it wanted to secure a prevailing wage construction estimate to decide whether to apply for a HUD loan, expressing a concern that it would be prohibitively expensive compared to a conventional loan (¶¶ 20-21). On 8/14/09, Affinity provided Plaintiff AFCO’s non-prevailing wage construction budget (¶ 23), and Plaintiff sent “value engineering ideas” in response (¶ 24).

On 9/14/09, Plaintiff forwarded a prevailing wage construction budget to Affinity for $7,997,557, which exceeded AFCO’s non-prevailing wage construction budget by 35%. ¶ 26. An application was submitted for a HUD loan, and on 3/15/10, HUD issued a preliminary approval for a HUD loan for the project. ¶ 28. On 6/22/10, Plaintiff provided a prevailing wage construction estimate of $8,059,879 on HUD forms (¶ 31). On 7/15/10, the parties executed a letter of intent entitled Preliminary Terms Agreement (“PTA”) for the project based on Plaintiff’s 6/22/10 prevailing wage construction estimate. ¶ 33. The PTA states that it is non-binding but that the parties commit to work in good faith towards the completion of a binding construction contract. ¶ 36.

Plaintiff provided multiple additional prevailing wage construction estimates: $7,706,699 on 8/12/10; $7,629,848 on 8/19/10; and $7,600,000 pm 9/17/10 reflecting a builder’s profit of $425,540. ¶ 39.

Beginning September 2010, the parties negotiated towards a HUD-financed construction contract (“GC Contract”) (¶ 40), with Affinity forwarding a first draft on 9/27/10 (¶ 41) and continued line-item negotiations through November 2010 (¶ 42). The GC Contract was never executed. ¶ 43. On 1/6/11, Plaintiff inquired as to their status. ¶ 47. On 8/2/11, a conventional loan was secured and the project proceeded under a non-prevailing wage contract. ¶ 51.

3. Contract Claims
The Court notes that Plaintiff’s contract claims are based on the PTA. See FAC ¶¶ 7-10, 15-16.

a. Enforceable Contract
Although Affinity reasserts its argument that the PTA is not enforceable (Mot’n p. 11 n.4; Reply p. 3:9-4:6), the Court has concluded otherwise, concluding that Plaintiff has alleged facts that the PTA is an enforceable contract to negotiate an agreement (see Ruling dated 8/20/13). Affinity offers no legal argument or evidence that alters the Court’s conclusion.

b. Breach
Affinity argues that Plaintiff cannot establish breach. Breach of a contract to negotiate has been described as follows:
If, despite their good faith efforts, the parties fail to reach ultimate agreement on the terms in issue the contract to negotiate is deemed performed and the parties are discharged from their obligations. Failure to agree is not, itself, a breach of the contract to negotiate. A party will be liable only if a failure to reach ultimate agreement resulted from a breach of that party’s obligation to negotiate or to negotiate in good faith.
Copeland v. Baskin Robbins U.S.A. (2002) 96 Cal.App.4th 1251, 1257 (footnotes omitted).

It is undisputed that the parties engaged in negotiations for the GC Contract. OSS ¶¶ 40-42. Affinity submits that Allen advised Plaintiff at various times that Affinity was still weighing its options to determine the most appropriate type of loan for the project. Allen Decl. ¶¶ 19, 27, 32; see also Young Decl. ¶ 4. Additionally, Affinity submits that the GC Contract was never finalized (Allen Decl. ¶ 39), and that Affinity ultimately concluded that a HUD loan was not more beneficial than a conventional loan (id. ¶ 45).

Plaintiff disputes this by submitting that the PTA contemplated a HUD loan and that the only item left to be completed was for insurance for the GC Contract. Isaacman Decl. ¶¶ 7-8, Exs. 1. Additionally, Plaintiff submits that it was never told that Affinity would only accept a HUD loan if the terms were so favorable to compensate for the significant increase in the construction costs. Id. ¶ 9. This is sufficient to raise triable issues of fact as to breach.

The Court notes that Plaintiff submits that it was always contemplated to be the general contractor for the project. Isaacman Decl. ¶¶ 8-9, Ex. 2. While there is evidence that Plaintiff appears to have submitted a non-prevailing wage construction budget (see Allen Decl. Ex. M [Email dated 6/14/11]) and had stated that it was “ready to proceed either way” (id. [Email dated 5/17/11]), this cannot form the basis of Plaintiff’s claim for breach of the PTA which only relates to a HUD loan, prevailing wage construction budget. Plaintiff fails to submit any evidence that the PTA imposes an obligation to negotiate in good faith for Plaintiff to be chosen as the general contractor, regardless of the type of loan decided by Affinity.

c. Damages
Affinity argues that Plaintiff cannot establish damages. Notably, Plaintiff’s FAC alleges damages of $425,541 in the FAC for all claims, which is the amount of Plaintiff’s builder’s profit (see OSS ¶ 39). Damages for a contract to negotiate has been described as follows:
For obvious reasons, damages for breach of a contract to negotiate an agreement are measured by the injury the plaintiff suffered in relying on the defendant to negotiate in good faith. This measure encompasses the plaintiff’s out-of-pocket costs in conducting the negotiations and may or may not include lost opportunity costs. The plaintiff cannot recover for lost expectations (profits) because there is no way of knowing what the ultimate terms of the agreement would have been or even if there would have been an ultimate agreement.
Copeland, 96 Cal.App.4th 1262-63 (footnotes omitted).

Affinity argues that Plaintiff cannot recover lost profits, has no out-of-pocket costs, and the costs for its services is speculative. The Court agrees in part. It is undisputed that Plaintiff never submitted a request to Affinity for any expenses under the PTA. OSS ¶¶ 37-38. To the extent Plaintiff seeks lost profits or expectancy damages (see, e.g., SIGA Technologies, Inc. v. PharmAthene, Inc. (Del. 2013) 67 A.3d 330, 351), such damages are expressly precluded by Copeland.

However, Defendant fails to establish that Plaintiff’s costs are speculative. Plaintiff submits that it incurred costs for work performed for the project. See Isaacman Decl. ¶¶ 3-4 (explaining that the $175 hourly rate is based on the construction manager billing rate and that the amount of time spent was estimated by reviewing documents, emails, and work performed). Plaintiff’s estimates do not defeat Plaintiff’s claim for damages. See GHK Associates v. Mayer Group, Inc. (1990) 224 Cal.App.3d 856, 873-74. While not all the “costs” claimed by Plaintiff may be recoverable (i.e., only those incurred in reliance on the PTA are recoverable), there appears to be no dispute that Plaintiff spent time providing services and negotiating after the PTA was executed (see Allen Decl. Ex. N). This supports recoverable lost opportunity costs and raises triable issues of fact as to damages.

Therefore, the motion for summary adjudication is denied as to Plaintiff’s contract claims.

4. Unjust Enrichment and Quantum Meruit
Affinity argues that unjust enrichment is not a cause of action. See, e.g., Melchior v. New Line Productions, Inc. (2003) 106 Cal.App.4th 779, 793; but see Peterson v. Cellco Partnership (2008) 164 Cal.App.4th 1583, 1593. The Court notes that unjust enrichment is the underlying principle for Plaintiff’s quantum meruit claim. See Maglica v. Maglica (1998) 66 Cal.App.4th 442, 449. Regardless of whether unjust enrichment is recognized as a separate cause of action, Affinity argues that Plaintiff fails to submit any evidence of any labor, materials, and services provided within the last two years of this action being filed. See FAC ¶¶ 18, 23.

The pleadings determine the scope of the issues on a motion for summary judgment/adjudication. See FPI Development, Inc. v. Nakashima (1991) 231 Cal.App.2d 367, 381; Song X. Sun v. City of Oakland (2008) 166 Cal.App.4th 1177, 1182 (“The issues to be addressed on the motion are framed by the pleadings.”). Because Plaintiff’s unjust enrichment and quantum meruit claims are alleged to be limited to the last two years of this action being filed (see FAC ¶¶ 18, 23), Plaintiff’s failure to submit any evidence of labor, materials, and services provided within the last two years of this action being filed results in Plaintiff failing to support the claims as currently alleged. Therefore, the motion for summary adjudication is granted as to the 3rd and 4th COAs.

III. Ruling
Motion for summary judgment is denied. Summary adjudication is granted as to the 3rd and 4th COAs.