# HOLA Community Partners v. SG Blocks, Inc.

> District Court, C.D. California · February 25, 2021

URL: https://www.frixlaw.com/law-library/cases/10040331

## Case

- **Court:** District Court, C.D. California
- **Decided:** February 25, 2021
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/10040331

## How later opinions describe it (automated extraction)

- rejecting 9 plaintiff’s attempt to segregate “the discrete tasks of ordering anchor bolts and preparing 10 shop drawings” because they “were performed in furtherance of the scope of the work 11 included in the [contract]”
- reversing trial court’s judgment 11 sustaining demurrer where “[s]ome of the services provided under the [asserted] 12 agreement might have required a contractor’s license, but others did not”

## Opinion text

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United States District Court
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Central District of California
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11 SG BLOCKS, INC., Lead Case №:
2:20-cv-03432-ODW (RAOx)
12 Plaintiff,
Consolidated Case №:
13 v. 2:20-cv-04386-ODW (RAOx)

14 HOLA COMMUNITY PARTNERS;
HEART OF LOS ANGELES YOUTH,
15 INC.; and CITY OF LOS ANGELES, ORDER RE:
(1) HOLA’S MOTION TO
16
Defendants. DISMISS COMPLAINT [27];

17 (2) CITY’S MOTION FOR
18 HOLA COMMUNITY PARTNERS, JUDGMENT ON THE
PLEADINGS [32]; AND
19 Consolidated Plaintiff,
(3) SG BLOCKS’S MOTION TO
20 v. DISMISS FIRST AMENDED
CONSOLIDATED COMPLAINT
21 SG BLOCKS, INC.; TETON
BUILDINGS, LLC; AVESI [35]
22 CONSTRUCTION, LLC; AMERICAN
HOME BUILDING AND MASONRY
23 CORP DBA AMERICAN HOME
BUILDING; and DOES 1-1000, inclusive,
24
Consolidated Defendants.
25

26
AND RELATED THIRD-PARTY
27 CLAIMS

28
1 I. INTRODUCTION
2 On April 13, 2020, Plaintiff SG Blocks, Inc. (“SG Blocks”) filed a Complaint
3 against Defendants HOLA Community Partners (“HCP”), Heart of Los Angeles Youth,
4 Inc. (“HY”), and the City of Los Angeles (“City”) in SG Blocks, Inc. v. HOLA
5 Community Partners, et al., case no. 2:20-cv-03432-ODW (RAOx) (the “Lead Case”).
6 (See Compl., ECF No. 1.)1 On April 20, 2020, HCP filed its own action against SG
7 Blocks in the Los Angeles Superior Court, which SG Blocks removed to this Court on
8 the basis of diversity jurisdiction on May 14, 2020. HOLA Community Partners v. SG
9 Blocks, Inc., et al., case no. 2:20-cv-04386-ODW (RAOx) (the “Consolidated Case”).
10 On July 24, 2020, the Court consolidated the two actions. (Order Consolidating Cases,
11 ECF No. 26.) On August 19, 2020, Consolidated Plaintiff HCP filed a First Amended
12 Consolidated Complaint against Consolidated Defendant SG Blocks. (First Am.
13 Consol. Compl. (“FACC”), ECF No. 31.) And on January 22, 2021, SG Blocks filed a
14 Third-Party Complaint against Third-Party Defendants Teton Buildings, LLC, Avesi
15 Construction, LLC, and American Home Building and Masonry Corp (“AHB”). (Third
16 Party Compl., ECF No. 49.)2
17 Now, three motions are pending before the Court. First, Defendants HCP and
18 HY (collectively referred to in the singular as “HOLA”) move to dismiss the claims
19 against them in the Lead Case. (HOLA Mot. Dismiss (“HOLA Mot.”), ECF No. 27.)
20 HOLA’s Motion is fully briefed. (See id.; Opp’n HOLA Mot., ECF No. 34;
21 Reply HOLA Mot., ECF No. 38.) Second, Defendant City moves for judgment on the
22 pleadings with respect to SG Blocks’s seventh cause of action, which is the only claim
23 asserted against the City in the Lead Case.3 (City Mot. J. Pleadings (“City Mot.”), ECF
24 No. 32.) The City’s Motion is also fully briefed. (See id.; Opp’n City Mot., ECF
25
1 Unless otherwise noted, citations to Electronic Case Filing numbers refer to Lead Case docket.
26 2 Originally, HCP brought the Consolidated Case against SG Blocks, Teton, Avesi, and AHB.
However, HCP has since dismissed its claims against Teton, Avesi, and AHB. Thus, the only claims
27
remaining against Teton, Avesi, and AHB are asserted in SG Blocks’s Third-Party Complaint.
28 3 Rather than moving to dismiss, City filed an Answer to the Complaint on August 12, 2020. (City
Answer, ECF No. 28.)
1 No. 33; Reply City Mot., ECF No. 37.) Third, Consolidated Defendant SG Blocks
2 moves to dismiss the First Amended Consolidated Complaint. (SGB Mot. Dismiss
3 FACC (“SGB Mot.”), ECF No. 35.) SG Blocks’s Motion is fully briefed as well. (See
4 id.; Opp’n SGB Mot., ECF No. 40; Reply SGB Mot., ECF No. 41.)
5 For the following reasons, (1) HOLA’s Motion (ECF No. 27) is GRANTED in
6 part and DENIED in part; (2) the City’s Motion (ECF No. 32) is GRANTED; and
7 (3) SG Blocks’s Motion (ECF No. 35) is DENIED.4
8 II. BACKGROUND
9 The HOLA entities (HCP and HY) are non-profit organizations that work
10 together to provide at-risk youth with free academic, art, and athletic programs. (HOLA
11 Mot. 7; see also Compl. ¶ 6 (alleging that HCP and HY are alter egos).) In pursuit of
12 their mission, they operate the HOLA Performing Arts and Enrichment Center (the
13 “Center”), located at Lafayette Park in Los Angeles, California (the “Premises”).
14 (HOLA Mot. 8.) The present dispute concerns the construction of the Center.
15 In September 2017, HOLA entered into a ground lease agreement with the City
16 to lease the Premises from the City for fifty years. (Compl. ¶¶ 11–12, Ex. A (“Ground
17 Lease”), ECF No. 1-1.)5 In the Ground Lease, the parties recited, “HOLA has special

18 4 After carefully considering the papers filed in connection with the Motions, the Court deemed the
19 matters appropriate for decision without oral argument. Fed. R. Civ. P. 78; C.D. Cal. L.R. 7-15.
5 Both SG Blocks and HOLA submit various requests for judicial notice in connection with the
20 Motions. (RJN iso HOLA Mot., ECF No. 27-2; RJN iso SGB Mot., ECF No. 36; RJN iso Opp’n SGB
Mot., ECF No. 40-1.) Rather than laboring over each individual request and objection thereto, the
21
Court simply notes that it may consider documents properly submitted as part of a complaint or upon
22 which a complaint necessarily relies, if the authenticity of such documents is not contested. Lee v.
City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001). Additionally, the Court may take judicial
23 notice of “fact[s] . . . not subject to reasonable dispute” because they are “generally known within the
trial court’s territorial jurisdiction” or “can be accurately and readily determined from sources whose
24
accuracy cannot reasonably be questioned.” Fed. R. Evid. 201. This includes court filings and other
25 matters of public record, when appropriate. United States v. Black, 482 F.3d 1035, 1041 (9th Cir.
2007) (noting judicial notice of proceedings in other courts is proper “if those proceedings have a
26 direct relation to matters at issue.”). With these rules in mind, to the extent the Court relies on any
such documents or facts, any request to do so is GRANTED. The Court does not take judicial notice
27
of any reasonably disputed facts in the judicially noticed documents. Lee, 250 F.3d at 688–89. Any
28 request for judicial notice of a document or fact upon which the Court does not rely is DENIED as
moot.
1 abilities in the areas of fundraising, enrichment, recreation programs, and community
2 outreach for at-risk youth, and [HOLA] desires to construct, operate, and maintain an
3 arts and recreation center that emphasizes community enrichment, recreation programs
4 and activities for the inner-city youth of Los Angeles (the ‘Center’).” (Ground Lease
5 ¶ 1.2.3.) The Ground Lease also “set[s] forth the duties, obligations, responsibilities,
6 aims, and goals of the parties, for the specific purpose of constructing, operating, and
7 maintaining the Center.” (Id. ¶ 1.2.4.)
8 Relevantly, the Ground Lease states, “HOLA shall be required to fund the
9 development, construction, financing, maintenance, and operation of the Center,” and
10 “no [City] monies shall be required to fund the development, construction, financing,
11 maintenance, and/or operation of the Center.” (Id. ¶ 3.2.) In consideration for leasing
12 the Premises, HOLA agreed to operate the Center for the community’s benefit and to
13 pay the City a nominal rent of one dollar per year. (Id. ¶ 3.1.) If HOLA stops using the
14 Premises to operate the Center as intended, the Ground Lease may be terminated with
15 the Premises reverting to the City. (Id. ¶ 2.3.) And, as is typical of such agreements,
16 the Ground Lease states, “Any improvements which have been constructed or erected
17 on the Premises shall, upon termination of [the Ground Lease], become the property of
18 [the City].” (Id. ¶ 16.1.)
19 In June 2017, while the Ground Lease was being finalized, HOLA contracted
20 SG Blocks to design, fabricate, and construct the Center.6 (Compl. ¶ 16, Ex. C
21 (“Construction and Delivery Agreement” or “Agreement”).) The Agreement
22 acknowledges that HOLA had also hired non-party Balfour Beatty Construction, Inc.
23 as a “site contractor who w[ould] be performing site-related work . . . concurrently with
24 [SG Blocks],” and that SG Blocks would need to “fully cooperate with the site
25 contractor while working on the project site.” (Agreement 3; see Compl. ¶ 19.) SG
26
27
6 The Center is “a three-story structure comprised of some forty-six (46) repurposed pre-manufactured
28 steel shipping containers, a new walkway/hallway structure separating the container towers, and a new
ensemble room.” (FACC ¶ 2.)
1 Blocks, in turn, subcontracted work to non-party EDI International, PC (“EDI”), as well
2 as to several other subcontractors. (Compl. ¶¶ 75–76; FACC ¶¶ 4–6.)
3 Critically, HOLA alleges—and SG Blocks does not contest—that SG Blocks did
4 not hold a valid contractor’s license as required under California law. (See FACC ¶ 46.)
5 Nonetheless, SG Blocks maintains the Agreement is severable, so its lack of a license
6 does not preclude recovery of payment for “fabrication and delivery work, which has
7 no such license requirement.” (Compl. ¶¶ 17, 38.) SG Blocks also emphasizes that
8 HOLA did not hold a contractor’s license, either. (Compl. ¶ 15; SGB Mot. 8, 19–20.)
9 In any event, HOLA hired SG Blocks as a “Design-Builder” to design, fabricate,
10 and install the structure of the Center. (See HOLA Mot. 9 (citing Agreement 3).)
11 According to HOLA, “SG Blocks failed in all aspects.” (HOLA Mot. 7.) HOLA alleges
12 that SG Blocks provided incomplete design plans, delivered dangerously defective
13 building materials, failed to meet deadlines, and performed defective construction work.
14 (See FACC ¶ 9.) SG Blocks alleges a slightly different story, that its delays were
15 somehow caused by HOLA and HOLA’s subcontractors’ failure to complete the
16 foundation for the Center as scheduled. (Compl. ¶¶ 18–22.) In any event, the parties
17 seem to agree that HOLA eventually terminated the Agreement with SG Blocks and
18 hired Balfour Beatty to complete construction of the Center. (Compl. ¶ 33; see FACC
19 ¶¶ 10(D), 38(B).) SG Blocks also alleges that HOLA refuses to pay for goods and
20 services rendered in performance of the Agreement. (Compl. ¶ 34.)
21 Now, everyone is upset. SG Blocks filed the Lead Case against HOLA and the
22 City. (See Compl.) HCP then filed the Consolidated Case against SG Blocks. (See
23 FACC.) HOLA moves to dismiss SG Blocks’s Complaint under Federal Rule of Civil
24 Procedure (“Rule”) 12(b)(6). (HOLA Mot.) Having already filed an Answer to SG
25 Blocks’s seventh claim, the City moves for judgment on the pleadings as to that claim,
26 pursuant to Rule 12(c). (City Mot.) And SG Blocks moves to dismiss HCP’s First
27 Amended Consolidated Complaint under Rule 12(b)(6). (SGB Mot.)
28
1 III. LEGAL STANDARDS
2 A court may dismiss a complaint under Rule 12(b)(6) for lack of a cognizable
3 legal theory or insufficient facts pleaded to support an otherwise cognizable legal
4 theory. Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1988). To
5 survive a dismissal motion, a complaint need only satisfy the minimal notice pleading
6 requirements of Rule 8(a)(2)—a short and plain statement of the claim. Porter v. Jones,
7 319 F.3d 483, 494 (9th Cir. 2003). The factual “allegations must be enough to raise a
8 right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544,
9 555 (2007). That is, the complaint must “contain sufficient factual matter, accepted as
10 true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S.
11 662, 678 (2009) (internal quotation marks omitted).
12 Additionally, any party may move for judgment on the pleadings after pleadings
13 are closed, so long as the motion is brought within such time as to not delay the trial.
14 Fed. R. Civ. P. 12(c). Because Rule 12(c) motions and Rule 12(b)(6) motions are
15 “functionally identical,” the same standard of review applies to both. Dworkin v.
16 Hustler Mag. Inc., 867 F.2d 1188, 1192 (9th Cir. 1989); accord Cafasso, U.S. ex rel. v.
17 Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1055 n.4 (9th Cir. 2011). When ruling on
18 a motion for judgment on the pleadings, “[a]ll allegations of fact by the party opposing
19 the motion are accepted as true” and are construed in the light most favorable to that
20 party. McGlinchy v. Shell Chem. Co., 845 F.2d 802, 810 (9th Cir. 1988). Judgment on
21 the pleadings is appropriate “when the moving party clearly establishes on the face of
22 the pleadings that no material issue of fact remains to be resolved and that it is entitled
23 to judgment as a matter of law.” Hal Roach Studios, Inc. v. Richard Feiner & Co., Inc.,
24 896 F.2d 1542, 1550 (9th Cir. 1989).
25 Under both analyses, the determination of whether a complaint satisfies the
26 plausibility standard is a “context-specific task that requires the reviewing court to draw
27 on its judicial experience and common sense.” Iqbal, 556 U.S. at 679. A court is
28 generally limited to the pleadings and must construe all “factual allegations set forth in
1 the complaint . . . as true and . . . in the light most favorable” to the plaintiff. Lee,
2 250 F.3d at 679. However, a court need not blindly accept conclusory allegations,
3 unwarranted deductions of fact, and unreasonable inferences. Sprewell v. Golden State
4 Warriors, 266 F.3d 979, 988 (9th Cir. 2001).
5 If judgment on the pleadings is appropriate, a court has discretion to grant the
6 non-moving party leave to amend, grant dismissal, or enter a judgment. See Lonberg
7 v. City of Riverside, 300 F. Supp. 2d 942, 945 (C.D. Cal. 2004). And where a district
8 court dismisses a complaint, it should provide leave to amend if the complaint could be
9 saved by amendment. Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025,
10 1031 (9th Cir. 2008); see also Fed. R. Civ. P. 15(a)(2) (“The Court should freely give
11 leave when justice so requires.”). Reasons to deny leave to amend include “bad faith,
12 undue delay, prejudice to the opposing party, and/or futility.” Serra v. Lappin, 600 F.3d
13 1191, 1200 (9th Cir. 2010) (quoting William O. Gilly Enters. v. Atl. Richfield Co.,
14 588 F.3d 659, 669 n.8 (9th Cir. 2009)); see also Foman v. Davis, 371 U.S. 178, 182
15 (1962).
16 IV. DISCUSSION
17 In an effort to keep things organized, the Court addresses each Motion in turn.
18 A. HOLA’s Motion to Dismiss Complaint in the Lead Case
19 In the Lead Case, SG Blocks asserts six claims against HOLA for: (1) breach of
20 contract; (2) conversion; (3) default and judicial foreclosure under the Agreement as a
21 security agreement; (4) misappropriation of trade secrets under California Civil Code
22 section 3426; (5) misappropriation of trade secrets under 18 U.S.C. § 1836; and
23 (6) intentional interference with contractual relations. (See Compl. ¶¶ 36–83.)
24 SG Blocks also asserts a seventh claim against HOLA and the City, for negligently
25 failing to comply with the bond requirements of California Civil Code section 9550.
26 (Id. ¶¶ 84–93.) HOLA moves to dismiss all claims asserted against it, pursuant to
27 Rule 12(b)(6).
28
1 1. Breach of Contract (SG Blocks’s Claim 1)
2 First, HOLA contends that Business and Professions Code section 7031(a) bars
3 SG Blocks’s breach of contract claim because SG Blocks did not hold a valid
4 contractor’s license. (HOLA Mot. 11–14.) SG Blocks does not contest that it was
5 unlicensed; rather, it maintains the Agreement is severable and that SG Blocks “is
6 entitled to payment for performance of services which did not require a contractor’s
7 license, such as fabrication and delivery.” (Opp’n 12 (emphasis omitted).) In its Reply,
8 HOLA argues that the issue of severability is a red herring, as “SG Blocks did not agree
9 to perform ‘non-construction related services.’” (Reply 8.) In other words, HOLA
10 contends that the fabrication and delivery work also required SG Blocks to obtain a
11 contractor’s license because “the clear purpose of the . . . Agreement is for SG Blocks
12 to provide construction-related services, and only construction-related services, to
13 [HOLA].” (Id.) The Court agrees with HOLA.7
14 California Business and Professions Code section 7031(a) “protect[s] the public
15 from incompetence and dishonesty in those who provide building and construction
16 services . . . by withholding judicial aid from those who seek compensation for
17 unlicensed contract work.” Hydrotech Sys., Ltd. v. Oasis Waterpark, 52 Cal. 3d 988,
18 995 (1991). It states:
19 [N]o person engaged in the business or acting in the capacity of a
contractor, may bring or maintain any action, or recover in law or equity
20
in any action, . . . for the collection of compensation for the performance
21 of any act or contract where a license is required by this chapter without
22 alleging that they were a duly licensed contractor at all times during the
performance of that act or contract regardless of the merits of the cause of
23 action brought by the person . . . .
24
Cal. Bus. & Prof. Code § 7031(a) (emphases added). Indeed, California deliberately
25
“imposes strict and harsh penalties for a contractor’s failure to maintain proper
26

7 HOLA further argues that (1) SG Blocks admitted in other lawsuits that it is responsible for delays
27
in constructing the Center, and (2) SG Blocks fails to allege the existence of a contract between itself
28 and HY. (HOLA Mot. 14–16.) Although these arguments are unconvincing, they are irrelevant in
light of the Court’s present ruling and need not be addressed.
1 licensure.” MW Erectors, Inc. v. Niederhauser Ornamental & Metal Works Co., Inc.,
2 36 Cal. 4th 412, 418 (2005). “Because of the strength and clarity of this policy, it is
3 well settled that section 7031 applies despite injustice to the unlicensed contractor.”
4 Hydrotech, 52 Cal. 3d at 995 (emphasis added); see also MW Erectors, 36 Cal. 4th
5 at 421 (“Section 7031(a) will be applied, regardless of equitable considerations, even
6 when the person for whom the work was performed has taken calculated advantage of
7 the contractor’s lack of licensure.”).
8 Conversely, section 7031(a) “does not necessarily preclude the recovery of
9 compensation for acts for which no contractor’s license was required.” MKB Mgmt.,
10 Inc. v. Melikian, 184 Cal. App. 4th 796, 806 (2010) (reversing trial court’s judgment
11 sustaining demurrer where “[s]ome of the services provided under the [asserted]
12 agreement might have required a contractor’s license, but others did not”). Thus, when
13 testing the sufficiency of pleadings against section 7031(a), courts must determine
14 whether the agreement at issue “can reasonably be interpreted to require [the plaintiff]
15 to perform work for which no license was required.” Exec. Landscape Corp. v. San
16 Vicente Country Villas IV Ass’n, 145 Cal. App. 3d 496, 501 (1983); see also Cal. Civ.
17 Code § 3528 (“The law respects form less than substance.”). Still, “[u]nlicensed
18 persons may not finesse the statute by drafting contracts calling solely for unlicensed
19 services where in reality other services requiring a license will be performed.” Exec.
20 Landscape, 145 Cal. App. 3d at 501.
21 Here, despite SG Blocks’s efforts to finesse the statute, section 7031(a) bars its
22 breach of contract claim. SG Blocks alleges it agreed to “fabricate and deliver the
23 modular units to [the Premises] to be incorporated into the structure of the [Center], and
24 to install them onsite.” (Compl. ¶ 16.) It further alleges that “[t]he parties’ mutual
25 intent at the time . . . was to sever the on-site installation work into a separate contract
26 from the fabrication and delivery work, which has no such license requirement, or to
27 sever, delete, and/or strike the on-site installation work entirely from the [Agreement].”
28 (Id. ¶ 17.) But SG Blocks is, in a sense, placing the cart before the horse. The Court
1 need not reach the issue of severability when the Agreement cannot first be reasonably
2 interpreted to have required SG Blocks to perform work for which no license was
3 required. See generally Phx. Mech. Pipeline, Inc. v. Space Expl. Techs. Corp., 12 Cal.
4 App. 5th 842, 853 (2017) (referring to severability as “the second question”).
5 As a matter of law, acts such as designing, fabricating, and delivering building
6 materials in furtherance of a contract to install those materials cannot be discretely
7 parsed out to avoid section 7031(a)’s license requirement. See WSS Indus. Constr., Inc.
8 v. Great W. Contractors, Inc., 162 Cal. App. 4th 581, 592–93 (2008) (rejecting
9 plaintiff’s attempt to segregate “the discrete tasks of ordering anchor bolts and preparing
10 shop drawings” because they “were performed in furtherance of the scope of the work
11 included in the [contract]”); cf. Cal. Bus. & Prof. Code § 7045 (“This chapter does not
12 apply to the sale or installation of any finished products . . . that do not become a fixed
13 part of the structure, nor shall it apply to a material supplier . . . who does not install or
14 contract for the installation of those items.” (emphases added)). In other words, aspects
15 of construction work cannot be parsed out of section 7031(a)’s licensing requirement
16 where “each aspect of [the contracted] work was integral to the . . . project, and was not
17 minor or incidental,” but “part of an integrated whole.” Banis Rest. Design, Inc. v.
18 Serrano, 134 Cal. App. 4th 1035, 1045–47 (2005) (“[E]ven if we were to . . . conclude
19 that an otherwise valid portion of a void contract might be severed and maintain its
20 viability, this is not such a case.”); cf. Johnson v. Mattox, 257 Cal. App. 2d 714, 719
21 (1968) (precluding recovery for construction work but permitting recovery for the sale
22 of a tractor and mowers because “[t]here is no building or construction activity involved
23 in the furnishing of a tractor and mowers”).8
24 In this case, it is clear from the face of the Agreement that SG Blocks’s
25 fabrication and delivery of modular shipping containers was integral to the construction
26

8 This principle extends to design specification work as well. See, e.g., Davis Moreno Constr., Inc. v.
27
Frontier Steel Bldgs. Corp., No. 1:08-cv-00854-OWW-SMS, 2010 WL 4513388, at *8 (E.D. Cal.
28 Nov. 2, 2010) (“[I]t would be anomalous for California law to permit an entity that is neither a licensed
engineer nor a licensed contractor to design structures that the public relies on to be safe.”).
1 of the Center, which SG Blocks was also contracted to complete. SG Blocks even
2 alleges in the Complaint that it agreed to “fabricate and deliver the modular units to [the
3 Premises] to be incorporated into the structure of the [Center], and to install them
4 onsite.” (Compl. ¶ 16 (emphasis added).) Despite drawing all inferences in
5 SG Blocks’s favor, no reasonable interpretation of the Agreement could render the
6 fabrication and delivery of modular shipping containers—i.e., the literal building blocks
7 comprising the structure that SG Blocks was contracted to construct—as “merely
8 incidental” to construction of the Center. Thus, as a matter of law, SG Blocks’s first
9 claim is barred by section 7031(a), and HOLA’s Motion is therefore GRANTED as to
10 this claim. Further, because the Court finds any amendment would be futile, this claim
11 is DISMISSED with prejudice. See Manzarek, 519 F.3d at 1031.
12 2. Conversion, Misappropriation of Trade Secrets, & Negligence
13 (SG Blocks’s Claims 2, 4, 5, 7)
14 Next, the Court turns to SG Blocks’s tort claims against HOLA for conversion,
15 misappropriation of trade secrets, and negligence. (See Compl. ¶¶ 46–52, 60–73,
16 84–93.) HOLA contends these claims are barred by the economic loss rule, which
17 prohibits a plaintiff from “tortifying” an otherwise precluded breach of contract claim.
18 (HOLA Mot. 16–17.) SG Blocks protests application of the rule here because it has
19 “alleged that HOLA breached several duties independent of the contractual relationship
20 between them.” (See Opp’n HOLA Mot. 19–21.) But SG Blocks cannot circumvent
21 the economic loss rule simply by identifying alternative grounds for the relief it seeks.
22 “The economic loss rule requires a [plaintiff] to recover in contract for purely
23 economic loss due to disappointed expectations, unless he can demonstrate harm above
24 and beyond a broken contractual promise.” Robinson Helicopter Co., Inc. v. Dana
25 Corp., 34 Cal. 4th 979, 988 (2004) (emphasis added) (“Quite simply, the economic loss
26 rule prevents the law of contract and the law of tort from dissolving one into the other.”
27 (internal quotation marks and brackets omitted)); accord ChromaDex, Inc. v. Elysium
28 Health, Inc., 301 F. Supp. 3d 963, 970 (C.D. Cal. 2017) (holding economic loss rule
1 applicable where “[plaintiff’s] injury is simply economic harm resulting from the
2 contract—namely, that [defendant] owes it money that [defendant] will not pay”).
3 Here, SG Blocks’s claims for conversion, misappropriation of trade secrets, and
4 negligence (against HOLA) are barred by the economic loss rule because each claim
5 seeks relief for the same economic harm resulting from the alleged breach of the
6 Agreement—namely, that HOLA kept and installed the modular shipping containers
7 without paying SG Blocks. For instance, with its conversion claim, SG Blocks alleges
8 HOLA converted “sustainable building systems and structures created through . . .
9 modification of cargo shipping containers” when it “failed and refused” to return the
10 materials to SG Blocks. (Compl. ¶¶ 47, 50.) Similarly, the “trade secrets” HOLA
11 allegedly misappropriated “consisted of methods, techniques, and processes for the . . .
12 modification of . . . shipping containers into modular building components, including
13 devices, methods, techniques, and/or processes for installing those modular building
14 components . . . .” (Id. ¶¶ 62, 69.) And as for its negligence claim, SG Blocks alleges
15 that HOLA’s negligent failure to post a payment bond “deprive[d] SG Blocks of the
16 ability to seek recovery from the payment bond . . . [such] that SG Blocks has been
17 unable to recover all amounts due under the [Agreement].” (Id. ¶ 91.)
18 Plainly, SG Blocks’s conversion, misappropriation, and negligence claims
19 against HOLA seek redress via tort law for the same harm alleged in SG Blocks’s
20 breach of contract claim—namely, compensation for goods or services provided under
21 the Agreement. Thus, those claims are barred by the economic loss rule, and the Court
22 finds that no amendment could cure this deficiency. See Manzarek, 519 F.3d at 1031.
23 HOLA’s Motion is therefore GRANTED as to these claims against HOLA, which are
24 DISMISSED with prejudice.
25 3. Default & Foreclosure on Security Agreement (SG Blocks’s Claim 3)
26 Turning back to the Complaint’s third claim, SG Blocks alleges the Agreement
27 impliedly “contains a security agreement,” under which “SG Blocks agreed to fabricate,
28 sell, and deliver to HOLA [modular shipping containers for constructing the Center],
1 and HOLA agreed to repay SG Blocks therefor at certain times and places as stated in
2 the agreement.” (Compl. ¶ 55.) HOLA moves to dismiss this claim on grounds that
3 (1) “[n]othing in the . . . Agreement creates a lien,” and (2) regardless, the claim is
4 barred by California Business and Professions Code section 7031(c), which prohibits
5 unlicensed contractors from enforcing security interests taken to secure compensation
6 for contracting work. (HOLA Mot. 18–19.) In opposition, SG Blocks argues only that
7 a security agreement need not be express. (Opp’n HOLA Mot. 23–25.)
8 SG Blocks’s claim for default and foreclosure of an alleged security agreement
9 must be dismissed. For starters, the Court tends to agree with HOLA that the Agreement
10 does not appear to create any security interest. (See HOLA Mot. 18 (“SG Blocks fails
11 to point to any specific provision in the . . . Agreement that provides it with a security
12 interest, because none exists.”).) Regardless, the Court need not dwell on the matter
13 because HOLA is also correct that section 7031(c) bars this claim. Similar to its already
14 discussed counterpart (section 7031(a)), section 7031(c) states:
15 A security interest taken to secure any payment for the performance of any
act or contract for which a license is required by this chapter is
16
unenforceable if the person performing the act or contract was not a duly
17 licensed contractor at all times during the performance of the act or
18 contract.
19 Cal. Bus. & Prof. Code § 7031(c); see In re Yurdumyan, No. 1:17-bk-12333-MT,
20 2018 WL 4042817, at *9 (Bankr. C.D. Cal. Aug. 23, 2018) (applying section 7031(c)
21 against deed of trust to secure payment for work, where contractor was not licensed).
22 SG Blocks does not address section 7031(c) in its Opposition. (See Opp’n HOLA
23 Mot. 23–25 (arguing only that a security interest need not be expressly created).) But
24 even if the Court liberally construed SG Blocks’s arguments regarding
25 section 7031(a)’s license requirement as extending to the present issue of
26 section 7031(c)’s license requirement, the outcome would not change. As already
27 discussed, SG Blocks’s performance under the Agreement required a valid contractor’s
28 license, which SG Blocks did not possess. (See supra Part IV(A)(1)). Thus,
1 section 7031(c) bars SG Blocks’s third claim against HOLA. Further, no amendment
2 could cure this deficiency. See Manzarek, 519 F.3d at 1031. HOLA’s Motion is
3 therefore GRANTED as to this claim, which is DISMISSED with prejudice.
4 4. Intentional Interference with Contractual Relations (SG Blocks’s
5 Claim 6)
6 With its only other claim against HOLA, SG Blocks alleges it subcontracted EDI
7 to provide “architectural and design services, including design schematics, draft
8 construction documents, and construction administration for the design and
9 construction of the [Center]” (the “EDI Subcontract”). (Compl. ¶ 75.) SG Blocks
10 further alleges it entered into “multiple agreements with sub-tier subcontractors and
11 suppliers to furnish labor, materials, equipment, and/or supplies for the [Center]” (the
12 “Other Subcontracts”). (Id. ¶ 76.)9 Ultimately, the crux of this claim is that HOLA
13 intentionally prevented and/or hindered performance of the EDI Subcontract and certain
14 Other Subcontracts by “communicating with, negotiating with, and contracting with
15 EDI and certain sub-tier subcontractors and suppliers without SG Blocks’s knowledge
16 or consent, and to the detriment of SG Blocks.” (Id. ¶ 79.)
17 HOLA moves to dismiss this claim on grounds that (1) section 7031(a) bars the
18 claim; and (2) HOLA cannot be liable for this tort because it is not a “stranger” to the
19 subcontracts. (HOLA Mot. 20.) SG Blocks opposes, arguing that (1) section 7031(a)
20 does not apply because the damages sought via this claim “are not for the collection of
21 compensation for the performance of the [Agreement]”; and (2) (1) HOLA can be sued
22 for this tort because it is a stranger to the subcontracts. (Opp’n HOLA Mot. 17, 26–28.)
23 This time, SG Blocks is correct.
24 The Court starts by stating the obvious, that section 7031(a) does not bar this
25 claim. Section 7031(a) prevents contractors from seeking compensation for performing
26 unlicensed contractor work. SG Blocks’s interference claim does not seek payment for
27

28 9 Although, SG Blocks also alleges that it cannot identify which of the Other Subcontracts were
allegedly interfered with. (Compl. ¶ 78.)
1 work performed under the Agreement. Indeed, unlike SG Blocks’s other tort claims
2 which are barred by the economic loss doctrine, (see supra Part IV(A)(2)), this
3 interference claim alleges a harm above and beyond unpaid compensation for a breach
4 of the Agreement. Section 7031(a) is inapplicable.
5 Thus, the Court turns to the other issue raised, which is HOLA’s status as a
6 “stranger” to the subcontracts. HOLA argues, “[w]hen a contract contemplates the
7 performance or involvement of a non-contracting party, that party cannot be liable for
8 interfering with the contract.” (HOLA Mot. 20 (citing PM Grp., Inc. v. Stewart,
9 154 Cal. App. 4th 55, 65 (2007)). In other words, HOLA contends it cannot be held
10 liable for interfering with the subcontracts simply because those subcontracts
11 “contemplated HOLA’s participation and performance by, among other things,
12 allowing access to the Project site and accepting and approving the services and labor.”
13 (Id.; see also Reply HOLA Mot. 12–13.) But as SG Blocks correctly argues, this is an
14 incomplete statement of law.
15 Generally speaking, “California recognizes a cause of action against
16 noncontracting parties who interfere with the performance of a contract.” Applied
17 Equip. Corp. v. Litton Saudi Arabia Ltd., 7 Cal. 4th 503, 513 (1994). Stated otherwise,
18 “[i]t has long been held that a stranger to a contract may be liable in tort for
19 intentionally interfering with the performance of the contract.” Id. (quoting Pac. Gas
20 & Elec. Co. v. Bear Stearns & Co., 50 Cal. 3d 1118, 1126 (1990)).
21 Conversely, “the tort cause of action for interference with contract does not lie
22 against a party to the contract.” Id. (collecting cases). In PM Group, the case upon
23 which HOLA relies, the California Court of Appeal reiterated this principle and held
24 that “by extension, a contracting party could not be held liable for interfering with the
25 performance of subcontracts if that claim hinged on the defendant’s failure to perform
26 on the original contract.” United Nat’l Maint., Inc. v. San Diego Convention Ctr., Inc.,
27 766 F.3d 1002, 1008 (9th Cir. 2014) [hereinafter UNMI] (emphasis added) (discussing
28 PM Grp., 154 Cal. App. 4th at 65). Translating this rule to the construction context, a
1 hirer might be immune from suit for interference with a subcontract if (1) the
2 subcontract contemplates some performance by the hirer, and (2) the claim presently
3 asserted against the hirer hinges on the hirer’s failure to perform as contemplated in the
4 subcontract. Cf. id. (distinguishing PM Group to clarify that a defendant may be sued
5 for contract interference where the “theory of liability . . . is not based on [defendant]’s
6 failure to perform [as contemplated in the subcontract]” (emphasis added)).
7 Here, the rule from PM Group—that a contracting party cannot be liable for
8 interfering with its own subcontracts—does not apply. SG Blocks does not allege that
9 HOLA failed to perform under the Agreement, in a manner contemplated by the
10 subcontracts. See id.; (Opp’n HOLA Mot. 27.) Dismissal on this basis would be
11 unprecedented and too far removed from the underlying principle that a party to a
12 contract cannot interfere with its own contract. See UNMI, 766 F.3d at 1008.
13 Moreover, to the extent HOLA seeks immunity simply because it has some economic
14 interest in the subcontracts, the Ninth Circuit has already fully explained why that
15 argument falls flat. See id. at 1007 (“To shield parties with an economic interest in the
16 contract from potential liability would create an undesirable lacuna in the law between
17 the respective domains of tort and contract . . . as it is those parties with some type of
18 economic interest in a contract whom would have the greatest incentive to interfere with
19 it.”). Thus, the Court concludes that HOLA fails to raise any valid grounds for
20 dismissing SG Blocks’s sixth claim for intentional interference with contractual
21 relations. Accordingly, HOLA’s Motion is DENIED as to this claim.
22 In total, HOLA’s Motion to Dismiss SG Blocks’s Complaint is GRANTED in
23 part and DENIED in part. HOLA’s request to dismiss SG Blocks’s sixth claim for
24 intentional interference with contractual relations is DENIED. The remainder of
25 SG Blocks’s claims are DISMISSED with prejudice. The Court now moves on to the
26 two remaining Motions.
27
28
1 B. City’s Motion for Judgment on the Pleadings on SG Blocks’s Seventh Claim
2 in Lead Case
3 In the Lead Case, SG Blocks asserts only one claim against the City, for
4 negligently failing to ensure that HOLA posted a payment bond for construction of the
5 Center. (See Compl. ¶¶ 84–93 (invoking Cal. Civ. Code § 9550(a)).) Rather than
6 moving to dismiss the claim, the City filed an Answer and subsequently moved for
7 judgment on the pleadings.10 (See City Mot.)
8 California Civil Code section 9550 provides, “A direct contractor that is awarded
9 a public works contract involving an expenditure in excess of twenty-five thousand
10 dollars ($25,000) shall, before commencement of work, give a payment bond to and
11 approved by the officer or public entity by whom the contract was awarded.” Cal. Civ.
12 Code § 9550(a); see also Elec. Elec. Control, Inc. v. L.A. Unified School Dist., 126 Cal.
13 App. 4th 601, 610–11 (2005). Here, the parties dispute whether such a payment bond
14 was required in the case of the Ground Lease.
15 The City contends no bond was required because (1) the Ground Lease is a
16 ground lease, not a public works contract; and (2) the Ground Lease did not involve the
17 expenditure of public funds. (City Mot. 3–4.) In opposition, SG Blocks argues that
18 “the [City] blatantly ignores that SG Blocks has specifically alleged the existence of a
19 public works contract and imposition of the statutory duty under section 9550.” (Opp’n
20 City Mot. 4–5 (citing Compl. ¶ 85)). SG Blocks further argues that “payment on a
21 public works contract may be in the form of the contracting party’s ‘use of public land.’”
22

23 10 HOLA has not yet filed an answer in the Lead Case. Normally, because Rule 12(c) authorizes filing
a motion for judgment on the pleadings after the pleadings have closed, “a Rule 12(c) motion must
24
await the answers of all defendants.” Alles v. Wells Fargo Bank, NA, No. ED 12-02095-MWF (DTBx),
25 2013 WL 12142561, at *2 (C.D. Cal. Apr. 25, 2013). Thus, the City’s Motion is arguably premature.
However, “courts have exercised their discretion to permit a motion on the pleadings before all
26 defendants have filed an answer where no prejudice to any party would result.” Rodriguez v. L.A.
Cnty. Sheriff’s Dep’t, No. SACV 13-681 AG (PLAx), 2014 WL 12696918, at *2 (C.D. Cal. May 16,
27
2014). Here, SG Blocks does not object to the City’s Motion as having been filed prematurely, and
28 there is no indication that SG Blocks would be prejudiced by considering the City’s Motion now.
Because the pleadings are effectively “closed” as to the City, the City’s Motion can proceed.
1 (Id. 6 (quoting Boydston v. Napa Sanitation Dist., 222 Cal. App. 3d 1362, 1368
2 (1990))). However, SG Blocks’s arguments are unpersuasive.
3 The parties primarily dispute whether the Ground Lease is a “public works
4 contract.” (See City Mot. 3–4; Opp’n City Mot. 4–6.) The Court need not presently
5 consider whether the Ground Lease constitutes a public works contract, however,
6 because even if it were, section 9550 would not apply. As the City notes, “there is . . .
7 nothing in the Ground Lease to suggest an expenditure by the City in excess of $25,000,
8 or of any sum at all.” (City Mot. 3 n.3.) Indeed, the Ground Lease states, among other
9 things, that “no [City] monies shall be required to fund the development, construction,
10 financing, maintenance, and/or operation of the Center.” (Ground Lease ¶ 3.2.)
11 Section 9550 requires a payment bond for “public works contract[s] involving an
12 expenditure in excess of twenty-five thousand dollars.” Cal. Civ. Code § 9550(a)
13 (emphasis added). Here, such an expenditure did not occur. Therefore, SG Blocks’s
14 negligence claim, based on an alleged violation of section 9550, fails.
15 SG Blocks’s reliance on Boydston does not change this conclusion. In Boydston,
16 a municipal sanitation district needed to dispose of sewage waste. 222 Cal. App. 3d
17 at 1365. To that end, the district advertised an opportunity to use district land and
18 reclaimed water from the sewage plant for irrigation, in exchange for disposing of the
19 waste. Id. Multiple contractors submitted bids, and the question in that case was
20 whether the sanitation district should have been required to follow statutory bidding
21 rules in selecting the winner. Id.11 There, the court held the competitive bidding rule
22 was enforceable, largely because “[t]he primary purpose of the agreement [wa]s to
23 dispose of the sludge and reclaimed water in a utilitarian fashion which, absent the
24 agreement, [the district] would otherwise perform itself.” Id. at 1366–68 (emphasis
25 added) (noting the purpose underlying competitive bidding requirements is to provide
26

11 The competitive bidding requirement at issue in Boydston came from California Public Contract
27
Code section 20783, which calls for competitive bidding “[w]hen work is done by [a sanitation]
28 district itself by force account . . . [and] the expenditure required for the work exceeds thirty-five
thousand dollars.” Cal. Pub. Cont. Code § 20783; see Boydston, 222 Cal. App. 3d at 1365.
1 “assurance that the taxpayers receive the most for their money and that awards are made
2 without favoritism, fraud or corruption”).
3 Here, unlike in Boydston, nothing suggests that construction of the Center was a
4 utilitarian function that the City would have performed itself in the absence of the
5 Ground Lease. (See Reply City Mot. 3.) Moreover, a competitive bidding requirement
6 as discussed in Boydston serves an entirely different purpose than the payment bond
7 requirement at issue here. See Crosno Constr., Inc. v. Travelers Cas. & Sur. Co. of Am.,
8 47 Cal. App 5th 940, 961 (2020) (“The purpose behind the public works payment bond
9 is to provide subcontractors . . . a quick, reliable and sufficient means of payment.”
10 (internal quotation marks omitted)). Thus, the Court does not find Boydston applicable
11 to the present case.
12 In short, the City was not obligated to ensure the posting of a payment bond in
13 connection with the Ground Lease because it did not expend more than $25,000. See
14 Cal. Civ. Code § 9550(a). SG Blocks cannot overcome this hurdle simply by alleging
15 that a bond was required.12 Furthermore, as the underlying facts are not disputed, the
16 Court finds that any amendment would be futile.13 The City’s Motion is therefore
17 GRANTED. SG Blocks’s sole claim against the City is DISMISSED with prejudice.
18
19
12 Courts “are not required to accept as true conclusory allegations which are contradicted by
20 documents referred to in the complaint.” Warren v. Fox Fam. Worldwide, Inc., 328 F.3d 1136, 1139
(9th Cir. 2003) (“[Courts] do not . . . necessarily assume the truth of legal conclusions merely because
21
they are cast in the form of factual allegations.”). “If a complaint is accompanied by attached
22 documents, . . . [t]hese documents are part of the complaint and may be considered in determining
whether the plaintiff can prove any set of facts in support of the claim.” McVey v. McVey, 26 F. Supp.
23 3d 980, 983 (C.D. Cal. 2014) (quoting Durning v. First Bos. Corp., 815 F.2d 1265, 1267 (9th Cir.
1987)). Here, the Court may consider the Ground Lease because SG Blocks attached it to the
24
Complaint as Exhibit A. (See Ground Lease); see also Atel Fin. Corp. v. Quaker Coal Co., 321 F.3d
25 924, 925–26 (9th Cir. 2003) (“Under California law, the interpretation of contract language is a
question of law.”).
26 13 The Court also observes that what SG Blocks seeks to recover from the City is, ultimately, the
equivalent of compensation for the work it performed for HOLA. Even if HOLA had been required
27
to post a payment bond, the Court is skeptical that this claim against the City would not be barred by
28 Business and Professions Code section 7031 and/or the economic loss doctrine, for the same reasons
discussed, supra.
1 C. SG Blocks’s Motion to Dismiss HCP’s FACC
2 Finally, the Court turns to the claims in the Consolidated Case. HCP filed the
3 FACC against SG Blocks and one thousand unnamed Doe Defendants, asserting seven
4 claims for: (1) negligence; (2) strict products liability; (3) strict products liability
5 (asserted against only Doe Defendants 1–200); (4) breach of contract based on the
6 Agreement; (5) breach of express warranty; (6) violation of Business and Professions
7 Code § 7031(b); and (7) violation of California’s unfair competition law, Business and
8 Professions Code section 17200 (“UCL”). (See FACC.)
9 SG Blocks moves to dismiss all claims asserted against it, based on the following
10 three arguments. (See SGB Mot.) First, SG Blocks argues that all claims against it
11 must be dismissed because the license requirement of section 7031(a) also applies to
12 HCP, who did not have a contractor’s license either. (Id. at 15–24.) Second, SG Blocks
13 alternatively argues that all claims against it must be dismissed because the Ground
14 Lease is “illegal and void” as it is a public works contract that was secured without a
15 competitive bidding process. (Id. at 25–29.) Third, SG Blocks argues that HCP’s sixth
16 claim is barred by a one-year statute of limitations. (Id. at 29–30.) The Court addresses
17 these three arguments in turn.
18 1. HCP’s Lack of a Contractor’s License
19 First, SG Blocks argues that HCP’s claims are barred by section 7031(a) because
20 HCP did not possess a contractor’s license and the Ground Lease contemplates that
21 HCP “shall design and construct the Center.” (Id. at 15–18 (quoting Ground Lease
22 ¶ 13.3).) HCP disputes that it did any contracting work but argues that even if it did, it
23 is exempt from the licensing requirement under the owner-builder exemption of
24 Business and Professions Code section 7044. (Opp’n SGB Mot. 10–12.)
25 Business and Professions Code section 7026 “plainly states that both the person
26 who provides construction services himself and one who does so ‘through others’
27 qualifies as a ‘contractor.’” Vallejo Dev. Co. v. Beck Dev. Co., 24 Cal. App. 4th 929,
28 941 (1994). Here, it appears HOLA undertook several obligations under the Ground
1 Lease, including the obligation to have the Center constructed. (Ground Lease ¶ 13.3.)
2 Thus, it seems that HOLA may have been a “contractor” under the Ground Lease, at
3 least in some respects. However, this is irrelevant. Even if HOLA was an unlicensed
4 contractor, section 7031(a) does not bar its claims against SG Blocks because it was
5 HOLA who hired SG Blocks to perform contracting work, not the other way around.
6 “The purpose of the licensing law is to protect the public from incompetence and
7 dishonesty in those who provide building and construction services.” Hydrotech,
8 52 Cal. 3d at 995 (citing Lewis & Queen v. N. M. Ball Sons, 48 Cal. 2d 141, 149–50
9 (1957)). “The obvious statutory intent is to discourage persons who have failed to
10 comply with the licensing law from offering or providing their unlicensed services for
11 pay.” Id. Thus, section 7031(a) “shields persons who utilize the services of an
12 unlicensed contractor from lawsuits by that contractor to collect payment for unlicensed
13 work.” White v. Cridlebaugh, 178 Cal. App. 4th 506, 518 (2009) (emphasis added);
14 accord Alatriste v. Cesar’s Exterior Designs, Inc., 183 Cal. App. 4th 656, 664 (2010)
15 (“The hiring party is entitled to enforce these remedies through a defensive
16 ‘shield’ . . . .” (emphasis added)). In other words, when someone hires a contractor to
17 perform contracting work, section 7031(a) serves as a potential shield for the hirer, not
18 the contractor.
19 Here, SG Blocks did not hire HCP to perform any work at all. The Court need
20 not consider whether the owner-builder exception to the licensing requirement applies;
21 section 7031(a) does not bar HCP’s claims against SG Blocks in the first instance. See
22 generally In re MC2 Cap. Partners, LLC, No. 11-14366, 2014 WL 7403853, at *1
23 (Bankr. N.D. Cal. Dec. 29, 2014) (“[The hirer] was never licensed under California
24 contractors license laws, but that is of no consequence. [The owner-builder exemption
25 in] California Business and Professions Code § 7044(a)(2) . . . is inapplicable.”). Thus,
26 to the extent SG Blocks moves to dismiss HCP’s claims on this basis, its Motion is
27 DENIED.
28
1 2. Competitive Bidding
2 Next, SG Blocks argues the FACC must be dismissed because the City failed to
3 comply with the competitive bidding requirement set forth in California Public Contract
4 Code section 20162. (SGB Mot. 25–29.) That code section states, “When the
5 expenditure required for a public project exceeds five thousand dollars ($5,000), it shall
6 be contracted for and let to the lowest responsible bidder after notice.” Cal. Pub. Cont.
7 Code § 20162. Essentially, SG Blocks contends that the Ground Lease between the
8 City and HOLA is an illegal contract because there was no competitive bidding process,
9 and HCP’s claims must therefore fail because they rely on the illegal contract. (SGB
10 Mot. 25–29.)
11 In opposition, HCP argues that (1) “[t]he City is not required to solicit bids when
12 leasing land to a nonprofit entity for the benefit of the community”; (2) “the purpose of
13 the Ground Lease is not for the construction of the [Center]”; (3) “a competitive bidding
14 requirement is not absolute”; and (4) “SG Blocks also lacks standing to challenge or
15 move to set-aside the Ground Lease” because SG Blocks was not an unsuccessful
16 bidder. (Opp’n SGB Mot. 14–16.)
17 To begin, the Court credits SG Blocks’s argument that “an agreement can have
18 more than one purpose and impose multiple obligations—such as to lease a property
19 and to construct a building upon it.” (Reply SGB Mot. 14.) Indeed, as already
20 mentioned, it seems clear enough from the Ground Lease that HOLA agreed to design
21 and construct the Center, even if the parties always intended for HOLA to accomplish
22 this by hiring builders. Thus, it appears the Ground Lease concerned, at least in some
23 ways, a “public project.” See Cal. Pub. Cont. Code § 20161 (defining “public project”
24 as, among other things, “[a] project for the erection, improvement, painting, or repair
25 of public buildings and works”). However, that is where SG Blocks’s arguments lose
26 steam.
27 As the Court has already acknowledged more than once, the Ground Lease did
28 not involve an expenditure of City monies. (See Ground Lease ¶ 3.2.) Because the
1 competitive bidding requirement of Public Contract Code section 20162 applies only to
2 public projects when expenditures exceed $5,000, the competitive bidding requirement
3 invoked by SG Blocks is inapplicable here.
4 Moreover, HCP correctly notes that competitive bidding requirements are not
5 absolute. Rather, a “competitive bid requirement is to be construed fairly and
6 reasonably with sole reference to the public interest and in light of the purposes to be
7 accomplished.” Graydon v. Pasadena Redevelopment Agency, 104 Cal. App. 3d 631,
8 636 (1980). Thus, competitive bidding is not necessary where it appears that
9 “competitive bidding would be incongruous or would not result in any advantage to the
10 public entity in efforts to contract for the greatest public benefit.” Id. (collecting cases).
11 Here, the Ground Lease expressly highlights HOLA’s “special abilities in the areas of
12 fundraising, enrichment, recreation programs, and community outreach for at-risk
13 youth.” (Ground Lease ¶ 1.2.3.) Further, it appears the primary purpose of the Ground
14 Lease was to enable HOLA to exercise its “special abilities” after funding and
15 overseeing the construction of the Center. (See id. ¶ 1.2.4 (reciting that the parties
16 “desire[d] to enter into th[e] Lease for the use of certain land . . . for the specific purpose
17 of constructing, operating, and maintaining the Center”).) To the extent section 20162
18 might have otherwise applied to the Ground Lease, the Court finds that competitive
19 bidding would not have resulted in any advantage to the City in its efforts to maximize
20 the benefit to the public. See Graydon, 104 Cal. App. 3d at 636.
21 For these reasons, the Court concludes that SG Blocks fails to establish that the
22 Ground Lease is void for lack of a competitive bidding process. Thus, to the extent
23 SG Blocks moves to dismiss HCP’s claims on this basis, its Motion is DENIED.
24 3. Statute of Limitations on Section 7031(b)
25 Finally, SG Blocks argues that HCP’s sixth claim, for disgorgement under
26 Business and Professions Code section 7031(b), is barred by the applicable one-year
27 statute of limitations. Specifically, SG Blocks avers that HCP terminated SG Blocks
28
1 from the project on February 20, 2019, and HCP did not commence its action against
2 SG Blocks until April 20, 2020. (SGB Mot. 30 (citing Compl. ¶ 33).)
3 HCP counters that SG Blocks may not assert this affirmative defense because
4 HCP was careful to omit from its FACC when it terminated SG Blocks. (Opp’n SGB
5 Mot. 18–19.) Although omitting key facts from a complaint does not entirely prevent a
6 defendant from asserting a statute of limitations defense, and although the Court is
7 suspicious that this claim is actually time-barred, HCP is ultimately correct that the
8 Court cannot presently find that HCP terminated SG Blocks on February 20, 2019.
9 The statute of limitations for claims brought under section 7031(b) is one year.
10 Eisenberg Vill. of L.A. Jewish Home for the Aging v. Suffolk Constr. Co., 53 Cal. App.
11 5th 1201, 1203 (2020). Furthermore, for such claims, “the discovery rule does not
12 apply, and . . . a section 7031(b) claim accrues upon the completion or cessation of the
13 performance of the act or contract at issue.” Id. at 1203, 1213 (“In light of the equitable
14 basis for the discovery rule, it makes little sense to apply the rule to claims for
15 disgorgement under section 7031(b).”).
16 “When a motion to dismiss is based on the running of the statute of limitations,
17 it can be granted only if the assertions of the complaint, read with the required liberality,
18 would not permit the plaintiff to prove that the statute was tolled.” Jablon v. Dean
19 Witter & Co., 614 F.2d 677, 682 (9th Cir. 1980) (emphasis added). An exception to this
20 rule is that “[i]f the defense does not appear on the face of the complaint and the trial
21 court is willing to accept matters outside of the pleadings, the defense can still be raised
22 by a motion to dismiss accompanied by affidavits.” Id. Further, “[i]f the defense is not
23 apparent on the face of the complaint and the motion to dismiss is not accompanied by
24 acceptable affidavits, an appropriate summary judgment motion may be employed.” Id.
25 Here, if it is true that HCP terminated SG Blocks from the project on February 20,
26 2019, then this claim is time-barred. See Eisenberg, 53 Cal. App. 5th at 1203. However,
27 SG Blocks fails to establish a basis upon which the Court may properly find the statute
28 of limitations has run. To begin, SG Blocks does not dispute that the statute of
1 limitations defense is not apparent on the face of the FACC, as HCP does not allege
2 when it terminated SG Blocks. (See generally SGB Mot. 29–30.) The Court also notes
3 that SG Blocks’s Motion to Dismiss is not accompanied by any affidavit attesting to
4 when HCP terminated SG Blocks from the project. Thus, there is no basis upon which
5 to treat SG Blocks’s Motion as one for summary judgment under Jablon.
6 Rather than filing affidavits to establish the date of its termination, SG Blocks
7 requests the Court take judicial notice of the “fact” that SG Blocks was terminated on
8 February 20, 2019. (RJN iso SGB Mot. 3–4.) SG Blocks bases its requests on (1) the
9 allegations in paragraph 33 of its own Complaint in the Lead Case, and (2) a supposed
10 “admission” in HOLA’s Motion to Dismiss the Complaint in the Lead Case. (Id.; SGB
11 Mot. 29–30.) SG Blocks contends these references are sufficient to establish this fact
12 because “[t]he Court may take judicial notice of the documents filed in this action and
13 made a part of the record in this case.” (RJN iso SGB Mot 6.)
14 However, SG Blocks’s request for judicial notice of this fact cannot be granted.
15 First, the documents upon which SG Blocks attempts to rely are not of record in “this
16 case” (i.e., the Consolidated Case), as the Lead Case and the Consolidated Case remain
17 two separate actions. Johnson v. Manhattan Ry. Co., 289 U.S. 479, 496–97 (1933)
18 (“Consolidation . . . does not merge [separate] suits into a single cause, or change the
19 rights of the parties, or make those who are parties in one suit parties in another.”).
20 Second, the Court agrees with HCP that SG Blocks mischaracterizes the statement made
21 in HOLA’s Motion, which does not admit any termination date. (See Opp’n SGB
22 Mot. 18–19; see also HOLA Mot. 10 n.1 (disputing only whether termination was “for
23 convenience” or “for cause due to . . . delays and defects caused by SG Blocks”). Thus,
24 SG Blocks fails to provide any appropriate basis for judicially noticing the fact it was
25 terminated on February 20, 2019.14
26
27
14 Moreover, even if the Court judicially noticed the Complaint and HOLA Motion, the Court would
28 not take judicial notice of reasonably disputed facts within those documents. (See supra note 5
(citing Lee, 250 F.3d at 688–89).)
1 In short, the Court cannot presently conclude that HCP’s section 7031(b) claim
2 || 1s time-barred because the Court cannot properly rely on the fact that SG Blocks may
3 || have been terminated more than a year before HCP commenced its action. Thus, to the
4 || extent SG Blocks moves to dismiss this claim on that basis, SG Blocks’s Motion is
5 | DENIED. Still, SG Blocks remains free to assert a viable statute of limitations defense
6 || under procedurally proper circumstances moving forward. Today’s decision does not
7 || reach whether HCP’s section 7031(b) claim is actually precluded by the statute of
8 | limitations, nor does it necessarily impact SG Blocks’s recently filed motion for
9 || sanctions against HCP, which remains pending. (See Mot. Sanctions, ECF No. 65
10 || (contending that HCP continues to maintain a claim it knows is frivolous given the
11 || statute of limitations).) It simply is the case that SG Blocks has not provided adequate
12 | grounds for dismissal of this claim at this pleading stage.
13 Vv. CONCLUSION
14 In summary, the Court holds as follows:
15 1) In the Lead Case, HOLA’s Motion to Dismiss the Complaint is GRANTED
16 in part and DENIED in part. (ECF No. 27.) SG Blocks’s first, second, third,
17 fourth, fifth, and seventh claims against HOLA are DISMISSED with
18 prejudice. SG Blocks’s sixth claim against HOLA remains.
19 2) In the Lead Case, the City’s Motion for Judgment on the Pleadings (ECF
20 No. 32) is GRANTED. SG Blocks’s sole claim against the City (claim seven)
21 is DISMISSED with prejudice.
22 3) In the Consolidated Case, SG Blocks’s Motion to Dismiss the FACC (ECF
23 No. 35) is DENIED.
24
25 IT IS SO ORDERED.
26
27 February 25, 2021 didi
38 OTIS DY WRIGHT, I
UNITED STATES DISTRICT JUDGE

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10040331. Public record. Not legal advice.