County of San Diego v. Lumbermans Mutual CA4/3 ( 2013 )

Filed 6/26/13 County of San Diego v. Lumbermans Mutual CA4/3
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
COUNTY OF SAN DIEGO,
Plaintiff and Appellant, G046970
v. (Super. Ct. No. 30-2010-00363666)
LUMBERMANS MUTUAL COMPANY OPINION
et al.,
Defendants and Respondents.
Appeal from a judgment of the Superior Court of Orange County, Luis A.
Rodriguez, Judge. Affirmed.
Thomas E. Montgomery, County Counsel, Thomas Deák, Deputy County
Counsel, for Plaintiff and Appellant.
Booth, Mitchel & Strange, Craig E. Guenther and Stacie L. Brandt for
Defendants and Respondents.
* * *
San Diego County (the County) appeals from a judgment in favor of
Lumbermans Mutual Casualty Company and American Motorists Insurance Company
(collectively the sureties) following the trial court’s order granting the sureties summary
judgment. The sureties wrote completion bonds on a number of street and other
improvements that were ultimately not completed by the developers of a subdivision.
The County did not bring this action until more than four years had passed since the
expiration of the developers’ final extension. Thus, the sureties argued, the statute of
limitations had expired. The County now appeals, arguing the sureties either made a new
promise to satisfy the bonds, or alternatively, that the time to complete the improvements
was extended, and thus the bonds remained in effect. The sureties respond that the
writing the County relies upon expressly disclaimed any further obligation, and the
purported extension was not lawfully enacted under the County’s own ordinances. As we
shall discuss, the sureties are correct, and we therefore affirm.
I
FACTS
In 1989, a draft environmental impact report (the EIR) for a San Diego
subdivision called The Pointe was completed. The Pointe was proposed as a mixed-use
development project, including approximately 900 homes, a resort and golf course, and
commercial facilities. The draft EIR concluded that the development would cause
significant traffic impact, including traffic on a two-lane road called Jamacha Boulevard.
The EIR proposed mitigation measures, including the widening of Jamacha Boulevard.
In June 1990, the San Diego County Board of Supervisors (the Board)
approved a tentative subdivision map. As a condition of the approval, the developers
were required to complete a number of specified road, water and sewer improvements,
comprising approximately seven pages of the Board’s resolution. In February 1992, the
Board approved the final map, although the required work had not been completed.
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Shortly thereafter, the County and The Pointe’s developers entered into
three agreements, in which the developers promised to complete improvements required
by the final map. The Streets Improvement Agreement, the Water Improvements
Agreement, and the Sewer Improvements Agreement (collectively the improvement
agreements) were subsequently executed by the parties. The improvement agreements,
pursuant to Government Code § 66499.1, required the developers to furnish surety bonds
to secure their performance. Accordingly, Lumbermans Mutual Casualty Company
issued a bond for completion of the street improvements, and American Motorists
Insurance Company (American Motorists) issued a bond for completion of the water and
sewer improvements. All of the bonds issued on March 2, 1992.
In 1996, The Pointe was transferred to new developers. Between 1994 and
2003, the Board extended the time for completion (which had originally been 730 days
from the approval of the final map) on several occasions.
During this period, in February 2000, representatives of the sureties, the
County, and the developers met to discuss ways to fund the needed work. In 2001, the
County asserted claims against all three bonds. In January 2002, the County, the
developers, and American Motorists entered into a tri-party agreement under which
American Motorists deposited an agreed-upon amount (approximately $2.46 million) to
pay for specified improvements. American Motorists’ bond obligation was accordingly
reduced by the same amount.
In 2003, the County gave the developers a final extension, which expired
on January 29, 2005. In April 2005, the County notified the developers that they were in
default. Meanwhile, the traffic situation on Jamacha Boulevard was dismal, with
increased accidents and a traffic level of service grade of “F” (apparently the worst
possible grade). Work on the improvements funded by the tri-party agreement was
approved in 2004, but by September 2005, the County notified the developers that the
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funds deposited by American Motorists were no longer sufficient. The amount needed to
complete the work was approximately $500,000.
The County and the developers eventually entered into discussions
regarding an amended agreement. While discussion regarding the amended agreement
was taking place, the sureties were aware of the ongoing issues. At one point, the
sureties seemed surprised that they had any potential liability remaining on the bonds.
The developers told the sureties an amended agreement had been prepared, and the
sureties’ chief surety counsel, Stephen Beatty, responded that it had been forwarded to
outside counsel for review. Beatty also posed a number of questions, and then stated:
“After further review on my part, and by my counsel, it is likely that there will be other
questions that will need to be addressed. I trust, however, that you realize that due to the
nature of this matter and what is involved, the Surety needs to have a full and complete
understanding of what has transpired, and what is intended by any agreement to which it
is being asked to become a party.”
The developers responded and addressed Beatty’s questions. Discussions
apparently continued, and the developers eventually forwarded Beatty “a revised
agreement that has been modified to include just the County and The Pointe.” The
developers agreed once again to complete the needed improvements, and under the
amended agreement, the street improvements bond was to remain in effect. Beatty was
asked to advise the County that it was aware of the amended agreement and did not have
any objections. Beatty responded: “I’ve looked at the revised agreement. Since the
revised agreement deals with the circumstances between the County and Pointe Builders,
and does not otherwise alter the rights or extend the obligations of the Surety, I have no
objections to it.” The sureties did not sign the amended agreement, which was executed
in November 2006.
By April 2007, all work had once again stopped, and the developers no
longer planned to proceed with improvements. Between December 2007 and September
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2009, numerous meetings were held between the County, the developers, and the sureties.
The parties were unable to resolve matters, and on September 22, 2009, the County filed
the instant lawsuit against the sureties for breach of contract, breach of bond, and
declaratory relief.
In January 2012, the sureties moved for summary judgment, arguing that
the four-year statute of limitations in Code of Civil Procedure section 337, subdivision
(1), barred any claim against the bonds. They contended that any cause of action accrued
when the improvement agreements expired on January 29, 2005. In opposition, the
County argued the tri-party agreement extended the time for performance, equitable
estoppel, and equitable tolling. After a hearing, the court rejected these arguments and
granted summary judgment. Judgment was subsequently entered. The County now
appeals.
II
DISCUSSION
A. Standard of Review
Summary judgment “provide[s] courts with a mechanism to cut through the
parties’ pleadings in order to determine whether, despite their allegations, trial is in fact
necessary to resolve their dispute. [Citations.]” (Aguilar v. Atlantic Richfield Co. (2001)
25 Cal.4th 826, 844.) The trial court properly grants a motion for summary judgment if
all the papers submitted establish there is no triable issue of material fact and the moving
party is entitled to judgment as a matter of law. (Code Civ. Proc., § 437c, subd. (c);
Aguilar v. Atlantic Richfield Co., supra, 25 Cal.4th at p. 843.)
“[T]he party moving for summary judgment bears an initial burden of
production to make a prima facie showing of the nonexistence of any triable issue of
material fact; if he carries his burden of production, he causes a shift, and the opposing
party is then subjected to a burden of production of his own to make a prima facie
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showing of the existence of a triable issue of material fact.” (Aguilar v. Atlantic Richfield
Co., supra, 25 Cal.4th at p. 850.)
“We review the trial court’s decision de novo, considering all of the
evidence the parties offered in connection with the motion . . . and the uncontradicted
inferences the evidence reasonably supports. [Citation.]” (Herberg v. California
Institute of the Arts (2002) 101 Cal.App.4th 142, 148.)
B. The Sureties’ Prima Facie Case
The sureties’ argument is fairly simple — they assert this action is barred
by the statute of limitations. Under Code of Civil Procedure section 337, subdivision (1),
an action upon an obligation in writing must be filed within four years from the time it
accrues. This limitation has been held to apply to surety agreements. (County of Los
Angeles v. Security Ins. Co. (1975) 52 Cal.App.3d 808, 816-817.) Here, the sureties
argue, the County’s last extension expired on January 29, 2005. Thus, the statute of
limitations began running on that date, and expired four years later, on January 29, 2009.
This action was filed on September 22, 2009.
The County does not dispute the dates in question or the applicability of a
four-year statute of limitations. “A prima facie showing is one that is sufficient to
support the position of the party in question.” (Aguilar v. Atlantic Richfield Co., supra,25 Cal.4th at p. 851.) We find the sureties met their burden and produced evidence
sufficient to establish their prima facie case.
C. The County’s Burden of Production
Because the sureties set forth a prima facie case, the burden then shifted to
the County to establish a triable issue of material fact. “There is a triable issue of
material fact if, and only if, the evidence would allow a reasonable trier of fact to find the
underlying fact in favor of the party opposing the motion in accordance with the
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applicable standard of proof. [Fn. omitted.]” (Aguilar v. Atlantic Richfield Co., supra,25 Cal.4th at p. 850.) The County offers two arguments, which we consider separately.
1. New Promise
The County’s first argument is that the sureties made a new promise to
satisfy their obligations, relying on the amended agreement and the circumstances
surrounding its negotiation and execution. To the extent the County relies on the
amended agreement itself, their argument is unpersuasive. Surety agreements are subject
to the statute of frauds and must be in a writing signed by the surety. (Civ. Code, § 1624,
subd. (a)(2).) The sureties did not sign the amended agreement and therefore cannot be
bound by the contract itself.
The County also looks to the principle that where a prior contractual
obligation has become unenforceable, a new promise to satisfy the prior obligation is
binding. It asserts that all that is required is that the writer treat the obligation as
subsisting and as one the debtor is willing to pay. (Van Cauteren v. Forger (1941) 45
Cal.App.2d 388, 392.) The County points to Beatty’s statement that “I’ve looked at the
revised agreement. Since the revised agreement deals with the circumstances between the
County and Pointe Builders, and does not otherwise alter the rights or extend the
obligations of the Surety, I have no objections to it,” as evidence of a renewed promise by
the sureties. (Italics added.)
We disagree with the County that this statement, written in correspondence,
is sufficient by operation of law to begin the clock anew on the statute of limitations. The
County’s authority on this point is inapposite. Unlike the situation in Sterling v. Title Ins.
& Trust Co. (1942) 53 Cal.App.2d 736, there is no “‘distinct and unqualified admission
of an existing debt’” (id. at p. 741) here. At best, and taken together with the other
relevant correspondence, the sureties were only acknowledging the possibility of liability.
Such liability did exist at the time, because in 2006 the statute of limitations had not yet
run. Further, the County’s argument ignores that Beatty’s statement expressly disclaims
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any intent to “alter the rights or extend the obligations of the Surety,” although it seeks to
use this statement to do exactly that. A statement expressly disclaiming any intent to
alter or extend a party’s obligations is insufficient, as a matter of law, to create a new
legal obligation and therefore recommence the running of the statute of limitations. To
hold otherwise would turn the doctrine of “‘distinct and unqualified admission of an
existing debt’” (ibid.) completely on its head.
2. The Amended Agreement
The County next argues the amended agreement extended the time to
perform and the sureties consented to the extension. If the County and the developers
were operating under a legal extension, the sureties would be bound by the following
language used in each of the surety agreements, which is nearly identical to the language
of Government Code § 66499.1: “Surety hereby stipulates and agrees that no change,
extension of time, alteration or addition to the terms of the Agreement to Improve or to
the work to be performed thereunder or the specifications accompanying the same shall
in anywise affect its obligations on this surety bond, and it does hereby waive notice of
any such change, extension of time, alteration or addition to the terms of the Agreement
to Improve or to the work or to the specifications.” The County argues, therefore, that
the amended agreement “implicitly extended the time” to complete the improvements,
and the sureties consented in advance.
As the sureties point out, however, San Diego County Code Section
81.403.11 explicitly addresses the procedure to obtain extensions of time to complete
required work pursuant to the approval of subdivision maps. It states: “Where the
subdivider agrees to install the required public improvements pursuant to Section 81.403,
1This section has since been amended and is now San Diego County Code Section
81.709. The County does not dispute the older version was in effect at all times relevant
here. In any event, the current version also requires the Board to grant extensions beyond
two years.
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the agreement shall provide that the public improvements shall be completed within two
years following recordation of the map. The time for completion of the public
improvements may be extended once, for no more than two additional years, by the
Director of the Department of Public Works. . . . The Board of Supervisors, however,
. . . may grant additional time extensions, on a case-by-case basis, as it deems
appropriate, for completion of public improvements pursuant to agreements secured
either by (i) security provided at the time of recordation of the map, or (ii) security
substituted for the original security furnished under Section 81.406.”
The sureties argue that because the Board never granted an extension, any
“implicit” agreement could not continue their bond obligations. We agree. The terms of
these bonds are statutory, tracking the language in Government Code section 66499.1
nearly word for word. The only reasonable meaning of the phrase “extension of time” in
the language of the bonds is an authorized extension of time, duly permitted by law,
which in this case is San Diego County Code Section 81.403.1. (See Roden v.
AmerisourceBergen Corp. (2010) 186 Cal.App.4th 620, 651 [“we must interpret a
contract in a manner that is reasonable and does not lead to an absurd result.”].)
Interpreting the phrase “extension of time” to mean any extension of time, even if that
extension is granted in a manner that defies the relevant local law, would indeed be
absurd. The bonds at issue here are creatures of statute, and the County offers no
argument as to why the bonds should not be interpreted according to their terms.
The County also argues that because the developers “received the benefits
of the Amended Agreement, it may not now assert the agreement was invalid because [it]
was not approved by the Board of Supervisors; [the developers are] bound by the
agreement.” This may be true, but it is not the developers who are the relevant parties
here, but the sureties. The sureties did not sign the amended agreement, indeed, they
expressly declined to do so. They did not receive any benefits under the amended
agreement. They are therefore not estopped from arguing that the amended agreement
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was invalid to function as an “extension of time” under the surety agreements, because
the amended agreement was not accompanied by Board action. The County is a
sophisticated actor, certainly with respect to the requirements of its own ordinances, and
it offers no reasoning as to why Board approval was not obtained. There are simply no
facts here that would justify restarting the clock on the statute of limitations.
The County has failed to present evidence of a triable issue of material fact
to demonstrate the statute of limitations does not bar this action. Summary judgment,
therefore, was properly granted.
III
DISPOSITION
The judgment is affirmed. The sureties are entitled to their costs on appeal.
MOORE, ACTING P. J.
WE CONCUR:
ARONSON, J.
THOMPSON, J.
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