Cordoba Corp. v. City of Industry

Filed 1/3/23
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION EIGHT
CORDOBA CORPORATION, B316304
Cross-complainant and Los Angeles County
Appellant, Super. Ct. No. 19STCV10150
v.
CITY OF INDUSTRY,
Cross-defendant and
Respondent.
APPEAL from an order of the Superior Court of
Los Angeles County, Steven J. Kleifield, Judge. Affirmed.
Gordon Rees Scully Mansukhani, Louis Dorny and Don
Willenburg; Alvarado Smith, Raul F. Salinas, Frances Q. Jett
and Monisha A. Coelho for Cross-complainant and Appellant.
Casso & Sparks, James M. Casso, Bianca Sparks, John J.
Harris and Carolin Sahimi for Cross-defendant and Respondent.
____________________
The City of Industry sued Cordoba Corporation, among
others, after uncovering allegedly fraudulent billings for a solar
energy development. Cordoba filed a cross-complaint, but the
trial court granted the City’s special motion to strike it as a
strategic lawsuit against public participation (Code Civ. Proc.,
§ 425.16), or anti-SLAPP motion. We affirm the order.
Undesignated statutory citations are to the Code of Civil
Procedure.
I
Cordoba is a firm specializing in civil engineering and
contract management. In August 2015, the City hired Cordoba
as a consultant to review reports and technical studies and to
develop plans related to City-owned property. The City and
Cordoba entered into several contracts for this work, and the City
paid Cordoba a monthly retainer of $45,000. One contract was
the Real Estate Advisory Services Agreement, which we call the
Agreement. Section 15 of the Agreement required Cordoba to
submit any proposed subconsultant agreement to the City for
approval.
In May 2016, the City entered a land lease with San
Gabriel Valley Water and Power, LLC to develop a solar energy
farm at a property called Tres Hermanos Ranch. We call this
entity the Developer. The lease and its amendments provided
the City would reimburse up to $20 million of the Developer’s
costs related to the project. The lease allowed the City to request
evidence of the work performed.
In 2017, the City began to receive requests under the
Public Records Act (Gov. Code, § 6252 et seq.) from nearby cities
and others for documents related to the lease. In February and
again in March 2018, the City asked the Developer for
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documentary evidence of the work so far completed and
reimbursed. It set a deadline of March 12, 2018. The Developer
did not provide documentation until May 9, 2018. Because the
City in turn had not supplied documents requested under the
Public Records Act, in April 2018 two neighboring cities took
legal action against the City.
On March 14, 2018, Cordoba gave the City written notice of
resignation. By mid-2018, the City had paid all Cordoba’s
outstanding invoices, except for some Cordoba voluntarily
withdrew. Cordoba did not demand any other fees.
On May 23, 2018, the City terminated the lease with the
Developer. The Developer continued to submit invoices for work
performed, although it had exhausted the $20 million cap.
In March 2019, the City filed a complaint against the
Developer for violating the False Claims Act (Gov. Code, § 12650
et seq.) (the Act) and defrauding the City by submitting false or
inflated invoices for work not actually performed. In March 2020,
the City received a discovery response showing a company called
Mojave Green Power, LLC was a 50 percent owner of the
Developer. Mojave Green’s sole member and manager was one
Frank Hill.
The City also served a records subpoena on Cordoba for
documents related to the Tres Hermanos project, requesting its
communications and agreements with the Developer or other
defendants, including Hill. Cordoba’s response revealed that in
November 2015, Cordoba hired Frank Hill to consult on “real
estate and related advisory services” for the City for a monthly
fee of $20,000. Cordoba provided Hill’s invoices of $20,000 to
$25,000, which Cordoba had paid each month from November
2015 to January 2018. Cordoba never informed the City of its
3
contract with Hill or shared these invoices during its work under
the Contracts.
In September 2020, the City filed its First Amended
Complaint against the Developer and named Cordoba as a
codefendant. It accused Cordoba, among others, of violation of
the Act, fraud, unfair business practices (Bus. & Prof. Code, §
17200 et seq.), breach of contract, and breach of the implied
covenant of good faith and fair dealing. The City alleged Cordoba
subcontracted its work under the Agreement without the
required authorization, that Cordoba was passing along about
half of its fees from the City to Hill, and that it held out Hill, who
had a controlling interest in the Developer, as a representative of
the City when the City in fact had no connection to him. The
City said Hill, Cordoba, and other defendants conspired to put
Cordoba in charge of review of the Developer’s invoices to ensure
those invoices were approved with minimal oversight, “in order to
conceal the fact that the project was a sham and that no
substantive work was actually being done.” The City specifically
claimed Cordoba both submitted false invoices itself and knew
about the Developer’s false submissions but, instead of alerting
the City, conspired with other defendants to conceal these facts.
In response, Cordoba filed a cross-complaint against the
City for breach of contract, breach of the implied covenant of good
faith and fair dealing, and declaratory relief.
In its first cause of action, Cordoba alleged the City’s
lawsuit breached paragraph 4(c) of the Agreement, which
addresses payment of invoices and requires 30-day notice of any
dispute over fees. Cordoba claimed damages for “significantly
increased costs of staffing, investigation, accounting, attorney’s
4
fees and related costs” due to the City’s years-long delay in
discovering the fraud and raising the issue.
Regarding the breach of the implied covenant of good faith
and fair dealing, Cordoba alleged the City’s dispute with the
Developer and confusion about the future of the Tres Hermanos
project caused Cordoba to “los[e] confidence” in its work with the
City and to “form[] the opinion that the City was not headed in a
positive direction.” Because of this, Cordoba gave notice of
resignation in 2018. Cordoba alleged the City’s actions
“frustrated the agreed-upon common purpose” of the contracts
and “rendered Cordoba’s performance impossible.” It did not
specify its damages.
Finally, Cordoba asked for declaratory relief regarding its
obligations under its various contracts with the City operable
between 2015 and 2018.
The City filed a special motion to strike Cordoba’s cross-
complaint under section 425.16, arguing Cordoba’s claims arose
from the City’s protected activity—namely, its lawsuit against
Cordoba.
The trial court held a hearing on the motion. Cordoba
characterized the lawsuit as a dispute over fees initiated well
beyond the 30-day deadline and argued the court should deny the
special motion to strike. For the first time at the hearing,
Cordoba analogized the City’s duty under the contract to
indemnity obligations. It said “the gravamen of this dispute is
Cordoba’s invoices.”
The trial court disagreed with Cordoba’s indemnity analogy
and said, “[R]eally the gravamen of the case is Cordoba
complaining that, hey, we’ve been sued by the City of Industry.
And the only reason why we have been sued is that the City
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failed to comply with its contractual obligations and, accordingly,
we want to recover the costs of defending against this case . . . .”
The court reasoned Cordoba’s points might be a defense to the
City’s lawsuit, but found “the only alleged harm was the bringing
of the lawsuit, and that would be privileged.” The court granted
the special motion to strike the cross-complaint under section
425.16. Cordoba appealed.
II
We independently review rulings on special motions to
strike. (Woodhill Ventures, LLC v. Yang (2021) 68 Cal.App.5th
624, 630 (Woodhill).) First we determine whether the claims
arose from protected activity, and, if so, we test whether the
plaintiff has shown a probability of success on its claims. (Id. at
p. 631.)
The trial court was right to grant the City’s motion. On the
first step, Cordoba’s cross-complaint sought to curb the City’s
protected right to petition. (§ 425.16, subd. (b)(1).) On the second,
it did not demonstrate a probability of success on its claims
because each of its three causes of action failed to state a case.
We address each step in turn.
A
Activity protected by section 425.16 includes “any written
or oral statement or writing made before a legislative, executive,
or judicial proceeding.” (§ 425.16, subd. (e)(1).) This right of
petition encompasses the act of filing a lawsuit. (Navellier v.
Sletten (2002) 29 Cal.4th 82, 90 (Navellier).)
When a party pleads a cause of action that rests on
allegations of multiple acts, a court must analyze each action to
determine whether it is protected. (Bonni v. St. Joseph Health
System (2021) 11 Cal.5th 995, 1009–1012.) Courts may consider
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the “gravamen” of claims to determine whether particular acts
are elements, as opposed to incidental background, but not to
determine the essence of a mixed cause of action. (Id. at p. 1012.)
Cordoba does not deny filing a lawsuit is protected activity.
Instead, it argues its three causes of action arise not from the
City’s petitioning activity, but from the City’s noncompliance
with its contractual obligations. As will become clear, this is a
distinction without a difference.
1
The court properly struck Cordoba’s breach of contract
claim because the conduct Cordoba attacked was protected
petitioning activity. Cordoba argues the City is precluded from
raising any issue related to the invoices 30 days after receipt, so
the City’s years-delayed allegations of fraud violates the contract.
This complaint plainly arises from the City’s lawsuit. Put
another way, but for the City’s lawsuit, Cordoba’s claim of breach
would have no basis. (See Navellier, supra, 29 Cal.4th at p. 90.)
Cordoba says the lawsuit is “merely evidence” of the City’s
breach and characterizes its cross-complaint as attacking “the
City’s untimely attempt to collect.” But it does not clarify what
the City attempts to collect and why. Cordoba points to no other,
unprotected acts seeking compensation besides the City’s lawsuit.
Cordoba also admitted to the trial court “[t]here was no reason
to” sue for breach until the City filed suit. The only discernible
City action against Cordoba was in court.
Cordoba relies on City of Cotati v. Cashman (2002) 24
Cal.4th 69 to argue that although the City’s lawsuit “triggered”
its cross-complaint, that does not mean it arose from the lawsuit.
In City of Cotati, the underlying controversy was not a contract
but a city’s rent stabilization ordinance. Housing owners
7
challenged the ordinance as an unconstitutional taking in federal
court. Then the city filed a state court action against the
residents asking for a declaration the ordinance was, in fact,
constitutional. The Supreme Court held the city’s lawsuit
targeted not the owners’ federal action, but the underlying
controversy between them over whether the ordinance was
constitutional. The city’s lawsuit thus did not arise from the
owners’ lawsuit because the controversy underlying both actions
was independent—that is, while the owners’ lawsuit alerted the
city to the underlying controversy, the city’s claim was not based
on the owners’ act of filing suit. (Id. at pp. 72–73, 79–80.)
Cordoba also cites City of Alhambra v. D’Ausilio (2011) 193
Cal.App.4th 1301. There a former employee joined a union
demonstration after he reached a settlement agreement on a civil
rights claim. The express terms of that agreement forbade
demonstrating or advocating against the city. The city sought
declaratory relief against the former employee, and he filed a
special motion to strike. The Court of Appeal held that while the
former employee’s actions were protected speech, the city’s action
to settle the controversy did not arise from protected activity
within the meaning of section 425.16. Rather, it arose from a
still-binding settlement agreement whose scope and
enforceability the city sought to clarify. (City of Alhambra. at pp.
1307–1309.)
Unlike City of Cotati, Cordoba’s complaint does not target
an underlying controversy that exists apart from the City’s
litigation. There is no other dispute between them. And unlike
the settlement agreement in City of Alhambra, the contracts
between the City and Cordoba have been terminated, are no
longer binding, and never explicitly forbade the protected activity
8
of taking action in court. Other cases Cordoba cites are also
inapposite. (E.g., Park v. Board of Trustees of California State
University (2017) 2 Cal.5th 1057, 1067–1068 [denial of tenure not
protected]; Oakland Bulk and Oversized Terminal, LLC v. City of
Oakland (2020) 54 Cal.App.5th 738, 755–756 [city refusing to
issue permits, withholding contractual benefits, and stonewalling
not protected].)
The City’s lawsuit was in furtherance of its protected right
to petition. The trial court correctly ruled the gravamen of
Cordoba’s breach of contract claim was to challenge precisely this
activity.
2
Cordoba’s second cause of action for breach of the implied
covenant of good faith and fair dealing meets the same fate as the
first, because Cordoba again targeted actions protected under
section 425.16.
Cordoba says it gave notice of resignation in 2018 in part
because the City had created uncertainty about its future
through disputes with the Developer about the Tres Hermanos
project. It does not allege the City’s conduct in investigating the
project specifically is the basis for its claim, but mere “evidence of
the City creating an unsustainable relationship.” This frustrated
the purpose of the contracts, Cordoba says, forcing it to resign
and thereby depriving it of the benefits of the contracts.
These disputes with the Developer were investigations of
suspicious claims on public funds and a precursor to filing suit,
first against the Developer and later against Cordoba.
Communications in preparation for litigation are protected under
section 425.16. (Dove Audio, Inc. v. Rosenfeld, Meyer & Sussman
(1996) 47 Cal.App.4th 777, 784.)
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Cordoba gives a second reason for its decision to give notice
in 2017: the city council was considering firing its city manager,
which allegedly contributed to the volatile situation. But this act,
too, was protected—as communications undertaken in connection
with a legislative proceeding. (See § 425.16, subd. (e)(1) & (2); see
also City of Montebello v. Vasquez (2016) 1 Cal.5th 409, 425, fn.
13.)
Cordoba also asserts, for the first time, that the City
interfered with its contractual rights by conniving with the
Developer to obstruct Cordoba’s attempts to perform an audit.
We generally will not consider an argument or theory raised for
the first time on appeal, and decline to do so here. (See In re
Estate of Westerman (1968) 68 Cal.2d 267, 278–279 [“a party may
not, for the first time on appeal, change the theory of a cause of
action”].) This is not, as Cordoba describes, “simply another way
of characterizing the facts.” We decline to consider these new
facts that Cordoba presents without citation to the record.
3
In its final cause of action, Cordoba asked the trial court for
a declaration addressing its duties related to the contracts with
the City and to the lease between the City and the Developer.
Specifically, it asked the court to declare it was not responsible
for approving the Developer’s invoices. Cordoba said this
controversy is substantial and immediate.
But Cordoba has no present or future duties under the
contracts, which it chose to terminate in 2018. The only use of a
declaration now would be to undermine the City’s legal claims.
In other words, but for the City’s litigation, any question about
rights and duties under the contracts is moot. Because there is
no underlying controversy other than the City’s lawsuit, this
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claim, too, arises from protected litigation activity. (See
Navellier, supra, 29 Cal.4th at p. 90.)
B
We move to the second prong of the special motion to strike
analysis, in which the movant carries the burden of establishing
a probability of success in its claims. (§ 425.16, subd. (b)(1);
Woodhill, supra, 68 Cal.App.5th at p. 630.) Cordoba must
demonstrate its complaint is legally sufficient and supported by a
prima facie showing of facts to sustain a favorable judgment if all
its evidence is credited. (Wilson v. Parker, Covert & Chidester
(2002) 28 Cal.4th 811, 821.)
Cordoba cannot satisfy this burden, because each of its
three causes of action fails to state a valid claim. We explain.
1
First, Cordoba asserts the City breached the Agreement by
challenging Cordoba’s invoices after the deadline specified in the
contract. Cordoba’s case rests on this 30-day notice provision. It
argues the City is fully barred from challenging Cordoba’s
allegedly fraudulent conduct in court more than 30 days after it
received the bills. By agreeing to this provision, Cordoba says,
the City waived its right to challenge those invoices in 2020,
under the Act or presumably anything else.
To interpret this 30-day provision, we examine the text of
the contract. (See Foxcroft Productions, Inc. v. Universal City
Studios, LLC (2022) 76 Cal.App.5th 1119, 1130.) The provision
appears under the heading “PAYMENT” and states, with our
emphasis:
“[Cordoba] shall submit invoices monthly for actual services
performed. Invoices shall be submitted on or about the first
business day of each month, or as soon thereafter as practical, for
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services provided in the previous month. Payment shall be made
within thirty (30) days of receipt of each invoice as to all non-
disputed fees. If the City disputes any of [Cordoba’s] fees it shall
give written notice to [Cordoba] within thirty (30) days of receipt
of an invoice of any disputed fees set forth on the invoice. Any
final payment under this Agreement shall be made within 45
days of receipt of an invoice therefore.”
In its operative cross-complaint, Cordoba wrote a “clerical
or administrative error” is “exactly the type of oversight the 30-
day notice requirement in the [Agreement] was meant to
address.”
The Act prescribes its statute of limitations: six years from
the date of the fraud, or three years from the date the city or
county discovers the fraud, but no more than 10 years after the
fraud, whichever occurs last. (Gov. Code, § 12654, subd. (a).) We
note the Act affirmatively requires a city or county to investigate
if it suspects false claims involving its funds. (Gov. Code, §
12652, subd. (b)(1); Stacy & Witbeck, Inc. v. City and County of
San Francisco (1996) 47 Cal.App.4th 1, 7.) A city or county
generally has discretion to file suit on the basis of its
investigation.
Parties may contract a shorter limitation period, as long as
that limitation is reasonable. (See Charnay v. Cobert (2006) 145
Cal.App.4th 170, 183 (Charnay).) “Reasonable” means the
shortened period provides sufficient time to pursue a judicial
remedy, does not violate public policy, and does not show undue
advantage. (Moreno v. Sanchez (2003) 106 Cal.App.4th 1415,
1430.)
On its face, this provision addresses payment of invoices,
not legal action. Interpreting the provision to require the City to
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discover and to file a lawsuit for fraud under the Act within 30
days would be unreasonable. (Cf. Charnay, supra, 145
Cal.App.4th at p. 183 [10-day notice requirement for client to
assert breach against her attorney “inherently unreasonable”].)
This is insufficient time to pursue a judicial remedy. The
intentional fraud the City now alleges under the Act was not an
error contemplated by the notice provision and likely to be
discovered by routine perusal of invoices. The main clues to
fraud—Cordoba’s substantial monthly payments to Frank Hill,
whose company in turn had a 50 percent interest in the
Developer—were absent from the invoices and unearthed only
during discovery in 2020. The City alleges that Cordoba
intentionally concealed this information, not that a clerical error
obscured it. Cordoba has not demonstrated a probability of
prevailing on its contract claim on this basis.
2
We turn to Cordoba’s second cause of action. Implied in
every contract is a covenant of good faith and fair dealing. The
implied covenant prevents one side from unfairly frustrating the
other’s right to receive the benefits of the agreement actually
made. (Guz v. Bechtel Nat. Inc. (2000) 24 Cal.4th 317, 349–350;
1 Witkin, Summary of Cal. Law (2022) Contracts, § 822.) The
covenant does not impose substantive terms beyond those of the
contract. (Guz, at pp. 349–350.) A plaintiff claiming breach must
allege the defendant’s wrongful conduct was contrary to the
contract’s purpose and the parties’ legitimate expectations.
(Avidity Partners, LLC v. State of California (2013) 221
Cal.App.4th 1180, 1204.)
Cordoba fails to ground the City’s supposed wrongdoing in
the terms of the contract. It says the City interfered with an
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audit but does not specify how and why this vague conduct was
contrary to the contract’s purpose. It says it was forced to end its
relationship with the City because of the City’s “disputes” with
the Developer and firing its city manager, but it does not explain
what legitimate expectation it had that the City would behave
otherwise.
Fundamentally, Cordoba complains the City deprived it of
the benefits of its contracts with the City but does not say what
benefit it unfairly lost. Cordoba has not stated a case for breach
of the implied covenant.
3
Cordoba’s third cause of action is for declaratory relief. The
grant or denial of declaratory relief is within the discretion of the
trial court. (§ 1061 [court may refuse declaration when “not
necessary or proper at the time under all the circumstances”].) A
complaint must show a proper subject for declaratory relief and
an actual controversy involving justiciable questions relating to
the rights or obligations of a party. (5 Witkin, Cal. Procedure
(6th ed. 2022) Pleading, § 849.) Declaratory relief operates
prospectively—a remedy “to be used in the interests of
preventative justice, to declare rights rather than execute them.”
(Babb v. Superior Court (1971) 3 Cal.3d 841, 848 (Babb).)
A proper subject includes a declaration of one’s rights and
duties under a contract. (§ 1060.) A controversy is ripe when it
has reached, but has not passed, the point that the facts
sufficiently have congealed to permit the court to issue a useful
decision. (Gafcon, Inc. v. Ponsor & Associates (2002) 98
Cal.App.4th 1388, 1403.) The purpose of the declaration is to
allow the parties to shape their conduct to avoid a breach. (Babb,
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supra, 3 Cal.3d at p. 848.) There is no basis for declaratory relief
where only past wrongs are involved. (Osseous Technologies of
America, Inc. v. DiscoveryOrtho Partners LLC (2010) 191
Cal.App.4th 357, 366.)
In its complaint, Cordoba asks the trial court to declare
that the contracts did not require it to approve the Developer’s
invoices. It says this is a “substantial controversy of sufficient
immediacy” to warrant declaratory judgment in order to “obviate
litigation.” Yet the only immediate controversy alleged is present
litigation against Cordoba on the basis of past acts; i.e., its duties
under the contracts that ended in early 2018. The facts
congealed years ago, and the controversy is stale. No declaration
from the trial court could help the parties prevent a future
breach. Rather, Cordoba seeks a declaration that it is innocent of
the alleged fraud. Such a declaration would be of no use except
as a defense against the allegations. And without an actual
controversy concerning present rights and duties, section 1060
does not authorize a declaration.
We may affirm a correct ruling even if the trial court
supplied different reasons. (Cf. Rappleyea v. Campbell (1994) 8
Cal.4th 975, 980–981 [trial court’s grant of a motion to set aside
default correct although its stated legal basis was faulty].) While
the trial court held the litigation privilege barred the action, it
was also well within its discretion to dismiss the request for
declaration relief under these circumstances. (§ 1061.)
The trial court was right to grant the special motion to
strike Cordoba’s cross-complaint, but Cordoba is not entirely
without recourse. As the trial court noted, many of Cordoba’s
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arguments in its cross-complaint more properly may be made as
defenses.
DISPOSITION
We affirm the order and award costs to the City. We deny
Cordoba’s requested judicial notice as irrelevant.
WILEY, J.
We concur:
STRATTON, P. J.
HARUTUNIAN, J.*
* Judge of the San Diego Superior Court, assigned by the
Chief Justice pursuant to article VI, section 6 of the California
Constitution.
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