JUDICIAL COUNCIL OF CALIFORNIA, Plaintiff and Appellant, v. JACOBS FACILITIES, INC., et al., Defendants and Respondents; JACOBS PROJECT MANAGEMENT, CO., Cross-complainant and Respondent, v. JUDICIAL COUNCIL OF CALIFORNIA, Cross-defendant and Appellant.
Nos. A140890, A141393
First Dist., Div. One.
Aug. 20, 2015.
239 Cal. App. 4th 882
MARGULIES, Acting P. J.
[CERTIFIED FOR PARTIAL PUBLICATION*]
Reed Smith, Paul D. Fogel, Dennis Peter Maio; Sedgwick, Marilyn Klinger and Jonathan T. Rodriguez for Plaintiff and Appellant and for Cross-defendant and Appellant.
Gibson, Dunn & Crutcher, Daniel M. Kolkey, Theane Evangelis, Kimberly A. Nortman, Alexander M. Fenner; Keesal, Young & Logan, Samuel A. Keesal, Jr., Albert E. Peacock III and David A. Tong for Defendants and Respondents and for Cross-complainant and Respondent.
MARGULIES, Acting P. J.—Plaintiff Judicial Council of California, Administrative Office of the Courts (JCC), entered into a contract with defendant Jacobs Facilities, Inc. (Facilities), a wholly owned subsidiary of defendant Jacobs Engineering Group Inc. (Jacobs). Performance of the contract required a license issued pursuant to the Contractors’ State License Law (
JCC sued Jacobs and the two subsidiaries under
When the matter was called for trial, defendants requested a hearing on the issue of substantial compliance. The trial court deferred that hearing until after a jury trial on defendants’ other defenses to JCC‘s claim. After the jury found for defendants, the substantial compliance hearing was never held.
JCC appeals the denial of its motion for judgment notwithstanding the verdict and the trial court‘s award of attorney fees to defendants. We reverse the judgment and attorney fees award entered on the jury‘s verdict, concluding Facilities violated the CSLL when it continued to act as the contracting party after its contractor‘s license expired. We decline to order entry of judgment for JCC, however, because defendants remain entitled to an opportunity to prove their substantial compliance under the statute. We remand for a hearing pursuant to
JCC is the administrative agency of California‘s judicial branch. In 2005, JCC issued a request for proposals (RFP) for the provision of maintenance and repair services to courthouses and other judicial branch buildings throughout Southern California. The successful respondent was Facilities, a wholly owned subsidiary of Jacobs, which is a publicly traded corporation.
JCC and Facilities entered into a three-year facilities maintenance and repair agreement (the contract) in April 2006. The contract anticipated Facilities would organize, supervise, and bill for building repair and maintenance, while retaining subcontractors to perform some or all of the actual repair work. Among the provisions pertinent to this lawsuit, the contract precluded its assignment by Facilities, “in whole or in part,” without JCC‘s written consent. Facilities also represented and warranted it held a class B contractor‘s license and agreed it would secure and maintain all licenses required for the performance of work under the contract.
Facilities commenced work under the contract, which covered a total of 121 buildings, in April 2006. In performing the contract, Facilities employees provided only administrative and oversight services, while retaining subcontractors to perform actual maintenance and repair work. When work was completed, Facilities recorded its completion in a dedicated computer system and generated an invoice. The invoices called for payment to Facilities, but the account to which JCC was directed to remit payment was a general Jacobs account from which Jacobs allocated payments among its subsidiaries.
In December 2006, Jacobs undertook a “branding initiative” designed, among other things, to reduce the costs associated with maintaining its many subsidiaries. As part of this initiative, Jacobs decided to dissolve Facilities and transfer its employees to Jacobs. Although the liquidation of Facilities into Jacobs was accomplished pursuant to a document effective December 2006, Facilities was not actually dissolved as a corporate entity until September 2010. The change in corporate structure did not affect performance of work under the contract, which was carried on in the same way by the same persons, but those persons appear to have become employees of Jacobs in January 2007.2 Throughout the reorganization, Facilities continued to invoice
Defendant Jacobs Project Management, Co. (Management), was formed in January 2008 as a wholly owned subsidiary of Jacobs.3 Under a written agreement, Jacobs transferred 713 employees, including some former Facilities employees, to Management, as well as the “fixed assets use[d] by those employees.” It appears all employees providing services to JCC under the contract became employees of Management in February 2008, although the record is not wholly clear on this point.4 Throughout 2008, Jacobs allocated compensation received from JCC under the contract to Management, rather than Facilities. As before, actual work under the contract was unaffected, and invoices sent to JCC continued to instruct it to remit payment to “Jacobs Facilities Inc.”
When a corporation applies for a contractor‘s license, it must designate a “qualifying individual,” a corporate officer or employee who is qualified for the same license classification for which the corporation is applying. (See
At trial, Jacobs claimed to have performed an “internal assignment” of the contract from Facilities to Management on the date the new license was
Although Facilities had begun divesting itself of assets and employees in December 2006, the Jacobs entities’ first documented mention of the reorganization to JCC is an e-mail from April 2008, sent in connection with the negotiation of a different contract. At that time, a Jacobs employee told JCC that, as a result of a corporate reorganization, Facilities would not be the contracting entity on the new contract. During a subsequent exchange of e-mails, the employee explained that Jacobs intended to “novate” existing Facilities contracts to Management, once Management acquired the necessary contractor‘s license. In response, a JCC employee confirmed his understanding that Jacobs intended to transfer the contract to a new operating entity.
Jacobs did nothing to implement the intended novation of the contract until December 2008, when a Jacobs employee sent a copy of a proposed novation agreement to JCC under a “to whom it may concern” cover letter. Although JCC directed the letter to a responsible JCC employee, neither he nor anyone else at JCC responded to it, and Jacobs did nothing to follow up until eight months later, in August 2009, when the same Jacobs employee sent the same proposed novation agreement again, this time addressing the cover letter to a particular JCC employee. In the meantime, in February 2009, JCC exercised the first of three discretionary one-year extensions of the contract. McCallister executed the agreement extending the contract on behalf of Facilities.
Jacobs‘s August 2009 letter seeking consent to a novation did raise a response from JCC, but the parties displayed no urgency in transferring the contract until JCC learned in October 2009 that Facilities had allowed its contractor‘s license to lapse nearly a year earlier. JCC was particularly concerned about appearances that the “Administrative Office for the Courts, which represents the justice system, had a contractor who was not in compliance with the law.” As a cure, the parties entered into an agreement assigning the contract to Management in November 2009. Hereafter, we will refer to this agreement as the “assignment,” distinguishing it from Jacobs‘s earlier internal reassignment of duties to Management, which we will refer to as the “internal assignment.”
JCC filed this action in December 2009 against Facilities and Management. The operative complaint, JCC‘s second amended complaint (complaint),
JCC‘s statutory and contract claims were bifurcated, and the statutory claims proceeded to trial in April 2012. Prior to trial, defendants requested a “substantial compliance” hearing from the trial court. Under
Responding to a special verdict, the jury found Facilities had maintained a contractor‘s license at all times while performing the contract; Facilities had “internally assign[ed]” the contract to Management prior to the expiration of the Facilities license; JCC was not “adversely affect[ed]” by the internal assignment; and Management was owed $4,669,376. The jury also found that Facilities had been paid $18,331,911 by JCC for its work under the contract, but the jury declined to require Facilities to disgorge that amount. The deferred substantial compliance hearing was never held.
In November 2013, JCC dismissed with prejudice its contract cause of action, and Management dismissed the claims in its cross-complaint seeking relief other than recovery under the unpaid invoices. On motion of the Jacobs entities, the trial court entered a defense judgment on JCC‘s statutory claim and Management‘s counterclaim for unpaid invoices, requiring JCC to pay Management the $4.7 million found by the jury. The court thereafter summarily denied JCC‘s motion for judgment notwithstanding the verdict (JNOV). In February 2014, the trial court granted the Jacobs entities’ motion for contractual attorney fees.
II. DISCUSSION
A. Denial of JCC‘s JNOV Motion
The evidence is essentially undisputed that Facilities contracted to deliver services requiring a contractor‘s license, allowed its license to expire, and continued to deliver the services while unlicensed. On its face, this would appear to constitute a violation of the CSLL, entitling JCC to the remedies specified in
Defendants argue we can affirm the jury‘s conclusion the requirements of the CSLL were met because (1) they did not violate the CSLL because the statute does not penalize changes in a contractor‘s form of business; (2) the internal assignment of the contract from Facilities to Management prevented a violation; or (3) in executing the assignment, JCC retroactively ratified an assignment from Facilities to Management as of the time Management acquired its license, thereby avoiding a violation. We find none of these arguments sufficient to uphold the verdict.
1. Applicable Law
The CSLL provides “a comprehensive scheme which governs contractors doing business in California.” (Asdourian v. Araj (1985) 38 Cal.3d 276, 282 (Asdourian).) “The purpose of the licensing law is to protect the public from incompetence and dishonesty in those who provide building and construction services. [Citation.] The licensing requirements provide minimal assurance that all persons offering such services in California have the requisite skill and character, understand applicable local laws and codes, and know the rudiments of administering a contracting business.” (Hydrotech Systems, Ltd. v. Oasis Waterpark (1991) 52 Cal.3d 988, 995 (Hydrotech).) For purposes of the CSLL, “a contractor is any person who undertakes to or offers to undertake to . . . , or does himself or herself or by or through others, construct, alter, [or] repair . . . any . . . structure, project, development or improvement, or to
The two provisions of the CSLL of concern here are designed to enforce compliance with the CSLL‘s licensing requirements.
Because it denies all compensation for a contractor‘s work, regardless of the quality of the work or the reasons for the failure of licensure,
Judicial discretion in the enforcement of
Courts have taken their cue from the Legislature in enforcing the letter of the law, consoled by the Legislature‘s “‘determination that the importance of deterring unlicensed persons from engaging in the contracting business outweighs any harshness between the parties.‘” (MW Erectors, supra, 36 Cal.4th at p. 423, italics omitted.) Accordingly, if a contractor is unlicensed for any period of time while delivering construction services, the contractor forfeits all compensation for the work, not merely compensation for the period when the contractor was unlicensed. (Alatriste, supra, 183 Cal.App.4th at p. 665.) Although construction contractors often make substantial payments to others for materials and labor, an unlicensed contractor forfeits all money paid, without offsets for such payments to third parties. (Ahdout v. Hekmatjah (2013) 213 Cal.App.4th 21, 31 (Ahdout).) Because
“The trial court‘s power to grant a motion for JNOV is the same as its power to grant a directed verdict. [Citation.] The court must accept as true the evidence supporting the jury‘s verdict, disregarding all conflicting evidence and indulging in every legitimate inference that may be drawn in support of the judgment. The court may grant the motion only if there is no substantial evidence to support the verdict. [Citations.] On appeal from the denial of a motion for JNOV, we determine whether there is any substantial evidence, contradicted or uncontradicted, supporting the jury‘s verdict.” (Taylor v. Nabors Drilling USA, LP (2014) 222 Cal.App.4th 1228, 1237.) Where, however, the trial court‘s denial of JNOV is based on an issue of law, our review is de novo. (Wolf v. Walt Disney Pictures & Television (2008) 162 Cal.App.4th 1107, 1138.)
2. Penalizing Changes in Business Form Under the CSLL
As suggested above, we agree with JCC that, on the basis of what is materially undisputed evidence, the Jacobs entities failed to comply with the CSLL. The analysis is straightforward. Facilities contracted with JCC to supply services requiring a contractor‘s license. Although Facilities was licensed at the time the contract was made, its license expired in November 2008. Yet Facilities continued to deliver services and accept compensation from JCC as the signatory under the contract until November 2009, when the assignment was executed. Because Facilities was unlicensed for a portion of the period of its contract performance, its compensation under the contract is subject to forfeiture under subdivisions (a) and (b) of
Defendants argue
While Franks may have reached the correct result on its facts, the broad interpretation of its language urged by defendants cannot be justified, and the decision should only cautiously be applied beyond the precise situation before that court. Franks never mentions the doctrine of substantial compliance, but to the extent the court purported to approve the delivery of services under a construction contract by an entity that was not licensed at the time work on the construction began, the court was necessarily invoking the now defunct doctrine.11 While it may be true that
In arguing their corporate reorganization did not result in a violation of the CSLL, defendants contend disgorgement in these circumstances does not serve the statutory purposes. Part of the Legislature‘s purpose, however, was to impose “strict and harsh penalties” (MW Erectors, supra, 36 Cal.4th at p. 418) in order to ensure contractor compliance with the statute. As the Supreme Court noted in Hydrotech: “The purpose of the licensing law is to protect the public from incompetence and dishonesty in those who provide building and construction services. [Citation.] . . . [][]
Yet we acknowledge penalizing the Jacobs entities for these technical transgressions only indirectly serves the CSLL‘s larger purpose of preventing the delivery of services by unqualified contractors, since the Jacobs entities
“Our function is to ascertain and give effect to legislative intent, and ‘not to determine whether the Legislature‘s policy choices were right or wrong.’ [Citation.] Courts may not evaluate the desirability of the policies embodied in legislation. “[T]he choice among competing policy considerations in enacting laws is a legislative function.““” (Alatriste, supra, 183 Cal.App.4th at p. 672.) While we appreciate the potentially great harshness of this legislation in these circumstances, any argument for expansion of the substantial compliance doctrine must be directed to the Legislature.
3. The Effect of the Internal Assignment
Defendants argue Facilities internally assigned the contract to Management after its acquisition of a license in August 2008, thereby avoiding a violation upon the expiration of Facilities‘s license. We conclude the internal assignment was irrelevant to the issue of CSLL compliance because Facilities continued to act in the capacity of a contractor until November 2009, when it was relieved of that role by the assignment. Facilities was therefore required by the CSLL to maintain a contractor‘s license until that time.14
As a practical matter, the internal assignment shifted responsibility for providing services under the contract from Facilities to Management. The requirement of licensure under
Controlling in this regard is Opp v. St. Paul Fire & Marine Ins. Co. (2007) 154 Cal.App.4th 71. The plaintiff in Opp, an individual, was a licensed contractor who served as the president of an unlicensed corporation. Opp‘s corporation executed a subcontract for construction services under his individual license number. When Opp brought an action for payment, the defendant asserted the bar of
Putting aside the issue of ratification, considered below, there is no evidence to suggest JCC gave its written consent to a transfer of responsibilities, required by the contract to effect a valid assignment, prior to November 2009. Without the consent of the obligee, the delegation of a duty by an
obligor under a contract does not extinguish the obligor‘s duty. (Rest.2d Contracts, § 318, p. 19.) Accordingly, even if Facilities unilaterally delegated its duties under the contract through an internal assignment to Management in August 2008, Facilities remained responsible to JCC for the delivery of services. Further, as noted above, Facilities continued to act as the contracting party vis-à-vis JCC, executing contract amendments, maintaining insurance, and sending invoices in its own name. Under the rule of Opp, Facilities‘s delegation of performance under the contract to Management did not relieve Facilities of its obligation under the CSLL to remain licensed so long as it was obligated to deliver services under the contract.
For this reason, we conclude the jury‘s finding that Facilities maintained a contractor‘s license “at all times while engaged in the business or acting in the capacity of a contractor in connection with” the contract is not supported by substantial evidence. The evidence is undisputed that Facilities continued to act as a contractor by remaining the signatory on the contract and accepting compensation even after its license expired in November 2008. Defendants contend that Management‘s assumption of day-to-day work under the contact provided evidence to support the jury‘s finding but Management‘s performance of such work did not preclude Facilities from continuing to act as a contractor. In remaining the signatory on the contract, continuing to secure bonding and insurance, executing contract amendments, and soliciting and receiving payments, Facilities continued to act as a contractor after the lapse of its license. Management‘s assumption of day-to-day duties is not evidence to the contrary.
Defendants argue that following the internal assignment, Facilities was merely a surety of Management‘s performance and therefore did not require a license, citing Wiseman v. Sklar (1930) 104 Cal.App. 369 [285 P. 1081] and Cutting Packing Co. v. Packers’ Exch. (1890) 86 Cal. 574, 577 [25 P. 52]. Neither case relieves Facilities of its responsibilities here. In a sentence quoted only partially by Facilities in its brief, the Wiseman court explained the effect of an unconsented assignment: “‘The obligations of an assignor of a contract continue to rest upon him and he will be required to respond to the other party to the contract in the event of a default on the part of the assignee.‘” (Wiseman, at p. 374.) As a result, “irrespective of the legality or lack of legality of the assignment, [the assignor] was at all times responsible to [the other parties] under the contract.” (Id. at pp. 374-375.) As this demonstrates, Wiseman does not suggest that, following an unconsented assignment, the obligor under a contract is relegated to the role of surety. Cutting Packing is similar. While the decision refers to the assignor as a surety, the term is used only to describe the assignor‘s relationship to the assignee; that is, if the assignee failed to pay, the assignor would be required to pay. With respect to the obligee under the contract, “the burden of the obligation that rested upon the [assignor]
Yet even if Facilities became a common law surety, it would not have been relieved of the duty of licensure under the CSLL, given its continued status as the contracting party after the internal assignment.
Defendants also argue the internal assignment did not require JCC‘s approval because it resulted from a corporate reorganization. The principle was first suggested in Trubowitch v. Riverbank Canning Co. (1947) 30 Cal.2d 335 [182 P.2d 182] (Trubowitch), in which the plaintiff, an assignee, sought to arbitrate a dispute over nondelivery of fruit under a contract containing a nonassignment clause. After the contract was made, the original party, a corporation, was dissolved, and its assets were distributed to its shareholders, who carried on the business. (Id. at pp. 337-338.) The defendant resisted arbitration over its nondelivery because it had not consented to an assignment to the shareholders. (Id. at p. 338.) In considering the issue, the court held, “if an assignment results merely from a change in the legal form of ownership of a business, its validity depends upon whether it affects the interests of the parties protected by the nonassignability of the contract.” (Id. at pp. 344-345.) In finding the assignment valid under this principle, Trubowitch reasoned the “seller‘s financial interests were fully protected” because the contract involved only the delivery of goods and contained provisions ensuring payment would be made: (Id. at p. 346.) The court distinguished such a contract from one for the provision of “services requiring special skill, capacity or taste.” (Ibid.)
Accordingly, neither Trubowitch nor McNamara holds that contracts are freely assignable among the wholly owned subsidiaries of a corporate parent, notwithstanding the presence of a nonassignment clause. The holding in Trubowitch was actually quite narrow. The contract was merely for the delivery of goods, and there were provisions in the contract to ensure the defendant would receive payment for the goods. (Trubowitch, supra, 30 Cal.2d at p. 346.) The court expressly noted that a different result was likely if the contract required, as here, “services requiring special skill, capacity or taste.” (Ibid.) McNamara, in turn, appears to have based its holding on the ineffective nature of an unconsented assignment. Just as we have held with respect to Facilities, McNamara found the defendant, the putative assignor, continued to have an “unaltered duty . . . to perform the contract” notwithstanding the assignment, since, in the absence of state consent, the assignment was ineffective to shift the defendant‘s obligation to the state to perform. (McNamara, supra, 28 Cal.App.3d at p. 649.) Both decisions are therefore consistent with our conclusion that the internal assignment did not relieve Facilities of its status of obligor under the contract.
The essence of defendants’ argument is that there was no CSLL violation because Management, following its licensure, began performing day-to-day work under the contract well before the lapse of Facilities‘s license. Indeed, Facilities was incapable of such work, because the necessary employees and assets had been transferred to Management. The CSLL is not necessarily satisfied merely because the person or entity actually performing services under a contract is licensed. (See, e.g., Vallejo Development Co. v. Beck Development Co. (1994) 24 Cal.App.4th 929, 938 [29 Cal.Rptr.2d 669] [unlicensed entity that entered into contract and claimed merely to be the “‘administrator‘” of work barred from recovery].) Rather, a license is
4. Ratification Through the Assignment
Even if the internal assignment was ineffective in avoiding a forfeiture, defendants argue (1) JCC ratified the internal assignment in executing the assignment and (2) the assignment itself was retroactive or related back to the date of the internal assignment. It is by no means clear that a violation of the CSLL can be cured after the fact in this manner, but we assume its effectiveness for purpose of argument.
The parties to the assignment are JCC and the three Jacobs entities. The recitals of the assignment state (1) Jacobs, at some unspecified time, notified JCC that due to a corporate consolidation Facilities would no longer enter into contracts for the type of services provided under the contract and that such services “are” being performed by Management; (2) in furtherance of Jacobs‘s corporate consolidation, the assignment “is intended to evidence [Facilities‘s] assignment of the Contract to [Management], and [Management‘s] assumption of the Contract“; (3) Facilities “desires to memorialize its assignment of the Contract to [Management]“; (4) Management “desires to memorialize its assumption of the Contract“; and (5) Management possesses the qualifications to perform under the contract. The covenants of the assignment include an assignment of the contract from Facilities to Management,16 a ratification by Management of “all actions taken by [Facilities] under or with respect to the Contract,” a warrant by Management of its suitability, a consent by JCC to the assignment, and a guaranty by Jacobs of Management‘s performance. The covenant of assignment states Management assumes the contract “as if [Management] was the original party to the Contract.” JCC‘s consent states: “The State hereby executes and enters into this Agreement
Defendants argue the jury could have relied on the assignment as evidence in finding a ratification of the internal assignment. In making this argument, defendants seek to convert what would appear to be an issue of contract interpretation into an issue of fact, thereby invoking the deferential standard of review applicable to appellate review of findings of fact. We might agree with defendants if there were some other evidence to support a finding of ratification. That is not the case. There is no indication the parties even discussed JCC‘s ratification of the internal assignment. Instead, Facilities‘s only evidence of a ratification is the effect of the assignment. The issue is therefore one of contract interpretation, to which we apply de novo review. (Pittsburg Unified School Dist. v. S.J. Amoroso Construction Co., Inc. (2014) 232 Cal.App.4th 808, 826 [181 Cal.Rptr.3d 694].)
We find little or nothing in the assignment to support a conclusion JCC ratified the internal assignment. Most importantly, there is no express covenant of ratification. If the parties had intended for JCC to ratify the internal assignment, it would have been simple for them to include such a covenant. To the contrary, in the places in the agreement where one might expect confirmation of a ratification by JCC, it is absent. Most obviously, the provision entitled “Ratification” refers only to Management‘s ratification of actions taken by Facilities under the contract; there is no mention of ratification by JCC of the internal assignment. In addition, the covenant relating to JCC‘s consent to the assignment, another logical place to insert a provision relating to ratification by JCC, makes no mention of it. That provision states only that JCC consents to the assignment itself, not to any earlier internal assignment.
As discussed above, the assignment contained a series of recitals that referred indirectly to the internal assignment. One of these constituted an acknowledgement by JCC that, at some unspecified date prior to the execution of the assignment, Facilities had notified JCC that Management was actually performing the services being delivered under the contract. Defendants argue from this and the other recitals that the assignment should be interpreted as effecting the internal assignment, which occurred over a year earlier. The language of the covenants suggests otherwise. The language of the assignment covenant states Facilities “hereby . . . assigns and transfers the Contract” and Management “hereby assumes the Contract.” Both are phrased in the present tense, implying the transfer of rights and duties occurred by
Defendants also argue the language in the assignment covenant stating Management assumes the contract “as if [Management] was the original party to the Contract” is evidence of a ratification. The meaning and legal implications of this phrase are unclear, but there is no reason to construe it as a ratification of the internal assignment, which did not occur until two years after the execution of the contract. If the language were taken literally, it would substitute one CSLL violation for another, since Management did not possess a license until two years after performance of the contract began.17
Defendants also argue JCC “relinquished its right to object to the [internal] assignment because a subsequent consent to a prior assignment ‘relates back to the time of the assignment,‘” quoting University of Judaism v. Transamerica Ins. Co. (1976) 61 Cal.App.3d 937, 942 [132 Cal.Rptr. 907] (Transamerica). As part of its acquisition of real property, the plaintiff in Transamerica was assigned a fire insurance policy covering the property, issued by the defendants. No change in use occurred as a result of the acquisition, since the lessee of the property was the same before and after. One month later, the property burned, and the defendants were not notified of the assignment of their policy until after the fire. (Id. at p. 939.) They attempted to cancel the policy, citing a clause requiring the insurers’ consent to any assignment. (Id. at p. 940.)
In denying cancellation, the court noted the purpose of the nonassignment provision was to prevent an increase of risk of loss due to a change of ownership without the knowledge of the insurer. (Transamerica, supra, 61 Cal.App.3d at p. 940.) The court explained: “In this case, had notice been promptly given prior to the loss, defendants would have routinely approved the assignment of the policy to plaintiff. . . . There is no evidence that the change of ownership in any way increased the risk to defendants. Since the change of ownership did not increase the risk to defendants, and they would have routinely approved the assignment, they cannot claim they suffered any prejudice from the late notice. [Citation.] . . . The language of the provision is consistent with plaintiff‘s theory that defendants should be deemed to have consented to the assignment, and that such consent relates back to the time of the assignment. . . . To avoid a forfeiture, plaintiff may, in
Assignment clauses in insurance policies are subject to uniquely applicable rules, including statutory restrictions on their enforcement. (See, e.g., Fluor Corp. v. Superior Court (2015) 61 Cal.4th 1175, 1205–1206 [191 Cal.Rptr.3d 498, 354 P.3d 302] [
In any event, there was no evidence to suggest JCC would “routinely” consent to the type of assignment sought by Facilities, as required by Transamerica. JCC engaged in a formal RFP process in order to find a suitable service provider. Any change in provider, even if due to a corporate reorganization, would require similar due diligence. JCC would necessarily have wanted to satisfy itself the assignment posed no business risk, even if the assignment merely recognized a change in corporate structure. Simply as a matter of fact, JCC delayed when first approached for a novation, and it refused to sign an assent to novation and would not consent to the assignment without a guarantee of performance by Jacobs. There was nothing routine about its consent.18
Nor is there any justification for finding that JCC‘s consent relates back to the time of the internal assignment. As noted above, such consent is necessary in the insurance context to avoid a lapse in coverage. While defendants argue relation back was necessary here to avoid the lapse in
Defendants once again raise Trubowitch and McNamara in this context, arguing, in effect, that even if the internal assignment was not effective at the time it was entered into, given JCC‘s right of consent, we should view JCC‘s eventual consent as retroactive because the assignment was the result of a mere corporate reorganization and, as the jury found, did not harm JCC‘s interests. (Trubowitch, supra, 30 Cal.2d at pp. 345-346.) At this point, we run into the abolished doctrine of substantial compliance. As discussed above, JCC‘s interest in the prospective performance of the contract was sufficient to preclude its free assignment among wholly owned subsidiaries of Jacobs. JCC had the contractual right to approve such a change, even if it was merely the result of a corporate reorganization. To find that the assignment had a retroactive effect merely because Facilities‘s breach of the assignment clause did not harm JCC, when the ordinary principles of law discussed above provide no grounds for finding the assignment to be effective prior to its effective date, would be to invoke a special rule excusing a
Defendants also argue JCC waived its right to object to the internal assignment by dealing with Management at a time when it had knowledge of the assignment, citing Trubowitch. (Trubowitch, supra, 30 Cal.2d at p. 342.) Assuming the applicability of the principle in this context, the record does not support a finding that the Jacobs entities informed JCC of the internal assignment prior to execution of the assignment. The initial notification, in April 2008, merely informed JCC that Jacobs intended to execute a novation transferring the contract from Facilities to another subsidiary at some point in the future. Thereafter, Jacobs sent proposals to JCC seeking its consent to a novation, and it continued to send invoices and execute contractual documents in the name of Facilities. There is no evidence Jacobs informed JCC it had unilaterally assigned the contract to Management, and Jacobs‘s continued attempts to negotiate a formal assignment of the contract suggested otherwise.
As the foregoing account suggests, the principle announced by Klopstock is unique to lease law: the unconsented assignment of a lease can be voided by the lessor‘s declaration of forfeiture, but it is valid unless and until such a declaration has been made. (Klopstock, supra, 24 Cal.2d at pp. 901-902.) Klopstock does not purport to make this principle applicable outside lease law, in which there are no comparable procedural requirements for the rejection of an assignment, and subsequent decisions have applied the decision solely within that framework. (E.g., Guerin v. Blair (1949) 33 Cal.2d 744, 746-747 [204 P.2d 884]; Weisman v. Clark (1965) 232 Cal.App.2d 764, 767 [43 Cal.Rptr. 108].) With respect to an ordinary contract containing a nonassignment clause, an unconsented assignment, rather than effective until voided, is simply ineffective. Taking the present situation as an example, it is inconsistent with contract law to claim, following the internal assignment, that JCC was required to accept performance from Management unless or until it voided the contract. On the contrary, JCC had the right to insist on performance by Facilities until or unless it had consented to the assignment. To hold otherwise would, in effect, permit Jacobs to force JCC to accept the internal assignment or forfeit the contract, a choice inconsistent with JCC‘s contractual right to approve any assignment. Accordingly, JCC‘s act in entering into the assignment did not affirm the earlier internal assignment; rather, it effected an assignment as of the effective date of the assignment.
As a final matter, defendants contend that Management was entitled to recover the unpaid sums awarded by the jury even if Facilities was not, because the sums accrued at a time when Management, a licensed entity, was performing the services under the contract. We find no legal basis for the
5. Conclusion
We view the jury‘s verdict as an attempt to reach an equitable resolution, given the harsh consequences to defendants from the strict application of
B. Substantial Compliance
Defendants request that, in the event the judgment is reversed, the matter be remanded for the conduct of a substantial compliance hearing. We find such a remand appropriate.
1. Waiver of Hearing
As discussed above,
JCC contends defendants forfeited such a hearing when they failed to request it after submission of the case to the jury and before the jury returned with its verdict. We do not understand the trial court‘s ruling to have anticipated that the hearing would occur immediately after the matter was sent to the jury. On the contrary, because there would be no way of knowing how long the jury‘s deliberations would require, it would make no sense to hold a hearing immediately after submission. Rather, we interpret the court as deferring the substantial compliance hearing until after trial, as defendants’ counsel suggested.
Further, we find no forfeiture. Defendants timely requested a substantial compliance hearing. The trial court granted the request but deferred the hearing until after the jury rendered its verdict. Once the defense judgment was entered, a substantial compliance hearing became superfluous. Defendants should not be deprived of their right to prove compliance with
We also decline JCC‘s invitation to find as a matter of law that the Jacobs entities failed to comply with
In ruling that defendants have not waived their right to a substantial compliance hearing, we have assumed that
Defendants contend that, regardless of the Legislature‘s intent, they have a constitutional right to the jury determination of substantial compliance. “[T]he state constitutional right to a jury trial ‘is the right as it existed at common law in 1850, when the Constitution was first adopted . . . .’ [Citations.] ‘As a general proposition, “[T]he jury trial is a matter of right in a civil action at law, but not in equity.” [Citations.]’ [Citation.] ‘[I]f the action is essentially one in equity and the relief sought “depends upon the application of equitable doctrines,” the parties are not entitled to a jury trial.’ [Citation.] And ‘if a proceeding otherwise identifiable in some sense as a “civil action at law” did not entail a right to jury trial under the common law of 1850, then the modern California counterpart of that proceeding will not entail a constitutional right to trial by jury.’ ” (Franchise Tax Bd. v. Superior Court (2011) 51 Cal.4th 1006, 1010 [125 Cal.Rptr.3d 158, 252 P.3d 450].)
Defendants’ counterclaim for payments withheld under the contract was asserted under
When equitable defenses are interposed to a legal cause of action, the “proper rule” is for the court to hear and dispose of the equitable defenses first, before submitting the legal claim to a jury. (Swasey v. Adair (1891) 88 Cal. 179, 180 [25 P. 1119]; see Hoopes, supra, 168 Cal.App.4th at p. 157 [“‘better practice‘” is for the court to decide equitable issues first]; Stephen Slesinger, Inc. v. Walt Disney Co. (2007) 155 Cal.App.4th 736, 763 [66 Cal.Rptr.3d 268].) Alternatively, the court may try all issues in one proceeding, with the jury sitting in an advisory role with respect to factual issues applicable to the equitable issue. (A-C Co. v. Security Pacific Nat. Bank (1985) 173 Cal.App.3d 462, 473 [219 Cal.Rptr. 62]; but see Swasey, at p. 181 [equitable defense that could be asserted in independent suit against the plaintiff must be heard first].) In that circumstance, it remains “the duty of the trial court to make its own independent findings. . . . [Citation.] There is no authority for asking a jury‘s advice as to ‘whether injustice can only be avoided by enforcing the promise’ or, more generally, whether the equitable doctrines of promissory estoppel or unclean hands should be applied.” (A-C Co., at p. 474.) Whichever approach is adopted, equitable issues retain their character, despite being raised in the context of a legal claim. A litigant has no constitutional right to a jury determination of an equitable issue merely because it is raised in the context of a claim at law.
Defendants argue the substantial compliance doctrine should be viewed as arising at law in these circumstances because the doctrine “goes to [Management‘s] capacity to recover under the contract.” In making their argument, defendants equate “capacity to recover” with “capacity to contract” and argue the latter is an element of their cause of action at law for breach of contract. Contrary to defendants’ premise, however, capacity to contract and capacity to recover are quite different concepts. Capacity to contract refers to a party‘s power to enter into a binding contract, and it ordinarily depends
Compliance with the CSLL can fairly be characterized as an element of defendants’ cause of action for breach (
C. Attorney Fees*
III. DISPOSITION
The judgment of the trial court is reversed. The matter is remanded to the trial court for an evidentiary hearing on substantial compliance pursuant to
Dondero, J., and Jones, J.,* concurred.
A petition for a rehearing was denied September 15, 2015, and the opinion was modified to read as printed above. Respondents’ petition for review by the Supreme Court was denied November 18, 2015, S229621. Cantil-Sakauye, C. J., and Chin, J., did not participate therein.
*Presiding Justice of the Court of Appeal, First Appellate District, Division Five, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.