Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_05-cv-00583/USCOURTS-caed-2_05-cv-00583-7/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Contract Dispute

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UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

FRU-CON CONSTRUCTION

CORPORATION,

NO. CIV. S-05-583 LKK/GGH

Plaintiff,

v.

SACRAMENTO MUNICIPAL O R D E R

UTILITY DISTRICT, a municipal

utility district; and UTILITY

ENGINEERING CORPORATION, a

Texas corporation,

Defendants.

 /

On March 24, 2005, Fru-Con Construction Corp. (“Fru-Con”), a

foreign corporation, filed this federal action against the

Sacramento Municipal Utility District (“SMUD”), the owner of the

Consumnes Power Project, as well as against the project designer,

Utility Electric Corporation (“UEC”), alleging causes of action for

breach of contract, breach of the implied covenant of good faith

and fair dealing, breach of the implied warranty, professional

negligence, and breach of the California Prompt Payment Act. There

is complete diversity among the litigants because Fru-Con is a

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1All facts are taken from the complaint and are assumed to be

true for the purposes of this motion only. 

2

Missouri corporation, SMUD is a California municipal utility

district, and UEC is a Texas corporation with its principal place

of business in Colorado.

In the instant motion UEC seeks to dismiss the case against

it for failure to state a claim upon which relief can be granted,

pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure.

I.

BACKGROUND1

SMUD contracted with UEC to design a two-phase 1,000 MW

gas-fired, combine cycle power plant in Herald, California. 

Compl. at ¶ 8. UEC was to be responsible for the

civil/structural, mechanical, electrical and controls Balance of

Plant engineering design for the project, including preparation

of detailed construction specifications and plans. Id. at ¶¶ 9,

18. While the design work for the project was still underway,

SMUD submitted a request for bids from contractors, to which

Fru-Con responded, basing its bid upon the project bid documents

provided by SMUD which included UEC’s design (this document

stated that it was incomplete in certain areas). Id. at ¶¶ 11-

13. Fru-Con’s bid was the lowest and SMUD thus awarded the

contract to Fru-Con. Id. at ¶¶ 14-16. 

Fru-Con’s contract with SMUD described UEC as one of the

“major participants” and required that Fru-Con use the

“specifications, drawings, and documentation” provided by UEC

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for construction. Id. at ¶¶ 18. UEC was given responsibility

for the oversight of the design implementation and was to have

engineering personnel on site during construction to oversee and

approve of any changes to the design. Id. at ¶ 20. 

The contract further provided that Fru-Con was entitled to

an equitable increase in the compensation to be paid to Fru-Con

and an extension of time due to changes in the contract or the

contract work. Id. at ¶¶ 23-26. The contract expressly stated

that SMUD had not completed the project design at the time of

the contract and that Fru-Con would be entitled to an adjustment

of the contract price for any subsequent design change if such

change could not reasonably have been inferred from the scope of

work set forth in the contract and if the change increased

either Fru-Con’s time or cost to perform the work. Id. at ¶ 25.

Due to delays that Fru-Con claims were caused (at least in

part) by UEC’s negligent design work, Fru-Con was unable to meet

the deadlines set out in the contract and the present suit

follows from this delay and the disputes that arose surrounding

it. Id. at ¶¶ 29-58. 

II. 

STANDARDS FOR A MOTION TO DISMISS

On a motion to dismiss, the allegations of the complaint

must be accepted as true. See Cruz v. Beto, 405 U.S. 319, 322

(1972). The court is bound to give the plaintiff the benefit of

every reasonable inference to be drawn from the "well-pleaded"

allegations of the complaint. See Retail Clerks Intern. Ass'n,

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Local 1625, AFL-CIO v. Schermerhorn, 373 U.S. 746, 753 n.6

(1963). Thus, the plaintiff need not necessarily plead a

particular fact if that fact is a reasonable inference from

facts properly alleged. See id.; see also Wheeldin v. Wheeler,

373 U.S. 647, 648 (1963) (inferring fact from allegations of

complaint).

In general, the complaint is construed favorably to the

pleader. See Scheuer v. Rhodes, 416 U.S. 232, 236 (1974). So

construed, the court may not dismiss the complaint for failure

to state a claim unless it appears beyond doubt that the

plaintiff can prove no set of facts in support of the claim

which would entitle him or her to relief. See Hishon v. King &

Spalding, 467 U.S. 69, 73 (1984) (citing Conley v. Gibson, 355

U.S. 41, 45-46 (1957)). In spite of the deference the court is

bound to pay to the plaintiff's allegations, however, it is not

proper for the court to assume that "the [plaintiff] can prove

facts which [he or she] has not alleged, or that the defendants

have violated the . . . laws in ways that have not been

alleged." Associated General Contractors of California, Inc. v.

California State Council of Carpenters, 459 U.S. 519, 526

(1983).

III.

ANALYSIS

Fru-Con brings a claim for professional negligence against

UEC for breaching its duties in preparing the design for the

Consumnes Power Plant. The first hurdle in any negligence

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claim, however, is to demonstrate that the defendant actually

owed a duty of care to the plaintiff. Countrywide Home Loans,

Inc. v. U.S. ex rel. I.R.S., 2005 WL 1355440, 12 (E.D. Cal.

2005)(Ishii, J.) (“The threshold element of a cause of action

for negligence is the existence of a duty to use due care toward

an interest of another that enjoys legal protection against

unintentional invasion”) (citing Bily v. Arthur Young & Co., 3

Cal.4th 370, 397 (1992)). Negligence claims for purely economic

damages against a party not in contractual privity are generally

not allowed under California law, although they are occasionally

permitted if the plaintiff can satisfy the balancing test set

out in Biakanja v. Irving, 49 Cal.2d 647 (1958) and as expanded

upon by Bily v. Arthur Young & Company, 3 Cal. 4th 370. See

also J’Aire Corporation v. Gregory, 24 Cal. 3d 799, 804 (1979). 

Before examining the Biakanja factors, however, I will

first address whether the question of duty in this case is

properly resolved on a motion to dismiss. UEC argues that

“whether or not a duty of care exists is a matter of law for the

Court’s determination.” Def.’s Mot. for Summ. J. at 6. Fru-Con

cites to a case which suggests that the question should be

reserved for the trier of fact. M. Miller Co. v. Dames & Moore,

198 Cal.App.2d 305, 309 (1961)(holding that the question “should

have been left to the trier of fact, for the uncontradicted

allegations of appellants complaint, if proved, would support” a

finding that there was a duty under Biaknja); see also Kent v.

Bartlett, 49 Cal.App.3d 724, 730-31 (citing M. Miller, the court

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reserves the primary question for the jury, overturning the

lower court’s grant of judgment for the defendant on the grounds

that “a jury could properly have found that the case met the

requirements of the Biakanja rule.”). However, two cases which

are binding on this court, hold that whether UEC owes a duty of

care to Fru-Con it is a question of law. In Glenn K. Jackson

Inc. v. Roe, the Ninth Circuit states that “whether this

essential prerequisite to a negligence cause of action has been

satisfied in a particular case is a question of law.” 273 F.3d

1192, 1196-97 (2001). The California Supreme Court in Bily held

that whether there is a duty of care is a threshold “question of

law to be resolved by the court.” 3 Cal.4th at 397 (1992). 

Therefore, it is appropriate for this court to decide the

question of duty in a motion to dismiss. 

The Biakanja case involved a claim by a would-be-heir who

sought economic damages from defendant for negligent preparation

of a will which, if properly prepared, would have left her the

decedent’s entire estate. 49 Cal.2d at 648. The California

Supreme Court, recognizing a recent liberalization of the

extension of duty to third parties, set out a balancing test to

determine whether, in a specific case, the defendant could be

held liable to a third person not in privity when the plaintiffs

seeks damages for purely economic harm (as opposed to seeking

damages for property or personal injury). The court held that

the decision whether the defendant owed a duty to the third

party:

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[I]s a matter of policy and involves the balancing of

various factors, among which are the extent to which

the transaction was intended to affect the plaintiff,

the foreseeability of harm to him, the degree of

certainty that the plaintiff suffered injury, the

closeness of the connection between the defendant’s

conduct and the injury suffered, the moral blame

attached to the defendant’s conduct, and the policy of

preventing future harm. 

Id. at 650. The court then found that the defendant did owe a

duty to the plaintiff. Id.

Although UEC does not appear to deny that the Biakanja test

is the appropriate one to apply, it never actually works through

the factors in their briefs to demonstrate that Fru-Con failed

to allege sufficient facts to support their claim. Instead, UEC

focuses on a number of subsequent cases, which UEC claims,

though applying the Biakanja factors, demonstrate that the

design engineer does not owe a duty to the contractor. These

cases, however, simply affirm that Biakanja sets out the

controlling test for duty when a party is not in privity and is

seeking only economic damages, and thus that is the appropriate

place to center the analysis in this case. See Ratcliff

Architects v. Vanir Construction Management, Inc., 88

Cal.App.4th 595, 606 (2001) (applying Biakanja factors); Weseloh

Family Limited Partnership v. K.L. Wessel Construction Co. 125

Cal.App.4th at 167 (“We next apply the undisputed facts in this

case to the Biakanja factors and the Bily factors.”); Aas v.

Superior Court 24 Cal.4th at 637, 644-47. 

While the Biakanja factors do apply, they unfortunately

appear to be fairly standardless standards and ultimately, as

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the court in Biakanja conceded, it is a question of policy

whether or not the court should apply an exception to the welltested rule. 49 Cal.2d at 650; see also Bily, 3 Cal.4th at 399;

Aas, 24 Cal.4th 638, 646 (noting that the application of the

multi-factored balancing test tends to require the court to make

“fairly subjective judgments.”). As the most recent cases

applying the Biakanja factors suggest, the factors should be

construed narrowly to avoid allowing the exception to swallow

the rule. See, e.g., Weseloh, 125 Cal.App.4th at 170; Ratcliff

Architects, 88 Cal.App.4th at 606-07.

In the recent Aas v. Superior Court case, one factor in

particular is emphasized: “the degree of certainty that the

plaintiff suffered injury.” Aas, 24 Cal.4th 646 (citing

Biakanja, 49 Cal.2d at 650). In this decision, the court

refused to find that a developer and general contractor who

constructed faulty homes owed a duty to the ultimate homeowners

for the non-economic damages they sought. The court undertook a

careful analysis of the California case law on exceptions to the

economic loss rule, and in applying the Biakanja factors honed

in on the third factor in particular. Id. at 646. The court

noted that while most of the factors are “fairly subjective”

this one poses a “relatively objective obstacle” to plaintiffs’

claim. Id. Reviewing an earlier decision by the court

(J’Aire), it found that “appreciable, nonspeculative, present

injury is an essential element of a tort cause of action” and

absent a finding of such injury “it is difficult to imagine what

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2UEC badly tries to mislead the court about Aas’s finding on

this by altering a quote to indicate that “property damage or

personal injury” is required instead of what the Court says which

is simply that there must be an appreciable, nonspeculative, and

present injury (it does not altogether exclude economic injury).

By altering the quote (through the use of brackets) UEC makes it

sound like the court was precluding all purely economic claims,

where the court was actually just limiting the times it can be used

to those where there is a concrete injury, whether economic or

otherwise. 

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other factors, singly or in combination, might justify the court

in finding liability.” Id.2

In this case Fru-Con has alleged that they “incurred

damages in excess of $20 million.” Compl. at ¶ 88. They set

out the alleged failure of SMUD to pay Fru-Con for the services

they provided, and detail the amount they claim they are due. 

Compl. at ¶ 49-57. The complaint also demonstrates that Fru-Con

has a remedy for this loss, and that is to sue SMUD, not UEC. 

Compl. at ¶ 23-27. In sum, it is not clear that there will be a

compensable economic injury in this case, since the provisions

of Fru-Con’s contract appear to have been designed to deal with

the type of harm they are alleging. 

In addition to the emphasis in the Aas case on concrete

injury, the additional set of factors set out in Bily also

emphasize the importance of relying on the contractual

relationship for these types of harms. One of the three Bily

factors is that the “parties should be encouraged to rely on

their own ability to protect themselves through their own

prudence, diligence and contracting power.” Glenn K. Jackson

Inc., 273 F.3d at 1198 (citing Bily, 3 Cal.4th at 399-405).

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It seems to this court thus that this is not the type of

case where an exception to the rule should be applied since FruCon has a remedy against the party that it did contract with.

See Ratcliff Architects, 88 Cal.App.4th at 606-07. Fru-Con has

an obligation to contract carefully when agreeing to undertake a

multi-million dollar project. The fact that the contract

contains provisions to deal with the exact scenario which is at

issue here deters the court from allowing the case to proceed

against UEC. 

It is not necessary for the court to slog through the other

malleable standards since Aas emphasized that the above factor

is an “essential element of a tort cause of action” and since

this is primarily a policy choice and there seems to be nothing

unusual in this case that would promote a further dilution of

the common law rule against allowing plaintiffs to sue parties

with whom they are not in privity for purely economic damages.

24 Cal.4th at 646. 

IV.

CONCLUSION

UEC’s motion to dismiss Fru-Con’s fourth claim is GRANTED. 

UEC is DISMISSED from this action.

IT IS SO ORDERED. 

DATED: August 3, 2005.

/s/Lawrence K. Karlton

LAWRENCE K. KARLTON

SENIOR JUDGE

UNITED STATES DISTRICT COURT

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