Court Opinion

ID: 4112923
Source: CourtListenerOpinion
Date Created: 2017-01-03 21:01:13.961251+00
Date Added: 2024-06-11T18:02:50.306670
License: Public Domain

NOT FOR PUBLICATION                             FILED
                    UNITED STATES COURT OF APPEALS                          JAN 03 2017

                                                                        MOLLY C. DWYER, CLERK
                            FOR THE NINTH CIRCUIT                        U.S. COURT OF APPEALS

ULTRASYSTEMS ENVIRONMENTAL,                      No.   15-55215
INC.,
                                                 D.C. No. 2:13-cv-08787 (DDP)
              Plaintiff-Appellant,

 v.                                              MEMORANDUM*

STV, Inc.,

              Defendant-Appellee.

                   Appeal from the United States District Court
                       for the Central District of California
                   Dean D. Pregerson, District Judge, Presiding

                     Argued and Submitted December 8, 2016
                              Pasadena, California

Before: REINHARDT and PAEZ, Circuit Judges, and FRIEDMAN,** District
Judge.

      Plaintiff-Appellant Ultrasystems Environmental, Inc. (“UEI”) appeals the

district court’s decision dismissing its complaint against Defendant-Appellee STV,

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
      **
             The Honorable Paul L. Friedman, United States District Judge for the
District of Columbia, sitting by designation.
Inc. (“STV”) in its entirety. We have jurisdiction under 28 U.S.C. § 1291. On

appeal, we affirm the dismissal of UEI’s complaint.

      As the parties are familiar with the facts, we recount them only briefly here.

In January of 2007, the California High Speed Rail Authority (“CHSRA”) entered

into a consulting contract (the “prime contract”) with STV for STV to perform

“preliminary engineering and project-specific environmental work” for the Los

Angeles segment of the proposed rail project. The prime contract makes CHSRA’s

payment obligations subject to the California Prompt Payment Act, which, inter

alia, requires “state agencies” to “pay properly submitted, undisputed invoices . . .

within 45 days of receipt or notification thereof, or automatically calculate and pay

the appropriate late payment penalties.” CAL. GOV’T CODE

§ 927(b) (“Section 927”).

      In February of 2007, STV formally entered into a subcontract with UEI for

UEI to prepare environmental impact statements for the rail project in the Los

Angeles area. The subcontract states that “[a] copy of the Prime Agreement,

including [UEI’s] responsibilities and timing of services hereunder, is incorporated

by reference into this Agreement as Exhibit A.” The subcontract required STV to

pay UEI “within fifteen (15) business days following receipt of payment from

[CHSRA] of STV’s invoice that includes the invoice from [UEI].” From 2007

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until November 2009, UEI performed approximately $4.5 million worth of work

under the subcontract.

      In its First Amended Complaint, UEI alleged that “STV breached its

Agreement [] by failing to promptly pay undisputed UEI invoices within 45 days

of STV’s receipt of payment from CHSRA for work performed by UEI,” and

“STV is therefore obligated to pay [UEI] penalties for said late payments to the

same extent and in the same manner that late payments would be calculated

pursuant to” Section 927. STV moved to dismiss under Rule 12(b)(6) of the

Federal Rules of Civil Procedure, arguing that the plain language of Section 927

makes it applicable only to “state agencies” and not contractors like itself. In

UEI’s opposition to the motion to dismiss, it argued that it “should be given leave

to file a Second Amended Complaint to assert” a claim that STV had “an implied

duty of good faith and fair dealing . . . to collect prompt payment penalties [from

CHSRA] and pay [UEI a] pro rata share” of those penalties.

      The district court agreed with STV that the plain meaning of Section 927

imposes no obligations on STV, dismissed UEI’s complaint in its entirety with

prejudice, and denied UEI the opportunity to amend its complaint because it

concluded it would be futile to permit amendment to add a claim of breach of an

implied warranty of good faith and fair dealing. On appeal, UEI contends that the

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district court erred in dismissing its contract claims and denying it leave to amend

its complaint.

      We review de novo the grant of a motion to dismiss. Schueneman v. Arena

Pharm., Inc., 840 F.3d 698, 704 n.5 (9th Cir. 2016). We review the denial of leave

to amend for an abuse of discretion, United States v. ex rel. Lee v. Corinthian

Colls., 655 F.3d 984, 995 (9th Cir. 2011), but review the question of futility of

amendment de novo, Carvalho v. Equifax Info. Servs., LLC, 629 F.3d 876, 893

(9th Cir. 2010). In other words, “[d]ismissal without leave to amend is improper

unless it is clear, upon de novo review, that the complaint could not be saved by

any amendment.” Thinket Ink Info. Res., Inc. v. Sun Microsystems, Inc., 368 F.3d

1053, 1061 (9th Cir. 2004).

      1. Following full briefing in this Court, STV filed an “objection and motion

to strike” the portion of UEI’s reply brief that raised the “false and new claim that

STV was paid prompt payment penalties on account of UEI.” STV’s motion to

strike lacks merit. It is not clear what STV is referring to when it discusses

“prompt payment penalties on account of UEI” because neither party alleges that

UEI caused CHSRA to pay late payment penalties to STV. Nonetheless, UEI’s

argument is not new. UEI argued in its opposition to STV’s motion to dismiss in

the district court that if CHSRA paid STV late payment penalties, STV must “share

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[them] pro rata” with UEI based on “equitabl[e]” principles and the “implied duty

of good faith and fair dealing.” We therefore deny STV’s motion to strike.

      2. Section 927 states that “[i]t is the intent of the Legislature that state

agencies pay properly submitted, undisputed invoices, refunds, or other undisputed

payments due to individuals within 45 days of receipt or notification thereof, or

automatically calculate and pay the appropriate late payment penalties as specified

in this chapter.” CAL. GOV’T CODE § 927(b) (emphasis added). The statute further

specifies that, “[n]otwithstanding any other provision of law, this chapter shall

apply to all state agencies . . . .” Id. at § 927(c) (emphasis added). The district

court correctly interpreted Section 927 to not impose obligations on entities other

than “state agencies,” and thus correctly concluded that UEI failed to plead that

STV violated the subcontract.

      The district court in this case was the first state or federal court ever to

interpret Section 927. “When a state’s highest court has not yet ruled on an issue,

we must reasonably determine the result that the highest state court would reach if

it were deciding the case.” Gonzales v. CarMax Auto Superstores, LLC, 840 F.3d

644, 649 (9th Cir. 2016). “When addressing questions of statutory interpretation

under California law, we ‘[must] ascertain the intent of the Legislature so as to

effectuate the purpose of the law.’” Id. (quoting People v. Coronado, 906 P.2d

                                           5
1232, 1234 (Cal. 1995)). “The California Supreme Court first looks to the

language of the statute, giving effect to the words’ plain meaning; ‘[i]f the

language is unambiguous, the plain meaning controls.’” Id. (quoting Voices of the

Wetlands v. State Water Res. Control Bd., 257 P.3d 81, 93 (Cal. 2011)).

      Section 927 requires “state agencies” to “pay properly submitted, undisputed

invoices . . . within 45 days of receipt or notification thereof, or automatically

calculate and pay the appropriate late payment penalties[.]” CAL. GOV’T CODE §

927(b). Section 927 does not define the term “state agencies,” see CAL. GOV’T

CODE § 927.2, but “[t]he Legislature [] is deemed to be aware of statutes and

judicial decisions already in existence, and to have enacted or amended a statute in

light thereof. Where a statute is framed in language of an earlier enactment on the

same or an analogous subject, and that enactment has been judicially construed, the

Legislature is presumed to have adopted that construction.” People v. Harrison,

768 P.2d 1078, 1081-82 (Cal. 1989) (internal citations omitted); see also Los

Angeles Cty. Dependency Attorneys, Inc. v. Dep’t of Gen. Servs., 73 Cal. Rptr. 3d

817, 822-23 (Cal. Ct. App. 2008) (analyzing statute that uses but does not define

the term “state agency” and finding that the legislature used the term with an

“aware[ness]” of other statutes defining the term).

      California has myriad statutes relating to contracting with “state agencies,”

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see generally CAL. PUB. CONT. CODE §§ 10100-10285 (provisions of the “State

Contract Act”), and its legislature has consistently defined the term “state agency”

as “every state office, officer, department, division, bureau, board, and

commission,” or a variation thereof. CAL. GOV’T CODE § 11000 (providing for the

organization of the California state government); CAL. GOV’T CODE § 6252(f)(1)

(same definition under the California Public Records Act); see also CAL. GOV’T

CODE § 65934 (“‘State agency’ means any agency, board, or commission of state

government.”); CAL. GOV’T CODE § 8869.82(a)(10) (“‘State agency’ means the

state and all state entities[.]”).

       Against this extensive background, we presume that the California

legislature was aware of the plain meaning of the term “state agencies” when it

enacted Section 927 and intended that meaning to control. The unambiguous plain

meaning of the term “state agencies” does not include entirely private companies

such as STV that contract with “state agencies,” and the statute therefore does not

impose upon private contractors the obligation to pay subcontractors late payment

penalties.

       The text of Section 927.10 of the California Prompt Payment Act confirms

this plain language interpretation. That subsection states that “[s]tate agencies

shall encourage claimants to promptly pay their subcontractors and suppliers . . . .”

                                          7
CAL. GOV’T CODE § 927.10 (emphasis added). The legislature’s decision in this

provision to distinguish “[s]tate agencies” from claimants (contractors) and

subcontractors suggests that the legislature never intended the term “state

agencies” to include private contractors or subcontractors. It is also telling that

Section 927.10 empowers “[s]tate agencies” to merely “encourage” state

contractors “to promptly pay their subcontractors and suppliers”; it does not

mandate them to do so. Cf. Am. Acad. of Pediatrics v. Lungren, 940 P.2d 797,

884-85 (Cal. 1997) (“Assembly Bill 2274 encourages but does not mandate that an

unemancipated minor consult her parents prior to obtaining an abortion.”). Section

927.10 therefore compels the conclusion that Section 927’s substantive timing and

late payment penalty provisions do not impose obligations on contractors like

STV. The district court properly dismissed UEI’s contract claims.

      Because Section 927’s plain language makes it inapplicable to the

subcontract, we need not consider appellant’s argument that the statute can “fill in”

for portions of the subcontract that UEI alleges are ambiguous or unenforceable.

Nor do we consider the legislative history of Section 927 because, “[i]f the

statute’s text evinces an unmistakable plain meaning, we need go no further.” Pac.

Palisades Bowl Mobile Estates, LLC v. City of Los Angeles, 288 P.3d 717, 727

(Cal. 2012) (internal quotation marks omitted). Finally, we decline UEI’s

                                           8
invitation to certify the question of Section 927’s application here to the California

Supreme Court because it is one of straightforward plain language interpretation.

      3. The district court correctly denied as futile UEI’s request for leave to

amend the complaint to add a claim of breach of the implied duty of good faith and

fair dealing. Under Rule 15(a) of the Federal Rules of Civil Procedure, “leave to

amend shall be freely given when justice so requires,” at least “in the absence of

. . . undue delay, bad faith[,] dilatory motive on the part of the movant, . . . undue

prejudice to the opposing party . . . , futility of amendment, etc.” Foman v. Davis,

371 U.S. 178, 182 (1962) (internal quotation marks omitted). “Absent prejudice,

or a strong showing of any of the remaining Foman factors, there exists a

presumption under Rule 15(a) in favor of granting leave to amend.” Sharkey v.

O’Neal, 778 F.3d 767, 774 (9th Cir. 2015) (emphasis and internal quotation marks

omitted). An amendment is futile when “no set of facts can be proved under the

amendment to the pleadings that would constitute a valid and sufficient claim or

defense.” Miller v. Rykoff-Sexton, Inc., 845 F.2d 209, 214 (9th Cir. 1988).

      Under California contract law, “[t]he covenant of good faith and fair dealing,

implied by law in every contract, exists merely to prevent one contracting party

from unfairly frustrating the other party’s right to receive the benefits of the

agreement actually made. The covenant thus cannot be endowed with an existence

                                           9
independent of its contractual underpinnings. It cannot impose substantive duties

or limits on the contracting parties beyond those incorporated in the specific terms

of their agreement.” Guz v. Bechtel Nat’l, Inc., 8 P.3d 1089, 1110 (Cal. 2000)

(internal citations and quotation marks omitted). Here, the subcontract lacks any

language concerning late payment penalties. While it incorporates the prime

contract and thereby Section 927, the timing and late payment penalty provisions

therein do not apply to STV. UEI’s failure to negotiate for terms obligating STV

to seek late payment penalties from CHSRA is fatal to its proposed covenant of

good faith and fair dealing claim.

      In its reply brief on appeal, UEI suggests for the first time that the district

court erred in finding amendment futile because it could also assert: (1) a statutory

unfair competition claim under California law, see CAL. BUS. & PROF. CODE §

17200, and (2) a common law claim under California law for money had and

received. “This argument was not adequately raised before the district court and is

therefore waived.” Morris v. Ernst & Young, LLP, 834 F.3d 975, 984 n.6 (9th Cir.

2016). We therefore affirm the district court’s denial of leave for UEI to amend its

complaint because the proposed amendment is futile.

      AFFIRMED.

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