FTR International v. Superior Court

Filed 6/26/06 FTR International v. Superior Court CA2/6

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION SIX

Rio School District ("the District") awarded a contract to FTR International Inc. ("FTR") for the construction of an elementary school. A contractual dispute between the parties resulted in actions being brought by both parties and by subcontractors involved in the construction project. In Case No. B187400, the District seeks a writ of mandamus to vacate orders of the respondent superior court granting (1) FTR's motion for a change of venue to Los Angeles County Superior Court; and (2) a peremptory challenge to Judge Hutchins made by newly added defendants pursuant to Code of Civil Procedure section 170.6.^[1] In Case No. B187199, FTR seeks a writ of mandamus to vacate the order of the respondent superior court allowing Judge Hutchins to complete his ruling on the District's pending summary judgment motion before the action is transferred to Los Angeles County. We have consolidated both petitions for oral argument and disposition. We grant the District's petition in part and deny FTR's petition.

FACTUAL AND PROCEDURAL BACKGROUND

In 1999, following competitive bidding, the District awarded a contract to FTR in the sum of $ 7,345,000 to construct a new elementary school in Oxnard. FTR allegedly abandoned the project before completing certain items. In January of 2001, a subcontractor (SG Roofing Supplies Gardena LLC) filed a civil action in Ventura County Superior Court in Case No. CIV 201015 against the District, FTR, and others, alleging that it had not been fully paid for materials supplied on the project. Other suppliers and subcontractors then filed suit against the District and FTR in Ventura County Superior Court. Amelco Industries, Inc., filed suit against the District and FTR in Orange County Superior Court.

In July of 2001, FTR filed an action against the District in Ventura County Superior Court in Case No. CIV 204779, seeking damages for breach of contract. FTR alleged that the District had not paid all the sums due under the original contract or paid for certain increased construction costs.

In November of 2001, the trial court granted a motion filed by FTR to transfer the Orange County action filed by Amelco Industries to Ventura County for consolidation with all of the other actions pending in Ventura County Superior Court. In March of 2002, the trial court consolidated all the pending actions involving the construction project, FTR, and the District.

In October of 2003, the District filed a separate action against FTR in Ventura County Superior Court (Case No. Civ 223403), seeking damages for violations of the California False Claims Act (Gov. Code, § 12650 et seq.) in connection with the construction project. The District alleged that FTR had submitted change order requests and payment applications seeking payment of more than $1 million dollars to which it was not entitled. A month later, FTR successfully moved to consolidate this action with the above cases and to continue trial.

In December of 2003, in response to the action filed against it by the District for damages under the California False Claims Act, FTR filed a motion to change venue of the action to a neutral county pursuant to section 394. FTR noted that it is a resident of Orange County and its officers are exclusively there. As a nonresident defendant, FTR contended that it was entitled to request that the action filed by the public entity be transferred to a neutral county. On December 11, 2003, the trial court ordered the District's action in Case No. CIV 223403 severed from the remaining consolidated actions in Case No. CIV 201015 and transferred to a neutral county. The court denied FTR's motion insofar as it sought to transfer Case No. CIV 201015.

Thereafter, in January 2004, FTR moved ex parte to vacate the trial court's prior order of December 11 transferring Case No. CIV 223402 (the District's action under the False Claims Act) to Orange County. To avoid the costs of litigating the same issues in two different actions, FTR requested that the court again consolidate this action with the other consolidated actions pending in Ventura County Superior Court in Case No. CIV 201015. On January 9, 2004, the trial court vacated its order of December 11 and reconsolidated the actions for trial in Ventura County.

In May of 2004, FTR answered the District's complaint in Case No. Civ 223403 and filed a cross-complaint against the District, alleging federal civil rights violations. FTR contended the District had discriminated against it because FTR was owned by "Arab-Americans."

Thereafter, the District settled all of the above actions except the disputes between FTR and it.

In July of 2004, the District moved for summary judgment on FTR's complaint against it for breach of contract. The District contended that the contract between it and FTR was induced by the fraudulent misrepresentations of FTR and that, therefore, FTR was barred from recovering damages based upon an alleged breach of the contract. The District also contended that FTR was barred from recovery by the doctrine of unclean hands. The gist of the motion was that FTR had failed to disclose on its initial application to bid on the project that it had been involved in more than 25 litigation matters in the past 5 years. The District stated that had it known of FTR's litigation history, it would not have allowed FTR to bid on the project or entered into a multimillion dollar contract with it. The evidence submitted in support of the motion showed 25 lawsuits filed against FTR in the past years and 12 stop notices issued to FTR.

FTR opposed the District's motion for summary judgment, arguing that it had truthfully completed the application to bid on the project by disclosing five lawsuits. FTR also argued that the District had conducted its own public records search and its remedy, in any event, was to seek rescission of the contract with a restoration to FTR of everything of value the District received from FTR's work on the project.

In reply, the District contended that because FTR had fraudulently induced it to enter into the contract, it had an absolute defense to FTR's contractual claims under the False Claims Act. The District also contended that under the doctrine of unclean hands, FTR should not be able to use the court to further its fraud against a public agency.

In March of 2005, the trial court (Judge Hutchins) granted the District's motion for summary judgment as to FTR's complaint against it for breach of contract. The court ruled that FTR had misrepresented material facts on its pre-qualification questionnaire, the District had relied on the misrepresentations, and that if the District had known of the true facts it would not have awarded the contract to FTR. The court ruled, therefore, that there was fraud in the inducement as a matter of law and that the fraud in the inducement eliminated any liability the District had to FTR under the contract. The court did not address the unclean hands issue.

On March 24, 2005, FTR moved the trial court for reconsideration of its summary judgment decision, arguing that the remedy applied by the court (forfeiture of FTR's claims) exceeded that authorized by law. FTR argued the District could seek damages as an offset to FTR's claims, but could not void the contract.

In response, on March 29, 2005, the District moved ex parte for an order clarifying the trial court's summary judgment ruling. The District contended that it was not clear whether the court had resolved its affirmative defense of unclean hands.

On March 30, 2005, Judge Hutchins denied the ex parte request and clarified that he had not resolved the unclean hands issue because his ruling made it unnecessary to do so.

Thereafter, on April 4, 2005, the District moved for reconsideration of the trial court's summary judgment ruling. The District conceded that FTR was correct in contending that a finding of fraudulent inducement does not provide a complete defense to FTR's breach of contract claim. Therefore, the District requested that the trial court rule on its affirmative defense of unclean hands. Later, FTR supplemented its request for reconsideration to seek clarification on whether the court's finding of fraudulent inducement meant that FTR had intentionally or negligently misrepresented the facts.

The trial court continued the hearing on FTR's and the District's motions for reconsideration to August 26, 2005. In the meantime, on April 15, 2005, while the motions for reconsideration were pending, FTR filed a petition for a writ of mandate with this court, challenging the trial court's summary judgment ruling. (FTR v. Superior Court (B182405, den. May 4, 2005.)

In May of 2005, the District sought leave to amend its complaint against FTR for violations of California's False Claims Act. The proposed amended complaint named three additional individual defendants (Nizar Katbi, Samer Katbi, and James Price, the President, Secretary, and Project Manager of FTR, respectively). The proposed pleading also added allegations that FTR had violated the False Claims Act not only by submitting false claims for extra work performed, but by submitting false information on its bid application. FTR opposed the motion. The trial court consolidated the motion with the hearing on the pending motions for reconsideration.

On August 26, 2005, the trial court conducted a hearing on the motions for reconsideration and the District's motion for leave to amend its pleadings. The court granted the District's motion for leave to amend and the new pleadings were filed. The court agreed to reconsider whether fraud in the inducement provides a complete defense to FTR's claims. Judge Hutchins also agreed to hear the District's contentions as to its affirmative defense of unclean hands that he had previously not addressed and continued the matter to October 19, 2005, to allow time for supplemental briefing on the question whether a finding of fraud in the inducement and unclean hands barred FTR from recovering damages under the contract.

On September 8, 2005, the two new defendants added to the District's amended complaint (Samer Katbi and James Price) filed an ex parte motion to disqualify Judge Hutchins pursuant to section 170.6, and to continue the trial date currently set for October 11, 2005. The next day, the trial court (Judge Hutchins) held a hearing on the ex parte application, found the application timely, and granted the peremptory challenge. Judge Hutchins did not rule on the motion to continue the trial and transferred the case to Judge Liebmann.

On September 15, 2005, FTR, Nizar Katbi, Samer Katbi, and James Price filed an ex parte application for an order shortening time for service of a motion for a change of venue pursuant to section 394.

On the same date, September 15, the District filed an ex parte application seeking reconsideration of the order granting the peremptory challenge. The District contended that a late-appearing party is precluded from filing a peremptory challenge after the judge has already decided a contested issue of fact relating to the merits of the action. (See § 170.6, subd. (a)(2).)

On September 16, 2005, the trial court (Judge Liebmann) held a hearing on the ex parte applications. During the hearing, the trial court issued a briefing schedule and set a hearing date (October 6) on the motion for a change of venue and the District's motion for reconsideration of the disqualification of Judge Hutchins. The court vacated the hearing date on the reconsideration of Judge Hutchins's summary judgment order. The court also stayed the hearing dates on additional motions brought by the District.^[2]

The same day, on September 16, 2005, the new individual defendants Nizar Katbi, Samer Katbi, and James Price moved to change venue of the entire action to a neutral county pursuant to section 394. These defendants contended that transfer to a neutral county was mandatory where a local agency sues a nonresident defendant in its home county. FTR also moved to change venue of the District's recently filed cross-complaint against it for fraud and declaratory relief. FTR stated that it was not asking for a transfer of the District's false claims complaint.^[3]

On September 22, 2005, the District voluntarily dismissed the cross-complaint it had filed against FTR for fraud and declaratory relief, and also voluntarily dismissed the individual defendants from the first amended complaint it had filed against FTR for violations of the False Claims Act.

On September 23, 2005, the District opposed the motion for a change of venue, arguing that it had become moot by the dismissal of the individual defendants. The District also contended that FTR had waived its right to seek a change of venue.

On September 28, 2005, FTR filed an amended motion for change of venue to a neutral county under section 394. FTR clarified that it was now seeking to transfer the entire action to a neutral county because the District had materially amended its complaint against FTR under the False Claims Act by adding new factual allegations and a new theory of recovery. FTR noted that the District's original complaint alleged that FTR had violated the False Claims Act by requesting payment for extra work performed in response to change orders. FTR contended that this original complaint was merely the "mirror image" of FTR's action against the District, which also sought damages for the extra work FTR performed. FTR contended that it had waived its right to seek a transfer of the District's original complaint because it was only a mirror image of FTR's action. FTR contended that it had not stipulated that subsequent claims filed by the District could also be heard in Ventura County. FTR noted that the District's amended complaint alleged that FTR had committed fraud by failing to make a complete disclosure of its litigation history prior to bidding on the construction project. FTR contended that it had an "absolute right" to have this "new claim" transferred to a neutral county.

In reply, the District argued that FTR could not renew its motion to transfer simply because the District had amended its complaint against FTR. The District noted that its amended complaint merely set forth an additional way in which FTR had violated the False Claims Act. The only change in the pleadings was the addition of the factual allegation that FTR had violated the False Claims Act by submitting a false response to the District's Pre-Qualification Questionnaire. The District noted the identical allegation was originally pled in the District's first amended answer filed on September 9, 2004. The allegation was based on the ruling made by Judge Hutchins in resolving the District's motion for summary judgment. The District argued that its amended complaint against FTR did not add a new cause of action or any new factual allegations that were material to the issue of venue. The District also reiterated its previous contentions that (1) renewed venue motions are disfavored and must be denied absent new grounds; (2) FTR had waived its right to request a change of venue; (3) FTR's renewed motion does not comply with section 1008; (4) the transfer of a portion or the whole of the consolidated actions would result in unnecessary prejudice to the District; and (5) judicial economy would also not be served by transferring the case which had been pending in Ventura County for almost five years.

On September 30, 2005, FTR filed an opposition to the District's motion for reconsideration of the disqualification order.

On October 14 and 17, 2005, the trial court (Judge Liebmann) held hearings on the motion for a change of venue. Following oral argument, the trial court ruled that it would liberally construe section 394 and transfer the action to Los Angeles County Superior Court. The court, however, ordered the parties to submit briefs regarding the issue of whether Judge Hutchins should decide the reconsideration of the pending summary judgment motion.

Thereafter, the District and FTR filed supplemental briefs. The District asserted that the peremptory challenge was not timely under section 170.6 as to any motion pending at the time the challenge was filed. Because the motion for summary judgment had been pending for some time, the District argued that the disqualification of Judge Hutchins was not effective as to the motion for summary judgment.

FTR argued that the issue left to be decided on the summary judgment motion was the District's affirmative defense of unclean hands. FTR argued that Judge Hutchins had not yet considered this issue and that, therefore, the filing of the section 170.6 peremptory challenge precluded him from ruling on this aspect of the District's motion for summary judgment.

The District asserted that transfer to Los Angeles County could be delayed until after the summary judgment motion was heard because venue motions under section 394 are different than other venue motions. FTR disagreed, arguing that a transferring court loses jurisdiction to make rulings on the merits once a venue motion is granted. (McCarthy v. Superior Court (1987) 191 Cal.App.3d 1023.)

On November 7, 2005, the trial court (Judge Liebmann) ruled that Judge Hutchins should hear and decide the summary judgment motion and the case would then be transferred to Los Angeles County Superior Court.

Thereafter, the District filed an ex parte application seeking clarification. On November 11, 2005, the trial court held a hearing on the ex parte request. The trial court ruled that the section 170.6 challenge was timely as to all matters except those which were pending before Judge Hutchins at the time, "specifically the motion for summary judgment filed in July of 2004 and the aspects of it that were to be reconsidered based upon the rulings in August of 2005 and any issues encompassed by those pleadings. As to those matters the 170.6 was not timely." The court clarified that it had granted the venue motion but ruled that Judge Hutchins retained jurisdiction to finish ruling on the District's summary adjudication motion. The court denied the District's motion to reconsider the venue ruling. The court ruled that upon entry of an order by Judge Hutchins resolving the District's motion for summary judgment and/or reconsideration, the actions would be transferred to Los Angeles County.

THE DISTRICT'S PETITION IN CASE NO. B187400

The District seeks a writ of mandate directing the trial court to vacate its orders (1) transferring the consolidated actions to Los Angeles County; and (2) granting the peremptory challenge to Judge Hutchins under section 170.6.

A. The Venue Ruling

The District contends the trial court erred by concluding that (1) FTR had not waived its right to transfer the action under section 394; and (2) the amendment to the District's complaint triggered a renewed right by FTR to move to transfer the entire action to a neutral county. We agree.

Section 394 provides that in any action by a public agency against a resident of another county, either party has the right to transfer the action to a "neutral" county. The purpose of the statute is to protect against possible bias against the out-of-county defendant. Although section 394 does not prescribe the time within which a party to an action may move that it be transferred for trial to a neutral county, "such a motion . . . must be made within a reasonable time under the circumstances of the particular case. [Citation.]" (Adams v. Superior Court (1964) 226 Cal.App.2d 365, 367.) Additionally, the right to a change of venue may be waived. (Id. at pp. 368-369.) A lack of diligence in prosecuting a motion to effect such a change constitutes a waiver. (Ibid.)

Here, FTR had previously moved for a change of venue under section 394. After FTR's motion was granted, it asked the trial court to vacate the order and keep the action in Ventura County. By requesting that the court keep the action in Ventura County, we conclude that FTR waived its right to renew its request for a change of venue.

We reject FTR's contention that a renewed right to change venue was created when the District amended its false claims complaint to allege that FTR violated the False Claims Act by fraudulently inducing the contract. Renewed motions to change venue are disfavored and, as a practical matter, are rarely granted. (Yellow Mfg. Acceptance Corp. v. Stoddard (1949) 93 Cal.App.2d 301, 305 (Yellow); Thompson v. Superior Court (1972) 26 Cal.App.3d 300, 306.) "'. . . A second motion for a change of venue should be discouraged if the complaint and the conditions remain unchanged. [Citations.] It was never contemplated that determination of the merits of an action should be delayed by repetition of a motion for change of venue when it appears that the second motion is based upon a ground that could have been presented upon the first motion.'" (Yellow, supra, at p. 305; see also McNeill & Co. v. Doe (1912) 163 Cal. 338, 340.)

Here, there were no material changes in the District's amended pleading that would give rise to a renewed right to move for a change of venue. The amended complaint simply added an additional factual allegation to the existing cause of action for violation of the False Claims Act. The theory of liability remained the same in the amended pleading. Although the allegations may have increased FTR's exposure to additional damages, the basis of liability, i.e., violating the False Claims Act, remained the same. It is always foreseeable that pleadings will be amended to conform to proof as discovery proceeds.

Significantly, there were no new allegations material to the issue of venue. As noted above, the purpose underlying section 394 is to guard against local prejudices. (San Francisco Foundation v. Superior Court (1984) 37 Cal.3d 285, 296.) FTR's first venue motion was predicated on the fact that the District is a public agency residing in Ventura County seeking damages against FTR, a resident of Orange County. (§ 394.) These are the same facts that were pled in FTR's complaint filed in July of 2001 and included in FTR's second motion for a change of venue. (Compare South v. Wishard (1954) 123 Cal.App.2d 642 [renewed venue motion granted where amended pleading contained new allegation pertinent to venue].) Given that FTR had prevailed on its first venue motion and then sought to keep the action in Ventura County, the trial court erred in granting FTR's renewed motion.

Accordingly, we grant the petition for a writ of mandate filed by the District and direct the respondent superior court to vacate its order of October 17, 2005, transferring this action to Los Angeles County.

B. Disqualification of Judge Hutchins

The District also seeks a writ of mandamus to vacate the trial court's order of September 13, 2005, as modified on November 10, 2005, disqualifying Judge Hutchins and denying its motion for reconsideration of the order granting disqualification.

In opposition, FTR contends the District's petition is untimely as to both orders of September 13 and November 10, 2005. The District's petition was filed on November 28, 2005, more than 10 days later. (See § 170.3, subd. (d) [disqualification order may be reviewed by writ sought within 10 days of notice of the decision].)

In reply, the District concedes that its petition is untimely. (§ 170.3, subd. (d); People v. Hull (1991) 1 Cal.4th 266, 276.) Accordingly, we deny the District's petition insofar as it seeks to vacate the trial court's orders of September 13 and November 10, 2005, disqualifying Judge Hutchins.

FTR'S PETITION IN CASE NO. B187199

FTR seeks a writ of mandamus directing the trial court (Judge Liebmann) to vacate its order of November 7 and 11, 2005, allowing Judge Hutchins to rule on the District's motion for summary adjudication as to its affirmative defense of unclean hands.^[4] FTR argues that (1) this defense was not addressed by Judge Hutchins in his earlier order resolving the affirmative defense of fraudulent inducement; and (2) once a venue motion is granted, the trial court loses jurisdiction to make rulings on the merits of the action. (See McCarthy v. Superior Court, supra, 191 Cal.App.3d at p. 1034.) We reject FTR's contentions.

The trial court correctly determined that Judge Hutchins could complete his ruling on the reconsideration request of his summary judgment ruling. It is well settled that where a judge is disqualified under section 170.6 while a reconsideration motion is pending, the disqualification is ineffective as to the pending motion. (Buchanan v. Buchanan (1979) 99 Cal.App.3d 587, 594-595 [a challenge under § 170.6 is untimely if filed between the issuance of an order on a pretrial motion and the hearing on the motion to reconsider that same order; the hearing on the pretrial motion does not conclude until after the reconsideration motion is resolved]; Valenta v. Regents of the University of California (1991) 231 Cal.App.3d 1465, 1466 [same].) Contrary to FTR's contention, this well-settled principle of law has not been affected by the 1965 amendment to section 170.6.

Here, the unclean hands defense was briefed and argued in the District's original summary judgment motion. Its reconsideration motion was a continuation of the prior hearing on the summary judgment motion. The trial court correctly ruled that the peremptory challenge to Judge Hutchins did not preclude Judge Hutchins from completing his ruling on the pending summary judgment and reconsideration motions.

Further, in light of our conclusion above that the court erred in granting FTR's motion for a change of venue, Judge Hutchins did not lose jurisdiction to rule on the reconsideration and summary judgment matters. We therefore deny FTR's petition for a writ of mandate.

DISPOSITION

We grant the petition for a writ of mandate filed by the District in Case No. B187400 and direct the respondent superior court to vacate its order of October 17, 2005, transferring this action to Los Angeles County Superior Court. We deny FTR's petition in Case No. 187199 for a writ of mandate. Our prior order staying proceedings in the superior court pending review of these petitions is dissolved.

Costs are awarded to the District.

NOT TO BE PUBLISHED.

COFFEE, J.

We concur:

YEGAN, Acting P.J.

PERREN, J.

Thomas J. Hutchins and William Q. Liebmann, Judges

Superior Court County of Ventura

______________________________

Raisin & Kavcioglu, Bradley A. Raisin and Aren Kavcioglu, for Petitioner FTR International, Inc.

Negele & Associates, James R. Negele and Kenneth H. Coronel, for Petitioner Rio School District.

No appearances for Respondent Superior Court.

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^[1] All statutory references are to the Code of Civil Procedure unless otherwise stated.

^[2] The District moved for summary adjudication of its cause of action for declaratory relief alleged in the cross-complaint it had filed against FTR. The District asserted that the contract between FTR and the District was void as violative of public bidding statutes, and that FTR was not entitled to receive compensation for work performed under its contract with the District. The District also sought summary judgment on FTR's complaint against it for violation of FTR's civil rights. The District contended that FTR could not premise a civil rights violation upon an illegal contract.

^[3] FTR explained that on December 11, 2005, the court had previously granted its motion to transfer the false claims action against it to a neutral county. On January 9, 2004, pursuant to FTR's request, the trial court vacated its order of December 11 and reconsolidated the false claims action against FTR with the other pending actions in Ventura County Superior Court. FTR stated that when it requested the trial court vacate the December 11, 2005, transfer order, the District had not yet filed a cross-complaint against it for fraud and declaratory relief.

^[4] FTR's petition for mandamus relief was timely filed within 10 days of the trial court's order. (§ 170.3, subd. (d).)