Hazard Center Assocs. v. City of San Diego

Filed 8/11/06 Hazard Center Assocs. v. City of San Diego CA4/1

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COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

APPEAL from a judgment of the Superior Court of San Diego County, Patricia Y. Cowett, Judge. Affirmed.

Hazard Center Associates and Connecticut General Life Insurance Company (collectively Plaintiffs) appeal the trial court's order sustaining the demurrer of defendant City of San Diego (City) to their complaint for declaratory relief. The trial court sustained the demurrer on the ground that the operative complaint did not present an actual, ripe controversy.

As we will explain, we agree that Plaintiffs' claim for declaratory relief does not present an actual controversy, and accordingly, we affirm.

I

FACTUAL AND PROCEDURAL BACKGROUND

Plaintiffs' second amended complaint (the complaint) contains a single cause of action, which seeks a declaration that the City is legally obligated to indemnify Plaintiffs for any third party liability claims arising out of defects in the design or location of a road to be built by Plaintiffs under the terms of a contract with the City.

As described in the complaint, in the mid-1980's the City approved a mixed-use development project called Hazard Center. During the permitting process, the City required the developers of Hazard Center (the Developer) to be responsible for the cost of building two westbound lanes of a planned road (the Road) that would link the current dead end of Hazard Center Drive with a shopping center on the other side of State Route 163. The City would be responsible for building the two eastbound lanes of the Road. When completed, the Road would be dedicated to the City for public use.

The City and the Developer entered into a written agreement concerning construction of the Road (the Improvement Agreement). Plaintiffs allege that, as successors in interest to the Developer, they are the parties currently responsible for building the Road under the Improvement Agreement.

At issue in this lawsuit is section 6 of the Improvement Agreement (Section Six), which, according to Plaintiffs, defines the scope of liability that the parties will incur as a result of any third party claims arising out of the construction of the Road. Section Six states: "[the Developer] agrees and acknowledges that neither City nor any officer or employee thereof shall be liable for any injury to persons or property occasioned by reason of the acts or omissions of [the Developer], its agents or employees, in the performance of this Agreement. The provisions of this paragraph shall not apply to the extent such damage, liability or claim is proximately caused by the intentional or negligent act of City, its officers, agents, employees or representatives." A later amendment to the Improvement Agreement (the Amendment) stated that the City would indemnify Plaintiffs for any liability arising from the City's placement of a specific sewer line.

The complaint seeks an application of Section Six to the facts as they have developed during the design phase of the Road. According to the complaint, although Plaintiffs "have been designing the Road, they have been doing so at the City's direction and under the City's close supervision," and "the City has directed every step of the design process," including "deviations . . . from normal City road safety standards." The complaint alleges that the City is now insisting that instead of building the westbound lanes of a four-lane road, Plaintiffs must build a two-lane road, with one westbound lane and one eastbound lane. The complaint explains that, as currently designed, the Road will be unsafe because of (1) narrow pedestrian walkways; (2) risk of flooding; (3) unsafe vertical curves; (4) sudden narrowing from four to two lanes without a median to separate oncoming traffic; (5) inadequate vertical height between the Road and the freeway under which it passes; (6) excessive traffic volume for a two-lane road; and (7) a risk of failure of the numerous "cold joints" required by Caltrans as part of the Road design. According to Plaintiffs, they have "repeatedly warned the City that the Road will be unsafe," but "[t]he City has insisted on proceeding anyway."

The complaint alleges that "[a]n actual controversy has arisen and now exists between Plaintiffs and [the City] concerning rights, duties and liability for third party claims which may be caused by the decisions to have Plaintiffs build two lanes of the Road and the decisions to build those two lanes in this unsafe configuration" because "[t]he City has insisted that Plaintiffs will be liable for all accidents arising from the unsafe nature of the Road, except (pursuant to the Amendment) for accidents arising from the placement of the sewer line."

The complaint seeks a declaration "in order that the parties may ascertain their rights and duties with respect to third party claims arising from the unsafe location and design of the Road."

Specifically, the complaint prays for an order declaring that:

"1. The idea (or genesis) of the Road came from the City and was imposed on Plaintiffs' predecessors in interest by the City, as evidenced by various planning and related documents; and

"2. The degree of involvement by the City in the planning and execution of the design of the Road is tantamount to requiring adherence to its specifications; and Therefore

"3. Under Section [Six] and the related instruments and laws, Plaintiffs shall not be liable for any third party claims for damages necessary or incidental to Plaintiffs' carrying out the design and construction work in accordance with the approved plans and specifications for the Road, prepared pursuant to the requirements, direction, input, supervision and approval of the City and Caltrans; and

"4. The City shall defend, indemnify and hold harmless Plaintiffs from any such third party claims, unless Plaintiffs fail to follow the approved plans and specifications for the Road, prepared pursuant to the requirements, direction, input, supervision and approval of the City and Caltrans; and

"5. The City shall be held solely responsible for any third party claims arising from the design and location of the Road, even if the claims do not arise from the City's placement of the sewer line, subject to any available immunity the City may be entitled to with respect to this public work . . . ."

The complaint stresses that "[n]o declaration is sought as to potential construction defects arising from the failure of a contractor to follow the plans and specifications."^[1]

The City filed a demurrer to the complaint.^[2] It argued that "Plaintiffs' allegations do not state an actual or current controversy" and that "Plaintiffs seek an advisory opinion," and thus the complaint does not "meet the elements of a declaratory relief cause of action." The City stated that "[t]he Road . . . has not been permitted, constructed, nor completed," and that "[a]s such, the facts are not congealed and this litigation is premature." According to the City's demurrer, "Plaintiffs' basic question of 'who pays what' in the event of injury on the subject property cannot be answered at present" because "[a] myriad of circumstantial facts related to type, scope and conditions of injury would have to be known in order for [the court] to assess liability."

Plaintiffs' opposition pointed out, however, that they "are not seeking to define a future third party tort claimant's comparative negligence or damages for the obvious reason that there is no such claimant, yet. But as between Plaintiffs and the City, all the relevant information exists . . . ." Plaintiffs argued that "[w]hat makes the City's position incorrect is that Plaintiffs are not seeking a final allocation of damages among the City, Plaintiffs and each potential tort claimant, but rather a recognition that, as between Plaintiffs and the City, the City will be liable."

The trial court sustained the demurrer on the ground that Plaintiffs' declaratory relief cause of action was not yet ripe for resolution. Focusing on the fact that the Road had not been built and that no third party damages claim had been filed, the court explained: "The allegations herein cannot be and are not that the [R]oad is dangerously designed and was a causal factor in an accident giving rise to damages in that the [Road] has yet to be built. . . . [¶] . . . When, and if, some future plaintiff files a complaint alleging he/she/it has been damaged by the design of the [Road], the controversy will then be justiciable by the court. Then the issues such as who, if anyone, should compensate the future plaintiff for damages due to design defect and/or failure to warn, government immunity, contractual indemnity or other issues will be ripe for resolution."

Plaintiffs appeal the trial court's order sustaining the demurrer. They argue that the trial court erred because the complaint presents an actual and ripe controversy regarding whether, under the terms of the Improvement Agreement and applicable case law, the City will be required to indemnify them for any claim asserting damages resulting from the design or location of the road.

II

DISCUSSION

A

The Declaratory Relief Statute and Standard of Review

Code of Civil Procedure section 1060,^[3] which governs actions for declaratory relief, provides:

"Any person interested under a written instrument . . . a contract, or who desires a declaration of his or her rights or duties with respect to another . . . may, in cases of actual controversy relating to the legal rights and duties of the respective parties, bring an original action or cross-complaint in the superior court for a declaration of his or her rights and duties in the premises, including a determination of any question of construction or validity arising under the instrument or contract. . . . The declaration may be had before there has been any breach of the obligation in respect to which said declaration is sought." (Italics added.)

One purpose of a declaratory judgment is " ' " 'to serve some practical end in quieting or stabilizing an uncertain or disputed jural relation' " ' " and " '[a]nother purpose is to liquidate doubts with respect to uncertainties or controversies which might otherwise result in subsequent litigation . . . .' " (Venice Town Council, Inc. v. City of Los Angeles (1996) 47 Cal.App.4th 1547, 1566.)

In reviewing the trial court's order sustaining the City's demurrer to Plaintiffs' claim for declaratory relief, we conduct a de novo review. (McGettigan v. Bay Area Rapid Transit Dist. (1997) 57 Cal.App.4th 1011, 1016.) In reviewing the complaint we accept as true all of the alleged facts, and we review the complaint to determine if it could state a cause of action under any legal theory. (Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126.)

B

A Declaration Regarding Plaintiffs' Lack of Liability to Third Parties Is Beyond the

Scope of Permissible Relief in This Action

Declaratory relief may be granted only as to the legal relationship between the parties to this lawsuit, i.e., Plaintiffs and the City. (§ 1060 [declaratory relief establishes the "legal rights and duties of the respective parties"]; Mycogen Corp. v. Monsanto Co. (2002) 28 Cal.4th 888, 898 ["a declaratory judgment merely declares the legal relationship between the parties"].) However, some of the language in the complaint's prayer for relief goes beyond the permissible scope of declaratory relief because it seeks a declaration regarding Plaintiffs' lack of future liability to third parties. Specifically, the prayer for relief seeks a declaration that "Plaintiffs shall not be liable to any third party claims for damages necessary or incidental to Plaintiffs' carrying out the design and construction work in accordance with the approved plans and specifications for the Road, prepared pursuant to the requirements, direction, input, supervision and approval of the City and Caltrans," and that "[t]he City shall be held solely responsible for any third party claims arising from the design and location of the Road . . . ."^[4] Declaratory relief was properly denied regarding these aspects of Plaintiffs' lawsuit as they exceed the scope of relief permitted under section 1060.

Related to the impermissible relief sought by Plaintiffs, they explain that they seek a declaration relieving them of liability under the rule announced in Fisher v. Morrison Homes, Inc. (1980) 109 Cal.App.3d 131, 139. We cannot issue such a declaration in this case. In Fisher, the court stated that it could "conceive of a situation where the degree of involvement by the public entity in the planning and execution of a project may be tantamount to requiring adherence to its specifications. In that case, the developer will not be liable "for damages necessary or incidental to carrying out work done in accordance with plans and specifications and under the supervision and direction of a public body." (Ibid.) Fisher did not discuss the circumstances in which a developer may be entitled to indemnity from a public entity. Instead, it addressed the circumstances in which the developer may be able to defeat third party liability in a suit brought by a plaintiff injured by a public work that was dedicated to the public entity by the developer. An adjudication of whether Fisher applies to the circumstances presented by this case would be an improper adjudication concerning the rights of third parties not presently before the court.

C

Declaratory Relief Concerning the City's Obligation to Indemnify

Plaintiffs for Third Party Claims Arising Out of the Design and

Location of the Road Would Depend on Hypothetical Facts, and the

Complaint Thus Does Not Present an Actual Controversy

Other portions of the complaint, however, properly focus on the legal relationship between Plaintiffs and the City, both of whom are parties to this litigation. Specifically, Plaintiffs pray for a declaration that "[t]he City shall defend, indemnify and hold harmless Plaintiffs from any such third party claims, unless Plaintiffs fail to follow the approved plans and specifications for the Road, prepared pursuant to the requirements, direction, input, supervision and approval of the City and Caltrans . . . ."

The City contends that Plaintiffs' request for declaratory relief as to the City's indemnity obligations fails to present an "actual controversy" within the meaning of the declaratory relief statute. (§ 1060.) As we will explain, we agree.

"The 'actual controversy' referred to in [section 1060] is one which admits of definitive and conclusive relief by judgment within the field of judicial administration, as distinguished from an advisory opinion upon a particular or hypothetical state of facts. The judgment must decree, not suggest, what the parties may or may not do." (Selby Realty Co. v. City of San Buenaventura (1973) 10 Cal.3d 110, 117 (Selby), italics added.) An action for declaratory relief "must be based on an actual controversy with known parameters. If the parameters are as yet unknown, the controversy is not yet ripe for declaratory relief." (Sanctity of Human Life Network v. California Highway Patrol (2003) 105 Cal.App.4th 858, 872.) " 'The principle that courts will not entertain an action which is not founded on an actual controversy is a tenet of common law jurisprudence, the precise content of which is difficult to define and hard to apply.' " (Pacific Legal Foundation v. California Coastal Com. (1982) 33 Cal.3d 158, 171 (Pacific Legal Foundation).)^[5]

In declining to exercise its jurisdiction in a case where no actual controversy exists, the trial court may rely on section 1061, which states that the trial court "may refuse to exercise the power granted by this chapter in any case where its declaration or determination is not necessary or proper at the time under all the circumstances."^[6]

To analyze whether Plaintiffs' prayer for declaratory relief presents an actual controversy, we must determine whether the trial court would have to apply a "hypothetical state of facts" in making such a declaration. (Selby, supra, 10 Cal.3d at p. 117.) To determine if hypothetical facts would be involved, we thus turn to a closer examination of the inquiry that would be required of the trial court were it to resolve Plaintiffs' claim that the City is obligated to indemnify them.

Plaintiffs base their claim for indemnification on Section Six. In resolving whether Section Six requires the City to indemnify Plaintiffs for any future third party claims arising out of the design and location of the Road, the trial court would have to address two separate issues.

First, it would have construe the contractual language to determine whether, as Plaintiffs claim, Section Six creates an indemnification obligation on the part of the City for third party liability that is, as stated in Section Six, "proximately caused by the intentional or negligent act of City, its officers, agents, employees or representatives." This first issue could easily be resolved without resort to a hypothetical set of facts, as it involves a pure legal question of contract interpretation: Does Section Six create an indemnification obligation owed by the City to Plaintiffs for third party injuries proximately caused by the intentional or negligent conduct of the City?^[7]

Second, if the trial court determines that Section Six gives rise to such an indemnity obligation, it then would have to factually determine whether the design and placement of the Road constitutes an "intentional or negligent act of City, its officers, agents, employees or representatives" that triggers the indemnity obligation. Resolving this second issue would be very fact intensive and would require the trial court to examine the details of the City's and Plaintiffs' involvement with the Road to determine whether its design and placement were due to either an intentional or negligent act of the City.

Under the circumstances, it appears to us that the resolution of this second issue would require the trial court to resort to a hypothetical set of facts. The complaint makes clear that the Road is not yet constructed and not yet dedicated to the City by Plaintiffs. The complaint contains no indication that the design process is completed. Plaintiffs plead no facts precluding the possibility either that the design and placement of the Road will be further revised before construction begins or that further design issues will arise and be addressed when construction is underway.^[8]

We conclude, therefore, that this case is similar to authorities cited by the City in which the facts of the controversy were not sufficiently developed to present an actual controversy meriting declaratory relief. (See Selby, supra, 10 Cal.3d at pp. 117-118 [suit seeking declaration that the county's general plan had unlawfully taken plaintiff's property did not present an actual controversy because the general plan was "by its very nature merely tentative and subject to change" and the outcome depended on "unpredictable future events"]; BKHN, supra, 3 Cal.App.4th at pp. 309-310 [declaratory relief as to party's possible future liability for environmental remediation was not warranted because the dispute lacked the necessary "definiteness" in that it depended on "a myriad of hypotheticals" concerning the facts and involvement of other parties, resulting in a " 'contrived inquiry' "].) Accordingly, an actual controversy does not currently exist with respect to the City's obligation to indemnify Plaintiffs for third party claims arising out of the design and placement of the Road, and declaratory relief is thus improper.^[9]

D

Leave to Amend Is Not Warranted

The trial court rejected Plaintiffs' request they be given leave to file a third amended complaint. Plaintiffs argue that in the event we affirm the trial court, we should remand to give them leave to file an amended complaint. We disagree.

When a demurrer is sustained without leave to amend, we review the decision to deny leave to amend to determine "whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion" in denying leave to amend. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318; see also Mosley v. San Bernardino City Unified School Dist. (2005) 134 Cal.App.4th 1260, 1263.) The burden of proving a reasonable possibility of curing the defect "is squarely on the plaintiff." (Blank, at p. 318.)

Plaintiffs have not met their burden. They do not explain how they could amend the complaint to present an actual controversy. As we have explained, the Road has not yet been built, and thus the impact of the City's current design mandates on the finished Road simply cannot be adjudicated at this point. An amendment to the complaint could not cure that problem. Accordingly, we conclude that the trial court did not abuse its discretion in denying leave to amend.

DISPOSITION

The judgment is affirmed.

IRION, J.

WE CONCUR:

NARES, Acting P. J.

McINTYRE, J.

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^[1] Explaining the reason that Plaintiffs are seeking declaratory relief, the complaint states that "Plaintiffs will decline to build the Road if no declaration is forthcoming or if the declaration is that Plaintiffs are liable." In their briefing, Plaintiffs explain that they want the declaration because they "have other options available to them besides complying with the City's directions, including not building the [R]oad and allowing the City to sue for breach." Plaintiffs explain that with a decision on their complaint for declaratory relief, "[b]oth sides will be able to use this information to decide how and whether to proceed."

^[2] The City also demurred to the two earlier versions of the complaint (i.e., the original complaint and the first amended complaint). The record does not contain the trial court's ruling on those demurrers.

^[3] All further statutory references are to the Code of Civil Procedure unless otherwise specified.

^[4] We acknowledge the ambiguity of the phrase "[t]he City shall be held solely responsible for any third party claims" as it appears in Plaintiffs' prayer for relief. Plaintiffs may be seeking a declaration that a court may not hold them liable to third parties, or they may be seeking a declaration that the City is responsible for indemnifying Plaintiffs for any such liability to third parties. To the extent Plaintiffs seek the latter type of declaration, we address that issue below.

^[5] In analyzing whether an actual controversy was presented by the complaint, the trial court focused on whether a third party claim had been made that would trigger the City's alleged obligation to indemnify. The trial court's approach does not find support in the case law. An actual controversy will exist within the meaning of the declaratory relief statute even in advance of a third party claim when the resolution of the legal relationship between the parties, such as the duty to indemnify, does not depend on the details of the third party claim. (See, e.g., Sandler v. Casale (1981) 125 Cal.App.3d 707, 712; Rubin v. Toberman (1964) 226 Cal.App.2d 319, 327; Sattinger v. Newbauer (1954) 123 Cal.App.2d 365, 367.) As we will explain, on our de novo review we apply a different analysis to reach the same conclusion as the trial court: the complaint does not present an actual controversy.

^[6] Closely related to the actual controversy requirement is the doctrine of "ripeness," which is normally applied to declaratory relief actions in the context of challenges to administrative actions. (See BKHN, Inc. v. Department of Health Services (1992) 3 Cal.App.4th 301, 309 (BKHN).) " 'A controversy is "ripe" when it has reached, but has not passed, the point that the facts have sufficiently congealed to permit an intelligent and useful decision to be made.' " (Pacific Legal Foundation, supra, 33 Cal.3d at p. 171.) Although the parties address the doctrine of ripeness separately from the actual controversy requirement contained in the declaratory relief statute, the case law tends to blur the two concepts, and we do not perceive a meaningful distinction between the two concepts, either in the case law or in the parties' discussion. For the sake of simplicity, we resolve this appeal by reference to the actual controversy requirement alone. We have, however, reviewed the case law arising in the context of declaratory relief lawsuits challenging administrative actions and discussing ripeness, and have relied on that case law as pertinent to our analysis.

^[7] We express no view on the proper resolution of this question of contractual interpretation.

^[8] Plaintiffs argue that because the City takes issue with their assertion that the City will be obligated to indemnify them in the event of a third party claim arising out of the design of the Road, it is evident that an actual controversy already exists within the meaning of the declaratory relief statute. We do not agree. Although a difference of opinion clearly exists, any discussion between the City and Plaintiffs on that issue necessarily depends in part on a hypothetical set of facts. Further, regardless of the extent of the City's control of the design process up to this point, because circumstances could change up until the completion of the Road, the City's involvement up to this point does not provide a basis for concluding that an actual controversy currently exists.

^[9] The City also presents arguments against declaratory relief on the ground that there is no support for Plaintiffs' interpretation of the Improvement Agreement. However, we reject this approach because the strength of Plaintiffs' position on the merits is not relevant to deciding whether the court should entertain the complaint for declaratory relief. "To hold that a plaintiff on the wrong side of a controversy is not entitled to the security and relief against uncertainty which a declaratory judgment affords would require us to read into the statute a limitation not there present. Section 1060 . . . contains no suggestion that the pleader must allege facts entitling him to a favorable declaration." (Maguire v. Hibernia S. & L. Soc. (1944) 23 Cal.2d 719, 729-730.) If no basis for declining declaratory relief appears, "the court should declare the rights of the parties whether or not the facts alleged establish that the plaintiff is entitled to favorable declaration." (Wellenkamp v. Bank of America (1978) 21 Cal.3d 943, 947, italics added.)