North Bay Steel Mill Supply & Recycling Inc. vs. California Department of Resources Recycling and Recovery

34-2021-00292686-CU-BT-GDS: North Bay Steel Mill Supply & Recycling Inc. vs. California Department of Resouces Recycling and Recovery 10/26/2023 Hearing on Motion for Judgment on the Pleadings in Department 54

Tentative Ruling

Defendants Odin Real Estate Group, LLC and Odin Construction Solutions, Inc.’s (collectively, “Odin”) motion for judgment on the pleadings is GRANTED with leave to amend.

Request for Judicial Notice

Odin’s request for judicial notice of the Court’s February 2, 2023, Order sustaining without leave to amend the Department of Resources Recycling and Recovery and the Office of Emergency Services’ (collectively, the “State”) demurrer to plaintiff North Bay Steel Mill Supply & Recycling, Inc.’s (“Plaintiff” or “North Bay”) Fourth Amended Complaint (“4AC”) and the 4AC is GRANTED.

Odin’s request for judicial notice of the Department of Resources Recycling and Recovery’s Revised Invitation for Bid (“IFB”) is DENIED as this is not the proper subject for judicial notice.

Plaintiff’s request for judicial notice of the Court’s March 9, 2022, Order on the State’s demurrer to Plaintiff’s Second Amended Complaint (“2AC”) is GRANTED.

Odin’s request for judicial notice in support of Odin’s reply as to the Governor of the State of California’s November 8, 2018, Proclamation of a State of Emergency is GRANTED.

North Bay’s Objection to New Argument and Evidence

North Bay filed an objection to new legal argument and evidence included in Odin’s reply. Namely, Odin’s legal argument that North Bay’s purported agreement with ECC is unenforceable because it violated the statute of frauds and Odin’s claim that the Governor’s Emergency Proclamation absolved the “State Defendants” of any duty to adhere to the competitive bidding process. North Bay asks the Court to strike the foregoing from consideration.

The Court need not rule on this objection because the contested legal argument and evidence is immaterial to the Court’s decision on the motion.

Factual and Procedural Background

This action arises from the State of California’s fire cleanup activities following the 2018 Camp Fire, including contracts entered into with private companies to assist with the cleanup. The 4AC alleges the State awarded fire clean-up contracts to three prime contractors. One of the three primes, ECC Contractors LLC ("ECC"), allegedly entered into a subcontract with Plaintiff to handle disposal and recycling of Camp Fire metal debris, but the State and Odin allegedly

34-2021-00292686-CU-BT-GDS: North Bay Steel Mill Supply & Recycling Inc. vs. California Department of Resouces Recycling and Recovery 10/26/2023 Hearing on Motion for Judgment on the Pleadings in Department 54

interfered with this subcontract by selecting Odin to process the debris.

Plaintiff alleges it furnished debris/recycling work for ECC on past projects (including the earlier Carr Fire) and that ECC “assured [it] that [it] would be its exclusive metal debris recycling subcontractor if ECC won the work.” (4AC ¶¶ 27, 28, 36.) Plaintiff alleges ECC timely submitted its bid to the State as a prime contractor on January 22, 2019. (4AC ¶ 36.) On January 28, 2019, the State issued a Notice to Proceed to ECC. (4AC ¶¶ 39, 64.) The next day, on January 29, 2019, the State issued a press release and announced the selection of Odin to process the debris at the project. (4AC ¶¶ 42, 73.) The State “instructed ECC and the other two primes to deliver all metal to Odin’s processing site in Oroville.” (4AC ¶ 69.)

On January 31, 2019, ECC had allegedly entered into contracts with both Odin and Plaintiff for the debris/recycling work. (4AC ¶¶ 44, 52.) Plaintiff also alleges Odin submitted its bid for debris processing work to the State on January 31, 2019. (4AC ¶ 50.)

Plaintiff alleges it should have been selected instead of Odin because its processing facility was closer to the fire epicenter and it was more qualified and efficient. (4AC ¶¶ 46, 73.) Plaintiff also alleges Odin lacked required business licenses and/or permits and did not comply with various California requirements (4AC ¶¶ 58-59), that Odin conspired and colluded with the State to violate competitive bidding requirements (4AC ¶¶ 73, 75, and 215), and Odin received unjustified favorable treatment (4AC ¶ 34).

The following is a brief timeline of alleged and relevant events surrounding Plaintiff’s claim:

(1) January 16, 2019 – the State announced it would select the debris receiving facilities and would direct prime contractors to use them. (4AC ¶ 34.)

(2) January 22, 2019 – ECC submitted its bid to the State. (4AC ¶ 36.)

(3) January 28, 2019 – ECC received notice to proceed from the State. (4AC ¶ 39.)

(4) January 29, 2019 – The State selected Odin’s debris processing facility. (4AC ¶ 42.)

(5) January 30, 2019 – ECC sent Plaintiff a purchase order for metal recycling. (4AC ¶ 43.)

(6) January 31, 2019 – ECC and Plaintiff entered into a subcontract. (4AC ¶ 44.)

(7) January 31, 2019 – Prime contractors and Odin entered into a subcontract. (4AC ¶ 52.)

SUPERIOR COURT OF CALIFORNIA COUNTY OF SACRAMENTO

34-2021-00292686-CU-BT-GDS: North Bay Steel Mill Supply & Recycling Inc. vs. California Department of Resouces Recycling and Recovery 10/26/2023 Hearing on Motion for Judgment on the Pleadings in Department 54

(8) January 31, 2019 – Odin submitted a bid to the State. (4AC ¶ 50.)

(9) February 1, 2019 – The State approved Odin’s proposal. (4AC ¶ 54.)

(10) February 8, 2019 – ECC signed a contract with the State. (4AC ¶ 64.)

Odin moves for judgment on the pleadings as to the fifth cause of action for tortious interference with contractual relations, sixth cause of action for intentional tortious interference with prospective economic relations, and seventh cause of action for negligent tortious interference with prospective economic relations on the grounds each fails to state facts sufficient to constitute a cause of action against Odin.

Legal Standard

A motion for judgment on the pleadings has the same function as a general demurrer, but may be made after the time for demurrer has expired. (See Code Civ. Proc. § 438.) A motion for judgment on the pleadings may be made by a defendant if “[t]he complaint does not state facts sufficient to constitute a cause of action against the defendant.” (Code Civ. Proc. § 438(c).) If the allegations state a cause of action on any theory, then the motion must be denied. (Barney v. Aetna Cas. & Surety Co. (1986) 185 Cal.App.3d 966, 973-974.) The grounds for a motion for judgment on the pleadings must appear on the face of the challenged pleading or from any matter of which the court is required to or may take judicial notice. (Code of Civ. Proc. § 438(d).)

Fifth Cause of Action for Interference with Contractual Relations

The elements of a cause of action for intentional interference with contractual relations are "(1) a valid contract between plaintiff and a third party; (2) defendant's knowledge of this contract; (3) defendant's intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage." (Pac. Gas & Elec. Co. v. Bear Stearns & Co. (1990) 50 Cal.3d 1118, 1126.) “[W]hile the tort of inducing breach of contract requires proof of a breach, the cause of action for interference with contractual relations is distinct and requires only proof of interference.” (Pacific Gas & Electric Co., supra, 50 Cal.3d at1129.)

Odin contends it could not have interfered with, or had knowledge of, Plaintiff’s purported subcontract with ECC because Odin’s facility was selected by the State on January 29, 2019, two days before Plaintiff entered into its purported subcontract with ECC on January 31, 2019. Odin further contends Plaintiff failed to allege beyond mere conclusory allegations that the State was obligated to select Plaintiff’s facility and, therefore, there are no allegations the subcontract would have otherwise been performed, but for Odin’s alleged interference.

SUPERIOR COURT OF CALIFORNIA COUNTY OF SACRAMENTO

34-2021-00292686-CU-BT-GDS: North Bay Steel Mill Supply & Recycling Inc. vs. California Department of Resouces Recycling and Recovery 10/26/2023 Hearing on Motion for Judgment on the Pleadings in Department 54

In opposition, Plaintiff argues it has sufficiently alleged its subcontract existed prior to Odin’s selection based on the following allegations. Prior to ECC submitting its bid on January 22, 2019, ECC assured Plaintiff it would get the metal work if ECC won the bid, which “made good sense” because “ECC successfully subcontracted with North Bay earlier in 2018 as its metal processor on the Carr Fire.” (4AC ¶ 36.) On information and belief, Plaintiff alleges “ECC advised the State that North Bay would be doing the metal debris recycling for ECC under a subcontract.” (4AC ¶ 35.)

After ECC received notice to proceed from the State, ECC asked Plaintiff’s managers to meet with ECC at ECC’s facility in Paradise. (4AC ¶ 39.) Plaintiff then “began at considerable expense to make reasonable and necessary preparations” to “perform its obligations under the subcontract.” (4AC ¶ 41.) On January 30, 2019, “as the culmination of its teaming work with North Bay over the prior two months, ECC sent its purchase order to [Plaintiff,]” and a “final revised purchase order the next day, January 31, 2019.” (4AC ¶¶ 43- 44.)

Plaintiff alleges the subcontract “went into effect January 28, 2019 (the same day ECC received CalRecycle’s Notice to Proceed) for a one-year term.” (4AC ¶ 44.) Further, Plaintiff argues the State’s press release merely identified Odin as one of the “[l]ocally-based facilities” selected to process the Camp Fire metal debris. (4AC ¶ 42.)

Based on the foregoing, Plaintiff argues the written evidence of the subcontract’s terms was created January 30, 2019, but effective January 28, 2019, and that Odin’s reliance on the State’s press release ignores the remainder of Odin’s alleged interference claims, including that Odin interfered by entering into “Waste Management Services” agreements with all three prime contract winners, which “tied up all the lucrative metal processing work for Odin.” (4AC ¶ 52.) Plaintiff contends it also alleges on information and belief that Odin “knew of that subcontract[,]” and “intentionally interfered with the ECC/NB Subcontract, or knew that disruption and/or breach of performance of the contract was certain or substantially certain to occur, by diverting that work that was the subject of that subcontract away from North Bay and to a more expensive and less qualified vendor, Odin.” (4AC ¶¶ 202-204.)

The Court is not persuaded that Odin could not have interfered with or had knowledge of Plaintiff’s purported subcontract simply because the State issued a press release on January 29, 2019, about Odin’s selection shortly before ECC and Plaintiff reduced their alleged agreement to writing on January 30 or 31, 2019. Nonetheless, Plaintiff’s allegations that ECC informed the State that Plaintiff would be performing the work does not amount to ECC informing Odin and there are no allegations the State subsequently informed Odin regarding the same. (4AC ¶ 35.)

The only other allegation relied upon by Plaintiff regarding Odin’s alleged knowledge of the subcontract is Plaintiff’s conclusory allegation that Odin knew of the subcontract, which is insufficient. (4AC ¶ 201.) The Court is also not convinced that the State’s reservation of rights to select the debris recycling facility leads to the conclusion that Plaintiff has failed to sufficiently allege interference by Odin. However, the Court finds the allegations fail to sufficiently allege Odin knew about the subcontract, which is a requisite element of this claim.

Odin’s motion for judgment on the pleadings is GRANTED on this basis.

SUPERIOR COURT OF CALIFORNIA COUNTY OF SACRAMENTO

34-2021-00292686-CU-BT-GDS: North Bay Steel Mill Supply & Recycling Inc. vs. California Department of Resouces Recycling and Recovery 10/26/2023 Hearing on Motion for Judgment on the Pleadings in Department 54

Odin’s additional arguments regarding the merits of Plaintiff’s allegations that it became entitled to complete the work once the State selected ECC as the prime contractor are irrelevant and thus, need not be addressed. (Motion at 10:15-11:4.)

Sixth Cause of Action for Intentional Tortious Interference with Prospective Economic Relations And Seventh Cause of Action for Negligent Tortious Interference with Prospective Economic Relations

The elements of intentional interference with prospective economic relations have been stated as follows: "(1) an economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff; (2) the defendant's knowledge of the relationship; (3) intentional acts on the part of the defendant designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm to the plaintiff proximately caused by the acts of the defendant." (Youst v. Longo (1987) 43 Cal. 3d 64, 71, fn. 6.)

The elements for the cause of action of negligent interference with prospective economic relations are: "(1) an economic relationship existed between the plaintiff and a third party which contained a reasonably probable future economic benefit or advantage to plaintiff; (2) the defendant knew of the existence of the relationship and was aware or should have been aware that if it did not act with due care its actions would interfere with this relationship and cause plaintiff to lose in whole or in part the probable future economic benefit or advantage of the relationship; (3) the defendant was negligent; and (4) such negligence caused damage to plaintiff in that the relationship was actually interfered with or disrupted and plaintiff lost in whole or in part the economic benefits or advantage reasonably expected from the relationship." (Vehhaus v. Schultz (2007) 155 Cal.App.4th 1072, 1078.)

Further, a plaintiff must plead facts sufficient to show that defendant "not only interfered with the plaintiff's expectancy, but [that the defendant] engaged in conduct that was wrongful by some legal measure other than the fact of interference itself." (Della Penna v. Toyota Motor Sales, U.S.A. (1995) 11Cal.4th 376, 393.) In Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 56 the Court held that "Implicit in the Della Penna holding is a conclusion that this additional aspect of wrongfulness is not an element of the tort of intentional interference with an existing contract." (Id. at 56.)

Odin relies primarily on Roy Allan Slurry Seal, Inc. v. American Asphalt South, Inc. (2017) 2 Cal.5th 505 (“Roy Allen”) as support for the contention that Plaintiff’s claim is precluded because the State retained ultimate discretion to identify and select the debris processing facility; thus, Plaintiff cannot allege the existence of an economic relationship with the probability of future economic benefit.

SUPERIOR COURT OF CALIFORNIA COUNTY OF SACRAMENTO

34-2021-00292686-CU-BT-GDS: North Bay Steel Mill Supply & Recycling Inc. vs. California Department of Resouces Recycling and Recovery 10/26/2023 Hearing on Motion for Judgment on the Pleadings in Department 54

In Roy Allan, the plaintiff contractors alleged that they had submitted the second lowest bids on local public contracts and would have been successful but for the low bidder's wrongful conduct of submitting unreasonably deflated bids. In evaluating whether the plaintiffs had stated a claim for intentional interference with prospective economic advantage, the Court held there was no claim because there was no existing relationship between the bidder and the public entity awarding bids in light of Public Contract Code provisions requiring the award of contracts in a sealed bidding process to the lowest responsible bidder.

The Court explained that “the interference tort applies to interference with existing noncontractual relations which hold the promise of future economic advantage” and that the requirements “presuppose the relationship existed at the time of the defendant's allegedly tortious acts. [citation omitted.]” (Roy Allan, 2 th Cal.5 at 517-518 (italics in original).) In other words, “the plaintiff's ‘expectancy’ must necessarily precede the interfering conduct.” (Ibid.) Thus, the tort “traditionally has not protected speculative expectancies usually because there is no sufficient degree of certainty that the plaintiff ever would have received the anticipated benefits. [citations omitted.]” (Ibid.)

The Court then found that the plaintiff contractors’ claim failed because they had only speculative expectancies because the public entities could have found they were not responsible bidders or exercised their discretion to reject all bids. (Id. at 519.) The plaintiffs had “at most a hope for an economic relationship and a desire for a future benefit.” (Id. at 517.)

Plaintiff counters that Roy Allen is distinguishable because it was not a bidder for a public contract and did not come in second. Instead, Plaintiff contends it won its contract from ECC and the prospective economic advantage is not derived from the State.

The Court disagrees Roy Allen is irrelevant or distinguishable. Although Plaintiff was not a “bidder” and never submitted a bid to the State, Plaintiff’s work is undisputedly subject to the public works bidding process, which is inherently speculative in nature. Any future economic benefit to Plaintiff was contingent on the prime contractors winning their bids, as well as the State selecting Plaintiff for the debris processing service. (4AC ¶ 34 (“Question 84; a potential bidder asked whether CalRecycle would direct each of the three primes to their own separate facility to disperse the trucks between all available disposal sites. CalRecycle said; "This is yet to be determined. CalRecycle will direct Contractors to use facilities based on overall Project operation efficiency and costs and will work with the Contractors in making those determinations.'' (emphasis added).)

Plaintiff then contends it has alleged more than speculative expectancies based on the following allegations:

“North Bay was so situated with respect to the scope of metal debris recycling work covered by contract DRR 18088 that it had a reasonable expectancy, based on its experience, qualifications, efficiency and economics, that once the State expanded the scope of metal processing to include all DRR 18088 metal going to one processor, an

SUPERIOR COURT OF CALIFORNIA COUNTY OF SACRAMENTO

34-2021-00292686-CU-BT-GDS: North Bay Steel Mill Supply & Recycling Inc. vs. California Department of Resouces Recycling and Recovery 10/26/2023 Hearing on Motion for Judgment on the Pleadings in Department 54

economic relationship with prime contractors other than ECC probably would have resulted in an economic benefit to North Bay such that it would process at least an estimated 54,000 tons of metal debris with an expected revenue stream of at least $10 million.” (4AC ¶¶ 213, 225.)

“The three selected primes and North Bay each had established track records and prior fire project experience. By contrast, [Odin] was formed and registered as a California corporation in December 2018, less than one month after the Camp Fire erupted. On information and belief, [Odin] had no prior experience on State fire recovery projects handling metal debris disposal and recycling.” (4AC ¶ 49.)

Plaintiff’s allegations remain speculative. Plaintiff’s allegations are essentially that it believes it was more experienced, qualified, and better situated than Odin to process the metal debris. Even accepting the allegations as true, Plaintiff’s claim hinges on a degree of uncertainty due to the State’s authority and discretion to select the facility to be used by the prime contractors. As pled, there is no promise of a future economic advantage.

Odin also contends Plaintiff has failed to allege an independently wrongful act because Plaintiff’s allegations that Odin engaged in a conspiracy with the State to tortiously interfere are vague and conclusory assertions. Plaintiff contends it has alleged an independently wrongful acts because it has alleged Odin’s bid was submitted after the deadline and failed to include all the required information, but was nonetheless approved by the State in violation of the Public Contracts Code. (4AC ¶¶50-51.)

Plaintiff further alleges Odin entered into contracts with the three primes before it was approved by the State. (4AC ¶ 53-54.) On reply, Odin argues the competitive bidding statutes did not apply to Odin because the State expressly carved out in the IFB that it reserved the right to select the receiving facility. The Court cannot consider the IFB on this demurrer as it constitutes extrinsic evidence and it is not the proper subject of judicial notice. Accordingly, this argument is rejected and the Court finds the foregoing allegations are sufficient at this stage of the proceedings.

The motion on this ground is therefore denied.

However, given the speculative nature of the alleged economic advantage, Odin’s motion for judgment on the pleadings as to the sixth and seventh causes of action is GRANTED.

Leave to Amend

Odin requests that the motion be granted without leave to amend. Plaintiff requests leave to amend and states its amendment “will include allegations of pre-existing commercial relationships with at least one of the prime contractors.” (Opposition at 19:20-23.)

Because this is Odin’s first challenge to the pleading, leave to amend is GRANTED.

SUPERIOR COURT OF CALIFORNIA COUNTY OF SACRAMENTO

34-2021-00292686-CU-BT-GDS: North Bay Steel Mill Supply & Recycling Inc. vs. California Department of Resouces Recycling and Recovery 10/26/2023 Hearing on Motion for Judgment on the Pleadings in Department 54

Conclusion

Odin’s motion for judgment on the pleadings is GRANTED with leave to amend. Plaintiff may file and serve a Fifth Amended Complaint (“5AC”) no later than November 9, 2023. Although not required by statute or court rule, Plaintiff is directed to present the clerk a copy of this ruling at the time of filing the 5AC.

Odin may file and serve a response within 30 days of service of the 5AC, 35 days if served by mail.

The minute order is effective immediately. No formal order pursuant to California Rules of Court, Rule 3.1312, or further notice is required.

NOTICE:

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To request limited oral argument, on any matter on this calendar, you must call the Law and Motion Oral Argument Request Line at (916) 874-2615 by 4:00 p.m. the Court day before the hearing and advise opposing counsel. At the time of requesting oral argument, the requesting party shall leave a voice mail message: a) identifying themselves as the party requesting oral argument; b) indicating the specific matter/motion for which they are requesting oral argument; and c) confirming that it has notified the opposing party of its intention to appear and that opposing party may appear via Zoom using the Zoom link and Meeting ID indicated below. If no request for oral argument is made, the tentative ruling becomes the final order of the Court.

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SUPERIOR COURT OF CALIFORNIA COUNTY OF SACRAMENTO

34-2021-00292686-CU-BT-GDS: North Bay Steel Mill Supply & Recycling Inc. vs. California Department of Resouces Recycling and Recovery 10/26/2023 Hearing on Motion for Judgment on the Pleadings in Department 54

Once the form is signed it must be filed with the clerk. If a litigant has been granted a fee waiver and requests a court reporter, the party must submit a Request for Court Reporter by a Party with a Fee Waiver (CV/E-211) and it must be filed with the clerk at least 10 days prior to the hearing or at the time the proceeding is scheduled if less than 10 days away. Once approved, the clerk will be forward the form to the Court Reporter’s Office and an official reporter will be provided.