PG&E Corporation v. AECOM Technical Services, Inc..

Background

The dispute arose from the Burney K2 Replacement Project, which involved replacing a natural-gas compressor unit and making upgrades at a compressor station. AECOM had an agreement with PG&E to serve as the project's design-builder and prime contractor. AECOM and JH Kelly later entered into a subcontract for the construction work.

JH Kelly's second amended complaint asserted eight causes of action against AECOM. AECOM moved to dismiss the fifth claim, for breach of the implied covenant of good faith and fair dealing; the sixth claim, for quantum meruit based on abandonment of the contract; and the eighth claim, for quantum meruit seeking the reasonable value of the work. The court also held that AECOM had waived its right to bring a Rule 12(b)(6) challenge to the fifth and eighth claims because it had previously answered JH Kelly's earlier complaint. At AECOM's request, the court treated the motion as a motion for judgment on the pleadings and addressed the merits of those arguments.

Fifth Claim: Implied Covenant

The court granted AECOM's motion as to the fifth claim. Under California law, a separate claim for breach of the implied covenant of good faith and fair dealing is superfluous when it is based on the same breach alleged in a contract claim. The court found that JH Kelly's pleading did not sufficiently distinguish the implied-covenant claim from its contract claim and alleged essentially the same conduct and requested relief.

Sixth Claim: Quantum Meruit Based on Abandonment

The court denied AECOM's motion as to the sixth claim. Quantum meruit is an equitable theory that can allow recovery for the reasonable value of work in some circumstances. Under the abandonment theory presented here, the complaint needed to plausibly allege that the parties failed to follow the contract's change-order process and that the completed project was materially different from the original contract. Abandonment also requires that both parties intended to disregard the contract.

The court found those allegations plausible. JH Kelly alleged that 199 of 273 change-order requests, valued at more than $9.5 million, remained unresolved years after the project was completed, and that AECOM never responded to requests worth $7,073,527. Although AECOM argued that it had responded to many requests, the court said that evidence could undermine JH Kelly's theory at trial but did not make the claim legally implausible at the pleading stage. The court also found no inherent contradiction between JH Kelly's allegations that it submitted change-order requests, completed the project, and later abandoned the change-order process after AECOM failed to resolve the requests.

Eighth Claim: Quantum Meruit for Reasonable Value

The court granted AECOM's motion as to the eighth claim. It held that quantum meruit for reasonable value was unavailable because the subcontract governed JH Kelly's compensation claims. The court noted that California law may permit quantum meruit despite a contract in situations such as fraud or an unenforceable, ineffective, or expired agreement, but found that JH Kelly's complaint did not allege that any such exception applied.

Disposition

Judge Haywood S. Gilliam, Jr. granted in part and denied in part AECOM's motion to dismiss JH Kelly's second amended complaint. The motion was granted as to the fifth claim for breach of the implied covenant of good faith and fair dealing and the eighth claim for quantum meruit for reasonable value. It was denied as to the sixth claim for quantum meruit based on abandonment of the contract. The court stated that it would address whether JH Kelly would receive leave to amend the dismissed claims at the pretrial conference.