Board of Trustees v. Santa Cruz Underground and Paving

Background

The Board of Trustees of several Laborers Trust Funds sued Santa Cruz Underground and Paving, Inc. (SCUP), alleging that SCUP failed to pay contributions and fringe benefits on five construction projects. The Trust Funds asserted claims under the Employee Retirement Income Security Act and the Labor Management Relations Act.

SCUP filed a third-party complaint against Vance Brown, Inc. (VBI), the general contractor on two of the projects: the Palo Alto High School Gym project and the Park Plaza project. SCUP sought indemnity and damages for breach of contract, alleging that VBI was primarily responsible for delinquent contributions because VBI failed to notify the union about the subcontracts as required by provisions in applicable master labor agreements. SCUP sought at least $179,549.41, plus interest and attorney’s fees.

The court noted that SCUP had styled its pleading as a cross-claim, but treated it as a third-party complaint because VBI was not a party to the underlying lawsuit.

Motion and arguments

VBI moved to dismiss under Rule 12(b)(6), which permits dismissal when a pleading does not state a legally sufficient claim. VBI did not ask the court to decide the underlying merits of SCUP’s indemnity and contract theories. Instead, VBI argued that the subcontracts contained limitations provisions barring any action related to the contracts or their performance if filed more than two years after completion or cessation of the work.

SCUP agreed that the subcontracts contained those provisions and that the Park Plaza project was complete in 2015 and the Palo Alto project was substantially complete in June 2017. SCUP argued that its claims arose from the master labor agreements, not the subcontracts, and that the master labor agreements were not incorporated into the subcontracts. SCUP also requested permission to amend to argue that it did not discover its potential liability to the Trust Funds until after the contractual deadlines expired.

Court’s analysis

The court held that the two-year limitations provisions were valid because their language was clear, unambiguous, and showed the parties’ mutual intent to impose a two-year deadline beginning when the projects were completed or work ceased. The court held that the provisions were enforceable because the parties voluntarily agreed to them, SCUP had proposed them in its bid documents, and SCUP did not establish that they were unreasonable.

The court further held that the provisions applied to SCUP’s third-party complaint. The claims necessarily related to the subcontracts because SCUP’s alleged liability to the Trust Funds arose from work performed under those subcontracts. The court found that the provisions covered actions of any character, including contract and indemnity claims. It also found no basis to toll or extend the deadlines for fraud, concealment, misrepresentation, or another legally recognized reason.

The court did not reach the merits of SCUP’s indemnity or breach-of-contract theories. It observed that SCUP had not clearly identified the type of indemnity claim it asserted and had not explained why it could obtain a remedy for alleged breaches of labor agreements to which SCUP did not claim to be a party. The court concluded, however, that those issues did not need to be decided because the claims were time-barred.

The court rejected SCUP’s proposed delayed-discovery theory. It distinguished authority involving unsophisticated individuals and skilled professionals, finding that VBI and SCUP had equal bargaining strength and commercial and technical expertise. The court also concluded that the subcontract language implicitly displaced the delayed-discovery rule. As a result, amendment would be futile.

Disposition

Judge Joseph C. Spero granted VBI’s motion to dismiss. The court denied SCUP leave to amend and dismissed SCUP’s claims against VBI with prejudice.