Y.K.A. Industries, Inc. v. Redevelopment Agency

Opinion

Appellant Y.K.A. Industries, Inc. (YKA), appeals from the trial court’s summary judgment in favor of the Redevelopment Agency of the City of San Jose^[1] (Agency) and Nina Grayson, a city employee, on YKA’s cross-complaint. In a single cause of action, YKA, a subcontractor on an Agency-approved housing project, alleged a claim against the Agency and Grayson for “deprivation of due process under color of state law” pursuant to 42 United States Code section 1983^[2] based on the Agency’s having asserted a prevailing wage violation against YKA in connection with the construction of the project.^[3] YKA sought general and punitive damages and statutory attorney fees. The trial court granted the Agency and Grayson’s motion for summary judgment on the claim. The court concluded that YKA had failed to exhaust mandatory judicial remedies—in the form of a petition for writ of mandate to compel the Agency to afford an evidentiary hearing—before filing a legal action for federal civil rights violations and that the doctrine of exhaustion of judicial remedies therefore barred the action.

YKA appeals, contending that the Agency and Grayson failed to meet their burden on the motion of demonstrating their entitlement to summary judgment as a matter of law. Because there is no evidence in the record of

STATEMENT OF THE CASE

In

April 2000, the Agency entered into a disposition and development agreement (DDA) with developer San Jose/Mission Villas, LLC, apparently a subsidiary of the parent company Goldrich & Kest Industries, LLC,^[5] to facilitate redevelopment by public and private action of the Park Townsend redevelopment housing project in downtown San Jose (the project). According to the DDA, the Agency would provide specified funds for remediation and construction of offsite improvements and would convey the property to the developer. The developer was to construct public improvements in the offsite areas of the project in the nature of sidewalks, curbs, and gutters and would also perform design, development, and construction of residential improvements and parking facilities on the site.^[6]

The total cost of the project was listed in the DDA at $40,293,645. The developer would obtain financing and pay for development and construction of the improvements, with the Agency contributing specified cash “assistance” dedicated to offsite public improvements and remediation and other “assistance” in the form of land contribution. This assistance was described in the DDA as “Agency Land Assistance” (valued at $2,621,892), “Agency Off-Site Assistance” ($1.4 million cash), and “Agency Remediation Assistance” ($600,000 cash), for a total Agency contribution of $4,621,892.^[7]

The DDA also required the developer to “pay, or cause to be paid, applicable prevailing rates of wages for all residential constmction work done in connection with the development of the Site.” Prevailing wages were described as wages paid under a collective bargaining agreement with a recognized union representing workers who perform that type of constmction work, or in the absence of a collective bargaining agreement, not less than the prevailing wage set forth at section 1773.1 of the Labor Code, the California Code of Regulations (tit. 8, § 16000 et seq.), and as established by the Director of California's Department of Industrial Relations or, alternatively, by the City of San Jose’s Office of Equality Assurance. The DDA did not contain an administrative or internal procedure or method for enforcement of the prevailing wage clause or for determining its alleged violation.

The DDA further required the developer to establish a retention provision in all contracts and subcontracts for the project that was consistent with current industry practice. The provision would require the developer to withhold a minimum of 5 percent of payments due contractors “until the obligations of the contractor are satisfactorily completed.”

In or about July 2001, the developer, as general contractor, entered into a written subcontract with YKA for the installation of interior cabinets onsite at the project.^[8] The contract did not contain a term requiring YKA to pay prevailing wages to its workers. At the time YKA entered into the subcontract, it had not been provided with a copy of the DDA and was not then aware of that document’s prevailing wage provision.

Under its subcontract, YKA constructed the cabinets in Southern California, where its business is located. In or around the summer of 2003, YKA orally contracted with four local “installers,” whom it regarded as independent contractors, to install the cabinets at the project site. One of the installers was to act as YKA’s foreman on the job. The installers were hired on a “piecework” basis, meaning that they were to be paid by YKA a set amount for each cabinet installed. But the installers were required to submit weekly time and progress sheets to YKA to substantiate and document their work, which began around August 2003.

But neither agreement specified or referred to any particular practices or council policies; they did not specify any administrative or internal procedures to govern labor compliance activities provided; and they did not refer to specifically applicable sections of the Labor Code in this regard. Nor did they identify or correlate specific staffing levels with particular provisions of the Labor Code or particular council policies. In other words, neither agreement provided for any form of adjudicative or administrative process to govern the Office’s determinations of a party’s failure to comply with labor standards, including determinations by the Office of a prevailing wage violation by a contractor or subcontractor. Nina Grayson understood that the Office’s personnel would conduct “an investigation in which [they would] talk to the workers, talk to the contractor, and arrive at a conclusion.” In the event of a dispute, the Office would “afford contractors an opportunity to come in and meet... to discuss a finding of noncompliance, and [they would be] afforded the opportunity to bring additional information forward to look at.” But she did not understand there to be any procedure in place whereby a party adversely affected by the Office’s determination of a prevailing wage violation on an Agency project could request a hearing or be provided with any form of adjudicatory or administrative process or review of that determination. If a contractor was “not happy” with a determination made by the

In November 2003, Nina Grayson, in her capacity of director of the Office, had not yet been provided with a copy of die YKA subcontract with the developer on the project and she was operating under the incorrect assumption that the subcontract contained a prevailing wage clause. After her staff had made a site visit, she became aware of allegations that YKA “had failed to pay prevailing wages to a number of workers.” She initiated an investigation into the allegations and, in December 2003,^[13] the Agency notified YKA that it was required to pay its workers “prevailing hourly wage for their work at the Project.” YKA protested that it was not required to pay prevailing wages by contract or any other authority and expressed its belief that its workers’ claimed hours were “phony and severely overstated.”

In March 2004, Grayson requested the developer to withhold “sufficient retention” from YKA until the investigation was complete.^[14] She also informed the developer that if there were a prevailing wage violation, YKA’s workers would have to be made “whole” as quickly as possible so that the requirements of the DDA were met, a responsibility that was ultimately to be borne by the developer, who, unlike YKA, was in privity of contract with the Agency and bound by that agreement.

By April 2004, the Office, through Grayson, had concluded that YKA’s workers had not been paid prevailing wages on the project and she again wrote to the developer, this time requesting that restitution be paid to the four workers by YKA by April 16, 2004, in calculated amounts representing “the difference between what was reported on the certified payroll records and the actual hours worked” for a total of $93,027.32. In late April, YKA’s counsel objected by letter to Grayson,^[15] to which she responded on May 25, 2004. She pointed out that while YKA’s workers had been paid on a piecework basis, they had kept logs of their time, from which the restitution amounts owed to each worker were calculated. Grayson requested that YKA pay these amounts to its workers in the form of cashier’s checks delivered to the Office by June 14, 2004. If YKA failed to make payment, Grayson threatened that the developer, instead of YKA, would have to make restitution and “issue 1099s to the affected workers.” At the time, Grayson was still unaware of the fact that YKA’s subcontract did not contain a prevailing wage clause, despite the Agency’s presumably having reviewed and approved of the subcontract

Again, even though its subcontract lacked a prevailing wage clause, YKA paid the full amount of restitution as calculated by Grayson by August 4, 2004, still under protest. According to the Agency, at no point did it withhold any amount of retention from the developer on the project due to an alleged or actual prevailing wage violation. According to YKA, the Agency demanded the developer to withhold “somewhere between $150,000 and $200,000 from YKA in order to ensure that YKA complied with [the Agency’s] prevailing wage determinations” and the developer in fact withheld “sums in excess of $93,000” until YKA “paid the money to the workers pursuant to [the Agency’s] mandate.”^[16]

YKA filed its cross-complaint on June 24, 2005.^[17] As against the Agency and Grayson, it alleged a single cause of action for “deprivation of due process under color of state law” in violation of the federal Civil Rights Act of 1971, section 1983.^[18] The charging allegations pleaded that the Agency and Grayson unlawfully “1. Demanded YKA pay prevailing wages to persons, despite the fact that there is no law or ordinance in San Jose requiring the payment of such wages on a public works contract, nor was there any contract requiring YKA to pay such wages; 2. Refus[ed] to [provide] YKA notice and an opportunity to be heard before a neutral body, [to] present evidence or confront witnesses before depriving YKA of property without due process of law; and 3. Us[ed] and exert[ed] unfair and unlawful pressure by threatening to withhold money far in excess of any actual or potential claim in an effort to force YKA. to make payments it was not required to make.”

In July 2006, the Agency and Grayson moved for summary judgment on YKA’s cross-complaint under Code of Civil Procedure section 437c.^[19] They contended that they were entitled to summary judgment or adjudication because (1) YKA was precluded from recovering damages under 42 United States Code section 1983 as “it did not first exhaust judicial remedies”; (2) any “withholding of payments to YKA did not occur under color of state law”; (3) “YKA had an adequate post-deprivation remedy by seeking recovery from the [developer]”; and (4) Grayson “[was] immune from suit, as she performed her duties in good faith.” (Capitalization omitted.) With respect to their first contention, the Agency and Grayson included nothing in their moving papers by way of argument or evidence regarding the character of the factfinding process used or the adjudicatory basis for applying the doctrine of exhaustion of judicial remedies in this case. In other words, the application of this doctrine was assumed with no evidentiary basis or legal analysis for its application offered.

The separate statement of undisputed facts filed in support of the motion included nine facts. They were in essence that (1) the Agency had entered into the DDA with the developer; (2) the DDA required the developer to pay, or cause to be paid, prevailing wages on the project; (3) the developer later entered into a subcontract with YKA for installation of cabinetry onsite at the project; (4) YKA’s subcontract did not include a prevailing wage provision; (5) the Agency and the Office, whose director was Grayson, entered into an agreement for the Office to provide labor compliance services on Agency-approved projects, including the subject project; (6) in late 2003, allegations arose that YKA’s workers on the project were not being paid prevailing wages; (7) Grayson investigated the prevailing-wage-violation allegations; (8) she determined based on the investigation that YKA had not paid prevailing wages to its four workers on the project; and (9) Grayson later informed the developer and YKA that it was the developer’s responsibility, and not that of YKA, to pay YKA’s workers prevailing wages.

YKA’s own separate statement in opposition to the motion admitted that the moving parties’ nine facts were undisputed. It also offered nine additional facts that it urged were likewise undisputed. These were that (1) Grayson did not determine until several months into her investigation that YKA’s subcontract did not include a prevailing wage provision, which excused YKA from having to pay prevailing wages; (2) Grayson nevertheless insisted that the developer withhold monies due YKA. under the subcontract to cover what she calculated was due YKA’s workers as restitution; (3) Grayson by policy makes the final determination of a prevailing wage violation and calculates the resulting amounts due; (4) this policy does not afford a contractor the right to an evidentiary hearing or the opportunity to cross-examine witnesses; (5) there is no appeal or review process through which a contractor can challenge a prevailing-wage-violation determination made by Grayson except perhaps for the contractor to bring the matter to the attention of the city manager; (6) YKA had informed Grayson and the Agency in two letters that its subcontract did not contain a prevailing wage clause; (7) YKA also twice demanded in writing that it be provided with an evidentiary hearing or other manner in which to contest the claims of its workers and these demands were denied by Grayson and the Agency; (8) the developer informed YKA that the Agency and Grayson had insisted that the developer withhold contract sums due YKA to cover restitution amounts due by reason of the prevailing wage violation; and (9) the developer in fact withheld from YKA substantially more than $93,000—the amount in controversy over prevailing wages—at the insistence of the Agency and YKA.

In reply, the Agency and Grayson contended among other things that YKA bore the burden of establishing that it had petitioned in mandate before filing

Inherent in the trial court’s ruling was the conclusion, based solely on the due-process-violation component of YKA’s claim, that the specific cause of action against the Agency and Grayson was subject to the doctrine of exhaustion of judicial remedies. The perfunctory application of this doctrine was argued by the moving parties, relying principally on Briggs v. City of Rolling Hills Estates (1995) 40 Cal.App.4th 637 [ 47 Cal.Rptr.2d 29 ] (Briggs); Mobley v. Los Angeles Unified School Dist. (2001) 90 Cal.App.4th 1221 [ 109 Cal.Rptr.2d 591 ] (Mobley); and DeCuir v. County of Los Angeles (1998) 64 Cal.App.4th 75 [ 75 Cal.Rptr.2d 102 ] (DeCuir).

The doctrine of exhaustion of judicial remedies, as explained by the court in Knickerbocker v. City of Stockton (1988) 199 Cal.App.3d 235 , 240-244 [ 244 Cal.Rptr. 764 ], is distinct from the jurisdictional rule that requires exhaustion of administrative remedies before filing suit in certain circumstances. “Rather it is a form of res judicata, of giving collateral estoppel effect to the administrative agency’s decision, because that decision has achieved finality due to the aggrieved party’s failure to pursue the exclusive judicial remedy for reviewing administrative action.”^[21] (Briggs, supra, 40 Cal.App.4th at p. 646, fn. omitted; see also Westlake Community Hosp. v. Superior Court (1976) 17 Cal.3d 465 , 484 [ 131 Cal.Rptr. 90 , 551 P.2d 410 ] (Westlake).)

The doctrine of exhaustion of judicial remedies is invoked where there has been a quasi-judicial adjudication by an administrative tribunal, whether in the public or private context. It requires a party aggrieved by such a decision to petition for relief in mandate in order to challenge the administrative action or findings before filing a legal action so as to prevent the adverse action or findings on issues actually litigated from taking on preclusive effect. (McDaniel v. Board of Education (1996) 44 Cal.App.4th 1618 , 1621 [ 52 Cal.Rptr.2d 448 ]; Westlake, supra, 17 Cal.3d at p. 484 [unless party to a quasi-judicial proceeding challenges adverse findings made in that proceeding through mandamus, those findings are binding in a later civil action]; Johnson v. City of Loma Linda (2000) 24 Cal.4th 61 , 69-70 [ 99

In Mobley, also cited by the Agency and Grayson, the plaintiff, a subcontractor, brought suit against a school district, the state Division of Labor Standards Enforcement (DLSE), and four individuals in a dispute about his alleged failure to have paid prevailing wages to his workers on a public works school construction project.^[23] Although the dispute was initiated by actions of the labor compliance unit of the school district, it was later

After an exhaustive analysis of the constitutionality of California’s prevailing wage statutes and regulations affecting public works as considered and upheld by the United States Supreme Court in Lujan v. G & G Fire Sprinklers, Inc. (2001) 532 U.S. 189 [ 149 L.Ed.2d 391 , 121 S.Ct. 1446 ], the Court of Appeal in Mobley concluded that the plaintiff could maintain a petition for writ against the DLSE to compel a hearing to determine whether a prevailing wage violation had occurred. (Mobley, supra, 90 Cal.App.4th at pp. 1232-1245.) The court emphasized that the United States Supreme Court in Lujan, citing due process concerns, had required some form of postdeprivation relief to a subcontractor after an awarding body on a public works project had directed the withholding of funds from the subcontractor by the general contractor in accordance with the prevailing wage law. (Mobley, at p. 1245.) The court did not determine the plaintiff’s ultimate and substantive right to writ relief but concluded that his complaint that he had not received a due process hearing from the DLSE before the highest penalty was assessed for his alleged prevailing-wage violation, was properly pursued by ordinary mandamus, and that the petition was not barred by the shorter statute of limitations applicable to administrative mandamus. (Ibid.)

What all of these cases that concern the doctrine of exhaustion of judicial remedies (to varying degrees) demonstrate, including Briggs, DeCuir,

The predicates to the doctrine’s application are therefore the existence or availability of an administrative process possessing a judicial character and a quasi-judicial adjudication, finding, or action adverse to the plaintiff produced therefrom. The doctrine is applied by giving preclusive effect in a later lawsuit concerning claimed violations of the same primary right to such adverse quasi-judicial, adjudicatory findings and decisions. If there is no available or established administrative process possessing a judicial character or no quasi-judicial decision or adjudicatory findings to which to give preclusive effect in a particular case, the purpose of the doctrine cannot be served, its res judicata or collateral estoppel function cannot be used as a sword or shield, and the doctrine thus cannot be applied to bar a later action on this basis. The Agency and Grayson cite no authority for the application of the doctrine to factual settings in which there was no demonstrated available adjudicatory process, let alone one possessing a judicial character, and no

B. The Summary Judgment Motion Below

Concerning their claim that they were entitled to summary judgment based on application of the doctrine of exhaustion of judicial remedies, the Agency and Grayson argued below in three paragraphs that because YKA claimed that they had deprived it of due process in the form of an evidentiary hearing, YKA was required to have petitioned for relief in mandate before pursuing a legal action against them under 42 United States Code section 1983, and it had failed to do so. There was no argument or analysis devoted to the preliminary question whether the doctrine of exhaustion of judicial remedies even applies on the facts of this case. This, despite the allegation in YKA’s cross-complaint-—the pleading that framed the issues on summary judgment—that there was no requirement for it to pursue prior judicial action or relief before proceeding with its section 1983 claim for damages.

And the moving parties included no facts in their separate statement that might establish either (1) the application of the doctrine here due to the existence of a quasi-judicial decision adverse to YKA that was reached after resort to available or established administrative procedures possessing a judicial character or (2) YKA’s actual failure to have petitioned for relief in mandate.^[26] Indeed, the undisputed evidence on the motion, as demonstrated by YKA’s opposition, showed that no one understood there to have been any operative or established administrative procedure whereby YKA’s obligation to pay prevailing wages as calculated by the Agency, or the amounts potentially owing to its workers as prevailing wages under the DDA, could be adjudicated and no operative contracts provided for such a procedure, let

As we have shown, the doctrine of exhaustion of judicial remedies operates by affording preclusive effect to a prior quasi-judicial decision or findings reached after resort to an available administrative process possessing a judicial character. Thus, in order to prevail on this ground, or even to shift the burden on the motion, it was necessary for the Agency and Grayson to affirmatively demonstrate as part of their summary judgment moving papers that, indeed, there existed such a process here and that such process had yielded a quasi-judicial decision or findings adverse to YKA. It was further incumbent upon the moving parties in order to prevail on this ground, or to even shift the burden on the motion, to establish with undisputed evidence that YKA had in fact failed to challenge an adverse quasi-judicial decision or findings such that these matters were afforded preclusive effect so as to bar this action. These factual predicates were required to be affirmatively shown in order for the Agency and Grayson to demonstrate their entitlement to summary judgment as a matter of law, i.e., to carry their burdens of production and persuasion on the motion as set out in Aguilar and the summary judgment statute, with respect to the doctrine of exhaustion of judicial remedies. Yet they offered no evidence on either matter and failed to include any material fact in their separate statement that went to either of these issues.^[28] The trial court’s written order granting the motion acknowledged that the moving parties had included no evidence that YKA had failed

Moreover, the undisputed evidence submitted by YKA in opposition concerning the character of the “proceedings” demonstrates a decisionmaking process so lacking in adjudicatory or quasi-judicial characteristics as to fall well short of what is required in order to ascribe preclusive effect to any determinations made in the process. There was no established administrative procedure by which to have a claim heard; there were no available mechanisms by which YKA could properly evaluate the “evidence” against it, let alone subject adverse evidence to some form of cross-examination; there was no formal hearing or established procedure, regulation, contract, or authority that required a hearing; YKA was not afforded the opportunity to subpoena, call, or examine witnesses; there was no record of the proceedings; there were no particular findings or manner in which to seek internal review of findings; and there was no actual decision directly adverse to YKA of which review could be sought or that could be given preclusive effect against YKA in this action. Although YKA was able to submit to the Office documentary evidence and argument in support of its positions that it did not owe its workers prevailing wages or that their timekeeping records were erroneous, this fact alone is simply not enough to render the character of Grayson’s “decision” that the workers were owed certain amounts by the developer under the DDA judicial or quasi-judicial in character. (Pacific Lumber, supra, 37 Cal.4th at p. 944; State Bd. of Chiropractic Examiners v. Superior Court, supra, 45 Cal.4th at pp. 975-976.) The Agency and Grayson cite no authority that would lead to this result and we have found none.^[29]

The Agency and Grayson contended at oral argument and in supplemental briefing that even if the doctrine of exhaustion of judicial remedies does not apply here due to the absence of an adjudicatory, quasi-judicial decision reached after an administrative process possessing the requisite judicial character, YKA has waived this basis for reversal by expressly conceding the application of the doctrine and by failing to raise this particular argument below or on appeal. Not so.

It is true that YKA made statements in briefing here and below that acknowledged a general requirement of pursuing relief in mandate before suing a governmental entity to compel official action or for damages for civil rights violations.^[30] But after each such statement, YKA went on to argue that

But more fundamentally, because the Agency and Grayson obtained judgment not by trial but instead by summary judgment, in order to shift the burden on the motion or to prevail based on the argument that the doctrine of exhaustion of judicial remedies barred YKA’s cause of action, it was necessary for these moving parties to affirmatively demonstrate their entitlement to judgment as a matter of law on this basis.^[32] To do so, it was incumbent on them to show as a preliminary matter that the doctrine applied here by demonstrating, with undisputed facts, that there was a prior administrative proceeding possessing the requisite judicial character and yielding a decision adverse to YKA such that res judicata principles could be fairly invoked to bar the action. (Pacific Lumber, supra, 37 Cal.4th at p. 944; State Bd. of Chiropractic Examiners v. Superior Court, supra, 45 Cal.4th at pp. 975-976.)

In other words, because demonstrating the very applicability of the doctrine here was an inherent part of showing their entitlement to judgment on

Because summary judgment deprives a party of his or her right to a jury trial, the erroneous granting of a motion will ordinarily be reversible error and will be found harmless only where the trial court’s error was purely technical. Here, the trial court erred by shifting the burden of production to YKA; this error was not purely technical or harmless and it thus requires reversal of the judgment. (Hawkins v. Wilton, supra, 144 Cal.App.4th at p. 943.)