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Ninth Circuit:
Subcontractor Has No Claim Based on Ouster From Project
Opinion Says Company’s Suits to Force Compliance With Prompt Payment Act Was in Pursuit of Private Interests, Not Giving Rise to Action for First Amendment Retaliation When City/County Barred It From Sewer Work
By a MetNews Staff Writer
The Ninth U.S. Circuit Court of Appeals yesterday held that a subcontractor ousted from a project by the City and County of San Francisco allegedly because it had successfully sued the city/county for failure to abide by a state prompt-payment law could not maintain an action based on “First Amendment retaliation” because those suits involved only private interests.
Such an action, a memorandum opinion by a three-judge panel points out, must be based on retaliation for speech on “matters of public concern” and, it declares, the lawsuits by Synergy Project Management, Inc. related to matters of purely private concern.
To the contrary, Synergy Project Management, Inc. maintained in its opening brief, those lawsuits “were a part of Synergy’s long and public overall effort on behalf of Synergy and similarly situated businesses to secure the City’s compliance with a policy implicating the public interest under settled law: California’s laws enacted to ensure timely payment of contractors and subcontractors that contract with municipalities.”
It argued:
“San Francisco’s noncompliance with California’s Prompt Payment Policy frustrated the objectives of the Public Contract Code by causing companies doing business with the City to experience the problems the California Legislature tried to address in enacting the Prompt Payment Act….As the Legislature anticipated, small businesses like Synergy—that lacked the financial wherewithal to advance and finance the costs of major construction projects—were especially vulnerable to the harm by the noncompliance….
“In response, Synergy and its principal, Javad Mirsaidi, engaged in a public effort to bring the City and County of San Francisco into compliance with California Prompt Payment Policy….This effort included direct appeals by Synergy to City officials, and public presentations to City commissions by Synergy’s principal Javad Mirsaidi (on behalf of contractors and other companies doing business with the City) and service by Mr. Mirsaidi on City Commission advisory boards….These efforts were noticed by the construction industry media, which publicly recognized Synergy’s advocacy for prompt payment policy compliance.”
Synergy, founded in 2000, claimed last year that in the previous 14-year period, it had installed or relocated in excess of 55 miles of water and sewer lines under San Francisco streets, including the hub area. It insisted it was yanked off a project as a subcontractor in October 2015, over the protest of the contractor, Ghilotti Brothers, Inc., on the pretext that it had hit gas lines, despite the city/county’s initial acknowledgement that this was the result of its own deficient mapping.
District Court Judge Jon S. Tigar of the Northern District of California on Nov. 1, 2019, dismissed with prejudice Synergy’s claim for First Amendment retaliation and other claims, and Synergy appealed.
Ninth Circuit Opinion
A Ninth Circuit panel—comprised of Circuit Judges Daniel Aaron Bress and Andrew D. Hurwitz, joined by Superior Court Judge Clifton L. Corker of the Eastern District of Tennessee, sitting by designation—said, in affirming dismissal of the federal claims (while reinstating a state claim):
“Synergy’s prior lawsuits against the City related to payment for services rendered on construction contracts, a quintessential private interest. While Synergy’s allegations in the Proposed Fourth Amended Complaint framed the lawsuits as being part of a public effort to obtain the City’s compliance with California’s prompt payment laws, this recasting does not alter the true ‘context’ of the lawsuits—a private contractual dispute.”
The panel added that Synergy also did not show that the prior litigation played a major role in the city/county’s decision to remove it as a subcontractor.
‘Stigma Plus’ Test
The opinion says that Synergy did not meet the “stigma plus” test under which a due process violation by government can be found where defamation is accompanied by interference with a right or status recognized by state law. It sets forth:
“Synergy’s allegations that City officials publicly depicted it as a bad contractor, blamed it for cutting comers, and called it incompetent, are not ‘severe and genuinely debilitating’ and do not ‘import serious character defects’ sufficient to establish a due process violation under the stigma-plus test.”
The plaintiff alleged a denial of substantive due process in light of the city/county having effectually debarred it. “Synergy does not allege in either its Third Amended Complaint or its Proposed Fourth Amended Complaint that it could not bid on or obtain contracts with the City.” The opinion responds.
State Claim
Tiger dismissed Synergy’s claim under California law for intentional interference with contract on the ground that the city/county was not a “stranger” to the contract between Synergy and Ghilotti. Reversing, the opinion notes that Tiger’s view is contrary to a subsequent holding by the state Court of Appeal in Caliber Paving Co., Inc. v. Rexford Industrial Realty & Management., Inc.
In his Sept. 1 opinion, Justice Richard D. Fybel of the Fourth District’s Div. Three said that “a defendant who is not a party to the contract or an agent of a party to the contract is a noncontracting party or stranger to the contract and, regardless whether the defendant claims a social or economic interest in the contractual relationship, may be liable in tort for intentional interference with contract.”
The case was remanded, with a reminder that the California held last year in Ixchel Pharma, LLC v. Biogen, Inc. (in response to a question certified to it by the Ninth Circuit) that a cause of action for interreference with an at-will contract requires an “independently wrongful act.” The opinion says:
“Because Ghilotti Brothers, Inc., the general contractor, could remove Synergy in its sole discretion, Synergy’s interference claim survives only if Synergy alleged an independently wrongful act….The district court did not reach this issue, and we decline to do so in the first instance.”
The case is Synergy Project Management, Inc. v. City and County of San Francisco, 19-17558.
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