Government Claims Act won’t bar actions seeking the interpretation of a contract

The Government Claims Act requires a claim to be presented to a public entity before a lawsuit seeking money or damages can be filed against that entity. However, the claim presentation requirement does not apply to suits seeking declaratory relief to resolve a dispute about the legal relationships between parties. But what happens when the declaratory relief sought involves a dispute over when a public entity is required to provide compensation to a contractor under the terms of a contract? Luckily, the recent decision in Stronghold Engineering Inc. v. City of Monterey, Cal. Ct. App., Nov. 3, 2023, No. H050157, WL 7291379 (2023) provides guidance on this question.

In Stronghold Engineering Inc. v. City of Monterey, the City of Monterey contracted with Stronghold Engineering Incorporated to do renovations of the City's conference center and adjacent plaza. During the renovations, a dispute arose over how to interpret a waiver in the contract where Stronghold agreed to "waive its rights to any due compensable or excusable delays in time and money for all known and unknown knowledge of the project conditions, including unforeseen site conditions and errors and omissions in the drawings and specifications, with the exception of any major owner changes affecting the critical path of the schedule or Acts of God or of the public enemy, fire, floods, epidemics, quarantine restrictions, strikes and freight embargoes." Id.

In December 2016, Stronghold filed a suit for declaratory relief to resolve the dispute seeking a judicial determination finding that according to the agreement the "City must compensate Stronghold for due compensable or excusable delays in time and money for any changes made by or caused by the City to the Project that negatively impact the critical path." Id. However, Stronghold filed the suit without presenting a claim to the City, alleging in their complaint that the claim requirement was inapplicable because the action was "solely for declaratory relief regarding the meaning, interpretation, and legality of a contract." Id. The City demurred, based on Stronghold failing to present a claim before filing a suit seeking a determination that the City must compensate Stronghold in money or damages for certain delays. The trial court sustained the demurrer granting leave to amend. Stronghold then presented claims to the City and amended the complaint. However, the trial court granted summary judgment for the City finding that the entire suit was barred because Stronghold failed to present a claim before filing the initial complaint. The 6th District Court of Appeal reversed, finding that the demurrer should not have been sustained and summary judgement should not have been granted, because the initial action was only seeking declaratory relief. The 6th District ruled that there is a material difference between a judgement that provides an interpretation of a written agreement and a judgment that applies that interpretation to a set of facts. Reasoning that a judgment which applies an interpretation to a set of facts has the potential to create an award for damages, where a judgment that only provides an interpretation does not.

The 6th District acknowledged that Stronghold's suit referenced placing an obligation on the City to compensate Stronghold but determined that this was only for the purpose of resolving the dispute over which party was financially responsible for certain types of project delays. This language was determined to not constitute a claim for money or damages, because Stronghold would still need to file a separate action to establish that a particular delay was compensable under the interpretation provided in the declaratory judgement in order to obtain an award for money or damages.

The City went on to contend that the suit was the equivalent of an indemnification action and that a declaratory relief action seeking indemnity from damages can be subject to the claim requirement. The 6th District did not find this argument applicable because, unlike an indemnity action, this case did not involve "a defendant subject to a suit for damages seeking to hold a third party liable for those damages." The 6th District emphasized that no award for money or damages would come solely from the declaratory judgment Stronghold was seeking.

As a result, the 6th District found that "a declaratory relief action seeking the interpretation of a contract is not a claim for money damages even if the judicial interpretation sought may later be the basis for a separate claim for money or damages." Id. However, the 6th District made it clear that any future suit for money or damages brought by Stronghold based on the judicial interpretation sought in the declaratory relief action would need to comply with the claim requirement. It will be interesting to see the impact Stronghold Engineering Inc. v. City of Monterey has on future cases.