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Settimo Associates v. Environ Systems, Inc.

California Court of Appeal · D015713 · 1993-03-26 · Published · 14 Cal. App. 4th 842 · 17 Cal. Rptr. 2d 757 · 93 Cal. Daily Op. Serv. 2379 · 93 Daily Journal DAR 4009 · 1993 Cal. App. LEXIS 332

SETTIMO ASSOCIATES, Plaintiff and Appellant, v. ENVIRON SYSTEMS, INC., Et Al., Defendants and Respondents

Area
civil
Panel
Don R. Work (author)

Analysis

A model's reading — qwen3.8-27b, prompt v1, 2026-10-13T07:31Z · confidence high

The trial court granted a motion for judgment on the pleadings in favor of Environ, ruling that Settimo's complaint failed to state a cause of action for interference with prospective economic advantage because Environ's lack of a general contractor's license did not constitute unlawful interference in private bidding. The Court of Appeal affirmed the judgment, holding that the Business and Professions Code licensing regulations do not create a civil remedy for competing bidders who lose contracts to unlicensed competitors.

Ruling reviewedStandardThe courtThe model
Judgment on the pleadings in favor of Environ Systems, Inc. et al.
“The trial court treated this as a motion for judgment on the pleadings (see Clemens v. American Warranty Corp. (1987) 193 Cal.App.3d 444, 451 [238 Cal.Rptr. 339]), granted the motion, and entered judgment for Environ.”
de novocorrectagree with court
agree with court

Authorities

  • relied: Buckaloo v. Johnson (1975) 14 Cal.3d 815 — Establishes the elements of the tort of intentional or negligent interference with prospective economic advantage and recognizes the privilege of fair competition in a competitive economy.
  • relied: Baldwin v. Marina City Properties, Inc. (1978) 79 Cal.App.3d 393 — Defines the tort as liability for improper methods of disrupting business relationships that fall outside the boundaries of fair competition.
  • relied: Institute of Veterinary Pathology, Inc. v. California Health Laboratories, Inc. (1981) 116 Cal.App.3d 111 — Describes the tort as a developing legal phenomenon and cites the principle that everyone has the right to conduct a lawful business protected from unlawful invasion.
  • relied: Buxbom v. Smith (1944) 23 Cal.2d 535 — Source for the principle that business rights are protected by courts when unlawfully invaded.
  • relied: Swickheimer v. King (1971) 22 Cal.App.3d 220 — Supports the conclusion that regulatory licensing sections do not create a civil action for damages in favor of a competing bidder.
  • relied: Clemens v. American Warranty Corp. (1987) 193 Cal.App.3d 444 — Cited for the procedural treatment of an objection to evidence as a motion for judgment on the pleadings.
  • relied: Miller v. McLaglen (1947) 82 Cal.App.2d 219 — Defines the standard of review for a judgment on the pleadings, requiring facts to be taken as true and the judgment viewed in the light most favorable to the non-moving party.

The appellate opinion: sound — The opinion is sound because it correctly applies the standard of review for judgment on the pleadings and accurately identifies that the Business and Professions Code licensing statutes are regulatory in nature and do not create a private right of action for civil damages against unlicensed competitors. The court properly distinguishes between the criminal/administrative penalties for unlicensed work and the lack of a tortious duty owed to competing bidders in the private sector.

How this analysis was made · dispute it

A model's reading — claude-fable-5-1, prompt v1, 2026-10-13T04:32Z · confidence medium

The trial court, treating Environ's objection to all evidence as a motion for judgment on the pleadings, held that Settimo's complaint for intentional or negligent interference with prospective economic advantage failed to state a claim because a competitor's bidding on private contracts without the proper contractor's license is not actionable, and entered judgment for Environ. The Court of Appeal affirmed, holding that underbidding is privileged competition and that the Business and Professions Code licensing provisions create no civil damages remedy for a competing licensed bidder.

Ruling reviewedStandardThe courtThe model
Treating Environ's objection at the outset of trial to the introduction of all evidence as a motion for judgment on the pleadings
“The trial court treated this as a motion for judgment on the pleadings”
unclearcorrectagree with court
The appellate court accepted the procedure with a 'see' citation to Clemens v. American Warranty Corp. and did not analyze it further; Settimo raised no challenge to the procedure, and California practice has long allowed an objection to all evidence to be treated as a motion for judgment on the pleadings.
Granting judgment on the pleadings because the complaint failed to state a cause of action for intentional or negligent interference with prospective economic advantage based solely on Environ's lack of a general contractor's license when it underbid Settimo on private contracts
“We conclude the fact Environ was not properly licensed at the time it was awarded these contracts does not amount to actionable unlawful interference with contracts.”
de novocorrectunsure
The court correctly applied the Buckaloo elements and the principle that price competition is privileged, and reasonably observed that the licensing statutes are enforced by the Contractors' Licensing Board and protect the public rather than competitors. However, it conflated two distinct questions: whether the Business and Professions Code creates a private right of action (it does not) and whether a misdemeanor violation of that code can supply the 'unlawful' or improper means element of the common law tort. The court also noted that no statute requires private owners to accept only licensed bids, which addresses the owners' conduct rather than the defendant's, and footnote 2 relies on record facts outside the pleadings. The result is defensible under the law as it stood, but the key analytical step is undeveloped.

Authorities

  • relied: Buckaloo v. Johnson (1975) 14 Cal.3d 815 — Sets out the elements of interference with prospective economic advantage and recognizes that in a competitive economy success goes to the party able to induce customers not to deal with a competitor.
  • relied: Baldwin v. Marina City Properties, Inc. (1978) 79 Cal.App.3d 393 — The tort imposes liability for improper methods of disrupting another's business relationships that fall outside the boundaries of fair competition.
  • relied: Institute of Veterinary Pathology, Inc. v. California Health Laboratories, Inc. (1981) 116 Cal.App.3d 111 — The tort protects the right to conduct a lawful business against unlawful invasion and is a relatively unsettled and developing area of law.
  • relied: Buxbom v. Smith (1944) 23 Cal.2d 535 — Everyone has the right to establish and conduct a lawful business and to the courts' protection when that right is unlawfully invaded.
  • relied: Swickheimer v. King (1971) 22 Cal.App.3d 220 — Cited generally for the point that contractor licensing regulations do not create a civil damages action in favor of a competing bidder.
  • relied: Clemens v. American Warranty Corp. (1987) 193 Cal.App.3d 444 — An objection to the introduction of all evidence may be treated as a motion for judgment on the pleadings.
  • relied: Miller v. McLaglen (1947) 82 Cal.App.2d 219 — On review of a judgment on the pleadings, the alleged facts are taken as true and the judgment is viewed in the light most favorable to the opposing party; if a cause of action is stated, the judgment must be reversed.
  • missed: Pacific Gas & Electric Co. v. Bear Stearns & Co. (1990) 50 Cal.3d 1118 — The Supreme Court's then-leading statement of the scope of interference with prospective economic advantage, holding that inducing a party to pursue litigation is not actionable interference absent a lack of probable cause and discussing the limits of what conduct constitutes actionable interference.
  • missed: Hydrotech Systems, Ltd. v. Oasis Waterpark (1991) 52 Cal.3d 988 — The Contractors' State License Law exists to protect the public from incompetent and dishonest contractors, and an unlicensed contractor is barred from recovering compensation for unlicensed work; relevant to whether the licensing law was meant to protect competitors.

The appellate opinion: sound with gaps — The court correctly framed the tort's elements and the privilege of competition, and its conclusion that licensing statutes protect the public and are enforced administratively rather than by competing bidders is defensible on the authorities cited. It skipped the central question of whether a statutory misdemeanor can supply the wrongful-means element of the common law tort, cited no Supreme Court authority on the tort's scope beyond Buckaloo, and relied in part on record facts outside the pleadings.

How this analysis was made · dispute it

Opinion — Work

Opinion

WORK, J.

Settimo Associates (Settimo) appeals a judgment on the pleadings in favor of Environ Systems, Inc., Otto F. Newton, Site Preparation, Inc., and Developers Insurance Co. (collectively Environ) on Settimo’s complaint for intentional or negligent interference with prospective economic advantage. Settimo contends the court erred in determining that Environ’s bidding on private contracts for work outside the scope of its specialty license did not give rise to a tort claim in favor of competing bidders who were properly licensed. For the following reasons, we affirm the judgment.

Factual and Procedural Background

Settimo, holder of a general B-l contractor’s license, sued Environ, alleging alternative causes of action for intentional or negligent interference with prospective economic advantage. 1 Settimo complained that it had twice submitted the lowest bid by any duly licensed contractor for installing a computer support facility only to lose each contract to Environ which held only a specialty contractor’s license which was not sufficient for some of the work involved, but which submitted lower bids. Settimo asserts Environ’s lack of a general contracting license alone satisfies the element of unlawful contract interference so that Environ should reimburse its lost profits.

At the outset of trial, Environ objected to the introduction of all evidence alleging the complaint was fatally defective. Settimo does not allege Environ was unqualified to perform all work contemplated by the contracts, nor that the work was not properly completed. 2 The trial court treated this as a motion for judgment on the pleadings (see Clemens v. American Warranty Corp. (1987) 193 Cal.App.3d 444, 451 [238 Cal.Rptr. 339]), granted the motion, and entered judgment for Environ.

*845 Settimo Failed to Plead a Cause of Action for Which Relief May Be Granted 3

The tort of intentional or negligent interference with prospective economic advantage imposes liability for improper methods of disrupting or diverting the business relationship of another which fall outside the boundaries of fair competition. (Baldwin v. Marina City Properties, Inc. (1978) 79 Cal.App.3d 393, 406 [145 Cal.Rptr. 406].) It is premised upon the principle, “ ‘[e]veryone has the right to establish and conduct a lawful business and is entitled to the protection of organized society, through its courts, whenever that right is unlawfully invaded.’ ” (Institute of Veterinary Pathology, Inc. v. California Health Laboratories, Inc. (1981) 116 Cal.App.3d 111, 125 [172 Cal.Rptr. 74], quoting Buxbom v. Smith (1944) 23 Cal.2d 535, 546 [145 P.2d 305].)

Infrequently invoked and often misunderstood, the tort has been described as “a relatively unsettled and developing legal phenomenon, the principles of which are still very vague.” (Institute of Veterinary Pathology, Inc. v. California Health Laboratories, Inc., supra, 116 Cal.App.3d at p. 125.) The elements of the tort include (1) the existence of a prospective business relationship containing the probability of future economic rewards for plaintiff; (2) knowledge by defendant of the existence of the relationship; (3) intentional acts by defendant designed to disrupt the relationship; (4) actual causation; and, (5) damages to plaintiff proximately caused by defendant’s conduct. (Buckaloo v. Johnson (1975) 14 Cal.3d 815, 827 [122 Cal.Rptr. 745, 537 P.2d 865].) The general wrong inherent in this tort is the unlawful interference with a business opportunity through methods which are not within the privilege of fair competition. (See 5 Witkin, Summary of Cal. Law (9th ed. 1988) Torts, § 652, p. 740.)

In their race to receive the most profitable projects, those involved in the competitive bidding process strive to surpass the competition by submitting the lowest bid possible. This conduct, while admittedly designed and intended to disrupt the prospective business relationships of competitors, is nonetheless essential to the proper functioning of a free-market system. “Ours is a competitive economy in which business entities vie for economic advantage . . . and success goes to him who is able to induce potential customers not to deal with a competitor.” (Buckaloo v. Johnson, supra, 14 Cal.3d at p. 828.)

*846 We conclude the fact Environ was not properly licensed at the time it was awarded these contracts does not amount to actionable unlawful interference with contracts. We are cited to no statutory authority requiring a private entity to accept bids only from duly licensed contractors. 4 The Business and Professions Code which contains statutory licensing regulations neither creates nor denies any civil remedy to bidders who lose projects to unlicensed competitors. Granted, Environ’s conduct amounted to a misdemeanor and foreclosed any possibility of its suing to enforce an awarded contract. (Bus. & Prof. Code, §§ 7028, subd. (a), 7031.) However, these regulatory sections fall within the responsibility of the Contractors’ Licensing Board to sanction such misconduct. They do not create any action for civil damages in a competing bidder. (See generally, Swickheimer v. King (1971) 22 Cal.App.3d 220, 225 [99 Cal.Rptr. 176].)

Disposition

Judgment affirmed.

Kremer, P. J., and Huffman, J., concurred.

1

The first amended complaint filed in November 1990 included a claim for action on a bond. The second amended complaint filed in January 1991 included claims for unfair business practices and permanent injunctive relief. Before trial, Settimo voluntarily dismissed the causes of action for unfair business practices and injunctive relief.

2

It appears from this record that both contracts were fully performed and that Environ subsequently acquired the appropriate general contractor's license.

3

In reviewing a dismissal following a judgment on the pleadings, the facts as alleged are taken as true and the judgment is looked upon in the light most favorable to the party opposing the motion. If the complaint is found to state a cause of action, the judgment must be reversed. (Miller v. McLaglen (1947) 82 Cal.App.2d 219, 223-224 [186 P.2d 48].)

4

Public Contract Code section 10164 provides in part: “In all state projects where federal funds are involved, no bid submitted shall be invalidated by the failure of the bidder to be licensed in accordance with the laws of this state. However, at the time the contract is awarded, the contractor shall be properly licensed in accordance with the laws of this state.” (Italics added.)

Cites, in this corpus

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