Opinion
A124033, A125811
08-09-2011
CLEVELAND WRECKING COMPANY, Plaintiff and Respondent, v. WEST BAY BUILDERS, INC. et al., Defendants and Appellants.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(San Francisco City and County Super. Ct. No. CGC-07-466727)
Defendant West Bay Builders, Inc. (West Bay) was the general contractor on a public works construction project. Plaintiff Cleveland Wrecking Company (Cleveland) was a subcontractor on the project. After a dispute arose concerning the scope of Cleveland's work, Cleveland filed a stop notice asserting that West Bay had wrongfully withheld payments due under the subcontract. Defendant First National Insurance Company of America (FNIC) issued a release bond on the stop notice, as security for payment of any amounts shown to be due to Cleveland.
Cleveland successfully sued West Bay and FNIC. The judgment: (1) awarded damages to Cleveland under the subcontract; (2) awarded penalties to Cleveland because West Bay violated a statute requiring prompt payments to subcontractors; and (3) awarded to Cleveland the right to recover from FNIC on its bond. After judgment was entered, the trial court denied Cleveland's motion for attorneys' fees.
In these consolidated appeals, we reverse the judgment insofar as it finds that West Bay had withheld, in violation of the prompt payment statute, all of the balance due to Cleveland under the subcontract. In all other respects, the judgment is affirmed. We also reverse the trial court's denial of Cleveland's request for attorneys' fees.
I. FACTUAL AND PROCEDURAL BACKGROUND
The factual and procedural history we provide here is abbreviated. Additional factual and procedural details are included in connection with our discussion of each disputed issue.
The City and County of San Francisco Public Utilities Commission (SF-PUC) hired West Bay as the prime contractor on the Potrero Heights Reservoir Upgrade and Site Improvements Project (the Project). The Project called for the demolition of a water tank and the partial demolition and reconstruction of a water reservoir, plus other site improvements. In connection with the Project, West Bay and Cleveland Wrecking Company (Cleveland) entered into a subcontract pursuant to which Cleveland agreed to do the demolition work.
As the project proceeded, disputes arose between West Bay and Cleveland. The major issue was the nature and extent of the excavation work required by the demolition subcontract. According to Cleveland, the only excavation called for under the subcontract was excavation incidental to and necessary for demolition of the structures, i.e., excavation around the footings under the tank so a portion of the footings could be broken up and removed, and excavation of 90 cubic yards of dirt to expose the tank wall so it could be cut. West Bay took the position that it was Cleveland's obligation to perform, in addition, excavation work to prepare for the installation of new "interior" footings, although West Bay's project manager acknowledged there was nothing in the drawings or specifications sent to Cleveland by West Bay that provided any information about the new footings, and the detail relating to the new footings was found in the "structural" drawings and not in the "demolition" drawings. Cleveland's project manager maintained that excavation for interior footings was not within the scope of the subcontract, and was not contained in the drawings or specifications provided by West Bay in requesting Cleveland's bid estimate.
Another dispute involved extra work performed by Cleveland that was not covered by the subcontract and for which Cleveland requested change orders from West Bay. Specifically, Cleveland conducted testing on concrete rubble for mercury contamination, and it tested and disposed of sludge from the bottom of the water tank that contained "regulated waste." West Bay, in turn, requested change orders for this work from SF-PUC, but the request was rejected. Ultimately, West Bay decided not to issue a change order under its subcontract with Cleveland for these items of work.
While Cleveland was working on the project site the workers discovered that mercury was leaking and pooling at the site. Consequently the site was immediately closed down by the City so it could be cleaned up and the equipment tested for contamination. This required Cleveland to cease work immediately. At that point, Cleveland had completed 90 to 95 percent of its work. About a week later, representatives of Cleveland and West Bay "walked the job." According to Cleveland's project manager, West Bay wanted Cleveland's equipment removed from the site so other subcontractors could come in, because the site was very small, "the schedule was now a push, [and] the weather was . . . a concern." There ensued a series of communications between Cleveland and West Bay regarding what work remained to be done by Cleveland under the subcontract and, as to each item, whether Cleveland would complete the work later or provide a credit to West Bay; some of the letters also touched on the disputed excavation work and the change orders.
The parties were unable to reach agreement on the disputed issues, and West Bay withheld all of the $107,587 remaining to be paid under the subcontract. Cleveland filed a stop notice, asserting that West Bay had refused to pay $107,587 due and owing under the subcontract. West Bay secured a stop notice release bond from FNIC. The Project was completed approximately a year and a half prior to trial by which time West Bay had been paid in full for the Project by SF-PUC except for "some scope issues" having to do with the concrete reservoir and unrelated to the demolition work.
Cleveland sued. In its Second Amended Complaint, Cleveland alleged against West Bay causes of action for: (1) breach of contract; (2) violation of the prompt payment statutes; (3) quantum meruit; and (4) money owed on an open book account. As against West Bay and FNIC, Cleveland sought enforcement of the stop notice and payment on the bond. After a four-day trial the jury returned a special verdict, finding that: (1) Cleveland had completed all, or substantially all of the significant things required by the subcontract or was excused from having to do those things; (2) West Bay failed to do what it was required to do under the subcontract; (3) Cleveland was harmed by West Bay's failure in the sum of $124,250 (taking into account Cleveland's claims for extra work and West Bay's claims for credits); (4) West Bay violated the prompt payment statute with respect to progress payments due to Cleveland as of November 5, 2007, in the amount of $107,000; and (5) West Bay did not violate the prompt payment statutes with respect to retention payments.
The prompt payment statutes here applicable are Business & Professions Code § 7108.5 and Public Contract Code § 7107.
The trial court thereafter signed and filed a judgment incorporating the jury's verdict. After trial, the court also entered judgment on the fifth cause of action (enforcement of release bond) against FNIC in the amount of $107,000 with interest at 2 percent per month, plus attorneys' fees and costs in an amount to be determined at a later hearing.
Defendants filed three posttrial motions. Both defendants filed a motion to vacate the judgment on the grounds, inter alia, that Cleveland presented no evidence against FNIC at trial and therefore judgment should have been entered against Cleveland and in favor of FNIC. Both defendants filed a motion for judgment notwithstanding the verdict (JNOV motion). They contended there was insufficient evidence to support the jury's verdict on the second cause of action (violation of prompt payment statute) because there was no evidence of the exact date on which West Bay received the progress payments from SF-PUC attributable to Cleveland's work. Defendants also argued that Cleveland was not entitled to recover any damages at all because it did not prove at trial that it was licensed to perform the work for which it sought payment. Additionally, defendants filed a motion for new trial reiterating the arguments made in support of the JNOV motion. All posttrial motions were denied. This appeal followed.
West Bay also made motions for nonsuit on both issues at the close of trial.
Defendants raise four issues on appeal: (1) Cleveland is barred from seeking damages because it failed to prove at trial that it was a licensed contractor; (2) substantial evidence does not support various findings in the verdict; (3) the finding of a violation of the prompt payment statutes was not supported by substantial evidence; and (4) Cleveland failed to introduce evidence at trial on the release bond. We discuss each issue, in turn.
II. ANALYSIS
A. Cleveland Was Not Required to Prove Its Licensure at Trial
1. Background
Business and Professions Code section 7031, subdivision (a), provides, in part, "no person engaged in the business or acting in the capacity of a contractor, may bring or maintain any action, or recover in law or equity in any action, in any court of this state for the collection of compensation for the performance of any act or contract where a license is required . . . without alleging that he or she was a duly licensed contractor at all times during the performance . . . . " Cleveland included the requisite allegation in its complaint, and that allegation was put at issue by defendants' general denial. Cleveland thereafter served a standard form contention interrogatory (Interrogatory 15.0) on West Bay, asking it to "[i]dentify each denial of a material allegation . . . and for each: [¶] (a) state all facts upon which you base the denial . . . ." West Bay's response did not identify Cleveland's license as one of the material allegations it denied. Cleveland offered no proof of its licensure at trial.
All future statutory references are to the Business and Professions Code unless otherwise specified.
In their posttrial motions, defendants argued that Cleveland had the burden of proving at trial that it was a licensed contractor, that it must prove this fact by producing a verified certificate from the licensing board, as required by section 7031, subdivision (d), and that its failure to do so precluded any recovery. Cleveland argued that it was entitled to rely on West Bay's response to Cleveland's contention interrogatory, which failed to mention any claim that West Bay was disputing Cleveland's allegation that it was duly licensed. The trial court agreed with Cleveland and denied defendants' motions.
2. Discussion
The purpose of section 7031 is to deter unlicensed operators from engaging in the contracting business; such deterrence can best be accomplished by " ' "denying violators the right to maintain any action for compensation in the courts of this state." [Citation.]' " (MW Erectors, Inc. v. Niederhauser Ornamental & Metal Works Co., Inc. (2005) 36 Cal.4th 412, 423.)
It is undisputed that Cleveland was licensed at all relevant times. Defendants' sole claim is that Cleveland did not prove during the trial that it was licensed. Relying upon Advantec Group, Inc. v. Edwin's Plumbing Co., Inc. (2007) 153 Cal.App.4th 621 (Advantec) defendants contend that, once the license status has been put at issue by the pleadings, proof at trial of valid licensure, by way of a verified certificate of licensure from the Contractors State License Board, is required.
In Advantec, the cross-complainant made the appropriate licensing allegation in the cross-complaint and that allegation was put at issue by cross-defendant's general denial. (Advantec, supra, 153 Cal.App.4th at p. 625.) During trial, cross-defendant objected to cross-complainant's testimony regarding its licensure, and the court sustained the objection on the ground that section 7031, subdivision (d), requires that proof be made by a verified certificate of licensure from the Contractors State License Board. (Advantec, supra, 153 Cal.App.4th, p. 625.) Because cross-complainant was unable to secure the statutorily required proof of licensure without a midtrial delay of two weeks— which the court refused to grant—the court granted a motion for nonsuit. (Id. at p. 626.) On appeal, cross-complainant argued, inter alia, that the court abused its discretion in denying a continuance to allow the cross-complainant to secure the necessary certificate, given that cross-defendant had waited until midtrial to raise the issue. (Id. at pp. 630631.) The court, however, concluded that the licensing issue had been raised by way of cross-defendant's general denial. The court noted, "[cross-complainant] could have had available for trial a verified certificate of its licensure, or could have clarified by way of contention interrogatories whether Advantec intended to contest the validity of its license, but it did neither" and therefore it could not be said that the cross-defendant had engaged in "sandbagging." (Id. at p. 631, italics added, fn. omitted.)
Here, Cleveland did exactly as the court in Advantec suggested: It clarified by way of a contention interrogatory whether West Bay intended to contest the validity of its license, and Cleveland was entitled to rely on West Bay's failure to identify Cleveland's licensure as one of the issues in dispute. Defendants' characterization of the court's ruling as "an unwarranted preclusive sanction . . . [of] striking [defendants'] answer to the Complaint" is simply inaccurate. The trial court's ruling was not a discovery sanction; it was an application of the unremarkable principle that a party is allowed to rely upon the opposing party's interrogatory responses in identifying the disputed issues to be tried. (Campain v. Safeway Stores, Inc. (1972) 29 Cal.App.3d 362, 365-366.)
Defendants argue Cleveland could not rely on West Bay's response, but that more discovery was required. They point out that a contention interrogatory is "viewed as a broad-brush starting point for discovery, [and] is not a definitive vehicle for disclosure of all relevant facts." According to defendants, Cleveland should have propounded requests for admission on licensure, should have propounded a different form interrogatory asking whether defendants contended there was a statutory violation, and should have moved to compel further responses. Defendants assert that, "[a]t best, West Bay's interrogatory answer was [arguably] incomplete and may have called for an order compelling further answers."
The argument is feckless. Defendants do not identify how the interrogatory answer was arguably incomplete with respect to the identification of disputed issues; they merely assert that it was. Further, the fact that contention interrogatories may not be the "definitive vehicle for disclosure of all relevant facts" is immaterial. The question is not whether West Bay failed to disclose "all relevant facts" in response to the interrogatory, but whether West Bay failed to identify licensing as an issue in dispute in the litigation. Clearly, it did not. There was, therefore, no reason for Cleveland to pursue the matter further. Defendants cite no cases, and we have found none, that require a party, under these circumstances, to serve other, more specific interrogatories, or to serve a request for admission, or to make a motion to compel further responses before it can rely on the response to Form Interrogatory 15.0, asking West Bay to "[i]dentify each denial of a material allegation." A different result might obtain had defendants in some fashion given notice that the licensing issue was in dispute, but they are not entitled by their silence to set up a trap to be sprung after trial.
Defendants make a perfunctory argument that because Cleveland did not propound interrogatories on FNIC, Cleveland could not rely on West Bay's responses as against FNIC on this issue. We do not address this contention because it is unsupported by any analysis. " „[W]here a point is merely asserted by counsel without any argument of or authority for its proposition, it is deemed to be without foundation and requires no discussion.' [Citations]." (City of Arcadia v. State Water Resources Control Bd. (2006) 135 Cal.App.4th 1392, 1431.)
Because we have concluded that Cleveland was entitled to rely upon West Bay's response to the contention interrogatory as having removed the licensing issue from dispute, defendants' secondary argument—that they did not "waive" the issue by failing to raise it at trial—is moot.
B. Substantial Evidence Supports the Judgment
Defendants contend the judgment was not supported by substantial evidence with respect to the following matters: (1) Cleveland substantially completed its obligations under the subcontract or was excused from doing so; (2) Cleveland was entitled to payment for items not included in the subcontract for which there were no written change orders; (3) Cleveland was entitled to payment for extra-contract claims they had "abandoned"; and (4) Cleveland was awarded damages without offsetting credits to West Bay. None of these contentions has merit, and we discuss each in turn.
1. Applicable Legal Standards
"Where an appellant challenges the sufficiency of the evidence, his burden is a heavy one; he must show that there is no substantial evidence whatsoever to support the findings of the trier of fact. [Citation.] The substantial evidence rule provides that where a finding of fact is attacked on the ground it is not sustained by the evidence, the power of the appellate court begins and ends with a determination whether there is any substantial evidence, contradicted or uncontradicted, which supports the finding. [Citation.] An appellate court is without power to judge the effect or value of the evidence, weigh the evidence, consider the credibility of witnesses, or resolve conflicts in the evidence or in the reasonable inferences that may be drawn therefrom. [Citation.]" (Kimble v. Board of Education (1987) 192 Cal.App.3d 1423, 1427.)
"An appellant asserting lack of substantial evidence must fairly state all the evidence, not just the evidence favorable to the appellant. [Citation] '[A]n appellant who challenges a factual determination in the trial court—a jury verdict, or a finding by the judge in a nonjury trial—must marshal all of the record evidence relevant to the point in question and affirmatively demonstrate its insufficiency to sustain the challenged finding.' [Citations.] [¶] If the appellant fails to fairly state all material evidence, we may deem waived any challenge based on insufficiency of the evidence. [Citations.]" (Chicago Title Ins. Co. v. AMZ Ins. Services, Inc. (2010) 188 Cal.App.4th 401, 415-416 (Chicago Title).)
In addition, appellants cannot assert a new theory of defense on appeal that was not raised below. "New theories of defense, just like new theories of liability, may not be asserted for the first time on appeal. (Eisenberg et al., Cal. Practice Guide: Civil Appeals and Writs (The Rutter Group 2003) ¶ 8:231, p. 8-113.)" (Bardis v. Oates (2004) 119 Cal.App.4th 1, 13-14, fn. 6.) "We recognize that an appellate court may allow an appellant to assert a new theory of the case on appeal where the facts were clearly put at issue at trial and are undisputed on appeal. [Citation.] However, 'if the new theory contemplates a factual situation the consequences of which are open to controversy and were not put in issue or presented at trial the opposing party should not be required to defend against it on appeal. [Citations.]' [Citation.]" (Richmond v. Dart Industries, Inc. (1987) 196 Cal.App.3d 869, 879.)
2. Discussion
a. Sufficient evidence supported the finding of substantial completion
Defendants first contend there was no substantial evidence to support the jury's finding that Cleveland substantially completed the subcontract or was excused from doing so.
As we have explained, at the heart of this case was a dispute over the nature and extent of the excavation required to be done by Cleveland under the subcontract. Implicit in the jury's finding that Cleveland did "all, or substantially all, of the significant things that the Subcontract required it to do or was excused from having to do those things" is the finding that Cleveland completed all the excavation it was required to do under the subcontract. Defendants do not challenge that implicit finding. Instead they argue that other items in the contract—such as removal of some pipes, removal of a chain link fence, and some "clearing and grubbing"—were not completed, and so, because Cleveland admitted "it did not complete [that] work but abandoned it" Cleveland "materially breached the Subcontract . . . [and] was not entitled to judgment in its favor."
There is no dispute that certain items of the contract were not completed. But that only begins the inquiry. The question posed to the jury was whether Cleveland did "all, or substantially all, of the significant things that the Subcontract required it to do or was excused" from doing them. This question is not addressed in defendants' briefs on appeal. They offer no legal authority or analysis with respect to the concepts of substantial completion, material breach, or excuse for failure to complete. Instead, they simply point to a provision in the subcontract describing a material breach and assert that the evidence "reveals" that Cleveland materially breached the subcontract. As we have noted: " '[W]here a point is merely asserted by counsel without any argument of or authority for its proposition, it is deemed to be without foundation and requires no discussion.' [Citations.]" (City of Arcadia v. State Water Resources Control Bd., supra, 135 Cal.App.4th at p. 1431.)
In any event, the argument has no merit, because substantial evidence supports the jury's finding that Cleveland had completed "all, or substantially all, of the significant things that the Subcontract required it to do or was excused from having to do those things[.]" The issue of whether an obligor has substantially completed a contract is an issue of fact for the jury. " 'What constitutes substantial performance is a question of fact, but it is essential that there be no willful departure from the terms of the contract, and that the defects be such as may be easily remedied or compensated, so that the promisee may get practically what the contract calls for.' (1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 818, p. 908.)" (Murray's Iron Works, Inc. v. Boyce (2008) 158 Cal.App.4th 1279, 1291.)
There was testimony that the job was "90 [to] 95 percent complete" when Cleveland was called off the site, that completing some of those items of work at the time Cleveland was called off the job "didn't make sense," and that, far from abandoning the job, Cleveland entered into extensive negotiations with West Bay offering to complete the work and/or provide credits for the work not completed. There was also evidence that the work remaining to be done represented about 6 percent of the total subcontract price, yet West Bay withheld 40 percent of the subcontract price and refused to make any other payments under the subcontract and refused to issue a change order for the extra work. Accordingly, the jury's verdict was amply supported.
b. The jury's finding that Cleveland was entitled to some payment for extra work cannot be challenged on appeal under a new theory
In their opening brief, defendants argue Cleveland "failed to prove" it was entitled to payment for the extra work—testing and removal of sludge from the water tank and testing of excavated concrete for mercury contamination—because it failed to prove the subcontract was modified in writing to include those items, as required by the subcontract. On this basis, defendants contend, the damages awarded were excessive. But as Cleveland correctly points out in its responding brief, this argument was never raised below and, specifically, was not raised in defendants' motion for new trial.
Defendants argue they did not need to include the excessive damages argument in the motion for new trial because they had already argued that no damages should have been awarded based upon Cleveland's failure to prove its licensure. But defendants do not explain, and we fail to see, how the one argument—that no damages should have been awarded due to failure to prove licensing—obviates the need to make the distinctly different argument that excessive damages were awarded because Cleveland allegedly did not comply with the subcontract's terms in seeking payment for extra work. (Greenwich S.F., LLC v. Wong (2010) 190 Cal.App.4th 739, 759 [contention on appeal that there was insufficient evidence to support certain damages was waived because appellant failed to move for a new trial on the issue of excessive damages].)
In their reply brief, defendants essentially concede that the issue was not raised below by arguing that the theory may be considered for the first time on appeal as a pure question of law. According to defendants, the issue does not implicate any factual disputes because "[t]he jury concluded the subcontract was modified to include sludge removal and concrete testing work without a shred of evidence that such modifications were agreed to in accordance with the subcontract's terms." This argument fails because the jury was not asked to decide whether the modifications were agreed to according to the terms of the subcontract, and received no instruction to that effect.
Defendants insist there was a jury instruction that required the jury to apply the terms of the contract in deciding whether the contract was modified, and, in support, they quote this series of instructions purportedly given on the issue of contract modification: "Cleveland Wrecking Company claims that the original contract was modified or changed. Cleveland Wrecking Company must prove that the parties agreed to the modification. West Bay denies that the contract was modifie[d]. The parties to a contract may agree to modify its terms. You must decide whether a reasonable person would conclude from the words and conduct of [the parties] that they agreed to modify the contract. You cannot consider the parties['] hidden intentions. [¶] [A] [c]ontract in writing may be modified by a contract in writing. An oral contract may be modified by consent of the parties in writing without an agreement to give each other something of value. [¶] You should assume the parties intended their words in their contract to have their usual and ordinary meaning'"
Defendants argue these instructions were not followed. Their theory is this: The jurors were instructed "to apply [the subcontract's] terms as they were written and agreed to by the parties according to their plain language"; the subcontract by its terms required written modifications; therefore the jurors failed to follow the instruction.
Defendants' argument and its recital of the jury instructions distort the record. First, there was no instruction given to the jury "to apply [the subcontract's] terms as they were written." This is merely defendants' own gloss on the last instruction quoted above—that the jury should assume the words used in the contract have their "usual and ordinary meaning." Second, that instruction was not given as part of the instructions relating to modification of the subcontract. Rather, that instruction was given as part of another series of instructions regarding how the jury was to determine the meaning of the contract.
We quote the instructions here: "Cleveland Wrecking Company and West Bay Builders dispute the meaning of certain terms contained in the contract. In deciding what the terms of a contract mean, you must decide what the parties intended at the time the contract was created. [¶] You may consider the usual and ordinary meaning of the language used in the contract as well as the circumstances surrounding the making of the contract. The following instructions may also help you interpret the terms of the contract. [¶] You should assume that the parties intended their words in their contract to have their usual and ordinary meaning. Unless you decide that the parties intended the words to have a special meaning, you should assume that the parties intended technical words used in the contract to have the meaning that is usually given to them by people who work in that technical field unless you decide that the parties clearly used the words in a different sense." (Italics added.)
In sum, the jury was not instructed to "apply [the subcontract's] terms as they were written" in deciding whether the subcontract had been modified; it was instructed to determine whether "a reasonable person would conclude from the words and conduct of [the parties] that they agreed to modify the contract." We therefore cannot consider the merits of defendants' novel contentions on appeal.
In a similar distortion of the record, defendants argue that the jury was instructed that "a contract in writing can only be modified by a writing" and that the jury ignored these instructions. (Italics added.) In fact, the jury was instructed, "[a] contract in writing may be modified by a contract in writing." (Italics added.) It was also instructed: "The parties to a contract may agree to modify its terms. You must decide whether a reasonable person would conclude from the words and conduct of [the parties] that they agreed to modify the contract." The issue of whether there was a modification of the subcontract was thus presented to the jury as a question of fact. This is not a purely legal issue that can be argued for the first time on appeal, and defendants have made no effort to demonstrate that the jury's findings were not based on substantial evidence.
Prior to oral argument defendants brought to our attention the recently decided case of P & D Consultants, Inc. v. City of Carlsbad (2010) 190 Cal.App.4th 1332 (P & D). There, a jury awarded to a contractor the amounts claimed to be due for extra work that was completed based on an oral modification of a construction contract allegedly agreed to by a representative of the City of Carlsbad. (Id. at p. 1339.) The appellate court reversed, concluding that oral modifications were not permitted as a matter of law because the contract provided that no amendments or modifications to the contract would be allowed except by written agreement, and the City therefore had no legal power to make oral modifications. (Id. at pp. 1340-1341.) Defendants argue that the subcontract here contained the same provisions and therefore the same rule should apply, even though the party modifying the contract was a contractor and not a city. We need not decide this question because, as has been described, this contention was not presented below. By contrast, in P & D the City repeatedly raised the legal bar of oral modifications at every stage of the proceedings and was repeatedly overruled by the trial court. (Id. at pp. 1338-1339.)
c. The argument that Cleveland abandoned its claims for extra work by failure to give timely notice was not raised below
Defendants next argue that Cleveland "abandoned" its claims for extra work (the sludge testing and removal and the testing of excavated concrete) by failing to give notice of the claims within the times specified in the subcontract and the prime contract; therefore the damage award was excessive because it included at least a portion of Cleveland's extra work claims. In support of this argument defendants cite (1) a provision in the subcontract stating that a claim for extra work is "deemed" abandoned if written notice of the claim is not submitted within specified time limits, and (2) the testimony of a witness who stated Cleveland did not provide timely notice of its claims for extra work, as required under the subcontract.
As with the previous issue, defendants point us to nothing in the record that shows they asserted and preserved this theory below. At trial, West Bay argued that Cleveland should not recover for the extra work because SF-PUC properly rejected their claims for various reasons, and after SF-PUC rejected the claims, Cleveland "dropped" them.
During trial, there was extensive oral and documentary evidence presented on the issues of notification of the extra work, submission of letters and claims relating to the extra work, and whether Cleveland did or did not later "drop" those claims. Although there was testimony that Cleveland's notices were untimely under the provisions of the contract, defendants never asked either the court or the jury to decide whether Cleveland was precluded from receiving compensation for extra work because it did not follow the subcontract in providing timely notice. Rather, as we have already discussed, the jury was instructed to decide whether the parties had agreed to modify the subcontract. And, in the special verdict, the jury was asked to "take into account Cleveland['s] . . . claims for extra work" in determining contract damages. We invoke here, again, the rule that " 'theories not raised in the trial court cannot be asserted for the first time on appeal; appealing parties must adhere to the theory (or theories) on which their cases were tried. This rule is based on fairness—it would be unfair, both to the trial court and the opposing litigants, to permit a change of theory on appeal.' [Citation.]" (P&D, supra, 190 Cal.App.4th at p. 1344.)
Defendants' proposed special verdict form was also silent on the issue of timely notice of extra work under the contract.
Defendants briefly contend, additionally, that Cleveland should not have recovered on the claims for extra work because: West Bay never agreed to pay Cleveland for the extra work in accordance with the subcontract terms; West Bay was not informed about the mercury testing before it was undertaken by Cleveland; and West Bay was not obligated under the subcontract to pay Cleveland for extra work if SF-PUC refused to pay West Bay for the extra work. In making these arguments defendants rely on fragments of evidence which could support such contentions, but do not " 'marshal all of the record evidence relevant to the point in question' " and do not " 'affirmatively demonstrate its insufficiency to sustain the challenged finding.' " (Chicago Title, supra, 188 Cal.App.4th at pp. 415-416.) Accordingly, we will not consider them.
d. The verdict reflects that credits were awarded to West Bay
Defendants' fourth argument based on insufficiency of the evidence is that West Bay was indisputably entitled to credits for the work that Cleveland did not complete, yet the jury "awarded more than the Subcontract balance [of $107,587]—giving [Cleveland] a windfall." Citing two snippets of evidence, defendants argue that "[d]espite the undisputed evidence that West Bay was due some credit, the jury awarded none." This contention simply ignores the evidence that supports not only the jury's verdict but also supports a conclusion that credits were awarded.
It is undisputed that West Bay was owed some credits for work Cleveland did not complete. The parties' estimates for those credits reflected a range of values. Shortly after it was called off the job site Cleveland offered about $16,800 in credits for its unfinished work. West Bay's credit request for the same work is difficult to calculate, but appears to be in the range of $17,669 to $22,386. The evidence also showed that the amount being claimed by Cleveland for extra work (sludge cleanup and mercury testing) was more than $42,000.
West Bay sought total credits ranging from $100,437 to $129,356 but these credits included back charges for the disputed excavation work, including the costs of off-hauling 653 tons of soil. West Bay's proposed credits for the undisputed items of unfinished work ranged from $9,117 to $13,834 excluding the cost of removing and hauling 90 cubic yards of serpentine-laced soil, which Cleveland agreed it was required to do under the subcontract, and for which it offered $8,552 in credit. Adding that number to West Bay's back charges for the undisputed items produces a range of $17,669 to $22,386.
In closing argument, Cleveland's attorney asked the jury to award a total of $142,790 for contract damages which included Cleveland's claims for extra work and credits to West Bay in the sum of $7,073. Counsel also told the jury that if it was inclined to give West Bay additional credits (for the removal of the 90 cubic yards of soil and the removal of an additional load of debris), they could award $133,022. Finally, counsel acknowledged that the jury could consider whether West Bay was entitled to an additional credit of $2,400 for removal of a pipe, which would reduce the damage award to $130,622.
The special verdict posed this question to the jury: "What is the amount owed by West Bay Builders to Cleveland Wrecking Company under the subcontract? In answering this question, please take into account Cleveland Wrecking Company's claims for extra work and West Bay Builders' claims for credits due for incomplete work." The jury's response was "$124,250." Thus, the jury awarded to Cleveland even less than the lowest amount requested by Cleveland's counsel ($130,622), that is, it awarded to Cleveland only $17,250 more than was due under the original subcontract. Although we can only speculate as to how the jury allocated the contract damages and credits, the only reasonable conclusion is that the jury awarded a substantial amount in credits to West Bay as it was invited to do by Cleveland's counsel.
C. Substantial Evidence Supports the Jury's Finding that West Bay Violated the Prompt Payment Statutes
Defendants contend there was insufficient evidence to support the jury's finding that West Bay violated the prompt payment statutes, contending that Cleveland must show the dates of payment from the SF-PUC to West Bay for Cleveland's work with greater specificity. We disagree.
1. Prompt Payment Statutes
The prompt payment statutes relevant to this appeal are succinctly described in Tesco Controls, Inc. v. Monterey Mechanical Co. (2004) 124 Cal.App.4th 780 (Tesco)."California has a series of so-called 'prompt payment' statutes that require general contractors to pay their subcontractors within specified, short time periods, and that impose monetary penalties for violations. Business and Professions Code section 7108.5 and Public Contract Code section 7107 are two of those statutes. Business and Professions Code section 7108.5 requires a general contractor, unless otherwise agreed to by the parties in writing, to pay its subcontractors their respective shares of a progress payment within 10 days of receiving the payment from the project owner. If the general contractor fails to timely pay, the subcontractor may recover a penalty in the amount of 2 percent of the amount due per month for every month the payment is not made. (Bus. & Prof. Code, § 7108.5.)[] [¶] Public Contract Code section 7107 requires a general contractor to pay its subcontractors their respective shares of the retention proceeds within seven days after receiving the proceeds from the public entity that owns the project. [Citation.] If the general contractor fails to pay the retention timely, the subcontractor may recover a penalty in the amount of 2 percent of the improperly withheld amount, in lieu of any interest otherwise due. [Citation] [] [¶] In the event there is a bona fide dispute over the amount owed, both statutes authorize the general contractor to withhold up to 150 percent of the disputed amount. [Citation.] Both statutes award attorney fees and costs to the prevailing party in an action to collect amounts wrongfully withheld. [Citation.]" (Tesco, supra, 124 Cal.App.4th at pp. 800-802 [footnotes modified].)
At the time of the events in question, former section 7108.5 provided, in relevant part: "A prime contractor or subcontractor shall pay to any subcontractor, not later than 10 days of receipt of each progress payment, unless otherwise agreed to in writing, the respective amounts allowed the contractor on account of the work performed by the subcontractors, to the extent of each subcontractor's interest therein. In the event that there is a good faith dispute over all or any portion of the amount due on a progress payment from the prime contractor or subcontractor to a subcontractor, then the prime contractor or subcontractor may withhold no more than 150 percent of the disputed amount. [¶] Any violation of this section shall constitute a cause for disciplinary action and shall subject the licensee to a penalty, payable to the subcontractor, of 2 percent of the amount due per month for every month that payment is not made. In any action for the collection of funds wrongfully withheld, the prevailing party shall be entitled to his or her attorney's fees and costs." (Stats. 1996, ch. 712, § 2, p. 3872.)
Public Contract Code section 7107 reads in relevant part: "(d) Subject to subdivision (e), within seven days from the time that all or any portion of the retention proceeds are received by the original contractor, the original contractor shall pay each of its subcontractors from whom retention has been withheld, each subcontractor's share of the retention received. However, if a retention payment received by the original contractor is specifically designated for a particular subcontractor, payment of the retention shall be made to the designated subcontractor, if the payment is consistent with the terms of the subcontract. [¶] (e) The original contractor may withhold from a subcontractor its portion of the retention proceeds if a bona fide dispute exists between the subcontractor and the original contractor. The amount withheld from the retention payment shall not exceed 150 percent of the estimated value of the disputed amount. [¶] (f) In the event that retention payments are not made within the time periods required by this section, the public entity or original contractor withholding the unpaid amounts shall be subject to a charge of 2 percent per month on the improperly withheld amount, in lieu of any interest otherwise due. Additionally, in any action for the collection of funds wrongfully withheld, the prevailing party shall be entitled to attorney's fees and costs."
Progress payments are payments that become due as the construction is proceeding. Here, for example, West Bay agreed to pay Cleveland "in monthly payments of 90% of labor and materials, which have been placed in position and for which the right to payment has been properly documented . . . . " A retention payment is the payment of monies that have been withheld during the construction of the project to ensure completion. Commonly, as with the subject subcontract, 10 percent of the progress payments are retained until final completion and inspection by the owner. (McAndrew v. Hazegh (2005) 128 Cal.App.4th 1563, 1567.) Under either statute, the obligation to pay the subcontractor is not triggered until the contractor has received from the owner the amounts allowed the contractor on account of the work performed by the subcontractor. (Bus. & Prof. Code § 7108.5; Pub. Contract Code § 7107, subd. (e).)
2. Discussion
In this case, the jury found that West Bay had violated the prompt progress payment statute but not the prompt retention payment statute. Specifically, the jury found that from and since November 5, 2007, West Bay withheld $107,000 due under the subcontract in violation of the statute. Defendants argue on appeal that these findings were erroneous because there was insufficient evidence to establish that West Bay had actually received progress payments from SF-PUC covering Cleveland's work by November 5, 2007. Defendants also argue the evidence of payment to West Bay related only to a retention payment and not to progress payments and that the jury's implicit finding that the payments were withheld in bad faith was also unsupported by substantial evidence. We conclude the evidence does not support the jury's finding that the full $107,000 due under the subcontract was withheld in bad faith. We will not otherwise disturb the jury's verdict.
a. Substantial evidence supports the jury's finding regarding West Bay's receipt of payment
There is substantial, credible evidence supporting the jury's finding that West Bay had received the payments for Cleveland's work by November 5, 2007. While imprecise, the evidence is nonetheless sufficient, and can be briefly summarized. West Bay's president reluctantly acknowledged under cross-examination that West Bay had received payment for all of its work on the project, except for some "scope issues" having to do with the concrete reservoir, at the time of project completion, which was about "a year and a half earlier. West Bay's project manager testified that Cleveland did not perform any work on the project after February 2006; that West Bay had submitted invoices to SF-PUC for Cleveland's work sometime after February 2006, "probably" within a month of the work being completed; that West Bay "probably" completed the project some time in 2007; that West Bay had "probably" invoiced payment for the entire job in 2007; and that, although he did not know whether West Bay was paid for the project, he "probably" would have gotten "involved" if West Bay had not been paid. He admitted that as of the date of trial, Cleveland had not been paid the balance of the subcontract price.
The witness gave this testimony on November 4, 2008.
Based upon this testimony, Cleveland's counsel argued to the jury: "You also have evidence that all of the work on this entire project was completed and paid for 18 months ago. . . . So they finished the whole project and got paid 100 percent of all of the money owed to them under the contract, including all of the money owed to them for the work performed by [Cleveland] was paid to West Bay Builders a year and a half ago. That's what the evidence shows. You're going to be asked to give a date. A year and a half ago is not a date like January 23. So when you are asked to give a date, I suggest that you give a date of November 5, 2007. That's 12 months ago. For sure they were paid 100 percent by then. Everything owed including the retention for sure. They have not paid [Cleveland] since then. That gives them a six month cushion from what [West Bay's president's] testimony is. So when you're asked when were they paid, that's the date I think you ought to use. I think that's the date we should have been paid."
West Bay's counsel argued, in response, that there was no evidence to support the November 5, 2007 date. "I mean, you heard Paul [West Bay's president] testify that, yeah, we have an accounting department, you know. I mean if you're asking me without looking at documents or calling other people then sure, I guess the project is complete. You heard Mike [West Bay's project manager] tell you that, you know, I do the submittals, you know, I send them out, and then that's—and then we give them over to our accounting department. That's the evidence that you have before you. . . . [W]hen [Cleveland] asks [you to] provide a date of that payment for Cleveland Wrecking's work, you were told earlier put in November 5. The reason you were told that is because there is no evidence."
In this way the issue was teed up for the jury. The question before us is a narrow one, and that is whether the jury's finding that all of the payments due to Cleveland were received by West Bay on or before November 5, 2007, is supported by substantial evidence. We conclude that it is.
The testimony of a single witness can be substantial evidence so long as the testimony is credible and of solid value. (Casella v. SouthWest Dealer Services, Inc. (2007) 157 Cal.App.4th 1127, 1143-1144.) West Bay does not claim that its own witnesses are not credible, and there is no other evidence in the record that conflicts with their testimony. West Bay does not contend it was not paid for Cleveland's work on or before November 5, 2007; it argues only that the selected date of November 5 is "speculation."
Defendants rely on Tesco to support this contention. There, the trial court ruled that, because the subcontractor had completed most of its work before April 2000, the general contractor " 'should have billed and received payment [from the City] for a comparative percentage of [the subcontractor's] work by April of 2000.' " (Tesco, supra, 124 Cal.App.4th at pp. 803-804.) On that basis, the court ordered statutory penalties beginning in May 2000. (Ibid.) But the evidence showed the general contractor received a progress payment on September 30, 1999, and did not receive another progress payment until March 14, 2001. The court of appeal therefore reversed on the issue of statutory penalties, pointing out that the prompt payment statutes are not triggered until the date progress payments are actually made, not when the general contractor " 'should have' received a payment from the owner." (Ibid.)
In this case, no such error was made. The jury had before it evidence that West Bay had received all payments for the project about "a year and a half ago" and that it had "probably" submitted invoices for all of Cleveland's work within a month after February 2006. Based upon this testimony, it was reasonable for the jury to infer that West Bay had received all payments for Cleveland's work no later than twelve months earlier (November 5, 2007), a date which gave West Bay the benefit of a six-month "cushion."
Defendants raise a new contention on appeal that the testimony of West Bay's president referred only to payment for West Bay's work and not to payment for Cleveland's work. They rely on the use of the words "your" and "our" in the following exchange: "[Question:] So, and you were paid for your work weren't you? [Answer:] We were paid for our work." We categorically reject this argument. It is evident from the context of the testimony that the reference was to payments for all of the work on the project, not just West Bay's work. The testimony of West Bay's project manager made clear that West Bay invoiced the owner for all of the subcontractors' work including Cleveland's.
Defendants make a separate argument that they are not liable under section 7108.5 (the prompt progress payment statute) because the testimony of West Bay's president supports only an alleged violation of Public Contract Code section 7107 (the prompt retention payment statute). For this contention defendants rely on a single question to and answer from West Bay's president, Mr. Thompson: "[Question:] So the project was done a year and a half ago and you were paid except for some items at the end of the job? [¶] [Answer:] Yes." According to defendants, "[e]ven in the most favorable light, this testimony only supports an inference that a payment of retention was made [by the City to West Bay]. . . . [¶] Since the jury's Verdict [found] no violation of the retention payment [statute] and Mr. Thompson only allegedly testified about the final or retention payment, [Cleveland] was never entitled to penalties . . . under the progress payment statute." As we have already discussed, the testimony as a whole on this issue constitutes sufficient evidence to support the jury's verdict; we do not examine a single question and answer in isolation to determine whether the jury should have reached a different conclusion. (Kidron v. Movie Acquisition Corp. (1995) 40 Cal.App.4th 1571, 1581.)
At oral argument defendants raised a different argument. They pointed out that the evidence showed there were two types of payments—progress and retention—and that Cleveland failed to prove how much of the sum wrongfully withheld by West Bay was progress payments and how much was retention. "It's important," defendants' counsel argued, "because . . . the jury found for [West Bay] on the retention and against [West Bay] on the progress payments." But this argument was not raised either in the opening or reply briefs, and therefore cannot be considered at this late stage in the proceedings. " '[A]bsent a sufficient showing of justification for the failure to raise an issue in a timely fashion, we need not consider any issue which, although raised at oral argument, was not adequately raised in the briefs.' [Citation.]" (AmeriGas Propane, L.P. v. Landstar Ranger, Inc. (2010) 184 Cal.App.4th 981, 1001, fn. 4.) Defendants did mention in a footnote of the opening brief that "[t]he 'nature' of the payment [whether progress or retention] had to be proved . . . [because Cleveland] sued for statutory penalties under both prompt payment statutes . . . ." But this unadorned statement cannot fairly be read as an " 'issue . . . adequately raised in the briefs.' "
b. Substantial evidence supports the jury's implicit finding of lack of good faith, except as to Cleveland's unfinished work
Defendants argue the prompt payment statutes should not apply to West Bay's withholding of funds from Cleveland because there was "no evidence establish[ing] a lack of good faith" on the part of West Bay in withholding the funds.
West Bay correctly states that the prompt payment statutes permit the withholding of 150 percent of any amount over which there is a "good faith" dispute between the parties. (Bus. & Prof. Code § 7108.5; Pub. Contract Code, § 7107, subd. (e).) The meaning of the phrase "good faith dispute," however, is the subject of two divergent views. In Alpha Mechanical, Heating & Air Conditioning, Inc. v. Travelers Casualty & Surety Co. of America (2005) 133 Cal.App.4th 1319, the court applied a subjective standard: " 'Good faith, or its absence, involves a factual inquiry into the plaintiff's subjective state of mind. [Citations.] Did he or she believe the action was valid? What was his or her intent or purpose in pursuing it? A subjective state of mind will rarely be susceptible of direct proof; usually the trial court will be required to infer it from circumstantial evidence.' [Citation.]" (Id. at p. 1339.) Relying on this standard, the court examined the record to determine whether there was evidence that the contractor "subjectively believed its claim [against the subcontractor] had no merit, but proceeded [to withhold payment] in any event." (Id. at p. 1340.) The court in FEI Enterprises v. Yoon (2011) 194 Cal.App.4th 790 (FEI), on the other hand, applied an objective test for whether there was a "good faith dispute," based on the legal tenability of the contractor's justification for nonpayment. "A legal dispute between two parties exists, is 'legitimate,' 'genuine,' 'bona fide,' or in 'good faith' where the arguments asserted or positions taken have objective legal tenability." (Id. at pp. 805-806.) Under FEI, the contractor's subjective belief "may be of evidentiary interest but should not be the standard for evaluating the merits of the dispute." (Id. at p. 806.)
As we will explain, we need not resolve this conflict because there is evidence to support a lack of good faith on the part of West Bay under either standard. Three distinct disputes arose between the parties to this subcontract. First, there was the dispute regarding the scope of the subcontract itself, i.e., what was the nature and extent of the excavation Cleveland was required to do. Second, there was a dispute regarding the extra work and the change orders that were requested and refused. Third, there was a dispute over the amount of credits or back charges West Bay was entitled to take for the items of work Cleveland did not complete.
Substantial evidence supported the jury's implicit finding that, as to the first issue, there was no bona fide dispute on the part of West Bay. Not only was there ample evidence supporting Cleveland's position that excavation for the new, interior footings was not described in the drawings or specifications it received, nor included in the bid or the subcontract, but there is also the crucial testimony of Cleveland's project manager, Mr. Pietras, regarding a phone call he received from Mr. Thompson, West Bay's president. In that call, Mr. Thompson told Mr. Pietras there was a "hole" in his bid to SF-PUC for excavation for the new footings. He asked Mr. Pietras to give him a rough estimate for that work, which Mr. Pietras did—in the sum of $143,725. Mr. Thompson, apparently surprised at the high price, jokingly told Mr. Pietras he needed his "heart medicine" and then said "we don't have it." West Bay nevertheless repeatedly asserted that Cleveland was required to perform this work under the subcontract. If the jury believed Mr. Pietras's testimony—and apparently it did—this is inarguably the kind of substantial evidence that would support a finding that West Bay did not have a good faith belief—either subjective or objective—that Cleveland was responsible for the additional excavation work. The prompt payment statutes were designed to discourage precisely this type of conduct. (Morton Engineering & Construction, Inc. v. Patscheck (2001) 87 Cal.App.4th 712, 717.)
We recognize that Mr. Thompson denied that this telephone conversation occurred. It is not for us, however, to determine the credibility of the witnesses. (Eidsmore v. RBB, Inc. (1994) 25 Cal.App.4th 189, 195.)
The second dispute between the parties relates to the additional work performed by Cleveland for which it was not paid. This issue is not pertinent to Cleveland's claim under the prompt payment statutes. As we have discussed, the prompt payment statute is triggered when the general contractor receives payment for the subcontractor's work. (Tesco, supra, 124 Cal.App.4th at pp. 803-804.) Here, the evidence was undisputed that SF-PUC did not pay West Bay for Cleveland's extra work. Accordingly, section 7108.5 does not govern Cleveland's claim for extra work.
The third dispute relates to the credits to which West Bay was entitled for the items of work Cleveland should have completed under the subcontract but did not. Cleveland does not claim it was not required to do this work, and indeed offered $16,800 in credits to West Bay for the unfinished work. Cleveland did not and does not argue that West Bay withheld amounts due as credits in bad faith. Therefore, there is no evidence to support the jury's finding that West Bay wrongfully withheld all of the $107,000 due under the contract. We are unable, however, to identify precisely what amount should be considered as the subject of the bona fide dispute, because the parties apparently agreed as to some amounts but disagreed as to others. Accordingly, we must remand for further proceedings on that narrow issue.
The range of disagreement, however, is relatively narrow when West Bay's back charges for the excavation work are backed out of the equation. (See fn. 10, supra.)
D. Any Defects in the Judgment Against FNIC Were Waived
Defendants argue that entry of judgment against FNIC on the stop notice release bond was erroneous because FNIC was entitled to a jury trial on that claim and the trial court "usurped" the jury's function to decide the facts of the case. Cleveland contends an action on a stop notice release bond is an equitable proceeding, citing Grade-Way Construction Co. v. Golden Eagle Ins. Co. (1993) 13 Cal.App.4th 826, 836, footnote 8. We are inclined to agree with Cleveland's analysis, but we need not decide that issue because defendants agreed to remove that cause of action from the jury's purview and reserve it for decision by the court. Although defendants energetically assert that they "never agreed or stipulated to removing the bond claim from the jury's determination . . . [nor] agreed to the trial court deciding the claim" the record shows otherwise.
During a discussion about a jury instruction which provides that the plaintiff may not recover duplicate damages, the following exchange occurred: "THE COURT: So 361 was plaintiff may not recover duplicate contracts and court [sic] damages.[] [¶] MR. GIACOMINI [Cleveland's counsel]: We do not object to this. [¶] THE COURT: It has to be changed to some extent. [¶] MR. GIACOMINI: Just to say duplicate damages. If we say duplicate damages and then I had proposed a stipulation on the enforcement of stop notice claim, your honor, I do not know what Mr. Bui [defendants' counsel] proposes to do, but we would stipulate that your honor would enter an order on the stop notice because [sic] of action in the amount of any damage award rendered and then we can take the insurance company out of the instruction, which is only in here for security for the judgment they posted a bond. [¶] So to me then it would go back to plaintiff may not recover duplicate damages. I think the jury—we do not have an instruction on stop notice. So we could go and do one, but I think it's easier if we just stipulate to that and have this only as to West Bay Builders. [¶] MR BUI: Your honor, I was actually going to raise this issue with the court when I was reviewing these jury instructions. [¶] THE COURT: First of all quantum meruit is stricken. [¶] MR. GIACOMINI: Right. You already did that. [¶] THE COURT: So—well, I did not rule on it but I know in at least in the instruction I have that language is still there. And if you decide to prove all three claims. So there would be not three claims, it would be there still are three claims. [¶] MR. BUI: The enforcement of the release bond, the third claim, the enforcement of the release bond, other than your honor introducing me to the jury as attorney for First National Insurance Company, I do not think the jury had heard, there is not any evidence before the jury of release bonds at all. The bond is not even an issue. It was not mentioned during the course of this case, so I do not know—I think we moved for a verdict on that particular action, your honor, for a cause of action. I went through the— [¶] THE COURT: We're talking jury instructions at this particular point. [¶] MR. BUI: Right. But that's pertinent. [¶] MR. GIACOMINI: How about if we reserve—I will stipulate that the issue of the enforcement of the stop notice release bonds [sic] will not go to the jury. I will allow the court to reverse [sic]and hear the motion to dismiss that afterwards. I am suggesting if it be heard. It is a court issue, and it doesn't need to be a jury issue, if you decide to deny it that's fine. [¶] THE COURT: So what I have just heard is I would excise the stop notice release bond. I would also excise quantim [sic] meruit and the language would basically remain the same in terms of you cannot have double damages. [¶] MR. BUI: You would also remove the First National Insurance Company of America. [¶] THE COURT: I hope somebody is taking notes on it. [¶] MR. GIACOMINI: If you decided [sic] that Cleveland Wrecking has proved both claims, instead of all two, the same damages that resulted from these claims can be awarded only once[.] [I]s that all right, Neil? [¶] MR. BUI: That's okay with us."
The instruction under discussion was based on CACI 361, entitled "Plaintiff May Not Recover Duplicate Contract and Tort Damages."
This exchange is somewhat confusing, but one point is clear. The parties agreed to "excise" the issue of the release bond from the jury instructions. It is less clear whether defendants' counsel acceded to Cleveland's counsel's proposal that the court would decide the issue of the release bond, if defendants' "motion for verdict" or "motion to dismiss" was denied. Subsequent events, however, demonstrate that defendants waived any defects in procedure by failing to object prior to entry of judgment.
Defendants never did make a motion for verdict in favor of FNIC or a motion to dismiss the release bond cause of action, either oral or written, after the close of evidence. Defendants asserted in a postjudgment motion that "on or about November 5, 2008, and after the close of evidence, [FNIC] moved for a directed verdict as Cleveland failed to present any evidence relating to [FNIC]," and that the court "withheld ruling on the issue." We have scoured the record and have found no such motion in the clerk's transcript, in the Minutes for November 5, or in the reporter's transcript. Apart from Mr. Bui's uncertain reference—"I think we moved for a verdict on that particular [cause of] action"—we find no evidence of any motion for verdict relating to the release bond cause of action. This issue was first raised in defendants' motion to vacate the judgment.
Shortly after the verdict was issued, the court apparently requested briefing on the issue of whether the court could enter judgment on the release bond. Cleveland prepared a letter brief supporting its view that the court could do so, and submitted it to the court and to opposing counsel together with a proposed judgment that included judgment against FNIC on the release bond. Defendants submitted no opposition or response. Defendants' counsel thereafter "spoke with Cleveland['s] counsel . . . and advised that West Bay objected to Cleveland's proposed judgment because the calculation of damages was incorrect and the judgment was not consistent with the findings of the jury on the special verdict form." Cleveland's counsel corrected the damage calculation and submitted a new proposed judgment on November 17, 2008. That proposed judgment was signed and filed on November 21, 2008. We have searched the record for any other objections interposed by defendants' counsel prior to entry of judgment, either to the court or to opposing counsel, regarding the form or content of the judgment or regarding inclusion of FNIC in the judgment, and have found none. Consequently, defendants cannot now contend the judgment on the release bond must be set aside due to procedural irregularities. (Telles Transport, Inc. v. Workers' Comp. Appeals Bd. (2001) 92 Cal.App.4th 1159, 1167 [party loses the right to appeal an issue caused by affirmative conduct or failure to take steps at trial to avoid or correct the error].)
Our conclusion that FNIC waived any right it may have had to a jury trial renders moot defendants' related argument, viz., that FNIC's right to a jury trial is not negated by Code of Civil Procedure section 996.440, permitting enforcement of a release bond by way of summary proceedings where the bond "is given in an action or proceeding."
III. APPEAL FROM DENIAL OF ATTORNEYS' FEES REQUEST
A. Procedural History
After judgment was entered, Cleveland filed a motion to determine prevailing party and to fix the amount of attorneys' fees. Cleveland asked the court to declare it to be the prevailing party, and requested attorneys' fees in the amount of $242,138.05. The attorneys' fees request was based upon Public Contracts Code section 7107, subdivision (f), which provides that the prevailing party in an action for collection of retention payments wrongfully withheld "shall be entitled to attorney's fees and costs." Cleveland argued it was also entitled to fees pursuant to subsection H.1 of the General Subcontract Provisions of the subcontract ("subsection H.1"), which allows the contractor to deduct any costs incurred—including attorneys' fees—in completing the subcontractor's work if the subcontractor fails to perform. Cleveland's theory is that, because Civil Code section 1717 makes this provision reciprocal, Cleveland can seek attorneys' fees against West Bay because West Bay relied on subsection H.1 in withholding payments from Cleveland.
It will be recalled that the jury found against Cleveland on its Public Contract Code section 7107 claim (wrongful withholding of retention payments), but in favor of Cleveland on its section 7108.5 claim (wrongful withholding of progress payments). The judgment, however, erroneously stated that "West Bay improperly withheld payment . . . in violation of California Public Contract[] Code § 7107,"which error apparently resulted in Cleveland mistakenly seeking attorneys' fees under that section.
Defendants opposed the motion, contending that subsection H.1 does not apply to litigation-related attorneys' fees but only to fees incurred, if any, in completing the subcontractor's unfinished work. Litigation-related fees, defendants argued, are governed by section U of the General Subcontract Provisions of the subcontract ("section U") in which the parties agreed that in the event of litigation arising out of the subcontract, each party would bear its own attorneys' fees. Defendants also pointed out that Cleveland did not prevail in its cause of action brought pursuant to Public Contract Code section 7107, but acknowledged that Cleveland probably intended to pursue the motion under section 7108.5. Defendants argued that, even so, the result would be the same: "[Cleveland] would still not be entitled to recover attorneys' fees because of the parties['] express agreement that all parties would bear its [sic] own attorneys' fees." Defendants also challenged the reasonableness of the fee demand.
Section U provides: "In the event a dispute arises as a result of this Agreement, which leads to arbitration and/or litigation, both CONTRACTOR and SUBCONTRACTOR shall bear their own Attorney's fees."
Cleveland, in reply, contended that section U of the subcontract does not trump the statutory rights to attorneys' fees under the prompt payment statutes, neither does it constitute a knowing, intentional waiver of those statutory rights. Cleveland again asserted its right to attorneys' fees under subsection H.1, and defended its fees as entirely reasonable.
After the parties filed supplemental briefs reinforcing their previous arguments, the court issued its order, finding Cleveland to be the prevailing party, but denying the request for attorneys' fees. The court concluded that section U was controlling, "and that each side shall bear its own attorneys' fees."
Cleveland thereafter filed a motion to amend the judgment and for reconsideration of the order denying attorneys' fees. Cleveland sought, inter alia, to correct the erroneous reference to Public Contract Code section 7107 and to insert, instead, a reference to section 7108.5 as the prompt payment statute found to have been violated. Cleveland then argued that this amendment to the judgment constituted new facts or circumstances warranting reconsideration of the court's order on attorneys' fees because "neither party fully briefed, argued and considered the right to attorneys' fees and the proper statute." The court granted the motion to amend the judgment, but denied the motion for reconsideration, concluding that Cleveland had not demonstrated any new facts or circumstances pertaining to the attorneys' fees motion, as required by Code of Civil Procedure section 1008. Cleveland appealed.
B. Cleveland's Appeal Was Timely
Cleveland filed its appeal more than 60 days after the notice of entry of order denying attorneys' fees but less than 30 days after service of the notice of entry of the order denying the motion for reconsideration. California Rules of Court, rule 8.108(e) (rule 8.108(e)) provides, in pertinent part, that "[i]f any party serves and files a valid motion to reconsider an appealable order . . . the time to appeal from that order is extended for all parties until the earliest of: [¶] (1) 30 days after the superior court clerk or a party serves an order denying the motion or a notice of entry of that order . . . ."
Defendants contend that Cleveland's motion was not "valid" because it "did not meet the jurisdictional requirement that it be based upon 'new or different facts, circumstances, or law' " as the trial court found, and so does not come within the provisions of rule 8.108(e). Defendants cite two cases to support this argument, but neither does.
Defendants first cite Branner v. Regents of University of California (2009) 175 Cal.App.4th 1043 (Branner). Seeking to determine the meaning of the term "valid" as it is used in rule 8.108(e), the court in Branner first quoted from the Advisory Committee comment to the rule: " 'As used in these provisions, the word "valid" means only that the motion or notice complies with all procedural requirements; it does not mean that the motion or notice must also be substantively meritorious. . . . [For example,] a timely motion to reconsider . . . extends the time to appeal from an appealable order for which reconsideration was sought even if the trial court ultimately determines the motion was not "based upon new or different facts, circumstances, or law," as subdivision (a) of [Code of Civil Procedure] section 1008 requires.' [Citation.]" (Branner, supra, 175 Cal.App.4th at p. 1047.) The court also noted that, to be valid, a motion for reconsideration must be filed before the judgment is signed, and must be based upon a ground recognized in the statute authorizing the motion. (Id. at p. 1048.) The court concluded, then, that a motion for reconsideration is valid, even if unmeritorious, unless: (1) it fails to satisfy the procedural requirements of Code of Civil Procedure section 1008, subdivision (a); (2) it is filed after the judgment is signed; or (3) it is brought on a ground not recognized by the statute. (Ibid.)
This third basis for finding a motion invalid derives from Payne v. Rader (2008) 167 Cal.App.4th 1569 (Payne),the other case cited by defendants. In Payne the court construed California Rules of Court rule 8.108(c) (rule 8.108(c)), which extends the time to file a notice of appeal if a valid motion to vacate the judgment is filed. There, the plaintiff filed a motion to vacate a judgment of dismissal entered after a demurrer was sustained without leave to amend. The court held this was not a "valid" motion under rule 8.108(c) because a claim of legal error in a ruling on the sufficiency of a complaint is not a recognized ground upon which to seek vacation of a judgment; rather, a motion to vacate is available only to challenge conclusions of law erroneously entered on the basis of uncontroverted evidence or findings of fact. (Payne, supra, at pp. 1574-1575.) Further, a motion to vacate a judgment can only be used where a party seeks entry of a new and different judgment, not when seeking to set aside a judgment in order to allow further pleadings to be filed. (Id. at p. 1575.) Defendants mischaracterize Payne as holding that "[a] motion which fails to state valid grounds for relief . . . is not 'valid' within the meaning of Rule 8.108. . . ."
In Branner the party seeking reconsideration brought the motion on a recognized ground and before the judgment was signed, but failed to file with the motion a declaration stating what application had been made before, when and to what judge, what order or decisions had previously been made, and what new facts, circumstances or law were claimed to be shown, as is required by Code of Civil Procedure section 1008, subdivision (a). (Branner, supra, 175 Cal.App.4th at p. 1048.) Consequently, the motion was held to be "invalid when filed because it failed to comply with the statutory procedural requirement that the motion contain the requisite affidavit." (Ibid.)
In this case, defendants do not contend Cleveland's motion was defective in any procedural aspect, and defendants do not assert the grounds upon which the motion was made are not recognized by the statute. They contend only that the motion failed to demonstrate any new facts or circumstances. This failing does not render the motion invalid as that term is used in rule 8.108(e). Although defendants couch their argument in jurisdictional terms, this does not change the outcome. The question is not whether the motion was adequate to vest jurisdiction in the court to decide the motion on its merits (see Gilberd v. AC Transit (1995) 32 Cal.App.4th 1494, 1500), the question is whether the motion, when filed, was based upon a recognized legal ground and complied with all procedural requirements. (Branner, supra, 175 Cal.App.4th at pp. 1047-1048.) Here, Cleveland filed a timely, procedurally adequate motion for reconsideration upon the theory that there were new facts or circumstances pertaining to the previously denied motion—a recognized legal ground under Code of Civil Procedure section 1008. Accordingly, Cleveland filed a valid motion for reconsideration, which triggered the extension-of-time provisions of rule 8.108(e), which, in turn, rendered timely Cleveland's subsequent notice of appeal.
C. Cleveland's Entitlement to Attorneys' Fees
1. Standard of Review
The trial court ruled that section U of the subcontract—in which the parties agreed to bear their own attorneys' fees—precluded an award of attorneys' fees to Cleveland. In so ruling, the trial court implicitly rejected Cleveland's arguments that (1) it was entitled to fees under a different provision of the subcontract (subsection H.1), and (2) it was entitled to fees under the mandatory attorneys' fees provision of section 7108.5. Thus, Cleveland's asserted right to an attorneys' fee award hinges upon the construction of the parties' subcontract and the application of section 7108.5. As the parties raised no factual disputes pertaining to interpretation of the attorneys' fees clause, the construction of that clause is a question of law, and we review the trial court's determination de novo. (Kangarlou v. Progressive Title Co., Inc. (2005) 128 Cal.App.4th 1174, 1177 (Kangarlou).)"[T]o determine whether an award of attorney fees is warranted under a contractual attorney fees provision, the reviewing court will examine the applicable statutes and provisions of the contract. Where extrinsic evidence has not been offered to interpret the [contract], and the facts are not in dispute, such review is conducted de novo. [Citation.] Thus, it is a discretionary trial court decision on the propriety or amount of statutory attorney fees to be awarded, but a determination of the legal basis for an attorney fee award is a question of law to be reviewed de novo. [Citation.]" (Carver v. Chevron U.S.A., Inc. (2002) 97 Cal.App.4th 132, 142.)
Defendants advocate for a lesser standard of review, either substantial evidence or abuse of discretion. To support this position defendants characterize the trial court's rulings as "factual findings" but nowhere identify any disputed factual issue pertaining to the trial court's ruling on attorneys' fees. Instead, defendants affix a "findings" label on rulings that are clearly conclusions of law, such as, the trial court's determinations "(1) that Section H.1 did not apply on the facts of this case and (2) that Section U did. [Fn. omitted.]" Similarly, defendants argue there are two key issues which are "question[s] of fact," those being, whether the attorneys' fees provision in subsection H.1 of the subcontract "refers [only] to contract work performed before completion of construction" and "whether [the attorneys' fees clause in] Section U . . . includes all forms of and causes of action that could be included in litigation . . . ." To state these arguments is to refute them. These are classic issues of contract interpretation. The meaning and scope of subsection H.1 and of section U are questions of law, unless the provisions are alleged to be ambiguous and extrinsic evidence has been offered to interpret those provisions. Defendants do not contend the contract language is ambiguous and neither party offered extrinsic evidence bearing on the meaning of these provisions. Therefore, review must be de novo. (Kangarlou, supra, 128 Cal.App.4th at p. 1177.)
2. Principles Governing Interpretation of Contracts
"The fundamental rules of contract interpretation are based on the premise that the interpretation of a contract must give effect to the 'mutual intention' of the parties. 'Under statutory rules of contract interpretation, the mutual intention of the parties at the time the contract is formed governs interpretation. (Civ. Code, § 1636.) Such intent is to be inferred, if possible, solely from the written provisions of the contract. (Id., § 1639.) The "clear and explicit" meaning of these provisions, interpreted in their "ordinary and popular sense," unless "used by the parties in a technical sense or a special meaning is given to them by usage" (id., § 1644), controls judicial interpretation. (Id., § 1638.)' [Citations.]" (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 18; see also Martin Brothers Construction, Inc. v. Thompson Pacific Construction, Inc. (2009) 179 Cal.App.4th 1401, 1416 (Martin Brothers) ["We ascertain [mutual] intention solely from the written contract, if possible, while also considering the circumstances under which the contract was made and the matter to which it relates"].)
3. Cleveland Is Entitled to an Award of Fees Pursuant to the Mandatory Provisions of Section 7108.5
As has been described, the jury found that West Bay violated the provisions of section 7108.5 by wrongfully withholding progress payments due to Cleveland under the subcontract. Section 7108.5, subdivision (e) provides that, in an action brought "for the collection of funds wrongfully withheld" the prevailing party "shall be entitled to his or her attorney's fees and costs." (§ 7108.5, subd. (e), italics added.) On this basis, Cleveland asserts it is entitled to an award of statutory attorneys' fees, whether or not it is entitled to contractual attorneys' fees.
Defendants contend the terms of the subcontract, which provide that each party shall bear its own attorneys' fees in any litigation arising "as a result of this Agreement," governs any and all attorneys' fees incurred in this litigation and trumps Cleveland's statutory right to fees. Defendants argue that the section 7108.5 claim arose "as a result of the subcontract because West Bay's liability to Cleveland under section 7108.5 "is not independent of, but is wholly dependent upon the contract" and therefore section U prevails unless there is some other "compelling reason to award attorneys' fees . . . ." Indeed, defendants assert that section U encompasses "any litigation arising as a result of the parties' relationship," and would be rendered "meaningless" if it is construed to exclude statutory fees.
We disagree. First, defendants' assertion that the statutory claim was "wholly dependent upon the contract" goes too far. It can be stated that but for the subcontract there would be no claim under section 7108.5, but that is a truism, and it ignores both the language of the agreement and the essential elements of Cleveland's causes of action. Section U refers to "dispute[s] aris[ing] as a result of this Agreement" which on its face would include disputes arising out of the formation, negotiation, or execution of the agreement, but not claims that arise from statutory rights existing independent of the Agreement. Cleveland could sue on its statutory claim for violation of the prompt payment statutes without asserting or proving any tort or contract claim that may have arisen as a result of the subcontract. The fact that Cleveland also sued for breach of contract due to West Bay's failure to pay Cleveland at all for portions of its work does not transform the entirely separate, statutory cause of action for delayed payments into one arising as a result of the parties' obligations under the agreement.
Second, while the attorneys' fee provision might be described as broadly written, defendants' claim that the provision encompasses "any litigation arising as a result of the parties' relationship" overstates the reach of the clause. The provision governs any "dispute aris[ing] as a result of th[e] Agreement.'" (Italics added.) It does not, at least on its face, govern any dispute arising out of the parties' relationship or any dispute arising out of a violation of statutory duties.
Third, section U would not be rendered "meaningless" if it is construed to be inapplicable to statutory fees under section 7108.5. A conclusion that the attorneys' fees provision does not govern—and thus does not preclude—the award of a statutorily based fee does not negate the clause altogether, but only limits its scope.
Defendants argue at length that a valid contract provision, negotiated at arm's length by sophisticated parties with the aid of experienced counsel should be enforced to ensure the certainty required in business transactions. We do not disagree. The question, however, is not whether this valid contract provision should be enforced, but what the contract provision means.
Defendants point to various cases which hold that "an attorney fee provision applicable to 'any dispute under the agreement' is sufficiently broad to include the assertion of a contractual defense to fraud and breach of fiduciary duty causes of action" and "to include tort actions. [Citations]." (Gil v. Mansano (2004) 121 Cal.App.4th 739, 744; see also Xuereb v. Marcus & Millichap, Inc. (1992) 3 Cal.App.4th 1338, 1342-1343 [language in agreement providing for attorneys' fees to the prevailing party in any " 'lawsuit or other legal proceeding' " to which " 'this Agreement gives rise' " encompasses both contract and tort causes of action]; Moallem v. Coldwell Banker Com. Group, Inc. (1994) 25 Cal.App.4th 1827, 1831 [attorneys' fee provision in contract applicable to any " 'legal action . . . relating to' " the contract includes tort claims for negligence and breach of fiduciary duty].) These cases analyze the question of whether a contract clause providing for fees to the prevailing party would apply as well to related tort causes of action for which the party would not otherwise be entitled to fees. Here, however, the contract provision does not provide for the payment of fees, but merely restates the general rule that each party is to bear its own fees. Further, the cited cases do not assist in interpreting a contractual attorneys' fees provision that, according to defendants, purports to negate statutory rights and obligations.
In sum, we reject as too expansive the trial court's interpretation of the attorneys' fees clause in the subcontract. The phrase "a dispute [that] arises as a result of this Agreement" would be commonly understood, in its ordinary sense, to refer to contract-based disputes, whether they sound in contract or tort. Nothing in the language of section U indicates the parties intended affirmatively to relinquish statutorily based rights to attorneys' fees. (Cf. Liton Gen. Engineering Contractor, Inc. v. United Pacific Insurance (1993) 16 Cal.App.4th 577, 594 ["We will not read into an arbitration agreement that is silent on the issue an 'understanding' that a party is waiving a statutory right to fees"].)
This narrower interpretation is also informed by the language and intent of section 7108.5. "The purpose of the various prompt payment statutes [including section 7108.5] is to serve a 'remedial purpose: to encourage general contractors to pay timely their subcontractors and to provide the subcontractor with a remedy in the event that the contractor violates the statute.' [Citation.]" (S&S Cummins Corp. v. West Bay Builders, Inc. (2008) 159 Cal.App.4th 765, 777.) That remedy includes a statutory penalty and the right to recover attorneys' fees. Under former section 7108.5, "[a]ny violation of this section shall constitute a cause for disciplinary action and shall subject the licensee to a penalty, payable to the subcontractor, of 2 percent of the amount due per month for every month that payment is not made. In any action for the collection of funds wrongfully withheld, the prevailing party shall be entitled to his or her attorney's fees and costs. [¶] The sanctions authorized under this section shall be separate from, and in addition to, all other remedies either civil, administrative, or criminal." (Stats. 1996, ch. 712, § 2, p. 3872.)
The plain language of the statute evidences a clear legislative policy decision to give subcontractors additional, extracontractual remedies against contractors who wrongfully withhold progress payments, by providing for the imposition of sanctions and an award of attorneys' fees. (Morton Engineering & Construction, Inc. v. Patscheck (2001) 87 Cal.App.4th 712, 717 [amendment to section 7108.5 was intended to provide an incentive for contractors to make timely payments and to provide remedies to the unpaid contractor; legislative history contains repeated references to "subjecting the contractor to a penalty of 2 percent per month and attorney fees"].) This policy choice would be seriously undermined were we to conclude that the statutory attorneys' fees remedy can be avoided simply by including in a construction contract a clause which does no more than restate the so-called American rule that each party bear its own attorneys' fees.
Cleveland argues that Code of Civil Procedure section 1021 protects the right to statutory fees regardless of contractual provisions, because it provides, "[e]xcept as attorney's fees are specifically provided for by statute, the measure and mode of compensation of attorneys and counselors at law is left to the agreement, express or implied, of the parties . . . . " The statute thus can be read to mean that "the measure and mode of compensation of attorneys . . . is left to the agreement . . . of the parties" except "as attorney's fees are specifically provided for by statute . . . ." Cleveland advocates such a bright-line rule, which defendants oppose. We need not reach that issue, however, as we have concluded that section U was not intended to and did not eliminate the parties' entitlement to seek fees under section 7108.5.
Having concluded section U does not govern or negate the parties' right to seek attorneys' fees under section 7108.5, we also conclude, a fortiori, that section U cannot constitute a waiver of the right to a statutorily based fee. "Waiver is the voluntary relinquishment of a known right. [Citation.] To constitute a waiver, it is essential that there be . . . an actual intention to relinquish [the right,] or conduct so inconsistent with the intent to enforce the right in question as to induce a reasonable belief that it has been relinquished." (Outboard Marine Corp. v. Superior Court (1975) 52 Cal.App.3d 30, 41.) Because section U does not govern the right to attorneys' fees under section 7108.5, it cannot be argued that the parties waived that right by agreeing to section U.
Defendants have asserted that substantial evidence supports a finding of waiver. The only evidence relied upon, however, are these facts: "The Agreement was the product of negotiation and 4 levels of internal review was [sic] conducted by Cleveland before it signed the Agreement[;] Cleveland was a sophisticated contractor and had both in-house counsel and outside attorneys[; and] Cleveland received [a] copy of the page that included Section U and voiced no objections to the provision." Even accepting as true all of these facts, they prove nothing with respect to the meaning of section U, the plain language of which, we have concluded, does not reflect an intention by the contracting parties to relinquish any rights arising under section 7108.5.
As we conclude section U did not constitute a waiver of the parties' right to recover attorneys' fees under section 7108.5 we need not address the question of whether such a contractual waiver would be against public policy and void. In favor of that proposition, Cleveland cites, inter alia, Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 100. In response, defendants point to Martin Brothers, supra, 179 Cal.App.4th 1401, 1414-1416, which holds that section 7108.5 can be modified by contract. We note, however, that the contract modification in Martin Brothers pertained to the provisions of subdivision (b) of section 7108.5, which sets forth the prompt payment requirements and provides for their application "unless otherwise agreed to in writing . . . ." (Martin Brothers, at p.1415, italics omitted.) The attorneys' fees provision is set forth separately in subdivision (e).
5. Cleveland is not entitled to fees under subsection H.1 of the subcontract
Subsection H.1 of the subcontract authorized West Bay to deduct from the subcontract price all costs, including attorneys' fees, incurred in good faith to complete Cleveland's unfinished or deficient work. Cleveland contends this subsection entitles it to an award of attorneys' fees because Civil Code section 1717 transforms a unilateral entitlement to attorneys' fees, such as subsection H.1, into a reciprocal one. Cleveland's argument is this: "West Bay sought $129,356.00 in backcharges against Cleveland Wrecking's claim. [Citation] During the trial, West Bay's counsel argued that those claims were governed by Subsection H.1 of the subcontract. Because Cleveland Wrecking prevailed on those claims, it is now entitled to recover its fees under this provision."
Subsection H.1 provides that if the subcontractor defaults on its obligations, the contractor has the right to complete the subcontractor's work, and the contractor may back charge the subcontract for all expenses incurred by the contractor for finishing the work, including "actual attorneys' fees and consultants' fees incurred in good faith, and for any damages sustained . . . by reason of [subcontractor's] default" plus overhead and profit on such expenses.
Defendants contend subsection H.1 is limited to the situation in which the contractor takes over the subcontractor's work (due to the subcontractor's default) and is therefore entitled to deduct its costs (including attorneys' fees), incurred in good faith, to complete work which the subcontractor was required to do. This narrow right to recover attorneys' fees as part of the costs incurred to complete the subcontractors' work, defendants argue, cannot be expanded to provide a general right to an award of fees subsequently incurred in litigation, which right is governed by section U. We agree.
Subsection H.1 is unambiguous, narrow, and specific. It permits the contractor to deduct actual costs (including attorneys' fees), incurred in good faith to complete the subcontractor's unfinished or deficient work, from the subcontract price. It does not create a right in either party to recover attorneys' fees in the event of a dispute about the character or amount of the unfinished work or the reasonableness of the costs claimed by the contractor to complete it. In the event of such a dispute, the contract contains a different provision governing attorneys' fees (section U) which, as we have discussed, provides that if a dispute arises out of the contract leading to arbitration or litigation, the parties shall bear their own attorneys' fees.
Here, West Bay did not incur or claim as a deduction any attorneys' fees under subsection H.1 of the contract. But even if it had, subsection H.1 does not set up a reciprocal right to attorneys' fees in favor of Cleveland if West Bay's back charges were subsequently found to have been indefensible. Under subsection H.1, attorneys' fees are merely one component of all allowable costs of completion—no different from the cost of labor and materials incurred in completing the subcontractor's work. Thus, subsection H.1 is not an "attorneys' fees clause" at all but merely a listing of the cost components that West Bay is entitled to deduct should Cleveland default on its obligations.
As authority for its position that subsection H.1 does, indeed, provide a basis for recovery of fees incurred in litigation, Cleveland refers to the rubric that where general and specific provisions of a contract are inconsistent, the specific provision will control (citing Code of Civil Procedure section 1859, and Continental Cas. Co. v. Phoenix Const. Co., (1956) 46 Cal.2d 423, 431). Thus, Cleveland argues, the specific provision for attorneys' fees in subsection H.1 prevails over, and negates, the general provision contained in section U. But as Cleveland itself acknowledges, this principle applies only where the provisions of the contract are inconsistent. Here, they are not. As we have explained, the inclusion of attorneys' fees as expenses that the contractor may deduct to complete the subcontractor's work implicates a very narrow and specific set of circumstances unrelated to attorneys' fees incurred in litigation of a contractual dispute. The two provisions are thus easily reconciled. In sum, the attorneys' fees mentioned in subsection H.1 do not provide a contractual basis for an award of litigation fees to either party.
IV. DISPOSITION
Although we have concluded that the jury erred in finding that West Bay wrongfully withheld the full amount of $107,000 due under the contract, this error does not require an unqualified reversal of the judgment. The action tried below resolved a number of issues that are not affected by this erroneous finding. We therefore conclude this is an appropriate case in which to order retrial on a limited issue only. (Torres v. Automobile Club of So. California (1997) 15 Cal.4th 771, 776; 9 Witkin, Cal. Procedure (5th ed. 2008) Appeal, § 890, pp. 950-951.)
The judgment is reversed insofar as it concludes that West Bay improperly withheld payment of the full $107,000 owed to Cleveland. The trial court shall conduct further proceedings: (1) to determine what amount of the unpaid contract balance was the subject of a good faith dispute with respect to the credits due from Cleveland to West Bay for the undisputed items of unfinished work; (2) to calculate what amount could be withheld in good faith pursuant to the provisions of section 7108.5, subdivision (c); and (3) to recalculate the resulting penalties. In all other respects the judgment is affirmed.
The trial court's posttrial order denying Cleveland's motion for attorneys' fees is also reversed. After determination of the issues set forth above, the trial court shall determine the amount of attorneys' fees due to Cleveland pursuant to section 7108.5, subdivision (e), which shall include any attorneys' fees to which it is entitled as costs on this appeal.
We anticipate that upon remand the issue may arise as to Cleveland's right to recover fees incurred to litigate issues common to the contract and section 7108.5 claims. (Cf. Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124, 129-130.) Because the trial court did not address this issue and the parties did not brief the question on appeal, we express no opinion on its proper resolution.
Cleveland is entitled to recover its costs on appeal.
RIVERA, J. We concur: RUVOLO, P.J. REARDON, J.