Airport Super Storage v. Alliance Construction

Filed 8/27/08 Airport Super Storage v. Alliance Construction CA4/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

Appeal from a judgment of the Superior Court of Orange County, Daniel J. Didier, Judge. Affirmed.

The English Law Corporation and Ryan N. English for Defendants, Cross‑complainants and Appellants.

Good, Wildman, Hegness & Walley, Thomas E. Walley and Heidi Stilb Lewis for Plaintiff, Cross-defendant and Respondent and for Cross-defendant and Respondent.

* * *

INTRODUCTION

Defendants Alliance Construction Group, Inc. (Alliance), and its owner and principal, William Wayne Daniel, appeal from the judgment entered against them following a bench trial awarding plaintiff Airport Super Storage, LLC (Airport), $731,400. The trial court found Airport had proven each of its claims against defendants for breach of contract, fraud, conversion, breach of implied‑in‑fact contract, and negligence in connection with the construction of a mini-storage facility in Ontario, California. Alliance filed a cross‑complaint against Airport and its principal, Michael R. Pashley, alleging, inter alia, Airport breached the contract by failing to make progress payments and terminating the contract; the trial court found Alliance failed to prove any of its claims.

Defendants contend (1) the trial court erred by finding Daniel personally liable, and (2) the trial courts finding Airport did not breach the contract as alleged in the cross-complaint was supported by insufficient evidence.

We affirm. Substantial evidence showed Daniel personally committed fraud and was therefore individually liable to Airport for his wrongful acts under Civil Code section 2343. Substantial evidence also supported the trial courts finding Airport did not breach the contract.

FACTS

On November 20, 2003, Airport[1] contracted with Alliance (the contract) to serve as general contractor in the construction of a mini‑storage facility in Ontario, California (the project). The contract was a fixed‑price job; the parties agreed Airport would pay Alliance a stipulated sum in the amount of $3,213,618 for its work. In December 2003, Alliance hired Alvin White as the superintendent responsible for running the project.

The project involved the construction of, inter alia, two buildings (referred to by the parties as building B and building C) according to plans which had been approved by the City of Ontario (the City) in January 2004. According to the approved plans, building B was designed to have a crowned hip roof while building C (which was more visible from the street) was designed to have the more expensive tile mansard‑style (gabled) roof with hidden downspouts and windows. Daniel testified that once the plans had been approved by the City, Alliance could not make any major change without the Citys approval.

The project was to be completed in 10 to 12 months; it was scheduled to begin in January 2004.[2] The contract required Airport to make progress payments, representing the percentage of completion on the project, upon application by Alliance. Alliance, in turn, was required to promptly pay each subcontractor, upon receipt of payment from Airport, out of the amount paid to [Alliance] on account of such Subcontractors portion of the Work, the amount to which said Subcontractor is entitled. The contract permitted Airport to terminate the contract if, inter alia, Alliance failed to supply enough properly skilled workers or proper materials, failed to make payments to subcontractors for materials or labor, or was guilty of substantial breach of a provision of the contract.

In May 2004, the project manager at the time showed White a copy of the approved plans which he had received from Daniel. The plans had a big x through the trusses of the mansard roof for building C. The project manager told White he had been instructed to construct building C without the mansard roof and to duplicate the style of building B. White contacted Daniel who said, thats what were doing, and he would put the trusses on if the city caught us.[3] Alliance proceeded to construct building C like building B.

In July 2004, White contacted the company that was engaged to provide the windows for building C pursuant to the approved plans. He was informed by the window supplier salesman that Alliance was not going to purchase the windows. White contacted Daniel who confirmed, no, were not going to put the windows on. Well put them on later, again if we have to. White testified that it is standard practice to frame a rough opening for the window size and then an installer or the framers will inset the window and then the stucco goes over the flanges on the window. The projects framer did not put in the rough openings because there were no windows to install.

Beginning in July 2004, White had difficulty getting subcontractors to show up to work at the project because they complained of not being paid by Alliance.

In September 2004, the projects architect walked through the site and was upset to see no mansard roof on building C. He contacted Pashley and Daniel. Daniel stated he had a plan to put the trusses on after the fact. White was not aware of any approved plans to add a mansard‑style roof after the crowned hip roof was constructed on building C.

Up until the fall of 2004, Airport timely paid draw requests made by Alliance. In the fall of 2004, Pashley stopped approving Alliances requests after he visited the site and found no one working there. White informed Pashley that the subcontractors were not working because they were not being paid and he could not get them to show up to work. Pashley requested more information from Alliance before he would approve further draw requests, including the subcontractors lien releases. Pashley learned that although Alliance had received money from Airport, Alliance had not fully paid certain subcontractors. He also learned that certain subcontractors had been overpaid. Pashley secured an additional source of funding, and began directly paying the subcontractors.

Airport terminated Alliance from the project in February 2005. Pashley asked Daniel if he had any objection to Airport hiring White to stay on the project until it was completed; Daniel did not object.

In March 2005, the City informed Airport the City would not conduct inspections of the project until Airport purchased more permits as a result of the delay in completing the project. White testified, [t]hey have a time span that if you dont finish the job by a certain time you got to start over and pay new fees and get new cards. Airport purchased the new permits and cards, and requested an inspection. The City still refused to inspect the project until all of the landscaping and engineering involving the street were completed.

In May 2005, the Citys representatives inspected the project. [T]hey rolled out [the approved] plans and stated building C was supposed to look as set forth in the plans. The City refused to give Airport the final certificate of occupancy on building C the way it was built.

Airport had to fix the roof and the downspouts in the front of the building. The City required Airport to divert the water to the back site as per the original plan. White testified, [t]he water was supposed to go to the center of the building, and there werent supposed to be any downspouts exposed from the front side of the project here. The City required the windows, as provided in the approved plans, to be put back on the building. The City also gave Airport a list of additional aesthetic improvements it required not only for building C but also for building B; such improvements were not in the original plans.

Airport was given permits to begin construction on the remodels of buildings B and C in September 2005. Airport completed the work and obtained a certificate of occupancy for building B in November 2005. Because of the complexity of the work, the City did not sign off on building C until January 2006.

PROCEDURAL BACKGROUND

In January 2006, Airport filed a second amended complaint containing claims for (1) breach of written contract against Alliance and Daniel as an individual; (2) breach of written contract against Daniel as Alliances alter ego; (3) fraud against Alliance and Daniel as an individual and as Alliances alter ego; (4) conversion against Alliance and Daniel as an individual and as Alliances alter ego; (5) breach of implied‑in‑fact contract against Alliance and Daniel as an individual and as Alliances alter ego; and (6) negligence against Alliance and Daniel as an individual and as Alliances alter ego.

In March 2006, defendants filed an amended cross‑complaint against Airport and Pashley. The amended cross‑complaint contained claims for (1) breach of contract as to the project; (2) breach of contract as to two other projects;[4] (3) slander; (4) intentional interference with prospective economic advantage; and (5) intentional infliction of emotional distress.

On February 9, 2007, the trial court issued a statement of decision finding Airport had proven each of its claims and that defendants had proven none of theirs. No party filed objections to the statement of decision.

Judgment was entered on March 8, 2007 against Alliance and Daniel, individually, in the amount of $731,400. The parties were to bear their own attorney fees. Defendants appealed.

DISCUSSION

I.

Substantial Evidence Supported the Trial Courts Finding Daniel Was Individually Liable for Fraud.

Defendants contend the trial court erred legally and factually in finding Daniel personally liable for the acts of Alliance. As discussed post, we conclude (1) substantial evidence showed Daniel committed fraudulent acts, and (2) the trial court did not err by concluding Daniel should be held individually liable to Airport for his fraudulent acts under Civil Code section 2343.

A.

Substantial Evidence Supported the Trial Courts Findings Daniel Committed Fraud.

In the statement of decision, the trial court found Daniel personally liable to Airport for fraud because he made intentional misrepresentations . . . in seeking progress payments and construction fund draws for construction of Bldg. C in knowing deviation from the permitted plan, and intentionally constructed building C in an effort to deceive both Airport and the City that the building was in compliance with permitted plans. Substantial evidence supported these findings.

Daniel testified that he was the sole owner and principal of Alliance. He further testified the projects construction plans approved by the City required that building C have a mansard‑style roof, hidden downspouts, and windows. White testified, however, that in May 2004, Daniel told him Alliance would not be constructing the mansard roof, unless and until the city caught us. Instead, Daniel directed White to construct the less expensive crowned hip roof (designed with visible downspouts) notwithstanding the plans.

White further testified that in July 2004, he received a call from the projects window supplier salesman who stated that he had been informed Alliance was not going to purchase the windows for the project. White contacted Daniel who confirmed, were not going to put the windows on. Well put them on later, again if we have to. White testified it was standard practice to frame a rough opening to enable the installer to inset the window. The subcontractor did not put in the rough openings for windows.

Notwithstanding Daniels unilateral and unauthorized changes to the plans, which he did not communicate to Airport, Alliance continued to submit applications for draws from Airport. From the beginning of construction of the project until the fall of 2004, Airport timely paid all of the loan draws requested by Alliance. Pashley stopped approving loan draw requests by Alliance in the fall of 2004 after he learned certain subcontractors were not being paid and were not showing up to work; Pashley then made arrangements to directly pay the subcontractors and get them back to work on the project.

Substantial evidence, therefore, supported the trial courts finding Daniel defrauded Airport by submitting applications for draw payments to Alliance (and thereafter receiving the requested payments) under the pretense the project was being performed pursuant to the contract when he knew it was not.

Defendants argue the trial court should not have concluded Daniel personally committed fraud because it appears from the evidence offered at trial that it would have been exceedingly difficult for Mr. Daniel to convert or take any money from [Airport] in this case. They contend: (1) the contract at issue provided for progress payments based on percentage of completion of work on the project; (2) the parties employed a third party fund control manager responsible for personally inspect[ing] the work done on the project prior to authorizing release of payment; and (3) the disbursement of funds was strictly monitored by an independent third party, making it exceedingly difficult for Mr. Daniel to act wrongfully.

As discussed ante, substantial evidence showed Alliance continued to obtain draw payments from Airport during the construction of building C as unilaterally and surreptitiously modified by Daniel. Such evidence supports the inference the fund control manager failed in its role of inspecting the project and monitoring the disbursement of funds. Whether the fund control manager might have been in a position to stop Daniel from defrauding Airport does not exonerate Daniel from liability.

Defendants contend the trial court erred by plac[ing] much credibility in the testimony of Alvin White. Defendants argue, [t]he evidence indicated that Mr. White was hired just prior to this contract beginning, and, that after Alliance was terminated, Mr. White was employed by Dr. Pashley as a superintendent on the project. . . . The findings and orders by the trial judge indicated that Alvin White was the more credible witness. However, Mr. White was actually employed by Dr. Pashley and Airport. Therefore, he had every motivation to skew his testimony in favor of his latest employer. As such, any testimony he gave regarding Mr. Daniel[]s alleged deviation from construction plans or alleged wrongful conduct must be viewed with extreme suspicion.

It is the trier of fact who resolves conflicts in the evidence and is the exclusive judge of witness credibility. (Leff v. Gunter (1983) 33 Cal.3d 508, 518; Bookout v. Nielsen (2007) 155 Cal.App.4th 1131, 1141 [It was for the trial court to weigh the evidence and consider the demeanor and credibility of the witnesses].) [W]e have no power to judge of the effect or value of the evidence, to weigh the evidence, to consider the credibility of the witnesses, or to resolve conflicts in the evidence or in the reasonable inferences that may be drawn therefrom. (White v. Inbound Aviation (1999) 69 Cal.App.4th 910, 927.)

Whether White was biased in favor of Airport and Pashley, whether Whites testimony was truthful and accurate, and how much weight to give Whites testimony were issues to be resolved by the trier of fact. (See Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 182 [possibility witness will commit perjury does not differ in kind from the many other credibility issues routinely resolved by triers of fact in civil litigation].) The trial court did not abuse its discretion by finding White credible.

B.

The Trial Court Did Not Err by Finding Daniel Personally Liable to Airport Under Civil Code Section 2343.

Defendants argue Daniel should not have been held personally liable under Civil Code section 2343 because no evidence was presented that would indicate that Mr. Daniel did anything wrongful in his individual capacity.

As discussed ante, substantial evidence was presented at trial showing Daniel committed fraudulent acts. In concluding that Daniel should be held individually liable for his fraudulent acts, the court expressly relied on Civil Code section 2343 in the statement of decision. Section 2343 provides in part: One who assumes to act as an agent is responsible to third persons as a principal for his acts in the course of his agency, in any of the following cases, and in no others: [] . . . [] 3. When his acts are wrongful in their nature.

In Shafer v. Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone (2003) 107 Cal.App.4th 54, 68, the appellate court stated: An agent or employee is always liable for his own torts, whether his employer is liable or not. [Citations.] In other words, when the agent commits a tort, such as . . . fraud . . . , then . . . the agent [is] subject to liability in a civil suit for such wrongful conduct. The Shafer court further stated, [i]f a tortious act has been committed by an agent acting under authority of his principal, the fact that the principal thus becomes liable does not, of course, exonerate the agent from liability. . . . The fact that the tortious act arises during the performance of a duty created by contract does not negate the agents liability. (Id. at pp. 68‑69; see 3 Witkin, Summary of Cal. Law (10th ed. 2005) Agency and Employment,  199, p. 252 [an agent who commits an independent tort, such as fraud, remains liable despite the fact that the principal, by ratification, also becomes liable].)

To the extent defendants argue Daniel can only be held individually liable for his fraudulent acts if he committed such acts solely on his own behalf, not on behalf of Alliance, such an argument is without merit. Under Civil Code section 2343 and the legal authorities cited ante, which interpret it, the trial court properly found Daniel individually liable for his fraudulent acts whether he committed them as the owner and principal of Alliance or on his own behalf.

II.

Substantial Evidence Supported the Trial Courts Finding Airport Did Not Breach the Contract.

In the cross‑complaint, Alliance alleged Airport breached the contract by terminating Alliance from the project without cause and that at the time it was terminated, Alliance could have completed the project. In the statement of decision, the trial court stated Alliance has not met his burden to establish the allegations of any of the cause of actions of the cross‑complaint.

Defendants challenge the trial courts finding, arguing: The weight of the evidence indicated that Alliance performed all of its duties under the contract at issue and that Dr. Pashley terminated it without just cause. Defendants further argue, ample evidence was presented at trial to demonstrate that Dr. Pashley and Airport breached the construction agreement at issue by failing to abide by draw requests and terminating Alliance without cause.

We review the record, however, to determine whether substantial evidence exists and not whether the evidence might have also supported a contrary conclusion. (Jameson v. Five Feet Restaurant, Inc. (2003) 107 Cal.App.4th 138, 143.) Here, subparagraph 14.2.1 of the contract permitted Airport to terminate the contract if Alliance failed to supply enough properly skilled workers or proper materials, failed to make payments to subcontractors or committed a substantial breach of a provision of the contract. Substantial evidence showed all of the above.

As discussed ante, substantial evidence showed Alliance knowingly constructed building C in deviation of the approved plans, thereby constituting a substantial breach of the contract. In addition, although the contract required Alliance to promptly pay each Subcontractor, upon receipt of payment from [Airport], out of the amount paid to [Alliance] on account of such Subcontractors portion of the work, substantial evidence showed that as early as July 2004, Alliance failed to pay certain subcontractors. Even though Airport timely paid all draw requests until the fall of 2004, White testified that in July and August subcontractors complained that they had not been paid by Alliance. Daniel acknowledged that the contract required Alliance to pay the subcontractors upon Alliances receipt of payment in full. He also testified that Alliance billed Airport for one subcontractors invoice in the amount of $36,456 but paid that subcontractor only $16,411.

Furthermore, Pashley testified that in the fall of 2004, he stopped approving the loan draw requests submitted by Alliance because he found when he would visit the site no people were there working and he didnt understand that because there was so much to be done. He asked White why the workers were not there; White said they were not being paid and he could not get them out there. After he investigated, Pashley concluded the subcontractors were not being paid and he arranged to directly pay them. Alliances failure to supply sufficient skilled workers provided another ground for Airport to terminate the contract.

To the extent Alliance argues Airport breached the contract by failing to pay its last draw request in the fall of 2004, Alliance failed to show that it was even entitled to it in the first place. Substantial evidence showed the draw request falsely stated that certain subcontractors had performed more work on the project than had been performed. Daniel testified as follows:

Q [Plaintiffs counsel] All right. So now if we can go over to application number nine, which is through the period of September 15, 2004, you say you submitted this request for payment but were not paid?

A Thats correct.

Q And if you go to the continuation sheetand Im talking about the application dated 9-25-04 through the period of September 15, item 2065 and item 2070 2065 is water line, 2070 is sewer line. Do you see those?

A Yes.

Q And you were requesting payment of the full value, the [$]6,000 on the water line and [$]159,000 on the sewer line, and that represents 100 percent on those line items; correct?

A Thats correct.

Q And didnt we already establish yesterday that, in fact, [the subcontractor] had not completed those items?

A Thats correct.

Q So you made basically a false application for those funds?

[Defendants counsel]: Objection; argumentative.

The Court: Well, it is argumentative.

[Plaintiffs counsel]: Strong.

By [plaintiffs counsel]: [] Q You made an applicationyou included on this application a request for payment representing it was 100 percent done when it was, in fact, not 100 percent done?

A According to this that is correct.

Daniel also testified:

Q Then on the fire line risers, . . . you are requesting full payment, 100 percent done. . . . [C]orrect?

A Correct.

Q And we know that work had not been done?

A As of September.

Q Correct?

A Okay.

Q They didnt come out until December to do that, did they?

A I dont recall exact dates on that.

Q Well, it was much later?

A Okay.

Alliance also contends Airport breached the contract when it terminated the contract because Alliance had substantially completed its performance under the contract. But subparagraph 9.8.1 of the contract defines the term substantial completion as the stage in the progress of the Work when the Work or designated portion thereof is sufficiently complete in accordance with the Contract Documents so that the Owner can occupy or utilize the Work for its intended use. The record is replete with evidence that as of February 2005 when Airport terminated the contract, the project was far from substantially complete. Indeed, the project as to building C was not completed until January 2006.

We find no error.

DISPOSITION

The judgment is affirmed. Respondents shall recover costs on appeal.

FYBEL, J.

WE CONCUR:

RYLAARSDAM, ACTING P. J.

ARONSON, J.

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[1] Airport is the successor entity of Manyems Ontario, LLC, which entered into the contract.

[2] Some grading work began as early as December 2003 after a grading permit was issued.

[3] In the statement of decision, the trial court found, [c]onstruction costs for the roof actually constructed by Daniel [for building C] was approximately $90,000 less than the required Mansard roof, and whatever savings were made by the less costly construction would directly benefit Alliance [and Daniel as sole shareholder] as it was a stipulated sum contract. (Third brackets in original). Defendants do not challenge these findings on appeal.

[4] Although defendants opening brief mention these other two projects, the brief does not present any argument pertaining to them. We therefore do not consider them further.