Arntz Builders v. City of
Filed 1/23/13 Arntz Builders v. City of Berkeley CA1/4
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opinion has not been certified for publication or ordered published for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
FIRST
APPELLATE DISTRICT
DIVISION
FOUR
ARNTZ
BUILDERS,
Plaintiff and Appellant,
v.
CITY OF BERKELEY,
Defendant and Respondent.
A126838
(Alameda
County
Super. Ct.
No. RG03095394)
In this
action, plaintiff Arntz Builders (Arntz), a general contractor, and defendant
City of Berkeley (the City) have been locked in a prolonged battle over who is
responsible for construction cost overruns and schedule delays that occurred in
the course of the Central Library restoration and expansion project. In more than nine years of litigation,
including two appeals, the parties have yet to reach the merits of the
underlying disputes.
In the
first appeal, we reversed the trial court’s ruling that Arntz’s action was
barred in its entirety for failure to file a claim pursuant to Government Code
section 910. (Arntz
Builders v. City of Berkeley
(2008) 166 Cal.App.4th 276 (Arntz I).) In this
appeal, we reverse the trial court’s ruling that Arntz’s action was barred in
its entirety because (1) it failed to submit to the City a timely claim
pursuant to the terms of the construction contract, and (2) it failed to submit
an application for leave to present a late claim, pursuant to Government Code
sections 930.4 and 911.4, subd. (b).
BACKGROUND
On April 2, 1999, Arntz and the City
entered into a contract for the restoration
and expansion of the Berkeley Central Library (the library contract). The City retained Library Project Managers
(LPM) as the City’s project manager with authority to make decisions and take
actions binding the City on matters pertaining to the contract. Ron Johnson and Dan Garcia were the LPM
agents managing the library project.
Rene Cardinaux and John Rosenbrock were the City employees overseeing
the project.
Terms of
the Contract
The
contract is voluminous, but the parties have highlighted, and we here
summarize, only those provisions that governed how the parties were to proceed
with respect to certain disputed issues.
When questions
arose about the Contract Documents
name="_ftnref2" title="">[2]
(e.g., drawings and specifications), the contractor was required to prepare and
submit to the Architect/Engineer and to the project manager a Request for
Information (RFI). The project manager
was required to respond with a Clarification.
If the contractor believed that the Clarification entailed extra work
necessitating a change to the contract price or the contract schedule, the
contractor was to notify the project manager and submit a Change Order Request
(COR).
COR, modify or rescind the Clarification, or issue a Change Order.†It was the City’s responsibility to “maintain
an RFI log to track information pertaining to the RFI and its response.†The Log was to be reviewed at each progress
meeting and “copies [were to be] given to all members of the construction team
on a weekly basis.â€
The project
manager could also initiate changes in the work by issuing a Request for
Proposal (RFP), to which the contractor was to respond within 10 working days,
providing a breakdown of costs, including materials, labor, overhead and
profit. Upon approval of an RFP, the
project manager would issue a Change Order.
If the parties could not agree on the price for an RFP, the Project
manager could direct the Contractor to perform the work on a “Force-Accountâ€
basis.
contractor was directed to comply with “Document 00700 (General Conditions)
Paragraph 12†(Paragraph 12) for any unresolved price issues.
The Architect could also issue a “Supplemental
Instruction†(ASI) to the contractor, after approval by the project
manager. If the contractor believed that
the ASI resulted in a change in the scope of work, the contractor could submit
a COR.
If the
contractor was directed to proceed with changed work that would affect the
schedule, it was the contractor’s responsibility to prepare and submit a time
impact evaluation (TIE) that included a written narrative and a schedule
diagram describing how the changed work affected the schedule. The Contractor was also responsible for
preparing TIE’s for delays caused by adverse weather, strikes, and procurement
or fabrication delays. If agreement was
reached on a TIE, the “Contract Times†would be adjusted accordingly. If the parties could not agree, the schedule
would be adjusted in an amount the City allowed, and “the Contractor [could]
submit a claim for additional time claimed. . . .†The contractor was responsible for requesting
time extensions for any time impacts on “the critical path of the current
schedule update.†If the City was
responsible for a delay, then, within 14 days of the discovery of the delay,
the contractor was required to submit a TIE and other documentation including a
schedule diagram and a breakdown of the costs that would be incurred to
mitigate the delay. If the contractor
did not submit the TIE within the 14-day period “it [was] mutually agreed that
the Contractor [did] not require a time extension for said issue.†“If the Contractor and City [were] unable to
agree on any time extension request, the Contractor [was required to] comply
with . . . Paragraph 12.â€
Paragraph
12 governed “Claims by Contractor.†Pursuant to subparagraphs 12.A.1 and
12.A.2, any “contract interpretation
disputes†and any “work disputes†were decided by the City. “Work disputes†included “the true value of
any Work performed . . . [or] of any extra Work which the
Contractor may be required to perform, [any] time extensions, [any issues]
respecting the size of any payment to the Contractor,†or any issue regarding “compliance with
Contract procedures.†If the contractor
disagreed with the City’s decision, its exclusive remedy was to “file a claim in
accordance with [Paragraph 12].†Paragraph
12.A.3 defined a “ ‘Claim’ †as “a written demand or written
assertion by Contractor seeking, as a matter of right, the payment of money,
the adjustment or interpretation of Contract terms, or other relief arising
under or relating to the Contract Documents.â€
Paragraph
12.B provided that, where a “clarification, determination, action or inaction
by City or Architect/Engineer, work or any other event, in the opinion of
Contractor exceed[ed] the requirements of or [did] not comply with the Contract
Documents, or otherwise result[ed] in Contractor seeking additional
compensation for any reason (collectively ‘disputed Work’),†the parties were
required to make “good faith attemptsâ€
to resolve the disputes. Prior to
commencing the disputed work or within seven days of the City’s demand
regarding the work, the contractor was required to provide a written notice of
disputed work to the Project manager, explaining the basis for its entitlement
to additional compensation. The City was
then required to review the contractor’s notice and provide a decision. If, after receiving the decision, the
contractor disagreed, it was required to notify the project manager in writing,
within seven days of receiving the decision, that a formal claim would be
submitted. Within 30 days of receiving
the City’s decision, the contractor was required to submit its claim in a
specified form, including detailed supporting documentation. If the contractor failed to submit either the
notification of claim or the claim itself, within the time limits delineated,
the contractor “waive[d] its right to the subject claim.†Any ongoing claims were required to be
updated every 30 days, and failure to do so would result in a waiver of that
claim for that 30-day period. After
receiving a formal claim and supporting documentation, the City was required to
conduct a review and issue a final determination. If, after completion of the project, the
contractor’s claims totaled more than $375,000, the parties were required to
proceed to mediation as a condition precedent to litigation. “All pending claims [were to] be submitted to
the same mediator.â€
Paragraph
12.D provided that the claims procedure was the contractor’s exclusive remedy
for “the payment of money, extension of time [and] adjustment or interpretation
of Contract terms or other contractual . . . relief arising from this
Contract†and was a condition precedent to the right to commence
litigation. It provided, further, that
the contractor “waive[d] all claims of waiver, estoppel, release, bar or any
other type of excuse for non-compliance with the claim submission
requirements.â€
Factual
History
Brian
Proteau was Arntz’s project manager on the library project and, according to
Proteau, there were problems from the outset.
First, the foundation underpinnings could not be installed as
designed. This was resolved by a change
order and time extension negotiated by Arntz and the City. No contract claims were submitted prior to
the issuance of this change order.
Thereafter, some 200 disputes with respect to the contract arose during
the ensuing months. All of these
disputes were resolved by negotiations that were begun in December 2000 and
culminated in Change Order No. 106 (CO #106), issued in April 2001, resulting
in substantial additional compensation to Arntz and extension of the contract
completion dates to June/July 2001. With
respect to those disputed issues, the City and LPM never required Arntz to
submit separate claims as provided in the contract, nor did they require the
submission of additional documentation to support the disputed items other than
what had been provided in the regular course of Arntz’s dealings with LPM and
the City, as described below.
According
to Proteau, from the beginning of the project until June of 2001 the on-site
managers for Arntz and LPM dealt with disputed issues “in the way that most
. . . projects deal with these types of day-to-day matters.†When Arntz encountered a problem with the
plans or site conditions, Arntz (or its subcontractor) would submit an RFI that
identified the issue and requested direction on how to proceed, perhaps also
suggesting a repair or cost of additional work.
LPM would respond with an ASI, an RFP or a Construction Change Directive
(CCD). Arntz or its subcontractors would
reply, providing “costs, information, suggestions, and a discussion of why the
work was not in the original scope.â€
Each RFI,
ASI, CCD, or RFP resulting in a disputed work issue was tracked in a numbered
file together with all pertinent data and negotiations. The City (LPM) tracked the items by reference
to the Arntz file number. Unresolved
items were placed on the agenda for the weekly meetings between Arntz and LPM
at which job progress and change orders were discussed and negotiated, with
subcontractors attending as necessary.
Notes of those negotiations would be added to the files, together with
the “time and material tags,†owner updates, sketches, drawings, change orders
or other instructions. Proteau averred
that the City (LPM) had copies of all of this information.
With
respect to the RFI’s, ASI’s, RFP’s and the like, if LPM granted “entitlementâ€
(i.e., accepted Arntz’s assertion that the work was outside the scope of the
contract), Arntz would proceed with the work without a change order so as not
to delay the project while the change order was being processed. If, however, after negotiations, LPM denied
“entitlement†(i.e., rejected Arntz’s assertion that the work was outside the
scope of the contract), Arntz would notify LPM in writing of Arntz’s intent to
proceed with the work and to reserve its rights to pursue a claim for the extra
costs. Arntz would then keep track of
the cost of the work and provide that information to the City. The City/LPM did not demand that Arntz submit
separate contractual claims, pursuant
to Paragraph 12, with respect to the disputed issues. As has been described, in April 2001, Arntz
and the City resolved some 200 accumulated disputed items using this procedure,
and the procedure continued to be used until late June 2001.
Proteau’s
description of the parties’ course of dealings from 1999 until June 2001,
appears to be largely uncontradicted.
Dan Garcia, LPM’s construction manager, described in similar terms the
process of responding to RFI’s and the ongoing meetings between LPM and Arntz
at which they discussed the progress of the project, the schedule, and change
orders that were either open or pending.
There is no evidence contradicting Proteau’s statement that the City and
LPM did not require Arntz to submit separate contractual claims with respect to
any of the items of disputed work that had accumulated through February 2001,
and which were resolved by negotiation.
LPM sent an e-mail to Rosenbrock stating that Arntz was continuing to reserve
its rights with respect to disputed change orders, and that, according to
Arntz’s schedule, the project time had been impacted by 93 days due to changes
occurring since CO #106. Johnson stated
that Arntz’s “current reservation of rights to pursue a time extension and
related costs†was acceptable, and it was LPM’s intention, within a week, to
complete its own review of the impact of changes on the schedule and then to
pursue a negotiated settlement with Arntz.
Johnson also discussed proceeding in some instances by way of CCD. In reply, Rosenbrock instructed Johnson to
follow strict Force Account procedures in issuing CCDs and stated his
preference for “reach[ing] settlement [with Arntz] on a lump sum, forward
priced change order.†There is no
evidence in the record indicating whether the referenced negotiations between
LPM and Arntz took place.
In late
June 2001, LPM began advising Arntz that it must submit separate claims, in
compliance with paragraph 12, in order to preserve its rights on disputed
items. According to Proteau, it was also
in June 2001 that LPM began “denying all change order requests or else agreeing
and then reneging on the agreements after the work was completed.â€
25, 2001 forward, LPM consistently inserted the claims advisory in
its letters or e-mails denying Arntz’s change order requests.
During the
fall of 2001, the parties traded letters and e-mails. Arntz would insist that it had provided
sufficient documentation to support its claims for extra work or time
extensions, and that the time deadlines in the contract for providing
justifications for delay claims were unreasonable and unworkable. As Tom Arntz explained, “[m]any of the delays
are ongoing, interrelated and involve multiple subcontractors, and therefore,
will take time to put together. The
cumulative cost impact of the numerous owner caused delays is not determinable
at this time and we again reserve our right to claim for these items
individually and collectively.†For its
part, LPM would reject Arntz’s assertions insisting that Arntz comply with the
paragraph 12 claim procedures, and that it submit TIEs for time delay claims. As Ron Johnson explained, “[a]s a matter of
industry practice, [Arntz] know[s] full well that construction contractors
. . . provide owners with notice, documentation and calculation of
costs as projects proceed. [¶] . . . [¶] The contract is clear
and there is no excuse for not complying with the contract claims
procedure.â€
On November
19, Arntz submitted to LPM a “preliminary claim†that summarized its own
requests to date plus existing and anticipated subcontractor claims. Arntz reasserted its previous position that
the deadlines for submitting the time delay justifications were not achievable
because “[m]any of the extra work items are in a state of transition, i.e.,
some are work items agreed to but no change order has been issued, some have been
paid (or at least billed) without receipt of an executed change order and many
are ongoing and continue to incur additional costs.†Arntz submitted the preliminary claim to
provide “a ballpark estimate to work
with†and indicated it was “look[ing] forward to resolving these matters with
[LPM] and the City as soon as possible.â€
The letter included some supporting documentation. According to Tom Arntz, the submittal was
intended to generate negotiations on the unresolved issues.
The City
Attorney wrote a letter to Arntz alleging that some portions of the claim
included matters that had been settled and released in CO #106, and therefore
were in violation of the False Claims Act.
the City made no response to the “preliminary claim†and took no action under the False Claims Act.
In December
2001, after encountering more rejections to its change order requests, Arntz
wrote to LPM stating: “It is apparent
that the Owners are unwilling or unable to fund the changes and design
corrections that Arntz Builders is having to deal with. Rather than belabor these issues now, we are
proceeding as quickly as possible to completion with the intent of submitting a
claim for all Owner caused impact costs at a later date.†The record contains no response from the
City.
The Library
reopened in March 2002 and since that time has been in use seven days a
week. In April, LPM wrote to Arntz and
expressed its concern, “[a]s the [project] nears contract close out, we are concerned
about the status of claims purported to be presented by Arntz and its
subcontractors.†In the letter, LPM
stated that it did not “recognize [previous] letters received from Arntz and
its sub-contractors as in compliance with the claims procedure†and reminded
Arntz that its failure to comply with the contract claims presentation
requirements operated as a waiver of claims.
LPM then inquired “what course of action Arntz is expecting to take
. . . in regards to the purported assertion of claims . . .
as to facilitate the close-out of [the] project so that we may be able to plan
for future discussion.â€
At this
point, the subcontractors began filing lawsuits against Arntz, the City and the
surety to enforce their stop notices and secure payment under the
subcontracts. Between March 2002 and
February 2003, four such actions were filed.
On May 13, 2002, LPM again wrote to
Arntz stating it had received “several letters†from Arntz dated April 25, and
“numerous other letters and e-mails from Arntz Builders regarding disputes,
claims and potential claims,†but had not received a claim in compliance with
the contract claims procedure. LPM also
stated that if Arntz wished to submit an application to present any late claims
pursuant to Sections 930.4 and 911.4, subd. (b), the City did not commit to any
particular determination on the application.
interested in negotiating a fair resolution of any outstanding issues†and
would “welcome mediation of a contractually compliant claim†while reserving
the right to “deny†or to “reject any claims submitted that do not comply with
the claims procedure.â€
From
January through May of 2002, there was an unusually high number of letters and
e-mails in which LPM rejected Arntz’s requests for additional costs. On May 22, Proteau sent an e-mail directly to
Rosenbrock. In it, Proteau pointed to
LPM’s May 13 statement that the City “remains interested in negotiating a fair
resolution,†and contrasted that with LPM’s actions—rejecting the change order
requests and then refusing to allow meetings so the issues could be
negotiated. Proteau stated that the
files created to track each disputed issue contain enough information for
“research and negotiations†and that “resubmitting each file per the claims
procedure that C[ontract] M[anagers] live for is nothing but a waste of time
and money for both the City and the contractors.†Proteau pointed out that the parties had
successfully negotiated hundreds of disputed matters in January 2001 without
formal claims, and he requested that a meeting be scheduled as soon as possible
to resolve the outstanding issues.
Rosenbrock responded by stating that the City supports LPM’s positions,
and that the claims process is not a waste of time but, rather, is “very
valuable in helping to focus in on the real issues and costs associated with
[Arntz’s] request.†Rosenbrock expressed
concern about Arntz’s apparent refusal to follow the contract claims procedure and
advised that the City expects Arntz to “follow the contract.â€
On May 31, 2002, LPM responded to
letters purportedly sent by Arntz—but which are not in the record—“regarding
contract payments.†LPM’s letter
discusses various categories of disputes, including change orders quoted and
not responded to, agreed-to change orders, delinquent payments for January and
February, bonds held in lieu of retention, prompt payment penalties, and punch
list work. LPM denied there were any
open change orders without response (except for one) and disputed the amount
due to Arntz under the change orders.
LPM further stated that, as to any COR’s for which entitlement was
denied more than 30 days earlier, Arntz has waived its rights to compensation,
in accordance with paragraph 12, and “[a]t this point on those issues, Arntz
Builders can only request permission to file a late claim in accordance with
Government Code Section 930.4.†With
respect to the remaining disputed issues, LPM made no reference to paragraph
12, but merely explained the City’s position, viz., that Arntz was not entitled
to any of the asserted payments, that the City was entitled to liquidated
damages for the delays in completing the project, and that the City was
entitled to recover the costs of completing the punch list.
On June 17, 2002, Arntz submitted a
the claim as non-compliant with the requirements of the applicable claims
procedure “set forth in the construction contract, and enforceable under
. . . Government Code, Section 930.2 et seq.†Counsel requested that Arntz “submit a claim
in a format recognized by the construction contract.â€
On July 2, 2002, Arntz submitted a
document entitled “Arntz Builders Request for Time Extension and
Compensation.†It was described as
Arntz’s “Summary Claim†for contract adjustments on behalf of itself and its
subcontractors and requested mediation as provided by the contract. The “summary claim†contained a narrative
with respect to each category of disputed issues and attached a number of
supporting exhibits. The exhibits are
not included in the record except for a line item summary of each component of
the claim.
This July 2
submittal generated a meeting between Arntz and the City on July 11, 2002. According to Rosenbrock, the parties reviewed
their positions, and discussed the July 2 claim as a “work in progress.†Rosenbrock told Arntz that the City would be
willing to look at “whatever [it] had†but that Arntz needed to provide a
schedule analysis and detail justifications for the change requests that had
been denied; if Arntz provided that, Rosenbrock stated, the City would take a
look at it. According to Rosenbrock,
Arntz balked at securing a Critical Path Method diagram due to the expense, but
stated he would do so if necessary.
Rosenbrock asked Arntz “for the umpteenth time†to follow the claims
procedure in the contract so that the City could review LPM’s decision and the contractor’s
position and “decide which one was correct.â€
Rosenbrock also indicated there was concern that Arntz was not following
the contract procedure, and that, under a strict reading of the contract, all
of its claims that had not been appealed 30 days earlier were effectively
waived. Rosenbrock felt this was a
severe penalty and indicated that the City would be willing to consider a late
claim if Arntz could show that there was a reasonable justification and the
City would not be prejudiced. In a letter
to Arntz following the meeting, Rosenbrock confirmed Arntz’s statement that its
July 2 submittal was not a “formal claim.â€
On August 1, 2002, Rosenbrock wrote to
Arntz, stating the City had not yet received the formal claim, asking that
Arntz expedite the preparation and submittal of the materials, and asking Arntz
to present an application to submit a late claim. “Upon receipt of the Arntz formal claim and
application, the City will review the claim [and] . . . will make a
final determination based upon the information supplied, as provided in the
project contract.†Rosenbrock reminded
Arntz to include sufficient detail—cost and schedule analysis and “logic
linking specific costs to specific eventsâ€â€”so that the City could make a fair
and informed decision.
On August 20, 2002, Kris Cox of the
Wulfsberg firm wrote to Arntz’s attorney, William Staples of the Archer Norris
firm. Cox stated that the City did not
“recognize†the July 2 submission as a proper time extension request or claim under
the Contract because it failed to contain the information required under
paragraph 12, failed to provide an explanation of the critical path impact of
the changes, and was not timely. Cox
went on to state: “The City will
consider, however, a proper Claim, compliant with the Contract if submitted on
or before October 15, 2002.
. . . [T]he City reserves all rights to assert the Claim is not
timely, to enforce the contract claim procedure requirements, and to deny any
Claim that fails to meet those requirements.
We would expect that any . . . submission . . .
would present a rationale why it was timely under the Contract. At no time has the City waived or asserted
that it would not enforce the timing provisions of the claims and time
extension request in the Contract. Any
failure to provide an indication of why the claim is timely will result in the
denial of the claim by the City. Any
failure to meet the Contract requirements for the presentation of a claim or
time extension request will, similarly, cause the claim or request to be
rejected. Pursuant to California
Government Code § 930.4, the City advises Arntz of its right to request
consideration of a late claim.â€
On October 14, 2002, Arntz submitted a
certified claim and supporting documentation.
explained: “We have made every attempt
to make this Claim as complete as possible, however, due to the City’s
continued issuance of Change Orders, and reversal of previously approved Change
Orders, it is not possible to affix an unqualified dollar amount. Furthermore, the totality of our Claim is
contingent upon a complete delay analysis inclusive of all Change Orders, RFIs,
etc. It was conveyed to [Arntz] that the
City would ‘only be writing Arntz one check’ and therefore, the City would not
negotiate Change Orders without final resolution as to delay. This being the case, it has taken time to
compile all of the outstanding issues into one Claim, in fact it is a ‘work in
progress’ since the City is continuing to issue Change Orders unilaterally as
of this date.†The October claim
contained five categories: “1. Past Due
Payments and Retention†(including release of all monies being withheld as
Liquidated Damages); “2. Outstanding Change Order Workâ€; “3. Delay Related Extra
Costsâ€; “4. Subcontractor Claimsâ€; andâ€
5. Interest.†Arntz provided a narrative
for each of the five categories, supported by reference to various exhibits.
On the
following day Arntz submitted a “Notice of Demand for Mediation,†in which it
stated: “In order to comply with the
terms of the Agreement, and to continue to meet and confer on the issues
presently being discussed by the principals . . . Arntz Builders
hereby demands mediation pursuant to the terms of the
Agreement. . . . Under the circumstances, Arntz Builders is
required to demand mediation in order to resolve these claims. The individual and aggregate claims are
identified in the [October 14] letter, exhibits and binders that accompany this
demand.â€
The claim
was delivered to Cardinaux, who sent it on to Rosenbrock. Rosenbrock spent at least two hours reviewing
the claim. The record does not show that
the City provided a “final determination†on the claim, to the extent such was
required pursuant to paragraph 12.B.3 of the contract. According to Proteau, the City never advised
Arntz that the claim was insufficient, deficient, or defective. No one from the City or in the City
Attorney’s office knew of anyone that informed Arntz that its claim was late,
defective, invalid, or contained any omissions, or required additional
information.
title="">[11] So far as it appears from the record, the
claim was never formally rejected or denied; and there is no evidence the City ever informed
Arntz that the claim was rejected because it did not include an application for
leave to file a late claim, pursuant to the Government Code. Tom Arntz testified Arntz never submitted
such an application because he did not think the claim was late. Proteau testified Arntz did not file a late
claim application because the “October claim was accepted.â€
name="_ftnref12" title="">[12]
About five
weeks after receiving the October claim the City responded to the claim and
mediation demand with a letter from the Wulfsberg firm. First, the letter addressed that portion of
the claim seeking “prompt payment statute interest.â€
letter laid out the City’s position on this issue, which was: the
statute permits the City to withhold 150 percent of any disputed payment
amount; Arntz owes the City nearly $2 million (for liquidated damages, punch
list items, etc.) plus the amounts
being claimed by the subcontractors; therefore, the City is entitled to
withhold more than $5 million. The
letter went on to state that no further payments would be made to Arntz “until
the Stop Notices, punch list, liquidated damages, substitute library facility
rental costs and daily report matters have been resolved.†The letter concluded, “[t]he City of Berkeley
would like to promptly resolve these matters.
Please contact [Firstman] with your response to these issues, or any
proposed resolution strategy you may have in mind. We will correspond separately regarding
proposed mediators and mediation protocol.â€
The letter did not reject the claim, nor did it state that the claim was
late, that the claim was deficient for failure to include an application for a
late claim under the Government Code, or that the claim failed to comply with
the contract.
The
following week, Firstman sent a second letter to Arntz’s counsel stating: “In follow up to Arntz Builders claim and
mediation demand dated October 14 and 15, 2002, this letter will set forth the
proposal for mediation by and between the City of Berkeley,
Arntz Builders and project subcontractors. . . .†Firstman went on to propose the name of a
mediator, that costs of mediation be shared among all the parties, that
decision-makers with settlement authority be in attendance at the mediation,
and a limited discovery protocol.
The City
and Arntz were unable to secure the voluntary cooperation of all the
subcontractors with respect to document exchange and mediation, so Arntz
suggested that the City waive the contract’s requirement of mediation as a
condition precedent to the filing of a lawsuit; in this way, the
subcontractors’ actions could be consolidated with an action filed by Arntz,
and mediation among all parties could be compelled.
On May 1, 2003, Arntz’s attorney, John
McGill, sought clarification from the City regarding its position on Arntz’s
complaint. McGill noted that one of the
subcontractors was “objecting to anything and everything that we are trying to
do to expedite the matter,†and expressed an urgent need to learn the City’s
position with respect to the “condition precedent mediation requirement,â€
recommending that a consolidated action and trial date would serve all the
parties’ interests. McGill also
responded to Firstman’s suggestion that Arntz and the City meet without
attorneys to resolve the outstanding change orders, stating that “Arntz is
interested in working out these remaining issues.â€
On May 6, 2003, the City’s attorneys
agreed to waive the mediation requirement “for the limited purpose of allowing
Arntz to file its lawsuit and consolidate the actions.†In a letter to McGill, Kris Cox stated,
“[t]he City only waives the mediation requirement and no other notice,
substantiation, or other process contained in the claims provision or otherwise
in the Contract that is a condition precedent to the contractor filing suit as
against the City.â€
Procedural
History
On May 7, 2003, Arntz filed a complaint
against the City for, inter alia, breach
of contract, and against LPM for negligence. On July
6, 2005, Arntz filed a second amended complaint containing six
causes of action: Against the City, Arntz alleged breach of contract, breach of
contract due to subcontractor pass-through or indirect claims, and breach of
implied duty to provide complete and accurate plans. Against LPM, Arntz alleged causes of action
for negligent misrepresentation, negligent interference with prospective
economic advantage, and breach of duty to Arntz as third party beneficiary of
the LPM contract. Arntz also included alternative
allegations that it complied with the claim presentation provisions of the
contract, that it substantially complied with the claims presentation
provisions, or that the City is estopped to require any further compliance with
the contract claim procedures because the City’s actions led Arntz to believe
that no claim other than that submitted on October 15, 2002 was required.
The City
answered the second amended complaint
on June 29, 2005, asserting as two of its 19 affirmative defenses that the
complaint was barred because (1) Arntz “failed to perform all the conditions,
covenants, and promises required to be performed†under the contract ; and (2)
Arntz failed “to comply with its obligations under . . . Government
Code [Sections] 900,
(i) Plaintiff’s failure to serve a Government Code Claim in compliance with
. . . Sections 910, 911.2, 915[], and (ii) Plaintiff’s failure to
comply with contractual claim administration and non-judicial settlement
procedures prior to the service of any purported Government Code Claim, resulting
in the failure of Plaintiff to serve any such Government Code Claim that
encompassed a cause of action prior to commencing this litigation (see, e.g.,
Government Code Sections 910, 945.4.).â€
The court granted Arntz’s motion
to consolidate the complaint with the subcontractor actions. Mediation in the consolidated actions took
place in June and July of 2004, and again—according to Arntz’s complaint—on November 24, 2004, but the case did
not settle. All parties thereafter
entered into a stipulation and order to conduct the trial in four phases: (Phase 1)
a bench trial between Arntz and the City “with regard to compliance with
any applicable Government Code Claim requirements,†including whether Arntz
“compl[ied] or substantially compl[ied] with any applicable Government Code
Claim requirements before filing its lawsuit,†and if not, whether Arntz was
excused from complying based on statutory waiver, equitable estoppel or implied
waiver; (Phase 2) a bench trial on the issues of what claims were compromised
and released in CO #106 and subcontractor issues; (Phase 3) a bench trial on
the issue of whether Arntz complied with contract claims procedures, and if
not, to what extent the causes of action are, nevertheless, not barred due to
excuse, defense or waiver; and (Phase 4) a jury trial on the breach of contract
issues. The order does not discuss
Arntz’s claims against LPM.
In November
2004, the City filed a motion for summary judgment or summary adjudication with
respect to the Phase 1 issues, contending that Arntz’s breach of contract cause
of action was barred because Arntz did not timely file a Government Code claim
pursuant to section 910. Arntz also
moved for summary adjudication, arguing that the City was estopped from
asserting that it had not complied with the Government Code’s claim
requirements. The court denied the
motions. After a bench trial, the court
ruled that Arntz was required to submit a statutory claim and failed to do so,
thus barring the action.
Arntz
appealed. We disagreed with the trial
court’s conclusion and held that “if a claim is governed by a claims procedure
prescribed by contract, the presentation of an additional, statutory claim
pursuant to sections 905 and 910 is not required prior to filing a lawsuit
unless it is expressly mandated by the contract.†Because the library contract contained a
claims procedure and did not mandate the filing of a statutory claim for
disputed amounts exceeding $375,000 (and Arntz’s claim far exceeded that sum),
we reversed the trial court’s Phase 1 ruling.
The matter was remanded for further proceedings.
In April
2009, the City moved for summary judgment with respect to the Phase 3
issues. As we have noted, the parties
agreed that in Phase 3 they would litigate the issues of whether Arntz complied
with contract claims procedures, and if not, to what extent its causes of
action are, nevertheless, not barred due to excuse, defense or waiver. The City’s motion, however, focused narrowly
on whether Arntz’s action was barred because its October claim was late under
the contract provisions, and Arntz failed to file an application for leave to
present a late claim, pursuant to Section 930.4.
The City’s
motion was premised primarily on Dixon v.
City of Turlock (1990) 219 Cal.App.3d 907 [Dixon] which, the City argued, stood for the following
proposition: If a public entity rejects
a claim as untimely, and the claimant later revises and refiles the same claim,
the second claim is a “nullity†unless it is accompanied by a late claim
application pursuant to Section 911.4, and moreover, the public entity has no
obligation to “re-deny†the claim as untimely.
The City argued that Arntz’s October claim was “late†because its first
purported claim was submitted in July 2002; the July claim was denied as not in
compliance with contract procedures and as untimely; thereafter, in at least
two letters, Arntz was advised to include in any subsequent claim an
application for leave to present a late claim; Arntz’s October 15, 2002 claim
contained no late claim application; therefore the October claim—which was
merely a revised version of the July claim—was a “nullity,†and the City had no
obligation to deny it as untimely. The
City applied the same analysis to Arntz’s subcontractor “pass-throughâ€
claims.
In
opposition, Arntz argued, among other things, that (1) the City did not make a
prima facie evidentiary showing that Arntz’s claims, including all components
of the October claim, were untimely, and, (2) the evidence could support a
finding that the contract had been modified by the course of dealing between
the City and Arntz.
Arntz
cross-filed for summary adjudication of the City’s sixth affirmative defense,
which alleged that Arntz’s action was barred due to its failure to perform all
the “conditions, covenants, and promises required to be performed†under the
contract. Arntz contended that in the
August 20 letter, the City invited Arntz to submit a contractually compliant
claim on or before October 15; Arntz submitted its claim, and the City accepted
the claim by not rejecting or denying the claim for any reason, despite its
express reservation of rights to do so; Arntz relied on the City’s conduct;
therefore, the City either modified the contract to permit the claim, or, the
City waived its right to raise—or was estopped to raise—an affirmative defense
of noncompliance with the contract.
The City
opposed Arntz’s motion on numerous grounds, including (1) that “[i]ssues of
fact abound†as to whether the City modified the contract, and (2) that the
library contract contained a waiver of Arntz’s defenses of waiver or estoppel
with respect to the claims procedure.
The trial
court granted the City’s motion and denied Arntz’s motion. The court concluded that Arntz could not
proceed based on its contractual claim because (1) Arntz did not comply with
the contract claim presentation procedures that required the presentation of a
formal claim within 30 days after the City refused to pay for disputed work;
(2) Arntz cannot rely on “substantial performance†of the contract claim
procedure because Arntz knowingly and “on purpose†refused to comply and also
because the contract required full compliance; (3) the parties did not—and
attorney Cox could not—modify the terms of the contract by his August 20 letter;
and (4) Arntz’s theories of waiver and estoppel were waived by Arntz in the
contract. The court also concluded that
Arntz could not proceed based on a statutory late claim or substantial
compliance with the late claim procedure because Arntz did not submit any
application for leave to file a late claim and, in its absence, the City had no
discretion to permit the late claim.
Arntz filed this
DISCUSSION
Standard of Review
“We review a grant of summary
judgment de novo. (Wiener v. Southcoast Childcare Centers, Inc. (2004) 32 Cal.4th
1138, 1142 . . . .) In
performing our de novo review, we employ a three-step analysis. ‘First, we identify the issues raised by the
pleadings. Second, we determine whether
the movant established entitlement to summary judgment, that is, whether the
movant showed the opponent could not prevail on any theory raised by the
pleadings. Third, if the movant has met its burden, we consider whether the
opposition raised triable issues of fact.’
[Citations.] To shift the burden,
the defendant must conclusively negate a necessary element of the plaintiff’s
case or demonstrate there is no triable issue of material fact requiring a
trial. [Citation.] If the evidence does not support judgment in
the defendant’s favor, we must reverse summary judgment without considering the
plaintiff’s opposing evidence.
[Citation.] Any evidence we
evaluate is viewed in the light most favorable to the plaintiff as the losing
party; we strictly scrutinize the defendant’s evidence and resolve any
evidentiary doubts or ambiguities in the plaintiff’s favor. [Citation.]â€
(Barber v. Chang (2007) 151
Cal.App.4th 1456, 1462–1463 (Barber).)
Resolution of this appeal requires
us to interpret the contract between the parties. In such a case, “[u]nless resolution depends
on the credibility of conflicting extrinsic evidence, the interpretation of a
writing involves a question of law for de novo review by the appellate
court.†(Mayer v. C.W. Driver (2002) 98 Cal.App.4th 48, 57.) In carrying out this review, we are mindful
that “ ‘[a]s a rule, the language of an instrument must govern its
interpretation if the language is clear and explicit. [Citations.]
A court must view the language in light of the instrument as a whole and
not use a “disjointed, single-paragraph, strict construction approachâ€
[citation].[] If possible, the court
should give effect to every provision.
[Citations.] An interpretation
which renders part of the instrument to be surplusage should be avoided. [Citations.]’ †(City
of El Cajon v. El Cajon Police Officers’ Assn. (1996) 49 Cal.App.4th 64, 71
(El Cajon).) Ambiguities that cannot be resolved by
application of the rules of contract interpretation are resolved against the
drafter of a standardized contract. (
Cal.App.4th 779, 798; see also Civ. Code, § 1654.)
Timeliness of Contract Claim(s)
Arntz contends, first, that the
trial court erred in concluding that its lawsuit was barred in its entirety due
to Arntz’s failure to file a timely claim under the contract and failure to file a Government Code application
for leave to file a late claim. Accord
not “late†under the contract provisions, because the time-limited procedures
set forth in subparagraph 12.B of the contract govern only certain types of
disputes.
To
reprise: Subparagraph 12.B of the
contract provides, “[s]hould any clarification, determination, action or
inaction by City or Architect/Engineer, work or any other event, in the opinion
of Contractor, exceed the requirements of or not comply with the Contract
Documents, or otherwise result in Contractor seeking additional compensation
for any reason (collectively ‘disputed Work’)†the parties must try, in good
faith, to resolve the dispute. If it is
not resolved, then prior to commencing the work or within seven days of the
City’s demand, the contractor must provide a written notice of disputed work to
the project manager, explaining the basis for its entitlement to additional
compensation. The City must then review
the contractor’s notice and provide a decision.
If, after receiving the decision, the contractor disagrees, it must
notify the project manager in writing within seven days of receiving the
decision, that a formal claim will be submitted. Within 30 days of receiving the decision, the
contractor must submit its claim in the form specified by the contract,
including extensive supporting documentation.
If the contractor fails to submit either the notification of claim or
the claim itself, within the time limits delineated, the contractor “waiv[es]
its right to the subject claim.â€
Arntz
contends the deadlines and procedures set forth in subparagraph 12.B do not
apply to claims that do not meet the definition of “disputed Work.†According to Arntz the provisions of
subparagraph 12.B apply to RFI’s, RFP’s, ASI’s and the like, resulting in COR’s
by which Arntz was requesting “additional compensation,†but do not apply to
other facets of Arntz’s claim, such as the City’s unilateral changes to
agreed-upon prices for change orders, unpaid progress payments due under the
contract, or withholding of Arntz’s bonds in lieu of retention. For those claims, Arntz contends, the more
general provisions of paragraph 12 apply.
Subparagraphs 12.A.1 and
12.A.2 provide that any matters involving any “Contract Interpretation
Disputes†or any “Work Disputes†including “the true value of any Work
performed . . . [or] of any extra Work which the Contractor may be
required to perform, [any] time extensions, [any issues] respecting the size of
any payment to the Contractor†or any issue regarding “compliance with contract
procedures,†are to be decided by the City, and if the contractor disagrees,
its exclusive remedy is to “file a claim in accordance with this
Paragraph.†Paragraph 12.A.3
defines a “Claim†as “a written demand or written assertion by Contractor
seeking, as a matter of right, the payment of money, the adjustment or interpretation
of Contract terms, or other relief arising under or relating to the Contract
Documents.†Paragraph 12 contains no
deadlines for claims other than claims for “disputed Work†which claims are
specifically defined in subparagraph 12.B.
Therefore, Arntz contends, any claims contained in the October 14 claim
other than “disputed Work†claims were not late.
We think
Arntz’s contention has merit.
In granting
summary judgment the trial court concluded as follows: “Arntz argues that Paragraph 12 differentiates
between requirements for bringing different types of claims. Specifically, Arntz attempts to differentiate
between ‘disputed work’ and ‘claims’ as though they run along two entirely
separate procedural tracks. Arntz is
incorrect. The Contract calls for Arntz
to turn disputed work into claims.†The
trial court, however, appears to misapprehend the issue.
required to turn “disputed Work†into claims.
The question is whether the “Procedure†set forth in subparagraph 12.B
is limited to a specific subset of disputes for which the seven-day and 30-day
time limits apply. We think it is
reasonable to read subparagraph 12.B as applying only to that subset of matters
defined therein as “disputed Workâ€, i.e., anything that the contractor believes
exceeds or is not in compliance with the contract or otherwise results in the
contractor seeking additional compensation.
Although there appears to be some overlap, the subset of disputes
defined in 12.B is not co-extensive with the broader categories of disputes set
forth in subparagraphs 12.A.1 and 12.A.2.
Indeed, if the two were co-extensive, there would have been no need for
the contract to provide a separate definition for “disputed Work†issues in
subparagraph 12.B, to which its timelines apply. (El
Cajon, supra, 49 Cal.App.4th at p. 71 [court should give effect to
every provision in contract and avoid interpretation which renders part of the
contract surplusage].)
In similar
cases, courts have held that this type of time-restricted claim procedure can
work a forfeiture, and, accordingly, is to be narrowly construed to apply to
the type of dispute described. Thus, for
example, a contractual requirement that any claim for additional compensation
for extra or additional work must be submitted within 10 days or be deemed
waived, would not apply to claims for cost increases resulting from the breach
of an obligation by the other party. (
Dist. (1959) 174 Cal.App.2d 406, 413, 414 (D.A. Parrish); and see, United
States v. John A. Johnson & Sons (D. Md. 1945) 65 F.Supp. 514,
527.)
Additionally,
as we noted in the unpublished portion of Arntz I, to the
extent there is any ambiguity in Paragraph 12, it must be construed against the
party who created the uncertainty. (Civ.
Code, § 1654.) “In this case it was
the City that inserted the claims procedure as part of its ‘front-end
documents’ put out for bid. There is no
evidence these terms were or could be the subject of negotiations.†Arntz
Builders v. City of Berkeley
(August 25, 2008, A116078) [nonpub.
part of
partial pub. opn.] fn. 12 at p. 22.
The City asserts that the cited cases are
inapposite because they do not “involve[] the contract language here†but
instead use “very different and far narrower language and the contract terms
had very different purposes.†The City
argues that using those cases to “nullify the plain language of the contract
here would also nullify sections 930.2 and 930.4 and this court’s prior decision.†The City, however, provides no actual
comparison of the contract language in the cited cases to the contract language
here, provides no discussion of how the contract terms in those cases had
“different purposes,†and provides no explanation as to why the application of
the cited cases would “nullify†the contract language, the statutes, or this
court’s prior decision. Accordingly,
this argument has been waived. (
836, 852 [if a party asserts a point but fails to support it with reasoned
argument and citations to authority, it is deemed waived].)
The City
also counters with the argument that all disputed
issues are governed by the claims procedure set forth in subparagraph
12.B. They contend, first, that any
request for a progress payment (or failure to return bonds in lieu of
retention) that is denied “would have to be included in a proper formal claim,
within the time period established in Paragraph 12.B, if Arntz disagreed with
the City’s initial position.†The City
does not, however, explain why this is so.
Subparagraph 12.B by its terms is limited to actions or events for which
the contractor is claiming additional compensation. Subparagraph 12.A.2, however, refers to
issues “respecting the size of any
payment to the Contractor†or any issue regarding “compliance with Contract
procedures.†These are distinct from
issues of “disputed Work†as specifically defined in subparagraph 12.B, and,
it appears LPM also applied these distinctions.
In its May 31, 2002 letter to Arntz responding to a number of disputed
matters (with copies to Firstman, Rosenbrock and others), LPM recites the
standard warning concerning the paragraph 12 claim procedure and its time
limits only in connection with a dispute regarding unresolved change order
requests (which are requests for “additional compensationâ€); concerning the
other disputed items (amounts owed under negotiated change orders, delinquent
contract payments, disputed liquidated damages, open punch list items) there is
no mention of paragraph 12 or any time-limited claim procedure.
The City
next points to the broad language of subparagraph 12.D, which states: “Contractor’s performance of its duties and
obligations specified in this Paragraph 12 and submission of a claim as
provided in this Paragraph 12 is Contractor’s sole and exclusive remedy for the
payment of money, extension of time, the adjustment or interpretation of
Contract terms or other contractual or tort relief arising from this Contract.â€
The City contends this language demonstrates that every element of Arntz’s
claim was governed by the claim procedure.
But this argument does not address Arntz’s contention. Arntz does not dispute that every element of
its claim falls within Paragraph 12.
What Arntz contends is that the claim procedures for additional
compensation contain specific timelines, while other claims (e.g., for
compensation due and not paid under the contract) are governed by subparagraph 12.A,
which contains no time requirements. We have concluded the contract is
susceptible to this interpretation and the City has not shown otherwise.
The City also argues, more narrowly, that the
change order disputes, the subcontractor pass-through disputes, and the
liquidated damages dispute are all covered by the time limitations of
subparagraph 12.B. But in making this
argument the City does not indicate the nature of the subcontractor
pass-through claims, e.g., whether all, some or none of those claims involve
claims for “disputed Work†as defined in subparagraph 12.B. And, with regard to the change order
disputes, the argument does not distinguish between claims arising out of
rejected change orders requests—which appear to fall within the claims
procedure requirements of subparagraph 12.B—and claims arising out of the
City’s unilateral reductions of agreed-upon change orders, which arguably do
not.
With
respect to liquidated damages, the City contends that its “determinations,
actions and inactions†to withhold money from Arntz as liquidated damages for
Arntz’s delay in completion of the project were “clear triggers for Arntz to
file a claim for ‘additional compensation’ by converting the dispute into a
timely formal claim to include a critical path schedule analysis, so that the City
could investigate the claim thoroughly at the time.†The City, however, does not point to anything
in the contract indicating that a dispute over the City’s claim for liquidated
delay damages is a “trigger†for Arntz to file a claim for additional compensation.
assertion that the City could have and should have moved into the library in
October 2001, but chose not to do so while improperly assessing liquidated
delay damages against Arntz until March 2002.
The City does not explain how its decision in this regard would have
triggered a duty on the part of Arntz to
file a “disputed Work†claim when it was the
City that was claiming delay damages allegedly based on its own refusal to
take possession of the property.
Moreover, the City’s conduct after receiving the October claim did not
suggest that it believed Arntz had missed the boat on this issue; far from
rejecting the claim as waived the City provided a substantive response on the
merits, invited a dialogue and asked Arntz for a “proposed resolution strategyâ€
to the issues of “liquidated damages, [and] substitute library facility rental
costs.†The record simply does not
support the City’s contention that all of Arntz’s claims relating to liquidated
damages were untimely.
In sum, we
have concluded the trial court erred in barring litigation of the October claim
in its entirety as untimely under the contract.
We next consider the City’s contention that the October claim was
nonetheless fatally defective because it was not accompanied by a late claim
application.
The
Absence of a Late Claim Application
The City
contends here, as it did below, that Dixon
v. City of Turlock (1990) 219
Cal.App.3d 907 (Dixon), stands for
the following proposition: If a public entity
rejects a claim as untimely, and the claimant later revises and refiles the
claim without a late claim application, the second claim is a “nullity,†the
public entity need not “re-deny†the claim as late, and the claimant’s action
is barred for failure to comply with the Government Claims Act (citing
912). Applying these principles, the
City argues: Arntz’s submittal dated
July 2, 2002 was its “first . . . attempt to file a claim;†that
claim was “specifically denied†on the ground, inter alia, that it was not
timely; Arntz’s subsequent October claim was a “revised and amended†version of
the July claim but it did not include an application for leave to submit a late
claim; therefore, Arntz did not comply with the Government Claims Act and its
action is barred. We are not persuaded.
First, the
holding in Dixon
is not so general. In
individual was injured in a fall on a public sidewalk in the City of Turlock. Section 911.2 governs claims against governmental
entities for personal
injuries and requires such claims to be submitted within six months of the
injury. The individual did not submit
his claim until more than one year after the incident. (Dixon,
supra, 219 Cal.App.3d at pp. 908–909.)
The city returned the claim as untimely; the notice included language
prescribed by Section 911.3. (
pursuant to section 911.2 is submitted late, the public entity may provide
notice to the claimant that the claim is “being returned†as untimely and that
the claimant’s “only recourse . . . is to apply without delay to [the
public entity] for leave to present a late claim.†If the notice is not given, the public entity
waives its defense as to the time limit for presenting a claim. (§ 911.3.)
After
receiving the 911.3 notice, the claimant in
an amended claim, which the city also rejected, this time with a Section 945.6
statutory notice stating the claimant had six months in which to file a court
action. The claimant filed suit, which
was dismissed on demurrer. (
the city failed to reject the amended claim as untimely in accordance with
Section 911.3, the city waived its defense of untimeliness. The court rejected that contention. It held that, when a claim filed pursuant to
Section 911.2 is late, if the public entity issues a formal rejection that
includes a statutory notice and warning pursuant to Section 911.3, the public
entity is not required to repeat that warning when it receives and rejects a
subsequent amended claim from the same claimant. (Dixon,
supra, 219 Cal.App.3d at p. 912.)
The court also conc
| Description | In this action, plaintiff Arntz Builders (Arntz), a general contractor, and defendant City of Berkeley (the City) have been locked in a prolonged battle over who is responsible for construction cost overruns and schedule delays that occurred in the course of the Central Library restoration and expansion project. In more than nine years of litigation, including two appeals, the parties have yet to reach the merits of the underlying disputes. In the first appeal, we reversed the trial court’s ruling that Arntz’s action was barred in its entirety for failure to file a claim pursuant to Government Code section 910. (Arntz Builders v. City of Berkeley (2008) 166 Cal.App.4th 276 (Arntz I).) In this appeal, we reverse the trial court’s ruling that Arntz’s action was barred in its entirety because (1) it failed to submit to the City a timely claim pursuant to the terms of the construction contract, and (2) it failed to submit an application for leave to present a late claim, pursuant to Government Code sections 930.4 and 911.4, subd. (b).[1] |
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