BCP/Fox Hollow v. Alpha III

Filed 10/13/06 BCP/Fox Hollow v. Alpha III CA4/1

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

APPEALS from a judgment of the Superior Court of San Diego County, Ronald L. Styn, Judge. Affirmed.

Alpha III, Inc., Alpha III Development, Inc., and Charles Ashley (hereafter collectively referred to as Alpha) appeal damages awarded to BCP/Fox Hollow, LLC, BCCC, Inc., and San Diego/Fox Hollow L.P. (hereafter at times referred to collectively as BCP) relating to the breach of a partnership agreement to develop low-income housing. San Diego/Fox Hollow L.P. (Fox Hollow)^[1] cross-appeals the award of damages to Baronet and Company, Inc. (Baronet) on its cross-complaint relating to a construction contract.

Alpha contends the damage award should be reversed because it was based on conditions the City of San Diego illegally imposed and BCP breached its fiduciary duty by agreeing to the conditions. Fox Hollow contends the court erred in finding Baronet did not breach the contract when it failed to complete construction by December 31, 2000, and in failing to allow Fox Hollow to offset damages it incurred due to Baronet's construction defects. We affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

Alpha is a company that develops and constructs low-income housing projects. Ashley is the president of Alpha and the vice president/secretary-treasurer of Baronet. Baronet is a construction company owned and controlled by Ashley and his son.

BCP provides equity for the development of low and very low-income housing in exchange for becoming a limited partner in the property. An investor, such as BCP, is willing to invest in such housing to obtain state or federal low-income housing tax credits that permit offsets of the investor's state or federal income tax.

In April 2000, Alpha and BCP entered into an Amended and Restated Agreement of Limited Partnership (Partnership Agreement) to acquire land, develop, construct, own, and maintain a low-income housing complex. Under the Partnership Agreement, BCP was to receive essentially all of the 9 percent federal and state income tax credits derived from owning and operating the apartment complex in exchange for capital contributions to the partnership. These credits required certain conditions be met, including substantially completing the project by December 31, 2000. The Partnership Agreement provided that if the project was not substantially completed by December 31, 2000, BCP could require Alpha to repurchase its partnership interest in the project. The repurchase price was to be calculated by a formula contained in the Partnership Agreement.

The project was not substantially completed by December 31, 2000, and thus, the partnership lost the 9 percent tax credits and needed alternate financing to complete the project. New 9 percent tax credits were not a realistic alternative because of the high demand for such credits, the point system used to award such credits, and the fact the partnership had incurred negative points by failing to complete the project on time. Ultimately, the partnership pursued 4 percent tax credits, which did not involve a competitive application process, but required the partnership to apply for tax exempt private activity bonds from the City of San Diego Housing Authority (Housing Authority). The partnership also sought "soft money" from the City of San Diego.

The San Diego City Council (City Council), sitting as the Housing Authority, met on March 20, 2001, to consider the application for the bonds. There was strong community opposition to the project. Community members raised, among other things, concerns about the project's appearance, the lack of community input, safety matters and traffic issues. Some individuals wanted the project changed from a low-income to a market-rate project. There was also opposition to Ashley's participation in the project. At the hearing, the City Council conditioned approval of the bonds on the partnership attending an April 2, 2001 community meeting and working with the community to resolve neighborhood concerns.

Prior to the City Council hearing on the bonds, BCP initiated efforts to remove Ashley and Alpha from the partnership on the basis they had breached the Partnership Agreement by failing to complete the project by December 31, 2000. On March 6, BCP delivered a letter to Ashley stating the grounds for removal and giving 30 days notice. This period was later extended.

On April 5, 2001, BCP demanded Alpha repurchase its partnership interest for about $6,000,000, as calculated by the formula in the Partnership Agreement. Alpha did not repurchase the partnership interest. Ultimately, on April 16, Alpha and BCP amended the Partnership Agreement to remove Alpha as general partner and transfer the general partner responsibilities to BCP-California. Simultaneously, the parties entered into a Preservation of Rights Agreement to preserve their positions vis-Ã -vis their disputes, including about the repurchase demand.

Beginning in April 2001, a BCP representative attended community meetings and eventually agreed to several design changes suggested by community residents, including changing the name from "Fox Hollow" to "Hollywood Palms," increasing the size of the community building, adding landscaping, lowering retaining walls, replacing a swimming pool with a "tot-lot," and adding solar panels for water heating. These changes were incorporated into the approvals for the bonds and soft-money.

On August 29, 2001, the partnership gave notice of termination to Baronet based, inter alia, on the failure to substantially complete the project by December 31, 2000. Baronet was eventually replaced by another company.

In May 2002, BCP filed a complaint for breaches of the Partnership Agreement and construction contract. Alpha cross-complained for breach of fiduciary duty, constructive fraud and breach of contract.

The trial court found Alpha had breached the Partnership Agreement by: (1) failing to timely complete the project; (2) failing to repurchase BCP's partnership interest; and (3) not paying excess development costs. The damages on these theories ranged from $660,000 (excess development costs) to over $2,000,000 (failure to timely complete the project). The damage determinations were not cumulative; they represented calculations based on different theories. The amount of damages was capped at $2,394,435 based on the theory yielding the highest damages. The court also awarded interest, costs and attorney fees to BCP.

The trial court held Baronet did not breach its construction contract. It held in favor of Baronet on its claim that Fox Hollow had breached the construction contract by wrongfully terminating it and awarded damages of $103,685 plus interest and costs to Baronet. The court held Fox Hollow was not entitled to an offset for construction defects that were discovered after Baronet had been terminated.^[2]

DISCUSSION

I

Alpha's Appeal

Alpha's primary contention on appeal is that the conditions imposed by the City Council on issuance of the bonds were illegal and are unenforceable. Alpha further contends BCP's agreement to the conditions breached legal and fiduciary duties it owed to Alpha.

(A) Legality of Conditions

Alpha argues that at the time the conditions were imposed, Fox Hollow was a "vested" development to be built in conformity with city permits issued in 2000, and therefore the City Council had no power to impose any additional conditions. Alpha also argues the conditions constituted illegal discrimination against a low-income development.

(1) Vested Right

Under the vested rights doctrine, a property owner acquires a vested right to complete a construction project in conformity with a building permit once it has performed substantial work and incurred substantial liabilities in good faith reliance upon a building permit. (See Avco Community Developers, Inc. v. South Coast Regional Com. (1976) 17 Cal.3d 785, 791.) Under this doctrine, the property owner may not be subjected to subsequently adopted regulations prohibiting or restricting the project. (See Shea Homes Limited Partnership v. County of Alameda (2003) 110 Cal.App.4th 1246, 1270-1271; Toigo v. Town of Ross (1998) 70 Cal.App.4th 309, 321-322.)

This vested rights doctrine is not applicable here. The conditions were not imposed on a building permit. The conditions were imposed on the issuance of new bonds. The partnership had no vested right to the bonds. If the partnership wanted to complete the project without any additional conditions, it had a right to do so by obtaining funding from a different source.

(2) Discriminatory Conditions

Alpha argues the conditions were illegal because they discriminated against low-income housing. Alpha relies on Government Code section 65008, subdivisions (a)(3) and (d)(2).

Government Code section 65008, in pertinent part, provides:

"(a) Any action pursuant to this title by any city, county, city and county, or other local governmental agency in this state is null and void if it denies to any individual or group of individuals the enjoyment of residence, landownership, tenancy, or any other land use in this state because of any of the following reasons: . . . (3) The intended occupancy of any residential development by persons or families of low, moderate, or middle income. . . .

"(d) . . . (2) No city, county, city and county, or other local governmental agency may . . . because the development is intended for occupancy by persons and families of low, moderate, or middle income, impose different requirements on these residential developments than those imposed on developments generally, except as provided in subdivision (e)."

Initially, we note Alpha did not raise this issue below. As a general rule, issues not raised below may not be raised for the first time on appeal. (See Evid. Code, § 352.) While some issues, if they involve only questions of law, may be raised for the first time on appeal (see Piscitelli v. Friedenberg (2001) 87 Cal.App.4th 953, 983), this is not such an issue.

Alpha's claims do not simply raise questions of law based on undisputed facts. Alpha claims there was intentional discrimination against the development because the City Council imposed the conditions "simply because [Fox Hollow] was to be available to low-income renters." Alpha further asserts Ashley and Alpha were removed "simply because [they] had developed low-income housing," and the effect of the conditions was to destroy the purpose of the development, that is, to provide low-income housing. These issues were disputed. For example, there is evidence in the record indicating the development continued to provide low-income housing. There is also evidence indicating that much of the community opposition to Alpha and the project reflected a number of issues unrelated to the low-income nature of the project including concerns about increased traffic; local management; the name of the complex; the configuration of the community building; and the need for more playgrounds.

Second, Alpha's reliance on Government Code section 65008 is misplaced. Section 65008 is part of the Planning and Zoning Law (Gov. Code, § 65000) and deals with planning and zoning decisions. What is at issue in this case is not a planning or zoning decision but the issuance of bonds governed by the Tax Equity and Fiscal Responsibility Act (TEFRA), which requires "[p]ublic approval" for the bonds. (26 U.S.C. § 147(f).) This TEFRA requirement is met by either a public entity, such as the City Council, approving the bonds "after a public hearing following reasonable public notice" or by passage of a voter referendum. (26 U.S.C. § 147(f)(2)(B).) As the court explained in Affordable Housing Dev. Corp. v. City of Fresno (9th Cir. 2006) 433 F.3d 1182, 1193 (Affordable), the focus of this requirement "is on the democratic nature of the approval-granting authority: it is either the electorate as a whole or persons chosen by the electorate" who approve the bonds. A decision to approve TEFRA bonds is legislative in nature. (Ibid.) So long as the decision is supported by a legitimate non-discriminatory reason, a governmental entity may deny approval of the bonds. (Id. at p. 1196.) In Affordable, the court held the governmental entity could decline approval based on the project's effect on neighboring property values or an arguable lack of need for the project; "[a] governmental interest in not giving approval may outweigh the desirability of furnishing low-rent housing." (Ibid.)

Thus, under the applicable TEFRA guidelines, approval of the bonds was subject to community input. Here, community members raised legitimate concerns such as traffic, community needs and aesthetics. The City Council, in making its legislative decision, was entitled to condition approval of the bonds on the concerns raised by the community. The conditions imposed were within the scope of the City Council's authority and did not constitute illegal discrimination against low-income housing.

(B) BCP's Acceptance of Conditions

Alpha argues BCP breached its fiduciary duty to the partnership by agreeing to the conditions rather than objecting to them as illegal. Alpha states BCP's agreement to the "conditions and restructuring of the development makes it impossible to calculate if there was any damage to it from the earlier loss of the 9% credits which occurred . . . , particularly since [BCP] is free to stop funding the restrictions at any time and has a remedy against the actual culprit -- the City of San Diego." As we explained above, the conditions were not illegal.^[3]

Alpha also disputes the trial court's finding that BCP did not breach its fiduciary duty because BCP reasonably agreed to the conditions to obtain the necessary financing.

The trial court ruled BCP did not breach a fiduciary duty to Alpha, finding, "[o]n the contrary, [BCP] was attempting to salvage the project, which was in the best interest of the [p]artnership." Alpha's argument does not address the sufficiency of the evidence to support the trial court's finding, e.g., as to whether alternate sources of funding were reasonably available that would have salvaged the project and avoided the conditions, but only reasserts its position that the trial court was mistaken "as to the City's power" and the "applicable law." We have already rejected this argument. We also note there is evidence in the record supporting a finding BCP was required to agree to the conditions to obtain the bonds and complete the project.

(C) Law of the Case

Alpha argues BCP never proved it was damaged by Alpha (rather than the City) "because [BCP] never offered, as directed by this [c]ourt, an expert valuation" of the development BCP received when it removed Alpha from the partnership. (Bold emphasis omitted.) Alpha asserts this failure "violated the 'law of the case.' " (Bold emphasis omitted.)

"Under the law of the case doctrine, when an appellate court ' "states in its opinion a principle or rule of law necessary to the decision, that principle or rule becomes the law of the case and must be adhered to throughout [the case's] subsequent progress, both in the lower court and upon subsequent appeal . . . ." ' " (People v. Barragan (2004) 32 Cal.4th 236, 246.) The doctrine promotes finality by preventing relitigation of issues previously decided. (George Arakelian Farms, Inc. v. Agricultural Labor Relations Bd. (1989) 49 Cal.3d 1279, 1291.) It does not apply to points of law that might have been, but were not, decided in the prior appeal. (Nally v. Grace Community Church (1988) 47 Cal.3d 278, 302.)

Alpha's argument derives from an opinion we issued in response to Alpha's appeal from an order granting a prejudgment attachment in favor of BCP. The prejudgment attachment was for $6,789,225.56, the repurchase price for BCP's share of the partnership as calculated by the contract terms. (BCP/Fox Hollow, LLC v. Alpha III, Inc. (Sept. 5, 2003, D041335) [nonpub opn.].) The question in that case was whether BCP's claim was fixed or readily ascertainable. We rejected the argument the contract repurchase price constituted the amount of BCP's claim since BCP was not seeking specific performance of the repurchase condition but monetary damages. We noted when a plaintiff in a monetary damages case retains a property interest, such as the partnership interest in this case, the calculation of damages must take into account the fair market value of the property retained by plaintiff. In other words, an individual may not both retain the property and sue for its value.

The prior opinion did not establish "the law of the case" as to how damages must be calculated following a trial. We held BCP's damages at that time were not fixed or readily ascertainable. Now there has been a trial, evidence presented, and the damages have been ascertained. The question here is whether the amount of damages is supported by substantial evidence. To the extent Alpha is challenging the sufficiency of the evidence to support the amount of damages awarded, Alpha has failed to meet its burden of showing error.

"[W]hen an appellant urges the insufficiency of the evidence to support the findings it is his [or her] duty to set forth a fair and adequate statement of the evidence which is claimed to be insufficient. He [or she] cannot shift this burden onto respondent, nor is a reviewing court required to undertake an independent examination of the record when appellant has shirked his [or her] responsibility in this respect." (Brown v. World Church (1969) 272 Cal.App.2d 684, 690.) An appellant must support his [or her] arguments in its briefs by appropriate references to the record, which includes providing exact page citations. (People v. Woods (1968) 260 Cal.App.2d 728, 731.) An appellate court may deem a party's failure to set out a fair statement of the facts as waiving the issue. (State Farm Fire & Casualty Co. v. Jioras (1994) 24 Cal.App.4th 1619, 1625, fn. 4.) Further, in reviewing a claimed insufficiency of the evidence, we must view the evidence in the light most favorable to the record, accepting as true that which was accepted by the trier of fact and rejecting contrary evidence as not worthy of belief. (Estate of Teel (1944) 25 Cal.2d 520, 527; Buehler v. Sbardellati (1995) 34 Cal.App.4th 1527, 1542.)

Alpha's argument that BCP presented no evidence of the retained value of the partnership is belied by its own citation to a "Partnership Interest Valuation" for May 4, 2001, by BCP's expert, which demonstrates, on its face, consideration of the value of BCP's partnership interest, i.e., the estimated fair market value of the land ($1,200,000).

Alpha, citing two pages in the record, asserts BCP's expert stated the partnership interest in the real property as of May 4, 2001, was "zero." On one of these two pages, there is a statement by the expert indicating he believed the partnership had no value. Alpha asserts "the expert opinion that the partnership interest which obviously included the development itself, is 'zero' because it did not consider the future rents, development fees, residual value of the development of -- a commercial property -- is fatally flawed and inadmissible under the United States Supreme Court's ruling in Daubert v. Merrell Dow Pharms. [(1993)] 509 U.S. 579, 589 . . . ." We fail to see the relevance of the Daubert decision; it deals with the admissibility of scientific evidence, not the sufficiency of the evidence of an expert's valuation of a partnership interest. Moreover, the expert's assessment of damages is not fatally flawed merely because the expert opines that the value of the partnership interest is zero; his opinion was based on a consideration "of the project as it existed as of May 4, 2001, and the cost to complete the project at that point, compared with the value of the finished project." His conclusion that the value of the partnership interest, including land, structures, and future rents, was offset by other costs, including less favorable financing and increased construction costs, resulting in a net value of zero is not inherently unreasonable, as a matter of law.^[4]

Finally, we note the trial court did consider the value of the partnership when determining damages; it considered the amount another tax credit syndicator would have been willing to pay for BCP's interest in determining damages for breach of the obligation to repurchase.

II

Fox Hollow's Appeal

Fox Hollow contends the trial court erred in finding the partnership had wrongfully terminated Baronet as the general contractor. Fox Hollow argues the court improperly considered testimony by contractor John Elliot as expert testimony and argues the court should have interpreted the construction contract as requiring Baronet to finish construction by December 31, 2000. Fox Hollow also argues the court erred in concluding it was precluded from seeking monetary damages for Baronet's construction defects because it failed to provide Baronet with an opportunity to cure the defects.

Factual and Procedural Background

The construction contract was a form contract Baronet used on all its projects. The construction contract refers to a start date of April 25, 2000, although the Partnership Agreement has an effective date of April 27, 2000. When the contract was entered into, a building permit had not been issued and would not be issued by the City of San Diego until September 2000. It was not Baronet's responsibility to obtain a building permit; it was the partnership's obligation to do so.

Section^[5] 3.02 addresses completion of the project:

"Completion: Subject to modification by Change Order or excusable delays under Sections 3.06, 6.09^[[6]] or Article IV 'Changes in Project,' the Prime Contractor shall diligently prosecute the Work to completion and shall substantially complete the Project by December 30, 2000. Completion shall be amended, pro-rata, based upon target construction start date of: April 25, 2000." (Italics added.)

Section 3.06 addresses excusable delay and provides:

"Excusable Delay: The Prime Contractor shall be excused for any delay in completion of the Project caused by acts or omissions of Owner or its employees, agents, representatives or independent contractors; any court having jurisdiction over the Project or over the Owner; any buyer or proposed buyer of the Project, or any of their employees, agents, representatives or independent contractors; of those claiming any right or interest in the Project under any agreements with Owner, or otherwise; of any construction lender or any entity authorized and directed to disburse construction funds, or any agents or representative thereof; inclement weather conditions or other acts of God; acts of public utilities, public bodies or inspectors; Change Orders; or failure of the Owner to promptly make progress payments or Change Order payments duly approved by the Architect. The Prime Contractor shall notify the Owner and the Architect of any delay within five (5) business days after the beginning of such delay." (Italics added.)

Section 10.01 requires the project "to be constructed in strict conformance and compliance with all applicable laws, ordinances, rules and regulations of any public authority or utility having jurisdiction over the property on which the Project is being built." (Italics added.) Article IV of the construction contract provides that if a change order is issued that requires additional time, then "any increase in time shall be added to the completion date without prejudice to the Prime Contractor." (Section 4.05.)

Section 3.05 provides that "Time is of the essence in the commencement, continuation, and completion of the Work."

(A) Admission of Expert Testimony

Alpha offered John Elliott as an expert witness. Among the designated topics of Elliott's testimony was whether the contract met industry standards. At trial, when Elliott was asked why an owner and contractor would enter into a contract before there was a start date, Fox Hollow objected on the basis it was outside the scope of the witness's declared testimony, noting that "this particular line of questioning is going to go directly to . . . [section] 3.02 . . . which the plaintiffs have brought as an issue in this case." Fox Hollow argued that during Elliott's deposition it had asked if he had anything to say about whether the contract met industry standards and Elliott had answered, "I don't think so." In response, Alpha argued that Fox Hollow should not be entitled to exclude Elliott's testimony simply on the basis that they asked only a very general question and failed to ask him about section 3.02. Fox Hollow responded that Elliott should have volunteered that he would have been offering an opinion about section 3.02.

The trial court ruled Alpha could ask Elliott generally whether the contract met industry standards. Elliott testified that it did. When Alpha asked whether it was common in the construction industry for an owner and contractor to enter into a contract before they had a construction permit, Fox Hollow objected but the court overruled the objection, stating "that's a little different" because "that has nothing to do with the contract itself."

Elliott was then asked: "[I]n the situation where a contractor is entering into a contract prior to the permits being available, how is the construction start date dealt with?" Fox Hollow again objected that the issue was "not within the scope of what he said he was going to testify to at his deposition." The trial court indicated it was going to sustain the objection unless Alpha could show Elliott "got into it" or "or at least something close to it" during the deposition.

Alpha responded that Elliott, during the deposition, "talked all about the permitting process, [and] the period of time . . . ." The court ruled Alpha could ask "questions about that." Alpha asked, "[I]s it common in the industry to have a construction duration, in other words, a duration for the time to complete that is negotiated as a part of the construction contract." Fox Hollow again objected it was "outside the scope of what the witness said he was going to testify to." The court permitted the testimony, stating "[i]t's certainly harmless."

At this point, Alpha argued that one of the exhibits attached to Elliott's deposition was entitled " 'Analysis of the time extensions to Baronet contract due to delays in receiving the building permits and other excusable delays pursuant to the terms of the contract.' " Fox Hollow stated it had no objections to Elliott testifying about the excusable delays provision of the construction contract or about the change order process. The court questioned how Elliott's proposed testimony was not within the scope of delays due to the permitting process. Fox Hollow explained the "witness was originally designated to discuss the permitting process" but "the issue was excluded in the motion in limine" so "all that is out of the case." It reiterated "this witness was never designated as a contract interpretation-type witness" and noted excusable delays were talked about in the context of the permitting issue. Alpha responded by presenting the exhibit to Elliott's deposition delineating his testimony, including: expert opinion concerning the change-order process; whether the Baronet contract with the partnership meets industry standards; and an analysis of time extensions. Alpha represented that if the court provided the time, it could "go to the transcript where [Elliott] talked about [section] 3.02 on several occasions and [was] asked whether or not there were any change orders that were written that provided extensions of time." The court suggested Alpha "ask [Elliot] questions about that." The following exchange then occurred between Alpha and Elliott:

"Q. Okay, Mr. Elliott, in the situation where a contract is entered into prior to the building permits being issued, is there ever a change order that is then issued to reflect the start date of the contract?

"A. No --

"Q. Why not?

"A. -- not to my knowledge. None is needed.

"Q. Why isn't there any needed?

"A. Cause the contract automatically accumulates the amount of days that are specified in the contract for the term of construction, or in this particular case the pro rata statement would move the completion date commensurate with the amount of days before you can begin the job after the permit's received."

Fox Hollow did not object to this testimony. It raised a relevance objection to the next question about why parties enter into a construction contract prior to knowing the start date, an objection that was overruled.

Elliott also testified, in response to a question of what defines the start date of a construction contract:

"I suspect the date on the contract would begin the date of the contract but the start of construction doesn't trigger until some event occurs that legitimizes it, and the two things that come to mind that generally we are held up by is either a building permit or financing, and those are the two things in my experience that have held us up more often that not."

Fox Hollow objected that the first sentence was speculation and the second was nonresponsive and moved to have the entire answer stricken. The court overruled the objections.

In its statement of decision, the trial court concluded section 3.02 of the construction contract extended the start date until the building permits were obtained and thereafter extended pro rata the completion date. The court based its conclusion "on the testimony of expert John Elliott and of Mr. Ashley, as well as the language"^[7] of the contract. As to the defective work, the court noted "the first mention of any defective work [was] in the termination letter dated August 29, 2001."

Fox Hollow contends the trial court erred in admitting Elliott's testimony because Alpha had not designated Elliott as an expert on the usual industry practice vis-Ã -vis the start date for construction and extensions of time when it is delayed because a building permit has not yet issued.

Before trial, when the parties designate experts, they must also provide a brief narrative description of the expert's expected testimony. (Code Civ. Proc., §§ 2034.210, 2034.260, subd. (c)(2).) The purpose of the expert declaration "is to give fair notice of what an expert will say at trial," which "allows the parties to assess whether to take the expert's deposition, to fully explore the relevant subject area at any such deposition, and to select an expert who can respond with a competing opinion on that subject area." (Bonds v. Roy (1999) 20 Cal.4th 140, 146-147.) Upon objection, a party is entitled to have excluded any expert testimony that exceeds the scope of the subject matters disclosed in the expert's declaration. (Code Civ. Proc., § 2034.300.) The trial court has discretion to determine whether expert testimony is within the "general ambit" of the topics disclosed in the expert declaration. (See Jones. v Moore (2000) 80 Cal.App.4th 557, 566.)

Here, contrary to Fox Hollow's contention, the record shows the trial court ultimately ruled Elliott's testimony was not beyond the scope of his designated topics. Thus, the trial court did not improperly rely on testimony it had ruled inadmissible. Nor do we find an abuse of discretion by the trial court in deciding to admit the testimony in light of the representations that among the topics designated for Elliott's testimony were whether the construction contract met industry standards and that during the deposition there were discussions of excusable delays, the permitting process, and section 3.02.

Moreover, even if error occurred, the error was harmless because, as we explain in part II(B), the words of the construction contract itself do not support Fox Hollow's position.

(B) Extension of Completion Date

Fox Hollow argues the trial court erred in not interpreting the construction contract as requiring Baronet to finish construction by December 31, 2000.

The court found Fox Hollow's "failure to demand correction of any work deprived Baronet of the ability to correct any deficiencies. Under the terms of the subcontract agreements, Baronet could have required the subcontractors to do this work." The court concluded "there was no basis to terminate Baronet's contract" and found damages of $103,685. The court concluded, "Although the [p]artnership incurred $242,000 in repairing defective work by Baronet, the [p]artnership is not permitted to an offset because Baronet could have pursued its subcontractors and recovered that amount from them."

" 'The fundamental goal of contractual interpretation is to give effect to the mutual intention of the parties. (Civ. Code, § 1636.)' " (People v. Shelton (2006) 37 Cal.4th 759, 767; TIG Ins. Co. of Michigan v. Homestore, Inc. (2006) 137 Cal.App.4th 749, 755.) "When a contract is reduced to writing, the parties' intention is determined from the writing alone, if possible. (Civ. Code, § 1639.)" (Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc., supra, at p. 955.) The words of a contract are generally to be understood in their ordinary and popular sense unless they are used by the parties in a technical or other special sense. (Civ. Code, § 1644; TIG Ins. Co. of Michigan v. Homestore, Inc., supra, at p. 755.) "The terms of a writing can also 'be explained or supplemented by course of dealing or usage of trade or by course of performance.' (Code Civ. Proc., § 1856, subd. (c).) Indeed, where there is a fixed and established usage and custom of trade, the parties are presumed to contract pursuant thereto." (Southern Pacific Transportation Co. v. Santa Fe Pacific Pipelines, Inc. (1999) 74 Cal.App.4th 1232, 1240-1241.)

" 'When a dispute arises over the meaning of contract language, the first question to be decided is whether the language is "reasonably susceptible" to the interpretation urged by the party. If it is not, the case is over. [Citation.] If the court decides the language is reasonably susceptible to the interpretation urged, the court moves to the second question: what did the parties intend the language to mean?' [Citations.] Whether the contract is reasonably susceptible to a party's interpretation can be determined from the language of the contract itself or from extrinsic evidence of the parties' intent. [Citation.] Extrinsic evidence can include the surrounding circumstances under which the parties negotiated or entered into the contract; the object, nature and subject matter of the contract; and the subsequent conduct of the parties. [Citations.] When no extrinsic evidence is introduced or the extrinsic evidence was not relied on by the trial court or is not in conflict, we independently construe the contract." (Cedars-Sinai Medical Center v. Shewry (2006) 137 Cal.App.4th 964, 979-980.)

The trial court interpreted section 3.02 as providing that the delay in obtaining the building permit -- which was not obtained until September 2000 -- extended the completion date. Fox Hollow argues this interpretation is unreasonable because when the contract was entered into on April 27, 2000, "the 'start date' of April 25, 2000[,] had already passed, so, under [the court's] 'pro rata extension' [theory], the completion date already would be after December 31, 2000, the date by which everyone knew the project had to be completed." Further, it argues that since all parties knew at the time the construction contract was entered into, that no building permits had been issued, under this theory, the result would be "no fixed date of completion, even though everyone . . . knew that the Apartment Complex had to be completed by December 31, 2000, or the Fox Hollow partnership would lose its funding." Finally, Fox Hollow points out the contract stated " 'Time is of the essence in the commencement, continuation, and completion of the Work.' " (§ 3.05.)

The underlying premise of the argument is that the construction contract provided for an absolutely fixed completion date of December 31, 2000. The language of the contract belies this argument.

The "Completion" provision in the contract specifically states the completion date

is "[s]ubject to modification by Change Order or excusable delays." (§ 3.02.) This provision further specifically provides that "[c]ompletion shall be amended, pro-rata, based upon target construction start date of: April 25, 2000." (Ibid.) Thus, the contract specifically provides that the December 31, 2001 date, was not absolutely fixed, but could be extended as a result of change orders or excusable delays.

"Excusable delay" is defined in the construction contract as including any "delay in completion of the Project caused by acts or omissions of Owner or . . . acts of public . . . bodies." (§ 3.06.) Section 10.01 requires all construction be "in strict conformance and compliance with all applicable laws, ordinances, rules and regulations of any public authority."

Without a building permit Baronet could not be "in strict conformance and compliance with all applicable laws, ordinances, rules and regulations of any public authority." (§ 10.01.) The project was delayed because the building permit was not obtained until September 2000. The delay in issuing the building permit -- whether due to the partnership or to the City of San Diego -- is encompassed within the "excusable delay" provision since it involved an act of the owner or a public body. As an "excusable delay," the delay in obtaining the building permit, as provided in section 3.02, resulted in a "pro-rata" amendment of the completion date.

While it is true that section 3.06 provided that time was of the essence and case law recognizes that if time is of the essence there must be strict adherence to the date of performance, case law also recognizes failure to adhere to the date of performance may be excused. (See Weisberg v. Ashcraft 1963) 223 Cal.App.2d 793, 795.) As we noted above, pursuant to the terms of the construction contract, the completion date was excused.

As to Fox Hollow's argument that this interpretation results in "no fixed date of completion, even though everyone . . . knew that the Apartment Complex had to be completed by December 31, 2000, or the Fox Hollow partnership would lose its funding," we note that had Fox Hollow intended there to be a fixed, inflexible completion date, then the contract should have so provided. But, it did not. Instead, the contract provides for pro rata extensions for change orders and excusable delays.

We further note that, pushed to its extreme, under Fox Hollow's theory, Baronet would be compelled to substantially complete construction by December 31 even if the building permit had issued the day before the completion date. Such an interpretation is neither supported by the contract language nor reasonable.

In sum, we conclude the trial court properly concluded that Baronet had not breached the construction contract by failing to substantially complete the project by December 31, 2000.

(C) Defective Workmanship

Fox Hollow argues the trial court erred in failing to permit it to recover damages or to offset them against the damages awarded to Baronet.

The trial court rejected Fox Hollow's argument it was entitled to charge Baronet for defective work or to recover the costs of repairing Baronet's defective work, explaining:

"Finally, with respect to the defective work, the first mention of any defective work is in the termination letter dated August 29, 2001. . . . The failure to demand correction of any work deprived Baronet of the ability to correct any deficiencies. Under the terms of the subcontract agreements, Baronet could have required the subcontractors to do this work. Therefore, all of the grounds, both stated and unstated, for terminating Baronet's contract, fail. Therefore, there was no basis to terminate Baronet's contract.

" . . .

". . . Although the Partnership incurred $242,000 in repairing defective work by Baronet, the Partnership is not permitted to an offset because Baronet could have pursued its subcontractors and recovered that amount from them."

The August 29, 2001 termination letter did not specify any defective work by Baronet. Instead, it stated only: "The limited partnership shall immediately arrange for the completion of all remaining work and the correction of any non-conforming and defective work."

Defective work is addressed in section 9.02:

"Correction of Defective Material or Work. Upon Owner's notification, the Prime Contractor shall as soon as reasonably practicable under the circumstances, at its own cost, replace defective or deficient material, and perform the labor necessary to correct any defect or deficiency in the work, excepting therefrom any replacement of equipment or materials covered by a warranty which shall be the sole responsibility of the manufacturer in which event the Prime Contractor shall work with the Owner to enforce said warranty of manufacturer."

Alpha argues Fox Hollow is attempting to "recover the cost of the illegal re-design and re-build work" and is not entitled to "recover anything from Baronet -- who was not a party to the illegality." There are two problems with this argument. First, as we have previously explained, the conditions were not illegal. Second, the statement of decision indicates the trial court found Fox Hollow had spent $242,000 "in repairing defective work by Baronet," not $242,000 in "re-design and re-build work."

As to Fox Hollow's argument, it ignores that it wrongfully terminated Baronet. While it is true that normally an owner can recover the costs of repairing defective work (see 1 Witkin, Summary of California Law (10th ed. 2005) Contracts, § 909, pp. 1001-1002), here, had BCP not wrongfully terminated Baronet, it could have required Baronet, under section 9.02, to remedy the errors at no cost to itself and Baronet would have had the opportunity to require its subcontractors to repair the defective work. In other words, the cost of repairs resulted from the wrongful termination of the contract. Under these circumstances, we find no error by the trial court in refusing to allow Fox Hollow to offset the cost of repairing defective work.

DISPOSITION

The judgment is affirmed. Each side is to bear its own costs on appeal.

McCONNELL, P. J.

WE CONCUR:

HALLER, J.

AARON, J.

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^[1] We refer to plaintiffs BCP/Fox Hollow, LLC, BCCC, Inc., and San Diego/Fox Hollow L.P., and cross-defendants BCP-California, LLC, Boston Capital Corporation, and Boston Capital Partners Corporation collectively as "BCP" when appropriate.

^[2] BCP asks us to take judicial notice of orders taken in federal court (Alpha III, Inc., et al. v. City of San Diego, et al. (No. 04-CV-0497-IEG)), but we decline to do so.

^[3] Alpha also contends the trial court erred in refusing to award Baronet damages for lost profits. This argument is again based on a theory the conditions were illegal. This argument fails since, as we explained above, the conditions were not illegal.

^[4] Alpha also cites to nearly 30 pages of a declaration by BCP's expert. Such a block citation is insufficient to meet Alpha's burden of establishing error. (See Bernard v. Hartford Fire Insurance Co. (1991) 226 Cal.App.3d 1203, 1205.) We are not obligated to sift through the record for Alpha's benefit; the appellate court is entitled to the assistance of counsel.

^[5] All further undesignated section references are to the construction contract.

^[6] Section 6.09 addresses when the contractor has a right to stop work on the project if payments were not timely made.

^[7] Ashley testified his intent in including the language " 'completion shall be amended pro rata based on the target construction date' " was to provide for an extra day in the completion date for the contractor for every day the building permits were not furnished.