FHI Plant Services v. Marson

Filed 8/10/06 FHI Plant Services v. Marson CA2/5

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 977.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FIVE

APPEAL from a judgment of the Superior Court of Los Angeles County .

James R. Dunn, Judge. Affirmed.

Lax & Stevens and Paul Lax and Cynthia Stevens; Lascher & Lascher and Wendy C. Lascher for Plaintiff and Appellant.

Songstad & Randall LLP and L. Allan Songstad, Jr. and Janet E. Humphrey for Defendant and Respondent.

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Appellant FHI Plant Services, Inc. appeals from a judgment awarding it $820,000, less than the amount it sought, on its suit against respondent Paramount Petroleum, to foreclose on a mechanic's lien. We affirm.

Facts

Paramount operates an oil and asphalt producing refinery. When it decided to build an electricity cogeneration plant it hired an entity called Marson Corporation as general contractor. Marson engaged FHI as mechanical subcontractor. Toward the conclusion of the project, when it did not receive the payment it thought it was due, FHI filed a mechanic's lien against Paramount, then sued Paramount, Marson, and the "design build contractor," Pan Gulf Energy Holdings.

Neither Pan Gulf nor Marson is a party to this appeal. Judgment was entered in Pan Gulf's favor after trial, when the trial court found that the causes of action against Pan Gulf depended on a finding of a joint venture between Pan Gulf and Marson, and that there was no such joint venture, a ruling not challenged on appeal. Marson defaulted. However, most of the relevant dealings were between FHI personnel and Marson or Pan Gulf personnel, not directly between FHI and Paramount, and the evidence at trial generally concerned those interactions.

It began in April 2002, when, as part of its duties as general contractor, Marson requested bids from mechanical contractors. FHI submitted a bid, as did other contractors. FHI's initial bid was slightly over $2.4 million, not the lowest bid. However, FHI and Marson continued negotiations, and on June 10, FHI began work without a contract.

The terms of FHI's engagement were very much in dispute at trial. Paramount's theory was that FHI agreed to a fixed-price contract at $973,580,[1] and it produced evidence in support of that theory. FHI's theory was that although a fixed price of $973,580 was discussed, the actual contract was for cost of work plus 15%. On this point, the trial court agreed with FHI, citing a June 17 letter of intent from Marson to FHI indicating an intent to award the contract to FHI for the fixed price of $973,580, but which in an addendum signed by Marson and FHI, provided "Should for whatever reason this contract not be executed . . . then the cost plus 15% will be applied to all work from commencement of the contract to the date of termination of FHI's work." [2]

FHI stopped work on the project in December, both because it had not been paid and because there was no work available to be done. It had by then submitted $1,070,198 in "original scope invoices," and $1,328,669 in "field change request," or "FCR" invoices; and had been paid $300,000. FHI and Marson continued to meet and discuss the invoices, and Marson made additional payments, so that FHI was paid a total of $1,060,000, but on January 29, FHI filed a mechanic's lien against Paramount in the sum of $1,449,229.

At trial, FHI submitted evidence of its invoices, as well as its timesheets, purchase orders and other documents, and on what it asserted were Marson's approval of invoices, timesheets, purchase orders, and other documents. It also submitted evidence that Paramount and Marson caused the price of the job to increase through, for instance, change orders and delay, failing to provide specifications, and losing purchase orders; and sought to avoid payment and force FHI to sign a contract by falsely asserting that there were problems with the invoices and by requesting additional break-downs and duplicate documentation; and that in January and February meetings Paramount and Marson again approved invoices and agreed to make payments, but failed to do so.

FHI Chief Financial Officer Thomas Jones testified on damages. After a complex process which involved reviewing the invoices and other documents such as checks to FHI employees, adding the markup, and totaling all of FHI's costs, even ones that had not been invoiced to Marson, then subtracting the payments and a handful of credits that were not issued, he determined that FHI was owed $1,514,575.

Paramount submitted evidence that FHI did not keep track of its labor costs (a necessity for accurate cost-plus bills), improperly billed for supervision, administrative, and equipment charges, and otherwise over billed, and that throughout the project, its invoices had numerous clerical, mathematical and other errors, problems which Marson voiced to FHI. The invoices, particularly FCR invoices, included charges for extra work caused by FHI's mistakes.

Further, FHI was a "weak contractor," which required a lot of Marson's time in supervision. Its work frequently had to be redone, by FHI or another contractor. This complicated billing, because it involved credits back to Paramount. Robert Lawson of Marson also criticized FHI's management of labor, citing, as an example, a site visit in which he saw up to nine people in the welding shop, only half of whom were working. In his view, if the "inefficiencies," "screw ups on the job site," and duplicated work was deducted from FHI's invoices, the amount owed would be much lower.

Paramount also presented evidence that Marson did not approve purchase orders, timesheets, or the other documents FHI referenced. Larry Stewart, a Pan Gulf employee who signed the purchase orders, testified that he signed the orders believing that FHI had agreed to sign a fixed-price contract. Thus, his signature was an acknowledgement that he had seen the purchase order, and did not mean that he approved the price. Further, the orders were submitted after the materials were purchased, sometimes after the materials were installed. (FHI's Ricky Reed, who submitted the orders for signature, agreed that purchase orders were not submitted before the material was bought.)

The "project deviation notices" which, in FHI's view, formed the basis for the FCR invoices, were also signed after the work described in the notice was done and in any event did not constitute agreement to the price of work, because they did not include prices.

Both sides submitted evidence about materials which FHI purchased from a distributor called Advanced Sealing. Paramount presented evidence that Advanced Sealing's charges were excessive, sometimes two or three times the normal cost. For instance, steel that could have been bought for about $5,000 was billed at $8,600, plus the 15% mark up. Not only that, Advanced Sealing did not have a warehouse. It was a buying agency, and charged expediting fees on items that were readily available elsewhere. Paramount also presented evidence that FHI used Advanced Sealing's office space rent-free, that at the relevant time, Turner of FHI thought of Advanced Sealing principal Bill Clouse as a potential investor in a new business, and that the two companies had a "networking" relationship, with each trying to get the other jobs.

FHI presented evidence to the contrary, that the charges were high because they included sums for expediting orders, necessitated by Paramount's inefficiencies and its failure to establish a purchasing protocol.

There was also evidence about one of the other bids on the project, from Irwin Industries, a contractor with which Paramount had an established relationship. Irwin's bid for the mechanical work was $1.055 million. Former Irwin Board Chairman Thomas Rausch testified about the labor and material costs in his company's bid, the availability of materials, the equipment which would be necessary, and the change orders he would have expected. Rausch was familiar with the progress of construction on the cogeneration plant because Irwin was awarded another portion of the work. He testified that during visits to the site, he observed FHI employees who were not working, or not working productively. He believed that Irwin could have completed FHI's portion of the project for its original bid plus 20% for change orders and an additional 20% for unanticipated contract modifications.

Each side also presented an expert witness on damages. Paramount's expert, Milton Burgess, totaled FHI's invoices at $2,477,104. After a review of those invoices and other documents, he opined that, assuming no fixed price contract, $946,869 should be deducted from the invoices. That number had various components, including certain supervision and administration costs which Burgess believed should not have been billed, scaffolding charges where (as Rausch also testified) cheaper and more efficient lifts should have been used, and overpriced materials.

Burgess also deducted for FCR invoices, based on an analysis of sixteen of those invoices. He discovered that those sixteen invoices included a number of errors, and labor charges excessive to the job described, or in some instances unrelated to the job. For instance, FHI billed for a welder on a task which could not have involved welding. He determined that, calculating from that sample, Paramount had been overcharged by $223,841 on FCR invoices.

Burgess also opined that under time and materials billing a contractor had an obligation to purchase materials at fair and reasonable prices.

One of Burgess's significant deductions was for excessive labor costs. In brief, Paramount presented evidence that workers were required to, and did, enter the job site through a turnstile which included a card reader and which recorded each entry and exit. Burgess compared FHI invoices with the turnstile records and determined that not all hours billed had been worked. FHI presented evidence that not all workers entered the site through the turnstile, but Burgess testified that his numbers were adjusted to take into account, for instance, double-swiped cards and supervisors' entrances through the truck gate.

FHI's expert, Scott Vivian, testified in rebuttal, contesting and disputing the facts on which Burgess based his opinion, Burgess's method, and Burgess's conclusions.

The trial court's Statement of Decision explained its damages calculation: The court gave Vivian's testimony little or no weight, finding that his opinions were not adequately supported, then found that Burgess had used the right general approach, but that Burgess's deductions for administrative and supervision charges, and scaffolding and equipment rental charges, were not supported by the evidence. The court deducted $316,406 for labor, based on turnstile report, noting FHI's poor field supervision and record keeping, and $187,108 in Advanced Sealing invoices. The court rejected Burgess's analysis of the FCR invoices, and deducted only $116,503 in excessive pricing on those invoices, based on the sixteen invoices Burgess actually examined. Thus, the court determined that a total of $620,017 should be deducted from the total billings of $2,477,104. When the amount already paid was further deducted, FHI was owed $797,087, under that analysis.

However, the court did not stop with that analysis, but used the Irwin bid of $1,055,000 as a "touchstone," and "a check or confirmation." The court found that Rausch's estimate of what Irwin's ultimate charges would have been was low, given the "inadequate supervision and project management by Marson, [and] some sketchy plans and changes by Paramount," and determined that if Irwin had been awarded the bid, Paramount would have owed it $839,000 more than the $1,060,000 it paid to FHI by the end of the job. The court concluded that "This number is close to the modified Burgess number of $797,087 and serves as a check or confirmation for a reasonable estimate of the reasonable value of services rendered."

The court then cited concerns about the bidding process and FHI's contribution to the management and supervision problems, and concluded that the reasonable value of FHI's services, above amounts already paid, was $820,000, including unpaid sales tax, outstanding invoices, and unpaid burden.[3]

Discussion

California's Constitution provides: "Mechanics, persons furnishing materials, artisans, and laborers of every class, shall have a lien upon the property which they have bestowed labor or furnished material for the value of such labor done and material furnished; and the Legislature shall provide, by law, for the speedy and efficient enforcement of such liens." (Cal. Const., art. XIV, § 3.)

The Legislature enacted the mechanic's lien law, Civil Code[4] sections 3109 et seq. to implement and enforce that constitutional provision. (Basic Modular Facilities, Inc. v. Ehsanipour (1999) 70 Cal.App.4th 1480, 1484.)

The mechanics' lien law provides that "The liens provided for in this chapter shall be direct liens, and shall be for the reasonable value of the labor, services, equipment, or materials furnished or for the price agreed upon by the claimant and the person with whom he or she contracted, whichever is less." (§ 3123, subd. (a).)

FHI contends that under section 3123, it was entitled to recover all the sums it actually spent on the project, and that the trial court erred in deducting charges which it deemed unreasonable. As FHI argues, this is a question of statutory interpretation, subject to de novo review. (People v. Duz-Mor Diagnostic Laboratory, Inc. (1998) 68 Cal.App.4th 654, 660.) After such a review, we find that the trial court had the discretion to make its deductions.

The fundamental problem with FHI's argument is that would remove the word "reasonable" from the statute. As written, the statute does not direct the judge to order payment for everything spent, or everything billed, but only for the lesser of the contract price or the reasonable value of labor and services. A lien claim may be reduced for errors (10 Miller & Starr, Cal. Real Estate (3d ed. 2001) § 28.59) or for fraud. (§ 3118.) It may surely be reduced for hours billed but not actually worked, or materials procured at vastly inflated prices from a supplier with whom the contractor has a relationship.

"The lien claimant has the burden of establishing the validity of the lien [citation] including that the labor, services and/or materials were actually used in the construction, the reasonable value of the work and/or materials, and the date of completion or cessation of work. (1 Marsh, Cal. Mechanics' Lien Law and Construction Industry Practice (6th ed. 1997) § 4.124, p. 4-125.) The actual amount due on the lien presents a question of fact for the trial court . . . ." (Basic Modular Facilities, supra, 70 Cal.App.4th at p. 1485.)

Review is thus for substantial evidence. (People v. Duz-Mor Diagnostic Laboratory, Inc, supra, 68 Cal.App.4th at p. 660.)

As Paramount argues, it presented evidence that FHI's invoices were replete with errors. For instance, it cites the testimony of FHI construction manager Reed that when Marson requested additional information on FCRs, he reconstructed the invoices from "notes and memory," after the fact, and his concession that reliance on his general knowledge of "how many men I had there and how long it took them," is not an accurate way to reconstruct a labor charge.

There was also evidence, for example in the turnstile study, that not all costs billed to Paramount were incurred, or at least that they were not incurred to further Paramount's project. FHI cites the evidence it presented, that a turnstile study was not an accurate way to determine the number of workers on the job at any given time because workers had other access to the job site. However, Paramount presented evidence to the contrary. The trial court weighed the evidence and made a decision based on the evidence. FHI has not established grounds for reversal.

University Casework Systems, Inc. v. Superior Court (1974) 41 Cal.App.3d 263, cited by FHI, does not compel another result. That case concerned the amount which may be claimed in a stop notice, and reasoned by analogy to section 3123. In University Casework, there was a fixed price contract which the subcontractor had partially performed. University Casework, the subcontractor, sought recovery in a amount greater than it would have received if it had completed its work. The court held "A party to a contract who fully performs his obligation under the contract may recover the value agreed to in the contract; the party may not recover above the contract price. [Citations.] It cannot have been the intention of Civil Code section 3123 to grant a greater proportional recovery to a subcontractor who does not complete his performance than to one who performs in full; . . . The term 'reasonable value' as used in Civil Code section 3123 is to be limited to a proportion of the contract price reflecting the amount of progress made toward the completion of the work." (Id. at pp. 266-267.) We do not understand the case to hold that, as FHI suggests, that on a cost-plus contract, the court must award all sums the contractor spent, without further examination.

The purpose of a mechanics' lien is to prevent unjust enrichment of a property owner at the expense of laborers or material suppliers. (Abbett Electric Corp. v. California Fed. Savings & Loan Assn. (1991) 230 Cal.App.3d 355, 360.) Under the evidence here, Paramount was not "enriched" by the sums FHI spent in excess labor costs, inflated material costs, and excessive pricing. We see none of the public policy violations FHI suggests.

FHI next contends that the trial court erred in basing its finding of reasonable value on Irwin's bid. We admit to some sympathy with the argument. We do not see that in determining reasonableness under section 3123, a court can re-bid a contract and award only what some other contractor would have charged. That is not, however, what the trial court did. It determined the reasonable value of the labor and equipment FHI provided, then, using Irwin's bid and Raush's testimony as additional evidence of reasonable costs, increased the award to $820,000. FHI can hardly complain. For this reason, we need not consider FHI's contention that the court erred in allowing Rausch to testify as an expert. His testimony did not hurt FHI.

FHI also makes arguments based on its contention that all its invoices were approved by Marson. It contends that redetermining reasonable value after the owner's agent has approved the costs is contrary to the Constitutional goal of speedy and efficient enforcement of mechanic's liens, and that Paramount is bound by Marson's approval of the invoices, suggesting an estoppel.

This argument fails on the facts. Many, if not all, of the invoices are in our record, and they are not signed. FHI argues, however, that this is of no matter, because the timesheets, purchase orders, and Project Deviation Notices which supported the FCRs were signed. We read the record differently. The trial court had evidence that while the purchase orders were for the most part signed, they were not submitted before a purchase was made, perhaps not until after the material was installed. The project deviation notices were also submitted after the fact, and could not constitute agreement to a price, because they did not include prices. FHI does not cite to evidence that in signing the timesheets, Marson approved the labor costs. Again, FHI has not established error.

Nor can we see that, as FHI argues, the court made a numerical error in calculating the award.

As FHI sees the calculation, a $620,017 reduction in a $1,514,575 request should have resulted in an award of $894,558. The trial court did not make its deductions from FHI's claimed $1,514,575. The court instead relied on Burgess's testimony that FHI invoices totaled $2,477,104. When payments of $1,060,000 are subtracted, the remainder is $1,417,104. The trial court made its deductions from that number, without mathematical error.

Thus, the trial court credited Burgess's total of the invoices over Jones's calculation of the amount due. It was entitled to do so.

Finally, FHI argues that it was entitled to prejudgment interest under section 3287, which provides that "Every person who is entitled to recover damages certain, or capable of being made certain by calculation, and the right to recover which is vested in him upon a particular day, is entitled also to recover interest thereon from that day . . . ." FHI contends that its damages were certain, at $1,514,575.

As we have seen, that number was not a sum certain, but a number which Jones calculated from a variety of documents, including FHI's checks to vendors, which may not have been available to Paramount. "[I]nterest is not allowable when damages cannot be computed except on conflicting evidence, such as in the present case, because of the absence of established or reasonably ascertainable market prices or values. In such cases, since the amount of the damages cannot be resolved except by accord, verdict or judgment, interest prior to judgment is not allowable." (Lineman v. Schmid (1948) 32 Cal.2d 204, 212.)

Once again, FHI's fall back is to contend that the invoices were approved, and that in that sense, the sum was certain. Once again, the argument fails on the facts.

Disposition

The judgment is affirmed. Respondent to recover costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

ARMSTRONG, Acting P. J.

I concur:

KRIEGLER, J.

MOSK, J., Concurring

I concur.

The parties apparently agreed upon a price of cost plus 15%. Civil Code section 3123, subdivision (a) provides for a mechanics' lien amount of â€