Hol-America v. Leisure World Homes Resort Products of California

Filed 10/24/06 Hol-America v. Leisure World Homes Resort Products of California 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NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 977.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 and postjudgment order of the Superior Court of San Diego County, Michael M. Anello, Judge. Affirmed.

I.

INTRODUCTION

Defendants Leisure World Home Resort Products of California et al., (Leisure World) appeal from a judgment entered after a jury trial in which the jury awarded plaintiff Hol-America, Inc. (Hol-America) damages for breach of contract and negligent misrepresentation. Hol-America appeals from a postjudgment order denying its request for attorney fees and prejudgment interest on a portion of the damages awarded to Hol-America in the judgment.

This dispute arose after Hol-America installed a floor in Leisure World's San Marcos store. Hol-America sued Leisure World, seeking compensation for flooring installation under theories of breach of contract and quantum meruit. Hol-America also claimed damages resulting from misrepresentation or fraud. Leisure World cross-complained, claiming that Hol-America failed to provide the floor it had promised, and that Leisure World had suffered damages attributable to delay and future repair costs.

The jury found in favor of Hol-America. It awarded Hol-America damages for breach of contract in the amount of $8,767, and damages for negligent misrepresentation in the amount of $36,464.

Leisure World contends on appeal that the jury's verdict is inconsistent in that the jury found that a valid contract existed, but also awarded damages for negligent misrepresentation pertaining to the subject matter of the contract. Leisure World further contends that there was insufficient evidence of negligent misrepresentation to support the jury's damage award on that ground.

In a cross-appeal, Hol-America challenges the trial court's determination that it is not entitled to statutory attorney fees and interest under Civil Code^[1] section 3260. According to Hol-America, Leisure World failed to pay the full amount due under a June 11 agreement within 45 days after it accepted the floor, thus failing to meet the requirements of section 3260 and rendering Leisure World liable for attorney fees and interest.

II.

FACTUAL AND PROCEDURAL BACKGROUND

A. Factual background

Leisure World sells spas, gazebos, billiard tables, and other recreational items at retail showrooms. Hol-America is a general contractor licensed by California to install flooring.

In June 2003, Adam Koralewski, a maintenance manager for Leisure World, entered into discussions with R.A. Holcomb, the president of Hol-America, regarding the repair and improvement of the floor at Leisure World's new San Marcos showroom.

On June 11, 2003, Hol-America provided a written estimate in the amount of $31,300. After additional negotiations, Leisure World and Hol-America entered into a written agreement for the installation of flooring at the San Marcos store (June 11 Agreement). The June 11 Agreement indicated that the cost of the labor, materials, and services would be $31,300, minus a "volume discount" of $5,464. The volume discount was based on Leisure World's representation that it would contract with Hol-America to stain and seal the floor in its Ontario, California store. Pursuant to the June 11 Agreement, Leisure World was to pay Hol-America $25,834, in three installments: $8,300 on June 16, $8,767 on June 23, and $8,767 on June 30, 2003.

Koralewski informed Holcomb that Leisure World required that the floor in the San Marcos store be completed a few days prior to the planned July 4th grand opening so that the store could be stocked in time for the opening. Holcomb finished the floor on June 26. On June 27, before he had inspected the finished floor, Koralewski gave Holcomb a check for the final installment payment. Koralewski then took Holcomb to the Ontario store so that Holcomb could prepare an estimate for staining and sealing the floor at that store.

On June 28, Koralewski went to the San Marcos store to view the finished floor. According to Koralewski, the color of the floor was not uniform throughout the store, and there were visible "trenches" in the surface of the floor. Koraleweski informed Holcomb that he did not like the look of the floor and that the floor would have to be redone immediately. On June 30, Koralewski advised Holcomb that he had stopped payment on the final $8,767 check he had given Holcomb, pending resolution of Leisure World's concerns about the floor.

On July 1, Hol-America and Leisure World entered into a second agreement (July 1 Agreement). Under the terms of this agreement, as originally drafted by Holcomb, Hol-America agreed to refinish the San Marcos floor in exchange for (1) the release of the $8,767 in funds owed under the June 11 Agreement, (2) an "upcharge" of $7,500 ($15,000 minus a $7,500 "volume discount") for refinishing the floor, to be paid upon completion of the work, and (3) a promise to pay $15,000, the full upcharge amount, if Leisure World were to withdraw its offer to hire Hol-America to stain and seal the Ontario showroom floor.

Before he signed the July 1 Agreement on behalf of Leisure World, Koralewski made a handwritten modification to the terms of the agreement. Koraleweski crossed out the provision that stated: "If the additional 'Awarded project' (Ontario showroom) is withdrawn[,] Cal Spas will pay the full upcharge for re-finish of the San Marcos Showroom $15,000.00," and inserted after an asterisk at the bottom of the page "Cal Spas will consider honoring the 'award project' to Hol-America on the condition that Hol[-]America can prove his price to be competitive to other offers[.]"

Holcomb had begun work refinishing the floor of the San Marcos store before he received Koralewski's changes in the July 1 Agreement. He did not stop working upon learning of the changes because, he said, he had "no problem being’ “ conforming to market value." Holcomb completed the refinishing on or about July 6.

Leisure World did not pay Hol-America the final $8,767 payment due under the June 11 Agreement, as required by the July 1 Agreement, or the $7,500 it owed Hol-America for refinishing the San Marcus floor. Leisure World was unhappy with the appearance of the refinished floor. In addition, Leisure World was not able to open the San Marcos store on July 4, 2003 as originally planned, because of the delay in completing the resurfacing of the floor. After settlement negotiations failed, Hol-America brought suit against Leisure World for damages resulting from the dispute over the floor in the San Marcos store.

By the time of trial, Leisure World had not contracted with Hol-America to stain and seal the floor of the Ontario showroom.

B. Procedural background

On October 14, 2003, Hol-America filed an action against Leisure World in the San Diego County Superior Court asserting causes of action for breach of contract, foreclosure on a mechanic's lien, enforcement of a mechanic's lien release bond, fraud, and negligent misrepresentation. Hol-America also sought the actual value of the services it had performed (quantum meruit). At approximately the same time, Leisure World filed an action against Hol-America in the San Bernardino County Superior Court asserting claims for breach of contract, negligent misrepresentation, and intentional misrepresentation. Leisure World's complaint was transferred to the San Diego County Superior Court and the action was consolidated with Hol-America's action. Leisure World's complaint was treated as a cross-complaint.

1. Motions in limine

Leisure World filed a motion in limine to prevent the introduction of any evidence regarding the value of the refinished San Marcos floor in excess of the amount specified in the July 1 Agreement. The trial court denied the motion and allowed Hol-America to present evidence of what it believed the full value of the refinished floor was.

Leisure World also moved to prohibit Hol-America from introducing evidence regarding the value of the Ontario store contract that was not awarded to Hol-America. The trial court granted this motion, precluding Hol-America from presenting evidence as to what it would have charged for staining and sealing the floor at the Ontario location.

2. The Trial

The trial lasted approximately one week. At the close of Hol-America's case-in-chief, Leisure World moved for nonsuit as to the fraud cause of action. The trial court granted the motion.

Leisure World then moved for nonsuit as to the quantum meruit and negligent misrepresentation causes of action. The trial court denied these motions.

The parties prepared the special verdict forms. Special Verdict No. 1 pertained to Hol-America's claims against Leisure World, and Special Verdict No. 2 pertained to Leisure World's claims against Hol-America.

The jury found in favor of Hol-America, concluding that Leisure World had breached "a contract or contracts" with Hol-America, and that Hol-America had suffered damages as a result of that breach. The jury specifically determined that the parties had entered into a contract for the second resurfacing project of the San Marcus store, as described in the July 1 Agreement, and rejected Hol-America's quantum meruit theory. The jury awarded Hol-America $8,767 in damages for breach of contract. With respect to the claim for negligent misrepresentation, the jury concluded that Leisure World had made a "false representation of an important fact," and awarded Hol-America $36,464 in damages.

On November 22, 2004, Leisure World moved for partial judgment notwithstanding the verdict and filed a notice of intention to move for a new trial. The court entered final judgment on December 2. Hol-America served a notice of entry of judgment on December 8. The trial court heard and denied both of Leisure World's posttrial motions on January 14, 2005. Leisure World filed a timely notice of appeal on February 24, 2005. Hol-America filed a notice of appeal on April 14.

III.

DISCUSSION

A. Leisure World's appeal

Leisure World contends that the jury rendered an inconsistent verdict in awarding Hol-America damages for both breach of contract and for negligent misrepresentation. Leisure World claims that the jury's responses to questions regarding the breach of contract and the negligent misrepresentation are "flatly inconsistent with one another." Leisure World also maintains that the verdict awarding damages for negligent misrepresentation is not supported by substantial evidence, and that no reasonable trier of fact could have found in favor of Hol-America on the negligent misrepresentation claim. We conclude that there was substantial evidence to support the jury's award of damages for negligent misrepresentation, and that this award is not inconsistent with the jury's conclusion that Leisure World breached a contract with Hol-America.

"In reviewing the sufficiency of evidence on appeal, we resolve all conflicts in favor of the prevailing party and we indulge all legitimate and reasonable inferences to uphold the verdict if possible." (Ortega v. Pajaro Valley Unified School Dist. (1998) 64 Cal.App.4th 1023, 1043.) "'It is an elementary, but often overlooked principle of law, that when a verdict is attacked as being unsupported, the power of the appellate court begins and ends with a determination as to whether there is any substantial evidence, contradicted or uncontradicted, which will support the conclusion reached by the jury. When two or more inferences can be reasonably deduced from the facts, the reviewing court is without power to substitute its deductions for those of the trial court.' [Citation.]" (Ibid.)

The jury awarded Hol-America $8,767 in damages for breach of contract, specifically finding that the parties entered into a contract for the second floor installation at the San Marcos store. It is undisputed that Leisure World never released the $8,767 it had agreed to release to Hol-America in the July 1 Agreement. In that agreement, Leisure World agreed to immediately release that amount, prior to the time Hol-America commenced work on the second-floor installation. The jury also awarded Hol-America $36,464 in damages based on Leisure World's negligent misrepresentation.

Leisure World maintains that once the jury determined that the parties had entered into a contract pertaining to the second floor at the San Marcos store, that contract "fully set out the terms under which Leisure World would pay Hol-America for its work." Leisure World contends that under these circumstances, Hol-America could not have reasonably relied on any representations Leisure World may have made outside the contract, and that there was thus no basis for a negligent misrepresentation claim. In other words, Leisure World argues that because the jury concluded that the July 1 Agreement was a valid contract, there could have been no misrepresentation as to the value of the second floor, since the terms of the contract place that value at $16,267 (consisting of the remaining $8,767 owed from the first floor installation plus an "upcharge" of $7,500 for the second floor installation). Leisure World claims that "the jury's confirmation of the July 1 Agreement and, at the same time, its finding of a negligent misrepresentation are inexorably inconsistent." Leisure World also challenges the sufficiency of the evidence supporting the negligent misrepresentation claim.

1. There is substantial evidence supporting the jury's finding that

Leisure World is liable for negligent misrepresentation

The jury apparently awarded Hol-America the amounts the jury believed Hol-America was induced to give up as a result of Leisure World's misrepresentations about its intention to give Hold-America future business. The evidence was sufficient to support the jury's determination that Leisure World negligently misrepresented its intention to give Hol-America future business, and that these misrepresentations harmed Hol-America. Specifically, there was sufficient evidence for the jury to have found that Koralewski negligently misrepresented to Hol-America that he would give Hol-America future business if Hol-America were to perform work on the San Marcos store floor at a reduced rate, and that Hol-America reasonably relied on this misrepresentation when it agreed to accept less than it otherwise would have charged as payment for the work it completed for Leisure World at the San Marcos store.

Holcomb testified that when he told Koralewski that the bid he had provided was as low as he could go, Koralewski asked him, "'What if I give you more work?'" Holcomb also testified that Koralewski mentioned to him that Leisure World wanted to refinish the floor of the Ontario showroom and that Koralewski "would be willing to give that to [Hol-America] right now for our consideration on lowering the price to try to get it within his budget." Holcomb said that he eventually offered Koralewski the "break-even point," which was a "revised estimate on costs, with consideration given for the next store." Holcomb testified, "We had to get the next store to make money. Otherwise, we were just doing this for free . . . ." Holcomb said that the promise of future work motivated him to revise his "pretty low" profit margin bid of $31,000 down to $25,834. There was thus substantial evidence that Hol-America relied on Leisure World's representations about its intention to give Hol-America future work when Hol-America agreed to accept a lower price in exchange for refinishing the San Marcos floor.

The language of the second agreement constitutes additional evidence that without representations as to future business, Hol-America would have charged Leisure World at least $15,000 to refinish the floor at the San Marcos store the second time, rather than the $7,500 it did charge. There was also evidence that at the time the parties were negotiating over how much more Leisure World would have to pay for a second refinishing of the floor at the San Marcos store, Leisure World had decided not to award Hol-America the Ontario store job because it was unhappy with the first San Marcos floor installation and further, that Leisure World negligently failed to inform Hol-America of its decision. Koralewski indicated that Leisure World had intended to give Hol-America additional business only if the San Marcos floor met Leisure World's expectations. By the time the parties negotiated the July 1 Agreement, Leisure World knew that it was not happy with Hol-America's work.

Leisure World claims that the existence of the July 1 Agreement "negated the possibility of reasonable reliance on negligent misrepresentations contrary to the contract terms." Leisure World's argument is based on its theory that Hol-America's only source of expectation of payment for the second floor installation at the San Marcos store was the July 1 Agreement. Leisure World contends that because Koralewski amended the July 1 Agreement to state that Leisure World would "consider honoring the 'award project' to Hol-America" if Hol-America provided a price that was competitive with other offers, Hol-America could not have expected any additional payment for the second installation at the San Marcos store other than that provided in the July 1 Agreement. Leisure World maintains that any expectation on Hol-America's part regarding the Ontario store would not have been reasonable because under Koralewski's handwritten modification to the July 1 Agreement, the most Leisure World had agreed to do was to consider awarding Hol-America the contract for the Ontario store. We conclude that there is sufficient evidence to support the jury's implicit conclusion that Hol-America's reliance on certain misrepresentations was reasonable.

There is evidence that the parties never reached an agreement as to the Ontario project and also that Leisure World's statements led Hol-America to believe it had been awarded that project. Although Koralewski signed the July 1 Agreement that Holcomb prepared, Koralewski unilaterally altered the term pertaining to an award of future work. The fact that Holcomb continued to work on the second floor after Koralewski made the changes could be interpreted as his acceptance of those changes. However, there was evidence that Holcomb and his wife countered Koralewski's handwritten modification with a version of the provision that differed from Koralewski's. Koraleweski testified that he never received a counter offer. The evidence was thus conflicting as to what, if anything, the parties agreed to with regard to the Ontario store project.

Additionally, Mrs. Holcomb testified that Hol-America believed it had been awarded the Ontario project, and that unless Hol-America failed to offer a competitive price, the job would be theirs. She stated, "We had already been 'honored' [the award] at that time [i.e., when the parties were negotiating the July 1 Agreement]. We did not know that they were taking the award away from us at that time. We had already been awarded the project." However, it appears that after problems arose with respect to the San Marcos store, Leisure World had decided not to use Hol-America for the Ontario floor project. Koralewski testified, "Because the -- the first floor of the job didn't go -- turn out right, so therefore, awarding the project, not’ “ with him having to re-do the second floor, I -- I could not agree to that, because the first floor did not turn out right, as well as the second floor." However, Leisure World failed to communicate this fact to Hol-America, negligently allowing Hol-America to continue to rely on earlier representations as to additional work. It is clear that the parties were going back and forth regarding the provision pertaining to an award of future work, and that they had different ideas about what Leisure World was promising with respect to future work. The evidence thus supports the conclusion that the parties did not reach an agreement as to that term, and that Hol-America was not unreasonable in relying on other representations Leisure World had made regarding the award of future work.

Once the jury determined that the parties never reached a "meeting of the minds" as to the Ontario store project, the jury was free to examine the evidence to determine whether Leisure World had made representations that it had no reasonable grounds to believe were true, and whether Hol-America reasonably relied on those misrepresentations to its detriment. As discussed above, there is substantial evidence to support findings on the elements of negligent misrepresentation.

2. There is substantial evidence supporting the jury's award of

damages for negligent misrepresentation

The trial court instructed the jury that under the "benefit of the bargain" theory, Hol-America was entitled to recover the value of "all harm that the misrepresentation was a substantial factor in causing, even if the particular harm could not have been anticipated." The jury apparently awarded Hol-America the amounts it believed Hol-America had been induced to give up when negotiating with Leisure World, attributable to Leisure World's representations that it would give Hol-America additional work. In light of the fact that Holcomb testified as a designated expert and estimated the value of the second refinished floor in the San Marcos store to have been $63,000, the actual amount the jury awarded to Hol-America was also supported by substantial evidence.

3. The jury's verdict is not inconsistent

Despite Leisure World's contention that the jury's verdict is inconsistent, the jury's determination that Leisure World negligently misrepresented its intentions regarding whether it would give Hol-America future business, and the jury's determination that Leisure World breached a contract involving terms separate and apart from whether Leisure World planned to award Hol-America future business, are not necessarily in conflict.

"'The inconsistent verdict rule is based upon the fundamental proposition that a factfinder may not make inconsistent determinations of fact based on the same evidence.' [Citation.]" (City of San Diego v. D.R. Horton San Diego Holding Company, Inc. (2005) 126 Cal.App.4th 668, 682.) "An inconsistent verdict may arise from an inconsistency between or among answers within a special verdict [citation] or irreconcilable findings. [Citation.]" (Ibid.) A jury's findings will be treated as inconsistent only if they are clearly antagonistic and absolutely irreconcilable with each other under any rational view of the evidence. (Lowen v. Finnila (1940) 15 Cal.2d 502, 504.) In this case, the jury's determinations are not absolutely irreconcilable with each other.

It appears that the jury concluded that Leisure World misrepresented its true intentions regarding Hol-America's chances of being awarded a contract to install flooring in Leisure World's Ontario Store in order to induce Hol-America to charge less for the San Marcos job under both the June 11 and July 1 Agreements than it would otherwise have charged. This act was separate from the representations that ultimately formed the basis of the contract or contracts the jury found to exist between the parties. The parties did agree as to the price Hol-America would accept for the installation of flooring in the San Marcos store. However, the jury was free to conclude, and apparently did conclude, that Hol-America would not have been willing to accept the lower price if it had known that Leisure World would not give it additional work in the future.

In support of its argument that the jury's verdict is inconsistent, Leisure World relies on Slivinsky v. Watkins-Johnson (1990) 221 Cal.App.3d 799, 807. An examination of the facts of Slivinsky illustrates why the jury's verdict in this case is not necessarily inconsistent. In Slivinsky, the plaintiff signed a contract that contained an "at-will" clause. The court determined that in view of the at-will clause, the plaintiff could not claim that she had reasonably relied on the defendant's representations that her employment would be long-term. (Ibid.) By its terms, the contract the plaintiff signed negated any reasonable expectation of employment for any set period of time. Since she had taken the job knowing that she could be terminated at any time, the plaintiff could not argue that she expected she would not be terminated within a short time. (Ibid.)

In this case, the jury determined that Leisure World misrepresented to Hol-America that it would be awarded future work in order to induce Hol-America to enter into two contracts pertaining to the work on the San Marcos floor. Hol-America's breach of contract claim is not premised on Leisure World's failure to award the future work, but rather, on Leisure World's failure to pay what it agreed to pay for the current work under the June and July agreements. In other words, the fact that Leisure World failed to pay that certain sum of money is distinct from Hol-America's claim that it agreed to accept that certain sum of money only because Leisure World's represented that it would give Hol-America future work.

There are thus at least two separate acts on the part of Leisure World that give rise to separate causes of action in this case. First, there is evidence supporting the jury's determination on the negligent misrepresentation claim that Leisure World misrepresented to Hol-America that it would use Hol-America for future flooring jobs in order to receive a reduced price on the flooring for the San Marcos store, and that this misrepresentation caused Hol-America damage in that Hol-America agreed to accept a lower price under both the June 11 and July 1 Agreements than it would have agreed to accept if the misrepresentation had not been made. There is also evidence to support the jury's finding that Leisure World breached a contract by failing to pay Hol-America the $8,767 it had agreed to pay under the July 1 Agreement for re-installing the San Marcos floor. Because there were at least two separate courses of conduct on which the jury's findings could have been based, the jury's determinations are not clearly irreconcilable. The verdict is thus not inconsistent.

B. Hol-America's cross-appeal regarding attorney fees

Hol-America appeals from a post-judgment order in which the trial court denied its request for attorney fees and interest. Hol-America asserts that the trial court erred in determining that it was not entitled to a statutory award of attorney fees and interest under section 3260.

Section 3260 applies to all retention contracts entered into after July 1, 1991, "relating to the construction of any private work of improvement." Subdivisions (b) through (g) of section 3260 provide:

"(b) The retention proceeds withheld from any payment by the owner from the original contractor, or by the original contractor from any subcontractor, shall be subject to this section.

"(c) Within 45 days after the date of completion, the retention withheld by the owner shall be released. 'Date of completion,' for purposes of this section, means any of the following:

"(1) The date of issuance of any certificate of occupancy covering the work by the public agency issuing the building permit.

"(2) The date of completion indicated on a valid notice of completion recorded pursuant to Section 3093.

"(3) The date of completion as defined in Section 3086.

. . .

"In the event of a dispute between the owner and the original contractor, the owner may withhold from the final payment an amount not to exceed 150 percent of the disputed amount.

"(d) Subject to subdivision (e), within 10 days from the time that all or any portion of the retention proceeds are received by the original contractor, the original contractor shall pay each of its subcontractors from whom retention has been withheld, each subcontractor's share of the retention received. However, if a retention payment received by the original contractor is specifically designated for a particular subcontractor, payment of the retention shall be made to the designated subcontractor, if the payment is consistent with the terms of the subcontract.

"(e) If a bona fide dispute exists between a subcontractor and the original contractor, the original contractor may withhold from that subcontractor with whom the dispute exists its portion of the retention proceeds. The amount withheld from the retention payment shall not exceed 150 percent of the estimated value of the disputed amount.

"(f) Within 10 days of receipt of written notice by the owner from the original contractor or by the original contractor from the subcontractor, as the case may be, that any work in dispute has been completed in accordance with the terms of the contract, the owner or original contractor shall advise the notifying party of the acceptance or rejection of the disputed work. Within 10 days of acceptance of the disputed work, the owner or original contractor, as the case may be, shall release the retained portion of the retention proceeds.

"(g) In the event that retention payments are not made within the time periods required by this section, the owner or original contractor withholding the unpaid amounts shall be subject to a charge of 2 percent per month on the improperly withheld amount, in lieu of any interest otherwise due. Additionally, in any action for the collection of funds wrongfully withheld, the prevailing party shall be entitled to his or her attorney's fees and costs.

The trial court denied Hol-America's request for attorney fees on a number of grounds, including that Hol-America never pled a cause of action under section 3260 and never proved the elements of a cause of action under that section. Hol-America contends that it "timely asserted its statutory rights to interest and attorney's fees" under section 3260, and that there is no "statutory authority" for the theory that a specific cause of action for a violation of section 3260 must be pled in order for a party to recover interest and/or an award of attorney fees under that section.

Subdivision (g) of section 3260 establishes that attorney fees may be awarded only when there has been a claim that a contractor or subcontractor wrongfully withheld retention funds in violation of section 3260. Subdivision (g) provides that "in any action for the collection of funds wrongfully withheld, the prevailing party shall be entitled to his or her attorney's fees and costs." (Italics added.) An "action for the collection of funds wrongfully withheld" refers to an action seeking to collect funds that were wrongfully withheld in violation of the provisions of section 3260. Under the statute, "wrongfully withheld funds" include proceeds retained under a retention contract that (1) were not released within 45 days of completion of the work (subdivision (c)); (2) were not released by an original contractor to a subcontractor within 10 days of the original contractor's receipt of the retention proceeds (subdivision (d)); (3) exceeded 150 percent of the disputed amount in the event there is a dispute (subdivision (c)(3)); or were not released within 10 days after the owner or contractor received notice that the disputed work had been completed in accordance with the terms of the contract or within 10 days after the owner or contractor accepted previously disputed work that had been completed in accordance with the terms of the contract (subdivision (f)).

By its terms, section 3260, subdivision (g) penalty interest may be awarded only when "retention payments are not made within the time periods required by this section . . . ." Thus, in order to receive penalty interest, a plaintiff must plead and prove that the retention payments were required to be paid and that the defendant failed to release the retention payments either 45 days after completion of the work, or, in the event of a dispute and an attempt to complete the work in accordance with the original contract, within 10 days of accepting previously disputed work that had been repaired.^[2]

We are aware of no case in which a court has specifically examined the penalty interest and attorney fees subdivision of section 3260 to determine whether a plaintiff must plead and prove a violation of section 3260 before being awarded interest or attorney fees. In the limited number of published cases that have addressed the attorney fees provision of section 3260, the plaintiffs specifically alleged a violation of section 3260 and/or their right to attorney fees and interest under that section, thus alerting the fact-finder to the necessity of determining the relevant elements of the claim. (See Denver D. Darling, Inc. v. Controlled Environments Construction, Inc. (2001) 89 Cal.App.4th 1221 (Darling) [violation of section 3260 alleged in complaint]; Taylor v. Van-Catlin Construction (2005) 130 Cal.App.4th 1061 [violation of section 3260 alleged in arbitration brief presented to fact-finding arbitrator]; McAndrew v. Hazegh (2005) 128 Cal.App.4th 1563 (McAndrew) [although attorney fees award was ultimately reversed because the evidence established that the contract at issue was not a "retention contract," the complaint specifically sought interest under section 3260].)

Despite this, Hol-America suggests that the trial court erred in requiring Hol-America to have "assert[ed] a separate cause of action for attorney's fees." However, the trial court was not concerned with whether Hol-America pled a separate cause of action for attorney fees under section 3260, but rather, with Hol-America's failure to plead and prove the elements of a violation of section 3260. Apparently misapprehending the basis for the trial court's ruling, Hol-America asserts on appeal that it did in fact raise "the application of Section 3260 . . . on numerous occasions." In support of this assertion, Hol-America cites to references in the original complaint, the amended complaint, and the second amended complaint in which it "specifically asked for ' . . . reasonable attorneys' fees according to proof'" along with a general prayer for attorney fees and other relief.

A standard request for attorney fees in a complaint is not sufficient to establish that a plaintiff is bringing an action for the "collection of funds" withheld in a manner that violates the provisions of section 3260. A review of Hol-America's various complaints reveals that Hol-America did not allege that Leisure World violated section 3260. Nor did Hol-America allege facts that would establish that Leisure World "wrongfully withheld" retention proceeds in violation of section 3260 by withholding proceeds for more than ten days after acceptance of disputed work, withholding more than 150 percent of the disputed amount, or withholding proceeds for work that was not in dispute for more than 45 days.

Hol-America points out that although it did not specifically plead a violation of section 3260, it raised the issue in its trial brief.^[3] Even if this were sufficient to meet a pleading requirement’ “ a question we need not answer’ “ it does not change the fact that Hol-America did not prove the underlying facts necessary to support a finding of a violation of section 3260. Because Hol-America failed to establish a violation of section 3260, it cannot be considered a prevailing party in an "action for the collection of funds wrongfully withheld" under section 3260.

It is unclear whether there was even a retention contract at issue in this case. From the evidence presented and the findings of the jury, it appears that Leisure World did not wrongfully withhold retention funds under a retention contract. Hol-America asserts that the June 11 Agreement was obviously a retention contract, and that since Leisure World failed to pay the final $8,767 due under that contract, Leisure World wrongfully withheld retention proceeds. However, this case is not as simple as Hol-America suggests.

There was a dispute over the first floor Hol-America installed in the San Marcos store, and Leisure World did withhold its final payment under the June 11 Agreement as a result of this dispute. Before any additional work was completed in accordance with the June 11 Agreement, the parties renegotiated and entered into a new contract for a second floor installation. The parties included a payment of $8,767 by Leisure World to Hol-America’ “ the amount of the withheld payment’ “ as part of the new contract, thereby settling the disputed issues pertaining the first contract. The jury's verdict is consistent with this theory of accord and satisfaction, i.e., that in the July 1 agreement, both parties agreed to something other than they would have received under the original contract.

Because the evidence supports a finding that in entering into the July 1 Agreement, Hol-America accepted something less than it originally agreed to under the June 11 Agreement, Hol-America cannot rely on the June 11 Agreement to support its claim that Leisure World wrongfully withheld retention proceeds. After the parties entered into the July 1 Agreement, nothing further was owed by either party to the other under the June 11 Agreement. Leisure World thus could not have been withholding any retention funds under the June 11 Agreement at that point.

Hol-America must therefore rely on the July 1 Agreement for its claim that Leisure World failed to release retention payments as required by section 3260. However, it is not at all clear that the July 1 Agreement is a retention contract, in particular because it appears that the jury concluded that the parties did not reach an agreement as to the upcharge amount, thereby leaving only the initial $8,767 as the agreed-upon amount due to Hol-America under the July 1 Agreement. (Cf. McAndrew, supra, 128 Cal.App.4th at p. 1567 [contract requiring one payment upon completion of work did not create "retention proceeds," thereby taking contract out of scope of section 3260].) As the trial court correctly noted, Hol-America "did not plead or prove" a cause of action under section 3260. The court therefore properly denied Hol-America's request for attorney fees and penalty interest under subdivision (g) of that section.^[4]

IV.

DISPOSITION

The judgment of the trial court and the trial court's postjudgment order regarding attorney fees and interest are affirmed. Each party shall bear its own costs on appeal.

AARON, J.

WE CONCUR:

NARES, Acting P. J.

IRION, J.

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^[1] Further statutory references are to the Civil Code unless otherwise indicated.

^[2] The penalty interest provision is more narrow than the attorney fees provision. Only the plaintiff may receive penalty interest, while either party may be awarded attorney fees. Also, it appears that attorney fees may be awarded in situations where the action is based on an allegation that the defendant withheld more than 150 percent of the disputed amount. In contrast, penalty interest is available only when a defendant failed to release retention funds within the time limits outlined in section 3260.

^[3] In Alpha Mechanical, Heating & Air Conditioning, Inc. v. Travelers Casualty & Surety Company of America (2005) 133 Cal.App.4th 1319, 1338 (Alpha), this court concluded that a defendant had forfeited the argument that interest penalties should not have been awarded on the basis that the plaintiff's complaint failed to mention section 3260 or a similar provision in section 7108.5. The court noted that although the plaintiff had failed to allege a cause of action or seek relief under either sections 3260 or 7108.5, it had raised its entitlement to penalty interest in its trial brief, and the defendant had failed to respond or object, either before or after the presentation of evidence at trial, that the plaintiff was prevented from raising the matter for failing to plead it in the complaint. (Alpha, supra, 133 Cal.App.4th at p. 1338.) This court ultimately concluded that the findings were insufficient to support the trial court's award of interest penalties under sections 7108.5 or 3260. (Alpha, supra, 133 Cal.App.4th at p. 1338.) Here, however, Leisure World did challenge Hol-America's failure to plead and prove the requisite facts to support an award of attorney fees or penalty interest under section 3260, and the trial court ruled on that very issue.

^[4] The trial court raised a separate issue of fact it believed Hol-America was required to plead and prove in order for it to establish that it was entitled to attorney fees under section 3260--i.e., whether the dispute between the parties was a bona fide dispute. It is unclear whether the "bona fide dispute" language of section 3260, subdivision (e), discussed in Darling, supra, 89 Cal.App.4th at 1241, applies to disputes between an owner and an original contractor, as subdivision (e) relates only to disputes "between a subcontractor and the original contractor." A similar provision regarding disputes between an owner and an original contractor is found in section 3260, subdivision (c)(3), but this provision does not expressly require that the dispute be a bona fide dispute: "In the event of a dispute between the owner and the original contractor, the owner may withhold from the final payment an amount not to exceed 150 percent of the disputed amount." (Italics added.) We need not consider the question whether bad faith must be shown in this case, however, because Hol-America has not established that this was an action for the collection of funds wrongfully withheld under section 3260.