Filed 7/1/26 Rados v. Travelers Casualty and Surety Co. CA2/5
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion
has not been certified for publication or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FIVE
STEVE P. RADOS, INC., B339848 c/w B340974
Plaintiff, Cross- (Los Angeles County
defendant, and Appellant; Super. Ct. No.
20STCV15277)
TRAVELERS CASUALTY
AND SURETY COMPANY OF ORDER MODIFYING
AMERICA, OPINION AND DENYING
REHEARING
Cross-defendant and
Respondent, NO CHANGE IN THE
JUDGMENT
v.
BLACK & VEATCH
CONSTRUCTION, INC.,
Defendant, Cross-
complainant, and Appellant;
FEDERAL INSURANCE
COMPANY et al.,
Defendants and
Appellants.
THE COURT:
It is ordered that the opinion filed herein on June 4, 2026, be
modified as follows:
1. In the paragraph commencing at the top of page 22, after
the sentence ending “the entirety of the Subcontract despite
being terminated,” add as footnote 10 the following
footnote, which will require renumbering of all subsequent
footnotes:
10 In its petition for rehearing, Rados urges that
the language contained in B&V’s termination notice
shows that the term “terminated Work” is forward-
looking. We reject this argument. In interpreting the
Subcontract, our focus is on the terms of the Subcontract
rather than the parties’ subsequently issued notices.
Further, the language in the notice does not in our view
establish, or even suggest, that “terminated Work” is
only forward-looking.
2
2. On page 27, after the first full paragraph, beginning “Thus,
in the new trial on damages on remand,” add the following
paragraph:
Rados urges that B&V is entitled to no offset
for reasons having nothing to do with the sufficiency
of the evidence. First, Rados argues for the first time
in its petition for rehearing that awarding B&V any
offset for services not performed would be “internally
inconsistent” with a measure of damages that uses a
direct cost-plus-profit/overhead formula (because
Rados would not have incurred costs for services it
never performed in the first place). As a threshold
matter, Rados has waived this argument by not
raising it before the trial court, in its briefs on appeal,
or at oral argument. (E.g., Samantha B. v. Aurora
Vista Del Mar, LLC (2022) 77 Cal.App.5th 85, 109.)
The argument lacks merit in any event. The direct
cost-plus-profit/overheard formula defines what
Rados can recover for its work under the Subcontract;
the offset is for money that B&V paid Rados but to
which Rados is not entitled (much like B&V would be
entitled to the return of a forklift it loaned Rados). If
supported by substantial evidence (as we have found
it is), B&V is entitled to an offset of that amount once
the amount of Rados’s recovery is calculated. Second,
Rados argues that B&V failed to satisfy the
prerequisite set forth section 552.25.3 of the
Subcontract, which Rados asserts requires “written
notice” before any backcharges may be incurred.
3
Rados misreads that provision, which by its plain
terms applies only where (1) Rados is “unable or
unwilling to proceed with the Work in a reasonable
time,” or (2) B&V intends to perform “corrective
work” under sections 552.15 or 552.25, which address
corrections to comply with warranties or to correct
nonconformities. Rados has not shown that this
provision applies to costs B&V incurred after
termination of the Subcontract.
* * *
There is no change in the judgment.
Appellant Steve P. Rados, Inc.’s petition for rehearing is denied.
——————————————————————————————
HOFFSTADT, P. J. KIM (D.), J. KUMAR, J.*
* Retired Judge of the Superior Court of Los Angeles
County, assigned by the Chief Justice pursuant to article VI,
section 6 of the California Constitution.
4
Filed 6/4/26 Rados v. Travelers Casualty and Surety Co. CA2/5
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion
has not been certified for publication or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FIVE
STEVE P. RADOS, INC., B339848 c/w B340974
Plaintiff, Cross- (Los Angeles County
defendant, and Appellant; Super. Ct. No.
20STCV15277)
TRAVELERS CASUALTY
AND SURETY COMPANY OF
AMERICA,
Cross-defendant and
Respondent,
v.
BLACK & VEATCH
CONSTRUCTION, INC.,
Defendant, Cross-
complainant, and Appellant;
FEDERAL INSURANCE
COMPANY et al.,
Defendants and
Appellants.
APPEALS from a judgment of the Superior Court of Los
Angeles County, J. Stephen Czuleger, Judge. Affirmed in part,
reversed and remanded in part for further proceedings with
directions.
Monteleone & McCrory, Diana M. Dron, Michael F.
Minchella, Litsa Georgantopolous; Benedon & Serlin, Judith E.
Posner, Kelly R. Horowitz; Nida & Romyn and Douglas Yokomizo
for Plaintiff, Cross-defendant, and Appellant Steve P. Rados, Inc.
Monteleone & McCrory, Diana M. Dron, Michael F.
Minchella, Litsa Georgantopolous; Nida & Romyn and Douglas
Yokomizo for Cross-defendant and Respondent Travelers
Casualty and Surety Company of America.
Burke, Williams & Sorensen, Timothy A. Colvig, David
Darroch, David J. Hyndman; Hicks Thomas, John B. Thomas,
Eric Grant; Stris & Maher and Rachana A. Pathak for Defendant,
Cross-complainant, and Appellant Black & Veatch Construction,
Inc.
2
SMTD Law and Jonathan J. Dunn for Defendants and
Appellants Federal Insurance Company, Fidelity and Deposit
Company of Maryland, and Zurich American Insurance
Company.
******
California Water Service Company (Cal Water), a private
utility company, hired a general contractor to design and build a
new pump station and seven miles of underground piping to
serve the Palos Verdes Peninsula, and the general contractor
hired a subcontractor to do most of the construction. The general
contractor eventually terminated the subcontractor, and the
general contractor and subcontractor (and their sureties) sued
each other. After a five-week trial, a jury found that the
termination was without cause and awarded the subcontractor
more than $12 million in damages. Both sides have appealed.
We conclude that the jury’s finding that the termination was
without cause was not tainted by instructional error; that a new
trial on damages is required because the trial court erred in not
deciding—and thereby not instructing the jury—which damages
provision of the subcontract was controlling and what that
provision meant; that the general contractor is entitled to a $2.4
million chargeback during the new trial; and that the
subcontractor is not entitled to seek prompt payment penalties.
We accordingly affirm the judgment for the subcontractor in part
and remand in part for a limited new trial on the issue of
damages.
3
FACTS AND PROCEDURAL BACKGROUND
I. Facts
A. Cal Water Hires a general contractor
Cal Water is a private utility company that California
communities have hired to supply water. After more than a
decade of study, Cal Water concluded that the “water supply
system” to the Palos Verdes Peninsula, one of the communities it
serves, needed “substantial capital improvements to its pumping
and pipeline transmission facilities.” Cal Water entered into a
$80 million contract with Black & Veatch Construction, Inc.
(B&V), pursuant to which B&V would act as the general
contractor in designing and building a new pump station and
seven miles of underground pipeline. The initial contract was
executed in December 2016, and the operative version was
executed on May 8, 2018.
B. B&V Hires a subcontractor
On May 16, 2018, B&V entered into a $29.25 million
contract with Steve P. Rados, Inc. (Rados), a contractor that has
been serving government clients in the heavy construction
industry for nearly a century. Under this contract (the
Subcontract),1 Rados would act as B&V’s subcontractor and
would be responsible for 85 to 90 percent of the “build” portion of
the project—and, more specifically, for trenching, laying, and
covering approximately seven miles of underground piping as
well as building a pump station on Crenshaw Boulevard.
1 All further statutory references are to the Subcontract
unless otherwise indicated.
4
The Subcontract had the following pertinent terms:
1. Pertinent terms regarding payment
a. Progress payments
On a monthly basis, Rados was to submit “pay
applications” to B&V detailing the specific “work . . . performed”
in the prior month in several different categories, the
approximate percentage of the Subcontract’s completion in those
categories, and the corresponding monetary amount owed for the
completion in each category for that period. (§ 552.4.1.) B&V
was then obligated to pay these monthly “progress payments,”
but could withhold (1) a 10-percent retention payment “until the
Project has achieved [] 50% [] completion” (§ 552.4.3), and (2) any
“amounts due under th[e] Subcontract . . . arising out of or
related to [Rados’s] breach or reasonably anticipated breach of
th[e] Subcontract” (§ 552.4.4).
b. Extra-work payments
The Subcontract also authorized Rados to submit separate
“[c]laims for extra compensation” for work it performed over and
above that contemplated by the Subcontract. (§ 552.18.) Before
those extra-work claims were paid, B&V had the option of
revising the Subcontract or, if greater speed was necessary,
issuing a Work Authorization with the intent to revise the
Subcontract in the future. (§§ 552.18, 552.19.2, 552.19.3.)
2. Pertinent terms regarding termination of the
Subcontract
Under the Subcontract, B&V possessed the right “at any
time and in its sole discretion, [to] terminate all or part of”
Rados’s “Work” (§ 552.24.1), where “Work” is defined as “that
which [Rados] is to perform or provide under th[e] Subcontract” (§
552.1). The consequences of termination turned on whether it
5
was a “Termination for Cause” or a “Termination Without
Cause.”
a. Termination for cause
Under the Subcontract, a termination by B&V is “for cause”
if (1) Rados had “default[ed] in any obligation under th[e]
Subcontract” and (2) “d[id] not cure th[at] default within ten
calendar days after receipt” of notice by B&V of the default. (§
552.23.1.) As pertinent here, “cause” includes a “failure [by
Rados] to comply with . . . the Loss Control Manual.” (§ 554.3.1.)
That manual “provides an administrative structure within which
[subc]ontractors” are to comply with various safety requirements;
the manual authorizes termination of the Subcontract after (1)
“[r]epeated nonconformance with the Project Loss Control
Program” (which sets workplace standards stricter than OSHA
requirements) “and” (2) “repeated failure to comply with
correction directives.”2 (Manual, § 1.3.2.3.)
If B&V terminates the Subcontract for cause, Rados is “not
[] entitled to recover from [B&V] any damages, losses, costs or
expenses related to or arising out of the terminated portion of the
Work,” and Rados’s recovery is in any event capped at “an
amount commensurate with the ratio that the terminated Work
accepted by [B&V] bears to all of the Work.” (§ 552.23.4.) What
is more, B&V retains the right to sue Rados “for actual damages
and to exercise all other remedies which are available to it under
2 Verbatim, this section reads: “Repeated nonconformance
with the Project Loss Control Program and repeated failure to
comply with correction directives may result in removal of
Contractor management from the project site or termination of
the contract.”
6
this Subcontract, under the security instruments and under
Applicable Law.” (§ 552.23.7.)
b. Termination without cause
If B&V terminates the Subcontract in a way that does not
satisfy the definition of a “termination for cause” (§ 552.23.6),
Rados is entitled to “recover from [B&V], as the complete and
final settlement for the terminated Work and all related Claims,
a sum equal to [(1) Rados’s] direct cost for the terminated Work
satisfactorily performed as of the effective date of termination,
plus [(2)] an allowance for reasonable overhead and profit on such
direct cost” (§ 552.24.4). This measure of damages is “the sole
and exclusive remedy” available to Rados “arising out of or
related to termination” without cause; consequently, Rados is
explicitly precluded from recovering from B&V any other
“damages, losses, costs or expenses related to or arising out of the
terminated portion of the Work.” (§ 552.24.6.)
C. B&V terminates all of Rados’s work on the
Subcontract
On October 4, 2019, B&V sent a letter to Rados terminating
all of Rados’s work on the Subcontract. B&V cited two reasons
for the termination—namely, that (1) Rados had failed to
“provide a recovery schedule for . . . [the] Pump Station Work,”
and (2) Rados had “fail[ed] and refus[ed] to provide an adequate
cure plan for the ongoing safety issues for this Project” as
mandated by the Loss Control Manual.
The termination was “immediately” “effective.”
D. B&V settles all claims with Cal Water
Cal Water and B&V also had a fee and schedule dispute,
and they resolved that dispute in a settlement agreed to in
7
November 2022 under which Cal Water paid B&V a “[f]inal
[c]ompletion [p]ayment” of $13,853,014.
II. Procedural Background
A. Cross-complaints
1. Rados’s complaint
In April 2020, Rados sued B&V, Cal Water, and B&V’s
payment bond sureties.3 More specifically, Rados sued B&V for
(1) breach of contract, (2) abandonment of contract, (3) quantum
meruit, (4) foreclosure of a mechanic’s lien, (5) recovery of
statutory prompt payment penalties, and (6) recovery on a
payment bond.4 Rados’s mechanic’s lien claim was resolved when
B&V posted a bond releasing that lien.
2. B&V’s cross-complaint
Two months later, in June 2020, B&V sued Rados and its
performance bond surety.5 More specifically, B&V sued Rados for
(1) breach of contract, (2) declaratory relief, and (3) specific
performance. Prior to trial, B&V dismissed its declaratory relief
and specific performance claims.
3 B&V’s sureties are Federal Insurance Company, Fidelity
and Deposit Company of Maryland, and Zurich American
Insurance Company.
4 Rados sued Cal Water for (1) foreclosure of a mechanic’s
lien and (2) enforcement of a stop payment notice. Those claims
were resolved prior to trial. Rados sued the sureties for recovery
on the payment bond.
5 Rados’s surety is Travelers Casualty and Surety Company
of America; B&V sued the surety for (1) breach of contract, (2)
breach of the performance bond, and (3) declaratory relief.
8
B. Trial and verdict
The matter proceeded to a 25-day jury trial over the course
of five weeks in late February through April 2024. Because the
sureties stipulated that their claims and liability were wholly
derivative of their insureds, and that Rados’s claim for recovery
on the payment bond would be bifurcated, only B&V and Rados
were directly involved in the trial. Through the course of the
trial, the trial court granted a nonsuit on Rados’s claims for
contract abandonment and quantum meruit, and granted a
directed verdict for B&V on Rados’s claim for prompt payment
penalties after ruling that Rados had abandoned that claim. The
only claims that were presented to the jury at the end of trial
were B&V’s and Rados’s competing claims for breach of contract.
B&V and Rados had also reached a stipulation, on the eve
of trial, under which B&V agreed to “credit” Rados around
$3,000,0006 to resolve dozens of Rados’s extra-work claims. In
defining “credit,” the parties agreed that the stipulated amount
would either (i) “be accounted for in the damages awarded to
Rados,” in the event the jury found in favor of Rados, or (ii) “be an
offset against the damages awarded to” B&V, in the event the
jury found in favor of B&V.
The parties presented the jury with competing requests for
damages.
1. B&V’s calculation of damages
B&V advocated for one of two alternative damages awards.
First, B&V argued that its termination of Rados was “for
cause,” such that under the Subcontract, B&V was entitled to its
6 The parties disagree over what the stipulated amount was:
B&V’s expert calculated it as $2,904,262, while Rados’s counsel
calculated it as $3,099,624.
9
“actual damages” of $11.6 million, which corresponded with the
amount B&V had to pay the subcontractors it hired to complete
Rados’s unfinished work under the Subcontract, offset by, among
other things, the stipulated credit for Rados’s extra-work claims.
Second and alternatively, B&V argued that, even if its
termination of Rados had been “without cause,” such that B&V
owed Rados money, the appropriate damages award for Rados
was limited to $3.446 million. B&V calculated this figure as
follows:
-- The “direct cost” of the work Rados had completed on
the project came to $22,205,607, which was taken directly from
Rados’s “cost report” prepared after the date of termination,
adjusted to subtract “administrative” costs, attorney fees, and
costs to close out the Subcontract.
-- An “allowance for reasonable overhead and profit on
such direct cost” of 16.4 percent, which is the precise “markup or
margin” that Rados anticipated on the Subcontract as reflected in
its budget and bidding documents, and which came to $3,641,720.
-- From this $25,847,327 total amount due to Rados,
B&V subtracted the $19,468,695 it had already paid Rados,
leaving a total of $6,378,632.
-- From that $6,378,632 amount, B&V subtracted (1)
$2,454,832 in “back charges” corresponding to labor or materials
for which B&V had already paid Rados but which, due to Rados’s
lack of completion of the labor or failure to leave materials
behind, B&V had to pay for a second time—namely, (a) the cost of
removing debris (also called a “spoils pile”) from some of the work
sites, and (b) the cost of repurchasing piping material; and (2)
$477,863 for delays caused by B&V having to replace Rados with
new subcontractors.
10
-- This left a net amount due to Rados of $3,445,937.
B&V’s calculation did not account for the stipulated credit for
Rados’s extra-work claims.
2. Rados’s calculation of damages
Rados urged that it should be awarded $12,265,256 in
damages. Rados calculated this figure as follows:
-- Under all of the pay applications through the time of
termination (including the application for the first four days in
October 2019, which alone came to more than $1.5 million so
Rados could “catch[] up” the percentages of completed work from
previous pay periods), Rados was owed $25,426,846. Because
B&V had paid $19,468,695 in progress payments, Rados still
owed a balance of $5,958,152 on the outstanding payment
applications.
-- Rados was owed another $6,307,104 in extra work
compensation, comprised of (1) $3,099,624 for the stipulated
credit for its extra-work claims, and (2) an additional $3,207,480
in extra work claims that B&V disputed.
-- This came to a total of $12,265,256.
The trial court refused B&V’s request to instruct the jury to
apply the direct cost-plus-profit/overhead formula set forth in
Section 552.24.4 of the Subcontract, and refused Rados’s request
to instruct the jury on the parties’ competing definitions of the
phrase “terminated Work” in Section 552.24.2.
The verdict form was a general verdict with a single line for
damages.
The jury found “in favor of Rados” on its breach of contract
claim, and awarded Rados almost exactly amount it requested—
$12,265,258.
11
C. New trial motion
B&V moved for a new trial, seeking either a new trial or a
remittitur of damages, on the ground that, as pertinent here, the
court did not give “key jury instructions . . . on crucial liability
and damages issues,” including the failure to instruct the jury to
look to Section 552.24.4 when fixing damages for a termination
without cause.
The trial court denied the motion on June 14, 2024, finding
no error because B&V was merely “attempt[ing] to recast its
contract arguments into jury instructions.”
A few months later, the trial court issued an amended
judgment that awarded Rados an additional $2,952,972 in
attorney fees, $653,581.61 in costs, and $3,720,490 in
prejudgment interest—for a final judgment of $19,592,301.60.
D. Appeals
Following entry of the amended judgment, both B&V and
Rados appealed.7
DISCUSSION
In its appeal, B&V challenges (1) one of the jury
instructions bearing on whether Rados had been terminated “for
cause,” (2) the trial court’s failure to interpret the Subcontract’s
provision setting the measure of damages if Rados was
terminated “without cause” and instructing the jury regarding
that provision, and (3) the jury’s refusal to deduct any back
charges from the damages award. In its appeal, Rados
challenges the trial court’s grant of a directed verdict on its claim
for prompt payment penalties. We address the liability issues
first, then turn to the remaining issues bearing on remedies.
7 Earlier appeals from the judgment were folded into these
last-filed appeals.
12
I. Liability
B&V argues that the trial court erred in refusing to give its
“Special Instruction No. 10,” which sought to address B&V’s
interpretation of the provision in the Loss Control Manual
allowing it to terminate the Subcontract “for cause.”8
B&V’s proffered instruction provided, in pertinent part,
that:
“Section 1.3.2.3 of the Loss Control Manual
made part of the party’s subcontract . . . contains, in
part, the following language:
Repeated nonconformance with the Project Loss
Control Program and repeated failure to comply with
correction directives may result in . . . termination of
the contract.
8 B&V also argues that the trial court erred in refusing to
give its “Special Instruction No. 9,” which would have provided
that “The parties’ Subcontract contains various provisions for
remedies relating to various potential contract breaches. Unless
a remedy provision indicates it is the only remedy for a breach, it
is not [B&V’s] only remedy if other contractual or legal remedies
are available.” The court did not err in declining to give this
instruction because this instruction was unnecessary. (E.g., Olive
v. General Nutrition Centers, Inc. (2018) 30 Cal.App.5th 804, 815
[affirming refusal to give jury instruction that was
“unnecessary”].) It was unnecessary because the Subcontract
granted B&V the right to terminate the Subcontract with or
without cause, so an exercise of that right would not have
constituted a breach by B&V. It was also unnecessary because
the Subcontract expressly indicated that B&V’s remedies were
not limited when termination was for cause, and was silent
regarding available remedies when termination was without
cause; in neither circumstance did the Subcontract purport to
limit B&V’s remedies.
13
You are instructed that, in your deliberations,
you are to treat that phrase as requiring either
repeated nonconformance with the Project Loss
Control Program or repeated failure to comply with
correction directives as sufficient to result in . . .
termination of the contract. Both are not required in
order to result in . . . termination of the contract.”
(Italics in original; underscoring added.) The trial court declined
to give that instruction.
We review de novo the trial court’s ruling not to give this
instruction, whether we view B&V’s claim as an attack on the
court’s mid-trial ruling on jury instructions (Martinez v. Rite Aid
Corp. (2021) 63 Cal.App.5th 958, 969 (Martinez)) or instead as an
attack on the trial court’s denial of B&V’s new trial motion on the
ground that the refusal to give the instruction constitutes an
“[e]rror in law” (Code. Civ. Proc., § 657, subd. (7) [new trial may
be granted for an “[e]rror in law”]; Argueta v. Worldwide Flight
Services, Inc. (2023) 97 Cal.App.5th 822, 832-833 [rulings
attacked in a new trial motion should be evaluated “‘under the
test appropriate’” to those rulings]).
The trial court did not err in refusing to give B&V’s Special
Instruction No. 10. That instruction told the jury that the Loss
Control Manual’s mandate that a termination of the Subcontract
was justified when Rados engaged in “[r]epeated nonconformance
with the Project Loss Control Program and repeated failure to
comply with correction directives” meant that termination was
justified when Rados engaged in “repeated nonconformance with
the Project Loss Control Program or repeated failure to comply
with correction directives.” (Italics added.) In other words, B&V
asked the court to instruct the jury that “and” meant “or.” This
14
instruction was critical to B&V’s claim that it terminated Rados
“for cause” because it was undisputed at trial that Rados incurred
seven notices of violation of the Project Loss Control Program but
it was contested whether Rados took corrective measures for each
incident.
As a general rule, “and” means “and”—not “or.” (People v.
Reynoza (2024) 15 Cal.5th 982, 990 [“‘The ordinary and usual
usage of “and” is as a conjunctive’”]; In re C.H. (2011) 53 Cal.4th
94, 101 [same]; Pulsifer v. United States (2024) 601 U.S. 124, 133
[“‘And,’ in grammatical terms, is of course a conjunction”]; see
generally Dow v. Honey Lake Valley Resource Conservation Dist.
(2021) 63 Cal.App.5th 901, 903-904 [“In law, semantics matter”].)
To be sure, “and” can sometimes mean “or,” but only in
“exceptional” cases where the need for such a counter-intuitive
reading is warranted by the “context in which one or the other of
these words appears.” (Reynoza, at p. 991; Heidlebaugh v. Miller
(1954) 126 Cal.App.2d 35, 38.)
Here, the context favors reading “and” to mean “and.” For
starters, the two conditions listed—repeated nonconformance
with the Project Loss Control Program and failure to comply with
correction directives—are interrelated because a failure to comply
with correction directives (which are aimed at curing
nonconformance) necessarily follow nonconformance; indeed, the
Loss Control Manual requires B&V to inform Rados of the
nonconformance in a formal, written violation notice that sets
forth a period during which Rados must take corrective action.
Thus, we decline B&V’s request to analogize the language in the
Loss Control Manual to a sentence like “doctors and lawyers may
be required to show proof of license.” In B&V’s proffered
sentence, reading “and” as “or” makes sense because the two
15
words linked by “and”—doctors and lawyers—are independent;
the same is not true of the two linked phrases in the Loss Control
Manual. Further, given the severity of the remedy of
termination, it makes sense that Rados would become eligible for
termination only after repeatedly failing to conform with the Loss
Control Manual’s safety protocols and refusing to comply with
directives to cure that nonconformance. Although, as B&V points
out, Section 1.1.4 of the Loss Control Manual seems to suggest a
stricter “no tolerance” policy for safety insofar as it provides that
“[t]he violation of any of these rules will result in termination
and/or removal from the project,” this language refers to the more
modest remedy of terminating an employee working on the
project, not the more thermonuclear remedy of terminating the
Subcontract. Contrary to what B&V suggests, our plain-text
reading of the Loss Control Manual does not undervalue the
important of public policy favoring public safety (e.g., Green v.
Ralee Engineering Co. (1998) 19 Cal.4th 66, 82-83 [“‘“‘[t]here is no
public policy more important or more fundamental than the one
favoring the effective protection of the lives and property of
citizens’”’”]) because the Loss Control Manual already requires
“repeated nonconformance” before termination is possible, and
because the only way Rados can avoid termination is if it
consistently cures any lapse in conformance, thereby assuring a
safe working environment.
II. Remedies
A. Damages
1. Formula for measuring damages
B&V argues that the trial court erred (1) in refusing to
instruct the jury that, if the jury found Rados was terminated
without cause, then the jury must apply the direct cost-plus-
16
overhead/profit formula set forth in Section 552.24.4 of the
Subcontract, and (2) in not interpreting for the jury that, in
Section 552.24.4, the “direct cost for the terminated Work
satisfactorily performed” means the direct costs of the tasks
Rados had already performed under the Subcontract, such that
the direct cost-plus-overhead/profit formula limits the amount
Rados can recover for the work it had already performed. (Italics
added.)
As noted above, we review de novo the trial court’s ruling
not to give these instructions, whether we view B&V’s challenges
on appeal as an attack on the court’s mid-trial ruling on jury
instructions (Martinez, supra, 63 Cal.App.5th at p. 969) or
instead as an attack on the trial court’s denial of B&V’s new trial
motion on the ground that the refusal to give these instructions
constituted an “[e]rror in law” (Code Civ. Proc., § 657, subd. (7);
Fennessey v. Pacific Gas & Electric Co. (1938) 10 Cal.2d 538, 544
[“Errors in instructions . . . constitute errors in law, . . . for which
a new trial may be granted”]).
The trial court erred in not instructing the jury to apply the
direct cost-plus-overhead/profit formula set forth in Section
552.24.4 of the Subcontract and in not interpreting the
Subcontract to mean this formula applies to—and limits—
Rados’s recovery for the work it had already performed on the
Subcontract.
To begin, the trial court itself erred in not interpreting the
Subcontract. Where, as here, no extrinsic evidence was
introduced on the meaning of a provision of the Subcontract, it
was the duty of the trial court—not the jury—to interpret the
contract and, thereafter, to instruct the jury on that meaning.
(City of Hope National Medical Center v. Genentech, Inc. (2008)
17
43 Cal.4th 375, 395 [interpretation of written instrument is solely
a judicial function “when it is based on the words of the
instrument alone, when there is no conflict in the extrinsic
evidence”]; Horsemen’s Benevolent & Protective Assn. v. Valley
Racing Assn. (1992) 4 Cal.App.4th 1538, 1559 (Horsemen’s) [“it is
solely a judicial function to interpret a written instrument unless
the interpretation turns upon the credibility of extrinsic
evidence”]; Foxcroft Productions, Inc. v. Universal City Studios
LLC (2022) 76 Cal.App.5th 1119, 1133 [trial court committed
error in “allow[ing] the jury to interpret the contract”].) Indeed,
even Rados recognized that the trial court here should have
interpreted the meaning of the Subcontract’s terms.
Further, the interpretation of the Subcontract advanced by
B&V is the only reasonable interpretation. In interpreting the
meaning of a contract, our goal is to give effect to the mutual
intention of the parties, which is best reflected in the contract’s
express language. (Civ. Code, §§ 1636, 1638, 1639; Hartford
Casualty Ins. Co. v. Swift Distribution, Inc. (2014) 59 Cal.4th 277,
288; Brown v. Goldstein (2019) 34 Cal.App.5th 418, 432; see also
Civ. Code, § 1643 [“A contract must receive such an
interpretation as will make it lawful, operative, definite,
reasonable, and capable of being carried into effect, if it can be
done without violating the intention of the parties”].)
The plain text of the Subcontract makes clear that Section
552.24.4 provides the “sole and exclusive remedy” to Rados
“arising out of or related to termination” of the Subcontract by
B&V “without cause.” (§§ 552.24.4, 552.23.6.) Neither party
disputes the applicability of Section 552.24.4 in this context.
Instead, what the parties dispute is the meaning of Section
552.24.4. That section limits Rados’s recovery to its “direct cost
18
for the terminated Work satisfactorily performed as of the
effective date of termination, plus an allowance for reasonable
overhead and profit on such direct cost.” (Italics added.) B&V
argues that “terminated Work satisfactorily performed” refers to
the work Rados has already completed on the Subcontract (and
thus caps Rados’s recovery for that completed work), while Rados
argues that “terminated Work satisfactorily performed” refers to
work Rados has yet to complete under the Subcontract (and thus
limits recovery only on that uncompleted work and allows Rados
to collect greater amounts—including the full amounts requested
in all of its pre-termination payment applications—for the work it
has already completed).
B&V’s interpretation is the only reasonable interpretation.
The Subcontract does not define the phrase “terminated Work.”
However, because the Subcontract explicitly grants B&V the
unfettered right to terminate “all or part of” Rados’s “Work”
under the Subcontract (§ 552.24.1, italics added), the Subcontract
contemplates—should B&V only terminate “part” of Rados’s
“Work”—that Rados would simultaneously have “terminated
Work” and “non-terminated Work.” (To illustrate, B&V could
have terminated Rados as to its construction of the pumping
station but not as to its trenching of the pipeline.) The plain text
of Section 552.24.4 operates to limit Rados’s recovery as to any
and all “Work” for which Rados’s services have been
“terminated”—which, in this case, was all of its “Work.” Where,
as here, B&V accepted that Work as being “satisfactorily
performed,” Rados’s recovery on that completed work is capped at
the direct cost-plus-overhead/profit maximum.
The trial court’s failure to instruct the jury that it must
look to Section 552.24.4 should it find that Rados’s termination
19
was “without cause,” and that it must apply the direct cost-plus-
overhead/profit formula to Rados’s completed work, was
undeniably prejudicial to B&V in this case. (See TRC Operating
Co., Inc. v. Chevron USA, Inc. (2024) 102 Cal.App.5th 1040, 1098
[instructional error must be “prejudicial,” meaning “there is a
reasonable probability that in the absence of the error, a result
more favorable to the appealing party would have been
reached”].) The jury awarded nearly the precise amount of
damages Rados sought, and Rados’s proffered calculation of that
amount did not apply the direct cost-plus-overhead/profit formula
required by the Subcontract (and yielded a recovery several times
greater than that formula dictated). Because the absent
instructions interpreting the contract for the jury led to a
miscalculation of damages, the trial court erred in denying B&V’s
motion for a new trial. (Grail Semiconductor, Inc. v. Mitsubishi
Electric & Electronics USA, Inc. (2014) 225 Cal.App.4th 786, 794-
795 [“incorrect[]” “calculat[ion]” of damages “warranted a new
trial using the correct measure of value”]; Mock v. Michigan
Millers Mutual Ins. Co. (1992) 4 Cal.App.4th 306, 325-327 [new
trial warranted where jury “clearly miscalculated” damages];
Smyth v. Tennison (1914) 24 Cal.App. 519, 521 [new trial
warranted where contract interpretation was erroneous]; see
generally David v. Hernandez (2014) 226 Cal.App.4th 578, 590-
592 [denial of a new trial motion is reviewed for an abuse of
discretion, but a trial court abuses its discretion in denying relief
when there is a prejudicial error in law].)
Rados resists this conclusion with what boil down to four
categories of arguments.
First, Rados argues that our interpretation of the phrase
“terminated Work” as referring to the work Rados has already
20
completed under the Subcontract is incorrect.9 It urges that
“Work” is a “forward-looking” concept, and cites Sections
552.24.1, 552.24.2, and 552.24.3 of the Subcontract, all of which
use the phrases “terminated Work” or “Work [that] is
terminated.” We reject the notion that “Work” under the
Subcontract is inherently only forward-looking or only backward-
looking: On day 1 of the Subcontract, all of the “Work” to be
performed under the Subcontract was necessarily forward-
looking, but by month 16 of the Subcontract (when B&V
terminated Rados), some of the “Work” had been completed by
Rados and accepted by B&V (and hence was backward-looking),
and some of the “Work” had yet to be completed by Rados (and
hence was forward-looking). The provisions Rados cites are
unhelpful. Section 552.24.1 obligated B&V to “provide a written
notice” to Rados “specifying the extent to which the Work is
terminated”; section 552.24.2 obligated Rados, at B&V’s request,
to “preserve and protect the Work purchased for or committed to
the terminated Work, pending [B&V’s] instructions”; and section
552.24.3 obligated Rados, at B&V’s request, to “promptly assign”
to B&V or Cal Water, Rados’s “rights, title, and interest to the
Work purchased for or committed to the terminated Work.”
Section 552.24.1 does not speak to the timing of the “Work” at all,
and sections 552.24.2 and 552.24.3 contemplate that Rados may
have incurred compensable direct costs in doing Work that would
need to be completed by another subcontractor before the project
was completed; these provisions are consistent with our
9 Rados also seems to argue that the jury rejected our
interpretation of the Subcontract. However, because the issue is
one of law for the court, the jury’s misinterpretation of the
Subcontract is irrelevant.
21
interpretation of the phrase “terminated Work” and, contrary to
what Rados suggests, do not somehow obligate Rados to complete
the entirety of the Subcontract despite being terminated.
Second, Rados argues that our construction of the phrase
“terminated Work” should be rejected because it leads to absurd
and unfair results. (Civ Code, § 1638; Sacks v. City of Oakland
(2010) 190 Cal.App.4th 1070, 1082.) Rados asserts that reading
“terminated Work” to refer to work that Rados has already
completed would retroactively—and, in its view, absurdly and
unfairly—convert this fixed-price Subcontract (which assured
Rados a fixed amount for the completion of the entire Subcontract
and thereby a right to recognize greater profits if Rados kept its
costs especially low) into a “cost-plus”-profit contract. Rados
further asserts that our construction means it will receive
nothing for its completed work on the Subcontract. Rados is
correct that our interpretation of Section 552.24.4 caps Rados’s
recovery to its direct costs plus its overhead/profit on the Work it
completed under the Subcontract (rather than getting the full
amount it requested in all of its pay applications which are
tethered to the fixed price of the Subcontract, not to Rados’s
actual direct costs). But that result is neither absurd nor unfair.
Rados is a sophisticated business that negotiated the terms of the
Subcontract at arm’s length; Rados agreed in that Subcontract to
grant B&V an unfettered right to terminate the Subcontract “at
any time and in its sole discretion,” and to limit its own recovery
in the event that termination was without cause to direct cost-
plus-overheard/profit; Rados thus had no right to complete the
Subcontract or to obtain the fixed price for the total Subcontract.
It is neither absurd nor unfair to hold Rados to the bargain it
negotiated. (DVD Copy Control Assn., Inc. v. Kaleidescape, Inc.
22
(2009) 176 Cal.App.4th 697, 725 [a “court may not remake [a]
bargain to the advantage of one party for no reason other than
that the party has become dissatisfied with the agreement”].)
Rados’s further assertion that it will receive nothing for its
completed Work is incorrect. Rados has already been paid
$19,468,695.10 on the Subcontract; whether it receives any more
turns on whether the direct cost-plus-overhead/profit formula
entitles Rados to any more. But to imply that it worked for 16
months gratis is hyperbolic and untrue.
Third, Rados argues that B&V invited the trial court’s
instructional error. A litigant “invites error”—and thus is barred
from complaining about that error on appeal—if it “mislead[s] the
trial court” (Norgart v. Upjohn Co. (1999) 21 Cal.4th 383, 403) or
otherwise engages in “affirmative conduct demonstrating a
deliberate tactical choice” (Huffman v. Interstate Brands Corp.
(2004) 121 Cal.App.4th 679, 706). B&V did not invite error
regarding its position that Section 552.24.4 provides the
controlling formula for damages if Rados was found to have been
terminated without cause or its position that this formula applies
to Rados’s completed work under the Subcontract: B&V
requested an instruction on the former (in Special Instruction No.
1), and introduced testimony to substantiate the latter. B&V also
did not invite error by failing to file a motion requesting the trial
court to bifurcate the legal question of the Subcontract’s
interpretation (for the court) from the factual questions of
whether Rados’s termination was for cause and how to apply that
formula (for the jury) because B&V’s request that the court
instruct the jury with Special Instruction No. 1 was, in effect, a
request that the trial court engage in the required contractual
interpretation and then instruct the jury on its interpretation, a
23
position that B&V maintained in its motion for new trial when it
insisted that it was “the court’s duty to interpret the contract.”
Rados argues that B&V invited error by opposing Rados’s
proposed jury instruction that would have presented to the jury
competing definitions of “terminated Work” and by advocating for
B&V’s definition before the jury through its expert (and opposing
Rados’s efforts to foreclose the expert’s testimony), but B&V’s
conduct is entirely consistent with believing that the
interpretation of the Subcontract was a legal question for the
court (and thus one that should not be presented to the jury at
all) and entirely consistent with rolling with the punches after
the court refused to instruct on its definition and left the issue of
interpretation to the jury (Horsemen’s, supra, 4 Cal.App.4th at
pp. 1555-1556 [litigant does not invite instructional error when it
acts defensively after the court refuses its proffered instruction]).
Rados lastly contends that B&V did not propose a jury
instruction regarding the meaning of “terminated Work,” but
failing to do so does not constitute invited error (because it was in
no way misleading to the court), and it also does not constitute a
forfeiture (because B&V did request Special Instruction No. 1 and
because it was the trial court’s duty to interpret the Subcontract).
(Alaniz v. Sun Pacific Shippers, L.P. (2020) 48 Cal.App.5th 332,
339 [“the failure to request correct instructions does not forfeit a
challenge to jury instructions that erroneously contain legal
standards inapplicable to the facts”]; see also McCarty v.
Department of Transportation (2008) 164 Cal.App.4th 955, 984
[trial court “has the power to grant a new trial based on even an
invited error” because if error appears in the record, court’s
power to grant new trial “‘“is not limited by the conduct of the
parties in inviting such error”’”; “‘“‘to hold otherwise would mean
24
that the trial court, by reason of the action of the parties, would
be powerless to correct what might be an obvious miscarriage of
justice’”’”].)
Lastly, Rados urges that any error was not prejudicial
because the Subcontract was admitted into evidence and before
the jury, who could turn to Section 552.24.4 and apply that
provision’s formula for damages. This argument ignores that the
task of interpreting the Subcontract was the court’s, that the jury
misinterpreted the Subcontract, and that the jury awarded
damages based on that misinterpretation.
Because the trial court prejudicially erred in not
instructing the jury to apply the direct cost-plus-overhead/profit
measure set forth in Section 552.24.4 if it found B&V terminated
Rados without cause and in not interpreting the phrase
“terminated Work,” the trial was infected with an error in law as
to damages that warrants a new trial on that limited issue.10
2. Jury’s rejection of back charges
B&V argues that the jury erred in not finding that it was
entitled to back charges of $2,454,832 for the cost of removing
spoils from the work sites and purchasing piping material for
which it had already paid Rados.11 This argument is an attack on
10 Although Section 552.24.4 states that Rados’s damages
under the direct cost-plus-overhead/profit formula shall
constitute “the complete and final settlement for the terminated
Work and all related Claims,” the parties’ stipulation requires
B&V to “credit” Rados around $3,000,000 more in extra-work
claims.
11 B&V makes no argument on appeal that it was entitled to
back charges of $477,863 for the delays caused by having to
replace Rados with new subcontractors.
25
the factual sufficiency of the jury’s verdict; as such, our review is
for substantial evidence. (Western States Petroleum Assn. v.
Superior Court (1995) 9 Cal.4th 559, 571.) Because B&V had the
burden of proving the amount of back charges (David S. Karton,
a Law Corp. v. Musick, Peeler & Garrett LLP (2022) 83
Cal.App.5th 1027, 1040 [“The party ‘seeking an offset against a
money judgment has the burden of proving the offset’”]), B&V can
prevail in its substantial evidence challenge only if it meets the
“extremely high burden” of showing that the evidence introduced
at trial compels a finding as a matter of law that B&V should
have been awarded the back charges it sought (Estes v. Eaton
Corp. (2020) 51 Cal.App.5th 636, 651).
B&V carried that extremely high burden in this case.
Rados’s own pay applications indicate that Rados was paid for
100% of the spoils removal, and it is uncontradicted that B&V
had to pay $1.2 million to have the spoils removed after the
Subcontract was terminated (because Rados did not actually
complete the removal).12 In response, Rados does not contest that
B&V had to pay another subcontractor to remove spoils; instead,
Rados argues that it was not fully paid to do so and, in support of
that argument, ignores its own witness’s concession that Rados
was paid and points to testimony by B&V’s expert indicating, on
cross-examination, that Rados was “more than likely paid for
that work.” In Rados’s view, the expert’s testimony was equivocal
and thus means that the jury could have reasonably found Rados
was not paid for the work. But Rados’s own records, which
indicate that Rados was paid for the work, were uncontradicted
and confirmed by Rados’s witnesses; what is more, the expert’s
12 The actual amount was greater, but B&V’s insurer covered
$1 million of those costs.
26
testimony does not contradict or undermine that evidence in any
way (and the jury’s power to reject an expert’s testimony in whole
or in part (Howard v. Owens Corning (1999) 72 Cal.App.4th 621,
632) does not entitle the jury to reject unconverted evidence that
an expert repeats). Thus, the uncontroverted evidence compels
as a matter of law the finding that B&V was entitled to recoup
the amount it paid the new subcontractor for removal of the
spoils. The evidence that B&V had to pay for new piping it had
already paid Rados to acquire was also uncontradicted and also
came from Rados’s pay applications; Rados does not address the
jury’s finding in this regard at all in its briefs on appeal, so
provides no basis to ignore the controverted evidence on this
particular back charge.
Thus, in the new trial on damages on remand, the jury is to
be instructed that B&V is entitled to an offset of back charges in
the amount of $2,454,832.
B. Prompt payment penalties
Rados brought a cause of action seeking to obtain statutory
prompt payment penalties against B&V of two percent of the
amount due and owing to Rados, per month, beginning from the
date Cal Water settled all of claims with B&V (that is, from
November 2022). The trial court did not submit that cause of
action to the jury, and instead invited and granted a directed
verdict for B&V on that cause of action on the ground that Rados
had abandoned it, as it was nowhere in Rados’s trial brief or on
the verdict form the parties jointly proposed. A trial court has
the authority to direct a verdict in a defendant’s favor on a cause
of action abandoned by a plaintiff, at least where the plaintiff has
evinced a “clear, unequivocal and express intent to abandon.”
(Kaufman & Broad Building Co. v. City & Suburban Mortgage
27
Co. (1970) 10 Cal.App.3d 206, 213.) Although we review de novo
a trial court’s grant of a directed verdict (O’Shea v. Lindenberg
(2021) 64 Cal.App.5th 228, 235), we review any subsidiary factual
questions for substantial evidence (In re White (2020) 9 Cal.5th
455, 470).
We need not examine whether substantial evidence
supports the trial court’s finding that Rados abandoned its cause
of action for prompt payment penalties because, even if we
assume the court erred in directing a verdict on that cause of
action, that error was not prejudicial because there was a “good
faith dispute” over the amount B&V owed Rados for its final
payment upon termination, which precludes an award of prompt
penalty penalties as a matter of law.
California law obligates general contractors to pay their
subcontractors progress payments and to pay out any funds
retained within a statutorily specified number of days after the
general contractor receives payment from the project’s owner.
(Civ. Code, §§ 8802, subd. (b) [21-day period for progress
payments when owner is “public utility”], 8814, subd. (a) [10-day
period for retention payments]; Pub. Contract Code, §§ 10262,
10262.5, subd. (a) [7-day period for progress payments], 7107,
subd. (c) [60-day period for retention payments by “public
entity”]; Bus. & Prof. Code, § 7108.5, subd. (a) [7-day period for
progress payments]; see generally Tesco Controls, Inc. v.
Monterey Mechanical Co. (2004) 124 Cal.App.4th 780, 803-804
[periods “triggered” when “the general contractor actually
receiv[es] a progress payment”].) Failure to do so subjects the
general contractor to a statutory penalty of two percent of the
amount not paid per month, starting from the date the payment
was due under these statutes. (Civ. Code, § 8802, subd. (c); Pub.
28
Contract Code, § 10262.5, subd. (a); Bus. & Prof. Code, § 7108.5,
subd. (b).) The purpose of these prompt payment statutes—and
the prompt payment penalty that enforces them—is “to protect
the right to fair compensation for contractors, laborers, and
suppliers” and thus “to discourage owners and direct contractors
from withholding monies owed as a way of granting themselves
interest-free loans.” (United Riggers & Erectors, Inc. v. Coast
Iron & Steel Co. (2018) 4 Cal.5th 1082, 1088, 1092 (United
Riggers).) Because that purpose is not implicated when the
contractor and subcontractor have a good faith dispute “directly
relevant to the specific payment that would otherwise be due,”
these statutes preclude the imposition of any prompt payment
penalty when there is a “good faith dispute” over “all or part [or
portion] of the amount due.” (United Riggers, at pp. 1085, 1092;
Civ. Code, §§ 8802, subd. (b), 8814, subd. (c); Pub. Contract Code,
§§ 10262.5, subd. (a), 7107, subd. (e); Bus. & Prof. Code, § 7108.5,
subd. (a).)
Here, B&V and Rados were engaged in a “good faith
dispute” over the amount of money owed upon the termination of
the Subcontract, arising from a dispute about whether Rados’s
termination was “for cause” or “without cause” as well as a
dispute about the meaning of the Subcontract. They sued each
other; prosecuted a five-week trial at which they presented
competing and legally tenable arguments to the jury about what
amount was owed; and after the jury rendered its verdict and a
post-trial motion was denied, appealed to this court. In short, the
parties had an objectively viable good faith dispute that precludes
the award of any prompt payment penalties as a matter of law.
(Accord, Denver D. Darling, Inc. v. Controlled Environments
Construction, Inc. (2001) 89 Cal.App.4th 1221, 1241 [a “bona fide
29
dispute [between a contractor and subcontractor] as to the
meaning of [their contract]” constitutes a “good faith dispute”
over liability for prompt payment penalties].)
Rados resists this conclusion with four arguments.
First, Rados argues that the jury’s verdict in its favor
resolved the dispute, retroactively rendering a dispute not one in
good faith. This argument is nonsensical, for if that were the
test, then every dispute resolved at trial would never be a good
faith dispute—and the statutory exemption for good faith
disputes would be rendered a nullity. We are not allowed to wipe
statutory language off the books. (Knapp v. Ginsberg (2021) 67
Cal.App.5th 504, 532 [“We aim to avoid constructions that render
portions of a statute superfluous”].)
Second, Rados contends that B&V harbored a pretextual
reason for terminating the Subcontract, and that B&V’s
malicious motive for terminating the contract precludes a finding
of any good faith dispute over the amount owed upon
termination. Although, as Rados points out, the courts are
presently divided over whether the “good faith” in a “good faith
dispute” is to be evaluated objectively or subjectively (compare
FEI Enterprises, Inc. v. Yoon (2011) 194 Cal.App.4th 790, 799-806
[“good faith dispute” means “the bona fide existence of an actual
legal dispute over the amount due under a construction contract”]
with Alpha Mechanical, Heating & Air Conditioning, Inc. v.
Travelers Casualty & Surety Co. of America (2005) 133
Cal.App.4th 1319, 1339 [“good faith dispute” “‘suggests a moral
quality; its absence is equated with dishonesty, deceit or
unfaithfulness to duty’”]), the cases adopting the position that
good faith is to be adjudged subjectively do so in the context of a
case where one of the litigants has a subjectively good faith belief
30
that a different amount is owed even though that view is not
objectively reasonable (Alpha Mechanical, at p. 1340). No case
has yet held that an objectively reasonable dispute over the
amount owed can be subject to prompt payment penalties merely
because the party against whom the penalties are sought is
shown to have a subjectively malicious motive for terminating the
underlying contract. We reject such a view, as it is inconsistent
with the purpose of these penalties, which is to impose penalties
on general contractors who have no basis to withhold payments—
not to impose penalties on those who have a reasonable basis for
doing so merely because, subjectively, they have a dastardly
heart or mind. (Accord, Ruline Nursery Co. v. Agricultural Labor
Relations Bd. (1985) 169 Cal.App.3d 247, 260, fn. 8 [person may
“offer a reasonable basis” for their actions, “while not acting in
[subjective] good faith”].) It also makes no sense when applied to
the Subcontract at issue in this case, which explicitly permits the
contractor to terminate the contract for any reason, dastardly or
not.
Third, Rados argues that the jury’s verdict in its favor
means that the jury found B&V violated the covenant of good
faith and fair dealing implicit in the Subcontract, and notes that
the jury in this case was specifically instructed on the covenant of
good faith and fair dealing. The implicit assumption of Rados’s
argument is that “good faith” means the same thing in the
context of the “covenant of good faith and fair dealing” as it does
in the context of a “good faith dispute.” Rados is wrong. Context
matters. The covenant plumbs whether a contracting party
complied with its discretionary obligation to act in good faith
when implementing a contract (Carma Developers (Cal.), Inc. v.
Marathon Development California, Inc. (1992) 2 Cal.4th 342,
31
372), while “good faith dispute” plumbs whether the ensuing
dispute over what is owed was a good faith dispute for purposes
of awarding prompt payment penalties. They are different
inquiries with different purposes, and we decline to treat the
phrase “good faith” as fungible—particularly when it would be
inconsistent with the purpose of the good faith dispute exception
to the prompt payment penalty statutes.
Fourth and finally, Rados argues that there is no dispute at
all as to the amounts covered by the parties’ stipulation, so that
this subset of moneys owed is subject to prompt payment
penalties. (See United Riggers, supra, 4 Cal.5th at pp. 1089,
1098.) Specifically, Rados asserts that penalties apply, at a
minimum, to (1) the $3,000,000 “credit” B&V stipulated to on
Rados extra-work claims, and (2) $1.8 million in retention
payments B&V “stipulated” it “withheld and owed Rados.” We
reject the assertion regarding retention payments because,
contrary to what Rados represents, the stipulation does not
contain any express or implicit concession by B&V that it “owes”
Rados any retention payments; the stipulation merely recites
what amounts B&V paid on each payment application and what
amounts it retained. Consistent with the plain text of the
stipulation, B&V’s liability for those payments remained very
much in dispute at the trial. And although, as noted above, the
stipulation contains B&V’s express concession that it “owes”
Rados the $3,000,000 (or so) “credit” for extra-work claims, Rados
is still not entitled to collect prompt payment penalties on that
amount. That is because the amount of those extra-work claims
were disputed throughout the parties dealings and pre-trial
litigation—up until the very eve of trial—and because the
Subcontract authorized B&V to withhold payments owed to
32
Rados as an offset against the damages B&V sought to recover
from Rados (had the dispute over whether Rados was terminated
for cause been resolved in B&V’s favor). B&V’s decision to
stipulate to resolve its liability as to a subset of payments right
before trial that had—until that point—been the subject of a
vigorous dispute and withheld pursuant to the terms of the
Subcontract, did not wipe away the existence of a good faith
dispute as to that subset, or as to the broader question of what
the final payment between B&V and Rados should be.
* * *
In light of our conclusion that a new trial on damages is
required, the trial court’s award of prejudgment interest,
attorney fees and costs is necessarily vacated.
33
DISPOSITION
The judgment is reversed and remanded for a new trial on
damages, except as to the back charges of $2,454,832 owed to
B&V; the judgment is affirmed in all other respects. The parties
are to bear their own costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.
______________________, P. J.
HOFFSTADT
We concur:
_________________________, J.
KIM (D.)
_________________________, J.
KUMAR*
* Retired Judge of the Superior Court of Los Angeles County,
assigned by the Chief Justice pursuant to article VI, section 6 of
the California Constitution.