G&W Builders v. Bernards
Bros.
Filed 1/14/13
G&W Builders v. Bernards Bros. CA2/1
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 This opinion has not been
certified for publication or ordered published for purposes of rule 8.1115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 ONE
G&W
BUILDERS, INC.,
Plaintiff and Appellant,
v.
BERNARDS
BROS., INC., et al.,
Defendants and Appellants.
B226690
(Los Angeles County
Super. Ct. No. MC014697)
APPEAL
from a judgment and an order of the Superior Court of
County. Randolph Rogers, Judge. Affirmed in part and reversed in part with
directions.
Law
Offices of Ted R. Gropman, Ted R. Gropman; Benedon & Serlin,
Douglas G. Benedon and Gerald M. Serlin for Defendants and
Appellants.
Tomassian,
Throckmorton & Inouye, Serge Tomassian, and Robert S. Throckmorton for
Plaintiff and Appellant.
________________________________________________
bonding company, appeal from a judgment awarding damages, statutory penalties,
prejudgment interest, costs and attorney fees to Bernards’s subcontractor,
G&W Builders. G&W cross‑appeals
claiming that the court should have awarded attorney fees pursuant to the
payment bond as well as the prompt payment statutes. We affirm the judgment except as to the cause of action for late
progress payments and remand the matter to the trial court for a calculation of
the resulting attorney fees and costs and recalculation of G&W’s
prejudgment interest.
FACTS AND PROCEEDINGS BELOW
A. Bernards’s
Subcontract With G&W
The
City of Lancaster awarded Bernards a construction contract at the Antelope Valley
Fairgrounds (the Project). Bernards
subcontracted with G&W to design and build three pre-engineered metal
buildings for the Project. The original
agreed price for the buildings was $1,851,000.
With change orders the price increased to $2,024,915.
1. The dispute over wall insulation
G&W’s
contract with Bernards stated that “[u]nless otherwise indicated . . . the cost
of . . . [r]igid roof insulation [and] wall insulation†is excluded. Attachment B to the contract, however, gave
Bernards the option to have G&W “furnish and install R-30 roof insulation .
. . and R-19 wall insulation at exterior walls for the additional . . . sum of
$141,498.00.†When Bernards elected to
exercise that option, G&W objected on the grounds that its bid did not
include wall insulation, it informed Bernards of that fact on several
occasions, and that inclusion of wall insulation in the contract resulted from
inadvertence on the part of G&W’s president in reviewing the document.
After
negotiations the parties agreed to a change order that provided G&W would
install “wall insulation between the wall girts and metal wall panels
only.†Later, a dispute arose between
the parties as to the meaning of the change order. G&W contended it agreed only to install
wall insulation “in the inaccessible parts of the building up high that
could be put in between the wall panels and the wall girts.†Bernards contended that G&W agreed to
install all wall insulation above the masonry wall. As a result of this dispute, G&W did not
install any wall insulation. Instead,
Bernards hired another contractor to install the wall insulation and back
charged G&W for the cost.
2. The dispute over withheld progress and
retention payments
A dispute also
arose between G&W and Bernards over Bernards’s failure to make timely
progress and retention payments to G&W.
Commencing in November 2002, Bernards withheld a total of $239,053 in
payments on the ground that G&W did not complete its work on schedule. The court found that Bernards properly
withheld only a portion of this fund in a bona fide dispute with G&W and
that Bernards owed G&W the improperly withheld amount, the 2 percent
statutory penalty and the statutorily mandated attorney fees as the “prevailing
party†on the claims.
B. G&W’s
Subcontract With Pre-Fab Erectors
G&W
subcontracted with Pre-Fab Erectors, a licensed structural steel contractor, to
erect a metal building “includ[ing] roofing and siding and flashings.â€
Bernards refused to pay G&W for
Pre-Fab’s work on the ground that Pre-Fab’s contractor’s license did not cover
all the different kinds of work that it performed. The court found G&W was entitled to
reimbursement for the money it paid to Pre-Fab.
Of Work
Claiming that
G&W failed to complete its work on time, Bernards withheld payment on
G&W’s invoices for November 2002 and January and February 2003. Bernards also informed G&W it intended to
back charge G&W for costs it incurred resulting from G&W’s delays in
completing its work, including hiring another contractor to install the
exterior wall insulation in the buildings.
The total amount of Bernards’s back charges left G&W with a
negative balance on its contact of approximately $70,000. In April 2003, G&W filed a stop payment
notice with the City for $239,000, the amount it contended it was owed by
Bernards. The following day Bernards
posted a bond for release of the stop notice.
The
parties continued their dispute over G&W’s timely completion of its work
and Bernards’s timely payment of G&W’s invoices. G&W informed Bernards that it had
completed all the items it considered to be within its scope of work and would
not do any additional work. Bernards
responded by notifying G&W that it was in breach of its contract, the
contract was terminated and that G&W was not to return to the site of the
Project for any reason. Bernards hired
another subcontractor to complete the work it deemed left unfinished by
G&W.
The
City accepted the project as complete in July 2003.
The
court found that Bernards had wrongfully withheld a portion of the money
otherwise due to G&W.
D. G&W’s
Suit Against Bernards And Seaboard
In April 2003,
G&W filed a complaint against Bernards and Seaboard which, as later
amended, alleged causes of action for breach
of contract, negligent misrepresentation and for recovery on the payment
bond and the stop notice bond.
The complaint also named as a defendant United States Fidelity and
Guarantee Company (USF&G), which issued a bond on the stop notice filed by
G&W. All three defendants answered
and Bernards cross-complained against G&W for breach of contract.
The cause was
tried to the court, which awarded G&W $357,714.39 in damages plus
prejudgment interest, costs and attorney fees under California’s “prompt
payment†statutes in the sum of $429,901.50.
The court ordered that Bernards take nothing on its
cross-complaint. Bernards, Seaboard and
USF&G filed a timely appeal.
claiming its entitlement to attorney fees arose under Bernards’s surety bond as
well as the “prompt payment†statutes.
DISCUSSION
I. THE COURT PROPERLY CONSIDERED PAROL
EVIDENCE THAT A TERM OF THE AGREEMENT BETWEEN G&W AND BERNARDS WAS OBTAINED
BY FRAUD
The trial court
ruled that G&W was not obligated to install wall insulation because
Bernards committed “constructive fraud†when it inserted a wall insulation
provision in the contract. Bernards knew
that wall insulation was not included in its solicitation of bids for the
Project and knew that G&W’s bid did not include wall insulation. Given that knowledge, Bernards acted
fraudulently in submitting a contract to G&W for signature that would have
required G&W to provide wall insulation at Bernards’s option “without
clearly calling G&W[’s] attention to the change as a proposed
modification.â€
We need not
decide whether the evidence establishes constructive fraud on the part of
Bernards because Bernards does not challenge the court’s finding that it does. Instead, Bernards argues that the court was
able to reach that finding only by violating the parol evidence rule and
admitting evidence that G&W concedes contradicts the wall insulation
provision of the contract—an unambiguous term in a contract that was intended
by the parties to be a final expression of their agreement. (Code Civ. Proc., § 1856, subd. (a).)
Bernards’s
argument fails because the parol evidence rule “does not exclude . . . evidence
. . . to establish illegality or fraud.â€
(Code Civ. Proc., § 1856, subd. (g).)
Since Bernards does not deny that the parol evidence establishes fraud,
the evidence was admissible.
II. SUBSTANTIAL EVIDENCE SUPPORTS THE
COURT’S FINDING THAT PRE-FAB’S WORK WAS WITHIN ITS LICENSE OR “INCIDENTAL AND
SUPPLEMENTAL†TO THE LICENSED WORK
G&W
subcontracted with Pre-Fab, a licensed structural steel contractor, to
erect a metal building at the Project “includ[ing] roofing and siding and
flashings.†The evidence at trial showed
that Pre-Fab installed the building’s columns, girts, roof rafters, purlins, insulation and some of the flashings. Bernards maintains that Pre-Fab was
prohibited from performing work that involved trades for which it was not
licensed such as installing insulation and G&W cannot be compensated for
that work. Bernards further contends
that because Pre-Fab performed work outside its license, G&W is barred from
recovering compensation for any work done by Pre-Fab. We reject Bernards’s first contention so we
do not reach its second.
California
contractors are licensed in three categories: A—general engineering
contractors, B—general building contractors and C—specialty contractors such as
insulation and acoustical contractors (C2), roofing contractors (C39), sheet
metal contractors (C43) and structural steel contractors (C51). (Bus. & Prof. Code, §§ 7056‑7058
Cal. Code Regs., tit. 16, § 830 et seq.)
As a general rule, a specialty contractor is prohibited from performing
work that involves trades for which it is not licensed. (§ 7059, subd. (a); Cal. Code Regs.,
tit. 16, § 830, subd. (b).) An exception
to this rule allows a specialty contractor to perform work that “is incidental
and supplemental to the performance of the work in the craft for which the specialty
contractor is licensed.†(§ 7059,
subd. (a).)
No contractor
may bring an action to collect compensation for the performance of work that
required a license without proving that he or she was a duly licensed
contractor at all times during performance of the work. (§ 7031, subd. (a).)
obtaining compensation for work performed on its behalf by an unlicensed
contractor. (See Weeks v. Merritt Bldg. & Constr. Co. (1974) 39 Cal.App.3d
520, 523-524.)
Substantial
evidence supports the trial court’s implied finding that when Pre-Fab erected
the building at the Project, Pre-Fab’s work was within the scope of its license
as a structural steel contractor.
California
Administrative Code, title 16, section 832.51, defines a structural steel
contractor as one who “fabricates and erects structural steel shapes and
plates, of any profile, perimeter or cross-section, that are or may be used as
structural members for buildings and structures, including the riveting,
welding, rigging, and metal roof systems necessary to perform this work.â€
Pre-Fab
did not do unlicensed work because, under its license to fabricate and erect
structural steel shapes, Pre-Fab was permitted to erect the prefabricated
building at the Project as well as to fabricate and install steel shapes used
as structural members for the building including columns, girts, roof rafters,
purlins and flashings. Roofing
insulation falls within the construction of “metal roofing systems†permitted
under Pre-Fab’s license or at the very least “is incidental and supplemental to
the performance of the work in the craft for which [Pre-Fab] is licensed.†(§ 7059, subd. (a).)
III. G&W IS NOT ENTITLED TO THE STATUTORY
PENALTIES FOR BERNARDS’S LATE PROGRESS PAYMENTS BUT IS ENTITLED TO PENALTIES
FOR THE LATE RETENTION PAYMENTS
California’s
“prompt payment†statutes require that a prime contractor pay its
subcontractors for the subcontractors’ work no later than 10 days after the
prime receives a progress payment and not less than seven days after it receives
all or any portion of a retention payment.
If a prime fails to make a timely payment to a sub then, in addition to
the amount of the progress or retention payment due the sub, the prime must
also pay the sub a statutory penalty of 2 percent of the amount due per month
for every month that payment is not made.
In the case of a “bona fide†dispute over all or any portion of the
payment due from the prime to the sub the prime may withhold up to 150 percent
of the disputed amount without penalty until the dispute is settled. (§ 7108.5, subds. (b) & (c); Pub.
Contract Code, §§ 10262.5, subd. (a), 7107, subds. (b), (d), (e) &
(f).) In any action to collect progress
or retention payments wrongfully withheld, the prevailing party is entitled to
attorney fees. (§ 7108.5, subd. (e);
Pub. Contract Code, §§ 7107, subd. (f), 10262.5, subd. (a).)
Here, the court
found that Bernards was late in paying G&W its share of the progress and
retention payments that Bernards received from the City. It further found that only a portion of these
sums were the subject of a bona fide dispute between the parties and therefore
Bernards was entitled to withhold 150 percent of that amount without penalty
pending resolution of the dispute. Accordingly,
the court found that G&W was entitled to payment of the amount not subject
to a bona fide dispute plus a 2 percent penalty on that amount and
attorney fees.
Bernards
contends that the court erred in awarding G&W these late payment
penalties. We conclude that G&W was
not entitled to late payment penalties on the progress payments but was
entitled to penalties on the retention
payments.
A. The Penalties For Late Progress Payments
Are Barred By The One-Year Statute Of Limitations
Viewing
the evidence in the light most favorable to the judgment (Roby v. McKesson Corp. (2009) 47 Cal.4th 686, 693-694), Bernards
received its final progress payment on February 15, 2003. The limitations period for “[a]n action upon
a statute for a penalty†is one year.
(Code Civ. Proc., § 340, subd. (a).)
G&W’s first amended complaint, which added a claim for
progress penalties, was not filed until September 9, 2004—beyond the
one-year statute of limitations.
name="_ftnref4" title="">[4]
G&W
contends that its claim for progress payment penalties relates back to its
original complaint filed on April 30, 2003, within the one-year limitations
period. We disagree.
For
the relation-back doctrine to apply “the amended complaint must (1) rest on the
same general set of facts, (2) involve the same injury, and (3) refer to the
same instrumentality, as the original one.â€
(Norgart v. Upjohn Co. (1999)
21 Cal.4th 383, 408‑409, italics omitted.)
G&W’s
original complaint alleged a cause of action for
failure to pay G&W the sum the parties agreed to in their contract. In the first amended complaint G&W added
a new paragraph to the breach of contract cause of action, alleging that Bernards
received progress and retention payments from the City and that Bernards
“improperly withheld payment to [G&W] and [G&W] is entitled to
damages on the unpaid payments in the sum of 2 percent
per month, plus prejudgment interest, plus attorneys fees and costs,
according to proof.†The first amended
complaint also added a prayer for damages “on the unpaid payments in the
sum of 2 percent per month from the date due.â€
The
claims for progress and retention payment penalties in the first amended
complaint do not relate back to the original complaint because they do not
“rest on the same general set of facts†pled in the original complaint nor do
they “involve the same injury.†(
omitted.) The original complaint did not
allege any facts relating to progress or retention payments nor did it seek
late payment penalties.
name="_ftnref5" title="">[5]
B. The Court Properly Awarded G&W Late
Payment
Penalties On The Retention Payments
subdivision (d) of the Public Contract Code requires the prime contractor to
pay its subcontractors their respective shares of the retention proceeds within
seven days after receiving the proceeds from the public entity. If the prime fails to pay the retention on
time, the sub may recover a penalty in the amount of “2 percent per month
on the improperly withheld amount, in lieu of any interest otherwise due.†(Pub. Contract Code, § 7107, subd. (f).) The prime’s obligation to pay its subs within
seven days is, however, expressly subject to a good faith exception.
(e) of the statute provides: “The
original contractor may withhold from a subcontractor its portion of the
retention proceeds if a bona fide dispute exists between the subcontractor and
the original contractor. The amount withheld from the retention payment shall
not exceed 150 percent of the estimated value of the disputed amount.â€
Bernards
argues that the court miscalculated the amount of its bona fide withholdings
from the retention payments, and if the court had correctly calculated the amount
it was entitled to withhold, it would have owed G&W nothing in late
retention payment penalties. We do not
agree that the court miscalculated the amount of the bona fide withholdings.
The
court calculated the late payment penalty on the retention payments as
follows. Bernards kept $202,491 in
retention payments that would otherwise have gone to G&W. Of that amount, Bernards claimed $103,798 in
a bona fide dispute with G&W over the timely completion of its work. Bernards was allowed to withhold 150 percent
of that disputed $103,798, which is $155,697.
The amount Bernards retained ($202,491) minus the amount of its bona
fide withholding ($155,697) equals $46,794.
The court found the latter amount should have been paid to G&W and
was therefore subject to the 2 percent penalty.
Bernards
maintains that the court should have included in the amount of its
bona fide withholding the $97,331 that G&W claimed Bernards owed it
“for additional work caused by [Bernards].†This would have added $145,996 (150 percent
of $97,331) to Bernards’s already established bona fide withholding of
$155,697 (see previous paragraph) for a total bona fide withholding of
$301,693. Since the amount of Bernards’s
bona fide withholding ($301,693) would exceed the amount of the retention
payment otherwise owed to G&W ($202,491 (see previous paragraph)), Bernards
would not be liable for the late payment penalty.
The
problem with Bernards’s argument is that the court did not find that a
bona fide dispute existed between the parties over G&W’s extra work
claims. As the appellant, Bernards bears
the burden of showing us why the court’s failure to make that finding is
reversible error. It has not done so.
IV. SUBSTANTIAL EVIDENCE SUPPORTS THE
JUDGMENT
Seaboard
argues that there was insufficient evidence to support a judgment for G&W
on its payment bond claim. We disagree.
According
to Seaboard, in order for G&W to prove its claim against the payment bond
that Seaboard allegedly issued to Bernards, G&W had to prove that Seaboard
is an admitted surety insurer, that it issued a payment bond on Bernards’s
behalf, that the bond was filed with and approved by the City of Lancaster, and
that G&W prepared a written notice on the claim. Seaboard cites former Civil Code section 3248
and Oldcastle Precast, Inc. v. Lumbermens
Mutual Casualty Co. (2009) 170 Cal.App.4th 554, in support of these
requirements. Neither citation is on
point.
Civil Code
section 3248 lists the requirements a bond must satisfy in order to be approved
by a public entity. None of the
requirements put forward by Seaboard appears in the statute.
Oldcastle Precast involved
an appeal by an insurer from a summary judgment in favor of the plaintiff in a
suit on a payment bond. The court summarized
the evidence that the plaintiff submitted in support of its motion, including a
written notice of a bond claim (Oldcastle
Precast, Inc. v. Lumbermens Mutual Casualty Co., supra, 170 Cal.App.4th at p. 564), and found that plaintiff
met its initial burden of “producing evidence establishing the elements of its
claim for recovery on the payment bond[.]â€
(Id. at p. 565.) The court did not say what those elements
were.
Seaboard next
argues that G&W “failed to present any evidence to establish Seaboard
did in fact provide the City with a payment bond in conformity with Civil Code
section 3248.†This argument lacks
merit. Exhibit 152, which was admitted
on stipulation by the parties, is substantial evidence that Seaboard issued the
bond in this case as is Seaboard’s acknowledgment in its cross-respondent’s
brief that its bond is the “subject bond in this case[.]â€
V. THE COURT ERRED IN NOT BASING
DEFENDANTS’ LIABILITY FOR ATTORNEY FEES ON THE PAYMENT BOND AND CIVIL CODE
SECTION 3250
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After
the court awarded judgment in favor of G&W against Bernards and Seaboard,
G&W brought a motion for an award of attorney fees from both
defendants. The court granted the motion
as to both defendants and awarded $429,901.50 in fees under section
7108.5, subdivision (e) (progress payments) and Public Contract
Code sections 7107, subdivision (f) (retention payments) and
10262.5, subdivision (a) (progress payments). G&W filed a timely appeal from this order
contending that the court should have based defendants’ liability for attorney
fees on Seaboard’s payment bond and Civil Code section 3250 as well as on the
prompt payment statutes. Defendants did
not appeal. We agree with G&W.
Seaboard
acknowledges its payment bond in this case provides that it “will pay in case
suit is brought upon this bond, . . . reasonable attorney’s fees as shall be
fixed by the court.†As noted
above, the court awarded judgment to G&W on its cause of action
against Seaboard on its bond. Therefore G&W is entitled to
attorney fees from Seaboard. Similarly,
Civil Code section 3250 provides that in cases brought on
payment bonds “the court shall award to the prevailing party a reasonable
attorney’s fee, to be taxed as costs.â€
The
court declined to award attorney fees under the authority of the payment bond
because “plaintiff’s claims against defendants under the prompt payment
statutes involved the same core set of facts and interrelated legal issues as
in its payment bond claim.†In other
words, the court saw no reason to use the payment bond as authority for the
attorney fees award when, it believed, the prompt payment statutes would do
just as well. We do not disagree with
the court’s conclusion that the payment bond and prompt payment claims arise from
essentially the same set of facts and legal issues. But this does not permit the court to decline
to award attorney fees pursuant to the
mandatory provisions of Civil Code section 3250 and the bond itself.
Seaboard
contends the court had discretion to pick which of several mandatory attorney
fees provisions to use as the authority for its award. The cases it cites do not support its
contention. PLCM Group, Inc. v. Drexler (2000) 22 Cal.4th 1084 pertained to the
court’s discretion in determining the amount of attorney fees not in determining
the statute or contract under which the fees should be awarded. Fed-Mart
Corp. v. Pell Enterprises, Inc. (1980) 111 Cal.App.3d 215 held that the
court was not required to apportion attorney fees between different causes of
action where it would be impracticable to do so. (Id.
at p. 227.) The question before us is
not whether the court can apportion liability for attorney fees among the
parties but whether it can ignore the mandatory attorney fee provisions of a
statute and a bond.
DISPOSITION
The
award to plaintiff based on late progress payments under Business and
Professions Code section 7108.5 and Public Contract Code section 10262.5 is
reversed and the cause is remanded to the trial court with directions to modify
the judgment to recalculate the prejudgment interest due plaintiff and to award
to defendants Bernards and Seaboard attorney fees and costs on that one cause
of action. In all other respects the
judgment is affirmed. Each party to bear
its own costs on appeal.
NOT
TO BE PUBLISHED.
ROTHSCHILD, J.
We concur:
MALLANO, P. J.
JOHNSON, J.
granted Bernards’s request to treat its notice of appeal to include Seaboard
and USF&G. USF&G did not file a
brief.
subsequent statutory references are to the Business and Professions Code unless
otherwise stated.
