FTR Internat., Inc. v. Rio School Dist. ( 2015 )

Filed 1/27/15
CERTIFIED FOR PARTIAL PUBLICATION*
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SIX
FTR INTERNATIONAL, INC., 2d Civil No. B238618
(Super. Ct. Nos. CIV201015, 01CC05901,
Plaintiff and Respondent, 01HL05281, 204779, 205936, 207742,
207744, 207994, 208016, 223403)
v. (Ventura County)
RIO SCHOOL DISTRICT,
Defendant and Appellant;
EAST WEST BANK,
Intervener and Respondent.
Public Contract Code section 7107 (section 7107) allows a public entity to
withhold funds due a contractor when there are liens on the property or a good faith
dispute concerning whether the work was properly performed. Here we conclude that a
dispute over the contract price does not entitle a public entity to withhold funds due a
contractor.
We disagree with Martin Brothers Construction, Inc. v. Thompson Pacific
Construction, Inc. (2009) 179 Cal. App. 4th 1401 (Martin Brothers), which holds
otherwise. We also conclude the doctrine of unclean hands does not apply to section
7107.
*
Pursuant to California Rules of Court, rules 8.1105(b) and 8.1110, this opinion is
certified for partial publication. The portions of this opinion to be deleted from
publication are identified as those portions between double brackets, e.g., [[/]].
This case arises from a contract for the construction of a school. After
the school was completed, the school district and its general contractor engaged in a
decade-long legal battle. The result was a judgment for the contractor FTR International,
Inc. (FTR) against the Rio School District (District) exceeding $9 million. District
appeals.
We conclude: the trial court properly assessed penalties against District
because it did not timely release retained funds required by section 7107; [[the trial court
properly rejected District's action under the False Claims Act (FCA) Government Code1
section 12650 et seq.; the trial court properly assessed prejudgment interest, subject to
adjustment for any extra work claims found untimely on remand.]]
We also conclude: [[the trial court erred in its interpretation of a contract
provision imposing time limitations to submit the contractor's claims for extra work as
requiring a showing of prejudice; and]] the trial court erred in awarding fees for work not
solely related to FTR's cause of action pursuant to section 7107.
We reverse and remand with instructions in the instances where the trial
court erred and affirm in all other respects.
FACTS
FTR has constructed buildings for public entities, including schools,
courthouses and libraries for 15 years. In 1999, FTR submitted the winning bid in the
amount of $7.345 million to construct a school for District.
During construction, FTR submitted approximately 150 proposed change
orders (PCO). FTR claimed some of the PCOs were necessary because the plans
provided by District were inadequate or misleading. District denied most of the PCOs on
the grounds that the work was covered under the basic contract, the amounts claimed
were excessive or that a PCO was not timely under the contract. The construction was
completed in June 2001. District filed a notice of completion on August 7, 2001. The
school has been occupied since May 2001.
1
All statutory references are to the Government Code unless stated otherwise.
2
Pursuant to the contract, District retained 10 percent of each progress
payment. At the completion of the work, District held a reserve of $676,436.49. That
amount, however, was subject to stop notices filed by FTR's subcontractors. The last of
the stop notices was released on September 28, 2004.
District refused to pay the balance due under the contract, refused to pay
any but a small portion of the amounts claimed by FTR in its PCOs, refused to release
any of the retention and refused to compensate FTR for damages allegedly caused by
delay and disruption. FTR sued District to recover damages for breach of contract,
2
statutory penalties under section 7107 , attorney fees, interest and costs. District filed a
2
Section 7107 states: "a) This section is applicable with respect to all contracts entered
into on or after January 1, 1993, relating to the construction of any public work of
improvement. [¶] (b) The retention proceeds withheld from any payment by the public
entity from the original contractor, or by the original contractor from any subcontractor,
shall be subject to this section. [¶] (c) Within 60 days after the date of completion of the
work of improvement, the retention withheld by the public entity shall be released. In the
event of a dispute between the public entity and the original contractor, the public entity
may withhold from the final payment an amount not to exceed 150 percent of the
disputed amount. For purposes of this subdivision, 'completion' means any of the
following: [¶] (1) The occupation, beneficial use, and enjoyment of a work of
improvement, excluding any operation only for testing, startup, or commissioning, by the
public agency, or its agent, accompanied by cessation of labor on the work of
improvement. [¶] (2) The acceptance by the public agency, or its agent, of the work of
improvement. [¶] (3) After the commencement of a work of improvement, a cessation of
labor on the work of improvement for a continuous period of 100 days or more, due to
factors beyond the control of the contractor. [¶] (4) After the commencement of a work
of improvement, a cessation of labor on the work of improvement for a continuous period
of 30 days or more, if the public agency files for record a notice of cessation or a notice
of completion. [¶] (d) Subject to subdivision (e), within seven 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) 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
3
separate action seeking damages for 416 alleged violations of the FCA (§ 12650 et seq.).
[[FTR cross-complained in that action alleging District violated the Federal Civil Rights
Act (42 U.S.C.A. § 1981). All the actions were consolidated by the trial court.]]
After a 243-day court trial, the trial court found in favor of FTR. It
awarded $9,356,124.81 to FTR, which includes damages for the balance due under the
contract, extra work performed by FTR, delay and disruption caused by District, statutory
penalties pursuant to section 7107, attorney fees, prejudgment interest and costs.3
DISCUSSION
Section 7107 Penalties
District contends the trial court erred in awarding penalties under section
7107. Subdivision (c) of this section provides, in part: "Within 60 days after the date of
completion of the work of improvement, the retention withheld by the public entity shall
be released. In the event of a dispute between the public entity and the original
estimated value of the disputed amount. [¶] (f) In the event that retention payments are
not made within the time periods required by this section, the public entity 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 attorney's fees and costs. [¶] (g) If a state agency retains an
amount greater than 125 percent of the estimated value of the work yet to be completed
pursuant to Section 10261, the state agency shall distribute undisputed retention proceeds
in accordance with subdivision (c). However, notwithstanding subdivision (c), if a state
agency retains an amount equal to or less than 125 percent of the estimated value of the
work yet to be completed, the state agency shall have 90 days in which to release
undisputed retentions. [¶] (h) Any attempted waiver of the provisions of this section
shall be void as against the public policy of this state."
3
East West Bank (Bank) held a security agreement covering virtually all of FTR's
personal property, including the judgment. Bank foreclosed and claims to have
purchased the judgment at the foreclosure sale. FTR disputes the validity of the sale, but
concedes the Bank has some interest in the judgment. The validity of the sale has not
been adjudicated. The Bank moved to substitute as the real party in interest for FTR. We
denied the motion. Instead, we granted the Bank leave to file a brief as an intervener.
The Bank filed a joint respondents' brief with FTR. We continue to refer to respondent as
FTR. To the extent applicable, reference to FTR also includes the Bank.
4
contractor, the public entity may withhold from the final payment an amount not to
exceed 150 percent of the disputed amount."
Subdivision (f) of section 7107 provides in lieu of interest, a penalty of two
percent per month on any amount improperly withheld plus attorney fees and costs.
Here the trial court found the project was completed on August 7, 2001.
The retention was required to be released within 60 days, on October 5, 2001. Stop
notices however, prohibited District from releasing the funds on that date. The stop
notices have since been released, but District has refused to release any funds. District
still had the entire retention amount of $676,436 at the time of the statement of decision,
over 10 years after the project was completed. The court found District had no
justification for retaining the funds after the stop notices were released. It assessed a
2 percent per month penalty from the date the stop notices were released for a total
penalty of $1,537,404.96.
District argues it was entitled to withhold all the retention because there
was a good faith dispute between FTR and District. The dispute was FTR's claim that
District wrongfully denied all but a few of its 150 PCOs. In other words, the dispute was
over how much, if any, District owed FTR.
The purpose of a retention is to provide security against potential
mechanics liens and to insure the contractor will complete the work properly and repair
defects. (Yassin v. Solis (2010) 184 Cal. App. 4th 524, 534.) The retained funds must be
paid to the contractor when the security is no longer required. (Ibid.)
Here, after the stop notices were cleared, District points to nothing for
which security was required. The dispute on which District relies, FTR's claim against
District, does not require District to retain FTR's funds as security. But District argues
there is no language in section 7107 limiting the term "dispute" to disputes relating to the
legitimate purposes for the retention.
District relies on Martin Brothers, supra, 179 Cal. App. 4th 1401, decided
after the evidence in this case was heard. In Martin Brothers, a general contractor on a
5
public school project retained a portion of the progress payments due a subcontractor.
After the subcontractor completed its work, the subcontractor claimed additional money
was owed it due to change orders. The subcontractor sought a two percent per month
penalty against the contractor pursuant to section 7107, subdivision (f) for failure to
release funds to the subcontractor within seven days of the release of funds on the general
contract, as required by subdivision (d). Subdivision (e) provides for an exception "if a
bona fide dispute exists between the subcontractor and the original contractor." In
holding the subcontractor was not entitled to the penalty, the Court of Appeal concluded
the exception of section 7107, subdivision (e) "applies to any good faith dispute between
a general contractor and subcontractor." (Martin Brothers, supra, at p. 1414.)
We decline to follow Martin Brothers. The purpose of section 7107 is to
deter public entities from improperly withholding retention payments. (FEI Enterprises,
Inc. v. Yoon (2011) 194 Cal. App. 4th 790, 804-805.) The statute is remedial. (S & S
Cummins Corp. v. West Bay Builders, Inc. (2008) 159 Cal. App. 4th 765, 777.) A
remedial statute must be liberally construed to promote its purpose. (Booth v. Robinson
(1983) 147 Cal. App. 3d 371, 378.) Relief will be granted unless clearly forbidden. (Ibid.)
When its meaning is doubtful, it will be construed to suppress the mischief at which it is
directed. (Ibid.) We may not construe the words of section 7107 beyond their plain
meaning.
Section 7107's purpose of ensuring the prompt release of retention funds
would not be served if any dispute justified retaining the funds. There is no reason to
allow a public entity to retain the funds once their purpose of providing security against
mechanics liens and deficiencies in the contractor's performance has been served. Unless
the dispute relates to one of those purposes, the public entity will not be protected from
the statutory penalty. FTR's action against District is not such a dispute.
District points to a recodification of Civil Code section 3260, subdivision
(c) into Civil Code section 8812, subdivision (c). (Stats. 2010, ch. 697, § 20, Sen. Bill
No. 189.) The sections govern retentions in construction contracts for private works, and
6
are similar to section 7107, subdivision (c). Civil Code section 3260 originally provided,
in part: "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." When the section was recodified into Civil Code section 8812,
subdivision (c) was amended to read: "If there is a good faith dispute between the owner
and direct contractor as to a retention payment due, the owner may withhold from final
payment an amount not in excess of 150 percent of the disputed amount." (Italics added.)
District points out that the Legislature did not similarly amend section 7107, subdivision
(c) to add "as to a retention payment due." District claims this shows Martin Brothers
was properly decided; that is, any good faith dispute is sufficient to allow withholding of
150 percent of the disputed amount.
But the Law Revision Commission Comments to Civil Code section 8812
state that the section is recodified without substantive changes. In addition, Senate Bill
No. 189, under which Civil Code section 8812 was recodified, expressly states that, with
exceptions not relevant here, the act is intended to be nonsubstantive.4 It is noteworthy
the Legislature also added the requirement that the dispute be in "good faith" to Civil
Code section 8812, subdivision (c). The Legislature did not amend section 7107,
subdivision (c) to add the term "good faith." No one would seriously argue section 7107,
subdivision (c) allows a public entity to create a dispute in bad faith.
District argues that because it properly withheld the retention funds under
stop notices past the 60-day statutory period, it has complied with the statute and cannot
be penalized. But the purpose of section 7107 is to deter a public entity from
unreasonably withholding retention funds. The purpose of the statute would not be
served by interpreting it as District suggests. Once the legitimate purpose for retaining
the funds end, the public entity must release the funds or suffer the statutory penalty.
4
We grant FTR's request for judicial notice of Civil Code section 8812's legislative
history.
7
District may not hold these funds hostage because it disputes amounts owed under the
contract that includes numerous change orders.
[[We need not consider the trial court's alternative theory of District's
liability.
Contract Provisions
District contends the trial court refused to enforce material provisions of the
contract in awarding damages to FTR. The damage award arises from claims for extra
work in the PCOs and disruption and delays caused by District. Its contention is based
on two contract clauses that require FTR to present claims within specific time limits.
Article 10 of the contract entitled "Claims for damages" provides: "If
CONTRACTOR claims compensation for any damage allegedly sustained by reason of
an act of DISTRICT or its agents, the Contractor shall, within five . . . calendar days after
sustaining the damage, submit to District's Director of School Facilities & Classified
Services a written statement of the damage sustained. On or before the 15th day of the
month after the month in which the damage was sustained, CONTRACTOR shall file,
with District's Director of School Facilities & Classified Services, an itemized statement
indicating the factual basis in support of his claim and the amount of damage. If
CONTRACTOR fails to comply with the provisions of this Article concerning the
submission of a statement, the claim(s) for compensation shall be forfeited and
invalidated and shall not be entitled to consideration for payment on account of any
damage."
Article 37D provides: "If CONTRACTOR should claim that any
instruction, request, drawing, specification, action, condition, omission, default or other
situation obligates DISTRICT to pay additional compensation to CONTRACTOR or to
grant an extension of time for the completion of this contract, or constitutes a waiver of
any provision of this contract, the CONTRACTOR shall notify the DISTRICT, in
writing, of his claim within ten . . . calendar days from the date he has actual or
constructive notice of the factual basis supporting the claim. The CONTRACTOR'S
8
failure to notify DISTRICT within the ten . . . calendar day period shall be deemed a
waiver and relinquishment of the claim against DISTRICT. If the notice is given within
the specified time, the procedure for its consideration shall be as stated above in this
article."
District asserts it is undisputed that none of the claims for which the trial
court awarded damages were submitted within the time limits provided in Article 10 or
37D. But the trial court found: "In many cases the District conceded that adequate notice
had been received."
The trial court also found that some of FTR's claims arose from District's
breach of contract in not providing adequate plans and specifications. It determined that
the time limitations of Articles 10 and 37D did not apply to claims arising from District's
alleged breach of contract. (D.A. Parrish & Sons v. County Sanitation Dist., etc. (1959)
174 Cal. App. 2d 406, 414.) District does not quarrel with the trial court's ruling as to
those claims. But the parties agree only four of FTR's claims arose from District's
alleged breach of contract.
As to the other claims, the trial court interpreted the forfeiture provisions of
Articles 10 and 37D to apply only where prejudice to District results from failure to make
a timely claim. The trial court's reasoning for such an interpretation is that the law abhors
a forfeiture; the forfeiture clauses are so one-sided as to be unconscionable; and the
contract is one of adhesion.
The problem with the trial court's reasoning is that the contract clauses are
authorized by statute. Section 930.2 provides, in part: "The governing body of a local
public entity may include in any written agreement to which the entity, its governing
body, or any board or employee thereof in an official capacity is a party, provisions
governing the presentation, by or on behalf of any party thereto, of any or all claims
arising out of or related to the agreement and the consideration and payment of such
claims." Section 930.4 provides: "A claims procedure established by agreement made
pursuant to Section 930 or Section 930.2 exclusively governs the claims to which it
9
relates, except that if the procedure so prescribed requires a claim to be presented within
a period of less than one year after the accrual of the cause of action and such claim is not
presented within the required time, an application may be made to the public entity for
leave to present such claim. Subdivision (b) of Section 911.4, Sections 911.6 to 912.2,
inclusive, and Section 946.6 are applicable to all such claims, and the time specified in
the agreement shall be deemed the 'time specified in Section 911.2' within the meaning of
Sections 911.6 and 946.6."
Nothing in the statutes requires District to show prejudice. To the contrary,
section 930.4 provides: "[I]f . . . such claim is not presented within the required time, an
application may be made to the public entity for leave to present such claim." The
application for leave is treated in the same manner as an application for leave to file a late
tort claim against a public entity. (§§ 911.4, subd. (b); 911.6; 912.2.) FTR does not
contend it filed any such application.
A question arises whether Articles 10 or 37D applies to FTR's extra work
claims. Article 10 requires claims to be submitted within five calendar days, and 37D
requires acclaims to be submitted within ten calendar days. Both are worded broadly
enough to cover any claim that might arise from the contract. But Article 10 refers to
claims for "any damage"; whereas Article 37D refers to claims "to pay additional
compensation to CONTRACTOR." Because Article 37D is specific to claims for extra
work by the contractor, it controls. (Code Civ. Proc., § 1859.) Moreover, the trial court
found the parties' course of conduct showed District did not consider Article 10 to apply
to extra work claims. The acts of the parties under contract are a reliable means of
showing what they intended. (Crestview Cemetery Assn. v. Dieden (1960) 54 Cal. 2d 744,
753-754.) We agree with the trial court that Article 37D applies to FTR's claims for extra
work.
District argues the trial court erred in finding FTR was not required to
submit invoices and checks along with its claims for extra work. Instead, the trial court
10
found: "There is nothing in Article 37 that obligated FTR to submit a demand for
payment in any particular amount coupled with supporting backup information."
Unlike Article 10, Article 37D does not require FTR to file with District
"an itemized statement indicating the factual basis in support of his claim and the amount
of damage." Nor does Article 37D mention invoices and checks.
Instead, District relies on contract section 01035, paragraph 1.6. But
paragraph 1.6 must be read together with paragraph 1.5. They state:
"l.5 CONSTRUCTION CHANGE DIRECTIVE [¶] A. When the Owner
and Contractor are not in agreement on terms of a Change Order Proposal Request, the
Architect may issue a Construction Change Directive instructing the Contractor to
proceed with a change, for subsequent inclusion in a Change Order. [¶] 1. Construction
Change Directive will contain a complete description of the change and designate method
to be followed to determine change in the Contract Sum or Time."
"1.6 DOCUMENTATION [¶] A. Maintain detailed records on a time and
material basis of work required by the Construction Change Directive. [¶] 1. After
completion of the change submit an itemized account and supporting date necessary to
substantiate cost and time adjustment to the contract."
When read in context, it is clear the documentation required in paragraph
1.6 applies only to a "Constructive Change Directive," that is, a directive issued by the
architect. It does not apply to the PCOs initiated by FTR that did not result in a
Construction Change Directive. District's briefs omit to note this obvious point. District
points to no claim on a Construction Change Directive that was not properly documented.
In fact, District makes no attempt whatsoever to distinguish the few PCO's that resulted
in an architect's change directive for the vast majority of PCOs that did not.
District also relies on Article 37C of the contract, which states: "The value
of any extra work, change, or deduction shall be determined, at the discretion of the
DISTRICT, in one or more of the following ways: [¶] 1. By acceptable lump sum
proposal from CONTRACTOR. [¶] 2. By unit price contained in CONTRACTOR'S
11
original bid and incorporated in the contract documents or fixed by subsequent agreement
between the DISTRICT and CONTRACTOR. [¶] 3. By cost of material and labor and
percentage for overhead and profit."
Article 37D requires FTR to submit a claim within 10 days of obtaining
notice of the basis for the claim. Nothing in Article 37C requires FTR to support its
claim with invoices and checks within that period.
Here the trial court found that because of FTR's internal record keeping
system, it is not reasonably practical to separate checks and invoices relating to the
school project from other FTR projects; and that in many instances only estimates could
be used because the extra work was combined with base work. District cites no authority
to show that the trial court abused its discretion in allowing FTR to use estimates to prove
damages.
Concerning the PCOs requesting compensation for extra work, we conclude
that Article 37D applies, but that the trial court erred in requiring a showing of prejudice
in applying the time limitations in the article. We also conclude the trial court did not
abuse its discretion in allowing FTR to use estimates in proving damages for extra work.
FTR's claims for delay and disruption damages are a different matter.
District's opening brief asserts only that the trial court's decision applying Article 37D to
claims for extra work, does not explain why Article 10 does not apply to claims for delay
and disruption. But the trial court's statement of decision gives reasons why Article 10
does not apply to such damages. The trial court found: "[I]t was not possible for FTR to
comply with all the requirements of Article 10 during the project, particularly the
provision that requires that an itemized statement and an amount of damages be provided
by the fifteenth day of the following month, as FTR would not have been able to
determine at that point in time what its damages were. There was unrebutted and
unrefuted testimony that Mr. Godoy, District's Director of Facilities, acknowledged in a
meeting in March of 2000, that certain damages, such as impact damages, could not be
determined until after the project was over. Mr. Seibold, District's expert, conceded this
12
point. [¶] In addition, the District made it impossible for FTR to comply with Article 10
in another way. The evidence showed that District's designated representative
affirmatively prevented FTR from complying with the requirements of Article 10. The
express terms of Article 10 require that the information be presented directly to District's
Director of School Facilities & Classified Services (Mr. Godoy). When FTR delivered
documents or other information directly to Mr. Godoy's office during the project, he
instructed FTR not to deliver things to his office."
The trial court also found: "FTR did give the District notice that the actions
of the District in refusing to give various time extensions were causing FTR to incur
additional costs in completing the project. One of the instances where the District was
placed on notice was when Mr. Katbi [FTR's President] appeared at a board meeting in
June of 2000 and told the trustees that FTR was incurring significant damages because of
the District's refusal to grant time extensions. There were a number of other instances of
notice from FTR to the District, including letters that were sent at various times in which
FTR notified the District of the problems that it was experiencing and the potential claim
for disruption. One such notice was a letter that was sent almost the very first day of the
project, but there were other letters during the project, in addition to the updates that were
provided on a monthly basis."
Finally, the trial court found: "FTR's disruption claim is based upon the
District's breach of contract by failing to grant extensions of time for performance. FTR
gave notice to the District as required by Article 37. The District ignored all notices and
requests for more time. Additional notice under Article 10 was not required. In addition,
notice provisions do not apply where, as here, the defendant has breached the contract."
District does not challenge any of these findings. There is no basis for a
reversal of the award of damages for disruption and delay.
FCA Claims
District contends the trial court erred in denying its action brought under
the FCA. (§ 12650 et seq.) The action alleged that the PCOs submitted by FTR
13
constituted false claims. District points out that the trial court found 26 of the PCOs
submitted by FTR were false.
Section 12651, subdivision (a)(1) provides that a contractor may not
knowingly present or cause to be presented to an officer or employee of the state or any
political subdivision a false claim for payment or approval. A "Claim" includes "any
request or demand . . . for money." (§ 12650, subd. (b)(1).)
District concedes that the submission of a PCO does not standing alone
constitute a claim under the FCA. (Fassberg Construction Co. v. Housing Authority of
City of Los Angeles (2007) 152 Cal. App. 4th 720, 742.) But District relies on a portion of
a letter dated June 8, 2001, in which FTR states: "[W]e request that our (200) change
orders be submitted as claims in accordance with the Contract."
FTR's letter, however, was in response to District's assertion that the PCOs
were not timely under the contract. Read in context, FTR's letter is nothing more than a
demand that the PCOs be considered properly submitted. It is not a demand for payment.
Even District's expert testified District would not have perceived the letter as a formal
claim. District presented no evidence that any representative of District perceived the
letter as a demand for payment.
District argues that a PCO under which the contractor ultimately gets paid
is a false claim under the FCA. (Fassberg Construction Co. v. Housing Authority of City
of Los Angeles, supra, 152 Cal.App.4th at p. 742.) District claims the court awarded
damages on several PCOs it found were false.
In several instances, the court found that the same PCO contained valid and
invalid elements. In such cases, the court awarded damages based only on the valid
elements and no damages on the invalid elements. Thus there was no payment on
elements of the PCOs that could have constituted a false claim.
District argues that in each of the PCOs in which the court found both valid
and invalid claims for damages "the court, without seeing the obvious contradiction,
wrote about the evidence in support of the 'PCO-based claim damages,' it was awarding,
14
and then found that the same PCO was not a 'demand for payment.'" But there is no
contradiction. The court's reference to "PCO-based claim damages" is simply a handy
way of referring to the particular claim of damage alleged in the law suit. The court was
not finding that the PCO constituted a claim within the meaning of the FCA. If District is
suggesting that a contractor must make a demand for payment before bringing a law suit,
it cites no supporting authority.5
Prejudgment Interest
District contends the trial court erred in its award of prejudgment interest.
Civil Code section 3287, subdivision (a) provides, in part: "A person who
is entitled to recover damages certain, or capable of being made certain by calculation,
and the right to recover which is vested in the person upon a particular day, is entitled
also to recover interest thereon from that day . . . ." Subdivision (b) of the section
provides: "Every person who is entitled under any judgment to receive damages based
upon a cause of action in contract where the claim was unliquidated, may also recover
interest thereon from a date prior to the entry of judgment as the court may, in its
discretion, fix, but in no event earlier than the date the action was filed."
Liquidated
Here the court calculated prejudgment interest under Civil Code section
3287, subdivision (a) on the amounts as follows: $1,289,242.80 unpaid on the contract;
less $676,436.49 retained on which two percent, per month was assessed in lieu of
interest; less $183,415 in credits; for a total of $429,391.31. The court calculated interest
on $429,391.31 from August 7, 2001, the date of the notice of completion. The total
interest awarded under Civil Code section 3287, subdivision (a) was $434,579.89.
District argues the amount of damage was not liquidated because the court
did not calculate the credits until after litigation was completed. But District offered no
5
District's motion for an extension of time to serve its opening brief on the Attorney
General pursuant to section 12656 and to augment the record to show compliance with
the section is denied as moot.
15
evidence to dispute the amount of the credits. In the sole example it relies on to show it
disputed the amount of the credits, the trial court found: "The District introduced [a letter
from the District's representative, Jason Johnson, discussing the parties' credit proposals]
for non-hearsay purposes and, thus, not for the truth of any of its contents. The parties
stipulated that the Court deem that Jason Johnson was recalled as a witness and testified
that he had no intention to cheat FTR or anyone else when he prepared the letter. The
District presented no other evidence to establish any amount of the credit other that [sic]
the amount offered by FTR." District offered no evidence to challenge the amount of
FTR's offer.
In any event, even if the amount of the credit remained unliquidated until
after trial, it would not affect the award of prejudgment interest. Prejudgment interest is
awarded on the balance of the claim after deduction of an unliquidated setoff. (Bentz
Plumbing & Heating v. Favaloro (1982) 128 Cal. App. 3d 145, 152.) That is what the trial
court did here.
District argues a large discrepancy between the amount of damages
demanded in the complaint and the size of the eventual award, militates against a finding
of certainty mandated by Civil Code section 3287, subdivision (a). (Citing Polster, Inc.
v. Swing (1985) 164 Cal. App. 3d 427, 435.) Although a large discrepancy may militate
against a finding of certainty, it does not prohibit it. The trial court correctly awarded
prejudgment interest under Civil Code section 3287, subdivision (a).
Unliquidated
The trial court also exercised its discretion to award prejudgment interest
on unliquidated damages under Civil Code section 3287, subdivision (b). It awarded
$161,896.89 in prejudgment interest on 25 PCOs from August 7, 2001, the date of the
project's completion. The court found that District either accepted FTR's price or had
information to determine the amount of FTR's damages at the time of completion.
District complains the amount of interest awarded exceeded the $159,968.31 awarded in
damages on these PCOs. But the trial court faulted District for the failure to pay the
16
damages more than 10 years earlier. Under the circumstances, District will not be heard
to complain that the interest exceeded the principal.
District complains that the court awarded interest on other PCOs and on
delay and disruption damages from November 4, 2008, the day the presentation of the
evidence in trial concluded. District points out that the trial court did not finally
determine the amount of damages on those items until months after November 4, 2008.
District's argument does nothing more than point out that on November 4, 2008, the
damages were not liquidated. But Civil Code section 3287, subdivision (b) allows
prejudgment interest on unliquidated damages.
Of course, the amount of prejudgment interest may have to be adjusted to
the extent the trial court finds the PCOs on which it awarded damages were not timely
under Article 37D of the contract. Except to that extent, the trial court did not err in
awarding prejudgment interest.]]
Attorney Fees
The trial court awarded FTR $3.85 million attorney fees. The contract did
not contain an applicable attorney fee clause. The only basis for the award was section
7107. Section 7107 provides for an award of attorney fees incurred in obtaining the
release of retention monies withheld under the contract. In this case, the amount withheld
was $676,436.40.
The trial court found that the $3.85 million award was justified because
District raised an "unclean hands" defense to FTR's action, including its action under
section 7107. The court determined that by raising the unclean hands defense, issues in
40 percent of the pretrial phase and 75 percent of the trial phase of the action became
"inextricably intertwined."
FTR's counsel did not submit itemized time records, estimates of time spent
on discrete tasks, billings submitted to the client or records of payments made for work
done. Instead, counsel submitted estimates of time spent prepared years after the work
was performed.
17
Questioning counsel's estimates, the trial court undertook its own analysis
of the evidence and the record. Some analysis involved events that occurred prior to the
time the case was assigned to the court. The court concluded the reasonable lodestar
award of fees is $3.5 million. In consideration of the factors stated in Serrano v. Priest
(1977) 20 Cal. 3d 25, 49, the court added 10 percent to the lodestar, for a total award of
$3.85 million.
District argues that without time sheets, billing entries or reliable testimony,
the court had no foundation for determining how much time counsel spent over 10 years
of litigation. But here the trial court made its own determination of fees based on its
analysis and the record. A trial court may award fees solely on the basis of the
experience and knowledge of the trial judge. (Fed-Mart Corp. v. Pell Enterprises, Inc.
(1980) 111 Cal. App. 3d 215, 227.) That some proceedings occurred prior to the
assignment of the action to the trial court, does not prevent the court from estimating fees
based on the record.
District argues the trial court failed to apportion the fees between those
spent on FTR's cause of action pursuant to section 7107 and the other causes of action.
FTR answers that no apportionment is required for fees incurred for representation on an
issue common to a cause of action in which fees are appropriate and one in which fees
are not allowed. (Thompson Pacific Construction, Inc. v. City of Sunnyvale (2007) 155
Cal. App. 4th 525, 555.)
The linchpin in the trial court's finding of inextricably intertwined issues is
District's unclean hands defense. FTR argued that it was required to prevail on its other
causes of action in order to defeat the unclean hands defense to its section 7107 cause of
action. The trial court essentially accepted the argument.
The trial court had previously found, however, that the unclean hands
doctrine did not apply to any of FTR's causes of action. The court stated: "The defense
of unclean hands arises from the maxim: 'He who comes into Equity must come with
clean hands.' Blain v. Doctor's Co. (1990) 222 Cal. App. 3d 1048. Whether the doctrine
18
of unclean hands applies is a question of fact. CrossTalk Productions, Inc. v. Jacobson
(1998) 65 Cal. App. 4th 631. [¶] The Blain court enunciated a three-pronged test to
determine the effect to be given to the plaintiff's unclean hands conduct. Whether the
particular misconduct is a bar to the alleged claim for relief depends on (1) analogous
case law, (2) the nature of the misconduct, and (3) the relationship of the misconduct to
the claimed injuries. Blain, supra, . . . at p. 1060; accord, Unilogic, Inc. v. Burroughs
Corp. (1992) 10 Cal. App. 4th 612, 618-621; CrossTalk Productions, supra, [at pp. 641-
643]. [¶] FTR contends, and the District concedes, that there is no analogous case law
supporting the application of the unclean hands defense to the facts present here. The
Court therefore finds that the District failed to meet the first prong stated in Blain. That
finding alone is sufficient to warrant the denial of the defense. CrossTalk Productions,
Inc., supra, [at pp. 641-642] (defense rejected, court noting that '[d]efendant has cited no
authority finding unclean hands generally to be a defense to [similar] claims'); In re
Brandie W. (1984) 157 Cal. App. 3d 110 (defense rejected because 'neither party has cited
any case from this state applying the clean hands doctrine to facts analogous to those
before us. Our own research has likewise been unfruitful.')"
FTR argues that because the application of the doctrine of unclean hands is
a question of fact, the case had to be tried in order to determine the defense did not apply.
It claims that rarely can an unclean hands defense be resolved on a legal basis. (Citing
CrossTalk Productions, Inc. v. Jacobson, supra, 65 Cal.App.4th at p. 641.) It points out
that the trial court found there is no analogous case law supporting the application of the
unclean hands defense "to the facts presented here."
Although the application of the unclean hands defense is usually a question
of fact, under appropriate circumstances it may be determined as a matter of law. (See,
e.g., Mendoza v. Ruesga (2008) 169 Cal. App. 4th 270, 279 [holding as a matter of law
unclean hands defense does not apply].) Here because there is no analogous case
applying the doctrine of unclean hands as a defense to an action pursuant to section 7107
the doctrine can be determined as a matter of law.
19
Not only is there no analogous case applying the doctrine to an action
pursuant to section 7107, there are analogous cases holding as a matter of law that the
doctrine does not apply to such statutory causes of action.
In Mendoza v. Ruesga, supra, 169 Cal. App. 4th 270, a group of immigrants
sued an immigration consultant alleging violations of the Immigration Consultants Act
(ICA). (Bus. & Prof. Code, § 22440 et seq.) The defendant raised unclean hands as a
defense based on the immigrants' undocumented status. The court held the doctrine of
unclean hands inapplicable as a matter of law stating: "Plaintiffs contend that as a matter
of law the unclean hands doctrine is inapplicable to their cause of action under the ICA
because it is based on Ruesga's violation of statutes intended to protect consumers. [Fn.
omitted.] We agree with plaintiffs. 'It is true that when the Legislature enacts a statute
forbidding certain conduct for the purpose of protecting one class of persons from the
activities of another, a member of the protected class may maintain an action
notwithstanding . . . that he has shared in the illegal transaction. The protective purpose
of the legislation is realized by allowing the plaintiff to maintain his action against a
defendant within the class primarily to be deterred.' [Citation.]" (Id., at p. 279; see also
Ticconi v. Blue Shield of California Life & Health Ins. Co. (2008) 160 Cal. App. 4th 528,
543 [holding defense of unclean hands does not apply to an action under the unfair
competition law (Bus. & Prof. Code, § 17200 et seq.)].)
Here section 7107 is intended to protect one class of persons (public works
contractors) from the activities of another (public entities). As a matter of law the
doctrine of unclean hands does not apply.
It may be that as to other causes of action in this case, the matter had to be
tried to determine whether unclean hands applied. But no factual findings were necessary
to determine that the doctrine of unclean hands does not apply to an action under section
7107. The issues in FTR's action pursuant to section 7107 were not inextricably
intertwined with other issues in the case.
20
It is beside the point that District urged the trial court to wait until the end
of trial to rule on its unclean hands defense. The question is not when the court rules, but
whether there are common issues that must be determined to resolve both a cause of
action for which fees are allowed and a cause of action for which fees are not allowed.
Where, as here, there are no such common issues, a defendant may recover attorney fees
relating solely to the cause of action for which fees are allowed. (See Reynolds Metals
Co. v. Alperson (1979) 25 Cal. 3d 124, 129.)
Conclusion
The matter is reversed and remanded to the trial court with instructions to
(1) limit the award of attorney fees to fees incurred solely in relation to FTR's cause of
action under section 7107; [[(2) determine which, if any, of FTR's extra work claims
were not timely under Article 37D of the contract; and (3) to adjust the award of
prejudgment interest, if necessary, to accord with any reduction in the damage award.]]
In all other respects, the judgment is affirmed.
Each party is to bear its own costs.
CERTIFIED FOR PARTIAL PUBLICATION.
GILBERT, P. J.
We concur:
YEGAN, J.
PERREN, J.
21
William Q. Liebmann, Judge
Mark S. Borrell, Judge
Superior Court County of Ventura
______________________________
Baute Crochetiere & Gilford, Andrew M. Gilford, David P. Crochetiere;
Negele & Associates, James R. Negele, Jonathan R. Hickman for Defendant and
Appellant.
Kronick, Moskovitz, Tiedemann & Girard, Christian M. Keiner, Chelsea R.
Olson, James P. Wiezel for Education Legal Alliance of the California Schools Board
Association as Amici Curiae on behalf of Defendant and Appellant.
Raisin & Kacvioglu, Bradley A. Raisin, Horwitz, Cron & Armstrong, John
R. Armstrong for Plaintiff and Respondent.
Cox, Castle & Nicholson, Kenneth B. Bley, Randy P. Orlik, Susan S.
Davis, Bradley A. Raisin, for Intervener and Respondent.