SBI Builders v. Hartford Fire Insurance CA6 ( 2021 )

Filed 10/22/21 SBI Builders v. Hartford Fire Insurance CA6
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication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
SIXTH APPELLATE DISTRICT
SBI BUILDERS, INC., et al., H045715
(Santa Clara County
Cross-complainants and Appellants, Super. Ct. No. 1-14-CV-271082)
v.
HARTFORD FIRE INSURANCE
COMPANY, et al.,
Cross-defendants and Appellants.
I. INTRODUCTION
This case stems from the construction of an affordable apartment complex in
San Jose. After the developer, San Jose 3rd Street Associates (3rd Street),1 engaged SBI
Builders, Inc. (SBI) to build the apartment complex, disputes arose regarding the
existence of contracts, the payment due to SBI, and the scope of SBI’s work on the
apartment project.
The litigation in this matter began when Largo Concrete, Inc., a subcontractor of
SBI, filed a complaint alleging that SBI had failed to pay Largo for its work on the
apartment project. SBI then filed a cross-complaint against 3rd Street and its associated
general contractor, Pacific West Builders (PWB). 3rd Street and PWB both
cross-complained against SBI. SBI settled Largo’s claims before the matter proceeded to
a court trial on the cross-complaints.
Consistent with the trial court’s usage, we will refer to San Jose 3rd Street
1
Associates as 3rd Street.
The judgment entered on February 5, 2018, incorporated the court’s statement of
decision following the court trial, and provided, among other things, that (1) SBI is
entitled to recover $585,372 from 3rd Street and PWB (which included $489,026 for the
reasonable value of SBI’s services and the amount of $96,346 that SBI had paid to settle
Largo’s claims); (2) SBI prevailed on its mechanic’s lien claim and is entitled to recover
$489,026 from Hartford Fire Insurance Company (Hartford) due to Hartford’s issuance of
a mechanic’s lien release bond; (3) the claims of 3rd Street and PWB against SBI were
denied; and (4) SBI was deemed the prevailing party in this matter and was entitled to its
costs from 3rd Street and PWB. In a postjudgment order the trial court denied SBI’s
motion for attorney fees.
On appeal, 3rd Street and PWB contend that the trial court erred in awarding SBI
$96,436 and seek reversal of that portion of the judgment. On cross-appeal, SBI
contends that the trial court erred because (1) the concrete podium subcontract is
enforceable; (2) SBI is entitled to prejudgment interest; (3) SBI is entitled to statutory
prompt payment penalties; and (4) SBI is entitled to attorney fees. For the reasons stated
below, we will affirm the judgment.
II. FACTUAL AND PROCEDURAL BACKGROUND
A. The Pleadings
1. Largo’s Complaint
This litigation began when Largo filed a complaint asserting claims related to its
work on a project known as the Third Street Apartments. Largo’s first amended
complaint named SBI, Travelers Casualty and Surety Company of America (Travelers),
and Hartford as defendants. Largo alleged that it had a subcontract with SBI to provide
concrete podium work for the Third Street Apartments, which SBI breached by failing to
pay Largo. Alternatively, Largo sought payment of the reasonable value of its services,
to recover on the payment bond issued by Travelers, and to recover on the mechanic’s
lien release bond issued by Hartford. Largo is not a party to the present appeal, since its
2
claims against SBI were resolved before trial and its claims against Hartford were
dismissed.
2. SBI’s Cross-complaint
SBI responded to Largo’s complaint by filing a cross-complaint. At the time of
trial, the operative pleading was SBI’s second amended cross-complaint (the cross-
complaint), which named as cross-defendants PWB, 3rd Street, and Hartford. SBI
alleged in its cross-complaint that 3rd Street, the property owner, and SBI had intended
that SBI would be the general contractor for the entirety of the project known as Third
Street Apartments located at South 3rd Street in San Jose.
SBI further alleged that the Third Street Apartments project was divided into three
phases to accommodate partial funding from grants, and that the phases were known as
“the Soil Remediation phase (Phase I), the Podium Structure phase (Phase II), and the
Apartment Build-out phase (Phase III).” On June 27, 2013, SBI allegedly entered into a
contract with 3rd Street to act as a subcontractor with the general contractor, PWB, for
the concrete podium work in the amount of $2,168,216.
As work on the concrete podium progressed, SBI submitted monthly pay
applications to PWB, the alleged alter ego of 3rd Street, beginning in November 2013.
According to SBI, PWB failed to pay the February and March 2014 pay applications,
stating that SBI should accept a different amount for the podium work. Although SBI
completed its work on the concrete podium in May 2014, PWB allegedly failed to pay
SBI, which left SBI unable to pay its subcontractors, including Largo. SBI asserted that
under the podium contract it was owed $674,759.53.
Based on these and other allegations, SBI stated causes of action against PWB and
3rd Street for breach of contract, quantum meruit, account stated, and unjust enrichment;
causes of action against PWB for indemnity, contribution, and declaratory relief; and
causes of action against Hartford for release of mechanic’s lien release bond and
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assignment of Largo’s rights against Hartford (the assignment cause of action was
summarily adjudicated before trial).
3. PWB’s Cross-complaint
PWB, a California licensed contractor doing business in California as Idaho
Pacific West Builders Inc., filed a cross-complaint naming SBI and Travelers as
cross-defendants. PWB alleged that 3rd Street was the owner of real property where an
affordable housing project then known as the “Third Street Family Apartments” was
built.
PWB further alleged that the construction of the “Third Street Family Apartments”
was divided into three contracts, the first for soil remediation work, the second for the
concrete podium, and the third for the construction of the apartments on top of the
concrete podium. According to PWB, 3rd Street as owner entered into a contract with
SBI for the remediation work. It was then decided that PWB would be the prime
contractor for the construction of the concrete podium and the apartments, and that SBI
would be PWB’s subcontractor for those portions of the work.
3rd Street allegedly entered into a contract dated June 27, 2013, with SBI for the
construction of the concrete podium for a total price of $2,168,216. PWB further alleged
that a detailed scope of work for the concrete podium subcontract was set forth in SBI’s
June 5, 2013 schedule of values.
PWB stated a cause of action for breach of contract, alleging that SBI had
breached the concrete podium subcontract by failing to complete all of the work that SBI
had agreed to perform. PWB also alleged that SBI breached the podium subcontract by
failing to pay its lower tier subcontractors, which caused these subcontractors to file
mechanic’s liens against the Third Street Apartments project. PWB also stated causes of
action against SBI for indemnity, contribution, and declaratory relief, plus a cause of
action against SBI and Travelers for breach of obligation to pay claims under the
payment and performance bond issued by Travelers to SBI for its work on the project.
4
4. 3rd Street’s Cross-complaint
3rd Street, a limited partnership, and its general administrative partner, TPC
Holdings IV, LLC (TPC Holdings), filed a cross-complaint against cross-defendant SBI.
3rd Street alleged that a real estate developer named Global Premier had intended to
construct an affordable housing apartment complex with SBI as the contractor.
Eventually, the apartment project was taken over by 3rd Street. SBI allegedly
represented to 3rd Street that the project was essentially fully designed, that SBI wanted
to perform the entire project, and that SBI could provide reasonably accurate “cost
pricing” for completing the project.
According to 3rd Street, SBI and 3rd Street agreed that if 3rd Street purchased the
property where the apartment complex was to be built, and SBI agreed to a price for the
entire project, the work would be divided into three contracts: (1) a prime contract
between 3rd Street and SBI for the soil remediation and site work; (2) a prime contract
between 3rd Street and PWB as general contractor for the concrete podium work with a
subcontract between PWB and SBI; and (3) a prime contract with 3rd Street and PWB as
general contractor for the apartments/superstructure with a subcontract between PWB and
SBI.
Before purchasing the property where the apartment complex was to be built, 3rd
Street allegedly asked SBI to provide a schedule of values for all three parts of the
project. SBI provided a schedule of values dated March 5, 2013, which 3rd Street asserts
had three columns showing SBI’s pricing for the tasks associated with each part of the
project, including one column for the soil remediation work, a middle column for the
concrete podium work, and a third column for the apartment/superstructure work, for a
total overall project price of $6,840,245. According to 3rd Street, the March 5, 2013
schedule of values showed that SBI’s price for the “tasks/scope of work” for the concrete
podium work was $2,168,216.
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3rd Street subsequently determined that due to a budget shortfall the apartment
project was not economically feasible and it would not purchase the property. SBI then
agreed to a price reduction. In exchange for a price reduction of $100,000, SBI received
a promissory note in the amount of $100,000 from TPC Holdings. 3rd Street then
entered into the proposed prime contracts with PWB for the concrete podium and the
apartments/superstructure.
3rd Street further alleged that on June 27, 2013, SBI entered into a written
subcontract with PWB for construction of the concrete podium in the amount of
$2,168,216. Relying on SBI’s execution of the concrete podium subcontract and SBI’s
alleged agreement that it could complete the entire project for $6,840,245 less the
$100,000 reduction, 3rd Street purchased the property where the apartment complex was
to be built.
Thereafter, 3rd Street agreed to an SBI change order in the amount of $95,200 to
pay prevailing wages to Largo, which increased the cost of the concrete podium contract
to $2,263,416. A dispute then arose between the parties where, according to 3rd Street,
SBI demanded to be paid more than the agreed-upon price to complete the concrete
podium and the apartment/superstructure. SBI then allegedly agreed that PWB would
“take back” certain scopes of work for the concrete podium and SBI would not receive
the full contract price of $2,168,216. 3rd Street’s offer to pay SBI for supervising the
new subcontractors obtained by PWB to complete the concrete podium work was
allegedly refused by SBI. 3rd Street later learned that SBI had failed to pay its
subcontractors for their work on the concrete podium and that numerous mechanic’s liens
had been filed against the property.
Based on these and other allegations, 3rd Street stated causes of action for breach
of the remediation contract, contractual indemnity, equitable indemnity, breach of
agreement to perform the entire project for $6,740,245 (including a third party
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beneficiary claim for breach of the concrete podium subcontract), and cancellation of the
$100,000 promissory note.
B. The Court Trial
The action on the cross-complaints of SBI, PWB, and 3rd Street proceeded to a
lengthy court trial. We provide a brief summary of the pertinent evidence admitted at
trial.2
The CEO and President of both PWB and Pacific West Communities, Caleb
Roope, testified that PWB is a general construction company and Pacific West
Communities is a real estate developer that specializes in the development and
construction of affordable housing. Pacific West Communities became involved in the
Third Street Apartments project in 2012 when a competitor, Global Premier, introduced
them to the project. Global Premier had begun the project as a design/build project with
SBI, a San Jose general contractor. Paul Nuytten, the president of SBI, described SBI as
a general contractor that hires subcontractors and coordinates their work on construction
projects.
Pacific West Communities eventually decided to take over the Third Street
Apartments project from Global Premier, which had run into financial difficulties.
A limited partnership, 3rd Street, was formed specific to the Third Street Apartments
project in anticipation of the assignment of a CALReUSE grant for remediation of the
project site. TCP Holdings is the general administrative partner of 3rd Street. Roope is
the manager and owner of TCP Holdings.
In the course of deciding whether to take over the Third Street Apartments project,
3rd Street began working with SBI. It was decided that the project would involve three
separate contracts due to grant funding requirements, including a remediation contract, a
concrete podium contract, and an apartments/superstructure contract. In November 2012,
2
The July 1, 2021 motion of 3rd Street/PWB to augment the record with respect to
certain exhibits is granted.
7
SBI and 3rd Street entered into a $546,500 contract for remediation of the project site for
the Third Street Apartments exhibit A to the remediation contract specified the scope of
work to be performed under the contract. It is undisputed that SBI completed the work
on the remediation contract, and that SBI was later provided with the apartment contract
but never signed it.
By March 2013, SBI was planning to build the entire Third Street Apartments
project. Roope received an updated schedule of values dated March 5, 2013, from SBI
that Nuytten had prepared due to cost increases.3 Roope understood the March 5, 2013
schedule of values to show that SBI’s total construction cost for the project would be
$6,840,245, excluding change orders.
Since Roope had asked SBI to separate out the costs for the site work, the concrete
podium, and the apartments/superstructure, the March 5, 2013 schedule of values
included line items for the concrete podium portion of the project that totaled $2,168,216.
Roope relied on SBI’s March 5, 2013 schedule of values in deciding whether to go ahead
with the Third Street Apartments project.
In April 2013 Roope determined that the Third Street Apartments project had a
funding shortfall that would prevent the project from going forward. SBI and other
participants in the project then agreed to give price reductions to save the project. SBI
agreed to reduce its total project cost by $100,000 in exchange for a promissory note
from TCP Holdings in the amount of $100,000. Roope believed that the $100,000
promissory note was consideration given to SBI to perform the construction work for the
entire project, and he relied on an oral agreement with SBI to complete the entire project
for $6,740,245 before closing escrow on the property for the project site. Although
Roope acknowledged that he normally did not use oral agreements, he believed that the
3
Roope refers to the March 5, 2013 document as a “schedule of values” and
Nuytten refers to the same document as a “cost estimate.” In accordance with the trial
court’s usage, we will refer to the March 5, 2013 document as a schedule of values.
8
oral agreement with SBI in the amount of $6,740,245 was enforceable because it had
been confirmed in writing and SBI was proceeding in good faith. However, Nuytten
testified that he did not know of anyone in the construction industry using oral contracts,
and he denied that SBI had entered into an oral agreement to build the whole project for
approximately $6.8 million.
Further, Nuytten did not believe that the March 5, 2013 schedule of values
constituted the scope of work for a contract to build the Third Street Apartments project.
At the time he prepared the March 5, 2013 schedule of values Nuytten understood that
the project did not require payment of prevailing wages, and therefore the higher cost of
prevailing wages was not included in the March 5, 2013 schedule of values. However, in
June 2013 Nuytten was informed that prevailing wages were required for a part of the
project funded by an infill grant.
In June 2013 SBI was still planning to build the entire Third Street Apartments
project from start to finish. The next contract that SBI signed was the subcontract with
PWB to build the concrete podium. Nuytten signed the concrete podium subcontract on
behalf of SBI on June 27, 2013, under pressure to sign the subcontract immediately due
to a financing deadline. The concrete podium subcontract in the amount of $2,168,216
expressly provided that it was a “State Prevailing Wage Contract.” SBI later added a
change order for $95,200 to pay prevailing wages to a non-prevailing wage
subcontractor.
Regarding the scope of work, the June 27, 2013 concrete podium subcontract
provided as follows at paragraph III: “A. Subcontractor’s Scope of Work:
Subcontractor agrees to furnish all labor, services, materials, equipment and other
facilities of every kind and description, temporary or permanent, required for the prompt
and efficient performance of the complete scope of work (‘Subcontract Work’) described
in Scope of Work attached as Exhibit ‘A’ [and] the plans and specifications listed in
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Exhibit ‘B’ which are hereby made a part hereof, and all requirements of the Contract
Documents (defined in Section IV below).”
It was undisputed that neither exhibit A nor exhibit B were attached to the
concrete podium subcontract. Zack Deboi, the chief financial officer for Pacific West
Communities and PWB, testified that when he sent SBI a proposed subcontract for the
concrete podium he believed that exhibit A would be SBI’s March 5, 2013 schedule of
values. However, Deboi acknowledged that there was no exhibit A attached to the
concrete podium subcontract when it was signed. Deboi also acknowledged that it was
his responsibility to attach the exhibit A scope of work to the concrete podium
subcontract, and that no exhibit A was prepared or attached.
However, Deboi maintained that SBI had implied during contract negotiations that
the March 5, 2013 schedule of values showed the scope of work for the concrete podium
subcontract. Nuytten denied that the line items in the concrete podium column included
in SBI’s March 5, 2013 schedule of values constituted the scope of work for the concrete
podium subcontract. According to Nuytten, as of June 27, 2013, the date the concrete
podium contract was signed, there was no agreed-upon scope of work.
In August 2013 SBI began working on the site remediation portion of the project
under the remediation contract that SBI had previously signed. The increasing costs of
the project then became a concern. In October 2013 Nuytten provided an updated
schedule of values to PWB because SBI was over budget on the project due to market
conditions and the requirement to pay prevailing wages.
At the end of October 2013 Nuytten was advised by Zack Deboi that the
remaining work on the project would be transitioned to PWB. Deboi intended that the
$2,168,216 price for the concrete podium subcontract would be reduced by the amounts
from SBI’s March 5, 2013 schedule of values that PWB would now pay instead of SBI,
such as the cost of plumbing, electrical, and elevator work. By early November 2013 the
work on the concrete podium had just begun. At that point, it was determined that SBI
10
would continue to coordinate the subcontractors working on the concrete podium and
then hand off the project after the top of the podium was completed. SBI’s work on the
concrete podium was substantially completed in April 2014. The concrete podium was
finally completed in June 2014.
While working on the Third Street Apartments project, SBI sent a monthly
payment application to PWB. A payment application is a request for payment based
upon the percentage of work that has been completed. Deboi, as chief financial officer
for PWB, recalled that he paid SBI’s pay applications for November 2013, December
2013, January 2014, and February 2014. However, he deducted $88,000 from the
February 2014 pay application and $32,000 from the March 2014 pay application. Deboi
did not pay either SBI’s April 2014 pay application or SBI’s retention pay application.
James Amlicke, who was SBI’s chief operations and financial officer, stated that Deboi
paid only three of the six pay applications submitted by SBI.
In total, Deboi paid SBI $1,603,562.06 on the concrete podium subcontract, which
Amlicke noted was less than the SBI’s cost for the job. Deboi’s calculation of the
amount owed to SBI included a deduction of $173,400 for not completing the concrete
topping slab and a deduction for work that PWB took back and paid directly to the
subcontractors. Deboi later learned that a concrete topping slab was excluded from
Largo’s subcontract with SBI and conceded that the March 5, 2013 schedule of values
did not include a line item for a concrete topping slab. In September 2014 SBI filed a
mechanic’s lien in the amount of $674,759, which was the amount SBI claimed it was
owed for its work on the concrete podium contract.
David Ross, SBI’s construction expert, provided several opinions regarding
custom and practice in the construction industry. In Ross’s opinion, it was not industry
custom and practice for commercial contractors to utilize oral agreements due to the
complexity of construction contracts in large scale construction projects. Ross defined
“scope of work” as a “narrative description of the elements of the project.” He
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determined that the March 5, 2013 schedule of values was a cost breakdown and not a
scope of work consistent with industry custom and practice, stating that the schedule of
values would typically be attached to the contractor’s pay applications.
The parties each presented an accounting expert to support its damages claim.
SBI’s expert, Steven Matthew Hoslett, is a certified public accountant specializing in
forensic accounting. Hoslett’s calculations included the cost to SBI of settling Largo’s
claims in the amount of $96,000. Using four different methods of calculating SBI’s loss
on the concrete podium subcontract, Hoslett determined that SBI’s losses could be
calculated as either $771,105.53; $671,538; $564,207; or $585,372.
The accounting expert for 3rd Street and PWB, Steve Morang, provided opinions
regarding their damages related to the concrete podium subcontract, the total project cost,
and the promissory note. To calculate the damages relating to the concrete podium
subcontract, Morang deducted the scopes of work that SBI did not perform from the
contract price plus change orders, and concluded that SBI owed $14,788.47. Morang
further determined that the damages related to the overall project totaled $1,038,261.53.
Morang also stated that it was his opinion that the damages from the promissory note
issued by TPC Holdings to SBI was $100,000, which was the amount of the promissory
note if the note was not invalidated by the court.
C. Statement of Decision and Judgment
On December 15, 2017, the trial court provided an oral statement of decision in a
ruling from the bench and directed counsel for SBI, the prevailing party, to prepare a
tentative statement of decision. After 3rd Street/PWB filed objections to the tentative
statement of decision submitted by SBI, the final statement of decision was filed on
January 26, 2018.
In the statement of decision, the trial court made several rulings. Preliminarily, the
trial court ruled that 3rd Street and PWB were agents of each other, and there was no
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substantive difference between them for purposes of this matter.4 Regarding the parties’
contract claims, the trial court found that (1) there was no oral “umbrella” agreement
between 3rd Street/PWB and SBI that obligated SBI to build the entire Third Street
Apartments project for $6.8 million; (2) the parties did not agree on the scope of work
for the concrete podium contract; (3) SBI is entitled to damages in the amount of
$489,026,5 which is the reasonable value of the work SBI performed on the concrete
podium contract; and (4) all breach of contract claims by 3rd Street/PWB are denied.
The trial court also ruled that SBI was entitled to foreclose on its mechanic’s lien,
and therefore SBI was entitled to recover $489,026 from Hartford, which had issued a
mechanic’s lien release bond.6 In addition, the trial court found that SBI had reasonably
mitigated its damages by resolving Largo’s claim against SBI and was entitled to recover
the settlement amount of $96,346. However, the trial court rejected SBI’s claims that it
was entitled to prejudgment interest and prompt payment penalties, finding that these
claims were barred by the “uncertainty about the actual costs of the work as reflected by
the dispute.”
Finally, the trial court ruled that the $100,000 promissory note given to SBI should
be cancelled because “the note was given in connection with a reduced price to perform
the entire Project and because SBI did not perform the entire Project.”
4
Consistent with the trial court’s finding and for ease of reference, we will refer to
3rd Street and PWB henceforth collectively as 3rd Street/PWB.
5
The trial court’s award of $489,026 for the reasonable value of SBI’s services
appears to be based upon the fourth method of damages calculation stated by SBI’s
damages expert, and does not include the amount of $96,346 that SBI paid to settle the
Largo lawsuit. No issue has been raised on appeal as to the amount of $489,026 awarded
for the reasonable value of SBI’s services.
6
“The purpose of the release bond procedure is to provide a means by which,
before a final determination of the lien claimant’s rights and without prejudice to those
rights, the property may be freed of the lien, so that it may be sold, developed, or used as
security for a loan.” (Hutnick v. United States Fidelity & Guaranty Co. (1988) 47 Cal. 3d
456, 462; Civ. Code, § 8424 [lien release bond].)
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The judgment entered on February 5, 2018 incorporated the statement of decision
and provided that (1) SBI is entitled to recover $585,372 from 3rd Street and PWB;
(2) SBI prevailed on its mechanic’s lien claim and is entitled to recover $489,026 from
Hartford due to Hartford’s issuance of the mechanic’s lien release bond; (3) the claims of
3rd Street and PWB against SBI are denied; (4) the $100,000 promissory note given to
SBI by TPC Holdings is canceled, and there was no prevailing party on the cause of
action relating to the promissory note; and (5) SBI is the prevailing party in this matter
and entitled to its costs from 3rd Street and PWB.
In the July 18, 2018 postjudgment order, the trial court denied SBI’s motion for
attorney fees, ruling that there was no basis for an award of attorney fees to SBI because
there was no contract between 3rd Street/PWB and SBI. In the same order, the trial court
awarded SBI costs in the amount of $36,313. An amended judgment was entered on
August 23, 2018 that included the award of costs.
III. SBI’S CROSS-APPEAL
We will begin our review with SBI’s cross-appeal since the issues on cross-appeal
include the threshold issue of the enforceability of the concrete podium subcontract. On
cross-appeal, SBI contends that the trial court erred because (1) the concrete podium
subcontract is enforceable; (2) SBI is entitled to prejudgment interest; (3) SBI is entitled
to statutory prompt payment penalties; and (4) SBI is entitled to attorney fees. We first
address the standard of review that applies where, as here, the judgment is based upon a
statement of decision following a court trial.
A. Standard of Review
On appeal, the general rule is that “ ‘[a]ll intendments and presumptions are
indulged to support [the judgment] on matters as to which the record is silent, and error
must be affirmatively shown.’ ” (Denham v. Superior Court (1970) 2 Cal.3d 557, 564;
In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1133.)
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More specifically, “ ‘in reviewing a judgment based upon a statement of decision
following a bench trial, “any conflict in the evidence or reasonable inferences to be
drawn from the facts will be resolved in support of the determination of the trial court
decision. [Citations.]” [Citation.] In a substantial evidence challenge to a judgment, the
appellate court will “consider all of the evidence in the light most favorable to the
prevailing party, giving it the benefit of every reasonable inference, and resolving
conflicts in support of the [findings]. [Citations.]” [Citation.] We may not reweigh the
evidence and are bound by the trial court’s credibility determinations. [Citations.]
Moreover, findings of fact are liberally construed to support the judgment. [Citation.]’
[Citation.] The appellant has the burden of demonstrating that ‘there is no substantial
evidence to support the challenged findings.’ [Citation.]” (Manson v. Shepherd (2010)
188 Cal.App.4th 1244, 1264 (Manson).)
Additionally, “[t]he doctrine of implied findings requires the appellate court to
infer the trial court made all factual findings necessary to support the judgment.
[Citation].” (Fladeboe v. American Isuzu Motors Inc. (2007) 150 Cal.App.4th 42, 58
(Fladeboe).) “If the party challenging the statement of decision fails to bring omissions
or ambiguities in it to the trial court’s attention, then, under Code of Civil Procedure
section 634, the appellate court will infer the trial court made implied factual findings
favorable to the prevailing party on all issues necessary to support the judgment,
including the omitted or ambiguously resolved issues. [Citations.] The appellate court
then reviews the implied factual findings under the substantial evidence standard.
[Citations.]” (Id. at pp. 59-60.)
B. The Concrete Podium Subcontract
1. Background
In the statement of decision, the trial court found “that the parties did not agree on
the scope of work of the Podium Contract. While the dispute would likely have been
avoided had 3rd St/PWB attached an exhibit A scope of work to the Podium Contract
15
when the parties executed the contract, it did not do that. It was 3rd St/PWB’s obligation
to do so, it was their form of contract, and they drafted it.”
The trial court further found, as stated in the court’s ruling from the bench, that
SBI was entitled to recover the reasonable value of its services for its work on the
concrete podium: “I think that [SBI] are entitled to quantum meruit. . . . [¶] So based
upon that I think that they [are] entitled to the reasonable value of the services that were
performed and I accept SBI’s damages . . . . ”7 Although the trial court did not
expressly rule that the concrete podium subcontract was unenforceable, that ruling is
implicit in the court’s ruling from the bench that SBI was entitled to recover in quantum
meruit. (See Reeve v. Meleyco (2020) 46 Cal.App.5th 1092, 1101 [theory of quantum
meruit allows recovery of the reasonable value of services where there is no enforceable
contract].)
2. The Parties’ Contentions
SBI contends that the applicable standard of review is de novo, and under that
standard, this court should determine that the trial court erred in finding that the concrete
podium subcontract is unenforceable. According to SBI, the concrete podium
subcontract should be enforced because the evidence shows that the subcontract was
sufficiently certain. Specifically, SBI argues that SBI’s pre-dispute conduct in
completing the work on the concrete podium, combined with the conduct of 3rd
Street/PWB in paying SBI’s pay applications, shows that the parties mutually intended to
be bound by the concrete podium subcontract.
3rd Street/PWB responds that the correct standard of review is substantial
evidence. Under that standard, 3rd Street/PWB argues, substantial evidence supports the
7
We may consider the trial court’s oral ruling from the bench where it is
consistent with the judgment. “There are instances in which a court’s oral comments
may be valuable in illustrating the trial judge’s theory, but they may never be used to
impeach the order or judgment on appeal. [Citation.]” (Shaw v. County of Santa Cruz
(2008) 170 Cal.App.4th 229, 268.)
16
trial court’s finding that the concrete podium subcontract is uncertain, and therefore
unenforceable, because the parties did not agree as to the scope of work.
3. Analysis
Regarding uncertainty, this court has stated: “ ‘The terms of a contract are
reasonably certain if they provide a basis for determining the existence of a breach and
for giving an appropriate remedy.’ [Citations.] But ‘[i]f . . . a supposed “contract” does
not provide a basis for determining what obligations the parties have agreed to, and hence
does not make possible a determination of whether those agreed obligations have been
breached, there is no contract.’ [Citation.]” (Bustamante v. Intuit, Inc. (2006) 141
Cal.App.4th 199, 209 (Bustamante).)
As to the standard of review, “[w]hen a trial court’s construction of a written
agreement is challenged on appeal, the scope and standard of review depend on whether
the trial judge admitted conflicting extrinsic evidence to resolve any ambiguity or
uncertainty in the contract. If extrinsic evidence was admitted, and if that evidence was
in conflict, then we apply the substantial evidence rule to the factual findings made by the
trial court. But if no extrinsic evidence was admitted, or if . . . the evidence was not in
conflict, we independently construe the writing. [Citations.]” (De Anza Enterprises v.
Johnson (2002) 104 Cal.App.4th 1307, 1315 (De Anza).)
In the present case, it was undisputed that the concrete podium subcontract lacked
exhibit A, which specified the scope of work, and therefore the trial court admitted
extrinsic evidence to resolve the uncertainty as to the intended scope of work for the
subcontract. Accordingly, the applicable standard of review is substantial evidence.
(See De Anza, supra, 104 Cal.App.4th at p. 1315.) Our review is therefore limited to
determining whether substantial evidence supports the trial court’s findings that the
concrete podium subcontract was unenforceable due to uncertainty regarding the scope of
work. We reiterate that in applying the substantial evidence standard of review, we do
17
not reweigh the evidence and are bound by the trial court’s credibility determinations.
(Manson, supra, 188 Cal.App.4th at p. 1264.)
We determine that the testimony of Deboi and Nuytten constitutes substantial
evidence that, in the undisputed absence of exhibit A, the parties never reached an
agreement as to the scope of work for the concrete podium subcontract. Deboi testified
that SBI had implied during contract negotiations that the March 5, 2013 schedule of
values showed the scope of work for the concrete podium subcontract. However,
Nuytten denied that the line items in the concrete podium column included in SBI’s
March 5, 2013 schedule of values constituted the scope of work for the concrete podium
subcontract. According to Nuytten, as of June 27, 2013, the date the concrete podium
contract was signed, there was no agreed-upon scope of work. The evidence further
shows that a few months later, when SBI’s work on the concrete podium had just begun,
3rd Street/PWB decided that PWB would take over SBI’s work on the concrete podium.
It was also decided that SBI would continue to coordinate the subcontractors working on
the concrete podium and then hand off the project after the top of the podium was
completed. The testimony of the parties’ witnesses shows that thereafter disputes arose
between 3rd Street/PWB and SBI regarding whether SBI had performed its scope of
work and the amount that SBI should be paid for its work on the concrete podium.
Since the concrete podium subcontract lacked an express scope of work because
no exhibit A was attached to the subcontract, and substantial evidence shows that there
was no agreed-upon scope of work, the supposed concrete podium subcontract does not
provide a basis for determining SBI’s obligations. (See Bustamante, supra, 141
Cal.App.4th at p. 209.) Consequently, it is not possible to determine whether SBI
breached its obligations with respect to the concrete podium. (See ibid.) We therefore
conclude that the trial court did not err in finding that the concrete podium subcontract
was unenforceable due to uncertainty regarding the scope of work.
18
We are not convinced by SBI’s argument to the contrary that SBI’s pre-dispute
conduct in completing the work on the concrete podium, together with 3rd Street/PWB’s
payment of SBI’s pay applications, shows that the parties mutually intended to be bound
by the concrete podium subcontract. This argument asks us to perform an independent
review of the evidence presented at the court trial, which we may not do, since, as we
have discussed, the applicable standard of review is substantial evidence. (See DeAnza,
supra, 104 Cal.App.4th at p. 1315; Manson, supra, 188 Cal.App.4th at p. 1264.)
We are also not convinced by SBI’s argument that the concrete podium
subcontract should be enforced because the law disfavors finding a contract is
unenforceable due to uncertainty. SBI relies on Patel v. Liebermensch (2008) 45 Cal.4th
344 (Patel) and Bohman v. Berg (1960) 54 Cal.2d 787 (Bohman), but these decisions are
distinguishable.
In Patel, the California Supreme Court stated the general rule that “[t]he equitable
remedy of specific performance cannot be granted if the terms of a contract are not
certain enough for the court to know what to enforce. (Civ.Code, § 3390, subd. 5;
[citation]). However, ‘ “ ‘[t]he law does not favor but leans against the destruction of
contracts because of uncertainty; and it will, if feasible, so construe agreements as to
carry into effect the reasonable intentions of the parties if [they] can be ascertained.[]’ ” ’
[Citations.]” (Patel, supra, 45 Cal.4th at p. 349.) The issue in Patel was whether a real
estate purchase agreement was enforceable although the escrow period was not specified
in the contract. (Id. at p. 350.) Our Supreme Court ruled that the specific performance of
the purchase agreement could be decreed because the essential terms of the parties’
agreement were easily ascertainable and, where the time of payment is not specified, a
reasonable period is allowable under Civil Code section 1657.8 (Patel, supra, at p. 352.)
In contrast, in the present case the trial court implicitly found that an essential term in the
8
All further statutory references are to the Civil Code unless otherwise indicated.
19
parties’ concrete podium subcontract—the scope of work—was not easily ascertainable,
and we have determined that substantial evidence supports the trial court’s ruling that the
subcontract was unenforceable due to uncertainty.
In Bohman, our Supreme Court stated that “[i]t is well-settled law that, although
an agreement may be indefinite or uncertain in its inception, subsequent performance by
the parties under the agreement will cure this defect and render it enforceable. When one
party performs under the contract and the other party accepts his performance without
objection it is assumed that this was the performance contemplated by the agreement.
[Citations.]” (Bohman, supra, 54 Cal.2d at pp. 794-795.) The issue in Bohman was
whether the parties’ agreement for conversion of a Greyhound bus was sufficiently
certain to be enforceable at the $25,000 contract price after the plaintiff performed
additional work outside the items specified in the contract. (Id. at pp. 792-793.) The
Supreme Court ruled that the evidence showed that “both parties clearly understood what
was meant by the terms of their agreement. The plaintiff subsequently performed under
the terms of the agreement. He is therefore bound by all of the terms of that contract,
including the price established therein.” (Id. at pp. 797-798.) The decision in Bohman is
distinguishable from the present case, where we have determined that substantial
evidence supports the trial court’s implicit finding that the parties did not clearly
understand SBI’s scope of work under the concrete podium subcontract in the absence of
exhibit A.
Having concluded on the merits that the trial court did not err in ruling that the
concrete podium subcontract is unenforceable, we need not address 3rd Street/PWB’s
contentions that SBI’s arguments with respect to the enforceability of the concrete
podium subcontract are barred under the principles of waiver, estoppel, and invited error.
20
C. Prejudgment Interest
1. Background
In the statement of decision, the trial court noted that SBI claimed that “it was
entitled to pre-judgment interest at 10% under Civil Code section 3287(1) [sic] and (b).”
The trial court denied SBI’s claim for prejudgment interest “because of the uncertainty
about the actual costs of the work as reflected by the dispute.”
During the trial court’s ruling from the bench, the court stated that “the issue of
prejudgment interest . . . I have more of a problem with that because I think to be entitled
to prejudgment interest it has to be a liquidated amount. And there was still a lot of
questions in my mind as to how you determine the damages and so on. So to that extent I
don’t think that you’re entitled to prejudgment interest.”
2. The Parties’ Contentions
We understand SBI to contend that, even if this court determines that the trial
court correctly ruled that the concrete podium subcontract is unenforceable, SBI is
entitled to an award of prejudgment interest under section 3287, subdivision (b) on both
the award of damages in quantum meruit and the recovery on its mechanic’s lien
foreclosure action. 3rd Street/PWB disagrees, arguing that SBI has failed to show that
the trial court abused its discretion in denying prejudgment interest under section 3287,
subdivision (b).
3. Analysis
Section 3287, subdivision (b) 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.”
As this court recently stated, “[b]y allowing the trial court to consider awarding
prejudgment interest on an unliquidated contractual claim within the limits prescribed by
21
the statute, section 3287(b) aims ‘to balance the concern for fairness to the debtor against
the concern for full compensation to the wronged party.’ [Citation.]” (Hewlett-Packard
Co. v. Oracle Corporation (2021) 65 Cal.App. 5th 506, 576 (Hewlett-Packard).)
It has been held that quantum meruit constitutes a cause of action in contract for
purposes of section 3287, subdivision (b), and therefore a discretionary award of
prejudgment interest is permissible where damages are awarded under a theory of
quantum meruit. (George v. Double-D Foods, Inc. (1984) 155 Cal.App.3d 36, 47.)
Further, this court has determined that “a mechanic’s lien foreclosure action is
sufficiently like a contract action to be considered a ‘cause of action in contract’ for
purposes of section 3287[, subdivision] (b).” (Carmel Development Co., Inc. v. Anderson
(2020) 48 Cal.App.5th 492, 524 (Carmel Development).)
The standard of review for an order awarding or denying prejudgment interest
under section 3287, subdivision (b) is abuse of discretion. (Carmel Development, supra,
48 Cal.App.5th at p. 524.) However, as this court has recognized, “[t]here is no
authoritative list of criteria for courts to consider, and ‘[f]ew cases have discussed the
standards by which a trial court’s exercise of discretion under section 3287,
subdivision (b) [is] to be judged.’ [Citation.]” (Hewlett-Packard, supra, 65 Cal.App.5th
at p. 577.)
Nevertheless, “[a] determination that, in the particular circumstances of the case, a
prejudgment interest award would be permissible in the exercise of the court’s
discretion, . . . does not compel the conclusion that the denial of such an award in similar
circumstances would be an abuse of discretion. [Citation.] Instead, we must affirm the
denial if there was a reasonable basis for the court’s decision in accordance with the
governing rules of law. [Citations.]” (Faigin v. Signature Group Holdings, Inc. (2012)
211 Cal.App.4th 726, 752.)
We determine that under the doctrine of implied findings and the circumstances of
this case SBI has not shown the trial court abused its discretion in denying prejudgment
22
interest. Under the doctrine of implied findings, as we have discussed, “[i]f the party
challenging the statement of decision fails to bring omissions or ambiguities in it to the
trial court’s attention, then, under Code of Civil Procedure section 634, the appellate
court will infer the trial court made implied factual findings favorable to the prevailing
party on all issues necessary to support the judgment, including the omitted or
ambiguously resolved issues. [Citations.] The appellate court then reviews the implied
factual findings under the substantial evidence standard. [Citations.]” (Fladeboe, supra,
150 Cal.App.4th at pp. 59-60.)
Here, the trial court’s statement of decision did not make express findings
regarding its exercise of discretion with respect to prejudgment interest, other than a
ruling that prejudgment interest was denied because the costs of SBI’s work were
uncertain as reflected in the parties’ dispute. Thus, the statement of decision did not
include an express ruling on whether SBI was entitled to an award of prejudgment
interest because it prevailed on its claim against Hartford on the mechanic’s lien release
bond.
We observe that SBI did not bring this omission in the statement of decision to the
trial court’s attention. Accordingly, we will infer that the trial court made implied factual
findings to support an exercise of the court’s discretion to deny prejudgment interest on
SBI’s foreclosure on the mechanic’s lien release bond. (See Fladeboe, supra, 150
Cal.App.4th at pp. 59-60.) Here, the trial court ruled that SBI was entitled to foreclose on
its mechanic’s lien and was entitled to recover $489,026 from Hartford on the mechanic’s
lien release bond. The amount of $489,026 duplicated the amount of $489,026 that the
trial court awarded SBI for the reasonable value of SBI’s services. However, the trial
court clarified during the court’s ruling from the bench that the order that SBI was
entitled to foreclose on Hartford’s mechanic’s lien release bond did not allow a double
recovery, to the extent the foreclosure duplicated another judgment. Accordingly, we
23
determine that the trial court could reasonably deny an award of prejudgment interest on
SBI’s recovery on the mechanic’s lien release bond.
As to SBI’s claim for prejudgment interest on the award of damages in quantum
meruit, under the applicable standard of review we similarly determine that reasonable
inferences support the trial court’s exercise of its discretion to deny prejudgment interest
under section 3287, subdivision (b). Although this court has stated that “it would appear
contrary to the statutory scheme for the trial court to refuse prejudgment interest for the
sole reason that the amount of damages was highly uncertain” (Hewlett-Packard, supra,
65 Cal.App. 5th at p. 576), we must resolve all reasonable inferences to be drawn from
the facts in support of the trial court’s decision. (See Manson, supra, 188 Cal.App.4th at
p. 1264.) Based on the evidence presented at the court trial, we may reasonably infer that
the trial court, in denying prejudgment interest, balanced the concern for fairness to 3rd
Street/PWB against the concern for full compensation to SBI as the wronged party. (See
Hewlett-Packard, supra, at p. 576.) The substantial evidence supporting the trial court’s
implied balancing of these concerns includes the evidence showing that all parties
proceeded without an agreed-upon scope of work for the concrete podium subcontract;
there was uncertainty between the parties as to the scope of work that SBI was obligated
to perform; and there was uncertainty as to the payment that SBI was entitled to receive
for its work.
For these reasons, we determine that SBI has not shown that the trial court abused
its discretion in denying prejudgment interest in this case.
D. Prompt Payment Penalties
1. Background
In the statement of decision, the trial court denied SBI’s claim for statutory prompt
payment penalties under Business and Professions Code section 7108.5 and sections 8814
and 8818 on the ground of the uncertainty of the actual costs of SBI’s work as reflected
in the parties’ dispute.
24
In ruling from the bench, the trial court stated its reasoning as follows: “I think
that because of the fact of the finding that I made that there is no contract that you’re not
entitled to any prompt payment penalties. I don’t see any bad faith. We’re talking about
operating in good faith. I don’t see any bad faith on the part of Pacific West Builders.
[¶] On the other hand kind of got sloppy with failing to nail down that contract because I
mean we have pages and pages of e-mails and various things you know wanting to
modify this and wanting to change this and that and everything else. SBI is saying we
can no longer . . . do this for the amount we initially stated in the March statement and yet
it never really gets dealt with. There’s just all these issues that are uncertain. [¶] But I
do believe that there was no bad faith on the part of Pacific West Builders so I would not
find any prompt payment penalties.”
2. The Parties’ Contentions
SBI contends that the trial court erred in denying its claim for statutory prompt
payment penalties because substantial evidence does not support the trial court’s finding
that PWB acted in objective good faith in withholding payments to SBI. According to
SBI, a detailed review of the testimony of PWB’s chief financial officer, Zack Deboi, and
the record of PWB’s payments to SBI shows that PWB had no justification for
withholding payments to SBI, and therefore PWB did not act in objective good faith.
3rd Street/PWB argues that the trial court properly denied SBI’s claim for
statutory prompt payment penalties because the parties did not have a contract, and
therefore no payments were due to SBI under a contract. Further, 3rd Street/PWB argues
that ample substantial evidence supports the trial court’s finding that PWB acted in good
faith.
3. Analysis
The Legislature has enacted a statutory scheme that “imposes comprehensive
deadlines for both progress and retention payments from owners to direct contractors, and
in turn from direct contractors to their subcontractors, for both public and private
25
projects. [Citations.]” (United Riggers & Erectors, Inc. v. Coast Iron & Steel Co. (2018)
4 Cal.5th 1082, 1088 (United Riggers); see § 8814 [time for retention payments] § 8818
[failure to make timely retention payment]; Bus. & Prof. Code, § 7108.5 [payment to
subcontractors].)
“The deadlines are enforced by statutory penalties, typically 2 percent of the
unpaid amount per month, and by fee-shifting provisions that make the losing party
responsible for attorney fees if a lawsuit is required to enforce the right to payment.”
(United Riggers, supra, 4 Cal.5th at p. 1088).) Moreover, “timely payment may be
excused only when the payor has a good faith basis for contesting the payee’s right to
receive the specific monies that are withheld.” (Id. at p. 1098; see also FEI Enterprises,
Inc. v. Yoon (2011) 194 Cal.App.4th 790, 797 (FEI Enterprises) [Bus. & Prof. Code,
§ 7108.5 provides contractor may withhold progress payments from subcontract where
good faith dispute over amount owed].)
It has been held that the good faith exception is objective, meaning that it is “based
on the examination of objective facts and circumstances which will or will not
demonstrate that an objectively reasonable basis existed for the non-paying party’s
action.” (FEI Enterprises, supra, 194 Cal.App.4th at p. 806; but see Alpha Mechanical,
Heating & Air Conditioning, Inc. v. Travelers Casualty & Surety Co. (2005) 133 Cal.
App.4th 1319, 1339 [standard for good faith dispute under prompt payment statutes is
subjective].)
In the present case, we will assume, without deciding, that the objective standard
for a good faith dispute under the prompt payment statutory scheme applies. (FEI
Enterprises, supra, 194 Cal.App.4th at p. 806.) We review the trial court’s finding of
good faith under the substantial evidence standard of review. (Id. at p. 807, fn. 13.)
We emphasize that our analysis is governed by the substantial evidence standard
of review that, as we have discussed, applies in an appellate challenge to a judgment
based upon a statement of decision following a court trial: we resolve any conflict in the
26
evidence or reasonable inferences to be drawn from the facts in support of the trial
court’s decision, and we may not reweigh the evidence and are bound by the trial court’s
credibility determinations. (Manson, supra, 188 Cal.App.4th at p. 1264.) In other words,
we must “determine whether there is substantial evidence to support the conclusion of the
trier of fact even [if] there is contrary evidence equal to, or even greater than, that which
favors the trial court’s decision.” (Kallman v. Henderson (1965) 234 Cal.App.2d 91, 96
(Kallman).)
Applying that standard, we find that substantial evidence supports the trial court’s
determination that PWB acted in good faith in withholding payment, since the concrete
podium subcontract was not enforceable and there was evidence of uncertainty between
the parties as to the scope of work that SBI was obligated to perform and the payment
that SBI was entitled to receive. Even if, as SBI argues, a detailed review of the parties’
testimony and the record of payments would support a different conclusion, it is not our
role as the reviewing court to reweigh the evidence. (See Kallman, supra, 234
Cal.App.2d at pp. 96-97.)
Accordingly, we find no merit in SBI’s contention that the trial court erred in
denying SBI’s claim for statutory prompt payment penalties.
E. Attorney Fees
1. Background
The concrete podium subcontract included the following attorney fees clause:
“In the event the parties become involved in litigation or arbitration with each other
arising out of this Subcontract or other performance thereof, in which the services of an
attorney or other consultants are reasonably required, the prevailing party shall be entitled
to recover all reasonable costs related to such proceeding including all costs incurred for
reasonable attorney’s fees and consultant’s fees including any incurred on any appeal. In
addition, in the event Contractor is required to defend any action arising out of or relating
to Subcontractor’s obligations hereunder, including any litigation or arbitration or other
27
legal proceeding, to the fullest extent allowed by law, Subcontractor shall pay costs
incurred by Contractor including all reasonable attorney’s fees and consultants fees,
including any costs and fees on any appeal.”
After judgment was entered, SBI filed a motion for attorney fees and costs. SBI
argued that the broad language in the attorney fees clause in the concrete podium
subcontract and the apartment contract, which provides for an award of attorney fees in
the event the parties become involved in litigation arising from these contracts, includes
claims in quantum meruit. SBI also argued that it was entitled to an award of attorney
fees as the prevailing party under section 1717 since it had achieved its litigation goal of
receiving payment for the services it had provided to 3rd Street/PWB. SBI did not
apportion attorney fees between its claims, asserting that all claims in this matter were
intertwined.
3rd Street/PWB opposed SBI’s motion for attorney fees, arguing that section 1717
did not apply due to the trial court’s ruling in the statement of decision that no contract
existed between the parties. Additionally, 3rd Street/PWB maintained that attorney fees
cannot be awarded on a recovery in quantum meruit; SBI was not the prevailing party in
an action to enforce a contract; and the section 1717 provision for mutuality did not
apply. Additionally, 3rd Street/PWB argued that SBI’s failure to apportion its attorney
fees claim among its different clients and claims was fatal to its attorney fees motion. 3rd
Street/PWB also contended that the amount that SBI claimed for attorney fees was
excessive.
The trial court denied SBI’s motion for attorney fees, stating in the July 18, 2018
order that “[t]here was no contract between PWB and/or 3rd Street, on the one hand, and
SBI, on the other hand, so there is no basis for an attorney fee award to SBI.”
2. The Parties’ Contentions
On appeal, SBI contends that the trial court erred because, even assuming that this
court determines there is not a valid concrete podium subcontract, SBI is entitled to
28
attorney fees under the reciprocity provision of section 1717 because it defeated 3rd
Street/PWB’s claims arising from the concrete podium subcontract and the apartment
contract. SBI also argues it is entitled to attorney fees under section 1717 because the
trial court determined that SBI was the prevailing party in the litigation and awarded SBI
damages.
3rd Street/PWB responds that the trial court properly exercised its discretion under
section 1717 to deny SBI’s motion for attorney fees because neither party prevailed on its
contract claims and, in addition, attorney fees may not be awarded in an action to
foreclose on a mechanic’s lien release bond.
3. Analysis
The rules governing an award of attorney fees are well established. Under the
“American rule,” each party to a lawsuit ordinarily pays its own attorney fees. (Mountain
Air Enterprises, LLC v. Sundowner Towers, LLC (2017) 3 Cal.5th 744, 751 (Mountain
Air).) Code of Civil Procedure section 1021 allows parties to alter this rule by contract:
“ ‘Except as attorney’s fees are specifically provided for by statute, the measure and
mode of compensation of attorneys and counselors at law is left to the agreement, express
or implied, of the parties . . . .’ ” Thus, “ ‘ “[p]arties may validly agree that the prevailing
party will be awarded attorney fees incurred in any litigation between themselves,
whether such litigation sounds in tort or in contract.” ’ [Citation.]” (Mountain Air,
supra, at p. 751; Code Civ. Proc., § 1021.)
Where the litigation sounds in contract, section 1717 governs the application of
Code of Civil Procedure section 1021. Section 1717, subdivision (a) provides that “[i]n
any action on a contract, where the contract specifically provides that attorney’s fees and
costs, which are incurred to enforce that contract, shall be awarded either to one of the
parties or to the prevailing party, then the party who is determined to be the party
prevailing on the contract, whether he or she is the party specified in the contract or not,
shall be entitled to reasonable attorney’s fees in addition to other costs.”
29
“The primary purpose of section 1717 is to ensure mutuality of remedy for
attorney fee claims under contractual attorney fee provisions.” (Santisas v. Goodin
(1998) 17 Cal.4th 599, 610.) Therefore, where a contract provides the right to attorney’s
fees to only one party, “the effect of section 1717 is to allow recovery of attorney fees by
whichever contracting party prevails, ‘whether he or she is the party specified in the
contract or not’ (§ 1717, subd. (a) ).” (Id. at p. 611.) Moreover, “[i]t is now settled that a
party is entitled to attorney fees under section 1717 ‘even when the party prevails on
grounds the contract is inapplicable, invalid, unenforceable or nonexistent, if the other
party would have been entitled to attorney’s fees had it prevailed.’ [Citations.]” (Hsu v.
Abbara (1995) 9 Cal.4th 863, 870 (Hsu).)
Section 1717, subdivision (b)(1) defines the prevailing party on the contract as
“the party who recovered a greater relief in the action on the contract.” Under
section 1717, subdivision (b)(1) the trial court “may also determine that there is no party
prevailing on the contract for purposes of this section.” (Ibid.)
In Scott Co. v. Blount, Inc. (1999) 20 Cal.4th 1103, 1109 (Scott Co.) our high court
provided guidance for the trial court’s exercise of its discretion under section 1717,
subdivision (b)(1) as follows: “When a party obtains a simple, unqualified victory by
completely prevailing on or defeating all contract claims in the action and the contract
contains a provision for attorney fees, section 1717 entitles the successful party to recover
reasonable attorney fees incurred in prosecution or defense of those claims. [Citation.] If
neither party achieves a complete victory on all the contract claims, it is within the
discretion of the trial court to determine which party prevailed on the contract or whether,
on balance, neither party prevailed sufficiently to justify an award of attorney fees.”
(Scott Co., supra, at p. 1109, quoting Hsu, supra, 9 Cal.4th at p. 877.)
The standard of review is also well established. “ ‘ “On review of an award of
attorney fees after trial, the normal standard of review is abuse of discretion. However,
de novo review of such a trial court order is warranted where the determination of
30
whether the criteria for an award of attorney fees and costs in this context have been
satisfied amounts to statutory construction and a question of law.” ’ [Citation.] In other
words, ‘it is a discretionary trial court decision on the propriety or amount of statutory
attorney fees to be awarded, but a determination of the legal basis for an attorney fee
award is a question of law to be reviewed de novo.’ [Citations.]” (Mountain Air, supra,
3 Cal.5th at p. 751.)
In the present case, we determine the trial court did not abuse its discretion under
section 1717, subdivision (b)(1) in denying SBI’s motion for attorney fees. (See Scott
Co., supra, 20 Cal.4th at p. 1109.) As we have discussed, section 1717, subdivision
(b)(1) provides that the trial court “may also determine that there is no party prevailing on
the contract for purposes of this section.” “ ‘[T]ypically, a determination of no prevailing
party results when both parties seek relief, but neither prevails, or when the ostensibly
prevailing party receives only a part of the relief sought.’ [Citation.]” (Hsu, supra, 9
Cal.4th at p. 875.)
Although SBI contends that it is the prevailing party under section 1717 because it
defeated 3rd Street/PWB’s claims for breach of the concrete podium subcontract and
breach of the apartment contract, the record shows that SBI did not prevail on its own
contract claim that 3rd Street/PWB owed SBI $674,759.53 under the concrete podium
subcontract. Both the trial court’s statement of decision and the order denying SBI’s
motion for attorney fees include the court’s ruling that no contracts existed between the
parties. Consequently, neither SBI nor 3rd Street/PWB obtained any relief on their
contract claims. (See Hsu, supra, 9 Cal.4th at p. 875.) For that reason, the trial court did
not abuse its discretion in implicitly finding that there was no prevailing party within the
meaning of section 1717, subdivision (b)(1) and denying SBI’s motion for attorney fees.
31
IV. 3RD STREET/PWB’S APPEAL
On appeal, 3rd Street/PWB contends that the trial court erred in awarding SBI an
additional $96,346, which was the amount SBI had paid in settlement of Largo’s claims
in this matter.
A. Background
In the statement of decision, the trial court found that SBI had reasonably
mitigated its damages by resolving Largo’s claims against SBI, as set forth in Largo’s
complaint that initiated this litigation, and SBI was therefore entitled to recover the
settlement amount of $96,346 from 3rd Street/PWB.
During the trial court’s ruling from the bench, the court explained its ruling as
follows: “And so the next question is can we find that . . . SBI is entitled to . . . quantum
meruit because they did a lot of work. And the answer to that is yes. I think that they are
entitled to quantum meruit. I think they’re entitled to damages for work that they
performed. . . . [¶] So based upon that I think that they’re entitled to the reasonable value
of the services that were performed and I accept SBI’s damages . . . . . [¶] And in
addition to that, we have the Largo settlement. . . . . I think that SBI did what it had to
do. It had to settle that. It was, in effect, mitigating damages, really among other things.
That it was important that they get it resolved. It had to be resolved in [sic] way or
another. Largo had no fault in any of this; Largo was simply a subcontractor. So I think
the resolution of the Largo settlement is also part of the damages. That’s roughly
$96,346.”
B. The Parties’ Contentions
3rd Street/PWB contends that the trial court erred in awarding the additional
amount of $96,346 to SBI because the damages recoverable under a theory of quantum
meruit are limited to the reasonable value of SBI’s services that either provided a direct
benefit to 3rd Street/PWB or were provided at 3rd Street/PWB’s request. According to
3rd Street/PWB, SBI’s payment of $96,346 in settlement of Largo’s claims did not
32
provide a direct benefit to 3rd Street/PWB, and there was no evidence that 3rd Street had
requested that SBI settle Largo’s claims or that 3rd Street/PWB would reimburse SBI for
the settlement.
According to SBI, the trial court did not err because, assuming this court
determines that the concrete podium subcontract is unenforceable, the court properly
awarded SBI $96,436 under a theory of noncontractual equitable indemnity since SBI
asserted a cause of action for indemnity in its second amended cross-complaint. SBI also
rejects 3rd Street/PWB’s characterization of the award of $96,346 as part of SBI’s
recovery in quantum meruit.
SBI also argues that the theory of equitable indemnity may be raised on appeal
because (1) the trial court’s decision will be affirmed on any correct theory; and (2)
equitable indemnity is a correct theory because it would be inequitable to force SBI to
bear the costs of the Largo lawsuit when it was 3rd Street/PWB’s wrongful refusal to pay
SBI that caused SBI to be unable to pay Largo.
3rd Street/PWB disagrees, replying that SBI cannot raise a new theory of equitable
indemnity on appeal and asserting that SBI’s indemnity cause of action was based on
contractual indemnity.
C. Analysis
At the outset, we determine that the trial court could not award SBI damages of
$96,436 under a mitigation of damages theory, since that theory sounds in contract and
the court had ruled that no contract existed between the parties. “ ‘The doctrine of
mitigation of damages holds that “[a] plaintiff who suffers damage as a result of . . . a
breach of contract . . . has a duty to take reasonable steps to mitigate those damages and
will not be able to recover for any losses which could have been thus avoided.” ’
[Citation.]” (Agam v. Gavra (2015) 236 Cal.App.4th 91, 111.)
We also need not consider whether the amount of $96,436 was properly awarded
as part of SBI’s recovery in quantum meruit, since, as the parties agree, quantum meruit
33
does not apply since a recovery in quantum meruit is for the reasonable value of the
services rendered. (See Carmel Development, supra, 48 Cal.App.5th at p. 523.) Here, it
is undisputed that the award of $96,436 was the amount that SBI paid in settlement of
Largo’s claims.
We therefore turn to SBI’s contention that the trial court could properly award SBI
$96,436, in addition to the award of $489,026 in quantum meruit, under a new theory of
equitable indemnity.9 As we will discuss, we find merit in this contention.
“ ‘No rule of decision is better or more firmly established by authority, nor one
resting upon a sounder basis of reason and propriety, than that a ruling or decision, itself
correct in law, will not be disturbed on appeal merely because given for a wrong reason.
If right upon any theory of the law applicable to the case, it must be sustained regardless
of the considerations which may have moved the trial court to its conclusion.’
[Citation.]” (D’Amico v. Board of Medical Examiners (1974) 11 Cal.3d 1, 19
(D’Amico).) We therefore consider whether equitable indemnity is a theory of law that is
applicable to this case, in particular the award of $96,436 to SBI that the trial court
expressly awarded as damages that SBI incurred in settling Largo’s claims against SBI.
9
During oral argument, 3rd Street argued for the first time that it was not liable
under an indemnity theory because the indemnity cause of action in SBI’s second
amended cross-complaint is expressly alleged only against PWB. The indemnity cause
of action in SBI’s second amended cross-complaint states in part: “[SBI] is informed and
believes and on that basis alleges that [SBI’s] obligation to pay for the damages alleged
in Plaintiff Largo’s Complaint, if any, is due solely to the negligence, active fault, and/or
primary liability of Cross-defendants PWB, and ROES 1-30 and each of them, and that
[SBI’s] obligations, if any, are only due to its passive fault, if any, and secondary action.”
Although the indemnity cause of action is alleged only against PWB, we note that the
trial court ruled in the statement of decision that 3rd Street and PWB were agents of each
other, and there was no substantive difference between them for purposes of this matter.
3rd Street did not object to the trial court’s ruling, either during the proceedings below or
in its briefing on appeal. Consequently, we find no merit in 3rd Street’s argument that it
is not liable because it was not named as a cross-defendant in SBI’s indemnity cause of
action.
34
“In general, indemnity refers to ‘the obligation resting on one party to make good
a loss or damage another party has incurred.’ [Citation.] Historically, the obligation of
indemnity took three forms: (1) indemnity expressly provided for by contract (express
indemnity); (2) indemnity implied from a contract not specifically mentioning indemnity
(implied contractual indemnity); and (3) indemnity arising from the equities of particular
circumstances (traditional equitable indemnity). [Citations.]” (Prince v. Pacific Gas &
Electric Co. (2009) 45 Cal.4th 1151, 1157, fn. omitted.)
“The right to equitable indemnity stems from the principle that one who has been
compelled to pay damages which ought to have been paid by another wrongdoer may
recover from that wrongdoer.” (Bush v. Superior Court (1992) 10 Cal.App.4th 1374,
1380.) “ ‘ “The elements of a cause of action for [equitable] indemnity are (1) a showing
of fault on the part of the indemnitor and (2) resulting damages to the indemnitee for
which the indemnitor is . . . equitably responsible.” ’ [Citation.]” (C.W. Howe Partners
Inc. v. Mooradian (2019) 43 Cal.App.5th 688, 700 (C.W. Howe Partners).) Further,
“ ‘a fundamental prerequisite to an action for partial or total equitable indemnity is an
actual monetary loss through payment of a judgment or settlement.’ [Citations.]”
(Western Steamship Lines, Inc. v. San Pedro Peninsula Hospital (1994) 8 Cal.4th 100,
110 (Western Steamship).)
In the present case, the trial court ruled that 3rd Street/PWB owed SBI $489,026 to
compensate SBI for the reasonable value of its services that 3rd Street/PWB had not paid.
The evidence showed that since 3rd Street/PWB had not paid SBI all amounts owing for
SBI’s services, SBI was, in turn, unable to pay Largo for its services. Largo then filed a
complaint alleging it had a subcontract with SBI to provide concrete podium work for the
Third Street Apartments, which SBI breached by failing to pay Largo. Before the court
trial in this matter, SBI resolved Largo’s claims by paying a settlement of $96,436.
Based on this record, we determine that the theory of equitable indemnity is
applicable to this case since (1) there was evidence of fault on the part of 3rd
35
Street/PWB, since the trial court found that 3rd Street/PWB owed SBI $489,026 for the
reasonable value of its unpaid services (C.W. Howe Partners, supra, 43 Cal.App.5th at
p. 700); and (2) there were resulting damages, consisting of SBI’s payment of a
settlement of $96,436 to Largo (Western Steamship, supra, 8 Cal.4th at p. 110).
For these reasons, we conclude that even if the trial court erred in awarding
$96,436 in damages to SBI under a theory of mitigation of contract damages, we will
uphold the award under the applicable theory of equitable indemnity. (See D’Amico,
supra, 11 Cal.3d at p. 19.)
V. DISPOSITION
The judgment entered on February 5, 2018 is affirmed. The parties are to bear
their own costs on appeal.
36
_________________________________
ELIA, ACTING P.J.
WE CONCUR:
_______________________________
BAMATTRE-MANOUKIAN, J.
_______________________________
DANNER, J.
SBI Builders, Inc. et al. v. Hartford Fire Insurance Company et al.
H045715