Hensel Phelps Construction Co. v. Dept. of Corrections and Rehab. ( 2020 )

Filed 1/28/20; Certified for publication 2/25/20 (order attached)
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FIVE
HENSEL PHELPS B293427
CONSTRUCTION COMPANY,
(Los Angeles County
Plaintiff and Respondent, Super. Ct. No. BC630469)
v.
DEPARTMENT
OF CORRECTIONS AND
REHABILITATION,
Defendant and Appellant.
APPEAL from a judgment of the Superior Court of Los
Angeles County, Susan Bryant-Deason, Judge. Affirmed in part,
reversed in part and remanded with direction.
Xavier Becerra, Attorney General, Thomas S. Patterson,
Senior Assistant Attorney General, Tamar Pachter and Jose A.
Zelidon-Zepeda, Deputy Attorneys General, for Defendant and
Appellant.
Watt, Tieder, Hoffar & Fitzgerald, David F. McPherson and
Robert C. Shaia for Plaintiff and Respondent.
Plaintiff Hensel Phelps Construction Company (Phelps)
was the low bidder on a public works contract awarded by the
California Department of Corrections and Rehabilitation (CDCR)
through competitive bidding, and commenced work on the
project. Another bidder challenged the award of the contract to
Phelps, and was successful, obtaining a ruling in a San Diego
trial court that Phelps’s bid was “non-responsive as a matter of
law” due to its inclusion of “non-waivable
mathematical/typographical errors.” Phelps then brought suit
against CDCR, seeking to recover the costs it expended on the
project, under a statute which allows for such relief only if the
contract is “determined to be invalid due to a defect or defects in
the competitive bidding process caused solely by the public
entity.” (Pub. Contract Code, § 5110, italics added.)1 CDCR
sought judgment on the pleadings, arguing that the San Diego
trial court’s determination that the contract was invalid because
Phelps’s bid was non-responsive as a matter of law precluded
recovery. The trial court disagreed, held a bench trial, and
concluded that the San Diego trial court’s ruling was itself the
result of a defect in the competitive bidding process caused solely
by CDCR. Judgment was entered in favor of Phelps. On CDCR’s
appeal, we reverse, concluding judgment on the pleadings should
have been granted. However, we affirm the trial court’s denial of
recovery on CDCR’s cross-complaint for disgorgement.
1 All undesignated statutory references are to the Public
Contract Code.
2
FACTUAL AND PROCEDURAL BACKGROUND
1. The Award of the Contract to Phelps
On March 17, 2015, CDCR issued an Invitation for Bid for
the Ironwood State Prison Heating, Ventilation and Air
Conditioning System – a project which was estimated to cost
around $100,000,000.
The deadline to submit bids was April 30, 2015 at 2:00 p.m.
Phelps submitted its bid on time. The bids were opened, and
Phelps was determined to be the “apparent low bidder” with a
price of $88,160,000.
On May 1, 2015, Phelps submitted an “amended bidder
declaration.” The April 30 bid had included a bidder declaration
containing information pertaining to subcontractors Phelps
intended to use on the project. Among other things, the original
bid declaration had indicated the percentage of the contract work
to be done by each subcontractor; the amended bidder declaration
changed these subcontractor percentages.
Phelps believed it was permitted to submit its amended
bidder declaration on May 1. During the bid process, prospective
bidders had submitted questions to CDCR, which it answered in
writing via amendments to the invitation to bid; in this way, all
of the prospective bidders had access to the same information. It
is undisputed that CDCR had issued an amendment containing a
question and answer which permitted bidders to supply certain
subcontractor information 24 hours after the bid deadline (the
“Q24 answer”). What was disputed was whether the information
that could be submitted a day late included the subcontractor
percentages.2
2 Phelps’s witness testified that allowing it to submit
subcontractor percentages after the bid deadline enabled it to
3
CDCR took the position that subcontractor percentages
could not, in fact, be changed by amended bidder declaration. It
rejected Phelps’s May 1, 2015 submission, and ultimately mailed
it back to Phelps. Phelps was not immediately informed of the
rejection, however.
In the meantime, on May 6, West Coast Air Conditioning
Company, the second-lowest bidder, sent CDCR a complaint
letter regarding Phelps’s bid. CDCR did not review it, believing
that it had no jurisdiction to hear bid protests.
Phelps was informed on May 13, 2015 that its May 1, 2015
amended bidder declaration was rejected. That same day, CDCR
issued a notice of intent to award the project to Phelps. Phelps
executed the contract on May 18, 2015. The Phelps vice-
president who signed the contract testified that, when he did so,
he understood that CDCR had rejected the May 1 submission.
Nonetheless, he signed the contract, based on the April 30 bid
alone, believing that the incorrect subcontractor percentages in
the April 30 bidder declaration constituted an “immaterial
deviation” which could be waived by CDCR.
2. The San Diego Proceedings Commence
On May 22, 2015, West Coast filed a petition for writ of
mandate in the San Diego Superior Court seeking to invalidate
the contract and prohibit Phelps from constructing the project.
obtain the best possible deal from its subcontractors, and
therefore submit the best price it could for the project. That is,
its subcontractors were permitted to wait until just before the bid
deadline to submit their best prices to Phelps. Phelps
incorporated those prices into its bottom line total bid price, but
did not have time to update the math in its calculation of the
percentages in its bidder declaration by the deadline.
4
In that proceeding, CDCR was the respondent and Phelps was
the real party in interest.
3. Construction Begins
As we shall discuss, section 5110 provides that when the
award of a public contract is challenged, the contract may be
entered into pending final decision of the challenge. On July 3,
2015, CDCR executed the contract. On July 7, 2015, it issued a
notice to proceed to Phelps. That day, Phelps began work on the
project.
While the San Diego court proceedings were ongoing,
Phelps continued to work on the project. The parties stipulated
that CDCR approved and paid Phelps’s first three pay
applications, in the total amount of $3,510,180.64.
4. The San Diego Court Invalidates the Contract
On September 11, 2015, the San Diego court issued its
minute order on West Coast’s mandamus cause of action. The
order explained that West Coast sought to have the award of the
contract to Phelps set aside for two reasons: (1) Phelps’s bid was
non-responsive because it failed to list license numbers for its
subcontractors; and (2) Phelps’s bid “contained numerous
arithmetical/typographical mistakes which required CDCR to
reject [Phelps]’s bid as non-responsive because of these admitted
errors which, according to West Coast, afforded [Phelps] a
competitive advantage.” The court explained that errors which
might otherwise render a bid non-responsive, requiring rejection
of the bid, can be waived only if they could not have affected the
price and could not have resulted in an advantage or benefit not
allowed other bidders. Under this standard, the San Diego court
concluded the first error – the failure to list license numbers –
was waivable and therefore immaterial. The second error,
5
however, was not. The court stated that it was “undisputed that
the [Phelps] bid contained mathematical errors.” Phelps “argues
that the errors were not material and . . . that, in essence, the
defects could be waived.” The court disagreed, finding that the
changes encompassed not only “immaterial percentages” but
“certain subcontractor price amounts.” It held these changes
material and, therefore, not waivable.
On October 5, 2015, the San Diego court issued a
temporary restraining order, halting work on the project except
work necessary to make the worksite safe (e.g., capping pipes,
backfilling open excavations).
On December 9, 2015, the San Diego court issued its
statement of decision to the same effect as its prior minute order.
The court’s findings of fact included the following. “[Phelps]’s bid
contained numerous mathematical errors. [Phelps] admitted the
subcontractor percentages listed in its bid were not accurate or
consistent. [Phelps] further admitted it submitted a
subcontractor information form after bid day which was intended
to correct the subcontractor percentage and dollar amount errors
in [Phelps]’s bid.” “[Phelps] argued the
mathematical/typographical errors in its bid were immaterial
errors because although [Phelps]’s post-bid day form changed the
percentage of work to be performed by certain subcontractors, it
did not change [Phelps]’s total bid price. However, the evidence
shows that [Phelps]’s post-bid subcontractor information form
changed certain subcontractor prices, including the prices for
subcontractors Graham Prewitt and Pacific Coast Iron, and that
the bid day information for subcontractors was internally
inconsistent in several respects as set forth in the declaration by
[a witness].” The court noted that Graham Prewitt’s true price,
6
as reflected in the May 1 amended bidder declaration was
$1,644,800 “more than the subcontract price stated by Graham
Prewitt itself in a different portion of [Phelps]’s bid day bid
submission.” The court identified a similar $731,520 difference
between Pacific Coast Iron’s actual price (as stated in the May 1
amended bidder declaration) and Pacific Coast Iron’s form
included in the original bid. The court stated that “in at least
four instances, [Phelps]’s subcontractor percentage listings (both
on bid day and in the form submitted after bid day), are
inconsistent with the subcontract prices (in dollars) listed in
other parts of [Phelps]’s bid.” In its conclusions of law, the court
found these errors to be non-waivable.
Judgment was not entered until June 8, 2016. This was
because West Coast had an additional cause of action against
CDCR, for recovery of its bid expenses in promissory estoppel,
which was tried in the interim, and resolved in favor of West
Coast. The judgment permanently enjoined CDCR and Phelps
from performing any further work on the project under the
contract.
Phelps did not appeal, making the determination that it
would instead pursue CDCR for its costs of construction in this
action.
CDCR appealed only the promissory estoppel award in
favor of West Coast; Phelps was not a party to that appeal. (West
Coast Air Conditioning Co., Inc. v. Department of Corrections &
Rehabilitation (2018) 21 Cal.App.5th 453, 456, fn. 2.)
5. The Pleadings in This Case
On August 12, 2016, Phelps filed its complaint against
CDCR in this case, bringing a cause of action based on section
7
5110.3 Subdivision (a) of that statute provides, in pertinent part,
“When a project for the construction, alteration, repair, or
improvement of any structure, building, or road, or other
improvement of any kind is competitively bid and any intended or
actual award of the contract is challenged, the contract may be
entered into pending final decision of the challenge, subject to the
requirements of this section. If the contract is later determined
to be invalid due to a defect or defects in the competitive bidding
process caused solely by the public entity, the contractor who
entered into the contract with the public entity shall be entitled
to be paid the reasonable cost, specifically excluding profit, of the
labor, equipment, materials, and services furnished by the
contractor prior to the date of the determination that the contract
is invalid if [certain] conditions are met.”4
Relying on section 5110 and the invalidation of the
contract, Phelps sought its unpaid costs on the project. It alleged
that the contract was “determined to be invalid by the San Diego
Superior Court as a direct result of CDCR’s actions and decisions
during the competitive bidding process.”
CDCR responded with a cross-complaint, pleading a cause
of action for money had and received. Specifically, CDCR alleged
3 Phelps also brought a cause of action for declaratory relief
founded on section 5110.
4 These conditions are that the contractor proceeded in good
faith, the public entity reasonably determined the work was
satisfactory, there was no contractor fraud, and the contract does
not otherwise violate statutory or constitutional limitations.
(§ 5110, subds. (a)(1)-(a)(4).) The trial court found that all of
these conditions were satisfied, and CDCR does not challenge
that determination on appeal.
8
that it had paid Phelps approximately $3.5 million on a contract
which had since been determined to be void. As a public entity, it
was permitted to recover those funds.
6. Motion for Judgment on the Pleadings
Relying on the San Diego court’s rulings, CDCR moved for
judgment on the pleadings with respect to Phelps’s complaint.5
CDCR argued that Phelps could only prevail on its section 5110
cause of action if it established that the contract was invalidated
“[d]ue to a defect or defects in the competitive bidding process
caused solely by” CDCR. It could not do so, because the San
Diego court had in fact invalidated the contract because Phelps’s
bid contained material non-waivable errors.
Phelps’s opposition argued that the San Diego court’s
invalidation of the contract was simply a prerequisite to this
action. It argued that the contract was, in fact, invalidated due
to a defect in the bidding process chargeable to CDCR –
specifically, “CDCR’s failure to find [Phelps’s] bid
non[-]responsive in response to West Coast’s bid protest (or to
take any action whatsoever in response to West Coast’s bid
protest and subsequent [p]etition on the same grounds) and
CDCR’s decision to award the contract to [Phelps].” Phelps
conceded that it had made a mathematical error in its bid, but
argued that the “focus of section 5110” is not on “the error in the
bid itself” but the “ ‘competitive bidding process.’ ” Phelps
explained, “Mathematical bid errors occur frequently, but if the
public owner rejects the error, then there is no ‘defect in the
competitive bidding process.’ In fact, under those proper
5 CDCR’s motion did not address its cross-complaint; its
points and authorities stated it was “directed to both the first and
second causes of action[] of [Phelps’s] complaint.”
9
circumstances, the competitive bidding process works correctly.
The defect in the competitive bidding process in this case
occurred, as recognized by the San Diego Superior Court, at the
time the CDCR failed to acknowledge, evaluate, and reject
[Phelps’s] mathematical bid error, awarded the contract to
[Phelps], and directed [Phelps] to perform work pursuant to that
contract. That defect was caused solely by CDCR.”
The trial court denied the motion for judgment on the
pleadings, on the basis that Phelps’s allegations were “sufficient
to establish a factual dispute as to whether [CDCR] was the sole
cause of the defect in the bidding process, as [CDCR] allegedly
should have rejected [Phelps]’s bid.”
7. Motion in Limine
The case proceeded to a bench trial. CDCR attempted to
relitigate the issue from its motion for judgment on the pleadings
in a motion in limine to preclude all evidence except the San
Diego court’s statement of decision. CDCR added the argument
that, even if Phelps were correct and there was some sort of
defect in its process, the fact that the San Diego court found that
there were errors in Phelps’s bid meant that CDCR was not the
sole cause of the bid invalidation.
In opposition, Phelps reasserted its argument that the San
Diego court resolved only whether there was an error in Phelps’s
bid – not whether there were defects in the bidding process and
which party had caused them. Phelps asserted, for the first time,
two supposed defects in the bidding process attributable to
CDCR: (1) it improperly rejected Phelps’s May 1 amended bid
declaration – had it accepted it, the contract would not have been
invalidated; and (2) it did not inform Phelps that it had rejected
the May 1 submission until after the statutory period for seeking
10
relief from a mistaken bid had lapsed (see § 5103 [five working
days from bid opening]).
The first argument became Phelps’s new theory of the case.
Phelps asserted, “Our position in this case and the crux of this
case is the defect in the competitive bidding process that was
caused by CDCR is their rejection of the May 1st submission.”
Phelps took the position that the San Diego court “only
determined that the April 30th portion of the bid was
non[-]responsive. It did not determine which party was at fault
for that. In this action we will prove that it was the fault of the
CDCR when they refused to accept the May 1st supplemental
submission; that’s what resulted in the April 30th portion of the
bid being deemed non[-]responsive.”
The court denied the motion in limine, and proceeded to
trial.
8. The Bench Trial
A seven-day bench trial was held, in which percipient and
expert witnesses testified to the bid process and CDCR’s review
of Phelps’s bid. The parties stipulated to the costs which would
be recoverable by Phelps under section 5110 if it prevailed on its
cause of action.
The trial court ruled in favor of Phelps.
9. The Statement of Decision
The court’s statement of decision first rejected CDCR’s
argument that the San Diego court’s ruling controlled the result
in this case. The court explained: “[T]he issues under PCC
§ 5110 that were resolved in this action were not raised,
addressed or adjudicated in the [p]etition proceeding in the San
Diego Superior Court. Specifically, the San Diego Superior Court
did not address or adjudicate whether ‘defects’ existed in the
11
‘competitive bidding process.’ Also, it did not address or
adjudicate whether the [c]ontract invalidation was due to any
defects or which party caused those defects. The San Diego
Superior Court addressed a very limited and singular issue:
Whether [Phelps’s] April 30, 2015 bid submission was non-
responsive. The San Diego Superior Court did not consider all of
[the] documents comprising [Phelps’s] bid as a result of defects in
the competitive bidding process caused solely by CDCR.”6
Specifically, the court found that Phelps’s bid “lawfully
consisted” of both the April 30 bid and the May 1 amended bidder
declaration, and, as constituted, “fully complied” with the bid
solicitation. The court found that CDCR erred in rejecting the
May 1 amended bidder declaration and that, if it had accepted it,
the contract would not have been invalidated by the San Diego
court. However, the court also stated, “The only other possible
scenario is where the CDCR properly accepts the May 1 Amended
Bidder Declaration and includes that document in its review of
the [Phelps] bid, as opposed to replacing the April 30 bidder
declaration with the May 1 Amended Bidder Declaration. Under
this scenario, 100 [percent] of the bid documents submitted by
[Phelps] would be reviewed as one package by [CDCR]. The
evidence submitted at trial confirms that [agents of CDCR]
performed this exact review and concluded that the changed
6 The court identified six defects in the competitive bidding
process it charged to CDCR: failure to follow its own Q24 answer
in rejecting the May 1 submission; failure to timely notify Phelps
it rejected the May 1 submission, failure to follow its own bid
review protocol; failure to follow its contracting guidelines;
violation of its own policy by issuing the Q24 answer; and failure
to follow its bid protest protocol.
12
percentages in the May 1 Amended Bidder Declaration
constituted a material deviation. Where a material deviation is
found, the entire bid must be rejected. Thus, under this second
scenario, the [c]ontract would not have been awarded to
[Phelps].”
The statement of decision also addressed the cross-
complaint, denying it “in its entirety.”
10. Judgment and Appeal
Judgment was entered in favor of Phelps in the amount of
$2,989,819.35, the difference between the stipulated amount and
the payments CDCR made. CDCR took nothing on its cross-
complaint. Prejudgment and post-judgment interest were also
awarded.
CDCR filed a timely notice of appeal.
DISCUSSION
On appeal, CDCR specifically disclaims any challenge to
the court’s findings after trial. It argues only that the court
erred, as a matter of law, in denying its motion for judgment on
the pleadings. It also seeks judgment on its cross-complaint.
1. Standard of Review
A motion for judgment on the pleadings may be made on
the same ground as a general demurrer, that the pleading at
issue fails to state facts sufficient to constitute a legally
cognizable claim or defense. (Code Civ. Proc., § 438, subd.
(c)(1)(B)(ii).) Our review is guided by the same rules governing
the review of the sustaining of a general demurrer. “ ‘We treat
the demurrer as admitting all material facts properly pleaded,
but not contentions, deductions or conclusions of fact or law.
[Citation.] We also consider matters which may be judicially
noticed.’ [Citation.] Further, we give the complaint a reasonable
13
interpretation, reading it as a whole and its parts in their
context. [Citation.]” (Blank v. Kirwan (1985) 39 Cal. 3d 311,
318.)
2. Interpretation of Section 5110
The issue presented by this appeal is actually a simple one.
Section 5110 provides for recovery if, among other things, “the
contract is later determined to be invalid due to a defect or
defects in the competitive bidding process caused solely by the
public entity.” Does this language mean recovery is possible if
“the contract is invalidated for a defect or defects in the
competitive bidding process caused solely by the public entity”?
Or does it mean that the contractor may recover if, “after the
contract is invalidated, it is determined that the invalidation
finding itself was due to a defect or defects in the competitive
bidding process caused solely by the public entity”? CDCR
argues for the former interpretation; Phelps the latter.
This is a question of statutory interpretation. “ ‘In
statutory construction cases, our fundamental task is to ascertain
the intent of the lawmakers so as to effectuate the purpose of the
statute. [Citation.] “We begin by examining the statutory
language, giving the words their usual and ordinary meaning.”
[Citations.] If the terms of the statute are unambiguous, we
presume the lawmakers meant what they said, and the plain
meaning of the language governs. [Citations.] If there is
ambiguity, however, we may then look to extrinsic sources,
including the ostensible objects to be achieved and the legislative
history. [Citation.] In such cases, we “ ‘ “select the construction
that comports most closely with the apparent intent of the
Legislature, with a view to promoting rather than defeating the
general purpose of the statute, and avoid an interpretation that
14
would lead to absurd consequences.” ’ ” [Citation.]’ [Citation.]”
(Marshall v. Pasadena Unified School Dist. (2004)
119 Cal. App. 4th 1241, 1254.)
“Statutes and ordinances that authorize or require
competitive bidding in the letting of public contracts ordinarily
serve the purpose ‘ “of inviting competition, to guard against
favoritism, improvidence, extravagance, fraud and corruption,
and to secure the best work or supplies at the lowest price
practicable.” ’ Such measures ‘are enacted for the benefit of
property holders and taxpayers, and not for the benefit or
enrichment of bidders, and should be so construed and
administered as to accomplish such purpose fairly and reasonably
with sole reference to the public interest. These provisions are
strictly construed by the courts, and will not be extended beyond
their reasonable purpose.’ ” (Eel River Disposal & Resource
Recovery, Inc. v. County of Humboldt (2013) 221 Cal. App. 4th 209,
232, citations omitted.)
A. The Statutory Language
Turning to the language itself, we conclude CDCR has the
better argument. We must consider the key language in the
context of the rest of the statute. The first sentence of section
5110, subdivision (a) provides, “When a project for [a public work]
is competitively bid and any intended or actual award of the
contract is challenged, the contract may be entered into pending
final decision of the challenge, subject to the requirements of this
section.” It is the next sentence which provides, “If the contract
is later determined to be invalid due to a defect or defects in the
competitive bidding process caused solely by the public entity,
[the contractor may recover].” The “later” in this sentence must
refer back to the “pending final decision of the challenge” in the
15
sentence immediately preceding. In other words, the subdivision
provides that the parties to a challenged public contract may
enter into that contract pending final resolution of the challenge,
but if the challenge is resolved by invalidation because the public
entity was at fault, the contractor may recover.
Phelps’s alternative construction is not reasonable. Phelps
would interpret the statute to involve two distinct legal
proceedings: (1) a challenge to the contract, which may result in
the court invaliding the contract for any number of reasons; and
(2) a second proceeding which looks beyond the reasons given for
invalidation, to determine whether the court’s invalidation of the
contract was caused by any defects in the bidding process caused
by the public entity. Nothing in the statutory language suggests
there is to be a second proceeding, to consider the reasons for the
first court’s ruling.
We are also mindful of interpreting competitive bidding
statutes in a manner which best comports with their purpose of
benefitting property holders and taxpayers, not enriching
bidders. An interpretation which precludes further contractor
recovery once a court has invalidated the contract for reasons not
solely chargeable to the public entity furthers this purpose.
B. The Legislative History
Section 5110’s legislative history confirms the payment
obligation under the statute rises and falls with the reasons given
by the court actually invalidating the contract.
Prior to the enactment of section 5110, all risk of public
contract invalidation was borne by the contractor. This was
because compliance with competitive bidding statutes is
mandatory, and when a contract was made without statutory
compliance, it was “void and unenforceable as being in excess of
16
the agency’s power.” (Miller v. McKinnon (1942) 20 Cal. 2d 83,
87–88.) Such contracts “ ‘cannot be ratified; no estoppel to deny
their validity can be invoked against the municipality; and
ordinarily no recovery in quasi contract can be had for work
performed under them.’ ” (Id. at p. 88.) Under prior law, even if
the contractor supplied labor and materials in the performance of
the contract, no quantum meruit recovery was possible. (Ibid;
see also Amelco Electric v. City of Thousand Oaks (2002)
27 Cal. 4th 228, 234–235.) Although this often would create a
hardship on the contractor, the rule was justified on the theory
that, when a public entity is legally prohibited from making a
contract, there is no practical public benefit achieved by allowing
contractor recovery when the prohibition is disregarded. (Miller,
supra, 20 Cal.2d at pp. 88–89.) Moreover, the contractor was
considered just as bound as the public entity to ensure that the
law’s requirements were met. If the contractor neglected this
duty or chose to take the risk, the contractor was considered a
mere volunteer. In short, if the contract was legally forbidden,
the law took the position that the contractor knew – or should
have known – of this, and suffered losses it should have
anticipated. (Id. at p. 89.)
Section 5110 was enacted as a limited exception to this
rule, in 2004. The legislation was sponsored by the Construction
Employers’ Association, which felt trapped between two
principles: (1) a contractor on a public works contract later found
to be void could be required to reimburse the public agency
regardless of fault; and (2) a contractor must pay its
subcontractors regardless of whether the contractor is paid by the
project owner. (Sen. Com. on Judiciary, Analysis of Assem. Bill
No. 453 (2003-2004 Reg. Sess.) July 1, 2003, p. 3.)
17
As introduced, the bill allowed for recovery “[i]f the contract
is later determined to be invalid due to a defect or defects in the
competitive bidding process . . . .” There was no limitation based
on which party or parties were responsible for the defects.
(Assem. Bill No. 453 (2003-2004 Reg. Sess.) as introduced
Feb. 14, 2003.) It was understood that the bill would “allow a
contractor who has acted in good faith to recoup his or her costs if
a contract is invalidated, because a public agency could otherwise
refuse payment regardless of whether or not the agency or the
contractor was at fault. Such a case has not yet arisen, but the
sponsor is concerned that there is nothing to stop a cash-strapped
public agency from doing so.” (Assem. Com. on Business and
Professions, Analysis of Assem. Bill No. 453 (2003-2004 Reg.
Sess.) Apr. 29, 2003, p. 2.)
The bill was amended in the Senate on June 26, 2003 to
add the language at issue in this case. It allows for recovery “[i]f
the contract is later determined to be invalid due to a defect or
defects in the competitive bidding process caused solely by the
public entity . . . .” (Assem. Bill. No. 453 (2003-2004 Reg. Sess.)
as amended June 26, 2003, italics added.)
A subsequent committee analysis indicated that, in
opposition to the bill, the League of California Cities argued that
it had been the law in California for a century that there can be
no payments on void public contracts. “Supporters respond that
the issue presented by the bill is one of fundamental fairness. If
a contract is invalidated solely due to the fault of the agency,
supporters argue, the contractor who relied upon the contract in
good faith should be entitled to payment on work already done.”
(Sen. Com. on Judiciary, Analysis of Assem. Bill No. 453 (2003-
2004 Reg. Sess.) July 1, 2003, pp. 4–5.)
18
In short, in enacting section 5110, the Legislature agreed to
provide an exception to established law that had placed all the
risk of public contract invalidation on the contractor. As
originally proposed, the exception applied in all cases in which a
contract was entered into while a challenge was pending and the
contract was ultimately determined to be invalid due to a defect
in the bidding process. As eventually enacted, the exception was
limited to those cases where that defect was solely the fault of the
public entity. But it is the defect for which the contract is
invalidated – not the invalidation itself – which must be the fault
of the public entity.
3. Application
Applying this interpretation of section 5110 to this case, it
is apparent that CDCR’s motion for judgment on the pleadings
should have been granted. The motion was supported by a
request for judicial notice of the relevant documents from the San
Diego case – which indicated that the contract between CDCR
and Phelps was invalidated “[b]ecause [Phelps]’s bid contained
non-waivable mathematical/typographical errors” which rendered
it non-responsive. In short, the contract was invalidated for a
material error in Phelps’s bid, not for any “defect . . . in the
competitive bidding process,” much less a defect “caused solely
by” CDCR. Section 5110 cannot provide a basis for recovery.
In opposition to the motion for judgment on the pleadings,
Phelps argued that, while the San Diego court found a material
error in the bid, the focus of section 5110 is not on the errors in
the bid but on the competitive bidding process. Phelps argued
that it would establish that CDCR’s failure to recognize and
reject Phelps’s mathematical bid error, and its subsequent award
of the contract to Phelps, was an error in the competitive bidding
19
process caused solely by CDCR. In other words, Phelps argued
that the error in its bid was irrelevant, because all that mattered
were defects in the competitive bidding process, and the only
defect in the competitive bidding process was CDCR’s failure to
reject Phelps’s materially-flawed bid.
Even if we were to agree that CDCR were at fault to some
degree for failing to reject Phelps’s flawed bid, it was at a
minimum the combination of Phelps’s flawed bid and CDCR’s
failure to reject it which resulted in an invalid contract. But
Phelps can only recover under section 5110 if the invalidation
was due to a defect in the bidding process caused solely by CDCR;
it cannot recover if the contract was invalidated for reasons that
were even partly its own fault. The San Diego trial court’s ruling
establishes Phelps was at fault.
4. Collateral Estoppel Confirms the Result
Viewed as an application of the doctrine of collateral
estoppel, we reach the same result. “Issue preclusion prevents
‘relitigation of issues argued and decided in prior proceedings.’
[Citation.] The threshold requirements for issue preclusion are:
(1) the issue is identical to that decided in the former proceeding,
(2) the issue was actually litigated in the former proceeding,
(3) the issue was necessarily decided in the former proceeding,
(4) the decision in the former proceeding is final and on the
merits, and (5) preclusion is sought against a person who was a
party or in privity with a party to the former proceeding.
[Citation.] When those requirements are met, the propriety of
preclusion depends upon whether application will further the
public policies of ‘preservation of the integrity of the judicial
system, promotion of judicial economy, and protection of litigants
20
from harassment by vexatious litigation.’ [Citation.]” (Castillo v.
City of Los Angeles (2001) 92 Cal. App. 4th 477, 481.)
Each factor is established. (1) The issue is identical. The
San Diego court determined whether the contract must be
invalidated on any basis alleged by West Coast; in this case, the
issue is on what basis the contract was invalidated. (2) The issue
was actually litigated; the San Diego court rejected one of West
Coast’s proferred bases for invalidating the contract (omission of
subcontractor license numbers) but accepted the other (material
mathematical errors). (3) The issue was necessarily decided; it
was not unnecessary to the prior proceeding. The San Diego
court could not have invalidated the contract without
determining on what basis, if any, the contract had to be
invalidated. (4) The decision in the prior proceeding is final and
on the merits. CDCR appealed a portion of the judgment relating
to West Coast, but the parties chose not to appeal the
invalidation of the contract. (5) Phelps was a party in the prior
action; it was the real party in interest. Additionally, the public
policies of preservation of the integrity of the judicial system and
promotion of judicial economy are advanced by the application of
collateral estoppel. It is difficult to believe the integrity of the
judicial system would be advanced if, after the San Diego court
held that the contract must be invalidated for a material error in
Phelps’s bid, the Los Angeles court could hold, to the contrary,
that Phelps was actually blameless for the invalidation.
5. Phelps’s Late-Raised Alternative Ground
Although we have determined that judgment on the
pleadings should have been granted based on the evidence before
the court and the arguments made at the time, we briefly address
the alternative theory first raised by Phelps in opposition to the
21
motion in limine, on which the trial court ultimately relied. The
trial court found that the San Diego court’s invalidation of the
contract was itself due to a defect in the bid process caused solely
by CDCR: its improper rejection of the May 1st amended bidder
declaration.
First, as we have discussed, the statute simply asks why
the contract was invalidated, and allows relief only if the contract
was invalidated due to a defect in the bidding process caused
solely by the public entity. If, as in this case, the contract was
not invalidated for a defect in the bidding process caused by the
entity, but instead for a non-responsive bid, that ends the
inquiry.
Second, Phelps’s theory at trial, which was also adopted by
the trial court, was based on the premise that the only reason the
San Diego court invalidated its bid was because of the errors in
its April 30 bidder declaration which were corrected in the May 1
amended bidder declaration. But this is belied by the San Diego
court’s statement of decision, which states, “in at least four
instances, [Phelps]’s subcontractor percentage listings (both on
bid day and in the form submitted after bid day), are inconsistent
with the subcontractor prices (in dollars) listed in other parts of
[Phelps]’s bid.” The court specifically identified the prices of two
subcontractors which were materially different between not only
the bidder declaration and the amended bidder declaration, but
other documents in the bid and the amended bidder declaration.
In other words, the San Diego court invalidated the contract for
errors which would not have been remedied even if the May 1
amended bidder declaration had replaced the original bidder
declaration.
22
Third, recovery under section 5110 is only possible when
certain other requirements are met, including that the contractor
“proceeded with construction . . . based upon a good faith belief
that the contract was valid.” The trial court found that Phelps
acted in good faith, based on testimony from Phelps’s vice-
president that when he signed the contract on behalf of Phelps,
he knew CDCR had rejected the May 1 amended bidder
declaration, but believed the April 30 bid standing alone
contained only immaterial, waivable errors. In other words,
knowing that CDCR had rejected the May 1 amended bidder
declaration – for whatever reason, proper or improper – both
CDCR and Phelps believed in good faith that the April 30 bid
standing alone was sufficiently responsive to support an award of
the contract. That the trial court in this case ultimately
concluded CDCR should not have rejected the May 1 submission
is irrelevant; Phelps, with its eyes open, nonetheless agreed to
risk the contract on the April 30 bid alone.7 It was therefore
partly responsible.8
7 The trial court’s finding that CDCR improperly delayed in
informing Phelps that its May 1 amended bidder declaration was
rejected means little without testimony that Phelps would have
withdrawn its bid entirely had it timely been informed of the
rejection. There was no such testimony; it likely would have been
contradictory to the testimony that Phelps believed the April 30
bid contained only immaterial errors.
8 Because we conclude the judgment in favor of Phelps on its
complaint must be reversed, Phelps is no longer entitled to pre-
and post-judgment interest. We therefore need not address any
of CDCR’s challenges to the calculation of these amounts.
23
6. The Cross-Complaint
On appeal, CDCR asks that we not only direct entry of
judgment in its favor on the complaint, but “remand for entry of
judgment” for CDCR on its cross-complaint for recovery of monies
CDCR already paid to Phelps under the contract.
We question the procedure by which we can direct such
judgment be entered. CDCR did not move for judgment on the
pleadings on its cross-complaint. Although the trial court
resolved the cross-complaint against CDCR at trial, CDCR has
expressly chosen not to address the court’s findings following the
bench trial.
CDCR’s argument on appeal seems limited to: (1) the legal
proposition that, in the absence of section 5110, when the public
contract is invalid, the contractor must disgorge payments made;
(2) the San Diego court invalidated the contract; and (3) the
parties stipulated to the amount of the payments CDCR made.
CDCR argues that, in these circumstances, it has a right of action
for recoupment. We do not question that CDCR had a right of
action; our concern is that it is not pursuing any adverse
disposition of that right of action on this appeal.
As CDCR never sought judgment on the pleadings on its
cross-complaint; and can point to no stipulation that its cross-
complaint rises and falls with the complaint, we cannot simply
direct judgment in favor of CDCR.9
9 Prior to the bench trial, the parties contemplated a jury
trial. CDCR did not believe it would be necessary to submit the
cross-complaint to the jury, taking the position that if it prevailed
on the complaint, it would necessarily be entitled to recoupment.
Phelps wanted the issue to go to the jury. The court asked
CDCR’s counsel, “If you were to get the verdict on their case, then
24
Although our disposition may seem hypertechnical, there is
some equity to this result. The evidence reflects that some
amount of the work done by Phelps was not work pursuant to the
void contract, but work done to make the worksite safe after the
San Diego court issued its injunction. CDCR has made no
argument that Phelps performed that work as a volunteer, and is
not entitled to retain any funds to compensate it for its
substantial efforts returning the worksite to a safe condition.
We conclude that CDCR is not entitled to judgment on its
cross-complaint, as it has not properly challenged the trial court’s
ruling on the cross-complaint.
DISPOSITION
The judgment is affirmed in part and reversed in part. The
matter is remanded with directions to the trial court to vacate its
order denying CDCR’s motion for judgment on the pleadings on
Phelps’s complaint and to enter a new and different order
granting the motion. The judgment is affirmed to the extent it
denies CDCR recovery on its cross-complaint. The parties shall
pay their own costs on appeal.
RUBIN, P. J.
I CONCUR:
KIM, J.
if you don’t have a cross-complaint, then how do you get
disgorgement? Is there something in the code that automatically
gives it to you?” CDCR’s counsel responded, “No.” The court
said, “So then, you do have to have a cross-complaint.”
25
Hensel Phelps Construction Company v. California Department
of Corrections and Rehabilitation
B293427
BAKER, J., Concurring
I join the opinion for the court with the exception of Part 4
of the Discussion.
BAKER, J.
Filed 2/25/20
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FIVE
HENSEL PHELPS B293427
CONSTRUCTION COMPANY,
(Los Angeles County
Plaintiff and Respondent, Super. Ct. No. BC630469)
v. ORDER CERTIFYING OPINION
FOR PUBLICATION AND
CALIFORNIA DEPARTMENT DENYING PETITION FOR
OF CORRECTIONS AND REHEARING
REHABILITATION,
[NO CHANGE IN JUDGMENT]
Defendant and Appellant.
THE COURT:
GOOD CAUSE APPEARING, the opinion in the above-entitled matter
filed on January 28, 2020, was not certified for publication in the Official
Reports. For good cause, it now appears that the opinion should be published
in the Official Reports and it is so ordered.
There is no change in the judgment.
Petition for rehearing is denied.
________________________________________________________________________
RUBIN, P. J. BAKER, J. KIM, J.