JMR Construction v. Environmental Assessment etc.

Filed 1/28/16 (unmodified opn. attached)
CERTIFIED FOR PARTIAL PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SIXTH APPELLATE DISTRICT
JMR CONSTRUCTION CORP., H039055
(Monterey County
Plaintiff, Cross-Defendant, and Super. Ct. No. M105497)
Respondent,
v. ORDER MODIFYING OPINION
ENVIRONMENTAL ASSESSMENT and NO CHANGE IN JUDGMENT
REMEDIATION MANAGEMENT, INC.,
Defendant, Cross-Complainant and
Appellant,
SURETEC INSURANCE COMPANY,
Defendant and Appellant.
THE COURT:
The court orders that the partially published opinion filed December 30, 2015, be
modified as follows:
On page 3, first full paragraph, strike the second sentence (“We also hold . . .”),
and replace it with the following:
We also hold the court did not err in finding SureTec liable under the performance
bonds, concluding that neither JMR’s formal declaration of EAR’s default nor its formal
notice to SureTec of EAR’s default was a condition precedent to JMR’s recovery under
the bonds.
On page 41, delete the first full paragraph (“SureTec contends . . .”), and replace it
with the following:
SureTec contends the trial court erred in finding it liable under the performance
bonds. It contends JMR was required, as a condition precedent under the bonds, to give
(1) a declaration of EAR’s default and (2) notice to SureTec of EAR’s default. It argues
that JMR’s obligation to provide notice to SureTec of EAR’s default “was a necessarily
implied condition precedent” under the bonds.
The trial court held that JMR was entitled to recover from SureTec under the
performance bonds, “whether or not JMR gave notice to [SureTec] of the default [by
EAR].” In so concluding, the court relied in part on the language of Civil Code sections
2807 and 2808 (discussed, post).
On page 42, delete the second full paragraph (“Resolution of SureTec’s . . .”), and
replace it with the following:
We first address the standard of review applicable to SureTec’s contention that
JMR was required, as a condition precedent to seeking recovery under the performance
bonds, to declare EAR’s default and give SureTec notice of that default. Because no
extrinsic evidence was introduced by the parties on the question, we independently
review the trial court’s interpretation of the bonds. (Campbell v. Scripps Bank (2000)
78 Cal. App. 4th 1328, 1336; see also Airlines Reporting Corp. v. United States Fidelity &
Guaranty Co. (1995) 31 Cal. App. 4th 1458, 1461 [appellate court reviews interpretation
of bonds de novo].)
On page 45, first full paragraph, after the first sentence “SureTec implicitly . . .
liability.”), insert the following:
Nor does SureTec assert that either performance bond expressly states that its
liability is conditioned upon JMR’s having given a prior declaration of default.
2
On page 45, first full paragraph, after what was formerly the fourth sentence
(“Quoting from . . . [the contract . . .’ ” ”), insert the following:
And SureTec contends that “the bond language, read as a whole, makes clear that
a declaration of default was a condition precedent to SureTec’s liability.”
On page 45, first full paragraph, strike what was formerly the fifth sentence
(“Applying principles . . .”), and replace it with the following:
Applying principles of contract interpretation, we conclude that JMR was not
required to declare EAR’s default or give notice to SureTec of EAR’s default as a
condition precedent to SureTec’s liability on the bonds.
On page 46, first partial paragraph, delete the last sentence (“Thus, the
bonds . . .”), and replace it with the following:
Thus, the bonds do not contain the requisite “clear, unambiguous language”
(Alpha Beta Food, supra, 45 Cal.2d at p. 771) that would support a finding that JMR was
required to declare EAR’s default or provide a notice of default to SureTec as a condition
precedent to its liability under the bonds.
On page 46, second full paragraph, delete the first sentence (“Here, as in . . .”),
and replace it with the following:
Here, as in Pacific Allied, there was no language expressly conditioning SureTec’s
performance under the bonds upon JMR’s declaration of EAR’s default or SureTec’s
receipt of a notice of EAR’s default from JMR.
On page 47, first partial paragraph, delete the last sentence (“Here, there
was . . .”), and replace it with the following:
3
Here, there was no such express covenant requiring JMR to declare a default or
provide notice to SureTec of any such default.
On page 47, first full paragraph, delete the first sentence (“We conclude . . .”), and
replace it with the following:
We conclude that neither JMR’s declaration of EAR’s default nor its notice to
SureTec of EAR’s default is a condition precedent to triggering SureTec’s liability under
the bonds.
On page 47, first full paragraph, after the fourth sentence, delete the remainder of
the paragraph (commencing with “(Edwards v. Arthur Andersen LLP . . .”), and replace it
with the following:
(Edwards v. Arthur Andersen LLP (2008) 44 Cal. 4th 937, 954, quoting § 1858.)
Moreover, we observe that had SureTec desired to convey that its liability under the
performance bonds was expressly conditioned by JMR’s having previously declared a
default and having given SureTec notice of default, it could have readily included such
language in the bonds. (See Safeco Ins. Co. of America v. Robert S. (2001) 26
Cal. 4th 758, 763 [applying § 1858 to reject insurer’s contention that illegal act exclusion
in homeowner’s insurance policy should be construed as a “criminal act” exclusion,
observing that if insurer had “wanted to exclude criminal acts from coverage, it could
have easily done so”]; cf. Bank of Brewton, Inc. v. International Fidelity Ins. Co. (Ala.
2002) 827 So. 2d 747, 749 [addressing performance bond containing express condition
that surety’s obligation “ ‘shall arise after’ ” specified events, including the owner’s
obligation to give written notice to contractor and surety that it was considering declaring
a default, and thereafter declaring the contractor’s default].)
4
On page 48, at the end of the second paragraph, insert the following (including
new footnote 12 and appropriate renumbering of subsequent footnotes):
Likewise, under Civil Code section 2808, a surety assuming liability “upon a
conditional obligation . . . is [generally] not entitled to notice of default of the principal.”1
On page 49, first full paragraph, delete first sentence, and replace it with the
following:
SureTec relies on several out-of-state cases to support its contention that JMR was
required to declare EAR’s default and give SureTec notice of the default to recover under
the bonds.
On page 50, second full paragraph, delete the first sentence, and replace it with the
following:
We conclude the performance bonds did not require JMR to declare a default or
give notice of a default to SureTec as a condition precedent to recovery under the bonds.
On page 50, former footnote 12 (now 13), delete the first sentence, and replace it
with the following:
SureTec also cites Wal-Noon, supra, 45 Cal. App. 3d 605 in support of its position
that a declaration of default and notice to SureTec of the default was an implied condition
precedent to recovery under the performance bonds.
1
California Civil Code section 2808 provides: “Where one assumes liability as
surety upon a conditional obligation, . . . [the surety] is not entitled to notice of default of
the principal unless [it] is unable, by the exercise of reasonable diligence, to acquire
information of such default and the creditor has actual notice thereof.”
5
On page 51, in the continuation of former footnote 12 (now 13), delete the last
sentence (“Those principles . . .”), and replace it with the following:
Those principles, along with the absence of a clear indication that the parties
intended otherwise, compel our conclusion that neither a declaration of default nor a
notice of default to SureTec was an implied condition precedent to recovery under the
bonds.
The petition for rehearing filed on behalf of appellant SureTec Insurance
Company is denied.
There is no change in the judgment.
Date: ____________________________
Márquez, J.
____________________________ ____________________________
Rushing, P.J. Elia, J.
6
Trial Court: Monterey County Superior Court Superior
Court No.: M105497
Trial Judge: The Honorable
Lydia M. Villarreal
Attorneys for Plaintiff, Cross-Defendant, Joseph P. Mascovich
and Respondent Miller Law Group
JMR Construction Corp.:
Attorneys for Defendant, J. Brian Urtnowski
Cross-Complainant and Appellant Lisamarie McDermott
Environmental Assessment Urtnowski & Associates, P.C.
And Remediation
Management, Inc.:
Attorneys for Defendant, Peter Abrahams
and Appellant Mitchell C. Tilner
SureTec Insurance Company: Horvitz & Levy
Filed 12/30/15 (unmodified version)
CERTIFIED FOR PARTIAL PUBLICATION*
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SIXTH APPELLATE DISTRICT
JMR CONSTRUCTION CORP., H039055
(Monterey County
Plaintiff, Cross-Defendant, and Super. Ct. No. M105497)
Respondent,
v.
ENVIRONMENTAL ASSESSMENT and
REMEDIATION MANAGEMENT, INC.,
Defendant, Cross-Complainant and
Appellant,
SURETEC INSURANCE COMPANY,
Defendant and Appellant.
This dispute arose from a public works project involving the construction of a
dental clinic at the Presidio of Monterey (the Project). The owner, the United States
Army Corps of Engineers (the Corps), retained JMR Construction Corp. (JMR) as
general contractor for the Project. JMR, in turn, entered into various subcontracts,
including separate electrical and plumbing subcontracts, with Environmental Assessment
and Remediation Management, Inc. (EAR). SureTec Insurance Company (SureTec)
issued separate bonds guaranteeing EAR’s performance under the two subcontracts.
While the Project was ongoing, JMR (1) communicated with EAR about alleged
delays, deficient and late submittals, and improper plumbing work, and (2) retained
*
Pursuant to California Rules of Court, rules 8.1105(b) and 8.1110, this opinion is
certified for publication with the exception of parts I.A., I.C., III, IV, V, and VI of the
Discussion.
certain funds otherwise due to EAR under the subcontracts. After the Project was
completed, JMR filed suit against EAR and SureTec (collectively, defendants) for breach
of contract and for foreclosure of the performance bonds. JMR alleged it was damaged
as a result of EAR’s failure to perform under the two subcontracts. EAR filed a cross-
complaint for recovery of retention funds withheld under the subcontracts.
After a court trial, JMR was awarded the net amount of $315,631, which included
an offset for the retention funds JMR withheld under the subcontracts. In posttrial
proceedings, the court issued an order determining JMR was entitled to recover attorney
fees in an amount to be determined for its successful defense of the cross-complaint. The
court also awarded JMR $90,644.07 in expert witness fees pursuant to Code of Civil
Procedure section 9981 by concluding that JMR’s total monetary recovery ($315,631 plus
an undetermined amount of attorney fees) had exceeded the $375,000 amount of its
pretrial settlement offers. SureTec and EAR filed separate appeals.
EAR makes seven arguments on appeal. First, it asserts there was no substantial
evidence to support the trial court’s finding it was liable to JMR for delays on the Project.
Second, it argues the court erred by using the Eichleay method of calculating extended
home office overhead damages. Third, it asserts the court erred by utilizing the modified
total cost method of calculating disruption and delay damages. Fourth, it argues the
court, in its statement of decision, failed to address essential matters of fact and law.
Fifth, it contends the court erred in determining JMR was entitled to attorney fees in
defending the cross-complaint. Sixth, it asserts JMR was not entitled to recover its expert
witness fees pursuant to section 998. And seventh, it contends the court erred by denying
its motion for new trial.
1
Further statutory references are to the Code of Civil Procedure unless otherwise
specified.
2
SureTec contends JMR cannot prevail against SureTec because JMR failed to
declare EAR in default under the subcontracts, and JMR failed to notify SureTec of any
such default. It also contends the order finding JMR entitled to attorney fees on EAR’s
cross-complaint was improper as to SureTec. Further, it contests the award to JMR of
expert witness fees under section 998. And it argues that SureTec’s liability must be
limited to a maximum of $471,881, the ceiling of its liability under the performance bond
on the plumbing subcontract.
In the published portion of this opinion, we conclude the court did not err in its
utilization of the Eichleay method to calculate extended home office overhead damages
and in its use of the modified total cost method of calculating JMR’s disruption and delay
damages. We also hold the court did not err in finding SureTec liable under the
performance bonds, concluding that formal notice of EAR’s default was not a condition
precedent to JMR’s recovery under the bonds. In the unpublished portion of this opinion,
we conclude (1) there was substantial evidence supporting the court’s finding that EAR
was liable to JMR for Project delays; (2) the court’s statement of decision was not
defective; (3) defendants’ challenges to the interim, nonfinal, postjudgment order
determining that JMR was entitled to recover attorney fees in defending the cross-
complaint are not cognizable at this time; (4) defendants’ challenges to the award of
JMR’s expert witness fees under section 998 are meritorious; (5) EAR’s claim that the
court abused its discretion in denying EAR’s motion for new trial has no merit; and
(6) SureTec’s request for an order that its maximum liability is $471,881 is not
cognizable because it is a request for an advisory opinion. Accordingly we will affirm
the judgment, reverse the order awarding expert witness fees, and remand the case for
further postjudgment proceedings consistent with this opinion.
PROCEDURAL BACKGROUND
On April 29, 2010, JMR filed its complaint against EAR and SureTec. JMR
alleged four causes of action: (1) breach of the plumbing subcontract; (2) enforcement
3
and foreclosure on the performance bond for the plumbing subcontract; (3) breach of the
electrical subcontract; and (4) enforcement and foreclosure on the performance bond for
the electrical subcontract. The first and third causes of action were alleged against EAR,
while the second and fourth causes of action were alleged against SureTec.2 JMR alleged
that EAR’s failure or refusal to perform its work under the two subcontracts in
accordance with the Project’s schedule “caused project delay, acceleration, and related
damages to JMR.” The alleged damages included “offset of JMR claims against the
Owner, increased cost of JMR on-site performance costs and other loss of cost recovery
and overhead on the Project.” In each of the four causes of action, JMR claimed its
damages were in an amount “not less than $200,000.00.”
EAR filed a cross-complaint against JMR alleging breach of contract and common
counts. It alleged in separate causes of action that JMR had breached the electrical
subcontract and plumbing subcontract, and that as a result of these breaches, EAR had
been damaged in an amount in excess of $108,913.31.
A five-day court trial took place in January 2012. After the parties submitted
posttrial briefs in lieu of final argument, the court issued a ruling on April 30, 2012,
finding in favor of JMR in the total amount of $379,318, which amount included a
deduction of $121,893 that had been previously withheld from EAR under the
subcontracts. The court further ordered that EAR take nothing on its cross-complaint.
Pursuant to the court’s request, JMR submitted a proposed statement of decision in
which it withdrew one of its claims and adjusted the amount of another claim, resulting in
revised damages award of $315,631. The damages were derived by (1) adding five
damage figures in amounts of $29,249 (air compressor), $132,168 (field overhead for
delay), $15,440 (field overhead for Project closeout), $14,244 (markup for field
2
JMR also sought in the second and fourth causes of action to foreclose on the
payment bonds issued by SureTec under the two subcontracts. The payment bonds are
not at issue in this appeal.
4
overhead), $60,693 (Eichleay home office overhead), and $185,730 (damages during
framing and drywall phase); and (2) subtracting from this amount $121,893 previously
withheld under the subcontracts. On July 19, 2012, the court signed the statement of
decision. On August 14, 2012, the court entered judgment in favor of JMR and against
defendants in the amount of $315,631. The court also ordered that EAR and SureTec
take nothing on the cross-complaint3 and that defendants were liable for JMR’s costs,
including attorney fees in defending the cross-complaint, in an amount to be determined
after appropriate filings by JMR.
In postjudgment proceedings (discussed in greater detail, post), the court issued an
order on November 13, 2012, granting JMR’s request for recovery of expert fees of
$90,644.07. In the same order, the court reaffirmed a prior tentative ruling that it would
award attorney fees to JMR for its successful defense of EAR’s cross-complaint in an
amount to be determined at a later time.
DISCUSSION
I. EAR’s Appeal of the Judgment
EAR asserts four challenges to the court’s judgment. First, it contends there is no
substantial evidence to support the court’s finding that EAR breached its subcontracts
with JMR. Second, it argues the court erred in using the Eichleay formula of calculating
home office overhead damages. Third, it claims the court erred in applying the modified
total cost method of damages in connection with alleged delay damages associated with
the interior installation of metal studs and drywall (hereafter, the framing and drywall
phase). And fourth, it argues the court’s statement of decision was defective in that it
failed to take into consideration essential matters of fact and law. We address each of
these contentions below.
3
The finding that SureTec take nothing on the cross-complaint appears to be in
error, since EAR was the sole cross-complainant.
5
A. Sufficiency-of-Evidence Challenge
1. JMR Evidence
a. Testimony
On July 25, 2006, the Corps notified JMR that it had been awarded the contract to
complete the Project at a total contract price of $6,691,000 (the prime contract).
Thereafter, on September 19, 2006, JMR and EAR executed the subcontract for electrical
work for a total contract price of $732,500. On November 14, 2006, JMR and EAR
executed the subcontract for plumbing work for a total contract price of $471,881. Both
subcontracts recited that the schedule for performance of the prime contract was 450 days
from the “Owner’s Notice to Proceed Date [of] 8/30/06,” thereby making the completion
date November 23, 2007. EAR acknowledged these “contract durations and time
constraints and [agreed it would] comply with [JMR’s] construction schedule.”
Work on the Project continued nearly six months passed the scheduled completion
date of November 23, 2007. The beneficial occupancy date—i.e., completion of the
Project—was May 14, 2008.
Several representatives of JMR and one JMR-retained expert testified that EAR
was responsible for concurrent delays on the Project. Ron Rivard, JMR’s Vice President,
testified that the Project was delayed and the Corps, through change orders, granted a
180-day extension of the Project completion date. The Corps was responsible in part for
the extension due to delays in approval of the landscaping plans. Rivard also testified
that three subcontractors—EAR, Countywide Mechanical (Countywide), and Del Monte
Glass (Glass)—contributed to delays, but he did not know the number of delay days
caused by each of the three subcontractors, saying “[t]hat’s up [to] the experts.”
Rivard testified that one aspect of EAR-caused delay involved the furnishing of an
air compressor. EAR initially disputed that an air compressor was included in its scope
of work under the plumbing subcontract, but it eventually supplied an air compressor
without producing a submittal beforehand. Submittals were required on the Project so the
6
Corps could give advance approval of the equipment. The air compressor was not
approved by the Corps, and EAR refused to provide a Corps-approved replacement
compressor. JMR thereafter procured and installed a Corps-approved compressor.
Rivard testified that EAR’s failure to supply an approved air compressor caused delay in
JMR’s performance under the prime contract. He testified the schedule called for the air
compressor to be supplied in October 2007. Instead, it was supplied in February or
March 2008.
Steven Hupaylo, JMR’s job superintendent for the Project from its inception to
August 2007, was responsible for managing and coordinating the subcontractors in the
field. Hupaylo testified the drywall work for the interior of the clinic did not go well.
JMR’s plan was to install metal framing, have EAR do its plumbing and electrical work
in the uncovered metal frame, and then cover the metal frame along with the plumbing
and electrical work with drywall. JMR had separated the building into three areas, with
the intention of going room-by-room to have this work done efficiently. According to
Hupaylo: “We had a good shot at doing the thing. And the biggest problem we had was .
. . the plumbing and electrical that held us up in the [P]roject [by] not having materials,
not having skilled people, [and] not having any people sometimes. That was the single
biggest issue.” Hupaylo also testified that EAR’s plumbing crew “left the site a lot” and
were often working at other locations on the base. EAR’s foreman would sometimes
show up on the site without materials; he would promise to return to the site the next day,
but would not. As a result of ongoing problems with EAR’s performance under both
subcontracts, JMR had to install the drywall in a piecemeal fashion.
Daniel Spade worked as JMR’s project manager from January 2007 until the
Project’s completion. Spade testified there were significant punch list items at the end of
the Project resulting from EAR’s deficient performance under the subcontracts. In
addition, aside from the air compressor issue, there were problems with (1) an undersized
7
water heater, (2) the mixing valves controlling hot and cold water, and (3) the improper
operation of the fire alarm and life safety system.
JMR also presented testimony from John Elmer, a construction management
expert with expertise in scheduling. JMR retained Elmer to review the schedule for the
Project, to identify whether there were any delays in the Project’s completion, and to
determine the causes of any delays. Elmer testified regarding concurrent delays on the
Project. Defendants did not challenge Elmer’s qualifications as an expert.
Elmer testified that for any construction project, the owner and the general
contractor agree to an initial construction schedule—a baseline schedule. The general
contractor prepares a baseline schedule after receiving input from the subcontractors.
The general contractor then submits the baseline schedule to the owner for approval. The
baseline schedule is regularly tracked as work proceeds, typically through a computerized
program. If there is a delay in the delivered date of any work, and the delay is on the
critical path—i.e., the longest path of activities required to complete the project—that
delay will extend the completion date of the Project.
In arriving at his opinions as to any delays to the baseline schedule, Elmer
reviewed a number of construction documents, including monthly schedule updates, daily
quality control reports, daily subcontractor reports, submittal logs, punch lists, and
correspondence. In his analysis of the critical path of the Project, Elmer also created an
as-built schedule from December 2007 to May 2008 to attempt to identify accurately the
progress of the work on the Project as compared with the baseline schedule. He created
this as-built schedule because the monthly schedule updates in the latter months of the
Project did not accurately reflect the status of work being performed.
Elmer opined there was a critical path delay that extended the Project’s completion
by 180 days. That delay was reflected in change orders from the Corps extending the
completion date of the Project. Elmer testified that the parties responsible for the delays
were the Corps and three subcontractors: EAR, Countywide, and Glass. He opined that
8
EAR and Countywide were concurrently responsible for 142 of the 180 days of delay,
and that of those 142 days, Glass was concurrently responsible for 28 days of delay.
Elmer also testified that from December 19, 2007, to May 14, 2008 (the beneficial
occupancy date), the commissioning of the life safety systems (operable heating
ventilating and air conditioning, smoke detector, and fire alarm systems) drove the
critical path. “Commissioning” involved these systems being “signed off as being
complete and operable” and was a precondition for the owner accepting beneficial
occupancy. Elmer testified that EAR, Countywide and, to a much lesser extent, Glass
were the subcontractors performing work relevant to the completion of these systems. He
also said the concurrent delays by Countywide did not delay EAR’s work on the life
safety systems, and he opined that JMR did not contribute to any delay in the completion
of the Project between December 2007 and May 14, 2008.
b. Documentary Evidence
JMR introduced documentary evidence showing EAR was responsible for Project
delays. Most of the written communications were from Daniel Spade, JMR’s project
manager. Spade addressed some of the communications directly to John Fieri, EAR’s
plumbing project manager. Most of the written communications not addressed to Fieri
listed Fieri as a “cc” recipient. As noted twice by the trial court in its statement of
decision, Fieri was not called by EAR as a witness at trial.
On July 11, 2007, Spade advised EAR in an email to Ravindra Pendurthi, EAR’s
owner, that EAR had, in contravention of the specifications, used laborers instead of
plumbers to install pipe. Spade also noted that “an entire wage review of [EAR] on the
[P]roject [was] likely,” and he directed that Pendurthi “get [his] company in compliance.”
On August 10, 2007, Spade wrote a letter to Pendurthi indicating that (1) EAR was
“well behind schedule on the interior walls in the building”; (2) pipe insulation had “not
been completed[,] preventing completion of the drywall in many areas”; (3) “[t]he gas
lines ha[d] not been run and therefore drywall in some areas will have to be removed and
9
replaced at EAR’s expense”; (4) EAR had not delivered soffit light fixtures on-site,
“preventing covering these areas”; (5) “lobby wall sconces [we]re not on site[,]
preventing completion of rough-in”; and (6) EAR was responsible for deficient
submittals (about which JMR had previously notified EAR), and EAR’s failure to correct
the deficient submittals had resulted in the Corps withholding funds due to JMR. Spade
also summarized that “EAR[’s] plumbing performance [was] substantially behind and
[was] severely impacting the schedule and the timely completion of the [P]roject.” Spade
advised EAR that it had “48 hours to properly man the [P]roject with qualified
plumbers.”
Spade sent EAR two follow-up emails in September 2007. In those emails, he
stated the Corps was “not approving anymore [sic] money for plumbing and electrical
work done last month because submittal items ha[d] not been completed.” Spade also
reiterated that the Corps was “holding money from last month[’]s billing.”
On October 28, 2007, Spade sent an email to EAR that listed incomplete plumbing
and electrical items, stating “[s]ome of these items are having impacts and almost all are
overdue.” On November 21, 2007, Spade sent another email to Pendurthi, indicating
there were “[m]ajor issues still outstanding,” and stating: “We have run out of time
waiting for your electrical submittals to be turned in . . . . This is a serious problem in that
it could impact closeout of the [P]roject. If this occurs[,] EAR will be held responsible for
JMR’s overhead costs and any associated damages.”
On December 7, 2007, Spade sent another email to Pendurthi about EAR’s delays
and problems with Project submittals. Earlier that day, the Corps had advised JMR that
the Corps had in the past retained a portion of contract payments based upon “excessive
outstanding submittals; progression of work without proper quality controls; and slippage
of the approved [P]roject schedule.” The Corps also noted that “many of these
deficiencies ha[d] not yet been resolved.” Spade advised Pendurthi that “EAR ha[d] been
responsible for a significant amount of the production delay and 5 pages out of the 11
10
pages of outstanding submittals.” He also noted that “almost all” of the electrical
submittals and some of the plumbing submittals were still outstanding.
On January 14, 2008, Spade advised EAR by email that the Corps had not granted
beneficial occupancy of the building because there were outstanding issues concerning
the mechanical system. Spade said “[t]he majority of the [outstanding] items are EAR’s
responsibility.” He indicated the items needed to “be resolved this week.” And he said:
“You have already been informed of the financial impact involved. The fact that these
items are weeks old and still not resolved are major issues to the [C]orps[’] home office.”
On January 21, 2008, Spade sent a letter to Fieri stating “[t]here [were] a number
of major items that ha[d] been on the Quality Control punchlist for over a month,” and
the Corps was citing to the major items as a reason for denying beneficial occupancy.
Spade sent another email to Fieri on February 29, 2008, advising there were “still a
number of [punch list] items to resolve. Some on the plumbing side[,] others on the
electrical . . . . There are still a large number of electrical submittals[,] which is a huge
issue.”
On March 19, 2008, Spade sent another email to Fieri noting there were still a
number of punch list items to be addressed. Spade indicated: “The simple fact is EAR is
working on other projects and is not completing this work. [¶] No one is on[-]site
addressing these items. Every time Bob [Clark of the Corps] visits[,] he finds something
new.” Spade also wrote: “We have been struggling with EAR’s installation of the
plumbing system; clean outs have not been installed, goose neck vents not installed,
plumbing venting not installed per plan and requiring shop drawings prior to installation,
medical gas pipe not brazed per specification (still a sore point with the Corps), DDC
valve not installed per civil plan . . ., and payroll issues. [¶] The biggest issue on the
electrical side has been the submittals, which are still not complete and over 1 year late.”
11
2. EAR’s Evidence
Ravindra Pendurthi, EAR’s owner, testified that EAR started plumbing work on
the Project in late September or early October 2006, even though the subcontract was not
formally executed until December 2006. He said EAR commenced electrical work on the
Project in or about September 2006, before that subcontract was executed. He testified
that EAR started work early at JMR’s urging, because JMR was “behind schedule” on the
Project.
According to Pendurthi, JMR was slow in providing EAR with a baseline schedule
for the Project. He said JMR did not provide it until March 2007. He acknowledged that
at the time, EAR responded in writing that the schedule was fine, but that its compliance
with it was dependent on timely work by other tradesmen whose work needed to be
completed before EAR’s.
Pendurthi described several tasks that were added to its scope of work under both
subcontracts which extended EAR’s time to complete its performance. He also testified
that JMR approved change orders for this additional work, but JMR did not formally
grant EAR extensions of time. Instead, in each instance, the JMR representative (either
Spade or Hupaylo) advised EAR that JMR was behind schedule but would “take care of
[EAR’s extension request] at the end of the [P]roject.”
Pendurthi testified there was a period of time in which EAR inquired of JMR
about the equipment JMR was going to provide that impacted EAR’s rough-in plumbing
work. He said JMR’s delay in providing this information interfered with EAR’s ability to
complete its work.
Pendurthi denied that EAR lacked sufficient materials or failed to supply sufficient
personnel to work on the Project. He also denied that EAR’s work crews on the Project
were pulled off the job to do other work. He claimed EAR had dedicated crews for the
Project. He acknowledged that EAR’s foreman sometimes did not show up to work
12
because he had a persistent gout problem. But, he said, EAR eventually addressed the
issue by replacing the foreman.
Pendurthi testified that much of the drywall work—particularly the work in the x-
ray room and dentures room—was done out of sequence and was hampered because JMR
did not have proper submittals. He said this caused delays in EAR’s performance.
Pendurthi also testified that the drywall cost was elevated and its time of completion was
lengthened because the Corps required a “level five finish,” which was a quality much
more difficult to achieve than a normal sheetrock job. In addition, JMR used an out-of-
town workforce that resulted in cost overruns. Pendurthi admitted on cross-examination
that EAR did not advise JMR in writing that JMR was causing delays in EAR’s
performance.
Pendurthi also testified there was a period of time in or about November 2006
when JMR did not have on-site quality control personnel as required by the Corps. JMR
asked for help from EAR, and EAR supplied quality control personnel to work on-site for
approximately one month. Pendurthi testified that JMR’s failure to have on-site quality
control personnel for a period of time delayed EAR’s performance.
According to Pendurthi, all of EAR’s work under both subcontracts was accepted.
Pendurthi testified that by November 30, 2007—according to applications for payment
EAR had submitted—EAR’s plumbing and electrical work were 98.66 percent and 96.36
percent completed, respectively. Pendurthi testified that after December 1, 2007, EAR’s
remaining work was “[m]ostly finish work” during which time EAR was waiting for
other trades to complete their work.
3. Substantial Evidence Standard of Review
As a fundamental proposition, a judgment or order is presumed correct on appeal.
(In re Marriage of Arceneaux (1990) 51 Cal. 3d 1130, 1133.) “ ‘All intendments and
presumptions are indulged to support it on matters as to which the record is silent, and
error must be affirmatively shown.’ ” (Denham v. Superior Court of Los Angeles County
13
(1970) 2 Cal. 3d 557, 564.) It is appellant’s burden to overcome this presumption of
correctness, which burden includes providing an adequate record demonstrating error.
(Ibid.; see also Eisenberg et al., Cal. Practice Guide: Civil Appeals and Writs (The Rutter
Group 2013) ¶ 8:17, pp. 8-5 to 8-6, rev. #1, 2013.) The doctrine of implied findings is “a
natural and logical corollary” to (1) the presumption of the correctness of the judgment,
(2) the fact that all intendments and presumptions are made in favor of that correctness,
and (3) the appellant’s burden of demonstrating error with an adequate record. (Fladeboe
v. American Isuzu Motors, Inc. (2007) 150 Cal. App. 4th 42, 58 (Fladeboe).) This
“doctrine . . . requires the appellate court to infer the trial court made all factual findings
necessary to support the judgment. [Citation.]” (Ibid.; see Michael U. v. Jamie B. (1985)
39 Cal. 3d 787, 792-793, superseded by statute on other grounds as stated in In re
Zacharia D. (1993) 6 Cal. 4th 435, 448-449.)
A disputed factual issue that has been resolved by the trial court is reviewed under
the substantial evidence standard. (Winograd v. American Broadcasting Co. (1998)
68 Cal. App. 4th 624, 632.) As the California Supreme Court has explained: “In
reviewing the evidence on such an appeal all conflicts must be resolved in favor of the
respondent, and all legitimate and reasonable inferences indulged in to uphold the verdict
if possible. It is an elementary, but often overlooked principle of law, that when a verdict
is attacked as being unsupported, the power of the appellate court begins and ends with a
determination as to whether there is any substantial evidence, contradicted or
uncontradicted, which will support the conclusion reached by the jury. When two or
more inferences can be reasonably deduced from the facts, the reviewing court is without
power to substitute its deductions for those of the trial court. [Citations.]” (Crawford v.
Southern Pacific Co. (1935) 3 Cal. 2d 427, 429 (Crawford); see also Roddenberry v.
Roddenberry (1996) 44 Cal. App. 4th 634, 651-652.)
Upon review of the record in its entirety, “all of the evidence must be examined,
but it is not weighed. All of the evidence most favorable to the respondent must be
14
accepted as true, and that unfavorable discarded as not having sufficient verity, to be
accepted by the trier of fact. If the evidence so viewed is sufficient as a matter of law, the
judgment must be affirmed.” (Estate of Teel (1944) 25 Cal. 2d 520, 527.)
The benchmark “substantial evidence” is not “synonymous with ‘any’ evidence.”
(People v. Bassett (1968) 69 Cal. 2d 122, 139.) As one court has explained: “While it is
commonly stated that our ‘power’ begins and ends with a determination that there is
substantial evidence [citation], this does not mean we must blindly seize any evidence in
support of the respondent in order to affirm the judgment. The Court of Appeal ‘was not
created . . . merely to echo the determinations of the trial court. A decision supported by
a mere scintilla of evidence need not be affirmed on review.’ [Citation.] ‘[I]f the word
“substantial” [is to mean] anything at all, it clearly implies that such evidence must be of
ponderable legal significance. Obviously the word cannot be deemed synonymous with
“any” evidence. It must be reasonable . . . , credible, and of solid value . . . .’ [Citation.]
The ultimate determination is whether a reasonable trier of fact could have found for the
respondent based on the whole record. [Citation.] While substantial evidence may
consist of inferences, such inferences must be ‘a product of logic and reason’ and ‘must
rest on the evidence’ [citation]; inferences that are the result of mere speculation or
conjecture cannot support a finding [citations].” (Kuhn v. Department of General
Services (1994) 22 Cal. App. 4th 1627, 1633, footnote omitted, italics original.)
It is the appellant’s burden to establish that the judgment is not supported by
substantial evidence. (Adoption of Allison C. (2008) 164 Cal. App. 4th 1004, 1011.) In
meeting that burden, the appellant is charged with presenting an adequate record from
which the error is demonstrated. (Maria P. v. Riles (1987) 43 Cal. 3d 1281, 1295.)
“Defendants raising a claim of insufficiency of the evidence assume[] a ‘daunting
burden.’ [Citation.]” (Whiteley v. Philip Morris, Inc. (2004) 117 Cal. App. 4th 635, 678.)
In assessing whether substantial evidence supports the trial court’s factual findings, we
consider the evidence in the light most favorable to the party prevailing below. (Plumas
15
County Dept. of Child Support Services v. Rodriguez (2008) 161 Cal. App. 4th 1021,
1026.)
4. Procedural Bar
As noted earlier, where the claim is the absence of sufficient evidence to support
the judgment, it is the appellant’s burden—not the respondent’s or the court’s—“to
identify and establish deficiencies in the evidence. [Citation.]” (Houng Que, Inc. v. Luu
(2007) 150 Cal. App. 4th 400, 409 (Houng Que); see also Hickson v. Thielman (1956)
147 Cal. App. 2d 11, 14-15.) “ ‘The rule is well established that a reviewing court must
presume that the record contains evidence to support every finding of fact, and an
appellant who contends that some particular finding is not supported is required to set
forth in his [or her] brief a summary of the material evidence upon that issue. Unless this
is done, the error assigned is deemed to be waived. [Citation.] It is incumbent upon
appellants to state fully, with transcript references, the evidence which is claimed to be
insufficient to support the findings.’ ” (In re Marriage of Fink (1979) 25 Cal. 3d 877,
887; see also Nwosu v. Uba (2004) 122 Cal. App. 4th 1229, 1246 [“attack on the evidence
without a fair statement of the evidence is entitled to no consideration when it is apparent
that a substantial amount of evidence was received on behalf of the respondent”].)
Moreover, “the burden [of appellant] to provide a fair summary of the evidence
‘grows with the complexity of the record. [Citation.]’ [Citation.]” (Boeken v. Philip
Morris Inc. (2005) 127 Cal. App. 4th 1640, 1658 (Boeken).) Thus, an appellant’s
recitation of only the evidence supporting its position does not comply with the
requirements of an appellant’s sufficiency-of-the-evidence challenge, and may result in
the appellate court disregarding the claim. (Foreman & Clark Corp. v. Fallon (1971)
3 Cal. 3d 875, 881; Stewart v. Union Carbide Corp. (2010) 190 Cal. App. 4th 23, 34.)
EAR has not met its burden as appellant to provide a summary of the material
evidence (including evidence favorable to respondent JMR) concerning the claims
litigated in the court trial. This failure is particularly pronounced in light of the wealth
16
and complexity of the evidence adduced at trial. (See Boeken, supra, 127 Cal.App.4th at
p. 1658.) For instance, as seen from the recitation of facts, ante, there was a significant
amount of evidence presented by JMR—through the testimony of four employees or
former employees (Rivard, Hupaylo, Spade, and Thornton)—that EAR’s performance
under the two subcontracts hindered JMR’s ability to complete the prime contract and
significantly delayed completion of the Project. Yet EAR, in its opening brief, does not
mention that Hupaylo, Spade, or Thornton testified. EAR also fails to present Rivard’s
testimony that is unfavorable to EAR’s position, such as Rivard’s testimony that EAR’s
failure to install the air compressor caused significant delays to the Project. EAR’s
“selective recitation of the record . . . is manifestly deficient,” and we may therefore treat
its claim of error as waived. (In re Marriage of Fink, supra, 25 Cal.3d at p. 887.) But
even if we were to consider EAR’s sufficiency-of-the-evidence challenge as having not
been waived, it nonetheless lacks merit.
5. Substantial Evidence Supports the Trial Court’s Findings
JMR presented evidence from multiple sources that EAR’s breaches of the
subcontracts were a concurrent cause in the delay of the completion of the Project.
Steven Hupaylo, JMR’s job superintendent, testified that JMR’s drywall work was
delayed by EAR’s performance. According to Hupaylo, JMR’s planned, methodical
approach to building out the interior was “held . . . up . . . [by EAR’s] not having
materials, not having skilled people, [and] not having any people sometimes. That was
the biggest single issue.” Because of the ongoing problems with EAR’s performance
under both subcontracts, JMR had to complete the drywall work in an inefficient,
piecemeal fashion. Documentary evidence presented by JMR—including a number of
written communications from Spade to EAR—confirmed that (1) EAR’s plumbing and
electrical work was behind schedule; (2) some of EAR’s plumbing work was done
contrary to specifications; (3) EAR had performed work without proper quality controls;
(4) EAR had failed to timely deliver certain electrical products, thereby delaying the
17
Project; (5) EAR was responsible for multiple deficient or late submittals that resulted in
the Corps withholding payment under the prime contract; and (6) EAR was responsible
for numerous punch list items as of January 2008 that, two months later, it had not yet
addressed. Spade also confirmed in his testimony that EAR’s deficient performance
under both subcontracts had resulted in several significant punch list items at the end of
the Project. And Rivard testified that EAR’s failure to supply the air compressor delayed
JMR’s performance under the prime contract. Furthermore, JMR’s retained construction
management expert, John Elmer, gave detailed testimony concerning EAR’s
responsibility for concurrent delays on the Project. Elmer opined that of the 180 days of
critical path delay, EAR was concurrently responsible for 142 days of delay. EAR
neither challenged Elmer’s expert qualifications nor presented its own expert testimony
to contradict Elmer’s opinions.
In urging there was no substantial evidence supporting the judgment, EAR
emphasizes the testimony of its owner, Pendurthi. EAR argues that “Pendurthi provided
clear, positive and rationally believable testimony that the Project delays . . . were caused
in whole or in part by JMR itself.” It cites to Pendurthi’s testimony that delays related to
the drywall installation and to time and cost overruns were due to matters chargeable to
JMR—i.e., the difficulty of achieving “level five” drywall finish and JMR’s choice of
using expensive, out-of-town labor. But as trier of fact, “[t]he trial court [was] the
exclusive judge of the credibility of the witnesses.” (People v. Duncan (2008) 160
Cal. App. 4th 1014, 1018; see generally Eisenberg et al., Cal. Practice Guide: Civil
Appeals and Writs, supra, ¶ 8:54, p. 8-26.) The court was therefore free to discount or
reject Pendurthi’s testimony as self-serving, lacking in specifics, or otherwise lacking
credibility. (See In re Ana C. (2012) 204 Cal. App. 4th 1317, 1329 [appellate court cannot
substitute its assessment of witnesses’ credibility for the trial court’s credibility
assessment].) It is clear the trial court did not credit Pendurthi’s testimony, finding in the
statement of decision, for instance, that (1) “Pendurthi’s contrary conclusory explanations
18
[regarding disruption and delay caused by EAR in the framing and drywall phase we]re
not credible”; (2) “Pendurthi’s conclusion that JMR’s alleged late finishing of the drywall
delayed EAR’s work [wa]s illogical”; and (3) EAR’s failure to produce documentary
evidence “to support Mr. Pendurthi’s testimony renders [his] testimony weak and
unreliable.”4 The court thus accepted the evidence presented by JMR—particularly
Hupaylo’s testimony—concerning delays caused by EAR in connection with the metal
framing and drywall phases of the Project. Further, while EAR stresses Pendurthi’s
testimony that JMR’s failure to have on-site quality control personnel for a period of time
in the fall of 2006 caused delay, the trial court could have minimized or rejected this
testimony as well. Indeed, there was no evidence that this delay early in the Project,
assuming its existence, was a delay under a critical path analysis.
EAR also argues that JMR’s damages expert, Juan Perez, provided testimony
negating JMR’s claim that EAR was responsible for delaying the project: EAR argues
that Perez “testified that JMR was the cause of concurrent Project delays—upwards of
75% responsibility during a time in August 2007—for failing to timely submit
outstanding Project submittals.” (Original emphasis.) But the date cited by EAR is
misstated. The correct date is August 2008, three months after the Corps accepted the
Project. Perez called the several-months period after beneficial occupancy (May 14,
2008) the “Project Closeout” period. And to the extent EAR’s argument is that Perez’s
damage calculation testimony should be disregarded because he admitted that JMR had
“upwards of 75% responsibility” for delays in the critical path timeline, JMR conflates
4
The court, in its statement of decision, specifically rejected other testimony
presented by Pendurthi, including his assertion that there were precontract discussions in
which the parties plainly agreed that supplying an air compressor was outside the scope
of EAR’s duties under the plumbing subcontract. Pendurthi testified at length concerning
this issue. But because EAR does not challenge the trial court’s finding against EAR and
its award of damages to JMR concerning the air compressor, we do not recite that
testimony here.
19
two distinct parts of Perez’s testimony. As discussed, post, Perez opined that EAR was
responsible for at least 75 percent of the delay damages sustained by JMR during the
142-day period in which EAR and another subcontractor, Countywide, were concurrently
responsible for delays in the critical path timeline. Based upon EAR’s responsibility for
delays during this 142-day period, Perez calculated damages in the form of field overhead
and Eichleay damages. The “Project Closeout” was a period of 13 weeks after the 142-
day concurrent delay period. Perez testified that during this period when the Project was
winding down, there were a number of outstanding contractor submittals. Perez, on a
week-by-week basis, determined the total number of submittals on the Project, the
number of outstanding EAR submittals, and then multiplied EAR’s percentage of total
submittals by the total weekly field overhead. During the third week of May 2008, for
example, the total field overhead was $6,641.73, EAR was responsible for 43 percent of
the outstanding submittals (36 of 84) during that week, so EAR’s proportional liability
for the week was $2,855.94. During two weeks of August 2008, there were four
outstanding submittals—one was EAR’s and three were JMR’s. Perez therefore allocated
25 percent of the weekly overhead to EAR for each these two weeks. The fact that Perez
determined that JMR had 75 percent responsibility for delays during two weeks of
August 2008—and calculated damages based upon EAR’s 25 percent responsibility
during that period—has nothing to do with Perez assessment of damages based upon
EAR’s concurrent delay responsibility for the 142-day period preceding the Corps’s
acceptance of beneficial occupancy of the Project on May 14, 2008.
In addition to challenging the sufficiency of the evidence of causation for the
delay, EAR argues, in one sentence of its opening brief, that JMR “was unable to provide
substantial evidence as to any Project delay damages allegedly attributable to EAR.” We
need not address this conclusory, undeveloped legal argument. (Tilbury Constructors,
Inc. v. State Compensation Ins. Fund (2006) 137 Cal. App. 4th 466, 482 [appellate
arguments raised in perfunctory fashion are deemed forfeited].) We conclude EAR has
20
failed to sustain its burden of showing there was insufficient evidence to support the
judgment.
B. Challenges to the Calculation of Contract Damages
In the alternative to its sufficiency-of-the evidence challenge, EAR contests the
court’s acceptance of the Eichleay formula of recovering home office overhead damages.
EAR also contends the court erred in applying the modified total cost method of
calculating the cost associated with delays in the framing and drywall phase of the
Project. We will address these two challenges after first identifying the appropriate
standards of review. At the outset, however, we will present a summary of the evidence
concerning JMR’s claims of damages.
1. Evidence Concerning Damages
JMR presented evidence of damages that involved four categories: (1) field
overhead delay damages; (2) home office overhead (Eichleay delay damages); (3) delay
damages associated with the framing and drywall phase of the Project, utilizing the
modified total cost method; and (4) costs associated with EAR’s failure to supply an
approved air compressor. We will not summarize the air compressor damages, since they
are not at issue in this appeal. But given their interrelationship with the Eichleay delay
damages, we will review the evidence of field overhead damages even though those
damages are not directly challenged by EAR.
a. Field Overhead Damages
Daniel Spade, JMR’s project manager, testified that the Corps had rejected JMR’s
recovery of any extended overhead damages resulting from delays in the Project’s
completion. The Corps rejected these damages because there were concurrent delays
caused by parties other than the Corps. At trial, JMR’s construction management expert,
John Elmer, explained that when the owner of a public works project causes delay, and a
subcontractor or subcontractors concurrently cause delay, the owner may grant the
general contractor an extension of time to complete the project, but it will not grant the
21
general contractor compensable time (i.e., delay damages payable by the owner). Elmer
testified that under such circumstances, the general contractor will typically seek delay
damages from the subcontractor, under the theory that the general contractor “should
have recovered compensable time, but . . . was precluded from [doing so] because of [the
subcontractor’s] delay.”
Juan Perez, a construction expert retained by JMR, provided extensive testimony
regarding JMR’s delay damages attributable to EAR. Defendants did not challenge
Perez’s qualifications as an expert. Perez testified that he has had experience in
presenting disruption claims on behalf of contractors. A disruption claim is based upon a
contractor’s intended performance or method of performance being impacted by another
contractor or by an event, resulting in the contractor’s performance being more costly
because it is either done out of sequence or for an extended duration.
Perez calculated JMR’s damages based upon (1) his review of the project
documents, and (2) his reliance upon the opinions of John Elmer, JMR’s construction
management expert. Specifically, Perez relied upon Elmer’s opinions that (1) there was a
critical path delay that extended the Project’s completion by 180 days; (2) 180 days is
reflected in change orders issued by the Corps extending the Project’s completion date;
(3) the parties responsible for the delays were the Corps and three subcontractors (EAR,
Countywide Mechanical, and Del Monte Glass); (4) EAR and Countywide were each
concurrently responsible for 142 days of the 180 days of delay; (5) within the 142-day
period, Del Monte Glass was concurrently responsible for 28 days of delay.
Perez opined that, under the two subcontracts combined, EAR was responsible for
at least 75 percent of the delay damages sustained by JMR during the 142-day concurrent
delay period identified by Elmer. Perez arrived at this percentage allocation after
considering (a) Elmer’s allocation of EAR’s responsibility for concurrent delays
(63 percent); (b) a determination of EAR’s percentage of the total contract value of the
22
mechanical, electrical, and plumbing trades (67 percent); and (c) the percentage of punch
list items for the 142-day concurrent delay period (83 percent).
Perez also rendered the opinion that JMR sustained field overhead damages
associated with EAR’s concurrent delay. Field overhead costs are the costs a contractor
incurs in maintaining its field operations, including cost items such as storage trailers,
office trailers, and a job superintendent’s salary. Perez concluded that JMR’s total field
overhead damages for which EAR was responsible was $161,851.33.
b. Home Office Overhead Damages
Perez testified that he calculated damages for JMR’s home office costs (otherwise
known as unabsorbed overhead costs) using the Eichleay formula. Perez explained that
this formula “is a method of allocating those home office overhead costs to a project that
[has] been extended or delayed.” According to Perez, the Eichley formula is the
“exclusive method approved by the Federal Government to arrive at the fair
compensation amount for unabsorbed overhead costs.” He testified that “[b]ut for the
concurrent delays on the project, the Eichleay [f]ormula would have been used by both
JMR and the Government to arrive at the fair compensation amount for unabsorbed
overhead costs that belonged to JMR.”
c. Framing and Drywall Phase Damages
JMR qualified its vice-president, Ron Rivard, as an expert witness in estimating
interior framing and drywall work. Rivard had over 30 years’ experience as a licensed
general contractor, and approximately 35 years as an estimator in which he had estimated
at least 300 jobs.
Rivard testified that he prepared the bid for the framing and drywall phase of the
Project. In doing so, he utilized the plans in an electronic format and used computer
software to perform a detailed cost takeoff. The takeoff yielded a bill of materials, and
the software automatically assigned a labor factor indicating the number of labor hours
associated with the particular area of work. The labor factor was based upon historical
23
data, i.e., JMR’s experience in constructing buildings similar to the building in the
Project. The total bid for the framing and drywall phase was $220,000, an amount JMR
assumed would be sufficient to perform the work in an orderly fashion and with a
reasonable crew size. Rivard testified he was unaware of any mistakes in the bid, and
opined that $220,000 was a reasonable cost for that phase of the Project.
Craig Connerty, a certified public accountant with 27 years of experience, testified
as an expert on JMR’s behalf. JMR had been a client of Connerty’s accounting firm for
over 15 years. Connerty reviewed the costs posted in JMR’s books allocated to the
framing and drywall phase of the Project. He testified that the total costs allocated to this
phase was $461,535, and he reviewed the subcategories of those costs. Connerty “did a
lot of testing with regard to the accounts for reasonableness” by selecting a number of
different invoices for review before arriving at the $461,535 figure. Connerty also noted
that this figure should be reduced by approximately $48,200 to account for costs that,
based upon his conversation with Rivard, were erroneously posted to the framing and
drywall phase.
Perez offered testimony relating to disruption damages for the framing and
drywall phase. In forming his opinion, Perez spoke with job superintendent Steven
Hupaylo, project manager Daniel Spade, and JMR’s vice president Ron Rivard. Perez
also reviewed documents identifying the costs of the framing and drywall phase; certified
payroll figures indicating the number of workers on the job site during that phase; and
other correspondence. Perez relied on Hupaylo’s testimony to the effect “that every wall
was impacted by EAR’s performance, meaning that the impacts and the costs [were]
intrinsically intertwined [and it was] difficult if not impractical or impossible to segregate
[the] individual impacts.” In calculating disruption damages, Perez performed a
“modified total cost analysis.” He described this approach as follows: “[Y]ou would
take a selected portion of the contractor’s costs that he incurred and subtract from that the
24
contractor’s budget for those items, removing . . . items which were not part of the
original budget . . . to ensure you’re comparing apples to apples.”
Thus, one component of Perez’s calculation was the original bid. Perez did an
independent analysis of JMR’s bid for the framing and drywall phase. He found that
Rivard’s bid contained the kind of detail indicative of a good estimate, the bid used
methods that were “consistent with other contractors,” and the bid was “based on
historic[al] information[,] which is also important.” Perez testified that he “was satisfied”
with Rivard’s bid and that the numbers within it “appeared reasonable.” He noted that in
comparing the material costs in the bid with the actual material costs, “the material
estimate was almost dead on.” He also noted that because labor estimates are based upon
the material scheduled, the fact that the actual cost of materials was consistent with the
estimate for those materials was “a good indication of a good estimate.” He concluded
that “if your material estimate is off, your labor estimate would be off. And Mr. Rivard’s
material estimate was on, was accurate.”
Perez also reviewed the “logged” costs that related to the framing and drywall
phase of the Project. This amount totaled $461,534. Perez subtracted the costs that had
been incorrectly allocated to the framing and drywall phase. These were the same figures
identified in the testimony of JMR’s accounting expert, Craig Connerty. Perez also
subtracted a per diem figure associated with the erroneously posted costs. Perez then
calculated the total amount of disruption damages allocable to EAR relating to the
framing and drywall phase, which he determined to be $185,729.
2. Standards of Review
An appellant’s challenge to damages, depending upon its specific nature, may be
subject to a substantial evidence, abuse of discretion, or de novo standard of review. The
question of whether a plaintiff was, in fact, damaged by the defendant’s breach of
contract is reviewed for substantial evidence. (See GHK Associates v. Mayer Group, Inc.
(1990) 224 Cal. App. 3d 856, 873 (GHK).) The question of whether “a certain measure of
25
damages is permissible given the legal right the defendant has breached, is a matter of
law, subject to de novo review. [Citation.]” (New West Charter Middle School v. Los
Angeles Unified School Dist. (2010) 187 Cal. App. 4th 831, 843 (New West); see also
Hurtado v. Superior Court (1974) 11 Cal. 3d 574, 579.) But where the measure of
damages is legally permissible, a trial court’s choice of that measure, among other legally
permissible measures of damages, is reviewed for abuse of discretion. (New West, at
p. 843, citing GHK, at p. 873.)
EAR contends that neither the Eichleay formula nor the modified total cost
method was legally authorized in this case. EAR does not make the further argument
that, assuming the legal validity of these damage calculations, the court abused its
discretion by selecting them over other legally permissible methods of computing
damages. Accordingly, we review the legal propriety of the court’s use of the two
damages calculations de novo. In addition, EAR contends that, even assuming the legal
validity of the Eichleay formula, JMR failed to establish the requisite elements for its
application, a question we review under the substantial evidence standard of review.
3. Challenges to the Eichleay Formula
a. The Eichleay Formula
As explained by JMR’s expert, Juan Perez, the Eichleay formula “is a method of
allocating those home office overhead costs to a project that [have] been extended or
delayed.” It originated from a case before the Armed Services Board of Contract
Appeals (see Eichleay Corp. (A.S.B.C.A.1960) 60-2 BCA (CCH) 2688), and it is
typically used in federal litigation involving federal public works projects. (See, e.g., P.J.
Dick Inc. v. Principi (Fed.Cir.2003) 324 F.3d 1364, 1370; Altmayer v. Johnson
(Fed.Cir.1996) 79 F.3d 1129, 1132-1133 (Altmayer).) The Federal Circuit has held that
“the Eichleay formula is the only means for calculating recovery for unabsorbed home
office overhead.” (E.R. Mitchell Const. Co. v. Danzig (Fed.Cir.1999) 175 F.3d 1369,
1372, italics original; see also Nicon, Inc. v. U.S. (Fed.Cir.2003) 331 F.3d 878, 884.)
26
As explained by the Altmayer court: “Home office overhead costs are those that
are expended for the benefit of the whole business, which by their nature cannot be
attributed or charged to any particular contract. [Citation.] In contracting with the
government, a company necessarily includes a portion of home office overhead expenses,
which it calculates based on the contract’s duration, in its estimate of costs to perform the
contract. [Citation.] When the government delays or disrupts contract performance,
ultimately requiring that it be extended, the contractor’s stream of income from the
government for the direct costs it has incurred under the contract is reduced or
interrupted. [Citation.] However, home office overhead continues to accrue throughout
both the original and extended performance periods, regardless of direct contract activity.
[Citations.] This, of course, results in a reduction or interruption of payments for
overhead, especially when, as here, the contractor has prepared a critical path schedule,
for any delay along the critical path results in the delay of the overall project.”
(Altmayer, supra, 79 F.3d at p. 1132.)
There are three steps in the calculation of extended overhead using the Eichleay
formula. They are (1) “to find [the] allocable contract overhead [by] multiply[ing] the
total overhead cost incurred during the contract period times the ratio of billings from the
delayed contract to total billings of the firm during the contract period; [(2)] to get the
daily contract overhead rate, divide allocable contract overhead by days of contract
performance; and [(3)] to get the amount recoverable, multiply the daily contract
overhead rate times days of government-caused delay. [Citation.]” (Wickham
Contracting Co., Inc. v. Fischer (Fed.Cir. 1994) 12 F.3d 1574, 1577, fn. 3 (Wickham
Contracting).)
b. Legal Propriety of Using Eichleay Formula
EAR argues it was improper for the court to accept JMR’s proffer of the Eichleay
formula to establish its unabsorbed overhead damages caused by EAR’s concurrent
delay. EAR asserts there is no legal precedent for applying the formula because (1) there
27
have been no published California decisions endorsing its use, and (2) there is no legal
authority authorizing its use in situations, such as here, where the defendant causing the
delay was not the government. EAR also urges that Perez, JMR’s expert, “admitted
application of the Eichleay formula is ‘debated.’ ”5
Under Civil Code section 3300, a party may recover for a breach of contract a sum
that will compensate it “for all the detriment proximately caused thereby, or which, in the
ordinary course of things, will be likely to result therefrom.” “[I]n the law of contracts
the theory is that the party injured by a breach should receive as nearly as possible the
equivalent of the benefits of performance. [Citations.] The aim is to put the injured party
in as good a position as [it] would have been had performance been rendered as
promised. This aim can never be exactly attained yet that is the problem the trial court is
required to resolve. [Citation.]” (Brandon & Tibbs v. George Kevorkian Accountancy
Corp. (1990) 226 Cal. App. 3d 442, 454; see also Lewis Jorge Const. Management, Inc. v.
Pomona Unified School Dist. (2004) 34 Cal. 4th 960, 967-968 (Lewis Jorge).) “Where
the fact of damages is certain . . . the amount of damages need not be calculated with
absolute certainty. The law requires only that some reasonable basis of computation be
used, and the result reached can be a reasonable approximation.” (Acree v. General
Acceptance Corp. (2001) 92 Cal. App. 4th 385, 398, fns. omitted, italics in original
(Acree); see also SCI Cal. Funeral Services, Inc. v. Five Bridges Foundation (2012)
203 Cal. App. 4th 549, 570 (SCI Cal. Funeral Services).)
5
Perez was asked if there was any criticism of the Eichleay formula. He
responded: “I’m aware of . . . different cases—certainly Eichleay is a formula which is
the subject of a lot of cases and the application of Eichleay is debated and . . . it’s an
evolving formula. And I try to keep up-to-date with the evolution of it, but that’s what
I’m aware of.” After again being asked if he was aware of any criticisms of the formula,
Perez responded: “Criticisms? Not criticisms more than just the applicability of it—of
the formula.”
28
Delay damages are a common element recoverable by a party aggrieved by the
breach of a construction contract. (See, e.g., Coughlin v. Blair (1953) 41 Cal. 2d 587,
603-604 [plaintiffs entitled to damages for increased building costs and loss of use of
property resulting from defendants’ delay in performance of contract to pave road and
install utilities]; State of California ex rel. Dept. of Transportation. v. Guy F. Atkinson
Co. (1986) 187 Cal. App. 3d 25, 32-34 (Guy F. Atkinson) [contractor entitled to disruption
and delay damages caused by material changes to contract ordered by state]; Bird v.
American Surety Co. (1917) 175 Cal. 625, 631 [delay damages incurred by owner,
including rental losses, recoverable].) A subcontractor who is responsible for delaying
the progress of a construction project may be held liable for delay damages incurred by
the general contractor or by another subcontractor. (10 Miller & Starr, Cal. Real Estate
(3d ed. 2001) § 27:39, p. 109.) Increased overhead expenses incurred by a general
contractor as a result of the subcontractor’s breach may be an item of recoverable
damages. (See Allen v. Gardner (1954) 126 Cal. App. 2d 335, 344.)
As explained in one treatise: “A building contractor whose performance is
delayed by the owner may have increased overhead and fixed costs resulting from a delay
and may suffer labor and material cost increases or loss of labor productivity due to
delays for all of which he or she would be entitled to damages.” (Cal. Attorney’s Guide
to Damages (Cont.Ed.Bar 2d ed. 2014) § 1.49, p. 1-50.) Extended home office overhead
is one type of delay damages for which a contractor may seek recovery. (See Cal.
Construction Contracts, Defects, and Litigation (Cont.Ed.Bar 2013) §§ 5.107, 6.86, pp.
394, 537; Gibbs & Hunt, Cal. Construction Law (17th ed. 2011) Construction Claims,
§ 6.07[F], p. 441.)
We acknowledge there are no reported California appellate decisions approving
the use of the Eichleay formula. In the only reported California case addressing the
formula, the appellate court did not decide the legal propriety of its use because the
municipality against which such damages were sought did not dispute the formula’s
29
general applicability to construction delay claims. (See Howard Contracting, Inc. v. G.A.
MacDonald Construction Co., Inc. (1998) 71 Cal. App. 4th 38, 53.)
We do not infer from the absence of California authority that the Eichleay formula
is unavailable as proof of delay damages in this state. As has been observed in one
treatise: “The federal government developed the Eichleay formula to compute the
amount of home office overhead expense for which a government contractor should be
reimbursed for a period of delay. Although the formula has not been discussed in a
reported California case, it is frequently used at the trial court level and in arbitration
proceedings to compute damages.” (Cal. Construction Contracts, Defects, and Litigation,
supra, § 5.107, p. 394.)6
That the circumstances of this case are different from those in which Eichleay
damages are typically discussed in reported decisions—i.e., the general contractor
seeking delay damages from a subcontractor, rather than from a governmental
agency/owner—does not preclude use of the formula. JMR presented unrebutted
testimony from Daniel Spade that because there were concurrent delays, the Corps
rejected JMR’s effort to recover extended overhead damages from the Corps. And
JMR’s construction management expert, John Elmer, testified that when the owner of a
public works project causes delay, but a subcontractor or subcontractors concurrently
cause delay, the owner may grant the general contractor additional time but it will not
grant the general contractor compensable time (i.e., delay damages). Elmer testified that
under such circumstances, the general contractor will typically seek delay damages from
the subcontractor under the theory that the general contractor “should have recovered
6
We acknowledge it is stated elsewhere in the treatise that, because California
courts have not adopted the Eichleay formula in any published decision, “[t]he
applicability of [it] to public or private construction projects in California is
questionable.” (Cal. Construction Contracts, Defects, and Litigation, supra, § 6.86,
p. 538.)
30
compensable time, but . . . was precluded from [doing so] because of [the
subcontractor’s] delay.” (See William F. Klingensmith, Inc. v. U.S. (Fed.Cir. 1984)
731 F.2d 805, 809 [contractor generally denied recovery for government-caused delays
where there are concurrent delays and absent “ ‘proof a clear apportionment of the delay
and expense attributable to each . . .’ ”]; Gibbs & Hunt, Cal. Construction Law, supra,
Construction Claims, § 6.07[E], p. 440 [where owner causing project delays shows that
“simultaneous cause of delay was the contractor’s own mismanagement of the project,”
and delays “contributed to or overlapped the owner caused delays, then they may be
considered concurrent and may be treated as noncompensable delays”].) EAR presented
no expert testimony of its own to rebut JMR’s expert testimony concerning Eichleay
damages.
We conclude the trial court did not err in applying the Eichleay formula as a
legally permissible method of determining JMR’s home office overhead damages. We
base this conclusion upon the expert evidence presented at trial, the general recoverability
of extended home office overhead as an element of delay damages, and the federal
courts’ general acceptance of the Eichleay formula. In other words, the calculation of
extended home office overhead damages using the Eichleay formula was an appropriate
method to compensate JMR “for all the detriment proximately caused” by EAR’s breach
of contract. (Civ. Code, § 3300.) That recovery facilitates “[t]he goal [of placing] the
plaintiff ‘in as good a position as he or she would have occupied’ if the defendant had not
breached the contract. [Citation.]” (Lewis Jorge, supra, 34 Cal.4th at p. 967, quoting 24
Williston on Contracts (4th ed.2002) § 64:1, p. 7.) Indeed, it would be anomalous to
allow recovery to JMR for Eichleay extended home office overhead damages in a claim
against the government-owner—had there been no concurrent delay and where, as here,
JMR had established the fact of such damages and causation—while denying such
recovery from EAR where EAR was concurrently responsible for the delay.
31
c. Proof of Elements of Eichleay Formula
EAR also challenges the use of the Eichleay formula on the basis that JMR did not
establish the requisite elements for its application. The federal courts have identified
three Eichleay requirements. “[T]he contractor [must] establish: (1) a government-
caused delay; (2) that [the contractor] was on ‘standby’; and (3) that [the contractor] was
unable to take on other work. [Citation.]” (Altmayer, supra, 79 F.3d at p. 1133.) EAR
asserts there was no evidence JMR was unable to take on other work.
JMR presented evidence, through Perez, concerning JMR’s inability to obtain
other work. Perez’s expert testimony was based in large part upon his conversations with
Rivard and JMR’s bonding agent, Sharon Rusconi. Perez testified that JMR was a
woman-owned business that received work on Small Business Administration Section 8A
projects. Such projects are not strictly bid competitively; contract awards are largely
dependent on the contractor’s ratings. Perez testified that as a result of Project delays
during the 142-day concurrent delay period, JMR’s rating was downgraded to marginal.
This rating downgrade negatively impacted JMR’s ability to obtain new work. Rivard
informed Perez that during the period of November 2007 through sometime in 2008,
JMR could not obtain a bid bond. JMR was thus precluded from bidding on public
projects and could not get other work.7
This evidence constituted substantial evidence of the third Eichleay prerequisite,
i.e., “that [JMR] was unable to take on other work. [Citation.]” (Altmayer, supra,
79 F.3d at p. 1133.) Accordingly, EAR’s claim that there was insufficient evidence
supporting application of the Eichleay formula fails.8
7
EAR did not assert any evidentiary objections at trial to this testimony, forfeiting
any such objections on appeal. (See SCI Cal. Funeral Services, supra, 203 Cal.App.4th
at pp. 563-565 [appellant’s challenges to admissibility of expert testimony forfeited due
to failure to preserve them in trial court].)
8
EAR also argues JMR’s damages were improperly calculated because Perez
included impermissible expenses such as advertising and entertainment as part of its
32
3. Challenges to Modified Total Cost Method
EAR contends the court erred in several respects in using the modified total cost
method in its award of delay damages relating to the framing and drywall phase. “The
total cost method derives damages as the difference between a contractor’s actual costs
and its original bid.” (Servidone Const. Corp. v. U.S. (Fed.Cir. 1991) 931 F.2d 860, 861.)
In the event some of the costs of the contractor are deemed unreasonable or were the
result of “its own errors or omissions, then those costs are subtracted from the damages to
arrive at a modified total cost. [Citation.]” (Dillingham-Ray Wilson v. City of Los
Angeles (2010) 182 Cal. App. 4th 1396, 1408 (Dillingham-Ray Wilson); see Annot., “Total
Cost Method (or Approach)” and “Modified Total Cost Method (or Approach)” to
Proving Damages in State Contract Cases (2004) 124 A.L.R. 5th 375, 389 [modified total
cost approach may be utilized where most damages are attributable to defendant and
“contractor can isolate and quantify those damages that arose due to causes for which the
contractor is responsible”].) As explained by the California Supreme Court, to invoke the
total cost method for recovering damages, a contractor must establish “(1) the
impracticality of proving actual losses directly; (2) [its] bid was reasonable; (3) its actual
costs were reasonable; and (4) it was not responsible for the added costs. [Citation.]”
(Amelco Electric v. City of Thousand Oaks (2002) 27 Cal. 4th 228, 243 (Amelco); see also
id. at pp. 243-244 [“trial court bears the initial responsibility of determining that each
element of the four-part test” is satisfied].)
EAR, citing Amelco, supra, 27 Cal.4th at page 243, contends the total cost method
of computing damages “is generally disfavored” under the law. Although not favored,
the total cost method—along with its subcategory, the modified total cost method—has
been recognized in California as an appropriate way of computing damages. (See, e.g.,
home office overhead. But Perez testified that the advertising and entertainment
expenses were insignificant and did not affect his calculation under the Eichleay formula.
33
Guy F. Atkinson Co., supra, 187 Cal.App.3d at p. 32; C. Norman Peterson C. v.
Container Corp. of America (1985) 172 Cal. App. 3d 628, 646-647; see also California
Civil Jury Instruction (CACI) No. 4541.) Further, although our high court in Amelco—
because the municipality did not contest the issue—declined to decide whether the total
cost formula was an appropriate method of calculating damages in a breach of a public
contract case (Amelco, at p. 242), the Second District Court of Appeal, Division Two,
concluded that the Amelco court in fact upheld common law principles “permit[ting] a
public contractor to pursue either a total cost theory or a modified total cost theory.”
(Dillingham-Ray Wilson, supra, 182 Cal.App.4th at p. 1408.) The court reached this
conclusion because Amelco cited Guy F. Atkinson, supra, 172 Cal. App. 3d 25, and did not
disapprove of the result in that case. (Dillingham-Ray Wilson, at p. 1408.)
The California Supreme Court has emphasized that one of the major concerns in
the use of the total cost method is that it not be used as “ ‘a substitute for proof of
causation.’ [Citation.]” (Amelco, supra, 27 Cal.4th at p. 244.) Here, there was
substantial evidence of a causal connection between the extra cost JMR incurred in the
Project’s framing and drywall phase and EAR’s breach of contract. Moreover, the
cautionary statement in Amelco that the total cost method “ ‘should be applied only to the
smallest affected portion of the contractual relationship that can be clearly identified’
[citation]” was heeded: JMR used the modified total cost method to calculate damages
related only to the framing and drywall phase of the Project, not to damages related to the
entire Project.
EAR also contends there was a lack of evidence to support a finding of the four
prerequisites recited in Amelco (hereafter the Amelco elements) for use of the modified
total cost method. As we discuss below, the trial court specifically addressed each of the
Amelco elements in its statement of decision, and substantial evidence supported the
court’s conclusions that JMR established each element.
34
The trial court specifically found JMR had established the first Amelco element—
“the impracticality of proving actual losses directly.” (Amelco, supra, 27 Cal.4th at
p. 243.) In so concluding, the court cited the testimony of JMR’s job superintendent,
Steven Hupaylo, which it found credible. As the court stated, Hupaylo had testified that
JMR had a good design for performing the framing and drywall work, but he (Hupaylo)
“had to wait for EAR to complete its rough-in work before he could complete the walls,
and, because of EAR’s delays, he never had all four walls and a ceiling in any room to
work with.” The trial court concluded: “Consequently, the disruption occurred
throughout the entire period of that work, was not confined to one particular section or
time, so [it] could not be tracked specifically as the disruption occurred.” Furthermore,
Perez testified, based upon Hupaylo’s testimony, that because “every wall was impacted
by EAR’s performance, [this] mean[t] that the impacts and the costs are intrinsically
intertwined [and it is] difficult if not impractical or impossible to segregate [the]
individual impacts.”
The trial court also found JMR had established the second Amelco element, i.e.,
the reasonableness of its bid. (Amelco, supra, 27 Cal.4th at p. 243; see Gibbs & Hunt,
Cal. Construction Law, supra, Construction Claims, § 6.14[A], p. 471 [stressing the
importance of accuracy of bid estimate to contractor’s claim under total cost method].)
The court noted that (1) Rivard, as an expert experienced in estimating, testified
concerning his methodology for preparing his bid, and opined that the bid for the framing
and drywall phase was reasonable; (2) Perez reviewed the bid, noted that Rivard’s
methodology was consistent with other contractors and was based upon historical
information, and was satisfied it was accurate; (3) Perez opined the $220,000 stated in the
bid was a reasonable cost for the framing and drywall phase; and (4) EAR offered no
expert testimony to rebut or contradict the reasonableness of the framing and drywall bid.
Likewise, the court concluded JMR’s actual costs for the framing and drywall
phase were reasonable—the third Amelco element. (Amelco, supra, 27 Cal.4th at p. 243.)
35
In concluding that “the actual costs were reasonable and accurately recorded,” the trial
court cited to the testimony of JMR’s experts, Connerty and Perez. It noted that
Connerty reviewed JMR’s costs associated with the framing and drywall phase, and that
Connerty’s work was “substantial.” The trial court indicated that Connerty “did not just
accept JMR’s numbers; he [‘]did a lot of testing[’] of the accounts for reasonableness by
actually reviewing a number of invoices, and conducted an independent analysis.”
Finally, the trial court found JMR was not responsible for the added costs—the
fourth Amelco element. (Amelco, supra, 27 Cal.4th at p. 243.) It concluded EAR was
solely at fault for the disruption in the completion of the framing and drywall phase. The
court cited the testimony of Hupaylo that because of EAR’s delays in “not having
materials, not having skilled people, and sometimes not having any people working at all,
JMR’s crews had to work piecemeal” and in an inefficient manner to complete the work.
The court “accept[ed] the testimony of Steve Hupaylo as accurate.” It also relied on
Perez’s testimony that, based upon his review of certified payroll records, “the number of
[EAR] workers reported on the certified payroll corresponded with the low percentage of
completion.” Perez also testified that EAR’s rough-in work took four months to
complete, notwithstanding that EAR had scheduled 34 days for the work. The trial court
agreed with Perez’s “conclusion that . . . JMR was confronted with the incomplete work
and stacking of trades, which disrupted its efficiency.”
EAR points to testimony it presented to suggest that JMR’s cost overruns were
due to its hiring of expensive out-of-town labor and the high level of quality required for
the drywall finish. But the trial court rejected these arguments. The court indicated in its
statement of decision that “Pendurthi’s contrary conclusory explanations [regarding the
framing and drywall disruption we]re not credible,” and the court found Pendurthi’s
“testimony weak and unreliable.” Moreover—as was the case with JMR’s presentation
of Eichleay damages—EAR offered no expert testimony to contradict JMR’s showing
36
that the modified total cost method was appropriate for calculating its damages associated
with the framing and drywall phase.
As a variant of its contention that the court erred in concluding JMR was not
responsible for the added cost, EAR argues, quoting from Amelco at p. 246, that damages
were not recoverable under this method because JMR did not “ ‘distinguish between
those inefficiencies that were [JMR’s] and those believed to be the responsibility of the
[Army] (and presumably other prime contractors and subcontractors).’ ” But the court
rejected EAR’s contention that JMR was responsible for inefficiencies in the framing and
drywall phase, and there was substantial evidence to support the court’s conclusion.
Lastly, EAR contends the disruption damages awarded by the court were
“admittedly inaccurately calculated” because they failed to account for a $90,000
miscoding error about which Rivard testified. This argument relates to cross-examination
in which defendants’ counsel asked if Rivard had given prior deposition testimony to the
effect that there was an approximate $90,000 miscoding of costs that were not related to
the framing and drywall phase of the Project. Defendants raised this issue twice in their
posttrial briefing. The trial court addressed this contention in its statement of decision.
The court concluded that Rivard’s deposition testimony concerning the “$90,000 coding
overcharge” was essentially superseded by testimony from Perez and Connerty that,
shortly before trial, Rivard advised them that the adjustment for miscoded items was
approximately $48,200.9 The trial court thus characterized the $90,000 coding error as a
“relatively unfocused pre-trial examination estimate” that did not warrant further
consideration in its award of damages. Giving deference to the court’s role as trier of
9
The statement of decision recites that the figure given by Rivard to Perez and
Connerty shortly before trial was “a final $428,200 adjustment for items that were
properly counted for tasks other than metal studs and drywall.” This is an obvious
typographical error, as Connerty testified the figure was “$48,200 and something” and
Perez testified the figure was $48,262.
37
fact, we conclude there was no error in disregarding the purported $90,000 coding error
in determining JMR’s disruption damages.
We thus conclude there was no legal impediment to JMR’s use of the modified
total cost method of calculating its damages associated with the framing and drywall
phase of the Project. The trial court was justified in concluding that JMR had established
each of the four Amelco elements required for utilizing this method. (Amelco, supra,
27 Cal.4th at p. 243.) The fact that the damages claimed using this formula may have
only been a reasonable approximation of JMR’s loss associated with this phase of the
Project is not an obstacle to its use, since the fact of such damages was established by
substantial evidence. (Acree, supra, 92 Cal.App.4th at p. 398.)
C. EAR’s Challenges to the Statement of Decision
Interwoven throughout its briefs on appeal is EAR’s challenge to the legal
sufficiency of the trial court’s statement of decision. Citing repeatedly to Duff v. Duff
(1967) 256 Cal. App. 2d 781—a case that predated by 14 years the Legislature’s
amendment of section 632 to provide a procedure governing statements of decision in
civil trials (see Stats. 1981, ch. 900, § 1, p. 3425)—EAR claims that because of the
court’s alleged failure to make findings, “reversal of the Judgment . . . is compelled.” We
conclude the statement of decision is legally sufficient..
Section 632 provides in relevant part: “The court shall issue a statement of
decision explaining the factual and legal basis for its decision as to each of the principal
controverted issues at trial upon the [timely] request of any party appearing at the trial.”
The statement of decision need only “ ‘state ultimate rather than evidentiary facts.’ ” (In
re Marriage of Garrity and Bishton (1986) 181 Cal. App. 3d 675, 686.) The court is not
required “to make an express finding of fact on every factual matter controverted at trial,
where the statement of decision sufficiently disposes of all the basic issues in the case.
[Citations.]” (Bauer v. Bauer (1996) 46 Cal. App. 4th 1106, 1118 (Bauer).) Stated
otherwise, “[a] statement of decision need not address all the legal and factual issues
38
raised by the parties. Instead, it need do no more than state the grounds upon which the
judgment rests, without necessarily specifying the particular evidence considered by the
trial court in reaching its decision. [Citations.]” (Muzquiz v. City of Emeryville (2000)
79 Cal. App. 4th 1106, 1124-1125 (Muzquiz).) As this court has stated, “ ‘ “[u]ltimate
fact[]” ’ is a slippery term, but in general it refers to a core fact, such as an element of a
claim or defense, without which the claim or defense must fail. [Citation.] It is
distinguished conceptually from ‘evidentiary facts’ and ‘conclusions of law.’ [Citation.]”
(Yield Dynamics, Inc. v. TEA Systems Corp. (2007) 154 Cal. App. 4th 547, 559 (Yield
Dynamics).)
After the court issued its tentative decision on April 30, 2012, defendants
submitted a request for a statement of decision and a 72-item list of purported
controverted issues they wished to have addressed. At the court’s direction in its
tentative ruling, JMR submitted a proposed statement of decision on May 29, 2012.
Following receipt of defendants’ objections to JMR’s proposed statement of decision, the
court signed a 23-page statement of decision on July 19, 2012.
In its opening brief, EAR identifies 16 “controverted issues” the court allegedly
failed to address. EAR argues the failure to address these issues requires reversal of the
judgment.10 We have reviewed each of these “controverted issues.” Like the
controverted issues this court considered in Yield Dynamics, EAR’s issues are
10
EAR states in its opening brief that “JMR’s proposed statement of decision
[ultimately adopted by the court] failed to provide written findings on not less than fifty-
one (51) controverted issues raised in EAR’s request.” But EAR identifies and provides
argument relative to only 16 of the “controverted issues” it contends the court failed to
address. We need not identify or discuss the remaining 35 “controverted issues”
purportedly not addressed by the court in its statement of decision. (Dills v. Redwoods
Associates, Ltd. (1994) 28 Cal. App. 4th 888, 890, fn. 1 [appellate court has no obligation
to “develop the appellants’ arguments for them”]; see also In re S.C. (2006)
138 Cal. App. 4th 396, 406 [appellate court is not required to search the record in order to
discover support for the litigant’s position].)
39
“compound, argumentative, tendentious, or vague, reading more like interrogatories”
than “controverted issues” properly identified under section 632. (Yield Dynamics,
supra, 154 Cal.App.4th at p. 558.)
Contrary to EAR’s assertions, some of the identified issues were specifically
addressed by the trial court in its statement of decision. For instance, the trial court
addressed, in several different places, the following purportedly unaddressed issue: “4)
How did EAR’s acts or omissions allegedly constituting a material breach of the
Plumbing Subcontract cause JMR any damage?”11 Other issues—essentially
interrogatories—asked the trial court to cite legal authority in support of various aspects
of its decision. Several issues were compound, argumentative and tendentious. For
instance, one request (issue “58”) asked the court to identify the “legal authority [under
which] EAR [is] responsible for JMR’s own delays to the project where the Army Corps
of Engineers recognized that JMR was 5% behind schedule, that JMR’s three phase
inspections were ‘lacking,’ that JMR’s superintendence was ‘lacking,’ that JMR was
‘working without activity hazard analysis,’ and where JMR had ‘inadequate site
supervision.’ ” And some of the issues invited the court to provide specific evidentiary
detail unnecessary to explaining the court’s decision.
As noted earlier, the trial court was only required to address “ ‘ultimate rather than
evidentiary facts’ ” in its statement of decision. (Muzquiz, supra, 79 Cal.App.4th at
p. 1125, quoting In re Cheryl E. (1984) 161 Cal. App. 3d 587, 599; see also Hellman v. La
11
Other issues identified by EAR and addressed by the trial court include:
(1) issue “26,” concerning whether Perez’s calculation of disruption damages had taken
into consideration a $90,000 “miscalculat[ion]”; (2) issue “66,” concerning whether JMR
was responsible for any of the disruption damages it claimed; (3) issue “68,” concerning
whether JMR’s bid contemplated JMR’s using out-of-town labor, performing work out of
sequence, or extra cost associated with achieving a “ ‘level-five drywall finish’ ”; and
(4) issue “65,” concerning whether JMR’s disruption damages were capable of
calculation with certainty.
40
Cumbre Golf & Country Club (1992) 6 Cal. App. 4th 1224, 1230.) It was not required to
give a point-by-point response to a party’s statement of purported controverted issues.
(Ermoian v. Desert Hospital (2007) 152 Cal. App. 4th 475, 498; In re Marriage of Burkle
(2006) 139 Cal. App. 4th 712, 736, fn. 15.) The trial court’s statement of decision
“sufficiently dispose[d] of all the basic issues in the case” (Bauer, supra, 46 Cal.App.4th
at p. 1118) and adequately “state[d] the grounds upon which the judgment rest[ed]”
(Muzquiz, supra, 79 Cal.App.4th at p. 1125).
II. SureTec’s Challenge to the Judgment Due to Lack of Default Notice
SureTec contends the trial court erred in finding it liable under the performance
bonds because JMR failed to give it (SureTec) notice of EAR’s default under the
subcontracts. SureTec argues that a “declaration of default was a condition precedent to
SureTec’s liability.” It also argues that, looking at the language of the bonds as a whole,
there was an implied requirement that JMR provide a notice of default to SureTec as a
condition precedent to SureTec’s liability under the bonds.
There was undisputed evidence, based upon Rivard’s testimony, that JMR did not
formally declare EAR in default under either subcontract. Nor did JMR ask SureTec to
complete the bonded work under either subcontract. At trial, Cynthia Vincent, a SureTec
vice-president, testified that SureTec received no notice of any default under the
plumbing or electrical subcontracts. She also testified that SureTec was not given the
opportunity to complete work under either subcontract, and that JMR never asked
SureTec to obtain new plumbing or electrical subcontractors.
A. Contractual Conditions Generally
A conditional obligation is one in which “the rights or duties of any party thereto
depend upon the occurrence of an uncertain event.” (Civ. Code, § 1434; see also Rest.2d,
Contracts, § 224: “A condition is an event, not certain to occur, which must occur, unless
its non-occurrence is excused, before performance under a contract becomes due.”)
“[P]arties may expressly agree that a right or duty is conditional upon the occurrence or
41
nonoccurrence of an act or event.” (Platt Pacific, Inc. v. Andelson (1993) 6 Cal. 4th 307,
313 (Platt Pacific).) A condition in a contract may be a condition precedent, concurrent,
or subsequent. (Civ. Code, § 1435.) “[A] condition precedent is either an act of a party
that must be performed or an uncertain event that must happen before the contractual
right accrues or the contractual duty arises.” (Platt Pacific, at p. 313; see also Civ. Code,
§ 1436.)
“The existence of a condition precedent normally depends upon the intent of the
parties as determined from the words they have employed in the contract. [Citation.]”
(Realmuto v. Gagnard (2003) 110 Cal. App. 4th 193, 199.) But “stipulations in an
agreement are not to be construed as conditions precedent unless such construction is
required by clear, unambiguous language; and particularly so where a forfeiture would be
involved or inequitable consequences would result. [Citations.]” (Alpha Beta Food
Markets v. Retail Clerks Union Local 770 (1955) 45 Cal. 2d 764, 771 (Alpha Beta Food);
see also Rubin v. Fuchs (1969) 1 Cal. 3d 50, 53 [contract provisions are not construed as
conditions precedent in the absence of language plainly requiring such construction]; City
of San Diego v. Haas (2012) 207 Cal. App. 4th 472, 493.) Because “such conditions are
not favored by the law, [they] are to be strictly construed against one seeking to avail
[it]self of them. [Citation.]” (Antonelle v. Kennedy & Shaw Lumber Co. (1903) 140 Cal.
309, 315.)
B. Interpretation of the Contract Language
Resolution of SureTec’s contention that a notice of default was a condition
precedent to its liability requires an independent review of the trial court’s interpretation
of the bonds, since no extrinsic evidence was introduced by the parties on that question.
(Campbell v. Scripps Bank (2000) 78 Cal. App. 4th 1328, 1336; see also Airlines
Reporting Corp. v. United States Fidelity & Guaranty Co. (1995) 31 Cal. App. 4th 1458,
1461 [appellate court reviews interpretation of bonds de novo].)
42
“A surety bond is a ‘ “written instrument executed by the principal and surety in
which the surety agrees to answer for the debt, default, or miscarriage of the principal.” ’
[Citation.]” (American Contractors Indem. Co. v. Saladino (2004) 115 Cal. App. 4th
1262, 1268.) In the suretyship context, “the risk of loss remains with the principal, while
the surety merely lends its credit so as to guarantee payment or performance in the event
that the principal defaults. [Citation.] In the absence of default, the surety has no
obligation. [Citation.]” (Cates Construction, Inc. v. Talbot Partners (1999) 21 Cal. 4th
28, 38 (Cates Construction).) A performance bond, a species of a surety bond, is one in
which the surety “guarantee[s] that obligations undertaken by the principal will be
completed under the terms of the bonded contract.” (1 Baier et al., Cal. Mechanics Liens
and Related Construction Remedies (Cont.Ed.Bar 4th ed. 2014) Private Works Remedies,
§ 2.115, p. 145.) When the principal breaches its contract with the bond’s beneficiary
(i.e., the owner, or, in this case, the general contractor), “generally the surety’s liability
has been found to be coextensive with that of its principal. If the principal is liable under
the contract, the surety is liable under the performance bond. [Citation.]” (Ibid.) This
may include, in the event of the principal’s default, the surety’s liability under the bond
for “damages attributable to [its] principal[’s] delay in performing [a] construction
contract. [Citations.]” (Cates Construction, at p. 41.)
A surety contract is interpreted pursuant to the same rules that govern the
interpretation of contracts generally. (Pacific Employers Ins. Co. v. City of Berkeley
(1984) 158 Cal. App. 3d 145, 150 (Pacific Employers), citing United States Leasing Corp.
v. DuPont (1968) 69 Cal. 2d 275, 284; Civ. Code, § 2837.) To determine the surety’s
liability, “we look first to the express terms of the performance bond. [Citations.]”
(Cates Construction, supra, 21 Cal.4th at p. 39.) Performance bonds typically
incorporate by reference the general contract or subcontract for which the bond was
issued. As such, “ ‘the bond and the contract should be read together and construed fairly
and reasonably as a whole according to the intention of the parties.’ [Citations.]” (Id. at
43
pp. 39-40; see also Pacific Employers, at p. 150 [generally, “contract performance bond
will be read with the contract”].)
Each subcontract here requires EAR to furnish JMR, as the named obligee, a
performance bond and a payment bond “to secure the faithful performance of the
Subcontract Work and to satisfy all Subcontractor payment obligations related to the
Subcontract Work.” On November 10, 2006, SureTec issued separate performance bonds
for EAR’s electrical subcontract and its plumbing subcontract, listing the penal amounts
of the bonds as $732,500 and $471,881, respectively. Each performance bond
specifically incorporates by reference the respective subcontract for which the bond was
issued.
The one-page “Articles” of the two performance bonds contain identical language.
Article 1, containing the heading “SCOPE OF BOND” (emphasis omitted), states: “The
Principal [EAR] and the Surety [SureTec], jointly and severally, bind themselves . . . to
the Obligee [JMR] for the performance of the Subcontract.” Under the heading
“EFFECT OF OBLIGATION” (emphasis omitted), Article 2 provides: “If the Principal
performs the Subcontract, then this bond shall be null and void; otherwise it shall remain
in full force and effect.” Article 4, under the heading “PRINCIPAL DEFAULT”
(emphasis omitted), provides: “Whenever the Principal shall be, and is declared by the
Obligee to be in default under the Subcontract, with the Obligee having performed its
obligations in the Subcontract, the Surety may promptly remedy the default, or shall
promptly” (1) “[c]omplete the Subcontract in accordance with its terms and conditions”;
(2) retain a new subcontractor to complete the Principal’s work under the subcontract;
(3) pay the Obligee the amount for which the Surety is liable; or (4) deny liability in
whole or in part, providing an explanation for doing so.
Each subcontract details JMR’s right to deduct or withhold payments to EAR, and
JMR’s rights in the event of EAR’s breach. Furthermore, each subcontract specifically
requires JMR to provide written notice to EAR in a number of circumstances. Those
44
circumstances include where (1) JMR elects to deduct from amounts otherwise due to
EAR any sums EAR owes JMR; (2) JMR “deems it necessary and desirable to [withhold
payments due to EAR to] protect itself against possible loss or damages”; (3) JMR
concludes EAR has failed to (a) supply sufficient skilled workers, (b) adhere to the work
schedule, (c) pay workers or suppliers, (d) follow the law, or (e) has otherwise materially
breached the subcontract, requiring JMR to give EAR notice to cure the default; (4) JMR
elects to suspend EAR’s work under the subcontract; (5) the owner suspends its
agreement with JMR; (6) JMR elects to terminate the subcontract due to EAR’s material
default of its obligations under the subcontract, after having given EAR written notice to
cure; and (7) the owner terminates its agreement with JMR. None of these notice
provisions requires JMR to give written notice to the surety, SureTec. Furthermore, each
subcontract provides that the surety need not be advised of any changes, additions, or
omissions to the subcontract.
C. Discussion
SureTec implicitly acknowledges that neither performance bond expressly
provides that JMR must give notice to SureTec of EAR’s default as a condition precedent
to SureTec’s liability. But it asserts that “[a] contractual provision need not be expressly
labeled ‘condition precedent’ to be treated as such. Rather, whether a provision is a
condition precedent is to be determined from the whole contract, its purpose, and the
intention of the parties.” Quoting from Wal-Noon Corp. v. Hill (1975) 45 Cal. App. 3d
605, 611 (Wal-Noon), SureTec contends the default notice as a condition precedent ‘may
be necessarily implied in the language of [the] contract . . .’ ” Applying principles of
contract interpretation, we conclude that JMR was not required to give SureTec notice of
EAR’s default as a condition precedent to SureTec’s liability on the bonds.
The only notice language in the bonds is found in Article 3, where SureTec
expressly “waive[d] notice of any alteration or extension of the Subcontract, including
but not limited to the Subcontract price and/or time, made by the Obligee [JMR].”
45
(Italics added.) And the default provisions in the subcontracts—incorporated by
reference into the bonds—include requirements in several instances that JMR give notice
to EAR without any similar requirement of giving notice to SureTec. Thus, the bonds do
not contain the requisite “clear, unambiguous language” (Alpha Beta Food, supra,
45 Cal.2d at p. 771) that would support a finding that JMR was required to provide a
notice of default to SureTec as a condition precedent to liability under the bonds.
Pacific Allied v. Century Steel Products (1958) 162 Cal. App. 2d 70 (Pacific Allied)
is instructive. There, the defendant (Century) agreed to fabricate and sell steel forms to
plaintiff (Pacific) for the purpose of using them to install storm drains. (Id. at p. 72.)
Century also guaranteed that Pacific’s labor costs, through its use of Century’s steel
forms, would not exceed four cents per square foot, and that Century would, upon
completion of the job and Pacific’s submission of an itemized cost breakdown, pay
Pacific’s labor costs in excess of four cents per square foot. (Id. at p. 73.) Pacific agreed
to keep a detailed account of labor costs and give Century a “continuous report.” (Ibid.)
Pacific kept Century apprised of costs during the project and gave it periodic oral reports,
but it did not provide a detailed cost breakdown upon the project’s completion. (Id. at
p. 78.) The court rejected Century’s contention that Pacific was required to provide a
detailed cost breakdown as a condition precedent to its recovery under the contract. (Id.
at pp. 79-80.) The appellate court held that (1) conditions precedent are not favored in
the law; (2) neither the express terms of the contract nor a reasonable implication drawn
from them compelled a finding that providing the cost breakdown was condition
precedent to Pacific’s recovery; and (3) the interpretation advanced by Century was
particularly disfavored because it would result in a forfeiture. (Id. at pp. 79-80.)
Here, as in Pacific Allied, there was no language expressly conditioning SureTec’s
performance under the bonds upon receipt of a notice of default from JMR. In Pacific
Allied, there was an express agreement by the plaintiff to provide some level of
46
notification (a detailed cost breakdown) to the defendant. Here, there was no such
express covenant requiring JMR to provide any notice to SureTec.
We conclude that SureTec’s receipt of a declaration of default by JMR is not a
condition precedent to triggering SureTec’s liability under the bonds. This interpretation
necessarily defeats SureTec’s argument that a condition precedent should be implied
from the language of the bonds. This interpretation is also consistent with the statutory
mandate that courts, in construing an instrument, shall “ ‘not [] insert what has been
omitted, or [] omit what has been inserted.’ ” (Edwards v. Arthur Andersen LLP (2008)
44 Cal. 4th 937, 954, quoting § 1858; see also Safeco Ins. Co. of America v. Robert S.
(2001) 26 Cal. 4th 758, 763 [applying § 1858 to reject insurer’s contention that illegal act
exclusion in homeowner’s insurance policy should be construed as a “criminal act”
exclusion, observing that if insurer had “wanted to exclude criminal acts from coverage,
it could have easily done so”].)
Likewise, our construction comports with the law governing suretyships. “A
suretyship obligation is to be deemed unconditional unless its terms import some
condition precedent to the liability of the surety.” (Civ. Code, § 2806; see Bank of
America v. McRae (1947) 81 Cal. App. 2d 1, 7 [“guaranty is unconditional unless its terms
import some condition precedent to the liability of the guarantor”].) Here, Article 1 of
each bond creates the unconditional obligation to the effect that EAR and SureTec
“jointly and severally, bind themselves . . . to [JMR] for the performance of the
Subcontract.”
SureTec contends that, notwithstanding Article 1, its obligation here was
discharged under Article 2 of the performance bonds, which reads: “If the Principal
performs the Subcontract, then this bond shall be null and void; otherwise it shall remain
in full force and effect.” SureTec asserts that because EAR performed its obligations by
completing its work under the subcontracts, the bonds became “null and void” under
Article 2. This contention has no merit.
47
As discussed in detail, ante, the trial court found, based upon substantial evidence,
that EAR breached the plumbing and electrical subcontracts by, among other things,
delayed performance under the contracts and by disrupting the efficient completion of the
framing and drywall phase of the Project. EAR’s breach gave JMR the option to
terminate the subcontracts, but it was not required to do so. (See Whitney Inv. Co. v.
Westview Development Co. (1969) 273 Cal. App. 2d 594, 602.) That JMR did not
terminate the subcontracts as a result of EAR’s breach does not absolve EAR of
responsibility for breaching the contracts. “[Breach of contract d]amages for delay can
result from either a total or partial failure of performance. In both cases, delay damages
are an extra item of recovery in addition to the normal measure of damages. However,
even when there has been complete performance of a contract, damages for delay can
result when performance was not completed on time.” (Cal. Attorney’s Guide to
Damages, supra, § 1.49, pp. 1-49 to 1-50.)
Furthermore, under general suretyship law, Civil Code section 2807 provides that
“[a] surety who has assumed liability for payment or performance is liable to the creditor
immediately upon the default of the principal, and without demand or notice.” (Italics
added; see Croskey et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group
2015) ¶ 6:3436, pp. 6I-72 to 6I-73 [“if the bond is silent, the obligee is not required to
give the surety notice of the principal’s default or make demand upon the surety for
payment”].)
Thus, for instance, in State Bd. of Equalization v. Balboa Ins. Co. (1978)
89 Cal. App. 3d 499, the surety was held liable on sales tax surety bonds after the
principal’s default, notwithstanding the obligee’s (State Board of Equalization’s) failure
to make demand for payment or its failure to include the surety on a notice of lien. (Id. at
pp. 503-504.) The court explained that when the surety executed the surety bonds, “it did
not put conditions of special or separate notice” upon its “agreement to stand good for
[the principal’s] tax liability.” (Id. at p. 504.) Citing Civil Code section 2807, the court
48
held the surety was liable under the bonds because neither the law nor the agreement
required notice as a condition to the surety’s liability. (Ibid.)
SureTec relies on several out-of-state cases to support its contention that a
declaration of EAR’s default by JMR to SureTec was a condition precedent to JMR’s
recovery under the bonds. Several of these cases were based upon the courts’
interpretation of the relevant contracts under applicable Florida law. (See, e.g., L&A
Contracting v. Southern Concrete Services (5th Cir. 1994) 17 F.3d 106 (L&A
Contracting); School Bd. of Escambia County v. TIG Premier Ins. Co. N.D.Fla. 2000)
110 F. Supp. 2d 1351; DCC Constructors, Inc. v. Randall Mechanical, Inc. (Fla.Ct.App.
2001) 791 So. 2d 575.) In L&A Contracting—a case relied upon by a number of the
authorities cited by SureTec—the Fifth Circuit Court of Appeals concluded that a
contractor’s unequivocal declaration of the subcontractor’s default was “a necessary
precondition” to the surety’s liability under a performance bond. (L&A Contracting, at
p. 111; cf Colorado Structures Inc. v. Ins. Co. of the West (Wash. 2007) 167 P.3d 1125,
1134 [disagreeing with L&A Contracting, concluding that a proper interpretation of the
bond’s language in that case is that it created “liability, subject to a single express
condition subsequent (the principal’s prompt and faithful performance)”]; Walter
Concrete Const. Corp. v. Lederle Labs. (N.Y. 2003) 788 N.E.2d 609, 610 [rejecting
surety’s claim that default notice was required, holding that had parties wished to make
liability conditioned on default notice, they could have expressly so provided in
performance bond].) But L&A Contracting, and other cases relied on by SureTec, did not
involve a contractual interpretation of performance bonds under California law. And
none of those authorities considered the appropriateness of implying a condition
precedent relating to default notice in light of decisional authority prohibiting such a
construction unless the contractual language plainly requires it. (See Rubin v. Fuch,
supra, 1 Cal.3d at p. 53; Alpha Beta Food, supra, 45 Cal.2d at p. 771.) Indeed, L&A
Contracting does not discuss conditions precedent generally or the appropriateness of
49
implying a condition not expressly stated in a contract. We therefore decline to follow
the out-of-state authorities relied upon by SureTec. (See People v. Uribe (2011)
199 Cal. App. 4th 836, 865, fn. 15 [California courts not bound by out-of-state decisional
authority].)
We read the performance bonds together with the subcontracts to which they relate
in ascertaining the intentions of the parties. (Cates Construction, supra, 21 Cal.4th at
pp. 39-40.) A number of provisions in the EAR subcontracts require JMR to give notice
to EAR; none of these provisions requires notice to SureTec. The performance bonds
themselves contain no express requirement of any notice to the surety. The only mention
of notice in either bond is a provision under which SureTec waives notice of any
alteration or extension of the referenced subcontract. Reading Article 1 together with
Article 2 of each bond—in conjunction with the language of the subcontracts
incorporated by reference—yields the conclusion that SureTec’s obligation to JMR in the
event of EAR’s breach of the underlying subcontract is unconditional. (See id. at p. 41
[considering the documents “as a whole, the bond and underlying construction contract
are fairly and reasonably read as requiring” surety to answer for principal’s failure to
perform under contract].)
We conclude the performance bonds did not require JMR to give notice of default
to SureTec as a condition precedent to recovery under the bonds. Any interpretation of
the bonds as implying such a condition precedent would be contrary to (1) suretyship
principles (see Civ. Code, §§ 2806, 2807), and (2) the principle that conditions precedent
should not be implied unless the construction is compelled by the clear language of the
agreement, particularly here, where such an implied condition would result in a
forfeiture. (Alpha Beta Food, supra, 45 Cal.2d at p. 771.)12
12
SureTec also cites Wal-Noon, supra, 45 Cal. App. 3d 605 in support of its
position that notice of default to SureTec was an implied condition precedent to recovery
under the performance bonds. But Wal-Noon involved a landlord-tenant dispute in
50
III. The Attorney Fee Order
Defendants separately challenge the postjudgment order awarding JMR attorney
fees in defending EAR’s cross-complaint. EAR asserts that the underlying premise of the
court’s decision—that JMR prevailed on the cross-complaint—is faulty. It argues that it
“clearly and unambiguously prevailed” on the two causes of action for breach of contract
alleged in its cross-complaint. SureTec contends the award of attorney fees against it was
legally improper because the scope of its liability under the performance bonds did not
extend to attorney fees incurred by JMR to defend the unmeritorious cross-complaint
filed by SureTec’s principal, EAR. We must consider initially whether defendants’
claims are cognizable on appeal. (See Jennings v. Marralle (1994) 8 Cal. 4th 121, 126
[appellate court required to address sua sponte the question of appealability “whenever a
doubt exists” concerning the issue].)
After entry of judgment, JMR filed a motion for attorney fees awardable as costs
pursuant to Civil Code section 1717 (attorney fee motion). On November 9, 2012, the
court heard argument concerning various motions, including JMR’s attorney fee motion.
connection with the lease of a commercial building. The lessees, without the lessors’
knowledge, replaced the premises’ leaky roof, and later sought reimbursement from the
lessors because the lease had imposed upon the lessors the obligation to repair and
replace the roof and all exterior walls. (Id. at pp. 608-610.) The appellate court
concluded that “notice as a condition precedent to the lessors’ obligation to repair is not
only clearly apparent from the terms of the written lease, it is indispensable to effectuate
the intentions of the parties. [Citation.] It has been held that unless explicitly excluded
therein, performance under an express covenant to repair is conditional upon notice from
the tenant. [Citations.] Accordingly, we hold that notice is an indispensable condition
precedent to [the lessors’] duty to perform under the covenant to repair” (Id. at p. 612.)
Here, we address surety bonds and a surety-obligee relationship, not a commercial lease
and a landlord-tenant relationship. Thus, the facts of Wal-Noon are distinguishable. This
case, unlike Wal-Noon, requires application of suretyship principles (e.g., Civil Code
sections 2806 and 2807). Those principles, along with the absence of a clear indication
that the parties intended otherwise, compel our conclusion that notice of default to
SureTec was not an implied condition precedent to recovery under the bonds.
51
The court’s tentative decision regarding that motion, in which it cited Johnson v. Siegel
(2000) 84 Cal. App. 4th 1087, was twofold: (1) JMR, because it did not seek mediation of
its claims before filing suit, was not entitled to attorney fees for pursuing its complaint;
but (2) JMR was entitled to attorney fees for its defense of EAR’s cross-complaint.
In its written order of November 13, 2012, the court, among other things, ordered
JMR to calculate the amount of attorney fees incurred before the filing of EAR’s cross-
complaint. The court also set a deadline for that submission and for a response by
defendants. The court further indicated in its order that it would “issue an award of
Attorney Fees to JMR, consistent with its tentative ruling on November 2, 2012.”13 The
record does not include an order fixing an amount of fees entered subsequent to the
court’s November 13, 2012 order. EAR has indicated in its opening brief that it
expressly reserves the right to appeal any such order fixing the amount of attorney fees.
And the parties at oral argument on November 19, 2015, indicated that, as of that date,
the court had not yet issued an order fixing the amount of attorney fees awardable to
JMR.
A postjudgment award of attorney fees is generally appealable pursuant to section
904.1, subdivision (a)(1). (Whiteside v. Tenet Healthcare Corp. (2002)
101 Cal. App. 4th 693, 706.) But “if a judgment determines that a party is entitled to
attorney’s fees but does not determine the amount, that portion of the judgment is
nonfinal and nonappealable.” (P R Burke Corp. v. Victor Valley Wastewater
Reclamation Authority (2002) 98 Cal. App. 4th 1047, 1053 (P R Burke).) This conclusion
is based upon the principle that an order that contemplates further action by the court is
not final. (See Koshak v. Malek (2011) 200 Cal. App. 4th 1540, 1545; Steen v. Fremont
Cemetery Corp. (1992) 9 Cal. App. 4th 1221, 1228-1229.)
13
The record does not contain a tentative ruling dated November 2, 2012. We
assume the trial court was referring to its tentative ruling made at the hearing on
November 9, 2012.
52
Here, the November 13, 2012 postjudgment order was nonfinal because it did not
fix an amount of attorney fees awardable to JMR. Rather, it simply adopted the court’s
tentative ruling denying attorney fees to JMR for its prosecution of the complaint and
granting fees for its defense of the cross-complaint. The court specifically contemplated
a future order awarding JMR a fixed amount of attorney fees after the parties submitted
further pleadings. Thus, the order “was nonfinal [because f]urther judicial action was
necessary to determine the extent of [JMR’s] entitlement to attorney’s fees.” (P R Burke,
supra, 98 Cal.App.4th at p. 1054, italics original.) It was a “ ‘postjudgment’ order[]
[that] lacked finality in that [it was] also preparatory to later proceedings,” a type of order
which the California Supreme Court has held is generally not appealable. (Lakin v.
Watkins Associated Industries (1993) 6 Cal. 4th 644, 653.) But this conclusion does not
end our inquiry.
SureTec argues somewhat conclusorily that “the trial court’s order that JMR is
entitled to attorney[] fees is the necessary predicate for its final [] appealable order, also
entered [] November 13, 2012, that JMR is entitled to $90,644.07 in expert witness fees.”
While we agree with SureTec’s implicit statement that the court utilized its attorney fee
order in concluding that JMR was entitled to expert witness fees, we disagree with
SureTec’s ultimate conclusion that we are required to review the court’s interim nonfinal
attorney fee order here.
Under section 906, where an appeal under section 904.1 is taken, “the reviewing
court may review the verdict or decision and any intermediate ruling, proceeding, order
or decision which involves the merits or necessarily affects the judgment or order
appealed from or which substantially affects the rights of a party.” (See Abramson v.
Juniper Networks, Inc. (2004) 115 Cal. App. 4th 638, 649.) The intermediate order of
November 13, 2012, finding defendants liable to JMR for attorney fees is related to the
court’s order of the same date awarding JMR’s expert witness fees under section 998. As
we discuss in section IV, post, the court’s award of expert fees to JMR pursuant to
53
section 998 was founded on the assumption that, after aggregating JMR’s monetary
recovery under the judgment with its attorney fee award, JMR will recover more than its
pretrial $375,000 offer to compromise. But, as we also discuss, since the court has not
yet issued a monetary award of fees, its determination that JMR’s total recovery has
exceeded $375,000 is erroneous. Thus, the court’s November 13, 2012 interim order
determining that JMR is entitled to recover attorney fees in defending EAR’s cross-
complaint is not relevant to our consideration of the appealable order awarding expert
witness fees. We therefore decline to consider the nonappealable interim attorney fee
order at this time.
IV. Award of Expert Fees Pursuant to Section 998
After entry of judgment, JMR submitted a memorandum of costs in which it
claimed, among other costs, expert witness fees in the total amount of $90,644.07.
Concurrently with its costs memorandum, JMR filed a brief in which it argued it was
entitled to recover expert witness fees pursuant to section 998. It asserted that more than
10 days before trial, in accordance with section 998, it had served identical offers to EAR
and SureTec in which it offered to have judgment taken against the respective defendants
in the amount of $375,000 with each side to bear its own costs. JMR argued that because
it had obtained a judgment that—after adding statutory prevailing-party costs and
attorney fees to the monetary award of $315,631—exceeded the $375,000 amount of the
offers, the court in its discretion could award it reasonable postoffer expert witness costs.
SureTec and EAR filed separate motions to strike/tax costs that included opposition to an
award to JMR of its expert witness fees.14
14
The motion to tax or strike costs filed by EAR is not included in the appellate
record, but it is referenced in numerous documents included in the record. And EAR’s
reply memorandum in support of its motion to tax or strike costs, which includes
argument in opposition to JMR’s request for expert witness fees, is part of the record.
54
On November 9, 2012, the court heard argument on defendants’ motions to
strike/tax costs. The court then issued an order on November 13, 2012, denying
defendants’ parallel motions, thereby awarding JMR expert witness fees of $90,644.07.
An order fixing costs and disposing of a motion to tax costs is a separately appealable
order under section 904.1, subdivision (b). (Grant v. List & Lathrop (1992)
2 Cal. App. 4th 993, 996.)
On appeal, EAR and SureTec make identical arguments that the court erred in
awarding JMR postoffer expert witness costs. They contend the award was improper
because JMR received a judgment of $315,631, nearly $60,000 less than its section 998
offers. Further, they assert that JMR may only reach the threshold amount of more than
$375,000 if it is awarded attorney fees exceeding $59,369; defendants both contend that
no attorney fees should be awarded to JMR. Lastly, defendants posit that an award of
expert fees is premature because the court has yet to determine a fixed amount of attorney
fees awardable to JMR for purposes of determining whether it has obtained a judgment
more favorable than the offers pursuant to section 998. We agree with defendants’ third
argument and will reverse on that basis.
Section 998, subdivision (a) provides that “costs allowed under section 1031 and
1032 shall be withheld or augmented as provided in this section.” The statute sets forth a
procedure by which a party, not less than 10 days before trial (or arbitration), may serve a
written offer to settle the litigation, including a specification of “the terms and conditions
of the judgment or award.” (§ 998, subd. (b).) Under subdivision (d), “[i]f an offer made
by a plaintiff is not accepted and the defendant fails to obtain a more favorable
judgment . . . the court . . . in its discretion, may require the defendant to pay a reasonable
sum to cover postoffer costs of the services of expert witnesses, who are not regular
employees of any party, actually incurred and reasonably necessary in either, or both,
preparation for trial . . . or during trial . . . of the case by the plaintiff, in addition to
plaintiff’s costs.” Under a parallel provision, a defendant who makes a pretrial offer that
55
is not accepted, upon the plaintiff’s failure to obtain a more favorable judgment, may
recover, in the court’s discretion, reasonable expert costs incurred by the defendant in
preparation for trial and trial. (§ 998, subd. (c)(1).) The statute’s purpose “is to
encourage the settlement of lawsuits prior to trial.” (T. M. Cobb Co. v. Superior Court
(1984) 36 Cal. 3d 273, 280.)
In determining under section (d) if a defendant has failed to obtain a judgment
more favorable than a plaintiff’s section 998 offer, where the offer contains a waiver of
costs, “ ‘the amount of the judgment is deemed to be the amount of the damages plus the
amount of costs allowed under section 1033.5, subdivision (a).’ [Citation.]” (Wilson v.
Wal-Mart Stores, Inc. (1999) 72 Cal. App. 4th 382, 392.) Included among the costs
permitted under section 1033.5, subdivision (a) are attorney fees that are authorized by
contract. (§ 1033.5, subd. (a)(10)(A).)
In this case, there has, to date, been no award of a defined amount of attorney fees
in favor of JMR. Pursuant to the court’s November 13, 2012 order, it granted EAR’s
motion to strike certain costs listed in JMR’s costs memorandum. As a result, the total
amount of costs awarded pursuant to JMR’s costs memorandum (excluding expert
witness fees) was $4,800.18. Adding these costs to the judgment, the total judgment to
date is $320,431.18, nearly $55,000 less than the pretrial offers. It is apparent that the
court—given the sizable amount of attorney fees claimed by JMR in its motion for fees
under Civil Code section 1717 ($252,889)—assumed JMR would ultimately receive an
attorney fee award that would bring JMR’s total recovery above the pretrial offer
threshold of $375,000. But, as we have discussed (see section III, ante), the November
13, 2012 order regarding attorney fees is an interim, nonappealable order that
contemplates further action (i.e., determining the amount of the award) by the court.
Accordingly, any finding that JMR is entitled, in the court’s discretion, to an award of
expert fees pursuant to section 998, subdivision (d) is premature. We will therefore
reverse the court’s order of November 13, 2012, awarding JMR expert fees pursuant to
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section 998 and will remand the case to the trial court. Such reversal is without prejudice
to the court, upon rendering an attorney fee award, to make a discretionary determination
as to whether JMR is entitled to an award of postoffer expert witness fees under section
998.
V. EAR’s Motion for New Trial
As its final claim of error, EAR contends the court abused its discretion in denying
its motion for new trial. It argues the court’s alleged failure to read JMR’s proposed
statement of decision before signing it constituted “an ‘irregularity in the proceedings’ ”
that compelled the granting of the new trial motion. This contention is without merit.
After entry of judgment, EAR filed a motion for new trial, asserting six of the
seven statutory grounds provided under section 657, including “irregularity in the
proceedings of the court” as provided in subdivision (1) of the statute. The bulk of
EAR’s argument below was that (1) JMR concealed and suppressed evidence, thereby
denying EAR a fair trial, and (2) there was insufficient evidence supporting the finding of
EAR’s responsibility for delay and for the award of damages (including Eichleay
damages and damages related to supplying the air compressor). Although EAR made
reference to the statement of decision in its motion—challenging both its timeliness and
its contents—it did not include as a basis for granting new trial the allegation that the
statement of decision had been signed by the court without reading it. By failing to raise
the issue below in its motion for new trial, EAR forfeited its appellate challenge to the
denial of the motion on this basis. (North Coast Business Park v. Nielsen Construction
Co. (1993) 17 Cal. App. 4th 22, 28 [failure to preserve issue below result in forfeiture of
appellate claim].)
Moreover, even if we were to address EAR’s argument on the merits, it would fail.
EAR twice states in its opening brief that the trial court “failed to read” the proposed
statement of decision before signing it. It presents no evidence in support of this bald
assertion. (See § 658 [new trial motion based upon irregularity of the proceedings “must
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be made upon affidavits”]; Linhart v. Nelson (1976) 18 Cal. 3d 641, 644 [court may not
consider ground for new trial motion where affidavit supporting that ground is required
under section 658 and none is submitted].) There is thus no basis for EAR’s contention
that the court abused its discretion in denying the motion for new trial. (See Plancarte v.
Guardsmark, LLC (2004) 118 Cal. App. 4th 640, 645 [“trial court’s broad discretion in
ruling on a motion for new trial is accorded great deference on appeal”].)
VI. Remaining Arguments by SureTec
SureTec asserts three further arguments. Its first two arguments are that (1) if the
judgment is reversed as to SureTec, it is entitled to its attorney fees for its successful
defense of the lawsuit, including the attorney fees incurred on appeal; and (2) if the
judgment against EAR is reversed, the judgment against SureTec must likewise be
reversed. Since we affirm the judgment, neither of these arguments has merit.
As its third remaining argument, SureTec argues that, assuming the judgment is
not reversed, its maximum liability for damages, including costs and attorney fees, is
$471,881, the amount of the performance bond issued on EAR’s plumbing subcontract.
It contends that because the court, despite SureTec’s request, did not allocate the damage
award as between the two subcontracts, there can be no inference drawn that some
amount of the $315,631 damages was awarded for EAR’s breach of the electrical
subcontract. Accordingly, SureTec argues, its responsibility to answer for its principal,
EAR, is limited to the $471,881 amount of the performance bond for the plumbing
subcontract. It seeks an order from this court to this effect.
As discussed in section IV, ante, the total amount of JMR’s recovery to date,
including costs properly awarded by the court, is $320,431.18. This is approximately
$150,000 less than the amount of the performance bond for the plumbing subcontract.
The trial court has not yet made a final ruling regarding attorney fees, and any issue
concerning JMR’s claimed entitlement to expert fees under section 998 will be decided
by the trial court in its discretion upon remand. Thus, at this point there is no justiciable
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issue for resolution by this court, and we decline to decide hypothetical or theoretical
controversies. (See In re Joshua S. (2007) 41 Cal. 4th 261, 273 [courts do not “ ‘issu[e]
purely advisory opinions, or consider[] a hypothetical state of facts in order to give
general guidance rather than to resolve a specific legal dispute’ ”]; see also Hunt v.
Superior Court (1999) 21 Cal. 4th 984, 998.)
DISPOSITION
The judgment is affirmed. The postjudgment order of November 13, 2012,
awarding expert witness fees to JMR pursuant to Code of Civil Procedure section 998 is
reversed, and the matter is remanded to the trial court for further proceedings consistent
with this opinion. Statutory costs are awarded to respondent JMR.
Márquez, J.
WE CONCUR:
Rushing, P.J.
Elia, J.
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Trial Court: Monterey County Superior Court Superior
Court No.: M105497
Trial Judge: The Honorable
Lydia M. Villarreal
Attorneys for Plaintiff, Cross-Defendant, Joseph P. Mascovick
and Respondent Miller Law Group
JMR Construction Corp.:
Attorneys for Defendant, J. Brian Urtnowski
Cross-Complainant and Appellant Lisamarie McDermott
Environmental Assessment Urtnowski & Associates, P.C.
And Remediation
Management, Inc.:
Attorneys for Defendant, Peter Abrahams
and Appellant Mitchell C. Tilner
SureTec Insurance Company: Horvitz & Levy