Opinion
F058692 & F059499 Super. Ct. No. 350298 Super. Ct. No. 370694
08-08-2011
BARHAM CONSTRUCTION, INC., Plaintiff, Cross-defendant and Respondent, v. CITY OF RIVERBANK, Defendant, Cross-complainant and Appellant; NATIONWIDE MUTUAL INSURANCE COMPANY, Cross-defendant and Respondent. RAGSDALE & SONS, INC., Plaintiff and Respondent, v. BARHAM CONSTRUCTION, INC., et al., Defendants and Appellants; NATIONWIDE MUTUAL INSURANCE COMPANY, Defendant and Respondent.
Costanzo & Associates and Neal E. Costanzo for Defendant, Cross-complainant and Appellant, City of Riverbank. Cassinat Law Corporation, John E. Cassinat and Ronald L. Carello for Plaintiff, Cross-defendant and Appellant, Barham Construction, Inc. Moreno & Rivera and Jesse M. Rivera for Defendants and Respondents, Barham Construction Inc. and Nationwide Mutual Insurance Company. Damrell, Nelson, Schrimp, Pallios, Pacher & Silva, Darrell F. Champion and James A. Oliveira for Plaintiff, Cross-defendant and Respondent, Ragsdale & Son, Inc.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
Stanislaus County
OPINION
APPEAL from a judgment of the Superior Court of Stanislaus County. Roger M. Beauchesne, Judge.
Costanzo & Associates and Neal E. Costanzo for Defendant, Cross-complainant and Appellant, City of Riverbank.
Cassinat Law Corporation, John E. Cassinat and Ronald L. Carello for Plaintiff, Cross-defendant and Appellant, Barham Construction, Inc.
Moreno & Rivera and Jesse M. Rivera for Defendants and Respondents, Barham Construction Inc. and Nationwide Mutual Insurance Company.
Damrell, Nelson, Schrimp, Pallios, Pacher & Silva, Darrell F. Champion and James A. Oliveira for Plaintiff, Cross-defendant and Respondent, Ragsdale & Son, Inc.
Barham Construction, Inc. (Barham), a general contractor, sued the City of Riverbank (Riverbank) to recover the balance due on a contract for the construction of a skate park. Riverbank had withheld certain amounts from its payments to Barham as liquidated damages for delays in completion of the project. Riverbank cross-complained against Barham and Nationwide Mutual Insurance Company (Nationwide) for breach of contract and breach of warranty. Ragsdale & Son, Inc. (Ragsdale), the grading subcontractor, sued Barham for amounts Barham withheld from its payments as a result of Riverbank's liquidated damages claim. After a court trial, judgment was entered in favor of Barham on its complaint, in favor of Barham and Nationwide on Riverbank's cross-complaint, and in favor of Ragsdale on its complaint against Barham. Riverbank appeals the judgment against it; Barham filed a cross-appeal from the judgment against it in Ragsdale's action. We affirm the judgment in favor of Ragsdale. We reverse the judgment in favor of Barham and Nationwide and remand for a determination of specified issues.
FACTUAL AND PROCEDURAL BACKGROUND
Riverbank solicited bids for the construction of a skate park. Barham was the successful bidder. Ragsdale was the grading subcontractor on the project. Barham and Riverbank entered into a construction contract that provided the work was to be completed within 90 days; a 16-day extension was subsequently granted, extending the completion date to October 27, 2003. The contract provided for a payment to Riverbank of $500 per day "actual damages" for failure to complete the work within the allotted time.
Construction was to begin on July 14, 2003. Ragsdale was to perform the initial grading; however, it was not aware Barham had been awarded the contract and Ragsdale was expected to perform the grading until the end of July. Ragsdale had other projects in progress at that time. Additionally, there was a delay in Riverbank staking the site, and Ragsdale had to leave the skate park project and go to other jobs until the staking was done. Riverbank representatives complained that the grading work was not progressing at a satisfactory rate. The rough grading was completed on October 6, 2003.
The plans for the skate park included installation of a prefabricated restroom manufactured by Restroom Facilities Limited (RFL). At the preconstruction meeting, Barham's project manager, Miguel Zamora, advised Riverbank representatives that fabrication of the restroom would take 10 to 12 weeks after the Department of Housing (DOH) approved the shop drawings for the restroom. RFL also required a payment of 25 percent of the contract price before it would proceed with the shop drawings. Because it was not known how long it would take to obtain DOH approval, Sue Fitzpatrick, Riverbank's director of parks and recreation and a member of the project team working on the skate park project, advised Zamora to include only the fabrication time in the construction schedule. Zamora also included a note on the construction schedule indicating that fabrication would take 10 to 12 weeks and would not begin until the drawings were approved by the state; he did this so Riverbank would make an allowance for the delay.
Zamora received a check from Riverbank for the 25 percent payment for the restroom and forwarded payment to RFL. RFL prepared the shop drawings and they were approved by the DOH on October 12, 2003. The restroom was delivered and installed on December 16, 2003. It was not fully operational on that date, however, because the electricity was not connected; before it could be connected, Riverbank had to submit an application to Pacific Gas & Electric (PG&E) for power, and PG&E had to designate where the connection was to be made. The electrical connection was not completed until March 2004.
The plans showed a six inch concrete curb on the west side of the skate park. At the preconstruction meeting and in a June 2003 letter to Fitzpatrick, Zamora notified Riverbank of a discrepancy between the bid form and the plans; the bid form provided for a specified length of curb on the north side, but the plans showed an additional length of curb on the west side. Fitzpatrick indicated Riverbank would provide a change order to include the additional curb. The change order was not provided and Zamora sent Riverbank a request for information (RFI); the response indicated Riverbank wanted a concrete masonry unit (CMU) wall at that location, rather than a curb. The CMU wall required a footing not shown in the plans; the type of footing shown in the structural drawings would extend into the adjacent retaining pond. When the architect approved reversing the footing so it would not extend into the pond, he placed a two-foot limit on the wall height. Parts of the wall were going to be five to seven feet high. Zamora did not receive a response that resolved the CMU wall issue until November 18, 2003, when he received the architect's new design for the wall. The new design required that Barham backfill where it had begun to dig the footing, compact the soil, and retrench for the new design.
On the north side of the park, along Santa Fe Street, the elevations of the street were higher than the elevations in the park; this presented drainage and handicap accessibility problems. Zamora addressed the issue in RFI No. 9, dated October 24, 2003. He received a response on November 18, 2003; the architect wanted the elevations to remain the same, except for two points where he wanted them changed. The response did not resolve the issue; changes in the elevations at those locations would affect the elevations of other areas in the skate park. On October 31, 2003, Zamora wrote to Fitzpatrick, explaining the problems encountered in the project, including the redesign of the CMU wall, the anticipated delivery of the restroom on December 8, the need to postpone concrete work in the area of the restroom until the restroom was installed, and the discrepancies in the elevations along Santa Fe Street. Zamora advised that the project was expected to be completed by December 15, 2003, and requested time extensions due to these conditions. On the same date Fitzpatrick wrote to Zamora, stating that the project was past its completion date of October 27, and notifying him that Riverbank intended to impose "the fine" of $500 per day for the delay, and that amount would be deducted from the contract balance. The city manager also wrote to Zamora, denying the request for time extensions; he stated the restroom issue, the CMU wall issue, and the Santa Fe elevations issue "all were brought to [Riverbank's] attention and clarifications requested after the final date of completion had passed."
In February 2004, Zamora sent a letter to Riverbank's city engineer, indicating there were still problems with the Santa Fe Street elevations. In March 2004, the city engineer sent Zamora drawings and requested a cost proposal for the work necessary to correct the elevation problem. When Barham received the change order and began that work, however, it discovered the curb and gutter prepared pursuant to the drawings would not achieve the required 2 percent grade. Riverbank then instructed Barham to remove asphalt from Santa Fe Street and replace it at a lower elevation, and to add another storm drain. Barham completed the work on June 8, 2004. A notice of completion was issued, designating June 10, 2004, as the completion date.
After construction was completed, Riverbank withheld approximately $155,000 from its payments to Barham, contending it was entitled to approximately $113,000 as liquidated damages for the delay in completion of the project. Barham in turn withheld payment of approximately $39,000 from Ragsdale due to the dispute.
On September 9, 2004, Barham sued Riverbank for breach of contract, to recover the balance due on the construction contract. Riverbank cross-complained against Barham and Nationwide, the surety on its performance and payment bonds, for breach of contract and enforcement of the bonds. On April 13, 2005, Ragsdale sued Barham to recover the balance of approximately $39,000 remaining due on its subcontract, which Barham had withheld due to the dispute over liquidated damages.
In March 2005, Riverbank notified Barham that it was making a claim under the warranty that was part of the construction contract documents, contending there were defects in the shotcrete at the skate park. Barham conducted a site inspection and determined that there were no defects in its work; the work had been done according to the plans and specifications. Riverbank amended its cross-complaint to add a breach of warranty cause of action against both Barham and Nationwide.
The Barham action and the Ragsdale action were consolidated for trial. The consolidated actions were tried to the court. On April 29, 2009, the court issued its tentative decision. It found in favor of Barham and Ragsdale on their complaints. It concluded Riverbank was solely or concurrently responsible for the delays in the project and improperly withheld liquidated damages from Barham. Further, Ragsdale did not extend the critical path of the project, and therefore was entitled to payment of the subcontract balance. The court found in favor of Barham and Nationwide on Riverbank's warranty cross-complaint; it found the expert presented by Barham and Nationwide to be more knowledgeable and his testimony that the shotcrete was not defective to be more credible than the testimony of Riverbank's expert. Additionally, it found no liability on the performance bond, because the obligations under that bond were extinguished upon completion of the project. The court declined to address Barham's request for prompt payment penalties, indicating that issue could be raised later at a noticed hearing on a motion for attorney's fees and costs.
Riverbank objected to the tentative decision and requested a statement of decision. Counsel for Ragsdale, Barham, and Nationwide prepared a proposed judgment and a proposed statement of decision, which responded to the objections raised by Riverbank and made supplemental findings. Riverbank filed objections to the proposed statement of decision. The court filed its statement of decision and entered judgment on June 19, 2009.
Riverbank subsequently filed a motion for new trial and a motion to set aside the judgment. The court denied both motions, but ordered the judgment modified "to exclude reference to an award of attorney fees and prompt-pay penalties in lieu of prejudgment interest." The order reserved those issues to be determined on noticed motion, along with a determination of which party or parties prevailed. Riverbank filed its notice of appeal on September 10, 2009. Barham filed a notice of cross-appeal. The modified judgment was entered on November 3, 2009.
Barham and Nationwide as cross-defendants and Ragsdale filed motions for attorney's fees; Barham, as plaintiff, filed a motion that, in addition to requesting an award of its attorney's fees incurred in prosecuting the action, also requested "an award of damages" against Riverbank for any attorney's fees Barham was required to pay to Ragsdale and an award of prompt payment penalties or prejudgment interest. The motions were heard on September 29, 2009. After hearing, the court granted Ragsdale's motion to recover attorney's fees from Barham, Barham's motion to recover attorney's fees from Riverbank on the complaint, and Barham and Nationwide's motion to recover attorney's fees for prevailing on the cross-complaint. Further, pursuant to Civil Code section 3300, it awarded Barham additional damages of approximately $229,000 for Riverbank's breach of contract, "representing ... attorneys fees payable by Barham to Ragsdale and ... costs attributable to Ragsdale's suit against Barham." As an alternative to prompt payment penalties pursuant to Public Contracts Code section 7107, subdivision (c), the court awarded Barham prejudgment interest at 10 percent from August 2004 to the date of judgment, pursuant to Civil Code section 3287. The court also taxed certain costs claimed by Ragsdale, Barham, and Nationwide.
On December 29, 2009, Riverbank filed a notice of appeal from the November 3, 2009, modified judgment, the ruling on the motions heard on September 9, 2009, "and/or" the final judgment. Barham again filed a "protective" cross-appeal. The final judgment was entered on January 29, 2010. It was substantially the same as the modified judgment, except that it included awards of attorney's fees and costs, as well as the award to Barham of prejudgment interest and damages for the amounts Barham was required to pay Ragsdale for its attorney's fees and costs.
In its first appeal, Riverbank contends the trial court improperly admitted parol evidence to aid in the interpretation of the contract, improperly interpreted and applied the contract provisions, and improperly awarded damages to Barham that included the contract balance Barham owed to Ragsdale. In its second appeal, Riverbank challenges the award of prejudgment interest to Barham, the award of attorney's fees to Nationwide, the award of Ragsdale's attorney's fees and costs to Barham, the amount of attorney's fees awarded, and the failure to tax the cost of a certain reporter's transcript. Riverbank also contends the modified and final judgments were entered in excess of the trial court's jurisdiction and are void because they were entered after Riverbank filed its notice of appeal. Barham asserts its cross-appeal is "for protective purposes only," so that, if the court reverses the judgment in favor of Barham, the judgment in favor of Ragsdale will be treated consistently.
DISCUSSION
I. Appealable Judgment
Generally, an appeal lies only from a final judgment. (Code Civ. Proc., § 904.1; In re Los Angeles County Pioneer Society (1953) 40 Cal.2d 852, 858 (Pioneer Society.) It is the substance, rather than the form, of the judgment that determines whether it is final. (Griset v. Fair Political Practices Commission (2001) 25 Cal.4th 688, 698.) "[T]he mere denomination of a judgment as 'interlocutory' [or 'final'] is not determinative of its finality." (Palo Alto-Menlo Park Yellow Cab Co. v. Santa Clara County Transit Dist. (1976) 65 Cal.App.3d 121, 129.) "'As a general test, which must be adapted to the particular circumstances of the individual case, it may be said that where no issue is left for future consideration except the fact of compliance or noncompliance with the terms of the first decree, that decree is final, but where anything further in the nature of judicial action on the part of the court is essential to a final determination of the rights of the parties, the decree is interlocutory.'" (Pioneer Society, supra, at p. 858.) When a judgment includes an award of attorney fees and costs, but leaves the amount blank, the clerk may insert the amount nunc pro tunc after it is determined by the court; a notice of appeal of the judgment "subsumes any later order setting the amounts of the award." (Grant v. List & Lathrop (1992) 2 Cal.App.4th 993, 996-998.) When the court expressly reserves other issues for later decision, however, the judgment is not final and appealable. (Pioneer Society, supra, at p. 858.)
The June 19, 2009, judgment provided that "Ragsdale shall also recover from Barham prejudgment interest to be determined by the court" and "Barham shall also recover from the City of Riverbank either prejudgment interest or prompt pay penalties to be determined by the court; ... plus the prejudgment interest and attorneys fees and costs that Barham is liable to pay Ragsdale by virtue of this judgment." Likewise, the modified judgment of November 3, 2009, provided: "Ragsdale shall also recover from Barham prejudgment interest to be determined by the court" and "[t]he issue of prompt pay penalties claimed by Barham against the City of Riverbank in lieu of prejudgment interest shall be determined upon noticed motion." Prejudgment interest and prompt payment penalties are not costs, but elements of damages. (Code Civ. Proc, § 1033.5; North Oakland Medical Clinic v. Rogers (1998) 65 Cal.App.4th 824, 830.) Thus, they ordinarily may not be awarded by postjudgment motion. The original and modified judgments, however, expressly reserved those issues to be determined by subsequent motion. Because the original and modified judgments left issues essential to a final determination of the rights of the parties for future determination, we conclude the final judgment in this case is the judgment entered on January 29, 2010, which included a determination of all the reserved issues.
Although notices of appeal and cross-appeal were filed prior to entry of the final judgment, we will treat them as if they were filed immediately after entry of the final judgment (Cal. Rules of Court, rule 8.104(d)) and will address the issues raised in these consolidated appeals on the merits. The issues have been fully briefed and no party has suggested that any of the appeals should be dismissed because it was filed prematurely or purported to appeal from a nonappealable judgment.
II. Barham v. Riverbank Contract Interpretation Issues
Riverbank contends that the judgment against it on Barham's complaint was the result of erroneous interpretation of the provisions of the contract between the parties, which relied in part on parol evidence that should not have been admitted.
A. Standard of review
"The decision whether to admit parol evidence involves a two-step process. First, the court provisionally receives (without actually admitting) all credible evidence concerning the parties' intentions to determine 'ambiguity,' i.e., whether the language is 'reasonably susceptible' to the interpretation urged by a party. If in light of the extrinsic evidence the court decides the language is 'reasonably susceptible' to the interpretation urged, the extrinsic evidence is then admitted to aid in the second step—interpreting the contract. [Citation.]" (Winet v. Price (1992) 4 Cal.App.4th 1159, 1165 (Winet).) The first step presents a question of law subject to independent review: whether the extrinsic evidence is relevant to prove a meaning to which the language of the contract is reasonably susceptible. (Ibid.)
"The second step—the ultimate construction placed upon the ambiguous language—may call for differing standards of review, depending upon the parol evidence used to construe the contract. When the competent parol evidence is in conflict, and thus requires resolution of credibility issues, any reasonable construction will be upheld as long as it is supported by substantial evidence. [Citation.] However, when no parol evidence is introduced (requiring construction of the instrument solely based on its own language) or when the competent parol evidence is not conflicting, construction of the instrument is a question of law, and the appellate court will independently construe the writing. [Citation.]" (Winet, supra, 4 Cal.App.4th at pp. 1165-1166.)
B. Meaning of "Delay"
Barham sued Riverbank for the balance due on the contract for construction of the skate park. Riverbank contended it was justified in withholding a portion of the contract balance pursuant to provisions contained in the contract documents authorizing Riverbank to deduct liquidated damages from the contract balance in the event of delay by the contractor. The proposal and bid form, after stating that the time of completion was 90 calendar days from the date of the notice to proceed, provided: "The undersigned agrees that should the work not be completed within the time hereinabove stated from and after the date the Contractor is instructed to proceed by Owner, an amount equal to Five Hundred Fifty Dollars ($500) [sic] per day delay after the expiration of such period shall be deducted from the Contract Sum." The construction agreement itself provided: "In case of failure on the part of the Contractor to complete the work within the time stipulated, plus any duly authorized extension of time, the parties hereby agree and recite that Owner's actual damages in the sum of $500 for each calendar day's delay [sic]." The parties referred to this deduction for delay as liquidated damages.
The proposal and bid form is a part of the contract pursuant to Article II of the Construction Agreement, which provides that the construction documents, including the proposal and bid form, "are made a part hereof."
The completion date, as extended by one change order, was October 27, 2003. The project was not completed until June 10, 2004. Accordingly, Riverbank contended the contract authorized it to deduct from the contract balance to be paid to Barham $500 per day for each day from October 28, 2003, to June 10, 2004, because of the delay in completion of the project. Barham contended the deduction was authorized only for "critical path" delays for which Barham was responsible, and the delays asserted by Riverbank either were not on the critical path or were not caused by Barham.
In its statement of decision, the court interpreted the word "delay" as used in the contract to mean "a delay which had the effect of extending the actual completion date of the Project. To the extent there was an event which caused some portion of the work to take longer, but did not actually extend the date of completion, this would not be a 'delay' within the meaning of the contract." The court found this to be the meaning of "delay," based both on the usage of the term within the four corners of the contract documents and on extrinsic evidence in the form of expert testimony that this apparently ambiguous term had a technical meaning in the construction industry. The court stated: "The manner in which the court is interpreting the word 'delay' is consistent with the definition of 'critical path delay' as described in the testimony of Mark Berry and Thomas Reeves, and is the definition used by the litigating parties in other reported cases in California. [Citations.]"
Berry, Ragsdale's expert on construction scheduling, testified that a "[c]ritical path is the chain or sequence of scheduled activities in a project that cannot be extended or else the project end date would also be extended." These activities "have zero float." "Float" is the period of time until an activity becomes critical and affects the completion of the project; it is the available time in the schedule that will not affect the end date of the project. Berry testified that "critical path" is a term of art in the industry, used "to describe the shortest possible duration of activities with zero float in a project." In order for there to be a delay in a project, the delay must occur in the critical path.
Reeves, Barham's construction scheduling expert, testified that a critical path delay is one that actually extends the date the project is completed. A "disruption," in contrast, alters the planned sequence of activities, resulting in work inefficiencies and possibly added costs, but does not necessarily elongate the duration of the project. Concurrent delay occurs when a delay for which the contractor is responsible, some part of which is critical, occurs at the same time as a delay in the critical path which is the owner's responsibility; either delay could have affected the completion date of the project. Reeves testified critical path scheduling has become a standard for public works projects and construction projects.
Riverbank contends the court erred in finding the term "delay" ambiguous and improperly admitted extrinsic expert evidence to aid in its interpretation. It asserts that the plain meaning of the term should have been used; using the ordinary meaning of the term, the $500 per day deduction from the contract balance would have been authorized for any deviation that resulted in tasks being completed after the date indicated on the construction schedule. Riverbank contends that, instead of construing the term according to its ordinary meaning, the court gave it a technical meaning, despite the absence of evidence that the parties intended a technical meaning.
The plain language of the contract authorized a deduction of $500 per day of delay if the work was not completed within the time set by the contract. Consistent with this language, the trial court construed the term "delay" to mean a delay that extended the actual completion of the contract and to exclude any delay that "caused some portion of the work to take longer, but did not actually extend the date of completion." The court noted that, even if the term "delay" was not ambiguous (and the extrinsic evidence was therefore not admissible), it would still interpret "delay" the same way, because "[i]t would make no sense" for the contract to require a payment for a delay that did not cause the completion date to be extended. We find no error in this interpretation of the term.
The trial court also noted its interpretation was "consistent with" the expert testimony equating the term "delay" with "critical path delay." "The test of admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether it appears to the court to be plain and unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible." (Pacific Gas & Electric Co. v. G. W. Thomas Drayage and Rigging Co. (1968) 69 Cal.2d 33, 37.) The contract language is reasonably susceptible to the interpretation offered by the experts, and the expert evidence was admissible to aid in the trial court's interpretation of that language.
Riverbank contends there was no evidence the parties intended the term "delay" to have a technical meaning. "The words of a contract are to be understood in their ordinary and popular sense, rather than according to their strict legal meaning; unless used by the parties in a technical sense, or unless a special meaning is given to them by usage, in which case the latter must be followed." (Civ. Code, § 1644.) "Generally speaking, words in a contract are to be construed according to their plain, ordinary, popular or legal meaning, as the case may be. However, particular expressions may, by trade usage, acquire a different meaning in reference to the subject matter of a contract. If both parties are engaged in that trade, the parties to the contract are deemed to have used them according to their different and peculiar sense as shown by such trade usage and parol evidence is admissible to establish the trade usage even though the words in their ordinary or legal meaning are entirely unambiguous. [Citation.] (Hayter Trucking, Inc. v. Shell Western E&P, Inc. (1993) 18 Cal.App.4th 1, 15.)
The evidence supported admission of parol evidence of trade usage to interpret the contract language. The parties were engaged in the business of public works construction. Riverbank contracted with Barham for the construction of a skate park. The project was a public works construction project, which the public works department managed. The public works department handled all of the paperwork for projects going out to bid. It used standard contracts and bid documents. It prepared contracts and change orders from a standard form or template. The public works department primarily oversaw the performance of the contract. The public works director and the city engineer handled technical matters, including approving change orders. Barham was instructed to contact the public works department with any questions arising during construction. The evidence was sufficient to support a conclusion that Riverbank, through its public works department, was engaged in the business of contracting for the construction of public works. Expert testimony indicated critical path scheduling has become a standard for public works projects and other construction projects. Consequently, the prerequisites to admitting parol evidence of trade usage were met, and that evidence was admissible to establish a technical meaning of the term "delay." The court did not err in its admission of expert testimony to interpret the meaning of the term "delay."
C. Responsibility for Delays
Four main items of delay were discussed during the trial: late completion of Ragsdale's rough grading, due to commencing work late because of lack of notice by Barham that the contract had been awarded to it and difficulty in achieving the required degree of compaction; late delivery and installation of the restroom; delays due to redesign of the CMU wall; and multiple changes in the design of the elevations along Santa Fe Street. In response to Riverbank's contention it properly withheld payment from Barham for these delays in completion of the project, Barham contended it was entitled to extensions of the completion date for delays due to causes beyond its control. This claim was based on section 12.2 of the General Conditions portion of the contract, which provides:
"The Contract Time will be extended in an amount equal to time lost due to delays beyond the control of Contractor if a claim is make [sic] therefore as provided in paragraph 12.1. Such delays shall include, but to be limited to [ sic], acts of neglect by Owner or others performing additional work as contemplated by Article 7, or to fires, floods, labor disputes, epidemics, abnormal weather conditions or acts of God."
The trial court concluded Ragsdale's work was not on the critical path and therefore did not give rise to a delay for which liquidated damages were available. Riverbank does not challenge that finding.
The trial court also found Barham was not responsible for any of the three critical path delays; it concluded those delays were beyond Barham's control and the result of Riverbank's neglect, and Riverbank should have granted Barham an extension of the contract time for them. The court found Riverbank was solely or concurrently responsible for the critical path delays, and it could not collect liquidated damages from Barham because of them. Riverbank challenges the trial court's conclusions that Barham was not responsible for the restroom delivery delay, that Riverbank had an obligation to grant extensions for all of the delays, and that Riverbank was solely or concurrently responsible for the delays.
The court found that the provision for a restroom manufactured by RFL was a sole source supplier provision. A sole source supplier provision, also referred to as a proprietary specification, was defined as a provision in a public contract listing only one manufacturer or supplier of an item required by the contract, and not including an "or equal" provision permitting substitution of an equivalent item furnished by another manufacturer or supplier; such a provision mandates the use of the specified item. In accordance with the expert testimony regarding industry standards, the trial court found the owner, not the contractor, is responsible for delays caused by a sole source supplier. Additionally, the court found Zamora notified Fitzpatrick of the long lead time associated with the restroom and, at her direction, provided a construction schedule that included a note stating the restroom would be completed 10 to 12 weeks after approval of the shop drawings. The court opined this course of conduct indicated neither party contemplated that Barham would be responsible for delays in the manufacturer's delivery of the restroom. The court concluded Riverbank should have granted Barham an extension of the contract completion date until the restroom was installed in December 2003. Consequently, it found Barham was not responsible for liquidated damages for the delay in delivery and installation of the restroom. Riverbank contends the trial court improperly construed the restroom provision as a sole source supplier provision and improperly admitted extrinsic evidence to hold Riverbank responsible for the time it took to acquire, deliver and install the restroom.
The provision of the construction contract designating the restroom to be used identified a single manufacturer:
"Prefabricated, turn-key restroom building manufactured by Restroom Facilities Corporation. Contact Heidi Slater, phone number 800-447-6570. Manufacturer to install on site. Contractor to provide utility hookup, water, sewer, electric to within 5 feet of building location. Contractor [to] coordinate with manufacturer prior to installation preparation."
Other sections of the contract, however, authorized the contractor to substitute an equivalent product if it timely submitted and obtained approval of an application for the substitution. Section 9.02 of the Instruction to Bidders portion of the contract provides:
"Whenever a material or article is specified or described by using the name of a proprietary product or the name of a particular manufacturer or vendor, the specified item mentioned shall be understood as establishing the type, functions, and quality desired. Other manufacturer's products will be accepted provided sufficient information is submitted to allow Engineer to determine that the products submitted are equivalent to those names [sic].Applications for such review will not be considered by Engineer until after the 'effective date of the Agreement.' The procedure for submittal of any such application by Contractor and consideration by Engineer is set forth in
the General Conditions which are supplemented in the General Requirements."
Similarly, section 6.7.1 of the General Conditions provides:
"Whenever materials or equipment are specified or described in the Contract Documents by using the name of a proprietary item or the name of a particular Supplier the naming of the item is intended to establish the type, function and quality required. Unless the name is followed by words indicating that no substitution is permitted, materials or equipment of other Suppliers may be accepted by Engineer if sufficient information is submitted by Contractor to allow Engineer to determine that the material or equipment proposed is equivalent or equal to that named.... If Contractor wishes to furnish or use a substitute item of material or equipment, Contractor shall make a written application to Engineer for acceptance thereof, certifying that the proposed substitute will perform adequately the functions and achieve the results called for by the general design, be similar and of equal substance to that specified and be suited to the same use as that specified."
Section 01600 of the General Requirements also provides:
"IV. 'OR EQUAL' AND REFERENCE TO TRADE NAMES
"Whenever in the specifications any material or process is indicated or specified by patent or proprietary name or by name of manufacturer, such specifications shall be deemed to be used for the purpose of facilitating description of the material or process desired and shall be deemed to be followed by the words 'or equivalent'...."
Thus, in three separate provisions, the contract reiterates that, if a material or article is specified by proprietary name, manufacturer, or supplier, an equivalent material or article may be substituted on approval of an application for substitution submitted to the engineer. The trial court recognized that, "[t]aken alone, these sections indicate that RFL was not a sole source supplier, because they purport to give Barham the right to provide a substitute product and substitute supplier." The trial court, however, found that another provision in section 01600 of the General Requirements essentially negated these "or equal" provisions and prevented substitution of an alternative restroom product.
"V. CONTRACTOR'S OPTIONS [¶] ... [¶]
"For products specified by naming one or more products, but indicating the option of selecting equivalent products by stating 'or equal' after specified product, Contractor must submit request, as required for substitution, for any product not specifically named.
"VI. SUBSTITUTIONS
"A. General:
"The Contractor may offer any material or process which he believes to be equal in all essential characteristics to that so indicated or specified.... Said offer and supporting evidence must be submitted to the Agency Representative within 15 calendar days after the Award of Contract or Contractor will be deemed to have waived his right to offer substitute materials and processes....[¶] ... [¶]
"D. Limitations:
"Substitutions will not be considered if:
"They are indicated or implied on shop drawings or project data submittals without formal request submitted within 15 calendar days of award;
"Acceptance will require substantial revision of Contract Documents.
"Delays in delivery of specified materials will not be considered justification for substitutions."
The trial court interpreted the final sentence quoted as precluding substitution at any time, if the only reason for proposing a substitution was a delay in delivery of the specified item. Because it found the only reason Barham had for requesting substitution of another manufacturer's restroom facility was the delay in delivery of RFL's product, the court concluded this provision precluded substitution, converting the designation of the RFL restroom into a sole source supplier provision.
"A contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful." (Civ. Code, § 1636.) "The whole contract must be considered together in order to 'give effect to every part, if reasonably practicable, each clause helping to interpret the other.' [Citation.] ... 'A contract may be explained by reference to the circumstances under which it was made, and the matter to which it relates.' [Citation.]" (Supervalu, Inc. v. Wexford Underwriting Managers, Inc. (2009) 175 Cal.App.4th 64, 72.)
The trial court interpreted the contract provision regarding delays in delivery as eliminating the contractor's ability to propose the substitution of an equivalent product whenever the contractor's reason for requesting the substitution was an anticipated delay in delivery of the designated product. In interpreting this provision, the court did not rely on any extrinsic evidence of the mutual intention of the parties at the time of contracting. The evidence indicated the project was put out for public bid. Riverbank drafted the contract documents based on prior public works contracts it had entered into. Barham, as the successful bidder, executed the contract drafted by Riverbank, without negotiation. The facts showing the circumstances under which the contract was made were undisputed and cast no light on the meaning of particular contract terms.
The trial court purportedly considered extrinsic evidence in determining the effect of the "delays in delivery" provision on the provisions for substitution of equal materials. It stated: "The court received extrinsic [evidence] on the question of whether this provision had the effect of negating the 'or equal' provisions of the contract under the facts of this case. The evidence in the case, taken as a whole, supports a finding that the only possible reason for Barham to have requested a substitution of the restroom was the delay in its delivery. Since the contract, by its terms, named RFL as the specified supplier, and there was no right under the contract to request a substitute simply because of a delay, the court finds that RFL was a sole source supplier." The court did not cite, and we have not found, any extrinsic evidence relevant to construing the intended meaning of the "delays in delivery" provision of the contract. The evidence mentioned by the court related to reasons Barham might have had for requesting a substitution, not to the meaning of the contract term. Regarding the meaning of the "delays in delivery" provision, the court concluded "the contract, by its terms" did not give the contractor a right to make a substitution. Thus, because the court did not receive any extrinsic evidence relevant to the meaning of the "delays in delivery" provision, the interpretation of that term is a question of law which we determine de novo.
We do not give the "delays in delivery" provision as broad an interpretation as the trial court did. The "or equal" provisions of the contract, which were repeated in three places in the contract documents, permitted the contractor, within 15 days after award of the contract, to propose the substitution of an equivalent product for a designated product for any reason. The only criteria for acceptance or rejection of a substitution proposed during that time period was whether the proposed product was "equivalent" or "equal in all essential characteristics" to the product specified in the contract, and whether the substitution would require substantial revision of the contract documents. We construe the "delays in delivery" language to mean that a delay in delivery of a designated product alone would not justify a substitution, in the absence of compliance with the contractual requirements for timely requesting and obtaining approval of the substitution. Thus, a delay in delivery that the contractor became aware of after the time for requesting substitution had passed would not justify a belated request for substitution of an equal product; further, a delay in delivery would not justify substitution of a nonequivalent product.
This interpretation is consistent with section 13.01 of the Instructions to Bidders portion of the contract, which provides: "Each Bidder shall list on the form provided, the name of the manufacturers or suppliers of the items of equipment and systems listed on the form which he proposed to furnish. Substitutions will be permitted only if named equipment does not meet the specifications, the manufacturer is unable to meet delivery requirements of the construction schedule, or by mutual agreement of Owner and Contractor." (Italics added.) This provision expressly authorizes substitution when a manufacturer or supplier designated by the contractor in its bid form cannot make a timely delivery.
Because we interpret the contract as permitting substitution of an equivalent product for the designated restroom facility, the designation of the RFL restroom facility did not make RFL a sole source supplier.
Our conclusion is bolstered by section 3400 of the Public Contract Code, which was discussed by one of the experts during the trial. This section prohibits the use of a sole source specification in public contracts, with limited exceptions. It provides, in part:
Subdivision (c) of section 3400 of the Public Contract Code sets out the exceptions. It provides: "Subdivision (b) is not applicable if the awarding authority, or its designee, makes a finding that is described in the invitation for bids or request for proposals that a particular material, product, thing, or service is designated by specific brand or trade name for any of the following purposes:
"(1) In order that a field test or experiment may be made to determine the product's suitability for future use.
"(2) In order to match other products in use on a particular public improvement either completed or in the course of completion.
"(3) In order to obtain a necessary item that is only available from one source.
"(4) (A) In order to respond to an emergency declared by a local agency, but only if the declaration is approved by a four-fifths vote of the governing board of the local agency issuing the invitation for bid or request for proposals.
"(B) In order to respond to an emergency declared by the state, a state agency, or political subdivision of the state, but only if the facts setting forth the reasons for the finding of the emergency are contained in the public records of the authority issuing the invitation for bid or request for proposals."
"No agency of the state, nor any political subdivision, municipal corporation, or district, nor any public officer or person charged with the letting of contracts for the construction, alteration, or repair of public works, shall draft or cause to be drafted specifications for bids, in connection with the construction, alteration, or repair of public works ... calling for a designated material, product, thing, or service by specific brand or trade name unless the specification is followed by the words 'or equal' so that bidders may furnish any equal material, product, thing, or service.... Specifications shall provide a period of time prior to or after, or
prior to and after, the award of the contract for submission of data substantiating a request for a substitution of 'an equal' item. If no time period is specified, data may be submitted any time within 35 days after the award of the contract." (Pub. Contract Code, § 3400, subd. (b).)
"A contract must receive such an interpretation as will make it lawful, operative, definite, reasonable, and capable of being carried into effect, if it can be done without violating the intention of the parties." (Civ. Code, § 1643.) "[A]n interpretation which gives a reasonable, lawful, and effective meaning to all the terms is preferred to an interpretation which leaves a part unreasonable, unlawful, or of no effect." (Rest.2d Contracts, § 203, subd. (a), p. 93.) The trial court's interpretation of the contract would effectively cause part of the construction contract to violate Public Contract Code section 3400. Our construction would avoid that result. Accordingly, we conclude the trial court erred in construing the restroom provision as a sole source supplier provision and in concluding that Riverbank was responsible for the delay in delivery of the restroom because experts testified that, "according to industry standard, the owner, not the contractor, is responsible for delays caused by sole source suppliers."
Barham argues that, even if the restroom designation was not a sole source supplier provision, Barham was entitled to an extension for the delay in delivery because that delay was beyond its control. Section 12.2 of the General Conditions provides: "The Contract Time will be extended in an amount equal to time lost due to delays beyond the control of Contractor .... Such delays shall include, but to be limited to [sic], acts of neglect by Owner ..., or to fires, floods, labor disputes, epidemics, abnormal weather conditions or acts of God." The contract also provides, however:
"Contractor shall be fully responsible to Owner and Engineer for all acts and omissions of the Subcontractors, Suppliers and other persons and organizations performing or furnishing any of the Work under a direct or indirect contract with Contractor just as Contractor is responsible for Contractor's own acts and omissions."
In light of this provision making Barham responsible for acts and omissions of its suppliers, we construe section 12.2 of the General Conditions to mean that an extension will be granted for time lost due to delays that are beyond the control of Barham and the subcontractors and suppliers for which it is responsible. To construe the provision otherwise would permit a contractor to "protect itself from liability arising from a particular type of delay simply by arranging that a contractual partner assume responsibility for that type of delay. In other words, delays could be excused or not depending solely on whether [the contractor] chose to outsource a particular operation or line of supply." (Hutton Contracting Co., Inc. v. City of Coffeyville (10th Cir. 2007) 487 F.3d 772, 778.) This would "provide a perverse incentive for contractors to outsource work and supplies needlessly." (Id. at pp. 778-779.) It might also leave the owner without a remedy for the subcontractor's or supplier's delay; the owner would have no contractual cause of action against a subcontractor or supplier with whom it had no contract. (See also, General Injectables & Vaccines, Inc. v. Gates (Fed. Cir. 2008) 527 F.3d 1375, 1377, "prime contractors are ordinarily responsible for the unexcused performance failures of their subcontractors"; Olson Plumbing & Heating Co. v. United States (Ct. Cl. 1979) 602 F.2d 950, 957, "[t]he contractor alone is responsible for the deficiencies of its suppliers and its subcontractors absent a showing of impossibility.")
Barham contends it should have been granted an extension for the delay in delivery of the restroom because it did not control the timing of Riverbank's payment of the initial deposit, without which RFL would not begin preparing the shop drawings. Riverbank's payment to Barham of the funds necessary to make the deposit to RFL was made prior to the date on which construction was to commence. Thus, the time it took Riverbank to make the payment to Barham was not part of the 106-day contract period for completion of the project, and no extension was needed to allow for it.
Barham contends it should have been granted an extension for the delay in delivery of the restroom because it did not control the application to the DOH and the timing of the DOH's approval of the shop drawings. Even if we were to conclude Barham was not responsible for the time DOH spent reviewing and approving the shop drawings for the restroom, no evidence was presented to show how much time was attributable to DOH for its approval, as opposed to time attributable to other activities, such as RFL's preparation of the shop drawings and its transmission of the shop drawings to DOH prior to approval and to Barham after approval was obtained.
Barham also argues that, even if the restroom designation was not a sole source supplier provision that made Riverbank responsible for the delay in its delivery, the delay in delivery of the restroom was concurrent with the Santa Fe elevation delay for which the trial court found Riverbank responsible. The trial court, however, did not expressly find that the restroom delivery delay was concurrent with the Santa Fe elevation delay. The trial court found the restroom delivery delay was the first critical path delay, referring to it as "[t]he gorilla in the room." The period of that delay ran from October 28, 2003, to December 16, 2003. The court found the CMU wall delay ran from October 10, 2003, through November 18, 2003, and was concurrent with the restroom delivery delay. It found the Santa Fe elevation issue was first identified on October 24, 2003, but did not become critical until December 16, 2003. At that point, it became the controlling critical activity, until June 8, 2004. If Barham, rather than Riverbank, is chargeable with the restroom delivery delay, it is not clear which party or parties the trial court would have found to be wholly or partially chargeable with the delay between November 18, 2003, and December 16, 2003.
When a contract provides for both liquidated damages to the public entity and extensions of time for the delays with which the contractor is not chargeable, any delay may be apportioned between the parties. (Nomellini Construction Co. v. State of California ex rel. Dept. of Water Resources (1971) 19 Cal.App.3d 240, 245.) "[T]he effect of a delay caused by the owner operates merely as an extension of the time of performance, and a new time is substituted for the old. In that event though the owner causes delay the builder is liable in liquidated damages, but the period of delay caused by the owner is deducted from the total delay." (Id. at p. 246.) "Damages are not being apportioned. Damages are liquidated. Quantum of delay in terms of time is all that is being apportioned." (Ibid.)
The construction contract provided for both liquidated damages and extensions for delays beyond the contractor's control. Consequently, the delays may be apportioned between the parties, and liquidated damages may be awarded for the delays attributable to Barham. The trial court found that all the critical path delays were attributable to Riverbank, so it did not apportion the delays between the parties. In light of our determination that the delay in delivery of the restroom was attributable to Barham, we must remand to permit the trial court to make the necessary findings to apportion the delay and determine the amount of liquidated damages, if any, to which Riverbank is entitled under the contract.
D. Claims for Extensions
Riverbank contends the trial court erred in concluding that Riverbank was obligated to grant Barham extensions for the three critical path delays and that it breached the contract by failing to do so. The court concluded extensions were required by section 12.2 of the General Conditions, which provides: "The Contract Time will be extended in an amount equal to time lost due to delays beyond the control of Contractor if a claim is make [sic] therefore as provided in paragraph 12.1. Such delays shall include, but to be limited to [sic], acts of neglect by Owner ..., or to fires, floods, labor disputes, epidemics, abnormal weather conditions or acts of God." Riverbank asserts this language limited the delays entitling the contractor to an extension to "acts of neglect by Owner," and the other listed items. The court indicated the language "but to be limited to" might be a typographical error intended to mean "but not be limited to." It concluded, however, that the restroom delay, the CMU wall delay, and the Santa Fe elevation delay all constituted "acts of neglect by Owner" for which Barham was entitled to time extensions. Because we have determined Barham was chargeable with the restroom delay, we will not discuss Riverbank's contention that the restroom delay did not constitute neglect by Riverbank, for which an extension was warranted.
The acts of neglect identified by the court included putting out to bid plans and specifications that contained errors and omissions that eventually caused delays and failing to provide timely and accurate responses to Barham's RFIs relating to the CMU wall and the Santa Fe elevations. Riverbank asserts that the architect, Purkiss-Rose, prepared the plans and responded to the RFIs. It argues Purkiss-Rose was an independent contractor, not an agent of Riverbank, and therefore Riverbank cannot be held responsible for these acts of neglect.
The question, however, is not whether Riverbank may be held liable to Barham for damages caused by shortcomings in the architect's design of the skate park. Rather, the question is: in determining whether to impose liquidated damages and in apportioning responsibility for delays between Riverbank and Barham, to which party are design defects attributable? Riverbank approved the plans and other contract documents and put them out for bid, requiring bidders to base their bids on the documents and requiring the successful bidder to perform in accordance with them. This was the neglect with which Riverbank was found chargeable. Charging Riverbank with responsibility for design defects is consistent with Public Contract Code section 1104, which provides, in pertinent part: "No local public entity ... shall require a bidder to assume responsibility for the completeness and accuracy of architectural or engineering plans and specifications on public works projects, except on clearly designated design build projects."
The contract required the "engineer" to respond to all requests for clarification or interpretation of the contract documents, as well as all claims and disputes. The engineer specified in the contract was Riverbank and its public works department. Thus, Riverbank was responsible for promptly and accurately responding to Barham's questions and issues regarding interpretation of the contract documents. Substantial evidence was presented that questions relating to interpretation of the contract documents were submitted to Riverbank and went through the public works department. Riverbank obtained input from the appropriate employees and other professionals and issued a response. There was evidence that many questions were addressed by Riverbank's project team. Substantial evidence supports the trial court's determination that the delays were caused by acts of neglect by Riverbank as that term is used in section 12.2 of the General Conditions.
Riverbank argues that Barham did not make claims for extensions in accordance with section12.1 of the General Conditions, which provided:
"The Contract Time may only be changed by Change Order. Any claim for an extension or shortening of the Contract Time shall be based on written notice delivered by the party making the claim to the other party and to Engineer promptly (but in no event later than thirty days) after the occurrence of the event giving rise to the claim and stating the general nature of the claim. Notice of the extent of the claim with supporting data shall be delivered within sixty days after such occurrence ... and shall be accompanied by the claimant's written statement that the adjustment claimed is the entire adjustment to which the claimant has reason to believe it is entitled as a result of the occurrence of said event. No claim for an adjustment in the Contract Time will be valid if not submitted in accordance with the requirements of this paragraph 12.1."
The court concluded the issues regarding the CMU wall and its footing arose on October 10, 2003, and were not resolved until November 18, 2003. Zamora testified that RFI No. 5 advised Riverbank that there was a discrepancy between the number of lineal feet of six inch curb along the north and west sides shown in the plans and in the bid form; it requested clarification. In response to RFI No. 5, Riverbank indicated it wanted a CMU wall on the west side, rather than a curb. A CMU wall, however, required a footing; the plans did not include a footing there, and the footing in the schedule of structural drawings would have extended into the adjacent retaining pond. Zamora sent RFI No. 6, dated October 10, 2003, asking for clarification of the footing issue; he also called the architect, who directed him to put the footing to the east, under the sidewalk, instead of to the west, toward the retaining pond. The written response to RFI No. 6, however, included a note that said the wall's height was not to exceed two feet. That restriction had not been included in the architect's oral instructions, and it required a change in the trenching for the footing that Barham had already done. Zamora sought further clarification. The architect prepared a new design for the footing, which Zamora received on November 18, 2003; it required Barham to backfill the work already done, compact the soil, and retrench for the new design. The time spent on this CMU issue delayed construction of the walls throughout the skate park, because the masonry subcontractor was to grout all the walls at the same time. It also prevented Ragsdale from coming back and backfilling and raising the grades in other areas of the skate park.
This involved the masonry subcontractor putting rebar in the block walls, then filling the cells of the blocks with slurry to make the wall sturdier.
The problem regarding the elevations along Santa Fe Street began with RFI No. 9, dated October 24, 2003. The elevation of the street would be higher than the elevations in the park, which would cause drainage and handicap accessibility problems. The elevations were the actual finished height of the concrete; the finish grading could not be completed and the concrete could not be placed without the elevations. The response to RFI No. 9 changed the elevations in two locations, but did not resolve the problem. The problem remained in February 2004, when Barham was getting ready to pour the concrete curb; the street was higher than the curb would be. In March 2004, the city engineer sent Zamora drawings that changed the curb to a curb and gutter, and asked for a cost proposal for the work. Zamora submitted a cost proposal, and the parties executed a change order authorizing the work. When Barham attempted to perform the work pursuant to the change order, however, it could not meet the 2 percent grade requirement for the handicap ramp. Another cost proposal and change order followed, authorizing Barham to saw cut and remove asphalt from Santa Fe Street and pour it back at a lower elevation. Additionally, another storm drain was added to resolve the drainage issues. The asphalt work was completed on June 8, 2004.
The court found Barham complied with the requirement of giving Riverbank written notice of claims for extensions for the CMU wall issue and the Santa Fe elevation issue in Zamora's October 31, 2003, letter to Riverbank. The letter was sent within 30 days after each event was identified as a delay-causing event. It advised Riverbank of the nature of each problem and concluded: "Therefore, this letter shall also serve as our request for time extensions due to the existing conditions and the delivery/installation of the restroom."
As the trial court noted, the contract "is silent on the level or degree of formality required when giving notice of this kind." The contract required the notice to be written, to be given to the other party and the engineer, and to state the general nature of the claim. The October 31, 2003, letter was written, it was addressed to "City of Riverbank, Public Works Department," which was designated as the engineer in the contract. The letter stated the general nature of the CMU wall and Santa Fe elevations issues, and it requested extensions of time based on those issues. The initial claim was not required to address the length of the extension being requested; "[n]otice of the extent of the claim" was to be sent within 60 days of the event giving rise to the claim for an extension. The court found the follow-up notice with supporting data was excused by Riverbank's outright rejection of any extension four days after the October 31, 2003, request was made. Substantial evidence supports the trial court's conclusion the October 31, 2003, letter satisfied the notice requirements of section 12.1 of the General Conditions.
The court noted expert testimony that, "according to standard industry practices, there is no particular formality required when giving notice of the need for a contract extension." Riverbank complains that this extrinsic evidence should not have been admitted. The result would have been the same in the absence of that evidence. The letter contained all the information the contract required Barham to include in a claim for a time extension.
In its reply brief, Riverbank seems to argue that, after Barham submitted its claims for extensions to Riverbank pursuant to section 12.1 and Riverbank denied them, Barham was required by section 9.11 of the General Conditions to resubmit them to the "engineer" for a formal written decision. Section 9.11 of the General Conditions provides:
"Claims, disputes and other matters relating to the acceptability of the work or the interpretation of the requirements of the Contract Documents pertaining to the performance and furnishing of the Work and claims under Articles 11 and 12 in respect of changes in the Contract Price or Contract Time will be referred initially to Engineer in writing with a request for a formal decision in accordance with this paragraph, which Engineer will render in writing within a reasonable time. Written notice of each claim, dispute and other matter will be delivered by the claimant to Engineer and the other party to the Agreement promptly (but in no event later than thirty days) after the occurrence of the event giving rise thereto, and written supporting data will be submitted to Engineer and the other party within sixty days after such occurrence unless Engineer allows an additional period of time to ascertain more accurate data in support of the claim." (Italics added.)
Thus, section 12.1 requires the party making a claim for an extension of the contract time to give notice to the other party and the engineer. Section 9.11 also requires that notice of the claim be given to the other party and provides that the claim will be referred initially to the engineer, with a request for a formal decision. In this case, the engineer specified in the contract was Riverbank or its public works department. Barham sent its October 31, 2003, claim letter directly to Riverbank's public works department. Riverbank, in a November 4, 2003, letter prepared by the public works department, with input from the city engineer and the architect, and signed by City Manager Richard Holmer, denied the request for extension.
The court concluded "[t]he meaning and effect of the provisions in Article 12 substantially mirror the claims provisions in Sections 9.11 and 9.12." It found Barham's October 31, 2003, letter satisfied the requirements in both Article 12 and Article 9 for submitting a claim for extensions of time for the restroom, CMU wall, and Santa Fe elevation delays. The court's interpretation of the provisions of Article 9 and Article 12 was correct; both required a claim for a time extension to be sent initially to the engineer for decision. Substantial evidence supports the trial court's finding that Barham complied with the requirements of both articles through the submission of its October 31, 2003, claim letter.
Finally, Riverbank contends its denial of extensions was proper where additional work on the Santa Fe elevations was authorized by change order, but Barham did not request an extension of time in the cost proposal on which the change order was based, and the change order stated "[n]o time extension is required." This included change orders 7, 9, and 10.
When unexpected conditions arise or the owner requests additional work, the contractor submits a cost proposal containing a description of the work to be done and a calculation of the cost of the work. If the owner approves the work and the cost proposed, it issues a change order authorizing the work. When both parties have signed the change order, it amends the contract between the parties.
Barham submitted the cost proposals on which change orders 7, 9, and 10 were based after Riverbank had consistently denied its other requests for time extensions. Zamora testified that, at one of the weekly meetings he attended with representatives of Riverbank, they discussed a newspaper article that said Riverbank was assessing Barham's liquidated damages. Zamora stated Doug Barham was upset by the article and, if Riverbank was going to do this, Barham would need to consult counsel. Fitzpatrick told Zamora not to worry about time issues, Riverbank just wanted to get the job done and move forward. Zamora and Doug Barham testified that, because of Fitzpatrick's reassurance and because Riverbank was denying all requests for time extensions and Barham just wanted to finish the project, Barham's cost proposals addressed only monetary issues; they did not address time issues. Zamora and Doug Barham interpreted the "[n]o time extension is required" language to mean that time extensions were not being granted in those change orders; they intended to submit claims for time extensions separately at a later date.
The contract defined the term "change order" as: "A document, which is signed by Contractor and Owner and authorizes an addition, deletion or revision of the Work, or an adjustment in the Contract Price or the Contract Time, issued on or after the Effective Date of the Agreement." The use of the disjunctive "or" indicates a change order could address individual issues; the contract did not require that work, contract price, and contract time be addressed in the same change order. The court found the cost proposals submitted by Barham were "cost only" proposals, which did not address the issue of time extensions. It further found the change orders expressly incorporated the "cost only" proposals. The trial court admitted extrinsic evidence of the circumstances under which the cost proposals were submitted and the change orders agreed to in order to interpret the "[n]o time extension is required" language. In light of the content of the cost proposals and the change orders themselves and the discussion between Zamora and Fitzpatrick, in which "the parties both expressed a desire to complete the project and to avoid an immediate legal battle over liquidated damages," the court interpreted that language to mean no time extension was required "for this change order," rather than that no time extension was required "for this work." Accordingly, the court concluded the language of the change orders did not preclude Barham from separately requesting change orders granting extensions of time for the additional work along Santa Fe Street. Substantial evidence supports the court's factual findings, and we find no error in its interpretation of the cost proposals and change orders.
The court also found that change order 10 was not executed by the parties and therefore "could have no limiting effect in any event."
E. Damages
Riverbank contends the trial court erred by including in the award of damages to Barham the $39,782.16 that Barham was found to owe Ragsdale pursuant to the subcontract. Riverbank seems to contend this amount was awarded on the basis of a pass-through claim, but no pass-through claim was alleged in Barham's complaint.
"California law protects the interests of the subcontractor by providing that a subcontractor's claim 'passes through' the general contractor to the owner. [Citation.] ... [¶] 'As a matter of law, a general contractor can present a subcontractor's claim on a pass-through basis. [Citation.] When a public agency breaches a construction contract with a contractor, damage often ensues to a subcontractor. In such a situation, the subcontractor may not have legal standing to assert a claim directly against the public agency due to a lack of privity of contract, but may assert a claim against the general contractor. In such a case, a general contractor is permitted to present a pass-through claim on behalf of the subcontractor against the public agency. [Citation.]' [Citation.] [¶] The pass-through process and such agreements are designed to shorten the legal process by not requiring the subcontractor to first sue the general contractor and the latter to actually pay damages to the former before suing the owner." (Sehulster Tunnels/Pre-Con v. Traylor Brothers, Inc./Obayashi Corp. (2003) 111 Cal.App.4th 1328, 1348-1349.)
Riverbank is correct that Barham's complaint did not include a pass-through claim seeking damages for Ragsdale. Riverbank is mistaken in its assertion that $39,782.16 was awarded to Barham on a pass-through basis for Ragsdale's damages. The pass-through language Riverbank's argument relies on states: "Because the City of Riverbank imposed liquidated damages on the main contractor, Barham, Inc., Barham passed through the amount of $39,782.16 to Ragsdale. Ragsdale seeks $39,782.16 for breach of contract."
The court was not referring to a subcontractor's claim for damages for a breach of contract by the public entity being passed through to the general contractor, and being pursued by the general contractor against the public entity. Rather, it described the genesis of Ragsdale's claim against Barham: Riverbank assessed liquidated damages for delay against Barham, and Barham in turn withheld a portion of the liquidated damages assessed from the final payment to Ragsdale, because it deemed Ragsdale at least partially responsible for the delay.
Barham filed its complaint against Riverbank seeking the balance due on its contract. The court found Riverbank was not entitled to any liquidated damages and awarded Barham the remaining balance due under its contract. Ragsdale separately sued Barham for the amount remaining due under its subcontract. The court found Barham breached the subcontract by withholding the final payment and awarded Ragsdale the $39,782.16 remaining due on the subcontract. Each plaintiff recovered the amount due under its own contract. There was no pass-through claim, and no award of damages on a pass-through basis.
III. Riverbank v. Barham and Nationwide Warranty Issues
Riverbank's cross-complaint, as amended, included a cause of action for breach of warranty alleged against Barham and Nationwide, the surety on its performance bond. The claim was based on section 13.12 of the General Conditions, which provides:
"If within one year after the date of Substantial Completion of the entire Work ..., any Work is found to be defective, Contractor shall promptly, without cost to Owner and in accordance with owner's Written instruction, either correct such defective Work, or, if it has been rejected by Owner, remove it from the site and replace it with non defective Work."
The cross-complaint alleged that, within one year after notice of completion was filed, Riverbank discovered defects, "which include among other things, cracking and chipping or spalling of numerous concrete surfaces in the skatepark. The defective conditions present in the skatepark do not conform to the specifications set forth in the Contract." Riverbank alleged it gave notice to Barham and Nationwide of the defects, but they refused to repair or replace the defective work.
Riverbank contends the trial court failed to interpret the vague definition of the term "defective," and instead simply construed any ambiguity against the party that drafted the contract, Riverbank. It also contends the court improperly relied on an expert's testimony concerning his subjective assessment that the skate park was not defective in order to find that it was not defective.
The contract defines "defective" as: "Work that in [sic] unsatisfactory, faulty or deficient, or does not conform to the Contract Documents, or does not meet the requirements of any inspection, reference standards, test or approval referred to in the Contract Documents." No extrinsic evidence was submitted regarding what the parties intended this provision to mean at the time they entered into the contract. The court received extensive evidence concerning the application of shotcrete to the skate park, the nature and characteristics of concrete and shotcrete, and the cracking and spalling of the shotcrete in the skate park. Experts testified to their opinions regarding whether the shotcrete was defective.
Spalling was defined as concrete chipping away from a crack or a chipping away of the top surface of concrete. Shotcrete was defined as concrete that is applied by spraying it on, usually on a curved surface, like a swimming pool or skate park.
The court concluded the warranty was vague and, because Riverbank drafted the contract, "any uncertainty contained therein must be construed against" Riverbank, pursuant to Civil Code section 1654. The court rejected the opinions of Riverbank's expert, Esteban Pauli, because it found he lacked expertise in concrete and shotcrete, and "the bases for his opinions [were] lacking in both substance and knowledge." The court found the testimony of Barham's expert, Harvey Haynes, to be compelling and persuasive. In its supplemental findings and conclusions, the court found the skate park was built in accordance with the contract documents and was not defective. It concluded Riverbank failed to meet its burden of proving the skate park was defective, again citing shortcomings in Pauli's testimony. It added that, while the photographs presented "may show aesthetically unpleasing cracks, that is insufficient to establish there was any defect to the skatepark."
Civil Code section 1654 provides: "In cases of uncertainty not removed by the preceding rules, the language of a contract should be interpreted most strongly against the party who caused the uncertainty to exist." The "preceding rules" include rules providing that the intention of the parties to a written contract is to be ascertained from the writing alone, if possible (Civ. Code, § 1639); that the whole of the contract is to be given effect (Civ. Code, § 1641); that words of a contract are to be understood in their ordinary and popular sense, unless used by the parties in a technical sense or according to usage (Civ. Code, § 1644); and that a contract may be explained by reference to the circumstances under which it was made (Civ. Code, § 1647).
No extrinsic evidence regarding the circumstances under which the contract was made explained the meaning of the term "defective." The evidence indicated Riverbank drafted the contract and put it out for public bid, and there was no negotiation of terms with Barham. Under the rules cited above, the intent of the parties must be determined from the writing alone, understood in the ordinary and popular sense of the words used, if possible. Only if such an interpretation is not possible may the court resort to Civil Code section 1654 and construe the contract against the drafting party.
The term "defective" is defined in the contract to mean "unsatisfactory, faulty or deficient," or not in conformance with the contract documents. The plain meaning of "unsatisfactory" is "not satisfactory." (Webster's Third New International Dictionary (1986) p. 2509 (Webster's).) "Satisfactory" means "having all the necessary qualities for effective use" (Webster's, at p. 2017) or "[g]iving satisfaction sufficient to meet a demand or requirement; adequate." (American Heritage Dictionary (4th ed. 2006) p. 1549 (American).) "Faulty" is defined as "not fit for the use or result intended or desired." (Webster's, at p. 829.) "Deficient" means "lacking in some quality, faculty, or characteristic necessary for completeness ... not up to a normal standard: defective" (Webster's, at p. 592) or "[l]acking an essential quality or element ... 2. [i]nadequate in amount or degree; insufficient" (American, at p. 476). Based on the plain meaning of the contract terms, we construe the term "defective," as used in the warranty provision, to mean work that is not up to a normal standard, or lacks an essential quality or element, and, as a result, is not fit for its intended use.
We reject Riverbank's suggestion that we interpret the warranty provision as a satisfaction clause. (See discussion of satisfaction clauses in 1 Witkin, Summary of Cal. Law (10th ed. 2010) Contracts, §§ 783-784, 787-789.) The construction contract did not contain a promise that Barham would build the skate park to Riverbank's satisfaction. Rather, Barham warranted that its work would not be "defective." The term "unsatisfactory" is merely a part of the definition of "defective" and does not convert the warranty into a satisfaction clause.
Although the trial court did not define the term "defective," it made findings that indicate the shotcrete and concrete work did not meet the contract definition as we have construed it. The court found Barham's work on the skate park, including the shotcrete, complied with the contract requirements. It noted that all concrete cracks, and the skate park "was designed not to have control joints as the expected hairline cracks in the concrete were preferable to cold joints." There was no evidence the cracks were a hindrance to skaters. The court concluded the skate park was performing as intended and was suitable for its intended use. Riverbank did not cease using the park because of the alleged defects; the park remained open for use.
As defined at trial, a cold joint is a transition between two areas of concrete; it occurs when different sections of adjacent concrete are poured at different times and some material is placed between the two pours. The separation between the first pour and the second is a cold joint.
The court concluded Riverbank's evidence, including its expert testimony, did not meet its burden of proving that the shotcrete was defective. We may reverse that finding only if Riverbank proved the skate park was defective as a matter of law, that is, if it would have been impossible for the trier of fact to find from all the evidence that the skate park was not defective or that Riverbank had not met its burden of proof on that issue. (Horn v. Oh (1983) 147 Cal.App.3d 1094, 1099.) Riverbank has not argued that it proved its case as a matter of law, nor has it identified any evidence it presented that would support such an argument. Instead, Riverbank challenges the court's reliance on Haynes's opinion that the skate park was not defective, asserting that his opinion was based purely on a subjective interpretation of the term "defective." As indicated above, however, the court did not rely exclusively on Haynes's opinion in determining that the skate park was not proven to be defective. It cited various facts, which were supported by substantial evidence, in support of that conclusion.
Although Haynes stated that his interpretation of the term "defective" was subjective, he gave his definition of the term and explained in detail why he concluded the skate park was not defective. His definition of "defects" included an excessive amount of cracking, excessively wide cracks, vertical offsets where one side of a crack is higher than the other, soft material, and material that is degrading. He stated that, in order to be defective, a condition must have an adverse impact on the intended use of the product. Haynes explained there is no written standard for what constitutes excessive cracking or excessively wide cracks, so that determination is subjective. He testified he visited seven other skate parks to see the crack patterns and the conditions under which the skaters were using the parks. He concluded the cracking in the shotcrete at Riverbank's skate park was normal for shotcrete of its mix design. Haynes reviewed photographs of the skate park and discussed the nature, cause and extent of the cracking. He discussed tests run on samples of the shotcrete and the results showing the shotcrete was high quality material and met the specifications for strength. He testified there were no vertical offsets at the Riverbank skate park and the shotcrete material was not degrading; the shotcrete complied with the plans and specifications.
Thus, although the deficiencies in Riverbank's expert testimony were enough to support the court's conclusion Riverbank failed to carry its burden of establishing the shotcrete was defective, that conclusion was buttressed by Haynes's testimony. While Haynes acknowledged there was no objective test to determine when cracking was "excessive" enough to qualify as "defective," his testimony contained ample information regarding the nature and properties of shotcrete, and the condition of the shotcrete at Riverbank's skate park, to support a conclusion that the shotcrete was not defective.
Riverbank named Nationwide as a cross-defendant in its breach of warranty claim, asserting that Nationwide was liable for the repairs to the defects in the skate park by virtue of its performance bond. In its statement of decision, the trial court found in favor of Nationwide, concluding that, "[a]ccording to the language of the bond, once the project was completed, any obligations on the bond are extinguished." Riverbank challenges the court's conclusion that the bond was extinguished.
"'[A] ruling or decision, itself correct in law, will not be disturbed on appeal merely because given for a wrong reason. If right upon any theory of the law applicable to the case, it must be sustained regardless of the considerations which may have moved the trial court to its conclusion.'" (D'Amico v. Board of Medical Examiners (1974) 11 Cal.3d 1, 19.) The cross-complaint against both Barham and Nationwide was premised on the need for repairs of the alleged defects in the skate park. The trial court found Barham was not liable to Riverbank on the cross-complaint, because Riverbank failed to prove the skate park was defective. The finding that Riverbank failed to prove the skate park was defective resolves the claim against Nationwide also. Consequently, regardless whether the court was correct in concluding that the bond was extinguished, the judgment in favor of Nationwide was proper on the ground the skate park was not defective. Riverbank has not established any error in the judgment on the cross-complaint.
IV. Award of Prejudgment Interest to Barham
After trial, the parties submitted posttrial briefs. In its brief, Barham argued it was entitled to prejudgment interest or prompt payment penalties on the amount withheld by Riverbank, pursuant to Public Contract Code sections 7107 and 20104.50. In its statement of decision, the trial court "decline[d] to address, at this time, Barham's request for prompt payment penalties, the PCC § 20104.50 issue raised or the PCC § 7107 retention issue until a noticed hearing is set on the issue of attorneys' fees and costs." The initial judgment provided Barham was to recover from Riverbank "either prejudgment interest or prompt pay penalties to be determined by the court"; the modified judgment provided that the "issue of prompt pay penalties claimed by Barham against the City of Riverbank in lieu of prejudgment interest shall be determined upon noticed motion." Barham filed a noticed motion seeking, among other things, an award of prompt payment penalties pursuant to Public Contract Code section 7107 or prejudgment interest pursuant to Civil Code section 3287. The final judgment, entered after the noticed motion for attorney's fees, prejudgment interest and prompt payment penalties was brought and heard, awarded Barham "$74,660.27 in prejudgment interest from August 31, 2004." Riverbank challenges that award, contending prejudgment interest must be awarded at trial and cannot be awarded postjudgment, and prejudgment interest was improperly awarded because Barham's damages were not ascertainable by calculation.
While we agree with Riverbank that prejudgment interest is a form of damages (Lineman v. Schmid (1948) 32 Cal.2d 204, 208-209), we reject its contention that prejudgment interest was improperly awarded after judgment in this case. Barham requested an award of prompt payment penalties or prejudgment interest in its post trial brief, based on the evidence presented at the trial. The request was made prior to entry of any judgment. The court acknowledged the request in its tentative decision and statement of decision, but postponed a determination until the matter was presented separately by noticed motion. The initial "judgment" reserved the issue for later decision. Final judgment was entered after the noticed motion was heard and decided, and included the award of prejudgment interest. Riverbank has not pointed out any place in the record where it objected to this procedure in the trial court. We conclude the award was not untimely.
The award of prejudgment interest was made pursuant to Civil Code section 3287, subdivision (a), which provides:
"Every person who is entitled to recover damages certain, or capable of being made certain by calculation, and the right to recover which is vested in him upon a particular day, is entitled also to recover interest thereon from that day, except during such time as the debtor is prevented by law, or by the act of the creditor from paying the debt. This section is applicable to recovery of damages and interest from any such debtor, including the state or any county, city, city and county, municipal corporation, public district, public agency, or any political subdivision of the state.
Under this subdivision, "'prejudgment interest is allowable where the amount due plaintiff is fixed by the terms of a contract, or is readily ascertainable by reference to well-established market values. [Citations.] On the other hand, interest is not allowable where the amount of the damages depends upon a judicial determination based upon conflicting evidence....' [Citation.]" (Great Western Drywall, Inc. v. Roel Construction Co., Inc. (2008) 166 Cal.App.4th 761, 767.) Prejudgment interest is an element of compensatory damages, which compensates the injured party for loss of use of the money during the prejudgment period. (Id. at pp. 767-768.) "The '"mere pleading of unliquidated counterclaims does not render unliquidated an otherwise certain or determinable debt owing to the plaintiff..."'" (Id. at p. 768.) "It is settled that when a plaintiff sues for a liquidated sum and the defendant establishes an offsetting claim based upon defective workmanship or defective performance of the same contract by the plaintiff, the amount of the former is to be offset against the latter as of the due date of the original debt and only the balance bears interest." (Burgermeister Brewing Corp. v. Bowman (1964) 227 Cal.App.2d 274, 285.)
The trial court determined that the balance remaining due to Barham on the contract was an amount certain, or capable of being made certain by calculation, based on the provisions of the contract and the change orders that included additional amounts to be paid to Barham for additional work. Substantial evidence supports that conclusion. Riverbank's claim of an offset for liquidated damages did not render Barham's claim unliquidated or uncertain. Because we must remand to the trial court for an apportionment of the delay and a redetermination of the amount of liquidated damages to which Riverbank is entitled, if any, we must also remand for a redetermination of prejudgment interest, which must be calculated based on the balance due to Barham after any offset for liquidated damages.
V. Award of Attorney's Fees to Barham and Nationwide
Riverbank cross-complained against Barham and Nationwide. It alleged Barham breached the construction contract by, among other things, delaying completion of the work beyond the completion date and failing to pay subcontractors, resulting in stop notices. It sought compensatory and liquidated damages on that claim. Riverbank also alleged Barham breached the one-year warranty of its work that was included in the construction contract; it alleged it discovered defects in the concrete surfaces of the skate park. Riverbank based its claims against Nationwide on the performance and payment bonds Nationwide executed. The court found in favor of Barham and Nationwide on the cross-complaint and awarded attorney's fees to both. Riverbank challenges the attorney fee award to both cross-defendants.
A. Nationwide
Riverbank contends it sued Nationwide on the performance bond, the performance bond did not contain any attorney fee provision, and Riverbank, as the beneficiary of the bond, was not a party bound by the obligations of the bond. Thus, it contends there was no contract between Riverbank and Nationwide to serve as the basis for an award of contractual attorney fees, and the award was therefore improper.
The standard of review of an award of attorney fees is as follows: "'On review of an award of attorney fees after trial, the normal standard of review is abuse of discretion. However, de novo review of such a trial court order is warranted where the determination of whether the criteria for an award of attorney fees and costs in this context have been satisfied amounts to statutory construction and a question of law.'" (Connerly v. State Personnel Board (2006) 37 Cal.4th 1169, 1175.) "[T]o determine whether an award of attorney fees is warranted under a contractual attorney fees provision, the reviewing court will examine the applicable statutes and provisions of the contract. Where extrinsic evidence has not been offered to interpret the [contract], and the facts are not in dispute, such review is conducted de novo. [Citation.] Thus, it is a discretionary trial court decision on the propriety or amount of statutory attorney fees to be awarded, but a determination of the legal basis for an attorney fee award is a question of law to be reviewed de novo. [Citations.]" (Carver v. Chevron U.S.A., Inc. (2002) 97 Cal.App.4th 132, 142 (Carver).) "An abuse of discretion is shown when the award shocks the conscience or is not supported by the evidence. [Citation.]" (Jones v. Union Bank of California (2005) 127 Cal.App.4th 542, 549-550 (Jones).)
The performance bond did not contain a provision for attorney fees. Where a performance bond does not provide for attorney fees, but the underlying construction contract does, courts have upheld awards of attorney fees against the surety. The rationale is that the liability of a surety is commensurate with that of the principal. (National Technical Systems v. Superior Court (2002) 97 Cal.App.4th 415, 424 (National).)Where the surety guarantees performance by the principal of a contract that contains a provision for attorney fees to the prevailing party in the event of litigation, the surety's obligation includes the burden of attorney fees as well as the basic liability. (Boliver v. Surety Co. (1977) 72 Cal.App.3d Supp. 22, 30-31 (Boliver))"[T]he imposition of liability for attorney fees upon the surety is appropriate when the following elements are present: (a) there is a construction contract, (b) providing for attorney fees to the prevailing party, and (c) supported by a surety bond issued by a third party, even though the surety bond does not specifically provide for the surety's liability for attorney fees. [Citation.]" (National, supra, 97 Cal.App.4th at p. 424, fn. omitted.)
Here, however, the award of attorney fees was made in favor of the surety and against the owner. There was no contractual basis for such an award. The performance bond did not provide that the prevailing party in any litigation on the bond would be entitled to attorney fees; it contained no attorney fee provision. The construction contract did not contain a provision that the prevailing party in any litigation on the performance bond would be entitled to attorney fees. Civil Code section 1717 did not authorize an award of attorney fees to Nationwide. That section provides, in pertinent part:
"In any action on a contract, where the contract specifically provides that attorney's fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney's fees in addition to other costs." (Civ. Code, § 1717, subd. (a).)
"[Civil Code s]ection 1717 was enacted to establish mutuality of remedy where [a] contractual provision makes recovery of attorney's fees available for only one party [citations], and to prevent oppressive use of one-sided attorney's fees provisions." (Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124, 128.) It has also been "interpreted to . provide a reciprocal remedy for a nonsignatory defendant, sued on a contract as if he were a party to it, when a plaintiff would clearly be entitled to attorney's fees should he prevail in enforcing the contractual obligation against the defendant." (Ibid.) For this section to be applicable, however, there must be some contract to which the prevailing litigant was a party or was alleged to be a party, which was the subject of litigation and which contained an attorney fee provision subject to the provisions of Civil Code section 1717. (Boliver, supra, 72 Cal.App.3d at p. Supp. 29.) Nationwide was not a party to the construction contract; Riverbank did not sue to enforce the construction contract against Nationwide as if Nationwide were a party to that contract. Riverbank sued Nationwide on the performance bond, which did not contain any attorney fee provision that could be made reciprocal by Civil Code section 1717. Consequently, to the extent Nationwide prevailed on Riverbank's claim on the performance bond, it was not entitled to an award of attorney fees because there was no contractual basis for an award of attorney fees in its favor.
We note Nationwide does not contend there is any statutory or other noncontractual basis for an award of attorney fees.
Nationwide defends the award of attorney fees, asserting that the payment bond contained an attorney fees provision. The payment bond provided that, if the contractor "shall fail to pay any of the persons named in Section 3181 of the Civil Code, ... the said surety will pay for the same, in an amount not exceeding the sum hereinbefore specified, and also, in case suit is brought upon this bond, a reasonable attorney's fee, to be fixed by the court." Riverbank's cross-complaint against Nationwide contained allegations that Nationwide executed a payment bond which "insur[ed] payment to persons or entities entering into a sub-contract with Barham" on the project, and that Barham failed to pay subcontractors for material and work they provided. The statement of decision did not address the payment bond claim. The court merely found that "Nationwide should prevail on the cause of action for enforcement of the performance bond." (Italics added.) It made no express ruling and no factual findings on Riverbank's payment bond claim. In its ruling on the motions for attorney fees, the court found Barham and Nationwide were prevailing parties and entitled to attorney fees on Riverbank's cross-complaint "on the claims of breach of contract and defects." It did not award Riverbank any damages on its cross-complaint.
As a matter of law, Nationwide was not entitled to an award of attorney fees on Riverbank's claim under the performance bond. Consequently, Nationwide is entitled to recover attorney fees only for a successful defense of the payment bond claim in Riverbank's cross-complaint, if Riverbank would have been entitled to attorney fees if it had prevailed. Accordingly, we must reverse the attorney fee award in favor of Nationwide, and remand for a determination of the prevailing party on the payment bond claim and a redetermination of the fees, if any, to be awarded to Nationwide.
B. Barham
Barham and Nationwide were represented by two sets of attorneys, Cassinat Law Corporation and Moreno & Rivera. The Cassinat firm represented Barham as plaintiff and as defendant in Ragsdale's action; it also initially represented Barham and Nationwide as cross-defendants on Riverbank's cross-complaint. The Rivera firm subsequently took over the defense of Barham and Nationwide on Riverbank's cross-complaint. Each law firm filed a motion to recover its attorney fees from Riverbank on behalf of its client or clients. The motions were supported by declarations and detailed billing records. The court concluded Barham was the prevailing party in its action against Riverbank for breach of contract and on Riverbank's cross-complaint for breach of contract and breach of warranty. It awarded Barham attorney fees on both motions.
Riverbank challenges the award, asserting the motions did not distinguish among fees incurred by Barham as plaintiff, as cross-defendant, and as defendant in Ragsdale's action; they did not distinguish between fees incurred by Barham and those incurred by Nationwide on the cross-complaint; and they included fees incurred in prosecuting Barham's cross-complaints against subcontractors, which were eventually dismissed. Riverbank also asserts there was insufficient evidence the fees sought were actually paid or incurred by the clients, the fees were excessive because Barham and Nationwide were represented by two sets of attorneys, and the amount awarded for fees included items that were not recoverable attorney fees.
The trial court has broad discretion to determine the amount of reasonable attorney fees to award. (PLCM Group, Inc. v. Drexler (2000) 22 Cal.4th 1084, 1095.) The award will be reversed only if an abuse of discretion is shown; "[a]n abuse of discretion is shown when the award shocks the conscience or is not supported by the evidence. [Citation.]" (Jones, supra, 127 Cal.App.4th at pp. 549-550.) The trial court's judgment is presumed correct on appeal. (State Farm Fire & Casualty Co. v. Pietak (2001) 90 Cal.App.4th 600, 610.) The appellant bears the burden of affirmatively demonstrating error. (Ibid.)The appellant must also demonstrate that the error was prejudicial; that is, the appellant must show "there is a reasonable probability that in the absence of the error, a result more favorable to the appealing party would have been reached. [Citation.]" (Soule v. General Motors Corp. (1994) 8 Cal.4th 548, 574; Cal. Const., art. VI, § 13.) Riverbank essentially contends the trial court abused its discretion because there was insufficient evidence to support the award of attorney fees it made.
The declarations in support of the Cassinat firm's motion for attorney fees described the experience level of the various attorneys who worked on the case, explained the billing rates in the written fee agreement with its clients, stated the attorneys "contemporaneously tracked and recorded the hours they spent working on this matter," and identified the attached exhibit as "true and correct copies" of its billing records. It added that "[p]ortions of the bills have been redacted to remove matters that are not related to this action and/or those that are not reasonably recoverable." Initially, the declaration in support of the Rivera firm's motion stated the billing rates of its partners and associates and attached a summary of the firm's billing statements to the client's insurer. After Riverbank's opposition complained about the lack of detail, the Rivera firm filed a reply declaration that attached copies of redacted invoices, which set out details of the work done, the time spent, and the amount charged; the declaration explained that "I have redacted entries which I do not believe should be passed on to the CITY OF RIVERBANK, including those surrounding the Dismissal of RAGSDALE, and the Motion 473 which followed" and "I ... have had the amounts redacted that are not appropriately charged" to Riverbank. The court reset the hearing on the motions for attorney fees, and both firms updated their fee information before the hearing.
There is no legal requirement that billing statements be submitted in support of a prevailing party's request for attorney fees. "An attorney's testimony as to the number of hours worked is sufficient evidence to support an award of attorney fees, even in the absence of detailed time records. [Citation.]" (Steiny & Co., Inc. v. California Electric Supply Co., Inc. (2000) 79 Cal.App.4th 285, 293.) Here, both sets of attorneys submitted detailed billing records, along with declarations setting out their hourly billing rates, in support of their clients' attorney fee requests.
At oral argument, the court noted that it had read all of the papers submitted. In its ruling, the court stated that "[e]ach of the motions for attorneys fees referenced in this minute order was reviewed by the court with consideration given to the hourly fees claimed, the skill involved, the complexity of the cases and the reasonableness of the total amount of the fees requested." The Cassinat firm requested approximately $260,000 in attorney fees; the Rivera firm requested approximately $244,000. The court awarded $215,000 to Barham on Barham's action against Riverbank, and $198,000 to Barham and Nationwide on Riverbank's cross-complaint.
As discussed previously, Nationwide was not entitled to an award of attorney fees on Riverbank's claim under the performance bond; it was entitled to an award only for attorney fees incurred in defending against Riverbank's claim under the payment bond. Consequently, the joint award of fees to Barham and Nationwide on the cross-complaint as a whole was improper, and we must remand for a redetermination of the fees to be awarded to each party on the cross-complaint.
Riverbank has not otherwise established any prejudicial error in the award of attorney fees. The evidence submitted by the attorneys was sufficient to show that the fees sought were billed to the clients or their insurer, and were therefore "incurred." Riverbank has not identified any specific entries in the billings that represent items that were not recoverable as attorney fees or, that were excessive or duplicative. "In challenging attorney fees as excessive because too many hours of work are claimed, it is the burden of the challenging party to point to the specific items challenged, with a sufficient argument and citations to the evidence. General arguments that fees claimed are excessive, duplicative, or unrelated do not suffice." (Premier Medical Management Systems, Inc. v. California Insurance Guarantee Assn. (2008) 163 Cal.App.4th 550, 564.) The trial court was aware Barham and Nationwide were represented by two sets of attorneys when it ruled on the motion for attorney fees. The attorneys represented the parties in different capacities and addressed different claims. The court noted it read all of the papers submitted in connection with the motions and took into consideration various factors affecting the award. Riverbank has cited nothing in the record indicating the court failed to take into account the dual representation in determining the amount of fees to award. Riverbank has not demonstrated the trial court abused its discretion in any of the ways cited in making its award of attorney fees.
Finally, Riverbank argues that Barham and Nationwide failed to meet certain statutory prerequisites to an award of attorney fees. It cites Public Contract Code sections 20104 through 20104.6, which apply to public works claims that arise between a contractor and a local agency. If a civil action is filed to resolve a claim, "the court shall submit the matter to nonbinding mediation unless waived by mutual stipulation of both parties." (Pub. Contract Code, § 20104.4, subd. (a).) If mediation fails to resolve the dispute, "the case shall be submitted to judicial arbitration pursuant to Chapter 2.5 (commencing with Section 1141.10) of Title 3 of Part 3 of the Code of Civil Procedure." (Pub. Contract Code, § 20104.4, subd. (b)(1).) The only provision in these sections relating to attorney fees states: "any party who after receiving an arbitration award requests a trial de novo but does not obtain a more favorable judgment shall, in addition to payment of costs and fees ... , pay the attorney's fees of the other party arising out of the trial de novo." (Pub. Contract Code, § 20104.4, subd. (b)(3).)
"The provisions of this article or a summary thereof shall be set forth in the plans or specifications for any work which may give rise to a claim under this article." (Pub. Contract Code, § 20104, subd. (c).) The construction contract did not contain these provisions or a summary of them. The statutes permit waiver of the procedure. Nothing in the construction contract or the statutes makes compliance with the mediation and arbitration provisions of the statutes a prerequisite to an award of attorney fees pursuant to the attorney fee provisions of the contract. We reject Riverbank's contention that mediation and arbitration were conditions precedent to an award of contractual attorney fees.
VI. Motion to Tax Costs
"A costs award is reviewed on appeal for abuse of discretion." (El Dorado Meat Co. v. Yosemite Meat & Locker Service, Inc. (2007) 150 Cal.App.4th 612, 617.) Riverbank contends the court should have disallowed the amount of costs claimed by the Rivera firm on behalf of Barham and Nationwide on the line for court reporter fees; it asserts the charge was actually a charge for trial transcripts that were not ordered by the court. Code of Civil Procedure section 1033.5, subdivision (b)(5), expressly disallows costs incurred for "[t]ranscripts of court proceedings not ordered by the court." In accordance with this section, the court disallowed a charge of $531.65 claimed by Ragsdale in its memorandum of costs on line 9, "[c]ourt-ordered transcripts." The court stated, "The court never ordered post-trial transcripts." Riverbank contends the trial court erred by not similarly disallowing the charge the Rivera firm claimed.
The Rivera firm's memorandum of costs included an amount of $2,882 on line 12 for "[c]ourt reporter fees as established by statute." Riverbank moved to tax the amount on line 12, asserting it was "in reality charges for transcripts of court proceedings ordered by Barham or Nationwide, and not required by the court." If the items in a memorandum of costs "'appear to be proper charges the verified memorandum is prima facie evidence that the costs, expenses and services therein listed were necessarily incurred by the defendant [citations], and the burden of showing that an item is not properly chargeable or is unreasonable is upon the [objecting party].' [Citations.]" (Nelson v. Anderson (1999) 72 Cal.App.4th 111, 131 (Nelson)) If Code of Civil Procedure section 1033.5 expressly allows the particular item, and the charge appears proper on the face of the memorandum of costs, the burden is on the objecting party to show that the item is unnecessary or unreasonable. (Nelson, at p. 131.)
Both the original memorandum of costs and an amended memorandum of costs, which was filed after Riverbank's motion to tax was filed, were signed by the attorney, under an attestation that, "[t]o the best of my knowledge and belief this memorandum of costs is correct and these costs were necessarily incurred in this case." In both memoranda, the challenged amount was placed on the line for court reporter fees. Court reporter fees are expressly allowed by Code of Civil Procedure section 1033.5, subdivision (a)(11). There is nothing obviously improper about the request for these fees. If the charge was not actually a charge for court reporter fees, but instead was a charge for trial transcripts, the burden was on Riverbank to establish the true nature of the charge. Riverbank has identified no evidence it presented that met its burden. Consequently, the court did not abuse its discretion by denying Riverbank's request to tax the amount on line 12.
VII. Riverbank's Liability for Ragsdale's Attorney Fees
Riverbank asserts that the court improperly awarded to Barham and against Riverbank damages in the amount Barham was ordered to pay Ragsdale as attorney fees and costs in Ragsdale's breach of contract action against Barham. Riverbank asserts that "attorney's fees in a breach of contract action are never damages. They are costs." Because Riverbank did not enter into any contract with Ragsdale, and therefore was not subject to a contractual obligation to pay Ragsdale's attorney fees if it prevailed in litigation with Riverbank on the contract, Riverbank asserts there was no basis for an award of Ragsdale's attorney fees against Riverbank.
The court based its award of attorney fees as damages on Civil Code section 3300, which provides: "For the breach of an obligation arising from contract, the measure of damages, except where otherwise expressly provided by this code, is the amount which will compensate the party aggrieved for all the detriment proximately caused thereby, or which, in the ordinary course of things, would be likely to result therefrom." This section is the only authority Barham cites in support of the award. Code of Civil Procedure section 1021, however, deals specifically with attorney fees and provides, in pertinent part: "Except as attorney's fees are specifically provided for by statute, the measure and mode of compensation of attorneys and counselors at law is left to the agreement, express or implied, of the parties."
In Prentice v. North American Title Guaranty Corp. (1963) 59 Cal.2d 618 (Prentice), the court recognized an exception to the latter rule, where the attorney fees are incurred as a result of the tort of another. In Prentice, the plaintiffs contracted to sell their real property to the Hortons, and to subordinate the deed of trust they received to secure payment of the purchase price to a construction loan obtained by the Hortons from Blanche Neal. The defendant acted as escrow holder; it negligently closed the transaction after which the Hortons defaulted on their obligations. The plaintiffs obtained a decree quieting their title against the claims of the Hortons and Neal. The plaintiffs also obtained a judgment against the defendant on a cause of action for negligence; the plaintiffs recovered damages from the defendant in the amount of the attorney fees they incurred in the prosecution of their claims against the Hortons and Neal. The court identified an exception to the general rule that attorney fees are to be paid by the party employing the attorney: "A person who through the tort of another has been required to act in the protection of his interests by bringing or defending an action against a third person is entitled to recover compensation for the reasonably necessary loss of time, attorney's fees, and other expenditures thereby suffered or incurred. [Citations.]" (Id. at p. 620.) Because the defendant's wrongful conduct had made it necessary for the plaintiffs to sue the Hortons and Neal, the attorney fees plaintiffs incurred in doing so were "[a] natural and proximate consequence of defendant's negligence" and were recoverable as damages flowing from the tort. (Id. at p. 621.)
In De La Hoya v. Slim's Gun Shop (1978) 80 Cal.App.3d Supp. 6 (De La Hoya), the court extended the Prentice exception to a case in which the defendant's breach of contract caused the plaintiff to incur attorney fees in a separate proceeding. In De La Hoya, the plaintiff purchased a gun from the defendant, a licensed gun dealer. Unknown to either party, the gun was stolen. While the plaintiff was using the gun for target shooting, an officer questioned him, traced the serial number, and determined the gun had been reported stolen. The plaintiff was arrested for possession of stolen property and hired counsel to defend him against the criminal charges. He subsequently sued the defendant, seeking damages for breach of warranty of title. The plaintiff prevailed, and was awarded damages that included the price of the gun and the attorney fees incurred in defending himself in the criminal proceeding.
The court rejected the argument that Code of Civil Procedure section 1021 was controlling. The court quoted Prentice: "'This section undoubtedly prohibits the allowance of attorney fees against a defendant in an ordinary two-party lawsuit. [Citations.] Section 1021 is merely a statement of the general rule. [Citation.] [¶] 'The section is not applicable to cases where a defendant has wrongfully made it necessary for a plaintiff to sue a third person. [Citations.] In this case we are not dealing with "the measure and mode of compensation of attorneys" but with damages wrongfully caused by defendant's improper actions.' [Citation.]" (De La Hoya, supra, 80 Cal.App.3d at p. Supp. 9).
The court continued: "The only difference between the Prentice case and this one is that in Prentice the wrongful act of the defendant was tortious, while in this case it was a breach of contract." (De La Hoya, supra, 80 Cal.App.3d at p. Supp. 9.) It concluded the Prentice rule should apply in breach of contract cases, based on out of state decisions which established that "a party who becomes embroiled in litigation with third persons as a result of the defendant's breach of contract may recover, as an item of damages, attorney fees incurred in prosecuting or defending the third party litigation." (De La Hoya, at p. Supp. 9.) Although "in an action seeking damages for breach of contract, only such damages may be allowed as may reasonably be supposed to have been within the contemplation of the parties to the contract at the time they entered into the agreement," the trial court had impliedly found "that the parties could reasonably have contemplated at the time appellant sold the hand gun to respondent that if respondent's possession of it was questioned, and the gun turned out to be stolen, respondent would be subject to arrest for receiving stolen property." (Id. at pp. Supps. 10, 11.) Then, "[o]nce the foreseeability of arrest is established, a natural and usual consequence is that appellant would incur attorney's fees." (Id. at p. Supp. 11.)
The De La Hoya court, however, did not discuss the limitations Prentice placed on the rule. "[T]he Prentice exception was not meant to apply in every case in which one party's wrongdoing causes another to be involved in litigation with a third party. If applied so broadly, the judicial exception would eventually swallow the legislative rule that each party must pay for its own attorney. [Citations.] To avoid this result, Prentice limits its authorization of fee shifting to cases involving 'exceptional circumstances.' [Citation.]" (Davis v. Air Technical Industries, Inc. (1978) 22 Cal.3d 1, 7, fn. omitted.) "[T]he Davis case has been read ... to have confined Prentice to its own facts." (Howard v. Schaniel (1980) 113 Cal.App.3d 256, 267.) Regarding exceptional circumstances, it has been said: "'Such exceptional circumstances have been the result of weighing by courts of policy considerations—when the factors in favor of allowance, rather than any hard fast rule, have dictated the justice of the allowance of such damages—on a case-by-case basis.'" (Umet Trust v. Santa Monica Medical Inv. Co. (1983) 140 Cal.App.3d 864, 870 (Umet Trust).)Cases following Prentice "hold that a party may not recover attorney's fees incurred in defending itself against its own wrongdoing." (Umet Trust, at p. 870.)
In Ragsdale's action, not only was Barham defending itself against its own wrongdoing, it was found liable to Ragsdale for that wrongdoing. Thus, this case does not fall within the Prentice exception, even as extended by De La Hoya. There are no exceptional circumstances in this case that would warrant deviation from the usual rule of Code of Civil Procedure section 1021. Barham was not an innocent party who was compelled to litigate with a third party because of the tort or breach of contract of Riverbank; it was sued and found liable because of its own breach of contract. The award to Barham of its attorney fees incurred in litigation with Ragsdale was not authorized by Civil Code section 3300 and must be reversed.
DISPOSITION
The final judgment in favor of Ragsdale and the order awarding it attorney fees are affirmed. The final judgment in favor of Barham and Nationwide and the order awarding them attorney fees are reversed and the matter is remanded with directions to the trial court to determine: (1) the length of the delay attributable to Barham, in light of our conclusion that Barham was responsible for the delay in delivery and installation of the restroom; (2) whether and in what amount Barham is liable for liquidated damages for the delay attributable to it; (3) the amount recoverable by Barham on the contract, as offset by any liquidated damages imposed; (4) the appropriate amount of prejudgment interest to be awarded to Barham, based on the balance due to Barham after any offset for liquidated damages; and (5) the amount of attorney fees recoverable by Barham on Riverbank's cross-complaint, to replace the joint award to Barham and Nationwide that was originally made. The trial court is also directed to (6) eliminate the award to Barham of damages consisting of the costs and attorney fees it was required to pay to Ragsdale; (7) eliminate any award of attorney fees to Nationwide to the extent those fees were incurred in defending against Riverbank's performance bond claim; (8) determine which party was the prevailing party on Riverbank's claim against Nationwide on the payment bond and whether Riverbank would have been entitled to attorney fees if it had prevailed on that claim; and (9) if Nationwide was the prevailing party and entitled to fees, determine the amount of attorney's fees it may recover on that claim. The trial court is directed to enter the remainder of the judgment in accordance with its prior determinations that are unaffected by this appeal.
Ragsdale shall recover its costs on appeal from Barham. The other parties shall bear their own costs on appeal.
HILL, P.J.
WE CONCUR:
CORNELL, J.
DETJEN, J.