Opinion
NOT TO BE PUBLISHED
Alameda County Super. Ct. Nos. 2002052251, RG03082676
SIMONS, J.
In this consolidated appeal, cross-defendant and appellant Turner Construction Company (Turner) appeals a judgment by court trial awarding cross-complainant and respondent Custom Spray Systems, Inc. (Custom Spray), statutory penalties on final retention proceeds owed to it (A116149) and a post judgment order awarding attorney fees and costs (A116417). We conclude that statutory penalties and attorney fees and costs were improperly awarded to Custom Spray and reverse. As the prevailing party, Turner is statutorily entitled to attorney fees and costs, and we remand to the trial court for an award of attorney fees and costs.
Pursuant to Evidence Code section 452, subdivisions (b)-(c), Turner requests that the Court take judicial notice of the Assembly Office of Research, third reading analysis of Senate Bill No. 2525 (1989-1990 Reg. Sess.) as amended August 14, 1990, which was enacted as Civil Code section 3260. Resort to legislative history is appropriate only when the statutory language is ambiguous. (Hunt v. Superior Court (1999) 21 Cal.4th 984, 1000.) Because we find the language of section 3260 unambiguous, we find recourse to the legislative history unnecessary, and deny the request for judicial notice.
BACKGROUND
Encinal Jackson, LLC (Encinal), a project owner and developer, hired Turner as the general contractor for a private construction project located on Jackson Street in Oakland, California (the Jackson Street project). Turner entered into a subcontract with Custom Spray to perform spray-applied fireproofing work on certain areas of the building project.
In 2002, Turner filed a cross-complaint against Encinal for breach of contract, alleging that Encinal owed Turner at least $4.5 million for work on the Jackson Street project. In response, Encinal filed a cross-complaint against Turner and Custom Spray (as well as a number of other subcontractors who are not parties to this appeal) for breach of contract, negligence and fraud.
Custom Spray did not receive its final payment on the Jackson Street project from Turner and, in 2003, filed a cross-complaint against Turner for breach of contract, alleging that Turner owed it $40,357.40. This amount reflected 10 percent of the total subcontract amount of $403,574, and was the sum of the 10 percent retentions Turner had withheld from each installment payment to Custom Spray. In addition to the contract balance, Custom Spray sought attorney fees and costs and monthly statutory penalties of 2 percent on the contract balance under Civil Code section 3260 and/or Business and Professions Code section 7108.5. In response, Turner filed a cross-complaint against Custom Spray (and several other subcontractors who are not parties to this appeal) seeking indemnity for costs incurred in defending against Encinal’s breach of contract claims.
All undesignated section references are to the Civil Code.
In July 2006, the court held a bifurcated bench trial on the unresolved claims between Turner and Custom Spray. The issues before the trial court were (1) Custom Spray’s claim for the contract balance, which Turner conceded in the amount of $40,357.40; (2) Custom Spray’s claim for attorney fees and statutory penalties; (3) Turner’s claim for indemnity; and, (4) the existence of a prior settlement between the parties. For purposes of the case below, the parties stipulated to a March 12, 2002 date of completion for the construction project.
In September 2006, the court issued a judgment and memorandum of decision awarding Custom Spray the contract balance of $40,337.40 and statutory penalties of $35,497 under section 3260, subdivision (c) (hereafter section 3260(c)), and allowed Custom Spray to file a memorandum of costs and a motion for attorney fees. The court further concluded that Turner was not entitled to damages on its indemnity claim, and found that there was no prior settlement between the parties. Based on this judgment, Custom Spray filed a motion for attorney fees and a memorandum setting costs at $1,069. In November 2006, the court issued a post judgment order awarding Custom Spray attorney fees in the amount of $42,346.50.
Turner filed timely notices of appeal from the judgment after court trial and the post judgment order on attorney fees. The parties stipulated to consolidation of the two appeals.
DISCUSSION
I. Award of Penalties Under Section 3260
Section 3260, a construction prompt payment statute, sets forth penalties for the late payment of final retention proceeds. Section 3260 provides in relevant part:
“(b) The retention proceeds withheld from any payment by the owner from the original contractor, or by the original contractor from any subcontractor, shall be subject to this section.
“(c) Within 45 days after the date of completion, the retention withheld by the owner shall be released. . . . [¶] . . . [¶]
“(d) Subject to subdivision (e), within 10 days from the time that all or any portion of the retention proceeds are received by the original contractor, the original contractor shall pay each of its subcontractors from whom retention has been withheld, each subcontractor’s share of the retention received. . . .
“(e) If a bona fide dispute exists between a subcontractor and the original contractor, the original contractor may withhold from that subcontractor with whom the dispute exists its portion of the retention proceeds. The amount withheld from the retention payment shall not exceed 150 percent of the estimated value of the disputed amount. [¶] . . . [¶]
“(g) In the event that retention payments are not made within the time periods required by this section, the owner or original contractor withholding the unpaid amounts shall be subject to a charge of 2 percent per month on the improperly withheld amount, in lieu of any interest otherwise due. Additionally, in any action for the collection of funds wrongfully withheld, the prevailing party shall be entitled to his or her attorney’s fees and costs.”
Turner first contends that the trial court erred in awarding statutory penalties to Custom Spray under section 3260(c), because this subdivision applies only to retentions withheld by owners, not by general contractors. Custom Spray responds that the trial court did not rely on section 3260(c) for the penalty award, but simply used this subdivision to calculate the date by which Turner must have received its retention from Encinal. Custom Spray further contends that even if the trial court mistakenly relied on section 3260(c), this error was harmless as the same award was available under section 3260, subdivision (d) (hereafter section 3260(d)).
Custom Spray also suggests that it is alternatively entitled to interest of 10 percent per annum on the acknowledged debt pursuant to section 3287. Turner does not respond to this contention. Custom Spray did not seek interest under section 3287 at trial, and therefore cannot raise this issue for the first time on appeal. (See Brown v. Boren (1999) 74 Cal. App.4th 1303, 1316.)
We review the trial court’s interpretation of the statute de novo. (People ex rel. Lockyer v. Shamrock Foods Co. (2000) 24 Cal.4th 415, 432.) We review the court’s resolution of disputed factual questions under the substantial evidence standard. (Bickel v. City of Piedmont (1997) 16 Cal.4th 1040, 1053.)
First, we reject Custom Spray’s proposed interpretation of the judgment. The trial court did not, as Custom Spray contends, simply use section 3260(c) to calculate when Turner should have received its retention from Encinal. Instead, the trial court applied section 3260(c) to Turner, awarding penalties to Custom Spray because Turner had failed to pay retention proceeds to Custom Spray within 45 days of the stipulated date of project completion. In its memorandum of opinion the court stated: “[Section 3260(c)] provides: ‘Within 45 days after the date of completion, the retention shall be released.’ [¶] . . . [¶] The parties have stipulated that, for purposes of this case, March 12, 2002, will be used as the date of completion. [¶] Custom Spray’s work was completed before then. A ‘Final Subcontract Change Order’ is dated February 26, 2002 . . . . [¶] The retention should therefore have been paid to Custom Spray no later than April 26, 2002.”
If Custom Spray’s proposed interpretation of the memorandum were correct, the court would have used a two-step analysis: first, under section 3260(c), Turner should have received the retention payment from Encinal 45 days after the date of project completion; and, second, under section 3260(d), Custom Spray should have received its retention 10 days after that, or 55 days after project completion. However, the court did not engage in this two-step analysis, but instead applied section 3260(c) directly to Turner, concluding that the retention should have been paid to Custom Spray by April 26, 2002, or 45 days after the March 12, 2002 date of completion. Moreover, in its quotation of section 3260(c), the court trial omits the crucial italicized phrase from the statute: “Within 45 days after the date of completion, the retention withheld by the owner shall be released.”
Second, the trial court’s use of section 3260(c) was in error. Under the clear statutory language, section 3260(c) applies to retention payments made by the owner, while section 3260(d) governs payments made by the original contractor to its subcontractors. Here, it is undisputed that Turner was the general contractor, not the project owner, for the Jackson Street project. The court erred in applying section 3260(c) to Turner, the general contractor.
Finally, we conclude that the court’s reliance on section 3260(c) was not harmless error. Custom Spray claims that the trial court could have properly relied on section 3260(d) for its award, as the evidence at trial established a violation of this subdivision. However, there is not substantial evidence in the record to support the determination that Turner violated section 3260(d).
A contractor violates section 3260(d) if the contractor receives retention proceeds from the owner and then fails to remit those payments to the subcontractors within 10 days. Retention payments are distinct from progress payments; retention payments are “ ‘payments relating to work already done but which are not presently paid, which instead are withheld until completion of 100 percent of the [contractor’s] work.’ [Citation.]” (Mc Andrew v. Hazegh (2005) 128 Cal. App.4th 1563, 1566.) “ ‘[R]elease of the retention usually constitutes most or all of the final payment.’ [Citation.]” (Id. at p. 1567.) In addition, “[t]he prompt payment statutes . . . are not triggered by whether the general contractor ‘should have’ received a payment from the owner. Rather, they begin to run upon the general contractor actually receiving a progress payment.” (Tesco Controls, Inc. v. Monterey Mechanical Co. (2004) 124 Cal. App.4th 780, 803-804 [construing Bus. & Prof. Code, § 7108.5, which sets forth penalties for late progress payments analogous to the Civ. Code, § 3260 penalties for late retention payments].)
We find no evidence in the record showing if or when Turner received its final retention payments from Encinal. Custom Spray points to billing records indicating that as of January 14, 2002, Custom Spray had submitted its final subcontract change order to Turner, and Encinal was current with all payments to Turner for the Jackson Street project. However, these billing records demonstrate only that Encinal was current with its progress payments as of January 14, 2002, not that Encinal had paid final retention proceeds to Turner.
Line 11 of Turner’s Job Cost-Contract Status Report indicates that as of January 2002, the “Net Amount Due” to Turner from Encinal was $507,606. The report shows that Turner received a check from Encinal on January 14, 2002 in the amount of $93,054. The payments Turner had received from Encinal as of January 14 totaled $507,606, which matches the net amount due. This indicates that Encinal’s progress payments were current at that time. However, the net amount due does not include retention, but is equal to the gross amount less the retention. For example, as of January 14, 2002, the report indicates that the gross amount due was $563,804, while the net amount due was $507,606, leaving a retention of $56,199. Thus, this report does not provide evidence that Encinal had paid final retention proceeds to Turner.
Custom Spray also argues that under section 3260(c) “the retention held by Encinal would have necessarily been released within 45 days of the date of completion” of March 12, 2002. However, the prompt payment statute is not triggered on the date a general contractor “should have” received its retention from the owner, but rather when the contractor actually received its retention. (See Tesco Controls, Inc. v. Monterey Mechanical Co., supra, 124 Cal. App.4th at pp. 803-804.) Custom Spray points to no evidence showing that Turner actually received retention proceeds from Encinal within 45 days of the stipulated date of completion.
The record does, however, contain evidence that Turner did not receive final retention payments from Encinal. At trial, Turner presented testimony from Richard White, a project executive for Turner, that Encinal “wrongfully withheld” payments from Turner, and that White believed Encinal owed Turner money for work on the Jackson Street project. In addition, Changben Wang, the president of Encinal, testified that there was a collection dispute between Turner and Encinal.
Because the only evidence in the record indicates that Turner did not receive its final retention payments from Encinal, we conclude that an award of penalties under section 3260(d) is not supported by substantial evidence.
II. Award of Attorney Fees and Costs to Custom Spray
Turner next asserts the trial court erred in awarding attorney fees and costs under section 3260, subdivision (g) (hereafter section 3260(g)), because this award was based on the erroneous conclusion that Turner wrongfully withheld retention payments under section 3260(c). Custom Spray argues that the trial court correctly concluded that Turner wrongfully withheld retention payments, and therefore Custom Spray is entitled to attorney fees and costs as the prevailing party.
Under section 3260(g), the prevailing party in any action for “wrongfully withheld” funds is entitled to attorney fees and costs. This provision allows recovery of attorney fees and costs only when the retention funds were “improperly withheld,” not simply when the claimant prevails on the collection of the retention payment. (Denver D. Darling, Inc. v. Controlled Environments Construction, Inc. (2001) 89 Cal. App.4th 1221, 1241 [reasoning that “if the Legislature had intended to provide for an award of attorney fees to the prevailing party in every action for collection of retention funds, the provision would have been placed in a separate paragraph”].)
The trial court awarded Custom Spray attorney fees and costs based solely on its conclusion that Turner wrongfully withheld retention funds in violation of section 3260(c). The subcontract between Turner and Custom Spray did not contain an attorney fees clause. Because we conclude the trial court erred in finding that Turner wrongfully withheld retention funds from Custom Spray, we reverse the trial court’s award of attorney fees and costs to Custom Spray.
III. Award of Attorney Fees and Costs to Turner
Finally, Turner argues that as the prevailing party, it is entitled to attorney fees and costs. Custom Spray does not address this contention.
Section 3260(g) requires an award of attorney fees and costs to the “prevailing party” in “any action” for the collection of wrongfully withheld funds. This provision applies both to a party successfully bringing a section 3260 cause of action, and to a party successfully defending against such an action. (Taylor v. Van-Catlin Construction (2005) 130 Cal. App.4th 1061, 1069-70.) “If the Legislature had intended only the successful demanding party to receive attorney fees, it would have so stated instead of permitting an award to the ‘prevailing party.’ There is simply no logical reason to punish the party who was not at fault—who justifiably retained payment in good faith—by denying that party attorney fees for successfully defending against the other party’s action for payment.” (Id. at p. 1069.)
Here, the trial court erred in concluding that Turner wrongfully withheld funds under section 3260. Therefore, Turner is the prevailing party, and is entitled to attorney fees and costs. We remand to the trial court for calculation of attorney fees and costs.
DISPOSITION
The judgment is reversed and the matter is remanded for determination of Turner’s attorney fees and costs. Turner is entitled to its costs on appeal.
We concur. JONES, P.J., NEEDHAM, J.