Opinion
D069248
04-30-2018
WILLIAM DICKERSON et al., Plaintiffs and Appellants, v. PERRY & PAPENHAUSEN, INC. et al., Defendants and Appellants.
Schwerdtfeger Law Group, Sean D. Schwerdtfeger, Catherine L. Coughlin and Melissa J. Morgan; Beus Gilbert and Franklyn D. Jeans for Defendants and Appellants. Procopio, Cory, Hargreaves & Savitch and Kendra J. Hall for Plaintiffs and Appellants.
ORDER DENYING PETITION FOR REHEARING AND MODIFYING OPINION THE COURT:
It is ordered that the opinion filed herein on April 30, 2018, be modified as follows:
On page 8, the first sentence of the second, full paragraph that starts with "Dickerson then filed an ex parte application..." is deleted and the following sentence inserted in its place so that the sentence now reads:
Plaintiffs retained new counsel (who remain their current counsel), and Dickerson filed an ex parte application to elect his remedy for the construction defect damages pursuant to his breach of contract claim.
There is no change in the judgment.
The petition for rehearing is denied.
BENKE, Acting P. J.
Copies to: All parties
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 37-2009-00088289-CU-BC-CTL) APPEAL from a judgment of the Superior Court of San Diego County, Ronald L. Styn, Judge. Affirmed in part, reversed in part, and remanded with directions. Schwerdtfeger Law Group, Sean D. Schwerdtfeger, Catherine L. Coughlin and Melissa J. Morgan; Beus Gilbert and Franklyn D. Jeans for Defendants and Appellants. Procopio, Cory, Hargreaves & Savitch and Kendra J. Hall for Plaintiffs and Appellants.
William Dickerson and Paradiso in Terra LLC (Paradiso, and collectively, Plaintiffs) sued general contractor Perry & Papenhausen, Inc. (P&P), P&P principals Frederick Perry, Jr., James Papenhausen, James Papenhausen II, and Papenhausen Construction (Defendants), as well as their subcontractors, based on the allegedly defective construction of Plaintiffs' home. Pertinent here, Dickerson claimed breach of contract, fraud, and negligent misrepresentation, and Plaintiffs jointly alleged negligence. Plaintiffs settled with the subcontractors. Defendants filed a cross-complaint, which included a breach of contract claim against Dickerson for failure to make required payments.
Dickerson's wife, Heidi Dickerson, was a plaintiff and cross-defendant, but successfully demurred to the breach of contract claim and dismissed her own claims.
The trial court first held a bench trial to determine whether P&P became unlicensed by employing Perry's wife without workers' compensation insurance, which would limit its ability to maintain its cross-complaint. The court found she was an employee, but P&P reasonably should not have known it needed workers' compensation insurance and thus substantially complied with licensing requirements.
The case proceeded to a jury trial. The special verdict form had substantially similar categories of construction defect damages listed under the breach of contract and negligence claims. The jury found P&P liable for breach of contract and awarded Dickerson damages for delays and overcharging, but indicated "0" for the defects. The jury also found P&P liable on the joint negligence claim, and awarded defect damages to Plaintiffs. It rejected Dickerson's claims for fraud and negligent misrepresentation. Finally, the jury found Dickerson was liable to P&P for breach of contract. Defendants successfully moved to offset the negligence award by the subcontractor settlements. Dickerson then sought to elect the defect damages in contract, thus avoiding the settlement offset. The trial court granted the request, and entered judgment.
Defendants appeal, asserting the trial court erred in permitting Dickerson to elect recovery of the defect damages in contract. Plaintiffs cross-appeal, contending the jury's fraud and negligent misrepresentation findings cannot be reconciled, and that the court erred in finding P&P substantially complied with licensing requirements. We conclude the special verdict does not support Dickerson's election to recover defect damages, where the jury made no finding he was individually entitled to them. We further conclude Plaintiffs do not establish the fraud and negligent misrepresentation findings are irreconcilable or materially inconsistent, or that the court erred on substantial compliance. We reverse as to the remedy election, affirm the judgment in all other respects, and remand with directions.
FACTUAL AND PROCEDURAL BACKGROUND
I. Underlying events
In April 2005, Dickerson entered into a contract with P&P to build a house in Coronado, California. P&P began construction in 2006, with the use of subcontractors. Fred Perry's wife, Carole Perry, performed services for P&P during construction. We address Fred's statements to Dickerson regarding labor, as well as Carole's role at P&P, post.
As Fred and Carole Perry share the same last name, we refer to them by first names in the interest of clarity. We also refer to James Papenhausen II as Jimmy, consistent with the cross-appeal briefing and for clarity. We intend no disrespect.
Dickerson formed Paradiso in Terra LLC (Paradiso), and transferred ownership of the house to Paradiso.
Construction continued through 2008 and 2009. Dickerson felt P&P was overcharging, requested additional documentation, and stopped making payments in or around December 2008. The certificate of occupancy was issued in June 2009.
II. Litigation
Dickerson and Paradiso sued Defendants in April 2009, and subsequently added subcontractor defendants. The operative complaint included a claim by Dickerson against P&P for breach of contract, and a negligence claim by Dickerson and Paradiso against Defendants and the subcontractors. The complaint also included claims for fraud and negligent misrepresentation. Plaintiffs settled with the subcontractors.
Defendants filed a cross-complaint against Plaintiffs and later amended it. Relevant here, they alleged Dickerson breached the contract with P&P, based on failure to pay amounts due to P&P.
The trial court held a bench trial regarding whether P&P became unlicensed by employing Carole without obtaining workers' compensation insurance. The court issued a statement of decision determining that while Carole was an employee, P&P reasonably should not have known it needed workers' compensation insurance, and was in substantial compliance with licensing requirements. We discuss the bench trial and the statement of decision in more detail, post.
At the outset of the jury trial, the trial court and counsel addressed the claims and parties at issue. With respect to the parties, the court stated, in part: "I urge you to look at . . . some of those cases that talk about when there's a transfer of title. Who retains the cause of action for construction defects?" Plaintiffs' counsel said the parties might share them, the court responded "[t]here may be some for each," and Defendants' counsel stated: "I don't think that's the case. I'm pretty comfortable in this area of the law, but let's let it play itself out. I think it would be a good idea [if] we could have the pleadings in order before we started the trial. If not, we'll bring up the nonsuit part of it." Plaintiffs' counsel stated they would stipulate to hold that question and try the case as to Dickerson, but Defendants' counsel and the court said "[n]o." The court explained: "[W]e're trying to narrow the case now, so we don't have a whole bunch of questions about . . . who holds which claim and all that. [¶] If we can resolve it—if you can resolve it by a stipulation—and I don't know. Maybe somebody could assign the claims to somebody. . . . I don't know the proper way to do it. [¶] But I am in agreement that the case needs to be simplified." Plaintiffs' counsel stated they would "definitely put some thought to that detail."
After the close of evidence, the trial court and counsel revisited these issues in discussing the jury instructions and special verdict form. Plaintiffs' counsel reported the parties agreed Paradiso would only be a party on the negligence claim. They also discussed approaches for the verdict form, including listing the defects or defect categories under each claim (i.e. using two sets of damages). The parties provided a special verdict form consistent with this approach. Where defects were recoverable on both Dickerson's contract claim and the joint negligence claim, the defect categories were substantially similar. The verdict form also reflected the fraud and negligent misrepresentation claims were based on the same statements, including whether Fred "falsely represent[ed] to [Dickerson] that the home would be built by employees of [P&P]."
The trial court gave the jury instructions. Pertinent here, the court identified Dickerson as the claimant on breach of contract, and Dickerson and Paradiso as the claimants on negligence. The court also instructed the jury with a modified version of CACI 3934 (Damages on Multiple Legal Theories), explaining "each item of damages may be awarded only once," and then generally describing the damages recoverable under Dickerson's breach of contract theory and under "Dickerson and/or Paradiso's" negligence theory. On fraud, the court instructed the jury that Dickerson claimed P&P "made a false representation that harmed him," and had to prove P&P's "representation was false" and P&P "knew the representation was false . . . , or . . . made [it] recklessly and without regard for its truth." On negligent misrepresentation, the court stated Dickerson claimed P&P "negligently misrepresented a fact," and had to prove P&P's "representation was not true" and that "although [P&P] may have honestly believed that the representation was true, [P&P] had no reasonable grounds for believing the representation was true when it was made."
During closing arguments, Plaintiffs' counsel first discussed breach of contract, and then negligence, stating in part: "We're not trying to double-dip. . . . We get the Cost of Repair, but we have different theories that we have to ask for. [¶] And at the end of the day, they'll be offset and be figured out." Plaintiffs' counsel also addressed fraud and negligent misrepresentation, explaining in part: "Did [Fred] intend fraud in this case? [¶] We argued, 'Yes.' We think in this case, it was an intentional act." He continued: "Negligent misrepresentation is a lower standard. If you don't find fraud, look at this."
The jury returned its special verdict. It found Dickerson established breach of contract and awarded damages for delay and overcharges, but indicated "0" for each defect category. Next, the jury found Dickerson and Paradiso established negligence and awarded them damages for the defects. On fraud, the jury found Fred did not falsely represent the home would be built by P&P employees, and did not proceed to other questions. On negligent misrepresentation, the jury found Fred did falsely represent the home would be built by P&P employees, but then answered "yes" to questions asking whether Fred "honestly believe[d] that the representation was true when he made it" and "ha[d] reasonable grounds for believing the representation was true when he made it." Finally, the jury found Dickerson liable to P&P for breach of contract and awarded damages.
Defendants moved to set off Plaintiffs' negligence award by the amount of the pretrial settlements with subcontractors. The trial court granted this request, and also offset the contract awards.
Dickerson then filed an ex parte application to elect his remedy for the construction defect damages pursuant to his breach of contract claim. Specifically, he sought damages for "defects the parties agreed arose from the Contract and were recoverable if the jury found P&P was liable for breach of contract." The trial court heard argument, and granted Dickerson's request. The court explained, in part:
"There was certainly no discussion about who had owned the claims. . . . [T]here was no jury finding . . . as to the date of discovery . . . . So I am not sure that makes any difference. [¶] And whether Mr. Dickerson was entitled to recover under negligence, he certainly was entitled to recover on the contract."
The court entered judgment. Dickerson received damages on the breach of contract claim. Dickerson and Paradiso received nothing on the negligence claim, and P&P received nothing on its cross-complaint. Defendants filed a motion to vacate the judgment, which the court denied in substantial part. The parties timely appealed.
DISCUSSION
I. Issues Regarding Jury Findings
A. Applicable Law
"The verdict of a jury is either general or special. A general verdict is that by which they pronounce generally upon all or any of the issues, either in favor of the plaintiff or defendant; a special verdict is that by which the jury find the facts only, leaving the judgment to the Court." (Code Civ. Proc., § 624.) We "analyze the special verdict form de novo." (Saxena v. Goffney (2008) 159 Cal.App.4th 316, 325 (Saxena); City of San Diego v. D.R. San Diego Horton Holding Co., Inc. (2005) 126 Cal.App.4th 668, 678 (D.R. Horton) [" '[A] special verdict's correctness must be analyzed as a matter of law.' "].) We address additional principles regarding special verdicts and other legal doctrines, as pertinent to our analysis, post. B. Dickerson's Recovery of Defect Damages
Defendants contend the trial court erred in permitting Dickerson to elect recovery of the defect damages pursuant to his breach of contract claim.
1. Election of Remedies
This case does not involve a traditional election of remedies issue. Broadly speaking, an election of remedies is the choice by a plaintiff to an action of one of two or more coexisting remedial rights, where several such rights arise out of the same facts, but the term has been generally limited to a choice by a party between inconsistent remedial rights, the assertion of one being necessarily repugnant to or a repudiation of the other." ' " (Denevi v. LGCC, LLC (2004) 121 Cal.App.4th 1211, 1218 (Denevi); Baker v. Superior Court (1983) 150 Cal.App.3d 140, 144 [accord].) A plaintiff is "entitled to change his alternative remedies until one of his inconsistent rights is vindicated by satisfaction of judgment or by application of the doctrines of res judicata or estoppel." (Frazier v. Metropolitan Life Ins. Co. (1985) 169 Cal.App.3d 90, 101.)
The doctrine typically is invoked by a defendant seeking to force a choice between remedies or challenging a remedy based on a prior election. (See Denevi, supra, 121 Cal.App.4th at p. 1218; see, e.g., City of Orange v. San Diego County Employees Retirement Assn. (2002) 103 Cal.App.4th 45, 59 [rejecting contention that claim in prior case barred action for breach of settlement agreement].) Defendants did not raise the election of remedies issue here.
Rather, Dickerson voluntarily sought to recover the defect damages the jury awarded him and Paradiso on their negligence claim, under his breach of contract claim. If Dickerson had been the sole plaintiff on both claims, we could see the basis for a remedy election of this kind. (See Perry v. Robertson (1988) 201 Cal.App.3d 333, 335 [property seller obtained general verdict for negligence in drafting sales agreement, and received contract-based attorney's fees; Court of Appeal affirmed, explaining "Perry's pleading put in issue both contract and tort theories of recovery. Since the remedy sought and obtained—damages measured by the amount lost by the drafting error—is the same under either theory, Perry was not required to elect a remedy prior to the request for attorney's fees."].)
But Dickerson and Paradiso had a joint negligence claim. It is unclear whether, or how, one of multiple plaintiffs could elect a remedy consisting of a joint award. We need not address the limits of remedy election today, however, because Defendants identify a more fundamental problem with Dickerson's election: whether the jury findings here could support it.
2. Whether Jury Findings Supported Dickerson's Election
Defendants make a number of arguments regarding why the jury findings are inconsistent with Dickerson's election, and why the trial court erred in dealing with those findings. We conclude one is dispositive: they contend, in substance, that Dickerson could not elect the negligence defect damages awarded jointly to Plaintiffs, having failed to obtain findings that he was entitled to them. We agree.
"[A] party has the burden of proof as to each fact the existence or nonexistence of which is essential to the claim for relief or defense that he is asserting." (Evid. Code, § 500.) " 'The requirement that the jury must resolve every controverted issue is one of the recognized pitfalls of special verdicts. "[T]he possibility of a defective or incomplete special verdict, or possibly no verdict at all, is much greater than with a general verdict that is tested by special findings." ' " (Myers Building Industries, Ltd. v. Interface Technology, Inc. (1993) 13 Cal.App.4th 949, 960; see Behr v. Redmond (2011) 193 Cal.App.4th 517, 531 (Behr) ["When a special verdict is used and there is no general verdict, we will not imply findings in favor of the prevailing party. [Citation.] If a fact necessary to support a cause of action is not included in such a special verdict, judgment on that cause of action cannot stand."].)
Courts have applied these principles in concluding parties did not obtain the findings necessary for the relief they sought. (See Saxena, supra, 159 Cal.App.4th at pp. 324, 328, 335-336 [reversing denial of motion for judgment notwithstanding the verdict (JNOV) on battery claim, and directing grant of JNOV, where "jury's special verdict did not include any findings on plaintiffs' battery cause of action"; noting "[i]t was plaintiffs' responsibility to tender their case to the jury"]; cf. Conrad v. Ball Corp. (1994) 24 Cal.App.4th 439, 444 ["Ball waived any right to an offset by failing to propose a special verdict which differentiated between economic and noneconomic damages. . . . As the party seeking the offset, Ball had the burden of proving the facts essential to it."].)
Here, in granting Dickerson's remedy election, the trial court found there was no discussion as to who owned the negligence claims and no jury finding on when the claims were discovered, but indicated it was "not sure that makes any difference." We disagree. Dickerson's election was based on (i) the defect damages being available to him in contract, and (ii) the jury award of defect damages in negligence to both Dickerson and Paradiso. Defect damages were available in contract, but the jury did not award them and thus did not find Dickerson alone was entitled to such damages based on a contract theory. The jury did award defect damages in negligence, but to Dickerson and Paradiso together—again, making no finding that Dickerson alone was entitled to them. Further, both the jury instructions and special verdict form made clear that negligence damages applied to both Plaintiffs. In short, there was no jury finding that Dickerson was individually entitled to the defect damages, such that he could make an election to recover them. We conclude his election, and the related portions of the judgment, were not supported by the jury findings.
We are not persuaded by Plaintiffs' arguments. First, they note Defendants lodged the grant deed transferring the house to Paradiso in this appeal, and indicate they did so to "suggest the jury's verdict represents a finding of differing ownership rights." Defendants do argue different claim ownership periods apply, and presumably lodged the deed for this purpose. But it does not appear Defendants are arguing the jury made this distinction. Rather, we understand their point to be that Plaintiffs' negligence claims were not coextensive, and Dickerson failed to procure jury findings regarding the distribution of negligence damages. With that, we agree.
Defendants contend Plaintiffs possessed different portions of the negligence damages as a matter of law, while Plaintiffs argue assignment is possible and the purpose of distinguishing owners (i.e. to avoid multiple suits) does not apply here. We need not address this dispute, and decline to do so.
Second, Plaintiffs argue it was "incumbent on [Defendants] to raise facts supporting any claim that [Dickerson] and Paradiso[] were not jointly entitled to recover," suggesting this was an affirmative defense. But Defendants do not dispute the jury found Plaintiffs were jointly entitled to recover defect damages. The issue is that the jury never found Dickerson was individually entitled to recover them. For the reasons discussed ante, it was Dickerson, not Defendants, who needed to obtain this finding under the circumstances.
We recognize an appellant may waive its ability to challenge defects in a verdict by failing to object at the time. (See, e.g., Greer v. Buzgheia (2006) 141 Cal.App.4th 1150, 1158-1159 [to appeal from damage award components, defendant must request "special verdict form that segregates the elements of damages"]; Woodcock v. Fontana Scaffolding & Equip. Co. (1968) 69 Cal.2d 452, 456 & fn. 2 [failure to object to ambiguous verdict may lead to waiver].) We find these principles inapplicable here. The issue is whether the jury findings supported the remedy election, not whether the verdict was insufficiently specific or ambiguous. (See Myers, supra, 13 Cal.App.4th at pp. 961-962 [rejecting argument that cross-defendant and appellant waived objection; "[Cross-complainant and respondent] is attempting to enforce the judgment based on the special verdict and must bear the responsibility for a special verdict submitted to the jury on its own case."].) However, we feel compelled to note we are perplexed by how both parties proceeded here. At the outset of trial, the trial court raised the claim ownership issue and stated the case needed to be simplified. Defendants' counsel suggested "let[ting] it play itself out" (while suggesting a nonsuit was a possibility), Plaintiffs' counsel said they would think about it, and it appears neither party took any action— including in the special verdict form, which simply included both plaintiffs on negligence.
See also Saxena, supra, 159 Cal.App.4th at p. 327 [no waiver; defendant and appellant "is not challenging the special verdict form as such. He merely argues the verdict form submitted by plaintiffs, and the verdict returned by the jury, does not support entry of judgment on a battery theory"]; Behr, supra, 193 Cal.App.4th at p. 531 [no waiver; "The failure to include a finding on the fact of misrepresentation is not an ambiguity that needed clarification; it is simply the absence of a factual finding necessary to support a cause of action."].)
Finally, Plaintiffs contend McKenzie v. Kaiser-Aetna (1976) 55 Cal.App.3d 84, cited by Defendants, is distinguishable. We disagree. There, the plaintiff obtained a general verdict without special findings on multiple claims, but not contract-based fees. The Court of Appeal affirmed the fee denial, as there was "no way to ascertain, in the absence of special jury findings, on which of the theories of recovery . . . the jury mainly based its award." (Id. at pp. 88-89.) While the case involved a general verdict and different deficiencies in the jury findings, the issue is the same: the plaintiff failed to obtain findings necessary for the relief sought.
We conclude that the absence of a jury finding that Dickerson was entitled to the defect damages precluded his remedy election, and requires partial reversal of the judgment. However, as our foregoing analysis reflects, we emphasize that all litigants should present the evidence and obtain the findings necessary for any claims, defenses, and litigation strategies they might pursue. C. Jury's Fraud and Negligent Misrepresentation Findings
In light of our disposition, we need not and do not reach Defendants' remaining arguments.
Plaintiffs contend the jury's findings on fraud and negligent misrepresentation are irreconcilable and require reversal.
1. Additional Background
Dickerson was asked if Fred made statements that he relied upon in selecting P&P. He responded: "Well, one of the big ones was that he said that they had their own labor force. So they didn't have to hire subs so he didn't have to pay the middleman. So it would be a lot less expensive for the common labor because of the [sic] own labor force. They had their own workers."
Fred testified Jimmy's company, Papenhausen Construction, "supplied all the labor, like he's done on every job we've done." Fred reiterated "[w]e just always used Papenhausen Construction for doing the labor . . . ." Fred also testified P&P had no employees. Plaintiffs' counsel asked if he told the Dickersons that it was Papenhausen Construction or P&P doing the work, and Fred did not recall. Fred subsequently testified he never said P&P had labor and, to his knowledge, did not tell Dickerson they did.
Plaintiffs also describe other evidence regarding P&P's labor charges. Among other things, they note the draws (i.e. invoices) initially reflected P&P provided labor, and only later showed labor was by Papenhausen Construction.
2. Analysis
As an initial matter, Defendants contend Plaintiffs waived their inconsistency argument by failing to move for a new trial, citing Sanchez-Corea v. Bank of America (1985) 38 Cal.3d 892, 910 (Sanchez-Corea). Waiver does not apply when, as here, the claim is that the verdict is inconsistent. (See Zagami, Inc. v. James A. Crone, Inc. (2008) 160 Cal.App.4th 1083, 1093, fn. 6 (Zagami) ["inconsistent jury findings in a special verdict are not subject to waiver by a party"]; Lambert v. General Motors (1998) 67 Cal.App.4th 1179, 1182 (Lambert) [accord].) Sanchez-Corea involved irregularity in jury proceedings, and Defendants do not explain how it supports waiver here. (Sanchez-Corea, at p. 909 [defendant claimed "irregularity in that the same nine jurors who voted for compensatory damages did not also vote for punitive damages"; counsel waived defect "by failing to request that the jury be returned for further deliberation."].) A new trial motion likewise is not required to preserve a challenge to an allegedly inconsistent verdict. (See Greenwich S.F., LLC v. Wong (2010) 190 Cal.App.4th 739, 759 [" 'Ordinarily, errors are not waived on appeal by the failure to make a motion for new trial,' " noting exception for claims of excessive or inadequate damages].)
Plaintiffs argue the following findings are irreconcilable: (i) the jury's finding that Fred did not falsely represent the home would be built by P&P employees, on the fraud claim, and (ii) its finding that he made that false representation, on the negligent misrepresentation claim. These findings are reconcilable and, regardless, do not amount to a material inconsistency requiring reversal.
" ' "An inconsistent verdict may arise from an inconsistency between or among answers within a special verdict . . . or irreconcilable findings." ' " (Trejo v. Johnson & Johnson (2017) 13 Cal.App.5th 110, 124 (Trejo).) "A special verdict is inconsistent if there is no possibility of reconciling its findings with each other." (Singh v. Southland Stone, U.S.A., Inc. (2010) 186 Cal.App.4th 338, 357 (Singh).) "[A] reviewing court will not infer findings to support the [special] verdict. . . . ' " 'Where the findings are contradictory on material issues, and the correct determination of such issues is necessary to sustain the judgment, the inconsistency is reversible error.' " ' " (Id. at p. 358.)
For fraud, the instructions and verdict form required Dickerson to prove Fred's employee statement was false and he knew it (or made the statement recklessly), thus focusing on whether Fred intentionally lied. For negligent misrepresentation, the instructions stated Dickerson had to establish the representation was "not true," and the instructions and verdict form addressed whether Fred "honestly believed" the statement was true and had "reasonable grounds" for that belief. The issue there was whether Fred made a mistaken representation. Plaintiffs' counsel noted the difference in closing, stating fraud involved an "intentional act" and negligent misrepresentation was a "lower standard." By answering "no" to the question about Fred's employee statement for fraud, but "yes" for negligent misrepresentation, the jury could have been expressing its determination that Fred did not purposely lie, but rather, made an incorrect statement that he honestly and reasonably believed at the time. We recognize the verdict form was designed to have the jury first decide if there was a misrepresentation, and only then address the distinctions between the claims. However, that does not render the jury's determination unclear or inconsistent.
Further, the jury's findings on negligent misrepresentation foreclose any material inconsistency. The jury found Fred honestly and reasonably believed his statement about the house being built by P&P employees—meaning, to the extent this was a misrepresentation, it was unintentional. Fraud requires intentional or at least reckless misrepresentation. (See City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1998) 68 Cal.App.4th 445, 482 ["[I]t is the element of fraudulent intent, or intent to deceive, that distinguishes [fraud] from . . . negligent misrepresentation"].) Thus, the judgment on fraud and negligent misrepresentation is supported by the jury's rejection of the latter, and resolution of the jury's responses on the employee statement is not necessary to sustain the judgment.
Plaintiffs' arguments are unpersuasive. First, they describe cases that involve actual inconsistencies on issues of damages or liability. (See, e.g., D.R. Horton, supra, 126 Cal.App.4th at p. 683 [jury's answers to special verdict questions meant it "found the same property at the same point in time" to be worth different amounts; these findings were "inconsistent and irreconcilable"]; Zagami, supra, 160 Cal.App.4th at pp. 1093-1094 [special verdict finding that reasonable value of skiploader tractor was $30,000 was inconsistent with damages finding of $15,500]; Lambert, supra, 67 Cal.App.4th at p. 1186 [special verdict finding that vehicle had no design defect was inconsistent with finding that defendant was negligent in the design].) Here, it was consistent for the jury to reject both fraud and negligent misrepresentation.
Second, Plaintiffs argue the jury's findings regarding Fred's "honest belief" and "reasonable grounds" cannot reconcile the inconsistency, contending he "either made a misrepresentation or not" and those findings were unsupported by substantial evidence. But the issue is not simply whether Fred made a misrepresentation; the findings have to be both irreconcilable and material to the judgment. (Singh, supra, 186 Cal.App.4th at pp. 358-359.) We also conclude there is substantial evidence to support the jury's findings. Bill testified Fred said P&P had its "own labor force" and, possibly, "workers." Fred testified P&P used Papenhausen Construction for labor and P&P did not have its own employees (and did not recall, and then denied, telling Dickerson they did). The jury could reasonably conclude that Fred told Dickerson that P&P had its own labor force (or workers, or employees), but meant the workers that P&P always used (i.e., Papenhausen Construction)—and thus honestly believed it was true at the time and had reasonable grounds for that belief.
Although the parties agree substantial evidence review applies, we note Plaintiffs arguably bear a greater burden here. (See Sonic Mfg. Technologies, Inc. v. AAE Systems, Inc. (2011) 196 Cal.App.4th 456, 465-466 [when party with burden of proof appeals and " 'the issue on appeal turns on a failure of proof . . . , the question . . . becomes whether the evidence compels a finding . . . as a matter of law.' "]; Valero v. Board of Retirement of Tulare County Employees' Retirement Assn. (2012) 205 Cal.App.4th 960, 965-966 [noting "conceptual and substantive distinction" within substantial evidence analysis based on "burden of proof . . . , which party prevailed . . . and who appealed"].) Because there is substantial evidence here, we need not address the appellate burden further.
Plaintiffs argue "it is impossible for Fred to have honestly and reasonably believed P&P's own employees would construct the Dickersons' home," and suggest this is undisputed. We disagree. For one thing, they do not cite testimony reflecting Fred told Dickerson P&P had "employees"; the testimony they cite from Dickerson uses the phrases "own labor force" and "own workers." It appears the verdict form was imprecise in using the term "employees." Regardless, even if Fred had talked about P&P employees, the jury still could have found he was referring to the Papenhausen Construction workers and this was an honest and reasonable misstatement.
We briefly address some remaining contentions. First, Plaintiffs argue Defendants cite no evidence in the record to support the jury's findings on honest and reasonable belief. As appellants on this issue, it is Plaintiffs who bear the burden of establishing an absence of evidence. Second, they contend Dickerson "suffered prejudice as a result of the . . . inconsistent findings," citing amounts he paid during construction, noting the possibility of punitive damages on the fraud claim, and disputing Defendants' contention that the jury would have rejected the other elements on fraud (e.g. reliance). None of this has merit. The amounts paid during construction plainly cannot establish prejudice here, and the jury's rejection of negligent misrepresentation forecloses recovery on fraud (rendering damages and the other elements irrelevant).
Plaintiffs have not established the jury's findings were irreconcilable or materially inconsistent, and we will not reverse on this ground.
II. Substantial Compliance under Business and Professions Code section 7031
Plaintiffs contend the trial court erred in determining P&P was in substantial compliance with licensing requirements. A. Additional Background
In 2003, P&P signed an exemption from workers' compensation coverage, certifying it had no employees and indicating it would obtain coverage for future employees. Fred Perry's wife, Carole, performed services for P&P while the house was under construction, until she became ill. P&P did not obtain workers' compensation insurance for her.
At the bench trial, the parties presented testimony on various issues pertinent to Carole's employment status, including her work; her compensation; and how the P&P principals and she viewed the relationship.
Fred testified Carole helped him with paperwork, invoices, and e-mail, and he controlled her work. Dickerson indicated Fred told him Carole "handled the business part of the business," and stated they e-mailed and discussed billing with her. Carole testified she helped Fred with e-mail, assisted in creating draws (i.e. the invoices), and would sometimes answer the phone. She owned the computer she used, and the Perrys bought the office supplies. She worked from a room in the Perrys' home, which at the time was P&P's business address. She did not keep track of her hours, but indicated she "wasn't in there for, like, two, three hours every day" and "wasn't even there an hour every day." Later, another individual assembled the draws and performed office tasks.
Carole received a set salary. The bookkeeper testified she ran Carole's salary through payroll, at Jimmy's instruction. She did not issue a 1099 to Carole. She reported Carole's salary and withholdings on a Quarterly Wage and Withholding Report (Form DE-6) to the California Employment Development Department, and sent equivalent forms to the Internal Revenue Service. P&P continued paying Carole after she became ill and stopped working, through late 2009.
Fred testified Carole did not work for P&P. He did not think he had to provide workers' compensation insurance, explaining: "She was working with me as a . . . wife in my house." At deposition, he had testified she was an employee. When asked about this at trial, he indicated "he didn't know how to classify her," and said "she—we wanted to have the withholding taken out of her check so we wouldn't have to pay taxes at the end." He did not really understand the difference between employees and independent contractors. Jimmy also did not consider Carole an employee. He too indicated he did not really know the difference between an employee and independent contractor. Jimmy explained "[his] dad, and Fred, and [he] —talked about . . . compensating Carole." But they were "concerned about . . . getting a 1099 attached to it"; "didn't want them to have to worry about saving money to pay the taxes;" and "instructed [the bookkeeper] to withhold the money. . . . ." They continued to pay Carole after she fell ill because he "didn't want [her] to feel like her life was being diminished further. . . by taking away her money." Jimmy had workers' compensation insurance for Papenhausen Construction. He was told he needed to by State Fund, but did not talk to anyone there about coverage for P&P employees. Carole testified she did not consider herself to be an employee of P&P, and explained why she helped Fred (noting, in part, that she was raised that way, and her mother helped her father).
As discussed further post, failure to obtain workers' compensation insurance results in an automatic suspension of a contractor's license (Bus & Prof. Code, § 7125.2) and unlicensed contractors cannot recover compensation, unless they were in substantial compliance with licensing requirements (Bus & Prof. Code, § 7031, subd. (a).) At the time, substantial compliance required an existing license, reasonable efforts to maintain it, not knowing or reasonably not knowing about a lack of license, and acting promptly to remedy such absence. (Former Bus & Prof. Code, § 7031, subd. (e).) The trial court issued a proposed statement of decision concluding Carole was P&P's employee, but also that P&P was in substantial compliance.
The court's final statement of decision confirmed that a majority of factors supported employee status for Carole, including that she was not in a distinct occupation; her work was done under Fred's direction; the degree of skill required was minimal; the work was continuous; the work was part of P&P's regular business; and payment was by salary. However, pertinent here, the court also found that "in [Carole's] words, she was merely assisting her husband;" she "supplied her own . . . tools"; "the place of work was the office of P&P but it was also a shared place in the Perry home used for purposes other than P&P work"; she "set her own hours"; and P&P "did not intend for Carole . . . to be an employee."
With respect to substantial compliance, the court's analysis turned on the second and third factors:
"2. Acted reasonably and in good faith to maintain proper licensure.B. Applicable Law
"There is no evidence that P&P avoided providing workers' compensation insurance with the intent to avoid the requirements of its contractor's license. Even though the Court has determined that Carole Perry was an employee, her status does not meet that of a common sense definition of an employee. As testified by her, she was helping her husband. P&P did not intend for Carole Perry to be an employee. Moreover, her salary continued after she stopped working. That she was paid a salary with withholding was a convenience and not an attempt to make her an employee. Therefore the Court finds that P&P has satisfied this element and "acted reasonably and in good faith" with respect to the failure to provide workers' compensation for Carole Perry.
"3. Did not know or reasonably should not have known that he or she was not duly licensed when performance of the act or contract commenced.
"As set forth above, P&P did not intend that Carole Perry be an employee and therefore should not have known that it had to provide workers' compensation. Therefore, P&P complies with this factor."
The failure of a contractor "to obtain or maintain workers' compensation insurance coverage, if required . . . , shall result in the automatic suspension of [its] license . . . ." (Bus. & Prof. Code, § 7125.2; Loranger v. Jones (2010) 184 Cal.App.4th 847, 849 [accord].) No contractor "may bring or maintain any action . . . for the collection of compensation for the performance of any . . . contract where a license is required . . . without alleging that he or she was a duly licensed contractor at all times during the performance of that . . . contract . . . ." (Bus. & Prof. Code, § 7031, subd. (a).) This prohibition does not apply to contractors who establish substantial compliance under Business and Professions Code section 7031, subdivision (e). At the time, the statute provided, in relevant part:
"[T]he court may determine that there has been substantial compliance with licensure requirements under this section if it is shown at an evidentiary hearing that the person who engaged in the business or acted in the capacity of a contractor (1) had been duly licensed as a contractor in this state prior to the performance of the act or contract, (2) acted reasonably and in good faith to maintain proper licensure, (3) did not know or reasonably should not have known that he or she was not duly licensed when performance of the act or contract commenced, and (4) acted promptly and in good faith to reinstate his or her license upon learning it was invalid."
Business and Professions Code section 7031 was amended effective January 1, 2017, eliminating the third element and making changes to the fourth. (Stats. 2016, ch. 244, § 1.) Plaintiffs' position is that the trial court erred in determining Defendants met the third element, and their briefing contends the amendments are not retroactive (i.e., Defendants still have to meet it). Because we conclude there is substantial evidence for the court's determination, we need not address retroactivity.
The trial court issued a statement of decision finding P&P established substantial compliance. When we review a statement of decision by a trial court, "findings on questions of fact are reviewed under the substantial evidence standard." (Brewer v. Murphy (2008) 161 Cal.App.4th 928, 935 (Brewer).) " 'We must therefore view the evidence in the light most favorable to the prevailing party, giving it the benefit of every reasonable inference and resolving all conflicts in its favor in accordance with the standard of review so long adhered to by this court.' " (Ibid., citations omitted.) We also "must infer, following a bench trial, that the trial court impliedly made every factual finding necessary to support its decision." (Fladeboe v. American Isuzu Motors Inc. (2007) 150 Cal.App.4th 42, 48.) "[C]onclusions of law are subject to independent review . . . . " (Brewer, at p. 936.)
We recognize Plaintiffs objected to the court's proposed statement of decision, but their objections regarding the issues before us focused on a purported lack of evidence for the court's findings (and the greater reliability of their evidence), as well as legal contentions. They did assert generally that the entire statement was ambiguous and had omissions. But objections are meant to identify specific ambiguities or omissions, not to reargue the merits or address the law, and Plaintiffs' objections do not impact our review. (Code Civ. Proc., § 634; Heaps v. Heaps (2004) 124 Cal.App.4th 286, 292.)
The substantial compliance exception presents a question of fact, unless statutory construction or undisputed facts are at issue. (Pacific Caisson & Shoring, Inc. v. Bernard Bros. Inc. (2015) 236 Cal.App.4th 1246, 1253 (Pacific Caisson) [addressing Bus. & Prof. Code § 7031: "While application of the substantial compliance exception is a question of fact . . . , '[c]onstruction of a statute is a question of law which appellate courts review de novo' "]; Oceguera v. Cohen (2009) 172 Cal.App.4th 783, 792 ["To the extent the interpretation of the statute based on undisputed facts, it presents a question of law subject to de novo review. [Citations.] However, we review disputed factual matters for substantial evidence."].) Plaintiffs argue the grounds for de novo review exist, while Defendants maintain the substantial compliance question here is one of fact. We agree with Defendants. As we shall explain, Plaintiffs do not establish the court erred in applying the statute or that the relevant facts are undisputed, and our review therefore is for substantial evidence. C. Analysis
First, Plaintiffs do not establish the court erred in applying the statute. They contend the trial court was required to consider objective reasonableness in assessing whether P&P "did not know or reasonably should not have known" it was unlicensed and, instead, "ruled P&P's subjective intent that Carole not be an employee was determinative . . . ." They further contend the court "failed to address . . . whether P&P should have known Carole was an employee."
As an initial matter, while the term "reasonably should have known" suggests an objective component to the third element (see, e.g., Agnew v. State Bd. of Equalization (2005) 134 Cal.App.4th 899, 909), Plaintiffs cite no authority articulating an "objective reasonableness" standard. Rather, they cite case law that applies the statutory language. (See, e.g., ICF Kaiser Engineers, Inc. v. Superior Court (1999) 75 Cal.App.4th 226, 236, fn. 8 ["the real issue is whether there is substantial evidence to support the trial court's implied finding that Kaiser should have known about the suspension"].) In any event, we need not address Plaintiffs' characterization of the statute further, because the gravamen of their position—that the court ignored the "reasonably should not have known" issue—is unsupported by the record.
We also need not address Defendants' position on the statute's requirements, which is less than clear. For our purposes, it suffices to say that they maintain that P&P satisfied any applicable objective standard.
Contrary to Plaintiffs' characterization, the court did not "rule P&P's subjective intent . . . was determinative." Nor did the court fail to address whether P&P should have known Carole was an employee. Having an employee is a predicate to obtaining workers compensation insurance for that employee. In finding P&P should not have known it needed workers' compensation insurance, the court impliedly found it should not have known Carole was an employee. And the court expressly addressed objective considerations in analyzing the second element (whether P&P "acted reasonably and in good faith" to remain licensed). There, the court found Carole's "status does not meet that of a common sense definition of an employee." The court also noted facts besides intent that would counsel against employment status, such as the continuation of Carole's salary after she stopped working. The court then commenced its analysis of the third element (whether P&P "did not know or reasonably should not have not known" it was unlicensed) with "As set forth above . . . ." Read in context, the court was incorporating the discussion from the second element. Plaintiffs do not establish the court failed to consider whether P&P reasonably should not have known Carole was an employee (and thus, that it was unlicensed).
Second, Plaintiffs do not establish that undisputed evidence establishes P&P reasonably should have known Carole was an employee. They direct us to evidence that supports that position (including the payroll practices), while questioning Fred's and Jimmy's testimony and what they should have known in light of their experience. But some of those issues involve arguably contradictory evidence, such as Fred stating at deposition that Carole was an employee, and then stating at trial that she was not (and then testifying he did not know the difference between an employee and a contractor). There was also evidence Plaintiffs do not address, such as the continuation of Carole's salary after she stopped working due to illness and Jimmy's testimony on why she was on payroll (i.e. for tax reasons). This record presents disputed facts subject to substantial evidence review.
Having established there was neither legal error, nor undisputed facts, we turn to whether substantial evidence supports the trial court's determination. Even if we were to construe Plaintiffs' undisputed evidence argument as a substantial evidence challenge, they do not set forth all of the relevant material evidence and thus forfeit it. (Foreman & Clark Corp. v. Fallon (1971) 3 Cal.3d 875, 881 [appellant arguing a lack of substantial evidence is "required to set forth in their brief all the material evidence on the point and not merely their own evidence. Unless this is done the error is deemed to be waived"].) Moreover, the record contains at least some evidence P&P reasonably should not have known Carole's work for her husband rendered her a P&P employee. This evidence included the salary continuation after she stopped working, the fact that they were using payroll to minimize tax logistics, and other aspects of her work (including her apparently very limited hours). (Brewer, supra, 161 Cal.App.4th at p. 935; In re Frederick G. (1979) 96 Cal.App.3d 353, 366 ["[t]he testimony of a single witness is sufficient to uphold a judgment even if it is contradicted by other evidence, inconsistent or false as to other portions"].) We recognize there is evidence to the contrary, including P&P's consistent treatment of Carole as an employee for withholding and reporting purposes. But on substantial evidence review, "we do not 'weigh the evidence, consider the credibility of witnesses, or resolve conflicts in the evidence or in the reasonable inferences that may be drawn from it.' " (Do v. Regents of the University of California (2013) 216 Cal.App.4th 1474, 1492.)
Finally, we address Plaintiffs' concern regarding knowledge of the law. They argue contractors are presumed to know the law, citing Pacific Caisson, and note P&P certified it had no employees. Pacific Caisson does discuss this presumption. (Pacific Caisson, supra, 236 Cal.App.4th at pp. 1256-1257 [affirming ruling that contractors did not establish substantial compliance, where licenses were suspended due to conduct reflecting lack of good faith or ignorance of the law, noting contractors were experienced and presumed to know the law's requirements].) But our review is for substantial evidence. It was for the trial court, not us, to consider P&P's awareness of the law and prior representations in assessing substantial compliance.
Plaintiffs raise more issues on reply. They suggest a licensing failure must be outside one's control and contend the exception is narrowly construed, citing Judicial Council of California v. Jacobs Facilities, Inc. (2015) 239 Cal.App.4th 882 (Judicial Council). Even if we reached them, they do not aid Plaintiffs. We recognize outside factors may support substantial compliance, and the statute is construed narrowly. (Slatkin v. White (2002) 102 Cal.App.4th 963, 966-967, 971 [facts suggested contractor substantially complied; license was suspended due to bond cancellation, and he was unaware of suspension or cancellation and unable to acquire new bond due to issues in market]; Pacific Caisson, at p. 1257 [exception is "extremely narrow" and applies only where events are "truly beyond . . . control."] But the analysis is governed by the statute: whether the contractor "reasonably should not have known" it was unlicensed, not if it was literally barred from such knowledge. (Former Bus. & Prof. Code, § 7031, subd. (e).) As for Judicial Council, it confirms licensing is strictly construed; it does not reach statutory substantial compliance. (Judicial Council, at p. 894 [contractor's license lapsed and while parent company intended to transfer contract, there was no evidence it did so before lapse; reversing verdict for contractor, due to lack of compliance, but remanding for hearing under Bus. & Prof. Code, § 7031, subd. (e)].) --------
We conclude Plaintiffs have not established the court erred in determining Defendants established substantial compliance under Business and Professions Code section 7031, subdivision (e). We also reject Plaintiffs' contention that the trial court should determine Dickerson's fees as a prevailing party under Civil Code section 1717, which is moot in light of our disposition.
III. Parties' Arguments Regarding Disposition
As set forth ante, we reverse only on the remedy election issue. Defendants request that we remand for certain posttrial proceedings and entry of judgment consistent with the special verdict. Plaintiffs contend that "[i]f the judgment were reversed because the trial court did not appropriately reconcile the jury's findings, then a new trial on Bill and Paradiso's damages would be required," and likewise seek posttrial proceedings. We are reversing because the findings do not support Dickerson's remedy election, not because the trial court erred in reconciling them, and we reject the request for a new trial. Further posttrial proceedings may be warranted, but the trial court is in the best position to determine those which are necessary and appropriate.
DISPOSITION
The judgment is reversed, in part, and the trial court is directed to deny Dickerson's request for election of remedy and to conduct further posttrial proceedings as the court determines is necessary and appropriate for entry of judgment. In all other respects, the judgment is affirmed. In the interests of justice, the parties are to bear their own costs on appeal.
BENKE, Acting P. J. WE CONCUR: IRION, J. GUERRERO, J.