Opinion
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
APPEAL from a judgment of the Superior Court of Los Angeles County. Cesar C. Sarmiento, Judge, Los Angeles County Super. Ct. No. SC070363
Manly, McGuire & Stewart, John C. Manly and Steven I. Hochfelsen for Defendant and Appellant.
Murtaugh Meyer Nelson & Treglia, Robert T. Lemen and John R. Armstrong for Plaintiff and Respondent.
WOODS, J.
Lincoln Santa Monica Limited Partnership, LP (“Lincoln”) appeals from a judgment entered upon a jury verdict in favor of respondent, HNTB Design/Build, Inc. (“HNTB”) in litigation arising out of the construction of a multi-million dollar apartment complex. Lincoln claims the trial court erred in awarding HNTB breach of contract damages, statutory penalties pursuant to sections 3260 and 3260.1 of the Civil Code and attorney fees. Specifically, it claims: (1) the jury did not make the necessary factual findings in its special verdict to support an award for breach of contract damages, statutory penalties or attorney fees; and (2) the jury instructions concerning the statutory penalties were legally erroneous. As we shall explain, none of these contentions warrants a reversal of the judgment. Consequently, we affirm.
All statutory references are to the Civil Code unless otherwise indicated.
FACTUAL AND PROCEDURAL HISTORY
Lincoln retained HNTB to design and serve as the general contractor for a 350-unit apartment complex in Santa Monica. Pursuant to the original multi-million dollar contract for the project entered in 1998, Lincoln agreed to make progress payments to HNTB during the construction. The 1998 contract also allowed Lincoln to retain 10 percent of the amount due under the progress payment until the time when the certificate of “Substantial Completion” issued.
During the course of the construction, HNTB submitted 42 progress payment applications to Lincoln. Lincoln paid HNTB the first 40 requests, and pursuant to the retention provision in the contract, withheld $2,354,320 in retention proceeds.
In 2001, a dispute arose during the construction, which ultimately resulted in the parties entering into a limited settlement agreement (the “Settlement Agreement”) which modified the original contract, including the construction and payment schedule. The Settlement Agreement indicated that as for September 2001, the unpaid balance under the original contract, including “retention” was $4,327,402.16. The Settlement Agreement labeled this unpaid amount as the “Contract Sum Balance” and indicated that it would be paid pursuant to a revised “Schedule of Values” on a percentage basis as the remaining work was completed and accepted by Lincoln.
The project was substantially complete, with notices and certificates of occupancy and completion filed in late October 2001.
This notwithstanding, Lincoln continued to withhold $2,354,320 based on its claim that a number of the apartment units had developed moisture and mold problems. Lincoln believed the heating, ventilation and air conditioning system had caused the problem. Lincoln looked to HNTB and its HVAC sub-contractor, Atlas Mechanical, Inc. who designed and built the HVAC system to Lincoln’s specifications, to remedy the problem and “upgrade” the HVAC system. A dispute arose between the parties as to whom was responsible to pay for the upgrade. In February 2002, Lincoln’s experts estimated the fix would cost approximately $875,000.
Atlas Mechanical, Inc. filed a lawsuit against HNTB and Lincoln for various claims including breach of contract. Atlas’s complaint was consolidated with the lawsuit filed by HNTB. Atlas received a judgment in its favor against Lincoln. Atlas is not a party to this appeal.
The repair estimate was refined and in spring 2004 when Lincoln began the upgrade the cost estimate was $527,631.
On February 4, 2002, HNTB met with Lincoln to discuss final punch list items and the mold issue. As a result of this meeting, the withheld payment balance was reduced to $2,141,820, and the only remaining issue was who was responsible for the mold conditions.
In late September 2002, HNTB filed suit against Lincoln for the unpaid balance owed under the contract. HNTB asserted claims for breach of contract and statutory penalties, interest and attorney fees under the “Prompt Payment Statutes” (section 3260 and 3260.1.), which provide for a 2 percent per month late payment penalty for “wrongfully withheld” progress payments and “improperly withheld” retention payments. Lincoln filed a cross-complaint against HNTB and Atlas for the cost of repairs and upgrade of the HVAC system.
The HVAC upgrade was completed in early August 2004 and at that point Lincoln paid HNTB $916,769. Thereafter in March 2005, Lincoln paid HNTB an additional $54,767 to reduce the unpaid balance to $1,170,284 at the time of trial.
Prior to trial the parties entered into several stipulations. They stipulated that as of February 4, 2002, the remaining contract balance Lincoln owed HNTB was $2,141,820; that HNTB sued Lincoln for breach of contract claiming that Lincoln unjustifiably failed to pay this balance and that it suffered harm by Lincoln wrongfully withholding those funds for an unreasonable amount of time and that Lincoln denied these claims. This stipulation/statement of the case was read to the jury at the outset of the trial. (See May 8, 2007, Request for Judicial Notice, Exh. A.)
The parties also stipulated that HNTB’s right to recover statutory interest and payment penalties (under sections 3260 and 3260.1) would depend on the evidence presented at trial and the findings of the jury. Nonetheless, they also agreed that the amount of the penalties and interest, if any, would be calculated by the trial court in post-trial proceedings.
At the conclusion of the trial, the jury entered a special verdict in favor of HNTB. Specifically the jury found that: (1) Lincoln breached its contract with HNTB; (2) Lincoln wrongfully withheld $2,141,820 from HNTB from February 4, 2002, until August 6, 2004; (3) even after Lincoln paid HNTB $916,769 on August 6, 2004, Lincoln continued to wrongfully withhold $1,225,051; (4) even after Lincoln paid HNTB $54,000 on March 4, 2005, Lincoln continued to wrongfully withhold $1,170,284. The jury further found that Atlas did not negligently design or build the original HVAC system; HNTB did not breach its contract with Lincoln and that neither Atlas or HNTB breached any express warranty for the project’s HVAC system.
Post trial HNTB filed a motion to recover interest, statutory penalties and attorney fees in accord with the pre-trial stipulation. Lincoln opposed the motion, arguing with respect to the prompt payment statutes that these penalty statutes did not apply because the money withheld did not qualify as either retention or progress payments and that the jury’s verdict did not support any such conclusion. Lincoln also filed a motion for a new trial and JNOV, claiming the damages were excessive, inconsistent with the findings made by the jury and that substantial evidence did not support the verdicts. The court denied Lincoln’s motions and granted HNTB’s motion awarding attorney’s fees under sections 3260, 3260.1 and 1717 and statutory penalties under sections 3260 and 3260.1. The trial court entered judgment for HNTB.
Lincoln timely appeals.
DISCUSSION
I. HNTB’s Request for Dismissal of the Appeal
Prior to assessing the merits of the issues raised on appeal, we address HNTB’s request that we reinstate our prior dismissal of Lincoln’s appeal based on HNTB’s contention that this court no longer had jurisdiction to act when the appeal was reinstated.
Lincoln filed a notice of appeal on August 22, 2005. On December 8, 2005, this court dismissed the appeal pursuant to California Rules of Court, rule 8.140 based on Lincoln’s failure to procure the record on appeal. The notice dismissing the appeal apprised Lincoln that: (1) the order of dismissal would become final in 30 days (i.e., January 7, 2006) and thereafter would not be subject to rehearing or modification; and (2) that a motion to reinstate the appeal had to be filed within 15 days of the order (i.e., December 23, 2005). On January 11, 2007, Lincoln filed a motion to stay issuance of the remittitur, vacate the dismissal, grant relief from default and reinstate the appeal. On February 7, 2007, HNTB filed an opposition to the motions. On February 9, 2007, this court vacated the dismissal of the appeal, granted relief from default and ordered the appeal reinstated.
Specifically, Lincoln’s manner of designating of the reporter’s transcript failed to comply with the rules of court.
In its respondent’s brief HNTB asserts this court had no authority to reinstate the appeal because the remittitur issued (or should have issued) prior to the court’s February 9, 2007, ruling on Lincoln’s motion, thereby depriving this court of jurisdiction to act. We do not agree.
A remittitur does not arise by operation of law; it is not “deemed” issued after an expiration of a certain amount of time. “The remittitur is deemed issued when the clerk enters it in the record.” (Cal. Rules of Court, rule 8.272 (d).) While the rules of court direct the clerk to immediately issue the remittitur based upon the occurrence (or non-occurrence) of various events described in rule 8.272, the clerk’s failure to issue the remittitur does not result in its automatic issuance. (See Cal. Rules of Court, rule 8.272.) Thus, HNTB’s argument that the remittitur “should have” issued prior to the court’s order granting relief, misses the point. The remittitur was not issued in this case prior to the court’s order granting the requested relief.
Moreover, this court’s jurisdiction to act does not cease until the remittitur is actually issued. Until then this court has authority to stay the issuance of the remittitur (Cal. Rules of Court, rule 8.272 (c)) and grant relief from default (Cal. Rules of Court, rule 8.60(d) [“[f]or good cause, a reviewing court may relieve a party from default for any failure to comply with these rules except the failure to file a timely notice of appeal . . . .”]). (See In re Martin (1962) 58 Cal.2d 133, 137 [where the appeal had been dismissed but the remittitur had yet to issue, the Supreme Court found the court of appeal still had “some” jurisdiction to render relief to reinstate the appeal].)
The default resulting from the failure to procure the record on appeal, may be vacated upon a showing of good cause. (Cal. Rules of Court, rule 8.140(b)(1).)
This court also has authority, under certain circumstances to recall a remittitur. (Cal. Rules of Court, rule 8.272(c).)
In view of the foregoing we reject HNTB’s invitation that we reinstate the prior dismissal of the appeal.
II. Contentions on Appeal
On appeal, Lincoln asserts the court erred in awarding breach of contract damages, statutory penalties pursuant to sections 3260 and 3260.1 and attorney fees. Specifically, it claims the court’s award of contract damages was not supported by the jury’s verdict. In addition, Lincoln claims the jury did not make the necessary findings to support the application of sections 3260 and 3260.1. Finally, Lincoln claims the court gave the jury a legally inadequate and erroneous jury instruction on the prompt payment statutes.
A. Standard of Review
Lincoln appeals from the judgment as well as the order denying it a new trial and JNOV. While this court may review orders concerning new trials for abuse of discretion, any determination underlying the order is generally scrutinized under the test appropriate for that determination. Here, the underlying issues on appeal—the interpretation of the special verdict, and whether the jury instructions misstate the law—are analyzed de novo. (See City of San Diego v. D.R. Horton San Diego Holding Company, Inc. (2005) 126 Cal.App.4th 668, 678; People v. Posey (2004) 32 Cal.4th 193, 218.)
B. Breach of Contract Award
On appeal, Lincoln asserts the court erred in awarding HNTB $1,170,284 in breach of contract damages because the jury’s verdict does not contain any specific factual findings as to the amount of breach of contract damages. We do not agree.
Determination of this issue requires an examination of the special verdict. A special verdict is “that by which the jury find the facts only, leaving the judgment to the [c]ourt. The special verdict must present conclusions of fact as established by the evidence, and not the evidence to prove them; and those conclusions of fact must be so presented as that nothing shall remain to the [c]ourt but to draw from them the conclusions of law.” (Code Civ. Proc., § 624.) When a special verdict is used the court cannot make factual findings or supplant those made by the jury. Nonetheless the court is empowered to interpret the special verdict from its language, considered in connection with the pleadings, evidence and instructions. (Woodcock v. Fontana Scaffolding and Equipment Co. (1968) 69 Cal.2d 452, 456; Irelan-Yuba gold Quartz Mining Co. v. Pacific Gas & Electric, Co. (1941) 18 Cal.2d 557, 570; Fernandez v. Consolidated Fisheries, Inc. (1953) 117 Cal.App.2d 254, 263.)
Here the jury specifically found that Lincoln “breached its contract with HNTB by not paying money due HNTB for its work on the project.” The jury also found that after making two partial payments to HNTB in August 2004 and March 2005, Lincoln “wrongfully” withheld $1,170,284. At trial the parties stipulated that the amount at issue on the contract was $2,141,820—the amount that HNTB claimed it was owed on the contract as of February 2002. This stipulation effectively removed the amount of contract damages from the jury’s consideration. (Heppler v. J.M. Peters Company, Inc, (1999) 73 Cal.App.4th 1265, 1286 [where the parties stipulate to matters there is no matter left for the jury to resolve]; Wilson v. Mattei (1927) 84 Cal.App. 567, 572 [when an issue is admitted by stipulation, findings of fact become unnecessary].) Here the jury was asked only to decide whether Lincoln’s refusal to pay the contract balance constituted a “breach.” Having answered that question in the affirmative; it was simply a matter for the jury to deduct the amount of the partial contract payments to arrive at the amount still owed on the contract, namely, $1,170,284—the amount the court thereafter awarded HNTB for breach of contract. That the special verdict described this amount as “wrongfully” withheld rather than specifically using the terms “amount of contract damages,” does not change the analysis. A fair and reasonable interpretation of the jury’s special verdict in light of the evidence and stipulations presented to them supports the court’s award for breach of contract damages.
C. The Prompt Payment Statutes
Lincoln asserts two claims with respect to the court’s order awarding HNTB statutory penalties under sections 3260 and 3260.1. First Lincoln asserts the jury instructions concerning the issue whether Lincoln withheld payments from HNTB in violation of sections 3260 and 3260.1 misstated the law. Second Lincoln claims the special verdict returned by the jury did not support the trial court’s subsequent award of penalties and attorney fees pursuant to sections 3260 and 3260.1.
Before assessing the merits of these contentions, however, we turn to two preliminary matters raised by HNTB: (1) the parties stipulated the trial court had the final say on whether to award penalties and fees under the prompt payment statutes, and thus Lincoln’s attacks on the sufficiency of the instruction and the verdict are essentially immaterial; and (2) Lincoln cannot complain about the jury instructions or the special verdicts on appeal because of waiver and/or invited error.
1. Court’s Order
The first preliminary matter we address before reaching the merits concerns an implication raised in HNTB’s counter arguments on appeal, namely, that Lincoln’s complaints about the section 3260/3260.1 jury instruction and the special verdict are irrelevant in view of the parties’ stipulation to allow the trial court to be the final arbiter on the issue of whether to award penalties and fees under the prompt payment statutes. In our view this suggestion overstates the degree of autonomy granted the trial court in this matter.
In the trial court, the parties stipulated that HNTB’s right to recover statutory interest and payment penalties (under §§ 3260 and 3260.1) would depend on the evidence presented at trial and that the jury would make a finding as to whether Lincoln wrongfully withheld payment from HNTB. The parties also agreed that the trial court would decide, after the jury’s verdict, how much interest, penalties, fees and costs, if any, would be awarded. The purpose of the stipulation was to avoid presenting to the jury accounting and financial expert witness evidence concerning how to calculate recoverable interest and statutory penalties.
The court’s power under the stipulation was fairly limited. Indeed the court’s ability to act stemmed from the jury’s verdict and its findings. If the jury had concluded that Lincoln had not wrongfully withheld payments from HNTB, the court would have had no basis upon which to award the statutory penalties. Likewise given its circumscribed role, the court would not, in connection with a post-trial motion for an award of fees and penalties, have had any power to disregard the jury’s finding that Lincoln had wrongfully withheld payment. The court’s authority, in view of the stipulation, was to apply and interpret the jury’s verdict, determine the “prevailing party” for the purpose of attorney fees and to assess the accounting and financial evidence to arrive at the statutory penalty. Thus, HNTB’s effort to re-characterize the issues on appeal to whether “substantial evidence” supports the court’s findings with respect to the statutes is inapt.
2. Waiver and Invited Error
HNTB also argues Lincoln cannot complain about the jury instructions on appeal because they invited the error by stipulating to proposed instruction and by participating in its drafting. HNTB also asserts Lincoln waived any complaint about the special verdict by failing to object to it below before the jury was discharged.
First, with respect to the instruction, we note Code of Civil Procedure section 647 provides, in pertinent part, that the trial court's “giving an instruction, refusing to give an instruction, or modifying an instruction requested . . . are deemed to have been excepted to.” (See Mock v. Michigan Millers Mutual Ins. Co. (1992) 4 Cal.App.4th 306, 333-334.) Thus, the failure to object to a legally erroneous jury instruction does not result in waiver of the matter on appeal. (Huffman v. Interstate Brands Companies (2005) 121 Cal.App.4th 679, 705-706.) “[W]hen a trial court gives a jury instruction which is prejudicially erroneous as given, i.e., which is an incorrect statement of law, the party harmed by that instruction need not have objected to the instruction or proposed a correct instruction of his own in order to preserve the right to complain of the erroneous instruction on appeal. [Citation.]” (Suman v. BMW of North America, Inc. (1994) 23 Cal.App.4th 1, 9.)
While waiver principles do not apply to the failure to object to legally incorrect instructions, a complaint that a jury instruction is incomplete or overbroad is waived on appeal if not asserted below. (Agarwal v. Johnson (1979) 25 Cal.3d 932, 948 [“It is settled that a party may not complain on appeal that an instruction correct in law is too general or incomplete unless he had requested an additional or qualifying instruction.”], overruled on another ground in White v. Ultramar, Inc. (1991) 21 Cal.4th 563, 574, fn. 4.)
This notwithstanding, “‘[w]here a party by his conduct induces the commission of error, he is estopped from asserting it as a ground for reversal’ on appeal.” (Norgart v. Upjohn Co. (1999) 21 Cal.4th 383, 403.) The invited error doctrine requires affirmative conduct demonstrating a deliberate tactical choice on the part of the challenging party. (Huffman v. Interstate Brands Companies, supra, 121 Cal.App.4th at p. 706.) Neither the failure to object to an instruction or even an express acceptance of an incorrect jury instruction results in invited error. (See, e.g., Pappert v. San Diego Gas & Electric Co. (1982) 137 Cal.App.3d 205, 212-213 [court concluded invited error doctrine did not apply where party asserting error on appeal withdrew their objection to an improper instruction]; People v. Majors (1998) 18 Cal.4th 385, 408-409 [defendant could not challenge failure to give lesser-related offense instruction when defense counsel chose not to give the instruction]; People v. McPeters (1992) 2 Cal.4th 1148, 1191, fn. 2 [defendant could not challenge his proffered instruction on appeal].) In contrast, where the record demonstrates that an instruction is jointly requested, then the invited error doctrine applies and thus a claim of error cannot be asserted on appeal. (Gherman v. Colburn (1977) 72 Cal.App.3d 544, 567 [“A party may not complain of the giving of instructions which he has requested.”].)
HNTB claims Lincoln initially objected to the first version of HNTB’s proposed instruction pertaining to sections 3260 and 3260.1—the “Wrongfully Withheld Payments” special instruction. Thereafter according to HNTB, counsel for both parties met and conferred off the record on the instructions and jointly drafted a final version of the “Wrongfully Withheld Payments” instruction which incorporated certain language Lincoln wanted presented to the jury. Later when the court met with counsel, all parties indicated that they stipulated to the instructions, including the final version of the Wrongfully Withheld Payments instruction which Lincoln now assails on appeal.
Lincoln asserts, however, it did nothing more than stipulate to the instruction.
The record before this court at least implicitly supports HNTB’s position. The record contains declarations of HNTB’s counsel attesting to Lincoln’s participation in drafting the final version of the instruction. In addition, a comparison between the first version of the “Wrongfully Withheld Payments” special instruction proposed by HNTB and the final version reveals that the final version of the instruction contains language (though not the language Lincoln now attacks on appeal) supporting Lincoln’s theory of the case. Specifically, it set forth Lincoln’s theory that the prompt payment statutory scheme did not apply because Lincoln did not withhold any “retention” payment as required to trigger the statutory penalty. [“Lincoln however claims that the parties’ Limited Settlement Agreement changed Lincoln’s payments obligations such that it no long[er] withheld retention payments from HNTB, which HNTB disputes.”] In view of the foregoing, it appears Lincoln joined with HNTB to offer the final version of the “Wrongfully Withheld Payments” special instruction. Lincoln’s conduct implies it made the tactical choice to permit the erroneous instruction, and thus should not be heard to complain about the instruction now.
With respect to the special verdict we note that the doctrine of invited error and waiver also apply. (See Myers Building Industries, Limited v. Interface Technology, Inc. (1993) 13 Cal.App.4th 949, 960, fn. 8 [invited error in context of a special verdict]; Moore v. Preventive Medicine Medical Group (1986) 178 Cal.App.3d 728, 746 [waiver of complaint about special verdict waived where complaining party requested the instruction and failed to object even after the jury returned the verdict]; Lynch v. Birdwell (1955) 44 Cal.2d 839, 851 [waiver applied where party failed to object to form of verdict prior to discharge of jury]; see Cal. Rules of Court, rule 3.1580 [“Whenever a party desires special findings by a jury, the party must, before argument, unless otherwise ordered, present to the judge in writing the issues or questions of fact on which the findings are requested, in proper form for submission to the jury, and serve copies on all other parties.”].)
The record is not clear, however, as to which party drafted the special verdict. It does appear, however, that Lincoln and HNTB did confer concerning the special verdict and that Lincoln did not object to it either before it was submitted to the jury or after the verdict was returned. So arguably, Lincoln’s failure to seek clarification and or correction could be viewed as a waiver of the matter on appeal.
In any event, even were we to find the invited error doctrine and waiver did not apply here, as we shall explain, the instruction was not legally erroneous and the special verdict was not insufficient to support the court’s award of statutory penalties or attorney fees.
3. Adequacy of the Jury Instruction
Lincoln asserts the “Wrongfully Withheld Payments” instruction erroneously informed the jury that it could find a violation of section 3260 and/or 3260.1 if it found Lincoln negligently or “unreasonably” withheld payments. Lincoln maintains, however, that the statutory scheme requires a finding that the owner acted intentionally in “bad faith” in order to trigger the statutory penalty.
A determination of whether the “Wrongfully Withheld Payments” special instruction misstated the law requires that we read the instruction as a whole with the view of interpreting the entire relevant law. (See Tele-Count Engineers v. Pacific Telephone and Telegraph Company (1985) 168 Cal.App.3d 455, 463 [“A jury instruction must be read as a whole and interpreted in a manner ‘which will support rather than defeat the judgment if it is reasonably susceptible to such interpretation.’” [Citations omitted.].)
First turning to the statutes at issue. Section 3260, concerning withholding “retention payments,” provides in pertinent part:
“(b) The retention proceeds withheld from any payment by the owner from the original contractor . . . shall be subject to this section.
“(c) Within 45 days after the date of completion, the retention withheld by the owner shall be released. ‘Date of completion,’ . . . means . . . In the event of a dispute between the owner and the original contractor, the owner may withhold from the final payment an amount not to exceed 150 percent of the disputed amount. . . .
“(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.
“(f) Within 10 days of receipt of written notice by the owner from the original contractor or by the original contractor from the subcontractor, as the case may be, that any work in dispute has been completed in accordance with the terms of the contract, the owner or original contractor shall advise the notifying party of the acceptance or rejection of the disputed work. Within 10 days of acceptance of the disputed work, the owner or original contractor, as the case may be, shall release the retained portion of the retention proceeds.
“(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.” (Civ. Code, § 3260; italics added.)
Section 3260.1, the “progress payment” statute provides in pertinent part:
“Except as otherwise agreed in writing, the owner shall pay to the contractor, within 30 days following receipt of a demand for payment in accordance with the contract, any progress payment due thereunder as to which there is no good faith dispute between the parties. In the event of a dispute between the owner and the contractor, the owner may withhold from the progress payment an amount not to exceed 150 percent of the disputed amount. If any amount is wrongfully withheld in violation of this subdivision, the contractor shall be entitled to the penalty specified in subdivision (g) of Section 3260.” (Civ. Code, § 3260.1; italics added.)
The “Wrongful Withheld Payments” special instruction read to the jury provided:
“HNTB Design/Build, Inc. [‘HNTB’] claims that Lincoln Santa Monica Limited Partnership [‘Lincoln] unreasonably withheld payment of money due HNTB at the conclusion of the project. “During this trial you will hear reference to the terms ‘progress payments’ and ‘retention payment.’ Regarding retention payments, it is common on construction projects for the contract to allow the owner to withhold a specified percentage of the contract amount from the payment otherwise due the contractor. The amount withheld is referred to as ‘retention’, and the final payment of that amount is referred to as the ‘retention payment.’ All payments other than the final payment of the retention are referred to as either ‘installment’ payments or ‘progress’ payments, which simply means they are payments for work performed as the project progresses prior to payment of the retention amount.
Except as otherwise agreed in writing, the owner shall pay to the contractor any progress payment due within thirty days after the contractor’s written demand for payment.
“The owner also shall pay to the contractor all retention proceeds within forty-five days after the Notice of Completion is issued for the project. The Notice of Completion for the Arboretum project was issued on October 19, 2001. Lincoln however claims that the parties’ Limited Settlement Agreement changed Lincoln’s payments obligations such that it no long [sic] withheld retention payments from HNTB, which HNTB disputes.
“If there is a good faith dispute between the owner and contractor over the amount of a progress payment due the contractor or the amount of retention proceeds due the contractor, the owner may withhold from that payment up to 150% of the amount reasonably in dispute. However, if the owner has unreasonably withheld any payment from the contractor, or if the owner has withheld more than 150% of the amount reasonably in dispute, then the owner has wrongfully withheld payment from the contractor under law.
“If you find that Lincoln wrongfully withheld payment from HNTB, then you shall determine the amount that was unreasonably withheld and the time period during which payment was wrongfully withheld.” (Italics added.)
The special instruction does equate “unreasonableness” with an absence or lack of “good faith.” Thus the question remains whether in the context of this statutory scheme such an equation is legally erroneous. Lincoln maintains that it is, asserting the statutes require a finding of intentional “bad faith” and that the instruction at issue set the threshold too low, essentially allowing the jury to impose the statutory penalties based on a negligence standard of reasonableness.
Because the terms at issue in sections 3260 and 3260.1, namely, “good faith” and “bona fide” are not specifically defined in the statutes, the parties look to unrelated legal contexts such as criminal law, family law, insurance law and the commercial code as well legislative history to support their respective arguments. Lincoln specifically looks to criminal law (the law of manslaughter) to argue that an absence of good faith is not demonstrated by unreasonableness. Lincoln argues that to apply the statutory penalty, the jury must find something more than unreasonableness; and instead suggests the jury must find intentional, willful and dishonest conduct.
In October 2006 Lincoln requested that this court take judicial notice of the legislative history of sections 3260 and 3260.1, and we hereby grant the request. (Evid. Code, § 459; Hale v. Southern California IPA Medical Group. Inc. (2001) 86 Cal.App.4th 919, 927.)
HNTB relies on, among other things, a Commercial Code definition of good faith, Commercial Code section 1201 [“Good faith. . . means honesty in fact and the observance of reasonable commercial standards of fair dealing”], to support its claim that an absence of good faith can be demonstrated where a party acts unreasonably.
In our view, reliance on law cases and statutory definitions outside this particular legal context is not necessary. Guidance as to the meaning of good faith and lack of good faith can be gleaned from the statutes and case law analyzing them.
Preliminarily it appears sections 3260 and 3260.1 intend the terms “bona fide dispute” and “good faith” to mean the same thing. Indeed cases interpreting these statutes use these terms and others, including “bad faith” and “unjustifiably” interchangeably, as apparent equivalents. (See Taylor v. Van-Catlin Construction (2005) 130 Cal.App.4th 1061, 1068-1070.)
In Denver D. Darling, Inc. v. Controlled Environments Construction, Inc. (2001) 89 Cal.App.4th 1221 (Darling), the court considered whether a subcontractor was entitled to attorney fees under section 3260, subdivision (g), in its dispute with a general contractor over withheld retention proceeds. During the construction of a concrete floor a dispute arose between the contractor and its sub-contractor over the contractual specifications concerning the “flatness” of the concrete floor constructed by the subcontractor. The trial court found an ambiguity existed in the parties’ contract with respect to the “flatness” requirement and awarded the subcontractor its withheld retention, but denied its request for the statutory penalties and attorney fees under section 3260, concluding that each party’s interpretation of the contract specifications were “reasonable.” (Darling, supra, 89 Cal.App.4th at p. 1238.)
In its cross appeal, the subcontractor argued, among other things, that the trial court erred in denying it statutory penalties under section 3260 based on a finding that the dispute between the parties arose out of a “reasonable” albeit different view of the contract. The court of appeal found the trial court did not abuse its discretion in finding the parties had a “reasonable” disagreement. (Darling, supra, 89 Cal.App.4th at p. 1239.) The court of appeal further concluded that where each party to the dispute acts “reasonably” then the dispute between them can be logically characterized as a “bona fide dispute” for the purposes of section 3260. (Id., at pp.1240-1241.)
In view of the Darling court’s conclusion that “reasonable” disagreement is one that also connotes a “bona fide” dispute, we cannot say that the court here erred in instructing the jury that “reasonableness” was the proper legal measure for assessing good faith under the prompt penalty statutes. Nothing in the relevant statutes, case law or the legislative history requires any other particular standard. While the “Wrongfully Withheld Payments” special instruction could certainly have been supplemented with additional clarifying language concerning the good faith/bona fide dispute standard, the instruction given, as far as it went, was not an incorrect statement of the law.
4. Sufficiency of the Special Verdicts
Lincoln also claims that the special verdict returned did not support the trial court’s subsequent award of penalties and attorney fees pursuant to sections 3260 and 3260.1. Lincoln maintains that the jury did not make the prerequisite underlying findings to support the application of the prompt penalty statutes. Specifically the jury did not find that: (1) the monies withheld by Lincoln were either “retention” or “progress payments” and (2) the withholding was “improper.” As we shall explain, in our view the verdict was sufficient to support the court’s order of statutory penalties and fees.
As discussed in Lincoln’s argument concerning whether the contract damages award was supported by the verdict, while a jury must resolve all of the ultimate facts presented to it in the special verdict, so that nothing shall remain to the court but to draw from them conclusions of law (Myers Building Industries, Limited v. Interface Technology, Inc., supra, 13 Cal.App.4th 959), the trial court may interpret the jury’s special verdict from its language in connection with the evidence, pleadings and instructions. (Woodcock v. Fontana Scaffolding and Equipment Co., supra, 69 Cal.2d at p. 456.)
The special verdict returned by the jury made express findings, including that Lincoln breached the contract with HNTB by not paying money due HNTB for its work and that Lincoln “wrongfully” withheld “payment.” It also set forth the time periods during which the payments were wrongfully withheld and the amounts withheld. The special verdict does not contain an express finding that the withheld payments were either “retention” or “progress payments,” nor does it use the term “improper” in characterizing the nature of the withholding.
Notwithstanding the absence of such express findings, the verdict when construed in the context of the jury instruction on “Wrongfully Withheld Payment” and the theories and evidence presented at trial supports the trial court’s finding application of the prompt penalty statutes based on the verdict.
HNTB proceeded at trial on the theory that the withheld payments were either retention or progress payments. It presented evidence that the original contract had provisions for progress payments and retention and that Lincoln made progress payments during construction and withheld retention, until September 2001 when a dispute arose during the construction, which ultimately resulted in the parties entering into a “Settlement Agreement” which modified the original contract, including the construction and payment schedule. The Settlement Agreement indicated that as for September 2001, the unpaid balance under the original contract, including “retention” was $4,327,402.16. The Settlement Agreement labeled this unpaid amount as the “Contract Sum Balance” and indicated that it would be paid pursuant to a revised “Schedule of Values” on a percentage basis as the remaining work was completed and accepted by Lincoln. HNTB also presented evidence that Lincoln’s subsequent payments under the Settlement Agreement were characterized by Lincoln as “retainage” payments.
Lincoln, however, proceeded during the trial on the theory that the Settlement Agreement eliminated “retention” and “progress payments” such that any withholding could not qualify as wrongful under the prompt payment statutes.
Each of these theories was presented to the jury and was addressed in the “Wrongfully Withheld Payment” instruction. The instruction defined “retention” and “progress payments.” The instruction also apprised the jury of Lincoln’s contention that the withheld payments were no longer “retention” payments. [“Lincoln however claims that the parties’ Limited Settlement Agreement changed Lincoln's payments obligations such that it no long[er] withheld retention payments from HNTB, which HNTB disputes.”]
It further described the circumstances under which a withholding of a “retention” and “progress payments,” could be considered wrongful. [“Ifthere is a good faith dispute between the owner and contractor over the amount of a progress payment due the contractor or the amount of retention proceeds due the contractor, the owner may withhold from that payment up to 150% of the amount reasonably in dispute. However, if the owner has unreasonably withheld any payment from the contractor, or if the owner has withheld more than 150% of the amount reasonably in dispute, then the owner has wrongfully withheld payment from the contractor under law.” (Italics added.).] Finally it told the jury that if it found the payments to be “wrongfully” withheld, then it also had to determine the amount withheld and the time period of wrongful withholding. [“If you find that Lincoln wrongfully withheld payment from HNTB, then you shall determine the amount that was unreasonably withheld and the time period during which payment was wrongfully withheld.” (Italics added.).]
On appeal Lincoln asserts that notwithstanding the evidence presented at trial and the instruction, the verdict cannot be read so as to conclude that the jury’s finding Lincoln wrongfully withheld payments demonstrated the jury concluded the withheld payments qualified as retention or progress payments. Lincoln asserts that instruction as presented to the jury was ambiguous; it left open the possibility that the jury believed that the withheld monies were neither progress payments nor retention. In connection with the post trial motion for the statutory penalties the trial court rejected this argument, concluding “the jury found [Lincoln] wrongfully withheld payments. Whether you characterize them as progress payments or retainage payments, I don’t know what other category there can be for the jury to have found that there were wrongfully withheld payments.” In our view, the trial court correctly assessed the situation.
While the instruction could have been made clearer, it is not hopelessly ambiguous. As written, the instruction links the issue of whether wrongful withholding occurred to a finding that the payments constituted unpaid retention and/or progress payments. As the trial court aptly noted “[b]efore the jury can find that there was a wrongful withholding, because of the instructions they were given and because of the arguments made by counsel and the facts of trial, they had to necessarily find it was either retention or progress payment.” The trial court’s conclusion reflects a fair and common sense interpretation of the special verdict based on the evidence, argument and the instruction. In our view, the instruction left no room for any third category of wrongfully withheld payments, which are not governed by the prompt payment statutes. Having found the payments were “wrongfully” withheld indicates the jury rejected Lincoln’s characterization of the payments as something other than retainage or progress payments.
“If the verdict is ambiguous the party adversely affected should request a more formal and certain verdict. Then, if the trial judge has any doubts on the subject, he may send the jury out, under proper instructions, to correct the informal or insufficient verdict. But where no objection is made before the jury is discharged, it falls to the trial judge to interpret the verdict from its language considered in connection with the pleadings, evidence and instructions. Where the trial judge does not interpret the verdict or interprets it erroneously, an appellate court will interpret the verdict if it is possible to give a correct interpretation. If the verdict is hopelessly ambiguous, a reversal is required, although retrial may be limited to the issue of damages.” [Citations, fn. and internal quotation marks omitted.] (Woodcock v. Fontana Scaffolding and Equipment Co., supra, 69 Cal.2d at pp. 456-457.)
Similarly, we reject Lincoln’s argument that the award of penalties under section 3260 was erroneous because the jury failed to make a separate finding that the withholding was “improper.” The prompt payment statutes use the terms “wrongfully” and “improperly” seamlessly and interchangeably. These terms as used in this context are essentially synonymous. Thus, the jury’s finding that the withholding was wrongful is sufficient to support an award of penalties and fees under section 3260.
In view of the foregoing we conclude the special verdict supported the court’s order awarding penalties and attorney fees under the prompt payment statutes, sections 3260 and 3260.1.
Lincoln’s challenge to the award of attorney fees is dependent on its other claims which have been rejected herein.
DISPOSITION
The judgment is affirmed. Respondent is entitled to its costs on appeal.
We concur: JOHNSON, Acting P.J. ZELON, J.