Opinion
G060837 G061192
08-02-2023
MANNI GREEN TECH USA, INC., Plaintiff and Respondent, v. PINNER CONSTRUCTION CO., INC. et al., Defendants and Appellants.
Kellam Law Corporation, Newton W. Kellam, and Hall R. Marston for Defendants and Appellants. Lanak & Hanna and Mark D. Johnson for Plaintiff and Respondent.
NOT TO BE PUBLISHED
Appeal from a judgment and amended judgment of the Superior Court of Orange County, No. 30-2020-01122366 Robert J. Moss, Judge. Affirmed.
Kellam Law Corporation, Newton W. Kellam, and Hall R. Marston for Defendants and Appellants.
Lanak & Hanna and Mark D. Johnson for Plaintiff and Respondent.
OPINION
GOETHALS, ACTING P. J.
Defendants Pinner Construction Co., Inc. (Pinner or general contractor) and Hartford Fire Insurance Company (Hartford or surety, collectively with Pinner, Defendants) appeal from the trial court's entry of judgment in favor plaintiff Manni Green Tech USA, Inc. (Manni or subcontractor). The trial court found, after a two-day bench trial, that Manni was entitled to recover under Defendants' payment bond and related Civil Code statutory provisions governing a public school construction project. Defendants dispute the trial court's finding that Manni provided work or services for the project consisting of certain schematics and drawings (submittals) covered by the bond, and they challenge the court's conclusion they did not establish a "promissory estoppel" defense they asserted against payment. We find neither contention has merit under the standards governing our appellate review; we therefore affirm the judgment.
FACTUAL AND PROCEDURAL BACKGROUND
In early 2019, after Pinner entered into a contract with the Anaheim Unified High School District (AUSD) to serve as the general contractor on a junior high school modernization project (Project), Pinner posted a payment bond (the bond) for the Project. (Civ. Code, § 9550, subd. (a).) Pinner was the principal and obligor on the bond, AUSD the obligee, and Hartford, which issued the bond, the surety.
All further undesignated statutory references are to the Civil Code.
Pinner contracted with a sole proprietor steel contractor, Willie Graham, Jr. Welding (Graham), for certain steel services for the Project; Graham contracted out much of that work to Manni. The scope of Manni's work included supplying the structural steel components of the Project and the design drawings for those elements. Graham's company and iron workers would then erect the steel components in two so called "increments." Increment 1 consisted of updating several buildings on the property; in Increment 2, several new buildings would be constructed.
At trial, Manni provided testimony and exhibits showing it provided materials and services for the Project worth more than $100,000. This included all of the structural steel and related submittals for Increment 1, except an omitted portion that Manni credited to Pinner. Factoring in the credit, Manni claimed it was owed approximately $98,500.
The largest component of the unpaid work was the Increment 2 submittals (drawings) Manni delivered to Pinner, valued at just over $65,000. Since Pinner terminated its contract with Graham in late June 2019, Manni was not called upon to deliver any of the Increment 2 steel to Pinner. Manni, however, had already submitted to Pinner its "shop drawings," schematics, and 3D models for the Increment 2 steel twice. This including revised versions after the Project architect, on May 17, 2019, "ask[ed] Willie Graham and [Manni] to revise and resubmit [them]," which they did on May 28, 2019.
The parties stipulated that Manni was "within the class of persons entitled to make a claim on the bond," and further that Manni timely filed suit to recover under the bond.
Manni's principal witness during the bench trial was Jerry Mikolajczyk, a consultant who performed services for both Graham and Manni including, as the trial court found, "acting as overall project manager for [their role in] the steel aspect of the project. Mr. M testified that Manni prepared and delivered to Pinner drawings for Increment 2, including 3D models, that were worth $65,000 according to a schedule of values Pinner and Manni had previously agreed upon for the work.
The trial court dubbed Mikolajczyk "Mr. M," which the parties used as his name throughout the trial and on appeal, and by which we refer to him as well for consistency. We intend no disrespect.
The trial court heard from several defense witnesses. There was no evidence presented that indicated Manni's revised drawings for Increment 2 could not be used in the Project provided they were updated from metric measurements to Imperial equivalents. Instead, once Pinner terminated its contract with Graham, it turned to another steel contractor (Mulhauser), which prepared revised drawings for Increment 2 using Imperial units of measure.
In lieu of closing arguments during the COVID-19 pandemic, the parties submitted closing briefs. In their brief, Defendants argued Manni's recovery, if any, was "limited to the reasonable value of services and materials provided." (Capitalization and underlining omitted.) Specifically, Defendants asserted that "[w]ith regard to [the] Increment 2 shop drawings, Manni would not be entitled to any recovery because the shop drawings were not used by Mulhauser or Pinner for any purpose, had not been accepted by the Project owner, violated the Imperial System [as opposed to metric measurements] requirement of the subcontract and had to be redone."
The trial court issued a detailed minute order explaining its judgment in favor of Manni. The court summarized the factual background of the case briefly as follows:
"This [is] an action on a statutory public works payment bond by a second tier supplier of structural steel, Manni[,] against the general contractor, Pinner . . . and its surety, Hartford ....
"Pinner entered into a subcontract with non-party [Graham] for the installation of steel components for the project. The subcontract required Graham to post a performance and payment bond. Graham entered into a subcontract with plaintiff Manni to supply the steel and provide other services, including creation of drawings and models. Graham was a financially modest company without vast resources, whereas Manni was part of a large consortium of Italian companies with substantial financial resources.
"Also involved in the project was non-party independent contractor [Mr. M] who performed services for both Graham and Manni .... He communicated with Pinner as the project got underway, sometimes on behalf of Graham and sometimes on behalf of Manni.
"The project commenced in the spring of 2019. Manni provided drawings and models to Pinner related to the steel components on the project and also delivered steel components to the jobsite. Mr. M testified to the quantity and value of the steel delivered to the site and the value of the services ....The court found Mr. M's testimony very credible.
"On June 21, 2019, Pinner terminated the subcontract with Graham as Graham had failed to post the performance and payment bond required by the subcontract with Pinner. While Pinner did not directly contract with Manni, the termination of the Graham subcontract necessarily ended Manni's subcontract with Graham to supply steel and other services. Manni has never been paid for the services and material supplied prior to Graham's termination. The project was still not completed as of the time of trial."
The trial court addressed Defendants' assertions that "plaintiff's claims are limited to the reasonable value of the services and materials provided" and that they were "entitled to an equitable set-off based on promissory estoppel."
The trial court acknowledged "there was evidence submitted by defendant that the value of plaintiff's claims were not reasonable." Nevertheless, the court "considered that evidence and finds that the evidence from Mr. M as to the value of the materials and services provided was more credible."
Furthermore, "with respect to the argument that defendant is entitled to an equitable off-set because of Mr. M's representations about Manni's willingness to financially support Graham, the court found any comments in that regard did not rise to the level of a 'clear and unambiguous promise.' There was no detail as to what extent Manni would be willing to provide such support. As for Mr. M's statement that there would be no problem bonding Graham, it would be unreasonable for Pinner to rely on this general statement of opinion. Moreover, there was evidence that Manni did try to assist Graham in obtaining the bond, but Pinner and Manni could not come to terms on this effort. Finally, when Mr. M made the statements attributed to him, it was unclear whether he was acting as a representative of Graham, Manni, or himself."
The trial court entered judgment in favor of Manni for approximately $98,500, plus prejudgment interest of more than $20,000, "for a total judgment of $118,561.10." The court also found Manni was the prevailing party and therefore entitled to attorney fees under the governing public works statutory provision (§ 9564).
Defendants now challenge the judgment in favor of Manni; they also challenge the amended judgment which adds attorney fees plus costs in light of their offer of compromise, but solely in the event they obtain reversal of the judgment.
DISCUSSION
1. Standard of Review
Defendants concede the deferential substantial evidence standard governs our review. Specifically, "the appellate court's power begins and ends with a determination of whether there is any substantial evidence-contradicted or uncontradicted-to support the trial court's findings." (Schmidt v. Superior Court (2020) 44 Cal.App.5th 570, 582.) Appellants, particularly those persuaded by the strength of their own evidence, sometimes fail to grasp the effect of this rule. Conflicting evidence-even if the appellant regards it as overwhelming-"'is not weighed.'" (9 Witkin, Cal. Procedure (6th ed. 2023) Appeal, § 390.) To the contrary, "All of the evidence most favorable to the respondent must be accepted as true, and that unfavorable discarded as not having sufficient verity to be accepted by the trier of fact. If the evidence so viewed is sufficient as a matter of law, the judgment must be affirmed." (Ibid., quoting Estate of Teel (1944) 2 Cal.2d 520, 527.)
Here, since neither Defendants nor Manni requested a statement of decision, "[t]he doctrine of implied findings requires the appellate court to infer the trial court made all factual findings necessary to support the judgment." (Fladeboe v. American Isuzu Motors Inc. (2007) 150 Cal.App.4th 42, 58 (Fladeboe).)
2. Value of Manni's Increment 2 Services: Claim of Non-Performance
Defendants contend the trial court could not reasonably conclude Manni was entitled to recover under their payment bond for the revised Increment 2 submittals that Manni gave Pinner. They advance two arguments: that "Manni's submittals for Increment 2 were not authorized, because they were prepared according to metric, not Imperial standards," and, "[f]urther, they were not used because they were never approved by the Owner/School District's architect." (Italics added.)
As we discuss, the trial court was entitled to view these contentions as inextricably intertwined, namely that if Manni's submittals were not approved it was because they were in one unit of measurement rather than another. On this question, there was no evidence this alleged defect in performance was material, or that it could not easily be rectified as Manni proposed.
We begin our analysis with Defendants' assertion that "[a]n action by a material-supplier on [a] public works payment bond is essentially a breach of contract action." We agree. As the authority cited by Defendants explains, "A surety's liability under a public works payment bond arises when a contractor fails to pay for work performed by materialmen or subcontractors under the contract." (Oldcastle Precast, Inc. v. Lumbermens Mutual Casualty Co. (2009) 170 Cal.App.4th 554, 563, italics added.)
Defendants argue that Manni's performance was deficient because "[c]ontractually there was a requirement that the performance of the work [i.e., the submittals] had to be done in Imperial measurements in lieu of metric." As such, Defendants contend "Manni's submittals for Increment 2 were not authorized . . . because they were [in] metric, not Imperial standards." In essence, Defendants' closing argument, which they renew on appeal, was that Pinner, and hence also Hartford as the surety, were justified in denying Manni recovery under the payment because Manni "violated the Imperial System requirement of the subcontract and [it] had to be redone." Pinner then hired Mulhauser to redo the work.
The flaw in this argument is evident under a basic contract analysis which focuses on the materiality of an alleged breach. Pinner and Hartford excuse their inadequate performance under the bond (i.e., failing to pay Manni as a subcontractor) because Manni committed a material breach of its contractual obligations and, therefore, was not entitled to payment. What Pinner fails to acknowledge is that not every performance discrepancy constitutes a material breach.
"Whether a breach is material is usually left to the trier of fact 'to determine from all the facts and circumstances shown in evidence.'" (Schellinger Brothers v. Cotter (2016) 2 Cal.App.5th 984, 1002 (Schellinger).) Materiality "depends on 'the importance or seriousness [of the breach] and the probability of the injured party getting substantial performance.'" (Brown v. Grimes (2011) 192 Cal.App.4th 265, 278.)
After considerable performance, as here when Manni performed work worth $65,000 on the Increment 2 drawings, a slight breach that does not go to the heart of the contract will not justify its termination. (1 Witkin, Summary of Cal. Law (11th ed. 2017) Contracts, § 877; Sackett v. Spindler (1967) 248 Cal.App.2d 220, 229.)
Since Defendants did not request a statement of decision, under the doctrine of implied findings, we must presume the trial court did not find the unit of measurement discrepancy to be a material breach. Perhaps that was because there was evidence Manni cured the alleged unit of measurement breach in two respects. Mr. M testified that in response to a May 17, 2019 notation from the Project architect to "revise and resubmit" its initial submittals for Increment 2, Manni did just that on May 28, 2019 with conversion tables so that the architect "could compare the European metric units to Imperial."
Mr. M also testified that "the decision was made to supply all the steel with ASTM certification purchased out of the U.S. [¶] So we were not going to pursue supplying any steel from Italy." (Manni's parent company was based in Italy.) The trial court could infer that U.S.-sourced steel would be provided with Imperial measurements rather than metric ones, thus curing or rendering immaterial the earlier breach. On appeal, we must conclude the trial court made this implied finding (Fladeboe, supra, 150 Cal.App.4th at p. 58) and that, as a result, the court found any breach created by using metric measurements was nonmaterial (Schellinger, supra, 2 Cal.App.5th at p. 1002).
The trial court in making such a finding was entitled to rely on the purpose of a general contractor and surety's performance bond. "Under the principle of sovereign immunity, mechanics' liens may not be asserted on government projects." (Liton Gen. Engineering Contractor, Inc. v. United Pacific Insurance (1993) 16 Cal.App.4th 577, 584.) Hence, the statutory performance bond requirement serves as a substitute, including its surety requirement. (Ibid.; see §§ 9550, subd. (a), 9554, subds. (a), (b).) "In addition to protection of the public entity from liability for a defaulting contractor, the purpose of the surety bond is to provide a distinct remedy to public works subcontractors and suppliers of labor or materials to public works projects." (Liton, at p. 584.) In light of this remedial purpose, the payment bond obligation "shall be construed most strongly against the surety and in favor of all persons for whose benefit the bond is given." (§ 8154, subd. (a).) These purposes support the trial court's ruling in favor of Manni.
We also conclude the trial court's implied nonmateriality finding is supported by the factual background which underlies Defendants' alternative argument to bar Manni from recovery under the bond. Defendants argued below and on appeal that Manni was not entitled to payment because the Project architect did not "approve" Manni's Increment 2 drawings.
Defendants nowhere in their opening brief support their claim that the relevant contract between Graham and Manni required Project architect approval of Manni's submittals. Defendants state in their reply brief that Manni agreed in its subcontract with Graham that it was entitled to payment "only after the Project 'has been fully completed in conformity with the Prime Contract and has been delivered to and accepted by Owner and Architect....'" (Defendants' italics.).
The evidence at trial, however, suggested that it was Pinner rather than the architect that did not "approve" Manni's May 28, 2019 resubmission of its Increment 2 drawings. The architect did not review the resubmission until July 17, 2020, which was more than a year after Pinner terminated its contract with Graham in June 2019. At that late date in July 2020 when the architect finally reviewed Manni's drawings, a "Note" in a "Comments" section stamped on the resubmission indicates the architect marked Manni's May 28, 2019 submittals as "'Void.'" Following the "Void" designation was a further notation, apparently added by the architect, stating: "No Italian steel per GC correspondence." (Italics added.)
While these notations are subject to differing interpretations, under our standard of review on appeal, we must conclude they mean that the "GC," i.e., Pinner as the general contractor, made the decision not to use the Italian steel supplier, Manni, for the Project, and that its submittals were therefore "Void" based on that decision. In other words, our record supports the conclusion that Pinner effectively rejected the new submittals, not the architect. Supporting this view is another note or comment regarding the resubmission, presumably again made by the architect: '"Contractor to confirm all steel conforms to ASTM standards."' This suggests the architect was still open to the possibility that Manni's submittals, now based on U.S.-sourced steel and corresponding Imperial measurements, could be used in the Project.
Viewing the evidence in the light most favorable to the judgment, and also in light of the history of the strained relationship between Manni and Pinner over Graham's failure to obtain a bond to guarantee its performance, the trial court could infer that any failure to approve Manni's drawings and pay for them had less to do with Defendants' post hoc justifications, and more to do with Pinner punishing Manni for Graham's bonding failure-rather than any material defect in Manni's submittals. This strained history was revealed during the testimony at trial related to Defendants' claim of promissory estoppel as a defense to paying Manni for its work.
A performance bond issued in favor of Graham would guarantee reimbursement to Pinner in the event it had to hire a substitute subcontractor if Graham failed to perform its subcontract obligations.
3. Promissory Estoppel
Defendants contend the trial court erred in rejecting their promissory estoppel defense. We are not persuaded.
A promissory estoppel claim is, essentially, "equivalent to one for breach of contract." (US Ecology, Inc. v. State of California (2005) 129 Cal.App.4th 887, 903 (US Ecology II).) Not all promises rise to the level of an enforceable contract. "A promise is not enforceable unless consideration was given in exchange for the promise." (US Ecology, Inc. v. State of California (2001) 92 Cal.App.4th 113, 128.)
Promissory estoppel is an equitable doctrine under which one party's reliance on a promise by the other party is deemed to "'"to satisfy the requirement that consideration must be given in exchange for the promise sought to be enforced."'" (US Ecology II, supra, 129 Cal.App.4th at p. 901.) The elements of a promissory estoppel claim include a promise that is ""clear and unambiguous in its terms'" and that reliance by the party asserting estoppel "'must be both reasonable and foreseeable.'" (Ibid.) The trial court reasonably could find Defendants' promissory estoppel claim foundered on the first requirement.
As background, Pinner's contract with Graham required that Graham provide a bond to ensure its "faithful performance of this subcontract." State law authorizes such a requirement in public works contracts: "The direct contractor [with the public entity] may require that a subcontractor give a bond to indemnify the direct contractor for any loss sustained by the direct contractor because of any default of the subcontractor under this section." (§ 9554, subd. (d).) Defendants on appeal do not tell us the bond amount Pinner required from Graham, nor its terms. The record shows, however, that one of the requirements was that the bond was to be issued by a commercial surety, and therefore clearly not Manni or its parent company or anyone associated with Manni. To the contrary, the Pinner-Graham contract required that the requisite bond or bonds "are to be executed by a surety company or companies with an A.M. Best Rating of 'A-' or better and authorized to execute such bonds in the State of California." Neither Manni nor its affiliates were in the surety business.
As further background, Pinner and Graham executed their subcontract on May 2, 2019. Graham ultimately could not provide the required indemnification for the bonding company, which, in turn, declined to issue a bond. By June 21, 2019, as stipulated by Manni and Defendants in a joint statement of stipulated facts before trial, "Pinner terminated the [subcontract with Graham] based on Graham's failure to provide payment and performance bonds required by [that subcontract]."
The flaw in Defendants' appellate challenge is that they do not identify a timely promise by Manni that meets the requirements of promissory estoppel. The core of Defendants' promissory estoppel claim is that Pinner would not have entered into the contract with Graham, and therefore would never have become obligated to Manni for any submittals, but for a promise by Mr. M on Manni's behalf. In other words, they relied on that promise, which they claim "induce[d] such action," namely "entering the Pinner/Graham subcontract."
As a preliminary matter, the causative chain Defendants rely on is a long and winding one. So long and so winding, in fact, that Pinner's argument appears to be inconsistent with the purpose of a general contractor's payment obligation when a subcontractor has provided work for a public works project. But we need not reach this issue because Defendants do not meet their appellate burden to show reversible error. (Denham v. Superior Court (1970) 2 Cal.3d 557, 564.) Absent such a showing, we must presume the judgment is correct. (Ibid.)
At trial Defendants relied largely on Mr. M's alleged "'no problem' promise" as the foundation for their promissory estoppel arguments. But at Defendants' record cite for this alleged promise, Mr. M states that, "at that time," which the context of his testimony indicates was after Pinner entered into the subcontract with Graham and after Graham's bond application "was rejected, . . . then we tried to step in behind and support Willie Graham getting the bond." Pinner therefore could not have relied on this alleged promise to enter the Pinner-Graham subcontract because it postdated that contract.
At oral argument, Pinner seemed to move away from its reliance on the "'no problem' promise" as the basis for its promissory estoppel theory. We can find no prior "promise" which would support Pinner's promissory estoppel defense.
Defendants cite an e-mail as an additional basis for their promissory estoppel claim; they claim they relied on Mr. M's statement in the e-mail that "Bonding is not an issue ...." That e-mail, however, was dated May 10, 2019, and therefore also could not provide a reliance foundation on which Pinner entered its contract with Graham because it had already entered that contract on May 2. Nor does Defendants' reference to exhibit 18, in which they say a schedule of values Mr. M transmitted to Pinner included "the cost of a 'steel contractor bond,'" support their claim they relied on Mr. M's alleged "no problem" statement to enter the Pinner-Graham contract.
These chronological defects in Defendants' appellate argument illustrate the conceptual flaw in their promissory estoppel claim. The chronology demonstrates Pinner could not have entered the Pinner-Graham subcontract based on Mr. M's cited "'no problem' promise" because that promise postdated the Pinner-Graham subcontract. The evidence also shows Pinner did not rely on Mr. M's alleged "no problem" binding offer after the Pinner-Graham subcontract was already in force. To the contrary, Pinner went ahead and terminated the subcontract for lack of a performance bond. While it was entitled to do so under the terms of that contract, the evidence Pinner cites on appeal does not show it relied on the "'no problem' promise" in any way, which is the defining element of the promissory estoppel claim.
In the end it appears that, in an attempt to salvage the Pinner-Graham subcontract (and thereby preserve its ability to continue to perform its sub-subcontract with Graham by providing the steel for Increment 2 in addition to the submittals it delivered), Manni offered to, in effect, self-finance security for Pinner by securing, at Manni's expense, a $250,000 letter of credit in Pinner's favor. Pinner instead demanded a $500,000 cash deposit; while the parties were negotiating these terms, it terminated Graham's subcontract. Pinner did what it was entitled to do; but consistent with the trial court's denial of the promissory estoppel defense, Defendants have not identified a promise that was "clear and unambiguous in its terms" that was reasonably relied upon by Pinner. Defendants' bid for reversal on that basis therefore must fail.
DISPOSITION
The judgment and amended judgment are affirmed. Manni is entitled to its costs on appeal.
WE CONCUR: MOTOIKE, J., DELANEY, J.