West Bay Builders, Inc. v. Kamran & Co., Inc.

Full title: WEST BAY BUILDERS, INC., Cross-complainant, Cross-defendant and…

Court: California Court of Appeals, Third District, Sacramento

Date published: Aug 6, 2009

No. C056362 (Cal. Ct. App. Aug. 6, 2009)

Opinion

WEST BAY BUILDERS, INC., Cross-complainant, Cross-defendant and Respondent, v. KAMRAN & COMPANY, INC., Cross-defendant, Cross-complainant and Appellant. C056362 California Court of Appeal, Third District, Sacramento August 6, 2009

NOT TO BE PUBLISHED

Super. Ct. No. 03AS02735

SIMS, J.

This dispute arises out of a public works project in which contractor West Bay Builders, Inc. (West Bay) hired subcontractor Kamran & Company, Inc. (Kamran) to install food service equipment in a facility operated by the State of California (State). In February 2002, the State experienced problems with the equipment that went unresolved and eventually prompted suit against West Bay. West Bay in turn sued Kamran for breach of contract and indemnification due to Kamran’s refusal to provide warranty repairs or a defense against the State’s lawsuit. Kamran cross-complained against West Bay for withheld payment on the project and against equipment manufacturer, Carrier Corporation. The trial court dismissed Carrier Corporation on summary judgment--a ruling that Kamran has not appealed. After the State and West Bay reached a settlement agreement, only the dispute between West Bay and Kamran remained.

Following a bench trial, the trial court ruled that (1) Kamran had a contractual duty to make repairs in February 2002, (2) Kamran also owed West Bay a duty to defend and indemnify it against the State’s lawsuit, (3) West Bay did not unlawfully retain payment for Kamran’s portion of the work, (4) Kamran was not entitled to prejudgment interest, and (5) Although West Bay owed Kamran $3,369 from retained funds, West Bay was entitled to contractual attorney fees as the prevailing party.

On appeal, Kamran contends that (1) its warranty obligations expired before the demand for repairs in February 2002, (2) it had no duty to defend or indemnify West Bay because the State demanded repairs based on a settlement agreement to which Kamran did not agree, (3) West Bay unlawfully retained payment to which Kamran was undisputedly entitled, (4) Kamran should have been awarded prejudgment interest on the wrongfully withheld payment, and (5) Kamran was the prevailing party because it secured the net monetary recovery in the judgment.

We conclude that the trial court reached the correct result. However, we rely on different grounds than the trial court in determining that Kamran had a duty to make repairs in February 2002. Kamran’s subcontract with West Bay imposed the “greater duty” to make warranty repairs whenever guarantees in the prime and subcontract differed in scope or duration. The one-year warranty in the prime contract, upon which Kamran relies, began to run when the equipment was put in use. However, that warranty does not negate the subcontract’s guarantee that Kamran would provide warranty repairs for one year after acceptance of the work by the State. The State did not accept the work until June 2001, less than a year before the February 2002 demand for repairs. Kamran therefore breached its warranty in the subcontract.

Because we reach the same result as the trial court on the question of Kamran’s duties to repair and indemnify, we agree with the trial court’s conclusions regarding entitlement to prejudgment interest, and the prevailing party determination for purposes of attorney fees and costs. We also agree with the trial court that Kamran is not entitled to penalties for West Bay’s retention of payment while a bona fide dispute was pending. Accordingly, we shall affirm.

FACTUAL AND PROCEDURAL HISTORY

The trial court issued a comprehensive statement of decision following a three-day court trial. The statement of decision, with appropriate deletions and additions, follows:¹

1 Brackets together, in this manner [ ] without enclosing material, are used to indicate deletions from the trial court’s statement of decision; double brackets enclosing material are used to denote our additions. (See, e.g., Municipal Court v. Superior Court (Gonzalez) (1993) 5 Cal.4th 1126, 1129 & fn. 1.) Footnotes in the trial court’s statement of decision that have been retained are sequentially renumbered for this opinion. (See, e.g., O’Hare v. Superior Court (1987) 43 Cal.3d 86, 90.) For the sake of continuity, we partially omit the trial court’s capitalization of the parties’ names.

The Court is called upon to resolve a contractual dispute arising out of an approximate $9 million construction project known as the Yountville Veterans Home Kitchen Remodel (the Project) during the 1997 to 2002 time frame. [[The State]] entered into a construction contract with [[West Bay]], the general contractor. West Bay in turn entered into a series of Subcontracts, including the one here at issue with [[Kamran]]. Kamran was hired to furnish and install certain food service equipment in exchange for $1,569,029.00. [ ]

The key contract documents (“Contract”) were admitted as Trial Exhibits.[²] They include Exhibits 1 (Prime Contract), 2 (Subcontract between West Bay and Kamran), 3 (Project Manual Book One, index only), 4 (General Conditions of Contract from Project Manual), 5 (Section 00800 Supplemental Conditions from Project Manual Book One), 6 (Section 11400 Food Service Equipment from Project Manual Book One), 7 (Main Kitchen Itemized Specifications) and 8 (Holderman Hospital Itemized Specifications).

2 Kamran designated all of the exhibits admitted at trial to be copied into the clerk’s transcript, and the parties extensively cite these exhibits in their briefs. However, the clerk’s transcript does not contain any of the trial exhibits. Although some documents are attached to pleadings as “exhibits,” these are not the duly admitted trial exhibits upon which the trial court relied in its statement of decision.

Things did not go well on the project and there were disputes between the State and West Bay, as well as between West Bay and Kamran, among others.

State and West Bay entered into two settlement agreements relevant to the instant action.

On June 12, 2001, West Bay and State entered into the first written settlement agreement resolving all disputes except those relating to the walk-ins and refrigeration units installed by Kamran under the Subcontract. The State paid West Bay $477,494 for various additional work, minus certain amounts related to another Subcontractor’s stop notice. This settlement agreement also provided that the State would retain $126,002 of West Bay’s retention, half of which ($63,001) related to Kamran’s Subcontract and would be retained “until successful completion of the walk in cooler repairs.” The other half would be released when certain specified Operation and Maintenance Manuals regarding kitchen equipment and as-built drawings were submitted. [ ] Over time, there had been a series of problems with the refrigeration units, including but not limited to defective fan coils, sagging ceiling panels, insufficient or poor quality caulking and the intrusion by rodents. A number of issues remained with these units up to and after the first settlement agreement was signed in June 2001. It was undisputed at trial that all the refrigeration units were in place no later than May of 1999 and some were in use as early as the summer of 1999, while others were not in use until the early winter of 2000. (Emphasis added)³

3 The significance of these items will be discussed infra but are important to triggering the obligations of the parties.

Of importance to this action is the language contained in Section 3.E of the June 15, 2001 Settlement Agreement [ ] between West Bay and the State. It states in relevant part:

“the State and [West Bay] agree that the warranty for the walk-ins coolers [[sic]] shall run for two (2) years from the date the modifications are complete and accepted by the State.” [ ]

This language undisputedly extended the general warranty language found in the original Contract documents, at least as between West Bay and the State. However, Kamran was not a party to the negotiations, terms or 2001 settlement agreement and asserts in this trial that it cannot be bound by this subsequent modification.

West Bay and the State also agreed that the further remedial work for the walk in coolers would be subject to “a reasonable punch list” from the State. The settlement agreement did not specify which of the walk-in coolers were covered by the new warranty agreement. Lacking such specification, the Settlement Agreement language arguably appeared to cover all walk-in coolers.

It is undisputed that Kamran was not a party to the June 2001 settlement agreement between the State and West Bay, nor did it have knowledge of it. Kamran was not consulted prior to the above referenced language being agreed upon and accepted by the State and West Bay.

At trial, West Bay asserted that as of the date of the Settlement Agreement on June 15, 2001, the State had fully “accepted the work” under the contract and the contract was complete, save and except for the items referenced in the settlement agreement. Acceptance of the Contract or acceptance of the work, just like the date certain equipment is put in use, sets the outside time limits under which West Bay and Kamran are required to provide warranty and/or repair work under various warranty, guarantee and indemnification provisions in the Contract.

On November 20, 2001, West Bay sent a letter to the State advising the State that West Bay believed all work on the Project, including the identified exceptions in the June 15, 2001 Settlement Agreement, was complete. [ ] West Bay requested final release of all funds held in retention by the State. The State released the retention on or about March 20, 2002. [ ] Therefore, as far as the State and West Bay were concerned, the two year warranties regarding the walk-ins [ ] referenced in [ ] the June 15, 2001 Settlement Agreement began to run no sooner than November 20, 2001 and no later than March 20, 2002. The express warranty period would end, therefore, at the earliest November 19, 2003, and at the latest March 19, 2004, at least as between West Bay and State.

In February 2002, the State reportedly discovered leaks in seven coils in the walk-ins. The Court finds that Kamran and West Bay were made aware of the problem and therefore on notice through various correspondence. On or about May 13, 2002, the State sent a letter informing West Bay of the leaks and demanding repair. A copy of the May 13 letter was forwarded to Kamran on May 15, 2002. It was apparent from the correspondence and subsequent litigation that State was relying on the two-year extended warranty provisions in the 2001 settlement when it demanded repair.

Kamran declined to repair or replace the coils, asserting that its warranty obligation with respect to the coils had expired under the original Contract documents and provisions. Kamran relied on paragraph 1.7 in the Supplementary Conditions (Section 11400-Food; Service Equipment[ ]), which called for only a one-year warranty period commencing upon the earlier of the date the equipment was put into use or the date the equipment was accepted by the State Architect. (Emphasis added.) All parties agreed the original refrigeration equipment was “in use” no later than March 2000. So, Kamran asserted, by February 2002 it no longer had any responsibility to repair the equipment. It did not recognize the June 2001 Settlement Agreement between West Bay and the State as binding on it.

Neither West Bay nor Kamran replaced the coils.

Ultimately, the State replaced the coils and, in [[sic]] May 15, 2003, the State filed suit against West Bay to recover the funds expended in the remedial work. In its complaint, the State called the defects “latent” and referred to the June 2001 Settlement Agreement as the relevant contract document. West Bay tendered defense of the State’s complaint through its attorneys to Kamran on August 27, 2003 [ ]. Kamran refused the tender. When Kamran refused the tender, West Bay cross-complained against Kamran on November 4, 200[[3]], and Kamran cross-complained against West Bay on December 26, 2003.

In October, 2005, State and West Bay settled. In this second settlement agreement, West Bay paid the State $80,000.00. An itemization of the State’s alleged damages [ ] indicates that the State expended $818.14 for food and/or product loss; $31,669.35 for refrigerant, $27,969.10 for repair labor costs; and another $21,638.65 for parts. The total claimed was $82,094.24, plus attorney fees.[⁴] West Bay signed the $80,000 Settlement Agreement on November 29, 2005. The State signed on November 28, 2005.

4 The total of these itemized costs should be $82,095.24 rather than $82,094. The record does not reveal whether the State or the trial court miscalculated the sum. We shall use the correct sum when discussing the extent of West Bay’s costs in Part II, below.

West Bay offered evidence at trial that in addition to the $80,000, it cost $13,635.28 to defend and settle the suit with the State. West Bay also introduced testimony by its in-house counsel regarding her reasonable attorney fees and costs in overseeing and/or being involved in resolving the litigation with the State. This later amount was stated as $9,500. It therefore claimed a total of $103,135.28 in indemnification costs against Kamran.

On November 22, 2005, West Bay offered Kamran $13,130.48 from its $106,854.48 retention, or $106,854.48, minus the $80,000 paid to the State, minus $13,715.00 paid to outside counsel, minus the additional $9,500 in attorney fees allegedly incurred by West Bay’s in-house counsel. Kamran rejected the payment as insufficient[ ] and West Bay did not tender the $13,635.28.

To date, West Bay has not released any of the retention withheld from Kamran. The parties stipulated at trial that West Bay is holding $106,848.48 of Kamran’s contract in retention.

Thus, the issues before the Court arise out of the various contract documents and settlement agreements that govern the relationship between State, West Bay and Kamran. The Court is called upon to read, consider and interpret the various documents and provisions in light of the facts presented at trial, and to determine who owes what to whom; identify the prevailing party; and award attorney fees, penalties and/or prejudgment interest as appropriate.

The Pleadings

West Bay’s action against Kamran is premised on the express indemnification language and guarantees in various provisions of the contract with the State that are made binding on Kamran through its Subcontract, as well as other general covenants and indemnification language contained in the Kamran Subcontract. West Bay’s legal theories are breach of contract and express indemnification. West Bay seeks indemnification for the $80,000 it paid to the State for the State’s repairs, as well as its attorney fees in defending against the State’s action. It also seeks prejudgment interest and its attorney fees as the prevailing party under the Subcontract for prosecuting its cross-action against Kamran. West Bay recognizes that any judgment in its favor must be reduced by the amount of funds it currently holds in retention, i.e., $106,854.48.

Kamran’s cross action against West Bay is premised upon breach of its Subcontract with West Bay and specifically, the retention payment provisions. In the alternative, Kamran seeks damages under the theory of quantum meruit. Kamran seeks return of the entire retention in the amount of $106,854.48, plus pre-judgment interest and a 2 percent penalty for improper withholding of retention payment pursuant to Business & Professions Code section 7108.5.⁵ Kamran’s closing brief also makes reference to Public Contract[[ ]] Code section 7107(d), ⁶ as well as its attorney fees and costs pursuant to the express terms of the contract documents.

5 B & P section 7108.5 reads as follows: A prime contractor or Subcontractor shall pay to any Subcontractor, not later than 10 days of receipt of each progress payment, unless otherwise agreed to in writing, the respective amounts allowed the contractor on account of the work performed by the Subcontractors, to the extent of each Subcontractor’s interest therein. In the event that there is a good faith dispute over all or any portion of the amount due on a progress payment from the prime contractor or Subcontractor to a Subcontractor, then the prime contractor or Subcontractor may withhold no more than 150 percent of the disputed amount.

6 § 7107. Release of retention after completion; Payment of Subcontractors’ share [[Emphasis omitted.]]

Relevant Contract Provisions

With respect to the original agreement dated October 30, 1996 between West Bay and Kamran, there are many relevant contract provisions in different sections of the component documents that require consideration. They are set out here in full and will be referred to as appropriate later.

1. The General Conditions of the Contract [ ];

a. On page 1, the relevant “Contract Documents” are identified and include “the Agreement, Notice to Contractors, Instructions to Bidders, Proposal, Plans, General Conditions, Supplementary Conditions, Specifications, Contracts Bonds, Addenda, Change Orders and Supplementary Agreements.”

b. The term “work” is defined to include “the furnishing and installing of all labor, materials, articles, supplies and equipment as specified, designated or required by the contract.”

c. Article 17 is entitled “Rejection.” It reads: Should any portion of the work done or any materials, articles, or equipment delivered fail to comply with requirements of the contract, such work, materials, articles, or equipment shall be rejected, and shall immediately be made satisfactory to the State, by Contractor, at no additional expense to the State. Materials, articles, or equipment which are rejected shall immediately be removed from the premises at Contractor’s expense.

d. Paragraph 18, entitled “interpretation of Contractor Requirements” contains the following language:

(a) Correlations: The contract documents shall be interpreted as being complimentary in requiring complete work ready for use and occupancy or, if not to be occupied, operation. Any requirement occurring in any of the documents is binding as though occurring in all.

(b) Conflicts in the Contract Documents: In the event of conflict in the contract documents, priorities stated in subdivisions 1, 2, 3, 4, and 5 below shall govern:

(1) Addenda shall govern over all other contract documents. Subsequent addenda shall govern over prior addenda only to the extent specified.

(2) The General Conditions of the Contract shall govern over all other contract documents except for specific modifications thereto stated in the Supplementary Conditions and except for Addenda.

(3) In case of conflict between plans and specifications, the plans shall govern.

...

(5) In the event where provisions of codes, safety orders, contract documents, referenced manufacture specifications or industry standards are in conflict, the more restrictive and higher quality shall govern.

Paragraph 29 is titled “Occupancy by the State prior to Acceptance.” It reads as follows:

The State reserves the right to occupy all or any part of the project prior to completion of the work, upon written order therefore. In such event, Contractor will be relieved of responsibility to State for injury or damage to such part as results from such occupancy and use by State....

Such Occupancy does not constitute acceptance by State of the work or any portion thereof, nor will it relieve Contractor of responsibility for correcting defective work or materials found at any time before acceptance of the work as set forth in Article 35 or during guarantee period after such acceptance, as set forth in Article 42. However when the project includes several separate buildings and one or more of such buildings is entirely occupied by the State, then on written request of Contractor, the guarantee period will commence to run from date of occupancy of such building or buildings if written consent thereto is obtained by the State architect.

Paragraph 35 deals with final inspection and “acceptance of work.” It reads:

When the work is completed, Contractor shall so certify and shall request final inspection, on form furnished by State. Within ten (10) days of receipt of such certification, State architect shall make final inspection. If, from final inspection, State architect determines that the contract has been completed, he will recommend that the Director formally accept the work. Upon acceptance of the work in writing by the Director, Contractor will be relieved of the duty of maintaining and protecting the work. If State architect determines that the work is not complete after receipt of certification by Contractor, Contractor shall be notified in writing of the deficiencies and procedure for final inspection as set forth above shall again by initiated by Contractor. Neither determination by State Architect that the work is complete nor acceptance thereof by Director shall operate as a bar to claim against Contractor pursuant to Article 42.

Paragraph 42, referenced in both paragraphs 29 and 35, is entitled “Guarantee” and reads as follows:

Contractor hereby unconditionally guarantees that the work will be done in accordance with requirements of the contract, and further guarantees work of the Contractor to be and remain of [[sic]] free of defects in workmanship and materials for a period of one year from date of acceptance of contract, unless a longer guarantee period is specifically called for. Contractor hereby agrees to repair or replace any [[and]] all work together with any adjacent work which may have been damaged or displaced in so doing that may prove to be not in accordance with requirements of the contract or that may be defective in its workmanship or material within guarantee periods specified, without any expense whatsoever to State, ordinary wear and tear, and unusual abuse or neglect accepted. Contract bonds are in full force and effect during the guarantee period.

Contractor further agrees that within ten (10) calendar days after being notified in writing by the Department of any work not in accordance with the requirements of the contract or defects in the work he will commence and prosecute with due diligence all work necessary to full [[sic]] the terms of this guarantee and to complete the work within a reasonable period of time and in the event he fails to so comply he does hereby authorize said Department to proceed to have such work done at Contractor’s expense and he will pay costs of thereof [[sic]] upon demand. The State shall be entitled to all costs including reasonable attorneys’ fees, necessarily incurred upon Contractors refusal to pay the above costs.

Exhibit 5 entitled “Document 00800 Supplementary Conditions” supplements the General Conditions of the Contract. In this document, paragraph 1.18 entitled, “Guarantee, Guaranty, Warrantee, or Warranty” is relevant in that it requires that the following be added to Article 42 of the General Conditions:

References to Guarantee, Guaranty, Warrantee, Warranty in the contract documents shall be deemed to be a reference to the requirements of Article 42 of the General Conditions. Further Guarantee shall typically be understood to mean the Contractor’s assurance that the project complies with Contract requirements. Warranty shall be understood to mean subcontractor, manufacturer or materials suppliers’ assurance that products and services provided meet Contract requirements.

With respect to Exhibits [[sic]] 6 (Section ll400-Food Service Equipment), the parties drew the Court’s attention to paragraph 1.7 “Guarantees and Warrantees.” It reads:

a. Self-contained or remote refrigeration systems furnished under this Contract shall be provided with start up and a one year service contract providing free service, 24 hours per day, seven (7) days per week, including parts and labor. Hermetic or semi-hermetic compressors shall be covered by the manufacturers [[sic]] factory warrantee for an additional four years. Other equipment provided shall include a one year warranty covering parts and labor plus any extended warranties as normally provided by individual manufacturers. Equipment including refrigeration systems both self-contained and remote shall be warranted by the Contractor on the project for one year as indicated in the preceding sentence. The first day of the first year of [[sic]] commences upon the earlier of 1) the date equipment is put into production at the facilities or 2) the date the equipment is accepted by the Architect.

Finally, the Subcontract Agreement between West Bay and Kamran, which was entered into on October 30, 1996, has several relevant paragraphs. These include:

1. Section 1, which states:

SUBCONTRACTOR certifies that it is fully familiar with all of the terms, conditions and obligations of the Contract Documents as hereinafter defined... and that it enters into this Agreement based upon its investigation of all such matter [[sic]] and is in no way relying upon any opinions or representations of CONTRACTOR. This Agreement represents the entire agreement. The Contract Documents are incorporated in this Agreement by this reference, with the same force and effect as if they were set forth at length herein, and that SUBCONTRACTOR and its Subcontractors will be and are bound by any and all of the Contract Documents insofar as they relate in any part or in any way, directly or indirectly to the work covered by this Agreement. SUBCONTRACTOR agrees to be bound to CONTRACTOR in the same manner and to the same extent as CONTRACTOR is bound to OWNER under the Contract Documents, to the extent of the work provided for in this Agreement, and that where, in the Contract Documents, reference is made to CONTRACTOR and the work or specification therein pertains to SUBCONTRACTOR’s trade, craft or type of work then such work or specification shall be interpreted to apply to SUBCONTRACTOR instead of CONTRACTOR. In the event of any conflict between the requirements of the prime contract and this Subcontract, the SUBCONTRACTOR shall be governed by the provisions imposing the greater duty on the SUBCONTRACTOR.

2. “The General Subcontract Provisions,” specifically paragraph “B. Indemnity Provision” states:

All work covered by this agreement and the site of construction or in preparing or delivering materials or equipment or any or all of them to the site shall be at the risk of Subcontractor exclusively. Subcontractor shall, with respect to all work which is covered by or incidental to this agreement, indemnify and hold Contractor harmless from and against all of the following:

(1) Any claim, liability, loss, damage, cost, expenses, including actual attorneys’ and consultants’ fees incurred in good faith, awards, fines, or judgments arising by reason of the death or bodily injury to persons, injury to property, design defects, (if design originated by Subcontractor) Subcontractor’s work, Subcontractor’s performance or non-performance of any or all of the obligations of this agreement, or other loss, damage or expense, including any of the same resulting from Contractors [[sic]] alleged or actual negligence act or omission, regardless of whether such act or omission is passive or active, and

(2) Any [[and]] all claims, liability, loss, damage, costs, expenses, including actual attorneys’ and consultants’ fees incurred in good faith, awards, fines, or judgments arising by reason of obligation or indemnity which Contractor has to owner.

It is expressly acknowledged and agreed that each of the foregoing indemnities is independent and that both shall be given effect. However, Subcontractor shall not be obligated under this agreement to indemnify Contractor with respect to the sole negligence or willful misconduct of Contractor, his agents or servants. The provisions of this paragraph shall be in addition to any other duties and obligations of Subcontractor as set forth in this Agreement.

Section “D” of the General Subcontract Provisions reads, in part:

... Submission of as-built drawings for work performed during the previous progress or final payment period is an express condition precedent to CONTRACTOR’s duty to make any payment for that payment period.

Section “G” of the General Subcontract Provisions reads, in part:

...

It is understood and agreed that the full and faithful performance of this Agreement on the part of SUBCONTRACTOR (including the payment of any obligations due from SUBCONTRACTOR to CONTRACTOR and any amounts due to labor or material suppliers furnishing labor or material for work),... is a condition precedent to SUBCONTRACTOR’s right to receive payment for the work performed.

Section “H” of the General Subcontract Provisions reads, in part:

CONTRACTOR may withhold or, on account of subsequently discovered evidence, nullify the whole or a part of any payment under SECTION 4, to such extent as may be necessary to protect CONTRACTOR from loss, including costs and actual attorneys’ fees incurred in good faith on account of (1) defective work not remedied; (2) claims filed or reasonable evidence indicating probable filing of claims;... (6) failure of SUBCONTRACTOR to complete the contract in accordance with Contract Documents; (7) unsatisfactory performance of the work by the SUBCONTRACTOR.

Section “R” of the General Subcontract Provisions reads:

GUARANTEE-SUBCONTRACTOR guarantees all materials and workmanship and agrees to replace at its sole cost and expense, and to the satisfaction of CONTRACTOR, any and all materials adjudged defective or improperly installed as well as guarantee the OWNER and CONTRACTOR against liability, loss or damage arising from the installation of the work during a period of one (1) year from completion and acceptance of the work covered by the prime contract. If, however, the period of guarantee in the Contract Documents exceeds one (1) year, SUBCONTRACTOR shall be bound during the longer period stipulated. SUBCONTRACTOR shall further guarantee the materials and workmanship of all repair work done pursuant to this provision for a period of eighteen (18) months after the repairs are performed.

Paragraph W reads as follows:

Attorneys’ fees - in the event either Contractor or Subcontractor institute legal proceedings whether by court action, arbitration, or otherwise, against the other party, or against the surety of the other party, in connection with any dispute or matter arising under this agreement, the party prevailing in that proceeding shall be entitled to recover from the other its actual attorneys’ fees incurred in good faith.

3. Addendum C to the Subcontract Agreement makes changes to Section 4, the “Payment Schedule of the Subcontract.” It specifically refers to the payment of retention agreement between the parties.

Section 4 states:

Contractor agrees to pay the Subcontractor monthly payments of ninety-five (95%) percent of labor and materials which have been placed in position and for which the right payment has been properly documented pursuant to the terms of the Agreement. The obligation of CONTRACTOR to make any payment to SUBCONTRACTOR remains subject to the express condition precedent of payment by OWNER to CONTRACTOR therefore, except as to payments withheld by the culpable acts or omissions of the Contractor. No payment made prior to completion and acceptance of the work shall be construed as evidence of acceptance of any part of Subcontractor’s work.

Addendum C adds the following language to Section 4-Payment Schedule:

(1) The “five [[sic]] (5%) percent retention will be paid to Subcontractor upon the completion of each of the phases of the main kitchen and Holderman Hospital and Subcontractor’s retention will not be withheld for final completion of the Project; contingent upon owner’s release of retention for each phase.

*(2) Contractor shall pay Subcontractor within ten (10) days of each progress payment made from the State based on estimates per General Conditions, Article 36 (Condition Upon Receipt of Payment from Owner).

*Contingent upon receipt of payment from owner.

Factual Disputes and Findings

The Court finds the following:

The Project work was performed in the Yountville Veteran’s Home’s (the “Home”) main kitchen, dining hall and Holderman Hospital’s satellite kitchen. There were at least two or more “phases” to the project.

Kamran began its work on the Project in 1997. Its scope of work required it to furnish and install, among other things, certain copper coils (“coils”) as part of the refrigeration systems for the walk-in coolers. As many as seven to twelve walk-in refrigeration units were installed. The original Contract’s Specifications called for Omni-Temp refrigeration systems; however, Kamran substituted refrigeration systems manufactured by Cold Zone with the agreement of the State and West Bay. Kamran also got permission to substitute the original contract specified panels for the walk-in refrigeration units.

The parties stipulated that the last walk in refrigeration unit was installed in May 1999. Kamran[[’s]] position at trial was that the last of the units was put into use in the Summer of 1999. There was evidence at trial that the last of the units was actually put into use in early 2000. Kamran’s counsel asserted that whether the last unit was in use in the summer of 1999 or March of 2000 would make no difference to its legal argument, i.e., that the warranty period had expired and it had no further obligation to repair the units or any part of them in the Spring of 2002.

The units had significant problems. Some were not maintaining their proper temperature; others had improper sealing and caulking or doors not closing properly. Other complaints included poor wiring and evidence that rodents could get into one unit.

In June of 1999, the State reported “bowing” and “flexing” of the floor panels and upon investigation, it was discovered that the aluminum tread plate was thinner than called for in the contract specifications. On or about June 30, 1999, the State’s agent Cini-Little rejected in writing four of the walk-ins and reported additional punch list work for the other units. Rejection is triggered under Art. 17 of the General Conditions of the Contract when the equipment fails to conform to the requirements of the Contract. Rejected materials are required to be removed at the contractor’s expense. The floor panels for these units were not fully replaced until the end of 1999.

As of the end of March 2000, there were still outstanding “punch list” items with respect to the walk in units and the State informed West Bay and Kamran that it had not accepted (emphasis added) Kamran’s work because “there remain major portions of the work unusable by the [State]” [ ]

In May 2000, a defective fan coil in one of the walk in units was replaced.

In December 2000, the State again reported problems with panels in the walk-ins; this time the ceiling panels were sagging and separating from their insulation. In March 2001, West Bay informed Kamran in writing that State had informed West Bay that it would reject all of the walk-in refrigeration units unless all the wall and ceiling panels in the problem units were replaced. Kamran agreed that it would replace the defective panels by May 23, 2001.

The State’s Inspector next complained about the poor quality of the caulking done on several of the units in connection with the panel replacement, and this work was redone on or around May 20-21, 2001. The four walk-ins that were replaced in May 2001 were those identified in the Prime Contract Specifications as C.01, C.03, C.17 and C.19. [ ] The seven Coils that failed were in C.03, C.17, D.01, D.22, E.11, E.16 and L.01. [ ]

In the first half of 2001, West Bay and the State began negotiations regarding West Bay’s claims for additional compensation in connection with the Project and regarding the State’s claims for delay damages.

On June 12, 2001, the State and West Bay entered into a written settlement agreement (the “2001 Settlement”) resolving all disputes, except those relating to the refrigeration walk-in units installed by Kamran [ ]. Section 3.C of the 2001 Settlement provided that the State would retain $126,002 of West Bay’s retention, half of which would be retained “until successful completion of the walk in cooler repairs” and the other half until certain enumerated Operation and Maintenance Manuals and as-built drawings were submitted. Section 3.E of the Settlement Agreement states in relevant part, [[that ]]the State and [West Bay] agree that the warranty for the walk-in coolers shall run for two (2) years from the date the modifications are complete and accepted by the State. [Underscore added.]

On November 20, 2001, West Bay sent a letter to State indicating that West Bay believed its work on the Project was complete and requesting final release of the retention held by the State. The State released West Bay’s final retention on or about March 20, 2002. The parties stipulated that as of that time West Bay was holding $106,854.48 of Kamran’s retention. The Court therefore finds that, at the latest, the State had accepted the contract no later than March 20, 2002, and as early as late November 2001.

In February 2002, State discovered leaks in seven coils in the walk-ins and both KAMRAN and West Bay were made aware of the claims. On or about May 13, 2002, State sent a letter informing West Bay of the leaks and demanding that repairs be made. A copy of State’s May 13, 2002 letter was forwarded to Kamran on May 15, 2002. Kamran refused to repair or replace the coils, asserting that its warranty obligation with respect to the coils had expired. West Bay also refused to make the repairs, because, according to its testimony at trial, it was concerned that hiring another contractor might otherwise void the manufacturer warranties.⁷ Ostensibly, because Kamran refused to repair or replace the coils, West Bay refused to release the $106,854.48 held in retention related to Kamran’s Subcontract.

7 This later point was never satisfactorily explained to the Court, nor was any evidence in support of such a legal argument presented for consideration.

When both West Bay and Kamran failed to perform the work, State replaced the coils and related parts and components and, in May 2003, brought suit against West Bay to recover its damages relating to the remedial work. The State’s complaint asserted various theories against West Bay, including breach of the 2001 Settlement Agreement, and referenced Paragraph 4 B, which reserved any and all claims that may arise out of, or are related to, “latent defects” in the Project and from its construction. The complaint did not specifically recite anywhere within its allegations paragraph 4E of the 2001 Settlement Agreement, which contained the extended two year “warranty” for the walk-in coolers. However, the 2001 Settlement Agreement was appended. The State’s complaint was predicated on the theories of breach of an implied warranty, breach of the covenant of good faith and fair dealing, breach of contract-third party beneficiary, and negligent interference with an economic relationship.

On August 27, 2003, West Bay tendered defense of the State’s complaint to Kamran. It rejected the tender. In October, 2005, West Bay and State settled. State released all of its claims in exchange for $80,000 from West Bay. As referenced above, West Bay put on evidence that it paid attorney fees to outside counsel for defending against the State’s lawsuit in the amount of $13,635.28, and for in-house counsel fees of $9,500.

It is undisputed that Kamran took no part in the negotiation or settlement of this second Settlement Agreement.

On November 22, 2005, West Bay offered Kamran $13,130.48 ($106,854.48 - $80,000 - $13,715) to settle the final amount of any retention and dispute the parties had. West Bay’s letter also lists the $9,500 in attorneys’ fees incurred by its General Counsel in litigating the State’s claim as a legitimate deductible expense; however, that amount was not deducted from the $106,845 [[sic]] amount in its offer. Kamran rejected the offer of settlement and maintained that it was owed the entire contract balance without back charge, as it believed that all warranty or other obligations had been discharged with the passage of time.

At trial, West Bay also offered evidence of a total of $32,357.01 in attorneys’ fees incurred by it in litigating its right to indemnity in this proceeding from Kamran between December 1, 2005 and December 31, 2006.

The following issues require determination:

1. What documents make up the totality of the agreement between the parties?

2. Are any of the key documents or terms ambiguous?

3. Is there an integration clause that affects the analysis of the Court? How, if at all, may the contract terms be modified?

4. Which provisions, if any, of the contract provisions are controlling as between the parties and their respective obligations to make the repairs required by the State?

5. Are the “warranty” covenants in the contract documents different from the guarantee covenants in the contract documents?

6. If warranties and guarantees are distinct contract terms, what are the various periods of time within which each apply with respect to Kamran’s work?

7. How, if at all, does the Settlement Agreement of June, 2001 affect the covenants between the parties entered into at the time the Subcontract was signed?

8. Would it be unconscionable to hold Kamran to the terms of the June 2001 Settlement Agreement?

9. What does the contract provide for when the remaining retention funds, if any, should have been paid to Kamran? Are these provisions against public policy?

10. When should the final payment have been made to Kamran of the retention funds?

11. How, if at all, did the fact that Kamran did not participate in the negotiation and settlement with State in June of 2001 affect the terms and conditions of the contract between West Bay and Kamran?

12. How, if at all, did the Settlement Agreement entered into by the State and West Bay in October 2005 affect the obligations of Kamran?

13. Did Kamran breach any of the terms of its contract with West Bay?

14. Did West Bay breach any of the terms of the contract with Kamran?

15. If there has been a breach by either party, what does each owe to the other?

16. What is the extent of the indemnification that runs between the parties?

17. Assuming recovery, may West Bay obtain its attorneys’ fees paid in response to the litigation instituted by the State as part of the “indemnification” provisions of the Subcontract between the parties? The Court must also address the same question with respect to the remaining trial litigation between Kamran and West Bay on the cross-complaints in 2007[[.]]

18. What is the import, if any, between the separate provisions in the Subcontract titled “General Subcontract Provisions, paragraph B (“Indemnity Provisions”)” providing for indemnification of attorneys’ fees, and paragraph “W” of the Subcontract, which provides for attorneys’ fees if suit is instituted on any action between the parties?

19. To the extent both parties prevail to some degree in their respective cross-actions, who is the prevailing party for purposes of an award of costs and/or fees?

20. What is the amount of attorney fees and other damages, if any, awarded to each party?

Key Factual Findings

There are, after all is said and done, a few key factual findings that govern the Court’s analysis.

First, all refrigeration units were installed no later than May, 1999.

Next, all units were in use no later than March 2000, but the State did not accept the work because of the above referenced various enumerated problems until, at the earliest, June 12, 2001. As of this date, all units were accepted by the State as conforming to contract specifications, with evidence that there were remaining punch list items that needed attention. The State and West Bay agreed as part of this first settlement agreement that West Bay would extend the warranty for the walk-in units from one year to two years, and that the two years would not start to run until the final modifications or punch list were complete and accepted by the State.

Kamran knew nothing about this extension of warranty obligations and did not acquiesce to it.

In November, 2001, West Bay sent a letter to State indicating that it believed all work on the project was complete and requesting final payment of the retention by the State. The Court understands this to mean that West Bay believed that all work provided by Kamran conformed to contract specifications as of that date. The State paid its final withhold to West Bay on March 20, 2002 in the amount of $127,697.21.

In February 2002, problems again arose and the State demanded in writing in May 2002 that West Bay make the necessary repairs under the provisions it agreed to in the June 12, 2001 Settlement Agreement extending the period of warranty. West Bay asked Kamran to step in and do the work and Kamran declined. West Bay did not do the final repair work.

The State did the repairs and sued West Bay, who in turn sued Kamran, who in turn sued West Bay. The State and West Bay settled for $80,000 in October 2005. West Bay wants to be made whole for the $80,000 it paid, plus its attorney fees and costs, and Kamran wants its retention of $106,854.48, plus attorney fees, costs and statutory penalties claiming it had no contractual duty to undertake the final repair work.

Key Legal Findings

The laws with respect to contract interpretation have been restated many times. The basic rule of contract interpretation is to give effect to the parties’ mutual intent at the time of contracting. To determine the parties’ mutual intent, the Court looks first to the words used in the agreement. (Civ. Code § 1639.)

To begin, the contract is fully integrated.⁸ Thus the Court can examine the four corners of the documents to see what the parties agreed to.

8 See Section 1 of the Subcontract [ ], which states, in relevant part, “This Agreement represents the entire agreement.” That section goes on to reference all the component documents that make up the sum total of the contractual agreement between the parties. Neither counsel argued that the contract documents were not integrated.

The basic rules also require that the words of a contract are to be understood in their ordinary and popular sense, rather than according to any strict legal meaning, unless the parties used the words in a technical sense or gave them a special meaning by usage. (Civ. Code § 1644.) In addition, the meaning of the words used must be determined from a reading of the entire contract, so as to give effect to every part, if possible, with each clause helping to interpret the other. (Civ. Code § 1641.) Repugnancy in a contract must be reconciled, if possible, by such an interpretation as will give some effect to the repugnant clauses, subordinate to the general intent and purpose of the whole contract. (Civ. Code §§ 1652, 1653.) Similarly, an interpretation that gives a reasonable, lawful, and effective meaning to all the terms is preferred to an interpretation that leaves a part unreasonable, unlawful or of no effect. (Civ. Code § 1643.) Where the language of a contract is clear and does not involve an absurdity, it will be followed. (Civ. Code § 1638.) Thus, a court may interpret a contract without recourse to extrinsic evidence if the contract terms are unambiguous.

On the other hand, where the meaning of words used in a contract is disputed, resort to extrinsic evidence may be required. (See Morey v. Vannucci (1998) 64 Ca1.App.4th 904, 912; Wolf v. Superior Court (2004) 114 Cal.App.4th 1343, 1350; Civ. Code § 1647; Civ. Proc. Code § 1860.) A trial court must provisionally receive any proffered competent extrinsic evidence that is relevant to show whether the contract is reasonably susceptible of a particular meaning. (Wolf, supra, at p. 1350.) It is reversible error for a trial court to refuse to consider competent extrinsic evidence on the basis of the trial court’s own conclusion that the language of the contract appears to be clear and unambiguous on its face. (Id. at p. 1351.) Even if a contract appears unambiguous on its face, a latent ambiguity may be exposed which reveals more than one possible meaning to which the language of the contract is reasonably susceptible. (Id.)

Thus, where the meaning of a contract is disputed, the interpretation of the contract involves a two-step process. First, the court must provisionally receive (without actually admitting) all relevant⁹ extrinsic evidence concerning the parties’ intentions to determine whether the language is “reasonably susceptible” to the interpretation urged by the party. If in light of the extrinsic evidence the court decides the language is “reasonably susceptible” to the interpretation urged, the extrinsic evidence is then admitted to aid in the second step, which is interpreting the contract. (Id.) Extrinsic evidence is thus admissible to interpret the language of a written instrument, as long as such evidence is not used to give the instrument a meaning to which it is not reasonably susceptible.

9 Undisclosed intentions of a contracting party are irrelevant under the objective theory of contracts. (Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc. (2003) 109 Cal.App.4th 944, 960; Shaw v. Regents of the Univ. of Cal. (1997) 58 Cal.App.4th 44, 55.)

The Court’s determination of whether an ambiguity exists in a contract is a question of law. Where no extrinsic evidence has been introduced, or where the extrinsic evidence is not in conflict, the Court’s interpretation of the contract also is a question of law. However, where the interpretation of contractual language turns on a question of the credibility of conflicting extrinsic evidence, the Court’s resolution of that conflict is a question of fact. (Id.)

The contracts here in question provide for a hierarchy, for lack of a better term, as to which provisions apply if there are any discrepancies or inconsistencies in the various contract documents. It is apparent to the Court, from a reading of the various documents, that the terms “warranty,” “guaranty” and “indemnification” are defined, with each specifying the relevant time frames for their operation, and which entity is responsible for making good on the covenants. In the world of construction there are typically four sets of players: the owner, the general contractor, the Subcontractors, and the persons or manufacturers who supply the goods that are installed. A review of the various contract documents indicates that each, too, have been assigned various contractual obligations.

The meaning assigned to “warranty” and “guaranty” is provided in [ ] paragraph 1.18 “Supplementary Conditions of the Contract.” We know from paragraph 18(b)(2) of the General Conditions of the Contract that when in conflict, the language of the Supplementary Conditions prevails over general language in the General Conditions.

Paragraph 1.18 states that any references to “guarantee, guaranty, warrantee or warranty” in the contract documents are deemed references to the requirements contained in Article 42 of the General Conditions and that “guarantee” is “typically” to be “understood to mean the Contractor’s assurance that the project complies with contract requirements.[[”]] “Warranty” is defined and “shall be understood to mean Subcontractor, manufacturer or materials suppliers’ assurance that products and services provided meet Contract requirements.” Both “guarantee” and “warranty” therefore bind the relevant party to its promise to provide goods and services that meet or comply with contract requirements. (emphasis added by the Court)

The general contractor, here West Bay, agreed in paragraph 42 of the General Conditions of the Contract to “unconditionally guarantee” that the project work will be done in accordance with the requirements of the contract, and further guaranteed the work of the Contractor to be and remain free of defects in workmanship and materials “for a period of one year from date of acceptance of contract, unless a longer guarantee period is specifically called for.” Such an “unconditional guarantee” is consistent with paragraph 1.18’s explanation that “guarantees[[”]] typically are understood to mean the Contractor’s assurance that the project complied with all Contract requirements. Importantly, under paragraph 29 of the General Conditions of the Contract, any time limits on the Contractor’s promise or unconditional guarantee do not start to run until the contract work is “accepted,” as set forth in Article 35 or Article 42. Paragraphs 35 and 42 set up the mechanism by which the Contractor requests and the State “accepts” the work.

The Court also finds, after provisionally receiving evidence of a possible contract ambiguity as to what the contract means by “acceptance of the contract” or “acceptance of the work,” that these terms are sufficiently defined in Paragraph 35 of the General Conditions of the Contract, such that there is no need to resort to extrinsic evidence to determine their meaning. “Acceptance of the work” or “acceptance of the contract” means that the State has determined that the work completed on the project conforms to the project specifications and that all other terms and conditions required, i.e., such as the providing of warranties, plans and specs, etc., have been complied with. The Court rejects Kamran’s expert testimony on other implied meanings or based on custom and practice, as implausible.

Turning to the Subcontract between West Bay and Kamran, per Section 1, Kamran affirmed it was “fully familiar” with all the terms, conditions and obligations of the various Contract documents and acknowledged by its signature that all the Contract Documents were incorporated into the Subcontract Agreement.

Importantly, Kamran expressly agreed “to be bound to CONTRACTOR [West Bay] in the same manner and to the same extent as CONTRACTOR is bound to OWNER [State] under the Contract Documents, to the extent of the work provided for in the agreement.”

Further, Kamran agreed that “... where, in the Contract Documents, reference is made to CONTRACTOR and the work or specification therein pertains to SUBCONTRACTOR’s trade, craft or type of work, then such work or specification shall be interpreted to apply to SUBCONTRACTOR instead of CONTRACTOR.”

Lastly, Kamran agreed that “[I]n the event of any conflict between the requirements of the prime contract and this Subcontract, the SUBCONTRAOR [[sic]] shall be governed by the provisions imposing the greater duty on the SUBCONTRACTOR[[.]]”

And again in Section “R” of the General Subcontract Provisions, Kamran guaranteed all materials and workmanship and agreed to replace at its sole cost and expense, and to the satisfaction of CONTRACTOR, any and all materials adjudged defective or improperly installed. It agreed to be bound by a period of “guarantee” as specified in the Contract documents, and therefore if that period exceeded one year, it would be bound for the longer period stipulated.

Thus, reading all the above provisions together, it appears Kamran as the Subcontractor agreed to be bound for any liability incurred by West Bay for the period of one (1) year “from completion and acceptance of the work covered by the prime contract.” (emphasis added)

Kamran points to [ ] Section 11400-Food Service Equipment, and specifically paragraph 1.7 entitled “Guarantees and Warrantees,” which is a supplement to the General Conditions of the Contract, as contractual evidence that it need only be bound to any warranties or guarantees for the period commencing upon the earlier of 1) the date the self-contained or remote refrigeration systems furnished under the contract are put into production at the facilities or 2) the date the equipment is accepted by the Architect.

Paragraph 1.7 references “self-contained or remote refrigeration systems” and requires that each be provided with “start up and a one year service contract providing free service, 24 hours per day, seven (7) days per week, including parts and labor, as well as additional warrantees for certain hermetic or semi-hermetic compressors and extended warranties as normally provided by individual manufacturers.” Kamran argues that since it is undisputed that the all [[sic]] refrigeration units and parts were in use no later than March 2000, any alleged defects or problems discovered and requested to be repaired in May 2002 are beyond the one year after the units were put into use, and thus its contractual duties were discharged at the time of the problems in May.

Applying the general rules of contract interpretation stated above, the Court has examined the words of the contract documents in their entirety, and has sought to give effect to every part, reconciling anything that appeared to be inconsistent. The reasonable interpretation of the language contained in Paragraph 1.7 [[of]] Section 11400 Food Service Equipment-Supplemental Conditions, is that it applies to the manufacturers or suppliers of the products and calls for the contractor, here West Bay, and its relevant Subcontractor, here Kamran, to insure that the equipment purchased and installed meets the minimum service contract and warranty requirements of the owner, here the State. This section does not relieve Kamran or West Bay from their otherwise greater and independent obligation to “unconditionally guarantee” that the work will be done in accordance with the requirements of the contract, and further guarantee work of the Contractor to be and remain free of defects in workmanship and materials “for a period of one year from date of acceptance of contract, unless a longer guarantee period is specifically called for.” (See Subcontract Agreement, Section 1; and Paragraphs 29, 35 and 42 of the General Conditions of the Contract.)

It is undisputed that State threatened to deem Kamran’s work as not in compliance with the contract in March 2000, and again in December 2000, given the number and type of problems that arose. The Settlement Agreement of the State and West Bay was designed to separate out all other work and leave the disputed work in issue for further remediation.

Thus, whether the State accepted the contract or work on June 12, 2001, when it entered into the Settlement Agreement with West Bay, explicitly stating it was accepting all work except for certain of Kamran’s Subcontract requirements, or whether the State accepted the contract or work on November 20, 2001, when West Bay sent a letter to the State advising State that West Bay’s work on the project was complete, including the excepted work by Kamran identified in the June 15, 2001 Settlement Agreement, or whether the State accepted the contract when it released the retention on or about March 20, 2002, the problems the State complained of in February 2002 arose within one year of the earliest date of possible acceptance, i.e., June 12, 2001. The Court therefore need not address whether the portion of the June 12, 2001 Settlement Agreement extending the warranty period for the walk-in coolers to two years is the basis upon which Kamran is bound. [ ] ^{10 11 12}

10 Early on in the trial the Court asked if there was going to be any evidence as to when the State released its contract bonds. Paragraph 42 of the General Conditions indicates that contract bonds are in full force and effect during the guarantee period. The Court, however, did not receive any evidence on this subject.

11 Both parties have argued that the remaining problems or defects were “latent” defects. West Bay has taken the position that since the State considered the problems latent defects in its complaint against it, that under Code of Civil Procedure section 337.15 and Art. 2 of the General Conditions which expressly states that the “Contractor shall be responsible for liability imposed by law on Contractor for any damage to any person or property resulting from defects” [ ], and since Kamran agreed under the contract to be bound to the State for the higher or at least same contractual obligations as West Bay (Section 1 under the Subcontract Agreement cited above), Kamran is also responsible for any “latent” defects. Kamran takes the position that latent defects, if any, are simply warranty issues and it is no longer contractually bound to make any further repairs or do any work, since it has been more than one year since the various products were put into use.

12 [[Code Civ. Proc., § 337.15 provides, in relevant part:]]

Applying the facts as the Court has found them to the contract and the law, the Court finds Kamran agreed to be bound by the duties specified in the Subcontract and by the greater duties imposed by the guarantees and warranties of the contractor, here West Bay. Kamran, therefore, should have repaired the items identified for remediation in February of 2002.

Evident in the arguments of the parties is the empty chair, otherwise assigned to the manufacturers of the various refrigeration unit components, who provided the materials and ostensibly provided written warranties for their products. None of the manufacturers are parties to the instant case and none of their documents were offered into evidence. Nonetheless, it is important to identify the manufacturers as a non-party because some of the language in the contract documents clearly implicates them and their responsibilities. Specifically, the Court finds that any manufacturer warranties would be consistent with whatever documents for warranty the manufacturers provided to the parties. The manufacturers’ actions or inactions are not in issue in this trial, however, but would most likely be one year from the date the units were put in use (no later than March 2000), unless a longer time period was specified in the contract documents.¹³ However, a manufacturer’s warranty is not the same thing as the Subcontractor or general contractor’s warranties and guarantees under the contract.

13 Kamran’s cross-complaint did state several causes of action against the manufacturers of some of the equipment. [[On July 28, 2005, the trial court granted summary judgment in favor of equipment manufacturer, Carrier Corporation. Kamran did not appeal the dismissal of Carrier Corporation.]]

Having determined that the contract and Subcontract documents provide that Kamran was responsible for the remedial work, the Court now turns to the remaining issues of whether West Bay inappropriately withheld any of Kamran’s retention and should be charged penalties for any improper withhold. Finally, the Court is asked to address who is responsible for the attorney fees and costs associated with West Bay’s action with the State and the cross-action between West Bay and Kamran, and thus which side is the prevailing party.

It is apparent that under the interpretation assigned by the Court that Kamran was required to make the necessary repairs, as the requisite “guarantee” period of one year from the date of acceptance of the work or contract had not yet expired in February, March, April or May of 2002. The evidence admitted at trial indicates a series of communications between Kamran and West Bay, offering to get various manufacturer reps to the site to consider repair, but affirmatively stating that any “warranty” period attributable to Kamran had long since passed. [ ]

Kamran’s attorneys argued in closing that if Kamran had understood the scope of its contractual warranty or guarantee obligations as continuing beyond the one year the various refrigeration units and accessories were put into use, it would have bid the contract differently. That may very well be true, but the fact that Kamran did not understand what it agreed to do, is not grounds to absolve it of the obligations it did agree to.

As the Court has determined above, it was the responsibility of Kamran to make good on its own “guarantee” and/or “warranty,” separate and apart from any manufacturer’s warranties or guarantees. Kamran therefore is also contractually bound to indemnify West Bay for any costs it incurred in meeting Kamran’s contract obligations under General Subcontract Provision paragraph “B.” There, Kamran agreed to indemnify and hold West Bay harmless for the performance or nonperformance of any and all of the obligations under the contract, and any and all claims, including attorney fees incurred in good faith, arising out of its obligation to indemnify West Bay. The only stated exception would be West Bay’s sole negligence or willful misconduct. As a result, the Court finds in favor of West Bay on its first cause of action for Breach of Contract and its second cause of action for indemnity against Kamran. Finally, under section W of the General Subcontract Provisions, Kamran is contractually bound to pay West Bay’s attorney fees arising out of the defense and settlement of State’s action, as there was no evidence that West Bay engaged in sole negligence or any willful misconduct.

West Bay presented evidence to the Court that it incurred $13,635.28 in outside counsel legal fees to defend itself against the State’s action and prior to settlement with the State in November 2005. It also presented the testimony of an in-house counsel that she worked on the matter and calculated her time at $9,500.

The Subcontract’s indemnity clause expressly provides for payment of “actual” attorneys fees and costs incurred in good faith. Therefore, West Bay is entitled to receive those “actual” fees and costs incurred that are shown to have been in good faith. (Subcontract Section B.2 and Civil Code section 2778(3); Gribaldo et. al. v. Agrippina Versicherunges A.G. (1970) 3 Cal.3d 434, 447; Mabie & Mintz v. B & E Installers (1972) 25 Cal.App.3d 491, 497.)

West Bay encourages the Court to extend the holding of PLCM Group Inc. v. Drexel [[sic]] (2000) 22 Cal.4th 1084 to the instant case and award the $9500 for in-house counsel. On its face, PLCM Group, Inc. involves a request for in-house attorney fees as the measure of actual fees. The case, however, does not factually present a circumstance where both in-house counsel and outside legal counsel are engaged and paid. At trial, West Bay offered the testimony of its in-house counsel as to how she tracked her time to the case, and the basis upon which her time could reasonably be charged to the Kamran and State litigation matters. The Court finds the evidence persuasive and reasonable that West Bay’s in house fees were incurred in good faith and were reasonable. There was no evidence of any duplication of costs or efforts by in-house and private counsel. West Bay is therefore awarded the sum of $80,000, plus the “actual fees” paid and incurred by the firm of McInerney in the amount of $13,635.28, plus the $9,500.00 for corporate counsel, for a total award of $103,135.28.

West Bay asks also for prejudgment interest on this amount. This Court retains its discretion to award prejudgment interest where the claim is not liquidated and or uncertain. (Civil Code section 3287.) In this instance, the amount of damages remained uncertain until this Court ruled on the various theories involved. Even if the amounts were capable of certainty, as Kamran has pointed out and West Bay has admitted, West Bay has retained over $106,000 in Kamran’s Subcontract funds, pending outcome of this litigation. As such, the use of that money, and its time value if invested, has remained with West Bay to this date. Under these circumstances, the Court exercises its discretion not to award pre-judgment interest, as it would result in a windfall to West Bay, i.e., West Bay would have earned and retained its interest earnings on the money, and then would be awarded prejudgment interest on the money it retained.

Kamran also argues that West Bay’s recovery, if any, should be reduced because West Bay failed to mitigate its damages vis a vis the State by not paying any amounts when requested, and simply deducting them from the $106,854.48 Kamran retention amount. Kamran asserted “failure to mitigate” as an affirmative defense in its answer to West Bay’s cross-action.

While the Court rejects West Bay’s unproven assertion that if it conducted the final repair or hired someone else to do it somehow warranties might be voided, the Court is nonetheless persuaded that West Bay’s request for indemnification would likely be no different than it now is. Specifically, by letter dated July 3, 2002 the Department of General Services advised West Bay that it believed it was already entitled to almost $25,000 of out of pocket losses due to problems with the various refrigeration systems installed by Kamran. The State, in its communication with West Bay, does offer that as of July 2002 it would walk away from any labor costs it had incurred to date. However, the State still demanded replacement of four allegedly defective coils and a compressor. [ ] While the cost of any replacement coils was set at in the neighborhood of $800 or less at trial, no value was assigned to the compressor. Further, no estimate was made as to the cost of installation, or the additional costs attendant to the hiring of other labor, refrigerant replacement costs, and incidentals related to the repairs. Comparing [[the State’s demand for replacement of defective coils and a compressor to an itemization of the State’s damages]] provides the Court with some sense of how much each of these additional items would have cost if an independent third party was called upon by West Bay to do the remaining work. In the final analysis, the Court cannot say that it is more likely than not that when the unknown items (repair, labor, etc.) are added into what was requested for West Bay to absorb in July 2002, that West Bay would have saved any money, i.e., mitigated its damages.

Finally, West Bay was contractually bound to pay Kamran its retention upon the payment of the retention by the State, here March 20, 2002. (See Addendum C to the Subcontract Agreement, which makes changes to Section 4, the Payment Schedule of the Subcontract.) Kamran has argued that under Wm. R. Clarke Corp. v. Safeco Ins. Co. (1997) 15 Cal.4th 882, that the contract provision providing for a withhold of the retention amount until paid by the OWNER is void as against public policy.

Wm. R. Clarke Corp. v. Safeco Ins. Co. is factually inapposite, however, and not on point to the contract documents before the Court. Here, the parties agreed to a withhold or retention of 5 percent of all progress payments until the State released the withhold. There was never an agreement to waive any and all payment for the work if never paid, and thus mechanic lien rights, if the State failed to pay West Bay. Ninety-five percent of all progress payments were required to be made within 10 days of payment. As a matter of public policy, retaining the withhold until release appears consistent with the public policy expressed in Public Contract Code sections 7107(e) and 10262.5, both of which allow the general contractor to withhold up to 150 percent of any amount subject to a good faith dispute by the parties from a Subcontractor’s retention or progress payments. Paragraphs “G” and “H” of the Subcontract also provide that withholds are permissible to protect West Bay from loss, including costs and actual attorneys fees incurred in good faith on account of “defective work not remedied” or the Subcontractor’s “failure to complete the contract in accordance with the contract documents,” or “unsatisfactory performance of the work.” The Court also believes that the reasoning in Continental Heller Corp. v. Amtech Mechanical Services, Inc. (1997) 53 Cal.App.4th 500, 508-509 also supports its analysis.

The evidence at trial showed that the State’s claim against West Bay regarding the failed coils and other concerns ultimately exceeded $80,000. West Bay also withheld over $30,000 for attorney fees. Thus, this court cannot find that withholding $106,845 [[sic]] or so, which is less than 150 percent of $80,000 plus attorney fees and costs, violates the law or public policy or is contrary to the contract between the parties.

However, once the amount paid to the State was fixed, West Bay should have tendered the remaining amount of the retention attributable to Kamran’s work, unless a contract provision provides otherwise. This is true because Business and Professions Code section 7108.5 permits withholding up to 150 percent “in the event that there is a good faith dispute over all or any portion of the amount due on a progress payment from the prime contractor or Subcontractor to a Subcontractor....”¹⁴ The date of the remaining payout to Kamran should have been no later than 7-10 days after the State and West Bay settled their dispute, or December 9, 2005. (See section 4 of the Subcontract and Addendum C thereto. Compare Pub. Contract Code section 7101(e) and Business and Professions Code section 7108.5.)

14 Cal Bus & Prof Code § 7108.5 (2007) reads: [[¶]] A prime contractor or Subcontractor shall pay to any Subcontractor, not later than 10 days of receipt of each progress payment, unless otherwise agreed to in writing, the respective amounts allowed the contractor on account of the work performed by the Subcontractors, to the extent of each Subcontractor’s interest therein. In the event that there is a good faith dispute over all or any portion of the amount due on a progress payment from the prime contractor or Subcontractor to a Subcontractor, then the prime contractor or Subcontractor may withhold no more than 150 percent of the disputed amount. [[¶]] Any violation of this section shall constitute a cause for disciplinary action and shall subject the licensee to a penalty, payable to the Subcontractor, of 2 percent of the amount due per month for every month that payment is not made. In any action for the collection of funds wrongfully withheld, the prevailing party shall be entitled to his or her attorneys fees and costs. [[¶]] The sanctions authorized under this section shall be separate from, and in addition to, all other remedies either civil, administrative, or criminal. This section applies to all private works of improvement and to all public works of improvement, except where Section 10262 of the Public Contract Code applies.

Kamran would therefore be entitled to $106,854.48 minus $80,000, minus $13,635 for outside counsel, minus $9,500 for in-house counsel. This leaves a balance of approximately $3,639.48 potentially due and owing to Kamran as of December 9, 2005, with a possible award of prejudgment interest and penalties of 2 percent per month for not having timely received these funds.¹⁵

15 This penalty is recoverable in a civil action and is in addition to any other remedies, including pre-judgment interest and attorney fees and applies to retention amounts. Morton Engineering & Construction v. [[Patscheck]] (2001) 87 Cal.App.4th 712, 717-720.

However, under both Paragraph B of the Subcontract (regarding indemnification duties and responsibilities) and Paragraph H of the Subcontract, cited supra, West Bay would also be entitled to withhold funds against costs and actual attorneys’ fees incurred in good faith on account of “.... (2)claims [[sic]] filed or reasonable evidence indicating probable filing of claim,” i.e., the defense and or prosecution of the various cross-actions;... (6)failure [[sic]] of SUBCONTRACTOR to complete the contract in accordance with Contract Documents; and/or (7) unsatisfactory performance of the work by the SUBCONTRACTOR.” The Court therefore finds a basis in both statutory and decisional law, and the contract documents for West Bay to have retained the funds it did. This includes the remaining $3,639.48 as Kamran had refused acceptance of the payment of this amount, and in fact a greater amount of over $13,000, to resolve the matter. Since there was a cross-action between Kamran and West Bay still in play, again, under paragraphs “G” and “H” of the Subcontract, and under the Public Contracts and Business and Professions Code, West Bay was entitled to hold on to these remaining funds pending resolution of the entire court matter. Fees associated with enforcing the indemnity agreement by bringing or continuing to maintain its action against Kamran, are permitted as part of that action under Continental Heller Corp. v. Amtech Mechanical Services, Inc. (1997) 53 Cal.App.4th 500, 508-509. The Court therefore cannot say that withholding the $3,700 was improper.

Kamran has argued in its closing that as of November 21, 2005, West Bay had no dispute left with Kamran, since it had held all funds in the retention, and that therefore West Bay should have dismissed its stated two causes of action against it for breach of contract and indemnity. The Court does not agree with Kamran. As of the date of the State’s lawsuit against West Bay, Kamran had a contractual duty to indemnify and defend West Bay. This, it declined to do. The filing of West Bay’s litigation against Kamran was therefore a natural or logical consequence of the legal posture of the parties, and even after the settlement with the State in 2005, several legal and factual matters remained in dispute, not the least of which was West Bay’s claim that Kamran was legally bound to defend and indemnify it against the State’s action.

Finally, the Court ultimately must determine which of the parties before it is the prevailing party. West Bay argues that it is the prevailing party because it has achieved “[[its]] main litigation object”, i.e., asserting its warranty and indemnity rights under the Subcontract. (Hsu v. Abbara (1995) 9 Cal.4th 863; Acree v. General Motors Acceptance Corp. (2001) 92 Cal.App.4th 385, 399-340; Sears v. Baccaglio (1998) 60 Cal.App.4th 1136.) Kamran argued orally before the Court, after the Court issued its tentative Statement of Decision, that since the Court had found Kamran was owed approximately $3700 after deduction of the funds associated with the settlement of the State’s action, Kamran achieved the net monetary award and therefore it is the prevailing party. Kamran also argued in its closing briefs that the equities are in its favor. Kamran specifically argued that West Bay knew that it owed Kamran funds from its retention, the company never gave a good reason or explained why it hadn’t paid any of the retained funds to date, and that it was never required to defend and/or indemnify West Bay.

The Court agrees that West Bay is the prevailing party under the facts, the law, decisional and statutory, and under the express provisions of the contract documents. The possible payment to Kamran of the $3,639.48 was abrogated by the conduct of Kamran and, in light of the contractual documents and law, no payment need have been made until the matter was entirely resolved, if then. The actual award of attorney fees arising out [[of]] the final litigation between the parties must await application by way of motion and cost bill under the express language of paragraph W of the Subcontract. Hsu v. Abbara, supra, (1995) [[9]] Cal.4th at 876. [[We end our quotation from the trial court’s statement of decision.]]

The trial court entered judgment on May 25, 2007, and Kamran timely filed notice of appeal on July 20, 2007.

After entry of judgment, West Bay filed a motion for attorney fees and costs. On September 7, 2007, the trial court awarded $95,672.00 in attorney fees and $4,000 in costs to West Bay. Kamran has not separately appealed the award of attorney fees and costs.

DISCUSSION

I

Kamran’s Obligation to Make Warranty Repairs in February 2002

Kamran contends that the trial court erred in holding it had a duty to make repairs demanded in February 2002 pursuant to a settlement agreement between the State and West Bay. Kamran emphasizes that it was not a party to the agreement or even aware of it when made. Kamran argues that its sole warranty obligation began its one-year period in early 2000 when the State started using the equipment. Under this reasoning, the State’s demand for repairs in February 2002 fell outside Kamran’s warranty period.

Kamran relies on paragraph 1.7 of section 11400 of the Supplementary Conditions to the prime contract entitled, “Guarantees and Warrantees,” which provides:

“Self-contained or remote refrigeration systems furnished under this Contract shall be provided with start up and a one year service contract providing free service, 24 hours per day, seven (7) days per week, including parts and labor. Hermetic or semi-hermetic compressors shall be covered by the manufacturers [sic] factory warrantee for an additional four years. Other equipment provided shall include a one year warranty covering parts and labor plus any extended warranties as normally provided by individual manufacturers. Equipment including refrigeration systems both self-contained and remote shall be warranted by the Contractor on the project for one year as indicated in the preceding sentence. The first day of the first year of [the warranty period] commences upon the earlier of 1) the date equipment is put into production at the facilities or 2) the date the equipment is accepted by the Architect.”

Kamran argues its warranty began to run on “the date equipment is put into production at the facilities.” The trial court found, as a fact, that “all units were in use no later than March 2000....” Kamran argues its one-year warranty obligations expired in March, 2001, long before West Bay demanded warranty work from Kamran in February, 2002.

In its Statement of Decision, the trial court concluded that the warranty obligation of section 1.7 of section 11400 of the Supplementary Conditions applied to manufacturers or suppliers of the products, not to Kamran. We respectfully disagree with the trial court. Section 1.7 imposes a warranty obligation on “the Contractor on the project....” This language reasonably refers to contractors, not to suppliers who are not contractors and who are not “on the project.”

However, this does not mean that Kamran wins. As we shall explain, Kamran’s warranty obligations are found not in the settlement agreement between West Bay and the State, nor in section 1.7 of section 11400 of the Supplementary Conditions, but rather in Kamran’s subcontract with West Bay. The subcontract imposed a guarantee of work and materials for a one-year period after acceptance by the State. Having failed to comply with the terms of its subcontract with West Bay, Kamran became liable to West Bay for breach of contract and indemnification.

Interpretation of contract terms that does not involve conflicting extrinsic evidence presents a question of law subject to de novo review. (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865-866.) We must affirm the judgment if it reaches the correct result under any valid legal theory, regardless of whether the trial court’s reasoning errs. (Estate of Beard (1999) 71 Cal.App.4th 753, 776.) “No rule of decision is better or more firmly established by authority, nor one resting upon a sounder basis of reason and propriety, than that a ruling or decision, itself correct in law, will not be disturbed on appeal merely because given for a wrong reason. If right upon any theory of the law applicable to the case, it must be sustained regardless of the considerations which may have moved the trial court to its conclusion.” (Ibid., quoting Davey v. Southern Pacific Co. (1897) 116 Cal. 325, 329.)

Several provisions in separate contracts address the issue of warranty for the refrigeration equipment installed by Kamran. Of these, as we have just explained, Kamran relies on the terms found in paragraph 1.7 of section 11400 of the supplementary conditions of the prime contract.

As a supplemental condition to the prime contract, paragraph 1.7’s terms supersede any conflicting terms found in the general conditions of the prime contract. This is because the prime contract itself instructs, “The General Conditions of the Contract shall govern over all other contract documents except for specific modifications thereto stated in the Supplemental Conditions and except for Addenda.” (Italics added.) If the prime contract were the only agreement imposing a duty on Kamran to provide warranty repairs, Kamran would prevail.

There is, however, another contract to which Kamran agreed and which also imposes an obligation on Kamran to make warranty repairs. The subcontract between West Bay and Kamran addresses the warranty obligation for equipment and work in section “R” of the general subcontract provisions. In relevant part, section “R” provides: “SUBCONTRACTOR guarantees all materials and workmanship and agrees to replace at its sole cost and expense, and to the satisfaction of CONTRACTOR, any and all materials adjudged defective or improperly installed as well as guarantee the OWNER and CONTRACTOR against liability, loss or damage arising from the installation of the work during a period of one (1) year from completion and acceptance of the work covered by the prime contract. If, however, the period of guarantee in the Contract Documents exceeds one (1) year, SUBCONTRACTOR shall be bound during the longer period stipulated.” (Italics added.)

As the trial court found, “all units were in use no later than March 2000, but the [State] did not accept the work because of the... various enumerated problems until, at the earliest, June 12, 2001. As of that date, all units were accepted by the State as conforming to contract specifications....” Under section “R” of the subcontract, Kamran’s one-year warranty obligation commenced in June 2001. The State’s demand for repairs nine months later came within the warranty period specified in the subcontract.

In short, the subcontract imposed a warranty obligation on Kamran from June 2001 through May 2002 while the prime contract provided for a warranty period from March 2000 through February 2001. These contracts therefore provide for different periods of warranty coverage.

The subcontract contains an express provision to address differences in obligations imposed on Kamran by the prime contract and the subcontract. Section 1 of the subcontract provides, in relevant part, that “[i]n the event of any conflict between the requirements of the prime contract and this Subcontract, the SUBCONTRACTOR shall be governed by the provisions imposing the greater duty on the SUBCONTRACTOR.”

Here, the greater duty on Kamran is imposed by the subcontract, which did not start the warranty period until the State accepted the work under the prime contract. Thus, Kamran was bound to the subcontract’s warranty period, which ran from June 2001 through May 2002.

Kamran argues against this conclusion on two grounds. First, Kamran contends that “the evidence at trial established that the warranties/guarantees had in fact commenced when the State ‘accepted’ the equipment by using the equipment.” The trial court, however, found that the State accepted the work in June 2001 even though the equipment had been in use since March 2000. The trial court further found Kamran’s expert testimony regarding the meaning of “acceptance of the work” in industry custom and usage to be “implausible.” We defer to the trial court’s factual findings because we do not reweigh conflicting evidence on appeal. (Howard v. Owens Corning (1999) 72 Cal.App.4th 621, 630.) Hence, we reject Kamran’s factual contention that “acceptance of the work” meant the start of the State’s use of the refrigerator equipment. (Lenk v. Total-Western, Inc. (2001) 89 Cal.App.4th 959, 968.)

Second, Kamran argues that it would be an “unfair” burden to make a subcontractor wait until the general contractor completes the entire project before the subcontractor may receive payment on the portion for which it was responsible. In the subcontract, however, Kamran agreed to wait until “completion and acceptance of the work covered by the prime contract” before receiving payment. (Italics added.) Kamran would have us ignore this express provision in the subcontract. This we cannot do. We “must interpret contractual language in a manner which gives force and effect to every provision, and not in a way which renders some clauses nugatory, inoperative or meaningless.” (City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1998) 68 Cal.App.4th 445, 473.) Having agreed to wait until completion of the project covered by the prime contract prior to payment, Kamran cannot complain about the waiting period.

This is not a case in which “the subcontractor was long gone from the project....” Here, the last of the equipment installed by Kamran was in use by March 2000. At the end of March 2000, however, there remained a “punch list” of tasks to be completed for the walk-in coolers. That same month, the State informed Kamran that it had not accepted the work because there were “major portions of the work that [were] unusable to the [State].” The State even indicated the possibility of rejecting all the walk-in coolers. In December 2000, the State again reported problems with the coolers. In March 2001, Kamran was informed that the State would reject all of the coolers unless all the wall and ceiling panels in the problem units were replaced. In May 2001, Kamran agreed to replace the panels. Not until November 2001 did West Bay consider the work on the walk-in coolers to be complete. By March 2002, the State signaled agreement by releasing the balance of payment to West Bay. This timeline shows that Kamran was not “long gone” from a completed project, but was involved in repairs until nine months before the demand for repairs by the State at issue here.

The problems with Kamran’s work and installed equipment caused the delay in acceptance of the project covered by the prime contract until June 2001. Because the February 2002 demand for repairs came within a year of project acceptance by the State, Kamran had a duty to provide warranty service under section “R” of the subcontract. Kamran’s failure to abide by that warranty placed it in breach of contract with West Bay. As a consequence, the trial court reached the correct result in holding that West Bay was entitled to damages arising out of the State’s demand for repairs in February 2002.

II

Kamran’s Duty to Indemnify West Bay

Kamran next argues it “had no obligations to indemnify [West Bay] for any payments made to the State or any fees and costs incurred in defending any claim under that 2001 Settlement Agreement.” As already noted, Kamran was neither a party to the June 2001 settlement agreement nor aware of its terms when West Bay and the State signed it. Kamran asserts that it cannot be liable for a payment to which it did not agree. We reject the argument because the June 2001 settlement agreement reasonably determined the extent of West Bay’s liability to the State for repairs that Kamran should have made.

Under the subcontract, Kamran had a duty to indemnify West Bay for claims arising out of its work or failure to perform required work on the project. Paragraph “B” of the general subcontract provisions provided that Kamran agreed to indemnify West Bay for “[a]ny claim, liability, loss, damage, cost, expenses, including actual attorneys’... fees incurred in good faith, awards, fines, or judgments arising by reason of... Subcontractor’s work, Subcontractor’s performance or non-performance of any or all of the obligations of this agreement, or other loss, damage or expense, including any of the same resulting from Contractors [sic] alleged or actual negligence act or omission, regardless of whether such act or omission is passive or active, and... [¶]... all claims, liability, loss, damage, costs, expenses, including actual attorneys’... fees incurred in good faith, awards, fines, or judgments arising by reason of obligation or indemnity which Contractor has to owner.” (Italics added.) Under the subcontract’s indemnity clause, Kamran’s failure to fulfill its duty to make the repairs in February 2002 required West Bay to be made whole for the sum owed to the State for those repairs as well as for attorney fees incurred in defending against the State’s lawsuit.

The June 2001 settlement agreement between West Bay and the State reasonably established the value of damages arising out of the faulty cooler equipment for which Kamran was responsible under warranty. The trial court found that the $80,000 paid by West Bay under the June 2001 settlement agreement represented a fair approximation of the losses sustained by the State in having to repair the coils and compressor and by West Bay in defending against the State’s lawsuit. After reviewing the State’s itemization of expenses, the trial court concluded that West Bay probably would not have saved any money by conducting the repairs itself (rather than subsequently reimbursing the State). Indeed, the trial court suggested that West Bay’s cost of undertaking its own repairs might have been higher because the State may not have included all of its costs.

Kamran appears to acknowledge that it should be responsible for “claims that can ‘be said to reasonably “grow out” of the subcontractor’s particular work.’” (Quoting Crawford v. Weather Shield Mfg., Inc. (2006) 136 Cal.App.4th 304, 314, depub. and cause remanded (2007) 170 P.3d 129, 67 Cal.Rptr.3d 753.) Here, the trial court found that the claims arose out of the failure to make warranty repairs and that the amount of the settlement approximated the cost that would have been incurred if West Bay had made the repairs.

The $80,000 cost to West Bay, though determined by a settlement agreement to which Kamran was not a party, reasonably established the amount of damages stemming from Kamran’s failure to make repairs in February 2002. Under the subcontract’s indemnity provision, Kamran was liable for the damages as well as West Bay’s legal fees and costs.¹⁶

16 We address the issue of attorney fees and costs in Part V, below.

Kamran makes no argument on appeal that the settlement was in bad faith, inequitable, or fraudulent. The settlement agreement reasonably (and perhaps advantageously) set the amount of damages paid to the State that West Bay could in turn seek as indemnity from Kamran. Kamran’s failure to make the required repairs caused West Bay to be sued by the State, incur litigation expenses, and to pay $80,000 in damages to the State.

The subcontract’s indemnity clause allowed West Bay to recover the $80,000 loss to the State for Kamran’s breach of contract. As a consequence, the trial court did not err in holding Kamran responsible for indemnifying West Bay for damages and attorney fees arising out of the State’s demand for repairs in February 2002.

III

West Bay’s Withholding of Payment to Kamran

Kamran argues that West Bay retained payment of $106,854.48 for equipment and work under an unlawful “pay if paid” practice. As the California Supreme Court has explained, “A pay if paid provision makes payment by the owner to the general contractor a condition precedent to the general contractor's obligation to pay the subcontractor for work the subcontractor has performed.” (Wm. R. Clarke Corp. v. Safeco Ins. Co. (1997) 15 Cal.4th 882, 885 (Clarke Corp.), footnote omitted.) Pay if paid contract provisions are void as against public policy. (Ibid.) West Bay, however, retained the payment due to a bona fide dispute regarding Kamran’s failure to make warranty repairs. Because a contractor may lawfully withhold up to 150 percent of payment due for work subject to a bona fide dispute, the trial court did not err in ruling that West Bay is not subject to penalty for the retention.

Although pay if paid clauses were once common in construction contracts, Kamran points to no term in the prime or subcontract containing a pay if paid provision. (Clarke Corp., supra, 15 Cal.4th at p. 885.) The trial court’s statement of decision also makes no mention of a pay if paid clause in any document in this case.

A true “pay if paid” practice involves a contractor’s delay of payment to a subcontractor until the owner pays. (Clarke Corp., supra, 15 Cal.4th at p. 885.) Here, West Bay actually received payment from the State for Kamran’s portion of the work. West Bay received the first $63,001 related to Kamran’s work as part of the June 2001 settlement agreement. The remainder was paid to West Bay in March 2002, when the State considered the work complete. Throughout this time and until judgment, West Bay retained payment from Kamran. Contrary to Kamran’s claim, this case does not involve a pay if paid issue.

For this reason, both of the cases cited by Kamran in support of its argument are inapposite. The California Supreme Court addressed the legality of pay if paid contract terms in Clarke Corp., supra, 15 Cal.4th 882, 885. The high court held that Civil Code section 3262 renders such contract provisions void as against public policy. (Id. at p. 886.) Clarke Corp. did not involve a dispute regarding the work completed by the subcontractor, but only whether pay if paid contract terms are void as against public policy. (Ibid.)

Similarly, the Court of Appeal addressed the legality of pay if paid contract terms in the absence of dispute about the subcontractor’s completion or quality of work in Capitol Steel Fabricators, Inc. v. Mega Construction Co. (1997) 58 Cal.App.4th 1049 (Capitol Steel). Following the Supreme Court’s decision in Clarke Corp., the Court of Appeal held pay if paid provisions unlawful for public works projects. (Id. at pp. 1051-1052.) The contractor in this case did not withhold payment pursuant to a pay if paid provision. Thus, both Clarke Corp. and Capitol Steel are inapposite.

West Bay retained the State’s payment due to the dispute with Kamran regarding responsibility for warranty repairs and indemnification. As West Bay points out, several statutes allow a contractor to withhold up to 150 percent of payment for work performed by a subcontractor in the event of a bona fide dispute over work completion and quality.

Business and Professions Code section 7108.5 provides, in relevant part, that “[a] prime contractor... shall pay to any subcontractor, not later than 10 days of receipt of each progress payment... the respective amounts allowed the contractor on account of the work performed by the subcontractors, to the extent of each subcontractor's interest therein. In the event that there is a good faith dispute over all or any portion of the amount due on a progress payment from the prime contractor or subcontractor to a subcontractor, then the prime contractor or subcontractor may withhold no more than 150 percent of the disputed amount.” (Italics added.)

Likewise, the Public Contract Code allows a contractor to withhold 150 percent of the amount due for work subject to dispute from a subcontractor on a public works contract. Subdivision (e) of section 7107 provides, “The original contractor may withhold from a subcontractor its portion of the retention proceeds if a bona fide dispute exists between the subcontractor and the original contractor. The amount withheld from the retention payment shall not exceed 150 percent of the estimated value of the disputed amount.” (Italics added.)

So too, subdivision (a) of section 10262.5 of the Public Contract Code provides that “a prime contractor... shall pay to any subcontractor, not later than 10 days of receipt of each progress payment, the respective amounts allowed the contractor on account of the work performed by the subcontractors, to the extent of each subcontractor's interest therein. In the event that there is a good faith dispute over all or any portion of the amount due on a progress payment from the prime contractor or subcontractor to a subcontractor, then the prime contractor or subcontractor may withhold no more than 150 percent of the disputed amount.”

Under each of these statutes, the contractor may withhold payment only in the event of a bona fide dispute regarding the subcontractor’s work. (Bus. & Prof. Code, § 7108.5; Pub. Contract Code, §§ 7107, subd. (e), 10262.5, subd. (a).) In the absence of a bona fide dispute, each section imposes a penalty of two percent per month for any amount wrongfully withheld. (Bus. & Prof. Code, § 7108.5; Pub. Contract Code, §§ 7107, subd. (e), 10262.5, subd. (a).)

The trial court found that West Bay had a bona fide dispute with Kamran throughout the time that it retained the $106,854.48 received from the State relating to Kamran’s portion of the project. The trial court properly concluded that West Bay’s “retaining the withhold until release appears to be consistent with the public policy expressed in Public Contract Code sections 7107(e) and 10262.5, both of which allow the general contractor to withhold up to 150 percent of any amount subject to a good faith dispute by the parties from a Subcontractor’s retention or progress payments.”

In sum, there is no pay if paid provision in the contracts in this case. Instead, West Bay was allowed to withhold payment due to the bona fide dispute over Kamran’s portion of the work on the project. Accordingly, Kamran’s pay if paid argument fails.

IV

Kamran’s Entitlement to Prejudgment Interest

Kamran contends that its pay if paid argument compels the conclusion that the trial court erred in failing to award it prejudgment interest on sums withheld by West Bay since 1999. As we have explained, however, Kamran’s pay if paid argument fails. Anticipating our conclusion, Kamran argues alternatively that it should at least receive prejudgment interest from November 2005 when West Bay “admitted it owed Karman at least $3,639 on Kamran’s cross-complaint in this action.”¹⁷ We reject this argument because West Bay’s bona fide dispute with Kamran allowed it to withhold payment under terms of the subcontract as well as Public Contract Code sections 7107, subdivision (e), and 10262.5, subdivision (a).

17 West Bay asserts that both the trial court and Kamran have miscalculated this sum, which represents the difference between the amount West Bay received from the State for the portion of work at issue here and the cost of settlement and attorney fees that West Bay incurred in resolving the State’s lawsuit. West Bay believes that the proper differential amount is $3,719.20. West Bay seems to have arrived at this figure by subtracting from the State’s payment of $106,854.48 the $80,000 settlement paid to the State, the $13,635.28 that West Bay’s “evidence at trial” showed it paid to outside counsel, and the $9,500 in attorney fees due to in-house counsel’s time. Kamran’s $3,639 figure appears to derive from the same calculation, except that it uses the trial court’s figure of “$13,715 paid to outside counsel” by West Bay. The exact difference under this calculation is $3,639.48.

Prejudgment interest “is in the nature of damages which the law allows for the wrongful detention of money which should be turned over to the person entitled to it.” (Sears, Roebuck & Co. v. Blade (1956) 139 Cal.App.2d 580, 595.) Prejudgment interest may be recovered when “damages are certain or capable of being made certain by calculation” and the right to recover such damages was vested in the plaintiff on a particular day. (Civ. Code, § 3287, subd. (a).) Prejudgment interest may also be recoverable under Civil Code section 3287 when statutory penalties are awarded to plaintiff. (County of Solano v. Lionsgate Corp. (2005) 126 Cal.App.4th 741, 753.) However, if a contractual provision precludes entitlement to the sum prior to judgment the trial court may not award prejudgment interest. (Cf. Ansco Const. Co. v. Ocean View Estates, Inc. (1959) 169 Cal.App.2d 235, 238.) Here, a contractual provision allowed West Bay to withhold payment for work subject to a bona fide dispute.

As the trial court found, “once the amount paid to the State was fixed, West Bay should have tendered the remaining amount of the retention attributable to Kamran’s work, unless a contract provision provides otherwise.” Paragraph “H” of the subcontract does provide otherwise by allowing West Bay to withhold payment in order to cover losses arising out of Kamran’s portion of the work. In pertinent part, paragraph “H” states: “CONTRACTOR may withhold... to such extent as may be necessary to protect CONTRACTOR from loss, including costs and actual attorneys’ fees incurred in good faith on account of (1) defective work not remedied; (2) claims filed or reasonable evidence indicating probable filing of claims;... (6) failure of SUBCONTRACTOR to complete the contract in accordance with Contract Documents; (7) unsatisfactory performance of the work by the SUBCONTRACTOR.”

Both cross-complaints between the parties were pending from the time West Bay extended the $13,130.48 settlement offer to Kamran through judgment. Thus, the trial court reasonably concluded West Bay permissibly withheld payment due to the likelihood that defending and prosecuting the cross-complaints would generate attorney fee liabilities covered by paragraph “H” of the subcontract.

The trial court found that liability for the $80,000 payment to the State by West Bay was subject to a bona fide dispute. The existence of “a good faith dispute over all or any portion of the amount due on a progress payment from the prime contractor... a Subcontractor” allowed West Bay to “withhold no more than 150 percent of the disputed amount.” (Bus. & Prof. Code, § 7108.5; accord Pub. Contract Code, §§ 7107, subd. (e), 10262.5, subd. (a).) Therefore, West Bay could have withheld up to $120,000, representing 150 percent of the amount subject to bona fide dispute. (Bus. & Prof. Code, § 7108.5; accord Pub. Contract Code, §§ 7107, subd. (e), 10262.5, subd. (e).) West Bay actually withheld $106,854.48, which is well below the statutory limit.

Under the subcontract and statutory provisions in the Business and Professions Code as well as the Public Contract Code, West Bay was allowed to withhold the entire $106,854.48 pending resolution of its bona fide dispute with Kamran. Thus, the trial court did not err in denying prejudgment interest to Kamran.

V

Prevailing Party Determination for Attorney Fees and Costs

Kamran contends that the trial court erred in determining that West Bay was entitled to contractual attorney fees as the prevailing party.¹⁸ Kamran claims to be the prevailing party because it secured the greater relief in the form of a net monetary recovery of $3,369. We reject Kamran’s argument because the trial court reasonably concluded that West Bay prevailed on the issues actually subject to dispute, i.e., Kamran’s warranty and indemnity obligations.

18 Kamran designated, for inclusion in the clerk’s transcript, West Bay’s post-judgment motion for attorney fees and the amended judgment awarding $95,672 in attorney fees and $4,000 in costs to West Bay. Kamran, however, does not address the post-judgment award of fees in its briefing. Instead, Kamran challenges only the trial court’s determination, in the original judgment, that West Bay was the prevailing party. As a consequence, our review is limited to considering Kamran’s assertion that the trial court erred in determining West Bay to be entitled to attorney fees.

The subcontract’s indemnity clause provides for recovery of attorney fees and costs. Despite the unilateral nature of indemnity clauses, Civil Code section 1717 applies to make any fee shifting provisions they may contain available to any prevailing party. (Bruckman v. Parliament Escrow Corp. (1987) 190 Cal.App.3d 1051, 1059.) In relevant part, section 1717 provides: “(a) In any action on a contract, where the contract specifically provides that attorney's fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney's fees in addition to other costs. [¶]... [¶] (b)(1) The court... shall determine who is the party prevailing on the contract for purposes of this section.... [T]he party prevailing on the contract shall be the party who recovered a greater relief in the action on the contract.” (Italics added.)

The statutory definition of “prevailing party” under Civil Code section 1717 “is mandatory and cannot be altered or avoided by contract.” (Exxess Electronixx v. Heger Realty Corp. (1998) 64 Cal.App.4th 698, 707.) Even so, the California Supreme Court has “taken a broad, pragmatic view of what constitutes a ‘successful party’” for purposes of attorney fee awards subject to Civil Code section 1717. (Graham v. DaimlerChrysler Corp. (2004) 34 Cal.4th 553, 565.)

Because the definition of prevailing party requires a pragmatic and flexible approach, Civil Code section 1717 endows trial courts with broad discretion to determine which party prevailed. (Smith v. Krueger (1983) 150 Cal.App.3d 752, 756-757.) Absent a clear abuse of discretion, the trial court’s ruling will not be disturbed on appeal. (Ibid.)

Kamran asserts that “[t]he trial court had no discretion not to find Kamran as the ‘prevailing party’ as it had the net monetary recovery.” As we have previously explained, however, “[t]he [Civil Code] section 1717 phrase ‘greater relief... on the contract’ does not necessarily mean greater monetary relief.” (Acree v. General Motors Acceptance Corp. (2001) 92 Cal.App.4th 385, 399.) Thus, the trial court was not constrained to follow the “net monetary recovery” test advocated by Kamran.

The trial court followed the approach articulated in Hsu v. Abbara (1995) 9 Cal.4th 863. In Hsu, the California Supreme Court instructed that “in determining litigation success, courts should respect substance rather than form, and to this extent should be guided by ‘equitable considerations.’ For example, a party who is denied direct relief on a claim may nonetheless be found to be a prevailing party if it is clear that the party has otherwise achieved its main litigation objective.” (Id. at p. 877, first italics omitted, second italics added.)

Under the “main litigation objective” approach, “the trial court is to compare the relief awarded on the contract claim or claims with the parties' demands on those same claims and their litigation objectives as disclosed by the pleadings, trial briefs, opening statements, and similar sources. The prevailing party determination is to be made only upon final resolution of the contract claims and only by “a comparison of the extent to which each party ha[s] succeeded and failed to succeed in its contentions.” (Hsu v. Abbara, supra, 9 Cal.4th at p. 876, quoting Bank of Idaho v. Pine Avenue Associates (1982) 137 Cal.App.3d 5, 15.)

West Bay’s cross-complaint sought to enforce the warranty and indemnity obligations imposed on Kamran by the subcontract. Kamran vigorously disputed that it had any obligation to make warranty repairs in February 2002 or to indemnify West Bay for losses deriving from its failure to make the repairs. Kamran maintains its arguments on appeal. However, West Bay has prevailed on both issues.

The subcontract’s indemnity clause allowed West Bay, as the prevailing party, to recover attorney fees and costs. For parties to the contract to recover attorney fees and costs, it is not enough if the indemnity clause merely holds the indemnitee harmless in disputes with third parties. (Building Maintenance Service Co. v. AIL Systems, Inc. (1997) 55 Cal.App.4th 1014, 1030.) Instead, the indemnity clause must expressly provide for attorney fees and costs in any action to enforce the agreement. (Ibid.) Here, the indemnity clause does so. Paragraph “B” of the general subcontract provisions indemnifies West Bay against “[a]ny claim, liability, loss, damage, cost, expenses, including actual attorneys’... fees... arising by reason of... Subcontractor’s performance or non-performance of any or all of the obligations of this agreement....” This language allows West Bay to recover attorney fees for successful enforcement of the indemnity clause. (Continental Heller Corp. v. Amtech Mechanical Services, Inc. (1997) 53 Cal.App.4th 500, 508-509.)

West Bay’s success in recovering damages from Kamran under the subcontract’s indemnity clause, however, was offset by the $106,854.48 retention that West Bay undisputedly owed to Kamran for the work on the project. The lack of controversy regarding Kamran’s entitlement to the retention means that the only disputes in the lower court were Kamran’s duty to provide warranty repairs in February 2002 and to indemnify West Bay afterward.

Under Hsu v. Abbara, supra, 9 Cal.4th at page 876, the trial court had discretion to find that West Bay prevailed on the main objects of the litigation. Thus, the trial court did not err in determining West Bay to be entitled to attorney fees and costs.

VI

Commendation of Trial Judge

Although we have disagreed with the trial court’s analysis in one respect, we commend the trial judge, the Honorable Judy Holzer Hersher, for preparing an exemplary statement of decision.

DISPOSITION

The judgment is affirmed. West Bay shall recover its costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1) & (2).)

We concur: BLEASE, Acting P. J., BUTZ, J.

Neither party has moved to correct the omission of the exhibits from the clerk’s transcript as to the exhibits. (See Cal. Rules of Court, rule 8.155(b)(1).) Nor has any party filed a notice to transmit the original exhibits to this court. (Cal. Rules of Court, rule 8.224(a)(1) & (a)(3).) As a consequence, the exhibits are not part of the appellate record, and our only source for the content of the various documents adduced at trial is their quotation or description in the trial court’s statement of decision. No party has questioned the accuracy of the statement of decision in this respect.

Any violation of this section shall constitute a cause for disciplinary action and shall subject the licensee to a penalty, payable to the Subcontractor, of 2 percent of the amount due per month for every month that payment is not made. 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.

The sanctions authorized under this section shall be separate from, and in addition to, all other remedies either civil, administrative, or criminal.

This section applies to all private works of improvement and to all public works of improvement, except where Section 10262 of the Public Contract Code applies.

(a) This section is applicable with respect to all contracts entered into on or after January 1, 1993, relating to the construction of any public work of improvement.

(b) The retention proceeds withheld from any payment by the public entity from the original contractor, or by the original contractor from any Subcontractor, shall be subject to this section.

(c) Within 60 days after the date of completion of the work of improvement, the retention withheld by the public entity shall be released. In the event of a dispute between the public entity and the original contractor, the public entity may withhold from the final payment an amount not to exceed 150 percent of the disputed amount. For purposes of this subdivision, “completion” means any of the following:

(1) The occupation, beneficial use, and enjoyment of a work of improvement, excluding any operation only for testing, startup, or commissioning, by the public agency, or its agent, accompanied by cessation of labor on the work of improvement.

(2) The acceptance by the public agency, or its agent, of the work of improvement.

(3) After the commencement of a work of improvement, a cessation of labor on the work of improvement for a continuous period of 100 days or more, due to factors beyond the control of the contractor.

(4) After the commencement of a work of improvement, a cessation of labor on the work of improvement for a continuous period of 30 days or more, if the public agency files for record a notice of cessation or a notice of completion.

(d) Subject to subdivision (e), within seven days from the time that all or any portion of the retention proceeds are received by the original contractor, the original contractor shall pay each of its Subcontractors from whom retention has been withheld, each Subcontractor’s share of the retention received. However, if a retention payment received by the original contractor is specifically designated for a particular Subcontractor, payment of the retention shall be made to the designated Subcontractor, if the payment is consistent with the terms of the Subcontract.

(e) The original contractor may withhold from a Subcontractor its portion of the retention proceeds if a bona fide dispute exists between the Subcontractor and the original contractor. The amount withheld from the retention payment shall not exceed 150 percent of the estimated value of the disputed amount.

(f) In the event that retention payments are not made within the time periods required by this section, the public entity 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 attorney’s fees and costs.

(g) If a state agency retains an amount greater than 125 percent of the estimated value of the work yet to be completed pursuant to Section 10261, the state agency shall distribute undisputed retention proceeds in accordance with subdivision (c). However, notwithstanding subdivision (c), if a state agency retains an amount equal to or less than 125 percent of the estimated value of the work yet to be completed, the state agency shall have 90 days in which to release undisputed retentions.

(h) Any attempted waiver of the provisions of this section shall be void as against the public policy of this state.

(a) No action may be brought to recover damages from any person, or the surety of a person, who develops real property or performs or furnishes the design, specifications, surveying, planning, supervision, testing, or observation of construction or construction of an improvement to real property more than 10 years after the substantial completion of the development or improvement[[....]] [ ]

The statement of decision does not explain why the trial court found West Bay to have paid $13,715 in fees to outside counsel when West Bay’s own evidence showed the amount to be only $13,635.28. Since the record does not show that any party filed an objection to the statement of decision, we shall use the $3,639.48 amount that is based on the court’s finding rather than West Bay’s evidence. (See In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1133-1134.)