Opinion
A101079.
11-14-2003
WEST BAY BUILDERS, INC, Plaintiff and Respondent, v. NWD, INC., Defendant and Appellant.
NWD, Inc. (NWD) appeals from a judgment confirming an arbitration award in favor of West Bay Builders, Inc. (West Bay). Prior to submitting their dispute to arbitration, West Bay made an offer to compromise pursuant to Code of Civil Procedure section 998, which was not accepted by NWD. Subsequently, the arbitrator awarded costs, which included attorney fees, to West Bay. NWD maintains that the arbitrator did not have the authority to award the attorney fees because they were based on an illegal contract, and the superior court erred in confirming the award. We conclude that the arbitrator did not exceed his authority in awarding attorney fees and we therefore uphold the confirmation of the award.
All further unspecified code sections refer to the Code of Civil Procedure.
BACKGROUND
On October 13, 1998, the Humboldt Countys Department of Public Works entered into a contract with West Bay for it to construct a public work of improvement known as the Humboldt County Courthouse Seismic — Retrofit Phase II (the project). West Bay did not list NWD as a subcontractor on its list of subcontractors submitted with its bid.
On November 4, 1998, NWD and West Bay entered into a contract for NWD to furnish and perform architectural woodwork and cabinetwork on the project for the sum of $252,813. The contract contained a provision regarding attorney fees as follows: "In the event either CONTACTOR or SUBCONTRACTOR institutes 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."
Disputes arose between NWD and West Bay. On April 4, 2000, NWD filed a complaint in Humboldt County Superior Court against West Bay and surety insurers. The complaint alleged breach of contract and claims on the payment bond. The following day, on April 5, West Bay filed a complaint against NWD in Marin County Superior Court for breach of contract.
On August 14, 2000, West Bay and NWD stipulated that their "disputes, claims causes of action, claims for any and all relief whatsoever, arising out of or related to the [project] shall be decided through binding arbitration . . . ." The stipulation specified that the "parties agree that the arbitrator shall consider and rule on any request for recovery of attorneys fees and costs, including recovery of arbitrator fees . . . ." The stipulation was submitted to both Marin County and Humboldt County Superior Courts and each court entered the stipulation as an order.
On May 31, 2001, West Bay served on NWD a section 998 offer to compromise for $20,000. West Bay never received any notice from NWD that it was accepting the section 998 offer.
The arbitrator conducted a hearing in June and in November 2001. The arbitrator issued his interim award on February 6, 2002, finding that neither party had prevailed on its claims because neither party had been able to meet its burden of proof.
West Bay moved for attorney fees and costs pursuant to section 998. NWD argued that West Bay was not entitled to fees because the contract authorizing fees was illegal. West Bay replied that NWD had failed to prove the contract was illegal and it was entitled to fees as costs pursuant to either Civil Code section 3250 or the provision on attorney fees in the contract. On June 27, 2002, the arbitrator, without explaining the basis for his ruling, granted West Bay attorney fees in the amount of $40,748.75 and costs in the amount of $5,260.66 for a total of $46,009.41.
On August 21, 2002, West Bay filed a petition in the Marin County Superior Court to confirm the arbitration award as a judgment. At the hearing, the court explained that, in its tentative ruling, it was not ruling that the contract was illegal but that it was assuming that it was illegal. After listening to argument, the court ruled: "Folks, I dont really—you know, I did assume it to be an illegal contract in my decision, and I stand by that assumption. But I still believe that in the 998 offer, it doesnt really matter whether its illegal or not. It isnt a recovery for it being illegal. It is recovery under the statute, and I stand by the decision. Folks, actually, that is my ruling." On December 13, 2002, the court entered judgment in favor of West Bay for the sum of $46,009.41.
NWD moved for reconsideration, which was denied. NWD appealed.
DISCUSSION
NWD contends that the trial court erred in confirming the arbitrators award of attorney fees because the contract authorizing fees was illegal. The arbitrator awarded fees pursuant to section 998, which provides in relevant part: "If an offer made by a defendant is not accepted and the plaintiff fails to obtain a more favorable judgment or award, the plaintiff shall not recover his or her postoffer costs and shall pay the defendants costs from the time of the offer. . . ." (§ 998, subd. (c)(1).)
NWD did not receive anything on its claims against West Bay, and therefore it failed to obtain a more favorable judgment or award. "[A] defendant whose settlement offer exceeds the plaintiffs recovery is entitled to postoffer attorney fees in any case in which, as here, attorney fees are otherwise available as costs." (Scott Co. v. Blount, Inc. (1999) 20 Cal.4th 1103, 1112.) ". . . `Except as otherwise expressly provided by statute, a prevailing party is entitled as a matter of right to recover costs in any action or proceeding. (& sect; 1032, subd.(b).) Section 998 modifies the general rule of section 1032 that only the prevailing party recovers its costs. . . . Section 998 further provides that where, as here, the plaintiff recovers a judgment less than defendants pretrial offer, the defendant may recover its costs notwithstanding that the plaintiff is the prevailing party . . . . Thus, under section 998 a defendant whose pretrial offer is greater than the judgment received by the plaintiff is treated for purposes of postoffer costs as if it were the prevailing party. . . . [¶] . . . The postoffer costs that section 998 denies to the plaintiff and awards to the defendant whose offer exceeds the judgment for plaintiff are `[t]he costs allowed under Section[] . . . 1032 . . . to a prevailing party. In turn, . . . , section 1033.5 specifies the `items . . . allowable as costs under Section 1032. The costs specified by section 1033.5 include attorney fees `when authorized by . . . [¶] (A) Contract. (§ 1033.5, subd. (a)(10)(A).)" (Scott, supra, at pp. 1112-1113.) Accordingly, under Scott, West Bay was entitled to attorney fees under section 998 if a contract or statute authorized fees.
West Bay also did not prevail on its claims against NWD.
It is undisputed that the contract between West Bay and NWD authorized attorney fees. However, NWD maintains that their contract was unlawful and therefore void (see R. M. Sherman Co., Inc. v. W. R. Thomason, Inc. (1987) 191 Cal.App.3d 559) because West Bay had violated the Subletting and Subcontracting Fair Practices Act (Pub. Contract Code, § 4100 et seq.) by failing to list it as a subcontractor on its bid for the project (id.,§ 4104). It asserts that an attorney fees provision in an illegal contract is not enforceable. (Bovard v. American Horse Enterprises, Inc. (1988) 201 Cal.App.3d 832, 843.) NWD maintains that the Fair Practices Act recognizes that the subcontractor may sue under the illegal contract, but illegality is no defense to the general contractor (Pub. Contract Code, § 4112). Thus, NWD argues, once the trial court ruled that the contract was illegal, it could not proceed to enforce the contract by granting attorney fees and the arbitrator exceeded his statutory powers by awarding attorney fees as costs based on an illegal contract.
West Bay responds that we should not consider the merits of the issues raised by NWDs appeal because NWD did not timely respond to West Bays petition to confirm the arbitration award. West Bay asserts that it filed and served on NWD its petition to confirm the arbitration award on August 21, 2002, but NWD did not file its response until September 10, 2002. Since section 1290.6 requires a response to be served and filed within 10 days after service of the petition, West Bay maintains that the allegations of its petition are deemed to be admitted by NWD (see DeMello v. Souza (1973) 36 Cal.App.3d 79, 83). NWD does not respond to this issue in its brief, but in its opposition to the petition to confirm the arbitration in the trial court it argued, among other things, that it was not properly served.
Section 1290.6 provides: "A response shall be served and filed within 10 days after service of the petition except that if the petition is served in the manner provided in paragraph (2) of subdivision (b) of Section 1290.4, the response shall be served and filed within 30 days after service of the petition. The time provided in this section for serving and filing a response may be extended by an agreement in writing between the parties to the court proceeding or, for good cause, by order of the court."
Although the trial court did not make any express ruling regarding the timeliness of the response, we can infer that it considered the response to be timely because it proceeded to consider the merits of NWDs response. "We have said that when two or more inferences can reasonably be deduced from the facts, a reviewing court lacks power to substitute its deductions for those of the trial court. [Citation.]" (MJM, Inc. v. Tootoo (1985) 173 Cal.App.3d 598, 604.) We cannot discern from this record whether the response was timely, and therefore we will not reject NWDs appeal on this basis. Turning now to the merits of NWDs appeal, NWD maintains that the trial court erred in confirming the arbitration award of attorney fees because it assumed it was based on an illegal contract, which was void. (See, e.g, Civ. Code, §§ 1598 & 1608; see also R. M. Sherman Co., Inc. v. W. R. Thomason, Inc., supra, 191 Cal.App.3d at p. 563.) Attorney fees, NWD argues, cannot be awarded pursuant to an unlawful contract. NWD acknowledges that the review of an arbitration award is generally limited, but maintains that "the rules which give finality to the arbitrators determination of ordinary questions of fact or of law are inapplicable where the issue of illegality of the entire transaction is raised . . . ." (Loving & Evans v. Blick (1949) 33 Cal.2d 603, 609; see also Lindenstat v. Staff Builders, Inc. (1997) 55 Cal.App.4th 882, 891.)
West Bay responds that it requested attorney fees under section 998 because of the attorney fees provision in its contract with NWD (§ 1033.5, subd. (a)(10)(A)) or pursuant to its statutory rights under Civil Code section 3250, and the record fails to establish the basis for the award. Thus, even if the fees could not be awarded pursuant to the contract, they could have been awarded pursuant to Civil Code section 3250. It also argues that NWD has not established that its contract was illegal. Moreover, even if the arbitrator erred in awarding the attorney fees, it had the authority to award the fees and any error was an error of law and not reviewable. (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 6-10 (Moncharsh).)
It is well settled that the scope of judicial review of arbitration awards is extremely narrow. (Moncharsh, supra, 3 Cal.4th at p. 10.) Courts may not review either the merits of the controversy or the sufficiency of the evidence supporting the award. (Southern Cal. Rapid Transit Dist. v. United Transportation Union (1992) 5 Cal.App.4th 416, 422-423, abrogated on other grounds by Advanced Micro Devices, Inc. v. Intel. Corp. (1994) 9 Cal.4th 362, 377.) Furthermore, with limited exceptions, " . . . an arbitrators decision is not generally reviewable for errors of fact or law, whether or not such error appears on the face of the award and causes substantial injustice to the parties." (Moncharsh, supra, at p. 6.) Consistent with this policy, the Legislature has specified in section 1286.2 the only grounds that will justify vacating an arbitration award.
NWD maintains that the arbitrator exceeded his power under section 1286.2, subdivision (a)(4). This provision provides that the court shall vacate the award if the arbitrator "exceeded" his or her powers "and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted." (Ibid.)
In determining an arbitrators power, we examine the scope of the arbitrators contractual authority. (See, e.g., California Faculty Assn. v. Superior Court (1998) 63 Cal.App.4th 935, 944.) "In determining whether the arbitrators exceeded their powers, courts must give `substantial deference to the arbitrators own assessments of their contractual authority . . . . " (Ibid.) "Guided by these standards, this court conducts a de novo review, independently of the trial court, of the question whether the arbitrator exceeded the authority granted him by the parties agreement to arbitrate." (Id. at p. 945.)
In the case before us, the parties stipulated that the arbitrator was to "consider and rule on any request for recovery of attorneys fees and costs." " `In California a valid stipulation is binding upon the parties. . . . [Citations.] " (Gonzales v. Pacific Greyhound Lines (1950) 34 Cal.2d 749, 755.) Accordingly, the arbitrator clearly had the power to determine whether attorney fees should be awarded under section 998. "The recovery or nonrecovery of fees being one of the `contested issues of law and fact submitted to the arbitrator for decision [citation], [that decision is] final and [cannot] be judicially reviewed for error." (Moshonov v. Walsh (2000) 22 Cal.4th 771, 776.)
NWD has merely presumed that the arbitrator awarded fees based on the contract, but he may have awarded the fees based on Civil Code section 3250. NWD contends that Civil Code section 3250 provides for an award of attorney fees in actions on payment bonds between claimants and sureties, but it asserts that West Bay was neither a claimant nor a surety. (See Western Concrete Structures Co. v. James I. Barnes Constr. Co. (1962) 206 Cal.App.2d 1, 10-11, abrogated by statute on another point.) Even if we presume that an award of fees under this section was an error of law, such a ruling by an arbitrator is not reviewable under Moncharsh, supra, 3 Cal.4th at page 6.
Civil Code section 3250 provides: "The filing of a stop notice is not a condition precedent to the maintenance of an action against the surety or sureties on the payment bond. An action on the payment bond may be maintained separately from and without the filing of an action against the public entity by whom the contract was awarded or any officer thereof. In any action, the court shall award to the prevailing party a reasonable attorneys fee, to be taxed as costs."
"As is the case with judicial determinations, where no record is presented or available on appeal: `Every reasonable intendment will be indulged in by the courts to give effect to arbitration proceedings . . . . Thus, the burden is on the party attacking the award to affirmatively establish the existence of error by a proper record. [Citations.] We are therefore required to presume the existence of `"any condition of facts consistent with [the] validity" of the arbitrators decision and award. (Our italics; citation.)" (Taranow v. Brokstein (1982) 135 Cal.App.3d 662, 666-667.) Accordingly, we can presume the court awarded fees under Civil Code section 3250 and affirm.
Although we need not go any further, we also consider the award of fees under the contract. Courts have held that an attorney fees provision in an illegal contract is not enforceable, but these decisions have generally considered this issue only when both parties had no rights under the contract (see, e.g., Bovard v. American Horse Enterprises, Inc., supra, 201 Cal.App.3d at p. 843). In contrast, here, the subcontractor may sue under the contract, but the illegal contract is no defense to the general contractor. (Pub. Contract Code, § 4112.) However, even if we assume the contract were illegal, and even if we also assume the arbitrator incorrectly awarded fees under this contract, the award of fees under the contract is a legal decision and not reviewable. As already stressed, the stipulation between the parties gave the arbitrator the authority to award fees.
We express no opinion as to whether the attorney fees provision in the contract was enforceable.
NWD cites Loving & Evans v. Blick, supra, 33 Cal.2d at pages 609-610 and Lindenstat v. Staff Builders, Inc., supra, 55 Cal.App.4th at page 891 to support its argument that the arbitrator exceeded his power when awarding attorney fees. In both Loving and Lindenstat the courts held that the trial courts should have conducted de novo review to determine whether the contract, which authorized the arbitrators to hear the controversy, was unlawful. (Ibid.) Thus, if the contract authorizing the arbitrator to hear the controversy was void, the arbitrator had no authority to make any determinations. Here, there is no issue that the stipulation authorizing the arbitrator to hear the controversy was valid. Indeed, NWD does not argue that the arbitrator could not determine the issue of attorney fees; rather, it quarrels with the result of his decision.
Finally, we must also reject NWDs appeal because of its failure to meet its burden of establishing the contract was illegal. (Bovard v. American Horse Enterprises, Inc., supra, 201 Cal.App.3d at p. 839 [burden of proof on party attempting to show enforcement of contract would violate public policy or statute].) As already noted, when supplied with an inadequate record, we presume the existence of any facts that are consistent with the arbitrators decision and award. (Taranow v. Brokstein, supra, 135 Cal.App.3d at pp. 666-667.)
Public Contract Code section 4104 specifies: "Any officer, department, board or commission taking bids for the construction of any public work or improvement shall provide in the specifications prepared for the work or improvement or in the general conditions under which bids will be received for the doing of the work incident to the public work or improvement that any person making a bid or offer to perform the work, shall, in his or her bid or offer, set forth: [¶] (a)(1) The name and the location of the place of business of each subcontractor who will perform work or labor or render service to the prime contractor in or about the construction of the work or improvement, or a subcontractor licensed by the State of California who, under subcontract to the prime contractor, specially fabricates and installs a portion of the work or improvement according to detailed drawings contained in the plans and specifications, in an amount in excess of one-half of 1 percent of the prime contractors total bid . . . . [¶] (2)(A) Subject to subparagraph (B), any information requested by the officer, department, board, or commission concerning any subcontractor who the prime contractor is required to list under this subdivision, other than the subcontractors name and location of business, may be submitted by the prime contractor up to 24 hours after the deadline established by the officer, department, board, or commission for receipt of bids by prime contractors. . . ."
Public Contract Code section 4109 provides: "Subletting or subcontracting of any portion of the work in excess of one-half of 1 percent of the prime contractors total bid as to which no subcontractor was designated in the original bid shall only be permitted in cases of public emergency or necessity, and then only after a finding reduced to writing as a public record of the awarding authority setting forth the facts constituting the emergency or necessity."
Public Contract Code section 4106 reads: "If a prime contractor fails to specify a subcontractor or if a prime contractor specifies more than one subcontractor for the same portion of work to be performed under the contract in excess of one-half of 1 percent of the prime contractors total bid, the prime contractor agrees that he or she is fully qualified to perform that portion himself or herself, and that the prime contractor shall perform that portion himself or herself."
Public Contract Code section 4107 provides: "A prime contractor whose bid is accepted may not: [¶] (a) Substitute a person as subcontractor in place of the subcontractor listed in the original bid, except that the awarding authority, or its duly authorized officer, may, except as otherwise provided in Section 4107.5, consent to the substitution of another person as a subcontractor in any of the following situations: [& para;] (1) When the subcontractor listed in the bid after having had a reasonable opportunity to do so fails or refuses to execute a written contract, when that written contract, based upon the general terms, conditions, plans and specifications for the project involved or the terms of that subcontractors written bid, is presented to the subcontractor by the prime contractor. [¶] (2) When the listed subcontractor becomes bankrupt or insolvent. [¶] (3) When the listed subcontractor fails or refuses to perform his or her subcontract. [¶] (4) When the listed subcontractor fails or refuses to meet the bond requirements . . . . [¶] (5) When the prime contractor demonstrates to the awarding authority, or its duly authorized officer, . . . , that the name of the subcontractor was listed as the result of an inadvertent clerical error. [¶] (6) When the listed subcontractor is not licensed pursuant to the Contractors License Law. [¶] (7) When the awarding authority, or its duly authorized officer, determines that the work performed by the listed subcontractor is substantially unsatisfactory and not in substantial accordance with the plans and specifications, or that the subcontractor is substantially delaying or disrupting the progress of the work. [¶] (8) When the listed subcontractor is ineligible to work on a public works project . . . . [¶] (9) When the awarding authority determines that a listed subcontractor is not a responsible contractor . . . ."
In its briefs in this court, NWD cites only to the list of subcontractors in the bid submitted by West Bay and the letter dated November 5, 1998, written by the County of Humboldt as evidence that West Bay violated the Subletting and Subcontracting Fair Practices Act. In its papers in the trial court, NWD also argued that West Bays bid to the Humboldt County Department of Public Works was for a sum of $9,150,000; thus, it was required to list all subcontractors that would perform work costing more than $45,750 (above one-half of one percent of the total bid). Since NWD was to be paid $ 252,813 for its work and it was not on the list of subcontractors submitted with the bid, NWD asserts that West Bay violated the Fair Practices Act.
The letter dated November 5, 1998, written by the County of Humboldt, states the following: "It has come to our attention West Bay Builders, could be considering signing contracts with subcontractors not listed on the Subcontractor List submitted with their bid. It is West Bay Builders obligation to proceed with the subcontractors on the Subcontractor List or arrangement for a substitution as defined by the General condition in the Contract Documents."
The record is silent on whether West Bay failed to meet its obligation of making the proper substitution. Accordingly, the arbitrator could have found that NWD failed to establish that the contract between NWD and West Bay was illegal. In any event, as discussed ante, the parties agreed to have the arbitrator rule on the issue of attorney fees and NWD has failed to establish that the arbitrator exceeded his power in awarding attorney fees to West Bay.
DISPOSITION
The judgment is affirmed. Costs are awarded to West Bay.
We concur: Kline, P. J., and Haerle, J.