Thompson Pacific Const. v. Sunnyvale

• Decision Date: 21 September 2007
• Docket Number: No. H029818.,H029818.
• Citation: 155 Cal.App.4th 525,66 Cal.Rptr.3d 175
• Court: California Court of Appeals Court of Appeals
• Parties: THOMPSON PACIFIC CONSTRUCTION, INC., Plaintiff, Cross-Defendant and Appellant, v. CITY OF SUNNYVALE, Defendant, Cross-Complainant and Respondent.

66 Cal.Rptr.3d 175

155 Cal.App.4th 525

THOMPSON PACIFIC CONSTRUCTION, INC., Plaintiff, Cross-Defendant and Appellant, v. CITY OF SUNNYVALE, Defendant, Cross-Complainant and Respondent.

No. H029818.

Court of Appeal, Sixth District.

September 21, 2007.

McInerney & Dillon, Robert L. Leslie, Alexander Bannon, Oakland, for Plaintiff/Cross-Defendant/Appellant Thompson Pacific Construction, Inc.

City Attorney, David E. Kahn, Rebecca L. Moon, Assistant City Attorney, for Defendant/Cross-Complainant/ Respondent City of Sunnyvale.

Attorney General, Edmund G. Brown, Jr., David S. Chaney, Chief Assistant Attorney General, Alfredo Terrazas, Senior Assistant Attorney General, Frank H. Pacoe, Supervising Deputy Attorney General, Joshua A. Room, Deputy Attorney General, for Brief of Amicus Curiae Registrar of Contractors, Contrators' State License Board on behalf of Defendant, Cross-Complainant and Respondent.

Goodin, MacBride, Squeri, Day & Lamprey, Wayne T. Lamprey, Francine T. Radford, San Francisco, for Amicus Curiae Taxpayers Against Fraud Education Fund on behalf of Defendant, Cross-Complainant and Respondent.

PREMO, J.

Thompson Pacific Construction, Inc. (Thompson), entered into a contract with the City of Sunnyvale (City) for construction of a public building. Disputes arose leading to this lawsuit in which the parties sued each other for breach of contract and various statutory violations. A jury rendered a verdict in favor of City, awarding damages for breach of the covenant of good faith and fair dealing and statutory penalties under the Subletting and Subcontracting Fair Practices Act (Pub. Contract Code, § 4100 et seq.) (FPA)¹ and the California False Claims Act (Gov.Code, § 12651) (CFCA). Thompson appeals.

We conclude that the trial court did not have jurisdiction to impose penalties under the FPA. We also conclude that the evidence was insufficient to support the amount of damages the jury awarded for breach of the covenant of good faith but since the trial court subtracted the full amount of those damages from the judgment the error does not warrant reversal. We reject Thompson's remaining claims, modify the judgment to strike the FPA penalties, and as modified, affirm.

I. FACTUAL AND PROCEDURAL BACKGROUND

A. Introduction

On April 5, 2002, Thompson and City entered into a contract under which Thompson was to build the Sunnyvale Senior Center. The contract provided that Thompson would substantially complete the project by May 27, 2003, and have it finally completed 30 days later.

Problems arose during construction and the building was not substantially complete by the end of May 2003. City moved its administrative staff into the building in June and held a grand opening on July 19, 2003. Thompson submitted its final billing immediately thereafter but City refused to release the full contract price, maintaining that the project was still incomplete and did not conform to the quality standards of the contract. There followed a contentious dispute about the work that remained to be done accompanied by Thompson's repeated demands for full payment.

Thompson completely ceased work in November 2003 without completing the project. City filed a notice of cessation, stating that work on the project had ceased on November 21, 2003, and completed the project itself.

Pursuant to the contract, City had retained 10 percent of each progress payment it made to Thompson during the course of construction. The total amount withheld is referred to as the "retention." City eventually released all but $279,428 of the retention, which City withheld for work it claimed was either not complete or completed improperly and as liquidated damages for delayed completion.

B. Thompson's Second Amended Complaint

Thompson sued City to recover the unpaid retention and additional damages for extra work. Thompson's first cause of action for breach of contract alleged that City's plans and specifications were deficient, which caused Thompson to perform extra work outside the scope of the contract, delayed performance, and caused Thompson to incur additional costs. Thompson also alleged that City purposefully delayed the issuance of change orders, withheld payment for work performed under the contract, and failed to pay interest on the improperly withheld payments. A second cause of action alleged violation of section 7107, which requires prompt payment for the construction of any public work of improvement.

C. City's Cross-Complaint

City filed a cross-complaint in which it alleged that Thompson had falsified its bid documents, failed to pursue the project diligently, failed to complete the project, refused to cooperate in closing out the project, harassed City staff, improperly substituted subcontractors, and submitted pay requests for work that had not been completed. The cross-complaint contained five causes of action: (1) breach of contract, (2) breach of the implied covenant of good faith and fair dealing, (3) breach of express warranty, (4) declaratory relief, and (5) violation of the FPA. The FPA cause of action sought damages and statutory penalties.

D. City's Amended Cross-Complaint

On September 30, 2005, the Friday before trial was set to begin, City filed a request for leave to amend its cross-complaint to add six causes of action for violation of the CFCA. Thompson opposed the request but declined the trial court's invitation to continue the trial date. The trial court granted the motion. City filed the amended cross-complaint on October 11, 2005, while trial was underway. Thompson promptly filed a demurrer. The trial court overruled the demurrer, finding that Thompson had waived its right to demur by agreeing to go to trial.

E. The Judgment

The jury rejected Thompson's two causes of action, finding that City had not breached the contract and that it had not improperly withheld the retention beyond the date allowed by section 7107. As to City's cross-complaint, the jury found that Thompson had breached the implied covenant of good faith and fair dealing. (The special verdict form did not ask the jury to decide whether Thompson had also breached the express terms of the contract.) The jury determined that as a result of Thompson's breach of the covenant City suffered damages of $279,428— the exact amount Thompson claimed City had wrongfully withheld from payment under the contract. The jury also found that Thompson had submitted three false claims in violation of the CFCA, that City suffered no compensatory damages, and that Thompson should be assessed a penalty of $10,000 for each false claim. Finally, the jury found that Thompson had violated the FPA by substituting subcontractors it had not listed in its bid documents but that City had suffered no compensatory damages as a result. The jury assessed a total penalty of $91,067.09 for the FPA violations.

Thompson moved for a new trial arguing, among other things, that the trial court did not have jurisdiction over the FPA claims because the Public Contract Code vests that jurisdiction in the "awarding authority." (§ 4110.) The trial court denied the motion, concluding that a new trial would not remedy a lack of jurisdiction.

The trial court entered judgment for City. The court calculated the amount of the judgment by adding the jury's award for breach of the covenant of good faith and fair dealing ($279,428) and the CFCA and FPA penalties ($30,000 and $91,067.09). Presumably intending to avoid giving City a double recovery, the trial court then subtracted $279,428, the amount City already held, from the total of the jury's award, making the net judgment $121,067.09 plus attorney fees and costs. Pursuant to section 7107, the trial court awarded attorney fees of $377,799 to City. Thompson has timely appealed.

II. CONTENTIONS

Thompson raises the following contentions on appeal:

A. The trial court lacked jurisdiction to consider City's FPA claim;

B. There was insufficient evidence to support the jury's award of $279,428 as damages for breach of the covenant of good faith and fair dealing;

C. The trial court abused its discretion in granting leave to amend the cross-complaint and erred in failing to rule upon Thompson's demurrer;

D. The trial court erred in refusing Thompson's special instruction defining the phrase "false claim" for purposes of the CFCA causes of action;

E. The special verdict form was insufficient;

F. The jury instruction on breach of the implied warranty of correctness was insufficient;

G. The trial court erred in admitting evidence of Thompson's destruction of documents and evidence that a subcontractor did not pay prevailing wage;

H. The jury awarded inadequate damages to Thompson;

I. The attorney fee award of $377,799 is unjustified, excessive, and should have required a finding that Thompson's suit was frivolous.

III. DISCUSSION

A. Jurisdiction Over FPA Claim

1. Background

Thompson argues that under section 4110, the trial court did not have jurisdiction over the FPA cause of action. Although Thompson's argument is nominally directed to the whole of City's FPA claim, the concern is, in substance, that the trial court awarded penalties that only City had the power to impose. (§ 4110.) We begin our discussion with a brief summary of the relevant provisions of the FPA.

The FPA requires that, in bidding to construct a work of public improvement, a prime contractor must list each subcontractor that will perform more than one-half of 1 percent of the total bid. (§ 4104, subd. (a).) A prime contractor whose bid is accepted may not "substitute a person as subcontractor in place of the subcontractor listed in the original bid" absent specified circumstances and the approval of the awarding authority. (§ 4107.) Section 4110 provides penalties for violation of these provisions: "A prime contractor violating any of the provisions of this chapter violates his or her contract and the awarding authority may exercise the option, in its own...