Berry & Berry, Inc. v. Madera Hotel LLC
| Decision Date | 07 May 2019 |
| Docket Number | F075645 |
| Court | California Court of Appeals Court of Appeals |
| Parties | BERRY & BERRY, INC., Plaintiff and Respondent, v. MADERA HOTEL LLC, Defendant; KANWAL J. SINGH, Intervener and Appellant. |
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
OPINIONAPPEAL from a judgment of the Superior Court of Madera County. Michael J. Jurkovich, Judge.
Doerksen Taylor Stokes, Charles L. Doerksen and Travis R. Stokes for Defendant, Intervener and Appellant.
Wanger Jones Helsley, Kurt F. Vote and Micaela L. Neal for Plaintiff and Respondent.
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After a construction company finished building a hotel and restaurant, it sued the hotel owner for breach of contract claiming an additional $2.7 million was owed under the construction agreement. The entity that owns the hotel and restaurant building is a limited liability company formed by the principal of the construction company and a doctor, each holding a 50 percent membership interest. The dispute over the cost of construction was tried before a referee (Referee) who found there was a valid contract, part written and part oral, and awarded damages of $2.2 million. The damages related to work not included in the original estimate of the construction cost, such as the separate building for the restaurant and the addition of a fourth floor and functional balconies to the hotel. The Referee also awarded prejudgment interest under the statute that requires such an award on damages that are "certain, or capable of being made certain by calculation." (Civ. Code, § 3287, subd. (a).) This appeal challenges both the determination of liability for breach of contract and the award of prejudgment interest.
First, we uphold the determination of liability because the Referee did not err in deciding the parties formed an enforceable construction contract with a cost-plus pricing term. Substantial evidence supports the Referee's finding that the doctor waived the provision in the limited liability company's operating agreement that required the unanimous written consent of the members to authorize a contract with an entity (like the construction company) controlled by one of the members.
Second, the amount owed under the construction contract does not qualify as liquidated damages because the Referee, sitting as the trier of fact, was required to determine which adjustments to the $2.7 million claimed in the complaint and opening trial brief were appropriate. Those adjustments, which totaled nearly half a million dollars, were not capable of being made certain without the Referee's findings of fact. Therefore, the construction company was not entitled to mandatory prejudgment interest under Civil Code section 3287, subdivision (a). However, the Referee's alternate determination, that prejudgment interest was appropriate under the discretionary provision set forth in Civil Code section 3287, subdivision (b), is adequately supported by his findings of fact and legal analysis, which appellant has not challenged. Thus,prejudgment interest should run from the filing of the complaint on March 19, 2013, not the earlier date of February 7, 2012.
We therefore reverse the judgment in part and remand for a modification of the award of prejudgment interest.
David L. Berry and Kanwal J. Singh, M.D., met as members of the board of Madera Community Hospital. In 1999, they jointly acquired a parcel located next to State Route 99 and across from Madera Community Hospital. In 2005, David Berry finished building Dr. Singh an office on leased land that was part of the hospital's campus. Dr. Singh testified they did not need a contract for the office because David Berry already had built two offices and they used the same plans with slight modifications. Dr. Singh testified David Berry estimated the cost at between $100 and $115 per square foot and the final cost was a bit more but in that ballpark.
In May 2007, David Berry and Dr. Singh signed an agreement to construct a motel and restaurant complex on their parcel across from the hospital. In September 2007, David Berry submitted a franchise application and fee to Marriott International, Inc. The application stated the documents creating a limited liability company were being processed.
On November 28, 2007, the operating agreement for defendant Madera Hotel, LLC, a California limited liability company (LLC), was signed by Dr. Singh, David Berry, and his wife Patricia Rea Berry. David Berry and his wife signed in their capacities as trustees of the David and Patricia Berry Living Trust (Berry Trust), which owns a 50 percent membership interest in the LLC. Dr. Singh owns the other 50 percent membership interest. The LLC was formed to develop, own and operate the hotel and to construct and lease out the restaurant facility. The operating agreement named David Berry as the LLC's managing member and required the unanimous written consent of the members for certain types of transactions.
In December 2007, after the LLC's articles of organization were filed by the Secretary of State, David Berry and Dr. Singh signed a deed transferring the real estate to the LLC. Effective January 14, 2008, the LLC and Marriott International, Inc. entered into a Springhill Suites by Marriott Franchise Agreement pursuant to which the LLC agreed to operate the proposed hotel in accordance with the standards and specifications set forth in the agreement.
David Berry and Dr. Singh agreed to use David Berry's construction company, plaintiff Berry & Berry, Inc. (Berry Construction), to design and build the hotel. Berry Construction and the LLC agreed to a document labeled "UNDERSTANDING AND AGREEMENT TO DEVELOP AND CONSTRUCT A HOTEL" and dated January 25, 2008. Todd Phillips, the project manager and a grandson of David Berry, signed the document on behalf of Berry Construction and dated his signature April 1, 2008. David Berry signed on behalf of the LLC and dated his signature April 3, 2008. He did not obtain the unanimous written consent of the members of the LLC to enter into the agreement. The Referee1 found the document was "the only written agreement signed by the LLC and [Berry Construction] for the construction project." The document's seven sentences stated:
The three-page exhibit listed over 110 items and provided an estimate of each item's cost. For example, the sixth item was "02210 Grading & Paving" and the amount was $382,000. "05102 Elevator Hoist Beam" was estimated at $1,250 and "06100 Framing" at $1,081,161. No amount was entered on the lines for "Overhead" and "Profit." The hard cost subtotal was $8,052,780. With liability and course of construction insurance added, the total was $8,217,963.
The document's brevity caused the Referee to find "most of the important things pertaining to the agreement are not in writing." The Referee also found the dollar figures in the attachment were estimates and related only to the hotel (i.e., they did not include the restaurant part of the project). Under the agreement, the design process was part of what the LLC engaged Berry Construction to do. As a design-build project, the absence of a completed design allowed the owners to customize the hotel. To illustrate this flexibility, the Referee mentioned the addition of functional exterior balconies to enhance the hotel's aesthetics and the addition of a fourth floor containing suites for Dr. Singh and Mr. Berry.
The Referee found the parties did not agree in advance on the final cost of the project. Instead, they agreed Berry Construction would be paid on a modified cost-plus basis.2 Under that arrangement, Berry Construction was to be paid for all costs incurred in connection with the project, including burden on labor for work actually provided, but without charges for home office overhead and profit.
The Referee found the written document signed by the LLC and Berry Construction was a contract that was amended later to expand the scope of the work for the project. The amendments were not written. Instead, the parties orally agreed to additional work during the course of construction. The written agreement did not require any amendments to be in writing and, therefore, the oral modifications were not contrary to the written terms of the agreement.
Site work and staking started in late 2007 and building permits were issued in the spring of 2008. On May 27, 2008, the LLC obtained a construction loan from Citizens Business Bank (Bank) for $8,050,000 to provide a portion of the cost of building the hotel. The construction loan agreement and related promissory note were signed by David Berry as manager of the LLC and by Dr. Singh as a member of the LLC. The loan's maturity date was November 27, 2009, and it was guaranteed by Berry Trust and Dr. Singh.
The loan documents included an "ASSIGNMENT OF CONSTRUCTION CONTRACTS." Near the top of the document, the LLC was identified as "Borrower," the Bank as "Lender," and Berry...
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