Clark Bros., Inc. v. N. Edwards Water Dist.
| Decision Date | 22 April 2022 |
| Docket Number | D077200 |
| Parties | CLARK BROS., INC., Plaintiff, Cross-defendant and Respondent, v. NORTH EDWARDS WATER DISTRICT, Defendant, Cross-complainant and Appellant; Travelers Casualty and Surety of America, Cross-defendant and Respondent. |
| Court | California Court of Appeals Court of Appeals |
Certified for Partial Publication.*
Leon A. Brunet and Leon Alejandro Brunet for Defendant, Cross-complainant and Appellant.
SMTD LAW and Jonathan J. Dunn, Irvine, for Plaintiff, Cross-defendants and Respondents.
Drinking water provided by North Edwards Water District (North Edwards) to its customers contains three times the legal limit of arsenic, a carcinogen. Using funds earmarked for safe drinking water, the State of California (State) agreed to pay for North Edwards to construct a water treatment facility (the Project) to address this issue. In December 2013, Clark Bros., Inc. (Clark), a general contractor, was awarded the $6.2 million contract (Contract). But almost from inception, disputes arose between Clark and North Edwards. Ultimately in October 2014, while Clark still had three months to perform, North Edwards terminated the Contract. To date, the Project has not been completed.
Clark sued North Edwards for breach of contract (and related claims); North Edwards cross-complained against Clark alleging similar theories. After a six week trial, a jury unanimously found North Edwards breached the Contract and awarded Clark over $3 million in damages. Clark also prevailed on North Edwards's cross-complaint.
Under Public Contracts Code 1 section 20104.50, subdivision (b), a local agency that fails to pay progress payments within 30 days "shall pay interest" on the late payment. Here, as it awaited money from the State, North Edwards frequently took 60 days or more to pay. Based on this statute, which was incorporated into the Contract, the court instructed the jury that North Edwards was contractually "required" to pay Clark within 30 days. In closing argument, Clark's attorney used this instruction to argue that North Edwards breached by making late progress payments.
On appeal, North Edwards contends the instruction was prejudicially erroneous because (1) section 20104.50 provides for interest on late payments, but does not make late payment a breach of contract; (2) the statute does not apply to State-funded projects; (3) Clark waived its claim by repeatedly accepting late payments; and (4) North Edwards was not required to pay Clark until it received reimbursement from the State for each payment claim.
We agree with North Edwards's first argument— section 20104.50 does not "require" payment within 30 days. Rather, it requires late payments be accompanied by 10 percent interest. The legislative purpose is to create a strong economic incentive for local government to pay promptly and to compensate the contractor when delay occurs—not to put local government in breach on multimillion dollar public works contracts whenever a progress payment is late.
As we will explain, however, the error was not prejudicial. There was substantial evidence that North Edwards committed several far more serious breaches. More importantly, the jury awarded the exact amount of damages calculated by Clark's expert, which did not include any amount for late payment. Thus, the record affirmatively shows the verdict was unaffected by any instructional error concerning prompt payment requirements.
North Edwards further contends the trial court prejudicially erred in making several evidentiary rulings. We also reject these contentions and affirm the judgment.
North Edwards is a public agency that furnishes water to about 220 customers in the Mojave Desert. It has one employee, Dollie Dimples Kostopoulos.
In June 2010, the State funded a study to determine how best to remove excessive arsenic levels from North Edwards's water supply. Three companies—Filtronics, Layne Christensen, and Pureflow—participated in a simulated "full scale arsenic removal." According to AECOM Technical Services, Inc. (AECOM), the engineering firm administering the study, Layne Christensen won the competition. Pureflow finished last.
Although the study was intended to objectively determine the best filter system subcontractor, even after Pureflow lost North Edwards insisted that all three companies be allowed to bid on the Project. Jesse Dhaliwal, an engineer employed by the State, disagreed because "Layne [Christensen] was the clear winner." Nevertheless, Clifford Moyle, a North Edwards board (Board) member told Dhaliwal that the Board had the "right" to choose. Moyle, who describes himself as "an expert in all things construction," threatened that if the State did not allow North Edwards to choose the filter subcontractor, it would scuttle the Project and supply arsenic laden water "forever."
For reasons never fully explained despite six weeks of testimony, North Edwards was adamant that Pureflow be selected, even though:
The Board's insistence was also a bit puzzling because Pureflow does not actually manufacture anything. It does not have a contractor's license, it has no proprietary designs or patents, and does not even own a wrench. Everything Pureflow sells is made and installed by other companies.
In any event, Dhaliwal backed down and allowed North Edwards to select Pureflow as the filter system subcontractor. Shortly after, Pureflow asked to be paid about $600,000 in advance, before any equipment was even manufactured. The State rejected that notion, countering that no payments would be made until at least half the equipment was delivered to the job site.
On January 8, 2013—before general contractors had even bid—Pureflow and the State compromised on payment terms. They agreed that Pureflow would be paid for each major piece of equipment as and when it was manufactured and passed inspection at the manufacturing facility. This was incorporated into the Project specifications, making it binding on whichever general contractor was awarded the contract.
In early May 2013, the State agreed to fund $4.9 million "to assist in financing a project which will enable [North Edwards] to meet safe drinking water standards ...." North Edwards was "solely responsible" for the Project's design and construction. The State agreed to disburse funds to North Edwards after approving progress payment claims. An accompanying document informed North Edwards it was solely responsible for paying contractors "in a timely manner per the contractual requirements between them irrespective of whether payment has been received from the [State]."
About three weeks later, North Edwards hired AECOM as the Project's engineer and its representative on the job. Around the same time, Pureflow sent North Edwards a revised quotation ($959,815) listing equipment the successful bidding contractor would be obligated to purchase from Pureflow at specified prices.2 The quote states the general contractor will pay Pureflow as and when equipment was made and passed inspection.
Out of 10 general contractors submitting bids, Clark's was the lowest at about $6.2 million. In December 2013, after the State increased funding to $7.8 million, North Edwards awarded the Contract to Clark. Pureflow told Clark it would start fabricating the equipment and expected to have all of it delivered to the job site within 18 weeks after AECOM approved its drawings. On January 22, 2014,3 Clark's one year period to complete the Project commenced.
Six days later, Pureflow complained of cash flow problems. Clark sought to reassure Patrick Kennedy, Pureflow's owner, that as a matter of practice Clark paid its subcontractors within 10 days after receiving payment from the Owner.
At a preconstruction meeting on January 30, Pureflow stated it would complete performance by September 16. It also asked to be paid in advance —even though (1) the State had already rejected that proposal a year ago; and (2) just two weeks earlier Clark accepted Pureflow's quotation, which provided Pureflow would be paid as equipment was manufactured and passed inspection. The State once again rejected Pureflow's request for money up front.
As might be expected in a State-funded but locally administered project, getting progress payments approved by the State and money disbursed takes time. At the January preconstruction meeting, Dhaliwal said the State would process payment requests in 45 to 60 days. But in practice, it commonly took 90 days or longer.
The project site was mostly vacant land, but there were two power poles and overhead electrical lines running through the middle of the site. Relocating them was an important first task because the poles were "right ... where structural concrete slabs went" and the overhead power lines were a significant danger for workers using heavy equipment. As the owner, it was North Edwards's obligation to move the poles and power lines before Clark started work. Based on information supplied by AECOM and North Edwards, Southern California Edison (Edison) planned to move the poles by March. Clark scheduled his work accordingly, to begin on site in April.
In January, however, Clark noticed that the planned relocation would place the poles in conflict with Project water lines and a block wall. Clark was right, and as a result AECOM had to go back to the drawing board. The only solution was to move the poles and power across the street onto private property. It was North Edwards's and AECOM's responsibility—not Clark's—to obtain an easement from that landowner, redesign the relocation, and obtain Edison's approval for the new plans. AECOM did not submit...
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