Fassberg Const. Co. v. Housing Authority

• Decision Date: 24 May 2007
• Docket Number: No. B181989.,B181989.
• Citation: 151 Cal.App.4th 267,60 Cal.Rptr.3d 375
• Court: California Court of Appeals Court of Appeals
• Parties: FASSBERG CONSTRUCTION COMPANY, Plaintiff, Cross-defendant and Appellant, v. HOUSING AUTHORITY OF the CITY OF LOS ANGELES, Defendant, Cross-complainant and Appellant.

60 Cal.Rptr.3d 375

151 Cal.App.4th 267

FASSBERG CONSTRUCTION COMPANY, Plaintiff, Cross-defendant and Appellant, v. HOUSING AUTHORITY OF the CITY OF LOS ANGELES, Defendant, Cross-complainant and Appellant.

No. B181989.

Court of Appeal, Second District, Division 3.

May 24, 2007.

As Modified on Denial of Rehearing June 21, 2007.

Horvitz & Levy, Frederic D. Cohen, Daniel J. Gonzalez and Dean A. Bochner, Encino, for Plaintiff, Cross-defendant, and Appellant.

Rockard J. Delgadillo, City Attorney, Claudia McGee Henry, Assistant City Attorney, and Gerald M. Sato, Deputy City Attorney, for Defendant; Cross-complainant and Appellant.

CROSKEY, J.

Fassberg Construction Company (Fassberg) appeals a judgment, after a jury trial, denying it relief on its complaint and awarding the Housing Authority of the City of Los Angeles (Housing Authority) $3,960,500, exclusive of costs, on its cross-complaint. The action arises from a construction contract between the Housing Authority as owner and Fassberg as general contractor. The jury found that Fassberg breached the contract, that Fassberg knowingly submitted 2,983 "false claims" to the Housing Authority, and that the Housing Authority suffered $1,104,000 in damages resulting from the breach of contract and $455,000 in damages resulting from the false claims. The court trebled the latter figure and awarded a civil penalty of $500 per false claim pursuant to the California False Claims Act (Gov.Code, § 12650 et seq.). The jury also found Fassberg liable for intentional misrepresentation and awarded the Housing Authority $1,559,000 in compensatory damages and $1,200,000 in punitive damages.

The court concluded that the punitive damages award duplicated the treble damages award and civil penalty, and required an election of remedies. The Housing Authority elected to recover damages for breach of contract, treble damages for false claims, and the civil penalty. The court refused to reduce the judgment by the 10 percent of the contract price that the Housing Authority retained pursuant to the contract and continues to withhold. Both parties appealed.

Fassberg challenges the civil penalty and treble damages award for false claims, contending the evidence does not support the findings that it submitted 2,983 false claims and that the Housing Authority suffered $455,000 in damages as a result. Fassberg also challenges the amount of damages awarded for breach of contract, the awards of compensatory and punitive damages for misrepresentation, and the denial of a setoff for the retention proceeds. The Housing Authority challenges the required election of remedies, contending it is entitled to recover punitive damages in addition to the amounts awarded in the judgment. The Housing Authority also challenges the denial of its motion for expert witness fees based on a statutory offer to compromise.

We conclude that the California False Claims Act authorizes an award of treble damages for knowingly presenting either "a false claim" or "a false record or statement" for payment or approval of a false claim, but authorizes a civil penalty only for each false claim. Weekly payroll reports submitted in support of requests for payment on a construction contract and change order proposals requesting adjustments in the contract price may be false records or statements presented for payment or approval of a claim, but are not "claims" under the act and alone cannot support a civil penalty. Moreover, the measure of damages for false claims is the amount of injury proximately caused by the false claims. That amount does not include a shortfall in the payment of prevailing wages to workers if the underpayment did not increase the cost or result in any loss to the public agency.

Our principal holdings are that (1) the evidence does not support the finding of 2,983 false claims and does not establish a sufficient basis for the civil penalty; (2) the evidence does not support the finding that the Housing Authority suffered $455,000 in damages for false claims and does not support the treble damages award; (3) the damages awarded for breach of contract are excessive; (4) the award of compensatory damages for misrepresentation is not supported by substantial evidence; and (5) the court properly required an election of remedies by the Housing Authority. We also hold that Fassberg failed to demonstrate error with respect to the trial court's ruling on its claim for damages due to delay; Fassberg is entitled to recover the retention proceeds; and the denial of the Housing Authority's motion for expert witness fees based on the statutory offer to compromise was error. We will therefore reverse the judgment in part with directions. We also will affirm the judgment as to the denial of relief to Fassberg on its complaint and affirm the denial of Fassberg's motion for partial judgment notwithstanding the verdict with respect to the award of damages for false claims.

FACTUAL AND PROCEDURAL BACKGROUND

1. Construction Contract

The Housing Authority is a public agency that provides affordable housing to low-income persons. Fassberg is a general contractor. The Housing Authority and Fassberg entered into a contract dated April 5, 2000, providing for Fassberg to build 25 residential buildings, comprising 156 dwelling units, and a maintenance building. The total contract price was $12,863,690. The construction was to be completed within 270 days after a notice to proceed. The contract provided for liquidated damages payable to the Housing Authority in the amount of $1,500 per day if Fassberg failed to timely complete the work.

The contract provided for periodic progress payments based on Fassberg's estimates of the value of work performed under the contract, subject to approval by the Housing Authority. Fassberg agreed to submit with each request for progress payment a certification that the amounts requested were for performance in accordance with the contract specifications, that payments to subcontractors and suppliers had been made from previous progress payments received, and that timely payments would be made from the requested progress payment. The contract provided for the Housing Authority to "retain ten (10) percent of the amount of progress payments until completion and acceptance of all work under the contract." The Housing Authority agreed to make the final payment due to Fassberg under the contract after (1) the completion and final acceptance of all work under the contract, and (2) the receipt of a release of all claims against the Housing Authority arising by virtue of the contract, with the exception of any claims clearly specified by Fassberg in amount and nature, as to which claims Fassberg could not request final payment.

Fassberg agreed to pay prevailing wages and benefits at rates determined by the United States Secretary of Labor. Fassberg also agreed to submit weekly payroll reports stating the classification of and hourly wages paid to each worker and other information, together with a certification signed by Fassberg or the subcontractor responsible for paying the worker confirming that the information provided was correct and complete and that each worker was paid not less than the applicable wage rate and benefits. The contract stated that the falsification of any certification could subject Fassberg to civil or criminal prosecution.

The contract stated that the Housing Authority could issue a change order at any time altering the scope of work. If a change order caused an increase or decrease in either the cost of construction or the time to perform the contract, the Housing Authority was required to "make an equitable adjustment and modify the contract in writing." The contract also provided that if any written or oral order by the Housing Authority resulted in a change in the scope or duration of work, Fassberg could make a "written proposal for equitable adjustment" with an itemized breakdown of increases and decreases in its direct costs, indirect costs, and profit. The Housing Authority agreed to "act on proposals within 30 days after their receipt, or notify the Contractor of the date when such action will be taken." The parties refer to proposals for equitable adjustment as change order proposals. The contract also stated that if the Housing Authority caused a delay in the work for an unreasonable period of time resulting in an increase in the cost to perform the work, Fassberg was entitled to additional compensation.

2. Contract Performance

The Housing Authority issued a notice to proceed with construction beginning May 15, 2000. The Housing Authority hired a construction management company, Dugan & Associates Construction Management (Dugan), a few weeks later. The construction project experienced delays due to changes made by the Housing Authority in the plans and specifications, faulty construction by Fassberg and its subcontractors, understaffing by Fassberg and its subcontractors, and other reasons. The first change order, issued on April 23, 2001, extended the contract performance period by 167 days with no change in the contract price. The Housing Authority later agreed to other time extensions.

Fassberg submitted approximately 224 change order proposals to modify the contract price due to changes in the work or to extend the time for contract performance, including both proposed price increases due to additional work and proposed price decreases due to deleted work.¹ The Housing Authority determined that many of the proposed price increases were excessive and that some of the work for which Fassberg requested a price increase was already included in the contract scope of work or in a prior change order proposal. The contract required the Housing Authority to "act on [change order] proposals within 30 days after their receipt, or notify the Contractor of the date when such action will be taken." In practice, however, the Housing Authority often took much longer...