Synergy Project Management, Inc. v. City and County of San Francisco, 031419 CAAPP1, A151199
| Opinion Judge | HUMES, P.J. |
| Party Name | SYNERGY PROJECT MANAGEMENT, INC., Plaintiff and Respondent, v. CITY AND COUNTY OF SAN FRANCISCO, Defendant and Appellant. GHILOTTI BROS., INC., Plaintiff and Respondent, v. CITY AND COUNTY OF SAN FRANCISCO, Defendant and Appellant. |
| Attorney | Counsel for Defendant and Appellant: Dennis J. Herrera, City Attorney Ronald P. Flynn, Chief Deputy City Attorney Elaine M. O'Neil, Construction & Public Contracts Team Leader Jaime Huling Delaye, Deputy City Attorney Counsel for Plaintiff and Respondent Synergy Project Management, Inc.: Matthew ... |
| Judge Panel | WE CONCUR: Margulies, J. Sanchez, J. |
| Case Date | March 14, 2019 |
| Court | California Court of Appeals Court of Appeals |
Superior Court of the City and County No. CPF16514783 of San Francisco Hon. Harold E. Kahn Trial Judge
Counsel for Defendant and Appellant: Dennis J. Herrera, City Attorney Ronald P. Flynn, Chief Deputy City Attorney Elaine M. O'Neil, Construction & Public Contracts Team Leader Jaime Huling Delaye, Deputy City Attorney
Counsel for Plaintiff and Respondent Synergy Project Management, Inc.: Matthew K. Yan, Moscone Emblidge & Otis LLP Kris A. Cox, Moscone Emblidge & Otis LLP Erin H. Reding, Moscone Emblidge & Otis LLP
HUMES, P.J.
The Subletting and Subcontracting Fair Practices Act (Pub. Contract Code, § 4100 et seq.) (Act), which governs public works projects, was enacted to protect the public and subcontractors from bidding practices that “often result in financial difficulties for subcontractors and poor workmanship on public improvements.”[1] (Cal-Air Conditioning, Inc. v. Auburn Union School Dist. (1993) 21 Cal.App.4th 655, 660 (Cal-Air Conditioning).) To this end, section 4107, subdivision (a) (section 4107(a)) requires a prime contractor to obtain the consent of the awarding authority before replacing a subcontractor listed in the original bid, and it limits the awarding authority's ability to consent to specified circumstances. If the original subcontractor objects to being replaced, section 4107(a) requires the awarding authority to hold a hearing “on the prime contractor's request for substitution.”
In this case, the City and County of San Francisco (City) entered a contract with prime contractor Ghilotti Bros., Inc. (Ghilotti) for a major renovation of Haight Street. Consistent with its accepted bid, Ghilotti entered a contract with subcontractor Synergy Project Management, Inc. (Synergy) for Synergy to perform excavation and utilities work. After Synergy broke five gas lines and engaged in other unsafe behavior, the City invoked a provision of its contract with Ghilotti to direct Ghilotti to remove Synergy from the project and substitute a new subcontractor. Under protest, Ghilotti terminated Synergy and identified two potential replacement contractors to the City, and Synergy objected to being replaced. A hearing was held under section 4107(a), and the hearing officer determined that Synergy's poor performance established a statutory ground for substitution.
Synergy and Ghilotti each filed a petition for a writ of administrative mandate in the trial court. Abandoning any challenge to the determination that Synergy's performance justified substitution, they contended the hearing officer lacked jurisdiction because Ghilotti had not made a “request” for substitution within the meaning of either section 4107(a) or the relevant provision of the City-Ghilotti contract. The court agreed and granted the petitions. On appeal, the City claims the court's ruling was erroneous, and we agree. Even though the statute contemplates that the prime contractor will normally be the party to seek substitution, the procedure followed here “complied in substance with every reasonable objective of the statute.” (Titan Electric Corp. v. Los Angeles Unified School Dist. (2008) 160 Cal.App.4th 188, 208 (Titan).) Thus, the hearing officer had jurisdiction under the Act to issue a decision, and we need not address whether jurisdiction separately existed under the City-Ghilotti contract.2 Accordingly, we reverse.
I. Factual and Procedural
Background
Ghilotti was the prime contractor for the City on a major project to renovate Haight Street. Section 4.04(C) of the contract between the City and Ghilotti provides:
When a Subcontractor fails to prosecute a portion of the Work in a manner satisfactory to the City, Contractor shall remove such Subcontractor immediately upon written request of the City, and shall request approval of a replacement Subcontractor to perform the work in accordance with Administrative Code section 6.21(A)(9) and the [Act], at no added cost to the City.
The contract between Ghilotti and Synergy incorporates the terms of the City-Ghilotti contract, and Synergy agreed that Ghilotti would “have the same rights and privileges as against [Synergy] as the [City]... has against [Ghilotti]” under the City-Ghilotti contract.
Work on the Haight Street project began in April 2015. The hearing officer found that over the next five months, Synergy engaged in many unsafe practices that rendered its work “substantially unsatisfactory and not in substantial accordance with the plans and specifications” under section 4107(a)(7). As summarized by the hearing officer, “Synergy caused five gas line breaks, at least four of which resulted from Synergy's unsafe practices.... Synergy improperly shored trenches on multiple occasions, which could have led to street collapse, trench collapse, and the injury or death of workers or members of the public.... Synergy's failure to properly store equipment led to a pedestrian trip and fall. Its workers also engaged in highly dangerous conduct when they dangled the Synergy foreman by his ankles into an open manhole with no safety equipment or traffic control. And there were many other safety problems.”
On October 8, 2015, after Synergy caused the fifth gas line break, the City issued a stop-work order. In an October 9 letter, the City directed Ghilotti, in accordance with Section 4.04 of their contract, “to remove [Synergy] immediately” and “immediately... request approval of a replacement subcontractor to perform the Work.”
In an October 14 letter, the City notified Synergy that it had “directed Ghilotti to remove Synergy and to substitute a replacement contractor” based on Synergy's unsatisfactory work. The City represented that in response, Ghilotti “stat[ed] that it will replace Synergy by either self-performing the work or by subcontracting with one or more entities that Ghilotti has not yet identified.” Finally, the City stated that the letter constituted its notice to Synergy under section 4107 that Synergy would be replaced and that Synergy had five days to submit a written objection or else be deemed to “consent to the substitution.”
On October 15, Ghilotti wrote to Synergy that “[a]s the City's directive does not provide [Ghilotti] with an alternative to removing [Synergy], to the extent that the City's allegations are valid, it is impossible for [Synergy] to cure the breaches and violations that the City has alleged. Accordingly, effective 48 hours after this notice, [Synergy's] right to prosecute and complete the work shall be deemed to be terminated.” A few weeks later, Ghilotti notified the City that it “substantively and procedurally dispute[d] the validity of the City's replacement demand” but had “solicited proposals for the completion of Synergy's remaining scope of work.” Ghilotti provided the names of two subcontractors it proposed as potential substitutes should it be “ultimately determined that the City's replacement demand is legally valid and that [Ghilotti] is required to replace Synergy pursuant thereto.”
Meanwhile, Synergy responded to the City's October 14 letter by saying it “strongly object[ed] to [the City's] unilateral decision of subcontractor substitution” for numerous reasons. In response, the City scheduled an administrative hearing under section 4107(a), which occurred in December 2015. Only the City and Synergy appeared at the hearing, although Ghilotti was permitted to submit written objections and briefing.
Synergy and Ghilotti argued that the hearing officer did not have jurisdiction to hold a hearing under section 4107(a) because the City, not Ghilotti, had elected to replace Synergy. The hearing officer disagreed, concluding as follows:
Section 4107(a)(7) anticipates that a public entity may initiate a proceeding based on its determination that a subcontractor's work was substantially unsatisfactory. Interpreting Section 4107(a)(7) in the manner proposed by Synergy and [Ghilotti] leads to an absurd result: a public entity having no control over the subcontractors working on its project. This interpretation does not comport with the language or intent of the statute. Moreover, the contract between [Ghilotti] and [the City] incorporates the Section 4107 procedure, which separately provides a basis for this proceeding. And finally, even if Section 4107 is not directly applicable and is not applied by virtue of the contract, Section 4107 does not prohibit an administrative proceeding offered for a subcontractor to object to a public entity's removal determination.
As mentioned above, the hearing officer also found by a preponderance of the evidence that Synergy's work on the Haight Street project was unsatisfactory and noncompliant under section 4107(a)(7). The hearing officer's January 2016 decision therefore upheld the City's “determination to remove Synergy as a subcontractor” on the project.
Synergy and Ghilotti each filed a petition for a writ of administrative mandate under Code of Civil Procedure section 1094.5 (section 1094.5) in the trial court, which consolidated the actions.3 Neither petitioning party pursued a challenge to the hearing officer's factual findings involving Synergy's work on the project or his ultimate conclusion that Synergy's performance was “substantially unsatisfactory and not in substantial accordance with the plans and specifications” under section 4107(a)(7). Rather, Synergy and Ghilotti moved for issuance of a writ on the basis that the City had not proceeded in...
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