Walsh v. West Valley Mission Community College Dist.

• Decision Date: 02 October 1998
• Docket Number: No. H016564,H016564
• Citation: 78 Cal.Rptr.2d 725,66 Cal.App.4th 1532
• Court: California Court of Appeals Court of Appeals
• Parties: , 98 Cal. Daily Op. Serv. 7602, 98 Daily Journal D.A.R. 10,542 Edward M. WALSH, As Trustee in Bankruptcy, etc., Plaintiff and Appellant, v. WEST VALLEY MISSION COMMUNITY COLLEGE DISTRICT, Defendant and Respondent.

Page 725

78 Cal.Rptr.2d 725

66 Cal.App.4th 1532, 98 Cal. Daily Op. Serv. 7602,

98 Daily Journal D.A.R. 10,542

Edward M. WALSH, As Trustee in Bankruptcy, etc., Plaintiff and Appellant, v. WEST VALLEY MISSION COMMUNITY COLLEGE DISTRICT, Defendant and Respondent.

No. H016564.

Court of Appeal, Sixth District, California.

Oct. 2, 1998.

Certified for Partial Publication. ^*

Review Denied Jan. 20, 1999.

Law Offices of Malcolm A. Misuraca, Malcolm A. Misuraca, San Francisco, Law Offices of Julian J. Hubbard, Julian J. Hubbard, San Mateo, for Plaintiff and Appellant.

Chester G. Moore III, Janet Kulig, Low, Ball & Lynch, Redwood City, for Defendant and Respondent.

COTTLE, Presiding Justice.

Sergio Construction, Inc. (SCI) entered into a contract with West Valley Mission Community College District (District) to build a gymnasium on the college campus. The contract called for the gymnasium to be completed within one year. When that time elapsed and the gymnasium was not complete, the District terminated SCI's contract. As a result, SCI brought this action against the District for breach of contract; the District in turn filed a cross-complaint against SCI. ¹

The District's cross-complaint was subsequently settled by SCI's insurer and SCI's bonding company, and the District filed a dismissal of the cross-complaint with prejudice. At trial, SCI moved for judgment on the pleadings, arguing that the District's dismissal of its cross-complaint acted as a retraxit which precluded the District from contesting any of SCI's allegations in the trial. The trial court denied the motion, and following a month-long trial, the jury returned a general verdict in favor of the District. Subsequently, the trial court granted the District its attorney fees of approximately $600,000. On appeal, SCI contends the trial court erred in denying its motion for judgment on the pleadings, in granting attorney fees to the District, and in denying its motion for judgment notwithstanding the verdict. For reasons we shall explain, we affirm the judgment.

I. FACTS

SCI, as the low bidder, was awarded the contract to build a gymnasium on one of the District's campuses. On July 29, 1992, the parties signed a formal agreement, consisting of a 19-page American Institute of Architects (AIA) standard form A201 (1976 ed.), along with 16 pages of supplemental conditions. The agreement called for SCI to build the gymnasium by August 3, 1993, for the sum of $3,176,200.

The building of the gymnasium was subject to the provisions of California Code of Regulations, titles 21 and 24, as it involved a public school. Those regulations require that school buildings "be designed to resist earthquake forces generated by major earthquakes of the intensity and severity of the strongest experienced in California without catastrophic collapse...." (Cal.Code Regs. tit. 21, § 1.) The Office of State Architect (OSA) is responsible for enforcing titles 21 and 24. (Cal.Code Regs. tit. 21, § 3.) All plans and specifications for school buildings must be submitted to OSA for approval. (Cal.Code Regs. tit. 21, §§ 6-7; id., tit. 24, Part 1, § 4-343.) The building standards themselves are set forth in title 24.

On August 10, 1993, a week after the gymnasium was supposed to have been completed under the contract, the District delivered an "order to expedite construction" to SCI. The order demanded that SCI prepare applicable shop drawings for the concrete slab on grade and vapor barrier, that it remove two inches of sand and that it pour the concrete by, at the latest, August 27, 1993. When that deadline passed, the District terminated SCI's contract on August 31, 1993.

The District's lengthy termination letter specified the following reasons for the termination: the project was only 50 percent complete, although the contract called for 100 percent completion by this date; the concrete slab on grade was improperly sequenced; the vapor barrier under the slab was wrongfully used as a working surface, injuring the integrity of the membrane; SCI had not paid the floor supplier although the District had paid SCI for a wooden gymnasium floor; SCI did not provide an adequate number of workers on the job site; subcontractors had not been adequately coordinated; SCI had not demonstrated either the skill or willingness to timely and properly complete the contract or to follow and discharge the architect's plans and interpretations; SCI had failed to comply with the District's request to expedite construction; SCI's concrete slab on grade shop drawings were deficient; SCI had failed to appoint a competent project superintendent; and SCI had failed to complete the concrete slab by August 27, 1993.

After receiving the termination letter, SCI filed the instant action against the District and others on September 8, 1993. The complaint alleged nine causes of action, including one against the District for breach of contract.

On June 13, 1994, the District filed a cross-complaint against SCI, SCI's bonding company, and SCI's general liability insurer. The District's cross-complaint alleged that SCI failed to construct the gymnasium on time or in a good and workmanlike manner, that the District performed its obligations under the contract, and that it suffered damages and extra costs, including property damage, as a result of SCI's actions. The cross-complaint sought damages from SCI for indemnity, negligence, breach of warranty, and breach of contract, and sought damages from the bonding company for breach of a performance bond.

The District's cross-complaint was settled prior to trial by the American Insurance Company (TAIC), SCI's bonding company, and CNA Insurance Company, SCI's insurer. TAIC had issued a performance bond assuring the obligations of SCI under the contract. To settle the cross-complaint, TAIC agreed to fund a settlement offer to SCI or a judgment procured by SCI against the District, up to a maximum of $405,000. In addition, TAIC agreed to offset any judgment that SCI might obtain against the District by assigning its rights to a $1.4 million claim pending in SCI's bankruptcy action.

The other settling party, CNA, was not only SCI's insurer, it was also the District's insurer as a result of an endorsement on SCI's policy that identified the District as an "additional named insured." In full settlement of the District's property damage claims against SCI, CNA agreed to pay $210,000 to the District. It also agreed, as the District's insurer, to pay the District $150,000 on its first party (failure to defend and/or indemnify) bad faith claim.

Following the settlement, the District filed a dismissal of its cross-complaint with prejudice. Based on this dismissal, SCI filed a motion at the beginning of trial for summary judgment/ judgment on the pleadings. The trial court denied SCI's motion and a month long trial commenced on SCI's claim that the District had breached its contract, all other causes of action having been dismissed.

At trial, SCI attempted to prove that it was the District, not SCI, that had breached the parties' contract. That contract specified, inter alia, that "[a]ll minor changes in the work require Change Orders." SCI offered evidence that the District's retained architects, Kiyoshi Matsuo and Thomas Mistretta, repeatedly ordered changes in the job without processing the required change orders. Instead, they made the changes in "architect's supplemental instructions," or "ASI's." ASIs are standard AIA forms, which state, "The work shall be carried out in accordance with the following supplemental instructions issued in accordance with the contract documents without change in contract sum or contract time. Prior to proceeding in accordance with the instructions[,] indicate your acceptance of these instructions for minor change to the work as consistent with the contract documents and return a copy to the architect." During the course of construction, over 30 different ASI's were issued by the architects to SCI. On the other hand, only two change orders were issued.

A great deal of the testimony centered on exactly how minor these requested changes were. SCI contended they were not minor and that, in any event, even minor changes required change orders under the parties' contract. The District contended that the changes were insignificant and did not involve structural issues that were the concern of titles 21 and 24, that the OSA had given preliminary approval to the changes, and that minor changes could be aggregated and later incorporated into change orders.

The focus of SCI's attention was on one particular ASI, ASI-2, which SCI contended required changes of major proportion. To demonstrate how significant these changes were, SCI prepared a computer animation for the jury. It showed how changing one measurement affected numerous other measurements.

ASI-2 was issued in the first week of the project. A structural steel subcontractor, who was drafting his first set of shop drawings, noted an 18-inch discrepancy between the architectural plans, which showed a column in one location and the structural plans, which showed the column in a different location. The subcontractor went to Douglas Way, the project structural engineer, and asked for advice. Way studied the plans and then issued a letter moving two columns on the west wall. Way testified that the 18-inch change in location had no structural ramifications on the building and that it was simply a "dimensional clarification." Architect Matsuo concluded that no change order was required for this change as no structural or safety issues were involved.

SCI's expert, Raymond La Tona, however, testified that this change in column location set in motion changes in the building foundation, steel beams in the walls and roof, heating and air conditioning ducts and duct hangers, roof purlins, and lateral braces on the wall. A computer animation was shown to the jury highlighting all the changes.

The...