Opinion
C042656.
10-30-2003
INTERIOR PARTITIONS, INC., Plaintiff and Appellant, v. BAY COMMERCIAL CONSTRUCTION, INC., Defendant and Respondent.
In this breach of contract action, the plaintiff, Interior Partitions, Inc. (Interior), appeals from a judgment that found the defendant, Bay Commercial Construction, Inc. (Bay), to be the prevailing party for purposes of attorney fees and costs. We shall affirm, and remand for the trial court to consider Bays request for attorney fees on appeal.
BACKGROUND
Bay was the general contractor on two projects for Contra Costa County (County): the District Attorney office project (DA project) and the Summit Centre project. In early 2001, Interior subcontracted with Bay to do the drywall work for these two projects. Under the subcontracts, Bay made progress payments to Interior when Bay was paid by County.
In line with this progress payment system, on the DA project, Bay paid Interior a little over $19,000; this left an unpaid balance of $6,968.11, due from July 5, 2001. On the Summit Centre project, Bay paid Interior nearly $27,000 before terminating Interiors subcontract on that project in August 2001; this left an unpaid balance of $8,351.55, due from September 24, 2001.
On September 25, 2001, Interior sued Bay, County, and Bays surety insurer, Colonial American Casualty and Surety Company (Colonial Surety), for $15,319.66, the total unpaid balance on the two projects.
Things turned sour quickly. A flurry of court papers ensued. First came attempts by Interior to obtain default judgments. Then came multiple demurrers from Bay and Colonial Surety (Bay, County, and Colonial Surety were represented by the same attorney). At one point during these legal maneuvers, the attorney for the defendants was sanctioned. Eventually, the parties squared off over a third amended complaint and answers thereto.
During the spring of 2002, Bay, through Colonial Surety, sent three checks to Interior. These checks totaled the $15,319.66 sought in Interiors complaint. At this point, County had not yet paid Bay this sum. On June 20, 2002, Interior filed its third amended complaint.
There was never a question that Bay owed Interior the $15,319.66. The dispute was over when Bay was obligated to pay this sum, and whether Bay should be penalized under Business and Professions Code section 7108.5 (section 7108.5) for allegedly withholding progress payments from Interior. The trial also encompassed the question of who was the prevailing party.
The trial court found that Interior was not yet owed the $15,000-plus contractual balance; the court also found against Interior on the section 7108.5 issue. Consequently, the trial court found that Bay was the prevailing party
Interior has appealed only the prevailing party finding.
DISCUSSION
A trial court has wide discretion in determining who is the prevailing party in a contractual action, and we will not overturn that determination unless the trial court abused its discretion. (Hunt v. Fahnestock (1990) 220 Cal.App.3d 628, 633; Krueger v. Bank of America (1983) 145 Cal.App.3d 204, 217.)
The subcontracts between Bay and Interior state that "[i]n any dispute resolution between the parties, the prevailing party shall be entitled . . . to recover its costs of participation, including attorney[] . . . fees." The section 7108.5 penalty statute states that "[i]n any action for the collection of funds [progress payments] wrongfully withheld, the prevailing party shall be entitled to his or her attorney[] fees and costs." Both Bay and Interior asked for attorney fees in this action.
On the prevailing party issue, Interior argued at trial that it had sued Bay for breach of contract for $15,319.66. It was only because of this suit that Bay paid Interior this sum. "`[O]n a practical level," then, Interior asserted, it prevailed notwithstanding that it failed to recover the section 7108.5 penalty, and irrespective of whether the contractual sum was actually owed then or not; Interior had sought a section 7108.5 penalty of about $5,000. (See Heather Farms Homeowners Assn. v. Robinson (1994) 21 Cal.App.4th 1568, 1574 [analyzing prevailing party "on a practical level"].) At trial, Interiors president testified that Bay had informed him that Bay had been paid the $15,000-plus contractual balance, but had used the money for other projects.
Bay conceded that Interior was owed the $15,319.66. But Bay argued that, under the subcontracts between itself and Interior, this sum was not yet due because County had not yet paid Bay, and Bay reasonably was trying to have County pay this amount. Bay had paid this sum to Interior early, simply to rid itself of this litigation (unsuccessfully as it turned out).
The Bay/Interior subcontracts stated in relevant part: "SECTION 2. PRICE AND PAYMENT. . . . [¶] . . . [¶] . . . [P]rogress payments to Subcontractor [Interior] shall be made on the 10th day after receipt and deposit only with sums received by Contractor [Bay] from Owner [County] for work performed by Subcontractor as reflected in Contractors applications for payment. Final payment of the remaining balance owed to Subcontractor shall be due 35 days after completion of project after receipt by Contractor of final payment from Owner for Subcontractors work. It is the intent of the parties that receipt by the Contractor from the Owner of funds for work performed by Subcontractor shall be a condition precedent to each payment to be made to the Subcontractor pursuant to the provisions of this section, and no recourse to the Contractor or its sureties may be made except as otherwise stated herein." (Boldface added.)
"SECTION 18. RECEIPT OF FUNDS FROM OWNER. Receipt of funds from owner [County] shall not generally be a condition precedent to payment. However, the following . . . provision[] appl[ies]: [¶] 1) In any event, where Owner has withheld any payment(s), a portion of which arose from or was based on compensation for Subcontractors [Interiors] [w]ork (`Subcontractors Portion of Payment), Contractors [Bays] obligation to make payment for Subcontractors Portion of Payment sh[a]ll be temporarily suspended while Contractor undertakes reasonable efforts to collect the payments withheld by Owner (`Collection Efforts). . . . [N]o funds relating to Subcontractors Portion of Payment shall be due or payable until such Collection Efforts have been exhausted." (Boldface added.)
At trial, Bay presented evidence that it had properly forwarded payments to Interior upon payments by County; that County (at the time of Interiors complaint and at the time of trial) had not yet paid Bay the $15,319.66 balance owed Interior; and that Bay reasonably was still working with County to obtain this payment. Bay also presented evidence that Interior itself had a hand in Countys lack of payment, by not signing release forms ("closeout" documents) that had accompanied Bays early payment of the $15,319.66 (Interior had filed stop notice liens with County).
In arguing that payment of the $15,000-plus contractual balance was not yet due Interior, Bay relied on the "pay when paid" provision in the Bay/Interior subcontracts (§ 18 of the subcontracts, quoted above). A "pay when paid" provision posits that the subcontractor will get paid when the general contractor is paid by the owner for the subcontractors work, so long as payment to the subcontractor will occur within a reasonable period. (See Wm. R. Clarke Corp. v. Safeco Ins. Co. (1997) 15 Cal.4th 882, 885-886.) A "pay when paid" provision is a permissible part of a subcontract. Such a provision can be contrasted with an unenforceable "pay if paid" provision, which posits that the subcontractor will get paid only if the general contractor is paid by the owner for the subcontractors work. A "pay if paid" provision makes payment by the owner to the general contractor a condition precedent to the general contractors obligation to pay the subcontractor for the subcontractors work. (Id. at pp. 885-886, 892-893, 896-897.) The last sentence of section 2 of the Bay/Interior subcontracts, quoted above, sets forth a "pay if paid" provision, but the record does not show this provision was invoked here; rather, the "pay when paid" provision of section 18 of the subcontracts was used.
Thus, substantial evidence shows the following.
As for Interiors contractual action, Bay paid Interior the $ 15,319.66 balance prior to that sum being due under the subcontracts. Bay did this to rid itself of Interiors lawsuit. Interior persisted, the litigation continued, and the matter went to trial. (After Bays payment of the contractual balance, County and Colonial Surety were dismissed from the case.) Bay defended Interiors contractual action by showing that Interiors complaint was premature. Interior was not yet legally owed the contractual balance because Bay had not yet received payment from County despite reasonable efforts on Bays part to secure payment. In fact, there was evidence that Interior itself, by not signing closeout documents (releases) accompanying Bays early payment, played a role in Countys lack of payment (Interior had filed stop notice liens with County). The trial court found "that no payment was due to [Interior] at the time the lawsuit was filed, and in fact, no payment ha[d] become due since that time notwithstanding the fact that [Bays] [surety] paid all claims in full before they were in fact due."
As for Interiors penalty claim under section 7108.5, Bay submitted evidence showing that Bay properly forwarded to Interior all Interior-related payments received from County. This evidence was founded on declarations from Countys project managers for the DA and Summit Centre projects and on Interiors own accounting. This evidence undercut Interiors evidence that Bay improperly withheld or misapplied County payments destined for Interior, and further supported Bays contractual defense. The trial court found "that [Bay] did not misapply any progress payment," and "that [Interior] failed to establish an alleged violation of Section 7108.5 . . ., and in fact, the persuasive evidence is to the contrary."
In light of this record, we conclude the trial court did not abuse its discretion in finding Bay to be the prevailing party. Interiors claim that, as a practical matter, it is the prevailing party because it received all but about $5,000 of the approximately $ 20,000 it was seeking, is not persuasive. As noted, there was never any dispute that Interior was owed the $15,000-plus contractual balance; the only dispute was when Interior was owed that sum. And, as also noted, all that Interior received from this litigation was early payment of that balance, a payment that was outside the contractual process. The value of this early payment is not only less significant than Bays successful defense of the penalty claim, it is also a benefit that Interior was not entitled to receive. Interior cannot be deemed a prevailing party in this contractual action because it merely received a windfall to which it was not contractually entitled.
Disposition
The judgment is affirmed. The matter is remanded to the trial court for it to consider Bays request for attorney fees on appeal. Interiors request for attorney fees and costs on appeal is denied.
We concur: SCOTLAND, P.J. and HULL, J.