RECENT COURT AND APPEAL BOARD DECISIONS
You may find these case summaries useful in developing plans for your construction projects. Click on a case description to jump to the discussion.
A word of caution: some of the cases discussed here were decided by out-of-State courts and the Federal contract appeals boards. These decisions would not automatically govern the decisions California courts make, but are frequently considered persuasive by our courts.
After years of disagreement at the appellate court level, the Supreme Court has held that those who wish to sue public entities for breach of contract must file claims pursuant to Government Code section 900 et seq. (This is the process which is commonly used for claims related to injuries and other torts.) The Court the practice of calling this section of the Code the "Government Claims Act," rather than the commonly-used "Tort Claims Act."
The developer's action was dismissed when the developer failed to file a claim against the City of Stockton, despite a long period in which the parties attempted to mitigate the effect of the City's actions on it.
City of Stockton v. Superior Court (Civic Partners Stockton, LLC) (2007) 42 Cal. 4th 730
The plaintiff entered into two separate construction contracts with the owner of a building under which more than 50% of the square footage was leased to Humboldt County. The first contract related to plumbing improvements that were within the County-occupied portion of the premises. The second contract related to the installation of utility services for the whole building. A dispute whether the project was governed by the Labor Code’s prevailing wages provisions arose. The developer argued that the work was not “construction,” and was therefore exempt from prevailing wages laws. The court held that the Labor Code does not limit the definition of “construction” to construction of a new building and the contractor was required to pay prevailing wages for work performed under both contracts.
Plumbers and Steamfitters, Local 290 v. John Duncan (2007) 157 Cal. App. 4th 1083
CONTRACTOR NOT ABLE TO COLLECT PAYMENT
An engineer entered into a consultant contract with the City of San Buenaventura which required the City’s written consent to any modifications. The engineer claimed that a representative of the City orally requested modifications to the scope of his work, which was the basis of the engineer’s claim. The City is a charter city and as such could not act in conflict with its charter. Its charter only allowed the execution of oral contracts by employees who possessed requisite authority. The court held that no city shall be bound by the acts that are beyond an employee’s authority and that because the engineer did not obtain written modifications to the original contract, he was therefore not entitled to additional payment.
Yoshiro Katsura v. City of San Buenaventura (2007) 155 Cal. App. 4th 104
BEGL Construction Company contracted with Los Angeles Unified School District to perform construction projects at two of the School District's facilities. After the School District terminated BEGL, BEGL's surety completed the project and sued BEGL for its costs in doing so. That surety and two others then refused to bond BEGL, and the contractor's bonding capacity fell from $6,000,000 to $500,000. BEGL then sued the School District. The jury held that the School District had breached the contract and awarded BEGL the profits which it might have made if it had been performing the same number and size of projects that it had been prior to this dispute.
The general rule is that lost profits are not recoverable because of the difficulty inherent in showing that an owner's actions were the direct cause of a contractor's losing work, how many projects the contractor would have performed and how profitable they would have been. The initial appellate opinion held that BEGL's lost profits were recoverable because the School District's construction manager had stated that sureties sometimes refuse to bond contractors which have been terminated from jobs, and allowed the contractor to collect profits which it would typically have made. The Supreme Court decided not to hear the School District's appeal, but did rule that the case may not be relied upon as authority for future actions.
[Editor's Note: We include this discussion to provide public entities with updated information, in case contractors claim that they are now entitled to collect lost profits as damages. This case is no longer controlling for anyone other than BEGL and the School District.
Of interest as well is the August 2007 K2 Construction, Inc. case, in which the 4th Appellate District held that, while K2 hadn't met the burden of proof, contractors might be able to recover for lost profits under specified circumstances. This case was also unpublished, and is not precedent for future actions.]
BEGL Construction Co., Inc. v. Los Angeles Unified School District (2007) 154 Cal. App. 4th 154
Sacramento Municipal Utility District contracted with Condon-Johnson & Associates for the construction of concrete foundations for piers. This required that Condon-Jonson bore holes through a hillside. In its request for proposals, SMUD provided soil boring information so that the contractor could determine the type of rock that may be encountered during excavation. The contract included disclaimers that the contractor would be solely responsible for assessing the subsurface soil conditions. After starting the excavation, Condon-Johnson requested a change order for increased cost of drilling when it encountered rock that was much denser than that which could have been inferred from Sacramento’s earlier studies. The court found that the disclaimers violated the Public Contract Code and that the contract must be interpreted without regard for their provisions.
Condon-Johnson & Associates, Inc. v. Sacramento Municipal Utility District (2007) 149 Cal. App. 4th 1384
Mandaree Public School System in North Dakota entered into a construction contract with Tooz Construction. This contract included an arbitration clause. Tooz furnished a performance bond issued by Liberty Mutual, a surety. This bond referenced the construction contract between the School District and Tooz but also asserted that any proceedings under the bond may be instituted in any court of competent jurisdiction. The court found that the surety was not bound by the construction contract’s arbitration clause. The court reasoned that to do otherwise would allow a project owner to force an unwilling surety to arbitrate defenses that might be unique to the bond.
Liberty Mutual Insurance Company v. Mandaree Public School District #36 (2007) 503 F. 3d 709
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