Mako Investments v. West Coast Contractors of Nevada CA3
C073867
| Cal. Ct. App. | Oct 3, 2016Background
- West Coast was the general contractor on a $2.6M Lake Tahoe erosion/stream-restoration public works project; Zephyr (subcontractor) performed earthwork and later assigned claims to Mako (creditor/assignee). Fidelity issued West Coast’s payment bond.
- Dispute: West Coast withheld progress payments to Zephyr, then terminated and sought to substitute another subcontractor. County mailed a statutorily required substitution notice to Zephyr’s last known address by certified mail, but Zephyr did not receive it and did not file objections.
- Trial jury awarded Mako/Zephyr $915,045 in compensatory and $638,422 in punitive damages (total $1,553,467); jury also resolved cross-complaint claims favorably to Zephyr.
- Trial court granted judgment notwithstanding the verdict (JNOV) in part, reducing compensatory damages to $220,045, vacating punitive damages, denying some claims, and awarding prejudgment interest only on certain amounts; it also awarded Mako/Zephyr reduced attorney fees (35% of requested) and costs.
- Mako/Zephyr appealed the JNOV reductions, punitive-damage vacatur, fee/cost reductions, and interest rulings; West Coast cross-appealed a licensing-related jury instruction. Court of Appeal affirmed.
Issues
| Issue | Plaintiff's Argument (Mako/Zephyr) | Defendant's Argument (West Coast) | Held |
|---|---|---|---|
| Whether statutory substitution under Pub. Contract Code §4107 requires actual receipt of the County’s certified/registered-mail notice (due process challenge) | §4107 should require actual notice or reasonable diligence; lack of actual receipt deprived Zephyr of substantive rights and due process | Compliance with the statute (mailing to last known address by certified/registered mail) is sufficient; failure to receive notice is the subcontractor’s problem and the administrative process is binding | Mailing to last known address satisfied §4107; Zephyr’s failure to receive or object meant consent by operation of statute; administrative finding preclusive absent timely review |
| Whether punitive damages were legally available | Jury found malice/ oppression based on withholding payments, secret plan to terminate, and other conduct; these support punitive damages | Substitution was lawful and many jury findings arise from contract-related conduct; punitive damages are not allowed for contract breaches or where statutory penalties exist (double punishment) | Vacated punitive damages: conduct supporting them was contract-related and/or remedied by statutory penalties (prompt-payment interest), so punitive damages were not legally recoverable |
| Prejudgment interest on lost profits and on materials/equipment left on site | Lost profits and $15,000 for materials were liquidated or calculable and thus entitled to prejudgment interest from date of loss | Amounts were unliquidated or not sufficiently ascertainable; lost profits not recoverable after JNOV | Denied prejudgment interest on lost profits (court also refused to award lost profits); denied interest on $15,000 because valuation evidence was sketchy/unliquidated |
| Reasonableness and apportionment of attorney fees and costs | Fees are largely tied to a common core of facts; claims were intertwined so full requested fees are recoverable; hourly rates supported by declarations | Plaintiff overlitigated many unsuccessful tort claims; billing contained excessive, duplicative, or vague entries; award should be reduced to reflect limited success | Trial court did not abuse discretion: reduced fees to 35% of requested based on limited success, overlitigation, excess hours, and local reasonable rates; costs reduction likewise upheld |
| Cross-appeal: whether jury instruction on contractor-license disassociation (B&P §7068.2/7083) was erroneous | (West Coast) jury instruction omitted automatic 90-day suspension and thus misstated the law, warranting reversal | Trial court’s instruction followed statutory scheme and later amendments; instruction was correct and nonprejudicial | Instruction upheld: court’s reading of §7068.2 and related provisions is correct and deletion of retroactive-suspension language means the instruction given was proper |
Key Cases Cited
- Southern Cal. Acoustics Co. v. C. V. Holder, Inc., 71 Cal.2d 719 (Cal. 1969) (listed subcontractor has a statutory right to perform unless substitution is authorized by statute; wrongful substitution supports a private action)
- Affholder, Inc. v. Mitchell Engineering, Inc., 153 Cal.App.4th 510 (Cal. Ct. App. 2007) (administrative substitution process under §4107 is binding if not timely challenged; plaintiff must exhaust administrative remedies)
- Interior Systems, Inc. v. Del E. Webb Corp., 121 Cal.App.3d 312 (Cal. Ct. App. 1981) (legislative procedure in §4107 intended to produce binding results unless set aside by court review; administrative determinations conclusive when not attacked)
- Titan Electric Corp. v. Los Angeles Unified School Dist., 160 Cal.App.4th 188 (Cal. Ct. App. 2008) (substantial compliance with §4107 procedural objectives can validate a post hoc substitution; absence of bid-shopping evidence supports validity)
- Cates Construction, Inc. v. Talbot Partners, 21 Cal.4th 28 (Cal. 1999) (punitive damages are unavailable for mere breach of contract unless an independent tort duty is breached)