Filed 11 / 17 / 20 Harouche v. The Wilshire Corp. CA2/5

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FIVE

MICHEL HAROUCHE

,

Plaintiff and Respondent

,

v

.

THE WILSHIRE CORPORATION, et. al.

Defendant s and Appellant s

. B 2 9 7364

(Los Angeles County Super. Ct. No. SC124859 )

APPEAL from a judgment of the Superior Court of Los Angeles County, Nancy L. Newman

, Judge

. A ffirm ed in part;
reversed in part and remanded

.

The Ryan Law Firm, James S. Link, Kelly F. Ryan and Jillian M. Reyes for Defendant s and Appellant s

.

Law Offices of Stephen S. Smith and Stephen S. Smith for Plaintiff and Respon d ent.

__________________________2 INTRODUCTION Plaintiff Michel Harouche hired defendant Stephen Sisca
and Sisca ’ s company, defendant The Wilshire Corporation (TWC) to serve as his agents, overseeing and managing the construction
of Harouche ’ s multi

- million dollar residence in Malibu (the

p roject)

. Without Harouche ’ s knowledge or consent, Sisca and
TWC conditioned the award of the construction contract on the general contractor ’ s agreement to kickback $235,000 of
Harouche ’ s first $350,000 payme nt to the contractor, plus an
additional 4 percent of all other money Harouche would p ay the

contractor. 1 General contractor John Finton agreed to these terms in writing on behalf of his company, Finton Construction, Inc. (FCI or contractor )

, and paid Sisca and TWC the kickbacks accordingly. About a third of the way into the seven

- year project, Sisca proposed and Finton agreed to fraudulen tly increase the cost of change orders for the project, and s plit the profit from the
marked up amounts. 2 After learning of the kickbacks and fraud from a third party, Harouche sued Sisca, TWC, Finton, and FCI. Harouche settled with Finton and FCI for $ 1,100,000 in damages. Following a bench trial, the court found Sisca and TWC liable for breach of fiduciary duty and fraud. The court awarded $1,980,837.72 in damages against Sisca and TWC

. That number
consisted of three amounts: (1) $235,000 from the initial

1 The contract Harouche signed allowed for TWC to receive 2.5 percent of all monies Harouche paid to the general contractor. Thus, this side agreement between Sisca and the contractor gave TWC an additional undisclosed 1.5 percent of the payments Harouche m ade to the contractor.

2 Change orders are the mechanism within the construction contract for modifying the project and increasing the cost of it.3

kickback, (2) $205,011.46 from the 1.5 percent kickback of all amounts Harouche paid FCI

, and (3) $1,540,826 .26 from
fraudulent c hange o rder s

. On appeal, Sisca and TWC do not challenge the trial court ’ s liability findings. Rather, they make three arguments about damages. First, they assert the damages based on change orders were not supported by substantial evidence. Secon d, they argue
the trial court failed to consider “ special circumstances ” that justif ied the ir receipt and retention of the initial $235,000
kickback. Third, they argue the trial court was required to award
them an offset of $608,000 due to FCI ’ s release of its cross

complaint in that amount as part of its settlement with
Harouche. We conclude the trial court erred in calculating the change order damages

. We modify the amount of those damages
and remand for the trial court to recalculat e prejudgment
interest and rule on the $608,000 offset.
FACTS AND PROCEDUR AL BACKGROUND Although there were many witnesses who testified and many subcontractors who worked on the project, three people are at the center of this appeal:

1. Harouche

– the owner of the residence
2. Sisca and his company TWC

– the project manager
3. Finton and his company FCI

– t he contractor Several formal contracts and informal arrangements among these people drive the analysis of the parties ’ dispute. We start our factual synopsis with those agreements.
1. Project Management Agreement Between Harouche
and TWC In September 2008, H arouche and TWC entered into a

p roject m anagement a greement, in which TWC agreed to act as
Harouche ’ s project manager on the p roject. TWC was responsible for managing “ all aspects of the pre

- construction and construction4

process, ” including “ interviewing negotiating and hiring a general

contractor ” and “ management of general contractor. ” The agreement stated TWC had been acting in this capacity on behalf of Harouche since April 1, 2008 and would continue to act on
Harouche ’ s behalf until proj ect completion. Harouche agreed to pay TWC a p roject m anagement f ee of $200,000, plus $1,600 for each trip Sisca made to California to manage the p roject. Pursuant to this agreement, Harouche eventually paid Sisca and
TWC fees totaling $262,000, plus tra vel expenses of $63,400.
2. Construction Contract Between Harouche and FCI On August 6, 2008, Harouche entered into a “ Stipulated Sum Construction Agreement ” with FCI. FCI agreed to construct
the p roject for $10,265,218.31, which included the contractor ’ s f ee. Th e c ontractor ’ s f

ee was 12.75 percent of the contract, which
included “ 2.50% to Sisca. ” 3 The co nstruction c ontract provided
that “ The Contract Sum may be changed only by a written Change Order Addendum. ”
3. Kickback Agreement Unbeknownst to Harouche, on the same day that Harouche and FCI entered into the construction contract, TWC and FCI entered a side agreement for the project. As a condition of being
awarded the construction contract , FCI agreed to pay TWC
additional amount s that were not provided for in the contracts executed by Harouche. First, FCI agreed to pay TWC a $235,000

3 In addition to the fees set out in the project management agreement, Harouche agreed in the construct ion contract that TWC would receive 2.5 percent of the entire construction contract cost. FCI effectively received a contractor fee of 10.25 percent of the contract after TWC took its cut of the contractor fee. (At trial, the parties disagreed on whether Harouche was aware of the provision for the 2.5 percent payment from FCI to Sisca, but the trial court found that at least Harouche’s financial advisor was aware of it.)5

project “ referral fee ” out of the initial $350,000 payment that
Harouche was to make to FCI under the Construction Contract. Second, FCI agreed to pay TWC 4 percent of all monies that Harouche paid FCI under the Construction Contract

, rather than the 2.5 percent that the Construction Contract provided

. In accordance with this kickback agreement, FCI paid TWC $235,000 “ within one day of Harouche making his first payment
to FCI ” under the Construction Contract. FCI paid TWC 4 percent of the $13,667,431.81 that Harouche paid FCI, rather
than the 2.5 percen t that had been recited in the construction

contract. The extra 1. 5 percent amounted to $205,011.46.
4. Fraudulent Change Orders During the first third of the p roject, Sisca suggested to Finto n that they use the change order process from the construction contract to make extra money for themselves. Sisca proposed that they increase the amounts due to subcontract ors for the change orders

, submit the inflated subcontract payments to Harouche, and then split the profit 50/50. In an April 2011 email, Sisca wrote Finton: “ On a separate note I ’ m looking to make us some more money on the Harouche Job. Please confirm you are good with a 50/50 split on anything I can get us on
extras/ change orders. ” Finton replied via email that he agreed to
th e arrangement. Sisca told Finton that Harouche would never
find out about the altered change orders

. Thereafter

, Finton transmitted to Sisca the subcontracts
that FCI had entered into with sub contractors for the change
order work

. Sisca then altered the subcontracts to increase the
cost of the work. The “ falsified subcontracts ” were submitted to Harouche for payment.
Harouche introduced into evidence nine subcontracts that had been forged to reflect an unearned increased price for the
work

. The evidence included both the original and the altered6

subcontract for the same work. F inton later attested that the original subcontracts he gave to Sisca to alter were “ real ” a nd
reflected the “ true cost ” of the change order work described in
those subcontracts . Sisca provided each of the inflated subcontracts to Harouche for payment.
Finton testified that he did “ not recall the total, collective
inflated amounts and the total collective amount of money FCI paid to TWC under this scheme. ” But, he did recall that “ TWC ’ s 50% plus 4% of FCI ’ s 50% added up to a minimum of many
hundreds of thousands of dollars. ” By the time the project was completed in 2015 , Harouche had paid FCI $13,667,431.81. That amount was $3,042,213.50 above the original construction contract

. 5. Harouche Sues Sisca /TWC and Finton

/FCI On October 13, 2015, Harouche filed a complaint against Sisca, TWC, Finton, and FCI. He asserted claims for breach of

con tract, fraud, negligent misrepresentation, breach of fiduciary duty, and negligence, and sought damages of $2.6 million. FCI
filed a cross

- complaint against Harouche, claiming Harouche failed to pay FCI the last “ payment application #57 ” under the
Constru ction Contract. FCI sought damages of $608,000.
Sisca and TWC also filed a cross

- complaint against Harouche. They asserted claims for breach of contract and

“ common count. ” They claimed that Harouche owed them $104,000 under the project management agreement

. During the pendency of this case, FCI and Finton filed for bankruptcy. Apparently with the approval of the bankruptcy
trustee, Harouche then reached a settlement with F CI and
Finton

, where Finton and FCI stipulated to a $1,100,000 judgment in favor of Harouche. Finton and FCI also agreed to dismiss the ir cross

- complaint, and to admit to facts demonstrating that the judgment against them was non

-7

dischargeable under secti ons 523(a)(2)(A) and (a)(6) , title 11 of
the United States Code

. Those facts were set forth in Finton ’ s declaration, which was attached to the settlement agreement

. Although Finton and FCI stipulated to a judgment of $1,100,000, the settlement did not require them to pay that amount immediately. Instead, because of the bankruptcy, Harouche agreed to forbear from collecting the judgment in return for FCI making small monthly payments, commencing upon approval of its bankruptcy plan of reorganization. Only at the end of the plan period would FCI and Finton be obligated to pay the rest of the judgment. In January 2017, Harouche, Finton, and FCI filed an application wit h the trial court to determine that their settlement was entered into in good faith. Sisca and TWC contested the motion for the good faith settlement. On March 8, 2017, the bankruptcy court approved the settlement agreement between
FCI and Harouche. On May 25, 2017, the trial court approved the good faith settlement and entered “ Judgment Pursuant to
Settlement ” against FCI and Finton

. 6. Trial and Judgment In January 2018, the court held a bench trial for the claims against Sisca and TW C and on their cross

- complaint

. The parties filed p ost trial briefs in March and April 2018. On June 12, 2018,
the court issued its p roposed s tatement of d ecision

, finding in
favor of Harouche

. The parties objected to certain aspects of the
decision. Sisca and TWC argued that the court miscalculated the damages associated with the fraudulent change orders. They also argued that the trial court should have offset their damages by the amount FC I ’ s released cross

- complaint against Harouche

. On August 14, 2018, the trial court issued its final
statement of decision and reserved punitive damages for further8

proceedings. 4 The court found “ [t]he contract between Sisca and Harouche obligated Sisca to act as Plaintiff ’ s agent with respect to the construction project. ” The court determined Sisca breached his fiduciary duty to Harouche “ by participating in a scheme with Finton to make additional money off of the construction project at the expense of Harouche. ” The court stated that Sisca violated his fiduciary duty by receiving
undisclosed fees from Finton while advocating for Finton to
receive the contract , and by arranging to increase the
subcontractors ’ pricing and splitting the increase with Finton.
The court also found Sisca and TWC committed frau d, based on the additional 1.5 percent of monies that Sisca and TWC received
from Finton and the altere d change orders. 5 In total, the court found the fol lowing damages , broken into three categories: (1) $235,000 from the initial kickback ( “ referral
fee ” ) , (2) $205,011.46 from the 1.5 percent kickback o n all amounts Harouche paid FCI, and (3) $1,540,826 .26 from fraudulent change orders. The court retained jurisdiction to
award Sisca and TWC an offset if and when FCI and Finton made a payment to Harouche under the settlement agreement. Sisca and TWC renewed their objections on the calculation of damages f

or the change orders and the offset of the settlement
between FCI and Finton and Harouche.
7. Entry of Judgment
After the trial court issued the final statement of decision

, but before j udgment was entered against Sisca and TWC

, FCI paid Harouche $18 ,000 und er th e bankruptcy plan of

4 On November 15, 2018, the court issued a separate statement of decision denying pun itive damages.

5 The court ruled against Harouche on his breach of contract and negligent representation causes of action.9

reorganization. O n March 5, 2019, Harouche filed notice of the payment and requested an offset of $18,000 from the judgment. On March 19, 2019, the court signed a revised ju dgment

, reducing damages by $18,000

. The revised judgment award ed Harouche $1,962,837.72 in damages against Sisca and TWC , plus prejudgment interest of $990,486.45. The court awarded
Harouche costs as the prevailing party

, and stated S isca and
TWC “ shall take nothing by their Cross

- Complaint. ” 6 The court
reserved “

jurisdiction to calculate and award offset credits to [Sisca and TWC] for any future settlement payments that are made to Harouche by defendants Finton Construction, Inc. and/or
John Finton. ”
Sisca and TW C filed a timely notice of appeal

.

DISCUSSION Sisca and TWC argue (1) the damages based on change orders were not sup ported by substantial evidence, (2) the trial
court failed to consider “ special circumstances ” that justified
defendants ’ receipt and retention of the initial $235,000 kickback

, and (3 ) the trial court was required to award defendants an offset
of $608,000 due to FCI ’ s release of its cross

- complaint in that amount as part of its settlement with Harouche

. We address
each in turn.
1. The Damages for the Fraudulent Change Orders Were
Miscalculated In its statement of decision, the court awarded damages on nine change orders. The first eight fraudulent change orders corresponded to eight invoices from seven subcontractors. The ninth fraudulent change order corresponded to four subcontracts submitted by subcontractor Solar Electric al

. Sisca and TWC

6 The original judgment included the following: “FCI shall take nothing by its Cross

- Complaint.”10

argu e that the $1,540,826.26 in damages attributed to fraudulent change orders was not supported by substantial evidence, and that the damages for the fraudulent inflation of change orders

amount ed only to $250,324. Specifically , Sisca and TWC argue the damag es for the first eight change orders were miscalculated.
Sisca and TWC also argue the court erred in awarding any damages for the Solar Electric al change order because Harouche never paid the fraudulent marked up amount.

“ In reviewing a judgment based upon a statement of decision following a bench trial, we

. . . apply a substantial
evidence standard of review to the trial court ’ s findings of fact. [Citation.] Under this deferential standard of review, findings of fact are liberally construed to support the judgment and we consider the evidence in the light most favorable to the prevailing party, drawing all reasonable inferences in support of the findings. [¶] A single witness ’ s testimony may constitute substantial evidence to support a finding. [Citation] It is not our role as a reviewing court to reweigh the evidence or to assess witness credibility. [Citation] ‘ A judgment or order of a lo wer court is presumed to be correct on appeal, and all intendments and presumptions are indulged in favor of its correctness. ’ [Citation] Specifically, ‘ [u]nder the doctrine of implied findings, the reviewing court must infer, following a bench trial, th at the trial court impliedly made every factual finding necessary to support its decision. ’ ” ( Thompson v. Asimos (2016) 6 Cal.App.5th 970, 981 ( Thompson ) .) 7

7 Harouche cites Seffert v. L os Angeles Transit Lines (1961) 56 Cal.2d 498, 507, and Bertero v. National General Corp. (1974) 13 Cal.3d 43, 61, for the proposition that a damage award can only be reversed if it was the result of passion or prejudice. These cases address arguments abo ut excessive nonpecuniary damage awards in jur y trials, and are inapt here.11 a. The Court Miscalculated Damages on the First Eight Change Orders
Sisca and TWC explain that the trial court indicated in the
Statement of Decision that it intended to award damages equal to
the differen c e between the original eight subcontract s and the corresponding fraudulent versions that were submitted in the change orders to Harouche for paym ent

. They assert that the

court inadvertently awarded damages for the entire price of the
altered subcontract s , not just the fraudulent portion

. We agree. In its Statement of Decision, the court made the following findings on the fraudulent change orde rs:

“Paragraph 9 of the contract required Harouche to pay money above the stipulated sum only if it was part of a legitimate change to the scope of the construction of the residence requiring a change
order. It was established at trial that Harouche

cont inued to add items onto the project which resulted in a significant number of change orders. The number of change orders varied among the witnesses who testified, but it does appear that there were a significant number of change orders. “The change orders appear to be legitimate; however, the agreement that Sisca and Finton reached with respect to marking up the amount provided by the subcontractor was a fraudulent act causing harm to Harouche. Finton’s declaration
indicates that he transmitted to Sisca t he real
subcontracts that FCI had entered with the subcontractors to perform the change order work.
Unbeknownst to Harouche those subcontracts were altered to increase the cost of the work substantially above the true cost of that work. Sisca was fully12 aw are of this fact. Sisca submitted those falsified contracts to Harouche for payment of the inflated
amount of the cost of the work. Harouche then would pay that inflated amount to FCI. Finton would take that payment and divide the inflated amount fifty

fifty between FCI and TWC. FCI then paid to TWC its 50 percent, plus its 4 percent of FCI’s 50 percent of the inflated amount. Although Finton never saw the forged contract, Sisca told him that he altered the
subcontracts. It is noted that Sisca denies he altered
the subcontracts.” In its analysis of damages attributable to the se fraudulent change orders, the trial court stated:

“ Sisca argues that the subcontract amount is not relevant to the damages claim because the change orders were based on various subcontract approvals. However, in the Court ’ s view, the clearly
inflated and altered subcontracts is where the fraud occurred. Although Sisca denies forging the subcontracts, the court doubts his credibility. Further, it is clear he was aware o f this process. Finton testified that Sisca was responsible for the alterations and that they were done at his suggestion. “There were eight subcontracts presented by plaintiff as evidence of the inflated amounts which were to be split by Finton and Sisca

.

“ The difference between the original invoices
noted above and the amount submitted to Harouche totals $1,427,425. The eight original subcontracts were admitted into evidence by stipulation. Mr. Clark testified that he received corresponding13 contracts f

or differing amounts and submitted those contracts to Harouche for payment. “The Court is basing its damages award relative to the solar contract on the testimony of Mr. Johanson and his declaration (Exhibit 91) of Solar Electrical Systems. Mr. Johanson t estified that he prepared four subcontracts for his work on the
residence. The total of those contracts was $133,157.74. Mr. Clark [Harouche ’ s employee tasked with paying invoices from the contractor ] received an invoice for $245,819 which he submitted t o Harouche. The difference is $112,661.26. “The total damages awarded to the Plaintiff for the inflated subcontracts is $1,540.826.26. Subject to the good faith settlement deduction noted below, the
Court will make an award to Plaintiff.” (Emphasis
adde d.)
The court ’ s findings reflect that Harouche requested many changes in the project and that the change orders corresponded to legitimate work. The court found that the fraud occurred solely
where Sisca altered the subcontracts to charge Harouche more money for the same work

. Contrary to what Harouche argues on appeal, t he court singled out this portion of the change orders as the basis for fraud damages

– not the entire amount of each change order. The trial court stated that it had evidence of both the eight original subcontracts and the corresponding eight altered
versions of those subcontracts. The court calculated the damage s to be the “ difference between the original invoices noted above
and the amount submitted to Harouche. ” We set forth those

amounts in the table below.14

Subcontract Original
Invoice Amount

Submitted to
Harouche Difference

(Resulting Damages) Apollo Glazing
Contractors

– October 19, 2011 $395,000 $450,000 $ 5 5,000

Chris Ryan Wall Covering & Paint

– March 21, 2014 $8,340 $13,000 $4,660

Chris Ryan Wall Covering & Paint

– March 21, 2014 $115,000 $163,600 $48,600

Grand Heating

– November 23, 2011 $119,305 $132,516 $13,211

Kruger Electrical

– January 17, 2013 $150,322 $204,000 $53,678

LC Pools

– June 30, 2011 $196,430 $255,380 $58,950

Preferred
Contractors

– October 31, 2011 $143,300 $149,500 $6,200

X

- Tech Security

– March 11, 2013 $49,404 $59,429 $10,025

TOTALS $1,177,101 $1,427,425 $250,324

T he final, right

- hand column of the table reflects the $250,324 difference between the original accurate invoices and amounts charged to and paid by Harouche for the eight
subcontracts. The trial court was mistaken when it concluded the difference amounted to $1,427,425. Harouche argues that the trial court intended to award the full amount of the altered subcontracts. He cites Bardis v. Oates15

(2004) 119 Cal.App.4th 1, 13 ( Bardis ), in arguing “ the trial court was free to decide that all of the eight Forged Subcontracts
should be disallowed because the evidence overwh elmingly proved that [Sisca and TWC] acted fraudulently and in breach of their fiduciary duty regarding those subcontracts

. ” In Bardis , the appellate court concluded the jury was entitled to give no weight to the fiduciary ’ s post hoc explanation that the money he fraudulently took from the principal was for legitimate overhead costs. ( Id. at pp. 12

- 13.)
Bardis is inapt: the trial court here determined that the

“ change orders appear to be legitimate ” and were based on the many changes requested by Harouche during the project. In finding the change orders were not entirely fraudulent

, the court rejected Harouche ’ s claim of $3,042,213.50 in damages that represented the amount he paid in excess of the s tipulated sum
in the Construction Contract. The court found that t he markup

on “ the amount provided by the subcontractor was a fraudulent act causing harm to Harouche. ” The trial court ’ s statement of decision explicitly stated that it did not intend to a ward the full
amount of the altered subcontracts , but rather it was awarding
the “ difference between the original invoices noted above and the
amount submitted to Harouche. ” 8
Harouche also asserts the court ’ s $1,427,425 damages finding must stand because Sisca and TWC “ never cited any evidence showing that any portion of the Contract Prices found in the eight Forged Subcontracts was true. The fact that Sisca

8 We do not address whether the trial court could properly have awarded as damages the entire amount of the change orders fraudulently issued or used some other calculation. The trial court stated that it was not making such an award, and the issue before us is whether the trial court made a calculation error in determining the amounts necessary to effect its award.16

altered real subcontracts to create the Forged Sub contracts does not mean that some amounts in the Forged Subcontracts were

‘ real. ’ ” We disagree with this characterization of the record

. At trial, plaintiff introduced statements from Finton, wh o attested that all the change orders were based on legiti mate work and that Sisca marked up the cost of the subcontractor ’ s legitimate work to make a profit. The court found “ Finton to be a credible witness who has declared under penalty of perjury to statements against his own interest

. ” In making its decisio n, the

court referenced the exhibits of both the original and the altered
subcontracts. This substantial evidence supported the court ’ s conclusion that the original invoices were “ real ” and explained that the court did not intend to award damages for the nonfraudulent portion of the change order.
To the extent Harouche seeks affirmance based on Finton ’ s declaration that Sisca received “ hundreds of thousands of dollars ”
from the “ forged subcontracts, ” the trial court did not find th is argument or the conclusory statements persuasive . The court
found damages for the nine change orders that Harouche introduced into evidence at trial. We do not reweigh the evidence on appeal. ( Thompson, supra, 6 Cal.Ap p.5th at p. 981.)
We conclude that the record supports only $250,324 in damages for the eight fraudulent change orders.
b. Solar Electric al Fraudulent Change Orders Were Properly Included in the Calculation of Damages The ninth change order was for work provided by Solar
Electrical

. The testimony at trial was that it was confusion over this subcontract that ultimately led to Harouche ’ s discovery of
Sisca and Finton ’ s entire change order fraud scheme

. It is undisputed that Harouche was billed $245,819 by Sisca in a change order for Solar Electrical ’ s work dated July 16, 2012. Yet, Solar Electrical had only actually invoiced $133,160.74 in four17

separate invoices ($17,650, $50,443.74, $57,467, and $ 7
, 600 ).
The trial court found that the difference between the original
invoices and the amount submitted to Harouche was $112,661.26

. 9 Citing testimony from one of Harouche ’ s employees, Sisca
and TWC argue the record indicates that Harouche never paid
the additiona l $112,6 61 .26 that constituted the fraud. Sisca and TWC misconstrue the testimony.
W itness John Clark, an employee of Harouche ’ s whose job it was to make payments on the construction contract, testified
that he directly contacted Solar Electrical to ascertain how much Harouche owed on the subcontract, as it was unclear from their
records. Clark testified that the Solar Electric al office manager told him there was a remaining balance that had to be paid for
Solar to turn on the system it had installed . Clark obtained copies of the four invoices from Solar Electrical, which totaled “ in the 130,000 range ” and compared them to the contract he had received from Sisca, which was “ $240

- some thousand. ” Referencing his emails wi th Sisca (exhibit 76) , Clark testified that he confronted Sisca about the substantial discrepancy
between what Solar Electric al had charged for the work, and what Sisca had billed Harouche. In the email, Clark wrote
, “ I f you account for everything paid to date including monies to the previous companies prior to everything consolidating with Solar
Electrical we have already paid approximately 225.4k, yet their services only total 135k. ” Sisca responded via email, instruc ting Harouche to pay the remaining balance directly to Solar

9 The trial court appears to have miscalculate d the amount: the difference is actually $112,658.26.18

Electrical so that Solar Electrical would turn on the system. Clark stated he paid the balance to Solar Electrical

. 10 The testimony and emails evidence that Harouche paid more than $225,400 for the Solar work. We conclude the trial

court reasonable found that the damages associated with th e Solar sub contract was the difference between the original
invoices and the amount submitted to Harouche, i

. e. $112, 658 .26.

c. Reduction in Damages for the Inflated Subcontracts The trial court awarded $1,540

, 826.26 in damages for the
inflated subcontracts. Based the record

, the damages for the
inflated subcontracts were actually $362,98 2 .26 ( $250,324 for the first eight subcontracts and $112, 658 .26 for the Solar Electrical contract)

. “ When the evidence is sufficient to sustain some but not all alleged damages, we will reduce the judgment to the amount supported by the evidence. ” ( Behr v. Redmond (2011)
193 Cal.App.4th 517, 533 (Behr ) .) We modify the judgment to reduce the amount of damages on the nine inflated sub contracts to $362,982.26 ($1,540,826.26

- $1,177,844 ).
2. $235,000 Damages was Properly Award ed for the

“ Referral Fee ” Sisca and TWC argue the trial judge erred when it awarded Harouche the $235,000 “ referral fee

, ” the amount TWC required FCI to pay upon receiving the construction contract. Citing Savage v. Mayer (1949) 33 Cal.2d 548, 551 ( Savage ), Sisca and
TWC assert th e court failed to consider special circumstances underlying the payment by FCI to TWC, that should permit TWC to keep $235,000

. We apply the aforementioned substantial
evidence standard of review in reviewing the trial court ’ s decision
on this factual iss ue

. ( Thompson, supra, 6 Cal.App.5th at p. 981.)

10 Clark testified using round estimates. The court found the true amounts were slightly different based on the actual invoices.19 Savage does not assist Sisca and TWC. “ An agent, however, is not permitted to make any secret profit out of the subject of his agency. [Citations.] All benefits and advantages acquired by the agent as an outgrowth of the agency, exclusive of the agent ’ s agreed compensation, are deemed to have been acquired for the benefit of the principal, and the principal is entitled to recover such benefits in an appropriate action. [Citation.] In the absence of speci al circumstances, moneys received by one in the capacity of agent are not his, and the law implies a promise to pay them to the principal on demand. [Citation.] It follows that the principal ’ s right to recover does not depend upon any deceit of the agent, but is based upon the duties incident to the agency relationship and upon the fact that all profits resulting from that relationship belong to the principal. ” ( Savage, supra, 33 Cal.2d at p. 551

. ) Sisca and TWC rely on the italicized quoted langu age above in asserting there were special circumstances that “ permitted the payment of the referral fee to TWC. ” Sisca and TWC admit

“ there are no cases that we can find

— in or out of state

— defining

‘ special circumstances, ’ ” but nonetheless assert that t heir
circumstances allowed them to retain the referral fee. 11
Sisca and TWC characterize these “ special circumstances ”
as follows: “ The $235,000 referral fee is just compensation for 6
months ’ work without any payment

. . . . ” They assert, “ It was Harouche who took advantage of Sisca in asking him to undertake due diligence on the purchase of the Malibu property
for which there was no renumeration. ” Whether intended or not,
Sisca and TWC essentially argue that they were entitled to

11 We have found no appellate authority that applies Savage’s “special circumstances” exception to allow an agent to retain a secret profit through the agency relationship, unbeknownst to the principal.20

commit fraud bec ause Harouche did not pay them fairly for their services in the six months from April 1, 2008 to September 23,
2008. The trial court was not persuaded; nor are we.
T he contract between Harouche and Sisca/TWC, dated
Se ptember 23, 2008 stated: “ TWC has bee n acting in this capacity on behalf of Harouche since April 1, 2008. TWC will continue to act diligently on behalf of Harouche until such time the Project is completed and ready for occupancy.

. . . In consideration for the services of TWC, Harouche will pay TWC a Project Management Fee of Two Hundred Thousand Dollars ($200,000). ” This provision reflects th e parties ’ explicit agreement that the $200,000 project management fee was, in part, for the s ervices Sisca had been providing “ since April 1,
2008. ” The trial court found that Harouche “ ultimately paid
Sisca and TWC “ much more than ” the $200,000 project management fee contained in the contract. Harouche actually paid Sisca and TWC a project mana gement fee of $262,000, plus travel expenses of $63,400. Sisca and TWC also received 2.5 percent of the construction contract payments from FCI. If Sisca and TWC believed they were entitled to additional compensation, they should have said so in the nego tiati ons leading up to the September 23, 2008 contract

. Self

- help was not a lawful option.
Sisca was Harouche ’ s agent and fiduciary and was thus

“ not permitted to make any secret profit out of the subject of his

agency. ” ( Savage, supra, 33 Cal.2d at p. 551.) T o the extent
there is a “ special circumstances ” exception to this rule,

s ubstantial evidence supports the trial court ’ s implied finding
that no “ special circumstances ” ex isted that allowed Sisca and
TWC to pocket the undisclosed fee.21

3. Remand Is Necessary to A llow the Trial Court to
M ake E xpress F indings on the C laimed $608,000
O ffset for FCI

’ s Released Cross

- C omplaint
Sisca and TWC argue the t rial court erred in failing to offset the judgment pursuant to Code of Civil Procedure section
877 by $608,000

, the amount of FCI ’ s cross

- c omplaint against Harouche, which was released as part of FCI ’ s settlement with
Harouche. 12 The record does not indicate that the trial court made an express finding on this issue even though it was litigated by the parties. Accordingly, we remand to allow the
trial court to make that determination.

a. Section 877 Settlement Valuation for Codefendants ’ Damages Offset

“ Section 877 specifies circumstances under which an award
of economic damages against a defendant may be offset by a
codefendant ’ s settlement.

. . . Section 877 promotes the recovery of damages, the settlement of litigation, and the equitable apportionment of liability among tortfeasors, while limiting the
double r ecovery of damages. ” ( LAOSD Asbestos Cases (2018)
28 Cal.App.5th 862, 877

- 878 ( LAOSD Asbestos ) .) Section 877 provides : “ Where a release, dismissal with or without prejudice, or a covenant not to sue or not to enforce judgment is given in good faith befo re verdict or judgment to one or more of a number of tortfeasors claimed to be liable for the same tort, or to one or
more other co

- obligors mutually subject to contribution rights

. . . it shall reduce the claim s against the others in the amount stipulated by the release, the dismissal or the covenant, or in the amount of the consideration paid for it, whichever is the greater. ” (§ 877 , subd. (a) .)

12 All subsequent statutory references are to the Code of Civil Procedure unless indicated otherwise.22 At issue here is the trial court ’ s valu ation of the Finton/FCI
settlement for Sisca/TWC ’ s damages off set under section 877.

“ Under subdivision (a) of section 877, the amount of the setoff is, in the absence of a stipulation, ‘ the amount of the consideration paid for [the release or dismissal]. ’ But the amount of consideration paid within the meaning of section 877, subdivision (a) is not necessarily the amount of money paid. Often ‘ the amount of the offset is clouded by injection of noncash
consideration into the settlement. ’ ” ( Franklin Mint Co. v. Superior Court (2005) 130 Cal.App.4th 1550, 1557, fn. omitted ( Franklin Mint ).) In “ moving under section 877.6 for a good faith settlement determination, the moving party must set forth the value of the consideration paid and an evidentiary basis for that valuation, and must demonstrate that the va luation ‘ was reached in a sufficiently adversarial manner to justify the presumption
that a reasonable valuation was reached. ’ ” ( Id. at p. 1558.) “ A nonsettling defendant may then challenge the settlement by

‘ attempt[ing] to prove that the parties ’ assi gned value is too low and that a greater reduction in plaintiff ’ s claims against the remaining defendants is actually warranted. ’ ” ( Ibid

. ) “ A defendant seeking an offset against a money judgment has the burden of proving the offset. ” ( Conrad v. Ball Corp. (1994)

24 Cal.App.4th 439, 444.)
In determining the amount of an offset , the trial court engages in an equitable undertaking ( Abbot Ford, Inc. v. Superior
Court (1989) 43 Cal.3d 858, 873

- 874 ), taking into account the

g oals of good faith settleme nts , i.e. “ the equitable sharing of costs among the parties at fault and the encouragement of settlements

. . . as well as another important public policy: ‘ “ the maximization of recovery to the plaintiff for the amount of

. . . injury to the extent that negligence or fault of others has

contr ibuted to it. ” [Citation.] Thus, while the nonsettling23

defendant is entitled to a fair setoff, the injured plaintiff al so has a right that the setoff not be excessive

. ’ ” ( Franklin Mint , supra, 130 Cal.App.4th at pp. 1556

– 1557.) “ The trial court ’ s determination of the value of the consideration paid will be upheld on appeal if supported by substantial evidence. ” ( Id. at

p. 1558.)
b. Application of Section 877 Harouche, Finton, and FCI moved for a good faith settlement determination, asserting that the settlement was worth $1,100,000

, i.e. the amount of consideration Finton and
FCI agreed to p ay in installments for their dismissal from the litigation

. In their opposition filed on February 21, 2017, Sisca
and TWC did not argue that the $608,000 alleged in the
Finton/FCI cross

- complaint should be credited toward the value
of the settlement . In fact, their argume nt that Finton should proportionately bear more liability for the damages than Sisca/TWC was largely premise d on the concern that the offset would only be $1,100,000 of the potential $ 3,042,213.50 in damages possible a t trial

. It was not until June 27, 2018, Sisca and TWC argued in their objections to the trial court ’ s proposed statement of decision
that the offset should include the amount the cross

- complaint ’ s for $608,000

. They explain ed that in FCI ’ s cross complaint, FCI alleged Harouche owed $6 08,000 , the amount outstanding on the final pay application associated with the construction contract. Sisca and TWC argued: “ The outstanding amount of this final pay application and unbilled amounts as alleged in the Cross

Complaint and to which Harouch e and Finton both testified at trial as being unpaid are costs avoided by Harouche and therefore
the value of these amounts inures to the benefit of Harouche. Consequently, the value of the released FCI Cross Complaint should be considered part of the set tlement amount ‘ stipulated by24

the release. ’ The amount avoided is an additional $608,000.00[.] Therefore, the net monetary effect of the good faith settlement by FCI and Finton to Harouche is $1,708,000.00. It is from this
amount that the Plaintiff ’ s claims against Sisca must be reduc ed

pursu ant to Code [ Civ il Proc edure section] 877, not the $1,100,000.00 in the Proposed Statement. ”
The court ’ s ruling on whether it should offset the judgment by the settlement was primarily limited to the f ollowing language
from its s tatement of d ecision: “ The Court will not assess an offset at this time; however, the Court retains jurisdiction to
award the Sisca Defendants an offset when and if the Finton Defendants make a payment to Harouche under the settlement agreement. ” The first part of the sentence refers to an offset in general

terms and could be interpreted to include the $608,000. But
what follows

— the court ’ s statement that it will consider an offset
if the “ Finton Defendants make a payment ”

– appears only to refer to the periodic $18,000 payments FCI was to make under the settlement agreement and bankruptcy plan of reorganization. 13 In any event

, the trial court did not expressly

13 The $608,000 was part of the claim that FCI and Finton made against Harouche in its cross

- complaint. In its statement of decision, the court stated: “A cross

- complaint was filed by defendants for breac h of contract and common count for goods and services rendered. Neither party addressed the cross

complaint in their closing arguments. The Court finds against cross complainant on the cross complaint.” It is unclear whether the court’s adjudication of the cross

- complaint was intended to encompass a finding that there was no merit to the $608,000, and hence nothing additional to overset. Harouche asserts that Sisca and TWC were not entitled to an offset because “Harouche never sought the $608,000 at iss ue in FCI’s cross

- complaint as damages in his complaint, and the trial court never held the Sisca25

find whether to offset the judgment by $608,000 or any other
amount. Nor can we apply the doctrine of implied findings to conclude the trial court denied any offset because the issue was
controverted.

“ When a statement of decision does not resolve a controverted issue, or if the statement is ambiguous and the record shows that the omission or ambiguity was brought to the attention of the trial court either prior to entry of judgment

. . . , it shall not be inferred on appeal

. . . that the trial court decided in favor of the prevailing party as to those facts o r on that iss ue. ” ( § 63 4.) Given the procedural posture of the case and the equitable nature of the offset inquiry, we remand for the trial court to consider and rule on the $608,000 offset.
4. Prejudgment Interest Must be Recalculated Based on the Modified Judgment
The trial court awarded Harouche $990,486.45 in prejudgment interest , based on its total damages award of $1, 962,837.72

. We hold in part 1 that the trial court erred in calculating the fraudulent change order damages

. Instead, the

true damages for the inflated subcontracts was $362,982.26 ($250,324 for the first eight subcontracts and $112,658.26 for the solar contract). In part 2, we affi rmed the trial court ’ s award of $235,000 in damages for the “ referral fee. ” Also, and

u nchallenged on appeal, we affirm the trial court ’ s award of $205,011.46 in damages for the 1.5 percent kickback of all amounts Harouche paid FCI. Based on the foregoing , we modify the judgment to award Harouche $802,993.72 ( $362,982.26 +

Defendants liable for such amounts.” He misses the point. Sisca and TWC argue it is FCI’s release of a valid $608,000 claim that Harouche allegedly owed FC I that constitutes an additional economic benefit to Harouche under the settlement agreement, and its value should be included in the offset.26

$235,000 + $205,011.46 ) in damages

. (See Behr , supra, 193 Cal.App.4th at p. 533 [ “ When the evidence is sufficient to sustain some but not all alleged damages, we will reduce th e judgment to the amount supported by the evidence. ” ].)
We remand the matter for the trial court to modify the award of prejudgment interest based on the correct damage s of $ 802,993.72

. (See Wallis v. PHL Associates, Inc. (2 013)
220 Cal.App.4th 814, 817 [modification of the judgment “ as to the jury verdict and remand for recalculation of prejudgment
interest. ” ].)
DISPOSITION The judgment is modified to reduce the damage award to
Harouche to $ 802,99 3 .72

. The matter is remanded to the trial

court with directions to (1) recalculat e the prejudgment interest

on the $802,993.72 in damages; (2) rule on Sisca and TWC ’ s claim
of a $608,000 offset ; and (3) prepare an amended judgment. In all other respects the judgment is affirmed. The parties shall
bear their own costs.

RUBIN

, P. J.
WE CONCUR:

BAKER

, J.

KIM , J.