Court Opinion

ID: 1042057
Source: CourtListenerOpinion
Date Created: 2013-09-25 18:56:13.327028+00
Date Added: 2024-06-11T12:05:46.554148
License: Public Domain

Filed 9/25/13 National Security Systems v. Houalla Enterprises CA2/3
                 NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115.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 THREE

NATIONAL SECURITY SYSTEMS, INC.,                                           B241674

      Plaintiff, Cross-defendant and                                      (Los Angeles County
Appellant,                                                                Super. Ct. No. BC453387)

         v.

HOUALLA ENTERPRISES, LTD.,

      Defendant, Cross-complainant and
Respondent.

         APPEAL from a judgment of the Superior Court of Los Angeles County,
Daniel J. Buckley, Judge. Affirmed.
         The Cigel Law Group, Rick A. Cigel and Michael B. Kadish for Plaintiff,
Cross-defendant and Appellant.
         Fingal, Fahrney & Clark and Christopher R. Clark for Defendant, Cross-
complainant and Respondent.

                                        _________________________
       Plaintiff, cross-defendant and appellant National Security Systems, Inc.
(National), a subcontractor, appeals a net judgment in the sum of $25,942.12 in favor
of the general contractor, defendant, cross-complainant and respondent Houalla
Enterprises, Ltd. dba Metro Builders & Engineers Group, Ltd. (Metro) following a
court trial.
       The essential issues presented are whether the trial court erred in awarding
Metro $10,083.86 in damages for prevailing wage violations, and $25,200 in damages
for 21 days of delay (at the rate of $1,200 per day).
       We perceive no error in the trial court’s rulings and affirm the judgment in its
entirety.
                  FACTUAL AND PROCEDURAL BACKGROUND
       Metro was the general contractor on a construction project for the City of
Los Angeles (City) known as the “Air Treatment Facility ECIS – La Cienega and
Jefferson,” located at 3410 La Cienega Boulevard in Los Angeles. Because the City
was the owner, this was a prevailing wage project.1
       On September 17, 2007, Metro and National, a commercial fire alarm
installation company, entered into a written subcontract whereby National agreed to
provide and install fire alarm protection equipment for the project. The subcontract
amount, including change orders, was $93,860.
       In October 2010, a dispute arose between the parties over National’s work.
Metro accused National of installing the system improperly. The parties failed to
resolve their differences and Metro removed National as the fire alarm subcontractor
on the project.
       National served a stop notice on the City, and the City withheld funds in the
sum of $18,670 from Metro.

1
       Labor Code section 1774 states: “The contractor to whom the contract is
awarded, and any subcontractor under him, shall pay not less than the specified
prevailing rates of wages to all workmen employed in the execution of the contract.”

                                            2
       On December 27, 2010, National filed suit against Metro for breach of contract,
seeking to recover $18,670 for its work on the project.
       Metro answered and filed a cross-complaint against National. Metro alleged,
inter alia, that National’s nonperformance, which required retention of another
subcontractor to complete the work, delayed the entire project and cost Metro at least
40 days of compensation from the City at $1,200 per day. In addition, on July 14,
2011, the City determined that National failed to pay specified wage rates to its
workers on the project. National refused to pay wage restitution to its workers, and
thereby caused $11,643 in damages to Metro “for the expense of having to cover this
amount to the City.”
       In April 2012, the matter was tried to the court without a jury. The trial court
found National was entitled to damages in the sum of $13,541.28 against Metro, and
that Metro incurred damages against National in the sum of $39,483.40. Metro’s
damages included delay damages of $25,200 for 21 days of delay at the rate of $1,200
per day, and $10,083.36 for the wages and penalties paid to the City on account of
labor issues. The net award was in favor of Metro in the sum of $25,942.12. The trial
court further found that Metro was the prevailing party.
       National filed a timely notice of appeal from the judgment.
                                   CONTENTIONS
       National contends the trial court committed reversible error in awarding Metro
$10,083 on account of the City’s prevailing wage demands, and $25,200 in liquidated
damages on its delay claim.
                                    DISCUSSION
       1. Trial court properly awarded Metro $10,083.86 on account of the City’s
prevailing wage demand.
          a. National’s arguments.
       National contends Metro failed to present any evidence at trial National was
legally liable for the amounts demanded, no evidence was introduced at trial that the
City had filed a lawsuit or that any judicial or administrative body had adjudicated

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National’s liability for the amount demanded, and the uncontroverted evidence
establishes National was not legally liable for the amount demanded by the City.
National’s arguments are unavailing.
           b. Substantial evidence supports the award of $10,083.86 to Metro for
wages and penalties it paid on National’s account.
              (1) Factual summary.
       In June 2011, the City’s Contract Compliance Department requested payroll
information from National with respect to the project. Specifically, the City requested
Certified Payroll Reports (CPR’s) for the project, as well as a fringe benefit statement
and check numbers and “copies of cancelled checks corresponding to the CPRs.”
       On June 15, 2011, Metro sent an email to National requesting the information
sought by the City.
       Chris Schroeder (Schroeder), president of National, emailed his staff as follows:
“Don’t respond to this in any way.” (Italics added.) 2
       On July 14, 2011, the City sent a certified letter to Metro, with a copy to
National, stating that Metro’s subcontractor, National, had failed to pay “the specified
prevailing wage rates to workers employed in the execution of the above contract.”
The letter asserted the “certified payroll records, inspector logs, and pertinent payroll
documents submitted to our office, substantiate an underpayment of wages.” (Italics
added.) The City’s letter advised that Labor Code sections 1774 and 1815 “specify
that prevailing wage must be paid at all times for public works projects.” Further, any
contractor found to be in violation of underpayment “may be penalized according to
Sections 1775 and 1813 of the California Labor Code,” and that a “portion of your

2
        At trial, Schroeder admitted he had instructed his staff not to respond to Metro,
but Schroeder asserted the City never requested him to provide documents. The
documentary evidence is to the contrary. The record reflects, inter alia, the City
copied National on the July 14, 2011 certified letter it sent to Metro. Schroeder also
testified he did not recall whether he received a vendor request for documents from
Metro, dated June 15, 2011, wherein Metro reiterated a request for payroll
documentation.
                                            4
retention payment may be withheld until this matter is satisfactorily resolved,”
pursuant to Labor Code section 1727. Attached to the July 14, 2011 letter from the
City was a “Summary of Wage Restitution and Penalty Log” reflecting the total wage
restitution and applicable penalties, which amounted to $11,643.86 for five
employees.3
       On July 14, 2011, Metro again emailed National, stating: “We have repeatedly
requested you to provide us or the Owner with missing contract compliance
documentation. Your refusal to respond, left us, unfortunately, no choice but to inform
the City that you are not cooperating on this contractually binding matter. Public
Works code and your subcontract agreement with us binds you to provide records
requested by the Owner’s Contract Compliance department. We will back charge you
all fees, penalties, liquidated damages and any other expense we will incur by your
noncompliance with this legal requirement.” (Italics added.)
       On July 20, 2011, Metro’s counsel sent a letter to National’s counsel, again
requesting compliance with the City’s request for documentation, and attaching a copy
of the City’s July 14, 2011 letter demanding wage restitution in excess of $11,000, to
no avail.
       On August 10, 2011, Metro paid the City a reduced penalty of $440 and also
issued checks to the five affected individual employees, for a total of $10,083.86 on
account of National’s failure to pay prevailing wages.
       At trial, National took the position it had duly paid its employees and that it had
supplied Metro with everything it needed to avoid the penalty. At the time of closing
argument, the following colloquy occurred between the trial court and National’s
counsel:

3
       The July 14, 2011 letter, exhibit 86, was admitted into evidence without
objection. Although there was no testimony at trial showing how the City determined
the amount of the underpaid wages set forth in its demand letter, exhibit 86, which
came in without objection, establishes the amount of the City’s demand.
                                            5
       “MR. CULLEN: Our client provided them with everything that they needed to
avoid the penalty.
       “THE COURT: How do I know that?
       “MR. CULLEN: Mr. Schroeder’s testimony.
       “THE COURT: Okay. But why aren’t there fax cover sheets? There’s just no
evidence whatsoever.
       “MR. CULLEN: My client had some turnover at his office after this was over.
As you heard Ms. Lewis was in charge of that. She no longer works for him.[4]
       “THE COURT: But even if he supplied it, what I would call is a complete lack
of cooperation, if he had looked around and gotten his files and found what he showed
me during the trial and sent it off to them because it was somewhat specific, no one
would have had to pay it; right?
       “MR. CULLEN: That would be – that would probably be correct, Your
Honor.”
              (2) Trial court properly awarded Metro $10,083.86, to compensate
Metro for the amount it paid on National’s account.
       To recap, the City sent a deficiency notice to Metro, indicating that
subcontractor, National, owed a total of $11,643.86 in unpaid wages and penalties.
The City calculated that figure based on its review of payroll records that had been
submitted to the City’s Office of Contract Compliance.
       Metro repeatedly requested National to furnish the payroll documentation
which had been requested by the City.
       National failed to respond.

4
       What the record does show is that on June 15, 2011, after National received a
request from Metro for payroll documentation, Schroeder emailed Christine Lewis
stating “Don’t respond to this in any way.” National’s attempt to attribute its
nonresponse to “turnover” at the office is inconsistent with Schroeder’s directive to
Lewis not to respond to Metro’s request for documentation.
                                            6
       Metro, lacking documentation from National to refute the City’s demand, and
faced with the City’s threat to withhold payment from Metro, paid the amount
demanded by the City, while managing to have the penalty reduced to $440 from the
original penalty amount of $2,000.
       Metro then sued National to recover the $10,083.86 it paid on National’s
account.
       At trial, National contended the two John Does listed in the deficiency notice
were not employees of National, and that it had fully paid the other three employees
listed in the notice, namely, Ortega, Nevarez and Quintero. National also claimed it
had supplied Metro with all the documentation that it needed, or alternatively, that
inadequate documentation was due to “some turnover at [its] office.”
       The trial court held Metro was entitled to recover the $10,083.86 from National,
stating: “[T]he court finds as to the penalties paid to the City because of the labor
issues, one, I do not think there is sufficient proof that the documentation was fully
and properly given to [Metro], but within any definition of reasonableness . . . , a
simple followup by [National] could have and should have and would have provided
the ability for [Metro] not to pay that amount.”
       Clearly, at the time the City attempted to ascertain whether National’s
employees had been properly paid, National, as their employer, was in the best
position to know and had the best access to evidence on the issue, i.e., in the form of
its own payroll records. Moreover, the subcontract obligated National to provide
Metro with certified payroll reports.
       Metro was damaged by National’s failure to supply the payroll documentation
that Metro requested. As the trial court found, a simple followup by National would
have enabled Metro not to have to pay the amount demanded by the City. Leaving
aside whether National actually had underpaid its employees, Metro was damaged by
National’s refusal to controvert the City’s deficiency notice. Given the lack of any
documentation from National to refute the deficiency notice, and the City’s threat to

                                            7
withhold funds due to Metro, Metro reasonably complied with the City’s demand
for payment.
       We note that in addition to requiring National to pay prevailing wages, the
subcontract required National to provide payroll documentation, indemnify Metro for
all claims arising out of National’s performance of the work, and allowed Metro to pay
and deduct amounts as a result of National’s failure to perform any provisions in the
subcontract. To quote, “If the Sub-Contractor should neglect to prosecute the work
properly or fail to perform any provisions of this contract, . . . the Contractor after
three days written notice to the Subcontractor, shall take corrective measures and
deduct the cost thereof from any payment then or thereafter due to the Sub-
Contractor.” (Italics added.)
       Under these circumstances, the trial court properly awarded Metro $10,083.86
to make it whole for the wages and penalties it paid on National’s account.
           c. No merit to National’s arguments.
       National’s arguments to the contrary are without merit. In attacking the
damage award, National’s contention on appeal is that “Metro failed to present any
evidence that [National] was legally liable for the amounts the City demanded. No
evidence was presented at trial that the city filed a lawsuit or that either the Division of
Labor Standards Enforcement or the Office of the Labor Commissioner adjudicated
any wage claims. In fact, the uncontradicted evidence produced at trial established
that [National] was not legally liable for the amount demanded by the City or
voluntarily paid by Metro.”
       The City’s Office of Contract Compliance made a determination, based on its
review of payroll records that had been submitted to it, that National owed wage
restitution and penalties totaling $11,643.86. The subcontract, in addition to requiring
National to pay prevailing wages to its employees, obligated National to furnish
documentation, including certified payroll reports, to Metro. The subcontract also
entitled Metro, upon three days notice to National, to “take corrective measures and
deduct the cost thereof from any payment then or thereafter due to the Sub-

                                             8
Contractor.” (Italics added.) The record reflects National flatly refused to supply the
necessary payroll documentation, despite repeated requests by Metro. Having failed to
supply Metro with the requested payroll documents to demonstrate that National’s
employees had been duly paid, National is not in a position to object to Metro’s
payment of wage restitution and penalties totaling $10,083.86 to National’s employees
and to the City, as demanded by the City.5
       2. No error in trial court’s award of $25,200 to Metro as delay damages for
21 days of delay at the rate of $1,200 per day.
       National contends the trial court erred in awarding delay damages to Metro
because (1) the subcontract between Metro and National did not specify a completion
date; and (2) Metro failed to prove at trial it was obligated under its agreement with the
City to pay delay damages of $1,200 per day.
       National’s arguments are unavailing. National’s focus on the terms of the
subcontract is misplaced. As explained below, National delayed the project, requiring
Metro to retain a new subcontractor. Metro’s contract with the City entitled Metro to
$1,200 per day for City-caused delays (as opposed to concurrent delays). Had
National not delayed the project, Metro would have been able to recover for 21
additional days of delay by the City. Therefore, the trial court properly awarded Metro
delays damages for said 21 days.

5
       In its appellant’s reply brief, National argues that neither Metro nor National
was under any obligation to pay the City the sums demanded by its letter, and that the
prevailing wage statutory scheme requires an investigation, the withholding of contract
funds, and the issuance of a formal wage and penalty assessment notice. (Appellant’s
reply brief, pp. 7-10, citing Lab. Code, §§ 1726, 1771.6.) National asserts that by
“voluntarily paying the sums demand, Metro circumvented the procedural safeguards
provide[d] by this scheme and assumed an unproven, unliquidated debt it was not
obligated to assume,” and because there was no evidence the sums paid by Metro on
account of wage restitution and penalty assessments was in fact owed, the judgment
should be reversed. National’s statutory arguments, belatedly raised in the reply brief,
require no discussion. (Tisher v. California Horse Racing Bd. (1991) 231 Cal.App.3d
349, 361.)
                                             9
            a. National delayed the project, forcing Metro to replace National with a
new subcontractor.
         On September 17, 2010, Metro directed National to proceed with the final
inspection on the fire alarm system for the project, based on National’s confirmation
the system had been tested and was “good to go” for the inspection.
         On September 30, 2010, National contended the “Fire alarm final failed
because Metro Builders tampered with the fire alarm system therefore damaging the
system and voiding the system warranty.”
         Metro responded: “You state that inspection failed because of our actions,
although no fire alarm inspection even took place (the fire alarm inspection last
request on record was for May). [¶] We inspected the panels to see if there was any
damage to them, and could not see any. We are hiring another fire alarm company to
come and verify this.”
         The independent fire alarm company determined there was no wrongdoing by
Metro “but instead outline[d] many items not in compliance with the plan and with the
code.”
         On October 13, 2010, Metro advised National, “Now that we understand what
needs to be done to complete the job I will request you to complete this job and
provide final inspection in the next 48 hrs. After this time I will hire all necessary
recourses to complete the job and all cost incurred will be charged back to your
company.”
         National did not correct its work and on October 18, 2010, Metro advised
National it was being replaced by another subcontractor “capable of completing the
fire alarm system.”
         On December 17, 2010, the Department of Building and Safety approved the
final inspection, and the fire marshal gave its approval on December 27, 2010.

                                            10
            b. The contract between the City and Metro entitled Metro to $1,200 per
day for City-caused delays; National’s delay created a period of “concurrent” delay
for which National was not compensated by the City; therefore, the trial court
properly awarded delay damages to Metro for the period of delay caused by National.
       The contract between Metro and the City provided that Metro would be
compensated for City-caused delays at the rate of $1,200 per day. On the other hand,
for “concurrent delay,” that is to say, those days during which both Metro and the City
were delaying the project, Metro was not entitled to compensation by the City.
       At trial, John Metoyer of Nitro Consultants, a construction management firm,
testified that National caused 40 days of concurrent delay on the project. Based
thereon, Metro sought 40 days of delay damages from National, at the rate of $1,200
per day. The trial court found “there was some delay but not 40 days.” The trial court
ruled that Metro was entitled to delay damages for 21 days of delay attributable to
National.
       Civil Code section 3300 provides, “For the breach of an obligation arising from
contract, the measure of damages, except where otherwise expressly provided by this
code, is the amount which will compensate the party aggrieved for all the detriment
proximately caused thereby, or which, in the ordinary course of things, would be likely
to result therefrom.” Therefore, Metro was entitled to recover damages to compensate
it for the loss it incurred due to National’s conduct.
       Here, the City compensated Metro for 219 days of delay. However, had
National not delayed the project, Metro would have been entitled to numerous
additional days of compensable delay. Metoyer’s testimony established that
National’s conduct resulted in a period of “concurrent delay,” as contrasted with City-
caused delay. Therefore, the trial court properly awarded delay damages to Metro for
the period of delay caused by National, because National’s delay created a concurrent
delay that was not compensable by the City.

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                                   DISPOSITION
      The judgment is affirmed. Metro shall recover its costs on appeal, as well as
reasonable attorney fees on appeal, pursuant to the subcontract.
      NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

                                                KLEIN, P. J.

We concur:

             CROSKEY, J.

             KITCHING, J.

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