Attorneys Fees Under California’s Prompt Payment Statutes. Contractor’s “Win” Fails the Sniff Test

by Wendel, Rosen, Black & Dean LLP
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This past month, the California Court of Appeals for the Third District, in  James L. Harris Painting & Decorating, Inc. v. West Bay Builders, Inc., Case No. C072169 (August 27, 2015), handed down a decision in a construction contract battle that has raged since 2007. And, once again, the winner is . . . in the words of Justice Andrea Lynn Hoch who authored the opinion . . . . “no prevailing party in [the] case” and hence “no prevailing party attorney’s fees [ ] awarded.”

Background

In Harris, subcontractor James L. Harris Painting & Decorating, Inc. (“Harris”) sued general contractor West Bay Builders, Inc. (“West Bay”) for extra work performed on a school construction project in Stockton, California. Among its claims, Harris asserted that West Bay was liable under California’s prompt payment statutes for failure to timely pay Harris.

West Bay, in turn, filed a cross claim against Harris asserting that Harris had abandoned the project and had in fact been overpaid on the project by $71,607.

At trial, the jury found that both West Bay and Harris had failed to perform and refused to award damages to either side. The jury also found that West Bay had not acted in good faith when it withheld payment from Harris.

The trial court later entered judgment in favor of West Bay and its surety, Safeco Insurance Company of America (“Safeco”), on their defense to Harris’ claims and judgment in favor of Harris on its defense to West Bay’s claims. However, interestingly, the court awarded West Bay and Safeco their “costs” which included cost items such as their filing fees.

Then the Fun Begins – West Bay Applies for its Attorney’s Fees

Following trial, West Bay and Safeco filed a motion to recover their attorney’s fees under the prompt payment statutes on the ground that because judgment was entered in favor of West Bay on Harris’ claims, including its claim against West Bay under the prompt payment law, that West Bay was the “prevailing party” and entitled to recover its attorney’s fees.

The trial court denied West Bay and Safeco’s motion finding that “[e]ach party sued for breach of contract, but neither side prevailed. The Jury denied all relief. Fairness dictates that each side should pay its own attorney’s fees.” West Bay and Safeco appealed.

On appeal, the Court of Appeals reviewed a number of California’s prompt payment statutes, including Business and Professions Code section 7108.5 (time for delivering payment), Public Contracts Code section 7107 (funds wrongfully withheld), Public Contracts Code section 10262.5 (funds wrongfully withheld), and former Civil Code section 3260 (prompt payment), to determine if any of the statutes defined who is a prevailing party. None of these statutes, the Court noted, define who is a prevailing party.

Nevertheless, the Court of Appeals held, “statutes [including California’s prompt payment statutes] which provide that the prevailing party ‘shall’ recover attorney fees also have concluded that a court has the discretion to find there is a no prevailing party, even though the statute does not expressly say so” and, because courts have the discretion to determine  if there is a prevailing party or no prevailing party at all, the “same conclusion applies to the prompt payment statutes in this case.”

So, Just What are the Guidelines in Determining a “Prevailing Party”?

Having concluded that the determination of who, if anyone, is the prevailing party is left in the discretion of the court, the Court of Appeals looked at whether the trial court abused its discretion in denying West Bay and Safeco’s motion for attorney’s fees.

Remember the trial court’s award of “costs” to West Bay and Safeco?

According to West Bay and Safeco, the only way to consistently construe the trial court’s order is that both Harris, on one hand, and West Bay and Safeco, on the other, lost on their breach of contract claims, but West Bay and Safeco won on Harris’ statutory prompt payment claim, thus resulting in an award of costs in favor of West Bay and Safeco who were the prevailing parties under the prompt payment statutes and therefore entitled to recover their attorney’s fees.

Not so fast held the Court of Appeals. “Granted, West Bay and Safeco did manage to defeat Harris’s prompt payment claims. However, West Bay and Safeco did not obtain the defense verdict by demonstrating timely payments were made to Harris under the prompt payment statutes. To the contrary, the jury found West Bay did not act in good faith in withholding payment to Harris in June 2004.”

And therein lies the first lesson. If you are on the wrong side of a request for fees, argue every equitable issue you can think of that may tilt playing field back in your favor! Remember, absent an abuse of discretion, the trial judge’s decision will be upheld, at least in the Third District.

The second lesson is not found in the decision. Rather, it is a lesson intuited from the decision when applied to experience. On one hand, one might consider including a definition of “prevailing party” in a contract. Why not? There seems to be a trend to try to draft provisions addressing every possible contingency these days. On the other hand, the many and varied end game scenarios in litigation may make drafting such a provision impossible to do in any meaningfully comprehensive way.

In the end, I’ll stick with the equities. Then again, I’ve always liked a good argument, and the Harris decision for me is a reminder that discretion and judgment is often a better standard than hard rules. The wisdom of accepting mushy standard is quickly enforced when one attempts to draft a hard outcome clause.

Of course, this depends upon whether you ended up on the winning side.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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