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Martin Brothers Construction, Inc. v. Thompson Pacific Construction

December 4, 2009; as modified December 14, 2009


APPEAL from a judgment of the Superior Court of Sacramento County, Steven H. Rodda, Judge. Affirmed. (Super. Ct. No. 04AS05182).

The opinion of the court was delivered by: Cantil-sakauye, J.


Martin Brothers Construction, Inc. (Martin Brothers), a subcontractor employed to work on a public works project, sued the general contractor for the project, Thompson Pacific Construction, Inc. and its surety and bonding companies, American Casualty Company of Reading, Pennsylvania and Western Surety Company (Thompson Pacific or defendants) for monies owed at the end of the project, including penalties, interest and attorney fees for alleged late progress and retention payments. By the time of trial, however, Thompson Pacific had paid Martin Brothers all amounts owed except for the disputed penalties, interest and attorney fees and the matter proceeded to a court trial solely on those issues. The trial court concluded Thompson Pacific had not violated the applicable prompt payment statutes and entered judgment for Thompson Pacific. The court awarded defendants $150,000 in attorney fees. On appeal, Martin Brothers claims the trial court erred in its interpretation of the statutes and the subcontracts. We affirm the judgment.


Although Martin Brothers raises purely legal issues on appeal, some factual background is helpful in providing context for those issues. Our description of the underlying facts is largely taken from the trial court's statement of decision.*fn1

Thompson Pacific was the general contractor for a public works project of the Elk Grove Unified School District (District) to construct a high school and a middle school in the City of Elk Grove. Thompson Pacific entered into two subcontracts with Martin Brothers for specified site clearing, grading and paving work. The parties treated the two contracts as one.

The subcontracts provided that Thompson Pacific would make monthly progress payments to Martin Brothers of "95% of labor and materials which have been placed in final position and for which the right to payment has been properly documented pursuant to the terms of this agreement." An incorporated addendum to the subcontracts provided: "Subcontractor agrees that payment is not due until Subcontractor has furnished all applicable administrative documentation required by the Contract Documents and the applicable releases pursuant to Civil Code section 3262." The documentation required included lien releases, certified payroll, union letters (verifying payment of prevailing wages), and proof of insurance. The lien releases required included conditional lien releases for Martin Brothers and its subcontractors for the current progress payment and unconditional lien releases for prior payments. (Civ. Code, § 3262, subd. (d)(1) & (2).) For final payment of contract retention previously withheld, the subcontracts required conditional final releases for Martin Brothers and unconditional releases for all of Martin Brothers' subcontractors and suppliers (id., subd. (d)(3) & (4)), plus an affidavit verifying compliance with prevailing wage laws.

Martin Brothers commenced work in April 2002. During the course of its work, a number of issues arose regarding the work that was being done or extra work that Martin Brothers was directed to do by Thompson. Some of the extra work was reflected by approved change orders, but Martin Brothers' claimed entitlement to additional compensation for other work was more contentious. For example, Martin Brothers claimed a right to additional payment because it was unable to utilize for infill a stockpile of dirt that was on the property when construction was started. Thompson Pacific disagreed with the claim for additional payment and the trial court found the evidence supported Thompson Pacific's position. Thompson Pacific also disputed Martin Brothers' claim for additional payment for extra cost relating to the use of a different kind of sand when the specific sand called for in the contract was not available. Another significant claim disputed by Thompson Pacific involved Martin Brothers' claim for additional payment related to soil shrinkage. Thompson Pacific's project manager testified Martin Brothers also submitted numerous other payment requests for extra work, some of which were not extra because the work was included in the original subcontracts. The project manager testified Martin Brothers submitted double invoices for costs a few times. Thompson Pacific came to distrust Martin Brothers' claims.

As Martin Brothers performed its work, Thompson Pacific followed a procedure for obtaining progress payments from the District and making payments to Martin Brothers. The procedure involved Thompson Pacific submitting monthly invoices to the District for completed work based on invoices from its subcontractors and estimates of completed work as a percentage of work complete on a schedule of values. In order to establish the amount to be billed to the District, Thompson Pacific met monthly with the District to determine the percentage of work completed that month. After the meeting, the District would issue a "pencil draw" approving a percentage of work completed. This percentage would then be applied to the contract price, together with increases for change orders, to determine the amount of the progress payment the District would pay to Thompson Pacific. Once the amount of the progress payment to be paid was determined, Thompson Pacific translated the percentage approved for Martin Brothers' work and applied that percentage to the contract price, as increased by any change orders. Thompson Pacific would bill the District. Martin Brothers would be notified of the amount approved and be provided with a list of lien releases and documents it was required to provide to Thompson Pacific for payment. The evidence established that the schedule of values applied by Thompson Pacific was formulated and submitted to the District before the Martin Brothers' schedule was received by it.

Martin Brothers substantially finished its work in the later months of 2003. It concluded its punch list work in February 2004. The last progress payment was made to Martin Brothers on March 15, 2004. At that time, however, Martin Brothers still had a number of disputed claims for additional payment. The parties worked to resolve these claims.

Over this period, Martin Brothers' claims for additional payment varied significantly in amount and included unspecified claims for statutory penalties and interest. On March 22, 2004, Martin Brothers submitted a pay request application for extra work and change orders in the amount of $398,564.60 plus retention. Later in March 2004, its request was reduced to $356,586.20 plus retention. Thereafter, there was a series of communications relating to documentation for Martin Brothers' claims. In June 2004, Martin Brothers executed a stop notice claiming it was owed $427,326.03, apparently including retention. The stop notice resulted in the District's withholding from Thompson Pacific's payment 125 percent of the amount included in the stop notice.

In July 2004, Thompson Pacific's proposal to resolve the disputes ended with rejection by Martin Brothers in August 2004.

Thompson Pacific then obtained a stop notice release bond that was filed with the District, resulting in the District's release of the monies being held pursuant to the stop notice. Thompson Pacific was paid these monies at the end of August 2004.

In October and November 2004, Thompson Pacific asked for and received a breakdown of Martin Brothers' claims. At the end of November, through its attorney, Martin Brothers provided a breakdown claiming $394,193.26.

On December 27, 2004, Martin Brothers filed the initial complaint in this case seeking $938,183.40 in damages, interest, penalties, and attorney fees. On December 28, 2004, Martin Brothers submitted a revised claim to Thompson Pacific for $737,223.27 plus retention.

The parties met in early January 2005 and agreed to a final payment amount subject to verification of amounts by Thompson Pacific and subject to approval by a person designated by Martin Brothers. At the beginning of March 2005, after another demand for payment by Martin Brothers, Thompson Pacific offered a reduced amount of $632,792.36 to Martin Brothers ...

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