APPEAL from a judgment of the Superior Court of San Diego County, Frederic L. Link, Judge. Affirmed. (Super. Ct. No. 37-2008-00086601-CU-BC-CTL).
The opinion of the court was delivered by: Aaron, J.
CERTIFIED FOR PARTIAL PUBLICATION*fn1
Defendant and cross-complainant Saddleback Valley Unified School District (Saddleback) appeals from a judgment entered in favor of plaintiff and cross-defendant Mepco Services, Inc. (Mepco), a general contractor, and cross-defendant Hartford Fire Insurance (Hartford). This case arose from a dispute between Mepco and Saddleback regarding a school modernization project. Mepco bid on the project based on plans provided by an architectural firm that Saddleback had hired, and was eventually awarded the $1.64 million contract. During construction, Mepco encountered a number of problems that required that it request approval for additional work that it had not originally contemplated based on the plans. Mepco performed the additional work after being directed to do so by representatives of Saddleback. After Mepco completed the additional work, Mepco and Saddleback disagreed as to whether Mepco was entitled to be paid for the work, and whether Mepco was entitled to an extension of time to complete the contract, or instead, would be liable for liquidated damages as a result of the delay.
When Mepco and Saddleback were unable to resolve their disagreements, Mepco sued Saddleback for breach of contract, among other things. Saddleback countersued, claiming that Mepco had breached the parties' contract, and sought liquidated damages for Mepco's delay in completing the project. Saddleback also sued Hartford pursuant to a performance bond that Mepco had obtained from Hartford, at Saddleback's request, as required by the terms of the contract between Mepco and Saddleback.
After a trial that lasted nearly two weeks, a jury determined that Mepco had fulfilled its obligations under the contract and that Saddleback had materially breached the contract. The jury concluded that Mepco was entitled to recover from Saddleback damages that included a retention payment and a final progress payment that Saddleback had withheld, as well as damages for all of the additional work that Mepco had completed on the project that was outside the scope of the original plans. The jury also determined that Mepco was entitled to recover delay costs.
The trial court entered judgment in favor of Mepco in the amount of $681,086.55, plus $189,479.89 in prejudgment interest, $366,916.63 in attorney fees, and $208,650.26 in costs on its complaint against Saddleback. The trial court also entered judgment against Saddleback on its cross-complaint against Mepco and Hartford.
Saddleback appeals from the judgment, raising numerous claims of error. Saddleback contends that the trial court erred in (1) allowing Mepco to elicit testimony about its president's financial condition, thereby appealing to the sympathies of the jury; (2) allowing Mepco to recover damages for breach of contract, in the absence of an express written agreement, signed by the Saddleback Board, concerning the work at issue; (3) permitting Mepco to introduce evidence of settlement negotiations between the parties; (4) refusing to allow Saddleback to present all of its theories to the jury, including a mitigation of damages defense, an offset/credit defense, and an apportionment of liability defense; (5) demonstrating bias against Saddleback in the presence of the jury and permitting Mepco to argue to the jury that Saddleback had destroyed evidence; and (6) awarding attorney fees to Mepco.
We conclude that the trial court erred in permitting Mepco to elicit certain testimony from the president of Mepco to the effect that he had to refinance his home and use his personal credit to pay the subcontractors, and in admitting in evidence a letter that Saddleback sent to Mepco after Mepco had filed suit in which Saddleback agreed that it would pay Mepco for some of the work that Mepco claimed was beyond the scope of the original plans. While we are troubled by the improper admission of Mepco president's testimony regarding the financial impact that this dispute had on him and the letter that Saddleback sent to Mepco after the lawsuit had been initiated, after having thoroughly reviewed the trial record, we conclude that neither of these errors affected the outcome of the trial. It is not reasonably probable that if this evidence had not been admitted, the jury would have returned a verdict more favorable to Saddleback since the record is replete with direct evidence ― much of it from Saddleback's own witnesses ― that Saddleback breached its contract with Mepco, and that it was liable for the damages that Mepco claimed.
We find no merit to Saddleback's other claims of error, and therefore affirm the judgment of the trial court.
II. FACTUAL AND PROCEDURAL BACKGROUND
On June 28, 2006, Saddleback awarded Mepco a contract (the Contract) to complete a project known as the Esperanza Modernization & Relocation of Two Portable Buildings (the Project).*fn2 The Project involved the modernization and improvement of a special needs school located in Mission Viejo, California. Under the Contract, Mepco was to perform construction work (including providing labor, materials, and equipment) in exchange for payment in the amount of $1,640,000.00. The Contract called for the Project to be completed within 90 days, and included a liquidated damages provision in favor of Saddleback that set liquidated damages at $1000.00 per day if the work was not completed within the time specified in the Contract .
Saddleback contracted with a project management consulting firm called TELACU to oversee construction of the Project. Saddleback also hired MVE Institutional (MVE) as the architectural firm for the Project.
Construction began on or around July 10, 2006. Shortly after beginning construction, Mepco encountered a number of unforeseen conditions and problems with the plans and specifications that the Project architect had provided. Mepco sent a number of requests for information and change order requests to the Project architect and superintendent through the "Buzzsaw" computer system ― a system that Saddleback had purchased for use in organizing its construction projects.*fn3 The Buzzsaw system allowed all of the Project participants to upload documents (including daily reports, requests for information, change order requests, and other forms) into one central depository, so that all parties could review the documents and address any questions, concerns, or requests raised by the documents. Elie Abinader, Mepco's president, explained, "[W]e were supposed to have all communication through Buzzsaw."
In addition to encountering unforeseen conditions at the site, Mepco belatedly discovered that certain aspects of the Project plans that Mepco had relied upon in bidding on the Project required approvals or permits from various governmental agencies, and that these approvals and permits had not been obtained before construction began. For example, the plans had not been approved by the Division of the State Architect (DSA), which had to review and approve the entire set of plans to ensure that they met state safety requirements; the County Health Department, whose approval was required for the specialized kitchen areas; the City of Mission Viejo, which is the entity that would issue a permit for a fire line hot tap connection; or the Orange County Fire Authority, whose approval was required for a fire lane. Before these agencies would issue the necessary approvals and/or permits, the plans had to be altered in a number of ways.
Abinader testified in detail about the problems that Mepco encountered in completing the Project. According to Abinader, Saddleback representatives on the Project, including the architect, were slow to respond to Mepco's questions about the plans. In addition, Saddleback representatives asked Mepco to perform additional work on the Project ― work that was not contemplated in the original plans ― after the 90-day completion date. With respect to each change order request that Mepco had input into the Buzzsaw system, Abinader testified as to why the work had been necessary, how the plans failed to account for the additional work, the cost that Mepco proposed for the extra work, and whether Saddleback representatives had authorized Mepco to complete the work pursuant to that proposed valuation method.*fn4
Abinader testified as to how the parties undertook change order work under the Contract. Proposed change order work included work that Mepco did not believe was contemplated within the original plans and specifications drawn by the architect but that was necessary in order to properly complete the Project, as well as extra work that Saddleback had specifically ordered during construction.
When Mepco would encounter unforeseen conditions that required additional work or when the architect would request that Mepco perform additional work, Mepco would submit a change order request to Saddleback representatives. Mepco would transmit the change order request to Saddleback by uploading the document into the Buzzsaw system. The architect would receive Mepco's change order request through the Buzzsaw system, and would respond as to whether he was authorizing Mepco to complete the work and, if so, on which payment basis (i.e., on a lump sum payment basis, a time and materials basis, or a unit price basis), if he believed the work was necessary and not within the scope of the Contract. Alternatively, the architect would reject Mepco's request if he believed that the proposed work was within the scope of the Contract.
Abinader testified that Saddleback "told us, since day one, that the architect represent[s] the District. He's the one who approve[s] the proposed change order[s]." According to Abinader, the architect would frequently verbally instruct Abinader to proceed with the work, and would tell Abinader that he would "get [his] paperwork later on," such as at the weekly construction meetings, because "that is where everybody is already around the same table."
Abinader explained that the parties believed that under the Contract, Saddleback's superintendent "need[ed] to sign them [the change order requests] up to 10 percent [of the Contract price]," so the architect and project manager would "start accumulating those change order requests or proposals, because it goes ─ instead of bringing every change order request to the District for signature on the change order . . . we bring [a number] of them together, and the District will put the cover sheet, which is the change order we saw before, and they call it change order now, which will be [a] set of about 5, 6, 7, 10 change order request[s], or it could be one."
Abinader testified that Saddleback representatives would often verbally instruct him to go ahead and perform the change order work under a lump sum payment method. Abinader said that when he would ask them to give him something in writing, they would tell him that "it's dumb to ask for that."*fn5 According to Abinader, when he said that he would not perform the work unless he received signed paperwork, the Saddleback representatives told him that if he did not complete the work, he would be in violation of the general conditions of the Contract. Abinader also testified that, with respect to some of the change order work, Mepco had been directed to complete that work by the first project manager on a lump sum basis, but that the second project manager later told Mepco to perform the same work on a time and material basis. As a result, when Saddleback later demanded that Mepco provide Saddleback with more paperwork to support some of the change order requests, Mepco was unable to do so because it had initially been directed to complete that work on a lump sum basis, and thus, had retained less documentation pertaining to these change orders.
Abinader testified that Saddleback had not paid Mepco for any of the additional work that Saddleback representatives had directed Mepco to complete, despite the fact that Mepco had requested payment on a number of occasions. In addition, Saddleback never agreed to grant Mepco any time beyond the 90 days provided in the Contract to complete the project, which meant that Mepco could be liable for liquidated damages.
Saddleback's original project manager on the Project was Dean Clay. Clay acted as project manager from the start of construction in July 2007 until September 2007. Clay was officially employed by J.E.M. Consulting, a company that TELACU hired. Clay had worked on number of projects for Saddleback in the past.
Clay, a licensed contractor, testified that his duties as project manager were "overseeing the project . . . taking care of change orders that might come through with the subcontractor or the general contractor and . . . seeing that [the contractor is] doing it per the plans." Clay acknowledged that if he gave direction to Mepco on the Project it was the same thing as Saddleback giving direction to Mepco on the Project, and that he had the authority to approve change orders.
According to Clay, Mepco encountered a number of unforeseen conditions while working on the Project that required that Mepco complete additional work that was outside the scope of work identified in the Contract. Clay testified that Mepco was entitled to change orders for this extra work, that Mepco had been directed by Saddleback to perform the work, and that it was his understanding that Mepco was to be paid for this work. Clay personally gave Mepco verbal authorization to perform extra work while out in the field, and would later "talk to the architect and he issues a written directive for [Mepco] to do that work." According to Clay, Mepco was instructed to proceed with change order work on a lump sum basis for some of the changes and on a time and material basis for other changes.
Clay testified that in his opinion, Saddleback's original architect representative on the Project, Robert Gruspe, was a "pretty weak" architect, in that he "could not make decisions at the job site, and it took him quite a while to get the answers back, and there were several occasions when I had to remind him and kinda push him a little bit that we are waiting too long on some of these answers. Because it was taking him longer than it should be to get some answers back."*fn6
In Clay's opinion, during the time that he worked on the Project, Mepco had not caused any delay on the Project; rather, Saddleback had caused delay. Clay was asked his opinion of the quality of the plans for the Project, to which he replied, "They suck," and explained, "That means I don't like them. There [were] too many open ends that couldn't be ─ if I can't answer it by looking at the plans in the field as a project manager, and they have to go back to the architect, then they suck."
Clay testified that it is the architect's job "to determine what work is in scope or not in scope on a project." When asked, "[U]ltimately . . . who decides to pay a change order ─ the Board or the School District," Clay replied that he did not know.
Louis Gallegos replaced for Clay as project manager on the Project.*fn7 Gallegos testified that pursuant to TELACU's contract with Saddleback, TELACU "operate[d] as an owner's representative of the District." Gallegos worked with McKeown during the Project, to oversee construction of the Project. One of Gallegos's responsibilities "was to review those change orders . . . to establish whether they were within the scope of work of the base contract, if they were [a] fair and reasonable price for the work, if there was enough information to evaluate the validity of the change order." Gallegos would confer with the architect and sometimes with Saddleback's program manager and/or the Inspector of Record for the DSA.
Gallegos testified that pursuant to the Contract, the architect was authorized to determine whether the work completed or to be completed was within, or outside of, the scope of the Contract.
As construction on the Project continued past the original completion date, Abinader began to push harder for written authorization for the numerous proposed change orders that Mepco had submitted. In late February 2007, Abinader sent Gallegos an e-mail "asking him to respond to all proposed change order[s]." In response, Gallegos sent an e-mail to Abinader on February 23, 2007, in which Gallegos stated:
"Elie, in response to your e-mail the attached document Mepco Services, Inc., is directed to proceed with change order work in accordance with the contract documents, General Conditions, 59, Change and Extra Work, [i], which clearly states: Disputes over estimate of changes to the contract price and/or contract time. Should the contractor and the District fail to agree on the estimate of any charge or credit to the District and/or additional or reduced time required for proposed changes in the work of any justified delay[,] the contractor, when notified by the District, shall proceed without delay in the changes or extra work and shall pursue the remedies listed under General Conditions Article 57, Disputes. Mepco Services has been directed on several occasions to proceed with change order work in accordance with contract documents. Please be advised that if Mepco Services, Inc., does not immediately proceed as directed, Mepco Services, Inc., will be in violation of their contract and any and all additional costs and/or associated delays will be . . . the direct responsibility of Mepco Services, Inc., the responsible general contractor. If you have any questions, feel free to contact me directly."
Gallegos conceded that in this letter, he directed Mepco to proceed with all of the change order work for which Mepco had already received verbal authorization. Gallegos further testified that his understanding of the Contract was that "even if there was a dispute, in terms of time to perform the work, or [a] dispute on the dollar amounts associated with the work, Mepco still had to go forward and do the work."
Later that day, Abinader responded to Gallegos with the following e-mail:
"Louis, I have been trying to contact you but you are not returning the calls. Anyway, per our meeting last week you stated that you are going to respond to all change order requests that are in Buzzsaw by Monday, February 19, 2007, even though it is a holiday. Per the General Conditions, you either direct me to proceed based on T and M, or you could direct me to proceed based on a lump sum, or you could simply direct me not to proceed with the change order and therefore cancel the change order. This already happened before in the change order of the dropped ceiling. The choice is yours. Mepco is not declining to work on any change order, but Mepco will be happy to do any change order when instructed to do so. Therefore, per [the] General Condition that you are referring to, please go to Buzzsaw and reply to every single change order request. Until you do, as promised many times, Mepco could not proceed with any change order work that has no response . . . from either the architect or the School District. So far, we have change order requests totaling over $400,000 and no action is being taken from the District part nor from the architect part, who always refers me to contact the . . . School District in this regard."
Gallegos admitted that he recommended that Saddleback approve payment for a number of the change order requests that Mepco had submitted, and that he believed these change orders were legitimate claims for payment. Gallegos also testified that to his knowledge, Saddleback never gave Mepco notice that Saddleback believed Mepco was in violation of the Contract for delaying the project, until October 17, 2007.
Robert Gruspe was the original project manager for the architectural firm MVE. Although Gruspe was not a licensed architect and did not have a certification in drafting architectural plans, he is the person who "developed the plans" for the Project. At MVE, Gruspe worked under the supervision of Robert Simons, a licensed architect. Gruspe testified that he was the architectural project manager for the Project for approximately six months. Gruspe would conduct weekly meetings concerning the Project. Attendees at the weekly meetings included a Mepco representative, a Saddleback representative, the inspector of record for the DSA, and, sometimes, the school's principal.
Gruspe testified that during the time he worked on the Project, he did not receive Mepco's back-up documentation for much of the proposed change order work. As to proposed change order work for which he did receive backup documentation, the documentation was incomplete. However, when presented with labor reports that Mepco had provided in association with change order requests, Gruspe admitted that a number of the labor reports appeared to be sufficient, and he could not recall any particular change order request for which the supporting documentation had been insufficient.
Gruspe testified that he personally developed the plans for the Project, and stated that he did not know whether Mepco had been provided with a set of plans that had been approved by the DSA before construction began. After being asked on cross-examination to review multiple documents, Gruspe had to admit that he had not received a DSA-approved set of plans as of August 10, 2006 ― a month into construction. Gruspe also acknowledged the authenticity of an e-mail that he had sent to Robert Simons, his supervisor, on August 18, 2006, in which he stated that Saddleback was "getting impatient with the design team [i.e., the architecture team] because they are not getting the answers in a timely manner."
Christopher Bradley also worked on the Project as an MVE architect. Bradley was a licensed architect. After Gruspe was taken off the Project, Bradley took over primary responsibility for reviewing Mepco's change order requests. At some point during construction,*fn8 Abinader sent the following e-mail to Bradley:
"For the last six to eight weeks, I have been hearing that you are meeting with Tom [McKeown] to go over the change orders. [Gallegos], two weeks ago, he promised that he will send us a directive to proceed with all change order[s] based on T and M, or based on us approving a lump-sum amount. During that weekly meeting, you stated that you need back-up. I do not accept this response. All change order requests are in Buzzsaw with all attachment[s]. These change order requests give the architect the choice to select one of the five options, whether to reject the change order or to proceed with it, based on approved lump sum or T & M. Some of these change orders go back three months ago. I will not wait any longer. I need you to respond to all these change orders by next Monday, or I will stop working on them. Mepco also has responsibility towards other project[s]. This project that was scheduled to [be] completed in three months is now taking six month[s], maybe more. I need answers on all remaining problems on this project and answers on all C.O.R. by next Monday. Please bring in the electrical engineer along with the engineer for the fire alarm system in order to resolve the problems. Again, Monday, not later. I will not be responsible for any additional delays. I have to start another project on December 15. Please give us some times in order to complete this project."
Bradley responded, "Elie, I just went back into Buzzsaw and looked at the attached ones again. Unless there is an issue with Buzzsaw, you are still missing your back-up which is all your certified payroll for the days appearing in the C.O.R., and your material invoices. These are things that we have been asking for, for the last six to eight weeks. We cannot proceed with the C.O.R.'s until we have this information. If you are having problem[s] posting the items in Buzzsaw, please contract Jennifer Gallagos at the District. And send the hard copy to my office." Abinader testified that he had submitted this documentation on more than one occasion in hard copy format.
Bradley agreed that Mepco was entitled to be paid for at least some of the change orders. Bradley also admitted that he had signed a number of change orders in 2006 and early 2007.
Thomas McKeown's job as program manager in the Facilities and Planning Department at Saddleback was "to get with the schools and with architects and engineers and ultimately with contractors to . . . execute the projects that came under this bond funding [for improvements to all of the schools in the district]."
McKeown testified that there were some change orders that Saddleback "had agreed . . . were legitimate change orders." According to McKeown, "change order work always occurs in construction projects," and was contemplated in the Contract. Clay and Gallegos, as project managers for the district, had a "[c]ertain amount of leeway" or authority to direct change order work.
According to McKeown, "In the normal course of events, in construction projects, the relationship between the owner and the contractor very often results in that contractor proceeding on verbal authorization . . . [and the contractor] assuming that there will be paperwork follow-up [to provide written authorization] for that change order work [at a later time]." "In the ordinary course of things, the paperwork always lags behind," such that the contractor is directed to proceed with the work, performs the work, and "then the change order document that the contractor prepares is signed and paid by the District."
McKeown conceded that, "[T]here were some ─ some change orders that we had agreed upon that would eventually have turned into paperwork," and Mepco should have been paid for that work "once the paperwork was complete." McKeown testified that it is not necessarily out of the ordinary for the change order process to take nearly a year to be completed, because "[a] lot of times it's getting the paperwork processed amongst the three or four people who all have to see it and agree to it and process it, and finally get it into the chain to get it done." Thus, in the normal course of business, a contractor is often given verbal approval or rejection of a change order request.
McKeown added that if Mepco "presented a lump sum [change order proposal] at the very beginning, and we agreed to that, whether verbally or in writing, then [Mepco] should be paid for it." According to McKeown, the decision making with respect to the change orders was "a team combination." He testified that "[t]he architect, the project manager and sometimes the inspector all have input [in]to those decisions. Primarily the architect, however."
It was McKeown's understanding that the only time change order requests would have to be approved by the Board was if the cost of the potential change orders was going to exceed ten percent of the original contract price.
McKeown, Gruspe, and Bradley all admitted that the architect had issued bulletins*fn9 for new or additional work after the contemplated completion date for the Project.*fn10
Gruspe and McKeown both testified that they did not receive sufficient backup documentation to support payment on some of Mepco's change order work. However, Gruspe acknowledged that there were a number of unforeseen conditions that Mepco encountered upon demolition of the original structures and while performing construction pursuant to the plans that required additional work that was not included in the scope of the original Project plans.
Veselin Ninov, the inspector for the DSA (also referred to as the inspector of record (IOR)), testified that there were a number of issues as to which the failure of Saddleback representatives ― particularly the representative of the architect ― to respond to requests for information (RFIs) or other questions from Mepco, caused construction of the Project to extend beyond the 90-day completion date.*fn11 It was Ninov's opinion that Gruspe "was lacking decisiveness . . . at certain RFI, certain points of the Project." Ninov also believed that the original plans "were lacking information" and that the quality of the plans was "below average."
Ninov testified that Clay had instructed him not to verify the hours of Mepco's employees with respect to change order work, which meant that there was no independent verification of these hours. However, when Gallegos took over for Clay, Gallegos asked Ninov to begin tracking the hours associated with Mepco's change order work.
Stephen McMahon, assistant superintendent for business services at Saddleback, testified that part of his job was to oversee school modernization projects. McMahon conceded that "[i]f [Mepco] did the work and it's outside the [scope of the] contract, they should be paid." McMahon admitted he had acknowledged in his deposition that a number of the change order requests involved work that was outside the scope of the Contract. McMahon further testified that to determine whether the contractor should be accorded additional time to complete extra work, "the architect and the project manager . . . look at the schedule and . . . say whether time should be allocated or not."
McMahon testified that he believed that, with respect to the delays in the Project, "there is some blame for all parties" involved, and that at least some of the delays were attributable to Saddleback. He also admitted that Mepco "shouldn't be charged liquidated damages" for work that Saddleback requested after the original completion date contemplated by the Contract."
McMahon conceded that Mepco had received authorization to proceed on a number of the change order requests. McMahon testified that in his opinion, the plans for the Project "could have been better." He explained, "Well, judging in my opinion, judging from all the requests for information and ─ and things that have come up that weren't necessarily identified on the plans that [it] sure would have been a lot better if the plans had had all those things in there."
Dean Vlahos, a partner with the architectural firm WWCOT and director of the firm's forensics department, testified as an expert for Mepco. He expressed his view that the plans that Mepco and other contractors were asked to bid on "never should have been released out on the street for purposes of bidding" because there were "far too many errors" and missing components. With respect to the contractor's obligations under the Contract, Vlahos noted that pursuant to the Contract, "the contractor has to continue building" even when there has been a change to the plan as a result of deficiencies in the drawings or other requests from the owner. Further, under the terms of the Contract, if the contractor and Saddleback disagree over costs for change order work, "[t]he contractor is still obligated to continue working on the project. So the district basically has that contractor over the proverbial barrel here to say whether we agree or we don't agree to the money, keep building, and if you get your money, you get your money, if you don't, you don't, is the way that contract is written."
The Project was not completed until early 2007. Throughout construction and even after completion of the Project, the parties continued to discuss whether Saddleback would allow Mepco additional time, which would ensure that Mepco would not have to pay liquidated damages for any delay, and whether Saddleback would pay Mepco for the additional work that Mepco had completed pursuant to the proposed change orders that Mepco had entered into the Buzzsaw system and had been directed to complete. Mepco was requesting approximately $300,000.00 for work it had performed that Mepco believed was beyond the scope of the original plans, and an additional $160,000 in delay costs. Since the parties were unable to reach agreement on a number of matters with respect to payment and extensions, Saddleback refused to pay Mepco both its final progress payment of $59,633.55, and the $164,000.00 retention sum that Saddleback had withheld from prior progress payments.
On June 26, 2007, Mepco filed an action against Saddleback in which it asserted the following causes of action: (1) breach of written contract; (2) work, labor, and services rendered/agreed price; (3) common count for work, labor, and services rendered - reasonable value; (4) breach of implied warranty of plans and specifications, misrepresentation of plans and specifications; and (5) equitable adjustment for delay and disruption.
Saddleback filed an answer to the complaint on September 14, 2007, and at the same time filed a cross-complaint for breach of contract against Mepco, and breach of the performance bond against Mepco and Hartford Fire Insurance Company ...