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Fei Enterprises, Inc v. Kee Man Yoon

April 25, 2011


(Los Angeles County Super. Ct. No. BC358443) APPEAL from a judgment and an order of the Superior Court of Los Angeles County, Mary H. Strobel, Judge.

The opinion of the court was delivered by: Aldrich, J.


The judgment and the order are affirmed.

Owner Kee Man Yoon (Yoon) and general contractor Pacific Construction Co., a general partnership et al. (Pacific Construction), refused to pay the low-voltage electrical subcontractor FEI Enterprises, Inc. (FEI) for work performed under two subcontracts. FEI brought this action against Pacific Construction*fn2 seeking, among other things, breach of contract damages and prompt payment penalties. Pacific Construction responded with a cross complaint alleging that FEI had breached the subcontracts. The trial court entered judgment for FEI on both its complaint and on Pacific Construction's cross-complaint. Pacific Construction appeals, contending the trial court erred in construing the subcontracts' language. In the unpublished portion of this opinion, we conclude that the trial court did not err in its interpretation of the contractual provisions. We will therefore affirm the judgment.

FEI cross-appeals, contending that the trial court erred in declining to order Pacific Construction to pay prompt payment penalties. In the published portion of this opinion, we hold that the record contained evidence sufficient to support the trial court's finding under Business and Professions Code section 7108.5, subdivision (c), that there was a "good faith dispute" between Pacific Construction and FEI as to the money owed. Determined by an objective standard, this justified Pacific Construction's withholding of progress payments and the denial of the statutory prompt payment penalties. We will therefore also affirm the trial court's order.


Pacific Construction was the general contractor for two separate construction projects, a 19-unit residential building on Gramercy Drive and a 7-unit residential structure on Manhattan Place in Los Angeles (respectively, the Gramercy Project and Manhattan Place Project). Defendant Jong Woon Kim was the owner of the Gramercy Project and Yoon was the owner of the Manhattan Place Project.

1. The Relevant Subcontract Provisions

On April 12, 2006, Pacific Construction and FEI entered into two construction subcontracts (the subcontracts) under which FEI would install low-voltage (25 volts) electrical systems, such as fire alarms, telephones, and cable television systems. FEI's scope of work did not include the high-voltage (110 volts) system that supplies power to the projects. The two subcontracts are identical in their terms except for the price, property, owner, and architect.

Yoon drafted the portion of the subcontracts' terms and conditions that was added to the boilerplate forms. These additions stated in part that FEI would "Furnish all labor, materials, hardware, equipment, required insurance and installations to perform the work necessary or incidental to complete low voltage systems for new 19 units multi dwelling . . . as per the approved plans provided by M & S Engineering and per local codes, but not limited to the following: Fire alarm systems for entire building as per code ($14,800.00), 4-telephone (1 for wall hung jack at kitchen) and 2-dedicated data line pre-wiring, wall plates, jacks and punch blocks with CAT 6 per unit, 1-fire alarm monitoring, 1-telephonic entry and 1-internet line with CAT 6 for the building ($64.00/line), 3-CATV and 2-satellite TV RG-6 pre-wiring (cable to be supplied by other) wall plates and jacks per unit ($34.00/line), 1-weatherproof roof mounted box ($430.00), necessary permits, testing all line installed, required necessary inspections, tax and license. All work performed to be in one continuous operation rough-in and finish with well trained crews and warrant labor & materials for one (1) full year from the date of project completion." (Italics added.) Yoon also included a provision that FEI "agreed to start the work immediately without any other conditions upon contract executed . . . . "

The boilerplate portion of the subcontracts further provided that "No work shall be performed under this agreement until notified to proceed. . . ." The subcontracts required FEI to "keep [itself] fully informed as to the progress of the work under the prime contract and as soon as the project requires the performance of the work to be performed under this agreement for its continued progress[ . . . s]ubcontractor will promptly commence work. Subcontractor will prosecute the work diligently to completion and will conform to any progress schedule established by the contractor. Subcontractor will coordinate his work with contractor and other subcontractors so that there will be no delay or interference with other work on the project." (Italics added.) The subcontract price for work and materials was $25,948 for the Gramercy Project and $10,186 for the Manhattan Place Project.

2. Low-Voltage Electrical Construction

There are two phases to installation of low-voltage electrical devices, the rough installation stage, and the finish stage. Yoon testified, although he is not an electrician, that rough installation included pulling the wire, installing the junction box and protection plate and testing the system to see whether the wiring was correctly done. Rough installation for the fire alarm constituted only 20 percent of the work necessary for the entire installation.

However, FEI's president, Gabriel Fedida, testified that rough installation consists of drilling to mount all the backs of the boxes where the wires will be terminated, drilling holes in the framing to create a braceway through which to run wires, and pulling wires through the drilled holes. The final installation phase commences after the drywall is installed and the walls are painted, Fedida explained. At that point the finish devices (such as the horns, strobes, and telephone jacks) are installed.

At the conclusion of the rough-stage installation, FEI was to check that everything was wired properly and completely. To check the wires after the rough stage, FEI "walk[s] the project[, looks] at all the devices," and compares them to the plans to ensure everything is installed. Gilbert Garnica testified on behalf of FEI that there is usually no point in testing the wires before all the other trades have done their work because another trade can damage or short the wires. He explained, "The point of testing of the wiring comes after all the rest of the trades are completed with their rough-in work." That way, if there is a problem with the system after the drywall is installed, they know the drywaller or another trade caused the damage. Testing with an ohmmeter, or volt meter, cannot be done at the rough stage, Fedida explained, because that meter works only on "hot wires." The only sort of test that can be done at the rough stage is with a "toner," which will beep if a wire is installed. However, Fedida explained, a toner cannot be used to test a fire alarm.

The entire system is normally tested by FEI after installation of the finish devices at the end of the final phase. FEI waits until the final stage to test the system for proper function because that is when there is continuity of electrical connection from one point to another. Also, once everything is installed, FEI can bring in temporary power to the panel for the devices. Fire alarm subcontractors usually test the system after the final installation is completed. "Testing the system" occurs when the fire alarm system is completely installed, i.e., the wiring is complete, the devices are installed and hooked up to the fire alarm power, and the panel has power in it. FEI "activat[es]" the smoke detectors by blowing smoke into them to see whether the horns and strobe lights work.

3. FEI's Rough-Phase of Installation

FEI began working on the Manhattan Place Project by April 19, 2006, and the Gramercy Project two days later.

Neither subcontract contained a schedule for completion of FEI's work. The trial court did not find Yoon's testimony to be credible that FEI estimated two to three days to perform the work on the Manhattan Place Project and one week to complete the Gramercy Project work. Fedida testified that it would take FEI a couple of weeks to finish the rough portion of the Gramercy Project and a week to perform the rough installation on the Manhattan Place Project.

Yoon testified that FEI employees did not come to the job site every day. He believed FEI provided insufficient manpower. Fedida opined otherwise. The trial court did not find Yoon's testimony credible based on "the expertise of the FEI witnesses regarding the requirements for the jobs, and Yoon's failure to provide a timetable for completion either before or after execution of the contracts." Garnica testified he did not know what the contracts' phrase, "one continuous operation" meant, but opined that FEI performed its work in one continuous operation and did not delay any other trades.

All of the other trades, such as the sprinklers, plumbing, electrical, grading, and framing, were still working on the sites when FEI completed its rough installation. Believing FEI had not completed its rough installation, Yoon called Fedida many times during the spring of 2006 complaining about unfinished work. Fedida responded that FEI had finished the rough installation. The two met three times to walk through the properties.

FEI faxed a bill to Yoon on June 5, 2006, according to the subcontracts' terms. Although Garnica spoke to Yoon after June 5th, he does not recall Yoon ever responding to the faxed bill. On June 6, 2006, Yoon, Fedida, and Garnica walked the Gramercy Project site together. Fedida explained that the work had been done and, there remaining nothing more to complete on both projects, requested payment. Yoon refused to pay FEI, believing that the work was incomplete. The discussion digressed into a shouting match and eventually Fedida left the site. The following day, FEI was denied access to the job sites. FEI never received payment for either project.

On June 9, 2006, Yoon's attorney wrote FEI demanding its crews return to the sites and complete the remaining work within five days, or Yoon would terminate FEI's subcontracts. FEI did not return to the work sites in response to the letter because, as Fedida testified, there was no more work to be done. FEI never had an opportunity to do the finish-stage testing because Pacific Construction fired FEI after the rough work was done.

On June 20, 2006, Gary Eskay, the District Inspector at the Los Angeles Department of Building and Safety, inspected and approved the rough electrical work on the Manhattan Place Project. On July 7, 2006, the Department of Building and Safety inspected and approved the rough electrical work on the Gramercy Project. Eskay explained that once he has signed his inspection report for the rough electrical work, most, if not all, of the rough work has been done and approved. Eskay described the process for approval, which includes verification of the plans and visual inspection. Although the normal, i.e., high-voltage, subcontractor had not finished its work on the Manhattan Place and Gramercy Projects, Eskay found that FEI's work was "installed well. Good enough for their inspection." Eskay testified that all of FEI's rough electrical work was approved before the work of the remaining subcontractors, such as mechanical and plumbing trades, received approval.

After its dispute with FEI arose, Pacific Construction hired Earl Security to replace FEI. At trial, Lynn Chen, owner and manager of Earl Security, estimated that the rough work would have taken approximately 15 days to complete. She also testified that testing at the completion of the rough stage involves a visual inspection to assure that all the wires are installed. Chen testified that testing of installed wires with a "volt meter" was part of the rough installation.

At trial, Fedida discussed the list of work that Pacific Construction claimed FEI had failed to complete and for which Earl Security sought payment. With respect to each item, Fedida explained why the work was complete, not within the scope of FEI's subcontract, or was not required to be done at the rough-installation stage. Fedida testified that Yoon's claim that FEI did not properly test at the end of the rough installation stage was "false," and that Yoon never called FEI to do the finish installation.

4. The Trial Court's Ruling

As is relevant here, the trial court ruled, with respect to both parties' breach of contract claims, that FEI did not breach the subcontracts because FEI had completed 90 to 100 percent of the rough installation that fell within its scope of work. Further, FEI was excused from performing the remainder of the subcontracts' work because Yoon terminated FEI's contract. The court also ruled that FEI did not delay the projects because other trades were still performing their rough work after FEI finished. In addition, the court found that, although FEI had properly submitted its requests for payment to Pacific Construction, the latter had breached the subcontracts by failing to process FEI's properly submitted payment requests. The trial court, ...

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