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State of California Ex Rel. Standard Elevator Co v. West Bay Builders

July 22, 2011


Trial Court: Marin County Superior Court Trial Judge: Honorable Verna Adams (Marin County Super. Ct. No. CV051390)

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


A general contractor removed a subcontractor from a public works project when it learned the subcontractor was unlicensed, lied about its references, and could not secure bonds for its work. The general contractor substituted other subcontractors to complete the project. The general contractor sued the subcontractor to recover as damages the amount paid to complete the work above the amount bid by the unlicensed subcontractor. The subcontractor cross-complained upon allegations that it and other subcontractors were substituted in violation of the Public Contract Code, which sets forth requirements for the substitution of subcontractors on a public works project. The court found the subcontractor liable for fraud in its bid submission and rejected claims of improper substitution of subcontractors. The general contractor was awarded damages.

The subcontractor then filed this lawsuit against the general contractor under the California False Claims Act (Gov. Code, § 12650 et seq.) (CFCA) upon allegations that the general contractor violated the Public Contract Code in substituting subcontractors and that those violations rendered false the general contractor's certification of legal compliance when submitting payment claims. The trial court granted summary judgment to the general contractor upon undisputed evidence that allegations described in the subcontractor's CFCA complaint were not new assertions of fraud but a repetition of information publicly disclosed in prior civil litigation, including the subcontractor's own prior cross-complaint against the general contractor. (Gov. Code, § 12652, subd. (d)(3)(A)). The court also awarded the general contractor attorney fees for defending against a frivolous and harassing lawsuit. (Former Gov. Code, § 12652, subd. (g)(9).) We affirm the judgment and fee award.

I. facts*fn1

In May 1999, general contractor West Bay Builders, Inc. (West Bay) prepared a bid for a public work, the construction of the Meadows Middle School (the Project), for the San Ramon Valley School District (District). As required by the Public Contract Code, West Bay's bid listed subcontractors who promised to perform work valued at greater than .5 percent of the prime contract bid. (Pub. Contract Code, § 4104, subd. (a).) Typically, subcontractor bids are received on the day the prime contract bid is due for submission to the public entity and are sometimes received by the general contractor just minutes before the prime contract bid is due. West Bay followed industry practice in submitting its bid to the District. West Bay stationed a bid runner at the place specified for submitting the bid and telephoned last minute changes to the bid runner. The bid runner's job was to make the changes to the bid and hand deliver West Bay's bid to the District's representative responsible for receiving bids.

West Bay received bids from various subcontractors to perform different portions of work on the Project. Project specifications included divisions that identified generic categories of work and sections within each division that identified particular scopes of work. Relevant here, division 5 of the specifications identified the structural steel category of work and included metal decking and ornamental iron fencing. On bid day, West Bay received three separate subcontractor bids for different components of division 5 work: Stockton Iron Works for structural steel, Dura Fence for iron fencing, and JD2 for metal decking. Three or four minutes before the bid submission deadline, West Bay received a subcontractor's bid from Standard Metal Fabrication to perform all of the division 5 work for $761,000, which was lower than the combination of bids from Stockton Iron Works, Dura Fence, and JD2 for the same work.

Standard Metal Fabrication is a related business entity to Standard Elevator Company, the qui tam plaintiff here. Plaintiff Standard Elevator Company denies this on appeal, but in its original complaint filed in this CFCA action, plaintiff denominated itself "Standard Elevator Company, Inc. a California Corporation, doing business as Standard Metal Fabrication." It was averred in the original complaint that Standard Elevator Company, Inc. "sometimes does business under the duly registered business name of Standard Metal Fabrication." Similarly, in prior litigation, Standard Metal Fabrication's principal asserted that Standard Metal Fabrication is "merely a fictitious business name" for Standard Elevator Company. Standard Metal Fabrication and Standard Elevator Company may be treated interchangeably for our purposes here, and will henceforth be referred to as Standard in this opinion.*fn2

West Bay hurriedly incorporated Standard's subcontract bid into its prime contract bid, called the bid runner to cross out Stockton Iron Works, Dura Fence, and JD2, and to insert Standard in their stead and to lower West Bay's overall bid price. With less than one minute before West Bay's bid was due, the bid runner changed West Bay's overall bid price, crossed out Stockton Iron Works, and inserted Standard. Inadvertently, the bid runner did not cross out Dura Fence or JD2, which were listed on a different page. West Bay's bid therefore mistakenly listed more than one subcontractor to perform portions of the steel work.

The District informed West Bay that it was the apparent low bidder. On May 17, 1999, four days after bid opening, West Bay wrote a letter to the District informing it of its inadvertent clerical error in listing Dura Fence and JD2 as subcontractors for the same work being performed by Standard. On May 19, 1999, two days later, the District approved West Bay's bid and awarded the Project contract to it.

West Bay later learned that Standard, the listed subcontractor on division 5 metal work, was unlicensed, lied about its references, and could not secure bonds for its work. At West Bay's request, the District approved removal of Standard and substitution of another subcontractor. West Bay also made other subcontractor substitutions during Project construction.

In December 2000, West Bay sued Standard and its principal to recover as damages the amount West Bay had to pay to complete the steel work above the amount bid by Standard. During discovery, Standard reviewed about 30 boxes of West Bay's documents and job files, and learned that West Bay made a number of subcontractor substitutions on the Project. Standard filed a cross-complaint claiming that West Bay did not comply with the Public Contract Code in substituting Standard and other metal work subcontractors on the Project. A five-day bench trial was held. The District's director of facilities during Project construction was called at trial to testify about the substitution of Standard. In May 2004, following the conclusion of trial, the court issued a statement of decision rejecting Standard's claim of improper substitution, finding Standard liable for fraud and promissory estoppel in the submission of its subcontractor bid, and awarding damages to West Bay. Final judgment against Standard was filed in September 2004. In March 2005, Standard filed an unsuccessful motion for new trial. Standard later appealed. In a case screening form filed on appeal, Standard stated that West Bay illegally substituted subcontractors in violation of the Public Contract Code. Standard stated that it sought "[r]eversal of trial court's decision; right to prosecute cross-complaint, [and] False Claim case." Standard's appeal was subsequently dismissed as untimely.

In March 2005, in addition to filing a motion for new trial seeking to overturn West Bay's judgment against it, Standard also filed this lawsuit against West Bay. Standard was represented by the same attorney in both actions. The CFCA case was initially filed under seal, and not served until August 2005. With appeal pending in West Bay's action against Standard and Standard's CFCA action still under seal, Standard wrote to West Bay offering to settle all claims if West Bay accepted a specified amount far less than the judgment amount. No settlement was reached. Standard served the CFCA complaint. Standard then offered to stay the CFCA action pending the outcome of the appeal of West Bay's damages judgment. In a proposed stipulation to stay the CFCA action, Standard's counsel stated that a stay is necessary " 'to prevent duplicative or repetitive litigation over the same and [sic] similar issues.' " It appears that a stay was discussed but not imposed.

The CFCA action proceeded. Standard alleges in the CFCA action, as it did in the prior proceeding it lost, that West Bay's subcontractor substitutions violated the Public Contract Code. Standard maintains that those alleged Public Contract Code violations constitute violations of the CFCA because West Bay certified that it was in compliance with the Public Contract Code in submitting payment claims on the Project. (Gov. Code, § 12651, subd. (a)(1), (2), (8).) Standard sued both West Bay and its principal, Paul Brian Thomson (collectively, West Bay). The California Attorney General and the District declined to participate in the action. An amended complaint and second amended complaint were filed. West Bay answered the operative second amended complaint in January 2008.*fn3

West Bay filed a motion for summary judgment in May 2008. West Bay presented several grounds for its motion, one of which was that Standard was relying upon information publicly disclosed in prior litigation. The prior litigation was West Bay's lawsuit against Standard (with cross-complaint) and a plaster subcontractor's lawsuit for payment against West Bay and the District, M. Perez Company, Inc. v. West Bay Builders, Inc. (Super. Ct. Contra Costa County, No. C01-02005).*fn4 Government Code section 12652, subdivision (d)(3)(A) bars a private qui tam CFCA action that is based on the prior "public disclosure" of the facts supporting the claim, where the disclosure was made "in a criminal, civil, or administrative hearing, in an investigation, report, hearing, or audit ...

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