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Sheldon Appel, As Trustee Etc., et al. v. Superior Court of Los Angeles County

March 11, 2013

SHELDON APPEL, AS TRUSTEE ETC., ET AL. PETITIONERS,
v.
SUPERIOR COURT OF LOS ANGELES COUNTY, RESPONDENT. WEBCOR CONSTRUCTION, INC. REAL PARTY IN INTEREST.



ORIGINAL PROCEEDINGS in mandate. Jane L. Johnson, Judge. (Los Angeles County Super. Ct. No. BC365315)

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

CERTIFIED FOR PUBLICATION

Petition for writ of mandate granted.

INTRODUCTION

Webcor Construction executed a contract with Wilshire Landmark to construct a condominium development. After the parties became involved in a payment dispute, Webcor filed an action for breach of contract against Wilshire and foreclosure of mechanic's lien against numerous individuals who had purchased condominium units from Wilshire. Webcor entered into a settlement agreement with Wilshire and proceeded against the unit owners on the mechanic's lien claim.

Prior to trial, Webcor filed a motion in limine to preclude the unit owners from introducing any evidence related to the value of its construction contract with Wilshire. The unit owners opposed the motion, arguing that, under Civil Code section 3123, subdivision (a), the value of the construction contract was relevant to determining the proper amount of the mechanic's lien. The trial court, however, ruled that because the unit owners were not parties to the construction contract, the amount of the lien was to be determined based solely on the reasonable value of Webcor's work. The court further concluded that, in light of this ruling, the value of the contract was not relevant to any issue at trial.

The unit owners filed a petition for writ of mandate seeking an order requiring the superior court to permit them to introduce evidence related to the value of the construction contract. We issued an order to show cause and now grant the unit owner's petition, concluding that the trial court's ruling was predicated on an erroneous interpretation of Civil Code section 3123, subdivision (a).

FACTUAL AND PROCEDURAL BACKGROUND

A. Summary of Plaintiffs' Lawsuit

On October 31, 2003, Webcor Construction entered into a contract with Wilshire Landmark to construct a 23-story residential condominium development in Los Angeles, California. Although the contract established that the initial "guaranteed maximum price" (GMP) for the project was $65.5 million, section 5.3 of the agreement stated that the GMP could "be increased or decreased to the extent agreed to in writing . . . for Changes in the Work." During the course of the construction, Wilshire approved numerous change orders and agreed to increase the GMP to approximately $81 million. Webcor, however, asserted that it was entitled to an additional $13.5 million for approved changes and recorded a mechanic's lien claim against the project.

In 2007, Webcor filed a complaint asserting claims for breach of contract against Wilshire and foreclosure of the mechanic's lien against Wilshire and numerous individuals who had purchased condominium units from Wilshire (the unit owners).*fn1 Webcor filed a second complaint against Wilshire and several Wilshire "member entities" that had allegedly received distributions from the sale of the condominium units (Wilshire alter ego defendants). The second complaint asserted claims for improper distribution, constructive trust and intentional interference with contractual relations.

Approximately six weeks before trial, Webcor, Wilshire and the Wilshire alter ego defendants entered into a settlement agreement releasing all claims related to the project. The settling parties agreed that a $32 million stipulated judgment would be entered against Wilshire on Webcor's breach of contract claim. The settlement provided, however, that no "amount of the stipulated judgment w[ould] serve as an offset or credit against [Webcor's] . . . Cause of Action . . . for Foreclosure of Mechanic's Lien . . . against Unit Owners, as [Wilshire] is an insolvent single asset limited liability company, unable to satisfy the Stipulated Judgment." The settlement included additional language clarifying that: (1) the parties' agreement was not intended to impair or affect Webcor's pending lien claim against the unit owners; and (2) the Wilshire entities would "cooperate with [Webcor] in any way necessary regarding the pursuit of [its] . . . Mechanic's Lien claim against Defendant Unit Owners."

As part of the settlement, Webcor and Wilshire also agreed to adopt change order "PCCO 50," which raised the construction contract's stated GMP from approximately $81 million to $95.5 million. The agreement indicated that PCCO 50 was for "labor, materials and services provided to [Wilshire] by [Webcor] pursuant to [the] GMP Contract."

B. The parties' motions in limine

1. Summary of the parties' motions in limine

Prior to trial on the mechanic's lien claim, Webcor and the unit owners filed motions in limine seeking to exclude certain evidence related to the GMP contract. Webcor's "Motion in Limine No. 2" argued that, as a result of its settlement with the Wilshire entities, the unit owners should not be permitted to introduce any evidence regarding the "the final GMP Contract value." Webcor asserted that, under Civil Code section 3123, subdivision (a),*fn2 the amount of its mechanic's lien was "the lesser of: (1) the price agreed upon between Webcor and Wilshire for the GMP Contract or (2) the reasonable value of the labor, services, equipment or materials furnished." Webcor asserted that because the settlement "established the final GMP ...


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