Hillcrest-Thousand Oaks v. DSD Construction

Filed 4/5/07 Hillcrest-Thousand Oaks v. DSD Construction CA2/6

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION SIX

Owner-builder Hillcrest-Thousand Oaks Associates (Hillcrest) filed a breach of contract action against contractor DSD Construction, Inc. (DSD) and DSD's surety, Insurance Company of the West (ICW) for failure to complete the engineering and site work for a residential development. After a jury trial, judgment was entered awarding damages to Hillcrest in February 2000. This is the third appeal following that judgment.

In the first appeal, DSD and ICW contended that Hillcrest could not recover from DSD because Hillcrest performed construction work without a contractor's license. (Bus. & Prof. Code, 7031, subd. (a).)[1] Hillcrest admitted it was unlicensed, but contended that it qualified for an owner-builder exemption under section 7044, subdivision (b). Because that issue had not been decided in the trial court, we reversed and remanded for a determination of whether Hillcrest qualified for the exemption. (Hillcrest-Thousand Oaks Assoc. v. DSD Construction, Inc. (Dec. 17, 2001, B140097) [nonpub. opn.] (Hillcrest I).) The second appeal followed trial court proceedings that did not follow our instructions in Hillcrest I. We reversed and remanded, again instructing the trial court to conduct a trial on the exemption issue. (Hillcrest-Thousand Oaks Assoc. v. DSD Construction, Inc. (Nov. 23, 2004, B169672) [nonpub. opn.] (Hillcrest II).)

Thereafter, the trial court conducted a bench trial and ruled that Hillcrest qualified for the licensing exemption. As a result, the trial court entered judgment in September 2005 awarding the damages initially determined in the February 2000 trial.

In this third appeal, DSD and ICW contend that the trial court's ruling that Hillcrest qualified for the section 7044, subdivision (b) exemption was contrary to the law of the case and to the evidence. We affirm.

FACTS AND PROCEDURAL HISTORY

Hillcrest retained DSD, a general engineering contractor, to perform engineering services and other site improvement work for a single-family residential project on property owned by Hillcrest. ICW provided payment and performance bonds as surety for DSD's work.

Hillcrest filed a complaint for damages against DSD and ICW when DSD failed to complete its work and abandoned the project. After a jury trial, judgment was entered in favor of Hillcrest awarding $644,274 in damages. DSD and ICW appealed. In relevant part, they contended that, as an unlicensed contractor, Hillcrest was barred from filing an action that sought "compensation for the performance of any act or contract" requiring a license. ( 7031, subd. (a).) DSD and ICW claimed that Hillcrest acted as contractor for the project and hired DSD as a subcontractor. Hillcrest claimed that it was exempt from the licensing requirement because it acted as an owner-builder and "contract[ed] with a general contractor [DSD] for the construction" of the engineering work on the project. ( 7044, subd. (b).)

In Hillcrest I, we concluded that Hillcrest might qualify for a section 7044, subdivision (b) owner-builder exemption. Because the issue had not been presented to the jury for determination, we reversed the judgment and remanded solely for a trial of the exemption issue.[2] Our instructions on remand stated: "We remand to the trial court for further action, including retrial, solely to resolve the section 7044, subdivision (b) exemption issue. Because no further proceedings are necessary for the determination of liability or damages, retrial shall be for the limited purpose of determining whether Hillcrest qualifies for the exemption under section 7044, subdivision (b) on the basis of its contract with DSD."

After remand, ICW filed a summary judgment motion contending that Hillcrest could qualify for the licensing exemption based on the DSD engineering contract only if it remained exempt during the subsequent construction of the buildings. The trial court granted ICW's motion. Hillcrest appealed contending that the trial court had misinterpreted our instructions on remand of Hillcrest I. We agreed and, in Hillcrest II, we again reversed and remanded, and repeated our instructions to the trial court to try the exemption issue.

After our remand in Hillcrest II, the court conducted a bench trial, and ruled that Hillcrest qualified for the section 7044, subdivision (b) exemption. In its statement of decision, the court concluded that the Hillcrest-DSD contract was "a contract between an owner and a Class A general engineering contractor to perform site work on the project" and was not a subcontract, and that "DSD acted in the role of general engineering contractor with respect to performing all of the work included within the scope of work of the contract." The court based its conclusion on findings that DSD controlled the means and methods of the performance of the work until it became unable or unwilling to perform its work in a timely and workmanlike manner. Although DSD deficiencies eventually forced Hillcrest to assert control, the court concluded that action taken by Hillcrest to repair deficient work and complete work that DSD failed or refused to perform was not material to the licensing exemption.

The trial court further found that the Hillcrest-DSD contract did not cover all of the engineering and site work because it excluded installation of the "dry utilities" such as electricity. The court, however, found that the contract "covered all of the site work which was capable of being reasonably bid" at the time the contract was executed. The dry utilities could not be bid at that time because the plans had not been completed by Southern California Edison. The court also found that the DSD contract did not include construction of retaining and garden walls or yard drains, but that Hillcrest reasonably treated those items as part of the building of the structures and not part of the engineering and site improvement work.

DISCUSSION

Trial Court Followed Law of the Case

DSD and ICW contend that the trial court failed to follow the law of the case set forth in Hillcrest I, as amplified by Hillcrest II. They claim that Hillcrest I required an owner-builder to hire a single general engineering contractor to perform all the engineering and site improvement work on a project in order to qualify for the section 7044, subdivision (b) exemption. DSD and ICW argue that Hillcrest did not qualify because one element of the engineering and other site improvements, the so-called "dry utilities," was excluded from the Hillcrest-DSD contract. We reject this overly narrow interpretation of Hillcrest I. We conclude that the trial court's determination that Hillcrest contracted with DSD to perform substantially all of the engineering and other site work, and literally all of the work that could be reasonably bid out at the time of the contract, conforms to the law of the case.

When an appellate court states a principle of law necessary to its decision in its opinion, the principle becomes the law of the case for later proceedings. (Clemente v. State of California (1985) 40 Cal.3d 202, 211; Bovard v. American Horse Enterprises, Inc. (1988) 201 Cal.App.3d 832, 841.) The doctrine generally applies only to issues which were both presented and determined in a prior appeal. (Bovard, supra, at p. 841.)
The dispute by the parties that resulted in the principle of law set forth in Hillcrest I concerned whether DSD acted as a general contractor for the Hillcrest project. DSD contended that it was a subcontractor of Hillcrest because it did not perform any work on the construction of the buildings, did not provide supervision and control over the engineering and other site work, and was described as a "subcontractor" in its contract with Hillcrest.

In Hillcrest I, we rejected the position that the section 7044, subdivision (b) exemption applied only when an owner-builder contracted with one "general contractor" both to install the engineering and site work and to construct the buildings which comprised the completed development. The principle of law essential to the decision was that a contract between an owner and a general engineering contractor for the performance of the engineering and site work on a residential project may qualify as a "contract[] with a general contractor for the construction" for purposes of the section 7044, subdivision (b) exemption. As we stated, a "general contractor" for purposes of section 7044, subdivision (b) can include either a "general engineering contractor" ( 7056) or a "general building contractor" ( 7057). And, a property owner may "qualify for the exemption by contracting separately with a general engineering contractor for grading and site improvements, and with a general building contractor for construction of the structures. . . . In such situations, the grading and site improvements could be completed under the license of a general engineering contractor while the structures could be separately built under the license of a general building contractor."

The case was remanded to determine whether Hillcrest contracted with DSD to supervise and direct the installation of the engineering and other site work and whether DSD, in fact, performed in the capacity of general contractor for that phase of the overall project. Hillcrest I directed the trial court to conduct a trial of that factual issue and established legal bases for the court's ruling. Our opinion did not direct the trial court to ignore the complexities in a large real estate development that might be revealed by the evidence. Hillcrest I and Hillcrest II bothcontemplated that the trial court would consider the specific circumstances that occurred before and during the performance of the work in making a determination in conformity with the law of the case.

The trial court did exactly that. It considered the evidence presented at trial and ruled that Hillcrest qualified for the section 7044, subdivision (b) exemption. The court found that the Hillcrest-DSD contract required DSD to act as the general engineering contractor for substantially all of the engineering and site work, and found that DSD actually functioned in that capacity by controlling the performance of the work.

DSD and ICW argue that Hillcrest I and Hillcrest II contemplated that the exemption would apply when an owner-builder enters into a single contract for the engineering and site work, and not when the owner-builder enters into multiple contracts each covering a portion of the work or when the owner-builder subcontracts out some of the work and performs some of the work itself. We agree. But, as the trial court found, Hillcrest did enter into a single contract for the engineering and site work. Although the "dry utilities" work was excluded from the contract, evidence shows that DSD performed substantially all of the engineering and site work for the project.

In addition, evidence supports the trial court's conclusion that the dry utility site work was necessarily excluded from the original contract because the plans and specifications to be provided by the utility company had not been completed at the time of the contract. Presumably, Hillcrest had the option to delay the entire project or to include the dry utilities in the contract without a determination of the contract price for that work. But, the option selected by Hillcrest did not disqualify it from the exemption. There was no material evidence that Hillcrest intended to perform the dry utilities work itself from the inception of the project or to subcontract that work to a contractor other than DSD.

Decision Supported by Substantial Evidence

DSD and ICW also challenge the sufficiency of the evidence to support the trial court's findings. They contend that both the Hillcrest-DSD contract and the extrinsic evidence show that Hillcrest acted as general contractor for the engineering and other site work, and that DSD acted as a subcontractor. We disagree and conclude that substantial evidence supports the trial court's ruling.

It is settled that the substantial evidence standard applies when a trial court's factual findings are challenged in a civil appeal. (Crawford v. Southern Pac. Co. (1935) 3 Cal.2d 427, 429; Jessup Farms v. Baldwin (1983) 33 Cal.3d 639, 660; Oregel v. American Isuzu Motors, Inc. (2001) 90 Cal.App.4th 1094, 1100.) We view the evidence most favorably to the prevailing party, giving it the benefit of every reasonable inference, and uphold the trial court's findings whenever they are supported by substantial evidence, even if there is contradictory evidence or evidence that supports other inferences. (Ibid.) In particular, where conflicting extrinsic evidence is properly admitted for purposes of interpreting a contract as in the instant case, any reasonable construction of the contract supported by substantial evidence will be upheld. (McCrary Const. Co. v. Metal Deck Specialists, Inc. (2005) 133 Cal.App.4th 1528, 1535; Westfour Corp. v. California First Bank (1992) 3 Cal.App.4th 1554, 1562.)

There is substantial evidence that DSD performed the contract in a manner consistent with an owner-general contractor relationship. There is evidence that DSD's bid encompassed a "turnkey" grading and site improvement job, and the contract stated that DSD was required to "[f]urnish all labor, material and equipment necessary to perform all GRADING AND SITE IMPROVEMENTS . . . ." There is also evidence that DSD controlled the job site by scheduling and supervising performance of the work, hiring its own subcontractors, and coordinating the work of these subcontractors.

DSD and ICW correctly point out that the contract describes DSD as a "subcontractor" and identifies Hillcrest as the "contractor," and that Hillcrest is identified as both the "owner" and the "contractor" on certain permits and the notice of completion. Nevertheless, DSD was a licensed general engineering contractor and hired specialty contractors as its own subcontractors. The evidence demonstrates that DSD served as the general contractor despite the labels used in the printed form contract and despite the nomenclature used in certain filings with government agencies.

DSD and ICW also point out that Hillcrest retained rights over the scheduling of the work and the right to approve DSD subcontractors and certain key DSD personnel. An owner-builder, however, necessarily has ultimate responsibility for the success of the project. The fact that Hillcrest sought to assure quality workmanship and compliance with the plans and specifications did not convert Hillcrest into the general contractor.

Finally, DSD and ICW repeat their argument that the dry utilities were excluded from the contract, and emphasize that other contractors constructed and installed the yard drains, certain retaining walls, and some of the diverter drains (called "V-ditches"). Although these items reveal the complexity of construction, they are not inconsistent with an owner-general contractor relationship between Hillcrest and DSD. Evidence supports the trial court's express findings that the status of the "dry utilities" plans at the time of the contract required a delay in the bidding of that work, and that work on the retaining walls and drains was reasonably included in the building construction phase of the overall development.

The judgment is affirmed. Costs to respondent.

NOT TO BE PUBLISHED.

PERREN, J.

We concur:

GILBERT, P.J.

COFFEE, J.

William Q. Liebmann, Judge

Superior Court County of Ventura

______________________________

Horvitz & Levy, H. Thomas Watson, Julie L. Woods; Law Office of J. Michael Pisias, Jr., J. Michael Pisias, Jr., Jason Zvi Jungreis; Marderosian, Runyon, Cercone, Lehman & Armo and Stephen T. Knudsen for Appellants.

Knopfler, Smith & Pazos, George Knopfler and James Pazos for Respondent.

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[1]All statutory references are to the Business and Professions Code.

[2]The complex procedural history in the trial court is set forth in Hillcrest I.