K2 Construction v. Anjani Investments

Filed 8/9/07 K2 Construction v. Anjani Investments CA4/1

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

CONSOLIDATED APPEALS from a judgment and posttrial orders of the Superior Court of Imperial County, Jeffrey B. Jones, Judge. Judgment affirmed in part, reversed in part. Orders denying prejudgment interest and taxing bond premiums as an element of costs reversed; all other orders are affirmed.

These consolidated appeals are taken from a judgment and various posttrial orders of the superior court adjudicating the parties' disputes arising out of the construction of a hotel in El Centro. Prior to the completion of the hotel, property owner Anjani Investments, Inc. (Anjani) terminated its contract with K2 Construction, Inc. (K2); K2 then served a bonded stop notice on Anjani's construction lender, Comerica Bank - America (Comerica), recorded a mechanic's lien against the property and filed this action against Anjani, Comerica and others. A jury awarded K2 $370,409 against Anjani and, in a bifurcated proceeding, the court found in K2's favor on K2's claim against Comerica to enforce the stop notice. The court entered a judgment that, inter alia, awarded K2 (1) damages of $370,409.00 and attorney fees of $798,023.00 against Anjani on the breach of contract claim and (2) the same amounts, plus an additional $114,978.94 in prejudgment interest, against Comerica on the stop notice claim. The judgment also provided that, except as to the prejudgment interest award, Comerica's liability was joint and several with Anjani and that Comerica's total liability on the stop notice claim was limited to $947,693.02.

All parties appeal. As to K2's stop notice claim, K2 contends that the trial court erred in limiting Comerica's liability to $947,693.02, while Anjani and Comerica argue that the court should not have entered judgment against Comerica at all. K2 also contends that the court erred in denying its requests for prejudgment interest under Civil Code section 3176.5 and penalty interest against Anjani; Anjani and Comerica contend that the court abused its discretion in awarding K2 all of its attorney fees. (All statutory references are to the Civil Code unless otherwise specified.) As to K2's breach of contract claim, K2 challenges the court's ruling that precluded it from seeking lost profits resulting from its diminished bonding capacity as an element of its damages, while Anjani contends that K2's evidence was insufficient to support certain other damages awarded to K2 by the jury. Finally, K2 challenges the court's order taxing its cost bill for $35,000 in bond premiums.

We find that there was no evidentiary support for (i) the judgment against Comerica on K2's stop notice cause of action and (ii) the jury's award of certain supervision costs and costs of certain subcontract work and materials and thus reverse the judgment as to those items. We also conclude that the trial court erred in denying K2's motion for prejudgment interest against Anjani and taxing the bond premiums as an element of K2's costs and reverse the judgment and the court's posttrial orders so ruling. In all other respects, we affirm the judgment and the orders.

FACTUAL AND PROCEDURAL BACKGROUND

Anjani hired K2 in September 2000 to build a Holiday Inn Express hotel on a property it owned in El Centro. The contract was a "cost plus" contract, whereby Anjani agreed to pay all the costs of construction, plus a $225,000 contractor's fee to K2 and an hourly rate for all K2 employees who worked on the project. K2 was generally responsible for hiring and supervising the subcontractors and obtaining necessary materials and equipment, although Anjani agreed to provide certain materials (most notably, the finished granite for the hotel bathrooms and common areas) and the landscaping work for the project.

The initial anticipated date for substantial completion of the project was May 2001; however, as work on the project progressed, Anjani and K2 entered into numerous change orders, a number of which extended the date for substantial completion of the hotel, ultimately to November 23, 2001. On October 19, 2001, Anjani terminated the construction contract. At that time, Anjani owed $1,042,000 for completed work and materials.

On October 24, 2001, K2 served Comerica with a stop notice specifying that Anjani owed it "$947,693.02 . . . , after deducting all just credits and offsets" for work and materials previously provided; the stop notice was secured by a $1,184.616.28 bond. At the time K2 served the stop notice, Comerica held undisbursed loan proceeds for the project in excess of the stop notice amount. K2 filed this action against Anjani, Comerica and others in March 2002; Anjani cross-claimed against K2 for breach of contract and on other theories and Comerica cross-claimed against Anjani for express and implied indemnity.

In August 2002, Anjani provided Comerica with a $370,000 stop notice release bond. By early 2003, the parties informally agreed that Comerica could release withheld loan funds to pay various subcontractors and suppliers on the project and that once the payees executed conditional releases of their claims for payment, K2 would provide Comerica with partial satisfactions of the bonded stop notice to reflect those payments. Pursuant to this arrangement, Anjani thereafter paid $603,393.82 to project vendors and subcontractors from the funds held by Comerica and K2 provided Anjani with partial satisfactions of its mechanics' lien and stop notice to reflect those payments in March and April 2003. After such payments, Comerica retained $212,000 in undisbursed funds for the project.

Prior to trial, Anjani twice moved for summary adjudication of K2's stop notice claim against Comerica, arguing in part that its payment of certain amounts to K2's subcontractors and its posting of stop notice release bonds totaling $430,000 in Comerica's favor required a dismissal of the stop notice claim. The court denied each motion, essentially on the ground that the statutory scheme required a lender to withhold funds to cover the entire amount claimed in a stop notice, without reduction to reflect partial satisfactions of the claimed amount recorded by the claimant or amounts bonded by the owner's stop notice release bond. Thereafter, the parties stipulated to bifurcate trial so that the contract claims between K2 and Anjani would be tried to the jury before trial of K2's stop notice claim against Comerica.

At the first phase of the trial relating to the contract claims, the jury rendered a special verdict, rejecting Anjani's breach of contract claim against K2 and finding that Anjani in fact breached the contract, causing K2 $370,409 in damages. For the second phase of trial, K2 and Comerica stipulated in part that the amount owed on K2's stop notice was the amount of contract damages awarded by the jury ($370,409), "plus interest, [attorney] fees [if applicable], and costs which may be awarded by the Court." Although Anjani was not named as a defendant to K2's stop notice cause of action, the court allowed Anjani to "intervene," over K2's objection, and to assert a defense that K2's stop notice willfully overstated the amount owed, thus forfeiting K2's right to pursue a claim under the stop notice. At the conclusion of the second phase of trial, the court rejected both Anjani's defense and K2's attempt to establish that Anjani's principals were alter egos of the company.

K2 thereafter sought to recover prejudgment interest under section 3176.5 against Comerica and penalty interest under section 3260.1 against Anjani and attorney fees and costs against both defendants. The court granted the request for prejudgment interest as to Comerica, but denied the request for penalty interest. It awarded K2 attorney fees and costs (although it taxed certain items K2 had requested as costs). These appeals followed.

DISCUSSION

1. K2's Stop Notice Claim

A. General Principles

A contractor or subcontractor on a construction project has two mechanisms available to protect its interests in the event of the property owner's breach of the construction contract. The first of these is a mechanics' lien, which the claimant may record against the property owner's land and thus create a lien in his favor against the property. (Connolly Development, Inc. v. Superior Court (1976) 17 Cal.3d 803, 808-811.) The second of these protections is a stop notice, which allows a claimant to create a priority claim against the funds or loan proceeds available for the project by serving the property owner or the construction lender with the notice. ( 3158-3160; see generally Connolly Development, Inc. v. Superior Court, supra, 17 Cal.3d at pp. 809, 811.)

Where a general contractor provides the construction lender with a stop notice that is supported by a bond equal to 1 1/4 times the amount of monies claimed thereunder ( 3083), the contractor acquires a right to funds held by the lender that is superior to the right of any assignee from the owner or contractor ( 3166), and to the lender's contractual right to employ unexpended funds to complete the work of improvement. (Mechanical Wholesale Corp. v. Fuji Bank, Ltd. (1996) 42 Cal.App.4th 1647, 1654.) Thus, upon receipt of such a stop notice, the construction lender must withhold from the loan funds an amount sufficient "to answer" the claim. ( 3159, subd. (a)(1), 3162, subd. (a)(1).) If the owner disputes the correctness or validity of a bonded stop notice served on its lender, it may file with the lender a surety equal to 1 1/4 times the amount claimed in the notice (referred to herein as a stop notice release bond), at which point the lender is required to release the funds withheld pursuant to the underlying stop notice. ( 3171.)

If the owner or lender fails to withhold the money required by the stop notice, it will be personally liable to the claimant for the full amount of the claim, plus interest from the date the claimant should have been paid (Connolly Development, Inc. v. Superior Court, supra, 17 Cal.3d at p. 809; Idaco Lumber Co. v. Northwestern Sav. & Loan Ass'n. (1968) 265 Cal.App.2d 490, 499; see also  3176.5), as well as the prevailing claimant's reasonable attorney fees. ( 3176 ["the prevailing party shall be entitled to collect [reasonable attorney fees] from the party held liable by the court for payment of the claim" (italics added)].) By contrast, a lender that has done no wrong may be liable for the claim and for prejudgment interest thereon, but only to the extent of the withheld funds. (Westinghouse Electric Corp. v. County of Los Angeles (1982) 129 Cal.App.3d 771, 778.)

B. Comerica's Liability on the Stop Notice Claim

In the second phase of the trial, the court awarded K2 the amount of the contract damages, $114,978.94 in prejudgment interest, $56,293 in costs and $798,023 in attorney fees, for a total amount of $1,339,703.94, against Comerica on the stop notice claim. It concluded that K2 had the burden of proving that Comerica had sufficient undisbursed loan proceeds to cover the amount of the stop notice claim at the time the notice was served, but did not have any additional burden to show what happened to those funds after service was effected. Its judgment specified that Comerica was jointly and severally liable with Anjani for the principal, prejudgment interest from the date of the jury's special verdict, attorney fees and costs of suit, but that Comerica's liability on the bonded stop notice was limited to $947,693.02, the amount specified as owing in K2's stop notice claim.

K2 contends that the trial court erred in limiting Comerica's personal liability to $947,693.02. Anjani and Comerica, on the other hand, contend that the evidence presented at trial establishes that K2 was not entitled to a judgment against Comerica at all; Anjani also argues that, to the extent K2 was entitled to a judgment against Comerica, Comerica's liability was only as a stakeholder and thus was limited to the amount of construction funds Comerica held, presumably at the time of trial. K2 responds that Comerica did not timely appeal from the judgment and thus cannot challenge the court's imposition of personal liability against it and that Anjani lacks standing to challenge the judgment as against Comerica.

(i) Appealability

Although Comerica timely appealed from the trial court's order awarding attorney fees to K2, its September 2005 notice of appeal was not timely to appeal from the judgment itself (Cal. Rules of Court, rules 8.104(a), (b), 8.108(a), (b), (c), (e)) and thus Comerica cannot now challenge the underlying judgment. (Code Civ. Proc.,  906; Cal. Rules of Court, rule 8.104(b).) However, because Anjani is contractually obligated to defend and indemnify Comerica against claims arising from the project loan, its rights are injuriously affected by the stop notice judgment against Comerica personally. In addition, Anjani's rights are similarly implicated to the extent that K2 can recover against Comerica as to the funds it retained on Anjani's behalf at the time of trial. Accordingly, Anjani is an aggrieved party with standing to challenge that aspect of the judgment on appeal. (Code Civ. Proc.,  902; Ajida Technologies, Inc. v. Roos Instruments, Inc. (2001) 87 Cal.App.4th 534, 540 [recognizing that the statute granting aggrieved parties the right to appeal is a remedial statute and, as such, is subject to liberal construction in favor of the right to appeal].)

(ii) Comerica's Liability

Prior to trial, Anjani moved for summary adjudication of K2's stop notice claim against Comerica, arguing in part that its payment of certain amounts to K2's subcontractors and its posting of stop notice release bonds totaling $430,000 in Comerica's favor required a dismissal of the stop notice claim. The court denied the motion, concluding that the statutory scheme required a lender to withhold funds to cover the entire amount claimed in a stop notice, without reduction to reflect partial satisfactions of the claimed amount recorded by the claimant or amounts bonded by the owner's stop notice release bond.

Pursuant to the statutory scheme governing private works projects, a construction lender that is served with a bonded stop notice claim is required to withhold sufficient funds to answer the claim, up to the amount of the undisbursed funds at its disposal ( 3159, subd. (a)(1), 3162, subd. (a)(1)) and such a lender will be personally liable to a claimant only if it fails to do so. (Connolly Development, Inc. v. Superior Court, supra, 17 Cal.3d at p. 809; Coast Central Credit Union v. Superior Court (1989) 209 Cal.App.3d 703, 712 [lender that makes premature progress payments to the prime contractor is personally liable to a stop notice claimant for the lesser of the amount due under the notice or the amount prematurely disbursed]; Miller v. Mountain View Sav. & Loan Ass'n. (1965) 238 Cal.App.2d 644 [similar, lender disbursed loan funds for purposes other than the costs of construction].)

In accordance with the statutory stop notice provisions, a construction lender must withhold "sufficient money to answer [the bonded stop notice] claim," subject to a reduction of the claim by the total amount of the stop notice claims submitted by all subcontractors or material suppliers who filed bonded stop notices for work done on behalf of the original claimant/contractor. ( 3162, subds. (a), (b), 3159, subd. (b).) In reliance on these statutes, K2 contends, and the trial court agreed, that Comerica was required to withhold the entire amount claimed in its stop notice ($947,693.02), without any reduction for the payments Anjani made to K2's subcontractors or for the amount of Anjani's stop notice release bond. We reject this contention.

Section 3262 expressly provides that a claimant may waive and release amounts subject to a stop notice claim and that, if the waiver and release complies with the statutory requirements therefor, it "[s]hall be effective to release the claimant's right to enforce the stop notice, to the extent of the reduction or release." ( 3262, subds. (a), (b)(2)(C); see generally Tesco Controls, Inc. v. Monterey Mechanical Co. (2004) 124 Cal.App.4th 780, 798.) Similarly, section 3171 provides that "[u]pon the filing of [a stop notice release] bond, the funds withheld to respond to . . . [a] bonded stop notice shall forthwith be released." These specific statutory provisions make clear that a claimant's right to pursue a bonded stop notice claim against a lender is subject to reduction of the amount claimed by the amount of any releases and any stop notice release bond. Although K2 points to the fact that sections 3159 and 3162 do not specifically refer to the former provisions, or the reductions provided for therein, it cites no authority for its apparent argument that such statutory omissions somehow invalidate sections 3262 and 3171 of that same code, an argument that we in any event reject.

Since the amount of K2's stop notice claim was subject to reduction for the partial satisfactions K2 provided and the stop notice release bond Anjani obtained, K2's evidence at trial did not establish that Comerica failed to properly withhold, or improperly disbursed, funds, in fact, K2 never asked the court to make any finding in this regard during the trial on its stop notice claim. As the party asserting the stop notice cause of action, K2 bore the burden of proving the facts essential to its claim, including Comerica's failure to properly withhold funds (Evid. Code, 500), and, in the absence of such proof, there is no basis for imposing personal liability on Comerica for the damages awarded on K2's stop notice cause of action.

As it contended in its summary judgment motion, Anjani further argues that its filing of a sufficient stop notice release bond precluded Comerica from having any liability at all as to K2's stop notice claim, even as to the $212,000 in construction funds that Comerica held at the time of trial. This argument is well taken. (Winick Corp. v. County Sanitation Dist. No. 2 (1986) 185 Cal.App.3d 1170 [upon the posting of a release bond, the stakeholder has no further duty to withhold funds under the stop notice and the claimant's remedy is solely against the bond]; Cal-Pacific Materials Co. v. Redondo Beach City School Dist. (1979) 94 Cal.App.3d 652 [same].) Although the cited cases arose out of stop notices filed in connection with public works projects rather than a private construction project, the position of the construction lender in the latter situation is the same as that of the public entity in the former; it is a stakeholder whose withholding obligations end upon the filing of the release bond. ( 3162, subd. (a) [construction lender], 3186 [public entity]; Cal-Pacific Materials Co. v. Redondo Beach City School Dist., supra, 94 Cal.App.3d at p. 656 [public entity].) Because the evidence at trial showed that the amount of the stop notice release bond was adequate to cover the outstanding amounts claimed under K2's stop notice, Comerica's obligations as a stakeholder were extinguished. Accordingly, we reverse the judgment against Comerica on K2's stop notice claim.

C. Prejudgment Interest

A claimant who prevails "in any action against an owner or construction lender to enforce payment of a claim stated in a bonded stop notice" is entitled to recover prejudgment interest from the date the notice is served. ( 3176.5.) K2 contends that the trial court erred in denying its request for such prejudgment interest against Anjani on its stop notice cause of action. In accordance with the above quoted language, we agree.

Anjani responds that K2 was not entitled to such prejudgment interest against it because it was not a party to the stop notice cause of action until the second phase of the trial. However, Anjani fails to cite any authority establishing the significance of this fact and the statute authorizes (in fact, mandates) an award of prejudgment interest to a claimant who prevails "in any action against an owner . . . to enforce payment of a claim stated in a bonded stop notice." ( 3176.5; A-1 Door & Materials Co. v. Fresno Guar. Sav. & Loan Assn. (1964) 61 Cal.2d 728, 737.) Further, Anjani's argument disregards the realities of this case; although it was not originally named as a defendant to the stop notice cause of action, it (and only it) actively defended against K2's stop notice cause of action during the entire course of the underlying proceedings, through two pretrial motions for summary adjudication (as the claimed "real party-in-interest to the stop notice action"), its defense against that cause of action (after being permitted by the court to "intervene" as a party) during the second phase of the trial and its posttrial motion to vacate the judgment.

Anjani also contends that section 3176.5 is inapplicable because K2 also asserted a claim for breach of contract and thus the court should have looked to section 3287 to determine K2's entitlement to recover prejudgment interest. This argument, however, is unavailing. As Anjani admits, where two statutes arguably apply to a given situation, the more specific statute will prevail over the general one. (Code Civ. Proc.,  1859.) Section 3176.5, which mandates an award of prejudgment interest to a prevailing claimant in an action on a bonded stop notice claim, is clearly more specific than section 3287, which governs the recoverability of interest as damages generally. Further, the statutory language of section 3176.5 ("any action . . . to enforce payment of a claim stated in a bonded stop notice") would appear to apply even if the claimant seeks to enforce the stop notice claim through a cause of action for breach of contract.

For these reasons, we conclude that the court erred in denying K2's request for prejudgment interest against Anjani in accordance with section 3176.5.

D. Penalty Interest

Section 3260.1, subdivision (b), provides that an owner may withhold progress payments if there is a good faith dispute between the parties, but that "[i]f any amount is wrongfully withheld in violation of this subdivision, the contractor shall be entitled to the penalty specified in subdivision (g) of Section 3260." The latter section provides that if the owner fails to make timely retention payments, the owner "shall be subject to a charge of 2 percent per month on the improperly withheld amount, in lieu of any interest otherwise due." ( 3260, subd. (g) [also authorizing the recovery of attorney fees by the prevailing claimant in an action for the collection of funds wrongfully withheld].) The trial court concluded that K2's failure to specifically seek penalty interest, or to allege facts necessary to support such recovery, in its complaints precluded K2 from recovering penalty interest.

The few published cases applying section 3260 have generally involved plaintiffs who specifically alleged a violation of that statute and/or their right to penalty interest and attorney fees under that section. (See Denver D. Darling, Inc. v. Controlled Environments Const., Inc. (2001) 89 Cal.App.4th 1221 [violation of section 3260 alleged in complaint]; McAndrew v. Hazegh (2005) 128 Cal.App.4th 1563 [same]; Taylor v. Van-Catlin Const. (2005) 130 Cal.App.4th 1061 [violation of section 3260 alleged in arbitration brief]; but see Alpha Mechanical, Heating & Air Conditioning, Inc. v. Travelers Casualty & Surety Co. of America (2005) 133 Cal.App.4th 1319, 1338 [although the plaintiff's complaint failed to allege an entitlement to penalty interest under section 3260, the defendant forfeited its right to raise this failure on appeal because it did not object to the plaintiff's trial brief, which requested penalty interest, or to the plaintiff's presentation of evidence relating to that request].) None of these cases, however, involved a specific analysis of whether a plaintiff must plead a violation of the statute as a prerequisite to being awarded interest or attorney fees thereunder.

Although it might prove to be an interesting exercise, we need not undertake an analysis of the issue here because we conclude that, at a minimum, K2 was required to request and prove this element of its damage claim at trial and that its failure to raise this issue until well after trial was fatal. (See Lineman v. Schmid (1948) 32 Cal.2d 204, 208-209 [acknowledging that interest is a component of the plaintiff's damages]; generally Code Civ. Proc.,  607 [regarding the conduct of trial].) In reaching this conclusion, we acknowledge that one published case has allowed plaintiffs who did not seek prejudgment interest as an element of damages at trial to recover such interest by posttrial motion. (North Oakland Medical Clinic v. Rogers (1998) 65 Cal.App.4th 824, 828-830.) Without reaching the issue of whether we agree with the holding of that case, we nonetheless conclude that its analysis is inapposite in this context, based on the differences in the nature of the relief at issue.

An award of prejudgment interest is appropriate only if the plaintiff's damages are "certain, or capable of being made certain by calculation," or, in the case of uncertain damages, in the discretion of the trial court, matters that do not require independent proof. ( 3287, subd. (a).) By contrast, the trial court may make an award of penalty interest pursuant to section 3260.1 only if the plaintiff proves that the defendant failed to timely make required progress payments as to which there was no good faith dispute. The latter issue involves a factual inquiry into the subjective states of mind of the parties, a matter that is not readily determinable outside a trial proceeding. (See Alpha Mechanical, Heating & Air Conditioning, Inc. v. Travelers Casualty & Surety Co. of America, supra, 133 Cal.App.4th at p. 1339.)

Notably, K2 asserts that Anjani's eventual payment of $619,484.17 to its subcontractors was sufficient to establish that its original withholding of such amounts was wrongful. However, K2's view of the required showing is too simplistic in light of the showing that is required under the statute. More importantly, K2 never submitted the issue for determination by the appropriate finder of fact and its belated attempt to have the court make such a finding, by motion made months after the trial was over, was too little and came too late. Because K2 failed to establish at trial that Anjani had violated section 3260.1, the trial court correctly concluded that K2 was not entitled to recover penalty interest under section 3260, subdivision (g).

E. Attorney Fees

Anjani contends that the trial court abused its discretion in awarding K2 $798,023 in attorney fees, arguing that (1) K2 was only entitled to recover fees against Anjani on or after October 4, 2004, when the court allowed Anjani to intervene and defend against the stop notice cause of action, and (2) the court should have apportioned the fees and only awarded those fees attributable to the stop notice cause of action. We address these arguments in turn below.

(i) Limitation of Fees to Those Incurred after Anjani's "Intervention"

As it argued on K2's claim for prejudgment interest against it, Anjani contends that because it was not a party to the stop notice cause of action until the second phase of the trial, the court could not award K2 attorney fees incurred before that time. We reject this argument for the same fundamental reason that we rejected the earlier argument, to wit, that section 3176 mandates an award of attorney fees to a claimant, like K2, who prevails in "any action against an owner . . . to enforce payment of a claim stated in a bonded stop notice." By its terms, the application of section 3176 is not limited to a cause of action on a stop notice, but applies to any actionto enforce payment of a claim that is subject to a bonded stop notice; as written, the statutory language appears broad enough to encompass K2's breach of contract claim. (See also Code Civ. Proc.,  22 [defining "action" as "an ordinary proceeding in a court of justice by which one party prosecutes another for the declaration, enforcement, or protection of a right . . . ."].)

Even in the absence of such broad statutory language, the fact is that Anjani fully participated as a party to K2's stop notice cause of action throughout the underlying proceedings. Further, Anjani could not properly be declared as an "intervenor" in an action to which it was already a party (Code Civ. Proc.,  387, subd. (a)) and thus its authorities relating to an intervenor's liability for attorney fees are inapplicable. Anjani repeatedly requested that it be allowed to defend against the stop notice cause of action and, over K2's objection, the court permitted it to do so on every occasion. Further, Anjani was the only party that actively defended against that cause of action. Under these circumstances, the court properly rejected Anjani's argument that the attorney fee award against it should have been limited to those fees incurred after October 4, 2004.

(ii) Apportionment of Fees Relating to the Stop Notice Cause of Action

"When a cause of action for which attorney fees are provided by statute is joined with other causes of action for which attorney fees are not permitted, the prevailing party may recover only on the statutory cause of action." (Akins v. Enterprise Rent-A-Car Co. of San Francisco (2000) 79 Cal.App.4th 1127, 1133 (Akins).) However, the joinder of causes of action will not dilute the right to attorney fees that are incurred for representation of an issue that is common to both a cause of action for which fees are permitted and one for which they are not. (Ibid., citing Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124, 129-130.) Thus, apportionment is not required where the various claims are so factually or legally intertwined as to make it impracticable to separate out the attorney's time between those claims for which fees may be awarded and those for which they may not. (Akins, at p. 1133; Cassady v. Morgan, Lewis & Bockius LLP (2006) 145 Cal.App.4th 220, 232.)

Although a trial court's decision as to whether to apportion attorney fees is generally reviewed for an abuse of discretion (Abdallah v. United Savings Bank (1996) 43 Cal.App.4th 1101, 1111), Anjani also contends that the court was required, apparently as a matter of law, to limit the award of attorney fees to those K2 incurred in prosecuting its stop notice cause of action. However, the legislative history Anjani cites does not support the conclusion that the Legislature intended to override the foregoing well-established, general principles of law. In the absence of reasoned authority to the contrary, we reject Anjani's legal contention.

Anjani alternatively contends that the trial court abused its discretion in failing to apportion out K2's attorney fees incurred in prosecuting its breach of contract cause of action. However, as the stipulation between K2 and Comerica suggests and the trial court found, the issues involved in the litigation of K2's breach of contract claim would have had to be litigated even if K2 had proceeded exclusively on a claim under the stop notice. Because the issues involved in the breach of contract and stop notice causes of action were inextricably intertwined, the trial court did not abuse its discretion in declining to apportion K2's fees between those causes of action. (See Akins, supra, 79 Cal.App.4th at p. 1133; Wilshire Westwood Associates v. Atlantic Richfield Co. (1993) 20 Cal.App.4th 732, 747.)

2. K2's Breach of Contract Claim

A. Lost Profits

In connection with its breach of contract claim against Anjani, K2 sought consequential damages in the form of lost profits from other work it would have been able to obtain bonding for if Anjani had not terminated the contract. In support of this component of damages, K2 proffered evidence from its bonding agent that it was unable to obtain bonds for other projects because of the existence of a claim against the bond for the Holiday Inn project. K2 argued that in light of the evidence of Anjani's past experience in the construction business generally, the testimony of its principal that he would not hire a contractor who had been fired from a job and the use of a performance bond for this project, Anjani knew or should have known that K2's inability to get bonded would preclude it from getting jobs, making that circumstance a reasonably foreseeable consequence of Anjani's breach. The court rejected K2's claim for lost profits and declined to allow it to introduce the proffered evidence.

A party who is injured by breach of contract is entitled to recover damages that will place that party "in as good a position as he or she would have occupied" absent the breach, i.e., damages that are equivalent to the benefit of the party's contractual bargain. (Lewis Jorge Const. Management, Inc. v. Pomona Unified School Dist. (2004) 34 Cal.4th 960, 967 (Lewis Jorge Construction).) Such damages are of two types: (1) general damages, those that naturally result from the breach and thus are sufficiently predictable at the time of contracting that the parties are presumed to have contemplated them; and (2) special or consequential damages, which are secondary or derivative losses that arise from circumstances particular to the contract or to the parties but are nonetheless a foreseeable consequence of a breach. (Ibid.;  3300.) Regardless of their type, the total contract damages to be awarded cannot exceed what the injured party would have received if the contract had been fully performed on both sides. (Lewis Jorge Construction, supra, 34 Cal.4th at p. 967;  3358.)

K2 argues that the California Supreme Court's decision in Lewis Jorge Construction establishes the error of the trial court's ways. In that case, a school district terminated its contract with a builder for the construction of improvements at an elementary school and made a demand on the builder's performance bond; the bonding company hired another firm to complete the project and later informed the builder that it was reducing the level of bonding it would provide for other projects the builder might bid on in the future. (Lewis Jorge Construction, supra, 34 Cal.4th at pp. 965-966.) The builder successfully sued the school district for breach of contract, recovering in part damages that it would have earned on prospective projects it was unable to get because of its impaired bonding capacity. (Id. at p. 966.) The court of appeal held that the lost profits were properly recoverable as general damages, but the California Supreme Court reversed. (Lewis Jorge Construction, supra, 34 Cal.4th at pp. 966-967, 970.)

The high court reasoned that, given the purpose of contractual damages to give the nonbreaching party the benefit of its contractual bargain, the relevant inquiry focuses on the nature of the performance bargained for. (Lewis Jorge Construction, supra, 34 Cal.4th at p. 971.) Acknowledging that unearned profits are sometimes appropriately included in the measure of general damages resulting from a breach of contract (where, for example, the breaching party's conduct prevented the other party from performing its contractual obligations), the court concluded that the parties' bargain contemplated that the builder would receive full payment of the contract price (which included the level of profit the builder was to make on that project), but did not include the builder's potential profits from other construction projects that the builder might have otherwise undertaken. (Id. at pp. 971-975.)

The court also analyzed the issue of whether such lost profits could be recovered as special damages and, after noting that in most instances such damage claims have been held to be too speculative, concluded lost profits were not recoverable in that case. (Lewis Jorge Construction, supra, 34 Cal.4th at pp. 975-976.) In reaching this conclusion, the Supreme Court indicated that, absence evidence that the school district knew about the state of the builder's finances or the criteria the surety used to evaluate the builder's bonding limits, the builder could not establish that the lost profits were actually foreseen by the parties at the time of contracting or were reasonably foreseeable as a probable consequence of the school district's breach. (Lewis Jorge Construction, supra, 34 Cal.4th at pp. 975-977.)

The evidentiary deficit present in Lewis Jorge Construction is equally present here. K2 essentially contended that Anjani's experience with construction projects in general and the fact that a performance bond was used in connection with its current project were sufficient to establish that, at the time of contracting, the impairment of its accessibility to bonding for future projects was a reasonably foreseeable consequence of a wrongful termination of the contract. However, K2 did not proffer any evidence that Anjani was familiar with its financial condition or knew that a termination of the contract would preclude it from getting bonded by its surety for future jobs.

In accordance with the analysis of Lewis Jorge Construction, K2's proffered evidence was inadequate to support an award of special damages, and as a result, the trial court did not err in precluding K2 from introducing evidence relevant to that issue or presenting that theory of damages to the jury. (See Evid. Code,  352 [allowing the court in its discretion to exclude evidence for which the probative value is substantially outweighed by the probability that its admission will (1) necessitate undue consumption of time or (2) create substantial danger of undue prejudice, of confusing the issues, or of misleading the jury].) Although K2 now contends that it could have put on additional evidence in support of this theory of damages, it did not make this point in the proceedings below and further does not explain on appeal how that evidence would have sufficed to make the necessary showing. Under such circumstances, K2 cannot rely on this as a basis for seeking reversal of the judgment on appeal.

B. Other Damages

Anjani argues that the evidence was insufficient to establish $135,517 of the $370,409 in damages the jury awarded K2 on its breach of contract cause of action. Specifically, it challenges three general items of the damage awarded relating to sales taxes, amounts owed to certain subcontractors and supervision costs. We address these in turn below.

(i) Sales Taxes

Pursuant to the construction contract, Anjani was obligated to reimburse K2 for construction costs, including "[s]ales, use, gross receipts or similar taxes related to the Project imposed by any governmental authority, and for which the Contractor is liable.") (Italics added.) The jury awarded K2 $12,037.00 in sales taxes that K2 owed for project materials, but did not report or pay to the state prior to trial. Anjani contends that because the evidence showed K2 had not paid the sales taxes, the jury erred in including those taxes as an element of K2's damages. However, K2's evidence was sufficient to establish that it was liable for the sales taxes, which was all that the contract required to trigger Anjani's reimbursement obligation. The evidence in the record is sufficient to support the jury's award of unpaid sales taxes as an element of K2's damages.

(ii) Amounts Owed to Subcontractors

Anjani further contends that the jury erred in awarding K2 (1) $25,411 for framing work at the project performed by subcontractor Thunder Basin Construction, LLC (Thunder Basin); (2) $2,627 for door installation work performed by Damac Construction (Damac); and (3) $18,279 for project work and materials provided by Alpha Site Logistics, Kris Kraft Cabinets, Ben Montoya Painting, Early Detection Security, Imperial Irrigation District, Nations Rent, Pacific Bell and Yosemite Water.

As to Thunder Basin, Anjani specifically contends that the $25,411 was a retention amount K2 had to pay only upon completion of the framing work and that the evidence at trial showed that Thunder Basin did not complete that work because it never fixed problems with the wood studs it installed for the dropped ceilings in the hotel lobby. Anjani's argument is well taken. (See generally McAndrew v. Hazegh, supra, 128 Cal.App.4th pp. 1566-1567 [defining retention amounts as those relating to work already performed but that are "withheld until completion of 100 percent of the [contractor's] work," to provide an incentive for the contractor to complete the work and reduce the risk of incomplete performance].)

As to Damac, Anjani contends that the $2,627 was for extra work necessitated by the fact that K2 ordered the wrong doors. K2 admits as much but argues that because Anjani agreed to the proposed fix work, Anjani was required to reimburse it for that expense. However, the construction contract required Anjani to pay K2 for repairing or correcting damage or work improperly executed by construction workers "provided such damage or improper execution did not result from the fault or negligence of [K2]." Further, nothing in the change order authorizing the fix work specified that Anjani was agreeing to pay for the work or otherwise altered the terms of the contract regarding Anjani's liability to K2. In light of K2's admission at trial that the extra work resulted from its negligence, the evidence did not support the jury's award of that $2,627 as a component of K2's damages.

Finally, Anjani contends that the jury erred in awarding K2 $18,279 for subcontract work or materials provided by Alpha Site Logistics ($1,479), Kris Kraft Cabinets ($8,761), Ben Montoya Painting ($2,377), Early Detection Security ($2,500), Imperial Irrigation District ($432), Nations Rent ($2,637), Pacific Bell ($58) and Yosemite Water ($35). Anjani points out that the evidence at trial showed it paid the designated amounts directly to these subcontractors and K2 did not present any evidence to the contrary.

K2 now complains Anjani did not present evidence that the amounts related to work or materials provided before its termination; however, the evidence does show that K2 was claiming amounts due to these subcontractors that were identical to the amounts Anjani paid. Further, K2 had the burden of establishing the validity of the items of damage it sought and, despite the uncontroverted evidence these subcontractors never requested payment from it for these amounts, K2 did not provide any evidence to establish that it remained liable to these subcontractors for the claimed amounts. Because the evidence showed that the requested amounts had been paid by Anjani, K2 had no continuing liability for them and thus there is no evidentiary basis for the award of $18,279 to K2 for the work and materials provided by these subcontractors.

(iii) Supervision Costs

Anjani's obligations under the construction contract included a requirement that it pay the wages and salaries of K2's supervisory and administrative personnel for time spent working on the project, including those costs resulting from contract extensions. At trial K2 sought reimbursement for $152,314 in such supervision costs and the jury awarded it all such costs.

Anjani contends that the jury erred in awarding K2 $72,189 for supervisory work performed between May 24, 2001 and October 19, 2001 because the parties signed a change order to the contract in February 2001 specifying a change in the contract to provide for "fixed fees" totaling $80,125. It points out that none of the subsequent change orders, a number of which extended the date for substantial completion of the project, provided for an increase in the amount of supervision costs to be paid by it and that K2's payment applications to it after March 2001 consistently listed the supervision charges at the capped amount.

K2 does not identify any evidence in the record to the contrary. In fact, its project manager testified that the fixed fee change order was executed to fix the supervision costs because Anjani "wanted to stop paying for . . .  the project manager, superintendent, and the assistant project manager's time." In the complete absence of evidence that the parties intended to fix the supervision costs only for a specified period of time, the jury's award of $72,189 in supervision costs above the fixed amount is without evidentiary basis.

3. K2's Cost Bill

In its memorandum of costs, K2 requested $35,000 for bond premiums it paid to obtain the bonded stop notice, although the trial court subsequently granted Anjani's motion to tax K2's costs for that amount. K2 contends that the court erred in taxing its costs in this regard, a point that Anjani concedes. (See also Code Civ. Proc,  1033.5, subd. (a)(6).) Accordingly, we reverse the court's posttrial order taxing this element of K2's costs.

DISPOSITION

The judgment is reversed as to K2's stop notice cause of action against Comerica and the judgment and posttrial orders are reversed insofar as (1) the jury awarded K2 (a) more than $80,125 in supervision costs, (b) $25,411 for framing work at the project performed by Thunder Basin, (c) $2,627 for door installation work performed by Damac and (d) $18,279 for subcontract work and materials provided by Alpha Site Logistics, Kris Kraft Cabinets, Ben Montoya Painting, Early Detection Security, Imperial Irrigation District, Nation Rents, Pacific Bell and Yosemite Water; and (2) the trial court (a) denied K2 prejudgment interest against Anjani and (b) taxed the bond premium as an element of K2's costs. In all other respects, the judgment and orders are affirmed. We remand the matter for further proceedings, if necessary, and for the entry of an amended judgment consistent with this opinion. Comerica is awarded its costs of appeal against K2; K2 and Anjani are each to bear their own appellate costs.

McINTYRE, J

WE CONCUR:

HALLER, Acting P.J.

O'ROURKE, J.

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