Prompt payment penalty cases do not come around very often, but when they do, there is bound to be fireworks.
In James L. Harris Painting & Decorating, Inc. v. West Bay Builders, Inc., et al. (No. C072169, filed 8/27/15), the California Court of Appeal for the Third Appellate District upheld the trial court’s discretion to not award prevailing party attorneys’ fees to the party who won a prompt payment dispute. California Business and Professions Code §7108.5 and Public Contract Code §§7107 and 10262 are the mechanisms for obtaining prompt payment relief in California. As shown by the outcome, it is possible to win and lose at the same time.
West Bay Builders, Inc. (“West Bay”) was the prime contractor on a school construction project for Stockton Unified School District. West Bay entered into a subcontract agreement with James L. Harris Painting & Decorating, Inc. (“Harris”) on the project. During construction there were disagreements between West Bay and Harris regarding the contractual scope of work, and Harris performed work it believed was outside the contract, believing it would be paid for the additional work. After West Bay refused to pay for the additional work, Harris left the project, and West Bay hired another subcontractor to complete the work.
Harris filed a complaint against West Bay and its surety Safeco for breach of contract and violation of the prompt payment statutes. West Bay filed a cross-complaint against Harris for breach of contract because Harris did not finish the job. The jury ruled against Harris on the Complaint and ruled against West Bay on the Cross-Complaint. In other words, both won and both lost.
The trial court entered judgment in favor of West Bay/Safeco and awarded costs of suit to West Bay/Safeco. West Bay/Safeco moved for attorney’s fees under the prompt payment statutes. The trial court denied the motion because “[e]ach party sued for breach of contract, but neither side prevailed.”
West Bay/Safeco appealed the denial of attorney’s fees on the grounds that: 1) the prompt payment statutes do not give the trial courts the discretion to deny attorney’s fees to the party who prevailed and, 2) the trial court abused its discretion in determining West Bay/Safeco did not prevail. The Court of Appeal denied the appeal and affirmed the trial court’s denial of attorney’s fees.
The Court of Appeal reasoned each of the aforementioned statutes contain a similarly stated fee-shifting provision providing, “the prevailing party shall be entitled to attorney’s fees and costs.” Based upon citation to extensive case law, the Court of Appeal found that when a statute provides a prevailing party “shall” recover attorney’s fees, a court has implicit discretion to find there is no prevailing party and refuse to award attorney fees.
The Court of Appeal also found the trial court did not abuse this permissible discretion when determining there was no prevailing party. Although West Bay/Safeco were awarded costs of suit, the cost award did not determine whether West Bay/Safeco were the prevailing parties in the litigation. Here, the jury found West Bay/Safeco and Harris failed to perform their contractual obligations, and neither side was successful on their breach of contract claim. Although West Bay/Safeco defeated Harris’s prompt payment claims in the complaint, it was not because they complied with the statutes and made timely payments. In fact, West Bay was found to have not acted in good faith by not making the progress payments.
For parties considering contract litigation, it is important to note that courts will evaluate the results of the litigation as a whole when deciding to award attorneys’ fees. Courts will evaluate what each party accomplished and whether their litigation goals were achieved as part of this process. In this case, both parties won and both lost. This was hardly the desired result for either of them.
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