Atlas Allied v. San Diego Community College Dist. CA4/1 (2014) · DecisionDepot
Atlas Allied v. San Diego Community College Dist. CA4/1
California Court of Appeal Jul 30, 2014 No. D061295Unpublished
Filed 7/30/14 Atlas Allied v. San Diego Community College Dist. 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NOT TO BE PUBLISHED IN OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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
ATLAS-ALLIED, INC., D061295 D061774 Plaintiff and Appellant,
v. (Super. Ct. No. 37-2010-0091274- CU-CO-CTL) SAN DIEGO COMMUNITY COLLEGE DISTRICT et al.,
Defendants and Respondents.
CONSOLIDATED APPEALS from judgments of the Superior Court of San Diego
County, Joel M. Pressman, Judge. Affirmed.
Mahoney & Soll and Paul M. Mahoney for Plaintiff and Appellant.
Stutz, Artiano, Shinoff & Holtz and William C. Pate for Defendant and
Respondent San Diego Community College District.
Balistreri Potocki & Holmes, Karen A. Holmes; Koenig Jacobsen, Gary L.
Jacobsen and Lisa G. Shemonsky for Defendant and Respondent Nolte Associates, Inc.
Plaintiff Atlas-Allied, Inc. (Atlas) contracted with defendant San Diego
Community College District (the District) to construct an underground fire suppression
system on the District's Miramar College campus after submitting the lowest bid on the
project. Defendant Nolte Associates, Inc. (Nolte), an engineering firm, designed and
prepared the plans and specifications for the project. After it completed the project, Atlas
sued the District and Nolte for damages it incurred as a result of allegedly unforeseen
conditions on the project site that caused it to incur costs that exceeded the contract price.
The trial court entered judgment after a court trial in favor of the District on Atlas's
causes of action against the District for breach of contract and "Breach of
Warranty/Failure to Disclose Hidden Conditions on the Project Plans and Specifications."
The court entered a separate judgment in favor of Nolte after granting Nolte's motion for
judgment under Code of Civil Procedure section 631.8 on Atlas's causes of action against
Nolte for negligence and negligent misrepresentation.
Atlas appeals both judgments.1 Regarding the judgment in favor of the District,
Atlas contends (1) there is no substantial evidence to support the court's finding that the
District did not breach the implied warranty of the plans and specifications; (2) the court's
1 In case No. D061774, Atlas filed a notice of appeal from the March 9, 2012 order denying its motions to tax costs claimed by the District and Nolte. This court accepted the parties' stipulation to consolidate the appeals and ordered them consolidated on May 16, 2012. The only argument Atlas makes regarding costs in this appeal is to state that if we reverse the judgment, we should also reverse the award of costs. Because we are not reversing the judgments, we will not further address the award of costs.
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ruling in favor of the District violates the Public Contract Code;2 (3) there is no
substantial evidence to support the court's finding that Atlas was fully compensated under
the contract for its claim of differing site conditions; (4) there is no substantial evidence
to support the court's finding that the contract completion date was not delayed or
impacted by the differing site conditions; (5) there is no substantial evidence to support
the court's finding that Atlas did not rely on misinformation regarding subsoil conditions
on the project site; (6) the court committed legal error in finding that Atlas was on notice
to further investigate subsoil conditions on the project site; (7) the court erred in rejecting
Atlas's expert witness's "measured mile" method of calculating damages for loss of
productivity; and (8) the court erred in not awarding Atlas damages for extended home
office and field office overhead. Regarding the judgment in favor of Nolte, Atlas
contends (1) there is no substantial evidence to support the judgment, and (2) the court
should have granted a new trial on the ground Nolte was acting as the ostensible agent of
the District. We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
In early 2008 Nolte entered into a contract with the District to design
improvements to the fire suppression system on the Miramar Community College
campus. The project involved the installation of fire hydrants and approximately 2,700
linear feet of underground water pipeline, with connections to existing pipelines on the
2 All further statutory references are to the Public Contract Code unless otherwise noted.
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campus and pipelines off campus owned by the City of San Diego (the City). Juan
Palacios, a civil engineer employed by Nolte, prepared the technical specifications for the
project.
In February 2009 the District solicited bids for the project and held a mandatory
pre-bid meeting that included a walk through the project site. Melissa Siciliani, the
daughter of Atlas's owner, attended the walk-through on behalf of Atlas. She took
photographs of the site and made written notes stating that the ground was "hard" and
there was no soils report for the project. Nile Sensabaugh, who worked for Atlas as an
estimator and project manager, prepared Atlas's bid for the project after reviewing the
plans and technical specifications for the project and Siciliani's notes and photographs.
Sensabaugh testified that there are no soils reports for about 50 percent of the projects for
which he prepares bids and that whether or not there is a soils report, "we go through the
same mechanical process to bid the job."
The "Special Conditions" part of the technical specifications included a section
entitled "Soil Conditions" (section HH), which included the following language that the
District prepared: "Geotechnical investigation for the surrounding improvements
describes the underlying soils as sandy clay over highly cemented gravel and cobble
conglomerate (Linda Vista Formation). Trenching into the Linda Vista Formation will be
difficult and may require heavy equipment." Section HH was a standard condition the
District had used in other projects at Miramar College. Sensabaugh testified that he
considered this language vague as to the meaning of "heavy equipment." However, Atlas
did not ask the District for clarification of that term before bidding and did not request
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any other additional information from the District or communicate with Nolte before
submitting its bid.
Atlas uses an internal excavation formula to calculate the total number of
manhours required for a job. The formula involves multiplying a coefficient representing
the number of manhours required to excavate one cubic yard of soil times the total
amount of cubic yards to be excavated, based on the depth of the excavation. In
preparing Atlas's bid for the subject project, Sensabaugh used a manhour coefficient of
0.38, which is Atlas's lowest excavation coefficient used for trenches four feet deep or
less. After initially calculating Atlas's bid, Sensabaugh reduced the amount by 25 percent
because the project required installation of 2,700 linear feet of pipeline and he based his
initial calculation on 3,600 feet. Atlas ultimately submitted a bid in the amount of
$316,200 and the District awarded the contract to Atlas as the lowest bidder.
The contract provided that work on the project was to commence on the date
stated in the District's notice to proceed and be completed within 160 days from that date.
By letter dated May 29, 2009, the District authorized Atlas to commence "this job as of
June 1, 2009, which will constitute the beginning date under the time limit provided in
the contract." The letter noted the completion date for the work was November 8, 2009,
160 days after June 1st.
The contract required Atlas to submit a baseline progress schedule for the
District's approval before it began work on the project. The contract provided that "[t]he
schedule shall clearly identify all staffing and other resources which in the Contractor's
judgment are needed to complete the project within the time specified for completion.
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The schedule shall include milestones and shall include the 'critical path' of construction."
The baseline schedule is used during the work on a project to measure how a project is
progressing in relationship to the schedule.
On June 9, 2009, Atlas submitted a baseline schedule that provided for completion
of the project on November 8, 2009. The District approved the schedule on June 15. The
schedule showed that the pipeline for the project would be installed in three phases that
were identified as the west alignment, east alignment, and north alignment. The schedule
identified the completion dates for the three phases as July 31, 2009, for the west
alignment, August 28, 2009, for the east alignment, and October 1, 2009, for the north
alignment.3 In this litigation, Atlas claims that notwithstanding the schedules it
submitted to the District, it intended to complete the project in 55 days. However, Atlas
did not inform the District during the construction that it intended to finish the project
ahead of schedule.
Atlas began its work on the project on June 19, 2009, and began trenching on June
22. In a weekly report dated June 26, 2009, the District's inspector, Phillip San Filippo,
noted Atlas was behind schedule and informed him "that they need larger equipment to
excavate faster and catch up to schedule." While excavating on July 1, 2009, Atlas
encountered a rocky condition that lowered its production.
3 These completion dates included the days required for "Testing" and "Connections." In their briefs, Atlas and the District identify the completion dates as the earlier dates specified in the schedule for completion of the backfilling—i.e., July 20 for the west alignment, August 21 for the east alignment, and September 24 for the north alignment.
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On July 7 Sensabaugh gave the District written notice that Atlas had encountered
what it "believ[ed] to be Differing Site Conditions concerning the . . . project."
Sensabaugh stated in the notice: "At this time we have encountered unknown solid rock
while excavating for the installation of fire line north alignment . . . . [¶] While we did
expect to hit cobbles & hard ground during the installation process[,] it is assumed by the
information provided to us in the contract documents . . . that reasonable excavating
equipment should be able to perform this job due to the locations of the fire line in
[proximity] to existing buildings & site improvements. [¶] To date we have installed
approximately 640' of 8" mainline in 9 working days. During this time we have used 3
pieces of excavation equipment ranging in weight from 15,000 lb to 24,000 lb with
multiple buckets[,] including single & multiple ripper buckets. This equipment is not
working in the area referenced above. [¶] The next plan we would implement is to bring
in a Breaker Attachment to our 24,000 Backhoe. We would view this as extra work &
could perform this on a Time & Material Basis with inspector Phil San Filippo & our
Field Superintendent reconciling tickets on a daily basis as needed. [¶] This change may
delay completion of the project; however[,] we are not able to determine the length of
such delay or extra cost at this time. We reserve the right to claim an appropriate time
extension & increase in overhead when they are determined."
That same day, Filippo sent Sensabaugh an e-mail message stating that he had
informed Sensabaugh in a phone conversation that the rock material Atlas encountered
was stadium conglomerate, which Filippo referred to as "a highly cementious material
different [from] the cobble/clay material known as Linda Vista." Filippo informed
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Sensabaugh that stadium conglomerate "is predominate [through] San Diego and
elevations of this material [vary] across the site." Filippo accepted Atlas's use of a
breaker on a time and material basis where it encountered stadium conglomerate, with the
condition that the time and material charges would be on an hourly basis and approved by
him daily.
From July 8 through July 16, 2009, the District approved time and material tickets
for the use of a backhoe with a 1,200 pound breaker attachment. From July 20 through
August 11, 2009, and from August 21 through August 25, 2009, the District approved
tickets for the use of a 40,000 pound excavator with a 4,000 pound breaker attachment.
The District also approved tickets for the use of a 26,000 pound excavator with a 1,200
pound breaker from August 17 through 19, 2009.
In early August 2009, while its excavation work on the project was still in
progress, Atlas submitted a written request for a change order, designated "Request For
Change Order #1," in which it estimated that the additional compensation it intended to
claim for past and future extra work due to the differing site conditions would be
$197,290.19. The District did not respond to that change order request until after the
excavation work was completed. By letter dated October 15, 2009, the District
acknowledged receipt of Atlas's "transmittal dated 09/09/09 RCO #1 requesting
additional compensation," which apparently included a packet of time and material
tickets. The District formally rejected Atlas's request, in large part because it viewed
many of the tickets as being for work that was within the scope of the contract and
unrelated to differing site conditions.
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Despite the delays caused by Atlas having to trench through stadium
conglomerate, Atlas provided the District a schedule update that showed the excavation,
pipe laying, and backfilling for the entire project was complete as of September 30,
2009.4 On October 5, 2009, Sensabaugh informed the District by e-mail that the City
had provided Atlas a "two week estimated window for completion" of the City's work to
connect the pipelines Atlas had installed to the City's pipelines and that Atlas would be
"pulling off the job . . . as our next function to perform is the tie-ins after the [City's]
work is completed." The District responded with a letter requesting that Atlas perform
unfinished paving and landscaping work within the scope of the contract that, in the
District's view, was not related to the City's tie-in work.
The City performed its tie-in work on November 3, 2009. The District recorded a
notice of completion stating that Atlas completed its work under the contract on
November 20, 2009. On December 1, 2009, Sensabaugh sent the District a "Final
Completion Notice" stating that Atlas had "achieved Final Completion" of the project as
of that date and requesting that the District make a final progress payment in the amount
of $568,668.74. Based on all of the time and material tickets it had approved, the District
4 The contract between Atlas and the District provided: "All required schedules shall be periodically updated to reflect changes in the status of the job, including weather delays. At a minimum, the Contractor shall be required to provide and keep [an] updated monthly schedule in order to prevent delay claims." (Boldface in original) On July 27, 2009, Atlas submitted an updated schedule showing the project was ahead of schedule and identifying the completion date as November 3, 2009. On October 6, 2009, Atlas submitted a second updated schedule showing that backfilling for all three phases of the project was completed as of September 30 and identifying the completion date for the entire project as November 11.
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ultimately issued a unilateral change order designated "Change Order No. 0007" (Change
Order No. 7), which increased the contract time by seven days and provided additional
compensation to Atlas in the amount of $30,277.38 for the differing site conditions,
including $3,000.46 for "overhead, profit, supervision, [and] bond fees." As a result of
Change Order No. 7 and four other change orders, the contract completion date was
extended 11 days to November 19, 2009.
Atlas's operative third amended complaint included two causes of action against
the District—one for breach of contract and one entitled "Breach of Warranty/Failure to
Disclose Hidden Conditions on the Project Plans and Specifications." Atlas alleged the
District breached the subject contract by failing to pay additional costs that Atlas incurred
as a result of unforeseen differing site conditions. In the breach of warranty cause of
action, Atlas alleged that the contract specifications furnished by the District mislead
Atlas into believing "there would be no . . . unforeseen differing site conditions, or
changes in the scope of work."
Atlas also alleged a third cause of action for negligent misrepresentation and a
fourth cause of action for negligence against Nolte. In the third cause of action Atlas
alleged that Nolte "through its plans, misrepresented the condition of the soil beneath the
work of improvement[,]" and also provided "an inaccurate plan profile
that . . . inaccurately depicts existing utility depths which are much shallower [than] are
shown on the plan profile." In the fourth cause of action Atlas alleged that Nolte
"negligently and carelessly oversaw, managed, directed and advised [Atlas], and
negligently researched, developed, and drafted the plans, specifications, drawings and
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design documents for the project in several respects, including but not limited to, failing
to disclose the subsurface condition of the soil where the project was to be performed."
Atlas again alleged that Nolte "inaccurately depicted existing utility depths which were
much shallower [than] are shown on the plan profile." Under each of its four causes of
action, Atlas sought damages in the amount of $519,957.09 plus statutory interest and
penalties.
After a jury had been selected, the parties agreed to waive jury and try the case to
the court. At the close of Atlas's case-in-chief, Nolte filed a motion for judgment under
Code of Civil Procedure section 631.8. The court granted the motion and entered
judgment in favor of Nolte. Regarding Atlas's negligence cause of action, the court
found that Nolte did not owe a duty of care to Atlas and, consequently, there was no
breach of duty. Regarding the negligent misrepresentation cause of action, the court
found that Nolte did not make any misrepresentations.
The trial continued against the District. After the close of evidence, counsel for
Atlas and the District each submitted a proposed statement of decision at the court's
request. The court adopted and filed the District's proposed statement as its own
statement of decision and entered a judgment in favor of the District incorporating the
statement of decision. Regarding Atlas's cause of action for breach of contract, the court
found the District fully compensated Atlas for its claim of differing site conditions in
compliance with the terms of the contract and section 7104, and that the claimed differing
site conditions did not delay or impact the contract completion date and Atlas's project
schedules. Regarding Atlas's cause of action for breach of the implied warranty of the
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plans and specifications, the court found that Atlas did not rely on misinformation
regarding the subsoil conditions and that the conditions Atlas encountered were not
materially different from what the District represented in the special conditions section of
the contract. The court also found that the plans, specifications, and other information
the District provided put Atlas on notice to investigate further and did not mislead Atlas.
Atlas filed this appeal after unsuccessfully moving for a new trial as to both the District
and Nolte.
DISCUSSION
I. Sufficiency of the Evidence To Support the Judgment as to Atlas's Cause of Action for Breach of Warranty
Atlas contends the judgment should be reversed as to its cause of action against
the District for breach of implied warranty of the plans and specifications because there is
insufficient evidence to support the court's finding that Atlas did not rely on
misinformation regarding subsoil conditions on the project site. Atlas also contends the
court committed legal error in finding Atlas was on notice to further investigate subsoil
conditions on the project site.
Under the well-established standard of review applicable to a claim that a
judgment or finding is not supported by the evidence in the record, "we must consider all
of the evidence in the light most favorable to the prevailing party, giving it the benefit of
every reasonable inference, and resolving conflicts in support of the judgment.
[Citations.] [¶] It is not our task to weigh conflicts and disputes in the evidence; that is
the province of the trier of fact. Our authority begins and ends with a determination as to
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whether, on the entire record, there is any substantial evidence, contradicted or
uncontradicted, in support of the judgment. Even in cases where the evidence is
undisputed or uncontradicted, if two or more different inferences can reasonably be
drawn from the evidence this court is without power to substitute its own inferences or
deductions for those of the trier of fact, which must resolve such conflicting inferences in
the absence of a rule of law specifying the inference to be drawn. We must accept as true
all evidence and all reasonable inferences from the evidence tending to establish the
correctness of the trial court's findings and decision, resolving every conflict in favor of
the judgment." (Howard v. Owens Corning (1999) 72 Cal.App.4th 621, 630-631, italics
omitted.) " 'The substantial evidence [standard of review] applies to both express and
implied findings of fact made by the superior court in its statement of decision rendered
after a nonjury trial.' " (Cahill v. San Diego Gas & Electric Co. (2011) 194 Cal.App.4th
939, 958.)
We conclude there is sufficient evidence to support the court's finding that Atlas
did not rely on misinformation regarding subsoil conditions on the project site. The
gravamen of Atlas's breach of warranty claim is that it is entitled extra compensation for
the damages it suffered as a result of the District failure to disclose the existence of
stadium conglomerate on the project site. As a general rule, "a contractor that has agreed
to a particular performance at a specified price may not avoid its contractual obligations
or seek additional compensation for performing them because unanticipated difficulties
are encountered." (Los Angeles Unified School Dist. v. Great American Ins. Co. (2010)
49 Cal.4th 739, 747-748 (Los Angeles Unified).) However, under certain circumstances,
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" '[a] contractor of public works who, acting reasonably, is misled by incorrect plans and
specifications issued by the public authorities as the basis for bids and who, as a result,
submits a bid which is lower than he would have otherwise made may recover in a
contract action for extra work or expenses necessitated by the conditions being other than
as represented.' " (Id. at p. 748.) "The crucial question is . . . one of justified reliance. If
the agency makes a 'positive and material representation as to a condition presumably
within the knowledge of the government, and upon which . . . the [contractor] had a right
to rely,' the agency is deemed to have warranted such facts . . . . [Citation.] But if
statements 'honestly made' may be considered as 'suggestive only,' expenses caused by
unforeseen conditions will be placed on the contractor . . . ." (Wunderlich v. State of
California (1967) 65 Cal.2d 777, 783 (Wunderlich); Los Angeles Unified, supra, 49
Cal.4th at p. 755 (dis. opn. of Corrigan, J.) [noting the Wunderlich court held that a
contractor cannot rely on a public entity's honest statements relating to the property's
condition that are suggestive only].)
In Los Angeles Unified the California Supreme Court clarified the circumstances
under which a contractor can recover damages from a public entity for failure to disclose
facts that would affect the contractor's bid or performance. The Supreme Court held that
"a contractor on a public works contract may be entitled to relief for a public entity's
nondisclosure in the following limited circumstances: (1) the contractor submitted its bid
or undertook to perform without material information that affected performance costs; (2)
the public entity was in possession of the information and was aware the contractor had
no knowledge of, nor any reason to obtain, such information; (3) any contract
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specifications or other information furnished by the public entity to the contractor misled
the contractor or did not put it on notice to inquire; and (4) the public entity failed to
provide the relevant information. The circumstances affecting recovery may include, but
are not limited to, positive warranties or disclaimers made by either party, the
information provided by the plans and specifications and related documents, the difficulty
of detecting the condition in question, any time constraints the public entity imposed on
proposed bidders, and any unwarranted assumptions made by the contractor. The public
entity may not be held liable for failing to disclose information a reasonable contractor in
like circumstances would or should have discovered on its own, but may be found liable
when the totality of the circumstances is such that the public entity knows, or has reason
to know, a responsible contractor acting diligently would be unlikely to discover the
condition that materially increased the cost of performance." (Los Angeles Unified,
supra, 49 Cal.4th at pp. 753-754.) The trial court in the present case found that Atlas did
not satisfy the "elements established in [Los Angeles Unified]."
The evidence supports the court's finding that the first circumstance or "element"
articulated in Los Angeles Unified is not satisfied—i.e., that Atlas did not submit its bid
or undertake performance without material information that affected its performance
costs. Section HH informed Atlas that geotechnical investigation for improvements
surrounding the project cite had described "the underlying soils as sandy clay over highly
cemented gravel and cobble conglomerate (Linda Vista Formation). Trenching into the
Linda Vista Formation will be difficult and may require heavy equipment." The court
could reasonably view section HH as providing material information about the subsurface
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conditions even though it did not specifically refer to stadium conglomerate. As the court
noted in its statement of decision, the District's geotechnical expert Mark Cuthbert
testified that the Linda Vista Formation is the same geological formation and material as
stadium conglomerate. Cuthbert testified that he did not believe the material Atlas
encountered on the site was an "unforeseen differing site condition." He stated that "[t]he
difference between [the Linda Vista Formation and stadium conglomerate] is
predominantly their age. They are made of essentially the same materials. The degree of
cementation is almost the same. The . . . challenge in working in them is certainly the
same."5 Cuthbert further testified that section HH's warning that trenching into the Linda
Vista Formation might be difficult and require heavy equipment meant that "there's going
to have to be some extraordinary effort made to excavate into this material. And this was
the specification's way of trying to bring that to the attention of those who are going to do
the work." Cuthbert's testimony supports the court's finding that Atlas was not misled by
5 Cuthbert elaborated that "the materials that the [Linda Vista Formation] was created from were derived from the Stadium Conglomerate. So we've got virtually the same type of rock. We've got much of the same matrix in between those . . . —cobbles and that gravel and varying degrees of cementation. There are some places where it's much more loose. And then at the very, very surface of the [Linda Vista Formation], it tends to by more [claylike] material because it's weathered." He also testified that the material Atlas encountered did not qualify as "rock," which the contract defined as "any material which cannot be excavated with a track mounted 235 Caterpillar backhoe with a narrow bucket, and teeth, and requires the use of special buckets, rock teeth, jack- hammering, blasting and/or other special methods of excavation." Noting that Atlas used a 20,000 pound rubber-tire backhoe and a 40,000 pound track hoe with a breaker bar, Cuthbert testified that a 235 Caterpillar backhoe weighs 80,000 pounds, and that "no piece of equipment, to my knowledge, was ever utilized on this site for the excavations that even came to barely half that."
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section HH because the information in section HH was true. As the court noted, "[Atlas]
did not bid this job on information it accepted as true, which later turned out to be false.
Special Condition [Section] HH is not false." Section HH is properly characterized as an
"honestly made" and "suggestive only" representation about the soils conditions.
Accordingly, the court properly placed the expenses caused by the unforeseen condition
of the stadium conglomerate on Atlas. (Wunderlich, supra, 65 Cal.2d at p. 783.)
The court also reasonably found that second and third circumstances articulated in
Los Angeles Unified were not present—i.e., the evidence did not show that the District
was in possession of material information and was aware that Atlas had no knowledge of,
nor any reason to obtain, the information, and that contract specifications or other
information that the District furnished misled Atlas or did not put it on notice to inquire.
Although there was evidence that the District was aware of the presence of stadium
conglomerate from geotechnical investigations for other projects on the campus, there is
no evidence that the District was aware that Atlas would encounter stadium conglomerate
in the specific areas where it was required to trench. When Atlas first reported that it was
having difficulty trenching through the stadium conglomerate, the District's inspector,
San Filippo, informed Sensabaugh that elevations of stadium conglomerate varied across
the site. A geotechnical report prepared for an earlier project on the campus noted that
although geologic maps show that the Linda Vista Formation is underlain by stadium
conglomerate, the test borings performed for the project did not encounter any stadium
conglomerate. Thus, the evidence did not establish that the District was in possession of
information that Atlas was certain to encounter stadium conglomerate in performing the
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excavation for the project. As the trial court noted in its statement of decision, "In
section HH, the District made no quantitative representation, such as boring logs or blow
counts, of either the hardness of the soil or the level of difficulty of excavation that would
be encountered constructing the Project."
In any event, the evidence does not show the District was aware that Atlas had no
knowledge or any reason to obtain information about the subsoil conditions on the site.
Rather, the evidence sufficiently supports the court's findings that the District did not
mislead Atlas (because section HH is true) and that section HH "and other information
provided by the District put [Atlas] on notice to investigate further." Melissa Siciliani
attended a pre-bid walk-through of the site on behalf of Atlas and took photographs of the
site and noted that the ground was hard and there was no soils report for the project.
Regarding the statement in section HH indicating its description of the underlying soils
was based on "geotechnical investigation for the surrounding improvements," Cuthbert
testified that the statement "indicates . . . there are other geotechnical investigations that
were provided for the structures in the . . . Miramar area . . . that they drew from to create
this representation of the geotechnical conditions." For example, a 2006 geotechnical
report for a project to construct a new library showed that stadium conglomerate was "the
underlying geologic unit at the bottom of all ten exploratory test pits excavated at the
Site." The report stated: "The Stadium Conglomerate constitutes bedrock at the site. . . .
[R]ocks of the Stadium Conglomerate Formation underlay not only the Site but the
general vicinity. In general, the Stadium Conglomerate is characterized for its massive
nature and scarcity of bedding." The court reasonably found that Atlas "had every reason
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to obtain this information since [Atlas] was based outside San Diego County and had
never worked at Miramar College."
Even assuming section HH was misleading because it did not expressly reference
stadium conglomerate, we conclude the court properly rejected Atlas's breach of warranty
claim because substantial evidence supports its finding that Atlas did not rely on section
HH in preparing its bid. Sensabaugh testified that he had read section HH and was aware
there was no soils report for the project. He further testified that there are no soils reports
for about 50 percent of the projects for which he prepares bids, and that whether or not
there is a soils report, "we go through the same mechanical process to bid the job."
Despite section HH's warning that the excavation work for the project would be difficult
and might require heavy equipment, Atlas prepared its bid based on its lowest manhour
coefficient for excavation work. Further, the court noted that Atlas "did not include any
heavy equipment in its base bid as the line item for 'excavators' was left blank." The
court also noted that "[a]t the pre-bid meeting, [Atlas] was provided the phone number
and names of the Construction Manager and District Architect, yet never made any
inquiries related to soil conditions and did not submit any questions whatsoever before
submitting its bid." This evidence sufficiently supports the court's finding that Atlas "did
not rely on section HH or information provided at the pre-bid walk through when it bid
[on the project]."
Further, the Supreme Court in Los Angeles Unified clarified that although "section
1104 prohibits public entities from requiring bidders to assume responsibility for the
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completeness and accuracy of architectural or engineering plans and specifications,[6]
public entities retain the power to contractually disclaim responsibility for assumptions a
contractor might draw from the presence or absence of information. As [the Wunderlich
court explained]: 'It is obvious that a governmental agency should not be put in the
position of encouraging careless bidding by contractors who might anticipate that should
conditions differ from optimistic expectations reflected in the bidding, the government
will bear the costs of the bidder's error. . . . When there is no misrepresentation of factual
matters within the state's knowledge or withholding of material information, and when
both parties have equal access to information as to the nature of the tests which resulted
in the state's findings, the contractor may not claim in the face of a pertinent disclaimer
that the presentation of the information, or a reasonable summary thereof, amounts to a
warranty of the conditions that will actually be found.' " (Los Angeles Unified, supra, at
p. 752, quoting Wunderlich, supra, 65 Cal.2d at pp. 786–787.)
Here, the District did not misrepresent factual matters through section HH or
otherwise, or withhold material information, and Atlas was not denied access to
information about the presence of stadium conglomerate in the project area before
6 Section 1104 provides: "No local public entity, charter city, or charter county shall require a bidder to assume responsibility for the completeness and accuracy of architectural or engineering plans and specifications on public works projects, except on clearly designated design build projects. Nothing in this section shall be construed to prohibit a local public entity, charter city, or charter county from requiring a bidder to review architectural or engineering plans and specifications prior to submission of a bid, and report any errors and omissions noted by the contractor to the architect or owner. The review by the contractor shall be confined to the contractor's capacity as a contractor, and not as a licensed design professional."
20
submitting its bid. Consequently, the District's relevant disclaimers in the contract are
circumstances that weigh against Atlas's recovery for unforeseen circumstances. (Los
Angeles Unified, supra, 49 Cal.4th at p. 754 [The circumstances affecting a contractor's
right to recovery for unforeseen conditions may include disclaimers made by either
party.].)
The "Information For Bidders" section of the contract includes the statement that
"[e]ach bidder shall visit the site of the proposed work and fully acquaint himself with the
conditions relating to the construction and labor so that he may fully understand the
facilities, difficulties, and restrictions attending to the execution of the work under the
contract. . . . The failure or omission of any bidder . . . to visit the site and acquaint
himself with conditions there existing shall in no way relieve any bidder from obligations
with respect to his bid or the contract."
Article 60 entitled "SOILS INVESTIGATION REPORT" provides that when
there is a soils report, "[a]ny information obtained from such report or any information
given on drawings as to subsurface soil condition or to elevations of existing grades or
elevations of underlying rock is approximate only, is not guaranteed, and does not form a
part of the contract. Contractor is required to make a visual examination of [the] site and
must make whatever tests he deems appropriate to determine the underground condition
of the soil." Article 60 further states that "no representation is made by District or
Architect that information provided is solely adequate for purposes of construction.
District disclaims responsibility for interpretations by Contractor of soil and subsurface
21
investigation information, such as in protecting soil-bearing values, rock profiles,
presence and scope of boulders and cobbles . . . ."
Section K of the contract's special conditions provides, in relevant part: "Before
submitting a proposal, each bidder will be held to have examined the premises and
satisfied himself as to the existing conditions under which he will be obliged to operate,
or that will in any way affect work under this contract. No allowance shall be made
subsequently in this connection on behalf of Contractor for any error or negligence on
this part."
Under Los Angeles Unified, Atlas may not claim in the face of these disclaimers
that the information the District provided in section HH and pre-bid communications
amounted to a warranty of the conditions Atlas would actually encounter. (Los Angeles
Unified, supra, 49 Cal.4th at p. 752.) The disclaimers in the subject contract further
support the trial court's decision that the District is not liable for breach of implied
warranty of the plans and specifications.
II. Sufficiency of the Evidence To Support the Judgment as to Atlas's Cause of Action for Breach of Contract
Atlas contends the judgment should be reversed as to its cause of action against
the District for breach of contract because there is insufficient evidence to support the
findings in the court's statement of decision that Atlas was fully compensated under the
contract for its claim of differing site conditions and that the contract completion date
was not delayed or impacted by the differing site conditions.
22
Compensation for differing site conditions
Although the District did not breach the implied warranty of plans and
specifications in failing to disclose the existence of stadium conglomerate in the project
area, it accepted Atlas's claim that the stadium conglomerate constituted a differing site
condition that entitled Atlas to additional compensation. The issue Atlas raises in this
appeal is whether substantial evidence supports the court's finding that the additional
compensation that the District paid on a time and material basis satisfied the District's
obligations under the contract. We conclude there was sufficient evidence to support that
finding.
As noted in our statement of facts, when Atlas encountered the stadium
conglomerate, it advised the District that it intended to use a breaker attachment with its
24,000 pound backhoe and would view doing so as extra work that it could perform on a
time and material basis. The District agreed to compensate Atlas for the extra work on a
time and material basis and at various times approved time and material tickets for use of
a backhoe with a 1,200 pound the breaker attachment, a 40,000 pound excavator with a
4,000 pound breaker attachment, and a 26,000 pound excavator with a 1,200 pound
breaker attachment. Based on all of the approved time and material tickets, the District
unilaterally issued Change Order No. 7, which increased the contract time by seven days
and provided additional compensation to Atlas in the amount of $30,277.38 for the
differing site conditions, including $3,000.46 for "overhead, profit, supervision, [and]
bond fees." The trial court found the District fully compensated Atlas for its claim of
differing site conditions in compliance with the terms of the contract, ruling that "Change
23
Order No. 7 was issued in accordance with the contract and was consistent with [section
7104, subdivision (b)]." Atlas essentially argues this ruling is erroneous because Atlas
never agreed to the amount the District paid it as additional compensation.
The District's additional compensation complied with article 40 of the contract,
which addresses compensation for extra work performed by the contractor as a result of
unforeseen conditions. Article 40 provides that when the contractor notifies the District
of unforeseen conditions, the "[v]alue of any such extra work . . . shall be determined at
the discretion of [the] District in one or more of the following ways: [¶] 1. By acceptable
lump sum proposal from Contractor with itemization as required by the District. [¶] 2. By
unit prices contained in Contractor's original bid and incorporated in contract documents
or fixed by subsequent agreement between District and Contractor. [¶] 3. By the cost of
material and labor and a percentage for overhead and profit."7 The District, with Atlas's
agreement, used the third method of compensating Atlas for extra work—i.e., it
compensated Atlas on a time and materials basis with a percentage for overhead and
profit. The fact that it did so through a unilateral change order because Atlas disputed its
determination of the value of the extra work does not constitute a breach of contract. The
7 Section g of article 40 provided: "In the event a mutual agreement cannot be reached on the cost of a change order, Contractor and District agree that an industry estimating guide, such as an estimating guide published by Means, shall be used to determine the cost of a disputed change order item." This provision is not at issue because Atlas does not dispute the cost of any particular item for which the District provided compensation; it disputes the District's refusal to provide compensation for certain other items, such as loss of production, extra housing for crews, and certain extra equipment and labor costs. Atlas has not claimed that the District failed to comply with section g.
24
evidence sufficiently supports the trial court's finding that the District "fully complied
with the terms of the Contract . . . relative to payment for differing site conditions."
In addition to arguing that the court erred in finding the District fully compensated
it under the contract for its claim of differing site conditions, Atlas contends the court
violated sections 7102, 7104 and 7105, subdivision (d)(2) by letting the District
unilaterally determine the amount of its damages. Section 7104 provides, in relevant
part: "Any public works contract of a local public entity which involves digging trenches
or other excavations that extend deeper than four feet below the surface shall contain a
clause which provides the following: [¶] (a) That the contractor shall promptly, and
before the following conditions are disturbed, notify the local public entity, in writing, of
any: [¶] . . . [¶] (2) Subsurface or latent physical conditions at the site differing from
those indicated by information about the site made available to bidders prior to the
deadline for submitting bids. [¶] (3) Unknown physical conditions at the site of any
unusual nature, different materially from those ordinarily encountered and generally
recognized as inherent in work of the character provided for in the contract. [¶] (b) That
the local public entity shall promptly investigate the conditions, and if it finds that the
conditions do materially so differ . . . and cause a decrease or increase in the contractor's
cost of, or the time required for, performance of any part of the work shall issue a change
order under the procedures described in the contract. [¶] (c) That, in the event that a
dispute arises between the local public entity and the contractor whether the conditions
materially differ, or involve hazardous waste, or cause a decrease or increase in the
contractor's cost of, or time required for, performance of any part of the work, the
25
contractor shall not be excused from any scheduled completion date provided for by the
contract, but shall proceed with all work to be performed under the contract. The
contractor shall retain any and all rights provided either by contract or by law which
pertain to the resolution of disputes and protests between the contracting parties."
Article 68 of the District's contract with Atlas complied with section 7104 by
setting forth all of the language required by that statute. Atlas's disagreement with the
amount the District paid for extra work through its unilateral change order does not
establish a violation of section 7104. Although, as we discussed, the District is not liable
in contract for failing to specifically inform Atlas about stadium conglomerate, the
District nevertheless acknowledged that the stadium conglomerate required extra work
and issued a change order providing compensation for the extra work in accordance with
article 40 of the contract and section 7104. Nothing in section 7104 required the District
to compensate Atlas for differing site conditions in the full amount Atlas demanded. The
statute simply provides that in the event of a dispute, the contractor retains any and all
rights provided either by contract or by law pertaining to the resolution of such disputes –
i.e., the contractor has the right to pursue any legal remedies to which it may be entitled
by, among other things, pursuing litigation, as Atlas did in this case. The District did not
violate section 7104 by unilaterally determining the amount of extra compensation based
on the time and material tickets it approved.
Atlas's argument that the court violated section 7102 by ruling that the District
fully compensated Atlas for unforeseen site conditions is unclear. Section 7102 provides:
"Contract provisions in construction contracts of public agencies and subcontracts
26
thereunder which limit the contractee's liability to an extension of time for delay for
which the contractee is responsible and which delay is unreasonable under the
circumstances involved, and not within the contemplation of the parties, shall not be
construed to preclude the recovery of damages by the contractor or subcontractor. [¶] No
public agency may require the waiver, alteration, or limitation of the applicability of this
section. Any such waiver, alteration, or limitation is void. This section shall not be
construed to void any provision in a construction contract which requires notice of
delays, provides for arbitration or other procedure for settlement, or provides for
liquidated damages."
Atlas cites Howard Contracting, Inc. v. G. A. MacDonald Construction Co. (1998)
71 Cal.App.4th 38 for the proposition that section 7102 permits a contractor to recover
delay damages from a public agency even if the parties' contract contains a "no damage
for delay" provision. (Howard, at p. 49.) The contract between the District and Atlas
includes a no-damage-for-delay provision that comports with section 7102.8 The
contract also includes a provision regarding early completion that is not within the scope
of section 7102. Article 6(a) of the contract provides, in relevant part: "The District is
under no obligation to consider early completion of the project and the contract
completion date shall not be amended by the District's acceptance of the Contractor's
8 Article 6(d) of the contract provides: "District's liability to Contractor for delays for which District is responsible shall be limited to an extension of time for delays unless such delays were unreasonable under the circumstances involved and were not within the contemplation of the parties when the contract was awarded."
27
proposed earlier completion date. Furthermore, Contractor shall not, under any
circumstances receive any additional compensation from the District for indirect, general,
administrative or other forms of overhead costs for the period between the time of earlier
completion proposed by the Contractor and the official contract completion date. . . .
Regardless of the time lines in the schedule submitted by Contractor, no delay claims
shall be accepted by the District unless the event or occurrence delays the completion of
the Project beyond the contractual completion date."9 (Italics added.) This provision
does not limit the District's liability for delay to an extension of time to complete the
contract in contravention of section 7102; it limits the District's liability for delay to
events or occurrences that delayed the completion of the project beyond the contract
completion date. Although the court noted article 6(a) in a footnote in its statement of
decision, it did not expressly base any part of its ruling on that provision. However, to
the extent the court's ruling was based on article 6(a), it did not violate section 7102.
Atlas's contention that the court's decision violated section 7105, subdivision
(d)(2) is also unclear. Section 7105, subdivision (d)(2) provides, in part: "Contracts of
public agencies, excluding the state, required to be let or awarded on the basis of
competitive bids pursuant to any statute may be terminated, amended, or modified only if
the termination, amendment, or modification is so provided in the contract or is
authorized under provision of law other than this subdivision. The compensation
9 The last sentence of this clause is repeated in a later section concerning time extensions. Atlas does not cite this limitation on delay claims in arguing that the court's decision violated section 7102.
28
payable, if any, for amendments and modifications shall be determined as provided in the
contract. The compensation payable, if any, in the event the contract is so terminated
shall be determined as provided in the contract or applicable statutory provision
providing for the termination."
As with sections 7104 and 7102, the extent of Atlas's argument that the court's
decision violated section 7105, subdivision (d)(2) is to quote the statute and assert that
the court violated it "by letting the District unilaterally determine the amount of [Atlas's]
damages." How Atlas views that aspect of the court's decision as violating section 7105
is unclear. It may be that Atlas views the District's unilateral determination of Atlas's
compensation for differing site conditions as violating the requirement that compensation
for contract amendments and modifications be determined as provided in the contract. (§
7105, subd. (d)(2).) However, as we discussed, ante, the District's compensation for
differing site conditions complied with the contract notwithstanding the fact that Atlas
disputed the amount. The court's decision did not violate section 7105, subdivision
(d)(2).
Contract completion date
The evidence sufficiently supports the court's finding that the contract completion
date was not delayed or impacted by the differing site conditions. As we noted in our
statement of facts, the contract originally provided that the work was to be completed
within 160 days with the initial completion date being November 8, 2009. The initial
baseline schedule that Atlas submitted to the District, as required by the contract,
specified the completion date as November 8, 2009, and the completion date of the final
29
pipeline alignment as October 1, 2009. On July 27, 2009, Atlas submitted an updated
schedule that showed the project was ahead of schedule and identified the completion
date as November 3, 2009. On October 6, 2009, Atlas submitted a second updated
schedule showing that backfilling for all three phases of the project was completed as of
September 30 and that the entire project would be completed on November 11. Although
Atlas claims that it intended to complete the project in 55 days, it never informed the
District of that intent during its work on the project.
Various change orders, including Change Order No. 7, extended the contract
completion date to November 19, 2009, and the District recorded a notice of completion
identifying the completion date as November 20, 2009. Thus, the project was completed
within one day of the contract completion date. Although Atlas's encountering stadium
conglomerate may have required it take more time to complete the project than it initially
anticipated, the delay it caused was not actionable. As we discussed, ante, the contract
included a provision limiting the District's liability for delay to events or occurrences that
delayed the completion of the project beyond the contract completion date and which
provision did not violate section 7102.
Atlas contends the trial court's finding Atlas was not delayed on the project is
contrary to the holding in Maurice L. Bein v. Housing Authority of the City of Los
Angeles (1958) 157 Cal.App.2d 670 (Bein). In Bein, a contract between a public entity
(Housing Authority) and contractor provided that the contractor could complete the
project in 390 days, but the court found that the contractor could have completed the
project in 276 days but for delays caused by the Housing Authority. (Id. at p. 677.)
30
Accordingly, the trial court awarded the contractor damages for a delay of 378 days past
the 276th day on which the contractor could have completed the project. The Housing
Authority argued that those damages were excessive and should have been calculated
based on 390 days (the time the contract allowed for performance) rather than 276 days.
(Id. at pp. 688-689.) The Court of Appeal rejected that argument, reasoning that "[t]he
390 days fixed in the contract was not an estimate of the time in which [the contractor]
would actually complete the project; it simply required completion within no more than
390 days." (Id. at p. 689.)
Bein is distinguishable from the present case. In Bein the contractor prepared, and
the Housing Authority approved, a progress schedule showing the contractor intended to
complete the work in 257 days, and the trial court found the progress schedule "was a
reasonable and accurate schedule of the time required for the completion of the work
shown therein, and that [the contractor] would have substantially complied with it had it
not been for the delay . . . ." (Bein, supra, 157 Cal.App.2d at p. 677.) In the present case,
Atlas's progress schedules did not reveal its intent to complete the excavation work in 55
days, and there was no finding by the trial court that its undisclosed completion time was
reasonable.
Because Atlas and the District contractually agreed that the project would be
completed in 160 days, the District cannot be held liable for breach of the contract based
on Atlas's inability to complete the project in 55 days. In United States v. Blair (1944)
321 U.S. 730, a general contractor similarly sought to hold the United States government
liable for delay in performing a contract to construct a federal building. The contract
31
allowed the contractor 420 days to complete the project, but the contractor planned to
complete the work in 314 days. The contractor was able to complete the project within
the 420 days provided by the contract, but was unable to complete the work in 314 days
because of a subcontractor's delay in performing plumbing, heating, and electrical work.
(Id. at pp. 731-732.) The trial court awarded the contractor damages based on its finding
that the government unreasonably delayed the general contractor for three and one-half
months by not promptly terminating the subcontractor's right to proceed. (Id. at pp. 732-
733.) The Supreme Court reversed the award of delay damages on the ground the
government was not contractually obligated to aid the contractor in completing his
contract before the agreed completion date. (Id. at p. 733.) Regarding the contractor's
undisclosed intent to complete the project in 314 days, the Supreme Court stated: "Nor is
there anything in the context of the contract to lead us to believe that the parties meant
more than they said, or that the contract implies something that was not expressed. The
Government and [general contractor] covenanted that the construction work would be
completed within 420 days; [the subcontractor's] contract was grounded on this same
time estimate. They cannot be said to have executed these contracts in contemplation of
the then unrevealed intention of respondent to complete his work three and one-half
months early. The fact that [the general contractor] subsequently gave notice of this
intention to all the other parties concerned could not give rise to a new obligation on the
Government to compel accelerated performance from [the subcontractor]. [¶] [The
general contractor] had the undoubted right to finish his construction work in less time
than the stipulated 420 days, but he could not be forced to do so under the terms of the
32
contract. To hold that he can exact damages from the Government for failing to
cooperate fully in changing the contract by shortening the time provisions would be to
imply a grossly unequal obligation. We cannot sanction such liability without more
explicit language in the contract." (Id. at pp. 733-734.)
The same principle applies here. The District did not enter into the subject
contract in contemplation of Atlas's undisclosed intent to complete the project in 55 days.
Atlas had the right to finish the contract in less time than the agreed 160 days, but the
District could not force Atlas to finish early. Conversely, the District cannot be held
liable for Atlas's failure to meet an undisclosed early completion date to which the
District did not agree. The court correctly ruled that "[t]he District did not breach the
contract . . . on the basis of an owner caused delay."
Because we have concluded that the District has no liability to Atlas, we need not
address Atlas's contentions concerning the proper method of calculating damages. (See
People ex rel. Department of Transportation v. McNamara (2013) 218 Cal.App.4th 1200,
1209, fn. 4 [having determined governmental entity was not liable for precondemnation
damages awarded by the trial court in an eminent domain case, it was unnecessary for the
appellate court to address governmental entity's challenge to the amount of such
plaintiffs were not entitled to any damages for defendants' breach of contract, it was
unnecessary for appellate court to consider whether the trial court erred in failing to
award interest from date of breach].)
33
III. Sufficiency of the Evidence To Support the Judgment in Favor of Nolte
Atlas contends that the evidence does not support the trial court's entry of
judgment in favor of Nolte under Code of Civil Procedure section 631.8. The court's
minute order granting Nolte's motion for judgment under that statute states: "The Court
finds that Nolte had no part in drafting section HH, and finds that [Atlas] has failed to
meet [its] burden of proof on negligence and negligent misrepresentation due to lack of
foreseeability and duty. The Court bases [its] finding [of] fact on the credibility of
witness testimony, particularly of witness Julian Palacios[,] whose testimony was found
to be very credible. The Court finds that both causes of action have not been proven, and
orders that a directed verdict as to defendant Nolte be entered."10 Atlas argues there is
substantial evidence in the record to establish that Nolte is liable for negligence and
negligent misrepresentation even though Nolte did not prepare section HH.
"The purpose of a motion for judgment is to allow the trial court to dispense with
the need for a defendant to produce evidence when, after weighing the evidence at the
close of the plaintiff's case, it is persuaded that the plaintiff has failed to sustain its burden
of proof. [Citation.] In weighing the evidence on a motion for judgment at the close of
the plaintiff's case, the trial court may exercise its prerogatives as a fact finder by refusing
to believe witnesses and by drawing conclusions at odds with expert opinion. [Citations.]
10 We view the court's reference to a "directed verdict," which does not apply in a court trial, as inadvertent error. The minute order earlier notes the court was ruling on a "motion for judgment," and the judgment in favor of Nolte states that the court granted Nolte's "Motion for Judgment pursuant to California Code of Civil Procedure [s]ection 631.8 . . . ." 34
"In reviewing a judgment granted in favor of defendant after the plaintiff has
completed its presentation of evidence in a court trial, the evidence is viewed most
favorably to the defendant and the judgment must be supported by substantial evidence.
[Citation.] The function of the reviewing court is to determine whether the judgment is
supported by any competent and substantial evidence. [Citations.] The trial court's
findings in granting a motion for judgment are entitled to the same respect on appeal as
any other findings and are not reversible if supported by substantial evidence. [Citation.]
When two or more inferences can be reasonably deduced from the evidence, the
reviewing court is without power to substitute its deduction for [that] of the trial court."
(Kirk Corp. v. First American Title Co. (1990) 220 Cal.App.3d 785, 806.)
Cause of action for negligence
As noted, the court entered judgment on Atlas's cause of action for negligence
against Nolte based on its determination that Nolte did not owe a duty of care to Atlas
and, consequently, there was no breach of duty. We review the trial court's determination
on the existence of a duty de novo as a question of law. (Mendoza v. City of Los Angeles
(1998) 66 Cal.App.4th 1333, 1339.) The court stated during oral argument on the motion
that its finding of no duty was based on Weseloh Family Ltd. Partnership v. K.L. Wessel
Const. Co., Inc. (2004) 125 Cal.App.4th 152 (Weseloh).
In Weseloh a property owner and related entities contracted with a general
contractor to construct automobile dealership facilities on the owner's property. After a
portion of the retaining walls constructed for the dealership failed, the property owner
and general contractor (plaintiffs) brought a negligence action against the design
35
engineers (defendants) who designed the retaining walls. (Weseloh, supra, 125
Cal.App.4th. at p. 158.) The defendants contracted to do the design work with the
subcontractor that built the retaining walls; they did not contract with the property owner
or general contractor and did not have a role in the actual construction of the walls. (Id.
at pp. 159-160.) The trial court granted the defendants' motion for summary judgment on
the ground they did not owe a duty to the plaintiffs as a matter of law. (Id. at p. 161.)
The Weseloh court affirmed the judgment. (Weseloh, supra, 125 Cal.App.4th. at
p. 176.) The court noted that whether a defendant owes a plaintiff a duty of care is a
question of law to be resolved by the court and is the threshold element and essential
prerequisite of a negligence cause of action. (Id. at p. 163.) The Weseloh court further
noted that the California Supreme Court in Bily v. Arthur Young & Co. (1992) 3 Cal.4th
" 'employed a checklist of factors to consider in assessing legal duty in the absence of
privity of contract between a plaintiff and a defendant. . . . "The determination whether
in a specific case the defendant will be held liable to a third person not in privity is a
matter of policy and involves the balancing of various factors, among which are [1] the
extent to which the transaction was intended to affect the plaintiff, [2] the foreseeability
of harm to [plaintiff], [3] the degree of certainty that the plaintiff suffered injury, [4] the
closeness of the connection between the defendant's conduct and the injury suffered, [5]
the moral blame attached to the defendant's conduct, and [6] the policy of preventing
future harm." ' " (Weseloh, supra, 125 Cal.App.4th at pp. 164-165, italics added.)
36
The Weseloh court also noted that in Bily, the Supreme Court held that financial
auditors generally do not owe a duty of care to third persons in preparing an independent
audit of a client's financial statements. (Weseloh, supra, 125 Cal.App.4th at p. 165.) The
Bily court based that holding on the Biakanja factors and three additional " 'central
concerns': (1) an auditor exposed to negligence claims from all foreseeable third parties
would face potential liability far out of proportion to its fault; (2) 'the generally more
sophisticated class of plaintiffs in auditor liability cases . . . permits the effective use of
contract rather than tort liability to control and adjust the relevant risks through "private
ordering" '; and (3) 'the asserted advantages of more accurate auditing and more efficient
loss spreading relied upon by those who advocate a pure foreseeability approach are
unlikely to occur.' " (Weseloh, supra, 125 Cal.App.4th at p. 166, citing Bily, supra, 3
Cal.4th at p. 398.) The Weseloh referred to the three concerns stated in Bily as the "Bily
factors." (Weseloh, supra, 125 Cal.App.4th at p. 166.)11
Applying the Biakanja factors, the Weseloh court concluded that "while it was
foreseeable that design defects could cause a retaining wall to fail, the [plaintiffs] failed
to produce any evidence showing (1) [defendants'] design was primarily intended to
affect the [plaintiffs]; (2) the closeness of the [plaintiffs'] injury to [defendants'] conduct;
11 In Adelman v. Associated Internat. Ins. Co. (2001) 90 Cal.App.4th 352, 364, the Court of Appeal referred to the Bily factors as "three policy concerns that had to be considered before a duty could be found under the Biakanja factors: (1) liability may in particular cases be out of proportion to fault, (2) parties should be encouraged to rely on their own ability to protect themselves through their own prudence, diligence and contracting power, and (3) the potential adverse impact on the class of defendants upon whom the duty is imposed."
37
(3) any moral blame implicated by [defendants'] conduct; or (4) how, by imposing
expanded liability on design engineers under similar circumstances, future harm would be
prevented." (Weseloh, supra, 125 Cal.App.4th at pp. 172-173.)
Applying the Bily factors, the Weseloh court concluded that imposing a duty of
care on the defendants "would result in liability out of proportion to fault. With regard to
private ordering, the [plaintiffs] could have required subcontractors to name them as
intended beneficiaries of their subcontracts. The [property owner and dealership]
plaintiffs could also have required subcontractors to name them as additional insureds in
their insurance policies. Neither of these contract alternatives was accomplished here."
(Weseloh, supra, 125 Cal.App.4th at p. 173.) Thus, the Weseloh court concluded that the
defendants did not owe the plaintiffs a duty of care.
Because there was no privity of contract between Atlas and Nolte, the trial court
properly considered Weseloh and its application of the Biakanja and Bily factors.12 We
conclude the court correctly decided that Nolte did not owe Atlas a duty of care.
The first Biakanja factor is the extent to which Nolte's design work was intended
to affect Atlas. Although the contract between the District and Nolte for the design of the
12 In ruling on Nolte's motion for judgment, the trial stated: "I have . . . read and have before me the [Weseloh opinion], which I think is instructive on not only both the elements of negligence of a designing professional as it relates to negligence but also to negligent misrepresentation and lays out the Bily factors in terms of negligence and negligent misrepresentation when the [opinion cites] [Biakanja]." Finding that Nolte had no part in drafting section HH and relying on Weseloh, the court stated: "I do not see how [Atlas] has met its burden of proof on foreseeability and duty as it relates to the professional design of Nolte."
38
fire suppression system incidentally affected Atlas because it resulted in plans and
specifications that Atlas was required to follow in constructing the project, the design
contract was intended to directly benefit the District and the students and employees of
Miramar College, not the contractor retained to construct the system.
The second Biakanja factor is foreseeability of harm to the plaintiff. Assuming
arguendo that Nolte can be held responsible for section HH, the issue here is the extent to
which it was foreseeable that section HH would cause Atlas to underestimate the
difficulty of the trenching work and, consequently, underbid the job. We conclude the
foreseeability of section HH causing Atlas to underbid the job is minimal. As we
discussed, substantial evidence supports the court's finding that Atlas was not misled by
section HH because the information in section HH about the difficulty of trenching
through "highly cemented gravel and cobble conglomerate" and the likelihood that doing
so would "require heavy equipment" was true and put Atlas on inquiry notice to
investigate further. It was not foreseeable that the information in section HH would
cause a contractor to bid the job based on its lowest manhour coefficient for excavation
and a time estimate of 55 days instead of the contract time of 160 days.
The factors of the degree of certainty that Atlas suffered injury and the closeness
of any connection between Nolte's conduct and that injury also weigh against a finding
that Nolte owed Atlas a duty of care. Although Atlas lost money on the project, it did not
suffer a legally compensable injury. In any event, the connection between Atlas's loss
and Nolte's conduct is remote. Nolte did not draft section HH, which Atlas claims it
relied on in bidding the job based on its being able to complete the project in 55 days.
39
Further, Nolte was unaware that Atlas intended to complete the project early and had no
control over Atlas's work on the project.
Regarding the moral blame factor, the Weseloh court noted, " 'when a defendant's
liability rests partially under the control of another party's conduct and the plaintiff is free
to contract with the other party, the defendant's "moral blame" and connection to the
plaintiffs' alleged injury is too remote to justify imposition of a tort duty.' " (Weseloh,
supra, 125 Cal.App.4th at p. 169, quoting Ratcliff Architects v. Vanir Construction
Management, Inc. (2001) 88 Cal.App.4th 595, 606.) Nolte's alleged liability to Atlas
rests largely under the control of the District, which drafted section HH, and Atlas's own
conduct in underbidding the job and the manner in which it performed the work. We find
nothing in the record to support assigning moral blame to Nolte's conduct.
Nor do we find any reason to conclude that imposing liability on Nolte for alleged
deficiencies in specifications it did not draft would prevent future harm. It is well settled
that under appropriate circumstances, when a public works contractor bids too low on a
project as a result of being misled by incorrect plans and specifications issued by a public
agency, the contractor may recover against the public agency " 'in a contract action for
extra work or expenses necessitated by the conditions being other than as represented.' "
(Los Angeles Unified, supra, 49 Cal.4th at p. 748.) Imposing tort liability on design
engineers for incorrect plans and specifications prepared by the public agency is
unnecessary to prevent future harm because the policy of preventing such future harm is
sufficiently met by imposing liability on the public agency responsible for the incorrect
40
plans and specifications. The Biakanja factors support the trial court's determination that
Nolte did not owe Atlas a duty of care.
The Bily factors or "concerns" also support the court's determination that Nolte did
not owe Atlas a duty. Holding Nolte liable to a contractor with whom it was not in
contractual privity for faulty technical specifications prepared and issued by the District
would impose liability out of proportion to fault and would have a potential adverse
impact on design engineers and architects generally as class of defendants. Regarding
private ordering or the parties' reliance "on their own ability to protect themselves
through their own prudence, diligence and contracting power" (Adelman v. Associated
Internat. Ins. Co., supra, 90 Cal.App.4th at p. 364), imposing liability on Nolte under the
circumstances of this case would potentially discourage contractors from protecting
themselves through their own prudence and diligence. As we discussed, ante, the trial
court reasonably found that the statement in section HH indicating its description of the
underlying soils was based on "[g]eotechnical investigations for the surrounding
improvements" put Atlas on notice to investigate further and that Atlas had every reason
to obtain that information because it was based outside San Diego County and had never
worked at Miramar College. The Bily factors further support the trial court's
determination that Nolte did not owe Atlas a duty of care.
At oral argument, Atlas cited the California Supreme Court's recent decision in
Beacon Residential Community Assn. v. Skidmore, Owings & Merrill LLP (July 3, 2014,
S208173) __ Cal.4th ___ [2014 D.A.R. 8787] (Beacon) as supporting the existence of a
duty of care owed by Nolte to Atlas. In Beacon, a homeowners association on behalf of
41
its members sued, among other defendants, two architectural firms over design defects in
the association's homes, including "solar heat gain," which allegedly made the homes
unsafe and uninhabitable during certain periods due to high temperatures. In deciding
that the trial court erroneously sustained the defendant architects' demurrer to the
plaintiff's complaint, the Beacon court held that "an architect owes a duty of care to
future homeowners in the design of a residential building where . . . the architect is a
principal architect on the project – that is, the architect, in providing professional design
services, is not subordinate to other design professionals." (Ibid.)
Beacon is distinguishable from the present case and does not support the
imposition of negligence liability on Nolte in favor of Atlas. Beacon emphasized that the
defendants in that case "were the principal architects on the Project. Among all the
entities involved in the Project, defendants uniquely possessed architectural expertise.
There is no suggestion that the owner or anyone else had special competence or exercised
professional judgment on architectural issues such as adequate ventilation or code-
compliant windows." (Beacon, supra, __ Cal.4th at p. __ [2014 D.A.R. at p. 8792].)
Here, the District's knowledge of the site conditions on the project was superior to
Nolte's, and the District, not Nolte, prepared the technical specifications, including
section HH. Thus, Nolte did not "uniquely possess" knowledge and expertise about soils
conditions on the project site.
The Beacon court explained its holding in large part by contrasting the case before
it with Bily, in which, as noted above, the Supreme Court held that financial auditors
generally do not owe a duty of care to third persons in preparing an independent audit of
42
a client's financial statements. The Beacon court noted that a central concern of the Bily
court was that an " 'auditor exposed to negligence claims from all foreseeable third
parties faces potential liability far out of proportion to its fault . . . .' [Citation.] In
elaborating on this concern, the [Bily] court observed that 'audits are performed in a
client-controlled environment.' " (Beacon, supra, at p. __ [2014 D.A.R. at pp. 8790-
8791].) In contrast, the Beacon court noted that "[a]n architect providing professional
design services to a developer does not operate in a 'client-controlled environment'
comparable to the relationship between an auditor and its client." (Id. at p. __ [2014
D.A.R. at p. 8792].) In the present case, however, the District, as Nolte's client, had far
more control over the plans and specifications than a developer typically has in a
residential construction project like that in Beacon, as underscored by the fact that the
District prepared section HH. Thus, the lack of client control discussed in Beacon is not
present in this case.
The Beacon court cited the following alleged facts as supporting negligence
liability based on the defendants' "principal role" in the design of the subject project:
"[D]efendants not only provided design services at the outset of the Project but also
brought their expertise to bear on the implementation of their plans and specifications by
doing weekly inspections at the construction site, monitoring contractor compliance with
design plans, altering design requirements as issues arose, and advising the owner of any
nonconforming work that should be rejected—all for a fee of more than $5 million. In
other words, defendants applied their specialized skill and professional judgment
throughout the construction process to ensure that it would proceed according to
43
approved designs." (Beacon, supra, __ Cal.4th at p. __ [2014 D.A.R. at p. 8792], italics
added.) Thus, Beacon's imposition of designer liability to third party homebuyers was
based in large part on the substantial control and influence the defendant architects
exercised over the actual construction of the project. Here, Nolte had no control over
Atlas's construction of the project.
The Beacon court also reasoned that the defendants' work was " 'intended to affect
the plaintiff,' and 'the "end and aim" of the transaction was to provide' safe and habitable
residences for future homeowners, a specific, foreseeable, and well-defined class."
(Beacon, supra, __ Cal.4th at p. __ [2014 D.A.R. 8793].) In contrast, as we discussed
above, Nolte's work was not intended to benefit the contractor hired to construct the
project; it was intended to directly benefit the District and the students and employees of
Miramar College.
Regarding the Bily concern of private ordering options, the Beacon court observed
that "[w]hereas '[i]nvestors, creditors, and others who read and rely on audit reports and
financial statements are not the equivalent of ordinary consumers' because 'they often
possess considerable sophistication in analyzing financial information and are aware from
training and experience of the limits of an audit report "product," ' the average
homebuyer is more akin to 'the "presumptively powerless consumer" in product liability
cases.' [Citation.] The typical homebuyer ' "clearly relies on the skill of the developer
and on its implied representation that the house will be erected in reasonably
workmanlike manner and will be reasonably fit for habitation. He has no architect or
other professional adviser of his own, he has no real competency to inspect on his own,
44
his actual examination is, in the nature of things, largely superficial, and his opportunity
for obtaining meaningful protective changes in the conveyancing documents prepared by
the builder vendor is negligible." ' [Citation.] . . . '[T]he usual buyer of a home is ill-
equipped with experience or financial means to discern . . . structural defects." (Beacon,
supra, __ Cal.4th at p. __ [2014 D.A.R. at p. 8793].)
Unlike a "presumptively powerless" homebuyer, who lacks the competency to
inspect on his or her own, Atlas had the power and ability to protect its interests through
its own prudence and diligence, as we discussed above, and it had far more opportunity
than a homebuyer to obtain meaningful protective changes in its contract. Atlas could
have sought clarification from the District or Nolte about the soils conditions or
conducted its own investigation into the soils conditions on and around the project site
before submitting its bid. Instead, Atlas chose to prepare its bid without a soils report—a
practice it followed in 50 percent of its projects.
Finally, the Beacon court noted Bily's recognition that "the sophisticated consumer
of audit reports 'might expend its own resources to verify the client's financial statements
or selected portions of them that were particularly material to its transaction with the
client. Or it might commission its own audit or investigation, thus establishing privity
between itself and an auditor or investigator to whom it could look for protection.
[Citation.] But it is unrealistic to expect homebuyers to take comparable measures."
(Beacon, supra, __ Cal.4th at p. __ [2014 D.A.R. at p. 8793].) A public works
contractor, like a sophisticated consumer of audit reports and unlike a typical homebuyer,
can expend its own resources and undertake its own investigation to protect its interests,
45
including verifying soils conditions and conducting whatever other inquiry it deems
necessary before bidding on a project.
Beacon's reasoning supporting the existence of a duty of care owed by a principal
architect to future homeowners in the design of a residential building does not support the
existence of a duty of care owed by Nolte to Atlas in this case. The court properly
entered judgment in favor of Nolte on Atlas's cause of action for negligence.
Cause of action for negligent misrepresentation
Atlas contends the court erred in entering judgment on Atlas's negligent
misrepresentation cause of action against Nolte on the ground Nolte did not make any
misrepresentations. "The elements of negligent misrepresentation are (1) the
misrepresentation of a past or existing material fact, (2) without reasonable ground for
believing it to be true, (3) with intent to induce another's reliance on the fact
misrepresented, (4) justifiable reliance on the misrepresentation, and (5) resulting
damage. [Citation.] In contrast to fraud, negligent misrepresentation does not require
knowledge of falsity. A defendant who makes false statements ' "honestly believing that
they are true, but without reasonable ground for such belief, . . . may be liable for
negligent misrepresentation . . . ." [Citations.]' [Citation.] However, a positive assertion
is required; an omission or an implied assertion or representation is not sufficient."
(Apollo Capital Fund LLC v. Roth Capital Partners, LLC (2007) 158 Cal.App.4th 226,
243, italics added.)
46
Although Atlas does not expressly identify Nolte's alleged misrepresentation in its
briefs, its negligent misrepresentation claim presumably is based on section HH.13 As
we discussed, the District, not Nolte, drafted section HH, and the evidence sufficiently
supports the court's finding that the section HH did not mislead Atlas because its
representation about the underlying soil conditions is not false. To the extent Atlas was
misled by section HH, it was because section HH did not expressly refer to subsurface
stadium conglomerate or rock conditions. However, as noted, negligent
misrepresentation liability requires "a positive assertion . . . ; an omission or an implied
assertion or representation is not sufficient." (Apollo Capital Fund LLC v. Roth Capital
Partners, LLC, supra, 158 Cal.App.4th at p. 243.) Because the evidence established both
that Nolte did not make the positive assertions in section HH and that those assertions
were true, the court properly entered judgment in favor of Nolte on Atlas's cause of
13 In its third amended complaint, Atlas alleges that "Nolte made numerous misrepresentations of fact to [Atlas]." The alleged misrepresentations include, but are not limited to the following: Nolte "through its plans, misrepresented the condition of the soil beneath the work of improvement. On numerous other projects for [the District], soils reports provided information as to the soil where the project was being constructed. On this project, Nolte provided an inaccurate plan profile that does not show any rock conditions and also inaccurately depicts existing utility depths which are much shallower than are shown on the plan profile. The majority of existing utilities were installed at a maximum depth of 24" or less due to the rock conditions which typically began at 2' below surface and continued to a depth of over 6' which [Atlas] encountered in over 90% of [its] work. In this case, large rocks and extremely hard earth materials, among other things, made it impossible to construct the project as contemplated by the contractor at the time of the bid and in the time frame called for in the plans and specifications, which caused [Atlas] substantial damages." Atlas has not raised any issue regarding utility depths in this appeal. 47
action for negligent misrepresentation on the ground Nolte did not make any
misrepresentations.
IV. Denial of a New Trial on the Ground Nolte Was Acting as the District's Ostensible Agent
Atlas contends the court erred in not granting a new trial on the ground Nolte was
acting as the ostensible agent of the District. We review an order denying a motion for
new trial for abuse of discretion. (Santillan v. Roman Catholic Bishop of Fresno (2012)
202 Cal.App.4th 708, 733.)
Atlas first raised the issue of whether Nolte acted as the District's ostensible agent
in its motion for new trial against Nolte. A court may consider a new legal theory on a
new trial motion so long as the new theory presents a question of law based on
16.) However, whether an ostensible agency exists is generally a question of fact.
(Kaplan v. Coldwell Banker Residential Affiliates, Inc. (1997) 59 Cal.App.4th 741, 748;
Walker v. Signal Companies, Inc. (1978) 84 Cal.App.3d 982, 999.) Thus, the trial court
did not abuse its discretion in denying a new trial on the newly raised issue of ostensible
agency.
Moreover, a finding that Atlas was the ostensible agent of the District would not
help Atlas's case against Nolte because it would simply provide a basis for holding the
District liable for acts of Nolte. Atlas seeks a reverse application of the ostensible agency
principle—i.e., to hold Nolte liable as the District's agent for the District's drafting of
section HH. As Atlas points out, an agent may be held liable for its own torts whether the
48
principal is liable or not (Civ. Code, § 2343, subd. 3; Shafer v. Berger, Kahn, Shafton,
Moss, Figler, Simon & Gladstone (2003) 107 Cal.App.4th 54, 68), and a principal may be
held liable for the acts of its ostensible agent (Civ. Code, § 2338; Chicago Title Ins. Co.
v. AMZ Ins. Services, Inc. (2010) 188 Cal.App.4th 401, 426-427). However, Atlas cites
no authority for the proposition that an ostensible agent may be held liable for the acts of
its principal. In any event, Atlas's reverse theory of vicarious liability is unnecessary
because Atlas directly sued Nolte. The court did not abuse it discretion in not granting
Atlas's motion for new trial on the ground Nolte acted as the District's ostensible agent.
DISPOSITION
The judgment in favor of the District is affirmed. The judgment in favor of Nolte
is affirmed. The District and Nolte are awarded their costs on appeal.
NARES, Acting P. J.
WE CONCUR:
McDONALD, J.
IRION, J.
49
AI Brief
AI-generated · verify before citing
Holding. The court affirmed the trial court's judgment in favor of the District and Nolte, finding substantial evidence supported the trial court's determination that the District did not breach the implied warranty of plans and specifications and that Nolte was not liable for negligence or misrepresentation. The court held that the contractor failed to prove it was misled by the District's disclosures or that it justifiably relied on misinformation regarding subsoil conditions.
Issues
Whether substantial evidence supports the trial court's finding that the District did not breach the implied warranty of plans and specifications.
Whether the trial court erred in finding that the contractor was on notice to investigate subsoil conditions.
Whether the trial court erred in granting judgment for the engineering firm (Nolte) on claims of negligence and negligent misrepresentation.
Disposition. Affirmed.
Quotations verified verbatim against the opinion
“We conclude there is sufficient evidence to support the court's finding that Atlas did not rely on misinformation regarding subsoil conditions on the project site.”
“The public entity may not be held liable for failing to disclose information a reasonable contractor in like circumstances would or should have discovered on its own”