Date: 11-09-2019

Case Style: Regency Midland Construction, Inc. v. Legendary Structures, Inc.

Case Number: B292602

Judge: Wiley, J.

Court: California Court of Appeals Second Appellate District, Division Eight on appeal from the Superior Court, County of Los Angeles

Plaintiff's Attorney: M. Danton Richardson, Leo E. Lundberg and Michael A. Long

Defendant's Attorney: Parham Hendifar and Michael Diaz

Description: A general contractor named Regency Midland
Construction, Inc. hired subcontractor Legendary Structures, Inc.
to do the concrete work for a new apartment building. Legendary
quit halfway through. Regency and Legendary sued each other.
Their dispute turns on the “retention” clause in the contract. The
trial court properly granted summary judgment for Regency and
dismissed Legendary’s cross-claims. We affirm.
First is background. The deal was for about $2 million of
concrete work for a new 71-unit apartment building. After
Legendary quit, Regency got ANM Construction to finish the
concrete job. Regency and Legendary fell to feuding about who
owed whom what.
The fight was about retention. Regency withheld money
from Legendary, citing the retention clause. Before Legendary
quit, Regency had paid Legendary about $1 million for its work.
That sum was 90% of Legendary’s billings because the contract
allowed Regency to withhold 10% of the amount due Legendary
as security to ensure Legendary properly completed the job.
Regency withheld from Legendary about $125,000, which we call
the retention sum. Regency insisted on keeping that sum.
Legendary demanded it. That is the main dispute.
The trial court granted Regency’s motion for summary
judgment, thus allowing Regency to keep the retention sum.
Legendary appeals, saying the contract language entitles it to the
sum.
Our review of this summary judgment ruling is
independent. (Conroy v. Regents of University of California
(2009) 45 Cal.4th 1244, 1249.) Summary judgment is not
disfavored, but rather a good way to test the merits without the
burdens of trial. (Perry v. Bakewell Hawthorne, LLC (2017) 2
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Cal.5th 536, 542.) The usual rules governing this procedure
apply. (See, e.g., Code Civ. Proc., § 437c, subds. (c) & (p)(2).)
This summary judgment appeal is purely a duel over
contract interpretation, with no disputed issues of fact. The key
sentence in the contract between Regency and Legendary
specified “Ten percent (10%) of Subcontractor’s contract amount
shall be withheld and will be released 35 days after completion of
subcontractors work.” This 10% withholding created the
retention sum.
Felix Frankfurter reputedly said the three rules of
statutory interpretation are to read the statute, read the statute,
and read the statute. The same wise counsel applies to
interpreting every text. So we read read read the contract, which
we now describe.
The contract is two pages, with a two page attachment. It
begins by listing the date as “AUGUST/13/2015.” (The oddity of
this usage will later assume significance.) The contract lists the
lending bank and other preliminary information for the
construction project. It then announces the agreement is
between Regency “hereafter called ‘CONTRACTOR’” and
Legendary “hereafter called ‘SUBCONTRACTOR’ . . . .” It
specifies the concrete work for Legendary to perform. Next it
states the total sum of $2,165,000 for the whole project is “TO BE
PAID EACH MOTH [sic] ACCORDING TO THE PROGRESS OF
THE WORK ACCORDING TO THE BANKS [sic] SCHEDULE.”
We pause to emphasize that these preliminary lines of text
contain odd stylistic usages and spelling and punctuation errors,
some of which we have just noted. There also is a varying and
apparently random pattern of capitalization, with some words in
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all capitals, some words with initial capitals, and some words
with no capital letters. These points too later become significant.
Now comes the vital sentence: the retention clause. This
clause is one of the primary recitals of the contract. It is one
sentence long. It includes strikeout wording, a typed substitute
insertion that replaces the strikeout words, and two sets of
handwritten initials in the margin to show approval of the
wording change.
Together with the strikeout words, the original retention
clause reads: “Ten percent (10%) of Subcontractor’s contract
amount shall be withheld and will be released 30 days after final
completion of the building.”
The typed insertion for the strikeout is this: “35 days after
completion of subcontractors [sic] work.” We note the drafters’
omission: there is no possessive apostrophe, either singular or
plural. We count this as a simple error. “Subcontracting work”
would seem to be the phrase to use if one wanted to avoid an
apostrophe. Below we return to the significance, or rather the
insignificance, of this error.
The pair of handwritten initials is next to this insertion.
So the final and complete retention clause — striking the
strikeout and inserting the insertion — reads like this, with our
italics: “Ten percent (10%) of Subcontractor’s contract amount
shall be withheld and will be released 35 days after completion of
subcontractors work.”
The central dispute boils down to the meaning of
“subcontractors” in this sentence.
There are many more words in the contract, including a socalled
Article 13, but the retention clause is the key. The other
words are either consistent or irrelevant.
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We recite that key language (with our italics) once more,
for coherence and emphasis: “Ten percent (10%) of
Subcontractor’s contract amount shall be withheld and will be
released 35 days after completion of subcontractors work.”
Legendary’s argument is not crystalline but amounts to
this: the italicized word “subcontractors” must mean any
subcontractor, not just Legendary. Legendary itself did not
complete the concrete subcontracting work, true, but the
replacement subcontractor ANM did, so once ANM completed the
work, Legendary should get the 10% Regency withheld from the
payments for the work Legendary did before it abandoned the
project. To do otherwise, Legendary protests, is “baseless and
inequitable.” In sum, then, Legendary says subcontractor should
be interpreted to mean any concrete subcontractor, not
Legendary in particular.
Regency’s position, by contrast, is subcontractor’s work
means Legendary’s work specifically. Legendary’s work was the
entire concrete job the contract specified — providing all the
labor, materials, and equipment and ensuring the result was up
to code and free of liens — which Legendary never completed.
Thus Legendary is entitled to no further sums. The fact ANM
substituted in to save the day does not matter, according to the
language of the contract, says Regency.
Regency is right and so was the trial court’s result.
As a matter of literal interpretation, Regency wins. The
contract defines “SUBCONTRACTOR” as “Legendary Structures,
Inc.” Legendary’s attempt to expand this definition to include
ANM violates the contractual language.
There are two wrinkles, but they are inconsequential. The
drafters made two textual errors. We repeat the key sentence
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again, now with no italics: “Ten percent (10%) of Subcontractor’s
contract amount shall be withheld and will be released 35 days
after completion of subcontractors work.” First, as already noted,
the drafters omitted the possessive apostrophe from the inserted
word “subcontractors.” Second, the drafters did not place either
“Subcontractor’s” or “subcontractors” in all capitals, as appeared
earlier in the document, thus creating a triple inconsistency in
the use of capital letters in this word. Legendary’s lawyers do not
make anything of these drafting flaws, and neither do we. Given
the pattern of spelling and capitalization errors elsewhere in this
document, we ascribe these two errors to carelessness rather
than intentionality. These careless errors are inconsequential.
As a matter of purposive interpretation, Regency wins
again. Purpose can be illuminating when interpreting any
written directive, because understanding what the parties were
trying to accomplish by means of their words can help make
sense of those words. (See, e.g., Falkowski v. Imation Corp.
(2005) 132 Cal.App.4th 499, 509–515 (Falkowski); Rest.2d
Contracts, § 202, subd. 1 & com. c, pp. 86 & 88.) The Falkowski
opinion, for instance, exemplifies purposive interpretation when
it rejected one party’s proposed interpretation because that
interpretation “fail[ed] to further the purposes” for which the
contract was created. (Falkowski, supra, 132 Cal.App.4th at p.
509.)
A sense of purpose can be especially important when
careless errors plague a text. If a purpose is clear, it can be an
anchor in an error-ridden sea.
What was the purpose of the retention language? What
were the contract parties trying to accomplish by including this
clause, which they amended so conspicuously with their
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strikeouts and insertion? No party offered extrinsic evidence.
We discern the contract’s purpose from the contract’s words. (Cf.
Falkowski, supra, 132 Cal.App.4th at pp. 509–510 [neither side
offered extrinsic evidence; court relied only on contract language
to determine contractual purpose].)
The purpose of the retention clause was, as Legendary put
it in oral argument, to “ensure proper performance.” This
description is obviously correct.
There are many dimensions to proper performance. Two
are to finish the job and to finish it swiftly. But Legendary did
not finish swiftly. It did not finish at all. So it justly must suffer
the consequences of its contractual failing, which is loss of the
10% withholding. The trial court’s ruling is consistent with this
result and was correct.
In other cases with other facts, other aspects of proper
performance may be significant. In those other cases, the parties
would do well to explain to judges the purpose of the contract
language and how that purpose does or does not fit those facts.
Legendary on appeal has formulated new arguments it
never presented to the trial court. The arguments involve Civil
Code sections 3275 and 8810. Legendary has forfeited the new
arguments. Legendary claims its new arguments are strictly
legal and therefore we have discretion to consider them. But
Legendary’s reply brief at page 15 belies this “strictly legal” claim
because Legendary faults Regency for failing to offer facts in
response to the arguments Legendary never made in the trial
court. And Legendary offers no good reason why we should
exercise discretion to depart from the usual and usually sound
forfeiture rule.
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There is a second issue in this appeal. Legendary makes
this second argument about attorney fees.
A prevailing party is entitled to recover attorney fees by
contract. (Butler-Rupp v. Lourdeaux (2007) 154 Cal.App.4th 918,
923.) This contract had such a provision.
Trial courts determine who is the prevailing party based on
an evaluation of whether a party prevailed on a practical level.
Among the factors the trial court should consider is the extent to
which each party has realized its litigation objectives. We review
for abuse of discretion the trial court’s assessment of which party
prevailed. (Olive v. General Nutrition Centers, Inc. (2018) 30
Cal.App.5th 804, 824 (Olive).)
Legendary incorrectly argues the trial court erred by
awarding attorney fees because Legendary, not Regency, was the
prevailing party in the trial court. This is incorrect. Regency
established Legendary was liable to it and not vice versa.
Regency won a dollar judgment against Legendary. Regency
prevailed. The trial court ruling was correct.
Legendary notes Regency won less than it requested. This
fact can be pertinent in a damages-only trial, where the
defendant stipulates to liability. (E.g., Olive, supra, 30
Cal.App.5th at pp. 822–829.) This is not a case like that.

Outcome: The judgment is affirmed. Costs to Regency.

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Defendant's Experts:

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