John Russo Indus. Sheetm v. City of L. A. Dep't of Airports

29 Cal.App.5th 378

240 Cal.Rptr.3d 217

JOHN RUSSO INDUSTRIAL SHEETMETAL, INC., Plaintiff, Cross-defendant and Respondent,

v.CITY OF LOS ANGELES DEPARTMENT OF AIRPORTS, Defendant, Cross-complainant and Appellant.

A151729

Court of Appeal, First District, Division 5, California.

Filed November 26, 2018

Morrison & Foerster, Miriam A. Vogel, Los Angeles, Arturo J. González, Derek F. Foran, San Francisco, Nicholas A. Roethlisberger, San Francisco, Elizabeth Balassone, San Francisco, R. Benjamin Nelson and James R. Sigel, San Francisco, for Defendant, Cross-complainant and Appellant.

Duane Morris, Oliver L. Holmes, William J. Baron, San Francisco, and Justin J. Fields, San Francisco, for Plaintiff, Cross-defendant and Respondent.

BRUINIERS, J.

John Russo Industrial Sheetmetal, Inc. (doing business as JRI, Inc.; hereafter JRI) contracted with the City of Los Angeles Department of Airports (also known as Los Angeles World Airports; hereafter LAWA), to provide LAWA specialized airport firefighting trucks. Each sued the other for breach of the contract. In a consolidated action, LAWA further alleged JRI violated the California False Claims Act (CFCA), Government Code section 12650 et seq.,¹ with respect to the sale. LAWA was awarded $1 in contract damages, and its CFCA claim was rejected by the jury—as were JRI’s claims against LAWA. The court awarded LAWA costs as prevailing party on the contract claims, but awarded JRI attorney fees on the CFCA claim, finding the claim frivolous and harassing. LAWA challenges the fee award.

We conclude JRI "prevail[ed] in the action" under the relevant CFCA fee provision (§ 12652, subd. (g)(9)(B); hereafter section 12652(g)(9)(B) ) regardless of its failure to prevail in the action as a whole. We reject other challenges LAWA presents to the fee award and affirm.

I. BACKGROUND ²

"JRI and LAWA entered into a contract for JRI to build and provide four ARFF [ (Aircraft Rescue and Fire Fighting) ] vehicles for airports owned and operated by LAWA. JRI provided and LAWA accepted and paid in full for Trucks #3 and #4, but [LAWA] terminated the contract and refused to pay for Trucks #1 and #2 before they were physically delivered to LAWA. At that time Trucks #1 and #2 were substantially completed, and JRI sought to have LAWA make the contractual payments of approximately $2 million. [¶] ... LAWA filed a lawsuit against JRI for breach of contract ... demanding the return of more than $2 million it had paid for the two ARFFs. ... JRI file[d] this lawsuit for breach of contract against LAWA. The cases were then subsequently consolidated[, ...] and the LAWA lawsuit was treated as a cross-complaint. [¶] ... LAWA amended its cross-complaint to add causes of action against JRI, including a claim for violation of the [CFCA,] ... assert[ing] that when JRI submitted it[s] invoices for progress payments and final payments on the ARFFs, JRI knew that it was not in compliance with the contract and sought to defraud the government entity LAWA into making payments. [¶] ... [JRI then] tacked on a cause of action against LAWA for violation of civil rights ...."

"LAWA’s CFCA claim was based on two [legal] theories: (1) that JRI fraudulently induced LAWA to enter into the contract, making all subsequent claims for payments violative of the CFCA, and (2) JRI impliedly and falsely certified compliance with applicable contract requirements when it requested progress and final payments." The CFCA claim survived demurrer and a motion for summary adjudication, but at the summary adjudication stage the court observed that the claim was " ‘weak.’ " The court granted in part JRI’s motion in limine to exclude evidence LAWA proffered in support of the claim. During trial, JRI moved for nonsuit on the claim. LAWA voluntarily dismissed the fraudulent inducement aspect of the claim (and a related fraudulent inducement of contract claim) and the CFCA claim went to the jury solely on the implied certification theory. The jury unanimously found against LAWA on that theory ...."

LAWA prevailed only on its cross-claims for breach of contract and enforcement of a performance bond, and the jury awarded LAWA only $1 on those claims, thus "reflect[ing] the conclusion that JRI did not have to give back to LAWA any of the progress or final payments that LAWA made." JRI was unsuccessful on all of its claims against LAWA. After entry of judgment, JRI sought attorney fees under the relevant defendant’s attorney fees provision of CFCA, section 12652(g)(9)(B), on the ground LAWA’s CFCA claim was frivolous and harassing. The court granted the motion but reduced the amount of requested fees.

The court ruled the "CFCA claim has been a ‘junk’ claim all along. ... The evidence was overwhelming and uncontradicted that LAWA affirmatively knew that Truck #3 was not built exactly as the contract terms [required, yet] LAWA desperately insisted that it needed an ARFF to avoid a federal shut-down, and ... was willing to take the non-conforming model—which LAWA inspected before delivery and prior to full payment. LAWA then used Truck #3 at the airports for years —without bringing any claim against JRI. [¶] As for Truck #4, it was the subject of pre-delivery and delivery inspections by LAWA prior to progress payments and final payment, and was used at the Ontario Airport until LAWA decided to move it to LAX [ (Los Angeles International Airport) ]. At LAX, the firefighters didn’t like this new model of ARFF and wanted to have configuration changes before any acceptance of Trucks #1 and #2."

The court also found "LAWA’s fraudulent inducement theory failed because there was no evidence at all of any reliance by LAWA and no evidence at all of any scienter by JRI. Similarly, as for the ... implied certification theory, the evidence was undisputed that JRI believed it was entitled to payments when it presented the claims, and the evidence was overwhelming that LAWA did not rely upon JRI in paying the claims because LAWA had the contractual right to and did verify compliance with the contract before making progress and final payments. In order to prove the implied certification theory, LAWA would basically have to prove fraud against JRI—the reality is that this was a breach of contract situation, not a fraud. [¶] ... [¶] LAWA’s argument ... that it had evidence in support of the claim but was barred from presenting such due to rulings on motions in limine is unfounded. ... The focus of LAWA’s argument is that JRI did not give full disclosure on its ‘Questionnaire’ on the ARFF bid to LAWA. The evidence at trial was that the Questionnaire (a) was not relied upon as LAWA conducted its own investigation of JRI, and (b) was not material because the reality of the situation was that JRI was the one and only supplier offering an ARFF that met the physical specifications in LAWA’s bid solicitation. [¶] It had to have been evident to LAWA at some time during this lawsuit—if it wasn’t from the start—that the CFCA claim was not meritorious under the facts. Persisting in prosecuti[ng] a claim that you know you don’t have evidence to support constitutes harassment and a frivolous claim."

Regarding the "harassment" finding, the court further found that LAWA had " ‘upped the ante’ " by adding the CFCA claim to the lawsuit, causing the case to "mushroom[ ] from a simple breach of contract case, albeit for $2 million, into an unsettleable war—with the government entity seeking treble damages, while JRI (a family owned business) tacked on a [civil rights claim] seeking punitive damages!" (Italics added.)

II. DISCUSSION

The CFCA "is intended to ‘ "supplement governmental efforts to identify and prosecute fraudulent claims made against state and local governmental entities." ’ " ( State of California ex rel. Hindin v. Hewlett-Packard Co. (2007) 153 Cal.App.4th 307, 312, 62 Cal.Rptr.3d 762, quoting American Contract Services v. Allied Mold & Die, Inc . (2001) 94 Cal.App.4th 854, 858, 114 Cal.Rptr.2d 773.) "In general, the [CFCA] permits a governmental agency, or a qui tam plaintiff bringing an action on behalf of the governmental agency, to recover civil penalties and damages from any person who, for example, knowingly presents to the state or one of its political subdivisions a false claim for payment or approval." ( Hewlett-Packard , at pp. 312–313, 62 Cal.Rptr.3d 762.)

The CFCA provides: "[T]he court may award the defendant its reasonable attorney’s fees and expenses against the state or political subdivision that proceeded with the action^{[3 ]} if the defendant prevails in the action and the court finds that the claim was clearly frivolous, clearly vexatious, or brought primarily for purposes of harassment ." (§ 12652(g)(9)(B), italics added.)⁴ In other words, the CFCA incentivizes plaintiffs to pursue potentially meritorious claims for fraud on government entities but penalizes clearly frivolous claims.

" ‘On review of an award of attorney fees after trial, the normal standard of review is abuse of discretion. However, de novo review of such a trial court order is warranted where the determination of whether the criteria for an award of attorney fees and costs in this context have been satisfied amounts to statutory construction and a question of law.’ " ( Connerly v. State Personnel Bd. (2006) 37 Cal.4th 1169, 1175, 39 Cal.Rptr.3d 788, 129 P.3d 1.)

A. JRI’s Prevailing Party Status

LAWA first argues JRI was not entitled to fees because JRI did not "prevail[ ] in the action" as required by section 12652(g)(9)(B). LAWA relies on the trial court’s determination that it was the "prevailing party" for purposes of general costs, based on its recovery of at least nominal damages on its breach of contract and performance bond claims. (See Code Civ. Proc., § 1032, subd. (a)(4) [" ‘[p]revailing party’ includes the party with a net monetary recovery"].) In awarding fees to JRI, the trial court found that the requirement in section 12652(g)(9)(B) that a defendant "prevails in the action" refers only to...