General Contractor Vindicated by Court of Appeal Ruling Against City of Los Angeles; Decision Establishes Legal Principles in Construction Law

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Recent State Court of Appeal decision establishes important legal principles for contractors.

When Dillingham Ray Wilson (DRW) was in a jury trial against the City of Los Angeles, the general contractor was seeking recovery of retention and project completion (delay) damages, while defending against a claim for liquidated damages and purported false claim damages brought against it by the City. In litigation, the Superior Court of California dismissed $25 million in extra work claims brought by DRW on the ground that DRW was unable precisely to prove the cost of the changes, and that DRW’s modified total cost approach to damages was barred by the Supreme Court case of Amelco v. City of Thousand Oaks.

The jury denied the City any recovery and awarded 100% of DRW’s claimed damages as well as finding that the City violated the California Prompt Payment Act leading to an assessment of penalty interest at the rate of 24% per year as well as an award of millions of dollars in attorney’s fees.

The Court also found that the false claims allegations made by the City (at one time totaling $585 million), were frivolous and brought to harass DRW, and sanctioned the City for bringing them by awarding DRW its entire attorney’s fees incurred in defending against them. The net judgment against the City was $36 million, now having grown by three years of interest. The City appealed the judgment against it and DRW appealed the dismissal of its extra work claims. Construction law firm Monteleone & McCrory LLP represented DRW. That all took place in 2007. (Case number BC 208414)

Recently, the State Court of Appeal affirmed entirely the judgment against the City in an opinion beginning “The City of Los Angeles obtained millions of dollars worth of construction work that it does not want to pay for....” The appellate court also reversed the dismissal of DRW’s extra work claims and sent them back to the trial court for retrial. Monteleone & McCrory was co-counsel on the appellate team.

The decision establishes several important legal principles for contractors, the most important of which is an affirmation that Amelco did not change common law breach of contract remedies that contractors could seek against public agencies and, specifically, that a modified total cost damage approach could be used to prove a contract damage claim against a public agency in the appropriate circumstances. The Court also ruled that a public entity liable for prompt pay penalty interest is not entitled to a credit for the interest received by the contractor from the retention escrow account.

About Monteleone & McCrory
Monteleone & McCrory is a full-service law firm that handles commercial and business litigation, with a national reputation in the construction industry. For more than 50 years, the firm has been involved in landmark projects, achieving record-breaking verdicts and settlements and representing clients in cases that have shaped the legal landscape. For additional information, please visit http://www.mmlawyers.com.

Contact:
Patrick J. Duffy, III
Email: duffy(at)mmlawyers(dot)com
Ph: (213) 612-9900
or
Megan Mandeville
Email: mandeville(at)mmlawyers(dot)com
Ph: (213) 612-9900

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