D&M Construction v. City of Los Angeles
Published: Feb. 25, 2006 | Result Date: Feb. 9, 2006 | Filing Date: Jan. 1, 1900 |Case number: BC255209 Bench Decision – $73,479
Judge
Court
L.A. Superior Central
Attorneys
Plaintiff
Martha Eager
(Monteleone & McCrory LLP)
Defendant
Eric Brown
(Office of the Los Angeles City Attorney)
Facts
In 1998, the City of Los Angeles, through the Department of Recreation and Parks, had an agreement with Ed
Hodges Construction to build a gymnasium building at the Imperial Courts housing community. With the
work barely started, Hodges went bankrupt. City made a claim on Hodges' performance bond surety,
Washington International Insurance Company, to complete the job. Washington entered into a "Takeover
Agreement" with City to complete the construction, and with City's knowledge chose D&M Construction
("D&M") as the contractor to complete the construction. Washington entered into a "Completion Contract"
with D&M. There was no direct contract between City and D&M on the Imperial Courts project. However,
D&M at that time had several other construction projects with City (mainly through Recreation & Parks) and
had direct contracts on those projects.
In mid-October 2000, a payment dispute between D&M and its masonry subcontractor shut down all work on the
project. Nearly simultaneously, City received a letter from Washington regarding a different subcontractor.
Washington disclosed it had asked for and received copies of invoices from that subcontractor directly. Those
copies contained lower amounts in the price section of the invoice than were shown in the price section of the
invoices received from D&M, purportedly passed on from that subcontractor. D&M offered no explanation for
the price discrepancies.
In November 2000, D&M requested permission from City (as required under the Public Contract Code) to
replace the masonry sub, which it described as non-performing. After an investigation, City determined that
D&M did owe the masonry subcontractor payment, and decided that the request to substitute was not made in
good faith. City denied the request.
By December 2000, City had become dissatisfied with D&M's performance, based on a considerable body of
evidence culled from most of its projects. City notified D&M of an administrative action before the Board of
Recreation and Parks Commissioners to have D&M barred from performing work for City for a period of five
years, and to terminate all of its existing contracts with City. As to Imperial Courts, the administrative action
sought to have D&M declared a "non-responsible entity" and direct Washington to find a replacement
completion contractor.
The administrative hearing was held in two sessions, Dec. 13, 2000 and Jan. 17, 2001. D&M and its attorneys at
the time attended both hearings and addressed the Board. By the conclusion of the second hearing, all of
D&M's contracts were terminated and it was removed from the Imperial Courts project.
D&M brought suit against various parties, alleging wrongful termination against City.
D&M did not seek a writ of mandate to overturn the Board action or its factual findings. Phase I of the litigation
was tried on written submissions in 2005. The issue was whether the findings of City's Board action precluded
D&M from a trial de novo as to anything decided by the Board. City won that phase.
Phase II concerned the defendantÆs cross-complaints against D&M for breach and false claims.
Phase II was tried first in December 2005 on written submissions. However, the Court decided it
needed live testimony as to some of the issues in the cross-complaints. The matter was set for
trial in February 2006.
Settlement Discussions
At least three private mediations were held over four years of litigation. City at one point was asked to contribute $200,000 to a global settlement. City offered to settle its cross-claims for $125,000.
Result
$73,479 for Defendant/Cross-Complainant City of Los Angeles as a third party beneficiary of a contract between a performance bond surety and a contractor. The Court found evidence insufficient to award City damages against contractor for submission of false claims.
Other Information
The Court accepted City's evidence of damages on the breach claim in the amount of $146,958, for remediating and replacing rusted rebar, demolition of a portion of the masonry wall, and reconstruction of that wall. However, the Court cut that figure in half to $73,479 due to a lack of proof as to how much damage occurred to the wall after D&M was off the project and no longer responsible for the wall. As to false claims, the Court found the evidence insufficient to show that D&M "knowingly" submitted false invoices to City. Nor did the Court find that a request to substitute a subcontractor met the definition of a false claim. Findings in the Board's report did not operate as res judicata on the false claims issue.
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