Appellate Panel Finds No Basis for Fee Award Because District Did Not Violate “Prompt Payment” Penalty Statute.
Public Contract Code section 7107 is a “prompt payment” statute specifying consequences for a public agency that withholds retention proceeds from a general contractor. It basically provides that a public agency may withhold from final payment an amount not to exceed 150% of the disputed amount and specifies that the unpaid amounts are subject to a 2% per month penalty charge on any “improperly withheld amount” in lieu of interest otherwise due. Also, in any action for the collection of funds wrongfully withheld, the prevailing party shall be entitled to an award of attorney’s fees and costs.
Section 7107 was the subject of considerable discussion in Tricon Construction v. Liberty Union High School Dist., Case No. A1116491 & A117022 (1st Dist., Div. 3 Sept. 18, 2008) (unpublished).
There, general contractor Tricon was awarded damages due to the District’s breach of a contract to build a swimming pool. In the second phase of a trial, a jury found that while the District acted in good faith, contractually-specified liquidated damages were wrongfully withheld. Later, the trial court assessed against District penalties, interest and attorney’s fees under the Public Contract Code (with $41,276.94 being penalties and $240,000 being attorney’s fees) and expert fees of $6,877 for District’s rejection of a Code of Civil Procedure section 998 offer.
District appealed. The First District, Division Three vacated the award of penalties, interest, attorney’s fees, and expert fees, although affirming the remainder of the damages recovery by Tricon.
Reversal was required based on the appellate panel’s determination that the District withheld disputed retention funds. “But we do not read 7107’s public entity penalty to apply to a disputed payment. . . Simply put, section 7107 allows a public agency to withhold beyond 60 days up to 150 percent of a disputed amount from the retention proceeds due a contractor. That is precisely what occurred in this case.” (Slip Opn., at p. 14.) Because section 7107 did not authorize imposition of penalties, the attorney’s fees award pursuant to the penalty statute also had to be vacated. (See Denver D. Darling, Inc. v. Controlled Environments Construction, Inc., 89 Cal.App.4th 1221, 1241 (2001) [“attorney fees are to be awarded only in cases in which the retention payments are not made within the required time periods”].)
Similarly, the expert fee award had to be vacated. Tricon had offered to settle the case with a 998 offer of $680,000, inclusive of attorney’s fees and costs. Even though the total judgment inclusive of damages and fees approximated $690,000, the reversal of the penalty and fee components meant that the Tricon judgment no longer exceeded the 998 offer. So, the expert fee award fell with the reversal of the prior portions of the judgment.