Citations
- 152 Cal. App. 4th 720
Full opinion text
Opinion
CROSKEY, J.
Fassberg Construction Company (Fassberg) appeals a judgment, after a jury trial, denying it relief on its complaint and awarding the Housing Authority of the City of Los Angeles (Housing Authority) $3,960,500, exclusive of costs, on its cross-complaint. The action arises from a construction contract between the Housing Authority as owner and Fassberg as general contractor. The jury found that Fassberg breached the contract, that Fassberg knowingly submitted 2,983 “false claims” to the Housing Authority, and that the Housing Authority suffered $1,104,000 in damages resulting from the breach of contract and $455,000 in damages resulting from the false claims. The court trebled the latter figure and awarded a civil penalty of $500 per false claim pursuant to the California False Claims Act (Gov. Code, § 12650 et seq.). The jury also found Fassberg liable for intentional misrepresentation and awarded the Housing Authority $1,559,000 in compensatory damages and $1.2 million in punitive damages.
The court concluded that the punitive damages award duplicated the treble damages award and civil penalty, and required an election of remedies. The Housing Authority elected to recover damages for breach of contract, treble damages for false claims, and the civil penalty. The court refused to reduce the judgment by the 10 percent of the contract price that the Housing Authority retained pursuant to the contract and continues to withhold. Both parties appealed.
Fassberg challenges the civil penalty and treble damages award for false claims, contending the evidence does not support the findings that it submitted 2,983 false claims and that the Housing Authority suffered $455,000 in damages as a result. Fassberg also challenges the amount of damages awarded for breach of contract, the awards of compensatory and punitive damages for misrepresentation, and the denial of a setoff for the retention proceeds. The Housing Authority challenges the required election of remedies, contending it is entitled to recover punitive damages in addition to the amounts awarded in the judgment. The Housing Authority also challenges the denial of its motion for expert witness fees based on a statutory offer to compromise.
We conclude that the California False Claims Act authorizes an award of treble damages for knowingly presenting either “a false claim” or “a false record or statement” for payment or approval of a false claim, but authorizes a civil penalty only for each false claim. Weekly payroll reports submitted in support of requests for payment on a construction contract and change order proposals requesting adjustments in the contract price may be false records or statements presented for payment or approval of a claim, but are not “claims” under the act and alone cannot support a civil penalty. Moreover, the measure of damages for false claims is the amount of injury proximately caused by the false claims. That amount does not include a shortfall in the payment of prevailing wages to workers if the underpayment did not increase the cost or result in any loss to the public agency.
Our principal holdings are that (1) the evidence does not support the finding of 2,983 false claims and does not establish a sufficient basis for the civil penalty; (2) the evidence does not support the finding that the Housing Authority suffered $455,000 in damages for false claims and does not support the treble damages award; (3) the damages awarded for breach of contract are excessive; (4) the award of compensatory damages for misrepresentation is not supported by substantial evidence; and (5) the court properly required an election of remedies by the Housing Authority. We also hold that Fassberg failed to demonstrate error with respect to the trial court’s ruling on its claim for damages due to delay; Fassberg is entitled to recover the retention proceeds; and the denial of the Housing Authority’s motion for expert witness fees based on the statutory offer to compromise was error. We will therefore reverse the judgment in part with directions. We also will affirm the judgment as to the denial of relief to Fassberg on its complaint and affirm the denial of Fassberg’s motion for partial judgment notwithstanding the verdict with respect to the award of damages for false claims.
FACTUAL AND PROCEDURAL BACKGROUND
1. Construction Contract
The Housing Authority is a public agency that provides affordable housing to low-income persons. Fassberg is a general contractor. The Housing Authority and Fassberg entered into a contract dated April 5, 2000, providing for Fassberg to build 25 residential buildings, comprising 156 dwelling units, and a maintenance building. The total contract price was $12,863,690. The construction was to be completed within 270 days after a notice to proceed. The contract provided for liquidated damages payable to the Housing Authority in the amount of $1,500 per day if Fassberg failed to timely complete the work.
The contract provided for periodic progress payments based on Fassberg’s estimates of the value of work performed under the contract, subject to approval by the Housing Authority. Fassberg agreed to submit with each request for progress payment a certification that the amounts requested were for performance in accordance with the contract specifications, that payments to subcontractors and suppliers had been made from previous progress payments received, and that timely payments would be made from the requested progress payment. The contract provided for the Housing Authority to “retain ten (10) percent of the amount of progress payments until completion and acceptance of all work under the contract.” The Housing Authority agreed to make the final payment due to Fassberg under the contract after (1) the completion and final acceptance of all work under the contract, and (2) the receipt of a release of all claims against the Housing Authority arising by virtue of the contract, with the exception of any claims clearly specified by Fassberg in amount and nature, as to which claims Fassberg could not request final payment.
Fassberg agreed to pay prevailing wages and benefits at rates determined by the United States Secretary of Labor. Fassberg also agreed to submit weekly payroll reports stating the classification of and hourly wages paid to each worker and other information, together with a certification signed by Fassberg or the subcontractor responsible for paying the worker confirming that the information provided was correct and complete and that each worker was paid not less than the applicable wage rate and benefits. The contract stated that the falsification of any certification could subject Fassberg to civil or criminal prosecution.
The contract stated that the Housing Authority could issue a change order at any time altering the scope of work. If a change order caused an increase or decrease in either the cost of construction or the time to perform the contract, the Housing Authority was required to “make an equitable adjustment and modify the contract in writing.” The contract also provided that if any written or oral order by the Housing Authority resulted in a change in the scope or duration of work, Fassberg could make a “written proposal for equitable adjustment” with an itemized breakdown of increases and decreases in its direct costs, indirect costs, and profit. The Housing Authority agreed to “act on proposals within 30 days after their receipt, or notify the Contractor of the date when such action will be taken.” The parties refer to proposals for equitable adjustment as change order proposals or C.O.P.’s. The contract also stated that if the Housing Authority caused a delay in the work for an unreasonable period of time resulting in an increase in the cost to perform the work, Fassberg was entitled to additional compensation.
2. Contract Performance
The Housing Authority issued a notice to proceed with construction beginning May 15, 2000. The Housing Authority hired a construction management company, Dugan & Associates Construction Management (Dugan), a few weeks later. The construction project experienced delays due to changes made by the Housing Authority in the plans and specifications, faulty construction by Fassberg and its subcontractors, understaffing by Fassberg and its subcontractors, and other reasons. The first change order, issued on April 23, 2001, extended the contract performance period by 167 days with no change in the contract price. The Housing Authority later agreed to other time extensions.
Fassberg submitted approximately 224 change order proposals to modify the contract price due to changes in the work or to extend the time for contract performance, including both proposed price increases due to additional work and proposed price decreases due to deleted work. The Housing Authority determined that many of the proposed price increases were excessive and that some of the work for which Fassberg requested a price increase was already included in the contract scope of work or in a prior change order proposal. The contract required the Housing Authority to “act on [change order] proposals within 30 days after their receipt, or notify the Contractor of the date when such action will be taken.” In practice, however, the Housing Authority often took much longer to respond to Fassberg’s change order proposals, sometimes because Fassberg had failed to submit required information and sometimes because the Housing Authority failed to process the proposals in a timely manner.
The Housing Authority sometimes orally approved changes in the scope of work and asked Fassberg to submit a change order proposal later. After Fassberg submitted a change order proposal, the Housing Authority could determine whether the proposed increase in the contract price was reasonable and either agree to the proposal or agree to pay a lower price. Both parties understood that a change order proposal must be approved and the Housing Authority must issue a written change order before Fassberg could request payment for work encompassed in a change order proposal. The Housing Authority sometimes approved change order proposals but delayed issuing written change orders until after the funds to pay for the additional work were available to the Housing Authority, at which time it would issue a change order encompassing several change order proposals. There were approximately 70 change order proposals for which the Housing Authority determined that Fassberg was entitled to a total of $402,717.95, but for which the Housing Authority never issued a written change order and never paid Fassberg.
The work was substantially completed on July 19, 2002, after 795 days. Fassberg submitted a total of 49 requests for progress payment during the course of construction, and the Housing Authority paid Fassberg a total of $11,790,328.26 for work on the project. After the completion of work and the Housing Authority’s final acceptance of the work, the Housing Authority refused to release any part of the retention proceeds totaling $1,310,036.47. The Housing Authority determined that it was entitled to a credit in the amount of $677,932.77 for changes in the scope of work, and so informed Fassberg in a letter dated April 4, 2003.
3. Complaint, Cross-complaint and Offer to Compromise
Fassberg filed a complaint against the Housing Authority in February 2003. The first amended complaint filed in April 2003 alleges that the Housing Authority breached its obligations under the contract to provide adequate plans and specifications, provide reasonable access to the construction site, timely respond to requests for information by Fassberg and its subcontractors, timely respond to Fassberg’s change order proposals, and make timely progress payments. Fassberg also alleges that the Housing Authority breached its obligation under Public Contract Code section 7107 to timely release the retained funds. The complaint alleges counts for breach of contract, breach of the implied covenant of good faith and fair dealing, and violation of Public Contract Code section 7107.
The Housing Authority filed a cross-complaint against Fassberg. The first amended cross-complaint alleges that Fassberg breached its obligations under the contract to timely complete the work and to comply with the applicable wage and labor standards, among other alleged breaches. The Housing Authority also alleges that Fassberg violated the California False Claims Act by knowingly presenting false claims for payment, including change order proposals, requests for partial payment, and certified payroll records. The cross-complaint also seeks declaratory relief to establish a right to withhold from the final contract payment the entire retention amount. The cross-complaint alleges counts for breach of contract, violation of the California False Claims Act, intentional and negligent misrepresentation, fraudulent inducement, and declaratory relief. In its answer to the cross-complaint, Fassberg alleges that any liability to the Housing Authority should be reduced by the amounts that the Housing Authority owes Fassberg.
The Housing Authority served an offer to compromise (Code Civ. Proc., § 998) in October 2004 offering to pay Fassberg $1.1 million in exchange for a mutual release of claims and mutual dismissals with prejudice of this litigation. Fassberg did not accept the offer.
4. Trial, Verdict and Judgment
The case proceeded to a jury trial. Michael Hostettler, an expert witness for the Housing Authority, testified that his review of the certified payroll records, change order proposals, and requests for progress payments submitted by Fassberg to the Housing Authority revealed 2,964 incidents of underpayment of wages reflected in payroll records, 948 incidents of “questionable charges” stated in change order proposals, and 47 incidents of overstatement of the percentage of work completed stated in requests for progress payments. He stated that the sum of those figures, 3,959, was the total number of “incidences of irregularities and otherwise nondocumented claims by the contractor.” The Housing Authority’s counsel stated in closing argument that each of those incidents was a “false claim” under the California False Claims Act.
The jury returned a special verdict in favor of the Housing Authority on all counts submitted to the jury except the Housing Authority’s count for fraudulent inducement. The jury found that the Housing Authority did not breach the contract or the implied covenant of good faith and fair dealing, and that the Housing Authority did not wrongfully withhold any part of the retention funds. The jury found that Fassberg breached the contract and the Housing Authority suffered $1,104,000 in resulting damages, that Fassberg knowingly submitted 2,983 false claims resulting in $455,000 in damages to the Housing Authority, that Fassberg intentionally and negligently misrepresented material facts, and that the Housing Authority suffered $1,559,000 in damages resulting from the misrepresentations. The jury found that the total amount of recoverable damages, eliminating any double recovery, was $1,559,000. The jury also found that Fassberg acted fraudulently and awarded the Housing Authority $1.2 million in punitive damages in the second phase of trial.
The court imposed a civil penalty of $500 per false claim (Gov. Code, § 12651, subd. (a)), totaling $1,491,500, and trebled the award of damages for false claims (ibid.), resulting in a treble damages award of $1,365,000. The court required the Housing Authority to elect to recover either the compensatory damages awarded by the jury for intentional and negligent misrepresentation ($1,559,000) plus punitive damages ($1.2 million) or compensatory damages for breach of contract ($1,104,000) plus treble damages for false claims ($1,365,000) plus the civil penalty ($1,491,500). The Housing Authority elected the latter recovery, totaling $3,960,500. The court entered a judgment in February 2005 awarding the Housing Authority that amount and denying Fassberg any relief on its complaint. The judgment did not address the Housing Authority’s count for declaratory relief concerning the retention proceeds or Fassberg’s affirmative defense of setoff.
5. Posttrial Motions and Corrected Judgment
The Housing Authority moved for an award of attorney fees under Public Contract Code section 7107 and moved to recover its expert witness fees under Code of Civil Procedure section 998. The court found that the Housing Authority was the prevailing party on Fassberg’s count for violation of Public Contract Code section 7107 and awarded the Housing Authority $886,500 in attorney fees under subdivision (f) of that statute. The court determined that the scope of the requested release was overbroad and therefore denied the motion for expert witness fees.
Fassberg moved to vacate the judgment (Code Civ. Proc., § 663) requesting an equitable setoff and a declaration of the parties’ rights and duties with respect to the retention proceeds. Fassberg also moved for a partial judgment notwithstanding the verdict arguing that the finding that the Housing Authority suffered $455,000 in damages resulting from false claims was not supported by the evidence and was contrary to a jury instruction, and that the judgment should be reduced by the amount of the retention. In addition, Fassberg moved for a new trial arguing the same points, and also argued that the finding that the Housing Authority did not breach the contract was contrary to the evidence, that the Housing Authority breached the contract by failing to pay Fassberg $402,717.95 for work done pursuant to approved change order proposals and by failing to compensate Fassberg for 116 days of delay caused solely by the Housing Authority, and that the award of $1,104,000 in damages for breach of contract was excessive.
The court granted Fassberg’s motion to vacate in part and denied it in part, finding that Fassberg was not entitled to a setoff but was entitled to a declaration of rights and duties with respect to the retention proceeds. The court concluded that the Housing Authority was entitled to withhold the retention proceeds more than 60 days after the date of completion because there was a dispute between the parties at that time, pursuant to Public Contract Code section 7107, subdivision (c) (see.fn. 3, ante). The court distinguished that question from the question whether Fassberg was entitled to a reduction of the judgment by the amount of the retention proceeds, and concluded that Fassberg had failed to assert the right to such a setoff either at trial or in an appropriate posttrial motion. The court denied Fassberg’s motion for partial judgment notwithstanding the verdict based in part on the same reason, and stated that the determination of a setoff would require an evidentiary trial that, “if appropriate at all,” should be conducted in a separate action for an equitable setoff. The court also denied Fassberg’s new trial motion.
The court entered a corrected judgment in March 2005 stating that Fassberg “is not, in this action, entitled to an offset against the Housing Authority’s recovery,” and awarding the Housing Authority $886,500 in attorney fees. The corrected judgment otherwise is substantially the same as the original judgment.
6. Appeals
Fassberg filed a notice of appeal from the corrected judgment, the partial denial of its motion to vacate the judgment, the denial of its motion for partial judgment notwithstanding the verdict, and the attorney fee order. The Housing Authority filed a notice of appeal from the corrected judgment.
CONTENTIONS
Fassberg contends (1) neither the weekly payroll reports nor the change order proposals were “claims” within the meaning of the California False Claims Act for purposes of a civil penalty; (2) the evidence does not support the implied finding that Fassberg prepared, certified, or submitted the payroll reports; (3) the Housing Authority’s expert and the jury improperly counted each alleged misstatement in a payroll report or change order proposal as a false claim; (4) the evidence does not support the finding that the purported claims were false; (5) the evidence does not support the finding that Fassberg knowingly presented the purported false claims; (6) the evidence does not support the award of $455,000 in damages for false claims, and the award is contrary to a jury instruction; (7) the Housing Authority breached the contract by refusing to issue a change order for and pay $402,717.95 that it admittedly owed, and the award of damages for breach of contract is excessive in that amount; (8) the Housing Authority breached the contract by failing to compensate Fassberg for 116 days of delay caused solely by the Housing Authority; (9) Fassberg is entitled to a setoff in the amount of the retention proceeds; and (10) the judgment cannot be affirmed in part based on misrepresentation as an alternative theory of recovery because the evidence does not support the award of damages for misrepresentation.
The Housing Authority disputes those contentions and contends (1) it is entitled to recover punitive damages in addition to the amounts awarded in the judgment; and (2) the denial of its motion for expert witness fees based on its statutory offer to compromise was error.
DISCUSSION
1. California False Claims Act
The California False Claims Act provides that any person who commits certain acts against the state or a political subdivision is liable to the state or political subdivision for treble damages. (Gov. Code, § 12651, subd. (a).) Among the prohibited acts are knowingly presenting or causing to be presented “a false claim for payment or approval” by the state or a political subdivision, and knowingly making or using or causing to be made or used “a false record or statement to get a false claim paid or approved.” {Id., § 12651, subd. (a)(1), (2).) The California False Claims Act also provides that any person who commits such an act may be hable for a civil penalty of up to $10,000 for each “false claim.” (Id., § 12651, subd. (a).) Thus, the act provides for both treble damages for certain acts and a civil penalty for each “false claim.” Government Code section 12655, subdivision (c) states that the act “shall be liberally construed and applied to promote the public interest.” The California False Claims Act is patterned after the federal False Claims Act (31 U.S.C. § 3729 et seq.) as amended in 1986, so authorities applying the federal act may be persuasive to the extent the language of the two acts is similar. (State of California v. Altus Finance (2005) 36 Cal.4th 1284, 1299 [32 Cal.Rptr.3d 498, 116 P.3d 1175]; Rothschild v. Tyco Internal. (US), Inc. (2000) 83 Cal.App.4th 488, 494 [99 Cal.Rptr.2d 721].)
A “claim” is defined to “include[] any request or demand for money, property, or services made to any employee, officer, or agent of the state or of any political subdivision.” (Gov. Code, § 12650, subd. (b)(1).) “ ‘Knowing’ and ‘knowingly’ mean that a person, with respect to information, does any of the following: [][] (A) Has actual knowledge of the information, [f] (B) Acts in deliberate ignorance of the truth or falsity of the information, [f] (C) Acts in reckless disregard of the truth or falsity of the information, [f] Proof of specific intent to defraud is not required.” (Id., § 12650, subd. (b)(2).) A “political subdivision” includes any city, for purposes of the California False Claims Act. (Id., § 12650, subd. (b)(3).)
The term “includes” in a statutory definition does not necessarily exclude things not specified. (People v. Western Airlines, Inc. (1954) 42 Cal.2d 621, 639 [268 P.2d 723].) “Includes” ordinarily is a term of enlargement rather than limitation. (Flanagan v. Flanagan (2002) 27 Cal.4th 766, 774 [117 Cal.Rptr.2d 574, 41 P.3d 575].) Whether the definition of “claim” in Government Code section 12650, subdivision (b)(1) encompasses things not specified in the statute is a question of legislative intent. (Hassan v. Mercy American River Hospital (2003) 31 Cal.4th 709, 717 [3 Cal.Rptr.3d 623, 74 P.3d 726].) In the context of a statutory scheme that distinguishes “a false claim” (Gov. Code, § 12651, subd. (a)(1)) from “a false record or statement to get a false claim paid or approved” (id., § 12651, subd. (a)(2)) and provides an additional remedy for the former, as explained post, we conclude that a record or statement that is not a request or demand for money within the meaning of Government Code section 12650, subdivision (b)(1) is not a “claim.”
2. The Evidence Fails to Establish a Sufficient Basis for the Civil Penalty
a. The California False Claims Act Authorizes a Civil Penalty for “a False Claim” but Not for “a False Record or Statement”
The California False Claims Act distinguishes a “claim” from a “record or “statement.” The term “claim” is defined in Government Code section 12650, subdivision (b)(1), quoted ante, without reference to the terms “record” or “statement.” The terms “record” and “statement” are not defined in the act. Section 12651, subdivision (a) describes eight prohibited acts for which treble damages may be awarded, four of which refer to either “a false claim” or “a false record or statement.” The statute imposes treble damages on a person who “(1) Knowingly presents or causes to be presented to an officer or employee of the state or of any political subdivision thereof, a false claim for payment or approval. [][] (2) Knowingly makes, uses, or causes to be made or used a false record or statement to get a false claim paid or approved by the state or by any political subdivision. [][]... [][] (7) Knowingly makes, uses, or causes to be made or used a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the state of to any political subdivision, [or] [][] (8) Is a beneficiary of an inadvertent submission of a false claim to the state or a political subdivision, subsequently discovers the falsity of the claim, and fails to disclose the false claim to the state or the political subdivision within a reasonable time after discovery of the false claim.” (Ibid., italics added.)
Government Code section 12651, subdivision (a) states that a person who commits any of the “acts” listed in subdivision (a) is liable for treble damages. Those “acts” include knowingly presenting “a false claim” and knowingly presenting “a false record or statement to get a false claim paid or approved,” as stated ante. The statute states, however, that a civil penalty may be imposed not for each “act,” but for “each false claim.” (Ibid.) We construe the statute in accordance with the plain meaning of the statutory language. (Wells v. 0ne20ne Learning Foundation (2006) 39 Cal.4th 1164, 1190 [48 Cal.Rptr.3d 108, 141 P.3d 225].) Section 12651, subdivision (a) clearly distinguishes “a false claim” from “a false record or statement” and authorizes a civil penalty only for “each false claim.” Section 12655, subdivision (c) states that the California False Claims Act “shall be liberally construed and applied to promote the public interest,” but no liberal construction can alter the plain meaning of the statute in this regard.
The Housing Authority argues that Government Code section 12651, subdivision (a) is ambiguous and should be construed to mean that “false claims” includes not only requests or demands for money, property, or services, but also any other act prohibited by the California False Claims Act. This argument ignores the statutory definition of “claim” (Gov. Code, § 12650, subd. (b)(1)) and the careful, not haphazard, use of “false claims” in some places and “false records or statements” in others in section 12651, subdivision (a). Those terms are not interchangeable. As we have explained, the Legislature carefully distinguished the remedies available for different acts.
The Housing Authority cites LeVine v. Weis (2001) 90 Cal.App.4th 201 [108 Cal.Rptr.2d 562] for the proposition that a false certification in connection with a request for payment is itself a false claim under the California False Claims Act. The plaintiff in LeVine was a school teacher who was discharged after he threatened to notify authorities that the school was claiming state funds for students’ average daily attendance without providing the expected level of classroom staffing. The state Department of Finance determined after an investigation that the school had received state funds based on false reporting, but the state Department of Education concluded that the school was entitled to receive the funds. A jury found that the school and three school officials had violated the California False Claims Act and awarded the plaintiff compensatory damages under Government Code section 12653, subdivision (c) for violation of section 12653, subdivision (b), which prohibits adverse employment action by an employer against an employee because of acts by the employee “in disclosing information to a government or law enforcement agency or in furthering a false claims action.” (LeVine, supra, at pp. 204-207.) LeVine concluded that the defendants’ certification of average daily attendance was a “false claim” within the meaning of the act and that the school terminated the plaintiff because he had threatened to disclose information pertaining to that “false claim,” and therefore concluded that the school was liable for damages under section 12653, subdivision (c). (LeVine, supra, at pp. 211-212.) LeVine explained that the “certification of the ADA [Americans with Disabilities Act] constituted an actual claim for money based on a representation of fact.” (90 Cal.App.4th at p. 211.)
LeVine v. Weis, supra, 90 Cal.App.4th 201, did not address the question whether the school could be held liable for damages or a civil penalty under section 12651, subdivision (a) based on a “false claim” and therefore is not on point. Moreover, in our view, for purposes of liability under section 12651, subdivision (a), the quoted statement from LeVine fails to recognize the distinction expressed in the statute between a false claim and a false record or statement in support of a false claim. We therefore decline to follow LeVine.
b. The Weekly Payroll Reports Were Not “Claims” Under the Act and Alone Cannot Support a Civil Penalty
Fassberg submitted weekly payroll reports to the Housing Authority as required by the contract. Fassberg also submitted requests for progress payment under the contract approximately every two weeks. Both the payroll reports and the requests for progress payment were accompanied by certifications as to their accuracy and compliance with the contract. The payroll reports and requests for progress payment were separate documents with different functions. The payroll reports, on a standard United States Department of Labor form, provided specific information as to employees’ hours worked, work classification, wages and fringe benefits paid, and deductions. The payroll reports did not include a request for payment. The requests for progress payment, in contrast, stated an estimate of the percentage of work completed and the value of that work based on a preapproved schedule of values, and expressly requested payment for the value of work completed, less a 10 percent retention. Fassberg submitted 49 requests for progress payment on the project.
We conclude that each request for progress payment was a “claim” under the California False Claims Act because each request was a “request or demand for money” (Gov. Code, § 12650, subd. (b)(1)) made to the Housing Authority. The weekly payroll reports, in contrast, were not “claims” because they were not “requests] or demand[s] for money” {ibid..). Rather, the payroll reports were records required to be submitted under the contract and were records or statements made or used in support of Fassberg’s requests for progress payment (see id., § 12651, subd. (a)(2)). The payroll reports were neither “claims” nor “false claims” as a matter of law and alone cannot support a civil penalty under the act. A false payroll report can support a civil penalty only in conjunction with a “false claim,” and in those circumstances the civil penalty is for “each false claim” {id., § 12651, subd. (a)) rather than for each “false record or statement to get a false claim paid or approved” {id., subd. (a)(2)).
The Housing Authority maintained that Fassberg presented a total of 3,959 false claims, including 2,964 false claims arising from statements in weekly payroll records. The jury found that Fassberg submitted 2,983 false claims. That number necessarily included purported false claims arising from statements in payroll records, although we cannot discern how many. The Housing Authority is not entitled to a civil penalty either for each false payroll record or for each misstatement in the payroll records, as a matter of law. We conclude that the judgment must be reversed as to the civil penalty for false claims for a new trial on the cross-complaint to determine the number of false claims, if any, and the appropriate civil penalty, consistent with the views expressed in this opinion.
c. The Change Order Proposals Were Not “Claims” under the Act and Alone Cannot Support a Civil Penalty
Section 29(d) of the contract stated that if any order or direction by the Housing Authority caused a change in the work resulting in an increase or decrease in Fassberg’s cost or time to complete the work, the Housing Authority “shall make an equitable adjustment and modify the contract in writing.” Section 29(e) stated that Fassberg must request an equitable adjustment in writing, ordinarily within 30 days after receipt of a written notice of the change in the work, “by submitting a written statement describing the general nature and the amount of the proposal.” Section 29(f) stated that a “written proposal for equitable adjustment shall be submitted in the form of a lump sum proposal supported with an itemized breakdown of all increases and decreases in the contract,” with specified details. The contract stated further that the Housing Authority “shall act on proposals within 30 days after their receipt, or notify the Contractor of the date when such action will be taken,” and that “[fjailure to reach an agreement on any proposal shall be a dispute under the clause entitled Disputes herein.”
Fassberg submitted change order proposals on a form provided by the Housing Authority. The form was entitled change order proposal and stated, “Following is an itemized quotation regarding proposed modifications to the contract documents.” It called for a description of the work, an itemization of the subcontractor’s cost, general contractor’s cost, 10 percent overhead and profit, and 1 percent bond cost, and a statement as to how many days the “proposed change” would delay the project completion. Both parties understood that a change order proposal must be approved by the Housing Authority and that the Housing Authority must issue a written change order before Fassberg could request payment for work encompassed in a change order proposal.
The Housing Authority argues that Fassberg submitted change order proposals requesting price increases for work that was already included in the contract price, work necessitated by delays caused by Fassberg and its subcontractors, and work for which Fassberg otherwise was not entitled to additional compensation. The Housing Authority also argues that the requested price increases were excessive. Hostettler testified on behalf of the Housing Authority that the change order proposals stated excessive wage rates and greater costs for “general conditions,” insurance, and bonds for which Fassberg failed to submit sufficient supporting documentation. Hostettler expressly declined to characterize the change order proposals as “wrong or false.” Rather, he testified that the change order proposals contained “questionable charges” and “undocumented and unevidenced claims for money.” He testified that the change order proposals contained “948 incidences of claims” or “questionable change order incidences in which a change order was presented to the Housing Authority for payment and in which it included undocumented and unevidenced claims for money.”
On the other hand, James Evans, a field superintendent for the Housing Authority who was partly responsible for reviewing change order proposals, testified that a change order proposal was not a request for payment: “It would not be a request for payment as far as I was concerned because they submitted on a monthly basis a billing for payment. It was—it was something that we owed them at some point in time, but there would not be a request for payment. They had a separate request for payment that they submitted monthly, and they could not include approved change order proposals on that—for payment for that until such time as they received the change order.”
The question whether the change order proposals were “claims” for purposes of the California False Claims Act is a question of law involving the application of a statute to undisputed facts. (Daun v. USAA Casualty Ins. Co. (2005) 125 Cal.App.4th 599, 605 [23 Cal.Rptr.3d 44].) Absent an underlying factual dispute, whether the change order proposals were “claims” under the statute is a question of law for the court to decide without regard to the opinions of expert or percipient witnesses or the finding by the jury that Fassberg knowingly submitted 2,983 false claims. Our review is de novo. {Ibid.)
A change order proposal differs from a request for progress payment in that the former is a request to modify the contract to allow for future payment, while the latter is a request for immediate payment. A change order proposal, if approved, would be followed by a written change order and then a request for progress payment. Federal courts have held that if a contractor obtained a contract through collusive or fraudulent bidding, each request for payment under the contract is a false claim under the federal False Claims Act, regardless of the objective truth of the request for payment standing alone. {U. S. ex rel. Marcus v. Hess (1943) 317 U.S. 537, 543-544 [87 L.Ed. 443, 63 S.Ct. 379]; Harrison v. Westinghouse Savannah River Co. (4th Cir. 1999) 176 F.3d 776, 787-788.) This is so because each request for payment, although perhaps not false in itself after the public agency has agreed to the contract price, relies on the prior falsity. {Marcus, supra, at p. 543; Harrison, supra, at pp. 787-788.)
We find these authorities persuasive and conclude that the same rule should apply to a false change order proposal: If a contractor knowingly presents a false change order proposal and a change order is issued in reliance thereon, each request for progress payment of amounts payable under the change order is a false claim under the California False Claims Act. We distinguish a request for progress payment based on a false change order proposal from the prior change order proposal itself, however. In our view, a change order proposal is not a “request or demand for money, property, or services” (Gov. Code, § 12650, subd. (b)(1)) within the plain meaning of the statutory language, but rather is a “record or statement” made or used “to get a false claim paid or approved” (id., § 12651, subd. (a)(2)). We therefore conclude that the change order proposals were neither “claims” nor “false claims” under the act as a matter of law and alone cannot support a civil penalty under the act. A false change order proposal can support a civil penalty only in conjunction with a “false claim,” and in those circumstances the civil penalty is for “each false claim” (id., § 12651, subd. (a)) rather than for each “false record or statement to get a false claim paid or approved” (id., subd. (a)(2)). The Housing Authority is not entitled to a civil penalty either for each false change order proposal or for each false statement in a change order proposal, as a matter of law.
The Housing Authority cites Stacy & Witbeck, Inc. v. City and County of San Francisco (1996) 47 Cal.App.4th 1 [54 Cal.Rptr.2d 530] for the proposition that a change order proposal is a “claim” for purposes of the California False Claims Act. Stacy held that “a contract claim for overages purportedly incurred on a public works project” was not a privileged publication under Civil Code section 47, subdivision (b) and therefore could be the subject of a cause of action for false claims under the California False Claims Act. (Stacy, supra, at pp. 3, 5.) Stacy is factually distinguishable in that the city in that case expressly directed the contractor to request payment for extra work by presenting a “claim.” (Stacy, supra, at pp. 4-5.) “Stacy was ‘directed’ to submit its change order requests as a claim under the contract.” (Id. at p. 6.) Moreover, Stacy did not decide whether the “contract claim” was a “claim” for purposes of the California False Claims Act, but only that the claim was not protected by the litigation privilege.
d. We Need Not Decide Fassberg’s Other Contentions
Concerning the Sufficiency of the Evidence to Support the Civil Penalty
Our conclusion that the Housing Authority is not entitled to a civil penalty for each payroll record or change order proposal, or each false statement in those documents, compels the conclusion that the evidence does not support the finding of 2,983 false claims and that the judgment must be reversed and the case remanded for a new trial to determine the number of false claims, if any, and the appropriate civil penalty. Accordingly, we need not address Fassberg’s other contentions concerning the sufficiency of the evidence in the present record to support the civil penalty.
3. The Evidence Fails to Establish a Sufficient Basis for the Award of Damages Resulting from False Claims
a. Trial Court Proceedings
Hostettler testified that the certified payroll records revealed 2,964 instances of underpayment of wages totaling “approximately $455,000.” He stated that if a subcontractor failed to pay prevailing wages, the contractor (Fassberg) was liable to the Department of Labor and the Housing Authority for the shortfall. He prepared a 29-page exhibit entitled certified payroll analysis (exhibit 9047) that lists individual workers, the amounts actually paid to each worker, the amounts that should have been paid, and the shortfall for each worker per week, but does not state the aggregate shortfall for all workers. That is, the figure of approximately $455,000 does not appear in exhibit 9047.
The Housing Authority argued to the court that it was entitled to recover unpaid prevailing wages on the project as an element of damages for breach of contract, although there was no evidence that the Housing Authority had paid or had been sued for the shortfall. The court disagreed and instructed the jury: “There is no damage claim being made in this case by the Housing Authority for any alleged underpayment of wages to employees on the project. However, you may consider evidence of any alleged underpayment of wages insofar as it may be relevant of the issue of whether or not the retention should be withheld.”
Counsel for the Housing Authority stated in closing argument that the total amount of damages suffered by the Housing Authority on all counts was $1,159,014.60. She listed the individual items of damages as liquidated damages for 256 days of delay at the rate of $1,500 per day ($384,000), damages for the Housing Authority’s deductive change order proposals that should have reduced the contract price paid ($677,932.77), damages for an additional credit due for the deletion of work relating to handicap parking spaces ($43,099.82), and damages for overcharges for labor in change orders paid by the Housing Authority ($45,882). Counsel stated, “Some of these damages go to one [count]. Some of them will go to more than one, and it will be up to you to decide.” Counsel did not request damages for false claims either in summing up the total damages suffered or in describing and counting the purported false claims.
Counsel for the Housing Authority stated in closing argument, while discussing the Housing Authority’s justification for failing to release the retained funds, that Fassberg failed to pay $455,085.37 in prevailing wages due to workers. Counsel also stated during closing argument, outside of the context of retained funds, that Fassberg failed to pay “about a half a million dollars” in prevailing wages and referred to “over a half a million dollars in back wages that are owed to people.”
The jury requested a list of exhibits during its deliberations. The court provided separate lists of exhibits offered by each party. The jury later inquired; “Can you provide us with documents listing [the Housing Authority’s] damages with regards to the following: (1) labor, (2) NARBI, (3) labor and trust, (4) deductive C.O.R’s, (5) handicap parking, (6) prevailing wages.” In response, the court reminded the jury: “There is no damage claim being made in this case by the Housing Authority for any alleged underpayment of wages to employees on the project. However, you may consider evidence of any alleged underpayment of wages insofar as it may be relevant to the issue of whether or not the retention should be withheld.” The court stated further, “The reason that’s important is as I go through and list these documents, some of them can only be considered for the issue of whether or not the retention should be withheld, not for damages, even though they are within the fist of documents you asked us to identify. So I’m going to identify them, but I just want you to understand—and I’ll distinguish between them for you—some of them can only be considered on the issue of retention and whether it should have been withheld or not. It cannot be included in any calculation of damages that you might be making.”
The court identified exhibits and stated that as to the first three enumerated items in the jury’s request, the exhibits could be considered “only on the issue of whether or not the retention should have been withheld, not on the issue of damages.” The court stated that the exhibits as to items 4 and 5 could be considered with respect to both the retention and damages. The court stated with respect to item 6: “And then with respect to the category that you list of prevailing wages, there are two exhibits. The first is exhibit 9044. 9044. That is a chart of the C.O.P.’s. That exhibit may be considered on the issue of damages. 9044, may be considered on the issue of damages. The second exhibit that’s relevant to your inquiry as phrased is exhibit 9047, which is a chart of . . . the certified payroll. That is an exhibit that can only be considered on the issue of whether the retention should have been withheld. It cannot be considered in terms of calculating whatever damages that you believe have been proved.”
The court stated further: “We believe that’s responsive to your inquiry. Does anybody need me to read them again? Raise your hand if you need me to read them again.” The jury foreperson stated, “The last one.” The court responded: “Last one. Prevailing wages, 9044, which can be considered on the issue of damages. And then 9047 which can only be considered on the issue of retention. It cannot be considered on the issue of damages.”
The jury found that Fassberg knowingly submitted 2,983 false claims resulting in $455,000 in damages. The jury also found that the Housing Authority suffered $1,104,000 in damages resulting from Fassberg’s breach of contract and that the Housing Authority suffered $1,559,000 (the sum of $1,104,000 and $455,000) in damages resulting from misrepresentations. The court trebled the award of damages for false claims pursuant to Government Code section 12651, subdivision (a) and awarded the Housing Authority $1,365,000 in treble damages for false claims, $1,104,000 in damages for breach of contract, and a civil penalty of $1,491,500 ($500 per claim). Fassberg challenged the finding of $455,000 in damages for false claims by moving for a partial judgment notwithstanding the verdict, arguing that the finding was not supported by the evidence and was contrary to the jury instruction. Fassberg also moved for a new trail on the same ground. The court denied both motions.
b. Standards of Review
We review the jury’s finding that the Housing Authority suffered $455,000 in damages resulting from false claims under the substantial evidence standard. Substantial evidence is evidence that a rational trier of fact could find to be reasonable, credible, and of solid value. We view the evidence in the light most favorable to the verdict and accept as true all evidence tending to support the verdict, including all facts that reasonably can be deduced from the evidence. We must affirm the award of damages based on the verdict if an examination of the entire record viewed in this light discloses substantial evidence to support the verdict. (Crawford v. Southern Pacific Co. (1935) 3 Cal.2d 427, 429 [45 P.2d 183]; Kuhn v. Department of General Services (1994) 22 Cal.App.4th 1627, 1633 [29 Cal.Rptr.2d 191].)
A party is entitled to a judgment notwithstanding the verdict only if there is no substantial evidence to support the verdict and the evidence compels a judgment for the moving party as a matter of law. (Code Civ. Proc., § 629; Clemmer v. Hartford Insurance Co. (1978) 22 Cal.3d 865, 877-878 [151 Cal.Rptr. 285, 587 P.2d 1098].) A party is entitled to a partial judgment notwithstanding the verdict if there is no substantial evidence to support the verdict on a particular issue and the evidence compels a judgment for the moving party on that issue as a matter of law. (Beavers v. Allstate Ins. Co. (1990) 225 Cal.App.3d 310, 323-324 [274 Cal.Rptr. 766].) The trial court must view the evidence in the light most favorable to the verdict, disregard conflicting evidence, and indulge in every legitimate inference to support the verdict. (Clemmer, supra, at pp. 877-878.) On appeal, we independently determine whether there is substantial evidence to support the verdict and whether the moving party is entitled to judgment in its favor as a matter of law. {Shapiro v. Prudential Property & Casualty Co. (1997) 52 Cal.App.4th 722, 730 [60 Cal.Rptr.2d 698].) If an appellate court determines that the trial court denied a motion for judgment notwithstanding the verdict that should have been granted, the appellate court must order the entry of judgment in favor of the moving party. (Code Civ. Proc., § 629.)
c. The Jury Improperly Awarded the Housing Authority the Amount of Underpaid Prevailing Wages as Damages for False Claims
The evidence presented at trial, argument of counsel, and questions by the jury leave no room for reasonable doubt as to the basis for the jury’s finding that the Housing Authority suffered $455,000 in damages resulting from false claims. Hostettler testified that workers on the project were underpaid by “approximately $455,000” in prevailing wages and that the contractor (Fassberg) was liable to the Housing Authority for that shortfall. Counsel for the Housing Authority stated in closing argument that Fassberg failed to pay $455,085.37 in prevailing wages due to workers. Although counsel made that statement in the context of justifying the Housing Authority’s failure to release the retention proceeds, counsel also stated during closing argument without reference to the retention issue that Fassberg failed to pay “about half a million dollars” in prevailing wages and referred to “over half a million dollars in back wages that are owed to people.”
Despite the court’s instruction that the Housing Authority was not seeking to recover damages for underpayment of wages, the jury requested “documents listing [the Housing Authority’s] damages with regards to . . . prevailing wages.” The jury apparently sought documentary evidence of the Housing Authority’s damages with regard to the underpayment of wages for the purpose of awarding those damages. The court reinstructed the jury that the Housing Authority did not seek to recover damages for underpayment of wages and identified two exhibits pertaining to prevailing wages.
The two exhibits were exhibits 9044 (final labor submission analysis) and 9047 (certified payroll analysis). The court stated that the former, could be considered on the issue of damages while the latter could be considered only on the issue of the retention. The court apparently determined that the amounts paid by the Housing Authority pursuant to approved change order proposals for wages claimed in excess of the amounts actually paid to workers, as purportedly shown in exhibit 9044, were recoverable as damages. Exhibit 9044 stated that information for each change order proposal, but did not state the total amount of $45,882 that was cited by Hostettler in his testimony and by counsel for the Housing Authority in closing argument. The exhibit was lengthy, complex, somewhat confusing, did not expressly state that the amounts shown were approved and paid rather than only requested in unapproved or unpaid change orders, and did not readily yield the information that the jury was seeking to determine as to the amount of recoverable damages. The jury apparently did not associate exhibit 9044 with the $45,882 figure and therefore did not understand the instruction to mean that that amount could be awarded as damages and the amount purportedly shown in exhibit 9047 could not be awarded as damages.
The court instructed the jury to consider exhibit 9047 only with respect to the retention issue and not for the purpose of damages. Exhibit 9047 purportedly stated the amount underpaid for each worker on the project for each week, but did not state the total amount of approximately $455,000 that was cited by Hostettler in his testimony and by counsel for the Housing Authority in closing argument. That figure could be calculated only by adding numbers from each of the hundreds of entries on the 29-page exhibit. The jury apparently, and understandably, did not associate exhibit 9047 with the $455,000 figure and therefore did not understand the instruction to mean that it could not award that amount as damages.
The jury found that the Housing Authority suffered $1,104,000 in damages resulting from Fassberg’s breach of contract. That figure is the sum of each amount of damages listed in the Housing Authority’s closing argument except $45,882, rounded down to the nearest múltiple of $1,000 (i.e., $384,000 + $677,000 + $43,000 = $1,104,000). The jury also found that the Housing Authority suffered an additional $455,000 in damages resulting from false claims. Thus, we can conclude with reasonable certainty that rather than exclude the $455,000 figure from its calculation of damages, the jury excluded the $45,882 figure from its calculation of damages.
The fact that the jury awarded $455,000 in damages resulting from false claims, the precise amount stated by the Housing Authority’s expert witness at trial as the amount of underpaid wages, is a strong indication that the jury accepted Hostettler’s testimony on that point and awarded damages for underpaid wages. (Seffert v. Los Angeles Transit Lines (1961) 56 Cal.2d 498, 505 [15 Cal.Rptr. 161, 364 P.2d 337].) The repeated emphasis in the Housing Authority’s closing argument on the amount of underpaid wages and the jury’s request for documents pertaining to “damages with respect to . . . prevailing wages” also suggest that the jury believed that the Housing Authority was entitled to damages for underpayment of prevailing wages. Despite the court’s response to the jury’s request and the identification of exhibits pertaining to prevailing wages, the jury apparently failed to understand that the Housing Authority was not entitled to recover $455,000 in damages for the underpayment of wages. We conclude that the award of $455,000 in damages for false claims was based on the underpayment of prevailing wages for which the Housing Authority was not entitled to recover damages.
The Housing Authority argues on appeal that it is entitled to recover the amounts paid to Fassberg under the contract in reliance on the purported false certifications of weekly payroll reports. It argues that the measure of damages for false claims is the difference between the total amount paid to Fassberg and the amount it would have paid if the payroll certifications had been truthful. The Housing Authority refers to Hostettler’s testimony that approximately $455,000 of wages due to workers on the project was not paid to the workers, but does not expressly argue that it was damaged in that amount or that it is entitled to recover damages measured by the amount of underpaid wages. The Housing Authority’s argument on this point is perfunctory and poorly explained. The Housing Authority apparently argues that the payment of prevailing wages to workers was a necessary condition for payment to Fassberg under the contract, that because some workers were not paid prevailing wages the Housing Authority had no obligation to make progress payments to Fassberg under the contract, and that the total amount paid in excess of the amount the Housing Authority was required to pay is recoverable as damages under the California False Claims Act. We reject that argument.
The ordinary measure of damages under California law for breach of an obligation not arising from a contract is the amount that will compensate for all of the loss or harm proximately caused by the breach. (Civ. Code, §§ 3333, 3282.) The Housing Authority received what it paid for and accepted under the terms of the contract: a completed work of construction. The Housing Authority has not shown that it paid the workers any part of the wages shortfall or has been sued for such a recovery. It has not shown that the failure to pay prevailing wages to some of the workers on the project increased the cost of construction paid by the Housing Authority, impaired the value of the completed project, or caused any cognizable loss or harm to the Housing Authority. The Housing Authority is not entitled to disgorgement of amounts paid under the contract as damages (trebled under Gov. Code, § 12651, subd. (a)) because those amounts do not reflect an actual loss or harm to the Housing Authority. (See Harrison v. Westinghouse Savannah River Co. (4th Cir. 2003) 352 F.3d 908, 923 [rejected a similar argument under the federal False Claims Act]; Ab-Tech Constr., Inc. v. U.S. (1994) 31 Fed.Cl. 429, 434, affd. (Fed.Cir. 1995) 57 F.3d 1084 [same].)
U.S. v. Mackby (9th Cir. 2003) 339 F.3d 1013, cited by the Housing Authority, is not on point. The Ninth Circuit in Mackby held that a judgment awarding civil penalties and treble damages under the federal False Claims Act against the owner of a physical therapy clinic was not excessive under the Eighth Amendment excessive fines clause because the amount of the judgment was not grossly disproportional to the harm caused. (339 F.3d at p. 1017.) The trebled damages consisted of Medicare reimbursements that the defendant was ineligible to receive under federal regulations because he was neither a physician nor a physical therapist. {Id. at pp. 1014-1015.) Discussing the harm caused by the false claims, Mackby stated that the government was harmed in the amount of the Medicare payments, despite the defendant’s provision of services to patients, because the defendant was ineligible to receive Medicare payments. {Id. at pp. 1018-1019.) Here, in contrast, no statute or regulation makes Fassberg ineligible to receive payment for the work performed.
We conclude that the award of $455,000 in damages for false claims, tr