Filed 11/17/20 Harouche v. The Wilshire Corp. CA2/5
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FIVE
MICHEL HAROUCHE, B297364
Plaintiff and Respondent, (Los Angeles County
Super. Ct. No. SC124859)
v.
THE WILSHIRE
CORPORATION, et. al.
Defendants and Appellants.
APPEAL from a judgment of the Superior Court of Los
Angeles County, Nancy L. Newman, Judge. Affirmed in part;
reversed in part and remanded.
The Ryan Law Firm, James S. Link, Kelly F. Ryan and
Jillian M. Reyes for Defendants and Appellants.
Law Offices of Stephen S. Smith and Stephen S. Smith for
Plaintiff and Respondent.
__________________________
INTRODUCTION
Plaintiff Michel Harouche hired defendant Stephen Sisca
and Sisca’s company, defendant The Wilshire Corporation (TWC)
to serve as his agents, overseeing and managing the construction
of Harouche’s multi-million dollar residence in Malibu (the
project). Without Harouche’s knowledge or consent, Sisca and
TWC conditioned the award of the construction contract on the
general contractor’s agreement to kickback $235,000 of
Harouche’s first $350,000 payment to the contractor, plus an
additional 4 percent of all other money Harouche would pay the
contractor.1 General contractor John Finton agreed to these
terms in writing on behalf of his company, Finton Construction,
Inc. (FCI or contractor), and paid Sisca and TWC the kickbacks
accordingly. About a third of the way into the seven-year project,
Sisca proposed and Finton agreed to fraudulently increase the
cost of change orders for the project, and split the profit from the
marked up amounts.2
After learning of the kickbacks and fraud from a third
party, Harouche sued Sisca, TWC, Finton, and FCI. Harouche
settled with Finton and FCI for $1,100,000 in damages.
Following a bench trial, the court found Sisca and TWC liable for
breach of fiduciary duty and fraud. The court awarded
$1,980,837.72 in damages against Sisca and TWC. That number
consisted of three amounts: (1) $235,000 from the initial
1 The contract Harouche signed allowed for TWC to receive
2.5 percent of all monies Harouche paid to the general contractor.
Thus, this side agreement between Sisca and the contractor gave
TWC an additional undisclosed 1.5 percent of the payments
Harouche made to the contractor.
2 Change orders are the mechanism within the construction
contract for modifying the project and increasing the cost of it.
2
kickback, (2) $205,011.46 from the 1.5 percent kickback of all
amounts Harouche paid FCI, and (3) $1,540,826.26 from
fraudulent change orders.
On appeal, Sisca and TWC do not challenge the trial court’s
liability findings. Rather, they make three arguments about
damages. First, they assert the damages based on change orders
were not supported by substantial evidence. Second, they argue
the trial court failed to consider “special circumstances” that
justified their receipt and retention of the initial $235,000
kickback. Third, they argue the trial court was required to award
them an offset of $608,000 due to FCI’s release of its cross-
complaint in that amount as part of its settlement with
Harouche. We conclude the trial court erred in calculating the
change order damages. We modify the amount of those damages
and remand for the trial court to recalculate prejudgment
interest and rule on the $608,000 offset.
FACTS AND PROCEDURAL BACKGROUND
Although there were many witnesses who testified and
many subcontractors who worked on the project, three people are
at the center of this appeal:
1. Harouche – the owner of the residence
2. Sisca and his company TWC – the project manager
3. Finton and his company FCI – the contractor
Several formal contracts and informal arrangements
among these people drive the analysis of the parties’ dispute. We
start our factual synopsis with those agreements.
1. Project Management Agreement Between Harouche
and TWC
In September 2008, Harouche and TWC entered into a
project management agreement, in which TWC agreed to act as
Harouche’s project manager on the project. TWC was responsible
for managing “all aspects of the pre-construction and construction
3
process,” including “interviewing negotiating and hiring a general
contractor” and “management of general contractor.” The
agreement stated TWC had been acting in this capacity on behalf
of Harouche since April 1, 2008 and would continue to act on
Harouche’s behalf until project completion. Harouche agreed to
pay TWC a project management fee of $200,000, plus $1,600 for
each trip Sisca made to California to manage the project.
Pursuant to this agreement, Harouche eventually paid Sisca and
TWC fees totaling $262,000, plus travel expenses of $63,400.
2. Construction Contract Between Harouche and FCI
On August 6, 2008, Harouche entered into a “Stipulated
Sum Construction Agreement” with FCI. FCI agreed to construct
the project for $10,265,218.31, which included the contractor’s
fee. The contractor’s fee was 12.75 percent of the contract, which
included “2.50% to Sisca.”3 The construction contract provided
that “The Contract Sum may be changed only by a written
Change Order Addendum.”
3. Kickback Agreement
Unbeknownst to Harouche, on the same day that Harouche
and FCI entered into the construction contract, TWC and FCI
entered a side agreement for the project. As a condition of being
awarded the construction contract, FCI agreed to pay TWC
additional amounts that were not provided for in the contracts
executed by Harouche. First, FCI agreed to pay TWC a $235,000
3 In addition to the fees set out in the project management
agreement, Harouche agreed in the construction contract that
TWC would receive 2.5 percent of the entire construction contract
cost. FCI effectively received a contractor fee of 10.25 percent of
the contract after TWC took its cut of the contractor fee. (At
trial, the parties disagreed on whether Harouche was aware of
the provision for the 2.5 percent payment from FCI to Sisca, but
the trial court found that at least Harouche’s financial advisor
was aware of it.)
4
project “referral fee” out of the initial $350,000 payment that
Harouche was to make to FCI under the Construction Contract.
Second, FCI agreed to pay TWC 4 percent of all monies that
Harouche paid FCI under the Construction Contract, rather than
the 2.5 percent that the Construction Contract provided.
In accordance with this kickback agreement, FCI paid TWC
$235,000 “within one day of Harouche making his first payment
to FCI” under the Construction Contract. FCI paid TWC 4
percent of the $13,667,431.81 that Harouche paid FCI, rather
than the 2.5 percent that had been recited in the construction
contract. The extra 1.5 percent amounted to $205,011.46.
4. Fraudulent Change Orders
During the first third of the project, Sisca suggested to
Finton that they use the change order process from the
construction contract to make extra money for themselves. Sisca
proposed that they increase the amounts due to subcontractors
for the change orders, submit the inflated subcontract payments
to Harouche, and then split the profit 50/50. In an April 2011
email, Sisca wrote Finton: “On a separate note I’m looking to
make us some more money on the Harouche Job. Please confirm
you are good with a 50/50 split on anything I can get us on
extras/change orders.” Finton replied via email that he agreed to
the arrangement. Sisca told Finton that Harouche would never
find out about the altered change orders.
Thereafter, Finton transmitted to Sisca the subcontracts
that FCI had entered into with subcontractors for the change
order work. Sisca then altered the subcontracts to increase the
cost of the work. The “falsified subcontracts” were submitted to
Harouche for payment.
Harouche introduced into evidence nine subcontracts that
had been forged to reflect an unearned increased price for the
work. The evidence included both the original and the altered
5
subcontract for the same work. Finton later attested that the
original subcontracts he gave to Sisca to alter were “real” and
reflected the “true cost” of the change order work described in
those subcontracts. Sisca provided each of the inflated
subcontracts to Harouche for payment.
Finton testified that he did “not recall the total, collective
inflated amounts and the total collective amount of money FCI
paid to TWC under this scheme.” But, he did recall that “TWC’s
50% plus 4% of FCI’s 50% added up to a minimum of many
hundreds of thousands of dollars.”
By the time the project was completed in 2015, Harouche
had paid FCI $13,667,431.81. That amount was $3,042,213.50
above the original construction contract.
5. Harouche Sues Sisca/TWC and Finton/FCI
On October 13, 2015, Harouche filed a complaint against
Sisca, TWC, Finton, and FCI. He asserted claims for breach of
contract, fraud, negligent misrepresentation, breach of fiduciary
duty, and negligence, and sought damages of $2.6 million. FCI
filed a cross-complaint against Harouche, claiming Harouche
failed to pay FCI the last “payment application #57” under the
Construction Contract. FCI sought damages of $608,000.
Sisca and TWC also filed a cross-complaint against
Harouche. They asserted claims for breach of contract and
“common count.” They claimed that Harouche owed them
$104,000 under the project management agreement.
During the pendency of this case, FCI and Finton filed for
bankruptcy. Apparently with the approval of the bankruptcy
trustee, Harouche then reached a settlement with FCI and
Finton, where Finton and FCI stipulated to a $1,100,000
judgment in favor of Harouche. Finton and FCI also agreed to
dismiss their cross-complaint, and to admit to facts
demonstrating that the judgment against them was non-
6
dischargeable under sections 523(a)(2)(A) and (a)(6), title 11 of
the United States Code. Those facts were set forth in Finton’s
declaration, which was attached to the settlement agreement.
Although Finton and FCI stipulated to a judgment of
$1,100,000, the settlement did not require them to pay that
amount immediately. Instead, because of the bankruptcy,
Harouche agreed to forbear from collecting the judgment in
return for FCI making small monthly payments, commencing
upon approval of its bankruptcy plan of reorganization. Only at
the end of the plan period would FCI and Finton be obligated to
pay the rest of the judgment.
In January 2017, Harouche, Finton, and FCI filed an
application with the trial court to determine that their settlement
was entered into in good faith. Sisca and TWC contested the
motion for the good faith settlement. On March 8, 2017, the
bankruptcy court approved the settlement agreement between
FCI and Harouche. On May 25, 2017, the trial court approved
the good faith settlement and entered “Judgment Pursuant to
Settlement” against FCI and Finton.
6. Trial and Judgment
In January 2018, the court held a bench trial for the claims
against Sisca and TWC and on their cross-complaint. The parties
filed posttrial briefs in March and April 2018. On June 12, 2018,
the court issued its proposed statement of decision, finding in
favor of Harouche. The parties objected to certain aspects of the
decision. Sisca and TWC argued that the court miscalculated the
damages associated with the fraudulent change orders. They
also argued that the trial court should have offset their damages
by the amount FCI’s released cross-complaint against Harouche.
On August 14, 2018, the trial court issued its final
statement of decision and reserved punitive damages for further
7
proceedings.4 The court found “[t]he contract between Sisca and
Harouche obligated Sisca to act as Plaintiff’s agent with respect
to the construction project.” The court determined Sisca
breached his fiduciary duty to Harouche “by participating in a
scheme with Finton to make additional money off of the
construction project at the expense of Harouche.” The court
stated that Sisca violated his fiduciary duty by receiving
undisclosed fees from Finton while advocating for Finton to
receive the contract, and by arranging to increase the
subcontractors’ pricing and splitting the increase with Finton.
The court also found Sisca and TWC committed fraud, based on
the additional 1.5 percent of monies that Sisca and TWC received
from Finton and the altered change orders.5
In total, the court found the following damages, broken into
three categories: (1) $235,000 from the initial kickback (“referral
fee”), (2) $205,011.46 from the 1.5 percent kickback on all
amounts Harouche paid FCI, and (3) $1,540,826.26 from
fraudulent change orders. The court retained jurisdiction to
award Sisca and TWC an offset if and when FCI and Finton
made a payment to Harouche under the settlement agreement.
Sisca and TWC renewed their objections on the calculation
of damages for the change orders and the offset of the settlement
between FCI and Finton and Harouche.
7. Entry of Judgment
After the trial court issued the final statement of decision,
but before judgment was entered against Sisca and TWC, FCI
paid Harouche $18,000 under the bankruptcy plan of
4 On November 15, 2018, the court issued a separate
statement of decision denying punitive damages.
5 The court ruled against Harouche on his breach of contract
and negligent representation causes of action.
8
reorganization. On March 5, 2019, Harouche filed notice of the
payment and requested an offset of $18,000 from the judgment.
On March 19, 2019, the court signed a revised judgment,
reducing damages by $18,000. The revised judgment awarded
Harouche $1,962,837.72 in damages against Sisca and TWC, plus
prejudgment interest of $990,486.45. The court awarded
Harouche costs as the prevailing party, and stated Sisca and
TWC “shall take nothing by their Cross-Complaint.”6 The court
reserved “jurisdiction to calculate and award offset credits to
[Sisca and TWC] for any future settlement payments that are
made to Harouche by defendants Finton Construction, Inc. and/or
John Finton.”
Sisca and TWC filed a timely notice of appeal.
DISCUSSION
Sisca and TWC argue (1) the damages based on change
orders were not supported by substantial evidence, (2) the trial
court failed to consider “special circumstances” that justified
defendants’ receipt and retention of the initial $235,000 kickback,
and (3) the trial court was required to award defendants an offset
of $608,000 due to FCI’s release of its cross-complaint in that
amount as part of its settlement with Harouche. We address
each in turn.
1. The Damages for the Fraudulent Change Orders Were
Miscalculated
In its statement of decision, the court awarded damages on
nine change orders. The first eight fraudulent change orders
corresponded to eight invoices from seven subcontractors. The
ninth fraudulent change order corresponded to four subcontracts
submitted by subcontractor Solar Electrical. Sisca and TWC
6 The original judgment included the following: “FCI shall
take nothing by its Cross-Complaint.”
9
argue that the $1,540,826.26 in damages attributed to fraudulent
change orders was not supported by substantial evidence, and
that the damages for the fraudulent inflation of change orders
amounted only to $250,324. Specifically, Sisca and TWC argue
the damages for the first eight change orders were miscalculated.
Sisca and TWC also argue the court erred in awarding any
damages for the Solar Electrical change order because Harouche
never paid the fraudulent marked up amount.
“In reviewing a judgment based upon a statement of
decision following a bench trial, we . . . apply a substantial
evidence standard of review to the trial court’s findings of fact.
[Citation.] Under this deferential standard of review, findings of
fact are liberally construed to support the judgment and we
consider the evidence in the light most favorable to the prevailing
party, drawing all reasonable inferences in support of the
findings. [¶] A single witness’s testimony may constitute
substantial evidence to support a finding. [Citation] It is not our
role as a reviewing court to reweigh the evidence or to assess
witness credibility. [Citation] ‘A judgment or order of a lower
court is presumed to be correct on appeal, and all intendments
and presumptions are indulged in favor of its correctness.’
[Citation] Specifically, ‘[u]nder the doctrine of implied findings,
the reviewing court must infer, following a bench trial, that the
trial court impliedly made every factual finding necessary to
support its decision.’ ” (Thompson v. Asimos (2016) 6 Cal.App.5th
970, 981 (Thompson).)7
7 Harouche cites Seffert v. Los Angeles Transit Lines (1961)
56 Cal.2d 498, 507, and Bertero v. National General Corp. (1974)
13 Cal.3d 43, 61, for the proposition that a damage award can
only be reversed if it was the result of passion or prejudice.
These cases address arguments about excessive nonpecuniary
damage awards in jury trials, and are inapt here.
10
a. The Court Miscalculated Damages on the First Eight
Change Orders
Sisca and TWC explain that the trial court indicated in the
Statement of Decision that it intended to award damages equal to
the difference between the original eight subcontracts and the
corresponding fraudulent versions that were submitted in the
change orders to Harouche for payment. They assert that the
court inadvertently awarded damages for the entire price of the
altered subcontracts, not just the fraudulent portion. We agree.
In its Statement of Decision, the court made the following
findings on the fraudulent change orders:
“Paragraph 9 of the contract required Harouche
to pay money above the stipulated sum only if it was
part of a legitimate change to the scope of the
construction of the residence requiring a change
order. It was established at trial that Harouche
continued to add items onto the project which
resulted in a significant number of change orders.
The number of change orders varied among the
witnesses who testified, but it does appear that there
were a significant number of change orders.
“The change orders appear to be legitimate;
however, the agreement that Sisca and Finton
reached with respect to marking up the amount
provided by the subcontractor was a fraudulent act
causing harm to Harouche. Finton’s declaration
indicates that he transmitted to Sisca the real
subcontracts that FCI had entered with the
subcontractors to perform the change order work.
Unbeknownst to Harouche those subcontracts were
altered to increase the cost of the work substantially
above the true cost of that work. Sisca was fully
11
aware of this fact. Sisca submitted those falsified
contracts to Harouche for payment of the inflated
amount of the cost of the work. Harouche then would
pay that inflated amount to FCI. Finton would take
that payment and divide the inflated amount fifty-
fifty between FCI and TWC. FCI then paid to TWC
its 50 percent, plus its 4 percent of FCI’s 50 percent
of the inflated amount. Although Finton never saw
the forged contract, Sisca told him that he altered the
subcontracts. It is noted that Sisca denies he altered
the subcontracts.”
In its analysis of damages attributable to these fraudulent
change orders, the trial court stated:
“Sisca argues that the subcontract amount is
not relevant to the damages claim because the
change orders were based on various subcontract
approvals. However, in the Court’s view, the clearly
inflated and altered subcontracts is where the fraud
occurred. Although Sisca denies forging the
subcontracts, the court doubts his credibility.
Further, it is clear he was aware of this process.
Finton testified that Sisca was responsible for the
alterations and that they were done at his
suggestion.
“There were eight subcontracts presented by
plaintiff as evidence of the inflated amounts which
were to be split by Finton and Sisca.
“The difference between the original invoices
noted above and the amount submitted to Harouche
totals $1,427,425. The eight original subcontracts
were admitted into evidence by stipulation. Mr.
Clark testified that he received corresponding
12
contracts for differing amounts and submitted those
contracts to Harouche for payment.
“The Court is basing its damages award
relative to the solar contract on the testimony of Mr.
Johanson and his declaration (Exhibit 91) of Solar
Electrical Systems. Mr. Johanson testified that he
prepared four subcontracts for his work on the
residence. The total of those contracts was
$133,157.74. Mr. Clark [Harouche’s employee tasked
with paying invoices from the contractor] received an
invoice for $245,819 which he submitted to Harouche.
The difference is $112,661.26.
“The total damages awarded to the Plaintiff for
the inflated subcontracts is $1,540.826.26. Subject to
the good faith settlement deduction noted below, the
Court will make an award to Plaintiff.” (Emphasis
added.)
The court’s findings reflect that Harouche requested many
changes in the project and that the change orders corresponded to
legitimate work. The court found that the fraud occurred solely
where Sisca altered the subcontracts to charge Harouche more
money for the same work. Contrary to what Harouche argues on
appeal, the court singled out this portion of the change orders as
the basis for fraud damages – not the entire amount of each
change order.
The trial court stated that it had evidence of both the eight
original subcontracts and the corresponding eight altered
versions of those subcontracts. The court calculated the damages
to be the “difference between the original invoices noted above
and the amount submitted to Harouche.” We set forth those
amounts in the table below.
13
Subcontract Original Amount Difference
Invoice Submitted to (Resulting
Harouche Damages)
Apollo Glazing $395,000 $450,000 $55,000
Contractors –
October 19, 2011
Chris Ryan Wall $8,340 $13,000 $4,660
Covering & Paint –
March 21, 2014
Chris Ryan Wall $115,000 $163,600 $48,600
Covering & Paint –
March 21, 2014
Grand Heating – $119,305 $132,516 $13,211
November 23, 2011
Kruger Electrical – $150,322 $204,000 $53,678
January 17, 2013
LC Pools – $196,430 $255,380 $58,950
June 30, 2011
Preferred $143,300 $149,500 $6,200
Contractors –
October 31, 2011
X-Tech Security – $49,404 $59,429 $10,025
March 11, 2013
TOTALS $1,177,101 $1,427,425 $250,324
The final, right-hand column of the table reflects the
$250,324 difference between the original accurate invoices and
amounts charged to and paid by Harouche for the eight
subcontracts. The trial court was mistaken when it concluded
the difference amounted to $1,427,425.
Harouche argues that the trial court intended to award the
full amount of the altered subcontracts. He cites Bardis v. Oates
14
(2004) 119 Cal.App.4th 1, 13 (Bardis), in arguing “the trial court
was free to decide that all of the eight Forged Subcontracts
should be disallowed because the evidence overwhelmingly
proved that [Sisca and TWC] acted fraudulently and in breach of
their fiduciary duty regarding those subcontracts.” In Bardis, the
appellate court concluded the jury was entitled to give no weight
to the fiduciary’s post hoc explanation that the money he
fraudulently took from the principal was for legitimate overhead
costs. (Id. at pp. 12-13.)
Bardis is inapt: the trial court here determined that the
“change orders appear to be legitimate” and were based on the
many changes requested by Harouche during the project. In
finding the change orders were not entirely fraudulent, the court
rejected Harouche’s claim of $3,042,213.50 in damages that
represented the amount he paid in excess of the stipulated sum
in the Construction Contract. The court found that the markup
on “the amount provided by the subcontractor was a fraudulent
act causing harm to Harouche.” The trial court’s statement of
decision explicitly stated that it did not intend to award the full
amount of the altered subcontracts, but rather it was awarding
the “difference between the original invoices noted above and the
amount submitted to Harouche.”8
Harouche also asserts the court’s $1,427,425 damages
finding must stand because Sisca and TWC “never cited any
evidence showing that any portion of the Contract Prices found in
the eight Forged Subcontracts was true. The fact that Sisca
8 We do not address whether the trial court could properly
have awarded as damages the entire amount of the change orders
fraudulently issued or used some other calculation. The trial
court stated that it was not making such an award, and the issue
before us is whether the trial court made a calculation error in
determining the amounts necessary to effect its award.
15
altered real subcontracts to create the Forged Subcontracts does
not mean that some amounts in the Forged Subcontracts were
‘real.’ ” We disagree with this characterization of the record.
At trial, plaintiff introduced statements from Finton, who
attested that all the change orders were based on legitimate work
and that Sisca marked up the cost of the subcontractor’s
legitimate work to make a profit. The court found “Finton to be a
credible witness who has declared under penalty of perjury to
statements against his own interest.” In making its decision, the
court referenced the exhibits of both the original and the altered
subcontracts. This substantial evidence supported the court’s
conclusion that the original invoices were “real” and explained
that the court did not intend to award damages for the
nonfraudulent portion of the change order.
To the extent Harouche seeks affirmance based on Finton’s
declaration that Sisca received “hundreds of thousands of dollars”
from the “forged subcontracts,” the trial court did not find this
argument or the conclusory statements persuasive. The court
found damages for the nine change orders that Harouche
introduced into evidence at trial. We do not reweigh the evidence
on appeal. (Thompson, supra, 6 Cal.App.5th at p. 981.)
We conclude that the record supports only $250,324 in
damages for the eight fraudulent change orders.
b. Solar Electrical Fraudulent Change Orders Were
Properly Included in the Calculation of Damages
The ninth change order was for work provided by Solar
Electrical. The testimony at trial was that it was confusion over
this subcontract that ultimately led to Harouche’s discovery of
Sisca and Finton’s entire change order fraud scheme. It is
undisputed that Harouche was billed $245,819 by Sisca in a
change order for Solar Electrical’s work dated July 16, 2012. Yet,
Solar Electrical had only actually invoiced $133,160.74 in four
16
separate invoices ($17,650, $50,443.74, $57,467, and $7,600).
The trial court found that the difference between the original
invoices and the amount submitted to Harouche was
$112,661.26.9
Citing testimony from one of Harouche’s employees, Sisca
and TWC argue the record indicates that Harouche never paid
the additional $112,661.26 that constituted the fraud. Sisca and
TWC misconstrue the testimony.
Witness John Clark, an employee of Harouche’s whose job
it was to make payments on the construction contract, testified
that he directly contacted Solar Electrical to ascertain how much
Harouche owed on the subcontract, as it was unclear from their
records. Clark testified that the Solar Electrical office manager
told him there was a remaining balance that had to be paid for
Solar to turn on the system it had installed. Clark obtained
copies of the four invoices from Solar Electrical, which totaled “in
the 130,000 range” and compared them to the contract he had
received from Sisca, which was “$240-some thousand.”
Referencing his emails with Sisca (exhibit 76), Clark testified
that he confronted Sisca about the substantial discrepancy
between what Solar Electrical had charged for the work, and
what Sisca had billed Harouche. In the email, Clark wrote, “If
you account for everything paid to date including monies to the
previous companies prior to everything consolidating with Solar
Electrical we have already paid approximately 225.4k, yet their
services only total 135k.” Sisca responded via email, instructing
Harouche to pay the remaining balance directly to Solar
9 The trial court appears to have miscalculated the amount:
the difference is actually $112,658.26.
17
Electrical so that Solar Electrical would turn on the system.
Clark stated he paid the balance to Solar Electrical.10
The testimony and emails evidence that Harouche paid
more than $225,400 for the Solar work. We conclude the trial
court reasonable found that the damages associated with the
Solar subcontract was the difference between the original
invoices and the amount submitted to Harouche, i.e. $112,658.26.
c. Reduction in Damages for the Inflated Subcontracts
The trial court awarded $1,540,826.26 in damages for the
inflated subcontracts. Based the record, the damages for the
inflated subcontracts were actually $362,982.26 ($250,324 for the
first eight subcontracts and $112,658.26 for the Solar Electrical
contract). “When the evidence is sufficient to sustain some but
not all alleged damages, we will reduce the judgment to the
amount supported by the evidence.” (Behr v. Redmond (2011)
193 Cal.App.4th 517, 533 (Behr).) We modify the judgment to
reduce the amount of damages on the nine inflated subcontracts
to $362,982.26 ($1,540,826.26 - $1,177,844).
2. $235,000 Damages was Properly Awarded for the
“Referral Fee”
Sisca and TWC argue the trial judge erred when it awarded
Harouche the $235,000 “referral fee,” the amount TWC required
FCI to pay upon receiving the construction contract. Citing
Savage v. Mayer (1949) 33 Cal.2d 548, 551 (Savage), Sisca and
TWC assert the court failed to consider special circumstances
underlying the payment by FCI to TWC, that should permit TWC
to keep $235,000. We apply the aforementioned substantial
evidence standard of review in reviewing the trial court’s decision
on this factual issue. (Thompson, supra, 6 Cal.App.5th at p. 981.)
10 Clark testified using round estimates. The court found the
true amounts were slightly different based on the actual invoices.
18
Savage does not assist Sisca and TWC. “An agent,
however, is not permitted to make any secret profit out of the
subject of his agency. [Citations.] All benefits and advantages
acquired by the agent as an outgrowth of the agency, exclusive of
the agent’s agreed compensation, are deemed to have been
acquired for the benefit of the principal, and the principal is
entitled to recover such benefits in an appropriate action.
[Citation.] In the absence of special circumstances, moneys
received by one in the capacity of agent are not his, and the law
implies a promise to pay them to the principal on demand.
[Citation.] It follows that the principal’s right to recover does not
depend upon any deceit of the agent, but is based upon the duties
incident to the agency relationship and upon the fact that all
profits resulting from that relationship belong to the principal.”
(Savage, supra, 33 Cal.2d at p. 551.)
Sisca and TWC rely on the italicized quoted language above
in asserting there were special circumstances that “permitted the
payment of the referral fee to TWC.” Sisca and TWC admit
“there are no cases that we can find—in or out of state— defining
‘special circumstances,’ ” but nonetheless assert that their
circumstances allowed them to retain the referral fee.11
Sisca and TWC characterize these “special circumstances”
as follows: “The $235,000 referral fee is just compensation for 6
months’ work without any payment . . . .” They assert, “It was
Harouche who took advantage of Sisca in asking him to
undertake due diligence on the purchase of the Malibu property
for which there was no renumeration.” Whether intended or not,
Sisca and TWC essentially argue that they were entitled to
11 We have found no appellate authority that applies Savage’s
“special circumstances” exception to allow an agent to retain a
secret profit through the agency relationship, unbeknownst to the
principal.
19
commit fraud because Harouche did not pay them fairly for their
services in the six months from April 1, 2008 to September 23,
2008. The trial court was not persuaded; nor are we.
The contract between Harouche and Sisca/TWC, dated
September 23, 2008 stated: “TWC has been acting in this
capacity on behalf of Harouche since April 1, 2008. TWC will
continue to act diligently on behalf of Harouche until such time
the Project is completed and ready for occupancy. . . . In
consideration for the services of TWC, Harouche will pay TWC a
Project Management Fee of Two Hundred Thousand Dollars
($200,000).” This provision reflects the parties’ explicit
agreement that the $200,000 project management fee was, in
part, for the services Sisca had been providing “since April 1,
2008.” The trial court found that Harouche “ultimately paid
Sisca and TWC “much more than” the $200,000 project
management fee contained in the contract. Harouche actually
paid Sisca and TWC a project management fee of $262,000, plus
travel expenses of $63,400. Sisca and TWC also received 2.5
percent of the construction contract payments from FCI. If Sisca
and TWC believed they were entitled to additional compensation,
they should have said so in the negotiations leading up to the
September 23, 2008 contract. Self-help was not a lawful option.
Sisca was Harouche’s agent and fiduciary and was thus
“not permitted to make any secret profit out of the subject of his
agency.” (Savage, supra, 33 Cal.2d at p. 551.) To the extent
there is a “special circumstances” exception to this rule,
substantial evidence supports the trial court’s implied finding
that no “special circumstances” existed that allowed Sisca and
TWC to pocket the undisclosed fee.
20
3. Remand Is Necessary to Allow the Trial Court to
Make Express Findings on the Claimed $608,000
Offset for FCI’s Released Cross-Complaint
Sisca and TWC argue the trial court erred in failing to
offset the judgment pursuant to Code of Civil Procedure section
877 by $608,000, the amount of FCI’s cross-complaint against
Harouche, which was released as part of FCI’s settlement with
Harouche.12 The record does not indicate that the trial court
made an express finding on this issue even though it was
litigated by the parties. Accordingly, we remand to allow the
trial court to make that determination.
a. Section 877 Settlement Valuation for Codefendants’
Damages Offset
“Section 877 specifies circumstances under which an award
of economic damages against a defendant may be offset by a
codefendant’s settlement. . . . Section 877 promotes the recovery
of damages, the settlement of litigation, and the equitable
apportionment of liability among tortfeasors, while limiting the
double recovery of damages.” (LAOSD Asbestos Cases (2018)
28 Cal.App.5th 862, 877-878 (LAOSD Asbestos).) Section 877
provides: “Where a release, dismissal with or without prejudice,
or a covenant not to sue or not to enforce judgment is given in
good faith before verdict or judgment to one or more of a number
of tortfeasors claimed to be liable for the same tort, or to one or
more other co-obligors mutually subject to contribution rights . . .
it shall reduce the claims against the others in the amount
stipulated by the release, the dismissal or the covenant, or in the
amount of the consideration paid for it, whichever is the greater.”
(§ 877, subd. (a).)
12 All subsequent statutory references are to the Code of Civil
Procedure unless indicated otherwise.
21
At issue here is the trial court’s valuation of the Finton/FCI
settlement for Sisca/TWC’s damages offset under section 877.
“Under subdivision (a) of section 877, the amount of the setoff is,
in the absence of a stipulation, ‘the amount of the consideration
paid for [the release or dismissal].’ But the amount of
consideration paid within the meaning of section 877, subdivision
(a) is not necessarily the amount of money paid. Often ‘the
amount of the offset is clouded by injection of noncash
consideration into the settlement.’ ” (Franklin Mint Co. v.
Superior Court (2005) 130 Cal.App.4th 1550, 1557, fn. omitted
(Franklin Mint).) In “moving under section 877.6 for a good faith
settlement determination, the moving party must set forth the
value of the consideration paid and an evidentiary basis for that
valuation, and must demonstrate that the valuation ‘was reached
in a sufficiently adversarial manner to justify the presumption
that a reasonable valuation was reached.’ ” (Id. at p. 1558.) “A
nonsettling defendant may then challenge the settlement by
‘attempt[ing] to prove that the parties’ assigned value is too low
and that a greater reduction in plaintiff’s claims against the
remaining defendants is actually warranted.’ ” (Ibid.) “A
defendant seeking an offset against a money judgment has the
burden of proving the offset.” (Conrad v. Ball Corp. (1994)
24 Cal.App.4th 439, 444.)
In determining the amount of an offset, the trial court
engages in an equitable undertaking (Abbot Ford, Inc. v. Superior
Court (1989) 43 Cal.3d 858, 873-874), taking into account the
goals of good faith settlements, i.e. “the equitable sharing of costs
among the parties at fault and the encouragement of settlements
. . . as well as another important public policy: ‘ “the
maximization of recovery to the plaintiff for the amount of . . .
injury to the extent that negligence or fault of others has
contributed to it.” [Citation.] Thus, while the nonsettling
22
defendant is entitled to a fair setoff, the injured plaintiff also has
a right that the setoff not be excessive.’ ” (Franklin Mint, supra,
130 Cal.App.4th at pp. 1556–1557.) “The trial court’s
determination of the value of the consideration paid will be
upheld on appeal if supported by substantial evidence.” (Id. at
p. 1558.)
b. Application of Section 877
Harouche, Finton, and FCI moved for a good faith
settlement determination, asserting that the settlement was
worth $1,100,000, i.e. the amount of consideration Finton and
FCI agreed to pay in installments for their dismissal from the
litigation. In their opposition filed on February 21, 2017, Sisca
and TWC did not argue that the $608,000 alleged in the
Finton/FCI cross-complaint should be credited toward the value
of the settlement. In fact, their argument that Finton should
proportionately bear more liability for the damages than
Sisca/TWC was largely premised on the concern that the offset
would only be $1,100,000 of the potential $3,042,213.50 in
damages possible at trial.
It was not until June 27, 2018, Sisca and TWC argued in
their objections to the trial court’s proposed statement of decision
that the offset should include the amount the cross-complaint’s
for $608,000. They explained that in FCI’s cross complaint, FCI
alleged Harouche owed $608,000, the amount outstanding on the
final pay application associated with the construction contract.
Sisca and TWC argued: “The outstanding amount of this final
pay application and unbilled amounts as alleged in the Cross-
Complaint and to which Harouche and Finton both testified at
trial as being unpaid are costs avoided by Harouche and therefore
the value of these amounts inures to the benefit of Harouche.
Consequently, the value of the released FCI Cross Complaint
should be considered part of the settlement amount ‘stipulated by
23
the release.’ The amount avoided is an additional $608,000.00[.]
Therefore, the net monetary effect of the good faith settlement by
FCI and Finton to Harouche is $1,708,000.00. It is from this
amount that the Plaintiff’s claims against Sisca must be reduced
pursuant to Code [Civil Procedure section] 877, not the
$1,100,000.00 in the Proposed Statement.”
The court’s ruling on whether it should offset the judgment
by the settlement was primarily limited to the following language
from its statement of decision: “The Court will not assess an
offset at this time; however, the Court retains jurisdiction to
award the Sisca Defendants an offset when and if the Finton
Defendants make a payment to Harouche under the settlement
agreement.”
The first part of the sentence refers to an offset in general
terms and could be interpreted to include the $608,000. But
what follows—the court’s statement that it will consider an offset
if the “Finton Defendants make a payment” – appears only to
refer to the periodic $18,000 payments FCI was to make under
the settlement agreement and bankruptcy plan of
reorganization.13 In any event, the trial court did not expressly
13 The $608,000 was part of the claim that FCI and Finton
made against Harouche in its cross-complaint. In its statement
of decision, the court stated: “A cross-complaint was filed by
defendants for breach of contract and common count for goods
and services rendered. Neither party addressed the cross-
complaint in their closing arguments. The Court finds against
cross complainant on the cross complaint.” It is unclear whether
the court’s adjudication of the cross-complaint was intended to
encompass a finding that there was no merit to the $608,000, and
hence nothing additional to overset. Harouche asserts that Sisca
and TWC were not entitled to an offset because “Harouche never
sought the $608,000 at issue in FCI’s cross-complaint as damages
in his complaint, and the trial court never held the Sisca
24
find whether to offset the judgment by $608,000 or any other
amount. Nor can we apply the doctrine of implied findings to
conclude the trial court denied any offset because the issue was
controverted.
“When a statement of decision does not resolve a
controverted issue, or if the statement is ambiguous and the
record shows that the omission or ambiguity was brought to the
attention of the trial court either prior to entry of judgment . . . ,
it shall not be inferred on appeal . . . that the trial court decided
in favor of the prevailing party as to those facts or on that issue.”
(§ 634.) Given the procedural posture of the case and the
equitable nature of the offset inquiry, we remand for the trial
court to consider and rule on the $608,000 offset.
4. Prejudgment Interest Must be Recalculated Based on
the Modified Judgment
The trial court awarded Harouche $990,486.45 in
prejudgment interest, based on its total damages award of
$1,962,837.72. We hold in part 1 that the trial court erred in
calculating the fraudulent change order damages. Instead, the
true damages for the inflated subcontracts was $362,982.26
($250,324 for the first eight subcontracts and $112,658.26 for the
solar contract). In part 2, we affirmed the trial court’s award of
$235,000 in damages for the “referral fee.” Also, and
unchallenged on appeal, we affirm the trial court’s award of
$205,011.46 in damages for the 1.5 percent kickback of all
amounts Harouche paid FCI. Based on the foregoing, we modify
the judgment to award Harouche $802,993.72 ($362,982.26 +
Defendants liable for such amounts.” He misses the point. Sisca
and TWC argue it is FCI’s release of a valid $608,000 claim that
Harouche allegedly owed FCI that constitutes an additional
economic benefit to Harouche under the settlement agreement,
and its value should be included in the offset.
25
$235,000 + $205,011.46) in damages. (See Behr, supra,
193 Cal.App.4th at p. 533 [“When the evidence is sufficient to
sustain some but not all alleged damages, we will reduce the
judgment to the amount supported by the evidence.”].)
We remand the matter for the trial court to modify the
award of prejudgment interest based on the correct damages of
$802,993.72. (See Wallis v. PHL Associates, Inc. (2013)
220 Cal.App.4th 814, 817 [modification of the judgment “as to the
jury verdict and remand for recalculation of prejudgment
interest.”].)
DISPOSITION
The judgment is modified to reduce the damage award to
Harouche to $802,993.72. The matter is remanded to the trial
court with directions to (1) recalculate the prejudgment interest
on the $802,993.72 in damages; (2) rule on Sisca and TWC’s claim
of a $608,000 offset; and (3) prepare an amended judgment. In
all other respects the judgment is affirmed. The parties shall
bear their own costs.
RUBIN, P. J.
WE CONCUR:
BAKER, J.
KIM, J.
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