Filed 3/2/21 Salsbury Engineering, Inc. v. Consolidated Contracting Services, Inc. CA4/3
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
SALSBURY ENGINEERING, INC.,
Plaintiff, Cross-defendant and G057832
Appellant, (Consol. with G057966)
v. (Super. Ct. No. 30-2015-00789263)
CONSOLIDATED CONTRACTING OPINION
SERVICES, INC.,
Defendant, Cross-complainant and
Respondent.
Appeal from a judgment and order of the Superior Court of Orange County,
Craig L. Griffin, Judge. Affirmed.
Mahoney & Soll, Paul M. Mahoney and Richard A. Soll for Plaintiff,
Cross-defendant, and Appellant.
Snell & Wilmer, Michael J. Baker, Todd E. Lundell and Marshall J. Hogan
for Defendant, Cross-complainant, and Respondent.
INTRODUCTION
We venture here into the labyrinthine world of large-scale construction
projects – in this case, the Jeffrey Open Space Trail (JOST), a miles-long linear park
“run[ning] down the spine” of north Irvine. The property on which JOST sits was owned
by Irvine Community Development Company, LLC (the owner). It was developed
between 2012-2015 for eventual use by the City of Irvine as a public recreational space.
The dispute before us revolves around interpretation of the prompt payment
statutes, a category of laws requiring “‘general contractors to pay their subcontractors
within specified, short time periods,’” or face “‘monetary penalties for violations.’
[Citations.]” (See FEI Enterprises, Inc. v. Yoon (2011) 194 Cal.App.4th 790, 795.)
Specifically, we deal with Civil Code section 88141, a statute which only two years ago
was the subject of the California Supreme Court’s ruling in United Riggers & Erectors,
Inc. v. Coast Iron & Steel Co. (2018) 4 Cal.5th 1082 (United Riggers). Section 8814
provides for prompt payment penalties when contractors fail to timely pay retentions to
their subcontractors. “‘Retention proceeds or retention payments are “payments relating
to work already done but which are not presently paid, which instead are withheld until
completion of 100 percent of the [contractor’s] work.”’ [Citation.]” (Yassin v. Solis
(2010) 184 Cal.App.4th 524, 535 (Yassin).) Today, we decide a subcontractor is not
entitled to prompt payment penalties under section 8814 when the trier of fact decides it
has not completed the work.
The general contractor on the JOST project, respondent Consolidated
Contracting Services, Inc. (Consolidated) withheld from its grading subcontractor,
appellant Salsbury Engineering, Inc. (Salsbury), retention payments it received from the
owner at the completion of three segments of the project. Among other things, Salsbury
contended it should have received its retention money on the first two segments, even
1 All further statutory references are to the Civil Code unless otherwise indicated.
2
though it did not complete its work on the third. A jury found Salsbury was owed
payment for work done on the first two segments but Consolidated was owed damages
due to Salsbury’s failure to complete the third. The prompt payment issue was left to the
court to decide after the verdict. It ruled in Consolidated’s favor and found it was the
prevailing party for purposes of contractual attorney fees. We agree and affirm.
FACTS
JOST was a complex project containing numerous features, including
running trails, bike paths, an amphitheater with restrooms, benches, a few bus stops, and
swales for drainage. It was originally developed as part of the construction of three
housing developments in Irvine – Cypress Village, Woodbury, and Stonegate. A
segment of JOST was attached to each of the three housing tracts, and was “mass
grad[ed]” to a “rough-grade condition” at the time the tracts were constructed.2 The
significance of these segments – called Segments 1, 2, and 3 of JOST - would later
become central to the parties’ debate in this case.
Consolidated Becomes General Contractor
The owner had Stice Grading (Stice) do the mass grading work on the
segments in late 2012 and early 2013. Once that was done, the owner set about
developing JOST, ultimately engaging Consolidated as general contractor. Consolidated
priced out and bid the project in its entirety over all three segments, including grading,
concrete, masonry, electrical, and other work.3
Sometime around July 2013, Consolidated and the owner signed three
prime contracts, one for each segment. The record before us contains what appears to be
the prime contract for Segment 3, entitled “ICDC – Contractor Construction Contract.”
2 Mass grading, sometimes called rough grading, refers to the process of grading the ground for a
construction project on a larger scale, using larger equipment. It is to be differentiated from precise grading or finish
grading, which uses smaller equipment to accomplish a finished grade in order to receive the construction work.
3 Consolidated’s founder and CEO, Tony Elias-Calles, testified landscaping was not within
Consolidated’s scope of work. It was directly bid out by the owner.
3
The scope of work for the contract seems to relate only to Segment 3, though the
specifications attached to it relate to the JOST project as a whole. The contract had a
provision allowing the owner to terminate Consolidated if it defaulted on its obligations.
In such a case, and to the extent it was a “multi-phase project,” the owner could elect to
“reduce the Work to be performed under th[e] Contract and such other contracts by
[Consolidated] to the phase or phases then in progress, in which event” the contract itself
and contracts relating to subsequent phases would “become null and void.” If it chose to
terminate the contract, the owner had “the right to offset against payments due
[Consolidated] under th[e] Contract and any other contracts between [them], such
amounts as may be reasonably necessary to protect [the owner] against Loss anticipated
by” the owner as a result of the default.
Consolidated Hires Salsbury to Do Precise Grading
Salsbury, a grading and excavating contractor, in turn, entered into three
separate subcontracts with Consolidated in August 2013 to perform grading and
demolition on Segments 1 through 3. Specifically, the parties agreed Salsbury would
perform grading and demolition on Segment 1 for $181,995; grading on Segment 2 for
$49,462; and grading and demolition on Segment 3 for $116,338. The prime contracts
with the owner were incorporated into the subcontract documents and Salsbury assumed
toward Consolidated all the same “obligations, rights, duties, and redress” that
Consolidated assumed toward the owner. The converse was also true – if the owner had
any rights as against Consolidated in the prime contracts, Consolidated had those same
rights as against Salsbury. Presumably, then, Consolidated had the same rights the owner
had regarding termination of the contractual relationship. The subcontracts also provided
for a 10 percent retainage of payments received by Consolidated from the owner for
Salsbury’s work.
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Salsbury’s Performance
Salsbury began work on Segment 1 in November 2013 and completed it
without any complaints or criticisms. It began work on Segment 2 a few months after
Segment 1, and again, completed it without any complaints or criticism. Once it reached
Segment 3, however, Salsbury encountered difficulties in achieving the desired grade.4
These difficulties reached their tipping point in July 2014. The owner informed
Consolidated it was out of time – either Salsbury had to achieve a certified precise grade
immediately or the owner would take over the grading.
The characterization of what occurred next was the subject of dispute at
trial. Consolidated felt it had to thread the needle. It brought Stice back to complete the
work in order to appease the owner, who had lost confidence in Salsbury, but there were
legitimate issues with the site conditions, so Consolidated wanted to give Salsbury the
opportunity to continue to participate by observing and consulting on Stice’s work.
Salsbury, on the other hand, felt it was being suspended and/or terminated from the
remainder of its work, and it had no interest in observing another subcontractor – a
“competitor” – complete it. Regardless of the characterization, all agree Salsbury
performed no more work on JOST after July 2014.
Stice completed the grading scope of work in mid-September 2014. The
owner recorded a notice of completion for Segments 1 and 2 on April 30, 2015, and one
for Segment 3 on June 11, 2015. JOST being complete, Consolidated applied for final
payment from the owner, including all of the retainage withheld from progress payments
throughout the project. It was paid the full amounts it was owed on all segments, but it
withheld any further payment to Salsbury, including payments still owed on Segments 1
4 Though much time was spent – quite understandably – at trial elaborating on the complications
encountered in Segment 3 of the work, and who was responsible, the details are largely irrelevant to the issues we
must decide and we need not delve into them here.
5
and 2 and Salsbury’s retentions on all segments of the project. It surmised Salsbury had
not completed the project as a whole and thus should not recover its retentions.
The Lawsuit
Salsbury filed three separate complaints (for breach of each segment’s
subcontract), common counts, and quantum meruit. Each complaint sought a 2 percent
penalty on all improperly withheld amounts under the applicable prompt payment
statute.5 The cases were – no pun intended – consolidated. Consolidated also cross-
complained against Salsbury because of the issues with Segment 3. The case went to a
lengthy trial.
During closing arguments but outside the presence of the jury, counsel and
the trial judge discussed the content of the verdict forms. Salsbury’s counsel wanted to
ask the jury whether Consolidated withheld in good faith amounts it owed Salsbury as a
way of assisting the court in determining prompt payment penalties under section 8814.
The trial court cautioned that might cause the jury to decide one part of the issue while
the court decided the other. Counsel for both parties shared that concern, and ultimately,
they decided to have the court rule on the prompt payment issue in its entirety. The jury
would only decide how much was owed to whom, if anything, on each contract. The
court would determine whether any offset should be applied.
After deliberating, the jury decided Salsbury was owed $124,363.13 on
Segment 1 and $9,108.70 on Segment 2. However, it found in favor of Consolidated on
Segment 3, awarding it $260,258.70, or roughly half of what Consolidated sought in its
cross-complaint. Once the verdicts were handed down, the prompt payment issue was
briefed and heard. Adopting Consolidated’s framing of the contract documents, the court
5 The complaints specifically identify Civil Code sections 3260 and 3260.1 as the applicable prompt
payment statutes. These were among a group of statutes repealed in 2010 and replaced by Part 6 of Division 4 of the
Civil Code. (See Cal. Law Revision Com. com., West’s Ann. Civ. Code foll. § 3260.) We presume Salsbury
intended to refer to section 8814, the “language” of which “originated” in the repealed section 3260. (See United
Riggers, supra, 4 Cal.5th at p. 1093.)
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denied Salsbury’s request for prompt payment penalties as to Segments 1 and 2. It
concluded the three subcontracts were part of one integrated project and because the
parties had assumed the rights and obligations of the prime contract, Consolidated was
entitled to offset losses on one segment against Salsbury’s right to payment on others in
the event of its default. Contrary to Salsbury’s contention, the trial court did not think the
holding of United Riggers required the imposition of prompt payment penalties against
Consolidated. After moving unsuccessfully for new trial, Salsbury filed the first of its
two appeals. It filed the second after the trial court denied its motion for attorney fees as
to Segments 1 and 2 and granted Consolidated contractual attorney fees and costs
because the contracts were interrelated and Consolidated was the prevailing party as to
the project as a whole. We consolidated the appeals for hearing and decision.
DISCUSSION
The parties’ arguments on appeal are protracted and numerous, but to
resolve this appeal, we isolate only three key issues. First, was Salsbury entitled to
prompt payment penalties on Segments 1 and 2 even though it did not complete Segment
3? Second, did Consolidated’s contractual right of offset immunize it from liability under
section 8814? Third, was the trial court correct to award prevailing party attorney fees to
Consolidated under the contracts? Because we answer the first question in the negative,
we need not decide the second. As to the third, we affirm.
I. Standard of Review
The question regarding prompt payment penalties presents us with a mixed
question of law and fact. To the extent we are interpreting section 8814 and related
statutes, our review is independent. (See S&S Cummins Corp. v. West Bay Builders, Inc.
(2008) 159 Cal.App.4th 765, 777.) However, we apply a substantial evidence standard
where our analysis turns on disputed facts, including the interpretation of a contract
where the parties present conflicting extrinsic evidence. (See Parsons v. Bristol
Development Co. (1965) 62 Cal.2d 861, 866.) We review the trial court’s prevailing
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party determination for abuse of discretion. (See City of West Hollywood v. Kihagi
(2017) 16 Cal.App.5th 739, 753.)
II. Prompt Payment Penalties
Section 8814 is part of a class of prompt payment statutes dealing with
retentions “withheld by an owner from a direct contractor or by a direct contractor from a
subcontractor.” (See § 8810.) It is important to distinguish retentions from payment for
work performed under the contract in question. As we foreshadowed in the introduction,
“[r]etention amounts are a form of security generally retained by the owner from prior
payments due for work previously performed. [¶] Authorities have noted that a retention
occurs when the owner retains a percentage from each progress payment as a form of
security against potential mechanics’ liens and as security that the contractor will
complete the work properly and repair defects.” (Yassin, supra, 184 Cal.App.4th at pp.
533-534.) “The withholding of retention payments provides the contractor with incentive
to complete the work, while reducing the owner’s risk of the contractor’s
nonperformance.” (Id. at p. 535.) The retention is released when the project is complete
and any potential lien claims are resolved; that is, when there is no longer a need for any
security against the contractor’s nonperformance or defective performance. (See id. at
pp. 534-535.)
Since the purpose of retentions is to secure a contractor’s complete
performance, it necessarily follows that a contractor must actually complete the work in
order to receive those sums back. The process usually begins with the owner of the
construction project paying the retention to the direct contractor “within 45 days after
completion of the work of improvement.” (§ 8812, subd. (a).) The direct contractor (in
this case, Consolidated) must in turn “pay to each subcontractor from whom retention has
been withheld that subcontractor’s share of the payment” within 10 days after it receives
the retention back. (§ 8814, subd. (a).)
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Salsbury contends it never received the retention on Segments 1 and 2,
even though Consolidated received it from the owner. But Consolidated only began
receiving it from the owner in May 2015. This was nearly a year after Salsbury had left
the job without completing its work on Segment 3. Was Salsbury entitled to get its
retention back after it left the job?6 Seemingly aware of the poor optics of such a request,
Salsbury’s solution has always been to contend each of the segments was itself a separate
project. But the parties’ conduct controls. (See Crestview Cemetery Assn. v. Dieden
(1960) 54 Cal.2d 744, 752-753.) Salsbury completed work on Segments 1 and 2 before
moving on to Segment 3, but no notices of completion were recorded as to that work until
April 2015. The retainage deducted from Salsbury’s pay applications for work on
Segments 1 and 2 was not returned as soon as it completed work on those segments. And
perhaps most strikingly, the owner was not willing to release retention to Consolidated
until the entire JOST project was complete in the spring of 2015.
All of this is compelling evidence supporting the trial court’s view of the
JOST project as a single, integrated whole, even though a separate contract was signed as
to each segment. (See § 1642.) The “work” here was all three segments, and not just any
one segment. Accordingly, Salsbury could not get its retention back unless it completed
the entire project. It did not complete the entire project, and in fact, Stice had to complete
its work at significant expense to Consolidated. Under these circumstances, we cannot
see how Salsbury was entitled to return of the retention at all, let alone prompt payment
penalties on those sums.7 While prompt payment statutes like section 8814 are remedial
in protecting subcontractors like Salsbury, retentions are designed to protect contractors
like Consolidated in the very circumstance present here.
6 We realize Salsbury felt it was unfairly terminated from the project. But the jury resolved the
issues of liability related to Segment 3 in Consolidated’s favor, and Salsbury has not challenged the jury’s
determination in that regard.
7 Because of this conclusion, we need not reach the parties’ arguments as to Consolidated’s
purported good faith or lack thereof in withholding retention from Salsbury, and specifically whether Consolidated’s
conduct was improper under United Riggers.
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III. Attorney Fees
Salsbury also protests the trial court’s award of contractual attorney fees to
Consolidated. It first argues it was entitled to recover fees for Segments 1 and 2 as a
prevailing party on those subcontracts – even though it did not prevail on the Segment 3
claim – because the subcontracts were to be construed separately. (See Arntz Contracting
Co. v. St. Paul Fire & Marine Ins. Co. (1996) 47 Cal.App.4th 464 (Arntz); Hunt v.
Fahnestock (1990) 220 Cal.App.3d 628, 631-632 (Hunt).) In the alternative, it believes
the trial court should have found there was no prevailing party at all.
The trial court sensibly rejected Salsbury’s first argument as a necessary
corollary of its characterization of JOST as one integrated project – a characterization
with which we have already indicated our agreement. If the contracts were not to be
construed separately for purposes of prompt payment penalties, they should not be
construed separately for purposes of attorney fees. And our review of Salsbury’s cited
authorities reinforces such a conclusion.
The attorney fee award in Arntz was predicated on two independent
agreements between a general contractor and its surety, St. Paul Fire & Marine Insurance
Company. The first was a set of third-party indemnity agreements executed in 1980 at
the inception of the parties’ relationship. (Arntz, supra, 47 Cal.App.4th at pp. 471-472.)
The second was called the “Collateral Agreement,” and was signed four years later.
Arntz, like our case, involved a construction project – a Richmond public
housing project called Triangle Court. (Arntz, supra, 47 Cal.App.4th at p. 471.) Plaintiff
Arntz secured the general contract with the City of Richmond in 1982. Because it was a
public works project, Arntz had to post bonds, which it had St. Paul issue. (Ibid.) The
project soon ran into numerous problems, causing the city to terminate Arntz and demand
St. Paul obtain substitute performance to complete it. (Id. at p. 472.) Because of their
amicable relationship, however, St. Paul and Arntz continued to meet to figure out how
the project could get done with Arntz at the helm. They found a new contractor and
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agreed Arntz could retain essential control. But St. Paul required Arntz to pledge $1
million in collateral to continue bonding them. (Id. at p. 473.) Ultimately, this
arrangement fell apart as well and St. Paul scrapped everything, found a completely new
contractor, and completed the project without Arntz.
Arntz sued for breach of the collateral agreement, arguing St. Paul had
failed to provide bonding as required. St. Paul sought contractual indemnification under
the 1980 indemnity agreements for its costs in completing the project. The action was
tried to a jury in three phases – the first two pertaining to St. Paul’s indemnity claims, and
the third to Arntz’s breach of contract and tortious interference claims. (Arntz, supra, 47
Cal.App.4th at p. 474.) Both sides won something. After offsets, St. Paul was awarded
$813,000, and Arntz $16.5 million in compensatory damages. The trial court awarded
Arntz attorney fees and costs from all phases of the trial and St. Paul sought, inter alia,
reversal of the attorney fee award.
The First District Court of Appeal concluded the trial court erred in
awarding fees for all three contracts to Arntz because the Collateral Agreement and the
third-party indemnity agreements were “separate” and could not be “read as a single
contract.” (Arntz, supra, 47 Cal.App.4th at p. 490.) While the Collateral Agreement
incorporated the third-party indemnity agreements, that “did not destroy the
independence of the third party indemnity agreements and merge them into a single
contract with the Collateral Agreement.” (Ibid.) The court further stated: “When an
action involves multiple, independent contracts, each of which provides for attorney fees,
the prevailing party for purposes of Civil Code section 1717 must be determined as to
each contract regardless of who prevails in the overall action.” (Id. at p. 491.)
Arntz did involve multiple, independent contracts. The first was signed at
the beginning of the parties’ overall relationship before there ever was any Triangle Court
project. The second was signed two years after the Triangle Court project began, and
after problems had arisen on it. To view them as an integrated whole would require the
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logical equivalent of a Kierkegaardian leap. Even if the later contract incorporated the
earlier contract, that did not make it an amendment, or merge it into the original
agreement.
In contrast, the contracts Salsbury attempts to separate were signed within
days of one another and they all relate to the JOST project, albeit different segments of it.
The owner’s representative testified the three agreements grew out of the owner’s desire
to keep the segments separate for accounting purposes so expenses could be connected to
the separate housing developments abutting the segments. It is eminently reasonable to
view them as an integrated whole.
The Hunt case is also distinguishable. There, the trial court had ruled the
three contracts in question were independent obligations, and the appellant did not
challenge that ruling. (Hunt, supra, 220 Cal.App.3d at p. 631.) The Court of Appeal
highlighted the trial court’s “broad discretion in determining the prevailing party to a
contract,” and the rule requiring it to “defer to the trial court’s decision unless it [wa]s
unreasonable.” (Id. at p. 633.) Here we must do the same.
We conclude similarly that it was also reasonable for the trial court to reject
Salsbury’s other suggestion: finding no prevailing party.8 Both parties sought attorney
fees pursuant to section 1717, which permits the court to determine the prevailing party
for purposes of attorney fees if the parties move for such a determination. Under this
section, “the party prevailing on the contract shall be the party who recovered a greater
8 It is possible an argument could have been made that Consolidated’s motion never formally
established the right to contractual attorney fees by the terms of the subcontracts, because the right to attorney fees
in paragraph 11.6 of the subcontracts is subject to a condition precedent as to which we have no evidence of
compliance. Article 11 of the subcontracts is entitled “Dispute Resolution.” It provides for a multi-step process to
resolve disputes, beginning with “direct discussions” and advancing, if necessary, to mediation prior to “binding
dispute resolution.” Importantly, paragraph 11.1 of Article 11 states “[e]ngaging in mediation is a mandatory
condition precedent to any other form of binding dispute resolution and to institution of litigation.” We do not know
whether mediation was attempted prior to litigation. This issue must go unresolved because it was not raised in the
parties’ briefing.
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relief in the action on the contract. The court may also determine that there is no party
prevailing on the contract for purposes of this section.” (§ 1717, subd. (b)(1).)
“‘[I]n deciding whether there is a “party prevailing on the contract,” the
trial court is to compare the relief awarded on the contract claim or claims with the
parties’ demands on those same claims and their litigation objectives as disclosed by the
pleadings, trial briefs, opening statements, and similar sources. The prevailing party
determination is to be made only upon final resolution of the contract claims and only by
“a comparison of the extent to which each party ha[s] succeeded and failed to succeed in
its contentions.”’ (Hsu v. Abbara (1995) 9 Cal.4th 863, 876, italics added [(Hsu)].)”
(Roberts v. Packard, Packard & Johnson (2013) 217 Cal.App.4th 822, 834.)
“‘When a trial court has resolved a disputed factual issue, an appellate
court reviews the ruling according to the substantial evidence rule. The trial court’s
resolution of the factual issue must be affirmed if it is supported by substantial evidence.
(Winograd v. American Broadcasting Co. (1998) 68 Cal.App.4th 624, 632.) We look at
the evidence in support of the trial court’s finding, resolve all conflicts in favor of the
respondent and indulge in all legitimate and reasonable inferences to uphold the finding.’
(Heppler v. J.M. Peters Co. (1999) 73 Cal.App.4th 1265, 1290.)” (Carpenter &
Zuckerman, LLP v. Cohen (2011) 195 Cal.App.4th 373, 378.)
“As one Court of Appeal has explained, ‘[t]ypically, a determination of no
prevailing party results when both parties seek relief, but neither prevails, or when the
ostensibly prevailing party receives only a part of the relief sought.’ (Deane
Gardenhome Assn. v. Denktas (1993) 13 Cal.App.4th 1394, 1398.)” (Hsu, supra, 9
Cal.4th at pp. 875.) This was the situation in McLarand, Vasquez & Partners, Inc. v.
Downey Savings & Loan Assn. (1991) 231 Cal.App.3d 1450 (McLarand), the case cited
by Salsbury. In McLarand, neither side received any relief.
“By contrast, when the results of the litigation on the contract claims are
not mixed – that is, when the decision on the litigated contract claims is purely good
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news for one party and bad news for the other – the Courts of Appeal have recognized
that a trial court has no discretion to deny attorney fees to the successful litigant. Thus,
when a defendant defeats recovery by the plaintiff on the only contract claim in the
action, the defendant is the party prevailing on the contract under section 1717 as a matter
of law.” (Hsu, supra, 9 Cal.4th at pp. 875-876.)
This case does not fit squarely into the categories articulated by the
California Supreme Court in Hsu. There was no lopsided result. Consolidated did not
receive all of the relief it sought, and neither did Salsbury. This meant the trial court had
discretion to use any of the options available to it under section 1717. And it chose to
find Consolidated the sole prevailing party. In doing so, it made two determinations
which cut decidedly against Salsbury’s position. First, it determined there was one
integrated contract, rather than three separate ones. It was therefore reasonable for the
trial court to choose one prevailing party on the contract. Second, even if the three
contracts were separate, the trial court observed Consolidated had received a net win on
its cross-claims. Thus, the trial court concluded Consolidated met section 1717’s
requirement – it recovered greater relief on the integrated contract. We see no abuse of
discretion in that methodology.
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DISPOSITION
The judgment is affirmed. Respondent to recover its costs on appeal.
BEDSWORTH, ACTING P. J.
WE CONCUR:
ARONSON, J.
GOETHALS, J.
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