In the case of Douglas E. Barnhart, Inc. v. CMC Fabricators, Inc., 211 Cal. App. 4th 230 (2012), CMC Fabricators (“CMC”), a subcontractor to the prime contractor, Douglas E. Barnhart, Inc. (“Barnhart”), refused to sign a subcontract tendered by Barnhart because it contained terms inconsistent with CMC’s bid for a public work of improvement. This is a common problem and advice of a knowledgeable Construction Attorney before deciding whether to sign or not, is a must do. Barnhart then sought and received permission from public entity to substitute another subcontractor. Barnhart then sued CMC for breach of contract and promissory estoppel (CMC promised by its bid and Barnhart relied upon it by incorporating CMC’s bid into its own accepted proposal). Barnhart sought to recover the excess over the original subcontract amount which it was required to pay the substitute subcontractor.
At trial, the Court found that although no subcontract was formed between Barnhart and CMC, Barnhart was entitled to judgment against CMC on its promissory estoppel claim. Now for the twist. The Court of Appeal, reversing the Trial Court found that as CMC’s bid included an attorneys’ fee clause, and as Barnhart alleged in its Complaint against CMC that CMC’s bid was accepted and a subcontract was formed, that CMC was the prevailing party on the contract claim. The Court of Appeal disagreed with the Trial Court and found that a “determination of the party prevailing on the contract for purposes of awarding attorney fees under Civil Code section 1717 must be made independently of the determination of the party prevailing in the overall action” which was Barnhart. The Court of Appeal concluded that although the results in the case were mixed in that CMC had defeated Barnhart’s breach of contract claim as the Trial Court found that no subcontract was ever formed but Barnhart won its promissory estoppel claim. The Court of Appeal then concluded that the promissory estoppel action was not an action “on a contract” within the meaning of section 1717 (the section allowing for the award of attorneys’ fees on a contract) and awarded CMC its attorneys’ fees.
To further compound matters and add additional fees and costs, the Court of Appeal sent the case back to the Trial Court to apportion out unsuccessful noncontract work or decide whether the noncontract work by the substitute subcontractor was inextricably intertwined to determine what Barnhart could recover. The Trial Court also eventually will hear CMC’s Motion for Attorneys’ Fees.
Bottom line: a warning for both sides. Although Barnhart may have prevailed on its promissory estoppel cause of action, what did it win? Even the amount of its recovery was unclear and yet to be determined and, as CMC’s was awarded attorneys’ fees at trial and on appeal, I doubt Barnhart’s lawsuit was productive. Unfortunately, CMC, like many subcontractors facing this issue had a decision, either sign a subcontract which is inconsistent with its bid (typically either imposing additional scope of work increasing what it intended to include in its bid or containing unacceptable one-sided provisions) or refuse to do so and face a lawsuit. On the other hand, Barnhart likely sent its “standard” subcontract only changing the name of the subcontractor, spec pages, description of work and amount and expected it to be signed. It then found itself in the untenable position of have to perform with a recalcitrant subcontractor. From Barnhart’s perspective, what choice did it have other than to substitute CMC? The choice it may reconsider next time is suing.
Robert A. Weissman