Free Reply to Response to Motion - District Court of Colorado - Colorado

Case 1:03-cv-02669-MSK-PAC

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Honorable Marcia S. Krieger Case No. 03-cv-02669-MSK-PAC LEPRINO FOODS COMPANY, Plaintiff, v. BIG-D CONSTRUCTION CORP. - CALIFORNIA, a Utah corporation, et al. Defendants/Counterclaimants, ________________________________________________________________________ BIG-D CONSTRUCTION CORP. - CALIFORNIA, a Utah corporation; BIG-D CONSTRUCTION CORP., a Utah corporation; and Does 1 - 1 00, inclusive, Third Party Plaintiffs, v. MARELICH MECHANICAL CO., INC. dba UNIVERSITY MARELICH MECHANICAL, a California corporation, Third Party Defendant. ________________________________________________________________________ MARELICH MECHANICAL CO., INC. dba UNIVERSITY MARELICH MECHANICAL, a California corporation, Third Party Plaintiff/Counterclaimant, v. BIG-D CONSTRUCTION CORP. ­ CALIFORNIA, et al. Counterdefendant/Third Party Defendants.

DEFENDANTS BIG-D CONSTRUCTION CORP - CALIFORNIA, BIG-D CONSTRUCTION CORP., BIG-D CORPORATION AND BIG-D CAPITAL CORP.'S REPLY TO OPPOSITION OF THEIR MOTION IN LIMINE NO. 9 RE: PRECLUDING CLAIMS PREPARATION COSTS

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I.

INTRODUCTION Defendants Big-D Construction Corp ­ California, Big-D Construction Corp, Big-D

Corporation and Big-D Capital Corp.'s (hereinafter collectively, "Big-D") Motion in limine No. 9 seeks to preclude, under Federal Rule of Evidence 403, the presentation of any argument or exhibits showing costs for UMM's employees involved in the process of claims preparation because UMM is not entitled to them by law and therefore such evidence is irrelevant and would be highly prejudicial to Big-D. In its Opposition, UMM does not dispute that (1) California law governs this issue pursuant to Article 8.7 of the Terms and Conditions of the Subcontract Agreement between Big-D and UMM; (2) does not dispute that California Code of Civil Procedure §1033.5(b) expressly disallows a party recovering such claims preparation costs; and (3) does not dispute that in the Construction Arena, courts have consistently disallowed such "claim preparation costs" where such costs were not involved in actually performing the work on the project, but rather in putting together their claims and advancing those claims in court or in some other forum (the seminal case being Singer Co. Librascope Div. v. United States, 215 Ct. Cl. 281, 568 F.2d 695 (1977). UMM's entire opposition is based on its mistaken belief that if UMM prevails under its abandonment theory and is allowed to recover damages on a quantum meruit basis and further is allowed to calculate its damages utilizing the "modified total cost" method, then it is entitled to all of its attorneys' fees and claim preparation costs even if disallowed under California statute or case law. UMM offers no authority to support such a position. Further, such a position shows a grave misunderstanding of the damages allowed a plaintiff under the abandonment theory. //

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UNDER CALIFORNIA LAW AND UNDER APPLICABLE CASE LAW, CLAIM PREPARATION COSTS ARE DISALLOWED UMM is seeking as damages literally millions of dollars for costs of its own employees

who were involved in the process of claim preparation. These costs are for everything from its employees preparing its multi-million dollar claim (its "REA") to its employees preparing and attending depositions, producing documents, responding to written discovery, and assisting their counsel and retained experts in preparing the case. As stated in Big-D's Motion in limine No. 9, such costs expressly are not allowed in California, under Code of Civil Procedure §1033.5, which law governs this issue under the terms of the parties' subcontract. Further, in the construction arena, courts have consistently refused to endorse a damage award for claim preparation costs, since such costs are not "performance related." (See, Singer, supra, wherein the Court denied recovery of claim preparation costs, holding that the "requests for equitable adjustment were not performance-related; they bore no beneficial nexus either to contract production or to contract administration. Accordingly, the [claim preparation costs] are not recoverable." 215 Ct. Cl. at 328; 568 F.2d at 721. The Board of Contract Appeals regularly reaches the same result, e.g., Coastal Dry Dock and Repair Corp., ASBCA No. 36754, 91-1 BCA (CCH) P. 23, 324, 1990 WL 177496 (costs incurred pursuant to claim preparation unallowable); Yadkin, Inc., PBSCA No. 2051, 89-2 BCA (CCH) P. 21, 709, 1989 WL 27910 (expenses incurred in documenting a claim unrecoverable). UMM does not dispute that California law governs this issue. Nor does it dispute that the California Code of Civil Procedure §1033.5 disallows costs for expert fees not ordered by the court or investigation expenditures in preparing the case for trial. UMM does not even attempt to argue that the costs which it is seeking are neither costs of experts nor ordered by the Court or

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investigative expenditures in preparing the case for trial. Further, UMM poses no argument as to why this Court should not follow the precedent cited in the Brief wherein contractor claim preparation costs have been disallowed. Nor does UMM even attempt to distinguish the costs they are seeking from the costs disallowed in the cases cited. Thus, in light of the fact that UMM's Opposition fails to properly address any of the issues raised in Big-D's Motion in limine No. 9, the Court should afford it no weight. III. UMM IS MISTAKEN THAT IT MAY INCLUDE ITS CLAIM PREPARATION COSTS IN COMPUTING ITS DAMAGES UNDER A "MODIFIED TOTAL COST" CALCULATION Apparently, UMM believes, without citing any authority, that if the jury finds that its subcontract was "abandoned," allowing UMM to recover the reasonable value of its work on a quantum meruit basis, and UMM is allowed to calculate its damages based on the "modified total cost" method, that it can then recover all of its claim preparation costs and attorneys' fees. Such an argument is nonsensical and completely inconsistent with the laws regarding abandonment and the "modified cost method" of calculating damages. In its lawsuit, UMM is claiming that its contract was "abandoned" and "therefore it is entitled to recover damages under the "modified total cost" method of quantifying damages. UMM's Opposition at p. 3. Citing, Amelco Electric v. City of Thousand Oaks, 27 Cal.4th 220 (2002). UMM argues that this method allows UMM to recover its "actual costs" incurred on the project, minus its estimated costs to perform the project and any costs resulting form UMM's errors, if any. UMM's Opposition at p. 3. UMM presumably thus believes that "actual costs" under this theory includes claims preparation costs. This is not true. //

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If UMM were to prevail in its claim that its subcontract was abandoned, then UMM would be entitled to recover the reasonable value of its services on a quantum meruit basis. Amelco, supra; C. Norman Peterson Co. v. Container Corp. of America, 172 Cal.App.3d 628, 645 (1985). The measure of damages on a quantum meruit claim is the reasonable value of the labor and services provided in the construction project and which benefited the defendant. ABA Model Jury Instructions, Construction Litigation (No. 7.06, 2001). Quantum meruit prevents the injustice of one party's retaining the benefit of another's labor or materials without paying for the benefit. ABA Model Jury Instructions, Construction Litigation (No. 7.06, 2001). Thus, if a plaintiff proves the elements of quantum meruit, he is entitled to an award of damages in an amount equivalent to the benefit retained by defendant. ABA Model Jury Instructions, Construction Litigation (No. 7.06, 2001). [The ABA Model Jury Instructions are attached hereto as Ex. "A.") California law, which governs this issue, is consistent with the ABA Model Jury Instructions cited above with respect to the damages a plaintiff is entitled to under quantum meruit. In California, courts have always required that the plaintiff bestow some benefit on the defendant as a prerequisite to recovery. Maglica v. Maglica, 66 Cal.App.4th 442, 449-450 (1998). "The classic formulation concerning the measure of recovery in quantum meruit is found in Palmer v. Gregg, supra, 65 Cal.2d 657. Justice Mosk writing for the court, said: `The measure of recovery in quantum meruit is the reasonable value of the services rendered provided they were of direct benefit to the defendant.' [Citations.] [¶ ... [¶] The idea that one must be benefited by the goods and services bestowed is thus integral to recovery in quantum meruit; hence courts have always required that the plaintiff have bestowed some benefit on the defendant as a prerequisite to recovery. [Citation.]" (Maglica, supra, 66 Cal.App.4th at 449-50.)

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Thus, since UMM's claim preparation costs are not part of the materials and services provided on the project and since the claim preparation costs clearly did not "benefit" Big-D, they cannot be awarded to UMM on a quantum meruit basis, even if the trier of fact determines that the subcontract was abandoned. Further, whether or not UMM will be able to prove its damages under a "modified total cost" theory as opposed to linking its damages to causation, does not change the fact that UMM's claim preparation costs are not allowed under a quantum meruit basis even if the subcontract is deemed abandoned. If UMM cannot prove its damages with reasonable certainty and is permitted to calculate its damages under the disfavored "modified total cost" theory, that does not change the measure of damages (i.e., the reasonable value of work which benefited the defendant), but only how the damages are calculated. In fact, this method can also be used where there has been no finding of abandonment. See, Amelco; see, also, ABA Model Jury Instructions, Construction Litigation (No. 10.07, 2001) attached hereto as Ex. "B." IV. UMM'S CLAIM PREPARATION COSTS ARE IRRELEVANT AND IF INTRODUCED TO THE JURY COULD BE HIGHLY PREJUDICIAL Under Federal Rule of Evidence 403, certain evidence, while relevant, should be precluded if its relevance is outweighed by the danger of confusion of the issues or misleading the jury. Inasmuch as UMM will not be entitled to claim preparation costs in this action, such evidence is irrelevant to a determination of whether UMM is entitled to recover its underlying claim and how much it should recover, if any. Further, if UMM is allowed to introduce these costs to a jury, it could be highly prejudicial to Big-D. Evidence of UMM's alleged claim preparation costs may lead the jury to believe that UMM's actual damages are considerably

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higher than what they really are and might influence the jury's decision on the merits of UMM's claims. V. UMM SHOULD BE REQUIRED TO EXRACT ITS CLAIM PREPARATION COSTS FROM ANY DAMAGES CALCULATION THAT IT OFFERS TO THE JURY UMM claims that its standard project accounting includes all costs incurred in relation to a particular project, including claim preparation costs, and that this is an appropriate method of accounting. Actually, in light of the California statutory law and construction related case law cited herein, and in light of the fact that under a quantum meruit theory UMM is not entitled to such costs, UMM's inclusion of the claims related costs in its standard project accounting is wholly inappropriate and improper. Thus, UMM should be required to extract its claim related costs from any calculation that it offers to the jury. Such a request would not only conform to the prevailing law, but would also not burden UMM in any way. As UMM concedes, its expert, Mark Berry, has already prepared a damages calculation that excludes UMM's attorneys' fees and the costs that it allegedly incurred in preparing its claim for equitable readjustment. (See UMM's Opposition to Big-D's Motion in Limine No. 6, page 2, Docket No. 265). Thus, a Court order preventing UMM from presenting evidence of claim preparation costs during trial, would simply require UMM to present its legally acceptable alternative damages calculation. VI. CONCLUSION Based on the fact that UMM is not entitled in this action to its claim preparation costs, evidence of these costs are irrelevant. Further, inasmuch as such irrelevant evidence could significantly prejudice Big-D and that UMM would not be prejudiced by this Court precluding of

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UMM from referring to and/or presenting evidence of claim preparation costs, Big-D's Motion in limine No. 9 should be granted. Respectfully submitted this 30th day of March, 2006. S/ Daniel J. Nevis Daniel J. Nevis Miller, Morton, Caillat & Nevis, LLP 25 Metro Drive, 7th Floor San Jose, California 95110 Telephone: (408) 292-1765 FAX: (408) 436-8272 E-mail: [email protected] Attorneys for Defendant Big-D Construction Corp.- California and Big-D Construction Corp.

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UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO CERTIFICATE OF SERVICE (CM/ECF) I hereby certify that on March 30, 2006 I electronically filed the foregoing named document: DEFENDANTS BIG-D CONSTRUCTION CORP - CALIFORNIA, BIG-D CONSTRUCTION CORP., BIG-D CORPORATION AND BIG-D CAPITAL CORP.'S REPLY TO OPPOSITION OF THEIR MOTION IN LIMINE NO. 9 RE: PRECLUDING CLAIMS PREPARATION COSTS -ANDCERTIFICATE OF COMPLIANCE with the Clerk of the Court using the CM/ECF system which will send notification of such filing to the following e-mail addresses: Michael Gerard Bohn [email protected] [email protected] Bret Matthew Heidemann [email protected] [email protected] Francis (Frank) J. Hughes [email protected] [email protected] Patrick Quinn Hustead [email protected] Peter J. Ippolito [email protected] Richard Carl Kaufman [email protected] [email protected] Patrick T. Markham [email protected] [email protected] John David Mereness [email protected] C. Michael Montgomery [email protected] [email protected] [email protected] Daniel James Nevis [email protected] [email protected] N. Kathleen Strickland [email protected] [email protected] Laurence R. Phillips [email protected] [email protected]

s/ Joan R. Kester
Joan R. Kester