Third District Finds Settlement Agreement Carve-Out Preserved Right to Seek Fees Under Indemnity Agreement Clause.
Bravo to the attorneys representing a prevailing party in the next case. They properly worded a partial settlement agreement carve-out so as to preserve their client’s ability to seek fees under a contract once the client prevailed against its opponent after a jury trial.
In F & H Construction, Inc. v. I. Kruger, Inc., Case No. C058312 (3d Dist. May 17, 2010) (unpublished), a general contractor hired by a water agency to upgrade a water treatment plant (F & H) purchased a water clarification system from supplier Kruger. After the agency complained about a sagging problem in the system, a spark emitted from a welding instrument by F & H employees started a fire causing extensive damage to the building in which the system was located. F & H sued Kruger and others for costs spent in rebuilding the building and for extra work. After a flurry of cross-complaints from the other parties, Kruger settled a cross-claim for moneys due under a purchase order, expressly excepting from the partial settlement any claims involving the fire. For example, the settlement agreement excepted “the claims presently asserted by F & H in the suit against KRUGER for damages and/or indemnity for the loss caused by the fire …, and defenses thereto ….” A jury found that Kruger was not negligent in the fire incident given that it had no supervisory control over the F & H welding employees. However, the trial court refused to award Kruger attorney’s fees as the prevailing party under a fees clause in the parties’ purchase agreement.
The fee denial was reversed by the Third District on appeal.
The appellate court found that the settlement agreement carve-out was clear: the settlement did not usurp the attorney’s fees provision in the purchase agreement because the partial settlement did not apply to the fire claims left outstanding. “Having clearly stated that the settlement did not apply to the lawsuit then underway and now before us, counsel should not be expected to anticipate that someone might broaden the scope of the fees provision beyond the scope of the agreement itself. We, in fact, like to discourage poor draftsmanship of that nature and reject such an unlikely reading of what to our eyes was a very clear effort to limit the scope of the agreement, including the attorney fee provision.” (Slip Opn., pp. 10-11.)
The matter was remanded to the lower court for a hearing on Kruger’s fee request, including fees for winning on appeal (both the fee issue and jury award in Kruger’s favor).