First District, Division 2 Demonstrates Appellate Scrutiny Of Basis For Fee Award.
In past posts (see, e.g., our July 15, 2008 post on Patel v. Sagar), we have reviewed appellate decisions involving scrutiny of arbitration awards. Several decisions have affirmed arbitrator fee awards even though there was no clear basis, either by contract or statute, for such recovery by the winning arbitration claimant. Lest readers think that arbitration awards are always governed by “equitable” principles that drive many practitioners crazy, the next case may give you solace that many appellate courts will modify awards by deleting fee recoveries lacking in substantive bases.
Intra-American Foundation v. R.M. Harris Co., Case No. A119957 (1st Dist., Div. 2 Jan. 14, 2009) (unpublished) rejected a subcontractor’s claim of being wrongfully removed from a Caltrans project, awarding the opponents the following fees and costs: (1) Caltrans–$14,275 in costs and $299,040 in fees; (2) general contractor–$38,009.35 in costs and $490,024.40 in fees, and (3) contractor’s sureties–$29,290.65 in costs and $441,021.96 in fees (with the surety award being included within the general contractor award). Subcontractor appealed and won a modification of the appellate court by which the fee recovery to Caltrans was vacated. However, the bad news is that the fee recoveries in favor of general contractor and sureties were sustained on appeal because there were substantive bases supporting these awards.
With respect to the general contractor Harris, Civil Code section 1717 authorized an award based on a fees clause in the general contractor-subcontractor agreement. Also, subcontractor sued Harris to recover on a payment bond, with Civil Code section 3250 mandating an award to the prevailing party in an action on a payment bond issued in connection with a public works project. Because the arbitration was an integral part of the action on the bond, fees were justified. (Liton Gen Engineering Contractor, Inc. v. United Pacific Ins., 16 Cal.App.4th 577, 582-587 (1993).) Finally, subcontractor sued under “prompt payment” statutes (Public Contract Code section 10262.5 and Business and Professions Code section 7108.5) having mandatory fee-shifting provisions applicable to the loser, like subcontractor, in actions involving these statutes. (The appellate court did not buy subcontractor’s apportionment argument, because the claims against general contractor involved a core set of facts and interrelated legal issues, citing Bell v. Vista Unified School Dist., 82 Cal.App.4th 672, 687 (2000).)
Sureties were entitled to fees under Civil Code section 3250, Civil Code section 1717 (based on a fees clause in the payment bond), and the contractor-subcontractor agreement (because the surety is liable along with the principal for fees incurred under a subcontract, T&R Painting Construction Inc. v. St. Paul Fire & Marine Ins. Co., 23 Cal.App.4th 738, 744-746 (1994)).
However, things were different for Caltrans. Subcontractor sued Caltrans under tort theories, with Civil Code section 1717 not reaching tort claims. (Exxess v. Electronixx v. Heger Realty Corp., 64 Cal.App.4th 698, 708 (1998).) Because Caltrans was not named under the payment bond claims, there was no basis for an award via Civil Code section 3250. The “prompt payment” statutes did not provide a predicate for fees, because nothing in the pleadings charged Caltrans with these statutory violations. Lastly, the arbitrator did not make any findings so as to trigger the application of Public Contract Code section 10240.13, which provides for recovery of attorney’s fees when substantial evidence establishes that a party acted frivolously or in bad faith in its demand for or participation in arbitration.