Second District, Division 7 Remands for Further Fee Proceedings.
City of Los Angeles won attorney’s fees against a replacement contractor selected by a bonding surety, where surety and replacement contractor entered into contractual agreements incorporating original agreements between City and the replaced contractor. Replacement contractor lost in the construction litigation, with the trial court awarding attorney’s fees against contractor and in favor of City as the “prevailing party.” Contractor was hit with an adverse fee award of $187,243.50. Contractor appealed.
In D&M Construction v. Washington International Ins. Co., Case No. B195952 (2d Dist., Div. 7 Jan. 20, 2009) (unpublished), the appellate court reversed the fee award in City’s favor.
The main reason was that the trial court confused the difference between “prevailing party” for purposes of Civil Code section 1717 (fees clause) versus Code of Civil Procedure section 1032 (routine costs).
City and replacement contractor stipulated that the City was a third-party beneficiary to the ultimate completion contract agreed to by replacement contractor and surety. This third-party beneficiary stipulation was enough to convince the Court of Appeal that replacement contractor was within the ambit of the original contractor agreements, especially because they were incorporated by reference. (Real Property Services Corp. v. City of Pasadena, 25 Cal.App.4th 375, 383-384 (1994).) However, just as important, the fees clause did not limit its application to contractual signatories, applying simply to enforcement “litigation,” without regard for what parties were suing. This nailed the appellate conclusion that the breadth of the fees clause could encompass third parties such as replacement contractor.
So, you may be asking, why the reversal? Answer: Wrong standard used by the trial court in awarding fees. ” … the standards to determine prevailing party under Civil Code section 1717 and Code of Civil Procedure section 1032 are not the same.” (Slip Opn., at p. 26.) Civil Code section 1717 deals with “greater relief in the action on a contract,” involving a discretionary call, whereas CCP section 1032 focuses on whether a party won a “net monetary recovery.” Because a party could obtain a net monetary recovery but still not prevail on a pragmatic level under section 1717, the two standards justifying an award of fees and costs are indeed divergent. (Sears v. Baccaglio, 60 Cal.App.4th 1136, 1142-1143 (1998).)
Besides remanding for a “prevailing party” analysis under section 1717, the appellate panel also instructed the trial court to consider whether it should apportion fees incurred in defense of noncontractual claims that might have been inextricably intertwined with contract claims won by City. (Erickson v. R.E.M. Concepts, Inc., 126 Cal.App.4th 1073, 1083, 1085 (2005).)