Court of Appeal Discusses Numerous Issues Under the Two Statutes.
In a complicated construction dispute between window subcontractor and other construction professionals sued for equitable indemnity and contribution, the Fourth District, Division 1 reversed and affirmed some fee awards against window subcontractor after overturning a judgment on the pleadings, affirming a summary judgment as to one party, and giving effect to a prior appellate decision overturning judgments in favor of the parties sued by window subcontractor. The decision is Jeld-Wen, Inc. v. Action Iron Works, Inc., Case Nos. D051465 & D053094 (4th Dist., Div. 1 Feb. 17, 2009) (Jeld-Wen II) (unpublished). We summarize the parts of it that are germane on attorney’s fees awards.
Several of the defendants obtained an award of fees under Code of Civil Procedure section 1038, which allows a court to award fees after a motion for summary judgment, a directed verdict motion, a section 631.8 motion for judgment, or a nonsuit motion on a claim for indemnity or contribution or a claim under the California Torts Claim Act upon determining the proceeding was not brought “with reasonable cause and in the good faith belief that there was a justifiable controversy under the facts and law.” The standard of review for section 1038 is both de novo and substantial evidence—the objective “reasonable cause” prong is reviewed de novo and the “good faith” prong is reviewed for substantial evidence. (Austin B. v. Escondido Union School Dist., 149 Cal.App.4th 860, 888 (2007).
Because the prior appellate opinion reversed judgments in favor of several defendants, the section 1038 fee awards had to be vacated because there was no final determination. Also, the prior appellate reversal of motions for judgments on the pleadings effectively converted summary judgments in favor of defendants to mere summary adjudications, with the Jeld-Wen II panel determining that summary adjudications are not within the circumstances that trigger the right to file for attorney’s fees under section 1038.
That brought the Court of Appeal to certain awards under Civil Code section 1717 based upon contractual fee clauses in certain subcontracts. The main attorney’s fee provision in a subcontract stated: “In the event any legal action is instituted to enforce the provisions of this agreement, the prevailing party shall be entitled to receive reasonable attorneys’ fees and costs.” Because the plain contractual language did not limit the parties who may recover fees to the parties to contract (referring instead to any legal action to enforce the contract), it was broad enough to allow fees against window subcontractor and against a sued professional contractor even though window subcontractor was not a direct contractual party but only a third-party beneficiary to the subcontract between sued party and the original developer. The appellate panel distinguished Sessions Payroll Management, Inc. v. Noble Construction Co., 84 Cal.App.4th 671, 677 (2000) because the contractual language before it “makes no reference to a particular party to the contract bringing suit” and does not “impose any limitation on third party rights.” (Accord, Loduca v. Polyzos, 153 Cal.App.4th 334, 343 (2007) [Sessions inapplicable in determining whether a nonsignatory who sued under a third party beneficiary theory was entitled to section 1717 fees where broader language was involved in the fees clause].)
Jeld-Wen tried to diffuse the section 1717 award based on the fact certain fees had been paid by an insurance carrier, but the appellate court dismissed this argument by citing to contrary reasoning in Lolley v. Campbell, 28 Cal.4th 367, 374 (2002) and Staples v. Hoefke, 189 Cal.App.3d 1397, 1410 (1987). The “end result” was that one party’s award of 1717 fees in the sum of $56,734.44 was sustained, with the remaining parties having to await a final disposition in construction litigation that still has a ways to go.