Fourth District, Division 1 Follows Other Precedents We Have Reviewed.
In our category, “Cases: Indemnity,” we have seen that California appellate courts will not stretch a third-party indemnification clause into a first-party attorney’ fees clause for purposes of fees recovery. The leading cases of Myers Building Industries, Ltd. v. Interface Technology, 13 Cal.App.4th 949. 968 (1993), Continental Heller Corp. v. Amtech Mechanical Services, Inc., 53 Cal.App.4th 500, 508-509 (1997), and Baldwin Builders v. Coast Plastering Corp., 125 Cal.App.4th 1339, 1345 (2005) illustrate the principle and have been discussed in prior posts under this category.
Now, we can add a recent unpublished decision—Fowler v. La Salle Bank, N.A., Case No. D051864 (4th Dist., Div. 1 Feb. 4, 2009) (unpublished)—as confirming the “bottom line” lesson from these prior cases.
In Fowler, an investor losing $3 million in companies recommended by her financial advisor lost a bid to hold a custodian bank liable for the losses. Bank then sought to recoup attorney’s fees under an indemnification clause in a Custodial Services Agreement with Fowler, which stated: “Indemnification of Custodian: The Principal agrees to indemnify the Custodian for, and to hold it harmless against any loss, liability, claim or expense incurred without fraud, gross negligence or willful misconduct by the Custodian, arising out of or in connection with the acceptance or administration of this Custodial Services Agreement, including without limitation, the costs and expenses of defending against any such loss, liability, claim or expense.” Based on this clear “indemnify” and “hold harmless” language, no extrinsic evidence was necessary to show it was a third-party indemnity clause no different than those not giving rise to attorney’s fees explosure in Continental Heller and Myers. The fee proponent also introduced no evidence of the parties’ intent to rebut a plain meaning of the indemnity clause: “LaSalle’s argument begs the question why it had Fowler sign a contract containing a form indemnification clause if LaSalle did not want to be protected from third party claims—anticipated, unanticipated, legally justified or meritless. Moreover, there were potential third party litigants close at hand … that received monthly payments from LaSalle on behalf of Fowler.” (Slip Opn., at p. 28.)
Result: plaintiff apparently lost $3 million in ill-advised investments, and LaSalle failed to recoup its request for over $500,000 in attorney’s fees from plaintiff. Rough justice? Maybe, but the absence of a clear fee entitlement drove the result when the contractual clauses were pure third-party indemnity protections.