Award Is Sustained, But Winning Subcontractor Under Contract With Fees Clause Fights Back Unlicensed General Contractor’s Illegality Argument.
Usually, under our category “Unlicensed Contractors,” we are dealing with decisions where an unlicensed contractor wins a dispute with a fees clause and attempts to obtain an award of attorney’s fees—not very successfully. In the next case we look at, the losing contractor attempts to shield off a fee recovery under a broad contractual fees clause by claiming that the contract was illegal so that no award was authorized to the victorious licensed contractor. This did not work when it came to the flip side of the coin.
Haskell Canyon Partners, L.P. v. E&M Concrete Constr., Inc., Case No. B215200 (2d Dist., Div. 4 Apr. 5, 2010) (unpublished) concerned a situation where an unlicensed general contractor was sued along with a licensed subcontractor by plaintiffs in a construction defect suit, with general seeking equitable indemnity against sub. The general-sub contract had two broadly worded attorney’s fees clauses, one for fees to the prevailing party “in any court action arising out of the Agreement or the enforcement or breach thereof” and another for “any action brought against general by third parties, in which E&M is joined as a party.” Both sub and general eventually settled with plaintiffs, although sub settled first and with both compromises confirmed as good faith settlements. Sub sought $125,160 in fee recovery because general’s equitable indemnity cross-complaint was dismissed in the good faith settlement process (although it took sub three attempts to get there). However, it came out in the fee battle that sub’s attorneys had agreed to litigate the case for a negotiated $7,500 cap. The trial court awarded sub $2,000 in fees, with both sides appealing.
Unlicensed general first argued that the fee award was void because its contract was illegal vis-à-vis licensed sub. The Court of Appeal rejected this flip side argument because the Unlicensed Contractor Law was not meant to penalize an innocent party like sub from prevailing under a fees clause in the underlying contract. (Yuba Cypress Housing Partners, Ltd. v. Area Developers, 98 Cal.App.4th 1077, 1083.)
The general-sub contract fees clauses were broadly worded enough to entitle sub to fee recovery on the equitable indemnity claim. (See, e.g., Xuereb v. Marcus & Millichap, Inc., 3 Cal.App.4th 1338, 1340-1345 (1992); Allstate Ins. v. Loo, 46 Cal.App.4th 1794, 1797, 1799 (1996).)
Sub was the prevailing party under the fees clause because sub’s $28,200 settlement with plaintiffs was far less than what general said that sub owed in the overall construction defect controversy.
That turned the appellate panel’s attention to sub’s appeal claiming that the fee award was too small. Given the negotiated flat fee of $7,500, the lower award was not an abuse of discretion. Also, the trial court properly adjusted downward the lodestar amount for work on dismissed contract claims (not allowable under Santisas) or good faith settlement efforts that were twice unsuccessful before ultimate victory was obtained.
Finally, no statement of decision was required on the lodestar and reduction methodology used by the lower court, given that the record showed that it knew what is was doing. (Gorman v. Tassajara Development Corp., 178 Cal.App.4th 44, 101 (2009).)
End result: affirmed, both sides going away unhappy, we would surmise in the dispute between unlicensed general and licensed sub.