Second District Reverses Denial of Attorney’s Fees Where California Statutes Allow a Subcontractor To Seek An Award for Collection of Funds Improperly Withheld by Its Contractor.
This case illustrates that a litigant should not despair if the contract does not have a proper authorization of fees. When in doubt, look, look, look for a statutory basis to underpin a fee award. California has numerous statutes containing fee recovery authorization, and the subcontractor in this case found them and successfully convinced an appellate court that they applied so as to reverse a trial court’s denial of a fee award.
In Automated Switching & Controls, Inc. v. Modern Continental Construction Co. of California, Inc., Case No B197244 (2d Dist., Div. 1 May 27, 2008), subcontractor Automated won a jury verdict against contractor Modern by which a special interrogatory was entered indicating that Modern withheld $150,000 from Automated in bad faith. No statutory penalties were awarded by the lower court. The trial judge denied Automated’s motion for attorney’s fees, finding there was no contractual basis for an award but failing to address the argument that fees were proper under Business and Professions Code section 7108.5, Public Contract Code section 7107(f), and Civil Code section 3260(g)—prompt payment statutes requiring that owners, prime contractors, or public entities promptly pay subcontractors or face payment of penalties and attorney’s fees in favor of the prevailing party.
On appeal, the Court of Appeal—in an unpublished opinion authored by Acting Presiding Justice Mallano—affirmed that there was no contractual basis for a fee award. After reviewing the germane subcontract, the panel concluded that the contract provisions only allowed Automated to recover for indemnification fees in the event of a third party lawsuit, not fees for litigation directly between Automated and Modern. (FUTURE POST—There are many cases that note the difference between indemnity and fee recovery rights. The Second District correctly cited Campbell v. Scripps Bank, 78 Cal.App.4th 1328, 1337 (2000), in recognition of this difference. However, this is only one case in a growing body of jurisprudence on this distinction, one that will be surveyed in a future post).
However, this was not the end of the story. Automated also moved to recover fees under the prompt payment statutes. Good tactic, because it won on appeal.
The Second District found that each of the referenced statutes expressly authorized recovery of fees by the prevailing party, with the jury special interrogatory answer satisfying the predicate that funds were withheld in bad faith. On appeal, Modern argued that fees could not be awarded under the prompt payment statutes unless the 2 per cent per month statutory penalty was assessed (which did not happen). The appellate court answered “no,” observing: “But neither the language of the statutes nor the analysis set forth in Darling [v. Controlled Environments Construction, Inc., 89 Cal.App.4th 1221 (2001)] require a lumping together of the 2 percent per month charge and attorney fees. Rather, attorney fees are triggered by wrongful withholding of payment by a general contractor.” (Slip Opn., at p. 10.) Thus, fee recovery is authorized under the applicable statutes even if penalties are not assessed.
The appellate court remanded for further proceedings on the fee issue.
The message here is simple: if you do not first succeed because the contract does not allow for fee recovery, hunt for statutory bases for such an award (try, try again). Subcontractor found them, and was successful on appeal.
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