Prevailing Party, Section 1717: Performance Bond Surety Protecting Contractor Was Not The Prevailing Party Under Civil Code Section 1717 Where City Defensed Contractor’s Contract Claims And Surety Held City’s Contractual Recovery To Just $1.00

Lopsided Results May Make One A Prevailing Party, But The Outcome Was Mixed So The Lower Court Had Discretion To Determine No Side Prevailed.

            In the Civil Code section 1717 area, a prevailing party is one which has only “good news” as far as prevailing in litigation.  Anything else, unless a result is overwhelmingly lopsided, means the lower court has discretion to determine what side prevailed or to determine no one prevailed.

            Whether the outcome was “lopsided” was the prime issue considered on appeal in City of Los Angeles Dept. of Airports v. U.S. Specialty Ins. Co., Case No. A162183 (1^st Dist., Div. 5 June 15, 2022) (published). 

            What happened is that contractor basically claimed that L.A. city was at fault in breaching a contract with contractor (although performance bond surety was protecting contractor’s interest as it had to under the performance bond).  In turn, city claimed contractor was at fault and independently sought $3.4 million in damages under its own contract claim against contractor.  At the end of the day, contractor lost its claims, and city won its contract claim to the nominal tune of $1.00.  After a prior appeal determined that a contractual provision was a real fees clause rather than an indemnity provision, both sides moved for fees.  The lower court denied both requests, determining the outcome was mixed so that no one prevailed.

            Surety appealed the fee denial, but that determination was affirmed on appeal by the 1/5 DCA.  Keeping in mind that contractor and performance bond surety were “lockstep” in the litigation, no abuse of discretion was committed by the lower court.  After all, contractor lost its claims while city vindicated that it was not at fault as well as won on its contract claim, albeit only gaining a $1 pyrrhic victory.   Even though surety did beat back the $3.4 million damages claim by city, surety did not vindicate contractor’s claims.  The results were mixed; this specific case was not “lopsided” under the circumstances to dictate a legal determination that surety prevailed for section 1717 purposes. 

            We will note that the lower court did a good job of defining surety’s litigation objectives so that the appellate court had a nice compass to use when deciding the case.  This counsels litigation practitioners to develop a good record and aid the lower court in articulating the litigation objectives when a prevailing party contest is at issue—this will provide a “road map” for jurists considering the issue at all levels of judicial scrutiny.