CALIFORNIA ATTORNEY'S FEES

Indemnity: Language Under Indemnity Clause Was Broad Enough To Allow Recovery Of Fees For Non-Third Party Claim Issues Such As Contractual Breach

Ninth Circuit Remanded Fee Denial, But Expressed No Opinion On What Amount, Maybe Apportionable, Was Righteous—That Was For The District Judge.

            In Epic Games, Inc. v. Apple, Inc., Case Nos. 21-16506 et al. (9^th Cir. Apr. 24, 2023) (published), Apple was successful on a contract claim against Epic Games, but the district court denied fees to Apple based on an indemnification clause in a Developer Program Licensing Agreement (DPLA).  The Ninth Circuit reversed.  Section 10 of the DPLA provided that Epic “agree[s] to indemnify and hold harmless, and upon Apple’s request, defend, Apple[] . . . from any and all claims, losses, liabilities, damages, taxes, expenses and costs, including without limitation, attorneys’ fees and court costs . . . , incurred by [Apple] and arising from or related to” several enumerated grounds. One ground, clause (i), applies to Epic’s “breach of any certification, covenant, obligation, representation or warranty in [the DPLA].”  This language was clear enough in rebutting the Alki Partners, LP v. DB Fund Servs. (2016) 4 Cal.App.5^th 574, 600 presumption that true third-party indemnity clauses do not allow for recovery.   However, the Ninth Circuit remanded with no views on the amount of fees which would be appropriately awarded; that was a determination for the district judge.   

Deeds Of Trust, Fee Clause Interpretation, Indemnity: After Paying Off Loan Demand, Non-Prevailing Borrower On Economic Duress/Implied Covenant Claims Correctly Assessed With Contractual Fees Of $2,856,956.82 And Costs Of $38,184.54

Contractual Clauses, Including One In A Deed Of Trust, Were Fee Provisions.

            Modern litigation can be expensive.  It can even be more expensive where there is a fee-shifting basis in contractual documents.  Borrower learned that hard lesson in The Palace at Washington Square, LLC v. Mechanics Bank, Case Nos. A164195/A164799 (1^st Dist., Div. 3 Mar. 17, 2023) (unpublished).

            After honoring a loan payoff demand, borrower sued lender for economic duress and breach of the implied covenant of good faith and fair dealing.  Borrower lost those claims, with the referee later awarding lender $2,856,956.82 in attorney’s fees and $38,184.54 in costs under various promissory note, loan agreement, and deed of trust provisions.  Borrower’s appeal did not change the result.

            The trust deed provision entitled “Indemnification” did cover third-party exposure, but also had broad language showing that it also applied to actions between borrower and lender involving the loan documents and deed of trust.  That took it outside case law (see our category “Indemnity”) where only a third-party indemnity clause was involved.  (Baldwin Builders v. Coast Plastering Corp., 125 Cal.App.4^th 1339, 1344-1345 (2005); Continental Heller Corp. v. Amtech Mechanical Services, Inc., 53 Cal.App.4^th 500, 508 (1997).) 

            Then, borrower argued that the deed of trust did not allow for a fees award because, based on opinions such as Hart v. Clear Recon. Corp., 27 Cal.App.5^th 322, 325, 327 (2018) and Chacker v. JPMorgan Chase Bank, N.A., 27 Cal.App.5^th 351, 356-358 (2018), the fees were to be added instead to the debt secured by the deed of trust.  The appellate panel disagreed, because there was no such language in the deed of trust, bolstered by a further provision indicated that borrower’s obligations survived repayment of the secured obligations and satisfaction of the deed of trust.

Fee Clause Interpretation, Indemnity: Landlord Prevailing In Breach Of Contract Action Watches $496,757.31 Fee Award Disappear On Appeal

The Parties’ Leases Did Not Include Attorney Fees Provisions, And The Trial Court Erred In Finding That The Leases’ Third Party Indemnity Provisions Permitted Recovery Fees In A Direct Breach Of Contract Action

            In Blackburn v. County of San Diego, Case No. D076904 (4^th Dist., Div. 1 February 24, 2022) (unpublished), the trial court awarded $496,757.31 in attorneys’ fees to the prevailing landlord plaintiff in a breach of contract action against the County of San Diego – finding the language of the indemnity provisions in the parties’ leases to be so broadly worded that they allowed plaintiff to seek direct indemnity from tenant in the form of attorney fees.

            Citing its previous decision in Alki Partners, LP v. DB Fund Services, LLC, 4 Cal.App.5th 574 (2016) [discussed in our October 24, 2016 post], the 4/1 DCA reversed – finding nothing in the indemnity provisions to suggest that the provisions were not limited to third party claims – nor anything that specifically addressed the issue of, nor expressly permitted, recovery of attorney fees in an action on the contract between the parties.  “To find a right to attorney fees in a direct action under an ordinary indemnity provision, as here, would invest every agreement containing a standard third party indemnity clause with a prevailing party attorney fee clause. This is particularly inappropriate because section 1717, subdivision (a), which governs the award of contractual attorney fees, applies only when the contract ‘specifically provides that attorney’s fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party . . . .’ The indemnity clause here does not ‘specifically’ refer either to actions to enforce the contract or to the prevailing party. Rather, it is a third party indemnity clause. The court erred in construing it otherwise.” (Alki Partners, supra, 4 Cal.App.5th at p. 606.)

Indemnity: Apple’s Request For Substantial Attorney’s Fees On Contractual Counterclaims In Epic Lawsuit Denied Because Indemnification Clause Not Broad Enough To Encompass Non-Third Party Claims

Drafting Issues Abound Here—Make It Explicit!

            We thank our AlvaradoSmith colleague Monisha Coelho for bringing the recent ruling in Epic Games, Inc. v. Apple Inc., Case No. 4:20-cv-05640-YGR (N.D. Cal. Sept. 10, 2021) (Doc. 812) to our attention.  It highlights how indemnification clauses must be drafted with extremely clear language to make true attorney’s fees shifting clauses between the parties.

            In this case, the district court judge concluded that Epic did not prove Apple was a monopolist in the digital mobile gaming transactions market, but Apple did engage in anticompetitive conduct under California’s unfair competition laws, warranting specified nationwide relief.  However, Apple also moved to recover substantial fees for defeating contractual counterclaims under a written contractual clause in an Epic agreement.

            The district judge denied fee entitlement to Apple.  She found that the contractual fees clause was too narrow, only encompassing third-party liability given the words “indemnify” and “hold harmless” rather than claims between Apple and Epic.  The federal judge found that there needed to be express language indicating fee recoveries regarding the issue of an action between the parties on a contract was covered, language not present in the germane contract.  (Alki Partners, LP v. DB Fund Services, 4 Cal.App.5^th 574, 600-602 (2016).) 

Construction, Fee Clause Interpretation, Indemnity, Insurance: Subcontractors Not Liable For Gen. Developer Defense Fees Not Relating To Their Work, And Equitable Subrogation Action Fees For Developer Not Recoverable Under Ambiguous Clause

At The End, Joint/Several Liability Theory On The First Issue Was Rejected, And Ambiguity Construed Against Developer Drafter On The Second Issue.

            This next post might interest construction and insurance practitioners, although it involves the interesting intersection of contractual and insurance equitable subrogation issues—with complexities teeming!

            In Berg v. Pulte Home Corp., Case No. C086890 (3d Dist. July 30, 2021) (partially published; fee discussions not published), developer Pulte was defended by insurer St. Paul in a residential construction lawsuit where cross-claims or intervention claims were asserted against various Pulte subcontractors.  St. Paul sued three of Pulte’s subcontractors for equitable subrogation based on the subcontractors’ failure to defend Pulte (such that the insurer had to come out of pocket) to the tune of $193,137.68 in attorney’s fees.  The lower court trifurcated the resolution:  the first phase was a bench trial on equitable subrogation entitlement (found in St. Paul’s favor); the second phase was a jury trial on amounts to be awarded insurer under equitable subrogation (the jury did award certain amounts to St. Paul); and the third phase was another bench trial on the settlement offsets/credits to be factored into the ultimate award (with St. Paul getting some positive judgments, but small amounts after offsets/credits).  However, along the way, the lower court (1) denied that the subcontractors were jointly and liable to St. Paul (as subrogaee to Pulte) for general defense costs not related to the subcontractors’ specific scope of work; and (2) denied insurer’s request for fees in prosecuting the equitable subrogation claim based on a performance default clause in a master agreement between Pulte and the subcontractors.

            The Third District affirmed the lower court’s fee determinations.  As to the first issue, the appellate court followed two prior decisions finding that the subcontractors are only liable for fees relating to their specific scopes of work, not general attorney’s fees relating to the overall defense of the case on behalf of Pulte.  (Pulte Home Corp. v. CBR Electrics Inc., 50 Cal.App.5^th 216, 225 (2020); Carter v. Pulte Home Corp., 52 Cal.App.5^th 571, 586-587 (2020).)

            With respect to issue #2, the appellate court did note that the default clause was ambiguous so that both sides had a colorable argument on whether it encompassed general equitable subrogation fees.  However, the killer for St. Paul/Pulte was that it was ambiguous such that the ambiguity was construed against drafter Pulte—with the absence of a specific attorney’s fees clause in the default provision not clearly establishing the basis for fee entitlement. 

Indemnity, Substantiation Of Reasonableness Of Fees: Trial Court’s Complete Denial Of Attorney Fees And Costs To Contractor Prevailing On Contractual Indemnity Claims Affirmed On Appeal

Contractor Failed To Support Its Roughly $570,000 Fees/Costs Request With Underlying Documentation And Testimony, And Made No Attempt To Allocate Fees Between Compensable And Noncompensable Claims.

            In Paul Ryan Associates v. Catlin Specialty Ins., Case No. A156755 (1^st Dist., Div. 5 May 21, 2021) (unpublished), contractor prevailing on summary judgment, against contractual indemnity claims, appealed the trial court’s order denying its motion for roughly $570,000 in contractual prevailing party attorney fees and costs.

            The 1/5 affirmed – finding the trial court acted well within its discretion.  Contractor – if it were entitled to fees (something the panel did not determine) – “utterly failed to satisfy its burden of demonstrating a reasonable fee award.” Contractor made no attempt to estimate or apportion the fees/costs incurred in defending against the contractual indemnity claims from fees it incurred defending against other claims made by other parties involved in the litigation. Rather, contractor divided the litigation into 3-month quarterly periods of time, separately calculated the amount of fees and costs incurred during each quarterly period in which the parties asserting the indemnity claims were involved in the litigation, and divided the total by the number of parties involved in the litigation at the time. Additionally, contractor did not submit billing records, provide attorney testimony as to the number of hours worked on the contractual indemnity claims, nor provide any other underlying data that would assist the trial court in making a determination as to the reasonableness of the fees requested. 

   

Allocation, Indemnity, Section 1717, Seriously: 4/1 DCA Affirms $6,000 Damages Award And $143,183.55 Out Of Requested $572,730.11 § 1717 Fees To Prevailing Breach Of Contract Plaintiff Who Proved $1,463,745 In Damages At Trial

Plaintiff’s Failure To Conduct Due Diligence Prior To Entering Into Commercial Lease And Failure To Mitigate Damages Once Problems Arose Left Him Upside-Down By More Than A Million Dollars When All Was Said And Done

            Sherwood v. Vogele, Case No. D076776 (4^th Dist., Div. 1 May 7, 2021) (unpublished) highlights the importance of conducting due diligence before entering into a commercial property lease (or purchase), and of working to mitigate damages when problems arise.

            Plaintiff leased a commercial building for the purpose of building and operating a coffee house with an added rooftop deck – accepting the zero lot line property “as is,” and signing a lease with a hold harmless clause indemnifying landlords in the event he caused a claim to be filed against them.  Afterward, plaintiff became aware that a neighboring property had roof eaves that overhung onto his leased property and hindered his ability to build his project.  When neighboring property owner failed to begin removing those eaves on the date specified in a written agreement with plaintiff, plaintiff instructed landlords to cut off communications with neighbor – claiming he did not believe neighbor intended to remove the eaves, that he would have to proceed as if the eaves would not be removed, and that he intended to sue neighbor for a million dollars because he would have to spend considerable more on a build-out to accommodate the encroaching eaves.  Plaintiff then received landlords’ permission for a complete tear down, rather than a remodel, of their building based on their belief plaintiff’s construction of a new building included a “workaround” to the problem.  This was not the case, however, with plaintiff obtaining permits, and going forward with the demolition, based on plans that did not take the encroaching eaves into account. 

            After filing his lawsuit against neighbor, plaintiff terminated his lease and left landlords with a vacant lot.  Neighbor cross-claimed against plaintiff and landlords for damage to his property caused by the demolition, landlords cross-claimed against plaintiff for breach of lease and indemnity, and plaintiff cross-claimed against landlords alleging fraud and breach of the covenant of quiet enjoyment.  The jury found neighbor breached its binding contract with plaintiff, negligently trespassed and maintained a private nuisance – causing plaintiff $1,463,745 in past and future economic damages.  However, judgment was entered with plaintiff being awarded only $6,000 in damages against neighbor as the jury found plaintiff could have mitigated all but $30,000 of his damages, and that plaintiff was 75% responsible for his losses, while neighbor was only 20% responsible.  Additionally, neighbor was awarded $50,000 in property damage, plus $29,027.50 in costs, against plaintiff, while landlords were awarded $620,492 in damages against plaintiff.  Finally, in a postjudgment order, plaintiff received an award of $143,183.55 in § 1717 attorney fees – only 25% of the $572,730.11 he sought based on the trial court’s allocation for plaintiff’s breach of contract cause of action.  Plaintiff appealed.

            The 4/1 DCA affirmed – finding substantial evidence concerning plaintiff’s failure to mitigate damages supported the judgment.  “One has an obligation to avoid an unwarranted enhancement of damages ‘through passive indifference or stubborn insistence upon a conceived legal right . . . .’ ” (Valle de Oro Bank v. Gamboa, 26 Cal.App.4^th 1686, 1691 (1994).)  As to the fees, the panel found no abuse of discretion in the trial court’s 75% reduction given allocation among plaintiff’s contract and tort claims was proper, and plaintiff did not assert that his claims were so intertwined to make allocation impracticable.   

Indemnity, Special Fee Shifting Provision: Indemnity Agreement In Annexation Application Did Not Justify Attorney’s Fees Award In Favor Of Local Agency Formation Commissions And Against City/Developer

Government Code Sections 56383 And 66016 Dictated The Result.

            San Luis Obispo Local Agency Formation Commission v. City of Pismo Beach, Case No. B296968 (2d Dist., Div. 6 Mar. 3, 2021) (published) is an indemnity agreement fee clause dispute between a local agency formation commission and a city/developer as to the responsibility for fees after an annexation application was denied and the local agency formation commission eventually prevailed, with the commission seeking over $400,000 in fees and costs against the city and developer.  The trial court granted a judgment on the pleadings in favor of city and developer in a suit seeking fees/costs by the local agency formation commission based on the indemnity provision in an annexation application which mentioned fees and costs.

            The 2/6 DCA affirmed the judgment which did not award fees and costs under the indemnity provision.  The problem here was that Government Code sections 56383 and 66016 did not allow recovery of such and fees costs for post-administrative decision court proceedings; as such, the indemnity provision had no consideration such that the lower court got it right in denying fees and costs in a very unique annexation application context.

Indemnity: Related Indemnity Action Fees May Justify Fee Recovery

Indemnity Defensive Actions Can Justify A Fee Award.

            In ReadyLink, Inc. v. Integrated Healthcare Holdings, Inc., Case No. G057280 et al. (4^th Dist., Div. 3 Feb. 11, 2021) (unpublished), our local Santa Ana Court—in a 3-0 opinion authored by Acting Presiding Justice Moore—reminded us that substantial attorney’s fees ($1.2 million in the particular matter) can be awarded for a party needing to defend an indemnity action raised as an offset.  Just to show how related actions can give rise to fee recovery.  (Children’s Hospital v. Bonta, 97 Cal.App.4^th 740, 779-780 (2002).).

Indemnity: $21,012 Fee/Costs Award Under CCP § 1038 Sustained On Appeal After 631.8 Motion Granted In Indemnity Action

Vindictive Purpose Of The Action Shown Through Emails.

            Code of Civil Procedure section 1038 provides that, where a trial court grants a defense motion for directed verdict, motion for judgment, or nonsuit in an action for indemnity and contribution, the trial court, on motion, may award attorney’s fees if the action was not brought with reasonable cause in the good faith belief that there was a justifiable controversy.  The “reasonable cause” prong is reviewed de novo, and the “good faith” prong is reviewed for substantial evidence when reviewing a lower court’s grant of fees/costs.  (Austin B. v. Escondido Union School Dist., 149 Cal.App.4^th 860, 888 (2007).)

            In Sturm v. Woods, Case No. B300572 (2d Dist., Div. 6 Oct. 21, 2020) (unpublished), plaintiff sued a paralegal who helped her oppose a summary judgment motion in a malpractice action filed against an ex-attorney (a motion eventually granted in ex-attorney’s favor).  In an email sent to the paralegal on the day she filed her action, plaintiff admitted that there was no unintentional error in the opposition papers, but that paralegal was “collateral damage” in trying to get to the ex-attorney.  The lower court granted a CCP § 631.8 motion for judgment in favor of paralegal and stated it would entertain a motion for attorney’s fees, with paralegal doing so and with the trial judge awarding $21,012 in fees and costs.

            Plaintiff’s appeal was sternly rebuffed by a 2/6 DCA panel.  The “tell-all” email satisfied the “reasonable cause” and “good faith” prongs, showing the litigation was “a vindictive action, brought in bad faith and without reasonable cause, to force paralegal to indemnify appellant.”  It was further bolstered by the “collateral damage” reference and plaintiff also indicating “I know that you are under a lot of pressure caring for your disabled husband and family.”  Ouch!

Indemnity: When Judgment In Favor Of Cross-Defendant Defending Against Indemnity Claim Is Reversed On Appeal, So Too Is The $756,121.24 Awarded In Attorneys’ Fees And Costs

The Trial Court Erred In Concluding That Duty To Indemnify Was Not Triggered By The Filing Of Underlying Lawsuit Wherein Plaintiff Did Not Expressly Allege Negligence By Cross-Defendant.

            In Sierra Pacific Properties, Inc. v. Otis Elevator Co., Case No. A154578 (1^st Dist., Div. 5 January 27, 2020) (unpublished) a commercial office building employee was seriously injured when the elevator she was riding in suddenly malfunctioned – requiring her to undergo several surgeries.

            She sued the building owner and Schindler – the contractor that serviced the elevators at the time of the incident.  Building Owner tendered its defense to both Schindler and Otis Elevator Co.  Otis had maintained the elevators until approximately three months prior to the incident.  Schindler accepted Building Owner’s tender and defended it in the lawsuit, but Otis did not.    

            The jury returned a verdict finding negligence – allocated fault at 60% to Building Owner and 40% to Schindler – and awarded Plaintiff over $5.6 million in damages.  The jury found Otis was not negligent.

            After trial, the parties submitted briefs on the cross-complaint Building Owner and Schindler had filed against Otis for contractual and equitable indemnity.  While the parties agreed that Otis did not have to indemnify Building Owner based on the jury’s findings, Schindler alleged that Otis should have shared the costs of defending Building Owner.  However, the trial court found Otis had no duty to defend Business Owner because Plaintiff did not expressly allege negligence by Otis in her complaint.  Additionally, the trial court awarded Otis $756,121.24 in attorney fees and costs under Civil Code section 1717.

            The 1/5 DCA reversed – finding Otis had a duty to defend Building Owner pursuant to indemnity clauses in the contract between the parties, and that the duty had been triggered by Plaintiff’s complaint even though she had not named Otis as negligent.  Pursuant to Civil Code section 2778, which imposes a duty to defend when a plaintiff alleges facts that would give rise to a duty of indemnity, the 1/5 DCA determined the proper focus was not on who Plaintiff named in her complaint. Rather, the proper focus was on the facts alleged in Plaintiff’s complaint which clearly implicated Otis’s work and made it potentially liable on the indemnity.  That duty arose immediately upon Building Owner’s tender of defense and was not dependent on the outcome of the litigation.  (See also, Crawford v. Weather Shield Mfg., Inc. (2008) 44 Cal.4^th 541, 553-558 and UDC-Universal Development, L.P. v. CH2M Hill (2010) 181 Cal.App. 4^th 10, 21.)

            Reversal of the judgment in favor of Otis necessitated reversal of the attorney fees/costs it had been awarded.  On remand, the 1/5 DCA instructed the trial court to apply the equitable contribution doctrine in determining Schindler and Otis’s defense costs shares.

Fee Clause Interpretation, Indemnity: Prevailing Cross-Complainant Entitled To $87,024.91 In Attorney’s Fees And Costs From Cross-Defendant In Customer Suit Defense Costs

Terms Of The Indemnity Did For Recovery Of Fees And Costs From Cross-Defendant.

            The 2/8 DCA, in ZIM American Integrated Shipping Services, Co. v. GES Logistics, Inc., Case No. B292259 (2d Dist., Div. 8 Dec. 11, 2019) (unpublished), had no trouble interpreting the contractual interpretation reached by a trial judge below.  What happened is that ZIM, which was contracted with by GES to provide shipping services at specified rates, was directed by GES to place a hold on one of GES’s customer’s cargo.  Customer sued ZIM, who in turned cross-claimed against GES based on contractual indemnity language.  The lower court awarded ZIM its legal fees incurred in the customer lawsuit based on ZIM’s cross-complaint against GES.  The fees/costs award totaled $87,024.91.  The appellate court affirmed based on clear contractual language requiring indemnification of fees/expenses incurred to ZIM “as a consequence of ZIM acting in accordance with GES’s instructions and information, or the inaccuracy of insufficiency thereof, ….”

Indemnity: Escrow Holder Improperly Awarded Over $61,000 In Attorney’s Fees Under Escrow Instruction Indemnity Clause

Clause Encompassed Third-Party Claims, Not Akin To A True Attorney’s Fees Clause.

            We have a category “Indemnity” which has many cases on the subject matter resulting in a reversal of an attorney’s fees award to a prevailing escrow holder as against the sellers in a real transaction, as in the next case we review.

            What happened in Choi v. Prima Escrow, Inc., Case No. B288871 (2d Dist., Div. 7 Oct. 15, 2019) (unpublished) is that escrow holder was awarded nearly $65,000 in compensatory damages against sellers after a real estate transaction was cancelled, with the trial judge concluding that escrow fees were still owed even after cancellation of the transaction.  The lower court then awarded escrow company $61,692.50 in attorney’s fees under an escrow clause which provided “[w]e agree to save you harmless as Escrow Holder hereunder from all losses and expenses, including reasonable attorney’s fees and court costs sustained by reason of any claim, demand, or action filed, legal or otherwise, which may in any manner arise out of, or from the property which is the subject of this escrow, or out of or from this escrow, before or after closing, notwithstanding anything in these instructions to the contrary, and in addition hereto, we jointly and severally agree to pay reasonable escrow fees therefor.”

            The appellate court reversed the fee award.  Based on de novo contractual review, it determined that the provision was a third-party indemnity clause, not a true attorney’s fees clause applicable between principals (the sellers) and the escrow company.  (Cf. Campbell v. Scripps Bank, 78 Cal.App.4^th 1328, 1332, 1336 (2000).)

Indemnity, Paralegals, Reasonableness Of Fees: Famed Volleyball Player Kerri Walsh Jennings Properly Awarded Attorney’s Fees Of $92,726 For Contract Breach Claim Of $150,000

Indemnification Clause Was Not A Third-Party Clause, So Fees Were Proper; $790-$850 Hourly Rate For 43-44 Year Los Angeles Litigator, $360-$395 For 4-5 Year Associate, And $290 For Paralegals Found To Be Reasonable By The Trial Judge And Appellate Court.

            Just to show you how fee recovery can frequently come close to the underlying compensatory dispute, we now post on a fee award to famed volleyball player Kerri Walsh Jennings which was affirmed on appeal in Jennings v. AOS Group, LP, Case No. B289681 (2d Dist., Div. 4 July 29, 2019) (unpublished).

            In this case, Ms. Walsh filed a breach of contract complaint claiming that defendant AOS failed to pay her $150,000 for using her name and likeness.  She also sought attorney’s fees and costs, with the lower court not striking the fee prayer.  AOS then paid the $150,000 plus interest and costs, but no settlement agreement was ever signed.  Ms. Walsh Jennings then moved for attorney’s fees as the prevailing party, relying on a contractual provision which stated:  “AOS agrees to defend, indemnity and hold harmless Ms. Walsh Jennings, her agent, representatives and employees from and against any all damages, claims, suits, actions judgments, costs and expenses including reasonable attorneys’ fees, arising out of:  (a) any material breach by AOS of this Agreement or any representation or warranty made hereunder . . . .”  The lower court awarded Ms. Walsh Jennings her fully requested fees of $92,726.

            Although AOS argued that this was a true third-party indemnification clause not triggering fees, the appellate court, in line with the trial judge, disagreed.  The language in the particular clause did not limit its application to third-party lawsuits, supported by the reasoning in several cases distinguishing these types of broader clauses from true indemnity clauses.  (Wilshire-Doheny Associates, Ltd. v. Shapiro, 83 Cal.App.4^th 1380, 1396 (2000); Zalkind v. Ceradyne, Inc., 194 Cal.App.4^th 1010, 1022-1024 (2011).) 

            With respect to reasonableness of fees, the trial court concluded that the following hourly rates were reasonable for Los Angeles litigators:  (1) $790 in 2017 and $850 in 2018 for a 43-44 year litigator (who discounted his 2018 rate from $950); (2) $360-$395 for a 4-5 year associate (discounted from her $490 rate); and (3) $290 for paralegals (discounted from $300).  In doing so, the trial judge observed he had recently approved fees for Latham, Gibson, and Munger in excess of $1,200, finding the senior attorney work was in line with top firm work.  The appellate court found no abuse of discretion with these determinations. 

            Also, Ms. Walsh Jennings was found entitled to appellate fees for prevailing again. 

Arbitration, Fee Clause Interpretation, Indemnity: Narrow Fee Clause, Allowing Recovery In Arbitration Only, Did Not Confer Fee Recovery For Fees Relating To Litigation

Indemnity Clause Gave No Basis For Fee Recovery, Because It Was Unilateral In Favor Of Unsuccessful Party, Not Allowing For Fee Entitlement--$628,587.50 In Fees Went Away!

            In Club Acacia Community Assn. v. Professional Community Management of California, Inc., Case No. G056313 (4^th Dist., Div. 3 July 11, 2019) (unpublished), a long-time dispute between an HOA, property manager, and contractor over the problematic installation of a fire alarm system at a condominium building resulted in property manager being found liable to HOA for $88,500 after allocation of comparative negligence against HOA and contractor in litigation, but no one pursuing claims in arbitration.  There were two potential fee entitlement provisions: (1) an arbitration clause, but fees to the prevailing party only applied to an arbitration; and (2) an indemnification clause between HOA and property manager, in favor of property manager, for claims arising out of performance of the HOA-property manager contract.  Eventually, the lower court awarded HOA fees in the amount of $628,587.50 against property manager based on the arbitration clause.  Property manager appealed the fee award, to its credit.

            First of all, the indemnity clause did not allow for fee entitlement.  An indemnity clause is not made mutual by operation of Civil Code section 1717, such that HOA could not get fees, because it only favored property manager.  (Building Maintenance Service Co. v. AIL Systems, Inc., 55 Cal.App.4^th 1014, 1029 (1997).)

            Most importantly, the arbitration clause only applied to arbitration activities, such that the litigation attorney’s fees award went POOF!  Respondent HOA offered numerous theories—conduct of the parties and drafting party adverse ambiguities (contra proferentem) arguments—but they were to no avail, based on the unambiguous language that only arbitration fees were to be awarded.  So, in the end, $628,587.50 in adverse fees went away on appeal, in a 3-0 unpublished decision authored by Justice Moore.

Indemnity: LLC Operating Agreement Provision Was An Indemnity, Not A Fees Clause, Requiring Reversal Of A $71,032.50 Fee Award To Prevailing Plaintiffs.

Section 1717 Does Not Change The Result If The Indemnification Provision Does Not Apply.

            In JFK Investment Group, LLC v. Kobi, Case No. B287455 (2d Dist., Div. 3 May 31, 2019) (unpublished), plaintiffs won a LLC dispute and then obtained $71,032.50 in fees under an LLC indemnity provision.  The relevant clause contained critical “indemnify” language only applicable to third parties, not specifically referring to actions relating to LLC operating agreement signatories involving fee disputes.  Civil Code section 1717 did not dictate a different result because indemnification provisions are specific and cannot be translated into general fee provisions.  (Alki Partners, LP v. DB Fund Services, LLC, 4 Cal.App.5^th 574, 605-606 (2016).)  So, the indemnity fee provision was not a fee clause—fee award reversed as a matter of law.

Indemnity, Prevailing Party, Section 1717: Trial Court Erred In Denying Contractual Fees To Owner And General Contractor’s Surety Such That A Remand Was Required—There Was A Fees Clause, Not Just An Indemnity Provision

However, Appellate Court Acknowledged That Results Were Decidedly Mixed, But Any Prevailing Party Determination Was To Be Made By Lower Court

            Driving multiple trips to the appellate court were the parties’ claims for attorney’s fees, something we have seen often and one of the things which inspired this blog.

            In John Russo Industrial Sheetmetal, Inc. v. City of Los Angeles Dept. of Airports, Case Nos. A151597/A151682 (1^st Dist., Div. 5 April 23, 2019) (unpublished), owner won $1 against general contractor’s construction bond surety after a 6-week jury trial, while the general contractor actually won attorney’s fees under a frivolous False Claims Act count. However, both owner and surety moved for contractual attorney’s fees under a clause of the governing contract. The trial judge denied fees to both sides, determining that the clause was an indemnity clause rather than a real fees clause.

            The appellate court reversed. It determined that the clause was a fees clause based on these factors: (1) the section did not focus exclusively on third-party claims, but applied to a situation where owner was “made a party to any litigation commenced by” general contractor; (2) the section was labeled “Attorney’s Fees”; and (3) there was a separate indemnity provision separate and apart from the fees provision. Based on Civil Code section 1717 reciprocity principles, the bond surety was also entitled to the benefit of the fees clause. (First National Ins. Co. v. Cam Painting, Inc., 173 Cal.App.4^th 1355, 1367 (2009).)

            However, the 1/5 DCA did give some telling remand reasoning. Although leaving it to the trial court to determine if there was any prevailing party, it did observe that “the results were decidedly mixed”—owner won only one dollar (compared to the $3.4 million it was seeking as damages), while the surety was found jointly/severally liable to owner for the one dollar but owner lost its claim for enforcement of the performance bond. If we were to predict things, there is going to be no prevailing party in this situation after remand—just sayin’. . . ., and not meaning to be clairvoyant.

Construction, Indemnity, Insurance: Subcontrator’s Insurer On The Hook To Indemnify It To The Tune Of $1,532,973.87 In Damages And Fees, Plus Prejudgment Interest, Following Entry Of Default Judgment Against Subcontractor

Homebuilder’s Insurer Sued Subcontractor’s Insurer After Fully Indemnifying Homebuilder In Underlying Action For Construction Defect Damages and Attorney Fees

        The Insurance Company of The State of Pennsylvania v. American Safety Indemnity Company, Case No. B283684 (2d Dist., Div. 8 March 1, 2019) (published) involves a dispute between insurers resulting from an underlying case. The underlying case involved a Homeowner Couple who sued a Homebuilder General Contractor for defective construction. Their home had been constructed on a lot that had been improperly compacted by a Grading Subcontractor under a contract with Homebuilder. The resulting settling damage to Homeowner’s home was so significant that a construction engineer concluded the entire structure was compromised and should be demolished and rebuilt at a cost of almost $1.9 million. The case went to arbitration, with Homeowner alleging “at least $2,347,592” in damages against Homebuilder. The arbitrator found in favor of Homeowner, and awarded damages of $1,026,750, attorney fees of $1,122,625, costs of $8,840.38, plus prejudgment interest of $28,417.84 – for a total recovery of $1,176,633.22.  

        Homebuilder initiated a lawsuit against Subcontractor pending the outcome of arbitration – obtaining a default judgment against Subcontractor for $1,532,973.87 (Homeowner’s arbitration award of $1,176,633.22 as damages, plus attorney fees of $356,340.65) pursuant to indemnity provisions in a contract between the parties (which also provided for attorney fees).

        Because Homebuilder’s Insurer fully indemnified it for the arbitration award to Homeowner, it then sued Subcontractor’s Insurer for recovery of the default judgment under Insurance Code section 11580 (a contractual action on the policy to satisfy a judgment up to policy limits), along with causes of action for declaratory relief, subrogation, and breach of contract – alleging Subcontractor Insurer had: (1) a duty to indemnify Subcontractor for the amount of the default judgment; and (2) policies that provided coverage for the entire amount of the default judgment. Homebuilder Insurer further alleged it was subrogated to Homebuilder’s rights to recover by virtue of having indemnified Homebuilder for the arbitration award.

        Both Insurers moved for summary judgment, with the trial court denying Subcontractor Insurer’s motion, granting Homebuilder Insurer’s motion, and entering judgment in favor of Homebuilder Insurer in the amount of $1,532,973.87 plus prejudgment interest. Subcontractor Insurer then filed a motion for a new trial, which was denied, so it filed an appeal.

        On appeal, Subcontractor Insurer made the same summary judgment arguments it had made in the lower court, but added a few additional arguments for the first time on appeal. The new arguments were not considered by the 2/8 DCA, and the remaining arguments proved to be of no avail to Subcontractor Insurer.

        In affirming the trial court’s summary judgment rulings, the 2/8 DCA determined that the underlying default judgment was valid under Code Civ. Proc. section 580 (default judgment cannot exceed amount requested in complaint) as Homebuilder clearly stated that it sought indemnity for the underlying arbitration in an amount of at least $2,347,592 – an amount significantly higher than the default judgment award. It further determined that the default judgment was indeed based upon property damage – not economic loss as argued by Subcontractor Insurer.

Indemnity, Equity: Trial Judge Properly Denied Substantial Fees To Prevailing Party Where Contractual Clause Was Indemnity Clause And New Fee Entitlement Arguments Were Presented In Supplemental Briefing Beyond What Was Granted By Lower Court

Supplemental Evidence Was Properly Not Considered In The Trial Judge’s Discretion.

            If the lower court grants you supplemental briefing, make sure you do so in line within the scope of the supplemental briefing allowed by the trial judge. MetLife Securities, Inc. v. Brandt, Case No. B282949 (2d Dist., Div. 3 Dec. 18, 2018) (unpublished) demonstrates that a motion will be denied where supplemental briefing exceeds what was authorized.

            In this particular situation, cross-complainants did prevail, filing a motion to recover attorney’s fees based on a contractual clause which was an indemnity rather than a fees clause and offering no support as to the reasonableness of the lodestar request/counsel’s hourly rates. The lower court’s tentative was to deny on this basis, but it did allow them supplemental briefing to support the amount of the fee request. Cross-complainants fired their counsel and replaced with new counsel which filed large supplemental papers containing new fee entitlement bases and proof to support a $2.3 million fee request. The lower court denied fees altogether, finding the supplemental papers were outside of what it authorized.

            The appellate court affirmed. The supplemental papers effectively abandoned reliance on the indemnity provision as a fee predicate, and the lower court did not abuse its discretion in refusing to consider supplemental entitlement arguments not raised earlier and which exceeded the scope of what was discretionarily allowed to be filed in the first place.

Allocation, Indemnity: CFO Was Entitled To Attorney’s Fees Indemnification Under Corporations Code Section 317(d) For Win On Settlement Release Issue

Remand Requires To Apportion Fees Expended In Establishing Validity Of Release And Defendants Against Fraud In The Inducement Claims—However, It Did Not Adopt Wilshire Test For Corporate Indemnification.

            Protech Services, Inc. v. Gillette, Case No. C083975 (3d Dist. Dec. 6, 2018) (unpublished) is an interesting decision on the scope of mandatory indemnification under Corporations Code section 317(d) where a CFO won a dispute based on a release in a separation agreement. However, the real issue was whether he was entitled to indemnification under section 317(d), with the Third District essentially eschewing the reasoning on the issue in Wilshire-Doheny Associates, Ltd. v. Shapiro, 83 Cal.App.4^th 1380, 1394 (2000).

            What happened here was that CFO won various-fraud based theories brought by his former employer after a bifurcated trial in which a release in a separation agreement was found to have released the claims against him. The trial court awarded CFO, as against plaintiff corporation, attorney’s fees pursuant to an indemnity provision contained in his employment agreement, Corporations Code section 317, and the corporation’s bylaws—to the tune of $715,770. The Third District agreed fee recovery was justified, but decided it had to be apportioned to only encompass work spent in establishing the validity of the release and defending against the fraud rescissionary claim.

            The Court of Appeal had no difficulty in concluding CFO was entitled to mandatory indemnification under section 317(d). Where it had difficulty was following language in Wilshire determining that, although mutual release was a release on the merits for a corporate agent, a remand was necessary to determine if the officer properly acted as an agent. Instead, the Third District interpreted requiring “success on the merits” to require both lack of liability and innocence of the alleged misconduct. (Slip Op., at p. 27.) It did not agree with Wilshire that only one of these elements was required to determine “success on the merits.” However, both of these elements were established by CFO here. In the end, because the award encompassed a variety of work, it needed a “re-do” to determine the fees expended in establishing the validity of the release and defending the claims or fraud in the inducement. Because the corporate bylaws provided no greater indemnification than section 317, no further analysis was needed.

Indemnity: Fee Clause Language Included In Escrow Agreement Indemnity Provision Did Allow For Fee Recovery

2/5 DCA Found Carr Decision’s Discussion Instructive.

            Under our category “Indemnity,” we have posted on many cases which address the issue of whether an indemnity clause is a true indemnity provision or it also can allow for fee recovery. If you face this issue, we suggest you consult Carr Business Enterprises, Inc. v. City of Chowchilla, 166 Cal.Ap0.4^th 14, 20-23 (2008), as did the 2/5 DCA when resolving Wei v. Culture Escrow, Case No. B285327 (2d Dist., Div. 5 Nov. 26, 2018) (unpublished).

            Wei involved a plaintiff trustee who lost a fraud/breach of fiduciary duty action against defendants escrow company and escrow officer related to a real estate transaction between plaintiff’s mother and stepfather. The trial judge awarded fees to the winning defendants, under the escrow agreement’s indemnity clause to which all the parties were signatories.

            Plaintiff, obviously not happy with the result, appealed. The 2/5 DCA affirmed. It found that Carr was enlightening as far as the distinction between an indemnity qua indemnity clause and a mixed indemnity/fees provision. Usually, an indemnity clause uses language such as “indemnify” and “hold harmless,” contrasted with a fees clause using language such as fees Incurred “in an action between the parties to enforce their agreement” or “on account of any breach of the agreement.” Here, the fees clause read as follows: “If the parties do not pay any fees, costs or expenses due [e]scrow [h]older under the escrow instructions or do not pay for costs and attorney[] fees incurred in any litigation, administration action and/or arbitration, on demand, they each agree to pay a reasonable fee for any attorney services which may be required to collect such fees or expenses, whether attorney[] fees are incurred before trial, at trial, on appeal or in arbitration.” This language in the escrow indemnity clause meant it was a mixed indemnity/fees clause, so that fees were recoverable under the cases discussed in Carr.

Indemnity: Public Agency Prevailing Against Landowner Properly Denied Attorney’s Fees Under A Land Use Application Indemnification Clause Because The Parties And Others Were Litigating The Validity Of Indemnity Agreement In A Separate Action

Lower Court Properly Denied The Agency’s Motion Without Prejudice To Pursuing Recovery As Damages In The Separate Action.

            A landowner lost an administrative writ against a public agency for allegedly improperly denying a land use annexation application, although two annexation applications actually were involved. The hitch was that the land use applications had an indemnity agreement which provided for an award of fees to the public agency, although the applications were signed by different entities. All of this led the landowner to file a superior court action challenging the application denial, which was ultimately unsuccessful. However, about one year later, City filed a separate suit for indemnity from the landowner based on some conflicting claims and another party cross-complained against City and landowner such that the indemnity agreement contained in the second annexation application is being heavily contested between all three interested parties.

            However, the trial court in the first action where the land use application’s denial was upheld also denied without prejudice the public agency obtaining attorney’s fees against landowner given that those parties and others were duking it out in the separate action such that fees could be awarded as damages in the indemnity agreement fight.

            Public agency appealed, but the 2/6 DCA found what the trial judge did to be eminently reasonable in Central Coast Development Co. v. San Luis Obispo Local Agency Formation Comm., Case No. B279000 (2d Dist., Div. 6 July 26, 2018) (unpublished). After all, the defenses raised to the indemnity agreement, many of which were factual, were better vetted in a long-cause matter than a law and motion hearing. Public agency was not harmed because the previous denial was without prejudice.

Indemnity: Litigant Losing Prior Contractual Indemnity Claim Properly Denied Attorney’s Fees Defense Expense Reimbursement Motion

Indemnity Loss Was Fatal And Contract Had No Separate Duty To Defend Obligation Independently Triggering Reimbursement Rights.

Children play on inflatable water slide.  Dallas, Texas.  2014.  Carol M. Highsmith, photographer.  Library of Congress.

            In Grandpa’s Jumps v. Archdiocese of Los Angeles, Case No. B276894 (2d Dist., Div. 1 Oct. 31, 2017) (unpublished), Grandpa Jumps provided a 16-foot tall inflatable slide for an Archdiocese “Fiesta” high school fundraiser, with a minor falling from the slide and fracturing his skull and with both parties settling the minor’s subsequent suit for the injuries.  Grandpa’s Jumps cross-claimed against Archdiocese based on a contractual indemnity clause, but the cross-claim was unsuccessful because Grandpa Jumps was found to have been actively negligent.  However, Grandpa Jumps later moved to recoup $168,577.50 in attorney’s fees and $29,074.16 in costs based on the theory that Archdiocese had an independent duty to absorb its costs of defense as part of the indemnity rights.  The trial judge denied the fees/costs motion.

            The Second District, Division 1 agreed.  The problem for Grandpa Jumps was that it lost the indemnity claim, which usually embraces the costs of defense rights also.  Nothing in the indemnity clause triggered an independent duty to reimburse its defense costs no matter the result on the indemnity claim such that the motion denial was proper.  (Civ. Code, § 2778, subd. (3).) 

Employment, Indemnity, Reasonableness Of Fees, Requests For Admissions: Four Unpublished Decisions On July 11, 2017 Highlight These Issues

Fee Reasonableness—Neman Real Estate Investments, LLC v. Oken. Case Nos. B263196/B263718 (2d Dist., Div. 4 July 11, 2017) (unpublished).

            In this first one, defendants won a commercial property dispute and were awarded costs/fees of $619,566.75 based on a “blended” $495 hourly rate to L.A. real estate litigators that happened to be “below market.”  The appellate court affirmed, rejecting arguments that the rates allowed had to those charged to clients, had to take into account third party indemnity or insurance obligations, or had to be based on “non-blended” rates.

Employment—Allyn v. Fallbrook Union Elementary School Dist., Case No. D068325 (4^th Dist., Div. 1 July 11, 2017) (unpublished).

            In the second case, former employee won a $1.2 million retaliation verdict against school district, but the trial judge denied employee’s fee request of $791,750 under Labor Code section 218.5(a) against the school district.  The appellate court agreed that the fee request under section the Labor Code section did not apply to a public school district.

Employment/Requests For Admissions -- Harris v. InboundProspect, Inc., Case No. G052797 (4^th Dist., Div. 3 July 11, 2017) (unpublished) (author:  Fybel, J.).

            Case number three involved FEHA fees of $3,751.20 and RFA “costs of proof” sanctions under CCP § 2033.420 of $4,951.30 against a plaintiff losing a suit against a defendant because the defendant was not an employer.  The defense had sought exposure ranging from $24,784.44 - $60,894.06, such that the appellate court found no abuse of discretion on the amount of fees/costs awarded given that plaintiff’s financial position was explored by the lower court.  Plaintiff could not support its “employee” position.

Indemnity—Marin Schools Ins. Authority v. Schools Excess Liability Fund, Case No. A145365 (1^st Dist., Div. 5 July 11, 2017) (unpublished).

            This last decision involved defendant in an indemnity action prevailing on a summary judgment motion.  The issue was whether the trial judge properly awarded fees under CCP § 1038 to the defense because the action lacked reasonable cause and was not brought in good faith.  Although the action was thin, the summary win was not dispositive and did not suffice to establish that the action was frivolous in nature.  Fee award reversed.

Indemnity: Attorney’s Fees Incurred By Indemnitee In Enforcing Indemnity Contract Are Not Recoverable

Although Fees Incurred In Defending Against Third Party Claim Were Recoverable, The Enforcement Fees Were Not.

          Language, language, language.

 

Free neighborhood classes (including language).  1937.  Library of Congress.

        The language of an indemnity clause, including fee entitlement, is critical in determining what types of fees are recoverable by an indemnitee.  The indemnitee in the next case won some fees but lost others in its bid to recoup indemnity enforcement fees.

        The trial court in GAP, Inc. v. Apex Xpress, Inc., Case No. A146176 (1^st Dist., Div. 5 June 14, 2017) (unpublished) awarded a contractual indemnitee both fees for defending against a third-party action brought against indemnitee under an indemnity clause and for suing an insurer for insurance coverage for purposes of enforcing the indemnity agreement.  The appellate court agreed the indemnity clause allowed indemintee to recover the third-party action fee expenses but did not allow for fees in suing the insurer to enforce the indemnity agreement.  Simply put, the enforcement dispute was not covered by the language of the indemnity clause only allowing for fee recovery in a more limited third-party action context.  (See Otis Elevator Co. v. Toda Construction, 27 Cal.App.4^th 559, 564, 566 (1994); Hillman v. Leland E. Burns, Inc., 209 Cal.App.3d 860, 865, 869-870 (1989).)  As such, the $25,914.76 award in enforcement fees was reversed on appeal.

Indemnity: Indemnity Clause Relating To Escrow Holder Was Not An The Equivalent Of A Prevailing Party Attorney’s Fees Clause

Merely Pleading Fee Recovery Does Not Create An Estoppel If No Entitlement Lies.

 

           Two Boots Pizza.  Downtown LA.  Carol M. Highsmith, photographer.  2012.  Library of Congress.

        Defendant won a dispute over an agreement to sell certain Papa Johns’ pizza restaurant locations, and then attempted to recoup attorney’s fees as a prevailing party based on a clause in escrow instructions.  Both the trial and appellate courts agreed that the clause did not confer a fee entitlement basis, because the provision only related to indemnification of a separate escrow holder earlier dismissed from the case.  It was an indemnity clause, not a fees clause, concluded the appellate court panel in Royal Capital Holdings, Inc. v. Chase Pizza, Inc., Case No. B278993 (2d Dist., Div. 2 May 24, 2017) (unpublished).  It also found that the losing plaintiff’s pleading of fee entitlement did not create an estoppel if there is no true substantive basis for fee recovery (and there wasn’t).

Appeal Sanctions/Employment/Indemnity: Intermediate Appellate Courts Confront Hodgepodge Of Issues

 

Employment—Nicolosi v. Cooper, Case No. B264459 (2d Dist., Div. 6 May 17 2017) (Unpublished)--$64,000 In Fees Just Fine In $80,933.75 Back Wages Case.

 

            This one is not hard to fathom.  Employee obtained $80,933.75 in back wages and $64,000 in attorney’s fees (out of a requested $130,000).  Employee appealed, arguing not enough was awarded as far as fees.  Naught.  The trial judge properly apportioned out time spent on trust/mortgage claims—no abuse of discretion here in not awarding more.

Indemnity—Montebello Unified School Dist. v. Fitness Profile, Inc., Case No. B267436 (2d Dist., Div. 1 May 17, 2017) (Unpublished)—Big Fee Grant Reversal Where Fees Clause Was A True Indemnity Clause And Nothing More.

 

            The second one was no problem for the appellate court, even though the trial judge granted $672,317.96 in attorney’s fees based on contractual fees clauses in operative contracts.  The reviewing court reversed the fee award after determining the fees clauses were true third-party indemnification provisions rather than true fee clauses, relying on the Building Maintenance-Myers line of cases in overturning fees on appeal.

Appeal Sanctions—Kinney v. Clark, Case No. B265267 (2d Dist., Div. 1 May 17, 2017) (Published)--$10,000 For Frivolous Appeal Levied Against Loser.

 

            The last one involved multi-year litigation by a losing party seeking to avoid payment of a modest, earlier attorney’s fees award, even though fees kept mounting once loser kept going on, and on, and on.  Loser unsuccessfully argued that the fee awards were void, such that loser was declared a vexatious litigant.  The appellate court could find no authority indicating that an appeal from a fee order prevented the lower court from entering further fees for “in the pipeline” activities giving rise to fees despite the fact that the appeal had not yet been decided.  The Court of Appeal ultimately decided that loser needed to pay $10,000 for a frivolous appeal in this matter.

Indemnity: Indian Tribe Did Waive Sovereign Immunity, But Was Not Liable For Attorney’s Fees

 

Purposed Fees Clause Was A True Indemnity Clause, Not A Fees Clause.

 

    We have posted on a lot of cases in this area, but can add an Indian tribal case in the form of Federated Indians of Graton Rancheria v. Kenwood Investments No. 2, LLC, Case No. A147281 (1^st Dist., Div. 1 Mar. 7, 2017) (unpublished).

 

    Although the tribal sovereign immunity waiver merits argument was affirmed, the tribe did win a significant reversal of a $1,232,277.55 fee award based on a fees clause in a written contract.

 

    The reversal occurred because the purported "fees clause" was only a third-party indemnity clause, relying primarily upon Alki Partners, LP v. DB Fund Services, LLC, 4 Cal.App.5^th 575, 602 (2016) [discussed in our October 24, 2016 post]. The appellate court would not adopt an interpretation of the contractual provision which "has the potential to convert all indemnity clauses into attorney fee provisions." (Slip Op., at p. 14.)

In The News . . . . Delaware Supreme Court Decides That Key Man Employment Advancement Of Defense Costs Provision Is Not Impaired By Company’s Fraud In Inducement Claim

 

Any Other Result Would Retard Individuals Going Into “Corporate Service.”

    The Delaware Supreme Court, in Trascent Mgt. Consulting, LLC v. Bouri, Case No. 126, 2016 (Del. Supreme Ct. Nov. 28, 2016), was confronted with an LLC’s claim that it did not have to advance costs of defense to a “key man” employee in a contractual breach suit brought by the LLC based on LLC’s plenary claim that key man had fraudulently induced his employment through upfront misrepresentations.  The high court rejected this argument because corporate advancement of defense costs is to be encouraged under Delaware law until a court makes a final, nonappealable determination that indemnification of the key man was not required.  It found that entertainment of the plenary “fraud in the inducement” defense would subvert the advancement procedures and reduce the ability to attract capable individuals into corporate service.

Indemnity: $3,027,237.96 Attorney’s Fees Award Against Hedge Fund Investors Reversed As A Matter Of Law On Appeal

 

Fee Entitlement Was Lacking Because Relied-Upon Clause Was Only A Third-Party Indemnification Provision.

    Track reversal system.  Jack Delano, photographer.  March 1943.  Library of Congress.

      Talk about a swing of events—something which can happen where an appellate court independently reviews a contractual provision under the de novo review standard.

    In Alki Partners, LP v. DB Fund Services, LLC, Case No. D068063 (4th Dist., Div. 1 Oct. 24, 2016) (published), investors losing millions of dollars sued the hedge fund administrator for breach of contract.  Unfortunately, administrator won a summary judgment against investors, a ruling affirmed on appeal.  But, for investors, the real “stinger” was that the lower court awarded administrator $3,027,237.96 in attorney’s fees based on a contractual provision, “Standard of Care,” which provided for administrator to be indemnified for losses, including reasonable attorney’s fees “resulting in any way from the performance or non-performance of Administrator’s duties hereunder ….”

    The appeal of the fees clause was successful, resulting in a complete reversal of fortune in terms of a reversal based as a matter of law.  Not only did the appellate court apply a de novo standard of review, but gave investors a further break by considering the legal entitlement argument although not raised in investors’ briefing (even though it did solicit and receive supplemental briefing from both sides upon its own notice of desiring same).

    The problem for administrator was that the so-called fee entitlement provision was only a third-party indemnification provision not allowing for fees between contractual litigation combatants, finding the clauses virtually indistinguishable from those construed similarly in Carr Business Enterprises, Inc. v. City of Chowchilla, 166 Cal.App.4th 14, 22-23 (2008) and Myers Bldg. Industries, Ltd. v. Interface Technology, Inc., 13 Cal.App.4th 949, 969 (1993).  The 4/1 DCA distinguished cases having differently worded clauses, many of which can be found under our Home Page category, “Indemnity.”   However, the reviewing court even went further, offering an additional sentence which would have arguably allowed fee recovery to administrator:  “It would have been simple for the parties to provide: If any action is commenced to enforce or interpret the terms of this agreement, the prevailing party shall be entitled to recover reasonable attorney fees.”  There you go, transactional attorneys!

Bankruptcy/Indemnity: City Of Vallejo’s Chapter 9 Bankruptcy Plan Did Not Discharge Compensatory Or Attorney’s Fees Awards Against Individual Police Officers In Excessive Force Case

 

However, Vallejo Likely Owes Statutory Indemnification Duties To Officers For Both Awards.

     The Ninth Circuit in Deocampo v. Potts, No. 14-16192 (9^th Cir. Sept. 8, 2016) (published) confronted an issue under a Chapter 9 municipality bankruptcy plan, harkening to say that more of these issues may be confronted as local governments face economic problems. The specific issue was whether a compensatory verdict and a later attorney’s fees award against individual police officers, who had been defended by the City of Vallejo a trial, were discharged by City’s Chapter 9 bankruptcy plan where no provision provided for an adjustment as it related to the officers. The Ninth Circuit answered “no,” but with a caveat. California Government Code section 825 does mandate indemnification to municipal employees acting “within the scope of their employment,” with the appeals court hinting that the police officers may well have to be indemnified by City given that the verdict/award were post-petition debts under indemnity principles.

Indemnity (Governmental): Complaint Allegations Of Employee’s Actions Are Not Determinative Of Whether Employee Acted Outside Of Employment Scope For Reimbursement Of Defense Costs

 

Government Code Section 996.4 Involved, With Employee Entitled To Introduce Evidence To Rebut “Outside The Scope” Defense By Government.

     Public employees are entitled to be defended and indemnified for third party claims arising within the scope of their employment. The governmental employer has a choice: provide a defense/pay any claim or judgment against the employee or have the employee fund his/her own defense and sue for reimbursement of fees, costs, expenses, against governmental employee but be subject to no recovery if the conduct arose out of actual fraud, corruption, or malice. (Gov. Code, §§ 825 et seq., 996.4; Stone v. Regents of Univ. of California, 77 Cal.App.4^th 736, 746 (1999).)

     These principles were in play in Daza v. L.A. Community College, Case No. B261525 (2d Dist., Div. 8 May 6, 2016) (published).

     What happened in Daza was that a student sued an L.A. Community College guidance counselor for sexual assault, a claim which was denied by employee. College District refused to defend employee, which triggered employee to file a cross-complaint for indemnify and reimbursement of fees in the sexual assault case. District settled the case with the student, but opposed employee’s defense cost reimbursement/indemnity suit on the ground that the mere allegations of sexual assault meant the employee’s actions were outside the scope of employment. A lower court dismissed the case after agreeing with District, a determination reversed on appeal by the 2/8 DCA.

     The appellate court ruled that the section 996.4 reimbursement decision on “outside the scope of employment” was a factual question and cannot be determined based solely on the allegations of the plaintiff in a case against the employee—the employee was entitled to present evidence showing defense costs reimbursement was justified. Although the allegations did show conduct outside the scope of employment by a guidance counselor, employee must be permitted to present evidence to show the conduct was within the scope and did fall within the “no recovery” exceptions of section 996.4. Otherwise, there would be a lop-sided playing field: employer can present evidence on the issues but employee was limited to allegations about conduct being outside the scope. There also would be a pernicious policy “end result” by which a governmental entity could settle with the plaintiff and then insulate itself from 996.4 exposure to employee based solely on allegations by a party who had settled with the government and who would have no problem presenting pleadings which fell outside the ambit of 996.4.

Indemnity: $27,744.51 Fee Award To Implied Indemnitee Is Affirmed By Second District

Stipulation To Judgment On Indemnity Cross-Complaint “Sealed The Deal.”

Arcade Game at 2012 State Fair, Sacramento, California.  Carol M. Highsmith, photographer.  Library of Congress.

    Code of Civil Procedure section 1021.6 has a fee-shifting provision which allows a prevailing party on a claim for implied indemnity to recover attorney’s fees if the indemnitee can show three things:  (1) it had to bring or defend an action “through the tort of the indemnitor,” (2) the indemnitor refused to bring or defend the action after proper notice, and (3) the indemnitee was without fault or obtained a final judgment in its favor.  This provision was by the Legislature to overrule a contrary turndown of indemnitee fee-shifting in Davis v. Air Technical Industries, Inc., 22 Cal.3d 1 (1978).  (See John Hancock Mutual Life Ins. Co. v. Setser, 42 Cal.App.4th 1524, 1532 (1996).) 

    In Andamiro Co. Ltd. v. Round One Entertainment, LLC, Case No. B258005 (2d Dist., Div. 7 Feb. 16, 2016) (unpublished), an arcade owner sued in a negligence/products liability action subsequently filed a cross-complaint against the game’s manufacturer/distributor which was also named in plaintiff’s suit.  Arcade owner obtained a summary judgment on the complaint, the manufacturer/distributor settled with plaintiff, and manufacturer/distributor stipulated to a judgment on arcade owner’s cross-complaint.  The arcade owner moved for and received a fee award of $27,744.51 under section 1021.6, a ruling affirmed by the Second District.

    Manufacturer/distributor’s main argument was that arcade owner never actually prevailed on the implied indemnity cross-claim (the third statutory requirement), but that was belied by the stipulated judgment in favor of arcade owner on its cross-complaint—the necessary judicial determination for 1021.6 purposes.  Section 1021.6 is broad, only requiring that the indemnitee “was involved” in the action “due to the tort” of the indemnitor and allowing recovery of fees even if the indemnitee’s involvement includes defending against claims that it was negligent.  (Slip Op., p. 12.)  The first and second requirements, too, were met such that the fee award was affirmed.

Fee Clause Interpretation/Indemnity: Defendants Were Not Prevailing Parties Under Standard Indemnity and Guaranty Provisions

Neither One Conferred A Fee Entitlement Basis To Defendants, Requiring Reversal Of Fee Award.

    In Judicial Council of California v. Jacobs Facilities, Inc., Case Nos. A140890/A141393 (1st Dist., Div. 1 Aug. 20, 2015) (partially published; fee discussion not published), defendants were awarded contractual attorney’s fees under an indemnity provision and a guaranty.  That ruling had to be overturned given that they were no longer prevailing parties based upon a reversal by the appellate court.  However, the reviewing court put the kibosh on fee entitlement altogether, determining (1) the indemnity clause was a true third-party indemnity clause which should not be transformed into a fee-shifting clause, and (2) the guaranty could not confer an independent right to fees where the underlying contractual obligation had no fees clause applicable to the “base” contract.

Construction, Indemnity: Fee Denial Against Winning Subcontractor Under Indemnity Clause Reversed, While Reduced Fee Award In Favor Of Other Winning Contractor Affirmed Except For Minor Modification Upward

 

Fee Entitlement Was Present, But Reducing Request For Another Party No Abuse Of Discretion.

     Esparza v. PulteGroup, Inc. (Centex), Case No. D063736 (4^th Dist., Div. 1 May 14, 2015) (unpublished) was a construction defect/personal injury action by several residential homeowners against Centex (which subsequently merged into the PulteGroup), which in turn cross-complained against some subcontractors (including for express indemnity based contractual clauses). Two subcontractors obtained either a nonsuit or directed verdict on the indemnity cross-claims, then seeking attorney’s fees. The lower court denied fees altogether for first sub, but granted second sub $149,111 in fees (although reduced from the second sub’s request).

     The appellate court reversed the fee denial to the first sub, because even Centex recognized there was an express indemnity claim that was nonsuited in favor of the prevailing sub. As far as the second sub’s appeal, there was no abuse of discretion in the lower court’s decision to cut some of the request for a second trial attorney’s efforts. However, there was a “double cut” deduction of $2,448 for certain billed hours, such that the $149,111 award got increased by that $2,448 amount.

Indemnity: Rideau Decision By 4/2 DCA Now Published

 

Case Affirmed Denial Of Attorney’s Fees Because Fees Clause Was Really An Indemnity Clause.

     On April 2, 2015, we posted on Rideau v. Stewart Title of California, Case No. D065751 (4^th Dist., Div. 1 April 1, 2015), which was unpublished at the time. It affirmed the trial judge’s denial of a fee request after determining that the fees clause was really an indemnity clause not allowing reciprocal recovery under Civil Code section 1717. We can now report that the case was certified for publication on April 14, 2015 and reposted to correct a minor typographical error on April 15, 2015.

­­­­Indemnity: Title Company Escrow Disbursement Clause Only Encompassed Fee For Third Party Disputes, Not First Party Recovery

 

Language Of Disbursement Clause Was Crucial In A De Novo Appellate Review Situation.

     At our home page sidebar under “Indemnity,” we have posted many times--and you can gather our posts--on whether language in contractual indemnification clauses gives rise to contractual attorney’s fees recovery. Rideau v. Stewart Title Co. of California, Inc., Case No. D06575 (4^th Dist., Div. 1 Apr. 1, 2015) (unpublished) contains a nice discussion of the cases on this subject, ultimately concluding that the language and structure of an escrow disbursement instruction applied to a third-party indemnity situation, not allowing recovery for a first party recovery (in this case, plaintiff putative condo owners in Mexico losing their $240,000 deposit, ultimately prevailing against the title company for failure to follow disbursement instructions, but losing the argument that fee recovery was allowable in a first party scenario). The result in this case was tethered to the specific syntax of the contractual disbursement clause at issue, but did follow the logic of Baldwin Builders v. Coast Plastering Corp., 125 Cal.App.4^th 1339 (2005) in significant respects. The appellate court particularly focused on parsing the language in one disbursement clause to show that there was a dichotomy between third party and first party claims—with the fees element only applicable to third party claims.

Indemnity: Indemnity Clause In Operating Agreement Only Related To Third-Party Claims Such That No Fee Recovery Authorized To Prevailing Defense In Suit Between LLC And Constituent Member

 

Direct Liability Only At Issue—No Fee Recovery.

     In American Rag Cie, LLC v. Haralambus, Case No. B246285 (2d Dist., Div. 5 Feb. 27, 2015) (unpublished), plaintiff LLC sued defendant 14% shareholder for fiduciary duty, contract breach, declaratory relief and unjust enrichment, which inspired defendant’s cross-complaining against plaintiff and other cross-defendants for several tort and contractual claims. The lower court, after a bench trial, entered judgment against all parties except for plaintiff’s declaratory relief claim. Defendant moved for fees, claiming to be the prevailing party on the fiduciary duty and contractual breach claims based on an indemnification clause in the LLC operating agreement. The trial court said “no,” prompting an appeal.

     The appellate court affirmed the “no” ruling. A fair reading of the indemnification clause showed it only applied to third party claims, not direct liability involving the LLC and constituent members/shareholders. This was made clear by the fact that the indemnification clause allowed the LLC board to control his defense, which would only be realistic in a third-party claim situation rather than a dispute with the LLC directly.

Indemnity/Intellectual Property/News: 3rd Circuit Reverses SJ Requiring Advancement Of Fees To Programmer Finding “Officer” Indemnity Language Ambiguous And District Judge Denies Linex’s Request To Defer Fee Ruling Under Patent Statute

Third Circuit Finds “Officer” Language To Be Ambiguous.

     In Aleynikov v. The Goldman Sachs Group, Inc., No. 13-4237 (3d Cir. Sept. 3, 2014) (precedential), a Goldman Sachs computer programmer with the title of “vice president” obtained a summary judgment ruling requiring Goldman Sachs to advance him attorney’s fees incurred in his defense of certain criminal actions based upon an indemnity agreement. However, the Third Circuit reversed, finding that the “officer” language in the indemnity was ambiguous and extrinsic evidence was proper to determine if computer programmer fit the bill. Mr. Aleynikov has asked for a rehearing of the appellate ruling.

U.S. District Judge Wilken Refuses to Defer Fee Ruling Under Patent Statute For Prevailing Parties Hewlett-Packard and Apple in Linex Technologies Case.

     Linex Technologies, Inc. lost an infringement action involving certain spread spectrum claims as against Hewlett-Packard Co. and Apple Inc. They then brought a request for reimbursement of attorney’s fees under 35 U.S.C. § 285, claiming the case was “exceptional” for purposes of fee recovery. Linex countered that the case was not exceptional and that the fee matter should be put on hold until the Federal Circuit decided the merits appeal on the non-infringement rulings.

     U.S. District Judge Claudia Wilken disagreed in Linex Technologies, Inc. v. Hewlett-Packard, Apple, et al., Case No. 4:13-cv-00159 CW (N.D. Cal. Sept. 15, 2014) (Doc. 413). She determined that the fee ruling should not be deferred because it would save time to have the Federal Circuit determine both the merits and fee rulings at the same time—avoiding piecemeal appeals. As far as whether the case was “exceptional” under the patent shifting statute, District Judge Wilken noted that Linex had lost similar rulings in two different for a and that Linex had sought to broaden the patent claims after one of the adverse rulings, notice enough that certain of the claims lacked merit. However, she directed the two fee requesting defendants to apportion attorney work on the unsuccessful claims and justify the claimed hourly rates, all to be done on a two-week schedule which she set in her order.

Interpretation/Indemnification/Reasonableness Of Fees: CAR Listing Agreement Indemnification Clause Broad Enough To Permit Fee Recovery To Brokers Defensing Seller X-Complaint Based On Inaccurate/Undisclosed Information

 

$348,372 Is Broker Fee Recovery; However, CAR Clause May Need To Be Amended To Allow Routine Costs Recovery.

     Brokerage company successfully defended against a cross-complaint brought by sellers, sellers who were also successfully sued by buyers of an expensive Pacific Palisades residence in the same case. Broker defended against the cross-complaint by arguing that sellers provided it with inaccurate information or failed to disclose material information to broker. The broker and seller had a CAR form listing agreement with a broad indemnification clause covering inaccurate/undisclosed information and indemnifying against such items as judgments, fines, claims and attorney’s fees (however, “costs” were not included within the ambit of the provision).

     Broker was awarded $348,372 in attorney’s fees under the indemnification clause, but the lower court denied $19,500 in requested costs because the clause was ambiguous on whether they were covered.

     Sellers did not get any additional relief on appeal in Bardack v. Tomjanovich, Case No. B247887 (2d Dist., Div. 8 Aug. 29, 2014) (unpublished).

     The indemnification provision at issue was broad and did cover direct suits between broker and sellers, not just narrower indemnification against third parties. (See Zalkind v. Ceradyne, Inc., 194 Cal.App.4^th 1010 (2011); Wilshire-Doheny Associates, Ltd. v. Shapiro, 83 Cal.App.4^th 1380 (2000); Dream Theater, Inc. v. Dream Theater, 124 Cal.App.4^th 547 (2004).)

     Broker fees spent on an amicus curiae brief before the California Supreme Court were found to be related enough to the defense of the cross-complaint so as to be worthy of compensation.

     BLOG UNDERVIEW—Although unpublished, this case may suggest that the CAR form listing agreement needs to be revised to include “costs” and “expenses” if brokers want to potentially recover routine costs in a dispute, although it would also likely work both ways under Civil Code section 1717 reciprocity principles depending on the circumstances.