Payment Bond Surety Entitled to Award of Attorneys’ Fees Although Defended by Principal | California Construction Law Blog

For contractors associated in California community works projects the circumstance is not unusual: The basic contractor awarded the general public works challenge is essential to obtain a payment bond for the gain of subcontractors and suppliers and the payment bond surety issuing the payment bond demands the common contractor to defend and indemnify the surety from and towards any statements in opposition to the payment bond.

In Cell-Crete Company v. Federal Insurance coverage Firm, 82 Cal.Application.5th 1090 (2022), the 4th District Court docket of Attractiveness examined  whether a payment bond surety, who prevails in a assert towards the payment bond, is entitled to statutory attorneys’ expenses when the get together essentially incurring the attorneys’ service fees was the typical contractor, pursuant to its defense and indemnity obligations, as opposed to the surety by itself.

The Mobile-Crete Situation

Normal contractor Granite Building Company was awarded a community operates deal issued by the City of Thermal recognized as the Airport Boulevard at Grapefruit Boulevard and Union Pacific Railroad Grade Separation Task. We’ll just contact it the “Project.” Subcontractor Mobile-Crete Company entered into a subcontract with Granite for light-weight concrete and related function.

As expected less than Civil Code section 9554, Granite furnished a payment bond on the Challenge. The payment bond was issued by Federal Insurance plan Corporation. Federal, as a problem of issuing the payment bond, required Granite to protect and indemnify Federal from and in opposition to any claims towards the payment bond “including court expenses and attorneys’ expenses, which it shall at any time incur by cause of its execution and/or shipping and delivery of explained bond or bonds or its payment of any declare or liability thereunder.”

The subcontract between Cell-Crete and Granite involved an arbitration clause, and when a dispute arose on the Venture, Mobile-Crete and Granite arbitrated the dispute above 7 times commencing October 8, 2018 and ending on January 23, 2019. All through the arbitration, Cell-Crete sought $309,557 for operate performed and delay charges. Federal was not a occasion to the arbitration. At the summary of the arbitration, the arbitrator awarded damages to equally Cell-Crete and Granite with Granite eking out a internet positive award of $130.82. The arbitrator declined to award attorneys’ charges or costs to possibly get together.

Prior to arbitrating the dispute, Cell-Crete experienced filed a lawsuit versus Granite in the Riverside Excellent Court docket. In its lawsuit, Mobile-Crete, in addition to suing Granite, also sued Federal underneath the payment bond. The identical law organization that represented Granite in the arbitration also represented Federal in the outstanding court action.

Immediately after the arbitration award, Grant petitioned the trial court to affirm the arbitration award. Just after the arbitration award was verified and Mobile-Crete’s motion was dismissed, Federal filed a movement for attorneys’ expenses and expenditures. The trial court, on the other hand, denied Federal’s motion. Even though the trial court docket regarded Federal as the “prevailing party” and that Federal would or else sensible be entitled to recovery of its attorneys service fees below Civil Code portion 9564, the demo court discovered that “Federal incurred no this sort of expenses. Alternatively all this sort of expenses and service fees have been borne by Granite” and “[h]aving compensated nothing in fees and fees, Federal has experienced not decline, and therefore could not collect any payment for the non-existent reduction.”

Federal appealed.

The Charm

On attraction, Federal argued that it was entitled to recuperate its charges underneath the simple language of Code of Civil Process section 1032(b) which presents that a prevailing social gathering is “entitled as a make any difference of proper to recover prices in any action of proceeding” and under Code of Civil Procedure section 1033.5(c)(1) which provides that “[c]osts are allowable if incurred, regardless of whether or not paid out.”

Citing to a determination by the 1st District Court docket of Charm in Litt v. Eisenhower Health care Center, 237 Cal.Application.4th 1217 (2015), in which the 1st District reversed a trial court’s denial of expenditures and specialist charges for the reason that individuals expenses have been paid out by another get together pursuant to an indemnity provision, the Courtroom of Enchantment held that “Federal incurred the authorized liability to spend the litigation prices even although Granite agreed to indemnify them for their expense” and that “[w]e see no motive to depart from the basic meaning of the statute or the construction specified it by our sister courtroom.”

As to attorneys’ costs, the Court of Appeal discussed that, “[u]nlike in the case of expenditures, there is no separate statute specifying [that] it doesn’t matter irrespective of whether the prevailing celebration paid the litigation bills.” However, held the Court docket of Enchantment, “we conclude there’s no will need to add that belt to the suspenders of area 9564(c).” “The typical rule with respect to rate-shifting statutes,” discussed the Court docket of Enchantment, “is that the choose need to award acceptable legal professional charges to the prevailing social gathering irrespective of whether or not the prevailing party finally is liable to pay out the costs.”

Last but not least, responding to Cell-Crete’s argument that Federal would be obligated to spend any attorneys’ fees awarded to Granite, and hence should not be awarded attorneys’ expenses as at all due to the fact it was Granite fairly than Federal that incurred individuals service fees, the Court docket of Enchantment held that the “issue is not correctly right before us, but we would not be dissuaded from our interpretation should it turn out to be true” considering that “[t]he suitable of a bash to look for an award of statutory legal professional expenses is not equivalent to a appropriate to keep such expenses.”

Conclusion

For payment bond sureties and their principals, the Mobile-Crete determination clarifies that prevailing payment bond sureties, even if defended by their principals pursuant to a defense and indemnity arrangement, are entitled to get better the attorneys’ fees incurred in defending towards promises towards the payment bond. For principals, the situation also suggests that sureties are likely required to pass together any attorneys’ service fees awarded by a courtroom to offset attorneys’ charges actually incurred by the principal in defending the surety.