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

For contractors concerned in California community will work projects the state of affairs is not unusual: The common contractor awarded the general public will work task is needed to get a payment bond for the reward of subcontractors and suppliers and the payment bond surety issuing the payment bond demands the normal contractor to defend and indemnify the surety from and versus any claims from the payment bond.

In Mobile-Crete Corporation v. Federal Insurance policy Company, 82 Cal.Application.5th 1090 (2022), the 4th District Courtroom of Charm examined  whether a payment bond surety, who prevails in a declare from the payment bond, is entitled to statutory attorneys’ fees when the get together in fact incurring the attorneys’ service fees was the basic contractor, pursuant to its defense and indemnity obligations, as opposed to the surety by itself.

The Cell-Crete Scenario

Common contractor Granite Development Business was awarded a public functions agreement issued by the City of Thermal recognized as the Airport Boulevard at Grapefruit Boulevard and Union Pacific Railroad Quality Separation Project. We’ll just simply call it the “Project.” Subcontractor Cell-Crete Corporation entered into a subcontract with Granite for light-weight concrete and related perform.

As expected below Civil Code section 9554, Granite furnished a payment bond on the Job. The payment bond was issued by Federal Insurance policies Organization. Federal, as a condition of issuing the payment bond, essential Granite to protect and indemnify Federal from and towards any promises towards the payment bond “including court costs and attorneys’ costs, which it shall at any time incur by cause of its execution and/or supply of explained bond or bonds or its payment of any declare or legal responsibility thereunder.”

The subcontract between Mobile-Crete and Granite incorporated an arbitration clause, and when a dispute arose on the Project, Mobile-Crete and Granite arbitrated the dispute in excess of 7 times starting off October 8, 2018 and ending on January 23, 2019. During the arbitration, Cell-Crete sought $309,557 for do the job done and hold off charges. Federal was not a social gathering to the arbitration. At the summary of the arbitration, the arbitrator awarded damages to equally Mobile-Crete and Granite with Granite eking out a web beneficial award of $130.82. The arbitrator declined to award attorneys’ expenses or charges to possibly get together.

Prior to arbitrating the dispute, Cell-Crete had filed a lawsuit in opposition to Granite in the Riverside Remarkable Court. In its lawsuit, Mobile-Crete, in addition to suing Granite, also sued Federal less than the payment bond. The similar law business that represented Granite in the arbitration also represented Federal in the top-quality courtroom action.

Immediately after the arbitration award, Grant petitioned the demo court docket to ensure the arbitration award. After the arbitration award was verified and Mobile-Crete’s action was dismissed, Federal filed a movement for attorneys’ charges and prices. The trial court, having said that, denied Federal’s motion. Although the trial courtroom regarded Federal as the “prevailing party” and that Federal would otherwise wise be entitled to recovery of its attorneys costs under Civil Code segment 9564, the demo courtroom observed that “Federal incurred no this sort of charges. Instead all this sort of prices and fees had been borne by Granite” and “[h]aving paid out absolutely nothing in charges and prices, Federal has experienced not loss, and as a result may possibly not obtain any payment for the non-existent loss.”

Federal appealed.

The Appeal

On charm, Federal argued that it was entitled to get better its charges less than the basic language of Code of Civil Procedure segment 1032(b) which provides that a prevailing social gathering is “entitled as a matter of appropriate to get better expenses in any action of proceeding” and underneath Code of Civil Process segment 1033.5(c)(1) which provides that “[c]osts are allowable if incurred, no matter if or not paid out.”

Citing to a conclusion by the 1st District Court docket of Appeal in Litt v. Eisenhower Health care Centre, 237 Cal.Application.4th 1217 (2015), in which the 1st District reversed a demo court’s denial of expenditures and pro service fees since all those fees had been paid by a different celebration pursuant to an indemnity provision, the Court docket of Attractiveness held that “Federal incurred the lawful legal responsibility to pay the litigation fees even nevertheless Granite agreed to indemnify them for their expense” and that “[w]e see no cause to depart from the plain which means of the statute or the design provided it by our sister court docket.”

As to attorneys’ costs, the Court of Appeal spelled out that, “[u]nlike in the circumstance of prices, there is no different statute specifying [that] it does not make a difference irrespective of whether the prevailing bash paid the litigation expenditures.” Yet, held the Courtroom of Charm, “we conclude there’s no will need to include that belt to the suspenders of portion 9564(c).” “The standard rule with regard to payment-shifting statutes,” defined the Courtroom of Appeal, “is that the decide ought to award reasonable legal professional service fees to the prevailing social gathering irrespective of regardless of whether the prevailing social gathering in the end is responsible to fork out the expenses.”

Last but not least, responding to Cell-Crete’s argument that Federal would be obligated to fork out any attorneys’ costs awarded to Granite, and consequently should not be awarded attorneys’ costs as at all mainly because it was Granite somewhat than Federal that incurred those charges, the Court of Attractiveness held that the “issue is not adequately ahead of us, but we would not be dissuaded from our interpretation should it flip out to be true” because “[t]he ideal of a celebration to seek out an award of statutory lawyer costs is not equal to a suitable to retain such service fees.”

Conclusion

For payment bond sureties and their principals, the Cell-Crete decision clarifies that prevailing payment bond sureties, even if defended by their principals pursuant to a defense and indemnity agreement, are entitled to recover the attorneys’ fees incurred in defending against claims versus the payment bond. For principals, the situation also indicates that sureties are very likely essential to pass alongside any attorneys’ expenses awarded by a courtroom to offset attorneys’ expenses in fact incurred by the principal in defending the surety.