Cell-Crete Corp. v. Federal Ins. Co.

• Court: California Court of Appeal
• Decided: September 8, 2022
• Docket: E075264
• Status: Published

Opinion

Filed 9/8/22

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION TWO

CELL-CRETE CORPORATION,

Plaintiff and Respondent, E075264

v. (Super.Ct.No. PSC1606343)

FEDERAL INSURANCE COMPANY, OPINION

Defendant and Appellant.

APPEAL from the Superior Court of Riverside County. Craig Riemer, Judge.

Reversed with directions.

Finch, Thornton & Baird, P. Randolph Finch, Jr., Jason R. Thornton, and Lindsey

C. Herzik for Defendant and Appellant.

Law Offices of David L. Brault and David L. Brault for Plaintiff and Respondent.

1 Appellant Federal Insurance Company (Federal) was the prevailing party in a

lawsuit Cell-Crete Corporation (Cell-Crete) brought seeking to recover against Federal on

a payment bond. After dismissal, the trial judge, Riverside County Superior Court Judge

Craig Riemer, denied Federal’s request for attorney fees and taxed its costs on the ground

that Federal did not incur any fees or costs because a third party, Granite Construction

Company (Granite), paid the fees and costs of Federal’s defense under an indemnity

agreement between Federal and Granite.

Federal argues they are entitled, as the prevailing party, to recover their reasonable

attorney fees and costs anyway. (Civ. Code, § 9564, subd. (c); Code Civ. Proc., §§ 1032,

subd. (b), 1033.5 subd. (a)(10)(B).) They argue a party represented by counsel in an

attorney-client relationship is entitled to an award of fees and costs even if they have

been or will be borne by a third party. We agree and will therefore reverse the order

denying Federal’s motion for attorney fees and granting Cell-Crete’s motion to tax costs

and remand for further proceedings.

I

FACTS

A. The Project and the Payment Bond

In November 2013, Granite entered a written contract with the County of

Riverside, agreeing to perform construction services on a project called the Airport

Boulevard (Avenue 56) at Grapefruit Boulevard (Highway 111) and Union Pacific

Railroad Grade Separation project in Thermal, California. In November 2014, Granite

2 and Cell-Crete agreed Cell-Crete would, as part of the project, furnish and install

lightweight concrete and perform related work.

Granite, as principal, executed a payment bond under the terms of Civil Code

section 9554 with Federal as surety for the project. As a condition for acting as surety,

Federal required Granite to agree to defend Federal, indemnify them, and hold them

harmless against any loss, cost, damage, or expense, “including court costs and attorneys’

fees, which it shall at any time incur by reason of its execution and/or delivery of said

bond or bonds or its payment of any claim or liability thereunder.”

B. The Arbitration Proceedings

Disputes arose between Granite and Cell-Crete during construction of the project.

Cell-Crete filed a demand for arbitration against Granite with the American Arbitration

Association in December 2016. Cell-Crete sought $309,557.00 for work performed and

delay costs. Federal was not a party to the arbitration. Granite retained the law firm of

Finch, Thornton & Baird to represent them in the arbitration and countersued Cell-Crete.

The dispute was arbitrated over seven days starting on October 8 and ending on

January 23, 2019. Both parties sought damages, attorney fees, and costs. The arbitrator

awarded damages to both Granite and Cell-Crete, but the awards roughly cancelled out.

Granite’s award exceeded Cell-Crete’s award by $130.82. The arbitrator declined to

award attorney fees or costs to either party.

3 C. The Superior Court Proceedings

Cell-Crete had also filed a lawsuit against Granite in the Riverside County

Superior Court the same month they filed the arbitration demand, and Granite again

countersued.

Relevant to this appeal, in the superior court, Cell-Crete added Federal as a

defendant and, in their second cause of action, sought to recover under the payment bond

the same $309,557.00 they sought against Granite. Federal tendered its defense to Granite

under the general indemnity agreement, and Granite hired Finch, Thornton & Baird to

represent Federal and paid the fees related to Federal’s defense.

The law firm’s work for Federal included drafting and serving a motion to stay the

case pending arbitration, a petition to confirm the arbitration award, demurrers, and a

motion for summary adjudication. The firm also appeared on behalf of Federal at

multiple hearings.

The trial judge stayed the superior court action while Granite and Cell-Crete

arbitrated the causes of action not involving Federal. Afterward, Granite petitioned the

trial judge to confirm the arbitration award, and the trial judge did so on December 26,

2019. After dismissal, Federal filed a motion for attorney fees and costs and a

memorandum of costs. The law firm continued to represent Federal during postdismissal

filings and drafted and filed Federal’s opposition to Cell-Crete’s motion to strike or tax

costs and Federal’s motion for attorney fees and costs. The law firm charged their usual

attorney fee rates for these services.

4 D. The Trial Judge’s Attorney Fees and Costs Decision

On June 9, 2020, the trial judge granted Federal’s motion for attorney fees and

costs, but only in part. The judge wrote the motion “is granted to the extent that it seeks a

determination that Federal is the prevailing party on the action on the payment bond.”

The judge recognized “[a]s the prevailing party, Federal is entitled to recover its costs,

including attorney fees as authorized by Civil Code section 9564.” However, he also

found “Federal incurred no such expenses. Instead, all such costs and fees were borne by

Granite” and concluded “[h]aving paid nothing in fees and costs, Federal has suffered no

loss, and thus may not collect any compensation for the non-existent loss.” The trial

judge then granted Cell-Crete’s motion to tax costs “because Federal is seeking to 1 recover compensation for costs it did not incur.”

Federal filed a timely notice of appeal.

II

ANALYSIS

Federal argue that, as the prevailing party, they are entitled to recover costs and

attorney fees, whether or not they avoided paying them directly under the terms of an

indemnity agreement. Since the trial judge found they were the prevailing party and Cell-

Crete doesn’t challenge that finding on appeal, we are concerned only with the question

whether the trial judge erred by denying attorney fees and costs because Federal didn’t

have to pay them. We review these issues de novo because they involve resolution of

1The judge allowed Federal to recover $610 in costs that Cell-Crete did not challenge.

5 questions of law and statutory interpretation, not disputes over facts. (Litt v. Eisenhower

Medical Center (2015) 237 Cal.App.4th 1217, 1221 (Litt).)

A. Costs

Federal argue the trial judge erred in denying costs under the plain language of

Code of Civil Procedure section 1032, subdivision (b), which says a prevailing party is

“entitled as a matter of right to recover costs in any action or proceeding” and Code of

Civil Procedure section 1033.5, subdivision (c)(1), which explains “[c]osts are allowable

if incurred, whether or not paid.” We agree.

Division One of our District answered this question in Litt, where the trial judge

denied costs and expert fees to one party on the basis that another party “actually incurred

and/or paid those costs and expert fees through an indemnification provision.” (Litt,

supra, 237 Cal.App.4th at p. 1222.) The Court of Appeal concluded “the actual payor is

irrelevant,” reversed the order striking costs and expert witness fees and remanded to the

trial judge for a determination whether the fees and costs requested were reasonable.

As the Court of Appeal explained, “Under the code’s cost-shifting provisions,

there is ‘no requirement that a party claiming costs must have personally incurred the

obligations enumerated in the memorandum.’” (Litt, supra, 237 Cal.App.4th at p. 1222.)

What is important, the court held, is that “‘Defendants incurred legal liability to pay the

costs of the litigation even though some other party may have agreed to reimburse them

or to pay all the expenses of the litigation.’” (Ibid., quoting Ceranski v. Muensch (1943)

60 Cal.App.2d 751, 754.)

6 Such is the case here. Federal incurred the legal liability to pay the litigation costs

even though Granite agreed to indemnify them for their expenses. (Litt, supra, 237

Cal.App.4th at p. 1223.) We see no reason to depart from the plain meaning of the statute

or the construction given it by our sister court. We will therefore reverse the trial judge’s

order granting Cell-Crete’s motion to tax costs and remand for further proceedings.

B. Attorney Fees

Regarding attorney fees, Federal argue the plain language of Civil Code section

9564, subdivision (c) (section 9564(c)) requires an attorney fee award to the prevailing

party in an action to enforce the liability on a payment bond and does so without

condition. Again, we agree.

Unlike in the case of costs, there’s no separate statute specifying it doesn’t matter

whether the prevailing party paid the litigation expenses. However, we conclude there’s

no need to add that belt to the suspenders of section 9564(c). The general rule with

respect to fee-shifting statutes is that the trial judge must award reasonable attorney fees

to the prevailing party regardless whether the prevailing party ultimately is responsible to

pay the fees.

The statute makes it clear that general rule applies here. It specifically allows a

claimant to “maintain an action to enforce the liability of a surety on a payment bond.”

(Civ. Code, § 9564, subd (a).) It then specifies “[i]n an action to enforce liability on the

bond, the court shall award the prevailing party a reasonable attorney’s fee.” (Civ. Code,

§ 9564, subd. (c), italics added.) There’s no requirement in the statute that the prevailing

7 party, to recover a reasonable attorney fee, must have incurred the fees, much less that

they are ultimately on the hook to pay such fees. We therefore see no basis for the trial

judge to have inquired into whether Federal actually paid for its defense under its

indemnity agreement with Granite. It was error to engraft a requirement the Legislature

did not include.

In addition, as our Supreme Court explained in Lolley v. Campbell (2002) 28

Cal.4th 367 (Lolley), in general, “‘“awards of attorneys” fees where otherwise authorized

are not obviated by the fact that individual plaintiffs are not obligated to compensate their

counsel.’” (Id. at p. 373, quoting Ed A. Wilson, Inc. v. General Services Admin. (Fed.Cir.

1997) 126 F.3d 1406, 1409.) Instead, as they explained, “California courts have routinely

awarded fees to compensate for legal work performed on behalf of a party pursuant to an

attorney-client relationship, although the party did not have a personal obligation to pay

for such services out of his or her own assets.” (Lolley, at p. 373.)

There are numerous circumstances under which a party to litigation, though

represented by counsel, may be relieved from an obligation to pay their attorneys.

Sometimes, as in Lolley, the government agrees to provide representation for a claimant

who can’t afford to pursue their claims. (Lolley, supra, 28 Cal.4th at p. 372; see also id. at

p. 375.) Sometimes charitable organizations do the same. (Id. at pp. 373, 375.) In other

cases, a corporation is represented by in-house counsel who perform their work as

employees of the party. (Id. at p. 374.) And, as we’ve seen in Litt, as well as in this case,

8 sometimes one party agrees to take on the expenses associated with the defense of

another party in an indemnity agreement. (Litt, supra, 237 Cal.App.4th at p. 1222.) When

a fee-shifting statutory provision allows the award of attorney fees to the prevailing party

in any of these circumstances, that party may receive fees to compensate for legal work

performed on behalf of the party where the attorney and the party have entered an

attorney-client relationship. (Lolley, at p. 374.)

In this case, the law firm had an attorney-client relationship with Federal and

represented them by preparing a motion to stay the case pending arbitration, a petition to

confirm the arbitration award, demurrers, and a motion for summary adjudication. The

firm also appeared on behalf of Federal at multiple hearings. Federal incurred the legal

liability to pay for this representation and are entitled under section 9564(c) as the

prevailing party to seek a reasonable attorney fee for work the attorneys provided as part

of carrying out their attorney-client relationship.

Cell-Crete objects Federal never incurred attorney fee expenses because Granite

stepped in to supply their defense from the beginning. As the Lolley court explained, “it

has been generally agreed that a party may ‘incur’ attorney fees even if the party is not

personally obligated to pay such fees. ‘A party’s entitlement to fees is not affected by the

fact that the attorneys for whom fees are being claimed were funded by governmental or

charitable sources or agreed to represent the party without charge.’ [Citation.] . . .

[C]ourts have awarded attorney fees under fee-shifting statutes that apply when fees are

‘incurred’ when the party seeking fees was represented by a legal services organization or

9 counsel appearing pro bono publico; ‘attorney fees are incurred by a litigant ‘if they are

incurred in his behalf, even though he does not pay them.’’” (Lolley, supra, 28 Cal.4th at

p. 373.) Thus, Federal did incur attorney fee expenses in the relevant sense, contrary to

the conclusion of the trial judge. But also, the point is not as important under section

9564(c) because, unlike the fee-shifting provision at issue in Lolley, this fee-shifting

provision simply mandates that the court award a reasonable attorney fee to the

prevailing party and says nothing at all about whether such costs were “incurred.”

Cell-Crete suggests Federal will be obligated to pay any attorney fees it receives

as the prevailing party to Granite, who actually paid the fees. That issue is not properly

before us, but we would not be dissuaded from our interpretation should it turn out to be

true, whether the obligation arose under the law or under the terms of the general

indemnity agreement between the parties. In Lolley, the Supreme Court noted “[t]he right

of a party to seek an award of statutory attorney fees is not equivalent to a right to retain

such fees.” (Lolley, supra, 28 Cal.4th at p. 373, fn.2.) So long as the fee award is limited

to attorney fees incurred defending Federal against the cause of action Cell-Crete brought

against them in the superior court, the award will do the work the Legislature intended by

directing the courts to award fees to prevailing parties. (See, id. at p. 376.)

10 III

DISPOSITION

We reverse the order denying Federal’s motion for attorney fees and granting Cell-

Crete’s motion to tax costs and remand for a determination whether the fees and costs

requested were reasonable. Respondent shall pay costs on appeal.

SLOUGH J. We concur:

RAMIREZ P. J.

FIELDS J.