Judge Helen Zukin, Case SC129855 2022-09-20 Tentative Ruling

Judge: Helen Zukin, Case: SC129855, Date: 2022-09-20 Tentative Ruling

Case Number: SC129855-01 Hearing Date: September 20, 2022 Dept: 207

Background

This case arises from flooding and subsequent interruption of business as a result of a construction accident occurring at the offices of Plaintiff Management Brokers, Inc. (“Plaintiff” or “MBI”), located in Suite 613 at 9301 Wilshire Blvd., Beverly Hills, CA 90210 (“the Premises”). A general contractor, Jamik Construction & Management (“Jamik”) hired a subcontractor, Singleton Fire Protection, Inc. (“Singleton”) to rework fire sprinklers to accommodate a new floor plan at the Premises, which was occupied by Plaintiff. On October 11, 2016, Singleton’s employee mistakenly cut the domestic water line causing the pipe to rupture and flood the Premises.

In its operative First Amended Complaint, Plaintiff named defendants Sentinel Insurance Company, Ltd., its own insurer; Newport Office Center V Associates LLC, NOC V Land Company LLC, and 561 North Garage, LLC (collectively “Newport”), owners of the building as tenants in common; Kennedy-Wilson Properties, Ltd. (“KWP”), the property manager; Jamik; and Singleton. Those entities subsequently filed cross-claims against each other and against Plaintiff.

KWP, the moving party here, cross-complained against Jamik for contractual indemnity and implied equitable indemnity. On June 22, 2021, the Court ruled that Jamik had a duty to defend KWP per their Service Agreement, which was the contract governing the renovation project at the Premises, including Singleton’s reworking of the sprinklers.

On October 14, 2021, Newport, KWP, and Plaintiff agreed to settle their claims against each other in exchange for payment of $125,000. On January 7, 2022, Plaintiff, Newport, KWP, and Jamik agreed that Newport and KWP will not seek reimbursement of the $125,000 settlement amount from Defendant Jamik. The parties further agreed that non-settling parties receive a set-off from the $125,000.00 settlement amount.

On December 21, 2021, Plaintiff dismissed its claims against Sentinel.

On March 28, 2022, the court approved a stipulation between Newport, KWP, and Jamik that the dispute between them regarding attorneys’ fees and costs should be adjudicated by law and motion before the Court after the conclusion of the entire action.

On April 27, 2022, Singleton and Plaintiff reached a settlement as to Plaintiff’s claims against Singleton whereby Singleton would pay Plaintiff $275,000 and assign its claims against Jamik to Plaintiff in exchange for dismissal of Plaintiff’s claims against it.

On July 8, 2022, Plaintiff dismissed its claims against Jamik, thereby concluding the action.

On July 14, 2022, KWP brought the instant motion against Jamik, seeking judgment on its contractual indemnity claim for attorneys’ fees and costs based on Jamik’s duty to defend KWP, as determined by the Court on June 22, 2021. Newport filed an equivalent motion against Jamik on August 18, 2022.

Request for Judicial Notice

KWP requests the Court take judicial notice of (1) the Court’s June 22, 2022, order finding Jamik owed KWP a duty to defend under their indemnity agreement; (2) the Court’s January 26, 2022, order approving Newport’s Motion for Good Faith Settlement; and (3) the Court’s April 12, 2022, order approving the award of fees and costs pursuant to law and motion proceedings after conclusion of the action. The Court GRANTS KWP’s Requests for Judicial Notice.

Legal Standard for Fees and Costs Arising from Duty to Defend

“An indemnity provision of a contract is to be construed under the same rules governing contracts in general, with a view to determining the intent of the parties. In addition, Civil Code section 2778 provides rules of interpretation of a contract of indemnity, unless a contrary intention appears in the document. [Citation.]” (United States Elevator Corporation v. Pacific Investment Company (1994) 30 Cal. App. 4th 122, 125 (United States Elevator).) According to section 2778, “a promise of indemnity against claims, demands, or liability ‘embraces the costs of defense against such claims, demands, or liability’ insofar as such costs are incurred reasonably and in good faith. (Crawford v. Weather Shield Manufacturing, Inc. (2008) 44 Cal. 4th 541, 553, italics in original, quoting Civ. Code § 2778, subd. (3).) “By virtue of these statutory provisions, the case law has long confirmed that … a contractual indemnitor has the obligation … to accept and assume the indemnitee's active defense against claims encompassed by the indemnity provision. Where the indemnitor has breached this obligation, an indemnitee who was thereby forced, against its wishes, to defend itself is entitled to reimbursement of the costs of doing so.” (Id. at p. 555.)

“It is well established that the determination of what constitutes reasonable attorney fees is committed to the discretion of the trial court, whose decision cannot be reversed in the absence of an abuse of discretion.”¿ (Melnyk¿v. Robledo¿(1976) 64 Cal.App.3d 618, 623.)¿ In exercising its discretion, the court should consider a number of factors, including the nature of the litigation, its difficulty, the amount involved, the skill required in handling the matter, the attention given, the success or failure, and the resulting judgment.¿ (Id.)¿¿¿¿¿

In determining the proper amount of fees to award, courts use the lodestar method.¿ The lodestar figure is calculated by multiplying the total number of reasonable hours expended by the reasonable hourly rate.¿ “Fundamental to its determination . . . [is] a careful compilation of the time spent and reasonable hourly compensation of each attorney . . . in the presentation of the case.”¿ (Serrano v.¿Priest¿(1977) 20 Cal.3d 25, 48.)¿ A reasonable hourly rate must reflect the skill and experience of the attorney.¿ (Id.¿at p. 49.)¿ “Prevailing parties¿are compensated for hours reasonably spent on fee-related issues.¿ A fee request that appears unreasonably inflated is a special circumstance permitting the trial court to reduce the award or deny one altogether.”¿ (Serrano v. Unruh¿(1982) 32 Cal.3d 621, 635.)

Analysis

KWP’s claim for fees arises from its May 24, 2016, Service Agreement with Jamik. In its dealing with Jamik, KWP, property manager of the Premises, acted as the agent for the three entities that owned the Premises as tenants in common, referred to collectively here as “Newport”.

The relevant text appears in paragraph 13 of the Service Agreement, which provides in pertinent part:

“Contractor shall, and hereby does, indemnify, protect, defend and hold harmless Owner, Agent [and related parties] (collectively, “Owner Parties”) from and against all liabilities, demands, damages, losses, costs (including attorneys' fees and costs), actions and other claims arising out of or in connection with (i) the performance, nonperformance or improper performance of the Services under this Agreement by Contractor [and related parties including] subcontractors … (collectively, “Contractor Parties”) and (ii) the breach of this Agreement, or the negligence, misrepresentation, error, omission or willful misconduct of Contractor or any of the Contractor Parties.”

(Ex. 1 to Myers Decl. [emphasis added].)

KWP claims Plaintiff’s complaint arose from the negligence or improper performance of one of Jamik’s subcontractors, and therefore the fees they have incurred defending this action are “costs … arising out of or in connection with” the performance of Jamik or its subcontractors pursuant to the Service Agreement. The Court’s prior order found the indemnity provision of the Service Agreement binds Jamik, such that Jamik owed KWP a duty to defend it in this action. Therefore, Jamik must pay KWP’s fees.

Jamik opposes KWP’s motion, arguing, in summary: (1) the Service Agreement does not entitle KWP to attorney fees; (2) KWP has not proven Jamik breached its duty as indemnitor and thereby caused KWP damages; (3) KWP’s fees are not sufficiently connected to any act or omission of Jamik’s subcontractor, Singleton; and (4) KWP’s demand for fees is excessive.

1. The Service Agreement Entitles KWP to Attorney’s Fees.

Contrary to Jamik’s argument (Opp. at 2), the Service Agreement makes clear that Jamik’s duty to defend includes payment of fees and costs. As set forth above, the plain language of paragraph 13 of the Service Agreement entitles the indemnitees to costs, including attorneys' fees and costs, if its other conditions are satisfied. The Court has already determined Jamik owed a duty to defend, which decides the issue of whether Jamik is bound by paragraph 13.

“The rules governing contract interpretation are well settled. A contract must give effect to the mutual intention of the parties at the time the contract is formed as expressed in the written provisions of the contract”, including indemnity provisions within the contract. (Edmondson Property Management v. Kwock (2007) 156 Cal.App.4th 197, 207.) “When a contract is reduced to writing, the intention of the parties is to be ascertained from the writing alone, if possible… .” (Civ. Code § 1639.)

Paragraph 13 makes the intention of the parties clear: not only is the indemnitee is entitled to costs, those costs include attorneys’ fees.

2. KWP May Recover Its Fees and Costs as Jamik Did Not Defend It From Plaintiff’s Claims

The Court has found Jamik owed KWP a duty to defend it in this action. The Court’s record reflects that Jamik did not do so. Inquiries as to whether this amounts to a “breach of … duty” causing “damages” to KWP (Opp. at 2) are not relevant to the instant motion.

Jamik rests a large portion of its argument on the proposition that the Court has not determined Jamik actually breached its duty to defend KWP. In this regard, the Court agrees with KWP’s statement in its Reply that “[t]here is no dispute that Jamik did not provide KWP with a defense in this lawsuit.” (Reply 2:16-17.) The Court does not need the parties to present further evidence showing that Jamik breached its duty. Civil Code section 2778(3) states that “[a]n indemnity against claims, or demands, or liability, expressly, or in other equivalent terms, embraces the costs of defense against such claims, demands, or liability….” KWP has a direct right to reimbursement of its fees as a matter of statutory law upon a finding that Jamik has a duty to defend and did not do so. The Court has made such a finding.

3. KWP May Recover Its Fees and Costs Incurred in Good Faith and in the Exercise of Reasonable Discretion in Defending the Action.

As the Court has determined that Jamik owed KWP a duty to defend it in this action, inquiries as to whether KWP’s fees and costs are “related to the service agreement” (Opp. p. 2(1)), “concern tasks … covered by the service agreement” (Opp. p. 2(4)), or whether “work from the subcontractor was related to the Service Agreement” (Opp. p. 2(7)) are irrelevant to the instant motion.

An indemnitor that breaches its duty to defend must also pay the fees and costs that its indemnitee incurs in defense of claims not directly related to the agreement between the parties, but that are “ ‘incurred in good faith, and in the exercise of reasonable discretion’ in defending the action.” (Zurich Insurance Company (U.S. Branch) v. Killer Music, Inc. (9th Cir. 1993) 998 F.2d 674 quoting Civ. Code § 2778 [insurer/indemnitor must pay fees for defending against claims “arguably allocable to defense of noncovered claims”]; cf. UDC-Universal Development, L.P. v. CH2M Hill (2010) 181 Cal. App. 4th 10 [in context of duty to defend, indemnitor had duty where original plaintiff merely “alleged” its damages “arose at least partially” from the subject matter of the indemnity agreement].)

Jamik points to disputes between KWP, Newport, and Plaintiff over, for instance, HVAC issues, breach of lease, and breach of the covenant of quiet enjoyment. These disputes arose after and because of the accident that caused the Premises to flood. However, Jamik argues these were not directly caused by Singleton’s work on the sprinklers, and therefore costs related to these claims cannot be recovered. However, the question of each party’s responsibility for each stage of the damage and, for instance, the circumstances and speed of the subsequent repairs, were all inextricably connected. Costs incurred in litigating one issue directly affected the costs of litigating another. Costs related to defending against HVAC repair allegations or mold were “arguably allocable” to costs defending against water damage, and vice versa.

Moreover, where a party owes a duty to defend, it must defend completely and “cannot parse the claims, dividing those that are at least potentially covered from those that are not.” (Buss v. Superior Court (1997) 16 Cal.4th 35, 49.) Therefore, under the Service Agreement KWP may recover for all defense costs which were incurred in good faith and in the exercise of reasonable discretion in defending Plaintiff’s claims.

4. KWP’s Does Not Need to be the “Prevailing Party” to Recover Its Fees and Costs

Because it owes KWP a duty to defend, Jamik must either defend KWP in actions arising from the Service Agreement or, in the alternative, pay the fees and costs of KWP’s defense. The question of whether KWP is a “prevailing party” (Opp. at 2) does not bear on Jamik’s obligation to pay fees and costs. An indemnitor’s duty to defend does not depend on an indemnitee’s victory, loss, or settlement. (See, e.g., Pardee Construction Co. v. Insurance Co. of the West (2000) 77 Cal.App.4th 1340, 1350 [“it is firmly established the duty to defend is broader than the obligation to indemnify. The former arises whenever an insurer ascertains facts that give rise to the possibility or the potential of liability to indemnify. Unlike the duty to indemnify which arises only when the insured’s underlying liability is established, the duty to defend must be assessed at the very outset of a case”].

The logic of United States Elevator, supra, 30 Cal.App.4th 122 extends to the question of whether the indemnitee “prevails.” If an indemnitor is not liable for the costs of its indemnitee, then it has greater resources for its own defense. The indemnitor relies on all of its resources for leverage at all stages of litigation, including settlement discussions. If some of the resources in fact belong to the indemnitee because they should have been paid to it pursuant to the indemnity agreement, then the indemnitor enjoyed that leverage—and likely reached a more favorable settlement—at the indemnitee’s expense. (United States Elevator, supra, 30 Cal.App.4th at pp. 128-129.) Such a result diametrically contradicts the terms and the spirit of Civil Code section 2778. (Ibid.)

5. Calculation of Award

The party claiming attorney fees must establish entitlement to such fees and the reasonableness of the fees claimed. (Civic Western Corporation v. Zila Industries, Inc. (1977) 66 Cal.App.3d 1, 16.) The prevailing party has the burden to prove that the work was reasonably necessary as to particular tasks performed and amount of time expended. (Baxter v. Bock (2016) 247 Cal.App.4th 775, 793.) In other words, the prevailing party must show that “fees incurred were reasonably necessary to the conduct of the litigation, and were reasonable in amount.” (Robertson v. Fleetwood Travel Trailers (2006) 144 Cal.App.4th 785, 818.)

“In challenging attorney fees as excessive because too many hours of work are claimed, it is the burden of the challenging party to point to the specific items challenged, with sufficient argument and citations to the evidence. General arguments that fees claimed are excessive, duplicative, or unrelated do not suffice.” (Premier Medical Management Systems, Inc. v. California Ins. Guarantee Assn. (2008) 163 Cal.App.4th 550, 564.)

In determining the proper amount of fees to award, courts use the lodestar method. The lodestar figure is calculated by multiplying the total number of reasonable hours expended by the reasonable hourly rate. “Fundamental to its determination … [is] a careful compilation of the time spent and reasonable hourly compensation of each attorney … in the presentation of the case.” (Serrano v. Priest (1977) 20 Cal.3d 25, 48 (Serrano III).) A reasonable hourly rate must reflect the skill and experience of the attorney. (Id. at p. 49.)

Reasonable attorney fees should be based on an objective standard of reasonableness: the market value of services rendered, not on some notion of cost incurred. (PLCM Group, Inc. v. Drexler (2000) 22 Cal.4th 1084, 1090.) The value of legal services performed in a case is a matter in which the trial court has its own expertise. (Id. at 1096.) The trial court may make its own determination of the value of the services contrary to, or without the necessity for, expert testimony. (Ibid.) The trial court makes its determination after consideration of a number of factors, including the nature of the litigation, its difficulty, the amount involved, the skill required in its handling, the skill employed, the attention given, the success or failure, and other circumstances in the case. (Ibid.; see also Weber v. Langholz (1995) 39 Cal.App.4th 1578, 1587 [“The trial court could make its own evaluation of the reasonable worth of the work done in light of the nature of the case, and of the credibility of counsel’s declaration unsubstantiated by time records and billing statements”].)

Counsel of record for KWP, David Bernardoni of Kulik Gottesman Siegel & Ware LLP (“KGSW”), submitted a detailed declaration (“Bern. Decl.”) stating the hours he spent working on the instant case and his billing rate. Bernardoni testifies that “[a]ll together, the total attorneys’ fees and costs billed by KGSW for this litigation are $247,388.62.” (Bern. Decl. ¶ 11.) This amount includes $70,596.68 paid to KGSW by Chubb Insurance, the general liability carrier for Newport, from June 2021 to March 2022. (Ibid.) Having reviewed Bernardoni’s declaration and exhibits, the Court makes the following modifications to its award:

As an initial matter, it is unclear why KWP believes it is entitled to $70,596.68 that was paid by Chubb Insurance. Without more information, it appears these costs were not incurred by KWP, and therefore do not fall within the scope of the indemnity agreement. The Court disregards these charges. The Court begins its calculation with the “Kennedy Total”, i.e., the total paid directly to KGSW by KWP, of $176,791.94. (Bern. Decl. Ex. 7.)

With regard to the remaining charges, there are four individuals in counsel’s records who billed time to KWP’s case: David Gottesman, Mark Talise, Justin Nash, and David Bernardoni. (See Bern. Decl. Ex. 6.) The Court has before it only the declaration of David Bernardoni testifying to his qualifications and the reasonability of his rates. Therefore, the Court can only award fees for his work. Bernardoni also testifies that he raised his billing rate from $425 to $450 in the course of the litigation, but provides no reason for doing so; in fact, he testifies his “original hourly billing rate in October 2018, of $425 per hour, was reasonable and customary for a litigation partner in Los Angeles.” (Bern. Decl. ¶ 9.) Therefore, the Court will set his billing rate throughout the litigation at $425.

The Court therefore first discounts the “Kennedy Total” by $5,692.50 (11.5 hours of Gottesman work at $495 hourly), then by $2,201 (7.1 hours of Talise work at $310 hourly), then $1,260 (3.6 hours of Nash work at $350 hourly), for a total of $167,638.44. Then, having calculated 350.2 hours billed by Bernardoni at $450 rather than $425 hourly, the Court discounts the total amount by $8,755 ($25 x 350.2 hours), for a total of $158,833.44.

The Court also notes Jamik’s arguments that redactions in counsel’s billing records make it difficult to ascertain that certain time billed is, in fact, attorney time. These redactions primarily fall into the category of client correspondence, therefore counsel’s heavy redaction is entirely reasonable in order to protect privileged communications. However, the fact remains that an entry labeled only “telephone call to client”, as opposed to, for instance “case update call to client,” does not establish that the phone call was legal work. The Court identifies 18.8 hours of such time and adjusts the total accordingly by $7,990 for a total of $150,843.34.

The Court also notes Jamik’s argument that counsel has impermissibly “block-billed”. However, such block billing is not objectionable per se. (Christian Research Institute v. Alnor (2008) 165 Cal.App.4th 1315, 1325.) Block billing may present difficulties where fees are awarded with respect to a particular motion or event, and billing entries for that work are intermingled with entries for non-recoverable work. The Court finds no such issue raised by the block billing here. Apart from the minor redaction issues, counsel’s billing records are detailed and specific, and, as set forth above, Jamik cannot parse KWP’s defense costs between claims which were at least potentially covered by the Service Agreement from those that were not. (Buss, supra, 16 Cal.4th at 49.)

Also, while Jamik argues several “specific instance[s] of double billing, [such that] Exhibit 6 of the Decl. DB contains a long list (too long to succinctly recite here)….” As noted above, “[g]eneral arguments that fees claimed are excessive, duplicative, or unrelated do not suffice.” (Premier Medical Management Systems, Inc. v. California Ins. Guarantee Assn. (2008) 163 Cal.App.4th 550, 564.) Jamik must recite its objections in order for the Court to recognize them. Also, upon review of the records, the Court is satisfied with the explanations for alleged “double-billing” offered in KWP’s Reply. Therefore, the Court does not discount for Jamik’s general allegations of improper billing.

Conclusion

Cross-Complainant KWP’s motion is GRANTED with modifications. Judgment is awarded in the amount of $150,843.34, representing the reasonable attorneys’ fees and costs incurred by KWP in defending itself in this action where its indemnitor Jamik Construction & Management had a duty to do so and did not.