Judge Thomas D. Long, Case 19STCV03238 2023-03-23 Tentative Ruling

On November 15, 2021, Plaintiffs FEI Enterprises, Inc.; Gabriel Fedida, individually and as Trustee of the Toy 2014 Revocable Trust and as Trustee of the 514 North Highland Trust; and Esther Fedida (collectively, “Plaintiffs”) filed a fourth amended complaint (“4AC”) against Defendant Massachusetts Bay Insurance Company and others.

On March 9, 2022, the Court granted Defendant’s motion for summary judgment, and on September 21, 2022, the Court entered judgment in favor of Defendant and against Plaintiffs.

On November 17, 2022, Defendant filed a motion for attorney fees in the amount of $413,556.51.

Defendant’s request for judicial notice is denied as irrelevant; the 4AC, cross-complaint, and Court orders are already part of this case’s record.

Attorney fees are recoverable only when authorized by contract or law. (Code Civ. Proc., § 1033.5, subd. (a)(10).) A prevailing party may recover reasonable attorney fees in any action on a contract where the contract specifically provides that attorney fees and costs incurred to enforce that contract shall be awarded, whether that party is specified in the contract or not. (Civ. Code, § 1717, subd. (a).) “California courts liberally construe the term ‘“‘on a contract””’ as used within section 1717. [Citation.] As long as the action ‘involve[s]’ a contract it is ‘on [the] contract’ within the meaning of Section 1717. [Citations.]” (Dell Merk, Inc. v. Franzia (2005) 132 Cal.App.4th 443, 455.)

Plaintiffs and Defendant entered into an Indemnity Agreement in consideration for Defendant executing surety contracts, undertakings, or other guarantees on behalf of Plaintiffs. (Klein Decl., Ex. 1 at p. 1.) The Indemnity Agreement provided that “[t]he Indemnitors [Plaintiffs] shall exonerate, indemnify, and save harmless the Surety [Hanover, Defendant, and others] from and against every claim, demand, liability, cost, charge, suit, judgment and expense with the Surety may pay or incur, including, but not limited to, loss, interest, court costs and consultant and attorney fees: . . . In enforcing any of the covenants, terms and conditions of this Agreement.” (Klein Decl., Ex. 1 at p. 1, ¶ 2.)

Plaintiffs and Torrance Unified School District (“District”) entered into a public works construction contract, and Defendant issued a performance bond to the District. (See 4AC ¶¶ 29, 31; 02/03/2022 MSJ Order at p. 3.) The District later filed a lawsuit against FEI and Defendant alleging damage caused by faulty electrical wiring and installation of electrical equipment and appliances (“District Action”). (See 4AC ¶ 45; 02/03/2022 MSJ Order at p. 3.) Defendant then sued Plaintiffs to compel them to post collateral under the Indemnity Agreement (“Indemnity Action”). (See 4AC ¶ 51; 02/03/2022 MSJ Order at p. 3.) To settle the Indemnity Action, Plaintiffs and Defendant entered into a Collateral Security Agreement. (See 4AC ¶¶ 52-53; Klein Decl., Ex. 2 at p. 3.)

In this action, the first cause of action (breach of implied covenant) alleges the Collateral Security Agreement contained Defendant’s implied promise “to collaborate and coordinate with FEI to attempt to resolve the District Action on terms favorable to FEI and to mitigate Plaintiffs’ damages.” (4AC ¶¶ 87-90.) Defendant interfered with Plaintiffs’ right to receive the benefits of the contract by refusing to contribute money toward the settlement of the District Action and preventing Plaintiffs from being able to settle that action for $400,000 instead of the later $1.35 million settlement. (4AC ¶¶ 94-95.) Similarly, the third cause of action (breach of implied-in-fact contract) alleges Plaintiffs signed the Collateral Security Agreement in reliance on a course of conduct and understanding that Defendant would advance money to settle the District Action, and Defendant breached the implied-in-fact contract by refusing to advance $150,000 to settle the District Action. (4AC ¶¶ 117-123.) The 4AC’s second cause of action was not alleged against Defendant.

C. The Indemnity Agreement Does Not Authorize An Award Of Attorney Fees In This Action.

Plaintiffs argue that the Collateral Security Agreement does not contain an attorney fees provision that applies to a breach of the covenant of good faith and fair dealing. (Opposition at pp. 4-5.)

Defendant argues that the Indemnity Agreement and the Collateral Security Agreement “both relate to the same matter, (Torrance’s claim against FEI), involve the same parties (MBIC and FEI), and were made as part of substantially one transaction (the issuance and application of the bond),” so they must be construed together under Civil Code section 1642. (Motion at pp. 12.)

“Several contracts relating to the same matters, between the same parties, and made as parts of substantially one transaction, are to be taken together.” (Civ. Code, § 1642.) The Indemnity Agreement and the Collateral Security Agreement do not relate to the same matters and were not made as parts of substantially one transaction. The Indemnity Agreement was executed in July 2010 and related to Defendant’s provision of a performance bond for Plaintiffs’ work on the District contract. The Collateral Security Agreement was executed in November 2015 to settle the Indemnity Action that Defendant filed against Plaintiffs. The Collateral Security Agreement is at best tangentially related to the Indemnity Agreement via the Indemnity Action, but the two agreements are not two parts of substantially one transaction.

Defendant also argues that the Collateral Security Agreement “specifically confirms that FEI agreed to the above attorneys’ fee provision, which the CSA incorporates verbatim.” (Motion at p. 11.) The Collateral Security Agreement does reproduce the attorney fees provision from the Indemnity Agreement, but it is only in the “RECITALS” section, prefaced by, “In the GIA [Indemnity Agreement], the Indemnitors agreed, among others, to the following provisions.” (Klein Decl., Ex. 2 at pp. 1-2.) It then continues to recite the facts of the District Action and Defendant’s demand that Plaintiffs post collateral for the performance bond. The “AGREEMENT” section sets forth the terms of the execution of a deed of trust, Defendant’s dismissal of the Indemnity Action, Defendant’s agreement to collaborate with Plaintiffs to defend the District Action, and other terms. (Id. at p. 3.) The “AGREEMENT” section does not contain an attorney fees provision applicable to actions to enforce the terms of the Collateral Security Agreement.

In this action, neither party was seeking to enforce the terms of the Indemnity Agreement; this action did not involve Plaintiffs’ obligation to indemnify Defendant in actions related to the bond. Instead, this action alleged Defendant’s breach of the Collateral Security Agreement and its purported obligation to help resolve the District Action in Plaintiffs’ favor. Resolving the claims in this action did not require any involvement of the Indemnity Agreement. The Indemnity Agreement was merely the basis for the Indemnity Action, for which the Collateral Security Agreement provided a resolution and settlement. Claims that Defendant failed to adequately defend Plaintiffs and settle the District Action arise solely from the Collateral Security Agreement and do not involve the Indemnity Agreement. This action was therefore not one seeking to “enforce[e] any of the covenants, terms and conditions of [the Indemnity] Agreement.” (See Klein Decl., Ex. 1 at p. 1, ¶ 2.)

Accordingly, the Court finds that the attorney fees provision in the Indemnity Agreement does not authorize an award of attorney fees in this action.

Defendant concedes that any other language about attorney fees in the Collateral Security Agreement applies only to the fees that Defendant incurred in defending the District Action. (Motion at pp. 13-14.)

Parties who intend to submit on this tentative must send an email to the Court at SMCDEPT48@lacourt.org indicating intention to submit. Parties intending to appear are encouraged to appear remotely and should be prepared to comply with Dept. 48’s new requirement that those attending court in person wear a surgical or N95 or KN95 mask.

Hon. Thomas D. Long

Judge of the Superior Court