Gcna v. Falcone Brothers & Associates ( 2021 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS FEB 22 2021
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
GUARANTEE COMPANY OF NORTH No. 20-15317
AMERICA USA, a Michigan corporation,
D.C. No. 4:18-cv-00157-FRZ
Plaintiff-Appellee,
v. MEMORANDUM*
FALCONE BROTHERS & ASSOCIATES,
INC., an Arizona corporation; et al.,
Defendants-Appellants.
Appeal from the United States District Court
for the District of Arizona
Frank R. Zapata, District Judge, Presiding
Submitted February 4, 2021**
Phoenix, Arizona
Before: W. FLETCHER, MILLER, and HUNSAKER, Circuit Judges.
In this diversity action, Falcone Brothers & Associates, Inc. and related
entities (collectively, Falcone) appeal the district court’s order granting summary
judgment to plaintiff Guarantee Company of North America USA (GCNA).
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
GCNA issued surety bonds to help Falcone secure public construction projects
with the city of Tucson, Arizona. When Falcone failed to pay its suppliers, GCNA
became liable to pay them, and GCNA sought reimbursement from Falcone under
an indemnity provision in their contract. See A.R.S. § 34-222(A)(2). The district
court awarded GCNA its full costs and attorney’s fees associated with paying the
suppliers and defending related lawsuits, including one brought by Cemex
Construction Materials South, LLC. We have jurisdiction under 28 U.S.C. § 1291,
and we affirm.
1. The district court correctly awarded GCNA its costs and fees. Falcone
admits that it is liable to GCNA but argues that because the indemnity provision is
“general” and not “specific” under Arizona law, GCNA may not recover losses
caused by its “active” negligence. Pioneer Roofing Co. v. Mardian Constr. Co.,
733 P.2d 652, 671–72 (Ariz. Ct. App. 1986). We need not decide whether the
provision is general or specific because Falcone has not presented material facts
showing that GCNA committed any active negligence.
Falcone’s first theory is that GCNA was actively negligent when it provided
its certification to Tucson to release the final payment to Falcone, even though
GCNA knew about Cemex’s pending claim. But Falcone points to no authority
showing that GCNA had a duty to refrain from providing that certification, or that
the certification was a representation that the project was claim-free. The statute
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that requires Arizona municipalities to withhold a retention pending project
completion, A.R.S. § 34-221(C), says nothing of the sort. GCNA’s certification
also does not say the project is claim-free; it simply indicates that Falcone should
receive its final payment. And Falcone does not claim that it failed to fully perform
under its contract with Tucson, such that the certification might have been false.
Falcone points only to a declaration from its president to show that it relied
on GCNA’s certification as an assurance that there were no outstanding claims.
However, that declaration does not show that GCNA had a duty to refrain from
providing the certification and therefore breached that duty. Falcone invokes a
surety’s duty to act in good faith towards its principal, see Dodge v. Fid. & Deposit
Co., 778 P.2d 1240, 1242–43 (Ariz. 1989) (in banc), but it would be anomalous for
that duty to require GCNA to take actions to prevent Falcone from being paid for
its work. The contract between the parties, which “significantly influences” the
extent of GCNA’s duty, Diaz v. Phoenix Lubrication Serv., Inc., 230 P.3d 718, 722
(Ariz. Ct. App. 2010), contains no such indication.
Even if Falcone could establish a duty, it cannot show that GCNA’s
certification caused GCNA’s losses. Falcone says that it relied on GCNA’s
certification that there were no pending claims, but as Falcone concedes, it knew
about Cemex’s claim—it just believed it had a defense to that claim. Falcone says
that if GCNA had not provided its certification, the “retention would not have been
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released by the City of Tucson and a fund would exist from which Cemex could
recover if it proved the validity of its claim.” But a fund did exist—Falcone
possessed it. Last, Falcone says that “GCNA was convinced that Cemex’s claim
was invalid and participated in the Cemex Litigation,” and thereby accrued years
of costs. But the premise of Falcone’s defense in that lawsuit—Falcone’s lack of
notice—had nothing to do with GCNA, which tendered its defense to Falcone. See
Cemex Constr. Materials S., LLC v. Falcone Bros. & Assocs., Inc., 2017 WL
5054218 (Ariz. Ct. App. Nov. 3, 2017) (unpublished). No evidence suggests that
the certification is what legally caused GCNA’s losses.
Falcone’s second theory is that GCNA should have unilaterally paid off the
Cemex claim instead of allowing it to go to litigation. But as with its first theory,
Falcone provides no evidence that GCNA had any obligation to do so, or that this
decision legally caused the relevant losses. Falcone had equal authority to settle the
claim: It initially owed the amount due; it contrived the legal theory that ultimately
lost; and it conducted the litigation throughout those six years. Even if GCNA’s
decision not to intercede in Falcone’s legal defense could be considered negligent,
it would be only “passive” negligence tantamount to a “failure to discover a
dangerous condition” or “take adequate precautions” against the prospect that
Cemex would prevail. See Estes Co. v. Aztec Constr., Inc., 677 P.2d 939, 942
(Ariz. Ct. App. 1983). GCNA is entitled to full recovery.
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2. The district court did not abuse its discretion in awarding GCNA its
full attorney’s fees. See Charles I. Friedman, P.C. v. Microsoft Corp., 141 P.3d
824, 830 (Ariz. Ct. App. 2006). Under Arizona law, if a surety incurs an expense,
“the only way in which it can be attacked by the indemnitor is through a plea and
proof of bad faith in the payment.” J.D. Halstead Lumber Co. v. Hartford Accident
& Indem. Co., 298 P. 925, 928 (Ariz. 1931). Falcone does not allege bad faith in
connection with GCNA’s attorney’s fees, nor does it dispute that GCNA is entitled
to recover them. Rather, without contesting the validity of any specific payments,
Falcone argues that GCNA’s fees are generally unreasonable because GCNA
tendered its defense in the Cemex litigation to Falcone.
“The general rule is that attorney’s fees and costs are recoverable as part of
the indemnification.” Schweber Elecs. v. Nat’l Semiconductor Corp., 850 P.2d 119,
125 (Ariz. Ct. App. 1992). While the district court had discretion to limit any such
award to a reasonable amount, Geller v. Lesk, 285 P.3d 972, 976 (Ariz. Ct. App.
2012), as amended (Sept. 26, 2012), abrogated in part on other grounds by
American Power Prods., Inc. v. CSK Auto, Inc., 396 P.3d 600, 604 (Ariz. 2017),
Falcone has failed to prove that GCNA’s fees were unreasonable. Just because
GCNA tendered its defense to Falcone does not mean that GCNA could not
represent its interests in a lawsuit in which it was a named defendant. Given that
the litigation lasted more than six years and included two trials, two appeals, and a
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petition for certiorari, we discern nothing clearly excessive about GCNA’s total
fees, especially considering the adversarial aspects of GCNA and Falcone’s joint
defense.
AFFIRMED.
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