Nissho of California, Inc. v. Bond Safeguard Insurance , 220 Cal. App. 4th 974 ( 2013 )

Filed 10/22/13
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION TWO
NISSHO OF CALIFORNIA, INC.,
Plaintiff and Appellant, E052746
v. (Super.Ct.No. INC075909)
BOND SAFEGUARD INSURANCE OPINION
COMPANY,
Defendant and Appellant.
APPEAL from the Superior Court of Riverside County. Thomas A. Peterson
(retired judge of the L.A. Super. Ct. assigned by the Chief Justice pursuant to art. VI, § 6
of the Cal. Const.) and John G. Evans, Judges. Reversed in part, affirmed in part.
Mordy Law Offices and Christopher R. Mordy for Plaintiff and Appellant.
Voss, Cook & Thel, Francis T. Donohue III, Jessica T. Elmassian; Harris Beach
and Bruce L. Maas for Defendant and Appellant.
Robins, Kaplan, Miller & Ciresi, David C. Veis and Laura P. Nash for The Surety
& Fidelity Association of America as Amicus Curiae on behalf of Defendant and
Appellant.
1
Prior to entering into a Subdivision Improvement Agreement (SIA) with the City
of Palm Springs (City) for the development of a private residential community called the
Avalon Palm Springs Village project (Avalon), Suncal PSV, LLC (Suncal), the owner of
the property in a joint venture partnership with Lehman Brothers, obtained a Maintenance
and Warranty Bond, several faithful performance (FP) bonds, and seven labor and
materials (L&M) bonds from defendant and appellant Bond Safeguard Insurance
Company (Safeguard) to insure the project. Suncal and City then entered into a SIA
which specifically required landscaping improvements to “offsite” areas bordering the
project, which were owned by City.1 City required the landscaping for the “offsite” areas
be bonded. Suncal had previously obtained a L&M bond for “Off-Site Landscaping &
Traffic” in the amount of $566,200, representing 50 percent of the estimated cost of those
improvements.
Suncal entered into three separate contracts with plaintiff and appellant Nissho of
California, Inc. (Nissho) for the landscaping of Avalon. One of those contracts, for
$1,639,777.19, covered labor and materials for the “offsite” landscaping required in the
SIA. Nissho completed a substantial portion of the work in the offsite contract but never
received payment. On January 4, 2008, Nissho gave notice to Suncal and Safeguard that
it had not been paid the sum of $896,963.53 for work performed on the offsite
1 “Off-site improvements refer to improvements that are off of the property site
itself,” i.e., “off-site landscaping refers to landscaping off the private property, for
example on adjacent public property.”
2
landscaping contract. Attached to the letter were copies of both the FP and L&M “Off-
Site Landscape & Traffic” bonds and the Maintenance and Warranty bond.
Nissho filed suit against both Suncal and Safeguard seeking damages of
$1,597,567.82 as against Suncal for breach of all three contracts and $909,986.96 as
against Safeguard on the L&M bonds.2 After a bench trial, the court ruled in favor of
Nissho in the amount of $1,041,148.55, permitting it to seek recompense against all the
L&M bonds, regardless of their characterization. Nissho filed a motion for attorney fees,
which the trial court denied. Safeguard appeals contending the trial court erred in
awarding Nissho damages in excess of the L&M bond for “Off-Site Landscaping &
Traffic” (the “Offsite Bond”). Nissho appeals maintaining it was entitled to an award of
attorney fees. We reverse the judgment with respect to the trial court‟s award of damages
to Nissho above the limit of the Offsite Bond. We affirm the judgment with respect to
the trial court‟s denial of Nissho‟s motion for attorney fees.
FACTUAL AND PROCEDURAL HISTORY
Director of Public Works and City Engineer David Barakian, testified it was
City‟s responsibility to make sure any proposed development was consistent with City‟s
general plan as adopted by the city council. Barakian reviewed all plans for new
developments in the city and had authority to accept or reject any proposed plans. If a
2 At trial, Nissho also attempted to obtain remuneration against the L&M bonds
for on-site work it had completed but for which it had not been paid. Suncal apparently
filed for bankruptcy to which Nissho would, by all accounts, have been entitled to
become a claimant. Additionally, Nissho‟s counsel conceded that as a licensed
contractor, Nissho had resort to recover under a mechanic‟s lien on the work it performed
on “on-site” areas.
3
developer was proposing a new development within the city, it was required to obtain
security to pay for the improvements in case they were not completed by the developer;
in this instance, the security consisted of bonds. The form of the bond was dictated or
approved by the city attorney.
Developers were required to obtain bonds for both FP and L&M. FP bonds
ensured that if the developer refused or was unable to complete the project City could
recover the costs for the improvements it deemed necessary. L&M bonds “cover the
costs of labor and materials of vendors and subcontractors employed by the developer in
performance” of the contract. A Maintenance and Warranty bond covered improvements
for a one-year period after the city accepted the improvements. Suncal asked City if it
could break up the securities by category of the work to be performed.
Between October 27, and 30, 2006, Suncal obtained from Safeguard FP bonds
totaling $17,385,000 or 100 percent of the estimated cost for the proposed works of
improvement. On the same dates, Suncal obtained from Safeguard seven L&M bonds
totaling $8,692,500, or 50 percent of the estimated construction costs. The L&M bonds
were enumerated and valued as follows: (1) Domestic Water $1,635.452; (2) Storm
Drain $244,250; (3) Sanitary Sewer System $1,566,350; (4) AC Pavement $2,035,000;
(5) Aggregate Base $892,675; (6) Curb & Gutter/Flatwork $1,762.575; and (7) Offsite
Landscaping & Traffic $566,200. Suncal additionally acquired a Maintenance and
Warranty of Improvements bond in the amount of $169,860. The offsite landscaping
4
improvements were proposed by Suncal in order that the surrounding public areas would
match the on-site landscaping of the development.3
Todd Rohm, an independent insurance agent working for Rohm Insurance Agency
signed the Offsite Bond as attorney-in-fact for Safeguard. It was on a city bond form.
Rohm testified separate bonds, rather than a single bond, were issued because it would
narrow the scope of the work performed allowing the principal, Suncal, to obtain releases
from City under the individual bonds so that it would not continue to be liable for the
total amount of improvements yet to be constructed. Thus, if the curbs and gutters,
landscaping, and streets were completed, Suncal could be released by City for liability for
the completed works while remaining liable only for those yet to be completed. The SIA
was entered into by the parties on December 18, 2006. Rohm testified “It‟s very typical
that the bonds have to be prepared and included within the agreements and submitted all
at one time and then the—the agreement is often times signed at a later date when
everything is provided, security included, the bond security.”
Moreover, renewal premiums were required to be paid on all the bonds, so it
would be less costly for a developer to have separate bonds, some of which might be
completed and released, than it is to have one large bond that must continue to be
renewed until the entire project is completed. Once the work secured by a particular
bond is signed off and accepted by the city, the bond is exonerated and the principal no
3 Suncal “wanted to . . . take the landscaping . . . that had been there for years, and
to change it at their expense, to have new landscaping put in in that area that better fit the
type of landscaping they were putting in elsewhere . . . .”
5
longer is required to pay premiums on that bond. Furthermore, if a claim is made on a
single L&M bond, the claimant could obtain an award for the entire amount of the bond
to the exclusion of all other subcontractors, laborers, or suppliers who could potentially
also make claims against the same bond; thus, bonds separately designated for divergent
areas of work would make it more likely that any particular subcontractor could obtain
recompense against the bond if the developer became unable to pay.
Each category of bond issued covered only work performed within the purview of
that bond. Construction estimates were created to enumerate what work would be
covered by each particular bond. Those estimates determined what entities could recover
for any particular type of work designated under the separately characterized bonds. Any
work not performed on those worksheets would not be covered by that bond. Carol
Templeton, an Engineering Associate for City who was involved in the SIA and the bond
calculations for Avalon, testified the bond amounts were assessed using the amounts in
the bond worksheets. She obtained the amount for the Offsite Bond by obtaining
estimates from two subcontractors for the total amount of the work required; the amounts
were doubled to provide a “cushion” in case City had to perform the work itself. There
was no requirement that Suncal‟s contractors or subcontractors pay prevailing wages for
any of the project‟s work, including the offsite landscaping.
Marcus Fuller, the Assistant Director of Public Works and Assistant City Engineer
for City who prepared and reviewed all the bonds in the Avalon project, testified none of
the landscape improvements were ever accepted by City. He testified it is unusual for
City to require landscaping bonds for such projects; City only required landscaping bonds
6
in the Avalon project for offsite areas that City would later be required to maintain. City
did not require that landscaping in on-site areas, areas which would be within the
community and not on City land, be bonded. Nonetheless, even though the bonds
covered offsite areas belonging to City, the bonds were “not bonds associated with public
work projects.”
Nabu Kato, the owner and founder of Nissho, testified he provided estimates to
Suncal for the landscaping work on Avalon. His estimates did not include prevailing
wages. Nissho subsequently signed contracts with Suncal for the landscaping work.
Kato defined offsite work as any work conducted on land that would eventually be turned
over either to the homeowners‟ association or City.
After trial, the parties agreed the primary dispute between Nissho and Safeguard
was not whether Nissho could and should recover money from one of the bonds, but
which bond or bonds and up to what amount. Safeguard contended Nissho was limited to
recovering the $566,200 for work under the Offsite Bond. In fact, Safeguard conceded
Nissho‟s work was “covered by the [Offsite Bond]”; Nissho “did landscape work[,]
[t]hey‟re entitled to recover under that bond up to $566,000”; it simply contested
Nissho‟s ability to reach the other L&M bonds. Nissho argued it could recover for all its
work, both offsite and on-site, under all the L&M bonds.
The court entered judgment in favor of Nissho in the amount of $1,041,148.55
plus costs and interest from January 2008. The court found Nissho had provided work in
the amount of $1,041,148.55. The court further found, “The SIA only requires that a
security instrument (singular) be provided for L&M. Therefore, SunCal and Safeguard
7
contracted to split the L&M requirement into seven separate bonds. No subcontractor
was a party to this agreement. Thereby, Safeguard contracted with Suncal to limit it[]s
own liability to the detriment of the subcontractors.” Thus, “The court finds that
Safeguard is liable to Nissho up to an amount not exceeding $8.6 million.” The court
additionally awarded Nissho recovery of interest dating back to the date of its claim
because the court found Nissho was not limited to the amount of the L&M landscape
bond. Finally, the court tentatively found Nissho was not entitled to recover attorney fees
because insufficient evidence established the L&M bonds were public works payment
bonds. Thus, the fact that some of the areas would come under the control of City did not
alter the private nature of the agreement at the time it was signed.
Nissho later filed a motion for attorney fees as a direct obligee of the bond. The
court denied the motion, expositing, “[Nissho] as the prevailing party is not entitled to
attorneys fees under the Labor and Materials Bonds [Government Code section] 66499.2
or Civ[il] Code [sections] 3082 et seq. The purpose of the Labor and Material Bonds
involved here is to protect . . . City . . . by providing for payment to the contractors
subcontractors[,] laborers[,] materialmen[,] and all other persons employed in the
performance of the work of improvement[,] for materials furnished or labor thereon of
any kind. The bonds are not designed to establish a fund for payment of breach of
contract damages beyond the reasonable amount of materials or labor provided. Even if
the contract between Suncal . . . and Nissho . . . provided for attorneys fees to the
prevailing party the court would reach the same decision.”
8
DISCUSSION
A. INTRODUCTION
“„The Subdivision Map Act is “the primary regulatory control” governing the
subdivision of real property in California.‟ [Citation.] It has three principal goals: „to
encourage orderly community development, to prevent undue burdens on the public, and
to protect individual real estate buyers.‟ [Citation.] It „seeks “to encourage and facilitate
orderly community development, coordinate planning with the community pattern
established by local authorities, and assure proper improvements are made, so that the
area does not become an undue burden on the taxpayer.”‟ [Citation.]” (Pacific Palisades
Bowl Mobile Estates, LLC v. City of Los Angeles (2012) 55 Cal. 4th 783, 798-799.)
“To accomplish its goals, the Subdivision Map Act sets suitability, design,
improvement, and procedural requirements (e.g., Gov. Code, §§ 66473 et seq., 66478.1 et
seq.). It also allows local governments to impose supplemental requirements of the same
kind (e.g., id., §§ 66475 et seq., 66479 et. seq.). [Citation.] Further, „[t]he Act vests the
“[r]egulation and control of the design and improvement of subdivisions” in the
legislative bodies of local agencies, which must promulgate ordinances on the subject.‟
[Citation.] The local entity‟s enforcement power is directly tied to its power to grant or
withhold approval of a subdivision map. Thus, „[o]rdinarily, subdivision under the Act
may be lawfully accomplished only by obtaining local approval and recordation of a
tentative and final map . . . .‟ [Citation.]” (Pacific Palisades Bowl Mobile Estates, LLC
v. City of Los Angeles, supra, 55 Cal.4th at p. 799.)
9
“By the enactment of this article, the Legislature intends to accomplish . . . the
following objective[]: [¶] . . . [¶] (c) To ensure that local agencies have maximum
discretion . . . in the imposition of conditions on any approvals occurring subsequent to
the approval or conditional approval of the vesting tentative map . . . .” (Gov. Code,
§ 66498.9)4 Whenever the furnishing of security is required it shall be in any form of
security which is acceptable to the local agency including one or more bonds by one or
more authorized corporate sureties. (§ 66499, subd. (a)(1)(5).)
“A surety is „one who promises to answer for the debt, default, or miscarriage of
another, or hypothecates property as security therefor.‟ [Citation.] A surety bond is a
„“written instrument executed by the principal and surety in which the surety agrees to
answer for the debt, default, or miscarriage of the principal.”‟ [Citation.] In suretyship,
the risk of loss remains with the principal, while the surety merely lends its credit so as to
guarantee payment or performance in the event that the principal defaults. [Citation.] In
the absence of default, the surety has no obligation. [Citation.]” (Cates Construction,
Inc. v. Talbot Partners (1999) 21 Cal. 4th 28, 38.)
“„[A] surety on an official bond undertakes no liability for anything which is not
within the letter of his contract. The obligation is strictissimi juris; that is, he has
consented to be bound only within the express terms of his contract and his liability must
be found within that contract or not at all. [Citation.] “Where a surety bond is given
pursuant to the requirements of a particular statute, the statutory provisions are
4 All further statutory references are to the Government Code unless indicated.
10
incorporated into the bond.” [Citation.]‟ [Citation.]” (Schmitt v. Insurance Co. of North
America (1991) 230 Cal. App. 3d 245, 258.) “The surety‟s obligation is strictly construed
so as not to impose a burden not contained in or clearly inferable from the language of
the contract. [Citations.]” (Airlines Reporting Corp. v. United States Fidelity &
Guaranty Co. (1995) 31 Cal. App. 4th 1458, 1464.)
“„In general, a surety bond is interpreted by the same rules as other contracts.
That is, we seek to discover the intent of the parties, primarily by examining the words
the parties have chosen giving effect to the ordinary meaning of those words.‟” (Amwest
Sur. Ins. Co. v. Patriot Homes, Inc. (2005) 135 Cal. App. 4th 82, 86-87.) “[I]f the trial
court‟s interpretation [was] based solely on an examination of the contract, the
interpretation of the contract is a question of law and this court will independently review
the validity of the trial court‟s construction. [Citation.] However, if the trial court [was]
presented with conflicting extrinsic evidence to aid in the interpretation of the contract, „a
reasonable construction of the agreement by the trial court which is supported by
substantial evidence will be upheld. [Citations.]‟ [Citations.]” (Lugosi v. Universal
Pictures (1979) 25 Cal. 3d 813, 852.)
“It long has been settled in California that where a bond incorporates another
contract by an express reference thereto, „the bond and the contract should be read
together and construed fairly and reasonably as a whole according to the intention of the
parties.‟ [Citations.] To ascertain the nature and extent of the liability to which the
surety has bound itself, courts must „examine the language of the undertaking by the light
of the [construction] agreement, faithful performance of the terms of which it
11
guarantees.‟ [Citations.] As a general rule, „[t]he obligation of a surety must be neither
larger in amount nor in other respects more burdensome than that of the principal . . . .‟
[Citation.]” (Cates Construction, Inc. v. Talbot Partners, supra, 21 Cal.4th at pp. 39-40.)
Here, the parties agree that although there was no express reference to the L&M bonds in
the SIA, the parties intended the SIA to incorporate the L&M bonds.
B. NISSHO WAS LIMITED TO RECOVERING AGAINST THE PENAL
SUM ENUMERATED IN THE OFFSITE BOND IN THE AMOUNT OF
$566,200
Safeguard contends Nissho was limited to recovering against the amount
enumerated in the Offsite Bond. We agree.
Here, the court resorted to the consideration of evidence extrinsic to the SIA and
the bond agreements. As such, we may consider such evidence in determining whether
its interpretation of the SIA was supported by substantial evidence. Considering the
uncontradicted parole evidence of the SIA adduced below, we hold Nissho was limited to
recover only in an amount no greater than the penal sum specified in the Offsite Bond.
First, section 66499 et seq. clearly provide for the legality of obtaining separate
bonds to furnish security for projects such as the SIA. Section 66499, subdivision (a)(1)
allows for a “[b]ond or bonds by one or more duly authorized corporate sureties.”
Section 66499.2, which dictates the form of any L&M bond issued under the statutes,
provides “A bond or bonds by one or more duly authorized corporate sureties for the
security of laborers and material suppliers shall be in substantially the following form[.]”
12
Thus, the issuance of multiple L&M bonds for a development project was clearly
envisioned under the statutory scheme.
Second, it is notable all the Avalon security bonds were issued more than a month
prior to the execution of the SIA. All the bonds were issued between October 27, and 30,
2006. The SIA was not signed until December 6, 2006, at which time City had already
accepted Nissho‟s provision of security, which the parties agree was incorporated into the
SIA. Thus, the parties to the SIA clearly intended the provision of multiple L&M bonds
to be acceptable.
The evidence adduced below established City consented to the issuance of
separate securities characterized by the work to be performed. City was approached prior
to issuance of the securities with a request that City permit Suncal to obtain separate
securities. City was intimately involved in determining the amounts of the bonds through
the use of bond worksheets and contractor estimates specifically delineated by the type of
work to be performed; thus, not only was City aware that separate bonds would issue, it
aided Suncal in determining their scope. The security bonds were on forms supplied and
approved by City. City reviewed the adequacy of the bonds prior to entering into the
SIA. Thus, City exercised its statutorily invested “maximum discretion” in approving the
SIA with separate security bonds. (§ 66498.9, subd. (c).)
Third, contrary to the court‟s ruling, it was undisputed below that Suncal, not
Safeguard, requested issuance of separate securities. Thus, contrary to the court‟s
characterization, Safeguard did not attempt “to limit it[]s own liability to the detriment of
the subcontractors.” Indeed, Safeguard did only what was requested of it: issue separate
13
securities in amounts and characterizations of the work to be performed as designated by
Suncal and City. Since, as discussed ante, the bonds were on City forms and in amounts
determined by City and Suncal based on subcontractor estimates, it is difficult to assign
nefarious intent to Safeguard for doing exactly what was asked of it.
Fourth, it is entirely consistent with a reading of the SIA that Suncal would have
Safeguard issue separately denominated L&M bonds limited to the work therein
described. Nissho maintains the SIA‟s provision that, “A Security Instrument
guaranteeing the payment to contractors, subcontractors, and other persons furnishing
labor, materials, and/or equipment („Labor and Materials Security Instrument‟) with
respect to the Works of Improvement in an amount equal to $8,692,500 equal to 50% of
the estimated construction cost,” required Safeguard to issue one L&M bond in the
amount of 50 percent of all estimated construction costs, from all of which it was entitled
to seek remuneration. Likewise, Nissho argues language in each of the L&M bonds
reading, “for materials furnished or labor thereon of any kind” allowed it to disregard the
characterization of each bond since it provided work that would fall within the broad
definition “of any kind.” (Italics added.) The clear intent of those provisions was to
provide adequate security for the entire project in the SIA and the categories of
improvements denominated in the separate L&M bonds. The fact that Suncal had
Safeguard issue separate bonds securing disparate facets of the project comes well within
that intent. (Lunardi v. Great-West Life Assurance Co. (1995) 37 Cal. App. 4th 807, 820.)
14
Whether Suncal obtained one security instrument or several, the bonds obtained by
Suncal from Safeguard covered the amounts and work required by the SIA, City, and
Government Code sections 66499 et seq. (Civ. Code § 1650; County of Kern v.
California Dept. of Health Services (2009) 180 Cal. App. 4th 1504, 1513-1514.) City
chose to limit the L&M bonds to 50 percent of the estimated costs of the improvements to
be performed by the contractors, subcontractors, laborers, materialmen, and suppliers.
The Offsite Bond in the amount of $566,200 represented 50 percent of all
estimated offsite landscaping and traffic improvements. The amount of the bond was
determined primarily from cost estimates provided by Nissho itself. Moreover, the
estimates that provided the base amount for the Offsite Bond were doubled to provide a
“cushion” in case City had to perform the work. This is, presumably, because once City
had to undertake the work, it would become a public works project requiring City to pay
prevailing wages. Thus, because the Offsite Bond included amounts for non-landscape
work and doubled the construction estimates for all work performed under its aegis, the
bond could not be construed as limiting any subcontractor‟s potential recovery under the
bond in the event Suncal defaulted, particularly Nissho, which participated in the
computation of the bond‟s amount. Indeed, because Nissho‟s offsite landscaping contract
with Suncal amounted to $1,639,777.19, Nissho was at least on constructive notice that
its contract amount twice exceeded the Offsite Bond and, therefore, it would be unable to
recover even half the value of its work from the bond should Suncal default.
15
Fifth, Nissho presumably had knowledge of both the SIA and the bonds before it
bid on or accepted award of the offsite landscaping contract with Suncal. As noted ante,
Nissho had provided construction estimates, which served as the basis for the amount of
the Offsite Bond. The incorporated bonds and bond worksheets were attached to the SIA,
which was recorded in the county recorder‟s office. Kato testified Nissho began
landscaping in 1984. Over its ensuing 20-plus-year history, Nissho expanded to the point
where it had four regional offices operating in Chula Vista, Temecula, Palm Springs, and
Vista, California. Nissho specialized in multiple large projects of up to 800,000 acres
with 14,000 home sites.
Under these circumstances, it is reasonable to conclude Nissho knew that under
section 66499.3, subdivision (b), City was able to require that Suncal provide L&M
bonds limiting Nissho‟s recovery in the event of Suncal‟s default to only 50 percent of
the work it completed or 50 percent of the total work conducted on the project. Thus,
Nissho was effectively on notice it could not rely on the entirety of all the L&M bonds
for recovery in the event of Suncal‟s default. Nissho complains, “The net effect of . . .
Safeguard‟s [bond] headers, if they are enforceable, is that contractors such as [Nissho]
cannot be paid the full value of their work and labor.” Section 66499.3, subdivision (b)
permits City to limit recovery for subcontractors to 50 percent of the work provided. City
elected to require only the minimum amount of coverage required by statute.
Sixth, the court‟s judgment did not differentiate between Nissho‟s on-site and
offsite work. On the contrary, the court‟s judgment aggregated the three separate
contracts Nissho entered into with Suncal and noted Nissho had performed $1,041,148.55
16
worth of work on the aggregated contracts, the exact amount it awarded Nissho. Thus,
the court erroneously permitted Nissho to recover against the bonds for its on-site work.
Although Nissho sought recovery against the bonds for both its on-site and offsite work,
the undisputed testimony below established that only its offsite work was covered by the
Offsite Bond. Thus, only offsite landscaping was bonded and the court‟s award of
recovery against the bonds for on-site work performed by Nissho was error.
Seventh and finally, treatment of all the L&M bonds as one singular bond while
disregarding each bond‟s limitations with regard to the type of work characterized therein
would ignore the intent of the actual parties to the bonds and the legal requirement that
bonds be strictly construed to limit the surety‟s obligations to those expressly specified.
Here, Safeguard was presented with bonds by Suncal on City forms, in language written
by City, based upon language required by statute, in amounts based upon estimates
provided by subcontractors, and with characterizations of the work to be performed
provided by City and Suncal. Safeguard issued the bonds as they were presented to it.
Nissho invokes former Civil Code section 3226 providing, “Any bond given pursuant to
the provisions of this title will be construed most strongly against the surety and in favor
of all persons for whose benefit such bond is given . . . .” Assuming arguendo the bonds
issued in this case were “given pursuant to the provisions of” that title, we still fail to see
how they could be interpreted to allow Nissho, a landscaper, to recover against bonds
specifically limited to work on domestic water, storm drains, sanitary sewer system, AC
pavement, aggregate base, and/or curb and gutter/flatwork. Moreover, Nissho‟s
argument below that “since . . . Safeguard had the opportunity to make any changes that
17
they felt were appropriate, then it has to be interpreted most strongly against them,” is
belied by the statutory requirements for the language contained in the bonds.
Government Code section 66499.2 dictates the language of the bond and, as testified to at
trial, the language of the bonds was on City forms approved by City; thus, Safeguard had
no opportunity to make changes to the language of the bonds and construing it against the
“drafter,” here either City or the Legislature, would not inure to Nissho‟s benefit.
In conclusion, we hold in consequence of the uncontradicted parole evidence
adduced below, insufficient evidence supported the trial court‟s interpretation of the SIA
to require a single security instrument. Thus, Nissho was limited to recovering against
the Offsite Bond in the amount of $566,200 for its offsite work only. We therefore
reverse the court‟s judgment awarding Nissho $1,041,148.55 against all the L&M bonds.
Since the trial court failed to distinguish amounts Nissho expended in its offsite and on-
site work, the matter must be remanded for a determination of whether Nissho expended
work valued up to or above the penal sum of $566,200 designated in the Offsite Bond.
To the extent it did, judgment should be entered in Nissho‟s favor in the maximum
amount of $566,200.
C. NISSHO‟S RECOVERY OF INTEREST
The trial court ruled Nissho would be allowed to recover interest dating back to
the date of its initial claim because it was not limited to recovery against the penal sum of
$566,200 designated in the Offsite Bond. Thus, because Nissho could seek recovery
against all the L&M bonds with an aggregate value of $8,692,500, and Nissho had only
recovered $1,041,148.55 against those bonds, sufficient additional bond funds were
18
available to permit Nissho to recoup interest. On appeal, Safeguard requests that, to the
extent we hold Nissho was limited to recovering the penal sum of $566,200 designated in
the Offsite Bond, we determine whether Nissho could recover interest above and beyond
the sum specified in that bond.
In the first instance, we decline to make such a determination because we believe
the question is not ripe for review. (Vandermost v. Bowen (2012) 53 Cal. 4th 421, 461
[“„The ripeness requirement, a branch of the doctrine of justiciability, prevents courts
from issuing purely advisory opinions. [Citation.] It is rooted in the fundamental
concept that the proper role of the judiciary does not extend to the resolution of abstract
differences of legal opinion‟”].) The trial court did not make a determination of whether,
if Nissho had recovered up to the amount limited by the bond, Nissho could recover
additional funds for interest. Second, since the trial court made no determination of
whether the value of Nissho‟s work performed on the offsite contract equaled or
exceeded the limits of the Offsite Bond, that determination must be made before any
determination on interest can be made. Thus, on remand we direct the trial court to
determine both the amount Nissho may recover for offsite work performed against the
limits of the Offsite Bond and, if it equals or exceeds that amount, whether Nissho can
recover an additional amount for interest.
D. ATTORNEY FEES
Nissho contends that as the prevailing party in the action below, it was statutorily
entitled to an award of attorney fees. Safeguard maintains there was no statutory basis
for awarding Nissho attorney fees and, therefore, the trial court‟s denial of Nissho‟s
19
motion for attorney fees was based on a correct interpretation of the statutory law. We
agree with Safeguard.
“„“On review of an award [or denial] of attorney fees after trial, the normal
standard of review is abuse of discretion. However, de novo review of such a trial court
order is warranted where the determination of whether the criteria for an award of
attorney fees [has] been satisfied [pursuant] to statutory construction and a question of
law.”‟ [Citation.]” (Heritage Pacific Financial, LLC v. Monroy (2013) 215 Cal. App. 4th
972, 1003.) The “American rule” requires that “unless expressly provided in contract or
statute, each party to a litigation must pay its own attorney fees. [Citations]” (Serpa v.
California Surety Investigations, Inc. (2013) 215 Cal. App. 4th 695, 709.)
Section 66499.4 provides, “As a part of the obligation guaranteed by the security
and in addition to the face amount of the security, there shall be included costs and
reasonable expenses and fees, including reasonable attorneys‟ fees, incurred by the local
agency in successfully enforcing the obligation secured.” (Italics added.) Likewise, as
mirrored in the bonds issued in this case, the language required by section 66499.2
provides, “that the surety will pay the same in an amount not exceeding the amount
hereinabove set forth, and also in case suit is brought upon this bond, will pay, in addition
to the face amount thereof, costs and reasonable expenses and fees, including reasonable
attorney‟s fees, incurred by county (or city) in successfully enforcing this obligation, to
be awarded and fixed by the court, and to be taxed as costs and to be included in the
judgment therein rendered.” Since, Nissho is not a local agency or municipality, it
20
cannot recover attorney fees according to the Subdivision Map Act pursuant to which the
bonds and SIA were executed in the instant case.
Nonetheless, Nissho argues it is entitled to an award of attorney fees pursuant to
former Civil Code section 3250, which provided, “An action on the payment bond may
be maintained separately from and without the filing of an action against the public entity
by whom the contract was awarded or any officer thereof. In any action, the court shall
award to the prevailing party a reasonable attorney‟s fee, to be taxed as costs.” (Since
renumbered Civ. Code, § 9564 [eff. July 1, 2012].) Former Civil Code section 3250 was
part of former Title 15 which required a payment bond when a contractor was “awarded a
contract by a public entity.” (Former Civ. Code, § 3247, subd. (a)) “„Public work‟
means any work of improvement contracted for by a public entity.” (Former Civ. Code,
§ 3100.)
A “„Public entity‟ means the state, Regents of the University of California, a
county, city, district, public authority, public agency, and any other political subdivision
or public corporation in the state.” (Former Civ. Code, § 3099.) Public works projects
require a bond in an amount “not less than one hundred percent of the total amount
payable by the terms of the contract.” (Former Civ. Code, § 3248, subd. (a).)
We agree with the trial court‟s tentative determination that “the evidence is
insufficient to establish that these were public works payment bonds. The fact that the
outer perimeter (the landscaping) of the subdivision may some day [sic] come under the
management of . . . City . . . as to maintenance, cannot alter the status existing at the time
the agreement was signed. There appears to be no other basis for awarding attorney
21
fees.” Indeed, Fuller testified the bonds issued in the Avalon project were, “not bonds
associated with public work projects.” Public works projects would have required the
payment of prevailing wages. It was Suncal, not City‟s, determination to landscape the
offsite areas so they would match the landscaping of the on-site areas. City did not
require payment of prevailing wages on the offsite landscape work. However, the
amounts calculated from contractor estimates were doubled for purposes of specifying
the amount of the bonds in case the City ended up contracting for the work itself upon
Suncal‟s default. Only in such circumstances where City itself was directly contracting
for the work would it have become a public works project requiring the payment of
prevailing wages. Thus, Nissho was not entitled to recover attorney fees under former
Civil Code section 3250 because it was not engaged in a public works project.
Nissho exposits two cases in support of its proposition that its offsite work
qualified as public works projects entitling it to attorney fees. In Granite Construction
Co. v. American Motorists Ins. Co. (1994) 29 Cal. App. 4th 658 (Granite), a sub-
subcontractor in a new subdivision performed work for which it was not paid. The
original contractor and subcontractor filed for bankruptcy. The surety refused payment.
The sub-subcontractor filed suit against the surety and won a motion for summary
judgment and award of attorney fees. (Id. at p. 661.) The surety appealed, contending
the sub-subcontractor had not timely filed a requisite public works preliminary bond
notice and was not entitled to attorney fees. (Id. at pp. 661-662.) The court of appeal
affirmed the trial court‟s judgment. (Id. at p. 662.)
22
We find Granite distinguishable for several reasons. First, Granite fails to
establish the factual predicate for determination in this case as to whether the streets
paved and sealed by the sub-subcontractor were on-site or offsite improvements and
whether they were required by the municipality. In fact, the surety‟s argument that the
sub-subcontractor failed to timely serve a public works preliminary bond notice assumes
the project was a public work required by the municipality. This differs from the instant
case in which Suncal required the offsite landscaping, and no public works preliminary
bond notice was apparently required. Second, the Granite court indicated it was limiting
its analysis to the bond‟s provision for attorney fees. (Granite, supra, 29 Cal.App.4th at
p. 667, fn. 7.) However, that provision, like the ones in the bonds at issue in this case,
limited attorney fees to the municipality. (Id. at p. 668.) Thus, Granite did not abide by
its own analytical framework.
Third, Granite provided no analysis of the competing statutory provisions for
attorney fees with respect to subdivision improvements; thus, there was no indication as
to whether the project at issue, like Avalon, would come within the purview of the
Subdivision Map Act, which does not provide a statutory basis for attorney fees for
subcontractors. Fourth, the surety in Granite did not contest the categorization of the
sub-subcontractor‟s work as a public work and did not challenge its entitlement to
attorney fees; rather, the surety challenged only the timeliness of sub-subcontractor‟s
service of the public works preliminary bond notice and its entitlement to attorney fees
prior to initiation of suit against the surety. Thus, because the court did not consider
whether the sub-subcontractor‟s performance was a public work or whether it was
23
entitled to attorney fees after initiation of the suit, its holding is, at best, weak dictum for
the proposition that subcontractors are always entitled to attorney fees upon successful
suit against a surety.
In California Paving & Grading Co., Inc. v. Lincoln General Ins. Co. (2012) 206
Cal. App. 4th 36 (California Paving), the developer entered into a SIA with a municipality
that required, as a condition of its approval, the developer install all public improvements
required by the final map. The City required a 50 percent L&M bond for the public
improvements. The developer contracted with a general contractor for construction of
the improvements. (Id. at p. 38.) The general contractor subcontracted for the paving
and asphalt work. The subcontractor performed the work but was never paid. The
subcontractor filed suit against the developer and the general contractor, but both filed for
bankruptcy. The subcontractor then filed suit against the surety. (Id. at p. 39.)
The surety demurred contending the subcontractor had failed to file suit within the
statutory timeframe. (California Paving, supra, 206 Cal.App.4th at pp. 39-40.) The
subcontractor countered that, “the improvements for which the bond was issued are
subdivision improvements, not a public work within the meaning of the Civil Code
sections. Therefore, the payment bond is not a public works payment bond and the
statute of limitations set forth in [former Civil Code] section 3249 does not apply to this
action.” The trial court sustained the demurrer. (Id. at p. 40.)
The appellate court reversed, holding the “subdivision improvement work
constituted a public work within the meaning of [Civil Code] section 3100 because it
constituted a „work of improvement contracted for by a public entity.‟” (California
24
Paving, supra, 206 Cal.App.4th at p. 43.) Indeed, the SIA and contract between the City
and the developer “expressly required [the developer], at its „own cost and expense, to
construct and install all public improvements required in and adjoining and covered by
the final map.‟” (Ibid.) The general contractor then contracted with the subcontractor
“„to furnish labor, services, equipment and materials required pursuant to the prime
contract for the construction of the PUBLIC IMPROVEMENTS.‟” (Ibid.)
Nissho fails to cite any provision in either the SIA or the contracts between it and
Suncal where any of the contracted work was designated as a “public improvement.”
This is a dispositive difference between the instant case and California Paving where the
words “public improvements” in the various contracts and agreements were emphasized.
Moreover, here, Suncal and City did not enter into any direct contract with one another,
unlike in California Paving. Thus, City was not a party to any construction contract
executed by Suncal, the general contractor, or Nissho. Finally, unlike in California
Paving with respect to the street paving and asphalt work, City did not require the offsite
landscaping performed by Nissho as a condition for approval of the SIA. Rather, Suncal
proposed the offsite landscaping to which City acquiesced. Therefore, the offsite
landscaping was not a public works improvement and Nissho was not entitled to an
award of attorney fees.
DISPOSITION
The judgment awarding Nissho $1,041,148.55 plus costs and interest from January
2008 is reversed. The matter is remanded with directions to the trial court to determine
what amount of damages Nissho may recover up to the penal limit of $566,200 on the
25
Offsite Bond. The trial court is further directed to determine whether Nissho may
recover costs and interest if the inclusion of such further costs exceeds the penal amount
of the Offsite Bond. The trial court‟s judgment denying Nissho‟s motion for attorney
fees is affirmed. Defendant and appellant Bond Safeguard Insurance Company is
awarded its costs on appeal.
CERTIFIED FOR PUBLICATION
MILLER
J.
We concur:
RAMIREZ
P. J.
McKINSTER
J.
26