Assn. Reconstruction Specialists v. Merit Property Management

Filed 5/2/08 Assn. Reconstruction Specialists v. Merit Property Management CA4/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

Appeals from a judgment and postjudgment order of the Superior Court of Orange County, Geoffrey T. Glass, Judge. Affirmed. Requests for judicial notice. Granted.

Hatton, Petrie & Stackler and Arthur R. Petrie II for Cross‑complainant and Appellant in No. G038112 and for Cross‑defendant, Cross‑complainant, and Appellant in No. G038647.

Horvitz & Levy and David M. Axelrad for Cross‑defendant and Respondent in No. G038112 and for Cross‑complainant, Cross‑defendant and Respondent in No. G038647.

Wilson, Elser, Moskowitz, Edelman & Dicker, Arthur J. Travieso; Richard L. Hasen for Cross‑defendant and Respondent in No. G038112.

* * *

INTRODUCTION

Barbara Hughes discovered mold in her home located in the Bear Brand development (the development). A construction defect at the development was found to be the cause of the mold problem. Hughes sued various entities, including respondents Breakers at Bear Brand Homeowners Association (Breakers) and Merit Property Management, Inc. (Merit), based on alleged failures to properly remediate the mold problem in her home.

In an amended cross‑complaint, Breakers and Merit sued the mold remediation project manager, appellant Association Reconstruction Specialists, Inc. (ARS), for contractual indemnity and for breach of contract based on the allegation ARS failed to maintain certain insurance as required by the contract entered into by Breakers and ARS. ARS in turn filed a cross‑complaint which contained a contractual indemnity claim against Breakers and a claim for declaratory relief against Breakers and Merit, in which ARS sought a judicial declaration it had maintained the insurance required by the parties contract.

Merit abandoned its breach of contract claim against ARS on the eve of trial. Following a bench trial, the court rejected all of Breakerss and ARSs claims against each other, concluded ARSs declaratory relief claim against Merit was dismissed as moot, and entered judgment. The trial court thereafter denied ARSs motion for contractual prevailing party attorney fees on the ground there was no prevailing party within the meaning of Civil Code section 1717.

ARS filed two appeals in this action. First, ARS appealed from the judgment on the ground the trial court erred by dismissing as moot ARSs declaratory relief claim against Merit. Second, ARS appealed from the trial courts order denying it prevailing party attorney fees. We granted ARSs request to consolidate these two appeals.

We affirm. Even if the trial court had erred by dismissing ARSs claim against Merit as moot, any such error was harmless because ARS failed to produce sufficient evidence showing it had procured necessary insurance required by the contract. The judgment therefore correctly reflects that ARS did not prevail on its declaratory relief claim against Merit.

Furthermore, neither ARS nor Breakers prevailed at trial on their claims for contractual indemnity. ARS vigorously pursued its cross‑complaint, and even expanded the scope of its claim at trial. The trial court did not abuse its discretion by concluding neither party was a prevailing party within the meaning of Civil Code section 1717.

BACKGROUND[1]

In previous litigation, Breakers sued the original builder of the development for construction defects and used the money it recovered in that action to remediate those defects. Breakers contracted with ARS, a construction management firm with expertise in remediation work, to provide management services on the remediation project (the contract). The contract contained, inter alia, a mutual indemnity clause and a prevailing‑party attorney fees provision.

After some mold remediation work was done in common areas of the development, homeowner Barbara Hughes sued Breakers for intentionally making defective repairs to her home, failing to timely and properly remediate the mold problem, intentionally withholding mold testing results showing her home was contaminated, and advising her that her home was mold free despite express disagreement from the contractors. Hughes also sued several other parties associated with the remediation project, including the developments property manager, Merit, and the developments original contractor, Shea Homes. Hughes did not name ARS as a defendant. Shea Homes, however, cross‑complained against ARS, seeking equitable indemnity.

Hughes settled. Defendants that settled with Hughes agreed to drop their cross‑complaints against each other with the exception that Shea Homes refused to dismiss its cross‑complaint against ARS. The trial court granted ARSs motion to dismiss Shea Homess cross‑complaint because ARS had settled with Hughes for $5,000 and got a determination of good faith settlement which, the trial court stated, eliminated Sheas cross‑complaint for equitable indemnity and should have removed ARS from the case.

Shortly after the trial court granted ARSs motion to dismiss Sheas cross‑complaint, Breakers and Merit filed an amended cross‑complaint to add (1) a claim by Breakers alleging express indemnification against ARS pursuant to the contract, and (2) a claim by Breakers and Merit (as a third party beneficiary of the contract) alleging ARS breached the contract by failing to obtain and maintain a comprehensive general liability insurance policy which named Breakers and Merit as additional insureds. The trial court noted, [t]hese cross‑claims were not settled when the rest of the case resolved nor were they resolved by the good faith determination.

ARS filed a cross‑complaint containing a claim of contractual indemnity against Breakers, based on allegations Breakers had a duty under the contract to defend ARS against claims predicated on Breakerss or its subcontractors negligence. ARSs cross‑complaint also contained a cause of action for declaratory relief which alleged (1) ARS contends it fully honored its obligations under the contract, and is entitled to reimbursement for the costs of defending Shea and Merits cross‑complaints; (2) Breakers contends ARS owes it indemnity as against Hughes claims; and (3) Breakers and Merit contend ARS breached its contractual obligation to obtain general liability insurance. The declaratory relief cause of action further stated ARS sought a judicial declaration of the parties rights and liabilities relating to the transactions described herein.

Before trial, Breakers and Merit abandoned their breach of contract claim against ARS for its alleged failure to procure insurance.

Following a bench trial, the court issued a 20‑page statement of decision which stated that Breakerss and ARSs competing claims for indemnity (and ARS declaratory relief action) were tried to the court. In the statement of decision, the trial court rejected Breakerss claims against ARS and ARSs claims against Breakers. With regard to claims relating to whether ARS procured insurance required by the contract, the court stated, ARS and B[reakers] did not pursue that claim at trial, so the declaration of rights is moot. Further, there was insufficient evidence presented at trial that would allow the court to declare that ARS had in fact procured the necessary insurance at all the relevant times. The court dismisses the claim for declaratory relief against Merit as moot.

The court concluded there was no prevailing party within the meaning of the prevailing‑party attorney fees provision of the contract, but under Code of Civil Procedure section 1032, subdivision (a)(4), ARS was entitled to recover its costs.

Judgment was entered stating: IT IS ORDERED, ADJUDGED, AND DECREED that [] 1.  On B[reakers]s Cross‑Complaint against ARS, B[reakers] shall take nothing, and judgment be rendered in favor of ARS. [] 2.  On ARS Cross‑Complaint against B[reakers], ARS shall take nothing, and judgment be rendered in favor of B[reakers]. [] 3.  On ARS Cross‑Complaint, for declaratory relief, against Merit, the claim is dismissed as moot.

ARS filed a postjudgment motion for an order determining ARS as the prevailing party and for an award of attorney fees and costs in the net amount of $182,760, jointly and severally against Breakers and Merit under Code of Civil Procedure section 1032 and Civil Code section 1717. In an order dated March 12, 2007, the trial court denied ARSs motion, stating: The court is inclined to find that neither ARS nor B[reakers] prevailed in this action. In the courts discretion under [Code of Civil Procedure section] 1032[, subdivision ](a)(4), the court DENIES ARS request for attorneys fees and costs. The court further stated, [t]he court finds that (1) neither ARS nor B[reakers is the] prevailing part[y] under the specific set of circumstances set forth in [Code of Civil Procedure section] 1032[, subdivision ](a)(4); (2) the court therefore has the discretion to determine who the prevailing party is and whether or not to allow costs and to what extent; (3) the court determines that neither part[y] is the prevailing party; (4) the court awards costs only . . . , but neither ARS nor B[reakers] is awarded attorneys fees. [] The judgment remains in effect. (Italics omitted.)

In a minute order dated April 2, 2007, the trial court stated, [t]he Court, having read and considered Objections to the Courts March 12, 2007 ruling, now rules as follows: The Court awarded costs to ARS under [Code of Civil Procedure section] 1032[, subdivision ](a)(4), but declined to award attorneys fees to either party under [Civil Code section] 1717[, subdivision ](b)(1).

ARS filed a notice of appeal from the judgment dismissing its cross‑complaint against Merit as moot (appeal No. G038112). ARS filed a second notice of appeal from the trial courts postjudgment order denying ARS prevailing party attorney fees (appeal No. G038647). This court granted ARSs motion to consolidate the two appeals for the purposes of oral argument and decision only.

REQUESTS FOR JUDICIAL NOTICE

In May 2007, ARS filed a request that this court take judicial notice of ARSs motion for an order awarding ARS prevailing party attorney fees, which it filed in the trial court on February 9, 2007. Neither Breakers nor Merit filed an opposition to ARSs request. Pursuant to Evidence Code sections 459 and 452, subdivision (d), which authorize this court to judicially notice any court record of the State of California, ARSs request is granted.

In a second request for judicial notice filed in August 2007, ARS requested that in appeal No. G038647, this court take judicial notice of the appendices and exhibits filed in this court in connection with appeal No. G038112; no objection to ARSs request was filed. As noted ante, these two cases have been consolidated. ARSs request is granted. (Evid. Code,  452, subd. (d) & 459.)

On our own motion, we take judicial notice of the Orange County Superior Courts file No. 04CC05478 in this case. (Evid. Code,  452, subd. (d)(1) & 459, subd. (a); Deschene v. Pinole Point Steel Co. (1999) 76 Cal.App.4th 33, 37, fn. 2.)

DISCUSSION

I.

Any Error in the Dismissal of ARSs Declaratory Relief Claim Against Merit Was Harmless.

ARS contends the trial court erred by dismissing ARSs declaratory relief claim against Merit. ARS contends, the trial court erroneously construed Merits dismissal as being of the entire action between Merit and ARS, ending any consideration of ARS cross‑complaint and possible entitlement to attorneys fees.

ARS does not specify at what point the trial court effectively dismissed ARSs declaratory relief claim against Merit from the case. The record does not show the trial court dismissed that claim before or even during trial. Code of Civil Procedure section 581d provides: A written dismissal of an action shall be entered in the clerks register and is effective for all purposes when so entered. [] All dismissals ordered by the court shall be in the form of a written order signed by the court and filed in the action and those orders when so filed shall constitute judgments and be effective for all purposes, and the clerk shall note those judgments in the register of actions in the case. The record does not contain a written order of dismissal as required by section 581d.

The record shows ARSs declaratory relief claim was alleged against both Merit and Breakers, and was based on the fact Merit and Breakers had contended, ARS breached its contractual obligation to obtain general liability insurance, on which basis ARS sought a judicial declaration of the parties rights and liabilities relating to the transactions described herein. The contracts insurance provision states in part: [ARS] shall, at all times during the term of this Agreement, obtain and maintain adequate general liability and Errors and Omissions Liability insurance as required by the governing documents and California law. ARS, Inc. shall obtain and maintain during the course of its contract with BREAKERS AT BEAR BRAND HOME OWNERS ASSOCIATION workers compensation and employers liability insurance as required by law, and comprehensive general liability insurance coverage with limits of at least One Million Dollars ($1,000,000). . . . BREAKERS AT BEAR BRAND HOME OWNERS ASSOCIATION and its management company shall be named as an additional insured on the ARS, Inc. general liability policy.

The record shows ARSs declaratory relief claim, at least as to Breakers, was tried to the court along with ARSs and Breakerss claims for contractual indemnity alleged against each other. After the parties rested their case, the trial court issued a proposed statement of decision. In response, ARS filed a document which set forth proposed revisions to the proposed statement of decision.[2] In that document, ARS stated it had tried its declaratory relief claim against Breakers and Merit to the court: During pre-trial hearings, Merit and [Breakers] unilaterally dismissed their joint cause of action against ARS for breach of contract (failure to procure insurance). Three causes of action went to trial: B[reakers]s contractual indemnity action against ARS, ARS compulsory cross‑complaint against B[reakers] for contractual indemnity against B[reakers], and for declaratory relief action against B[reakers] and Merit. ARS therefore proposed the trial court add to the statement of decision that the trial court found in favor of ARS with regard to ARSs declaratory relief claim against Merit, stating: On ARS cause of action for declaratory relief against B[reakers] and Merit, the court finds that, as to the disputes framed in ARS cross‑complaint, ARS has no liability to B[reakers] or Merit, and B[reakers] has no liability to ARS.

In the final statement of decision, with regard to the claims related to whether ARS procured insurance required by the contract, the trial court stated, ARS and B[reakers] did not pursue that claim at trial, so the declaration of rights is moot. Further, there was insufficient evidence presented at trial that would allow the court to declare that ARS had in fact procured the necessary insurance at all the relevant times. The court dismisses the claim for declaratory relief against Merit as moot. Judgment was thereafter entered, stating, inter alia, [o]n ARS Cross‑Complaint against B[reakers], ARS shall take nothing, and judgment be rendered in favor of B[reakers]. [] . . . On ARS Cross‑Complaint, for declaratory relief, against Merit, the claim is dismissed as moot.

In its opening brief, ARS does not address whether it had pursued its declaratory relief claim against Merit or Breakers at trial or whether it had presented sufficient evidence at trial that would have supported a judicial declaration it had procured the necessary insurance at all relevant times. ARS, in its opening brief, does not challenge the trial courts finding ARS had produced insufficient evidence at trial to support a judicial declaration it had procured requisite insurance.

To the extent ARS contends that after trial, the trial court erroneously dismissed ARSs declaratory relief claim against Merit as moot simply because Merit had dismissed its claim against ARS, the record shows any such error is harmless. ARS had asserted the same claim against Breakers and Merit, and the trial court expressly found ARS had not only failed to prove its claim as to Breakers, it had failed to produce enough evidence that would enable the court to conclude ARS had procured insurance required by the contract.

In its respondents brief, Merit points out ARS does not challenge on appeal the trial courts finding that ARS produced insufficient evidence at trial to support its declaratory relief claim. ARSs entire response to Merits assertion is contained in a footnote in the reply brief, which states: The trial court accepted Merits dismissal over ARS objection. . . . Breakers also abandoned its claim ARS breached the insuring provision. . . . ARS nevertheless presented evidence it had procured the insurance required by the contract. . . . Obviously, ARS contests the trial courts statement there was insufficient evidence presented at trial that would allow the court to declare that ARS had in fact procured the necessary insurance at all the relevant times. Having closed down the issue with its own rulings, the court can hardly later complain about a paucity of evidence on the topic.

In support of its statement that it had produced sufficient evidence, ARS cites seven lines of one page in the reporters transcript containing cross‑examination of one of ARSs attorneys who had testified regarding fees incurred in the defense of Breakers claims and how ARS had tendered the defense of Breakerss claims to its insurance company. The page cited by ARS included the following questions and testimony during Breakerss counsels cross‑examination of ARSs counsel:

Q In fact isnt it true that you on at least one occasion verbally advised me that in the month of March, 2006, that ARS had neither CGL [comprehensive general liability] nor claims‑made coverage available for defense of either claim?

A I gave you my opinion, as I recall, that there wouldnt be any coverage under the general liability policy because of the professional services exclusion. But I stated it in the form of my opinion. [] I also stated at the time that Breakers was an additional insured on the CGL policy [and] certainly entitled to any and all information that it wanted to have about the policies. And I believe I wrote you a letter two weeks after you served the complaint giving you the dec[laration] sheets showing that the coverage was in effect and asking you to dismiss the complaint.

Counsels testimony, as quoted ante, alone does not constitute sufficient evidence to prove that ARS procured and maintained the insurance required by the parties contract as a matter of law. Specifically, counsels reference to his offer to provide copies of declaration pages of coverage does not constitute evidence of those declaration pages and he offered no evidence showing that the contractual requirements of coverage were satisfied. Indeed, nothing in ARSs appellate briefs or citations to the record provides any evidentiary basis for its claim to have provided the required coverage. ARSs reply briefs only other citation to supporting evidence is to an exhibit attached to ARSs postjudgment motion for prevailing party attorney fees. That unauthenticated exhibit, which purports to be a certificate of liability insurance, shows ARS procured some insurance effective from January 17, 2003 to January 17, 2004, but does not establish whether such insurance covered the entire term of the contract,[3] or otherwise complied with the insurance provision of the contract. In any event, ARS failed to show in its reply brief that this exhibit had been previously admitted at trial and was therefore before the trial court prior to the entry of judgment.

ARS does not argue the trial court improperly excluded any evidence relevant to ARSs claim or otherwise limited or interfered with ARSs ability to try its declaratory relief claim against Breakers or Merit. The record does not show the trial courts cryptic comment that Merit was out of the case, made in the context of a pretrial hearing addressing whether Merit had dismissed its breach of contract claim against ARS, precluded ARS from pursuing or attempting to pursue its claim against Merit.

ARS has failed to carry its burden of showing the dismissal of its declaratory relief claim against Merit constituted reversible error.

II.

The Trial Court Did Not Abuse Its Discretion by Concluding There Was No Prevailing Party Within the Meaning of
Civil Code Section 1717.

ARS contends the trial court erred by denying ARSs postjudgment motion under Civil Code section 1717, in which it sought a prevailing‑party attorney fees award against Merit and Breakers pursuant to the contracts attorney fees provision. That attorney fees provision states: If any action or proceeding is instituted by any person to enforce or interpret the provisions hereof, including alternative dispute resolution, the

prevailing party in such action or proceeding shall be entitled to recover from the other Party or Parties its costs and expenses incurred in connection therewith, including without limitation, reasonable attorneys fees, expert witness fees, and the costs and expenses of arbitration, mediation or litigation.

Contractual prevailing‑party attorney fees awards are governed by Civil Code section 1717. Section 1717, subdivision (a) provides in part that [i]n any action on a contract, where the contract specifically provides that attorneys fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorneys fees in addition to other costs. Section 1717, subdivision (b)(1) states, [t]he court, upon notice and motion by a party, shall determine who is the party prevailing on the contract for purposes of this section, whether or not the suit proceeds to final judgment. Except as provided in paragraph (2), the party prevailing on the contract shall be the party who recovered a greater relief in the action on the contract. The court may also determine that there is no party prevailing on the contract for purposes of this section. Subdivision (b)(2) of section 1717 provides, [w]here an action has been voluntarily dismissed or dismissed pursuant to a settlement of the case, there shall be no prevailing party for purposes of this section.

ARS had no right to prevailing party attorney fees against Merit under Civil Code section 1717, because, as discussed ante, ARS failed at trial to produce sufficient evidence to prove its declaratory relief claim as a matter of law. The trial court, therefore, did not err by concluding that ARS was not a prevailing party as to Merit.

We therefore turn to ARSs argument it was entitled to a prevailing‑party attorney fees award against Breakers. With regard to Breakerss and ARSs claims against each other, the trial court rejected Breakerss claim for contractual indemnity

against ARS and rejected ARSs claim for contractual indemnity against Breakers. In the statement of decision, the trial court stated Breakers did not pursue its claim for breach of contract for failure to maintain insurance against ARS and ARS did not pursue its declaratory relief claim against Breakers on the same issue. The trial court found that neither Breakers nor ARS was a prevailing party eligible for contractual prevailing party attorney fees under Civil Code section 1717.

In Scott Co. v. Blount, Inc. (1999) 20 Cal.4th 1103, 1109, the California Supreme Court stated: If neither party achieves a complete victory on all the contract claims, it is within the discretion of the trial court to determine which party prevailed on the contract or whether, on balance, neither party prevailed sufficiently to justify an award of attorney fees. We therefore review the trial courts order denying ARS prevailing party attorney fees under Civil Code section 1717 for an abuse of discretion.

In McLarand, Vasquez & Partners, Inc. v. Downey Savings & Loan Assn. (1991) 231 Cal.App.3d 1450, 1456, each party sued the other claiming breach of contract, but neither party prevailed. The jury found that neither party had breached the contract, and denied all relief. (Ibid.) Although the plaintiff initiated the litigation, the defendant aggressively pursued its cross‑complaint through trial and set forth claims which otherwise would have been foreclosed. (Ibid.) The appellate court affirmed the trial courts conclusion that neither party was a prevailing party under Civil Code section 1717, stating, [t]he trial court apparently concluded that fairness dictated each side should pay its own attorneys fees. [Citation.] This was a proper exercise of discretion. (Ibid.)

Here, neither party prevailed on its claims against the other; the trial court denied each party any relief. The record shows ARS aggressively pursued its cross‑complaint against Breakers. Not only did ARS prosecute its contractual indemnity claim, the trial court noted in the statement of decision that ARS expanded the scope of

its cross‑complaint to include, inter alia, the contention Breakers also breached the implied covenant of good faith and fair dealing. The court expressed its displeasure at the expansion of ARSs cross‑complaint at trial without ARS having first followed proper procedures to amend its cross‑complaint to reflect such changes. Nevertheless, the trial court addressed and rejected ARSs claim as expanded in the statement of decision. Furthermore, ARS acknowledges its contractual indemnity claim against Breakers was a compulsory claim that it had to either pursue in this litigation or forfeit.

We recognize that [w]hen there are cross‑actions on a contract containing an attorney fees provision, and no relief is awarded in either action, a trial court is not obligated to find that there is no party prevailing on the contract for purposes of [Civil Code] section 1717. If the court concludes that the defendants cross‑action against the plaintiff was essentially defensive in nature, it may properly find the defendant to be the party prevailing on the contract. (Hsu v. Abbara (1995) 9 Cal.4th 863, 875, fn. 10, italics added.)

Here, ARSs pursuit of its contractual indemnity claim, particularly as it was expanded at trial, was not essentially defensive in nature. The Supreme Court has stated that [t]ypically, a determination of no prevailing party results when both parties seek relief, but neither prevails, or when the ostensibly prevailing party receives only a part of the relief sought. (Hsu v. Abbara, supra, 9 Cal.4th at p. 875.) We cannot conclude on this record the trial court abused its discretion by finding no prevailing party within the meaning of Civil Code section 1717.

DISPOSITION

The judgment and postjudgment order are affirmed. Respondents shall recover costs on appeal.

FYBEL, J.

WE CONCUR:

BEDSWORTH, ACTING P. J.

IKOLA, J.

Publication Courtesy of San Diego County Legal Resource Directory.

Analysis and review provided by El Cajon Property line attorney.

San Diego Case Information provided by www.fearnotlaw.com

[1] The facts contained in this background section are taken from the facts section of the trial courts statement of decision.

[2] On our own motion, we augment the record on appeal with ARSs proposed revisions to the courts proposed statement of decision, filed October 13, 2006, in Hughes v. Breakers at Bear Brand Homeowners Association, Orange County Superior Court, No. 04CC05478. (Cal. Rules of Court, rule 8.155(a)(1)(A).)

[3] The contract, which was trial exhibit 201, provides in part: The term of this agreement shall be for one year, except that the Agreement shall automatically be renewed for a second 12 month period, unless terminated as set forth herein. . . . This Agreement may be terminated by either party, with or without cause and without penalty charge, upon 30 days written notice to the other party, or before commencement of a new phase. The contract further states it was entered into December 20, 2002.