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Lewis C. Nelson & Sons, Inc. v. Lynx Iron Corp.

May 21, 2009


APPEAL from a judgment of the Superior Court of Fresno County. Donald R. Franson, Jr., Judge. (Super. Ct. No. 07CECG01140).

The opinion of the court was delivered by: Kane, J.



Lewis C. Nelson & Sons, Inc. (plaintiff), the general contractor on a school construction project, filed a lawsuit in Fresno County Superior Court against Lynx Iron Corp. (Lynx) and St. Paul Fire and Marine Insurance Company (St. Paul) (jointly, defendants) seeking damages for delays in performance of a subcontract and recovery on a performance bond (the Fresno action). Thereafter, the parties signed a document that defendants believed was a complete settlement of the Fresno action and, consistent with that belief, defendants filed a motion in the trial court to enforce the settlement and enter judgment in their favor pursuant to Code of Civil Procedure section 664.6.*fn1 While that motion was pending, plaintiff voluntarily dismissed the Fresno action without prejudice. At approximately the same time, plaintiff filed the identical lawsuit in Kern County Superior Court (the Kern action). Defendants asserted their section 664.6 motion in the Kern action, but the trial court there denied the motion on the rationale that the Kern action was not pending at the time of the purported settlement. Frustrated by this turn of events, defendants returned to Fresno County Superior Court and moved to vacate plaintiff's dismissal of the Fresno action on the ground that it was an unfair tactical ploy designed to defeat defendants' ability to expeditiously enforce the settlement under section 664.6. The trial court granted defendants' motion, vacated the dismissal and subsequently heard defendants' motion to enforce settlement under section 664.6, which it likewise granted. Plaintiff appeals on the ground that the trial court abused its discretion in setting aside its voluntary dismissal of the Fresno action. We agree and accordingly reverse.


Plaintiff was the general contractor on a construction project known as the La Vina Middle School, located in Delano, Kern County, California (the project). The owner of the project was Delano Union School District (the District). On January 5, 2005, plaintiff and Lynx entered into a written subcontract wherein Lynx agreed to furnish and install structural steel at the project for a contract price of $2.7 million (the subcontract). St. Paul issued a bond guaranteeing the performance of Lynx under the subcontract.

Several Disputes and a Settlement Agreement

During the construction, disputes arose between Lynx and plaintiff. Lynx claimed that it performed all the work set forth in the subcontract and was entitled to additional sums to compensate for change orders made by the District. Lynx also claimed that a number of plaintiff's asserted backcharges that would have reduced the amounts owed to Lynx were not valid. Meanwhile, plaintiff quietly came to the conclusion that it had been damaged by Lynx's delays that had increased plaintiff's overhead expenses on the project.

A number of letters were exchanged between plaintiff and Lynx in an effort to narrow or resolve the matters in dispute. Plaintiff sent a letter to Lynx on February 22, 2007, stating that the District would not be assessing any liquidated damages based on days of delay. Once this information was confirmed, Lynx was apparently under the impression that any claims based on delay were resolved. On February 28, 2007, Kent Schluter, Lynx's Vice President of Operations, wrote a letter to plaintiff summarizing Lynx's existing claims based on the District's change orders and the disputed backcharges. Mr. Schluter proposed that the parties "meet and discuss a final settlement of the outstanding issues at the earliest convenience of all parties." On March 8, 2007, Mr. Schluter sent an additional letter to plaintiff further clarifying the change orders and backcharges that remained in dispute. That letter made a proposal for resolving the disputed matters and stated as follows: "This would resolve all the outstanding issues between our companies and the [District]. Lynx... final [contract] amount would then be $2,778,459.79 with a currently due Lynx... amount of $457,570.00."

On April 13, 2007, plaintiff filed its complaint in the Fresno action against defendants, alleging causes of action for breach of contract, recovery on performance bond, cancellation of stop notice, and declaratory relief. Among other things, the complaint alleged that Lynx breached the subcontract by failing to perform its work in accordance with the subcontract by "causing delay," thereby resulting in damage to plaintiff.

On May 7, 2007, before the complaint in the Fresno action was served on defendants, the parties met to discuss settlement. Mr. Schluter, who attended the meeting on behalf of Lynx, believed that the purpose of the meeting was a global settlement of all remaining issues in dispute. Dwight G. Nelson, attending the meeting as President of plaintiff, had a more limited objective in view. Mr. Nelson's primary goal was to obtain a release of Lynx's claims against plaintiff because doing so was a precondition (under the prime contract with the District) for receiving the final payment from the District. Mr. Nelson was also willing to resolve certain "direct cost backcharges" of plaintiff that were in dispute. In his declaration describing the May 7, 2007 meeting, Mr. Nelson observed that plaintiff's claims based on Lynx's project delays were never discussed, and Mr. Nelson added that he did not intend to settle any matters other than those that were actually specified.

At the May 7, 2007 meeting, the parties signed a document that listed and resolved, item by item, the disputed change orders and backcharges (the settlement agreement). The settlement agreement was in the form of a particularized list of discrete claims with dollar values initialed by the parties, including the statement that "[t]he initialed items above represent the amounts claimed as outstanding or in dispute by Lynx... on the La Vina Middle School project by a representative of Lynx... and [plaintiff]." Next to the parties' signatures, at the bottom of the itemized list, the following statement was handwritten: "Lynx... agrees to settle and relinquish all claims for [a] revised contract amount of $2,762,467.00." (Italics added.) Thus, while the settlement agreement provided for Lynx's release of claims against plaintiff, it did not expressly state that plaintiff agreed to release any of its claims against Lynx.*fn2

On July 12, 2007, plaintiff retained Lax & Stevens as new counsel in the Fresno action. The Fresno action was served on defendants on July 19, 2007. Defendants responded by filing the first of three motions seeking to enforce the settlement and ...

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