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UDC-Universal Development, L.P. v. CH2M Hill

January 15, 2010

UDC-UNIVERSAL DEVELOPMENT, L.P., CROSS-COMPLAINANT AND RESPONDENT,
v.
CH2M HILL, CROSS-DEFENDANT AND APPELLANT.



(Santa Clara County Super. Ct. No. 801617) Trial Judge: Hon. Jack Komar.

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

CERTIFIED FOR PUBLICATION

In this appeal CH2M Hill seeks review of a judgment on a cross- complaint brought by respondent UDC-Universal Development, L.P. (UDC), pursuant to an indemnity provision in the parties' contract. The judgment required CH2M Hill, which had denied UDC's tender of defense, to reimburse UDC for the costs of its defense in a third entity's lawsuit. CH2M Hill contends that (1) the parties' contract required no defense because CH2M Hill's negligence was not alleged in the third party's complaint or established in UDC's action; and (2) UDC's cross- complaint was barred because its contract with CH2M Hill was illegal. We find no error and affirm the judgment.

CH2M Hill also seeks review of a postjudgment order under Code of Civil Procedure section 411.35, in which the court granted its motion for verification but denied its request for costs and attorney fees in the cross-action. We find no abuse of discretion in the court's application of the statute and will therefore affirm this order as well.

Background

Between July 1995 and February 1996 the parties entered into two contracts under which CH2M Hill would provide engineering and environmental planning services in connection with the development of a residential condominium complex called Village Hidalgo, later known as Valle Vista. UDC was the developer of the project. Among the provisions of the 1995 agreement was paragraph 20, which obligated CH2M Hill to indemnify UDC under certain conditions and to defend UDC against "any suit, action or demand" brought against UDC "on any claim or demand covered herein."

In October 2001 the homeowners association of Valle Vista (hereafter, "the HOA") filed a first amended complaint against UDC (which by then was called Shea Homes) for property damage resulting from "defective conditions" at the project, due in part to negligent planning and design of open space and common areas. During the ensuing litigation the HOA submitted consultant reports describing the adverse effects of drainage problems at the site, as well as soil instability, erosion, settling, and other geotechnical concerns.

In November 2006 UDC cross-complained for indemnity against numerous subcontractors, eventually substituting CH2M Hill for one of its Roe defendants. In the first, second, and sixth causes of action for equitable, comparative, and express contractual indemnity, UDC tendered its defense against HOA's action to all cross-defendants based on their contracts with UDC.

CH2M Hill answered the cross-complaint with a general denial and numerous affirmative defenses, thereby rejecting UDC's tender. UDC therefore paid for its own defense between January 3, 2007 (the date of tender by service of the amended cross-complaint) and January 23, 2008, when HOA's lawsuit was dismissed pursuant to a settlement with the defendants. The September 2007 settlement encompassed UDC's cross- claims against all of the cross-defendants except CH2M Hill.

On September 25, 2007, CH2M Hill moved for summary judgment, asserting that (1) the lawsuit was barred by the applicable statute of limitations and (2) UDC's failure to be properly licensed rendered its contracts with CH2M Hill illegal and barred its claims against CH2M Hill. The superior court denied CH2M Hill's motion, and on July 15, 2008, the cross-action proceeded to trial.

On July 28, 2008, before the matter was submitted to the jury, UDC moved for a directed verdict. UDC sought a ruling that CH2M Hill was liable for UDC's defense costs under its agreement to defend and indemnify UDC. One week earlier, the Supreme Court had issued its opinion in Crawford v. Weather Shield Mfg. Inc. (2008) 44 Cal.4th 541 (Crawford), holding that a contractual indemnitor incurs a duty to defend the indemnitee as soon as the indemnitee tenders its defense to the indemnitor. The parties stipulated that the jury would determine the factual issues of negligence and breach of contract, followed by the trial court's application of the indemnity provisions in the parties' contract in light of Crawford.

The jury was given a special verdict form on which to record its findings as to whether any party had been negligent and whether CH2M Hill had breached its contract with UDC. On July 29, 2008, it unanimously found that CH2M Hill had not been negligent and had not breached the contract. The trial court then took up the issue of CH2M Hill's duty to defend UDC in light of the jury's finding that CH2M Hill had not been negligent. The court suggested that "it would be a meaningless duty to defend if it did not arise from an accusation or complaint of negligence arising from the work." CH2M Hill then raised the question of whether the duty exists if there has been no evidence of such a claim by the HOA. The trial court invited additional briefing on that issue, along with further written argument on the applicability or effect of Crawford.

At a hearing on September 15, 2008, UDC urged the court to apply Crawford by ruling that CH2M Hill owed UDC a defense upon its tender; CH2M Hill, on the other hand, argued that Crawford was distinguishable. According to CH2M Hill, the indemnity provision of the parties' contract was "exceptionally broad," the defense provision did not come into play absent a finding of negligence by CH2M Hill, and the negligence allegations in the underlying complaint did not target or implicate CH2M Hill.

The trial court adhered to its earlier view that the parties' contract called for a defense upon an allegation of "some negligence in the manner in which the work was conducted." It was only the duty to indemnify, the court explained, that depended on a finding of negligence. The court stated that a separate duty to defend must occur before the duty to indemnify arises. "[O]therwise, you wouldn't need the duty to defend. The duty to indemnify would include all costs associated with the defense of the lawsuit based upon the work of the subcontractor. So, you know, logically I don't understand how or why you would have a separate duty to defend unless it arose at the time that the litigation was occurring as opposed to the duty to [indemnify]." The court further rejected CH2M Hill's argument that Crawford should not be applied retroactively.

The parties then discussed apportionment of costs and attorney fees for the present action. CH2M Hill asserted the right to recover costs as the prevailing party on UDC's allegations of breach of contract and negligence; UDC maintained that CH2M Hill had not prevailed on breach of the contractual obligation to defend UDC. The court deferred that issue pending further briefing.*fn1 On October 2, 2008, it entered an order and a judgment requiring CH2M Hill to reimburse UDC for the defense costs it had incurred in defending the HOA claims related to CH2M Hill's work. On November 19, 2008, CH2M Hill filed a timely notice of appeal from the judgment.

Meanwhile, shortly after entry of judgment CH2M Hill moved for verification of UDC's compliance with Code of Civil Procedure section 411.35. According to CH2M Hill, UDC had not filed a certificate of merit as required by that statute and therefore should be ordered to pay CH2M Hill its costs and fees in the cross-action. In opposition, UDC asserted that CH2M Hill had waived this claim, having raised it for the first time in the history of the parties' dispute. UDC further asserted that CH2M Hill was not entitled to verification because it had not obtained a "favorable conclusion" to the litigation, within the meaning of Code of Civil Procedure section 411.35. In any event, UDC argued, it had satisfied the purpose of the statute because it brought its case against CH2M Hill with a good faith and reasonable belief that the action was meritorious, based on the expert opinion of a licensed engineer in the field.

On November 20, 2008, the superior court entered its order granting the verification motion but denying CH2M Hill's request for attorney fees and costs. The court rejected UDC's waiver argument, but it concluded that UDC had "fully complied" with the pre-filing requirements of Code of Civil Procedure section 411.35 and that good cause existed for filing the cross-complaint against CH2M Hill. Although UDC had not filed a certificate required by the statute, CH2M Hill had not shown additional fees or expenses resulting from ...


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