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Steve Rossa et al v. D.L. Falk Construction

January 23, 2012

STEVE ROSSA ET AL., PLAINTIFFS AND RESPONDENTS,
v.
D.L. FALK CONSTRUCTION, INC., DEFENDANT AND APPELLANT.



Ct.App. 1/2 A125567 Super. Ct. No. CIV442294 Court: Superior County: San Mateo Judge: Marie S. Weiner

The opinion of the court was delivered by: Cantil-sakauye, C. J.

San Mateo County

The filing of a notice of appeal does not stay enforcement of a judgment for the payment of money unless an undertaking is given. (Code Civ. Proc., § 917.1, subd. (a)(1).)*fn1 The undertaking may be in the form of a bond issued by a surety and filed in the trial court, promising payment of the judgment if it is affirmed, plus any interest accruing on the judgment during the pendency of the appeal and any costs that may be awarded against the appellant. (§ 917.1, subd. (b); see §§ 995.140, 995.150, 995.190, 995.210, 995.320, 995.340.) Insurance companies charge a fee or "premium" for a surety bond, and may also require the appellant to provide collateral for the bond, such as a letter of credit. (Eisenberg et al., Cal. Practice Guide: Civil Appeals and Writs (The Rutter Group 2010) ¶ 7:113, p. 7-30.1.) If the appellant prevails, it may recover as costs on appeal "[t]he cost to procure a surety bond, including the premium and the cost to obtain a letter of credit as collateral . . . ." (Cal. Rules of Court, rule 8.278(d)(1)(F), italics added.)*fn2

We address whether rule 8.278's reference to "the cost to obtain a letter of credit" extends to the interest expense incurred by an appellant to borrow funds to secure a letter of credit that was obtained to secure an appeal bond posted to stay enforcement of a money judgment during the pendency of the appeal. For the reasons set forth below, we conclude that rule 8.278(d)(1)(F) does not extend to interest expenses incurred to borrow funds to provide security for a letter of credit. Therefore, we affirm the judgment of the Court of Appeal.

FACTS

In 2006, a jury awarded plaintiffs Steve and Connie Rossa damages for breach of contract, and the trial court awarded plaintiffs costs and attorney and expert witness fees. Defendant D.L. Falk Construction, Inc., appealed the judgment. Following a partial settlement of the dispute, a judgment in the amount of $635,000 remained. To stay enforcement of the judgment pending appeal, defendant filed a bond issued by a surety insurer in the amount of $955,000, or approximately one and one-half times the judgment. (§ 917.1, subd. (b) ["The undertaking . . . given by an admitted surety insurer . . . shall be for one and one-half times the amount of the judgment or order"].) Thereafter, the Court of Appeal reversed the judgment.

On remand from this first appeal, defendant filed a cost memorandum seeking $147,814 in appellate costs. The trial court allowed defendant to recover $17,139 in costs related to preparation of the appellate record and briefs.*fn3 It also allowed defendant to recover sums related to two layers of costs incurred to stay enforcement of the judgment pending appeal: the premium charges on the appeal bond of $28,650 and bank fees of $950 for the letter of credit guaranteeing payment on the bond.*fn4 In sum, including expenses not in dispute here, the court allowed $46,739 of the $147,814 requested.

At issue is a third layer of costs defendant incurred to stay enforcement of the judgment. In this case, defendant seeks to recover the interest it paid on the sums it borrowed to secure the bank's letter of credit on the bond. We briefly summarize the pertinent factual premise.

To obtain the bond, the surety required defendant to provide a standby letter of credit to guarantee payment, if necessary, on the bond.*fn5 Defendant's bank agreed to issue a letter of credit in the amount of $954,070. It required defendant to deposit with the bank $954,070 to secure payment, if necessary, on the bank's letter of credit. Defendant deposited this amount by borrowing $483,070 from its line of credit with the bank, and $471,000 from the personal line of credit that one of defendant's principals had with the bank. Pursuant to an agreement between defendant and the principal, defendant was required to reimburse the principal the interest paid and expenses incurred in borrowing from his line of credit. Defendant paid $154,983 in interest on the two credit lines, and earned $55,694 in interest on the amounts deposited with the bank to secure payment on the letter of credit, for a net payment by defendant of $99,289 in interest. Defendant also paid a fee of $1,784 to extend defendant's line of credit with the bank an additional month before its appeal bond was discharged. The trial court denied recovery of the $99,289 in net interest payments and the $1,784 fee. Defendant again appealed, and the Court of Appeal agreed with the trial court that these two items were not recoverable as costs.

We granted review to address the scope of rule 8.278(d)(1)(F), which provides that a party may recover, "if reasonable," "[t]he cost to procure a surety bond, including the premium and the cost to obtain a letter of credit as collateral, unless the trial court determines the bond was unnecessary." (Italics added.) In particular, we address whether interest and fees paid to borrow funds to secure a letter of credit obtained as security for an appeal bond are recoverable as "cost[s] to obtain a letter of credit as collateral" for a surety bond.

DISCUSSION

"The rules applicable to interpretation of the rules of court are similar to those governing statutory construction. [Citation.] Under those rules of construction, our primary objective is to determine the drafters' intent. [Citation.]" (Silverbrand v. County of Los Angeles (2009) 46 Cal.4th 106, 125.) "If the rule's language is clear and unambiguous, it governs. [Citation.] Experience teaches, however, that unforeseen ambiguities can and do come to light despite the drafters' considered efforts to avoid them. In such cases, courts may consult appropriate extrinsic sources to clarify the drafters' intent. [Citation.]" (Alan v. American Honda Motor Co., Inc. (2007) 40 Cal.4th 894, 902.)

We begin with language of rule 8.278(d)(1)(F), which provides that a successful appellant may recover "the cost to obtain a letter of credit as collateral" for the appeal bond. Defendant relies on dictionary definitions, stating that "Cost means the 'amount paid or charged for something; price or expenditures.' (Black's Law Dict. 8th ed. 2004 [p. 371].) Expenditure is a 'sum paid out.' (Id.[ at p. 617.])" As noted above, the cost charged by the issuing bank for the letter of credit and courier fees was $950, which the trial court allowed defendant to recover. Due to the bank's requirement of security and defendant's financial circumstances, defendant also paid additional costs to borrow money to secure the letter of credit. The interest and fees paid to borrow these sums were not costs charged for the bank's letter of credit. Viewing the term "cost" more broadly, however, the payment of fees and interest on the sum borrowed for the deposit required by the bank as a condition to obtain the letter of credit can be seen as a cost defendant incurred to obtain the letter of credit.

In light of this ambiguity in the language, "we may consider a variety of extrinsic sources in order to identify the interpretation that best effectuates the [drafters'] intent. [Citation.]" (Beal Bank, SSB v. Arter & Hadden LLP (2007) 42 Cal.4th 503, 508.) As explained below, in the present matter, we undertake to determine the Judicial Council's intent when it amended former rule 26 in 1993 to allow the recovery of ...


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