California Court of Appeals, Fourth District, Second Division
APPEAL from the Superior Court of Riverside County No. INC075909 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.
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.
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. 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 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. 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 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 improvements were proposed by Suncal in order that the surrounding public areas would match the on-site landscaping of the development.
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 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 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 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 its 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 ...