Can a surety recover its attorney’s fees and costs when the surety did not actually incur or pay its own attorney’s fees and costs due to a contractual indemnity agreement? The Court of Appeals recently said yes, and ordered an unsuccessful contractor to pay a surety’s attorneys fees and costs when the surety had admittedly not paid for its own defense.
Cell-Crete Corporation, a lightweight concrete subcontractor, was hired by Granite Construction Company to perform work on a 2013 public works construction project. The public works contract required Granite to obtain a payment bond (from Federal Insurance Company) ensuring payment to all that provide labor or materials to the project. Project disputes arose and Cell-Crete filed claims against Granite and Federal. Cell-Crete’s claims were adjudicated in an arbitration that did not include Federal. Simultaneously, a lawsuit that did name Federal was filed and then stayed pending the outcome of arbitration. The arbitrator found merit to both Granite and Cell-Crete’s cases and found neither could be considered a “prevailing party” and declined to award fees or costs to either.
Once the arbitration was over and the award was confirmed in the court, Federal filed a motion in court seeking attorney’s fees and costs on the basis that it was the prevailing party. The trial court judge agreed that Federal was the prevailing party, but denied recovery of fees on the basis that the surety had not actually suffered any damages as it paid no fees due to its indemnity agreement with Granite; and therefore no fee award could be made.
The indemnity agreement was irrelevant, the Court of Appeal said, to the fact that the surety is entitled by statute to an award of attorney’s fees if it prevails in an action on the payment bond. The statute in question, Civil Code section 9564, does not state the fee needs to be “incurred” in order to be awarded nor that the prevailing party need be the paying party.
In fact, the Court said, it is well established at law that a party need not pay its own fees or costs in order to be entitled to recovery of the same. In the case of Litt v. Eisenhower Medical Center, the Court of Appeal stated succinctly that “the actual payor is irrelevant” but what was important was whether the defendant had incurred legal liability to pay the costs of litigation, regardless of whether someone else was obligated to reimburse them or pay the expenses. (2015) 237 Cal.App.4th 1217, 1222 and quoting Ceranski v. Muensch (1943) 60 Cal.App.2d 751, 754).
Civil Code section 9564 clearly states that the court shall award a reasonable attorney’s fee to the prevailing party. The Court found a precedential rule existed based upon cases interpreting fee-shifting statutes that “the trial judge must award reasonable attorney’s fees to the prevailing party regardless whether the prevailing party ultimately is responsible to pay the fees,” and that it was an error for the trial judge to have inquired whether Federal actually paid its attorneys. The court clarified this rule does not exist only in favor of sureties but rather many circumstances where a party, though represented, may be relieved from its obligation to pay its attorneys such as pro bono representation, in house counsel, or indemnity agreements. So long as an attorney-client relationship exists and work is done for the prevailing party, fees can be recovered under a fee-shifting statute such as Civil Code section 9564.