Developments in Surety Law - 2007
2007
© Copyright 2008. All rights reserved.
Some of the most significant decisions handed down in California state and federal courts during 2007 dealt with a surety's right to recover contractual attorneys' fees, the scope of indemnitor liability, and other areas in the field of surety law.
Attorneys' Fees
Published Cases:
Travelers Casualty & Surety Co. of America v. Pacific Gas & Electric Co., 127 S. Ct. 1199 (2007). In the most significant surety case in 2007, the Supreme Court overruled the Ninth Circuit's earlier decision In re Fobian, 951 F.2d 1149 (9th Cir. 1991) which held that the surety was not entitled to enforce its contractual right to attorneys' fees when the underlying litigation dealt with issues unique to federal bankruptcy law.
El Dorado Irrigation District v. Traylor Bros., Inc., 2007 U.S. Dist. LEXIS 31638 (E.D.Cal. February 12, 2007). In awarding attorneys' fees to a prevailing principal and surety against a contractor, the District Court held that, where a contract did not include an attorneys' fee clause but a performance bond did, the contract and bond were to be treated as an integrated contract.
National Union Fire Insurance Company of Pittsburgh, Pa. v. Electric Transit, Inc., 2007 U.S. Dist. LEXIS 21300 (N.D.Cal. March 7, 2007). The District Court overruled a surety's motion for summary judgment on the grounds that (1) as a matter of law a joint venturer or partner of the principal was barred from making a claim on a payment bond, and (2) issues of material facts existed as AAI's status relative to the principal.
Unpublished Cases[1]:
N.V. Heathorn, Inc. v. United States Fidelity and Guaranty Co., 2007 Cal. App. Unpub. LEXIS 494 (Cal.App. January 22, 2007). The Court of Appeal affirmed a trial court's order granting the surety's post-trial motion for a new trial on the surety's cross-claim after a deadlocked jury failed to render a verdict. The Court also held that, in light of its order upholding the trial court's order granting a new trial, the surety's challenge to the jury's findings that the surety's attorneys fees and costs were not incurred in good faith was moot.
In re SCADA Cases, 2007 Cal. App. Unpub. LEXIS 4236 0102 (Cal.App. May 25, 2007). The Court of Appeals held that a joint venture and its payment bond surety were not liable for attorneys fees incurred by another surety on a stop notice release bond on the grounds that, because there was no basis to have held the stop notice release bond surety liable for a attorneys' fees incurred by the underlying stop notice claimant, there was no basis for an award against the joint venture or its surety under the mutuality provisions of Cal. Civil Code § 1717.
Automated Switching & Controls, Inc. v. Fireman's Fund Insurance Company, 2007 Cal. App. Unpub. LEXIS 9475 (Cal.App. November 27, 2007). The Court of Appeal upheld the trial court's award of attorneys' fees as the prevailing party pursuant to Cal. Civil Code §3250, but reversed that court's denial of fees on a motion for reconsideration which had been filed by the claimant with instructions that the trial court use its discretion to determine the amount of additional fees claimed.
Unlicensed Contractors
Unpublished Cases:
Hillcrest-Thousand Oaks Associates v. DSD Construction, Inc., 2007 Cal. App. Unpub. LEXIS 2800 (Cal.App. April 5, 2007). The Court of Appeal upheld judgment in favor of an obligee, an unlicensed contractor, on the grounds that the obligee qualified for the owner-builder exception in the licensing statute.
Forseeability of Damages
Unpublished Cases:
K2 Construction, Inc. v. Anjani Investments, Inc., 2007 Cal. App. Unpub. LEXIS 7294 (Cal.App. August 9, 2007). The Court affirmed a trial court's determination that the contractor's damages claim were neither contemplated by the parties nor foreseeable.
BEGL Construction Company, Inc. v. Los Angeles Unified School District, 154 Cal.App.4th 970 (Cal.App. August 29, 2007), depublished, 2007 Cal. LEXIS 13326 (Cal. Nov. 28, 2007). The Court affirmed a jury award to a wrongfully defaulted contractor for lost profits due to reduced bonding capacity, holding that admission of evidence of the project owner's knowledge of the industry custom that a contractor would not be bonded so long as a bonding dispute with its surety remained unresolved was proper.
Necessity that Surety Obligations Be in Writing
Unpublished Cases:
Division 8 Incorporated v. Travelers Casualty and Surety Company of America, 2007 Cal. App. Unpub. LEXIS 5249 (Cal.App. June 27, 2007). The Court of Appeal held that that, in a cause of action for breach of oral agreement brought against a surety, the claim was not a claim against the bond issued by the surety, and was therefore not subject to the requirement that a contract to answer for the debt of another must be in writing.
Constitutional Law
Schweitzer v. Westminster Investments, Inc. (2007) 157 Cal. App. 4th 1195. The Court of Appeal held that the bonding requirements of the California Home Equity Sales Contract Act (Cal. Civil Code § 1695.17) were unconstitutionally vague.
Refusal to Issue Bonds
Published Cases:
Aeroplate Corp. v. Arch Insurance Co., 2007 U.S. Dist. LEXIS 86207 (E.D.Cal. November 20, 2007). A bidder brought suit against a surety for intentional and negligent interference with economic advantage after the Government rejected the bidder's bid. The bid was rejected because the surety informed the Government that, because the bidder's bid and bid bond substantially exceeded the amount previously authorized by the surety, the surety would not write the payment and performance bonds. The district court granted the surety's summary judgment motion because the bidder failed to establish that the surety made any misrepresentation to the Government.
Indemnitor Liability
Published Cases:
Travelers Casualty and Surety Company of America v. J.K. Merz Construction, Inc., 2007 U.S. Dist. LEXIS 51331 (N.D.Cal. July 3, 2007). The district court granted the surety's motion to file a second amended complaint to add a claim to recover property fraudulently conveyed by the indemnitors to a family trust with the intent to hinder, delay or defraud creditors, including the surety.
American Manufacturers Mutual Insurance Co. v. Carothers Construction, Inc., 2007 U.S. Dist. LEXIS 57746 (E.D.Cal. August 8, 2007). The district court held that the surety had demonstrated, as a matter of law, the principal and indemnitors' liability under an indemnity agreement, and also established the principal's liability under Cal. Civil Code §2847. The court further held that the indemnity agreement gave the surety the right to settle claims, and that summary judgment was proper because no evidence had been presented to demonstrate that the surety had acted in bad faith.
[1] Unpublished California cases and Federal cases issued prior to January 1, 2007 are not precedent and generally may not be cited. CRC Rule 8.1115; 9th Cir. Rule 36-3.
Related Links