Filed 11/17/23 Nichols v. North American Specialty Ins. Co. CA2/2

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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION TWO

F. GLENN NICHOLS,

Plaintiff and Appellant,

v.

NORTH AMERICAN 

SPECIALTY INSURANCE 

COMPANY,

Defendant and 

Respondent.

 B329206

 (Los Angeles County

 Super. Ct. No. 

 20GDCV01059)

APPEAL from a judgment of the Superior Court of Los 

Angeles County, Margaret L. Oldendorf, Judge. Affirmed. 

F. Glenn Nichols, in pro. per., for Plaintiff and Appellant. 

Booth, Mitchel & Strange, Stacie L. Brandt and Craig E. 

Guenther for Defendant and Respondent.
2

* * * * * *

This appeal lies at the messy intersection of public 

construction law, surety law, and the law governing the priority 

of competing liens. Because there is no concise way to summarize 

the pertinent law or to state the question presented, it will suffice 

to say in this introduction that we affirm the trial court’s 

judgment for the surety in this case. What follows is our 

explanation of why.

FACTS AND PROCEDURAL BACKGROUND

I. The Parties and Their Relationships

A. The general contractor

Pickard & Butters Construction, Inc. (PBC) is a general 

contractor that coordinates and oversees public works projects as 

well as privately funded projects.1 At all times pertinent to this 

appeal, PBC’s president was Mark Butters (Butters).

B. The attorney

F. Glenn Nichols (Nichols) is an attorney. PBC retained 

Nichols as its attorney pursuant to a retainer agreement 

executed on January 31, 2012. In that agreement, PBC 

“consent[ed]” to Nichols “having a lien on any cause of action . . . , 

and on the proceeds thereof, including . . . on any recovery, 

monies or property, obtained by settlement, judgment or 

otherwise, in satisfaction . . . of any claim [PBC] may have 

against others, in any matter in which [PBC has] retained 

1 Although the statutes governing public works projects use 

the phrase “direct contractor” to describe the entity who contracts 

with a government entity (Civ. Code, § 8018), we will use the 

phrase “general contractor” for simplicity’s sake.

All further statutory references are to the Civil Code unless 

otherwise indicated. 
3

[Nichols], for purposes of satisfying” any fees or costs PBC owes 

Nichols.

According to a settlement between PBC and Nichols, PBC 

owed Nichols $1,499,661.58 as of November 3, 2020.2 Without 

any support in the record, Nichols estimates that the amount of 

his fees now totals over $2 million. 

C. The surety

North American Specialty Insurance Company (North 

American) is a licensed surety company.3

PBC entered into two agreements with North American. 

First, PBC paid North American to issue “payment bonds” for 

projects for which PBC was serving as the general contractor. 

These payment bonds obligated North American to pay any 

subcontractors, materialmen, laborers, and the like (collectively, 

subcontractors) on the projects should they make a claim for 

payment against PBC. As discussed below, California law 

requires general contractors to obtain a payment bond as a 

condition of being awarded any public works contract. (§§ 9550, 

9552, 9554.) Second, PBC and North American signed an 

indemnity agreement on October 9, 2013. This agreement 

obligated PBC to indemnify North American for any amounts 

2 It appears that Nichols did not comply with rule 1.8.1 of the 

Rules of Professional Conduct in obtaining his attorney lien 

against PBC because the retainer agreement nowhere advises 

PBC of the right to seek advice from independent counsel; 

however, because the stipulation impliedly recognizes the validity 

of the attorney lien, we will not wade into that morass. 

3 In the midst of this case, North American changed its 

corporate name to Swiss Re Corporate Solutions America 

Insurance Corporation.
4

that North American paid to subcontractors on the projects to 

satisfy those subcontractors’ outstanding claims. The agreement 

also entitled North American to intervene and control any 

litigation initiated by PBC as PBC’s “attorney in fact.”

II. The Construction Projects

Between 2013 and 2014, PBC was hired as the general 

contractor to coordinate and oversee five projects pertinent to this 

appeal, and North American issued a payment bond for each of 

these projects, as follows:

Project Project Owner Amount of 

Payment 

Bond

12 Acre Buttonwillow 

Park Project

Buttonwillow Recreation 

and Parks District

$913,921.40

Watsonville Health 

Center Expansion 

Project

County of Santa Cruz $1,525,000

Orradre Building 

Modernization

Salinas Valley Fair, Inc. $1,285,582

Live Oak Camp 

Comfort Station

County of Santa Barbara $722,000

Tank Replacement 

Project

Colonial Oak Water 

Company

$324,390

III. North American Pays Subcontractors

After not being paid what they were owed by PBC, various 

subcontractors on the five projects either (1) brought claims 

against the payment bonds; or (2) sent “stop payment notices,” 

which, as discussed below, are notices that inform the project 

owner that the subcontractors have not been paid and which 
5

statutorily prohibit the project owner from paying the general 

contractor until those amounts are paid. 

Pursuant to the terms of the payment bonds, North 

American paid off the subcontractors on the five projects at issue 

in the following amounts:

Project Project Owner Amount North

American Paid 

to 

Subcontractors

12 Acre Buttonwillow 

Park Project

Buttonwillow 

Recreation and 

Parks District

$14,237.08

Watsonville Health 

Center Expansion

Project

County of Santa 

Cruz 

$605,371.30

Orradre Building 

Modernization

Salinas Valley Fair, 

Inc.

$363,226.55

Live Oak Camp 

Comfort Station

County of Santa 

Barbara 

$27,022.48

Tank Replacement 

Project

Colonial Oak Water 

Company

$27,815.40

Once North American paid the subcontractors, their claims 

against the payment bond were resolved and their stop payment 

notices were dissolved. Thereafter, and after the close of the 

period for filing payment bond enforcement actions following the 

recordation of notices of completion on the projects, PBC could 

move forward with collecting the proceeds it was owed for the 

projects. 
6

IV. PBC’s Actions to Collect From the Project Owners

A. Filing of five lawsuits

PBC sued all five project owners for breach of contract and 

to recover unpaid project proceeds. 

Nichols represented PBC in these lawsuits.

B. Intervention by North American in three of the 

lawsuits

North American learned of three of the lawsuits—namely, 

the lawsuits against Buttonwillow Recreation and Parks District, 

the County of Santa Cruz, and Salinas Valley Fair, Inc. North 

American then exercised its rights under the indemnity 

agreement to act as PBC’s attorney-in-fact and control each 

lawsuit on PBC’s behalf. North American invited PBC to 

continue as a direct participant in settling at least some of the 

lawsuits, but PBC declined. Ultimately, North American “as 

PBC” settled the three lawsuits for the following amounts:

Project Project Owner Settlement

Amount

12 Acre 

Buttonwillow Park

Project

Buttonwillow 

Recreation and 

Parks District

$50,000, plus 

assignment of 

$27,556.53 

judgment on 

deposit with Kern 

County Superior 

Court

Watsonville Health 

Center Expansion

Project

County of Santa 

Cruz 

$650,000

Orradre Building 

Modernization

Salinas Valley Fair, 

Inc.

$322,610
7

North American retained the entirety of the settlement

funds. 

C. Amounts recovered in other two lawsuits

PBC prosecuted the remaining two lawsuits—namely, 

those against the County of Santa Barbara and Colonial Oak 

Water Company—without North American’s intervention; 

indeed, North American did not know that PBC had filed suit 

against Colonial Oak Water Company until two years after 

judgment was entered for PBC in that lawsuit. Ultimately, PBC 

recovered the following amounts:

Project Project Owner Amount 

Recovered

Live Oak Camp 

Comfort Station

County of Santa Barbara $30,000

Tank Replacement 

Project

Colonial Oak Water 

Company

$140,000

North American did not collect any portion of these 

amounts. 

V. Amounts Collected by Nichols

Nichols collected fees from the proceeds of the two lawsuits 

that PBC itself prosecuted to completion—namely, he collected 

$7,000 from the $30,000 recovered against the County of Santa 

Barbara, and $62,152.45 from the $140,000 recovered against 

Colonial Oak Water Company.

VI. The Current Lawsuit

On December 7, 2020, Nichols sued PBC and North 

American for (1) declaratory relief, and (2) conversion.

Specifically, Nichols sought a declaration that he was entitled to 

place his attorney lien on the proceeds of the three lawsuits 

North American had settled against the project owners on PBC’s 
8

behalf because his lien had priority over North American’s 

entitlement to recoupment of what it paid to the subcontractors 

pursuant to the payment bonds. Relatedly, Nichols sought a 

finding that North American had wrongfully converted those 

proceeds.

North American filed reciprocal cross-claims for (1) 

declaratory relief, and (2) conversion. In a complaint that largely 

mirrored Nichols’s, North American sought a declaration that its 

claims had priority over Nichols’s attorney lien and that Nichols

had wrongfully converted the $7,000 he collected from the Santa 

Barbara County proceeds and $27,815.40 of the $62,152.45 he 

collected from the Colonial Oak Water Company proceeds.

The matter proceeded to a six-day bench trial.

The trial court issued a 30-page statement of decision

prepared entirely by North American. In that decision, the court 

denied Nichols all relief. It issued declarations recognizing North 

American’s rights to the proceeds and also awarded North 

American $34,815.40 on its conversion claims.

VII. This Appeal

Following the entry of judgment, Nichols timely filed this 

appeal.

DISCUSSION

We begin by commenting on the substandard briefing in 

this case. Nichols’s briefs are incomprehensible to a reader who 

has not already mastered the 2,000-page record and who is not 

already intimately familiar with the three complex areas of law 

at issue here; his briefs provide no overview of the pertinent 

areas of law and nowhere cite the statutes and precedent 

fundamental to those areas; and his briefs make assertions that 

are found nowhere in the written record, and there is no 
9

transcript of the six-day trial. The net effect is to leave us 

playing “Where’s Waldo?” with the facts and the law. North 

American’s brief is equally unhelpful. Rather than specifically 

respond to the arguments Nichols actually raises, North 

American’s brief consists chiefly of block quotations from the trial 

court’s decision, a decision that North American drafted and the 

trial court adopted without modification. This approach to 

advocacy—citing one’s self over and over—may be convenient for 

North American, but is utterly useless to us because it makes no 

effort to translate into plain language—let alone respond to—

Nichols’s arguments.

Notwithstanding these shortcomings, we are nevertheless 

able to discern that the correctness of the trial court’s judgment 

on both sets of competing declaratory relief and conversion claims 

boils down to whether Nichols is entitled to enforce his lien for 

attorney fees on the full amount of proceeds recovered in the 

lawsuits against the project owners, or instead is limited to the 

amount left over after North American deducted what PBC owes 

it for resolving the claims of PBC’s subcontractors. At bottom, 

this turns on the priority of a surety’s claims vis-à-vis the priority

of an attorney lien. Priority is a legal question that we 

independently examine. (Pou Chen Corp. v. MTS Products (2010) 

183 Cal.App.4th 188, 192 (Pou Chen) [“The relative priority of the 

parties’ claims is a legal issue that we review de novo”]; accord, 

Martinez v. Brownco Construction Co. (2013) 56 Cal.4th 1014, 

1018 [where the “issue involves the application of law to 

undisputed facts, we review the matter de novo”]; Boling v. 

Public Employment Relations Bd. (2018) 5 Cal.5th 898, 912 

[same].)
10

I. Governing Law

A. Law of public works projects4 and equitable 

subrogation

Under California law, a general contractor may begin work 

on an awarded public construction contract only if it first obtains 

a payment bond.5 (§§ 9550, 9552, 9554; Washington Internat. Ins. 

Co. v. Superior Court (1998) 62 Cal.App.4th 981, 986 

(Washington); see generally § 8038 [defining “public works 

contract”].) Payment bonds are issued by sureties. (See 

generally § 2787 [defining “surety” as “one who promises to 

answer for the debt, default, or miscarriage of another . . .”].) In 

exchange for receiving a premium paid by the general contractor, 

the surety issues the payment bond and thereby promises to pay 

any amounts the general contractor has failed to pay its 

subcontractors. (§ 9554; Washington, at pp. 986-987; First 

National Ins. Co. v. Cam Painting, Inc. (2009) 173 Cal.App.4th 

4 Although the Orradre Building Modernization project was 

a private project contracted by a private project owner (Salinas 

Valley Fair, Inc.), the parties do not dispute that the law 

governing private works of improvement is, as pertinent to this 

case, largely similar. (See, e.g., §§ 8600 & 8606 [payment bonds 

for private works of improvement], 8522 [stop payment notice].)

5 California law also requires general contractors to obtain a 

performance bond (Pub. Contract Code, § 10224), which protects

the project owner by obligating the surety to step into the general 

contractor’s shoes and complete the project should the general 

contractor default. (JMR Construction Corp. v. Environmental 

Assessment & Remediation Management, Inc. (2015) 243 

Cal.App.4th 571, 594.) Although North American issued 

performance bonds as to all five projects involved in this 

litigation, those bonds are not at issue in this appeal.
11

1355, 1364-1365.) Payment bonds are critical in public works 

contracts because the usual mechanism for subcontractors to use 

in securing payment for services rendered to a general 

contractor—namely, the mechanic’s lien—is unavailable against 

public property. (Washington, at p. 986; Pacific Employers Ins. 

Co. v. State (1970) 3 Cal.3d 573, 576.) A subcontractor who is 

owed money by the general contractor has three options when a 

payment bond is in place—namely, the subcontractor can (1) 

assert a claim against the payment bond (§ 9560); (2) sue the 

general contractor and surety on the payment bond (§§ 9452, 

9558); or (3) serve a stop payment notice on the project owner (§§ 

9300, 9354, 8044), which obligates the project owner to withhold 

from its payments to the general contractor the amount due to the 

subcontractor (§§ 9358, 8522). (See also §§ 8004, 9100, 9564 

[options not mutually exclusive].) No matter which route the 

subcontractor takes, the surety is obligated under the payment 

bond and empowered by statute to pay the subcontractor’s valid 

claim(s) for payment. (Accord, § 9364 [surety may issue a release 

bond to the project owner that lifts the restrictions imposed by 

the stop payment notice].) 

Once a surety pays a subcontractor’s outstanding claim, the 

surety has two possible avenues by which it can seek 

reimbursement from the general contractor for that payment. 

First and foremost, the surety is generally deemed—by virtue of 

the doctrine of “equitable subrogation”—to stand in the shoes of 

the subcontractor and thereby avail itself of any remedy 

originally available to the subcontractor, including suing the 

general contractor for the amounts the surety paid on the general 

contractor’s behalf. (Golden Eagle Ins. Co. v. First Nationwide 

Financial Corp. (1994) 26 Cal.App.4th 160, 167-169; Leatherby 
12

Ins. Co. v. City of Tustin (1977) 76 Cal.App.3d 678, 685, 689; 

Merner Lumber Co. v. Brown (1933) 218 Cal. 136, 140; American 

Fidelity Fire Ins. Co. v. United States (N.D.Cal. 1974) 385 

F.Supp. 1075, 1077-1078.) As its name suggests, equitable

subrogation will not be applied to a surety if doing so will “‘“work 

any injustice to the rights of others”’”—in other words, if doing so 

would be inequitable. (Golden Eagle, at p. 169.) Second, a surety 

that has entered into an indemnity contract with the general 

contractor can sue to have the general contractor indemnify it for 

the amounts the surety paid. (Top Cat Productions, Inc. v. 

Michael’s Los Feliz (2002) 102 Cal.App.4th 474, 478 [“the surety’s 

indemnity rights are limited to those it obtained by contract”]; 

Washington, supra, 62 Cal.App.4th at p. 989; Airlines Reporting 

Corp. v. United States Fidelity & Guaranty Co. (1995) 31 

Cal.App.4th 1458, 1464 [“a surety . . . is entitled to 

reimbursement by its principal”].)

B. Law of attorney liens

An attorney lien (or “charging lien”) is a lien that empowers 

an attorney to collect his unpaid fees and costs from the “proceeds 

of a prospective judgment” in his client’s favor. (Waltrip v. 

Kimberlin (2008) 164 Cal.App.4th 517, 525 (Waltrip); Cetenko v. 

United California Bank (1982) 30 Cal.3d 528, 531 (Cetenko).) An 

attorney lien may be created expressly through a contract like a 

retainer agreement, in which case the language of the contact 

governs its scope.6 (Cetenko, at p. 531; Bartlett v. Pacific 

National Bank (1952) 110 Cal.App.2d 683, 689 [turning to 

contractual language to determine whether lien created].) 

6 Attorney liens will also sometimes be implied from the 

contract language. (Cetenko, supra, 30 Cal.3d at p. 531.)
13

As a general rule, an express attorney lien takes effect on 

the date it is created by contract (Cetenko, supra, 30 Cal.3d at pp. 

531, 534; Waltrip, supra, 164 Cal.App.4th at p. 525), and has 

priority over any later-created encumbrances on the proceeds of 

any prospective judgment to which the lien attaches (§ 2897; 

Cetenko, at pp. 534-536; Pangborn Plumbing Corp. v. Carruthers 

& Skiffington (2002) 97 Cal.App.4th 1039, 1049-1050 (Pangborn); 

accord, Bluxome Street Associates v. Fireman’s Fund Ins. Co. 

(1988) 206 Cal.App.3d 1149, 1155 [attorney lien has priority over 

a later-created attachment to potential recovery]; Cetenko, at p. 

534 [same, as to later-created judgment against client]; Brienza v. 

Tepper (1995) 35 Cal.App.4th 1839, 1848-1849 (Brienza) [same, 

as to offset from later-created judgment].) This general rule

applies whether or not the later-created encumbrancers had 

notice of the earlier attorney lien. (Cetenko, at p. 533; Waltrip, at 

p. 525.)

But “[a]n attorney lien does not always have priority over 

other liens.” (Waltrip, supra, 164 Cal.App.4th at p. 526.) Two 

exceptions to the general, “first-in-time” rule are pertinent to this 

appeal.

First, an earlier-created attorney lien is “‘subordinate to 

the rights’” of an adverse party to “‘offset judgments in the same 

action or in actions based upon the same transaction.’” (Brienza, 

supra, 35 Cal.App.4th at p. 1849; Pou Chen, supra, 183 

Cal.App.4th at pp. 193-194 [“the right to offset competing 

judgments obtained in the same action is superior to an 

attorney’s lien”].) 

Second, an earlier-created attorney lien may be 

subordinated to later-created encumbrances if “[e]quitable 

considerations and public policy” favor a different priority. 
14

(Waltrip, supra, 164 Cal.App.4th at pp. 525-527; Pangborn, 

supra, 97 Cal.App.4th at p. 1054 [also so noting]; Brienza, supra, 

35 Cal.App.4th at pp. 1847-1848 [noting, as to the “equities”]; 

Cetenko, supra, 30 Cal.3d at pp. 535-536 [noting, as to “public 

policy”].) This flexibility makes sense because an attorney lien is 

“equitable in nature.” (Brienza, at p. 1847.)

II. Analysis

With all of this background in mind, the question then 

becomes: As between a surety who (due to equitable subrogation) 

is standing in the shoes of subcontractors whose claims against 

the general contractor the surety paid off, and an attorney with 

an earlier-created lien, which party—the subrogated surety or 

the attorney—has priority to the proceeds the general contractor 

recovers in a judgment from a project owner?

We answer this question by looking first at how to answer 

it in a scenario where the answer is clear, and by next examining 

whether either of the two ways in which this case is different 

from that scenario dictates a different answer.

We start with what we view as the scenario where the 

answer to the priority question is clear. Imagine that, contrary to 

the applicable law discussed above, a public works project can be 

completed and the proceeds released to the general contractor 

even if the general contractor still owes payment to 

subcontractors on the project. With this proviso, assume the 

following scenario: The general contractor has sued the project 

owner for payment; the subcontractors have intervened in that 

lawsuit to collect their unpaid claims against the general 

contractor; the surety pays off the subcontractors; the surety, by 

virtue of the doctrine of equitable subrogation, now stands in the 

shoes of the subcontractors as a litigant in the general 
15

contractor’s lawsuit against the project owner; and the general 

contractor has granted a lien to its attorney in a retainer 

agreement that predates all of these events.

In this scenario, the surety would be entitled to priority 

over the attorney to the proceeds recovered from the project 

owner. To be sure, the attorney lien is “first in time” and thus 

entitled to priority under the general rule. (§ 2897.) But each of 

the two pertinent exceptions to that general rule that are noted 

above apply in this scenario. 

First, an earlier-created attorney lien will be “subordinate” 

to the rights of an adverse party who is seeking to offset amounts 

it is owed “in the same action” or “‘“in actions based upon the 

same transaction.”’” (Pou Chen, supra, 183 Cal.App.4th at pp. 

193-194; Brienza, supra, 35 Cal.App.4th at p. 1849.) Here, the 

surety—as a now-subrogated proxy for the subcontractors—is an 

adverse party who is seeking to offset the amount it is owed in 

that same action, and that also happens to arise from the same 

general transaction (namely, the public works project). Thus, the 

surety’s rights fall within this exception and have priority. Not 

surprisingly, this result dovetails neatly with the result dictated 

by the language of the attorney lien itself. The amount of money 

the general contractor owes to the subcontractors reduces the 

amount of money the general contractor will be permitted to keep 

from the project owner in the lawsuit; in other words, the amount 

due to the subcontractors will offset the amount the general 

contractor receives from the project owner, thereby reducing the 

net “proceeds” the general contractor will receive in the litigation. 

Put more simply, the debt to the surety shrinks the pot of money 

the general contractor obtains from the litigation. Because the 

pot of money the general contractor obtains from litigation is 
16

what constitutes the “proceeds” from that litigation, and because 

the attorney lien attaches only to the client’s “proceeds,” the 

attorney lien does not attach to the amount the general 

contractor owes the surety. In other words, the debt to the 

surety, in effect, has priority over the attorney lien.

Second, and independently, an earlier-created attorney lien 

does not have priority over a later-created encumbrance if equity 

and public policy dictate that the competing encumbrance has

priority. (Waltrip, supra, 164 Cal.App.4th at pp. 525-527; 

Pangborn, supra, 97 Cal.App.4th at p. 1054 [also so noting].) 

Here, they do. When it comes to equitable considerations, the 

priority accorded to attorney liens in the proceeds of litigation 

rests chiefly on the notion that the attorney has helped bring 

those proceeds into being, such that the attorney—in all fairness 

and equity—deserves to get a piece of the pie he helped bake. 

(Waltrip, at p. 526 [“It is the attorney’s labor, skill and materials, 

and his willingness to take the risk of no recovery, that results in 

the judgment or settlement paid to the debtor”].) To not give the 

attorney a piece of that pie would be inequitable. (Ibid.; Haupt v. 

Charlie’s Kosher Market (1941) 17 Cal.2d 843, 845; Pangborn, at 

p. 1054.) In the above-described scenario, however, it is the 

surety—not the attorney—who is most responsible for bringing 

the “pie” into being: If the surety had not paid off the 

outstanding claims of the subcontractors, the project may well 

never have been completed, and the general contractor would not 

be entitled to the proceeds it is seeking from the project owner. 

Indeed, in the absence of the proviso to the scenario, the law 

provides that a surety must pay off subcontractors before the 

general contractor can access the pie. When it comes to public 

policy considerations, the priority accorded to attorney liens in 
17

the proceeds of litigation serves the public policy of ensuring that 

attorneys will be willing to represent parties with meritorious 

claims but an inability to pay fees because it guarantees 

attorneys a bite at the proceeds pie before anyone else. (Cetenko,

supra, 30 Cal.3d at pp. 535-536.) In the above-described scenario, 

however, prioritizing the surety’s right to recover the outstanding 

claims it paid to the subcontractors on behalf of the general 

contractor serves the public policy of ensuring that sureties will 

be willing to issue payment bonds. If there is no protection for 

sureties to collect what they have paid out pursuant to a payment 

bond, there will be no payment bonds, no public works projects 

(because, as noted above, they must be supported by payment 

bonds), and hence no proceeds to a general contractor against 

which an attorney can assert a lien. Our Legislature has made it 

clear that this scenario is to be avoided at all costs when it 

declared that stop payment notices—which often prompt sureties 

to pay off subcontractors and hence step into their shoes—“take[] 

priority over” any other assignment a general contractor makes 

“pursuant to a public works contract.” (§ 9456, subd. (a).) Thus, 

as between those competing public policies of ensuring a supply 

of attorneys or a supply of sureties willing to issue payment 

bonds, protecting the latter seems to be the more compelling 

public policy—and one that justifies according priority to the 

debts owed to subrogated sureties.

Of course, the facts of this case differ from the scenario we 

have just discussed in two ways. Do either of these two 

“wrinkles” counsel in favor of a different answer? We conclude 

the answer is “no.”

The first wrinkle is that the surety in this case, through the 

exercise of its power under the indemnity agreement as an 
18

attorney-in-fact for PBC, also stepped into PBC’s shoes in three of 

PBC’s lawsuits against the project owners. Thus, North 

American settled all three lawsuits “as PBC,” and from those 

proceeds paid itself the debts PBC owed it “as the 

subcontractors.” Does this affect our analysis of priority? It does 

not, because the equities and public policy considerations 

dictating priority to the surety still apply with equal force.

The second wrinkle is that the subcontractors in this case 

did not intervene in any of PBC’s lawsuits against the project 

owners, so North American—as the subrogated surety—never 

stepped into the shoes of an adverse party during the pendency of 

any of those lawsuits. Does this additional wrinkle affect our 

analysis of priority? It does not. Instead of the surety asserting 

its priority to the proceeds before they are calculated in the 

lawsuit against the project owner (that is, by asserting its 

subrogated rights to payment from the general contractor within 

the general contractor’s very own lawsuit against the project 

owner), the surety is asserting its priority to the proceeds after 

they are calculated in the lawsuit against the project owner (that 

is, by keeping the proceeds of the settlement it reached “as PBC,” 

effectively asserting its subrogated rights to payment from the 

general contractor after the general contractor has settled its 

lawsuit against the project owner). But this does not affect the 

applicability of either pertinent exception to the general rule 

favoring the priority of earlier created attorney liens. Although 

North American is not an “adverse party” “in the same action,” it 

is effectively asserting its priority in a different action “based on 

the same transaction” (that is, the public works projects at issue 

here). Further, and independently, whether North American 

asserts its rights before or after the proceeds to PBC are 
19

calculated has no impact whatsoever on the balance of equities 

and public policy. 

III. Nichols’s Arguments

Nichols responds with what boils down to three arguments.

First, Nichols insists that his attorney lien is entitled to 

priority over North American’s claims against PBC because his 

lien was created “first in time.” Nichols is correct that his lien is 

entitled to priority under the general rule that looks to whether 

the attorney lien is first in time. But Nichols ignores that this 

rule has exceptions, and that one or both of those exceptions 

applies here, as explained above. 

Second, Nichols contends that we should hold off deciding 

whether he or North American has priority in light of a pending 

lawsuit in San Bernardino County, the first phase of which went 

to trial last month. In that lawsuit, North American has sued 

PBC for breach of the indemnity agreement, based in part on 

PBC’s failure to repay the amounts North American paid to the 

subcontractors. PBC has cross-claimed for breach of the 

agreement, alleging that North American (1) paid the 

subcontractors more than their claims were worth, and (2) settled 

PBC’s lawsuits against the project owners for less than they were 

worth. Nichols observes that the San Bernardino County 

Superior Court could ultimately find that North American acted 

wrongly in paying the subcontractors too much or in settling 

PBC’s lawsuits for too little. That is true, but irrelevant to this 

lawsuit. The thrust of this lawsuit—and the entirety of the 

competing declaratory relief claims—is the priority as between 

North American and Nichols; the amount of proceeds is 
20

secondary.7 (Cf. Arntz Contracting Co. v. St. Paul Fire & Marine 

Ins. Co. (1996) 47 Cal.App.4th 464, 485 [“bare allegation of surety 

bad faith, or other misdeeds” is insufficient “to defeat a surety’s 

right to be indemnified”].) Although the conversion claims turn 

more on the amounts paid, offsets may be made in the other case 

to account for the ruling in this case. This is why we also find 

nothing problematic about North American’s concession (in one of 

its trial court filings) that Nichols is entitled to collect his lien 

against $107,958.12 of the project proceeds; North American’s 

acknowledgement that there is some leftover pie after it collects 

what it paid the subcontractors does not affect North American’s 

priority. Perhaps most fundamentally, Nichols is the instigator 

and driving force of the lawsuit underlying this appeal—and has 

continued to press up through this appeal notwithstanding the 

ongoing San Bernardino case. Nichols has been keeping his foot 

on the proverbial gas pedal of this case, and even now, he has yet 

to lift his foot by asking for a stay; we will not throw up 

roadblocks just because he is unhappy with where the car is 

taking him.

Third and lastly, Nichols argues that the trial court erred 

in awarding North American damages on its conversion claims

because (1) those claims were untimely under the three-year 

statute of limitations for conversion (Code Civ. Proc, § 338, subd. 

(c)(1)), no exception to that limitations period applies, and 

Nichols’s 2016 conversion of proceeds from the County of Santa 

Barbara and 2019 conversion of proceeds from Colonial Oak 

Water Company occurred more than three years before North 

7 Thus, we reject Nichols’s argument that the trial court was 

prohibited from deciding priority at all because, in so doing, it 

must necessarily examine the amounts due.
21

American’s 2022 claim for conversion; and (2) even if there is an 

exception to this limitations period, North American was on 

notice that Butters had taken some of the Santa Barbara County 

proceeds based on an e-mail dated July 18, 2016. We reject both 

arguments. The first argument lacks merit because while the 

three-year limitations period for conversation begins to run from 

the date of the conversion, that three-year clock “is not absolute” 

and can be delayed where there has been fraudulent 

concealment; here, the trial court found that Nichols, an 

“attorney . . . experience[d] in construction law,” “knew that PBC 

had entered into an indemnity agreement” under which North 

American “expected to be reimbursed from” the project proceeds, 

yet Nichols never disclosed his possession of these proceeds until 

he was deposed in this case in January 2022. (Strasberg v. 

Odyssey Group, Inc. (1996) 51 Cal.App.4th 906, 916; see generally 

Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 807 

[claim does not accrue until plaintiff discovers, or has reason to 

discover, the cause of action].) The second argument lacks merit 

because notice that Butters obtained funds does not impart notice 

that Nichols obtained funds. They are two different people.

* * *

In light of our analysis, we have no occasion to reach the 

parties’ further arguments regarding whether Nichols’s 

representation of North American, without disclosing his 

attorney lien, in one short-lived action by a subcontractor 

constitutes a violation of the ethical rules and thereby renders 

Nichols’s attorney lien void. (See Rules Prof. Conduct, rule 1.8.1.) 
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DISPOSITION

The judgment is affirmed. North American is entitled to its 

costs on appeal. 

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.

______________________, J.

HOFFSTADT

We concur:

_________________________, P. J.

LUI

_________________________, J.

CHAVEZ