1

Filed 6/15/22 

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION FIVE

CITY OF LOS ANGELES 

DEPARTMENT OF AIRPORTS,

Cross-complainant and 

Respondent,

v.

U.S. SPECIALTY INSURANCE 

COMPANY,

Cross-defendant and Appellant.

 A162183

 (San Mateo County

 Super. Ct. No. CIV518872)

U.S. Specialty Insurance Company, a surety on a 

performance bond, appeals from the trial court’s denial of its

application for attorney fees in litigation involving a contract

dispute with the City of Los Angeles Department of Airports

(city). U.S. Specialty argues that, despite losing on contract

liability, it is entitled to fees as the prevailing party because the

jury awarded the city only nominal damages rather than the $3.4

million that the city sought. We conclude that the trial court had

discretion to find that neither party prevailed, and we affirm.

BACKGROUND

A.

John Russo Industrial Sheetmetal, Inc. contracted to build 

four airport firefighting trucks for the city. The contract provided 
2

that John Russo would pay the city’s attorney fees in the event of 

litigation involving the trucks. U.S. Specialty and John Russo 

executed a performance bond in which U.S. Specialty agreed to be 

liable to the city for any losses if John Russo failed to perform the 

contract. 

The city accepted and paid for two trucks, but it 

subsequently terminated the contract and refused to pay for the 

remaining two trucks before they were delivered. Alleging 

problems with the first two trucks and John Russo’s failure to 

timely deliver the other two, the city made a claim under the 

performance bond. Thereafter, the city sued John Russo for 

breach of contract and sought enforcement of the performance 

bond against John Russo and U.S. Specialty, demanding the 

return of the payments it had made for the first two trucks. John 

Russo likewise sued the city for breach of contract. The two suits 

were consolidated. 

After a jury trial, the city won judgments on all contract 

claims: the jury found in favor of the city and against John Russo 

on John Russo’s contract claims; in favor of the city and against 

John Russo on the city’s contract claim; and in favor of the city 

and against U.S. Specialty on the performance bond claim. The 

jury awarded the city $1.

B.

This is the fourth appeal involving fees or costs in this 

litigation. In the most recent appeal, a panel of this court 

reversed the trial court’s order denying the parties’ competing 

motions for attorney fees under the contract. (John Russo Indus. 

Sheetmetal v. City of L.A. Dep’t of Airports (April 23, 2019, 

A151597, A151682) [nonpub. opn.].) We held that the court 

misconstrued a provision of the contract to be an indemnification 

clause; we concluded instead that it was an attorney fee clause 
3

subject to Civil Code section 1717.1 We remanded the case for the 

trial court to determine whether the city, U.S. Specialty, or 

neither party prevailed on the contract.

On remand, both the city and U.S. Specialty sought fees, 

each asserting that it was the prevailing party. The trial court 

denied both applications, concluding that, in the circumstances 

here, neither party could claim victory.

DISCUSSION

The trial court acted within its discretion when it denied 

U.S. Specialty’s application for attorney fees. 

A.

When a contract includes an attorney fee provision, section 

1717 grants attorney fees to the prevailing party. (§ 1717, subd. 

(a).) Section 1717, subdivision (b)(1), defines the prevailing party 

as the one who wins greater relief in the contract action, but it 

also allows the trial court to decide that neither party prevailed. 

(Hsu v. Abbara (1995) 9 Cal.4th 863, 865 (Hsu); see also 

DisputeSuite.com, LLC v. Scoreinc.com (2017) 2 Cal.5th 968, 973 

(DisputeSuite.com).) If one party has obtained an unqualified 

victory on the only contract claim in the action, the court must 

grant fees to that party. (Hsu, supra, at pp. 875-876.) Here, U.S. 

Specialty did not win an unqualified victory, having lost on the 

contract claims. 

When the results are mixed, the court generally has 

discretion to decline to award fees to either party. (Hsu, supra, 9 

Cal.4th at pp. 875-876 & fn. 10.) A determination that no party 

has prevailed typically occurs in cases in which both parties can 

claim some success in the litigation, such as when the plaintiff 

wins only part of the relief sought. (Id. at pp. 874-875; see, e.g., 

Olive v. General Nutrition Centers, Inc. (2018) 30 Cal.App.5th 

1 Undesignated statutory references are to the Civil Code. 
4

804, 830 [upholding determination that neither party prevailed 

where the plaintiff sought over $500 million but received $1.1 

million]; Harris v. Rojas (2021) 66 Cal.App.5th 817, 824 

[upholding determination that neither party prevailed where 

plaintiff recovered about 3 percent of its demand].)

To determine whether there is a prevailing party for 

purposes of section 1717, the court must compare the relative 

success of each party in achieving its litigation objectives, as 

shown in the parties’ pleadings, trial briefs, and similar sources. 

(Hsu, supra, 9 Cal.4th at p. 876; DisputeSuite.com, supra, 2 

Cal.5th at p. 974.) This is necessarily a fact-driven inquiry that 

requires courts to consider the unique circumstances of each case. 

(See Marina Pacifica Homeowners Assn. v. Southern California

Financial Corp. (2018) 20 Cal.App.5th 191, 207.) The court may 

also weigh equitable considerations when exercising its 

discretion. (Hsu, supra, at p. 877.)

Here, the trial court found that U.S. Specialty had three 

litigation objectives: it sought to establish that (1) the city 

breached the contract, (2) John Russo did not breach the contract, 

and (3) U.S. Specialty had no liability to the city for damages. 

These findings are supported by substantial evidence. In its 

answer and its trial brief (filed jointly with John Russo), U.S. 

Specialty asserted that the city breached the contract by failing 

to make payments to John Russo, by interfering with John 

Russo’s performance, and by wrongfully terminating the contract. 

U.S. Specialty denied that John Russo breached the contract. It 

asserted that the city’s claims were meritless, judgment should 

be entered in John Russo’s favor on all claims, and the city 

should “take[] nothing.” The fact that these contentions are 

essentially defensive in nature, rather than affirmative claims for 

relief, does not matter—they are still contentions for purposes of 

determining whether U.S. Specialty achieved its objectives. (See 
5

Marina Pacifica Homeowners Assn. v. Southern California 

Financial Corp., supra, 20 Cal.App.5th at p. 206.) 

On the other side of the ledger, the city aimed to prove that 

(1) John Russo—not the city—breached the contract, (2) the city 

properly terminated the contract, and (3) John Russo and U.S. 

Specialty owed the city approximately $3.4 million in damages. 

In comparing the parties’ relative success, the trial court 

reasonably concluded that they fought to a draw. U.S. Specialty 

lost on its arguments that the city breached the contract, lost on 

its arguments that John Russo did not breach, and technically 

lost on damages although not to a meaningful degree. The city 

obtained a pyrrhic victory: it won a judgment on liability and 

avoided a loss, but it received only nominal damages. The 

outcome was mixed. The trial court’s conclusion is well within 

the bounds of reason. 

B.

U.S. Specialty’s arguments mostly turn on the notion that, 

from its perspective as a surety, the losses on liability were 

unimportant: it won a ringing victory by limiting the city to 

nominal damages. As a surety, U.S. Specialty issued a 

performance bond making it jointly and severally liable for 

damages caused by John Russo’s failure to perform. (See 

§§ 2808, 2809, 2810; Cates Construction, Inc. v. Talbot Partners

(1999) 21 Cal.4th 28, 47-48.) U.S. Specialty asserted no 

affirmative claims for damages against the city. It only stood to 

lose money. U.S. Specialty thus considers this case to be a 

lopsided win: it defeated a $3.4 million dollar claim on the 

performance bond, and the city won essentially nothing. 

U.S. Specialty is correct that it may be an abuse of 

discretion to deny attorney fees to a party that won a lopsided 

victory. In de la Cuesta v. Benham (2011) 193 Cal.App.4th 1287 

(de la Cuesta), for example, the plaintiff landlord won 
6

repossession of the premises and 70 percent of the damages he 

sought; in comparison, the defendant tenant lost on nearly every 

issue: she asserted she owed the landlord nothing but ended up 

with a $70,000 adverse judgment and had to vacate the premises. 

(Ibid.) The trial court denied the landlord’s request for attorney 

fees. After considering the parties’ objectives, the results, and 

the equities, the court of appeal held that the trial court abused 

its discretion; the landlord clearly prevailed. (Id. at pp. 1295-

1299; see also Silver Creek, LLC v. BlackRock Realty Advisors,

Inc. (2009) 173 Cal.App.4th 1533, 1540.) 

We have no quarrel with de la Cuesta. But, as de la Cuesta 

states, the question is: “How lopsided must the results be before 

it is an abuse of discretion not to acknowledge that one party has 

clearly prevailed?” (de la Cuesta, supra, 193 Cal.App.4th at pp. 

1295-1296.) The Legislature granted courts discretion under 

section 1717 specifically to account for the facts and 

circumstances of each case. (Id. at p. 1296.) This is consistent 

with Hsu, in which our Supreme Court held trial courts must 

exercise their discretion to determine whether either party 

prevailed only after examining the parties’ pleadings, 

determining their litigation objectives, comparing the relief 

awarded, and considering any relevant equitable factors. (Hsu, 

supra, 9 Cal.4th at pp. 876-877.)

The trial court properly did so here. Although U.S. 

Specialty now insists that the city’s $3.4 million damages demand 

was “the only claim that mattered,” the trial court reasonably 

concluded otherwise. It correctly observed that U.S. Specialty 

was joined at the hip with John Russo on both the breach and the 

damages issues. A surety’s liability is commensurate with that of 

its principal, and it is entitled to assert all the principal’s 

defenses and set-offs. (See §§ 2808, 2809, 2810; Cadle Co. v.

World Wide Hospitality Furniture, Inc. (2006) 144 Cal.App.4th 

504, 514 & fn. 7.) Had John Russo and U.S. Specialty won on 
7

their breach contentions, U.S. Specialty would have had no

liability on the performance bond. (See Mepco Services, Inc. v. 

Saddleback Valley Unified School Dist. (2010) 189 Cal.App.4th 

1027, 1048-1049.) Had they won on John Russo’s breach claim, 

but lost on the city’s claim, any damage award to John Russo 

would have set-off or eliminated a damage award to the city. 

Accordingly, U.S. Specialty and John Russo were represented by 

the same counsel at trial, submitted a joint trial brief, and agreed 

to joint jury instructions rendering U.S. Specialty liable if John 

Russo was found liable. U.S. Specialty’s decision to litigate in 

lockstep with John Russo made sense, but it also supports the 

trial court’s conclusion that, for both of them, success on the 

breach claims was an important objective. We reject U.S. 

Specialty’s argument that the court was required to focus 

narrowly on the nominal damage award and to discount its losses 

on breach.

The trial court’s conclusion is consistent with equitable and 

policy considerations. (See Hsu, supra, 9 Cal.4th at p. 877; 

International Industries, Inc. v. Olen (1978) 21 Cal.3d 218, 223.) 

The city was largely vindicated in the litigation. It terminated 

the contract because it believed that John Russo had breached 

the agreement. The city then brought a lawsuit and won a jury 

verdict confirming that, in fact, John Russo was at fault and the 

city was not. It is true that the city greatly overestimated its 

damages, but this was a complicated case, as performance bond 

disputes often are. (See Cates Construction, Inc. v. Talbot

Partners, supra, 21 Cal.4th at p. 58.) As a matter of equity and 

public policy, we see no reason why the innocent party (the city) 

should be required to compensate either the guilty party (John 

Russo) or its surety (U.S. Specialty) for their attorney fees. (See 

Rowe, The Legal Theory of Attorney Fee Shifting: A Critical

Overview (1982) Duke L.J. 651, 653-654, 656-658.) 
8

Finally, we reject U.S. Specialty’s argument that the result 

here would preclude a defendant from recovering attorney fees 

unless it wins on all breach claims and avoids even nominal 

damages. We simply hold that, on the facts in this case, a fee 

award was discretionary, not mandatory, and the trial court did 

not abuse its discretion. (See Hsu, supra, 9 Cal.4th at p. 875, fn. 

10.)

We have considered U.S. Specialty’s remaining arguments 

and find them unpersuasive.

DISPOSITION

The trial court’s order denying attorney fees is affirmed.
9

______________________

BURNS, J. 

We concur:

____________________________

JACKSON, P.J.

____________________________

NEEDHAM, J.*

A162183

* Retired Associate Justice of the Court of Appeal, First 

Appellate District, assigned by the Chief Justice pursuant to 

article VI, section 6 of the California Constitution.
10

San Mateo County Superior Court No. CIV518872, Hon. Danny 

Y. Chou

Duane Morris LLP, Oliver L. Holmes, Paul J. Killion, Justin J. 

Fields, Christine C. Ross; SMTD Law LLP and Marilyn Klinger 

for Cross-defendant and Appellant. 

Morrison & Foerster, Michael F. Qian, Arturo J. González, 

William F. Tarantino, Derek F. Foran, James R. Sigel, for Crosscomplainant and Respondent.