Filed 7/16/15 First American Title Ins. Co. v. Spanish Inn CA4/1

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for 

publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication 

or ordered published for purposes of rule 8.1115.

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

FIRST AMERICAN TITLE INSURANCE 

COMPANY,

Plaintiff and Respondent,

v.

SPANISH INN, INC. et al.,

Defendants and Appellants.

 D067137

 (Super. Ct. No. INC1104681)

APPEAL from a judgment of the Superior Court of Riverside County, John G. 

Evans, Judge. Affirmed.

Law Offices of Nejat Kohan, Inc., and Nejat Kohan, for Defendants and 

Appellants.

Law Offices of Hall & Bailey, John L. Bailey, Barbara M. Moore; and William D. 

Cloud for Plaintiff and Respondent.

This is one of many appeals arising from litigation over the renovation of a hotel 

property in Palm Springs. In this appeal, the project's developers challenge the trial 

court's grant of summary adjudication in favor of the title insurer, which sought 
2

contractual indemnity from the developers for legal expenses incurred in defending the 

project's construction lender against mechanic's lien foreclosure actions. The developers 

contend the trial court erred because triable issues of fact exist regarding whether the 

mechanic's lien claims were covered by the title policy and regarding the amount of the 

title insurer's damages. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

Defendants Spanish Inn, Inc. (Spanish Inn), Hormoz Ramy, and Nejat Kohan 

owned or otherwise held an interest in the Spanish Inn Hotel property in Palm Springs. 

In order to renovate and rehabilitate the property, Spanish Inn borrowed $6 million from 

Nara Bank under a written construction loan agreement. To secure the loan, Nara Bank 

recorded a construction deed of trust against the property. To protect its construction 

deed of trust, Nara Bank required that Spanish Inn procure a lender's title insurance 

policy to protect against loss resulting from mechanic's liens. First American Title 

Insurance Company (First American) issued the policy. Before it would do so, however, 

First American required that defendants agree to indemnify it if any mechanic's liens 

were recorded against the property due to the contractor's or the owners' failure to pay for 

work furnished to the project. Accordingly, defendants and First American entered into a 

written "Indemnity Agreement I (Mechanic's Liens)" (the Indemnity Agreement).

Major modifications to the project caused its budget to increase and timeline to 

expand. Nara Bank agreed to lend an additional $1.3 million to Spanish Inn, but required 

that Hormoz and Ramy also contribute an additional $300,000 to the project.
3

After Spanish Inn missed the completion deadline under the construction loan 

agreement, Nara Bank declared the loan to be in default. Kohan, who also served as the 

project's contractor, recorded a mechanic's lien against the property for $800,000. 

Subcontractor J.H. Thompson & Sons, Inc. (Thompson) also recorded a mechanic's lien 

against the property for approximately $85,000.

Nara Bank assigned its construction deed of trust to Pacifica L 39 LLC (Pacifica), 

which later purchased the property at a nonjudicial foreclosure sale. It is undisputed that 

Pacifica, as Nara Bank's successor, is an insured under the title policy.

Kohan and Thompson each filed lawsuits to foreclose on their mechanic's liens. 

Pacifica tendered those claims to First American, which accepted the tender. First 

American then retained counsel to defend against the foreclosure actions and to seek 

indemnity from defendants under the Indemnity Agreement. First American's counsel 

made a written demand under the Indemnity Agreement that defendants defend Pacifica 

against the mechanic's lien foreclosure actions, obtain releases of the mechanic's liens,

and indemnify First American for all costs and fees incurred in connection with the 

mechanic's liens. Defendants declined.

First American then sued defendants for express indemnity, breach of contract, 

and specific performance. It later moved for summary adjudication of the first two 

claims. First American sought damages of $250,876.53, which consisted of $207,119.58 

in costs and attorney fees incurred in defending against the mechanic's lien foreclosure 

actions and in seeking indemnity from defendants; $20,950 that First American paid to 

settle with Thompson; plus 10 percent interest on the total.
4

Defendants opposed the motion on two grounds. First, they argued that the claim 

arising from Kohan's mechanic's lien fell within an exclusion from coverage in the title 

policy for "liens . . . created, suffered, assumed or agreed to by the insured claimant"

(Exclusion 3(a)). Defendants asserted that Nara Bank, as the predecessor-in-interest to 

the insured claimant (Pacifica), "created" the mechanic's lien "by failing to provide the 

full loan amount it contracted to provide." This caused Spanish Inn to default on the 

loan, which, in turn, caused Kohan to record his mechanic's lien. Thus, defendants 

reasoned, Nara Bank created the mechanic's lien, which placed the lien squarely within 

Exclusion 3(a), which excused First American from defending against it, which, in turn, 

excused defendants from indemnifying First American. Second, defendants argued that 

triable issues of fact existed regarding the amount of First American's damages.

The trial court granted First American's motion. The court ruled that defendants 

had not presented admissible evidence sufficient to create a triable issue of fact regarding 

whether Kohan's mechanic's lien fell within Exclusion 3(a) because "the only evidence

offered by Defendants is the declaration of NEJAT KOHAN, which is a factual narrative 

of Defendants' dealing with Nara Bank and a legal conclusion that Nara Bank 

intentionally failed to disburse the funds for Defendants to pay for the completion of the 

work needed to obtain a certificate of occupancy by the specified date in order to cause

Defendants' default, and, that the declaration is argument and not based upon facts that 

show that Nara Bank's failure to disburse funds was wrongful."
5

The trial court also found that defendants had not raised a triable issue of fact 

regarding damages. First, the court found First American had submitted evidence to 

support the legal expense component of its claim, which shifted the burden to defendants 

to present evidence that created a triable issue of fact regarding the reasonableness of that 

component. The court found that defendants failed to satisfy this burden. Second, the 

court ruled that defendants' challenge to the reasonableness of the Thompson settlement 

amount "does not create a triable issue because the validity of the [Thompson] lien claim 

and the amount indisputably paid in settlement are not relevant to the issues on [First 

American]'s Motion." The court granted First American's motion to dismiss the 

remaining cause of action for specific performance and entered judgment in favor of First 

American.

Defendants timely appealed.

DISCUSSION

Defendants contend the trial court erred by granting summary adjudication of First 

American's claims because triable issues of fact existed regarding (1) whether Kohan's

mechanic's lien claim fell within Exclusion 3(a), and (2) the reasonableness of First 

American's damages.

A. Standard of Review

"On appeal from a ruling on a motion for summary judgment, the appellate court 

conducts its own independent review of the moving and opposition papers and applies the 

same standard as the trial court in determining whether the motion was properly granted. 

The appellate court is not bound by the trial court's stated reasons for its ruling on the 
6

motion, as the appellate court reviews only the ruling and not its rationale." (Bed, Bath & 

Beyond of La Jolla, Inc. v. La Jolla Village Square Venture Partners (1997) 52 

Cal.App.4th 867, 873.)

B. Indemnity Framework

Indemnity is " 'the obligation resting on one party to make good a loss or damage 

another party has incurred.' " (McCrary Construction Co. v. Metal Deck Specialists, Inc.

(2005) 133 Cal.App.4th 1528, 1536 (McCrary).) "Parties to a contract . . . may define 

therein their duties toward one another in the event of a third party claim against one or 

both arising out of their relationship." (Crawford v. Weather Shield Mfg. Inc. (2008) 44 

Cal.4th 541, 551.) In general, an indemnity agreement "is construed under the same rules 

as govern the interpretation of other contracts. Effect is to be given to the parties' mutual 

intent [citation], as ascertained from the contract's language if it is clear and explicit 

[citation]. Unless the parties have indicated a special meaning, the contract's words are to 

be understood in their ordinary and popular sense." (Id. at p. 552.) 

We review de novo the trial court's interpretation of the Indemnity Agreement 

" 'unless the interpretation turns upon the credibility of extrinsic evidence.' " (McCrary, 

supra, 133 Cal.App.4th at p. 1535.)

C. Analysis

In a contractual indemnity action in which the indemnitee settles the underlying 

liability without trial, "the indemnitee must prove that liability is covered by the contract, 

that liability existed, and the extent thereof." (Peter Culley & Assocs. v. Superior Court 

(1992) 10 Cal.App.4th 1484, 1497, 1498 (Culley).)
7

Defendants do not appear to contest that First American's indemnity claim "is 

covered by the contract" (Culley, supra, 10 Cal.App.4th at p. 1497); that is, that the 

nature of First American's claim is within the scope of those covered by the Indemnity 

Agreement.

The determination of whether "liability existed" (Culley, supra, 10 Cal.App.4th at 

p. 1497) depends on whether the lien claims tendered to First American were covered by 

the title policy. We conclude they were, though for a different reason than the trial court 

cited. That is, instead of interpreting Exclusion 3(a), we need only interpret the 

Indemnity Agreement. 

The Indemnity Agreement expressly gave First American the right to conclusively

determine coverage under the title policy:

"5.6 Determination of Coverage. Any determination of coverage by 

First American shall be conclusive evidence that the matter is within 

the Title Policy coverage as to the Mechanic Liens for purposes of 

this Agreement." 

First American determined that the tendered claims were covered by the title policy. 

Therefore, regardless of whether Exclusion 3(a) would otherwise have excluded coverage 

for Kohan's lien, or whether defendants' factual defenses would otherwise have precluded 

coverage for Thompson's lien, First American was expressly authorized to—and did—
8

find that the tendered claims were "within the Title Policy." Thus, First American 

established that "liability existed."1 (Culley, supra, 10 Cal.App.4th at p. 1498.)

Defendants argue that under the implied covenant of good faith and fair dealing, 

"the provision of the policy giving First American the unfettered right to determine 

whether an exclusion applies may not be enforced against Spanish Inn." We disagree. 

"[A]lthough it has been said the implied covenant finds 'particular application in 

situations where one party is invested with a discretionary power affecting the rights of 

another' [citations], if the express purpose of the contract is to grant unfettered discretion, 

and the contract is otherwise supported by adequate consideration, then the conduct is, by 

definition, within the reasonable expectation of the parties and 'can never violate an 

implied covenant of good faith and fair dealing.' " (Wolf v. Walt Disney Pictures &

Television (2008) 162 Cal.App.4th 1107, 1120-1121; Third Story Music, Inc. v. Waits

(1995) 41 Cal.App.4th 798, 808 (Waits) ["courts are not at liberty to imply a covenant 

directly at odds with a contract's express grant of discretionary power except in those 

relatively rare instances when reading the provision literally would, contrary to the 

parties' clear intention, result in an unenforceable, illusory agreement."].)

Applying this principle, federal courts in California have rejected impliedcovenant challenges to provisions in indemnity agreements similar to the one here. 

(Travelers Cas. and Sur. Co. of America v. Highland Partnership, Inc. (S.D. Cal., Nov. 

 

1 It is, therefore, unnecessary for us to address First American's evidentiary 

objections to Kohan's declaration, which relate only to facts regarding whether Nara 

Bank's conduct brought Kohan's mechanic's lien within Exclusion 3(a).
9

26, 2012, 10CV2503 AJB DHB) 2012 WL 5928139, at *7; Travelers Cas. and Sur. Co. 

of America v. Dunmore (E.D. Cal., Dec. 4, 2014, 2:07-CV-02493 TLN) 2014 WL 

6886004, at *6-7.)2

Defendants imply this is one of "those relatively rare instances when reading the 

provision literally would, contrary to the parties' clear intention, result in an 

unenforceable, illusory agreement." (Waits, supra, 41 Cal.App.4th at p. 808.) In other 

words, without implying a good faith standard on First American's discretionary power, 

the Indemnity Agreement would fail for lack of mutuality and consideration. We are not 

persuaded. The Indemnity Agreement establishes that First American's rights were 

supported by adequate consideration—namely, its issuance of a $6 million title insurance 

policy. Defendants acknowledged as much in the Indemnity Agreement. In a paragraph 

captioned "estoppel" and printed in italicized, bolded, and all-capitalized typeface, the 

Indemnity Agreement specifies that First American's willingness to do so in this case was 

riskier than usual:

"Notwithstanding any possible difference in the parity of the parties 

hereto, Indemnitor understands that First American is undertaking a 

risk significantly greater than that undertaken in the normal course 

of providing title insurance policies and related services by entering 

 

2 The provision in those cases provided: "Company shall have the right in its sole 

discretion, to determine for itself and its indemnitors whether any claim, demand or suit 

brought against Company or any Indemnitor in connection with or relating to any Bond 

shall be paid, compromised, settled, tried, defended or appealed, and its determination 

shall be final, binding and conclusive upon the Indemnitors. Company shall be entitled to 

immediate reimbursement for any and all Loss incurred under the belief it was necessary 

or expedient to make such payments." (Travelers Cas. and Sur. Com. of America v. 

Dunmore, supra, 2014 WL 6886004, at *5; Travelers Cas. and Sur. Co. of America v. 

Highland Partnership, Inc., supra, 2012 WL 5928139, at *7.)
10

into this agreement and issuing policies of title insurance in reliance 

on this agreement, and therefore, indemnitor hereby declares its 

willingness to enter into this agreement and to induce First American 

to accept this agreement, realizing that Indemnitor's best interest, in 

the opinion of Indemnitor, is being served thereby."

Therefore, defendants' mutuality and consideration argument fails.

Even if we were to conclude that the implied covenant of good faith and fair 

dealing governed First American's discretionary power, defendants still have not pointed 

to any evidence that would give rise to a triable issue of material fact regarding First 

American's exercise of that right in this case, as required. (Wiz Technology, Inc. v. 

Coopers & Lybrand (2003) 106 Cal.App.4th 1, 11 (Wiz) ["To avoid summary judgment, 

admissible evidence presented to the trial court, not merely claims or theories, must 

reveal a triable, material factual issue."].) That defendants disagree with First American's 

conclusive determination does not establish that the determination was reached other than 

in good faith.

Finally, we turn to the "extent" of liability. (Culley, supra, 10 Cal.App.4th at

p. 1498.) First American submitted declarations from its in-house senior claims counsel 

and its outside counsel, together with outside counsel's billing statements, to establish the 

extent of legal expenses it incurred in defending against the mechanic's lien claims and in 

seeking indemnity from defendants. Although defendants argued to the trial court that 

the "amount claimed for attorneys fees is not reasonable," defendants did not respond to 
11

First American's evidence with evidence of their own, as required.3 (Wiz, supra, 106 

Cal.App.4th at p. 11; Premier Medical Management Systems, Inc. v. California Ins. 

Guarantee Ass'n (2008) 163 Cal.App.4th 550, 563-564 ["Respondents supported their fee 

requests with declarations describing the joint defense and the division of labor, with 

billing records to establish the hours of work. Appellants had two options to oppose such 

a showing: attack the itemized billings with evidence that the fees claimed were not 

appropriate, or obtain the declaration of an attorney with expertise in the procedural and 

substantive law to demonstrate that the fees claimed were unreasonable. They did 

neither."], italics added.)

First American's evidence also established the "extent" of its liability arising from 

the settlement of the Thompson lien claim. Defendants' response to First American's 

separate statement of undisputed material facts identified this item as "Undisputed, 

except Defendants do not concede that such amount was actually owed to J.H. 

Thompson." Kohan's declaration explained that the amount of the Thompson settlement 

was unreasonable because "Thompson was actually overpaid and owed Spanish Inn a 

refund." In other words, defendants contend no "liability existed." (Culley, supra, 10

Cal.App.4th at p. 1497.) For the reasons discussed above, the parties agreed First 

American's determination that coverage exists is conclusive on the issue. Accordingly, 

defendants' attempt to repackage their attack on that determination as an attack on 

damages fails.

 

3 The only "[s]upporting [e]vidence" defendants cited in their response to First 

American's separate statement of undisputed material fact was "[l]egal [a]rgument." 
12

Because First American established through undisputed evidence that it was 

entitled to indemnity under the Indemnity Agreement, we conclude the trial court did not 

err by granting First American's motion for summary adjudication.

DISPOSITION

The judgment is affirmed. First American is entitled to its costs on appeal.

NARES, J.

WE CONCUR:

BENKE, Acting P. J.

McINTYRE, J.