Court Opinion

ID: 9409036
Source: CourtListenerOpinion
Date Created: 2023-07-14 18:04:03.609592+00
Date Added: 2024-06-11T17:20:48.404061
License: Public Domain

Filed 7/14/23 TriCoast Builders v. Travelers Commercial Ins. Co. CA2/3

 NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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(a). This
 opinion has not been certified for publication or ordered published for purposes of rule 8.1115(a).

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
                        SECOND APPELLATE DISTRICT
                                     DIVISION THREE

 TRICOAST BUILDERS, INC.,                                       B314073

      Plaintiff and Appellant,                                 Los Angeles County
                                                               Super. Ct. No. BC647811
      v.

 TRAVELERS COMMERCIAL
 INSURANCE COMPANY et al.,

      Defendants and Respondents.

     APPEAL from judgments of the Superior Court of Los
Angeles County, Malcolm H. Mackey, Judge. Affirmed.
     Connette Law Office and Michael Connette for Plaintiff and
Appellant.
     Usery & Associates and Kathleen M. DeLaney for
Defendant and Respondent Travelers Commercial Insurance
Company.
     Marcus, Watanabe & Enowitz and Daniel J. Enowitz for
Defendant and Respondent MUFG Union Bank, N.A.
           _______________________________________
                       INTRODUCTION

       Two homeowners hired plaintiff and appellant TriCoast
Builders, Inc. (TriCoast) to rebuild their home after a devastating
fire. Litigation eventually ensued and, in a prior appeal, we
affirmed a judgment entered pursuant to an arbitration award in
favor of the homeowners. The arbitrator determined that the
homeowners owed TriCoast roughly $5,000 for work performed,
which amount was offset by more than $130,000 in damages
TriCoast owed the homeowners relating to defective construction
and work performed by unlicensed subcontractors.
       After the remittitur issued in the prior appeal, the trial
court entered judgments of dismissal in favor of defendants and
respondents Travelers Commercial Insurance Company
(Travelers) and MUFG Union Bank, N.A. (Union Bank), the
homeowners’ property insurer and mortgage lender, respectively.
TriCoast had asserted a cause of action styled as “breach of the
obligation to pay money” against both entities, alleging that they
had a responsibility to pay TriCoast for work performed for the
homeowners by virtue of the homeowners’ property insurance
coverage. Citing principles of res judicata, both entities asserted
that the arbitrator’s finding that the homeowners did not owe
TriCoast any money for work performed (after accounting for
offsets) barred TriCoast from seeking the same damages from
them. We agree and affirm the judgments of dismissal.

       FACTS AND PROCEDURAL BACKGROUND

1.    Background
      On January 1, 2015, the homeowners’ Los Angeles
residence caught fire and suffered significant damage. That day,
a representative from TriCoast approached the homeowners

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offering emergency services, i.e., to board up and secure the
property. The homeowners and TriCoast signed a single-page
work authorization agreement (work authorization) to that effect.
The work authorization included a notice to Travelers and Union
Bank by which the homeowners instructed those entities to send
payment for services rendered directly to TriCoast.
       Due to the extent of the fire damage, large portions of the
residence needed to be reconstructed. The homeowners retained
TriCoast to rebuild their home as reflected in a home
improvement agreement dated May 4, 2015 (May 4 agreement.)
2.    The Lawsuit, Arbitration, and Prior Appeal
       At some point, the relationship between the homeowners
and TriCoast soured. In January 2017, TriCoast filed the present
lawsuit against the homeowners, Travelers, and Union Bank.
The complaint contains four causes of action styled as breach of
obligation to pay money, breach of written contract, foreclosure of
mechanic’s lien, and reasonable value of labor and materials
furnished. With respect to each of the four causes of action,
TriCoast seeks to recover $128,187.34 for work it has performed
at the homeowners’ residence for which it has not been paid.
       Citing the May 4 agreement’s arbitration provision, the
homeowners petitioned the court to stay the action and compel
arbitration of their disputes with TriCoast. The court granted the
petition. The arbitrator heard testimony and received
documentary evidence over the course of five days in August and
September 2018. TriCoast sought to recover the $128,187.34
damages set forth in its complaint. The homeowners sought
damages against TriCoast relating to overpayments, work
performed by unlicensed subcontractors, and defective
construction.

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       The arbitrator determined that the homeowners owed
TriCoast $4,826.77 for work performed under the May 4
agreement. That amount was offset, however, by the
homeowners’ damages: $55,711 the homeowners paid TriCoast
for work performed by unlicensed subcontractors and $75,056.42
relating to the repair or correction of defective construction. The
total arbitration award in favor of the homeowners was $125,940
in damages and $8,749.99 in costs. The court confirmed the
arbitration award and entered judgment in favor of the
homeowners on May 2, 2019. TriCoast appealed and we affirmed
the judgment. (TriCoast Builders, Inc. v. Barnhisel et al.
(Feb. 2, 2021, B298947) [nonpub. opn.].)
3.    Post-Appeal Trial Court Proceedings; Appeal
       After we issued the opinion in the prior appeal, the trial
court held a status conference and issued an order to show cause
as to why the case against Travelers and Union Bank should not
be dismissed. Both defendants argued that principles of res
judicata barred TriCoast’s claims against them. Travelers
submitted a brief explaining that TriCoast’s only claim against it,
styled as “breach of the obligation to pay money,” was predicated
on the allegation that the homeowners owed TriCoast payment
for work performed on their home. According to the complaint,
Travelers was obligated by the terms of the work authorization to
pay any insurance claims by the homeowner directly to TriCoast.
But as Travelers noted, the arbitrator had determined that, after
offsets, the homeowners did not owe any money to TriCoast. In
short, Travelers contended, because the homeowners owed
nothing to TriCoast, Travelers, as their insurer, also owed
nothing to TriCoast. Accordingly, Travelers asserted that the

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court should reject TriCoast’s bid to relitigate its claim and
dismiss the case against Travelers with prejudice.
      Union Bank also filed a brief asking the court to dismiss
the case against it. Like Travelers, Union Bank explained that
TriCoast’s theories of liability presumed that the homeowners
owed TriCoast money for work performed. As to the claim for
“breach of the obligation to pay money,” the complaint alleged
that Union Bank failed to pay TriCoast for services rendered to
the homeowners. Union Bank argued that because the arbitrator
determined that the homeowners owed no money to TriCoast, the
derivative claim against Union Bank was barred. And as to
TriCoast’s third cause of action, which sought to foreclose its
mechanic’s lien on the homeowner’s property, Union Bank noted
the arbitrator found that TriCoast had no basis to assert a lien on
the homeowners’ property. Any claim relating to that lien was,
therefore, also barred.
      In opposition, TriCoast argued that neither Travelers nor
Union Bank could use the arbitrator’s factual findings to defeat
TriCoast’s claims. Mainly, TriCoast asserted that the arbitrator’s
award could not have any preclusive effect as to Travelers or
Union Bank because they were not parties to the arbitration.
Also, TriCoast contended, the cause of action for “breach of
obligation to pay money” was distinct and involved different
issues than the breach of contract cause of action which was
resolved in the arbitration. TriCoast also claimed that the
homeowners had falsified invoices submitted to Travelers and
that Travelers made misrepresentations to TriCoast in order to
allow the homeowners to “pocket money owed to TriCoast.” On
that basis, TriCoast requested the opportunity to amend its
complaint to include causes of action for fraud and equitable

                                5
indemnity against Travelers. TriCoast conceded, however, that it
had no basis to foreclose on its mechanic’s lien.
      The court heard the matter on May 13, 2021 and ruled that
principles of res judicata bar TriCoast from proceeding against
Travelers and Union Bank. Specifically, the court found that
TriCoast’s claim against those defendants is derivative of its
claim against the homeowners. Therefore, the court found,
TriCoast is barred from seeking the same damages it sought from
the homeowners (and failed to recover in the arbitration) against
Travelers and Union Bank directly. The court entered judgments
of dismissal in favor of Travelers and Union Bank on July 6,
2021.
      TriCoast timely appeals.

                          DISCUSSION

       As noted, the trial court relied on principles of res judicata
to find that the judgment against TriCoast and in favor of the
homeowners bars TriCoast’s claims against Travelers and Union
Bank. TriCoast challenges the court’s ruling on several grounds,
which we address in turn.
       “The claim preclusion doctrine, formerly called res judicata,
‘prohibits a second suit between the same parties on the same
cause of action.’ (Boeken v. Philip Morris USA, Inc. (2010) 48
Cal.4th 788, 792 (Boeken).) ‘Claim preclusion arises if a second
suit involves (1) the same cause of action (2) between the same
parties (3) after a final judgment on the merits in the first suit.’
(DKN Holdings LLC v. Faerber (2015) 61 Cal.4th 813, 824 (DKN
Holdings).)” (Kim v. Reins International California, Inc. (2020)
9 Cal.5th 73, 91.) Claim preclusion also applies to parties in
privity with the parties to the first judgment. (Mycogen Corp. v.
Monsanto Co. (2002) 28 Cal.4th 888, 896 (Mycogen Corp.).)

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       Although res judicata is usually applied based on a prior
judicial decision, a prior judgment confirming an arbitration
award may, in some circumstances, bar a subsequent claim based
on the same cause of action. (See Code Civ. Proc., § 1287.4;
Richard B. LeVine, Inc. v. Higashi (2005) 131 Cal.App.4th 566,
576–579; Brinton v. Bankers Pension Services, Inc. (1999) 76
Cal.App.4th 550, 556–558; Thibodeau v. Crum (1992) 4
Cal.App.4th 749, 755 (Thibodeau); Sartor v. Superior Court
(1982) 136 Cal.App.3d 322, 328 (Sartor); cf. Vandenberg v.
Superior Court (1999) 21 Cal.4th 815, 824, fn. 2 (Vandenberg)
[“Nothing in our decision imposes or implies any limitations on
the strict res judicata, or ‘claim preclusive,’ effect of a California
law private arbitration award.”].) “A predictable doctrine of res
judicata benefits both the parties and the courts because it ‘seeks
to curtail multiple litigation causing vexation and expense to the
parties and wasted effort and expense in judicial administration.’
[Citation.]” (Mycogen Corp., supra, 28 Cal.4th at p. 897; see also
Vandenberg, at p. 829 [noting the purpose of the res judicata
doctrine is “to preserve the integrity of the judicial system,
promote judicial economy, and protect litigants from harassment
by vexatious litigation”].) The application of the doctrine of res
judicata is an issue of law we review de novo. (E.g., Association of
Irritated Residents v. Department of Conservation (2017) 11
Cal.App.5th 1202, 1218.)
       Citing Vandenberg, TriCoast asserts that res judicata is
inapplicable in the present case because an arbitration award has
no nonmutual preclusive effect. Here, as TriCoast notes,
Travelers and Union Bank were not parties to the arbitration
proceeding. And Vandenberg held that “a private arbitration
award, even if judicially confirmed, may not have nonmutual

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collateral estoppel effect under California law unless there was
an agreement to that effect in the particular case.” (Vandenberg,
supra, 21 Cal.4th at p. 824.) Seizing on that language, TriCoast
argues that the award in favor of the homeowners should not
preclude it from pursuing its claims against Travelers and Union
Bank.
       We reject this argument because Vandenberg expressly
limited its holding: “Our holding is narrowly circumscribed.
Nothing in our decision imposes or implies any limitations on the
strict res judicata, or ‘claim preclusive,’ effect of a California law
private arbitration award.” (Vandenberg, supra, 21 Cal.4th at p.
824, fn. 2.) The high court cited Sartor and Thibodeau as
examples of the types of cases to which its holding did not apply.
The Vandenberg court summarized Thibodeau as holding that an
“unconfirmed award in private arbitration between homeowner
and general contractor is res judicata barring homeowner’s
identical claim against subcontractor.” (Ibid.) In addition, the
court described Sartor as holding that a “confirmed private
arbitration award in favor of architectural firm is res judicata
barring homeowner’s identical causes of action against firm’s
employees.” (Ibid.) In both cases, the preclusive effect of the
arbitration award applied to claims predicated on the defendant’s
derivative liability. In Sartor, the corporation’s liability was
derivative of its agent’s liability, and in Thibodeau, the general
contractor’s liability was derivative of its subcontractor’s liability.
(Sartor, supra, 136 Cal.App.3d at p. 328; Thibodeau, supra, 4
Cal.App.4th at p. 757.)
       Our high court touched on this issue more recently in DKN
Holdings and, in distinguishing derivative liability from joint and
several liability, clarified the application of the claim preclusion

                                  8
doctrine in cases involving derivative liability: “[I]n Lippert v.
Bailey (1966) 241 Cal.App.2d 376, the plaintiff was precluded
from suing insurance agents after he settled with the insurance
company for the same loss. Because these agents had no liability
apart from that of their principal (id. at p. 382), the defendants
were in privity with the insurance company, and were thus
effectively the same parties for purposes of preclusion. When a
defendant’s liability is entirely derivative from that of a party in
an earlier action, claim preclusion bars the second action because
the second defendant stands in privity with the earlier one.
[Citations.] The nature of derivative liability so closely aligns the
separate defendants’ interests that they are treated as identical
parties. [Citation.] Derivative liability supporting preclusion has
been found between a corporation and its employees [citations], a
general contractor and subcontractors [citation], an association of
securities dealers and member agents [citation], and among
alleged coconspirators [citation].” (DKN Holdings, supra,
61 Cal.4th 813 at pp. 827–828, italics added.)
       TriCoast’s claims against Travelers and Union Bank are
subject to claim preclusion because those claims are premised
exclusively on the defendants’ derivative liability for the debts of
the homeowners. As explained ante, the complaint does not allege
that either Travelers or Union Bank has a direct relationship
with TriCoast. Instead, TriCoast alleges that the homeowners
owe it roughly $128,000 for work performed at their residence. As
to Travelers and Union Bank, TriCoast seeks to recover the
homeowners’ $128,000 debt from them based on the assumption
that the work TriCoast performed for the homeowners falls
within the scope of the homeowners’ property insurance coverage.
TriCoast alleges that Travelers and Union Bank owe it “an

                                 9
obligation to pay money” because the work authorization directed
them to send insurance claims payments relating to TriCoast’s
work at the homeowners’ residence to TriCoast directly. As noted,
however, the arbitrator determined that the homeowners owed
TriCoast nothing for work performed at their residence after
accounting for offsets. A debt owing from the homeowners to
TriCoast relating to TriCoast’s work is a necessary predicate for
TriCoast’s claims against Travelers and Union Bank. Because
those defendants’ liability is derivative only, TriCoast’s claims
against them are barred by the judgment in favor of the
homeowners.
      TriCoast also asserts that Travelers and Union Bank
cannot assert that claim preclusion applies because they did not
participate in the arbitration. As already noted, however, claim
preclusion may be asserted by nonparties to a prior judgment if
they are in privity with a party to that judgment. Here, as
already noted, if Travelers or Union Bank were to owe any money
to TriCoast, it would be because they stand in the shoes of the
homeowners as their insurer and mortgage lender. As such, they
are in privity with the homeowners. (See, e.g., Grande v.
Eisenhower Medical Center (2022) 13 Cal.5th 313, 326 [describing
privity as “ ‘the sharing of “an identity or community of interest,”
with “adequate representation” of that interest in the first suit,
and circumstances such that the nonparty “should reasonably
have expected to be bound” by the first suit’ ”].)
      Finally, TriCoast appears to argue that its discovery of
“new facts” bars the application of res judicata and required the
court to allow it to amend its complaint. The argument relates to
an issue we addressed briefly in our prior opinion. “As we
understand it, TriCoast asked the arbitrator to continue the

                                10
arbitration so that it could conduct discovery, i.e., request
documents from and depose a representative of the homeowners’
insurer. Apparently, TriCoast believed the homeowners may have
submitted to their insurer falsified invoices purporting to be from
TriCoast. TriCoast claims it was prejudiced by the arbitrator’s
denial of its request for a continuance because it was not allowed
sufficient time and latitude to conduct discovery on this issue.
        “We disagree because it is not apparent how TriCoast’s
allegations, even if proven, could have impacted the arbitration
between the homeowners and TriCoast. The issues before the
arbitrator related to the value of TriCoast’s work, its entitlement
to payment from the homeowners, and the harm suffered by the
homeowners due to defective construction. The arbitrator relied
on the evidence submitted by the parties on those issues.
TriCoast has not explained how communications between the
homeowners and their insurer—truthful or fraudulent—have any
bearing on those issues. Accordingly, we conclude TriCoast failed
to establish that it was prejudiced by the arbitrator’s denial of its
request for a continuance.” (TriCoast Builders, Inc. v. Barnhisel
et al., supra, B298947 [p. 19].)
        In the present appeal, TriCoast again invokes the specter of
fraudulent conduct by the homeowners which, TriCoast alleges, it
did not discover until more than a year after it filed its complaint.
TriCoast seems to suggest that the homeowners fabricated, and
may have collected on, falsified invoices that appeared to be from
TriCoast. And TriCoast now complains that the court refused to
allow it to amend its complaint to include these allegations. We
are still puzzled, however, as to how this conduct, even if proven,
impacted TriCoast because it has already been fully paid for its
work. In other words, TriCoast fails to establish that the court’s

                                 11
denial of the opportunity to amend its complaint, if erroneous,
was prejudicial. (Cal. Const., art VI, § 13 [judgment or order
cannot be reversed on appeal unless it is both erroneous and
prejudicial, i.e., results in a miscarriage of justice].)

                         DISPOSITION

     The judgments of dismissal are affirmed. Respondents
Travelers Commercial Insurance Company and MUFG Union
Bank, N.A., shall recover their costs on appeal.

 NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

                                                     LAVIN, J.
WE CONCUR:

      EDMON, P. J.

      EGERTON, J.

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