Court Opinion

ID: 6350262
Source: CourtListenerOpinion
Date Created: 2022-06-15 22:02:20.51534+00
Date Added: 2024-06-11T09:16:16.990268
License: Public Domain

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                 A162183

 Respondent,
                                              (San Mateo County
 v.
                                              Super. Ct. No. CIV518872)
 U.S. SPECIALTY INSURANCE
 COMPANY,

        Cross-defendant and Appellant.

       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

                                  1
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

                                 2
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.
                                  3
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

                                 4
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

                                 5
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

                                6
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.)

                                 7
      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.

                                 8
                                           ______________________
                                           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.

                                 9
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 Cross-
complainant and Respondent.

                               10