Court Opinion

ID: 9899890
Source: CourtListenerOpinion
Date Created: 2023-11-17 20:05:13.03466+00
Date Added: 2024-06-11T09:20:53.775570
License: Public Domain

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,                                           B329206

           Plaintiff and Appellant,                          (Los Angeles County
                                                             Super. Ct. No.
           v.                                                20GDCV01059)

 NORTH AMERICAN
 SPECIALTY INSURANCE
 COMPANY,

      Defendant and
 Respondent.

     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.
                               ******
      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.

                                  2
[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.

                                 3
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 Buttonwillow Recreation $913,921.40
 Park Project               and Parks District
 Watsonville Health         County of Santa Cruz        $1,525,000
 Center Expansion
 Project
 Orradre Building           Salinas Valley Fair, Inc.   $1,285,582
 Modernization
 Live Oak Camp              County of Santa Barbara      $722,000
 Comfort Station
 Tank Replacement           Colonial Oak Water           $324,390
 Project                    Company
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

                                 4
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 Buttonwillow                     $14,237.08
 Park Project             Recreation and
                          Parks District
 Watsonville Health       County of Santa            $605,371.30
 Center Expansion         Cruz
 Project
 Orradre Building         Salinas Valley Fair,       $363,226.55
 Modernization            Inc.
 Live Oak Camp            County of Santa              $27,022.48
 Comfort Station          Barbara
 Tank Replacement         Colonial Oak Water           $27,815.40
 Project                  Company
      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.

                                5
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                    $50,000, plus
 Buttonwillow Park Recreation and                     assignment of
 Project               Parks District                     $27,556.53
                                                        judgment on
                                                  deposit with Kern
                                                   County Superior
                                                               Court
 Watsonville Health County of Santa                        $650,000
 Center Expansion      Cruz
 Project
 Orradre Building      Salinas Valley Fair,                $322,610
 Modernization         Inc.

                                 6
      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        County of Santa Barbara            $30,000
 Comfort Station
 Tank Replacement Colonial Oak Water                    $140,000
 Project              Company
      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

                                7
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

                                 8
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].)

                                  9
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.

                                10
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

                               11
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.)

                                12
       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.

                                 13
(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

                                14
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

                                 15
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

                                 16
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

                                 17
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

                                 18
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

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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.

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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

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