TriCoast Builders v. Travelers Commercial Ins. Co. CA2/3 ( 2023 )


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    NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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    opinion has not been certified for publication or ordered published for purposes of rule 8.1115(a).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

Docket Number: B314073

Filed Date: 7/14/2023

Precedential Status: Non-Precedential

Modified Date: 7/14/2023