Pickard & Butters Construction v. County of Santa Cruz CA6

Filed 12/21/20 Pickard & Butters Construction v. County of Santa Cruz CA6
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SIXTH APPELLATE DISTRICT
PICKARD & BUTTERS H046816
CONSTRUCTION, INC., (Santa Cruz County
Super. Ct. No. 16CV01495)
Plaintiff and Appellant,
v.
COUNTY OF SANTA CRUZ,
Defendant and Respondent,
and
NORTH AMERICAN SPECIALTY
INSURANCE COMPANY,
Intervener and Respondent.
The trial court entered an order under Code of Civil Procedure section 664.6
enforcing a settlement agreement executed by a surety company as the assignee of
plaintiff’s rights under an indemnity agreement; a judgment of dismissal followed.
Plaintiff appeals, arguing that the trial court in Santa Cruz County lacked authority to
enforce the settlement because issues implicating the indemnity agreement’s
enforceability were being litigated in an action before the San Bernardino County
Superior Court. For the reasons stated here, we will affirm the judgment.
I. BACKGROUND
The County of Santa Cruz awarded plaintiff Pickard & Butters Construction, Inc.
(PBC) a public works construction contract exceeding $1.6 million. Acting as surety,
North American Specialty Insurance Company (North American) issued payment and
performance bonds on behalf of PBC in connection with the project. As consideration
for those and other bonds issued on its behalf, PBC executed a general indemnity
agreement in favor of North American. The agreement authorizes North American to
demand that PBC deposit money as collateral security on the bonds upon a notice of
claim or lawsuit asserting liability. The agreement assigns PBC’s rights under the project
contracts to North American upon PBC’s default, and defines default as including failure
to deposit any required collateral security. The agreement authorizes North American “to
decide and determine in its sole discretion whether any claim, liability, suit or judgment
made or brought against [North American or PBC] on any Bond shall or shall not be
paid, compromised, resisted, defended, tried or appealed, and [North American]’s
decision shall be final, binding and conclusive upon [PBC],” and authorizes North
American as PBC’s attorney-in-fact to execute any release required to reach a claim
settlement.
North American received claims against a number of PBC’s bonded projects
beginning in April 2015. Between August 2015 and October 2018, North American
investigated and paid over 100 claims totaling nearly $1.4 million on PBC’s obligations,
including $605,371 to resolve 29 bond claims on the Santa Cruz County project. North
American sent PBC a written demand in March 2016 to deposit $1.4 million as collateral
security to protect North American against loss under the indemnity agreement. PBC did
not post collateral or respond in writing to the demand, and in December 2018 North
American sued PBC in San Bernardino County Superior Court for breach of the
indemnity agreement and reimbursement. In that action, North American sought
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$1,397,415 as damages for bond payments made for several projects, including the
$605,371 paid on the Santa Cruz County project.
The dispute between PBC and Santa Cruz County arose in 2014 over change
orders and delay. The County paid PBC a total of $1,349,859, and in December 2015 it
denied PBC’s claim for $894,075 (the contract balance plus changes totaling $433,105
and $460,970 in damages). In 2016, PBC filed the instant action in the Santa Cruz
County Superior Court for money due, and the County cross-complained for breach of
contract. North American declined PBC’s requests to intervene in the lawsuit to jointly
prosecute PBC’s claims against the County. The case proceeded through discovery, and
the parties were prepared for trial at the November 2018 calendar call. No courtrooms
were available, and trial was rescheduled for January 2019.
After PBC rejected the County’s offer to settle in the instant case, the County
approached North American in January 2019 regarding settling the matter on behalf of
PBC. On January 11, 2019, the trial court granted North American’s ex parte application
to intervene based on the indemnity agreement, and North American filed a complaint in
intervention asserting all claims held by PBC against Santa Cruz County. North
American and the County entered into a written settlement, and on January 23, the day
before the rescheduled trial calendar call, North American notified PBC that the matter
had been settled and demanded that the lawsuit be dismissed with prejudice. The trial
date was vacated, and a briefing schedule was set for North American’s motion to
enforce the settlement agreement under Code of Civil Procedure section 664.6.
North American argued in its motion that the settlement agreement should be
enforced and the lawsuit dismissed because upon PBC’s failure to comply with North
American’s demand for collateral, the indemnity agreement assigned PBC’s rights
against the County to North American, giving North American the right to settle the
instant lawsuit. North American filed declarations (supported with documents) from a
claims vice president, its attorney, and the County’s attorney. North American argued in
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the alternative that it was the real party in interest to any claims that PBC had against the
County by virtue of the indemnity agreement’s assignment clause, and it should therefore
be substituted into the action in place of PBC. North American argued that PBC’s
defenses to North American’s action in San Bernardino County and PBC’s attorney’s fee
lien were irrelevant to the motion.
PBC argued North American was seeking to have the trial court summarily
adjudicate “numerous vigorously disputed” material breach issues which “cannot be
adjudicated in the context of this motion” and “must be fleshed out” in the San
Bernardino case. PBC argued that the evidence, if developed and presented to the trier of
fact in the San Bernardino case, would show that North American had materially
breached the indemnity agreement by acting in bad faith in several ways: paying
indemnity claims over PBC’s objections; refusing to intervene at the outset to jointly
prosecute PBC’s lawsuits against project owners; and intervening and settling the instant
case secretly after PBC incurred trial preparation costs. PBC argued those breaches
excused obligations to perform and rendered the assignment to North American under the
agreement unenforceable. PBC also argued that the court in the San Bernardino case
could find the indemnity agreement unenforceable under the equitable doctrine of laches
because North American sat on its rights for over three years during which time PBC
incurred several hundred thousand dollars in litigation expenses related to multiple
projects. PBC asserted the settlement was unjust because it was undertaken in secret,
sabotaged PBC’s right to go to trial, and the negotiated amount ($650,000) was less than
half of what PBC was prepared to prove at trial. PBC urged that North American’s claim
to settlement funds was junior to the attorney’s fee lien held by PBC’s lawyer.
In a written decision following an unreported hearing, the trial court ruled: “The
uncontradicted evidence admitted in support of the motion establishes that [PBC]
breached its obligations under the Indemnity Agreement, at a minimum, by failing to pay
amounts claimed by its subcontractors [and others] on the [Santa Cruz County] project
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bonded by [North American]. Due to its obligation as surety, [North American] was
required to pay the total amount of $605,371.33 to resolve those bonded claims.
Thereafter, [PBC] failed to respond to [North American’s] timely collateral demand.
Accordingly, pursuant to the ‘Assignment’ clause of the Indemnity Agreement, and
because of [PBC]’s default, all its rights and claims against the County were assigned to
[North American]. Further, pursuant to the ‘Attorney-in-Fact’ provisions of the
Indemnity Agreement, [PBC]’s default resulted in the appointment of [North American]
to pursue all the claims currently asserted by [PBC] against the County in this action.
This authorizes [North American] to settle and release such claims as [North American],
in its ‘sole discretion’, may deem necessary.”
The trial court specifically found that “enforcement of the settlement agreement,
and dismissal of the County, does not in any manner prejudice or foreclose any bad faith
breach of contract claim which [PBC] may now assert against [North American] either by
Cross-Complaint in the action currently pending between these parties in San Bernardino
County, or in an independent action against [North American]. To the extent [PBC]
asserts that it will be deprived of the opportunity to recover damages suffered exclusively
by [PBC], caused solely by the conduct of the County, [PBC] failed to present any
argument or authority as to why those damages would not now be recoverable against
[North American] – assuming [North American] wrongfully asserted and exercised its
‘sole discretion to settle’ rights under the Indemnity Agreement.” Explaining its
reasoning, the trial court stated, “In the final analysis, because [North American] paid the
bonded claims, and because the Indemnity Agreement provides the mechanism for [North
American] to recover those payments, [North American] has the enforceable right to
settle the subject lawsuit and protect its recovery rights. In the absence of enforcement of
this right, and if [PBC] were permitted to proceed to trial against the County, there is a
risk that [PBC] would recover nothing, or less than the amounts of [North American]’s
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bond payments, and [North American] would then be without recourse against a
financially responsible party.”
The trial court recognized the equitable appeal of subjecting the settlement
proceeds to PBC’s attorney’s fee lien, given that North American had intervened “at the
[11th] hour” only after PBC’s attorney had prepared the case for trial. But it considered
the argument premature in light of authorities holding that attorney lien claims must be
brought in a separate post-judgment action.
The court entered a dismissal with prejudice after North American confirmed
receipt of settlement funds. This appeal followed. As in the trial court, the County joins
in the arguments urged by North American.
II. DISCUSSION
Code of Civil Procedure section 664.6 provides a summary procedure for
incorporating into a judgment a settlement reached by parties to a lawsuit: “If parties to
pending litigation stipulate, in a writing signed by the parties outside the presence of the
court or orally before the court, for settlement of the case, or part thereof, the court, upon
motion, may enter judgment pursuant to the terms of the settlement.” (Ibid.) The trial
court may also retain jurisdiction over the parties to enforce the settlement. (Ibid.)
To determine whether the parties entered into an enforceable settlement, the trial
court may receive testimony orally or by declaration. (Kohn v. Jaymar-Ruby, Inc. (1994)
23 Cal. App. 4th 1530, 1533.) When the validity of a settlement agreement rests on the
trial court’s factual findings, we review those findings for substantial evidence. (In re
Marriage of Assemi (1994) 7 Cal. 4th 896, 911; Kohn, at p. 1533.) Legal questions
arising in the context of a motion to enforce settlement are subject to our independent
review. (Alexander v. Codemasters Group Limited (2002) 104 Cal. App. 4th 129, 141
[whether a certain or undisputed state of facts establishes a contract]; Williams v.
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Saunders (1997) 55 Cal. App. 4th 1158, 1162 [construction and application of Code of
Civ. Proc., § 664.6].)1
A. THE TRIAL COURT DID NOT ADJUDICATE ISSUES PENDING BEFORE THE SAN
BERNARDINO COURT
PBC argues that the trial court committed reversible error by making certain
findings which summarily adjudicated issues pending in the San Bernardino action. In
PBC’s view, the trial court in effect determined that North American did not materially
breach the covenant of good faith and fair dealing and did not engage in objectively
unreasonable conduct by finding that PBC “does not dispute” that the indemnity
agreement “controls [the parties’] rights and obligations,” the “uncontradicted evidence”
admitted in support of the motion establishes that PBC breached its obligations under the
agreement, and PBC’s claims and rights against Santa Cruz County were assigned to
North American because of PBC’s default. PBC repeats on appeal the arguments it made
to the trial court: that in the context of a motion under Code of Civil Procedure
section 664.6, the trial court had no authority to summarily adjudicate issues to be
decided in the San Bernardino action, and in doing so, it exceeded its own jurisdiction
and usurped the jurisdiction of the San Bernardino County Superior Court.
PBC ignores the expressly limited scope of the trial court’s order. In granting
North American’s motion to enforce the settlement, the trial court did not make any
findings regarding good faith or bad faith conduct; nor did it presuppose or summarily
adjudicate whether North American engaged in objectively unreasonable conduct or
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An appellant’s appendix may not contain documents that were not filed in the
trial court. (Cal. Rules of Court, rule 8.124(g); Perez v. Grajales (2008)
169 Cal. App. 4th 580, 592, fn. 11.) North American asks that we strike from appellant’s
appendix a letter and attachments, including the settlement agreement not considered by
the trial court, and PBC does not argue otherwise. The documents are accordingly
stricken, and we do not consider them in our review of the case. We note, however, that
North American did not object in the trial court to PBC representing in its points and
authorities that the case was settled for $650,000. The amount of settlement is thus not
beyond our consideration.
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otherwise materially breached the covenant of good faith and fair dealing. The trial court
did not address the laches argument PBC intends to advance in the San Bernardino case,
and it made no findings, implicit or explicit, that would bind the San Bernardino court. A
court decision does not stand for a proposition not considered. (Agnew v. State Bd. of
Equalization (1999) 21 Cal. 4th 310, 332.) The trial court expressly stated that its
decision does not prejudice or foreclose any bad faith breach of contract claims PBC
wishes to assert against North American, and that its decision should not “be construed as
a final determination by the Court of the merits of any factual or legal issue which may
be subsequently litigated in a separate proceeding between [PBC] and [North
American].”
The trial court, relying on the indemnity agreement and North American’s
evidence of PBC’s default, found only that the settlement agreement was enforceable.
The trial court’s ruling was based on substantial evidence supporting a valid assignment
as a matter of law, rendering the settlement agreement enforceable. (See Johnson v.
County of Fresno (2003) 111 Cal. App. 4th 1087, 1096 [an assignment encompasses all
rights and remedies held by the assignor]; McDermott, Will & Emery v. Superior Court
(2000) 83 Cal. App. 4th 378, 382 [“An assignment of a claim ‘pass[es] title to a cause of
action from one person to another’ ”].)
As we understand the trial court record, in its opposition to North American’s
motion PBC did not seek to prove that the indemnity agreement was an unenforceable
contract or that North American had materially breached the implied covenant of good
faith and fair dealing. Indeed, PBC argued “[t]he claims and counter-claims regarding
[North American’s conduct] cannot be adjudicated by the [Santa Cruz] court in the
context of this motion” and “must be fleshed out in the prosecution of the San Bernardino
case.” In a declaration opposing North American’s motion, PBC’s president suggested
that the evidence “to be developed in the San Bernardino case” would establish that
North American engaged in multiple acts of bad faith and objectively unreasonable
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conduct. Even if such evidence were to be developed and could be considered as
evidence of North American’s bad faith in the instant case, it does not negate the
substantial evidence of PBC’s default and assignment supporting the trial court’s decision
here. (Crawford v. Southern Pacific Co. (1935) 3 Cal. 2d 427, 429 [substantial evidence
review “begins and ends with a determination as to whether there is any substantial
evidence, contradicted or uncontradicted, which will support” the decision].)
PBC’s authorities do not support the view that a trial court exceeds its powers by
enforcing a settlement while issues regarding the parties’ rights and obligations under an
indemnity agreement are pending before a different court. “ ‘[I]t is not the duty of the
surety to protect the principal as if the principal were an insured under an insurance
policy.’ ” (Arntz Contracting Co. v. St. Paul Fire & Marine Ins. Co. (1996)
47 Cal. App. 4th 464, 483 (Arntz).) The Arntz court found that under an indemnity
agreement and its implied covenant of good faith and fair dealing a surety could not
recover takeover expenses from its indemnitor without a good faith belief that the
expenses were “ ‘desirable or necessary.’ ” (Id. at pp. 482–484.) But Arntz does not
stand for the proposition that a surety’s good faith must be analyzed before enforcing a
settlement under Code of Civil Procedure section 664.6. Nor does any of PBC’s other
authorities hold that a trial court lacks authority to enforce a settlement under Code of
Civil Procedure section 664.6 where, as here, the surety has brought a separate action to
enforce the indemnity agreement: Fiore v. Alvord (1985) 182 Cal. App. 3d 561, 566 (trial
court is implicitly authorized to interpret the terms and conditions of a settlement when
ruling on a motion under Code of Civ. Proc., § 664.6); Corkland v. Boscoe (1984)
156 Cal. App. 3d 989 (enforcing written out-of-court settlement after determining disputed
terms); Haldeman v. Boise Cascade (1985) 176 Cal. App. 3d 230 (determining client had
authorized attorney to settle on her behalf); Malouf Bros. v. Dixon (1991)
230 Cal. App. 3d 280 (determining whether party complied with terms of settlement);
Skulnick v. Roberts Express, Inc. (1992) 2 Cal. App. 4th 884 (determining whether party
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waived indemnification rights as part of settlement). The trial court here agreed that the
San Bernardino court is the appropriate forum for PBC to assert its bad faith breach of
contract claims, and it carefully crafted an order to assure that PBC may proceed in the
San Bernardino case without the instant settlement prejudicing its defenses and counter-
claims.
B. THE TRIAL COURT DID NOT ABUSE ITS DISCRETION BY ENFORCING THE
SETTLEMENT AGREEMENT
Our Supreme Court explained in California State Auto. Assn. Inter-Ins. Bureau v.
Superior Court (1990) 50 Cal. 3d 658 that entry of judgment under Code of Civil
Procedure section 664.6 “is a judicial act that a court has discretion to perform,” and the
trial court “ ‘cannot surrender its duty to see that the judgment to be entered is a just one,
nor is the court to act as a mere puppet in the matter.’ ” (California State Auto. Assn.
Inter-Ins. Bureau v. Superior Court, at p. 664.) Citing that authority, PBC argues that the
trial court should have rejected the settlement agreement as manifestly unjust because
North American sabotaged PBC’s right to trial and settled PBC’s claims in secret for an
amount to satisfy North American’s own interest, which was less than half the amount
PBC was ready to prove against the County at trial. PBC further argues that the
possibility of recovering damages in a separate action against North American is not an
adequate substitute for the opportunity to adjudicate its claims against the County now.
Mindful of our deferential standard in reviewing the trial court’s exercise of
discretion, we see no manifest injustice compelling rejection of the settlement. The
County approached North American regarding settlement, and settled for an amount
greater than the earlier offer rejected by PBC. In a declaration supporting the
enforcement motion, a vice president for North American stated that the surety entered
into settlement negotiations with the County because it was uncertain that an award
against the County at trial would be greater than the County’s settlement offer. He also
expressed that PBC had failed to honor the terms of the indemnity agreement; PBC had
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questioned North American’s entitlement to the full amount of any judgment PBC
received; and if PBC were to lose at trial and be unable to satisfy its indemnity
obligations, PBC might file for bankruptcy. North American’s concerns are not improper
or unreasonable. Despite the settlement of PBC’s lawsuit against the County, PBC
retains the ability to pursue any damages arising from the indemnity agreement by way of
separate action against North American.
III. DISPOSITION
The judgment is affirmed. Respondents shall recover their costs on appeal.
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______________________________________
GROVER, J.
______________________________________
GREENWOOD, P.J.
______________________________________
BAMATTRE-MANOUKIAN, J.
H046816 - Pickard & Butters Construction, Inc. v. County of Santa Cruz et al.