Hearn Pac. Corp. v. Second Generation Roofing Inc.

• Decision Date: 02 May 2016
• Docket Number: A142203
• Citation: 201 Cal.Rptr.3d 806,247 Cal.App.4th 117
• Court: California Court of Appeals Court of Appeals
• Parties: HEARN PACIFIC CORPORATION, Cross–Complainant and Respondent, v. SECOND GENERATION ROOFING INC., Cross–Defendant and Appellant.

247 Cal.App.4th 117

201 Cal.Rptr.3d 806

HEARN PACIFIC CORPORATION, Cross–Complainant and Respondent,

v.SECOND GENERATION ROOFING INC., Cross–Defendant and Appellant.

A142203

Court of Appeal, First District, Division 2, California.

Filed May 2, 2016

Wild Carey & Fife, Donald R. Wild, Terence Kenney ; Archer Norris, William Staples, for Defendant and Appellant.

Boornazian, Jensen & Garthe, Robert B. Lueck, Jeffery A. Chadic, and Anthony F. Manzo, for Plaintiff and Respondent.

STEWART

, J.

INTRODUCTION

At issue in this appeal is a trial court's authority to amend a judgment to add the name of an additional judgment debtor. It involves a civil procedure game of cat-and-mouse like none we have before encountered.

Cross-defendant Second Generation Roofing, Inc., a roofing subcontractor involved in multi-party construction defect litigation, successfully defeated indemnity and related cross-claims asserted against it by the project's general contractor, Hearn Pacific Corporation (Hearn). It then secured a roughly $210,000 award of prevailing party attorney fees and costs against the general contractor, embodied in two separate orders, pursuant to a fee clause contained in the subcontract. It now appeals from an order denying its motion to amend the two attorney fees orders to add one of the general contractor's insurers as a judgment debtor. The insurer, it maintained, had taken an assignment of the general contractor's contractual indemnity rights during the litigation, had in fact been the entity that prosecuted the cross-claims to final judgment (in the general contractor's name), and as such was the real party in interest liable on the resulting fee award.

Its motion was brought under several provisions of the Code of Civil Procedure, including section 368.5.¹ That provision states: "An action or proceeding does not abate by the transfer of an interest in the action or proceeding or by any other transfer of an interest. The action or proceeding may be continued in the name of the original party, or the court may allow the person to whom the transfer is made to be substituted in the action or proceeding. " (§ 368.5, italics added.)

For reasons not apparent in the record (but ultimately disclosed at oral argument), the nominal judgment debtor, Hearn, opposed the subcontractor's effort to add its insurer as a named judgment debtor. It now continues to press that position on appeal, and even goes so far as to deny the validity of the assignment it executed, disavow sworn statements that its counsel filed below, and contradict allegations in its pleadings that are directly dispositive of the issues on appeal. We find its arguments troubling, to say the least, and its position puzzling. That an insured, faced with a liability imposed nominally upon it in excess of $210,000 (and increasing annually by 10 percent (see § 685.010)), would go to such lengths to protect its insurer from being named liable on that judgment debt suggests to us only one thing, which is exactly what this record shows too and its counsel revealed at oral argument: the insurer, not its insured, is indeed conducting this litigation.

By virtue of the assignment taken in this case, Hearn's insurer is the real party in interest here. The trial court declined to amend the judgment to name the general contractor's insurer as an additional judgment debtor. We hold that it abused its discretion under section 368.5, and reverse.

BACKGROUND

Hearn acted as the general contractor on a project in Sonoma County for the construction of a mixed-use building. In 2007, the project's owner brought suit for design and construction defects against multiple parties, including Hearn and Second Generation Roofing. Hearn cross-complained against Second Generation Roofing and other subcontractors, alleging causes of action for breach of contract, professional negligence, express indemnity, implied indemnity, equitable indemnity, breach of warranties, comparative negligence and contribution.²

Two years later, in August 2009, Hearn executed an agreement assigning its rights and interests under its subcontracts to two insurers, North American Specialty Insurance Company (North American) and RSUI Group, Inc. The assignment agreement states:

HEARN hereby assigns to its defending insurers, North American Specialty Insurance Company and RSUI Group, Inc. (the "INSURERS"), all rights and interests under its subcontracts for the project located at 235 Healdsburg Avenue, Healdsburg, Sonoma County, California, including but not limited to, any obligation of any subcontractor or supplier to defend, indemnify or hold harmless, or to pay attorneys' fees in equity or by operation of law, to the extent of the defense costs or other expenses incurred by the lNSURERS arising from and relating to Deas Family Limited Partnership v. Hearn Pacific Corporation, et al., Sonoma County Superior Court Case No. SCV–240665 ("subject action"). HEARN agrees to this assignment provided, however, that HEARN retains its rights and interest to the extent it has incurred defense costs or other expenses defending against the subject action, prosecuting its cross-complaint or satisfying or paying insurance policy deductibles or self-insured retentions.

The INSURERS may pursue their recovery along with HEARN and/or in HEARN's name in the subject action or any subsequent action. The effect of this Agreement is cumulative along with any assignments to the INSURERS by operation of law or in equity.

This assignment should not be construed to limit the rights of either HEARN or any of the INSURERS to be fully compensated for costs, expenses, attorneys' fees, expert fees or any other expenses incurred because of or in connection with the subject action.

Thereafter, in December 2009, Hearn settled with the plaintiff and all but two subcontractors, one of which was Second Generation Roofing.

Subsequently, in April 2012, Hearn filed a first amended cross-complaint against Second Generation Roofing and the other remaining subcontractor. The amended pleading alleged causes of action for breach of a contractual duty to defend it in the underlying litigation, equitable contribution premised on a duty to defend Hearn, express indemnity, breach of a contractual obligation to obtain insurance, equitable contribution for Hearn's defense costs premised on a breach of their duty to obtain insurance coverage, implied indemnity, and contribution/apportionment of fault. It sought indemnity from any damages or judgment entered in the plaintiff's favor in the underlying case, reimbursement of its defense costs in the underlying case, and an award of prevailing party costs and attorney fees incurred in pursuit of the cross-claims.

The amended cross-complaint, which was unverified, included allegations concerning the assignment. It alleged that "HEARN assigned its rights under the subcontracts with the cross-defendants, including ... [Second Generation Roofing], to its insurers on August 20, 2009," and that "Pursuant to C.C.P. § 368.5

and Greco v. Oregon Mutual Insurance Co. (1961) 191 Cal.App.2d 674, 12 Cal.Rptr. 802, HEARN's insurers are asserting claims in this action in the name of the [sic ] HEARN assigned to them by HEARN through operation of law." The cited authority, Greco v. Oregon Mutual Insurance Co. (1961) 191 Cal.App.2d 674, 12 Cal.Rptr. 802, addresses the impact of an assignment on the proper parties to litigation (id. at pp. 686–688, 12 Cal.Rptr. 802 ). It states, among other things, that "if the assignment occurs after suit has been filed, the action may be continued in the name of the assignor, or the court may permit the assignee to be substituted therein (Code Civ. Proc., § 385 ), and a judgment in favor of the assignor under these circumstances, when no change of party plaintiff has occurred, will be sustained." (Id . at p. 687, 12 Cal.Rptr. 802.)

The amended cross-complaint also alleged, "Pursuant to the Court of Appeal's holding in Searles Valley Minerals Operations Inc. v. Ralph M. Parsons Service Company, 191 Cal.App.4th 1394, 120 Cal.Rptr.3d 487 (2011)

[Searles ], the fact that HEARN did not literally pay its defense costs, after ... [Second Generation Roofing] refused to, does not absolve ... [Second Generation Roofing] from [its] obligation to pay HEARN's defense costs." The cited authority, Searles, authorizes the assignee of contractual indemnity rights to recover the defense costs it paid on the assignor's behalf by enforcing the assigned indemnity rights. (Searles, at pp. 1396–1397, 120 Cal.Rptr.3d 487.)

Later in the case, one of Hearn's attorneys filed a declaration in support of a motion for summary adjudication stating that, "Hearn's defending insurers are suing in Hearn's name as transferees of Hearn's contractual indemnity rights, including the right to obtain equitable contribution for defense costs incurred herein from co-indemnitors such as Second Generation Roofing, Inc."

Eventually, on April 4, 2013, the litigation terminated successfully in Second Generation Roofing's favor, with dismissal of the cross-complaint against it on procedural grounds. In the same order, the trial court awarded it $30,256.79 in costs and granted a motion for attorney fees pursuant to a prevailing party attorney fee clause contained in the subcontract.³ The court entered a later order, on June 12, 2013, awarding attorney fees in the amount of $179,119 and Hearn noticed an appeal from that ruling.

Second Generation Roofing then moved under both Code of Civil Procedure sections 187

and 368.5, and pursuant to the court's inherent powers, to amend both orders to name one of Hearn's two insurers, North American, as a judgment debtor owing the amounts awarded against Hearn. Second Generation Roofing argued that the cross-complaint had been prosecuted by North American as Hearn's assignee, in Hearn's purported name, and North American was in fact the true cross-complainant. In a footnote, it argued that "[a]t this time, for its own reasons, ...