Scott v. U.S. Fidelity & Guar. Ins. Co.

• Decision Date: 21 March 2003
• Docket Number: No. H022467.,H022467.
• Citation: 107 Cal.App.4th 197,132 Cal.Rptr.2d 89
• Court: California Court of Appeals Court of Appeals
• Parties: SCOTT CO. OF CALIFORNIA, Plaintiff and Appellant, v. UNITED STATES FIDELITY & GUARANTY INSURANCE COMPANY, et al., Defendants and Respondents.

132 Cal.Rptr.2d 89

107 Cal.App.4th 197

SCOTT CO. OF CALIFORNIA, Plaintiff and Appellant, v. UNITED STATES FIDELITY & GUARANTY INSURANCE COMPANY, et al., Defendants and Respondents.

No. H022467.

Court of Appeal, Sixth District.

March 21, 2003.

Review Denied July 16, 2003.^*

McInerney & Dillon and Timothy F. Winchester and Jewell J. Hargleroad, Oakland, for Appellant.

Morgenstein & Jubelirer and Eliot S. Jubelirer, Rocky N. Unruh, Bruce A. Wagman, San Francisco, for Respondent American Insurance Company.

The Banchero Law Firm and E. Jeffery Banchero and Robert M. Lichtman, San Francisco, for Respondents United States Fidelity & Guaranty Insurance Company and Aetna Casualty and Surety Company.

ELIA, J.

This is the second appeal arising from a subcontractor's effort to recover damages for cost overruns in a public works project. After succeeding at trial against the general contractor, plaintiff Scott Co. of California (Scott) sought damages and attorney fees against the contractor's sureties on the payment bond. The trial judge denied the sureties' summary judgment motion, but a different judge granted the sureties' motion to reconsider and then granted their summary judgment motion. In this appeal Scott contends that the court lacked jurisdiction to grant reconsideration and erred in finding the sureties to be entitled to judgment as a matter of law. We find merit in the second argument with regard to Scott's attorney fees and must therefore reverse the judgment.

Background

This action arose in December 1990, when Scott, a mechanical subcontractor, sought damages it had incurred during the construction of the San Jose Convention Center. Among the named defendants in Scott's lawsuit were the general contractor, Blount, Inc. (Blount); the owner of the property, the Redevelopment Agency of the City of San Jose (RDA); and three sureties that had issued a "Labor and Material Payment Bond" to Blount.¹ These sureties, respondents in the present appeal, are United States Fidelity & Guaranty Insurance Company, Aetna Casualty and Surety Company, and American Insurance Company (collectively, "the Sureties"). Scott alleged that Blount, the principal, had failed to reimburse Scott for large cost overruns Scott had suffered due to delays and change orders for which Blount was responsible.

The 10th cause of action in Scott's First Amended Complaint asserted a "Claim on Payment Bond" against the Sureties. Scott alleged that the Sureties had issued the payment bond to Blount under Civil Code sections 3247 to 3252, thereby assuring Scott payment for its provision of services and materials. Scott further charged the Sureties with bad faith in their failure to work toward a prompt investigation and settlement of Scott's demands for payment.

In October 1991 Scott settled with RDA. RDA agreed to pay Scott $1,439,888 in exchange for dismissal of all claims against RDA, including those attributable to unpaid work performed, change orders, and delay costs. Scott then proceeded against Blount in a court trial heard by the Honorable Robert H. Kroninger, retired.

Scott claimed more than $2 million in losses attributable to Blount. Judge Kroninger found Blount liable for negligence and inadequate management of the project, but found Scott responsible for some of its damages. The final judgment awarded Scott $442,054. Scott also obtained costs, including attorney fees, incurred before Blount made a settlement offer (Code Civ. Proc., § 998; hereafter "section 998"), but Blount obtained post-offer costs, which exceeded Scott's recovery, yielding a net amount owed by Scott to Blount of $46,726.86.

By stipulation of Scott and the Sureties, the causes of action against the Sureties were held in abeyance while both Blount and Scott appealed from the judgment and the postjudgment order of costs. After completion of the appellate process, including review by the Supreme Court,² the matter returned to Judge Kroninger, over Scott's opposition, for determination of costs and disposition of the pending claim against the Sureties.³

Scott subsequently sought to remove Judge Kroninger from the case, asserting "bias and prejudice." The Honorable Conrad L. Rushing, however, rejected both Scott's peremptory challenge and its challenge for cause. This court denied Scott's petition for a writ of mandate to overturn that decision, and the Supreme Court denied review (H021656). Scott subsequently tried again to disqualify Judge Kroninger for bias, but that effort also was unsuccessful.

While those challenges to Judge Kroninger were pending, the Sureties filed a motion for summary judgment, asserting no liability to Scott either for damages or for the costs that followed Blount's rejected section 998 offer. They argued that their liability for Scott's cost overruns was co-extensive with that of Blount, that Blount was not in default, and that the issue of Blount's (and therefore their own) liability was either res judicata or law of the case. In response, Scott maintained that the Sureties' liability was completely independent of Blount's, and that this "public works payment bond" covered all damages as well as attorney fees. Thus, Scott insisted that it was entitled to recover from the Sureties $1,214,378.10, representing its $1.9 million cost overruns, less the amount of the settlement with RDA and an amount corresponding to the hours for which Scott itself was responsible.

Judge Kroninger initially heard the motion on August 2 and then continued it to October 5, 2000. The continuance enabled both parties to submit supplemental briefs on the issue of the Sureties' independent liability. In its supplemental brief, filed two days before the hearing, Scott relied on R.P. Richards, Inc. v. Chartered Construction Corp. (2000) 83 Cal.App.4th 146, 99 Cal.Rptr.2d 425 (R.P.Richards), a Second District case decided August 18, 2000. Scott argued that because the Sureties had not been a party to Blount's settlement offer and were released from their obligation on the bond, they would not have been liable had Scott accepted the offer and Blount thereafter defaulted. Because the settlement would have been unenforceable against them, the Sureties "cannot have it both ways" by benefiting from the offer.

The parties and the court discussed the applicability of the R.P. Richards case. The Sureties pointed out that R.P. Richards did not involve a section 998 offer. They argued that both Blount's and Scott's offers encompassed the Sureties as well as Blount, and that they would have been liable for the amount of the offer had either offer been accepted and Blount then defaulted. Furthermore, they maintained, Scott was not entitled to any more than it had received from Blount, because "[t]he sureties' obligation is the same as Blount's."

Judge Kroninger, however, determined that this case was "absolutely parallel" to R.P. Richards. Had there been no section 998 offer by Blount, he reasoned, then judgment would have been for Scott, which would have received all of its costs, including attorney fees. Neither Blount's nor Scott's offer had expressly purported to bind the Sureties in the event of Blount's default. If indeed the Sureties had intended to be bound by Blount's settlement offer, as they now claimed, that was a viable factual issue for trial, but no such fact had been established for purposes of disposition by summary judgment.

Judge Kroninger therefore concluded that the Sureties had not made a sufficient showing to justify summary judgment "as to the damages consisting of attorney fees at the trial level which were not reimbursed"—that is, the fees that Scott had incurred after Blount's section 998 offer. He emphasized that Scott would not be entitled to reopen "the case on the merits," and he questioned "how far [Scott was] likely to get" by pursuing the damages attributable to RDA in a trial against the Sureties. Nevertheless, Judge Kroninger declined to formally rule on the viability of Scott's claim for those damages because the Sureties had not moved for summary adjudication. To allow time for discovery within the five-year statutory limit on the lawsuit, the judge set a trial date for November 3, 2000.

The day after this hearing Scott advised Judge Kroninger of its intention to petition for another writ of mandamus to compel him to disqualify himself for bias. Judge Kroninger initially refused to withdraw from the case, but after further correspondence from Scott,⁴ he announced his intention to resign. The Sureties asked the judge to withhold a final ruling on their motion to enable them to brief the issue created by the recent R.P. Richards case. On October 16, however, Judge Kroninger filed the order denying the Sureties' motion for summary judgment. The following day he filed his notice of withdrawal from further proceedings in the case.

On October 25, 2000, the Sureties moved for reconsideration under Code of Civil Procedure section 1008, citing "new or different facts, circumstances and law." The Sureties asserted that the denial of summary judgment was "based on a patently erroneous premise which the Sureties had no opportunity to address on brief, and also because it was signed by Judge Kroninger in the context of coercive circumstances attributable to Scott's unrelenting and baseless campaign to secure his removal—a campaign which led to his withdrawal almost immediately after he signed the Order." Had they been afforded sufficient opportunity to respond to Scott's new citation of R.P. Richards, they would have shown that Civil Code section 2822, subdivision (b), which they characterized as "different law," "flatly preclude[s] the rationale employed in denying their motion."

The motion for reconsideration was heard on November 7 and 8, 2000, by Judge Rushing. Citing Civil Code sections 3226, 3248, and 3250, Scott repeated its assertion that although Blount did not owe any money, the Sureties did because they were primarily and...