Willdan v. Sialic Contractors Corporation

• Decision Date: 19 December 2007
• Docket Number: No. B189153.,B189153.
• Citation: 69 Cal.Rptr.3d 633,158 Cal.App.4th 47
• Court: California Court of Appeals Court of Appeals
• Parties: WILLDAN, Cross-complainant and Appellant, v. SIALIC CONTRACTORS CORPORATION, Cross-defendant and Respondent.

69 Cal.Rptr.3d 633

158 Cal.App.4th 47

WILLDAN, Cross-complainant and Appellant, v. SIALIC CONTRACTORS CORPORATION, Cross-defendant and Respondent.

No. B189153.

Court of Appeal, Second District, Division 7.

December 19, 2007.

Horvitz & Levy, Karen M. Bray and Bradley S. Pauley, Encino; Murtaugh Meyer Nelson & Treglia LLP, Michael J. Murtaugh, Michelle R. Mokri and John R. Armstrong III, Irvine, for Cross-complainant and Appellant.

Kring & Chung, LLP, Kyle D. Kring and June Yang Cutter, Irvine, for Cross-defendant and Respondent.

PERLUSS, P.J.

Willdan, an engineering consulting firm owned by Willdan Group, Inc., appeals following dismissal of its indemnity and declaratory relief claims against Sialic Contractors Corporation doing business as Shawnan and from an order granting Shawnan's motion for attorney fees.¹ We reverse.

FACTUAL AND PROCEDURAL BACKGROUND

1. The Improvement of Santa Monica Boulevard

In 1997 the City of West Hollywood acquired the three-mile stretch of Santa Monica Boulevard located within its city limits from the California Department of Transportation. After the acquisition the City decided to completely refurbish the boulevard, which had fallen into disrepair, including removal and replacement of the roadway, construction of sidewalks and traffic medians and installation of new traffic signals and extensive landscaping. The City retained Willdan, which had previously done work for the City, to, among other things, design the roadway, prepare the construction documents for the street improvements and provide construction management services. The City contracted with other consultants as well, including Associated Soils Engineering, Inc. (Associated Soils) to test construction materials. The City retained Shawnan as the general contractor; its bid of $20,236,000 was the lowest responsible and responsive bid. The project, including design and construction, ultimately cost approximately $30 million.

2. The Dispute Between the City and Shawnan over Increased Construction Costs; the Settlement Agreement

During construction, which primarily took place between 1999 and 2001, several serious problems caused projected construction costs to increase by more than $6 million. In particular, the railroad tracks located under a portion of the boulevard proved not to be a single set of tracks buried in the earthen median, as reflected on the plans and specifications prepared by Willdan, but two sets of tracks buried under the asphalt roadway, requiring a far more difficult removal process, further complicated by the need to keep traffic flowing. Additional difficulties included an approximately two foot grade differential at the boulevard's western end, which was not reflected on the construction documents and which required the use of additional asphalt to level the road's surface.

Shawnan submitted claims to the City for the increased construction costs, which the City disputed. After two months of extensive meetings, the City and Shawnan agreed to mediate their dispute. Willdan participated in the first mediation session as an advocate on behalf of the City, but was instructed not to return to further sessions. The City and Shawnan ultimately agreed to a settlement, and a settlement agreement was executed in July 2002 by the City and Willdan, on one hand, and Shawnan, on the other. In exchange for a payment of $2.8 million, Shawnan agreed to release all claims against the City and Willdan with respect to the project, except for claims arising out of enforcement of the settlement agreement, breach of warranties and latent defects. The City and Willdan agreed to release Shawnan from any liability for the same claims. The settlement agreement specifically provided it would not "govern, affect or adjust claims as may exist between" the City and Willdan.²

3. The City's Complaint Against Willdan; Willdan's Cross-complaint

On November 21, 2003 the City filed an action against Willdan for breach of contract, express contractual indemnity, implied contractual indemnity and negligence. The City alleged, among other things, Willdan had improperly designed the roadway, prepared inaccurate plans specified improper material and quantities of material, failed to observe and ensure compliance with the plans and specifications and authorized payment for materials and work that were not provided or called for by the plans and specifications. The City sought damages in excess of $13.8 million, including more than $11 million to redo the allegedly defective roadway and sidewalks.

On December 23, 2003 Willdan filed a cross-complaint against the City for breach of contract and against Associated Soils and other project consultants for indemnity and declaratory relief. On January 11, 2005 Willdan amended its cross-complaint to name Shawnan as a cross-defendant and to allege claims against it for indemnity and declaratory relief. According to a declaration filed by Willdan's attorney in support of Willdan's ex parte application for a motion to deem the case complex,³ Willdan sought leave to amend its cross-complaint after testing and analysis performed on Santa Monica Boulevard led it to believe "that the conditions on [Santa Monica Boulevard were] not caused by a deep seated structural failure as plaintiff claims but instead a material deficiency. The material was placed by non-party general contractor Shawnan and tested by cross-defendant Associated Soils. [¶] ... Prior to these destructive tests, there was no claim or allegation that the condition on [Santa Monica Boulevard] was related to or caused by a material failure or deficiency, but was purely design related."

4. The Trial Court's Granting of Shawnan's Motion for Determination of Good Faith Settlement

On August 29, 2005, approximately three weeks before trial was scheduled to begin, Shawnan moved for a determination pursuant to Code of Civil Procedure sections 877 and 877.6⁴ that the 2002 settlement agreement was a good faith settlement between Shawnan and the City, thus precluding Willdan's indemnity and declaratory relief claims. Although the dispute between the City and Shawnan had initially concerned Shawnan's claim for $6 million in change orders and increased construction costs, apparently during mediation the City raised a number of construction defect issues; and the settlement agreement purportedly resolved those claims as well. According to the declaration filed by Shawnan's president, Shawn Smith, in support of Shawnan's motion for a good faith settlement determination, "Prior to and during the mediation process [the City] made claims and allegations concerning the, design, specifications, materials and construction of, among other things, the sidewalks, tree beds, landscape and irrigation, curbs and gutters and the asphalt roadway." Willdan opposed the motion in part on the ground its claims against Shawnan were for latent defects in the roadway, which were expressly excepted from the release of claims contained in the settlement agreement.

On the first day of trial the court granted Shawnan's motion and dismissed Willdan's claims. In response to Willdan's inquiry whether "we have determined that the deficient asphalt issues are within the scope of that settlement agreement," the court stated, "Counsel, the court has made a determination on everything that was submitted that—it includes everything that is related to Sial[i]c and Shawnan. They're out of the case."⁵

The trial court subsequently determined Shawnan was the prevailing party and awarded it attorney fees of $214,713 plus costs of $20,216 pursuant to the settlement agreement's attorney fee provision, which states, "In the event of litigation or arbitration relating to this agreement, the prevailing party/parties shall be entitled to recover reasonable attorneys' fees and costs."

5. The Jury's Verdict in Favor of the City

The case proceeded to trial between the City and Willdan. The City sought more than $8.6 million in damages for negligent pavement design, based on two breaches of the standard of care; The City argued Willdan (a) utilized an insufficient traffic index—a measurement used to determine how strong pavement must be to last for the industry-standard period of 20 years— as the basis for the pavement design and (b) specified use of an experimental asphalt mixture that had never been used in California without informing the City of its novelty. The City also sought damages of approximately $1.6 million for negligent construction supervision on grounds including Willdan's failure to discover the actual location of the railroad tracks caused the City to incur greater costs for removal than it otherwise would have.

The jury returned a general verdict in favor of the City for $5,621,421.53 and found against Willdan on its cross-complaint against the City.

CONTENTIONS

Willdan contends the trial court erred in dismissing its cross-complaint for indemnity and declaratory relief against Shawnan because the settlement agreement between Shawnan, on the one hand, and the City of West Hollywood and Willdan, on the other hand, expressly excluded claims related to latent defects and, in any event, because Shawnan failed to satisfy its burden of establishing the settlement had been entered in good faith within the meaning of section 877 and 877.6.

DISCUSSION

1. The Trial Court Erred in Dismissing Willdan's Claims Against Shawnan Because They Were Based on a Theory of Latent Defects Expressly Excepted from the Settlement Agreement

A settlement made in good faith under sections 877 and 877.6 bars claims against the settling defendant for contribution or indemnity by other joint tortfeasors, including claims for total indemnity, partial indemnity and implied contractual indemnity. (Bay Development, Ltd. v. Superior Court (1990) 50 Cal.3d 1012, 1032, 269 Cal.Rptr. 720, 791 P.2d 290 ["good faith settlement bars a claim for implied contractual indemnity"]; Far West Financial...