Baldwin Builders v. Coast Plastering Corp

In Baldwin Builders v. Coast Plastering Corp. (2005) 125 Cal.App.4th 1339, sub-contractors prevailed in an action brought against them by a developer for breach of a contract that included the following provision: "The undersigned Subcontractor hereby agrees to indemnify Baldwin . . . against any claim, loss, damage, expense or liability arising out of acts or omissions of Subcontractor in any way connected with the performance of the subcontract . . . unless due solely to Baldwin's negligence. . . . Subcontractor shall, on request of the developer . . . but at Subcontractor's own expense, defend any suit asserting a claim covered by this indemnity. Subcontractor shall pay all costs, including attorney's fees, incurred in enforcing this indemnity agreement." The appellate court affirmed an attorney's fee award to the sub-contractors. It reasoned that the indemnity agreement not only provided the developer with a right to indemnity for liabilities to third parties, which would not entitle the sub-contractors to attorney's fees under section 1717, but also specified that the sub-contractors were required to pay the developer "all costs, including attorney's fees, incurred in enforcing this indemnity agreement." The court in Baldwin reasoned that, because this phrase unambiguously contemplated an action between the parties to enforce the indemnity agreements, section 1717 was applicable and the prevailing subcontractors were entitled to attorney's fees. (Id. at pp. 1344-1345.) The Court acknowledged the authorities stating that the rule of reciprocity under section 1717 is "subject to an exception where the recovery of attorney fees is authorized as an item of loss or expense in an indemnity agreement or provision. . ... In requiring reciprocity of only those provisions that authorize the recovery of attorney fees 'in an action on the contract,' section 1717, subdivision (a) expressly excludes indemnity provisions that allow the recovery of attorney fees as an element of loss within the scope of the indemnity." (Baldwin Builders, supra, 125 Cal.App.4th at p. 1344.) However, that exclusion or exception does not apply if the attorney fees clause contained in the indemnity agreement states that it applies to actions to enforce the provisions of the indemnity agreement. In such a case, the reciprocal provisions of section 1717 will apply. (Baldwin Builders, supra, at pp. 1344-1345.) In Baldwin Builders, supra, 125 Cal.App.4th 1339, this court held that the attorney fee provisions in the stand alone indemnity agreements were properly subject to section 1717, subdivision (a), and no such exception (for indemnity) prevented reciprocity. We said, "the express language of the attorney fee clauses authorizes the recovery of attorney fees where one of the parties to the agreement brings an action to enforce the indemnity; such an action is one 'on the contract' within the meaning of section 1717, subdivision (a) and thus the attorney fee clauses are subject to the statutory requirement of reciprocity. . The fact that the attorney fee clauses are set forth in the indemnity agreements does not alter this conclusion." (Baldwin Builders, supra, at p. 1346.) Baldwin Builders held that in contrast to the general provisions requiring the subcontractors to indemnify the developer "in the event of third party claims, the attorney fee clauses unambiguously contemplate an action between the parties to enforce the indemnity agreements . . . and thus Civil Code section 1717, subdivision (a) would appear to be applicable. " (Baldwin Builders, at p. 1345) The Court explained the reason for the exception to the operation of the Civil Code section 1717 rule of reciprocity where the recovery of attorney fees is authorized as an item of loss or expense in an indemnity agreement: "Because an indemnity agreement is intended by the parties to unilaterally benefit the indemnitee, holding it harmless against liabilities and expenses incurred in defending against third party tort claims (see Civ. Code, 2772), application of reciprocity principles would defeat the very purpose of the agreement. (Myers, supra, 13 Cal.App.4th at p. 973.) In requiring reciprocity of only those provisions that authorize the recovery of attorney fees 'in any action on the contract,' section 1717, subdivision (a) expressly excludes indemnity provisions that allow the recovery of attorney fees as an element of loss within the scope of the indemnity. (Myers, at p. 971.)" (Baldwin Builders, at p. 1344.)