Liton Gen. Engineering Contractor, Inc. v. United Pacific Insurance

In Liton Gen. Engineering Contractor, Inc. v. United Pacific Insurance (1993) 16 Cal.App.4th 577, a general contractor entered into a contract with the California Department of Transportation (Caltrans) for bridge and highway construction. (Id. at p. 582.) A surety issued a payment bond on behalf of the general contractor as required by Civil Code section 3247. (Liton, supra, at pp. 582-583.) The general contractor entered into a subcontract with the plaintiff by which the plaintiff "took responsibility for the bridge work portion of the project." (Id. at p. 583.) The subcontract required the general contractor and the plaintiff to arbitrate any disputes between them arising out of the subcontract as "'a condition precedent to any right of legal action'" and further provided that each would bear its own legal fees incurred through arbitration. (Ibid.) As the project neared completion, Caltrans assessed the general contractor liquidated damages in the amount of $87,920 based on a delay of 157 calendar days. (Ibid.) The general contractor blamed the delay on the plaintiff and another subcontractor, and withheld $77,840 of its final payment to the plaintiff. (Ibid.) Caltrans thereafter released $26,880 to the general contractor, which sum it passed through to the plaintiff. (Ibid.) The general contractor pursued administrative proceedings before Caltrans's board of review. (Liton, supra, 16 Cal.App.4th at p. 583.) The plaintiff filed an action against the general contractor for breach of contract and common counts, and against the surety for recovery on the payment bond. (Ibid.) The complaint prayed for recovery of attorney fees against the surety only. (Ibid.) The general contractor moved to stay the entire action and to compel the plaintiff to arbitrate its dispute with the general contractor as part of the pending arbitration proceeding between the general contractor and Caltrans. (Ibid.) The surety filed an answer to the plaintiff's complaint, raising as an affirmative defense that "the action was subject to abatement until completion of the arbitration." (Ibid.) Over the plaintiff's opposition, the trial court ordered the action stayed and compelled the plaintiff to arbitrate its claims against the general contractor. (Ibid.) Following the arbitration proceeding, the arbitrator awarded the plaintiff the entire amount of its claim of $46,480 of the liquidated damages withheld, plus interest. (Liton, supra, 16 Cal.App.4th at p. 583.) The plaintiff was also awarded in $5,000 in settlement proceeds paid by Caltrans to the general contractor for "railroad flagging charges." (Ibid.) The arbitrator ordered each party to bear its own attorney fees and costs incurred in the arbitration. (Ibid.) The arbitration award was confirmed, and the trial court ordered that the stay of the plaintiff's original action be lifted. (Ibid.) Judgment was entered against the general contractor which paid the entire amount of the judgment to the plaintiff. (Ibid.) After the stay was lifted, the plaintiff moved for summary judgment against the surety to recover the attorney fees the plaintiff incurred in the arbitration proceeding. (Liton, supra, 16 Cal.App.4th at p. 583.) The surety filed a cross-motion for summary judgment, in which it argued the general contractor's payment of the amount owed the plaintiff under the judgment exonerated the surety from any liability for attorney fees, as a matter of law. (Id. at pp. 583-584.) The trial court granted the plaintiff's motion for summary judgment and awarded it attorney fees and costs incurred in the arbitration. (Id. at p. 584.) The appellate court affirmed the attorney fees award on the ground the arbitration proceeding "was an integral aspect of the plaintiff's action on the bond." (Liton, supra, 16 Cal.App.4th at p. 585.) The court reasoned: "At the urging of the surety, as well as the general contractor, and over the plaintiff's strenuous objection, the trial court compelled the plaintiff to complete the arbitration before it was permitted an opportunity to establish the surety's liability on the bond. . . . Under the circumstances, successful resolution of the arbitration action was a necessary precursor to and an integral component of a successful outcome in the plaintiff's action against the surety. The court correctly determined that the arbitration fees were incurred by the plaintiff as part of its action on the bond." (Ibid.) The appellate court rejected the surety's argument that Civil Code section 3250 requires an apportionment of fees spent by the plaintiff in arbitrating with the general contractor and in litigating with the surety. (Liton, supra, at p. 588.) The appellate court stated the plaintiff "was not permitted to establish the surety's liability on the bond without first completing arbitration. The liability of the general contractor and the surety were so factually interrelated that it would have been impossible to separate the activities involved in the arbitration into compensable and noncompensable time units. Allocation was not required." (Ibid.)