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SCCA Magazine |
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California contractors may recover
attorneys’ fees under new case law
By Andrew Carlton,
Partner, Carno & Carlton
Every experienced litigant knows that unless
there is an avenue to recover attorneys’ fees,
litigation is a dangerous undertaking.
Litigation costs to take a matter from complaint
to judgment, even if it’s a simple single issue,
can cost tens of thousands, if not hundreds of
thousands, of dollars. More often than should be
the case, the issues often become secondary to
the issue of recovering attorneys’ fees.
That
said, there is good news for contractors in
California on public works projects requiring a
bond: The opportunity to recover attorneys’ fees
was increased by the appellate court’s recent
ruling in Mepco Services Inc. v. Saddleback
Valley Unified School District (2010) 189 Cal.
App. 4th 1027.
Mepco Services, a general
contractor, and the Saddleback Valley Unified
School District entered into a contract for
$1.64 million for modernization of the Esperanza
Special Education School in Orange County.
Subsequently, Mepco filed suit against the
district, claiming it was entitled to payment
for multiple change orders and delay damages,
all of which were the result of insufficient
plans and drawings and the district’s failure to
approve and pay for change order work in a
timely manner.
Mepco alleged it was owed
$681,086.55, which was Mepco’s final progress
payment, a 10 percent retention payment, unpaid
change orders, and delay damages for extended
overhead. The district filed a cross-complaint
against Mepco and its performance bond surety,
claiming Mepco was at fault for the delays and
that, as such, the district was entitled to
$1,000 per day in liquidated damages, for a
total of $198,000. The contract did not have an
attorneys’ fees clause, but the performance bond
contained a one-sided clause that said the
district could recover attorneys’ fees in the
event of a dispute.
After three weeks of trial,
the jury awarded Mepco 100 percent of the
damages sought and rejected the district’s
cross-claim in its entirety. After the verdict,
Mepco filed a motion arguing that the
performance bond Mepco was required to provide
under the contract, though separate from the
contract, was part and parcel of the agreement.
The lower court agreed and awarded Mepco 100
percent of its attorneys’ fees. The district
appealed.
In its ruling November 2, 2010, the
appellate court said the district “…sought to
enforce the bond by way of its cross-complaint.
It was Saddleback, not Mepco or Hartford, that
invoked the bond by raising the bond in its
cross-complaint. Saddleback named both Mepco and
Hartford as defendants in the
cross-action…Further, Saddleback specified in
its cross-complaint that it was seeking to
recover its attorney fees pursuant to the bond.
We conclude that if Saddleback had prevailed on
its claim for breach of the performance bond, it
would have been entitled to recover the attorney
fees that it incurred in prosecuting this
action. Therefore… Mepco and/or Hartford are
entitled to the attorney fees that they incurred
in defending against Saddleback's performance
bond claim.” Mepco at 1047-1048.
This ruling is
significant in that public works contracts
rarely, if ever, contain an attorneys’ fees
provision. In light of the Mepco case, where
there is a bond that includes an attorneys’ fees
provision, which is often the case, contractors
have a further avenue to collect their
attorneys’ fees. Public contract lawyers will
argue that unless the public entity makes a
claim against the contractor’s bond, the
attorneys’ fees provisions in those bonds are
not triggered.
Construction lawyers, on the
other hand, will argue that an attorneys’ fees
provision in a bond is part and parcel of the
contract document and, as such, it is not
necessary that the public entity pursue a claim
on the bond in order for a contractor to seek
recovery of its attorneys’ fees under the
attorneys’ fees provision of the bond.
A further
outcome of the ruling, which may work to the
benefit of contractors, is that public agencies,
which often make claims against a contractor’s
performance bond in order to gain leverage in
the litigation, whether or not there is any
merit to the claim, may be reluctant to do so
knowing they will be subject to the attorneys’
fees provision of the bond.
Andrew Carlton is a
partner of Carno & Carlton and was the lead
trial attorney in the Mepco case. he can be
reached at (949) 540-0320 or
www.carnocarltonlaw.com.
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