Opinion
A164516 A165480 A165257
06-28-2023
CERTAIN UNDERWRITERS AT LLOYDS, LONDON SUBSCRIBING TO CERTIFICATE 480887, AS SUBROGEE TO TWILIO, INC., Plaintiff and Appellant, v. ZILLOW GROUP, INC. et al., Defendants and Respondents.
NOT TO BE PUBLISHED
Order Filed Date 7/18/23
San Francisco City &County Super. Ct. No. CGC20583610
THE COURT:It is ordered that the opinion filed herein on June 28, 2023, be modified as follows:
1. On page 2, in the first line, delete the sentence spanning pages 2-3 and replace it with one that reads, "Relying on agreements between Twilio and defendants, Underwriters sought to recover some of the settlement costs Twilio incurred in a class action based on defendants' use of Twilio's services."
2. On page 13, in the first sentence in the first full paragraph, "Underwriters" is replaced with "Defendants" so that the sentence reads, "Defendants did not waive and are not estopped from enforcing the condition regarding the indemnifying parties' control of defense and settlement."
3. On page 19, insert a new paragraph after the end of the first partial paragraph and before the heading for subsection 4. The new paragraph reads: "Underwriters note that the control of defense condition, after giving defendants "sole and exclusive authority to defend or settle" any claim, continues in parentheses, "provided that, the Indemnifying Party will obtain the Indemnified Party's consent in connection with any act or forbearance required by the Indemnified Party, which consent will not be unreasonably withheld." Contrary to Underwriters' argument, this does not obligate defendants to ask Twilio for consent to take over the defense. Rather, it operates as a limit on the scope of defendants' sole and exclusive control by giving Twilio the right to reasonably withhold consent over any actions or forbearances required of it. As to all other matters for which Twilio's actions or forbearance are not required, defendants' control remains absolute."
There is no change in judgment.
The petition for rehearing is denied.
BROWN, P. J.
Certain Underwriters at Lloyds, London Subscribing to Certificate 480887 (Underwriters), as subrogee to Twilio, Inc. (Twilio), appeal from a trial court order granting summary judgment to Zillow, Inc., Zillow Group, Inc., and Trulia, LLC (collectively, Zillow) and Handy Technologies, Inc. (Handy) on Underwriters' complaint for indemnity and other claims.Relying on agreements between Twilio and defendants, Underwriters sought to recover defense and settlement costs Twilio incurred in a class action based on defendants' use of Twilio's services. The trial court ruled that Twilio failed to give defendants control over the defense and settlement of the class action, which the agreements made a condition precedent to defendants' obligation to indemnify Twilio. The trial court also awarded defendants their fees as the parties prevailing on the contracts. We find no error in the judgment or fees awards and will therefore affirm.
We refer collectively to the Zillow entities and Handy as "defendants."
BACKGROUND
Twilio offers internet-based communications services that software companies like defendants can use to facilitate communications between their end users. Twilio's services can include recording end users' text message or voice communications and making the recordings available to the software companies.
In 2014, Twilio signed enterprise service agreements (ESAs) with Handy and Zillow. Section 2.4 of the ESAs required Handy and Zillow to ensure (or use commercially reasonable efforts to ensure) that their use of Twilio's services was in accordance with applicable laws and the terms of the agreement, including an acceptable use policy incorporated into the agreement by reference. The ESAs also required defendants not to use Twilio's services in a way that violated any data protection statute or similar law.
Portions of documents filed in the trial court were filed under seal. In accordance with the Rules of Court, we have redacted references to the sealed information from the publicly-filed version of this opinion. (Cal. Rules of Court, rule 8.46(g).) We hereby order the unredacted version of this opinion sealed.
Both ESAs also contained indemnification provisions. The indemnification provisions differed slightly in ways not relevant here, but section 6.2 of both ESAs obligated defendants to "defend, indemnify and hold Twilio harmless" for certain claims made or brought against Twilio arising out of defendants' use of Twilio's services, including any violation of section 2.4 of the agreements by defendants or their users. Defendants agreed to "pay all costs, reasonable legal fees and any settlement amounts agreed to be paid by [defendants] or damages awarded against Twilio in connection with any such Claim."
Immediately following the indemnification provision in each agreement is a section with the heading, "Conditions of Indemnification." (Underlining omitted.) These provisions, which are identical, state, "As a condition of the foregoing obligations: (a) the indemnified party ('Indemnified Party') will promptly notify the indemnifying party ('Indemnifying Party') of any Claim; (b) the Indemnifying Party will have the sole and exclusive authority to defend or settle any such Claim (provided that, the Indemnifying Party will obtain the Indemnified Party's consent in connection with any act or forbearance required by the Indemnified Party, which consent will not be unreasonably withheld); and (c) the Indemnified Party will reasonably cooperate with the Indemnifying Party in connection with the Indemnifying Party's activities hereunder, at the Indemnifying Party's expense." The ESAs also contained attorney's fees provisions.
On April 12, 2016, Angela Flowers served Twilio with a class action complaint alleging, among other claims, that Twilio violated the California Invasion of Privacy Act, Penal Code sections 630 et seq. (CIPA), by intercepting and recording without consent the communications of Handy's and Zillow's end users.
The next day, Twilio sent identical letters to Handy and Zillow. Twilio said that it was writing "to inform" Handy and Zillow of the Flowers litigation, briefly described the core allegations in the complaint, and stated, "Twilio intends to defend this lawsuit vigorously and disputes the merits of these claims." Twilio reminded defendants that the ESAs obligated them to use Twilio's services in accordance with applicable law and that section 2.4 prohibited defendants from using Twilio's services to violate or facilitate the violation of any law, including laws regarding recording of data. The letters continued, "Among other things, misuse of the Twilio platform may be subject to suspension of services or termination of [the customer's] account, as well as, indemnification claims by Twilio pursuant to Section 6.2 of the Enterprise Agreement. Accordingly, please ensure that your use of Twilio's platform complies with applicable law and your contractual obligations to us." Zillow responded with a letter confirming that its use of the Twilio platform complied with all applicable laws.
Twilio proceeded to defend the Flowers litigation. In May 2016, Twilio demurred to the Flowers complaint, arguing in part that the complaint alleged only that Twilio's customers used Twilio's tools to record communications and that Twilio was not responsible for its customers' misuse of its services. The Flowers court overruled the demurrer as to the CIPA claims in August 2016. Twilio then proceeded with litigation, and defendants cooperated with Twilio's requests for information at various points.
In January 2018, the Flowers court certified one class of users who made or received a phone call that Twilio recorded for Handy between April 2010 and June 2017 and another class of users who made or received a text message that Twilio recorded for Handy between April 2010 and April 2016 or for Zillow between April 2010 and January 2018.
In February 2018, Twilio sent Handy and Zillow each a letter titled, "Notice for Indemnification" regarding the Flowers litigation. In the letters, Twilio informed defendants that the Flowers court had certified a class and asserted that the ESAs between Twilio and defendants entitled Twilio to indemnification. Twilio also demanded that defendants indemnify it, but it did not ask defendants to take over Twilio's defense.
Twilio followed up two months later with an additional letter to each defendant to update them on the status of the litigation. Twilio wrote that it had agreed to schedule a mediation with the Flowers plaintiffs to discuss a settlement of the Flowers litigation. Twilio stated that it was notifying defendants of the mediation to provide them "the opportunity to participate in that mediation in some form." Twilio also asked defendants to continue to cooperate with Twilio's requests for data and assistance in preparation for the mediation.
In an August 2018 tolling and reservation of rights agreement, Twilio suspended its indemnity demand and released Handy from any obligation to respond to it, without prejudice to Twilio reasserting its demand later. Handy waived the right to control Twilio's defense of the Flowers litigation but reserved the right to be informed of any settlement for which Twilio intended to seek indemnification. Handy agreed that any time-based defense it might raise to Twilio's indemnification claim, including defenses alleging lack of timely action or notice, would be tolled during the pendency of the agreement. But Handy did not waive any time-based defenses it might have had based on circumstances that occurred prior to the tolling agreement. The tolling agreement was in effect from August 2018 to December 2019.
In October 2018, Zillow asked Twilio for an update on the litigation, and Twilio responded that the parties had reached an agreement in principle to settle. After the motion for approval was filed, Zillow told Twilio that it would not be objecting to the settlement. The terms of the settlement required Twilio to pay $10 million and change its policies. Twilio did not admit liability. The Flowers court gave final approval to the settlement in June 2019.
Underwriters insured Twilio and paid $5 million of the Flowers settlement. Underwriters, as Twilio's subrogee, sued Handy and Zillow in 2020, alleging causes of action for breach of contract, contractual indemnity, equitable indemnity, contribution, comparative equitable indemnity, apportionment of fault, and declaratory relief. Underwriters sought to recover Twilio's expenses from the Flowers litigation, including the costs of defense and the final settlement. Underwriters, Handy, and Zillow filed cross-motions for summary judgment, with defendants raising several different arguments why they were not obligated to indemnify Twilio under the ESAs. In January 2021, the trial court denied Underwriters' motion and granted defendants' motions. Underwriters appealed from the order granting defendants' motions and the ensuing judgment.
Defendants then sought to recover their attorney's fees, based on the fee provisions in the ESAs. Zillow requested about $685,000 in fees, and Handy requested . The trial court granted defendants' motions for attorney's fees, awarding Zillow about $460,000 and Handy $650,000. Underwriters appealed from those orders as well.
DISCUSSION
I. Summary judgment
"On appeal after a motion for summary judgment has been granted, we review the record de novo, considering all the evidence set forth in the moving and opposition papers except that to which objections have been made and sustained. [Citation.] Under California's traditional rules, we determine with respect to each cause of action whether the defendant seeking summary judgment has conclusively negated a necessary element of the plaintiff's case, or has demonstrated that under no hypothesis is there a material issue of fact that requires the process of trial, such that the defendant is entitled to judgment as a matter of law." (Guz v. Bechtel National Inc. (2000) 24 Cal.4th 317, 334.)
"Because the trial court construed the indemnity and hold harmless provision without the aid of conflicting extrinsic evidence, the interpretation of that agreement is a question of law for this court." (Rooz v. Kimmel (1997) 55 Cal.App.4th 573, 585.)
A. Contractual indemnity
"Parties to a contract . . . may define therein their duties toward one another in the event of a third party claim against one or both arising out of their relationship. Terms of this kind may require one party to indemnify the other, under specified circumstances, for moneys paid or expenses incurred by the latter as a result of such claims. [Citation.] They may also assign one party, pursuant to the contract's language, responsibility for the other's legal defense when a third party claim is made against the latter." (Crawford v. Weather Shield Mfg., Inc. (2008) 44 Cal.4th 541, 551, italics omitted (Crawford).) An indemnity "agreement is construed under the same rules as govern the interpretation of other contracts. Effect is to be given to the parties' mutual intent ([Civ. Code,] § 1636), as ascertained from the contract's language if it is clear and explicit (§ 1638). Unless the parties have indicated a special meaning, the contract's words are to be understood in their ordinary and popular sense." (Crawford, at p. 552.)
Undesignated statutory citations are to the Civil Code.
The trial court ruled that Underwriters could not establish a right to indemnity based on the ESAs because Twilio had failed to satisfy the express conditions of indemnification in those agreements. The trial court highlighted the provisions in the ESAs labeled "Conditions of Indemnification," which state that "[a]s a condition of the foregoing obligations" to indemnify Twilio, (1) Twilio had to "promptly notify" defendants of any claim; (2) defendants would "have the sole and exclusive authority to defend or settle any such Claim," subject to Twilio's consent, which was not to be unreasonably withheld; and (3) Twilio would "reasonably cooperate" with defendants. The trial court characterized these conditions as conditions precedent to defendants' obligations to indemnify Twilio. It noted that the agreements listed the three conditions in the conjunctive, and the court interpreted this as reflecting an intent that defendants' obligation to indemnify Twilio was conditioned on satisfaction of all three conditions. The trial court found Twilio had not satisfied the control of defense condition because it never tendered or gave defendants sole and exclusive authority to control the defense and settlement of the Flowers litigation.
Because we find no error in this conclusion, we need not discuss the trial court's related, alternative rationale that the ESAs only obligated defendants to indemnify Twilio for settlement amounts if defendants agreed in advance to the settlement and defendants did not agree to the Flowers settlement.
Underwriters attack the trial court's ruling on numerous grounds. We are unpersuaded.
1. Satisfaction of conditions of indemnity
Underwriters contend that the three letters Twilio sent defendants about the Flowers litigation satisfied the control of defense condition. But as the trial court found, these letters do not bear the weight Underwriters place on them. First, in April 2016, immediately after plaintiffs served Twilio with the Flowers complaint, Twilio wrote to defendants to inform them of the litigation. After describing the litigation, Twilio wrote, "Twilio intends to defend this lawsuit vigorously and disputes the merits of these claims." Twilio's statement that it intended to defend the lawsuit is completely at odds with Twilio's argument here that it was giving defendants control over the defense of the case. Confirming this, Twilio wrote elsewhere in the letters to Handy and Zillow that defendants' misuse of Twilio's platform "may be subject to suspension of services or termination of your Twilio account, as well as, indemnification claims by Twilio" under the ESAs. Twilio then asked defendants to ensure that defendants' use of Twilio's services complied with the law and the ESAs. The statement that Twilio "may" make indemnification claims, followed by a request only for assurance of compliance, did not place Twilio's defense in defendants' hands.
Twilio sent its second letter to defendants in February 2018, requesting indemnity under the ESAs and asking for confirmation that defendants would indemnify it. But Twilio still said nothing about giving defendants control of the litigation or involving them in any way. Even if it had, Twilio sent this second letter two years into the litigation, after the Flowers court had overruled Twilio's demurrer (in which it tried to shift blame to defendants) and after it had certified a class of plaintiffs over Twilio's opposition. Given that Twilio had already hired counsel and litigated two of the most significant pretrial motions, nothing in this letter could have satisfied the control of defense condition; it was already too late.
To the extent that the sufficiency of the second letter is debatable, Twilio's third letter two months later, in April 2018, undermines any inference that Twilio had intended to tender its defense in the second letter. The third letter confirms that Twilio intended to continue to control the litigation. In the third letter, Twilio informed defendants that it had decided to schedule a mediation with the Flowers plaintiffs to discuss settlement. Scheduling such a mediation, of course, was a significant litigation decision that Twilio evidently made without consulting defendants. Twilio also told defendants it was notifying them of the mediation to provide them "the opportunity to participate in that mediation in some form." (Italics added.) Twilio told defendants that if they were interested in participating, they should schedule a call to discuss the participation further. These statements make clear that, far from allowing defendants to take the reins of the defense, Twilio still intended to control defendants' participation and the decisions over whether and how to settle the case.
It is clear that Twilio did not tender its defense to defendants, and we need not determine why. However, it may be that Twilio initially retained control of the defense because it intended to try to shift the blame to defendants, as it did in its demurrer to the Flowers complaint. If our surmise is correct, Twilio was faced with a dilemma of whether to place its defense in defendants' hands and satisfy the conditions of indemnity, at the risk of losing a defense that it viewed as promising. We also note that Twilio entered into a common interest agreement with Handy in October 2017, in which it stated that it did not intend to bring any claims against Handy relating to the Flowers litigation that would create adversity between the two companies. Twilio apparently calculated that the value of defending the litigation while maintaining non-adverse relations with defendants outweighed the value of the indemnity. Only after it lost the class certification motion did Twilio decide to request indemnity.
Underwriters contend that the sufficiency of these letters as tenders of defense is an issue of fact unsuitable for resolution on summary judgment. But Twilio's three letters to defendants are insufficient as a matter of law to constitute a tender of Twilio's defense to defendants, so they do not present a genuine issue of material fact precluding summary judgment. (Korchemny v. Piterman (2021) 68 Cal.App.5th 1032, 1041 [" 'There is a triable issue of material fact if, and only if, the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof' "].)
Underwriters further contend the trial court ignored evidence that defendants waived or were estopped from asserting their rights to control the defense and settlement of the case. They recite the facts that defendants coordinated with Twilio to provide information and data during the litigation and wrote declarations or letters that Twilio filed with its opposition to class certification. Underwriters cite in particular Twilio's tolling agreement with Handy in which Handy waived the right to control Twilio's defense and reserved only the right to be informed of the settlement, as well as Zillow's statement in an email from its counsel to Twilio's on the eve of the hearing on the motion for preliminary approval of the settlement that Zillow would "not be objecting to the proposed preliminary settlement."
Underwriters did not waive and are not estopped from enforcing the condition regarding the indemnifying parties' control of defense and settlement. Twilio's emails with defendants and the letters and declarations from defendants that Twilio submitted in the Flowers litigation confirm that Twilio had not ceded control of the litigation to defendants, since Twilio would not have needed to gather information from defendants if they were in charge of the defense themselves. Defendants' cooperation with Twilio therefore does not prevent them from relying on their lack of control as a defense against Underwriters' suit for indemnity. As for Zillow's statement about not objecting to the settlement, that statement does not constitute its consent to the settlement, much less waiver of the condition regarding Zillow's right to control the settlement or the defense that preceded it. The statement merely meant that Zillow would not be appearing at the hearing on the settlement to formally object. Zillow made the statement after Twilio had already agreed on the settlement with the Flowers plaintiffs and had already submitted the motion for preliminary approval of the settlement, which occurred after litigation of the case was essentially finished.
In addition, the trial court's failure to address the tolling agreement does not change the analysis because, like Twilio's letters to defendants in 2018 or Zillow's non-objection to the motion for preliminary approval of the settlement, the tolling agreement came too late. The parties signed the tolling agreement in August 2018, only a few weeks before the mediation. The tolling agreement itself acknowledged that Handy was not waiving any time-based defense based on circumstances that occurred prior to the execution of the agreement. Even if Twilio had offered or Handy had sought to control the defense and settlement of the case at that point, two-and-a-half years of litigation, including rulings on significant pretrial motions and scheduling of mediation, had already passed. Handy's waiver of the right to control the defense after August 2018 cannot change the fact that Twilio had long since failed to comply with the control of defense and settlement condition.
2. Conditions precedent
Underwriters next quarrel with the trial court's characterization of the "Conditions of Indemnification" provision as establishing conditions precedent. The Civil Code states that contractual conditions "may be precedent, concur rent, or subsequent." (§ 1435.) "A condition precedent is one which is to be performed before some right dependent thereon accrues, or some act dependent thereon is performed." (§ 1436.) "Conditions concurrent are those which are mutually dependent, and are to be performed at the same time" (§ 1437), and a "condition subsequent is one referring to a future event, upon the happening of which the obligation becomes no longer binding upon the other party, if he chooses to avail himself of the condition" (§ 1438).
To support their challenge to the trial court's ruling, Underwriters note that courts will not construe contractual terms to establish conditions precedent absent plain and unambiguous language to that effect. (Frankel v. Board of Dental Examiners (1996) 46 Cal.App.4th 534, 550.) Underwriters emphasize that the ESAs label the conditions as "Conditions of Indemnification" (italics added), not conditions "for" or "prior to" indemnification. They also charge the trial court with conflating the duty to indemnify with the duty to defend. They assert that their complaint raised only the duty to indemnify, which does not accrue until a settlement or judgment is entered. The trial court, according to Underwriters, improperly faulted Twilio for failing to promptly demand indemnification before the settlement was even reached.
The language and logic of the ESAs fully supports the trial court's ruling that the control of defense condition in the ESAs was a condition precedent to defendants' duty to indemnify Twilio. The labeling of the control of defense condition as one of the "Conditions of Indemnification," immediately after the provision in the ESAs defining the indemnity right, demonstrates an intent to impose a condition precedent on that right. Swapping "of" for "for" or "prior to," as Underwriters urge, would change nothing about the meaning of the provision. The control of defense condition is straightforward and obligates defendants to pay Twilio's costs of defense and settlement of a case only if defendants had control of the preceding litigation.
Resisting this conclusion, Underwriters point out that forfeitures are generally disfavored. (Alpha Beta Food Markets, Inc. v. Retail Clerks Union Local 770 (1955) 45 Cal.2d 764, 771.) That may be so, but the control of defense condition here nonetheless serves a reasonable and understandable purpose, as it ensures that control over litigation rests with the party that will ultimately suffer the consequences of it. And because the defense of a case necessarily precedes the accrual of the right to indemnification for the costs of defense and settlement at the conclusion of the case (see Crawford, supra, 44 Cal.4th at pp. 553-554, 557-558), Twilio had to give defendants control of the litigation to secure the right to indemnity later.
Notably, although they dispute that the control of defense condition is a condition precedent, Underwriters nowhere explain what other kind of condition it could be or the significance of any such alternative classification. The only plausible alternative is to call it a condition concurrent, but that would not change the outcome. "[T]he only important difference between a concurrent condition and a condition precedent is that the condition precedent must be performed before another duty arises, whereas a tender of performance is sufficient in the case of a concurrent condition." (Pittman v. Canham (1992) 2 Cal.App.4th 556, 559.) But even if we view the control of defense condition as a condition concurrent, Twilio's failure to tender performance by offering defendants control over the Flowers litigation still discharges defendants from any obligation to indemnify Twilio.
Relatedly, Underwriters argue that defendants' control of the defense and settlement cannot be a condition precedent to Twilio's right to indemnity because it would mean that Handy and Zillow needed only to refuse a request for defense in order to defeat the indemnity obligation entirely. If Twilio had offered defendants the right to control Twilio's defense and settlement of the Flowers litigation, defendants' refusal to exercise that right would surely prevent them from relying on the condition to defeat their indemnity obligations, whether because the condition is a condition concurrent (such that Twilio's offer was enough to satisfy it) or under a theory of waiver, estoppel, or some other doctrine. But we need not discuss such hypotheticals in detail here because however we view the condition, Twilio did not satisfy it by offering its defense to defendants.
We also need not determine how Twilio could have satisfied its simultaneous obligations under the ESAs to give both Handy and Zillow "sole and exclusive authority to defend or settle" the Flowers matter.
3. Rewriting the agreements
Underwriters argue the trial court rewrote the conditions of indemnification by ruling that Twilio had to tender the defense of the Flowers litigation and offer to confer settlement authority on defendants in order to be entitled to indemnity. Underwriters contend the only affirmative obligation the ESAs placed on Twilio was to promptly notify defendants of the Flowers complaint. According to Underwriters, the control of defense condition required only that defendants have the authority to control the defense or settlement of the litigation, and Twilio could seek indemnity regardless of whether defendants in fact exercised that authority. Underwriters also note that there was no evidence that defendants ever sought authority to control the litigation or that Twilio prevented them from doing so.
Preliminarily, this argument implicitly recognizes that notice of litigation is a condition precedent to defendants' duty to indemnify Twilio. The notice condition is one of the three "Conditions of Indemnification" in each ESA, just like the control of defense condition. Underwriters offer no reason to construe the three conditions differently. If the notice condition is a condition precedent, the control of defense condition must be, too, contrary to Underwriters' earlier argument.
That aside, Underwriters' interpretation of the ESAs is not plausible. Underwriters read the ESAs as requiring defendants to demand control of Twilio's defense after Twilio gave notice of the Flowers complaint, rather than obligating Twilio to offer or tender control of the defense. This makes little sense. Twilio was the party seeking to invoke the benefits of the agreements, so logically the burden was on Twilio to assert or request the benefits to which it believed it was entitled. As the court in Pittman v. Canham, supra, 2 Cal.App.4th at page 560 noted in the context of a real estate sale dispute in which neither side tendered performance of their concurrent conditions under the contract, "the buyer and seller cannot keep saying to one another, 'No, you first.' Ultimately, in such a case, the buyer seeking enforcement comes in second; he loses." The only way for Twilio to assert or request the benefits of the indemnity agreement, given the control of defense condition, was to inform defendants that it was placing its defense in their hands in some fashion. If Twilio never offered control over its defense to defendants, they had no reason to ask for it. This is especially true because defendants continue to dispute whether they would owe an indemnity under the agreements even if Twilio had satisfied the express conditions in the ESAs.
4. Notice as tender
Underwriters accuse the trial court of requiring Twilio to use "magic words" to tender the defense of the Flowers case to defendants, instead of allowing the notice of claim to serve as the request for a defense. But as the trial court pointed out, the ESAs describe the three conditions of indemnity in the conjunctive, entitling defendants to notice, exclusive control, and cooperation from Twilio. Because the agreements list three independent conditions and join them with the conjunction "and," it would be improper to construe the agreements to allow notice alone to satisfy the control of defense condition, thereby rendering the control of defense condition surplusage. (Filtzer v. Ernst (2022) 79 Cal.App.5th 579, 584 [courts must assume parties did not intend language in contract to be surplus or redundant].) Contrary to Underwriters' contention, the trial court did not fault Twilio for failing to use specific language to give control of the Flowers litigation to defendants. It simply found that Twilio's letters giving notice did not suffice to cede control of the litigation to defendants, a conclusion with which we agree. Even if mere notice of a claim could, in some other context, bestow upon defendants the right to control the defense of the claim, Twilio's 2016 letter notifying defendants of the Flowers litigation and its subsequent actions went beyond simple notice. By stating that Twilio itself intended to defend the litigation vigorously and by then proceeding to control its own defense, Twilio's letters and behavior deprived defendants of their exclusive control rights and therefore failed to satisfy the control condition.
Underwriters claim that a vast body of case law from across the country establishes that notice of a claim is sufficient to tender the defense of the claim and trigger the duty to defend. We need not discuss in detail most of the decisions that Underwriters cite because, as Underwriters admit, they concern the obligations of insurers to insureds under insurance policies. Underwriters argue the insurance cases merely apply basic contractual rules, but this is not true. OneBeacon America Ins. Co. v. Fireman's Fund Ins. Co. (2009) 175 Cal.App.4th 183, 202203, one of the few California decisions that Underwriters cite, described the rationale for defining notice of a lawsuit as equivalent to tender:" 'By disallowing the formation of a potential loophole for insurers around what constitutes an express request for defense, we clarify the duties of insurers and protect the bargain struck by the parties in the insurance policy. The insured paid for the insurer's promise to defend the insured for covered claims, and the insured's ignorance regarding the language the insured must use to invoke that coverage should not negate the bargain. [Citations.] [¶] . . . [¶] . . . We will not create a legal rule that presumes an insured, whether a company or an individual, is equally sophisticated, knowing its contractual right to coverage and when and how to invoke it. Nor will we create a rule that "interpret[s] an insured's silence as a statement of intent to forgo the insurer's assistance." [Citation.] Indeed, insurers are better able to "facilitate clear communication between the parties."' "
This rationale relies heavily on the specifics of insurance policies and does not apply to indemnity contracts like the ESAs. Most importantly, the overall purpose of the ESAs was for Twilio to sell Handy and Zillow its services, not specifically to obtain the protection of indemnity like in an insurance scenario. While defendants and Twilio perhaps factored in the indemnity obligation into the price paid under the ESAs, the parties' ongoing relationships gave Twilio other reasons to inform defendants of litigation beyond offering control of the defense, such as seeking to foreclose future litigation by prompting defendants to change their policies and practices or tipping defendants off that they might be added to the suit. This is unlike the relationship between insurer and insured, in which the insured has no reason to tell the insurer about a lawsuit other than requesting coverage. Also, we must assume Twilio was equally sophisticated as Handy or Zillow, equally knowledgeable about how to invoke coverage, and equally able to facilitate clear communication, unlike an insured, who is in all likelihood less familiar with how to invoke an insurance policy than an insurer.
For related reasons, the Supreme Court has made clear that principles of interpretation of insurance contracts do not necessarily apply to indemnity agreements. Crawford explained, "Though indemnity agreements resemble liability insurance policies, rules for interpreting the two classes of contracts do differ significantly. Ambiguities in a policy of insurance are construed against the insurer, who generally drafted the policy, and who has received premiums to provide the agreed protection. [Citations.] In noninsurance contexts, however, it is the indemnitee who may often have the superior bargaining power, and who may use this power unfairly to shift to another a disproportionate share of the financial consequences of its own legal fault." (Crawford, supra, 44 Cal.4th at p. 552; accord, City of Watsonville v. Corrigan (2007) 149 Cal.App.4th 1542, 1548 ["Indemnity agreements are not construed like liability insurance policies"] (Watsonville).)
Underwriters try to distinguish this reasoning by pointing out that there is no evidence in the record here that Twilio had superior bargaining power over Handy or Zillow. This is true, but by the same token, there is no evidence that Handy and Zillow had superior bargaining power over Twilio, either. At a minimum, unlike in the insurance context, there is no reason to extend special solicitude to Twilio as the indemnitee by equating notice with a tender of defense to Handy and Zillow as indemnitors, especially because the ESAs list the notice and control conditions separately and in the conjunctive.
Underwriters' insurance cases are therefore inapposite. The three cases Underwriters cite that do concern indemnity do not persuade us that an indemnitee's notice of a claim should be treated as the tender of the defense of the claim to an indemnitor. Bedal v. Hallack &Howard Lumber Co. (9th Cir. 1955) 226 F.2d 526, 535-536, citing Res. Judgments, § 107, com. e, relied on a Restatement provision that has since been superseded, which now states that an indemnitee's notice of a claim must be "intelligible in demanding that the indemnitor assume defense of the action." (Rest.2d Judgments, § 57, com. e.) D.G. Shelter Products Co. v. Moduline Indus., Inc. (Alaska 1984) 684 P.2d 839, 841, simply followed Bedal. Litton Systems, Inc. v. Shaw's Sales &Services, Ltd. (Ariz.Ct.App. 1978) 579 P.2d 48, 50-51, held that an indemnitor is bound by a judgment if the indemnitee gave the indemnitor notice and asked the indemnitor to defend it or participate in the defense. The court did not hold that notice alone constitutes a request for a defense, especially where, as here, the agreement lists notice and control of the defense as independent, conjunctive conditions and the indemnitee gives every indication of intending to control its own defense. (Id. at pp. 50-52.) To the contrary, the court held that a tender of defense "must contain full and fair information concerning the pending action and an unequivocal, certain and explicit demand to undertake the defense thereof, with an offer to surrender control of the action to the indemnitor at least as to that portion of the claim for which the indemnitee seeks ultimately to hold the indemnitor liable. The notice should be given as soon after the institution of suit as to permit complete control of pretrial proceedings by the indemnitor." (Id. at p. 52.)
5. Section 2778
In their fifth argument, Underwriters contend the trial court disregarded section 2778, which they contend gave Twilio the right to conduct its own defense if it wished. "[S]ection 2778, unchanged since 1872, sets forth general rules for the interpretation of indemnity contracts, 'unless a contrary intention appears.' If not forbidden by other, more specific, statutes, the obligations set forth in section 2778 thus are deemed included in every indemnity agreement unless the parties indicate otherwise." (Crawford, supra, 44 Cal.4th at p. 553.) Section 2778, subdivision 4, states, "The person indemnifying is bound, on request of the person indemnified, to defend actions or proceedings brought against the latter in respect to the matters embraced by the indemnity, but the person indemnified has the right to conduct such defenses, if he chooses to do so."
Watsonville, supra, 149 Cal.App.4th at pages 1548-1549 applied the second half of section 2778, subdivision 4 and held that an indemnitee was not required to tender its defense to the indemnitor and could instead defend itself and later recover its defense costs. However, as section 2778, Crawford, and Watsonville all note, section 2778 governs "unless a contrary intention appears" in an indemnity agreement. (§ 2778; Crawford, supra, 44 Cal.4th at p. 553; Watsonville, at p. 1551 ["we cannot overlook the absence of a consent [to control defense] condition in the indemnity agreements before us"].) Here, the ESAs evince a contrary intent by making defendants' exclusive control of the defense and settlement of a claim "a condition of the . . . obligations" to "defend, indemnify, and hold [Twilio] harmless." The ESAs thus displaced the right to defend itself that Twilio may have had under subdivision 4 of section 2778.
6. Notice-prejudice rule
Underwriters' sixth argument, like their fourth, borrows from insurance law. They argue the trial court's ruling that Twilio was not entitled to indemnity because it failed to request a defense violates the notice-prejudice rule, which "requires an insurer to prove that the insured's late notice of a claim has substantially prejudiced its ability to investigate and negotiate payment for the insured's claim." (Pitzer College v. Indian Harbor Ins. Co. (2019) 8 Cal.5th 93, 101 (Pitzer).) Underwriters accuse the trial court of failing to address the need for defendants to prove prejudice and failing to cite any authority permitting defendants to avoid their indemnity obligations due to defective notice.
Underwriters cite no case applying the notice-prejudice rule outside the insurance context. The only justification Underwriters offer for extending the rule to indemnity agreements is an unsupported assertion that the rule rests on generally applicable contract law. This is incorrect. As with the rule that notice of a claim is equivalent to tender, the noticeprejudice rule rests on concerns specific to the insurer-insured relationship. Pitzer, supra, 8 Cal.5th at page 102, recognized "three essential reasons for adopting the notice-prejudice rule: '1) "the adhesive nature of insurance contracts"; 2) "the public policy objective of compensating tort victims"; and 3) "the inequity of the insurer receiving a windfall due to a technicality." '" (See also id. at p. 106 [insurance" 'is viewed as a "quasi-public" business, in which the special relationship between the insurers and insureds requires special considerations' "].) These concerns plainly have no bearing on indemnity agreements in general or the ESAs specifically, and Underwriters present no argument as to why these reasons or any other rationale for the noticeprejudice rule would be relevant here.
Moreover, even if the rule did apply to indemnity agreements, it still would not be grounds for reversing the judgment. As the name suggests, the notice-prejudice rule concerns an insurer's ability to deny coverage because of an insured's failure to give timely notice of a claim. (Pitzer, supra, 8 Cal.5th at p. 101.) But the trial court ruled that Twilio failed to satisfy the control of defense condition, not that it failed to give notice. The distinction is significant. The separate and independent control of defense condition in the ESAs is analogous to a provision in an insurance policy preventing an insured from incurring costs or expenses without the insurer's consent, in that both are intended to protect the insurer's or indemnitor's ability to control the litigation. (Id. at p. 108.) As our Supreme Court has observed, "Because the insurer's right to control the defense and settlement of claims is paramount in the third-party context, California appellate courts have generally refused to find the notice-prejudice rule applicable to consent [to payment] provisions in third-party [liability] policies." (Id. at p. 108.) Because the control of defense and settlement condition implicates the same concerns and Underwriters offer no reason why we should treat the two types of conditions differently, we likewise decline to apply the notice-prejudice rule here.
B. Pre-2014 equitable indemnity and breach of contract claims
Underwriters argue that the trial court erred in granting summary judgment of their claims for equitable indemnity.Underwriters admit that when "parties have expressly contracted with respect to the duty to indemnify, the extent of that duty must be determined from the contract and not by reliance on the independent doctrine of equitable indemnity." (Rossmoor Sanitation, Inc. v. Pylon, Inc. (1975) 13 Cal.3d 622, 628.) But they point out that the ESAs only applied from August 2014 onward for Zillow and October 2014 onward for Handy. Consequently, in Underwriters' view the trial court erred by relying on its ruling on the ESA-based claims to grant summary judgment for defendants on Underwriters' claims for equitable indemnity for the pre-August 2014 and October 2014 periods.Underwriters also argue they pled claims for breach of contract based on the terms of use and acceptable use policies applicable to defendants' use of Twilio's services that governed the parties' relationships before they executed the ESAs in 2014. They fault the trial court for granting summary judgment on their breach of contract cause of action as to those pre-August 2014 and October 2014 agreements.
Underwriters contend this argument applies to their equitable indemnity, contribution, and apportionment of fault claims. But the trial court granted summary judgment on Underwriters' claim for contribution because a right to contribution "come[s] into existence only after rendition of a judgment declaring more than one defendant jointly liable to the plaintiff" and no such judgment was entered here. (Coca-Cola Bottling Co. v. Lucky Stores, Inc. (1992) 11 Cal.App.4th 1372, 1378.) Underwriters do not mention or challenge this ruling, so we consider this argument only as to their causes of action for equitable indemnity, comparative equitable indemnity, and apportionment of fault.
Underwriters do not challenge the trial court's judgment on their equitable indemnity claims after August and October 2014 based on its ruling under the ESAs, tacitly conceding that such judgment was proper.
The trial court rejected Underwriters' argument as to the breach of contract claims based on the terms of use and acceptable use policies because Underwriters' complaint did not raise those contracts as the basis for their breach of contract claims. The trial court did not err. Nowhere in the operative complaint did Underwriters mention any pre-2014 agreements. Rather, the allegations begin with descriptions of the execution of the ESAs in August and October 2014. The only mention of a document other than the ESAs comes in the complaint's quotation of the provision in the ESAs incorporating the acceptable use policy into the ESAs, which has no bearing on periods preceding the existence of the ESAs. Underwriters point to language in the complaint in which they alleged that Twilio and defendants entered into "written agreements" and contend the plural "agreements" was intended to include the terms of use and acceptable use policy. This argument borders on frivolous. The complaint used the plural "complaints" to refer to the ESAs with each defendant, not to the ESAs and other, unmentioned agreements.
Underwriters assert in a footnote that the trial court should have granted their request for leave to amend their complaint to list the terms of service and acceptable use policies as bases for their breach of contract claims. We need not address this argument. "We do not have to consider issues discussed only in a footnote." (Sabi v. Sterling (2010) 183 Cal.App.4th 916, 947.)
Underwriters' contention that the trial court erred in granting summary judgment of their equitable claims for the pre-2014 period fails for the same reason. In each of their claims for equitable indemnity, comparative equitable indemnity, and apportionment of fault, Underwriters alleged they were entitled to equitable relief in the alternative to their express indemnity claims, in the event that the ESAs were declared unenforceable. Defendants had no reason to suspect Underwriters were claiming equitable relief as to the time period preceding the ESAs.
C. Post-2014 breach of contract claim
Underwriters challenge the trial court's grant of summary judgment as to their breach of contract claims based on the ESAs, which Underwriters contend are separate from their claims for contractual indemnity based on the ESAs. In their complaint, Underwriters alleged breach of contract claims based on the section in the ESAs obligating defendants to comply with applicable laws and the acceptable use policy, while they alleged contractual indemnity claims based on the indemnity provisions of the ESAs. The trial court ruled that the breach of contract claims were claims for implied indemnity and therefore barred by the rule that express indemnity language in a contract controls over the doctrine of equitable indemnity, which includes implied indemnity. We agree with the trial court.
Bay Development, Ltd. v. Superior Court (1990) 50 Cal.3d 1012 rejected an argument like Underwriters' here. There, to avoid application of a rule that barred a claim for implied indemnity, the defendants in a suit sought to characterize their cross-complaint for indemnity from a third party as instead a claim for breach of warranty. (Id. at p. 1033, fn. 13.) The Supreme Court rejected the argument, reasoning that the defendants were seeking to shift responsibility to the third party for the damages the defendants might owe the plaintiffs, rather than seeking to recover ordinary contract damages. (Ibid.) The same is true here. Underwriters' breach of contract claims do not seek to recover damages for Twilio's own harm from Handy's and Zillow's breach of the obligations to comply with applicable laws. Rather, the breach of contract claims simply seek to shift Twilio's costs from the Flowers litigation to Handy and Zillow. The breach of contract claims are therefore a classic claim for implied indemnity. (Ibid.) And because implied indemnity is a type of equitable indemnity (id. at p. 1029), Underwriters' breach of contract claims are therefore barred under the rule that when "parties have expressly contracted with respect to the duty to indemnify, the extent of that duty must be determined from the contract and not by reliance on the independent doctrine of equitable indemnity." (Rossmoor Sanitation, Inc. v. Pylon, Inc., supra, 13 Cal.3d at p. 628.)
II. Entitlement to attorney's fees
Underwriters' appeal from the trial court's order granting defendants their attorney's fees as prevailing parties in a dispute arising from the ESAs rests primarily on the argument that defendants should not have prevailed at summary judgment. Because we affirm the trial court's summary judgment ruling, we also affirm its ruling that defendants were prevailing parties.
Underwriters separately argue that Zillow cannot collect its attorney's fees under its ESA. Underwriters contend Zillow is judicially estopped from relying on the ESA for its fees because it argued the ESA did not apply to the Flowers complaint. This argument has no merit. "Judicial estoppel bars a party from gaining an advantage by taking one position and then seeking a second advantage by taking an incompatible position.... The doctrine is discretionary and has five prerequisites: (1) The same party has taken two positions in (2) judicial or quasi-judicial administrative proceedings; (3) the party was successful in asserting the first position (that is, the tribunal adopted the position or accepted it as true); (4) the two positions are totally inconsistent; and (5) the party did not take the first position as a result of ignorance, fraud, or mistake." (DotConnectAfrica Trust v. Internet Corp. for Assigned Names &Numbers (2021) 68 Cal.App.5th 1141, 1158.) While Zillow argued the ESA was inapplicable, that argument was not successful because the trial court granted Zillow's summary judgment motion on other grounds. Judicial estoppel does not apply.
III. Amount of Handy's fees award
Finally, Underwriters argue the amount of fees the Superior Court awarded Handy constitutes an abuse of discretion. "We review the trial court's determination of a reasonable attorney fee for abuse of discretion." (Los Angeles Unified School Dist. v. Torres Construction Corp. (2020) 57 Cal.App.5th 480, 516.)" 'The only proper basis of reversal of the amount of an attorney fees award is if the amount awarded is so large or small that it shocks the conscience and suggests that passion and prejudice influenced the determination.'" (Blue Mountain Enterprises, LLC. v. Owen (2022) 74 Cal.App.5th 537, 559.)
Underwriters' attack on the trial court's award of $650,000 to Handy rests on Underwriters' calculation that the award compensates Handy for two and a half times as many attorney hours as the award to Zillow, even though the trial court expressly stated that both defendants were similarly situated.
We will assume for the sake of argument that Underwriters correctly impute to the trial court a view on the number of hours reasonably necessary to litigate the case, even though the trial court appears to have taken the simple approach of awarding both defendants about of their total requests rather than calculating the fees based on a certain number of hours worked. The trial court's remark that Handy was similarly situated to Zillow still does not mean the two were identically situated or that their fees award should be identical.
Handy argued in support of its fees request that it litigated the case more heavily than Zillow because it faced greater potential liability. The trial court singled out some of this activity as excessive, including the amounts billed for a demurrer to an amended complaint, untimely discovery motions, and overstaffing on the dispositive motions, but it still awarded Handy a larger amount of fees than Zillow. This is not irrational; it simply suggests the trial court accepted that some portions of Handy's additional activity were reasonable. The trial court's remark about Handy being similarly situated to Zillow was apparently intended to explain why the trial court reduced Handy's award by, a larger amount than the $228,860.28 reduction it applied to Zillow's request. Underwriters have failed to demonstrate that the $650,000 award to Handy was so large, either in isolation or in comparison to Zillow's award, that it shocks the conscience, suggests the trial court was influenced by passion or prejudice, or was otherwise an abuse of discretion.
DISPOSITION
The trial court's judgment and orders are affirmed.
WE CONCUR: STREETER, J. GOLDMAN, J.