Opinion
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
City & County of San Francisco Super. Ct. No. 401775.
Jones, P.J.
The State of California and several California municipal entities sued Bank of America and Bank of America Corporation (hereafter collectively the Bank) alleging the Bank had mismanaged their municipal bond funds in its capacity as the public entities’ corporate trust agent. The parties mediated the dispute and a settlement was reached. The settlement was memorialized in a complex 41-page settlement agreement. As part of the agreement, the State agreed to indemnify the Bank against certain types of claims. Subsequently, a dispute arose over whether the State was obligated to indemnify the Bank for a claim that had been asserted by the State of Alaska. When the parties could not resolve that dispute, the Bank filed a complaint against the State seeking a determination that the State was required to indemnify the Bank. The trial court interpreted the settlement agreement and ruled the State was required to indemnify the Bank. The State now appeals contending the trial court interpreted the settlement agreement incorrectly. We will affirm the trial court’s judgment.
I. FACTUAL AND PROCEDURAL BACKGROUND
The State and its municipal entities frequently issue bonds as a way of raising money for civic improvements. Many bond issuers hire a corporate trust agent to perform the administrative and record keeping duties associated with the bonds they issue. Over the years, the Bank provided corporate trust agent services to approximately 1,400 governmental entities and over 11,000 bond issues. The Bank’s obligations varied by issuer and by issue, depending on the terms of the contract between issuer and the Bank as corporate trust agent.
One of the tasks the Bank performed as corporate trust agent was to act as a paying agent. As paying agent, the Bank received debt service funds from bond issuers and disbursed those funds to bondholders when interest and principal payments came due. Payments to registered bondholders were sent automatically to the address that each bondholder provided. Bearer bonds were paid upon presentment.
A bearer bond is a negotiable instrument that consists of a bond with detachable interest coupons. The bond and coupons are physically presented by the bondholder in order to receive principal and interest payments.
If all bondholders collected their interest payments or redeemed their bonds, then no cash would be left in the paying agent accounts. However, it was not uncommon for some bondholders to forget to redeem their bonds or to change their address so that the Bank could not locate them. When that occurred, money would remain in the Bank’s paying agent accounts for obligations that were mature but unpresented for collection.
Unclaimed funds that remained in the Bank’s payment accounts were not the property of the Bank. Rather, under the state’s Unclaimed Property Law, (Code Civ. Proc., § 1500 et seq.) those funds were to be escheated to the State.
In 1995, a former Bank employee named Patrick Stull filed a qui tam action against the Bank on behalf of the State under the False Claims Act. (Gov. Code, § 12650 et seq.) Among other things, the complaint alleged the Bank had charged the State more for corporate trust agent services than its contracts permitted, failed to properly invest the funds deposited in the paying agent accounts, and failed to escheat the funds that were deposited to pay California municipal bonds. The State and a number of California municipal bond issuers decided to intervene in the action. Bond issuers who did not intervene were included in the litigation as a class.
The parties elected to mediate the dispute before retired Judge Daniel Weinstein. After several days of negotiation, the parties reached a settlement under which the Bank agreed to pay over $187 million that would be allocated to the plaintiffs pursuant to an agreement they had negotiated separately amongst themselves. The provisions of the settlement were set forth in a “term sheet” that set forth “all material . . . terms” of the agreement. The term sheet gave the Bank the responsibility “in the first instance” to draft the formal settlement agreement.
The parties then commenced what proved to be the arduous task of negotiating and drafting a formal settlement agreement. After four months of negotiations, the agreement was completed on March 8, 1999. It is 41 pages long and sets forth in detail the terms of the settlement between the Bank on one hand, and the State and other plaintiffs on the other. Among other things, the settlement includes the following indemnity clause that is set forth in section V.E.1. of the agreement:
“(a) Settling Plaintiffs and Settling Plaintiffs’ Counsel agree and acknowledge that with respect to all California Unclaimed Property, the Released Bank Entities are entitled to any and all releases, rights and indemnities accorded to persons that have delivered funds to the State pursuant to Title 10 of the California Code of Civil Procedure, including but not limited to the releases, rights, and indemnities provided in sections 1321, 1540-1542 and 1560-1561 of the California Code of Civil Procedure, except that Settling Plaintiffs shall not be obligated to pay Presentments except as provided in Paragraph V.D. of this Stipulation.”
The term “California Unclaimed Property” is defined by the agreement to mean “all Unclaimed Property that the Released Bank Entities received or held at any time from the beginning of time until the date of this Stipulation in connection with any Security for which (a) the last known address of the Owner . . . is in the [S]tate of California; and/or (b) the issuer was domiciled in the State of California; and/or (c) the Released Bank Entity that acted as Corporate Trust Agent was domiciled in the State of California . . . .”
In fall 1998, the State of Alaska began questioning whether the Bank may have mishandled its municipal bonds and whether the Bank had failed to escheat money to which it was entitled. Alaska and the Bank commenced lengthy negotiations, and in January 2001, they attempted to mediate their dispute. When the mediation failed, the Bank contacted the State and demanded that the State indemnify it for any losses that it might incur due to the Banks’ failure to escheat funds to Alaska. The Bank relied on the language of the settlement agreement under which the State was obligated to indemnify the Bank. The State refused the Banks’ request. Ultimately the Bank settled with Alaska paying $35.6 million.
The Bank then filed the complaint against the State that is at issue in the current appeal. Alleging causes of action for breach of contract and declaratory relief, the Bank argued that under the plain language of the indemnity clause set forth in the settlement agreement, it was entitled to indemnity for that portion of the amount it had paid to Alaska that could be characterized as “California Unclaimed Property.” The State disputed the Bank’s interpretation arguing that when the settlement agreement and indemnity clause were properly construed, they only provided coverage for claims that arose from California municipal bonds.
After what appears to have been lengthy pretrial proceedings, the case proceeded to trial before the Honorable Richard Kramer who elected to bifurcate the proceedings. The first phase was a bench trial at which the court endeavored to interpret the settlement agreement under the framework set forth in Pacific Gas & E. Co. v. G.W. Thomas Drayage etc. Co. (1968) 69 Cal.2d 33, 37. Specifically, the court provisionally received extrinsic evidence in order to determine whether the settlement agreement was reasonably susceptible to the differing interpretations advanced by the Bank and the State. After hearing the evidence presented, the court issued a statement of decision in which it found that the interpretation advanced by the Bank was reasonable and that the interpretation advanced by the State was not. Accordingly, the court ruled the State was obligated to indemnify the Bank for a portion of the amount the Bank had paid to settle the Alaska escheatment claim.
The trial then proceeded to a second phase where the court was to determine the remaining issues. The parties elected not to litigate those issues, and instead, negotiated a stipulated judgment. The stipulated judgment set the Bank’s damages at $6.75 million but expressly reserved the State’s right to appeal.
II. DISCUSSION
A. Rules that Govern Contract Interpretation
The primary rules that govern contract interpretation are familiar and are not disputed by the parties. In interpreting a contract, a court must give effect to the mutual intention of the parties as it existed at the time of contracting. (Civ. Code, § 1636.) If a contract is written, that intention must be determined from the written language alone if possible. (Civ. Code, § 1639.)
In certain circumstances, parol evidence can be admitted to interpret an ambiguous written agreement. (Winet v. Price (1992) 4 Cal.App.4th 1159, 1165 (Winet).) The test of whether parol evidence is admissible to construe ambiguous language is not whether the language appears to a court to be unambiguous, but whether the evidence presented is relevant to prove a meaning to which the language is reasonably susceptible. (Id. at p.1165.) The decision whether to admit parol evidence involves a two-step process. First, the court provisionally receives, (without actually admitting) all credible evidence concerning the parties’ intentions to determine whether the language is ambiguous, i.e., whether the language is “reasonably susceptible” to the interpretation urged by a party. (Ibid.) If the language is not reasonably susceptible to the interpretation advanced by a party, the parole evidence is not relevant, and the contract is construed without it. (Dore v. Arnold Worldwide, Inc. (2006) 39 Cal.4th 384, 393 (Dore).) However if, in light of the extrinsic evidence, the court decides the language is “reasonably susceptible” to the interpretation urged, the extrinsic evidence is then admitted to aid in the second step—interpreting the contract. (Winet, supra, 4 Cal.App.4th at p. 1165.)
On appeal, differing standards of review apply depending on the context in which an issue arises. The trial court’s threshold determination of “ambiguity” i.e., whether contract language is reasonably susceptible to an interpretation advanced, is a question of law subject to independent review on appeal. (Winet, supra, 4 Cal.App.4th at p. 1165 .) The second step, the ultimate construction of a contract, is subject to differing standards of review depending on the parol evidence used to interpret the contract. When competent extrinsic evidence is in conflict, and thus requires the resolution of credibility issues, a reasonable construction of an agreement by the court or a jury will be upheld so long as it is supported by substantial evidence. (Id. at pp. 1165-1166.) However, when no parol evidence is introduced or when the competent parol evidence does not conflict, the construction of a contract presents a question of law subject to independent review. (Id. at p. 1166.)
Here, both parties agree that this appeal presents solely questions of law--the interpretation of the contract--that this court must decide de novoon appeal.
We must address one additional rule of construction. The pivotal portion of the settlement at issue is an indemnity provision; the State argues that all indemnity agreements must be strictly construed against a finding of indemnity. We disagree. Courts interpret indemnity provisions under the same rules that govern other contracts with a view to determining the actual intent of the parties. (Maryland Casualty Co. v. Bailey & Sons, Inc. (1995) 35 Cal.App.4th 856, 864.) This rule is modified to some degree when an indemnity agreement affords protection against a party’s own active negligence. In those circumstances, an indemnity agreement must be strictly construed against the indemnitee. (Heppler v. J.M. Peters Co. (1999) 73 Cal.App.4th 1265, 1277, fn. 8; see also Crawford v. Weather Shield Mfg. Inc. (2008) 44 Cal.4th 541, 552.) Here, there has never been a finding that the Bank was actively negligent. The indemnity agreement need not be strictly construed against the indemnitee Bank.
With these principles in mind, we turn to the differing interpretations advanced.
B. Bank’s Interpretation
The Bank’s interpretation of the settlement agreement and indemnity clause is straightforward and relies on the express language of the provisions.
Section V.E.1. (a) states that “with respect to all California Unclaimed Property, the Released Bank Entities are entitled to any and all releases, rights and indemnities accorded to persons that have delivered funds to the State pursuant to Title 10 of the California Code of Civil Procedure, including but not limited to the releases, rights, and indemnities provided in sections 1321, 1540-1542 and 1560-1561 of the California Code of Civil Procedure . . . .”
The first issue is whether the escheatment claim that Alaska asserted comes within the definition of “California Unclaimed Property.” The settlement agreement defines “California Unclaimed Property” as “all Unclaimed Property that the Released Bank Entities received or held at any time from the beginning of time until the date of this Stipulation in connection with any Security for which (a) the last known address of the Owner . . . is in the [S]tate of California; and/or (b) the issuer was domiciled in the State of California; and/or (c) the Released Bank Entity that acted as Corporate Trust Agent was domiciled in the State of California . . . .”
The claim that Alaska asserted was premised on an allegation that the Bank, while acting as corporate trust agent for Alaska municipal bonds, failed to escheat unclaimed funds to which Alaska was entitled. The parties do not dispute that the Bank acted as a corporate trust agent for the Alaska municipal bonds, and one of the functions of a corporate trust agent is to hold and disburse bond funds. Furthermore, no one disputes that the Bank was domiciled in California. Thus, Alaska asserted a claim based on “Unclaimed Property that the [Bank] received or held . . . in connection with any Security for which . . . (c) the Released Bank Entity that acted as Corporate Trust Agent [i.e., the Bank] was domiciled in the State of California . . . .”
Having decided that the claim Alaska asserted comes within the definition of “California Unclaimed Property,” we next turn to whether the Bank is entitled to indemnity. Again, we turn to the language of the settlement agreement. Section V.E.1. (a) states that with respect to all California Unclaimed Property, “the Released Bank Entities are entitled to any and all releases, rights and indemnities accorded to persons that have delivered funds to the State pursuant to Title 10 of the California Code of Civil Procedure, including but not limited to the releases, rights, and indemnities provided in sections 1321, 1540-1542 and 1560-1561 of the California Code of Civil Procedure . . . .”
There is nothing ambiguous about this language. If a claim is asserted that comes within the definition of “California Unclaimed Property” the Bank is entitled to “any and all releases, rights and indemnities accorded to persons that have delivered funds to the State pursuant to Title 10 of the California Code of Civil Procedure, including but not limited to the releases, rights, and indemnities provided in sections 1321, 1540-1542 and 1560-1561 of the California Code of Civil Procedure . . . .” Title 10 of the Code of Civil Procedure sets forth sections that deal with unclaimed property. (See Code Civ. Proc. § 1306 et seq.) It includes many different indemnity provisions including those that are described in the indemnity clause. Code of Civil Procedure section 1321 for example, states that any person who delivers unclaimed money or property to the State “shall, upon such delivery, be relieved and held harmless by the State from all or any claim or claims which exist at that time with reference to such money or other property . . . .” Code of Civil Procedure section 1561, subdivision (a) states that if the holder of unclaimed property delivers it to the State “and thereafter any person claims the property from the holder or another state claims the property from the holder under that state’s laws relating to escheat, the [State] shall . . . defend the holder against the claim and indemnify him against any liability on the claim.”
Applying this plain language, since Alaska asserted a claim that came within the definition of “California Unclaimed Property,” the Bank was entitled to “any and all releases, rights and indemnities accorded to persons that have delivered funds to the State” under the State’s unclaimed property laws including the right to “be relieved and held harmless by the State” (Code Civ. Proc, § 1321), and the right to indemnity from the State. (Code Civ. Proc., § 1561, subd. (a).)
The State argues the Bank’s interpretation must be rejected because the indemnity “covers only property actually delivered to California” and “the only property delivered to California came from California Bonds.” We reject both arguments.
The State’s first argument is based on the language in the indemnity clause that states “with respect to all California Unclaimed Property, the Released Bank Entities are entitled to any and all releases, rights and indemnities accorded to persons that have delivered funds to the State pursuant to Title 10 of the California Code of Civil Procedure, including but not limited to the releases, rights, and indemnities provided in sections 1321, 1540-1542 and 1560-1561 of the California Code of Civil Procedure . . . .” (Italics added.) The State notes that the indemnities set forth in the sections cited “are limited to property actually delivered to the State” and argues the indemnity here must be similarly limited. While the State’s interpretation of the statutes at issue may well be correct, its interpretation of the indemnity clause is not. The indemnity clause states that with respect to California Unclaimed Property, the Bank is entitled to the same indemnities that are provided to those who have delivered funds. The Bank’s indemnification rights are not limited by whether funds were delivered or by what it delivered. Rather, the statutory references simply specify a class of persons or entities whose rights define indemnitee Bank’s rights. The State’s argument is based on a limitation in the indemnity clause that does not exist.
The State’s source of funds argument is based on a portion of the settlement agreement that describes the amount the Bank paid to settle the dispute. Specifically, the agreement states: “‘Settlement Amount’ means an amount equal to one hundred eighty seven million five hundred thousand dollars ($187,500,000.00) . . . less $200,000, which shall be deducted in consideration of the Released Bank Entities’ agreement that this Settlement and Stipulation shall not release the Released Bank Entities’ obligation to pay Presentments of Securities other than California Debt Instruments.” According to the State, “By carving out this $200,000 and defining what that carve-out represented, the parties defined the nature of the property actually delivered to the State.” The State’s argument on this point is an unsupported ipse dixit. While the language the State cites does describe the purpose of the $200,000 “carve-out”, the clause says nothing about the source of the other funds paid in settlement nor does it exclude those other funds from indemnification obligations. Again, the State’s argument is based on a purported limitation in the settlement agreement that does not exist.
The extrinsic evidence the State cites reinforces our conclusion on this point. The State notes correctly that the Stull litigation was focused entirely on California municipal bonds, and further it correctly points out that the initial settlement amount of $187,500,000 million was reached before the parties even began to discuss whether the State might indemnify the Bank for anything other than California municipal bonds. From this the State argues that the amount paid in settlement “cannot constitute anything other than payment of claims arising from California municipal bonds.” But this argument fails to the extent that it conflicts with the wording of the settlement agreement itself. The indemnity clause in the settlement agreement is introduced by the following paragraph:
“1. There is a dispute among the parties hereto as to whether funds the Released Bank Entities received or held as Corporate Trust Agent for California Debt Instruments are subject to escheat to the State. There is also a dispute among the parties hereto as to whether the Released Bank Entities have an obligation to deliver to the State escheatable property that they received or held as Corporate Trust Agent. In recognition of the fact that this Settlement and Stipulation is intended to resolve all obligations of the Released Bank Entities with respect to funds received or held by the Released Bank Entities as Corporate Trust Agent and to satisfy the rights of the State to escheat of such funds, and to interest and penalties thereon, the parties agree as follows[.]” (Italics added.)
This clause demonstrates that while the Stull complaint itself may have focused on California municipal bonds, the underlying dispute between the parties was broader and included a dispute over whether the Bank was required to deliver funds that it held as a corporate trust agent for securities other than California municipal bonds. Given this description of the underlying dispute in the settlement agreement itself, it would be unreasonable to interpret the settlement agreement to mean that the entire amount the Bank paid in settlement was related only to California municipal bonds.
Next, the State argues the Bank’s interpretation of the indemnity clause is unreasonable because it provides indemnity coverage for property that all the parties knew would not escheat to the state: e.g., bonds issued by out-of-state municipalities and held by out-of-state residents. While out-of-state bond holders’ assets logically should not escheat to the State of California, it is not at all clear that the Bank would have no escheat liability in that circumstance. The parties disagreed over who had the obligation to escheat the unclaimed funds left in the Bank’s payment accounts. The State argued the Bank had that duty because it was the “holder” of those funds as that term is statutorily defined. (See Code Civ. Proc., § 1501, subd. (e).) The Bank countered that the bond issuer was the “holder” because it was the entity indebted on the underlying obligation, and that the issuer had the duty to escheat. However, if the State’s theory was correct, the Bank could have liability under the scenario the State posits. Specifically, if the Bank acted as paying agent for an out-of-state municipality that issued a bearer bond that was purchased by an out-of-state resident, and the purchaser then failed to redeem that bond, the Bank, as “holder” of the unclaimed funds might have the obligation to escheat them to California because it is domiciled in this state. (See Code Civ. Proc., § 1510, subd. (b)(2).) The interpretation of the indemnity agreement that is advanced by the Bank is consistent with this scenario.
Finally on this point, the State argues that “granting the Bank an unbargained-for indemnity would be an unconstitutional gift of public funds” that would violate Article XVI, section 6 of the California Constitution. We reject this argument because it is based on a false premise. As we have explained the indemnity sought by the Bank was indeed “bargained-for” and comes within the express language of the settlement agreement that was executed by the State. “The settlement of a good faith dispute between the State and a private party is an appropriate use of public funds and not a gift because the relinquishment of a colorable legal claim in return for settlement funds is good consideration and establishes a valid public purpose.” (Jordan v. Department of Motor Vehicles (2002) 100 Cal.App.4th 431, 450.)
C. The State’s Interpretation
Fundamentally the State urges an interpretation of the settlement agreement and indemnity clause that would impose an indemnification obligation only as to claims that arise from California municipal bonds. However, this interpretation is inconsistent with the language of the agreement itself. First, the indemnity clause states that with respect to “all” California Unclaimed Property, the Bank is entitled to the indemnities that are afforded to persons that have delivered funds under the unclaimed property laws. As we have explained, the definition of California Unclaimed Property in the settlement agreement includes non-California securities. Second, if the indemnity afforded by the agreement was limited to securities issued by California governmental entities, then the only definition of “California Unclaimed Property” that would be operative would be in section (b): “the issuer was domiciled in the State of California.” The definitions in section (a) “the last known address of the Owner . . . is in the [S]tate of California” and (c), “the Released Bank Entity that acted as Corporate Trust Agent was domiciled in the State of California” would be rendered superfluous. We must avoid an interpretation that renders portions of a contract inoperative or meaningless. (Civ. Code, § 1641; City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1998) 68 Cal.App.4th 445, 473 (City of Atascadero).) Third, as we have stated, the paragraph that introduces the indemnity clause states that there are two types of disputes between the parties and the latter dispute is not limited to California municipal bonds. Therefore, the State’s interpretation of the indemnity agreement as applying only to California municipal bonds is inconsistent with the language of the very section in which it appears.
“There is a dispute among the parties hereto as to whether funds the Released Bank Entities received or held as Corporate Trust Agent for California Debt Instruments are subject to escheat to the State. There is also a dispute among the parties hereto as to whether the Released Bank Entities have an obligation to deliver to the State escheatable property that they received or held as Corporate Trust Agent.”
Next, the State argues that its interpretation of the indemnity provision as applying only to California municipal bonds is supported by the exclusionary language contained therein. Specifically, the indemnity states that the Bank is entitled to indemnity with respect to “California Unclaimed Property” but that the “Settling Plaintiffs shall not be obligated to pay Presentments except as provided in Paragraph V.D. of this Stipulation.” In paragraph V.A.18. the settlement agreement defines a “presentment” as “any presentment or demand for payment in connection with any Security by [any] Security Holder or by any Person acting on behalf of the Security Holder . . . .” (Italics added.) The State argues that the escheatment claim Alaska asserted was a “demand for payment in connection with any Security” that it was not obligated to pay. (Original italics.)
Paragraph V.D. of the settlement agreement sets forth an elaborate procedure pursuant to which the State agreed to pay claims based on California municipal debt instruments.
The State’s argument on this point is unpersuasive because it proves too much, rendering the indemnification provisions superfluous. If all demands for payment in connection with any security constitute “presentments,” then the indemnity clause would never be triggered. The State’s obligation to pay claims would be limited to its obligations under paragraph V.D. and the indemnity clause would be rendered meaningless. As we have stated, we must avoid such an interpretation. (Civ. Code, § 1641; City of Atascadero, supra, 68 Cal.App.4th at p. 473.) Furthermore, paragraph V.D.4. of the settlement agreement states that the portions of the agreement that set forth the State’s obligation to pay presentments “are in addition to the other rights, releases, and indemnifications” that are set forth in the agreement. Again, reading the term presentments as the State suggests would be inconsistent with this clause and therefore with the agreement itself.
The State argues that extrinsic evidence supports its interpretation of the settlement agreement. The State contends the Bank knew Alaska was asserting a claim in 1998 and knew that it had a contractual obligation to notify the State of adverse claims implicating indemnification provisions, but that the Bank did not seek indemnity from the State until 2001. According to the State, this two-year delay strongly suggests the Bank did not believe the indemnity provisions covered Alaska’s claim. In a related argument, the State cites testimony from participants in the mediation between the Bank and Alaska who stated the Bank’s representative at the mediation expressed uncertainty over whether Alaska’s claim might be covered by the indemnity clause and who said that interpretation was something he “‘just noticed.’” In fact, the extrinsic evidence on both these points is more equivocal than the State suggests. While the Bank knew Alaska might assert a claim as early as 1998, Alaska did not in fact assert a formal claim until December 2000. The Bank’s demand to the State for indemnification, made in February 2001, was prompt. Furthermore, the Bank’s representative testified that he always understood that the indemnity clause covered the claim that Alaska was asserting. In any event, extrinsic evidence is admissible only to prove a meaning to which the language of a contract is reasonably susceptible. (Winet, supra, 4 Cal.App.4th at p. 1165.) As we have stated, the contract language is not reasonably susceptible to the interpretation the State has advanced. The extrinsic evidence on this point was not relevant.
C. Whether the State’s Liability Was Limited
Our conclusion that the Bank’s interpretation of the settlement agreement and indemnity clause is reasonable and that the State’s interpretation is not, normally would end the matter. (Dore, supra, 39 Cal.4th at p. 393.) The Bank would prevail. However, in this case, there is an added complexity. The trial court was concerned that the interpretation the Bank advanced might leave the State open to unlimited liability. Believing that would be an absurd result, the court strove to avoid it. The court found its solution in the separate agreement the plaintiffs had negotiated to allocate the amount the Bank paid in settlement. From documents attached to that separate agreement, the court calculated that the Bank had received $42,234,425 from the settlement for unclaimed property that was not expressly tied to California debt instruments. The court then ruled that amount constituted the State’s maximum total liability under the settlement agreement.
Neither the State nor the Bank argued below that the settlement agreement was limited as the court found. Indeed, both parties opposed the cap that the court formulated.
The State now contends the trial court erred when it created a contract term that did not exist in the settlement agreement. We agree. “It is widely recognized that the courts are not at liberty to revise an agreement under the guise of construing it. Neither abstract justice nor the rule of liberal interpretation justifies the creation of a contract for the parties which they did not make themselves.” (Hinckley v. Bechtel Corp. (1974) 41 Cal.App.3d 206, 211.) Here, the settlement agreement does not include any clause that limits the amount the State must pay to indemnify the Bank and the court could not validly make one up. The court erred when it imposed a contract term that did not otherwise exist.
Nevertheless, the court’s error on this ground was harmless because, as the Bank correctly points out, the court did not need to determine the limit of the State’s liability in order to answer the question of whether the Bank was entitled to indemnity. A fundamental principle is that “Courts do not decide abstract questions of law. An indispensable element to jurisdiction is that there be an actual controversy between parties who have an adversarial interest in the outcome of the litigation.” (Connerly v. Schwarzenegger (2007) 146 Cal.App.4th 739, 746.) Here, the Bank sought indemnity for a portion of the $35.6 million that it had paid to settle Alaska’s escheatment claim. The subsequent stipulated judgment fixed the Bank’s damages at $6.75 million. Thus, the Bank was not seeking and the court did not award unlimited damages. Rather, Alaska sought and was awarded a discrete amount. We conclude the Bank’s interpretation of the settlement agreement cannot be deemed absurd based on speculative claims by unidentified third parties that have not and may not ever be asserted.
At oral argument, the State’s attorney conceded that Alaska’s claim was the only claim that had been made in the nearly 10-year-period since the settlement agreement was executed.
D. Whether the State is Estopped
The State contends the Bank is equitably estopped from claiming that the settlement and indemnity agreement apply to non-California municipal bonds. To put this argument in context, we must provide further background.
On February 19, 1999, shortly before the final settlement agreement was executed, the parties appeared before the Honorable James Robertson for a status conference. During the course of that hearing, the court and counsel engaged in the following colloquy:
“Q. [The Court] Does this settlement encompass banks acquired by the Bank of America?
“A. [State’s attorney] Yes, and vice versa.
“It encompasses the banks acquired by Bank of America and also Nations Bank and other banks previously acquired by Nations Bank. It is a pretty global thing.
“And you will appreciate this, your Honor: It is from the beginning of time until the date of the signing of the stipulation.
“Q. [The Court] Let me ask you this: Does this settlement settle claims, potential unredeemed claims, as to Nations Bank?
“A. [State’s attorney] Yes, your Honor.
“Q. [The Court] It does?
“A. [State’s attorney] The Bank was desirous of settling that issue.
“A. [Qui Tam’s Attorney] They had – what? – only 10 issues, bond issues.
“A. [Bank’s Attorney] The portfolios of the Bank that are outside of California of California municipal bonds is quite limited, so it’s a very small category. The class members, however, are the ones that [the State’s attorney] referred to, only California entities.
“A. [State’s Attorney] It refers to California municipal bonds. And there were very few California municipal bonds for which Nations Bank or Barnett Bank or Boatman’s Bank acted as paying agent outside of California. It was a few dozen accounts.
“Now, that’s not true for the ones that your Honor heard about earlier, you know, Seafirst Bank, Bank of Nevada, Bank of Arizona and others, BATNY, BATCO. Those are all included, your honor.
“Q. [The Court] So it covers only California municipal bonds?
“A. [State’s Attorney] Municipal accounts.
“A. [Qui Tam’s Attorney] Only to the extent that they were acting as a corporate trust agent for California municipal bond issues.
“Q. [The Court] But it does apply to Nations Bank and any banks acquired that Nations acquired?
“A. [State’s Attorney] That is correct your honor.”
The State now argues Bank’s counsel had the obligation to speak up if she disagreed with the comments made at the status hearing to the effect that the settlement covered only California municipal bonds. Because she failed to do so, the State argues, the Bank is equitably estopped from arguing that the settlement agreement and indemnity clause covered anything but California municipal bonds.
Four elements must ordinarily be proven to establish an equitable estoppel: (1) The party to be estopped must know the facts; (2) he must intend that his conduct shall be acted upon, or must so act that the party asserting the estoppel had the right to believe it was so intended; (3) the party asserting the estoppel must be ignorant of the true state of facts; and, (4) he must rely on the conduct to his injury. (DRG/Beverly Hills, Ltd. v. Chopstix Dim Sum Café & Takeout III, Ltd. (1994) 30 Cal.App.4th 54, 59.)
Here, as the trial court ruled, we conclude the evidence was insufficient to establish an equitable estoppel. Turning to the first element, it is not at all clear the Bank knew the State believed the settlement was limited to non-California municipal bonds. The comments at issue were made at a brief status conference where the court was not asked to evaluate the merits of the proposed settlement. Those comments are confusing and appeared to be focused on how a single entity, Nations Bank, was affected by the settlement. By contrast the settlement agreement itself unequivocally states that the settlement is not limited to California municipal bond issues. In light of the settlement’s clear language, it would be unreasonable to construe the ambiguous comments upon which the State relies as putting the Bank on notice that the State believed the settlement was limited to California municipal bonds.
Since the evidence was insufficient to support one of the elements of an equitable estoppel, the judgment will not be reversed on this ground.
III. DISPOSITION
The judgment is affirmed.
We concur: Needham, J. Dondero, J.
Judge of the Superior Court of the City and County of San Francisco, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.