Opinion
F084201
07-28-2023
PICKARD & BUTTERS CONSTRUCTION, INC., Plaintiff and Appellant, v. BUTTONWILLOW RECREATION AND PARKS DISTRICT, Defendant and Respondent; SWISS RE CORPORATE SOLUTIONS AMERICA INSURANCE CORPORATION, Intervener and Respondent.
Law Offices of F. Glenn Nichols and F. Glenn Nichols for Plaintiff and Appellant. Clifford &Brown, John R. Szewczyk and Daniel T. Clifford for Defendant and Respondent. Booth, Mitchel &Strange, Craig E. Guenther and Stacie L. Brandt for Intervener and Respondent.
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Kern County No. BCV-15-100179. Thomas S. Clark, Judge.
Law Offices of F. Glenn Nichols and F. Glenn Nichols for Plaintiff and Appellant.
Clifford &Brown, John R. Szewczyk and Daniel T. Clifford for Defendant and Respondent. Booth, Mitchel &Strange, Craig E. Guenther and Stacie L. Brandt for Intervener and Respondent.
OPINION
MEEHAN, J.
INTRODUCTION
This is an appeal from the trial court's order under Code of Civil Procedure section 664.6 enforcing a settlement agreement executed by a surety company as the assignee of plaintiff's claims and rights under an indemnity agreement. In enforcing the settlement, the trial court entered a judgment of dismissal and plaintiff appealed. Plaintiff argues the trial court lacked authority to enforce the settlement between the surety and defendant over plaintiff's vigorous objection because the indemnity agreement's enforceability is being litigated in an action before the San Bernardino Superior Court. For the reasons explained below, we affirm the judgment.
All further statutory references are to the Code of Civil Procedure unless indicated otherwise.
FACTUAL BACKGROUND
In October 2013, plaintiff Pickard &Butters Construction, Inc. (PBC) executed a public works contract for $913,921.40 to update a 12-acre park in Buttonwillow (Buttonwillow Project), an unincorporated area in Kern County, for the Buttonwillow Recreation and Park District (District). Surety company Swiss RE Corporate Solutions America Insurance Corporation (Swiss) contracted with PBC to issue payment and performance bonds on behalf of PBC in connection with multiple PBC construction projects, including the Buttonwillow Project.
Swiss was formerly known as North American Specialty Insurance Company.
In consideration of the bonds Swiss issued for these projects, PBC and its principals Mark Butters and Dana Butters (collectively, PBC Indemnitors) executed a general indemnity agreement in favor of Swiss on October 9, 2013. The indemnity agreement permits Swiss to demand collateral security from the PBC Indemnitors on the bonds whenever Swiss receives notice of a default, claim or a lawsuit asserting liability against PBC. The agreement also contains an assignment clause in the event of a default whereby the PBC indemnitors agreed to assign their rights. The contract defines a default to occur when Swiss receives notice of a claim, breach, or default under a bonded contract or when the indemnitors fail to deposit collateral security with Swiss when demanded. The indemnity agreement additionally includes a power of attorney clause that permits Swiss to execute any compromise of claims or releases in settlement on behalf of the PBC indemnitors.
Disputes arose between PBC and District during the Buttonwillow Project, and District refused to make certain payments to PBC on that project. Beginning around April 2015, Swiss began to receive claims on several of PBC's bonded projects, including a claim from a subcontractor who was purportedly not paid on the Buttonwillow Project. Over PBC's objections to many of the claims, Swiss ultimately paid over $1.3 million toward claims across all PBC's construction projects, including $14,237.08 for a claim on the Buttonwillow Project.
In May 2015, PBC filed suit against District over the Buttonwillow Project seeking contract and delay damages and statutory prompt payment penalties. Swiss declined PBC's multiple requests to intervene in that lawsuit, forcing PBC to shoulder the costs of pursuing damages against District. Meanwhile, Swiss made a $1.4 million collateral demand to the PBC Indemnitors on March 11, 2016, based on the claims it had paid on PBC's behalf across several bonded projects. After PBC failed to make a deposit under Swiss's collateral demand, Swiss filed suit against the PBC Indemnitors in December 2018 in the San Bernardino Superior Court (San Bernardino action).
PBC, in the meantime, rejected District's $55,001 section 998 offer to compromise this litigation over the Buttonwillow Project, and Swiss filed a complaint in intervention as a real party in interest in PBC's case against District. The case proceeded to a bench trial, which resulted in a judgment in PBC's favor in the amount of $27,556.53. PBC appealed, and the judgment was reversed and remanded for a retrial. Litigation continued, retrial was set for April 25, 2022, and PBC filed a trial brief seeking more than $1.6 million in damages from District.
Without PBC's knowledge and purporting to exercise its rights under the assignment clause in the indemnity agreement, Swiss entered into settlement negotiations with District. In January 2022, Swiss and District agreed to settle PBC's claims against District for $77,556.53 in exchange for dismissal of the action. Swiss then requested that PBC sign the settlement agreement, but PBC declined to do so; therefore, Swiss executed the settlement agreement for itself and as the attorney-in-fact for PBC. Swiss filed a notice of settlement on February 10, 2022, but PBC objected to the settlement and declined to dismiss the case. Swiss then filed a motion to enforce the settlement under section 664.6, seeking dismissal pursuant to the settlement.
Swiss argued that because the PBC Indemnitors had defaulted under the terms of the indemnity agreement, regarding which Swiss provided evidence, the assignment clause in the agreement gave Swiss the right to settle PBC's claims against District and recover the proceeds. By declaration, Swiss claimed the basis for seeking to settle the action with District was that Swiss did not possess sufficient assurance any trial award would be greater than the settlement offers made by District; PBC had failed to honor the terms of the indemnity agreement; PBC questioned Swiss's entitlement to the full amount of any judgment received by PBC; and if PBC lost at trial, Swiss feared the PBC indemnitors would be unable to satisfy their indemnity obligations and might file for bankruptcy. Alternatively, Swiss argued it should be substituted into PBC's place in the action because Swiss was the real party in interest under the indemnity agreement's assignment clause.
Before the trial court, District filed a notice of joinder in Swiss's section 664.6 motion and filed a substantive reply brief. On appeal, District also filed a notice of joinder in Swiss's arguments presented in Swiss's appellate brief. (Cal. Rules of Court, rule 8.200(a)(5).)
In opposition, PBC asserted the court had no authority to grant Swiss's motion because the underlying indemnity agreement Swiss was relying on to assert its rights to settle the litigation was vigorously disputed, and its enforceability was at issue in the San Bernardino action. According to PBC, Swiss was acting in bad faith under the indemnity agreement, including by paying bond claims to which PBC had objected as illegitimate; by refusing to intervene earlier in this and other of PBC's cases and forcing PBC to absorb all of the litigation costs alone; and by waiting until the eve of retrial after seven years of litigation to settle this action for a mere 4 percent of the damages PBC seeks to recover. Moreover, PBC noted, Swiss has similarly settled other litigation regarding bonded projects out from under PBC, which were further acts of bad faith that effectively prevented PBC from being able to pay Swiss anything deemed owing in the indemnity action.
PBC argued that enforcing the settlement agreement would necessarily and improperly rule on disputed issues in the San Bernardino action, which, in turn, could result in irreconcilable judgments in the two actions about the enforceability of the indemnity agreement. PBC also asserted that enforcing the settlement would give effect to a manifestly unjust settlement that allows Swiss to obtain a miniscule recovery toward a disputed indemnity amount at the expense of PBC's $1.6 million in claimed damages against District. Finally, PBC noted that its principal had executed a retainer agreement with Mr. Nichols, PBC's attorney, which expressly granted an attorney's lien on all causes of action and the proceeds in litigation for which Mr. Nichols's office provided legal representation. As this lien was executed long before the indemnity agreement, the attorney lien takes priority over any of Swiss's purported rights to settlement proceeds under the agreement.
A hearing on Swiss's section 664.6 motion was held on March 9, 2022, but no transcript is contained in the record on appeal. After oral argument, the trial court took the matter under submission and then issued a written ruling. The trial court found that Swiss had settled the action with District under an assignment and power of attorney authorized by the terms of the indemnity agreement between Swiss and the PBC Indemnitors. The court found the assignment and power of attorney provisions in the indemnity agreement were automatically triggered by PBC's failure to pay its subcontracts, and this assignment passed title to PBC's causes of action against District to Swiss and authorized Swiss to exercise its powers under the power of attorney provision. The trial court expressly concluded the indemnity agreement authorized Swiss to prosecute and settle this action, despite PBC's argument that issues of fact and law regarding the indemnity agreement were currently being pursued in the separate San Bernardino action. As for PBC's attorney's lien, the trial court found it irrelevant, reasoning that any lien rights PBC's attorney possessed would only be enforceable against PBC for recovery to which PBC was entitled.
The trial court concluded it could decide the section 664.6 motion without affecting the claims pending in the San Bernardino action. Specifically, the trial court noted it was "making no finding with respect to the allegations of the San Bernardino County action, and [the court's order] is not precluding the parties from fully litigating their claims in that action (including but not limited to the claims of [PBC] against [Swiss] for money damages). The issues pled in the San Bernardino County action are not before this Court and remain to be decided by the San Bernardino court."
DISCUSSION
As it did before the trial court, PBC argues on appeal that by granting Swiss's section 664.6 motion, the trial court has effectively and impermissibly determined that Swiss may properly exercise its rights under the indemnity agreement's various provisions. PBC asserts that because this issue is currently pending in the San Bernardino action, the settlement enforcement in this case decided contract issues not before the court that may potentially cause a conflict with any determination in the San Bernardino action.
Moreover, PBC contends the settlement is manifestly unjust because the settlement amount is such a small percentage of the damages PBC was prepared to prove at trial against District, and PBC's claims in the indemnity action against Swiss are no substitute for the loss of PBC's damage claims in this action. As such, PBC asserts the trial court abused its discretion in enforcing a manifestly unjust settlement agreement and dismissing the case pursuant to the settlement.
I. Disputed Performance Under Indemnity Agreement Did Not Preclude Settlement Enforcement Under Section 664.6
A. Legal Standards
Section 664.6 provides in relevant part that "If parties to pending litigation stipulate, in a writing signed by the parties outside of the presence of the court or orally before the court, for settlement of the case, ... the court, upon motion, may enter judgment pursuant to the terms of the settlement." (Id., subd. (a).)
The procedure under section 664.6 empowers the trial court to enter judgment on a settlement agreement without the need for a new lawsuit. (Osumi v. Sutton (2007) 151 Cal.App.4th 1355, 1360.) Section 664.6 allows the trial court to determine whether disputed factual issues have arisen regarding the settlement agreement, and permits the court "to entertain challenges to the actual terms of the stipulation, that is, whether there actually was a settlement" and to interpret the terms and conditions to settlement. (Fiore v. Alvord (1985) 182 Cal.App.3d 561, 565.) In ruling on a section 664.6 motion, the trial court acts as a trier of fact. (Osumi v. Sutton, supra, at p. 1360; Skulnick v. Roberts Express, Inc. (1992) 2 Cal.App.4th 884, 889.) In the exercise of its sound discretion, the trial court may receive oral testimony, or it may determine the motion upon declarations alone. (Corkland v. Boscoe (1984) 156 Cal.App.3d 989, 994.)
On review, the appellate court affirms the factual determinations made by the trial court if they are supported by substantial evidence (Weddington Productions, Inc. v. Flick (1998) 60 Cal.App.4th 793, 815 (Weddington)), but review of the trial court's legal conclusions is performed de novo (Sully-Miller Contracting Co. v. Gledson/Cashman Construction, Inc. (2002) 103 Cal.App.4th 30, 35).
B. Analysis
District and Swiss negotiated a written settlement agreement, which set out the material terms and indicated the trial court would retain jurisdiction under section 664.6 until the settlement terms were performed in full. When PBC was notified of the settlement, it did not sign the settlement agreement; thereafter, the settlement agreement was signed by Swiss as PBC's attorney-in-fact. When PBC did not dismiss the action pursuant to the settlement agreement, Swiss filed a motion to enforce the settlement under section 664.6 and sought an order of dismissal. PBC opposed that motion on grounds that Swiss's authority to settle the matter and sign the settlement agreement as PBC's attorney-in-fact under the indemnity agreement was a disputed issue in a separate litigation that could not be resolved by the trial court here.
For a settlement to be enforceable under section 664.6, a party must first establish the settlement agreement was stipulated by the "parties" (id., subd. (a)) in a writing outside the presence of the court or orally before the court. (Weddington, supra, 60 Cal.App.4th at p. 810.) In the context of a written settlement agreement made outside the presence of the court, a party's attorney may sign the agreement and it will be considered signed by that party. (§ 664.6, subd. (b)(2).)
To establish its authority to sign the settlement agreement as PBC's attorney-in-fact, Swiss submitted evidence of an executed indemnity agreement between PBC's principals and Swiss. The indemnity agreement contains several relevant provisions showing the existence of a valid legal assignment of PBC's claims in this litigation. The agreement permits Swiss the right to demand collateral security from the PBC indemnitors if Swiss receives any notice of default, claim, or lawsuit asserting liability. The indemnity agreement defines a default as the occurrence of any one of several different events, including if Swiss receives notice of a claim, breach or default under a bonded contract or if the PBC indemnitors fail to deposit collateral security with Swiss when such a demand is made. Through a declaration of one of its vice presidents, Swiss provided evidence of the claims made against PBC's bonded projects for which Swiss paid in excess of $1.3 million. Stemming from these bond claim payments, Swiss also provided evidence of the collateral security demand Swiss made to PBC, along with an attestation that PBC has not yet deposited the collateral security demanded.
Each of these default events triggered the indemnity agreement's assignment clause under paragraph 5. That paragraph provides that "[i]n the event of a default or breach of this Agreement, the [PBC] Indemnitors assign, transfer, pledge and convey to [Swiss] all of their rights under the contracts referred to in all Bonds issued by [Swiss] .., including their right, title and interest in and to ... all earned and unearned contract funds and all sums due or which may become due .." In paragraph 9, the indemnity agreement contains a claims settlement section providing Swiss with the "right to decide and determine in its sole discretion whether any claim, liability, suit or judgment made or brought against [Swiss] or any of the [PBC] Indemnitors on any Bond shall or shall not be paid, compromised, resisted, defended, tried or appealed .."
Finally, paragraph 16 contains a power of attorney provision whereby "[t]he [PBC] Indemnitors irrevocably constitute, appoint and designate [Swiss] or its designee as their Attorney in Fact, with the right, but not the obligation, to exercise all of the rights of the [PBC] Indemnitors assigned or granted to [Swiss] under this Agreement. The [PBC] Indemnitors ratify and affirm all acts and actions taken by [Swiss] or its designee as their Attorney in Fact." Paragraph 16 further provides that Swiss may make, execute, and deliver any other assignments, documents, instruments or agreements, including but not limited to those necessary to effectuate its assignment rights under paragraph 5.
Based on this agreement, the trial court found an executed indemnity agreement between Swiss and the PBC indemnitors existed, and its provisions contained assignment and power of attorney rights that authorized Swiss to prosecute and settle this action. PBC argues that by recognizing Swiss's assignment rights under the indemnity agreement in granting the motion to enforce the settlement, the trial court effectively determined Swiss's exercise of its rights under the indemnity agreement was proper, which is a disputed issue in the San Bernardino action and not before the trial court for purposes of section 664.6. Moreover, PBC maintains, if PBC proves in the San Bernardino action that Swiss has acted in bad faith and is not entitled to exercise its rights under the assignment clause, then the San Bernardino court will have concluded the settlement in this action is unenforceable, which would be in direct conflict with the judgment in this case.
The trial court's findings, however, were limited to the question of Swiss's legal right to sign the settlement agreement on PBC's behalf, which was necessary to satisfy the requirements of section 664.6. In making these findings, the trial court merely acknowledged the existence of the executed indemnity agreement-a fact PBC does not dispute-and recognized Swiss's rights under the indemnity agreement to negotiate and settle PBC's claims in this litigation based on evidence of PBC's default. The existence and scope of an assignment right conferred by a writing are matters of contract interpretation, which are not issues PBC advances. (California Ins. Guarantee Assn. v. Workers' Comp. Appeals Bd. (2012) 203 Cal.App.4th 1328, 1335-1336 [whether assignment has been made, the intention of the parties as manifested in the written instrument is controlling; to be effective, an assignment must include a manifestation by the owner to another person of the intention to transfer the right].)
Rather, PBC's dispute centers on whether Swiss's assignment and power of attorney rights could be properly exercised given Swiss's conduct that purportedly violates the implied covenant of good faith and fair dealing. This is a factual question not before the trial court here, nor necessary to its acknowledgment of Swiss's rights granted in the indemnity agreement. (See Moore v. Wells Fargo Bank, N.A. (2019) 39 Cal.App.5th 280, 292 ["'The issue of whether the implied covenant of good faith and fair dealing has been breached is ordinarily "a question of fact unless only one inference [can] be drawn from the evidence."'"].)
Indeed, the trial court made no determination whether Swiss's exercise of its assignment and power of attorney rights was reasonable or performed in good faith, nor did the trial court make any findings or determine whether PBC had meritorious contract defenses or claims regarding the implied covenant of good faith and fair dealing. Further, PBC presents no authority that such a determination was required to grant the motion to enforce the settlement under section 664.6. PBC cites Arntz Contracting Co. v. St. Paul Fire &Marine Ins. Co. (1996) 47 Cal.App.4th 464, which holds that a surety owes a duty of good faith to the principal (id. at p. 482), but nothing in the Arntz opinion suggests a trial court is required to determine the good faith conduct of a surety before enforcing a settlement under section 664.6 based on an indemnity agreement.
Moreover, PBC did not actually attempt to prove Swiss was acting in bad faith under the indemnity agreement because, as PBC notes, the parties' claims and defenses regarding the indemnity agreement are pending before the San Bernardino court. But even if the issue of good faith had been developed and presented to the trial court in this case, evidence supporting PBC's claim in this regard would not negate the substantial evidence of PBC's default under the indemnity agreement and assignment of PBC's claims. (Bowers v. Bernards (1984) 150 Cal.App.3d 870, 873-874 [as long as there is substantial evidence to support the trial court's factual findings, the appellate court must affirm even if other substantial evidence supports a different result].)
The trial court's findings for purposes of section 664.6 are not tantamount to insulating Swiss from any claims under the indemnity agreement itself, nor is there any finding that impacts substantive contract defenses and claims that may be at issue in the San Bernardino action. The trial court's ruling under section 664.6 was not a merits-based determination about whether and how Swiss's rights under the indemnity agreement may be properly exercised based on claims and defenses not before the court. Rather, the trial court in this case simply recognized the existence of the executed indemnity agreement, that Swiss had valid assignment rights pursuant to that agreement, and those assignment rights had been triggered by evidence of a default event.
If, upon litigation regarding the indemnity agreement itself, Swiss is found to have improperly or impermissibly exercised its assignment rights, then PBC will have the ability to seek damages. As the San Bernardino action involves wholly independent contract claims and defenses presented in the context of a different factual record, the trial court's acknowledgment here of Swiss's rights under the indemnity agreement will not conflict with subsequent determinations regarding the propriety of exercising those rights in a specific factual context.
PBC also challenges the trial court's finding that PBC's attorney's fee lien is irrelevant because it would pertain only to recovery to which PBC was entitled-which PBC maintains is an incorrect statement of the law. We agree that any attorney-lien right PBC's counsel has with respect to the settlement proceeds is not relevant. Appellate courts have consistently held that an attorney's lien may be enforced only in a separate postjudgment action, which PBC's counsel has apparently instituted. (See Carroll v. Interstate Brands Corp. (2002) 99 Cal.App.4th 1168, 1173 ["Appellate courts have consistently held that the trial court in the underlying action has no jurisdiction to determine the existence or validity of an attorney's lien on the judgment."].) This is an issue for a separate postjudgment action, not one to be addressed in the context of a motion to enforce the settlement in the underlying litigation. (Ibid.) To the extent the trial court's reasoning commented on the legal enforceability of PBC's attorney's lien with regard to the settlement proceeds, it shall be given no effect as it was made in excess of the trial court's jurisdiction. (See ibid.; see also Brown v. Superior Court (2004) 116 Cal.App.4th 320, 333 ["Any order within the underlying action purporting to affect the attorney lien, whether positively or negatively, is void."].)
II. No Abuse of Discretion in Enforcing the Settlement Agreement
Section 664.6 provides that "the court, upon motion, may enter judgment pursuant to the terms of the settlement...." (Id., subd. (a).) This is a discretionary determination, but the trial court "'cannot surrender its duty to see that the judgment to be entered is a just one, nor is the court to act as a mere puppet in the matter.'" (California State Auto. Assn. Inter-Ins. Bureau v. Superior Court (1990) 50 Cal.3d 658, 664.) Relying on this authority, PBC argues the trial court should have denied the motion to enforce the settlement as manifestly unjust because Swiss sabotaged PBC's right to trial at the 11th hour and after seven years of litigation funded by PBC; and Swiss settled PBC's claims secretly for an amount that was only 4 percent of the damages PBC was ready to prove against District at trial. PBC contends the possibility of recovering damages against Swiss in a separate action is not an adequate substitute for the opportunity to adjudicate its claims against District in this case.
When a matter is left to the discretion of the trial court, reviewing courts apply the abuse of discretion standard on appeal. (Cahill v. San Diego Gas &Electric Co. (2011) 194 Cal.App.4th 939, 957.) Under this standard, reversal is not required if there exists a reasonable or fairly debatable justification under the law for the trial court's decision. (Gonzales v. Nork (1978) 20 Cal.3d 500, 507.) Rather, a judgment will be reversed "only if in the circumstances of the case, viewed most favorably in support of the decision, the decision exceeds 'the bounds of reason' [citation], and therefore a judge could not reasonably have reached that decision under applicable law [citations]." (Cahill, supra, at p. 957.)
Swiss explained by declaration supporting its motion that it entered settlement negotiations with District because Swiss did not possess sufficient assurances that an award at trial would be greater than the settlement offers made by District; PBC had failed, and continued to fail, to honor the terms of the indemnity agreement; PBC questioned Swiss's entitlement to the full amount of any judgment received by PBC; and if the PBC Indemnitors lost at trial and were unable to satisfy their indemnity obligations to Swiss, they might file for bankruptcy. Even though the settlement agreement amount was far less than the damages PBC indicates it was prepared to prove at trial, the settlement amount still exceeded District's prior $50,001 settlement offer and exceeded the $27,556 PBC was awarded at the first trial. Swiss's concerns, particularly about any trial recovery and the possibility of bankruptcy of the PBC Indemnitors, were reasonable, as Swiss would face the possibility of an even smaller recovery or no recovery absent the settlement agreement. While PBC asserts that a separate action against Swiss is no substitute for pursuing its claims against District in this case, PBC nonetheless retains the ability to seek damages arising from the indemnity agreement in the San Bernardino action. Under these circumstances, we are unable to conclude the trial court abused its discretion by failing to conclude the settlement was manifestly unjust.
DISPOSITION
The judgment is affirmed. Swiss and District are entitled to costs on appeal. (Cal. Rules of Court, rule 8.278(a)(2).)
WE CONCUR: PENA, Acting P. J. DeSANTOS, J.