Appellant Interface Technology, Inc. appeals from a judgment after a jury trial by which respondent Myers Building Industries, Limited was awarded $1.1 million in punitive damages and $350,000 in attorney fees on Myers's cross-complaint against Interface. Those awards were made in connection with a special jury verdict which found that Interface had breached its contract with Myers, causing Myers $279,126 in net compensatory damages. The jury also found, by special verdict, that there had been "oppression, fraud or malice in the conduct of Interface toward Myers." Interface contends the punitive damage award is excessive
FACTS AND PROCEDURAL BACKGROUND
The instant action is a multiparty lawsuit concerning the construction of an office building commissioned by Interface. On May 14, 1984, Interface entered into a written contract with Myers by which Myers, as general contractor, agreed to construct a 75,000-square-foot office building at a contract price of $3,628,050. Myers then entered into various contracts with subcontractors. Following the completion of the office building, certain of Myers's subcontractors filed mechanics' liens against the property and subsequently brought lawsuits against Interface to foreclose those liens and against Myers for failure to pay amounts due under the various subcontracts.
Interface filed a 28-count cross-complaint against Myers (and certain of the subcontractors) for breach of contract, negligence, breach of fiduciary duty, implied indemnity, breach of warranty, and common counts. Essentially, Interface alleged that Myers had failed to properly supervise or compensate the subcontractors pursuant to the written contract with Interface, and had caused Interface to be sued by certain of those subcontractors. Interface sought its attorney fees in connection with each of the causes of action against Myers.
Myers filed a cross-complaint against Interface and others for breach of the construction contract, quantum meruit, account stated, tortious breach of the implied covenant of good faith and fair dealing, negligence, fraud, negligent misrepresentation, equitable indemnity, and declaratory relief. Additional causes of action were stated against various subcontractors and individuals.
The instant dispute concerned numerous plan changes which had been encountered in the course of the construction of the office building, and whether Interface had agreed to compensate Myers for the additional costs arising from those plan changes. Apparently, Myers was paid over $4 million on the contract. Myers alleged Interface had promised, in requesting those plan changes, to pay Myers's additional costs plus a fixed fee, and that the contract price had been revised to $4,421,653.35. Among the agreed
The matter proceeded to the first phase of the trial on liability and compensatory damages. The jury returned a special verdict in favor of Myers on its cross-complaint against Interface, finding that Interface had breached its contract with Myers and awarding Myers $279,126
Interface moved for a new trial on punitive damages and for judgment notwithstanding the punitive damage verdict on the ground that the punitive damage verdict was not authorized by law, and, in the alternative, moved to reduce the punitive damage verdict as excessive. The motions were denied.
Myers submitted a memorandum of costs by which it sought $372,242 in attorney fees. Interface moved to tax costs, contending that no statutory or contractual basis existed for an award of attorney fees. The trial court ordered Interface to pay Myers $350,000 in attorney fees. Interface timely appealed from the judgment, the order awarding attorney fees, and the order denying its motions for new trial and judgment notwithstanding the verdict. No cross-appeal was filed by Myers.
I. Punitive Damages
Interface contends the punitive damage verdict was the result of judicial misconduct and is excessive as a matter of law.
The relevant special verdict forms presented to the jury following the first phase of trial read as follows:
"We, the jury in the above entitled case, find the following special verdict on the questions submitted to us:
"No. 1. Do you find that INTERFACE breached its contract with [MYERS]?
"No. 2. What amount of damages do you award against INTERFACE in favor of [MYERS]?
"No. 3. Does the amount of damages set forth in #2 above contain any offsets for damages arising from the storm drain?
"No. 4. If so, what amount? $ ____.
"No. 5. Does the amount awarded [MYERS] include any amounts paid by [INTERFACE] on account of the following [subcontractors]? If so, please set forth the amount opposite the name?
"Heuler Tile $ 89,286.00"Brandon Plumbing $ 26,405.00"Terre Corp. $ 23,630.00"Blue Diamond $ 2,500.00"Koltavary $ 792.00"Hillcrest $ 42,244.00"QES $ 90,000.00"Comaianni & Woller $ 130,000.00
"No. 6. Do you find that there was any oppression, fraud, or malice in the conduct of INTERFACE towards [MYERS]?
No special verdict findings were submitted to the jury on any cause of action except breach of contract, even though Myers had pleaded a cause of action against Interface for fraud. The special verdict read, on its face, as a net award of compensatory damages for breach of contract with a special finding that Interface had acted with "oppression, fraud, or malice" towards Myers. The damages set forth in the special verdict appear to be the sums which Myers claimed it was owed under the contract. The overall amount was offset by amounts already paid by Interface to Myers's unpaid subcontractors.
After the special verdict on the first phase of the trial and prior to the trial on punitive damages,
In view of the confusion inherent in the first phase special verdict, Interface also requested the trial court to instruct the jury that if it had awarded compensatory damages for breach of contract only, then no punitive damages could be awarded.
"[A] special verdict is that by which the jury finds the facts only, leaving the judgment to the court. The special verdict must present the conclusions of fact as established by the evidence, and not the evidence to prove them; and those conclusions of fact must be so presented as that nothing shall remain to the court but to draw from them conclusions of law." (Code Civ. Proc., § 624.)
"In an action for the breach of an obligation not arising from contract, where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice, the plaintiff, in addition to actual damages, may recover damages for the sake of example and by way of punishing the defendant." (Civ. Code, § 3294, subd. (a).)
Myers contends further that the jury's finding of malice, fraud, or oppression constitutes an implied finding that Interface committed fraud against Myers. We disagree. The statutory scheme for allowance of punitive damages requires both a tort action and a finding of "oppression, fraud, or malice." (Civ. Code, § 3294.) Additionally, we note that the special verdict on "oppression, fraud, or malice" was presented in the disjunctive, and the jury could have found only oppression or malice. Thus, the finding does not constitute a factual finding on a fraud cause of action. (See Miller v. National American Life Ins. Co., supra, 54 Cal. App.3d at p. 337, fn. 3.)
We also reject Myers's contention that it was Interface's responsibility to obtain special verdict findings on the fraud cause of action and that Interface has waived its right to assert the deficiency in the verdict form by failing to object. (Mixon v. Riverview Hospital (1967) 254 Cal.App.2d 364, 376-378 [62 Cal.Rptr. 379]; All-West Design, Inc. v. Boozer, supra, 183 Cal. App.3d at p. 1220.) Myers is attempting to enforce the judgment based on the special verdict and must bear the responsibility for a special verdict submitted to the
Because no special verdict finding on a tort cause of action supports the jury's $1.1 million punitive damage verdict and punitive damages may not be awarded in connection with a breach of contract no matter how gross or wilful, we must necessarily strike the punitive damage portion of the judgment.
II. Attorney Fee Award
Interface contends that the trial court erred in awarding $350,000 in attorney fees to Myers. Interface does not assert that the amounts incurred by Myers for attorney fees were unreasonable but, rather, the attorney fee award is not supported by any agreement between the parties.
A. The Contractual Provisions
Myers asserts that the agreement between it and Interface consists of several written documents, some of which contain unilateral attorney fee provisions made reciprocal by Civil Code section 1717. We will begin by describing the various documents and setting forth those provisions which arguably may be considered attorney fee provisions.
1. The Construction Contract
The first written document is entitled, "The American Institute of Architects, AIA Document A111, Standard Form of Agreement Between Owner and Contractor, where the basis of payment is the Cost of the Work Plus a Fee (1978 Edition)," executed by Interface and Myers on May 14, 1984 (the Construction Contract). This is the basic Construction Contract between the parties, and describes the project as a 75,000-square-foot building with a total contract price of $3,628,050. The standard American Institute of Architects (AIA) form has been interlineated and additional terms and conditions have been attached. The Construction Contract makes no mention of attorney fees in the event of a dispute between the parties or in any other context.
2. The General Conditions
The second written document is entitled, "The American Institute of Architects AIA Document A201, General Conditions of the Contract for Construction, (1976 Edition)" (the General Conditions). This document is unexecuted, undated, and consists of standard boilerplate language with no addenda or modifications.
The General Conditions makes three express references to attorney fees. The first of these is found at AIA Document A201, section 4.18.1, which provides as follows:
"4.18.1 To the fullest extent permitted by law, the Contractor shall indemnify and hold harmless the Owner and the Architect and their agents and employees from and against all claims, damages, losses and expenses, including but not limited to attorney's fees, arising out of or resulting from
AIA Document A201 also provides in section 6.2.5 that if the contractor wrongfully causes damage to the work or property of another contractor, and the owner is sued or forced to arbitrate, then the contractor shall pay to the owner all attorney fees and costs.
Finally, AIA Document A201 provides in section 9.9.2 that in the event the owner is required to pay sums to subcontractors in order to obtain releases of liens, the contractor must refund to the owner all moneys "that the latter may be compelled to pay in discharging such lien, including all costs and reasonable attorney's fees."
3. The Architectural Contract
A third document is entitled, "American Institute of Architects, AIA Document B141, Standard Form of Agreement Between Owner and Architect (1977 Edition)," executed by Interface and its architects McClellan/Cruz/Gaylord & Associates, Inc. on July 24, 1984 (the Architectural Contract). The Architectural Contract includes interlineations and additional conditions.
The Architectural Contract makes a single reference to recovery of attorney fees. This provision is contained in section 15.2, which is not part of the standard boilerplate language, but was added by the parties. The section requires that "[i]n the event legal action is commenced by either party hereto to enforce or interpret any provision of the Agreement, the prevailing party in such legal action shall be entitled to reasonable attorney's fees, as determined by the court."
4. Project Manual
Myers maintains that it is entitled to its attorney fees under certain provisions of the Project Manual prepared in connection with the project. The relevant provisions are as follows:
"The A.I.A. General Conditions are modified as follows:
CONTRACTOR'S LIABILITY INSURANCE
"Articles 11.1.1 to 11.1.3 of General Conditions shall be deleted and replaced with the following:
"A. Contractor shall indemnify, hold free and harmless, assume legal liability for, and defend Owner, his agents, servants, employees, officers, and directors from any and all loss, damages, liability, costs, and expenses, including but not limited to, attorney's fees, reasonable investigative and discovery costs, court costs, and other sums which Owner, his agents,
"B. Owner shall not, under any circumstances, be liable or otherwise accountable to Contractor for any damage or injury to Contractor or to any agent or property of Contractor, however caused.
".... .... .... .... .... .... ....
SECTION 01011-GENERAL REQUIREMENTS
".... .... .... .... .... .... ....
"As payments are made by the Owner, the Contactor shall pay promptly all valid bills and charges for labor, materials, or otherwise in connection with or arising out of the work and will hold Owner free and harmless against all liens filed against the property or any party thereof and from all expense and liability in connection therewith including, but not limited to, court costs, and attorney's fees resulting or arising therefrom."
Nevertheless, upon an independent examination of the language of the Project Manual, the Construction Contract, and the General Conditions, we conclude that the Project Manual is included in the contract documents.
Moreover, the Project Manual directs that the General Conditions are to be considered a part of the Construction Contract, and then proceeds to revise and supplement those conditions. It also defines the terms "Contract" and "This Contract" as: "The particular Contract executed by the Contractor and the Owner including the Contract Documents and Amendments and all Directives from the Owner to Contractor issued under any provision of the Contract Documents of which these General Requirements are an integral part."
Finally, the contract work is described in the General Requirements section of the Project Manual as "[w]ork is not limited to, but in general includes, the furnishing of all necessary material, equipment, transportation, and performing all labor for construction of concrete, masonry, and wood construction building as shown on the Contract Drawings and/or Project Manual." (Italics added.) Thus, the documents concern the same subject, were made as part of the same transaction, and make reference to each other.
B. The Applicable Law
We must determine whether the contractual provisions outlined above constitute unilateral attorney fee provisions within the meaning of Civil Code section 1717,
Under California law, an "[i]ndemnity is a contract by which one engages to save another from a legal consequence of the conduct of one of the parties or of some other person." (Civ. Code, § 2772.) "An indemnity against claims, or demands, or liability, expressly, or in other equivalent terms, embraces the costs of defense against such claims, demands, or liability incurred in good faith, and in the exercise of a reasonable discretion...." (Civ. Code, § 2778, subd. 3.) An indemnitor in an indemnity contract generally undertakes to protect the indemnitee against loss or damage through liability to a third person. (Somers v. United States F. & G. Co. (1923) 191 Cal. 542, 547 [217 P. 746].)
The subcontractor's request for attorney fees was based on the following contract provision:
"`13. SUBCONTRACTOR'S LIABILITY INSURANCE, INDEMNITY: ... [The first paragraph of this section requires the subcontractor to maintain insurance to protect him from claims arising under workers' compensation laws, and from tort claims arising from damage to property or from bodily injury or death. The second paragraph continues as follows.]
"`The Subcontractor shall indemnify and hold and save [the Contractor] harmless from and against any and all actions or causes of action, claims, demands, liabilities, loss, damage or expense of whatsoever kind and nature, including counsel or attorney's fees, whether incurred under retainer or salary or otherwise, which [the Contractor] shall or at any time may sustain or incur by reason or in consequence of any injury or damage to person or property which may arise directly or indirectly from the performance of this Contract by the Subcontractor, whether such performance be by himself or by any subcontractor of his, or anyone directly or indirectly employed by either of them.'" (Meininger v. Larwin-Northern California, Inc., supra, 63 Cal. App.3d at p. 84, italics in original.)
The trial court denied the subcontractor's request for attorney fees. The Meininger court affirmed stating:
Citing a Ninth Circuit decision (U.S. For Use and Benefit of Reed v. Callahan, supra, 884 F.2d 1180), Myers contends that Meininger has no continued viability in light of an amendment to Civil Code section 1717 enacted by the Legislature in 1983. In that year, the Legislature amended Civil Code section 1717 to read: "Where a contract provides for attorney's fees, as set forth above, that provision shall be construed as applying to the entire contract unless each party was represented by counsel in the negotiation and execution of the contract, and the fact of that representation is specified in the contract."
In Sciarrotta, an owner and contractor entered into a written contract for the construction of a house. The contract provided for an award of attorney fees to the contractor if it sued to recover the contract price. The owner sued the contractor for breach of contract based on the contractor's failure to construct the house in a workmanlike manner. The trial court denied the owner's request for attorney fees pursuant to the reciprocity provisions of Civil Code section 1717.
The Sciarrotta court affirmed, concluding that attorney fees could be recovered in an action on the contract only in those actions specifically delineated in the contract. Thus, the owner was not entitled to attorney fees in the action for breach of the contractual agreement to build a good quality house, where the attorney fee provision in the contract was limited to an action on the contract to collect the contract price.
Conversely, in Sciarrotta, the contract expressly provided for attorney fees to the contractor in an action on the contract to recover the contract price. That contractual provision was a limited attorney's fee provision in an action to enforce the contract. The Legislature recognized that to allow parties with superior bargaining strength to so limit attorney's fee provisions otherwise made reciprocal by Civil Code section 1717 would "thwart the salutary purposes sought to be achieved by the statute." (Sciarrotta v. Teaford Custom Remodeling, Inc., supra, 110 Cal. App.3d at p. 454 (dis. opn. of Tamura, P.J.); see also Boyd v. Oscar Fisher Co., supra, 210 Cal. App.3d at p. 380.) Accordingly, the 1983 amendment made such limited contractual attorney's fee provisions applicable to the entire contract.
In Appalachian, McDonnell Douglas entered into a written contract with Western Union for the sale of an upper stage rocket to be used to launch a telecommunications satellite into orbit from the space shuttle. The rocket failed and the satellite was left in an unsuitable orbit. Appalachian Insurance Company and other insurers paid Western Union for the loss of the satellite. The insurers sued McDonnell Douglas and lost. The trial court denied McDonnell Douglas's request for attorney fees.
The sales contract at issue in Appalachian did not contain an express attorney fee provision. It did contain, however, the following indemnity clause: "`[Western Union] shall indemnify and hold harmless [McDonnell Douglas], its officers, agents and employees from and against any and all liabilities, damages and losses, including costs and expenses in connection therewith, for death of or injury to any persons whomsoever and for the loss of, damage to or destruction of any property whatsoever, caused by, arising out of or in any way connected with the launch or operation of the [telecommunications satellite].'" (Appalachian Ins. Co. v. McDonnell Douglas Corp., supra, 214 Cal. App.3d at p. 43, italics in original.)
The contract further provided that the indemnification provisions were not applicable to liabilities, damages or losses suffered under conditions such as those occurring in Appalachian. The Court of Appeal held that although the language of the indemnity clause might be generally sufficient to support an award of attorney fees to McDonnell Douglas under Civil Code section 2778, subdivision 3 (costs of defense statutorily included as item of loss in indemnification agreement), the indemnification provisions of the contract were expressly made inapplicable by the language of the contract to the circumstances at issue in the case. The Court of Appeal also held that Civil Code section 1717 would not operate to authorize an award of attorney fees to McDonnell Douglas under these circumstances. The Appalachian court impliedly determined that the right to attorney fees under an indemnity clause did not constitute a provision for award of attorney fees in an action to enforce the contract made applicable to all actions on the contract by operation of Civil Code section 1717. (Cf. Citizens Suburban Co. v. Rosemont Dev. Co. (1966) 244 Cal.App.2d 666, 683 [53 Cal.Rptr. 551].)
C. Do the Contract Documents Contain an Attorney Fee Provision?
1. The General Conditions
Section 4.18.1 is a standard indemnity provision requiring Myers to "indemnify and hold harmless" Interface from third party tort claims. Attorney fees are included as losses or expenses recoverable under the indemnity agreement. The section is not a provision providing for an award of attorney fees in an action to enforce the contract. (Compare with Bruckman v. Parliament Escrow Corp. (1987) 190 Cal.App.3d 1051, 1059 [235 Cal.Rptr. 813] [where the escrow agreement stated the parties agreed to pay the attorney fees of the escrow company arising out of the escrow].) Moreover, the indemnification provision encompasses only losses attributable to bodily injury or injury to tangible property, injuries not involved in this lawsuit.
Similarly, section 6.2.5 is a standard third party claims indemnification clause requiring Myers to indemnify Interface for damage caused by Myers to the work or property of another contractor.
Neither of these provisions constitutes a provision to award attorney fees in an action to enforce the contract. Both paragraphs are agreements to indemnify against third party claims which are not governed by Civil Code section 1717.
2. The Architectural Contract
This agreement is solely between Interface and the architect. It contains an attorney fee provision within the meaning of Civil Code section 1717.
3. The Project Manual
Having determined that Interface is bound by the provisions of the Project Manual, we must next consider whether those provisions can support an award of attorney fees to Myers. The trial court did not receive extrinsic evidence on the meaning of the Project Manual provisions so the question is a purely legal one which we may address, unfettered by the trial court's interpretation. (Parsons v. Bristol Development Co., supra, 62 Cal.2d 861.) Each of the two Project Manual provisions identified by Myers is an agreement by which Myers will indemnify Interface for certain losses. Those losses can, of course, include attorney fees. (Civ. Code, § 2778, subd. 3.)
The first of the Project Manual provisions cited above is entitled, "Contractor's Liability." It replaces a provision requiring Myers to maintain liability insurance. The type of claim for which indemnification is provided is not limited to bodily injury or property damage, and embraces "any, all, and every claim" which arises out of "the performance of the contract." However, giving consideration to the ordinary meaning of the words used (Civ. Code, § 1644) together with the subject matter heading and giving effect to the entire provision (Civ. Code, § 1641), we conclude that the provision was intended to deal only with third party claims. This interpretation is made even clearer when paragraphs A and B are read together rather than in isolation, as Myers suggests. The ordinary meaning of paragraph B is that Interface will not be liable "under any circumstances" for "any damage or injury to" Myers. To the extent that paragraph A might conceivably provide a basis for Myers's attorney fee request, that possibility is neutralized by the wording found at paragraph B. Thus, under a strictly interpretive approach, the unambiguously expressed language cited does not support an award of attorney fees to Myers.
The second quoted provision provides that Myers will hold Interface harmless from third party claims arising from Myers's failure to pay its subcontractors promptly. As discussed previously, such claims or actions are not "actions on a contract" — between contracting parties — within the meaning of Civil Code section 1717.
We do not mean to suggest that Myers be punished for mere poor draftsmanship. This is an issue of fairness and notice to the contracting parties of the scope of the indemnification. (Layman v. Combs II (9th Cir.1992) 981 F.2d 1093, 1100-1101; see also Zissu v. Bear, Stearns & Co. (2d
Other than the attorney fee provision in the Architectural Contract which is not applicable to Myers, we conclude the contractual provisions at issue constitute third party claims indemnity clauses not subject to the provisions of Civil Code section 1717.
The judgment is modified to strike the punitive damage and attorney fee awards. In all other respects, the judgment is affirmed. In the interests of justice, the parties are to bear their own costs on appeal.
Turner, P.J., and Boren, J.,
A petition for a rehearing was denied March 26, 1993, and the opinion was modified to read as printed above. Respondent's petition for review by the Supreme Court was denied May 27, 1993.
"You must now determine whether you should award punitive damages against [Interface] for the sake of example and by way of punishment. Whether punitive damages should be imposed, and if so, the amount thereof, is left to your sound discretion, exercised without passion or prejudice. [¶] If you determine that punitive damages should be assessed against a defendant, in arriving at the amount of such an award, you must consider:
"(1) The degree of reprehensibility of the conduct of the defendant.
"(2) The amount of punitive damages which will have a deterrent effect on the defendant in the light of defendant's financial condition.
"(3) The punitive damages must bear a reasonable relation to the injury, harm, or damage actually suffered by the plaintiff, as a result of the fraud."
"Should the Contractor wrongfully cause damage to the work or property of any separate contractor, the Contractor shall upon due notice promptly attempt to settle with such other contractor by agreement, or otherwise to resolve the dispute. If such separate contractor sues or initiates an arbitration proceeding against the Owner on account of any damage alleged to have been caused by the Contractor, the Owner shall notify the Contractor who shall defend such proceedings at the Owner's expense, and if any judgment or award against the Owner arises therefrom the Contractor shall pay or satisfy it and shall reimburse the Owner for all attorneys' fees and court or arbitration costs which the Owner has incurred."
"Neither the final payment nor the remaining retained percentage shall become due until the Contractor submits to the Architect (1) an affidavit that all payrolls, bills for materials and equipment, and other indebtedness connected with the Work for which the Owner or his property might in any way be responsible, have been paid or otherwise satisfied, (2) consent of surety, if any, to final payment and (3), if required by the Owner, other data establishing payment or satisfaction of all such obligations, such as receipts, releases and waivers of liens arising out of the Contract, to the extent and in such form as may be designated by the Owner. If any Subcontractor refuses to furnish a release or waiver required by the Owner, the Contractor may furnish a bond satisfactory to the Owner to indemnify him against any such lien. If any such lien remains unsatisfied after all payments are made, the Contractor shall refund to the Owner all moneys that the latter may be compelled to pay in discharging such lien, including all costs and reasonable attorneys' fees."
First, Myers's brief specifically identifies only two such subcontracts, and the record makes plain that Interface was the prevailing party on those subcontracts. Myers seems to confuse the notion of prevailing in the lawsuit with that of prevailing "on the contract," which is required to obtain an attorney fee award under Civil Code section 1717. In this case, Myers prevailed on its action on the Construction Contract with Interface. That contract did not, however, contain an attorney fee provision. Interface prevailed by way of setoff in its actions against Myers on the subcontracts. The fact that Myers obtained a higher net recovery in the lawsuit is irrelevant to the determination of which party prevailed on any particular action on a contract. Moreover, even were Myers able to establish that it prevailed on a subcontract which contained an attorney fee provision entitling Myers to an award of attorney fees, such an award must be only for the pro rata portion of fees incurred to enforce that subcontract, and not for the entire amount of fees incurred in its action against Interface on the Construction Contract.