In Toro Enterprises, Inc. v. Pavement Recycling Systems, Inc., the Court of Appeal reversed the trial court’s denial of a subcontractor’s motion for attorneys’ fees. After the general contractor (Toro) was sued for personal injuries suffered by a motorist, it cross-complained against the subcontractor (Pavement) seeking contractual indemnity based upon a general indemnity clause in a subcontract. The subcontract also contained a separate prevailing party attorneys’ fee clause, which applied to “any dispute resolution.” The subcontractor successfully moved for summary judgment, and was declared the prevailing party by the trial court. However, the trial court denied the subcontractor’s motion for fees on the basis that the clause was not broad enough to encompass third party actions, such as the one filed by the injured motorist. The subcontractor appealed.
On appeal, the general contractor argued the indemnity clause – and not the prevailing party attorneys’ fees clause – controlled whether there was a right to fees for third party claims and that the prevailing party fee clause only applied to arbitrated disputes. The Court of Appeal disagreed, and reversed the trial court, finding that the subcontractor was entitled to attorneys’ fees as the prevailing party and the subcontract authorized fees to a prevailing party “in any dispute resolution between the parties.” The Court of Appeal reasoned the phrase “dispute resolution” was sufficiently broad and encompassed traditional and alternative forms of dispute resolution. The Court of Appeal also reasoned the general contractor could have excluded third party actions from the scope of the prevailing parties attorneys’ fee clause to apply only arbitration proceedings, but it chose not to.
The Toro decision illustrates the pitfalls of pursuing questionable contractual indemnity claims in situations where a contract has a broadly written prevailing party attorneys’ fees clause. The party drafting the contract should have a clear understanding of the scope of the clause and it must be clearly written. A party should not assume a trial court will allow evidence of a drafters “intent” that is contrary to the plain wording of the contract, as such evidence is usually inadmissible. As in any case, a party must carefully evaluate the risks and rewards of pursuing an indemnity cross-complaint, particularly in situations where a prevailing party attorneys’ fees clause is in the contract.
This document is intended to provide you with general information about construction law developments. The contents of this document are not intended to provide specific legal advice. This communication may be considered advertising in some jurisdictions.