Nissho of California, Inc. v. Bond Safeguard Insurance

Filed 10/22/13

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION TWO

NISSHO OF CALIFORNIA, INC.,

Plaintiff and Appellant, E052746

v. (Super.Ct.No. INC075909)

BOND SAFEGUARD INSURANCE OPINION
COMPANY,

Defendant and Appellant.

APPEAL from the Superior Court of Riverside County. Thomas A. Peterson

(retired judge of the L.A. Super. Ct. assigned by the Chief Justice pursuant to art. VI, § 6

of the Cal. Const.) and John G. Evans, Judges. Reversed in part, affirmed in part.

Mordy Law Offices and Christopher R. Mordy for Plaintiff and Appellant.

Voss, Cook & Thel, Francis T. Donohue III, Jessica T. Elmassian; Harris Beach

and Bruce L. Maas for Defendant and Appellant.

Robins, Kaplan, Miller & Ciresi, David C. Veis and Laura P. Nash for The Surety

& Fidelity Association of America as Amicus Curiae on behalf of Defendant and

Appellant.

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 Prior to entering into a Subdivision Improvement Agreement (SIA) with the City

of Palm Springs (City) for the development of a private residential community called the

Avalon Palm Springs Village project (Avalon), Suncal PSV, LLC (Suncal), the owner of

the property in a joint venture partnership with Lehman Brothers, obtained a Maintenance

and Warranty Bond, several faithful performance (FP) bonds, and seven labor and

materials (L&M) bonds from defendant and appellant Bond Safeguard Insurance

Company (Safeguard) to insure the project. Suncal and City then entered into a SIA

which specifically required landscaping improvements to “offsite” areas bordering the

project, which were owned by City.1 City required the landscaping for the “offsite” areas

be bonded. Suncal had previously obtained a L&M bond for “Off-Site Landscaping &

Traffic” in the amount of $566,200, representing 50 percent of the estimated cost of those

improvements.

Suncal entered into three separate contracts with plaintiff and appellant Nissho of

California, Inc. (Nissho) for the landscaping of Avalon. One of those contracts, for

$1,639,777.19, covered labor and materials for the “offsite” landscaping required in the

SIA. Nissho completed a substantial portion of the work in the offsite contract but never

received payment. On January 4, 2008, Nissho gave notice to Suncal and Safeguard that

it had not been paid the sum of $896,963.53 for work performed on the offsite

1 “Off-site improvements refer to improvements that are off of the property site
itself,” i.e., “off-site landscaping refers to landscaping off the private property, for
example on adjacent public property.”

2
landscaping contract. Attached to the letter were copies of both the FP and L&M “Off-

Site Landscape & Traffic” bonds and the Maintenance and Warranty bond.

Nissho filed suit against both Suncal and Safeguard seeking damages of

$1,597,567.82 as against Suncal for breach of all three contracts and $909,986.96 as

against Safeguard on the L&M bonds.2 After a bench trial, the court ruled in favor of

Nissho in the amount of $1,041,148.55, permitting it to seek recompense against all the

L&M bonds, regardless of their characterization. Nissho filed a motion for attorney fees,

which the trial court denied. Safeguard appeals contending the trial court erred in

awarding Nissho damages in excess of the L&M bond for “Off-Site Landscaping &

Traffic” (the “Offsite Bond”). Nissho appeals maintaining it was entitled to an award of

attorney fees. We reverse the judgment with respect to the trial court‟s award of damages

to Nissho above the limit of the Offsite Bond. We affirm the judgment with respect to

the trial court‟s denial of Nissho‟s motion for attorney fees.

FACTUAL AND PROCEDURAL HISTORY

Director of Public Works and City Engineer David Barakian, testified it was

City‟s responsibility to make sure any proposed development was consistent with City‟s

general plan as adopted by the city council. Barakian reviewed all plans for new

developments in the city and had authority to accept or reject any proposed plans. If a

2 At trial, Nissho also attempted to obtain remuneration against the L&M bonds
for on-site work it had completed but for which it had not been paid. Suncal apparently
filed for bankruptcy to which Nissho would, by all accounts, have been entitled to
become a claimant. Additionally, Nissho‟s counsel conceded that as a licensed
contractor, Nissho had resort to recover under a mechanic‟s lien on the work it performed
on “on-site” areas.

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developer was proposing a new development within the city, it was required to obtain

security to pay for the improvements in case they were not completed by the developer;

in this instance, the security consisted of bonds. The form of the bond was dictated or

approved by the city attorney.

Developers were required to obtain bonds for both FP and L&M. FP bonds

ensured that if the developer refused or was unable to complete the project City could

recover the costs for the improvements it deemed necessary. L&M bonds “cover the

costs of labor and materials of vendors and subcontractors employed by the developer in

performance” of the contract. A Maintenance and Warranty bond covered improvements

for a one-year period after the city accepted the improvements. Suncal asked City if it

could break up the securities by category of the work to be performed.

Between October 27, and 30, 2006, Suncal obtained from Safeguard FP bonds

totaling $17,385,000 or 100 percent of the estimated cost for the proposed works of

improvement. On the same dates, Suncal obtained from Safeguard seven L&M bonds

totaling $8,692,500, or 50 percent of the estimated construction costs. The L&M bonds

were enumerated and valued as follows: (1) Domestic Water $1,635.452; (2) Storm

Drain $244,250; (3) Sanitary Sewer System $1,566,350; (4) AC Pavement $2,035,000;

(5) Aggregate Base $892,675; (6) Curb & Gutter/Flatwork $1,762.575; and (7) Offsite

Landscaping & Traffic $566,200. Suncal additionally acquired a Maintenance and

Warranty of Improvements bond in the amount of $169,860. The offsite landscaping

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improvements were proposed by Suncal in order that the surrounding public areas would

match the on-site landscaping of the development.3

Todd Rohm, an independent insurance agent working for Rohm Insurance Agency

signed the Offsite Bond as attorney-in-fact for Safeguard. It was on a city bond form.

Rohm testified separate bonds, rather than a single bond, were issued because it would

narrow the scope of the work performed allowing the principal, Suncal, to obtain releases

from City under the individual bonds so that it would not continue to be liable for the

total amount of improvements yet to be constructed. Thus, if the curbs and gutters,

landscaping, and streets were completed, Suncal could be released by City for liability for

the completed works while remaining liable only for those yet to be completed. The SIA

was entered into by the parties on December 18, 2006. Rohm testified “It‟s very typical

that the bonds have to be prepared and included within the agreements and submitted all

at one time and then the—the agreement is often times signed at a later date when

everything is provided, security included, the bond security.”

Moreover, renewal premiums were required to be paid on all the bonds, so it

would be less costly for a developer to have separate bonds, some of which might be

completed and released, than it is to have one large bond that must continue to be

renewed until the entire project is completed. Once the work secured by a particular

bond is signed off and accepted by the city, the bond is exonerated and the principal no

3 Suncal “wanted to . . . take the landscaping . . . that had been there for years, and
to change it at their expense, to have new landscaping put in in that area that better fit the
type of landscaping they were putting in elsewhere . . . .”

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longer is required to pay premiums on that bond. Furthermore, if a claim is made on a

single L&M bond, the claimant could obtain an award for the entire amount of the bond

to the exclusion of all other subcontractors, laborers, or suppliers who could potentially

also make claims against the same bond; thus, bonds separately designated for divergent

areas of work would make it more likely that any particular subcontractor could obtain

recompense against the bond if the developer became unable to pay.

Each category of bond issued covered only work performed within the purview of

that bond. Construction estimates were created to enumerate what work would be

covered by each particular bond. Those estimates determined what entities could recover

for any particular type of work designated under the separately characterized bonds. Any

work not performed on those worksheets would not be covered by that bond. Carol

Templeton, an Engineering Associate for City who was involved in the SIA and the bond

calculations for Avalon, testified the bond amounts were assessed using the amounts in

the bond worksheets. She obtained the amount for the Offsite Bond by obtaining

estimates from two subcontractors for the total amount of the work required; the amounts

were doubled to provide a “cushion” in case City had to perform the work itself. There

was no requirement that Suncal‟s contractors or subcontractors pay prevailing wages for

any of the project‟s work, including the offsite landscaping.

Marcus Fuller, the Assistant Director of Public Works and Assistant City Engineer

for City who prepared and reviewed all the bonds in the Avalon project, testified none of

the landscape improvements were ever accepted by City. He testified it is unusual for

City to require landscaping bonds for such projects; City only required landscaping bonds

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in the Avalon project for offsite areas that City would later be required to maintain. City

did not require that landscaping in on-site areas, areas which would be within the

community and not on City land, be bonded. Nonetheless, even though the bonds

covered offsite areas belonging to City, the bonds were “not bonds associated with public

work projects.”

Nabu Kato, the owner and founder of Nissho, testified he provided estimates to

Suncal for the landscaping work on Avalon. His estimates did not include prevailing

wages. Nissho subsequently signed contracts with Suncal for the landscaping work.

Kato defined offsite work as any work conducted on land that would eventually be turned

over either to the homeowners‟ association or City.

After trial, the parties agreed the primary dispute between Nissho and Safeguard

was not whether Nissho could and should recover money from one of the bonds, but

which bond or bonds and up to what amount. Safeguard contended Nissho was limited to

recovering the $566,200 for work under the Offsite Bond. In fact, Safeguard conceded

Nissho‟s work was “covered by the [Offsite Bond]”; Nissho “did landscape work[,]

[t]hey‟re entitled to recover under that bond up to $566,000”; it simply contested

Nissho‟s ability to reach the other L&M bonds. Nissho argued it could recover for all its

work, both offsite and on-site, under all the L&M bonds.

The court entered judgment in favor of Nissho in the amount of $1,041,148.55

plus costs and interest from January 2008. The court found Nissho had provided work in

the amount of $1,041,148.55. The court further found, “The SIA only requires that a

security instrument (singular) be provided for L&M. Therefore, SunCal and Safeguard

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contracted to split the L&M requirement into seven separate bonds. No subcontractor

was a party to this agreement. Thereby, Safeguard contracted with Suncal to limit it[]s

own liability to the detriment of the subcontractors.” Thus, “The court finds that

Safeguard is liable to Nissho up to an amount not exceeding $8.6 million.” The court

additionally awarded Nissho recovery of interest dating back to the date of its claim

because the court found Nissho was not limited to the amount of the L&M landscape

bond. Finally, the court tentatively found Nissho was not entitled to recover attorney fees

because insufficient evidence established the L&M bonds were public works payment

bonds. Thus, the fact that some of the areas would come under the control of City did not

alter the private nature of the agreement at the time it was signed.

Nissho later filed a motion for attorney fees as a direct obligee of the bond. The

court denied the motion, expositing, “[Nissho] as the prevailing party is not entitled to

attorneys fees under the Labor and Materials Bonds [Government Code section] 66499.2

or Civ[il] Code [sections] 3082 et seq. The purpose of the Labor and Material Bonds

involved here is to protect . . . City . . . by providing for payment to the contractors

subcontractors[,] laborers[,] materialmen[,] and all other persons employed in the

performance of the work of improvement[,] for materials furnished or labor thereon of

any kind. The bonds are not designed to establish a fund for payment of breach of

contract damages beyond the reasonable amount of materials or labor provided. Even if

the contract between Suncal . . . and Nissho . . . provided for attorneys fees to the

prevailing party the court would reach the same decision.”

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 DISCUSSION

A. INTRODUCTION

“„The Subdivision Map Act is “the primary regulatory control” governing the

subdivision of real property in California.‟ [Citation.] It has three principal goals: „to

encourage orderly community development, to prevent undue burdens on the public, and

to protect individual real estate buyers.‟ [Citation.] It „seeks “to encourage and facilitate

orderly community development, coordinate planning with the community pattern

established by local authorities, and assure proper improvements are made, so that the

area does not become an undue burden on the taxpayer.”‟ [Citation.]” (Pacific Palisades

Bowl Mobile Estates, LLC v. City of Los Angeles (2012) 55 Cal.4th 783, 798-799.)

“To accomplish its goals, the Subdivision Map Act sets suitability, design,

improvement, and procedural requirements (e.g., Gov. Code, §§ 66473 et seq., 66478.1 et

seq.). It also allows local governments to impose supplemental requirements of the same

kind (e.g., id., §§ 66475 et seq., 66479 et. seq.). [Citation.] Further, „[t]he Act vests the

“[r]egulation and control of the design and improvement of subdivisions” in the

legislative bodies of local agencies, which must promulgate ordinances on the subject.‟

[Citation.] The local entity‟s enforcement power is directly tied to its power to grant or

withhold approval of a subdivision map. Thus, „[o]rdinarily, subdivision under the Act

may be lawfully accomplished only by obtaining local approval and recordation of a

tentative and final map . . . .‟ [Citation.]” (Pacific Palisades Bowl Mobile Estates, LLC

v. City of Los Angeles, supra, 55 Cal.4th at p. 799.)

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 “By the enactment of this article, the Legislature intends to accomplish . . . the

following objective[]: [¶] . . . [¶] (c) To ensure that local agencies have maximum

discretion . . . in the imposition of conditions on any approvals occurring subsequent to

the approval or conditional approval of the vesting tentative map . . . .” (Gov. Code,

§ 66498.9)4 Whenever the furnishing of security is required it shall be in any form of

security which is acceptable to the local agency including one or more bonds by one or

more authorized corporate sureties. (§ 66499, subd. (a)(1)(5).)

“A surety is „one who promises to answer for the debt, default, or miscarriage of

another, or hypothecates property as security therefor.‟ [Citation.] A surety bond is a

„“written instrument executed by the principal and surety in which the surety agrees to

answer for the debt, default, or miscarriage of the principal.”‟ [Citation.] In suretyship,

the risk of loss remains with the principal, while the surety merely lends its credit so as to

guarantee payment or performance in the event that the principal defaults. [Citation.] In

the absence of default, the surety has no obligation. [Citation.]” (Cates Construction,

Inc. v. Talbot Partners (1999) 21 Cal.4th 28, 38.)

“„[A] surety on an official bond undertakes no liability for anything which is not

within the letter of his contract. The obligation is strictissimi juris; that is, he has

consented to be bound only within the express terms of his contract and his liability must

be found within that contract or not at all. [Citation.] “Where a surety bond is given

pursuant to the requirements of a particular statute, the statutory provisions are

4 All further statutory references are to the Government Code unless indicated.

10
incorporated into the bond.” [Citation.]‟ [Citation.]” (Schmitt v. Insurance Co. of North

America (1991) 230 Cal.App.3d 245, 258.) “The surety‟s obligation is strictly construed

so as not to impose a burden not contained in or clearly inferable from the language of

the contract. [Citations.]” (Airlines Reporting Corp. v. United States Fidelity &

Guaranty Co. (1995) 31 Cal.App.4th 1458, 1464.)

“„In general, a surety bond is interpreted by the same rules as other contracts.

That is, we seek to discover the intent of the parties, primarily by examining the words

the parties have chosen giving effect to the ordinary meaning of those words.‟” (Amwest

Sur. Ins. Co. v. Patriot Homes, Inc. (2005) 135 Cal.App.4th 82, 86-87.) “[I]f the trial

court‟s interpretation [was] based solely on an examination of the contract, the

interpretation of the contract is a question of law and this court will independently review

the validity of the trial court‟s construction. [Citation.] However, if the trial court [was]

presented with conflicting extrinsic evidence to aid in the interpretation of the contract, „a

reasonable construction of the agreement by the trial court which is supported by

substantial evidence will be upheld. [Citations.]‟ [Citations.]” (Lugosi v. Universal

Pictures (1979) 25 Cal.3d 813, 852.)

“It long has been settled in California that where a bond incorporates another

contract by an express reference thereto, „the bond and the contract should be read

together and construed fairly and reasonably as a whole according to the intention of the

parties.‟ [Citations.] To ascertain the nature and extent of the liability to which the

surety has bound itself, courts must „examine the language of the undertaking by the light

of the [construction] agreement, faithful performance of the terms of which it

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guarantees.‟ [Citations.] As a general rule, „[t]he obligation of a surety must be neither

larger in amount nor in other respects more burdensome than that of the principal . . . .‟

[Citation.]” (Cates Construction, Inc. v. Talbot Partners, supra, 21 Cal.4th at pp. 39-40.)

Here, the parties agree that although there was no express reference to the L&M bonds in

the SIA, the parties intended the SIA to incorporate the L&M bonds.

B. NISSHO WAS LIMITED TO RECOVERING AGAINST THE PENAL

SUM ENUMERATED IN THE OFFSITE BOND IN THE AMOUNT OF

$566,200

Safeguard contends Nissho was limited to recovering against the amount

enumerated in the Offsite Bond. We agree.

Here, the court resorted to the consideration of evidence extrinsic to the SIA and

the bond agreements. As such, we may consider such evidence in determining whether

its interpretation of the SIA was supported by substantial evidence. Considering the

uncontradicted parole evidence of the SIA adduced below, we hold Nissho was limited to

recover only in an amount no greater than the penal sum specified in the Offsite Bond.

First, section 66499 et seq. clearly provide for the legality of obtaining separate

bonds to furnish security for projects such as the SIA. Section 66499, subdivision (a)(1)

allows for a “[b]ond or bonds by one or more duly authorized corporate sureties.”

Section 66499.2, which dictates the form of any L&M bond issued under the statutes,

provides “A bond or bonds by one or more duly authorized corporate sureties for the

security of laborers and material suppliers shall be in substantially the following form[.]”

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Thus, the issuance of multiple L&M bonds for a development project was clearly

envisioned under the statutory scheme.

Second, it is notable all the Avalon security bonds were issued more than a month

prior to the execution of the SIA. All the bonds were issued between October 27, and 30,

2006. The SIA was not signed until December 6, 2006, at which time City had already

accepted Nissho‟s provision of security, which the parties agree was incorporated into the

SIA. Thus, the parties to the SIA clearly intended the provision of multiple L&M bonds

to be acceptable.

The evidence adduced below established City consented to the issuance of

separate securities characterized by the work to be performed. City was approached prior

to issuance of the securities with a request that City permit Suncal to obtain separate

securities. City was intimately involved in determining the amounts of the bonds through

the use of bond worksheets and contractor estimates specifically delineated by the type of

work to be performed; thus, not only was City aware that separate bonds would issue, it

aided Suncal in determining their scope. The security bonds were on forms supplied and

approved by City. City reviewed the adequacy of the bonds prior to entering into the

SIA. Thus, City exercised its statutorily invested “maximum discretion” in approving the

SIA with separate security bonds. (§ 66498.9, subd. (c).)

Third, contrary to the court‟s ruling, it was undisputed below that Suncal, not

Safeguard, requested issuance of separate securities. Thus, contrary to the court‟s

characterization, Safeguard did not attempt “to limit it[]s own liability to the detriment of

the subcontractors.” Indeed, Safeguard did only what was requested of it: issue separate

13
securities in amounts and characterizations of the work to be performed as designated by

Suncal and City. Since, as discussed ante, the bonds were on City forms and in amounts

determined by City and Suncal based on subcontractor estimates, it is difficult to assign

nefarious intent to Safeguard for doing exactly what was asked of it.

Fourth, it is entirely consistent with a reading of the SIA that Suncal would have

Safeguard issue separately denominated L&M bonds limited to the work therein

described. Nissho maintains the SIA‟s provision that, “A Security Instrument

guaranteeing the payment to contractors, subcontractors, and other persons furnishing

labor, materials, and/or equipment („Labor and Materials Security Instrument‟) with

respect to the Works of Improvement in an amount equal to $8,692,500 equal to 50% of

the estimated construction cost,” required Safeguard to issue one L&M bond in the

amount of 50 percent of all estimated construction costs, from all of which it was entitled

to seek remuneration. Likewise, Nissho argues language in each of the L&M bonds

reading, “for materials furnished or labor thereon of any kind” allowed it to disregard the

characterization of each bond since it provided work that would fall within the broad

definition “of any kind.” (Italics added.) The clear intent of those provisions was to

provide adequate security for the entire project in the SIA and the categories of

improvements denominated in the separate L&M bonds. The fact that Suncal had

Safeguard issue separate bonds securing disparate facets of the project comes well within

that intent. (Lunardi v. Great-West Life Assurance Co. (1995) 37 Cal.App.4th 807, 820.)

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 Whether Suncal obtained one security instrument or several, the bonds obtained by

Suncal from Safeguard covered the amounts and work required by the SIA, City, and

Government Code sections 66499 et seq. (Civ. Code § 1650; County of Kern v.

California Dept. of Health Services (2009) 180 Cal.App.4th 1504, 1513-1514.) City

chose to limit the L&M bonds to 50 percent of the estimated costs of the improvements to

be performed by the contractors, subcontractors, laborers, materialmen, and suppliers.

The Offsite Bond in the amount of $566,200 represented 50 percent of all

estimated offsite landscaping and traffic improvements. The amount of the bond was

determined primarily from cost estimates provided by Nissho itself. Moreover, the

estimates that provided the base amount for the Offsite Bond were doubled to provide a

“cushion” in case City had to perform the work. This is, presumably, because once City

had to undertake the work, it would become a public works project requiring City to pay

prevailing wages. Thus, because the Offsite Bond included amounts for non-landscape

work and doubled the construction estimates for all work performed under its aegis, the

bond could not be construed as limiting any subcontractor‟s potential recovery under the

bond in the event Suncal defaulted, particularly Nissho, which participated in the

computation of the bond‟s amount. Indeed, because Nissho‟s offsite landscaping contract

with Suncal amounted to $1,639,777.19, Nissho was at least on constructive notice that

its contract amount twice exceeded the Offsite Bond and, therefore, it would be unable to

recover even half the value of its work from the bond should Suncal default.

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 Fifth, Nissho presumably had knowledge of both the SIA and the bonds before it

bid on or accepted award of the offsite landscaping contract with Suncal. As noted ante,

Nissho had provided construction estimates, which served as the basis for the amount of

the Offsite Bond. The incorporated bonds and bond worksheets were attached to the SIA,

which was recorded in the county recorder‟s office. Kato testified Nissho began

landscaping in 1984. Over its ensuing 20-plus-year history, Nissho expanded to the point

where it had four regional offices operating in Chula Vista, Temecula, Palm Springs, and

Vista, California. Nissho specialized in multiple large projects of up to 800,000 acres

with 14,000 home sites.

Under these circumstances, it is reasonable to conclude Nissho knew that under

section 66499.3, subdivision (b), City was able to require that Suncal provide L&M

bonds limiting Nissho‟s recovery in the event of Suncal‟s default to only 50 percent of

the work it completed or 50 percent of the total work conducted on the project. Thus,

Nissho was effectively on notice it could not rely on the entirety of all the L&M bonds

for recovery in the event of Suncal‟s default. Nissho complains, “The net effect of . . .

Safeguard‟s [bond] headers, if they are enforceable, is that contractors such as [Nissho]

cannot be paid the full value of their work and labor.” Section 66499.3, subdivision (b)

permits City to limit recovery for subcontractors to 50 percent of the work provided. City

elected to require only the minimum amount of coverage required by statute.

Sixth, the court‟s judgment did not differentiate between Nissho‟s on-site and

offsite work. On the contrary, the court‟s judgment aggregated the three separate

contracts Nissho entered into with Suncal and noted Nissho had performed $1,041,148.55

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worth of work on the aggregated contracts, the exact amount it awarded Nissho. Thus,

the court erroneously permitted Nissho to recover against the bonds for its on-site work.

Although Nissho sought recovery against the bonds for both its on-site and offsite work,

the undisputed testimony below established that only its offsite work was covered by the

Offsite Bond. Thus, only offsite landscaping was bonded and the court‟s award of

recovery against the bonds for on-site work performed by Nissho was error.

Seventh and finally, treatment of all the L&M bonds as one singular bond while

disregarding each bond‟s limitations with regard to the type of work characterized therein

would ignore the intent of the actual parties to the bonds and the legal requirement that

bonds be strictly construed to limit the surety‟s obligations to those expressly specified.

Here, Safeguard was presented with bonds by Suncal on City forms, in language written

by City, based upon language required by statute, in amounts based upon estimates

provided by subcontractors, and with characterizations of the work to be performed

provided by City and Suncal. Safeguard issued the bonds as they were presented to it.

Nissho invokes former Civil Code section 3226 providing, “Any bond given pursuant to

the provisions of this title will be construed most strongly against the surety and in favor

of all persons for whose benefit such bond is given . . . .” Assuming arguendo the bonds

issued in this case were “given pursuant to the provisions of” that title, we still fail to see

how they could be interpreted to allow Nissho, a landscaper, to recover against bonds

specifically limited to work on domestic water, storm drains, sanitary sewer system, AC

pavement, aggregate base, and/or curb and gutter/flatwork. Moreover, Nissho‟s

argument below that “since . . . Safeguard had the opportunity to make any changes that

17
they felt were appropriate, then it has to be interpreted most strongly against them,” is

belied by the statutory requirements for the language contained in the bonds.

Government Code section 66499.2 dictates the language of the bond and, as testified to at

trial, the language of the bonds was on City forms approved by City; thus, Safeguard had

no opportunity to make changes to the language of the bonds and construing it against the

“drafter,” here either City or the Legislature, would not inure to Nissho‟s benefit.

In conclusion, we hold in consequence of the uncontradicted parole evidence

adduced below, insufficient evidence supported the trial court‟s interpretation of the SIA

to require a single security instrument. Thus, Nissho was limited to recovering against

the Offsite Bond in the amount of $566,200 for its offsite work only. We therefore

reverse the court‟s judgment awarding Nissho $1,041,148.55 against all the L&M bonds.

Since the trial court failed to distinguish amounts Nissho expended in its offsite and on-

site work, the matter must be remanded for a determination of whether Nissho expended

work valued up to or above the penal sum of $566,200 designated in the Offsite Bond.

To the extent it did, judgment should be entered in Nissho‟s favor in the maximum

amount of $566,200.

C. NISSHO‟S RECOVERY OF INTEREST

The trial court ruled Nissho would be allowed to recover interest dating back to

the date of its initial claim because it was not limited to recovery against the penal sum of

$566,200 designated in the Offsite Bond. Thus, because Nissho could seek recovery

against all the L&M bonds with an aggregate value of $8,692,500, and Nissho had only

recovered $1,041,148.55 against those bonds, sufficient additional bond funds were

18
available to permit Nissho to recoup interest. On appeal, Safeguard requests that, to the

extent we hold Nissho was limited to recovering the penal sum of $566,200 designated in

the Offsite Bond, we determine whether Nissho could recover interest above and beyond

the sum specified in that bond.

In the first instance, we decline to make such a determination because we believe

the question is not ripe for review. (Vandermost v. Bowen (2012) 53 Cal.4th 421, 461

[“„The ripeness requirement, a branch of the doctrine of justiciability, prevents courts

from issuing purely advisory opinions. [Citation.] It is rooted in the fundamental

concept that the proper role of the judiciary does not extend to the resolution of abstract

differences of legal opinion‟”].) The trial court did not make a determination of whether,

if Nissho had recovered up to the amount limited by the bond, Nissho could recover

additional funds for interest. Second, since the trial court made no determination of

whether the value of Nissho‟s work performed on the offsite contract equaled or

exceeded the limits of the Offsite Bond, that determination must be made before any

determination on interest can be made. Thus, on remand we direct the trial court to

determine both the amount Nissho may recover for offsite work performed against the

limits of the Offsite Bond and, if it equals or exceeds that amount, whether Nissho can

recover an additional amount for interest.

D. ATTORNEY FEES

Nissho contends that as the prevailing party in the action below, it was statutorily

entitled to an award of attorney fees. Safeguard maintains there was no statutory basis

for awarding Nissho attorney fees and, therefore, the trial court‟s denial of Nissho‟s

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motion for attorney fees was based on a correct interpretation of the statutory law. We

agree with Safeguard.

“„“On review of an award [or denial] of attorney fees after trial, the normal

standard of review is abuse of discretion. However, de novo review of such a trial court

order is warranted where the determination of whether the criteria for an award of

attorney fees [has] been satisfied [pursuant] to statutory construction and a question of

law.”‟ [Citation.]” (Heritage Pacific Financial, LLC v. Monroy (2013) 215 Cal.App.4th

972, 1003.) The “American rule” requires that “unless expressly provided in contract or

statute, each party to a litigation must pay its own attorney fees. [Citations]” (Serpa v.

California Surety Investigations, Inc. (2013) 215 Cal.App.4th 695, 709.)

Section 66499.4 provides, “As a part of the obligation guaranteed by the security

and in addition to the face amount of the security, there shall be included costs and

reasonable expenses and fees, including reasonable attorneys‟ fees, incurred by the local

agency in successfully enforcing the obligation secured.” (Italics added.) Likewise, as

mirrored in the bonds issued in this case, the language required by section 66499.2

provides, “that the surety will pay the same in an amount not exceeding the amount

hereinabove set forth, and also in case suit is brought upon this bond, will pay, in addition

to the face amount thereof, costs and reasonable expenses and fees, including reasonable

attorney‟s fees, incurred by county (or city) in successfully enforcing this obligation, to

be awarded and fixed by the court, and to be taxed as costs and to be included in the

judgment therein rendered.” Since, Nissho is not a local agency or municipality, it

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cannot recover attorney fees according to the Subdivision Map Act pursuant to which the

bonds and SIA were executed in the instant case.

Nonetheless, Nissho argues it is entitled to an award of attorney fees pursuant to

former Civil Code section 3250, which provided, “An action on the payment bond may

be maintained separately from and without the filing of an action against the public entity

by whom the contract was awarded or any officer thereof. In any action, the court shall

award to the prevailing party a reasonable attorney‟s fee, to be taxed as costs.” (Since

renumbered Civ. Code, § 9564 [eff. July 1, 2012].) Former Civil Code section 3250 was

part of former Title 15 which required a payment bond when a contractor was “awarded a

contract by a public entity.” (Former Civ. Code, § 3247, subd. (a)) “„Public work‟

means any work of improvement contracted for by a public entity.” (Former Civ. Code,

§ 3100.)

A “„Public entity‟ means the state, Regents of the University of California, a

county, city, district, public authority, public agency, and any other political subdivision

or public corporation in the state.” (Former Civ. Code, § 3099.) Public works projects

require a bond in an amount “not less than one hundred percent of the total amount

payable by the terms of the contract.” (Former Civ. Code, § 3248, subd. (a).)

We agree with the trial court‟s tentative determination that “the evidence is

insufficient to establish that these were public works payment bonds. The fact that the

outer perimeter (the landscaping) of the subdivision may some day [sic] come under the

management of . . . City . . . as to maintenance, cannot alter the status existing at the time

the agreement was signed. There appears to be no other basis for awarding attorney

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fees.” Indeed, Fuller testified the bonds issued in the Avalon project were, “not bonds

associated with public work projects.” Public works projects would have required the

payment of prevailing wages. It was Suncal, not City‟s, determination to landscape the

offsite areas so they would match the landscaping of the on-site areas. City did not

require payment of prevailing wages on the offsite landscape work. However, the

amounts calculated from contractor estimates were doubled for purposes of specifying

the amount of the bonds in case the City ended up contracting for the work itself upon

Suncal‟s default. Only in such circumstances where City itself was directly contracting

for the work would it have become a public works project requiring the payment of

prevailing wages. Thus, Nissho was not entitled to recover attorney fees under former

Civil Code section 3250 because it was not engaged in a public works project.

Nissho exposits two cases in support of its proposition that its offsite work

qualified as public works projects entitling it to attorney fees. In Granite Construction

Co. v. American Motorists Ins. Co. (1994) 29 Cal.App.4th 658 (Granite), a sub-

subcontractor in a new subdivision performed work for which it was not paid. The

original contractor and subcontractor filed for bankruptcy. The surety refused payment.

The sub-subcontractor filed suit against the surety and won a motion for summary

judgment and award of attorney fees. (Id. at p. 661.) The surety appealed, contending

the sub-subcontractor had not timely filed a requisite public works preliminary bond

notice and was not entitled to attorney fees. (Id. at pp. 661-662.) The court of appeal

affirmed the trial court‟s judgment. (Id. at p. 662.)

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 We find Granite distinguishable for several reasons. First, Granite fails to

establish the factual predicate for determination in this case as to whether the streets

paved and sealed by the sub-subcontractor were on-site or offsite improvements and

whether they were required by the municipality. In fact, the surety‟s argument that the

sub-subcontractor failed to timely serve a public works preliminary bond notice assumes

the project was a public work required by the municipality. This differs from the instant

case in which Suncal required the offsite landscaping, and no public works preliminary

bond notice was apparently required. Second, the Granite court indicated it was limiting

its analysis to the bond‟s provision for attorney fees. (Granite, supra, 29 Cal.App.4th at

p. 667, fn. 7.) However, that provision, like the ones in the bonds at issue in this case,

limited attorney fees to the municipality. (Id. at p. 668.) Thus, Granite did not abide by

its own analytical framework.

Third, Granite provided no analysis of the competing statutory provisions for

attorney fees with respect to subdivision improvements; thus, there was no indication as

to whether the project at issue, like Avalon, would come within the purview of the

Subdivision Map Act, which does not provide a statutory basis for attorney fees for

subcontractors. Fourth, the surety in Granite did not contest the categorization of the

sub-subcontractor‟s work as a public work and did not challenge its entitlement to

attorney fees; rather, the surety challenged only the timeliness of sub-subcontractor‟s

service of the public works preliminary bond notice and its entitlement to attorney fees

prior to initiation of suit against the surety. Thus, because the court did not consider

whether the sub-subcontractor‟s performance was a public work or whether it was

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entitled to attorney fees after initiation of the suit, its holding is, at best, weak dictum for

the proposition that subcontractors are always entitled to attorney fees upon successful

suit against a surety.

In California Paving & Grading Co., Inc. v. Lincoln General Ins. Co. (2012) 206

Cal.App.4th 36 (California Paving), the developer entered into a SIA with a municipality

that required, as a condition of its approval, the developer install all public improvements

required by the final map. The City required a 50 percent L&M bond for the public

improvements. The developer contracted with a general contractor for construction of

the improvements. (Id. at p. 38.) The general contractor subcontracted for the paving

and asphalt work. The subcontractor performed the work but was never paid. The

subcontractor filed suit against the developer and the general contractor, but both filed for

bankruptcy. The subcontractor then filed suit against the surety. (Id. at p. 39.)

The surety demurred contending the subcontractor had failed to file suit within the

statutory timeframe. (California Paving, supra, 206 Cal.App.4th at pp. 39-40.) The

subcontractor countered that, “the improvements for which the bond was issued are

subdivision improvements, not a public work within the meaning of the Civil Code

sections. Therefore, the payment bond is not a public works payment bond and the

statute of limitations set forth in [former Civil Code] section 3249 does not apply to this

action.” The trial court sustained the demurrer. (Id. at p. 40.)

The appellate court reversed, holding the “subdivision improvement work

constituted a public work within the meaning of [Civil Code] section 3100 because it

constituted a „work of improvement contracted for by a public entity.‟” (California

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Paving, supra, 206 Cal.App.4th at p. 43.) Indeed, the SIA and contract between the City

and the developer “expressly required [the developer], at its „own cost and expense, to

construct and install all public improvements required in and adjoining and covered by

the final map.‟” (Ibid.) The general contractor then contracted with the subcontractor

“„to furnish labor, services, equipment and materials required pursuant to the prime

contract for the construction of the PUBLIC IMPROVEMENTS.‟” (Ibid.)

Nissho fails to cite any provision in either the SIA or the contracts between it and

Suncal where any of the contracted work was designated as a “public improvement.”

This is a dispositive difference between the instant case and California Paving where the

words “public improvements” in the various contracts and agreements were emphasized.

Moreover, here, Suncal and City did not enter into any direct contract with one another,

unlike in California Paving. Thus, City was not a party to any construction contract

executed by Suncal, the general contractor, or Nissho. Finally, unlike in California

Paving with respect to the street paving and asphalt work, City did not require the offsite

landscaping performed by Nissho as a condition for approval of the SIA. Rather, Suncal

proposed the offsite landscaping to which City acquiesced. Therefore, the offsite

landscaping was not a public works improvement and Nissho was not entitled to an

award of attorney fees.

DISPOSITION

The judgment awarding Nissho $1,041,148.55 plus costs and interest from January

2008 is reversed. The matter is remanded with directions to the trial court to determine

what amount of damages Nissho may recover up to the penal limit of $566,200 on the

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Offsite Bond. The trial court is further directed to determine whether Nissho may

recover costs and interest if the inclusion of such further costs exceeds the penal amount

of the Offsite Bond. The trial court‟s judgment denying Nissho‟s motion for attorney

fees is affirmed. Defendant and appellant Bond Safeguard Insurance Company is

awarded its costs on appeal.

CERTIFIED FOR PUBLICATION

MILLER
J.

We concur:

RAMIREZ
P. J.

McKINSTER
J.

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