Rideau v. Stewart Title of California

Filed 4/1/15; pub. order 4/14/15 (see attached) (reposted 4/15/15 to correct description line date; no change to opn.)

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

EARL B. RIDEAU et al., D065751

Plaintiffs and Appellants,

v. (Super. Ct. No. 37-2010-00096274-
CU-BC-CTL)
STEWART TITLE OF CALIFORNIA, INC.,

Defendant and Respondent.

APPEAL from an order and judgment of the Superior Court of San Diego County,

Jay M. Bloom, Judge. Affirmed.

Dennis R. Delahanty for Plaintiffs and Appellants.

Best Best & Krieger, Robert J. Hanna, Kira L. Klatchko and Shannon M. Erickson

for Defendant and Respondent.

Plaintiffs and appellants Earl B. Rideau and Marina Rideau (the Rideaus) entered

into an agreement with condominium developer, Inmobiliaria BGJB de Mexico, S. de

R.L. de C.V. (BGJB; not a party to this appeal), to purchase a unit to be constructed in

Mexico. The Rideaus deposited funds toward the purchase price with an escrow

company, defendant and respondent Stewart Title of California (Stewart Title). In the
"Sale Escrow Instructions" (the Instructions), Stewart Title agreed to receive funds from

the Rideaus, to be released at the seller's direction to a fund control company, as specified

in the Instructions. The project failed and the Rideaus lost their deposit.

In the Rideaus' prior appeal, we reversed a defense judgment on the basis that the

trial court erred in denying their contract claim that Stewart Title had breached the

Instructions, when it released their $239,700 deposited funds to entities other than the one

specified in the Instructions (California Fund Control; not a party to this appeal; the "fund

control company"). (Rideau v. Stewart Title (Sept. 12, 2013, D061497) [nonpub. opn.];

the "prior opinion.") On remand, the trial court entered judgment in their favor.

This appeal arises from the trial court's denial of the Rideaus' motion for an award

of contractual attorney fees and costs, based upon "hold harmless" language found in

section IV of the Instructions, "Release of Funds," regarding defense of claims arising

from the Instructions. The Rideaus contend a portion of that language should be

interpreted as a reciprocal attorney fees clause, and not as an item of recovery specified in

an indemnity agreement. (Civ. Code, §§ 1717, 2778; all further statutory references are

to the Civil Code unless noted; Baldwin Builders v. Coast Plastering Corp. (2005) 125

Cal.App.4th 1339 (Baldwin Builders).) We conclude that the trial court correctly denied

the motion and affirm the order and judgment.

I

BACKGROUND

In the prior appeal, we were required to interpret section IV of the Instructions and

found that the Rideaus' claim Stewart Title had breached its contractual obligations was

2
valid. Section IV of the Instructions, "Release of Funds," first provided Stewart Title

would release funds as instructed by BGJB, without further authorization, and Stewart

Title would then disburse the funds to the fund control company. The Instructions

represented that BGJB and the fund control company had a pre-approved voucher control

system agreement in place. However, Stewart Title released the Rideaus' deposit to other

entities. BGJB failed to construct the condominium building, and neither Stewart Title

nor BGJB returned the Rideaus' deposit.

In their lawsuit, the Rideaus alleged Stewart Title breached the contract,

committed negligence, and violated other duties. After the trial court ruled for Stewart

Title, our prior opinion reversed the judgment with directions. We concluded that the

most reasonable interpretation of the Instructions was "that they implicitly required

Stewart Title to release the Rideaus' funds only to [the fund control company]. In light of

this interpretation, we conclude that Stewart Title breached the escrow instructions . . .

and that the Rideaus were entitled to judgment in their favor on their breach of contract

claim." We reversed the judgment with directions to the trial court to enter a new

judgment in favor of the Rideaus for breach of contract, and in favor of Stewart Title on

the Rideaus' remaining causes of action (e.g., negligence). The Rideaus were awarded

their costs on appeal. In this appeal, they incorporate by reference the appellants'

appendix from the prior appeal.

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 II

MOTION FOR ATTORNEY FEES; RULING; APPEAL

On remand, the Rideaus brought their motion for an award of contractual attorney

fees and costs, based upon the final sentence in section IV of the Instructions. The

Rideaus also sought an award of extra costs to which they would not ordinarily have been

entitled, except for the operation of section 1717.

The disputed text in section IV of the Instructions reads in full, with emphasis

shown as in the original:

"RELEASE OF FUNDS: From BUYERS['] deposit in escrow,
ESCROW HOLDER is authorized and instructed to release funds as
instructed by SELLER, upon receipt of this signed instruction from
all principals and clearance of BUYERS['] funds, without further
authorization from BUYERS; said funds to be disbursed by
California Fund Control to pay direct costs, commissions and
construction costs only. California Fund Control and SELLER have
in place, an agreement where California Fund Control inspects the
project site and authorizes payment of construction costs to
contractor, sub-contractors and suppliers according to a pre-
approved voucher control system. The undersigned BUYERS and
SELLER hereby acknowledge that they are aware that Stewart Title,
its officers and employees make no warranty or representation of
any kind or nature, either express or implied, as to the ownership or
condition of title to the property described in this escrow, nor as to
the conditions of this escrow will have been complied with nor will
any document be filed for recording in connection therewith. We,
the undersigned, hereby hold Stewart Title harmless from any
loss or damage which may be sustained by reason of the above
disbursement instruction, and for the failure of any of the
conditions of this escrow, and for the recovery of said money so
released, and agree to defend you against any claims whatsoever
arising from [sic] and [sic] any attorneys fee, expenses or costs
incident thereto."

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 The Rideaus argued that the last sentence in section IV, referring to defense of

claims and recovery of attorney fees and expenses, amounted to a unilateral attorney fee

provision, which should be given reciprocal effect under section 1717.

In response, Stewart Title contended that the "hold harmless" language indicated

this was a unilateral indemnity clause, which required only that the buyers and seller

would defend Stewart Title in claims arising from its compliance with the Instructions,

and therefore the clause was not subject to section 1717 reciprocity. The Instructions did

not otherwise provide for attorney fees in an action to enforce the Instructions. Stewart

Title requested judicial notice of the trial court's previous statement of decision and the

appellate opinion from the prior appeal, which was granted by the trial court.

The trial court took the matter under submission and issued its ruling, interpreting

section IV of the Instructions as requiring denial of the request for attorney fees. The

court ruled that section 1717 and its reciprocal principle do not apply to the attorney fees

language, which it read as being incorporated into the indemnity provision of the

Instructions. Therefore, the court relied on case law providing that reciprocity generally

does not apply to attorney fees provisions in indemnity clauses. (See summary in

Baldwin Builders, supra, 125 Cal.App.4th 1339, 1344.) The ruling quotes the following

excerpt from Baldwin Builders as explaining why the section 1717 rule of reciprocity is

inapplicable, in those cases in which the recovery of attorney fees is authorized as an item

of loss or expense in an indemnity agreement:

"Because an indemnity agreement is intended by the parties to
unilaterally benefit the indemnitee, holding it harmless against
liabilities and expenses incurred in defending against third party tort

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 claims [citation], application of reciprocity principles would defeat
the very purpose of the agreement. [Citation.] In requiring
reciprocity of only those provisions that authorize the recovery of
attorney fees 'in an[y] action on [the] contract,' section 1717[,
subdivision] (a) expressly excludes indemnity provisions that allow
the recovery of attorney fees as an element of loss within the scope
of the indemnity." (Baldwin Builders, supra, 125 Cal.App.4th at
p. 1344.)

The trial court went on to find that section IV of the Instructions was an indemnity

provision that did not specifically provide for the recovery of attorney fees incurred to

enforce the contract or the Instructions, in litigation between plaintiffs/buyers and Stewart

Title/escrow holder. The court interpreted the language to be an indemnity agreement by

the principals (buyer and seller), in which they agreed to defend Stewart Title (escrow

holder) against claims arising from Stewart Title's compliance with the disbursement

instruction, including the payment of attorney fees incident to its defense.

The trial court ruled that since the Rideaus, as buyers, were claiming and had

established that Stewart Title did not comply with the disbursement instruction, the

indemnity provision was inapplicable. The indemnity provision was unilateral and for

the protection of Stewart Title, assuming it had complied with the Instructions. As such,

the applicable authorities did not justify a finding that the Rideaus had brought an action

to enforce the indemnity agreement found within the Instructions. (Baldwin Builders,

supra, 125 Cal.App.4th at pp. 1342-1346; see Continental Heller Corp. v. Amtech

Mechanical Services, Inc. (1997) 53 Cal.App.4th 500, 509 (Continental Heller).)

Instead, these indemnity provisions specified attorney fees were an element of loss within

the scope of the indemnity recovery. Regarding their breach of contract theory, the

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Rideaus could not show entitlement to recover their reciprocal attorney fees under section

1717. They appeal.

III

APPLICABLE STANDARDS FOR CONTRACT INTERPRETATION

A. Review

Escrow instructions may be analyzed under contract principles, and we view the

escrow holder as an agent and fiduciary of the parties to the escrow. (Summit Financial

Holdings, Ltd. v. Continental Lawyers Title Company (2002) 27 Cal.4th 705, 711; Amen

v. Merced County Title Co. (1962) 58 Cal.2d 528, 534.) An agency created by an escrow

is limited, requiring the escrow holder to carry out the instructions of each of the

principal parties. (Summit Financial, supra, at p. 711.) "If the escrow holder fails to

carry out an instruction it has contracted to perform, the injured party has a cause of

action for breach of contract." (Ibid., citing Amen, supra, at p. 532.)

Here, as in the prior appeal, the trial court reached its legal conclusions by

analyzing the plain language of the Instructions, including their hold harmless language.

Read in context, this agreement by the principals to "hold Stewart Title harmless from

any loss or damage" defines this portion of the Instructions as an indemnity agreement.

Generally, indemnity is defined as an obligation of one party to pay or satisfy the loss or

damage incurred by another party. (Zalkind v. Ceradyne, Inc. (2011) 194 Cal.App.4th

1010, 1025 (Zalkind); §§ 2772, 2778.) A contractual indemnity provision may be drafted

either to cover claims between the contracting parties themselves, or to cover claims

7
asserted by third parties. (Zalkind, supra, at p. 1025; 12 Miller & Starr, Cal. Real Estate

(3d. ed. 2011) § 34:76, pp. 34-272 to 34-273; ibid. (2014-2015 supp.) § 34.76, p. 18.)

"Indemnity agreements are construed under the same rules which govern the

interpretation of other contracts. [Citation.] Accordingly, the contract must be

interpreted so as to give effect to the mutual intention of the parties. [Citation.] The

intention of the parties is to be ascertained from the 'clear and explicit' language of the

contract. [Citation.] And, unless given some special meaning by the parties, the words

of a contract are to be understood in their 'ordinary and popular sense.' [Citation.] [¶] 'In

interpreting an express indemnity agreement, the courts look first to the words of the

contract to determine the intended scope of the indemnity agreement.' " (Continental

Heller, supra, 53 Cal.App.4th 500, 504.) Section 1641 requires consideration of the

whole of a contract, each portion taken together so as to give effect to every part, each

clause helping to interpret the other.

On a given set of facts, as here, where the trial court was not required to consider

extrinsic evidence in interpretation of a contract, the reviewing court applies de novo

review. (Campbell v. Scripps Bank (2000) 78 Cal.App.4th 1328, 1336 (Campbell).) We

exercise our independent judgment in interpreting the clause, giving no deference to the

trial court's ruling. (Ibid.; Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861,

865-866.) "To state the obvious: Whether [a party to the agreement] is entitled to

recover attorney fees incurred in enforcing the indemnity agreement, as opposed to

recovering attorney fees incurred in defending the underlying claims, depends on the

language of the contract." (Continental Heller, supra, 53 Cal.App.4th 500, 508.)

8
 Thus, the provisions of section 1717, subdivision (a) must be applied to the

language of the contract, to identify whether the subject lawsuit was "on the contract,"

and if the contract contains an attorney fees clause, and if the requested fees and costs

were incurred by the prevailing party in enforcement of the contract. (Meininger v.

Larwin-Northern California, Inc. (1976) 63 Cal.App.3d 82, 84 (Meininger).)

B. Prior Opinion: Inapplicability of Exculpatory Provisions in the Instructions

Before determining the scope and effect of the attorney fee provisions in section

IV of the Instructions, we first explain our approach to the exculpatory language in that

section, which immediately precedes the hold harmless/attorney fees clause. In our prior

opinion, we discussed the ineffectiveness of this exculpatory language, which states that

Stewart Title made "no warranty or representation of any kind or nature, either express or

implied, as to the ownership or condition of title to the property described in this escrow,

nor as to the conditions of this escrow will have been complied with nor will any

document be filed for recording in connection therewith." (Section IV of the Instructions

then continues with the indemnity "hold harmless" language that we now consider.)

In the prior appeal, Stewart Title claimed it should be excused from liability, under

the operation of the exculpatory language. It had argued it did no wrong, and admitted,

"The hold-harmless clause did not absolve Stewart Title from wrongdoing or negligence.

Instead, the clause protected Stewart Title for complying with the [Escrow]

Instructions . . . ." (Italics added.) In a footnote in the prior opinion, this court took note

that the trial court's statement of decision declined to enforce the exculpatory provisions

in the Instructions in such a way as to insulate Stewart Title from liability. The trial court

9
had noted: "[Stewart Title] also alleges that it is not liable because of the hold harmless

clause in the escrow instructions. Although the [trial] court does not have to reach this

issue here, it does not appear the hold harmless clause would insulate [Stewart Title]

from liability. [Citations.]" The trial court was specifically relying on public policy

grounds, which establish that "[w]here the public interest is affected the exculpatory

clause will be held invalid." (Diaz v. United California Bank (1977) 71 Cal.App.3d 161,

171; Akin v. Business Title Corp. (1968) 264 Cal.App.2d 153, 157-159.)

For purposes of analyzing the current attorney fees entitlement questions, we

emphasize that our prior opinion declined, as did the trial court, to reach the issue of

whether the exculpatory clause in Section IV of the Instructions could validly be enforced

to protect Stewart Title for liability for breaching the Instructions. Since Stewart Title

did not even contend that the exculpatory provisions should be interpreted in such a

fashion, we did not utilize any such analysis. Instead, a breach of contract analysis was

dispositive and required a ruling in favor of the Rideaus.

Our current inquiry is limited to reading the terms of section IV of the Instructions

in context, to determine the evident intent of the parties, regarding their potential

exposure to reciprocal attorney fees obligations. (§§ 1641, 1644.) We evaluate the

nature of the Rideaus' action and whether it was predominantly brought in enforcement of

the contract created by the Instructions, or whether it was predominantly aimed at

enforcement of the indemnity clause.

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 IV

INDEMNITY PRINCIPLES IN CONTEXT OF ATTORNEY FEES REQUESTS

A. Types of Obligations to Indemnify and/or to Pay Attorney Fees

Section 1717 gives rise to a reciprocal right to contractual attorney fees in all

parties enforcing a contract, even where the contract accords a right to such fees to one

party but not the other. (Myers Building Industries v. Interface Technology, Inc. (1993)

13 Cal.App.4th 949, 968 (Myers Building Industries); Campbell, supra, 78 Cal.App.4th

at pp. 1336-1337.) The Instructions as a whole do not contain attorney fees clauses,

except in the indemnity portion.

Not all indemnity agreements containing attorney fees language can be given

reciprocal effect. In Myers Building Industries, the court explained, "The very essence of

an indemnity agreement is that one party hold the other harmless from losses resulting

from certain specified circumstances. The provisions of Civil Code section 1717 were

never intended to inflict upon the indemnitee the obligation to indemnify his indemnitor

in similar circumstances. Indemnification agreements are intended to be unilateral

agreements. The Legislature has indicated no intent to make them reciprocal by

operation of law. Indeed a contrary intent is evidenced by Civil Code section 2778,

subdivision 3, including attorney fees as a matter of law as an item of recoverable loss in

an indemnity agreement." (Myers Building Industries, supra, 13 Cal.App.4th 949, 973.)

In the context of escrow agreements, an indemnification clause usually provides

for recovery of funds, including attorney fees or costs, under circumstances in which the

escrow holder has incurred extraordinary fees and costs as the result of disputes between

11
the principals, or the principals and third parties. (Campbell, supra, 78 Cal.App.4th

1328, 1335-1336.) The Rideaus would read the indemnity provisions in the Instructions

as providing coverage for first party claims made between the parties to the Instructions,

as well as any third party claims that might be made ("agree to defend you against any

claims whatsoever"). (Zalkind, supra, 194 Cal.App.4th at p. 1025.) The Rideaus'

hypothetical indemnity claim would be similar to their underlying breach of contract

claim, to recover loss sustained by reason of the poor performance of the Instructions,

except that an indemnity action would bring in the attorney fees language in the hold

harmless clause.

Each contract containing indemnification language or attorney fees provisions

must be analyzed on its own terms, and in context, pursuant to the usual rules of contract

interpretation for determining the actual intent of the parties. (Campbell, supra, 78

Cal.App.4th at pp. 1336-1337; see Appalachian Ins. Co. v. McDonnell Douglas Corp.

(1989) 214 Cal.App.3d 1, 43-44 [interpreting indemnification provisions of the contract

as expressly inapplicable, according to the language of the contract in view of the

circumstances at issue in the case]; Myers Building Industries, supra, 13 Cal.App.4th

949, 972-973.)

Part of the interpretive inquiry identified in Campbell is whether the indemnity

language about attorney fees puts the principals to the escrow "on notice that it is an

attorney fees clause providing for an award of fees to a prevailing party in litigation to

enforce the escrow instructions." (Campbell, supra, 78 Cal.App.4th at p. 1337.) The

court identified certain policy considerations that support the inclusion of indemnity

12
provisions in escrow agreements, to allow for recovery of potential expenses that the

escrow holder might incur if extraordinary services are required of it (such as resolving

conflicting demands concerning ownership of funds or problems between the parties or

third parties). Where more than the usual escrow fee might be appropriate compensation,

a contractual indemnity term could be used to provide for reimbursement of such

extraordinary expenses. (Ibid.)

The holdings of the line of cases analyzing when indemnity provisions that contain

attorney fees references can properly support a reciprocal award of attorney fees under

section 1717 were thoroughly summarized in Carr Business Enterprises, Inc. v. City of

Chowchilla (2008) 166 Cal.App.4th 14, 20-23 (and we will refrain from repeating that

summary). The general rule is that the specification of attorney fees as an item of loss in

a third party claim indemnity provision (§ 2778, subd. (3)) "does not constitute a

provision for the award of attorney fees in an action on the contract which is required to

trigger section 1717." (Carr, supra, at p. 20; citing Myers Building Industries, supra, 13

Cal.App.4th at pp. 971-973; Meininger, supra, 63 Cal.App.3d 82, 84-85.) Where a party

proves entitlement to recover under an indemnity clause (as an indemnitee), the other

party (the indemnitor) must reimburse the indemnitee "for any damages the indemnitee

becomes obligated to pay third persons. [Citation.] Indemnification agreements

ordinarily relate to third party claims." (Carr, supra, at p. 20; Myers Building Industries,

supra, at p. 969.) In addition to damages, the indemnitee can recover its costs of defense

against the third party claim. (§ 2778, subd. (3).)

13
 The Rideaus rely primarily on a few cases that have allowed the reciprocal

principles of section 1717 to apply in the context of an indemnity agreement. The trial

court's ruling extensively analyzed and distinguished Baldwin Builders, in which the

subject attorney fees provision was located within the indemnity provision, providing

"Subcontractor shall pay all costs, including attorney's fees, incurred in enforcing this

indemnity agreement [i.e., in an action to enforce the indemnity]." (Baldwin Builders,

supra, 125 Cal.App.4th at p. 1342.) The contractor Baldwin Builders had been sued by

homeowners, and in turn it sued the subcontractors for contractual indemnity, etc. The

subcontractors were thus required to defend themselves against the contractor's cross-

action, and they incurred defense costs in successfully showing they were not negligent

and should not be held liable to indemnify. (Ibid.)

In Baldwin Builders, this court acknowledged the authorities stating that the rule

of reciprocity under section 1717 is "subject to an exception where the recovery of

attorney fees is authorized as an item of loss or expense in an indemnity agreement or

provision. [Citations.] . . . In requiring reciprocity of only those provisions that

authorize the recovery of attorney fees 'in an action on [the] contract,' section 1717[,

subdivision] (a) expressly excludes indemnity provisions that allow the recovery of

attorney fees as an element of loss within the scope of the indemnity." (Baldwin

Builders, supra, 125 Cal.App.4th at p. 1344.) However, that exclusion or exception does

not apply if the attorney fees clause contained in the indemnity agreement states that it

applies to actions to enforce the provisions of the indemnity agreement. In such a case,

14
the reciprocal provisions of section 1717 will apply. (Baldwin Builders, supra, at pp.

1344-1345; 12 Miller & Starr, supra, § 34:76, pp. 34-272 to 34-273.)

In Baldwin Builders, supra, 125 Cal.App.4th 1339, this court held that the attorney

fee provisions in the stand alone indemnity agreements were properly subject to section

1717, subdivision (a), and no such exception (for indemnity) prevented reciprocity. We

said, "the express language of the attorney fee clauses authorizes the recovery of attorney

fees where one of the parties to the agreement brings an action to enforce the indemnity;

such an action is one 'on [the] contract' within the meaning of section 1717[, subdivision]

(a) and thus the attorney fee clauses are subject to the statutory requirement of

reciprocity. [Citation.] The fact that the attorney fee clauses are set forth in the

indemnity agreements does not alter this conclusion." (Baldwin Builders, supra, at

p. 1346.)

In another indemnity example, Continental Heller, the appellate court ruled that an

attorney fees clause contained in an indemnity provision, which provided that one party

would indemnify the other for attorney fees "incurred on account of any breach of the

aforementioned obligations and covenants, and any other provision or covenant of this

Subcontract," covered attorney fees incurred in an action for breach of express

contractual indemnity. (Continental Heller, supra, 53 CalApp.4th at p. 509; italics

omitted.) In that case, Continental Heller had settled a third party claim brought against

it, incurring costs and attorney fees in its defense and also in suing the indemnitor,

Amtech. The indemnity agreement contained an additional express provision for attorney

fees incurred as a result of a breach of contract. Thus, the agreement was not deemed to

15
be solely an indemnity provision in which attorney fees were a specific item of loss. The

court held the clause at issue authorized an award of attorney fees, because Continental

Heller had incurred them in suing to enforce the indemnity agreement. (Id. at pp. 508-

509; see 12 Miller & Starr, supra, § 34:76, pp. 34-272 to 34-273.) We next examine the

attorney fees language in this case.

C. Nature of Rideaus' Action; Enforcement of Instructions

Section IV of the Instructions first provides for the release of funds, as analyzed in

our prior opinion. It then sets forth the exculpatory language discussed in part III.B, ante

(no warranty or representation made as to title, etc.; not deemed dispositive here). We

focus on the meaning of the next clause, with respect to discerning the evident intent of

the parties: "We, the undersigned, hereby hold Stewart Title harmless from any loss or

damage which may be sustained by reason of the above disbursement instruction, and for

the failure of any of the conditions of this escrow, and for the recovery of said money so

released, and agree to defend you against any claims whatsoever arising from [sic] and

[sic] any attorneys fee, expenses or costs incident thereto." (Italics added and bolding

omitted.)

Here as in Campbell, supra, 78 Cal.App.4th 1328, whether we label this clause as

an indemnification or an attorney fees provision is not determinative. The usual rules for

construing a contract require us to determine the actual intent of the parties, regarding

their potential exposure to responsibility for paying contractual attorney fees. (Id. at

p. 1337.)

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 Utilizing the analysis in Continental Heller, supra, 53 Cal.App.4th 500, 509, the

Rideaus suggest that this court read in a certain phrase from that case, in considering the

clause at issue here. This would add language such as "incurred on account of any breach

of the aforesaid obligations and covenants" (ibid.), which might clarify their enforcement

rights. Thus, section IV might now read, "We, the undersigned, hereby hold Stewart

Title harmless from any loss or damage which may be sustained by reason of [any

breach of the aforesaid obligations and covenants] regarding the above disbursement

instruction, and for the failure of any of the conditions of this escrow, and for the

recovery of said money so released, and agree to defend you against any claims

whatsoever arising from [any breach of the aforesaid obligations and covenants] and

[sic] any attorneys fee, expenses or costs incident thereto." (Emphasis in original.)

However, it is not our place to add or subtract contractual language.

We think the last sentence of section IV of the Instructions provides for attorney

fees awards to Stewart Title only if it, as an escrow holder, has acted properly, and

prevails in litigation arising out of claims or conflicting demands made upon it, such as

litigation arising out of disputes or controversies about the terms of the escrow, among

the principals or with any third person. (Campbell, supra, 78 Cal.App.4th 1328, 1337.)

It is instructive to consider how an indemnity action could have played out under these

circumstances. One possible scenario would have been that Stewart Title fully complied

with the Instructions, but due to some type of conflict that arose during the escrow

arrangement, Stewart Title nevertheless had to pay a settlement amount or damages to a

third party claimant. In that scenario, Stewart Title could then seek indemnification from

17
the principals to recoup such extraordinary costs (e.g., damages and defense costs and

fees). However, as we have interpreted the clause in the prior opinion, including the

exculpatory language, it has been determined that Stewart Title did not comply with the

duties required of it under the Instructions, but instead it breached them, and accordingly

it has been held liable for breach of contract damages. As such, Stewart Title could not

obtain indemnity from the principals for its own bad acts.

We do not think this indemnity language was meant to provide for the recovery of

attorney fees, on a reciprocal basis, in this action directly between the Rideaus as

principals, and the escrow holder Stewart Title, to enforce the terms of the general escrow

instructions. (See Myers Building Industries, supra, 13 Cal.App.4th at p. 973.) It does

not seem logical that the principals (the Rideaus) should be able to sue on the Instructions

to recover not only direct breach of contract damages from Stewart Title, but also assert

they were actually seeking first party contractual indemnity that would in turn support

their related claim for attorney fees, on a contract basis. The Rideaus as principals were

not acting in enforcement of the indemnity clause in the Instructions, but rather they were

claiming rights under the previous disbursement portion of the Instructions, which was

independent of an indemnity situation.

The question boils down to which action on which contract invoked the need to

incur attorney fees. (§ 1717.) Under the configuration of parties here, there was no need

for the Rideaus to defend Stewart Title "against any claims whatsoever arising from [sic]

and [sic] any attorneys fee, expenses or costs incident thereto." Conversely, there was no

need for Stewart Title to defend the Rideaus or itself "against any claims whatsoever

18
arising from [sic] and [sic] any attorneys fee, expenses or costs incident thereto." The

ultimate recovery gained by the Rideaus as principals was not obtained under the

indemnity clause. Instead, the indemnity clause remained a one way protection for

Stewart Title, due to the nature of an escrow holder's duties if they are properly

performed, but such indemnity rights were never invoked here. Neither was the

indemnity related attorney fees clause.

"To state the obvious: Whether [a party to the agreement] is entitled to recover

attorney fees incurred in enforcing the indemnity agreement, as opposed to recovering

attorney fees incurred in defending the underlying claims, depends on the language of the

contract." (Continental Heller, supra, 53 Cal.App.4th 500, 508.) Our exercise of

independent judgment in interpreting the clause gives the same result as the trial court's

ruling. (Campbell, supra, 78 Cal.App.4th 1328, 1336.) The indemnity provision here did

not put the Rideaus as principals and the escrow holder, Stewart Title, on sufficient notice

that the escrow holder might become liable to pay attorney fees to the principals, in an

action brought to enforce the disbursement terms in the Instructions. Even though the

Instructions also included an indemnity agreement, that portion of the agreement cannot

be given reciprocal effect, where the actual dispute was between a principal and the

escrow holder. This was not a case in which a third party claim was brought to invoke

the one way indemnity obligation.

Even accepting that a contractual indemnity provision may be drafted either to

cover claims between the contracting parties themselves, or to cover claims asserted by

third parties (Zalkind, supra, 194 Cal.App.4th at p. 1025), the Instructions do not provide

19
indemnity rights among the contracting parties (the principals and the escrow holder),

that would support reciprocal treatment, with respect to attorney fees. Rather, this clause

only includes attorney fees as an item of loss in a third party claim indemnity provision.

Under these circumstances, there was no action that enforced the indemnity agreement, as

would have been required to trigger operation of section 1717. (Myers Building

Industries, supra, 13 Cal.App.4th at pp. 971-973; Meininger, supra, 63 Cal.App.3d at

p. 85.) We affirm the order and judgment denying the Rideaus' motion for attorney fees

and costs.

DISPOSITION

Affirmed. Costs on appeal are awarded to Stewart Title.

HUFFMAN, Acting P. J.

WE CONCUR:

HALLER, J.

McINTYRE, J.

20
Filed 4/14/15
COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

EARL B. RIDEAU et al., D065751

Plaintiffs and Appellants,

v. (Super. Ct. No. 37-2010-00096274-
CU-BC-CTL)
STEWART TITLE OF CALIFORNIA, INC.,

Defendant and Respondent.

THE COURT:

The opinion filed April 1, 2015, is ordered certified for publication.

HUFFMAN, Acting P. J.

Copies to: All parties