The Critical Path: Tools for Resolving Construction Disputes : California Construction Lawyer & Attorney for Dispute Resolution in Los Angeles, San Diego & the S.F. Bay Area

I like to read and report on appellate court cases that illustrate the benefits of self-determination in the mediation process as opposed to court-imposed adjudication in the civil trial process. It may involve a little "Monday morning quarterbacking,"  but I don't consider it to be second quessing anybody but more like watching game film to learn from past competitions and prepare for the next contest.

Today I want to report on a new California Court of Appeal case involving a homeowner and a condominium owners’ association.  It addresses the voluntary dismissal of some but not all causes of action, the question of who is the prevailing party for purposes of awarding attorney fees, and the consequences of a fully executed settlement agreement that includes a waiver of known and unknown claims. These are typical issues in every lawsuit but looking at them from a “post-mortem” perspective can increase our capacity for pre-trial solutions.

WHAT HAPPENED

It is never a good sign when an appellate court admonishes one of the parties to get her “ducks in row,” but that is what happened in this condo case. The court stated:

 A party contemplating litigation to enforce the covenants, conditions, and restrictions of a condominium project should get the "ducks in a row." That is to say, such party should be ready to go forward procedurally and prove its case substantively. Failure to do so subjects the losing party to an award of attorney fees. Here, a condominium owner filed against a condominium association. In defending the suit, the Association incurred attorney fees of a quarter million dollars. Based on faulty reasoning, the owner dismissed eight of the ten causes of action on the eve of trial. She prevailed on no level whatsoever, let alone on a "practical level." But the trial court denied the Association any attorney fees, and the Association appealed. We conclude that the denial was an abuse of discretion as a matter of law. The condo owner did not realize her "litigation objectives" on these causes of action. The Association did realize its "litigation objectives" and was the prevailing party on a "practical level." It is entitled to attorney fees as mandated by the Legislature.

Dismissal

There are potential consequences when a lawsuit is dismissed either voluntarily, as was the case in the condo case above, or involuntarily due to some court action. Depending on the state statute, the court will determine which side is the prevailing party and award that party the costs of litigation and under certain conditions, attorney fees. In the condo case, the plaintiff may have to pay up to $250,000 in attorney fees to reimburse the condo association, the prevailing party. It should be noted that a trial court can also award litigation costs and attorney fees to the prevailing party after a civil trial.

When conducting a pre-trial risk assessment, I believe it is imperative that all parties to a lawsuit consider the possibility of having to pay not only their own costs and fees but also the costs and fees of the other side. Parties must be realistic about the risks posed by the prevailing party statutes, especially given the discretion courts are given in making the determination of who is the prevailing party.

Attorney Fees

In most states, such as California, attorney fees are awarded to the prevailing party if there is a contractual or statutory basis for such an award. For example, many contracts have attorney fee provisions which provide that in the event there is litigation over the subject matter of the contract, the prevailing party will be awarded its attorney fees. Some states have enacted laws to advance a favored public policy that include attorney fee provisions to the prevailing party. In the condo case, for example, the condo association filed a motion pursuant to California Civil Code section 1354, subdivision (c), which provides: "In an action to enforce the governing documents" of a common interest development, "the prevailing party shall be awarded reasonable attorney's fees and costs."  

Litigants should be aware of the potential for having to pay the other side’s costs and attorney fees and conversely, that the other side may have to reimburse them if they prevail. Both sides of the issue should be considered when evaluating the risks and benefits of trial. Paying the other side’s attorney fees and costs is a bitter pill to swallow, especially if the issue was not fully evaluated and discussed prior to trial.

My friend at Construction Law Musings, Chris Hill, has a good post today on attorney fee provisions in construction contracts at www.constructionlawva.com.

Settlement Agreements

Settlement agreements generally contain very broad language to ensure that all claims and causes of action related to the issues in dispute are forever discharged and released. In California, Civil Code section 1542 provides that a person cannot release unknown claims. However, it is a common practice among lawyers to include a waiver of section 1542 so that the settlement and release agreement resolves all known and unknown claims that exists between the parties. This issue came up in the condo case.

The homeowner filed suit against the condo association in 2004 and settled the case in 2005, resulting in a settlement and release agreement that included a provision waiving all rights to known and unknown claims. The homeowner filed a second lawsuit against the condo association in 2008. In response the condo association argued that the homeowner’s claims were barred by the terms of the 2005 settlement agreement. The trial court agreed and so did the California Court of Appeal:

 Accordingly, we reject [homeowner's] argument that the 2005 release did not apply to unknown claims against Association that arose prior to the release. If an argument such as this were given currency, a release could never effectively encompass unknown claims. A releasor would simply argue that release of unknown or unsuspected claims applied only to known or suspected claims, making it ineffective as to unknown or unsuspected claims.

Settlement agreements are contracts. They are subject to the rules of evidence and are interpreted by the courts according to state contract law. They should be carefully drafted and reviewed before they are signed. You must be sure to precisely limit the release language to what is intended by both parties. For example, in the condo case the defendant condo association carved out of the release the homeowner’s obligation to pay monthly homeowner dues and assessments. Sometimes it is simply a point of negotiation, with the defendant wanting the release to be as broad as possible and the plaintiff wanting it to be as narrow as possible. Broad or narrow, both parties must think through the consequences of the release agreement so as to avoid any future surprises.  

As a mediator, I am an advocate for clarity, objectivity, reason, finality, and fairness. Cases like the condo case reinforce what I learned over a twenty-five year career as a trial lawyer: the outcome of a trial is never certain. The most effective trial lawyers are also effective problem solvers and counselors at law. They thoroughly consider each aspect of the dispute, they weigh the risks and rewards of trial, and they carefully explain all of the facets of the litigation to their clients. In my experience, well-prepared attorneys and well-informed clients can usually find a way to resolve a lawsuit prior to trial. Being part of the process that includes such preparation and perspective is one of the great privileges of being a mediator.

Resolving disputes through mediation is both challenging and rewarding. However, the certainty and finality of mediation also means there is less drama and truama when compared to a civil court trial. No "hail Mary" passes to win the game; no last second field goals to save the day. Instead the steady and sure process of mediation is more like the "Three Yards and a Cloud of Dust " reference that was used in the 1960's and '70's to describe the Ohio State Football teams of the legendary coach Woody Hayes, who famously said that when you throw the football three things can happen and two of them are bad(an incomplete pass or an interception). He preferred to run the football even if it meant a gain of only three yards and then a cloud of dust when the runner was tackled. A football team that strings together enough three yard gains (3.4, to be exact), will eventually cross the goal line. And so it is with mediation: parties that stick with the procees and grind it out will usually reach the goal of resolving their dispute, and when that happens, both sides win.

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Settlement agreements are contracts.They are subject to the rules governing the formation and enforcement of contracts. Each settlement agreement should be drafted to respond to the particular law, facts, and risks of the case. This is not be a simple "cut and paste" job.

If a settlement agreement is breached, a lawsuit can be filed to enforce the terms of the settlement. While there are reasons not to have an attorney fee provision in some commercial contracts, settlement agreements should have attorney fee provisions, in my view. An attorney fee provision is a deterrent to any party who may want to rescind a settlement agreement, as the losing party would have to pay the other side's attorney fees.This increases the risk of trying to undo a settlement and helps the parties maintain what they bargained for: the resolution of a dispute.

A recent California Court of Appeals case addresses attorney fees and choice of law provisions in settlement agreements. (Click here to read the case.) In the Aronson v. Advanced Cell Technology, the settlement agreement memorialized  the settlement of a lawsuit that had been filed in Massachusetts and included a provision that stated it would be enforced according to Massachusetts law.  The attorney fee provision provided that the Plaintiffs in the Massachusetts action would be entitled to attorney fees in connection with the enforcement of the settlement agreement. The agreement did not provide for any reciprocal recovery for the defendant in the event of a dispute.

The Massachusetts law conflicts with California Civil Code section 1717 which provides attorney fees to the prevailing party, plaintiff or defendant, even though the contract may specify that only one of them is entitled to attorney fees.The Massachusetts law, on the other  hand, does not provide reciprocity to the left out party so that only the named party would be entitled to attorney fees in the event an enforcement action were taken.

In Aronson, the plaintiffs in the Massachusetts action filed suit in California to enforce the settlement agreement. The lawsuit was later dismissed without prejudice, and the defendant moved for an award of attorney fees in the sum of $645,000. The defendant claimed it was the prevailing party because the case was dismissed. The trial court denied the motion on the basis of Civil Code section 1717(b)(2) which says there is no prevailing party when there is a voluntary dismissal. The defendant argued that this exception under California law does not apply because the settlement agreement was to be governed by Massachusetts law. However, under Massachusetts law, the defendant was not entitled to attorney fees because the settlement agreement only specified the plaintiff as the party entitled to attorney fees. To that point, defendant argued that Civil Code section 1717 actually applied to that aspect of the case so that the attorney fee provision was reciprocal. In essence, the defendant wanted California law to apply to one aspect of the settlement agreement and Massachusetts law to apply to another aspect of the settlement agreement. The Court of Appeal affirmed the trial court's order denying the motion for attorney fees and ordered the defendant/appellant to pay the plaintiffs/respondents' cost of appeal.

Lessons Learned

• While the opinion is not earth shaking, it does illustrate, once again, that the drafting of settlement agreements should not be a simple "cut and paste" job.
• Caution must be used when agreeing to a choice of law provision. Each state has its own laws which could result in unanticipated consequences.
• Before agreeing to a choice of law provision outside of your jurisdiction you should attempt to learn how the other state's laws could affect critical terms in your settlement agreement.

Other Points of Interest

The scope of the release is also an important consideration. From the defense perspective, the release should be broad as possible to include any and all causes of actions and claims. The plaintiff, of course, will want the release to be drafted as narrowly as possible so that only those rights that are at issue in the litigation are released. In construction defect cases, the owner will only want to release patent or obvious defects and reserve rights with respect to unknown claims or conditions. Similarly, the owner will not want the release to include any warranties that would otherwise be available under the terms of the construction contract or purchase agreement..  

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California's public policy encourages the settlement of civil disputes. One way of doing so is Code of Civil Procedure section 998, a statue that shifts the risk of litigation to the party who rejects a pre-trial settlement offer but fails to obtain an award greater then the rejected offer. The statute gives the trial court the authority to award costs, including attorney fees and expert witness fees, under certain circumstances.

The statute provides an incentive to settle by increasing the potential exposure to paying the other side's litigation costs to the party contemplating a settlement offer. If the plaintiff's 998 offer is rejected, the defendant faces additional costs if the plaintiff is awarded a higher amount than the rejected offer; if the defendant's offer is rejected, the plaintiff could win the case, but if the damages award is less than the rejected offer, the plaintiff could be ordered to pay the defendant's litigation costs. Therefore, it is possible to win at trial but still lose the battle of who pays the freight of taking the case all the way through trial.

The California Court of Appeals published a case two days ago that adds clarity to the issue of costs and attorney fees under a section 998 offer. (Click here to read Martinez v. Metropolitan Transit Authority.) The Metropolitan Transit Authority made a settlement offer under section 998 which stated: "[MTA] hereby offers to Compromise the above-captioned matter for the total sum of $2501.00, with each party bearing their own costs."  Plaintiff accepted the offer but subsequently filed a motion for attorney fees pursuant to certain applicable statutes and argued that the section 998 offer did not preclude her from requesting attorney fees because the offer only referred to "costs" and made no mention of attorney fees. MTA argued that that under Code of Civil Procedure 1033.5 (a)(10)(B), the term "costs" includes statutory attorney fees.

The trial court denied plaintiff's motion, stating "statutory attorney's fees are an item of cost pursuant to CCP section 1033.5 (a)(10)(b)...and are therefore included in the defendant's section 998 offer, which states 'each side to bear their own costs.'" The Court of Appeal affirmed.

This circumstance calls for another "bright line rule." Unless the offer expressly states otherwise, an offer of monetary compromise under section 998 that excludes "costs" also excludes attorney fees. 

BEST PRACTICES

This case focuses on a statutory attorney fee request. Would the result have been any different if the attorney fees request was made pursuant to a contract provision? The Court did not address this squarely but did make the following observation: 

Allowable costs under [CCP]1032 are specified in section 1033.5. Section 1033.5, subdivision(a)(10) provides that attorney fees are allowable costs under 1032 when authorized by contract, statute, or law. Because attorney fees are costs under section 1033.5 it follows that when a section 998 offer provides that each party will bear its own costs the word "costs" refers to all costs described in section 1033.5, including attorney fees.

This case is a reminder that we should carefully draft our section 998 offers so that they clearly define the intended terms of the offer. It took an opinion from a court of appeal before the plaintiff in a $2500 case gave up her claim for attorney fees (assuming she does not take it to the Supreme Court of California).

While it now appear evident that costs include attorney fees, it would be a good practice to include in 998 offers a statement that each side will bear its own costs and attorney fees. That way there is no ambiguity about the intent behind the 998 offer as it relates to costs.

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If you win your lawsuit, you can make the loser pay your attorney's fees, right?  In California (and in most states) the answer to that questions depends on whether there is a statute or a contract provision that provides something like, "The prevailing party is entitled to an award of attorney's fees." "Good," you think to yourself, "My contract has such a provision, so if I win my lawsuit I can make the other side pay my attorney's fees." Not so fast, pal. It is usually not that simple. The question of who pays can be "a riddle wrapped in a mystery inside an enigma," to borrow a phrase from Winston Churchill. 

When it comes to "who pays," the California Appellate Courts often use the phrase "good news bad news" when addressing prevailing party law under Civil Code section 1717. As in, the good news is you won the case, the bad news is the loser does not have to pay your attorney's fees. Section 1717(a) provides:

In any action on a contract, where the contract specifically provides that attorney's fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing  on the contract...shall be entitled to reasonable attorney's fees in addition to other costs. 

But what does it mean to be the "prevailing party"? In cases where there is a "simple unqualified win, " as noted by the California Supreme Court in the Hsu case (1995), getting an award of attorney's fees is not that difficult. But what if there are mixed results? You win on some but not all of your causes of action. You defeat most but not all of the plaintiff's claims. Who is the prevailing party then? Unless you are absolutely certain of a simple unqualified win, you must be aware of the potential consequences of a trial with mixed results. 

This week the Court of Appeals published another "good news bad news" case (click here to read the case), pointing out that under Section 1717(b)  the rules for awarding fees are not rigid, there is no precise formula, and trial courts have discretion  to weigh the claims and defenses against the actual outcome to see if either party really prevailed over the other at trial. The case,  De La Cuesta v. Benham, involved a landlord/tenant dispute over unpaid rent. The tenant defended on the grounds the property was uninhabitable due to water leaks and sewer problems. The result was the landlord was awarded only 70% of his claimed damages and therefore, the trial court ruled that he was not the prevailing party and was not entitled to an award of attorney's fees. The Court of Appeals reversed the decision and ordered the case be remanded to the trial court for a hearing on the reasonableness of the attorney's fee request. 

The De La Cuesta case is not ground breaking law but it should have an eye-opening effect on lawyers and their clients. The court's factual summaries of several published  Section 1717 cases  help to unwrap the riddle of the mysterious, enigmatic prevailing party law. Trial court's do have discretion; attorney fees are not automatic, even if your victory means you did somewhat better than the other side. The  Nasser case, for example, was a "mixed result" case where a tenant got what he wanted-staying in the premises-but he also got hit with a rent increase. The trial court ruled there was no prevailing party in the case, and the Court of Appeals affirmed. In the Kytasty case, a given "right" was validated, but its scope was curtailed. The trial court's ruling that there was no prevailing party was affirmed by the Court of Appeals. In the Hilltop case, a movie promoter was required to pay monetary damages but won on the alter ego theory. Same result as the others: the "result was a draw," neither side prevailed, no attorney's fees. Several other cases are mentioned in the opinion to illustrate the nuances of the so-called good news bad news cases.

LESSONS and APPLICATIONS

• The likelihood of absorbing your own attorney's fees or having to pay the other side's attorney's fees is a factor  that must be considered in your litigation risk analysis, and should be reflected in your expectations about the  reasonable settlement value of the case.
• It is better to consider the potential ramifications of a good news bad news case than react to the realities of one. 
• Clients should be informed of all the risks of trial, including the possibility that winning the case does not necessarily mean prevailing for purposes of attorney's fees awards. 

POST SCRIPT: In a recent mediation of mine, an attorney for one of the parties wanted to terminate our discussions about the attorney's fees and costs, and advised his client that it was not necessary to make any concessions with respect to the costs of litigation. He believed his client would be deemed the prevailing party even if the damage award was only $1. This post is dedicated to all lawyers who may have this belief. May your Pyrrhic victories be few and far between.

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Appellate court opinions provide more than intrinsic precedential value; they are also useful reads in a “best practices” kind of way. Sometimes the lesson derived from them is “what not to do,” as illustrated in two recent cases from the California Court of Appeals.

The first case is one of those “I did not expect that to happen” kinds of cases. In S.J. Amoroso Construction v. Knecht (click here to read the unpublished opinion), the prime contractor took a default judgment in excess of $200,000 against its window subcontractor which was a corporate entity. After taking the debtor examination of the sole shareholder, the prime contractor sued the owner individually, seeking to pierce the corporate veil or amend the judgment to add the owner. The trial court refused to pierce the corporate veil, found the tort claims were barred by the statute of limitations, and, to add insult to injury, awarded the defendant $70,000 in attorney fees, and the California Court of Appeals affirmed. As a result, after the contractor incurred untold attorney fees and costs, a $200,000 uncollectible default judgment turned into a $70,000 obligation that the plaintiff contractor must pay to the defendant owner.

It appears from the case that the contractor had not anticipated the risk of having to pay the owner’s attorney fees if things did not turn out as planned. The contractor reasoned that since the contract was between two corporations (which meant that the owner was not a party to the contract in his individual capacity) the owner could not be awarded attorney fees based on that contract. The Court of Appeal disagreed, noting that California Civil Code section 1717 makes the right to an award of attorney fees a reciprocal benefit to the prevailing party “whether he or she is the party specified in the contract or not…”

Attorney fees were also an issue in another one of those “I’ve got a sick feeling” cases. In Silver v. Pacific American Fish Company (click here to read opinion), a cross complaint arising from a purchase agreement and related employment contract was filed. The cross-defendant responded by asserting lack of standing and judicial estoppel based on the cross-complainant’s prior bankruptcy proceeding. The trial court ruled in the cross-defendant’s favor, and an appeal was filed from the adverse judgment. The court of appeal rejected the grounds for appeal on various substantive and procedural points. This portion of the opinion is required reading because it reinforces the caution trial attorneys must take in prosecuting cases while preserving issues for appeal.

In the published portion of the opinion, the court held the cross-complainant’s notice of appeal from the post judgment order awarding the cross-defendant attorney fees was untimely, and that his notice of appeal from the judgment did not encompass the separately appealable post judgment order awarding attorney fees. Therefore, the court held that it did not have jurisdiction over the challenge to the order awarding attorney fees. The court of appeal explained:

The notice was filed after Pacific had filed its attorney fees motion, but well before any hearing or ruling on that motion. Thus, at the time Silver purported to appeal the order on Pacific’s motion, there had been no indication of the trial court’s intended ruling on that motion. The trial court’s oral pronouncement of a ruling did not occur until March

26, 2009, over a month after the filing of Silver’s notice of appeal. A notice of appeal filed after rendition of a judgment or statement of intended ruling but before entry of judgment may be treated as timely...But here, Silver filed his notice of appeal before the statement of intended decision. Thus, the notice as it relates to the trial court’s subsequent ruling on Pacific’s attorney fees motion is untimely under the holding in First American Title Co. v. Mirzaian (2003) 108 Cal.App.4th 956, 960 [notice of appeal filed before announcement of trial court’sintended ruling is untimely and cannot be treated as a premature but timely notice].

These cases caught my eye, not because the opinions were so profound or far-reaching but because they illustrate the precarious, unpredictable path of litigation. Successful lawyers understand these challenges and have the wisdom and experience to know which cases should be settled, which cases must be tried, and which cases should not be filed at all. Lawyers with these kinds of skills are more than great litigators; they are also trusted counselors at law. 

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Among the legal risks that must be analyzed in any litigation is the possibility of having to pay the other side's attorney fees if one loses at trial. In many states, attorney fees are available to the prevailing party if there is a contract provision for attorney fees or when a statute provides for them. A new California Court of Appeal case expands the general rule in construction cases where there is a performance bond in dispute.

In Mepco Services, Inc. v. Saddleback Valley USD, the prime contractor sued the school district for breach of contract on a school modernization project. Like most contracts for public works, the contract at issue did not have a provision for attorney fees. However, the school district filed a cross-complaint against the contractor for breach of contract and asserted a claim against the contractor's performance bond. 

The contractor prevailed at trial and requested, and was awarded,  attorney fees even though there was no provision for them in the prime contract. The Court of Appeal affirmed, holding that the prime contract required a performance bond, the bond provided that the school district would be entitled to an award of attorneys fees if it filed an action on the bond and, under California Civil Code section 1717, such provisions in contracts ( and now bonds which are incorporated into contracts) are reciprocal so that the prevailing party on the performance bond is entitled to an award of attorney fees.

Observations and Applications

• This decision could have a chilling affect on public owners filing cross-claims on performance bonds. Under Mepco Service, the public owners now face exposure to having to pay the attorney fees of contractors which removes an advantage public owners generally have when the prime contract does not have an attorneys fee provision.
• Public owners facing this situation should force the prime contractor to apportion at trial the attorney fees incurred in defending the performance bond claim from those incurred in prosecuting the breach of contract claim. The school district did not raise the apportionment issue at trial and the Court of Appeal ruled the argument was waived on appeal.
• Given the possibility of having to apportion fees, counsel for prime contractors should keep track of the fees incurred for prosecuting the breach of contract claim vs. defending the performance bond claim. If the owner raises the argument, you will be prepared to introduce the appropriate evidence at trial.

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The Critical Path recently reported on a study showing lawyer overconfidence as a barrier to the efficient resolution of disputes. This post will focus on a different study and a recent case that illustrate another barrier to conflict resolution: parties who view disputes as warfare and litigation as a battlefield.

Researchers have found that men in war simulations often overestimated their chances of winning, making them more likely to attack and behave aggressively, resulting in unnecessary losses that could have been prevented with a more balanced approach. In a recent "unpublished " opinion of the California Court of Appeal, a case in which the defendants engaged in "scorched earth tactics," according to the court,  overly aggressive conduct resulted in unnecessary losses for the defense. Click here to read the case. (Note: California Rules of Court prohibit courts and parties from citing or relying on opinions not certified for publication, except as specified by rule 8.1115.) 

The plaintiff in the case was a flight attendant on a corporate jet. She was fired and sued her former employer, two corporate officers, and the pilot. At one point in the litigation, the case could have settled for between $200,000 and $400,000. One of the defendants told his lawyers that he was not interested in settling the case, but rather in destroying the former employee and her lawyer at whatever the cost. As a result, his lawyers engaged in an aggressive litigation strategy described by the court as follows:

The ensuing pace and vitriol of this litigation is suggested by the circumstance that no less than five summary judgment motions were filed, two of them by Medvig. Unsurprisingly, the discovery process was reduced to warfare that was as intense as it was costly.

Costly indeed. With bills of $150,000 to $200,000 per month, the inevitable happened. First, the case did settle, with the defendants paying the former employee not $200,000 or even $400,000, but rather $675,000. And a second dispute erupted between defendants and their lawyers over legal fees, so the law firm withdrew from the case and sued for more than $1,000,000, having only been paid $200,000 for the work of its lawyers. An arbitrator awarded the law firm $938,457 for the unpaid fees, $327,000 for attorney fees incurred to collect the fees, costs of $152,105, plus 10% interest.

The law firm then filed a petition with the trial court to confirm the arbitration award against the defendants. Ultimately, the trial court entered judgment for $1,551,215. The defendants appealed, lost, and the court of appeal awarded costs of appeal to the law firm for an unspecified amount. 

Moral of the Story

To paraphrase a 1970's catchphrase, "Stuff happens." So do disputes. They happen in life, and in business. How we respond to them is our choice. Is there an alternative to the "destroy the opposition at whatever cost" approach to litigation? Of course there is. One of my favorite Japanese proverbs describes an approach that is both economical and wise: "Even a piece of paper has two sides". 

You can spend a lot of money hammering the opposition with discovery to beat them into submission or use it as a precise instrument to figure out what's on the other side of your own story. This will enable you to evaluate the case, analyze the risk of going to trial, and engage in meaningful settlement negotiations. In addition to a factual inquiry, you may want to consider the emotional elements that may be driving the litigation. For example:

• What are the conditions and circumstances of the other side?
• What is the financial condition of the other side?
• What business or personal pressures is the other side facing?
• What would my interests be if I were on the other side?

When we try to see things from the other side's perspective, we can more clearly focus on the strengths and weaknesses of our side of the story. Anger is replaced by wisdom. Fewer mistakes are made. Economical resolutions are reached. On the other hand, when the focus is on destroying an opponent, our judgment becomes slanted; we look at the dispute solely through the narrow lens of our own experiences filtered by our own prejudices.

In the case cited above, decisions based on anger and retribution thwarted a $400,000 settlement and left the defendants with a bitter 1.8 million dollar pill to swallow. I hope their experience is good medicine for us all.

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 In the past week, the California Court of Appeal  published two opinions involving recurring construction law  issues. A brief summary of the cases and a link to the opinions are provided below.

1.Oral Construction Contracts and Attorney Fees Under the Prompt Payment Statute

This Second District case arises from a dispute between a contractor and homeowners on an extensive home remodel project. Click here to read the opinion. The court addresses two important issues:

• The conditions under which an oral contract will be enforced despite the statutory protections that require a written contract for home improvement work.
• Enforcement of an attorney fee award despite the ambiguity in the attorney fee provision of the prompt payment statute.

2. Stop Notices and Reputed Lenders

• The Fourth District published an important decision regarding stop notices. Click here to read the opinion. Stop notices, like mechanics' liens, provide a form of protection to contractors to ensure payment. Properly implemented and served, a stop notice can force a construction lender to hold funds for the benefit of an unpaid subcontractor.
• The issue before the Court was the validity of a stop notice when the institution served with the requisite 20-day preliminary notice was not the actual construction lender. Instead, the subcontractor served the 20-day notice on the institution reflected in the “Preliminary Information” sheet provided by the owner. Unpaid at the end of the project, the subcontractor sued the construction lender for disbursing money owed to the subcontractor in violation of the stop notice. The construction lender defended on the grounds it was not served with the 20-day preliminary notice as required by the statute. The trial court agreed and  granted the construction lender's motion for summary judgment. The Court of Appeal reversed the trial court's order, holding there was a triable issue of fact on the question of whether the institution served, the "reputed lender," was properly served with a 20- day preliminary notice under California Civil Code section 3097. The case was remanded to the trial court for further proceedings.

Although the two cases are from different Districts of the Court of Appeal and involve different legal issues and facts, a single thread runs through both cases: courts will try to find results that are just and equitable. In the Second District case, the position taken by the homeowner on the oral contract would have resulted in a tremendous windfall for the owner and a massive loss for the contractor. Likewise, the subcontractor in the Fourth District case did the work and was deserving of payment. I have often thought that litigants and advocates who take cases to trial should first view the facts of their case through the lens of the potential jury or trial judge and that, to the extent possible, positions should be staked out on grounds that seem fair and reasonable. In the days and weeks of a trial, jurors and judges will never know the facts of a case as well as the parties and their lawyers do. But they can detect unfairness in a matter of minutes.

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