Death, Taxes and Attorneys’ Fees in Construction Disputes

Garret Murai | California Construction Law Blog

According to Benjamin Franklin there are two certainties in this world: Death and taxes. Let me humbly add a third if you’re ever involved in non-contingency civil litigation: Attorneys’ fees.

As such, when it comes to legal disputes, sophisticated parties know that it’s not just about winning but the cost of winning. While winning is never certain – remember Poor Richard’s proverb above –  what is certain is that it will most likely cost you to find out whether you’ve won or lost. That’s why the ability to recover (or at least threaten the recovery of attorneys’ fees – that’s a separate discussion altogether) in litigation and arbitration is so important.

A few facts:

  • According to the National Center for State Courts (NCSC) in their 2013 report, Measuring the Cost of Civil Litigation: Findings From a Survey of Trial Lawyers, the median cost of litigation (i.e., attorneys’ fees) for contract disputes, of which most construction disputes would fall under, was $90,575 from case initiation through post-trial disposition.
  • The NCSC survey was conducted in 2013. Adjusting for inflation, the median cost of litigation would be nearly $115,000 in 2022.
  • Further, attorneys responding to the NCSC survey were from across the U.S. According to Clio in its 2021 Legal Trends Report, California attorneys have the fourth highest average hourly rates in the nation behind Washington, D.C., Delaware, and New York. Adjusted by state, the median cost of litigating a construction dispute in California in 2022 is approximately $135,000.

In short, even if you win, and there’s no guarantee that you will win, the mere cost of litigation can comprise a large portion of or even exceed the amount in dispute. Thus, while most cases settle before trial – According to the California Judicial Council’s 2021 Court Statistics Report, 80% of unlimited civil cases (i.e., cases involving claims over $25,000) are resolved prior to trial – it is important to know from the outset whether you would be entitled to recover your attorneys’ fees if you do win.

So, are you entitled to recover your attorneys’ fees in a construction dispute? It depends. And here, it’s important to understand the difference between “the American Rule” and “the English Rule.”

The American Rule vs. The English Rule

Under the English Rule, the losing party in litigation is required to pay the winning party’s attorneys’ fees.

Under the American Rule, each party must pay its attorneys’ fees whether they win or lose, except if provided otherwise by statute or contract.

Among legal scholars there’s debate about how and why “the English Rule” and “the American Rule” were developed. However, we’ll leave that discussion to the academics on either side of the Atlantic. What’s more important for purposes of this discussion is when a party can recover their attorneys’ fees in a construction dispute.

And that’s where the exception noted above takes on vital importance. Under the American Rule each party must pay their own attorneys’ fees whether they win or lose, except if provided otherwise by statute or contract. So under what statutes and under what contracts can a winning party recover their attorneys’ fees in a construction dispute?

Statutes and Contracts in Which Attorneys’ Fees are Recoverable by the Winning Party

Attorneys’ Fees Recoverable Under Contracts

We’ll start with contracts. First, parties to a contract can, with certain exceptions, agree to anything they wish in a contract. This includes the recovery of attorneys’ fees in the event of a dispute. A typical provision in a design or construction contract providing for the recovery of attorneys’ fee might read as follows:

Should any dispute arise relating to the work under this Contract, the prevailing party shall be entitled to recover its attorneys’ fees.

This is a rather straightforward example and there can be numerous variations. Some variations will provide for the recovery of attorneys’ fees arising from disputes relating to the work to be performed under the contract or to disputes concerning the terms of the contract itself. Other variations will cap attorneys’ fees to a certain dollar amount, to a “reasonable” dollar amount to be determined by a judge, jury, or arbitrator, or include no limitation at all and allow a party to recover all attorneys’ fees “actually incurred.”

One variation that is generally not allowed however is recovery of attorneys’ fees by one party alone. For example, in a construction contract between a general contractor and subcontractor (and, obviously, one drafted by the general contractor or its attorney), the general contractor might include a provision providing that in the event of a dispute only the general contractor is entitled to recover its attorneys’ fees but not the subcontractor. Civil Code section 1717 makes such provisions “reciprocal,” meaning that if the subcontractor prevails, the subcontractor would be entitled to recover its attorneys’ fees against the general contractor as well.

Attorneys’ Fees Recoverable in Arbitration: A Potential Trap for the Unwary

It is not unusual for design and construction contracts to provide that disputes be resolved through arbitration. In California, parties will often specify the arbitration provider and the specific rules that will govern disputes to be resolved through arbitration. A typical provision might read as follows:

Should any dispute arise relating to the work under this Contract, the parties agree to resolve the dispute  through the American Arbitration Association (AAA) under the AAA’s Construction Industry Arbitration Rules and Mediation Procedures.

The two most common arbitration providers in California are the American Arbitration Association (AAA) and JAMS. In Southern California, parties also use the Arbitration Mediation Conciliation Center (AMCC) in addition to AAA and JAMS.

A trap for the unwary is AAA’s arbitration rules. Under AAA’s arbitration rules, including its Construction Industry Arbitration Rules and Mediation Procedures, an arbitrator may award attorneys’ fees if: (1) all parties have requested such an award; (2) if it is authorized by law; or (3) if it is provided for in the parties’ arbitration agreement.

Many parties, including their counsel, will reflexively request attorneys’ fees in arbitration and litigation without consideration of whether there is an attorneys’ fee provision in the parties’ contract. Under the AAA’s rules, because an arbitrator can award attorneys’ fees if “all parties have requested such an award,” a party may inadvertently trigger recovery of attorneys’ fees even though the parties’ contract does not include an attorneys’ fee provision.

Attorneys’ Fees Recoverable Under Statute

Attorneys’ fees are also recoverable if provided for under statute. There are three common statutes in which construction claims are brought in which the underlying statute provides for the recovery of attorneys’ fees. The first is stop payment notice claims. Civil Code section 8558 provides for the recovery of attorneys’ fees in a stop payment notice action on private works projects.

The second is payment bond claims. Civil Code section 9564 provides for the recovery attorneys’ fees in a payment bond action on public works projects. A party may also recover attorneys’ fees if provided for under the terms of a bond on a private works project.

Finally, attorneys’ fees are recoverable on certain prompt payment penalty claims. Civil Code sections 3320, 3321, 8800 and 8818, Business and Professions Code section 7108.5, and Public Contract Code section 10262.5 provide for the recovery of attorneys’ fees in prompt payment penalty claims on private works projects and certain public works projects.

Attorneys’ Fees Recoverable in Discovery: Another Potential Trap for the Unwary

Attorneys’ fees can also be recovered through discovery. Specifically, requests for admissions served while a case is in litigation or arbitration. A request for admission is a discovery tool in which a party requests that another party “admit” to the truth to certain facts or documents. An example might be:

Admit that you were paid in full by the Owner for Subcontractor’s Pay Application No. 1

If this was discovery served by a subcontractor to a general contractor and the general contractor denies that it was paid by the owner for the subcontractor’s pay application no. 1, and this turns out not to be true, the subcontractor or its counsel can request that the court award the subcontractor its attorneys’ fees in proving the truth of the matter asserted.

Specifically, Code of Civil Procedure section 2033.420 provides:

(a) If a party fails to admit the genuineness of any document or the truth of any matter when requested to do so under this chapter, and if the party requesting that admission thereafter proves the genuineness of that document or the truth of that matter, the party requesting the admission may move the court for an order requiring the party to whom the request was directed to pay the reasonable expenses incurred in making that proof, including reasonable attorney’s fees.

(b) The court shall make this order unless it finds any of the following:

(1) An objection to the request was sustained or a response to it was waived under Section 2033.290.

(2) The admission sought was of no substantial importance.

(3) The party failing to make the admission had reasonable ground to believe that that party would prevail on the matter.

(4) There was other good reason for the failure to admit.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Florida Contractor Group Already Files Suit Challenging New AOB Fee Restrictions

William Rabb | Insurance Journal

A group of contractors wasted little time in challenging the constitutionality of a law approved at the Florida Legislature’s special session last week, one the restoration companies argue singles them out and deprives them of attorney fees in assignment-of-benefits claims.

“The inability to recover prevailing party attorneys’ fees will effectively shut the courthouse door to plaintiffs because it will be cost-prohibitive to pay an attorney for these types of of small claims,” reads the complaint, filed in Leon County Circuit Court by Restoration Association of Florida and Air Quality Assessors.

Senate Bill 2D, passed largely along party lines, bars assignees of benefits from collecting attorney fees, even if they prevail in court. Insurers have long complained that the fees, coupled with Florida’s fee multiplier, is encouraging unnecessary claims litigation and is costing the industry huge sums every year.

The lawsuit argues that “deprivation of this right is significant because SB 2D wrongfully treats contractors, as assignees, disparately from homeowners and insurers.”

Some lawmakers and insurance industry advocates at the special session predicted the bill would be challenged by contractors, just as 2021’s Senate Bill 76 was challenged, then was temporarily suspended by a court. SB 76 sought to bar roofing contractors from soliciting homeowners and encouraging them to file insurance claims on roof damage. A federal judge has said the law may violate contractors’ constitutional rights to free speech.

Restoration Association did not bring that challenge, but it is no stranger to Florida insurers. The association’s president is Richie Kidwell, who also owns Air Quality Assessors, a mold-remediation firm. He spoke forcefully against SB 2D at the May 23-25 special session. Kidwell and his group also recently filed suit against the Florida insurance commissioner and two carriers over their policy endorsements.

One endorsement, by American Integrity Insurance, offers premium discounts for policyholders who agree to binding arbitration in claims disputes. Another, by Heritage Property & Casualty Insurance, states that the insurer won’t pay contractors, but will only reimburse the insured for restoration work, effectively barring AOB claims.

That suit and the May 31 challenge to SB 2D were filed by Boca Raton attorney Joshua Alper and the Center for Constitutional Litigation.

A Florida law professor said neither suit stands much chance of succeeding.

“In a word, this lawsuit isn’t going anywhere,” Robert Jarvis, a professor at Nova Southeastern School of Law, said about the challenge to SB 2D.

He explained that it’s very difficult to win a lawsuit based on the Florida Constitution’s equal protection clause, Article I, Section 2. “That’s because the clause only protects plaintiffs who are ‘similarly situated’ to people or groups that aren’t impacted by the law the plaintiffs are challenging,” Jarvis said. “But there’s almost always some difference between the plaintiffs and non-plaintiffs.”

Jarvis said that in weighing the validity of an economics-regulation law, the courts use a “rational basis” test. The defendants, in this case the Florida Department of Business and Professional Regulation, need only show that some rational basis exists for distinguishing the targets of the law – the assignees of benefits.

“This is a very easy standard to meet—there’s almost always some rational basis that supports the law and the distinctions it draws,” said Jarvis, who studies and teaches constitutional law and contract law. “In passing laws, the Florida Legislature is not required to address every ill. Thus, singling out just AOB contractors is a perfectly legitimate exercise of the Legislature’s powers.”

The plaintiffs must also show that the law is clearly unconstitutional, but courts have generally found that, while they may disagree with a piece of legislation, they won’t usually nullify it.

“Judges often opine that there was a better solution that the Legislature could and should have selected, but they won’t strike down a law simply because it’s not the best solution,” Jarvis explained in an email. “They leave that to the Legislature (which can always see the error of its ways and enact a new law) and the people (who can always set things right by electing new legislators).”

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Know the Other Side’s Three Goals for Your Deposition

Dr. Ken Broda-Bahm | Holland & Hart

So, your deposition has been scheduled, and you’re just starting to wrap your head around what is in store for you. Your lawyer has already stressed that you are not in the driver’s seat at this stage: The deposition is the other side’s process. Because of that, it helps to devote some thought to what they are looking for. A realistic and complete understanding of your adversary’s goals can help you prepare for your own testimony.

Every case and every opposing counsel will be different, and there may be unique factors in your own situation. At the same time, there are strong currents of common practice that underlie the ways most attorneys conduct their discovery. In this post, I’ll provide an overview of three common and distinct goals that motivate the other side’s deposition. These are goals that every witness should understand and adapt to.

When Taking Your Deposition, Your Adversary Wants to….

Discover

They want to flesh out the facts and to know in advance what you are going to say on all of the major issues.

This, of course, is a proper goal of a deposition: The other side has a right to know what you’re going to say on the relevant issues. So, as the witness, you will want to review what you know of the facts, firm up what you do and don’t remember, and take inventory of what you think on all the topics within your expected sphere of testimony. The other side’s goal is to commit you to a substantive answer in advance of trial, so your answers will have lasting consequences. Should it ever get to trial, you won’t need to give exactly the same answers on the stand, but you will need to be basically consistent with what you say at your deposition, or ready to explain any differences.

Enlist

They want to see if you will help them to support their case theory, or at least part of their story.

They can make their case without you — they have their clients, experts, and arguments. But it helps them if you can add support to at least a part of their case. For that reason, they will see if they can enlist you in that effort by asking you if you’ll accept some of their premises. They may want you to concede specific facts or principles because it gives them a stronger position to argue from if they can stand before a future jury and say, “She already agrees with this.” Of course, if it is true, it is true, and you lose credibility by fighting it. But quite often, what opposing counsel presents to you isn’t just a simple unvarnished fact, but something with selectivity and spin applied to it. It is critical to pause, think, and answer in your own words. And don’t help them where you don’t need to.

Assess

They want to size you up to see how you come across, and especially how you will present yourself if you testify in trial.

Most cases these days are resolved without trial, but they’re often resolved with an eye toward how a trial would have gone if it had happened. Will the witness be confident or nervous, certain or doubtful, unflappable or combative? Performing well on all of those metrics can contribute to the case assessment that each side is making. Plaintiffs in particular don’t want to invest time and money into cases that are unlikely to net a good return. So for the witness, your goal is to testify well, as if to say, “This is how I’ll be on the stand, so factor that into your calculations.”

Ultimately, the goal is to move from the deposition feeling mysterious and uncertain to it being known and controlled. By discussing the facts, practicing the expected testimony, and knowing the other side’s goals, you’ll be better prepared.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Boots on the Ground- A Great Way to Learn and Help Construction Clients

Christopher G. Hill | Construction Law Musings

This past week, I attended the Construction Law and Public Contracts seminar in Charlottesville, VA and also a breakfast meeting of the Richmond chapter of the Associated General Contractors of Virginia.  Reflecting on this past week, I realized that my membership and participation in both of these great organizations (I am a member of the Board of Governors for the state bar section and the Executive Committee for the Richmond District of AGC-VA) not only provides great marketing and friendship opportunities, participation helps my construction clients in ways that a singular online marketing and interactive path would not (even with the growth of social media).

Among other benefits (including case digests and the insightful newsletter), being a member of the Construction Law and Public Contracts section helps my clients in numerous ways, not the least of which is the ability to network and gain the perspective of many of the great construction attorneys here in Virginia.  The ability to bounce legal thoughts off of others for their perspectives gives me the benefit of their experiences and, importantly to my clients, allows me to be more efficient in my research and arguments because of their insight.

Additionally, as a solo construction attorney, knowing other attorneys in other parts of the Commonwealth of Virginia gives me a network of trusted lawyers to whom I can safely and confidently refer a case where a conflict exists or other factors (like geography) make such a referral a benefit to a construction firm in need of legal assistance on a particular matter.

Membership in the AGC of Virginia is beneficial from an industry knowledge perspective.  Hearing construction industry leaders in the Richmond area discuss the projects that are going on (or not going on) gives me practical insight that allows me craft solutions for clients that are tailored to their needs.  In short, a practical knowledge of the industry in my area of Virginia is something that I could not get just from reading ENR and other great industry publications.

Add these benefits to the great networking opportunities and friendships that I’ve gained and joining both of these great organizations, and the decision to join and remain active in them is a no-brainer.  If you are a Virginia lawyer interested in construction, I highly recommend paying the small fee with your next dues renewal to become a member of the Construction Law section.  If you have a connection to the Richmond area construction industry, I recommend membership in the AGC-VA.  You will find the benefits immense.

Before you see this as an indictment of social media, I clearly see social media as a part of any learning and marketing strategy.  I wouldn’t be blogging here at Construction Law Musings if I did not.  I just think ignoring “boots on the ground” face to face contact misses some opportunities to help out clients and the bottom line.

Thanks to all of you who read Construction Law Musings.  I seem to meet someone who reads on a weekly basis (many times at a meeting of one of these two organizations).

Contractor Gets Benched After Failing to Pay Jury Fees

Garret Murai | California Construction Law Blog

Trial by jury is a fundamental right under the U.S. and California Constitutions. However, to avail yourself of this right, you not only have to declare that in advance that you intend to try your case to a jury but post jury fees as well. In TriCoast Builders, Inc. v. Fonnegra, a contractor who failed to timely post jury fees, discovered on the day of trial that it waived the right to insist on a jury trial when the defendant pulled an “I gotcha” and waived his right to a jury trial.

The TriCoast Case

In May 2014, Nathaniel Fonnegra house was damaged by fire. The following month, Fonnegra entered into a construction contract with TriCoast Builders, Inc. to repair the property. Dissatisfied with the work, Fonnegra terminated the contract, and TriCoast in turn filed a complaint against Fonnegra for unpaid work.

A seven day jury trial was set to begin on September 23, 2019. On the day of trial, Fonnegra, who had earlier posted jury fees, waived his right to a jury trial. TriCoast objected, argued that its counsel had prepared for a jury trial, and made an oral request to proceed by jury trial and offered to post jury fees that day.

Noting that TriCoast had never posted jury fees, Fonnegra moved for the case to proceed to a bench trial to be decided by the judge alone pursuant to Code of Civil Procedure section 631(d). The trial court agreed that TriCoast had failed to timely request a jury trial and that it’s offer to post jury on the day of trial was untimely.

When TriCoast insisted it had a due process right to a jury trial, the trial court indicated that TriCoast could seek review stating, “Well, I mean not act you wouldn’t win on a writ. I don’t know. I’ve been taken up on a writ before and it’s always come back a court trial.” TriCoast did not seek writ review and the trial court’s minute order confirmed that TriCoast’s oral motion to proceed by jury trial was denied.

Following trial, the trial court entered a judgment in favor of Fonnegra. TriCoast appealed.

The Appeal

On appeal, the 2nd District Court of Appeal, quoting the California Constitution, stated “[t]rial by jury is an inviolate right and shall be scared by all,” but [I]n a civil cause a jury may be waived by the consent of the parties expressed as prescribed by statute.” Under Code of Civil Procedure section 631(f)(5), explained the Court, a party waives the right to a jury trial by failing to make a time deposit of jury fees. “A court accordingly may refuse a jury trial if jury fees are not deposited as required by Section 631, and the litigants are not thereby deprived of any constitutional right.”

However, explained the Court of Appeal:

[I]f a party has waived the right to a jury trial under section 631, subdivision (g) of that statute gives the trial court discretion to grant relief from such waiver: ‘The court may, in its discretion upon just terms, allow a trial by jury although there may gave been a waiver of a trial by jury.’ ‘In exercising this discretion, the trial court may consider delay in rescheduling a jury trial, lack of funds, timeliness of the request and prejudice to the litigants.’ Prejudice to the court or its calendar are also relevant considerations.

When challenging a waiver of jury trial, a writ of mandate is the proper remedy, explained the Court of Appeal, and if a party fails to file a writ of mandate, the complaining party must show “actual prejudice”:

This is because a party cannot play “‘Heads I win, Tails you lose’ with the trial court. Reversal of the trial court’s refusal to allow a jury trial after a trial to the court would require several of the judgment and a new trial. It is then reasonable to require a showing of actual prejudice on the record to overcome the presumption that a fair trial was had and prejudice will not be presumed from the fact that trial was to the court or to a jury.

And here, explained the Court of Appeal, TriCoast was unable to show actual prejudice:

TriCoast does not claim that it mistakenly waived a trial by jury. Rather, the record indicates that TriCoast’s decision not to pay the jury fee was intentional, not the result of any misreading of the statute or court rules. TriCoast’s argument that it relied on Fonnegra’s jury fee deposit, was duped into believing that a jury trial would occur, and was prejudiced when Fonnegra exercised his right to waive a jury, ignores the statutory requirement that TriCoast, not Fonnegra, timely pay the $150 jury fee.

Justice Ashmann-Gerst, however, dissented. In her dissent, Justice Ashmann-Gerst, weighing the constitutional protections afforded litigants to a jury trial and the fact that TriCoast had not engaged in “gamesmanship” and had honestly prepared for jury trial preparing, argued that the burden was on Fonnegra (rather than TriCoast) to show that he would have been prejudiced had the trial proceeded to a jury trial, and that he failed to do so.

Conclusion

Constitutional issues can be thorny questions given the importance of constitutional rights. The lesson here though is simple: Always, always post jury fees, if only to protect yourself from an “I gotcha” at the end of the day. I would observe, however, that it is not quite that simple. If both parties would prefer a bench trial, but only post jury fees to protect themselves from the risk of the other party might waive a jury at the very last moment, it creates a lot of uncertainty for the parties and the court and difficulty when preparing a case for trial.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.