Reported in Cal.Rptr.3d, 2009 WL 106614 (Cal.App. 4 Dist.)
(Cal. Rules of Court, Rules 8.1105 and 8.1110,
as: 2009 WL 106614 (Cal.App. 4
the Westlaw citation is currently available.
Rules of Court, rule 8.1115, restricts citation of unpublished opinions in
of Appeal, Fourth District, Division 2, California.
SURETY AND INDEMNITY COMPANY, Cross-complainant and Respondent,
Alvin LEE, Cross-defendant and Appellant.
from the Superior Court of San Bernardino County. J. Michael Gunn, Judge.
Affirmed with directions.
Cross-defendant and appellant William Alvin Lee (Lee) appeals a default judgment
against him in favor of cross-complainant and respondent Developers Surety and
Indemnity Company (Developers Surety), on a cross-complaint for indemnity in an
underlying construction dispute. We shall modify the judgment to strike an
improper element of damage, and otherwise affirm.
AND PROCEDURAL HISTORY
operated a construction business under the name Great American Building Company
(Great American). In 2003, according to a complaint filed by plaintiffs Ned and
Terry Hennigan (homeowners), the homeowners had contracted with several parties
and entities, including Great American and Lee, to remodel the bathroom in their
home. An entity known as American Timber Structures, Inc. (American Timber), and
its owner, Jonathan Wolf (Wolf), represented that they were authorized to do
construction under Great American's contractor's license. Developers Surety had
issued a contractor's license bond in favor of Great American and Lee,
guaranteeing their performance on the homeowners' project.
the project did not proceed well, and the homeowners sued Wolf, American Timber,
Lee, and Great American for breach of contract, rescission, restitution, fraud,
negligent misrepresentation, negligence, conspiracy, unjust enrichment,
constructive trust, and unfair business practices. The homeowners included a
cause of action against Developers Surety on the bond, and named all defendants
in a cause of action for declaratory relief.
homeowners served their summons and complaint on Lee and Great American in May
2004. Also in May 2004, Developers Surety filed its cross-complaint for
indemnity and reimbursement against Lee and Great American. Developers Surety
alleged that it was an Iowa corporation licensed to do business in California,
and that Lee and Great American had made a written application in 1996 for a
contractor's license bond. The homeowners' action sought payment of the
contractor's license bond for alleged misfeasance of Lee and Great American.
Developers Surety therefore sought indemnity from Lee and Great American
pursuant to the relevant provisions of the bond agreement. Developers Surety
alleged that, in exchange for the surety agreement, Lee and Great American
“agreed to indemnify [Developers Surety] against any claims, demands, costs or
liabilities, including counsel fees, as a consequence of its executing any
bond....” Developers Surety had demanded of Lee and Great American that they
“protect and defend the rights of [Developers Surety], and ... reimburse
[Developers Surety] for costs expended as a result of claims against the bond.”
In addition to the cause of action for indemnity, Developers Surety included a
cause of action for reimbursement pursuant to Civil
Code section 2847:
“If a surety satisfies the principal obligation, or any part thereof, whether
with or without legal proceedings, the principal is bound to reimburse what he
has disbursed, including necessary costs and expenses.”
Developers Surety thus prayed for “the amount of any judgment rendered in favor
of [the homeowners] against [Developers Surety] in the main action,” for “its
costs and expenses and attorney's fees incident to its investigation and defense
herein and in the prosecution of this cross-action,” for “the amount of any
payment made from the penal sum of said bond,” as well as for interest and other
relief. The summons and cross-complaint were served on Lee and Great American in
and Great American elected not to appear in the actions. Their default was filed
in July 2004 on the cross-complaint and in September 2004 on the complaint. The
default on the cross-complaint stated that the “demand of complaint” was “to be
proved at time of trial,” and stated no specific dollar amounts.
2004 and 2007, Developers Surety continued to litigate the main action. In early
2007, Developers Surety presented its request for entry of a default judgment
against Lee and Great American. The request recited that judgment was to be
entered on the “demand of complaint,” for $6,000, costs of $351, and attorney
fees of $8,839.87, for a total of $15,190.87. Accompanying declarations and
points and authorities indicated that Developers Surety had ultimately paid
$6,000 to the homeowners on the bond, which amount Developers Surety was now
seeking from Lee and Great American on the indemnity clause. Developers Surety's
papers also included an application for attorney fees; it had been obliged to
hire counsel and to file a protective cross-complaint. Through January 2007,
Developers Surety had incurred attorney fees of $9,191 .07. Developers Surety
contended that the attorney fees provision of the bond was not a standard
prevailing party clause, but a specific agreement to indemnify Developers Surety
from any loss, including attorney fees, incurred on the bond agreement. Thus,
Developers Surety claimed the attorney fees as an item of damages.
trial court granted a default judgment on the cross-complaint on March 27, 2007,
for the full amount requested.
August 2007, Lee and Great American filed a motion to vacate the default
judgment. Lee and Great American asserted that the default judgment was in
excess of jurisdiction and violative of cross-defendants' due process rights,
because the amounts claimed and awarded were in excess of the damages alleged in
the cross-complaint, cross-complainant Developers Surety lacked standing to sue,
and Developers Surety had not proven any liability against Lee or Great
American. Lee and Great American also contended that extrinsic fraud had
prevented them from appearing to defend.
homeowners had not responded to Lee's request for a copy of the construction
contract, but Lee believed that nothing on the face of the contract would show
that he or Great American had anything to do with the homeowners' construction
project. In addition, Developers Surety itself had never apparently been given a
copy of the construction contract on which Lee's and Great American's (and
Developers Surety's) liability supposedly depended.
Lee and Great American asserted also that their bond and indemnity agreement had
been made with a different entity, Developers Insurance Company, a California
corporation, not Developers Surety, an Iowa corporation. Developers Surety was
not licensed to do business in California until 1999, three years after the date
of the bond agreement Lee and Great American had entered into.
their motion to vacate the default judgment, Lee and Great American also
appended a proposed answer to the cross-complaint.
himself filed a declaration in support of the motion to vacate the default
judgment. He averred that he had a California contractor's license until 2006.
When he undertook construction projects, he used the business name of Great
American. In 2006, he moved to Washington and let his contractor's license
lapse. Lee did not enter into any construction agreement with the homeowners,
and he never gave Wolf or American Timber permission to use his contractor's
license number. Lee knew nothing about the homeowners' project until early 2004,
when a subcontractor on the job called to complain about not being paid. At that
time, Lee contacted the homeowners and informed them that he and Great American
had nothing to do with the project. He also telephoned Wolf and urged him to
address the homeowners' concerns. Wolf promised to “take care of
Developers Surety filed its cross-complaint, Lee again spoke to Wolf. Wolf
promised to “take care of the case, at no expense to [Lee], and that [Lee's]
State Contractor's license would not be affected.” Lee “had a similar telephone
conversation with Wolf's lawyer.... I believed that they would be representing
me in the case and handling all expenses.”
informed Developers Surety that he had had nothing to do with the homeowners'
construction project. Lee averred that he never received any request to enter
default judgment on the cross-complaint.
Surety opposed the motion to vacate. It asserted that it was the proper party,
as Developers Insurance Company and Developers Surety had merged in 2000. Lee
had renewed his bond with Developers Surety after the merger. The
cross-complaint on its face stated the total penal sum of the bond ($7,500), but
the exact amount that might have to be paid out was not determinable until the
conclusion of the main action. Additionally, attorney fees and costs incurred in
the litigation could not be fixed until the litigation was concluded. Lee and
Great American were “on notice of all potential losses.” Lee evidently knew of
the cross-complaint, and had actually communicated with the homeowners, Wolf,
and counsel for Developers Surety. Developers Surety argued that Lee had not
demonstrated any extrinsic fraud, which prevented his participation in the suit
and countersuit. Instead, he elected to do nothing, despite his knowledge of the
and Great American responded, reiterating their claims that the default judgment
was void for exceeding the amount pled in the cross-complaint, that the prove-up
was inconsistent with the cross-complaint, requiring renewed service and an
opportunity to respond, and that the pleadings failed to state a cause of action
against Lee or Great American.
After argument on the motion, the court denied Lee's and Great American's motion
to vacate the default judgment.
and Great American filed a timely notice of appeal.
review of a motion to vacate a default judgment, the appellate court will not
disturb the factual findings of the trial court if they are supported by
substantial evidence. ( Falahati
(2005) 127 Cal.App.4th 823, 828.)
“[W]hether the default and default judgment complied with constitutional and
statutory requirements,” however, “are questions of law as to which we exercise
independent review.” (Ibid.)
the crux of the matter is whether the default and default judgment satisfied the
statutory and constitutional requirements.
Default Judgment As to the Bond Amount Was Proper
Surety's cross-complaint alleged that the face amount of the bond was $7,500,
but the prayer was not specific. It made only a general request for “the amount
of any payment made from the penal sum of said bond.”
argues that Developers Surety essentially admitted that its prayer was not
specific, as its request for default judgment stated that the “demand of the
complaint” was “to be proved at time of trial.”
even though the prayer was not specific in identifying the amount demanded on
the bond, the body of the complaint identified the bond as having a face value
of $7,500. That was therefore the maximum indemnity exposure Lee and Great
American faced on the bonded liability. Developers Surety settled the matter for
$6,000, within the face amount of the bond. Lee and Great American were on
notice of their potential liability to indemnify for that amount. The trial
court therefore properly denied the motion to vacate the default judgment as to
the damages element of the bond payout.
Default Judgment As to Costs Was Proper
application for a default judgment permits recovery of costs. A memorandum of
costs must be submitted at the time of application. (Cal.
Rules of Court, rule 3.1700(a)(2).)
Here, the claimed costs consisted of filing fees for the cross-complaint and
process serving fees, a total of $351. Such costs are allowed by statute to be
recovered in a default judgment. (Code
Civ. Proc., § 585.)
Lee and Great American were thus on statutory notice of the costs to be incurred
in taking a judgment by default. Naturally, the exposure for costs in a default
action is expected to be relatively minor. (Cf. Weitz
(1966) 63 Cal.2d 849, 859
[trial court did not abuse its discretion in denying costs where most of the
costs were incurred after refusing to set aside the default].) The refusal to
vacate the default judgment as to the costs awarded was proper.
Award of Attorney Fees As an Element of Damages Was Void
of Civil Procedure section 585
also permits an award in a default judgment of attorney fees. Such attorney
fees, however, are limited to those necessarily incurred in prosecuting the
default action. Here, however, the bulk of the $8,839.87 claimed for attorney
fees related not to the prosecution of the defaulted cross-complaint, but to
Developers Surety's litigation of the homeowners' main action. Developers Surety
made clear that its request for attorney fees was not as an item of “costs and [
] attorney fees” relating to the default action, but as an item of damages for
which Lee and Great American owed indemnity under the bond
a separate item of damages, the attorney fees claim was required to be
separately demanded in the cross-complaint. In fact, the cross-complaint did
demand indemnity for any attorney fees incurred in defending the claim on the
bond, but no amount was stated on the face of the complaint or in the prayer. As
was made clear in Schwab
v. Southern California Gas Co.
(2004) 114 Cal.App.4th 1308,
a defendant must be served, in some manner, either by pleading or by a separate
statement of damages, with notice of the amount of money damages or other relief
sought. “The statutes apply with equal force to cross-complaints and
at p. 1320.)
The statutes “preserve the defendant's right to contest an action and protect
the defendant from unlimited liability.” (Ibid.)
Surety complained below that it could not have known, before actually conducting
the underlying litigation and settling the case, the amount of the attorney fees
it would incur, and so could not include a specific amount in the prayer of the
cross-complaint. Rather than supplying a justification for imposing liability
for attorney fees upon Lee and Great American, this argument effectively admits
that no specific amount was demanded. Thus, no notice was provided by service of
the cross-complaint. The remedy, of course, was to amend the pleading once this
item of damage had become known, and to re-serve the amended pleading on Lee and
Great American, thus affording them a new opportunity to decide whether to forgo
answering to the new amount demanded. (See, e.g., Greenup
(1986) 42 Cal.3d 822, 830.)
requirements of Code
of Civil Procedure section 585
have been read strictly to mean that a default judgment beyond the amount
specifically demanded is void as beyond the court's jurisdiction. (See, e.g.,
(2006) 145 Cal.App.4th 1131, 1136.)
There was no specifically demanded amount in the cross-complaint for attorney
fees as an element of damages. To that extent, the default judgment was void.
Accordingly, we shall order that portion of the default judgment
default judgment was proper as to the $6,000 on the bond and as to the $351
claim for costs. The default judgment was void as to the amount claimed for
attorney fees. We order the judgment modified to strike the void award for
attorney fees, and affirm the judgment as so modified.
Each party shall bear their own costs.
Sur. and Indem. Co. v. Lee
Reported in Cal.Rptr.3d, 2009 WL 106614 (Cal.App. 4 Dist.)
2009 Thomson Reuters. No Claim to Orig. US Gov.