In our last post, Heads I Win, Tails You Lose. Court Finds Indemnity Provision Went Too Far, we discussed a case in which a project owner tried to use a contractual indemnity provision to require the principal of its contractor to defend and indemnify the project owner from the contractor’s claims against the property owner. If you read the post you know that the project owner’s indemnity claim ended about as well as my first fist fight in elementary school (not well).
Well, here’s one from the other end of the spectrum: C.W. Howe Partners, Inc. v. Mooradian, Case No. B290665 (December 19, 2019), in which a contractor got the best in an indemnity fight with a project owner where the contractor was seeking indemnity from the project owner.
The C.W. Howe Partners Case
We all love lovely homes. So did the Mooradians. Looking to remodel their home in Los Angeles, the Mooradians discovered the work of Erla Dogg Ingjaldsdottir and Tryggvi Thorsteinsson, a husband and wife design team from Iceland who, to my eye, look a bit like a slightly older version of the late 80s Swedish pop group Roxette. But I digress.
The Mooradians found Ingjaldsdottir and Thorsteinsson in a book featuring “cutting-edge” homes that were environmentally conscious, energy efficient and built with components prefabricated offsite. The Mooradians were particularly drawn to a house designed by Ingjaldsdottir and Thorsteinsson in Venice, California known as Superb-A House. So what did they do? Like we all would, of course, when looking enviously at design books. They called them.
Shortly after meeting with Ingjaldsdottir and Thorsteinsson the Mooradians signed a contract with their company Minarc. At the recommendation of Thorsteinsson, the Mooradians also signed a contract with C.W. Howe Partners, Inc. to provide structural engineer on the project.
At first, the project went swimmingly. At the end of 2014, the Mooradians home was demolished in preparation for the new house. And in early 2015, the City of Los Angeles issued a building permit for the home.
Then troubles arose. In early 2016, the general contractor Ingjaldsdottir and Thorsteinsson’s recommended for the project, Core Construction, discovered that a permit for the roof deck could not be obtained because the deck railing exceeded height limits. At about the same time, the Mooradians learned that Ingjaldsdottir and Thorsteinsson were not state licensed architects and terminated their contract with Minarc, as well their contract with Core Construction, claiming significant construction defects.
In 2017, the Mooradians filed suit against Ingjaldsdottir, Thorsteinsson, Minarc, C.W. Howe Partners, Core Construction and others claiming that the defendants had participated in a “joint enterprise to facilitate a variety of unlawful practices” including the practice of architecture by persons who were not licensed and the manufacture, sale and installation of building materials without required governmental approvals.
As to C.W. Howe Partners, the Moordians asserted causes of action for fraud, negligent breach of contract, restitution and injuctive relief, alleging that C.W. Howe Partners “intentionally suppressed certain material facts that should have been disclosed,” including that Ingjaldsdottir and Thorsteinsson were not licensed architects, that the City had not approved the offsite prefabrication of metal panels for the project, and that the panels included materials not approved for use in residential construction in the City.
In response, C.W. Howe Partners filed a cross-complaint against the Mooradians for express indemnity, equitable indemnity, contribution and declaratory relief based on an indemnity provision in their contract with the Mooradians which which provided:
Client agrees to indemnify, defend and hold harmless Engineer, [its] principals, agents and employees and subcontractors from and against all costs or liability, including but not limited to attorney fees and expert fees and costs; arising in whole or in part from errors, omissions or inaccuracies in any Project related information or documents provided by, or through Client, or any other person or entity, acting on Client’s behalf; including but not limited to the type of foundation by Client’s soils engineer. Engineer has no duty to defend the Client or any party claiming through the Client.
The Mooradians in turn filed an anti-SLAPP motion under Code of Civil Procedure section 425.16 arguing that C.W. Howe Partners’ cross-complaint arose from the Mooradians’ constitutional right of petition, namely, the Mooradians’ filing of their complaint against Ingjaldsdottir, Thorsteinsson, Minarc, Core Construction as well as C.W. Howe Partners.
In its opposition to the Mooradians’ motion, C.W. Howe Partners argued that its cross-complaint did not arise from the Mooradians’ protected activity of filing their complaint, but rather, was based on the Mooradians’ breach of their obligation to indemnify C.W. Howe Partners from any liability attributable to information provided to C.W. Howe Partners by the Mooradians or their representatives including Ingjaldsdottir, Thorsteinsson and their company Minarc, and further, that C.W. Howe Partners had no responsibility for construction means and methods (i.e., the offsite fabrication) or the selection of materials (i.e., the panels).
The trial court agreed with C.W. Howe and the Mooradians appealed.
On appeal, the 2nd District Court of Appeal, explained that under Civil Code Section 425.16:
A cause of action against a person arising from any act of that person in furtherance of the person’s right of petition or free speech under the United States Constitution or the California Constitution in connection with a public issue shall be subject to a special motion to strike, unless the court determines that the plaintiff has established that there is a probability that the plaintiff will prevail on the claim.
The Court of Appeals further explained that subdivision (e) of Code of Civil Procedure Section 425.16 provides that:
[An] act in furtherance of a person’s right of petition or free speech under the United States or California Constition in connection with a pubic issue includes: (1) any written or oral statement or writing made before a legislative, executive or judicial proceeding, or any other official proceeding authorized by law, (2) any written or oral statement or writing made in connection with an issue under consideration or review by a legislative, executive, or judicial body, or any other official proceeding authorized by law, (3) any written or oral statement or writing made in a place open to the public or a public forum in connection with an issue of public interest, or (4) any other conduct in furtherance of the exercise of the constitutional right of petition or the constitutional right of free speech in connection with a public issue or an issue of public interest.
Finally, explained the Court of Appeal:
In ruling on a motion under section 425.16, the trial court engages in a two-step process. “First, the defendant must establish that the challenged claim arises from activity protected by section 425.16. If the defendant makes the required showing, the burden shifts to the plaintiff to demonstrate the merit of the claim by establishing a probability of success.” “Only a cause of action that satisfies both prongs of the anti-SLAPP statute—i.e., that arises from protected speech or petitioning and lacks even minimal merit—is a SLAPP, subject to being stricken under the statute.” If the moving party fails to demonstrate that any of the challenged claims for relief arise from protected activity, the court properly denies the motion to strike without addressing the second step (probability of success).
And here, held the Court of Appeal:
The filing of the Mooradians’ first amended complaint is not the wrongful act forming the basis for the Mooradians’ liability as alleged in the Howes’ cross-claims. Rather, the alleged wrongful act that forms the basis for the express indemnity cause of action is the Mooradians’ failure to indemnify, defend and hold harmless the Howes in breach of section 4(b) of the Howe agreement, including to indemnify the Howes from any liability arising from the use of the EPS panels selected by the Mooradians or the Mooradians’ representative Minarc. Similarly, the alleged wrongful act supporting the equitable indemnity cause of action—the alleged “fault” for which they should be held equitably responsible for any damages suffered by the Howes—is the decision they or their representative Minarc made to use the EPS panels.
In short, C.W. Howe Partners’ cross-complaint for indemnity did not arise from the Mooradians’ constitutionally protected right to petition by filing their complaint but based on their contractual obligation to indemnify C.W. Howe Partners.
In the case discussed in our prior post, Heads I Win, Tails You Lose. Court Finds Indemnity Provision Went Too Far, the Court upheld an anti-SLAPP motion challenging a cross-complaint for indemnity. However, in C.W. Howe Partners, the Court upheld the denial of an anti-SLAPP motion challenging a similar cross-complaint for indemnity. So, what gives? I think it’s the facts. As well, importantly, as the equities. In the previous case, the cross-complainant was attempting to use an indemnity provision against a shield against what appeared to be meritorious factual claims by the plaintiff. In C.W. Howe Partners, on the other hand, C.W. Howe Partners was using an indemnity provision as a shield against what appeared to be un-meritorious factual claims by the Mooradians.
And, with that, I’ll leave you with a little Roxette.