Certified Environments v. Nat. Cooperative Bank

Filed 6/26/08 Certified Environments v. Nat. Cooperative Bank CA2/3

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION THREE

APPEAL from a judgment of the Superior Court of Los Angeles County, Gerald Rosenberg and Linda K. Lefkowitz, Judges. Modified and as so modified reversed.

Cotkin & Collins, Joan M. Cotkin and Terry L. Kesinger for Plaintiffs and Appellants.

Munger, Tolles & Olson, Terry E. Sanchez; Goodwin Procter, Martin J. Flynn and Matthew M. Hoffman for Defendant and Respondent.

_______________________________________

Certified Environments, Inc. (Certified), and Gregory F. Paulay appeal a summary judgment in favor of National Cooperative Bank (NCB).[1] NCB hired Certified to perform construction management services in connection with the renovation of a housing project for which NCB was the construction lender. After the owner, Ocean Towers Housing Corporation (Ocean Towers), sued Certified and Paulay for damages, Certified and Paulay filed a separate action against NCB for equitable and contractual indemnity. Certified and Paulay challenge the trial courts conclusion that a release provision in a settlement agreement from prior litigation to which Ocean Towers, Certified, and NCB were parties precludes their claims alleged in this action. We conclude that the release precludes the plaintiffs claims against NCB only to the extent that those claims arise from matters that had occurred as of the date of the settlement agreement. NCB has not shown that the plaintiffs claims action arose solely from matters that had occurred as of the date of the settlement agreement and therefore is not entitled to summary judgment on that basis. We also conclude that the parties continued performance of the construction management contract shows that they never intended to extinguish their obligations under the contract, and that NCB is not entitled to summary judgment based on the purported discharge of the contractual indemnity provision.

FACTUAL AND PROCEDURAL BACKGROUND

1. Construction Management Contract

Certified and NCB entered into a written contract dated February 2, 2001, providing that Certified would perform an environmental site assessment, a property condition assessment, and construction management services for NCB in connection with the Ocean Towers renovation project. The contract included a provision in which NCB agreed to indemnify Certified against any claims and liabilities, including attorney fees, arising from Certifieds performance of the scope of work, except for claims arising from Certifieds gross negligence or willful misconduct.[2] After construction began, Certified reviewed and approved draw requests from the borrower, Ocean Towers, for the disbursement of loan funds.

2. OceanTowers I and its Settlement

Ocean Towers hired its own construction managers, L.E. Waters Construction Company (Waters) and Freeman Group, Inc. (Freeman). Ocean Towers filed a complaint against Waters and Freeman in August 2001 (Ocean Towers Housing Corp. v. L.E. Waters Construction Co. (Super. Ct. L.A. County, No. SC067826)), alleging that they had concealed material facts concerning prior criminal convictions of Waterss general manager in connection with bid rigging and bribery in a construction contract.[3] Ocean Towers also alleged that Waters and Freeman had failed to adequately perform their contractual obligations. Ocean Towers alleged counts for (1) intentional concealment, (2) intentional misrepresentation, (3) negligent misrepresentation, (4) negligence, and (5) breach of contract.

Waters and Freeman filed a cross-complaint against Ocean Towers, NCB, Certified, and others. Waters and Freeman alleged that Ocean Towers had breached its contract with them by failing to pay amounts due, changing the scope of work without amending the contract, and in other ways. They alleged that NCB and Certified had interfered with the contract between Waters and Freeman and Ocean Towers, and alleged that Certified had committed fraud.

The parties to Ocean Towers I settled the action in July 2002. The settlement agreement stated that the parties desire to compromise, settle and resolve all disputes, claims, actions, suits, demands, causes of action, debts, liabilities, agreements, contracts or promises, asserted in the Action or related to the Action, except for certain claims, debts and obligations NCB asserts against Ocean Towers. Ocean Towers agreed to pay Waters and Freeman $356,000, while NCB and Certified agreed to settle the action in exchange for a waiver of costs.

The settlement agreement included a separate release provision for each released party. Paragraph XI, the release of NCB, stated that the Parties, defined as all parties to the settlement agreement, forever release, discharge and acquit NCB . . . from any and all manner of action or actions, cause or causes of action whether class, derivative or individual in nature, in law or in equity for indemnity or otherwise, suits, debts, liens, contracts, agreements, promises, liabilities, claims, demands, damages, whether known or unknown, suspected or unsuspected, fixed or contingent, which the Parties now have or may have by reason of any matter, cause or thing whatsoever, through and including the date hereof, arising out of, based upon or in any way related to (i) the Action; (ii) the matters alleged in the Action; (iii) the Contract; (iv) the Project and/or (v) all claims for any further payments related to Cross-complainants work on or related to the Ocean Towers Property.[4]

Paragraph XIII, the release of Certified, contained the same language as the release of NCB, except that instead of stating that the Parties released Certified from any and all . . . which the Parties now have or may have . . . , it stated that the Parties released Certified from any and all . . . which the Cross-complainants now have or may have . . . .   (Italics added.)

Paragraph III, the release of Ocean Towers, contained the same language as the release of NCB, but excepted from the release, (1) NCBs claim that Ocean Towers has an obligation to indemnify NCB for the costs it has incurred in defending itself in the Action, including attorneys fees, which claim Ocean Towers denies; (2) Ocean Towers obligation to repay the loan from NCB to Ocean Towers referred to in the Action (the Loan); and (3) any debts, obligations, covenants or promises undertaken in connection with or relating to the Loan . . . .  

Paragraph XIV stated that the settlement agreement fully and finally releases and forever resolves the foregoing matters released and discharged in Paragraphs III through XIII, above, including those which may be unknown, unanticipated and/or unsuspected and Parties waive all benefits under California Civil Code Section 1542, as well as any other statutes or common law principles of similar effect, to the extent that such benefits may contravene this release, and quoted Civil Code section 1542.

Paragraph XV stated, each of the Releases contained in Paragraphs III through XIII above: (i) are limited to claims and rights relating to the Action, including, without limitation, any related claims or rights that may be asserted at any time in the future as specified in Paragraphs III through XIII and in Paragraph XIV above, except for those claims of NCB against Ocean Towers specified in Paragraph III herein; and (ii) are not intended to release or waive any other claim not related to the Action or Cross‑complainants work on the Ocean Towers Property.

3. Ocean Towers II

Ocean Towers filed a complaint against Certified and Paulay in March 2005 (Ocean Towers Housing Corp. v. Certified Environments, Inc. (Super. Ct. L.A. County, No. SC084881)),[5]alleging that they had conspired with Waters, Freeman, and others, diverted money from the project to themselves, and mismanaged the project. The first amended complaint filed in January 2006 alleged counts for (1) breach of the construction management contract, by Ocean Towers as a third party beneficiary, against Certified; (2) negligence, against Certified and Paulay; (3) breach of fiduciary duty, against Certified and Paulay; and (4) unfair competition (Bus. & Prof. Code,  17200), against Certified and Paulay.

4. Complaint and Cross-Complaint in the Present Action

Certified and Paulay filed a complaint against NCB and others in March 2006, alleging that any damages suffered by Ocean Towers as alleged in Ocean Towers II were caused by the negligence or fault of the defendants in the present action. They also allege that under the indemnity provision in the construction management contract, NCB agreed to indemnify Certified and Paulay from claims such as those asserted by Ocean Towers in Ocean Towers II. Certified and Paulay allege counts against NCB for (1) Equitable Indemnity and Contribution (2) Implied Indemnity, (3) declaratory relief as to their right of indemnity, and (4) express contractual indemnity.

NCB filed a cross-complaint against Certified and Paulay in August 2006, alleging counts against both cross-defendants for (1) declaratory relief as to the parties rights and liabilities under the July 2002 settlement agreement, and (2) an award of attorney fees and costs under a provision in the settlement agreement.[6]

5. Summary Judgment

NCB moved for summary judgment, or alternatively for summary adjudication of its affirmative defense of release. NCB argued that paragraph XI of the July 2002 settlement agreement plainly and unambiguously released NCB from any obligation to indemnify Certified and Paulay against any present or future claims arising from the renovation work, including the claims asserted in Ocean Towers II. NCB argued that the facts here are virtually identical to those in Winet v. Price (1992) 4 Cal.App.4th 1159 and that the release here is similarly enforceable.

Certified and Paulay argued in opposition that the release in paragraph XI applied only to claims that could have been brought as of the date of the settlement agreement in July 2002 and did not apply to claims that did not arise until the occurrence of a future event. They argued that their indemnity claims against NCB did not arise until after they were sued in Ocean Towers I in March 2005, and that the release therefore did not preclude those claims. Certified and Paulay argued further that Certifieds and NCBs continued performance under the construction management contract showed that the parties to the contract did not intend to extinguish either the contract or the indemnity provision contained in the contract.

NCB argued in reply that the release extended to all claims arising out of events that had occurred by the date of the settlement agreement, including claims that had not yet accrued. It argued that most of the conduct on which the allegations in Ocean Towers II were based had occurred by the date of the settlement agreement.

NCB also argued that the release extinguished any contracts existing between the parties as of July 2002, including the construction management contract. NCB argued that evidence of the parties performance after July 2002 was inadmissible because paragraph XI of the settlement agreement plainly and unambiguously applies to all claims and all contracts arising out of a matter, cause or thing prior to July 2002. NCB argued further that Certified had performed beyond the scope of its duties under the construction management contract and that its performance therefore did not show that the parties intended to preserve the contract. NCB filed additional evidence in support of its summary judgment motion together with its reply.

The court granted the summary judgment motion in a minute order dated December 19, 2006. The order stated that the principal issue in dispute was whether the release of NCB applied only to claims in existence as of the date of the settlement agreement or also applied to claims arising after that date. The order stated that the release of NCB in paragraph XI was very broad and was similar to the release in Winet v. Price, supra, 4 Cal.App.4th 1159. The order stated, a broad release can waive known or unknown, suspected or unsuspected claims that exist at the time of execution or which may be discovered later. The court apparently equated claims that may be discovered later with claims that came into existence later and concluded that the release precluded not only claims that existed at the time of the settlement agreement, but also claims that came into existence at a later date. The order stated further that the parties purported performance of the contract after the date of the settlement agreement could not be considered because it would contradict the clear terms of the release.

The court entered a judgment in February 2007 denying relief to Certified and Paulay on their complaint against NCB. The judgment does not expressly adjudicate the cross-complaint by NCB.[7] Certified and Paulay timely appealed the judgment.

CONTENTIONS

Certified and Paulay contend (1) the release of NCB encompasses only claims in existence as of the date of the settlement agreement and does not preclude their indemnity claims, which accrued later; (2) the parties subsequent performance of the construction management contract shows that they did not intend the release to extinguish their obligations under the contract; and (3) a provision in the release of Ocean Towers also shows that Certified and NCB did not intend to extinguish their obligations under the construction management contract.

DISCUSSION

1. Standard of Review

A party is entitled to summary judgment only if there is no triable issue of material fact and the party is entitled to judgment as a matter of law. (Code Civ. Proc.,  437c, subd. (c).) A defendant moving for summary judgment must show that one or more elements of the plaintiffs cause of action cannot be established or that there is a complete defense. (Id., subd. (p)(2).) If the defendant meets this burden, the burden shifts to the plaintiff to set forth specific facts showing that a triable issue of material fact exists. (Ibid.) We review the trial courts ruling de novo, liberally construe the evidence and all reasonable inferences from the evidence in favor of the opposing party, and resolve all doubts concerning the evidence in favor of the opposing party. (Miller v. Department of Corrections (2005) 36 Cal.4th 446, 460; Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843.)

2. Rules of Contract Interpretation

A release is interpreted under the same rules of interpretation applicable to other contracts. (Hess v. Ford Motor Co. (2002) 27 Cal.4th 516, 524.) We interpret a contract so as to give effect to the mutual intention of the parties at the time the contract was formed. (Civ. Code, 1636; Hess, supra, at p. 524.) We ascertain that intention solely from the written contract, if possible, but also consider the circumstances under which the contract was made and the matter to which it relates. (Civ. Code,  1639, 1647; Hess, supra, at p. 524.) We consider the contract as a whole and interpret the language in context, rather than interpret a provision in isolation. (Civ. Code,  1641.) We interpret words in a contract in accordance with their ordinary and popular sense, unless the words are used in a technical sense or a special meaning is given to them by usage. (Id.,  1644.) However broad may be the terms of a contract, it extends only to those things concerning which it appears that the parties intended to contract. (Id.,  1648.)

Contractual language is ambiguous if it is susceptible of more than one reasonable interpretation in the context of the contact as a whole. (Palmer v. Truck Ins. Exchange (1999) 21 Cal.4th 1109, 1115.) In determining whether an ambiguity exists, a court should consider not only the face of the contract but also any extrinsic evidence that supports a reasonable interpretation. (Pacific Gas & E. Co. v. G. W. Thomas Drayage etc. Co. (1968) 69 Cal.2d 33, 37, 39‑40.) Whether contractual language is ambiguous is a question of law that we review de novo. (Producers Dairy Delivery Co. v. Sentry Ins. Co. (1986) 41 Cal.3d 903, 912.) The interpretation of a contract, including the resolution of any ambiguity, is solely a judicial function unless the interpretation turns on the credibility of extrinsic evidence. (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865.) Even if conflicting inferences may be drawn from extrinsic evidence, an appellate court independently interprets the contract if the evidence is not in conflict as to the material facts. (Id. at pp. 865, 866, fn. 2; Medical Operations Management, Inc. v. National Health Laboratories, Inc. (1986) 176 Cal.App.3d 886, 891.)

3. The Scope of the Release

Paragraph XI of the settlement agreement stated that the parties to Ocean Towers I forever release, discharge and acquit NCB . . . from any and all manner of action or actions, cause or causes of action whether class, derivative or individual in nature, in law or in equity for indemnity or otherwise, suits, debts, liens, contracts, agreements, promises, liabilities, claims, demands, damages, whether known or unknown, suspected or unsuspected, fixed or contingent, which the Parties now have or may have by reason of any matter, cause or thing whatsoever, through and including the date hereof, arising out of, based upon or in any way related to (i) the Action; (ii) the matters alleged in the Action; (iii) the Contract; (iv) the Project and/or (v) all claims for any further payments related to Cross-complainants work on or related to the Ocean Towers Property. (Italics added.)

Thus, the parties to Ocean Towers I, including Certified, released and discharged NCB from any actions, causes of actions, suits, debts, liens, contracts, agreements, promises, liabilities, claims, demands, or damages within the scope of the release. The release was limited to those claims and other matters which the Parties now have or may have by reason of any matter, cause or thing whatsoever, through and including the date hereof, arising out of . . . .   (Italics added.) The word may as used in this context connotes a possibility. Common usage of the word suggests that the possibility could relate to either the present or the future. (See 9 Oxford English Dict. (2d ed. 1989) p. 501, col. 3.) Claims that the parties may have could mean either claims that the parties possibly have today or claims that the parties possibly will have in the future. Contrary to the argument by Certified and Paulay, the release is not limited to claims and causes of action that had accrued as of the date of the settlement agreement.

The words through and including the date hereof immediately follow and appear to modify any matter, cause or thing whatsoever. The settlement agreement stated that the parties released NCB from any claims and causes of action which the Parties now have or may have by reason of any matter, cause or thing whatsoever, through and including the date hereof, arising out of . . . .   (Italics added.) In our view, the most reasonable interpretation of these two phrases together is that the claims and causes of action released are limited to those arising by reason of, essentially meaning arising from, events that had occurred as of the date of the settlement agreement. Accordingly, we conclude that the parties intended to release and discharge only those claims and causes of action arising from events that had occurred as of the date of the settlement agreement.

NCB must show that the release precludes each cause of action alleged in the complaint in its entirety in order to justify a summary judgment. NCB does not contend and presented no evidence to show that Ocean Towers claims against Certified and Paulay were based only on acts and omissions that had occurred as of the date of the settlement agreement. Instead, NCB argues that the parties agreed to release all claims against NCB if any part of the claim arose from acts or omissions that had occurred as of the date of the settlement agreement. The release does not expressly so state. We construe the release to mean that claims are released to the extent that they arise from any matter, cause or thing whatsoever that had occurred as of the date of the settlement agreement, but no further. A claim based in part on occurrences before the date of the settlement agreement and in part on occurrences after that date is released only in part, and NCBs potential liability on the claim is limited accordingly. NCB is not entitled to summary judgment on this basis.

Winet v. Price, supra, 4 Cal.App.4th 1159, is not on point. The release in Winet extended to all claims against the parties,  whether known or unknown, suspected or unsuspected,  excepting certain specified claims. (Id. at pp. 1162-1163, italics omitted.) The release also specifically included all claims arising from the defendant attorneys prior representation of the plaintiff and all claims arising from  any act or omission, by or on the part of any party, committed or omitted prior to the date hereof.  (Id. at p. 1163.) Many years after the execution of the release, the plaintiff sued the attorney for contribution and indemnity based on malpractice. The plaintiff maintained that he was unaware of the malpractice at the time of the release and that he never intended to release all unknown and unsuspected claims. (Id. at p. 1164.) Winet concluded that the plaintiffs evidence of his uncommunicated subjective intent conflicted with the unambiguous language of the release and therefore was inadmissible. (Id. at p. 1167.) Winet held that the release unambiguously applied to unknown and unsuspected claims, and affirmed a summary judgment in favor of the defendant. (Id. at pp. 1168‑1169.) Winet did not address the effect of the language committed or omitted prior to the date hereof on the scope of the release, and the alleged malpractice clearly occurred before the date of the release.

4. NCB Has Not Shown that the Parties Intended to Discharge Their
Obligations Under the Construction Management Contract

Paragraph XI stated that the parties released and discharged NCB not only from actions, causes of action, and claims, but also from contracts, agreements, and other matters that the parties now have or may have . . . .   Certified and NCB entered into the construction management contract in February 2001, before the settlement agreement was executed in July 2002. The construction management contract was in existence as of the date of the settlement agreement and therefore, at that time, was a contract or agreement that the parties now have, as stated in paragraph XI. Despite the broad language of the release, Certified and Paulay contend extrinsic evidence shows that the parties never intended to extinguish the construction management contract.

[W]hen a contract is ambiguous or uncertain the practical construction placed upon it by the parties before any controversy arises as to its meaning affords one of the most reliable means of determining the intent of the parties. [Citation.] (Bohman v. Berg (1960) 54 Cal.2d 787, 795; accord, Sterling v. Taylor (2007) 40 Cal.4th 757, 772‑773.)  Parties to a contract have a right to place such an interpretation upon its terms as they see fit, even when such an interpretation is apparently contrary to the ordinary meaning of its provisions. [] This rule of practical construction is predicated on the common sense concept that actions speak louder than words. Words are frequently but an imperfect medium to convey thought and intention. When the parties to a contract perform under it and demonstrate by their conduct that they knew what they were talking about the courts should enforce that intent. (Crestview Cemetery Assn. v. Dieden (1960) 54 Cal.2d 744, 754 (Crestview).)

The parties conduct in connection with the performance of a contract is particularly probative of its intended meaning and can reveal an ambiguity that is not apparent on the face of the contract. [E]ven if it be assumed that the words standing alone might mean one thing to the members of this court, where the parties have demonstrated by their actions and performance that to them the contract meant something quite different, the meaning and intent of the parties should be enforced. In such a situation the parties by their actions have created the ambiguity required to bring the rule into operation. If this were not the rule the courts would be enforcing one contract when both parties have demonstrated that they meant and intended the contract to be quite different. (Crestview, supra, 54 Cal.2d at p. 754.)

Certified and Paulay presented evidence that Certified continued to perform construction management services for NCB after July 2002, including the review and approval of draw requests. NCBs Joseph Sturiale testified in his deposition that the services performed by Certified after the settlement agreement were the same types of services that Certified had provided before the settlement agreement. Apart from the broad language of the release provision, there is no persuasive evidence in the record that Certified and NCB intended the settlement agreement to terminate their relationship or the contract on which it was based. We conclude that Certifieds continued performance of services for NCB after the date of the settlement agreement creates an ambiguity as to whether the parties intended to discharge their obligations under the construction management contract.

NCB argues that the services performed by Certified after the date of the settlement agreement were beyond the scope of work in the construction management contract and therefore do not indicate that the parties intended the contract to survive the settlement. The construction management contract stated that Certified would perform weekly inspections for the oversight of the work to be completed. The services performed by Certified after July 2002 included the frequent review and approval of requests for disbursement of loan funds. Certified presumably inspected the construction in connection with that review and approval. NCB has not shown otherwise and has not shown that the work performed by Certified after July 2002 was not pursuant to the construction management contract.

Viewing the evidence in the light most favorable to Certified as the party opposing summary judgment and indulging all reasonable inferences from the evidence in favor of Certified, we conclude that the parties continued to perform their obligations under the construction management contract after the date of the settlement agreement, that they did not intend to discharge their obligations under the contract, and that NCB is not entitled to summary judgment on that basis.[8]

DISPOSITION

The judgment is modified to include a dismissal of the first count in the cross-complaint for declaratory relief. The judgment as so modified is reversed. Certified and Paulay are entitled to recover their costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

CROSKEY, J.

We Concur:

KLEIN, P. J.

ALDRICH, J.

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[1] Paulay identifies himself as a principal of Certified.

[2] The indemnity provision appeared in three pages of Terms and Conditions. NCB maintains that the Terms and Conditions were not provided with the contract at the time of its execution and therefore are not part of the contract, but presented no evidence to controvert the allegation in the complaint that the Terms and Conditions were part of the contract executed on February 2, 2001.

[3] We will refer to the action commenced by Ocean Towers in August 2001 as Ocean Towers I.

[4] The settlement agreement defined the Action as Ocean Towers I, including the complaint and cross-complaint, defined the Contract as the construction management contract between Ocean Towers and Waters and Freeman, and defined the Project as the renovation work.

[5] We will refer to the action commenced by Ocean Towers in March 2005 as Ocean Towers II.

[6] We take judicial notice of NCBs cross-complaint filed on August 14, 2006, which was provided by Certifieds counsel pursuant to our request. (Evid. Code,  452, subd. (d).)

[7] A judgment on a complaint may effectively adjudicate a cross-complaint despite its failure to mention the cross-complaint, if the decision in the judgment necessarily resolves all of the causes of action alleged in the cross-complaint. (Swain v. California Casualty Ins. Co. (2002) 99 Cal.App.4th 1, 6; Stubblefield Construction Co. v. City of San Bernardino (1995) 32 Cal.App.4th 687, 702, fn. 8.) An appellate court may amend a judgment to expressly adjudicate an omitted cause of action if the trial courts failure to dispose of the entire action resulted from inadvertence or mistake rather than an intention to retain jurisdiction over the cause of action. (Molien v. Kaiser Foundation Hospitals (1980) 27 Cal.3d 916, 921.) Accordingly, we will modify the judgment to include a dismissal of the first count in the cross-complaint for declaratory relief as moot. The remaining second count seeks only attorney fees as costs, which can be decided on a postjudgment motion, the ruling on which would be separately appealable. The judgment as modified is appealable despite the failure to rule on attorney fees. (See Laraway v. Pasadena Unified School Dist. (2002) 98 Cal.App.4th 579, 582, fn. 3.)

[8] In light of our conclusion, we need not address the contention that a provision in the release of Ocean Towers shows that Certified and NCB did not intend to extinguish their obligations under the construction management contract.