Hearn Pacific Corp. v. Second Generation Roofing, Inc.
201 Cal. Rptr. 3d 806
Cal. Ct. App.2016Background
- Hearn Pacific (general contractor) assigned its contractual indemnity rights under its subcontracts to its insurers (North American and RSUI) during ongoing construction-defect litigation. The assignment reserved some limited rights to Hearn but transferred insurer-paid defense-cost recovery rights to the insurers.
- Hearn (nominal cross-complainant) sued subcontractor Second Generation Roofing for indemnity and related relief; Hearn’s insurers thereafter prosecuted (or funded prosecution of) those cross-claims in Hearn’s name.
- Second Generation Roofing prevailed; the trial court awarded prevailing-party costs and attorney fees against Hearn in two post-judgment orders (April 4, 2013 and June 12, 2013).
- Second Generation moved to amend those fee/cost orders to add North American (Hearn’s insurer and assignee) as an additional judgment debtor under Code Civ. Proc. § 368.5 (former § 385) and § 187, arguing the insurer was the real party in interest.
- The trial court denied the motion, excluding evidence of the assignment and reasoning the case could continue in Hearn’s name, that Insurance Code § 11580 furnished the insurer remedy, and that jurisdiction was divested by an appeal.
- The Court of Appeal reversed: it held the assignment made the insurer the real party in interest, the trial court abused its discretion in refusing to add North American as an additional judgment debtor, and Insurance Code § 11580 did not bar relief under § 368.5.
Issues
| Issue | Plaintiff's Argument (Second Generation) | Defendant's Argument (Hearn) | Held |
|---|---|---|---|
| Whether trial court abused discretion in refusing to amend fee/cost orders to add insurer as judgment debtor under CCP § 368.5 | Assignment made insurer the real party in interest who prosecuted claims; court should add insurer as additional judgment debtor | Assignment invalid or inapplicable; litigation continued in Hearn’s name so insurer not liable | Reversed—court abused discretion; insurer was real party in interest and must be added as additional judgment debtor |
| Admissibility of prior declarations (Stankowski) offered to prove assignment | Declarations authenticated assignment and were admissible evidence | Declarations were filed in support of a different motion and should be excluded | Trial court erred in excluding Stankowski declaration; appellate court considered it in contract interpretation |
| Whether Insurance Code § 11580 is the exclusive remedy against insurer | § 11580 not exclusive; amendment under § 368.5 is appropriate where insurer is real party in interest | Judgment creditor’s sole remedy is a direct action under § 11580 to reach policy proceeds | § 11580 is not exclusive and does not bar § 368.5 relief to add insurer as judgment debtor |
| Whether trial court lost jurisdiction because of Hearn’s appeal | Motion to amend filed before/while appeal claimed; but Hearn’s appeal from fee order was untimely | Appeal divested trial court of jurisdiction, so amendment improper | Appeal was untimely and did not divest jurisdiction; court could have amended orders (and at minimum for unappealed order) |
Key Cases Cited
- Greco v. Oregon Mut. Ins. Co., 191 Cal.App.2d 674 (Cal. Ct. App.) (assignment after suit may allow action to continue in assignor’s name or permit substitution of assignee)
- Searles Valley Minerals Operations v. Ralph M. Parsons Serv. Co., 191 Cal.App.4th 1394 (Cal. Ct. App.) (assignee of indemnity rights may recover defense costs paid on assignor’s behalf)
- Erickson v. R.E.M. Concepts, Inc., 126 Cal.App.4th 1073 (Cal. Ct. App.) (assignee bringing suit may be liable for contractual attorney fees where assignee accepts contract benefits)
- Heppler v. J.M. Peters Co., 73 Cal.App.4th 1265 (Cal. Ct. App.) (assignee’s liability for fees may be decided on evidentiary record; acceptance of benefits implies assumption of obligations)
- Bramalea California, Inc. v. Reliable Interiors, Inc., 119 Cal.App.4th 468 (Cal. Ct. App.) (insured who paid nothing because insurer funded defense cannot recover contractual defense costs absent assignment)
- Myers v. Trendwest Resorts, Inc., 178 Cal.App.4th 735 (Cal. Ct. App.) (factual concessions in separate statement for summary judgment are not binding judicial admissions)
- Keeling Coll. Agency v. McKeever, 209 Cal. 625 (Cal.) (dictum noting transferee cannot avoid certain procedural requirements by continuing in nominal party’s name)
- Tuffree v. Stearns Ranchos Co., 124 Cal. 306 (Cal.) (transfer of interest transfers control; transferee may allow suit to continue in assignor’s name but transferee is real party in interest)
- Bank of Orient v. Superior Court, 67 Cal.App.3d 588 (Cal. Ct. App.) (partial assignee of cause of action may be an indispensable party requiring joinder)