Rossa v. D.L. Falk Construction, Inc.
135 Cal. Rptr. 3d 329
Cal.2012Background
- Defendant posted a stay bond to suspend enforcement of a money judgment pending appeal; the bond was secured by a standby letter of credit and collateral.
- Rule 8.278(d)(1)(F) allows recovery of ‘the cost to obtain a letter of credit as collateral’ for the appeal bond, if reasonable.
- Defendant borrowed funds to secure the letter of credit and paid interest and fees on those borrowings.
- The trial court allowed some costs (premiums, bank fees) but denied recovery of the interest and related loan fees.
- The Court of Appeal affirmed the denial; the Supreme Court granted review to interpret the scope of rule 8.278(d)(1)(F).
- The Court held that interest and fees incurred to borrow funds to secure a letter of credit are not recoverable costs under rule 8.278(d)(1)(F).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does rule 8.278(d)(1)(F) cover interest expenses to borrow funds for a letter of credit? | Rossa argues broader interpretation includes interest costs. | Falk contends interest/loan fees are costs to obtain a letter of credit. | No; rule 8.278(d)(1)(F) does not cover interest on borrowed funds. |
| Should Geldermann’s commentary support extending costs to interest on borrowed funds? | Geldermann implied broader recovery due to commercial realities. | Geldermann did not clearly authorize interest; strict construction applies. | Geldermann does not authorize interest recovery; restricted reading preserved. |
| Is Cooper v. Westbrook Torrey Hills still viable regarding interest on deposits to stay a bond? | Cooper supported recovering deposit-related interest as costs. | Cooper is disapproved in light of the rule’s narrow construction. | Cooper is disapproved; interest on borrowed funds not recoverable. |
| Should cost provisions be interpreted broadly for fairness or economic reality? | Economic realities justify allowing interest costs. | Cost recoveries are strictly construed and not expanded by equity. | Strict construction controls; no extension to indirect interest costs. |
Key Cases Cited
- Geldermann, Inc. v. Bruner, 10 Cal.App.4th 640 (Cal.App.4th 1992) (raised issue of letter of credit costs vs. bond premiums; guided strict construction)
- Cooper v. Westbrook Torrey Hills, 81 Cal.App.4th 1294 (Cal.App.4th 2000) (allowed interest on deposits to stay foreclosure; disapproved later)
- Christenson v. Cudahy Packing Co., 84 Cal.App.2d 237 (Cal.App.2d 1927) (premiums for stay bonds historically not recoverable)
- Turner v. East Side Canal & Irrigation Co., 177 Cal. 570 (Cal. 1918) (strict construction of costs principle)
- Beal Bank, SSB v. Arter & Hadden LLP, 42 Cal.4th 503 (Cal. 2007) (statutory interpretation guiding extrinsic sources)
- Stransky v. Sequoia Vacuum Systems, 229 Cal.App.2d 281 (Cal.App.2d 1964) (necessity of limiting cost recovery to clearly expressed items)
- Cates Construction, Inc. v. Talbot Partners, 21 Cal.4th 28 (Cal. 1999) (illustrates surety/credit concepts in California)