In Toro Enterprises Inc. v. Pavement Recycling Systems Inc., 2012 Cal. App. LEXIS 519 (Cal. App. 2d Dist. Apr. 9, 2012) the California Court of Appeal for the Second Appellate District reversed the trial court and granted fees under a clause in a construction contract. Toro Enterprises Inc. (“Toro”) entered into a construction contract to conduct road work. Toro hired a subcontractor (the “subcontractor”) to complete a portion of the project.

A third party was involved in an automobile accident near the construction project and the party sued Toro for negligence. Toro cross‑complained against the subcontractor for defense and indemnity. There was a general defense and indemnity provision in the subcontract. The defense/indemnity clause provided in relevant part:

"To the fullest extent permitted by law, Subcontractor shall defend, indemnify and hold harmless Owner and Contractor and their agents and employees from claims, demands, causes of actions and liabilities of every kind and nature whatsoever arising out of or in connection with Subcontractor’s operations performed under this Agreement and caused or alleged to be caused, in whole or in part, by any act or omission of Subcontractor. . . .”

The subcontract also contained a separate attorneys fee clause for prevailing parties which was applicable to “any dispute resolution” the subcontractor subsequently cross‑complained against Toro for implied contractual indemnity and for equitable indemnity.

The Subcontractor successfully moved for summary judgment against the plaintiff’s complaint and Toro’s cross‑complaint. The Subcontractor then pursued a claim for its reasonable attorneys’ fees against Toro. The trial court denied the fee request on the ground that the attorney fees clause in the subcontract related only to disputes “between the parties” regarding the performance of work and payment. The Subcontractor argued that it was entitled to attorney fees because the dispute was an action on the subcontract and that it had won on the motion for summary judgment.

The court of appeal reversed the decision of the trial court. The court of appeal noted that the subcontract authorized fees to the prevailing party “in any dispute resolution between the parties.” The appellate court found that the phrase “dispute resolution” was broad and included the dispute at issue. On these grounds, the court of appeal concluded that the Subcontractor was entitled to recover its attorney fees.

The case is an interesting one as it points out the dangers of seeking contractual indemnity from third parties. In this case the attempt to obtain indemnity and/or contribution backfired.