Winick Corp. v. County Sanitation District No. 2

On January 7, 1981, Hydro served the District with two releases of stop notices and four stop notice release bonds. One of these bonds covered Winick’s stop notice. The surety was the General Insurance Company of America. The bond also refers to the respondent, obligee on the bond, as “County of Los Angeles Sanitation Districts,” a misnomer. However, following receipt of these release bonds, the District continued to withhold Hydro’s funds, due to remaining claims unrelated to the stop notice—a judgment creditor, the Internal Revenue Service and Safeco. After the District filed its notice of completion of March 13, 1981, the District filed an interpleader action to resolve these remaining claims.

On May 14, 1981, Winick filed its action against Hydro, Safeco and the District to recover amounts owed by Hydro. On May 21, 1981, Jeffrey R. Graves, attorney for the District, sent a letter to William D. Eisner, Winick’s first attorney, informing him that the District had accepted a stop notice release bond from Hydro. The letter further explained that pursuant to Civil Code section 3196 and Cal-Pacific Materials Co. v. Redondo Beach School Dist. (1979) 94 Cal.App.3d 652 [ 156 Cal.Rptr. 590 ], Winick’s sole remedy was against the release bond written by General Insurance Company of America.

Mr. Graves then received a letter from Mr. Eisner which stated that he had sent the information to his client for a decision regarding the District’s dismissal.

On June 9, 1981, instead of dismissal, the District was given an open extension of time to answer or otherwise plead.

The case remained dormant for the next year, until Mr. Graves contacted Mr. Eisner, and was advised that Lipofsky & Lande was Winick’s new attorney. On January 19, 1983, Mr. Graves sent Judy Meyer of Lipofsky & Lande copies of the stop notice release bond, and explained that Winick’s sole remedy was against the release bond. Again, the case remained dormant for over one year, until May 22, 1984, when Mr. Graves was informed that the open extension was revoked, and the District would have to appear. Once again, Mr. Graves explained to Ms. Meyer that Winick had no cause of action against the District, and asked for dismissal. Ms. Meyer merely indicated that Lipofsky & Lande was in the process of substituting out, and that she wanted the case at issue when that occurred.

The District filed its answer on June 18, 1984, and Ms. Meyer moved to withdraw as Winick’s counsel the next day.

On October 23, 1984, Mr. Graves once again assumed the initiative by contacting Mr. David Golde, Winick’s recently substituted counsel. For the fifth time, Mr. Graves requested that the District be dismissed, and once again Winick’s attorney requested additional time to review the request.

Having received no response, on December 6, 1984, the District filed its motion for summary judgment and for award of attorney’s fees and expenses. Mr. Golde then wrote to Mr. Graves, and conceded that no cause of action exists against a public entity when funds are released pursuant to a stop notice release bond. However, Golde explained that no dismissal would be forthcoming, until the misnomer on the bond was corrected to reflect the true name of the District. Winick then formally opposed the motion for summary judgment on two grounds: (1) The misnomer of the District on the bond, and (2) the funds owing to Hydro had not been released to Hydro after the bond was accepted.

The court granted the motion for summary judgment, and found the issues raised by Winick had “no merit,” that “Winick’s tactics and actions were not based on good faith, were frivolous, and caused unnecessary delay.” The court ordered Winick to pay $4,343 in attorney’s fees for drafting the answer and motion for summary judgment. The court’s order set forth in detail the conduct and circumstances justifying the sanctions.

Winick does not appeal the order granting summary judgment and dismissal of the District from the suit, but only the court’s order imposing sanctions.

Standard for Review

Appellant urges this court to apply an improper standard of review. Appellant argues, without citation of any authority, that the proper standard of appellate review requires this court to consider the record on appeal to determine if appellant’s conduct meets the standards of frivolousness. The logical result of applying this standard would cause an appellate court to use its own independent judgment in deciding whether trial court sanctions should be imposed.

Where the issue on appeal is whether the trial court has abused its discretion, the showing necessary to reverse the trial court is insufficient if it presents facts which merely afford an opportunity for a different opinion: “An appellate tribunal is neither authorized nor warranted in substituting its judgment for the judgment of the trial judge. To be entitled to relief on appeal from the result of an alleged abuse of discretion it must clearly appear that the injury resulting from such a wrong is sufficiently grave to amount to a manifest miscarriage of justice; ...” (Brown v. Newby, supra, 39 Cal.App.2d at p. 618; italics added.)

The Sanctions

Recent statutory changes have broadened the power of trial courts to award sanctions, including attorney’s fees for “tactics or actions not based on good faith which are frivolous or which cause unnecessary delay.” (Code Civ. Proc., § 128.5.) More specifically, such sanctions can be applied in summary judgment proceedings where a party files an affidavit in bad faith. (Code Civ. Proc., § 437c, subd. (i).)

Trial courts are empowered to supervise the orderly conduct of the court’s business and to guard against inept or unnecessary procedures which tend to delay or hinder its proceedings. (People v. Mattson (1959) 51 Cal.2d 777 , 792 [ 336 P.2d 937 ]; Ellis v. Roshei Corp. (1983) 143 Cal.App.3d 642 , 648-649 [ 192 Cal.Rptr. 57 ].) An attorney has an obligation to respect the legitimate interests of fellow members of the bar, the judiciary, and the administration of justice. (In re Marriage of Flaherty (1982) 31 Cal.3d 637 , 647 [ 183 Cal.Rptr. 508 , 646 P.2d 179 ].) While the fervor of zealous counsel should not be deterred, we must recognize the real fear that irresponsible litigants may abuse their right of access to the judicial system. (Id., at pp. 648, 651; Ellis v. Roshei Corp., supra, 143 Cal.App.3d 642 , 649.) Here, the sanction of imposing attorney’s fees is the sole means the District may be protected from bad faith litigation, since governmental

A trial court must find several elements to hold an action frivolous or in bad faith: (1) The action must be determined to be without merit; (2) the action is prosecuted for an improper motive, including harassment or delay; or (3) the action indisputably has no merit, where any reasonable attorney would agree that the action is totally and completely without merit. (In re Marriage of Flaherty, supra, 31 Cal.3d at p. 650; Atchison, Topeka & Santa Fe Ry. Co. v. Stockton Port Dist., supra, 140 Cal.App.3d 111 , 116.)

In applying this test the Supreme Court has established several policy guidelines: (a) an action that is simply without merit is not by itself sufficient to incur sanctions; (b) an action involving issues that are arguably correct, but extremely unlikely to prevail should not incur sanctions; and (c) sanctions should be used sparingly in the clearest of cases to deter the most egregious conduct. (In re Marriage of Flaherty, supra, 31 Cal.3d at pp. 650-651.)

Here, the court has used its discretion to award attorney’s fees to the District, because Winick failed to voluntarily dismiss this action, and caused the District to file its answer and move for summary judgment. The trial court made its findings which closely follow the wording of Atchison, Topeka & Santa Fe Ry. Co. v. Stockton Port Dist., supra, 140 Cal.App.3d 111 , 116: “[Winick’s] tactics [or] actions [were] not based on good faith . . . were frivolous; [or] caused unnecessary delay in that Winick knew, or should have known, that the facts and law precluded the action or any recovery against the District, yet prosecuted the action against the District in any event, and opposed its motion for summary judgment.” The trial court’s findings are clearly sufficient. However, in determining whether the trial court abused its discretion, the initial test of In re Marriage of Flaherty requires that the action be without merit. To determine this issue, we must look to the underlying principles of mechanic’s liens.

Winick as a subcontractor of labor and materials to a public entity, was subject to a detailed statutory scheme codified in section 3179 et seq. of the Civil Code. Upon service of a stop notice, the public entity must withhold sufficient funds from the original contractor to satisfy the claim. (Civ. Code, § 3186.) The public entity in its discretion may permit the original contractor to file a bond for payment of the claim, and “[u]pon the filing of such bond

Here, there can be no question that the trial court correctly granted the District’s motion for summary judgment. After accepting the stop notice appeal bond, the District discharged its statutory duty, and Winick had no right of action against it. Appellant does not appeal this decision of the trial court, but argues that it opposed the summary judgment in good faith.

Appellant argues several meritorious issues were raised in the trial court that may have invalidated the release bond: (1) that no funds were actually released to Hydro after the release bond had been accepted, and (2) the use of a misnomer for the District as obligee.

Appellant argues that the statutory procedure which discharges the District’s liability does not arise until the funds are actually released. A simple review of Civil Code section 3196 clearly dispels this erroneous view: “Upon the filing of such [release] bond with the public entity, the public entity shall not withhold any money . . . from the original contractor on account of the stop notice.'” (Italics added.) Nowhere does the statutory procedure require funds actually be released. Once the bond has been accepted, the public entity has no further duty to withhold funds on account of the specific bonded stop notices. (Cal-Pacific Materials Co. v. Redondo Beach City School Dist., supra, 94 Cal.App.3d 652 .) This procedure permits a public entity served with multiple stop notice claims, to choose which claims it will bond and which to withhold funds to protect remaining claimants. Claimants whose stop notices are bonded no longer look to the withheld contract balance to satisfy payment of its claims, but look to the surety on the bond.

Here, the District was faced with such multiple stop notice claims, as well as other claimants. The District properly accepted stop notice release bonds to satisfy claimants filing stop notices, but continued to withhold funds and filed an interpleader action as to the other claimants. These claimants included an abstract of judgment served by Hydro’s judgment creditor pursuant to Code of Civil Procedure section 710a (repealed in 1982, recodified in § 708.760, subd. (a)), a notice of levy from the Internal Revenue Service pursuant to 26 United States Code section 6331, and a

Next, appellant argues the misnomer regarding the District as obligee may defeat the bond. California law regarding misnomers or ambiguities in the names of parties and descriptions in surety agreements is well established. Contracts of suretyship are to be interpreted in the same manner as other contracts. (Civ. Code, § 2837.) These agreements must be interpreted to render them operative and effective. (White v. Indemnity Ins. Co. (1966) 246 Cal.App.2d 160 , 162 [ 54 Cal.Rptr. 530 ].)

As a general rule, where an ambiguity exists as to a description or the identity of obligee, the bond is not invalid, but the court may use extrinsic evidence to resolve uncertainty and identify parties. (Mazuran v. Finn (1921) 53 Cal.App. 656 , 660 [ 200 P. 769 ].) These principles are among the oldest and firmly established in California law. We can go back little further than Morgan v. Thrift (1852) 2 Cal. 562 , 563, where the Supreme Court held that a misnomer in the name of an obligee did not invalidate the bond. (Cited with authority in Mazuran v. Finn, supra, 53 Cal.App. at p. 660.) In Clay v. Superior Court (1916) 32 Cal.App. 189 , 193 [ 162 P. 416 ], it was held that surety agreements are not rendered insufficient by a slight variance in the name of the surety. Furthermore, the following misnomers were held not to invalidate agreements or contracts; in Sixth District etc. Assoc. v. Wright (1908) 154 Cal. 119 , 123-127 [ 97 P. 144 ], a deed to “Agricultural District Number Six” passed title to ‘“Agricultural Association.’” In Budd v. Joseph Zukin Blouses, Inc. (1928) 90 Cal.App. 447 , 448-449 [ 265 P. 1038 ], an assignment by “‘S. & B. Knitting Co.’” sufficiently identified “‘S. & B’ Knitting Mills, Inc.’”; and in Borello v. Eichler Homes, Inc. (1963) 221 Cal.App.2d 487 , 492-493 [ 34 Cal.Rptr. 648 ], a lien describing property as “‘Unit 3 and Unit 4, Terra Linda, San Rafael, California’” was a sufficient description of “‘Terra Linda Valley Unit 3 and Unit 4.’”

Applying these principles of interpretation to the facts here, we find the trial court properly determined that “County of Los Angeles Sanitation Districts,” was a sufficient description of respondent “County Sanitation District Number 2 of Los Angeles County.” In any event, all ambiguities disappear when the release bond is viewed in its entirety. The bond contains the following specific provisions: (1) Hydro is named as principal; (2) the reference to a contract with the District for “effluent filters at San Jose Creek”; (3) a stop notice filed by Winick; and (4) Winick’s stop notice claiming $175,000. There is no doubt this release bond identifies respondent.

In summary, Winick’s counsel have not served their client wisely by pursuing this litigation against the District. Counsel have failed to prosecute proper parties, taken the time of the court and opposing counsel on meritless issues, and attempted to reargue these issues on appeal. However, appellant’s conduct reminds us of Simon v. Bemis Bros. Bag Co. (1955) 131 Cal.App.2d 378 , 382 [ 280 P.2d 528 ], where the court in declining to impose sanctions found: “To the impartial mind it is clear that appellant’s counsel, after nursing the facts of his case for three years could believe in it so fervently that he might convince a reviewing court of the injustice he erroneously felt had been done his client.”

Here, Winick and its attorneys have nursed this case for five years. Their views on the issues are questionable and lack support in the record, but they do not seem to be held for an improper purpose.

Motion to impose sanctions for a frivolous appeal is denied.

The judgment is affirmed.

Lillie, P. J., and Johnson, J., concurred.