An Exercise In Drawing Bright Lines
Home seller Reagan Silber sought indemnification from subcontractors after rather decisively losing an arbitration with a home buyer, who discovered extensive and undisclosed water intrusion in the Bel Air home. “The groundskeeper recalled that, on one occasion, Silber had joked to him that the house was worth over $20 million, but had to be ‘covered with plastic’ every time it rained.” However, the subcontractors successfully demurred to Mr. Silber’s indemnification claim, “arguing the arbitrator’s finding that Silber had deceived the purchaser barred any subsequent claim for indemnification.” Basically, the subcontractors argued that the arbitrator’s findings meant that Silber’s damages were his own bloody fault.
Given that the arbitrator awarded approximately $2.65 million in compensatory damages, $1.25 million in attorneys fees, and $850,000 in punitive damages, it is not surprising that Mr. Silber appealed. Silber v. Hanover Builders, Case No. B246975 (2nd Dist. Div. 7 May 12, 2014) (Zelon, Woods, Segal) (unpublished). And it was wise of him to do so (though obviously Mr. Silber did not seek indemnification for the punitive damages award).
The outcome hinges on the Court of Appeal’s analysis and conclusion that neither res judicata (claim preclusion) nor collateral estoppel (issue preclusion) barred Silber’s indemnification claim against third-party subcontractors.
Vandenberg v. Superior Court, 21 Cal.4th 815, 834 (1999) “established a bright-line rule that ‘a private arbitration award, even if judicially confirmed, can have no collateral estoppel effect in favor of third persons unless the arbitral parties agreed, in the particular case, that such a consequence should apply.’” Here, as there was no such private agreement among the arbitral parties, there could be no collateral estoppel effect.
Nor could there be claims preclusion, for the simple reason that the arbitration, based on deceit claims, and the indemnification action, arising from the subcontractors’ alleged failure to complete repairs they were hired to perform, did not involve the same “primary rights”, and hence did not involve the same cause of action. In the case of the arbitration, the buyer’s “primary right” was to be free from the injury caused by deception, whereas in the lawsuit against subcontractors, Silber’s “primary right” was the right to be free from harm caused by a subcontractor’s inadequate performance.