Stanford Law School - Robert Crown Law Library

Filed 1/23/12

IN THE SUPREME COURT OF CALIFORNIA

STEVE ROSSA et al.,
Plaintiffs and Respondents,
S183523
v.
Ct.App. 1/2 A125567
D.L. FALK CONSTRUCTION, INC.,
San Mateo County
Defendant and Appellant.
Super. Ct. No. CIV442294
____________________________________)

The filing of a notice of appeal does not stay enforcement of a judgment for
the payment of money unless an undertaking is given. (Code Civ. Proc., § 917.1,
subd. (a)(1).)1 The undertaking may be in the form of a bond issued by a surety
and filed in the trial court, promising payment of the judgment if it is affirmed,
plus any interest accruing on the judgment during the pendency of the appeal and
any costs that may be awarded against the appellant. (§ 917.1, subd. (b); see
§§ 995.140, 995.150, 995.190, 995.210, 995.320, 995.340.) Insurance companies
charge a fee or “premium” for a surety bond, and may also require the appellant to
provide collateral for the bond, such as a letter of credit. (Eisenberg et al., Cal.
Practice Guide: Civil Appeals and Writs (The Rutter Group 2010) ¶ 7:113, p. 7-
30.1.) If the appellant prevails, it may recover as costs on appeal “[t]he cost to

1
All further statutory references are to this code unless otherwise noted.
1

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procure a surety bond, including the premium and the cost to obtain a letter of
credit as collateral . . . .” (Cal. Rules of Court, rule 8.278(d)(1)(F), italics added.)2
We address whether rule 8.278’s reference to “the cost to obtain a letter of
credit” extends to the interest expense incurred by an appellant to borrow funds to
secure a letter of credit that was obtained to secure an appeal bond posted to stay
enforcement of a money judgment during the pendency of the appeal. For the
reasons set forth below, we conclude that rule 8.278(d)(1)(F) does not extend to
interest expenses incurred to borrow funds to provide security for a letter of credit.
Therefore, we affirm the judgment of the Court of Appeal.
FACTS
In 2006, a jury awarded plaintiffs Steve and Connie Rossa damages for
breach of contract, and the trial court awarded plaintiffs costs and attorney and
expert witness fees. Defendant D.L. Falk Construction, Inc., appealed the
judgment. Following a partial settlement of the dispute, a judgment in the amount
of $635,000 remained. To stay enforcement of the judgment pending appeal,
defendant filed a bond issued by a surety insurer in the amount of $955,000, or
approximately one and one-half times the judgment. (§ 917.1, subd. (b) [“The
undertaking . . . given by an admitted surety insurer . . . shall be for one and one-
half times the amount of the judgment or order”].) Thereafter, the Court of Appeal
reversed the judgment.
On remand from this first appeal, defendant filed a cost memorandum
seeking $147,814 in appellate costs. The trial court allowed defendant to recover
$17,139 in costs related to preparation of the appellate record and briefs.3 It also

2
All further references to rules are to the California Rules of Court.
3
The trial court allowed defendant to recover filing fees ($755), preparation
of the clerk’s transcript ($875), preparation of the reporter’s transcript ($14,950),
(Footnote continued on next page.)
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allowed defendant to recover sums related to two layers of costs incurred to stay
enforcement of the judgment pending appeal: the premium charges on the appeal
bond of $28,650 and bank fees of $950 for the letter of credit guaranteeing
payment on the bond.4 In sum, including expenses not in dispute here, the court
allowed $46,739 of the $147,814 requested.
At issue is a third layer of costs defendant incurred to stay enforcement of
the judgment. In this case, defendant seeks to recover the interest it paid on the
sums it borrowed to secure the bank’s letter of credit on the bond. We briefly
summarize the pertinent factual premise.
To obtain the bond, the surety required defendant to provide a standby
letter of credit to guarantee payment, if necessary, on the bond.5 Defendant’s bank
agreed to issue a letter of credit in the amount of $954,070. It required defendant
to deposit with the bank $954,070 to secure payment, if necessary, on the bank’s
letter of credit. Defendant deposited this amount by borrowing $483,070 from its
line of credit with the bank, and $471,000 from the personal line of credit that one

(Footnote continued from previous page.)

printing of briefs ($381), expenses of service ($53), and transmission and filing of
record, briefs, and other papers ($125). Amounts have been rounded to the nearest
dollar throughout the opinion.
4
Defendant paid the surety an annual premium equal to 1 percent of the
$955,000 bond. The premium charges on the bond were $28,650 by the time the
bond was discharged. The bank imposed a $900 fee for the letter of credit and two
$25 fees for courier services for a total of $950.
5
A letter of credit is an undertaking by the issuer of the letter to pay or
deliver an item of value to the beneficiary of the letter. (Cal. U. Com. Code,
§ 5102; 4 Witkin, Summary of Cal. Law (10th ed. 2005) Negotiable Instruments,
§ 137, p. 510.) A beneficiary of a “standby” letter of credit “expects the applicant
to pay the beneficiary directly, and makes use of the letter only if the applicant
fails to do so.” (4 Witkin, supra, § 139 at p. 512.)
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of defendant’s principals had with the bank. Pursuant to an agreement between
defendant and the principal, defendant was required to reimburse the principal the
interest paid and expenses incurred in borrowing from his line of credit.
Defendant paid $154,983 in interest on the two credit lines, and earned $55,694 in
interest on the amounts deposited with the bank to secure payment on the letter of
credit, for a net payment by defendant of $99,289 in interest. Defendant also paid
a fee of $1,784 to extend defendant’s line of credit with the bank an additional
month before its appeal bond was discharged. The trial court denied recovery of
the $99,289 in net interest payments and the $1,784 fee. Defendant again
appealed, and the Court of Appeal agreed with the trial court that these two items
were not recoverable as costs.
We granted review to address the scope of rule 8.278(d)(1)(F), which
provides that a party may recover, “if reasonable,” “[t]he cost to procure a surety
bond, including the premium and the cost to obtain a letter of credit as collateral,
unless the trial court determines the bond was unnecessary.” (Italics added.) In
particular, we address whether interest and fees paid to borrow funds to secure a
letter of credit obtained as security for an appeal bond are recoverable as “cost[s]
to obtain a letter of credit as collateral” for a surety bond.
DISCUSSION
“The rules applicable to interpretation of the rules of court are similar to
those governing statutory construction. [Citation.] Under those rules of
construction, our primary objective is to determine the drafters’ intent.
[Citation.]” (Silverbrand v. County of Los Angeles (2009) 46 Cal.4th 106, 125.)
“If the rule’s language is clear and unambiguous, it governs. [Citation.]
Experience teaches, however, that unforeseen ambiguities can and do come to
light despite the drafters’ considered efforts to avoid them. In such cases, courts
may consult appropriate extrinsic sources to clarify the drafters’ intent.
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[Citation.]” (Alan v. American Honda Motor Co., Inc. (2007) 40 Cal.4th 894,
902.)
We begin with language of rule 8.278(d)(1)(F), which provides that a
successful appellant may recover “the cost to obtain a letter of credit as collateral”
for the appeal bond. Defendant relies on dictionary definitions, stating that “Cost
means the ‘amount paid or charged for something; price or expenditures.’
(Black’s Law Dict. 8th ed. 2004 [p. 371].) Expenditure is a ‘sum paid out.’
(Id.[ at p. 617.])” As noted above, the cost charged by the issuing bank for the
letter of credit and courier fees was $950, which the trial court allowed defendant
to recover. Due to the bank’s requirement of security and defendant’s financial
circumstances, defendant also paid additional costs to borrow money to secure the
letter of credit. The interest and fees paid to borrow these sums were not costs
charged for the bank’s letter of credit. Viewing the term “cost” more broadly,
however, the payment of fees and interest on the sum borrowed for the deposit
required by the bank as a condition to obtain the letter of credit can be seen as a
cost defendant incurred to obtain the letter of credit.
In light of this ambiguity in the language, “we may consider a variety of
extrinsic sources in order to identify the interpretation that best effectuates the
[drafters’] intent. [Citation.]” (Beal Bank, SSB v. Arter & Hadden LLP (2007) 42
Cal.4th 503, 508.) As explained below, in the present matter, we undertake to
determine the Judicial Council’s intent when it amended former rule 26 in 1993 to
allow the recovery of “the expense of acquiring a letter of credit.” (Cal. Rules of
Court, former rule 26(c)(6), eff. Jan. 1, 1994.)
Prior to the 1993 amendment, former rule 26(c) provided that “[t]he party
to whom costs are awarded may recover only the following” listed items. (Former
rule 26(c), as amended eff. July 1, 1968, printed at 68 Cal.2d 2.) Included in the
list of recoverable items was “(5) the premium on any surety bond procured by the
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party recovering costs, unless the court to which the remittitur is transmitted
determines that the bond was unnecessary.” (Former rule 26(c), as amended eff.
July 1, 1968, printed at 68 Cal.2d at p. 3.)The breadth of this provision was
addressed in Geldermann, Inc. v. Bruner (1992) 10 Cal.App.4th 640
(Geldermann). The appellant in Geldermann paid a $26,340 premium on his
appeal bond, and $28,676 in charges for a letter of credit to secure the bond. The
appellant urged the Court of Appeal “to construe rule 26(c) broadly, not strictly, to
permit recovery of letter of credit charges as ‘premiums’ on a surety bond.” (Id. at
p. 642.) The Court of Appeal, in an opinion authored by Justice Donald King,
declined, based on rule 26(c)’s allowance of “only” the listed items, and based on
the principle of strict construction historically applied to provisions authorizing the
recovery of costs. (Geldermann, supra, at pp. 642-643.) In response to the
appellant’s contention that the court’s approach ignored “commercial realities,”
the court observed that “appellate costs are not made recoverable by the mere fact
they are reasonable; they are recoverable only as authorized by statute or rule of
court. [Citation.] Commercial realities might convince the Judicial Council to
amend rule 26(c) to permit recovery of charges for letters of credit, but that has not
yet happened.” (Id. at p. 643.)
Thereafter, the Judicial Council’s Appellate Standing Advisory Committee
recommended adding to rule 26(c)’s list of recoverable costs the following: “other
expense reasonably necessary to procure the surety bond, such as the expense of
acquiring a letter of credit required as collateral for the bond.” (Judicial Council
of Cal., App. Standing Advisory Com. Rep. (July 20, 1993) Proposals Previously
Circulated for Comment, etc., pp. 9-10.) The report’s explanation of the rule
proposal states that “Justice Donald King referred us to Geldermann[, supra,] 10
Cal.App.4th 640, which denied recovery, as costs, of the expense of a letter of
credit required in order to obtain the appeal bond. He suggests amending rule 26
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to allow recovery of such expense.” (Id. at p. 3.) The provision was added, and
became effective January 1, 1994. (Judicial Council of Cal., Mins. of Meeting
Nov. 30, 1993, p. 26.) In 2003, when provisions concerning the recovery of costs
were moved to former rule 27(c)(1)(E), the language was revised to allow
recovery of “the cost to procure a surety bond, including the premium and the cost
to obtain a letter of credit as collateral . . . .” (Italics added.) No substantive
change was intended by the modification in the language. (Judicial Council of
Cal., App. Standing Advisory Com. Rep. (Oct. 3, 2002) Revision of Appellate
Rules etc., p. 2; Advisory Com. Com. to former rule 27.) The language italicized
above was retained in 2007 when former rule 27 was renumbered as former rule
8.276(c)(1)(E); in 2008 the language was adopted as rule 8.278(d)(1)(F).
In interpreting this history of the Judicial Council’s actions, defendant
relies on the reference in Geldermann to “[c]ommercial realities [that] might
convince the Judicial Council to amend [former] rule 26(c) to permit recovery of
charges for letters of credit . . . .” (Geldermann, supra, 10 Cal.App.4th at p. 643.)
In defendant’s view, the commercial reality acknowledged in Geldermann is that
appellants generally must borrow funds and incur interest charges in order to
obtain a letter of credit to secure an appeal bond, and that such interest charges on
borrowed funds were among the costs the Judicial Council intended to allow when
it amended former rule 26 to refer to “other expense reasonably necessary to
procure the surety bond, such as the expense of acquiring a letter of credit required
as collateral for the bond.” We disagree, for several reasons.
First, it is not clear to what reasonable recoverable expenses Geldermann
was referring. According to the opinion, the appellant paid a premium on its
appeal bond of $26,340 and a “charge” of $28,676 for a letter of credit to secure
the appeal bond. The opinion’s description of these facts does not suggest that the
“charge” was an interest expense on funds borrowed to secure the letter of credit.
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Geldermann, supra, 10 Cal.App.4th at pp. 641-641.) Defendant acknowledges
that “the court’s opinion is not clear on the point,” but asserts “it is likely that bank
charges of this size were made at least in part for an extension of credit to
purchase the letter of credit and not merely as a letter-of-credit fee. By
comparison, the fee for the letter of credit in this case was $950.”
Although the charge in Geldermann was much greater than the $950 in
charges for the letter of credit in the present matter, this fact does not indicate that
the Judicial Council viewed the charge in Geldermann as attributable to interest
expenses on funds borrowed to secure a letter of credit. Given the rough
equivalence between the amount of the bond premium and the amount of the letter
of credit charge in Geldermann, it is as likely that the charge referenced in the
opinion was viewed by the Judicial Council as something analogous to the
premium charged for a bond. This conclusion follows from a consideration of the
nature of the several obligations at issue.
A surety bond is a “promise[] to answer for the debt, default, or miscarriage
of another . . . .” (Civ. Code, § 2787.) “In suretyship, the risk of loss remains with
the principal, while the surety merely lends its credit so as to guarantee payment or
performance in the event that the principal defaults. [Citation.] In the absence of
default, the surety has no obligation. [Citation.]” (Cates Construction, Inc. v.
Talbot Partners (1999) 21 Cal.4th 28, 38.) Similarly, as noted above, a standby
letter of credit is an undertaking to pay the applicant’s obligation, but only if the
applicant fails to pay the obligation. (Ante, p. 3, fn. 5.) Because these instruments
are promises of payment upon certain contingencies, rather than loans, and
because they are secured, thereby ensuring that there will be adequate recourse in
the event the applicant fails to satisfy its obligations, they are obtained by paying a
relatively modest annual fee. (See Eisenberg et al., Cal. Practice Guide: Civil
Appeals and Writs, supra, ¶¶ 7:113 & 7:114, pp. 7-30.1, 7-30.2.) For example, in
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this case, defendant paid a 1 percent annual premium for its surety bond, and in
Trans World Airlines, Inc. v. Hughes (2d Cir. 1975) 515 F.2d 173, which was
discussed in Geldermann, supra, 10 Cal.App.4th 640, the appellant paid a fee of ½
of 1 percent of the amount of its letter of credit. In contrast, borrowing money to
secure a letter of credit entails an immediate transfer of funds and requires interest
payments calculated at a higher percentage than charged for a secured guaranty of
payment. The difference is illustrated by defendant’s interest expenses, which are
approximately three and one-half times the amount of its bond premium. Thus,
when presented with the scenario in Geldermann, in which the charges for a bond
premium and for letter of credit charges were roughly equal, it would have been
reasonable for the Judicial Council to assume that the letter of credit charges were
in the nature of a premium for the standby letter of credit rather than interest
expenses incurred to borrow funds to secure the letter of credit.
Second, as alluded to earlier, provisions allowing the recovery of costs
historically have been strictly construed. As enacted in 1872, former section 1033
authorized the award of “costs and necessary disbursements” to the prevailing
party. (See also former § 1034 [applying former § 1033’s provisions concerning
the recovery of trial court costs to the recovery of appellate costs].) Despite the
necessity of filing a bond to prevent execution of a money judgment pending
appeal, the court in Christenson v. Cudahy Packing Co. (1927) 84 Cal.App. 237,
held that the premiums paid on a surety bond to stay execution of a money
judgment were not recoverable costs. “[T]he filing of the stay bond was a mere
privilege and not a duty imposed upon the defendant in connection with the
appeal. . . . Furthermore, the appellant was not required to file a surety bond for
this purpose, but might have filed a personal bond for which no premium would
have been required.” (Id. at p. 239.) After section 1034 was amended in 1933 to
allow recovery of “all amounts actually paid out by [the prevailing party] in
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connection with said appeal, and the preparation of the record for the appeal,
including the costs of printing briefs, and the production of additional evidence”
(Stats. 1933, ch. 744, § 193, p. 1902), courts continued to construe the statutory
provisions narrowly. (See Eagle Oil & Refining Co. v. Prentice (1942) 55
Cal.App.2d 161, 162-163 [payment for stenographic services by an appellant
appearing in propria persona was not recoverable as a cost of preparing briefs;
“predicament of defendant does not justify the court in allowing an expenditure
which is not permitted by the statute”].)
The strict approach to the recovery of costs on appeal was retained after the
Legislature empowered the Judicial Council to prescribe rules for appellate
practice.6 Bernard Witkin, the draftsman of the new appellate rules, stated that
newly enacted rule 26(c) “adopts the pattern of Section 1034 . . . .”7 (Witkin, New
California Rules on Appeal (1943-1944) 17 So.Cal. L.Rev. 232, 258.) He
observed that “[i]t is to be expected that a provision such as Rule 26(c) or its
predecessor, which lists and narrowly limits the items, will be criticised on the
ground that it must be strictly construed, and that other legitimate expenses

6
Former section 961 provided that “The Judicial Council shall have the
power to prescribe by rules for the practice and procedure on appeal, and for the
time and manner in which the records on such appeals shall be made up and filed,
in all civil actions and proceedings in all courts of this State.” (Stats. 1941,
ch. 477, § 1, pp. 1785-1786.) Section 1034 currently provides: “The Judicial
Council shall establish by rule allowable costs on appeal and the procedure for
claiming those costs.” (§ 1034, subd. (b).)
7
As adopted in March 1943, former rule 26(c) allowed the prevailing party
on appeal to recover the cost of preparing the record, printing the briefs, and
producing additional evidence. It also authorized recovery of filing and notary
fees, and the expense of serving and filing the record, briefs and other papers.
(Rules on Appeal, adopted by Judicial Council of Cal. Mar. 30, 1943, eff. July 1,
1943, printed at 22 Cal.2d 1, 19.)
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incurred in unusual cases will not be recoverable[.] Some thought was given to
the advisability of adding a catch-all provision, such as ‘any amounts specifically
awarded by the reviewing court,’ or ‘any other expense actually incurred in good
faith in the taking or prosecution of the appeal.’ But it seemed wiser to retain the
present conservative rule than to reward the efforts of ingenious and imaginative
attorneys.” (Id. at pp. 258-259, fns. omitted.) Subsequently, courts have
interpreted the cost rules in accordance with this approach. (See Geldermann,
supra, 10 Cal.App.4th at p. 642.)
Construing rule 8.278(d)(1)(F) to extend to defendant’s interest payments
and fees related to its line of credit would be inconsistent with the historic
principle that cost provisions are to be strictly construed. Neither the language of
the rule nor its history indicates that the universe of items recoverable was being
expanded by the Judicial Council in 1993 to include more remote or indirect costs
of acquiring a letter of credit, such as interest and fees paid on credit lines from
which funds were drawn to secure a letter of credit. Given that interest expenses
may far exceed all other costs (more than tripling the costs in this case), we would
expect a clear expression of an intent to allow the recovery of this item. As the
Court of Appeal observed below, “courts do not lightly presume that substantial
changes occur by ‘misdirection,’ ‘vague terms or ancillary provisions,’ or in a
‘cryptic’ manner. (State Building & Construction Trades Council of California v.
Duncan (2008) 162 Cal.App.4th 289, 323.)” Moreover, interpreting the rule to
reach indirect costs that are not clearly specified in the rule would invite litigation
concerning the myriad ways in which the burden of providing security on appeal
constitutes a “cost” to the appellant. As the court observed in Sequoia Vacuum
Systems v. Stransky (1964) 229 Cal.App.2d 281, “[t]he necessity to set limits is
obvious and dictates a close adherence to the clearly expressed legislative intent
[citations]. For example, the extension [of the right to recover the premium on a
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bond to allow the recovery of interest payments made to borrow funds deposited
in lieu of a bond] would logically permit a party who was not required to borrow
but could deposit his own money, to claim as costs the interest which he might
otherwise be acquiring through investment elsewhere.” (Id. at p. 289.)
Third, even if we were not required to strictly construe cost provisions,
more general principles of statutory construction weigh in favor of construing rule
8.278’s reference to “the cost to obtain a letter of credit” to encompass only the
direct charges imposed in connection with the acquisition of a letter of credit. In
construing this phrase, “we keep in mind that ‘the meaning of the enactment may
not be determined from a single word or sentence; the words must be construed in
context . . . .’ [Citation.] ‘[W]hen a statute contains a list or catalogue of items, a
court should determine the meaning of each by reference to the others, giving
preference to an interpretation that uniformly treats items similar in nature and
scope. [Citations.] In accordance with this principle of construction, a court will
adopt a restrictive meaning of a listed item if acceptance of a more expansive
meaning would make other items in the list unnecessary or redundant, or would
otherwise make the item markedly dissimilar to the other items in the list.
[Citations.]’ ” (Commission on Peace Officer Standards & Training v. Superior
Court (2007) 42 Cal.4th 278, 294.)
Rule 8.278(d)(1)(F) refers to two items — the cost of a surety bond and the
cost of a letter of credit. As explained above, surety bonds and standby letters of
credit are instruments that provide assurance that an obligation will be paid, but
they do not involve a transfer of funds unless the applicant defaults. Due to its
financial situation, an applicant may have to borrow assets to secure payment
before these instruments will be issued, but borrowing funds is distinctly different
from obtaining a bond and a standby letter of credit; a loan is a means to acquire
assets to satisfy the judgment, while a bond and a letter of credit are a means to
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verify that assets are available to pay the judgment. Due to these differences, the
charges for a loan typically will be substantially greater than the charges for a
secured bond or letter of credit. Moreover, interest charges and related fees for a
loan may vary greatly, depending on the creditworthiness of the judgment debtor,
current interest rates, and other terms of the loan, rendering such charges
unpredictable and potentially many times greater in amount than other costs.
If we adopt a restrictive meaning of the reference in rule 8.278(d)(1)(F) to
“the cost to obtain a letter of credit,” interpreting it to encompass only the direct
charges for a letter of credit, the cost will be similar in amount to “the cost to
procure a surety bond,” and similar in character with respect to the service it is
acquiring — verification of assets. If we adopt a more expansive meaning,
interpreting it to encompass interest charges and fees incurred to borrow funds to
secure the letter of credit, that item of cost will be markedly dissimilar to “the cost
to procure a surety bond,” with respect to both the size and nature of the expenses
incurred. Therefore, we adopt the restrictive meaning of “the cost to obtain a letter
of credit,” and reject an interpretation that encompasses interest expenses incurred
in acquiring assets to secure a letter of credit.
In addition to asserting that the plain language and the Judicial Council
history support its interpretation, defendant contends that “economic reality” and
“fairness” favor the recovery of indirect interest expenses. Neither perceptions of
economic reality nor notions of “fairness” authorize us to extend the right to costs
beyond the items allowed by the rule. “In the absence of statutory authorization, it
cannot avail that under the circumstances of a particular case it appears to a court
that a charge is, as [a] matter of fact, fair and reasonable.” (Turner v. East Side
Canal & Irrigation Co. (1918) 177 Cal. 570, 573.) “[T]his is not a matter of
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equity, but a rule which we must construe strictly.” (Geldermann, supra, 10
Cal.App.4th at p. 644.)8
Finally, defendant relies on Cooper v. Westbrook Torrey Hills (2000) 81
Cal.App.4th 1294 (Cooper), in which the court allowed an appellant to recover as
costs the interest expenses incurred on funds the appellant borrowed to deposit as
an undertaking in order to stay foreclosure pending appeal. The court observed
that former rule 26(c)(6) authorized the award of “ ‘expense[s] reasonably
necessary to procure the surety bond,’ ” and that section 995.730 provides that
“ ‘[a] deposit given instead of a bond . . . is treated the same, and is subject to the
same conditions, liability, and statutory provisions . . . as the bond.’ ” (Cooper,
supra, at p. 1298.) The court concluded, “In order to read rule 26(c) consistent
with section 995.730, the reasonable or necessary costs associated with procuring
a deposit in lieu of a bond must be awarded to a prevailing party.” (Id. at p. 1299,
fn. omitted.)
In light of our conclusion that rule 8.278 does not authorize an award of
interest expenses incurred to acquire assets to obtain a bond and letter of credit to
stay enforcement of a judgment pending appeal, it follows that section 995.730
does not authorize an award of interest expenses incurred to acquire assets to
deposit in lieu of a bond. Therefore, we disapprove the holding of Cooper v.
Westbrook Torrey Hills, supra, 81 Cal.App.4th 1294.9 We express no opinion

8
Of course, the Judicial Council may consider whether to extend the right to
recover costs to interest expenses and fees incurred to borrow funds to secure a
letter of credit.
9
In light of our disapproval of Cooper v. Westbrook Torrey Hills, supra, 81
Cal.App.4th 1294, defendant’s contention that it would violate principles of equal
protection to allow interest expenses to be recovered when a deposit is made in
lieu of a bond, but not when a bond is filed, is moot.
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with respect to whether section 995.730, which states that deposits are subject to
the same statutory provisions as bonds, but does not refer to the Rules of Court,
was intended to apply rules concerning bonds to deposits in lieu of bonds,
notwithstanding the fact that the Legislature has delegated to the Judicial Council
the responsibility for “establish[ing] by rule allowable costs on appeal and the
procedure for claiming those costs.” (§ 1034, subd. (b).)
CONCLUSION
We hold that rule 8.278(d)(1)(F) does not authorize an award of costs for
interest expenses and fees incurred to borrow funds to deposit as security for a
letter of credit that was procured to secure an appeal bond, and we affirm the
judgment of the Court of Appeal.
CANTIL-SAKAUYE, C. J.
WE CONCUR:

KENNARD, J.
BAXTER, J.
WERDEGAR, J.
CHIN, J.
CORRIGAN, J.
LIU, J.

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See next page for addresses and telephone numbers for counsel who argued in Supreme Court.

Name of Opinion Rossa v. D. L. Falk Construction, Inc.
__________________________________________________________________________________

Unpublished Opinion

Original Appeal
Original Proceeding
Review Granted XXX 184 Cal.App.4th 438
Rehearing Granted

__________________________________________________________________________________

Opinion No.

S183523
Date Filed: January 23, 2012
__________________________________________________________________________________

Court:

Superior
County: San Mateo
Judge: Marie S. Weiner

__________________________________________________________________________________

Counsel:

Law Offices of Tony J. Tanke and Tony J. Tanke for Defendant and Appellant.

McLennon Law Corporation, Daniel F. McLennon and Marc L. Sherman for Plaintiffs and Respondents.

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Counsel who argued in Supreme Court (not intended for publication with opinion):

Tony J. Tanke
Law Offices of Tony J. Tanke
2050 Lyndell Terrace, Suite 240
Davis, CA 95616
(530) 758-4530

Marc L. Sherman
McLennon Law Corporation
550 California Street, Sacramento Tower, Suite 700
San Francisco, CA 94104
(415) 394-6688

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Petition for review after the Court of Appeal affirmed a post-judgment order in a civil action. This case presents the following issue: Does California Rules of Court, rule 8.278(d)(1)(F), which permits a successful appellant to recover "the cost to obtain a letter of credit as collateral," allow the recovery of interest paid on sums borrowed to fund a letter of credit used to secure a surety bond?

Opinion Information

Date:	Citation:	Docket Number:	Category:	Status:
Mon, 01/23/2012	53 Cal. 4th 387, 266 P.3d 1022, 135 Cal. Rptr. 3d 329	S183523	Review - Civil Appeal	opinion issued

Opinion Authors
Opinion	Chief Justice Tani Cantil-Sakauye

Disposition
Jan 23 2012	Opinion: Affirmed

Dockets
Jun 14 2010	Petition for review filed Defendant and Appellant: D.L. Falk Construction, Inc.Attorney: Tony J. Tanke
Jun 14 2010	Record requested   via email
Jun 14 2010	Request for judicial notice received (pre-grant)   D.L. Falk Construction, appellant by Tony J. Tanke, counsel five additional copies requested from counsel. - received June 17, 2010.
Jun 23 2010	Received Court of Appeal record   one file folder/briefs/one accordian folder
Jul 2 2010	Answer to petition for review filed Plaintiff and Respondent: Rossa, Steve Plaintiff and Respondent: Rossa, ConnieAttorney: Marc L. Sherman
Jul 8 2010	Request for depublication (petition for review pending) Pub/Depublication Requestor: Crook, Robert AsaAttorney: Robert Asa Crook
Jul 13 2010	Reply to answer to petition filed Defendant and Appellant: D.L. Falk Construction, Inc.Attorney: Tony J. Tanke   CRC 8.25(b)
Aug 11 2010	Petition for review granted   George, C.J., was absent and did not participate. Votes: Corrigan, A.C.J., Kennard, Baxter, Werdegar, Chin and Moreno, JJ.
Aug 17 2010	Certification of interested entities or persons filed   by Tony J. Tanke for appellant D.L. Falk Construction
Aug 23 2010	Certification of interested entities or persons filed   by counsel Marc Sherman for Steve Rossa
Sep 8 2010	Request for extension of time filed   Appellant requesting additional 45 days to file Opening Brief on the Merits.
Sep 10 2010	Extension of time granted   On application of appellant and good cause appearing, it is ordered that the time to serve and file the Opening Brief on the Merits is extended to and including October 25, 2010.
Oct 21 2010	Request for extension of time filed   Counsel for appellant requesting additional 15 days to file Opening Brief on the Merits.
Oct 22 2010	Extension of time granted   On application of appellant and good cause appearing, it is ordered that the time to serve and file the opening brief on the merits is extended to and including November 9, 2010.
Nov 10 2010	Opening brief on the merits filed Defendant and Appellant: D.L. Falk Construction, Inc.Attorney: Tony J. Tanke Attorney: William Frederick Gutierrez   CRC 8.25(b)
Nov 24 2010	Request for extension of time filed   Marc Sherman, counsel for respondent, requesting 30 day extension to January 10, 2011 to file answer brief on the merits.
Dec 9 2010	Extension of time granted   On application of respondent and good cause appearing, it is ordered that the time to serve and file the answer brief on the merits is extended to and including January 10, 2011.
Jan 10 2011	Answer brief on the merits filed Plaintiff and Respondent: Rossa, SteveAttorney: Daniel F. McLennon Attorney: Marc L. Sherman Plaintiff and Respondent: Rossa, ConnieAttorney: Marc L. Sherman
Jan 28 2011	Request for extension of time filed   by counsel for appellant requesting a 30-day extension to and including March 2, 2011, to file appellant's reply brief on the merits.
Feb 1 2011	Extension of time granted   On application of appellant and good cause appearing, it is ordered that the time to serve and file the reply brief on the merits is extended to and including March 2, 2011.
Mar 3 2011	Reply brief filed (case fully briefed) Defendant and Appellant: D.L. Falk Construction, Inc.Attorney: Tony J. Tanke Attorney: William Frederick Gutierrez   CRC 8.25(b)
Sep 2 2011	Request for judicial notice granted   The request for judicial notice filed June 14, 2010, is granted.
Oct 4 2011	Case ordered on calendar   to be argued on Tuesday, November 8, 2011 at 9:00 a.m. in San Francisco
Oct 11 2011	Application filed   by Tony J. Tanke, counsel for appellant, requesting continuance of oral argument to February 2012 calendar.
Oct 12 2011	Request for extended media coverage filed   by The California Channel.
Oct 12 2011	Request for extended media coverage granted   The request for extended media coverage filed by The California Channel on October 12, 2011, is hereby granted, subject to the conditions set forth in rule 1.150 of the California Rules of Court.
Oct 12 2011	Oral argument letter sent   Dear Counsel: At oral argument on November 8, 2011, the parties are requested to be prepared to address the following issues: In general, why would a judgment debtor secure a stay of enforcement of the judgment by obtaining a surety bond, a letter of credit, and loans in the amount of the letter of credit, instead of using the borrowed funds alone to stay enforcement of the judgment? (See Code Civ. Proc., ? 995.710.) Would there be additional reasons a judgment debtor might choose to use borrowed funds to secure a letter of credit rather than to stay enforcement of a judgment as allowed by section 995.710?
Oct 18 2011	Order filed   Appellant's application filed October 11, 2011, requesting continuance of oral argument is denied.
Oct 21 2011	Received:   Letter in response to oral argument letter sent October 12, 2011 referring to amicus curiae letter submitted to the court on June 22, 2010 by International Sureties, Ltd. D.L. Falk Construction, Inc., Defendant and Appellant Tony Tanke, Retained counsel
Nov 1 2011	Note: Mail returned (unable to forward)   Oral argument calendar filed 10/19/11 sent to Tony Tanke, counsel for appellant - "Return to Sender, Attempted - Not Known, Unable to Forward"
Nov 8 2011	Cause argued and submitted
Jan 20 2012	Notice of forthcoming opinion posted   To be filed on Monday, January 23, 2012 @ 10 a.m.
Jan 23 2012	Opinion filed: Judgment affirmed in full   We hold that rule 8.278(d)(1)(F) does not authorize an award of costs for interest expenses and fees incurred to borrow funds to deposit as security for a letter of credit that was procured to secure an appeal bond, and we affirm the judgment of the Court of Appeal. Majority Opinion by Cantil-Sakauye, C. J. -- joined by Kennard, Baxter, Werdegar, Chin, Corrigan and Liu, JJ.

Briefs
Nov 10 2010	Opening brief on the merits filed Defendant and Appellant: D.L. Falk Construction, Inc.Attorney: William Frederick Gutierrez Attorney: Tony J. Tanke
Jan 10 2011	Answer brief on the merits filed Plaintiff and Respondent: Rossa, SteveAttorney: Marc L. Sherman Attorney: Daniel F. McLennon Plaintiff and Respondent: Rossa, ConnieAttorney: Marc L. Sherman
Mar 3 2011	Reply brief filed (case fully briefed) Defendant and Appellant: D.L. Falk Construction, Inc.Attorney: William Frederick Gutierrez Attorney: Tony J. Tanke

Brief Downloads
Appellant's Petition for Review.pdf (4538583 bytes) - Filed June 14, 2010
Respondents' Answer to Petition for Review.pdf (2086778 bytes) - Filed July 2, 2010
Appellant's Reply to Answer to Petition for Review.pdf (1329899 bytes) - Filed July 13, 2010
Appellant's Opening Brief on the Merits.pdf (4639815 bytes) - Filed November 10, 2010
Respondents' Answer Brief on the Merits.pdf (4525199 bytes) - Filed January 10, 2011
Appellant's Reply Brief on the Merits.pdf (3133403 bytes) - Filed March 3, 2011

If you'd like to submit a brief document to be included for this opinion, please submit an e-mail to the SCOCAL website

May 25, 2012 Annotated by Alisa Philo

Facts and Procedural Posture: In 2006, plaintiffs, Steven and Connie Rossa, sued D.L. Falk Construction, Inc. for breach of contract. The jury found for the plaintiffs, and awarded them damages. D.L. Falk appealed this judgment. In order to stay the enforcement of the judgment during its appeal, D.L. Falk filed a surety bond for $955,000 as required by the California Code of Civil Procedure § 917.1. The surety bond ensured payment of outstanding damages should the verdict be affirmed. The surety insurers required a letter of credit as collateral, and an annual premium equal to 1 percent of the bond. The annual premium amounted to $28,650. D.L. Falk’s bank issued the letter of credit to the surety insurers. With this letter of credit, the bank guaranteed payment to the issuer of the bond if necessary. To issue the letter of credit, the bank charged D.L. Falk fees totaling $950. In addition, the bank required D.L. Falk to deposit the necessary funds in advance. Defendant deposited the funds with the bank by borrowing on two lines of credit. The net interest on the two credit lines totaled $99,289. There was an additional fee of $1,789 to extend the defendant’s line of credit. After winning its appeal, D.L. Falk filed to recover its costs. The court granted recovery for all of the costs related to the preparation and filing of court documents. The court also granted recovery for the annual premium for the surety bond, and the bank fees for the letter of credit. The court denied recovery for the interest payments that the defendant incurred by borrowing money for the deposit that the bank required for the letter of credit. The Court of Appeal affirmed the trial court’s decision that the net interest on the two lines of credit, along with the fee to extend D.L. Falk’s credit line, was not recoverable. The Supreme Court of California granted review in order to consider whether appellant can recover the interest costs to borrow funds to secure a letter of credit. Issue: Whether California Rules of Court, rule 8.278(d)(1)(F), permits recovery of interest expenses that a successful appellant paid in order to borrow funds to secure a letter of credit to stay the enforcement of a monetary judgment. Holding: Rule 8.278(d)(1)(F)’s language permitting recovery for “the cost to obtain a letter of credit” does not include the interest expenses incurred when borrowing funds to secure that letter of credit. Analysis: The Court’s analysis turns on an interpretation of California Rules of Court, rule 8.278(d)(1)(F), which governs costs on appeal. Since the text is ambiguous, the Court looks to the Judicial Council’s intent. The Text Rule 8.278(d)(1): "A party may recover only the following costs, if reasonable . . . (F) The cost to procure a surety bond, including the premium and the cost to obtain a letter of credit as collateral, unless the trial court determines the bond was unnecessary." Rule 8.278 The Court finds ambiguity in the phrase “the cost to obtain a letter of credit as collateral.” The term “cost” can be defined broadly or narrowly. Understood narrowly, the bank only charged $950 in fees for the letter of credit. More broadly, D.L. Falk could be seen as incurring a cost for borrowing the money that the bank required for a letter of credit. Judicial Council’s Intent The rule’s original formulation allowed for the recovery only of “the premium on any surety bond.” The appellant in Geldermann, Inc, v. Bruner, 12 Cal. Rptr 2d 654 (Cal. Ct. App. 1992), sought recovery for the premium on his appeal bond and for charges to secure a necessary letter of credit. The Court denied recovery for all but the premium payments. Consequently, the Judicial Council amended the rule in 1993 to allow for the recovery of “other expenses reasonably necessary to procure the surety bond, such as the expense of acquiring a letter of credit required as collateral for the bond.” This language was amended to the present formulation in Rule 8.278(d)(1)(F), but no substantive change was intended. The Court disagrees with D.L. Falk’s assertion that the amendment was meant to encompass appellants’ costs in borrowing funds in order to secure a letter of credit. First, the Court finds it reasonable to believe that the Judicial Council anticipated expenses for a letter of credit similar to the premium charges for a surety bond. Interest payments, in contrast, are much more expensive. Given the much greater expense of interest payments, the Court expected a clearer statement regarding their inclusion. Second, the Court continues a historic trend in strictly construing provisions allowing for the recovery of costs. The draftsman of the appellate rules, Bernard Witkin, noted the underlying policy rationale: "It is to be expected that a provision . . . which lists and narrowly limits the items, will be criticized on the ground that it must be strictly construed, and that other legitimate expenses incurred in unusual cases will not be recoverable[.] Some thought was given to the advisability of adding a catch-all provision . . . But it seemed wiser to retain the present conservative rule than to reward the efforts of ingenious and imaginative attorneys." To interpret “cost” loosely would be to “invite litigation concerning the myriad ways in which the burden of providing security on appeal constitutes a ‘cost’ to the appellant.” The Court refuses this expansion of the rule. Third, general principles of statutory interpretation support the restriction of costs to those an appellant directly incurs when obtaining a letter of credit. The rule lists both the cost of a surety bond and the cost of a letter of credit, which must be interpreted uniformly. The purpose of the bond and the letter of credit is “to verify that assets are available to pay the judgment.” A loan, in contrast, is meant “to acquire assets to satisfy the judgment.” The interest charges for the loan will be “substantially greater than the charges for a secured bond or letter of credit,” and will vary much more widely. The Court interprets the cost of a letter of credit to encompass only the direct charges so that the provision parallels the cost to procure a surety bond. Costs associated with a loan fall outside of this interpretation. The Court expressly disapproves of the holding in Cooper v. Westbrook Torrey Hills, 87 Cal. Rptr. 2d 742 (Cal. Ct. App. 2000). The appellant in Cooper had stayed judgment pending appeal by depositing funds with the court rather than a bond under California Code of Civil Procedure § 995.730. He had borrowed money to do so, and incurred interest expenses that the court allowed him to recover. The Rossa Court holds that since an appellant cannot recover interest expenses when obtaining a letter of credit for a bond, an appellant cannot recover interest expenses when obtaining funds for a deposit. Key Cited Cases: Cooper v. Westbrook Torrey Hills, 97 Cal. Rptr. 2d 742 (Cal. Ct. App. 2000). Geldermann Inc. v. Bruner, 12 Cal. Rptr. 2d 654 (Cal. Ct. App. 1992). Christenson v. Cudahy Packing Co., 257 P. 906 (Cal. Dist. Ct. App. 1927). Tags: Surety, Surety Bond, Letter of Credit, Recovery of Costs, Appeal Costs, Stay of Enforcement, Interpretation of Rules, California Rules of Court Rule 8.278(d)(1)(F), California Code of Civil Procedure Section 917.1, California Code of Civil Procedure Section 995.730 Annotated by Alisa Philo