FILED

NOT FOR PUBLICATION

JUN 02 2017

UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK

U.S. COURT OF APPEALS

FOR THE NINTH CIRCUIT

NACIMIENTO WATER COMPANY, No. 15-56323

INC.,

D.C. No. 2:13-cv-07959-DDP-MRW Plaintiff-counter-defendant- cross-defendant - Appellant,

MEMORANDUM*

v.

INTERNATIONAL FIDELITY

INSURANCE COMPANY,

A New Jersey Corporation,

Defendant-counter-claimant- cross-claimant - Appellee.

NACIMIENTO WATER COMPANY, No. 16-55311

INC.,

D.C. No. 2:13-cv-07959-DDP-MRW Plaintiff-counter-defendant- cross-defendant - Appellee,

v.

INTERNATIONAL FIDELITY

INSURANCE COMPANY,

A New Jersey Corporation,

Defendant-counter-claimant- cross-claimant - Appellant.

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. Appeal from the United States District Court for the Central District of California Dean D. Pregerson, District Judge, Presiding

Argued and Submitted April 6, 2017 Pasadena, California

Before: PLAGER,** CLIFTON, and OWENS, Circuit Judges.

Plaintiff Nacimiento Water Company, Inc. appeals the district court’s order

granting summary judgment in favor of Defendant International Fidelity Insurance

Company (IFIC) as to Nacimiento’s claim for indemnification under a surety bond.

We have jurisdiction pursuant to 28 U.S.C. § 1291. We vacate and remand.

The district court concluded that Nacimiento’s claim was barred as a matter

of law by Cal. Civ. Proc. Code § 359.5. This statute provides:

If the obligations under a surety bond are conditioned upon performance of the principal, the expiration of the statute of limitations with respect to the obligations of the principal, other than the obligations of the principal under the bond, shall also bar an action against the principal or surety under the bond, unless the terms of the bond provide otherwise.

** The Honorable S. Jay Plager, United States Circuit Judge for the Federal Circuit, sitting by designation. 2 Cal. Civ. Proc. Code § 359.5. This statute bars a claim against the surety under the

bond if the claim is brought after the limitations period for a claim as to the

principal’s underlying obligation has expired.

Notably, the actual purpose of Cal. Civ. Proc. Code § 359.5 is to protect the

principal to a surety bond from extended exposure to liability based on a longer

statute of limitations for an action against the surety. As the California State

Legislature noted in passing the bill that was eventually codified as Cal. Civ. Proc.

Code § 359.5:

To allow an action against the surety after any action against the principal is barred in effect eliminates the protection of the statute of limitations for the principal. If a judgment is obtained against the surety, the surety may move against the principal for reimbursement of the damages paid. Further, when a suit is brought against the surety, it involves the principal, his or her employees, and records as part of the litigation.

File of Governor’s Office on A.B. No. 2134 (1981-82 Reg. Sess.); see also Legis.

Counsel’s Dig., A.B. No. 2134 (1981-1982 Reg. Sess.). The purpose of the statute

also explains why Cal. Civ. Proc. Code § 359.5 requires that any tolling of the

statute of limitations with respect to a claim against the surety must be provided for

in the bond itself. This ensures that the principal, as a party to the surety bond, had

agreed to an extension of the limitations period.

3 Nacimiento argues that IFIC waived this statutory defense when it entered

into a mutual tolling agreement with Nacimiento. In response, IFIC contends that

it could not have waived the statutory defense intended to protect the Kings (the

principals) unless it obtained the Kings’ consent. It is undisputed that the Kings

were not a party to the mutual tolling agreement.

Tolling agreements are treated as contracts. See,e.g., Saavedra v. Donova,

700 F.2d 496, 498 (9th Cir. 1983). Under California law, “[a] contract must

receive such an interpretation as will make it lawful, operative, definite,

reasonable, and capable of being carried into effect, if it can be done without

violating the intention of the parties.” Cal. Civ. Code § 1643.

There is a triable issue as to whether the tolling agreement was intended to

extend the limitations period for a claim by Nacimiento against IFIC even though

IFIC could not later collect from the Kings, due to their financial circumstances or

otherwise. If this was the understanding of the parties in entering into the mutual

tolling agreement, then it could be accomplished by recognizing the tolling

agreement as including a waiver by IFIC of the protection that might otherwise be

provided to IFIC under Cal. Civ. Proc. Code § 359.5. This issue of fact precludes

summary judgment in IFIC’s favor.

4 Our disposition of the district court’s order denying summary judgment

moots IFIC’s cross-appeal pertaining to the district court’s denial of its motion for

attorney’s fees.

Costs are to be taxed against IFIC in favor of Nacimiento.

VACATED AND REMANDED.

5

FILED

Nacimiento Water Co., Inc. v. Int’l Fidelity Ins. Co., Nos. 15-56323+

JUN 02 2017

OWENS, Circuit Judge, dissenting: MOLLY C. DWYER, CLERK

U.S. COURT OF APPEALS

I agree with the district court, so I respectfully dissent.